<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, For Use of the Commission Only (as Permitted By
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
PROVIDIAN FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
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1
<PAGE>
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
Providian Financial Corporation
201 Mission Street
San Francisco, CA 94105
(415) 543-0404
[PROVIDIAN FINANCIAL CORPORATION LOGO]
March 30, 2000
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Providian Financial Corporation to be held at 10:30 a.m., Pacific time, on
Wednesday, May 10, 2000, in the Phyllis Wattis Theater, San Francisco Museum
of Modern Art, 151 Third Street, San Francisco, California. Your Board of
Directors and management look forward to your attending either in person or by
proxy.
This year you are being asked to consider and vote on the election of three
directors, the approval of the combination of the Company's 1997 Stock Option
Plan and Stock Ownership Plan as the Amended and Restated 2000 Stock Incentive
Plan, the approval of the material terms of the Company's Amended and Restated
2000 Management Incentive Plan, and the ratification of the appointment of the
Company's independent auditors. These matters are discussed in greater detail
in the accompanying Notice of Annual Meeting of Stockholders and Proxy
Statement.
Your Board of Directors unanimously believes that the four items proposed by
the Board are in the best interests of the Company and its stockholders and,
accordingly, recommends a vote FOR each of the proposals.
Regardless of the number of shares you own or whether you plan to attend, it
is important that your shares are represented and voted at the meeting. You
are requested to sign, date and mail the enclosed proxy card promptly, or you
may vote through the Internet or by telephone in accordance with the
instructions included in the accompanying materials. You may also vote in
person if you attend the meeting.
If you have any questions or comments about matters discussed in the Proxy
Statement, we'd be happy to hear from you. Please call our Investor Relations
Department at (415) 278-6170.
Sincerely,
[/s/ Shailesh J. Mehta]
Shailesh J. Mehta
Chairman, President and Chief Executive Officer
<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Holders of Common Stock
of Providian Financial Corporation:
The Annual Meeting of Stockholders of Providian Financial Corporation (the
"Company") will be held at 10:30 a.m., Pacific time, on Wednesday, May 10,
2000, in the Phyllis Wattis Theater, San Francisco Museum of Modern Art, 151
Third Street, San Francisco, California, for the following purposes:
(1) To elect three directors to serve until the 2003 Annual Meeting of
Stockholders or until their earlier retirement, resignation or
removal;
(2) To approve the combination of the Company's 1997 Stock Option Plan
and Stock Ownership Plan as the Amended and Restated 2000 Stock
Incentive Plan;
(3) To approve the material terms of the Company's Amended and Restated
2000 Management Incentive Plan;
(4) To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for 2000; and
(5) To transact such other business as may properly come before the
meeting.
The Board of Directors has fixed the close of business on March 13, 2000 as
the record date for the determination of stockholders entitled to notice of
and to vote at the Annual Meeting. The Proxy Statement and form of proxy for
the Annual Meeting are first being mailed to stockholders with and on the date
of this notice.
A list of stockholders entitled to vote at the Annual Meeting will be
available for inspection for a period of ten days prior to the meeting at the
Company's offices located at 201 Mission Street, San Francisco, California.
Your vote is important. This year, record holders of Providian Financial
shares will be able to vote their shares through the Internet or by using a
toll-free telephone number. Instructions for using these services can be found
on the enclosed proxy card. You may, of course, continue to vote your shares
by signing and dating the proxy card and sending it in by mail.
The Company's Annual Report to Stockholders for the fiscal year ended
December 31, 1999 is enclosed. The Annual Report contains financial and other
information about the activities of the Company, but it is not to be deemed a
part of the proxy soliciting materials.
By Order of the Board of Directors
Ellen Richey
Vice Chairman, General Counsel and Secretary
Providian Financial Corporation
San Francisco, California
March 30, 2000
<PAGE>
PROVIDIAN FINANCIAL CORPORATION
201 MISSION STREET
SAN FRANCISCO, CALIFORNIA 94105
PROXY STATEMENT
Why did you send me this Proxy Statement?
We, the Board of Directors of Providian Financial Corporation (the
"Company"), are sending you this Proxy Statement and the enclosed proxy card
because we are soliciting proxies to be voted at the Annual Meeting of
Stockholders (the "Annual Meeting"). The Annual Meeting will be held at 10:30
a.m., Pacific time, on Wednesday, May 10, 2000, in the Phyllis Wattis Theater,
San Francisco Museum of Modern Art, 151 Third Street, San Francisco,
California.
The Company is first sending this Proxy Statement and accompanying proxy
card to stockholders on or about March 30, 2000.
What is the purpose of the Annual Meeting?
At the Annual Meeting, stockholders will act on the matters outlined in the
accompanying Notice of Annual Meeting of Stockholders, including the election
of directors, approval of the combination of the Company's 1997 Stock Option
Plan and Stock Ownership Plan as the Amended and Restated 2000 Stock Incentive
Plan, approval of the material terms of the Amended and Restated 2000
Management Incentive Plan, and ratification of the appointment of the
Company's independent auditors. In addition, the Company's management will
report on the performance of the Company during 1999 and respond to questions
from stockholders.
Who can vote?
All holders of the Company's common stock (the "Common Stock") of record at
the close of business on March 13, 2000 (the "Record Date") are entitled to
vote. On the Record Date, there were 142,432,920 shares of Common Stock
outstanding. For each share of Common Stock held on the Record Date, a
stockholder is entitled to one vote on each matter to be voted on at the
Annual Meeting.
How do I vote?
If you hold Common Stock through a broker, bank or other nominee (i.e., in
"street name"), you will receive instructions from them on how to vote. It is
important that you follow those instructions in order to have your shares
voted.
If you hold Common Stock in your own name as a holder of record through the
Company's transfer agent, First Chicago Trust Company of New York, you have
the option of voting by proxy or voting in person at the Annual Meeting. If
you vote by proxy, you may do so by signing and returning the enclosed proxy
card or following the directions on the proxy card for Internet or telephone
voting.
If you vote by proxy, the proxy holders named on the proxy card will vote
your shares as you designate. If you do not give specific voting instructions
to the proxy holders, your shares will be voted in favor of Items 1 through 4
on the proxy card, and if any other matters are properly submitted to a vote
at the Annual Meeting, your shares will be voted at the discretion of the
proxy holders.
If you vote by proxy, you may revoke your proxy at any time before the final
tallying of votes. You may revoke your proxy by delivering a written notice of
revocation to the Secretary of the Company, by submitting a later-dated proxy
at any time before the voting, or by voting in person at the Annual Meeting.
<PAGE>
Can I vote through the Internet or by telephone?
Instead of submitting your proxy vote on the paper proxy card, you can vote
through the Internet or by telephone. See "Internet and Telephone Voting" on
page 21 of this Proxy Statement for additional information. There are separate
Internet and telephone voting arrangements depending on whether your shares
are registered in your own name or held in "street name" through a broker,
bank or other nominee.
How are votes counted?
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the inspector of election appointed for the Annual Meeting, who will also
determine whether or not a quorum is present. The Annual Meeting will be held
if a majority of the outstanding shares of Common Stock entitled to vote are
represented at the meeting. If you have returned valid proxy instructions or
attend the meeting in person, your shares of Common Stock will be counted for
the purpose of determining whether there is a quorum, even if you wish to
abstain from voting on some or all matters presented at the meeting.
If you hold your Common Stock in "street name" through a broker, generally
the broker may vote only the Common Stock it holds for you in accordance with
your instructions. However, if the broker has not received your instructions,
the broker may vote on matters which the New York Stock Exchange determines to
be routine. If a broker cannot vote on a particular matter because it is not
routine, this will result in a "broker nonvote" on that matter. Shares that
are the subject of broker nonvotes will count for quorum purposes.
What vote is required to approve the proposals?
Item 1 on the proxy card requests your vote for the three directors who are
up for re-election this year. You may cast or withhold your vote for each of
the nominees. Directors are elected by a plurality of votes cast. This means
that the three director nominees who receive the most votes will be elected.
