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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended December 31, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _______________ to ______________
Commission file number 1-12897
PROVIDIAN FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 94-2933952
__________________ _____________________________
(State of incorporation) (I.R.S. Employer 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
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
Title of each class Name of each exchange on which registered
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<S> <C>
Common Stock, $.01 par value New York Stock Exchange
Pacific Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No__
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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As of March 16, 1998, 95,151,043 shares of the registrant's Common Stock were
outstanding, and the aggregate market value of the Common Stock held by non-
affiliates of the registrant was $5,561,826,663, calculated by reference to the
closing price of the registrant's Common Stock as reported on the New York Stock
Exchange. For purposes of such calculation, shares owned by directors and
executive officers of the Registrant have been treated as owned by affiliates of
the Registrant, although such treatment is not an admission of affiliate status
of any such person.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report for the year ended December 31, 1997,
are incorporated by reference into Parts II and IV of this Report. Portions of
the Registrant's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on May 6, 1998 (to be filed pursuant to Regulation 14A)
are incorporated by reference into Part III of this Report.
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PROVIDIAN FINANCIAL CORPORATION
1997 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
ITEM 1 Business.............................................................
ITEM 2 Properties...........................................................
ITEM 3 Legal Proceedings....................................................
ITEM 4 Submission of Matters to a Vote of Security Holders..................
PART II
ITEM 5 Market for Registrant's Common Equity and Related Stockholder
Matters.........................................................
ITEM 6 Selected Financial Data..............................................
ITEM 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations...........................................
ITEM 7A Quantitative and Qualitative Disclosures about Market Risk...........
ITEM 8 Financial Statements and Supplementary Data..........................
ITEM 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................
PART III
ITEM 10 Directors and Executive Officers of the Registrant...................
ITEM 11 Executive Compensation...............................................
ITEM 12 Security Ownership of Certain Beneficial Owners and Management.......
ITEM 13 Certain Relationships and Related Transactions.......................
PART IV
ITEM 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.......
Signatures......................................................................
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PART I
ITEM 1. BUSINESS
GENERAL
Providian Financial Corporation ("Providian Financial" or the "Company"),
based in San Francisco, California, was incorporated in Delaware in 1984 under
the name "First Deposit Corporation." The name of the Company was changed from
First Deposit Corporation to Providian Bancorp, Inc. in 1994 and to Providian
Financial Corporation in 1997. Prior to June 10, 1997, the Company conducted
its operations as a wholly-owned subsidiary of Providian Corporation. On that
date, Providian Corporation distributed all of the then outstanding common stock
of the Company to the stockholders of Providian Corporation in a spinoff of the
Company (the "Spinoff"). The Company is listed on the New York Stock Exchange
and the Pacific Exchange under the symbol PVN.
Providian Financial is a diversified consumer lender, offering a range of
lending products, including unsecured credit cards, revolving lines of credit,
home loans, secured and partially secured credit cards, and fee-based products.
Through these products and services, the Company seeks to achieve diversified
earnings sources, with both spread-based and fee-based income from loans and
related products and services. The Company also offers deposit products to
customers nationwide.
The Company develops its customer relationships primarily through direct
mail and telephone. The Company uses a customer focused, market driven business
approach that emphasizes market selection, customer targeting, customer
acquisition and profitability management. This approach, which the Company
refers to as an "engineering approach," is technology and information intensive,
and analyzes the extensive data collected from Company operations and test
programs to identify and respond to consumer needs based on actual behavior in
the marketplace. Utilizing this engineering approach, the Company has evolved
from a one-market, one-product company in 1985, when it introduced its first
product, to a multi-market, multi-product provider of consumer financial
services.
The Company conducts its business through its wholly owned financial
institution subsidiaries and other wholly owned subsidiaries. Each of these
entities performs a particular role in support of the business, depending in
part on the powers it is granted from its chartering regulator or state of
incorporation. To the extent legally permissible, however, the Company's various
business areas are operated in a consolidated manner among the different legal
entities. The Company's lending activities are currently conducted through
Providian National Bank(1) ("PNB"), Providian Bank ("PB") and Providian Credit
Corporation ("PCC"). FDIC-insured deposits are accepted by PNB and PB. A variety
of servicing activities are performed in support of PNB, PB and PCC by Providian
Bancorp Services ("PBS"), another wholly owned subsidiary of the Company.
BUSINESS STRATEGY
Providian Financial seeks to rapidly build shareholder value by generating
profitable growth in its core markets, building competitive advantage by using
proprietary marketing and profitability management approaches, and making
acquisitions on an opportunistic basis. The Company's focus is on increasing
the profitability and persistency of each customer relationship as well as the
number of customer relationships and the number of markets served.
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(1) Providian National Bank is the surviving entity in the merger, consummated
on January 1, 1998, of the former Providian National Bank, then a subsidiary
of the Company, into First Deposit National Bank. Immediately following the
merger, First Deposit National Bank changed its name to Providian National
Bank.
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The Company's customer and product strategy is centered on the
development of "universal" offers that are designed to appeal to a broad range
of consumers within its target markets, utilizing specific terms that can be
customized at the time of sale to meet individual borrowing needs. Drawing upon
its proprietary databases and analytical techniques, the Company has developed
targeting and credit models which are used to identify qualified consumers.
When a consumer responds to an offer, the Company uses internally developed
technology to customize credit lines, rates and terms in a manner designed to
meet the consumer's needs. The goal is to meet as many of these needs as
possible, within the Company's risk parameters, in order to become the
consumer's "primary lender." Following account origination, the Company monitors
account performance on an individual and portfolio basis and utilizes a variety
of customer management tools in order to build long-term relationships with
customers while controlling portfolio risk and achieving targeted returns.
The Company has invested significant resources to the development
of four key capabilities that are central to its customer and product approach:
(i) market selection (segmenting consumer markets to identify as potential
customers those individuals whose needs are underserved and who meet the
Company's risk and profitability goals); (ii) customer targeting (attracting
customers through focused marketing and sales strategies and distribution
systems tailored to their needs); (iii) customer acquisition (efficiently
providing customized products and services that respond to consumer needs so as
to foster long-term, profitable customer relationships); and (iv) profitability
management (balancing of risk and return in order to achieve targeted profits,
with investment focused in the areas that management views as having the highest
value, including the continuous improvement of operations).
The Company seeks to utilize its targeting and database management
capabilities to generate business and customer leads. The Company then combines
pricing, credit and collections into one integrated strategy as a means of
controlling risk and seeking high margins and returns. Pricing decisions are
based on an analysis of risk, as well as on competitive factors and customer
price sensitivity. Credit decisions are based on the Company's credit philosophy
and its experience in managing credit risk. Collections efforts focus on the
action or inaction of the customer ("event driven"), rather than on the passage
of time ("time driven"). A separate asset recovery group focuses on closed
accounts where recovery of amounts due is the principal objective.
PRODUCTS AND SERVICES
Unsecured Spread Products
Providian Financial (through its subsidiaries) originates, maintains and
services unsecured consumer loans ("Unsecured Spread Products") generated
primarily through Visa and MasterCard credit cards. The Company (through its
lending subsidiaries) ranks among the fifteen largest issuers of bank credit
cards in the United States, and also has a portfolio of unsecured revolving
line of credit loans accessed by checks rather than credit cards. At December
31, 1997, the Company had $8.0 billion of managed loans outstanding in its
Unsecured Spread Products portfolio (of which $1.9 billion were on-balance
sheet). The Company markets its Unsecured Spread Products to consumers
nationwide, primarily through the direct mail and telemarketing channels.
The credit process for Unsecured Spread Products begins with a
"prescreening" review which identifies creditworthy consumers who are likely to
be eligible for an account. These c onsumers generally receive direct mail
solicitations or solicitations by telephone. Applications are reviewed against
criteria established by the applicable subsidiary bank's loan committee. Pricing
and credit limits are established on an individualized basis, based on the
customer's risk profile and the customer's loan feature preferences and price
sensitivity. In this manner, the Company seeks to configure a set of terms that
meets the customer's needs as well as its own risk/return parameters. Payment
performance and risk profiles of accountholders are continually monitored, and
the Company may adjust the benefits and pricing on the accounts as the
relationship evolves.
Under the Company's "primary lender" strategy, the Company seeks to
identify customers who prefer to revolve balances. Creditworthy customers are
offered high credit lines where appropriate to meet their borrowing needs,
consistent with the Company's risk parameters. The Company offers unsecured
loan products having both fixed and variable rates. Introductory rates, which
may be as low as 0%, may be offered for an initial courtesy period, and the
Company may offer customers rewards for opening and/or using a credit card
account. Most accounts include performance-based pricing terms pursuant to which
the rates will increase automatically in the event the customer fails to comply
with certain terms of the account agreement. The Company typically charges late
payment fees, returned check fees and overlimit fees, and may charge other fees
it considers appropriate. Each accountholder enters into an agreement governing
the terms and conditions of the account. The Company reserves the right to
change
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or terminate any terms, conditions, services or features of the account
(including increasing or decreasing periodic finance charges, other charges or
minimum payments). Credit limits are adjusted periodically based upon the
Company's continuing evaluation of an accountholder's credit behavior.
In an effort to minimize credit losses on existing accounts, the Company
periodically updates the credit profiles of its customers. This update allows
the Company to reassess the probability of default and more actively manage
higher risk accounts. Current collection practices are characterized by quick
intervention when payments become overdue, automated calling systems designed to
improve efficiency in contacting customers, and close monitoring of
delinquencies and credit losses.
Current collections policy consists primarily of the following: (i)
statements are sent monthly and accountholders have approximately 30 days after
the statement date to remit payments before an account is considered past due;
(ii) risk assessment and segmentation models are used to determine when to
contact accountholders by telephone after an account balance becomes past due,
with an emphasis on early intervention for those accounts with the highest risk;
(iii) arrangements may be made with accountholders to extend or change payment
schedules; (iv) collection efforts are event-driven and, thus, accounts are
escalated to more experienced collectors, suspended, closed, and/or referred for
legal collection based on customer behavior rather than on the passage of time;
and (v) legally permissible collections activities continue after an account is
charged off.
The Company's policy is to charge off the principal balance of delinquent
accounts no more than 180 days after the delinquency occurs, unless the
accountholder cures the default by making a partial payment which qualifies
under the Company's standards. Related interest and fee charges are written off
as a reversal of current earnings. Account balances for deceased accountholders
are written off upon determination of collectibility (generally, upon
verification of no estate). Account balances for bankrupt accountholders are
written off upon determination of post-bankruptcy collectibility (generally,
upon appropriate verification).
On January 30, 1998, PNB purchased a portfolio of unsecured credit card
receivables from First Union Direct Bank, N.A. consisting of 549,000 accounts,
including 323,000 active accounts, for a purchase price of $959 million (subject
to certain post-closing adjustments). Other portfolios of unsecured consumer
loans may be purchased by the Company from time to time.
Home Loan Products
The Company's home loan products ("Home Loan Products") consist primarily
of home equity lines of credit, which are offered to targeted individuals in 26
states through direct mail and telemarketing. At December 31, 1997, the Company
had $1,063 million of managed home loans outstanding (of which $563 million were
on-balance sheet).
The Company's strategy for Home Loan Products is to target homeowners
with significant debt, and to offer them a home equity line of credit for debt
consolidation and cost savings through a lower interest rate and tax advantages.
By taking a security interest in the customer's home, the Company can offer an
attractive opportunity to customers who might otherwise be unable to achieve
debt consolidation, while managing risk in a manner the Company considers
prudent. Many of the skills employed to execute this strategy for Home Loan
Products were originally developed for Unsecured Spread Products. These skills,
including database marketing, customer targeting and risk management, have been
adapted by the Company specifically for home equity lending.
In executing its Home Loan Product strategy, the Company focuses on the
following principles: (i) evaluating the borrower's credit history in addition
to the value of the real estate which secures the loan; (ii) marketing through
direct mail, which allows both customer and regional selectivity and allows the
Company to react quickly to local economic and real estate market changes; (iii)
utilizing a two-step process of lead
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generation and lead conversion with a universal offer and customization at the
back end; and (iv) establishing primary lender relationships by successfully
targeting borrowers and consolidating debt.
The Company offers home equity lines of credit with higher loan-to-value
ratios, which may exceed 100%, when the Company considers it warranted based on
the customer's credit quality and other factors. Home equity lines of credit
are currently structured as 15-year loans, with a 10-year revolving period
followed by a five-year amortization. Interest rates on the Company's home
equity lines of credit are generally variable and are indexed to the prime rate.
Credit lines, loan-to-value ratios and interest rates (the spread above the
prime rate) are determined by collateral and credit quality levels. For certain
customers, the Company has also offered fixed rate, amortizing mortgage loans,
primarily as a part of its customer retention strategy. However, the Company
may offer increased numbers of fixed rate, amortizing mortgage loans in the
future.
The Company uses proprietary models to prescreen and target individuals
whom it considers to be creditworthy and to be candidates for debt
consolidation. Using proprietary underwriting criteria, the Company segments
responding individuals based on credit risk, collateral value and market risk.
To ensure that it is appropriately compensated for the risks incurred, the
Company uses a risk-based pricing strategy that is a function of borrower risk
and collateral risk. Within these parameters, each customer's loan is tailored
to meet that customer's individual needs.
By using direct marketing rather than a branch-based distribution system,
the Company seeks to avoid high overhead costs and maintain the flexibility to
easily enter and exit geographic markets. This flexibility is another key tool
in the Company's overall risk management strategy. Credit bureau prescreening
is the primary source for lead generation. Leads have also been obtained on a
selected basis from other channels, such as telemarketing, mortgage brokers and
Unsecured Spread Product customers, and through the purchase of vertical lists
of new homeowners.
Collection efforts for Home Loan Products are internally managed, from
the initial contacts with the borrower to the time that an account is referred
to outside counsel for foreclosure when appropriate.
Unbanked Products
The Company's unbanked products ("Unbanked Products") are designed to
serve a population that the Company believes has been, and continues to be,
largely underserved by traditional financial institutions. This population
consists of individuals who have limited access to credit and are unable to
qualify for traditional credit cards due primarily to a lack of credit history
or past credit problems. Unbanked Products offer these consumers access to the
credit card payment system and an opportunity to establish or reestablish
their credit standing.
Historically, the Company's principal Unbanked Product has been a credit
card secured or partially secured by a savings deposit. Under this program,
the customer opens an interest-bearing, FDIC-insured savings account and makes
an initial deposit. The customer grants the Company a security interest in the
savings account in order to protect the Company against losses on the
customer's credit card account. The amount required to be deposited into the
savings account may be less than the customer's credit limit and the portion
of the account collateralized by the savings account may change over time as
the customer's credit limit changes. More recently, the Company has offered an
unsecured credit card to certain segments of the Unbanked population. These
cards have processing and annual membership fees and lower credit lines than
are generally available with Unsecured Spread Product credit cards.
The interest rate on the Unbanked credit card accounts is generally a fixed
rate, which may be subject to increase if the customer fails to comply with
the terms of the account agreement. For secured and partially secured credit
cards, the savings account yield is tiered, based on the balance of the
deposit. At December 31, 1997, the Company had over one million credit card
accounts in its Unbanked Product line, with $858 million of credit card
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receivables outstanding. The Company (through its lending subsidiaries) is the
largest issuer of secured credit cards in the United States, based on
published surveys.
The Company's strategy for Unbanked Products is based, in part, on its
attitude toward, and treatment of, customers in this population. The Company
believes that these customers have traditionally been treated by others as
undesirable or have been offered secured credit solely as a counteroffer when
the applicant fails to qualify for unsecured credit. In contrast, the Company
proactively seeks to build relationships with customers in this market and
targets them with solicitations for its products and services. Through its
proprietary targeting and credit risk models, the Company has been able to
identify segments of the customer population that it believes will have
significantly lower default rates than the average of the Unbanked population,
allowing the Company to offer a prudent mix of secured and unsecured credit
and other product features designed to meet the customer's needs consistent
with the Company's profitability and risk guidelines. The Company believes
that designing different product offers for different customer segments has
increased the response and acceptance rates for its Unbanked Products. Account
performance is monitored, and product features (including pricing and the
amount of unsecured credit granted) may be adjusted after account opening in
order to strengthen the customer relationship and increase account
profitability over time.
In the collections area, activity is focused on those accounts where the
balance exceeds the Company's security interest. Accounts which represent
little or no principal loss risk to the Company are still collected, but with
less labor intensive and more cost effective methods. This approach is
consistent with the Company's strategy of focusing on those segments that the
Company believes will yield the greatest financial impact.
Fee-Based Products
Providian Financial has developed a number of fee-based products ("Fee-
Based Products") which are marketed primarily to its consumer loan customers.
The current product portfolio is focused on broad themes: home, health, credit
and auto.
Applying the engineering approach, the Company assembles various services
sourced internally or through third-party vendors, and distributes the bundled
products to customers. Currently marketed Fee-Based Products include Providian
Health Advantage, DrivePro, Credit Protection, PricePro and Home Protection.(1)
Providian Health Advantage offers prescription and other health-related
discounts and referrals; DrivePro offers emergency towing service, auto
maintenance discounts and other auto- and travel-related benefits; Credit
Protection offers deferral of loan payments in case of unemployment, disability
or hospitalization; PricePro offers shopping-related discounts; and Home
Protection offers benefits similar to Credit Protection or, for certain
customers, a standby line of credit to assist with rent or mortgage payments in
case of unemployment, disability or hospitalization and home-related product
discounts. Fee-Based Products often have a choice of benefit levels and are
priced according to the chosen benefit level.
Geographic Diversity
The Company's loan portfolios are geographically diversified. The
distribution of outstanding Unsecured Spread Product and Unbanked Product
credit card balances among the states generally reflects their relative shares
of the United States population, with no significant regional concentration of
credit risk. The Home Loan Products portfolio is geographically diversified
among the metropolitan areas in which the Company offers its Home Loan Products.
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(1) DrivePro, PricePro and Home Protection are registered service marks of
Providian Financial. Providian Health Advantage is a service mark of
Providian Financial for which federal registration is pending.
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Competition
The Company faces intense and increasing competition from other consumer
lenders. In particular, the Company's credit card business competes with
national, regional and local bank card issuers, and with other general purpose
credit card issuers. The Company also competes, to a lesser extent, with
issuers of single purpose cards, such as department stores and oil companies.
New issuers have entered the market in recent years. Large credit card issuers
may compete with the Company for customers by offering lower interest rates and
fees. In addition, competitors are continually introducing new tactics to
attract customers and increase their market share. The most heavily used
techniques are advertising, target marketing, balance transfers, price
competition, incentive programs and co-branding (for example, using the name of
a sports team or a professional association on their credit cards). In response
to competition, issuers of credit cards have lowered interest rates and offered
incentives to retain existing customers and attract new ones.
The Company also faces intense competition with respect to its Home Loan
Products. More competitors are now employing direct marketing programs to
attract home equity borrowers. These competing programs include some that are
similar to the programs and strategies that the Company has used to attract new
home equity accounts and encourage borrowings on these accounts. Competition
for customers in the Unbanked population has increased recently as additional
lenders have been attracted to this market opportunity.
In addition to competition for customers, the Company faces competition
when it seeks to obtain funds to use in its business. This competition comes
from banks, savings institutions, money market funds, credit unions and a wide
variety of other entities that take deposits, sell debt securities or sell
securities backed by assets such as receivables.
FUNDING AND LIQUIDITY
Through its banking subsidiaries, the Company offers deposit products
directly to its retail customer base. These deposit products include money
market deposit accounts and certificates of deposit ("CDs") ranging in term from
three months to five years. The Company markets its retail deposits primarily by
submitting its offered rates to national surveys and by providing toll-free
numbers for potential and existing customers to obtain rate quotes. The Company
also maintains relationships with national broker-dealer networks which offer
retail CDs to their customers under master CD structures. In addition, the
Company's banking subsidiaries offer directly-placed and broker-placed wholesale
CDs and negotiable CDs. Additional funding sources for the Company's
subsidiaries include term federal funds, uncommitted overnight federal funds
lines and a committed revolving credit facility (currently $1.2 billion). The
Company has also obtained funding through the issuance of mandatorily redeemable
capital securities and is a party to several short-term credit facilities
totaling $275 million. In March 1998, PNB issued $200 million of five-year 6.70%
senior bank notes under a recently launched program pursuant to which PNB can
issue short- and medium-term fixed and variable rate notes.
The Company obtains a significant portion of its funding through asset
securitizations. A securitization generally involves the transfer by the
Company of the receivables generated by a pool of accounts to a trust or other
special purpose entity created for the securitization. Certificates issued by
that entity represent undivided ownership interests in the pool of transferred
receivables. The securitization results in the removal of the receivables from
the Company's books for financial and regulatory accounting purposes. For tax
purposes, the investor certificates are characterized as collaterized debt
financing of the Company. The primary objectives of the Company's
securitization activities are to diversify its funding sources and obtain an
efficient all-in cost of funds, including the cost of capital. For a discussion
of the Company's securitization program, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
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ORGANIZATIONAL STRUCTURE
Providian Financial operates principally through four wholly owned
subsidiaries, each of which is described below.
Providian National Bank. PNB, headquartered in Tilton, New Hampshire, is a
national banking association organized under the laws of the United States.
PNB, originally organized as a state bank in 1853, converted to a national
charter in 1865. PNB changed its name from First Deposit National Bank ("FDNB")
on January 1, 1998, when the former Providian National Bank, then a national
bank affiliate of FDNB, merged with and into FDNB.
Providian Bank. PB, headquartered in Salt Lake City, Utah, is an
industrial loan corporation organized under the laws of Utah. PB became a
member of the FDIC in April 1996 and has the authority to take federally
insured deposits.
Providian Credit Corporation. PCC, headquartered in San Francisco,
California, was established in 1994. PCC is a finance company which has
purchased and currently holds a portfolio of consumer loan receivables
originated by PNB. In addition, PCC originates home loans in Florida.
Providian Bancorp Services. PBS, headquartered in San Francisco,
California, provides legal and human resources support, accounting and finance
services, data processing, loan and deposit processing, credit card account
opening, customer service, collections, and related services for PNB, PB and PCC
on a cost reimbursement basis.
EMPLOYEES
As of December 31, 1997, Providian Financial (consolidated with its
subsidiaries) had 4,016 employees and a total workforce (including temporaries
and contractors) of 4,357.
REGULATORY MATTERS
As a national bank, PNB is primarily regulated by the Comptroller of the
Currency (the "Comptroller"). The deposits of PNB are insured by the Bank
Insurance Fund (the "BIF") of the Federal Deposit Insurance Corporation (the
"FDIC") to the extent allowed by law, and, accordingly, PNB is subject to
assessment for deposit insurance premiums and is subject to certain regulations
of the FDIC. As a member of the Federal Reserve System, PNB is also subject to
regulation by the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board").
As a Utah industrial loan corporation that is not a member of the Federal
Reserve System, PB is primarily regulated by the Utah Department of Financial
Institutions and the FDIC. As with PNB, the deposits of PB are insured by the
BIF to the extent allowed by law.
Nonbank Bank Status
Even though PNB is a national banking association, prior to 1987 it was not
considered a "bank" under the Bank Holding Company Act of 1956, as amended (the
"BHCA"), because it did not both accept demand deposits and make commercial
loans. The definition of "bank" under the BHCA was revised by the Competitive
Equality Banking Act of 1987 ("CEBA") to include generally all FDIC-insured
institutions. However, the Company is not required to register as a bank
holding company under the BHCA because CEBA grandfathers the ownership of
"nonbank banks" that existed on March 5, 1987 so long as certain restrictions
are observed. These restrictions include prohibitions on new activities and on
affiliate overdrafts as well as limitations on such banks' ability to cross-
market their products and services with products and services of their
affiliates.
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PB is not a "bank" as defined in the BHCA because it qualifies for another
exemption in CEBA, i.e., it is an industrial loan corporation organized under
the laws of Utah, and it was acquired by the Company on or before August 10,
1987. Accordingly, the Company is not required to register as a bank holding
company as a result of its ownership of PB.
The Company could be required to register as a bank holding company under
the BHCA (and become subject to its limitations) if PNB violates the CEBA
restrictions or if the Company or any of its affiliates acquires an additional
insured depository institution (excluding exempt institutions such as credit
card banks) or a significant portion of such an institution's assets. If the
Company were required to register as a bank holding company, it would be subject
to the restrictions set forth in the BHCA, which, among other things, would
limit the Company's activities to those deemed by the Federal Reserve Board to
be closely related to banking and a proper incident thereto.
Deposit Insurance Assessments
Under the FDIC's risk-based insurance assessment system, the FDIC places
each insured institution in one of nine risk categories based on its level of
capital and other relevant information (such as supervisory evaluations). See
"--Capital Requirements." Each insured institution's insurance assessment rate
is then determined by the risk category in which it has been classified by the
FDIC. The FDIC has adopted an annual assessment rate schedule which provides
for a range of 0% to 0.27%. PNB and PB are currently assessed at the 0% rate, in
accordance with their risk classification. As holders of BIF-insured deposits,
PNB and PNB are also subject to assessment for payment of Financing Corporation
("FICO") bonds issued in the 1980s as part of the resolution of the problems of
the savings and loan industry. Until December 31, 1999, BIF-insured deposits
are to be assessed for FICO bond payments at an annual rate estimated to be
approximately 0.0129%. Beginning January 1, 2000, BIF-insured deposits are
required to be assessed on a pro rata basis with deposits insured by the Savings
Association Insurance Fund at an annual rate estimated to be approximately
0.0243% of such deposits. As of December 31, 1997, all of PNB's and PB's
deposits were BIF-insured deposits.
Capital Requirements
The Comptroller has adopted risk-based capital guidelines to which PNB is
subject. The FDIC has adopted similar guidelines which apply to PB. Risk-based
capital ratios are determined by allocating assets and specified off-balance
sheet commitments to four weighted categories, with higher levels of capital
being required for the categories perceived as representing greater risk.
Under these guidelines, an institution's capital is divided into two tiers.
The first tier ("Tier 1") includes common equity, non-cumulative perpetual
preferred stock (excluding auction rate issues) and minority interests in equity
accounts of consolidated subsidiaries, less goodwill and certain other
intangible assets. Supplementary ("Tier 2") capital includes, among other
items, cumulative and limited-life preferred stock, mandatorily convertible
securities, subordinated debt and the allowance for loan and lease losses,
subject to certain limitations, less required deductions.
Under current guidelines, institutions are required to maintain a minimum
total risk-based capital ratio (total Tier 1 and Tier 2 capital to risk-weighted
assets) of 8%, and a Tier 1 risk-based capital ratio (Tier 1 capital to risk-
weighted assets) of 4%. The Comptroller or the FDIC may, however, set higher
capital requirements when an institution's particular circumstances warrant.
The Comptroller and the FDIC have also established guidelines prescribing a
minimum "leverage ratio" (Tier 1 capital to adjusted total assets as specified
in the guidelines) of 3% for institutions that meet certain criteria, including
the requirement that they have the highest regulatory rating, and 3% plus a
cushion of at least 100 to 200 basis points for institutions that do not meet
the criteria. Institutions experiencing or anticipating significant growth are
expected to maintain capital ratios well above the minimum. As of December 31,
1997, PNB had a total risk-based capital ratio of 13.20%, a Tier 1 risk-based
capital ratio of 11.94% and a leverage ratio of 17.61%, on a historical pro
forma basis, and PB had a total risk-based capital ratio of 23.24%, a
11
<PAGE>
Tier 1 risk-based capital ratio of 21.86% and a leverage ratio of 14.88%. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Capital Adequacy" for a discussion of the regulatory capital
guidelines.
As required by the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA"), the Comptroller and the FDIC in 1994 and 1995 revised their
risk-based capital rules to take account of concentration of credit risk,
interest rate risk and risk arising from non-traditional activities. The
agencies identified these risks, together with an institution's ability to
manage them, as important factors in assessing overall capital adequacy, but did
not attempt to quantify them for use in formula-based capital calculations. In
1996, the Comptroller and the FDIC further revised their risk-based capital
rules to take account of market risk. Beginning January 1, 1998, financial
institutions with 10% of total assets in trading activity, or $1 billion in
trading, are required to use internal risk measurement models to calculate
their capital exposure and to hold capital in support of that exposure. In
addition, institutions that fail to accurately predict the results of their
trading activities will be subject to an additional capital charge. None of
these revisions has had a material impact on the Company.
Since at least 1994, the United States federal banking regulators have been
considering establishing new risk-based capital requirements for recourse
arrangements and direct credit substitutes. In 1995, the Comptroller, the FDIC
and other United States federal regulators adopted a "low-level recourse"
regulation, amending the risk-based capital standards pertaining to asset
transfers in which an institution retains recourse risk but contractually limits
its exposure, in which case the required amount of risk-based capital will not
exceed the institution's maximum contractual liability. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Capital Adequacy." In addition, the federal banking regulators in August 1997
proposed for comment regulations establishing new risk-based capital
requirements for recourse arrangements and direct credit substitutes. If
adopted, these regulations may increase the cost of credit enhancement provided
by banks in connection with the securitization of consumer loan receivables
while possibly reducing the cost of senior securities issued in such
transactions. The Company is unable at this time to assess the impact this
proposal would have on its business.
Federal Deposit Insurance Company Improvement Act of 1991
Among other things, FDICIA requires United States federal bank regulatory
authorities to take "prompt corrective action" with respect to banks that do not
meet minimum capital requirements. For these purposes, FDICIA establishes five
capital tiers: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized. Under
regulations adopted by the Comptroller and the FDIC, an institution is generally
considered to be "well capitalized" if it has a total risk-based capital ratio
of 10% or greater, a Tier 1 risk-based capital ratio of 6% or greater and a
leverage ratio of 5% or greater; "adequately capitalized" if it has a total
risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of
4% or greater and, generally, a leverage ratio of 4% or greater; and
"undercapitalized" if it does not meet any of the "adequately capitalized"
tests. An institution is deemed to be "significantly undercapitalized" if it
has a total risk-based capital ratio under 3% and "critically undercapitalized"
if it has a ratio of tangible equity (as defined in the regulations) to total
assets that is equal to or less than 2%.
Undercapitalized institutions are subject to growth limitations and must
submit a capital restoration plan. In addition, undercapitalized institutions
cannot accept brokered deposits (which include deposits purchased through a
third-party broker). An "adequately capitalized" institution cannot accept
brokered deposits unless it receives a waiver from the FDIC, in which case it
may not pay an interest rate on any deposit in excess of 75 basis points over
the prevailing rate in its market. "Significantly undercapitalized"
institutions may be subject to a number of additional requirements and
restrictions. "Critically undercapitalized" institutions are subject to
appointment of a receiver or conservator and may not, beginning 60 days after
becoming "critically undercapitalized," make any payment of principal or
interest on their subordinated debt (subject to certain exceptions).
12
<PAGE>
As of December 31, 1997, each of PNB (as a separate entity and on a
historical pro forma basis) and PB met the requirements to be considered a "well
capitalized" institution. Under the regulatory definition of brokered deposits,
as of December 31, 1997, PNB, on a historical pro forma basis, had brokered
deposits of $859 million.
Consumer Protection Laws
The relationship of Providian Financial's lending subsidiaries and their
customers is extensively regulated by United States federal and state consumer
protection laws. The most significant laws include the Truth-in-Lending Act of
1968, Equal Credit Opportunity Act of 1974, Fair Credit Reporting Act of 1970,
Home Mortgage Disclosure Act of 1975, Truth-in-Savings Act of 1991,
Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994, and
Electronic Funds Transfer Act of 1978. These statutes, among other things,
impose disclosure requirements when a consumer credit loan is advertised, when
the account is opened and when monthly billing statements are sent. In
addition, these statutes limit the liability of credit card holders for
unauthorized use, prohibit certain discriminatory practices in extending credit,
and impose certain limitations on the types of charges that may be assessed and
the use of consumer credit reports.
The National Bank Act of 1864 authorizes national banks to charge customers
interest at the rates allowed by the laws of the state in which the bank is
located, regardless of an inconsistent law of the state in which the bank's
customers are located. This ability to "export" rates is relied upon by PNB and
facilitates its nationwide credit card and consumer lending businesses. A
similar right is granted to state institutions such as PB in the Depository
Institutions Deregulation and Monetary Control Act of 1980 ("DIDMCA"). In 1996,
the United States Supreme Court held that late payment fees are "interest" and
therefore can be "exported" under the National Bank Act, deferring to the
Comptroller's interpretation that interest includes late payment fees,
insufficient funds fees, overlimit fees and certain other fees and charges
associated with credit card accounts. This decision does not directly apply to
state institutions such as PB. Although several courts have upheld the ability
of state institutions to export certain types of fees, a number of lawsuits have
been filed alleging that the laws of certain states prohibit the imposition of
late fees. If the courts do not follow existing precedents, PB's ability to
impose certain fees could be adversely affected.
Legislative Developments
Various legislative proposals have been introduced in Congress in recent
years, including, among others, proposals relating to imposing a statutory cap
on credit card interest rates, substantially revising the laws governing
consumer bankruptcy, limiting the use of social security numbers, permitting
affiliations between banks and commercial, insurance or securities firms, and
other regulatory restructuring proposals. There have also been proposals in
state legislatures in recent years to restrict telemarketing activities, impose
statutory caps on consumer interest rates, limit the use of social security
numbers and expand consumer protection laws. It is impossible to determine
whether any of these proposals will become law, and, if so, what impact they
will have on the Company.
Several states have passed legislation that attempts to tax the income of
out of state lenders derived from loans, including credit card loans, made to
residents of such states. The Company believes that this development will not
materially affect its business results.
Members of Congress and government officials have from time to time
suggested the elimination of the mortgage interest deduction for federal income
tax purposes, either entirely or in part. Since the interest paid on the
Company's Home Loan Products is generally deductible under current law, the
reduction or elimination of this tax benefit could have a material adverse
effect on the demand for those products.
13
<PAGE>
Dividends and Transfers of Funds
United States federal law limits the extent to which PNB or PB can finance
or otherwise supply funds to the Company and its affiliates through dividends,
loans or otherwise. These limitations include minimum regulatory capital
requirements, restrictions concerning the payment of dividends, Sections 23A and
23B of the Federal Reserve Act of 1913 governing transactions between a
financial institution and its affiliates, and United States federal regulatory
oversight to prevent unsafe or unsound practices. In general, United States
federal banking laws prohibit an insured depository institution from making
dividend distributions if such distributions are not paid out of available
earnings or would cause the institution to fail to meet applicable capital
adequacy standards. See "--Capital Requirements." PB is subject to similar Utah
laws governing industrial loan corporations and the general supervision of the
Utah Department of Financial Institutions.
Investment in the Company and its Subsidiary Banks
Certain acquisitions of capital stock of the Company may be subject to
regulatory approval or notice under federal law. Investors are responsible for
insuring that they do not directly or indirectly acquire shares of capital stock
of the Company in excess of the amount that can be acquired without regulatory
approval.
Each of PNB and PB is an "insured depository institution" within the
meaning of the Change in Bank Control Act of 1978. Consequently, United States
federal law prohibits any individual or entity from acquiring "control" of the
Company without, in most cases, prior written approval of the applicable primary
United States federal regulator. Control is conclusively presumed if, among
other things, an individual or entity acquires more than 25% of any class of
voting stock of the Company. A rebuttable presumption of control arises if an
individual or entity acquires more than 10% of any class of voting stock and is
subject to any of a number of specified "control factors" as set forth in the
applicable regulations. Under the Utah Financial Institutions Act, approval
from the Utah Commissioner of Financial Institutions would be required for a
change in the control of PB.
Under the BHCA no individual or entity can acquire "control" of Providian
Financial, and no bank holding company can directly or indirectly acquire
ownership or control of more than 5% of the voting shares of the Company,
without the prior written approval of the Federal Reserve Board. Control is
conclusively presumed if, among other things, an individual or entity acquires
more than 25% of any class of voting stock of the Company. For certain holdings
of less than 25%, the Federal Reserve Board may still find that a control
relationship exists for purposes of the BHCA. Because Providian Financial's
CEBA grandfather rights are non-transferable, if any individual or entity
acquired control of the Company for purposes of the BHCA, or if a bank holding
company acquired ownership or control of more than 5% of the voting shares of
the Company, the Company would be required to limit its and its non-banking
subsidiaries' activities to those activities deemed by the Federal Reserve Board
to be closely related to banking and a proper incident thereto.
CAUTIONARY 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. Forward-looking statements
include expressions of the "belief," "anticipation" or "expectations" of
management, as well as other statements which are not historical fact,
statements as to industry trends or as to future results of operations of the
Company. Forward-looking statements are not guarantees of future performance.
Undue reliance should not be placed on forward-looking statements. Such
forward-looking statements are based on certain assumptions by management and
are subject to risks and uncertainties that could cause actual results to differ
materially from those in the forward-looking statements. These risks and
uncertainties include, but are not limited to, the following:
14
<PAGE>
Intense Competition
The Company faces intense and increasingly aggressive competition from
other consumer lenders in all of its product lines. Competitive practices, such
as the offering of lower interest rates and fees and the offering of incentives
to retain existing customers and attract new ones, could hurt the Company's
ability to obtain and retain customers. A decrease in the rate at which new
loans are originated, or an increase in the rate at which customers repay their
loans, could hurt the Company's profitability. Many of the Company's
competitors are substantially larger and have greater financial resources than
the Company, and customer loyalty is often limited.
Increased Delinquencies and Credit Losses
The delinquency rate on the Company's consumer loans has increased in
recent years. The rate at which the Company's consumer loans are charged off as
uncollectible, referred to as the credit loss rate, has also increased in recent
years, reflecting, among other things, an increase in the number of customers
seeking protection under the bankruptcy laws. Increased delinquencies and credit
losses could occur in the future in the event of a national or regional economic
downturn or recession, or for other reasons. Delinquency and credit loss rates
could also increase if the average age of the loans in the Company's loan
portfolios increases. Slower growth in new loan originations, an increase in
portfolio acquisitions, or increased rates of customer repayments due to
attrition or competition could reduce the proportion of younger loans in the
Company's portfolio, resulting in increased rates of loss.
Vendor Relationships
The Company's business depends on a number of services provided by third
parties, including nationwide credit bureaus, postal and telephone service
providers, bankcard associations and providers of transaction processing
services. A major disruption in one or more of these services could
significantly hurt the Company's operations.
Interest Rate Changes
The rate of interest the Company pays on its borrowings may increase if
market interest rates rise. If the rate of interest the Company earns on its
loans does not increase by the same amount, the Company's earnings could be
reduced. The Company's earnings could also be hurt in a period of falling
interest rates if the rates on its consumer loans fall faster than those on its
borrowings. The Company seeks to manage these risks through the use of
measurement, monitoring and hedging techniques. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Asset/Liability
Market Risk Management."
Cost and Availability of Funding
The Company obtains funding for its lending operations primarily from
depositors, institutional investors, commercial lenders and asset
securitizations. Changes in the credit or asset securitization markets could
make one or more of these funding sources more expensive or unavailable. These
changes could result from changes in the regulatory, tax and accounting
environment, competition for funds, events that disrupt capital markets, or
other reasons beyond the Company's control. Competition for funding sources
comes from a wide variety of institutions, many of which have greater resources
and higher financial ratings than those of the Company.
Government Policy and Regulation
Federal and state laws significantly limit the types of activities in which
the Company's banking subsidiaries may engage. In addition, federal and state
consumer protection and debtor relief laws limit the manner in which the Company
may offer, extend, manage and collect loans. The United States Congress
15
<PAGE>
and the states may enact new laws and amendments to existing laws that further
restrict consumer lending, including changes to the laws governing bankruptcy,
which could make it more difficult or expensive for the Company to collect its
loans. The Company's earnings could also be hurt by changes in government fiscal
or monetary policies, including changes in the Company's rate of taxation, and
by changes in general social and economic conditions.
Growth, Product Development and Operations
In order to meet its business objectives, the Company will need to achieve
its growth targets. As the industry evolves, there is no assurance that the
Company will be able to maintain and develop products and services that will
enable it to sustain recent rates of growth and profitability. Consumer loan
portfolios that have been or may be acquired from third parties may not perform
as expected. The Company's growth and profitability are also dependent on its
ability to retain key managers, attract highly capable employees, maintain and
develop the systems necessary to operate its businesses and control the rate of
growth of its expenses. Expenses could significantly increase due to conversion
costs and other expenses related to acquisitions, new product development,
increased funding or staffing costs and other internal and external factors.
Other Industry Risks
The Company faces the risk of fraud by accountholders and third parties, as
well as the risk that increased criticism from consumer advocates and the media
could hurt consumer acceptance of its products. There is also a risk of
litigation, including class action litigation, challenging the Company's product
terms, rates, disclosures, collections or other practices, under state and
federal consumer protection statutes and other laws.
ITEM 2. PROPERTIES
Providian Financial leases its principal executive offices at 201 Mission
Street, San Francisco, California, currently consisting of approximately 133,250
square feet. The initial lease term expires July 31, 2001. The Company owns its
processing center at 4900, 4920, 4940, 5020 and 5040 Johnson Drive, Pleasanton,
California, consisting of approximately 282,420 square feet. PNB's offices are
located at 295 Main Street, Tilton, New Hampshire, and are owned. PB's offices
are located at 4001 South 700 East, Salt Lake City, Utah, and are leased.
Significant support activities occur at the following leased premises: 150
Spear Street, San Francisco, California (130,629 square feet); 160 Spear Street,
San Francisco, California (60,713 square feet); and 2700 Gateway Oaks Drive,
Sacramento, California (91,174 square feet). Additional support premises that
are leased are located at 53 Regional Drive, Concord, New Hampshire; 680 Fourth
Avenue, Louisville, Kentucky; 427, 431 and 435 Executive Court North, Fairfield,
California; 5215 Wiley Post Way, Salt Lake City, Utah; and 53 Regional Drive,
Concord, New Hampshire. Warehouse space is also leased in Pleasanton,
California.
ITEM 3. LEGAL PROCEEDINGS
Providian Financial has been named as a defendant in various legal actions
arising in the ordinary course of the Company's business. In the opinion of the
Company, any liability that is likely to arise with respect to these actions
will not have a material adverse effect on the consolidated financial position
or results of operations of the Company.
16
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information concerning the market for the Registrant's common equity and
related stockholder matters is incorporated by reference to the information
under the caption "Common Stock Price Range and Dividends," on page 56 of the
Registrant's Annual Report for the year ended December 31, 1997.
ITEM 6. SELECTED FINANCIAL DATA
Information concerning selected financial data is incorporated by reference
to the information under the caption "Selected Financial Data," on pages 18 and
19 of the Registrant's Annual Report for the year ended December 31, 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information concerning management's discussion and analysis of financial
condition and results of operations is incorporated by reference to the
information under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations," on pages 20 through 38 of the Registrant's
Annual Report for the year ended December 31, 1997.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information concerning quantitative and qualitative disclosures about
market risk is incorporated by reference to the information under the caption
"Asset/Liability Market Risk Management," on pages 36 through 38 of the
Registrant's Annual Report for the year ended December 31, 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information concerning financial statements and supplementary data is
incorporated by reference to the information under the captions "Consolidated
Statements of Financial Condition," on page 40, "Consolidated Statements of
Income," on page 41, "Consolidated Statements of Changes in Shareholders'
Equity," on page 42, "Consolidated Statements of Cash Flows," on page 43, "Notes
to Consolidated Financial Statements," on pages 44 through 55, "Report of
Independent Auditors," on page 39, and "Quarterly Data," on page 56, of the
Registrant's Annual Report for the year ended December 31, 1997.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
17
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning directors and compliance with Section 16(a) of the
Exchange Act is incorporated by reference to the information under the captions
"Election of Directors" and "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Registrant's Proxy Statement for the 1998 Annual Meeting of
Stockholders.
EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------
<TABLE>
<CAPTION>
Name and Age Principal Occupation and Business Experience
- -------------------------- -------------------------------------------------------------
<S> <C>
Shailesh J. Mehta Chief Executive Officer of the Company since 1988 and
Age: 48 Chairman of the Board and President of the Company since
June 1997. Mr. Mehta was President and Chief Operating
Officer of Providian Corporation from December 1994 to June
1997. He served as Executive Vice President at Providian
Corporation and as Chairman and Chief Executive Officer of
Providian Direct Insurance, a division of Providian
Corporation, from August 1993 to December 1994.
Seth A. Barad Executive Vice President of the Company since January 1997,
Age: 42 with responsibility for the management of marketing and
operations for Unbanked Products. Mr. Barad joined the
Company as Senior Vice President in October 1994, with
responsibility for the management of Unbanked Products.
Prior to working at the Company, he spent one year at GE
Capital, where he was responsible for managing corporate
card and purchasing card products. Mr. Barad worked for
American Express Company for eight years prior to his
employment at GE Capital.
David B. Smith Executive Vice President of the Company since January 1997,
Age: 46 with responsibility for Unsecured Spread and Home
Loan Product operations. From July 1996 to January 1997,
Mr. Smith was Senior Vice President of the Company. From
1995 to July 1996 he was Chief Technology Officer for
Providian Corporation and in 1994 he was responsible for
life insurance marketing, systems and operations for
Providian Direct Insurance. From 1990 to 1994, he served as
Senior Vice President of the Company, with responsibilities
in various aspects of operations, systems and marketing for
Unsecured Spread Products. Mr. Smith joined the Company in
1986.
David Alvarez Executive Vice President of the Company since June 1997,
Age: 29 responsible for Unsecured Spread Product marketing and
credit. Mr. Alvarez was Senior Vice President of the Company
from November 1995 to June 1997, with responsibilities for
Unsecured Spread and Home Loan Product marketing. He was Vice
President, Marketing for Unsecured Spread Products from June
1993 to November 1995. Prior to that period, he was Vice
President, Market Management for the Company. Mr. Alvarez
joined the Company in 1990.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Name and Age Principal Occupation and Business Experience
- -------------------------- -------------------------------------------------------------
<S> <C>
Ellen Richey Executive Vice President, General Counsel and Secretary of
Age: 49 the Company since June 1997. Ms. Richey was Senior Vice
President, General Counsel and Secretary from January 1995
to June 1997, and Deputy General Counsel from January to
December 1994. Ms. Richey was an attorney in private
practice from 1980 to 1993 and a partner at the law firm of
Farella Braun & Martel LLP from 1985 to 1992.
David J. Petrini Senior Vice President and Chief Financial Officer of the
Age: 37 Company since January 1997. Mr. Petrini was Senior Vice
President and Senior Financial Officer of the Company from
December 1994 to January 1997 and Vice President of the
Company from 1990 to December 1994. Additionally, he had
responsibility for the Company's San Francisco
administrative and systems services in 1994. Mr. Petrini
joined the Company as Audit Manager in 1986 and was later
named Assistant Vice President. He was promoted to
Controller in 1988.
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is incorporated by reference
to the information under the captions "Directors' Compensation," "Executive
Compensation and Other Information," "Option Grants," "Option Exercises and
Holdings" and "Human Resources Committee Executive Compensation Report" in the
Registrant's Proxy Statement for the 1998 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners and
management is incorporated by reference to the information under the caption
"Security Ownership of Certain Beneficial Owners and Management" in the
Registrant's Proxy Statement for the 1998 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
19
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following Report of Independent Auditors and consolidated financial
statements of Providian Financial Corporation and subsidiaries, including
the notes thereto, included on pages 39 through 55 of the Annual Report
for the year ended December 31, 1997, are incorporated by reference
herein:
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Report of Independent Auditors 39
Consolidated Statements of Financial Condition 40
December 31, 1997 and 1996
Consolidated Statements of Income 41
Years Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Changes in Shareholders' Equity 42
Years Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows 43
Years Ended December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements 44-55
</TABLE>
(a)(2) Financial Statement Schedules.
None.
(a)(3) List and Index of Exhibits
The following exhibits are incorporated by reference or filed herewith.
References to the 1997 Form 10 are to the Company's Registration Statement on
Form 10 effective April 18, 1997.
<TABLE>
<CAPTION>
Exhibit Number -----------------------------------------------------------------------------
Description of Exhibit
-----------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Distribution, dated as of December 28, 1996, between
Providian Corporation and the Company (incorporated by reference to Exhibit
2.1 to the 1997 Form 10).
3.1 Restated Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's quarterly report on Form 10-Q for
the quarter ended June 30, 1997).
3.2 Amended and Restated By-Laws of the Company.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
4.1 Rights Agreement, dated as of June 1, 1997, between the Company and First
Chicago Trust Company of New York (incorporated by reference to Exhibit 10.1
to the Company's quarterly report on Form 10-Q for the quarter ended June
30, 1997).
4.2 Certificate of Designation of Series A Junior Participating Preferred Stock,
dated June 1, 1997 (incorporated by reference to Exhibit 4.1 to the
Company's quarterly report on Form 10-Q for the quarter ended June 30, 1997).
4.3 Certificate of Trust of Providian Capital I, dated as of January 21, 1997.
4.4 Amended and Restated Trust Agreement, dated as of February 4, 1997, among
the Company, as Depositor, The Bank of New York, as Property Trustee, and
The Bank of New York (Delaware), as Delaware Trustee.
4.5 Junior Subordinated Indenture, dated as of February 4, 1997, between the
Company and The Bank of New York, as Trustee.
4.6 Guarantee Agreement, dated as of February 4, 1997, between the Company, as
Guarantor, and The Bank of New York, as Trustee.
10.1 Employment Agreement, dated as of March 27, 1997, between the Company and
Shailesh J. Mehta (incorporated by reference to Exhibit 10.1 to the 1997
Form 10).
10.2 Form of Change of Control Employment Agreement, as entered into between the
Company and each of the following executive officers of the Company on the
dates indicated: Seth A. Barad, David B. Smith, and David Alvarez, August
19, 1997; Ellen Richey, August 29, 1997.
10.3 Supplemental Compensation Agreement, dated as of August 25, 1997, between
the Company and David B. Smith.
10.4 Providian Financial Corporation 1997 Stock Option Plan (incorporated by
reference to Exhibit 99.1 to the Company's Registration Statement on Form S-8,
File Number 333-28767).
10.5 Providian Financial Corporation Management Incentive Plan (incorporated by
reference to the form of such Management Incentive Plan filed as Exhibit
10.3 to the 1997 Form 10).
10.6 Providian Financial Corporation Deferred Compensation Plan for Senior
Executives and Directors.
10.7 Providian Financial Corporation Stock Ownership Plan, as amended through
February 18, 1998.
10.8 Providian Financial Corporation 1997 Employee Stock Purchase Plan
(incorporated by reference to Exhibit 10.2 to the Company's quarterly report
on Form 10-Q for the quarter ended September 30, 1997).
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.9 Trademark License Agreement, dated as of June 10, 1997, between Providian
Corporation and the Company (incorporated by reference to the form of such
agreement filed as Exhibit 2.3 to the 1997 Form 10).
10.10 General Intellectual Property Assignment and Renunciation, dated as of June
10, 1997, between Providian Corporation and the Company (incorporated by
reference to the form of such agreement filed as Exhibit 2.4 to the 1997
Form 10).
10.11 Short-Form Assignment, dated as of June 10, 1997, between Providian
Corporation and the Company (incorporated by reference to the form of such
agreement filed as Exhibit 2.5 to the 1997 Form 10).
10.12 Transition Services Agreement, dated as of June 10, 1997, between Providian
Corporation and the Company (incorporated by reference to the form of such
agreement filed as Exhibit 2.6 to the 1997 Form 10).
10.13 Tax Disaffiliation Agreement, dated as of June 10, 1997, between Providian
Corporation and the Company (incorporated by reference to the form of such
agreement filed as Exhibit 2.7 to the 1997 Form 10).
10.14 Guarantee Agreement, dated as of June 10, 1997, among AEGON USA, Inc.,
Providian Corporation and the Company (incorporated by reference to the form
of such agreement filed as Exhibit 2.8 to the 1997 Form 10).
10.15 Employee Benefits Agreement, dated as of June 10, 1997, between Providian
Corporation and the Company (incorporated by reference to the form of such
agreement filed as Exhibit 2.9 to the 1997 Form 10).
10.16 Amended and Restated Credit Agreement, dated as of October 10, 1995, among
First Deposit National Bank, Providian National Bank, Providian Credit
Corporation and Providian Credit Services Inc., as Borrowers, the Company,
as Guarantor, the Lenders named therein, and The Chase Manhattan Bank, N.A.,
as Agent, as restated by the Termination, Replacement and Restatement
Agreement, dated as of May 14, 1996, and as amended by the First Amendment,
dated as of April 4, 1997, among such parties (incorporated by reference to
Exhibit 10.5 to the 1997 Form 10).
10.17 Pooling and Servicing Agreement, dated as of June 1, 1993, among First
Deposit National Bank, as Seller and Servicer, First Deposit National Credit
Card Bank, as Seller, and Bankers Trust Company, as Trustee (incorporated by
reference to Exhibit 4.1 to First Deposit Master Trust's Registration Statement
on Form S-3, File Number 33-84844).
10.18 Amendment No. 1, dated as of August 1, 1994, to the Pooling and Servicing
Agreement, among First Deposit National Bank, as Seller and Servicer, First
Deposit National Credit Card Bank, as Seller, and Bankers Trust Company, as
Trustee (incorporated by reference to Exhibit 4.3 to First Deposit Master
Trust's Registration Statement on Form S-3, File Number 33-84844).
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.19 Amendment No. 2, dated as of June 1, 1995, to the Pooling and Servicing
Agreement, among First Deposit National Bank, as Seller and Servicer,
Providian National Bank, as Seller, and Bankers Trust Company, as Trustee
(incorporated by reference to Exhibit 4.1 to the First Deposit Master
Trust's report on Form 8-K filed on June 24, 1995).
10.20 Amendment No. 3, dated as of March 1, 1997, to the Pooling and Servicing
Agreement, among First Deposit National Bank, as Seller and Servicer,
Providian National Bank, as Seller, and Bankers Trust Company, as Trustee
(incorporated by reference to Exhibit 4.1 to the Providian Master Trust's
report on Form 8-K filed on March 17, 1997).
10.21 Supplemental Agreement No.1, dated as of January 1, 1998, to the Pooling and
Servicing Agreement, among First Deposit National Bank, as Seller and Servicer,
Providian National Bank, as Seller, and Bankers Trust Company, as Trustee
(incorporated by reference to Exhibit 99.1 to the Providian Master Trust's
report on Form 8-K filed on January 9, 1998).
10.22 Series 1993-2 Supplement, dated as of June 1, 1993, to the Pooling and
Servicing Agreement, among First Deposit National Bank, as Seller and
Servicer, First Deposit National Credit Card Bank, as Seller, and Bankers
Trust Company, as Trustee (incorporated by reference to Exhibit 5.2 to the
First Deposit Master Trust's report on Form 8-K filed on July 30, 1993).
10.23 Series 1995-1 Supplement, dated as of June 1, 1995, to the Pooling and
Servicing Agreement, among First Deposit National Bank, as Seller and
Servicer, Providian National Bank, as Seller, and Bankers Trust Company, as
Trustee (incorporated by reference to Exhibit 4.2 to the First Deposit
Master Trust's report on Form 8-K filed on July 24, 1995).
10.24 Series 1995-2 Supplement, dated as of June 1, 1995, to the Pooling and
Servicing Agreement, among First Deposit National Bank, as Seller and
Servicer, Providian National Bank, as Seller, and Bankers Trust Company, as
Trustee (incorporated by reference to Exhibit 4.3 to the First Deposit
Master Trust's report on Form 8-K filed on July 24, 1995).
10.25 Series 1996-1 Supplement, dated as of June 1, 1996, to the Pooling and
Servicing Agreement, among First Deposit National Bank, as Seller and
Servicer, Providian National Bank, as Seller, and Bankers Trust Company, as
Trustee (incorporated by reference to Exhibit 4.1 to the First Deposit
Master Trust's report on Form 8-K filed on July 16, 1996).
10.26 Series 1997-1 Supplement, dated as of March 1, 1997, to the Pooling and
Servicing Agreement, among First Deposit National Bank, as Seller and
Servicer, Providian National Bank, as Seller, and Bankers Trust Company, as
Trustee (incorporated by reference to Exhibit 4.1 to the Providian Master
Trust's report on Form 8-K filed on March 2, 1997).
10.27 Series 1997-2 Supplement, dated as of March 1, 1997, to the Pooling and
Servicing Agreement, among First Deposit National Bank, as Seller and
Servicer, Providian National Bank, as Seller, and Bankers Trust Company, as
Trustee (incorporated by reference to Exhibit 4.2 to the Providian Master
Trust's report on Form 8-K filed on March 2, 1997).
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.28 Series 1997-3 Supplement, dated as of June 1, 1997, to the Pooling and
Servicing Agreement, among First Deposit National Bank, as Seller and
Servicer, Providian National Bank, as Seller, and Bankers Trust Company, as
Trustee (incorporated by reference to Exhibit 4.1 to the Providian Master
Trust's report on Form 8-K filed on June 23, 1997).
10.29 Series 1997-4 Supplement, dated as of November 1, 1997, to the Pooling and
Servicing Agreement, among First Deposit National Bank, as Seller and
Servicer, Providian National Bank, as Seller, and Bankers Trust Company, as
Trustee (incorporated by reference to Exhibit 4.1 to the Providian Master
Trust's report on Form 8-K filed on December 4, 1997).
10.30 Distribution Agreement, dated as of February 20, 1998, between the Company
and the Agents named therein.
10.31 Issuing and Paying Agency Agreement, dated as of February 20, 1998, between
the Company and The First National Bank of Chicago.
13 Portions incorporated herein of the Annual Report to Stockholders for the
year ended December 31, 1997.
21 Subsidiaries of the Company.
23 Consent of independent auditors.
27 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K.
None.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
behalf by the undersigned, thereunto duly authorized.
Date: March 30, 1998 PROVIDIAN FINANCIAL CORPORATION
By /s/ Shailesh J. Mehta
__________________________________
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------- ------------------------------ ------------------------------
<S> <C> <C>
/s/ Shailesh J. Mehta Chairman, President and Chief March 30, 1998
- --------------------- Executive Officer and Director
Shailesh J. Mehta
/s/ David J. Petrini Senior Vice President and March 30, 1998
- -------------------- Chief Financial Officer
David J. Petrini (Principal Financial Officer)
/s/ Daniel Sanford Vice President and Controller March 30, 1998
- ------------------ (Principal Accounting Officer)
Daniel Sanford
/s/ John M. Cranor III Director March 30, 1998
- ----------------------
John M. Cranor III
/s/ James V. Elliott Director March 30, 1998
- --------------------
James V. Elliott
/s/ Lyle Everingham Director March 30, 1998
- -------------------
Lyle Everingham
/s/ J. David Grissom Director March 30, 1998
- --------------------
J. David Grissom
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------- ------------------------------ ------------------------------
<S> <C> <C>
/s/ F. Warren McFarlan Director March 30, 1998
- ----------------------
F. Warren McFarlan
/s/ Larry D. Thompson Director March 30, 1998
- ---------------------
Larry D. Thompson
/s/ John L. Weinberg Director March 30, 1998
- --------------------
John L. Weinberg
</TABLE>
26
<PAGE>
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
<PAGE>
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 stock holders 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
2
<PAGE>
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
3
<PAGE>
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.
4
<PAGE>
(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
Incorpo-
5
<PAGE>
ration. 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) 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. When the employment status
of a director who is not employed by the Corporation or any of its affiliates
changes after he or she becomes a director, 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.
6
<PAGE>
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.
7
<PAGE>
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
8
<PAGE>
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
9
<PAGE>
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.
10
<PAGE>
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.
11
<PAGE>
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
12
<PAGE>
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 indemni
fication, payment to the claimant shall be made within 10 days after such
determination.
(c) If a claim under paragraph (a) of this By-Law is not paid in full
by the Corporation within thirty days after a written claim pursuant to
paragraph (b) of this By-Law has been received by the Corporation, the claimant
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim and, if successful in whole or in part, the claimant
shall be entitled to be paid also the expense of prosecuting such claim. It
shall be a defense to any such action (other than an action brought to enforce a
claim for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has not met the standard of
conduct which makes it permissible under the Delaware General Corporation Law
for the Corporation to indemnify the claimant for the amount claimed, but 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
13
<PAGE>
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
14
<PAGE>
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.
15
<PAGE>
EXHIBIT 4.3
CERTIFICATE OF TRUST
OF
PROVIDIAN CAPITAL I
THIS Certificate of Trust of Providian Capital I (the "Trust"), dated as of
January 21, 1997, is being duly executed and filed by the undersigned, as
trustee, to form a business trust under the Delaware Business Trust Act (12 Del.
----
C. (S)3801, et seq.).
- -- -- ----
1. Name. The name of the business trust formed hereby is Providian
----
Capital I.
2. Delaware Trustee. The name and business address of the trustee of the
----------------
Trust in the State of Delaware are The Bank of New York (Delaware), White Clay
Center, Route 273, Newark, Delaware 19711.
3. Effective Date. This Certificate of Trust shall be effective upon
--------------
filing.
IN WITNESS WHEREOF, the undersigned, being the trustee of the Trust, has
executed this Certificate of Trust as of the date first-above written.
THE BANK OF NEW YORK (DELAWARE), not in its
individual capacity but solely as trustee of
the Trust
/s/ Mary Jane Morrissey
_____________________________________
Name: Mary Jane Morrissey
Title: Authorized Signatory
<PAGE>
EXHIBIT 4.4
[EXECUTION COPY]
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
TRUST AGREEMENT
among
PROVIDIAN BANCORP, INC.,
as Depositor,
THE BANK OF NEW YORK,
as Property Trustee,
and
THE BANK OF NEW YORK (DELAWARE),
as Delaware Trustee,
Dated as of February 4, 1997
PROVIDIAN CAPITAL I
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
Defined Terms
<S> <C>
Section 1.1. Definitions............................................................................. 1
ARTICLE II
Continuation of the Trust
Section 2.1. Name.................................................................................... 12
Section 2.2. Office of the Delaware Trustee; Principal Place
of Business........................................................................... 12
Section 2.3. Initial Contribution of Trust Property;
Organizational Expenses............................................................... 12
Section 2.4. Issuance of the Capital Securities...................................................... 12
Section 2.5. Issuance of the Common Securities; Subscription and
Purchase of Debentures................................................................ 13
Section 2.6. Declaration of Trust.................................................................... 13
Section 2.7. Authorization to Enter into Certain Transactions........................................ 14
Section 2.8. Assets of Trust......................................................................... 17
Section 2.9. Title to Trust Property................................................................. 17
ARTICLE III
Payment Account
Section 3.1. Payment Account......................................................................... 18
ARTICLE IV
Distributions; Redemption
Section 4.1. Distributions........................................................................... 18
Section 4.2. Redemption.............................................................................. 19
Section 4.3. Subordination of Common Securities...................................................... 21
Section 4.4. Payment Procedures...................................................................... 22
Section 4.5. Tax Returns and Reports................................................................. 22
Section 4.6. Payment of Taxes, Duties, Etc. of the Trust............................................. 23
Section 4.7. Payments under Indenture or Pursuant to Direct Actions.................................. 23
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARTICLE V
Trust Securities Certificates
<S> <C>
Section 5.1. Initial Ownership....................................................................... 23
Section 5.2. The Trust Securities Certificates....................................................... 23
Section 5.3. Execution and Delivery of Trust Securities Certificates................................. 24
Section 5.4. Book-Entry Capital Securities........................................................... 24
Section 5.5. Registration of Transfer and Exchange of Capital
Securities Certificates; Restricted Capital Securities Legends........................ 26
Section 5.6. Mutilated, Destroyed, Lost or Stolen Trust Securities Certificates...................... 30
Section 5.7. Persons Deemed Securityholders.......................................................... 30
Section 5.8. Access to List of Securityholders' Names and Addresses.................................. 31
Section 5.9. Maintenance of Office or Agency......................................................... 31
Section 5.10. Appointment of Paying Agent............................................................ 31
Section 5.11. Ownership of Common Securities by Depositor............................................ 32
Section 5.12. Notices to Clearing Agency............................................................. 32
Section 5.13. Rights of Securityholders.............................................................. 32
ARTICLE VI
Acts of Securityholders; Meetings; Voting
Section 6.1. Limitations on Voting Rights............................................................ 34
Section 6.2. Notice of Meetings...................................................................... 35
Section 6.3. Meetings of Capital Securityholders..................................................... 35
Section 6.4. Voting Rights........................................................................... 36
Section 6.5. Proxies, etc............................................................................ 36
Section 6.6. Securityholder Action by Written Consent................................................ 36
Section 6.7. Record Date for Voting and Other Purposes............................................... 37
Section 6.8. Acts of Securityholders................................................................. 37
Section 6.9. Inspection of Records................................................................... 38
ARTICLE VII
Representations and Warranties
Section 7.1. Representations and Warranties of the Property Trustee
and the Delaware Trustee.............................................................. 38
Section 7.2. Representations and Warranties of Depositor............................................. 39
ARTICLE VIII
The Trustees; the Administrators
Section 8.1. Certain Duties and Responsibilities..................................................... 40
Section 8.2. Certain Notices......................................................................... 41
Section 8.3. Certain Rights of Property Trustee...................................................... 42
Section 8.4. Not Responsible for Recitals or Issuance of Securities.................................. 44
Section 8.5. May Hold Securities..................................................................... 44
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 8.6. Compensation; Indemnity; Fees........................................................... 45
Section 8.7. Corporate Property Trustee Required; Eligibility of
Trustees and Administrators........................................................... 46
Section 8.8. Conflicting Interests................................................................... 46
Section 8.9. Co-Trustees and Separate Trustee........................................................ 47
Section 8.10. Resignation and Removal; Appointment of Successor...................................... 48
Section 8.11. Acceptance of Appointment by Successor................................................. 49
Section 8.12. Merger, Conversion, Consolidation or Succession to Business............................ 50
Section 8.13. Preferential Collection of Claims Against Depositor or Trust........................... 50
Section 8.14. Reports by Property Trustee............................................................ 51
Section 8.15. Reports to the Property Trustee........................................................ 52
Section 8.16. Evidence of Compliance with Conditions Precedent....................................... 52
Section 8.17. Number of Trustees..................................................................... 52
Section 8.18. Delegation of Power.................................................................... 52
Section 8.19. Appointment of Administrators.......................................................... 53
ARTICLE IX
Termination, Liquidation and Merger
Section 9.1. Termination Upon Expiration Date........................................................ 53
Section 9.2. Early Termination....................................................................... 54
Section 9.3. Termination............................................................................. 54
Section 9.4. Liquidation............................................................................. 54
Section 9.5. Mergers, Consolidations, Amalgamations or Replacements
of the Trust.......................................................................... 56
ARTICLE X
Miscellaneous Provisions
Section 10.1. Limitation of Rights of Securityholders................................................ 57
Section 10.2. Amendment.............................................................................. 57
Section 10.3. Separability........................................................................... 58
Section 10.4. Governing Law.......................................................................... 59
Section 10.5. Payments Due on Non-Business Day....................................................... 59
Section 10.6. Successors............................................................................. 59
Section 10.7. Headings............................................................................... 59
Section 10.8. Reports, Notices and Demands........................................................... 59
Section 10.9. Agreement Not to Petition.............................................................. 60
Section 10.10. Trust Indenture Act; Conflict with Trust Indenture Act................................ 60
Section 10.11. Acceptance of Terms of Trust Agreement, Guarantee
and Indenture....................................................................... 62
</TABLE>
<PAGE>
EXHIBIT A - Certificate of Trust
EXHIBIT B - Certificate Depository Agreement
EXHIBIT C - Common Securities Certificate
EXHIBIT D - Agreement as to Expenses and Liabilities
EXHIBIT E-1 - Capital Securities Certificate (Book-Entry)
EXHIBIT E-2 - Capital Securities Certificate
EXHIBIT F - Restricted Securities Certificate
EXHIBIT G - Unrestricted Securities Certificate
<PAGE>
AMENDED AND RESTATED TRUST AGREEMENT, dated as of February 4, 1997, among
(i) Providian Bancorp, Inc., a Delaware corporation (including any successors or
assigns, the "Depositor"), (ii) The Bank of New York, a New York banking
corporation, as property trustee (in such capacity, the "Property Trustee" and,
in its separate corporate capacity and not in its capacity as Property Trustee,
the "Bank"), and (iii) The Bank of New York (Delaware), a Delaware banking
corporation organized under the laws of the State of Delaware, as Delaware
trustee (the "Delaware Trustee") (the Property Trustee and the Delaware Trustee
referred to collectively as the "Trustees"), and (iv) the several Holders, as
hereinafter defined.
Witnesseth
Whereas, the Depositor and the Delaware Trustee have heretofore duly
declared and created a business trust pursuant to the Delaware Business Trust
Act by entering into that certain Trust Agreement, dated as of January 21, 1997
(the "Original Trust Agreement"), and by the execution and filing by the
Delaware Trustee with the Secretary of State of the State of Delaware of the
Certificate of Trust, filed on January 22, 1997, attached as Exhibit A; and
Whereas, the Depositor and the Trustees desire to amend and restate the
Original Trust Agreement in its entirety as set forth herein to provide for,
among other things, (i) the issuance of the Common Securities by the Trust to
the Depositor, (ii) the issuance and sale of the Capital Securities by the Trust
pursuant to the Purchase Agreement, (iii) the acquisition by the Trust from the
Depositor of all of the right, title and interest in the Debentures and (iv) the
appointment of the Administrators;
Now Therefore, in consideration of the agreements and obligations set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, each party, for the benefit of the
other parties and for the benefit of the Securityholders, hereby amends and
restates the Original Trust Agreement in its entirety and agrees as follows:
ARTICLE I
Defined Terms
Section 1.1. Definitions.
For all purposes of this Trust Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to them in
this Article and include the plural as well as the singular;
(b) all other terms used herein that are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
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(c) unless the context otherwise requires, any reference to an "Article" or
a "Section" refers to an Article or a Section, as the case may be, of this Trust
Agreement;
(d) the words "herein", "hereof" and "hereunder" and other words of similar
import refer to this Trust Agreement as a whole and not to any particular
Article, Section or other subdivision; and
(e) all accounting terms used but not defined herein shall have the
meanings assigned to them in accordance with United States generally accepted
accounting principles.
"Act" has the meaning specified in Section 6.8.
"Additional Amount" means, with respect to Trust Securities of a given
Liquidation Amount and/or a given period, the amount of Additional Interest (as
defined in the Indenture) paid by the Depositor on a Like Amount of Debentures
for such period.
"Additional Sums" has the meaning specified in Section 10.6 of the
Indenture.
"Administrators" means each of Robert W. Molke, Mark Petersen and Daniel
Sanford solely in such Person's capacity as Administrator of the Trust created
and continued hereunder and not in such Person's individual capacity, or such
Administrator's successor in interest in such capacity, or any successor
appointed as herein provided.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Applicable Procedures" means, with respect to any transfer or transaction
involving a Book-Entry Capital Security, the rules and procedures of the
Clearing Agency for such Book-Entry Capital Security, in each case to the extent
applicable to such transaction and as in effect from time to time.
"Bank" has the meaning specified in the preamble to this Trust Agreement.
"Bankruptcy Event" means, with respect to any Person:
(a) the entry of a decree or order by a court having jurisdiction in the
premises judging such Person a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjudication or
composition of or in respect of such Person under any applicable federal or
state bankruptcy, insolvency, reorganization or other similar law, or appointing
a receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of such Person or of any substantial part of its property or ordering
the winding up or liquidation of its affairs, and the continuance of any such
decree or order unstayed and in effect for a period of 60 consecutive days; or
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(b) the institution by such Person of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by it to the institution of bankruptcy or
insolvency proceedings against it, or the filing by it of a petition or answer
or consent seeking reorganization or relief under any applicable Federal or
State bankruptcy, insolvency, reorganization or other similar law, or the
consent by it to the filing of any such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or similar official) of
such Person or of any substantial part of its property, or the making by it of
an assignment for the benefit of creditors, or the admission by it in writing of
its inability to pay its debts generally as they become due and its willingness
to be adjudicated a bankrupt, or the taking of corporate action by such Person
in furtherance of any such action.
"Bankruptcy Laws" has the meaning specified in Section 10.9.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Depositor to have been duly adopted by the
Depositor's Board of Directors, or such committee of the Board of Directors or
officers of the Depositor to which authority to act on behalf of the Board of
Directors has been delegated, and to be in full force and effect on the date of
such certification, and delivered to the Trustees.
"Book-Entry Capital Securities Certificate" means a Capital Securities
Certificate evidencing ownership of Book-Entry Capital Securities.
"Book-Entry Capital Security" means a Capital Security, the ownership and
transfers of which shall be made through book entries by a Clearing Agency as
described in Section 5.4.
"Business Day" means a day other than (a) a Saturday or Sunday, (b) a day
on which banking institutions in The City of New York are authorized or required
by law or executive order to remain closed, or (c) a day on which the Property
Trustee's Corporate Trust Office or the Corporate Trust Office of the Debenture
Trustee is closed for business.
"Capital Security" means an undivided beneficial interest in the assets of
the Trust, having a Liquidation Amount of $1,000 and having the rights provided
therefor in this Trust Agreement, including the right to receive Distributions
and a Liquidation Distribution as provided herein.
"Capital Securities Certificate" means a certificate evidencing ownership
of Capital Securities, substantially in the form attached as Exhibit E-1 or E-2.
"Certificate Depository Agreement" means the agreement among the Trust, the
Depositor and DTC, as the initial Clearing Agency, dated as of the Closing Date,
relating to the Trust Securities Certificates, substantially in the form
attached as Exhibit B, as the same may be amended and supplemented from time to
time.
"Clearing Agency" means an organization registered as a "clearing agency"
pursuant to Section 17A of the Securities Exchange Act of 1934, as amended. DTC
will be the initial Clearing Agency.
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"Clearing Agency Participant" means a broker, dealer, bank, other financial
institution or other Person for whom from time to time a Clearing Agency effects
book-entry transfers and pledges of securities deposited with the Clearing
Agency.
"Closing Date" means the Time of Delivery, which date is also the date of
execution and delivery of this Trust Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Securities Exchange Act of 1934, as amended,
or, if at any time after the execution of this instrument such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.
"Common Security" means an undivided beneficial interest in the assets of
the Trust, having a Liquidation Amount of $1,000 and having the rights provided
therefor in this Trust Agreement, including the right to receive Distributions
and a Liquidation Distribution as provided herein.
"Common Securities Certificate" means a certificate evidencing ownership of
Common Securities, substantially in the form attached as Exhibit C.
"Corporate Trust Office" means (i) when used with respect to the Property
Trustee, the principal office of the Property Trustee located in New York, New
York which on the date of this Trust Agreement is 101 Barclay Street, New York,
New York 10286 and (ii) when used with respect to the Debenture Trustee, its
Corporate Trust Office as defined in the Indenture.
"Debenture Event of Default" means an "Event of Default" as defined in the
Indenture.
"Debenture Redemption Date" means, with respect to any Debentures to be
redeemed under the Indenture, the date fixed for redemption under the Indenture.
"Debenture Trustee" means The Bank of New York, a New York banking
corporation and any successor thereto.
"Debentures" means the aggregate principal amount of the Depositor's 9.525%
Junior Subordinated Deferrable Interest Debentures, Series A, issued pursuant to
the Indenture.
"Definitive Capital Securities Certificates" means either or both (as the
context requires) of (a) Capital Securities Certificates issued as Book-Entry
Capital Securities Certificates as provided in Section 5.2 or 5.4 substantially
in the form set forth in Exhibit E-1 and (b) Capital Securities Certificates
issued in certificated, fully registered form as provided in Section 5.2, 5.4 or
5.5, substantially in the form set forth in Exhibit E-2.
"Delaware Business Trust Act" means Chapter 38 of Title 12 of the Delaware
Code, 12 Del. C. (S) 3801, et seq., as it may be amended from time to time.
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"Delaware Trustee" means the Person identified as the "Delaware Trustee" in
the preamble to this Trust Agreement solely in its capacity as Delaware Trustee
of the Trust created and continued hereunder and not in its individual capacity,
or its successor in interest in such capacity, or any successor trustee
appointed as herein provided.
"Depositor" has the meaning specified in the preamble to this Trust
Agreement.
"Distribution Date" has the meaning specified in Section 4.1(a).
"Distributions" means amounts payable in respect of the Trust Securities as
provided in Section 4.1.
"DTC" means The Depository Trust Company.
"Early Termination Event" has the meaning specified in Section 9.2.
"Event of Default" means any one of the following events (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) the occurrence of a Debenture Event of Default; or
(b) default by the Trust in the payment of any Distribution when it becomes
due and payable, and continuation of such default for a period of 30 days; or
(c) default by the Trust in the payment of any Redemption Price of any
Trust Security when it becomes due and payable; or
(d) default in the performance, or breach, in any material respect, of any
covenant or warranty of the Trustees in this Trust Agreement (other than a
covenant or warranty a default in the performance or breach of which is dealt
with in clause (b) or (c) above) and continuation of such default or breach for
a period of 60 days after there has been given, by registered or certified mail,
to the defaulting Trustee or Trustees by the Holders of at least 25% in
aggregate Liquidation Amount of the Outstanding Capital Securities a written
notice specifying such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" hereunder; or
(e) the occurrence of a Bankruptcy Event with respect to the Property
Trustee and a successor Property Trustee not being appointed within 90 days
thereof.
"Expense Agreement" means the Agreement as to Expenses and Liabilities
between the Depositor and the Trust, substantially in the form attached as
Exhibit D, as amended from time to time.
"Expiration Date" has the meaning specified in Section 9.1.
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"Federal Reserve" means the Board of Governors of the Federal Reserve
System.
"Guarantee" means the Guarantee Agreement executed and delivered by the
Depositor and The Bank of New York, as trustee, contemporaneously with the
execution and delivery of this Trust Agreement, for the benefit of the holders
of the Capital Securities, as amended from time to time.
"Indenture" means the Junior Subordinated Indenture, dated as of February
4, 1997, between the Depositor and the Debenture Trustee, as trustee, as amended
or supplemented from time to time.
"Initial Purchasers" means Goldman, Sachs & Co., and Merrill Lynch, Pierce,
Fenner & Smith Incorporated.
"Institutional Accredited Investor" means an institutional accredited
investor within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D
under the Securities Act.
"Issuer Trust Default" means an Event of Default described in clause (a),
(b) or (c) of the definition thereof or an event which with notice and/or lapse
of time would constitute such an Event of Default.
"Lien" means any lien, pledge, charge, encumbrance, mortgage, deed of
trust, adverse ownership interest, hypothecation, assignment, security interest
or preference, priority or other security agreement or preferential arrangement
of any kind or nature whatsoever.
"Like Amount" means (a) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount equal to that portion of the
principal amount of Debentures to be contemporaneously redeemed in accordance
with the Indenture, allocated to the Common Securities and the Capital
Securities based upon the relative Liquidation Amounts of such classes and the
proceeds of which will be used to pay the Redemption Price of such Trust
Securities, (b) with respect to a distribution of Debentures to Holders of Trust
Securities in connection with a dissolution or liquidation of the Trust,
Debentures having a principal amount equal to the Liquidation Amount of the
Trust Securities of the Holders to whom such Debentures are distributed and (c)
with respect to any distribution of Additional Amounts to holders of Trust
Securities, Debentures having a principal amount equal to the Liquidation Amount
of the Trust Securities in respect of which such distribution is made.
"Liquidation Amount" means the stated amount of $1,000 per Trust Security.
"Liquidation Date" means the date on which Debentures or the Liquidation
Distribution are to be distributed to Holders of Trust Securities in connection
with the dissolution and liquidation of the Trust pursuant to Section 9.4(a).
"Liquidation Distribution" has the meaning specified in Section 9.4(d).
"Majority in Liquidation Amount of the Capital Securities" means, except as
provided by
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the Trust Indenture Act, a vote by the holder(s), voting separately as a class,
of more than 50% of the Liquidation Amount of all then outstanding Capital
Securities issued by the Trust.
"1940 Act" means the Investment Company Act of 1940, as amended.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board of Directors, the Chairman of the Executive Committee of the Board of
Directors, the Chief Executive Officer, the President, the Chief Administrative
Officer or a Vice President, and by the Senior Financial Officer, the Treasurer,
an Associate Treasurer, an Assistant Treasurer, the Controller, the Secretary or
an Assistant Secretary, of the Depositor, in each case including any other
officers of the Depositor performing the same or similar duties, and delivered
to the appropriate Trustee. One of the officers signing an Officers' Certificate
given pursuant to Section 8.16 shall be the principal executive, financial or
accounting officer of the Depositor. Any Officers' Certificate delivered with
respect to compliance with a condition or covenant provided for in this Trust
Agreement shall include:
(a) a statement that each officer signing the Officers' Certificate has
read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers' Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each such officer, such
condition or covenant has been complied with.
"Opinion of Counsel" means a written opinion of nationally recognized
counsel to the Depositor.
"Original Trust Agreement" has the meaning specified in the recitals to
this Trust Agreement.
"Other Capital Securities" means the Capital Securities sold by the Initial
Purchasers in the initial offering contemplated by the Purchase Agreement to
Institutional Accredited Investors in reliance on an exemption from the
registration requirements of the Securities Act other than Rule 144A.
"Outstanding", when used with respect to Trust Securities, means, as of the
date of determination, all Trust Securities theretofore executed and delivered
under this Trust Agreement, except:
(a) Trust Securities theretofore cancelled by the Property Trustee or
delivered to the Property Trustee for cancellation;
<PAGE>
(b) Trust Securities for whose payment or redemption money in the necessary
amount has been theretofore deposited with the Property Trustee or any Paying
Agent for the Holders of such Trust Securities; provided that, if such Trust
Securities are to be redeemed, notice of such redemption has been duly given
pursuant to this Trust Agreement; and
(c) Trust Securities which have been paid or in exchange for or in lieu of
which other Trust Securities have been executed and delivered pursuant to
Sections 5.4, 5.5, and 5.6;
provided, however, that in determining whether the Holders of the requisite
Liquidation Amount of the Outstanding Capital Securities have given any request,
demand, authorization, direction, notice, consent or waiver hereunder, Capital
Securities owned by the Depositor, any Trustee or any Affiliate of the Depositor
or any Trustee shall be disregarded and deemed not to be Outstanding, except
that (a) in determining whether any Trustee shall be protected in relying upon
any such request, demand, authorization, direction, notice, consent or waiver,
only Capital Securities that a Responsible Officer of such Trustee actually
knows to be so owned shall be so disregarded and (b) the foregoing shall not
apply at any time when all of the outstanding Capital Securities are owned by
the Depositor, one or more of the Trustees and/or any such Affiliate. Capital
Securities so owned which have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Administrators
the pledgee's right so to act with respect to such Capital Securities and that
the pledgee is not the Depositor or any Affiliate of the Depositor.
"Owner" means each Person who is the beneficial owner of Book-Entry Capital
Securities as reflected in the records of the Clearing Agency or, if a Clearing
Agency Participant is not the Owner, then as reflected in the records of a
Person maintaining an account with such Clearing Agency (directly or indirectly,
in accordance with the rules of such Clearing Agency).
"Paying Agent" means any paying agent or co-paying agent appointed pursuant
to Section 5.10 and shall initially be the Bank.
"Payment Account" means a segregated non-interest-bearing corporate trust
account maintained by the Property Trustee with the Bank in its trust department
for the benefit of the Securityholders in which all amounts paid in respect of
the Debentures will be held and from which the Property Trustee, through the
Paying Agent, shall make payments to the Securityholders in accordance with
Sections 4.1 and 4.2.
"Person" means any individual, corporation, partnership, joint venture,
trust, limited liability company or corporation, unincorporated organization or
government or any agency or political subdivision thereof.
"Property Trustee" means the Person identified as the "Property Trustee" in
the preamble to this Trust Agreement solely in its capacity as Property Trustee
of the Trust heretofore created and continued hereunder and not in its
individual capacity, or its successor in interest in such capacity, or any
successor property trustee appointed as herein provided.
"Purchase Agreement" means the Purchase Agreement, dated January 30, 1997,
among the
<PAGE>
Trust, the Depositor and the Initial Purchasers as such agreement may be amended
from time to time.
"Redemption Date" means, with respect to any Trust Security to be redeemed,
the date fixed for such redemption by or pursuant to this Trust Agreement;
provided that each Debenture Redemption Date and the stated maturity of the
Debentures shall be a Redemption Date for a Like Amount of Trust Securities.
"Redemption Price" means, with respect to any Trust Security, the
Liquidation Amount of such Trust Security, plus accumulated and unpaid
Distributions to the Redemption Date, plus the related amount of the premium, if
any, paid by the Depositor upon the concurrent redemption of a Like Amount of
Debentures, allocated on a pro rata basis (based on Liquidation Amounts) among
the Trust Securities.
"Regulation D" means Regulation D under the Securities Act (or any
successor provision), as it may be amended from time to time.
"Relevant Trustee" shall have the meaning specified in Section 8.10.
"Responsible Officer" means, when used with respect to the Property
Trustee, any officer assigned to the Corporate Trust Office, including any
managing director, vice president, assistant vice president, assistant
treasurer, assistant secretary or any other officer of the Property Trustee
customarily performing functions similar to those performed by any of the above
designated officers, and also, with respect to a particular matter, any other
officer, to whom such matter is referred because of such officer's knowledge of
and familiarity with the particular subject and with respect to the Delaware
Trustee, any officer of the Delaware Trustee customarily performing functions
similar to those performed by any of the above designated officers, and also,
with respect to a particular matter, any other officer, to whom such matter is
referred because of such officer's knowledge of and familiarity with the
particular subject.
"Restricted Capital Securities" means all Capital Securities the Capital
Securities Certificate for which is required pursuant to Section 5.5(c) to bear
a Restricted Capital Securities Legend. Such term includes the Book-Entry
Capital Securities Certificate.
"Restricted Capital Securities Certificate" means a certificate
substantially in the form set forth in Exhibit F.
"Restricted Capital Securities Legend" means a legend substantially in the
form of the legend required in the form of Capital Securities Certificate set
forth in Exhibit E-2 to be placed upon a Restricted Capital Security.
"Rule 144A" means Rule 144A under the Securities Act (or any successor
provision), as it may be amended from time to time.
"Rule 144A Information" shall be such information with respect to the Trust
as is specified pursuant to Rule 144A(d)(4) under the Securities Act (or any
successor provisions thereto).
<PAGE>
"Rule 144A Capital Securities" means the Capital Securities purchased by
the Initial Purchasers from the Trust pursuant to the Purchase Agreement, other
than the Other Capital Securities.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 5.5.
"Securityholder" or "Holder" means a Person in whose name a Trust Security
or Trust Securities is or are registered in the Securities Register; any such
Person shall be a beneficial owner within the meaning of the Delaware Business
Trust Act; provided, however, that in determining whether the Holders of the
requisite amount of Capital Securities have voted on any matter provided for in
this Trust Agreement, then for the purpose of any such determination, so long as
Definitive Capital Securities Certificates have not been issued, the term
Securityholders or Holders as used herein shall refer to the Owners.
"Successor Capital Securities Certificate" of any particular Capital
Securities Certificate means every Capital Securities Certificate issued after,
and evidencing all or a portion of the same beneficial interest in the Trust as
that evidenced by, such particular Capital Securities Certificate; and, for the
purposes of this definition, any Capital Securities Certificate executed and
delivered under Section 5.6 in exchange for or in lieu of a mutilated,
destroyed, lost or stolen Capital Securities Certificate shall be deemed to
evidence the same beneficial interest as the mutilated, destroyed, lost or
stolen Capital Securities Certificate.
"Time of Delivery" has the meaning specified in the Purchase Agreement.
"Trust" means the Delaware business trust created and continued hereby and
identified on the cover page to this Trust Agreement.
"Trust Agreement" means this Amended and Restated Trust Agreement, as the
same may be modified, amended or supplemented in accordance with the applicable
provisions hereof, including (i) all exhibits hereto and (ii) for all purposes
of this Trust Agreement and any such modification, amendment or supplement, the
provisions of the Trust Indenture Act that are deemed to be a part of and govern
this Trust Agreement and any such modification, amendment or supplement,
respectively.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at
the date as of which this instrument was executed; provided, however, that in
the event the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939 as so amended.
"Trust Property" means (a) the Debentures, (b) the rights of the Property
Trustee under the Guarantee, (c) any cash on deposit in, or owing to, the
Payment Account and (d) all proceeds and rights in respect of the foregoing and
any other property and assets for the time being held or
<PAGE>
deemed to be held by the Property Trustee pursuant to the trusts of this Trust
Agreement.
"Trust Security" means any one of the Common Securities or the Capital
Securities.
"Trust Securities Certificate" means any one of the Common Securities
Certificates or the Capital Securities Certificates.
"Trustees" means, collectively, the Property Trustee and the Delaware
Trustee.
"Unrestricted Securities Certificate" means a certificate substantially in
the form set forth in Annex G.
ARTICLE II
Continuation of the Trust
Section 2.1. Name.
The Trust continued hereby shall be known as "Providian Capital I," as such
name may be modified from time to time by the Administrators following written
notice to the Holders of Trust Securities and the Trustees, in which name the
Trustees may conduct the business of the Trust, make and execute contracts and
other instruments on behalf of the Trust and sue and be sued.
Section 2.2. Office of the Delaware Trustee; Principal Place of Business.
The address of the Delaware Trustee in the State of Delaware is White Clay
Center, Route 273, Newark, Delaware 19711, or such other address in the State of
Delaware as the Delaware Trustee may designate by written notice to the
Securityholders and the Depositor. The principal executive office of the Trust
is c/o Providian Bancorp, Inc., 201 Mission Street, San Francisco, California
94105.
Section 2.3. Initial Contribution of Trust Property; Organizational
Expenses.
The Property Trustee acknowledges receipt in trust from the Depositor in
connection with the Original Trust Agreement of the sum of $10, which
constituted the initial Trust Property. The Depositor shall pay organizational
expenses of the Trust as they arise or shall, upon request of any Trustee,
promptly reimburse such Trustee for any such expenses paid by such Trustee. The
Depositor shall make no claim upon the Trust Property for the payment of such
expenses.
<PAGE>
Section 2.4. Issuance of the Capital Securities; Authentication.
On January 30, 1997 the Depositor, on behalf of the Trust and pursuant to
the Original Trust Agreement, executed and delivered the Purchase Agreement.
Contemporaneously with the execution and delivery of this Trust Agreement, an
Administrator, on behalf of the Trust, shall manually execute in accordance with
Section 5.3 and deliver to the Initial Purchasers, or, in the alternative,
execute by facsimile and deliver to the Property Trustee for authentication, and
delivery in accordance with Section 5.3, Capital Securities Certificates,
registered in the name of the nominee of the initial Clearing Agency (except to
the extent otherwise provided pursuant to the Purchase Agreement), in an
aggregate amount of 160,000 Capital Securities having an aggregate Liquidation
Amount of $160,000,000, against receipt of the aggregate purchase price for such
Capital Securities of $160,000,000 by the Property Trustee.
Section 2.5. Issuance of the Common Securities; Subscription and Purchase
of Debentures.
Contemporaneously with the execution and delivery of this Trust Agreement,
an Administrator, on behalf of the Trust, shall execute in accordance with
Section 5.3 and deliver to the Depositor Common Securities Certificates,
registered in the name of the Depositor, in an aggregate amount of 4,949 Common
Securities having an aggregate Liquidation Amount of $4,949,000 against payment
by the Depositor of $4,949,000 to the Property Trustee. Contemporaneously
therewith, an Administrator, on behalf of the Trust, shall subscribe to and
purchase from the Depositor Debentures, registered in the name of the Trust and
having an aggregate principal amount equal to $164,949,000, and, in satisfaction
of the purchase price for such Debentures, the Property Trustee, on behalf of
the Trust, shall deliver to the Depositor the sum of $164,949,000 (being the sum
of the amounts delivered to the Property Trustee pursuant to (i) Section 2.4 and
(ii) this Section 2.5).
Section 2.6. Declaration of Trust.
The exclusive purposes and functions of the Trust are (a) to issue and sell
Trust Securities and use the proceeds from such sale to acquire the Debentures,
and (b) to engage in those activities necessary or incidental thereto. The
Depositor hereby appoints the Trustees as trustees of the Trust, to have all the
rights, powers and duties to the extent set forth herein, and the Trustees
hereby accept such appointment. The Property Trustee hereby declares that it
will hold the Trust Property in trust upon and subject to the conditions set
forth herein for the benefit of the Trust and the Securityholders. The
Administrators shall have only those ministerial duties set forth herein with
respect to accomplishing the purposes of the Trust and shall not be trustees or
fiduciaries with respect to the Trust or the Securityholders. The Property
Trustee shall have the right, but shall not be obligated except as provided in
Section 2.7(a)(ii)(J), to perform those duties assigned to the Administrators.
The Delaware Trustee shall not be entitled to exercise any powers, nor shall the
Delaware Trustee have any of the duties and responsibilities, of the Property
Trustee or the Administrators set forth herein. The Delaware Trustee shall be
one of the Trustees of the Trust for the sole and limited purpose of fulfilling
the requirements of Section 3807 of the Delaware Business Trust Act.
<PAGE>
Section 2.7. Authorization to Enter into Certain Transactions.
(a) The Trustees and the Administrators shall conduct the affairs of the
Trust in accordance with the terms of this Trust Agreement. Subject to the
limitations set forth in paragraph (b) of this Section, and in accordance with
the following provisions (i) and (ii), the Trustees and the Administrators shall
have the authority to enter into all transactions and agreements determined by
the Trustees and Administrators to be appropriate in exercising the authority,
express or implied, otherwise granted to the Trustees or the Administrators, as
the case may be, under this Trust Agreement, and to perform all acts in
furtherance thereof, including without limitation, the following:
(i) Each Administrator shall have the power and authority to act on
behalf of the Trust with respect to the following matters:
(A) the issuance and sale of the Trust Securities;
(B) to cause the Trust to enter into, and to execute and
deliver on behalf of the Trust, the Expense Agreement and the
Certificate Depository Agreement and such other agreements as may be
necessary or desirable in connection with the purposes and function of
the Trust;
(C) assisting in the compliance with the Securities Act,
applicable state securities or blue sky laws, and the Trust Indenture
Act;
(D) registration of the Capital Securities under the
Securities Exchange Act of 1934, as amended, if required, and the
preparation and filing of all periodic and other reports and other
documents pursuant to the foregoing;
(E) assisting in the designation of the Capital Securities
for trading in the Private Offering, Resales and Trading through the
Automatic Linkages (PORTAL) system;
(F) the sending of notices (other than notices of default)
and other information regarding the Trust Securities and the
Debentures to the Securityholders in accordance with this Trust
Agreement;
(G) the consent to the appointment of a Paying Agent and
Securities Registrar in accordance with this Trust Agreement which
consent shall not be unreasonably withheld;
(H) execution of the Trust Securities in accordance with
this Trust Agreement;
(I) execution and delivery of closing certificates, pursuant
to the Purchase Agreement and the application for a taxpayer
identification number;
<PAGE>
(J) to the extent provided in this Trust Agreement, the
winding up of the affairs of and liquidation of the Trust and the
preparation, execution and filing of the certificate of cancellation
with the Secretary of State of the State of Delaware;
(K) unless otherwise determined by the Property Trustee or
the holders of a majority of the Outstanding Capital Securities or
Common Securities or as otherwise required by the Delaware Business
Trust Act or the Trust Indenture Act, to execute on behalf of the
Trust (either acting alone or together with any or all of the
Administrators) any documents that the Administrators have the power
to execute pursuant to this Trust Agreement; and
(L) the taking of any action incidental to the foregoing as
the Trustees may from time to time determine is necessary or advisable
to give effect to the terms of this Trust Agreement for the benefit of
the Securityholders (without consideration of the effect of any such
action on any particular Securityholder).
(ii) As among the Trustees and the Administrators, the Property
Trustee shall have the power, duty and authority to act on behalf of the
Trust with respect to the following matters:
(A) the establishment of the Payment Account;
(B) the receipt of the Debentures;
(C) the collection of interest, principal and any other
payments made in respect of the Debentures in the Payment Account;
(D) the distribution through the Paying Agent of amounts
owed to the Securityholders in respect of the Trust Securities;
(E) the exercise of all of the rights, powers and privileges
of a holder of the Debentures;
(F) the sending of notices of default and other information
regarding the Trust Securities and the Debentures to the
Securityholders in accordance with this Trust Agreement;
(G) the distribution of the Trust Property in accordance
with the terms of this Trust Agreement;
(H) to the extent provided in this Trust Agreement, the
winding up of the affairs of and liquidation of the Trust and the
preparation, execution and filing of the certificate of cancellation
with the Secretary of State of the State of Delaware;
(I) after an Event of Default (other than under paragraph
(b), (c),
<PAGE>
(d) or (e) of the definition of such term if such Event of
Default is by or with respect to the Property Trustee) the taking of
any action incidental to the foregoing as the Property Trustee may
from time to time determine is necessary or advisable to give effect
to the terms of this Trust Agreement and protect and conserve the
Trust Property for the benefit of the Securityholders (without
consideration of the effect of any such action on any particular
Securityholder); and
(J) any of the duties, liabilities, powers or the authority
of the Administrators set forth in Section 2.7(a)(i)(E), (F) and (J)
herein; and in the event of a conflict between the action of the
Administrators and the action of the Property Trustee, the action of
the Property Trustee shall prevail.
(b) So long as this Trust Agreement remains in effect, the Trust (or the
Trustees or Administrators acting on behalf of the Trust) shall not undertake
any business, activities or transaction except as expressly provided herein or
contemplated hereby. In particular, neither the Trustees nor the Administrators
shall (i) acquire any investments or engage in any activities not authorized by
this Trust Agreement, (ii) sell, assign, transfer, exchange, mortgage, pledge,
set-off or otherwise dispose of any of the Trust Property or interests therein,
including to Securityholders, except as expressly provided herein, (iii) take
any action that would reasonably be expected to cause the Trust to fail or cease
to qualify as a grantor trust for United States federal income tax purposes,
(iv) incur any indebtedness for borrowed money or issue any other debt or (v)
take or consent to any action that would result in the placement of a Lien on
any of the Trust Property. The Property Trustee shall at the sole cost and
expense of the Trust defend all claims and demands of all Persons at any time
claiming any Lien on any of the Trust Property adverse to the interest of the
Trust or the Securityholders in their capacity as Securityholders.
(c) In connection with the issue and sale of the Capital Securities, the
Depositor shall have the right and responsibility to assist the Trust with
respect to, or effect on behalf of the Trust, the following (and any actions
taken by the Depositor in furtherance of the following prior to the date of this
Trust Agreement are hereby ratified and confirmed in all respects):
(i) the preparation by the Trust of an Offering Circular in relation
to the Capital Securities, including any amendments thereto and the taking
of any action necessary to obtain an exemption from the Securities Act;
(ii) the determination of the States in which to take appropriate
action to qualify or register for sale all or part of the Capital
Securities and the determination of any and all such acts, other than
actions which must be taken by or on behalf of the Trust, and the advice to
the Trustees of actions they must take on behalf of the Trust, and the
preparation for execution and filing of any documents to be executed and
filed by the Trust or on behalf of the Trust, as the Depositor deems
necessary or advisable in order to comply with the applicable laws of any
such States in connection with the sale of the Capital Securities;
(iii) the negotiation of the terms of, and the execution and delivery
of, the Purchase Agreement providing for the sale of the Capital
Securities; and
<PAGE>
(iv) the taking of any other actions necessary or desirable to carry
out any of the foregoing activities.
(d) Notwithstanding anything herein to the contrary, the Administrators and
the Property Trustee are authorized and directed to conduct the affairs of the
Trust and to operate the Trust so that the Trust will not be deemed to be an
"investment company" required to be registered under the 1940 Act, or fail to be
classified as a grantor trust for United States Federal income tax purposes and
so that the Debentures will be treated as indebtedness of the Depositor for
United States Federal income tax purposes. In this connection, the
Administrators, the Property Trustee and the holders of a majority of the Common
Securities are authorized to take any action, not inconsistent with applicable
law, the Certificate of Trust or this Trust Agreement, that any Administrator,
the Property Trustee and the holders of a majority of Common Securities
determines in its discretion to be necessary or desirable for such purposes, as
long as such action does not adversely affect in any material respect the
interests of the holders of the Capital Securities.
Section 2.8. Assets of Trust.
The assets of the Trust shall consist of the Trust Property.
Section 2.9. Title to Trust Property.
Legal title to all Trust Property shall be vested at all times in the Trust
and shall be held and administered by the Property Trustee for the benefit of
the Trust and the Securityholders in accordance with this Trust Agreement.
ARTICLE III
Payment Account
Section 3.1. Payment Account.
(a) On or prior to the Closing Date, the Property Trustee shall establish
the Payment Account. The Property Trustee and any agent of the Property Trustee
shall have exclusive control and sole right of withdrawal with respect to the
Payment Account for the purpose of making deposits in and withdrawals from the
Payment Account in accordance with this Trust Agreement. All monies and other
property deposited or held from time to time in the Payment Account shall be
held by the Property Trustee in the Payment Account for the exclusive benefit of
the Securityholders and for distribution as herein provided, including (and
subject to) any priority of payments provided for herein.
(b) The Property Trustee shall deposit in the Payment Account, promptly
upon receipt, all payments of principal of or interest on, and any other
payments or proceeds with respect to, the Debentures. Amounts held in the
Payment Account shall not be invested by the Property Trustee pending
distribution thereof.
<PAGE>
ARTICLE IV
Distributions; Redemption
Section 4.1. Distributions.
(a) The Trust Securities represent undivided beneficial interests in the
Trust Property, and Distributions (including Additional Amounts) will be made on
the Trust Securities at the rate and on the dates that payments of interest
(including Additional Interest, as defined in the Indenture) are made on the
Debentures. Accordingly:
(i) Distributions on the Trust Securities shall be cumulative, and
will accumulate whether or not there are funds of the Trust available for
the payment of Distributions. Distributions shall accrue from February 4,
1997, and, except in the event (and to the extent) that the Depositor
exercises its right to defer the payment of interest on the Debentures
pursuant to the Indenture, shall be payable semi-annually in arrears on
February 1 and August 1 of each year, commencing on August 1, 1997. If any
date on which a Distribution is otherwise payable on the Trust Securities
is not a Business Day, then the payment of such Distribution shall be made
on the next succeeding day that is a Business Day (and without any interest
or other payment in respect of any such delay) except that, if such
Business Day is in the next succeeding calendar year, payment of such
Distribution shall be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on the date such
payment was originally payable (each date on which distributions are
payable in accordance with this Section 4.1(a), a "Distribution Date").
(ii) Distributions on the Trust Securities shall be payable at a rate
of 9.525% per annum of the Liquidation Amount of the Trust Securities. The
amount of Distributions payable for any period less than a full period
shall be computed on the basis of a 360-day year of twelve 30-day months.
Distributions payable for each full Distribution period will be computed by
dividing the rate per annum by two. The amount of Distributions payable for
any period shall include the Additional Amounts, if any.
(iii) Distributions on the Trust Securities shall be made by the
Property Trustee from the Payment Account and shall be payable on each
Distribution Date only to the extent that the Trust has funds then on hand
and available in the Payment Account for the payment of such Distributions.
(b) Distributions on the Trust Securities with respect to a Distribution
Date shall be payable to the Holders thereof as they appear on the Securities
Register for the Trust Securities at the close of business on the relevant
record date, which shall be the January 15 or July 15 (whether or not a Business
Day) next preceding the relevant Distribution Date.
<PAGE>
Section 4.2. Redemption.
(a) On each Debenture Redemption Date and on the stated maturity of the
Debentures, the Trust will be required to redeem a Like Amount of Trust
Securities at the Redemption Price.
(b) Notice of redemption shall be given by the Property Trustee by first-
class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior
to the Redemption Date to each Holder of Trust Securities to be redeemed, at
such Holder's address appearing in the Security Register. All notices of
redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price or if the Redemption Price cannot be
calculated prior to the time the notice is required to be sent, the
estimate of the Redemption Price provided pursuant to the Indenture
together with a statement that it is an estimate and that the actual
Redemption Price will be calculated on the third Business Day prior to the
Redemption Date (and if an estimate is provided, a further notice shall be
sent of the actual Redemption Price on the date that notice of such actual
Redemption Price is received pursuant to the Indenture);
(iii) the CUSIP number;
(iv) if less than all the Outstanding Trust Securities are to be
redeemed, the identification and the total Liquidation Amount of the
particular Trust Securities to be redeemed;
(v) that on the Redemption Date the Redemption Price will become due
and payable upon each such Trust Security to be redeemed and that
Distributions thereon will cease to accumulate on and after said date
except as provided in Section 4.2(d); and
(vi) the place or places where the Trust Securities are to be
surrendered for the payment of the Redemption Price.
The Trust in issuing the Trust Securities may use "CUSIP" or "private
placement" numbers (if then generally in use), and, if so, the Property Trustee
shall indicate the "CUSIP" or "private placement" numbers of the Trust
Securities in notices of redemption and related materials as a convenience to
Securityholders; provided that any such notice may state that no
--------
representation is made as to the correctness of such numbers either as printed
on the Trust Securities or as contained in any notice of redemption and related
materials.
(c) The Trust Securities redeemed on each Redemption Date shall be redeemed
at the Redemption Price with the proceeds from the contemporaneous redemption of
Debentures. Redemptions of the Trust Securities shall be made and the Redemption
Price shall be payable on each Redemption Date only to the extent that the Trust
has funds then on hand and available in the Payment Account for the payment of
such Redemption Price.
<PAGE>
(d) If the Property Trustee gives a notice of redemption in respect of any
Capital Securities, then, by 12:00 noon, New York City time, on the Redemption
Date, subject to Section 4.2(c), the Property Trustee will, with respect to
Book-Entry Capital Securities, irrevocably deposit with the Clearing Agency for
such Book-Entry Capital Securities funds sufficient to pay the applicable
Redemption Price and will give such Clearing Agency irrevocable instructions and
authority to pay the Redemption Price to the Holders thereof. With respect to
Capital Securities that are not Book-Entry Capital Securities, the Property
Trustee, subject to Section 4.2(c), will irrevocably deposit with the Paying
Agent funds sufficient to pay the applicable Redemption Price and will give the
Paying Agent irrevocable instructions and authority to pay the Redemption Price
to the Holders thereof upon surrender of their Capital Securities Certificates.
Notwithstanding the foregoing, Distributions payable on or prior to the
Redemption Date for any Trust Securities called for redemption shall be payable
to the Holders of such Trust Securities as they appear on the Register for the
Trust Securities on the relevant record dates for the related Distribution
Dates. If notice of redemption shall have been given and funds deposited as
required, then upon the date of such deposit, all rights of Securityholders
holding Trust Securities so called for redemption will cease, except the right
of such Securityholders to receive the Redemption Price including any unpaid
Distribution payable on or prior to the Redemption Date, but without interest,
and such Securities will cease to be outstanding. In the event that any date on
which any Redemption Price is payable is not a Business Day, then payment of the
Redemption Price payable on such date will be made on the next succeeding day
that is a Business Day (and without any interest or other payment in respect of
any such delay), except that, if such Business Day falls in the next calendar
year, such payment will be made on the immediately preceding Business Day, in
each case, with the same force and effect as if made on such date. In the event
that payment of the Redemption Price in respect of any Trust Securities called
for redemption is improperly withheld or refused and not paid either by the
Trust or by the Depositor pursuant to the Guarantee, Distributions on such Trust
Securities will continue to accrue, at the then applicable rate, from the
Redemption Date originally established by the Trust for such Trust Securities to
the date such Redemption Price is actually paid, in which case the actual
payment date will be the date fixed for redemption for purposes of calculating
the Redemption Price.
(e) Subject to Section 4.3(a), if less than all the Outstanding Trust
Securities are to be redeemed on a Redemption Date, then the aggregate
Liquidation Amount of Trust Securities to be redeemed shall be allocated on a
pro rata basis (based on Liquidation Amounts) among the Common Securities and
the Capital Securities. The particular Capital Securities to be redeemed shall
be selected on a pro rata basis (based upon Liquidation Amounts) or such other
method as the Property Trustee deems fair not more than 60 days prior to the
Redemption Date by the Property Trustee from the Outstanding Capital Securities
not previously called for redemption. Such determination shall be conclusive and
binding upon the Holders and the Property Trustee shall have no liability in
connection therewith. The Property Trustee shall promptly notify the Security
Registrar in writing of the Capital Securities selected for redemption and, in
the case of any Capital Securities selected for partial redemption, the
Liquidation Amount thereof to be redeemed. In the event that less than all of
the Capital Securities (other than Book-Entry Capital Securities) represented by
a Capital Securities Certificate are to be redeemed, upon surrender of such
Capital Securities Certificate the Administrators, or any one of them, shall
execute and deliver to the Paying Agent, for further delivery to the Holder of
such Capital Securities Certificate without
<PAGE>
service charge, a new Capital Securities Certificate representing the unredeemed
Capital Securities evidenced by the Capital Securities Certificate so
surrendered. For all purposes of this Trust Agreement, unless the context
otherwise requires, all provisions relating to the redemption of Capital
Securities shall relate, in the case of any Capital Securities redeemed or to be
redeemed only in part, to the portion of the Liquidation Amount of Capital
Securities that has been or is to be redeemed.
Section 4.3. Subordination of Common Securities.
(a) Payment of Distributions (including Additional Amounts, if applicable)
on, and the Redemption Price of, the Trust Securities, as applicable, shall be
made, subject to Section 4.2(e), pro rata among the Common Securities and the
Capital Securities based on the Liquidation Amount of the Trust Securities;
provided, however, that if on any Distribution Date or Redemption Date any Event
of Default resulting from a Debenture Event of Default shall have occurred and
be continuing, no payment of any Distribution (including Additional Amounts, if
applicable) on, or Redemption Price of, any Common Security, and no other
payment on account of the redemption, liquidation or other acquisition of Common
Securities, shall be made unless payment in full in cash of all accumulated and
unpaid Distributions (including Additional Amounts, if applicable) on all
Outstanding Capital Securities for all Distribution periods terminating on or
prior thereto, or in the case of payment of the Redemption Price the full amount
of such Redemption Price on all Outstanding Capital Securities then called for
redemption, shall have been made or provided for, and all funds immediately
available to the Property Trustee shall first be applied to the payment in full
in cash of all Distributions (including Additional Amounts, if applicable) on,
or the Redemption Price of, Capital Securities then due and payable.
(b) In the case of the occurrence and continuation of any Event of Default
resulting from any Debenture Event of Default, the Holder of Common Securities
will be deemed to have waived any right to act with respect to any such Event of
Default under this Trust Agreement until the effect of all such Events of
Default with respect to the Capital Securities have been cured, waived or
otherwise eliminated. Until any such Event of Default under this Trust Agreement
with respect to the Capital Securities has been so cured, waived or otherwise
eliminated, the Property Trustee shall act solely on behalf of the Holders of
the Capital Securities and not the Holder of the Common Securities, and only the
Holders of the Capital Securities will have the right to direct the Property
Trustee to act on their behalf.
Section 4.4. Payment Procedures.
Payments of Distributions (including Additional Amounts, if applicable) in
respect of the Capital Securities shall be made, at the option of the Depositor,
by check mailed to the address of the Person entitled thereto as such address
shall appear on the Securities Register or by wire transfer of immediately
available funds, or, if the Capital Securities are held by a Clearing Agency,
such Distributions shall be made to the Clearing Agency in immediately available
funds, which shall credit the relevant Persons' accounts at such Clearing Agency
on the applicable Distribution Dates. Payments in respect of the Common
Securities shall be made in such manner as shall be mutually agreed between the
Property Trustee and the Holder of the Common Securities.
<PAGE>
Section 4.5. Tax Returns and Reports.
The Administrators shall prepare (or cause to be prepared), at the
Depositor's expense, and file all United States federal, state and local tax and
information returns and reports required to be filed by or in respect of the
Trust. In this regard, the Administrators shall (a) prepare and file (or cause
to be prepared and filed) the appropriate Internal Revenue Service form required
to be filed in respect of the Trust in each taxable year of the Trust and (b)
prepare and furnish (or cause to be prepared and furnished) to each
Securityholder the appropriate Internal Revenue Service form required to be
provided. The Administrators shall provide the Depositor and the Property
Trustee with a copy of all such returns and reports promptly after such filing
or furnishing. The Property Trustee shall comply with United States federal
withholding and backup withholding tax laws and information reporting
requirements with respect to any payments to Securityholders under the Trust
Securities.
On or before December 15 of each year during which any Capital Securities
are outstanding, the Administrators shall furnish to the Property Trustee such
information as may be reasonably requested by the Property Trustee in order that
the Property Trustee may prepare the information which it is required to report
for such year on Internal Revenue Service Forms 1096 and 1099 pursuant to
Section 6049 of the Internal Revenue Code of 1986, as amended. Such information
shall include the amount of original issue discount, if any, includable in
income for each outstanding Capital Security during such year.
Section 4.6. Payment of Taxes, Duties, Etc. of the Trust.
Upon receipt under the Debentures of Additional Sums, the Property Trustee
shall promptly pay any taxes, duties or governmental charges of whatsoever
nature (other than withholding taxes) imposed on the Trust by the United States
or any other taxing authority.
Section 4.7. Payments under Indenture or Pursuant to Direct Actions.
Any amount payable hereunder to any Holder of Capital Securities shall be
reduced by the amount of any corresponding payment such Holder (or an Owner with
respect to the Holder's Capital Securities) has directly received pursuant to
Section 5.8 of the Indenture or Section 5.13 of this Trust Agreement.
ARTICLE V
Trust Securities Certificates
Section 5.1. Initial Ownership.
Upon the creation of the Trust and the contribution by the Depositor
pursuant to Section 2.3 and until the issuance of the Trust Securities, and at
any time during which no Trust Securities are outstanding, the Depositor shall
be the sole beneficial owner of the Trust.
<PAGE>
Section 5.2. The Trust Securities Certificates.
(a) The Capital Securities Certificates shall be issued in minimum
denominations of $1,000 Liquidation Amount and integral multiples thereof, and
the Common Securities Certificates shall be issued in denominations of $1,000
Liquidation Amount and integral multiples thereof. The Trust Securities
Certificates shall be executed on behalf of the Trust by manual signature of at
least one Administrator. Trust Securities Certificates bearing the manual
signatures of individuals who were, at the time when such signatures shall have
been affixed, authorized to sign on behalf of the Trust, shall be validly issued
and entitled to the benefits of this Trust Agreement, notwithstanding that such
individuals or any of them shall have ceased to be so authorized prior to the
delivery of such Trust Securities Certificates or did not hold such offices at
the date of delivery of such Trust Securities Certificates. A transferee of a
Trust Securities Certificate shall become a Securityholder, and shall be
entitled to the rights and subject to the obligations of a Securityholder
hereunder, upon due registration of such Trust Securities Certificate in such
transferee's name pursuant to Section 5.5.
(b) Upon their original issuance, Capital Securities Certificates
representing Rule 144A Capital Securities shall be issued in the form of one or
more Book-Entry Capital Securities Certificates registered in the name of DTC,
as Clearing Agency, or its nominee and deposited with DTC for credit by DTC to
the respective accounts of the Owners thereof (or such other accounts as they
may direct).
(c) Upon their original issuance, Capital Securities Certificates
representing Other Capital Securities shall not be issued in the form of a Book-
Entry Capital Securities Certificate or in any other form intended to facilitate
book-entry trading in beneficial interests in such Capital Securities.
(d) A single Common Securities Certificate representing the Common
Securities shall be issued to the Depositor in the form of a definitive Common
Securities Certificate.
Section 5.3. Execution and Delivery of Trust Securities Certificates.
