<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus supplement and the related +
+prospectus is not complete and may be changed. An effective registration +
+statement relating to these securities has been filed with the Securities and +
+Exchange Commission. This preliminary prospectus supplement, together with +
+the related prospectus, is not an offer to sell nor does it seek an offer to +
+buy these securities in any jurisdiction where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Filed Pursuant to Rule 424(b)(5)
File No. 333-55937
Subject to Completion. Dated August 16, 2000.
Prospectus Supplement to Prospectus dated May 14, 1999.
$300,000,000
Providian Financial Corporation
% Convertible Senior Notes due August , 2005
-----------
We are offering $300,000,000 of % Convertible Senior Notes due August ,
2005. You may convert the convertible notes into shares of common stock of
Providian Financial Corporation at any time prior to their maturity or their
redemption or repurchase by Providian Financial Corporation. The conversion
rate is shares per each $1,000 principal amount of convertible notes,
subject to adjustment in certain circumstances. This is equivalent to an
initial conversion price of approximately $ per share. Our common stock is
listed under the symbol "PVN". On August , 2000, the last reported sale price
for the common stock on the New York Stock Exchange was $ per share.
We will pay interest on the convertible notes on February and August of
each year. The first such payment will be made on February , 2001. The
convertible notes will be issued only in denominations of $1,000 and integral
multiples of $1,000.
On or after August , 2003, we have the option to redeem the convertible
notes at the redemption prices set forth in this prospectus supplement. You
have the option to require us to repurchase any convertible notes held by you
if there is a change of control, under the circumstances and at the price
described in this prospectus supplement.
The convertible notes are not savings accounts, deposits or other
obligations of a bank. The convertible notes are not guaranteed by any bank and
are not insured by the Federal Deposit Insurance Corporation or any other
governmental agency.
See "Risk Factors" beginning on page S-10 of this prospectus supplement to
read about important factors you should consider before purchasing the
convertible notes.
-----------
Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus supplement or the attached prospectus.
Any representation to the contrary is a criminal offense.
-----------
<TABLE>
<CAPTION>
Per Note Total
-------- -----
<S> <C> <C>
Initial public offering price.................................. % $
Underwriting discount.......................................... % $
Proceeds, before expenses, to the Company...................... % $
</TABLE>
The offering price set forth above does not include accrued interest, if
any. Interest on the convertible notes will accrue from the date of original
issuance of the notes, expected to be August , 2000.
To the extent that the underwriter sells more than $300,000,000 principal
amount of convertible notes, the underwriter has the option to purchase up to
an additional $45,000,000 principal amount of convertible notes from the
Company at the initial public offering price less the underwriting discount.
-----------
The underwriter expects to deliver the convertible notes in book-entry form
only through the facilities of The Depository Trust Company against payment in
New York, New York on August , 2000.
Goldman, Sachs & Co.
-----------
Prospectus Supplement dated August , 2000.
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
S-2
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
This summary may not contain all of the information that may be important
to you. You should read the entire prospectus supplement and accompanying
prospectus as well as the information regarding us, including our consolidated
financial statements and the accompanying notes, appearing elsewhere or
incorporated by reference in this prospectus supplement and accompanying
prospectus. All information in this prospectus supplement assumes the
underwriter's overallotment option with respect to the convertible notes
offering is not exercised unless otherwise stated.
PROVIDIAN FINANCIAL CORPORATION
Our Business
We, operating through our subsidiaries, are a provider of lending and
deposit products to customers throughout the United States and offer credit
cards in the United Kingdom and Argentina. We serve a diversified market with
our loan products which include credit cards and membership products. We also
offer various deposit products. With $27 billion in assets under management and
14 million customers as of June 30, 2000, we ranked as the sixth largest
bankcard issuer in the United States.
Recent Developments
On June 28, 2000, we announced that we had reached a final settlement
agreement with the Office of the Comptroller of the Currency, the San Francisco
District Attorney's office and the California Attorney General, ending their
inquiries into our business practices. We agreed to make certain business
practice changes and to pay a one-time restitution to affected customers. During
the quarter ended June 30, 2000, we recorded a net pre-tax charge of $272.6
million to non-interest expense on our consolidated statements of income,
reflecting our estimated obligations under the settlement agreement.
On February 29, 2000, we announced a realignment of resources previously
dedicated to our home loan business. We have transitioned these resources,
including employees and facilities, into our credit card and e-commerce
businesses, which have experienced rapid growth and have greater potential
returns. On June 16, 2000, we sold $1.5 billion of home equity loans which
resulted in a one-time pre-tax gain of $64.7 million.
S-3
<PAGE>
THE OFFERING
Securities offered................ $300,000,000 aggregate principal amount of %
Convertible Senior Notes due August , 2005.
We also have granted the underwriter an over-
allotment option to purchase up to an
additional $45,000,000 aggregate principal
amount of convertible notes.
Offering price.................... % of the principal amount of the
convertible notes, plus accrued interest, if
any, from the date of original issuance of
the convertible notes, expected to be August,
2000.
Interest.......................... We will pay interest on the convertible notes
semi-annually on February and August of
each year, commencing on February , 2001.
Conversion........................ The convertible notes are convertible at the
option of the holder into shares of our
common stock, at any time before the close of
business on the business day immediately
preceding the maturity date, unless
previously redeemed or repurchased, at a
conversion rate of shares per $1,000
principal amount of convertible notes,
subject to anti-dilution adjustment in some
circumstances.
Optional redemption by
Providian......................... On or after August , 2003, we have the
right at any time to redeem some or all of
your convertible notes at the redemption
prices set forth in this prospectus
supplement plus accrued and unpaid interest
to the redemption date.
Repurchase at the option of
holders upon a change of control.. If we experience a change in control, as that
term is defined in "Description of
Convertible Notes - Repurchase at Option of
Holders Upon a Change of Control", you will
have the right, subject to conditions and
restrictions, to require us to repurchase
some or all of your convertible notes at a
price equal to 100% of the principal amount,
plus accrued and unpaid interest to the
repurchase date.
Ranking........................... The convertible notes are general unsecured
obligations of ours and will rank equally in
right of payment with all of our other
senior, unsecured debt obligations. The
convertible notes will be effectively
subordinated to all existing and future
liabilities of our subsidiaries. As of June
30, 2000,
S-4
<PAGE>
our subsidiaries had approximately $782
million of debt outstanding that effectively
ranked senior to the convertible notes.
Use of proceeds.................. We intend to use the net proceeds from the
sale of the convertible notes for general
corporate purposes, which may include
possible acquisitions, investments in
securities and the reduction of debt of, and
investments in, or extensions of credit to,
our subsidiaries.
Events of Default................. Events of default include:
. we fail to pay principal of or premium, if
any, on any of the convertible notes when
due
. we fail to pay interest on any of the
convertible notes when due and continuance
of such default for 30 days
. we fail to perform, or breach, certain
covenants or warranties in the senior
indenture with respect to the convertible
notes and continuance of such default or
breach for 60 days after written notice by
the trustee or the holders of not less
than 25% in aggregate principal amount of
the convertible notes
. we fail to convert any portion of the
principal amount of a convertible note
following the exercise by the holder of
such convertible note of the right to
convert such convertible note into common
stock
. we fail to give a change of control notice
or we fail to pay the change of control
purchase price
. any event of default under any mortgage,
indenture or other instrument under which
any indebtedness for borrowed money in an
aggregate principal amount exceeding
$5,000,000 shall become due and payable,
if such acceleration is not rescinded or
annulled within 30 days after written
notice as provided in the senior indenture
. events of bankruptcy, insolvency or
reorganization of the Company
S-5
<PAGE>
Listing of convertible
notes............................. The convertible notes will not be listed on
any securities exchange or any automated
quotation system or quoted on the New York
Stock Exchange. The underwriter has advised
us that they currently intend to make a
market in the convertible notes. However, the
underwriter is not obligated to do so, and
any such market making may be discontinued at
any time at the sole discretion of the
underwriter without notice. Our common stock
is traded on the New York Stock Exchange and
the Pacific Exchange under the symbol "PVN".
Global note; book-entry issuance,
settlement and clearance.......... We will issue the convertible notes only in
book-entry form -- that is as global notes
registered in the name of The Depository
Trust Company, New York, New York, or its
nominee. The sale of the convertible notes
will settle in immediately available funds
through DTC. Investors may hold interests in
a global note only through organizations that
participate, directly or indirectly, in the
DTC system. The convertible notes will be
evidenced only by one or more global notes in
fully registered form, without coupons, and
will be deposited with the trustee for the
convertible notes, as custodian for DTC.
Governing Law..................... The indenture and the convertible notes will
be governed by the laws of the State of New
York, without regard to conflicts of laws
principles.
Risk Factors...................... You should read the "Risk Factors" section,
beginning on page S-10 of this prospectus
supplement, as well as the other cautionary
statements throughout the entire prospectus
supplement and the prospectus, so that you
understand the risks associated with an
investment in the convertible notes.
S-6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
--------------------------------- -------------------------------
(unaudited)
Actual As Adjusted/1/
2000 2000 1999 1998
-------------- ---------------- ------------ -----------
(Dollars in millions, except per share data.)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Interest income:
Loans $ 1,170.9 $ 1,170.9 $ 1,559.3 $ 807.8
Federal funds sold and resale agreements 51.3 51.3 34.3 14.1
Other 59.3 59.3 30.7 20.7
-------------- ---------------- ------------ -----------
Total interest income 1,281.5 1,281.5 1,624.3 842.6
Interest expense:
Deposits 387.3 387.3 356.8 204.4
Borrowings 34.3 34.3 92.3 42.9
-------------- ---------------- ------------ -----------
Total interest expense 421.6 421.6 449.1 247.3
Net interest income 859.9 859.9 1,175.2 595.3
Provision for credit losses 734.8 734.8 1,099.1 545.9
-------------- ---------------- ------------ -----------
Net interest income after provision
for credit losses 125.1 125.1 76.1 49.4
Non-interest income 1,551.3 1,486.7 2,412.5 1,266.2
Non-interest expenses 1,281.3 1,008.7 1,571.2 825.0
-------------- ---------------- ------------ -----------
Income before income taxes 395.1 603.1 917.4 490.6
Income tax expense 158.0 241.2 367.1 194.2
-------------- ---------------- ------------ -----------
Net Income $ 237.1 $ 361.9 $ 550.3 $ 296.4
============== ================ ============ ===========
Basic earnings per share $ 1.67 $ 2.55 $ 3.89 $ 2.09
============== ================ ============ ===========
Earnings per share - assuming dilution $ 1.63 $ 2.49 $ 3.78 $ 2.04
============== ================ ============ ===========
Dividends paid per share $ 0.10 $ 0.10 $ 0.20 $ 0.15
============== ================ ============ ===========
</TABLE>
_______________________________
/1/ Adjusted for one-time charge for settlement expenses and one-time net gain
on sale of home equity loan portfolio. See "Providian Financial Corporation -
Legal Proceedings" and "- Recent Operating Results" below.
S-7
<PAGE>
<TABLE>
<CAPTION>
June 30, December 31,
------------- ----------------------------------
(unaudited)
2000 1999 1998
------------- ----------------- --------------
(Dollars in millions, except per share data.)
<S> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents $ 303.5 $ 182.9 $ 176.3
Federal funds sold and resale agreements 1,206.9 1,298.0 297.9
Investment securities 2,504.1 581.5 433.7
Loans receivable, less allowance for credit
losses 11,290.2 10,545.2 5,282.0
Premises and equipment, net 178.9 149.2 82.9
Interest receivable 129.7 108.1 51.8
Due from securitizations 610.0 614.2 454.4
Other assets 1,018.7 861.8 452.2
------------- ----------------- --------------
Total assets $ 17,242.0 $ 14,340.9 $ 7,231.2
============= ================= ==============
Deposits $ 13,172.7 $ 10,538.1 $ 4,672.3
Short-term borrowings 50.3 126.3 472.5
Long-term borrowings 731.7 958.1 399.8
Deferred fees 583.8 578.6 315.7
Accrued expenses and other liabilities 961.6 647.3 407.7
------------- ----------------- --------------
Total liabilities 15,500.1 12,848.4 6,268.0
Capital securities 160.0 160.0 160.0
Total shareholders' equity 1,581.9 1,332.5 803.2
------------- ----------------- --------------
Total liabilities and shareholders' equity $ 17,242.0 $ 14,340.9 $ 7,231.2
============= ================= ==============
</TABLE>
S-8
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
------------------------------- -------------------------------
(unaudited)
Actual As Adjusted/1/
2000 2000 1999 1998
------------- ---------------- ------------- ---------------
(Dollars in millions, except per share data.)
<S> <C> <C> <C> <C>
FINANCIAL & STATISTICAL SUMMARY DATA
Earnings (Managed Basis):
Net interest income $ 1,348.1 $ 1,348.1 $ 2,108.3 $ 1,361.9
Non-interest income 1,393.4 1,328.7 2,086.9 1,011.1
------------- ---------------- ------------- ---------------
Total revenue 2,741.5 2,676.8 4,195.2 2,373.0
Provision for loan losses 1,065.0 1,065.0 1,706.7 1,057.4
Non-interest expense 1,281.3 1,008.7 1,571.1 825.0
------------- ---------------- ------------- ---------------
Income before taxes 395.2 603.1 917.4 490.6
Tax expense 158.1 241.2 367.1 194.2
------------- ---------------- ------------- ---------------
Net income $ 237.1 $ 361.9 $ 550.3 $ 296.4
============= ================ ============= ===============
Managed Financial Data:
Period End:
Consumer lending:
Credit cards $ 21,846 $ 21,846 $ 19,049 $ 12,138
Home loans 456 456 1,977 1,107
------------- ---------------- ------------- ---------------
Total consumer lending $ 22,302 $ 22,302 $ 21,026 $ 13,245
Securitized loans $ 9,745 $ 9,745 $ 9,416 $ 7,504
Total assets $ 26,817 $ 26,817 $ 23,689 $ 14,606
Total capital (includes capital $ 1,742 $ 1,742 $ 1,492 $ 963
securities)
Total equity $ 1,582 $ 1,582 $ 1,332 $ 803
Key Statistics:
Managed:
Net interest margin (earning 10.54% 10.54% 11.92% 11.29%
Net interest margin (loans) 12.13% 12.13% 12.33% 11.80%
Return on assets 1.78% 2.71% 3.02% 2.30%
Return on equity 31.47% 48.03% 52.37% 42.76%
Membership services revenue $ 472.6 $ 472.6 $ 674.9 $ 238.5
Net credit losses $ 806.8 $ 806.8 $ 1,143.9 $ 867.5
Net credit loss rate 7.30% 7.30% 6.94% 7.58%
Delinquency rate (30+ days) 6.48% 6.48% 5.66% 5.33%
Equity to managed assets 5.90% 5.90% 5.62% 5.50%
Reported:
Reserves as a percent of loans 10.06% 10.06% 8.86% 7.86%
Net credit loss rate 7.67% 7.67% 6.38% 7.71%
Delinquency rate (30+ days) 8.16% 8.16% 6.82% 5.69%
Ratio of Earnings to Fixed Charges:
Excluding interest on deposits 9.99 14.73 9.83 10.88
Including interest on deposits 1.92 2.40 2.99 2.93
</TABLE>
________________________________
/1/ Adjusted for one-time charge for settlement expenses and one-time net gain
on sale of home equity loan portfolio. See "Providian Financial Corporation -
Legal Proceedings" and "- Recent Operating Results" below.