As a result, if you withhold your authority to vote for any nominee, your vote
will not count for or against the nominee.
Items 2, 3 and 4 will be approved if the holders of a majority of the shares
present in person or represented by proxy and entitled to vote on such matters
vote in favor of such matters. Abstentions have the same effect as a vote
against such matters. Shares that are the subject of broker nonvotes will not
be considered as present and entitled to vote on such matters, and as a result
will have no effect on the outcome of these proposals.
What are the Board's recommendations on the proposals?
The Board recommends a vote FOR each of the nominees for director, a vote
FOR approval of the combination of the Company's 1997 Stock Option Plan and
Stock Ownership Plan as the Amended and Restated 2000 Stock Incentive Plan, a
vote FOR approval of the material terms of the Company's Amended and Restated
2000 Management Incentive Plan, and a vote FOR ratification of the appointment
of Ernst & Young LLP as the Company's independent auditors for 2000.
With respect to any other matter that properly comes before the meeting, the
proxy holders will vote as recommended by the Board of Directors or, if no
recommendation is given, in their own discretion.
Who is paying for this solicitation?
The Company will pay the cost of this proxy solicitation. Employees of the
Company may solicit proxies by mail, telephone, facsimile or directly in
person. Company employees do not receive additional compensation for
soliciting proxies. The Company has retained Corporate Investor
Communications, Inc. to help solicit proxies on behalf of the Company for a
fee of $6,000 plus reasonable out-of-pocket costs and expenses. The Company
will, upon request, reimburse brokers, banks and other nominees for their
expenses in sending proxy materials to their customers who are beneficial
owners and obtaining their voting instructions.
2
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
The Company knows of no entity or person who is the beneficial owner of more
than 5% of the outstanding shares of Common Stock.
Security Ownership of Management
The number of shares of Common Stock beneficially owned by each director and
nominee and each executive officer named in the Summary Compensation Table in
this Proxy Statement, and by all directors, nominees and executive officers as
a group, as of March 13, 2000, is shown in the following table. For purposes
of this disclosure, shares are considered to be "beneficially" owned if the
person has or shares the power to vote or direct the voting of shares, the
power to dispose of or direct the disposition of the shares, or the right to
acquire beneficial ownership (as so defined) through May 12, 2000. Subject to
applicable community property laws and shared voting or investment power with
a spouse, each individual has sole investment and voting power with respect to
the shares set forth in the table that follows unless otherwise noted.
<TABLE>
<CAPTION>
Percent of
Name of Director, Nominee or Amount and Nature of Common Stock
Executive Officer Beneficial Ownership(1)(2)(3) Owned
- ---------------------------- ----------------------------- ------------
<S> <C> <C>
Shailesh J. Mehta.................. 2,917,952(4) 2.05%
Christina L. Darwall............... 13,345(5) *
James V. Elliott................... 69,092(6) *
Lyle Everingham.................... 38,022(7) *
J. David Grissom................... 153,609(8) *
F. Warren McFarlan................. 31,804(9) *
Ruth M. Owades..................... 17,871(10) *
Larry D. Thompson.................. 31,613 *
John L. Weinberg................... 103,925 *
David Alvarez...................... 272,087 *
Seth A. Barad...................... 273,281 *
David J. Petrini................... 204,504 *
Ellen Richey....................... 144,405 *
All directors, nominees and
executive officers as a group
(15 persons)...................... 4,427,266 3.11%
</TABLE>
- --------
* Less than 1%.
(1) Includes the following restricted shares granted under the Company's
Stock Ownership Plan: Mr. Mehta, 253,219 shares; Ms. Darwall, 481
shares; Mr. Elliott, 5,404 shares; Mr. Everingham, 1,569 shares;
Mr. Grissom, 1,586 shares; Dr. McFarlan, 1,612 shares; Ms. Owades, 481
shares; Mr. Thompson, 1,612 shares; Mr. Weinberg, 1,569 shares; Mr.
Alvarez, 35,706 shares; Mr. Barad, 42,717 shares; Mr. Petrini, 13,123
shares; and Ms. Richey, 21,178 shares.
(2) Includes the following shares subject to options granted under the
Company's 1997 Stock Option Plan which are now exercisable or are
exercisable through May 12, 2000: Mr. Mehta, 2,423,175 shares;
Ms. Darwall, 8,750 shares; Mr. Elliott, 38,334 shares; Mr. Everingham,
18,750 shares; Mr. Grissom, 18,750 shares; Dr. McFarlan, 18,750 shares;
Ms. Owades, 11,250 shares; Mr. Thompson, 18,750 shares; Mr. Weinberg,
18,750 shares; Mr. Alvarez, 214,784 shares; Mr. Barad, 214,754 shares;
Mr. Petrini, 181,782 shares; and Ms. Richey, 106,411 shares.
(3) Includes the following shares held in an account under the Company's
401(k) Plan as of December 31, 1999 (the latest Plan statement date),
over which limited investment power is held: Mr. Mehta, 1,993 shares;
Mr. Elliott, 102 shares; Mr. Alvarez, 2,658 shares; Mr. Barad, 1,371
shares; Mr. Petrini, 1,870 shares; and Ms. Richey, 1,525 shares.
(footnotes continued on next page)
3
<PAGE>
(4) Includes 492,784 shares held in trust, as to which Mr. Mehta shares
voting and investment power.
(5) Includes 300 shares held in trust, as to which Ms. Darwall shares
voting and investment power.
(6) Includes 1,498 shares held in an individual retirement account.
(7) Includes 9,981 shares held in trust.
(8) Includes 6,750 shares owned by Mr. Grissom's spouse, as to which Mr.
Grissom disclaims beneficial ownership.
(9) Includes 900 shares owned by Dr. McFarlan's spouse, as to which Dr.
McFarlan disclaims beneficial ownership.
(10) Includes 1,500 shares held in the name of Ms. Owades' spouse, as to
which Ms. Owades shares voting and investment power.
The Company's Human Resources Committee has established stock ownership
guidelines for the Company's directors and senior managers. The guidelines set
certain stock ownership levels for directors and senior managers to further
align their interests with stockholders. The stock ownership levels provided
by the guidelines are five times annual retainer for non-employee directors;
two, three or five times base salary for senior managers, depending on the
office held; and ten times base salary for the Chief Executive Officer.
Restricted stock, vested stock options and stock held in the Company's 401(k)
Plan may be used to satisfy the guidelines. Directors and senior managers have
a period of four years from the later of the introduction of the guidelines in
1997 or their election or appointment to meet the targeted stock ownership
levels. Of the 43 directors and senior managers subject to these stock
ownership guidelines (excluding senior managers who became subject to the
guidelines in December 1999 and thus have until December 2003 to meet the
guidelines), 38 have already met the guidelines.
PROPOSAL 1: ELECTION OF DIRECTORS
The Company's Certificate of Incorporation provides for the classification
of the Board of Directors into three classes, with each class of directors
serving staggered three-year terms (or a shorter term if a director is filling
a vacancy). Three directors are to be elected at the 2000 Annual Meeting to
serve for a term of three years expiring in 2003. All nominees have consented
to be named and to serve if elected. The Company does not presently know of
any reason that would preclude any nominee from serving if elected. If any
nominee, for any reason, should become unable or unwilling to stand for
election as a director, either the shares of Common Stock represented by all
proxies authorizing votes for such nominee will be voted for the election of
such other person as the Board of Directors may recommend, or, if the Board of
Directors so determines, the number of directors to be elected at the Annual
Meeting will be reduced accordingly. Mr. Mehta has been a member of the Board
of Directors since 1988. Each of Messrs. McFarlan and Thompson was appointed
to the Board of Directors in 1997.
In addition to the three nominees, six directors have terms that continue
after the Annual Meeting. The following information, which is based on
information provided to the Company by the nominees and current directors,
sets forth their age, length of service as a director of the Company,
positions and offices with the Company, principal occupations during the past
five years and other directorships of publicly held companies:
The Board of Directors Recommends a Vote FOR the Nominees Named in This
Proposal.