At the Time of Delivery, the Administrators shall cause Common Securities
Certificates, in an aggregate Liquidation Amount as provided in Section 2.5, to
be executed on behalf of the Trust and delivered, and the Administrators, or any
of them, shall cause Capital Securities Certificates, in an aggregate
Liquidation Amount as provided in Section 2.4, to be executed by facsimile and
delivered to the Property Trustee and upon such delivery the Property Trustee
shall authenticate such Capital Securities Certificates, and deliver such
Capital Securities Certificates in each case to or upon the written order of the
Depositor, signed by its chairman of the board, its president, any executive
vice president or any vice president, treasurer or assistant treasurer or
controller without further corporate action by the Depositor, in authorized
denominations.
<PAGE>
Section 5.4. Book-Entry Capital Securities.
(a) Each Book-Entry Capital Securities Certificate issued under this Trust
Agreement shall be registered in the name of the Clearing Agency designated by
the Depositor for the related Book-Entry Capital Securities or a nominee thereof
and delivered to such Clearing Agency or a nominee thereof or custodian
therefor.
(b) Notwithstanding any other provision in this Trust Agreement, no Book-
Entry Capital Securities Certificate may be exchanged in whole or in part for
Capital Securities Certificates registered, and no transfer of a Book-Entry
Capital Securities Certificate in whole or in part may be registered, in the
name of any Person other than the Clearing Agency for such Book-Entry Capital
Securities Certificates or a nominee thereof unless (a) the Clearing Agency
advises the Property Trustee in writing that the Clearing Agency is no longer
willing or able to properly discharge its responsibilities with respect to the
Book-Entry Capital Securities Certificates, and the Property Trustee is unable
to locate a qualified successor, (b) the Trust at its option advises the
Clearing Agency in writing that it elects to terminate the book-entry system
through the Clearing Agency or (c) after the occurrence of a Debenture Event of
Default. Upon the occurrence of any event specified in clause (a), (b) or (c)
above, the Administrators shall notify the Clearing Agency and the Clearing
Agency shall notify all Owners of Book-Entry Capital Securities, the Delaware
Trustee and the Administrators of the occurrence of such event and of the
availability of the Definitive Capital Securities Certificates to Owners of such
class or classes, as applicable, requesting the same.
(c) If any Book-Entry Capital Securities Certificate is to be exchanged for
other Capital Securities Certificates or cancelled in part, or if another
Capital Securities Certificate is to be exchanged in whole or in part for Book-
Entry Capital Securities represented by a Book-Entry Capital Securities
Certificate, then either (i) such Book-Entry Capital Securities Certificate
shall be so surrendered for exchange or cancellation as provided in this Article
V or (ii) the aggregate Liquidation Amount represented by such Book-Entry
Capital Securities Certificate shall be reduced, subject to Section 5.2, or
increased by an amount equal to the Liquidation Amount represented by that
portion of the Book-Entry Capital Securities Certificate to be so exchanged or
cancelled, or equal to the Liquidation Amount represented by such other Capital
Securities Certificates to be so exchanged for Book-Entry Capital
Securitiesrepresented thereby, as the case may be, by means of an appropriate
adjustment made on the records of the Security Registrar, whereupon the Property
Trustee, in accordance with the Applicable Procedures, shall instruct the
Clearing Agency or its authorized representative to make a corresponding
adjustment to its records. Upon surrender to the Administrators or the
Securities Registrar of the Book-Entry Capital Securities Certificate or
Certificates by the Clearing Agency, accompanied by registration instructions,
the Administrators, or any one of them, shall execute the Definitive Capital
Securities Certificates in accordance with the instructions of the Clearing
Agency. None of the Securities Registrar, the Trustees or the Administrators
shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such instructions.
Upon the issuance of Definitive Capital Securities Certificates, the Trustees
and Administrators shall recognize the Holders of the Definitive Capital
Securities Certificates as Securityholders. The Definitive CapitalSecurities
Certificates shall be printed, lithographed or engraved or may be
<PAGE>
produced in any other manner as is reasonably acceptable to the Administrators,
as evidenced by the execution thereof by the Administrators or any one of them.
(d) Every Capital Securities Certificate executed and delivered upon
registration of transfer of, or in exchange for or in lieu of, a Book-Entry
Capital Securities Certificate or any portion thereof, whether pursuant to this
Article V or Article IV or otherwise, shall be executed and delivered in the
form of, and shall be, a Book-Entry Capital Securities Certificate, unless such
Capital Securities Certificate is registered in the name of a Person other than
the Clearing Agency for such Book-Entry Capital Securities Certificate or a
nominee thereof.
(e) The Clearing Agency or its nominee, as registered owner of a Book-Entry
Capital Securities Certificate, shall be the Holder of such Book-Entry Capital
Securities Certificate for all purposes under this Agreement and the Book-Entry
Capital Securities Certificate, and Owners with respect to a Book-Entry Capital
Securities Certificate shall hold such interests pursuant to the Applicable
Procedures. The Securities Registrar and the Trustees shall be entitled to deal
with the Clearing Agency for all purposes of this Trust Agreement relating to
the Book-Entry Capital Securities Certificates (including the payment of the
Liquidation Amount of and Distributions on the Book-Entry Capital Securities
represented thereby and the giving of instructions or directions to Owners of
Book-Entry Capital Securities represented thereby) as the sole Holder of the
Book-Entry Capital Securities represented thereby and shall have no obligations
to the Owners thereof. Neither the Trustee nor the Securities Registrar shall
have any liability in respect of any transfers effected by the Clearing Agency.
The rights of the Owners of the Book-Entry Capital Securities shall be
exercised only through the Clearing Agency and shall be limited to those
established by law, the Applicable Procedures and agreements between such Owners
and the Clearing Agency and/or the Clearing Agency Participants. Pursuant to the
Certificate Depository Agreement, unless and until Definitive Capital Securities
Certificates are issued pursuant to Section 5.4(b), the initial Clearing Agency
will make book-entry transfers among the Clearing Agency Participants and
receive and transmit payments on the Capital Securities to such Clearing Agency
Participants.
Section 5.5. Registration of Transfer and Exchange of Capital Securities
Certificates; Restricted Capital Securities Legends.
(a) The Property Trustee shall keep or cause to be kept, at the office or
agency maintained pursuant to Section 5.9, a register or registers for the
purpose of registering Trust Securities Certificates and transfers and exchanges
of Capital Securities Certificates (the "Securities Register") in which the
registrar designated by the Property Trustee (the "Securities Registrar"), with
the reasonable consent of the Administrators, subject to such reasonable
regulations as it may prescribe, shall provide for the registration of Capital
Securities Certificates and Common Securities Certificates (subject to Section
5.11 in the case of the Common Securities Certificates) and registration of
transfers and exchanges of Capital Securities Certificates as herein provided.
The Bank shall be the initial Securities Registrar.
Upon surrender for registration of transfer of any Capital Securities
Certificate at the office or agency maintained pursuant to Section 5.9, the
Administrators or any one of them shall execute
<PAGE>
and deliver to the Property Trustee for further delivery, in the name of the
designated transferee or transferees, one or more new Capital Securities
Certificates in authorized denominations of a like aggregate Liquidation Amount
dated the date of execution by such Administrator.
The Securities Registrar shall not be required (i) to issue, register the
transfer of or exchange any Capital Security during a period beginning at the
opening of business 15 days before the day of selection for redemption of such
Capital Securities pursuant to Article IV and ending on the close of business on
the day of mailing of the notice of redemption or (ii) to register the transfer
of any Capital Securities that have been called for redemption in whole or in
part, except in the case of any Capital Security to be redeemed in part, any
portion thereof not to be redeemed. At the option of a Holder, Capital
Securities Certificates may be exchanged for other Capital Securities
Certificates in authorized denominations of the same class and of a like
aggregate Liquidation Amount upon surrender of the Capital Securities
Certificates to be exchanged at the office or agency maintained pursuant to
Section 5.9.
Every Capital Securities Certificate presented or surrendered for
registration of transfer or exchange shall be accompanied by a written
instrument of transfer in form satisfactory to the Securities Registrar duly
executed by the Holder or his attorney duly authorized in writing. Each Capital
Securities Certificate surrendered for registration of transfer or exchange
shall be cancelled and subsequently disposed of by the Property Trustee in
accordance with its customary practice.
No service charge shall be made for any registration of transfer or
exchange of Capital Securities Certificates, but the Securities Registrar may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer or exchange of Capital Securities
Certificates.
The provisions of Sections 8.1, 8.3 and 8.6 herein shall apply to the Bank
also in its role as Securities Registrar, for so long as the Bank shall act as
Securities Registrar.
Whenever this document makes reference to the execution of Trust Securities
Certificates, such reference to execution shall mean manual execution or, in the
alternative, execution by facsimile signature by an Administrator and
authentication by the Property Trustee.
Capital Securities Certificates bearing the manual or facsimile signatures
of individuals who were at any time the proper Administrators of the Trust shall
bind the Trust, notwithstanding that such individuals or any of them have ceased
to hold such office prior to the authentication and delivery of such Capital
Securities Certificates or did not hold such offices at the date of such Capital
Securities Certificates.
Each Capital Securities Certificate that is executed by facsimile and
authenticated by the Property Trustee shall be dated the date of its
authentication.
No Capital Securities Certificate that is executed by facsimile and
authenticated by the Property Trustee shall be entitled to any benefit under
this Trust Agreement or be valid or obligatory for any purpose, unless there
appears on such Capital Securities Certificate a certificate of authentication
substantially in the form provided for in the form attached as Exhibit E-2
executed
<PAGE>
by the Property Trustee by the manual signature of one of its
authorized officers, and such certificate upon any Capital Securities
Certificate shall be conclusive evidence, and the only evidence, that such
Capital Securities Certificate has been duly authenticated and delivered
hereunder.
(b) Certain Transfers and Exchanges. Notwithstanding any other provision
-------------------------------
of this Trust Agreement, transfers and exchanges of Capital Securities
Certificates and beneficial interests in a Book-Entry Capital Security of the
kinds specified in this Section 5.5(b) shall be made only in accordance with
this Section 5.5(b).
(i) Non-Book-Entry Capital Securities Certificate to Book-Entry
-----------------------------------------------------------
Capital Securities Certificate. If the Holder of a Capital Securities
------------------------------
Certificate (other than a Book-Entry Capital Securities Certificate) wishes
at any time to transfer all or any portion of the Capital Securities
represented thereby to a Person who wishes to take delivery thereof in the
form of Book-Entry Capital Securities represented by a Book-Entry Capital
Securities Certificate, such transfer may be effected only in accordance
with the provisions of this Clause (b)(i) and subject to the Applicable
Procedures. Upon receipt by the Securities Registrar of (A) such Capital
Securities Certificate as provided in Section 5.5(a) and instructions
satisfactory to the Securities Registrar directing that a specified number
of Capital Securities to be represented by the Book-Entry Capital
Securities Certificate not greater than the number of Capital Securities
represented by such Capital Securities Certificate be credited to a
specified Clearing Agency Participant's account and (B) a Restricted
Capital Securities Certificate duly executed by such Holder or his attorney
duly authorized in writing, then the Securities Registrar shall cancel such
Capital Securities Certificate (and issue a new Capital Securities
Certificate in respect of any untransferred portion thereof) as provided in
Section 5.5(a) and increase the aggregate Liquidation Amount of the Book-
Entry Capital Securities Certificate by the Liquidation Amount represented
by such Capital Securities so transferred as provided in Section 5.4(c).
(ii) Non-Book-Entry Capital Securities Certificate to Non-Book-Entry
---------------------------------------------------------------
Capital Securities Certificate. A Capital Securities Certificate that is
------------------------------
not a Book-Entry Capital Securities Certificate may be transferred, in
whole or in part, to a Person who takes delivery in the form of another
Capital Securities Certificate that is not a Book-Entry Capital Securities
Certificate as provided in Section 5.5(a); provided that if the Capital
--------
Securities Certificate is a Restricted Capital Securities Certificate, then
the Securities Registrar shall have received a Restricted Capital
Securities Certificate duly executed by the transferor Holder or his
attorney duly authorized in writing.
(iii) Exchanges between Book-Entry Capital Securities
-----------------------------------------------
Certificate and Non-Book-Entry Capital Securities Certificate. A
-------------------------------------------------------------
beneficial interest in a Book-Entry Capital Security represented by a Book-
Entry Capital Securities Certificate may be exchanged for a Capital
Securities Certificate that is not a Book-Entry Capital Securities
Certificate as provided in Section 5.4.
(iv) Certain Initial Transfers of Non-Book-Entry Capital
---------------------------------------------------
Securities Certificates. In the case of Capital Securities Certificates
-----------------------
initially issued other than in
<PAGE>
global form, an initial transfer or exchange of such Capital Securities
Certificates that does not involve any change in beneficial ownership may
be made to an Institutional Accredited Investor or Investors as if such
transfer or exchange were not an initial transfer or exchange; provided
that a written certification is provided certifying that such exchange or
transfer does not involve a change in beneficial ownership.
(c) Restricted Capital Securities Legend. All Capital Securities issued
------------------------------------
hereunder shall bear a Restricted Capital Securities Legend, subject to the
following:
(i) subject to the following Clauses of this Section 5.5(c), a
Capital Securities Certificate or any portion thereof which is exchanged,
upon transfer or otherwise, for a Book-Entry Capital Securities Certificate
or any portion thereof shall bear a Restricted Capital Securities Legend;
(ii) subject to the following Clauses of this Section 5.5(c), a
new Capital Securities Certificate which is not a Book-Entry Capital
Securities Certificate and is issued in exchange for another Capital
Securities Certificate (including a Book-Entry Capital Securities
Certificate) or any portion thereof, upon transfer or otherwise, shall bear
a Restricted Capital Securities Legend;
(iii) after February 4, 2000, a new Capital Securities
Certificate (other than a Book-Entry Capital Securities Certificate) which
does not bear a Restricted Capital Securities Legend shall (unless an
Administrator provides an Opinion of Counsel to the contrary) be issued in
exchange for or in lieu of a Capital Securities Certificate representing
Restricted Capital Securities or any portion thereof if the Property
Trustee has received an Unrestricted Securities Certificate, in the form of
Exhibit G hereto, duly executed by the Holder or the Owner of such
Restricted Capital Securities or his attorney duly authorized in writing,
and after such date and receipt of such certificate, the Administrators
shall execute and deliver such a new Capital Securities Certificate in
exchange for or in lieu of such other certificate representing Restricted
Capital Securities as provided in this Article V;
(iv) a new Capital Securities Certificate (other than a Book-
Entry Capital Securities Certificate) which does not bear a Restricted
Capital Securities Legend may be issued in exchange for or in lieu of a
Capital Securities Certificate representing Restricted Capital Securities
or any portion thereof based on an Opinion of Counsel, stating that placing
such a legend upon such new Capital Securities Certificate is not necessary
to ensure compliance with the registration requirements of the Securities
Act, and the Administrators shall execute and deliver such a new Capital
Securities Certificate as provided in this Article V; and
(v) notwithstanding the foregoing provisions of this Section
5.5(c), a Successor Capital Securities Certificate of a Capital Securities
Certificate that does not bear a Restricted Capital Securities Legend shall
not bear such form of legend unless a Responsible Officer of the Property
Trustee has actual knowledge (without conducting any independent inquiry)
that such Successor Capital Securities Certificate is a "restricted
security" within the meaning of Rule 144 under the Securities Act, in which
case the
<PAGE>
Administrators shall authenticate and deliver a new Capital Securities
Certificate bearing a Restricted Capital Securities Legend in exchange for
such Successor Capital Securities Certificate as provided in this Article
V.
Section 5.6. Mutilated, Destroyed, Lost or Stolen Trust Securities
Certificates.
If (a) any mutilated Trust Securities Certificate shall be surrendered to
the Securities Registrar, or if the Securities Registrar shall receive evidence
to its satisfaction of the destruction, loss or theft of any Trust Securities
Certificate and (b) there shall be delivered to the Securities Registrar and the
Administrators such security or indemnity as may be required by them to save
each of them harmless, then in the absence of notice that such Trust Securities
Certificate shall have been acquired by a bona fide purchaser, the
Administrators, or any one of them, on behalf of the Trust shall execute and
make available for delivery, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Trust Securities Certificate, a new Trust Securities
Certificate of like class, tenor and denomination. In connection with the
issuance of any new Trust Securities Certificate under this Section, the
Administrators or the Securities Registrar may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection therewith. Any duplicate Trust Securities Certificate issued pursuant
to this Section shall constitute conclusive evidence of an undivided beneficial
interest in the assets of the Trust, as if originally issued, whether or not the
lost, stolen or destroyed Trust Securities Certificate shall be found at any
time.
Section 5.7. Persons Deemed Securityholders.
The Trustees, the Administrators or the Securities Registrar shall treat
the Person in whose name any Trust Securities Certificate shall be registered in
the Securities Register as the owner of such Trust Securities Certificate for
the purpose of receiving Distributions and for all other purposes whatsoever,
and neither the Trustees, the Administrators nor the Securities Registrar shall
be bound by any notice to the contrary.
Section 5.8. Access to List of Securityholders' Names and Addresses.
Each Holder and each Owner shall be deemed to have agreed not to hold the
Depositor, the Property Trustee, the Delaware Trustee or the Administrators
accountable by reason of the disclosure of its name and address, regardless of
the source from which such information was derived.
<PAGE>
Section 5.9. Maintenance of Office or Agency.
The Property Trustee shall designate, with the consent of the
Administrators, which consent shall not be unreasonably withheld, an office or
offices or agency or agencies where Capital Securities Certificates may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Trustees in respect of the Trust Securities Certificates
may be served. The Corporate Trust Office of the Property Trustee is initially
designated the office for such purpose. The Administrators or the Property
Trustee shall give prompt written notice to the Depositor and to the
Securityholders of any change in the location of the Securities Register or any
such office or agency.
Section 5.10. Appointment of Paying Agent.
The Paying Agent shall make Distributions to Securityholders from the
Payment Account and shall report the amounts of such Distributions to the
Property Trustee and the Administrators. Any Paying Agent shall have the
revocable power to withdraw funds from the Payment Account for the purpose of
making the Distributions referred to above. The Property Trustee may revoke such
power and remove the Paying Agent in its sole discretion. The Paying Agent shall
initially be the Bank, and any co-paying agent chosen by the Bank, and
reasonably acceptable to the Administrators. Any Person acting as Paying Agent
shall be permitted to resign as Paying Agent upon 30 days' written notice to the
Administrators and the Property Trustee. In the event that the Bank shall no
longer be the Paying Agent or a successor Paying Agent shall resign or its
authority to act be revoked, the Depositor, or if an Issuer Trust Default shall
have occurred and be continuing, the Property Trustee, shall appoint a successor
that is reasonably acceptable to the Administrators to act as Paying Agent
(which shall be a bank or trust company). Such successor Paying Agent or any
additional Paying Agent shall execute and deliver to the Trustees an instrument
in which such successor Paying Agent or additional Paying Agent shall agree with
the Trustees that as Paying Agent, such successor Paying Agent or additional
Paying Agent will hold all sums, if any, held by it for payment to the
Securityholders in trust for the benefit of the Securityholders entitled thereto
until such sums shall be paid to such Securityholders. The Paying Agent shall
return all unclaimed funds to the Property Trustee and upon removal of a Paying
Agent such Paying Agent shall also return all funds in its possession to the
Property Trustee. The provisions of Sections 8.1, 8.3 and 8.6 herein shall apply
to the Bank also in its role as Paying Agent, for so long as the Bank shall act
as Paying Agent and, to the extent applicable, to any other paying agent
appointed hereunder. Any reference in this Agreement to the Paying Agent shall
include any co-paying agent unless the context requires otherwise.
Section 5.11. Ownership of Common Securities by Depositor.
At the Time of Delivery, the Depositor shall acquire and retain beneficial
and record ownership of the Common Securities. To the fullest extent permitted
by law, other than a transfer in connection with a consolidation or merger of
the Depositor into another Person, or any conveyance, transfer or lease by the
Depositor of its properties and assets substantially as an entirety to any
Person, pursuant to Section 8.1 of the Indenture, any attempted transfer of the
Common Securities shall be void. The Administrators shall cause each Common
Securities Certificate issued to the Depositor to contain a legend stating "THIS
CERTIFICATE IS NOT TRANSFERABLE".
<PAGE>
Section 5.12. Notices to Clearing Agency.
To the extent that a notice or other communication to the Owners is
required under this Trust Agreement, unless and until Definitive Capital
Securities Certificates shall have been issued to all Owners pursuant to Section
5.4(b), the Trustees shall give all such notices and communications specified
herein to be given to Owners to the Clearing Agency, and shall have no
obligations to the Owners.
Section 5.13. Rights of Securityholders.
(a) The legal title to the Trust Property is vested exclusively in the
Property Trustee (in its capacity as such) in accordance with Section 2.9, and
the Securityholders shall not have any right or title therein other than the
undivided beneficial interest in the assets of the Trust conferred by their
Trust Securities and they shall have no right to call for any partition or
division of property, profits or rights of the Trust except as described below.
The Trust Securities shall be personal property giving only the rights
specifically set forth therein and in this Trust Agreement. The Trust Securities
shall have no preemptive or similar rights and when issued and delivered to
Securityholders against payment of the purchase price therefor will be fully
paid and nonassessable by the Trust. The Holders of the Trust Securities, in
their capacities as such, shall be entitled to the same limitation of personal
liability extended to stockholders of private corporations for profit organized
under the General Corporation Law of the State of Delaware.
(b) For so long as any Capital Securities remain Outstanding, if, upon a
Debenture Event of Default, the Debenture Trustee fails or the holders of not
less than 25% in principal amount of the outstanding Debentures fail to declare
the principal of all of the Debentures to be immediately due and payable, the
Holders of at least 25% in Liquidation Amount of the Capital Securities then
Outstanding shall have such right by a notice in writing to the Depositor and
the Debenture Trustee with a copy to the Property Trustee; and upon any such
declaration such principal amount of and the accrued interest on all of the
Debentures shall become immediately due and payable, provided that the payment
of principal and interest on such Debentures shall remain subordinated to the
extent provided in the Indenture.
At any time after such a declaration of acceleration with respect to the
Debentures has been made and before a judgment or decree for payment of the
money due has been obtained by the Debenture Trustee as in the Indenture
provided, the Holders of a Majority in Liquidation Amount of the Capital
Securities, by written notice to the Property Trustee, the Depositor and the
Debenture Trustee, may rescind and annul such declaration and its consequences
if:
(i) the Depositor has paid or deposited with the Debenture Trustee a
sum sufficient to pay
(A) all overdue installments of interest (including any
Additional Interest (as defined in the Indenture)) on all of the
Debentures,
(B) the principal of (and premium, if any, on) any
Debentures which
<PAGE>
have become due otherwise than by such declaration of acceleration and
interest thereon at the rate borne by the Debentures, and
(C) all sums paid or advanced by the Debenture Trustee under
the Indenture and the reasonable compensation, expenses, disbursements
and advances of the Debenture Trustee and the Property Trustee, their
agents and counsel; and
(ii) all Events of Default with respect to the Debentures, other than
the non-payment of the principal of the Debentures which has become due
solely by such acceleration, have been cured or waived as provided in
Section 5.13 of the Indenture.
The Holders of a majority in aggregate Liquidation Amount of the Capital
Securities may, on behalf of the Holders of all the Capital Securities, waive
any past default under the Indenture, except a default in the payment of
principal or interest (unless such default has been cured and a sum sufficient
to pay all matured installments of interest and principal due otherwise than by
acceleration has been deposited with the Debenture Trustee) or a default in
respect of a covenant or provision which under the Indenture cannot be modified
or amended without the consent of the holder of each outstanding Debenture. No
such rescission shall affect any subsequent default or impair any right
consequent thereon.
Upon receipt by the Property Trustee of written notice declaring such an
acceleration, or rescission and annulment thereof, by Holders of the Capital
Securities all or part of which is represented by Book-Entry Capital Securities
Certificates, a record date shall be established for determining Holders of
Outstanding Capital Securities entitled to join in such notice, which record
date shall be at the close of business on the day the Property Trustee receives
such notice. The Holders on such record date, or their duly designated proxies,
and only such Persons, shall be entitled to join in such notice, whether or not
such Holders remain Holders after such record date; provided, that, unless such
declaration of acceleration, or rescission and annulment, as the case may be,
shall have become effective by virtue of the requisite percentage having joined
in such notice prior to the day which is 90 days after such record date, such
notice of declaration of acceleration, or rescission and annulment, as the case
may be, shall automatically and without further action by any Holder be canceled
and of no further effect. Nothing in this paragraph shall prevent a Holder, or a
proxy of a Holder, from giving, after expiration of such 90-day period, a new
written notice of declaration of acceleration, or rescission and annulment
thereof, as the case may be, that is identical to a written notice which has
been canceled pursuant to the proviso to the preceding sentence, in which event
a new record date shall be established pursuant to the provisions of this
Section 5.13(b).
(c) For so long as any Capital Securities remain Outstanding, to the
fullest extent permitted by law and subject to the terms of this Trust Agreement
and the Indenture, upon a Debenture Event of Default specified in Section 5.1(1)
or 5.1(2) of the Indenture, any Holder of Capital Securities shall have the
right to institute a proceeding directly against the Depositor, pursuant to
Section 5.8 of the Indenture, for enforcement of payment to such Holder of the
principal amount of or interest on Debentures having a principal amount equal to
the Liquidation Amount of the Capital Securities of such Holder (a "Direct
Action"). Except as set forth in Section 5.13(b) and this Section 5.13(c), the
Holders of Capital Securities shall have no right to exercise directly any right
or remedy
<PAGE>
available to the holders of, or in respect of, the Debentures.
ARTICLE VI
Acts of Securityholders; Meetings; Voting
Section 6.1. Limitations on Voting Rights.
(a) Except as provided in this Section, in Sections 5.13, 8.10 and 10.2 and
in the Indenture and as otherwise required by law, no Holder of Capital
Securities shall have any right to vote or in any manner otherwise control the
administration, operation and management of the Trust or the obligations of the
parties hereto, nor shall anything herein set forth, or contained in the terms
of the Trust Securities Certificates, be construed so as to constitute the
Securityholders from time to time as partners or members of an association.
(b) So long as any Debentures are held by the Property Trustee, the
Trustees shall not (i) direct the time, method and place of conducting any
proceeding for any remedy available to the Debenture Trustee, or executing any
trust or power conferred on the Debenture Trustee with respect to such
Debentures, (ii) waive any past default which is waivable under Section 5.13 of
the Indenture, (iii) exercise any right to rescind or annul a declaration that
the principal of all the Debentures shall be due and payable or (iv) consent to
any amendment, modification or termination of the Indenture or the Debentures,
where such consent shall be required, without, in each case, obtaining the prior
approval of the Holders of a Majority in Liquidation Amount of the Capital
Securities, provided, however, that where a consent under the Indenture would
require the consent of each holder of Debentures affected thereby, no such
consent shall be given by the Property Trustee without the prior written consent
of each Holder of Capital Securities. The Trustees shall not revoke any action
previously authorized or approved by a vote of the Holders of Capital
Securities, except by a subsequent vote of the Holders of Capital Securities.
The Property Trustee shall notify all Holders of the Capital Securities of any
notice of default received from the Debenture Trustee with respect to the
Debentures. In addition to obtaining the foregoing approvals of the Holders of
the Capital Securities, prior to taking any of the foregoing actions, the
Trustees shall, at the expense of the Depositor, obtain an Opinion of Counsel
experienced in such matters to the effect that such action shall not cause the
Trust to be classified as an association taxable as a corporation for United
States Federal income tax purposes.
(c) If any proposed amendment to the Trust Agreement provides for, or the
Trustees otherwise propose to effect, (i) any action that would adversely affect
in any material respect the powers, preferences or special rights of the Capital
Securities, whether by way of amendment to the Trust Agreement or otherwise, or
(ii) the dissolution, winding-up or termination of the Trust, other than
pursuant to the terms of this Trust Agreement, then the Holders of Outstanding
Capital Securities as a class will be entitled to vote on such amendment or
proposal and such amendment or proposal shall not be effective except with the
approval of the Holders of a Majority in Liquidation Amount of the Capital
Securities. Notwithstanding any other provision of this Trust Agreement, no
amendment to this Trust Agreement may be made if, as a result of such amendment,
it would cause the Trust to fail to be classified as a grantor trust for United
States Federal income tax purposes.
<PAGE>
Section 6.2. Notice of Meetings.
Notice of all meetings of the Capital Securityholders, stating the time,
place and purpose of the meeting, shall be given by the Property Trustee
pursuant to Section 10.8 to each Capital Securityholder of record, at its
registered address, at least 15 days and not more than 90 days before the
meeting. At any such meeting, any business properly before the meeting may be so
considered whether or not stated in the notice of the meeting. Any adjourned
meeting may be held as adjourned without further notice.
Section 6.3. Meetings of Capital Securityholders.
No annual meeting of Securityholders is required to be held. The Property
Trustee, however, shall call a meeting of Capital Securityholders to vote on any
matter upon the written request of the Capital Securityholders of record of 25%
of the Capital Securities (based upon their Liquidation Amount) and the
Administrators or the Property Trustee may, at any time in their discretion,
call a meeting of Capital Securityholders to vote on any matters as to which
Capital Securityholders are entitled to vote.
Capital Securityholders of record of 50% of the Outstanding Capital
Securities (based upon their Liquidation Amount), present in person or by proxy,
shall constitute a quorum at any meeting of Capital Securityholders.
If a quorum is present at a meeting, an affirmative vote by the Capital
Securityholders of record present, in person or by proxy, holding more than a
majority of the Capital Securities (based upon their Liquidation Amount) held by
the Capital Securityholders of record present, either in person or by proxy, at
such meeting shall constitute the action of the Capital Securityholders, unless
this Trust Agreement requires a greater number of affirmative votes.
Section 6.4. Voting Rights.
Securityholders shall be entitled to one vote for each $1,000 of
Liquidation Amount represented by their Trust Securities in respect of any
matter as to which such Securityholders are entitled to vote.
<PAGE>
Section 6.5. Proxies, etc.
At any meeting of Securityholders, any Securityholder entitled to vote
thereat may vote by proxy, provided that no proxy shall be voted at any meeting
unless it shall have been placed on file with the Property Trustee, or with such
other officer or agent of the Trust as the Property Trustee may direct, for
verification prior to the time at which such vote shall be taken. If authorized
by the Property Trustee, proxies may be solicited in the name of the Property
Trustee or one or more officers of the Property Trustee. Only Securityholders of
record shall be entitled to vote. When Trust Securities are held jointly by
several Persons, any one of them may vote at any meeting in person or by proxy
in respect of such Trust Securities, but if more than one of them shall be
present at such meeting in person or by proxy, and such joint owners or their
proxies so present disagree as to any vote to be cast, such vote shall not be
received in respect of such Trust Securities. A proxy purporting to be executed
by or on behalf of a Securityholder shall be deemed valid unless challenged at
or prior to its exercise, and the burden of proving invalidity shall rest on the
challenger. No proxy shall be valid more than three years after its date of
execution.
Section 6.6. Securityholder Action by Written Consent.
Any action which may be taken by Securityholders at a meeting may be taken
without a meeting if Securityholders holding more than a majority of all
Outstanding Trust Securities (based upon their Liquidation Amount) entitled to
vote in respect of such action (or such larger proportion thereof as shall be
required by any express provision of this Trust Agreement) shall consent to the
action in writing.
Section 6.7. Record Date for Voting and Other Purposes.
For the purposes of determining the Securityholders who are entitled to
notice of and to vote at any meeting or by written consent, or to participate in
any distribution on the Trust Securities in respect of which a record date is
not otherwise provided for in this Trust Agreement, or for the purpose of any
other action, the Administrators or Property Trustee may from time to time fix a
date, not more than 90 days prior to the date of any meeting of Securityholders
or the payment of a distribution or other action, as the case may be, as a
record date for the determination of the identity of the Securityholders of
record for such purposes.
<PAGE>
Section 6.8. Acts of Securityholders.
Any request, demand, authorization, direction, notice, consent, waiver or
other action provided or permitted by this Trust Agreement to be given, made or
taken by Securityholders or Owners may be embodied in and evidenced by one or
more instruments of substantially similar tenor signed by such Securityholders
or Owners in person or by an agent duly appointed in writing; and, except as
otherwise expressly provided herein, such action shall become effective when
such instrument or instruments are delivered to the Property Trustee. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Securityholders or
Owners signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Trust Agreement and (subject to Section 8.1) conclusive in favor
of the Trustees, if made in the manner provided in this Section.
The fact and date of the execution by any Person of any such instrument or
writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a signer acting in a capacity other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of his
authority. The fact and date of the execution of any such instrument or writing,
or the authority of the Person executing the same, may also be proved in any
other manner which any Trustee receiving the same deems sufficient.
The ownership of Capital Securities shall be proved by the Securities
Register.
Any request, demand, authorization, direction, notice, consent, waiver or
other Act of the Securityholder of any Trust Security shall bind every future
Securityholder of the same Trust Security and the Securityholder of every Trust
Security issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof in respect of anything done, omitted or suffered to
be done by the Trustees or the Trust in reliance thereon, whether or not
notation of such action is made upon such Trust Security.
Without limiting the foregoing, a Securityholder entitled hereunder to take
any action hereunder with regard to any particular Trust Security may do so with
regard to all or any part of the Liquidation Amount of such Trust Security or by
one or more duly appointed agents each of which may do so pursuant to such
appointment with regard to all or any part of such Liquidation Amount.
If any dispute shall arise between the Securityholders and the
Administrators or among such Securityholders or Trustees with respect to the
authenticity, validity or binding nature of any request, demand, authorization,
direction, consent, waiver or other Act of such Securityholder or Trustee under
this Article VI, then the determination of such matter by the Property Trustee
shall be conclusive with respect to such matter.
<PAGE>
Section 6.9. Inspection of Records.
Upon reasonable notice to the Administrators and the Property Trustee, the
records of the Trust shall be open to inspection by Securityholders during
normal business hours for any purpose reasonably related to such
Securityholder's interest as a Securityholder.
ARTICLE VII
Representations and Warranties
Section 7.1. Representations and Warranties of the Property Trustee and the
Delaware Trustee.
The Property Trustee and the Delaware Trustee, each severally on behalf of
and as to itself, hereby represents and warrants for the benefit of the
Depositor and the Securityholders that:
(a) the Property Trustee is a New York banking corporation duly organized,
validly existing and in good standing under the laws of the State of New York;
(b) the Property Trustee has full corporate power, authority and legal
right to execute, deliver and perform its obligations under this Trust Agreement
and has taken all necessary action to authorize the execution, delivery and
performance by it of this Trust Agreement;
(c) the Delaware Trustee is a Delaware corporation duly organized, validly
existing and in good standing in the State of Delaware;
(d) the Delaware Trustee has full corporate power, authority and legal
right to execute, deliver and perform its obligations under this Trust Agreement
and has taken all necessary action to authorize the execution, delivery and
performance by it of this Trust Agreement;
(e) this Trust Agreement has been duly authorized, executed and delivered
by the Property Trustee and the Delaware Trustee and constitutes the valid and
legally binding agreement of each of the Property Trustee and the Delaware
Trustee enforceable against each of them in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles;
(f) the execution, delivery and performance of this Trust Agreement has
been duly authorized by all necessary corporate or other action on the part of
the Property Trustee and the Delaware Trustee and does not require any approval
of stockholders of the Property Trustee and the Delaware Trustee and such
execution, delivery and performance will not (i) violate the Charter or By-laws
of the Property Trustee or the Delaware Trustee, (ii) result in the creation or
imposition of, any Lien on any properties included in the Trust Property
pursuant to the provisions of, any indenture, mortgage, credit agreement,
license or other agreement or instrument to which the
<PAGE>
Property Trustee or the Delaware Trustee is a party or by which it is bound, or
(iii) violate any law, governmental rule or regulation of the United States or
the State of Delaware, as the case may be, governing the banking, trust or
general powers of the Property Trustee or the Delaware Trustee (as appropriate
in context) or any order, judgment or decree applicable to the Property Trustee
or the Delaware Trustee;
(g) neither the authorization, execution or delivery by the Property
Trustee or the Delaware Trustee of this Trust Agreement nor the consummation of
any of the transactions by the Property Trustee or the Delaware Trustee (as
appropriate in context) contemplated herein or therein requires the consent or
approval of, the giving of notice to, the registration with or the taking of any
other action with respect to any governmental authority or agency under any
existing Federal law governing the banking, trust or general powers of the
Property Trustee or the Delaware Trustee, as the case may be, under the laws of
the United States or the State of Delaware; and
(h) there are no proceedings pending or, to the best of each of the
Property Trustee's and the Delaware Trustee's knowledge, threatened against or
affecting the Property Trustee or the Delaware Trustee in any court or before
any governmental authority, agency or arbitration board or tribunal which, in
the good faith judgment of the Property Trustee or the Delaware Trustee, as the
case may be, individually or in the aggregate, would materially and adversely
affect the Trust or the right, power and authority of the Property Trustee or
the Delaware Trustee, as the case may be, to enter into or perform its
obligations as one of the Trustees under this Trust Agreement.
Section 7.2. Representations and Warranties of Depositor.
The Depositor hereby represents and warrants for the benefit of the
Securityholders that:
(a) the Trust Securities Certificates issued at the Time of Delivery on
behalf of the Trust have been duly authorized, and will have been duly and
validly executed, issued and delivered by the Trustees pursuant to the terms and
provisions of, and in accordance with the requirements of, this Trust Agreement
and the Securityholders will be, as of each such date, entitled to the benefits
of this Trust Agreement; and
(b) there are no taxes, fees or other governmental charges payable by the
Trust (or the Trustees on behalf of the Trust) under the laws of the State of
Delaware or any political subdivision thereof in connection with the execution,
delivery and performance by the Property Trustee or the Delaware Trustee, as the
case may be, of this Trust Agreement.
<PAGE>
ARTICLE VIII
The Trustees; the Administrators
Section 8.1. Certain Duties and Responsibilities.
(a) The duties and responsibilities of the Trustees and Administrators
shall be as provided by this Trust Agreement and, in the case of the Property
Trustee, by the Trust Indenture Act. Notwithstanding the foregoing, no provision
of this Trust Agreement shall require the Trustees or Administrators to expend
or risk their own funds or otherwise incur any financial liability in the
performance of any of their duties hereunder, or in the exercise of any of their
rights or powers, if they shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity satisfactory to it against such
risk or liability is not reasonably assured to it. Whether or not therein
expressly so provided, every provision of this Trust Agreement relating to the
conduct or affecting the liability of or affording protection to the Trustees or
Administrators shall be subject to the provisions of this Article. Nothing in
this Trust Agreement shall be construed to release an Administrator from
liability for his or her own gross negligent action, his or her own gross
negligent failure to act, or his or her own willful misconduct. To the extent
that, at law or in equity, an Administrator has duties and liabilities relating
thereto to the Trust or to the Securityholders, such Administrator shall not be
liable to the Trust or to any Securityholder for such Administrator's good faith
reliance on the provisions of this Trust Agreement. The provisions of this Trust
Agreement, to the extent that they restrict the duties and liabilities of the
Administrators otherwise existing at law or in equity, are agreed by the
Depositor and the Securityholders to replace such other duties and liabilities
of the Administrators.
(b) All payments made by the Property Trustee or a Paying Agent in respect
of the Trust Securities shall be made only from the revenue and proceeds from
the Trust Property and only to the extent that there shall be sufficient revenue
or proceeds from the Trust Property to enable the Property Trustee or a Paying
Agent to make payments in accordance with the terms hereof. Each Securityholder,
by its acceptance of a Trust Security, agrees that it will look solely to the
revenue and proceeds from the Trust Property to the extent legally available for
distribution to it as herein provided and that the Trustees are not personally
liable to it for any amount distributable in respect of any Trust Security or
for any other liability in respect of any Trust Security. This Section 8.1(b)
does not limit the liability of the Trustees expressly set forth elsewhere in
this Trust Agreement or, in the case of the Property Trustee, in the Trust
Indenture Act.
(c) No provision of this Trust Agreement shall be construed to relieve the
Property Trustee from liability for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that:
(i) the Property Trustee shall not be liable for any error of judgment
made in good faith by an authorized officer of the Property Trustee, unless
it shall be proved that the Property Trustee was negligent in ascertaining
the pertinent facts;
(ii) the Property Trustee shall not be liable with respect to any
action taken or
<PAGE>
omitted to be taken by it in good faith in accordance with the direction of
the Holders of not less than a majority in Liquidation Amount of the Trust
Securities entitled to vote relating to the time, method and place of
conducting any proceeding for any remedy available to the Property Trustee,
or exercising any trust or power conferred upon the Property Trustee under
this Trust Agreement;
(iii) the Property Trustee's sole duty with respect to the custody,
safe keeping and physical preservation of the Debentures and the Payment
Account shall be to deal with such property in a similar manner as the
Property Trustee deals with similar property for its own account, subject
to the protections and limitations on liability afforded to the Property
Trustee under this Trust Agreement and the Trust Indenture Act;
(iv) the Property Trustee shall not be liable for any interest on any
money received by it except as it may otherwise agree with the Depositor;
and money held by the Property Trustee need not be segregated from other
funds held by it except in relation to the Payment Account maintained by
the Property Trustee pursuant to Section 3.1 and except to the extent
otherwise required by law; and
(v) the Property Trustee shall not be responsible for monitoring the
compliance by the Administrators or the Depositor with their respective
duties under this Trust Agreement, nor shall the Property Trustee be liable
for the default or misconduct of the Administrators or the Depositor.
Section 8.2. Certain Notices.
Within ten Business Days after the occurrence of any Event of Default
actually known to a Responsible Officer of the Property Trustee, the Property
Trustee shall transmit, in the manner and to the extent provided in Section
10.8, notice of such Event of Default to the Securityholders, the Administrators
and the Depositor, unless such Event of Default shall have been cured or waived.
Within five Business Days after the receipt of notice of the Depositor's
exercise of its right to defer the payment of interest on the Debentures
pursuant to the Indenture, the Property Trustee shall transmit, in the manner
and to the extent provided in Section 10.8, notice of such exercise to the
Securityholders, unless such exercise shall have been revoked.
Section 8.3. Certain Rights of Property Trustee.
Subject to the provisions of Section 8.1:
(a) the Property Trustee may conclusively rely and shall fully be protected
in acting or refraining from acting in good faith upon any resolution, Opinion
of Counsel, certificate, written representation of a Holder or transferee,
certificate of auditors or any other certificate, statement, instrument,
opinion, report, notice, request, consent, order, appraisal, bond, debenture,
note, other evidence of indebtedness or other paper or document believed by it
to be genuine and to have been signed or presented by the proper party or
parties;
<PAGE>
(b) if (i) in performing its duties under this Trust Agreement the Property
Trustee is required to decide between alternative courses of action or (ii) in
construing any of the provisions of this Trust Agreement the Property Trustee
finds the same ambiguous or inconsistent with any other provisions contained
herein or (iii) the Property Trustee is unsure of the application of any
provision of this Trust Agreement, then, except as to any matter as to which the
Capital Securityholders are entitled to vote under the terms of this Trust
Agreement, the Property Trustee shall deliver a notice to the Depositor
requesting the Depositor's opinion as to the course of action to be taken and
the Property Trustee (regardless of whether or not the Property Trustee has
received an opinion from the Depositor) shall take such action, or refrain from
taking such action, as the Property Trustee shall deem advisable and in the best
interests of the Securityholders, in which event the Property Trustee shall have
no liability except for its own bad faith, negligence or willful misconduct;
(c) any direction or act of the Depositor or the Administrators
contemplated by this Trust Agreement shall be sufficiently evidenced by an
Officers' Certificate;
(d) any direction or act of Administrators contemplated by this Trust
Agreement shall be sufficiently evidenced by a certificate executed by any
Administrators and setting forth such direction or act;
(e) whenever in the administration of this Trust Agreement, the Property
Trustee shall deem it desirable that a matter be established before undertaking,
suffering or omitting any action hereunder, the Property Trustee (unless other
evidence is herein specifically prescribed) may, in the absence of bad faith on
its part, request and rely upon an Officers' Certificate as to factual matters
(other than the interpretation of this Agreement) which, upon receipt of such
request, shall be promptly delivered by the Depositor or the Administrators;
(f) the Property Trustee shall have no duty to see to any recording, filing
or registration of any instrument (including any financing or continuation
statement or any filing under tax or securities laws) or any rerecording,
refiling or reregistration thereof;
(g) the Property Trustee may consult with counsel of its choice (which
counsel may be counsel to the Depositor or any of its Affiliates, and may
include any of its employees) and the advice of such counsel shall be full and
complete authorization and protection in respect of any action taken, suffered
or omitted by it hereunder in good faith and in reliance thereon and in
accordance with such advice; the Property Trustee shall have the right at any
time to seek instructions concerning the administration of this Trust Agreement
from any court of competent jurisdiction;
(h) the Property Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Trust Agreement at the request or
direction of any of the Securityholders pursuant to this Trust Agreement, unless
such Securityholders shall have offered to the Property Trustee security or
indemnity reasonably satisfactory to it against the costs, expenses and
liabilities which might be incurred by it in compliance with such request or
direction;
(i) the Property Trustee shall not be bound to make any investigation into
the facts or
<PAGE>
matters stated in any resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order, approval, bond, debenture, note or
other evidence of indebtedness or other paper or document, unless requested in
writing to do so by one or more Securityholders, but the Property Trustee may
make such further inquiry or investigation into such facts or matters as it may
see fit;
(j) the Property Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through its agents or
attorneys and the Property Trustee shall not be responsible for any misconduct
or negligence on the part of, or for the supervision of, any such agent or
attorney appointed with due care by it hereunder;
(k) whenever in the administration of this Trust Agreement the Property
Trustee shall deem it desirable to receive instructions with respect to
enforcing any remedy or right or taking any other action hereunder the Property
Trustee (i) may request instructions from the Holders of the Trust Securities
which instructions may only be given by the Holders of the same proportion in
Liquidation Amount of the Trust Securities as would be entitled to direct the
Property Trustee under the terms of the Trust Securities in respect of such
remedy, right or action, (ii) may refrain from enforcing such remedy or right or
taking such other action until such instructions are received, and (iii) shall
be fully protected in acting in accordance with such instructions;
(l) except as otherwise expressly provided by this Trust Agreement, the
Property Trustee shall not be under any obligation to take any action that is
discretionary under the provisions of this Trust Agreement;
(m) when the Property Trustee incurs expenses or renders services in
connection with a Bankruptcy Event, such expenses (including the fees and
expenses of its counsel) and the compensation for such services are intended to
constitute expenses of administration under any bankruptcy law or law relating
to creditors rights generally; and
(n) the Property Trustee shall not be charged with knowledge of an Event
of Default unless a Responsible Officer of the Property Trustee obtains actual
knowledge of such event or the Property Trustee receives written notice of such
event from Securityholders holding more than a majority of the Capital
Securities (based upon Liquidation Amount).
No provision of this Trust Agreement shall be deemed to impose any duty or
obligation on the Property Trustee to perform any act or acts or exercise any
right, power, duty or obligation conferred or imposed on it, in any jurisdiction
in which it shall be illegal, or in which the Property Trustee shall be
unqualified or incompetent in accordance with applicable law, to perform any
such act or acts, or to exercise any such right, power, duty or obligation. No
permissive power or authority available to the Property Trustee shall be
construed to be a duty.
Section 8.4. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Trust Securities Certificates
shall be taken as the statements of the Trust, and the Trustees do not assume
any responsibility for their correctness. The Trustees shall not be accountable
for the use or application by the Depositor of the proceeds of the Debentures.
<PAGE>
Section 8.5. May Hold Securities.
Any Trustee or any other agent of any Trustee or the Trust, in its
individual or any other capacity, may become the owner or pledgee of Trust
Securities and, subject to Sections 8.8 and 8.13 and except as provided in the
definition of the term "Outstanding" in Article I, may
otherwise deal with the Trust with the same rights it would have if it were not
a Trustee or such other agent.
Section 8.6. Compensation; Indemnity; Fees.
The Depositor agrees:
(a) to pay to the Trustees from time to time reasonable compensation for
all services rendered by them hereunder in such amounts as the Depositor and
such Trustees shall agree upon from time to time (which compensation shall not
be limited by any provision of law in regard to the compensation of a trustee of
an express trust);
(b) except as otherwise expressly provided herein, to reimburse the
Trustees upon request for all reasonable expenses, disbursements and advances
incurred or made by the Trustees in accordance with any provision of this Trust
Agreement (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to its negligence or bad faith; and
(c) to the fullest extent permitted by applicable law, to indemnify and
hold harmless (i) each Trustee, (ii) any Affiliate of any Trustee, (iii) any
officer, director, shareholder, employee, representative or agent of any
Trustee, (iv) each Administrator, and (v) any employee or agent of the Trust or
its Affiliates (referred to herein as an "Indemnified Person") from and against
any loss, damage, liability, tax, penalty, expense or claim of any kind or
nature whatsoever incurred by such Indemnified Person by reason of the creation,
operation or termination of the Trust or any act or omission performed or
omitted by such Indemnified Person in good faith on behalf of the Trust and in a
manner such Indemnified Person reasonably believed to be within the scope of
authority conferred on such Indemnified Person by this Trust Agreement, except
that no Indemnified Person shall be entitled to be indemnified in respect of any
loss, damage or claim incurred by such Indemnified Person by reason of
negligence or willful misconduct with respect to such acts or omissions.
The provisions of this Section 8.6 shall survive the termination of this
Trust Agreement or the earlier resignation or removal of any Trustee.
No Trustee may claim any lien or charge on any Trust Property as a result
of any amount due pursuant to this Section 8.6.
The Depositor and any Trustee (in the case of the Property Trustee, subject
to Section 8.8 hereof) may engage in or possess an interest in other business
ventures of any nature or description, independently or with others, similar or
dissimilar to the business of the Trust, and the Trust and the Holders of Trust
Securities shall have no rights by virtue of this Trust Agreement in and to such
<PAGE>
independent ventures or the income or profits derived therefrom, and the pursuit
of any such venture, even if competitive with the business of the Trust, shall
not be deemed wrongful or improper. Neither the Depositor, nor any Trustee,
shall be obligated to present any particular investment or other opportunity to
the Trust even if such opportunity is of a character that, if presented to the
Trust, could be taken by the Trust, and the Depositor or any Trustee shall have
the right to take for its own account (individually or as a partner or
fiduciary) or to recommend to others any such particular investment or other
opportunity. Any Trustee may engage or be interested in any financial or other
transaction with the Depositor or any Affiliate of the Depositor, or may act as
depository for, trustee or agent for, or act on any committee or body of holders
of, securities or other obligations of the Depositor or its Affiliates.
Section 8.7. Corporate Property Trustee Required; Eligibility of Trustees
and Administrators.
(a) There shall at all times be a Property Trustee hereunder with respect
to the Trust Securities. The Property Trustee shall be a Person that is a
national or state chartered bank and eligible pursuant to the Trust Indenture
Act to act as such, shall have a combined capital and surplus of at least
$50,000,000 and at the time of appointment shall have unsecured securities rated
in one of the three highest rating categories by a nationally recognized
statistical rating organization. If any such Person publishes reports of
condition at least annually, pursuant to law or to the requirements of its
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such Person shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. If at any time the Property Trustee with respect to the Trust
Securities shall cease to be eligible in accordance with the provisions of this
Section, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article.
(b) There shall at all times be one or more Administrators hereunder with
respect to the Trust Securities. Each Administrator shall be either a natural
person who is at least 21 years of age or a legal entity that shall act through
one or more persons authorized to bind that entity.
(c) There shall at all times be a Delaware Trustee with respect to the
Trust Securities. The Delaware Trustee shall either be (i) a natural person who
is at least 21 years of age and a resident of the State of Delaware or (ii) a
legal entity with its principal place of business in the State of Delaware and
that otherwise meets the requirements of applicable Delaware law that shall act
through one or more persons authorized to bind such entity.
Section 8.8. Conflicting Interests.
(a) If the Property Trustee has or shall acquire a conflicting interest
within the meaning of the Trust Indenture Act, the Property Trustee shall either
eliminate such interest or resign, to the extent and in the manner provided by,
and subject to the provisions of, the Trust Indenture Act and this Trust
Agreement.
<PAGE>
(b) The Guarantee Agreement and the Indenture shall be deemed to be
specifically described in this Trust Agreement for the purposes of clause (i) of
the first provision contained in Section 310(b) of the Trust Indenture Act.
Section 8.9. Co-Trustees and Separate Trustee.
Unless an Event of Default shall have occurred and be continuing, at any
time or times, for the purpose of meeting the legal requirements of any
jurisdiction in which any part of the Trust Property may at the time be located,
the Property Trustee shall have power to appoint, and upon the written request
of the Property Trustee, the Depositor and the Administrators shall for such
purpose join in the execution, delivery, and performance of all instruments and
agreements necessary or proper to appoint, one or more Persons approved by the
Property Trustee either to act as co-trustee, jointly with the Property Trustee,
of all or any part of such Trust Property, or to the extent required by law to
act as separate trustee of any such property, in either case with such powers as
may be provided in the instrument of appointment, and to vest in such Person or
Persons in the capacity aforesaid, any property, title, right or power deemed
necessary or desirable, subject to the other provisions of this Section. Any
co-trustee or separate trustee appointed pursuant to this Section shall either
be (i) a natural person who is at least 21 years of age and a resident of the
United States or (ii) a legal entity with its principal place of business in the
United States that shall act through one or more persons authorized to bind such
entity.
Should any written instrument from the Depositor be required by any co-
trustee or separate trustee so appointed for more fully confirming to such co-
trustee or separate trustee such property, title, right, or power, any and all
such instruments shall, on request, be executed, acknowledged and delivered by
the Depositor.
Every co-trustee or separate trustee shall, to the extent permitted by law,
but to such extent only, be appointed subject to the following terms, namely:
(a) The Trust Securities shall be executed and delivered and all rights,
powers, duties, and obligations hereunder in respect of the custody of
securities, cash and other personal property held by, or required to be
deposited or pledged with, the Trustees specified hereunder shall be exercised
solely by such Trustees and not by such co-trustee or separate trustee.
(b) The rights, powers, duties, and obligations hereby conferred or
imposed upon the Property Trustee in respect of any property covered by such
appointment shall be conferred or imposed upon and exercised or performed by the
Property Trustee or by the Property Trustee and such co-trustee or separate
trustee jointly, as shall be provided in the instrument appointing such co-
trustee or separate trustee, except to the extent that under any law of any
jurisdiction in which any particular act is to be performed, the Property
Trustee shall be incompetent or unqualified to perform such act, in which event
such rights, powers, duties and obligations shall be exercised and performed by
such co-trustee or separate trustee.
(c) The Property Trustee at any time, by an instrument in writing executed
by it, with the written concurrence of the Depositor, may accept the resignation
of or remove any co-trustee or
<PAGE>
separate trustee appointed under this Section, and, in case a Debenture Event of
Default has occurred and is continuing, the Property Trustee shall have power to
accept the resignation of, or remove, any such co-trustee or separate trustee
without the concurrence of the Depositor. Upon the written request of the
Property Trustee, the Depositor shall join with the Property Trustee in the
execution, delivery and performance of all instruments and agreements necessary
or proper to effectuate such resignation or removal. A successor to any co-
trustee or separate trustee so resigned or removed may be appointed in the
manner provided in this Section.
(d) No co-trustee or separate trustee hereunder shall be personally liable
by reason of any act or omission of the Property Trustee or any other trustee
hereunder.
(e) The Property Trustee shall not be liable by reason of any act of a co-
trustee or separate trustee.
(f) Any Act of Holders delivered to the Property Trustee shall be deemed
to have been delivered to each such co-trustee and separate trustee.
Section 8.10. Resignation and Removal; Appointment of Successor.
No resignation or removal of any Trustee (the "Relevant Trustee") and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee in
accordance with the applicable requirements of Section 8.11.
Subject to the immediately preceding paragraph, a Relevant Trustee may
resign at any time by giving written notice thereof to the Securityholders and
by appointing a successor Relevant Trustee. If the instrument of acceptance by
the successor Trustee required by Section 8.11 shall not have been delivered to
the Relevant Trustee within 60 days after the giving of such notice of
resignation, the Relevant Trustee may petition, at the expense of the Trust, any
court of competent jurisdiction for the appointment of a successor Relevant
Trustee. The Property Trustee shall have no liability for the selection of such
successor pursuant to this Section 8.10.
The Property Trustee or the Delaware Trustee, or both of them, may be
removed by Act of the Holders of a Majority in Liquidation Amount of the Capital
Securities, delivered to the Relevant Trustee (in its individual capacity and on
behalf of the Trust) (i) at any time for cause or (ii) if an Event of Default
shall have occurred and be continuing with or without cause. In addition,
unless an Issuer Trust Default shall have occurred and be continuing, the
Property Trustee or the Delaware Trustee, or both of them, may be removed at any
time by the Holder of the Common Securities.
If any Trustee shall resign, be removed by the Holder of Common Securities
or the Holders of a Majority in Liquidation Amount of the Capital Securities or
become incapable of acting as trustee, or if a vacancy shall occur in the office
of any Trustee for any cause, (i) if an Issuer Trust Default has not occurred or
has occurred and is not continuing, the Common Securityholder by Act of the
Common Securityholder, delivered to the retiring Relevant Trustee, or (ii) if an
Issuer Trust Default has occurred and is continuing, the Relevant Trustee
(except if such Trustee was removed
<PAGE>
by the Holder of the Common Securities or the Holders of a Majority in
Liquidation Amount of the Capital Securities or if a Debenture Event of Default
has occurred and is continuing) or the Capital Securityholders, by Act of the
Securityholders of at least 25% in Liquidation Amount of the Capital Securities
then Outstanding delivered to the retiring Relevant Trustee, shall promptly
appoint a successor Relevant Trustee or Trustees. If the Property Trustee shall
appoint a successor, it shall do so by requesting from at least three Persons
meeting the eligibility requirements, its expenses and charges to serve as the
Property Trustee on a form provided by the Administrators, and selecting the
Person who agrees to the lowest expense and charges. In any case, such successor
Relevant Trustee shall comply with the applicable requirements of Section 8.11.
If no successor Relevant Trustee shall have been so appointed as provided above
and accepted appointment in the manner required by Section 8.11, any
Securityholder may, on behalf of himself and all others similarly situated, or
the Property Trustee, may petition any court of competent jurisdiction for the
appointment of a successor Relevant Trustee.
The Property Trustee shall give notice of each resignation and each removal
of a Trustee and each appointment of a successor Trustee to all Securityholders
in the manner provided in Section 10.8 and shall give notice to the Depositor.
Each notice shall include the name of the successor Relevant Trustee and the
address of its Corporate Trust Office if it is the Property Trustee.
Notwithstanding the foregoing or any other provision of this Trust
Agreement, in the event a Delaware Trustee who is a natural person dies or
becomes incompetent or incapacitated, the vacancy created by such death,
incompetence or incapacity may be filled by the Property Trustee following the
procedures in Section 8.10 (with the successor being a Person who satisfies the
eligibility requirement for a Delaware Trustee set forth in Section 8.7).
Section 8.11. Acceptance of Appointment by Successor.
In case of the appointment hereunder of a successor Relevant Trustee, the
retiring Relevant Trustee and each successor Relevant Trustee with respect to
the Trust Securities shall execute and deliver an amendment hereto wherein each
successor Relevant Trustee shall accept such appointment and which (a) shall
contain such provisions as shall be necessary or desirable to transfer and
confirm to, and to vest in, each successor Relevant Trustee all the rights,
powers, trusts and duties of the retiring Relevant Trustee with respect to the
Trust Securities and the Trust and (b) shall add to or change any of the
provisions of this Trust Agreement as shall be necessary to provide for or
facilitate the administration of the Trust by more than one Relevant Trustee, it
being understood that nothing herein or in such amendment shall constitute such
Relevant Trustees co-trustees and upon the execution and delivery of such
amendment the resignation or removal of the retiring Relevant Trustee shall
become effective to the extent provided therein and each such successor Relevant
Trustee, without any further act, deed or conveyance, shall become vested with
all the rights, powers, trusts and duties of the retiring Relevant Trustee; but,
on request of the Trust or any successor Relevant Trustee such retiring Relevant
Trustee shall duly assign, transfer and deliver to such successor Relevant
Trustee all Trust Property, all proceeds thereof and money held by such retiring
Relevant Trustee hereunder with respect to the Trust Securities and the Trust.
Upon request of any such successor Relevant Trustee, the Trust shall
execute any and all
<PAGE>
instruments for more fully and certainly vesting in and confirming to such
successor Relevant Trustee all such rights, powers and trusts referred to in the
first or second preceding paragraph, as the case may be.
No successor Relevant Trustee shall accept its appointment unless at the
time of such acceptance such successor Relevant Trustee shall be qualified and
eligible under this Article.
Section 8.12. Merger, Conversion, Consolidation or Succession to Business.
Any Person into which the Property Trustee or the Delaware Trustee may be
merged or converted or with which it may be consolidated, or any Person
resulting from any merger, conversion or consolidation to which such Relevant
Trustee shall be a party, or any Person succeeding to all or substantially all
the corporate trust business of such Relevant Trustee, shall be the successor of
such Relevant Trustee hereunder, provided such Person shall be otherwise
qualified and eligible under this Article, without the execution or filing of
any paper or any further act on the part of any of the parties hereto.
Section 8.13. Preferential Collection of Claims Against Depositor or Trust.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
similar judicial proceeding relative to the Trust or any other obligor upon the
Trust Securities or the property of the Trust or of such other obligor or their
creditors, the Property Trustee (irrespective of whether any Distributions on
the Trust Securities shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Property Trustee shall
have made any demand on the Trust for the payment of any past due Distributions)
shall be entitled and empowered, to the fullest extent permitted by law, by
intervention in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount of any Distributions
owing and unpaid in respect of the Trust Securities and to file such other
papers or documents as may be necessary or advisable in order to have the claims
of the Property Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Property Trustee, its agents and
counsel) and of the Holders allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Property Trustee and, in the event the
Property Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Property Trustee any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Property Trustee, its
agents and counsel, and any other amounts due the Property Trustee.
Nothing herein contained shall be deemed to authorize the Property Trustee
to authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement,
<PAGE>
adjustment or compensation affecting the Trust Securities or the rights of any
Holder thereof or to authorize the Property Trustee to vote in respect of the
claim of any Holder in any such proceeding.
If and when the Property Trustee shall be or become a creditor of the
Depositor or the Issuer Trust (or any other obligor upon the Capital
Securities), the Property Trustee shall be subject to the provisions of the
Trust Indenture Act regarding the collection of claims against the Depositor or
the Issuer Trust (or any such other obligor).
Section 8.14. Reports by Property Trustee.
(a) Not later than 60 days after December 31 of each year commencing with
December 31, 1997, the Property Trustee shall transmit to all Securityholders in
accordance with Section 10.8, and to the Depositor, a brief report dated as of
the immediately preceding December 31 with respect to:
(i) its eligibility under Section 8.7 or, in lieu thereof, if to the
best of its knowledge it has continued to be eligible under said Section, a
written statement to such effect; and
(ii) any change in the property and funds in its possession as
Property Trustee since the date of its last report and any action taken by
the Property Trustee in the performance of its duties hereunder which it
has not previously reported and which in its opinion materially affects the
Trust Securities.
(b) In addition the Property Trustee shall transmit to Securityholders
such reports concerning the Property Trustee and its actions under this Trust
Agreement as may be required pursuant to the Trust Indenture Act at the times
and in the manner provided pursuant thereto.
(c) A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Property Trustee with the Depositor.
Section 8.15. Reports to the Property Trustee.
The Depositor and the Administrators on behalf of the Trust shall only be
required to provide to the Property Trustee the compliance certificates required
by Section 314(a)(3) of the Trust Indenture Act. Upon the request of a Holder
or beneficial owner of Capital Securities, the Depositor and Administrators on
behalf of the Trust shall promptly furnish Rule 144A Information, or cause such
information to be furnished, to such Holder or beneficial owner or to a
prospective purchaser of such Capital Securities designated by such Holder or
beneficial owner in order to permit compliance by such Holder or beneficial
owner with Rule 144A under the Securities Act in connection with the resale of
such Capital Securities by such Holder or beneficial owner. The compliance
certificates will be provided within 120 days after the end of each fiscal year.
<PAGE>
Section 8.16. Evidence of Compliance with Conditions Precedent.
Each of the Depositor and the Administrators on behalf of the Trust shall
provide to the Property Trustee such evidence of compliance with any conditions
precedent, if any, provided for in this Trust Agreement that relate to any of
the matters set forth in Section 314 (c) of the Trust Indenture Act. Any
certificate or opinion required to be given by an officer pursuant to Section
314(c)(1) of the Trust Indenture Act shall be given in the form of an Officers'
Certificate.
Section 8.17. Number of Trustees.
(a) The number of Trustees shall be two. The Property Trustee and the
Delaware Trustee may be the same Person.
(b) If a Trustee ceases to hold office for any reason a vacancy shall
occur. The vacancy shall be filled with a Trustee appointed in accordance with
Section 8.10.
(c) The death, resignation, retirement, removal, bankruptcy, incompetence
or incapacity to perform the duties of a Trustee shall not operate to annul,
dissolve or terminate the Trust.
Section 8.18. Delegation of Power.
(a) Any Administrator may, by power of attorney consistent with applicable
law, delegate to any other natural person over the age of 21 his or her power
for the purpose of executing any documents contemplated in Section 2.7(a),
including any registration statement or amendment thereto filed with the
Commission, or making any other governmental filing; and
(b) The Administrators shall have power to delegate from time to time to
such of their number the doing of such things and the execution of such
instruments either in the name of the Trust or the names of the Administrators
or otherwise as the Administrators may deem expedient, to the extent such
delegation is not prohibited by applicable law or contrary to the provisions of
this Trust Agreement, as set forth herein.
Section 8.19. Appointment of Administrators.
(a) The Administrators shall be appointed by the Common Securityholder and
may be removed by the Common Securityholder at any time. Each Administrator
shall sign an agreement agreeing to comply with the terms of this Trust
Agreement. If at any time there is no Administrator, the Property Trustee or
any Securityholder who has been a Securityholder of Trust Securities for at
least six months may petition any court of competent jurisdiction for the
appointment of one or more Administrators.
(b) Whenever a vacancy in the number of Administrators shall occur, until
such vacancy is filled by the appointment of an Administrator in accordance with
this Section 8.19, the Administrators in office, regardless of their number (and
notwithstanding any other provision of this Agreement), shall have all the
powers granted to the Administrators and shall discharge all the
<PAGE>
duties imposed upon the Administrators by this Trust Agreement.
Notwithstanding the foregoing or any other provision of this Trust
Agreement, in the event any Administrator who is a natural person dies or
becomes, in the opinion of the Common Securityholder, incompetent or
incapacitated, the vacancy created by such death, incompetence or incapacity may
be filled by the unanimous act of the remaining Administrators if there were at
least two of them prior to such vacancy (with the successor in each case being a
Person who satisfies the eligibility requirement for Administrators set forth in
Section 8.7).
ARTICLE IX
TERMINATION, LIQUIDATION AND MERGER
Section 9.1. Termination Upon Expiration Date.
Unless earlier terminated, the Trust shall automatically terminate on
February 1, 2028 (the "Expiration Date"), following the distribution of the
Trust Property in accordance with Section 9.4.
Section 9.2. Early Termination.
The first to occur of any of the following events is an "Early Termination
Event":
(a) the occurrence of a Bankruptcy Event in respect of, or the dissolution
or liquidation of, the Depositor;
(b) the written direction to the Property Trustee from the Holder of the
Common Securities at any time to terminate the Trust and, after satisfaction of
liabilities to creditors of the Trust as provided by applicable law, distribute
Debentures to Securityholders in exchange for the Capital Securities; provided,
however, that (i) the Property Trustee shall have first received an Opinion of
Counsel to the effect that such distribution will not be a taxable event to the
Holders and (ii) the prior approval of the Federal Reserve to do so if the
Holder of the Common Securities is then subject to and required to obtain such
approval under applicable capital guidelines or policies of the Federal Reserve;
(c) the redemption of all of the Capital Securities in connection with the
redemption of all the Debentures; and
(d) the entry of an order for dissolution of the Trust by a court of
competent jurisdiction.
<PAGE>
Section 9.3. Termination.
The respective obligations and responsibilities of the Trustees and the
Trust created and continued hereby shall terminate upon the latest to occur of
the following: (a) the distribution by the Property Trustee to Securityholders
upon the liquidation of the Trust pursuant to Section 9.4, or upon the
redemption of all of the Trust Securities pursuant to Section 4.2, of all
amounts required to be distributed hereunder upon the final payment of the Trust
Securities; (b) the payment of any expenses owed by the Trust; and (c) the
discharge of all administrative duties of the Administrators, including the
performance of any tax reporting obligations with respect to the Trust or the
Securityholders.
Section 9.4. Liquidation.
(a) If an Early Termination Event specified in clause (a), (b) or (d) of
Section 9.2 occurs or upon the Expiration Date, the Trust shall be liquidated by
the Trustees as expeditiously as the Property Trustee determines to be possible
by distributing, after satisfaction of liabilities to creditors of the Trust as
provided by applicable law, to each Securityholder a Like Amount of Debentures,
subject to Section 9.4(d). Notice of liquidation shall be given by the Property
Trustee by first-class mail, postage prepaid mailed not later than 30 nor more
than 60 days prior to the Liquidation Date to each Holder of Trust Securities at
such Holder's address appearing in the Securities Register. All notices of
liquidation shall:
(i) state the Liquidation Date;
(ii) state that from and after the Liquidation Date, the Trust
Securities will no longer be deemed to be Outstanding and any Trust
Securities Certificates not surrendered for exchange will be deemed to
represent a Like Amount of Debentures or the right to receive a Liquidation
Distribution, as applicable; and
(iii) provide such information with respect to the mechanics by which
Holders may exchange Trust Securities Certificates for Debentures, or if
Section 9.4(d) applies receive a Liquidation Distribution, as the Property
Trustee (after consultation with the Administrators) shall deem
appropriate.
(b) Except where Section 9.2(c) or 9.4(d) applies, in order to effect the
liquidation of the Trust and distribution of the Debentures to Securityholders,
the Property Trustee, either itself acting as exchange agent or through the
appointment of a separate exchange agent, shall establish such procedures as it
shall deem appropriate to effect the distribution of Debentures in exchange for
the Outstanding Trust Securities Certificates.
(c) Except where Section 9.2(c) or 9.4(d) applies, after the Liquidation
Date, (i) the Trust Securities will no longer be deemed to be Outstanding, (ii)
certificates representing a Like Amount of Debentures will be issued to holders
of Trust Securities Certificates, upon surrender of such certificates to the
exchange agent for exchange, (iii) any Trust Securities Certificates not so
surrendered for exchange will be deemed to represent a Like Amount of
Debentures, accruing
<PAGE>
interest at the rate provided for in the Debentures from the last Distribution
Date on which a Distribution was made on such Trust Securities Certificates
until such certificates are so surrendered (and until such certificates are so
surrendered, no payments of interest or principal will be made to Holders of
Trust Securities Certificates with respect to such Debentures) and (iv) all
rights of Securityholders holding Trust Securities will cease, except the right
of such Securityholders to receive Debentures upon surrender of Trust Securities
Certificates.
(d) In the event that, notwithstanding the other provisions of this
Section 9.4, whether because of an order for dissolution entered by a court of
competent jurisdiction or otherwise, distribution of the Debentures in the
manner provided herein is determined by the Property Trustee not to be
practical, the Trust Property shall be liquidated, and the Trust shall be
dissolved, wound-up or terminated, by the Property Trustee in such manner as the
Property Trustee determines. In such event, on the date of the dissolution,
winding-up or other termination of the Trust, Securityholders will be entitled
to receive out of the assets of the Trust available for distribution to
Securityholders, after satisfaction of liabilities to creditors of the Trust as
provided by applicable law, an amount equal to the Liquidation Amount per Trust
Security plus accumulated and unpaid Distributions thereon to the date of
payment (such amount being the "Liquidation Distribution"). If, upon any such
dissolution, winding up or termination, the Liquidation Distribution can be paid
only in part because the Trust has insufficient assets available to pay in full
the aggregate Liquidation Distribution, then, subject to the next succeeding
sentence, the amounts payable by the Trust on the Trust Securities shall be paid
on a pro rata basis (based upon Liquidation Amounts). The holder of the Common
Securities will be entitled to receive Liquidation Distributions upon any such
dissolution, winding-up or termination pro rata (determined as aforesaid) with
Holders of Capital Securities, except that, if a Debenture Event of Default has
occurred and is continuing, the Capital Securities shall have a priority over
the Common Securities. Any such determination and liquidation by the Property
Trustee shall be conclusive upon the Securityholders and the Property Trustee
shall have no liability in connection therewith absent bad faith or negligence.
<PAGE>
Section 9.5. Mergers, Consolidations, Amalgamations or Replacements of the
Trust.
The Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other entity, except pursuant
to this Section 9.5. At the request of the Holder of the Common Securities, with
the consent of the Holders of a Majority in Liquidation Amount of the Capital
Securities, the Trust may merge with or into, consolidate, amalgamate, or be
replaced by or convey, transfer or lease its properties and assets substantially
as an entirety to a trust organized as such under the laws of any State;
provided, that (i) such successor entity either (a) expressly assumes all of the
obligations of the Trust with respect to the Capital Securities or (b)
substitutes for the Capital Securities other securities having substantially the
same terms as the Capital Securities (the "Successor Securities") so long as the
Successor Securities rank the same as the Capital Securities rank in priority
with respect to distributions and payments upon liquidation, redemption and
otherwise, (ii) the Holders of a majority (based on Liquidation Amounts) of
Capital Securities appoints a trustee of such successor entity possessing the
same powers and duties as the Property Trustee as the holder of the Debentures,
(iii) the Successor Securities are listed or traded, or any Successor Securities
will be listed upon notification of issuance, on any national securities
exchange or other organization on which the Capital Securities are then listed
or traded, if any, (iv) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not cause the Capital Securities (including
any Successor Securities) to be downgraded by any nationally recognized
statistical rating organization, (v) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the Capital Securities (including
any Successor Securities) in any material respect, (vi) such successor entity
has a purpose identical to that of the Trust, (vii) prior to such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, the
Depositor and the Property Trustee have received an Opinion of Counsel to the
effect that (a) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights, preferences
and privileges of the holders of the Capital Securities (including any Successor
Securities) in any material respect, and (b) following such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, neither
the Trust nor such successor entity will be required to register as an
investment company under the 1940 Act and (viii) the Depositor owns all of the
Common Securities of such successor entity and guarantees the obligations of
such successor entity under the Successor Securities at least to the extent
provided by the Guarantee. Notwithstanding the foregoing, the Trust shall not,
except with the consent of holders of 100% in Liquidation Amount of the Capital
Securities, consolidate, amalgamate, merge with or into, or be replaced by or
convey, transfer or lease its properties and assets substantially as an entirety
to, any other entity or permit any other entity to consolidate, amalgamate,
merge with or into, or replace it if such consolidation, amalgamation, merger,
replacement, conveyance, transfer or lease would cause the Trust or the
successor entity to be taxable as a corporation or classified as other than a
grantor trust for United States Federal income tax purposes.
<PAGE>
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.1. Limitation of Rights of Securityholders.
The death or incapacity of any person having an interest, beneficial or
otherwise, in Trust Securities shall not operate to terminate this Trust
Agreement, nor entitle the legal representatives or heirs of such person or any
Securityholder for such person, to claim an accounting, take any action or bring
any proceeding in any court for a partition or winding up of the arrangements
contemplated hereby, nor otherwise affect the rights, obligations and
liabilities of the parties hereto or any of them.
Section 10.2. Amendment.
(a) This Trust Agreement may be amended from time to time by the Property
Trustee and the Holder of the Common Securities without the consent of the
Depositor or any Capital Securityholders, (i) to cure any ambiguity, correct or
supplement any provision herein which may be inconsistent with any other
provision herein, or to make any other provisions with respect to matters or
questions arising under this Trust Agreement, which shall not be inconsistent
with the other provisions of this Trust Agreement, or (ii) to modify, eliminate
or add to any provisions of this Trust Agreement to such extent as shall be
necessary to ensure that the Trust will be classified for United States Federal
income tax purposes as a grantor trust at all times that any Trust Securities
are outstanding or to ensure that the Trust will not be required to register as
an investment company under the 1940 Act; provided, however, that such action
described in (i) or (ii) shall not adversely affect in any material respect the
interests of any Securityholder, and any amendments of this Trust Agreement
shall become effective when notice thereof is given to the Securityholders.
(b) Except as provided in Section 10.2(c) hereof, any provision of this
Trust Agreement may be amended by the Property Trustee and the Holder of the
Common Securities (without execution of any amendment by the Depositor) and with
(i) the consent of Capital Securityholders representing not less than a majority
(based upon Liquidation Amounts) of the Capital Securities then Outstanding and
(ii) receipt by the Trustees of an Opinion of Counsel to the effect that such
amendment or the exercise of any power granted to the Trustees in accordance
with such amendment will not affect the Trust's status as a grantor trust for
United States Federal income tax purposes or the Trust's exemption from status
as an investment company under the 1940 Act.
(c) In addition to and notwithstanding any other provision in this Trust
Agreement, without the consent of each affected Securityholder (such consent
being obtained in accordance with Section 6.3 or 6.6 hereof), this Trust
Agreement may not be amended to (i) change the amount or timing of any
Distribution on the Trust Securities or otherwise adversely affect the amount of
any Distribution required to be made in respect of the Trust Securities as of a
specified date or (ii) restrict the right of a Securityholder to institute suit
for the enforcement of any such payment on or after such date; notwithstanding
any other provision herein, without the unanimous consent of the Securityholders
(such consent being obtained in accordance with Section 6.3 or 6.6 hereof), this
<PAGE>
paragraph (c) of this Section 10.2 may not be amended.
(d) Notwithstanding any other provisions of this Trust Agreement, no
Trustee shall enter into or consent to any amendment to this Trust Agreement
which would cause the Trust to fail or cease to qualify for the exemption from
status of an investment company under the 1940 Act or fail or cease to be
classified as a grantor trust for United States Federal income tax purposes.
(e) Notwithstanding anything in this Trust Agreement to the contrary,
without the consent of the Depositor, this Trust Agreement may not be amended in
a manner which imposes any additional obligation on the Depositor.
(f) In the event that any amendment to this Trust Agreement is made, the
Administrators or the Property Trustee shall promptly provide to the Depositor a
copy of such amendment.
(g) Neither the Property Trustee nor the Delaware Trustee shall be
required to enter into any amendment to this Trust Agreement which affects its
own rights, duties or immunities under this Trust Agreement or would otherwise
expose the Property Trustee to any liability or be contrary to applicable law.
The Property Trustee shall be entitled to receive an Opinion of Counsel and an
Officers' Certificate stating that any amendment to this Trust Agreement is in
compliance with this Trust Agreement.
Section 10.3. Separability.
In case any provision in this Trust Agreement or in the Trust Securities
Certificates shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
Section 10.4. Governing Law.
THIS TRUST AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE
SECURITYHOLDERS, THE TRUST AND THE TRUSTEES WITH RESPECT TO THIS TRUST AGREEMENT
AND THE TRUST SECURITIES SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF DELAWARE. THE PROVISIONS OF SECTION 3540 AND 3561 OF
TITLE 12 OF THE DELAWARE CODE SHALL NOT APPLY TO THIS TRUST.
Section 10.5. Payments Due on Non-Business Day.
If the date fixed for any payment on any Trust Security shall be a day that
is not a Business Day, then such payment need not be made on such date but may
be made on the next succeeding day that is a Business Day (except as otherwise
provided in Sections 4.1(a) and 4.2(d)), with the same force and effect as
though made on the date fixed for such payment, and no Distributions shall
accumulate thereon for the period after such date.
<PAGE>
Section 10.6. Successors.
This Trust Agreement shall be binding upon and shall inure to the benefit
of any successor to the Depositor, the Trust or the Relevant Trustee, including
any successor by operation of law. Except in connection with a consolidation,
merger or sale involving the Depositor that is permitted under Article VIII of
the Indenture and pursuant to which the assignee agrees in writing to perform
the Depositor's obligations hereunder, the Depositor shall not assign its
obligations hereunder.
Section 10.7. Headings.
The Article and Section headings are for convenience only and shall not
affect the construction of this Trust Agreement.
Section 10.8. Reports, Notices and Demands.
Any report, notice, demand or other communication which by any provision of
this Trust Agreement is required or permitted to be given or served to or upon
any Securityholder or the Depositor may be given or served in writing by deposit
thereof, first-class postage prepaid, in the United States mail, hand delivery
or facsimile transmission, in each case, addressed, (a) in the case of a Capital
Securityholder, to such Capital Securityholder as such Securityholder's name and
address may appear on the Securities Register; and (b) in the case of the Common
Securityholder or the Depositor, to Providian Bancorp, Inc., 201 Mission Street,
San Francisco, California 94105, Attention: Secretary, facsimile no.: (415) 278-
6028. Any notice to Capital Securityholders may also be given to such Owners as
have, within two years preceding the giving of such notice, filed their names
and addresses with the Property Trustee for that purpose. Such notice, demand or
other communication to or upon a Securityholder shall be deemed to have been
sufficiently given or made, for all purposes, upon hand delivery, mailing or
transmission.
Any notice, demand or other communication which by any provision of this
Trust Agreement is required or permitted to be given or served to or upon the
Trust, the Property Trustee, the Delaware Trustee or the Administrators shall be
given in writing by deposit thereof, first class postage prepaid, in the United
States mail, hand delivery or overnight courier or by facsimile transmission
(confirmed by delivery of the original), in each case, addressed (until another
address is published by the Trust) as follows: (a) with respect to the Trust,
to the Delaware Trustee, the Property Trustee, and the Administrators at their
respective addresses set forth below; (b) with respect to the Property Trustee
to The Bank of New York, 101 Barclay Street, New York, New York 10286,
Attention: Vivian Georges; (c) with respect to the Delaware Trustee, to The
Bank of New York (Delaware), White Clay Center, Route 273, Newark, Delaware
19711 - Attention: Corporate Trust Department; and (d) with respect to the
Administrators, to them at the address above for notices to the Depositor,
marked "Attention Administrators of Providian Capital I." Such notice, demand or
other communication to or upon the Trust or the Property Trustee shall be deemed
to have been sufficiently given or made only upon actual receipt of the writing
by the Trust or the Property Trustee.
<PAGE>
Section 10.9. Agreement Not to Petition.
Each of the Trustees and the Depositor agree for the benefit of the
Securityholders that, until at least one year and one day after the Trust has
been terminated in accordance with Article IX, they shall not file, or join in
the filing of, a petition against the Trust under any bankruptcy, insolvency,
reorganization or other similar law (including, without limitation, the United
States Bankruptcy Code) (collectively, "Bankruptcy Laws") or otherwise join in
the commencement of any proceeding against the Trust under any Bankruptcy Law.
In the event the Depositor takes action in violation of this Section 10.9, the
Property Trustee agrees, for the benefit of Securityholders, that at the expense
of the Depositor, it shall file an answer with the bankruptcy court or otherwise
properly contest the filing of such petition by the Depositor against the Trust
or the commencement of such action and raise the defense that the Depositor has
agreed in writing not to take such action and should be stopped and precluded
therefrom and such other defenses, if any, as counsel for the Trustees or the
Trust may assert. The provisions of this Section 10.9 shall survive the
termination of this Trust Agreement.
Section 10.10. Trust Indenture Act; Conflict with Trust Indenture Act.
(a) The Trust Indenture Act shall apply as a matter of contract to this
Trust Agreement for purposes of interpretation, construction and defining the
rights and obligations hereunder, except as provided in Section 8.15.
(b) The Property Trustee shall be the only Trustee which is a trustee for
the purposes of the Trust Indenture Act.
(c) Except as provided in Section 8.15, if any provision hereof limits,
qualifies or conflicts with another provision hereof which is required to be
included in this Trust Agreement by any of the provisions of the Trust Indenture
Act, such required provision shall control. If any provision of this Trust
Agreement modifies or excludes any provision of the Trust Indenture Act which
may be so modified or excluded, the latter provision shall be deemed to apply to
this Trust Agreement as so modified or excluded, as the case may be.
(d) The application of the Trust Indenture Act to this Trust Agreement
shall not affect the nature of the Securities as equity securities representing
undivided beneficial interests in the assets of the Trust.
<PAGE>
Section 10.11. Acceptance of Terms of Trust Agreement, Guarantee and
Indenture.
THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST THEREIN BY
OR ON BEHALF OF A SECURITYHOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY SIGNATURE
OR FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE UNCONDITIONAL
ACCEPTANCE BY THE SECURITYHOLDER AND ALL OTHERS HAVING A BENEFICIAL INTEREST IN
SUCH TRUST SECURITY OF ALL THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT AND
AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER TERMS OF THE GUARANTEE AND
THE INDENTURE, AND SHALL CONSTITUTE THE AGREEMENT OF THE TRUST, SUCH
SECURITYHOLDER AND SUCH OTHERS THAT THE TERMS AND PROVISIONS OF THIS TRUST
AGREEMENT SHALL BE BINDING, OPERATIVE AND EFFECTIVE AS BETWEEN THE TRUST AND
SUCH SECURITYHOLDER AND SUCH OTHERS.
Providian Bancorp, Inc.
By: /s/ David J. Petrini
-------------------------------------------
Name: David J. Petrini
Title: Senior Vice President and
Senior Financial Officer
The Bank Of New York,
as Property Trustee
By: /s/ Vivian Georges
-------------------------------------------
Name: Vivian Georges
Title: Assistant Vice President
The Bank Of New York (Delaware),
as Delaware Trustee
By: /s/ Mary Jane Morrissey
-------------------------------------------
Name: Mary Jane Morrissey
Title: Authorized Signatory
<PAGE>
EXHIBIT A
CERTIFICATE OF TRUST
OF
PROVIDIAN CAPITAL I
<PAGE>
EXHIBIT B
CERTIFICATE DEPOSITORY AGREEMENT
<PAGE>
EXHIBIT C
THIS CERTIFICATE IS NOT TRANSFERABLE
CERTIFICATE NUMBER
NUMBER OF COMMON SECURITIES
C-__ ______________
CERTIFICATE EVIDENCING COMMON SECURITIES
OF
PROVIDIAN CAPITAL I
9.525% COMMON SECURITIES, SERIES A
(LIQUIDATION AMOUNT $1,000 PER COMMON SECURITY)
Providian Capital I, a statutory business trust formed under the Business
Trust Act of the State of Delaware (the "Trust"), hereby certifies that
Providian Bancorp, Inc. (the "Holder") is the registered owner of
_____________________________________ (_____) common securities of the Trust
representing undivided beneficial interests in the assets of the Trust and
designated the 9.525% Common Securities (liquidation amount $1,000 per common
security) (the "Common Securities"). In accordance with Section 5.11 of the
Trust Agreement (as defined below) the Common Securities are not transferable
and any attempted transfer hereof shall be void. The designations, rights,
privileges, restrictions, preferences and other terms and provisions of the
Common Securities are set forth in, and this certificate and the Common
Securities represented hereby are issued and shall in all respects be subject to
the terms and provisions of, the Amended and Restated Trust Agreement of the
Trust, dated as of February 4, 1997, as the same may be amended from time to
time (the "Trust Agreement"), including the designation of the terms of the
Common Securities as set forth therein. The Trust will furnish a copy of the
Trust Agreement to the Holder without charge upon written request to the Trust
at its principal place of business or registered office.
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.
<PAGE>
In Witness Whereof, one of the Administrators of the Trust has executed
this certificate this 4th day of February, 1997.
Providian Capital I
By: _________________________________________
Name: Daniel Sanford
Title: Administrator
<PAGE>
EXHIBIT D
AGREEMENT AS TO EXPENSES AND LIABILITIES
Agreement dated as of February 4, 1997, between Providian Bancorp, Inc., a
Delaware corporation (the "Company"), and Providian Capital I, a statutory
business trust formed under the Business Trust Act of the State of Delaware (the
"Trust").
Whereas, the Trust intends to issue its Common Securities (the "Common
Securities") to and receive Debentures from the Company and to issue and sell
9.525% Capital Securities, Series A (the "Capital Securities") with such powers,
preferences and special rights and restrictions as are set forth in the Amended
and Restated Trust Agreement of the Trust, dated as of February 4, 1997, as the
same may be amended from time to time (the "Trust Agreement");
Whereas, the Company will directly or indirectly own all of the Common
Securities of the Trust and will issue the Debentures;
Now, Therefore, in consideration of the purchase by each holder of the
Capital Securities, which purchase the Company hereby agrees shall benefit the
Company and which purchase the Company acknowledges will be made in reliance
upon the execution and delivery of this Agreement, the Company and the Trust
hereby agree as follows:
ARTICLE I
Section 1.1. Guarantee by the Company.
Subject to the terms and conditions hereof, the Company hereby irrevocably
and unconditionally guarantees to each person or entity to whom the Trust is now
or hereafter becomes indebted or liable (the "Beneficiaries") the full payment,
when and as due, of any and all Obligations (as hereinafter defined) to such
Beneficiaries. As used herein, "Obligations" means any costs, expenses or
liabilities of the Trust (including, without limitation, any tax liability of
the Trust), other than obligations of the Trust to pay to holders of any Capital
Securities or other similar interests in the Trust the amounts due such holders
pursuant to the terms of the Capital Securities or such other similar interests,
as the case may be. This Agreement is intended to be for the benefit of, and to
be enforceable by, all such Beneficiaries, whether or not such Beneficiaries
have received notice hereof.
<PAGE>
Section 1.2. Term of Agreement.
This Agreement shall terminate and be of no further force and effect upon
the later of (a) the date on which full payment has been made of all amounts
payable to all holders of all the Capital Securities (whether upon redemption,
liquidation, exchange or otherwise) and (b) the date on which there are no
Beneficiaries remaining; provided, however, that this Agreement shall continue
to be effective or shall be reinstated, as the case may be, if at any time any
holder of Capital Securities or any Beneficiary must restore payment of any sums
paid under the Capital Securities, under any Obligation, under the Guarantee
Agreement dated the date hereof by the Company and The Bank of New York, as
guarantee trustee, or under this Agreement for any reason whatsoever. This
Agreement is continuing, irrevocable, unconditional and absolute.
Section 1.3. Waiver of Notice.
The Company hereby waives notice of acceptance of this Agreement and of any
Obligation to which it applies or may apply, and the Company hereby waives
presentment, demand for payment, protest, notice of nonpayment, notice of
dishonor, notice of redemption and all other notices and demands.
Section 1.4. No Impairment.
The obligations, covenants, agreements and duties of the Company under this
Agreement shall in no way be affected or impaired by reason of the happening
from time to time of any of the following:
(a) the extension of time for the payment by the Trust of all or any
portion of the Obligations or for the performance of any other obligation under,
arising out of, or in connection with, the Obligations;
(b) any failure, omission, delay or lack of diligence on the part of the
Beneficiaries to enforce, assert or exercise any right, privilege, power or
remedy conferred on the Beneficiaries with respect to the Obligations or any
action on the part of the Trust granting indulgence or extension of any kind; or
(c) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Trust or any of the assets of the
Trust.
There shall be no obligation of the Beneficiaries to give notice to, or obtain
the consent of, the Company with respect to the happening of any of the
foregoing.
Section 1.5. Enforcement.
A Beneficiary may enforce this Agreement directly against the Company and
the Company waives any right or remedy to require that any action be brought
against the Trust or any other
<PAGE>
person or entity before proceeding against the Company.
Section 1.6. Subrogation.
The Company shall be subrogated to all (if any) rights of the Trust in
respect of any amounts paid to the Beneficiaries by the Company under this
Agreement; provided, however, that the Company shall not (except to the extent
required by mandatory provisions of law) be entitled to enforce or exercise any
rights which it may acquire by way of subrogation or any indemnity,
reimbursement or other agreement, in all cases as a result of payment under this
Agreement, if, at the time of any such payment, any amounts are due and unpaid
under this Agreement.
ARTICLE II
Section 2.1. Binding Effect.
All guarantees and agreements contained in this Agreement shall bind the
successors, assigns, receivers, trustees and representatives of the Company and
shall inure to the benefit of the Beneficiaries.
Section 2.2. Amendment.
So long as there remains any Beneficiary or any Capital Securities of any
series are outstanding, this Agreement shall not be modified or amended in any
manner adverse to such Beneficiary or to the holders of the Capital Securities.
Section 2.3. Notices.
Any notice, request or other communication required or permitted to be
given hereunder shall be given in writing by delivering the same against receipt
therefor by facsimile transmission (confirmed by mail) or by registered or
certified mail, addressed as follows (and if so given, shall be deemed given
when mailed or upon receipt of a confirmation, if sent by facsimile):
Providian Capital I
c/o The Bank of New York (Delaware)
White Clay Center
Route 273
Newark, Delaware 19711
Attention: Corporate Trust Department
Providian Bancorp, Inc.
201 Mission Street
San Francisco, California 94105
Facsimile No.: (415) 278-6028
Attention: Secretary
<PAGE>
Section 2.4. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
This Agreement is executed as of the day and year first above written.
Providian Bancorp, Inc.
By: _____________________________
Name: David J. Petrini
Title: Senior Vice President
and Senior Financial Officer
Providian Capital I
By: _____________________________
Name: Daniel Sanford
Title: Administrator
<PAGE>
EXHIBIT E-1
[FACE OF CERTIFICATE]
THIS SECURITY IS A GLOBAL CAPITAL SECURITY CERTIFICATE WITHIN THE MEANING
OF THE TRUST AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF
THE DEPOSITORY TRUST COMPANY (THE "DEPOSITORY") OR A NOMINEE OF THE DEPOSITORY.
THE CAPITAL SECURITIES REPRESENTED HEREBY ARE EXCHANGEABLE IN WHOLE OR IN PART
FOR CAPITAL SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITORY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
TRUST AGREEMENT AND NO TRANSFER OF THE CAPITAL SECURITIES REPRESENTED HEREBY
(OTHER THAN A TRANSFER OF SUCH CAPITAL SECURITIES AS A WHOLE BY THE DEPOSITORY
TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE
DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN
SUCH LIMITED CIRCUMSTANCES.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE TRUST OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THE CAPITAL SECURITIES EVIDENCED HEREBY AND ANY JUNIOR SUBORDINATED
DEBENTURES ISSUABLE IN CONNECTION THEREWITH HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) BY THE INITIAL
INVESTOR (1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE
TRANSACTION COMPLYING WITH THE PROVISIONS OF RULE 903 OR RULE 904 OF REGULATION
S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (4)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND
(B) BY SUBSEQUENT INVESTORS HOLDING THIS SECURITY IN BOOK-ENTRY FORM AS SET
FORTH IN (A) ABOVE AND, IN ADDITION, TO AN INSTITUTIONAL ACCREDITED INVESTOR IN
A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF THE STATES AND
OTHER JURISDICTIONS OF THE UNITED STATES. THE HOLDER OF THIS SECURITY AGREES
THAT IT WILL COMPLY WITH THE FOREGOING RESTRICTIONS.
NO EMPLOYEE BENEFIT OR OTHER PLAN SUBJECT TO TITLE 1 OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF
THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE") (EACH, A "PLAN"), NO
ENTITY WHOSE UNDERLYING ASSETS INCLUDE "PLAN ASSETS" BY REASON OF ANY PLAN'S
INVESTMENT IN THE ENTITY (A "PLAN ASSET ENTITY"), AND NO PERSON INVESTING "PLAN
ASSETS" OF ANY PLAN, MAY ACQUIRE OR HOLD THE CAPITAL SECURITIES EVIDENCED HEREBY
OR ANY INTEREST THEREIN, UNLESS SUCH PURCHASER OR HOLDER IS ELIGIBLE FOR THE
EXEMPTIVE RELIEF AVAILABLE UNDER U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION
CLASS EXEMPTION ("PTCE") 96-23, 95-60, 91-38, 90-1 OR 84-14 OR ANOTHER
APPLICABLE EXEMPTION WITH RESPECT TO SUCH PURCHASE OR HOLDING. ANY PURCHASER OR
HOLDER OF THE CAPITAL SECURITIES EVIDENCED HEREBY OR ANY INTEREST THEREIN WILL
BE DEEMED TO HAVE REPRESENTED BY ITS
<PAGE>
PURCHASE AND HOLDING THEREOF THAT IT EITHER (A) IS NOT A PLAN OR A PLAN ASSET
ENTITY AND IS NOT PURCHASING SUCH SECURITIES ON BEHALF OF OR WITH "PLAN ASSETS"
OF ANY PLAN OR (B) IS ELIGIBLE FOR THE EXEMPTIVE RELIEF AVAILABLE UNDER PTCE 96-
23, 95-60, 91-38, 90-1 OR 84-14 OR ANOTHER APPLICABLE EXEMPTION WITH RESPECT TO
SUCH PURCHASE OR HOLDING.
THE CAPITAL SECURITIES EVIDENCED HEREBY ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE BANK INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.
<PAGE>
CERTIFICATE NUMBER NUMBER OF CAPITAL SECURITIES
PG- ________
LIQUIDATION AMOUNT
______________
CUSIP NO. 743973 AA 7
CERTIFICATE EVIDENCING CAPITAL SECURITIES OF
PROVIDIAN CAPITAL I
9.525% CAPITAL SECURITIES, SERIES A
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
Providian Capital I, a business trust created under the laws of the State
of Delaware (the "Trust"), hereby certifies that CEDE & CO. (the "Holder") is
the registered owner of _________________________________
(_____________________) capital securities of the Trust representing an
undivided beneficial interest in the assets of the Trust and designated the
Providian Capital I 9.525% Capital Securities, Series A (liquidation amount
$1,000 per Capital Security) (the "Capital Securities"), or such other amount
(which, when taken together with all other outstanding Capital Securities, shall
not exceed 160,000 Capital Securities in the aggregate at any time) as may be
set forth in the records of the Securities Registrar. The Capital Securities
are transferable on the books and records of the Trust, in person or by a duly
authorized attorney, upon surrender of this certificate duly endorsed and in
proper form for transfer as provided in Section 5.4 of the Trust Agreement (as
defined below). The designations, rights, privileges, restrictions, preferences
and other terms and provisions of the Capital Securities are set forth in, and
this certificate and the Capital Securities represented hereby are issued and
shall in all respects be subject to the terms and provisions of, the Amended and
Restated Trust Agreement of the Trust, dated as of February 4, 1997, as the same
may be amended from time to time (the "Trust Agreement") including the
designation of the terms of Capital Securities as set forth therein. The Holder
is entitled to the benefits of the Guarantee Agreement entered into by Providian
Bancorp, Inc., a Delaware corporation, and The Bank of New York, as guarantee
trustee, dated as of February 4, 1997 (the "Guarantee"), to the extent provided
therein. The Trust will furnish a copy of the Trust Agreement and the Guarantee
to the Holder without charge upon written request to the Trust at its principal
place of business or registered office.
<PAGE>
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.
This Certificate is not valid unless countersigned by the Securities
Registrar.
WITNESS the facsimile signature of a duly authorized Administrator of the
Trust.
Dated: February 4, 1997 PROVIDIAN CAPITAL I
By: _______________________________________
Name: Daniel Sanford
Administrator
Countersigned:
THE BANK OF NEW YORK
By: ________________________________
Securities Registrar
[End of Page]
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers
Capital Securities represented by the within Certificate to:
(Insert assignee's name)
(Insert assignee's social security or tax identification number)
(Insert address and zip code of assignee)
and irrevocably appoints ______________________________
agent to transfer said Capital Securities on the books of the Trust. The agent
may substitute another to act for him or her.
Date: ______________________________________
Signature:_________________________________________________________
(Sign exactly as your name appears on the other side of this Capital Securities
Certificate)
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program), pursuant to
S.E.C. Rule 17Ad-15.
<PAGE>
EXHIBIT E-2
THE CAPITAL SECURITIES EVIDENCED HEREBY AND ANY JUNIOR SUBORDINATED
DEBENTURES ISSUABLE IN CONNECTION THEREWITH HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) BY THE INITIAL
INVESTOR (1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE
TRANSACTION COMPLYING WITH THE PROVISIONS OF RULE 903 OR RULE 904 OF REGULATION
S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (4)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B)
BY SUBSEQUENT INVESTORS HOLDING THIS SECURITY IN BOOK-ENTRY FORM AS SET FORTH IN
(A) ABOVE AND, IN ADDITION, TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A
TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, IN
EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF THE STATES AND
OTHER JURISDICTIONS OF THE UNITED STATES. THE HOLDER OF THIS SECURITY AGREES
THAT IT WILL COMPLY WITH THE FOREGOING RESTRICTIONS.
NO EMPLOYEE BENEFIT OR OTHER PLAN SUBJECT TO TITLE 1 OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF
THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE") (EACH, A "PLAN"), NO
ENTITY WHOSE UNDERLYING ASSETS INCLUDE "PLAN ASSETS" BY REASON OF ANY PLAN'S
INVESTMENT IN THE ENTITY (A "PLAN ASSET ENTITY"), AND NO PERSON INVESTING "PLAN
ASSETS" OF ANY PLAN, MAY ACQUIRE OR HOLD THE CAPITAL SECURITIES EVIDENCED HEREBY
OR ANY INTEREST THEREIN, UNLESS SUCH PURCHASER OR HOLDER IS ELIGIBLE FOR THE
EXEMPTIVE RELIEF AVAILABLE UNDER U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION
CLASS EXEMPTION ("PTCE") 96-23, 95-60, 91-38, 90-1 OR 84-14 OR ANOTHER
APPLICABLE EXEMPTION WITH RESPECT TO SUCH PURCHASE OR HOLDING. ANY PURCHASER OR
HOLDER OF THE CAPITAL SECURITIES EVIDENCED HEREBY OR ANY INTEREST THEREIN WILL
BE DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND HOLDING THEREOF THAT IT EITHER
(A) IS NOT A PLAN OR A PLAN ASSET ENTITY AND IS NOT PURCHASING SUCH SECURITIES
ON BEHALF OF OR WITH "PLAN ASSETS" OF ANY PLAN OR (B) IS ELIGIBLE FOR THE
EXEMPTIVE RELIEF AVAILABLE UNDER PTCE 96-23, 95-60, 91-38, 90-1 OR 84-14 OR
ANOTHER APPLICABLE EXEMPTION WITH RESPECT TO SUCH PURCHASE OR HOLDING.
THE CAPITAL SECURITIES EVIDENCED HEREBY ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE BANK INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.
CERTIFICATE NUMBER NUMBER OF CAPITAL SECURITIES
P- ________
LIQUIDATION AMOUNT
______________
CUSIP NO. 743973 AB 5
CERTIFICATE EVIDENCING CAPITAL SECURITIES OF
PROVIDIAN CAPITAL I
______% CAPITAL SECURITIES, SERIES A
<PAGE>
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
Providian Capital I, a business trust created under the laws of the State
of Delaware (the "Trust"), hereby certifies that
______________________________________________________ (the "Holder") is the
registered owner of _________________________________ (______________) capital
securities of the Trust representing an undivided beneficial interest in the
assets of the Trust and designated the Providian Capital I 9.525% Capital
Securities, Series A (liquidation amount $1,000 per Capital Security) (the
"Capital Securities"). The Capital Securities are transferable on the books and
records of the Trust, in person or by a duly authorized attorney, upon surrender
of this certificate duly endorsed and in proper form for transfer as provided in
Section 5.4 of the Trust Agreement (as defined below). The designations,
rights, privileges, restrictions, preferences and other terms and provisions of
the Capital Securities are set forth in, and this certificate and the Capital
Securities represented hereby are issued and shall in all respects be subject to
the terms and provisions of, the Amended and Restated Trust Agreement of the
Trust, dated as of February 4, 1997, as the same may be amended from time to
time (the "Trust Agreement") including the designation of the terms of Capital
Securities as set forth therein. The Holder is entitled to the benefits of the
Guarantee Agreement entered into by Providian Bancorp, Inc., a Delaware
corporation, and The Bank of New York, as guarantee trustee, dated as of
February 4, 1997 (the "Guarantee"), to the extent provided therein. The Trust
will furnish a copy of the Trust Agreement and the Guarantee to the Holder
without charge upon written request to the Trust at its principal place of
business or registered office.
<PAGE>
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.
This Certificate is not valid unless countersigned by the Securities
Registrar.
WITNESS the facsimile signature of a duly authorized Administrator of the
Trust.
Dated: ________________ PROVIDIAN CAPITAL I
By:_______________________ Name:
Daniel Sanford
Administrator
Countersigned:
THE BANK OF NEW YORK
By: _________________________________________
Securities Registrar
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers _________________
Capital Securities represented by the within Certificate to:
(Insert assignee's name)
(Insert assignee's social security or tax identification number)
(Insert address and zip code of assignee)
and irrevocably appoints
agent to transfer said Capital Securities on the books of the Trust. The agent
may substitute another to act for him or her.
Date: ______________________________________
Signature:_________________________________________ (Sign exactly as your name
appears on the other side of this Capital Securities Certificate)
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program), pursuant to
S.E.C. Rule 17Ad-15.
<PAGE>
EXHIBIT F -- FORM OF RESTRICTED
SECURITIES CERTIFICATE
RESTRICTED SECURITIES CERTIFICATE
(For transfers pursuant to (S) 5.5(b) of the Trust Agreement)
[_________________________],
as Security Registrar
[address]
Re: 9.525% Capital Securities, Series A of Providian Capital I
(the "Trust") (the "Capital Securities")
----------------------------------------
Reference is made to the Amended and Restated Trust Agreement of the
Trust, dated as of February 4, 1997 (the "Trust Agreement"), among Providian
Bancorp, Inc., as Depositor, The Bank of New York, as Property Trustee, and The
Bank of New York (Delaware), as Delaware Trustee. Terms used herein and defined
in the Trust Agreement or in Regulation S, Rule 144A or Rule 144 under the U.S.
Securities Act of 1933 (the "Securities Act") are used herein as so defined.
This certificate relates to $_____________ aggregate Liquidation
Amount of Capital Securities, which are evidenced by the following
certificate(s) (the "Specified Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
CURRENTLY IN BOOK-ENTRY FORM: _____ Yes _____ No (check one)
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities or (ii) it is acting on behalf of all the beneficial owners
of the Specified Securities and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner".
If the Specified Securities are represented by a Book-Entry Capital Securities
Certificate, they are held through the Clearing Agency or a Clearing Agency
Participant in the name of the Undersigned, as or on behalf of the Owner. If the
Specified Securities are not represented by a Book-Entry Capital Securities
Certificate, they are registered in the name of the Undersigned, as or on behalf
of the Owner.
The Owner has requested that the Specified Securities be transferred
to a person (the "Transferee") who will take delivery in the form of a
Restricted Capital Security. In connection with such transfer, the Owner hereby
certifies that, unless such transfer is being effected pursuant to an effective
registration statement under the Securities Act, it is being effected in
accordance with Rule 144A, Rule 904 or Rule 144 under the Securities Act and all
applicable securities laws of the states of the United States and other
jurisdictions. Accordingly, the Owner hereby further certifies as follows:
(1) Rule 144A Transfers. If the transfer is being effected in
-------------------
accordance with Rule 144A:
(A) the Specified Securities are being transferred to a person
that the Owner and any person acting on its behalf reasonably believe
is a "qualified institutional buyer" within the meaning of Rule 144A,
acquiring for its own account or for the account of a qualified
institutional buyer; and
(B) the Owner and any person acting on its behalf have taken
reasonable steps to ensure that the Transferee is aware that the Owner
may be relying on Rule 144A in connection with the transfer; and
<PAGE>
(2) Rule 904 Transfers. If the transfer is being effected in
------------------
accordance with Rule 904:
(A) the Owner is not a distributor of the Securities, an
affiliate of the Depositor or the Trust or any such distributor or a
person acting on behalf of any of the foregoing;
(B) the offer of the Specified Securities was not made to a
person in the United States;
(C) either;
(i) at the time the buy order was originated, the
Transferee was outside the United States or the Owner and any
person acting on its behalf reasonably believed that the
Transferee was outside the United States, or
(ii) the transaction is being executed in, on or through the
facilities of the Eurobond market, as regulated by the
Association of International Bond Dealers, or another designated
offshore securities market and neither the Owner nor any person
acting on its behalf knows that the transaction has been
prearranged with a buyer in the United States;
(D) no directed selling efforts have been made in the United
States by or on behalf of the Owner or any affiliate thereof; and
(E) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
(3) Rule 144 Transfers. If the transfer is being effected pursuant to
Rule 144:
(A) the transfer is occurring after a holding period of at least
two years (computed in accordance with paragraph (d) of Rule 144) has
elapsed since the date the Specified Securities were acquired from the
Depositor or the Trust or from an affiliate (as such term is defined
in Rule 144) of the Depositor or the Trust, whichever is later, and is
being effected in accordance with the applicable amount, manner of
sale and notice requirements of paragraphs (e), (f) and (h) of Rule
144; or
(B) the transfer is occurring after a holding period of at least
three years, or such shorter period as may be required under
applicable laws, has elapsed since the date the Specified Securities
were acquired from the Depositor or the Trust or from an affiliate (as
such term is defined in Rule 144) of the Depositor or the Trust,
whichever is later, and the Owner is not, and during the preceding
three months has not been, an affiliate of the Depositor or the Trust.
<PAGE>
This certificate and the statements contained herein are made for your
benefit and the benefit of the Depositor, the Trust and the Initial Purchasers.
Dated:
(Print the name of the Undersigned, as such term is
defined in the second paragraph of this certificate.)
By:__________________________________________________
Name:
Title:
(If the Undersigned is a corporation, partnership or
fiduciary, the title of the person signing on behalf of
the Undersigned must be stated.)
<PAGE>
EXHIBIT G -- FORM OF UNRESTRICTED
SECURITIES CERTIFICATE
UNRESTRICTED SECURITIES CERTIFICATE
(For removal of Restricted Capital Securities Legends pursuant to
(S) 5.5(c) of the Trust Agreement)
[_________________________],
as Security Registrar
[address]
Re: 9.525% Capital Securities, Series A of Providian Capital I
(the "Trust") (the "Capital Securities")
----------------------------------------
Reference is made to the Amended and Restated Trust Agreement of the
Trust, dated as of February 4, 1997 (the "Trust Agreement"), among Providian
Bancorp, Inc., as Depositor, The Bank of New York, as Property Trustee, and The
Bank of New York (Delaware), as Delaware Trustee. Terms used herein and defined
in the Trust Agreement or in Rule 144 under the U.S. Securities Act of 1933 (the
"Securities Act") are used herein as so defined.
This certificate relates to $_____________ aggregate Liquidation
Amount of Capital Securities, which are evidenced by the following
certificate(s) (the "Specified Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
CURRENTLY IN BOOK-ENTRY FORM: _____ Yes _____ No (check one)
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities or (ii) it is acting on behalf of all the beneficial owners
of the Specified Securities and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner".
If the Specified Securities are represented by a Book-Entry Capital Securities
Certificate, they are held through the Clearing Agency or a Clearing Agency
Participant in the name of the Undersigned, as or on behalf of the Owner. If the
Specified Securities are not represented by a Book-Entry Capital Securities
Certificate, they are registered in the name of the Undersigned, as or on behalf
of the Owner.
The Owner has requested that the Specified Securities be exchanged for
Capital Securities bearing no Restricted Capital Securities Legend pursuant to
Section 5.5(c) of the Trust Agreement. In connection with such exchange, the
Owner hereby certifies that a period of at least three years, or such shorter
period as may be required under applicable law, has elapsed since the date the
Specified Securities were acquired from the Depositor or the Trust or from an
affiliate (as such term is defined in Rule 144 under the Securities Act) of the
Depositor or the Trust and the Owner is not, and during the preceding three
months has not been, an affiliate of the Depositor or the Trust. The Owner also
acknowledges that any future transfers of the Specified Securities must comply
with all applicable securities laws of the states of the United States and other
jurisdictions.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Depositor, the Trust and the Initial Purchasers.
Dated:
<PAGE>
(Print the name of the Undersigned, as such term is
defined in the second paragraph of this certificate.)
By:________________________________________________
Name:
Title:
(If the Undersigned is a corporation, partnership or
fiduciary, the title of the person signing on behalf of
the Undersigned must be stated.)
<PAGE>
EXHIBIT 4.5
[EXECUTION COPY]
- --------------------------------------------------------------------------------
PROVIDIAN BANCORP, INC.