S-9
<PAGE>
RISK FACTORS
This section describes risks involved in purchasing our securities,
including the convertible notes and our common stock. Before you invest in our
securities, you should consider carefully the following risks, in addition to
the other information presented in this prospectus supplement and the
accompanying prospectus and the documents incorporated by reference into the
accompanying prospectus, in evaluating us and our business. Any of the following
risks could seriously harm our business and financial results and cause the
value of our securities to decline, which in turn could cause you to lose all or
part of your investment.
Risks Related to our Business
Legal Proceedings
We recently reached a settlement agreement with the Office of the
Comptroller of the Currency, the San Francisco District Attorney's Office, and
the California Attorney General, ending their inquiries into our business
practices. We agreed to make certain business practice changes and to pay a
one-time restitution to affected customers. During the quarter ended June 30,
2000, we recorded a net pre-tax charge of $272.6 million to non-interest expense
on our consolidated statements of income, reflecting our estimated obligations
under the settlement agreement. We continue to face a number of other lawsuits
regarding our business practices. An informed assessment of the ultimate outcome
or potential liability associated with lawsuits and other potential claims that
could arise out of the alleged unfair business practices is not feasible at this
time. Due to the uncertainties of litigation, there can be no assurance that we
will prevail on all the claims made against us in the lawsuits or that similar
or other proceedings will not be brought.
Intense Competition
We face intense and increasingly aggressive competition from other consumer
lenders in all of our product lines. Many of our competitors are substantially
larger and have greater financial resources than us, and customer loyalty is
often limited. Competitive practices, such as the offering of lower interest
rates and fees and the offering of incentives to customers, could hurt our
ability to attract and retain customers. Our success has also attracted new
lenders to traditionally underserved markets such as the lower line credit card
market, resulting in increased competition. As a result, the rate at which we
originate new loans may decrease, or the rate at which customers repay their
loans may increase, which could hurt our profitability.
The Gramm-Leach-Bliley Act of 1999 (the GLB Act), which permits the
affiliation of commercial banks, securities firms and insurance companies, may
increase the number of competitors in the banking industry and the level of
competition in providing banking products, including credit cards. To the
extent that the GLB Act promotes competition or consolidation among financial
service providers active in the consumer credit market, we could experience
increased competition for customers, employees and funding. However, we are
unable to predict at this time the scope or extent of any such impact.
In October 1998, the U.S. Justice Department filed a complaint against
MasterCard International Incorporated, Visa U.S.A., Inc. and Visa International,
Inc., asserting that duality (the overlapping ownership and control of both the
MasterCard and Visa associations by the same group of banks) restrains
competition between Visa and MasterCard in the market for general purpose credit
card products and networks in violation of the antitrust laws. The
S-10
<PAGE>
government seeks as relief that only member banks "dedicated" to one association
be permitted to participate in the governance of that association. In addition,
the complaint challenges the rules adopted by both MasterCard and Visa that
restrict member banks from joining American Express, Discover/Novus or other
competing networks. MasterCard and Visa have stated that they consider the suit
without merit, and have denied the allegations of the complaint. Neither the
ultimate outcome of this litigation nor its effect on the competitive
environment in the credit card industry if the lawsuit succeeds can be predicted
with any certainty.
Increased Delinquencies and Credit Losses
The delinquency rate on our consumer loans, as well as the rate at which
our consumer loans are charged off as uncollectible (referred to as the credit
loss rate), may increase, depending on a number of factors, including (i) an
increase in balances outstanding under lower line credit card products, which
generally experience higher delinquency and credit loss rates, (ii) our
acquisition of loan portfolios from third parties, which have generally
experienced higher delinquency and credit loss rates compared to loans
originated by us, and (iii) an increase in the number of customers seeking
protection under the bankruptcy laws. Increased delinquencies and credit losses
could also occur in the event of a national or regional economic downturn or
recession, or for other reasons. Delinquency and credit loss rates also
generally increase as the average age of a loan portfolio, referred to as
"seasoning," increases. Increased credit loss rates could result if the
proportion of younger loans in our total portfolio is reduced. Such a reduction
could result from slower growth in new loan originations, an increase in
acquisitions of seasoned portfolios, or the normal seasoning of our rapidly
growing lower line credit card portfolio.
Vendor Relationships
Our business depends on a number of services provided by third parties,
including telemarketing and data processing providers, 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 our operations.
Interest Rate Changes
The rate of interest we pay for our funding may increase if market interest
rates rise. If the rate of interest we earn on our loans does not increase by
the same amount, our earnings could be reduced. Our earnings could also be hurt
in a period of falling interest rates if the rates on our consumer loans fall
faster than the rate we pay for our funding or if customers prepay fixed rate
loans in order to refinance them at lower rates.
Cost and Availability of Funding
We obtain funding for our lending operations primarily from depositors,
securitizations, institutional investors and commercial lenders. Changes in the
deposit market, credit market or the securitization market, including the way in
which we are perceived in those 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 our control. Competition
for funding sources comes from a wide variety of institutions, many of which
have greater resources and higher financial ratings than we do.
S-11
<PAGE>
Government Policy and Regulation
Federal and state laws significantly limit the types of activities in which
our banking subsidiaries may engage. In addition, consumer protection and debtor
relief laws limit the manner in which we may offer, extend, manage and collect
loans. Congress, the states and other jurisdictions in which we operate 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 us to collect our loans, or impose limits on the
interest and fees that we may charge our customers. Our earnings could also be
hurt by changes in government fiscal or monetary policies, including changes in
capital requirements and our rate of taxation, and by changes in general social
and economic conditions.
Growth, Product Development and Acquisitions
A major contributor to our growth and earnings has been the development and
expansion of membership products and lower line credit card products.
Competition in these markets is likely to intensify. The growth in membership
services revenue is unlikely to continue at the rates experienced in recent
periods, and there can be no assurance that we will be able to develop new
products and services that will enable us to sustain our recent rates of
earnings growth. In addition, a portion of our historical growth in managed
loans and customer accounts resulted from portfolio acquisitions. There can be
no assurance that we will acquire additional loan portfolios, that the acquired
portfolios will perform as expected, or that such acquisitions will be
profitable.
Management and Operations
Our growth and profitability depend on our ability to retain key executives
and managers, attract capable employees, maintain and develop the systems
necessary to operate our businesses and control the rate of growth of our
expenses. Expenses could significantly increase due to acquisition-related
conversion costs and other acquisition-related expenses, new product
development, facilities expansions, increased funding or staffing costs and
other internal and external factors.
Other Industry Risks
We face 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 our products. The financial services industry as a
whole is characterized by rapidly changing technologies. System disruptions and
failures may interrupt or delay our ability to provide services to our
customers. In particular, we face technological challenges in the developing
online credit card market. The secure transmission of confidential information
over the Internet is essential to maintain consumer confidence in the products
and services offered by our e-commerce business. Security breaches, acts of
vandalism, and developments in computer capabilities could result in a
compromise or breach of the technology we use to protect customer transaction
data. Consumers generally are concerned with security breaches and privacy on
the Internet, and Congress, individual states and other jurisdictions could
enact new laws regulating the electronic commerce market that could adversely
affect us.
S-12
<PAGE>
Risks Related to the Convertible Notes
Effect of Holding Company Structure
Because the convertible notes are obligations of a holding company which
has no significant assets or independent operations other than the equity in its
subsidiaries, the convertible notes are effectively subordinated to all existing
and future indebtedness and obligations of Providian National Bank (PNB),
Providian Bank (PB) and our other direct and indirect subsidiaries. As of June
30, 2000, we and our subsidiaries had approximately $782 million of debt
outstanding. As a consequence, we will be able to make payments on the
convertible notes only to the extent that (i) the instruments representing
indebtedness of our subsidiaries permit payments to be distributed as a dividend
on equity to us and (ii) there are amounts legally available to be distributed.
Our existing indentures and bank credit agreements would block upstream payments
of this type under various circumstances, including: (i) the bankruptcy,
liquidation or reorganization of us and our subsidiaries, and (ii) during the
continuance of defaults under these indentures and agreements. In addition,
regulatory provisions applicable to the Company's subsidiaries also limit the
payment of dividends to the Company. See "Providian Financial Corporation -
Regulatory Matters - Dividends and Transfers of Funds".
Volatility of Common Stock and Convertible Note Price
The market price for our common stock may be volatile and therefore the
price of our convertible notes may fluctuate significantly, which may result in
losses for investors. We expect our stock price to be subject to fluctuations
as a result of a variety of factors, including factors beyond our control. These
include:
. quarterly variations in operating results;
. changes in financial estimates by securities analysts;
. changes in market valuations of financial services companies;
. additions or departures of key personnel; and
. any deviations in net revenues or in losses from levels expected by
securities analysts or projected by us.
In addition, the price of the convertible notes may fluctuate as a result
of changes, if any, in ratings issued by rating agencies relating to our debt
securities or rating agencies' perceptions of our sector of the financial
services industry.
No Public Market for the Convertible Notes
Prior to this offering, there has been no trading market for the
convertible notes. Although the underwriter has advised us that they currently
intend to make a market in the convertible notes, they are not obligated to do
so and may discontinue their market-making
S-13
<PAGE>
activities at any time at their sole discretion without notice. Consequently, we
cannot ensure that any market for the convertible notes will develop, or if one
does develop, that it will continue for any period of time. If an active market
for the convertible notes fails to develop or continue, this failure could harm
the trading price of the convertible notes. We do not intend to apply for
listing of the convertible notes on any securities exchange or any automated
quotation system.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this prospectus supplement and the
accompanying prospectus, including documents incorporated by reference in this
prospectus supplement and the accompanying prospectus, are forward-looking
statements 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, statements as to industry trends or our future results of
operations, and other statements which are not historical fact. 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. Readers are cautioned not to place
undue reliance on forward-looking statements, which speak only as of the date
hereof. We undertake no obligation to update any forward-looking statements.
PROVIDIAN FINANCIAL CORPORATION
General
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. The Company conducted its
operations as a wholly owned subsidiary of Providian Corporation until June 10,
1997, when all of the then outstanding shares of common stock of the Company
were spun off to the stockholders of Providian Corporation. The Company is
listed on the New York Stock Exchange and the Pacific Exchange under the symbol
PVN.
The Company, operating through its subsidiaries, is a provider of lending
and deposit products to customers nationwide and offers credit cards in the
United Kingdom. The Company serves a diversified market with its loan products
which include credit cards and membership services products. The Company also
offers various deposit products. With $27 billion in assets under management
and 14 million customers as of June 30, 2000, the Company ranked as the sixth
largest bankcard issuer in the United States.
Organizational Structure
The Company conducts its business through its wholly owned subsidiaries.
Each subsidiary performs a particular role in support of the business, depending
in part on the powers granted to it by its chartering regulator or state of
incorporation. However, the Company's various business areas are generally
operated in a consolidated manner among the different legal entities. Since the
Company is a holding company and generally does not independently engage in any
businesses, the source of funds for payment on the convertible notes currently
is
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almost entirely limited to those funds that are available to the Company from
its subsidiaries. The Company's right to participate as a stockholder in any
distribution of assets of any subsidiary upon its liquidation or reorganization
or winding-up (and thus the ability of holders of the convertible notes to
benefit, as creditors of the Company, from such distribution) is subject to the
prior claims of creditors of any such subsidiary. PNB and PB are subject to
claims by creditors for long-term and short-term debt obligations, including
deposit liabilities, obligations for federal funds purchased and securities sold
under repurchase agreements. There are also various legal limitations on the
extent to which PNB, PB and other subsidiaries may pay dividends or otherwise
supply funds to the Company or its affiliates. See "-Regulatory Matters"
herein.
The Company operates principally through the following wholly owned
subsidiaries:
. Providian National Bank, headquartered in Tilton, New Hampshire, is a
national banking association organized under the laws of the United
States and is a member of the Federal Deposit Insurance Corporation
(the FDIC).
. Providian Bank, headquartered in Salt Lake City, Utah, is an
industrial loan corporation organized under the laws of Utah and is a
member of the FDIC.
. Providian Bancorp Services, headquartered in San Francisco,
California, provides legal and human resources support, accounting and
finance services, data processing, loan and deposit processing,
customer service, collections, and related services for its affiliates
on a cost reimbursement basis.
Regulatory Matters
The following discussion describes the regulatory framework applicable to
the Company and its subsidiaries. This regulatory framework is intended
primarily for the protection of depositors and the federal deposit insurance
funds and not for the protection of holders of the convertible notes or common
stock of the Company. Certain of these regulations restrict the ability of the
Company to obtain funds from its regulated subsidiaries and thus could impact
the Company's ability to pay principal and interest on the convertible notes.
To the extent that the following information describes statutory and regulatory
provisions, it is qualified in its entirety by reference to those provisions. A
change in the statutes, regulations or regulatory policies applicable to the
Company or its subsidiaries may have a material effect on the business of the
Company.
General Status
As a national bank, PNB is subject to regulation by its primary regulator,
the Office of the Comptroller of the Currency (the Comptroller). The deposits
of PNB are insured up to applicable limits by the Bank Insurance Fund (the BIF)
of the FDIC. Accordingly, PNB is subject to assessment for deposit insurance
premiums and 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).
The operations of PNB's international branch in London, England are subject
to regulation and supervision by the Financial Services Authority of the United
Kingdom and the Comptroller.
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As an FDIC-insured Utah industrial loan corporation that is not a member of
the Federal Reserve System, PB is subject to regulation by its primary federal
regulator, the FDIC, and by the Utah Department of Financial Institutions. The
deposits of PB are insured up to applicable limits by the BIF. Accordingly, PB
is subject to assessment for deposit insurance premiums. PB is also subject to
limited regulation by the Federal Reserve Board with respect to reserves it must
maintain against its transaction accounts and certain other deposits.