Nominees for Election at the Annual Meeting:
Shailesh J. Mehta, 50
Director since 1988.
Chief Executive Officer of the Company from 1988 to present and Chairman of
the Board and President of the Company from June 1997 to present. President
and Chief Operating Officer of Providian Corporation from 1994 to June
1997. Executive Vice President of Providian Corporation, and Chairman and
Chief Executive Officer of Providian Direct Insurance, a division of
Providian Corporation, from 1993 to 1994.
Other directorships: Hanover Direct, Inc.
4
<PAGE>
F. Warren McFarlan, D.B.A., 62
Director since 1997.
Professor of Business Administration, Harvard Business School, from 1973 to
present; Senior Associate Dean, Harvard Business School, from 1991 to
present; Director of External Affairs, Harvard Business School, from 1995
to present; member of the Harvard University faculty from 1964 to present.
Other directorships: Computer Sciences Corporation and Li and Fung Limited.
Larry D. Thompson, 54
Director since 1997.
Partner, King & Spalding,(/1/) a law partnership, from 1986 to present.
Directors Continuing in Office Whose Terms Expire in 2001 are:
James V. Elliott, 56
Director since 1995.
Executive Vice President of the Company and Managing Director of the
Company's U.K. Business from August 1998 to present. Attorney at law in
private practice from 1997 to August 1998. Senior Vice President and
General Counsel of Providian Corporation from 1995 to 1997; Senior Vice
President of the Company from 1993 through 1994 and General Counsel of the
Company from 1989 through 1994.
Lyle Everingham, 73
Director since 1997.
Retired Chairman and Chief Executive Officer, The Kroger Co., a food and
drug retailer and manufacturer.
J. David Grissom, 61
Director since 1997.
Chairman, Mayfair Capital, a private investment company, from 1989 to
present.
Other directorships: Churchill Downs, Incorporated and LG&E Energy Corp.
Directors Continuing in Office Whose Terms Expire in 2002 are:
Christina L. Darwall, 51
Director since 1998.
Executive Director, Harvard Business School California Research Center,
from 1997 to present. Chairman and Co-founder of ViewStar Corporation, a
software company, from 1986 to 1990, and member of the Board of Directors
and consultant to ViewStar Corporation from 1991 to 1996; member of the
Board of Directors, Harvard Business School Publishing Corporation, from
1995 to present.
Ruth M. Owades, 51
Director since 1998.
President and Chief Executive Officer, Calyx & Corolla, a fresh flower
catalog company, from 1988 to present.
Other directorships: J. Jill, Inc.
- --------
(/1/) The Company retained King & Spalding during 1999 to perform certain
legal services. In the future, King & Spalding may be called on to
provide similar services to the Company.
5
<PAGE>
John L. Weinberg, 75
Director since 1997.
Senior Chairman and limited partner, Goldman, Sachs & Co.,(/2/) an
investment bank and financial advisory firm, from November 1990 to May
1999.
Other directorships: Knight-Ridder, Inc., Tricon Global Restaurants, Inc.
and The Goldman Sachs Group, Inc.
Committees of the Board
The Company's By-laws authorize the Board to designate committees to assist
it in the management of the business and affairs of the Company. The Board has
designated the following committees to which directors are appointed: Asset
Liability, Marketing, Special, Audit, and Human Resources.
The Audit Committee supervises and reviews the Company's risk management and
internal controls programs, makes recommendations to the Board of Directors as
to the appointment of independent auditors, and confers with independent
auditors and internal auditors regarding the scope of proposed audits and
audit findings, reports and recommendations. In addition, the Committee
reviews compliance reports and reports of material actual or threatened
litigation, significant changes in accounting practice and the status of tax
audits and appeals. The members of the Audit Committee are currently Messrs.
Thompson (Chair) and Grissom and Ms. Darwall. The Audit Committee met five
times during 1999.
The Human Resources Committee reviews and approves the compensation and
benefits policies and practices of the Company, except that approval of the
salary and bonus of the Chief Executive Officer is also subject to approval by
the full Board of Directors. The Human Resources Committee recommends to the
Board nominations for directors and the Chief Executive Officer of the Company
and is responsible for the appointment of other officers. The Committee also
reviews matters related to management succession. In addition, the Committee
administers certain employee benefit plans. The members of the Human Resources
Committee are currently Dr. McFarlan (Chair) and Messrs. Everingham and
Weinberg. The Human Resources Committee met five times during 1999.
Directors' Meetings
During 1999, the Company's Board of Directors held 10 meetings. Each
director attended at least 75 percent of the aggregate number of meetings of
the Board and of applicable committees of the Board held during the period
that he or she served as a member of the Board or such committees.
Directors' Compensation
Directors who also are officers of the Company receive no additional
compensation for serving on the Company's Board of Directors. All other
directors are paid an annual retainer of $54,000 and an additional $2,000
annually for serving as a committee chair. Directors may elect to receive 25%
or more of their total annual retainer in either unrestricted Common Stock
under the Company's Stock Ownership Plan or phantom stock units under the
Company's Deferred Compensation Plan for Senior Executives and Directors.
Directors who elect to receive all or a portion of their retainer in
unrestricted Common Stock or phantom stock units receive an additional award
in restricted Common Stock or phantom stock units, as the case may be, equal
to 25% of their total annual retainer. One-half of the restricted stock or
phantom stock units comprising such additional award vests after three years
and the balance vests after six years. However, if a director disposes of
unrestricted retainer shares or phantom stock units before the vesting of the
related restricted stock or phantom
- --------
(/2/) Goldman, Sachs & Co., a wholly owned subsidiary of The Goldman Sachs
Group, Inc., performed investment banking and financial advisory
services for the Company during 1999. In the future, Goldman, Sachs &
Co. may be called on to provide similar services to the Company.
6
<PAGE>
stock units, the director will forfeit all or a portion of such related
restricted stock or phantom stock units, as the case may be. In addition, in
1999, the non-employee directors each received options to purchase 3,750
shares of Common Stock, which vest in equal annual amounts over a three-year
period. The Company's directors also are reimbursed for necessary and
reasonable expenses incurred in the performance of their duties as directors.
Executive Compensation and Other Information
The following table presents for the last three fiscal years information
with regard to compensation for services rendered in all capacities to the
Company by the Chief Executive Officer and the four other most highly
compensated executive officers of the Company (collectively, the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
-------------------------------- ------------------------------
Awards
Other Annual Restricted Stock Securities All Other
Name and Principal Compensation Award(s)($) Underlying Compensation
Position Year Salary($) Bonus($) ($)(1) (2)(3)(4)(5) Options(#)(6) ($)(7)(8)(9)
- ------------------ ---- --------- --------- ------------ ---------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Shailesh J. Mehta...... 1999 892,308 1,200,000 848,710 4,427,438 340,000 281,796(10)
Chairman, 1998 825,000 1,181,321 317,758 3,638,366 600,000 670,599
President and CEO 1997 771,056 1,125,013 170,136 5,832,263 1,829,541 133,164
Seth A. Barad.......... 1999 366,923 405,041 37,510 776,428 125,000 13,533
President, 1998 318,750 300,054 719 675,102 97,500 46,928
Emerging Businesses 1997 284,522 270,032 -- 928,176 75,000 20,234
David Alvarez.......... 1999 329,423 405,041 41,132 776,428 125,000 12,295
President, 1998 256,250 270,011 27,803 179,989 82,500 40,980
Credit Cards 1997 206,840 202,550 11,303 907,719 126,189 29,295
Ellen Richey........... 1999 293,462 315,032 6,320 419,969 85,000 11,009
Vice Chairman, 1998 240,625 216,028 3,578 143,972 63,000 32,798
General Counsel and 1997 220,644 202,550 709 524,594 45,000 26,009
Secretary
David J. Petrini....... 1999 254,423 240,024 87,700 319,976 35,000 9,783
Executive Vice
President 1998 220,356 112,522 42,599 103,964 60,000 28,971
and Chief Financial 1997 186,832 105,000 17,646 285,377 130,911 24,053
Officer
</TABLE>
- --------
(1) Includes amounts reimbursed during the year for payment of taxes and
includes above-market interest on deferred compensation paid or payable
during the year but deferred at the election of the Named Executive
Officer.