TO
THE BANK OF NEW YORK
TRUSTEE
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JUNIOR SUBORDINATED INDENTURE
DATED AS OF FEBRUARY 4, 1997
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TABLE OF CONTENTS
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
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Section 1.1. Definitions....................................... 1
Section 1.2. Compliance Certificate and Opinions............... 10
Section 1.3. Forms of Documents Delivered to Trustee........... 11
Section 1.4. Acts of Holders................................... 11
Section 1.5. Notices, Etc. to Trustee and Company.............. 13
Section 1.6. Notice to Holders; Waiver......................... 14
Section 1.7. Conflict with Trust Indenture Act................. 14
Section 1.8. Effect of Headings and Table of Contents.......... 14
Section 1.9. Successors and Assigns............................ 14
Section 1.10. Separability Clause............................... 14
Section 1.11 Benefits of Indenture............................. 15
Section 1.12. Governing Law..................................... 15
Section 1.13. Non-Business Days................................. 15
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ARTICLE II
SECURITY FORMS
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Section 2.1. Forms Generally................................... 15
Section 2.2. Form of Face of Security.......................... 16
Section 2.3. Form of Reverse of Security....................... 20
Section 2.4. Additional Provisions Required in Global Security. 23
Section 2.5. Form of Trustee's Certificate of Authentication... 24
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ARTICLE III
THE SECURITIES
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Section 3.1. Title and Terms....................................... 24
Section 3.2. Denominations......................................... 27
Section 3.3. Execution, Authentication, Delivery and Dating........ 27
Section 3.4. Temporary Securities.................................. 28
Section 3.5. Global Securities..................................... 29
Section 3.6. Registration, Transfer and Exchange Generally, Certain
Transfers and Exchanges; Securities Act Legends...... 30
Section 3.7. Mutilated, Destroyed, Lost and Stolen Securities...... 33
Section 3.8. Payment of Interest; Interest Rights Preserved........ 33
Section 3.9. Persons Deemed Owners................................. 35
Section 3.10. Cancellation.......................................... 35
Section 3.11. Computation of Interest............................... 36
Section 3.12. Deferrals of Interest Payment Dates................... 36
Section 3.13. Right of Set-Off...................................... 37
Section 3.14. Agreed Tax Treatment.................................. 37
Section 3.15. CUSIP Numbers......................................... 37
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ARTICLE IV
SATISFACTION AND DISCHARGE
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Section 4.1. Satisfaction and Discharge of Indenture..................... 37
Section 4.2. Application of Trust Money.................................. 39
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ARTICLE V
REMEDIES
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Section 5.1. Events of Default.......................................... 39
Section 5.2. Acceleration of Maturity; Rescission and Annulment......... 40
Section 5.3. Collection of Indebtedness and Suits for Enforcement by
Trustee.................................................... 41
Section 5.4. Trustee May File Proofs of Claim........................... 42
Section 5.5. Trustee May Enforce Claim Without Possession of Securities. 43
Section 5.6. Application of Money Collected............................. 43
Section 5.7. Limitation on Suits........................................ 43
Section 5.8. Unconditional Right of Holders to Receive Principal,
Premium and Interest; Direct Action by Holders of
Capital Securities......................................... 44
Section 5.9. Restoration of Rights and Remedies......................... 44
Section 5.10. Rights and Remedies Cumulative............................. 45
Section 5.11. Delay or Omission Not Waiver............................... 45
Section 5.12. Control by Holders......................................... 45
Section 5.13. Waiver of Past Defaults.................................... 46
Section 5.14. Undertaking for Costs...................................... 46
Section 5.15. Waiver of Usury, Stay or Extension Laws.................... 46
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ARTICLE VI
THE TRUSTEE
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Section 6.1. Certain Duties and Responsibilities........................ 47
Section 6.2. Notice of Defaults......................................... 48
Section 6.3. Certain Rights of Trustee.................................. 48
Section 6.4. Not Responsible for Recitals or Issuance of Securities..... 49
Section 6.5. May Hold Securities........................................ 50
Section 6.6. Money Held in Trust........................................ 50
Section 6.7. Compensation and Reimbursement............................. 50
Section 6.8. Disqualification; Conflicting Interests.................... 51
Section 6.9. Corporate Trustee Required; Eligibility.................... 51
Section 6.10. Resignation and Removal; Appointment of Successor.......... 51
Section 6.11. Acceptance of Appointment by Successor..................... 53
Section 6.12. Merger, Conversion, Consolidation or Succession to Business 54
Section 6.13. Preferential Collection of Claims Against Company.......... 54
Section 6.14. Appointment of Authenticating Agent........................ 54
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ARTICLE VII
HOLDER'S LISTS AND REPORTS BY TRUSTEE AND COMPANY
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Section 7.1. Company to Furnish Trustee Names and Addresses of Holders.. 56
Section 7.2. Preservation of Information, Communications to Holders..... 56
Section 7.3. Reports by Trustee......................................... 57
Section 7.4. Reports by Company......................................... 57
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ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
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Section 8.1. Company May Consolidate, Etc., Only on Certain Terms....... 57
Section 8.2. Successor Corporation Substituted.......................... 58
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ARTICLE IX
SUPPLEMENTAL INDENTURES
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Section 9.1. Supplemental Indentures without Consent of Holders......... 59
Section 9.2. Supplemental Indentures with Consent of Holders............ 60
Section 9.3. Execution of Supplemental Indentures....................... 61
Section 9.4. Effect of Supplemental Indentures.......................... 61
Section 9.5. Conformity with Trust Indenture Act........................ 62
Section 9.6. Reference in Securities to Supplemental Indentures......... 62
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ARTICLE X
COVENANTS
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Section 10.1. Payment of Principal, Premium and Interest................. 62
Section 10.2. Maintenance of Office or Agency............................ 62
Section 10.3. Money for Security Payments to be Held in Trust............ 63
Section 10.4. Statement as to Compliance................................. 64
Section 10.5. Waiver of Certain Covenants................................ 64
Section 10.6. Additional Sums............................................ 64
Section 10.7. Additional Covenants....................................... 65
Section 10.8. Original Issue Discount.................................... 66
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ARTICLE XI
REDEMPTION OF SECURITIES
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Section 11.1. Applicability of This Article.............................. 66
Section 11.2. Election to Redeem; Notice to Trustee...................... 66
Section 11.3. Selection of Securities to be Redeemed..................... 67
Section 11.4. Notice of Redemption....................................... 67
Section 11.5. Deposit of Redemption Price................................ 68
Section 11.6. Payment of Securities Called for Redemption................ 68
Section 11.7. Right of Redemption of Securities Initially Issued to a
Providian Trust............................................ 69
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ARTICLE XII
SINKING FUNDS
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Section 12.1. Applicability of Article................................... 69
Section 12.2. Satisfaction of Sinking Fund Payments with Securities...... 70
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Section 12.3. Redemption of Securities for Sinking Fund.................. 70
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ARTICLE XIII
SUBORDINATION OF SECURITIES
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Section 13.1. Securities Subordinate to Senior Indebtedness.............. 72
Section 13.2. No Payment When Senior Indebtedness in Default; Payment
Over of Proceeds Upon Dissolution, Etc..................... 72
Section 13.3. Payment Permitted If No Default............................ 73
Section 13.4. Subrogation to Rights of Holders of Senior Indebtedness.... 74
Section 13.5. Provisions Solely to Define Relative Rights................ 74
Section 13.6. Trustee to Effectuate Subordination........................ 75
Section 13.7. No Waiver of Subordination Provisions...................... 75
Section 13.8. Notice to Trustee.......................................... 75
Section 13.9. Reliance on Judicial Order or Certificate of Liquidating
Agent...................................................... 76
Section 13.10. Trustee Not Fiduciary for Holders of Senior Indebtedness... 76
Section 13.11. Rights of Trustee as Holder of Senior Indebtedness;
Preservation of Trustee's Rights........................... 76
Section 13.12. Article Applicable to Paying Agents........................ 77
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ANNEX A - Form of Trust Agreement
ANNEX B - Form of Amended and Restated Trust Agreement
ANNEX C - Form of Guarantee Agreement
ANNEX D - Form of Restricted Securities Certificate
ANNEX E - Form of Unrestricted Securities Certificate
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JUNIOR SUBORDINATED INDENTURE, dated as of February 4, 1997, between
PROVIDIAN BANCORP, INC., a Delaware corporation (hereinafter called the
"Company") having its principal office at 201 Mission Street, San Francisco,
California 94105, and THE BANK OF NEW YORK, a New York banking corporation, as
Trustee (hereinafter called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this Indenture
to provide for the issuance from time to time of its unsecured junior
subordinated debt securities in series (hereinafter called the "Securities") of
substantially the tenor hereinafter provided, including, without limitation,
Securities issued to evidence loans made to the Company of the proceeds from the
issuance from time to time by one or more business trusts (each a "Providian
Trust," and, collectively, the "Providian Trusts") of preferred undivided
beneficial interests in the assets of such Trusts (the "Capital Securities") and
common undivided beneficial interests in the assets of such Trusts (the "Common
Securities" and, collectively with the Capital Securities, the "Trust
Securities"), and to provide the terms and conditions upon which the Securities
are to be authenticated, issued and delivered.
All things necessary to make the Securities, when executed by the Company and
authenticated and delivered hereunder and duly issued by the Company, the valid
obligations of the Company, and to make this Indenture a valid agreement of the
Company, in accordance with their and its terms, have been done.
NOW THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the
premises and the purchase of the Securities by the Holders thereof, it is
mutually covenanted and agreed, for the equal and proportionate benefit of all
Holders of the Securities or of any series thereof, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1. Definitions.
For all purposes of this Indenture, except as otherwise expressly provided or
unless the context otherwise requires:
(1) The terms defined in this Article have the meanings assigned to them in
this Article, and include the plural as well as the singular;
(2) All other terms used herein which are defined in the Trust Indenture Act,
either directly or by reference therein, have the meanings assigned to them
therein;
(3) All accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles,
and the term "generally accepted accounting principles" with respect to any
computation required or permitted hereunder shall mean such accounting
principles which are generally accepted at the date or time of such computation;
provided, that when two or more principles are so generally accepted, it shall
mean that set of
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rprinciples consistent with those in use by the Company; and
(4) The words "herein," "hereof" and "hereunder" and other words of similar
import refer to this Indenture as a whole and not to any particular Article,
Section or other subdivision.
"Act" when used with respect to any Holder has the meaning specified in
Section 1.4.
"Additional Interest" means the interest, if any, that shall accrue on any
interest on the Securities of any series the payment of which has not been made
on the applicable Interest Payment Date and which shall accrue at the rate per
annum specified or determined as specified in such Security.
"Additional Sums" has the meaning specified in Section 10.6.
"Additional Taxes" means any additional taxes, duties and other governmental
charges to which a Providian Trust has become subject from time to time as a
result of a Tax Event.
"Administrator" means, in respect of any Providian Trust, each Person
identified as an "Administrator" in the related Trust Agreement, solely in such
Person's capacity as Administrator of such Providian Trust under such Trust
Agreement and not in such Person's individual capacity, or any successor
administrator appointed as therein provided.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person; provided, however, no Providian Trust to
which Securities have been issued shall be deemed to be an Affiliate of the
Company. For the purposes of this definition, "control" when used with respect
to any specified Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agent Member" means any member of, or participant in, the Depository.
"Applicable Procedures" means, with respect to any transfer or transaction
involving a Global Security or beneficial interest therein, the rules and
procedures of the Depository for such Security, in each case to the extent
applicable to such transaction and as in effect from time to time.
"Authenticating Agent" means any Person authorized by the Trustee pursuant to
Section 6.14 to act on behalf of the Trustee to authenticate Securities of one
or more series.
"Board of Directors" means either the board of directors of the Company or any
executive committee or other committee of that board duly authorized to act
hereunder.
"Board Resolution" means a copy of a resolution certified by the Secretary or
an Assistant Secretary of the Company to have been duly adopted by the Board of
Directors, or officers of the Company to which authority to act on behalf of the
Board of Directors has been delegated, and to be in full force and effect on the
date of such certification, and delivered to the Trustee.
"Business Day" means any day other than (i) a Saturday or Sunday, (ii) a day
on which banking institutions in The City of New York are authorized or required
by law or executive order to remain
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closed or (iii) a day on which the Corporate Trust Office of the Trustee, or,
with respect to the Securities of a series initially issued to a Providian
Trust, the principal office of the Property Trustee under the related Trust
Agreement, is closed for business.
"Capital Securities" has the meaning specified in the first recital of this
Indenture.
"Capital Treatment Event" means, with respect to an issue of Capital
Securities under the related Trust Agreement, if the Company is then subject to
the capital adequacy guidelines of the Federal Reserve, the reasonable
determination by the Company (as evidenced by an Officers' Certificate delivered
to the Trustee) that, as a result of the occurrence of any amendment to, or
change (including any announced prospective change) in, the laws (or any
regulations thereunder) of the United States or any political subdivision
thereof or therein, or as a result of any official or administrative
pronouncement or action or judicial decision interpreting or applying such laws
or regulations, which amendment or change is effective or such pronouncement,
action or decision is announced on or after the Original Issue Date of such
Capital Securities, there is more than an insubstantial risk that the Company
will not be entitled to treat an amount equal to the Liquidation Amount of such
Capital Securities as "Tier 1 Capital" (or the then equivalent thereof) for
purposes of the capital adequacy guidelines of the Federal Reserve, as then in
effect and applicable to the Company.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties on such date.
"Common Securities" has the meaning specified in the first recital of this
Indenture.
"Common Stock" means the common stock, par value $1.00 per share, of the
Company.
"Company" means the Person named as the "Company" in the first paragraph of
this instrument until a successor corporation shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor corporation.
"Company Request" and "Company Order" mean, respectively, the written request
or order signed in the name of the Company by the Chairman of the Board of
Directors, the Chairman of the Executive Committee of the Board of Directors,
the Chief Executive Officer, the President, the Chief Administrative Officer, or
a Vice President, and by the Senior Financial Officer, Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary of the Company, and, in each
case including any other officers of the Company performing the same or similar
duties, and delivered to the Trustee.
"Corporate Trust Office" means the principal office of the Trustee at which at
any particular time its corporate trust business shall be administered, which
office as of the date of this Indenture is located at 101 Barclay Street, New
York, New York 10286.
"Corporation" includes a corporation, association, company, joint-stock
company or business trust.
"Debt" means with respect to the Company, whether recourse is to all or a
portion of the assets
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of the Company and whether or not contingent, (i) every obligation of the
Company for money borrowed; (ii) every obligation of the Company evidenced by
bonds, debentures, notes or other similar instruments, including obligations
incurred in connection with the acquisition of property, assets or businesses;
(iii) every reimbursement obligation of the Company with respect to letters of
credit, bankers' acceptances or similar facilities issued for the account of the
Company; (iv) every obligation of the Company issued or assumed as the deferred
purchase price of property or services (but excluding trade accounts payable or
accrued liabilities, arising in the ordinary course of business); (v) every
capital lease obligation of the Company; (vi) all indebtedness of the Company
whether incurred on or prior to the date of this Indenture or thereafter
incurred, for claims in respect of derivative products, including interest rate,
foreign exchange rate and commodity forward contracts, options and swaps and
similar arrangements; and (vii) every obligation of the type referred to in
clauses (i) through (vi) of another Person and all dividends of another Person
the payment of which, in either case, the Company has guaranteed or is
responsible or liable for, directly or indirectly, as obligor or otherwise.
"Defaulted Interest" has the meaning specified in Section 3.8.
"Depository" means, with respect to the Securities of any series issuable or
issued in whole or in part in the form of one or more Global Securities, the
Person designated as Depository by the Company pursuant to Section 3.1 with
respect to such series (or any successor thereto).
"Discount Security" means any security which provides for an amount less than
the principal amount thereof to be due and payable upon a declaration of
acceleration of the Maturity thereof pursuant to Section 5.2.
"Distributions," with respect to the Trust Securities issued by a Providian
Trust, means amounts payable in respect of such Trust Securities as provided in
the related Trust Agreement and referred to therein as "Distributions."
"Dollar" or "$" means the currency of the United States of America that, as at
the time of payment, is legal tender for the payment of public and private
debts.
"DTC" means The Depository Trust Company.
"Event of Default" unless otherwise specified in the supplemental indenture
creating a series of Securities has the meaning specified in Article V.
"Exchange Act" means the Securities Exchange Act of 1934 and any statute
successor thereto, in each case as amended from time to time.
"Extension Period" has the meaning specified in Section 3.12.
"Federal Reserve" means the Board of Governors of the Federal Reserve System.
"Global Security" means a Security in the form prescribed in Section 2.4
evidencing all or part of a series of Securities, issued to the Depository or
its nominee for such series, and registered in the name of such Depository or
its nominee.
"Guarantee Agreement" means the Guarantee Agreement substantially in the form
attached
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hereto as Annex C, or substantially in such form as may be specified as
contemplated by Section 3.1 with respect to the Securities of any series, in
each case as amended from time to time.
"Holder" means a Person in whose name a Security is registered in the
Securities Register.
"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof and shall
include the terms of each particular series of Securities established as
contemplated by Section 3.1.
"Institutional Accredited Investor" means an institutional accredited investor
within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D under the
Securities Act.
"Interest Payment Date" means as to each series of Securities the Stated
Maturity of an installment of interest on such Securities.
"Junior Subordinated Debt" means any obligation of the Company to its
creditors, whether now outstanding or subsequently incurred, where the
instrument creating or evidencing the obligation or pursuant to which the
obligation is outstanding provides that it is subordinated and junior in right
of payment to Senior Indebtedness pursuant to subordination provisions
substantially similar to those set forth in this Indenture. Junior Subordinated
Debt includes the Securities.
"Maturity" when used with respect to any Security means the date on which the
principal of such Security becomes due and payable as therein or herein
provided, whether at the Stated Maturity or by declaration of acceleration, call
for redemption or otherwise.
"Moody's" means Moody's Investors Service, Inc.
"Notice of Default" means a written notice of the kind specified in Section
5.1(3).
"Officers' Certificate" means a certificate signed by the Chairman of the
Board of Directors, the Chief Executive Officer, the President, the Chief
Administrative Officer, or a Vice President, and by the Senior Financial
Officer, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary of the Company, and, in each case including any other officers of the
Company performing the same or similar duties, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Company, and who shall be acceptable to the Trustee.
"Original Issue Date" means the date of issuance specified as such in each
Security.
"Other Securities" means Securities transferred, upon exchange or otherwise,
to holders of "Other Capital Securities" as defined in the related Trust
Agreement.
"Outstanding" means, when used in reference to any Securities, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, except:
(i) Securities theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
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(ii) Securities for whose payment money in the necessary amount has been
theretofore deposited with the Trustee or any Paying Agent in trust for the
Holders of such Securities; and
(iii) Securities in substitution for or in lieu of which other Securities
have been authenticated and delivered or which have been paid pursuant to
Section 3.7, unless proof satisfactory to the Trustee is presented that any such
Securities are held by Holders in whose hands such Securities are valid, binding
and legal obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which a Responsible Officer of the Trustee
knows to be so owned shall be so disregarded. Securities so owned which have
been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Securities and that the pledgee is not the Company or any
other obligor upon the Securities or any Affiliate of the Company or such other
obligor. Upon the written request of the Trustee, the Company shall furnish to
the Trustee promptly an Officers' Certificate listing and identifying all
Securities, if any, known by the Company to be owned or held by or for the
account of the Company, or any other obligor on the Securities or any Affiliate
of the Company or such obligor, and, subject to the provisions of Section 6.1,
the Trustee shall be entitled to accept such Officers' Certificate as conclusive
evidence of the facts therein set forth and of the fact that all Securities not
listed therein are Outstanding for the purpose of any such determination.
"Paying Agent" means the Trustee or any Person authorized by the Company to
pay the principal of (and premium, if any) or interest on any Securities on
behalf of the Company.
"Person" means any individual, corporation, partnership, joint venture, trust,
unincorporated organization or government or any agency or political subdivision
thereof or any other entity of whatever nature.
"Place of Payment" means, with respect to the Securities of any series, the
place or places where the principal of (and premium, if any) and interest on the
Securities of such series are payable pursuant to Section 3.1.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any security
authenticated and delivered under Section 3.7 in lieu of a lost, destroyed or
stolen Security shall be deemed to evidence the same debt as the lost, destroyed
or stolen Security.
"Proceeding" has the meaning specified in Section 13.2.
"Property Trustee" means, in respect of any Providian Trust, the commercial
bank or trust company identified as the "Property Trustee" in the related Trust
Agreement, solely in its capacity as Property Trustee of such Providian Trust
under such Trust Agreement and not in its individual capacity, or its successor
in interest in such capacity, or any successor property trustee appointed as
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therein provided.
"Providian Guarantee" means the guarantee by the Company of distributions on
the Capital Securities of a Providian Trust to the extent provided in the
Guarantee Agreement.
"Providian Trust" has the meaning specified in the first recital of this
Indenture.
"Redemption Date," when used with respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price," when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Interest Payment Date
with respect to the Securities of a series means, unless otherwise provided
pursuant to Section 3.1 with respect to Securities of a series, the date which
is fifteen days next preceding such Interest Payment Date (whether or not a
Business Day).
"Regulation D" means Regulation D under the Securities Act (or any successor
provision), as it may be amended from time to time.
"Responsible Officer" means when used with respect to the Trustee, any officer
assigned to the Corporate Trust Office, vice president, assistant vice
president, assistant treasurer, assistant secretary or any other officer of the
Trustee customarily performing functions similar to those performed by any of
the above designated officers, and also, with respect to a particular matter,
any other officer, to whom such matter is referred because of such officer's
knowledge of and familiarity with the particular subject.
"Restricted Security" means each Security required pursuant to Section 3.6(c)
to bear a Restricted Securities Legend.
"Restricted Securities Certificate" means a certificate substantially in the
form set forth in Annex D.
"Restricted Securities Legend" means a legend substantially in the form of the
legend required in the form of Security set forth in Section 2.2 to be placed
upon a Restricted Security.
"Rights Plan" means a plan of the Company providing for the issuance by the
Company to all holders of its Common Stock of rights entitling the holders
thereof to subscribe for or purchase shares of Common Stock or any class or
series of preferred stock, which rights (i) are deemed to be transferred with
such shares of Common Stock, (ii) are not exercisable and (iii) are also issued
in respect of future issuances of Common Stock, in each case until the
occurrence of a specified event or events.
"Rule 144A" means Rule 144A under the Securities Act.
"Rule 144A Information" shall be such information with respect to the Company
as is specified pursuant to Rule 144A(d)(4) under the Securities Act (or any
successor provisions thereto).
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"S&P" means Standard & Poor's Ratings Services.
"Securities" or "Security" means any debt securities or debt security, as the
case may be, authenticated and delivered under this Indenture.
"Securities Act" means the Securities Act of 1933 (or any successor statute),
as it may be amended from time to time.
"Securities Register" and "Securities Registrar" have the respective meanings
specified in Section 3.6.
"Senior Indebtedness" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company whether or
not such claim for post-petition interest is allowed in such proceeding), on
Debt of the Company, whether incurred on or prior to the date of this Indenture
or thereafter incurred, unless, in the instrument creating or evidencing the
same or pursuant to which the same is outstanding, it is provided that such
obligations are not superior in right of payment to the Securities; provided,
however, that Senior Indebtedness shall not be deemed to include (i) any Debt of
the Company which when incurred and without respect to any election under
Section 1111(b) of the United States Bankruptcy Code of 1978, as amended, was
without recourse to the Company, (ii) any Debt of the Company to any of its
subsidiaries, (iii) Debt to any employee of the Company and (iv) any other debt
securities issued pursuant to this Indenture.
"Special Record Date" for the payment of any Defaulted Interest means a date
fixed by the Trustee pursuant to Section 3.8.
"Stated Maturity" when used with respect to any Security or any installment of
principal thereof or interest thereon means the date specified pursuant to the
terms of such Security as the date on which the principal of such Security or
such installment of interest is due and payable, in the case of such principal,
as such date may be shortened or extended as provided pursuant to the terms of
such Security and this Indenture.
"Subsidiary" means a corporation more than 50% of the outstanding voting stock
of which is owned, directly or indirectly, by the Company or by one or more
other Subsidiaries, or by the Company and one or more other Subsidiaries. For
purposes of this definition, "voting stock" means stock which ordinarily has
voting power for the election of directors, whether at all times or only so long
as no senior class of stock has such voting power by reason of any contingency.
"Successor Security" of any particular Security means every Security issued
after, and evidencing all or a portion of the same debt as that evidenced by,
such particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 3.7 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Tax Event" means the receipt by a Providian Trust of an Opinion of Counsel
(as defined in the relevant Trust Agreement) experienced in such matters to the
effect that, as a result of any amendment to, or change (including any announced
prospective change) in, the laws (or any regulations thereunder) of the United
States or any political subdivision or taxing authority thereof or therein, or
as a result of any official administrative pronouncement or judicial decision
<PAGE>
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement or decision is announced on or after the date
of issuance of the Capital Securities of such Providian Trust, there is more
than an insubstantial risk that (i) such Providian Trust is, or will be within
90 days of the date of such Opinion of Counsel, subject to United States Federal
income tax with respect to income received or accrued on the corresponding
series of Securities issued by the Company to such Providian Trust, (ii)
interest payable by the Company on such corresponding series of Securities is
not, or within 90 days of the date of such Opinion of Counsel, will not be,
deductible by the Company, in whole or in part, for United States Federal income
tax purposes or (iii) such Providian Trust is, or will be within 90 days of the
date of such Opinion of Counsel, subject to more than a de minimis amount of
other taxes, duties or other governmental charges.
"Trust Agreement" means the Trust Agreement substantially in the form attached
hereto as Annex A, as amended by the form of Amended and Restated Trust
Agreement substantially in the form attached hereto as Annex B, or substantially
in such form as may be specified as contemplated by Section 3.1 with respect to
the Securities of any series, in each case as amended from time to time.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
this instrument until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean or
include each Person who is then a Trustee hereunder and, if at any time there is
more than one such Person, "Trustee" as used with respect to the Securities of
any series shall mean the Trustee with respect to Securities of that series.
"Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S)
77aaa-77bbb), as amended and as in effect on the date as of this Indenture,
except as provided in Section 9.5.
"Trust Securities" has the meaning specified in the first recital of this
Indenture.
"Unrestricted Securities Certificate" means a certificate substantially in the
form set forth in Annex E.
"Vice President" when used with respect to the Company, means any duly
appointed vice president, whether or not designated by a number or a word or
words added before or after the title "vice president."
Section 1.2. Compliance Certificate and Opinions.
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee an Officers' Certificate stating that all conditions precedent
(including covenants, compliance with which constitutes a condition precedent),
if any, provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent (including covenants compliance with which
constitute a condition precedent), if any, have been complied with, except that
in the case of any such application or request as to which the furnishing of
such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than the certificates provided
pursuant to Section 10.4) shall include:
<PAGE>
(1) a statement that each individual signing such certificate or opinion has
read such covenant or condition and the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether, in the opinion of each such individual, such
condition or covenant has been complied with.
Section 1.3. Forms of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or covered
by an opinion of, any specified Person, it is not necessary that all such
matters be certified by, or covered by the opinion of, only one such Person, or
that they be so certified or covered by only one document, but one such Person
may certify or give an opinion with respect to some matters and one or more
other such Persons as to other matters, and any such Person may certify or give
an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based, insofar
as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions, or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
<PAGE>
Section 1.4. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent, waiver or
other action provided by this Indenture to be given to or taken by Holders may
be embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by an agent duly appointed in writing;
and, except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments is or are delivered to the
Trustee, and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 6.1) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such instrument or
writing may be proved by the affidavit of a witness of such execution or by the
certificate of any notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a Person acting in other than his individual capacity, such certificate or
affidavit shall also constitute sufficient proof of his authority.
(c) The fact and date of the execution by any Person of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient and in accordance with
such reasonable rules as the Trustee may determine.
(d) The ownership of Securities shall be proved by the Securities Register.
(e) Any request, demand, authorization, direction, notice, consent, waiver or
other action by the Holder of any Security shall bind every future Holder of the
same Security and the Holder of every Security issued upon the transfer thereof
or in exchange therefor or in lieu thereof in respect of anything done or
suffered to be done by the Trustee or the Company in reliance thereon, whether
or not notation of such action is made upon such Security.
(f) The Company may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities of any series entitled to
give, make or take any request, demand, authorization, direction, notice,
consent, waiver or other action provided or permitted by this Indenture to be
given, made or taken by Holders of Securities of such series, provided that the
Company may not set a record date for, and the provisions of this paragraph
shall not apply with respect to, the giving or making of any notice,
declaration, request or direction referred to in the next paragraph. If any
record date is set pursuant to this paragraph, the Holders of Outstanding
Securities of the relevant series on such record date, and no other Holders,
shall be entitled to take the relevant action, whether or not such Holders
remain Holders after such record date, provided that no such action shall be
effective hereunder unless taken on or prior to the applicable Expiration Date
(as hereinafter in this Section 1.4(f) provided) by Holders of the requisite
principal amount of Outstanding Securities of such series on such record date.
Nothing in this paragraph shall be construed to prevent the Company from setting
a new record date for any action for which a record date has previously been set
pursuant to this paragraph (whereupon the record date previously set
<PAGE>
shall automatically and with no action by any Person be cancelled and of no
effect), and nothing in this paragraph shall be construed to render ineffective
any action taken by Holders of the requisite principal amount of Outstanding
Securities of the relevant series on the date such action is taken. Promptly
after any record date is set pursuant to this paragraph, the Company, at its own
expense, shall cause notice of such record date, the proposed action by Holders
and the applicable Expiration Date to be given to the Trustee in writing and to
each Holder of Securities of the relevant series in the manner set forth in
Section 1.6.
The Trustee may set any day as a record date for the purpose of determining
the Holders of Outstanding Securities of any series entitled to join in the
giving or making of (i) any Notice of Default, (ii) any declaration of
acceleration referred to in Section 5.2, (iii) any request to institute
proceedings referred to in Section 5.7(2) or (iv) any direction referred to in
Section 5.12, in each case with respect to Securities of such series. If any
record date is set pursuant to this paragraph, the Holders of Outstanding
Securities of such series on such record date, and no other Holders, shall be
entitled to join in such notice, declaration, request or direction, whether or
not such Holders remain Holders after such record date, provided that no such
action shall be effective hereunder unless taken on or prior to the applicable
Expiration Date by Holders of the requisite principal amount of Outstanding
Securities of such series on such record date. Nothing in this paragraph shall
be construed to prevent the Trustee from setting a new record date for any
action for which a record date has previously been set pursuant to this
paragraph (whereupon the record date previously set shall automatically and with
no action by any Person be cancelled and of no effect), and nothing in this
paragraph shall be construed to render ineffective any action taken by Holders
of the requisite principal amount of Outstanding Securities of the relevant
series on the date such action is taken. Promptly after any record date is set
pursuant to this paragraph, the Trustee, at the Company's expense, shall cause
notice of such record date, the proposed action by Holders and the applicable
Expiration Date to be given to the Company in writing and to each Holder of
Securities of the relevant series in the manner set forth in Section 1.6.
With respect to any record date set pursuant to this Section, the party hereto
which sets such record dates may designate any day as the "Expiration Date" and
from time to time may change the Expiration Date to any earlier or later day,
provided that no such change shall be effective unless notice of the proposed
new Expiration Date is given to the other party hereto in writing, and to each
Holder of Securities of the relevant series in the manner set forth in Section
10.6, on or prior to the existing Expiration Date. If an Expiration Date is not
designated with respect to any record date set pursuant to this Section, the
party hereto which set such record date shall be deemed to have initially
designated the 180th day after such record date as the Expiration Date with
respect thereto, subject to its right to change the Expiration Date as provided
in this paragraph. Notwithstanding the foregoing, no Expiration Date shall be
later than the 180th day after the applicable record date.
(g) Without limiting the foregoing, a Holder entitled hereunder to take any
action hereunder with regard to any particular Security may do so with regard to
all or any part of the principal amount of such Security or by one or more duly
appointed agents each of which may do so pursuant to such appointment with
regard to all or any part of such principal amount.
Section 1.5. Notices, Etc. to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, waiver or Act
of Holders or other document provided or permitted by this Indenture to be made
upon, given or furnished to, or filed with,
<PAGE>
(1) the Trustee by any Holder, any holder of Capital Securities or the Company
shall be sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its Corporate Trust Office, or
(2) the Company by the Trustee, any Holder or any holder of Capital Securities
shall be sufficient for every purpose (except as otherwise provided in Section
5.1) hereunder if in writing and mailed, first class, postage prepaid, to the
Company addressed to it at the address of its principal office specified in the
first paragraph of this instrument or at any other address previously furnished
in writing to the Trustee by the Company.
Section 1.6. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such notice
shall be sufficiently given (unless otherwise herein expressly provided) if in
writing and mailed, first class postage prepaid, to each Holder affected by such
event, at the address of such Holder as it appears in the Securities Register,
not later than the latest date, and not earlier than the earliest date,
prescribed for the giving of such notice. In any case where notice to Holders is
given by mail, neither the failure to mail such notice, nor any defect in any
notice so mailed, to any particular Holder shall affect the sufficiency of such
notice with respect to other Holders. In case, by reason of the suspension of or
irregularities in regular mail service or for any other reason, it shall be
impossible or impracticable to mail notice of any event to Holders when said
notice is required to be given pursuant to any provision of this Indenture or of
the relevant Securities, then any manner of giving such notice as shall be
satisfactory to the Trustee shall be deemed to be a sufficient giving of such
notice. Where this Indenture provides for notice in any manner, such notice may
be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
Section 1.7. Conflict with Trust Indenture Act.
Except as provided in Section 7.4, if any provision of this Indenture limits,
qualifies or conflicts with the duties imposed by any of Sections 310 to 317,
inclusive, of the Trust Indenture Act through operation of Section 318(c)
thereof, such imposed duties shall control. This Indenture, the Company and the
Trustee shall be deemed for all purposes hereof to be subject to and governed by
the Trust Indenture Act to the same extent as would be the case if this
Indenture were so qualified on the date hereof, except as provided in Section
7.4.
<PAGE>
Section 1.8. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
Section 1.9. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall bind its
successors and assigns, whether so expressed or not.
Section 1.10. Separability Clause.
In case any provision in this Indenture or in the Securities shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
Section 1.11 Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied, shall give
to any Person, other than the parties hereto and their successors and assigns,
the holders of Senior Indebtedness, the Holders of the Securities and, to the
extent expressly provided in Sections 5.2, 5.8, 5.9, 5.11, 5.13, 9.1 and 9.2,
the holders of Capital Securities, any benefit or any legal or equitable right,
remedy or claim under this Indenture.
Section 1.12. Governing Law.
This Indenture and the Securities shall be governed by and construed in
accordance with the laws of the State of New York without regard to the conflict
of law principles thereof.
Section 1.13. Non-Business Days.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security shall not be a Business Day, then (notwithstanding any
other provision of this Indenture or the Securities) payment of interest or
principal (and premium, if any) need not be made on such date, but may be made
on the next succeeding Business Day (and no interest shall accrue for the period
from and after such Interest Payment Date, Redemption Date or Stated Maturity,
as the case may be, until such next succeeding Business Day except that, if such
Business Day is in the next succeeding calendar year, such payment shall be made
on the immediately preceding Business Day (in each case with the same force and
effect as if made on the Interest Payment Date or Redemption Date or at the
Stated Maturity).
<PAGE>
ARTICLE II
SECURITY FORMS
Section 2.1. Forms Generally.
The Securities of each series and the Trustee's certificate of authentication
shall be in substantially the forms set forth in this Article, or in such other
form or forms as shall be established by or pursuant to a Board Resolution or in
one or more indentures supplemental hereto, in each case with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with applicable tax laws or the rules of any securities
exchange or as may, consistently herewith, be determined by the officers
executing such securities, as evidenced by their execution of the Securities. If
the form of Securities of any series is established by action taken pursuant to
a Board Resolution, a copy of an appropriate record of such action shall be
certified by the Secretary or an Assistant Secretary of the Company and
delivered to the Trustee at or prior to the delivery of the Company Order
contemplated by Section 3.3 with respect to the authentication and delivery of
such Securities.
The Trustee's certificate of authentication shall be substantially in the form
set forth in this Article.
The definitive Securities shall be printed, lithographed or engraved or
produced by any combination of these methods, if required by any securities
exchange on which the Securities may be listed, on a steel engraved border or
steel engraved borders or may be produced in any other manner permitted by the
rules of any securities exchange on which the Securities may be listed, all as
determined by the officers executing such Securities, as evidenced by their
execution of such securities.
Securities distributed to holders of Book-Entry Capital Securities upon the
dissolution of a Providian Trust shall be distributed in the form of one or more
Global Securities registered in the name of a Depository or its nominee, and
deposited with the Security Registrar, as custodian for such Depository, or held
by such Depository, for credit by the Depository to the respective accounts of
the beneficial owners of the Securities represented thereby (or such other
accounts as they may direct). Securities distributed to holders of Capital
Securities other than Book-Entry Capital Securities upon the dissolution of a
Providian Trust shall not be issued in the form of a Global Security or any
other form intended to facilitate book-entry trading in beneficial interests in
such Securities.
<PAGE>
Section 2.2. Form of Face of Security.
[If the Security is a Restricted Security, then insert -- THIS SECURITY HAS
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT (A) BY [THE INITIAL INVESTOR] [AN INVESTOR WHO WAS PRIOR TO
THE DISTRIBUTION OF THIS SECURITY HOLDING RELATED CAPITAL SECURITIES AS AN
INITIAL INVESTOR THEREOF] (1) TO A PERSON WHO THE TRANSFEROR REASONABLY BELIEVES
IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT) ACQUIRING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2)
IN AN OFFSHORE TRANSACTION COMPLYING WITH THE PROVISIONS OF RULE 903 OR RULE 904
OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE) OR (4) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND (B) BY SUBSEQUENT INVESTORS HOLDING THIS SECURITY IN BOOK-
ENTRY FORM AS SET FORTH IN (A) ABOVE OR TO AN INSTITUTIONAL INVESTOR THAT IS AN
ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501 OF REGULATION D UNDER THE
SECURITIES ACT IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS
OF THE STATES AND OTHER JURISDICTIONS OF THE UNITED STATES. IF THIS SECURITY IS
OWNED BY AN INITIAL INVESTOR THAT IS NOT A QUALIFIED INSTITUTIONAL BUYER, IT MAY
NOT BE HELD IN BOOK-ENTRY FORM AND MAY NOT BE TRANSFERRED WITHOUT CERTIFICATION
THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS REFERRED TO BELOW.
THE HOLDER OF THIS SECURITY AGREES THAT IT WILL COMPLY WITH THE FOREGOING
RESTRICTIONS.]
NO EMPLOYEE BENEFIT OR OTHER PLAN SUBJECT TO TITLE I OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF
THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE")(EACH, A "PLAN"), NO
ENTITY WHOSE UNDERLYING ASSETS INCLUDE "PLAN ASSETS" BY REASON OF ANY PLAN'S
INVESTMENT IN THE ENTITY (A "PLAN ASSET ENTITY"), AND NO PERSON INVESTING "PLAN
ASSETS" OF ANY PLAN, MAY ACQUIRE OR HOLD THIS SECURITY OR ANY INTEREST THEREIN,
UNLESS SUCH PURCHASER OR HOLDER IS ELIGIBLE FOR THE EXEMPTIVE RELIEF AVAILABLE
UNDER U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION ("PTCE")
96-23, 95-60, 91-38, 90-1 OR 84-14 OR ANOTHER APPLICABLE EXEMPTION WITH RESPECT
TO SUCH PURCHASE OR HOLDING. ANY PURCHASER OR HOLDER OF THIS SECURITY OR ANY
INTEREST THEREIN WILL BE DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND HOLDING
THEREOF THAT IT EITHER (A) IS NOT A PLAN OR A PLAN ASSET ENTITY AND IS NOT
PURCHASING THIS SECURITY ON BEHALF OF OR WITH "PLAN ASSETS" OF ANY PLAN OR (B)
IS ELIGIBLE FOR THE EXEMPTIVE RELIEF AVAILABLE UNDER PTCE 96-23, 95-60, 91-38,
90-1 OR 84-14 OR ANOTHER APPLICABLE EXEMPTION WITH RESPECT TO SUCH PURCHASE OR
HOLDING.
<PAGE>
PROVIDIAN BANCORP, INC.
(TITLE OF SECURITY)
No. $
PROVIDIAN BANCORP, INC., a corporation organized and existing under the laws
of Delaware (hereinafter called the "Company", which term includes any successor
corporation under the Indenture hereinafter referred to), for value received,
hereby promises to pay to , or registered assigns, the principal
sum of Dollars [if the Security is a Global Security, then
insert, if applicable -- , or such other principal amount as may be set forth in
the records of the Securities Registrar hereinafter referred to in accordance
with the Indenture,] on , . The Company further promises to pay
interest on said principal sum from , or from the most
recent interest payment date (each such date, an "Interest Payment Date") on
which interest has been paid or duly provided for, [monthly] [quarterly] [semi-
annually] [if applicable, insert--(subject to deferral as set forth herein)] in
arrears on [insert applicable Interest Payment Dates] of each year, commencing
, , at the rate of % per annum, until the principal hereof shall
have become due and payable, [if applicable, insert--together with Additional
Interest, if any,] [if applicable, insert--; provided that any overdue
principal, premium, if any and (without duplication and to the extent that
payment of such interest is enforceable under applicable law) any overdue
installment of interest shall bear interest at the rate of % per annum,
compounded [monthly] [quarterly] [semi-annually]]. The amount of interest
payable for any period less than a full interest period shall be computed on the
basis of twelve 30-day months and a 360-day year. The amount of interest
payable for any full interest period shall be computed by dividing the rate per
annum by [twelve][four][two]. In the event that any date on which interest is
payable on this Security is not a Business Day, then a payment of the interest
payable on such date will be made on the next succeeding day which is a Business
Day (and without any interest or other payment in respect of any such delay),
except that, if such Business Day is in the next succeeding calendar year, such
payment shall be made on the immediately preceding Business Day, in each case
with the same force and effect as if made on the date the payment was originally
payable. A "Business Day" shall mean any day other than (i) a Saturday or
Sunday, (ii) a day on which banking institutions in The City of New York are
authorized or required by law or executive order to remain closed or (iii) a day
on which the Corporate Trust Office of the Trustee [if applicable, insert--, or
the principal office of the Property Trustee under the Trust Agreement
hereinafter referred to for [Providian Capital ,]] is closed for business.
The interest installment so payable, and punctually paid or duly provided for,
on any Interest Payment Date will, as provided in the Indenture, be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such interest
installment, which shall be the [insert definition of Regular Record Dates]. Any
such interest installment not so punctually paid or duly provided for shall
forthwith cease to be payable to the Holder on such Regular Record Date and may
either be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to Holders of Securities of this series
not less than 10 days prior to such Special Record Date, or be paid at any time
in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities of this series may be listed, and
upon such notice as may be required by such exchange, all as more fully provided
in said Indenture.
<PAGE>
[If applicable, insert--So long as no Event of Default has occurred and is
continuing, the Company shall have the right at any time during the term of this
Security to defer payment of interest on this Security, at any time or from time
to time, for up to _____ consecutive [monthly] [quarterly] [semi-annual]
interest payment periods with respect to each deferral period (each an
"Extension Period"), during which Extension Periods the Company shall have the
right to make partial payments of interest on any Interest Payment Date, and at
the end of which the Company shall pay all interest then accrued and unpaid
(together with Additional Interest thereon to the extent permitted by applicable
law); provided, however, that no Extension Period shall extend beyond the Stated
Maturity of the principal of this Security; provided, further, that during any
such Extension Period, the Company shall not, and shall not permit any
Subsidiary of the Company to, (i) declare or pay any dividends or distributions
on, or redeem, purchase, acquire or make a liquidation payment with respect to,
any of the Company's capital stock, (ii) make any payment of principal, interest
or premium, if any, on or repay, repurchase or redeem any debt securities of the
Company that rank pari passu in all respects with or junior in interest to this
Security or (iii) make any guarantee payments with respect to any guarantee by
the Company of the debt securities of any Subsidiaries of the Company if such
guarantee ranks pari passu with or junior in interest to this Security (other
than (a) dividends or distributions in Common Stock, (b) any declaration of a
dividend in connection with the implementation of a Rights Plan, the issuance of
any Common Stock or any class or series of preferred stock of the Company under
any Rights Plan in the future or the redemption or repurchase of any rights
distributed pursuant to a Rights Plan, (c) payments under any Providian
Guarantee, and (d) purchases of Common Stock related to the issuance of Common
Stock or rights under any of the Company's or its Subsidiaries' benefit plans
for their directors, officers or employees). Prior to the termination of any
such Extension Period, the Company may further extend the interest payment
period, provided that no Extension Period shall exceed ____ consecutive [months]
[quarters] [semi-annual periods] or extend beyond the Stated Maturity of the
principal of this Security. Upon the termination of any such Extension Period
and upon the payment of all amounts then due on any Interest Payment Date, the
Company may elect to begin a new Extension Period, subject to the above
requirements. No interest shall be due and payable during an Extension Period
except at the end thereof, but each installment of interest that would otherwise
have been due and payable during such Extension shall bear Additional Interest
(to the extent that the payment of such interest shall be legally enforceable)
at the rate of ___% per annum, compounded [monthly] [quarterly] [semi-annually]
and calculated as set forth in the first paragraph of this Security, from the
dates on which amounts would otherwise have been due and payable until paid or
made available for payment. The Company shall give the Property Trustee and the
Trustee notice of its election to begin any Extension Period at least one
Business Day prior to the next succeeding Interest Payment Date on which
interest on this Security would be payable but for such deferral [if applicable,
insert--or so long as this Security is held by [insert name of applicable
Providian Trust], at least one Business Day prior to the earlier of (i) the date
on which Distributions on the Capital Securities would have been payable but for
such deferral, (ii) the date the Property Trustee is required to give notice to
any applicable self-regulatory organization or to holders of such Capital
Securities of the record date and (iii) the date such Distributions are payable,
but in any event not less than one Business Day prior to such record date].
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in the United States, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts [if applicable, insert--; provided, however, that at the option of
the Company payment of interest may be made (i) by check mailed to the address
of the Person entitled thereto as such address shall appear in the Securities
Register or (ii) by wire transfer in immediately
<PAGE>
available funds at such place and to such account as may be designated by the
Person entitled thereto as specified in the Securities Register].
The indebtedness evidenced by this Security is, to the extent provided in the
Indenture, subordinate and junior in right of payment to the prior payment in
full of all Senior Indebtedness, and this Security is issued subject to the
provisions of the Indenture with respect thereto. Each Holder of this Security,
by accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee on its behalf to take such actions as may be
necessary or appropriate to effectuate the subordination so provided and (c)
appoints the Trustee its attorney-in-fact for any and all such purposes. Each
Holder hereof, by his acceptance hereof, waives all notice of the acceptance of
the subordination provisions contained herein and in the Indenture by each
holder of Senior Indebtedness, whether now outstanding or hereafter incurred,
and waives reliance by each such holder upon said provisions.
Reference is hereby made to the further provisions of this Security set forth
on the reverse hereof, which further provisions shall for all purposes have the
same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed
under its corporate seal.
PROVIDIAN BANCORP, INC.
By:
-------------------------------------
[President, Vice President, Treasurer or
Assistant Treasurer]
Attest:
- ---------------------------------------
[Secretary or Assistant Secretary]
Section 2.3. Form of Reverse of Security.
This Security is one of a duly authorized issue of securities of the Company
(herein called the "Securities"), issued and to be issued in one or more series
under a Junior Subordinated Indenture, dated as of February 4, 1997 (herein
called the "Indenture"), between the Company and The Bank of New York, as
Trustee (herein called the "Trustee", which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Trustee, the Company and the
Holders of the Securities, and of the terms upon which the Securities are, and
are to be, authenticated and delivered. This Security is one of the series
designated on the face hereof [, limited in aggregate principal amount to $ ].
<PAGE>
All terms used in this Security that are defined in the Indenture [if
applicable, insert--or in the Amended and Restated Trust Agreement, dated as of
___________, ____, as amended (the "Trust Agreement"), for [Providian Capital
,] among PROVIDIAN BANCORP, INC., as Depositor, and the Trustees named therein,
shall have the meanings assigned to them in the Indenture [if applicable,
insert--or the Trust Agreement, as the case may be]. Any reference to interest
as used herein shall be deemed to include any Additional Interest and Additional
Sums.
[If applicable, insert--The Company may at any time, at its option, on or
after _________, ____, and subject to the terms and conditions of Article XI of
the Indenture, redeem this Security in whole at any time or in part from time to
time, without premium or penalty, at a redemption price equal to 100% of the
principal amount thereof plus accrued and unpaid interest [if applicable,
insert--including Additional Interest, if any] to the Redemption Date.]
[If applicable, insert-The Company may, at its option, on or after _________,
____, and subject to the terms and conditions of Article XI of the Indenture,
redeem this Security in whole at any time or in part from time to time, at the
following Redemption Prices (expressed as percentages of the principal amount):
If redeemed during the 12-month period beginning __________,
Year Redemption
Price
--------------------
and at 100% on or after _________, ____, together in the case of any such
redemption with accrued interest to but excluding the date fixed for
redemption.]
[If applicable, insert--Upon the occurrence and during the continuation of a
Tax Event or Capital Treatment Event in respect of a Providian Trust, the
Company may, at its option, [at any time][before _________, ____ and] within 90
days of the occurrence of such Tax Event or Capital Treatment Event redeem this
Security, in whole but not in part, subject to the provisions of Section 11.7
and the other provisions of Article XI of the Indenture, at a redemption price
equal to [describe formulation].]
In the event of redemption of this Security in part only, a new Security or
Securities of this series for the unredeemed portion hereof will be issued in
the name of the Holder hereof upon the cancellation hereof.
The Indenture contains provisions for satisfaction and discharge of the entire
indebtedness of this Security upon compliance by the Company with certain
conditions set forth in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
Company and the Trustee at any time to enter into a supplemental indenture or
indentures for the purpose of modifying in any manner the rights and obligations
of the Company and of the Holders of the Securities, with the consent of the
Holders of not less than a majority in principal amount of the Outstanding
Securities of each series to be affected by such supplemental indenture. The
Indenture also contains provisions permitting Holders of specified percentages
in principal amount of the Securities of each series at the time Outstanding, on
behalf of the Holders of all Securities of such
<PAGE>
series, to waive compliance by the Company with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences.
Any such consent or waiver by the Holder of this Security shall be conclusive
and binding upon such Holder and upon all future Holders of this Security and of
any Security issued upon the registration of transfer hereof or in exchange
herefor or in lieu hereof, whether or not notation of such consent or waiver is
made upon this Security.
[If the Security is not a Discount Security,--As provided in and subject to
the provisions of the Indenture, if an Event of Default with respect to the
Securities of this series at the time Outstanding occurs and is continuing, then
and in every such case the Trustee or the Holders of not less than 25% in
principal amount of the Outstanding Securities of this series may declare the
principal amount of all the Securities of this series to be due and payable
immediately, by a notice in writing to the Company (and to the Trustee if given
by Holders), provided that, in the case of the Securities of this series issued
to a Providian Trust, if upon an Event of Default, the Trustee or the Holders of
not less than 25% in principal amount of the Outstanding Securities of this
series fails to declare the principal of all the Securities of this series to be
immediately due and payable, the holders of at least 25% in aggregate
Liquidation Amount of the Capital Securities of such Providian Trust then
outstanding shall have such right by a notice in writing to the Company and the
Trustee; and upon any such declaration the principal amount of and the accrued
interest (including any Additional Interest) on all the Securities of this
series shall become immediately due and payable, provided that the payment of
principal and interest (including any Additional Interest) on such Securities
shall remain subordinated to the extent provided in Article XIII of the
Indenture.]
[If the Security is a Discount Security,--As provided in and subject to the
provisions of the Indenture, if an Event of Default with respect to the
Securities of this series at the time Outstanding occurs and is continuing, then
and in every such case the Trustee or the Holders of not less than such portion
of the principal amount as may be specified in the terms of this series may
declare an amount of principal of the Securities of this series to be due and
payable immediately, by a notice in writing to the Company (and to the Trustee
if given by Holders), provided that, in the case of the Securities of this
series issued to a Providian Trust, if upon an Event of Default, the Trustee or
the Holders of not less than 25% in principal amount of the Outstanding
Securities of this series fails to declare the principal of all the Securities
of this series to be immediately due and payable, the holders of at least 25% in
aggregate Liquidation Amount of the Capital Securities of such Providian Trust
then outstanding shall have such right by a notice in writing to the Company and
the Trustee. Such amount shall be calculated by the Company and shall be equal
to--insert formula for determining the amount. Upon any such declaration, such
amount of the principal of and the accrued interest (including any Additional
Interest) on all the Securities of this series shall become immediately due and
payable, provided that the payment of principal and interest (including any
Additional Interest) on such Securities shall remain subordinated to the extent
provided in Article XIII of the Indenture. Upon payment (i) of the amount of
principal so declared due and payable and (ii) of interest on any overdue
principal and overdue interest (in each case to the extent that the payment of
such interest shall be legally enforceable), all of the Company's obligations in
respect of the payment of the principal of and interest, if any, on this
Security shall terminate.]
No reference herein to the Indenture and no provision of this Security or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Security at the times, place and rate, and in the coin or
currency, herein prescribed.
<PAGE>
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable in the Securities Register,
upon surrender of this Security for registration of transfer at the office or
agency of the Company maintained under Section 10.2 of the Indenture duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Securities Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Securities of this series, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees. No service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee shall treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
Subject to Section 3.1 of the Indenture, the Securities of this series are
issuable only in registered form without coupons in minimum denominations of
$1,000 and any integral multiples thereof. As provided in the Indenture and
subject to certain limitations therein set forth, Securities of this series are
exchangeable for a like aggregate principal amount of Securities of such series
of a different authorized denomination, as requested by the Holder surrendering
the same.
The Company and, by its acceptance of this Security or a beneficial interest
therein, the Holder of, and any Person that acquires a beneficial interest in,
this Security agree that for United States federal, state and local tax purposes
it is intended that this Security constitute indebtedness.
THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT
OF LAW PRINCIPLES THEREOF.
Section 2.4. Additional Provisions Required in Global Security.
Any Global Security issued hereunder shall, in addition to the provisions
contained in Sections 2.2 and 2.3, bear a legend in substantially the following
form:
"THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED
IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE ONLY IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND MAY NOT BE TRANSFERRED
EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A
NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE
DEPOSITORY."
<PAGE>
Section 2.5. Form of Trustee's Certificate of Authentication.
This is one of the Securities referred to in the within mentioned Indenture.
Dated:
The Bank of New York
as Trustee
By:
------------------------
Authorized Signatory
ARTICLE III
THE SECURITIES
Section 3.1. Title and Terms.
The aggregate principal amount of Securities which may be authenticated and
delivered under this Indenture is unlimited.
The Securities may be issued in one or more series. There shall be established
in or pursuant to a Board Resolution, and set forth in an Officers' Certificate,
or established in one or more indentures supplemental hereto, prior to the
issuance of Securities of a series:
(a) the title of the securities of such series, which shall distinguish the
Securities of the series from all other Securities;
(b) the limit, if any, upon the aggregate principal amount of the Securities
of such series which may be authenticated and delivered under this Indenture
(except for Securities authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other Securities of the series pursuant
to Section 3.4, 3.5, 3.6, 3.7, 9.6 or 11.6 and except for any Securities that,
pursuant to Section 3.3, are deemed never to have been authenticated and
delivered hereunder); provided, however, that the authorized aggregate principal
amount of such series may be increased above such amount by a Board Resolution
to such effect;
(c) the Stated Maturity or Maturities on which the principal of the Securities
of such series is payable or the method of determination thereof;
(d) the rate or rates, if any, at which the Securities of such series shall
bear interest, if any, the rate or rates and extent to which Additional
Interest, if any, shall be payable in respect of any Securities of such series,
the Interest Payment Dates on which such interest shall be payable, the right,
pursuant to Section 3.12 or as otherwise set forth therein, of the Company to
defer or extend an Interest Payment Date, and the Regular Record Date for the
interest payable on any Interest Payment Date or the method by which any of the
foregoing shall be determined;
(e) the place or places where the principal of (and premium, if any) and
interest on the Securities of such series shall be payable, the place or places
where the Securities of such series may be presented for registration of
transfer or exchange, and the place or places where notices and demands to or
upon the Company in respect of the Securities of such series may be made;
<PAGE>
(f) the period or periods within or the date or dates on which, if any, the
price or prices at which and the terms and conditions upon which the Securities
of such series may be redeemed, in whole or in part, at the option of the
Company;
(g) the obligation or the right, if any, of the Company to redeem, repay or
purchase the Securities of such series pursuant to any sinking fund,
amortization or analogous provisions, or at the option of a Holder thereof, and
the period or periods within which, the price or prices at which, the currency
or currencies (including currency unit or units) in which and the other terms
and conditions upon which Securities of the series shall be redeemed, repaid or
purchased, in whole or in part, pursuant to such obligation;
(h) the denominations in which any Securities of such series shall be
issuable, if other than denominations of $1,000 and any integral multiple
thereof;
(i) if other than Dollars, the currency or currencies (including currency unit
or units) in which the principal of (and premium, if any) and interest, if any,
on the Securities of the series shall be payable, or in which the Securities of
the series shall be denominated and the manner of determining the equivalent
thereof in Dollars for purposes of the definition of Outstanding;
(j) the additions, modifications or deletions, if any, in the Events of
Default or covenants of the Company set forth herein with respect to the
Securities of such series;
(k) if other than the principal amount thereof, the portion of the principal
amount of Securities of such series that shall be payable upon declaration of
acceleration of the Maturity thereof;
(l) the additions or changes, if any, to this Indenture with respect to the
Securities of such series as shall be necessary to permit or facilitate the
issuance of the Securities of such series in bearer form, registrable or not
registrable as to principal, and with or without interest coupons;
(m) any index or indices used to determine the amount of payments of principal
of and premium, if any, on the Securities of such series or the manner in which
such amounts will be determined;
(n) whether the Securities of the series, or any portion thereof, shall
initially be issuable in the form of a temporary Global Security representing
all or such portion of the Securities of such series and provisions for the
exchange of such temporary Global Security for definitive Securities of such
series;
(o) if applicable, that any Securities of the series shall be issuable in
whole or in part in the form of one or more Global Securities and, in such case,
the respective Depositories for such Global Securities, the form of any legend
or legends which shall be borne by any such Global Security in addition to or in
lieu of that set forth in Section 2.4 and any circumstances in addition to or in
lieu of those set forth in Section 3.6 in which any such Global Security may be
exchanged in whole or in part for Securities registered, and any transfer of
such Global Security in whole or in part may be registered, in the name or names
of Persons other than the Depository for such Global Security or a nominee
thereof;
(p) the appointment of any Paying Agent or Agents for the Securities of such
series;
<PAGE>
(q) the terms of any right to convert or exchange Securities of such series
into any other securities or property of the Company, and the additions or
changes, if any, to this Indenture with respect to the Securities of such series
to permit or facilitate such conversion or exchange;
(r) the form or forms of the Trust Agreement, Amended and Restated Trust
Agreement and Guarantee Agreement, if different from the forms attached hereto
as Annexes A, B and C, respectively;
(s) if other than as set forth herein, the relative degree, if any, to which
the Securities of the series shall be senior to or be subordinated to other
series of Securities in right of payment, whether such other series of
Securities are Outstanding or not; and
(t) any other terms of the Securities of such series (which terms shall not be
inconsistent with the provisions of this Indenture).
All Securities of any one series shall be substantially identical except as to
denomination and except as may otherwise be provided herein or in or pursuant to
such Board Resolution and set forth in such Officers' Certificate or in any such
indenture supplemental hereto.
If any of the terms of the series are established by action taken pursuant to
a Board Resolution, a copy of an appropriate record of such action shall be
certified by the Secretary or an Assistant Secretary of the Company and
delivered to the Trustee at or prior to the delivery of the Officers'
Certificate setting forth the terms of the series.
The Securities shall be subordinated in right of payment to Senior
Indebtedness as provided in Article XIII.
Unless otherwise provided with respect to the Securities of any series, at the
option of the Company, interest on the Securities of any series that bears
interest may be paid (i) by mailing a check to the address of the person
entitled thereto as such address shall appear in the Security Register or (ii)
by wire transfer in immediately available funds at such place and to such
account as may be designated by the person entitled thereto as specified in the
Security Register.
Section 3.2. Denominations.
The Securities of each series shall be in registered form without coupons and
shall be issuable in denominations of $1,000 and any integral multiple thereof,
unless otherwise specified as contemplated by Section 3.1.
Section 3.3. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its President,
one of its Vice Presidents, its Treasurer or an Assistant Treasurer under its
corporate seal reproduced or impressed thereon and attested by its Secretary or
one of its Assistant Secretaries. The signature of any of these officers on the
Securities may be manual or facsimile.
<PAGE>
Securities bearing the manual or facsimile signatures of individuals who were
at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities. At any time and from time to
time after the execution and delivery of this Indenture, the Company may deliver
Securities of any series executed by the Company to the Trustee for
authentication, together with a Company Order for the authentication and
delivery of such Securities, and the Trustee in accordance with the Company
Order shall authenticate and deliver such Securities. If the form or terms of
the Securities of the series have been established by or pursuant to one or more
Board Resolutions as permitted by Sections 2.1 and 3.1, in authenticating such
Securities, and accepting the additional responsibilities under this Indenture
in relation to such Securities, the Trustee shall be entitled to receive, and
(subject to Section 6.1) shall be fully protected in relying upon, an Opinion of
Counsel stating,
(1) if the form of such Securities has been established by or pursuant to
Board Resolution as permitted by Section 2.1, that such form has been
established in conformity with the provisions of this Indenture;
(2) if the terms of such Securities have been established by or pursuant to
Board Resolution as permitted by Section 3.1, that such terms have been
established in conformity with the provisions of this Indenture; and
(3) that such Securities, when authenticated and delivered by the Trustee and
issued by the Company in the manner and subject to any conditions specified in
such Opinion of Counsel, will constitute valid and legally binding obligations
of the Company enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors'
rights and to general equity principles.
If such form or terms have been so established, the Trustee shall not be
required to authenticate such Securities if the issue of such Securities
pursuant to this Indenture will affect the Trustee's own rights, duties or
immunities under the Securities and this Indenture or otherwise in a manner
which is not reasonably acceptable to the Trustee.
Notwithstanding the provisions of Section 3.1 and of the preceding
paragraph, if all Securities of a series are not to be originally issued at one
time, it shall not be necessary to deliver the Officers' Certificate otherwise
required pursuant to Section 3.1 or the Company Order and Opinion of Counsel
otherwise required pursuant to such preceding paragraph at or prior to the
authentication of each Security of such series if such documents are delivered
at or prior to the authentication upon original issuance of the first Security
of such series to be issued.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be valid
or obligatory for any purpose, unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by the manual signature of one of its authorized
signatories, and such certificate upon any Security shall be conclusive
evidence, and the only evidence, that such Security has been duly authenticated
and delivered hereunder. Notwithstanding the foregoing, if any Security shall
have been authenticated and delivered hereunder but never issued and sold by the
Company, and the Company shall deliver such Security to the Trustee for
<PAGE>
cancellation as provided in Section 3.10, for all purposes of this Indenture
such Security shall be deemed never to have been authenticated and delivered
hereunder and shall never be entitled to the benefits of this Indenture.
Section 3.4. Temporary Securities.
Pending the preparation of definitive Securities of any series, the Company
may execute, and upon Company Order the Trustee shall authenticate and make
available for delivery, temporary Securities which are printed, lithographed,
typewritten, mimeographed or otherwise produced, in any denomination,
substantially of the tenor of the definitive Securities of such series in lieu
of which they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Securities may
determine, as evidenced by their execution of such Securities.
If temporary Securities of any series are issued, the Company will cause
definitive Securities of such series to be prepared without unreasonable delay.
After the preparation of definitive Securities, the temporary Securities shall
be exchangeable for definitive Securities upon surrender of the temporary
Securities at the office or agency of the Company designated for that purpose
without charge to the Holder. Upon surrender for cancellation of any one or more
temporary Securities, the Company shall execute and the Trustee shall
authenticate and make available for delivery in exchange therefor one or more
definitive Securities of the same series, of any authorized denominations having
the same Original Issue Date and Stated Maturity and having the same terms as
such temporary Securities. Until so exchanged, the temporary Securities of any
series shall in all respects be entitled to the same benefits under this
Indenture as definitive Securities of such series.
Section 3.5. Global Securities.
(a) Each Global Security issued under this Agreement shall be registered in
the name of the Depository designated by the Company for such Global Security or
a nominee thereof and delivered to such Depository or a nominee thereof or
custodian therefor, and each such Global Security shall constitute a single
Security for all purposes of this Agreement.
(b) Notwithstanding any other provision in this Agreement, no Global Security
may be exchanged in whole or in part for Securities registered, and no transfer
of a Global Security in whole or in part may be registered, in the name of any
Person other than the Depository for such Global Security or a nominee thereof
unless (a) such Depository advises the Trustee in writing that such Depository
is no longer willing or able to properly discharge its responsibilities as
Depository with respect to such Global Security, and the Company is unable to
locate a qualified successor, (b) the Company executes and delivers to the
Trustee a Company Order stating that the Company elects to terminate the book-
entry system through the Depository or (c) there shall have occurred and be
continuing an Event of Default.
(c) If any Global Security is to be exchanged for other Securities or
cancelled in whole, it shall be surrendered by or on behalf of the Depository or
its nominee to the Security Registrar for exchange or cancellation as provided
in this Article III. If any Global Security is to be exchanged for other
Securities or cancelled in part, or if another Security is to be exchanged in
whole or in part for a beneficial interest in any Global Security, then either
(i) such Global Security shall be so surrendered for exchange or cancellation as
provided in this Article III or (ii) the principal amount thereof shall be
reduced or increased by an amount equal to the portion thereof to be so
exchanged
<PAGE>
or cancelled, or equal to the principal amount of such other Security to be so
exchanged for a beneficial interest therein, as the case may be, by means of an
appropriate adjustment made on the records of the Security Registrar, whereupon
the Trustee, in accordance with the Applicable Procedures, shall instruct the
Depository or its authorized representative to make a corresponding adjustment
to its records. Upon any such surrender or adjustment of a Global Security by
the Depository, accompanied by registration instructions, the Trustee shall,
subject to Section 3.5(b) and as otherwise provided in this Article III,
authenticate and make available for delivery any Securities issuable in exchange
for such Global Security (or any portion thereof) in accordance with the
instructions of the Depository. The Trustee shall not be liable for any delay in
delivery of such instructions and may conclusively rely on, and shall be fully
protected in relying on, such instructions.
(d) Every Security authenticated and delivered upon registration of transfer
of, or in exchange for or in lieu of, a Global Security or any portion thereof,
whether pursuant to this Article III, Section 9.6 or 11.6 or otherwise, shall be
authenticated and delivered in the form of, and shall be, a Global Security,
unless such Security is registered in the name of a Person other than the
Depository for such Global Security or a nominee thereof.
(e) The Depository or its nominee, as registered owner of a Global Security,
shall be the Holder of such Global Security for all purposes under this
Indenture and the Securities, and owners of beneficial interests in a Global
Security shall hold such interests pursuant to the Applicable Procedures.
Accordingly, any such owner's beneficial interest in a Global Security shall be
shown only on, and the transfer of such interest shall be effected only through,
records maintained by the Depository or its nominee or its Agent Members.
Neither the Trustee nor the Securities Registrar shall have any liability in
respect of any transfers effected by the Depository.
(f) The rights of owners of beneficial interests in a Global Security shall be
exercised only through the Depository and shall be limited to those established
by law and agreements between such owners and the Depository and/or its Agent
Members.
Section 3.6. Registration, Transfer and Exchange Generally, Certain
Transfers and Exchanges; Securities Act Legends.
(a) The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register in which, subject to such reasonable regulations as it may
prescribe, the Company shall provide for the registration of Securities and of
transfers of Securities. Such register is herein sometimes referred to as the
"Securities Register." The Trustee is hereby appointed "Securities Registrar"
for the purpose of registering Securities and transfers of Securities as herein
provided.
Upon surrender for registration of transfer of any Security at the office or
agency of the Company designated for that purpose the Company shall execute, and
the Trustee shall authenticate and make available for delivery, in the name of
the designated transferee or transferees, one or more new Securities of the same
series of any authorized denominations, of a like aggregate principal amount, of
the same Original Issue Date and Stated Maturity and having the same terms and
bearing such restrictive legends as may be required by this Indenture.
At the option of the Holder, Securities may be exchanged for other Securities
of the same series of any authorized denominations, of a like aggregate
principal amount, of the same Original Issue Date and Stated Maturity and having
the same terms and bearing such restrictive legends as may be required by this
Indenture, upon surrender of the Securities to be exchanged at such office or
<PAGE>
agency. Whenever any securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Securities
which the Holder making the exchange is entitled to receive.
All Securities issued upon any transfer or exchange of Securities shall be the
valid obligations of the Company, evidencing the same debt, and entitled to the
same benefits under this Indenture, as the Securities surrendered upon such
transfer or exchange.
Every Security presented or surrendered for transfer or exchange shall (if so
required by the Company or the Securities Registrar) be duly endorsed, or be
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Securities Registrar, duly executed by the Holder thereof or his
attorney duly authorized in writing.
No service charge shall be made to a Holder for any transfer or exchange of
Securities, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection with any
transfer or exchange of Securities.
Neither the Company nor the Trustee shall be required, pursuant to the
provisions of this Section, (a) to issue, transfer or exchange any Security of
any series during a period beginning at the opening of business 15 days before
the day of selection for redemption of Securities pursuant to Article XI and
ending at the close of business on the day of mailing of notice of redemption or
(b) to transfer or exchange any Security so selected for redemption in whole or
in part, except, in the case of any Security to be redeemed in part, any portion
thereof not to be redeemed.
(b) Certain Transfers and Exchanges. Notwithstanding any other provision of
-------------------------------
this Indenture, transfers and exchanges of Securities and beneficial interests
in a Global Security of the kinds specified in this Section 3.6(b) shall be made
only in accordance with this Section 3.6(b).
(i) Restricted Non-Global Security to Global Security. If the Holder of a
-------------------------------------------------
Restricted Security (other than a Global Security) wishes at any time to
transfer all or any portion of such Security to a Person who wishes to take
delivery thereof in the form of a beneficial interest in a Global Security, such
transfer may be effected only in accordance with the provisions of this Clause
(b)(i) and subject to the Applicable Procedures. Upon receipt by the Security
Registrar of (A) such Security as provided in Section 3.6(a) and written
instructions satisfactory to the Security Registrar directing that a beneficial
interest in the Global Security in a specified principal amount not greater than
the principal amount of such Security be credited to a specified Agent Member's
account and (B) a Restricted Securities Certificate duly executed by such Holder
or his attorney duly authorized in writing, then the Security Registrar shall
cancel such Security (and issue a new Security in respect of any untransferred
portion thereof) as provided in Section 3.6(a) and increase the aggregate
principal amount of the Global Security by the specified principal amount as
provided as provided in Section 3.5(c).
(ii) Non-Global Security to Non-Global Security. A Security that is not a
------------------------------------------
Global Security may be transferred, in whole or in part, to a Person who takes
delivery in the form of another Security that is not a Global Security as
provided in Section 3.6(a), provided that if the Security to be transferred in
--------
whole or in part is a Restricted Security, then the Security Registrar shall
have received a Restricted Securities Certificate duly executed by the
transferor Holder or his attorney duly authorized in writing.
<PAGE>
(iii) Exchanges between Global Security and Non-Global Security. A
---------------------------------------------------------
beneficial interest in a Global Security may be exchanged for a Security that is
not a Global Security as provided in Section 3.5.
(iv) Certain Initial Transfers of Non-Global Securities. In the case of
--------------------------------------------------
Securities initially issued other than in global form, an initial transfer or
exchange of such Securities that does not involve any change in beneficial
ownership may be made to an Institutional Accredited Investor or Investors as if
such transfer or exchange were not an initial transfer or exchange; provided
that written certification shall be provided by a Holder of such Securities to
the Securities Registrar that such transfer or exchange does not involve a
change in beneficial ownership.
(v) Limitations Relating to Principal Amount. Notwithstanding any other
----------------------------------------
provision of this Indenture and unless otherwise specified as permitted by
Section 3.1, Securities or portions thereof may be transferred or exchanged only
in principal amounts of not less than $1,000. Any transfer, exchange or other
disposition of Securities in contravention of this Section 3.6(b)(v) shall be
deemed to be void and of no legal effect whatsoever, any such transferee shall
be deemed not to be the Holder or owner of any beneficial interest in such
Securities for any purpose, including but not limited to the receipt of interest
payable on such Securities, and such transferee shall be deemed to have no
interest whatsoever in such Securities.
(c) Restricted Securities Legend. Except as set forth below, all Securities
----------------------------
shall bear a Restricted Securities Legend:
(i) subject to the following Clauses of this Section 3.6(c), a Security or
any portion thereof which is exchanged, upon transfer or otherwise, for a Global
Security or any portion thereof shall bear the Restricted Securities Legend;
(ii) subject to the following Clauses of this Section 3.6(c), a new
Security which is not a Global Security and is issued in exchange for another
Security (including a Global Security) or any portion thereof, upon transfer or
otherwise, shall bear a Restricted Securities Legend;
(iii) after the date which is three years following the Original Issue
Date of a Security, a new Security (other than a Global Security) which does not
bear a Restricted Securities Legend shall, unless the Securities Registrar is
otherwise instructed by the Company in writing, be issued in exchange for or in
lieu of a Restricted Security or any portion thereof which bears such a legend
if the Trustee has received an Unrestricted Securities Certificate, in the form
of Exhibit E hereto, duly executed by the Holder of such legended Restricted
Security or his attorney duly authorized in writing, and after such date and
receipt of such certificate, the Trustee shall authenticate and deliver such a
new Security in exchange for or in lieu of such other Security as provided in
this Article III;
(iv) a new Security (other than a Global Security) which does not bear a
Restricted Securities Legend may be issued in exchange for or in lieu of a
Restricted Security or any portion thereof which bears such a legend if, in the
Company's judgment, placing such a legend upon such new Security is not
necessary to ensure compliance with the registration requirements of the
Securities Act, and the Trustee, at the written direction of the Company in the
form of an Officers' Certificate, shall authenticate and deliver such a new
Security as provided in this Article III;
(v) notwithstanding the foregoing provisions of this Section 3.6(c), a
Successor Security of a Security that does not bear a Restricted Securities
Legend shall not bear such form of legend
<PAGE>
unless the Company has reasonable cause to believe that such Successor Security
is a "restricted security" within the meaning of Rule 144, in which case the
Trustee, at the written direction of the Company in the form of an Officers'
Certificate, shall authenticate and deliver a new Security bearing a Restricted
Securities Legend in exchange for such Successor Security as provided in this
Article III; and
(v) Securities distributed to a holder of Capital Securities upon
dissolution of a Providian Trust shall bear a Restricted Securities Legend if
the Capital Securities so held bear a similar legend.
Section 3.7. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee together with such
security or indemnity as may be required by the Company or the Trustee to save
each of them harmless, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a new Security of the same issue
and series of like tenor and principal amount, having the same Original Issue
Date and Stated Maturity, and bearing a number not contemporaneously
outstanding.
If there shall be delivered to the Company and to the Trustee (i) evidence to
their satisfaction of the destruction, loss or theft of any Security, and (ii)
such security or indemnity as may be required by them to save each of them
harmless, then, in the absence of notice to the Company or the Trustee that such
Security has been acquired by a bona fide purchaser, the Company shall execute
and upon its request the Trustee shall authenticate and make available for
delivery, in lieu of any such destroyed, lost or stolen Security, a new Security
of the same issue and series of like tenor and principal amount, having the same
Original Issue Date and Stated Maturity as such destroyed, lost or stolen
Security, and bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become or
is about to become due and payable, the Company in its discretion may, instead
of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any destroyed,
lost or stolen Security shall constitute an original additional contractual
obligation of the Company, whether or not the destroyed, lost or stolen Security
shall be at any time enforceable by anyone, and shall be entitled to all the
benefits of this Indenture equally and proportionately with any and all other
Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the extent
lawful) all other rights and remedies with respect to the replacement or payment
of mutilated, destroyed, lost or stolen Securities.
<PAGE>
Section 3.8. Payment of Interest; Interest Rights Preserved.
Interest on any Security of any series which is payable, and is punctually
paid or duly provided for, on any Interest Payment Date, shall be paid to the
Person in whose name that Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such interest
in respect of Securities of such series, except that, unless otherwise provided
in the Securities of such series, interest payable on the Stated Maturity of the
principal of a Security shall be paid to the Person to whom principal is paid.
The initial payment of interest on any Security of any series which is issued
between a Regular Record Date and the related Interest Payment Date shall be
payable as provided in such Security or in the Board Resolution pursuant to
Section 3.1 with respect to the related series of Securities.
Whenever in this Indenture or the Securities there is a reference in any
context to the payment of principal of or interest on the Securities, such
mention shall be deemed to include mention of the payments of the Additional
Interest to the extent that, in such context, Additional Interest is, was or
would be payable in respect thereof pursuant to the provisions of this Indenture
or the Securities and express mention of the payment of Additional Interest (if
applicable) in any provisions hereof shall not be construed as excluding
Additional Interest in those provisions hereof where such express mention is not
made.
Any interest on any Security which is payable, but is not timely paid or duly
provided for, on any Interest Payment Date for Securities of such series (herein
called "Defaulted Interest"), shall forthwith cease to be payable to the
registered Holder on the relevant Regular Record Date by virtue of having been
such Holder, and such Defaulted Interest may be paid by the Company, at its
election in each case, as provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to the
Persons in whose names the Securities of such series in respect of which
interest is in default (or their respective Predecessor Securities) are
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest, which shall be fixed in the following manner. The
Company shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Security and the date of the proposed payment, and
at the same time the Company shall deposit with the Trustee an amount of money
equal to the aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee for such deposit
prior to the date of the proposed payment, such money when deposited to be held
in trust for the benefit of the Persons entitled to such Defaulted Interest as
in this Clause provided. Thereupon the Trustee shall fix a Special Record Date
for the payment of such Defaulted Interest which shall be not more than 15 days
and not less than 10 days prior to the date of the proposed payment and not less
than 10 days after the receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Company of such Special Record
Date and, in the name and at the expense of the Company, shall cause notice of
the proposed payment of such Defaulted Interest and the Special Record Date
therefor to be mailed, first class, postage prepaid, to each Holder of a
Security of such series at the address of such Holder as it appears in the
Securities Register not less than 10 days prior to such Special Record Date. The
Trustee may, in its discretion, in the name and at the expense of the Company,
cause a similar notice to be published at least once in a newspaper, customarily
published in the English language on each Business Day and of general
circulation in the Borough of Manhattan, The City of New York, but such
publication shall not be a condition precedent to the establishment of such
Special Record Date. Notice of the
<PAGE>
proposed payment of such Defaulted Interest and the Special Record Date therefor
having been mailed as aforesaid, such Defaulted Interest shall be paid to the
Persons in whose names the Securities of such series (or their respective
Predecessor Securities) are registered on such Special Record Date and shall no
longer be payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest in any other lawful
manner not inconsistent with the requirements of any securities exchange on
which the Securities of the series in respect of which interest is in default
may be listed and, upon such notice as may be required by such exchange (or by
the Trustee if the Securities are not listed), if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this Clause, such
payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security delivered
under this Indenture upon transfer of or in exchange for or in lieu of any other
Security shall carry the rights to interest accrued and unpaid, and to accrue,
which were carried by such other Security.
Section 3.9. Persons Deemed Owners.
The Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name any Security is registered as the owner of such
Security for the purpose of receiving payment of principal of and (subject to
Section 3.8) any interest on such Security and for all other purposes
whatsoever, whether or not such Security be overdue, and neither the Company,
the Trustee nor any agent of the Company or the Trustee shall be affected by
notice to the contrary.
No holder of any beneficial interest in any Global Security held on its behalf
by a Depository shall have any rights under this Indenture with respect to such
Global Security, and such Depository may be treated by the Company, the Trustee
and any agent of the Company or the Trustee as the owner of such Global Security
for all purposes whatsoever. Notwithstanding the foregoing, nothing herein
shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by a Depository or impair, as between a Depository and
such holders of beneficial interests, the operation of customary practices
governing the exercise of the rights of the Depository (or its nominee) as
Holder of any Security.
Section 3.10. Cancellation.
All Securities surrendered for payment, redemption, transfer or exchange
shall, if surrendered to any Person other than the Trustee, be delivered to the
Trustee, and any such Securities and Securities surrendered directly to the
Trustee for any such purpose shall be promptly canceled by it. The Company may
at any time deliver to the Trustee for cancellation any Securities previously
authenticated and delivered hereunder which the Company may have acquired in any
manner whatsoever, and all Securities so delivered shall be promptly canceled by
the Trustee. No Securities shall be authenticated in lieu of or in exchange for
any Securities canceled as provided in this Section, except as expressly
permitted by this Indenture.
<PAGE>
Section 3.11. Computation of Interest.
Except as otherwise specified as contemplated by Section 3.1 for Securities of
any series, interest on the Securities of each series for any partial period
shall be computed on the basis of a 360-day year of twelve 30-day months, and
interest on the Securities of each series for a full period shall be computed by
dividing the rate per annum by the number of interest periods that together
constitute a full twelve months.
<PAGE>
Section 3.12. Deferrals of Interest Payment Dates.
If specified as contemplated by Section 2.1 or Section 3.1 with respect to the
Securities of a particular series, so long as no Event of Default has occurred
and is continuing, the Company shall have the right, at any time during the term
of such series, from time to time to defer the payment of interest on such
Securities for such period or periods as may be specified as contemplated by
Section 3.1 (each, an "Extension Period") during which Extension Periods the
Company shall have the right to make partial payments of interest on any
Interest Payment Date. No Extension Period shall end on a date other than an
Interest Payment Date. At the end of any such Extension Period the Company shall
pay all interest then accrued and unpaid on the Securities (together with
Additional Interest thereon, if any, at the rate specified for the Securities of
such series to the extent permitted by applicable law); provided, however, that
no Extension Period shall extend beyond the Stated Maturity of the principal of
the Securities of such series; provided, further, that during any such Extension
Period, the Company shall not, and shall not permit any Subsidiary to, (i)
declare or pay any dividends or distributions on, or redeem, purchase, acquire
or make a liquidation payment with respect to, any of the Company's capital
stock, or (ii) make any payment of principal, interest or premium, if any, on or
repay, repurchase or redeem any debt securities of the Company that rank pari
passu in all respects with or junior in interest to the Securities of such
series or (iii) make any guarantee payments with respect to any guarantee by the
Company of the debt securities of any Subsidiary of the Company if such
guarantee ranks pari passu with or junior in interest to the securities of such
series (other than (a) dividends or distributions in Common Stock, (b) any
declaration of a dividend in connection with the implementation of a Rights
Plan, or the issuance of any Common Stock of any class or series of preferred
stock of the Company under any Rights Plan in the future or the redemption or
repurchase of any rights pursuant thereto, (c) payments under any Providian
Guarantee, and (d) purchases of Common Stock related to the issuance of Common
Stock or rights under any of the Company's or its Subsidiaries' benefit plans
for their directors, officers or employees). Prior to the termination of any
such Extension Period, the Company may further extend the interest payment
period, provided that no Extension Period shall exceed the period or periods
specified in such Securities or extend beyond the Stated Maturity of the
principal of such Securities. Upon the termination of any Extension Period and
upon the payment of all amounts then due on any Interest Payment Date, the
Company may elect to begin a new Extension Period, subject to the above
requirements. No interest shall be due and payable during an Extension Period,
except at the end thereof but each installment of interest that would otherwise
have been due and payable during such Extension Period shall bear Additional
Interest as and to the extent as may be specified as contemplated by Section
3.1. The Company shall give the Property Trustee and the Trustee notice of its
election to begin any such Extension Period at least one Business Day prior to
the earlier of (i) the date the Distributions on the Capital Securities of such
Providian Trust would have been payable except for the election to begin such
Extension Period or (ii) the date the Property Trustee of such Providian Trust
is required to give notice to any applicable self-regulatory organization or to
holders of such Capital Securities of the record date or (iii) the date such
Distributions are payable, but in any event not less than one Business Day prior
to such record date.
The Trustee, at the expense of the Company, shall promptly give notice of the
Company's election to begin any such Extension Period to the Holders of the
Outstanding Securities of such series.
<PAGE>
Section 3.13. Right of Set-Off.
With respect to the Securities of a series issued to a Providian Trust,
notwithstanding anything to the contrary herein, the Company shall have the
right to set-off any payment it is otherwise required to make thereunder in
respect of any such Security to the extent the Company has theretofore made, or
is concurrently on the date of such payment making, a payment under the
Providian Guarantee relating to such Security or under Section 5.8 hereof.
Section 3.14. Agreed Tax Treatment.
Each Security issued hereunder shall provide that the Company and, by its
acceptance of a Security or a beneficial interest therein, the Holder of, and
any Person that acquires a beneficial interest in, such Security agree that for
United States Federal, state and local tax purposes it is intended that such
Security constitutes indebtedness.
Section 3.15. CUSIP Numbers.
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption or other related material as a convenience to Holders; provided
that any such notice or other related material may state that no representation
is made as to the correctness of such numbers either as printed on the
Securities or as contained in any notice of redemption or other related material
and that reliance may be placed only on the other identification numbers printed
on the Securities, and any such redemption shall not be affected by any defect
in or omission of such numbers. The Company will promptly notify the Trustee of
any change in the CUSIP numbers.
ARTICLE IV
SATISFACTION AND DISCHARGE
Section 4.1. Satisfaction and Discharge of Indenture.
This Indenture shall, upon Company Request, cease to be of further effect
(except as to any surviving rights of registration of transfer or exchange of
Securities herein expressly provided for and as otherwise provided in this
Section 4.1) and the Trustee, on demand of and at the expense of the Company,
shall execute proper instruments acknowledging satisfaction and discharge of
this Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered (other than (i)
Securities which have been destroyed, lost or stolen and which have been
replaced or paid as provided in Section 3.7 and (ii) Securities for whose
payment money has theretofore been deposited in trust or segregated and held in
trust by the Company and thereafter repaid to the Company or discharged from
such trust, as provided in Section 10.3) have been delivered to the Trustee for
cancellation; or
(B) all such Securities not theretofore delivered to the Trustee for
cancellation
<PAGE>
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity within one
year of the date of deposit, or
(iii) are to be called for redemption within one year by the Trustee in
the name, and at the expense, of the Company,
and the Company, in the case of Clause (B) (i), (ii) or (iii) above, has
deposited or caused to be deposited with the Trustee as trust funds in
trust for such purpose an amount in the currency or currencies in which
the Securities of such series are payable sufficient to pay and
discharge the entire indebtedness on such Securities not theretofore
delivered to the Trustee for cancellation, for principal (and premium,
if any) and interest (including any Additional Interest) to the date of
such deposit (in the case of Securities which have become due and
payable) or to the Stated Maturity or Redemption Date, as the case may
be;
(2) the Company has paid or caused to be paid all other sums payable hereunder
by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel each stating that all conditions precedent herein provided
for relating to the satisfaction and discharge of this Indenture have been
complied with.
Notwithstanding the satisfaction and discharge of this Indenture, or the earlier
resignation or removal of the Trustee or any Authenticating Agent, the
obligations of the Company to the Trustee under Section 6.7, the obligations of
the Company to any Authenticating Agent under Section 6.14 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of clause (1) of
this Section, the obligations of the Trustee under Section 4.2 and the last
paragraph of Section 10.3 shall survive.
Section 4.2. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 10.3, all money
deposited with the Trustee pursuant to Section 4.1 shall be held in trust and
applied by the Trustee, in accordance with the provisions of the Securities and
this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for the payment of which such money or obligations have been
deposited with or received by the Trustee.
<PAGE>
ARTICLE V
REMEDIES
Section 5.1. Events of Default.
"Event of Default," wherever used herein with respect to the Securities of any
series, means any one of the following events that has occurred and is
continuing (whatever the reason for such Event of Default and whether it shall
be voluntary or involuntary or be effected by operation of law or pursuant to
any judgment, decree or order of any court or any order, rule or regulation of
any administrative or governmental body):
(1) default in the payment of any interest upon any Security of that series,
including any Additional Interest in respect thereof, when it becomes due and
payable, and continuance of such default for a period of 30 days (subject to the
deferral of any due date in the case of an Extension Period); or
(2) default in the payment of the principal of (or premium, if any, on) any
Security of that series at its Maturity; or
(3) default in the performance, or breach, in any material respect, of any
covenant of the Company in this Indenture (other than a covenant a default in
the performance of which or the breach of which is elsewhere in this Section
specifically dealt with), and continuance of such default or breach for a period
of 90 days after there has been given, by registered or certified mail, to the
Company by the Trustee or to the Company and the Trustee by the Holders of at
least 25% in principal amount of the Outstanding Securities of that series a
written notice specifying such default or breach and requiring it to be
remedied; or
(4) the entry of a decree or order by a court having jurisdiction in the
premises adjudging the Company a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization of the Company under the United States
Bankruptcy Code or any other similar applicable Federal or State law, which
decree or order shall have continued undischarged and unstayed for a period of
60 days; or the entry of a decree or order of a court having jurisdiction in the
premises for the appointment of a receiver or liquidator or trustee or assignee
in bankruptcy or insolvency of the Company or of its property, or for the
winding up or liquidation of its affairs, which decree or order shall have
continued undischarged and unstayed for a period of 60 days; or
(5) the commencement by the Company of voluntary proceedings to be adjudicated
a bankrupt, or consent by the Company to the filing of a bankruptcy proceeding
against it, or the filing by the Company of a petition or answer or consent
seeking reorganization under the United States Bankruptcy Code or any other
similar Federal or State Law, or consent by the Company to the filing of any
such petition, or the consent by the Company to the appointment of a receiver or
liquidator or trustee or assignee in bankruptcy or insolvency of it or of its
property, or the making by the Company of an assignment for the benefit of
creditors, or the admission by the Company in writing of its inability to pay
its debts generally as they become due;
(6) any other Event of Default provided with respect to Securities of that
series.
<PAGE>
Section 5.2. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default specified in Section
5.1(4) or 5.1(5)) with respect to Securities of any series at the time
Outstanding occurs and is continuing, then and in every such case the Trustee or
the Holders of not less than 25% in principal amount of the Outstanding
Securities of that series may declare the principal amount (or, if the
Securities of that series are Discount Securities, such portion of the principal
amount as may be specified in the terms of that series) and accrued interest
(including any Additional Interest) of all the Securities of that series to be
due and payable immediately, by a notice in writing to the Company (and to the
Trustee if given by Holders), provided that, in the case of the Securities of a
series issued to a Providian Trust, if, upon an Event of Default, the Trustee or
the Holders of not less than 25% in principal amount of the Outstanding
Securities of that series fail to declare the principal of all the Securities of
that series to be immediately due and payable, the holders of at least 25% in
aggregate Liquidation Amount (as defined in the related Trust Agreement) of the
corresponding series of Capital Securities then outstanding shall have such
right by a notice in writing to the Company and the Trustee; and upon any such
declaration such principal amount (or specified portion thereof) of and the
accrued interest (including any Additional Interest) on all the Securities of
such series shall become immediately due and payable. Payment of principal and
interest (including any Additional Interest) on such Securities shall remain
subordinated to the extent provided in Article XIII notwithstanding that such
amount shall become immediately due and payable as herein provided. If an Event
of Default specified in Section 5.1(4) or 5.1(5) with respect to Securities of
any series at the time Outstanding occurs, the principal amount of all the
Securities of that series (or, if the Securities of that series are Discount
Securities, such portion of the principal amount of such Securities as may be
specified by the terms of that series) shall automatically, and without any
declaration or other action on the part of the Trustee or any Holder, become
immediately due and payable.
At any time after such a declaration of acceleration with respect to
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in this
Article provided, the Holders of a majority in principal amount of the
Outstanding Securities of that series, by written notice to the Company and the
Trustee, may rescind and annul such declaration and its consequences if:
(1) the Company has paid or deposited with the Trustee a sum sufficient to
pay:
(A) all overdue installments of interest (including any Additional
Interest) on all Securities of that series,
(B) the principal of (and premium, if any, on) any Securities of that
series which have become due otherwise than by such declaration of acceleration
and interest thereon at the rate borne by the Securities, and
(C) all sums paid or advanced by the Trustee hereunder and the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel; and
(2) all Events of Default with respect to Securities of that series, other
than the non-payment of the principal of Securities of that series which has
become due solely by such acceleration, have been cured or waived as provided in
Section 5.13.
<PAGE>
In the case of Securities of a series issued to a Providian Trust, the holders
of a majority in aggregate Liquidation Amount (as defined in the related Trust
Agreement) of the related series of Capital Securities issued by such Providian
Trust shall also have the right to rescind and annul such declaration and its
consequences by written notice to the Company and the Trustee, subject to the
satisfaction of the conditions set forth in Clauses (1) and (2) above of this
Section 5.2.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Section 5.3. Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Company covenants that if:
(1) default is made in the payment of any installment of interest (including
any Additional Interest) on any Security when such interest becomes due and
payable and such default continues for a period of 30 days, or
(2) default is made in the payment of the principal of (and premium, if any,
on) any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to the Trustee, for the
benefit of the Holders of such Securities, the whole amount then due and payable
on such Securities for principal, including any sinking fund payment or
analogous obligations (and premium, if any) and interest (including any
Additional Interest); and, in addition thereto, all amounts owing the Trustee
under Section 6.7.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor upon the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Securities, wherever
situated.
If an Event of Default with respect to Securities of any series occurs and is
continuing, the Trustee may in its discretion proceed to protect and enforce its
rights and the rights of the Holders of Securities of such series by such
appropriate judicial proceedings as the Trustee shall deem most effectual to
protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy.
Section 5.4. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors,
(a) the Trustee (irrespective of whether the principal of the Securities of
any series shall then be due and payable as therein expressed or by declaration
or otherwise and irrespective of whether the Trustee shall have made any demand
on the Company for the payment of overdue principal (and
<PAGE>
premium, if any) or interest (including any Additional Interest)) shall be
entitled and empowered, by intervention in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest (including any Additional Interest) owing and
unpaid in respect to the Securities and to file such other papers or documents
as may be necessary or advisable and to take any and all actions as are
authorized under the Trust Indenture Act in order to have the claims of the
Holders, the Trustee and any predecessor to the Trustee under Section 6.7
allowed in any such judicial proceedings; and
(ii) in particular, the Trustee shall be authorized to collect and receive
any moneys or other property payable or deliverable on any such claims and to
distribute the same in accordance with Section 5.6; and
(b) any custodian, receiver, assignee, trustee, liquidator, sequestrator (or
other similar official) in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee for distribution in accordance
with Section 5.6, and in the event that the Trustee shall consent to the making
of such payments directly to the Holders, to pay to the Trustee any amount due
to it and any predecessor Trustee under Section 6.7.
Nothing herein contained shall be deemed to authorize the Trustee to authorize
or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding; provided, however,
that the Trustee may, on behalf of the Holders, vote for the election of a
trustee in bankruptcy or similar official and be a member of a creditors' or
other similar committee.
Section 5.5. Trustee May Enforce Claim Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities may be
prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of all the amounts owing the Trustee and any predecessor Trustee
under Section 6.7, its agents and counsel, be for the ratable benefit of the
Holders of the Securities in respect of which such judgment has been recovered.
Section 5.6. Application of Money Collected.
Any money or property collected or to be applied by the Trustee with respect
to a series of Securities pursuant to this Article shall be applied in the
following order, at the date or dates fixed by the Trustee and, in case of the
distribution of such money or property on account of principal (or premium, if
any) or interest (including any Additional Interest), upon presentation of the
Securities and the notation thereon of the payment if only partially paid and
upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee and any predecessor
Trustee;
SECOND: Subject to Article XIII, to the payment of the amounts then due and
unpaid upon such series of Securities for principal (and premium, if any) and
interest (including any Additional
<PAGE>
Interest), in respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind, according to the
amounts due and payable on such series of Securities for principal (and premium,
if any) and interest (including any Additional Interest), respectively; and
THIRD: The balance, if any, to the Person or Persons entitled thereto.
Section 5.7. Limitation on Suits.
Subject to Section 5.8, no Holder of any Securities of any series shall have
any right to institute any proceeding, judicial or otherwise, with respect to
this Indenture or for the appointment of a receiver, assignee, trustee,
liquidator, sequestrator (or other similar official) or for any other remedy
hereunder, unless:
(1) such Holder has previously given written notice to the Trustee of a
continuing Event of Default with respect to the Securities of that series;
(2) the Holders of not less than 25% in principal amount of the Outstanding
Securities of that series shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable indemnity
against the costs, expenses and liabilities to be incurred in compliance with
such request;
(4) the Trustee for 60 days after its receipt of such notice, request and
offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given to the
Trustee during such 60-day period by the Holders of a majority in principal
amount of the Outstanding Securities of that series;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing itself of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holders of Securities, or to obtain or to seek to obtain priority or
preference over any other of such Holders or to enforce any right under this
Indenture, except in the manner herein provided and for the equal and ratable
benefit of all such Holders.
<PAGE>
Section 5.8. Unconditional Right of Holders to Receive Principal, Premium
and Interest; Direct Action by Holders of Capital Securities.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right which is absolute and unconditional to receive
payment of the principal of (and premium, if any) and (subject to Section 3.8)
interest (including any Additional Interest) on such Security on the respective
Stated Maturities expressed in such Security (or, in the case of redemption, on
the Redemption Date) and to institute suit for the enforcement of any such
payment, and such right shall not be impaired without the consent of such
Holder. In the case of Securities of a series issued to a Providian Trust, any
holder of the corresponding series of Capital Securities issued by such
Providian Trust shall have the right, upon the occurrence of an Event of Default
described in Section 5.1(1) or 5.1(2), to institute a suit directly against the
Company for enforcement of payment to such holder of principal of (premium, if
any) and (subject to Section 3.8) interest (including any Additional Interest)
on the Securities having a principal amount equal to the aggregate Liquidation
Amount (as defined in the Trust Agreement under which such Providian Trust is
formed) of such Capital Securities of the corresponding series held by such
holder.
Section 5.9. Restoration of Rights and Remedies.
If the Trustee, any Holder or any holder of Capital Securities has instituted
any proceeding to enforce any right or remedy under this Indenture and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee, such Holder or such holder of Capital
Securities, then and in every such case the Company, the Trustee, the Holders
and such holder of Capital Securities shall, subject to any determination in
such proceeding, be restored severally and respectively to their former
positions hereunder, and thereafter all rights and remedies of the Trustee, the
Holders and the holders of Capital Securities shall continue as though no such
proceeding had been instituted.
Section 5.10. Rights and Remedies Cumulative.
Except as otherwise provided in the last paragraph of Section 3.7, no right or
remedy herein conferred upon or reserved to the Trustee or to the Holders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Section 5.11. Delay or Omission Not Waiver.
No delay or omission of the Trustee, any Holder of any Security or any holder
of any Capital Security to exercise any right or remedy accruing upon any Event
of Default shall impair any such right or remedy or constitute a waiver of any
such Event of Default or an acquiescence therein.
Every right and remedy given by this Article or by law to the Trustee or to
the Holders and the right and remedy given to the holders of Capital Securities
by Section 5.8 may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee, the Holders or the holders of Capital Securities, as
the case may be.
<PAGE>
Section 5.12. Control by Holders.
The Holders of a majority in principal amount of the Outstanding Securities of
any series shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee, with respect to the Securities of
such series, provided that:
(1) such direction shall not be in conflict with any rule of law or with this
Indenture,
(2) the Trustee may take any other action deemed proper by the Trustee which
is not inconsistent with such direction, and
(3) subject to the provisions of Section 6.1, the Trustee shall have the right
to decline to follow such direction if a Responsible Officer or Officers of the
Trustee shall, in good faith, determine that the proceeding so directed would be
unjustly prejudicial to the Holders not joining in any such direction or would
involve the Trustee in personal liability.
Section 5.13. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of the Outstanding
Securities of any series affected thereby and, in the case of any Securities of
a series issued to a Providian Trust, the holders of a majority in aggregate
Liquidation Amount (as defined in the related Trust Agreement) of the Capital
Securities issued by such Providian Trust, may waive any past default hereunder
and its consequences with respect to such series except a default:
(1) in the payment of the principal of (or premium, if any) or interest
(including any Additional Interest) on any Security of such series (unless such
default has been cured and a sum sufficient to pay all matured installments of
interest and principal or premium due otherwise than by acceleration has been
deposited with the Trustee), or
(2) in respect of a covenant or provision hereof which under Article IX cannot
be modified or amended without the consent of the Holder of each Outstanding
Security of such series affected.
Any such waiver shall be deemed to be on behalf of the Holders of all the
Securities of such series or, in the case of a waiver by holders of Capital
Securities issued by such Providian Trust, by all holders of Capital Securities
issued by such Providian Trust.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
<PAGE>
Section 5.14. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security by its
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken or
omitted by it as Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in principal amount of the Outstanding Securities of
any series, or to any suit instituted by any Holder for the enforcement of the
payment of the principal of (or premium, if any) or interest (including any
Additional Interest) on any Security on or after the respective Stated
Maturities expressed in such Security.
Section 5.15. Waiver of Usury, Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that it will
not at any time insist upon, or plead, or in any manner whatsoever claim or take
the benefit or advantage of, any usury, stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE VI
THE TRUSTEE
Section 6.1. Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only such duties as
are specifically set forth in this Indenture, and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may conclusively
rely, as to the truth of the statements and the correctness of the opinions
expressed therein, upon certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture; but in the case of any such
certificates or opinions which by any provisions hereof are specifically
required to be furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to the requirements of
this Indenture.
(b) In case an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in
<PAGE>
their exercise, as a prudent person would exercise or use under the
circumstances in the conduct of his own affairs.
(c) No provision of this Indenture shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act,
or its own willful misconduct except that
(1) this Subsection shall not be construed to limit the effect of
Subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment made in good
faith by a Responsible Officer, unless it shall be proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action taken or
omitted to be taken by it in good faith in accordance with the direction of
Holders pursuant to Section 5.12 relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred upon the Trustee, under this Indenture with respect
to the Securities of such series.
(d) No provision of this Indenture shall require the Trustee to expend or risk
its own funds or otherwise incur any financial liability in the performance of
any of its duties hereunder, or in the exercise of any of its rights or powers,
if there shall be reasonable grounds for believing that repayment of such funds
or adequate indemnity against such risk or liability is not reasonably assured
to it.
(e) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.
Section 6.2. Notice of Defaults.
Within 90 days after actual knowledge by a Responsible Officer of the Trustee
of the occurrence of any default hereunder with respect to the Securities of any
series, the Trustee shall transmit by mail to all Holders of Securities of such
series, as their names and addresses appear in the Securities Register, notice
of such default, unless such default shall have been cured or waived; provided,
however, that, except in the case of a default in the payment of the principal
of (or premium, if any) or interest (including any Additional Interest) on any
Security of such series, the Trustee shall be protected in withholding such
notice if and so long as the board of directors, the executive committee or a
trust committee of directors and/or Responsible Officers of the Trustee in good
faith determines that the withholding of such notice is in the interests of the
Holders of Securities of such series; and provided, further, that, in the case
of any default of the character specified in Section 5.1(3), no such notice to
Holders of Securities of such series shall be given until at least 30 days after
the occurrence thereof. For the purpose of this Section, the term "default"
means any event which is, or after notice or lapse of time or both would become,
an Event of Default with respect to Securities of such series.
<PAGE>
Section 6.3. Certain Rights of Trustee.
Subject to the provisions of Section 6.1:
(a) the Trustee may conclusively rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
Security or other paper or document believed by it to be genuine and to have
been signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall deem it
desirable that a matter be proved or established prior to taking, suffering or
omitting any action hereunder, the Trustee (unless other evidence be herein
specifically prescribed) may, in the absence of bad faith on its part,
conclusively rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel of its choice and the advice of such
counsel or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the rights or
powers vested in it by this Indenture at the request or direction of any of the
Holders pursuant to this Indenture, unless such Holders shall have offered to
the Trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request or
direction;
(f) the Trustee shall not be bound to make any investigation into the facts or
matters stated in any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, indenture, Security or
other paper or document, but the Trustee in its discretion may make such inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such inquiry or investigation, it shall be
entitled to examine the books, records and premises of the Company, personally
or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers hereunder or perform
any duties hereunder either directly or by or through agents or attorneys and
the Trustee shall not be responsible for any misconduct or negligence on the
part of any agent or attorney appointed with due care by it hereunder;
(h) the Trustee shall not be under any obligation to take any action that is
discretionary under the provisions of this Indenture;
(i) the Trustee shall not be charged with knowledge of any Event of Default
unless either (i) a Responsible Officer of the Trustee shall have actual
knowledge thereof or (2) the Trustee shall have received notice thereof in
accordance with Section 1.5(1) hereof from the Company or a Holder; and
(j) no permissive power or authority available to the Trustee shall be
construed as a duty.
<PAGE>
Section 6.4. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company,
and neither the Trustee nor any Authenticating Agent assumes any responsibility
for their correctness. The Trustee makes no representations as to the validity
or sufficiency of this Indenture or of the Securities. Neither the Trustee nor
any Authenticating Agent shall be accountable for the use or application by the
Company of the Securities or the proceeds thereof.
Section 6.5. May Hold Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any Securities
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to Sections
6.8 and 6.13, may otherwise deal with the Company with the same rights it would
have if it were not Trustee, Authenticating Agent, Paying Agent, Securities
Registrar or such other agent.
Section 6.6. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated from other
funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed with the Company.
Section 6.7. Compensation and Reimbursement.
The Company agrees
(1) to pay to the Trustee from time to time reasonable compensation for all
services rendered by it hereunder in such amounts as the Company and the Trustee
shall agree from time to time (which compensation shall not be limited by any
provision of law in regard to the compensation of a trustee of an express
trust);
(2) to reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
any provision of this Indenture (including the reasonable compensation and the
expenses and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad faith;
and
(3) to indemnify the Trustee for, and to hold it harmless against, any loss,
liability or expense (including the reasonable compensation and the expenses and
disbursements of its agents and counsel) incurred without negligence or bad
faith, arising out of or in connection with the acceptance or administration of
this trust or the performance of its duties hereunder, including the costs and
expenses of defending itself against any claim or liability in connection with
the exercise or performance of any of its powers or duties hereunder.
The obligations of the Company under this Section 6.7 shall survive the
termination of the Indenture or the earlier resignation or removal of the
Trustee.
<PAGE>
To secure the Company's payment obligations in this Section, the Company and
the Holders agree that the Trustee shall have a lien prior to the Securities on
all money or property held or collected by the Trustee. Such lien shall survive
the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of Default
specified in Section 5.1(4) or (5) occurs, the expenses and the compensation for
the services are intended to constitute expenses of administration under the
Bankruptcy Reform Act of 1978 or any successor statute.
Section 6.8. Disqualification; Conflicting Interests.
The Trustee for the Securities of any series issued hereunder shall be subject
to the provisions of Section 310(b) of the Trust Indenture Act. Nothing herein
shall prevent the Trustee from filing with the Commission the application
referred to in the second to last paragraph of said Section 310(b).
Section 6.9. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be
(a) a corporation organized and doing business under the laws of the United
States of America or of any State or Territory or the District of Columbia,
authorized under such laws to exercise corporate trust powers and subject to
supervision or examination by Federal, State, Territorial or District of
Columbia authority, or
(b) a corporation or other Person organized and doing business under the laws
of a foreign government that is permitted to act as Trustee pursuant to a rule,
regulation or order of the Commission, authorized under such laws to exercise
corporate trust powers, and subject to supervision or examination by authority
of such foreign government or a political subdivision thereof substantially
equivalent to supervision or examination applicable to United States
institutional trustees,
in either case having a combined capital and surplus of at least $50,000,000,
subject to supervision or examination by Federal or State authority. If such
corporation publishes reports of condition at least annually, pursuant to law or
to the requirements of the aforesaid supervising or examining authority, then,
for the purposes of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section, it
shall resign immediately in the manner and with the effect hereinafter specified
in this Article. Neither the Company nor any Person directly or indirectly
controlling, controlled by or under common control with the Company shall serve
as Trustee for the Securities of any series issued hereunder.
Section 6.10. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 6.11.
<PAGE>
(b) The Trustee may resign at any time with respect to the Securities of one
or more series by giving written notice thereof to the Company. If an instrument
of acceptance by a successor Trustee shall not have been delivered to the
Trustee within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee with respect to the Securities of such
series.
(c) The Trustee may be removed at any time with respect to the Securities of
any series by Act of the Holders of a majority in principal amount of the
Outstanding Securities of such series, delivered to the Trustee and to the
Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 6.8 after written request
therefor by the Company or by any Holder who has been a bona fide Holder of a
Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 6.9 and shall fail to
resign after written request therefor by the Company or by any such Holder, or
(3) the Trustee shall become incapable of acting or shall be adjudged a
bankrupt or insolvent or a receiver of the Trustee or of its property shall be
appointed or any public officer shall take charge or control of the Trustee or
of its property or affairs for the purpose of rehabilitation, conservation or
liquidation,
then, in any such case, (i) the Company, acting pursuant to the authority of a
Board Resolution, may remove the Trustee with respect to all Securities, or (ii)
subject to Section 5.14, any Holder who has been a bona fide Holder of a
Security for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the removal
of the Trustee with respect to all Securities and the appointment of a successor
Trustee or Trustees.
(e) If the Trustee shall resign, be removed or become incapable of acting, or
if a vacancy shall occur in the office of Trustee for any cause with respect to
the Securities of one or more series, the Company, by a Board Resolution, shall
promptly appoint a successor Trustee with respect to the Securities of that or
those series. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee with
respect to the Securities of any series shall be appointed by Act of the Holders
of a majority in principal amount of the Outstanding Securities of such series
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment, become the
successor Trustee with respect to the Securities of such series and supersede
the successor Trustee appointed by the Company. If no successor Trustee with
respect to the Securities of any series shall have been so appointed by the
Company or the Holders and accepted appointment in the manner hereinafter
provided, any Holder who has been a bona fide Holder of a Security for at least
six months may, subject to Section 5.14, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee with respect to the Securities of such
series.
(f) The Company shall give notice of each resignation and each removal of the
Trustee with respect to the Securities of any series and each appointment of a
successor Trustee with respect to the Securities of any series by mailing
written notice of such event by first-class mail, postage prepaid, to the
Holders of Securities of such series as their names and addresses appear in the
<PAGE>
Securities Register. Each notice shall include the name of the successor Trustee
with respect to the Securities of such series and the address of its Corporate
Trust Office.
Section 6.11. Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor Trustee with respect
to all Securities, every such successor Trustee so appointed shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on the request of the
Company or the successor Trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee and shall duly
assign, transfer and deliver to such successor Trustee all property and money
held by such retiring Trustee hereunder.
(b) In case of the appointment hereunder of a successor Trustee with respect
to the Securities of one or more series, the Company, the retiring Trustee and
each successor Trustee with respect to the Securities of one or more series
shall execute and deliver an instrument in writing or an indenture supplemental
hereto wherein each successor Trustee shall accept such appointment and which
(1) shall contain such provisions as shall be necessary or desirable to transfer
and confirm to, and to vest in, each successor Trustee all the rights, powers,
trusts and duties of the retiring Trustee with respect to the Securities of that
or those series to which the appointment of such successor Trustee relates, (2)
if the retiring Trustee is not retiring with respect to all Securities, shall
contain such provisions as shall be deemed necessary or desirable to confirm
that all the rights, powers, trusts and duties of the retiring Trustee with
respect to the Securities of that or those series as to which the retiring
Trustee is not retiring shall continue to be vested in the retiring Trustee, and
(3) shall add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, it being understood that nothing herein or
in such instrument in writing or supplemental indenture shall constitute such
Trustees co-trustees of the same trust and that each such Trustee shall be
trustee of a trust or trusts hereunder separate and apart from any trust or
trusts hereunder administered by any other such Trustee; and upon the execution
and delivery of such instrument in writing or supplemental indenture the
resignation or removal of the retiring Trustee shall become effective to the
extent provided therein and each such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers,
trusts, and duties of the retiring Trustee with respect to the Securities of
that or those series to which the appointment of such successor Trustee relates;
but, on request of the Company or any successor Trustee, such retiring Trustee
shall duly assign, transfer and deliver to such successor Trustee all property
and money held by such retiring Trustee hereunder with respect to the Securities
of that or those series to which the appointment of such successor Trustee
relates.
(c) Upon request of any such successor Trustee, the Company shall execute any
and all instruments for more fully and certainly vesting in and confirming to
such successor Trustee all rights, powers and trusts referred to in paragraph
(a) or (b) of this Section, as the case may be.
(d) No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be eligible under this Article.
<PAGE>
Section 6.12. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Securities so authenticated, and in case any
Securities shall not have been authenticated, any successor to the Trustee may
authenticate such Securities either in the name of any predecessor Trustee or in
the name of such successor Trustee, and in all cases the certificate of
authentication shall have the full force which it is provided anywhere in the
Securities or in this Indenture that the certificate of the Trustee shall have.
Section 6.13. Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the Company (or any
other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
Section 6.14. Appointment of Authenticating Agent.
The Trustee may appoint an Authenticating Agent or Agents with respect to one
or more series of Securities which shall be authorized to act on behalf of the
Trustee to authenticate Securities of such series issued upon original issue and
upon exchange, registration of transfer or partial redemption thereof or
pursuant to Section 3.7, and Securities so authenticated shall be entitled to
the benefits of this Indenture and shall be valid and obligatory for all
purposes as if authenticated by the Trustee hereunder. Wherever reference is
made in this Indenture to the authentication and delivery of Securities by the
Trustee or the Trustee's certificate of authentication, such reference shall be
deemed to include authentication and delivery on behalf of the Trustee by an
Authenticating Agent. Each Authenticating Agent shall be acceptable to the
Company and shall at all times be a corporation organized and doing business
under the laws of the United States of America, or of any State or Territory or
the District of Columbia, authorized under such laws to act as Authenticating
Agent, having a combined capital and surplus of not less than $50,000,000 and
subject to supervision or examination by Federal or State authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or converted
or with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which such Authenticating Agent shall be
a party, or any corporation succeeding
<PAGE>
to all or substantially all of the corporate trust business of an Authenticating
Agent shall be the successor Authenticating Agent hereunder, provided such
corporation shall be otherwise eligible under this Section, without the
execution or filing of any paper or any further act on the part of the Trustee
or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall give notice of such
appointment in the manner provided in Section 1.6 to all Holders of Securities
of the series with respect to which such Authenticating Agent will serve. Any
successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent shall be appointed unless eligible under the
provision of this Section.
The Company agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section.
If an appointment with respect to one or more series is made pursuant to this
Section, the Securities of such series may have endorsed thereon, in addition to
the Trustee's certificate of authentication, an alternative certificate of
authentication in the following form:
This is one of the Securities referred to in the within mentioned Indenture.
Dated:
The Bank of New York
As Trustee
By:
------------------------
As Authenticating Agent
By:
------------------------
Authorized Signatory
<PAGE>
ARTICLE VII
HOLDER'S LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.1. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee:
(a) semi-annually, not more than 15 days after each Regular Record Date in
each year, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of such Regular Record Date, and
(b) at such other times as the Trustee may request in writing, within 30 days
after the receipt by the Company of any such request, a list of similar form and
content as of a date not more than 15 days prior to the time such list is
furnished,
excluding from any such list names and addresses received by the Trustee in its
capacity as Securities Registrar.
Section 7.2. Preservation of Information, Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 7.1 and the names and
addresses of Holders received by the Trustee in its capacity as Securities
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 7.1 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with respect to
their rights under this Indenture or under the Securities, and the corresponding
rights and privileges of the Trustee, shall be as provided in the Trust
Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same, agrees with
the Company and the Trustee that neither the Company nor the Trustee nor any
agent of either of them shall be held accountable by reason of the disclosure of
information as to the names and addresses of the Holders made pursuant to the
Trust Indenture Act.
Section 7.3. Reports by Trustee.
(a) The Trustee shall transmit to Holders such reports concerning the Trustee
and its actions under this Indenture as may be required pursuant to the Trust
Indenture Act, at the times and in the manner provided pursuant thereto.
(b) Reports so required to be transmitted at stated intervals of not more than
12 months shall be transmitted no later than 60 days after December 31 in each
calendar year, commencing 60 days after the first December 31 after the first
issuance of Securities under this Indenture.
(c) A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with each securities exchange upon which any
Securities are listed and also with the
<PAGE>
Commission. The Company will notify the Trustee when any Securities are listed
on any securities exchange.
Section 7.4. Reports by Company.
The Company shall only be required to provide to the Trustee the compliance
certificates required by Section 314(a)(3) of the Trust Indenture Act. Upon the
request of a Holder or beneficial owner of a Security, the Company shall
promptly furnish Rule 144A Information, or cause such information to be
furnished, to such Holder or beneficial owner or to a prospective purchaser of
such Security designated by such Holder or beneficial owner in order to permit
compliance by such Holder or beneficial owner with Rule 144A under the
Securities Act in connection with the resale of such Security by such Holder or
beneficial owner.
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 8.1. Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not consolidate with or merge into any other Person or
convey, transfer or lease its properties and assets substantially as an entirety
to any Person, and no Person shall consolidate with or merge into the Company or
convey, transfer or lease its properties and assets substantially as an entirety
to the Company, unless:
(1) in case the Company shall consolidate with or merge into another Person or
convey, transfer or lease its properties and assets substantially as an entirety
to any Person, the corporation formed by such consolidation or into which the
Company is merged or the Person which acquires by conveyance or transfer, or
which leases, the properties and assets of the Company substantially as an
entirety shall be a corporation, partnership or trust organized and existing
under the laws of the United States of America or any State or the District of
Columbia and shall expressly assume, by an indenture supplemental hereto,
executed and delivered to the Trustee, in form satisfactory to the Trustee, the
due and punctual payment of the principal of (and premium, if any) and interest
(including any Additional Interest) on all the Securities and the performance of
every covenant of this Indenture on the part of the Company to be performed or
observed;
(2) immediately after giving effect to such transaction, no Event of Default,
and no event which, after notice or lapse of time, or both, would become an
Event of Default, shall have happened and be continuing;
(3) in the case of the Securities of a series issued to a Providian Trust,
such consolidation, merger, conveyance, transfer or lease is permitted under the
related Trust Agreement and Providian Guarantee and does not give rise to any
breach or violation of the related Trust Agreement or Providian Guarantee; and
(4) the Company has delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that such consolidation, merger, conveyance,
transfer or lease and any such supplemental indenture comply with this Article
and that all conditions precedent herein provided for relating to such
transaction have been complied with; and the Trustee, subject to
<PAGE>
Section 6.1, may rely upon such Officers' Certificate and Opinion of Counsel as
conclusive evidence that such transaction complies with this Section 8.1.