Holding Company Status
Although the Company is the holding company of PNB and PB, it is not
required to register as a bank holding company under the Bank Holding Company
Act of 1956, as amended (the BHCA). Before 1987, PNB was a so-called "non-bank
bank"; that is, it was not a "bank" under the BHCA even though it is a national
banking association, because it did not both accept demand deposits and make
commercial loans. The Competitive Equality Banking Act of 1987 (CEBA) revised
the definition of "bank" to include generally all FDIC-insured institutions.
However, CEBA grandfathered the rights of companies that owned "non-bank banks"
on March 5, 1987, allowing them to retain ownership of such non-bank banks
without registering as a bank holding company, subject to certain restrictions.
PB is not a "bank" as defined in the BHCA because it qualifies for an exemption
under CEBA as an industrial loan corporation organized under the laws of Utah
and was acquired by the Company on or before August 10, 1987.
The restrictions on CEBA-grandfathered banks were liberalized by the GLB
Act. Under the GLB Act, PNB will be permitted to engage in new activities,
which it was not permitted to do under CEBA, so long as it does not both accept
demand deposits and make commercial loans. The GLB Act also eased CEBA
restrictions on PNB's ability to cross-market its products and services with the
products and services of its affiliates. In addition, the GLB Act increased the
Company's ability to acquire the assets of additional insured depository
institutions, effectively eliminating the CEBA restriction that prevented the
Company from acquiring more than 5% of the assets of another insured depository
institution. See "-Legislative Developments" below.
The Company could be required to register as a bank holding company under
the BHCA if PNB ceases to observe the CEBA restrictions, as modified by the GLB
Act, or if the Company or any of its affiliates acquires control of an
additional insured depository institution (excluding exempt institutions such as
credit card banks). 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. These BHCA restrictions, if they were to apply to the Company, would
not be expected to have a material adverse effect on the Company's business as
currently conducted. If the Company were required to register as a bank holding
company, it could elect, if it met certain eligibility requirements, to become a
financial holding company under the GLB Act and thereby be permitted to engage
in a more expansive list of activities than are permitted for bank holding
companies under the BHCA. See "-Legislative Developments" below.
Investment in the Company and its Subsidiary Banks
Each of PNB and PB is an "insured depository institution" within the
meaning of the Change in Bank Control Act of 1978 (the CIBC Act). Consequently,
written approval of the applicable primary federal regulator is required before
an individual or entity may acquire "control," as such term is defined in the
CIBC Act, of the Company. A change in control of PB
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would also require approval from the Utah Commissioner of Financial Institutions
under the Utah Financial Institutions Act.
For purposes of the BHCA, an individual or entity may not acquire "control"
of the Company, and a bank holding company may not 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. The
Company's CEBA grandfather rights are nontransferable. Thus, if an individual
or entity acquired "control" of the Company 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 activities and its non-
banking subsidiaries' activities to those deemed by the Federal Reserve Board to
be closely related to banking and a proper incident thereto. As noted above,
however, if the Company became a financial holding company under the GLB Act, it
would be permitted to engage in a more expansive list of activities than are
permitted for bank holding companies under the BHCA. See "-Legislative
Developments" below.
Dividends and Transfers of Funds
The primary source of funds for the Company to pay dividends on stock, make
payments on debt securities (including the convertible notes) and meet other
obligations is dividends from its banking subsidiaries. Federal law limits the
extent to which PNB or PB can 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, and Sections 23A and 23B of the Federal Reserve Act of 1913 governing
transactions between a financial institution and its affiliates. In addition,
PNB and PB are subject to federal regulatory oversight to assure safety and
soundness. In general, federal banking laws prohibit an insured depository
institution from making dividend distributions if those distributions are not
paid out of available earnings or would cause the institution to fail to meet
applicable capital adequacy standards. See "-Capital Requirements" below. PB
is subject to similar Utah laws governing industrial loan corporations.
Capital Requirements
PNB is subject to risk-based capital guidelines adopted by the Comptroller.
PB is subject to risk-based capital guidelines adopted by the FDIC. Risk-based
capital ratios are determined by allocating assets and specified off-balance
sheet commitments to several weighted categories. Higher levels of capital are
required for the categories defined as representing greater risk. The Company's
banking subsidiaries' capital amounts and classifications are also subject to
qualitative judgments by the regulators with respect to components, risk
weightings and other factors.
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 and the FDIC may, however, set higher
capital requirements when an institution's particular circumstances warrant.
These risk-based capital guidelines are subject to change by the applicable
regulators and may be increased from time to time, generally or with respect to
specific types of assets. The Comptroller and the FDIC have established
guidelines prescribing a minimum "leverage ratio" (Tier 1 capital to adjusted
total assets as specified in the guidelines) of 3% for institutions that meet
certain criteria, including the requirement that they have the highest
regulatory rating, and prescribing a minimum leverage ratio of 4% for
institutions that do not meet the criteria.
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Institutions experiencing or anticipating significant growth are expected to
maintain capital ratios well above the minimum. As of June 30, 2000, PNB had a
total risk-based capital ratio of 10.25%, a Tier 1 risk-based capital ratio of
8.89% and a leverage ratio of 9.68%, and PB had a total risk-based capital ratio
of 15.40%, a Tier 1 risk-based capital ratio of 14.10% and a leverage ratio of
5.65%.
In 1995, the Comptroller and the FDIC amended the risk-based capital
standards pertaining to asset transfers in which an institution retains recourse
risk but contractually limits its exposure. Under the "low level recourse"
regulation that was adopted, the amount of risk-based capital required in
connection with such asset transfers will not exceed the institution's maximum
contractual liability. In March 2000, the federal banking regulators published
for comment proposed 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 loans receivable and
may impose certain capital requirements based on the amount of securitized
assets under management, while possibly reducing the cost of senior securities
issued in such transactions. In addition, the federal bank regulatory agencies
have had under consideration possible rulemaking to amend the regulatory capital
guidelines for banks with respect to the treatment of residual interests in
asset securitizations. No proposed rule has been published. The Company is
unable at this time to assess the impact these proposals may have on its
business.
Federal Deposit Insurance Corporation Improvement Act of 1991
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
expanded the powers of federal bank regulatory authorities to take corrective
action with respect to banks that do not meet minimum capital requirements. For
these purposes, FDICIA established 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%.
An "adequately capitalized" institution is permitted to accept brokered
deposits only if it receives a waiver from the FDIC and pays interest on
deposits at a rate that is not more than 75 basis points higher than the
prevailing rate in its market. Undercapitalized institutions cannot accept
brokered deposits, are subject to growth limitations and must submit a capital
restoration plan. "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, beginning 60 days after becoming "critically undercapitalized,"
may not make any payment of principal or interest on their subordinated debt
(subject to certain exceptions).
As of June 30, 2000, each of PNB and PB met the requirements to be
considered a "well capitalized" institution. Under the regulatory definition of
brokered deposits, as of June 30, 2000, PNB had brokered deposits of $5.8
billion and PB had brokered deposits of $1.4 billion.
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FDICIA also required federal banking agencies to revise their risk-based
capital standards to adequately address concentration of credit risk, interest
rate risk and risk arising from non-traditional activities. The Comptroller and
the FDIC have identified these risks and an institution's ability to manage them
as important factors in assessing overall capital adequacy, but have not
quantified them for use in formula-based capital calculations. The Comptroller
and the FDIC have further revised their risk-based capital rules to address
market risk. Financial institutions with 10% or more of total assets in trading
activity, or $1 billion or more in trading activity, are required to use
internal risk measurement models to calculate their capital exposure for market
risk and to hold capital in support of that exposure. The level of the
Company's trading activity is currently below these thresholds.
Deposit Insurance Assessments
Under the FDIC's risk-based insurance assessment system, each insured
institution is placed in one of nine risk categories, based on its level of
capital, supervisory evaluations, and other relevant information. The
assessment rate applicable to PNB and PB depends in part on the risk assessment
classification assigned to them by the FDIC and in part on the BIF assessment
schedule adopted by the FDIC. BIF-insured institutions such as PNB and PB are
currently assessed premiums at an annual rate between 0% to 0.27% of eligible
deposits. PNB and PB are currently assessed at the 0% rate. PNB and PB 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. The FICO assessment rate applicable to BIF-insured deposits is
0.0206% per annum for the third quarter of 2000 and may be adjusted quarterly to
reflect a change in assessment base for the BIF.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989 Cross-
Guarantee Provisions
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
imposes various liabilities on our subsidiary banks. Each of PNB and PB is
liable to the FDIC for any losses it may incur as a result of the failure or
near failure of the other. Claims of depositors of any such non-failing bank
and claims of general creditors of any such non-failing bank would be paid prior
to any claims of the FDIC.
Consumer Protection Laws
The relationship of the Company's lending subsidiaries and their customers
is extensively regulated by 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, 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. These
statutes also limit the liability of credit card holders for unauthorized use,
prohibit discriminatory practices in extending credit, and impose limitations on
the types of charges that may be assessed and on the use of consumer credit
reports. In addition, the GLB Act requires federal regulators to promulgate
regulations governing the privacy of consumer information. See "-Legislative
Developments" below. In the United Kingdom, the Data Protection Act of 1998
places restrictions on the electronic transfer of personal data to any country
outside the European Union. These restrictions are not expected to have a
material effect on the Company's business or operations as currently conducted.
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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 a state in which the bank's
customers are located. PNB relies on this ability to "export" rates to
facilitate its nationwide consumer lending business. State institutions such as
PB enjoy a similar right under the Depository Institutions Deregulation and
Monetary Control Act of 1980. 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 consumer credit loans. 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. The Company is unable to predict
the outcome of these cases or the effect of such outcome on PB's ability to
impose certain fees.
Legislative Developments
The GLB Act became law in November 1999. The GLB Act repeals the Glass-
Steagall Act of 1933, which separated commercial and investment banking, and
eliminates the BHCA's prohibition on insurance underwriting by bank holding
companies. As a result, the GLB Act permits the affiliation of commercial
banks, securities firms and insurance companies. This change may increase the
ability of insurance companies and securities firms to acquire, or otherwise
affiliate with, commercial banks and may increase the number of competitors in
the banking industry and the level of competition in providing banking products,
including credit cards.
The GLB Act creates a new type of bank holding company, a "financial
holding company," that may engage in a range of activities that are financial in
nature, including insurance and securities underwriting, insurance sales,
merchant banking, and additional activities that the Federal Reserve Board, in
consultation with the Secretary of the Treasury, determines to be financial in
nature, incidental to a financial activity, or complementary to a financial
activity. The GLB Act establishes the Federal Reserve Board as the primary
regulator of financial holding companies, with state insurance authorities
continuing to oversee insurance affiliates and the SEC continuing to regulate
broker-dealer affiliates.
The GLB Act also establishes new privacy requirements applicable to all
financial institutions and requires federal regulators to promulgate regulations
to implement these requirements by November 12, 2000. The GLB Act also
expressly permits the states to adopt privacy requirements that are more
stringent than under federal law. A large number of states have taken, or may
take, action to propose legislation containing stricter requirements. However,
these actions are at an early stage and the extent and nature of such
requirements, if they are adopted, cannot be predicted.
Legislation has been proposed in Congress to substantially revise the laws
governing consumer bankruptcy. The U.S. House of Representatives and the U.S.
Senate have approved different versions of new bankruptcy reform legislation.
In general, both bills contain provisions establishing a means test for consumer
bankruptcy filings, which are intended to curb a perceived abuse in the current
bankruptcy system, and include new requirements for consumer lending
disclosures. Whether or not a Conference Committee of the two chambers will be
able to resolve differences in the two bills is uncertain.
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From time to time, members of Congress have introduced regulatory
restructuring proposals as well as legislation to impose a statutory cap on
credit card interest rates and fees and legislation to require additional
disclosures and prohibit certain practices with respect to open-end credit
plans. In recent years state legislatures have entertained similar proposals,
as well as proposals to expand consumer protection laws. Neither the outcome of
these proposals nor their impact on the Company, should they become law, can be
predicted with any certainty.
Legal Proceedings
Beginning in May 1999, the Company was the subject of media coverage
concerning complaints made by some customers of the Company's banking
subsidiaries regarding certain sales and collections practices. Following the
initial media coverage, the San Francisco District Attorney's Office began an
investigation into the Company's sales and collections practices. In November
1999, the Connecticut Attorney General's Office began an inquiry into the
Company's sales and collections practices. On June 19, 2000, the Company
reached a settlement with the Connecticut Attorney General's Office in which it
agreed to pay $1.6 million to the State of Connecticut to develop a process to
determine whether any individual Connecticut consumers are entitled to
restitution, and to modify certain business practices. On June 28, 2000 PNB
reached a settlement with the Comptroller following an examination that included
an investigation of customer complaints, and the Company reached a settlement
with the San Francisco District Attorney and the California Attorney General, in
which PNB and the Company agreed to make certain changes to PNB's business
practices and to pay restitution to customers determined in accordance with the
procedures in the settlement agreement, which the Company estimates will be
approximately $300 million, and which is subject to a floor of $300 million. As
part of the settlement, PNB stipulated to the issuance by the Comptroller of a
Consent Order obligating PNB to make such changes and to pay the aforementioned
restitution, and the Company stipulated to the entry of a judgment against it
and the issuance of a permanent injunction effecting the terms of the
settlement. In addition, the Company agreed to pay $5.5 million in civil
penalties to the City and County of San Francisco.
Since May 1999, a number of lawsuits have been filed against the Company
and, in some cases, against certain of the Company's subsidiaries by current and
former customers of the Company's banking subsidiaries. A consolidated putative
class action lawsuit (In re Providian Credit Card Litigation) (the "Consolidated
Action") was filed in August 1999 in California state court in San Francisco
against the Company, PNB, and certain other subsidiaries, and seeks unspecified
damages, including actual and punitive damages, attorneys' fees and injunctive
relief. The complaint alleges unfair and deceptive business practices,
including failure to credit payments in a timely fashion, adding products and
charging fees without customer authorization, changing rates and terms without
proper notice or authorization, and misleading or deceptive sales practices.
Similar actions filed in other California counties have been transferred to San
Francisco County and coordinated with the Consolidated Action.
As of August 15, 2000, three other class actions were pending in state
courts in San Mateo County, California, Cook County, Illinois, and Bullock
County, Alabama. These actions have not been consolidated with the Consolidated
Action and are proceeding separately. A class consisting of a relatively small
number of California customers has been certified in the San Mateo County,
California action. No class has been certified in the Cook County, Illinois or
Bullock County, Alabama actions. A motion to dismiss the Cook County, Illinois
action has been granted with prejudice, and the plaintiff has filed an appeal.