(2) Represents the dollar value of restricted stock awarded under (i) the
Company's Stock Ownership Plan (the "Providian Financial SOP") in 1999
and 1998, and in 1997 after the June 1997 spin-off of the Company's
common stock to the stockholders of Providian Corporation (the "Spin-
off"), and (ii) Providian Corporation's Stock Ownership Plan (the
"Providian Corporation SOP") in 1997 prior to the Spin-off. Under the
Providian Corporation SOP, awards were made in common stock of Providian
Corporation, and under the Providian Financial SOP, awards are made in
the Company's Common Stock. Restricted stock awarded to the Named
Executive Officers under the Providian Corporation SOP vested
immediately prior to the Spin-off.
(3) Dividends on restricted stock awards under the Providian Financial SOP
are paid, and under the Providian Corporation SOP were paid, at the same
rate as paid to all stockholders. On December 31, 1999, on which date
the closing price of the Common Stock was $91.0625, the Named Executive
Officers held shares of restricted stock (excluding restricted stock
awarded in the first quarter of 2000) having a then market value as
follows: Mr. Mehta, 211,144 shares, $19,227,301; Mr. Barad, 34,653
shares, $3,155,589; Mr. Alvarez, 26,140 shares, $2,380,374; Ms. Richey,
16,761 shares, $1,526,299; and Mr. Petrini, 9,471 shares, $862,453.
(footnotes continued on next page)
7
<PAGE>
(4) Includes for 1999 the following shares of restricted stock awarded under
the Providian Financial SOP in the first quarter of 2000 as part of the
Company's annual incentive award for 1999, which vest in three equal
annual amounts beginning February 15, 2001: Mr. Mehta, 25,531 shares;
Mr. Barad, 7,992 shares; Mr. Alvarez, 7,992 shares; Ms. Richey, 6,216
shares; and Mr. Petrini, 4,736 shares. In addition, includes for 1999
restricted stock awards of 40,000 shares to Mr. Mehta and 3,500 shares
to each of Messrs. Barad and Alvarez made under the Providian Financial
SOP in the first quarter of 2000, based on the Company's performance in
1999, which vest in five equal annual amounts beginning February 15,
2001.
(5) Shares of restricted stock awarded to the Named Executive Officers under
the Providian Financial SOP in 1999 as part of the Company's annual
incentive award for 1998 and in 1998 as part of the Company's annual
incentive award for 1997 vest in three equal annual amounts beginning
February 15 of the year following the date of grant. An additional
30,000 shares awarded to Mr. Mehta and 5,000 shares awarded to Mr. Barad
in 1999, based on the Company's performance in 1998, vest in five equal
annual amounts beginning February 15, 2000. An additional 37,500 shares
of restricted stock awarded to Mr. Mehta in 1998, based on the Company's
performance in 1997, vest in five equal annual amounts beginning
February 15, 1999. Shares of restricted stock awarded to the Named
Executive Officers in June 1997 under the Providian Financial SOP vest
in five equal annual amounts beginning June 11, 1998. Mr. Alvarez's
restricted stock award of 15,000 shares in August 1997 vests in five
equal annual amounts beginning August 7, 1998.
(6) Represents the number of shares of Common Stock underlying options.
(7) Includes Providian Corporation contributions under the Providian
Corporation Thrift Savings Plan and Providian Corporation's nonqualified
defined contribution plan during 1997 for Mr. Mehta, and also includes
the Company's contributions to each Named Executive Officer under the
Company's 401(k) Plan and nonqualified defined contribution plan during
1997, 1998 and 1999. In 1999, Company contributions in the amount of
$5,280 were made to the Company's 401(k) Plan for each of Messrs. Mehta,
Barad, Alvarez and Petrini and Ms. Richey; and the following
contributions were made to the Company's nonqualified defined
contribution plan: $24,166 for Mr. Mehta; $6,828 for Mr. Barad; $5,242
for Mr. Alvarez; $4,214 for Ms. Richey; and $3,116 for Mr. Petrini.
(8) Under the retirement component of the Company's 401(k) Plan, annual
contributions are made by the Company after the end of each fiscal year
in an amount based on a percentage of the employee's compensation. The
percentage is determined each year by the Company at its discretion. The
percentage for 1999 has not yet been determined, and the amounts of such
annual contributions to the Named Executive Officers for 1999 are
therefore not included in this column. The amounts of the Company's
annual contributions for 1998, which were not available at the time of
the preparation of the Company's Proxy Statement for the 1999 Annual
Meeting, are included in this column for 1998.
(9) Includes above-market interest earned on nonqualified retirement
benefits and payable in future periods in the following amounts: $4,812
for Mr. Mehta; $1,424 for Mr. Barad; $1,773 for Mr. Alvarez; $1,515 for
Ms. Richey; and $1,387 for Mr. Petrini.
(10) Includes $247,539 in Company contributions to Mr. Mehta's supplemental
retirement plan.
8
<PAGE>
Option Grants
The following table contains information concerning the grant of stock
options in 1999 under the Company's 1997 Stock Option Plan to the Named
Executive Officers. Included is information on potential realizable value(s)
to the Named Executive Officers, assuming growth of the Common Stock at the
stated rates of appreciation.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
---------------------------------------------- Value at Assumed
Number of % of Total Annual Rates of Stock
Securities Options Price Appreciation
Underlying Granted to Exercise or for Option Term(2)
Options Employees in Base Price Expiration ---------------------
Name Granted(1) Fiscal Year ($/Sh) Date 5%($) 10%($)
- ---- ---------- ------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Shailesh J. Mehta....... 340,000 11.09% 127.75 05/11/09 27,316,038 69,224,204
Seth A. Barad........... 75,000 2.45% 127.75 05/11/09 6,025,597 15,270,045
50,000 1.63% 111.56 10/29/09 3,508,069 8,890,135
David Alvarez........... 75,000 2.45% 127.75 05/11/09 6,025,597 15,270,045
50,000 1.63% 111.56 10/29/09 3,508,069 8,890,135
Ellen Richey............ 35,000 1.14% 127.75 05/11/09 2,811,945 7,126,021
50,000 1.63% 111.56 10/29/09 3,508,069 8,890,135
David J. Petrini........ 35,000 1.14% 127.75 05/11/09 2,811,945 7,126,021
</TABLE>
- --------
(1) Options were granted to each of the Named Executive Officers on May 11,
1999 and to Messrs. Barad and Alvarez and Ms. Richey on October 29, 1999.
One-third of the options granted become exercisable on each of the first,
second and third anniversaries of the date of grant.
(2) The amounts shown represent certain assumed rates of appreciation only.
Actual gains on stock option exercises, if any, are dependent on the
future performance of the Common Stock and overall condition of the stock
market, as well as the option holder's continued employment through the
vesting period. The amounts reflected in this table may not necessarily be
achieved.
Option Exercises and Holdings
The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of options during 1999 and
unexercised options held at the end of 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options at
Acquired on Options at 12/31/99 (#) 12/31/99 ($)(1)
Exercise Value ------------------------- -------------------------
Name (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Shailesh J. Mehta....... -- -- 2,109,841 990,000 144,096,656 37,670,970
Seth A. Barad........... -- -- 157,254 215,000 10,790,054 5,044,442
David Alvarez........... -- -- 162,284 205,000 10,863,874 4,492,104
Ellen Richey............ -- -- 73,744 142,000 4,877,599 3,179,946
David J. Petrini........ -- -- 150,115 85,000 10,112,788 2,733,090
</TABLE>
- --------
(1) Based on the average of the high and low price of the Common Stock on
December 31, 1999, equal to $90.3438 per share.
During 1999, the Named Executive Officers surrendered to the Company for
cancellation options to purchase the following number of shares, in exchange
for a deferred compensation credit: Mr. Mehta, 160,194;
9
<PAGE>
Mr. Barad, 13,526; Mr. Alvarez, 11,545; Ms. Richey, 4,950; and Mr. Petrini,
9,857. The deferred compensation credit realized in connection with the
cancellation of such options was equal to the difference between the value of
the underlying shares on the date such options were cancelled and the exercise
price of the cancelled options.