Section 8.2. Successor Corporation Substituted.
Upon any consolidation or merger by the Company with or into any other Person,
or any conveyance, transfer or lease by the Company of its properties and assets
substantially as an entirety to any Person in accordance with Section 8.1, the
successor corporation formed by such consolidation or into which the Company is
merged or to which such conveyance, transfer or lease is made shall succeed to,
and be substituted for, and may exercise every right and power of, the Company
under this Indenture with the same effect as if such successor Person had been
named as the Company herein; and in the event of any such conveyance, transfer
or lease the Company shall be discharged from all obligations and covenants
under the Indenture and the Securities and may be dissolved and liquidated.
Such successor Person may cause to be signed, and may issue either in its own
name or in the name of the Company, any or all of the Securities issuable
hereunder which theretofore shall not have been signed by the Company and
delivered to the Trustee; and, upon the order of such successor Person instead
of the Company and subject to all the terms, conditions and limitations in this
Indenture prescribed, the Trustee shall authenticate and shall deliver any
Securities which previously shall have been signed and delivered by the officers
of the Company to the Trustee for authentication pursuant to such provisions and
any Securities which such successor Person thereafter shall cause to be signed
and delivered to the Trustee on its behalf for the purpose pursuant to such
provisions. All the Securities so issued shall in all respects have the same
legal rank and benefit under this Indenture as the Securities theretofore or
thereafter issued in accordance with the terms of this Indenture as though all
of such Securities had been issued at the date of the execution hereof.
In case of any such consolidation, merger, sale, conveyance or lease, such
changes in phraseology and form may be made in the Securities thereafter to be
issued as may be appropriate.
ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.1. Supplemental Indentures without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a Board
Resolution, and the Trustee, at any time and from time to time, may enter into
one or more indentures supplemental hereto, in form satisfactory to the Trustee,
for any of the following purposes:
(1) to evidence the succession of another Person to the Company, and the
assumption by any such successor of the covenants of the Company herein and in
the Securities contained; or
(2) to convey, transfer, assign, mortgage or pledge any property to or with
the Trustee or to surrender any right or power herein conferred upon the
Company; or
<PAGE>
(3) to establish the form or terms of Securities of any series as permitted by
Sections 2.1 or 3.1; or
(4) to add to the covenants of the Company for the benefit of the Holders of
all or any series of Securities (and if such covenants are to be for the benefit
of less than all series of Securities, stating that such covenants are expressly
being included solely for the benefit of such series) or to surrender any right
or power herein conferred upon the Company; or
(5) to add any additional Events of Default for the benefit of the Holders of
all or any series of Securities (and if such additional Events of Default are to
be for the benefit of less than all series of Securities, stating that such
additional Events of Default are expressly being included solely for the benefit
of such series); or
(6) to change or eliminate any of the provisions of this Indenture, provided
that any such change or elimination (a) shall become effective only when there
is no Security Outstanding of any series created prior to the execution of such
supplemental indenture which is entitled to the benefit of such provision or (b)
shall not apply to any Outstanding Securities; or
(7) to cure any ambiguity, to correct or supplement any provision herein which
may be defective or inconsistent with any other provision herein, or to make any
other provisions with respect to matters or questions arising under this
Indenture, provided that such action pursuant to this clause (7) shall not
adversely affect the interest of the Holders of Securities of any series in any
material respect or, in the case of the Securities of a series issued to a
Providian Trust and for so long as any of the corresponding series of Capital
Securities issued by such Providian Trust shall remain outstanding, the holders
of such Capital Securities; or
(8) to evidence and provide for the acceptance of appointment hereunder by a
successor Trustee with respect to the Securities of one or more series and to
add to or change any of the provisions of this Indenture as shall be necessary
to provide for or facilitate the administration of the trusts hereunder by more
than one Trustee, pursuant to the requirements of Section 6.11(b); or
(9) to comply with the requirements of the Commission in order to effect or
maintain the qualification of this Indenture under the Trust Indenture Act.
Section 9.2. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in principal
amount of the Outstanding Securities of each series affected by such
supplemental indenture, by Act of said Holders delivered to the Company and the
Trustee, the Company, when authorized by a Board Resolution, and the Trustee may
enter into an indenture or indentures supplemental hereto for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of modifying in any manner the rights of the
Holders of Securities of such series under this Indenture; provided, however,
that no such supplemental indenture shall, without the consent of the Holder of
each Outstanding Security affected thereby,
(1) except to the extent permitted by Section 3.12 or as otherwise specified
as contemplated by Section 2.1 or Section 3.1 with respect to the deferral of
the payment of interest on the Securities of any series, change the Stated
Maturity of the principal of, or any installment of
<PAGE>
interest (including any Additional Interest) on, any Security, or reduce the
principal amount thereof or the rate of interest thereon or reduce any premium
payable upon the redemption thereof, or reduce the amount of principal of a
Discount Security that would be due and payable upon a declaration of
acceleration of the Maturity thereof pursuant to Section 5.2, or change the
place of payment where, or the coin or currency in which, any Security or
interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof (or, in
the case of redemption, on or after the Redemption Date), or
(2) reduce the percentage in principal amount of the Outstanding Securities of
any series, the consent of whose Holders is required for any such supplemental
indenture, or the consent of whose Holders is required for any waiver (of
compliance with certain provisions of this Indenture or certain defaults
hereunder and their consequences) provided for in this Indenture, or
(3) modify any of the provisions of this Section, Section 5.13 or Section
10.5, except to increase any such percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the consent of
the Holder of each Security affected thereby;
provided, further, that, in the case of the Securities of a series issued to a
Providian Trust, so long as any of the corresponding series of Capital
Securities issued by such Providian Trust remains outstanding, (i) no such
amendment shall be made that adversely affects the holders of such Capital
Securities in any material respect, and no termination of this Indenture shall
occur, and no waiver of any Event of Default or compliance with any covenant
under this Indenture shall be effective, without the prior consent of the
holders of at least a majority of the aggregate Liquidation Amount of such
Capital Securities then outstanding unless and until the principal (and premium,
if any) of the Securities of such series and all accrued and, subject to Section
3.8, unpaid interest (including any Additional Interest) thereon have been paid
in full and (ii) no amendment shall be made to Section 5.8 of this Indenture
that would impair the rights of the holders of Capital Securities provided
therein without the prior consent of the holders of each Capital Security then
outstanding unless and until the principal (and premium, if any) of the
Securities of such series and all accrued and (subject to Section 3.8) unpaid
interest (including any Additional Interest) thereon have been paid in full.
A supplemental indenture that changes or eliminates any covenant or other
provision of this Indenture that has expressly been included solely for the
benefit of one or more particular series of Securities or Capital Securities, or
which modifies the rights of the Holders of Securities or holders of Capital
Securities of such series with respect to such covenant or other provision,
shall be deemed not to affect the rights under this Indenture of the Holders of
Securities or holders of Capital Securities of any other series.
It shall not be necessary for any Act of Holders under this Section to approve
the particular form of any proposed supplemental indenture, but it shall be
sufficient if such Act shall approve the substance thereof.
<PAGE>
Section 9.3. Execution of Supplemental Indentures.
In executing or accepting the additional trusts created by any supplemental
indenture permitted by this Article or the modifications thereby of the trusts
created by this Indenture, the Trustee shall be entitled to receive, and
(subject to Section 6.1) shall be fully protected in relying upon, an Officers'
Certificate and an Opinion of Counsel stating that the execution of such
supplemental indenture is authorized or permitted by this Indenture, and that
all conditions precedent have been complied with. The Trustee may, but shall not
be obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise or
that may subject it to any liability.
Section 9.4. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
Section 9.5. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall conform
to the requirements of the Trust Indenture Act as then in effect.
Section 9.6. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any supplemental
indenture pursuant to this Article may, and shall if required by the Company,
bear a notation in form approved by the Company as to any matter provided for in
such supplemental indenture. If the Company shall so determine, new Securities
of any series so modified as to conform, in the opinion of the Company, to any
such supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for Outstanding
Securities of such series.
ARTICLE X
COVENANTS
Section 10.1. Payment of Principal, Premium and Interest.
The Company covenants and agrees for the benefit of each series of securities
that it will duly and punctually pay the principal of (and premium, if any) and
interest on the Securities of that series in accordance with the terms of such
Securities and this Indenture.
<PAGE>
Section 10.2. Maintenance of Office or Agency.
The Company will maintain in each Place of Payment for any series of
Securities, an office or agency where Securities of that series may be presented
or surrendered for payment and an office or agency where Securities of that
series may be surrendered for transfer or exchange and where notices and demands
to or upon the Company in respect of the Securities of that series and this
Indenture may be served. The Company initially appoints the Trustee, acting
through its Corporate Trust Office, as its agent for said purposes. The Company
will give prompt written notice to the Trustee of any change in the location of
any such office or agency. If at any time the Company shall fail to maintain
such office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the Corporate Trust Office of the Trustee, and the Company hereby
appoints the Trustee as its agent to receive all such presentations, surrenders,
notices and demands.
The Company may also from time to time designate one or more other offices or
agencies where the Securities may be presented or surrendered for any or all of
such purposes, and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in each Place of
Payment for Securities of any series for such purposes. The Company will give
prompt written notice to the Trustee of any such designation and any change in
the location of any such office or agency.
Section 10.3. Money for Security Payments to be Held in Trust.
If the Company shall at any time act as its own Paying Agent with respect to
any series of Securities, it will, on or before each due date of the principal
of (and premium, if any) or interest on any of the Securities of such series,
segregate and hold in trust for the benefit of the Persons entitled thereto a
sum sufficient to pay the principal (and premium, if any) or interest so
becoming due until such sums shall be paid to such Persons or otherwise disposed
of as herein provided, and will promptly notify the Trustee of its failure so to
act.
Whenever the Company shall have one or more Paying Agents, it will, prior to
10:00 a.m. New York City time on each due date of the principal of or interest
on any Securities, deposit with a Paying Agent a sum sufficient to pay the
principal (and premium, if any) or interest so becoming due, such sum to be held
in trust for the benefit of the Persons entitled to such principal and premium
(if any) or interest, and (unless such Paying Agent is the Trustee) the Company
will promptly notify the Trustee of its failure so to act.
The Company will cause each Paying Agent other than the Trustee to execute and
deliver to the Trustee an instrument in which such Paying Agent shall agree with
the Trustee, subject to the provisions of this Section, that such Paying Agent
will:
(1) hold all sums held by it for the payment of the principal of (and premium,
if any) or interest on Securities in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or otherwise
disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any other
obligor upon the Securities) in the making of any payment of principal (and
premium, if any) or interest;
<PAGE>
(3) at any time during the continuance of any such default, upon the written
request of the Trustee, forthwith pay to the Trustee all sums so held in trust
by such Paying Agent; and
(4) comply with the provisions of the Trust Indenture Act applicable to it as
a Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction and
discharge of this Indenture or for any other purpose, pay, or by Company Order
direct any Paying Agent to pay, to the Trustee all sums held in trust by the
Company or such Paying Agent, such sums to be held by the Trustee upon the same
trusts as those upon which such sums were held by the Company or such Paying
Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying
Agent shall be released from all further liability with respect to such money.
Any money deposited with the Trustee or any Paying Agent, or then held by the
Company, in trust for the payment of the principal of (and premium, if any) or
interest on any Security and remaining unclaimed for two years after such
principal (and premium, if any) or interest has become due and payable shall
(unless otherwise required by mandatory provision of applicable escheat or
abandoned or unclaimed property law) be paid on Company Request to the Company,
or (if then held by the Company) shall (unless otherwise required by mandatory
provision of applicable escheat or abandoned or unclaimed property law) be
discharged from such trust; and the Holder of such Security shall thereafter, as
an unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in the Borough of
Manhattan, The City of New York, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
Section 10.4. Statement as to Compliance.
The Company shall deliver to the Trustee, within 120 days after the end of
each fiscal year of the Company ending after the date hereof, an officers'
certificate executed by the principal executive officer, principal financial
officer or principal accounting officer of the Company covering the preceding
calendar year, stating whether or not to the best knowledge of the signers
thereof the Company is in default in the performance, observance or fulfillment
of or compliance with any of the terms, provisions, covenants and conditions of
this Indenture, and if the Company shall be in default, specifying all such
defaults and the nature and status thereof of which they may have knowledge. For
the purpose of this Section 10.4, compliance shall be determined without regard
to any grace period (other than an Extension Period) or requirement of notice
provided pursuant to the terms of this Indenture.
<PAGE>
Section 10.5. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any covenant or
condition provided pursuant to Section 3.1, 9.1(3) or 9.1(4) with respect to the
Securities of any series, if before or after the time for such compliance the
Holders of at least a majority in principal amount of the Outstanding Securities
of such series shall, by Act of such Holders, either waive such compliance in
such instance or generally waive compliance with such covenant or condition, but
no such waiver shall extend to or affect such covenant or condition except to
the extent so expressly waived, and, until such waiver shall become effective,
the obligations of the Company in respect of any such covenant or condition
shall remain in full force and effect.
Section 10.6. Additional Sums.
In the case of the Securities of a series issued to a Providian Trust, so long
as no Event of Default has occurred and is continuing and except as otherwise
specified as contemplated by Section 2.1 or Section 3.1, in the event that (i) a
Providian Trust is the Holder of all of the Outstanding Securities of such
series and (ii) a Tax Event in respect of such Providian Trust shall have
occurred and be continuing, the Company shall pay to such Providian Trust (and
its permitted successors or assigns under the related Trust Agreement) as Holder
of the Securities of such series for so long as such Providian Trust (or its
permitted successor or assignee) is the registered holder of any Securities of
such series, such additional sums as may be necessary in order that the amount
of Distributions (including any Additional Amounts (as defined in such Trust
Agreement)) paid by such Providian Trust on the related Capital Securities and
Common Securities that at any time remain outstanding in accordance with the
terms thereof shall not be reduced as a result of any Additional Taxes (the
"Additional Sums"). Whenever in this Indenture or the Securities there is a
reference in any context to the payment of principal of or interest on the
Securities, such mention shall be deemed to include mention of the payments of
the Additional Sums provided for in this paragraph to the extent that, in such
context, Additional Sums are, were or would be payable in respect thereof
pursuant to the provisions of this paragraph and express mention of the payment
of Additional Sums (if applicable) in any provisions hereof shall not be
construed as excluding Additional Sums in those provisions hereof where such
express mention is not made.
<PAGE>
Section 10.7. Additional Covenants.
The Company covenants and agrees with each Holder of Securities of each series
that it shall not, and it shall not permit any Subsidiary of the Company to, (a)
declare or pay any dividends or distributions on, or redeem, purchase, acquire
or make a liquidation payment with respect to, any of the Company's capital
stock, or (b) make any payment of principal of or interest or premium, if any,
on or repay, repurchase or redeem any debt securities of the Company that rank
pari passu in all respects with or junior in interest to the Securities of such
series or (iii) make any guarantee payments with respect to any guarantee by the
Company of debt securities of any subsidiary of the Company if such guarantee
ranks pari passu with or junior in interest to the Securities (other than (a)
dividends or distributions in Common Stock, (b) any declaration of a dividend in
connection with the implementation of a Rights Plan, the issuance of any Common
Stock of any class or series of preferred stock of the Company under any Rights
Plan in the future or the redemption or repurchase of any such rights pursuant
thereto, (c) payments under any Providian Guarantee, and (d) purchases of Common
Stock related to the issuance of Common Stock or rights under any of the
Company's or its Subsidiaries' benefit plans for their directors, officers or
employees) if at such time (i) there shall have occurred any event of which the
Company has actual knowledge that (A) with the giving of notice or the lapse of
time, or both, would constitute an Event of Default with respect to the
Securities of such series and (B) in respect of which the Company shall not have
taken reasonable steps to cure, (ii) if the Securities of such series are held
by a Providian Trust, the Company shall be in default with respect to its
payment of any obligations under the Providian Guarantee relating to the Capital
Securities issued by such Providian Trust or (iii) the Company shall have given
notice of its election to begin an Extension Period with respect to the
Securities of such series as provided herein and shall not have rescinded such
notice, or such Extension Period, or any extension thereof, shall be continuing.
For purposes hereof, the Company's Senior Indebtedness shall not be deemed to be
pari passu with the Securities.
The Company also covenants with each Holder of Securities of a series issued
to a Providian Trust (i) to maintain directly or indirectly 100% ownership of
the Common Securities of such Providian Trust; provided, however, that any
permitted successor of the Company hereunder may succeed to the Company's
ownership of such Common Securities, (ii) as holder of the Common Securities not
to voluntarily terminate, wind-up or liquidate such Providian Trust, except upon
prior approval of the Federal Reserve, if the Company is then subject to and
required to obtain such approval under applicable capital guidelines or policies
of the Federal Reserve, and (a) in connection with a distribution of the
Securities of such series to the holders of Capital Securities in liquidation of
such Providian Trust or (b) in connection with certain mergers, consolidations
or amalgamations permitted by the related Trust Agreement and (iii) to use its
reasonable efforts, consistent with the terms and provisions of such Trust
Agreement, to cause such Providian Trust to remain classified as a grantor trust
and not an association taxable as a corporation for United States federal income
tax purposes.
<PAGE>
Section 10.8. Original Issue Discount.
On or before December 15 of each year during which any Securities are
outstanding, the Company shall furnish to each Paying Agent such information as
may be reasonably requested by each Paying Agent in order that each Paying Agent
may prepare the information which it is required to report for such year on
Internal Revenue Service Forms 1096 and 1099 pursuant to Section 6049 of the
Internal Revenue Code of 1986, as amended. Such information shall include the
amount of original issue discount, if any, includable in income for each $1,000
of principal amount at Stated Maturity of outstanding Securities during such
year.
ARTICLE XI
REDEMPTION OF SECURITIES
Section 11.1. Applicability of This Article.
Redemption of Securities of any series (whether by operation of a sinking fund
or otherwise) as permitted or required by any form of Security issued pursuant
to this Indenture shall be made in accordance with such form of Security and
this Article; provided, however, that if any provision of any such form of
Security shall conflict with any provision of this Article, the provision of
such form of Security shall govern. Except as otherwise set forth in the form of
Security for such series, each Security of such series shall be subject to
partial redemption only in the amount of $1,000 or integral multiples thereof
and the principal amount of the unredeemed portion of such Security is not less
than $1,000.
Section 11.2. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities shall be evidenced by or
pursuant to a Board Resolution. In case of any redemption at the election of the
Company of any of the Securities of any particular series and having the same
terms, the Company shall, not less than 30 nor more than 60 days prior to the
Redemption Date (unless a shorter notice shall be satisfactory to the Trustee),
notify the Trustee and, in the case of Securities of a series held by a
Providian Trust, the related Property Trustee of such date and of the principal
amount of Securities of that series to be redeemed and provide the additional
information required to be included in the notice or notices contemplated by
Section 11.4. In the case of any redemption of Securities prior to the
expiration of any restriction on such redemption provided in the terms of such
Securities, the Company shall furnish the Trustee with an Officers' Certificate
and an Opinion of Counsel evidencing compliance with such restriction. The
Company shall have received the prior approval of the Federal Reserve if the
Company is then subject to and required to obtain such approval under applicable
capital guidelines or policies of the Federal Reserve prior to redeeming any
Securities pursuant hereto.
<PAGE>
Section 11.3. Selection of Securities to be Redeemed.
If less than all the Securities of any series are to be redeemed, the
particular Securities to be redeemed shall be selected not more than 60 days
prior to the Redemption Date by the Trustee, from the Outstanding Securities of
such series not previously called for redemption, by such method as the Trustee
shall deem fair and appropriate and which may provide for the selection for
redemption of a portion of the principal amount of any Security of such series.
If less than all the Securities of such series and of a specified tenor are to
be redeemed (unless such redemption affects only a single Security), the
particular Securities to be redeemed shall be selected not more than 60 days
prior to the Redemption Date by the Trustee, from the Outstanding Securities of
such series and specified tenor not previously called for redemption in
accordance with the preceding sentence.
The Trustee shall promptly notify the Company in writing of the Securities
selected for partial redemption and the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise requires, all
provisions relating to the redemption of Securities shall relate, in the case of
any Security redeemed or to be redeemed only in part, to the portion of the
principal amount of such Security which has been or is to be redeemed. If the
Company shall so direct, Securities registered in the name of the Company, any
Affiliate or any Subsidiary thereof shall not be included in the Securities
selected for redemption.
Section 11.4. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not later than the thirtieth day, and not earlier than the sixtieth day,
prior to the Redemption Date, to each Holder of Securities to be redeemed, at
the address of such Holder as it appears in the Securities Register.
With respect to Securities of each series to be redeemed, each notice of
redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price or if the Redemption Price cannot be calculated prior
to the time the notice is required to be sent, the estimate of the Redemption
Price provided pursuant to the Indenture together with a statement that it is an
estimate and that the actual Redemption Price will be calculated on the third
Business Day prior to the Redemption Date (if such an estimate of the Redemption
Price is given, a subsequent notice shall be given as set forth above setting
forth the Redemption Price promptly following the calculation thereof);
(c) if less than all Outstanding Securities of such particular series and
having the same terms are to be redeemed, the identification (and, in the case
of partial redemption, the respective principal amounts) of the particular
Securities to be redeemed;
(d) that on the Redemption Date, the Redemption Price will become due and
payable upon each such Security or portion thereof, and that interest thereon,
if any, shall cease to accrue on and after said date;
<PAGE>
(e) the place or places where such Securities are to be surrendered for
payment of the Redemption Price;
(f) that the redemption is for a sinking fund, if such is the case; and
(g) such other provisions as may be required in respect of the terms of a
particular series of Securities.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company and shall not be
irrevocable. The notice if mailed in the manner herein provided shall be
conclusively presumed to have been duly given, whether or not the Holder
receives such notice. In any case, a failure to give such notice by mail or any
defect in the notice to the Holder of any Security designated for redemption as
a whole or in part shall not affect the validity of the proceedings for the
redemption of any other Security.
Section 11.5. Deposit of Redemption Price.
Prior to 10:00 a.m. New York City time on the Redemption Date specified in the
notice of redemption given as provided in Section 11.4, the Company will deposit
with the Trustee or with one or more Paying Agents (or if the Company is acting
as its own Paying Agent, the Company will segregate and hold in trust as
provided in Section 10.3) an amount of money sufficient to pay the Redemption
Price of, and any accrued interest (including Additional Interest) on, all the
Securities which are to be redeemed on that date.
Section 11.6. Payment of Securities Called for Redemption.
If any notice of redemption has been given as provided in Section 11.4, the
Securities or portion of Securities with respect to which such notice has been
given shall become due and payable on the date and at the place or places stated
in such notice at the applicable Redemption Price, together with accrued
interest (including any Additional Interest) to the Redemption Date. On
presentation and surrender of such Securities at a Place of Payment in said
notice specified, the said Securities or the specified portions thereof shall be
paid and redeemed by the Company at the applicable Redemption Price, together
with accrued interest (including any Additional Interest) to the Redemption
Date; provided, however, that, unless otherwise specified as contemplated by
Section 3.1, installments of interest whose Stated Maturity is on or prior to
the Redemption Date will be payable to the Holders of such Securities, or one or
more Predecessor Securities, registered as such at the close of business on the
relevant record dates according to their terms and the provisions of Section
3.8.
Upon presentation of any Security redeemed in part only, the Company shall
execute and the Trustee shall authenticate and deliver to the Holder thereof, at
the expense of the Company, a new Security or Securities of the same series, of
authorized denominations, in aggregate principal amount equal to the unredeemed
portion of the Security so presented and having the same Original Issue Date,
Stated Maturity and terms. If a Global Security is so surrendered, such new
Security (subject to Section 3.5) will also be a new Global Security.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal of and premium, if any, on such Security
shall, until paid, bear interest
<PAGE>
from the Redemption Date at the rate prescribed therefor in the Security.
Section 11.7. Right of Redemption of Securities Initially Issued to a
Providian Trust.
In the case of the Securities of a series initially issued to a Providian
Trust, if specified as contemplated by Section 3.1, the Company, at its option,
may redeem such Securities (i) on or after the date specified as contemplated by
Section 3.1, in whole at any time or in part from time to time, or (ii) upon
the occurrence and during the continuation of a Tax Event or Capital Treatment
Event, prior to the date specified as contemplated by Section 3.1 and within 90
days following the occurrence of such Tax Event or Capital Treatment Event in
respect of such Providian Trust, in whole (but not in part), in each case at a
Redemption Price specified as contemplated by Section 3.1.
ARTICLE XII
SINKING FUNDS
Section 12.1. Applicability of Article.
The provisions of this Article shall be applicable to any sinking fund for the
retirement of Securities of any series except as otherwise specified as
contemplated by Section 3.1 for such Securities.
The minimum amount of any sinking fund payment provided for by the terms of
any Securities of any series is herein referred to as a "mandatory sinking fund
payment," and any sinking fund payment in excess of such minimum amount which is
permitted to be made by the terms of such Securities of any series is herein
referred to as an "optional sinking fund payment." If provided for by the terms
of any Securities of any series, the cash amount of any sinking fund payment may
be subject to reduction as provided in Section 12.2. Each sinking fund payment
shall be applied to the redemption (or purchase by tender or otherwise) of
Securities of any series as provided for by the terms of such Securities.
Section 12.2. Satisfaction of Sinking Fund Payments with Securities.
In lieu of making all or any part of a mandatory sinking fund payment with
respect to any Securities of a series in cash, the Company may at its option, at
any time no more than 16 months and no less than 45 days prior to the date on
which such sinking fund payment is due, deliver to the Trustee Securities of
such series (together with the unmatured coupons, if any, appertaining thereto)
theretofore purchased or otherwise acquired by the Company, except Securities of
such series that have been redeemed through the application of mandatory or
optional sinking fund payments pursuant to the terms of the Securities of such
series, accompanied by a Company Order instructing the Trustee to credit such
obligations and stating that the Securities of such series were originally
issued by the Company by way of bona fide sale or other negotiation for value;
provided that the Securities to be so credited have not been previously so
credited. The Securities to be so credited shall be received and credited for
such purpose by the Trustee at the redemption price for such Securities, as
specified in the Securities so to be redeemed, for redemption through operation
of the sinking fund and the amount of such sinking fund payment shall be reduced
accordingly.
<PAGE>
Section 12.3. Redemption of Securities for Sinking Fund.
Not less than 45 days prior to each sinking fund payment date for any series
of Securities, the Company will deliver to the Trustee an Officers' Certificate
specifying the amount of the next ensuing sinking fund payment for such
Securities pursuant to the terms of such Securities, the portion thereof, if
any, which is to be satisfied by payment of cash in the currency in which the
Securities of such series are payable (except as provided pursuant to Section
3.1) and the portion thereof, if any, which is to be satisfied by delivering and
crediting Securities pursuant to Section 12.2 and will also deliver to the
Trustee any Securities to be so delivered. Such Officers' Certificate shall be
irrevocable and upon its delivery the Company shall be obligated to make the
cash payment or payments therein referred to, if any, on or before the
succeeding sinking fund payment date. In the case of the failure of the Company
to deliver such Officers' Certificate (or, as required by this Indenture, the
Securities and coupons, if any, specified in such Officers' Certificate) by the
due date therefor, the sinking fund payment due on the succeeding sinking fund
payment date for such series shall be paid entirely in cash and shall be
sufficient to redeem the principal amount of the Securities of such series
subject to a mandatory sinking fund payment without the right to deliver or
credit Securities as provided in Section 12.2 and without the right to make the
optional sinking fund payment with respect to such series at such time.
Any sinking fund payment or payments (mandatory or optional) made in cash plus
any unused balance of any preceding sinking fund payments made with respect to
the Securities of any particular series shall be applied by the Trustee (or by
the Company if the Company is acting as its own Paying Agent) on the sinking
fund payment date on which such payment is made (or, if such payment is made
before a sinking fund payment date, on the sinking fund payment date immediately
following the date of such payment) to the redemption of Securities of such
series at the Redemption Price specified in such Securities with respect to the
sinking fund. Any sinking fund moneys not so applied or allocated by the Trustee
(or, if the Company is acting as its own Paying Agent, segregated and held in
trust by the Company as provided in Section 10.3) for such series and together
with such payment (or such amount so segregated) shall be applied in accordance
with the provisions of this Section 12.3. Any and all sinking fund moneys with
respect to the Securities of any particular series held by the Trustee (or if
the Company is acting as its own Paying Agent, segregated and held in trust as
provided in Section 10.3) on the last sinking fund payment date with respect to
Securities of such series and not held for the payment or redemption of
particular Securities of such series shall be applied by the Trustee (or by the
Company if the Company is acting as its own Paying Agent), together with other
moneys, if necessary, to be deposited (or segregated) sufficient for the
purpose, to the payment of the principal of the Securities of such series at
Maturity. The Trustee shall select the Securities to be redeemed upon such
sinking fund payment date in the manner specified in Section 11.3 and cause
notice of the redemption thereof to be given in the name of and at the expense
of the Company in the manner provided in Section 11.4. Such notice having been
duly given, the redemption of such Securities shall be made upon the terms and
in the manner stated in Section 11.6. On or before each sinking fund payment
date, the Company shall pay to the Trustee (or, if the Company is acting as its
own Paying Agent, the Company shall segregate and hold in trust as provided in
Section 10.3) in cash a sum in the currency in which Securities of such series
are payable (except as provided pursuant to Section 3.1) equal to the principal,
premium, if any, and any interest accrued to the Redemption Date for Securities
or portions thereof to be redeemed on such sinking fund payment date pursuant to
this Section 12.3.
<PAGE>
Neither the Trustee nor the Company shall redeem any Securities of a series
with sinking fund moneys or mail any notice of redemption of Securities of such
series by operation of the sinking fund for such series during the continuance
of a default in payment of interest, if any, on any Securities of such series or
of any Event of Default (other than an Event of Default occurring as a
consequence of this paragraph) with respect to the Securities of such series,
except that if the notice of redemption shall have been provided in accordance
with the provisions hereof, the Trustee (or the Company, if the Company is then
acting as its own Paying Agent) shall redeem such Securities if cash sufficient
for that purpose shall be deposited with the Trustee (or segregated by the
Company) for that purpose in accordance with the terms of this Article XII.
Except as aforesaid, any moneys in the sinking fund for such series at the time
when any such default or Event of Default shall occur and any moneys thereafter
paid into such sinking fund shall, during the continuance of such default or
Event of Default, be held as security for the payment of the Securities and
coupons, if any, of such series; provided, however, that in case such default or
Event of Default shall have been cured or waived herein, such moneys shall
thereafter be applied on the next sinking fund payment date for the Securities
of such series on which such moneys may be applied pursuant to the provisions of
this Section 12.3.
ARTICLE XIII
SUBORDINATION OF SECURITIES
Section 13.1. Securities Subordinate to Senior Indebtedness.
The Company covenants and agrees, and each Holder of a Security, by its
acceptance thereof, likewise covenants and agrees, that, to the extent and in
the manner hereinafter set forth in this Article, the payment of the principal
of (and premium, if any) and interest (including any Additional Interest) on
each and all of the Securities are hereby expressly made subordinate and subject
in right of payment to the prior payment in full of all Senior Indebtedness.
Section 13.2. No Payment When Senior Indebtedness in Default; Payment Over
of Proceeds Upon Dissolution, Etc.
In the event that the Company shall default in the payment of any principal of
(or premium, if any) or interest on any Senior Indebtedness when the same
becomes due and payable, whether at maturity or at a date fixed for prepayment
or by declaration of acceleration or otherwise, then, upon written notice of
such default to the Company by the holders of Senior Indebtedness or any trustee
therefor, unless and until such default shall have been cured or waived or shall
have ceased to exist or all Senior Indebtedness shall have been paid in full, no
direct or indirect payment (in cash, property, securities, by set-off or
otherwise) shall be made or agreed to be made on account of the principal of (or
premium, if any) or interest on any of the Securities, or in respect of any
redemption, repayment, retirement, purchase or other acquisition of any of the
Securities.
In the event of (a) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceedings relating
to the Company, its creditors or its property, (b) any proceeding for the
liquidation, dissolution or other winding up of the Company, voluntary or
involuntary, whether or not involving insolvency or bankruptcy proceedings, (c)
any assignment by the Company for the benefit of creditors or (d) any other
<PAGE>
marshalling of the assets of the Company (each such event, if any, herein
sometimes referred to as a "Proceeding"), all Senior Indebtedness (including any
interest thereon accruing after the commencement of any such proceedings) shall
first be paid in full before any payment or distribution, whether in cash,
securities or other property, shall be made to any Holder of any of the
Securities on account thereof. In the event of any Proceeding, any payment or
distribution, whether in cash, securities or other property (other than
securities of the Company or any other corporation provided for by a plan of
reorganization or readjustment the payment of which is subordinate, at least to
the extent provided in these subordination provisions with respect to the
indebtedness evidenced by the Securities, to the payment of all Senior
Indebtedness at the time outstanding and to any securities issued in respect
thereof under any such plan of reorganization or readjustment), which would
otherwise (but for these subordination provisions) be payable or deliverable in
respect of the Securities of any series shall be paid or delivered directly to
the holders of Senior Indebtedness in accordance with the priorities then
existing among such holders until all Senior Indebtedness (including any
interest thereon accruing after the commencement of any Proceeding) shall have
been paid in full.
In the event of any Proceeding, after payment in full of all sums owing with
respect to Senior Indebtedness, the Holders of the Securities, together with the
holders of any obligations of the Company ranking on a parity with the
Securities, shall be entitled to be paid from the remaining assets of the
Company the amounts at the time due and owing on account of unpaid principal of
(and premium, if any) and interest on the Securities and such other obligations
before any payment or other distribution, whether in cash, property or
otherwise, shall be made on account of any capital stock or any obligations of
the Company ranking junior to the Securities and such other obligations. In the
event that, notwithstanding the foregoing, any payment or distribution of any
character or any security, whether in cash, securities or other property (other
than securities of the Company or any other corporation provided for by a plan
of reorganization or readjustment the payment of which is subordinate, at least
to the extent provided in these subordination provisions with respect to the
indebtedness evidenced by the Securities, to the payment of all Senior
Indebtedness at the time outstanding and to any securities issued in respect
thereof under any such plan of reorganization or readjustment), shall be
received by the Trustee or any Holder in contravention of any of the terms
hereof and before all Senior Indebtedness shall have been paid in full, such
payment or distribution or security shall be received in trust for the benefit
of, and shall be paid over or delivered and transferred to, the holders of the
Senior Indebtedness at the time outstanding in accordance with the priorities
then existing among such holders for application to the payment of all Senior
Indebtedness remaining unpaid, to the extent necessary to pay all such Senior
Indebtedness in full. In the event of the failure of the Trustee or any Holder
to endorse or assign any such payment, distribution or security, each holder of
Senior Indebtedness is hereby irrevocably authorized to endorse or assign the
same.
The Trustee and Holders will take such action (including, without limitation,
the delivery of this Indenture to an agent for the holders of Senior
Indebtedness or consent to the filing of a financing statement with respect
hereto) as may, in the opinion of counsel designated by the holders of a
majority in principal amount of the Senior Indebtedness at the time outstanding,
be necessary or appropriate to assure the effectiveness of the subordination
effected by these provisions.
The provisions of this Section 13.2 shall not impair any rights, interests,
remedies or powers of any secured creditor of the Company in respect of any
security interest the creation of which
<PAGE>
is not prohibited by the provisions of this Indenture.
The securing of any obligations of the Company, otherwise raking on a parity
with the Securities or ranking junior to the Securities, shall not be deemed to
prevent such obligations from constituting, respectively, obligations ranking on
a parity with the Securities or ranking junior to the Securities.
Section 13.3. Payment Permitted If No Default.
Nothing contained in this Article or elsewhere in this Indenture, or in any of
the Securities, shall prevent (a) the Company at any time, except during the
conditions described in the first paragraph of Section 13.2 or the pendency of
any Proceeding referred to in Section 13.2, from making payments at any time of
principal of (and premium, if any) or interest (including Additional Interest)
on the Securities, or (b) the application by the Trustee of any moneys deposited
with it hereunder to the payment of or on account of the principal of (and
premium, if any) or interest (including any Additional Interest) on the
Securities or the retention of such payment by the Holders, if, at the time of
such application by the Trustee, it did not have knowledge that such payment
would have been prohibited by the provisions of this Article.
Section 13.4. Subrogation to Rights of Holders of Senior Indebtedness.
Subject to the payment in full of all amounts due or to become due on all
Senior Indebtedness, or the provision for such payment in cash or cash
equivalents or otherwise in a manner satisfactory to the holders of Senior
Indebtedness, the Holders of the Securities shall be subrogated to the extent of
the payments or distributions made to the holders of such Senior Indebtedness
pursuant to the provisions of this Article (equally and ratably with the holders
of all indebtedness of the Company which by its express terms is subordinated to
Senior Indebtedness of the Company to substantially the same extent as the
Securities are subordinated to the Senior Indebtedness and is entitled to like
rights of subrogation by reason of any payments or distributions made to holders
of such Senior Indebtedness) to the rights of the holders of such Senior
Indebtedness to receive payments and distributions of cash, property and
securities applicable to the Senior Indebtedness until the principal of (and
premium, if any) and interest on the Securities shall be paid in full. For
purposes of such subrogation, no payments or distributions to the holders of the
Senior Indebtedness of any cash, property or securities to which the Holders of
the Securities or the Trustee would be entitled except for the provisions of
this Article, and no payments over pursuant to the provisions of this Article to
the holders of Senior Indebtedness by Holders of the Securities or the Trustee,
shall, as among the Company, its creditors other than holders of Senior
Indebtedness, and the Holders of the Securities, be deemed to be a payment or
distribution by the Company to or on account of the Senior Indebtedness.
<PAGE>
Section 13.5. Provisions Solely to Define Relative Rights.
The provisions of this Article are and are intended solely for the purpose of
defining the relative rights of the Holders of the Securities on the one hand
and the holders of Senior Indebtedness on the other hand. Nothing contained in
this Article or elsewhere in this Indenture or in the Securities is intended to
or shall (a) impair, as between the Company and the Holders of the Securities,
the obligations of the Company, which are absolute and unconditional, to pay to
the Holders of the Securities the principal of (and premium, if any) and
interest (including any Additional Interest) on the Securities as and when the
same shall become due and payable in accordance with their terms; or (b) affect
the relative rights against the Company of the Holders of the Securities and
creditors of the Company other than their rights in relation to the holders of
Senior Indebtedness; or (c) prevent the Trustee or the Holder of any Security
from exercising all remedies otherwise permitted by applicable law upon default
under this Indenture including, without limitation, filing and voting claims in
any Proceeding, subject to the rights, if any, under this Article of the holders
of Senior Indebtedness to receive cash, property and securities otherwise
payable or deliverable to the Trustee or such Holder.
Section 13.6. Trustee to Effectuate Subordination.
Each Holder of a Security by its acceptance thereof authorizes and directs the
Trustee on its behalf to take such action as may be necessary or appropriate to
acknowledge or effectuate the subordination provided in this Article and
appoints the Trustee his or her attorney-in-fact for any and all such purposes.
Section 13.7. No Waiver of Subordination Provisions.
No right of any present or future holder of any Senior Indebtedness to enforce
subordination as herein provided shall at any time in any way be prejudiced or
impaired by any act or failure to act on the part of the Company or by any act
or failure to act, in good faith, by any such holder, or by any noncompliance by
the Company with the terms, provisions and covenants of this Indenture,
regardless of any knowledge thereof that any such holder may have or be
otherwise charged with.
Without in any way limiting the generality of the immediately preceding
paragraph, the holders of Senior Indebtedness may, at any time and from to time,
without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article or
the obligations hereunder of the Holders of the Securities to the holders of
Senior Indebtedness, do any one or more of the following: (i) change the
manner, place or terms of payment or extend the time of payment of, or renew or
alter, Senior Indebtedness, or otherwise amend or supplement in any manner
Senior Indebtedness or any instrument evidencing the same or any agreement under
which Senior Indebtedness is outstanding; (ii) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (iii) release any Person liable in any manner for the collection
of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights
against the Company and any other Person.
<PAGE>
Section 13.8. Notice to Trustee.
The Company shall give prompt written notice to the Trustee of any fact known
to the Company which would prohibit the making of any payment to or by the
Trustee in respect of the Securities. Notwithstanding the provisions of this
Article or any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Securities, unless
and until the Trustee shall have received written notice thereof from the
Company or a holder of Senior Indebtedness or from any trustee, agent or
representative therefor; provided, however, that if the Trustee shall not have
received the notice provided for in this Section at least three Business Days
prior to the date upon which by the terms hereof any monies may become payable
for any purpose (including, without limitation, the payment of the principal of
(and premium, if any) or interest (including any Additional Interest) on any
Security), then, anything herein contained to the contrary notwithstanding, the
Trustee shall have full power and authority to receive such monies and to apply
the same to the purpose for which they were received and shall not be affected
by any notice to the contrary which may be received by it within three Business
Days prior to such date.
Subject to the provisions of Section 6.1, the Trustee shall be entitled to
rely on the delivery to it of a written notice by a Person representing himself
to be a holder of Senior Indebtedness (or a trustee or attorney-in-fact
therefor) to establish that such notice has been given by a holder of Senior
Indebtedness (or a trustee or attorney-in-fact therefor). In the event that the
Trustee determines in good faith that further evidence is required with respect
to the right of any Person as a holder of Senior Indebtedness to participate in
any payment or distribution pursuant to this Article, the Trustee may request
such Person to furnish evidence to the reasonable satisfaction of the Trustee as
to the amount of Senior Indebtedness held by such Person, the extent to which
such Person is entitled to participate in such payment or distribution and any
other facts pertinent to the rights of such Person under this Article, and if
such evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
Section 13.9. Reliance on Judicial Order or Certificate of Liquidating
Agent.
Upon any payment or distribution of assets of the Company referred to in this
Article, the Trustee, subject to the provisions of Section 6.1, and the Holders
of the Securities shall be entitled to rely upon any order or decree entered by
any court of competent jurisdiction in which such Proceeding is pending, or a
certificate of the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee for the benefit of creditors, agent or other Person making
such payment or distribution, delivered to the Trustee or to the Holders of
Securities, for the purpose of ascertaining the Persons entitled to participate
in such payment or distribution, the holders of the Senior Indebtedness and
other indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article.
<PAGE>
Section 13.10. Trustee Not Fiduciary for Holders of Senior Indebtedness.
The Trustee, in its capacity as trustee under this Indenture, shall not be
deemed to owe any fiduciary duty to the holders of Senior Indebtedness and shall
not be liable to any such holders if it shall in good faith mistakenly pay over
or distribute to Holders of Securities or to the Company or to any other Person
cash, property or securities to which any holders of Senior Indebtedness shall
be entitled by virtue of this Article or otherwise.
Section 13.11. Rights of Trustee as Holder of Senior Indebtedness;
Preservation of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to all the rights set
forth in this Article with respect to any Senior Indebtedness which may at any
time be held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder.
Section 13.12. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall have been
appointed by the Company and be then acting hereunder, the term "Trustee" as
used in this Article shall in such case (unless the context otherwise requires)
be construed as extending to and including such Paying Agent within its meaning
as fully for all intents and purposes as if such Paying Agent were named in this
Article in addition to or in place of the Trustee.
<PAGE>
* * * *
This instrument may be executed in any number of counterparts, each of which
so executed shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly
executed as of the day and year first above written.
PROVIDIAN BANCORP, INC.
By: /s/ David J. Petrini
-----------------------------
THE BANK OF NEW YORK
as Trustee
By: /s/ Vivian Georges
-------------------------------
<PAGE>
ANNEX A
FORM OF TRUST AGREEMENT
<PAGE>
ANNEX B
FORM OF AMENDED AND RESTATED TRUST AGREEMENT
<PAGE>
ANNEX C
FORM OF GUARANTEE AGREEMENT
<PAGE>
ANNEX D -- Form of Restricted
Securities Certificate
RESTRICTED SECURITIES CERTIFICATE
(For transfers pursuant to (S) 3.6(b) of the Indenture)
[_________________________],
as Security Registrar
[address]
Re: ____________ of [Providian Capital __] (the "Trust") (the
"Securities")
Reference is made to the Indenture, dated as of February __, 1997 (the
"Indenture"), entered into between Providian Bancorp, Inc. and The Bank of New
York, as Trustee. Terms used herein and defined in the Indenture or in
Regulation S, Rule 144A or Rule 144 under the United States Securities Act of
1933 (the "Securities Act") are used herein as so defined.
This certificate relates to $_____________ aggregate principal amount
of Securities, which are evidenced by the following certificate(s) (the
"Specified Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
CURRENTLY IN BOOK-ENTRY FORM: Yes ___ No ___ (check one)
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities or (ii) it is acting on behalf of all the beneficial owners
of the Specified Securities and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner".
If the Specified Securities are represented by a Global Security, they are held
through a Depository or an Agent Member in the name of the Undersigned, as or on
behalf of the Owner. If the Specified Securities are not represented by a Global
Security, they are registered in the name of the Undersigned, as or on behalf of
the Owner.
The Owner has requested that the Specified Securities be transferred
to a person (the "Transferee") who will take delivery in the form of a
Restricted Security. In connection with such transfer, the Owner hereby
certifies that, unless such transfer is being effected pursuant to an effective
registration statement under the Securities Act, it is being effected in
accordance with Rule 144A, Rule 904 of Regulation S or Rule 144 under the
Securities Act and all applicable securities laws of the states of the United
States and other jurisdictions. Accordingly, the Owner hereby further certifies
as follows:
<PAGE>
(1) Rule 144A Transfers. If the transfer is being effected in accordance
-------------------
with Rule 144A:
(A) the Specified Securities are being transferred to a person
that the Owner and any person acting on its behalf reasonably believe
is a "qualified institutional buyer" within the meaning of Rule 144A,
acquiring for its own account or for the account of a qualified
institutional buyer; and
(B) the Owner and any person acting on its behalf have taken
reasonable steps to ensure that the Transferee is aware that the Owner
may be relying on Rule 144A in connection with the transfer; and
(2) Rule 904 Transfers. If the transfer is being effected in
------------------
accordance with Rule 904:
(A) the Owner is not a distributor of the Securities, an
affiliate of the Company or any such distributor or a person acting in
behalf of any of the foregoing;
(B) the offer of the Specified Securities was not made to a
person in the United States;
(C) either;
(i) at the time the buy order was originated, the Transferee
was outside the United States or the Owner and any person acting
on its behalf reasonably believed that the Transferee was outside
the United States, or
(ii) the transaction is being executed in, on or through the
facilities of the Eurobond market, as regulated by the
Association of International Bond Dealers, or another designated
offshore securities market and neither the Owner nor any person
acting on its behalf knows that the transaction has been
prearranged with a buyer in the United States;
(D) no directed selling efforts have been made in the United
States by or on behalf of the Owner or any affiliate thereof; and
(E) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities act.
(3) Rule 144 Transfers. If the transfer is being effected pursuant to
------------------
Rule 144:
(A) the transfer is occurring after a holding period of at least
two years (computed in accordance with paragraph (d) of Rule 144) has
elapsed since the date the Specified Securities were acquired from the
Company or from an affiliate (as such term is defined in Rule 144) of
the Company, whichever is later, and is
<PAGE>
being effected in accordance with the applicable amount, manner of
sale and notice requirements of paragraphs (e), (f) and (h) of Rule
144; or
(B) the transfer is occurring after a holding period of at least
three years has elapsed since the date the Specified Securities were
acquired from the Company or from an affiliate (as such term is
defined in Rule 144) of the Company, whichever is later, and the Owner
is not, and during the preceding three months has not been, an
affiliate of the Company.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and the Initial Purchasers (as defined in
the related Trust Agreement).
Dated:
-----------------------------------------------------
(Print the name of the Undersigned, as such term is
defined in the second paragraph of this certificate.)
By:
------------------------------------------------
Name:
Title:
(If the Undersigned is a corporation, partnership or
fiduciary, the title of the person signing on behalf of
the Undersigned must be stated.)
<PAGE>
ANNEX E -- Form of Unrestricted
Securities Certificate
UNRESTRICTED SECURITIES CERTIFICATE
(For removal of Restricted Capital Securities Legends pursuant to (S) 3.6(c) of
the Indenture)
[_________________________],
as Security Registrar
[address]
Re: _________________________ of [Providian Capital __] (the "Trust")
(the "Securities")
Reference is made to the Indenture, dated as of February __, 1997 (the
"Indenture"), between Providian Bancorp, Inc. and The Bank of New York, as
Trustee. Terms used herein and defined in the Indenture or in Rule 144 under
the United States Securities Act of 1933 (the "Securities Act") are used herein
as so defined.
This certificate relates to $_____________ aggregate principal amount
of Securities, which are evidenced by the following certificate(s) (the
"Specified Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
CURRENTLY IN BOOK-ENTRY FORM: Yes ___ No ___ (check one)
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities or (ii) it is acting on behalf of all the beneficial owners
of the Specified Securities and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner".
If the Specified Securities are represented by a Global Security, they are held
through the Depository or an Agent Member in the name of the Undersigned, as or
on behalf of the Owner. If the Specified Securities are not represented by a
Global Security, they are registered in the name of the Undersigned, as or on
behalf of the Owner.
The Owner has requested that the Specified Securities be exchanged for
Securities bearing no Restricted Securities Legend pursuant to Section 3.6(c) of
the Indenture. In connection with such exchange, the Owner hereby certifies that
the exchange is occurring after a period of at least three years has elapsed
since the date the Specified Securities were acquired from the Company or from
an affiliate (as such term is defined in Rule 144) of the Company, whichever is
later, and the Owner is not, and during the preceding three months has not been,
an affiliate of the Company. The Owner also acknowledges that any future
transfers of the Specified Securities must comply with all applicable securities
laws of the states of the United States and
<PAGE>
other jurisdictions.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and the Initial Purchasers (as defined in
the related Trust Agreement).
Dated:
----------------------------------------------------
(Print the name of the Undersigned, as such term is
defined in the second paragraph of this certificate.)
By:
------------------------------------------------
Name:
Title:
(If the Undersigned is a corporation, partnership or
fiduciary, the title of the person signing on behalf of
the Undersigned must be stated.)
<PAGE>
EXHIBIT 4.6
[EXECUTION COPY]
- --------------------------------------------------------------------------------
GUARANTEE AGREEMENT
BETWEEN
PROVIDIAN BANCORP, INC.
(AS GUARANTOR)
AND
THE BANK OF NEW YORK
(AS TRUSTEE)
DATED AS OF
FEBRUARY 4, 1997
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I. DEFINITIONS....................................... 1
Section 1.1. Definitions....................................... 1
ARTICLE II. TRUST INDENTURE ACT............................... 3
Section 2.1. Trust Indenture Act; Application.................. 3
Section 2.2. List of Holders................................... 3
Section 2.3. Reports by the Guarantee Trustee.................. 3
Section 2.4. Periodic Reports to the Guarantee Trustee......... 4
Section 2.5. Evidence of Compliance with Conditions Precedent.. 4
Section 2.6. Events of Default; Waiver......................... 4
Section 2.7. Event of Default; Notice.......................... 4
Section 2.8. Conflicting Interests............................. 4
ARTICLE III. POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE 4
Section 3.1. Powers and Duties of the Guarantee Trustee........ 4
Section 3.2. Certain Rights of Guarantee Trustee............... 6
Section 3.3. Compensation; Indemnity; Fees..................... 7
ARTICLE IV. GUARANTEE TRUSTEE................................. 7
Section 4.1. Guarantee Trustee: Eligibility.................... 7
Section 4.2. Appointment, Removal and Resignation of the
Guarantee Trustee........................... 8
ARTICLE V. GUARANTEE......................................... 8
Section 5.1. Guarantee......................................... 8
Section 5.2. Waiver of Notice and Demand....................... 8
Section 5.3. Obligations Not Affected.......................... 8
Section 5.4. Rights of Holders................................. 9
Section 5.5. Guarantee of Payment.............................. 9
Section 5.6. Subrogation....................................... 9
Section 5.7. Independent Obligations........................... 10
ARTICLE VI. COVENANTS AND SUBORDINATION....................... 10
Section 6.1. Subordination..................................... 10
Section 6.2. Pari Passu Guarantees............................. 10
ARTICLE VII. TERMINATION....................................... 10
Section 7.1. Termination....................................... 10
ARTICLE VIII. MISCELLANEOUS..................................... 10
Section 8.1. Successors and Assigns............................ 10
Section 8.2. Amendments........................................ 11
Section 8.3. Notices........................................... 11
Section 8.4. Benefit........................................... 12
Section 8.5. Interpretation.................................... 12
Section 8.6. Governing Law..................................... 12
</TABLE>
<PAGE>
GUARANTEE AGREEMENT
This GUARANTEE AGREEMENT, dated as of February 4, 1997, is executed and
delivered by PROVIDIAN BANCORP, INC., a Delaware corporation (the "Guarantor")
having its principal office at 201 Mission Street, San Francisco, California
94105, and THE BANK OF NEW YORK, a New York banking corporation, as trustee (the
"Guarantee Trustee"), for the benefit of the Holders (as defined herein) from
time to time of the Capital Securities (as defined herein) of Providian Capital
I, a Delaware statutory business trust (the "Issuer").
WHEREAS, pursuant to an Amended and Restated Trust Agreement, dated as of
February 4, 1997 (the "Trust Agreement"), among the Guarantor, as Depositor, the
Property Trustee and the Delaware Trustee named therein and the Holders from
time to time of undivided beneficial interests in the assets of the Issuer, the
Issuer is issuing $160,000,000 aggregate Liquidation Amount (as defined in the
Trust Agreement) of its 9.525% Capital Securities, Series A, (Liquidation Amount
$1,000 per capital security) (the "Capital Securities") representing preferred
undivided beneficial interests in the assets of the Issuer and having the terms
set forth in the Trust Agreement;
WHEREAS, the Capital Securities will be issued by the Issuer and the
proceeds thereof, together with the proceeds from the issuance of the Issuer's
Common Securities (as defined below), will be used to purchase the Debentures
(as defined in the Trust Agreement) of the Guarantor which will be deposited
with The Bank of New York, as Property Trustee under the Trust Agreement, as
trust assets; and
WHEREAS, as incentive for the Holders to purchase Capital Securities, the
Guarantor desires irrevocably and unconditionally to agree, to the extent set
forth herein, to pay to the Holders of the Capital Securities the Guarantee
Payments (as defined herein) and to make certain other payments on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the purchase by each Holder of Capital
Securities, which purchase the Guarantor hereby agrees shall benefit the
Guarantor, the Guarantor executes and delivers this Guarantee Agreement for the
benefit of the Holders from time to time of the Capital Securities.
ARTICLE I. DEFINITIONS
Section 1.1. Definitions.
As used in this Guarantee Agreement, the terms set forth below shall,
unless the context otherwise requires, have the following meanings. Capitalized
or otherwise defined terms used but not otherwise defined herein shall have the
meanings assigned to such terms in the Trust Agreement as in effect on the date
hereof.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Board of Directors" means either the board of directors of the Guarantor
or any committee of that board duly authorized to act hereunder.
"Common Securities" means the securities representing common undivided
beneficial interests in the assets of the Issuer.
"Event of Default" means a default by the Guarantor on any of its payment
or other obligations under this Guarantee Agreement; provided, however, that,
except with respect to a default in payment of any Guarantee Payments, the
Guarantor shall have received notice of default and shall not have cured such
default within 60 days after receipt of such notice.
<PAGE>
"Guarantee Payments" means the following payments or distributions, without
duplication, with respect to the Capital Securities, to the extent not paid or
made by or on behalf of the Issuer: (i) any accrued and unpaid Distributions (as
defined in the Trust Agreement) required to be paid on the Capital Securities,
to the extent the Issuer shall have funds on hand available therefor at such
time; (ii) the redemption price, including all accumulated and unpaid
Distributions to the date of redemption (the "Redemption Price"), with respect
to any Capital Securities called for redemption by the Issuer, to the extent the
Issuer shall have funds on hand available therefor at such time; and (iii) upon
a voluntary or involuntary termination, winding-up or liquidation of the Issuer,
unless Debentures are distributed to the Holders, the lesser of (a) the
aggregate amount of the Liquidation Amount of $1,000 per Capital Security plus
accumulated and unpaid Distributions on the Capital Securities to the date of
payment plus any accrued but unpaid premium and (b) the amount of assets of the
Issuer remaining available for distribution to Holders in liquidation of the
Issuer (in either case, the "Liquidation Distribution").
"Guarantee Trustee" means The Bank of New York, until a Successor Guarantee
Trustee has been appointed and has accepted such appointment pursuant to the
terms of this Guarantee Agreement, and thereafter means each such Successor
Guarantee Trustee.
"Holder" means any holder, as registered on the books and records of the
Issuer, of any Capital Securities; provided, however, that in determining
whether the holders of the requisite percentage of Capital Securities have given
any request, notice, consent or waiver hereunder, "Holder" shall not include the
Guarantor, the Guarantee Trustee, or any Affiliate of the Guarantor or the
Guarantee Trustee.
"Indenture" means the Junior Subordinated Indenture dated as of February 4,
1997, as supplemented and amended, between the Guarantor and The Bank of New
York, as trustee.
"List of Holders" has the meaning specified in Section 2.2(a).
"Majority in Liquidation Amount of the Capital Securities" means, except as
provided by the Trust Indenture Act, a vote by the Holder(s), voting separately
as a class, of more than 50% of the Liquidation Amount of all then outstanding
Capital Securities issued by the Issuer.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chairman of the Board of Directors, the Chief Executive Officer,
the President, the Chief Administrative Officer or a Vice President of such
Person, and by the Senior Financial Officer, the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary of such Person, and, in each
case including any other officers of such Person performing the same or similar
duties, and delivered to the Guarantee Trustee. Any Officers' Certificate
delivered with respect to compliance with a condition or covenant provided for
in this Guarantee Agreement shall include:
(a) a statement that each officer signing the Officers' Certificate has
read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers' Certificate;
(c) a statement that each officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each officer, such
condition or covenant has been complied with.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof or any other entity of whatever nature.
"Responsible Officer" means, when used with respect to the Guarantee
Trustee, any officer assigned to the Corporate Trust Office, including any
managing director, vice president, assistant vice president, assistant
treasurer, assistant secretary or any other officer of the Guarantee Trustee
customarily performing functions similar to those performed by any of the above
designated officers, and also, with respect to a particular matter, any other
officer, to whom such matter is referred because of such officer's knowledge of
and familiarity with the particular subject.
<PAGE>
"Rule 144A Information" shall be such information with respect to the
Guarantor or the Issuer as is specified pursuant to Rule 144A(d)(4) under the
Securities Act (or any successor provisions thereto).
"Successor Guarantee Trustee" means a successor Guarantee Trustee
possessing the qualifications to act as Guarantee Trustee under Section 4.1.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
ARTICLE II. TRUST INDENTURE ACT
Section 2.1. Trust Indenture Act; Application.
(a) The Trust Indenture Act shall apply as a matter of contract to this
Trust Agreement for purposes of interpretation, construction and defining the
rights and obligations hereunder and this Guarantee Agreement, the Guarantor and
the Guarantee Trustee shall be deemed for all purposes hereof to be subject to
and governed by the Trust Indenture Act, except as provided in Section 2.4.
(b) Except as provided in Section 2.4, if and to the extent that any
provision of this Guarantee Agreement limits, qualifies or conflicts with the
duties imposed by any of Sections 310 to 317, inclusive, of the Trust Indenture
Act, such imposed duties shall control.
Section 2.2. List of Holders.
(a) The Guarantor shall furnish or cause to be furnished to the Guarantee
Trustee (a) semiannually, on or before February 1 and August 1 of each year, a
list, in such form as the Guarantee Trustee may reasonably require, of the names
and addresses of the Holders ("List of Holders") as of a date not more than 15
days prior to the delivery thereof, and (b) at such other times as the Guarantee
Trustee may request in writing, within 30 days after the receipt by the
Guarantor of any such request, a List of Holders as of a date not more than 15
days prior to the time such list is furnished, in each case to the extent such
information is in the possession or control of the Guarantor and is not
identical to a previously supplied list of Holders or has not otherwise been
received by the Guarantee Trustee in its capacity as such. The Guarantee Trustee
may destroy any List of Holders previously given to it on receipt of a new List
of Holders.
(b) The Guarantee Trustee shall comply with its obligations under Section
311(a), Section 311(b) and Section 312(b) of the Trust Indenture Act.
Section 2.3. Reports by the Guarantee Trustee.
Not later than 60 days after December 31 of each year, commencing 60 days
after December 31, 1997, the Guarantee Trustee shall provide to the Holders such
reports as are required by Section 313 of the Trust Indenture Act, if any, in
the form and in the manner provided by Section 313 of the Trust Indenture Act.
The Guarantee Trustee shall also comply with the requirements of Section 313(d)
of the Trust Indenture Act.
Section 2.4. Periodic Reports to the Guarantee Trustee.
The Guarantor shall only be required to provide to the Guarantee Trustee
the compliance certificates required by Section 314(a)(3) of the Trust Indenture
Act. Upon the request of a Holder or beneficial owner of a Security, the
Guarantor or the Issuer shall promptly furnish Rule 144A Information, or cause
such information to be furnished, to such Holder or beneficial owner or to a
prospective purchaser of such Security designated by such
Holder or beneficial owner in order to permit compliance by such Holder or
beneficial owner with Rule 144A under the Securities Act in connection with the
resale of such Security by such Holder or beneficial owner.
<PAGE>
Section 2.5. Evidence of Compliance with Conditions Precedent.
The Guarantor shall provide to the Guarantee Trustee such evidence of
compliance with such conditions precedent, if any, provided for in this
Guarantee Agreement that relate to any of the matters set forth in Section
314(c) of the Trust Indenture Act. Any certificate or opinion required to be
given by an officer of the Guarantor pursuant to Section 314(c)(1) may be given
in the form of an Officers' Certificate.
Section 2.6. Events of Default; Waiver.
The Holders of a Majority in Liquidation Amount of the Capital Securities
may, by vote, on behalf of the Holders, waive any past default or Event of
Default and its consequences. Upon such waiver, any such default or Event of
Default shall cease to exist, and any default or Event of Default arising
therefrom shall be deemed to have been cured, for every purpose of this
Guarantee Agreement, but no such waiver shall extend to any subsequent or other
default or Event of Default or impair any right consequent therefrom.
Section 2.7. Event of Default; Notice.
(a) The Guarantee Trustee shall, within 90 days after the occurrence of an
Event of Default, transmit by mail, first class postage prepaid, to the Holders,
notices of all Events of Default known to the Guarantee Trustee, unless such
Events of Default have been cured before the giving of such notice, provided,
that, except in the case of a default in the payment of a Guarantee Payment, the
Guarantee Trustee shall be protected in withholding such notice if and so long
as the Board of Directors, the executive committee or a trust committee of
directors and/or Responsible Officers of the Guarantee Trustee in good faith
determines that the withholding of such notice is in the interests of the
Holders.
(b) The Guarantee Trustee shall not be deemed to have knowledge of any
Event of Default unless a Responsible Officer charged with the administration of
this Guarantee Agreement shall have obtained written notice, of such Event of
Default.
Section 2.8. Conflicting Interests.
The Trust Agreement and the Indenture shall be deemed to be specifically
described in this Guarantee Agreement for the purposes of clause (i) of the
first proviso contained in Section 310(b) of the Trust Indenture Act.
ARTICLE III. POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE
Section 3.1. Powers and Duties of the Guarantee Trustee.
(a) This Guarantee Agreement shall be held by the Guarantee Trustee for the
benefit of the Holders, and the Guarantee Trustee shall not transfer this
Guarantee Agreement to any Person except a Holder exercising his or her rights
pursuant to Section 5.4(iv) or to a Successor Guarantee Trustee on acceptance by
such Successor Guarantee Trustee of its appointment to act as Successor
Guarantee Trustee. The right, title and interest of the Guarantee Trustee shall
automatically vest in any Successor Guarantee Trustee, upon acceptance by such
Successor Guarantee Trustee of its appointment hereunder, and such vesting and
cessation of title shall be effective whether or not conveyancing documents have
been executed and delivered pursuant to the appointment of such Successor
Guarantee Trustee.
(b) If an Event of Default has occurred and is continuing, the Guarantee
Trustee shall enforce this Guarantee Agreement for the benefit of the Holders.
(c) The Guarantee Trustee, before the occurrence of any Event of Default
and after the curing of all Events of Default that may have occurred, shall
undertake to perform only such duties as are specifically set forth in this
Guarantee Agreement including pursuant to Section 2.1, and no implied covenants
shall be read into this Guarantee Agreement against the Guarantee Trustee. In
case an Event of Default has occurred (that has not been cured or waived
pursuant to Section 2.6), the Guarantee Trustee shall exercise such of the
rights and powers vested in it by this Guarantee Agreement, and use the same
degree of care and skill in its exercise thereof, as a prudent person would
exercise or use under the circumstances in the conduct of his or her own
affairs.
(d) No provision of this Guarantee Agreement shall be construed to relieve
the Guarantee Trustee from
<PAGE>
liability for its own negligent action, its own negligent failure to act or its
own willful misconduct, except that:
(i) prior to the occurrence of any Event of Default and after the
curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Guarantee Trustee shall be
determined solely by the express provisions of this Guarantee
Agreement including pursuant to Section 2.1, and the Guarantee Trustee
shall not be liable except for the performance of such duties and
obligations as are specifically set forth in this Guarantee Agreement;
and
(B) in the absence of bad faith on the part of the Guarantee
Trustee, the Guarantee Trustee may conclusively rely, as to the truth
of the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the Guarantee
Trustee and conforming to the requirements of this Guarantee
Agreement; but in the case of any such certificates or opinions that
by any provision hereof or of the Trust Indenture Act are specifically
required to be furnished to the Guarantee Trustee, the Guarantee
Trustee shall be under a duty to examine the same to determine whether
or not they conform to the requirements of this Guarantee Agreement;
(ii) the Guarantee Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Guarantee
Trustee, unless it shall be proved that the Guarantee Trustee was negligent
in ascertaining the pertinent facts upon which such judgment was made;
(iii) the Guarantee Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of not less than a Majority in Liquidation
Amount of the Capital Securities relating to the time, method and place of
conducting any proceeding for any remedy available to the Guarantee
Trustee, or exercising any trust or power conferred upon the Guarantee
Trustee under this Guarantee Agreement; and
(iv) no provision of this Guarantee Agreement shall require the
Guarantee Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties or in
the exercise of any of its rights or powers, if the Guarantee Trustee shall
have reasonable grounds for believing that the repayment of such funds or
liability is not assured to it under the terms of this Guarantee Agreement
or indemnity satisfactory to it against such risk or liability is not
assured to it.
Section 3.2. Certain Rights of Guarantee Trustee.
(a) Subject to the provisions of Section 3.1:
(i) The Guarantee Trustee may conclusively rely and shall be fully
protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document reasonably believed by it to be
genuine and to have been signed, sent or presented by the proper party or
parties.
(ii) Any direction or act of the Guarantor contemplated by this
Guarantee Agreement shall be sufficiently evidenced by an Officers'
Certificate unless otherwise prescribed herein.
(iii) Whenever, in the administration of this Guarantee Agreement, the
Guarantee Trustee shall deem it desirable that a matter be proved or
established before taking, suffering or omitting to take any action
hereunder, the Guarantee Trustee (unless other evidence is herein
specifically prescribed) may, in the absence of bad faith on its part,
request and conclusively rely upon an Officers' Certificate.
(iv) The Guarantee Trustee may consult with legal counsel, and the
advice or opinion of such legal counsel with respect to legal matters shall
be full and complete authorization and protection in respect of any action
taken, suffered or omitted to be taken by it hereunder in good faith and in
accordance with such advice or opinion. Such legal counsel may be legal
counsel to the Guarantor or any of its Affiliates and may be one of its
employees. The Guarantee Trustee shall have the right at any time to seek
instructions concerning the administration of this Guarantee Agreement from
any court of competent jurisdiction.
<PAGE>
(v) The Guarantee Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Guarantee Agreement at the
request or direction of any Holder, unless such Holder shall have provided
to the Guarantee Trustee such security and indemnity satisfactory to it,
against the costs, expenses (including attorneys' fees and expenses) and
liabilities that might be incurred by it in complying with such request or
direction, including such reasonable advances as may be requested by the
Guarantee Trustee; provided that, nothing contained in this Section
3.2(a)(v) shall be taken to relieve the Guarantee Trustee, upon the
occurrence of an Event of Default, of its obligation to exercise the rights
and powers vested in it by this Guarantee Agreement.
(vi) The Guarantee Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Guarantee Trustee, in its
discretion, may make such further inquiry or investigation into such facts
or matters as it may see fit.
(vii) The Guarantee Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
its agents or attorneys, and the Guarantee Trustee shall not be responsible
for any misconduct or negligence on the part of any such agent or attorney
appointed with due care by it hereunder.
(viii) Whenever in the administration of this Guarantee Agreement the
Guarantee Trustee shall deem it desirable to receive instructions with
respect to enforcing any remedy or right or taking any other action
hereunder, the Guarantee Trustee (A) may request and shall be entitled to
receive instructions from the Holders, (B) may refrain from enforcing such
remedy or right or taking such other action until such instructions are
received, and (C) shall be fully protected in acting in accordance with
such instructions.
(b) No provision of this Guarantee Agreement shall be deemed to impose any
duty or obligation on the Guarantee Trustee to perform any act or acts or
exercise any right, power, duty or obligation conferred or imposed on it in any
jurisdiction in which it shall be illegal, or in which the Guarantee Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Guarantee Trustee
shall be construed to be a duty to act in accordance with such power and
authority.
Section 3.3. Compensation; Indemnity; Fees.
The Guarantor agrees:
(a) to pay to the Guarantee Trustee from time to time reasonable
compensation for all services rendered by it hereunder as may be agreed by the
Guarantor and the Guarantee Trustee from time to time (which compensation shall
not be limited by any provision of law in regard to the compensation of a
trustee of an express trust);
(b) except as otherwise expressly provided herein, to reimburse the
Guarantee Trustee upon request for all reasonable expenses, disbursements and
advances incurred or made by the Guarantee Trustee in accordance with any
provision of this Guarantee Agreement (including the reasonable compensation and
the expenses and disbursements of its agents and counsel), except any such
expense, disbursement or advance as may be attributable to its negligence or bad
faith; and
(c) to indemnify the Guarantee Trustee and its directors, officers, agents
and employees for, and to hold it harmless against, any loss, liability or
expense incurred without negligence or bad faith on the part of the Guarantee
Trustee, arising out of or in connection with the acceptance or administration
of this Guarantee Agreement, including the costs and expenses of defending
itself against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder. The Guarantee Trustee will
not claim or exact any lien or charge on any Guarantee Payments as a result of
any amount due to it under this Guarantee Agreement.
The provisions of this Section 3.3 shall survive the termination of this
Guarantee Agreement or the earlier resignation or removal of the Guarantee
Trustee.
<PAGE>
ARTICLE IV. GUARANTEE TRUSTEE
Section 4.1. Guarantee Trustee: Eligibility.
(a) There shall at all times be a Guarantee Trustee which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a Person that is eligible pursuant to the Trust Indenture Act
to act as such and has a combined capital and surplus of at least
$50,000,000, and shall be a corporation meeting the requirements of Section
310(a) of the Trust Indenture Act. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of the
supervising or examining authority, then, for the purposes of this Section
and to the extent permitted by the Trust Indenture Act, the combined
capital and surplus of such corporation shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published.
(b) If at any time the Guarantee Trustee shall cease to be eligible to so
act under Section 4.1(a), the Guarantee Trustee shall immediately resign in the
manner and with the effect set out in Section 4.2(c).
(c) If the Guarantee Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act, the
Guarantee Trustee and Guarantor shall in all respects comply with the provisions
of Section 310(b) of the Trust Indenture Act.
Section 4.2. Appointment, Removal and Resignation of the Guarantee
Trustee.
(a) Subject to Section 4.2(b), the Guarantee Trustee may be appointed or
removed without cause at any time by the action of (i) if an Issuer Trust
Default has not occurred or has occurred and is not continuing the holders of a
majority (based on Liquidation Amounts) of the outstanding Common Securities or
if (ii) (x) an Issuer Trust Default has occurred and is continuing, or (y) for
cause, the Holders of a Majority in Liquidation Amount of the Capital
Securities.
(b) The Guarantee Trustee shall not be removed until a Successor Guarantee
Trustee has been appointed and has accepted such appointment by written
instrument executed by such Successor Guarantee Trustee and delivered to the
Guarantor. The Successor Guarantee Trustee shall be appointed by the same action
which removed the Guarantee Trustee.
(c) The Guarantee Trustee appointed hereunder shall hold office until a
Successor Guarantee Trustee shall have been appointed or until its removal or
resignation. The Guarantee Trustee may resign from office (without need for
prior or subsequent accounting) by an instrument in writing executed by the
Guarantee Trustee and delivered to the Guarantor, which resignation shall not
take effect until a Successor Guarantee Trustee has been appointed by the
holders of a majority (based on Liquidation Amounts) of the outstanding Common
Securities (or if an Issuer Trust Default has occurred and is continuing, the
Holders of a Majority in Liquidation Amount of the Capital Securities) and has
accepted such appointment by instrument in writing executed by such Successor
Guarantee Trustee and delivered to the Guarantor and the resigning Guarantee
Trustee.
(d) If no Successor Guarantee Trustee shall have been appointed and
accepted appointment as provided in this Section 4.2 within 60 days after
delivery to the Holders and the Guarantor of an instrument of resignation, the
resigning Guarantee Trustee may petition, at the expense of the Guarantor, any
court of competent jurisdiction for appointment of a Successor Guarantee
Trustee. Such court may thereupon, after prescribing such notice, if any, as it
may deem proper, appoint a Successor Guarantee Trustee.
<PAGE>
ARTICLE V. GUARANTEE
Section 5.1. Guarantee.
The Guarantor irrevocably and unconditionally agrees, subject to Section
6.1, to pay in full to the Holders the Guarantee Payments (without duplication
of amounts theretofore paid by or on behalf of the Issuer), as and when due,
regardless of any defense, right of set-off or counterclaim which the Issuer may
have or assert other than the defense of payment. The Guarantor's obligation to
make a Guarantee Payment may be satisfied by direct payment of the required
amounts by the Guarantor to the Holders or by causing the Issuer to pay such
amounts to the Holders. The Guarantor shall notify the Guarantee Trustee of any
such payment.
Section 5.2. Waiver of Notice and Demand.
The Guarantor hereby waives notice of acceptance of the Guarantee Agreement
and of any liability to which it applies or may apply, presentment, demand for
payment, any right to require a proceeding first against the Guarantee Trustee,
Issuer or any other Person before proceeding against the Guarantor, protest,
notice of nonpayment, notice of dishonor, notice of redemption and all other
notices and demands.
Section 5.3. Obligations Not Affected.
The obligations, covenants, agreements and duties of the Guarantor under
this Guarantee Agreement shall in no way be affected or impaired by reason of
the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Issuer of any express or implied agreement,
covenant, term or condition relating to the Capital Securities to be performed
or observed by the Issuer;
(b) the extension of time for the payment by the Issuer of all or any
portion of the Distributions (other than an extension of time for payment of
Distributions that results from the extension of any interest payment period on
the Debentures as provided in the Indenture), Redemption Price, Liquidation
Distribution or any other sums payable under the terms of the Capital Securities
or the extension of time for the performance of any other obligation under,
arising out of, or in connection with, the Capital Securities;
(c) any failure, omission, delay or lack of diligence on the part of the
Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Holders pursuant to the terms of the Capital Securities, or any
action on the part of the Issuer granting indulgence or extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Issuer or any of the assets of the
Issuer;
(e) any invalidity of, or defect or deficiency in, the Capital Securities;
(f) the settlement or compromise of any obligation guaranteed hereby or
hereby incurred; or
(g) any other circumstance whatsoever that might otherwise constitute a
legal or equitable discharge or defense of a guarantor (other than payment of
the underlying obligation), it being the intent of this Section 5.3 that the
obligations of the Guarantor hereunder shall be absolute and unconditional under
any and all circumstances.
There shall be no obligation of the Holders to give notice to, or obtain the
consent of, the Guarantor with respect to the happening of any of the foregoing.
<PAGE>
Section 5.4. Rights of Holders.
The Guarantor expressly acknowledges that: (i) this Guarantee Agreement
will be deposited with the Guarantee Trustee to be held for the benefit of the
Holders; (ii) the Guarantee Trustee has the right to enforce this Guarantee
Agreement on behalf of the Holders; (iii) the Holders of not less than a
Majority in Liquidation Amount of the Capital Securities have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee in respect of this Guarantee Agreement or
exercising any trust or power conferred upon the Guarantee Trustee under this
Guarantee Agreement; and (iv) any Holder may institute a legal proceeding
directly against the Guarantor to enforce its rights under this Guarantee
Agreement, without first instituting a legal proceeding against the Issuer or
any other Person.
Section 5.5. Guarantee of Payment.
This Guarantee Agreement creates a guarantee of payment and not of
collection. This Guarantee Agreement will not be discharged except by payment of
the Guarantee Payments in full (without duplication of amounts theretofore paid
by the Issuer) or upon distribution of Debentures to Holders as provided in the
Trust Agreement.
Section 5.6. Subrogation.
The Guarantor shall be subrogated to all (if any) rights of the Holders
against the Issuer in respect of any amounts paid to the Holders by the
Guarantor under this Guarantee Agreement; provided, however, that the Guarantor
shall not (except to the extent required by mandatory provisions of law) be
entitled to enforce or exercise any rights which it may acquire by way of
subrogation or any indemnity, reimbursement or other agreement, in all cases as
a result of payment under this Guarantee Agreement, if, at the time of any such
payment, any amounts are due and unpaid under this Guarantee Agreement. If any
amount shall be paid to the Guarantor in violation of the preceding sentence,
the Guarantor agrees to hold such amount in trust for the Holders and to pay
over such amount to the Holders.
Section 5.7. Independent Obligations.
The Guarantor acknowledges that its obligations hereunder are independent
of the obligations of the Issuer with respect to the Capital Securities and that
the Guarantor shall be liable as principal and as debtor hereunder to make
Guarantee Payments pursuant to the terms of this Guarantee Agreement
notwithstanding the occurrence of any event referred to in subsections (a)
through (g), inclusive, of Section 5.3 hereof.
ARTICLE VI. COVENANTS AND SUBORDINATION
Section 6.1. Subordination.
The obligations of the Guarantor under this Guarantee Agreement will
constitute unsecured obligations of the Guarantor and will rank subordinate and
junior in right of payment to all Senior Indebtedness (as defined in the
Indenture) to the extent and in the manner set forth in the Indenture and the
provisions of Article XIII of the Indenture will apply mutatis mutandis to the
obligations of the Guarantor hereunder. The obligations of the Guarantor under
this Guarantee Agreement do not constitute Senior Indebtedness (as defined in
the Indenture) of the Guarantor.
Section 6.2. Pari Passu Guarantees.
The obligations of the Guarantor under this Guarantee Agreement shall rank
pari passu with the obligations of the Guarantor under (i) any similar guarantee
agreements issued by the Guarantor on behalf of the holders of preferred or
capital securities issued by any Providian Trust (as defined in the Indenture),
(ii) the Indenture and the Securities (as defined therein) issued thereunder,
and (iii) any other security, guarantee or other agreement or obligation that is
expressly stated to rank pari passu with the obligations of the Guarantor under
this Guarantee Agreement or with any obligation that ranks pari passu with the
obligations of the Guarantor under this Guarantee Agreement.
<PAGE>
ARTICLE VII. TERMINATION
Section 7.1. Termination.
This Guarantee Agreement shall terminate and be of no further force and
effect upon (i) full payment of the Redemption Price of all Capital Securities,
(ii) the distribution of Debentures to the Holders in exchange for all of the
Capital Securities or (iii) full payment of the amounts payable in accordance
with the Trust Agreement upon liquidation of the Issuer. Notwithstanding the
foregoing, this Guarantee Agreement will continue to be effective or will be
reinstated, as the case may be, if at any time any Holder must repay any sums
paid with respect to Capital Securities or this Guarantee Agreement.
ARTICLE VIII. MISCELLANEOUS
Section 8.1. Successors and Assigns.
All guarantees and agreements contained in this Guarantee Agreement shall
bind the successors, assigns, receivers, trustees and representatives of the
Guarantor and shall inure to the benefit of the Holders of the Capital
Securities then outstanding. Except in connection with a consolidation, merger
or sale involving the Guarantor that is permitted under Article VIII of the
Indenture and pursuant to which the successor or assignee agrees in writing to
perform the Guarantor's obligations hereunder, the Guarantor shall not assign
its obligations hereunder and any purported assignment other than in accordance
with this provision shall be void.
Section 8.2. Amendments.
Except with respect to any changes which do not adversely affect the rights
of the Holders in any material respect (in which case no consent of the Holders
will be required), this Guarantee Agreement may only be amended with the prior
approval of the Holders of not less than a Majority in Liquidation Amount of the
Capital Securities. The provisions of Article VI of the Trust Agreement
concerning meetings of the Holders shall apply to the giving of such approval.
Section 8.3. Notices.
Any notice, request or other communication required or permitted to be
given hereunder shall be in writing, duly signed by the party giving such
notice, and delivered, telecopied (confirmed by delivery of the original) or
mailed by first class mail as follows:
(a) if given to the Guarantor, to the address set forth below or such other
address, facsimile number or to the attention of such other Person as the
Guarantor may give notice to the Holders:
Providian Bancorp, Inc.
201 Mission Street
San Francisco, California 94105
Facsimile No.: 415 278-6028
Attention: Secretary
(b) if given to the Guarantee Trustee or the Issuer, in care of the
Guarantee Trustee, at the Issuer's (and the Guarantee Trustee's) address set
forth below or such other address as the Guarantee Trustee on behalf of the
Issuer may give notice to the Holders:
Providian Capital I
c/o Providian Bancorp, Inc.
201 Mission Street
San Francisco, California 94105
Facsimile No.: 415 278-6028
Attention: Secretary
<PAGE>
and:
The Bank of New York
101 Barclay Street
New York, New York 10286
Facsimile No.: 212 815-5915
Attention: Vivian Georges
Guarantee Trustee
The Bank of New York
101 Barclay Street
New York, New York 10286
Facsimile No.: 212 815-5915
Attention: Vivian Georges
(c) if given to any Holder, at the address set forth on the books and
records of the Issuer.
All notices hereunder shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid, except that if a notice or other document is refused delivery
or cannot be delivered because of a changed address of which no notice was
given, such notice or other document shall be deemed to have been delivered on
the date of such refusal or inability to deliver.
Section 8.4. Benefit.
This Guarantee Agreement is solely for the benefit of the Holders and is
not separately transferable from the Capital Securities.
Section 8.5. Interpretation.
In this Guarantee Agreement, unless the context otherwise requires:
(a) capitalized terms used in this Guarantee Agreement but not defined in
the preamble hereto have the respective meanings assigned to them in Section
1.1;
(b) a term defined anywhere in this Guarantee Agreement has the same
meaning throughout;
(c) all references to "the Guarantee Agreement" or "this Guarantee
Agreement" are to this Guarantee Agreement as modified, supplemented or amended
from time to time;
(d) all references in this Guarantee Agreement to Articles and Sections are
to Articles and Sections of this Guarantee Agreement unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the same meaning when
used in this Guarantee Agreement unless otherwise defined in this Guarantee
Agreement or unless the context otherwise requires;
(f) a reference to the singular includes the plural and vice versa; and
(g) the masculine, feminine or neuter genders used herein shall include the
masculine, feminine and neuter genders.
Section 8.6. Governing Law.
THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
<PAGE>
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
THIS GUARANTEE AGREEMENT is executed as of the day and year first above
written.
PROVIDIAN BANCORP, INC.
By: David J. Petrini
----------------------------------
Name: David J. Petrini
Title: Senior Vice President and
Senior Financial Officer
THE BANK OF NEW YORK
as Guarantee Trustee
By: /s/ Vivian Georges
----------------------------------
Name: Vivian Georges
Title: Assistant Vice President
<PAGE>
EXHIBIT 10.2
CHANGE OF CONTROL EMPLOYMENT AGREEMENT
AGREEMENT by and among Providian Bancorp Services (the "Corporation"),
a California corporation, Providian Financial Corporation ("Parent"), a Delaware
corporation, and _____________________ (the "Executive"), dated as of the ____
day of August, 1997.
The Board of Directors of Parent (the "Board") has determined that it
is in the best interests of Parent and its shareholders to assure that the
Corporation, a wholly owned subsidiary of Parent, will have the continued
dedication of the Executive, notwithstanding the possibility, threat or
occurrence of a Change in Control (as defined below) of Parent. The Board
believes it is imperative to diminish the inevitable distraction of the
Executive by virtue of the personal uncertainties and risks created by a pending
or threatened Change in Control and to encourage the Executive's full attention
and dedication to the Corporation currently and in the event of any threatened
or pending Change in Control, and to provide the Executive with compensation and
benefits arrangements upon a Change in Control which ensure that the
compensation and benefits expectations of the Executive will be satisfied and
which are competitive with those of other corporations. Therefore, in order to
accomplish these objectives, the Board has authorized Parent to enter into, and
to cause the Corporation to enter into, this Agreement.
IT IS, THEREFORE, AGREED:
1. Certain Definitions. (a) The "Effective Date" shall be the
-------------------
first date during the "Change in Control Period" (as defined in Section 1(b)) on
which a Change in Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a
-1-
<PAGE>
Change in Control occurs and if the Executive's employment with the Corporation
and Parent is terminated or the Executive ceases to be an officer of the
Corporation or Parent prior to the date on which a Change in Control occurs, and
if it is reasonably demonstrated by the Executive that such termination of
employment or cessation of status as an officer (i) was at the request of a
third party who has taken steps reasonably calculated to effect the Change in
Control or (ii) otherwise arose in connection with the Change in Control, then
for all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment or cessation of
status as an officer.
(b) The "Change in Control Period" shall mean the period commencing on
the date hereof and ending on the second anniversary of such date; provided,
however, that commencing on the date one year after the date hereof, and on each
annual anniversary of such date (the date one year after the date hereof and
each annual anniversary of such date, is hereinafter referred to as the "Renewal
Date"), the Change in Control Period shall be automatically extended so as to
terminate two years from such Renewal Date, unless at least 60 days prior to the
Renewal Date the Corporation or Parent shall give notice to the Executive that
the Change in Control Period shall not be so extended.
2. Change in Control. For the purpose of this Agreement, a "Change
-----------------
in Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under
-2-
<PAGE>
the Exchange Act) of 20% or more of either (i) the then outstanding shares of
common stock of Parent (the "Outstanding Company Common Stock") or (ii) the
combined voting power of the then outstanding voting securities of Parent
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that for purposes of this
subsection (a), the following acquisitions shall not constitute a Change in
Control: (i) any acquisition directly from Parent, (ii) any acquisition by
Parent, (iii) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by Parent or any corporation controlled by Parent or
(iv) any acquisition by any corporation pursuant to a transaction which complies
with clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by Parent's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of Parent or the
acquisition of assets of another corporation (a "Business Combination"), in each
case, unless, following such Business
-3-
<PAGE>
Combination, (i) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 60%
of, respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns Parent or all or
substantially all of Parent's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be, (ii) no
Person (excluding any employee benefit plan (or related trust) of Parent or such
corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Board, providing for such
Business Combination; or
(d) Approval by the shareholders of Parent of a complete liquidation
or dissolution of Parent.
-4-
<PAGE>
3. Employment Period. The Corporation hereby agrees to continue the
-----------------
Executive in its employ for the period commencing on the Effective Date and
ending on the earlier to occur of (i) the third anniversary of such date or (ii)
unless the Executive elects to continue employment beyond the Executive's Normal
Retirement Age (as defined in Parent's 401 (k) Plan, as amended from time to
time), the first day of the month coinciding with or next following the
Executive's Normal Retirement Age (the "Employment Period").
4. Terms of Employment. (a) Position of Duties. (i) During the
------------------- ------------------
Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 90-day period
immediately preceding the Effective Date and (B) unless Executive otherwise
agrees, the Executive's services shall be performed at the location where the
Executive was employed immediately preceding the Effective Date or at any office
or location less than forty-five (45) miles from such location.
(ii) During the Employment Period, and excluding periods of paid time off
(as defined in Parent's benefit plans) to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal business
hours to the business and affairs of the Corporation and Parent and, to the
extent necessary to discharge the responsibilities assigned to the Executive
hereunder, to use reasonable efforts to perform faithfully and efficiently such
responsibilities. The Executive may (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions
-5-
<PAGE>
and (C) manage personal investments, so long as such activities do not
significantly interfere with the performance of the Executive's
responsibilities. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, such prior conduct of activities, and any subsequent conduct of activities
similar in nature and scope shall not thereafter be deemed to interfere with the
performance of the Executive's responsibilities to the Corporation and Parent.
(b) Compensation. (i) Base Salary. During the Employment Period, the
------------ -----------
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid semi-monthly, at least equal to twenty-four times the highest
semi-monthly base salary paid or payable to the Executive by the Corporation,
together with any of its affiliated companies, during the twelve-month period
immediately preceding the month in which the Effective Date occurs. During the
Employment Period, the Annual Base Salary shall be reviewed at least annually
and shall be increased at any time and from time to time as shall be
substantially consistent with increases in base salary awarded in the ordinary
course of business to other peer executives of the Corporation and its
affiliates. Any increase in base salary awarded in the ordinary course of
business to other peer executives of the Corporation and its affiliates. Any
increase in Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Annual Base Salary shall not
be reduced after any such increase and the term Annual Base Salary as utilized
in this Agreement shall refer to Annual Base Salary as so increased. As used in
this Agreement, the term "affiliated companies" includes any company
controlling, controlled by or under common control with the Corporation.
-6-
<PAGE>
(ii) Annual Bonus. In addition to Annual Base Salary, the Executive
------------
shall be awarded, for each fiscal year during the Employment Period, an annual
bonus under Parent's Management Incentive Plan (or any successor thereto) (the
"Annual Bonus") in cash at least equal to the average annualized (for any fiscal
year consisting of less than twelve full months or with respect to which the
Executive has been employed by the Corporation or its affiliated companies for
less than twelve full months) bonus paid or payable, including by reason of any
deferral, to the Executive by the Corporation and its affiliated companies in
respect of the three fiscal years immediately preceding the fiscal year in which
the Effective Date occurs (the "Recent Average Bonus"). Each such Annual Bonus
shall be payable in March of the fiscal year next following the fiscal year for
which the Annual Bonus is awarded, unless the Executive shall otherwise elect
to defer the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During the Employment
---------------------------------------
Period, the Executive shall be entitled to participate in all incentive, savings
and retirement plans, practices, policies and programs applicable generally to
other peer executives of the Corporation and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with incentive opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction is
applicable), savings opportunities and retirement benefit opportunities, in each
case, less favorable, in the aggregate, than the most favorable of those
provided by the Corporation and its affiliated companies for the Executive under
such plans, practices, policies and programs as in effect at any time during the
90-day period immediately preceding the Effective Date or if more favorable to
the Executive,
-7-
<PAGE>
those provided generally at any time after the Effective Date to other peer
executives of the Corporation and its affiliated companies. Without limiting
the foregoing, the annual retirement contribution payable on behalf of the
Executive during the Employment Period, as a percentage of the Executive's total
compensation, shall not in any event be less than the average annual retirement
contribution, as a percentage of total compensation, paid on behalf of the
Executive by the Corporation and its affiliated companies during the three years
immediately preceding the Effective Date.
(iv) Welfare Benefit Plans. During the Employment Period, the
---------------------
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Corporation and its affiliated
companies (including, without limitation, medical, prescription, dental,
vision, disability, employee life, dependent life, and accidental death) to the
extent applicable generally to other peer executives of the Corporation and its
affiliated companies, but in no event shall such plans, practices, policies and
programs provide the Executive with benefits which are less favorable, in the
aggregate, than the most favorable of such plans, practices, policies and
programs in effect for the Executive at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the Executive,
those provided generally at any time after the Effective Date to other peer
executives of the Corporation and its affiliated companies.
(v) Expenses. During the Employment Period, the Executive shall be
--------
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the
-8-
<PAGE>
Executive in accordance with the policies and procedures of the Corporation and
its affiliated companies in effect at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the Executive,
as in effect at any time thereafter with respect to other peer executives of the
Corporation and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the Executive
---------------
shall be entitled to fringe benefits in accordance with the most favorable
plans, practices, programs and policies of the Corporation and its affiliated
companies in effect at any time during the 90-day period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect at any
time thereafter with respect to other peer executives of the Corporation and its
affiliated companies.
(vii) Office and Support Staff. During the Employment Period, the
------------------------
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to administrative and other assistance,
at least equal to the most favorable of the foregoing provided to the Executive
at any time during the 90-day period immediately preceding the Effective Date
or, if more favorable to the Executive, as in effect at any time thereafter with
respect to other peer executives of the Corporation and its affiliated
companies.
(viii) Paid Time Off/Sabbatical. During the Employment Period, the
------------------------
Executive shall be entitled to paid time off and sabbatical in accordance with
the most favorable plans, policies, programs and practices of the Corporation
and its affiliated companies as in effect at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to
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<PAGE>
the Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Corporation and its affiliated companies.
5. Termination. (a) Death or Disability. This Agreement shall
----------- -------------------
terminate automatically upon the Executive's death. If the Corporation
determines in good faith that the Disability of the Executive has occurred
during the Employment Period (pursuant to the definition of "Disability" set
forth below), it may give the Executive written notice in accordance with
Section 12(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Corporation and
its affiliated companies shall terminate effective on the 30th day after receipt
of such notice (the "Disability Effective Date"), provided that, within 30 days
after such receipt, the Executive shall fail to return to full-time performance
of the Executive's duties. For purposes of this Agreement, "Disability" means
the absence of the Executive from the Executive's duties within the Corporation
and its affiliated companies for 180 consecutive business days as a result of
the incapacity due to physical or mental illness which, after the expiration of
such 180 business days, is determined to be total and permanent by a physician
selected by Parent, the Corporation or its insurers and acceptable to the
Executive or the Executive's legal representative (such agreement to
acceptability not to be withheld unreasonably).
(b) Cause. The Corporation may terminate the Executive's employment
-----
for "Cause." For purposes of this Agreement, "Cause" means (i) a willful and
continuing failure to perform substantially the Executive's obligations under
Section 4(a) of this Agreement (other than as a result of the Executive's death
or Disability); or (ii) conduct undertaken by the Executive
-10-
<PAGE>
which is demonstrably willful and deliberate on the Executive's part and which
is intended to result in (x) substantial personal enrichment of the Executive at
the expense of the Corporation or its affiliated companies and (y) substantial
injury to the Corporation or its affiliated companies; or (iii) commitment by
the Executive of a felony involving the Corporation or its affiliated companies.
A termination for Cause within the meaning of clause (i) or (ii) shall
not take effect unless:
A. the Board shall have delivered a written notice to the Executive
within 30 days of its having knowledge of one of the circumstances constituting
cause within the meaning of clause (i) or (ii), stating which one of those
circumstances has occurred;
B. within 30 days of such notice, the Executive is permitted to
respond and defend himself before the Board;
C. within 15 days of the date on which the Executive is given the
opportunity to respond and defend himself before the Board, the Executive has
not remedied such circumstance; and
D. if the Executive has not remedied such circumstance as provided in
subclause (C) above, the Board notifies the Executive in writing that it is
terminating his employment for Cause.
(c) Good Reason. The Executive's employment may be terminated during
-----------
the Employment Period by the Executive for Good Reason. For purposes of this
Agreement, "Good
-11-
<PAGE>
Reason" means:
(i) (A) the assignment to the Executive of any duties inconsistent
in any respect with the Executive's position (including status, offices, titles
and reporting requirements), authority, duties or responsibilities as
contemplated by Section 4(a) of this Agreement or (B) any other action by the
Corporation or its affiliated companies which results in a diminution in such
position, authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not occurring in bad faith which
is remedied by the Corporation or its affiliated companies promptly after
receipt of notice thereof given by the Executive;
(ii) any failure by the Corporation to comply with any of the
provisions of Section 4(b) of this Agreement, excluding for this purpose an
isolated, insubstantial and inadvertent failure not occurring in bad faith
which is remedied by the Corporation promptly after receipt of notice thereof
given by the Executive;
(iii) unless the Executive otherwise agrees, the Corporation's
requiring the Executive to be based at any office or location other than that at
which the Executive is based at the Effective Date or within forty-five (45)
miles of such location, except for travel reasonably required in the performance
of the Executive's responsibilities;
(iv) any purported termination by the Corporation of the Executive's
employment otherwise than as permitted by this Agreement;
(v) any failure by Parent or the Corporation to comply with and
satisfy Section 11(c) of this Agreement provided that such successor has
received at least ten days prior written notice from the Corporation or the
Executive of the requirements of Section 11(c) of this
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<PAGE>
Agreement.
(vi) a termination by the Executive for any reason during the 30-day
period immediately following the first anniversary of the date a Change in
Control occurs.
For purposes of this Section 5(c), any good faith determination of
"Good Reason" made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Corporation for
---------------------
Cause or by the Executive for Good Reason shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than 15
days after the giving of such notice). The failure by the Executive or the
Corporation to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason or Cause shall not waive any right
of the Executive or the Corporation hereunder or preclude the Executive or the
Corporation from asserting such fact or circumstance in enforcing the
Executive's or the Corporation's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
-------------------
Executive's employment is terminated by the Corporation for Cause, or by the
Executive for Good Reason,
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<PAGE>
the date of receipt of the Notice of Termination or any later date specified
therein, as the case may be, (ii) if the Executive's employment is terminated by
the Corporation other than for Cause or Disability, the Date of Termination
shall be the date on which the Corporation notifies the Executive of such
termination and (iii) if the Executive's employment is terminated by reason of
death or Disability, the Date of Termination shall be the date of death of the
Executive or the Disability Effective Date, as the case may be.
6. Obligations of the Corporation upon Termination. (a) Good
----------------------------------------------- ----
Reason; Other Than for Cause, Death or Disability. If, during the Employment
- -------------------------------------------------
Period, the Corporation shall terminate the Executive's employment other than
for Cause or Disability or the Executive shall terminate employment for Good
Reason:
(i) the Corporation shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
A. the sum of (1) the Executive's Annual Base Salary through the Date
of Termination to the extent not theretofore paid, (2) the product of (x) the
Annual Bonus and (y) a fraction, the numerator of which is the number of days in
the current fiscal year through the Date of Termination, and the denominator of
which is 365, and (3) any compensation previously deferred by the Executive
under non-qualified plans (together with any accrued interest or earnings
thereon), except for compensation deferred under Parent's Equity Unit Plan
(which shall be paid out or deferred in accordance with elections made under
such Equity Unit Plan and the related rabbi trust documents), and the value of
any unused paid time off and/or accrued sabbatical, in each case to the extent
not theretofore paid (the sum of the amounts described in
-14-
<PAGE>
clauses (1), (2) and (3) shall be hereinafter referred to as the "Accrued
Obligations"); and
B. the amount equal to the product of (1) three and (2) the sum of
(x) the Executive's Annual Base Salary, and (y) the Executive's Base Salary
multiplied by the Bonus Percentage. For purposes of this Section 6(a)(i)(B),
"Bonus Percentage" shall mean the highest percentage obtained by dividing (1)
the annual bonus earned by the Executive in any year beginning with the third
full year before the date on which a Change in Control occurs by (2) the base
salary paid to the Executive for such year. The amount described in the first
sentence of this clause B shall be paid in lieu of, and the Executive hereby
waives the right to receive, any other amount of severance relating to salary or
bonus continuation to be received by the Executive upon termination of
employment of the Executive under any severance plan, policy or arrangement of
the Corporation or its affiliated companies; and
C. a separate lump-sum payment equal to the product of (1) three and
(2) the sum of (x) the Executive's Annual Base Salary and (y) the Executive's
Base Salary multiplied by the Bonus Percentage and (3) the Retirement
Contribution Percentage (which, for purposes of this Section 6(a)(i)(C) shall
equal [the highest percentage of retirement contributions as a percentage of
total compensation for all eligible employees of the Corporation and its
affiliated companies for any year beginning with the third full year prior to
the Effective Date); and
D. (i) an amount equal to the unvested portion of the qualified and
non-qualified retirement contribution account in addition to any vested amounts
due under the retirement plans of the Corporation and its affiliated companies;
(ii) for three years after the Date of Termination, or such longer
period as any
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<PAGE>
plan, program, practice or policy may provide, the Corporation shall continue
benefits to the Executive and/or the Executive's family at least equal to those
which would have been provided to them in accordance with the plans, programs,
practices and policies described in Section 4(b)(iv) of this Agreement if the
Executive's employment had not been terminated in accordance with the most
favorable plans, practices, programs or policies of the Corporation and its
affiliated companies applicable generally to other peer executives and their
families during the 90-day period immediately preceding the Effective Date or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Corporation and its
affiliated companies and their families, provided, however, that if the
Executive becomes reemployed with another employer and is eligible to receive
medical or other welfare benefits under another employer provided plan, the
medical and other welfare benefits described herein shall be secondary to those
provided under such other plan during such applicable period of eligibility; and
(iii) to the extent not theretofore paid or provided, the Corporation
shall timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to receive
pursuant to this Agreement under any plan, program, policy or practice or
contract or agreement of the Corporation and its affiliated companies (such
other amounts and benefits shall be hereinafter referred to as the "Other
Benefits"), but excluding solely purposes of this Section 6(a)(iii) amounts
waived by the Executive pursuant to the proviso of Section 6(a)(i)(B).
(b) Death. If the Executive's employment is terminated by reason of
-----
the
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<PAGE>
Executive's death, this Agreement shall terminate without further obligations to
the Executive's legal representatives under this Agreement other than for
payment of the Accrued Obligations and the timely payment or provision of Other
Benefits. All Accrued Obligations shall be paid to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of
Termination. Anything in this Agreement to the contrary notwithstanding, the
Executive's family shall be entitled to receive benefits at least equal to the
most favorable benefits provided by the Corporation and any of its affiliated
companies to surviving families of peer executives of the Corporation and such
affiliated companies under such plans, programs, practices and policies relating
to family death benefits, if any, as in effect at any time during the 90-day
period immediately preceding the Effective Date or, if more favorable to the
Executive and/or the Executive's family, as in effect at any time on the date of
Executive's death with respect to other peer executives of the Corporation and
its affiliated companies and their families.
(c) Disability. If the Executive's employment is terminated by reason
----------
of the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
All Accrued Obligations shall be paid to the Executive in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall
include, and the Executive shall be entitled after the Disability Effective Date
to receive, disability and other benefits at least equal to the most favorable
of those generally provided by the Corporation and its affiliated companies to
disabled executives and/or their families in accordance with such plans,
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<PAGE>
programs, practices and policies relating to disability, if any, as in effect
generally with respect to other peer executives and their families at any time
during the 90-day period immediately preceding the Effective Date or, if more
favorable to the Executive and/or the Executive's family, as in effect at any
time thereafter generally with respect to other peer executives of the
Corporation and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's employment
---------------------------------
shall be terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations other than the obligation to pay to the
Executive Annual Base Salary through the Date of Termination plus the amount of
any compensation previously deferred by the Executive, in each case to the
extent theretofore not paid. If the Executive terminates employment during the
Employment Period, excluding a termination for Good Reason, this Agreement shall
terminate without further obligations to the Executive, other than for Accrued
Obligations and the timely payment or provision of Other Benefits. In such
case, all Accrued Obligations shall be paid to the Executive in a lump sum in
cash within 30 days of the Date of Termination.
7. Non-exclusivity of Rights. Except as otherwise provided in
-------------------------
Sections 6(a)(i)(B), 6(a)(ii) and 6(a)(iii) of this Agreement, nothing in this
Agreement shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plan or program provided
by the Corporation or any of its affiliated companies and for which the
Executive may qualify, nor shall anything herein limit or otherwise affect such
rights as the Executive may have under any stock option or other agreements with
the Corporation or any of its affiliated companies. Amounts which are vested
benefits or which the Executive is otherwise
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<PAGE>
entitled to receive under any plan or program of the Corporation or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan or program.
8. Full Settlement. The Corporation's obligation to make the
---------------
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Corporation may have against the Executive or others. In no event shall the
Executive be obligated to seek other employment by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement,
and, except as provided in Section 6(a)(ii) of this Agreement, such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Corporation agrees to pay, to the full extent permitted by law, all legal fees
and expenses which the Executive may reasonably incur in good faith as a result
of any contest (regardless of the outcome thereof) by the Corporation, the
Executive or others of the validity or enforceability of, or liability under,
any provision of this Agreement or any guarantee of performance thereof
(including as a result of any contest by the Executive about the amount of any
payment pursuant to this Agreement), plus in each case interest, on any delayed
payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of
the Internal Revenue Code of 1986, as amended (the "Code").
9. Certain Additional Payments by the Corporation.
----------------------------------------------
(a) Anything in this Agreement to the contrary notwithstanding, in
the event
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<PAGE>
it shall be determined that any payment or distribution by Parent or the
Corporation to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 9) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by a nationally
recognized accounting firm (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Corporation and the Executive within 15
business days of the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Corporation. The
Accounting Firm shall be jointly selected by the Corporation and the Executive
and shall not, during the two years preceding the date of its selection, have
acted in any way on behalf of the Corporation or its
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<PAGE>
affiliated companies. If the Corporation and the Executive cannot agree on the
firm to serve as the Accounting Firm, then the Corporation and the Executive
shall each select a nationally recognized accounting firm and those two firms
shall jointly select a nationally recognized accounting firm to serve as the
Accounting Firm. All fees and expenses of the Accounting Firm shall be borne
solely by the Corporation. Any Gross-Up Payment, as determined pursuant to this
Section 9, shall be paid by the Corporation to the Executive within five days of
the receipt of the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it shall furnish the
Executive with a written opinion that failure to report the Excise Tax on the
Executive's applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. Any determination by the
Accounting Firm shall be binding upon the Corporation and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Corporation
should have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Corporation exhausts its
remedies pursuant to Section 9(c) and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Corporation to or for the benefit of the Executive.
(c) The Executive shall notify the company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Corporation of a Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten
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<PAGE>
business days after the Executive is informed in writing of such claim and shall
apprise the Corporation of the nature of such claim and the date on which such
claim is requested to be paid. The Executive shall not pay such claim prior to
the expiration of the 30-day period following the date on which he or she gives
such notice to the Corporation (or such shorter period ending on the date that
any payment of taxes with respect to such claim is due). If the Corporation
notifies the Executive in writing prior to the expiration of such period that it
desires to contest such claim, the Executive shall:
(i) give the Corporation any information reasonably requested by the
Corporation relating to such claim,
(ii) take such action in connection with contesting such claim as
the Corporation shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Corporation,
(iii) cooperate with the Corporation in good faith in order
effectively to contest such claim, and
(iv) permit the Corporation to participate in any proceedings relating
to such claim; provided, however, that Parent and the Corporation shall bear and
pay directly all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall indemnify and hold
the Executive harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expenses. Without limitation on
the foregoing provisions
-22-
<PAGE>
of this Section 9(c), the Corporation shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forego any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Corporation
shall determine; provided, however, that if the Corporation directs the
Executive to pay such claim and sue for a refund, the Corporation shall advance
the amount of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and further provided the Executive shall not be
required by the Corporation to agree to any extension of the statute of
limitations relating to the payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due
unless such extension is limited solely to such contested amount. Furthermore,
the Corporation's control of the contest shall be limited to issues with respect
to which a Gross-Up Payment would be payable hereunder and the Executive shall
be entitled to settle or contest, as the case may be, any other issue raised by
the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Corporation pursuant to Section 9(c), the Executive becomes entitled to
receive any refund with
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<PAGE>
respect to such claim, the Executive shall (subject to the Corporation's
complying with the requirements of Section 9(c)) promptly pay to the Corporation
the amount of such refund (together with any interest paid or credited thereon
after taxes applicable thereto). If, after the receipt by the Executive of an
amount advanced by the Corporation pursuant to Section 9(c), a determination is
made that the Executive shall not be entitled to any refund with respect to such
claim and the Corporation does not notify the Executive in writing of its intent
to contest such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
(e) If, pursuant to regulations issued under Section 280G or 4999 of
the Code, the Corporation and the Executive were required to make a preliminary
determination of the amount of an excess parachute payment (as contemplated by
Q/A of the proposed regulations under Section 280G of the Code as issued on May
4, 1989) and thereafter a redetermination of the Excise Tax is required under
the applicable regulations, the parties shall request the Accounting Firm to
make such redetermination. If as a result of such redetermination an additional
Gross-Up Payment is required, the amount thereof shall be paid by the
Corporation to the Executive within five days of the receipt of the Accounting
Firm's determination. If the redetermination of the Excise Tax results in a
reduction of the Excise Tax, the Executive shall take such steps as the
Corporation may reasonably direct in order to obtain a refund of the excess
Excise Tax paid. If the Corporation determines that any suit or proceeding is
necessary or advisable in order to obtain such refund, the provisions of Section
9(c) relating to the contesting
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<PAGE>
of a claim shall apply to the claim for such refund, including, without
limitation, the provisions concerning legal representation, cooperation by the
Executive, participation by the Corporation in the proceedings and
indemnification by the Corporation. Upon receipt of any such refund, the
Executive shall promptly pay the amount of such refund to the Corporation. If
the amount of the income taxes otherwise payable by the Executive in respect of
the year in which the Executive makes such payment to the Corporation is reduced
as a result of such payment, the Executive shall, no later than the filing of
his income tax return in respect of such year, pay the amount of such tax
benefit to the Corporation. In the event there is a subsequent redetermination
of the Executive's income taxes resulting in a reduction of such tax benefit,
the Corporation shall, promptly after receipt of notice of such reduction, pay
to the Executive the amount of such reduction. If the Corporation objects to
the calculation or recalculation of the tax benefit, as described in the
preceding two sentences, the Accounting Firm shall make the final determination
of the appropriate amount. The Executive shall not be obligated to pay to the
Corporation the amount of any further tax benefits that may be realized by him
or her as a result of paying to the Corporation the amount of the initial tax
benefit.
10. Confidential Information. (a) The Executive shall not, without
------------------------
the prior written consent of the Corporation, divulge, disclose or make
accessible to any other person, firm, partnership or corporation or other entity
any Confidential Information (as defined in Section 10(b) below) pertaining to
the business of the Corporation or its affiliated companies except (i) while
employed by the Corporation or its affiliated companies in the business of and
for the benefit of the Corporation or its affiliated companies or (ii) when
required to do so by a court
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<PAGE>
of competent jurisdiction, by any governmental agency having supervisory
authority over the business of the Corporation or its affiliated companies, or
by any administrative body or legislative body (including a committee thereof)
with purported or apparent jurisdiction to order the Executive to divulge,
disclose or make accessible such information.
(b) For the purposes of this Agreement, Confidential Information shall
mean all nonpublic information concerning the business of the Corporation and
its affiliated companies, including products, customer lists, financial
information and marketing plans and strategies. Confidential Information does
not include the information that is, or becomes, available to the public, unless
such availability occurs through a breach by the Executive of the provisions of
this Section.
(c) In no event shall an asserted violation of the provisions of this
Section 10 constitute a basis for deferring or withholding any amounts otherwise
payable to the Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the Executive and
----------
without the prior written consent of the Corporation shall not be assignable by
the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Corporation and its successors.
(c) Parent hereby unconditionally and irrevocably guarantees the
timely performance and payment of all obligations of the Corporation under this
Agreement. In the
-26-
<PAGE>
event of a Change in Control of Parent, any parent company or successor to
Parent shall, by an agreement in form and substance satisfactory to the
Executive, guarantee and agree to cause the performance of this Agreement, in
each case, in the same manner and to the same extent as the Corporation would be
required to perform if no Change in Control had taken place.
12. Miscellaneous. (a) This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of California, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive: __________________________
------------------- Providian Financial Corporation
201 Mission Street
San Francisco, California 94105
If to Parent or the Corporation:
-------------------------------
Providian Financial Corporation
201 Mission Street
San Francisco, California 94105
Attention: V. P. Human Resources
-27-
<PAGE>
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Corporation may withhold from any amounts payable under this
Agreement such Federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) The Executive's failure to insist upon strict compliance with any
provision of this Agreement shall not be deemed to be a waiver of such provision
or any other provisions hereof.
(f) All references to sections of the Code shall be deemed to refer to
corresponding sections of any successor federal income tax statute.
(g) This Agreement contains the entire understanding of the
Corporation and the Executive with respect to the subject matter hereof and
supersedes all prior agreements, representations and understandings (i) of the
parties with respect to the subject matter hereof and (ii) between the Executive
and Providian Corporation (the former parent company of Parent) or any of its
affiliated companies. It is further specifically agreed that Executive shall
not otherwise be entitled to any compensation or benefits under the terms of
Parent's Change in Control Policy.
(h) The Executive and the Corporation acknowledge that the employment
of the Executive by the Corporation and its affiliated companies is currently
"at will", and, prior to the Effective Date, may be terminated by either the
Executive or the Corporation or such affiliated companies at any time, with or
without cause. This Agreement shall terminate and there shall be no
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<PAGE>
further rights or liabilities hereunder upon a termination of Executive's
employment prior to the Effective Date.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and,
pursuant to the authorization from its Board of Directors, the Corporation has
caused these presents to be executed in its name on its behalf, all as of the
date and year first above written.
PROVIDIAN FINANCIAL CORPORATION
_____________________________________
Name:
Title:
PROVIDIAN BANCORP SERVICES
_______________________________________
Name:
Title:
EXECUTIVE
_______________________________________
Name:
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<PAGE>
EXHIBIT 10.3
SUPPLEMENTAL COMPENSATION AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of August 25, 1997
("Effective Date") by and between DAVID B. SMITH ("Smith") and PROVIDIAN
FINANCIAL CORPORATION ("PFC") with reference to the following facts:
A. PFC wishes to provide Smith with certain supplemental compensation
("Supplemental Compensation") as a financial incentive to Smith to remain
employed by PFC for up to three years commencing with the Effective Date; and
B. Smith wishes to avail himself of this incentive (understanding that his
employment with PFC is nonetheless at will and subject to termination by either
PFC or Smith at any time, with or without cause).
NOW, THEREFORE, in consideration of the promises and mutual covenants set
forth below, the parties hereby agree as follows:
1. DEFINITIONS. As used in this Agreement:
1.1 "Determination Date" means the earlier of (a) the third
anniversary of the Effective Date, or (b) the date Smith's employment with PFC
is terminated for any reason (voluntarily or involuntarily).
1.2 "N" equals the total number of Smith's unexercised stock options
(vested and unvested) as of August 25, 1997, which is 321,164 options.