As of August 15, 2000, one consolidated putative class action was pending in
federal court. The federal action (the "Multidistrict Action") is a
consolidation of several different actions that had been filed in various
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federal courts and transferred by the Federal Judicial Panel on Multidistrict
Litigation to the Eastern District of Pennsylvania. A consolidated complaint in
the Multidistrict Action was filed on February 4, 2000.
These other state and federal actions contain substantially the same
allegations as those alleged in the Consolidated Action. Certain of the actions
also allege one or more of the following: that the account agreement with
customers contained unconscionable or improper terms and fees, that statements
sent to customers failed to include credit protection and other add-on fees in
the calculation of the annual percentage rate disclosed in those statements,
refusal to honor cancellation requests, improper obtaining of credit reports,
breached promises to raise credit limits, and breached promises of high credit
limits.
A putative class action (In re Providian Securities Litigation), which is a
consolidation of complaints filed in the United States District Court for the
Eastern District of New York in June 1999, alleges, in general, that the Company
and certain of its officers made false and misleading statements concerning its
future prospects and financial results in violation of the federal securities
laws. The putative class, which is alleged to have acquired the Company's stock
between January 15, 1999 and May 26, 1999, seeks damages in an unspecified
amount, in addition to pre-judgment and post-judgment interest, costs and
attorneys' fees. By order dated February 8, 2000, the Federal Judicial Panel on
Multidistrict Litigation transferred the consolidated securities cases to the
Eastern District of Pennsylvania for inclusion with the Multidistrict Action
currently pending in that court.
Two shareholder derivative actions, one filed on June 30, 2000 and one
filed on July 14, 2000, have been filed in California state court in San
Francisco. These actions seek redress against the members of the Company's
board of directors and certain executive officers for breach of their fiduciary
duties and for corporate waste arising out of their approval of, or failure to
prevent, the Company's alleged unfair business practices, which allegedly
resulted in liability, or potential liability, for restitution, penalties, and
litigation costs. The unfair business practices alleged in these complaints are
similar to the ones at issue in the Multidistrict Action and the Consolidated
Action, and many of them were covered by the Comptroller's Consent Order
described above. These actions are at a very early stage and no response is yet
due.
An informed assessment of the ultimate outcome or potential liability
associated with the lawsuits described above and other potential claims that
could arise out of the alleged unfair business practices is not feasible at this
time. Due to the uncertainties of litigation, there can be no assurance that
the Company will prevail on all the claims made against it in the lawsuits or
that similar or other proceedings will not be brought. However, management
believes that the Company has substantive defenses and intends to defend the
actions vigorously.
In addition, the Company is commonly subject to various other pending and
threatened legal actions arising in the ordinary course of business from the
conduct of its business activities. In the opinion of the Company, any
liability that is likely to arise with respect to these additional actions will
not have a material adverse effect on the consolidated financial condition or
results of operations of the Company.
Recent Operating Results
On June 28, 2000, the Company announced that it had reached a final
settlement agreement with the Comptroller, the San Francisco District Attorney's
office and the California Attorney General, ending their inquiries into the
Company's business practices. The Company
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agreed to make certain business practice changes and to pay restitution to
affected customers. During the quarter ended June 30, 2000, the Company recorded
a net pre-tax charge of $272.6 million to non-interest expense on its
consolidated statements of income, reflecting its estimated obligations under
the settlement agreement.
On February 29, 2000, the Company announced a realignment of resources
previously dedicated to its home loan business. The Company has transitioned
these resources, including employees and facilities, into its credit card and e-
commerce businesses, which have experienced rapid growth and have greater
potential returns. On June 16, 2000 the Company sold $1.5 billion of home equity
loans which resulted in a one-time pre-tax gain of $64.7 million.
Net income, before one-time adjustments, for the three months ended June
30, 2000 was $187.6 million, an increase of 48% over net income of $126.5
million for the three months ended June 30, 1999. Net income, before one-time
adjustments, for the six months ended June 30, 2000 was $361.9 million, an
increase of 51% over net income of $240.0 million for the six months ended June
30, 1999. The key drivers to the second quarter and year-to-date performance
came from growth in outstanding loan balances and customer accounts combined
with improved customer retention. After the one-time adjustments, net income for
the three and six months ended June 30, 2000 was $62.8 million and $237.1
million.
As of June 30, 2000, managed loans, which include reported and securitized
loans, after the sale of home equity loans, were $22.3 billion. Managed credit
card loans were $21.8 billion, an increase of $2.8 billion, or 14.7%, over the
balance at December 31, 1999. This growth in managed credit card loans was
achieved through increases in the Company's loan originations, improved customer
retention and increased purchase activity from existing customers facilitated by
the Company's ability to upgrade proven customers to higher line products.
The Company's managed net interest margin on loans remained relatively
stable at 12.05% for the second quarter of 2000 compared to 12.39% for the same
period in 1999. The managed net credit loss rate for the second quarter of 2000
increased to 7.42% from 7.16% for the same period in 1999 and is up from 7.18%
for the first quarter 2000. The increase quarter over quarter reflects account
seasoning within the managed portfolio and was less than expected. Consistent
with the Company's expectations, the 30+ day managed delinquency rate for the
second quarter of 2000 increased to 6.48% from 5.72% for the first quarter of
2000 and 4.70% for the second quarter of 1999. This account seasoning is
expected to result in a continued increase in the Company's managed net credit
loss rate, rising to an 8% range in the second half of 2000. The dollar
contribution to managed revenue from non-interest income, before the one-time
gain on the sale of home loans in the second quarter, increased more than 37%
over the same period in 1999 to $680.2 million, due to increased revenue from
membership products and loan activity fees. The Company reinvested a portion of
the increased revenue to strengthen loan loss reserves, increase marketing
investment and build infrastructure. Year over year, non-interest expense before
one-time adjustments increased $131.9 million during the second quarter of 2000
to $509.7 million, reflecting expenses associated with servicing a greater
number of customers and maintaining an employee base that has grown by 42% over
that period.
The Company's return on reported assets before one-time adjustments was
4.33% for the second quarter of 2000, down from 5.36% for the same period in
1999. The decrease is primarily the result of the Company's decision to
strengthen its balance sheet liquidity by increasing its investment security
portfolio. The return on reported assets after one-time adjustments was 1.45%.
The Company continued to maintain the overall strength of its balance
S-23
<PAGE>
sheet during the second quarter of 2000. Return on equity before one-time
adjustments was 47.23% for the second quarter of 2000, down from 52.19% for the
same period in 1999. Return on equity after one-time adjustments was 15.81% for
the second quarter of 2000.
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data for the
Company as of the dates or for the periods indicated. This information should
be read in conjunction with, and is qualified in its entirety by reference to,
the detailed information and financial statements included in the documents
incorporated by reference in this prospectus supplement and the attached
prospectus.
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
------------------------------------ -------------------------------
(unaudited)
Actual As Adjusted/1/
2000 2000 1999 1998
------------ ------------------- ---------- --------
(Dollars in millions, except per share data.)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Interest income:
Loans $ 1,170.9 $ 1,170.9 $ 1,559.3 $ 807.8
Federal funds sold and resale agreements 51.3 51.3 34.3 14.1
Other 59.3 59.3 30.7 20.7
--------- --------- --------- --------
Total interest income 1,281.5 1,281.5 1,624.3 842.6
Interest expense:
Deposits 387.3 387.3 356.8 204.4
Borrowings 34.3 34.3 92.3 42.9
--------- --------- --------- --------
Total interest expense 421.6 421.6 449.1 247.3
Net interest income 859.9 859.9 1,175.2 595.3
Provision for credit losses 734.8 734.8 1,099.1 545.9
--------- --------- --------- --------
Net interest income after provision
for credit losses 125.1 125.1 76.1 49.4
Non-interest income 1,551.3 1,486.7 2,412.5 1,266.2
Non-interest expenses 1,281.3 1,008.7 1,571.2 825.0
--------- --------- --------- --------
Income before income taxes 395.1 603.1 917.4 490.6
Income tax expense 158.0 241.2 367.1 194.2
--------- --------- --------- --------
Net Income $ 237.1 $ 361.9 $ 550.3 $ 296.4
========= ========= ========= ========
Basic earnings per share $ 1.67 $ 2.55 $ 3.89 $ 2.09
========= ========= ========= ========
Earnings per share - assuming dilution $ 1.63 $ 2.49 $ 3.78 $ 2.04
========= ========= ========= ========
Dividends paid per share $ 0.10 $ 0.10 $ 0.20 $ 0.15
========= ========= ========= ========
</TABLE>
________________________________
/1/ Adjusted for one-time charge for settlement expenses and one-time net gain
on sale of home equity loan portfolio. See "Providian Financial Corporation -
Legal Proceedings" and " - Recent Operating Results" above.
S-24
<PAGE>
<TABLE>
<CAPTION>
June 30, December 31,
---------------- --------------------------------
(unaudited)
2000 1999 1998
---------------- --------------------------------
(Dollars in millions, except per share data.)
<S> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents $ 303.5 $ 182.9 $ 176.3
Federal funds sold and resale agreements 1,206.9 1,298.0 297.9
Investment securities 2,504.1 581.5 433.7
Loans receivable, less allowance for credit
losses 11,290.2 10,545.2 5,282.0
Premises and equipment, net 178.9 149.2 82.9
Interest receivable 129.7 108.1 51.8
Due from securitizations 610.0 614.2 454.4
Other assets 1,018.7 861.8 452.2
---------- ---------- ---------
Total assets $ 17,242.0 $ 14,340.9 $ 7,231.2
========== ========== =========
Deposits $ 13,172.7 $ 10,538.1 $ 4,672.3
Short-term borrowings 50.3 126.3 472.5
Long-term borrowings 731.7 958.1 399.8
Deferred fees 583.8 578.6 315.7
Accrued expenses and other liabilities 961.6 647.3 407.7
---------- ---------- ---------
Total liabilities 15,500.1 12,848.4 6,268.0
Capital securities 160.0 160.0 160.0
Total shareholders' equity 1,581.9 1,332.5 803.2
---------- ---------- ---------
Total liabilities and shareholders' equity $ 17,242.0 $ 14,340.9 $ 7,231.2
========== ========== =========
</TABLE>
S-25
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
----------------------------- ---------------------------
(unaudited)
Actual As Adjusted/1/
2000 2000 1999 1998
---------- ---------------- ---------- -----------
(Dollars in millions, except per share data.)
<S> <C> <C> <C> <C>
FINANCIAL & STATISTICAL
SUMMARY DATA
Earnings (Managed Basis):
Net interest income $ 1,348.1 $ 1,348.1 $ 2,108.3 $ 1,361.9
Non-interest income 1,393.4 1,328.7 2,086.9 1,011.1
--------- --------- --------- ---------
Total revenue 2,741.5 2,676.8 4,195.2 2,373.0
Provision for loan losses 1,065.0 1,065.0 1,706.7 1,057.4
Non-interest expense 1,281.3 1,008.7 1,571.1 825.0
--------- --------- --------- ---------
Income before taxes 395.2 603.1 917.4 490.6
Tax expense 158.1 241.2 367.1 194.2
--------- --------- --------- ---------
Net income $ 237.1 $ 361.9 $ 550.3 $ 296.4
========= ========= ========= =========
Managed Financial Data:
Period End:
Consumer lending:
Credit cards $ 21,846 $ 21,846 $ 19,049 $ 12,138
Home loans 456 456 1,977 1,107
--------- --------- --------- ---------
Total consumer lending $ 22,302 $ 22,302 $ 21,026 $ 13,245
Securitized loans $ 9,745 $ 9,745 $ 9,416 $ 7,504
Total assets $ 26,817 $ 26,817 $ 23,689 $ 14,606
Total capital (includes capital
securities) $ 1,742 $ 1,742 $ 1,492 $ 963
Total equity $ 1,582 $ 1,582 $ 1,332 $ 803
Key Statistics:
Managed:
Net interest margin (earning 10.54% 10.54% 11.92% 11.29%
Net interest margin (loans) 12.13% 12.13% 12.33% 11.80%
Return on assets 1.78% 2.71% 3.02% 2.30%
Return on equity 31.47% 48.03% 52.37% 42.76%
Membership services revenue $ 472.6 $ 472.6 $ 674.9 $ 238.5
Net credit losses $ 806.8 $ 806.8 $ 1,143.9 $ 867.5
Net credit loss rate 7.30% 7.30% 6.94% 7.58%
Delinquency rate (30+ days) 6.48% 6.48% 5.66% 5.33%
Equity to managed assets 5.90% 5.90% 5.62% 5.50%
Reported:
Reserves as a percent of loans 10.06% 10.06% 8.86% 7.86%
Net credit loss rate 7.67% 7.67% 6.38% 7.71%
Delinquency rate (30+ days) 8.16% 8.16% 6.82% 5.69%
Ratio of Earnings to Fixed Charges:
Excluding interest on deposits 9.99 14.73 9.83 10.88
Including interest on deposits 1.92 2.40 2.99 2.93
</TABLE>
________________________________
/1/ Adjusted for one-time charge for settlement expenses and one-time net gain
on sale of home equity loan portfolio. See "Providian Financial Corporation -
Legal Proceedings" and "- Recent Operating Results" below.
S-26
<PAGE>
USE OF PROCEEDS
The Company intends to use the net proceeds from the sale of the
convertible notes for general corporate purposes, which may include possible
acquisitions, investments in securities and the reduction of debt of, and
investments in, or extensions of credit to, the Company's subsidiaries.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's common stock is traded on the New York Stock Exchange under
the symbol "PVN". The following table shows for the periods indicated the high
and low closing prices per share of the Company's common stock as reported by
the New York Stock Exchange.
1998 High Low
---- ---- ---
First Quarter.......................... $ 41 21/64 $ 29 11/64
Second Quarter......................... 52 3/8 38 37/64
Third Quarter.......................... 58 19/64 37 5/64
Fourth Quarter......................... 75 33 43/64
1999 High Low
---- ---- ---
First Quarter.......................... $ 117 $ 70 13/16
Second Quarter......................... 131 5/8 78 7/16
Third Quarter.......................... 103 1/4 77 5/8
Fourth Quarter......................... 115 1/2 77 5/8
2000 High Low
---- ---- ---
First Quarter.......................... $ 89 7/16 $ 60 1/8
Second Quarter......................... 99 9/16 81 9/16
On August 15, 2000, the closing price of the common stock on the New York
Stock Exchange was $110 1/8 per share. At August 15, 2000, there were
approximately 9,300 holders of record of the Company's common stock.