Executive Employment and Change in Control Agreements
The Company has entered into an employment agreement with Shailesh J. Mehta
(the "Employment Agreement"), pursuant to which Mr. Mehta has been employed as
Chairman, President and Chief Executive Officer of the Company. Mr. Mehta's
term of employment under the Employment Agreement commenced on June 11, 1997
and was originally scheduled to end on June 11, 2000. On each June 11,
however, the term of employment is automatically extended by one year, so that
the remaining term of employment is once again three years, unless either
party gives the other at least one year's notice that the term of employment
will not be extended. Thus, Mr. Mehta's term of employment under the
Employment Agreement is currently scheduled to continue until June 11, 2002.
Mr. Mehta's current annual base salary is $920,000 and he is entitled to
incentive bonus payments pursuant to the terms of the Company's Management
Incentive Plan. Mr. Mehta is also entitled to participate in and receive
benefits under all other bonus plans, short- or long-term incentive plans,
savings and retirement plans, and welfare benefit plans, practices, policies
and programs maintained or provided by the Company for the benefit of senior
executives. In the event the Company terminates Mr. Mehta's employment without
Cause (as defined in the Employment Agreement), or he terminates his
employment for Good Reason (as defined in the Employment Agreement), Mr. Mehta
will receive severance benefits. If such termination is prior to a Change in
Control (as defined below), the benefits will include continuation of
Mr. Mehta's annual base salary, bonus and other benefits, and continued
vesting of options and restricted stock, for three years following
termination. If such termination is within three years after a Change in
Control, the benefits will include a lump sum payment equal to three times Mr.
Mehta's annual base salary and bonus, immediate vesting of all options and
restricted stock, and continuation of other benefits for three years following
termination. Additionally, if any payment or distribution to Mr. Mehta would
be subject to any "excess parachute payment" excise tax or similar tax, then
he will be entitled to receive tax restoration payments in an amount such
that, after payment of such excise tax or similar tax and all taxes
attributable to such tax restoration payments, Mr. Mehta retains an amount
equal to the amount he would have retained if such excise tax or similar tax
had not applied.
In addition to the Employment Agreement with Mr. Mehta described above, the
Company has entered into change in control employment agreements with the
Named Executive Officers. In these agreements, a "Change in Control" is
defined as the acquisition by a person or group of 20% or more of the Common
Stock or other voting securities of the Company (subject to specified
exceptions), certain changes in the majority of the Company's Board of
Directors, certain mergers involving the Company, or the liquidation,
dissolution or sale of all or substantially all of the assets of the Company.
If within three years of a Change in Control the officer's employment is
terminated by the Company, other than for Disability or Cause (as defined in
such agreements), or if the officer terminates his or her employment for Good
Reason (as defined in such agreements) or within a 30-day period beginning one
year after the Change in Control, the officer will be entitled to the
following benefits: base salary and a pro rata bonus through the date of
termination, a severance payment equal to three times the officer's annual
base salary and bonus, any deferred compensation not yet paid by the Company,
a special retirement benefit equal to a specified retirement contribution
percentage multiplied by three times his or her annual base salary and bonus,
a payment in an amount equal to the officer's unvested portion of any
qualified or nonqualified retirement contribution account established for the
officer (in addition to any vested amounts due the officer under any of the
Company's retirement plans), and, for a period of three years after the date
of termination, medical, welfare and other benefits under any plans, policies
and programs under which the officer is eligible to receive such benefits.
Additionally, if any payment or distribution to the officer by the Company or
any subsidiary or affiliate would be subject to any "excess parachute payment"
excise tax or similar tax, then the officer will be entitled to receive tax
restoration payments in an amount such that, after payment of such excise tax
or similar tax and all taxes attributable to such tax restoration payments,
the officer retains an amount equal to the amount the officer would have
retained if such excise tax or similar tax had not applied. In addition
10
<PAGE>
to the change in control agreements with Named Executive Officers described in
this paragraph, the Company has entered into change in control employment
agreements with certain other officers, the specific terms of which are no
more favorable to such officers than those described in this paragraph.
Compensation Committee Interlocks and Insider Participation and Certain
Transactions
The Company's Human Resources Committee reviews and approves the
compensation and benefits policies and practices of the Company, except that
approval of the base salary and bonus of the Chief Executive Officer is also
subject to approval by the full Board of Directors. The members of the Human
Resources Committee during 1999 were Dr. McFarlan and Messrs. Everingham and
Weinberg, none of whom has served as an officer or employee of the Company or
any of its subsidiaries. Mr. Weinberg is a director of The Goldman Sachs
Group, Inc. The Company has retained Goldman, Sachs & Co., a wholly owned
subsidiary of The Goldman Sachs Group, Inc., from time to time to perform
investment banking and financial advisory services for the Company. Goldman,
Sachs & Co. may be called upon to provide similar services to the Company in
the future. Mr. Thompson, a director of the Company, is a partner in King &
Spalding. From time to time, the Company has retained King & Spalding to
provide legal services to the Company and may retain King & Spalding in the
future to provide similar services to the Company.
11
<PAGE>
Human Resources Committee
Executive Compensation Report
February 16, 2000
The Company's executive compensation programs are administered by the Human
Resources Committee (the "Committee"), a committee of the Board of Directors
comprised exclusively of non-employee directors. The Committee either approves
or recommends to the Board of Directors payment amounts and award levels for
the Company's executive officers.
Compensation Philosophy
The policies that govern executive compensation continue to align changes in
total compensation with changes in the value created for our stockholders.
These policies require that our executive compensation program:
. reflect a clear relationship between compensation and Company
performance;
. reward executives with direct ownership in the Company and align their
personal interests with stockholder interests to continually reinforce
building stockholder value; and
. attract and retain key executives critical to the Company's long-term
success.
The Company's executive compensation program has been and continues to be
based on the following elements, each of which supports our overall
compensation philosophy.
Base Salary
The Company uses a consistent methodology to determine base salaries for all
executive employees. Market reference points are determined for specific
positions and job classifications using relevant salary surveys. Individual
salaries are then established to assure competitive pay given individual
performance. The Company annually participates in executive compensation
surveys for financial services companies. Base salaries for executives are
determined based on competitive pay levels, as well as on the achievement of
individual performance objectives.
In June 1997, the Committee approved an employment contract with Mr. Mehta
for the position of Chief Executive Officer. Mr. Mehta's contract calls for an
initial base salary of $800,000, which was raised to $840,000 in 1998. Mr.
Mehta's base salary was raised to $920,000 in May 1999 as a result of the
Company's outstanding 1998-99 performance and to ensure continued
competitiveness.
Incentive Awards
The Company provides annual incentive award opportunities for executives
based upon the earnings per share of the Company, as well as the successful
achievement of individual performance objectives for the year. Annual
incentive awards may be made in cash and/or restricted stock issued under the
Company's Stock Ownership Plan, as determined by the Committee. The earnings
plan and the incentive award formula are adopted by the Committee in
connection with the Board's approval of the Company's annual business plan at
the start of each year. In the first quarter following the completion of each
year, the Committee approves awards based upon the prior year's performance
results. It has been the Company's policy to set earnings per share targets
which, if achieved, would position total annual cash compensation above median
competitive levels. Based on Mr. Mehta's current base salary, achieving target
earnings per share would result in Mr. Mehta's receiving an annual incentive
award consisting of cash and/or restricted stock having a total value of
$1,437,500. Per share earnings performance above or below this target would
result in a higher or lower award based on the pre-established formula.
12
<PAGE>
The Committee has approved an annual incentive award for Mr. Mehta of
$2,924,938.19 for 1999, consisting of $1,200,000 in cash and 25,531 shares of
restricted stock, based upon the Company's achieving per share earnings
(assuming dilution) of $3.78, which was well above the earnings target
established for 1999. The 25,531 shares of restricted stock is two times the
amount payable under the normal formula pursuant to the Committee's decision
to increase the stock portion of incentive awards for all eligible executives.