1.3 "X" equals the agreed stock value for any Determination Date,
which is the average of the daily high and low trading prices of PFC common
stock on the NYSE for the twenty (20) trading days immediately prior to such
Determination Date.
1.4 "Y" equals an agreed-upon portion of the
value of the common stock issuable upon exercise of Smith's stock options (both
vested and unvested), which is (X minus $40) multiplied by N. If X is less than
or equal to $40, then Y will equal 0.
2. PAYMENT OF SUPPLEMENTAL COMPENSATION. PFC shall pay to Smith
Supplemental Compensation on the terms and conditions set forth below:
2.1 If Smith is still employed with PFC on the three-year anniversary
of the Effective Date, he will be entitled to Supplemental Compensation in an
amount equal to $1,000,000 minus Y.
2.2 If Smith leaves the employment of PFC for any reason whatsoever
(voluntarily or involuntarily) before the first anniversary of the Effective
Date, he will not be entitled to any Supplemental Compensation under this
Agreement.
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2.3 If Smith leaves the employment of PFC on or after the one-year
anniversary of the Effective Date, but prior to the two-year anniversary of
the Effective Date, he will be entitled to Supplemental Compensation in an
amount equal to $333,333 minus Y.
2.4 If Smith leaves the employment of PFC on or after the two-year
anniversary of the Effective Date, but prior to the three-year anniversary of
the Effective Date, he will be entitled to Supplemental Compensation in an
amount equal to $666,667 minus Y.
2.5 In addition, PFC will pay to Smith the interest to accrue on
$1,000,000 from the Effective Date of the Agreement through the earlier of (a)
the three-year anniversary of the Effective Date, or (b) Smith's employment
termination date. This interest will accrue at a variable annual rate equal to
the Prime Rate (as published in The Wall Street Journal from time to time).
The accrued interest will be paid on the one, two and three-year anniversaries
of the Effective Date if Smith is still employed by PFC on those dates. If
Smith's employment is terminated for any reason on the one-year anniversary of
the Effective Date or thereafter, he will be paid the accrued, unpaid interest
through his last day of employment, within seven (7) days after his
termination date. If Smith's employment is terminated for any reason
(voluntarily or involuntarily) prior to the one-year anniversary of the
Effective Date, he will not be entitled to any interest.
All payments that become due under this Agreement will be subject to applicable
employee tax withholdings and deductions and will be paid in cash within seven
(7) days of becoming due in accordance with written notice to be delivered to
PFC by Smith not later than three (3) days prior to the applicable payment date.
3. MISCELLANEOUS.
3.1 PFC CHANGE OF CONTROL AGREEMENT. Smith has received a standard
form Change of Control Agreement from PFC. Payments due under this Agreement
are independent of any payments which may become due to Smith under his PFC
Change of Control Agreement.
3.2 AT-WILL EMPLOYMENT. Smith understands and agrees that this
Agreement does not modify or change in any way the at-will nature of his
employment with PFC and that both he and PFC shall remain free to terminate
their employment relationship at any time, with or without cause.
3.3 CONFIDENTIALITY. The parties shall hold
the provisions of this Agreement in strictest confidence and not publicize or
disclose them in any manner whatsoever; provided, however, that: (a) Smith may
disclose this Agreement to his immediate family; (b) the parties may disclose
this Agreement to their respective attorneys, accountants, auditors, tax
preparers and financial advisors; and (c) the parties may disclose this
Agreement insofar as such disclosure may be required by law.
2
<PAGE>
3.4 NOTICES. Any notices required or permitted hereunder shall be
given to the appropriate party at the address specified below or at such other
address as the party shall specify in writing. Such notice shall be deemed
given upon personal delivery to the appropriate address or delivery by
facsimile to the number specified below, or if sent by certified or registered
mail, upon receipt.
3.5 ARBITRATION; ATTORNEYS' FEES. In case of any dispute or
disagreement arising out of or related to this Agreement, such dispute or
disagreement shall be submitted to binding arbitration before JAMS/Endispute
in San Francisco, California. The rules of JAMS/Endispute then in effect and
applicable to the resolution of such disputes or disagreements shall apply,
except as set forth in this paragraph. The rules of evidence shall apply to
the arbitration, and any decision or award shall be final, binding and non-
appealable, except in cases of gross fraud or misconduct by the arbitrator.
The prevailing party in the arbitration shall be awarded his or its attorneys'
fees, costs and expenses incurred in the arbitration, including the fees,
costs and expenses charged by the arbitrator and JAMS/Endispute.
3.6 NO MODIFICATIONS. This Agreement may not be modified or amended
except by a writing signed by both Smith and an authorized officer of PFC.
3.7 BINDING EFFECT. This Agreement shall bind the heirs, personal
representatives, successors and assigns of each party, and inure to the
benefit of each party and their directors, officers, employees, agents,
successors and assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
DAVID B. SMITH PROVIDIAN FINANCIAL CORPORATION
/s/ David B. Smith By: /s/ Shailesh J. Mehta
- -------------------------- ---------------------------------
Address: Address: 201 Mission Street
-------------- San Francisco, CA 94105
--------------
FAX: FAX: (415) 278-6046
--------------
3
<PAGE>
EXHIBIT 10.6
PROVIDIAN FINANCIAL CORPORATION
DEFERRED COMPENSATION PLAN
FOR SENIOR EXECUTIVES AND DIRECTORS
EFFECTIVE JUNE 11, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
1. Purpose...................................................................1
2. Definitions...............................................................1
3. Participation in the Plan.................................................4
4. Deferred Compensation Elections...........................................5
5. Deferred Compensation Accounts............................................7
6. Payment of Plan Benefits..................................................9
7. Administration...........................................................12
8. Beneficiary Designation..................................................12
9. Claims, Inquiries and Appeals............................................12
10. Miscellaneous...........................................................14
<PAGE>
PROVIDIAN FINANCIAL CORPORATION
DEFERRED COMPENSATION PLAN
FOR SENIOR EXECUTIVES AND DIRECTORS
EFFECTIVE JUNE 11, 1997
1. PURPOSE
The purpose of the Deferred Compensation Plan for Senior Executives and
Directors (the "Plan") is to provide retirement, long-term savings, death or
termination of service benefits to Senior Executives (as hereinafter defined)
and Non-Employee Directors (as hereinafter defined) of Providian Financial
Corporation and its affiliates. The Plan succeeds the Providian Bancorp, Inc.
Deferred Compensation Plan (formerly known as the First Deposit Corporation
Deferred Compensation Plan), which was originally adopted effective January 1,
1991 (the "Predecessor Plan"), as to those Participants who were participating
in the Predecessor Plan immediately prior to the Effective Date (as hereafter
defined).
2. DEFINITIONS
2.1 "ACTIVE SERVICE" means employment by the Company, service as a member
of the Board (a "Director") or service as a paid consultant to the Company
immediately following a period of employment or service as a Director (a
"Consultant"), provided that amounts paid for services as a Consultant shall not
be included as Compensation for purposes of the Plan. Active Service shall not
be considered to have ceased as long as a Participant continues to serve the
Company in any of the capacities described above, without interruption,
notwithstanding a change in the capacity of such service and without regard to
whether or not the Participant continues to be eligible to elect Deferred
Compensation hereunder.
2.2 "BENEFICIARY" means the person or persons so designated by a
Participant in accordance with Section 8 hereof.
2.3 "BOARD" shall mean the Board of Directors of Providian Financial
Corporation.
2.4 "BOARD CYCLE" shall mean the period beginning on June 1 of each year
and ending on May 31 of the following year, provided that the initial Board
Cycle shall commence on the Effective Date and end on May 31, 1998.
2.5 "CASH ACCOUNT" means a Deferred Compensation Account pursuant to
which a Participant's Deferred Compensation shall be credited with interest as
provided in Section 5.4 hereof.
2.6 "CHANGE IN CONTROL" shall mean the occurrence of any of the following
after the Effective Date:
3
<PAGE>
(A) Any individual, entity or group (within the meaning of Section 13(d)
(3) or 14(d) (2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) who becomes a beneficial owner (within the meaning of Rule 13d-
3 promulgated under the Exchange Act) of 20% or more of either (i) the then
outstanding shares of common stock of the Company (the "Outstanding Company
Common Stock") or (ii) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
beneficial ownership by any of the following shall not constitute a Change of
Control: (x) the Company or any of its subsidiaries, (y) any employee benefit
plan (or related trust) sponsored or maintained by the Company or any of its
subsidiaries or (z) any corporation with respect to which, following such
acquisition, more than 60% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such acquisition in substantially
the same proportions as their ownership, immediately prior to such acquisition,
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be; or
(B) Individuals who, as of the date hereof, constitute the Board of the
Company (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act); or
(C) A reorganization, merger or consolidation, with respect to which, in
each case, all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company voting Securities immediately prior to such reorganization,
merger or consolidation do not, following such reorganization, merger or
consolidation, beneficially own, directly or indirectly, more than 60% of,
respectively, the then outstanding share of common stock and the combined voting
power of the then outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the corporation resulting from
such reorganization, merger or consolidation in substantially the same
proportions as their ownership, immediately prior to such reorganization, merger
or consolidation of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be; or
(D) (i) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company or (ii) the sale or other disposition
of all or substantially all of the assets of the Company, other than to a
corporation, with respect to which following such sale or other disposition,
more than 60% of, respectively, the then outstanding share of common stock
4
<PAGE>
of such corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially, all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately prior to such
sale or other disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be.
2.7 "COMMITTEE" means the Human Resources Committee of the Board.
2.8 "COMPANY" means Providian Financial Corporation and its affiliate
corporations who participate in the Plan.
2.9 "COMPENSATION" means, in the case of a Senior Executive, the Salary
and Incentive Award payable to the Senior Executive by the Company, and, in the
case of a Non-Employee Director, the Retainer paid to the Non-Employee Director
by the Company in connection with his or her service as a Director of Providian
Financial Corporation.
2.10 "DEFERRED COMPENSATION" means the amount of Compensation that a
Participant defers pursuant to his or her Election and that the Participant and
the Company mutually agree shall be deferred in accordance with the Plan.
2.11 "DEFERRED COMPENSATION ACCOUNT" means either a Cash Account or a
Phantom Stock Unit Account maintained by the Company on its books for a
Participant and to which shall be credited the Participant's Deferred
Compensation, together with interest or other gains or losses determined under
Section 5, and which shall be reduced by any distributions made to a
Participant. The Company, at the discretion of the Committee, may establish such
other Deferred Compensation Accounts or discontinue any Deferred Compensation
Accounts as it determines to be appropriate from time to time.
2.12 "EFFECTIVE DATE" means June 11, 1997.
2.13 "ELECTION" means the election of a Participant to defer Compensation,
which shall be made on such form or forms as the Company may prescribe from time
to time.
2.14 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
2.15 "FISCAL YEAR" means the fiscal year of the Company, which currently
is the calendar year.
2.16 "INCENTIVE PLAN" means the Providian Financial Corporation Management
Incentive Plan.
2.17 "INCENTIVE AWARD" means a cash amount payable pursuant to the
Incentive Plan
5
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upon the achievement of pre-established performance objectives.
2.18 "MARKET VALUE" means the average of the daily closing prices of a
share of Stock on the New York Stock Exchange for the 10 trading days
immediately preceding the date upon which such Market Value is to be determined
for the purpose of crediting a Participant's Phantom Stock Unit Account or
making a distribution to a Participant therefrom.
2.19 "NON-EMPLOYEE DIRECTOR" means a member of the Board who is not
currently an employee or officer of the Company.
2.20 "PARTICIPANT" means any Senior Executive selected by the Committee to
participate in the Plan and each Non-Employee Director.
2.21 "PHANTOM STOCK UNIT ACCOUNT" means a Deferred Compensation Account
pursuant to which a Participant's Deferred Compensation shall be treated as if
it had been used to purchase shares of Stock of the Company on the date on which
the Participant's Deferred Compensation is credited to the Participant's
Deferred Compensation Account.
2.22 "PLAN" means this Deferred Compensation Plan for Senior Executives
and Directors.
2.23 "PLAN YEAR" means the calendar year.
2.24 "RETAINER" means the annual fees paid to a Non-Employee Director for
his or her service as a Director, which shall include any fees paid for service
on a committee of the Board or as chair thereof and meeting attendance fees (if
any), but shall exclude expense reimbursements and any remuneration or other
payments paid to the Non-Employee Director for services or otherwise in any
capacity other than as a Non-Employee Director.
2.25 "SALARY" means the base salary of a Participant who is a Senior
Executive.
2.26 "SENIOR EXECUTIVE" means an officer or other key employee who is a
top-level executive of the Company, as determined by the Committee.
2.27 "STOCK" shall mean common stock, par value $.01 per share, of the
Company.
2.28 "UNFORESEEABLE HARDSHIP" means severe financial hardship to a
Participant resulting from a sudden and unexpected illness or accident of the
Participant or a dependent (as defined in Section 152(a) of the Internal Revenue
Code) of the Participant, loss of the Participant's property due to casualty, or
other similar extraordinary and unforeseeable circumstances arising as a result
of events beyond the control of the Participant.
3. PARTICIPATION IN THE PLAN
3.1 Eligibility for participation in the Plan shall be limited to (1)
Senior Executives who are members of a select group of management or highly
compensated employees of the Company, within the meaning of Section 401(a)(1) of
ERISA, and (2) Non-Employee Directors.
5
<PAGE>
3.2 The total number of Senior Executives selected to participate in the
Plan shall be determined by the Committee.
4. DEFERRED COMPENSATION ELECTIONS
4.1 DEFERRALS OF SALARY.
(A) A Senior Executive who makes an Election in accordance with
this Section 4.1 may elect to defer receipt of up to seventy-five percent (75%)
of his or her Salary or such lesser amount determined by the Company from time
to time and communicated to Senior Executives. The Company may establish a
reasonable minimum as to the amount of Salary that may be deferred hereunder and
may also require that deferrals be made in specified dollar or percentage
increments, which shall be communicated to Senior Executives from time to time.
The amount of Salary deferred also shall be subject to the provisions of Section
4.5.
(B) Each Senior Executive who immediately prior to the Effective
Date has an election in effect with respect to the deferral of Salary under the
Predecessor Plan (a "Predecessor Election") shall automatically begin to
participate in the Plan on the Effective Date and shall be deemed to have made
an Election under the Plan to defer the amount of Salary specified in the
Predecessor Election. Each other Senior Executive who is eligible to participate
on the Effective Date may begin to participate in the Plan as of July 1, 1997,
with respect to Salary for services performed on and after that date, provided
that such Senior Executive completes and returns to the Company within 30 days
after the Effective Date an executed Election to defer a portion of such Salary
in accordance with the Plan. Each Senior Executive who first becomes eligible
after the Effective Date may begin deferring Salary under the Plan with respect
to services performed on and after the first day of the month next following the
date such Senior Executive completes and returns an executed Election to the
Company, provided that such Election is made within 30 days after the date that
the Senior Executive is notified of his or her eligibility to participate in the
Plan.
(C) A Senior Executive who has not made an Election as described
in Section 4.1(b) may begin deferring Salary with respect to services performed
on and after the beginning of any Plan Year by completing and returning an
executed Election to the Company prior to the beginning of such Plan Year (or
such earlier date established by the Company and announced to the Senior
Executive).
(D) After the beginning of a Plan Year, a Senior Executive's
Election shall be irrevocable with respect to Salary payable for such Plan Year.
An Election to defer Salary shall continue in effect for each subsequent Plan
Year until changed or revoked by the Senior Executive, as provided in this
Section 4.1(d), unless otherwise determined by the Company and announced to the
Senior Executive. A Senior Executive may change the amount of his or her Salary
to be deferred or may cease deferring Salary, by completing a new Election or
revoking his or her Election, provided that the new Election or the revocation
shall become effective as of the beginning of the next Plan Year. A Senior
Executive who previously has revoked an Election to defer all or a part of his
or her Salary may again elect to defer Salary under the terms
7
<PAGE>
of the Plan by completing and returning an executed Election to the Company
prior to the beginning of the Plan Year (or such earlier date established by the
Company and announced to the Senior Executive) to which such Election applies.
4.2 DEFERRAL OF RETAINER.
(A) Prior to the beginning of each Board Cycle, each Non-Employee
Director may elect to defer from twenty-five percent (25%) to one hundred
percent (100%) of the cash portion of his or her Retainer payable with respect
to such Board Cycle. The amount of Retainer deferred shall be an increment of
five percent (5%) and shall be subject to the provisions of Section 4.5. In
order to defer all or part of his or her Retainer, a Non-Employee Director must
complete and return an executed Election to the Company prior to the time
announced by the Company, which in any event shall be prior to the beginning of
the Board Cycle to which such Election relates.
(B) A Non-Employee Director's Election to defer a portion of his
or her Retainer for a Board Cycle shall apply only for such Board Cycle and
shall be irrevocable. In order to defer a portion of his or her Retainer for a
subsequent Board Cycle, a Non-Employee Director must make a new Election in
accordance with Section 4.2(a).
4.3 DEFERRAL OF INCENTIVE AWARDS.
(A) Prior to the beginning of each Fiscal Year, each Participant
who is a Senior Executive may elect to defer from twenty-five percent (25%) to
one hundred percent (100%) of the cash portion of his or her Incentive Award
payable with respect to such Fiscal Year pursuant to the terms of the Incentive
Plan. The amount of Incentive Award deferred shall be an increment of five
percent (5%) and shall be subject to the provisions of Section 4.5. In order to
defer all or part of the cash portion of his or her Incentive Award, a Senior
Executive must complete and return an executed Election to the Company prior to
the time announced by the Company, which in any event shall be prior to the
beginning of the Fiscal Year to which such Election relates.
(B) A Senior Executive's Election to defer a portion of his or her
Incentive Award for a Fiscal Year shall apply only for such Fiscal Year and
shall be irrevocable. In order to defer a portion of his or her Incentive Award
for a subsequent Fiscal Year, a Senior Executive must make a new Election in
accordance with Section 4.3(a).
4.4 The Company may establish rules and procedures, and from time to time
modify or change such rules and procedures, governing the manner of Elections of
Deferred Compensation under the Plan, as it may determine in its discretion,
including (but not limited to) establishing and changing any minimum or maximum
amounts of Compensation that may be deferred hereunder.
4.5 All Deferred Compensation shall be withheld and deducted from the
Participant's Salary, Retainer or Incentive Award (as the case may be) without
reduction for any income taxes or withholding (except to the extent required by
law) and shall be credited to the appropriate
8
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Deferred Compensation Accounts for the Participant as provided below.
Notwithstanding the foregoing, the Company may reduce the amount credited to a
Participant's Deferred Compensation Accounts by any amounts which the Company
must pay to satisfy its withholding obligations for employment or other taxes
(including FICA), amounts authorized by a Participant to purchase benefits under
other employee benefit plans sponsored by the Company, or any other amounts
which the Company is obligated to withhold by law or which the Participant has
authorized to be withheld from his or her Compensation.
5. DEFERRED COMPENSATION ACCOUNTS
5.1 The Company shall establish one or more Deferred Compensation
Accounts, with respect to Deferred Compensation under the Plan, for each
Participant in accordance with the instructions provided by such Participant.
The establishment of such Deferred Compensation Accounts constitutes only a
method, by bookkeeping entry, of determining the amount of deferred payments to
be made under the Plan. The Company shall be under no obligation to acquire or
hold any Stock or any other securities or specific assets by reason of the
credits made to the Deferred Compensation Accounts hereunder.
5.2 A Participant's or Beneficiary's rights to receive payments under
this Plan are merely those of an unsecured general creditor of the Company.
Such rights constitute a mere promise by the Company to make payments to
Participants and their Beneficiaries in the future. All amounts under the Plan,
including a Participant's Deferred Compensation Accounts, shall remain (until
paid to the Participant or Beneficiary) the property of the Company and shall be
subject to the claims of the Company's creditors in the event of the Company's
financial insolvency. The Plan shall be unfunded for federal tax purposes and
for purposes of Title I of ERISA. The obligation of the Company may, in its
sole discretion, be satisfied from any source of funds, including but not
limited to payment from a trust or trusts established by the Company which
permit such payments to be made therefrom. No Participant or Beneficiary shall
have any secured or beneficial interest in any property, rights or investments
held by the Company, whether or not held in connection with the Plan, including
but not limited to any assets held in any trust established by the Company in
connection with the Plan.
5.3 Subject to Section 5.7, a Participant's Deferred Compensation shall
be credited to a Cash Account or a Phantom Stock Unit Account (or such other
Deferred Compensation Account as may then be in effect), as selected by the
Participant, as soon as practicable following the time at which such amounts
would have been paid to the Participant in the absence of an Election to defer
such amount of Compensation, provided that the full amount elected to be
deferred from a Non-Employee Director's Retainer for a Board Cycle will be
credited to the Non-Employee Director's Deferred Compensation Accounts at the
beginning of the Board Cycle.
5.4 Interest on the Cash Account balance shall be calculated and shall
either be paid to the Participant or credited to the account at the end of each
calendar quarter in accordance with the direction of the Participant given at
the time of his or her Election. In the absence of directions from the
Participant, interest shall be credited to the Cash Account. Amounts credited
to the Cash Account after the first day of a calendar quarter shall be credited
with pro rata
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interest on the basis of the number of days of such quarter during which such
amounts were credited. Distributions or withdrawals prior to the end of a
calendar quarter shall be credited with interest for the number of days during
the quarter for which such amount was credited. The interest rate for the
quarter shall be equal to the Prime Rate of Interest reported in the "Money
Rates" section of the Wall Street Journal as of the beginning of such quarter,
plus two percent (2%).
5.5 Deferred Compensation credited to a Phantom Stock Unit Account shall
be converted into a number of phantom stock units of Stock of the Company. The
number of phantom stock units of Stock of the Company to be so credited shall be
equal to the Deferred Compensation a Participant elects to have credited to the
Phantom Stock Unit Account, divided by the Market Value of a share of Stock on
the date of the credit. Permitted accretion and adjustments shall be credited
and determined as set forth below.
(A) As of the date when any cash dividend or other cash
distribution is payable with respect to the Stock, there shall be credited to
the Phantom Stock Unit Account an amount equal to the value which would have
been payable with respect to shares of Stock equal in number to the number of
phantom stock units then credited to the Phantom Stock Unit Account. Such amount
shall then be converted into a number of phantom stock units based upon the
amount to be credited divided by the Market Value of a share of Stock on the
date of the credit.
(B) In the event of any change in the number of shares of
outstanding Stock by reason of any stock split, stock dividend,
recapitalization, or the like, whereby the outstanding shares of Stock are
adjusted, the number of phantom stock units credited to the Phantom Stock Unit
Account shall be equitably adjusted to reflect such change.
5.6 The Company may change, discontinue, or add any Deferred
Compensation Accounts at any time as determined by the Committee in the
Committee's sole discretion. Any Deferred Compensation Account not specifically
described above shall be credited with such interest, gains or losses, or other
accretions and adjustments, as determined to be appropriate by the Committee in
order to simulate the investment performance of such asset, category of assets,
fund, index or other investment vehicle selected by the Committee in its
discretion to be applicable to such Deferred Compensation Account.
5.7 Notwithstanding any other provisions of the Plan, no amounts of
Deferred Compensation shall be credited to a Phantom Stock Unit Account for any
Participant, and Phantom Stock Unit Accounts shall not be available under the
Plan, until such time, if any, as the Committee or the Board in its discretion
determines that Phantom Stock Unit Accounts shall be permitted hereunder. If
Phantom Stock Unit Accounts are added to the Plan by the Committee or the Board,
such accounts, each Participant's election to have Deferred Compensation
credited to such an account, any Account Transfers (as defined in Section 5.8),
and any elections as to the time and manner of distributions under the Plan
shall be approved by the Committee or the Board and administered in all respects
in accordance with the conditions set forth in Rule 16b-3 promulgated under the
Exchange Act in order to obtain the maximum available exemption from Section
16(b) of the Exchange Act for transactions involving Phantom Stock Unit
Accounts.
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5.8 Subject to Section 5.7, the Committee or the Board may, but is not
required to, establish rules and procedures under which Participants may direct
that amounts credited to one or more Deferred Compensation Accounts be
transferred to other Deferred Compensation Accounts that may be available under
the Plan (an "Account Transfer"), provided that, in any event, such rules and
procedures shall not permit a Participant to direct either (i) an Account
Transfer to the Phantom Stock Unit Account within six months after an Account
Transfer from such account or (ii) an Account Transfer from the Phantom Stock
Unit Account within six months after an Account Transfer to such account.
6. PAYMENT OF PLAN BENEFITS
6.1 DISTRIBUTION ELECTIONS. Subject in all respects to Section 5.7, the
following shall apply:
(A) At the time of each Election, pursuant to Section 4.2 or
Section 4.3, to defer receipt of a portion of his or her Retainer or Incentive
Award for the succeeding Board Cycle or Fiscal Year (as the case may be), a
Participant also may make an election, on such form as the Company may
prescribe, as to the time and manner of payment of the portion of his or her
Deferred Compensation Accounts attributable to the amount of Deferred
Compensation specified in such Election.
(B) A Participant also may elect the time and manner for the
payment of the portion of his or her Deferred Compensation Accounts attributable
to Salary deferred under the Plan. Such a payment election shall be made on such
form and at such time or times as the Company may prescribe. Only one payment
election under this Section 6.1(b) shall be in effect at any one time, and such
election shall apply to all amounts in a Participant's Deferred Compensation
Accounts attributable to deferrals of Salary.
(C) The permitted payment methods which a Participant may elect
shall be a lump sum or substantially equal installments payable over three, five
or ten years, paid or commencing at the time specified in the Participant's
payment election or, if earlier, following the Participant's termination of
Active Service. Subject to Sections 6.2(a) and 6.3 below, distributions of
applicable amounts determined under Section 6.2(c) shall be made from a
Participant's Deferred Compensation Accounts in accordance with each payment
election of the Participant hereunder.
(D) A Participant may change his or her payment election in
accordance with procedures determined by the Company, provided that any changed
election shall not be effective unless the Participant continues in Active
Service for a period of thirteen (13) months following the time of such election
and shall only apply after the end of such thirteen-month period. If a
Participant ceases Active Service prior to the end of the thirteen months, then
distributions shall be made in accordance with the Participant's prior
outstanding elections in effect.
(E) Subject to Section 5.7, no elections under this Section 6.1
may be made or changed as to distributions from a Participant's Phantom Stock
Unit Account (if any), unless the
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Committee or the Board has approved in advance such election or change of
election in a manner that satisfies the requirements for exemption of Phantom
Stock Unit Account transactions under Rule 16b-3 of the Exchange Act.
6.2 RETIREMENT OR DISABILITY.
(A) If a Participant's Active Service with the Company ceases
after attaining normal retirement age for purposes of the Company's retirement
plan ("Normal Retirement Age") or by reason of long-term disability recognized
as such by the Company ("Disability"), the amounts then credited to a
Participant's Deferred Compensation Accounts shall be paid (or payment shall
commence) within a reasonable time following such event in the form of a lump
sum or substantially equal annual installment as provided in the Participant's
payment elections then in effect pursuant to Section 6.1. Any installment
payments that remain unpaid following earlier commencement shall continue in
accordance with the method in effect at such time.
(B) Any portions of a Participant's Deferred Compensation Accounts
as to which no payment election is in effect at the time a Participant's Active
Service ceases after attaining Normal Retirement Age or due to Disability shall
be paid in five substantially equal annual installments commencing within a
reasonable time following such termination of Active Service.
(C) The amount paid to a Participant pursuant to this Section 6.2
shall be as follows:
(1) For a Cash Account, the number of dollars equal to the
Cash Account balance as of the date of the cessation of Active Service.
(2) For a Phantom Stock Unit Account, the number of dollars
equal to the number of phantom stock units in the Phantom Stock Unit Account of
such Participant on the date of cessation of such Active Service, multiplied by
the Market Value of a share of Stock immediately preceding the date of the
cessation of such Active Service.
(3) If a Participant receives payment in installments, the
Company shall calculate and credit interest until each payment date on the
unpaid balance of such Participant's account at the rate specified in Section
5.4; however, if the Participant has elected to receive interest payments as
provided in Section 5.4, such amount shall be less any interest payments
received.
(D) If a Participant whose Active Service ceased due to Disability
again commences Active Service with the Company, installment payments pursuant
to this Section 6.2 shall cease. The unpaid balance of the account shall then be
credited to a Cash Account or Phantom Stock Unit Account, as elected by the
Participant, which shall be maintained subject to the provisions of the Plan as
if Active Service had never ceased. The amount credited to the Phantom Stock
Unit Account shall be converted into a number of phantom stock units based upon
the amount to be credited divided by the Market Value of a share of Stock
immediately preceding the date of the credit.
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6.3 EARLY TERMINATION OF ACTIVE SERVICE. Within a reasonable time
following the cessation of a Participant's Active Service with the Company prior
to attaining Normal Retirement Age or incurring Disability (including by reason
of a Participant's death), and notwithstanding any election which the
Participant has made under the Plan pursuant to Section 6.1, the Company will
pay to such Participant or to the Participant's Beneficiary all amounts then
credited to the Participant's Deferred Compensation Accounts (including any
remaining unpaid installments with respect to distributions that previously had
commenced pursuant to the Participant's payment elections under Section 6.1), in
the form of a single lump sum determined in accordance with Section 6.2(c).
6.4 UNFORESEEABLE HARDSHIP. Upon application by a Participant who is
receiving payments in the form of installments following separation from Active
Service on account of Disability, the Committee may direct payment in a lump sum
of all or a portion of the remaining amounts credited to the Deferred
Compensation Accounts of such Participant in the event of Unforeseeable
Hardship. Any such application must set forth the circumstances constituting
such Unforeseeable Hardship. Notwithstanding the foregoing, the Committee may
not direct payment of any amounts credited to the Deferred Compensation Accounts
of a Participant to the extent that such Unforeseeable Hardship is or may be
relieved (a) through reimbursement or compensation by insurance or otherwise;
(b) by liquidation of the Participant's assets, to the extent that such
liquidation would itself not cause severe financial hardship; or (c) by
cessation of deferrals under the Plan. Any distribution due to Unforeseeable
Hardship shall only be permitted to the extent reasonably needed to satisfy such
hardship, and shall be made in the sole discretion of the Committee, both with
respect to the determination as to whether an Unforeseeable Hardship exists and
as to the amount distributable. In all cases, the requirements and standards
set forth in Section 1.457-2(h) (4) and (5) of the Income Tax Regulations will
govern the determinations of a Participant's eligibility for and the amount of
any distributions under this Section 6.4.
6.5 WITHHOLDING. All payments made pursuant to this Section 6 shall be
reduced by the amount of any federal, state, or local income or other taxes
required to be withheld by the Company or other payor.
6.6 NO ASSIGNMENT OR ALIENATION. The right to receive payment under
this Plan shall not be subject to anticipation, alienation, sale, assignment,
pledge, encumbrance or charge, and any attempt to anticipate, alienate, sell,
assign, pledge, encumber, or charge such right shall be void. No payment or
right to payment shall in any manner be liable for or subject to debts,
contracts, liabilities or torts of the Participant or the Participant's
Beneficiary.
6.7 CHANGE IN STATUS. Notwithstanding the foregoing provisions of this
Section 6, if a Senior Executive ceases to be a Senior Executive or if a Non-
Employee Director ceases to be a Non-Employee Director (whether or not cessation
of Active Service occurs), the Committee may disregard such Participant's
payment election and may cause the amount credited to his Deferred Compensation
Accounts to be paid to the Participant in a lump sum; provided, however, that
the Participant shall have no right to receive payments under the Plan prior to
the time specified in his or her payment election or as otherwise determined
under Sections 6.1 through
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6.4.
6.8 CERTAIN FURTHER DEFERRAL OF PAYMENTS. Notwithstanding any other
provisions of this Plan, to the extent that any amounts payable hereunder would
not be deductible by the Company for federal income tax purposes on account of
the limitations of Section 162(m) of the Internal Revenue Code, the Company may
defer payment of such amounts to the earliest one or more subsequent calendar
years in which the payment of such amounts would be deductible by the Company.
7. ADMINISTRATION
7.1 The Committee shall be the sole administrator of the Plan and will
administer the Plan and interpret, construe and apply its provisions in
accordance with its terms. The Committee shall further establish, adopt or
revise such rules and regulations as it may deem necessary or advisable for the
administration of the Plan. However, no member of the Committee shall have the
right to vote or decide upon any matter relating solely to himself or herself
under the Plan or to vote in any case in which his or her individual right to
claim any benefit under the Plan is particularly involved. In any case in which
a Committee member is so disqualified to act, and the remaining members cannot
agree, the Board shall decide the matter in which he or she is disqualified;
provided however, that if such disqualified Committee member is also a member of
the Board, he or she shall be similarly disqualified from voting on or deciding
the matter in his or her capacity as a member of the Incumbent Board.
7.2 Each Participant will receive quarterly statements in such form as
the Company deems desirable setting forth the balance standing to the credit of
the Participant's Deferred Compensation Accounts.
8. BENEFICIARY DESIGNATION
8.1 Each Participant shall have the right, at any time, to designate any
person or persons as Beneficiary or Beneficiaries (both primary as well as
contingent) to whom payment under this Plan shall be made in the event of the
Participant's death prior to complete distribution to the Participant of the
benefits due the Participant under the Plan. Each Beneficiary designation shall
become effective only when filed in writing with the Committee during the
Participant's lifetime on a form prescribed by the Committee with written
acknowledgement of receipt.
8.2 The filing of a new Beneficiary designation form will cancel all
Beneficiary designations previously filed. The spouse of a married Participant
domiciled in a community property jurisdiction shall join in any designation of
Beneficiary or Beneficiaries other than the spouse.
8.3 If a Participant fails to designate a Beneficiary as provided above,
or if all designated Beneficiaries predecease the Participant or die prior to
complete distribution of the Participant's benefits, then the Committee shall
direct the distribution of such benefits to the Participant's estate.
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9. CLAIMS, INQUIRIES AND APPEALS
9.1 Any application or request for benefits, inquiries about the Plan or
inquiries about present or future rights under the Plan must be submitted to the
Company at:
Providian Financial Corporation
201 Mission Street
San Francisco, CA 94105
Attention: Chief Human Resources Officer
9.2 In the event that any application for benefits is denied in whole or
in part, the Company shall notify the applicant, in writing, of the denial of
the application, and of the applicant's right to receive a review of such
denial. The written notice of denial will be set forth in a manner designed to
be understood by the individual, and will include specific reasons for the
denial, specific references to the Plan provision upon which the denial is
based, a description of any information or material necessary for the individual
to perfect the claim for benefits and an explanation of the Plan's review
procedure.
This written notice will be given to the individual within 90 days after
the Company receives the application, unless special circumstances require an
extension of time, in which case, the Company has up to an additional 90 days
for processing the application. If an extension of time for processing is
required, written notice of the extension will be furnished to the applicant
before the end of the initial 90-day period.
This notice of extension will describe the special circumstances
necessitating the additional time and the date by which the Company is to render
its decision on the application. If written notice of denial of the application
for benefits is not furnished within the specified time, the application shall
be deemed to be denied. The applicant will then be permitted to appeal the
denial in accordance with the review procedure described below.
9.3 Any person (or that person's authorized representative) for whom an
application for benefits is denied (or deemed denied), in whole or in part, may
appeal the denial by submitting a request for a review to the Committee within
60 days after the application is denied (or deemed denied). The Committee will
give the applicant (or his or her representative) an opportunity to review
pertinent documents in preparing a request for a review. A request for a review
shall be in writing and shall be addressed to the Committee at:
Human Resources Committee
c/o Chief Human Resources Officer
Providian Financial Corporation
201 Mission Street
San Francisco, CA 94105
A request for review must set forth all of the grounds on which it is based, all
facts in support of the request and any other matters that the applicant feels
are pertinent. The Committee may require the applicant to submit additional
facts, documents or other material as it may find
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necessary or appropriate in making its review.
9.4 The Committee will act on each request for review within 60 days
after receipt of the request, unless special circumstances require an extension
of time (not to exceed an additional 60 days) for processing the request for a
review. If an extension for review is required, written notice of the extension
will be furnished to the applicant within the initial 60-day period. The
Committee will give prompt, written notice of its decision to the applicant. In
the event that the Committee confirms the denial of the application for benefits
in whole or in part, the notice will outline, in a manner calculated to be
understood by the applicant, the specific Plan provisions upon which the
decision is based. If written notice of the Committee's decision is not given
to the applicant within the time prescribed in this Section 9.4, the application
will be deemed denied on review.
9.5 The Committee may establish rules and procedures, consistent with
the Plan and with ERISA, as necessary and appropriate in carrying out its
responsibilities in reviewing benefit claims. The Committee may require an
applicant who wishes to submit additional information in connection with an
appeal from the denial (or deemed denial) of benefits to do so at the
applicant's own expense.
9.6 No legal action for benefits under the Plan may be brought until the
claimant (i) has submitted a written application for benefits in accordance with
the procedures described by Section 9.1 above, (ii) has been notified by the
Company that the application is denied (or the application is deemed denied due
to the Company's failure to act on it within the established time period), (iii)
has filed a written request for a review of the application in accordance with
the appeal procedure described in Section 9.3 above, and (iv) has been notified
in writing that the Committee has denied the appeal (or the appeal is deemed to
be denied due to the Committee's failure to take any action on the claim within
the time prescribed by Section 9.4 above).
10. MISCELLANEOUS
10.1 This Plan shall be effective June 11, 1997, with continuation
thereafter contemplated, subject to review of its operation. However, this Plan
shall at all times remain subject to amendment, modification or termination by
action of the Committee or the Incumbent Board; provided, however, in the event
of termination, any amount held in a Participant's Deferred Compensation
Accounts shall be distributed to the Participant in accordance with Section 6
hereof.
10.2 This Plan shall not be deemed to constitute a contract of employment
between the Company and any Participant. Nothing contained in this Plan shall
be deemed to give any Participant the right to be retained in the service of the
Company or to interfere with the right of the Company to discharge any
Participant at any time regardless of the effect which such discharge shall have
upon such individual as a Participant in the Plan.
10.3 This Plan shall be construed in accordance with and governed by the
laws of the State of California, except to the extent that such laws are
preempted by ERISA.
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10.4 In the event any provision of this Plan is held invalid, void or
unenforceable, the same shall not affect, in any respect whatsoever, the
validity of any other provisions of this Plan.
10.5 Any notice of filing required or permitted to be given to the
Committee under the Plan shall be sufficient if in writing and hand delivered,
or sent by registered or certified mail, to the principal office of the Company,
directed to the attention of the chief human resources officer for the Company.
Such notice shall be deemed given as of the date of delivery or, the postmark on
the receipt for registration or certification.
10.6 This Plan shall be binding upon the Company and its successors and
assigns.
10.7 In the event that any Participants subsequently are found to be
ineligible under the Plan by reason of not being members of a select group of
management or highly compensated employees within the meaning of Section
401(a)(1) of ERISA, according to a determination made by the United States
Department of Labor, the Committee will take whatever steps it deems necessary,
in its sole discretion, to equitably protect the interests of the affected
Participants.
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EXHIBIT 10.7
PROVIDIAN FINANCIAL CORPORATION
STOCK OWNERSHIP PLAN
AS AMENDED AND RESTATED FEBRUARY 18, 1998
1. HISTORY AND PURPOSE OF PLAN. (a) This plan was originally
adopted by Providian Corporation, a Delaware corporation ("Parent"). On March
27, 1997, it was adopted by Providian Financial Corporation ("Providian"),
formerly known as Providian Bancorp, Inc., a wholly owned subsidiary of Parent,
with such amendments as were necessary to reflect the change in the identity of
the sponsor of the Plan. This amendment and restatement of the Plan was adopted
by the Board of Directors of Providian on February 18, 1998.
(b) The shareholders of Parent approved this Plan, as originally
adopted, at the 1992 annual meeting of the shareholders of Parent, and as
thereafter amended, at the 1995 annual meeting. On April 2, 1997, Parent, as
sole shareholder of Providian, approved the Plan as adopted by Providian.
(c) The purpose of this Stock Ownership Plan is to promote the growth
and profitability of Providian and its subsidiaries (Providian and its
subsidiaries are hereinafter collectively referred to as the "Company") by
encouraging selected Employees and Consultants to the Company and non-employee
directors of the Company to acquire and retain a proprietary interest in the
Company. Such proprietary interest should increase the personal interest and
special efforts of such persons in providing for the continued success and
progress of the business of the Company and should enhance the Company's efforts
to attract and retain competent Employees, Consultants and Non-Employee
Directors.
2. DEFINITIONS. The following terms when used herein shall have the
meaning set forth below, unless a different meaning is plainly required by the
context:
a. "BOARD OF DIRECTORS" shall mean the Board of Directors of
Providian.
b. "CHANGE IN CONTROL" shall mean:
i. When any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act) who becomes a beneficial owner
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of either (A) the Outstanding Common Stock or (B) the Outstanding Voting
Securities; provided, however, that beneficial ownership by any of the following
shall not constitute a Change in Control: (1) the Company; (2) any employee
benefit plan (or related trust) sponsored or maintained by the Company; or (3)
any corporation with respect to which, following such acquisition, more than 60%
of, respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Common Stock and Outstanding Voting
Securities immediately prior to such acquisition in substantially the same
proportions as their ownership, immediately prior to such
<PAGE>
acquisition, of the Outstanding Common Stock and Outstanding Voting Securities,
as the case may be; or
ii. When individuals who, as of the date hereof, constitute the
Incumbent Board cease for any reason to constitute at least a majority of the
Board of Directors; provided, however, that any individual becoming a director
of Providian subsequent to the date hereof whose election, or nomination for
election by Providian's shareholders, was approved by a vote of at least a
majority of the directors of Providian then comprising the Incumbent Board shall
be considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such term is used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act); or
iii. A reorganization, merger or consolidation, with respect to
which, in each case, all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Common Stock
and Outstanding Voting Securities immediately prior to such reorganization,
merger or consolidation do not, following such reorganization, merger or
consolidation, beneficially own, directly or indirectly, more than 60% of,
respectively, the then Outstanding Common Stock and the combined voting power of
the then Outstanding Voting Securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting from
such reorganization, merger or consolidation in substantially the same
proportions as their ownership, immediately prior to such reorganization, merger
or consolidation of the Outstanding Common Stock and Outstanding Voting
Securities, as the case may be; or
iv. (A) approval by the shareholders of Providian of a complete
liquidation or dissolution of Providian or (B) the sale or other disposition of
all or substantially all of the assets of Providian, other than to a
corporation, with respect to which following such sale or other disposition,
more than 60% of, respectively, the then Outstanding Common Stock of such
corporation and the combined voting power of the then Outstanding Voting
Securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Common Stock and Outstanding Voting
Securities immediately prior to such sale or other disposition in substantially
the same proportion as their ownership, immediately prior to such sale or other
disposition, of the Outstanding Common Stock and Outstanding Voting Securities,
as the case may be.
c. "CODE" shall mean the Internal Revenue Code of 1986, as amended.
d. "COMMITTEE" shall mean the committee appointed by the Board of
Directors to administer this Plan which shall include two or more directors of
Providian who are "nonemployee directors" (within the meaning of Rule 16b-3
promulgated under the Exchange Act) and shall include only directors who are
"outside directors" within the meaning of Treasury Regulation (S) 1.162-27 (or
any successor provision) promulgated under the Code.
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e. "COMMON STOCK" shall mean the shares of Providian's common stock,
par value $0.01 per share, and any other shares of common stock from time to
time authorized pursuant to Providian's Certification of Incorporation.
f. "CONSULTANT" shall mean any person, including an advisor, engaged
by the Company to render consulting services and who is compensated for such
services.
g. "DISABILITY" shall mean when a Participant is considered
permanently disabled under a disability insurance policy carried by the Company,
or, if no such policy is carried by the Company, when a Participant is
permanently and totally disabled within the meaning of Section 22(e)(3) of the
Code.
h. "EMPLOYEE" shall mean an individual who is a key salaried
employee of the Company.
i. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
j. "INCUMBENT BOARD" shall mean those individuals who, on the date
of the adoption of this Plan by the Board of Directors, constitute the Board of
Directors.
k. "NON-EMPLOYEE DIRECTOR" shall mean a member of either (i) the
Board of Directors or (ii) a Subsidiary Board of Directors who is not also an
Employee.
l. "NONRESTRICTED STOCK" shall mean shares of Common Stock granted
to a Participant pursuant to this Plan which are not Restricted Stock.
m. "OUTSTANDING COMMON STOCK" shall mean the then outstanding shares
of Common Stock.
n. "OUTSTANDING VOTING SECURITIES" shall mean the then outstanding
voting securities of Providian entitled to vote generally in the election of
directors of Providian.
o. "PARTICIPANTS" shall mean (i) Employees who are selected by the
Board of Directors or the Committee to participate in the Plan, (ii) Consultants
who are selected by the Board of Directors or the Committee to participate in
the Plan and (iii) Non-Employee Directors who are selected by the Board of
Directors or the Committee to participate in the Plan.
p. "PLAN" shall mean this Stock Ownership Plan as the same may be
amended from time to time.
q. "RESTRICTED PERIOD" shall have the meaning given such term in
Section 10.
r. "RESTRICTED STOCK" shall mean Common Stock which is subject to
the restrictions provided for in Section 9.
s. "RETIREMENT" shall mean retirement by a Participant in accordance
with the terms
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of the Company's retirement plans.
t. "SUBSIDIARY BOARD OF DIRECTORS" shall mean any board of directors
of any subsidiary of Providian.
u. "VALUE" shall be the mean between the highest and lowest sale
price of the Common Stock as reflected on the consolidated tape of the New York
Stock Exchange issues on the date of a grant hereunder; provided, however, that
if no shares of Common Stock were sold on such date, the determination shall be
made as of the last immediately preceding date on which the shares of the Common
Stock were sold.
3. ELIGIBILITY AND PARTICIPATION. Persons eligible to receive
Nonrestricted Stock and Restricted Stock under this Plan shall be (a) those
Employees who are selected by the Board of Directors or the Committee to
participate in the Plan, (b) those Consultants who are selected by the Board of
Directors or the Committee to participate in the Plan, and (c) those persons who
are Non-Employee Directors who are selected by the Board of Directors or the
Committee to participate in the Plan. In determining the Employees,
Consultants, or Non-Employee Directors who shall become Participants, the Board
of Directors or the Committee shall take into account the duties of the
Employees, Consultants, or Non-Employee Directors, their present and potential
contribution to the success of the Company, such other factors as it deems
relevant in connection with accomplishing the purposes of this Plan. A
Participant who has previously been granted Nonrestricted Stock and Restricted
Stock pursuant to the terms of this Plan may be granted additional Nonrestricted
Stock and Restricted Stock as the Board of Directors or the Committee shall
determine in its sole discretion. The Board of Directors or the Committee, from
time to time, may designate a defined class of Employees, Consultants, or Non-
Employee Directors who shall be eligible to participate in the Plan and specify
the terms under which such Participants may receive shares of Common Stock
hereunder by adopting an appendix to the Plan or adopting modifications or
amendments to any existing appendix, provided that the adoption of appendices
shall not be the exclusive means of determining participation. Any appendices
so adopted shall be and hereby are incorporated by this reference as part of
this Plan.
4. SHARES SUBJECT TO THE PLAN. Subject to the adjustments provided
for in Section 11, the aggregate number of shares of Common Stock which may be
granted under this Plan shall not exceed 4 million shares. Restricted Stock
issued under this Plan which is later forfeited pursuant to Section 9 may again
be granted under this Plan. The Common Stock to be offered under this Plan may
be shares held by the Company in its treasury, shares previously forfeited under
the terms of this Plan or newly issued shares.
5. ADMINISTRATION. This Plan shall be administered by the
Committee. Subject to the provisions of this Plan and the requirements of
Section 162(m) of the Code and such orders or resolutions not inconsistent with
the provisions of this Plan as made from time to time by the Board of Directors,
the Committee shall have sole and complete authority with respect to the
following:
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a. Selection of Participants;
b. Determining the number of shares, times, Restricted Periods
and other terms and conditions of grants hereunder;
c. Adopting, amending and rescinding such rules and regulations
as, in its opinion, may be advisable for the administration of this Plan;
d. Construing and interpreting this Plan and any related
documents; and
e. Making all other determinations deemed advisable and
necessary for the administration of this Plan such that this Plan operates in
the best interest of the Company for the purposes set forth herein.
All decisions and determinations made by the Committee shall be final
and binding upon all Participants. Notwithstanding the foregoing provisions of
this Section 5, the Board of Directors shall have full power and authority to
take any action that may be taken by the Committee hereunder.
6. DISCRETIONARY NONRESTRICTED STOCK GRANTS. From time to time, the
Committee shall determine those Participants to whom Nonrestricted Stock shall
be granted and the amount of the Nonrestricted Stock to be granted to each. In
no event, however, shall the aggregate Value of the Nonrestricted Stock granted
to any Employee Participant under this Plan in any year exceed 25% of the
Employee Participants' total incentive by the Participant under Providian's
Management Incentive Plan. In determining the amount of the Nonrestricted Stock
to be granted to Employee Participants, the Committee shall take into account
the past performance of such Employee Participant and such additional items as
it shall deem appropriate, including, but not limited to, the salary of the
Employee, the other benefits being received by the Employee from the Company
(including amounts received or to be received under any incentive or bonus plans
of the Company), the position of the Employee and the Employee's potential for
ongoing contribution to the success of the Company.
7. RESTRICTED STOCK GRANTS.
a. All Participants who receive Nonrestricted Stock grants in
any year also shall receive a matching Restricted Stock grant at the same time.
The amount of the matching Restricted Stock grant shall be determined by the
Committee and shall be a percentage (which shall be the same for all Employee
Participants) of the corresponding number of shares of Nonrestricted Stock, but
in no event may the number of shares of matching Restricted Stock granted to an
Employee Participant exceed 200% of the corresponding number of shares of
Nonrestricted Stock granted to the Employee Participant.
b. The Committee, in its discretion, also may make
discretionary Restricted Stock grants to Employee Participants under this
Section 7.b. Such discretionary grants may be made only (i) for use as a hiring
bonus, (ii) as a reward for extraordinary performance or (iii)
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to provide additional incentives for future performance. Any grant of additional
Restricted Stock to Employee Participants pursuant to this Section 7.b will
depend on achievement by the Company and/or the Employee Participant of
performance objectives established by the Committee. Such performance objectives
shall be established within 90 days after the commencement of the period to
which the performance objectives relate. The performance objectives with respect
to any performance periods shall be based upon the Company's earnings, earnings
per share, revenue, expenses, margin or return on equity, as well as any
individual performance objectives which the Committee may establish, and shall
be calculated in accordance with the formula established for such performance
period. An Employee Participant shall only be entitled to receive a grant of
additional Restricted Stock pursuant to this Section 7.b upon attainment by the
Company and/or the Employee Participant of the pre-established performance
objectives. The Committee shall certify in writing before any additional shares
of Restricted Stock are issued with respect to a performance period that the
performance objectives for such period have been satisfied. In no event shall
the Committee grant to any Employee Participant in any year under this Section
7.b a number of shares of Restricted Stock exceeding 184,641. All shares of
Restricted Stock granted pursuant to the provisions of this Section 7.b shall be
subject to all of the provisions of this Plan applicable to Restricted Stock.
c. The Board of Directors or the Committee may make
discretionary Restricted Stock grants to Participants under this Section 7.c.
Such discretionary grants may be made based on such criteria as the Board of
Directors or the Committee determines to be appropriate, which may include (i)
for use as a hiring bonus, (ii) as a reward for extraordinary performance or
(iii) to provide additional incentives for future performance; provided that no
grants of Restricted Stock may be made to Employee Participants under this
Section 7.c based directly or indirectly on the attainment of, or failure to
attain, any performance objectives established with respect to Restricted Stock
grants pursuant to Section 7.b; and provided further that Restricted Stock
grants under this Section 7.c may not be made to any Employee Participant within
one year after the close of any performance period with respect to which the
Employee Participant has received a grant pursuant to Section 7.b. In no event
shall the Board of Directors or the Committee grant in excess of 150,000 shares
of Restricted Stock to any Participant in any year under this Section 7.c.
Restricted Stock granted to all Participants pursuant to this Section 7.c shall
be subject to all of the provisions of this Plan applicable to Restricted Stock,
provided that the Board of Directors or the Committee shall establish the terms
of the Restricted Period applicable to such Restricted Stock for purposes of
Section 10.
8. PROVISIONS APPLICABLE TO NONRESTRICTED STOCK.
a. At the time Nonrestricted Stock is granted to a Participant,
the appropriate number of shares of Nonrestricted Stock shall be issued and
registered in the name of such Participant, but such shares shall be held by the
Company or its agent for the account of such Participant.
b. Notwithstanding the fact that the Company or its agent may
hold the shares representing the Nonrestricted Stock granted to Participants,
the Participants shall have all of the
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rights of a holder of Common Stock, including, but not limited to, the right to
vote such shares and to receive all distributions with respect to such shares.
c. Upon the request of a Participant, the Company or its agent
will transfer, or cause to be transferred, the shares of Nonrestricted Stock
granted to such Participant in accordance with instructions provided by the
Participant as soon as reasonably practicable following receipt of such
instructions; provided, however, that the transfer of such shares shall result
in the forfeiture of such Participant's corresponding shares of Restricted Stock
to the extent provided in Section 9. Upon the termination of a Participant's
service as an Employee, Consultant or Non-Employee Director, all of the shares
of Nonrestricted Stock granted to such Participant shall be transferred to such
Participant as soon as reasonably practicable.
9. PROVISIONS APPLICABLE TO RESTRICTED STOCK.
a. At the time Restricted Stock is granted to a Participant,
shares representing the appropriate number of shares of Restricted Stock shall
be issued and registered in the name of such Participant, but during the
Restricted Period such shares of Restricted Stock shall be held by the Company
or its agent for the account of such Participant. As a condition to the receipt
of any certificates representing a Restricted Stock grant, the Participant shall
deliver to the Company stock powers duly endorsed in blank by the Participant.
Any certificates representing the Restricted Stock held by the Company shall
bear the following legend: "The sale or other transfer of the shares
represented by this certificate is subject to certain restrictions on transfer
set forth in the Providian Financial Corporation Stock Ownership Plan and the
rules of administration adopted pursuant thereto. A copy of such Stock
Ownership Plan and the rules adopted pursuant thereto may be obtained from the
secretary of Providian Financial Corporation."
b. During the Restricted Period, until such time as the
Participant has forfeited the Participant's rights to the Restricted Stock,
notwithstanding the fact that the Company or its agent may hold the shares
representing the shares of Restricted Stock granted to Participants, the
Participants shall have all of the rights of a holder of Common Stock,
including, but not limited to the right to vote such shares and to receive all
distributions with respect to such shares.
c. The Restricted Stock shall be subject to the following
restrictions during the Restricted Period (unless otherwise provided by the
Committee):
i. None of the Restricted Stock may be sold, exchanged,
transferred, assigned, pledged or otherwise encumbered or disposed of by the
Participant during the Restricted Period.
ii. If an Employee Participant ceases to be an Employee or
a Consultant ceases to provide services to the Company prior to the expiration
or other termination of the Restricted Period, other than by reason of death,
Disability or Retirement, or if a Non-Employee Director is removed from the
Board of Directors or a Subsidiary Board of Directors for cause (as determined
by the disinterested members of the Board of Directors or such
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Subsidiary Board of Directors), any shares of Restricted Stock granted to such
Participant which are still subject to restrictions shall be forfeited and all
rights of the Participant to such Restricted Stock shall terminate without
further obligation on the part of the Company.
iii. If the Participant requests the transfer of any shares
of Nonrestricted Stock and such transfer is completed by the Company or its
agent, all or a portion of any corresponding shares of matching Restricted Stock
shall be forfeited, and all rights of such Participant to such matching
Restricted Stock shall terminate without further obligation on the part of the
Company. The number of shares of matching Restricted Stock to be forfeited
shall be designated by the Committee at the time of the grant.
10. RESTRICTED PERIOD.
a. The term "Restricted Period" shall mean the period
established by the Committee at the time the Restricted Stock is granted to the
Participant. Such "Restricted Period" may be defined by the passage of time, the
achievement of performance goals or any other criteria deemed appropriate by the
Committee.
b. Notwithstanding any other provisions of this Plan to the
contrary, the following shall apply (unless otherwise provided by the
Committee):
i. Following the occurrence of a Change in Control, all
restrictions applicable to any Restricted Stock shall terminate as to any shares
of Restricted Stock which are still subject to restriction and all such shares
shall be immediately distributed.
ii. If an Employee Participant ceases to be an Employee or
a Consultant Participant ceases to be a Consultant by reason of death,
Disability or Retirement, or a Non-Employee Director ceases to be a director for
any reason other than for cause (as determined by the disinterested members of
the Board of Directors or a Subsidiary Board of Directors), then with respect to
each grant of Restricted Stock, the Restricted Period shall terminate as to any
shares of Restricted Stock which are still subject to restrictions and all such
shares shall be immediately distributed.
c. At the end of the applicable Restricted Period with respect
to any shares of Restricted Stock, or at such earlier time as otherwise provided
for herein, all restrictions with respect to such Restricted Stock shall
terminate, the Participant shall become vested with respect to such shares and
the appropriate number of shares of Common Stock, free of restriction shall be
transferred as soon as practicable to the Participant or the Participant's
beneficiary or estate, as the case may be.
11. CHANGES IN CAPITALIZATION.
a. In the event of any change in corporate capitalization, such
as a stock split, or a corporate transaction, such as any merger, consolidation
or reorganization (within the meaning of Section 368 of the Code), or any
partial or complete liquidation of Providian, the
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Committee or the Board of Directors may make such substitution or adjustments in
the aggregate number and kind of stock or other securities or property reserved
for issuance under the Plan, in the number and kind of stock or other securities
or property subject to outstanding awards granted under the Plan and/or such
other equitable substitution or adjustments as it may determine to be
appropriate in its sole discretion; provided, however, that the number of shares
subject to any award shall always be a whole number.
b. If any shares of Common Stock are received by a Participant
by reason of the Common Stock owned by such Participant pursuant to the terms of
this Plan, and (i) if the shares of Nonrestricted Stock with respect to which
additional Common Stock was received is then held by the Company or its agent,
the shares representing such additional shares of Common Stock shall likewise be
held by the Company or its agent and shall, for all purposes of this Plan, be
considered Nonrestricted Stock, or (ii) if such additional shares of Common
Stock are received with respect to Restricted Stock, such additional shares of
Common Stock shall, for all purposes of this Plan, be considered Restricted
Stock, subject to the same restrictions as the Restricted Stock with respect to
which they were received.
12. DESIGNATION OF BENEFICIARY. A Participant may designate a person
or persons to receive, in the event of the Participant's death, any rights to
which the Participant would be entitled under this Plan. Such a designation
shall be made in writing and filed with the Committee. A beneficiary
designation may be changed or revoked by a Participant at any time by filing a
written statement of such change or revocation with the Committee. If a
Participant dies without having filed a beneficiary designation, or if a
Participant's beneficiary does not survive the Participant, then the
Participant's estate shall be deemed to be the Participant's beneficiary.
13. AMENDMENT AND DISCONTINUANCE. The Board of Directors or the
Committee may discontinue, amend, alter or suspend this Plan. Any amendment or
termination of this Plan shall not apply with respect to shares of Nonrestricted
Stock or Restricted Stock previously granted, which shares shall continue to be
subject to the terms and conditions of this Plan in effect on the date of the
grant of the Nonrestricted Stock or Restricted Stock, unless the affected
Participant consents.
14. NO GRANTING OF RIGHTS. Neither this Plan, nor any action taken
hereunder, shall be deemed as giving any Employee, Consultant or Non-Employee
Director the right to become a Participant. Additionally, nothing in the Plan
or any instrument executed pursuant thereto shall confer upon any Employee, Non-
Employee Director or Consultant any right to continue in the employ of the
Company (or to continue acting as a Director or Consultant) or shall affect the
right of the Company to terminate the employment of any Employee or remove any
Director, with or without cause, or to terminate the relationship of any
Consultant.
15. NONTRANSFERABILITY. A Participant's rights under this Plan may
not be assigned, pledged or otherwise transferred, except that upon a
Participant's death, a Participant's rights may be transferred to the
Participant's designated beneficiary, or in the absence of such
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designation, by will or the laws of descent and distribution.
16. WITHHOLDING. The Company shall have the right to deduct or
withhold from any payment owed to a Participant by the Company any amount which
is necessary in order to satisfy any withholding requirement which the Company
believes is imposed upon it with respect to any Federal, state or local taxes as
the result of the issuance of, or lapse of restriction on, Nonrestricted Stock
or Restricted Stock, or otherwise require a Participant to make provision for
payment of any such withholding amount. Subject to such conditions as the
Committee may establish from time to time, a Participant may elect to have
Restricted Stock otherwise issuable upon a grant hereunder withheld, or tender
back to the Company Restricted Stock granted hereunder, in order to satisfy all
or a portion of the taxes required to be withheld or otherwise deducted and paid
by the Company.
17. SECURITIES COMPLIANCE. This Plan and its administration is
intended to comply with Rule 16b-3 promulgated under the Exchange Act. In the
event any provision or administration of this Plan is deemed not to comply with
Rule 16b-3, such provision or administration shall be deemed to be void ab
initio and of no force and effect. All Common Stock granted under this Plan
shall be issued only in compliance with all applicable securities laws, rules
and regulations of the Securities and Exchange Commission, state Blue Sky laws
and applicable listing requirements of any national securities exchange on which
the Common Stock is listed. The Committee may impose such conditions,
restrictions and limitations as it may deem necessary and appropriate to assure
compliance with the foregoing.
18. GOVERNING LAW. This Plan shall be governed by, and construed in
accordance with, the laws of the state of Delaware without regard to its
conflict of laws rules.
19. EFFECTIVE DATE. This Plan shall become effective on June 11,
1997.
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EXHIBIT 10.30
PROVIDIAN NATIONAL BANK
$4,000,000,000
SENIOR BANK NOTES
AND
SUBORDINATED BANK NOTES
DUE FROM 7 DAYS TO 15 YEARS FROM DATE OF ISSUE
Distribution Agreement
----------------------
February 20, 1998
Goldman, Sachs & Co.
Credit Suisse First Boston Corporation
Lehman Brothers
Lehman Brothers Inc.
Lehman Commercial Paper Inc.
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
c/o Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Ladies and Gentlemen:
Providian National Bank, a national banking association (the "Bank"),
proposes to issue and sell from time to time its (i) senior unsecured debt
obligations not insured by the Federal Deposit Insurance Corporation (the
"FDIC") with maturities from 7 days to not more than one year from date of issue
(the "Short-Term Senior Bank Notes"), (ii) senior unsecured debt obligations not
insured by the FDIC with maturities of more than one year to 15 years from date
of issue (the "Medium-Term Senior Bank Notes," and, together with the Short-Term
Senior Bank Notes, the "Senior Bank Notes"), and (iii) subordinated unsecured
debt obligations not insured by the FDIC with maturities of five years to 15
years from date of issue (the "Subordinated Bank Notes," and, together with the
Senior Bank Notes, the "Bank Notes") and agrees with you (the "Agents") with
respect to the issue and sale of the Bank Notes as set forth in this Agreement.
The Bank is a wholly-owned subsidiary of Providian Financial Corporation, a
Delaware corporation ("PFC").
As of the date hereof, the Bank has authorized the issuance of up to
$1,000,000,000 aggregate principal amount at any one time outstanding of Senior
Bank Notes with maturities from 7 days to not more than 270 days from date of
issue and $2,500,000,000 aggregate principal amount of Senior Bank Notes with
maturities of more than 270 days to 15 years from date of issue. In addition,
the Bank has authorized the issuance of up to $500,000,000 aggregate principal
amount of its Subordinated Bank Notes. It is understood, however, that the Bank
may from time to time authorize the issuance of an additional amount of Bank
Notes and that such Bank Notes may be sold to or distributed through the Agents
pursuant to the terms of this Agreement, as though the issuance of such Bank
Notes were authorized as of the date hereof.
<PAGE>
The Bank Notes will be issued under an issuing and paying agency agreement,
dated as of February 20, 1998 (the "Issuing and Paying Agency Agreement"),
between the Bank and The First National Bank of Chicago, as Issuing and Paying
Agent (the "Issuing and Paying Agent"). The Bank Notes shall have the maturity
ranges, interest rates, if any, redemption provisions and other terms set forth
in the Offering Circular referred to below as it may be amended or supplemented
from time to time. The Bank Notes will be issued, and the terms and rights
thereof established, from time to time by the Bank in accordance with the
Issuing and Paying Agency Agreement.
Subject to the terms and conditions stated herein and to the reservation by
the Bank of the right to sell Bank Notes directly on its own behalf in those
jurisdictions where it is authorized to do so, the Bank hereby (i) agrees that,
except as otherwise contemplated herein, whenever it determines to sell Bank
Notes directly to an Agent as principal for resale to investors and other
purchasers, it will enter into a separate agreement with such Agent (each, a
"Terms Agreement"), which may be substantially in the form of Annex I hereto,
relating to such sale in accordance with Section 2(a) hereof and (ii) appoints
the Agents as its agents for the purpose of soliciting and receiving offers to
purchase Bank Notes from it pursuant to Section 2(b) hereof. This Agreement
shall not be construed to create either an obligation on the part of the Bank to
sell any Bank Notes or an obligation of any Agent to purchase any Bank Notes as
principal.
The appointment of the Agents hereunder is not exclusive and the Bank may
from time to time offer Bank Notes for sale otherwise than to or through an
Agent, either through another agent on terms substantially identical to the
terms of this Agreement or on its own behalf. The Bank reserves the right to
sell, and may solicit and accept offers to purchase, Bank Notes directly on its
own behalf, and, in the case of any such sale not resulting from a solicitation
made by an Agent, no commission will be payable with respect to such sale.
1. The Bank represents and warrants to, and agrees with, the Agents that:
(i) The Bank has prepared an offering circular, dated February 20,
1998, to be used by the Agents in connection with the Agents' solicitation
of purchasers of or offering of the Bank Notes. Such offering circular, in
the form transmitted for filing with the Office of the Comptroller of the
Currency of the United States (the "Comptroller"), pursuant to 12 C.F.R.
Section 16.6 is referred to herein as the "Offering Circular"; provided,
however, that if any amendment or supplement shall be provided to the
Agents for use in connection with the offering of the Bank Notes, whether
or not the same is required to be filed with the Comptroller pursuant to 12
C.F.R. Section 16.6, the term "Offering Circular" shall be deemed to refer
to and include such amendment or supplement from and after the time it is
first provided to the Agents for use. Any reference to the Offering
Circular shall also be deemed to refer to and include all documents
incorporated by reference, including the Call Reports and the Periodic
Reports (as such terms are hereinafter defined) incorporated by reference
therein, and any reference herein to the terms "amend," "amendment" or
"supplement" with respect to the Offering Circular shall be deemed to
include the filing of any Call Report or Periodic Report with any bank
regulatory agency or the Securities and Exchange Commission (the
"Commission") after the date of this Agreement or the Offering Circular, as
the case may be. The Offering Circular, as of the date hereof, complies
with, and as of each date that this representation is affirmed in
accordance with Section 4(k) hereof, will comply with, the applicable
requirements of 12 C.F.R. Part 16 (including 12 C.F.R. Section 16.6); and
the Offering Circular does not, and as of each date that this
representation is affirmed in accordance with Section 4(k) hereof, will
not, contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made therein, in
the light of the circumstances under which they are made, not misleading;
provided, however, that the representations and warranties in this
subsection shall not apply to statements or omissions from the Offering
Circular made in reliance upon and in conformity with information furnished
to the Bank in writing by any Agent expressly for use therein. The Bank
will incorporate by reference in the Offering Circular the publicly
available portions of each of its Consolidated Reports of Condition and
Income (each, a "Call Report") which the Bank has filed with the FDIC, as
well as any amendments or supplements thereto, beginning with and including
the Call Report for the period ended December 31 of the third calendar year
prior to the date of the Offering Circular to and including the most recent
Call Report filed or published prior to an offering pursuant to the
Offering Circular. The publicly available portions of any Call Reports
filed by the Bank subsequent
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<PAGE>
to the date of the Offering Circular and prior to the termination of the
offering of the Bank Notes will be incorporated therein by reference. Call
Reports for the Bank for the reporting periods ending prior to January 1,
1998 were filed under the Bank's former name, First Deposit National Bank.
In addition, the Bank has been authorized by PFC to incorporate by
reference in the Offering Circular, and will incorporate by reference into
the Offering Circular, PFC's Registration Statement on Form 10 (as filed
with the Commission effective April 18, 1997), annual reports on Form 10-K
for its most recently ended fiscal year, quarterly reports on Form 10-Q
since its most recently ended fiscal year, current reports on Form 8-K
since its most recently ended fiscal year and any other document filed by
PFC with the Commission pursuant to Section 13(a), 13(c) or 15(d) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and the rules
and regulations of the Commission thereunder (the "Periodic Reports"). The
documents incorporated by reference into the Offering Circular, at the time
they were or hereafter are filed with the applicable federal regulatory
authorities, complied or when so filed will comply in all material respects
with the applicable requirements of the Comptroller or the applicable
requirements of the 1934 Act and the rules and regulations of the
Commission thereunder or the rules and regulations otherwise applicable
thereto, as the case may be, and, when read together with the other
information in the Offering Circular, did not and will not, as of the
respective dates of their incorporation by reference into the Offering
Circular, include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances in which they were or
are made, not misleading;
(ii) Since the respective dates as of which information is given in
the Offering Circular, (a) there has not been any material adverse change
in or affecting the condition, financial or otherwise, business affairs, or
business prospects of the Bank or its subsidiaries, taken as a whole,
otherwise than as set forth or contemplated in the Offering Circular; and
(b) there have been no material transactions entered into by the Bank or
any of its subsidiaries other than those in the ordinary course of business
and other than those which have been disclosed in the Offering Circular or
any document incorporated by reference into the Offering Circular;
(iii) The Bank has been duly organized and is validly existing as a
national banking association in good standing under the laws of the United
States; is qualified to conduct the business in which it is engaged in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that
the failure to be so qualified or to be in good standing would not have a
material adverse effect on the Bank and its subsidiaries taken as a whole;
and has the power and authority (corporate and other) to own its properties
and conduct its business as described in the Offering Circular;
(iv) All of the issued shares of capital stock of the Bank have been
duly and validly authorized and issued and are fully paid and non-
assessable and are owned directly or indirectly by PFC;
(v) The Bank Notes have been duly authorized and, when issued and
delivered pursuant to this Agreement, the Issuing and Paying Agency
Agreement and any Terms Agreement, will have been duly executed,
authenticated, issued and delivered and will constitute valid and legally
binding obligations of the Bank, enforceable against the Bank in accordance
with their terms and entitled to the benefits provided by the Issuing and
Paying Agency Agreement, under which they are to be issued, subject, as to
enforcement, to applicable bankruptcy, liquidation, insolvency,
reorganization, moratorium and similar laws of general applicability
relating to, or affecting, creditors' rights and the rights of creditors of
national banking associations and the FDIC as conservator or receiver and
to general equity principles (whether enforcement is sought in a proceeding
in equity or at law); the Issuing and Paying Agency Agreement has been duly
authorized, executed and delivered by the Bank and, when executed and
delivered by the Issuing and Paying Agent, will constitute a valid and
legally binding agreement of the Bank, enforceable against the Bank in
accordance with its terms, subject, as to enforcement, to applicable
bankruptcy, liquidation, insolvency, reorganization, moratorium and similar
laws of general applicability relating to, or affecting, creditors' rights
and the rights of creditors of national banking associations and the FDIC
as conservator or receiver and to general equity principles (whether
enforcement is sought in a proceeding in equity or at law); the Issuing and
Paying Agency
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Agreement conforms and the Bank Notes will conform to the descriptions
thereof in the Offering Circular; and the Issuing and Paying Agency
Agreement is and the Bank Notes will be substantially in the form
previously delivered to the Agents;
(vi) This Agreement, any Terms Agreement and the Letters of
Representations, dated February 20, 1998 (the "Letters of
Representations"), between the Bank, the Issuing and Paying Agent and The
Depository Trust Company have been duly authorized, executed and delivered
by the Bank and are valid and legally binding agreements of the Bank,
enforceable against the Bank in accordance with their respective terms,
subject, as to enforcement, to applicable bankruptcy, liquidation,
insolvency, reorganization, moratorium and similar laws of general
applicability relating to, or affecting, creditors' rights and the rights
of creditors of national banking associations and the FDIC as conservator
or receiver and to general equity principles (whether enforcement is sought
in a proceeding in equity or at law);
(vii) The issue and sale of the Bank Notes, the compliance by the
Bank with all of the provisions of the Bank Notes, the Issuing and Paying
Agency Agreement, this Agreement and any Terms Agreement, and the
consummation of the transactions herein and therein contemplated will not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets
of the Bank or any of its subsidiaries, pursuant to any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Bank or any of its subsidiaries is a party or by which the Bank
or any of its subsidiaries is bound or to which any of their properties or
assets are subject, nor will such action result in any violation of the
charter or the by-laws of the Bank, or any statute, order, rule or
regulation of any court or governmental agency or body having jurisdiction
over the Bank, any of its subsidiaries or any of its properties;
(viii) No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body is
required for the solicitation of offers to purchase Bank Notes, the issue
and sale of the Bank Notes or the consummation by the Bank of the other
transactions contemplated by this Agreement, any Terms Agreement or the
Issuing and Paying Agency Agreement, except (a) such as may be required by
the securities or Blue Sky laws of the various states in connection with
the solicitation by any Agent of offers to purchase Bank Notes from the
Bank and with purchases of Bank Notes by any Agent as principal, as the
case may be, in each case in the manner contemplated hereby, (b) the
Offering Circular and any amendments thereto (other than amendments which
contain only pricing information relating to a particular transaction, Call
Reports or filings under the 1934 Act incorporated by reference, updated
financial information concerning the Bank or non-material information
relating to the program contemplated hereby), must be filed by the Bank
with the Comptroller pursuant to 12 C.F.R. Section 16.6, and (c) with
respect to Subordinated Bank Notes offered by the Bank notice must be filed
with the Comptroller pursuant to 12 C.F.R. Section 5.47 in order for such
Subordinated Bank Notes to be counted as Tier 2 capital of the Bank;
(ix) Neither the Bank or any of its subsidiaries is in violation of
its charter or by-laws or is in default in the performance or observance of
any material obligation, covenant or condition contained in any indenture,
mortgage, deed of trust, loan agreement, lease or other agreement or
instrument to which it is a party or by which it or any of its properties
may be bound, other than any such default or defaults which, individually
or in the aggregate, would not reasonably be expected to have a material
adverse effect on the Bank and its subsidiaries taken as a whole;
(x) The statements set forth in the Offering Circular under the
caption "Description of Notes," insofar as they purport to constitute a
summary of the terms of the Bank Notes, are accurate in all material
respects;
(xi) Other than as set forth in the Offering Circular (including any
document incorporated therein by reference), there is no action, suit or
proceeding before or by any court or governmental agency or body, domestic
or foreign, now pending, or, to the knowledge of the Bank, threatened
against or affecting, the Bank or any of its subsidiaries, which, if
determined adversely to the Bank or any of its subsidiaries, would, in the
reasonable judgment of the Bank,
4
<PAGE>
individually or in the aggregate have a material adverse effect on the
current or future consolidated financial position, shareholders' equity or
results of operations of the Bank and its subsidiaries, or which would, in
the reasonable judgment of the Bank, adversely affect the consummation of
this Agreement, any Terms Agreement, the Issuing and Paying Agency
Agreement or any transaction contemplated hereby or thereby;
(xii) The Senior Bank Notes, when issued, authenticated and
delivered pursuant to this Agreement, will be unsecured and
unsubordinated debt obligations of the Bank and rank pari passu among
themselves and with all other unsecured and unsubordinated debt
obligations of the Bank except, pursuant to Section 11(d)(11) of the
Federal Deposit Insurance Act, the Bank's unsecured deposit liabilities;
and the Subordinated Bank Notes are unsecured and subordinated debt
obligations of the Bank, rank pari passu among themselves, and are
subordinate and junior in right of payment to the Bank's obligations to
its depositors and general creditors, other than obligations which, by
their express terms, rank on a parity with or junior to the Subordinated
Bank Notes;
(xiii) The Bank is not, and after giving effect to the offer and sale
of the Bank Notes, will not be, an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act");
(xiv) Neither the Bank nor any of its affiliates does business with
the government of Cuba or with any person or affiliate located in Cuba
within the meaning of Section 517.075, Florida Statutes;
(xv) Ernst & Young LLP, who have certified certain financial
statements of PFC, incorporated by reference in the Offering Circular, are
independent public accountants as required by the Securities Act of 1933,
as amended (the "1933 Act"), and the rules and regulations of the
Commission thereunder;
(xvi) The Bank Notes of the Bank at the time such Bank Notes are
issued will have been rated by a "nationally recognized statistical rating
organization" (as that term is defined by the Commission for purposes of
Rule 436(g)(2) under the 1933 Act) and by each other nationally recognized
statistical rating agency that has rated the Bank Notes of the Bank, in one
of its four highest categories;
(xvii) The financial statements and other financial information of
the Bank included in, incorporated by reference in, or made available
pursuant to, the Offering Circular (other than information contained in the
Call Reports) present fairly the consolidated financial position of the
Bank, as of the date indicated therein and the consolidated results of its
operations for the periods specified therein; and except as stated therein,
such financial statements have been prepared in conformity with generally
accepted accounting principles in the United States applied on a consistent
basis (except as may be indicated in the notes thereto), subject to normal
year-end adjustments; and the Call Reports of the Bank included or
incorporated by reference in the Offering Circular present fairly the
financial position of the Bank and the results of its operations for the
periods specified therein, and except as stated therein, have been prepared
in conformity with regulatory instructions issued by the Federal Financial
Institutions Examination Counsel applied on a consistent basis;
(xviii) The Bank Notes are exempt from registration under Section
3(a)(2) of the 1933 Act and, in addition, the Senior Bank Notes with
maturities ranging from 7 days to not more than 270 days from date of issue
are exempt from registration under Section 3(a)(3) of the 1933 Act.
Neither registration of the Bank Notes under the 1933 Act nor qualification
of an indenture under the Trust Indenture Act of 1939, as amended, will be
required in connection with the offer, sale, issuance or delivery of the
Bank Notes pursuant to this Agreement or any Terms Agreement. The
requirements of 12 C.F.R. Part 16 (including those contained in 12 C.F.R.
Section 16.6) have been and will be satisfied in connection with the offer,
sale, issuance or delivery of the Bank Notes pursuant to this Agreement and
any Terms Agreement; and
5
<PAGE>
(xix) The Bank Notes, when issued, authenticated and delivered
pursuant to the terms of this Agreement, any Terms Agreement and the
Issuing and Paying Agency Agreement, will be excluded or exempted under
the provisions of the Commodity Exchange Act.
2. (a) Unless otherwise agreed upon by an Agent and the Bank, each
Agent shall act as an agent (and not as principal) of the Bank when soliciting
offers to purchase the Bank Notes. Each sale of Bank Notes to an Agent as
principal shall be made in accordance with the terms of this Agreement and
(unless the Bank and such Agent shall otherwise agree) a Terms Agreement which
will provide for the sale of such Bank Notes to, and the purchase thereof by,
such Agent. The Terms Agreement may take the form of an oral agreement, which
shall be confirmed in a writing, prepared by each Agent and sent via facsimile
transmission to the Bank. The commitment of an Agent to purchase Bank Notes as
principal, whether pursuant to any Terms Agreement or otherwise, shall be
deemed to have been made on the basis of the representations and warranties of
the Bank herein contained and shall be subject to the terms and conditions
herein set forth. Each Terms Agreement shall specify the principal amount of
Bank Notes to be purchased by an Agent pursuant thereto, the price to be paid
to the Bank for such Bank Notes, any provisions relating to rights of, and
default by, underwriters acting together with such Agent in the reoffering of
the Bank Notes and the time and date and place of delivery of and payment for
such Bank Notes. Such Terms Agreement shall also specify any requirements for
opinions of counsel, accountants' letters and officers' certificates pursuant
to Section 4 hereof.
Unless otherwise agreed, for each such sale of Bank Notes to an Agent as
principal, the Bank agrees to pay such Agent a commission (or grant an
equivalent discount) as provided in Section 2(b) hereof and in accordance with
the schedule set forth therein. An Agent may engage the services of any other
broker or dealer in connection with the resale of the Bank Notes purchased by it
as principal and may allow any portion of the commission (or equivalent
discount) received in connection with such purchases from the Bank to such
brokers and dealers. Each Agent proposes to offer Bank Notes purchased by it as
principal for sale at prevailing market prices or prices related thereto at the
time of sale, which may be equal to, greater than or less than the price at
which such Bank Notes are purchased by such Agent from the Bank.
Each time and date of delivery of and payment for Bank Notes to be
purchased by an Agent as principal is referred to herein as a "Time of
Delivery."
(b) On the basis of the representations and warranties herein
contained, and subject to the terms and conditions herein set forth, each Agent
hereby agrees, as agent of the Bank, to use its reasonable efforts to solicit
and receive offers to purchase the Bank Notes from the Bank upon the terms and
conditions set forth in the Offering Circular as amended or supplemented from
time to time. Each Agent will communicate to the Bank, orally, each offer to
purchase Bank Notes solicited by such Agent on an agency basis, other than those
offers rejected by the Agents. Each Agent shall have the right, in its
reasonably exercised discretion, to reject any proposed purchase of Bank Notes,
as a whole or in part, and any such rejection shall not be deemed a breach of
such Agent's agreement contained herein. The Bank may accept or reject any
proposed purchase of the Bank Notes, in its absolute discretion, in whole or in
part. All Bank Notes sold through an Agent as agent will be sold at 100% of
their principal amount unless otherwise agreed by the Bank and such Agent.
The Bank reserves the right, in its sole discretion, to instruct the Agents
to suspend at any time, for any period of time or permanently, the solicitation
of offers to purchase the Bank Notes. As soon as practicable, but in any event
not later than one business day in New York City, after receipt of notice from
the Bank, the Agents will suspend solicitation of offers to purchase Bank Notes
from the Bank until such time as the Bank has advised the Agents that such
solicitation may be resumed. During such period, the Bank shall not be required
to comply with the provisions of Sections 4(m) and 4(n). Upon advising the
Agents that such solicitation may be resumed, however, the Bank shall
simultaneously provide the documents required to be delivered by Sections 4(m)
and 4(n), and the Agents shall have no obligation to solicit offers to purchase
the Bank Notes until such documents have been received by the Agents. In
addition, any failure by the Bank to comply with its obligations hereunder,
including without limitation its obligations to deliver the documents required
by Sections 4(m) and 4(n), shall automatically terminate the Agents' obligations
hereunder, including without limitation their obligations hereunder to purchase
Bank Notes hereunder as principal or to solicit offers to purchase Bank Notes.
6
<PAGE>
The Bank agrees to pay each Agent a commission, at the time of settlement
of any sale of a Bank Note by the Bank as a result of a solicitation made by
such Agent, in an amount equal to, unless otherwise agreed by the Bank and such
Agent, the following applicable percentage of the principal amount of such Bank
Note sold:
<TABLE>
<CAPTION>
Commission
(percentage of
aggregate principal
amount of Bank Notes
Range of Maturities sold)
- ---------------------------------- -----------------------
<S> <C>
From 7 days to 270 days .050%
From 271 days to less than 1 year .125%
From 1 year to less than 18 months .150%
From 18 months to less than 2 years .200%
From 2 years to less than 3 years .250%
From 3 years to less than 4 years .350%
From 4 years to less than 5 years .450%
From 5 years to less than 6 years .500%
From 6 years to less than 7 years .550%
From 7 years to less than 10 years .600%
From 10 years to less than 15 years .625%
</TABLE>
(c) Procedural details relating to the issue and delivery of Bank
Notes and payment therefor shall be as set forth in the Administrative
Procedures attached hereto as Annex II as they may be amended from time to time
by written agreement between the Bank and the Agents (the "Administrative
Procedures"). The provisions of the Administrative Procedures shall apply to
all transactions contemplated hereunder. The Bank will furnish to the Issuing
and Paying Agent a copy of the Administrative Procedures as from time to time in
effect.
(d) The Bank shall not approve the solicitation of purchases of
Bank Notes in excess of the amount which shall be authorized to be issued or
outstanding, as the case may be, by the Bank from time to time or in excess of
the aggregate principal amount of Bank Notes specified in the Offering Circular.
The Agents will have no responsibility for maintaining records with respect to
the aggregate principal amount of Bank Notes sold or outstanding, or of
otherwise monitoring the availability of Bank Notes for sale.
(e) Neither the Agents nor the Bank will have any agreement,
understanding or other arrangement for the extension, renewal or automatic
rollover of any of the Bank Notes with maturities ranging from 7 days to not
more than 270 days from date of issue. The Bank will use the proceeds of such
Bank Notes in connection with financing current transactions within the meaning
of Section 3(a)(3) of the 1933 Act.
(f) The Agents agree, with respect to any Bank Note denominated in
a currency other than U.S. dollars, as agent, directly or indirectly, not to
solicit offers to purchase, and as principal under any Terms Agreement or
otherwise, directly or indirectly, not to offer, sell or deliver, such Bank Note
in, or to residents of, the country issuing such currency, except as permitted
by applicable law.
(g) In compliance with 12 C.F.R. Part 16, each Agent agrees to
offer the Notes only to institutional investors that are "accredited
investors" within the meaning of Rule 501 of the 1933 Act.
3. The documents required to be delivered pursuant to Section 6 hereof on
the Commencement Date (as defined below) shall be delivered to the Agents at the
offices of Brown & Wood LLP, New York, New York, at 11:00 a.m., New York City
time, on the date of this Agreement, which date and time of such delivery may be
postponed by agreement between the Bank and the Agents but in no event shall be
later than the day prior to the date on which solicitation of offers to purchase
Bank Notes is commenced or on which any Terms Agreement is executed (such time
and date being referred to herein as the "Commencement Date").
7
<PAGE>
4. The Bank covenants and agrees with the Agents that:
(a) The Bank will give the Agents notice of its intention to prepare
any additional offering circular supplement with respect to the sale of the Bank
Notes or any amendment or supplement to the Offering Circular (other than Call
Reports and Periodic Reports incorporated by reference) and will furnish the
Agents with copies of any such amendment or supplement or other documents
proposed to be distributed a reasonable time in advance of such proposed
distribution and will not distribute any such amendment or supplement or other
documents in a form to which the Agents or counsel for the Agents shall
reasonably object. The Bank will promptly cause such amendments and supplements
to be filed with the Comptroller when and to the extent required by 12 C.F.R.
Section 16.6 and will promptly advise the Agents of the filing of any amendment
or supplement to the Offering Circular with the Comptroller. The Bank will
cause to be prepared, with respect to any Bank Notes to be sold by it to or
through an Agent pursuant to this Agreement, a Pricing Supplement with respect
to such Bank Notes in a form previously approved by the Agents;
(b) The Bank will immediately advise the Agents (i) of any request by
the Comptroller, any other bank regulatory agency or the Commission for any
amendment of or supplement to the Offering Circular (including, without
limitation, the documents incorporated by reference therein) or for any
additional information with respect to the offering of the Bank Notes; (ii) of
the institution or threat by the Comptroller, any other bank regulatory agency
or the Commission of any proceeding with respect to the Offering Circular
(including, without limitation, the documents incorporated by reference therein)
or any amendment or supplement thereto or the offering or sale of the Bank
Notes, (iii) of the receipt by the Bank of any notification with respect to the
suspension of the qualification of the Bank Notes for sale in any jurisdiction
in which the Bank Notes are then being sold to purchasers or the initiation or
overt threat of any proceeding for such purpose, and (iv) any change in the
rating assigned by any nationally recognized statistical rating organization to
any unsecured debt securities of the Bank or the public announcement by any such
organization that it has under surveillance or review, with negative
implications, its rating of any of the Bank's unsecured debt securities. With
regard to Clauses (i), (ii) and (iii) hereof, the Bank will use its reasonable
best efforts to prevent the issuance of any order or similar action interfering
with the offering or sale of the Bank Notes or the use of the Offering Circular,
and, if issued, to obtain as soon as possible the withdrawal thereof;
(c) The Bank will endeavor, in cooperation with the Agents, to qualify
the Bank's Bank Notes for offering and sale under the securities laws of such
jurisdictions as the Agents may reasonably request and to comply with such laws
so as to permit the continuance of sales and dealings therein for as long as may
be necessary to complete the distribution or sale of the Bank Notes; provided,
however, that in connection therewith the Bank shall not be required to qualify
as a foreign corporation or to file a general consent to service of process in
any jurisdiction; and the Bank will file such statements and reports as may be
required by the laws of each jurisdiction in which the Bank Notes have been
qualified as above provided;
(d) The Bank will furnish the Agents with copies of the Offering
Circular and each amendment or supplement thereto, other than any Pricing
Supplement (except as provided in the Administrative Procedure), in such
quantities as the Agents may reasonably request from time to time; and if any
event shall have occurred as a result of which the Offering Circular as then
amended or supplemented would include an untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made when such
Offering Circular is delivered to a purchaser, not misleading, or, if for any
other reason it shall be necessary to amend or supplement the Offering Circular,
immediate notice shall be given, and confirmed in writing to the Agents, to
cease sales of any Bank Notes the Agents may then own as principal and to
suspend solicitation of offers to purchase Bank Notes in their capacity as
agents of the Bank (and, if so notified, such Agent shall cease such sales and
solicitations as soon as practicable, but in any event not later than one
business day later); and the Bank shall promptly prepare such amendment or
supplement as may be necessary to correct such untrue statement or omission;
(e) The Bank shall not be required to comply with the provisions of
Subsection (d) of this Section 4 during any period from the later of the time
when (i) the Agents shall have suspended solicitation of purchases of the Bank
Notes in their capacity as agents pursuant to a request from the Bank
8
<PAGE>
and (ii) the Agents shall not hold any Bank Notes purchased as principal
pursuant hereto, until the time the Bank shall determine that solicitation of
purchases of the Bank Notes should be resumed or the Agents shall subsequently
purchase Bank Notes from the Bank as principal;
(f) So long as any Bank Notes are outstanding, the Bank will cause to
be furnished to the Agents copies of all reports or other communications
(financial or other) furnished to PFC's public stockholders, and deliver to the
Agents (i) as soon as they are available, copies of any publicly available
reports and financial statements furnished to or filed with the Commission or
any national securities exchange on which any class of securities of PFC is
listed; and (ii) such additional publicly available information concerning the
business and financial condition of PFC, the Bank or any of their subsidiaries
as the Agents may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of PFC and
its subsidiaries are consolidated in reports furnished to its stockholders
generally or to the Commission);
(g) The Bank shall provide the Agents with copies of the publicly
available portion of the most recent Call Reports of the Bank;
(h) The Bank will make the filings required by 12 C.F.R. Section 16.6
with respect to the Bank Notes and by 12 C.F.R. Section 5.47 with respect to
inclusion of the Subordinated Bank Notes in Tier 2 capital when and as required
by such provisions;
(i) The Bank shall not take any action which would cause it to be in
default (within the meaning of Section 18(b) of the Federal Deposit Insurance
Act) in the payment of any assessment owing to the FDIC;
(j) If specified by an Agent in the applicable Terms Agreement or
other agreement to purchase Bank Notes as principal, from the date of such Terms
Agreement with such Agent or other agreement by such Agent to purchase Bank
Notes as principal and continuing to and including the related Time of Delivery,
the Bank will not, without the prior consent of such Agent, offer, sell,
contract to sell or otherwise dispose of any debt securities or deposit
obligations of the Bank which both mature more than 270 days after such Time of
Delivery and are substantially similar to the Bank Notes (other than the Bank
Notes that are to be sold pursuant to such agreement and deposit and other bank
obligations (including but not limited to purchases of federal funds) issued and
sold directly by, or through an agent, broker or dealer of, the Bank in the
ordinary course of the Bank's business);
(k) Each acceptance by the Bank of an offer to purchase Bank Notes
hereunder (including any purchase by an Agent as principal not pursuant to a
Terms Agreement), and each execution and delivery by the Bank of a Terms
Agreement to an Agent, shall be deemed to be an affirmation to such Agent that
the representations and warranties of the Bank contained in or made pursuant to
this Agreement are true and correct as of the date of such acceptance or sale,
as the case may be, as though made at and as of such date, and an undertaking
that such representations and warranties will be true and correct as of the
settlement date for the Bank Notes relating to such acceptance or as of the Time
of Delivery relating to such sale, as the case may be, as though made at and as
of such date (except that such representations and warranties shall be deemed to
relate to the Offering Circular as amended and supplemented at the time of such
acceptance or sale and except to the extent such representations and warranties
expressly relate to an earlier date);
(l) That reasonably in advance of the Commencement Date and each Time
of Delivery, Brown & Wood LLP, as counsel to the Agents, shall have been
furnished with such documents and opinions as such counsel may reasonably
request for the purpose of enabling such counsel to pass upon the issuance and
sale of the Bank Notes as herein contemplated and related proceedings, or in
order to evidence the accuracy and completeness of any of the representations
and warranties, or the fulfillment of any of the conditions, herein contained;
and all proceedings taken by the Bank in connection with the issuance and sale
of Bank Notes as herein contemplated shall be satisfactory in form and substance
to the Agents and counsel to the Agents;
(m) That each time (i) the Offering Circular shall be amended or
supplemented (other than by a Pricing Supplement), (ii) there is filed with the
Commission or any bank regulatory agency any
9
<PAGE>
document that is incorporated by reference into the Offering Circular, (iii) the
Bank sells Bank Notes to an Agent as principal pursuant to a Terms Agreement and
such Terms Agreement specifies the delivery of an opinion under this Section
4(m) as a condition to the purchase of Bank Notes pursuant to such Terms
Agreement, or (iv) the Bank issues and sells Bank Notes in a form not previously
provided to the Agents by the Bank, the Bank shall, if so requested by an Agent
or specified in such Terms Agreement, furnish or cause to be furnished forthwith
to such Agent a letter of the Bank's General Counsel, or other counsel for the
Bank satisfactory to such Agent, and Brown & Wood LLP, or other counsel
satisfactory to such Agent, dated the date of such amendment, supplement,
filing, Time of Delivery or settlement date relating to such sale, as the case
may be, in form satisfactory to such Agent, to the effect that such Agent may
rely on the opinions of such counsel referred to in Sections 6(a) and 6(b)
hereof which were last furnished to such Agent to the same extent as though they
were dated the date of such letters authorizing reliance (except that the
statements in such last opinions shall be deemed to relate to the Offering
Circular as amended and supplemented to such date) or, in lieu of such reliance
letters, opinions of the same tenor as the opinions of such counsel referred to
in Sections 6(a) and 6(b) hereof but modified to relate to the Offering Circular
as amended and supplemented to such date;
(n) That each time (i) the Offering Circular shall be amended or
supplemented (other than by a Pricing Supplement), (ii) there is filed with the
Commission or any bank regulatory agency any document that is incorporated by
reference into the Offering Circular, (iii) the Bank sells Bank Notes to an
Agent as principal and the applicable Terms Agreement specifies the delivery of
a certificate under this Section 4(n) as a condition to the purchase of Bank
Notes pursuant to such Terms Agreement, or (iv) the Bank issues and sells
securities in a form not previously provided to the Agents by the Bank, the Bank
shall, if so requested by an Agent or specified in such Terms Agreement, furnish
or cause to be furnished forthwith to such Agent a certificate, dated the date
of such supplement, amendment, filing, Time of Delivery or settlement date
relating to such sale, as the case may be, in such form and executed by any two
of the Chief Executive Officer, President, Treasurer, Controller, any Senior or
Executive Vice President or any other officer of the Bank who is a member of the
Management Finance Committee of the Bank, or any other officer of the Bank
having the same or similar responsibilities, to the effect that the statements
contained in the certificates referred to in Section 6(g) hereof which were last
furnished by the Bank to such Agent are true and correct at such date as though
made at and as of such date (except that such statements shall be deemed to
relate to the Offering Circular as amended and supplemented to such date) or, in
lieu of such certificate, certificates of the same tenor as the certificates
referred to in said Section 6(g) but modified to relate to the Offering Circular
as amended and supplemented to such date;
(o) To offer to any person who has agreed to purchase Bank Notes as
the result of an offer to purchase solicited by any Agent the right to refuse to
purchase and pay for such Bank Notes if, on the related settlement date fixed
pursuant to the Administrative Procedure, any condition set forth in Section
6(c), 6(d), 6(e) or 6(f) hereof shall not have been satisfied (it being
understood that the judgment of such person with respect to the impracticability
or inadvisability of such purchase of Bank Notes shall be substituted, for
purposes of this Section 4(o), for the respective judgments of the Agents with
respect to certain matters referred to in Section 6(c) and 6(e), and that the
Agents shall have no duty or obligation whatsoever to exercise the judgment
permitted under Sections 6(c) and 6(e) on behalf of any such person and it being
further understood that "the date hereof" as used in Sections 6(d) and 6(e)
shall be deemed, for purposes of this Section 4(o), to relate to the date of
such person's agreement to purchase Bank Notes from the Bank); and
(p) It will not offer Subordinated Bank Notes unless such Subordinated
Bank Notes are rated investment grade by at least one nationally-recognized
statistical rating agency and by each other nationally-recognized statistical
rating agency that has rated its Bank Notes.
5. Whether or not the transactions contemplated hereunder are consummated
or this Agreement or any agreement by an Agent to purchase Bank Notes as
principal is terminated, the Bank covenants and agrees with the Agents that the
Bank will pay or cause to be paid the following: (i) the fees, disbursements and
expenses of the Bank's counsel in connection with the issuance of the Bank Notes
and in connection with the preparation, printing and filing of the Offering
Circular and any Pricing Supplements and all other amendments and supplements
thereto and the mailing and delivering of copies thereof to the Agents; (ii) the
reasonable fees, disbursements and expenses of counsel for the Agents incurred
in connection with the establishment of the program contemplated hereby and
incurred with the prior approval
10
<PAGE>
of the Bank from time to time in connection with the transactions contemplated
hereunder and under any Terms Agreement; (iii) the cost of printing, producing
or reproducing the Offering Circular, this Agreement, any Terms Agreement, any
Issuing and Paying Agency Agreement, any Blue Sky and legal investment
memoranda, closing documents (including any compilation thereof) and any other
documents in connection with the offering, purchase, sale and delivery of the
Bank Notes; (iv) all expenses in connection with the qualification of the Bank
Notes for offering and sale under state securities laws as provided in Section
4(c) hereof, including the reasonable fees and disbursements of counsel for the
Agents in connection with such qualification and in connection with the Blue Sky
and legal investment surveys; (v) any fees charged by securities rating services
for rating the Bank Notes; (vi) the cost of preparing the Bank Notes, including
fees and expenses related to the use of book-entry securities; (vii) the fees
and expenses of any Issuing and Paying Agent and any agent of any Issuing and
Paying Agent and any transfer or paying agent of the Bank and the fees and
disbursements of counsel for any Issuing and Paying Agent or such agent in
connection with the Issuing and Paying Agency Agreement and the Bank Notes;
(viii) the fees and disbursements of any calculation agent or exchange rate
agent; (ix) the cost of preparing and providing any CUSIP or other
identification numbers for the Bank Notes; (x) any advertising expenses
connected with the solicitation of offers to purchase and the sale of Bank Notes
so long as such advertising expenses have been approved in advance by the Bank;
(xi) all filing fees payable to the Comptroller, including any such fees
required by 12 C.F.R. Section 16.33; and (xii) all other costs and expenses
incurred by the Bank in connection with the performance of its obligations
hereunder which are not otherwise specifically provided for in this Section.
Except as provided in Sections 7 and 8 hereof, each Agent shall pay all other
expenses it incurs.
6. The obligation of each Agent, as agent, at any time ("Solicitation
Time") to solicit offers to purchase the Bank Notes, and the obligation of any
Agent to purchase Bank Notes as principal, pursuant to any Terms Agreement or
otherwise, shall in each case be subject, in such Agent's discretion, to the
condition that all representations and warranties and other statements of the
Bank herein (and, in the case of an obligation of an Agent under a Terms
Agreement, in or incorporated by reference in such Terms Agreement) are true and
correct at and as of the Commencement Date and at and as of such Solicitation
Time or Time of Delivery, as the case may be, the condition that at or prior to
such Solicitation Time or Time of Delivery, as the case may be, the Bank shall
have performed all of its obligations hereunder theretofore to be performed, and
the following additional conditions:
(a) Brown & Wood LLP, counsel to the Agents, shall have furnished
to such Agents such opinion or opinions, dated the Commencement Date, with
respect to such matters as the Agents may reasonably request, including:
(i) This Agreement, any applicable Terms Agreement and the Letters
of Representations have been duly authorized, executed and delivered by
the Bank;
(ii) The Bank Notes have been duly authorized by all necessary
corporate action on the part of the Bank and, when duly executed,
authenticated, issued and delivered by the Bank against payment of the
consideration therefor, will constitute valid and legally binding
obligations of the Bank, enforceable against the Bank in accordance with
their respective terms and entitled to the benefits provided by the Issuing
and Paying Agency Agreement, subject, as to enforcement, to applicable
bankruptcy, liquidation, insolvency, reorganization, moratorium and similar
laws of general applicability relating to, or affecting, creditors' rights
and the rights of creditors of national banking associations and the FDIC
as conservator or receiver and to general equity principles (whether
enforcement is sought in a proceeding in equity or at law);
(iii) The Issuing and Paying Agency Agreement has been duly
authorized, executed and delivered by the Bank and, when executed and
delivered by the Issuing and Paying Agent, will constitute a valid and
legally binding agreement of the Bank, enforceable against the Bank in
accordance with its terms, subject, as to enforcement, to applicable
bankruptcy, liquidation, insolvency, reorganization, moratorium and other
similar laws of general applicability relating to, or affecting, creditors'
rights and the rights of creditors of national banking associations and the
FDIC as conservator or receiver and to general equity principles (whether
enforcement is sought in a proceeding in equity or at law);
11
<PAGE>
(iv) The statements set forth in the Offering Circular under the
captions "Certain United States Federal Income Tax Considerations" and
"Plan of Distribution," insofar as they purport to describe the provisions
of the laws and documents referred to therein, are accurate in all material
respects; and
(v) The Bank Notes are exempt from registration under the 1933 Act
pursuant to Section 3(a)(2) thereof and, in addition, the Short-Term Notes
are exempt from registration under the 1933 Act pursuant to Section 3(a)(3)
thereof. The registration and prospectus requirements of 12 C.F.R. Section
16.3 do not apply to offers and sales of the Short-Term Notes. The offer
and sale of the Medium-Term Notes would be deemed to be in compliance with
the registration and prospectus requirements of 12 C.F.R. Section 16.3
pursuant to 12 C.F.R. Section 16.6. Neither registration of the Bank Notes
under the 1933 Act nor qualification of an indenture under the Trust
Indenture Act of 1939, as amended, is required in connection with the
offer, issuance or sale of the Bank Notes.
(b) The General Counsel of the Bank, or other counsel for the Bank
satisfactory to the Agents, shall have furnished to the Agents written opinions,
dated the Commencement Date and at each time required by Section 4(m) hereof
that is on or prior to such Solicitation Time or Time of Delivery, as the case
may be, in form and substance satisfactory to the Agents, to the effect that:
(i) The Bank has been duly organized and is validly existing as a
national banking association in good standing under the laws of the United
States; is qualified to conduct the business in which it is engaged in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that
the failure to be so qualified or to be in good standing would not have a
material adverse effect on the Bank and its subsidiaries taken as a whole;
and has the corporate power and authority to own its properties and conduct
its business as described in the Offering Circular;
(ii) All of the issued shares of capital stock of the Bank are fully
paid and non-assessable and are owned directly or indirectly by PFC;
(iii) To such counsel's knowledge and other than as set forth in the
Offering Circular, there is no action, suit or proceeding before or by any
court or governmental agency or body, domestic or foreign, now pending, or,
to such counsel's knowledge, overtly threatened against the Bank or any of
its subsidiaries, which, if determined adversely to the Bank or any of its
subsidiaries, would individually or in the aggregate reasonably be expected
to have a material adverse effect on the consolidated financial position,
shareholders' equity or results of operations of the Bank and its
subsidiaries or which would adversely affect the consummation of this
Agreement, any Terms Agreement or the Issuing and Paying Agency Agreement
or any transaction contemplated hereby or thereby;
(iv) This Agreement, the Issuing and Paying Agency Agreement and the
Letters of Representations have been duly authorized, executed and
delivered by the Bank;
(v) The Bank Notes and any applicable Terms Agreements have been
duly authorized by all necessary corporate action on the part of the Bank;
(vi) The issue and sale of the Bank Notes, the compliance by the
Bank with all of the provisions of the Bank Notes, the Issuing and Paying
Agency Agreement, this Agreement and any Terms Agreement, and the
consummation of the transactions herein and therein contemplated will
not, to such counsel's knowledge, conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of PFC, the Bank or any of their
subsidiaries, pursuant to any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument known to such counsel to which
PFC, the Bank or any of their subsidiaries is a party or by which PFC,
the Bank or any of their subsidiaries is bound or to which any of their
properties or assets is subject, nor will such action result in any
violation of the provisions of the charter or the by-laws of the Bank, or
any statute, order, rule or regulation known to such counsel of any
12
<PAGE>
court or governmental agency or body having jurisdiction over PFC, the
Bank, any of their subsidiaries or any of their properties;
(vii) No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body is
required to be obtained or made by the Bank for the solicitation of offers
to purchase Bank Notes, the issue and sale of the Bank Notes or the
consummation by the Bank of the other transactions contemplated by this
Agreement, any Terms Agreement, or the Issuing and Paying Agency Agreement,
except (a) such as may be required by the securities or Blue Sky laws of
the various states in connection with the solicitation by any Agent of
offers to purchase Bank Notes and with purchases of Bank Notes by any Agent
as principal, as the case may be, in each case in the manner contemplated
hereby, (b) the Offering Circular and any amendments thereto (other than
amendments which contain only pricing information relating to a particular
transaction, Call Reports or Periodic Reports incorporated by reference,
updated financial information concerning the Bank or non-material
information relating to the program contemplated hereby), must be filed by
the Bank with the Comptroller pursuant to 12 C.F.R. Section 16.6, and (c)
with respect to Subordinated Bank Notes offered by the Bank notice must be
filed with the Comptroller pursuant to 12 C.F.R. Section 5.47 in order for
such Subordinated Bank Notes to be counted as Tier 2 capital of the Bank;
(viii) Neither the Bank nor any of its subsidiaries is in violation
of its charter or by-laws or is in default in the performance or observance
of any material obligation, covenant or condition contained in any
indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which it is a party or by which it or any of its
properties may be bound, other than any such default or defaults which,
individually or in the aggregate, would not reasonably be expected to have
a material adverse effect on the Bank and its subsidiaries taken as a
whole;
(ix) The statements set forth in the Offering Circular under the
caption "Description of Notes," insofar as they purport to constitute a
summary of the terms of the Bank Notes, are accurate in all material
respects;
(x) The Senior Bank Notes, when issued, will be unsecured and
unsubordinated debt obligations of the Bank and will rank pari passu among
themselves and with all other unsecured and unsubordinated debt obligations
of the Bank except, pursuant to Section 11(d)(11) of the Federal Deposit
Insurance Act, the Bank's unsecured deposit liabilities; and the
Subordinated Bank Notes, when issued, will be unsecured and subordinated
debt obligations of the Bank, rank pari passu among themselves and will be
subordinate and junior in right of payment to the Bank's obligations to its
depositors and general creditors, other than obligations which, by their
express terms rank on a parity with or junior to the Subordinated Bank
Notes;
(xi) Although such counsel need not pass upon and/or make any
independent verification of the accuracy or completeness of the statements
contained in the Offering Circular, nothing has come to such counsel's
attention that leads such counsel to believe that the Offering Circular
(other than the financial statements and other financial data included
therein and the information under the caption "Certain United States
Federal Income Tax Considerations" as to which such counsel need make no
comment), as of the date of such opinion, contains an untrue statement of a
material fact or omits to state a material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading;
(xii) The Bank is not, and after giving effect to the offer and sale
of the Bank Notes, will not be, an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the
Investment Company Act.
(c) Since the respective dates as of which information is given
in the Offering Circular as amended or supplemented prior to the date of the
Pricing Supplement relating to the Bank Notes to be delivered at the relevant
Time of Delivery, there shall not have been any change in the capital stock or
long-term debt of the Bank or any of its subsidiaries or any change in or
affecting the condition, financial or otherwise, business affairs, or business
prospects of the Bank or its subsidiaries otherwise than as set forth or
contemplated in the Offering Circular as amended or supplemented prior to the
date of the Pricing
13
<PAGE>
Supplement relating to the Bank Notes to be delivered at the relevant Time of
Delivery, the effect of which, in any such case described in this Section 6(c),
is in the reasonable judgment of the Agents so material and adverse as to make
it impracticable or inadvisable to proceed with the purchase by the Agents of
the Bank Notes as principal or the solicitation by the Agents of offers to
purchase the Bank Notes, as the case may be, on the terms and in the manner
contemplated in the Offering Circular as amended or supplemented prior to the
date of the Pricing Supplement relating to the Bank Notes to be delivered at the
relevant Time of Delivery;
(d) Since the date of any agreement to purchase Bank Notes (whether as
principal or agent and whether in writing or orally) that has not yet settled,
(i) no downgrading shall have occurred in the rating accorded the Bank's debt
securities by any nationally recognized statistical rating organization, and
(ii) no such organization shall have publicly announced that it has under
surveillance or review, with negative implications, its rating of any of the
Bank's debt securities;
(e) Since the date of any agreement to purchase Bank Notes (whether as
principal or agent and whether in writing or orally) that has not yet settled,
there shall not have occurred any of the following: (i) a suspension or material
limitation in trading in securities generally on the New York Stock Exchange;
(ii) a suspension or material limitation in trading in the securities of the
Bank or PFC on the New York Stock Exchange; (iii) a general moratorium on
commercial banking activities declared by either Federal or New York State
authorities; (iv) the outbreak or escalation of hostilities involving the United
States or the declaration by the United States of a national emergency or war,
if the effect of any such event specified in this Clause (e) in the judgment of
the Agents makes it impracticable or inadvisable to proceed with the
solicitation of offers to purchase Bank Notes or the purchase of the Bank Notes
from the Bank as principal pursuant to the applicable Terms Agreement or
otherwise, as the case may be, on the terms and in the manner contemplated in
the Offering Circular;
(f) With respect to any Bank Note denominated in a currency other than
the U.S. dollar, more than one currency or a composite currency or any Bank Note
the principal or interest of which is indexed to such currency, currencies or
composite currency, there shall not have occurred a suspension or material
limitation in foreign exchange trading in such currency, currencies or composite
currency by a major international bank, a general moratorium on commercial
banking activities in the country or countries issuing such currency, currencies
or composite currency, the outbreak or escalation of hostilities involving, the
occurrence of any material adverse change in the existing financial, political
or economic conditions of, or the declaration of war or a national emergency by,
the country or countries issuing such currency, currencies or composite currency
or the imposition or proposal of exchange controls by any governmental authority
in the country or countries issuing such currency, currencies or composite
currency; and
(g) The Bank shall have furnished or caused to be furnished to the
Agents certificates of officers of the Bank at each time required by Section
4(n) hereof that is on or prior to such Solicitation Time or Time of Delivery,
as the case may be, in such form and executed by any two of the Chief Executive
Officer, President, Treasurer, Controller, any Senior or Executive Vice
President or any other officer of the Bank who is a member of the Management
Finance Committee of the Bank, or any other officer of the Bank having the same
or similar responsibilities, as to the accuracy of the representations and
warranties of the Bank herein at and as of the Commencement Date or such
applicable date, as the case may be, as to the performance by the Bank of all of
its obligations hereunder to be performed at or prior to the Commencement Date
or such applicable date, as the case may be, and as to the matters set forth in
subsection (c) of this Section 6.
7. (a) The Bank will indemnify and hold harmless each Agent against any
losses, claims, damages or liabilities, joint or several, to which such Agent
may become subject, under the 1933 Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon an untrue statement or alleged untrue statement of a material
fact contained in the Offering Circular as amended or supplemented and any
report which has been approved by the Bank in writing and is furnished to
security holders and not otherwise deemed to be included in the Offering
Circular, or arise out of or are based upon the omission or alleged omission to
state therein a material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading, and will
reimburse such Agent for any legal or other expenses reasonably incurred by it
in
14
<PAGE>
connection with investigating or defending any such action or claim as such
expenses are incurred; provided, however, that the Bank shall not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in the Offering Circular as amended or
supplemented, or any such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Bank by such Agent
expressly for use therein.
(b) Each Agent will indemnify and hold harmless the Bank against any
losses, claims, damages or liabilities to which the Bank may become subject,
under the 1933 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in the
Offering Circular as amended or supplemented, or arise out of or are based upon
the omission or alleged omission to state therein a material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in the Offering Circular as amended or supplemented in
reliance upon and in conformity with written information furnished to the Bank
by such Agent expressly for use therein, and will reimburse the Bank for any
legal or other expenses reasonably incurred by the Bank in connection with
investigating or defending any such action or claim as such expenses are
incurred.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation. No indemnifying party shall, without
the written consent of the indemnified party, effect the settlement or
compromise of, or consent to the entry of any judgment with respect to, any
pending or threatened action or claim in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified party is an
actual or potential party to such action or claim) unless such settlement,
compromise or judgment (i) includes an unconditional release of the indemnified
party from all liability arising out of such action or claim and (ii) does not
include a statement as to, or an admission of, fault, culpability or a failure
to act, by or on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Bank on the one hand and the applicable Agent
on the other from the offering of the Bank Notes to which such loss, claim,
damage or liability (or action in respect thereof) relates. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give the notice required
under subsection (c) above, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Bank on the one hand and the applicable Agent on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Bank on the one hand and such Agent on the other shall be deemed to be in the
same proportion as the total net proceeds from the sale of Bank Notes (before
deducting expenses) received by the Bank bear to the total commissions or
15
<PAGE>
discounts received by an Agent in respect thereof. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact necessary in order to make the statements therein not misleading
relates to information supplied by the Bank on the one hand or such Agent on the
other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Bank and each
Agent agree that it would not be just and equitable if contribution pursuant to
this subsection (d) were determined by per capita allocation or by any other
method of allocation which does not take account of the equitable considerations
referred to above in this subsection (d). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this subsection (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subsection (d), an Agent shall
not be required to contribute any amount in excess of the amount by which the
total offering price at which the Bank Notes purchased by or through it were
sold exceeds the amount of any damages which such Agent has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission.
(e) The obligations of the Bank under this Section 7 shall be in
addition to any liability which the Bank may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls an
Agent within the meaning of the 1933 Act; and the obligations of each Agent
under this Section 7 shall be in addition to any liability which such Agent may
otherwise have and shall extend, upon the same terms and conditions, to each
officer and director of the Bank and to each person, if any, who controls the
Bank within the meaning of the 1933 Act.