The Company paid a regular quarterly cash dividend of $0.03 per share of
common stock in the first three quarters of 1998 and $0.05 per share of common
stock for each quarter beginning with the fourth quarter of 1998.
S-27
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company and its subsidiaries at June 30, 2000 and as adjusted as of such date to
give effect to the issuance of the convertible notes. This table should be read
in conjunction with the Company's consolidated financial statements and the
notes thereto incorporated by reference in this prospectus supplement and the
attached prospectus.
<TABLE>
<CAPTION>
June 30, 2000
----------------------------------------
Actual As Adjusted/1/
------------- ----------------
(in millions)
<S> <C> <C>
Interest bearing deposits $ 13,104.1 $ 13,104.1
Other borrowings 50.3 50.3
Long-term borrowings 731.7 731.7
Convertible notes offered hereby - 300.0
------------- ----------------
Total debt 13,886.1 14,186.1
Company obligated mandatorily redeemable capital
securities of subsidiary trust holding solely junior
subordinated deferrable interest debentures of the
Company (Capital Securities) 160.0 160.0
Common stock 1.0 1.0
Retained earnings 1,590.6 1,590.6
Cumulative other comprehensive income 2.1 2.1
Treasury stock (11.8) (11.8)
------------- ----------------
Total shareholders' equity 1,581.9 1,581.9
------------- ----------------
Total capitalization $ 15,628.0 $ 15,928.0
============= ================
</TABLE>
/1/ Adjusted for the issuance of the convertible notes and further adjusted
for one-time charge for settlement expenses and one-time net gain on
sale of home equity loan portfolio. See "Providian Financial
Corporation - Legal Proceedings" and "-Recent Operating Results"
above.
S-28
<PAGE>
DESCRIPTION OF CONVERTIBLE NOTES
The following description of the terms of the convertible notes supplements
and, to the extent it is inconsistent, replaces the description of the general
terms and provisions of our debt securities contained in the accompanying
prospectus, and we refer you to that description. Certain terms used in this
prospectus supplement have the meanings given to those terms in the accompanying
prospectus. The convertible notes are part of the securities we registered with
the Securities and Exchange Commission (the SEC) in June 1998 to be issued on
terms to be determined at the time of sale.
General
The convertible notes we are offering by this prospectus supplement
constitute a series of debt securities for purposes of the senior indenture
dated as of May 1, 1999 between the Company and Bank One Trust Company, N. A.,
as successor in interest to The First National Bank of Chicago, as trustee (the
trustee), as supplemented by the supplemental indenture dated as of August ,
2000 between the Company and the trustee (the senior indenture). Debt
securities issued under the senior indenture, including the convertible notes,
are collectively referred to in this prospectus supplement as "notes."
The senior indenture and its associated documents, including the
convertible notes we are offering, contain the full legal text of the matters
described in this section. A copy of the form of indenture has been filed with
the SEC as part of our registration statement. This section summarizes all the
material terms of the convertible notes and the senior indenture. It does not,
however, describe every aspect of the convertible notes and the senior
indenture. For example, in this section, we use terms that have been given
special meaning in the senior indenture, but we describe the meaning for only
the more important of those terms.
The convertible notes have an aggregate principal amount of $300,000,000,
and may have an aggregate principal amount of up to $345,000,000 if
underwriter's over-allotment options are exercised, mature on August , 2005
and bear interest at % per annum.
The convertible notes:
. will be issued in U.S. dollars in denominations of $1,000 and integral
multiples of $1,000.
. represent unsecured and senior debt, and will rank on a parity with
each other and with the Company's other unsecured and senior debt.
. will be effectively subordinated to all present and future debt and
obligations of the Company's subsidiaries.
. will be convertible into shares of the Company's common stock at any
time prior to the close of business on the business day immediately
preceding the maturity date (unless previously redeemed), at a
conversion rate of shares per each $1,000 principal amount of
convertible notes, subject to adjustment upon the occurrence of the
events described below under "- Conversion Rights".
S-29
<PAGE>
. are redeemable at the Company's option at any time on or after August
, 2003, in whole or in part, at the redemption prices set forth
below under "- Optional Redemption by Providian Financial Company",
plus accrued and unpaid interest to the date of redemption.
. will be issued only in global form, and you will not be permitted to
withdraw the convertible notes from The Depository Trust Company of
New York, New York, known as DTC, except in the limited situations
described below under "- Book-Entry System".
. will not have the defeasance provisions of the senior indenture.
Interest on the convertible notes:
. is payable on February and August of each year, to the
persons in whose names the convertible notes are registered at the
close of business on February or August , prior to the payment
date.
. will be calculated on the basis of a 360-day year of twelve 30-day
months.
. will be paid beginning on February , 2001 and interest will
begin to accrue from August , 2000.
Conversion Rights
You may at any time before the close of business on the business day
immediately preceding the maturity date convert any portion of the principal
amount of a convertible note (that has not previously been redeemed, repurchased
or converted) that is an integral multiple of $1,000 into shares of the
Company's common stock, at a conversion rate of shares per $1,000
principal amount of convertible notes, subject to adjustment in certain events
as described below.
If a convertible note has been called for redemption or repurchase your
right to convert will terminate at the close of business on the business day
immediately preceding the redemption or repurchase date for such convertible
note, unless we default in making the payment due upon redemption.
In order to exercise your right of conversion, you must deliver your
convertible note at the corporate trust office of the trustee in the Borough of
Manhattan, The City of New York, accompanied by a notice of conversion (a copy
of which you may obtain from the trustee) duly signed and completed. The
conversion date will be the date on which you deliver your convertible note and
duly signed and completed notice of conversion. As promptly as practicable on or
after the conversion date, the Company will deliver to the trustee the number of
full shares of common stock issuable upon conversion, along with a cash payment
for any fractional shares.
If you surrender convertible notes for conversion on a date that is not a
date on which interest is payable, you will not be entitled to receive any
interest for the period from the interest payment date preceding such date to
the date of conversion, except as described below. Any note surrendered for
conversion during the period from the close of business on any record date for
the payment of interest on such convertible note to the opening of business on
the next
S-30
<PAGE>
succeeding interest payment date (except convertible notes, or portions thereof,
called for redemption on a redemption date or to be repurchased on a repurchase
date, for which the right to convert would terminate during such period) must be
accompanied by payment of an amount equal to the interest payable on such
interest payment date on the principal amount of convertible notes being
surrendered for conversion. In the case of any convertible note which has been
converted after any record date for the payment of interest on such convertible
note but before the next succeeding interest payment date, interest payable on
such interest payment date shall be payable on such interest payment date
notwithstanding such conversion, and such interest shall be paid to the holder
of such convertible note on such record date.
No other payment or adjustment for interest, or for any dividends in
respect of the common stock issuable upon conversion, will be made upon
conversion. As a holder of common stock after conversion you will not be
entitled to receive any dividends payable to holders of common stock as of any
record date before the close of business on the conversion date. In addition,
you will not receive fractional shares of common stock upon conversion. Instead,
the Company will pay you an appropriate amount in cash based on the market price
of the common stock at the close of business on the date of conversion.
When you surrender a convertible note for conversion you will not be
required to pay any taxes or duties in respect of the issue or delivery of
common stock on conversion. However, the Company is not responsible for the
payment of any tax or duty that may be payable in respect of any transfer
involved in the issue or delivery of common stock in a name other than that of
the holder of the convertible note. And the Company will not issue or deliver
certificates representing shares of common stock unless the person requesting
such issue has paid to the Company the amount of any such tax or duty or has
established to the Company's satisfaction that such tax or duty has been paid.
Anti-Dilution Adjustments
The rate at which convertible notes may be converted into common stock is
subject to adjustment in certain events, including:
. the payment of a stock dividend or other distributions on shares of
the Company's common stock payable in shares of the Company's common
stock;
. the issuance to all holders of the Company's common stock of rights,
options or warrants entitling them to subscribe for or purchase common
stock at less than the then current market price;
. subdivisions, combinations and reclassifications of the Company's
common stock;
. distributions to all holders of common stock of evidences of
indebtedness of the Company, securities, cash or other assets;
. distributions consisting exclusively of cash (excluding any cash
portion of distributions referred to in the fourth bullet point above,
or cash distributed upon a merger or consolidation to which the second
paragraph of this section "- Anti-Dilution Adjustments" applies) to
all holders of the Company's common stock in an aggregate amount that,
when combined with (i) other all-cash distributions made within the
preceding twelve months in respect of which no adjustment has been
made and (ii) the cash and the fair market value of other
consideration payable in respect of any
S-31
<PAGE>
tender offer by the Company or any of its subsidiaries for common
stock concluded within the preceding twelve months in respect of which
no adjustment has been made, exceeds 10% of the Company's aggregate
market capitalization (calculated as the product of the current market
price of the Company's common stock and the number of shares of common
stock then outstanding); and
. the successful completion of a tender offer made by the Company or any
of its subsidiaries for the Company's common stock which involves an
aggregate consideration that, when combined with (i) any cash and the
fair market value of other consideration payable in respect of any
other tender offer by the Company or any of its subsidiaries for the
Company's common stock concluded within the preceding twelve months in
respect of which no adjustment has been made and (ii) the aggregate
amount of any all-cash distributions referred to in the fifth bullet
point above to all holders of common stock made within the preceding
twelve months in respect of which no adjustments have been made,
exceeds 10% of the Company's aggregate market capitalization
(calculated as described in the fifth bullet point above) on the date
of expiration of such tender offer.
In case of any merger, amalgamation, arrangement or consolidation of the
Company with or into another person or any merger of another person into the
Company, other than a merger which does not result in any reclassification,
conversion, exchange or cancellation of the Company's common stock, or in the
case of any sale or transfer of all or substantially all of the assets of the
Company, a supplemental indenture should be executed and delivered to the
trustee which shall provide that the holder of any convertible note then
outstanding shall have the right to convert such convertible note only into the
kind and amount of securities, cash and other property receivable upon such
merger, amalgamation, arrangement, consolidation, sale or transfer by a holder
of the number of shares of Company's common stock into which such convertible
note was convertible immediately prior to the transaction, assuming the holder
of common stock failed to exercise any right of election as to the kind or
amount of consideration receivable by such holder.
In certain instances, a decrease in the conversion price resulting from the
adjustments described above may give rise to a taxable dividend, as described
under "Material United States Federal Income Tax Considerations." The Company
reserves the right to make increases in the conversion rate in addition to those
required in the foregoing provisions as we consider to be advisable in order
that any event treated for United States federal income tax purposes as a
dividend of stock or stock rights to the Company stockholders will not be
taxable to the recipients.
The Company may from time to time increase the conversion rate by any
amount for any period of at least 20 days, in which case we will give at least
15 days' notice of such increase, if the board of directors of the Company has
made a determination that such increase would be in the best interests of the
Company, which determination shall be conclusive.
No adjustment of the conversion rate will be required to be made until the
cumulative adjustments amount to 1.0% or more of the then current conversion
rate. The Company will compute any adjustments to the conversion rate pursuant
to these provisions and will give notice to the holders of any such adjustments.
S-32
<PAGE>
Optional Redemption by Providian Financial Corporation
On and after August , 2003, the Company may redeem the convertible
notes, in whole or in part, at the redemption prices specified below, by giving
the holders not less than 30 nor more than 60 days' prior notice as described
under "- Notices" below. The redemption prices, expressed as a percentage of
principal amount, are as follows:
Redemption Date Redemption
on or After: Price
August , 2003
August , 2004
in each case, together with accrued interest to the redemption date.
No sinking fund is provided for the convertible notes, which means that the
senior indenture does not require us to fund a deposit account which would be
used to redeem or retire the convertible notes periodically.
Settlement by purchasers of the convertible notes will be made in
immediately available funds. All payments by the Company to the depositary of
principal and interest will be made in immediately available funds.
Repurchase at Option of Holders Upon a Change of Control
If a change of control occurs, the Company is required, within not more
than 60 days nor less than 30 days following the occurrence of the change of
control, to make an offer to purchase all of the outstanding convertible notes
at a purchase price equal to 100% of the principal amount of the convertible
notes plus accrued interest to the repurchase date.
Any portion of the principal amount of the convertible notes that is equal
to $1,000 or an integral multiple of $1,000 may be repurchased if properly
tendered and not withdrawn by the holder. The Company's offer to repurchase the
convertible notes will remain open for 20 business days or until the business
day prior to the repurchase date, whichever is later.
In order to effect the repurchase, we are required to mail to each holder a
notice to that effect and deliver a copy of this notice to the trustee, not
later than 30 days after the occurrence of the change of control. The notice
will govern the terms of our offer to repurchase the convertible notes and will
describe the procedures that the holders must follow in order to accept the
offer.
If the holders exercise their right to require the Company to purchase the
convertible notes, and the repurchase constitutes a "tender offer" for purposes
of Rule 14e-1 under the Exchange Act, we will comply with the requirements of
Rule 14e-1 as then in effect with respect to any repurchase.
A change of control means the occurrence of any of the following events:
. any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner"
(as defined below), directly or indirectly, of more than 50% of the
total voting power of the Company;
S-33
<PAGE>
. the Company consolidates with, or merges with or into, another person
or sells, assigns, conveys, transfers, leases or otherwise disposes of
all or substantially all of its assets to any person (or any person
consolidates with, or merges with or into, the Company), pursuant to a
transaction in which the Company's voting shares are converted into or
exchanged for cash, securities or other property, except a transaction
where (i) the Company's voting shares are converted into or exchanged
for voting shares of the surviving or transferee corporation (other
than voting shares that mature or are redeemable for cash or debt
securities prior to the maturity date of the notes) and (ii)
immediately after such transaction no "person" or "group" is the
"beneficial owner", directly or indirectly, of more than 50% of the
total voting power of the surviving or transferee corporation;
. at any time during any consecutive two-year period, the following
persons cease for any reason to constitute a majority of the board of
directors of the Company: (i) individuals who at the beginning of such
period constituted the board of directors of the Company or (ii) any
new directors whose election by the board of directors of the Company
or whose nomination for election by the Company's stockholders was
approved by a vote of at least a majority of the directors then still
in office who were either directors at the beginning of such period or
whose election or nomination for election was previously so approved;
or
. the Company is liquidated or dissolved or adopts a plan of liquidation.