The Committee also approved a special grant of 40,000 shares of restricted
stock to Mr. Mehta under the Company's Stock Ownership Plan, based on the
Company's strong performance results for 1999. These grants are subject to the
deduction limits of Section 162(m) of the Internal Revenue Code ("Section
162(m)").
The Company also provides grants of stock options under the Company's 1997
Stock Option Plan to executives and other employees. These option grants tie
awards to the future performance of the Company's Common Stock and provide
value only when the price of the Common Stock increases above the option
exercise price (determined by the average of the high and low prices of the
Common Stock on the date of grant). Options generally vest in equal amounts
over a three-year period and require that the executive remain employed by the
Company until the time of vesting. Options expire no later than ten years from
the date of grant. Stock option grants are intended to motivate executives to
improve the long-term performance of the Company's Common Stock.
In granting stock options, the Committee takes into account competitive
grant practices within the financial services industry and the executive's
level of responsibility, individual contribution and total annual
compensation. Based on these factors and the Company's strong earnings and
revenue growth as compared to its industry, in May 1999 Mr. Mehta was granted
options to purchase 340,000 shares of Common Stock at an exercise price of
$127.75 per share.
Deductibility of Compensation Expenses
Section 162(m) limits federal income tax deductions by the Company for
compensation paid to the chief executive officer and the four other most
highly compensated officers to $1 million per officer per year, unless it
qualifies as "performance-based" compensation. To qualify as "performance-
based," compensation payments must satisfy certain conditions, including
limitations on the discretion of the Committee in determining the amounts of
such compensation. The Committee believes that payment of compensation that is
subject to the deduction limits of Section 162(m) is sometimes in the best
interests of the Company and has approved, and may approve, such arrangements
in certain circumstances.
Human Resources Committee
F. Warren McFarlan (Chair)
Lyle Everingham
John L. Weinberg
13
<PAGE>
Performance Graph
Set forth below is a line-graph presentation comparing the cumulative total
stockholder return on the Common Stock on an indexed basis since June 11,
1997, when the Common Stock first began trading on the New York Stock
Exchange, with the cumulative total stockholder return on the Standard &
Poor's 500 Stock Index and the Standard & Poor's Financial Composite Index
over the same period. The graph assumes that the value of the investment in
the Common Stock and in each index was $100 on June 11, 1997 and assumes
reinvestment of all dividends. Historical stock price is not indicative of
future stock price performance.
Total Stockholder Return
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
Providian Financial S&P 500 S&P Financial
------------------- ------- -------------
<S> <C> <C> <C>
06/11/97.............................. 100 100 100
06/30/97.............................. 107 102 101
12/31/97.............................. 151 113 120
06/30/98.............................. 263 133 140
12/31/98.............................. 377 145 134
06/30/99.............................. 469 163 150
12/31/99.............................. 459 175 137
</TABLE>
14
<PAGE>
PROPOSAL 2: APPROVAL OF THE COMBINATION OF THE COMPANY'S
1997 STOCK OPTION PLAN AND STOCK OWNERSHIP PLAN
AS THE AMENDED AND RESTATED 2000 STOCK INCENTIVE PLAN
The Company's 1997 Stock Option Plan (the "1997 Option Plan") provides for
the award by the Human Resources Committee of the Company's Board of Directors
(the "Committee") of stock options and stock appreciation rights ("SARs") to
key employees. The Company's Stock Ownership Plan (the "Stock Plan") provides
for the award of stock grants to key employees of the Company and to non-
employee directors of the Company and certain of its subsidiaries. In February
2000, for ease of administration, the Board approved the combination of the
1997 Option Plan and the Stock Plan (and the pools of shares available for
issuance under the 1997 Option Plan and the Stock Plan) as the 2000 Stock
Incentive Plan (the "2000 Plan"). The Company has not increased the total
shares available under the 1997 Option Plan and the Stock Plan. Pursuant to
Section 162(m) of the Internal Revenue Code ("Section 162(m)") and the listing
requirements of the New York Stock Exchange, the material terms of the 2000
Plan are subject to the approval of the holders of a majority of the shares of
Common Stock present in person or by proxy and entitled to vote at the 2000
Annual Meeting. The material terms of the 2000 Plan that require stockholder
approval are: the participants eligible to participate in the 2000 Plan, the
performance goals that may apply to certain awards, the annual grant limits
applicable to certain types of awards, and the use of the entire combined
share pool to grant stock options.
Purpose of the 2000 Plan
The 2000 Plan is intended to promote the success of the Company by providing
a vehicle under which a variety of stock-based incentive and other awards can
be granted to employees, consultants and directors, including directors of the
Company and certain of its subsidiaries who are not employees of Company or
any affiliate ("non-employee directors").
Description of the 2000 Plan
The following paragraphs provide a summary of the principal features of the
2000 Plan and its operation.
General
The 2000 Plan provides for the award of stock options, SARs and stock grants
(collectively, "Awards") to eligible 2000 Plan participants. The stock subject
to the 2000 Plan includes the Common Stock and any new class or series of
common stock that may be authorized by the Company. The maximum number of
shares of the Company's common stock available for Awards under the 2000 Plan
will be 23,906,286 (subject to adjustment for stock splits and certain other
events). If the material terms of the 2000 Plan are approved by stockholders,
stock options may be granted out of both the Stock Plan share pool and the
1997 Option Plan share pool (which, on a combined basis, is 23,906,286 shares,
subject to adjustment for stock splits and certain other events). Restricted
stock could be granted only out of the former Stock Plan share pool (which is
6,000,000 shares, subject to adjustment for stock splits and certain other
events).
Administration of the 2000 Plan
The 2000 Plan will be administered by the Committee. The members of the
Committee must qualify as "non-employee directors" under Rule 16b-3 under the
Securities Exchange Act of 1934, and as "outside directors" under Section
162(m) (for purposes of qualifying Awards under the 2000 Plan as performance-
based compensation under Section 162(m)).
Subject to the terms of the 2000 Plan, the Committee has the sole discretion
to determine the employees, directors and consultants who shall be granted
Awards, the size and types of such Awards, and the terms and conditions of
such Awards. The Committee may delegate its authority to grant and administer
Awards to one or more directors appointed by the Committee, but only the
Committee or the Board of Directors can make Awards to participants who are
subject to Section 16 of the Securities Exchange Act of 1934.
15
<PAGE>
Eligibility to Receive Awards
Employees, directors and consultants of the Company and its affiliates are
eligible to receive one or more Awards. The actual number of individuals who
will receive Awards under the 2000 Plan cannot be determined since
participation is in the discretion of the Committee. As of March 13, 2000, the
Company and its affiliates had approximately 326 employees, directors and
consultants who would be eligible to receive Awards under the 2000 Plan.
As of March 13, 2000, 11,271,146 shares were subject to Awards under the
1997 Option Plan and 6,635,140 shares remained available for future grant. As
of March 13, 2000, 1,074,961 shares were subject to Awards under the Stock
Plan and 4,925,039 shares remained available for future grant. As of March 13,
2000, the fair market value of a share (based on the average of the high and
low trading prices) of the Common Stock was $64.125.
Options
The Committee may grant nonqualified stock options, incentive stock options
(which are entitled to favorable tax treatment), or a combination thereof
under the 2000 Plan. The number of shares of common stock covered by each
option granted to a participant will be determined by the Committee, but
during any fiscal year of the Company, no participant may be granted options
for more than 1,384,800 shares (subject to adjustment for stock splits and
certain other events). For ease of administration, the Company has decided to
adopt this absolute share limit, which is the same as the limit under the 1997
Option Plan.
The exercise price of the shares of common stock subject to each stock
option is established by the Committee. The exercise price cannot be less than
100% of the fair market value (on the date of grant) of the shares covered by
an incentive stock option (110% of fair market value if on the grant date the
participant owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any of its subsidiaries).