8. Each Agent, in soliciting offers to purchase Bank Notes from the Bank
and in performing its other obligations hereunder (other than in respect of any
purchase by such Agent as principal, pursuant to a Terms Agreement or
otherwise), is acting solely as agent for the Bank and not as principal. Each
Agent will make reasonable efforts to assist the Bank in obtaining performance
by each purchaser whose offer to purchase Bank Notes from the Bank was solicited
by such Agent and has been accepted by the Bank, but such Agent shall not have
any liability to the Bank in the event such purchase is not consummated for any
reason, unless such purchase is not consummated as a result of the gross
negligence or willful misconduct of such Agent. If the Bank shall default on
its obligation to deliver Bank Notes to a purchaser whose offer it has accepted
and such default did not result from a failure by an Agent to perform its
obligations hereunder, the Bank shall (i) hold such Agent harmless against any
loss, claim or damage arising from or as a result of such default by the Bank
and (ii) notwithstanding such default, pay to such Agent any commission to which
it would be entitled in connection with such sale.
9. Delivery of Bank Notes sold through an Agent as agent for the Bank
shall be made by the Bank to such Agent for the account of any purchaser only
against payment therefor in immediately available funds. In the event that a
purchaser shall fail either to accept delivery of or to make payment for the
Bank Notes sold through such Agent as agent on the date fixed for settlement,
such Agent shall promptly notify the Bank and deliver the Bank Notes to the
Bank, and, if such Agent has theretofore paid the Bank for such Bank Notes, the
Bank will promptly return such funds to such Agent. If such failure shall have
occurred for any reason other than default by the applicable Agent to perform
its obligations hereunder, the Bank will reimburse such Agent on an equitable
basis for its loss of the use of funds during the period when the funds were
credited to the account of the Bank.
10. The respective indemnities, agreements, representations, warranties
and other statements by the Agents and the Bank set forth in or made pursuant to
this Agreement shall remain in full force and effect regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of the Agents or any controlling person of the Agents, or the Bank, or any
officer or director or any controlling person of the Bank, and shall survive
each delivery of and payment for any of the Bank Notes.
11. The provisions of this Agreement relating to the solicitation of
offers to purchase Bank Notes from the Bank may be suspended or terminated at
any time by the Bank or by the Agents upon the giving of written notice of such
suspension or termination to the Agents or the Bank, as the case may be. In the
event of such suspension or termination this Agreement shall remain in full
force and effect with respect to the rights and obligations of any party which
have previously accrued or which relate to Bank
16
<PAGE>
Notes which are already issued, agreed to be issued or the subject of a pending
offer at the time of such suspension or termination and in any event, this
Agreement shall remain in full force and effect insofar as the following
provisions are concerned: (i) to the extent any Agent shall be entitled to any
commissions earned hereunder but not yet paid at the time of termination, the
last paragraph of Section 2(b) hereof, (ii) if at the time of termination any
Agent shall own any Bank Notes as principal or an offer to purchase Bank Notes
has been accepted but the Bank Notes have not yet been delivered, Sections 4(b),
4(d) and 4(e) hereof shall remain in effect until such Bank Notes are resold or
delivered, as the case may be, and (iii) Sections 5, 7, 8 and 10 hereof shall
remain in effect.
12. Except as otherwise specifically provided herein or in the
Administrative Procedures, all statements, requests, notices and advices
hereunder shall be in writing, or by telephone if promptly confirmed in writing,
and shall be sufficient in all respects when delivered or sent by facsimile
transmission or registered mail, if to Goldman Sachs & Co., to Goldman Sachs &
Co., 85 Broad Street, New York, New York 10004, Facsimile Transmission No. (212)
357-8680, Attention: Credit Department, Credit Control--Medium-Term Notes, if to
Credit Suisse First Boston Corporation, to Credit Suisse First Boston
Corporation, Eleven Madison Avenue, New York, New York 10010, Attention: Short
and Medium-Term Finance Department, Facsimile Transmission No. (212) 325-8289,
if to Lehman Brothers Inc., to Lehman Brothers Inc., 3 World Financial Center,
New York, New York 10285, Attention: Medium-Term Note Department, Facsimile
Transmission No. (212) 528-1781, if to Merrill Lynch, Pierce, Fenner & Smith
Incorporated, to Merrill Lynch, Pierce, Fenner & Smith Incorporated, World
Financial Center, North Tower, 10th Floor, New York, New York 10281-1310,
Attention: Product Management - Bank Notes, Facsimile Transmission No. (212)
449-2234, if to the Bank, to Providian National Bank, c/o Providian Financial
Corporation, 201 Mission Street, San Francisco, California 94105, Facsimile
Transmission No. (415) 278-6028, Attention: Treasurer.
13. This Agreement and any Terms Agreement shall be binding upon, and
inure solely to the benefit of, the Agents and the Bank, and to the extent
provided in Sections 7, 8 and 10 hereof, the officers and directors of the Bank
and any person who controls the Agents or the Bank, and their respective
personal representatives, successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement or any Terms
Agreement. No purchaser of any of the Bank Notes through or from any Agent
hereunder shall be deemed a successor or assign by reason merely of such
purchase.
14. Time shall be of the essence in this Agreement and any Terms
Agreement.
15. THIS AGREEMENT AND ANY TERMS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
16. This Agreement and any Terms Agreement may be executed by any one or
more of the parties hereto and thereto in any number of counterparts, each of
which shall be an original, but all of such respective counterparts shall
together constitute one and the same instrument.
17
<PAGE>
If the foregoing is in accordance with your understanding, please sign and
return to us a counterpart hereof, whereupon this letter and the acceptance by
you thereof shall constitute a binding agreement between the Bank and you in
accordance with its terms.
Very truly yours,
PROVIDIAN NATIONAL BANK
By: /s/ Robert W. Molke
-------------------------------------
Name: Robert W. Molke
Title: Vice President and Treasurer
Accepted in New York, New York,
as of the date hereof:
GOLDMAN, SACHS & CO.
/s/ Goldman, Sachs & Co.
- ----------------------------------------
(Goldman, Sachs & Co.)
CREDIT SUISSE FIRST BOSTON CORPORATION
/s/ Helena M. Willner
- ----------------------------------------
Name: Helena M. Willner
Title: Vice President
LEHMAN BROTHERS INC.
/s/ Nelson Soares
- ----------------------------------------
Name: Nelson Soares
Title: Managing Director
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
/s/ Marion Neustadter
- ----------------------------------------
Name: Marion Neustadter
Title: Director
18
<PAGE>
ANNEX I
PROVIDIAN NATIONAL BANK
[TITLE OF BANK NOTE]
Terms Agreement
---------------
_______________, 19__
[Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004]
[Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, New York 10010]
[Lehman Brothers
Lehman Brothers Inc.
3 World Financial Center
New York, New York 10285]
[Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
World Financial Center
North Tower
New York, New York 10048]
Ladies and Gentlemen:
Providian National Bank (the "Bank") proposes, subject to the terms and
conditions stated herein and in the Distribution Agreement, dated February 20,
1998 (the "Distribution Agreement"), between the Bank and Goldman, Sachs & Co.,
Credit Suisse First Boston Corporation, Lehman Brothers, Lehman Brothers Inc.
(including its affiliate, Lehman Commercial Paper Inc.) and Merrill Lynch & Co.
(the "Agents") to issue and sell to you the securities specified in the Schedule
hereto (the "Purchased Bank Notes"). Each of the provisions of the Distribution
Agreement not specifically related to the solicitation by you, as agent of the
Bank, of offers to purchase Bank Notes is incorporated herein by reference in
its entirety, and shall be deemed to be part of this Terms Agreement to the same
extent as if such provisions had been set forth in full herein. Capitalized
terms used herein but not so defined shall have the meanings ascribed thereto in
the Distribution Agreement. Nothing contained herein or in the Distribution
Agreement shall make any party hereto an agent of the Bank or make such party
subject to the provisions therein relating to the solicitation of offers to
purchase Bank Notes from the Bank, solely by virtue of its execution of this
Terms Agreement. Each of the representations and warranties set forth therein
shall be deemed to have been made at and as of the date of this Terms Agreement,
except that each representation and warranty in Section 1 of the Distribution
Agreement which makes reference to the Offering Circular shall be deemed to be a
representation and warranty as of the date of this Terms Agreement in relation
to the Offering Circular as amended and supplemented to relate to the Purchased
Bank Notes and except to the extent such representations and warranties
expressly relate to an earlier date.
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<PAGE>
Subject to the terms and conditions set forth herein and in the
Distribution Agreement incorporated herein by reference, the Bank agrees to
issue and sell to you and you agree to purchase from the Bank the Purchased Bank
Notes, at the time and place, in the principal amount and at the purchase price
set forth in the Schedule hereto.
If the foregoing is in accordance with your understanding, please sign and
return to us two counterparts hereof, and upon acceptance hereof by you this
letter and such acceptance hereof, including those provisions of the
Distribution Agreement incorporated herein by reference, shall constitute a
binding agreement between you and the Bank.
PROVIDIAN NATIONAL BANK
By: _____________________________
Name:
Title:
Accepted:
By: ______________________________
[Goldman, Sachs & Co.]
[Credit Suisse First Boston Corporation]
[Lehman Brothers Inc.]
[Merrill Lynch & Co.]
2
<PAGE>
SCHEDULE TO ANNEX I
Purchasing Agent:
Title of Purchased Securities:
___% [Senior] [Subordinated] Bank Notes
Aggregate Principal:
[$______________ or units of other Specified Currency]
Price to Public:
Purchase Price by the Agent:
___% of the principal amount of the Purchased Securities[, plus accrued
interest from _______________ to _______________] [and accrued amortization, if
any, from _______________ to _______________]
Method of and Specified Funds for Payment of Purchase Price:
[By certified or official bank check or checks, payable to the order of the
Bank, in immediately available funds]
[By wire transfer to a bank account specified by the Bank in immediately
available funds]
Issuing and Paying Agency Agreement:
Issuing and Paying Agency Agreement, dated as of ____________, 1998,
between the Bank and The First National Bank of Chicago, as Issuing and Paying
Agent
Time of Delivery:
Closing Location for Delivery of Bank Notes:
Maturity:
Interest Rate:
[ %]
Interest Payment Dates:
[months and dates]
Commission Percentage:
Documents to be Delivered:
The following documents referred to in the Distribution Agreement shall be
delivered as a condition to the Closing:
3
<PAGE>
[(1) The opinion of counsel to the Bank referred to in Section 4(m).]
[(2) The officers' certificate referred to in Section 4(n).]
Other Provisions (including Syndicate Provisions, if applicable):
4
<PAGE>
ANNEX II
PROVIDIAN NATIONAL BANK
$4,000,000,000
SENIOR BANK NOTES
AND
SUBORDINATED BANK NOTES
DUE FROM 7 DAYS TO 15 YEARS FROM DATE OF ISSUE
Administrative Procedures
-------------------------
These Administrative Procedures relate to the Notes defined in the
Distribution Agreement, dated February 20, 1998 (the "Distribution Agreement"),
between Providian National Bank (the "Bank") and Goldman, Sachs & Co.
("Goldman"), Credit Suisse First Boston Corporation ("First Boston"), Lehman
Brothers, Lehman Brothers Inc. ("Lehman") and Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith ("Merrill" and, collectively with Goldman, First
Boston and Lehman, the "Agents"), to which these Administrative Procedures are
attached as Annex II. Defined terms used herein and not defined herein shall
have the meanings given such terms in the Distribution Agreement, the Offering
Circular as amended or supplemented or the Issuing and Paying Agency Agreement.
The procedures to be followed with respect to the settlement of sales of
Bank Notes directly by the Bank to purchasers solicited by an Agent, as agent,
are set forth below. The terms and settlement details related to a purchase of
Bank Notes by an Agent, as principal, from the Bank will be set forth in a Terms
Agreement pursuant to the Distribution Agreement, unless the Bank and such Agent
otherwise agree as provided in Section 2(a) of the Distribution Agreement, in
which case the procedures to be followed in respect of the settlement of such
sale will be as set forth below. An Agent, in relation to a purchase of a Bank
Note by a purchaser solicited by such Agent, is referred to herein as the
"Selling Agent" and, in relation to a purchase of a Bank Note by such Agent as
principal other than pursuant to a Terms Agreement, as the "Purchasing Agent".
The Bank will advise each Agent in writing of those representatives of the
Bank with whom such Agent is to communicate regarding offers to purchase Bank
Notes and the related settlement details.
Each Bank Note will be issued only in fully registered form and will be
represented by a global security (a "Global Note") delivered to the Issuing and
Paying Agent, as agent for The Depository Trust Company (the "Depositary") and
recorded in the book-entry system maintained by the Depositary (a "Book-Entry
Note"). An owner of a Book-Entry Note will not be entitled to receive a
certificate representing such Book-Entry Note, except as provided in the Issuing
and Paying Agency Agreement.
In connection with the qualification of the Book-Entry Notes for
eligibility in the book-entry system maintained by the Depositary, the Issuing
and Paying Agent will perform the custodial, document control and administrative
functions described below, in accordance with its respective obligations under
the Short-Term and Medium-Term Letters of Representation from the Bank and the
Issuing and Paying Agent to the Depositary, dated February 20, 1998, and a
Medium-Term
<PAGE>
Note Certificate Agreement between the Issuing and Paying Agent and the
Depositary, dated as of May 17, 1994 (the "Certificate Agreement"), as amended,
and its obligations as a participant in the Depositary, including the
Depositary's Same-Day Funds Settlement System ("SDFS").
Posting Rates by the Bank:
The Bank and the Agents will discuss from time to time the rates of
interest per annum to be borne by and the maturity of Book-Entry Notes that may
be sold as a result of the solicitation of offers by an Agent. The Bank may
establish a fixed set of interest rates and maturities for an offering period
("posting"). If the Bank decides to change already posted rates, it will
promptly advise the Agents to suspend solicitation of offers until the new
posted rates have been established with the Agents.
Acceptance of Offers by the Bank:
Each Agent will promptly advise the Bank by telephone or other appropriate
means of all reasonable offers to purchase Book-Entry Notes. Each Agent also
may make offers to the Bank to purchase Book-Entry Notes as a Purchasing Agent.
Each Agent shall have the right, in its reasonably exercised discretion, to
reject any proposed purchase of Bank Notes, as a whole or in part. The Bank
will have the sole right to accept offers to purchase Book-Entry Notes and may
reject any such offer in whole or in part.
The Bank will promptly notify the Selling Agent or Purchasing Agent, as the
case may be, of its acceptance or rejection of an offer to purchase Book-Entry
Notes. If the Bank accepts an offer to purchase Book-Entry Notes, it will
confirm such acceptance by telephone or in writing to the Selling Agent or
Purchasing Agent, as the case may be, and the Issuing and Paying Agent.
Communication of Sale Information to the Bank by the Agents and Settlement
Procedures:
A. After the acceptance of an offer by the Bank, the Selling Agent or
Purchasing Agent, as the case may be, will communicate promptly, but in no event
later than the time set forth under "Settlement Procedure Timetable" below, the
following details of the terms of such offer (the "Sale Information") to the
Bank by telephone (confirmed in writing) or by facsimile transmission or other
acceptable written means:
(1) Principal Amount of Book-Entry Notes to be purchased;
(2) If a Fixed Rate Book-Entry Note, the interest rate and initial
interest payment date;
(3) Trade Date;
(4) Settlement Date;
(5) Maturity Date;
(6) Specified Currency and, if the Specified Currency is other than U.S.
dollars, the applicable Exchange Rate for such Specified Currency (it
being understood that currently the Depositary accepts deposits of
Global Notes denominated in U.S. dollars only);
(7) Indexed Currency, the Base Rate and the Exchange Rate Determination
Date, if applicable;
2
<PAGE>
(8) Issue Price;
(9) Selling Agent's commission or Purchasing Agent's discount, as the case
may be;
(10) Net Proceeds to the Issuing Bank;
(11) If a redeemable Book-Entry Note, such of the following as are
applicable:
(i) Initial Redemption Date,
(ii) Redemption Price (% of par), and
(iii) Amount (% of par) that the Redemption Price shall decline (but
not below par) on each anniversary of the Initial Redemption
Date;
(12) If a Book-Entry Note subject to repayment at the option of the holder,
the Optional Repayment Date(s);
(13) If a Floating Rate Book-Entry Note, such of the following as are
applicable:
(i) Interest Rate Basis,
(ii) Index Maturity,
(iii) Spread or Spread Multiplier,
(iv) Maximum Rate,
(v) Minimum Rate,
(vi) Initial Interest Rate,
(vii) Interest Reset Dates,
(viii)Interest Payment Dates,
(ix) Regular Record Dates, and
(x) Calculation Agent;
(14) Name, address and taxpayer identification number of the purchaser(s);
(15) Denomination of certificates to be delivered at settlement; and
(16) Selling Agent or Purchasing Agent.
B. After receiving the Sale Information from the Selling Agent or
Purchasing Agent, as the case may be, the Bank will communicate such Sale
Information to the Issuing and Paying Agent by facsimile transmission or other
acceptable written or electronic means. The Issuing and Paying Agent will
assign a CUSIP number to the Global Note from a list of CUSIP numbers previously
delivered to the Issuing and Paying Agent by the Bank representing such Book-
Entry Note and then advise the Bank and the Selling Agent or Purchasing Agent,
as the case may be, of such CUSIP number.
C. The Issuing and Paying Agent will enter a pending deposit message
through the Depositary's Participant Terminal System, providing the following
settlement information to the Depositary, and the Depositary shall forward such
information to such Agent and Standard & Poor's Corporation:
(1) The applicable Sale Information;
(2) CUSIP number of the Global Note representing such Book-Entry Note;
(3) Whether such Global Note will represent any other Book-Entry Note (to
the extent known at such time);
(4) Number of the participant account maintained by the Depositary on
behalf of the Selling Agent or Purchasing Agent, as the case may be;
(5) The interest payment period; and
(6) Initial Interest Payment Date for such Book-Entry Note, number of days
by which such date succeeds the record date for the Depositary's
purposes and, if
3
<PAGE>
calculable at that time, the amount of interest payable on such
Interest Payment Date.
D. The Issuing and Paying Agent will complete and authenticate the Global
Note previously delivered by the Bank representing such Book-Entry Note.
E. The Depositary will credit such Book-Entry Note to the Issuing and
Paying Agent's participant account at the Depositary.
F. The Issuing and Paying Agent will enter an SDFS deliver order through
the Depositary's Participant Terminal System instructing the Depositary to (i)
debit such Book-Entry Note to the Issuing and Paying Agent's participant account
and credit such Book-Entry Note to the Selling Agent's or Purchasing Agent's
participant account and (ii) debit the Selling Agent's or Purchasing Agent's
settlement account and credit the Issuing and Paying Agent's settlement account
for an amount equal to the price of such Book-Entry Note less such Agent's
commission. The entry of such a deliver order shall constitute a representation
and warranty by the Issuing and Paying Agent to the Depositary that (a) the
Global Note representing such Book-Entry Note has been issued and authenticated
and (b) the Issuing and Paying Agent is holding such Global Note pursuant to the
Certificate Agreement.
G. The Selling Agent or Purchasing Agent will enter an SDFS deliver order
through the Depositary's Participant Terminal System instructing the Depositary
(i) to debit the Selling Agent's or Purchasing Agent's Book-Entry Note to such
Agent's participant account and credit such Book-Entry Note to the participant
accounts of institutions that have accounts with the Depositary or its nominee
(each a "participant" and collectively, the "participants") with respect to such
Book-Entry Note and (ii) to debit the settlement accounts of such participants
and credit the settlement account of the Selling Agent or Purchasing Agent for
an amount equal to the price of such Book-Entry Note.
H. Transfers of funds in accordance with SDFS deliver orders described in
Settlement Procedures "F" and "G" will be settled in accordance with SDFS
operating procedures in effect on the settlement date.
I. Upon confirmation of receipt of funds, the Issuing and Paying Agent
will transfer to the account of the Bank maintained at The First National Bank
of Chicago, or such other account as the Bank may have previously specified to
the Issuing and Paying Agent, funds available for immediate use in the amount
transferred to the Issuing and Paying Agent in accordance with Settlement
Procedure "F".
J. Upon request, the Issuing and Paying Agent will send to the Bank a
statement setting forth the principal amount of Book-Entry Notes outstanding as
of that date under the Issuing and Paying Agency Agreement.
K. The Selling Agent or Purchasing Agent will confirm the purchase of
such Book-Entry Note to the purchaser either by transmitting to the participants
with respect to such Book-Entry Note a confirmation order or orders through the
Depositary's institutional delivery system or by mailing a written confirmation
to such purchaser.
4
<PAGE>
L. The Depositary will, at any time, upon request of the Bank or the
Issuing and Paying Agent, promptly furnish to the Bank or the Issuing and Paying
Agent a list of the names and addresses of the participants for whom the
Depositary has credited Book-Entry Notes.
Preparation of Pricing Supplement:
If the Bank accepts an offer to purchase a Book-Entry Note, it will prepare
or cause to be prepared a Pricing Supplement reflecting the terms of such Book-
Entry Note and arrange to have delivered to the Selling Agent or Purchasing
Agent, as the case may be, such Pricing Supplement, not later than 5:00 p.m.,
New York City time, on the Business Day following the Trade Date (as defined
below), or if the Bank and the purchaser agree to settlement on the date of
acceptance of such offer, or the next Business Day, not later than 12:00 noon,
New York City time, on such agreed upon settlement date. With respect to Short-
Term Notes, if agreed between the Bank and the Agent, no Pricing Supplement will
be prepared.
Delivery of Confirmation and Offering Circular to Purchaser by Selling Agent:
The Selling Agent will deliver to the purchaser of a Book-Entry Note a
written confirmation of the sale and delivery and payment instructions. In
addition, the Selling Agent will deliver to such purchaser or its agent the
Offering Circular as amended or supplemented (including the Pricing Supplement)
in relation to such Book-Entry Note prior to or together with the earlier of the
delivery to such purchaser or its agent of (a) the confirmation of sale or (b)
the Book-Entry Note.
Date of Settlement:
The receipt by the Bank of immediately available funds in payment for a
Book-Entry Note and the authentication and issuance of the Global Note
representing such Book-Entry Note shall constitute "settlement" with respect to
such Book-Entry Note. All orders of Book-Entry Notes solicited by a Selling
Agent or made by a Purchasing Agent and accepted by the Bank on a particular
date (the "Trade Date") will be settled on a date (the "Settlement Date") which
is the third Business Day after the Trade Date pursuant to the "Settlement
Procedure Timetable" set forth below, unless the Bank and the purchaser agree to
settlement on another Business Day which may be as early as the Trade Date.
Settlement Procedure Timetable:
For offers of Book-Entry Notes solicited by a Selling Agent and accepted by
the Bank for settlement on or before the third Business Day after the Trade
Date, Settlement Procedures "A" through "I" set forth above shall be completed
as soon as possible but not later than the respective times (New York City time)
set forth below:
<TABLE>
<CAPTION>
SETTLEMENT
PROCEDURE TIME
- ---------- ----
<S> <C> <C>
A 5:00 p.m. on the Trade Date or 11:00 a.m. on the Business Day
immediately preceding the Settlement Date,
whichever is earlier
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
SETTLEMENT
PROCEDURE TIME
- ---------- ----
<S> <C> <C>
B 12:00 noon on the Business Day immediately preceding the
Settlement Date
C 2:00 p.m. on the Business Day immediately preceding the
Settlement Date
D 9:00 a.m. on the Settlement Date
E 10:00 a.m. on the Settlement Date
F-G 2:00 p.m. on the Settlement Date
H 4:45 p.m. on the Settlement Date
I 5:00 p.m. on the Settlement Date
</TABLE>
If the initial interest rate for a Floating Rate Book-Entry Note has not
been determined at the time that Settlement Procedure "A" is completed,
Settlement Procedures "B" and "C" shall be completed as soon as such rate has
been determined but no later than 2:00 p.m. on the second Business Day
immediately preceding the Settlement Date. Settlement Procedure "H" is subject
to extension in accordance with any extension of Fedwire closing deadlines and
in the other events specified in the SDFS operating procedures in effect on the
Settlement Date.
If a sale is to be settled on the same Business Day as the Trade Date,
Settlement Procedure "A" shall be completed no later than 11:00 a.m. on the
Settlement Date; Settlement Procedure "B" shall be completed no later than 11:30
a.m. on the Settlement Date; Settlement Procedure "C" shall be completed no
later than 12:00 noon on the Settlement Date; Settlement Procedure "D" shall be
completed no later than 12:30 p.m. on the Settlement Date; Settlement Procedure
"E" shall be completed no later than 1:00 p.m. on the Settlement Date.
If settlement of a Book-Entry Note is rescheduled or canceled, the Issuing
and Paying Agent, upon obtaining knowledge thereof, will deliver to the
Depositary, through the Depositary's Participant Terminal System, a cancellation
message to such effect by no later than 2:00 p.m. on the Business Day
immediately preceding the scheduled Settlement Date or, if a sale is to be
settled on the same Business Day as the Trade Date, as promptly as possible
after obtaining knowledge thereof.
Failure to Settle:
If the Issuing and Paying Agent fails to enter an SDFS deliver order with
respect to a Book-Entry Note pursuant to Settlement Procedure "F", the Issuing
and Paying Agent may deliver to the Depositary, through the Depositary's
Participant Terminal System, as soon as practicable a withdrawal message
instructing the Depositary to debit such Book-Entry Note to the Issuing and
Paying Agent's participant account, provided that the Issuing and Paying Agent's
participant account contains a principal amount of the Global Note representing
such Book-Entry Note that is at least equal to the principal amount to be
debited. If a withdrawal message is processed with respect to all the Book-
Entry Notes represented by a Global Note, the Issuing and Paying Agent will mark
such Global Note "canceled", make appropriate entries in the Issuing and Paying
Agent's records and send such canceled Global Note to the Bank. The CUSIP
number assigned to such Global Note shall, in accordance with CUSIP Service
Bureau procedures, be canceled and not immediately reassigned. If a withdrawal
message is processed with respect to one or more, but not all, of the Book-Entry
Notes represented by a Global Note, the Issuing and Paying Agent will exchange
such Global Note for two Global Notes, one of which shall represent such Book-
Entry Note or Notes and shall be canceled immediately after issuance
6
<PAGE>
and the other of which shall represent the remaining Book-Entry Notes previously
represented by the surrendered Global Note and shall bear the CUSIP number of
the surrendered Global Note.
If the purchase price for any Book-Entry Note is not timely paid to the
participants with respect to such Book-Entry Note by the beneficial purchaser
thereof (or a person, including an indirect participant in the Depositary,
acting on behalf of such purchaser), such participants and, in turn, the Agent
for such Book-Entry Note may enter deliver orders through the Depositary's
Participant Terminal System debiting such Book-Entry Note to such participant's
account and crediting such Book-Entry Note to such Agent's account and then
debiting such Book-Entry Note to such Agent's participant account and crediting
such Book-Entry Note to the Issuing and Paying Agent's participant account and
shall promptly notify the Bank and the Issuing and Paying Agent thereof.
Thereafter, the Issuing and Paying Agent will (i) immediately notify the Bank of
such order and the Bank shall transfer to such Agent funds available for
immediate use in an amount equal to the price of such Book-Entry Note which was
credited to the account of the Bank maintained in accordance with Settlement
Procedure I, and (ii) deliver the withdrawal message and take the related
actions described in the preceding paragraph. If such failure shall have
occurred for any reason other than default by the applicable Agent to perform
its obligations hereunder or under the Distribution Agreement, the Bank will
reimburse such Agent on an equitable basis for the loss of its use of funds
during the period when the funds were credited to the account of the Bank.
Notwithstanding the foregoing, upon any failure to settle with respect to a
Book-Entry Note, the Depositary may take any actions in accordance with its SDFS
operating procedures then in effect. In the event of a failure to settle with
respect to one or more, but not all, of the Book-Entry Notes to have been
represented by a Global Note, the Issuing and Paying Agent will provide, in
accordance with Settlement Procedure "D", for the authentication and issuance of
a Global Note representing the other Book-Entry Notes to have been represented
by such Global Note and will make appropriate entries in its records. The Bank
will, from time to time, furnish the Issuing and Paying Agent with a sufficient
quantity of Global Notes.
7
<PAGE>
EXHIBIT 10.31
ISSUING AND PAYING AGENCY AGREEMENT
ISSUING AND PAYING AGENCY AGREEMENT dated as of February 20, 1998 (the
"Agreement"), between Providian National Bank (the "Bank") and The First
National Bank of Chicago, as issuing and paying agent (the "Issuing and Paying
Agent," which term shall also refer to any duly appointed successor thereto).
WITNESSETH:
Section 1. Appointment of Issuing and Paying Agent. The Bank proposes to
---------------------------------------
issue from time to time its Senior and Subordinated Bank Notes (each, a "Bank
Note" and collectively, the "Bank Notes") in such amounts as may be duly
authorized by the Bank pursuant to the Distribution Agreement, dated February
20, 1998 (the "Distribution Agreement"), between the Bank and the agents named
therein (the "Agents").
Each Bank Note will be issued in book-entry form and will be represented by
a global certificate (each, a "Global Bank Note" and collectively, the "Global
Bank Notes") registered in the name of The Depository Trust Company, as
depository ("DTC," which term includes any successor thereof), or a nominee
thereof (which successor shall be a clearing agency registered under the
Securities Exchange Act of 1934, as amended, if so required by applicable law)
(each beneficial interest in a Global Bank Note, a "Book-Entry Bank Note" and
collectively, the "Book-Entry Bank Notes").
The Bank hereby appoints the Issuing and Paying Agent to act, on the terms
and conditions specified herein, as issuing and paying agent for the Global Bank
Notes and as registrar, transfer agent and authenticating agent for the Global
Bank Notes and to perform such other responsibilities as are described herein
and in the Administrative Procedures attached as Annex II to the Distribution
--------
Agreement as such Administrative Procedures may be amended from time to time by
agreement of the Bank and the Agents with notice of such amendments to the
Issuing and Paying Agent, and the Issuing and Paying Agent hereby accepts such
appointments. The aggregate principal amount of the Global Bank Notes which may
be issued pursuant to this Agreement outstanding at any one time is unlimited.
The Issuing and Paying Agent shall exercise due care in the performance of
its obligations hereunder and shall perform such obligations in a manner
consistent with industry standards.
Section 2. Global Bank Note Forms; Terms; Execution.
----------------------------------------
(i) The Global Bank Notes shall be substantially (i) in the form set
forth in Exhibit A-1 hereto if such Global Bank Note is a Senior Bank Note
(each, a "Senior Bank Note" and collectively, the "Senior Bank Notes") and bears
interest at a fixed rate of interest (each such Global Bank Note, a "Fixed Rate
Global Senior Bank Note" and collectively, the "Fixed Rate Global Senior Bank
Notes"), (ii) in the form of Exhibit A-2 hereto if such Global Bank Note is a
<PAGE>
Senior Bank Note and bears interest at a floating rate of interest determined by
reference to an interest rate basis specified therein (each such Global Bank
Note, a "Floating Rate Global Senior Bank Note" and collectively, the "Floating
Rate Global Senior Bank Notes"), (iii) in the form of Exhibit A-3 hereto if such
Global Bank Note is a Subordinated Bank Note (each, a "Subordinated Bank Note"
and collectively, the "Subordinated Bank Notes") and bears interest at a fixed
rate of interest (each such Global Bank Note, a "Fixed Rate Global Subordinated
Bank Note" and collectively, the "Fixed Rate Global Subordinated Bank Notes"),
(iv) in the form of Exhibit A-4 hereto if such Global Bank Note is a
Subordinated Bank Note and bears interest at a floating rate of interest
determined by reference to an interest rate basis specified therein (each such
Global Bank Note, a "Floating Rate Global Subordinated Bank Note" and
collectively, the "Floating Rate Global Subordinated Bank Notes"), or (v) in
such other form as the Bank may from time to time designate.
(ii) Each Senior Bank Note issued by the Bank shall have a maturity of
7 days to 15 years from its original date of issue, and each Subordinated Bank
Note issued by the Bank shall have a maturity from five years to 15 years from
its original date of issue. The Bank Notes shall be issued in minimum
denominations of $250,000 and in integral multiples of $1,000 in excess thereof.
The interest rate borne by any particular Global Bank Note may vary from
the interest rates borne by any other Global Bank Notes. Any such variation
shall not affect the interest rate borne by any other Global Bank Notes
previously issued hereunder.
(iii) The Bank will from time to time deliver or cause to be
delivered to the Issuing and Paying Agent a supply of blank Global Bank Notes in
such quantities as the Bank shall determine, bearing consecutive control
numbers. Each Global Bank Note will have been executed by the manual or
facsimile signature of an Authorized Representative (as defined in Section 3
hereof) of the Bank. The Issuing and Paying Agent will acknowledge receipt of
the Global Bank Notes delivered to it and will hold such blank Global Bank Notes
in safekeeping in accordance with its customary practice and shall complete,
authenticate and deliver such Global Bank Notes in accordance with the
provisions hereof.
Section 3. Authorized Representatives. From time to time, the Bank will
--------------------------
furnish the Issuing and Paying Agent with a certificate executed by an officer
of the Bank certifying the incumbency and specimen signatures of those officers
of the Bank authorized to execute Global Bank Notes on behalf of the Bank by
manual or facsimile signature and to give instructions and notices on behalf of
the Bank hereunder (the "Authorized Representatives"). Until the Issuing and
Paying Agent receives a subsequent certificate, the Issuing and Paying Agent
shall be entitled to rely on the last such certificate delivered to it for the
purposes of determining the identities of Authorized Representatives of the
Bank. Any Global Bank Note bearing the manual or facsimile signatures of
persons who are Authorized Representatives of the Bank on the date such
signatures are affixed shall bind the Bank after the completion, authentication
and delivery thereof by the Issuing and Paying Agent, notwithstanding that such
persons shall have ceased to hold office on the date such Global Bank Note is so
completed, authenticated and delivered by the Issuing and Paying Agent.
2
<PAGE>
Section 4. Issuance Instructions; Completion, Authentication and Delivery
--------------------------------------------------------------
of Global Bank Notes.
- --------------------
(i) All instructions regarding the completion, authentication and
delivery of Global Bank Notes shall be given by an Authorized Representative of
the Bank by telephone (confirmed in writing), by facsimile transmission or by
other acceptable written means by such Authorized Representative.
(ii) Upon receipt of the instructions described above, the Issuing and
Paying Agent shall cause to be withdrawn the necessary and applicable Global
Bank Notes from safekeeping and, in accordance with such instructions, shall:
(a) assign a CUSIP number (if then generally in use) and
complete each Global Bank Note;
(b) record each Global Bank Note in the applicable Bank Note
Register (as defined in Section 10 hereof);
(c) cause each Global Bank Note to be manually authenticated by
any one of the signatories of the Issuing and Paying Agent
duly authorized and designated by it for such purpose; and
(d) hold each Global Bank Note in safekeeping on behalf of the
registered holder thereof;
provided that instructions regarding the completion and
--------
authenti cation of a Global Bank Note, whether delivered by
facsimile transmission or by other written means, are
received by the Issuing and Paying Agent by 12:00 noon, New
York City time, on the Business Day immediately preceding
the date of settlement relating to such Global Bank Note (or
11:30 a.m., New York City time, on the date of settlement
relating to such Bank Note if the trade date and the date of
settlement relating to such Bank Note are the same day). As
used in this Agreement, the term "Business Day" shall mean
any day that is not a Saturday or Sunday and that is not a
day on which banking institutions in The City of New York or
the city in which the Bank is headquartered are authorized
or required by law, regulation or executive order to close,
and with respect to LIBOR Notes (as defined in the
applicable Floating Rate Global Bank Note) only, any day
that is also a London Business Day. As used in this
Agreement, "London Business Day" means any day on which
dealings in deposits in U.S. dollars are transacted in the
London interbank market.
Section 5. Reliance on Instructions; Request for Instructions. The
--------------------------------------------------
Issuing and Paying Agent shall incur no liability to the Bank in acting
hereunder upon instructions contemplated hereby which the Issuing and Paying
Agent reasonably believed in good faith to have been given by an Authorized
Representative of the Bank. In the event a discrepancy exists between the
3
<PAGE>
instructions as originally received by the Issuing and Paying Agent and any
subsequent written confirmation thereof, such original instructions will be
deemed controlling if action has already been taken by the Issuing and Paying
Agent in good faith reliance on such instructions; provided that the Issuing and
--------
Paying Agent gives notice to the Bank of such discrepancy promptly upon the
receipt of such written confirmation.
Any application by the Issuing and Paying Agent for written instructions
from the Bank may, at the option of the Issuing and Paying Agent, set forth in
writing any action proposed to be taken or omitted by the Issuing and Paying
Agent under this Agreement and the date on and/or after which such action shall
be taken or such omission shall be effective. The Issuing and Paying Agent
shall not be liable for any action taken by, or omission of, the Issuing and
Paying Agent in accordance with a proposal included in such application on or
after the date specified in such application (which date shall not be less than
three Business Days after the date any Authorized Representative of the Bank
actually receives such application, unless any such Authorized Representative
shall have consented in writing to any earlier date) unless prior to taking any
such action (or the effective date in the case of an omission), the Issuing and
Paying Agent shall have received written instructions in response to such
application specifying the action to be taken or omitted.
Section 6. The Bank's Representations and Warranties. Each instruction
-----------------------------------------
given to the Issuing and Paying Agent in accordance with Section 4 hereof shall
constitute a representation and warranty to the Issuing and Paying Agent by the
Bank that the issuance and delivery of the Global Bank Notes have been duly and
validly authorized by the Bank and that the Global Bank Notes, when completed
and authenticated pursuant hereto, will constitute the valid and legally binding
obligations of the Bank subject to applicable bankruptcy, liquidation,
insolvency, reorganization, moratorium and similar laws of general applicability
relating to, or affecting, creditors' rights and to general equity principles.
The Bank further warrants that it is free to enter into this Agreement and to
perform the terms hereof.
Section 7. Payments of Interest; Interest Payment Dates; Record Dates.
----------------------------------------------------------
Interest payments on Global Bank Notes with maturities of more than one year
will be made: (i) in the case of the Fixed Rate Global Senior Bank Notes and
Fixed Rate Global Subordinated Bank Notes (collectively, the "Fixed Rate Global
Bank Notes"), semi-annually on May 15 and November 15 of each year (unless
otherwise specified in any applicable Fixed Rate Global Bank Notes) and (ii) in
the case of Floating Rate Global Senior Bank Notes and Floating Rate Global
Subordinated Bank Notes (collectively, the "Floating Rate Global Bank Notes"),
on such dates as are specified therein (collectively, the "Interest Payment
Dates") and, in each case, at maturity or upon earlier redemption or repayment
if so indicated in the applicable Global Bank Note. All such interest payments
(other than interest due at maturity or upon earlier redemption or repayment)
will be made to the Holders (as defined in Section 10 hereof) in whose names
Fixed Rate Global Bank Notes are registered at the close of business on the May
1 or November 1 (unless otherwise specified in any applicable Fixed Rate Global
Bank Notes) (whether or not a Business Day) next preceding such Interest Payment
Dates and in whose names Floating Rate Global Bank Notes are registered at the
close of business on the fifteenth calendar day (whether or not a Business Day)
prior to each such Interest Payment Date (each such May 1, November 1 and
fifteenth calendar day, a "Record Date"). Notwithstanding the foregoing, if the
Original Issue Date of any Global Bank Note with a maturity of more than one
year occurs between a Record Date and the next succeeding Interest Payment Date,
the first payment of interest on any
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such Global Bank Note will be made on the second Interest Payment Date
succeeding the Original Issue Date (as defined in the Global Bank Notes).
Interest payments will be calculated and made in the manner provided in the
applicable Global Bank Note.
If the Bank does not deposit adequate funds pursuant to Section 9 hereof
with respect to the interest due on a Global Bank Note with a maturity of more
than one year on an Interest Payment Date, such interest will cease to be due to
the Holder of such Global Bank Note as of the close of business on the Record
Date relating to such Interest Payment Date and will be paid to the Holder of
such Global Bank Note as of the close of business on a special record date to be
fixed by the Issuing and Paying Agent when funds for the payment of such
interest have been deposited pursuant to Section 9 hereof. Notice of such
special record date shall be given by the Issuing and Paying Agent, at the
Bank's expense, to the registered Holder of such Global Bank Note not less than
10 calendar days prior to such special record date.
Interest payments on Fixed Rate Global Bank Notes with maturities of one
year or less will be made only upon maturity upon presentation and surrender of
the applicable Fixed Rate Global Bank Note (unless otherwise specified in the
applicable Fixed Rate Global Bank Note). Interest payments on Fixed Rate Global
Bank Notes with maturities of one year or less will be calculated in the manner
provided in the applicable Fixed Rate Global Bank Note. Interest payments on
Floating Rate Global Bank Notes with maturities of one year or less will be made
on the Interest Payment Dates specified in such Floating Rate Global Bank Note
and, in each case, at maturity or upon earlier redemption or repayment.
Interest payments on Floating Rate Global Bank Notes with maturities of one year
or less will be calculated in the manner provided in the applicable Floating
Rate Global Bank Note.
Section 8. Payment of Principal. The Issuing and Paying Agent will pay
--------------------
the Holder of each Global Bank Note the principal amount of each such Global
Bank Note, together with accrued interest and premium, if any, at maturity or
upon earlier redemption or repayment.
Section 9. Deposit of Funds. The total amount of any principal of,
----------------
premium, if any, and interest due on Global Bank Notes on any Interest Payment
Date or any maturity date or date of redemption or repayment shall be paid by
the Bank to the Issuing and Paying Agent as of 1:00 p.m., New York City time, in
funds available for use by the Issuing and Paying Agent on such date. The Bank
will make such payment on such Global Bank Notes via Fedwire to an account
specified by the Issuing and Paying Agent. Upon receipt of funds from the Bank,
on such date or as soon as possible thereafter, the Issuing and Paying Agent
will pay by separate wire transfer (using message entry instructions in a form
previously specified by DTC) to an account previously specified by DTC, in funds
available for immediate use by DTC, each payment of principal of, premium, if
any, and interest due on a Global Bank Note on such date.
The Issuing and Paying Agent shall hold such amounts paid to it by the Bank
in trust for the Holders but shall, pending payment by it to the account
specified above, not be under any liability for interest on monies at any time
received by it pursuant to any of the terms of this Agreement or of the Global
Bank Notes, nor shall the Issuing and Paying Agent be required to invest such
monies.
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Section 10. Bank Note Registers; Registration, Transfer, Exchange; Persons
--------------------------------------------------------------
Deemed Owners.
- -------------
(i) The Issuing and Paying Agent shall maintain at its offices the
Senior Note Register and Subordinated Note Register (together, the "Bank Note
Registers"). The Issuing and Paying Agent is hereby appointed as Registrar for
the purpose of registering each Global Bank Note and transfers of such Global
Bank Note as herein provided. The terms "Senior Note Register" and
"Subordinated Note Register" shall mean the definitive records in which shall be
recorded the names, addresses and taxpayer identifying numbers of the holders of
the Global Senior Bank Notes and Global Subordinated Bank Notes, respectively
(collectively, the "Holders"), the serial and CUSIP numbers of each such Global
Bank Note and the Original Issue Date thereof and details with respect to the
transfer and exchange of each Global Bank Note.
(ii) Upon surrender for registration of transfer of any Global Bank
Note at the offices of the Issuing and Paying Agent, the Bank shall execute, and
the Issuing and Paying Agent shall complete, authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Global Bank
Notes, of any authorized denominations and having identical terms and provisions
and for an equal aggregate principal amount.
(iii) At the option of the Holder of a Global Bank Note, such Global
Bank Note may be exchanged for other Global Bank Notes of any authorized
denominations of an equal aggregate principal amount and having identical terms
and provisions, upon surrender of the Global Bank Notes to be exchanged at the
designated offices of the Issuing and Paying Agent. Whenever any Global Bank
Notes are so surrendered for exchange, the Bank shall execute, and the Issuing
and Paying Agent shall complete, authenticate and deliver, the Global Bank Notes
which the Holder of the Global Bank Note making the exchange is entitled to
receive. Except as provided below, owners of beneficial interests in a Global
Bank Note representing Book-Entry Bank Notes will not be entitled to have such
Book-Entry Bank Notes registered in their names, will not receive or be entitled
to receive physical delivery of Bank Notes in certificated form and will not be
considered the owners or holders thereof under this Agreement. However, if DTC
notifies the Bank that it is unwilling or unable to continue as depositary or if
at any time DTC ceases to be a clearing agency registered under the Securities
Exchange Act of 1934, as amended, and a successor depositary is not appointed by
the Bank within 60 days, or the Bank in its sole discretion determines not to
have Book-Entry Bank Notes represented by one or more Global Bank Notes, then
Global Bank Notes representing Book-Entry Bank Notes may be exchanged in whole
for definitive Bank Notes in registered form, of like tenor and of an equal
aggregate principal amount, in minimum denominations of $250,000 and integral
multiples of $1,000 in excess thereof, upon surrender of the Global Bank Notes
to be exchanged at the offices of the Issuing and Paying Agent.
(iv) Notwithstanding the foregoing, the Issuing and Paying Agent shall
not register the transfer or exchange of (i) any Global Bank Note that has been
called for redemption in whole or in part, except the unredeemed portion of
Global Bank Notes being redeemed in part, (ii) any Global Bank Note during the
period beginning at the opening of business 15 days before the mailing of a
notice of such redemption and ending at the close of business on the day of such
mailing, or (iii) any Global Bank Note in violation of the legend contained on
the face of such Global Bank Note.
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(v) All Global Bank Notes issued upon any registration of transfer or
exchange of Global Bank Notes shall be the valid obligations of the Bank,
evidencing the same debt, and entitled to the same benefits as the Global Bank
Notes surrendered upon such registration of transfer or exchange.
(vi) Every Global Bank Note presented or surrendered for registration
of transfer or for exchange shall be duly endorsed, or be accompanied by a
written instrument of transfer with such evidence of due authorization and
guaranty of signature as may reasonably be required by the Issuing and Paying
Agent, in form satisfactory to the Issuing and Paying Agent, duly executed by
the Holder thereof or his attorney duly authorized in writing.
(vii) No service charge shall be made to a Holder of Global Bank
Notes for any transfer or exchange of Global Bank Notes, but the Bank may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection therewith.
(viii) The Bank and the Issuing and Paying Agent, and any agent of
the Bank or the Issuing and Paying Agent may treat the Holder in whose name a
Global Bank Note is registered as the owner of such Global Bank Note for all
purposes, whether or not such Global Bank Note be overdue, and neither the Bank,
the Issuing and Paying Agent nor any such agent shall be affected by notice to
the contrary except as required by applicable law.
Section 11. Mutilated, Destroyed, Lost, or Stolen Global Bank Notes. In
-------------------------------------------------------
case any Global Bank Note shall at any time become mutilated, destroyed, lost or
stolen, and such Global Bank Note or evidence of the loss, theft or destruction
thereof satisfactory to the Bank and the Issuing and Paying Agent (together with
indemnity hereinafter referred to and such other documents or proof as may be
required by the Bank and the Issuing and Paying Agent) shall be delivered to the
Issuing and Paying Agent, the Bank shall execute a new Global Bank Note, of like
tenor and principal amount, having a serial number not contemporaneously
outstanding, in exchange and substitution for the mutilated Global Bank Note or
in lieu of the Global Bank Note destroyed, lost or stolen but, in the case of
any destroyed, lost or stolen Global Bank Note, only upon receipt of evidence
satisfactory to the Issuing and Paying Agent and the Bank that such Global Bank
Note was destroyed, stolen or lost, and, if required, upon receipt of indemnity
satisfactory to each of them. The Issuing and Paying Agent shall authenticate
any such substituted Global Bank Note and deliver the same upon the written
request or authorization of any Authorized Representative of the Bank. Upon the
issuance of any substituted Global Bank Note, the Bank and the Issuing and
Paying Agent may require the payment of a sum sufficient to cover all expenses
and reasonable charges connected with the preparation, authentication and
delivery of a new Global Bank Note. If any Global Bank Note which has matured
or has been redeemed or repaid or is about to mature or to be redeemed or repaid
shall become mutilated, destroyed, lost or stolen, the Bank may, instead of
issuing a substitute Global Bank Note, pay or authorize the payment of the same
(without surrender thereof except in the case of a mutilated Global Bank Note)
upon compliance by the Holder with the provisions of this Section.
Section 12. Cancellation. All Global Bank Notes surrendered for payment,
------------
registration of transfer or exchange shall, if surrendered to any person other
than the Issuing and Paying Agent, be delivered to the Issuing and Paying Agent
and shall be promptly cancelled by it. The Bank may at any time deliver to the
Issuing and Paying Agent for cancellation any Global Bank
7
<PAGE>
Notes previously authenticated and delivered hereunder which the Bank may have
acquired in any manner whatsoever, and all Global Bank Notes so delivered shall
be promptly cancelled by the Issuing and Paying Agent. No Global Bank Note
shall be authenticated in lieu of or in exchange for any Global Bank Note
cancelled as provided in this Section, except as expressly permitted by this
Agreement. All cancelled Global Bank Notes held by the Issuing and Paying Agent
shall be returned to the Bank.
Section 13. Redemption of Global Bank Notes.
-------------------------------
(i) If any Global Bank Notes are to be redeemed prior to maturity, the
Bank shall notify the Issuing and Paying Agent not more than 60 nor less than 45
calendar days prior to the date fixed by the Bank for such redemption (the
"Redemption Date") of the Bank's election to redeem such Global Bank Notes in
whole or in part in increments of $1,000 (provided that any remaining principal
--------
amount of such Global Bank Notes shall be at least $250,000). Unless otherwise
specified in the applicable Global Bank Note, redemption of a Subordinated Bank
Note by the Bank prior to maturity is subject to the prior written approval of
the Comptroller of the Currency of the United States (the "Comptroller").
(ii) Whenever less than all the Global Bank Notes at any time
outstanding are to be redeemed, the terms of the Global Bank Notes to be so
redeemed shall be selected by the Bank. If less than all the Global Bank Notes
with identical terms at any time outstanding are to be redeemed, the Global Bank
Notes to be so redeemed shall be selected by the Issuing and Paying Agent by lot
or in any usual manner approved by it. The Issuing and Paying Agent shall
promptly notify the Bank in writing of the Global Bank Notes selected for
redemption and, in the case of Global Bank Notes selected for partial
redemption, the principal amount thereof to be redeemed.
(iii) Unless otherwise specified in the applicable Global Bank Note,
notice of redemption shall be given by the Issuing and Paying Agent, at the
Bank's expense, by first-class mail, postage prepaid, mailed not more than 60
nor less than 30 calendar days prior to the Redemption Date, to each Holder of
such Global Bank Note to be redeemed, at its address appearing in the applicable
Bank Note Register. All notices of redemption shall identify the Global Bank
Notes to be redeemed (including CUSIP number) and shall state: (i) the
Redemption Date; (ii) the redemption price, which shall be determined in
accordance with the terms of the Global Bank Note (the "Redemption Price"),
(iii) if less than all of the Global Bank Notes at any time outstanding are to
be redeemed, the identification (and, in the case of partial redemption, the
principal amounts) of the particular Global Bank Notes to be redeemed; (iv) that
on the Redemption Date the Redemption Price plus accrued interest, if any, to
the Redemption Date will become due and payable with respect to each Global Bank
Note to be redeemed and that interest thereon will cease to accrue on and after
said date; and (v) the place or places where such Global Bank Notes are to be
surrendered for payment.
(iv) Notice of redemption having been given as described above, the
Global Bank Notes so to be redeemed shall, on the Redemption Date, become due
and payable at the Redemption Price, and from and after such date such Global
Bank Notes shall cease to bear interest. The Bank shall deposit funds with the
Issuing and Paying Agent prior to the Redemption Date which are sufficient to
redeem such Global Bank Notes which are scheduled to be so redeemed. Upon
surrender of any such Global Bank Notes for redemption in
8
<PAGE>
accordance with such notice, the Issuing and Paying Agent shall pay such Global
Bank Notes at the Redemption Price, together with unpaid interest accrued on
such Global Bank Notes at the applicable rate borne by such Global Bank Notes to
the Redemption Date.
(v) Any Global Bank Note which is to be redeemed only in part shall be
surrendered to the Issuing and Paying Agent, and the Issuing and Paying Agent
shall complete, authenticate and deliver to the Holder of such Global Bank Note,
without service charge, a new Global Bank Note or Global Bank Notes, of any
authorized denomination as requested by such Holder (which shall be $250,000 or
an integral multiple of $1,000 in excess thereof), in an aggregate principal
amount equal to and in exchange for the unredeemed portion of the principal of
the Global Bank Note so surrendered.
(vi) The Bank, in issuing the Global Bank Notes, may use "CUSIP"
numbers (if then generally in use) and, if so, the Issuing and Paying Agent
shall use "CUSIP" numbers in notices of redemption as a convenience to Holders;
provided, however, that any such notice may state that no representation is made
- -------- -------
as to the correctness of such numbers either as printed on the Global Bank Notes
or as contained in any notice of a redemption and that reliance may be placed
only on the other identification numbers printed on the Global Bank Notes, and
any such redemption shall not be affected by any defect in or omission of such
numbers.
Section 14. Repayment of Global Bank Notes.
------------------------------
(i) In order for any Global Bank Note to be repaid in whole or in part
at the option of the Holder thereof, such Global Bank Note must be delivered by
the Holder thereof, with the form entitled "Option to Elect Repayment" (set
forth in such Global Bank Note) duly completed, to the Issuing and Paying Agent
at its offices located at the address set forth in Section 21 hereof, or such
other place or places of which the Bank shall from time to time notify the
Holders of the Global Bank Notes, not more than 60 nor less than 30 calendar
days prior to any date fixed for such repayment of such Global Bank Notes (the
"Optional Repayment Date"). Unless otherwise specified in the applicable Global
Bank Note, a Subordinated Bank Note may not be repaid prior to maturity without
the prior written approval of the Comptroller.
(ii) Upon surrender of any Global Bank Note for repayment in
accordance with the provisions set forth above, the Global Bank Note to be
repaid shall, on the Optional Repayment Date, become due and payable, and the
Issuing and Paying Agent shall pay such Global Bank Note on the Optional
Repayment Date at a price equal to 100% of the principal amount thereof,
together with accrued interest to the Optional Repayment Date.
(iii) If less than the entire principal amount of any Global Bank
Note is to be repaid, the Holder thereof shall specify the portion thereof
(which shall be in increments of $1,000) which such Holder elects to have repaid
and shall surrender such Global Bank Note to the Issuing and Paying Agent, and
the Issuing and Paying Agent shall complete, authenticate and deliver to the
Holder of such Global Bank Note, without service charge, a new Global Bank Note
or Global Bank Notes in an aggregate principal amount equal to and in exchange
for the unrepaid portion of the principal of the Global Bank Note so surrendered
and in such denominations as shall be specified by such Holder (which shall be
$250,000 or an integral multiple of $1,000 in excess thereof).
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Section 15. Acceleration of Maturity. If an Event of Default (as defined
------------------------
in the applicable Global Bank Note) with respect to a Senior Bank Note or
Subordinated Bank Note, as the case may be, issued by the Bank shall occur and
be continuing, then the Holder of the applicable Senior Bank Note or
Subordinated Bank Note may declare the principal amount of, and accrued interest
and premium, if any, on such Senior Bank Note or Subordinated Bank Note due and
payable by written notice to the Bank; provided, however, that no accelerated
-------- -------
payment may be made on a Subordinated Bank Note without the prior written
approval of the Comptroller. Upon such declaration and notice, and subject to
the foregoing proviso, such principal amount, accrued interest and premium, if
any, shall become immediately due and payable. The Bank shall promptly notify,
and provide copies of any such notice to, the Issuing and Paying Agent, and the
Issuing and Paying Agent shall promptly mail by first-class mail, postage
prepaid, copies of such notice to the Holders of the Senior Bank Notes or the
Subordinated Bank Notes, as the case may be, upon the occurrence of an Event of
Default or of the curing or waiver of an Event of Default. Any Event of Default
with respect to a Bank Note may be waived by the Holder thereof.
Section 16. Application of Funds; Return of Unclaimed Funds. Any monies
-----------------------------------------------
paid by the Bank and held by the Issuing and Paying Agent in trust for payment
of principal of, premium, if any, or interest on, any Global Bank Notes that
remain unclaimed for two years following the date on which such principal,
premium or interest shall have become due and payable shall be returned to the
Bank by the Issuing and Paying Agent and the Issuing and Paying Agent shall
inform the Bank as to the specific Global Bank Notes to which such monies
related, and any Holder shall thereafter look, as an unsecured general creditor,
only to the Bank for the payment thereof and all liability of the Issuing and
Paying Agent with respect to such trust monies shall thereupon cease. Any funds
deposited by the Bank with the Issuing and Paying Agent for the payment of
principal of, premium, if any, or interest on, any Bank Note shall be held in
trust on behalf of the Bank by the Issuing and Paying Agent for the payment of
principal of, premium, if any, or interest on, any Bank Note until paid or
returned to the Bank.
Section 17. Cancellation of Unissued Notes. Upon the written request of
------------------------------
the Bank, the Issuing and Paying Agent promptly shall cancel and return to the
Bank all unissued Bank Notes in its possession.
Section 18. Liability. Neither the Issuing and Paying Agent nor its
---------
directors, officers, employees or agents shall be liable to the Bank for any act
or omission hereunder except in the case of gross negligence, bad faith or
willful misconduct. The duties and obligations of the Issuing and Paying Agent,
its directors, officers and employees shall be determined by the express
provisions of this Agreement and no implied covenants shall be read into this
Agreement against any of them. Notwithstanding any other provision elsewhere
contained in this Agreement, the Issuing and Paying Agent is acting solely as
agent of the Bank and does not assume any obligation or relationship of trust or
agency for or with any Holders. Neither the Issuing and Paying Agent nor any of
its directors, officers or employees shall be required to ascertain whether any
issuance or sale of Bank Notes (or any amendment or termination of this
Agreement) has been duly authorized (provided that the Issuing and Paying Agent
--------
in good faith has determined that the facsimile or manual signature of the
Authorized Representative or any person who has been designated by the
Authorized Representative in writing to the Issuing and Paying Agent reasonably
resembles the specimen signatures filed with the Issuing and Paying Agent) or is
in compliance with any other agreement to which the Bank is a party (whether or
not the Issuing and Paying Agent is also a party to such other agreement), and
the Issuing and
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Paying Agent and each of its officers and employees shall be entitled to rely
upon any instructions reasonably believed (in accordance with Section 3 hereof)
by the Issuing and Paying Agent and its officers and employees to be given on
behalf of the Bank by an Authorized Representative or by any person who has been
designated by an Authorized Representative in writing to the Issuing and Paying
Agent as a person authorized to give such instructions hereunder, whether or not
in fact given by the Authorized Representative or such designated person.
The Issuing and Paying Agent may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys and the Issuing and Paying Agent shall not be responsible
for any misconduct or negligence on the part of any agent or attorney appointed
with due care by it hereunder, provided that the use of any such agent or
--------
attorney shall be subject to the approval of the Bank which approval shall not
be unreasonably withheld. The Issuing and Paying Agent may consult with counsel
of its selection (and shall give the Bank notice before consulting with any
outside counsel whose legal fees are subject to reimbursement by the Bank
pursuant to Section 20 hereof), and the advice of such counsel or any opinion of
counsel shall be full and complete authorization and protection in respect of
any action taken, suffered or omitted by it hereunder in good faith in
accordance with and in reliance thereon. The Issuing and Paying Agent shall not
be liable for any action taken, suffered, or omitted to be taken by it in good
faith and reasonably believed by it to be authorized or within the discretion or
rights or powers conferred upon it by this Agreement.
Section 19. Indemnification, Risk of Funds. The Bank shall indemnify and
------------------------------
hold harmless the Issuing and Paying Agent, its directors, officers, employees
and agents from and against all actions, claims, losses, damages, liabilities,
losses and expenses (including reasonable legal fees and expenses) relating to
or arising out of their actions or inactions taken or omitted to be taken by the
Issuing and Paying Agent in good faith in connection with its performance under
this Agreement including, but not limited to, any actions taken or omitted upon
instructions by the Bank (in accordance with Section 3 hereof) or the issuance,
delivery, payment or non-payment of any Bank Note or interest thereon, or other
receipt or other funds for the payment of the Bank Notes or interest or premium
thereon; provided, however, that the Issuing and Paying Agent shall be liable
-------- -------
for any liabilities, losses, claims, damages, costs and expenses (including
reasonable legal fees and expenses) caused by the gross negligence, bad faith or
willful misconduct of the Issuing and Paying Agent or its directors, officers,
employees or agents. This indemnity shall survive the termination of this
Agreement.
No provision of this Agreement shall require the Issuing and Paying Agent
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise of any of its
rights or powers hereunder, if it shall have reasonable grounds for believing
that repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it.
Section 20. Compensation of the Issuing and Paying Agent. The Bank agrees
--------------------------------------------
to pay the compensation of the Issuing and Paying Agent, at such rates as shall
be mutually agreed upon in writing between the Bank and the Issuing and Paying
Agent from time to time. The Bank shall reimburse upon demand the Issuing and
Paying Agent for all reasonable out-of-pocket expenses (including reasonable
legal fees and expenses), disbursements and advances incurred or made by the
Issuing and Paying Agent with respect to the Bank in accordance with any
11
<PAGE>
provisions of this Agreement, except any such expense, disbursement or advance
proven to be attributable to the breach of this Agreement or the gross
negligence, bad faith or willful misconduct of such Issuing and Paying Agent,
upon receipt of such invoices as the Bank may reasonably require. The
provisions of this Section shall survive the termination of this Agreement.
Section 21. Notices.
-------
(i) All communications by or on behalf of the Bank relating to the
issuance, transfer, exchange or payment of Bank Notes or interest thereon shall
be directed to the offices of the Issuing and Paying Agent located at One First
National Plaza, Suite 0126, Chicago, Illinois 60670, Telecopy: (312) 407-1708,
Attention: Corporate Trust Administration, or to such other offices as the
Issuing and Paying Agent shall specify in writing to the Bank. The Bank will
send all Global Bank Notes to be completed and delivered by the Issuing and
Paying Agent to such offices or such other offices as the Issuing and Paying
Agent shall specify in writing to the Bank.
(ii) All other notices and communications hereunder shall be in
writing and shall be addressed as follows:
(a) if to the Bank:
Providian National Bank
c/o Providian Financial Corporation
201 Mission Street
San Francisco, California 94105
Attention: Treasurer
Telecopy: (415) 543-0404
(b) if to the Issuing and Paying Agent:
The First National Bank of Chicago
One First National Plaza, Suite 0126
Chicago, Illinois 60670
Attention: Corporate Trust Administration
Telecopy: (312) 407-1708
Section 22. Resignation or Removal of Issuing and Paying Agent and
------------------------------------------------------
Appointment of Successor Issuing and Paying Agent; Merger, Conversion and
- -------------------------------------------------------------------------
Consolidation. The Bank agrees, for the benefit of the Holders from time to
- -------------
time of the Bank Notes, that there shall at all times be an Issuing and Paying
Agent hereunder which shall be a bank or trust company organized and doing
business under the laws of the United States or any state thereof authorized
under such laws to exercise corporate trust powers, having a combined capital
and surplus of at least $10,000,000 and subject to supervision and examination
by federal or state authority, until all the Global Bank Notes authenticated and
delivered hereunder (A) shall have been delivered to the Issuing and Paying
Agent for cancellation or (B) shall have become due and payable and funds
sufficient to pay the principal of, premium, if any, and interest on, the Global
Bank Notes shall have been made available for payment and either paid or
returned to the Bank, whichever
12
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event occurs earlier. The foregoing capital and surplus requirements shall not
be applicable if the Bank or an affiliate of the Bank is appointed as successor
Issuing and Paying Agent.
The Issuing and Paying Agent may resign at any time as such agent upon
written notice to the Bank of such intention on its part, specifying the date on
which its desired resignation shall become effective; provided, however, that
-------- -------
such date shall be not less than 90 calendar days after the giving of such
notice by the Issuing and Paying Agent to the Bank. The Issuing and Paying
Agent may be removed at any time as such agent by the filing with it of an
instrument in writing signed by a duly authorized officer of the Bank (unless
the Bank is the Issuing and Paying Agent) and specifying such removal and the
date, which shall be at least 30 calendar days following receipt of such written
notice, upon which it is intended to become effective. Any such resignation or
removal shall take effect on the date of the appointment by the Bank (unless the
Bank is the Issuing and Paying Agent) of a successor Issuing and Paying Agent
and the acceptance of such appointment by such successor Issuing and Paying
Agent that qualifies as such under the first paragraph of this Section. In the
event of the resignation or removal of the Issuing and Paying Agent, if a
successor Issuing and Paying Agent has not been appointed by the Bank within 90
calendar days after the giving of notice of resignation or within 30 calendar
days after receipt of notice of removal, the Issuing and Paying Agent may, at
the expense of the Bank, petition any court of competent jurisdiction for
appointment of a successor Issuing and Paying Agent. Upon any such resignation
or removal, the Issuing and Paying Agent shall transfer to the successor Issuing
and Paying Agent (or, if none shall have been appointed, to the Bank) all monies
held by the Issuing and Paying Agent on behalf of the Bank in respect of any
Global Bank Notes, any unissued Global Bank Notes and all books and records or
copies thereof related to Global Bank Notes maintained by the Issuing and Paying
Agent, including copies of the Bank Note Registers. Any resignation or removal
hereunder shall not affect the Issuing and Paying Agent's rights to the payment
of fees earned or charges incurred through the effective date of such
resignation or removal or the Issuing and Paying Agent's rights to receive any
indemnification payments pursuant to Section 19 hereof.
Any corporation or bank into which the Issuing and Paying Agent hereunder
may be merged or consolidated, or any corporation or bank resulting from any
merger or consolidation to which the Issuing and Paying Agent shall be a party,
or any corporation or bank to which the Issuing and Paying Agent shall sell or
otherwise transfer all or substantially all of its assets and business and which
assumes the obligations of the Issuing and Paying Agent hereunder, provided that
--------
it shall be qualified under the first paragraph of this Section, shall be the
successor Issuing and Paying Agent under this Agreement without the execution or
filing of any paper or any further act on the part of any of the parties hereto.
Notice in writing of any such merger, consolidation or sale shall be given by
the Issuing and Paying Agent to the Bank prior to the effectiveness of such
merger, consolidation or sale.
Section 23. Benefit of Agreement. This Agreement is solely for the
--------------------
benefit of the parties hereto, Holders of Bank Notes, and their successors and
assigns, and nothing herein, express or implied, shall give to any other persons
any benefits or any legal or equitable right, remedy or claim under or by virtue
of this Agreement. No party hereto may assign any of its rights or obligations
hereunder except with the prior written consent of all the parties hereto.
Section 24. Bank Notes Held by the Issuing and Paying Agent. The Issuing
-----------------------------------------------
and Paying Agent, in its individual or other capacity, may become the owner or
pledgee of the Bank Notes
13
<PAGE>
with the same rights it would have if it were not acting as an issuing and
paying agent hereunder.
Section 25. Amendment. This Agreement shall not be amended by any party
---------
hereto except in writing executed by the duly authorized officers of all parties
hereto.
Section 26. Governing Law. This Agreement shall be governed by, construed
-------------
and enforced in accordance with, the laws of the State of New York applicable to
agreements made and to be performed in such State, without regard to conflicts
of laws principles.
Section 27. Counterparts. This Agreement may be executed by the parties
------------
hereto in any number of counterparts, and by each of the parties hereto in
separate counterparts, and each such counterpart, when so executed and
delivered, shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on their behalf by their officers thereunto duly authorized, all as of
the day and year first above written.
PROVIDIAN NATIONAL BANK
By:______________________________
Name: Robert W. Molke
Title: Vice President and Treasurer
THE FIRST NATIONAL BANK OF CHICAGO,
as Issuing and Paying Agent
By:_______________________________
Name:
Title:
14
<PAGE>
Exhibit A-1
(Form of Fixed Rate Global Senior Bank Note)
15
<PAGE>
THIS SENIOR NOTE IS AN OBLIGATION SOLELY OF THE BANK AND WILL NOT BE AN
OBLIGATION OF, OR OTHERWISE GUARANTEED BY, ANY OTHER BANK OR PROVIDIAN FINANCIAL
CORPORATION. THIS SENIOR NOTE DOES NOT EVIDENCE DEPOSITS OF THE BANK AND IS NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. THE OBLIGATIONS EVIDENCED BY THIS SENIOR NOTE RANK PARI PASSU AMONG
THEMSELVES AND WITH ALL OTHER SENIOR UNSECURED INDEBTEDNESS OF THE BANK, EXCEPT
DEPOSIT LIABILITIES (AS PROVIDED IN SECTION 11(d)(11) OF THE FEDERAL DEPOSIT
INSURANCE ACT) AND OTHER OBLIGATIONS THAT ARE SUBJECT TO ANY PRIORITIES OR
PREFERENCES. IN A LIQUIDATION OR OTHER RESOLUTION OF THE BANK, THIS SENIOR NOTE
WOULD BE TREATED DIFFERENTLY FROM, AND HOLDERS OF THIS SENIOR NOTE COULD
RECEIVE, IF ANYTHING, SIGNIFICANTLY LESS THAN HOLDERS OF, DEPOSIT LIABILITIES OF
THE BANK.
UNLESS THIS SENIOR NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (THE
"DEPOSITARY") TO THE BANK OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY SENIOR NOTE ISSUED UPON REGISTRATION OF TRANSFER OF, OR IN
EXCHANGE FOR, OR IN LIEU OF, THIS SENIOR NOTE IS REGISTERED IN THE NAME OF CEDE
& CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITARY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY
TO A NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.
THIS SENIOR NOTE IS ISSUABLE ONLY IN FULLY REGISTERED FORM IN MINIMUM
DENOMINATIONS OF $250,000 AND INTEGRAL MULTIPLES OF $1,000 IN EXCESS THEREOF.
EACH OWNER OF A BENEFICIAL INTEREST IN THIS SENIOR NOTE MUST BE AN INSTITUTIONAL
INVESTOR WHO IS AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501 UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND IS REQUIRED TO HOLD A BENEFICIAL
INTEREST IN $250,000 PRINCIPAL AMOUNT OR ANY INTEGRAL MULTIPLE OF $1,000 IN
EXCESS THEREOF OF THIS SENIOR NOTE AT ALL TIMES.
No. FXR-________
CUSIP NO.: _______ REGISTERED
GLOBAL SENIOR BANK NOTE
(Fixed Rate)
16
<PAGE>
ORIGINAL ISSUE DATE: PRINCIPAL AMOUNT:
INTEREST RATE: _______% MATURITY DATE:
INTEREST PAYMENT DATE(S): REGULAR RECORD DATES (FOR
[ ] At Maturity only NOTES WITH MATURITIES OF
[ ] May 15 and November 15 MORE THAN ONE YEAR)
[ ] Other: (if other than May 1
or November 1, prior to each
INITIAL REDEMPTION Interest Payment Date):
DATE:
INITIAL REDEMPTION
PERCENTAGE:
ANNUAL REDEMPTION HOLDER'S OPTIONAL
PERCENTAGE REDUCTION: REPAYMENT DATE(S):
DAY COUNT CONVENTION
[ ] 30/360 FOR THE PERIOD FROM TO .
[ ] ACTUAL/360 FOR THE PERIOD FROM TO .
[ ] ACTUAL/ACTUAL FOR THE PERIOD FROM TO .
ADDENDUM ATTACHED: ORIGINAL ISSUE DISCOUNT:
[ ] Yes [ ] Yes
[ ] No [ ] No
Total Amount of OID:
DEFAULT RATE: _______% Yield to Maturity:
Initial Accrual Period:
OTHER PROVISIONS:
17
<PAGE>
Providian National Bank, a national banking association (the "Bank"), for
value received, hereby promises to pay to CEDE & CO., or registered assigns, the
principal sum of ______________________________________________________________
United States Dollars on the Maturity Date specified above (except to the extent
redeemed or repaid prior to the Maturity Date) and to pay interest thereon from
and including the Original Issue Date specified above or from and including the
most recent interest payment date on which interest on this Senior Note (or any
predecessor Senior Note) has been paid or duly provided for, semi-annually on
May 15 and November 15 of each year (unless otherwise specified on the face
hereof) (each, an "Interest Payment Date") and at maturity or upon earlier
redemption or repayment, if applicable, commencing on the first Interest Payment
Date next succeeding the Original Issue Date (or, if the Original Issue Date is
between a Regular Record Date (as defined below) and the Interest Payment Date
immediately following such Regular Record Date, on the second Interest Payment
Date following the Original Issue Date), at the Interest Rate per annum
specified above, until the principal hereof is paid or made available for
payment, and (to the extent that the payment of such interest shall be legally
enforceable) at the Default Rate per annum specified above on any overdue
principal and premium, if any, and on any overdue installment of interest. If no
Default Rate is specified above, the Default Rate shall be the Interest Rate on
this Senior Note specified above. The interest so payable, and punctually paid
or duly provided for, on any Interest Payment Date will be paid to the person in
whose name this Senior Note (or any predecessor Senior Note) is registered at
the close of business on the Regular Record Date, which shall be the May 1 and
November 1 (whether or not a Business Day (as defined below)), as the case may
be, next preceding the applicable Interest Payment Date (unless otherwise
specified on the face hereof) (each, a "Regular Record Date"); provided,
--------
however, that interest payable at maturity or upon earlier redemption or
- -------
repayment, if applicable, will be payable to the person to whom principal shall
be payable. Any such interest not so punctually paid or duly provided for shall
forthwith cease to be payable to the holder as of the close of business on such
Regular Record Date, and may either be paid to the person in whose name this
Senior Note (or any predecessor Senior Note) is registered at the close of
business on a special record date for the payment of such defaulted interest
(the "Special Record Date") to be fixed by the Bank, notice of which shall be
given to the holders of Senior Notes not less than 10 calendar days prior to
such Special Record Date, or be paid at any time in any other lawful manner.
Payment of principal of, premium, if any, and interest on, this Senior Note
will be made in such coin or currency of the United States of America as at the
time of payment is legal tender
18
<PAGE>
for payment of public and private debts. The Bank will at all times appoint and
maintain an issuing and paying agent (the "Issuing and Paying Agent," which term
shall include any successor Issuing and Paying Agent), authorized by the Bank to
pay principal of, premium, if any, and interest on, this Senior Note on behalf
of the Bank pursuant to an issuing and paying agency agreement (the "Issuing and
Paying Agency Agreement") and having an office or agency (the "Issuing and
Paying Agent Office") in Chicago, Illinois, New York, New York or the city in
which the Bank is headquartered (the "Place of Payment"), where this Senior Note
may be presented or surrendered for payment and where notices, designations or
requests in respect of payments with respect to this Senior Note may be served.
The Bank has initially appointed The First National Bank of Chicago as the
Issuing and Paying Agent, with the Issuing and Paying Agent Office currently
located at One First National Plaza, Chicago, Illinois 60670, Attention:
Corporate Trust Administration. The Bank may remove the Issuing and Paying
Agent pursuant to the terms of the Issuing and Paying Agency Agreement and may
appoint a successor Issuing and Paying Agent.
Payment of principal of, premium, if any, and interest on, this Senior Note
due at maturity or upon earlier redemption or repayment, if applicable, will be
made in immediately available funds upon presentation and surrender of this
Senior Note to the Issuing and Paying Agent at the Issuing and Paying Agent
Office; provided that this Senior Note is presented to the Issuing and Paying
Agent in time for the Issuing and Paying Agent to make such payment in
accordance with its normal procedures. Payments of interest on this Senior Note
(other than at maturity or upon earlier redemption or repayment) will be made by
wire transfer to such account as has been appropriately designated to the
Issuing and Paying Agent by the person entitled to such payments.
Reference herein to "this Senior Note", "hereof", "herein" and comparable
terms shall include an Addendum hereto if an Addendum is specified above.
Reference is hereby made to the further provisions of this Senior Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
19
<PAGE>
IN WITNESS WHEREOF, the Bank has caused this Senior Note to be duly
executed.
By:
-------------------------------
Authorized Signatory
Dated:
ISSUING AND PAYING AGENT'S CERTIFICATE OF AUTHENTICATION
This is one of the Senior Notes referred to in the Issuing and Paying Agency
Agreement.
The First National Bank of Chicago,
as Issuing and Paying Agent
By:
--------------------------
Authorized Signatory
20
<PAGE>
[Reverse]
This Senior Note is one of a duly authorized issue of Senior Bank Notes of
the Bank due from 7 days to 15 years from date of issue (the "Senior Notes").
Payments of interest hereon will include interest accrued to but excluding
the relevant Interest Payment Date or Maturity Date or date of earlier
redemption or repayment, as the case may be. Unless otherwise specified on the
face hereof, interest on Senior Notes with maturities of greater than one year
will be computed on the basis of a 360-day year of twelve 30-day months. Unless
otherwise specified on the face hereof, interest on Senior Notes with maturities
of one year or less will be computed on the basis of the actual number of days
in the year divided by 360 and will be payable only at maturity to the person to
whom principal shall be payable.
Any provision contained herein with respect to the calculation of the rate
of interest applicable to this Senior Note, its Interest Payment Dates or any
other matter relating hereto may be modified as specified in an Addendum
relating hereto if so specified on the face hereof.
If any Interest Payment Date, Maturity Date or date of earlier redemption
or repayment of this Senior Note falls on a day which is not a Business Day, the
related payment of principal of, premium, if any, or interest on, this Senior
Note shall be made on the next succeeding Business Day with the same force and
effect as if made on the date such payment were due, and no interest shall
accrue on the amount so payable for the period from and after such Interest
Payment Date, Maturity Date or date of earlier redemption or repayment, as the
case may be. "Business Day" means, unless otherwise specified on the face
hereof, any day that is not a Saturday or Sunday and that in The City of New
York or in the city in which the Bank is headquartered is not a day on which
banking institutions are authorized or required by law, regulation or executive
order to close.
This Senior Note will not be subject to any sinking fund. If so provided
on the face of this Senior Note, this Senior Note may be redeemed by the Bank
either in whole or in part on and after the Initial Redemption Date, if any,
specified on the face hereof. If no Initial Redemption Date is specified on the
face hereof, this Senior Note may not be redeemed prior to the Maturity Date.
On and after the Initial Redemption Date, if any, this Senior Note may be
redeemed in increments of $1,000 (provided that any remaining principal amount
hereof shall be at least $250,000) at the option of the Bank at the applicable
Redemption Price (as defined below), together with unpaid interest accrued
hereon at the applicable rate
21
<PAGE>
borne by this Senior Note to the date of redemption (each such date, a
"Redemption Date"), on written notice given not more than 60 nor less than 30
calendar days prior to the Redemption Date to the registered holder hereof.
Whenever less than all the Senior Notes at any time outstanding are to be
redeemed, the terms of the Senior Notes to be so redeemed shall be selected by
the Bank. If less than all the Senior Notes with identical terms at any time
outstanding are to be redeemed, the Senior Notes to be so redeemed shall be
selected by the Issuing and Paying Agent by lot or in any usual manner approved
by it. In the event of redemption of this Senior Note in part only, a new
Senior Note for the unredeemed portion hereof shall be issued in the name of the
holder hereof upon the surrender hereof.
The "Redemption Price" shall initially be the Initial Redemption Percentage
specified on the face hereof of the principal amount of this Senior Note to be
redeemed and shall decline at each anniversary of the Initial Redemption Date
specified on the face hereof by the Annual Redemption Percentage Reduction, if
any, specified on the face hereof, of the principal amount to be redeemed until
the Redemption Price is 100% of such principal amount.
This Senior Note may be subject to repayment at the option of the holder
hereof in accordance with the terms hereof on any Holder's Optional Repayment
Date(s), if any, specified on the face hereof. If no Holder's Optional
Repayment Date is specified on the face hereof, this Senior Note will not be
repayable at the option of the holder hereof prior to maturity. On any Holder's
Optional Repayment Date, this Senior Note will be repayable in whole or in part
in increments of $1,000 (provided that any remaining principal amount hereof
will be at least $250,000) at the option of the holder hereof at a repayment
price equal to 100% of the principal amount to be repaid, together with accrued
and unpaid interest hereon payable to the date of repayment. For this Senior
Note to be repaid in whole or in part at the option of the holder hereof on a
Holder's Optional Repayment Date, this Senior Note must be delivered, with the
form entitled "Option to Elect Repayment" attached hereto duly completed, to the
Issuing and Paying Agent at its offices located at One First National Plaza,
Chicago, Illinois 60670, Attention: Corporate Trust Administration, or at such
other address which the Bank shall from time to time notify the holders of the
Senior Notes, not more than 60 nor less than 30 calendar days prior to such
Holder's Optional Repayment Date. In the event of repayment of this Senior Note
in part only, a new Senior Note for the unrepaid portion hereof shall be issued
in the name of the holder hereof upon the surrender hereof. Exercise of such
repayment option by the holder hereof shall be irrevocable.
If this Senior Note is an Original Issue Discount Note and if an Event of
Default with respect to this Senior Note shall have
22
<PAGE>
occurred and be continuing, the Default Amount (as defined hereafter) of this
Senior Note may be declared due and payable in the manner and with the effect
provided herein. The "Default Amount" shall be equal to the adjusted issue
price as of the first day of the accrual period as determined under Final
Treasury Regulation Section 1.1275-1(b) (or successor regulation) under the
United States Internal Revenue Code of 1986, as amended, in which the date of
acceleration occurs increased by the daily portion of the original issue
discount for each day in such accrual period ending on the date of acceleration,
as determined under Final Treasury Regulation Section 1.1272-1(b) (or successor
regulation) under the United States Internal Revenue Code of 1986, as amended.
Upon payment of (i) the principal, or premium, if any, so declared due and
payable and (ii) interest on any overdue principal and overdue interest or
premium, if any (in each case to the extent that the payment of such interest
shall be legally enforceable), all of the Bank's obligations in respect of the
payment of principal of, premium, if any, and interest on, this Senior Note
shall terminate.
In case any Senior Note shall at any time become mutilated, destroyed, lost
or stolen, and such Senior Note or evidence of the loss, theft or destruction
thereof satisfactory to the Bank and the Issuing and Paying Agent and such other
documents or proof as may be required by the Bank and the Issuing and Paying
Agent shall be delivered to the Issuing and Paying Agent, the Bank shall issue a
new Senior Note, of like tenor and principal amount, having a serial number not
contemporaneously outstanding, in exchange and substitution for the mutilated
Senior Note or in lieu of the Senior Note destroyed, lost or stolen but, in the
case of any destroyed, lost or stolen Senior Note, only upon receipt of evidence
satisfactory to the Bank and the Issuing and Paying Agent that such Senior Note
was destroyed, stolen or lost, and, if required, upon receipt of indemnity
satisfactory to the Bank and the Issuing and Paying Agent. Upon the issuance of
any substituted Senior Note, the Bank and the Issuing and Paying Agent may
require the payment of a sum sufficient to cover all expenses and reasonable
charges connected with the preparation and delivery of a new Senior Note. If
any Senior Note which has matured or has been redeemed or repaid or is about to
mature or to be redeemed or repaid shall become mutilated, destroyed, lost or
stolen, the Bank may, instead of issuing a substitute Senior Note, pay or
authorize the payment of the same (without surrender thereof except in the case
of a mutilated Senior Note) upon compliance by the holder with the provisions of
this paragraph.
No recourse shall be had for the payment of principal of, premium, if any,
or interest on, this Senior Note for any claim based hereon, or otherwise in
respect hereof, against any shareholder, employee, agent, officer or director,
as such, past, present or future, of the Bank or of any successor corporation,
23
<PAGE>
banking association or other legal entity (collectively, "corporation"), either
directly or through the Bank or any corporation, whether by virtue of any
constitution, statute or rule of law or by the enforcement of any assessment or
penalty or otherwise, all such liability being, by the acceptance hereof and as
part of the consideration for the issue hereof, expressly waived and released.
The occurrence of any of the following events shall constitute an "Event of
Default" with respect to this Senior Note: (i) default in the payment of any
interest with respect to any of the Senior Notes issued by the Bank when due,
which continues for 30 calendar days; (ii) default in the payment of any
principal of, or premium, if any, on, any of the Senior Notes issued by the Bank
when due; (iii) the entry by a court having jurisdiction in the premises of (a)
a decree or order for relief in respect of the Bank in an involuntary case or
proceeding under any applicable United States federal or state bankruptcy,
insolvency, reorganization or other similar law or (b) a decree or order
appointing a conservator, receiver, liquidator, assignee, trustee, sequestrator
or any other similar official of the Bank, or of substantially all of the
property of the Bank, or ordering the winding up or liquidation of the affairs
of the Bank, and the continuance of any such decree or order for relief or any
such other decree or order unstayed and in effect for a period of 60 consecutive
days; or (iv) the commencement by the Bank of a voluntary case or proceeding
under any applicable United States federal or state bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding to be
adjudicated as bankrupt or insolvent, or the consent by the Bank to the entry of
a decree or order for relief in an involuntary case or proceeding under any
applicable United States federal or state bankruptcy, insolvency, reorganization
or other similar law or to the commencement of any bankruptcy or insolvency case
or proceeding, or the filing by the Bank of a petition or answer or consent
seeking reorganization or relief under any applicable United States federal or
state bankruptcy, insolvency, reorganization or similar law, or the consent by
the Bank to the filing of such petition or to the appointment of or taking
possession by a custodian, conservator, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the Bank or of substantially all of the
property of the Bank, or the making by the Bank of an assignment for the benefit
of creditors, or the taking of corporate action by the Bank in furtherance of
any such action. If an Event of Default shall occur and be continuing, the
holder of this Senior Note may declare the principal amount of, accrued interest
and premium, if any, on, this Senior Note due and payable immediately by written
notice to the Bank. Upon such declaration and notice, such principal amount,
accrued interest and premium, if any, shall become immediately due and payable.
Any Event of Default with respect to this Senior Note may be waived by the
holder hereof.
24
<PAGE>
The Issuing and Paying Agency Agreement provides that the Bank will
promptly notify, and provide copies of any such notice to, the Issuing and
Paying Agent, and the Issuing and Paying Agent will promptly mail by first-class
mail, postage prepaid, copies of such notice to the holders of the Senior Notes,
upon the occurrence of an Event of Default or of the curing or waiver of an
Event of Default.
Nothing contained herein shall prevent any consolidation or merger of the
Bank with any other corporation or successive consolidations or mergers in which
the Bank or its successor or successors shall be a party or parties, or shall
prevent any sale, conveyance, transfer or lease of the property of the Bank as
an entirety or substantially as an entirety to any other corporation authorized
to acquire and operate the same; provided, however (and the Bank hereby
-------- -------
covenants and agrees) that any such consolidation, merger, sale or conveyance
shall be upon the condition that: (i) immediately after such consolidation,
merger, sale or conveyance the corporation (whether the Bank or such other
corporation) formed by or surviving any such consolidation or merger, or the
corporation to which such sale or conveyance shall have been made, shall not be
in default in the performance or observance of any of the terms, covenants and
conditions of this Senior Note to be observed or performed by the Bank; and (ii)
the corporation (if other than the Bank) formed by or surviving any such
consolidation or merger, or the corporation to which such sale or conveyance
shall have been made, shall be organized under the laws of the United States of
America or any state thereof or the District of Columbia and shall expressly
assume the due and punctual payment of the principal of, premium, if any, and
interest on, this Senior Note. In case of any such consolidation, merger, sale,
conveyance, transfer or lease, and upon the assumption by the successor
corporation of the due and punctual performance of all of the covenants in this
Senior Note to be performed or observed by the Bank, such successor corporation
shall succeed to and be substituted for the Bank with the same effect as if it
had been named in this Senior Note as the Bank and thereafter the predecessor
corporation shall be relieved of all obligations and covenants in this Senior
Note and may be liquidated and dissolved.
Any action by the holder of this Senior Note shall bind all future holders
of this Senior Note, and of any Senior Note issued in exchange or substitution
herefor or in place hereof, in respect of anything done or permitted by the Bank
or by the Issuing and Paying Agent in pursuance of such action.
The Issuing and Paying Agent shall maintain at its offices a register (the
register maintained in such office or any other office or agency of the Issuing
and Paying Agent, herein referred to as the "Senior Note Register") in which,
subject to such reasonable regulations as it may prescribe, the Issuing and
Paying
25
<PAGE>
Agent shall provide for the registration of the Senior Notes and of transfers of
the Senior Notes (in such capacity, the "Senior Notes Registrar").
The transfer of this Senior Note is registrable in the Senior Note
Register, upon surrender of this Senior Note for registration of transfer at the
office or agency of the Issuing and Paying Agent in the Place of Payment, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Bank and the Issuing and Paying Agent duly executed by, the
holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Senior Notes of like tenor, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated transferee or
transferees.
No provision of this Senior Note shall alter or impair the obligation of
the Bank, which is absolute and unconditional, to pay principal of, premium, if
any, and interest on, this Senior Note in U.S. dollars at the times, places and
rate herein prescribed in accordance with its terms.
No service charge shall be made to a holder of this Senior Note for any
transfer or exchange of this Senior Note, but the Bank may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection therewith.
Beneficial interests represented by this Senior Note are exchangeable for
definitive Senior Notes in registered form, of like tenor and of an equal
aggregate principal amount, only if (x) The Depository Trust Company, as
Depositary (the "Depositary") notifies the Bank that it is unwilling or unable
to continue as Depositary for this Senior Note or if at any time the Depositary
ceases to be a clearing agency registered under the Securities Exchange Act of
1934, as amended, and a successor depositary is not appointed by the Bank within
60 days, or (y) the Bank in its sole discretion determines not to have such
beneficial interests represented by this Senior Note. Any Senior Note
representing such beneficial interests that is exchangeable pursuant to the
preceding sentence shall be exchangeable in whole for definitive Senior Notes in
registered form, of like tenor and of an equal aggregate principal amount, in
minimum denominations of $250,000 and integral multiples of $1,000 in excess
thereof. Such definitive Senior Notes shall be registered in the name or names
of such person or persons as the Depositary shall instruct the Issuing and
Paying Agent.
Prior to due presentment of this Senior Note for registration of transfer,
the Bank, the Issuing and Paying Agent or any agent of the Bank or the Issuing
and Paying Agent may treat the holder in whose name this Senior Note is
registered as the owner hereof for all purposes, whether or not this Senior Note
be overdue, and
26
<PAGE>
neither the Bank, the Issuing and Paying Agent nor any such agent shall be
affected by notice to the contrary except as required by applicable law.
All notices to the Bank under this Senior Note shall be in writing and
addressed to Providian National Bank, c/o Providian Financial Corporation, 201
Mission Street, San Francisco, California 94105, Attention: Treasurer, or to
such other address of the Bank as the Bank may notify the holders of the Senior
Notes.
This Senior Note shall be governed by, and construed in accordance with,
the laws of the State of New York, without regard to conflicts of laws
principles and all applicable federal laws and regulations.
27
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
the within Senior Note, shall be construed as though they were written out in
full according to applicable laws or regulations.
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- ______________ Custodian _________
(Cust) (Minor)
under Uniform Gifts to Minors Act
__________________________________
(State)
Additional abbreviations may also be used
though not in the above list.
28
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sell(s),
assign(s) and transfer(s) unto _________________________________________________
________________________________________________________________________________
PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
____________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please print or typewrite name and address,
including postal zip code, of assignee)
the within Senior Note and all rights thereunder, and hereby irrevocably
constitutes and appoints _______________________________________________________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
to transfer said Senior Note on the books of the Issuing and Paying Agent, with
full power of substitution in the premises.
Dated: __________________ _________________________________
NOTICE: The signature to this
assignment must correspond with
the name as written upon the face
of the within Senior Note in
every particular, without
alteration or enlargement or any
change whatsoever.
________________________________
Signature Guarantee
29
<PAGE>
OPTION TO ELECT REPAYMENT
-------------------------
The undersigned hereby irrevocably request(s) and instruct(s) the Bank
to repay this Senior Note (or portion hereof specified below) pursuant to its
terms at a price equal to 100% of the principal amount hereof to be repaid,
together with accrued and unpaid interest hereon, payable to the date of
repayment, to the undersigned, at_______________________________________________
_______________________________________________________________________________.
(Please print or typewrite name and address of the undersigned)
For this Senior Note to be repaid, the undersigned must give to the Issuing
and Paying Agent at its offices located at One First National Plaza, Chicago,
Illinois 60670, Attention: Corporate Trust Administration, or at such other
place or places of which the Bank shall from time to time notify the holders of
the Senior Notes, not more than 60 days nor less than 30 days prior notice to
the date of repayment, with this "Option to Elect Repayment" form duly
completed.
If less than the entire principal amount of this Senior Note is to be
repaid, specify the portion hereof (which shall be increments of $1,000) which
the holder elects to have repaid and specify the denomination or denominations
(which shall be $250,000 or an integral multiple of $1,000 in excess thereof) of
the Senior Notes to be issued to the holder for the portion of this Senior Note
not being repaid (in the absence of any such specification, one such Senior Note
will be issued for the portion not being repaid):
$______________________________ ______________________________
NOTICE: The signature on this
Dated: ________________________ "Option to Elect Repayment" form must
correspond with the name as written upon the
face of the within Senior Note in every
particular, without alteration or
enlargement or any change whatsoever.
________________________________
Signature Guarantee
30
<PAGE>
Exhibit A-2
(Form of Floating Rate Global Senior Bank Note)
31
<PAGE>
THIS SENIOR NOTE IS AN OBLIGATION SOLELY OF THE BANK AND WILL NOT BE AN
OBLIGATION OF, OR OTHERWISE GUARANTEED BY, ANY OTHER BANK OR PROVIDIAN FINANCIAL
CORPORATION. THIS SENIOR NOTE DOES NOT EVIDENCE DEPOSITS OF THE BANK AND IS NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. THE OBLIGATIONS EVIDENCED BY THIS SENIOR NOTE RANK PARI PASSU AMONG
THEMSELVES AND WITH ALL OTHER SENIOR UNSECURED INDEBTEDNESS OF THE BANK, EXCEPT
DEPOSIT LIABILITIES (AS PROVIDED IN SECTION 11(d)(11) OF THE FEDERAL DEPOSIT
INSURANCE ACT) AND OTHER OBLIGATIONS THAT ARE SUBJECT TO ANY PRIORITIES OR
PREFERENCES. IN A LIQUIDATION OR OTHER RESOLUTION OF THE BANK, THIS SENIOR NOTE
WOULD BE TREATED DIFFERENTLY FROM, AND HOLDERS OF THIS SENIOR NOTE COULD
RECEIVE, IF ANYTHING, SIGNIFICANTLY LESS THAN HOLDERS OF, DEPOSIT LIABILITIES OF
THE BANK.
UNLESS THIS SENIOR NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (THE
"DEPOSITARY") TO THE BANK OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY SENIOR NOTE ISSUED UPON REGISTRATION OF TRANSFER OF, OR IN
EXCHANGE FOR, OR IN LIEU OF, THIS SENIOR NOTE IS REGISTERED IN THE NAME OF CEDE
& CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITARY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY
TO A NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.
THIS SENIOR NOTE IS ISSUABLE ONLY IN FULLY REGISTERED FORM IN MINIMUM
DENOMINATIONS OF $250,000 AND INTEGRAL MULTIPLES OF $1,000 IN EXCESS THEREOF.
EACH OWNER OF A BENEFICIAL INTEREST IN THIS SENIOR NOTE MUST BE AN INSTITUTIONAL
INVESTOR WHO IS AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501 UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND IS REQUIRED TO HOLD A BENEFICIAL
INTEREST IN $250,000 PRINCIPAL AMOUNT OR ANY INTEGRAL MULTIPLE OF $1,000 IN
EXCESS THEREOF OF THIS SENIOR NOTE AT ALL TIMES.
No. FLR-_____ REGISTERED
CUSIP NO.: _____
GLOBAL SENIOR BANK NOTE
(Floating Rate)
32
<PAGE>
ORIGINAL ISSUE DATE: PRINCIPAL AMOUNT:
INITIAL INTEREST RATE: _____% MATURITY DATE:
INTEREST RATE INDEX MATURITY:
BASIS OR BASES:
IF LIBOR: REGULAR RECORD
[ ] Libor Telerate DATES (if other than the 15th day
[ ] Libor Reuters prior to each Interest Payment
Date):
INDEX CURRENCY:
SPREAD (PLUS OR MINUS) MINIMUM INTEREST RATE:
AND/OR SPREAD MULTIPLIER:
INTEREST PAYMENT PERIOD:
MAXIMUM INTEREST RATE:
INTEREST RESET PERIOD:
INTEREST PAYMENT DATES:
CALCULATION AGENT:
INITIAL INTEREST RESET DATE:
ANNUAL REDEMPTION
INTEREST RESET DATES: PERCENTAGE REDUCTION:
INITIAL REDEMPTION DATE: HOLDER'S OPTIONAL
REPAYMENT DATE(S):
INITIAL REDEMPTION
PERCENTAGE: DAY COUNT CONVENTION
[ ] 30/360 for the period
INTEREST CALCULATION: from __________ to __________.
[ ] Regular Floating Rate [ ] Actual/360 for the
Senior Note period from _______ to _______.
[ ] Floating Rate/Fixed Rate [ ] Actual/Actual for the
Senior Note period from __________ to
Fixed Rate Commencement Date: ____________.
Fixed Interest Rate:
[ ] Inverse Floating Rate Senior ORIGINAL ISSUE DISCOUNT
Note [ ] Yes
Fixed Interest Rate: [ ] No
ADDENDUM ATTACHED: Total Amount of OID:
[ ] Yes Yield to Maturity:
[ ] No Initial Accrual Period:
DEFAULT RATE: ______%
OTHER PROVISIONS:
33
<PAGE>
Providian National Bank, a national banking association (the "Bank"), for
value received, hereby promises to pay to CEDE & CO., or registered assigns, the
principal sum of ______________________________________________________________
United States Dollars on the Maturity Date specified above (except to the extent
redeemed or repaid prior to the Maturity Date) and to pay interest thereon from
and including the Original Issue Date specified above or from and including the
most recent interest payment date to which interest on this Senior Note (or any
predecessor Senior Note) has been paid or duly provided for (each, an "Interest
Payment Date"), on the Interest Payment Dates specified above and at maturity or
upon earlier redemption or repayment, if applicable, commencing on the first
Interest Payment Date next succeeding the Original Issue Date (or, if the
Original Issue Date is between a Regular Record Date (as defined below) and the
Interest Payment Date immediately following such Regular Record Date, on the
second Interest Payment Date following the Original Issue Date), at a rate per
annum equal to the Initial Interest Rate specified above until the Initial
Interest Reset Date specified above and thereafter at a rate per annum
determined in accordance with the provisions hereof and any Addendum relating
hereto depending upon the Interest Rate Basis or Bases, if any, and such other
terms specified above, until the principal hereof is paid or made available for
payment, and (to the extent that the payment of such interest shall be legally
enforceable) at the Default Rate per annum specified above on any overdue
principal and premium, if any, and on any overdue installment of interest. If no
Default Rate is specified above, the Default Rate shall be the Interest Rate on
this Senior Note specified above. The interest so payable, and punctually paid
or duly provided for, on any Interest Payment Date will be paid to the person in
whose name this Senior Note (or any predecessor Senior Note) is registered at
the close of business on the Regular Record Date, which shall be the 15th
calendar day (whether or not a Business Day (as defined below)) prior to such
Interest Payment Date (unless otherwise specified on the face hereof) (each, a
"Regular Record Date"); provided, however, that interest payable at maturity or
-------- -------
upon earlier redemption or repayment, if applicable, will be payable to the
person to whom principal shall be payable. Any such interest not so punctually
paid or duly provided for shall forthwith cease to be payable to the holder as
of the close of business on such Regular Record Date and may either be paid to
the person in whose name this Senior Note (or any predecessor Senior Note) is
registered at the close of business on a special record date for the payment of
such defaulted interest (the "Special Record Date") to be fixed by the Bank,
notice of which shall be given to the holders of Senior Notes not less than 10
calendar days prior to such Special Record Date, or be paid at any time in any
other lawful manner.
Payment of principal of, premium, if any, and interest on, this Senior Note
will be made in such coin or currency of the
34
<PAGE>
United States of America as at the time of payment is legal tender for payment
of public and private debts. The Bank will at all times appoint and maintain an
issuing and paying agent (the "Issuing and Paying Agent", which term shall
include any successor Issuing and Paying Agent), authorized by the Bank to pay
principal of, premium, if any, and interest on, this Senior Note on behalf of
the Bank pursuant to an issuing and paying agency agreement (the "Issuing and
Paying Agency Agreement") and having an office or agency (the "Issuing and
Paying Agent Office") in Chicago, Illinois, New York, New York or the city in
which the Bank is headquartered (the "Place of Payment"), where this Senior Note
may be presented or surrendered for payment and where notices, designations or
requests in respect of payments with respect to this Senior Note may be served.
The Bank has initially appointed The First National Bank of Chicago as the
Issuing and Paying Agent, with the Issuing and Paying Agent Office currently
located at One First National Plaza, Chicago, Illinois 60670, Attention:
Corporate Trust Administration. The Bank may remove the Issuing and Paying
Agent pursuant to the terms of the Issuing and Paying Agency Agreement, and
appoint a successor Issuing and Paying Agent.
Payment of principal of, premium, if any, and interest on, this Senior Note
due at maturity or upon earlier redemption or repayment, if applicable, will be
made in immediately available funds upon presentation and surrender of this
Senior Note to the Issuing and Paying Agent at the Issuing and Paying Agent
Office; provided that this Senior Note is presented to the Issuing and Paying
Agent in time for the Issuing and Paying Agent to make such payment in
accordance with its normal procedures. Payments of interest on this Senior Note
(other than at maturity or upon earlier redemption or repayment) will be made by
wire transfer to such account as has been appropriately designated to the
Issuing and Paying Agent by the person entitled to such payments.
Reference herein to "this Senior Note", "hereof", "herein" and comparable
terms shall include an Addendum hereto if an Addendum is specified above.
Reference is hereby made to the further provisions of this Senior Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
35
<PAGE>
IN WITNESS WHEREOF, the Bank has caused this Senior Note to be duly
executed.
By: ___________________________________
Authorized Signatory
Dated:
ISSUING AND PAYING AGENT'S CERTIFICATE OF AUTHENTICATION
This is one of the Senior Notes referred to in the Issuing and Paying Agency
Agreement.
The First National Bank of Chicago,
as Issuing and Paying Agent
By:
________________________
Authorized Signatory
36
<PAGE>
[Reverse]
This Senior Note is one of a duly authorized issue of Senior Bank Notes of
the Bank due from 7 days to 15 years from date of issue (the "Senior Notes").
If any Interest Payment Date (other than an Interest Payment Date at the
Maturity Date or date of earlier redemption or repayment of this Senior Note)
would otherwise fall on a day that is not a Business Day, such Interest Payment
Date shall be postponed to the next succeeding day that is a Business Day,
except that if an Interest Rate Basis is LIBOR, as indicated on the face hereof,
and such next Business Day falls in the next succeeding calendar month, such
Interest Payment Date shall be the immediately preceding day that is a Business
Day. Except as provided above, interest payments will be made on the Interest
Payment Dates shown on the face hereof. If the Maturity Date or date of earlier
redemption or repayment of this Senior Note falls on a day which is not a
Business Day, the related payment of principal of, premium, if any, and interest
on, this Senior Note will be made on the next succeeding Business Day with the
same force and effect as if made on the date such payment was due, and no
interest shall accrue on the amount so payable for the period from and after
such Maturity Date or date of earlier redemption or repayment, as the case may
be.
This Senior Note will not be subject to any sinking fund. If so provided
on the face of this Senior Note, this Senior Note may be redeemed by the Bank
either in whole or in part on and after the Initial Redemption Date, if any,
specified on the face hereof. If no Initial Redemption Date is specified on the
face hereof, this Senior Note may not be redeemed prior to the Maturity Date.
On and after the Initial Redemption Date, if any, this Senior Note may be
redeemed in increments of $1,000 (provided that any remaining principal amount
hereof shall be at least $250,000) at the option of the Bank at the applicable
Redemption Price (as defined below), together with unpaid interest accrued
hereon at the applicable rate borne by this Senior Note to the date of
redemption (each such date, a "Redemption Date"), on written notice given not
more than 60 nor less than 30 calendar days prior to the Redemption Date to the
registered holder hereof. Whenever less than all the Senior Notes at any time
outstanding are to be redeemed, the terms of the Senior Notes to be so redeemed
shall be selected by the Bank. If less than all the Senior Notes with identical
terms at any time outstanding are to be redeemed, the Senior Notes to be so
redeemed shall be selected by the Issuing and Paying Agent by lot or in any
usual manner approved by it. In the event of redemption of this Senior Note in
part only, a new Senior Note for the unredeemed portion hereof shall be issued
in the name of the holder hereof upon the surrender hereof.
37
<PAGE>
The "Redemption Price" shall initially be the Initial Redemption Percentage
specified on the face hereof of the principal amount of this Senior Note to be
redeemed and shall decline at each anniversary of the Initial Redemption Date
specified on the face hereof by the Annual Redemption Percentage Reduction, if
any, specified on the face hereof, of the principal amount to be redeemed until
the Redemption Price is 100% of such principal amount.
This Senior Note may be subject to repayment at the option of the holder
hereof in accordance with the terms hereof on any Holder's Optional Repayment
Date(s), if any, specified on the face hereof. If no Holder's Optional
Repayment Date is specified on the face hereof, this Senior Note will not be
repayable at the option of the holder hereof prior to maturity. On any Holder's
Optional Repayment Date, this Senior Note will be repayable in whole or in part
in increments of $1,000 (provided that any remaining principal amount hereof
will be at least $250,000) at the option of the holder hereof at a repayment
price equal to 100% of the principal amount to be repaid, together with accrued
and unpaid interest hereon payable to the date of repayment. For this Senior
Note to be repaid in whole or in part at the option of the holder hereof on a
Holder's Optional Repayment Date, this Senior Note must be delivered, with the
form entitled "Option to Elect Repayment" attached hereto duly completed, to the
Issuing and Paying Agent at its offices located at One First National Plaza,
Chicago, Illinois 60670, Attention: Corporate Trust Administration, or at such
other address which the Bank shall from time to time notify the holders of the
Senior Notes, not more than 60 nor less than 30 calendar days prior to such
Holder's Optional Repayment Date. In the event of repayment of this Senior Note
in part only, a new Senior Note for the unrepaid portion hereof shall be issued
in the name of the holder hereof upon the surrender hereof. Exercise of such
repayment option by the holder hereof shall be irrevocable.
The interest rate borne by this Senior Note shall be determined as follows:
1. If this Senior Note is designated as a Regular Floating Rate
Senior Note on the face hereof or if no designation is made for Interest
Calculation on the face hereof, then, except as described below or in an
Addendum hereto, this Senior Note shall bear interest at the rate
determined by reference to the applicable Interest Rate Basis or Bases
shown on the face hereof (i) plus or minus the applicable Spread, if any,
and/or (ii) multiplied by the applicable Spread Multiplier, if any,
specified and applied in the manner described on the face hereof.
Commencing on the Initial Interest Reset Date, the rate at which interest
on this Senior Note is payable shall be reset as of each Interest Reset
Date specified on the face hereof; provided, however,
-------- -------
38
<PAGE>
that the interest rate in effect for the period from the Original Issue
Date to the Initial Interest Reset Date will be the Initial Interest Rate.
2. If this Senior Note is designated as a Floating Rate/Fixed Rate
Senior Note on the face hereof, then, except as described below or in an
Addendum hereto, this Senior Note shall bear interest at the rate
determined by reference to the applicable Interest Rate Basis or Bases
shown on the face hereof (i) plus or minus the applicable Spread, if any,
and/or (ii) multiplied by the applicable Spread Multiplier, if any,
specified and applied in the manner described on the face hereof.
Commencing on the Initial Interest Reset Date, the rate at which interest
on this Senior Note is payable shall be reset as of each Interest Reset
Date specified on the face hereof; provided, however, that (i) the interest
-------- -------
rate in effect for the period from the Original Issue Date to the Initial
Interest Reset Date shall be the Initial Interest Rate; and (ii) the
interest rate in effect commencing on, and including, the Fixed Rate
Commencement Date to the Maturity Date or date of earlier redemption or
repayment shall be the Fixed Interest Rate, if such a rate is specified on
the face hereof, or if no such Fixed Interest Rate is so specified, the
interest rate in effect hereon on the Business Day immediately preceding
the Fixed Rate Commencement Date.
3. If this Senior Note is designated as an Inverse Floating Rate
Senior Note on the face hereof, then, except as described below or in an
Addendum hereto, this Senior Note shall bear interest equal to the Fixed
Interest Rate indicated on the face hereof minus the rate determined by
reference to the applicable Interest Rate Basis or Bases shown on the face
hereof (i) plus or minus the applicable Spread, if any, and/or (ii)
multiplied by the applicable Spread Multiplier, if any, specified and
applied in the manner described on the face hereof; provided, however,
-------- -------
that, unless otherwise specified on the face hereof, the interest rate
hereon will not be less than zero percent. Commencing on the Initial
Interest Reset Date, the rate at which interest on this Senior Note is
payable shall be reset as of each Interest Rate Reset Date specified on the
face hereof; and provided further that the interest rate in effect for the
-------- -------
period from the Original Issue Date to the Initial Interest Reset Date
shall be the Initial Interest Rate.
Notwithstanding the foregoing, if this Senior Note is designated on the
face hereof as having an Addendum attached, this Senior Note shall bear interest
in accordance with the terms described in such Addendum.
39
<PAGE>
Except as provided above, the interest rate in effect on each day shall be
(a) if such day is an Interest Reset Date, the interest rate determined as of
the Interest Determination Date (as defined below) immediately preceding such
Interest Reset Date or (b) if such day is not an Interest Reset Date, the
interest rate determined as of the Interest Determination Date immediately
preceding the next preceding Interest Reset Date. Each Interest Rate Basis
shall be the rate determined in accordance with the applicable provision below.
If any Interest Reset Date (which term includes the term Initial Interest Reset
Date unless the context otherwise requires) would otherwise be a day that is not
a Business Day, such Interest Reset Date shall be postponed to the next
succeeding day that is a Business Day, except that if an Interest Rate Basis
specified on the face hereof is LIBOR and such next Business Day falls in the
next succeeding calendar month, such Interest Reset Date shall be the
immediately preceding Business Day.
Unless otherwise specified on the face hereof, interest payable on this
Senior Note on any Interest Payment Date shall be the amount of interest accrued
from and including the next preceding Interest Payment Date in respect of which
interest has been paid (or from and including the Original Issue Date specified
on the face hereof, if no interest has been paid), to but excluding the related
Interest Payment Date or Maturity Date or date of earlier redemption or
repayment, as the case may be.
Unless otherwise specified on the face hereof, accrued interest hereon
shall be an amount calculated by multiplying the face amount hereof by an
accrued interest factor. Such accrued interest factor shall be computed by
adding the interest factor calculated for each day in the period for which
accrued interest is being calculated. Unless otherwise specified on the face
hereof, the interest factor for each such day shall be computed and paid on the
basis of a 360-day year of twelve 30-day months if the Day Count Convention
specified on the face hereof is "30/360" for the period specified thereunder, or
by dividing the interest rate applicable to such day by 360 if the Day Count
Convention specified on the face hereof is "Actual/360" for the period specified
thereunder or by the actual number of days in the year if the Day Count
Convention specified on the face hereof is "Actual/Actual" for the period
specified thereunder. If interest on this Senior Note is to be calculated with
reference to two or more Interest Rate Bases as specified on the face hereof,
the interest factor will be calculated in each period in the same manner as if
only one of the applicable Interest Rate Bases applied.
Unless otherwise specified on the face hereof, the "Interest Determination
Date" with respect to the Commercial Paper Rate, the Federal Funds Rate and the
Prime Rate will be the second Business Day preceding each Interest Reset Date;
the "Interest Determination
40
<PAGE>
Date" with respect to the Eleventh District Cost of Funds Rate will be the last
working day of the month immediately preceding each Interest Reset Date on which
the Federal Home Loan Bank of San Francisco (the "FHLB of San Francisco")
publishes the Index (as defined below); the "Interest Determination Date" with
respect to LIBOR shall be the second London Business Day (as defined below)
preceding each Interest Reset Date; the "Interest Determination Date" with
respect to the Treasury Rate will be the day in the week in which the related
Interest Reset Date falls on which day Treasury Bills (as defined below) are
normally auctioned (Treasury Bills are normally sold at auction on Monday of
each week, unless that day is a legal holiday, in which case the auction is
normally held on the following Tuesday, except that such auction may be held on
the preceding Friday); provided, however, that if an auction is held on the
-------- -------
Friday of the week preceding the related Interest Reset Date, the related
Interest Determination Date shall be such preceding Friday; and provided further
-------- -------
that if an auction shall fall on any Interest Reset Date, then the Interest
Reset Date shall instead be the first Business Day following such auction. If
the interest rate of this Senior Note is determined with reference to two or
more Interest Rate Bases as specified on the face hereof, the Interest
Determination Date pertaining to this Senior Note will be the latest Business
Day which is at least two Business Days prior to such Interest Reset Date on
which each Interest Rate Basis is determinable. Each Interest Rate Basis shall
be determined on such date, and the applicable interest rate shall take effect
on the Interest Reset Date.
Unless otherwise specified on the face hereof, the "Calculation Date"
pertaining to any Interest Determination Date will be the earlier of (i) the
tenth calendar day after such Interest Determination Date or, if such day is not
a Business Day, the next succeeding Business Day and (ii) the Business Day
immediately preceding the applicable Interest Payment Date or Maturity Date or
date of earlier redemption or repayment, as the case may be. All calculations
on this Senior Note shall be made by the Calculation Agent specified on the face
hereof or such successor thereto as is duly appointed by the Bank.
All percentages resulting from any calculation on this Senior Note will be
rounded, if necessary, to the nearest one hundred-thousandth of a percentage
point, with five one-millionths of a percentage point rounded upward (e.g.,
9.876545% (or 0.09876545) would be rounded to 9.87655% (or 0.0987655) and
9.876544% (or 0.09876544) would be rounded to 9.87654% (or 0.0987654)), and all
dollar amounts used in or resulting from such calculation will be rounded to the
nearest cent (with one-half cent being rounded upward).
As used herein, "Business Day" means, unless otherwise specified on the
face hereof, any day that is not a Saturday or
41
<PAGE>
Sunday and that in The City of New York or in the city in which the Bank is
headquartered is not a day on which banking institutions are authorized or
required by law, regulation or executive order to close and, if an Interest Rate
Basis shown on the face hereof is LIBOR, is also a London Business Day.
As used herein, unless otherwise specified on the face hereof, "London
Business Day" means any day on which dealings in deposits in U.S. dollars are
transacted in the London interbank market.