However, a change of control will not be deemed to have occurred if either:
. the closing price per share of our common stock for any five days
within the period of 10 consecutive trading days ending immediately
after the later of the change of control or the public announcement of
the change of control, in the case of a change of control under the
first bullet point in the preceding paragraph, or the period of 10
consecutive trading days ending immediately before the change of
control, in the case of a change of control under the second bullet
point in the preceding paragraph, equals or exceeds 105% of the
conversion price of the convertible notes in effect on each of those
trading days; or
. all of the consideration, excluding cash payments for fractional shares
and cash payments made pursuant to dissenters' appraisal rights, in a
merger or consolidation otherwise constituting a change of control
under the first and second bullet points in the preceding paragraph
above consists of shares of common stock traded on a national
securities exchange or quoted on the Nasdaq National Market, or will be
so traded or quoted immediately following such merger or consolidation,
and as a result of such merger or consolidation the convertible notes
become convertible solely into such common stock.
S-34
<PAGE>
For purposes of these provisions, the conversion price is equal to $1,000
divided by the conversion rate.
"Beneficial owner" will be determined in accordance with Rules 13d-3 and
13d-5 under the Exchange Act, and will include, with respect to any securities,
any person having the right to acquire those securities, whether immediately or
after the passage of time, upon the happening of an event or otherwise.
Ranking
The convertible notes will be direct, unsecured obligations of the Company
and will rank on a parity with all outstanding unsecured senior indebtedness of
the Company. The convertible notes will rank senior to all of the Company's
existing and future subordinated debt (including, without limitation, any
securities offered by the Company under the subordinated indenture dated as of
May 1, 1999 between the Company and Chase Manhattan Bank and Trust Company,
National Association) and are effectively subordinated to all existing and
future indebtedness and obligations of PNB, PB and our other direct and indirect
subsidiaries.
Events of Default
An event of default with respect to the notes of any series is defined in
the senior indenture as:
. default in the payment of principal of or premium, if any, on any of
the notes of that series when due,
. default in the payment of interest on any of the notes of that series
when due and continuance of such default for 30 days,
. default in the deposit of any sinking fund payment on any of the
notes of that series when due,
. default in the performance, or breach, of certain other covenants or
warranties of the Company in the senior indenture with respect to
notes of that series and continuance of such default or breach for 60
days after written notice by the trustee or the holders of not less
than 25% in aggregate principal amount of the notes of that series,
. any event of default under any mortgage, indenture or other
instrument under which any indebtedness for borrowed money in an
aggregate principal amount exceeding $5,000,000 of the Company or PNB
shall become due and payable, if such acceleration is not rescinded
or annulled within 30 days after written notice as provided in the
senior indenture,
. certain events of bankruptcy, insolvency or reorganization of the
Company, or
. any other event that may be specified with respect to notes of that
series.
Additional events of default with respect to the convertible notes are
defined in the supplemental indenture as (i) the failure of the Company to
convert any portion of the principal amount of a convertible note following the
exercise by the holder of such convertible note of the
S-35
<PAGE>
right to convert such convertible note into common stock and (ii) the failure of
the Company to give a change of control notice or the failure of the Company to
pay the change of control purchase price.
If an event of default (other than an event of default arising from the
bankruptcy, insolvency or reorganization of the Company) with respect to any
series of notes for which there are notes outstanding under the senior indenture
occurs and is continuing, either the trustee or the holders of not less than 25%
in aggregate principal amount of the notes of such series outstanding may
declare the principal amount (or if such notes are original issue discount
notes, such portion of the principal amount as may be specified in the terms of
that series) of all notes of that series to be immediately due and payable. If
an event of default arising from the bankruptcy, insolvency or reorganization of
the Company with respect to any series of notes for which there are notes
outstanding under the senior indenture occurs, the principal amount (or if such
notes are original issue discount notes, such portion of the principal amount as
may be specified in the terms of that series) of all notes of that series will
automatically, and without any action on the part of the trustee or any holder,
become immediately due and payable. The holders of a majority in aggregate
principal amount of the notes of any series outstanding under the senior
indenture may waive an event of default resulting in acceleration of such notes,
but only if all events of default with respect to notes of such series have been
remedied and all payments due (other than those due as a result of acceleration)
have been made.
If an event of default occurs and is continuing, the trustee may, in its
discretion, and shall, at the written request of holders of not less than a 25%
in aggregate principal amount of the notes of any series outstanding under the
senior indenture and upon reasonable indemnity against the costs, expenses and
liabilities to be incurred in compliance with such request and subject to
certain other conditions set forth in the senior indenture, proceed to protect
the rights of the holders of all the notes of such series. Prior to
acceleration of maturity of the notes of any series outstanding under the senior
indenture, the holders of a majority in aggregate principal amount of such notes
may waive any past default under the senior indenture except a default in the
payment of principal of, premium, if any, or interest on the notes of such
series.
The senior indenture provides that upon the occurrence of an event of
default arising from either (i) the default in the payment of principal of or
premium, if any, on any of the notes of that series outstanding under the senior
indenture when due or (ii) the default in the payment of interest on any of the
notes of that series outstanding under the senior indenture when due and
continuance of such default for 30 days, the Company will, upon demand of the
trustee, pay to it, for the benefit of the holder of any such note, the whole
amount then legally due and payable on such notes for principal, premium, if
any, and interest. The senior indenture further provides that if the Company
fails to pay such amount forthwith upon such demand, the trustee may, among
other things, institute a judicial proceeding for the collection thereof.
The senior indenture also provides that notwithstanding any other provision
of the senior indenture, the holder of any note of any series shall have the
right to institute suit for the enforcement of any payment of principal of,
premium, if any, and interest on such notes on the respective stated maturities
as expressed in such note and that such right shall not be impaired without the
consent of such holder.
The Company is required to file annually with the trustee a written
statement of officers as to the existence or non-existence of defaults under the
senior indenture.
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Senior Indenture Covenants
Limitation on Disposition of PNB
Subject to certain exceptions, so long as any of the notes are outstanding,
the Company: (a) will not, nor will it permit PNB to, sell, assign, transfer or
otherwise dispose of any shares of, securities convertible into or options,
warrants or rights to subscribe for or purchase shares of voting stock of PNB,
nor will the Company permit PNB to issue any shares of, or securities
convertible into or options, warrants or rights to subscribe for or purchase
shares of voting stock of PNB (other than sales of directors' qualifying shares)
unless the Company will own, directly or indirectly, at least 80% of the issued
and outstanding voting stock of PNB after giving effect to such transaction; or
(b) will not permit PNB to either (i) merge or consolidate with or into any
corporation (other than the Company), unless at least 80% of the surviving
corporation's issued and outstanding voting stock is, or upon consummation of
the merger or consolidation will be, owned, directly or indirectly by the
Company, or (ii) lease, sell or transfer all or substantially all of its
properties and assets to any corporation or other person (other than the
Company), unless 80% of the issued and outstanding voting stock of such
corporation or other person is owned, or will be owned, upon such lease, sale or
transfer, directly or indirectly, by the Company; provided, however, that
nothing in this covenant shall prohibit the Company or PNB from the sale or
transfer of assets pursuant to any securitization transaction.
Limitation on Creation of Certain Liens
So long as any of the notes are outstanding, the Company will not, nor will
it permit PNB to, create, assume, incur, or suffer to be created, assumed or
incurred or to exist, any pledge, encumbrance or lien, as security for
indebtedness for borrowed money, upon any shares of, or securities convertible
into or options, warrants or rights to subscribe for or purchase shares of,
voting stock of PNB, directly or indirectly, without making effective provision
whereby the applicable notes of all series shall be equally and ratably secured
with any and all such indebtedness if, treating such pledge, encumbrance or lien
as a transfer of the shares of, or securities convertible into or options,
warrants or rights to subscribe for or purchase shares of, voting stock of PNB
subject thereto to the secured party and after giving effect to the issuance of
the maximum number of shares of voting stock of PNB issuable upon the exercise
of all such convertible securities, options, warrants or rights, the Company
would not continue to own, directly or indirectly, at least 80% of the issued
and outstanding voting stock of PNB.
Modification and Waiver of the Senior Indenture
The senior indenture provides that the Company and the trustee may enter
into a supplemental indenture to amend the senior indenture without the consent
of any holder of the notes:
. to evidence the succession of another person to the Company and the
assumption by any such successor of the covenants of the Company
therein and in the notes,
. to add to the covenants of the Company for the benefit of the holders
of all or any series of notes (and if such covenants are to be for
the benefit of less than all series of notes, 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,
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. to add any additional events of default for the benefit of the
holders of all or any series of notes (and if such additional events
of default are to be for the benefit of less than all series of
notes, stating that such additional events of default are expressly
being included solely for the benefit of such series),
. to add to or change any of the provisions of the senior indenture to
such extent as shall be necessary to permit or facilitate the
issuance of notes in bearer form, registrable or not registrable as
to principal, and with or without interest coupons, or to permit or
facilitate the issuance of notes in uncertificated form,
. to add to, change or eliminate any of the provisions of the senior
indenture in respect of one or more series of notes, provided that
any such addition, change or elimination (i) shall neither (A) apply
to any note of any series created prior to the execution of such
supplemental indenture and entitled to the benefit of such provision
nor (B) modify the rights of the holder of any such note with respect
to such provision or (ii) shall become effective only when there are
no such notes outstanding,
. to secure the notes,
. to establish the form or terms of notes permitted by the senior
indenture,
. to evidence and provide for the acceptance of appointment by a
successor trustee with respect to the notes of one or more series and
to add to or change any of the provisions of the senior indenture as
shall be necessary to provide for or facilitate the administration of
the trusts by more than one trustee in accordance with the senior
indenture, or
. to cure any ambiguity, defect or inconsistency, or to make any other
provisions with respect to matters arising under the senior
indenture, provided that such action will not adversely affect the
interests of the holders of notes of any series in any material
respect.
The senior indenture may be modified or amended at any time with the
consent of the holders of not less than 66 2/3% in aggregate principal
amount of all series of the notes at the time outstanding under the senior
indenture and affected by such modification or amendment; provided, however,
that without the consent of the holder of each note affected, no such
modification or amendment shall:
. change the stated maturity of the principal of, or any installment of
principal of or interest on, any note, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon
the redemption thereof, or reduce the amount of the principal of an
original issue discount note or any other note which would be due and
payable upon a declaration of acceleration of the maturity thereof,
or change any place of payment where, or the coin or currency in
which, any note or any premium 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),
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. reduce the percentage in principal amount of the outstanding
notes 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 provided for in the senior indenture,
or
. with the exception of certain provisions relating to the trustee,
modify any of the provisions relating to the amendment of the
senior indenture with the consent of the holders of the notes or
the waiver of past defaults, except to increase any such
percentage or to provide that certain other provisions of the
senior indenture cannot be modified or waived without the consent
of the holder of each outstanding note affected thereby.
Corporate Existence, Consolidation, Merger and Sale of Assets
Except as described in the next paragraph, the Company will do or cause to
be done all things necessary to preserve and keep in full force and effect its
existence and the existence of PNB and its rights (charter or statutory) and
franchises and those of PNB; provided, however, that the Company will not be
required to preserve any such right or franchise if the Company determines that
the preservation thereof is no longer desirable in the conduct of its business
and that the loss thereof is not disadvantageous in any material respect to the
holders of the notes.
The Company may consolidate with or merge into any other entity or entities
or convey, transfer or lease its properties and assets substantially as an
entirety to any person without the consent of the holders of any of the notes
provided that (i) any successor or purchaser is a corporation, partnership or
trust organized under the laws of the United States of America, any state
thereof or the District of Columbia, and any such successor or purchaser
expressly assumes the Company's obligations on the notes under the senior
indenture, (ii) immediately after giving effect to the transaction no event of
default under the senior indenture, and no event which, after notice or lapse of
time or both, would become an event of default under the senior indenture, shall
have happened and be continuing, (iii) if as a result of such transaction the
Company would become subject to an encumbrance not permitted by the senior
indenture, the Company or such successor purchaser takes necessary steps to
effectively secure the notes equally and ratably with (or prior to) all
indebtedness secured thereby, and (iv) the Company has delivered to the trustee
an officers' certificate and an opinion of counsel stating compliance with these
provisions.
No Restriction on Future Indebtedness
The senior indenture does not contain any provision which will restrict us
from incurring, assuming or becoming liable with respect to any indebtedness or
other obligations. In addition, the indentures do not contain any provision
which would afford holders of the convertible notes other protection upon the
occurrence of a highly leveraged transaction involving the Company which may
adversely affect the creditworthiness of the convertible notes.
Notices
Notice to holders of the convertible notes will be given by mail to the
addresses as they appear in the security register. Notices will be deemed to
have been given on the date of such mailing.
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Notice of a redemption of convertible notes will be given not less than 30
nor more than 60 days prior to the redemption date and will specify the
redemption date. A notice of redemption of the convertible notes will be
irrevocable.
Governing Law
The senior indenture and the convertible notes will be governed by and
construed in accordance with the laws of the State of New York, United States of
America.
Concerning the Trustee
In certain instances, the Company or the holders of a majority of the then
outstanding principal amount of the notes issued under the senior indenture may
remove the trustee and appoint a successor trustee. Subject to the provisions
of applicable law, the trustee may become the owner or pledgee of any of the
notes with the same rights it would have if it were not the trustee. The
trustee and any successor trustee must be a person or entity eligible to be a
trustee under the Trust Indenture Act of 1939 and must have (or, in the case of
a trustee or successor trustee included in a bank holding company system, the
related bank holding company must have) a combined capital and surplus of at
least $100,000,000. From time to time and subject to applicable law relating to
conflicts of interest, the trustee may also serve as trustee under other
indentures relating to securities issued by the Company and may engage in
commercial transactions with the Company.
Legal Ownership
"Street Name" and Other Indirect Holders
Investors who hold convertible notes in accounts at banks or brokers will
generally not be recognized by us as legal holders of convertible notes. This
is called holding in "street name." Instead, we would recognize only the bank
or broker, or the financial institution the bank or broker uses to hold its
convertible notes. These intermediary banks, brokers and other financial
institutions pass along principal, interest and other payments on the
convertible notes, either because they agree to do so in their customer
agreements or because they are legally required to. If you hold convertible
notes in "street name," you should check with your own institution to find out:
. How it handles securities payments and notices.
. Whether it imposes fees or charges.
. How it would handle voting if ever required.
. Whether and how you can instruct it to send you convertible notes
registered in your own name so you can be a direct holder as described
below.
. How it would pursue rights under the convertible notes if there were a
default or other event triggering the need for holders to act to
protect their interests.
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Direct Holders
Our obligations, as well as the obligations of the trustee and those of any
third parties employed by us or the trustee, run only to those persons who are
registered as holders of convertible notes. As noted above, we do not have
obligations to you if you hold in "street name" or through other indirect means,
either because you choose to hold convertible notes in that manner or because
the convertible notes are issued in the form of "global securities" as described
below. For example, once we make payment to the registered holder, we have no
further responsibility for the payment even if that holder is legally required
to pass the payment along to you as a "street name" customer but does not do so.