Nevertheless, substitute options may be granted with an exercise price that is
less than fair market value to participants who receive such options in
connection with a corporate reorganization.
The exercise price of each option must be paid in full at the time of
exercise. The Committee may permit payment through the tender of shares of the
Company's common stock that are already owned by the participant, or by any
other means which the Committee determines to be consistent with the 2000
Plan's purpose. Any taxes required to be withheld must be paid by the
participant at the time of exercise.
Options become exercisable at the times and on the terms established by the
Committee. Options expire at the times established by the Committee but not
later than 10 years after the date of grant (except in certain cases involving
the death of the participant). The Committee may extend the maximum term of
any option granted under the 2000 Plan, subject to such 10-year limit.
Non-Employee Director Awards
Non-employee directors of the Company and certain of its subsidiaries may
receive discretionary awards of stock grants and stock options. In addition,
non-employee directors may elect to receive shares of Company stock under the
2000 Plan in lieu of cash compensation. Similarly, the Committee may allow
non-employee directors to elect to receive options for shares of Company stock
in lieu of such compensation.
Stock Appreciation Rights
The Committee determines the terms and conditions of each SAR. SARs may be
granted in conjunction with an option. The number of shares covered by each
SAR will be determined by the Committee, but no participant may be granted
SARs for more than 50% of the number of shares subject to the corresponding
options. Upon exercise of an SAR, the participant will receive payment from
the Company in an amount determined by multiplying: (1) the difference between
the fair market value of a share of the Company's common stock on the date of
exercise over the grant price (fair market value of a share on the grant date)
times (2) the
16
<PAGE>
number of shares with respect to which the SAR is exercised. SARs may be paid
in cash or shares of the Company's common stock, as determined by the
Committee. SARs are exercisable at the times and on the terms established by
the Committee.
Stock Grants
Stock grants are shares of the Company's common stock that may vest in
accordance with terms and conditions established by the Committee. The number
of shares of each stock grant awarded to a participant will be determined by
the Committee, but during any fiscal year of the Company no participant may be
granted more than 225,000 shares (subject to adjustment for stock splits and
certain other events), plus the additional limit for awards of performance-
based stock grants noted below.
In determining whether a stock grant should be awarded, and the vesting
schedule for an award, the Committee may impose whatever conditions to the
grant or to vesting as it determines to be appropriate. For example, the
Committee may determine to award stock grants only if performance goals
established by the Committee are satisfied. Any performance goals may be
applied on a Company-wide or an individual business unit basis, as determined
by the Committee. Performance-based stock grants may not be awarded for more
than 276,961 shares (subject to adjustment for stock splits and certain other
events) in a fiscal year to any one participant. See discussion below of
Performance Goals.
Performance Goals
The Committee in its discretion may make performance goals applicable to a
participant with respect to an Award. At the Committee's discretion, one or
more of the following performance goals may apply: earnings, earnings per
share, revenue, expenses, net interest margin, and return on equity.
Nontransferability of Awards
Unless the individual Award agreement provides otherwise, Awards granted
under the 2000 Plan may not be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated, other than by will or by the applicable
laws of descent and distribution.
Tax Aspects
A recipient of a stock option or SAR will not have taxable income upon the
grant of the option. For options and SARs other than incentive stock options,
the participant will recognize ordinary income upon exercise in an amount
equal to the excess of the fair market value of the shares over the exercise
price (the "appreciation value") on the date of exercise. Any gain or loss
recognized upon any later disposition of the shares generally will be capital
gain or loss.
The acquisition of shares upon exercise of an incentive stock option will
not result in any taxable income to the participant, except for purposes of
the alternative minimum tax. Gain or loss recognized by the participant on a
later sale or other disposition of such shares will either be long-term
capital gain or loss or ordinary income, depending upon whether the
participant holds the shares transferred upon the exercise for a specified
period. Any ordinary income recognized will be in the amount, if any, by which
the lesser of the fair market value of such shares on the date of exercise or
the amount realized from the sale or other disposition exceeds the option
price.
Unless the participant elects to be taxed at the time of receipt of
restricted stock, the participant will not have taxable income upon the
receipt of the Award, but upon vesting will recognize ordinary income equal to
the fair market value of the shares or cash received at the time of vesting.
At the discretion of the Committee, the 2000 Plan allows a participant to
satisfy tax withholding requirements under federal and state tax laws in
connection with the exercise or receipt of an Award by electing to have shares
of common stock withheld, or by delivering to the Company already-owned
shares, having a value equal to the amount required to be withheld.
17
<PAGE>
The Company will be entitled to a tax deduction in connection with an Award
under the 2000 Plan only in an amount equal to the ordinary income realized by
the participant and at the time the participant recognizes such income, and if
applicable withholding requirements are met. In addition, Section 162(m)
contains special rules regarding the federal income tax deductibility of
compensation paid to the Company's chief executive officer and to each of the
other four most highly compensated executive officers ("covered executives").
The general rule is that annual compensation paid to any covered executives
will be deductible only to the extent that it does not exceed $1,000,000.
However, the Company can preserve the deductibility of certain compensation in
excess of $1,000,000 if it complies with certain conditions imposed by the
Section 162(m) rules, including the establishment of a maximum number of
shares with respect to which Awards may be granted to any one employee during
one year, and if, for Awards other than options and SARs, the 2000 Plan sets
forth the performance measures which are the basis of the targets which must
be achieved prior to the time the Awards are made or vest. The 2000 Plan has
been designed so that options and SARs automatically satisfy Section 162(m),
and the Committee may grant Awards other than options and SARs that are
subject to performance measures, thereby permitting the Company to also
receive a federal income tax deduction in connection with such Awards.
Amendment and Termination of the 2000 Plan
The Board generally may amend or terminate the 2000 Plan at any time and for
any reason.
Required Approval
In the event that stockholder approval of the material terms of the 2000
Plan is not obtained: (i) awards previously granted by the Company will remain
valid and outstanding, (ii) the 1997 Option Plan and Stock Plan share pools
will not be combined for purposes of option grants, and (iii) the Company may
continue to make additional awards under the 2000 Plan, but as a result of
Section 162(m), the Company may not be entitled to deduct fully compensation
expenses related to awards granted to covered executives under Section 162(m).
The Board of Directors of the Company Recommends a Vote FOR the Approval of
the Combination of the Company's 1997 Stock Option Plan and Stock Ownership
Plan as the Amended and Restated 2000 Stock Incentive Plan.
PROPOSAL 3: APPROVAL OF THE MATERIAL TERMS
OF THE AMENDED AND RESTATED 2000 MANAGEMENT INCENTIVE PLAN
In 1995, the stockholders of Providian Corporation, then the parent of the
Company, approved the Management Incentive Plan (the "MIP"). In February 2000,
the Board of Directors of the Company amended and restated the MIP. Under the
rules of Section 162(m), the material terms of a bonus plan, such as the MIP,
must be approved by stockholders every five years in order for certain bonus
payments to be fully deductible. The material terms of the MIP that require
stockholder approval are: the participants covered by the MIP, the objective
performance goals listed in (i) through (vi) under the heading "Maximum Bonus
and Payout Criteria" below, and the individual bonus limit of 200% of the
annualized highest rate of base salary paid to any executive of the Company
with respect to 1999 as reported in this Proxy Statement. If all of these
material terms are not approved by the Company's stockholders, bonus payments
may not be made under the MIP with respect to covered executives under Section
162(m).
Purpose of the MIP
The purpose of the MIP is to (i) motivate and reward executives for good
performance and (ii) allow the Company to vary its compensation expense based
on the Company's financial performance. In accordance with the Company's
compensation policy that cash compensation should vary with Company
performance, a substantial part of each executive's total cash compensation
has been tied to the Company's performance by way of performance-based bonuses
under the MIP.
18
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Participants
Individuals eligible for MIP awards are "key employees" of the Company (as
determined by the Human Resources Committee of the Company's Board of
Directors), which may include the Company's executive officers. However, the
number of key employees who will participate in the MIP and the amount of such
MIP awards are not determinable. Actual awards will be in the discretion of
the Committee, based on the MIP's terms and subject to MIP limits.