Determination of Commercial Paper Rate. If an Interest Rate Basis for this
--------------------------------------
Senior Note is the Commercial Paper Rate, as indicated on the face hereof, the
Commercial Paper Rate shall be determined as of the applicable Interest
Determination Date (a "Commercial Paper Rate Interest Determination Date"), as
the Money Market Yield (as defined below) on such date of the rate for
commercial paper having the Index Maturity specified on the face hereof as
published by the Board of Governors of the Federal Reserve System in the weekly
statistical release entitled "Statistical Release H.15(519), Selected Interest
Rates," or any successor publication of the Board of Governors of the Federal
Reserve System ("H.15(519)") under the heading "Commercial Paper-Nonfinancial"
or, if such heading is no longer available and applicable, such other heading
representing commercial paper issued by non-financial entities whose bond rating
is "Aa," or the equivalent, from a nationally recognized statistical rating
organization. In the event that such rate is not published by 3:00 P.M., New
York City time, on the related Calculation Date, then the Commercial Paper Rate
shall be the Money Market Yield on such Commercial Paper Rate Interest
Determination Date of the rate for commercial paper having the Index Maturity
specified on the face hereof as published by the Federal Reserve Bank of New
York in the daily statistical release entitled "Composite 3:30 P.M. Quotations
for U.S. Government Securities" or any successor publication ("Composite
Quotations") under the heading "Commercial Paper" (with an Index Maturity of one
month or three months being deemed to be equivalent to an Index Maturity of 30
days or 90 days, respectively). If by 3:00 P.M., New York City time, on the
related Calculation Date such rate is not yet published in either H.15(519) or
Composite Quotations, then the Commercial Paper Rate on such Commercial Paper
Rate Interest Determination Date shall be calculated by the Calculation Agent
and shall be the Money Market Yield of the arithmetic mean of the offered rates
at approximately 11:00 A.M., New York City time, on such Commercial Paper Rate
Interest Determination Date of three leading dealers of commercial paper in The
City of New York selected by the Calculation Agent for commercial paper having
the Index Maturity specified on the face hereof placed for a non-financial
entity whose bond rating is "Aa," or the equivalent, from a nationally
recognized statistical rating organization; provided, however, that if any of
-------- -------
the dealers selected as aforesaid by the Calculation Agent are not quoting
42
<PAGE>
offered rates as mentioned in this sentence, the Commercial Paper Rate
determined as of such Commercial Paper Rate Interest Determination Date shall be
the Commercial Paper Rate in effect on such Commercial Paper Rate Interest
Determination Date.
"Money Market Yield" shall be a yield (expressed as a percentage)
calculated in accordance with the following formula:
Money Market Yield = D x 360 x 100
------------
360-(D x M)
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal and "M" refers to the actual
number of days in the interest period for which interest is being calculated.
Determination of Eleventh District Cost of Funds Rate. If an Interest Rate
-----------------------------------------------------
Basis for this Senior Note is the Eleventh District Cost of Funds Rate, as
indicated on the face hereof, the Eleventh District Cost of Funds Rate shall be
determined as of the applicable Interest Determination Date (an "Eleventh
District Cost of Funds Rate Interest Determination Date"), as the rate equal to
the monthly weighted average cost of funds for the calendar month immediately
preceding the month in which such Eleventh District Cost of Funds Rate Interest
Determination Date falls, as set forth under the caption "11th District" on
Telerate Page 7058 as of 11:00 A.M., San Francisco time, on such Eleventh
District Cost of Funds Rate Interest Determination Date. If such rate does not
appear on Telerate Page 7058 on any related Eleventh District Cost of Funds Rate
Interest Determination Date, the Eleventh District Cost of Funds Rate for such
Eleventh District Cost of Funds Rate Interest Determination Date shall be the
monthly weighted average cost of funds paid by member institutions of the
Eleventh Federal Home Loan Bank District that was most recently announced (the
"Index") by the FHLB of San Francisco as such cost of funds for the calendar
month immediately preceding the date of such announcement. If the FHLB of San
Francisco fails to announce such rate for the calendar month immediately
preceding such Eleventh District Cost of Funds Rate Interest Determination Date,
then the Eleventh District Cost of Funds Rate determined as of such Eleventh
District Cost of Funds Rate Interest Determination Date shall be the Eleventh
District Cost of Funds Rate in effect on such Eleventh District Cost of Funds
Rate Interest Determination Date.
"Telerate Page 7058" means the display designated as page "7058" on the Dow
Jones Telerate Service (or such other page as may replace the 7058 page on that
service for the purpose of displaying the monthly weighted average cost of funds
paid by member institutions of the Eleventh Federal Home Loan Bank District).
Determination of Federal Funds Rate. If an Interest Rate Basis for this
-----------------------------------
Senior Note is the Federal Funds Rate, as indicated
43
<PAGE>
on the face hereof, the Federal Funds Rate shall be determined as of the
applicable Interest Determination Date (a "Federal Funds Rate Interest
Determination Date"), as the rate on such date for federal funds as published in
H.15(519) under the heading "Federal Funds (Effective)" or, if not so published
by 3:00 P.M., New York City time, on the related Calculation Date, the rate on
such Federal Funds Rate Interest Determination Date, as published in Composite
Quotations under the heading "Federal Funds/Effective Rate." If by 3:00 P.M.,
New York City time, on the related Calculation Date such rate is not published
in either H.15(519) or Composite Quotations, then the Federal Funds Rate on such
Federal Funds Rate Interest Determination Date shall be calculated by the
Calculation Agent and shall be the arithmetic mean of the rates for the last
transaction in overnight U.S. dollar federal funds arranged prior to 9:00 A.M.,
New York City time, on such Federal Funds Rate Interest Determination Date by
three leading brokers of federal funds transactions in The City of New York
selected by the Calculation Agent; provided, however, that if any of the brokers
-------- -------
selected as aforesaid by the Calculation Agent are not quoting as mentioned in
this sentence, the Federal Funds Rate determined as of such Federal Funds Rate
Interest Determination Date shall be the Federal Funds Rate in effect on such
Federal Funds Rate Interest Determination Date.
Determination of LIBOR. If an Interest Rate Basis for this Senior Note is
----------------------
LIBOR, as indicated on the face hereof, LIBOR shall be determined by the
Calculation Agent as of the applicable Interest Determination Date (a "LIBOR
Interest Determination Date") in accordance with the following provisions:
(a) With respect to any LIBOR Interest Determination Date, LIBOR will
be, as specified on the face hereof, either: (i) the rate for deposits in
U.S. dollars having the Index Maturity designated on the face hereof,
commencing on the second London Business Day immediately following that
LIBOR Interest Determination Date, that appears on Telerate Page 3750 as of
11:00 A.M., London time, on that LIBOR Interest Determination Date ("LIBOR
Telerate") or (ii) the arithmetic mean of the offered rates for deposits in
U.S. dollars having the Index Maturity designated on the face hereof,
commencing on the second London Business Day immediately following that
LIBOR Interest Determination Date, that appear on the Reuters Screen LIBO
Page as of 11:00 A.M., London time, on that LIBOR Interest Determination
Date, if at least two such offered rates appear on the Reuters Screen LIBO
Page ("LIBOR Reuters"). "Telerate Page 3750" means the display designated
as page "3750" on the Dow Jones Telerate Service (or such other page as may
replace the 3750 page on that service or such other service or services as
may be nominated by the British Bankers' Association for the purpose of
displaying London interbank offered rates for U.S. dollar deposits).
44
<PAGE>
"Reuters Screen LIBO Page" means the display designated as page "LIBO" on
the Reuters Monitor Money Rates Service (or such other page as may replace
the LIBO page on that service for the purpose of displaying London
interbank offered rates of major banks). If neither LIBOR Telerate nor
LIBOR Reuters is specified on the face hereof, LIBOR will be determined as
if LIBOR Telerate had been specified. If no rate appears on Telerate Page
3750, or if fewer than two offered rates appear on the Reuters Screen LIBO
Page, as applicable, LIBOR in respect of that LIBOR Interest Determination
Date will be determined as if the parties had specified the rate described
in (b) below.
(b) With respect to a LIBOR Interest Determination Date on which no
rate appears on Telerate Page 3750, as specified in (a)(i) above, or on
which fewer than two offered rates appear on the Reuters Screen LIBO Page,
as specified in (a)(ii) above, as applicable, LIBOR will be determined on
the basis of the rates at which deposits in U.S. dollars having the Index
Maturity designated on the face hereof, are offered at approximately 11:00
A.M., London time, on that LIBOR Interest Determination Date by four major
banks in the London interbank market selected by the Calculation Agent
("Reference Banks") to prime banks in the London interbank market
commencing on the second London Business Day immediately following that
LIBOR Interest Determination Date and in a principal amount equal to an
amount of not less than $1,000,000 that is representative for a single
transaction in such market at such time. The Calculation Agent will
request the principal London office of each of the Reference Banks to
provide a quotation of its rate. If at least two such quotations are
provided, LIBOR in respect of that LIBOR Interest Determination Date will
be the arithmetic mean of such quotations. If fewer than two quotations
are provided, LIBOR in respect of that LIBOR Interest Determination Date
will be the arithmetic mean of the rates quoted at approximately 11:00
A.M., New York City time, on that LIBOR Interest Determination Date by
three major banks in The City of New York selected by the Calculation Agent
for loans in U.S. dollars to leading European banks having the Index
Maturity designated on the face hereof, commencing on the second London
Business Day immediately following that LIBOR Interest Determination Date
and in a principal amount equal to an amount of not less than $1,000,000
that is representative for a single transaction in such market at such
time; provided, however, that if the banks selected as aforesaid by the
-------- -------
Calculation Agent are not quoting as mentioned in this sentence, LIBOR with
respect to such LIBOR Interest Determination Date will be the LIBOR rate in
effect on such date.
45
<PAGE>
Determination of Prime Rate. If an Interest Rate Basis for this Senior
---------------------------
Note is the Prime Rate, as indicated on the face hereof, the Prime Rate shall be
determined as of the applicable Interest Determination Date (a "Prime Rate
Interest Determination Date") as the rate on such date as such rate is published
in H.15(519) under the heading "Bank Prime Loan". If such rate is not published
prior to 3:00 P.M., New York City time, on the related Calculation Date, then
the Prime Rate shall be the arithmetic mean of the rates of interest publicly
announced by each bank that appears on the Reuters Screen USPRIME1 Page (as
defined below) as such bank's prime rate or base lending rate as in effect for
such Prime Rate Interest Determination Date. If fewer than four such rates
appear on the Reuters Screen USPRIME1 Page for such Prime Rate Interest
Determination Date, the Prime Rate shall be the arithmetic mean of the prime
rates or base lending rates quoted on the basis of the actual number of days in
the year divided by a 360-day year as of the close of business on such Prime
Rate Interest Determination Date by four major money center banks in The City of
New York selected by the Calculation Agent. If fewer than four major money
center banks provide such quotations, the Prime Rate will be determined by the
Calculation Agent and will be the arithmetic mean of four prime rates, quoted on
the basis of the actual number of days in the year divided by a 360-day year, as
of the close of business on such Prime Rate Interest Determination Date as
furnished in The City of New York by the major money center banks, if any, that
have provided quotations and as many substitute banks or trust companies as is
necessary in order to obtain four such prime rate quotations, provided such
substitute banks or trust companies are organized and doing business under the
laws of the United States, or any state thereof, each having total equity
capital of at least U.S. $500 million and being subject to supervision or
examination by federal or state authority, selected by the Calculation Agent to
provide such rate or rates; provided, however, that if the banks or trust
-------- -------
companies selected as aforesaid are not quoting as mentioned in this sentence,
the Prime Rate determined as of such Prime Rate Interest Determination Date
shall be the Prime Rate in effect on such Prime Rate Interest Determination
Date.
"Reuters Screen USPRIME1 Page" means the display designated as page
"USPRIME1" on the Reuters Monitor Money Rates Service (or such other page as may
replace the USPRIME1 page on that service for the purpose of displaying prime
rates or base lending rates of major United States banks).
Determination of Treasury Rate. If an Interest Rate Basis for this Senior
------------------------------
Note is the Treasury Rate, as specified on the face hereof, the Treasury Rate
shall be determined as of the applicable Interest Determination Date (a
"Treasury Rate Interest Determination Date") as the rate applicable to the most
recent auction of direct obligations of the United States ("Treasury
46
<PAGE>
Bills") having the Index Maturity specified on the face hereof, as such rate is
published in H.15(519) under the heading "Treasury Bills -- auction average
(investment)" or, if not published by 3:00 P.M., New York City time, on the
related Calculation Date, the auction average rate (expressed as a bond
equivalent on the basis of a year of 365 or 366 days, as applicable, and applied
on a daily basis) as otherwise announced by the United States Department of the
Treasury. In the event that the results of the auction of Treasury Bills having
the Index Maturity specified on the face hereof are not reported as provided by
3:00 P.M., New York City time, on such Calculation Date, or if no such auction
is held in a particular week, then the Treasury Rate shall be calculated by the
Calculation Agent and shall be a yield to maturity (expressed as a bond
equivalent on the basis of a year of 365 or 366 days, as applicable, and applied
on a daily basis) of the arithmetic mean of the secondary market bid rates, as
of approximately 3:30 P.M., New York City time, on such Treasury Rate Interest
Determination Date, of three leading primary United States government securities
dealers selected by the Calculation Agent, for the issue of Treasury Bills with
a remaining maturity closest to the Index Maturity specified on the face hereof;
provided, however, that if any of the dealers selected as aforesaid by the
- -------- -------
Calculation Agent are not quoting as mentioned in this sentence, the Treasury
Rate determined as of such Treasury Rate Interest Determination Date shall be
the Treasury Rate in effect on such Treasury Rate Interest Determination Date.
Any provision contained herein, including the determination of an Interest
Rate Basis, the specification of an Interest Rate Basis, calculation of the
interest rate applicable to this Senior Note, its Interest Payment Dates or any
other matter relating hereto may be modified as specified in an Addendum
relating hereto if so specified on the face hereof.
Notwithstanding the foregoing, the interest rate hereon shall not be
greater than the Maximum Interest Rate, if any, or less than the Minimum
Interest Rate, if any, specified on the face hereof. In addition to any Maximum
Interest Rate applicable hereto pursuant to the above provisions, the interest
rate on this Senior Note will in no event be higher than the maximum rate
permitted by New York law, as the same may be modified by United States law of
general application. The Calculation Agent shall calculate the interest rate
hereon in accordance with the foregoing on or before each Calculation Date.
Unless otherwise specified on the face hereof, The First National Bank of
Chicago will be the Calculation Agent.
At the request of the Holder hereof, the Calculation Agent shall provide to
the Holder hereof the interest rate hereon then in effect and, if determined,
the interest rate which shall become effective as of the next Interest Reset
Date.
47
<PAGE>
If this Senior Note is an Original Issue Discount Note and if an Event of
Default with respect to this Senior Note shall have occurred and be continuing,
the Default Amount (as defined hereafter) of this Senior Note may be declared
due and payable in the manner and with the effect provided herein. The "Default
Amount" shall be equal to the adjusted issue price as of the first day of the
accrual period as determined under Final Treasury Regulation Section 1.1275-1(b)
(or successor regulation) under the United States Internal Revenue Code of 1986,
as amended, in which the date of acceleration occurs increased by the daily
portion of the original issue discount for each day in such accrual period
ending on the date of acceleration, as determined under Final Treasury
Regulation Section 1.1272-1(b) (or successor regulation) under the United States
Internal Revenue Code of 1986, as amended. Upon payment of (i) the principal,
or premium, if any, so declared due and payable and (ii) interest on any overdue
principal and overdue interest or premium, if any (in each case to the extent
that the payment of such interest shall be legally enforceable), all of the
Bank's obligations in respect of the payment of principal of, premium, if any,
and interest on, this Senior Note shall terminate.
In case any Senior Note shall at any time become mutilated, destroyed, lost
or stolen, and such Senior Note or evidence of the loss, theft or destruction
thereof satisfactory to the Bank and the Issuing and Paying Agent and such other
documents or proof as may be required by the Bank and the Issuing and Paying
Agent shall be delivered to the Issuing and Paying Agent, the Bank shall issue a
new Senior Note, of like tenor and principal amount, having a serial number not
contemporaneously outstanding, in exchange and substitution for the mutilated
Senior Note or in lieu of the Senior Note destroyed, lost or stolen but, in the
case of any destroyed, lost or stolen Senior Note, only upon receipt of evidence
satisfactory to the Bank and the Issuing and Paying Agent that such Senior Note
was destroyed, stolen or lost, and, if required, upon receipt of indemnity
satisfactory to the Bank and the Issuing and Paying Agent. Upon the issuance of
any substituted Senior Note, the Bank and the Issuing and Paying Agent may
require the payment of a sum sufficient to cover all expenses and reasonable
charges connected with the preparation and delivery of a new Senior Note. If
any Senior Note which has matured or has been redeemed or repaid or is about to
mature or to be redeemed or repaid shall become mutilated, destroyed, lost or
stolen, the Bank may, instead of issuing a substitute Senior Note, pay or
authorize the payment of the same (without surrender thereof except in the case
of a mutilated Senior Note) upon compliance by the holder with the provisions of
this paragraph.
48
<PAGE>
No recourse shall be had for the payment of principal of, premium, if any,
or interest on, this Senior Note for any claim based hereon, or otherwise in
respect hereof, against any shareholder, employee, agent, officer or director,
as such, past, present or future, of the Bank or of any successor corporation,
banking association or other legal entity (collectively, "corporation"), either
directly or through the Bank or any corporation, whether by virtue of any
constitution, statute or rule of law or by the enforcement of any assessment or
penalty or otherwise, all such liability being, by the acceptance hereof and as
part of the consideration for the issue hereof, expressly waived and released.
The occurrence of any of the following events shall constitute an "Event of
Default" with respect to this Senior Note: (i) default in the payment of any
interest with respect to any of the Senior Notes issued by the Bank when due,
which continues for 30 calendar days; (ii) default in the payment of any
principal of, or premium, if any, on, any of the Senior Notes issued by the Bank
when due; (iii) the entry by a court having jurisdiction in the premises of (a)
a decree or order for relief in respect of the Bank in an involuntary case or
proceeding under any applicable United States federal or state bankruptcy,
insolvency, reorganization or other similar law or (b) a decree or order
appointing a conservator, receiver, liquidator, assignee, trustee, sequestrator
or any other similar official of the Bank, or of substantially all of the
property of the Bank, or ordering the winding up or liquidation of the affairs
of the Bank, and the continuance of any such decree or order for relief or any
such other decree or order unstayed and in effect for a period of 60 consecutive
days; or (iv) the commencement by the Bank of a voluntary case or proceeding
under any applicable United States federal or state bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding to be
adjudicated as bankrupt or insolvent, or the consent by the Bank to the entry of
a decree or order for relief in an involuntary case or proceeding under any
applicable United States federal or state bankruptcy, insolvency, reorganization
or other similar law or to the commencement of any bankruptcy or insolvency case
or proceeding, or the filing by the Bank of a petition or answer or consent
seeking reorganization or relief under any applicable United States federal or
state bankruptcy, insolvency, reorganization or similar law, or the consent by
the Bank to the filing of such petition or to the appointment of or taking
possession by a custodian, conservator, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the Bank or of substantially all of the
property of the Bank, or the making by the Bank of an assignment for the benefit
of creditors, or the taking of corporate action by the Bank in furtherance of
any such action. If an Event of Default shall occur and be continuing, the
holder of this Senior Note may declare the principal amount of, accrued interest
and premium, if any, on, this
49
<PAGE>
Senior Note due and payable immediately by written notice to the Bank. Upon
such declaration and notice, such principal amount, accrued interest and
premium, if any, shall become immediately due and payable. Any Event of Default
with respect to this Senior Note may be waived by the holder hereof.
The Issuing and Paying Agency Agreement provides that the Bank will
promptly notify, and provide copies of any such notice to, the Issuing and
Paying Agent, and the Issuing and Paying Agent will promptly mail by first-class
mail, postage prepaid, copies of such notice to the holders of the Senior Notes,
upon the occurrence of an Event of Default or of the curing or waiver of an
Event of Default.
Nothing contained herein shall prevent any consolidation or merger of the
Bank with any other corporation or successive consolidations or mergers in which
the Bank or its successor or successors shall be a party or parties, or shall
prevent any sale, conveyance, transfer or lease of the property of the Bank as
an entirety or substantially as an entirety to any other corporation authorized
to acquire and operate the same; provided, however (and the Bank hereby
-------- -------
covenants and agrees) that any such consolidation, merger, sale or conveyance
shall be upon the condition that: (i) immediately after such consolidation,
merger, sale or conveyance the corporation (whether the Bank or such other
corporation) formed by or surviving any such consolidation or merger, or the
corporation to which such sale or conveyance shall have been made, shall not be
in default in the performance or observance of any of the terms, covenants and
conditions of this Senior Note to be observed or performed by the Bank; and (ii)
the corporation (if other than the Bank) formed by or surviving any such
consolidation or merger, or the corporation to which such sale or conveyance
shall have been made, shall be organized under the laws of the United States of
America or any state thereof or the District of Columbia and shall expressly
assume the due and punctual payment of the principal of, premium, if any, and
interest on, this Senior Note. In case of any such consolidation, merger, sale,
conveyance, transfer or lease, and upon the assumption by the successor
corporation of the due and punctual performance of all of the covenants in this
Senior Note to be performed or observed by the Bank, such successor corporation
shall succeed to and be substituted for the Bank with the same effect as if it
had been named in this Senior Note as the Bank and thereafter the predecessor
corporation shall be relieved of all obligations and covenants in this Senior
Note and may be liquidated and dissolved.
Any action by the holder of this Senior Note shall bind all future holders
of this Senior Note, and of any Senior Note issued in exchange or substitution
hereof or in place hereof, in respect of anything done or permitted by the Bank
or by the Issuing and Paying Agent in pursuance of such action.
50
<PAGE>
The Issuing and Paying Agent shall maintain at its offices a register (the
register maintained in such office or any other office or agency of the Issuing
and Paying Agent herein referred to as the "Senior Note Register") in which,
subject to such reasonable regulations as it may prescribe, the Issuing and
Paying Agent shall provide for the registration of the Senior Notes and of
transfers of the Senior Notes.
The transfer of this Senior Note is registrable in the Senior Note
Register, upon surrender of this Senior Note for registration of transfer at the
office or agency of the Issuing and Paying Agent in the Place of Payment, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Bank and the Issuing and Paying Agent duly executed by, the
holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Senior Notes of like tenor, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated transferee or
transferees.
No provision of this Senior Note shall alter or impair the obligation of
the Bank, which is absolute and unconditional, to pay principal of, premium, if
any, and interest on, this Senior Note in U.S. dollars at the times, places and
rate herein prescribed in accordance with its terms.
No service charge shall be made to a holder of this Senior Note for any
transfer or exchange of this Senior Note, but the Bank may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection therewith.
Beneficial interests represented by this Senior Note are exchangeable for
definitive Senior Notes in registered form, of like tenor and of an equal
aggregate principal amount, only if (x) The Depository Trust Company, as
Depositary (the "Depositary") notifies the Bank that it is unwilling or unable
to continue as Depositary for this Senior Note or if at any time the Depositary
ceases to be a clearing agency registered under the Securities Exchange Act of
1934, as amended, and a successor depositary is not appointed by the Bank within
60 days, or (y) the Bank in its sole discretion determines not to have such
beneficial interests represented by this Senior Note. Any Senior Note
representing such beneficial interests that is exchangeable pursuant to the
preceding sentence shall be exchangeable in whole for definitive Senior Notes in
registered form, of like tenor and of an equal aggregate principal amount, in
minimum denominations of $250,000 and integral multiples of $1,000 in excess
thereof. Such definitive Senior Notes shall be registered in the name or names
of such person or persons as the Depositary shall instruct the Issuing and
Paying Agent.
51
<PAGE>
Prior to due presentment of this Senior Note for registration of transfer,
the Bank, the Issuing and Paying Agent or any agent of the Bank or the Issuing
and Paying Agent may treat the holder in whose name this Senior Note is
registered as the owner hereof for all purposes, whether or not this Senior Note
be overdue, and neither the Bank, the Issuing and Paying Agent nor any such
agent shall be affected by notice to the contrary except as required by
applicable law.
All notices to the Bank under this Senior Note shall be in writing and
addressed to Providian National Bank, c/o Providian Financial Corporation, 201
Mission Street, San Francisco, California 94105, Attention: Treasurer, or to
such other address of the Bank as the Bank may notify the holders of the Senior
Notes.
This Senior Note shall be governed by, and construed in accordance with,
the laws of the State of New York, without regard to conflicts of laws
principles and all applicable federal laws and regulations.
52
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
the within Senior Note, shall be construed as though they were written out in
full according to applicable laws or regulations.
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- __________ Custodian _________
(Cust) (Minor)
under Uniform Gifts to Minors Act
__________________________________
(State)
Additional abbreviations may also be used
though not in the above list.
53
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sell(s),
assign(s) and transfer(s) unto _________________________________________________
________________________________________________________________________________
PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
____________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please print or typewrite name and address,
including postal zip code, of assignee)
the within Senior Note and all rights thereunder, and hereby irrevocably
constitutes and appoints ______________________________________________________
________________________________________________________________________________
________________________________________________________________________________
to transfer said Senior Note on the books of the Issuing and Paying Agent, with
full power of substitution in the premises.
Dated:__________________ ___________________________________
NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of the within Senior Note in
every particular, without alteration or
enlargement or any change whatsoever.
________________________________
Signature Guarantee
54
<PAGE>
OPTION TO ELECT REPAYMENT
-------------------------
The undersigned hereby irrevocably request(s) and instruct(s) the Bank to
repay this Senior Note (or portion hereof specified below) pursuant to its terms
at a price equal to 100% of the principal amount hereof to be repaid, together
with accrued and unpaid interest hereon, payable to the date of repayment, to
the undersigned, at_____________________________________________________________
______________________________________________________________________________.
(Please print or typewrite name and address of the undersigned)
For this Senior Note to be repaid, the undersigned must give to the Issuing
and Paying Agent at its offices located at One First National Plaza, Chicago,
Illinois 60670, Attention: Corporate Trust Administration, or at such other
place or places of which the Bank shall from time to time notify the holders of
the Senior Notes, not more than 60 days nor less than 30 days prior notice to
the date of repayment, with this "Option to Elect Repayment" form duly
completed.
If less than the entire principal amount of this Senior Note is to be
repaid, specify the portion hereof (which shall be increments of $1,000) which
the holder elects to have repaid and specify the denomination or denominations
(which shall be $250,000 or an integral multiple of $1,000 in excess thereof) of
the Senior Notes to be issued to the holder for the portion of this Senior Note
not being repaid (in the absence of any such specification, one such Senior Note
will be issued for the portion not being repaid):
$______________________________ ______________________________
NOTICE: The signature on this
Dated: ________________________ "Option to Elect Repayment" form must
correspond with the name as written upon the
face of the within Senior Note in every
particular, without alteration or
enlargement or any change whatsoever.
________________________________
Signature Guarantee
55
<PAGE>
Exhibit A-3
(Form of Fixed Rate Global Subordinated Bank Note)
56
<PAGE>
THIS SUBORDINATED NOTE IS AN OBLIGATION SOLELY OF THE BANK AND WILL NOT BE AN
OBLIGATION OF, OR OTHERWISE GUARANTEED BY, ANY OTHER BANK OR PROVIDIAN FINANCIAL
CORPORATION. THIS SUBORDINATED NOTE DOES NOT EVIDENCE DEPOSITS OF THE BANK AND
IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY. THIS SUBORDINATED NOTE IS SUBORDINATED TO THE CLAIMS OF
DEPOSITORS AND GENERAL CREDITORS OF THE BANK, IS INELIGIBLE AS COLLATERAL FOR A
LOAN BY THE BANK AND IS NOT SECURED.
UNLESS THIS SUBORDINATED NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (THE
"DEPOSITARY") TO THE BANK OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY SUBORDINATED NOTE ISSUED UPON REGISTRATION OF TRANSFER OF, OR
IN EXCHANGE FOR, OR IN LIEU OF, THIS SUBORDINATED NOTE IS REGISTERED IN THE NAME
OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITARY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY
TO A NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.
THIS SUBORDINATED NOTE IS ISSUABLE ONLY IN FULLY REGISTERED FORM IN MINIMUM
DENOMINATIONS OF $250,000 AND INTEGRAL MULTIPLES OF $1,000 IN EXCESS THEREOF.
EACH OWNER OF A BENEFICIAL INTEREST IN THIS SUBORDINATED NOTE MUST BE AN
INSTITUTIONAL INVESTOR WHO IS AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF
RULE 501 UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND IS REQUIRED TO HOLD A
BENEFICIAL INTEREST IN $250,000 PRINCIPAL AMOUNT OR ANY INTEGRAL MULTIPLE OF
$1,000 IN EXCESS THEREOF OF THIS SUBORDINATED NOTE AT ALL TIMES.
No. FXR-________
CUSIP NO.: _______ REGISTERED
GLOBAL SUBORDINATED BANK NOTE
(Fixed Rate)
57
<PAGE>
ORIGINAL ISSUE DATE: PRINCIPAL AMOUNT:
INTEREST RATE: ______% MATURITY DATE:
INTEREST PAYMENT DATE(S): REGULAR RECORD DATES
[ ] At Maturity only (if other than May 1
[ ] May 15 and November 15 or November 1, prior to each
[ ] Other: Interest Payment Date):
INITIAL REDEMPTION INITIAL REDEMPTION
DATE: PERCENTAGE:
ANNUAL REDEMPTION HOLDER'S OPTIONAL
PERCENTAGE REDUCTION: REPAYMENT DATE(S):
DAY COUNT CONVENTION
[ ] 30/360 FOR THE PERIOD FROM TO .
[ ] ACTUAL/360 FOR THE PERIOD FROM TO .
[ ] ACTUAL/ACTUAL FOR THE PERIOD FROM TO .
ADDENDUM ATTACHED: ORIGINAL ISSUE DISCOUNT:
[ ] Yes [ ] Yes
[ ] No [ ] No
DEFAULT RATE: ______% Total Amount of OID:
Yield to Maturity:
Initial Accrual Period:
OTHER PROVISIONS:
58
<PAGE>
Providian National Bank, a national banking association (the "Bank"), for
value received, hereby promises to pay to CEDE & CO., or registered assigns, the
principal sum of ______________________________________________________________
United States Dollars on the Maturity Date specified above (except to the extent
redeemed or repaid prior to the Maturity Date) and to pay interest thereon from
and including the Original Issue Date specified above or from and including the
most recent interest payment date on which interest on this Subordinated Note
(or any predecessor Subordinated Note) has been paid or duly provided for, semi-
annually on May 15 and November 15 of each year (unless otherwise specified on
the face hereof) (each, an "Interest Payment Date") and at maturity or upon
earlier redemption or repayment, if applicable, commencing on the first Interest
Payment Date next succeeding the Original Issue Date (or, if the Original Issue
Date is between a Regular Record Date (as defined below) and the Interest
Payment Date immediately following such Regular Record Date, on the second
Interest Payment Date following the Original Issue Date), at the Interest Rate
per annum specified above, until the principal hereof is paid or made available
for payment, and (to the extent that the payment of such interest shall be
legally enforceable) at the Default Rate per annum specified above on any
overdue principal and premium, if any, and on any overdue installment of
interest. If no Default Rate is specified above, the Default Rate shall be the
Interest Rate on this Subordinated Note specified above. The interest so
payable, and punctually paid or duly provided for, on any Interest Payment Date
will be paid to the person in whose name this Subordinated Note (or any
predecessor Subordinated Note) is registered at the close of business on the
Regular Record Date, which shall be the May 1 and November 1 (whether or not a
Business Day (as defined below)), as the case may be, next preceding the
applicable Interest Payment Date (unless otherwise specified on the face hereof)
(each, a "Regular Record Date"); provided, however, that interest payable at
-------- -------
maturity or upon earlier redemption or repayment, if applicable, will be payable
to the person to whom principal shall be payable. Any such interest not so
punctually paid or duly provided for shall forthwith cease to be payable to the
holder as of the close of business on such Regular Record Date, and may either
be paid to the person in whose name this Subordinated Note (or any predecessor
Subordinated Note) is registered at the close of business on a special record
date for the payment of such defaulted interest (the "Special Record Date") to
be fixed by the Bank, notice of which shall be given to the holders of
Subordinated Notes not less than 10 calendar days prior to such Special Record
Date, or be paid at any time in any other lawful manner.
Payment of principal of, premium, if any, and interest on, this
Subordinated Note will be made in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts. The Bank will at all times appoint and maintain an issuing and
paying agent (the
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<PAGE>
"Issuing and Paying Agent," which term shall include any successor Issuing and
Paying Agent), authorized by the Bank to pay principal of, premium, if any, and
interest on, this Subordinated Note on behalf of the Bank pursuant to an issuing
and paying agency agreement (the "Issuing and Paying Agency Agreement") and
having an office or agency (the "Issuing and Paying Agent Office") in Chicago,
Illinois, New York, New York or the city in which the Bank is headquartered (the
"Place of Payment"), where this Subordinated Note may be presented or
surrendered for payment and where notices, designations or requests in respect
of payments with respect to this Subordinated Note may be served. The Bank has
initially appointed The First National Bank of Chicago as the Issuing and Paying
Agent, with the Issuing and Paying Agent Office currently located at One First
National Plaza, Chicago, Illinois 60670, Attention: Corporate Trust
Administration. The Bank may remove the Issuing and Paying Agent pursuant to
the terms of the Issuing and Paying Agency Agreement and may appoint a successor
Issuing and Paying Agent.
Payment of principal of, premium, if any, and interest on, this
Subordinated Note due at maturity or upon earlier redemption or repayment, if
applicable, will be made in immediately available funds upon presentation and
surrender of this Subordinated Note to the Issuing and Paying Agent at the
Issuing and Paying Agent Office; provided that this Subordinated Note is
presented to the Issuing and Paying Agent in time for the Issuing and Paying
Agent to make such payment in accordance with its normal procedures. Payments
of interest on this Subordinated Note (other than at maturity or upon earlier
redemption or repayment) will be made by wire transfer to such account as has
been appropriately designated to the Issuing and Paying Agent by the person
entitled to such payments.
Reference herein to "this Subordinated Note", "hereof", "herein" and
comparable terms shall include an Addendum hereto if an Addendum is specified
above.
Reference is hereby made to the further provisions of this Subordinated
Note set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
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<PAGE>
IN WITNESS WHEREOF, the Bank has caused this Subordinated Note to be duly
executed.
By: ________________________________
Authorized Signatory
Dated:
ISSUING AND PAYING AGENT'S CERTIFICATE OF AUTHENTICATION
This is one of the Subordinated Notes referred to in the Issuing and Paying
Agency Agreement.
The First National Bank of Chicago,
as Issuing and Paying Agent
By: ______________________________
Authorized Signatory
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<PAGE>
[Reverse]
This Subordinated Note is one of a duly authorized issue of Subordinated
Bank Notes of the Bank due from five years to 15 years from date of issue (the
"Subordinated Notes").
Payments of interest hereon will include interest accrued to but excluding
the relevant Interest Payment Date or Maturity Date or date of earlier
redemption or repayment, as the case may be. Unless otherwise specified on the
face hereof, interest on this Subordinated Note will be computed on the basis of
a 360-day year of twelve 30-day months.
Any provision contained herein with respect to the calculation of the rate
of interest applicable to this Subordinated Note, its Interest Payment Dates or
any other matter relating hereto may be modified as specified in an Addendum
relating hereto if so specified on the face hereof.
If any Interest Payment Date, Maturity Date or date of earlier redemption
or repayment of this Subordinated Note falls on a day which is not a Business
Day, the related payment of principal of, premium, if any, or interest on, this
Subordinated Note shall be made on the next succeeding Business Day with the
same force and effect as if made on the date such payment were due, and no
interest shall accrue on the amount so payable for the period from and after
such Interest Payment Date, Maturity Date or date of earlier redemption or
repayment, as the case may be. "Business Day" means, unless otherwise specified
on the face hereof, any day that is not a Saturday or Sunday and that in The
City of New York or in the city in which the Bank is headquartered is not a day
on which banking institutions are authorized or required by law, regulation or
executive order to close.
The indebtedness of the Bank evidenced by this Subordinated Note, including
principal, premium, if any, and interest, shall be subordinate and junior in
right of payment to the Bank's obligations to its depositors, its obligations
under bankers' acceptances, letters of credit and Senior Notes (as such term is
defined in the Issuing and Paying Agency Agreement) and its obligations to its
other creditors (including its obligations to the Federal Reserve Bank, the
Federal Deposit Insurance Corporation and any rights acquired by the Federal
Deposit Insurance Corporation as a result of loans made by the Federal Deposit
Insurance Corporation to the Bank or the purchase or guarantee of any of its
assets by the Federal Deposit Insurance Corporation, pursuant to the provisions
of 12 U.S.C. Section 1823(c) or (d), in each case whether now outstanding or
hereafter incurred, other than to obligations (1) to holders of debt obligations
that by their express terms rank on a parity with or junior to the Subordinated
Notes and (2) for claims of the Federal Deposit Insurance
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<PAGE>
Corporation pursuant to the provisions of 12 U.S.C. Section 1815(e) (relating to
liability incurred in connection with commonly controlled depository
institutions). In the event any default shall have occurred with respect to any
such obligations of the Bank under the Credit Agreement dated as of May 14,
1996, as amended, among the Bank and certain of its affiliates and the Lenders
and Agent named therein, as modified, amended, supplemented, restated or
replaced from time to time, then unless and until such default shall have been
cured or waived or shall cease to exist, no direct or indirect payment of
principal, premium, if any, or interest on this Subordinated Note, or in respect
of any redemption, retirement, purchase or other acquisition of this
Subordinated Note, shall be made by the Bank. In case of any insolvency,
receivership, conservatorship, reorganization, readjustment of debt, marshalling
of assets and liabilities or similar proceedings or any liquidation or winding-
up of or relating to the Bank, whether voluntary or involuntary, all such
obligations (except obligations which rank on a parity with, or junior to, this
Subordinated Note) shall be entitled to be paid in full before any payment shall
be made on account of the principal of, premium, if any, or interest on this
Subordinated Note. In the event of any such proceeding, after payment in full
of all sums owing with respect to such prior obligations, the holder of this
Subordinated Note, together with the holders of any obligations of the Bank
ranking on a parity with this Subordinated Note, shall be entitled to be paid
from the remaining assets of the Bank the unpaid principal of, premium, if any,
and interest on this Subordinated Note and such other obligations before any
payment or other distribution, whether in cash, property or otherwise, shall be
made on account of any capital stock or any obligations of the Bank ranking
junior to this Subordinated Note.
This Subordinated Note will not be subject to any sinking fund. If so
provided on the face of this Subordinated Note, this Subordinated Note may be
redeemed by the Bank either in whole or in part on and after the Initial
Redemption Date, if any, specified on the face hereof; provided, however, that
-------- -------
this Subordinated Note may be so redeemed without the prior approval of the
Comptroller of the Currency of the United States if the Bank would remain an
"eligible bank" (as defined in 12 C.F.R. (S) 5.3(g)) after such redemption,
unless the Comptroller of the Currency of the United States has notified the
Bank that such prior approval is required or such prior approval is otherwise
required by law. If no Initial Redemption Date is specified on the face hereof,
this Subordinated Note may not be redeemed prior to the Maturity Date. On and
after the Initial Redemption Date, if any, this Subordinated Note may be
redeemed in increments of $1,000 (provided that any remaining principal amount
hereof shall be at least $250,000) at the option of the Bank at the applicable
Redemption Price (as defined below), together with unpaid interest accrued
hereon at the applicable rate borne by this Subordinated Note to the date of
redemption (each such date, a "Redemption Date"), on written notice given not
more
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<PAGE>
than 60 nor less than 30 calendar days prior to the Redemption Date to the
registered holder hereof. Whenever less than all the Subordinated Notes at any
time outstanding are to be redeemed, the terms of the Subordinated Notes to be
so redeemed shall be selected by the Bank. If less than all the Subordinated
Notes with identical terms at any time outstanding are to be redeemed, the
Subordinated Notes to be so redeemed shall be selected by the Issuing and Paying
Agent by lot or in any usual manner approved by it. In the event of redemption
of this Subordinated Note in part only, a new Subordinated Note for the
unredeemed portion hereof shall be issued in the name of the holder hereof upon
the surrender hereof.
The "Redemption Price" shall initially be the Initial Redemption Percentage
specified on the face hereof of the principal amount of this Subordinated Note
to be redeemed and shall decline at each anniversary of the Initial Redemption
Date specified on the face hereof by the Annual Redemption Percentage Reduction,
if any, specified on the face hereof, of the principal amount to be redeemed
until the Redemption Price is 100% of such principal amount.
This Subordinated Note may be subject to repayment at the option of the
holder hereof in accordance with the terms hereof on any Holder's Optional
Repayment Date(s), if any, specified on the face hereof. If no Holder's
Optional Repayment Date is specified on the face hereof, this Subordinated Note
will not be repayable at the option of the holder hereof prior to maturity. On
any Holder's Optional Repayment Date, this Subordinated Note will be repayable
in whole or in part in increments of $1,000 (provided that any remaining
principal amount hereof will be at least $250,000) at the option of the holder
hereof at a repayment price equal to 100% of the principal amount to be repaid,
together with accrued and unpaid interest hereon payable to the date of
repayment. For this Subordinated Note to be repaid in whole or in part at the
option of the holder hereof on a Holder's Optional Repayment Date, this
Subordinated Note must be delivered, with the form entitled "Option to Elect
Repayment" attached hereto duly completed, to the Issuing and Paying Agent at
its offices located at One First National Plaza, Chicago, Illinois 60670,
Attention: Corporate Trust Administration, or at such other address which the
Bank shall from time to time notify the holders of the Subordinated Notes, not
more than 60 nor less than 30 calendar days prior to such Holder's Optional
Repayment Date. In the event of repayment of this Subordinated Note in part
only, a new Subordinated Note for the unrepaid portion hereof shall be issued in
the name of the holder hereof upon the surrender hereof. Exercise of such
repayment option by the holder hereof shall be irrevocable. Unless otherwise
provided for on the face of this Subordinated Note, this Subordinated Note will
not be repayable at the option of the holder hereof prior to the Maturity Date
without the prior approval of the Comptroller of the Currency of the United
States; provided,
--------
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<PAGE>
however, that this Subordinated Note may be so repaid without the prior approval
- -------
of the Comptroller of the Currency of the United States if the Bank would remain
an "eligible bank" (as defined in 12 C.F.R. (S) 5.3(g)) after such repayment,
unless the Comptroller of the Currency of the United States has notified the
Bank that such prior approval is required or such prior approval is otherwise
required by law.
If this Subordinated Note is an Original Issue Discount Note and if an
Event of Default with respect to this Subordinated Note shall have occurred and
be continuing, the Default Amount (as defined hereafter) of this Subordinated
Note may be declared due and payable in the manner and with the effect provided
herein. The "Default Amount" shall be equal to the adjusted issue price as of
the first day of the accrual period as determined under Final Treasury
Regulation Section 1.1275-1(b) (or successor regulation) under the United States
Internal Revenue Code of 1986, as amended, in which the date of acceleration
occurs increased by the daily portion of the original issue discount for each
day in such accrual period ending on the date of acceleration, as determined
under Final Treasury Regulation Section 1.1272-1(b) (or successor regulation)
under the United States Internal Revenue Code of 1986, as amended. Upon payment
of (i) the principal, or premium, if any, so declared due and payable and (ii)
interest on any overdue principal and overdue interest or premium, if any (in
each case to the extent that the payment of such interest shall be legally
enforceable), all of the Bank's obligations in respect of the payment of
principal of, premium, if any, and interest on, this Subordinated Note shall
terminate.
In case any Subordinated Note shall at any time become mutilated,
destroyed, lost or stolen, and such Subordinated Note or evidence of the loss,
theft or destruction thereof satisfactory to the Bank and the Issuing and Paying
Agent and such other documents or proof as may be required by the Bank and the
Issuing and Paying Agent shall be delivered to the Issuing and Paying Agent, the
Bank shall issue a new Subordinated Note, of like tenor and principal amount,
having a serial number not contemporaneously outstanding, in exchange and
substitution for the mutilated Subordinated Note or in lieu of the Subordinated
Note destroyed, lost or stolen but, in the case of any destroyed, lost or stolen
Subordinated Note, only upon receipt of evidence satisfactory to the Bank and
the Issuing and Paying Agent that such Subordinated Note was destroyed, stolen
or lost, and, if required, upon receipt of indemnity satisfactory to the Bank
and the Issuing and Paying Agent. Upon the issuance of any substituted
Subordinated Note, the Bank and the Issuing and Paying Agent may require the
payment of a sum sufficient to cover all expenses and reasonable charges
connected with the preparation and delivery of a new Subordinated Note. If any
Subordinated Note which has matured or has been redeemed or repaid or is about
to mature or to be redeemed or repaid shall become mutilated, destroyed, lost or
stolen, the Bank may, instead of issuing a
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<PAGE>
substitute Subordinated Note, pay or authorize the payment of the same (without
surrender thereof except in the case of a mutilated Subordinated Note) upon
compliance by the holder with the provisions of this paragraph.
No recourse shall be had for the payment of principal of, premium, if any,
or interest on, this Subordinated Note for any claim based hereon, or otherwise
in respect hereof, against any shareholder, employee, agent, officer or
director, as such, past, present or future, of the Bank or of any successor
corporation, banking association or other legal entity (collectively,
"corporation"), either directly or through the Bank or any corporation, whether
by virtue of any constitution, statute or rule of law or by the enforcement of
any assessment or penalty or otherwise, all such liability being, by the
acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.
An "Event of Default" with respect to this Subordinated Note will occur if
the Bank shall consent to, or a court or other governmental agency shall enter a
decree or order for, the appointment of a conservator or receiver or other
similar official in any liquidation, insolvency or similar proceeding with
respect to the Bank or all or substantially all of its property and, in the case
of a decree or order, such decree or order shall have remained in force for a
period of 60 consecutive days. If an Event of Default shall occur and be
continuing, the holder of this Subordinated Note may declare the principal
amount of, and accrued interest and premium, if any, on, this Subordinated Note
due and payable immediately by written notice to the Bank. Upon such
declaration and notice, such principal amount, accrued interest and premium, if
any, shall become immediately due and payable; PROVIDED, HOWEVER, THAT NO
-------- -------
ACCELERATED PAYMENT MAY BE MADE WITHOUT THE PRIOR WRITTEN APPROVAL OF THE
COMPTROLLER OF THE CURRENCY OF THE UNITED STATES. Any Event of Default with
respect to this Subordinated Note may be waived by the holder hereof. THERE IS
NO RIGHT OF ACCELERATION IN THE CASE OF A DEFAULT IN THE PAYMENT OF PRINCIPAL
OF, PREMIUM, IF ANY, OR INTEREST ON, THIS SUBORDINATED NOTE OR IN THE
PERFORMANCE OF ANY OTHER OBLIGATION OF THE BANK UNDER THIS SUBORDINATED NOTE OR
UNDER ANY OTHER SECURITY ISSUED BY THE BANK.
The Issuing and Paying Agency Agreement provides that the Bank will
promptly notify, and provide copies of any such notice to, the Issuing and
Paying Agent, and the Issuing and Paying Agent will promptly mail by first-class
mail, postage prepaid, copies of such notice to the holders of the Subordinated
Notes, upon the occurrence of an Event of Default or of the curing or waiver of
an Event of Default.
ANYTHING TO THE CONTRARY HEREIN NOTWITHSTANDING, THIS SUBORDINATED NOTE IS
NOT SUBJECT TO REDEMPTION PRIOR TO MATURITY
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<PAGE>
AND MAY NOT BE REPAID PRIOR TO MATURITY, EITHER PURSUANT TO ACCELERATION IN THE
EVENT OF DEFAULT OR OTHERWISE, WITHOUT THE PRIOR WRITTEN APPROVAL OF THE
COMPTROLLER OF THE CURRENCY OF THE UNITED STATES.
Nothing contained herein shall prevent any consolidation or merger of the
Bank with any other corporation or successive consolidations or mergers in which
the Bank or its successor or successors shall be a party or parties, or shall
prevent any sale, conveyance, transfer or lease of the property of the Bank as
an entirety or substantially as an entirety to any other corporation authorized
to acquire and operate the same; provided, however (and the Bank hereby
-------- -------
covenants and agrees) that any such consolidation, merger, sale or conveyance
shall be upon the condition that: (i) immediately after such consolidation,
merger, sale or conveyance the corporation (whether the Bank or such other
corporation) formed by or surviving any such consolidation or merger, or the
corporation to which such sale or conveyance shall have been made, shall not be
in default in the performance or observance of any of the terms, covenants and
conditions of this Subordinated Note to be observed or performed by the Bank;
and (ii) the corporation (if other than the Bank) formed by or surviving any
such consolidation or merger, or the corporation to which such sale or
conveyance shall have been made, shall be organized under the laws of the United
States of America or any state thereof or the District of Columbia and shall
expressly assume the due and punctual payment of the principal of, premium, if
any, and interest on, this Subordinated Note. In case of any such
consolidation, merger, sale, conveyance, transfer or lease, and upon the
assumption by the successor corporation of the due and punctual performance of
all of the covenants in this Subordinated Note to be performed or observed by
the Bank, such successor corporation shall succeed to and be substituted for the
Bank with the same effect as if it had been named in this Subordinated Note as
the Bank and thereafter the predecessor corporation shall be relieved of all
obligations and covenants in this Subordinated Note and may be liquidated and
dissolved.
Notwithstanding any other provision of this Subordinated Note, including
specifically the provisions set forth herein relating to subordination, events
of default and covenants of the Bank, it is expressly understood and agreed that
the Comptroller of the Currency of the United States or any receiver or
conservator of the Bank appointed by the Comptroller of the Currency of the
United States shall have the right in the performance of his legal duties, and
as part of any transaction or plan of reorganization or liquidation designed to
protect or further the continued existence of the Bank or the rights of any
parties or agencies with an interest in, or claim against, the Bank or its
assets, to transfer or direct the transfer of the obligations of this
Subordinated Note to any national banking association, state bank or bank
holding company selected by such official which shall expressly assume the
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<PAGE>
obligation of the due and punctual payment of the unpaid principal of, premium,
if any, and interest on, this Subordinated Note and the due and punctual
performance of all covenants and conditions hereof; and that the completion of
such transfer and assumption shall serve to supersede and void any default,
acceleration or subordination which may have occurred, or which may occur due or
related to such transaction, plan, transfer or assumption pursuant to the
provisions of this Subordinated Note, and shall serve to return the holder
hereof to the same position, other than for substitution of the obligor, it
would have occupied had no default, acceleration or subordination occurred;
except that any interest, premium and principal previously due, other than by
reason of acceleration, and not paid shall, in the absence of a contrary
agreement by the holder of this Subordinated Note, be deemed to be immediately
due and payable as of the date of such transfer and assumption, together with
interest from its original due date at the rate provided for herein.
Any action by the holder of this Subordinated Note shall bind all future
holders of this Subordinated Note, and of any Subordinated Note issued in
exchange or substitution hereof or in place hereof, in respect of anything done
or permitted by the Bank or by the Issuing and Paying Agent in pursuance of such
action.
The Issuing and Paying Agent shall maintain at its offices a register (the
register maintained in such office or any other office or agency of the Issuing
and Paying Agent herein referred to as the "Subordinated Note Register") in
which, subject to such reasonable regulations as it may prescribe, the Issuing
and Paying Agent shall provide for the registration of the Subordinated Notes
and of transfers of the Subordinated Notes.
The transfer of this Subordinated Note is registrable in the Subordinated
Note Register, upon surrender of this Subordinated Note for registration of
transfer at the office or agency of the Issuing and Paying Agent in the Place of
Payment, duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Bank and the Issuing and Paying Agent duly executed by,
the holder hereof or his attorney duly authorized in writing, and thereupon one
or more new Subordinated Notes of like tenor, of authorized denominations and
for the same aggregate principal amount, will be issued to the designated
transferee or transferees.
No provision of this Subordinated Note shall alter or impair the obligation
of the Bank, which is absolute and unconditional, to pay principal of, premium,
if any, and interest on, this Subordinated Note in U.S. dollars at the times,
places and rate herein prescribed in accordance with its terms.
In the event of the failure by the Bank to make payment of principal of,
premium, if any, or interest on this Subordinated
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<PAGE>
Note (and, in the case of payment of interest, such failure to pay shall have
continued for two Business Days), the Bank will, upon demand of the holder of
this Subordinated Note, pay to the holder of this Subordinated Note the whole
amount then due and payable on this Subordinated Note for principal, premium, if
any, and interest, with interest on the overdue principal of, premium, if any,
and interest on, this Subordinated Note to the extent provided for herein. If
the Bank fails to pay such amount upon such demand, the holder of this
Subordinated Note may among other things, institute a judicial proceeding for
the collection of such amount.
No service charge shall be made to a holder of this Subordinated Note for
any transfer or exchange of this Subordinated Note, but the Bank may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection therewith.
Beneficial interests represented by this Subordinated Note are exchangeable
for definitive Subordinated Notes in registered form, of like tenor and of an
equal aggregate principal amount, only if (x) The Depository Trust Company, as
Depositary (the "Depositary") notifies the Bank that it is unwilling or unable
to continue as Depositary for this Subordinated Note or if at any time the
Depositary ceases to be a clearing agency registered under the Securities
Exchange Act of 1934, as amended, and a successor depositary is not appointed by
the Bank within 60 days, or (y) the Bank in its sole discretion determines not
to have such beneficial interests represented by this Subordinated Note. Any
Subordinated Note representing such beneficial interests that is exchangeable
pursuant to the preceding sentence shall be exchangeable in whole for definitive
Subordinated Notes in registered form, of like tenor and of an equal aggregate
principal amount, in minimum denominations of $250,000 and integral multiples of
$1,000 in excess thereof. Such definitive Subordinated Notes shall be
registered in the name or names of such person or persons as the Depositary
shall instruct the Issuing and Paying Agent.
Prior to due presentment of this Subordinated Note for registration of
transfer, the Bank, the Issuing and Paying Agent or any agent of the Bank or the
Issuing and Paying Agent may treat the holder in whose name this Subordinated
Note is registered as the owner hereof for all purposes, whether or not this
Subordinated Note be overdue, and neither the Bank, the Issuing and Paying Agent
nor any such agent shall be affected by notice to the contrary except as
required by applicable law.
All notices to the Bank under this Subordinated Note shall be in writing
and addressed to Providian National Bank, c/o Providian Financial Corporation,
201 Mission Street, San Francisco, California 94105, Attention: Treasurer, or
to such other address of the Bank as the Bank may notify the holders of the
Subordinated Notes.
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<PAGE>
This Subordinated Note shall be governed by, and construed in accordance
with, the laws of the State of New York, without regard to conflicts of laws
principles and all applicable federal laws and regulations.
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ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
the within Subordinated Note, shall be construed as though they were written out
in full according to applicable laws or regulations.
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- ______________ Custodian _________
(Cust) (Minor)
under Uniform Gifts to Minors Act
__________________________________
(State)
Additional abbreviations may also be used
though not in the above list.
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<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sell(s),
assign(s) and transfer(s) unto _________________________________________________
________________________________________________________________________________
PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
____________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please print or typewrite name and address,
including postal zip code, of assignee)
the within Subordinated Note and all rights thereunder, and hereby irrevocably
constitutes and appoints _______________________________________________________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
to transfer said Subordinated Note on the books of the Issuing and Paying Agent,
with full power of substitution in the premises.
Dated: __________________ _________________________________
NOTICE: The signature to this
assignment must correspond with
the name as written upon the face
of the within Subordinated Note
in every particular, without
alteration or enlargement or any
change whatsoever.
________________________________
Signature Guarantee
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<PAGE>
OPTION TO ELECT REPAYMENT
-------------------------
The undersigned hereby irrevocably request(s) and instruct(s) the Bank
to repay this Subordinated Note (or portion hereof specified below) pursuant to
its terms at a price equal to 100% of the principal amount hereof to be repaid,
together with accrued and unpaid interest hereon, payable to the date of
repayment, to the undersigned, at ______________________________________________
_______________________________________________________________________________.
(Please print or typewrite name and address of the undersigned)
For this Subordinated Note to be repaid, the undersigned must give to the
Issuing and Paying Agent at its offices located at One First National Plaza,
Chicago, Illinois 60670, Attention: Corporate Trust Administration, or at such
other place or places of which the Bank shall from time to time notify the
holders of the Subordinated Notes, not more than 60 days nor less than 30 days
prior notice to the date of repayment, with this "Option to Elect Repayment"
form duly completed.
If less than the entire principal amount of this Subordinated Note is to be
repaid, specify the portion hereof (which shall be increments of $1,000) which
the holder elects to have repaid and specify the denomination or denominations
(which shall be $250,000 or an integral multiple of $1,000 in excess thereof) of
the Subordinated Notes to be issued to the holder for the portion of this
Subordinated Note not being repaid (in the absence of any such specification,
one such Subordinated Note will be issued for the portion not being repaid):
$______________________________ ______________________________
NOTICE: The signature on this
Dated: ________________________ "Option to Elect Repayment" form must
correspond with the name as written upon the
face of the within Subordinated Note in
every particular, without alteration or
enlargement or any change whatsoever.
________________________________
Signature Guarantee
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<PAGE>
Exhibit A-4
(Form of Floating Rate Global Subordinated Bank Note)
74
<PAGE>
THIS SUBORDINATED NOTE IS AN OBLIGATION SOLELY OF THE BANK AND WILL NOT BE AN
OBLIGATION OF, OR OTHERWISE GUARANTEED BY, ANY OTHER BANK OR PROVIDIAN FINANCIAL
CORPORATION. THIS SUBORDINATED NOTE DOES NOT EVIDENCE DEPOSITS OF THE BANK AND
IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY. THIS SUBORDINATED NOTE IS SUBORDINATED TO THE CLAIMS OF
DEPOSITORS AND GENERAL CREDITORS OF THE BANK, IS INELIGIBLE AS COLLATERAL FOR A
LOAN BY THE BANK AND IS NOT SECURED.
UNLESS THIS SUBORDINATED NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (THE
"DEPOSITARY") TO THE BANK OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY SUBORDINATED NOTE ISSUED UPON REGISTRATION OF TRANSFER OF, OR
IN EXCHANGE FOR, OR IN LIEU OF, THIS SUBORDINATED NOTE IS REGISTERED IN THE NAME
OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITARY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY
TO A NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.
THIS SUBORDINATED NOTE IS ISSUABLE ONLY IN FULLY REGISTERED FORM IN MINIMUM
DENOMINATIONS OF $250,000 AND INTEGRAL MULTIPLES OF $1,000 IN EXCESS THEREOF.
EACH OWNER OF A BENEFICIAL INTEREST IN THIS SUBORDINATED NOTE MUST BE AN
INSTITUTIONAL INVESTOR WHO IS AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF
RULE 501 UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND IS REQUIRED TO HOLD A
BENEFICIAL INTEREST IN $250,000 PRINCIPAL AMOUNT OR ANY INTEGRAL MULTIPLE OF
$1,000 IN EXCESS THEREOF OF THIS SUBORDINATED NOTE AT ALL TIMES.
No. FLR-__________ REGISTERED
CUSIP NO.: __________
GLOBAL SUBORDINATED BANK NOTE
(Floating Rate)
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<PAGE>
ORIGINAL ISSUE DATE: PRINCIPAL AMOUNT:
INITIAL INTEREST RATE: ______% MATURITY DATE:
INTEREST RATE INDEX MATURITY:
BASIS OR BASES:
IF LIBOR: REGULAR RECORD
[ ] Libor Telerate DATES (if other than the 15th day
[ ] Libor Reuters prior to each Interest Payment
Date):
INDEX CURRENCY:
MINIMUM INTEREST RATE:
SPREAD (PLUS OR MINUS)
AND/OR SPREAD MULTIPLIER: INTEREST PAYMENT PERIOD:
MAXIMUM INTEREST RATE: INTEREST RESET PERIOD:
INTEREST PAYMENT DATE: CALCULATION AGENT:
ANNUAL REDEMPTION
INITIAL INTEREST RESET DATE: PERCENTAGE REDUCTION:
HOLDER'S OPTIONAL
INTEREST RESET DATES: REPAYMENT DATE(S):
DAY COUNT CONVENTION
INITIAL REDEMPTION DATE: [ ] 30/360 for the period
from _______ to _________.
[ ] Actual/360 for the
INITIAL REDEMPTION PERCENTAGE: period from _______ to _______.
[ ] Actual/Actual for the
period from _______ to _______.
INTEREST CALCULATION:
[ ] Regular Floating Rate ORIGINAL ISSUE DISCOUNT
Subordinated Note [ ] Yes
[ ] Floating Rate/Fixed Rate [ ] No
Subordinated Note
Fixed Rate Commencement Date: Total Amount of OID:
Fixed Interest Rate: Yield to Maturity:
[ ] Inverse Floating Rate Initial Accrual Period:
Subordinated Note
Fixed Interest Rate: DEFAULT RATE: ______%
ADDENDUM ATTACHED:
[ ] Yes
[ ] No
OTHER PROVISIONS:
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<PAGE>
Providian National Bank, a national banking association (the "Bank"), for
value received, hereby promises to pay to CEDE & CO., or registered assigns, the
principal sum of ______________________________________________________________
United States Dollars on the Maturity Date specified above (except to the extent
redeemed or repaid prior to the Maturity Date) and to pay interest thereon from
and including the Original Issue Date specified above or from and including the
most recent interest payment date to which interest on this Subordinated Note
(or any predecessor Subordinated Note) has been paid or duly provided for (each,
an "Interest Payment Date"), on the Interest Payment Dates specified above and
at maturity or upon earlier redemption or repayment, if applicable, commencing
on the first Interest Payment Date next succeeding the Original Issue Date (or,
if the Original Issue Date is between a Regular Record Date (as defined below)
and the Interest Payment Date immediately following such Regular Record Date, on
the second Interest Payment Date following the Original Issue Date), at a rate
per annum equal to the Initial Interest Rate specified above until the Initial
Interest Reset Date specified above and thereafter at a rate per annum
determined in accordance with the provisions hereof and any Addendum relating
hereto depending upon the Interest Rate Basis or Bases, if any, and such other
terms specified above, until the principal hereof is paid or made available for
payment, and (to the extent that the payment of such interest shall be legally
enforceable) at the Default Rate per annum specified above on any overdue
principal and premium, if any, and on any overdue installment of interest. If no
Default Rate is specified above, the Default Rate shall be the Interest Rate on
this Subordinated Note specified above. The interest so payable, and punctually
paid or duly provided for, on any Interest Payment Date will be paid to the
person in whose name this Subordinated Note (or any predecessor Subordinated
Note) is registered at the close of business on the Regular Record Date, which
shall be the 15th calendar day (whether or not a Business Day(as defined below))
prior to such Interest Payment Date (unless otherwise specified on the face
hereof) (each, a "Regular Record Date"); provided, however, that interest
-------- -------
payable at maturity or upon earlier redemption or repayment, if applicable, will
be payable to the person to whom principal shall be payable. Any such interest
not so punctually paid or duly provided for shall forthwith cease to be payable
to the holder as of the close of business on such Regular Record Date and may
either be paid to the person in whose name this Subordinated Note (or any
predecessor Subordinated Note) is registered at the close of business on a
special record date for the payment of such defaulted interest (the "Special
Record Date") to be fixed by the Bank, notice of which shall be given to the
holders of Subordinated Notes not less than 10 calendar days prior to such
Special Record Date, or be paid at any time in any other lawful manner.
Payment of principal of, premium, if any, and interest on, this
Subordinated Note will be made in such coin or currency of the
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<PAGE>
United States of America as at the time of payment is legal tender for payment
of public and private debts. The Bank will at all times appoint and maintain an
issuing and paying agent (the "Issuing and Paying Agent," which term shall
include any successor Issuing and Paying Agent), authorized by the Bank to pay
principal of, premium, if any, and interest on, this Subordinated Note on behalf
of the Bank pursuant to an issuing and paying agency agreement (the "Issuing and
Paying Agency Agreement") and having an office or agency (the "Issuing and
Paying Agent Office") in Chicago, Illinois, New York, New York or the city in
which the Bank is headquartered (the "Place of Payment"), where this
Subordinated Note may be presented or surrendered for payment and where notices,
designations or requests in respect of payments with respect to this
Subordinated Note may be served. The Bank has initially appointed The First
National Bank of Chicago as the Issuing and Paying Agent, with the Issuing and
Paying Agent Office currently located at One First National Plaza, Chicago,
Illinois 60670, Attention: Corporate Trust Administration. The Bank may remove
the Issuing and Paying Agent pursuant to the terms of the Issuing and Paying
Agency Agreement, and appoint a successor Issuing and Paying Agent.
Payment of principal of, premium, if any, and interest on, this
Subordinated Note due at maturity or upon earlier redemption or repayment, if
applicable, will be made in immediately available funds upon presentation and
surrender of this Subordinated Note to the Issuing and Paying Agent at the
Issuing and Paying Agent Office; provided that this Subordinated Note is
presented to the Issuing and Paying Agent in time for the Issuing and Paying
Agent to make such payment in accordance with its normal procedures. Payments
of interest on this Subordinated Note (other than at maturity or upon earlier
redemption or repayment) will be made by wire transfer to such account as has
been appropriately designated to the Issuing and Paying Agent by the person
entitled to such payments.
Reference herein to "this Subordinated Note", "hereof", "herein" and
comparable terms shall include an Addendum hereto if an Addendum is specified
above.
Reference is hereby made to the further provisions of this Subordinated
Note set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
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<PAGE>
IN WITNESS WHEREOF, the Bank has caused this Subordinated Note to be duly
executed.
By: ___________________________________
Authorized Signatory
Dated:
ISSUING AND PAYING AGENT'S CERTIFICATE OF AUTHENTICATION
This is one of the Subordinated Notes referred to in the Issuing and Paying
Agency Agreement.
The First National Bank of Chicago,
as Issuing and Paying Agent
By: ___________________________
Authorized Signatory
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<PAGE>
[Reverse]
This Subordinated Note is one of a duly authorized issue of Subordinated
Bank Notes of the Bank due from five years to 15 years from date of issue (the
"Subordinated Notes").
If any Interest Payment Date (other than an Interest Payment Date at the
Maturity Date or date of earlier redemption or repayment of this Subordinated
Note) would otherwise fall on a day that is not a Business Day, such Interest
Payment Date shall be postponed to the next succeeding day that is a Business
Day, except that if an Interest Rate Basis is LIBOR, as indicated on the face
hereof, and such next Business Day falls in the next succeeding calendar month,
such Interest Payment Date shall be the immediately preceding day that is a
Business Day. Except as provided above, interest payments will be made on the
Interest Payment Dates shown on the face hereof. If the Maturity Date or date
of earlier redemption or repayment of this Subordinated Note falls on a day
which is not a Business Day, the related payment of principal of, premium, if
any, and interest on, this Subordinated Note will be made on the next succeeding
Business Day with the same force and effect as if made on the date such payment
was due, and no interest shall accrue on the amount so payable for the period
from and after such Maturity Date or date of earlier redemption or repayment, as
the case may be.
The indebtedness of the Bank evidenced by this Subordinated Note, including
principal, premium, if any, and interest, shall be subordinate and junior in
right of payment to the Bank's obligations to its depositors, its obligations
under bankers' acceptances, letters of credit and Senior Notes (as such term is
defined in the Issuing and Paying Agency Agreement) and its obligations to its
other creditors (including its obligations to the Federal Reserve Bank, the
Federal Deposit Insurance Corporation and any rights acquired by the Federal
Deposit Insurance Corporation as a result of loans made by the Federal Deposit
Insurance Corporation to the Bank or the purchase or guarantee of any of its
assets by the Federal Deposit Insurance Corporation, pursuant to the provisions
of 12 U.S.C. Section 1823(c) or (d), in each case whether now outstanding or
hereafter incurred, other than to obligations (1) to holders of debt obligations
that by their express terms rank on a parity with or junior to the Subordinated
Notes and (2) for claims of the Federal Deposit Insurance Corporation pursuant
to the provisions of 12 U.S.C. Section 1815(e) (relating to liability incurred
in connection with commonly controlled depository institutions). In the event
any default shall have occurred with respect to any such obligations of the Bank
under the Credit Agreement dated as of May 14, 1996, as amended, among the Bank
and certain of its affiliates and the Lenders and Agent named therein, as
modified, amended, supplemented, restated or replaced from time to time, then
unless and until such default
80
<PAGE>
shall have been cured or waived or shall cease to exist, no direct or indirect
payment of principal, premium, if any, or interest on this Subordinated Note, or
in respect of any redemption, retirement, purchase or other acquisition of this
Subordinated Note, shall be made by the Bank. In case of any insolvency,
receivership, conservatorship, reorganization, readjustment of debt, marshalling
of assets and liabilities or similar proceedings or any liquidation or winding-
up of or relating to the Bank, whether voluntary or involuntary, all such
obligations (except obligations which rank on a parity with, or junior to, this
Subordinated Note) shall be entitled to be paid in full before any payment shall
be made on account of the principal of, premium, if any, or interest on this
Subordinated Note. In the event of any such proceeding, after payment in full of
all sums owing with respect to such prior obligations, the holder of this
Subordinated Note, together with the holders of any obligations of the Bank
ranking on a parity with this Subordinated Note, shall be entitled to be paid
from the remaining assets of the Bank the unpaid principal of, premium, if any,
and interest on this Subordinated Note and such other obligations, before any
payment or other distribution, whether in cash, property or otherwise, shall be
made on account of any capital stock or any obligations of the Bank ranking
junior to this Subordinated Note.
This Subordinated Note will not be subject to any sinking fund. If so
provided on the face of this Subordinated Note, this Subordinated Note may be
redeemed by the Bank either in whole or in part on and after the Initial
Redemption Date, if any, specified on the face hereof; provided, however, that
-------- -------
this Subordinated Note may be so redeemed without the prior approval of the
Comptroller of the Currency of the United States if the Bank would remain an
"eligible bank" (as defined in 12 C.F.R. (S) 5.3(g)) after such redemption,
unless the Comptroller of the Currency of the United States has notified the
Bank that such prior approval is required or such prior approval is otherwise
required by law. If no Initial Redemption Date is specified on the face hereof,
this Subordinated Note may not be redeemed prior to the Maturity Date. On and
after the Initial Redemption Date, if any, this Subordinated Note may be
redeemed in increments of $1,000 (provided that any remaining principal amount
hereof shall be at least $250,000) at the option of the Bank at the applicable
Redemption Price (as defined below), together with unpaid interest accrued
hereon at the applicable rate borne by this Subordinated Note to the date of
redemption (each such date, a "Redemption Date"), on written notice given not
more than 60 nor less than 30 calendar days prior to the Redemption Date to the
registered holder hereof. Whenever less than all the Subordinated Notes at any
time outstanding are to be redeemed, the terms of the Subordinated Notes to be
so redeemed shall be selected by the Bank. If less than all the Subordinated
Notes with identical terms at any time outstanding are to be redeemed, the
Subordinated Notes to be so redeemed shall be selected by the Issuing and Paying
Agent by lot or in any usual manner approved by
81
<PAGE>
it. In the event of redemption of this Subordinated Note in part only, a new
Subordinated Note for the unredeemed portion hereof shall be issued in the name
of the holder hereof upon the surrender hereof.
The "Redemption Price" shall initially be the Initial Redemption Percentage
specified on the face hereof of the principal amount of this Subordinated Note
to be redeemed and shall decline at each anniversary of the Initial Redemption
Date specified on the face hereof by the Annual Redemption Percentage Reduction,
if any, specified on the face hereof, of the principal amount to be redeemed
until the Redemption Price is 100% of such principal amount.
This Subordinated Note may be subject to repayment at the option of the
holder hereof in accordance with the terms hereof on any Holder's Optional
Repayment Date(s), if any, specified on the face hereof. If no Holder's
Optional Repayment Date is specified on the face hereof, this Subordinated Note
will not be repayable at the option of the holder hereof prior to maturity. On
any Holder's Optional Repayment Date, this Subordinated Note will be repayable
in whole or in part in increments of $1,000 (provided that any remaining
principal amount hereof will be at least $250,000) at the option of the holder
hereof at a repayment price equal to 100% of the principal amount to be repaid,
together with accrued and unpaid interest hereon payable to the date of
repayment. For this Subordinated Note to be repaid in whole or in part at the
option of the holder hereof on a Holder's Optional Repayment Date, this
Subordinated Note must be delivered, with the form entitled "Option to Elect
Repayment" attached hereto duly completed, to the Issuing and Paying Agent at
its offices located at One First National Plaza, Chicago, Illinois 60670,
Attention: Corporate Trust Administration, or at such other address which the
Bank shall from time to time notify the holders of the Subordinated Notes, not
more than 60 nor less than 30 calendar days prior to such Holder's Optional
Repayment Date. In the event of repayment of this Subordinated Note in part
only, a new Subordinated Note for the unrepaid portion hereof shall be issued in
the name of the holder hereof upon the surrender hereof. Exercise of such
repayment option by the holder hereof shall be irrevocable. Unless otherwise
provided for on the face of this Subordinated Note, this Subordinated Note will
not be repayable at the option of the holder hereof prior to the Maturity Date
without the prior approval of the Comptroller of the Currency of the United
States; provided, however, that this Subordinated Note may be so repaid without
-------- -------
the prior approval of the Comptroller of the Currency of the United States if
the Bank would remain an "eligible bank" (as defined in 12 C.F.R. (S) 5.3(g))
after such repayment, unless the Comptroller of the Currency of the United
States has notified the Bank that such prior approval is required or such prior
approval is otherwise required by law.
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<PAGE>
Notwithstanding the foregoing, unless otherwise provided under "Other
Provisions" on the face hereof, this Subordinated Note may not be repaid, in
whole or in part, prior to its Maturity Date pursuant to the terms hereof
without the prior written approval of the Comptroller of the Currency of the
United States.
The interest rate borne by this Subordinated Note shall be determined as
follows:
1. If this Subordinated Note is designated as a Regular Floating Rate
Subordinated Note on the face hereof or if no designation is made for
Interest Calculation on the face hereof, then, except as described below or
in an Addendum hereto, this Subordinated Note shall bear interest at the
rate determined by reference to the applicable Interest Rate Basis or Bases
shown on the face hereof (i) plus or minus the applicable Spread, if any,
and/or (ii) multiplied by the applicable Spread Multiplier, if any,
specified and applied in the manner described on the face hereof.
Commencing on the Initial Interest Reset Date, the rate at which interest
on this Subordinated Note is payable shall be reset as of each Interest
Reset Date specified on the face hereof; provided, however, that the
-------- -------
interest rate in effect for the period from the Original Issue Date to the
Initial Interest Reset Date will be the Initial Interest Rate.
2. If this Subordinated Note is designated as a Floating Rate/Fixed
Rate Subordinated Note on the face hereof, then, except as described below
or in an Addendum hereto, this Subordinated Note shall bear interest at the
rate determined by reference to the applicable Interest Rate Basis or Bases
shown on the face hereof (i) plus or minus the applicable Spread, if any,
and/or (ii) multiplied by the applicable Spread Multiplier, if any,
specified and applied in the manner described on the face hereof.
Commencing on the Initial Interest Reset Date, the rate at which interest
on this Subordinated Note is payable shall be reset as of each Interest
Reset Date specified on the face hereof; provided, however, that (i) the
-------- -------
interest rate in effect for the period from the Original Issue Date to the
Initial Interest Reset Date shall be the Initial Interest Rate; and (ii)
the interest rate in effect commencing on, and including, the Fixed Rate
Commencement Date to the Maturity Date or date of earlier redemption or
repayment shall be the Fixed Interest Rate, if such a rate is specified on
the face hereof, or if no such Fixed Interest Rate is so specified, the
interest rate in effect hereon on the Business Day immediately preceding
the Fixed Rate Commencement Date.
3. If this Subordinated Note is designated as an Inverse Floating
Rate Subordinated Note on the face hereof, then, except as described below
or in an Addendum hereto, this
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<PAGE>
Subordinated Note shall bear interest equal to the Fixed Interest Rate
indicated on the face hereof minus the rate determined by reference to the
applicable Interest Rate Basis or Bases shown on the face hereof (i) plus
or minus the applicable Spread, if any, and/or (ii) multiplied by the
applicable Spread Multiplier, if any, specified and applied in the manner
described on the face hereof; provided, however, that, unless otherwise
-------- -------
specified on the face hereof, the interest rate hereon will not be less
than zero percent. Commencing on the Initial Interest Reset Date, the rate
at which interest on this Subordinated Note is payable shall be reset as of
each Interest Rate Reset Date specified on the face hereof; and provided
--------
further that the interest rate in effect for the period from the Original
-------
Issue Date to the Initial Interest Reset Date shall be the Initial Interest
Rate.
Notwithstanding the foregoing, if this Subordinated Note is designated on
the face hereof as having an Addendum attached, this Subordinated Note shall
bear interest in accordance with the terms described in such Addendum.
Except as provided above, the interest rate in effect on each day shall be
(a) if such day is an Interest Reset Date, the interest rate determined as of
the Interest Determination Date (as defined below) immediately preceding such
Interest Reset Date or (b) if such day is not an Interest Reset Date, the
interest rate determined as of the Interest Determination Date immediately
preceding the next preceding Interest Reset Date. Each Interest Rate Basis
shall be the rate determined in accordance with the applicable provision below.
If any Interest Reset Date (which term includes the term Initial Interest Reset
Date unless the context otherwise requires) would otherwise be a day that is not
a Business Day, such Interest Reset Date shall be postponed to the next
succeeding day that is a Business Day, except that if an Interest Rate Basis
specified on the face hereof is LIBOR and such next Business Day falls in the
next succeeding calendar month, such Interest Reset Date shall be the
immediately preceding Business Day.
Unless otherwise specified on the face hereof, interest payable on this
Subordinated Note on any Interest Payment Date shall be the amount of interest
accrued from and including the next preceding Interest Payment Date in respect
of which interest has been paid (or from and including the Original Issue Date
specified on the face hereof, if no interest has been paid), to but excluding
the related Interest Payment Date or Maturity Date or date of earlier redemption
or repayment, as the case may be.
Unless otherwise specified on the face hereof, accrued interest hereon
shall be an amount calculated by multiplying the face amount hereof by an
accrued interest factor. Such accrued
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<PAGE>
interest factor shall be computed by adding the interest factor calculated for
each day in the period for which accrued interest is being calculated. Unless
otherwise specified on the face hereof, the interest factor for each such day
shall be computed and paid on the basis of a 360-day year of twelve 30-day
months if the Day Count Convention specified on the face hereof is "30/360" for
the period specified thereunder, or by dividing the interest rate applicable to
such day by 360 if the Day Count Convention specified on the face hereof is
"Actual/360" for the period specified thereunder or by the actual number of days
in the year if the Day Count Convention specified on the face hereof is
"Actual/Actual" for the period specified thereunder. If interest on this
Subordinated Note is to be calculated with reference to two or more Interest
Rate Bases as specified on the face hereof, the interest factor will be
calculated in each period in the same manner as if only one of the applicable
Interest Rate Bases applied.
Unless otherwise specified on the face hereof, the "Interest Determination
Date" with respect to the Commercial Paper Rate, the Federal Funds Rate and the
Prime Rate will be the second Business Day preceding each Interest Reset Date;
the "Interest Determination Date" with respect to the Eleventh District Cost of
Funds Rate will be the last working day of the month immediately preceding each
Interest Reset Date on which the Federal Home Loan Bank of San Francisco (the
"FHLB of San Francisco") publishes the Index (as defined below); the "Interest
Determination Date" with respect to LIBOR shall be the second London Business
Day (as defined below) preceding each Interest Reset Date; the "Interest
Determination Date" with respect to the Treasury Rate will be the day in the
week in which the related Interest Reset Date falls on which day Treasury Bills
(as defined below) are normally auctioned (Treasury Bills are normally sold at
auction on Monday of each week, unless that day is a legal holiday, in which
case the auction is normally held on the following Tuesday, except that such
auction may be held on the preceding Friday); provided, however, that if an
-------- -------
auction is held on the Friday of the week preceding the related Interest Reset
Date, the related Interest Determination Date shall be such preceding Friday;
and provided further that if an auction shall fall on any Interest Reset Date,
-------- -------
then the Interest Reset Date shall instead be the first Business Day following
such auction. If the interest rate of this Subordinated Note is determined with
reference to two or more Interest Rate Bases as specified on the face hereof,
the Interest Determination Date pertaining to this Subordinated Note will be the
latest Business Day which is at least two Business Days prior to such Interest
Reset Date on which each Interest Rate Basis is determinable. Each Interest
Rate Basis shall be determined on such date, and the applicable interest rate
shall take effect on the Interest Reset Date.
Unless otherwise specified on the face hereof, the "Calculation Date"
pertaining to any Interest Determination Date will be the earlier of (i) the
tenth calendar day after such
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Interest Determination Date or, if such day is not a Business Day, the next
succeeding Business Day and (ii) the Business Day immediately preceding the
applicable Interest Payment Date or Maturity Date or date of earlier redemption
or repayment, as the case may be. All calculations on this Subordinated Note
shall be made by the Calculation Agent specified on the face hereof or such
successor thereto as is duly appointed by the Bank.
All percentages resulting from any calculation on this Subordinated Note
will be rounded, if necessary, to the nearest one hundred-thousandth of a
percentage point, with five one-millionths of a percentage point rounded upward
(e.g., 9.876545% (or 0.09876545) would be rounded to 9.87655% (or 0.0987655) and
9.876544% (or 0.09876544) would be rounded to 9.87654% (or 0.0987654)), and all
dollar amounts used in or resulting from such calculation will be rounded to the
nearest cent (with one-half cent being rounded upward).
As used herein, "Business Day" means, unless otherwise specified on the
face hereof, any day that is not a Saturday or Sunday and that in The City of
New York or in the city in which the Bank is headquartered is not a day on which
banking institutions are authorized or required by law, regulation or executive
order to close and, if an Interest Rate Basis shown on the face hereof is LIBOR,
is also a London Business Day.
As used herein, unless otherwise specified on the face hereof, "London
Business Day" means any day on which dealings in deposits in U.S. dollars are
transacted in the London interbank market.
Determination of Commercial Paper Rate. If an Interest Rate Basis for this
--------------------------------------
Subordinated Note is the Commercial Paper Rate, as indicated on the face hereof,
the Commercial Paper Rate shall be determined as of the applicable Interest
Determination Date (a "Commercial Paper Rate Interest Determination Date"), as
the Money Market Yield (as defined below) on such date of the rate for
commercial paper having the Index Maturity specified on the face hereof as
published by the Board of Governors of the Federal Reserve System in the weekly
statistical release entitled "Statistical Release H.15(519), Selected Interest
Rates," or any successor publication of the Board of Governors of the Federal
Reserve System ("H.15(519)") under the heading "Commercial Paper-Nonfinancial"
or, if such heading is no longer available and applicable, such other heading
representing commercial paper issued by non-financial entities whose bond rating
is "Aa," or the equivalent, from a nationally recognized statistical rating
organization. In the event that such rate is not published by 3:00 P.M., New
York City time, on the related Calculation Date, then the Commercial Paper Rate
shall be the Money Market Yield on such Commercial Paper Rate Interest
Determination Date of the rate for commercial paper having the Index Maturity
specified on the face hereof as published by the Federal Reserve Bank of New
York in the
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<PAGE>
daily statistical release entitled "Composite 3:30 P.M. Quotations for U.S.
Government Securities" or any successor publication ("Composite Quotations")
under the heading "Commercial Paper" (with an Index Maturity of one month or
three months being deemed to be equivalent to an Index Maturity of 30 days or 90
days, respectively). If by 3:00 P.M., New York City time, on the related
Calculation Date such rate is not yet published in either H.15(519) or Composite
Quotations, then the Commercial Paper Rate on such Commercial Paper Rate
Interest Determination Date shall be calculated by the Calculation Agent and
shall be the Money Market Yield of the arithmetic mean of the offered rates at
approximately 11:00 A.M., New York City time, on such Commercial Paper Rate
Interest Determination Date of three leading dealers of commercial paper in The
City of New York selected by the Calculation Agent for commercial paper having
the Index Maturity specified on the face hereof placed for a non-financial
entity whose bond rating is "Aa," or the equivalent, from a nationally
recognized statistical rating organization; provided, however, that
-------- -------
if any of the dealers selected as aforesaid by the Calculation Agent are not
quoting offered rates as mentioned in this sentence, the Commercial Paper Rate
determined as of such Commercial Paper Rate Interest Determination Date shall be
the Commercial Paper Rate in effect on such Commercial Paper Rate Interest
Determination Date.
"Money Market Yield" shall be a yield (expressed as a percentage)
calculated in accordance with the following formula:
Money Market Yield = D x 360 x 100
------------
360-(D x M)
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal and "M" refers to the actual
number of days in the interest period for which interest is being calculated.
Determination of Eleventh District Cost of Funds Rate. If an Interest Rate
-----------------------------------------------------
Basis for this Subordinated Note is the Eleventh District Cost of Funds Rate, as
indicated on the face hereof, the Eleventh District Cost of Funds Rate shall be
determined as of the applicable Interest Determination Date (an "Eleventh
District Cost of Funds Rate Interest Determination Date"), as the rate equal to
the monthly weighted average cost of funds for the calendar month immediately
preceding the month in which such Eleventh District Cost of Funds Rate Interest
Determination Date falls, as set forth under the caption "11th District" on
Telerate Page 7058 as of 11:00 A.M., San Francisco time, on such Eleventh
District Cost of Funds Rate Interest Determination Date. If such rate does not
appear on Telerate Page 7058 on any related Eleventh District Cost of Funds Rate
Interest Determination Date, the Eleventh District Cost of Funds Rate for such
Eleventh District Cost of Funds Rate Interest Determination Date shall be the
monthly weighted average cost of funds paid by member institutions of the
Eleventh Federal Home Loan
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<PAGE>
Bank District that was most recently announced (the "Index") by the FHLB of San
Francisco as such cost of funds for the calendar month immediately preceding the
date of such announcement. If the FHLB of San Francisco fails to announce such
rate for the calendar month immediately preceding such Eleventh District Cost of
Funds Rate Interest Determination Date, then the Eleventh District Cost of Funds
Rate determined as of such Eleventh District Cost of Funds Rate Interest
Determination Date shall be the Eleventh District Cost of Funds Rate in effect
on such Eleventh District Cost of Funds Rate Interest Determination Date.
"Telerate Page 7058" means the display designated as page "7058" on the Dow
Jones Telerate Service (or such other page as may replace the 7058 page on that
service for the purpose of displaying the monthly weighted average cost of funds
paid by member institutions of the Eleventh Federal Home Loan Bank District).
Determination of Federal Funds Rate. If an Interest Rate Basis for this
-----------------------------------
Subordinated Note is the Federal Funds Rate, as indicated on the face hereof,
the Federal Funds Rate shall be determined as of the applicable Interest
Determination Date (a "Federal Funds Rate Interest Determination Date"), as the
rate on such date for federal funds as published in H.15(519) under the heading
"Federal Funds (Effective)" or, if not so published by 3:00 P.M., New York City
time, on the related Calculation Date, the rate on such Federal Funds Rate
Interest Determination Date, as published in Composite Quotations under the
heading "Federal Funds/Effective Rate." If by 3:00 P.M., New York City time, on
the related Calculation Date such rate is not published in either H.15(519) or
Composite Quotations, then the Federal Funds Rate on such Federal Funds Rate
Interest Determination Date shall be calculated by the Calculation Agent and
shall be the arithmetic mean of the rates for the last transaction in overnight
U.S. dollar federal funds arranged prior to 9:00 A.M., New York City time on
such Federal Funds Rate Interest Determination Date by three leading brokers of
federal funds transactions in The City of New York selected by the Calculation
Agent; provided, however, that if any of the brokers selected as aforesaid by
-------- -------
the Calculation Agent are not quoting as mentioned in this sentence, the Federal
Funds Rate determined as of such Federal Funds Rate Interest Determination Date
shall be the Federal Funds Rate in effect on such Federal Funds Rate Interest
Determination Date.
Determination of LIBOR. If an Interest Rate Basis for this Subordinated
----------------------
Note is LIBOR, as indicated on the face hereof, LIBOR shall be determined by the
Calculation Agent as of the applicable Interest Determination Date (a "LIBOR
Interest Determination Date") in accordance with the following provisions:
(a) With respect to any LIBOR Interest Determination Date, LIBOR will
be, as specified on the face hereof, either: (i) the rate for deposits in
U.S. dollars having the Index
88
<PAGE>
Maturity designated on the face hereof, commencing on the second London
Business Day immediately following that LIBOR Interest Determination Date,
that appears on Telerate Page 3750 as of 11:00 A.M., London time, on that
LIBOR Interest Determination Date ("LIBOR Telerate") or (ii) the arithmetic
mean of the offered rates for deposits in U.S. dollars having the Index
Maturity designated on the face hereof, commencing on the second London
Business Day immediately following that LIBOR Interest Determination Date,
that appear on the Reuters Screen LIBO Page as of 11:00 A.M., London time,
on that LIBOR Interest Determination Date, if at least two such offered
rates appear on the Reuters Screen LIBO Page ("LIBOR Reuters"). "Telerate
Page 3750" means the display designated as page "3750" on the Dow Jones
Telerate Service (or such other page as may replace the 3750 page on that
service or such other service or services as may be nominated by the
British Bankers' Association for the purpose of displaying London interbank
offered rates for U.S. dollar deposits). "Reuters Screen LIBO Page" means
the display designated as page "LIBO" on the Reuters Monitor Money Rates
Service (or such other page as may replace the LIBO page on that service
for the purpose of displaying London interbank offered rates of major
banks). If neither LIBOR Telerate nor LIBOR Reuters is specified on the
face hereof, LIBOR will be determined as if LIBOR Telerate had been
specified. If no rate appears on Telerate Page 3750, or if fewer than two
offered rates appear on the Reuters Screen LIBO Page, as applicable, LIBOR
in respect of that LIBOR Interest Determination Date will be determined as
if the parties had specified the rate described in (b) below.
(b) With respect to a LIBOR Interest Determination Date on which no
rate appears on Telerate Page 3750, as specified in (a)(i) above, or on
which fewer than two offered rates appear on the Reuters Screen LIBO Page,
as specified in (a)(ii) above, as applicable, LIBOR will be determined on
the basis of the rates at which deposits in U.S. dollars having the Index
Maturity designated on the face hereof, are offered at approximately 11:00
A.M., London time, on that LIBOR Interest Determination Date by four major
banks in the London interbank market selected by the Calculation Agent
("Reference Banks") to prime banks in the London interbank market
commencing on the second London Business Day immediately following that
LIBOR Interest Determination Date and in a principal amount equal to an
amount of not less than $1,000,000 that is representative for a single
transaction in such market at such time. The Calculation Agent will
request the principal London office of each of the Reference Banks to
provide a quotation of its rate. If at least two such quotations are
provided, LIBOR in respect of that LIBOR Interest Determination Date will
be the arithmetic mean of such quotations. If fewer than two quotations
are provided,
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<PAGE>
LIBOR in respect of that LIBOR Interest Determination Date will be the
arithmetic mean of the rates quoted at approximately 11:00 A.M., New York
City time, on that LIBOR Interest Determination Date by three major banks
in The City of New York selected by the Calculation Agent for loans in U.S.
dollars to leading European banks having the Index Maturity designated on
the face hereof, commencing on the second London Business Day immediately
following that LIBOR Interest Determination Date and in a principal amount
equal to an amount of not less than $1,000,000 that is representative for a
single transaction in such market at such time; provided, however, that if
-------- -------
the banks selected as aforesaid by the Calculation Agent are not quoting as
mentioned in this sentence, LIBOR with respect to such LIBOR Interest
Determination Date will be the LIBOR rate in effect on such date.
Determination of Prime Rate. If an Interest Rate Basis for this
---------------------------
Subordinated Note is the Prime Rate, as indicated on the face hereof, the Prime
Rate shall be determined as of the applicable Interest Determination Date (a
"Prime Rate Interest Determination Date") as the rate on such date as such rate
is published in H.15(519) under the heading "Bank Prime Loan". If such rate is
not published prior to 3:00 P.M., New York City time, on the related Calculation
Date, then the Prime Rate shall be the arithmetic mean of the rates of interest
publicly announced by each bank that appears on the Reuters Screen USPRIME1 Page
(as defined below) as such bank's prime rate or base lending rate as in effect
for such Prime Rate Interest Determination Date. If fewer than four such rates
appear on the Reuters Screen USPRIME1 Page for such Prime Rate Interest
Determination Date, the Prime Rate shall be the arithmetic mean of the prime
rates or base lending rates quoted on the basis of the actual number of days in
the year divided by a 360-day year as of the close of business on such Prime
Rate Interest Determination Date by four major money center banks in The City of
New York selected by the Calculation Agent. If fewer than four major money
center banks provide such quotations, the Prime Rate will be determined by the
Calculation Agent and will be the arithmetic mean of four prime rates, quoted on
the basis of the actual number of days in the year divided by a 360-day year, as
of the close of business on such Prime Rate Interest Determination Date as
furnished in The City of New York by the major money center banks, if any, that
have provided quotations and as many substitute banks or trust companies as is
necessary in order to obtain four such prime rate quotations, provided such
substitute banks or trust companies are organized and doing business under the
laws of the United States, or any state thereof, each having total equity
capital of at least U.S. $500 million and being subject to supervision or
examination by federal or state authority, selected by the Calculation Agent to
provide such rate or rates; provided, however, that if the banks or trust
-------- -------
companies selected as aforesaid are not quoting as mentioned in this sentence,
the Prime Rate
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<PAGE>
determined as of such Prime Rate Interest Determination Date shall be the Prime
Rate in effect on such Prime Rate Interest Determination Date.
"Reuters Screen USPRIME1 Page" means the display designated as page
"USPRIME1" on the Reuters Monitor Money Rates Service (or such other page as may
replace the USPRIME1 page on that service for the purpose of displaying prime
rates or base lending rates of major United States banks).
Determination of Treasury Rate. If an Interest Rate Basis for this
------------------------------
Subordinated Note is the Treasury Rate, as specified on the face hereof, the
Treasury Rate shall be determined as of the applicable Interest Determination
Date (a "Treasury Rate Interest Determination Date") as the rate applicable to
the most recent auction of direct obligations of the United States ("Treasury
Bills") having the Index Maturity specified on the face hereof, as such rate is
published in H.15(519) under the heading "Treasury Bills -- auction average
(investment)" or, if not published by 3:00 P.M., New York City time, on the
related Calculation Date, the auction average rate (expressed as a bond
equivalent on the basis of a year of 365 or 366 days, as applicable, and applied
on a daily basis) as otherwise announced by the United States Department of the
Treasury. In the event that the results of the auction of Treasury Bills having
the Index Maturity specified on the face hereof are not reported as provided by
3:00 P.M., New York City time, on such Calculation Date, or if no such auction
is held in a particular week, then the Treasury Rate shall be calculated by the
Calculation Agent and shall be a yield to maturity (expressed as a bond
equivalent on the basis of a year of 365 or 366 days, as applicable, and applied
on a daily basis) of the arithmetic mean of the secondary market bid rates, as
of approximately 3:30 P.M., New York City time, on such Treasury Rate Interest
Determination Date, of three leading primary United States government securities
dealers selected by the Calculation Agent, for the issue of Treasury Bills with
a remaining maturity closest to the Index Maturity specified on the face hereof;
provided, however, that if any of the dealers selected as aforesaid by the
- -------- -------
Calculation Agent are not quoting as mentioned in this sentence, the Treasury
Rate determined as of such Treasury Rate Interest Determination Date shall be
the Treasury Rate in effect on such Treasury Rate Interest Determination Date.
Any provision contained herein, including the determination of an Interest
Rate Basis, the specification of an Interest Rate Basis, calculation of the
interest rate applicable to this Subordinated Note, its Interest Payment Dates
or any other matter relating hereto may be modified as specified in an Addendum
relating hereto if so specified on the face hereof.
Notwithstanding the foregoing, the interest rate hereon shall not be
greater than the Maximum Interest Rate, if any, or less
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<PAGE>
than the Minimum Interest Rate, if any, specified on the face hereof. In
addition to any Maximum Interest Rate applicable hereto pursuant to the above
provisions, the interest rate on this Subordinated Note will in no event be
higher than the maximum rate permitted by New York law, as the same may be
modified by United States law of general application. The Calculation Agent
shall calculate the interest rate hereon in accordance with the foregoing on or
before each Calculation Date. Unless otherwise specified on the face hereof, The
First National Bank of Chicago will be the Calculation Agent.
At the request of the Holder hereof, the Calculation Agent shall provide to
the Holder hereof the interest rate hereon then in effect and, if determined,
the interest rate which shall become effective as of the next Interest Reset
Date.
If this Subordinated Note is an Original Issue Discount Note and if an
Event of Default with respect to this Subordinated Note shall have occurred and
be continuing, the Default Amount (as defined hereafter) of this Subordinated
Note may be declared due and payable in the manner and with the effect provided
herein. The "Default Amount" shall be equal to the adjusted issue price as of
the first day of the accrual period as determined under Final Treasury
Regulation Section 1.1275-1(b) (or successor regulation) under the United States
Internal Revenue Code of 1986, as amended, in which the date of acceleration
occurs increased by the daily portion of the original issue discount for each
day in such accrual period ending on the date of acceleration, as determined
under Final Treasury Regulation Section 1.1272-1(b) (or successor regulation)
under the United States Internal Revenue Code of 1986, as amended. Upon payment
of (i) the principal, or premium, if any, so declared due and payable and (ii)
interest on any overdue principal and overdue interest or premium, if any (in
each case to the extent that the payment of such interest shall be legally
enforceable), all of the Bank's obligations in respect of the payment of
principal of, premium, if any, and interest on, this Subordinated Note shall
terminate.
In case any Subordinated Note shall at any time become mutilated,
destroyed, lost or stolen, and such Subordinated Note or evidence of the loss,
theft or destruction thereof satisfactory to the Bank and the Issuing and Paying
Agent and such other documents or proof as may be required by the Bank and the
Issuing and Paying Agent shall be delivered to the Issuing and Paying Agent, the
Bank shall issue a new Subordinated Note, of like tenor and principal amount,
having a serial number not contemporaneously outstanding, in exchange and
substitution for the mutilated Subordinated Note or in lieu of the Subordinated
Note destroyed, lost or stolen but, in the case of any destroyed, lost or stolen
Subordinated Note, only upon receipt of evidence satisfactory to the Bank and
the Issuing and Paying Agent that such Subordinated Note was destroyed, stolen
or lost, and, if required, upon receipt of indemnity satisfactory
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<PAGE>
to the Bank and the Issuing and Paying Agent. Upon the issuance of any
substituted Subordinated Note, the Bank and the Issuing and Paying Agent may
require the payment of a sum sufficient to cover all expenses and reasonable
charges connected with the preparation and delivery of a new Subordinated Note.
If any Subordinated Note which has matured or has been redeemed or repaid or is
about to mature or to be redeemed or repaid shall become mutilated, destroyed,
lost or stolen, the Bank may, instead of issuing a substitute Subordinated Note,
pay or authorize the payment of the same (without surrender thereof except in
the case of a mutilated Subordinated Note) upon compliance by the holder with
the provisions of this paragraph.
No recourse shall be had for the payment of principal of, premium, if any,
or interest on, this Subordinated Note for any claim based hereon, or otherwise
in respect hereof, against any shareholder, employee, agent, officer or
director, as such, past, present or future, of the Bank or of any successor
corporation, banking association or other legal entity (collectively,
"corporation"), either directly or through the Bank or any corporation, whether
by virtue of any constitution, statute or rule of law or by the enforcement of
any assessment or penalty or otherwise, all such liability being, by the
acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.
An "Event of Default" with respect to this Subordinated Note will occur if
the Bank shall consent to, or a court or other governmental agency shall enter a
decree or order for, the appointment of a conservator or receiver or other
similar official in any liquidation, insolvency or similar proceeding with
respect to the Bank or all or substantially all of its property and, in the case
of a decree or order, such decree or order shall have remained in force for a
period of 60 consecutive days. If an Event of Default shall occur and be
continuing, the holder of this Subordinated Note may declare the principal
amount of, and accrued interest and premium, if any, on, this Subordinated Note
due and payable immediately by written notice to the Bank. Upon such
declaration and notice, such principal amount, accrued interest and premium, if
any, shall become immediately due and payable; PROVIDED, HOWEVER, THAT NO
-------- -------
ACCELERATED PAYMENT MAY BE MADE WITHOUT THE PRIOR WRITTEN APPROVAL OF THE
COMPTROLLER OF THE CURRENCY OF THE UNITED STATES. Any Event of Default with
respect to this Subordinated Note may be waived by the holder hereof. THERE IS
NO RIGHT OF ACCELERATION IN THE CASE OF A DEFAULT IN THE PAYMENT OF PRINCIPAL
OF, PREMIUM, IF ANY, OR INTEREST ON, THIS SUBORDINATED NOTE OR IN THE
PERFORMANCE OF ANY OTHER OBLIGATION OF THE BANK UNDER THIS SUBORDINATED NOTE OR
UNDER ANY OTHER SECURITY ISSUED BY THE BANK.
The Issuing and Paying Agency Agreement provides that the Bank will
promptly notify, and provide copies of any such notice to, the
93
<PAGE>
Issuing and Paying Agent, and the Issuing and Paying Agent will promptly mail by
first-class mail, postage prepaid, copies of such notice to the holders of the
Subordinated Notes, upon the occurrence of an Event of Default or of the curing
or waiver of an Event of Default.
ANYTHING TO THE CONTRARY HEREIN NOTWITHSTANDING, THIS SUBORDINATED NOTE IS
NOT SUBJECT TO REDEMPTION PRIOR TO MATURITY AND MAY NOT BE REPAID PRIOR TO
MATURITY, EITHER PURSUANT TO ACCELERATION IN THE EVENT OF DEFAULT OR OTHERWISE,
WITHOUT THE PRIOR WRITTEN APPROVAL OF THE COMPTROLLER OF THE CURRENCY OF THE
UNITED STATES.
Nothing contained herein shall prevent any consolidation or merger of the
Bank with any other corporation or successive consolidations or mergers in which
the Bank or its successor or successors shall be a party or parties, or shall
prevent any sale, conveyance, transfer or lease of the property of the Bank as
an entirety or substantially as an entirety to any other corporation authorized
to acquire and operate the same; provided, however (and the Bank hereby
-------- -------
covenants and agrees) that any such consolidation, merger, sale or conveyance
shall be upon the condition that: (i) immediately after such consolidation,
merger, sale or conveyance the corporation (whether the Bank or such other
corporation) formed by or surviving any such consolidation or merger, or the
corporation to which such sale or conveyance shall have been made, shall not be
in default in the performance or observance of any of the terms, covenants and
conditions of this Subordinated Note to be observed or performed by the Bank;
and (ii) the corporation (if other than the Bank) formed by or surviving any
such consolidation or merger, or the corporation to which such sale or
conveyance shall have been made, shall be organized under the laws of the United
States of America or any state thereof or the District of Columbia and shall
expressly assume the due and punctual payment of the principal of, premium, if
any, and interest on, this Subordinated Note. In case of any such
consolidation, merger, sale, conveyance, transfer or lease, and upon the
assumption by the successor corporation of the due and punctual performance of
all of the covenants in this Subordinated Note to be performed or observed by
the Bank, such successor corporation shall succeed to and be substituted for the
Bank with the same effect as if it had been named in this Subordinated Note as
the Bank and thereafter the predecessor corporation shall be relieved of all
obligations and covenants in this Subordinated Note and may be liquidated and
dissolved.
Notwithstanding any other provision of this Subordinated Note, including
specifically the provisions set forth herein relating to subordination, events
of default and covenants of the Bank, it is expressly understood and agreed that
the Comptroller of the Currency of the United
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<PAGE>
States or any receiver or conservator of the Bank appointed by the Comptroller
of the Currency of the United States shall have the right in the performance of
his legal duties, and as part of any transaction or plan of reorganization or
liquidation designed to protect or further the continued existence of the Bank
or the rights of any parties or agencies with an interest in, or claim against,
the Bank or its assets, to transfer or direct the transfer of the obligations of
this Subordinated Note to any national banking association, state bank or bank
holding company selected by such official which shall expressly assume the
obligation of the due and punctual payment of the unpaid principal of, premium,
if any, and interest on, this Subordinated Note and the due and punctual
performance of all covenants and conditions hereof; and that the completion of
such transfer and assumption shall serve to supersede and void any default,
acceleration or subordination which may have occurred, or which may occur due or
related to such transaction, plan, transfer or assumption pursuant to the
provisions of this Subordinated Note, and shall serve to return the holder
hereof to the same position, other than for substitution of the obligor, it
would have occupied had no default, acceleration or subordination occurred;
except that any interest, premium and principal previously due, other than by
reason of acceleration, and not paid shall, in the absence of a contrary
agreement by the holder of this Subordinated Note, be deemed to be immediately
due and payable as of the date of such transfer and assumption, together with
interest from its original due date at the rate provided for herein.
Any action by the holder of this Subordinated Note shall bind all future
holders of this Subordinated Note, and of any Subordinated Note issued in
exchange or substitution hereof or in place hereof, in respect of anything done
or permitted by the Bank or by the Issuing and Paying Agent in pursuance of such
action.
The Issuing and Paying Agent shall maintain at its offices a register (the
register maintained in such office or any other office or agency of the Issuing
and Paying Agent herein referred to as the "Subordinated Note Register") in
which, subject to such reasonable regulations as it may prescribe, the Issuing
and Paying Agent shall provide for the registration of the Subordinated Notes
and of transfers of the Subordinated Notes.
The transfer of this Subordinated Note is registrable in the Subordinated
Note Register, upon surrender of this Subordinated Note for registration of
transfer at the office or agency of the Issuing and Paying Agent in the Place of
Payment, duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Bank and the Issuing and Paying Agent duly executed by,
the holder hereof or his attorney duly authorized in writing, and thereupon one
or more new Subordinated Notes of like tenor, of authorized denominations and
for the same aggregate principal amount, will be issued to the designated
transferee or transferees.
95
<PAGE>
No provision of this Subordinated Note shall alter or impair the obligation
of the Bank, which is absolute and unconditional, to pay principal of, premium,
if any, and interest on, this Subordinated Note in U.S. dollars at the times,
places and rate herein prescribed in accordance with its terms.
In the event of the failure by the Bank to make payment of principal of,
premium, if any, or interest on this Subordinated Note (and, in the case of
payment of interest, such failure to pay shall have continued for two Business
Days), the Bank will, upon demand of the holder of this Subordinated Note, pay
to the holder of this Subordinated Note the whole amount then due and payable on
this Subordinated Note for principal of, premium, if any, and interest, with
interest on the overdue principal of, premium, if any, and interest on, this
Subordinated Note to the extent provided for herein. If the Bank fails to pay
such amount upon such demand, the holder of this Subordinated Note may among
other things, institute a judicial proceeding for the collection of such amount.
No service charge shall be made to a holder of this Subordinated Note for
any transfer or exchange of this Subordinated Note, but the Bank may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection therewith.
Beneficial interests represented by this Subordinated Note are
exchangeable for definitive Subordinated Notes in registered form, of like tenor
and of an equal aggregate principal amount, only if (x) The Depository Trust
Company, as Depositary (the "Depositary") notifies the Bank that it is unwilling
or unable to continue as Depositary for this Subordinated Note or if at any time
the Depositary ceases to be a clearing agency registered under the Securities
Exchange Act of 1934, as amended, and a successor depositary is not appointed by
the Bank within 60 days, or (y) the Bank in its sole discretion determines not
to have such beneficial interests represented by this Subordinated Note. Any
Subordinated Note representing such beneficial interests that is exchangeable
pursuant to the preceding sentence shall be exchangeable in whole for definitive
Subordinated Notes in registered form, of like tenor and of an equal aggregate
principal amount, in minimum denominations of $250,000 and integral multiples of
$1,000 in excess thereof. Such definitive Subordinated Notes shall be
registered in the name or names of such person or persons as the Depositary
shall instruct the Issuing and Paying Agent.
Prior to due presentment of this Subordinated Note for registration of
transfer, the Bank, the Issuing and Paying Agent or any agent of the Bank or the
Issuing and Paying Agent may treat the holder in whose name this Subordinated
Note is registered as the owner hereof for all purposes, whether or not this
Subordinated Note be overdue, and neither the Bank, the Issuing and Paying Agent
96
<PAGE>
nor any such agent shall be affected by notice to the contrary except as
required by applicable law.
All notices to the Bank under this Subordinated Note shall be in writing
and addressed to Providian National Bank, c/o Providian Financial Corporation,
201 Mission Street, San Francisco, California 94105 Attention: Treasurer, or to
such other address of the Bank as the Bank may notify the holders of the
Subordinated Notes.
This Subordinated Note shall be governed by, and construed in accordance
with, the laws of the State of New York, without regard to conflicts of laws
principles, and all applicable federal laws and regulations.
97
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
the within Subordinated Note, shall be construed as though they were written out
in full according to applicable laws or regulations.
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- __________ Custodian _________
(Cust) (Minor)
under Uniform Gifts to Minors Act
__________________________________
(State)
Additional abbreviations may also be used
though not in the above list.
98
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sell(s),
assign(s) and transfer(s) unto ________________________________________________
_______________________________________________________________________________
PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
____________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(Please print or typewrite name and address,
including postal zip code, of assignee)
the within Subordinated Note and all rights thereunder, and hereby irrevocably
constitutes and appoints _____________________
_______________________________________________________________________________
_______________________________________________________________________________
to transfer said Subordinated Note on the books of the Issuing and Paying Agent,
with full power of substitution in the premises.
Dated:__________________ ___________________________________
NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of the within Subordinated
Note in every particular, without alteration
or enlargement or any change whatsoever.
________________________________
Signature Guarantee
99
<PAGE>
OPTION TO ELECT REPAYMENT
-------------------------
The undersigned hereby irrevocably request(s) and instruct(s) the Bank to
repay this Subordinated Note (or portion hereof specified below) pursuant to its
terms at a price equal to 100% of the principal amount hereof to be repaid,
together with accrued and unpaid interest hereon, payable to the date of
repayment, to the undersigned, at _____________________________________________
_______________________________________________________________________________.
(Please print or typewrite name and address of the undersigned)
For this Subordinated Note to be repaid, the undersigned must give to the
Issuing and Paying Agent at its offices located at One First National Plaza,
Chicago, Illinois 60670, Attention: Corporate Trust Administration, or at such
other place or places of which the Bank shall from time to time notify the
holders of the Subordinated Notes, not more than 60 days nor less than 30 days
prior notice to the date of repayment, with this "Option to Elect Repayment"
form duly completed.
If less than the entire principal amount of this Subordinated Note is to be
repaid, specify the portion hereof (which shall be increments of $1,000) which
the holder elects to have repaid and specify the denomination or denominations
(which shall be $250,000 or an integral multiple of $1,000 in excess thereof) of
the Subordinated Notes to be issued to the holder for the portion of this
Subordinated Note not being repaid (in the absence of any such specification,
one such Subordinated Note will be issued for the portion not being repaid):
$______________________________ ______________________________
NOTICE: The signature on this
Dated: ________________________ "Option to Elect Repayment" form must
correspond with the name as written upon the
face of the within Subordinated Note in
every particular, without alteration or
enlargement or any change whatsoever.
________________________________
Signature Guarantee
100
<PAGE>
EXHIBIT 13
Selected Financial Data
<TABLE>
<CAPTION>
Year Ended December 31
(Dollars in thousands) 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Interest income:
Loans $ 556,918 $ 574,335 $ 457,818 $ 315,001 $ 315,886
Investment securities 25,575 9,847 12,695 23,746 13,154
--------------------------------------------------------------
Total interest income 582,493 584,182 470,513 338,747 329,040
Interest expense:
Deposits 164,252 140,361 105,151 70,726 84,714
Borrowings 18,858 49,208 52,732 30,887 22,229
--------------------------------------------------------------
Total interest expense 183,110 189,569 157,883 101,613 106,943
--------------------------------------------------------------
Net interest income 399,383 394,613 312,630 237,134 222,097
Provision for credit losses 149,268 126,579 79,917 50,313 64,056
--------------------------------------------------------------
Net interest income after
provision for credit losses 250,115 268,034 232,713 186,821 158,041
Non-interest income 634,632 423,819 344,805 274,252 232,036
Non-interest expense 573,447 434,602 362,655 285,870 253,434
--------------------------------------------------------------
Income before income taxes 311,300 257,251 214,863 175,203 136,643
Income tax expense 119,839 97,485 79,411 65,084 51,205
--------------------------------------------------------------
Net Income $ 191,461 $ 159,766 $ 135,452 $ 110,119 $ 85,438
==============================================================
Cash dividends declared
per common share (1) $ 0.10 -- -- -- --
==============================================================
Pro forma earnings per share--
assuming dilution (2) $ 2.00 $ 1.62 $ 1.33 N/A N/A
==============================================================
Statement of Financial Condition Data:
Loans held for securitization or sale $ 450,233 $ 739,706 $ 123,330 $ -- $ --
Loans receivable (3) 2,960,676 2,949,928 3,020,174 2,329,518 1,931,673
Allowance for credit losses (145,312) (114,540) (93,429) (76,218) (75,061)
Total assets 4,449,413 4,351,742 3,620,893 2,669,867 2,258,651
Deposits 3,212,766 3,390,112 2,157,765 1,680,450 1,553,385
Borrowings 232,000 258,500 942,680 532,800 282,626
Equity 595,114 483,144 349,255 326,100 270,568
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31
(Dollars in thousands) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Managed Financial Data:
Unsecured credit cards and line
of credit loans $7,980,917 $7,881,454 $5,706,726 $4,114,599 $3,561,836
Home equity revolving line of credit loans 1,063,446 951,382 722,878 472,858 320,258
Secured and partially secured
credit card loans 857,690 466,798 199,743 110,703 53,988
--------------------------------------------------------------
Total consumer loans $9,902,053 $9,299,634 $6,629,347 $4,698,160 $3,936,082
==============================================================
Securitized loans $6,491,144 $5,610,000 $3,485,843 $2,368,642 $2,004,408
Managed revenue 1,507,223 1,093,610 817,710 637,330 564,635
Key Statistics:
Total volume (4) $9,756,449 $9,683,575 $6,602,300 $4,430,572 $3,340,970
Total accounts (000s) at period end 4,617 3,849 2,815 2,239 2,060
Managed net interest margin (5) 11.23% 10.89% 11.80% 12.79% 13.31%
Managed delinquency ratio (6) 4.22% 4.36% 3.34% 3.03% 2.85%
Managed loan net credit loss ratio (7) 6.32% 4.82% 3.95% 4.21% 4.71%
Net income to average managed assets (8) 1.81% 1.91% 2.24% 2.28% 2.03%
Net income to average equity 36.79% 38.43% 38.85% 35.10% 33.44%
Average equity to average managed assets 5.29% 4.98% 5.75% 6.49% 6.08%
</TABLE>
(1) On June 10, 1997 Providian Financial Corporation began operations as a
separate, stand-alone entity. Prior to that date it operated as a wholly
owned subsidiary of Providian Corporation. Cash dividends declared during
1997 represent cash dividends paid to common shareholders subsequent to June
10, 1997.
(2) Pro forma earnings per share--assuming dilution have been computed by
reducing net income as reported by pro forma adjustments to arrive at pro
forma net income available to common stockholders and then dividing this
number by the pro forma weighted average number of common shares
outstanding. See Notes to the Consolidated Financial Statements included
elsewhere in this document.
(3) Includes all consumer credit products, including unsecured, secured and
partially secured credit cards, unsecured revolving lines of credit and home
equity revolving lines of credit.
(4) Includes balance transfers, credit card sales and cash advances; excludes
finance charge and fee income.
(5) Reflects total interest accrued on managed consumer loans, less the
Company's actual cost of funds, costs associated with securitizations
including investor interest, amortization of fees and accretion of
discounts, as a percentage of average managed consumer loans.
(6) Reflects delinquencies, i.e., consumer loans which are 31 days or more past
due, at period end, as a percentage of managed consumer loans at period end.
(7) Represents principal amounts charged off, less recoveries, as a percentage
of average managed consumer loans during the period; fraud losses are not
included.
(8) Average managed assets includes total managed assets of the Company,
including all consumer loan portfolios.