Global Securities
What Is a Global Security?
A "global security" is a special type of indirectly held security, as
described above under "`-Street Name' and Other Indirect Holders." The ultimate
beneficial owners can only be indirect holders of those convertible notes we
issue in the form of global securities. We do this by requiring that the global
security be registered in the name of a financial institution we select and by
requiring that the convertible notes included in the global security not be
transferred to the name of any other direct holder unless the special
circumstances described below occur. The financial institution that acts as the
sole direct holder of the global security is called the "depositary." Any
person wishing to own a convertible note must do so indirectly by virtue of an
account with a broker, bank or other financial institution that in turn has an
account with the depositary. As described further under "-Book-Entry System"
below, the convertible notes will be issued only in the form of global
securities.
Special Investor Considerations for Global Securities
As an indirect holder, an investor's rights relating to a global security
will be governed by the account rules of the investor's financial institution
and of the depositary, as well as general laws relating to securities transfers.
We do not recognize this type of investor as a holder of convertible notes and
instead deal only with the depositary that holds the global security.
An investor should be aware that with respect to the convertible notes:
. The investor cannot get convertible notes registered in his or her own
name.
. The investor cannot receive physical certificates for his or her
interest in the convertible notes.
. The investor will be a "street name" holder and must look to his or
her own bank or broker for payments on the convertible notes and
protection of his or her legal rights relating to the convertible
notes. See "'-Street Name' and Other Indirect Holders" above.
. The investor may not be able to sell interests in the convertible
notes to some insurance companies and other institutions that are
required by law to own their securities in the form of physical
certificates.
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. The depositary's policies will govern payments, transfers, exchanges
and other matters relating to the investor's interest in the global
security. We and the trustee have no responsibility for any aspect of
the depositary's actions or for its records of ownership interests in
the global security. We and the trustee also do not supervise the
depositary in any way.
. The depositary will require that interests in a global security be
purchased or sold within its system using same-day funds for
settlement.
Special Situations When Global Security will be Terminated
In a few special situations, the global security will terminate and
interests in it will be exchanged for physical certificates representing
convertible notes (called certificated convertible notes). After that exchange,
the choice of whether to hold convertible notes directly or in "street name"
will be up to the investor. Investors must consult their own banks or brokers
to find out how to have their interests in convertible notes transferred to
their own name, so that they will be direct holders. The rights of "street
name" investors and direct holders in the convertible notes have been previously
described above under "'-Street Name' and Other Indirect Holders" and "-Direct
Holders." The special situations for termination of a global security are
described under "Book-Entry System" below. When a global security terminates,
the depositary (and not us or the trustee) is responsible for deciding the names
of the institutions that will be the initial direct holders.
General Features of the Convertible Notes
The convertible notes will be unsecured obligations of the Company and will
be issued only in the form of one or more global securities registered in the
name of a nominee of The Depository Trust Company, as depositary, except as
specified in "Book-Entry System" below. As used in this prospectus supplement,
the term "holder" means those who own convertible notes registered in their own
names and not those who own beneficial interests in convertible notes registered
in "street name" or in convertible notes represented by one or more global notes
issued in "book-entry" form through the depositary. For more information on
certificated and global notes, see "-Legal Ownership" above and "-Book-Entry
System" below.
The convertible notes may be registered for transfer or exchanged at the
principal office of the Corporate Trust Department of Bank One Trust Company,
National Association in Chicago, Illinois. The transfer or exchange of the
convertible notes will be effected as specified in "-Book-Entry System" below.
Book-Entry System
Upon issuance, all convertible notes will be represented by one or more
fully registered global notes. Each global note will be deposited with, or on
behalf of, the depositary, The Depository Trust Company, New York, New York, and
registered in the name of the depositary's nominee. Except as described below,
global notes may be transferred, in whole and not in part, only by the
depositary to a nominee of the depositary or by a nominee of the depositary to
the depositary or another nominee of the depositary.
The depositary has advised the underwriter and us as follows: the
depositary is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal
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Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934, as amended.
The depositary holds securities that its participants deposit with the
depositary. The depositary also facilitates the settlement among participants of
securities transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in participants' accounts,
eliminating the need for physical movement of securities certificates. "Direct
participants" include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. The depositary is owned
by a number of its direct participants and by the New York Stock Exchange, Inc.,
the American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc. Access to the depositary's system is also available to others such
as securities brokers and dealers, banks and trust companies that clear through
or maintain a custodial relationship with a direct participant, either directly
or indirectly (indirect participants). The Rules applicable to the depositary
and its participants are on file with the Securities and Exchange Commission.
Purchases of interests in the global notes under the depositary's system
must be made by or through direct participants, which will receive a credit for
such interests on the depositary's records. The ownership interest of each
actual purchaser of interests in the global notes, each called a beneficial
owner, is in turn to be recorded on the direct and indirect participants'
records. Beneficial owners will not receive written confirmation from the
depositary of their purchase, but beneficial owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the direct or indirect participant through
which the beneficial owner entered into the transaction. Transfers of ownership
interests in the global notes are to be accomplished by entries made on the
books of participants acting on behalf of beneficial owners. Beneficial owners
will not receive certificates representing their ownership interests in the
global notes, except as described below.
To facilitate subsequent transfers, all global notes deposited by
participants with the depositary are registered in the name of the depositary's
partnership nominee, Cede & Co. The deposit of global notes with the depositary
and their registration in the name of Cede & Co. effect no change in beneficial
ownership. The depositary has no knowledge of the actual beneficial owners of
the interests in the global notes; the depositary's records reflect only the
identity of the direct participants to whose accounts interests in the global
notes are credited, which may or may not be the beneficial owners. The
participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by the depositary to direct
participants, by direct participants to indirect participants, and by direct
participants and indirect participants to beneficial owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither the depositary nor Cede & Co. will consent or vote with respect to
the global notes. Under its usual procedures, the depositary mails an omnibus
proxy to the issuer as soon as possible after the record date. The omnibus
proxy assigns Cede & Co.'s consenting or voting rights to those direct
participants to whose accounts interests in the global notes are credited on the
record date (identified in a listing attached to the omnibus proxy).
Principal and interest payments on the global notes will be made to the
depositary. The depositary's practice is to credit direct participants'
accounts on the payment date in accordance with their respective holdings shown
on the depositary's records unless the depositary has
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reason to believe that it will not receive payment on the payment date. Payments
by participants to beneficial owners will be governed by standing instructions
and customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such participant and not of the depositary, the trustee or us,
subject to any statutory or regulatory requirements as may be in effect from
time to time. Payment of principal and interest to the depositary is the
responsibility of us or the trustee, disbursement of such payments to direct
participants shall be the responsibility of the depositary, and disbursement of
such payments to the beneficial owners shall be the responsibility of direct and
indirect participants.
Conversion will be effected by the depositary upon notice from the holder
of a beneficial interest in a global note in accordance with its rules and
procedures. Convertible notes surrendered for conversion must be accompanied by
a conversion notice and any payments in respect of interest, as applicable, as
described above under "- Conversion Rights".
The depositary may discontinue providing its services as securities
depository with respect to the convertible notes at any time by giving
reasonable notice to the Company or the trustee. Under such circumstances, in
the event that a successor securities depositary is not obtained, certificated
convertible notes are required to be printed and delivered.
The Company may decide to discontinue use of the system of book-entry
transfers through the depositary (or a successor securities depositary). In
that event certificated convertible notes will be printed and delivered.
The convertible notes represented by one or more global notes are
exchangeable for certificated convertible notes of like tenor as such
convertible notes if:
. the depositary for such global notes notifies us that it is unwilling
or unable to continue as depositary for such global notes or if at any
time such depositary ceases to be a clearing agency registered under
the Securities Exchange Act of 1934, as amended;
. we in our discretion at any time determine not to have all of the
convertible notes represented by one or more global notes and notify
the trustee of such determination; or
. an event of default has occurred and is continuing with respect to the
convertible notes.
Any convertible note that is exchangeable pursuant to the preceding
sentence is exchangeable for certificated convertible notes issuable in
authorized denominations and registered in such names as the depositary holding
such global notes shall direct. The authorized denominations of the convertible
notes will be $1,000 or any greater amount that is an integral multiple of
$1,000. Subject to the foregoing, a global note is not exchangeable, except for
a global note or global notes of the same aggregate denominations to be
registered in the name of such depositary or its nominee.
The information in this section concerning the depositary and the
depositary's book-entry system has been obtained from sources that we believe to
be reliable, but we take no responsibility for the accuracy of such information.
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Repurchase
We may at any time purchase the convertible notes at any price in the open
market or otherwise. The convertible notes we purchase in this manner may, at
our discretion, be held, resold or surrendered to the trustee for cancellation.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States federal income tax
considerations relating to the purchase, ownership and disposition of the
convertible notes and the common stock into which convertible notes may be
converted, but does not propose to be a complete analysis of all the potential
tax considerations relating thereto. This summary is based on laws,
regulations, rulings and decisions now in effect, all of which are subject to
change (possibly with retroactive effect). This summary deals only with holders
that will hold convertible notes and common stock into which convertible notes
may be converted as "capital assets" (within the meaning of Section 1221 of the
Internal Revenue Code of 1986, as amended (the "Code")) and does not address tax
considerations applicable to investors that may be subject to special tax rules,
such as banks, tax-exempt organizations, insurance companies, dealers in
securities or currencies, persons subject to the alternative minimum tax, or
persons that will hold convertible notes as a position in a hedging transaction,
"straddle" or "conversion transaction" for tax purposes or persons deemed to
sell convertible notes or common stock under the constructive sale provisions of
the Code. This summary discusses the tax considerations applicable to the
initial purchasers of the convertible notes who purchase the convertible notes
at the original issue price and does not discuss the tax considerations
applicable to subsequent purchasers of the convertible notes. The Company has
not sought any ruling from the Internal Revenue Service (the "IRS") or an
opinion of counsel with respect to the statements made and the conclusions
reached in the following summary, and there can be no assurance that the IRS
will agree with such statements and conclusions. In addition, the IRS is not
precluded from successfully adopting a contrary position. This summary does not
consider the effect of any applicable foreign, state, local or other tax laws.
INVESTORS CONSIDERING THE PURCHASE OF CONVERTIBLE NOTES SHOULD CONSULT
THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES
FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY
TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING
JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
For purposes of this discussion, "U.S. Holder" means a holder that is a
citizen or resident of the United States, a partnership or corporation created
or organized in the United States or any State thereof (including the District
of Columbia), or an estate or trust the income of which is subject to United
States federal income tax regardless of its source. The term "non-U.S. Holder"
refers to any holder other than a U.S. Holder.
Adjustment to Conversion Price
Section 305 of the Code treats as a taxable distribution certain actual or
constructive distributions of stock with respect to stock and convertible
securities. Applicable Treasury Regulations treat holders of convertible
debentures as having received such a constructive distribution where the
conversion price is adjusted to reflect certain distributions with respect to
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the stock into which such debentures are convertible. Thus, under certain
circumstances, an adjustment in the conversion price of the common stock may be
taxable to the holders as a taxable dividend distribution. Adjustments to the
conversion price, however, made pursuant to a bona fide, reasonable adjustment
formula which has the effect of preventing the dilution of the interest of the
holders of such securities, generally will not be considered to result in a
constructive distribution of stock. The supplemental indenture provides that the
conversion price will be adjusted upon the occurrence of certain circumstances,
or if the Company deems such adjustments advisable. There can be no assurance
that some of the adjustments, more fully described in the supplemental
indenture, would not result in a constructive taxable distribution to the
holders under Sections 301 and 305 of the Code. In such a case, holders may
recognize income as a result of an event pursuant to which they receive no cash
or property that could be used to pay the related income tax. Holders of the
convertible notes are advised to consult with their tax advisors to more fully
appreciate the potential of taxable dividend distributions upon such conversion
price modifications.
Taxation of U.S. Holders
Interest
Interest on a convertible note generally will be taxable to a U.S. Holder
as ordinary interest income at the time it accrues or is received, in accordance
with the U.S. Holder's usual method of accounting for U.S. federal income tax
purposes.
Conversion of the Convertible Notes
A U.S. Holder generally will not recognize any income, gain or loss upon
conversion of a convertible note into common stock except with respect to cash
received in lieu of a fractional share of common stock. A U.S. Holder's tax
basis in the common stock received on conversion of a convertible note will be
the same as such holder's adjusted tax basis in the convertible note at the time
of conversion (reduced by any basis allocable to a fractional share interest),
and the holding period for the common stock received on conversion will
generally include the holding period of the convertible note converted. Special
federal income tax rules for the treatment of the conversion of a convertible
note into common stock may apply if a U.S. Holder converts after a record date
for the payment of interest but prior to the next succeeding interest payment
date.
Cash received in lieu of a fractional share of common stock upon conversion
will be treated as a payment in exchange for a fractional share of common stock.
Accordingly, the receipt of cash in lieu of a fractional share of common stock
generally will result in capital gain or loss (measured by the difference
between the cash received for the fractional share and the U.S. Holder's
adjusted tax basis in the fractional share).
Dividends
Dividends paid on the common stock generally will be includable in the
income of a U.S. Holder as ordinary income to the extent of the Company's
current or accumulated earnings and profits, with any excess treated as a tax-
free return of capital and thereafter as capital gain.
S-46
<PAGE>
Sale, Exchange or Redemption of the Convertible Notes
Upon the sale, exchange or redemption of a convertible note, a U.S. Holder
generally will recognize capital gain or loss equal to the difference between
(i) the amount of cash proceeds and the fair market value of any property
received on the sale, exchange or redemption (except to the extent such amount
is attributable to accrued interest income not previously included in income,
which is taxable as ordinary income) and (ii) such holder's adjusted tax basis
in the convertible note. A U.S. Holder's adjusted tax basis in a convertible
note generally will equal the cost of the convertible note to such holder. Such
capital gain or loss will be long-term capital gain or loss if the U.S. Holder's
holding period in the convertible note is more than one year at the time of
sale, exchange or redemption.
Sale of Common Stock
Upon the sale or exchange of common stock, a U.S. Holder generally will
recognize capital gain or loss equal to the difference between (i) the amount of
cash and the fair market value of any property received upon the sale or
exchange and (ii) such holder's adjusted tax basis in the common stock. Such
capital gain or loss will be long-term capital gain or loss if the U.S. Holder's
holding period in the common stock is more than one year at the time of the sale
or exchange.