<PAGE>
[GRAPH OF
NET INCOME]
Management's Discussion and Analysis of[el]
Financial Condition and Results of Operations
This discussion is intended to further the reader's understanding of the
consolidated financial condition and results of operations of Providian
Financial. It should be read in conjunction with the Company's historical
financial statements included elsewhere herein and the data set forth under
"Selected Financial Data." In June 1997, Providian Corporation distributed one
share of Providian Financial common stock for each share of Providian
Corporation common stock held by Providian Corporation's stockholders of record
as part of a "spinoff" transaction. Prior to the spinoff, Providian Financial
operated as a separate business unit of Providian Corporation, and the
discussion of comparative financial results which follows is based on the
historical financial information of Providian Financial as a business unit of
its former parent. The historical financial statements of Providian Financial
may not be indicative of the Company's future performance, nor do they
necessarily reflect what the financial position and results of operations of
the Company would have been had the Company operated as a separate, stand-alone
entity during the periods covered. Certain prior year amounts included in the
tables herein have been reclassified to conform to the 1997 presentation.
General
Providian Financial is a leading provider of consumer lending products
including unsecured credit cards, revolving lines of credit, home loans,
secured credit cards and fee-based products. In addition, the Company offers
various deposit products. The Company offers its products primarily through its
banking subsidiaries, Providian National Bank, a national bank, and Providian
Bank, a Utah industrial loan corporation. The primary factors affecting the
profitability of consumer lending products are growth in customer accounts and
outstanding loan balances, interest spread on the loans, credit usage, credit
quality (delinquencies and credit losses), level of solicitation and marketing
expenses and account servicing efficiency.
The Company generates revenue through finance charges assessed on outstanding
loan receivables, through fees paid by customers related to loan activity (late,
overlimit, cash advance, processing and membership fees) and from the sale of
proprietary fee-based products (currently consisting of Credit Protection, Home
Protection, Providian Health Advantage, DrivePro and PricePro (1)). Interchange
fees are received from bankcard associations based upon customer purchase
activity. Interest revenue is earned on the Company's investments held for
liquidity purposes.
The Company's primary expenses are the costs of funding assets, credit losses,
operating expenses including salaries and employee benefits, solicitation
costs, data processing and communication costs and income taxes. Prior to the
spinoff from Providian Corporation, the Company recorded federal income tax
expense at an effective rate comparable to the income tax rate it would have
paid as a stand-alone entity. State income tax, however, was accrued at an
effective rate reflective of the Company's filing position as part of a unitary
group of affiliated companies. Subsequent to the spinoff, the effective state
income tax rate has increased as the Company files separately from the former
Providian Corporation unitary subsidiaries.
(1) Home Protection, DrivePro and PricePro are registered service marks of
Providian Financial. Providian Health Advantage is a service mark of
Providian Financial for which federal registration is pending.
<PAGE>
[GRAPH OF
RETURN ON ASSETS]
[GRAPH OF
RETURN ON EQUITY]
Providian Financial's solicitation costs (printing, postage, credit bureau
costs, etc.) are incurred and expensed in advance of successful account
acquisitions while the revenue associated with the accounts is earned over the
life of the acquired account. In accordance with generally accepted accounting
principles ("GAAP"), only the direct, nonsolicitation costs associated with
successful account acquisition efforts are capitalized, offset against up-front
processing fees and amortized over the life of the related account (a maximum of
one year for credit cards). As a result, the majority of acquisition costs are
expensed as incurred.
The return on assets of the Company has remained very stable over the past
three years, increasing to 4.57% in 1997. Although 1997 was a difficult
environment characterized by rising credit losses across the consumer finance
industry, the Company's market focus on profitable consumer segments and its
risk adjusted, return driven approach to targeting and pricing allowed for
continued superior financial performance.
Improved profitability, combined with a spinoff-related reduction of
dividends, have resulted in an increase in retained earnings, strengthening the
Company's balance sheet and causing a modest decline in return on equity, to
36.79% in 1997.
Earnings Summary
The following discussion provides a summary of 1997 results compared to 1996
results and 1996 results compared to 1995 results. Each component of the results
is discussed in further detail in subsequent sections of this analysis.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net income for the year ended December 31, 1997 was $191.5 million, representing
an increase of 20% over the $159.8 million in net income reported for the year
ended December 31, 1996. This increase was attributable to 40% growth in managed
revenue (managed net interest income plus managed fee income) driven by managed
loan growth, a widening net interest margin and strong fee-based revenues.
Managed loans, which include on-balance sheet and securitized unsecured credit
card, revolving line of credit, secured and partially secured credit card and
home loans, increased by $602 million, or 6%, despite increased competition for
balances and declining customer loyalty across the industry, with 65% of the
growth coming from secured and partially secured credit card loans, 19% from
home loans and 16% from unsecured credit card loans.
In managing for risk adjusted return (see "--Risk Adjusted Revenue and
Return"), the Company implemented certain repricing programs to offset a rise in
credit losses experienced industry-wide. These programs were reflected in the
managed net interest margin, which increased to 11.23% in 1997 from 10.89% in
1996. The managed net credit loss rate increased to 6.32% in 1997 from 4.82% in
1996. Non-interest income made up 31% of managed revenue in 1997, up from 21% in
1996. The dollar contribution to managed revenue from non-interest income
doubled as compared to 1996, to $459.7 million, resulting from increases in the
sale of proprietary fee-based products, fees related to secured and unsecured
credit cards such as annual membership, processing, cash advance, late and
overlimit fees, and the impact of adopting Statement of Financial Accounting
Standards No. 125 ("SFAS No. 125"), "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," (see--"Managed Consumer
Loan Portfolio and the Impact of Securitization"). A portion of the increased
managed revenue was reinvested by the Company to strengthen loan loss reserves,
increase marketing investment and build infrastructure to manage account growth
across all businesses. Non-interest expense increased $138.8 million during the
year ended December 31, 1997 to $573.4 million, reflecting customer account
growth and the addition of a new marketing channel.
<PAGE>
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net income for the year ended December 31, 1996, was $159.8 million, an increase
of $24.3 million, or 18%, over net income of $135.5 million for the same period
in 1995. The increase in net income was attributable to growth in managed
consumer loans which grew by $2.7 billion, or 40%, during 1996, with 81% of the
growth realized from unsecured credit card loans, 10% from home loans and 9%
from secured and partially secured credit card loans.
This loan growth was the primary driver of the Company's 34% growth in managed
revenues, which totaled $1.1 billion for the year ended December 31, 1996. The
net credit loss rate increased from 3.95% to 4.82% during the year ended
December 31, 1996. A significant portion of the increase in managed revenues was
reinvested in new account growth across all businesses. Lower yields on
unsecured credit card loans related to introductory rates on new accounts were
offset by reduced direct acquisition costs associated with credit card offers.
In the home loan business, the Company wrote off capitalized acquisition costs
of $19.2 million related to securitization. The majority of the secured and
partially secured credit card earnings, before origination expenses of $31.9
million, was reinvested by the Company to expand the number of secured and
partially secured card accounts. Non-interest expense increased 19.8% from
$362.6 million to $434.6 million in the year ended December 31, 1996, reflecting
asset and customer account growth.
Managed Consumer Loan Portfolio and the Impact of Securitization
Since 1989, Providian Financial has securitized unsecured credit cards and
revolving lines of credit, and, beginning in 1996, 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. It is, however, the Company's
practice to analyze its financial performance on a managed loan portfolio basis.
In order to do so, the Company's income statement and statement of financial
condition are adjusted to add back the effect of securitizing loans. The
following table summarizes the Company's managed consumer loan portfolio:
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Period-End Balances:
On-balance sheet consumer loans $3,410,909 $3,689,634 $3,143,504
Securitized consumer loans 6,491,144 5,610,000 3,485,843
----------------------------------
Total managed consumer loan portfolio $9,902,053 $9,299,634 $6,629,347
==================================
Average Balances:
On-balance sheet consumer loans $3,173,231 $3,522,307 $2,764,524
Securitized consumer loans 6,192,243 4,381,720 2,881,483
----------------------------------
Total average managed consumer loan portfolio $9,365,474 $7,904,027 $5,646,007
==================================
</TABLE>
<PAGE>
Cash Flow Impact
Upon entering into a loan securitization, the Company receives cash proceeds
from investors net of underwriting or placement fees. These proceeds are
generally used by the Company to pay down on-balance sheet liabilities such as
certificates of deposit or bank borrowings or may be invested in short-term
liquid investments. The investors' share of finance charge and fee collections
generated by the securitized loans is distributed each month (a) to investors to
pay interest on the investors' securities, (b) to the investors to pay for net
credit losses, or to the Company in exchange for additional receivables
transferred to the investors to cover such losses, (c) to the Company as a fee
for servicing the underlying loans and (d) to credit enhancers, liquidity
providers, trustees or program agents for various costs and fees. Any finance
charge and fee cash flow remaining after the above payments is generally
retained by or remitted back to the Company and is referred to as "excess
servicing income."
During the revolving period of a securitization, principal collections are
retained by the Company in exchange for additional receivables transferred to
the investors in order to maintain the investors' invested amount. During the
amortization or accumulation period, the investors' share of principal
collections (in certain cases, up to a specified amount each month) is either
distributed each month to the investors or held in an account until it
accumulates to the total invested amount, at which time it is remitted to the
investors in a lump sum.
Financial Statement Impact
Securitization transactions are treated as sales under GAAP. As a result, the
securitized loans are removed from the balance sheet in exchange for cash
proceeds.
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
which provided new accounting and reporting standards for securitization and
other similar transactions, effective January 1, 1997. Under SFAS No. 125, the
Company recognizes an "interest only strip receivable" asset, available for
sale, equal to the present value of the projected excess servicing income of the
transferred assets.
During the revolving period, an additional interest only strip receivable is
recognized each month, as additional receivables are transferred to investors in
respect of their share of principal collections and losses on previously
securitized accounts. Servicing assets have not been recognized on these
transactions because the contracted servicing fees received by the Company
approximate market servicing rates and the Company's servicing costs.
Prior to the implementation of SFAS No. 125, excess servicing income was
recognized as loan servicing income as it accrued over the life of the
transaction. Thereafter, the revenue received as a result of excess servicing
income is recognized first as a reduction of the interest only strip receivable
and, to the extent the amount received exceeds the related component of the
interest only strip receivable (which was recorded at present value), as loan
servicing income.
Both before and after the implementation of SFAS No. 125, the effect of this
treatment is to reduce managed net interest income and the provision for credit
losses, and to increase non-interest income, on the Company's statement of
income. For the years ended December 31, 1997, 1996 and 1995, net interest
income was reduced by $648 million, $469 million and $365 million, respectively;
the provision for credit losses was reduced by $473 million, $275 million and
$160 million, respectively; and non-interest income was increased by $175
million, $194 million and $205 million, respectively. Because credit losses on
the securitized receivables are reflected as a reduction in loan servicing fees
rather than a reduction of reserve for credit losses, the Company's provision
for credit losses is maintained at a lower level than would be the case had such
receivables not been securitized.
<PAGE>
[GRAPH OF
RISK ADJUSTED REVENUE (1)]
[GRAPH OF
RISK ADJUSTED RETURN (1)]
When receivables are transferred in a securitization, the Company retains a
"seller's interest" generally equal to the amount of the total assets
transferred less the principal balance of investor-held certificates. As the
balances of the loans transferred fluctuates due to customer payments,
purchases, cash advances and credit losses, the amount of the seller's interest
will vary. The seller's interest is classified as loans receivable at par less
associated allowance for credit losses. Periodically, the Company may elect to
transfer new receivables to the securitization facility in order to maintain the
seller's interest above an agreed-upon minimum balance. Generally, these
additions will not result in the recognition of a gain or loss by the Company.
Risk Adjusted Revenue and Return
Providian Financial has developed targeting and credit models designed to
identify qualified consumers who fit the Company's risk parameters. The Company
offers various configurations of products with multiple pricing options to
optimize the risk return tradeoff. Unsecured credit card, secured or partially
secured credit card and home loans are offered to customer segments under
separate underwriting criteria. Customer finance charge rates are sometimes
adjusted after the account is opened to reflect changes in the credit
environment, and most accounts include performance-based pricing terms pursuant
to which the rates will increase automatically in the event the customer fails
to comply with certain terms of the account agreement.
The Company, like many of its competitors, offers credit card accounts with
introductory rates for purchases and balance transfers. These introductory rates
are at low levels, as low as zero percent, during an initial period of usually
three months. After the initial period, the rates rise to higher variable or
fixed rates. Management believes that competitive pressures to offer
introductory rates will continue in the foreseeable future and has incorporated
the impact of introductory rates into its risk-pricing model.
A measure of product profitability incorporating revenue and the most
significant costs inherent in consumer loan risk analysis is risk adjusted
revenue. Risk adjusted revenue equals net interest income plus fee income less
net credit losses and is utilized as a measurement of consumer loan portfolio
profitability consistent with the Company's strategy to match the revenue base
of customer accounts with the risk undertaken. Managed risk adjusted revenue may
also be expressed as a percentage of average consumer loans, in which case it is
referred to as risk adjusted return.
Risk adjusted metrics reflect not only finance charge yield and funding costs
but also fee based revenue, which contributes to portfolio profitability, credit
losses, which reflect the most significant risk inherent in the loan portfolios,
and the impact of introductory or "teaser" rates utilized by the Company and its
competitors.
<PAGE>
[GRAPH OF
NET INTEREST MARGIN (1)]
Managed risk adjusted revenue and return for the year ended December 31, 1997
were $919.7 million and 9.82%, respectively, as compared to $709.6 million and
8.98%, respectively, for the year ended December 31, 1996. The increase reflects
an increase in managed consumer loans, in particular secured and partially
secured card loans which have a greater percentage of fee revenue than
traditional unsecured credit card loans. This increase in risk adjusted revenue
was partially offset by an increase in the provision for credit losses, which
was 6.32% for the year ended December 31, 1997, as compared to 4.82% for the
previous year, consistent with consumer finance industry trends.
Risk adjusted revenue and return for the year ended December 31, 1996 were
$709.6 million and 8.98%, respectively, as compared to $581.6 million and
10.33%, respectively, for the year ended December 31, 1995. The Company offered
introductory rates throughout 1996 as compared to only a portion of 1995, which
resulted in a reduction in average yield in 1996. Also, the credit loss rate
increased during the year from 3.95% for the year ended December 31, 1995, to
4.82% for the year ended December 31, 1996.
The components of risk adjusted revenue are discussed in more detail in
subsequent sections of this "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Net Interest Income and Margin
Net interest income is interest earned from loan portfolios less interest
expense on deposits and borrowings used to fund the loans.
Managed net interest income for the year ended December 31, 1997, was $1,047.5
million, compared to $863.9 million for the same period in 1996, an increase of
$183.6 million or 21.3%. Managed net interest margin on average managed loans
increased to 11.23% for the year ended December 31, 1997, from 10.89% for the
year ended December 31, 1996. The increase in net interest income and margin
reflects an increase in average managed loans, which increased approximately
$1.5 billion, combined with slightly higher finance charge yields. The average
yield on consumer loans was affected by a decline in average introductory rate
outstandings during 1997, combined with repricing programs implemented
throughout the year which increased average yields on selected portfolio
segments.
Managed net interest income for the year ended December 31, 1996 was $863.9
million compared to $677.7 million for the same period in 1995, an increase of
$186.2 million or 27.5%, which resulted primarily from a $2.3 billion increase
in average managed loans over the prior year. Managed net interest margin on
average managed loans decreased from 11.80% for the year ended December 31,
1995, to 10.89% for the year ended December 31, 1996, as introductory rate
offers were first implemented in late 1995 and continued to be offered
throughout 1996.
The Company offers both variable rate and fixed rate consumer loan products
and maintains both fixed rate and variable rate funding sources. See
"--Asset/Liability Market Risk Management" for a discussion of the Company's
interest rate risk management strategy.
<PAGE>
Statement of Average Balances, Income and Expense, Yields and Rates
The following table provides an analysis of interest income, interest expense,
net interest spread and average balances for the years ended December 31, 1997,
1996 and 1995. Interest income and interest expense margins are presented as a
percentage of average earning assets, which include investments held by the
Company for liquidity purposes, in addition to the interest-earning consumer
loan portfolios of the Company.
<TABLE>
<CAPTION>
Year Ended December 31
1997 1996 1995
-------------------------------- ---------------------------- -----------------------------
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
(Dollars in thousands) Balance Expense Rate Balance Expense Rate Balance Expense Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets
Consumer loans $3,173,231 $556,918 17.55% $3,522,307 $574,335 16.31% $2,764,524 $457,818 16.56%
Interest-earning cash 88,048 4,812 5.47% 37,269 2,332 6.26% 53,892 3,785 7.02%
Federal funds sold 239,267 13,170 5.50% 90,013 4,455 4.95% 44,896 2,024 4.51%
Investment securities 131,654 7,593 5.77% 58,733 3,060 5.21% 115,343 6,886 5.97%
----------------------------------------------------------------------------------------------
Total interest-earning assets 3,632,200 $582,493 16.04% 3,708,322 $584,182 15.75% 2,978,655 $470,513 15.80%
Allowance for loan losses (131,602) (104,242) (73,198)
Other assets 685,370 366,789 264,216
---------- ---------- ----------
Total assets $4,185,968 $3,970,869 $3,169,673
========== ========== ==========
Liabilities and Equity:
Interest-bearing liabilities
Deposits $3,014,087 $164,252 5.45% $2,590,038 $140,361 5.42% $1,849,228 $105,151 5.69%
Borrowings 310,017 18,858 6.08% 795,172 49,208 6.19% 819,638 52,732 6.43%
----------------------------------------------------------------------------------------------
Total interest-bearing liabilities 3,324,104 $183,110 5.51% 3,385,210 $189,569 5.60% 2,668,866 $157,883 5.92%
Other liabilities 196,182 169,948 152,135
---------- ---------- ----------
Total liabilities 3,520,286 3,555,158 2,821,001
Capital securities 145,096 -- --
Equity 520,586 415,711 348,672
---------- ---------- ----------
Total liabilities and equity $4,185,968 $3,970,869 $3,169,673
========== ========== ==========
Net Interest Spread: 10.53% 10.15% 9.88%
===== ===== =====
Interest income to
average interest-earning assets 16.04% 15.75% 15.80%
Interest expense to
average interest-earning assets 5.04% 5.11% 5.30%
----- ----- -----
Net interest margin 11.00% 10.64% 10.50%
===== ===== =====
</TABLE>
<PAGE>
[GRAPH OF
NON-INTEREST INCOME]
Interest Volume and Rate Variance Analysis
Net interest income is affected by changes in the average interest rate earned
on interest-earning assets and the average interest rate paid on interest-
bearing liabilities. In addition, net interest income is affected by changes in
the volume of interest-earning assets and interest-bearing liabilities. The
following table sets forth the dollar amount of the increase (decrease) in
interest income and interest expense resulting from changes in the volume and
rates:
<TABLE>
<CAPTION>
Year Ended December 31 Year Ended December 31
1997 vs. 1996 1996 vs. 1995
----------------------------------- -------------------------------------
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 $(17,417) $(59,288) $41,871 $116,517 $123,536 $(7,019)
Federal funds sold 8,715 8,168 547 2,431 2,215 216
Other securities 7,013 6,980 33 (5,279) (4,113) (1,166)
---------------------------------------------------------------------------
Total interest income (1,689) (44,140) 42,451 113,669 121,638 (7,969)
Interest Expense:
Deposits 23,891 23,110 781 35,210 40,409 (5,199)
Borrowings (30,350) (29,491) (859) (3,524) (1,566) (1,958)
---------------------------------------------------------------------------
Total interest expense (6,459) (6,381) (78) 31,686 38,843 (7,157)
---------------------------------------------------------------------------
Net interest income (1) $ 4,770 $(37,759) $42,529 $ 81,983 $ 82,795 $ (812)
===========================================================================
</TABLE>
(1) The change in interest due to both volume and rates has been allocated in
proportion to the relationship of the absolute dollar amounts of the change
in each.
Non-Interest Income
Non-interest income, which consists primarily of loan servicing income
(including gains from loan securitizations for 1997 only) and credit product fee
income, represented approximately 52% and 42% of gross on-balance sheet revenues
for the years ended December 31, 1997 and 1996, respectively. Total non-interest
income increased 49.7%, or $210.8 million, to $634.6 million in 1997 from 1996.
This increase is attributable to higher average securitized loan balances, the
effects of the adoption of SFAS No. 125, increased credit product fee income
from proprietary fee products sold to the Company's customer base and increased
late and overlimit fees. In 1996, total non-interest income increased 22.9%, or
$79.0 million, from 1995. This increase was primarily attributable to a 52.0%
increase in credit product fee income for that period.
Loan Servicing Income
Loan servicing income relates directly to securitized receivables. It includes a
stated servicing fee, which essentially offsets the Company's cost of servicing
the securitized receivables and excess servicing income which generally
represents the excess of (a) total finance charge and fee revenue on the
securitized receivables over (b) net credit losses generated by the receivables,
the stated servicing fee, the interest paid to the investors and amounts paid to
credit enhancers, liquidity providers, trustees and program agents. Beginning in
1997, with the adoption of SFAS No. 125, excess servicing income has decreased
as a percentage of securitized assets because the present value of projected
excess servicing on securitized loans is recognized upon transfer as a gain upon
sale. The decrease in excess servicing income is offset by the recognition of
the gain on sale which has been recorded as a component of loan servicing
income. To the extent subsequent cashflows for excess servicing income exceed
the projected amounts, which were recorded at present value, the Company will
recognize additional excess servicing income during the period in which the
servicing is provided.
<PAGE>
The Company has issued $11.0 billion in public and private asset-backed
securities since 1989 and has increased the use of securitization as a funding
source as the amount of total managed loans has increased. As of December 31,
1997, securitizations outstanding provided $6.8 billion in funding, representing
62% of total managed funding, compared with 58% as of December 31, 1996 and 56%
as of December 31, 1995. A more detailed discussion of the Company's
securitization activities is set forth under "--Funding and Liquidity."
Because excess servicing income on securitized loans has the same
characteristics as net interest income, less the provision for loan losses and
servicing expense, of on-balance sheet loans, excess servicing income will vary
based upon the same factors. Thus, variability can result from changes in credit
losses (see "--Asset Quality--Net Credit Losses") and changes in interest rates
to the extent that the receivables and interest payable to investors are based
upon floating rates (see "--Asset/Liability Market Risk Management").
For the years ended December 31, 1995 through 1997, loan servicing income was
$260.9 million, $292.7 million and $402.4 million, respectively. This increase
relates primarily to the increase in average securitized receivables, partially
offset by an increase in credit losses and, in 1996, by lower yields on
unsecured credit card loans. Also, for 1997 the impact of the adoption of SFAS
No. 125 is included in loan servicing income. See "--Managed Consumer Portfolio
and the Impact of Securitizations."
Credit Product Fee Income
Credit product fee income includes late and overlimit charges, cash advance
fees, membership and processing fees, revenues from proprietary fee-based
products and interchange activity. Fee revenue realized from the investor
percentage of securitized loans is not included in credit product fee income as
it is recorded in loan servicing income. For the years ended December 31, 1995
through 1997, credit product fee income was $81.4 million, $123.7 million and
$230.8 million, respectively, reflecting increased volume in fee revenue
associated with asset growth, product diversification and price increases.
Late and overlimit fees are assessed monthly to late-paying or overlimit
customers and totaled $24.8 million, $38.6 million and $80.9 million,
respectively, for the years ended December 31, 1995 through 1997. Providian
Financial markets a number of proprietary fee-based products to its customers.
For the years ended December 31, 1995 through 1997, fee-based product revenue
totaled $14.7 million, $24.8 million and $59.3 million, respectively. Annual
membership fees, processing fees, cash advance fees and interchange income have
also increased over the three years ended December 31, 1997 as a result of
customer volume growth.
Non-Interest Expense
Non-interest expenses include loan acquisition costs, including printing,
postage, telemarketing, list processing and credit bureau costs paid to third
parties to implement direct mail and telemarketing account solicitation efforts.
In accordance with GAAP, Providian Financial has capitalized the costs
associated with successful non-solicitation account acquisition efforts after
offsetting up-front processing fees. Capitalized acquisition costs are amortized
over the "privilege period" for credit card loans (currently one year) or the
estimated life of the loans for revolving lines of credit unless the loans are
securitized, in which case the costs are taken as an expense prior to the loan
sale. As a result, the majority of acquisition costs are now expensed as
incurred. In the years ended December 31, 1997 and 1996, the Company amortized
acquisition costs of $1.1 million and $19.2 million, respectively, associated
with the securitization of certain home equity line of credit loans. For the
years ended December 31, 1995 through 1997, acquisition costs were $108.4
million, $113.9 million and $143.0 million, respectively, reflecting increased
direct mail volumes and the implementation of direct telemarketing solicitation
programs.
<PAGE>
Salary and benefit expenses include staffing costs associated with marketing,
customer service, collections and administration of the customer base. Other
non-interest expense includes third-party data processing and communication
costs, occupancy expenses and other operational expenses, including collection
costs, fraud losses and bankcard association assessments. The following table
presents non-interest expenses for the years ended December 31, 1995 through
1997:
<TABLE>
<CAPTION>
Year Ended December 31
(Dollars in thousands) 1997 1996 1995
- -------------------------------------------------------------------
<S> <C> <C> <C>
Other Expense:
Salaries and employee benefits $196,761 $153,849 $113,412
Solicitation 142,956 113,892 108,376
Occupancy, furniture and equipment 37,610 26,039 18,424
Data processing and communications 50,108 37,214 28,115
Other 146,012 103,608 94,328
----------------------------
Total $573,447 $434,602 $362,655
============================
</TABLE>
Impact of Year 2000
Some of Providian Financial's older computer programs were written using two
digits rather than four to define the applicable year. As a result, those
computer programs have time-sensitive software that recognize a date using "00"
as the Year 1900 rather than the Year 2000. This could cause a system failure or
miscalculations, resulting in disruption of operations, including, among other
things, a temporary inability to process transactions, send billing statements
or engage in similar normal business practices.
The Company has substantially completed a Year 2000 assessment and has
determined that it will have to modify or replace portions of its software so
that its computer systems will function properly with respect to dates in the
year 2000 and thereafter. The Company has also initiated formal communications
with all of its significant vendors for the purpose of identifying and
remediating risks arising from the vendors' own Year 2000 conversion issues. The
Company's total Year 2000 project cost is estimated at no more than $10 million.
The project is expected to be completed not later than June 30, 1999. To date,
the Company has incurred and expensed approximately $0.4 million, primarily for
assessment, development of a modification plan and initial program
modifications.
The Company believes that with modifications to existing software and
conversions to new software, the Year 2000 issue will not pose significant
operational problems. However, management's estimates are based on assumptions
and are subject to risks and uncertainties. If the necessary modifications or
conversions are not completed on time, the Year 2000 issue could have a material
adverse effect on operations. Specific factors that might cause such effects
include unavailability of trained personnel, inability to locate and correct all
relevant computer codes, and failure by key vendors to timely convert their own
systems.
<PAGE>
[GRAPH OF
31+ DELINQUENCY &
CREDIT LOSS RATIOS]
Income Taxes
Providian Financial's provision for income taxes includes both United States
federal and state income taxes, calculated prior to the spinoff at rates
reflective of the Company's position as part of a unitary group of affiliated
companies. Applicable income tax expense was $119.8 million, $97.5 million and
$79.4 million for the years ended December 31, 1997, 1996 and 1995,
respectively. The Company's effective tax rate for 1997 increased as a result of
the spinoff from its former parent, Providian Corporation. See the notes to the
Company's audited historical financial statements, included elsewhere herein,
for further explanations of the income tax expense and a reconciliation of
reported income taxes to the amount computed by applying the United States
federal statutory rate to income before taxes.
Asset Quality
Providian Financial's delinquencies and net credit losses at any time reflect,
among other factors, the quality of loans, the average age of the Company's
accounts (generally referred to as "seasoning"), the success of the Company's
collection efforts and general economic conditions. The quality of loans is
subject to the list selection and underwriting criteria used, account management
initiatives, seasoning, and demographic and other factors which are
characterized by delinquency statistics. For the year ended December 31, 1997,
the Company's net credit losses as a percentage of total managed loans was
6.32%.
The level of credit losses at any given time directly affects earnings through
the establishment of reserves via recognition of provisions for credit losses,
which are generally dependent on historical levels of credit losses and current
trends. As new portfolios of accounts are originated, management uses historical
credit loss and delinquency analyses to establish reserves for future credit
losses, based on the aggregation of loss behavior of similar, more seasoned loan
portfolios. As net credit losses are experienced, the previously established
reserve is used to absorb the credit losses.
It is Providian Financial's policy to recognize principal credit losses on all
unsecured loans (including the unsecured portion of any partially secured credit
card loans) which become 180 days delinquent, with the exception of bankrupt
accounts, which are charged-off upon determination of post-bankruptcy
collectibility (generally upon appropriate verification), and deceased customer
accounts, which are also charged off upon determination of collectibility
(generally upon verification of no estate). Home loans are reviewed upon
becoming 60 days delinquent and credit losses are recognized for the amount by
which the book value of the loan exceeds the net realizable value of the
underlying collateral. Upon charge-off, accrued but unpaid finance charge and
fee income is reversed against current earnings but will be maintained on the
customer's record in the event of a future recovery. Once a loan is charged-off,
it is the Company's policy to continue to pursue collection of principal and
interest, to the extent legally permissible. Any subsequent collections on
previously charged-off loans will be recognized as recoveries.
<PAGE>
Delinquencies
The following table presents the delinquency trends of Providian Financial's
on-balance sheet and managed consumer loan portfolio for the years ending
December 31, 1997, 1996 and 1995. An account is contractually delinquent if the
minimum payment is not received by the next billing date. Total delinquencies on
managed loans increased from 3.34% as of December 31, 1995 to 4.36% as of
December 31, 1996, reflecting account seasoning and industry trends year over
year.
<TABLE>
<CAPTION>
December 31
1997 1996 1995
----------------------- ----------------------- -----------------------
% of % of % of
(Dollars in thousands) Loans Total Loans Loans Total Loans Loans Total Loans
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
On-balance sheet: (1)
Loans outstanding $3,410,909 100.00% $3,689,634 100.00% $3,143,504 100.00%
Loans delinquent:
31 - 60 days 40,483 1.19 56,079 1.52 41,871 1.33
61 - 90 days 35,310 1.03 30,875 0.84 20,598 0.66
91 or more days 66,421 1.95 59,207 1.60 29,147 0.93
---------------------------------------------------------------------------
Total $ 142,214 4.17% $ 146,161 3.96% $ 91,616 2.92%
===========================================================================
Managed:
Loans outstanding $9,902,053 100.00% $9,299,634 100.00% $6,629,347 100.00%
Loans delinquent:
31 - 60 days 139,245 1.41 160,074 1.72 99,318 1.50
61 - 90 days 96,462 0.97 88,439 0.95 51,709 0.78
91 or more days 182,146 1.84 157,013 1.69 70,510 1.06
---------------------------------------------------------------------------
Total $ 417,853 4.22% $ 405,526 4.36% $ 221,537 3.34%
===========================================================================
</TABLE>
(1) Includes consumer loans held for securitization.
Net Credit Losses
Net credit losses for consumer loans include the principal amount of losses from
customers unwilling or unable to pay their existing loan balances as well as
bankrupt and deceased customer accounts, less current period recoveries. Net
credit losses are recognized in accordance with Providian Financial's policy
described above and exclude accrued finance charge and fee income which is
charged against the related income at the time of credit loss recognition.
Losses for cardholder accounts related to fraudulent activity are included in
other non-interest expenses.
The managed credit loss rate stood at an annualized rate of 6.32% for the
consumer loan portfolio as of December 31, 1997, as compared to 4.82% and 3.95%
for the years ended December 31, 1996 and 1995, respectively. Consistent with
the consumer finance industry, the Company experienced an increase in credit
losses during 1996 and 1997 related, in part, to an increase in bankruptcy
filings. As part of its efforts to address increasing credit loss rates, the
Company continues to refine its underwriting criteria for new accounts and has
reorganized collection activities to include a centralized asset recovery effort
designed to enhance recoveries for all portfolios.
<PAGE>
The following table presents the Company's net credit losses for consumer
loans for the periods indicated and is presented both on a financial statement
reporting basis and a managed portfolio basis:
<TABLE>
<CAPTION>
Year Ended December 31
(Dollars in thousands) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
On-balance sheet: (1)
Average loans outstanding $3,173,231 $3,522,307 $2,764,524
Net credit losses 118,496 105,468 62,706
Net credit losses as a percentage of average loans outstanding (2) 3.73% 2.99% 2.27%
Managed:
Average loans outstanding $9,365,474 $7,904,027 $5,646,007
Net credit losses 591,675 380,585 222,951
Net credit losses as a percentage of average loans outstanding (2) 6.32% 4.82% 3.95%
</TABLE>
(1) Includes consumer loans held for securitization.
(2) Credit loss rates for on-balance sheet portfolios are typically lower than
managed credit loss rates because on-balance sheet loan portfolios represent
newer loan outstandings and because rates on loan portfolios increase over
time.
Allowance and Provision for Credit Losses
Providian Financial maintains the allowance at a level believed to be adequate
to absorb future losses, net of recoveries, inherent in the existing on-balance
sheet portfolio. In evaluating the adequacy of the allowance for credit losses,
management takes into consideration several factors, including general economic
conditions, asset quality, seasoning, security and trends in credit losses and
delinquencies. The allowance for credit losses is maintained for on-balance
sheet loans only (see "--Managed Consumer Loan Portfolio and the Impact of
Securitization"). The following table sets forth the activity in the allowance
for credit losses for the periods and portfolios indicated.
<TABLE>
<CAPTION>
Year Ended December 31
(Dollars in thousands) 1997 1996 1995
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of
year $ 114,540 $ 93,429 $ 76,218
Provision for loan losses 149,268 126,579 79,917
Credit losses (132,521) (116,930) (73,004)
Recoveries 14,025 11,462 10,298
---------------------------------------
Net credit losses (118,496) (105,468) (62,706)
---------------------------------------
Balance at end of year $ 145,312 $ 114,540 $ 93,429
=======================================
Allowance for loan losses
to loans at year-end (1) 4.91% 3.88% 3.09%
On-balance sheet
consumer loans $3,410,909 $3,689,634 $3,143,504
Loans held for sale 450,233 739,706 123,330
---------------------------------------
Loan balance $2,960,676 $2,949,928 $3,020,174
=======================================
</TABLE>
(1) Excludes consumer loans held for securitization.
Funding and Liquidity
Providian Financial funds its assets through a diversified mix of funding
products that appeal to a broad range of investors. It is the goal of the
Company to generate funding at the lowest cost possible consistent with ensuring
prudent liquidity and interest rate risk management.
<PAGE>
[GRAPHS
FUNDING SOURCES]
Funding Sources
The Company's approach to funding its assets is to seek a diversified funding
mix and investor base. Products offered include direct and brokered retail and
institutional deposits, term federal funds, public and private asset
securitizations, a committed revolving credit facility and, beginning in 1997,
mandatorily redeemable capital securities. Within product categories, funding is
diversified in terms of the types of products offered and the types, industries
and geographical locations of investors.
The Company offers a wide range of maturity terms for its funding products
(from one week to seven years). Actual maturity distributions are dependent upon
several factors, including expected asset duration, investor demand, relative
costs, shape of the yield curve and anticipated issuance in the securitization
and capital markets. Maturities are managed by the types of funding sources
employed and by the rates offered on different products. The goal is to achieve
a balanced distribution of maturities, avoiding undue concentration in any one
period. The Company monitors existing funding maturities to ensure that prudent
amounts of backup liquidity are available to support the maturities, if
necessary.
The following table summarizes the contractual maturity of deposits at the
Company as of December 31, 1997 and 1996.
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
---------------------------------- ------------------------------------
Direct Other Total Direct Other Total
(Dollars in thousands) Deposits Deposits Deposits Deposits Deposits Deposits
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Three months or less $ 375,825 $170,974 $ 546,799 $ 341,214 $ 737,423 $1,078,637
Over three months
through 12 months 494,495 250,250 744,745 643,866 378,922 1,022,788
Over one year through
five years 601,718 329,212 930,930 274,888 223,149 498,037
Deposits without
contractual maturity (1) 904,517 85,775 990,292 730,524 60,126 790,650
------------------------------------------------------------------------
Total Deposits $2,376,555 $836,211 $3,212,766 $1,990,492 $1,399,620 $3,390,112
========================================================================
</TABLE>
(1) Includes Money Market Deposit Accounts ("MMDAs"), secured credit card
savings accounts, and other deposits without contractual maturities.
Deposits decreased from $3.4 billion as of December 31, 1996 to $3.2 billion
as of December 31, 1997. This decrease is attributable to the increased funding
provided by asset securitizations and federal funds purchased.
The Company expects to replace the $546.8 million of deposits that will mature
during the first three months of 1998, as well as those maturing during
subsequent periods, from a variety of sources, including retail and
institutional deposits, term federal funds and asset securitizations, in
accordance with the Company's liability management programs.
The Company acquires a significant portion of its funding through the
securitization of its receivables. The primary objectives of securitization are
to diversify funding sources and to obtain efficient all-in cost of funds,
including the cost of capital. The securitized receivables have been sold as
securities to public or private investors using legal structures that generally
provide for an interest only (revolving) period and a principal repayment
(amortization or accumulation) period. Under the terms of the securitizations,
once the amortization or accumulation period commences, payments from the
customers on the securitized receivables are distributed or accumulated for
repayment to the securitization investors and are no longer reinvested in new
receivables. At that time, the Company's on-balance sheet assets and funding
requirements will increase accordingly.
For diversification and flexibility, the Company uses commercial paper-based
conduit facilities and other variable funding programs to securitize unsecured
credit card and home equity line of credit receivables. The conduit facilities
are renewed annually. Balances securitized under conduit and variable funding
facilities totaled $1.2 billion as of December 31, 1997.
<PAGE>
The Company is participating in term securitizations which are expected to
amortize over the periods indicated below based on currently outstanding
securitized receivables as of December 31, 1997:
<TABLE>
<CAPTION>
Amount
Amortizing
Year (Dollars in millions)
-----------------------------
<S> <C>
1998 $ 750
1999 0
2000 950
2001 945
2002 1,421
2003 919
2004 265
</TABLE>
The Company believes that it can attract deposits, borrow funds from other
sources and issue additional asset-backed securities to fund the amortization
schedule summarized above, although no assurances can be given to that effect.
The Company has access to a number of backup liquidity sources. Cash reserves
are maintained to ensure adequate short-term liquidity. The Company's primary
source of backup liquidity is a $1.2 billion unsecured committed revolving
credit facility (the "Credit Facility"), from a syndicate of domestic and
international banks, which is scheduled to expire in May 1999. Pursuant to
the Credit Facility, three wholly owned subsidiaries, Providian National Bank
(1), Providian Bank, and Providian Credit Corporation (collectively, the
"Borrowers"), have access to revolving loans, which bear interest determined by
a competitive bid process or based on either the Federal Funds rate, LIBOR or
the prime rate, plus a spread, depending on the timing and term of the
borrowing. The Company guarantees the prompt and complete payment, when due, of
the Borrowers' obligations under the Credit Facility. During 1997, the average
borrowings under the Credit Facility were $124.4 million.
Providian Financial is also a party to three separate 364-day credit
facilities totaling $275 million, under which short-term borrowings are
available for general corporate purposes. The Company did not borrow funds under
the 364-day credit facilities during 1997.
The Company also maintains a portfolio of high-quality investment securities
such as U.S. government and agency obligations, commercial paper, interest
bearing deposits with other banks, federal funds sold and other cash
equivalents. Investment securities have increased from $7.2 million as of
December 31, 1996 to $172.8 million as of December 31, 1997. Federal funds sold
decreased from $172.4 million to $115.0 million over the same period.
As a source of additional liquidity, the Company may use reverse repurchase
agreements pursuant to which the Company would pledge an investment security as
collateral for the use of funds during an agreed-upon period of time. The
benefits and risks of such agreements depend on many factors, including the
terms available, the Company's ability to apply the proceeds to earning assets
yielding a higher return, the demand for the securities and interest rate
trends. The Company had no such agreements outstanding at December 31, 1997 or
1996.
The primary goal of liquidity management at the Company is to ensure that
funding will be available to support Company operations in varying business
environments. The Company employs three primary strategies to maintain a strong
liquidity position: diversity of funding sources; dispersion of maturities; and
maintenance of backup liquidity sources. The Company manages its short-term
liquidity position by projecting cash requirements, maintaining cash balances,
limiting liability concentrations and prefunding large liability maturities. The
longer-term liquidity position is managed by maintaining its credit facilities
and investment portfolio at the appropriate size, dispersing liability
maturities and striving to develop new funding products, markets and investors.
(1) Providian National Bank is the surviving entity in the merger, consummated
on January 1, 1998, of Providian National Bank into First Deposit National
Bank. Immediately following the merger, First Deposit National Bank changed
its name to Providian National Bank.
<PAGE>
During January 1998, the Company utilized deposits and the Credit Facility to
fund the acquisition of a credit card portfolio for a purchase price of $959
million. The Company's strategy is to pursue acquisitions on an opportunistic
basis and additional acquisitions may be completed in the future. The Company
believes that it has sufficient liquidity to fund such future acquisitions and
to meet its other capital and liquidity requirements previously noted.
Capital Adequacy
Each of Providian Financial's banking subsidiaries is subject to risk-based
capital adequacy guidelines as defined by its primary federal regulator. Capital
is defined as either Tier 1 (core), which consists principally of shareholder's
equity less goodwill, or Tier 2 (supplementary), which also includes a portion
of the reserve for 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 is "well capitalized" or "adequately
capitalized":
<TABLE>
<CAPTION>
"Well "Adequately
Capitalized" Capitalized"
Capital Ratio Calculation Ratios Ratios
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Risk-Based (Tier 1 + Tier 2)/Total Risk-Based Assets equal to or greater than 10% equal to or greater than 8% less than 10%
Tier 1 Tier 1/Total Risk-Based Assets equal to or greater than 6% equal to or greater than 4% less than 6%
Leverage Tier 1/Average Total Assets--intangibles equal to or greater than 5% equal to or greater than 4% less than 5%
</TABLE>
At December 31, 1997, each of the Company's banking subsidiaries was "well
capitalized" in all risk-based capital ratio categories, as set forth below:
<TABLE>
<CAPTION>
Requirements Providian
for Adequately National Providian
Capital Ratio Capitalized Bank (1) Bank
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Risk-Based 8% 13.20% 23.24%
Tier 1 4% 11.94% 21.86%
Leverage 4% 17.61% 14.88%
</TABLE>
(1) On a historical pro forma basis, reflecting the merger of First Deposit
National Bank and Providian National Bank, effective January 1, 1998.
Beginning on January 1, 1997, the basis for reporting accounting transactions
in the quarterly Consolidated Reports of Condition ("Call Reports") was changed
to conform with GAAP. New Call Report instructions became effective for Call
Reports beginning with the March 31, 1997 report date. In accordance with the
new Call Report instructions, if the securitization uses excess servicing fees
receivable as credit enhancement (for example, by depositing certain amounts
into spread accounts), the Company is required to hold risk-based capital
against the full amount of assets sold or, if the transaction qualifies for
"low-level recourse" capital treatment, a lesser amount equal to the amount of
excess servicing fees receivable and the interest only strip receivable realized
from the application of SFAS No. 125, net of any noncapital GAAP recourse
liability account associated with the asset transfer, and net of tax liabilities
incurred in connection with the transfer of assets. The application of the new
Call Report instructions did not result in any significant change in the
Company's capital position.
<PAGE>
On February 4, 1997, the Company, through Providian Capital I, issued $160
million in mandatorily redeemable preferred securities (the "Capital
Securities") which accumulate accrued distributions at a rate of 9.525% per
year. The sole assets of Providian Capital I, the subsidiary statutory business
trust that issued the Capital Securities (the common securities of which are
wholly owned by the Company), are $164.9 million aggregate principal amount of
the Company's 9.525% Junior Subordinated Deferrable Interest Debentures due
February 1, 2027 (the "Debentures") and the right to reimbursement of expenses
under a related expense agreement with the Company. The Company has the right to
defer payment of interest on the Debentures under certain circumstances in which
case distributions on the Capital Securities will also be deferred and the
Company's ability to pay dividends on its common stock will be restricted. The
Company has the right to cause the redemption of the Capital Securities on or
after February 1, 2007, or earlier in the event of certain regulatory changes.
The redemption price is dependent on several factors, including the date of the
redemption, the present value of the principal and premium payable, and the
accumulated but unpaid distributions on the Capital Securities.
The primary source of funds for payment of accrued distributions on the
Capital Securities and dividends on common stock of the Company is dividends
received from its banking subsidiaries. The amount of dividends that each
banking subsidiary may declare is generally limited to its net profit for the
current year combined with its retained earnings for the previous two years less
any dividends declared during the related three-year measurement period. Also, a
bank may not declare dividends if such declaration would leave the bank
inadequately capitalized. Therefore, the Company's ability to pay accrued
distributions on Capital Securities and dividends on common stock is dependent
on the future net income and capital requirements of the Company's banking
subsidiaries.
Asset/Liability Market Risk Management
The business of the Company and the composition of its balance sheet consist
primarily of investments in interest-earning assets (loans and investment
securities) which are primarily funded by interest-bearing liabilities (deposits
and borrowings). The operations of the Company are subject to interest rate risk
resulting from interest rate fluctuations to the extent that there is a
difference between the amount of interest-earning assets and the amount of
interest-bearing liabilities that are prepaid/withdrawn, mature or reprice in
specified periods. To the extent that interest income and interest expense do
not respond equally to changes in interest rates, or that all rates do not
change uniformly, earnings may be affected. The Company seeks to reduce its
exposure to changes in interest rates, or market risk, through active
monitoring and management of its interest rate risk exposure.
The principal objective of the Company's asset/liability market risk
management activities is to provide maximum levels of net interest income while
maintaining acceptable levels of interest rate and liquidity risk and
facilitating the funding needs of the Company. The Company manages interest rate
risk individually for each banking subsidiary and comprehensively as a
consolidated Company, and includes both on- and off-balance sheet assets and
liabilities in its analyses and risk management.
The Company's receivables generally yield either a variable Annual Percentage
Rate ("APR"), indexed to the prime rate, or a fixed APR, set independently of
market interest rates. The interest rates on the Company's liabilities are
generally indexed to LIBOR or are fixed rates based on United States Treasury
Bond rates. These balance sheet characteristics expose the Company to two types
of interest rate risk: (a) repricing risk, which results from differences
between the timing of rate changes and the timing of cash flows, which could
impact the net interest income if liabilities reprice more often than assets,
and (b) basis risk, which arises from changing rate relationships between yield
curves and markets, which could impact the net interest income of variable APR
receivables if the spread between the prime rate and LIBOR compresses or
expands.
<PAGE>
The Company's fixed rate credit card receivables, which have no stated
maturity or repricing period, may nevertheless be repriced by the Company upon
providing required notice to the customer, which is generally no more than 30
days. The Company also generally has the right to increase rates upon the
customer's failure to comply with the terms of the account agreement. This
approach, referred to as performance-based pricing, was first introduced in the
fourth quarter of 1996. In addition, the Company occasionally reprices
receivables to achieve business objectives. These objectives include managing
profitability, responding to customer requests and balancing the risk/reward
tradeoff. Historically, management's use of repricing has been limited and has
not affected more than 10% of the fixed rate receivables portfolio annually.
However, repricing activity increased in 1997 as a result of performance-based
pricing activity and discretionary repricings.
The Company measures its exposure to interest rate fluctuations on a quarterly
basis, using net interest income ("NII") simulation analysis and the market
value of portfolio equity ("MVPE") method as its primary quantitative tools. NII
simulation is used to measure the banking operations' future earnings under
multiple interest rate scenarios against plan earnings under a baseline interest
rate scenario. The measurement of net interest income dispersion is performed
under the assumption that management does not react to the changed interest rate
environment with any action designed to counter its effects. The multiple
interest rate scenarios include changes in the shape of the yield curve, as well
as changes ranging from 50 to 400 basis points in the general level of interest
rates and changes in the relationship between the prime rate and LIBOR. The
largest simulated reductions in net interest income generally occur in rapidly
rising interest rate scenarios. The results of these net interest income
simulations are compared to levels deemed appropriate by management, and are
referred to management for appropriate responses.
The MVPE method is used to measure the risk arising from the Company's long-
term fixed rate positions. This method estimates the present value of all
assets, liabilities and off-balance sheet instruments under multiple interest
rate scenarios. Since MVPE analysis considers the potential impact of interest
rate changes on the present value of all future cash flows, it is a more
comprehensive measure of interest rate risk than NII simulation analysis.
The following table presents the estimated effects of a parallel shift in
interest rates as calculated at December 31, 1997:
<TABLE>
<CAPTION>
1997 (1)
------------------------
Change in Interest Rates Percentage Change In
------------------------
(In Basis Points) NII (2) MVPE (3)
- -------------------------------------------------------------
<S> <C> <C>
+200 (6.9)% (8.3)%
Flat 0% 0%
- -200 8.7% 11.8%
</TABLE>
(1) The information shown is presented on a consolidated, managed
asset/liability basis, giving effect to securitized assets and related
funding.
(2) The percentage change in this column represents NII for 12 months in a
stable interest rate environment versus the NII in the specified rate
scenarios.
(3) The percentage change in this column represents MVPE in a stable interest
rate environment versus the MVPE in the specified rate scenarios. MVPE is
defined as the present value of expected net cash flows from existing assets
minus the present value of expected net cash flows from existing liabilities
plus the present value of expected net cash flows from existing off-balance
sheet transactions.
The table above does not necessarily indicate the effect of general interest
rate movements on the Company's net interest income because the repricing of
certain categories of assets and liabilities are subject to competitive and
other pressures beyond the Company's control. As a result, certain assets and
liabilities assumed to mature or otherwise reprice within a certain period may
in fact mature or reprice at different times and at different volumes.
The Company seeks to mitigate earnings volatility associated with interest
rate movements by generally matching the repricing characteristics of on- and
off-balance sheet assets and liabilities. Fixed rate liabilities generally fund
fixed APR assets, while variable rate liabilities generally fund variable APR
assets. Given the Company directed repricing characteristics of its credit card
assets and historically favorable funding rates for variable liabilities, the
Company uses variable rate liabilities to fund a portion of its fixed rate
credit card assets.
<PAGE>
The Company uses derivative financial instruments, including interest rate
swap and cap agreements, with indices that correlate to managed assets or
liabilities to modify its indicated net interest sensitivity to levels deemed to
be appropriate based on the Company's current economic outlook. The objective
for the use of these hedges is to reduce interest rate risk by more closely
aligning the repricing characteristics of the assets and liabilities. One
hedging strategy employed by the Company is to swap LIBOR-indexed variable rate
liabilities into fixed rate funding to support fixed rate assets. In this case,
the Company agrees with a counterparty to exchange interest payments on a
notional amount for a fixed period, with the Company making payments to the
counterparty on a fixed interest rate and the counterparty making variable
payments to the Company based on LIBOR. The Company has also utilized basis
swaps, in which it swaps LIBOR-indexed variable rate liabilities to
prime-indexed variable rate liabilities, to fund prime-indexed variable rate
assets. Both of these strategies result in assets and liabilities that have
matching repricing terms. The Company also employs interest rate caps, where,
for an up-front fee, a counterparty agrees to pay the Company's subsidiary bank
the difference between a negotiated rate and LIBOR, if positive, on a notional
amount for a fixed period. These transactions result in funding for fixed rate
assets that is capped at a given rate to minimize net interest margin
compression in a rising interest rate environment.
All of the Company's hedging transactions settle either monthly or quarterly,
with either the counterparty or the Company remitting to the other the net
payment, if any, for that period. The cash requirements of the Company, if any,
resulting from these payments are met with general operating cash balances. All
transactions are over-the-counter interest rate swap and cap transactions
executed with highly rated United States and international banks under standard
Master Agreements of the International Swap and Derivatives Association, Inc.
("ISDA"), and hedge identified interest rate risks both for accounting and tax
purposes. The Company does not trade in derivatives or use derivatives to
speculate on interest rates or as an investment vehicle.
The following table presents the notional amounts of interest rate swap
agreements and caps purchased/floors sold for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31
(Dollars in thousands) 1997 1996 1995
- --------------------------------------------------------------------
<S> <C> <C> <C>
Interest rate swap agreements:
Beginning Balance $1,290,000 $1,404,000 $ 633,000
Additions 263,000 614,000 985,000
Maturities 598,000 728,000 214,000
----------------------------------
Ending Balance $ 955,000 $1,290,000 $1,404,000
==================================
Interest rate caps and floors:
Beginning Balance $1,522,000 $1,014,000 $1,106,000
Additions -- 883,000 914,000
Maturities 600,000 375,000 1,006,000
----------------------------------
Ending Balance $ 922,000 $1,522,000 $1,014,000
==================================
</TABLE>
The Company manages credit risk arising from derivatives transactions through a
rigorous ongoing credit review, approval and monitoring process. "Credit risk"
is defined as the risk that a loss will occur as the result of a derivative
counterparty defaulting on a contract when the contract is in a favorable
economic position to the Company. Master netting agreements are entered into
with swap counterparties to reduce the exposure to credit risk with the
individual counterparty. Credit limits are established for each counterparty and
are analyzed based on total net credit exposure. The Company also monitors
exposure to counterparty credit risk through the performance of sensitivity
testing. Probable worst-case scenarios are considered to determine the credit
exposure on derivatives associated with the individual counterparty. This
exposure is then aggregated with other non-derivative credit risks associated
with the individual counterparty to determine compliance with the total
individual counterparty credit limit established by the Company during the
credit review process. If counterparty credit risk is determined to exceed the
pre-established limit, then action is taken to limit the Company's exposure with
that counterparty.
Management's Responsibilities for Financial Reporting
The consolidated financial statements appearing in this Annual Report have been
prepared by management, which is responsible for their preparation, integrity
and fair presentation. The statements have been prepared in accordance with
generally accepted accounting principles and necessarily include some amounts
that are based on management's best estimates and judgments.
Management is responsible for the system of internal controls over financial
reporting at Providian Financial and its subsidiaries, a system designed to
provide reasonable assurance regarding the preparation of reliable published
financial statements. This system is augmented by written policies and
procedures including a code of conduct to foster a strong ethical climate, a
program of internal audit, and the selection and training of qualified
personnel. Management believes that the Company's system of internal controls
over financial reporting provides reasonable assurance that the financial
records are reliable for preparing financial statements.
The Audit Committee of the Board of Directors, consisting solely of outside
Directors, meets with the independent auditors, management and internal auditors
periodically to discuss internal controls over financial reporting, auditing and
financial reporting matters. The Committee reviews with the independent auditors
the scope and results of the audit effort. The Committee also meets with the
Company's independent auditors and internal auditors without management present
to ensure that these groups have free access to the Committee.
The independent auditors are recommended by the Audit Committee of the Board
of Directors, selected by the Board of Directors and ratified by the
shareholders. Based upon their audit of the consolidated financial statements,
the independent auditors, Ernst & Young LLP, have issued their Auditors' Report,
which appears on this page.
/s/ Shailesh J. Mehta
Shailesh J. Mehta
Chairman, President and
Chief Executive Officer
/s/ David J. Petrini
David J. Petrini
Senior Vice President
and Chief Financial Officer
Report of Independent Auditors
Board of Directors
Providian Financial Corporation and Subsidiaries
We have audited the accompanying consolidated statements of financial condition
of Providian Financial Corporation and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Providian
Financial Corporation and subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
As discussed in Notes 2 and 5 to the financial statements, in 1997 the Company
changed its method of accounting for transfers and servicing of financial assets
and extinguishments of liabilities.
/s/ Ernst & Young LLP
San Francisco, CA
January 22, 1998
<PAGE>
Consolidated Statements of Financial Condition
Providian Financial Corporation and Subsidiaries
<TABLE>
<CAPTION>
December 31
(Dollar amounts in thousands) 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 112,522 $ 82,946
Federal funds sold 114,960 172,350
Investment securities at cost (which approximates market value) 172,756 7,173
Loans held for securitization or sale 450,233 739,706
Loans receivable, less allowance for credit losses of $145,312
in 1997 and $114,540 in 1996 2,815,364 2,835,388
Due from securitizations 472,145 252,899
Interest receivable 80,434 56,864
Premises and equipment, net 61,625 49,870
Other assets 169,374 154,546
-----------------------
Total assets $4,449,413 $4,351,742
=======================
Liabilities:
Deposits:
Noninterest bearing $ 32,089 $ 28,299
Interest bearing 3,180,677 3,361,813
-----------------------
3,212,766 3,390,112
Term federal funds purchased 150,000 51,000
Notes payable to banks 82,000 115,000
Note payable to affiliates -- 42,500
Long term notes payable -- 50,000
Accrued expenses and other liabilities 249,533 219,986
-----------------------
Total liabilities 3,694,299 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 and issued 63,269 shares -- 63
Common stock,
1997--par value $.01 per share, authorized 400,000,000 shares,
issued 95,156,545 shares; 1996--par value $1.00 per share,
authorized and issued 5,000 shares 954 5
Additional paid-in capital 4,217 63,706
Retained earnings 599,856 419,370
Common stock held in treasury--at cost:
1997--268,775 shares (9,913) --
-----------------------
Total shareholders' equity 595,114 483,144
-----------------------
Total liabilities and shareholders' equity $4,449,413 $4,351,742
=======================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Income
Providian Financial Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year Ended December 31
(Dollar amounts in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans $556,918 $574,335 $457,818
Investment securities 25,575 9,847 12,695
----------------------------
Total interest income 582,493 584,182 470,513
Interest expense:
Deposits 164,252 140,361 105,151
Borrowings 18,858 49,208 52,732
----------------------------
Total interest expense 183,110 189,569 157,883
----------------------------
Net interest income 399,383 394,613 312,630
Provision for credit losses 149,268 126,579 79,917
----------------------------
Net interest income after provision
for credit losses 250,115 268,034 232,713
Non-interest income:
Loan servicing income 402,446 292,698 260,896
Credit product fee income 230,786 123,654 81,374
Other 1,400 7,467 2,535
----------------------------
634,632 423,819 344,805
Non-interest expenses:
Salaries and employee benefits 196,761 153,849 113,412
Solicitation 142,956 113,892 108,376
Occupancy, furniture and equipment 37,610 26,039 18,424
Data processing and communication 50,108 37,214 28,115
Other 146,012 103,608 94,328
----------------------------
573,447 434,602 362,655
----------------------------
Income before income taxes 311,300 257,251 214,863
Income tax expense 119,839 97,485 79,411
----------------------------
Net Income $191,461 $159,766 $135,452
============================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Changes in Shareholders' Equity
Providian Financial Corporation and Subsidiaries
<TABLE>
<CAPTION>
7.25% Common
Special Cumulative Additional Stock
Preferred Preferred Common Paid-In Retained Held in
(Dollar amounts in thousands) Stock Stock Stock Capital Earnings Treasury Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ 1,290 $ 63 $ 5 $ 63,706 $ 261,036 -- $ 326,100
Net Income 135,452 135,452
Cash dividend:
Common--paid to former parent (107,710) (107,710)
Preferred--paid to former parent (4,587) (4,587)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $ 1,290 $ 63 $ 5 $ 63,706 $ 284,191 -- $ 349,255
Net Income 159,766 159,766
Cash dividend:
Common--paid to former parent (20,000) (20,000)
Preferred--paid to former parent (4,587) (4,587)
Redemption of preferred stock (1,290) (1,290)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 -- $ 63 $ 5 $ 63,706 $ 419,370 -- $ 483,144
Net Income 191,461 191,461
Redemption of preferred stock (63) (63,206) (63,269)
Net issuance of shares pursuant
to the Distribution Agreement 948 (499) (449) --
Cash dividend:
Common--$0.10 per share (9,520) (9,520)
Preferred--paid to former parent (1,006) (1,006)
Purchase of 501,360 common
shares for treasury $(18,345) (18,345)
Exercise of stock options (1,841) 4,191 2,350
Reimbursement relating to the
conversion of stock options 6,846 6,846
Issuance of restricted and
unrestricted stock less
forfeited shares 1 5,442 4,241 9,684
Deferred compensation related to
grant of restricted and unrestricted
stock less amortization of $1,280 (8,404) (8,404)
Tax benefit from exercise of
stock options and issuance
of restricted stock 2,173 2,173
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 -- -- $954 $ 4,217 $ 599,856 $ (9,913) $ 595,114
================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Cash Flows
Providian Financial Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year Ended December 31
(Dollar amounts in thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities:
Net Income $ 191,461 $ 159,766 $ 135,452
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for credit losses 149,268 126,579 79,917
Depreciation and amortization of premises and equipment 14,984 10,566 7,522
Amortization of net loan acquisition costs 37,728 41,342 14,600
Amortization of discount on sale of loans receivable 456 715 875
Amortization of deferred compensation
related to restricted and unrestricted stock 1,280 -- --
Decrease (increase) in deferred income tax benefit 4,981 (11,597) (13,099)
Increase in interest receivable (23,570) (12,130) (13,690)
Increase in other assets (56,835) (41,346) (32,447)
Increase in accrued expenses and other liabilities 31,721 48,793 40,676
---------------------------------------
Net Cash Provided by Operating Activities 351,474 322,688 219,806
Investing Activities:
Net cash used for loan originations and principal
collections on loans receivable (1,496,371) (3,123,206) (2,460,807)
Net proceeds from securitization of
credit card and line of credit loans 1,591,250 2,035,893 1,583,239
Net proceeds from sale of home equity
revolving line of credit loans 64,894 435,000 --
Increase in due from securitizations (219,246) (78,102) (59,539)
Purchases of investment securities (473,052) (2,386) (1,530)
Proceeds from maturities of investment securities 307,469 140 294
Decrease (increase) in federal funds sold 57,390 (101,050) (56,300)
Net purchases of premises and equipment (26,875) (32,404) (12,343)
---------------------------------------
Net Cash Used for Investing Activities (194,541) (866,115) (1,006,986)
Financing Activities:
Net (decrease) increase in deposits (177,344) 1,232,347 477,315
(Decrease) increase in notes payable to banks (33,000) (206,000) 86,000
Decrease in note payable to affiliates (42,500) (53,300) (4,000)
(Decrease) increase in bank notes -- (189,880) 293,880
Proceeds from issuance of term federal funds 414,000 308,000 892,000
Repayment of term federal funds (315,000) (593,000) (858,000)
(Decrease) increase in long-term notes payable (50,000) 50,000 --
Redemption of preferred stock (63,269) (1,290) --
Reimbursement relating to conversion of stock options 6,846 -- --
Purchase of treasury stock (18,345) -- --
Dividends paid (10,526) (24,587) (112,297)
Proceeds from the issuance of Capital Securities 160,000 -- --
Proceeds from exercise of stock options 1,781 -- --
---------------------------------------
Net Cash (Used) Provided by Financing Activities (127,357) 522,290 774,898
---------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 29,576 (21,137) (12,282)
Cash and Cash Equivalents at beginning of year 82,946 104,083 116,365
---------------------------------------
Cash and Cash Equivalents at end of year $ 112,522 $ 82,946 $ 104,083
=======================================
Supplemental Disclosures:
Interest expense paid $ 182,209 $ 187,284 $ 151,761
=======================================
Income taxes paid $ 112,426 $ 91,516 $ 77,873
=======================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Notes to Consolidated Financial Statements
Providian Financial Corporation and Subsidiaries
December 31, 1997 and 1996
Note 1 - Organization and Basis of Presentation
Providian Financial Corporation (the "Company," formerly Providian Bancorp,
Inc.), is a Delaware corporation, with principal executive offices located in
San Francisco, California. Through its banking and other non banking
subsidiaries, the Company provides banking and other financial services to
consumers throughout the United States. The Company's principal wholly owned
subsidiaries are First Deposit National Bank (FDNB), Providian National Bank
(PNB), and Providian Bank (PB) (formerly Providian Credit Services, Inc.). The
Company markets consumer loans, deposit products and other banking services
using mail, telephone and other direct response channels. Consumer loans include
unsecured and secured credit cards, unsecured revolving lines and secured home
equity revolving lines of credit. The Company also provides money market deposit
accounts to retail customers and certificates of deposit to both retail and
institutional customers.
Prior to June 10, 1997, the Company was a wholly owned subsidiary of Providian
Corporation. As a condition of Providian Corporation's merger with AEGON N.V.,
Providian Corporation distributed to each of its shareholders one share of
common stock of the Company, together with an associated Preferred Share
Purchase Right, for each share of common stock of Providian Corporation held as
of June 10, 1997 (the "Spinoff"). The Preferred Share Purchase Right will only
become exercisable if triggered by an attempt to take over the Company. During
the second quarter of 1997, the Company completed its application to list its
common stock on the New York Stock Exchange.
The consolidated financial statements for years ended December 31, 1997, 1996
and 1995 reflect the results of operations, changes in shareholders' equity and
cash flows, and the financial position of the Company as a separate entity from
its former parent, Providian Corporation. The consolidated financial statements
have been prepared using the historical basis for assets and liabilities and the
historical results of operations for the Company. The consolidated financial
statements include certain expenses related to administrative services provided
to the Company by Providian Corporation. All material intercompany transactions
and accounts have been eliminated in consolidation. The consolidated financial
statements for periods prior to the Spinoff may not necessarily reflect the
consolidated results of Providian Financial Corporation's operations, financial
position, changes in shareholders' equity or cash flows in the future or what
they would have been had Providian Financial Corporation been a separate, stand-
alone company during such periods.
Effective January 1, 1998, Providian National Bank was merged into First
Deposit National Bank with the surviving entity changing its name to Providian
National Bank. This merger will streamline the Company's corporate structure in
a manner consistent with its strategic objectives. Prior to the merger, no
material intercompany transactions were executed between Providian National Bank
and First Deposit National Bank.
Note 2 - Summary of Significant Accounting Policies
Cash and Cash Equivalents: Cash and cash equivalents include cash on hand and
short-term investments convertible into cash upon demand. The Company is
required to maintain reserves with the Federal Reserve Bank based on a
percentage of deposit liabilities.
Investment Securities: The investment securities as of December 31, 1997 consist
primarily of U.S. Treasury and other government agency securities which the
Company has the positive intent and ability to hold to maturity and are
classified as held-to-maturity. Investment securities as of December 31, 1996
consist primarily of Federal Reserve stock which is classified as a held-to-
maturity investment because it will be held for the foreseeable future in
accordance with banking regulations. Investment securities classified as
held-to-maturity are reported at amortized cost which approximates fair market
value.
Securitizations: The Company securitizes credit card and line of credit loans
and records such securitizations as sales. 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, the Company is required to recognize the financial
and servicing assets it controls and the liability it has incurred and to
derecognize financial assets when control has been surrendered in accordance
with the criteria provided in the statement. Gains are also recognized at the
time of initial sale and each subsequent sale of loan receivables in a
securitization based upon the difference between finance charges received from
the account-holders less the yield paid to investors, credit losses and a
normal servicing fee, which is also retained by the Company. As a result, the
Company now recognizes gains from such loan sales as "Loan servicing income" on
its consolidated statement of income and the related asset as a component of
"Due from securitizations" on its consolidated statement of financial condition.
The sales agreements require the Company to retain 2.0 to 4.5 percent minimum
interest in the securitized receivables ("Seller's interest"). Sellers' interest
in securitized receivables is classified as loans receivable at par less
associated allowance for credit losses.
Loans Held for Securitization or Sale: Loans held for securitization or sale are
those loans eligible for securitization which management intends to securitize
or sell, generally within six months. These assets are reported at the lower of
cost or fair market value.
Income on Loans: Interest income on loans is recognized based upon the principal
amount outstanding in accordance with the terms of the applicable customer
agreement until the outstanding balance is paid or charged off after becoming
180 days past-due. Earlier charge-offs may occur as collectibility conditions
warrant.
<PAGE>
Net direct loan origination costs are deferred and amortized on a straight-line
basis over the estimated life of the loan (one year for credit card loans, five
years for line of credit loans and seven years for home equity revolving line of
credit loans). Amortization of deferred loan origination costs is accelerated
when the associated assets are securitized or sold. Deferred loan origination
costs are included in other assets and were $36.5 million and $31.5 million at
December 31, 1997 and 1996, respectively. Annual membership fees and proprietary
fee product income, if charged annually, are deferred and amortized over one
year. Deferred fee revenue is included in other liabilities and was $64.7
million and $25.0 million at December 31, 1997 and 1996, respectively.
Allowance for Credit Losses: The allowance for credit losses is maintained at a
level that, in management's judgment, is adequate to provide for estimated
probable net credit losses from known and inherent risks in the loan portfolios.
In evaluating the adequacy of the allowance for credit losses, management takes
into consideration several factors including general economic conditions, asset
quality, seasoning, security and trends in credit losses and delinquencies.
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization expense
are computed using the straight-line method over the estimated useful life of
the related assets.
Interest Rate Risk Management Instruments: The Company uses a combination of
interest rate swap and cap agreements to manage interest rate risk related to
loans, deposits and loan servicing income related to loans securitized or sold.
When interest rate swap and cap agreements are used to hedge on-balance sheet
assets and liabilities, interest rate differentials to be paid or received are
accrued and recognized as an adjustment of interest expense related to the
liabilities being hedged. Interest rate cap premiums paid are amortized to
interest expense ratably during the life of the agreement. In the event of an
unanticipated sale of designated loans, any gain or loss from the swap would be
recognized in income coincident with the loan sale gain or loss.
When interest rate swap and cap agreements are used to hedge the servicing
income received from loan securitizations, interest rate differentials to be
paid or received are accrued and recognized as an adjustment to loan servicing
income. Interest rate cap premiums paid are amortized to loan servicing income
ratably during the life of the cap agreement. In the event of securitized asset
additions or repricing that impacts the Company's hedging position, gains and
losses upon termination of interest rate swap agreements are deferred and
amortized to loan servicing income over the remaining term of the related
securitization agreement.
Term Federal Funds Purchased: Term federal funds purchased represent short-term
unsecured borrowings from various banks. The interest incurred on such
borrowings is recorded as a component of interest expense.
Income Taxes: Income taxes are accounted for utilizing the liability method.
Under the liability method, deferred tax assets and liabilities are recognized
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are settled or realized.
Stock-Based Compensation: Subsequent to the Spinoff and the related issuance of
stock options, the Company adopted Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). The Company
has elected to account for its stock-based compensation plans in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related Interpretations ("APB Opinion No. 25"), as SFAS No. 123
permits. Accordingly, because the exercise price of the Company's employee stock
options equals the fair market value of the underlying stock on the date of
grant, no compensation expense is recognized by the Company. In addition, the
Company does not recognize compensation expense for its employee stock purchase
plan since it qualifies as a non-compensatory plan under APB Opinion No. 25. The
Company, as required, follows the pro forma net income, pro forma earnings per
share and stock-based compensation plan disclosure requirements set forth in
SFAS No. 123.
Earnings per Common Share: Effective December 31, 1997, the Company adopted
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
No. 128"). SFAS No. 128 establishes new requirements for computing and
presenting earnings per share. Under the new requirements, the method previously
used to compute earnings per share is changed and all prior periods presented
must be restated to conform to meet the new requirements. The new requirements
eliminate primary earnings per share and fully diluted earnings per share, and
require the presentation of earnings per common share and earnings per common
share--assuming dilution. As a result, under the new requirements, earnings per
common share excludes any dilutive effects of stock options, warrants and
convertible securities. Also, the dilutive effect of stock options, warrants and
convertible securities used to compute earnings per common share--assuming
dilution is based on the average market price of the Company's stock for the
period.
Use of Estimates in the Preparation of Financial Statements: The preparation of
the Company's consolidated financial statements in accordance with generally
accepted accounting principles ("GAAP") requires management to make estimates
and assumptions that affect reported amounts. These estimates are based on
information available as of the date of the consolidated financial statements.
Therefore, actual results could differ from those estimates.
Reclassifications: Certain prior years' amounts have been reclassified to
conform with the 1997 presentation.
<PAGE>
Note 3 - Recently Issued Accounting Policies
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130") which is effective for financial statements for fiscal
years beginning after December 15, 1997. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in the financial statements. The adoption of SFAS
No. 130, which will be implemented in the first quarter of 1998, will result in
a change in financial statement presentation and will have no impact on the
Company's consolidated results of operations, financial position or cash flows.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131") which is effective for financial statements for fiscal years
beginning after December 15, 1997, and need not be applied to interim financial
statements in the initial year of its application. SFAS No. 131 establishes
standards for disclosure of an enterprise's operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. The adoption of
SFAS No. 131 applies solely to information disclosure and will have no impact on
the Company's consolidated results of operations, financial position or cash
flows.
Note 4 - Loans Receivable and Allowance for Credit Losses
The following is a summary of loans receivable (in thousands):
<TABLE>
<CAPTION>
December 31 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Unsecured credit card and line of credit loans $1,771,055 $2,027,029
Secured and partially secured credit card loans 591,023 466,798
Home equity revolving line of credit loans 563,552 418,063
Other 35,046 38,038
-----------------------
2,960,676 2,949,928
Allowance for credit losses (145,312) (114,540)
-----------------------
$2,815,364 $2,835,388
=======================
</TABLE>
The activity in the allowance for credit losses for the years ended December
31, 1997, 1996 and 1995 is as follows (in thousands):
<TABLE>
<CAPTION>
December 31 1997 1996 1995
- ----------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 114,540 $ 93,429 $ 76,218
Provision for credit losses 149,268 126,579 79,917
Credit losses (132,521) (116,930) (73,004)
Recoveries 14,025 11,462 10,298
--------------------------------
Balance at end of year $ 145,312 $ 114,540 $ 93,429
================================
</TABLE>
Note 5 - Securitization or Sale of Receivables
During 1997, 1996 and 1995, the Company's banking subsidiaries sold $1.7
billion, $2.5 billion and $1.6 billion, respectively, of their credit card,
revolving line of credit and home equity line of credit loans through
securitization transactions. The total amount of securitized receivables
serviced by the Company were $6.5 billion and $5.6 billion as of December 31,
1997 and 1996, respectively.
During an initial period of a securitization transaction (reinvestment
period), all principal payments on the credit card and line of credit
receivables are retained by the Company in exchange for additional receivable
balances transferred to the investors. In the final months of a securitization
transaction, principal payments are then allocated to repay the investor
certificates. This period is referred to as the amortization or accumulation
period and can vary in length from 1 to 24 months. Currently, two transactions
are in their accumulation periods while the remaining transactions are scheduled
to begin their accumulation periods at various times between 1998 and 2004.
Spread accounts receivable, a component of "Due from securitizations,"
represents cash held by a trustee or agent used to absorb the receivables'
losses should they exceed the net cash flows of the receivables in the future.
The cash reserve reverts back to the Company when investors have been paid in
full. None of these cash reserves were required to be used in the three year
period ended December 31, 1997.
As a result of the adoption of SFAS No. 125, loan servicing income increased
$62.8 million during the year ended December 31, 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,
in the first nine months of 1997, the Company recognized 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.
The following is a summary of loans held for securitization or sale (in
thousands):
<TABLE>
<CAPTION>
December 31 1997 1996
- --------------------------------------------------------------------
<S> <C> <C>
Unsecured credit card and line of credit loans $450,233 $641,666
Home equity revolving line of credit loans -- 51,667
First mortgage home loans -- 46,373
------------------
$450,233 $739,706
==================
</TABLE>
<PAGE>
Note 6 - Deposits
The Company accepts time deposits with terms in excess of one year. Interest
bearing deposits in excess of $100,000 totaled $1,565 million and $2,066 million
at December 31, 1997 and 1996, respectively. The aggregate amount of maturities
for time deposits are as follows (in thousands):
<TABLE>
<S> <C>
1998 $1,278,661
1999 388,368
2000 196,488
2001 130,630
2002 and thereafter 228,327
----------
$2,222,474
==========
</TABLE>
Note 7 - Notes Payable
In June and August 1997, the Company entered into various short-term unsecured
revolving credit agreements with a borrowing capacity totaling $275 million.
The Company pays facility fees based on the total credit line. Interest on
outstanding balances is based upon the London Interbank Offered Rate (LIBOR).
The agreements expire 364 days from the respective effective dates. The Company
did not borrow against these commitments during 1997.
Prior to the Spinoff, the Company maintained revolving credit agreements with
its former parent, Providian Corporation. Interest on the outstanding balance
was based on the greater of Providian Corporation's internal fund rate or the
applicable Federal rate. The Company paid facility fees to Providian
Corporation of $0.1 million, $0.3 million and $0.3 million in 1997, 1996 and
1995, respectively. The Company did not borrow against these revolving
agreements during 1997 and interest totaling $2.8 million and $0.2 million was
paid during 1996 and 1995, respectively.
In May 1996, the Company amended a previously existing unsecured revolving
credit agreement with various banks and increased the line from $800 million to
$1.2 billion. The Company pays facility fees based on the total commitment and
utilization fees based on the average outstanding loan balances which exceed 50%
of the average total commitment. Interest on outstanding balances is based upon
a competitive bid process or upon the LIBOR rate or prime rate of certain
reference banks or upon the federal funds rate. The agreement expires on May 14,
1999, with a one-year extension option. A total of $82 million and $115 million
was drawn on the line at December 31, 1997 and 1996, respectively.
The following table summarizes all outstanding short-term borrowings and the
weighted average interest rate on those borrowings as of December 31, 1997 and
1996 (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
Weighted Weighted
Average Average
Interest Interest
December 31 Balance Rate Balance Rate
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal funds purchased $150,000 5.79% $ 51,000 5.55%
Notes payable to banks 82,000 6.18% 115,000 5.78%
</TABLE>
In June 1997, the Company repaid $50 million Senior Subordinated notes which
were held by various investors. The note agreements were entered into in March
1996 and had a stated fixed rate of interest on outstanding balances of 5.74%.
Prior to the Spinoff, the Company maintained several long term notes with
Providian Corporation and, in prior years, with certain Providian Corporation
subsidiaries. As discussed in Note 8 - "Company Obligated Mandatorily
Redeemable Capital Securities of Subsidiary Trust Holding Solely Junior
Subordinated Deferrable Interest Debentures of the Company," a portion of the
proceeds from the issuance of the capital securities were used to repay the
notes payable to Providian Corporation. On March 15, 1996, the Company repaid
$45 million of notes payable outstanding to certain Providian Corporation
subsidiaries. At December 31, 1996, notes payable to Providian Corporation
were as follows (in thousands):
<TABLE>
<CAPTION>
December 31 1996
- --------------------------------------------
<S> <C>
Subordinated 5.51% note due 1997 $ 8,000
Subordinated 5.91% note due 1998 7,500
Subordinated 6.19% note due 1999 7,000
Subordinated 6.43% note due 2000 20,000
-------
$42,500
=======
</TABLE>
Interest expense associated with notes to affiliates totaled $0.4 million,
$3.5 million and $6.2 million for the years ended December 31, 1997, 1996 and
1995, respectively.
<PAGE>
Note 8 - Company Obligated Mandatorily Redeemable Capital Securities of
Subsidiary Trust Holding Solely Junior Subordinated Deferrable Interest
Debentures of the Company
On February 4, 1997, the Company, through Providian Capital I, issued $160
million in mandatorily redeemable preferred securities which accumulate accrued
distributions at a rate of 9.525% per year. The sole assets of Providian
Capital I, the subsidiary statutory business trust that issued the capital
securities (the common securities of which are wholly owned by the Company),
are $164.9 million aggregate principal amount of the Company's 9.525% Junior
Subordinated Deferrable Interest Debentures due February 1, 2027 (the
"Debentures") and the right to reimbursement of expenses under a related
expense agreement with the Company. The Company has the right to defer payment
of interest on the Debentures at any time or from time to time for a period not
exceeding ten consecutive semi-annual periods with respect to each deferral
period, provided that no extension period may extend beyond the Stated Maturity
of the Debentures. During any such extension period, distributions on the
capital securities will also be deferred and the Company's ability to pay
dividends on its common stock will be restricted. The Company has the right to
cause the redemption of the capital securities on or after February 1, 2007, or
earlier in the event of certain regulatory changes. The redemption price is
dependent on several factors including the date of the redemption, the present
value of the principal and premium payable and the accumulated but unpaid
distributions on the capital securities.
In 1997, distributions totaling $13.7 million on the capital securities were
included in other non-interest expense in the consolidated statement of income.
The Company's obligations under the Debentures, the related junior subordinated
indenture, the related trust agreement, the related expense agreement and the
related guarantee, taken together, constitute a full and unconditional guarantee
by the Company of the trust's obligations under the related capital securities.
The proceeds from the issuance of the securities were used for retirement of the
outstanding long term notes payable ($42.5 million as of December 31, 1996) and
the redemption of outstanding preferred stock ($63.3 million as of December 31,
1996) held by Providian Corporation, with the remainder used for general
corporate purposes.
Note 9 - Income Taxes
The components of the income tax expense are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31 1997 1996 1995
- ---------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 93,509 $ 95,512 $ 80,317
State 21,349 13,570 12,193
------------------------------
114,858 109,082 92,510
Deferred:
Federal 7,124 (12,082) (9,580)
State (2,143) 485 (3,519)
------------------------------
4,981 (11,597) (13,099)
------------------------------
$119,839 $ 97,485 $ 79,411
==============================
</TABLE>
Deferred income taxes reflect the net effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
December 31 1997 1996
- -------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Deferred acquisition costs $ 13,021 $10,260
Gain on sale of loans 24,705 --
Other 7,985 1,566
-----------------
45,711 11,826
Deferred tax assets:
Provision for credit losses 57,160 43,325
Deferred income 25,449 9,324
Long-term incentive accruals 16,390 16,192
Other 13,223 14,477
-----------------
112,222 83,318
-----------------
Net deferred tax assets $ 66,511 $71,492
=================
</TABLE>
The following is a reconciliation of the federal statutory income tax rate to
the Company's actual effective income tax rate:
<TABLE>
<CAPTION>
Percent of Pretax Income 1997 1996 1995
- ----------------------------------------------
<S> <C> <C> <C>
Statutory Federal Rate 35.0% 35.0% 35.0%
State income taxes 4.0 3.6 2.6
Other (0.5) (0.7) (0.6)
------------------
Effective Tax Rate 38.5% 37.9% 37.0%
==================
</TABLE>
The 1997 state income taxes increased as a result of the Spinoff of the
Company and changes in state tax laws.
Note 10 - Related Party Transactions
The Company had investments with Providian Corporation during 1997 and 1996.
There was no outstanding investment balance at December 31, 1997. At December
31, 1996, the balance of investments with Providian Corporation which are
included in cash equivalents was $14.3 million. The amount of interest earned on
these investments was $0.1 million, $1.1 million and $2.4 million for the years
ended December 31, 1997, 1996 and 1995, respectively.
The Company continues to maintain contractual agreements with Providian
Corporation to provide certain limited administrative services which are on
consistent terms with similar arrangements and transactions with unrelated
parties.
<PAGE>
Note 11 - Premises, Equipment and Lease Commitments
The following is a summary of premises and equipment (in thousands):
<TABLE>
<CAPTION>
December 31 1997 1996
- --------------------------------------------------------------------
<S> <C> <C>
Premises $ 27,711 $20,271
Equipment and furniture 66,040 49,403
Leasehold improvements 6,673 4,333
Land 2,723 2,723
-------------------
103,147 76,730
Less accumulated depreciation and amortization 41,522 26,860
-------------------
$ 61,625 $49,870
===================
</TABLE>
The Company leases office space and equipment under long-term operating
leases. The office lease agreements have expiration dates ranging from February
28, 1998, through December 31, 2002, with five-year renewal options. Some of
these lease agreements contain rent escalation clauses. Rent includes the pass
through of operating expenses and property taxes and totaled $14.2 million, $8.9
million and $6.9 million for the years ended December 31, 1997, 1996 and 1995,
respectively.
The Company's approximate future minimum rental payments under noncancelable
operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
Year Amount
- ---------------------
<S> <C>
1998 $15,539
1999 14,413
2000 11,480
2001 8,037
2002 3,340
Thereafter 1,194
-------
$54,003
=======
</TABLE>
Note 12 - Interest Rate Risk Management Instruments
The Company's principal objective in entering into off-balance sheet interest
rate risk management instruments is to manage interest rate risk related to
loans, deposits and loan servicing income related to loans sold. The operations
of the Company are subject to the risk of interest rate fluctuations to the
extent that there is a difference in the repricing characteristics of interest
earning assets and interest bearing deposits and other liabilities. The goal is
to maintain levels of net interest income while reducing interest rate risk and
facilitating the funding needs of the Company. To achieve that objective, the
Company uses a combination of interest rate risk management instruments
including interest rate swaps and caps which will mature from 1998 to 2003.
When interest rate risk management instruments are used to hedge on-balance
sheet assets and liabilities, the net receipts or payments are recognized as an
adjustment to interest expense. As of December 31, 1997 and 1996, the Company
had $1.0 billion and $1.3 billion notional amount of interest rate swaps
outstanding, respectively.
The average effective interest rate on the Company's interest bearing
liabilities after giving effect to the swaps was 5.51%, 5.60% and 5.92% for the
three years ended December 31, 1997, 1996 and 1995, respectively. For the years
ended December 31, 1997, 1996 and 1995, the impact to interest expense as a
result of the interest rate swap agreements was a decrease of $1.3 million, $1.2
million and $0.7 million, respectively.
When interest rate risk management instruments are used to hedge the excess
servicing received from loan securitizations, the net receipts or disbursements
are recognized as an adjustment to loan servicing income. Net amounts received
in connection with these agreements during 1997 and 1996 were $2.1 million and
$1.4 million, respectively.
The following table summarizes the expected or contractual maturities and
weighted average interest rates associated with amounts to be received or paid
on interest rate swaps used to manage asset and liability interest rate exposure
(dollars in thousands):
<TABLE>
<CAPTION>
Balances maturing in:
Balance at -----------------------------------------
December 31, 1997 1998 1999 2000 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* 5.94% 5.94% -- -- --
Receive Fixed/
Pay Variable:
Notional Value $835,500 $700,000 $85,500 $10,000 $40,000
Weighted Average
Pay Rate* 5.95% 5.97% 5.86% 5.81% 5.79%
Weighted Average
Receive Rate 6.34% 6.13% 7.73% 6.94% 6.82%
Total Notional Value: $955,500 $820,000 $85,500 $10,000 $40,000
Weighted Average
Pay Rate* 5.98% 6.01% 5.86% 5.81% 5.79%
Weighted Average
Receive Rate* 6.29% 6.11% 7.73% 6.94% 6.82%
</TABLE>
*Variable rates are held constant for future periods at their effective rates as
of their most recent reset prior to December 31, 1997.
In addition, the Company has entered into interest rate cap agreements, the
effect of which is to establish maximum interest rates on a portion of its
managed funding sources. To the extent the Company has funded fixed rate
receivables with variable rate deposits or debt, the interest rate caps are
designed to protect net interest margin. To the extent the Company has
securitized fixed rate receivables via variable rate instruments, the interest
rate caps are designed to protect loan servicing income. As of
<PAGE>
December 31, 1997 and 1996, the Company had $0.9 billion and $1.5 billion
notional amount of interest rate caps outstanding, respectively. For the years
ended December 31, 1997 and 1996, the Company amortized $0.6 million and $0.9
million related to interest rate cap fees paid, respectively. No interest rate
cap agreement interest payments were received in 1997 or 1996.
Following is a summary of interest rate cap agreement maturity distributions
as of December 31, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
Notional Amount Weighted Average
Year Maturing Strike Rate
- -------------------------------------------------
<S> <C> <C>
1998 $866,950 11.24%
1999 50,500 11.79%
2000 500 6.75%
Thereafter 4,250 6.75%
</TABLE>
The Company's exposure to credit risk is the risk of loss from a counterparty
failing to perform according to the terms of the contract. This credit risk is
measured as the gross unrealized gain on the financial instruments. The Company
had gross unrealized gains on interest rate swap agreements of $4.8 million and
$7.5 million at December 31, 1997 and 1996, respectively. The Company has
reduced credit risk in these instruments by entering into interest risk
management agreements with only nationally recognized financial institutions and
dealers which carry at least investment grade ratings. Also, the Company's
policy is to diversify its exposure across a number of counterparties. The
Company determines, on an individual counterparty basis, the need for collateral
or other security to support financial instruments with credit risk. The Company
does not anticipate default by any counterparties.
Note 13 - Loan Commitments
Loan commitments are agreements to lend to a customer as long as there is no
violation of any condition established in the customer agreements. Credit card
and unsecured line of credit commitments can be withdrawn by the Company at any
time after 30 days notice, or without notice if permitted by law. Home equity
revolving line of credit commitments generally have fixed expiration dates or
other termination clauses. The unfunded commitments represent the total
available lines of credit to customers. The Company has not experienced and does
not anticipate that all of its customers will exercise their entire available
line at any given point in time. As such, the total commitment amounts do not
necessarily represent future cash requirements.
Total unfunded commitments are as follows (in thousands):
<TABLE>
<CAPTION>
December 31 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Unsecured credit card and line of credit loans $13,717,517 $11,809,113
Secured and partially secured credit card loans 254,392 119,404
Home equity revolving line of credit loans 153,270 137,692
Other 393 385
------------------------
$14,125,572 $12,066,594
========================
</TABLE>
Note 14 - Significant Concentration of Credit Risk
The Company is active in originating consumer loans primarily in the United
States. The Company reviews each potential customer's credit application and
evaluates the applicant's financial history and ability and willingness to
repay.
The Company has credit risk on the unsecured credit card and line of credit
loans to the extent that borrowers default on funded portions and such amounts
are not recovered through collection procedures. The Company has credit risk on
secured and partially secured credit cards, which require collateral in the form
of a cash deposit, and home equity revolving lines of credit to the extent that
the borrower defaults and the customer's outstanding balance exceeds the
collateral value. The Company has no significant regional concentrations of
credit risk.
<PAGE>
Note 15 - Capital Requirements
The Company's banking subsidiaries are subject to various regulatory capital
requirements administered by the federal banking agencies. Under these
guidelines, an institution is required to maintain a minimum total risk-based
capital ratio (total capital to risk-weighted assets) of 8%, of which 4% must be
Tier 1 risk-based capital. In addition, the agencies have established guidelines
prescribing a minimum leverage ratio (Tier 1 capital to adjusted total assets as
specified in the guidelines) of 4% to 5%, or 3% for institutions that meet
certain criteria, including the requirement that they have the highest
regulatory rating.
Capital amounts and classifications are also subject to qualitative judgments
by the regulators regarding components, risk weightings and other factors.
Failure to meet minimum capital requirements can result in mandatory and
possibly additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Company's consolidated financial
statements. Since December 31, 1997, there have been no conditions or events
that have changed the Company's banking subsidiaries' risk-based
classifications.
The Federal Deposit Insurance Corporation Improvement Act of 1991 requires all
federal banking agencies to incorporate interest rate risk into their risk-based
capital framework. During 1996, the agencies rejected a previously proposed
standardized model for measuring and monitoring the level of interest rate risk.
The Company does not believe that the consideration of interest rate risk will
have a material adverse effect on its banking subsidiaries' ability to satisfy
minimum risk-based capital requirements.
As of December 31, 1997 and 1996, all of the Company's banking subsidiaries
met the well capitalized requirements as set forth in the table below:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
------------------------------------------------- ---------------------------------------------------
Total Tier 1 Tier 1 Total Tier 1 Tier 1
Risk-Based Risk-Based Leverage Risk-Based Risk-Based Leverage
Capital Capital Ratio* Capital Capital Ratio*
--------------- --------------- --------------- ---------------- ---------------- ---------------
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio Amount Ratio Amount Ratio Amount Ratio
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First Deposit National Bank:
Actual $551,134 12.29% $494,503 11.03% $494,503 15.29% $250,873 11.18% $222,281 9.91% $222,281 10.81%
Minimum capital adequacy 358,723 8.00% 179,361 4.00% 129,363 4.00% 179,446 8.00% 89,723 4.00% 61,671 4.00%
Minimum well-capitalized 448,404 10.00% 269,042 6.00% 161,703 5.00% 224,308 10.00% 134,585 6.00% 102,785 5.00%
Providian National Bank:
Actual 195,891 16.60% 180,964 15.34% 180,964 30.04% 210,055 13.44% 190,300 12.17% 190,300 10.78%
Minimum capital adequacy 94,394 8.00% 47,197 4.00% 24,099 4.00% 125,046 8.00% 62,523 4.00% 70,624 4.00%
Minimum well-capitalized 117,993 10.00% 70,796 6.00% 30,124 5.00% 156,307 10.00% 93,784 6.00% 88,280 5.00%
Providian Bank:
Actual 15,890 23.24% 14,942 21.86% 14,942 14.88% 16,343 218.43% 16,247 217.14% 16,247 80.68%
Minimum capital adequacy 5,469 8.00% 2,735 4.00% 4,015 4.00% 599 8.00% 299 4.00% 805 4.00%
Minimum well-capitalized 6,837 10.00% 4,102 6.00% 5,019 5.00% 748 10.00% 449 6.00% 1,007 5.00%
</TABLE>
*Minimum capital adequacy ratio is 3.0% for the highest rated institutions
Note 16 - Shareholders' Equity
As previously mentioned in Note 8 - "Company Obligated Mandatorily Redeemable
Capital Securities of Subsidiary Trust Holding Solely Junior Subordinated
Deferrable Interest Debentures of the Company," the Company used a portion of
the proceeds from the issuance of the capital securities to redeem the
cumulative preferred stock held by its former parent, Providian Corporation,
which included $1.0 million in accrued dividends.
On June 10, 1997 the Company issued an additional 95,247,609 shares of common
stock to its sole shareholder, Providian Corporation. In connection with the
Spinoff, the par value on the Company's common stock was restated from $1.00 to
$0.01, which required the Company to reclassify amounts from additional paid in
capital and retained earnings to common stock. Providian Corporation distributed
to its shareholders one share of the Company's common stock for each share of
Providian Corporation common stock held on the date of the Spinoff.
During 1996, the Company redeemed all outstanding shares of special preferred
stock. Subsequently, the Company adopted a restated certificate of incorporation
which effected certain changes in its capital structure including the
elimination of the special preferred stock and the authorized but unissued Class
B common stock. In addition, the authorized number of common stock and preferred
stock shares were reduced to 5,000 and 63,269 shares, respectively.
Note 17 - Pro Forma Earnings per Share (Unaudited)
Historical earnings per share are not 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 with and without dilution for the years ended December 31,
1997, 1996 and 1995 have been computed by reducing net income as reported for
those periods by the pro forma adjustments as noted, and then dividing the pro
forma income available to common stockholders by the pro forma weighted average
number of common shares outstanding for the applicable period.
<PAGE>
In determining the pro forma number of common shares outstanding prior to the
Spinoff, the number of shares of Providian Corporation common stock was used,
since shareholders of Providian Corporation received one share of the Company's
common stock for each share of Providian Corporation common stock held on the
record date for the Spinoff. Included in the computation of fully diluted common
shares prior to the Spinoff are Providian Corporation options which were
exercised between January 1, 1997 and June 10, 1997. These options have been
included because upon their exercise, they became eligible to be converted to
the Company's common stock on the distribution date. For the years ended
December 31, 1996 and 1995, all Providian Corporation options issued and
outstanding were included in the fully diluted computations.
<TABLE>
<CAPTION>
December 31
(In thousands, except per share data) 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income (as reported) (1) $191,461 $159,766 $135,452
Less net pro forma adjustments (2) -- 7,252 7,923
----------------------------
Income available to
common stockholders $191,461 $152,514 $127,529
============================
Pro forma weighted average
shares outstanding--Basic 94,763 93,664 95,861
Effect of dilutive securities
Restricted stock issued--non vested 146 -- --
Employee stock options 819 700 267
----------------------------
Dilutive potential common shares 965 700 267
----------------------------
Pro forma adjusted weighted
average shares and assumed
conversions 95,728 94,364 96,128
============================
Pro forma earnings per share $ 2.02 $ 1.63 $ 1.33
============================
Pro forma earnings
per share--assuming dilution $ 2.00 $ 1.62 $ 1.33
============================
</TABLE>
(1) For purposes of pro forma earnings per share, net income has not been
adjusted for preferred stock dividends as a result of the 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 the preferred stock.
(2) Adjustments to net income reflect, for the periods presented, the proceeds
of mandatorily redeemable capital securities, assumed to be issued as of
January 1, 1995, and the repayment of borrowings and redemption of preferred
stock to Providian Corporation as of the same date because both of these
obligations were repaid from the proceeds of the February 4, 1997 issuance.
Pro forma adjustments also include increased noninterest expenses to reflect
estimated additional administrative costs associated with operation as a
stand-alone, public company and a reduction in noninterest expense related
to a reimbursement of certain previously recognized employee costs by
Providian Corporation as part of the distribution settlement with the
Company. All adjustments reflect a combined, estimated tax effect of 38%.
Note 18 - Defined Contribution 401(k)
and Retirement Plan
The Company sponsors a defined contribution 401(k) plan covering substantially
all of its employees. The Company has a policy of matching contributions equal
to 55% of the first 6% of compensation deferred by employees. Total expenses for
the years ended December 31, 1997, 1996 and 1995 amounted to $2.3 million, $1.9
million and $1.3 million, respectively. In addition, the Company contributes
additional amounts to the 401(k) plan for those employees with at least one year
of employment regardless of any participation in the 401(k) plan. The Company
recorded contributions of $5.4 million, $3.9 million and $3.0 million as of
December 31, 1997, 1996 and 1995, respectively. The retirement contributions
vest at 20% upon completing the third year of employment, increasing 20% each
completed year of employment thereafter until fully vested.
Note 19 - Stock Ownership and Stock Option Plans
Subsequent to the Spinoff and the related issuance of stock options, the Company
adopted SFAS No. 123, "Accounting for Stock-Based Compensation." For information
regarding the adoption of SFAS No. 123, refer to Note 2 - "Summary of
Significant Accounting Policies."
At December 31, 1997, the Company had three stock-based compensation plans:
1997 Stock Option Plan, Stock Ownership Plan and 1997 Employee Stock Purchase
Plan.
During 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. 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 Providian Corporation 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. Since the Spinoff, the Company has granted
3,400,799 nonqualified stock options to employees and non-employee directors
under the Option Plan.
The Option Plan permits the issuance of options to purchase 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 conjunction with the exercise of stock options. As of
December 31, 1997, the number of common shares available for future grants under
the Option Plan was 6,979,673 shares.
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
<PAGE>
under the Stock Ownership Plan. Restricted stock is subject to forfeiture during
the vesting period. Since the Spinoff from Providian Corporation, the Company
has granted 304,252 shares of restricted stock and 9,020 shares of nonrestricted
stock to employees and non-employee directors under the Stock Ownership Plan.
The market value of the restricted stock grants was recorded as deferred
compensation at the time of the grants and is being amortized over the
applicable vesting periods.
In August 1997, the Company adopted the Providian Financial Corporation 1997
Employee Stock Purchase Plan (the "Stock Purchase Plan") for eligible employees.
A maximum of 1,000,000 shares of common stock are permitted to be issued under
the Stock Purchase Plan. Under the Stock Purchase Plan, shares of the Company's
common stock may be purchased at the end of each offering period at 85% of the
lower of the fair market value on the first or the last day of such offering
period. Employees may purchase shares having a value not exceeding 7% of their
gross compensation during an offering period. The offering periods begin every
six months, on each January 1 and July 1, and have a duration of twelve months.
However, the first offering period started on October 1, 1997 and ends on June
30, 1998. The Company intends to use common stock held in treasury to provide
shares for issuance under the Stock Purchase Plan.
The following is a summary of options outstanding and exercisable at December
31, 1997:
<TABLE>
<CAPTION>
Outstanding options
-----------------------------------------------
Weighted-Average Weighted-
Range of Number of Remaining Average
Exercise Prices Shares Contractual Life Exercise Price
- ------------------------------------------------------------------
<S> <C> <C> <C>
$11.12-24.00 1,739,940 6.91 $20.02
24.01-38.00 3,048,568 6.72 32.16
38.01-45.22 56,000 9.65 39.30
-----------------------------------------------
4,844,508 6.82 $27.88
===============================================
<CAPTION>
Exercisable options
-----------------------------------------------
Range of Number of Weighted-Average
Exercise Prices Shares Exercise Price
- ------------------------------------------------------------------
<S> <C> <C>
$11.12-24.00 1,319,244 $19.64
24.01-38.00 -- --
38.01-45.22 -- --
-----------------------------------------------
1,319,244 $19.64
===============================================
</TABLE>
Presented below are the changes to the Company's stock options from the date of
the Spinoff through December 31, 1997.
<TABLE>
<CAPTION>
Weighted-Average
Shares Exercise Price
- -----------------------------------------------------------------------------
<S> <C> <C>
Rollover Options 1,937,524 $20.11
Granted 3,400,799 32.28
Exercised (113,343) 20.69
Forfeited (380,472) 29.70
----------------------------
Options outstanding at December 31, 1997 4,844,508 $27.88
============================
</TABLE>
The following table reflects on a pro forma basis the Company's net income and
earnings per common share with and without dilution, as if compensation cost for
stock options had been recorded based on the fair value at the date of grant or
election under the Stock Option Plan or the Stock Purchase Plan, consistent with
the provisions of SFAS No. 123. Since pro forma compensation cost relates to all
periods over which the awards vest, the initial impact on pro forma net income
may not be representative of compensation cost in subsequent years, when the
effect of the amortization of multiple awards would be reflected.
<TABLE>
<CAPTION>
December 31
(In thousands, except per share data) 1997 1996 1995
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Pro forma net income (1) $191,461 $152,514 $127,529
Pro forma net income
adjusted per SFAS No. 123 $186,084 $151,173 $127,082
Pro forma net income per
common share:
As reported--Basic $ 2.02 $ 1.63 $ 1.33
============================
As reported--Assuming dilution $ 2.00 $ 1.62 $ 1.33
============================
Pro forma net income per
common share--adjusted for
SFAS No. 123:
As reported--Basic $ 1.96 $ 1.61 $ 1.33
============================
As reported--Assuming dilution $ 1.95 $ 1.60 $ 1.32
============================
</TABLE>
(1) See Note 17 - "Pro Forma Earnings per Share (Unaudited)" for additional
information about pro forma net income.
The fair value of the Company's options were estimated at the grant/rollover
date using the Black-Scholes modeling technique with the following assumptions
for the year ended December 31, 1997: risk-free weighted average interest rate
of 6.21%; weighted average dividend yield of 0.99%; weighted average expected
volatility of 35%; expected option life for options issued under the Stock
Option Plan of 4 years; and expected life for an offering under the Stock
Purchase Plan of 9 months.
The weighted average grant date fair value of the options granted during 1997
was $10.58 per share. The exercise price of each option equals the market price
of the Company's common stock on the date of grant with the exception of the
Rollover Options which had an average converted exercise price of $20.11.
Expiration dates ranged from June 25, 1998 to December 3, 2007 for options
outstanding at December 31, 1997.
Note 20 - Fair Value of Financial Instruments
In accordance with Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments" ("SFAS No. 107"), the
estimated fair value of the Company's financial instruments are disclosed below.
In cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate
<PAGE>
settlement of the instrument. In addition, these values do not consider the
potential income taxes or other expenses that would be incurred upon an actual
sale of an asset or settlement of a liability. SFAS No. 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do not
necessarily represent or affect the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating
its fair value disclosure for financial instruments:
Cash and cash equivalents: Cash and cash equivalents are carried at an amount
that approximates fair value.
Federal funds sold: Federal funds sold are carried at an amount that
approximates fair value.
Investment securities: Fair value is based on quoted market prices where
available, or quoted market prices of comparable instruments. If not material,
the carrying value of investment securities approximates fair value.
Loans receivable and loans held for securitization or sale: For variable rate
loans that reprice monthly with no applicable floor and no significant change in
credit risk, fair values are based on carrying value. Fair value of credit card
loans and line of credit loans are estimated by discounting the estimated future
cash flows adjusted for differences in loan characteristics at rates for
securities backed by similar loans. Variable rate home equity line of credit
loans with interest rate floors approximate carrying value plus a floor premium
calculated using external market valuations. For fixed rate mortgage loans, fair
values were calculated using the discounted cash flow method. Other mortgage and
commercial loans are indexed to the prime rate and their carrying value
approximates fair value.
Due from securitization and Interest receivable: The carrying amounts reported
in the Consolidated Statements of Financial Condition approximate fair value.
Deposits: The fair values disclosed for demand deposits (money market accounts
and certain savings accounts) are equal to the amount payable on demand at the
reporting date (carrying amount). Fair value for fixed rate certificates of
deposit and other fixed rate deposits are estimated using a discounted cash flow
calculation that applies interest rates at an assumed marginal market funding
rate.
Borrowings: The carrying amounts of federal funds purchased, notes payable to
banks, notes payable to affiliates and bank notes approximate fair value.
Capital Securities: The fair value of the Company's capital securities are
estimated using a discounted cash flow calculation that applies interest rates
at an assumed marginal market funding rate.
Off-Balance-Sheet Instruments: Fair value for the Company's off-balance sheet
instruments (interest rate swaps, interest rate caps and lending commitments) is
based on valuation models, if material, using discounted cash flows (swaps); an
assessment of current replacement cost (caps); and valuation models as
previously described for loans receivable (lending commitments). Credit card and
line of credit lending commitments were determined to have no fair value. If not
material, no fair value is shown.
The estimated fair values of the Company's financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
Carrying Carrying
Amount Fair Value Amount Fair Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Cash and cash
equivalents $ 112,522 $ 112,522 $ 82,946 $ 82,946
Federal funds sold 114,960 114,960 172,350 172,350
Investment securities 172,756 172,856 7,173 7,173
Loans held for
securitization or sale 450,233 512,655 739,706 805,921
Loans receivable 2,815,364 3,193,248 2,835,388 3,209,290
Due from
securitizations 472,145 472,145 252,899 252,899
Interest receivable 80,434 80,434 56,864 56,864
Liabilities
Deposits 3,212,766 3,211,636 3,390,112 3,396,377
Term federal funds
purchased 150,000 150,000 51,000 51,000
Notes payable to banks 82,000 82,000 115,000 115,000
Notes payable to affiliates -- -- 42,500 42,530
Long term notes payable -- -- 50,000 49,985
Capital Securities 160,000 176,702 -- --
Off-Balance Sheet
Instruments
Interest rate swaps -- 4,544 -- 6,579
Interest rate caps -- 9 -- 56
Lending commitments:
Home equity line of credit loans -- -- -- 443
</TABLE>
Note 21 - Subsequent Event
In January 1998, the Company purchased a portfolio of unsecured credit card
receivables and the related accounts, records and other rights for approximately
$959 million in cash. Funding for the purchase of the portfolio was provided by
deposits and notes payable to banks. The Company did not and does not plan to
acquire any fixed assets or employees of the seller in connection with the
portfolio acquisition.
<PAGE>
Note 22 - Providian Financial Corporation (Parent Company Only)
Statements of Financial Condition
<TABLE>
<CAPTION>
December 31
(Dollars in thousands) 1997 1996
- -----------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 25,459 $ 15,757
Investment securities at cost
(which approximates market value) 52,175 2,175
Loans receivable 1,329 4,102
Investment in subsidiaries 743,504 566,865
Deferred income taxes receivable 66,511 71,492
Prepaid expenses and other assets 11,250 6,178
--------------------
Total assets $900,228 $ 666,569
====================
Liabilities and Shareholder's Equity:
Liabilities
Due to affiliates $ 23,975 $ 24,713
Notes payable to affiliates -- 42,500
Jr. Subordinated debentures 164,949 --
Income taxes payable 39,746 39,491
Accrued expenses and other liabilities 76,444 76,720
--------------------
Total liabilities 305,114 183,424
Shareholders' Equity
Preferred Stock, 1996--cumulative
preferred stock, nonparticipating,
nonvoting, par value $1.00 per share--
authorized and issued 63,269 shares -- 63
Common Stock, 1997--par value
$.01 per share--authorized 400,000,000
shares, issued 95,156,545 shares;
1996--par value $1.00 per share,
authorized and issued 5,000 shares 954 5
Additional paid-in capital 4,217 63,706
Retained earnings 599,856 419,371
Common stock held in treasury--
at cost: 1997--268,775 shares (9,913) --
--------------------
Total shareholders' equity 595,114 483,145
--------------------
Total liabilities and shareholders' equity $900,228 $666,569
====================
</TABLE>
Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31
(Dollars in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Dividends from subsidiaries $ -- $ 70,000 $ 82,500
Income on investments 3,945 1,071 2,234
Interest on loans 310 476 1,038
Other income 9,551 6,249 4,350
---------------------------------
13,806 77,796 90,122
Expenses:
Salaries and employee benefits 15,973 9,728 9,827
Provision for credit losses -- (82) --
Interest expense 392 2,839 3,185
General and administrative 13,319 (2,919) 6,011
---------------------------------
29,684 9,566 19,023
---------------------------------
Income Before Income Taxes and
Equity in Earnings of Subsidiaries (15,878) 68,230 71,099
Income tax benefit (6,022) (1,664) (6,928)
Equity in undistributed earnings
of subsidiaries 201,317 89,872 57,425
---------------------------------
Net Income $ 191,461 $159,766 $ 135,452
=================================
</TABLE>
Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31
(Dollars in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net Income $ 191,461 $159,766 $ 135,452
Adjustments to reconcile
net income to net cash provided
by operating activities:
Provision for credit losses -- (82) --
Equity in undistributed
earnings of subsidiaries (201,317) (89,872) (57,425)
Increase in other assets (451) (1,478) (878)
(Decrease) increase in accrued
expenses and other liabilities (276) 7,811 12,587
Decrease (increase) in deferred
income taxes receivable 4,981 (11,597) (13,099)
Increase in taxes payable
to shareholder 2,428 17,566 14,636
(Due to) due from affiliates (738) 1,746 66,605
---------------------------------
Net Cash (Used)/Provided
by Operating Activities (3,912) 83,860 157,878
---------------------------------
Investing Activities
Purchases of investment securities (58,000) (2,175) --
Proceeds from sales/maturities
of investment securities 8,000 -- --
Net decrease (increase) in
investment in subsidiaries 24,678 (55,500) (65,995)
---------------------------------
Net Cash Used for
Investing Activities (25,322) (57,675) (65,995)
---------------------------------
Financing Activities
Net decrease in note
payable to affiliates (42,500) (8,300) (4,000)
Redemption of preferred stock (63,269) (1,290) --
Reimbursement relating to
conversion of stock options 6,846 -- --
Proceeds from exercise
of stock options 1,781 -- --
Purchase of common stock
for treasury (18,345) -- --
Proceeds from the issuance of
junior subordinated debentures 164,949 -- --
Dividends paid to shareholders (10,526) (24,587) (112,297)
---------------------------------
Net Cash Provided/(Used)
by Financing Activities 38,936 (34,177) (116,297)
---------------------------------
Net Increase (Decrease) in
Cash and Cash Equivalents 9,702 (7,992) (24,414)
Cash and cash equivalents at
beginning of year 15,757 23,749 48,163
---------------------------------
Cash and Cash Equivalents
at End of Year $ 25,459 $ 15,757 $ 23,749
=================================
</TABLE>
<PAGE>
Quarterly Data (unaudited)
Summary of Consolidated Quarterly Financial Information
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) March 31 June 30 September 30 December 31
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Interest income $152,171 $139,699 $142,679 $147,944
Interest expense 50,098 44,321 44,248 44,443
Net interest income 102,073 95,378 98,431 103,501
Provision for credit losses 33,802 38,950 43,071 33,445
Non-interest income 132,997 135,082 179,402 187,151
Non-interest expense 132,787 119,128 155,801 165,731
Income before income taxes 68,481 72,382 78,961 91,476
Net income 43,162 45,724 48,564 54,011
Basic earnings per share (1) 0.46 0.48 0.51 0.57
Earnings per share--assuming dilution (1) 0.46 0.48 0.50 0.56
Weighted average common shares outstanding--basic (000) (1) 94,164 94,991 95,047 94,883
Weighted average shares and assumed conversions (000) (1) 94,558 95,371 96,059 96,134
1996 (Pro forma)
Interest income $135,694 $141,316 $147,875 $159,297
Interest expense 48,370 52,751 49,148 52,462
Net interest income 87,324 88,565 98,727 106,835
Provision for credit losses 28,351 23,831 37,510 36,887
Non-interest income 93,225 92,781 111,584 126,229
Non-interest expense 98,250 97,698 111,491 125,697
Income before income taxes 53,948 59,817 61,310 70,480
Net income 33,595 37,071 38,104 43,744
Basic earnings per share 0.36 0.40 0.41 0.46
Earnings per share--assuming dilution 0.36 0.39 0.41 0.46
Weighted average common shares outstanding--basic (000) 93,890 93,489 93,571 93,705
Weighted average shares and assumed conversions (000) 94,502 94,096 94,040 94,578
</TABLE>
(1) Earnings per share for the three months ended March 31, 1997 and June 30,
1997 are presented on a pro forma basis.
Common Stock Price Ranges and Dividends (unaudited)
<TABLE>
<CAPTION>
Dividends
Declared per
High Low Common Share
- ---------------------------------------------------------------------
<S> <C> <C> <C>
1997
First Quarter N/A N/A N/A
Second Quarter (1) $33 9/16 $30 $ --
Third Quarter 39 11/16 31 1/16 0.05
Fourth Quarter 46 1/16 36 5/16 0.05
</TABLE>
(1) From June 10, 1997 Spinoff date through June 30, 1997.
The Company's Common Stock is traded on the New York Stock Exchange under the
symbol "PVN." There were 9,141 common stockholders of record as of February 27,
1998.
<PAGE>
Exhibit 21
SUBSIDIARIES OF PROVIDIAN FINANCIAL CORPORATION
First Deposit Life Insurance Company (Arkansas)
First Deposit Service Corporation (California)
Providian Bancorp Services (California)
Commonwealth Premium Finance (California)
Providian Bank (Utah)
Providian Capital I
Providian Credit Corporation (Delaware)
Providian Investment Corporation (Delaware)
Providian Mauritius Investment Ltd. (Mauritius)
Providian National Bank (U.S.)
<PAGE>
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333.28767) pertaining to the Providian Financial Corporation
1997 Stock Option Plan and the Providian Financial Corporation Stock Ownership
Plan of our report dated January 22, 1998, with respect to the consolidated
financial statements of Providian Financial Corporation incorporated by
reference in the Annual Report on Form 10-K for the year ended December 31,
1997.
/s/ Ernst & Young LLP
March 27, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated statement of financial condition of Providian Financial Corporation
and subsidiaries as of December 31, 1997 and the related consolidated statements
of income, shareholder's equity and cash flows for the year ended December 31,
1997 and is qualified in its entirety by reference to such consolidated
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 112,522
<SECURITIES> 172,756
<RECEIVABLES> 3,410,909
<ALLOWANCES> 145,312
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 61,625
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 4,449,413
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 954
<OTHER-SE> 594,160
<TOTAL-LIABILITY-AND-EQUITY> 4,449,413
<SALES> 0
<TOTAL-REVENUES> 1,217,125
<CGS> 0
<TOTAL-COSTS> 573,447
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 149,268
<INTEREST-EXPENSE> 183,110
<INCOME-PRETAX> 311,300
<INCOME-TAX> 119,839
<INCOME-CONTINUING> 191,461
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 191,461
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> NON-CLASSIFIED BALANCE SHEET
<F2> PP&E SHOWN NET
</FN>
</TABLE>