Information Reporting and Backup Withholding Tax
In general, information reporting requirements will apply to payments of
principal, premium, if any, and interest on a convertible note, payments of
dividends on common stock, payments of the proceeds of the sale of a convertible
note and payments of the proceeds of the sale of common stock, and a 31% backup
withholding tax may apply to such payments if the U.S. Holder either (i) fails
to demonstrate that the U.S. Holder comes within certain exempt categories of
holders or (ii) fails to furnish or certify the U.S. Holder's correct taxpayer
identification number to the payor in the manner required, is notified by the
IRS that such holder has failed to report payments of interest and dividends
properly, or under certain circumstances, fails to certify that such holder has
not been notified by the IRS that such holder is subject to backup withholding
for failure to report interest and dividend payments. Any amounts withheld
under the backup withholding rules from a payment to a U.S. Holder will be
allowed as a credit against such holder's United States federal income tax and
may entitle the U.S. Holder to a refund, provided that the required information
is furnished to the IRS.
Taxation of Non-U.S. Holders
Payments of Interest
Payments of interest by the Company or any paying agent to a non-U.S.
Holder of a convertible note will not be subject to United States federal
withholding tax provided that (i) such holder does not actually or
constructively own 10% or more of the total combined voting power of all classes
of stock of the Company entitled to vote, (ii) such holder is not for United
States federal income tax purposes a controlled foreign corporation related to
the Company through stock ownership, and (iii) such holder certifies, under
penalty of perjury, that it is a non-U.S. Holder and provides its name and
address to the person otherwise required to withhold. In certain circumstances,
the certification may be provided by or through a bank or other financial
institution. Recently finalized Treasury regulations (the "Final Withholding
Regulations"), that are generally effective with respect to payments made after
December 31, 2000, would provide
S-47
<PAGE>
alternative methods for satisfying the above-described certification
requirements. The Final Withholding Regulations also generally would require, in
the case of convertible notes held by a foreign partnership, that (i) the
certification described above be provided by the partners rather than by the
foreign partnership and (ii) the partnership provide certain information,
including a United States taxpayer identification number. A look-through rule
generally would apply in the case of tiered partnerships.
Conversion of a Note into Common Stock
A non-U.S. Holder of a convertible note will not be subject to United
States federal income tax on conversion of the convertible notes solely into
common stock pursuant to the terms of the convertible notes, except with respect
to cash received in lieu of a fractional share which will be treated as a sale
of the factional share. See "Disposition of Notes or Common Stock" below.
Non-U.S. Holders should consult their own tax advisors regarding the tax
consequences of converting the convertible notes into common stock.
Dividends
Dividends paid with respect to common stock by the Company to non-U.S
Holders generally will be subject to a 30% United States federal withholding
tax, subject to reduction for non-U.S. Holders eligible for the benefits of
certain income tax treaties with the United States.
Disposition of Notes or Common Stock
A non-U.S. Holder will not be subject to United States federal income tax
on any gain or income realized upon the sale, exchange, retirement or other
disposition of a convertible note or common stock if (i) the convertible note
and the common stock are held as a capital asset, (ii) such gain or income is
not effectively connected with a trade or business in the United States of the
non-U.S. Holder, (iii) in the case of a non-U.S. Holder who is an individual,
such non-U.S. Holder is not present in the United States for 183 days or more in
the taxable year of such sale, retirement or other disposition, and (iv) the
Company is not and has not been a "U.S. real property holding corporation"
("USRPHC") for federal income tax purposes.
The Company is not and does not intend to become a USRPHC. However, no
assurance can be given that the Company will not become one in the future. In
general, if the Company is determined to be a USRPHC then non-U.S. Holders may
be subject to United States income tax on the sale, exchange, retirement or
other disposition of a convertible note (possibly on the conversion of a
convertible note into common stock) or the converted common stock, and to
withholding at a rate of 10% on any such disposition. However, a non-U.S.
Holder will not be subject to these special rules even if the Company is
determined to be a USRPHC provided that such non-U.S. Holder did not at any time
during the five years ending on the date of sale or disposition actually or
constructively own more than 5% of the common stock of the Company (including
any common stock that may be received in exchange for a convertible note).
United States Business
A non-U.S. Holder engaged in a trade or business in the United States whose
income from a convertible note or common stock (including gain from the sale,
exchange, retirement or
S-48
<PAGE>
other disposition thereof) is effectively connected with the conduct of such
trade or business, although exempt from the withholding tax described above (if
the appropriate certification has been provided), will generally be subject to
regular United States income tax on such income in the same manner as if it were
a U.S. Holder. In addition, if such a holder is a foreign corporation, it may be
subject to a branch profits tax equal to 30% of its effectively connected
earnings and profits for the taxable year, subject to adjustments.
Estate Tax
A convertible note held by an individual who is a non-U.S. Holder at the
time of death will not be subject to United States federal estate tax upon such
individual's death if such holder does not own, actually or constructively, 10%
or more of the total combined voting power of all classes of stock of the
Company entitled to vote and if at the time of such individual's death payments
with respect to the convertible notes would not have been effectively connected
with a United States trade or business of such individual. The converted common
stock will be subject to United States federal estate tax, subject to reduction
of such estate tax if the individual is eligible for the benefits of an estate
tax treaty with the United States.
Backup Withholding and Information Reporting
Backup withholding and information reporting will not apply to payments of
principal, premium, if any, and interest made to a non-U.S. Holder by the
Company on a convertible note with respect to which the holder has provided the
required certification under penalties of perjury of its non-U.S. Holder status
or has otherwise established an exemption, provided in each case that the
Company or its paying agent, as the case may be, does not have actual knowledge
that the payee is a United States person. Backup withholding generally will not
apply to distributions made on the common stock to a non-U.S. Holder.
In addition, except as provided in the following sentences, if principal or
interest payments on a convertible note are collected outside the United States
by a foreign office of a custodian, nominee or other agent acting on behalf of a
non-U.S. Holder, such custodian, nominee or other agent will not be required to
apply backup withholding to such payments made to such holder and will not be
subject to information reporting. However, if such custodian, nominee or other
agent is a United States person, a controlled foreign corporation for United
States tax purposes or a foreign person 50 percent or more of whose gross income
is derived from its conduct of a United States trade or business for a specified
three-year period (or, in addition, for payments made after December 31, 2000, a
foreign partnership engaged in a United States trade or business or in which
United States persons hold more than 50 percent of the income or capital
interests, or certain United States branches of foreign banks or insurance
companies), such custodian, nominee or other agent may be subject to information
reporting with respect to such payments unless the non-U.S. Holder has provided
certain required information or documentation to establish its non-United States
status or otherwise establishes an exemption. In addition, under the Final
Withholding Regulations, any payment of interest made after December 31, 2000
that is subject to such information reporting will also be subject to backup
withholding, unless the payment is made to an account maintained at an office or
branch of a United States or foreign bank or other financial institution at a
location outside the United States or its possessions.
Payments on the sale, exchange or other disposition of a convertible note
by a non-U.S. Holder effected outside the United States to or through a foreign
office of a broker will not be subject to backup withholding. However, if such
broker is a United States person, a controlled
S-49
<PAGE>
foreign corporation for United States tax purposes or a foreign person 50
percent or more of whose gross income is derived from its conduct of a United
States trade or business for a specified three-year period (or, in addition, for
payments made after December 31, 2000, a foreign partnership engaged in a United
States trade or business or in which United States persons hold more than 50
percent of the income or capital interests, or certain United States branches of
foreign banks or insurance companies), information reporting will be required
unless the beneficial owner has provided certain required information or
documentation to the broker to establish its non-United States status or
otherwise establishes an exemption. Payments to or through the United States
office of a broker will be subject to backup withholding and information
reporting unless the holder certifies under penalties of perjury to its non-U.S.
Holder status or otherwise establishes an exemption.
Non-U.S. Holder should consult their tax advisors regarding the application
of United States federal income tax laws, including information reporting and
backup withholding, to their particular situations.
UNDERWRITING
The Company and the underwriter have entered into an underwriting agreement
with respect to the convertible notes being offered. Subject to certain
conditions, the underwriter has agreed to purchase an aggregate of $300,000,000
principal amount of convertible notes.
To the extent that the underwriter sells more than $300,000,000 principal
amount of convertible notes, the underwriter has the option to purchase up to an
additional $45,000,000 principal amount of convertible notes from the Company to
cover such sales at the initial public offering price less the underwriting
discount. They may exercise this option for 30 days.
The following table shows the per note and total underwriting discounts and
commissions to be paid to the underwriter by the Company. Such amounts are
shown assuming both no exercise and full exercise of the underwriter's option to
purchase additional convertible notes.
No Exercise Full Exercise
----------- -------------
Per Note
Total
Convertible notes sold by the underwriter to the public will initially be
offered at the initial public offering price set forth on the cover of this
prospectus supplement. Any convertible notes sold by the underwriter to
securities dealers may be sold at a discount from the initial public offering
price of up to % of the principal amount of the convertible notes. Any such
securities dealers may resell any convertible notes purchased from the
underwriter to certain other brokers or dealers at a discount from the initial
public offering price of up to % of the principal amount of convertible
notes. If all the convertible notes are not sold at the initial offering price,
the underwriter may change the offering price and the other selling terms.
The convertible notes are a new issue of securities with no established
trading market. In addition, the Company does not intend to apply for the
convertible notes to be listed on any securities exchange or to arrange for the
convertible notes to be quoted on any quotation
S-50
<PAGE>
system. The Company has been advised by the underwriter that the underwriter
intends to make a market in the convertible notes but are not obligated to do so
and may discontinue market making at any time without notice. No assurance can
be given as to the liquidity of the trading market for the convertible notes.
The Company has agreed with the underwriter not to dispose of or hedge any
of its common stock or securities convertible into or exchangeable for shares of
common stock during the period from the date of this prospectus supplement
continuing through the date 90 days after the date of this prospectus
supplement, except with the prior written consent of the underwriter. This
agreement does not apply to any existing employee stock option, stock ownership
or equity incentive plans or to exchanges or conversions of currently
outstanding convertible or exchangeable securities.
Certain directors and executive officers of the Company have agreed with
the underwriter not to dispose of or hedge any shares of common stock or
securities convertible into or exchangeable for shares of common stock during
the period from the date of this prospectus supplement continuing through the
date 45 days after the date of this prospectus supplement, except with the prior
written consent of the underwriter and except in certain other circumstances.
In connection with the offering, the underwriter may purchase and sell
convertible notes and common stock in the open market. These transactions may
include short sales, stabilizing transactions and purchases to cover positions
created by short sales. Short sales involve the sale by the underwriter of a
greater number of convertible notes than it is required to purchase in the
offering. "Covered" short sales are sales made in an amount not greater than
the underwriter's option to purchase additional convertible notes from the
Company in the offering. The underwriter may close out any covered short
position by either exercising its option to purchase additional convertible
notes or purchasing convertible notes in the open market. In determining the
source of convertible notes to close out the covered short position, the
underwriter will consider, among other things, the price of convertible notes
available for purchase in the open market as compared to the price at which it
may purchase convertible notes through the overallotment option. "Naked" short
sales are sales in excess of the option. The underwriter must close out any
naked short position by purchasing convertible notes in the open market. A
naked short position is more likely to be created if the underwriter is
concerned that there may be a downward pressure on the price of the convertible
notes in the open market after pricing that could adversely affect investors who
purchase in the offering. Stabilizing transactions consist of certain bids for
or purchases of the convertible notes made by the underwriter in the open market
prior to the completion of the offering.
Purchases to cover a short position and stabilizing transactions may have
the effect of preventing or retarding a decline in the market price of the
convertible notes, and may stabilize, maintain or otherwise affect the market
price of the convertible notes. As a result, the price of the convertible notes
and common stock may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be discontinued by the
underwriter at any time. These transactions may be effected in the over-the-
counter market or otherwise.
The Company estimates that its share of the total expenses of the offer,
excluding underwriting discounts and commissions, will be approximately
$400,000.
S-51
<PAGE>
The Company has agreed to indemnify the underwriter against certain
liabilities, including liabilities under the Securities Act of 1933.
In the ordinary course of their business, the underwriter or any of their
affiliates have engaged and may in the future engage in general financing,
banking and investment banking transactions with us and our affiliates for which
they have been and will be paid customary fees.
VALIDITY OF CONVERTIBLE NOTES
The validity of the convertible notes offered hereby will be passed upon
for the Company by Orrick, Herrington & Sutcliffe LLP, San Francisco, California
and for the underwriter by Sullivan & Cromwell, New York, New York.
S-52
<PAGE>
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus
supplement or the attached prospectus. You must not rely on any unauthorized
information or representations. This prospectus supplement and the attached
prospectus is an offer to sell only the convertible notes offered hereby, but
only under circumstances and in jurisdictions where it is lawful to do so. The
information contained in this prospectus supplement and the attached
prospectus is current only as of their respective dates.
---------------
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Supplement Summary............................................. S-3
Risk Factors.............................................................. S-10
Special Note Regarding Forward-Looking Statements......................... S-14
Providian Financial Corporation........................................... S-14
Selected Consolidated Financial Data...................................... S-24
Use of Proceeds........................................................... S-27
Price Range of Common Stock and Dividend Policy........................... S-27
Capitalization............................................................ S-28
Description of Convertible Notes.......................................... S-29
Material U.S. Federal Income Tax Considerations........................... S-45
Underwriting.............................................................. S-50
Validity of Convertible Notes............................................. S-52
Prospectus
Index of Terms............................................................ 6
Available Information..................................................... 7
Incorporation of Certain Documents by Reference........................... 7
Providian Financial Corporation........................................... 8
The Financing Trusts...................................................... 8
Use of Proceeds........................................................... 9
Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividend Requirements........................ 9
General Description of Securities and Risk Factors........................ 10
Description of the Common Stock........................................... 10
Description of the Preferred Stock........................................ 11
Description of the Depositary Shares...................................... 12
Description of the Debt Securities........................................ 15
Description of the Warrants to Purchase Common Stock or Preferred Stock... 17
Description of the Third Party Warrants................................... 18
Description of the Warrants to Purchase
Debt Securities.......................................................... 19
Description of the Stock Purchase Contracts and Stock Purchase Units...... 20
Description of the Preferred Securities................................... 21
Description of the Guarantees............................................. 21
Description of the Other Units............................................ 24
Plan of Distribution...................................................... 24
ERISA and Tax Considerations.............................................. 26
Legal Matters............................................................. 26
Experts................................................................... 26
</TABLE>
$300,000,000
Providian Financial
Corporation
% Convertible Senior Notes
due August , 2005
---------------
[Providian Financial Corp Logo]
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Goldman, Sachs & Co.