Maximum Bonus and Payout Criteria
Bonus payments under the MIP may be made not only in cash, but also in
Company stock, or options to purchase Company stock, as determined by the
Human Resources Committee. The payment to each participant is based on an
individual bonus target for the performance period set by the Human Resources
Committee in writing and is directly related to the satisfaction of the
applicable performance goal(s) set by the Human Resources Committee for such
performance period. The performance goals may include one or more of the
following: (i) earnings, (ii) earnings per share, (iii) revenue, (iv)
expenses, (v) net interest margin, and (vi) return on equity, each with
respect to the Company and/or one or more of its operating units. The bonus
payable to a participant who is not a covered executive may also be based on
individual factors. A performance period is any period up to 36 months in
duration. The performance period individual bonus target and performance
goal(s) will be adopted by the Human Resources Committee in its sole
discretion with respect to each performance period and must be adopted no
later than the latest time permitted by the Internal Revenue Code in order for
bonus payments pursuant to the MIP to be deductible under Section 162(m).
The actual amount of future bonus payments under the MIP is not presently
determinable. However, the MIP provides that no bonus in excess of 200% of the
annualized highest rate of base salary paid to any executive of the Company
with respect to 1999 as reported in this Proxy Statement will be paid to any
participant for any performance period. The previous limit was $1,200,000 per
fiscal year. Further, the Human Resources Committee, in its sole discretion,
may reduce the amount of a participant's bonus under the MIP to an amount
below the maximum bonus calculated pursuant to the MIP formula. The payment of
a bonus for a given performance period generally requires the participant to
be employed by the Company as of the date the bonus is paid.
Required Approval
In the event that stockholder approval of the material terms of the MIP is
not obtained: (i) awards granted by the Company prior to 2000 will remain
valid and outstanding, and (ii) the Company may continue to make additional
awards under the MIP but not with respect to covered executives under Section
162(m).
The Board of Directors of the Company Recommends a Vote FOR the Approval of
the Material Terms of the Company's Amended and Restated 2000 Management
Incentive Plan.
PROPOSAL 4: RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors, adopting the recommendation of the Audit Committee,
has appointed the certified public accounting firm of Ernst & Young LLP as the
Company's independent auditors for the year ending December 31, 2000, subject
to ratification by the stockholders at the Annual Meeting. Representatives of
the firm are expected to attend the Annual Meeting to answer appropriate
questions and, if they desire, to make a statement. Ernst & Young LLP has
served as the Company's independent auditors since 1984.
If the appointment of Ernst & Young LLP is not ratified by a majority of the
votes cast at the Annual Meeting, or if Ernst & Young LLP declines or is
incapable of acting, the appointment of independent auditors will be submitted
to the Board of Directors for reconsideration.
The Board of Directors Recommends a Vote FOR the Proposal to Ratify the
Appointment of Ernst & Young LLP as the Company's Independent Auditors for
2000.
19
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OTHER PROPOSED ACTION
The Company knows of no business to come before the Annual Meeting other
than the matters described above. Should any other business properly come
before the Annual Meeting, stockholders' proxies will be voted in accordance
with the judgment of the person or persons voting the proxies.
STOCKHOLDER PROPOSALS
Any stockholder may submit a proposal for consideration at an annual
meeting. To be included in next year's Proxy Statement, stockholder proposals
for the 2001 Annual Meeting must be in writing and received no later than
December 1, 2000 by the Secretary, Providian Financial Corporation, 201
Mission Street, San Francisco, CA 94105 and must comply with the rules and
regulations of the Securities and Exchange Commission.
Stockholders also may recommend to the Company candidates to stand for
election as directors of the Company. The Human Resources Committee of the
Board of Directors, which serves as the nominating committee for the Board in
recommending nominations for directors of the Company, will consider such
recommendations for the 2001 Annual Meeting and subsequent annual meetings. To
be considered by the Human Resources Committee, recommendations for directors
to be elected in any year must be submitted in writing no later than October
31 of the prior year to the Human Resources Committee, c/o Secretary,
Providian Financial Corporation, 201 Mission Street, San Francisco, CA 94105.
The Company's By-laws impose notice requirements on a stockholder nominating
a director or submitting a proposal for consideration at an annual meeting.
Such notice requirements apply whether or not such stockholder desires to have
his or her nomination or proposal included in the Company's Proxy Statement in
accordance with the preceding paragraphs. In order for a nomination or
proposal to be considered at the 2001 Annual Meeting, notice thereof must be
submitted to the Secretary of the Company not earlier than the close of
business on January 10, 2001 nor later than the close of business on February
9, 2001. If the date of the 2001 Annual Meeting is more than 30 days before,
or more than 60 days after, May 10, 2001, notice by the stockholder to be
timely must be so delivered not earlier than the close of business on the
120th day prior to such annual meeting date nor later than the close of
business on the later of the 90th day prior to such annual meeting date or the
10th day following the day on which public announcement of the date of such
meeting is first made by the Company. Such stockholder's notice must contain
the information prescribed by the Company's By-laws, copies of which are
available from the Secretary.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers and persons who own more than
10% of a registered class of the Company's equity securities to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of the Common Stock and other equity securities of the
Company. Executive officers, directors and greater than 10% stockholders are
required by Securities and Exchange Commission regulations to furnish the
Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and on written representations that no other
reports were required, all Section 16(a) filing requirements applicable to its
officers, directors and greater than 10% stockholders were complied with for
the Company's 1999 fiscal year.
20
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ANNUAL REPORT ON FORM 10-K
The Company has provided a copy of its 1999 Annual Report to stockholders to
each person whose proxy is being solicited. The Company will provide, without
charge, copies of its Annual Report on Form 10-K for the year ended December
31, 1999 (including any financial statements and schedules, and a list
describing any exhibits not contained therein) on written request addressed
to:
Providian Financial Corporation
Investor Relations Department
201 Mission Street
San Francisco, CA 94105
The exhibits to the Annual Report on Form 10-K are available on written
request and payment of charges which approximate the Company's cost of
reproduction.
INTERNET AND TELEPHONE VOTING
Shares Registered in the Name of the Stockholder
Stockholders whose shares of Common Stock are registered directly with First
Chicago Trust Company of New York, the Company's transfer agent, may vote by
calling First Chicago at (877) 779-8683 or through the Internet by accessing
the following address on the World Wide Web:
http://www.eproxyvote.com/pvn
Votes submitted through the Internet or by telephone through First Chicago's
program must be received by midnight (Eastern time) on May 9, 2000. Voting
through the Internet or by telephone will not affect your right to vote in
person if you decide to attend the Annual Meeting.
Shares Registered in the Name of a Broker, Bank or Nominee
A number of brokerage firms and banks participate in a program provided
through ADP Investor Communication Services that offers Internet and telephone
voting options. This program is different from the program provided by First
Chicago for shares registered in the name of the stockholder. If your shares
are held in an account at a brokerage firm or bank participating in the ADP
program, you may vote those shares by following the Internet voting
instructions on your voting form or by calling the telephone number referenced
on your voting form. Votes submitted through the Internet or by telephone
through the ADP program must be received by 11:59 p.m. (Eastern time) on May
9, 2000. Voting through the Internet or by telephone through the ADP program
will not affect your right to vote in person if you decide to attend the
Annual Meeting.
Proxies given pursuant to Internet and telephone voting are permitted under
applicable law. The Internet and telephone voting procedures are designed to
authenticate a stockholder's identity, to allow a stockholder to give his or
her voting instructions and to confirm that a stockholder's instructions have
been recorded properly. Stockholders voting through the Internet through
either First Chicago or ADP Investor Communication Services should understand
that there may be costs associated with electronic access, such as usage
charges from Internet access providers and telephone companies. These costs
are the responsibility of the stockholder.
ATTENDANCE AT THE ANNUAL MEETING
Seating at the Annual Meeting is limited. Therefore, admission is by ticket
only. If you would like to attend the Annual Meeting, please call the Company
at (800) 285-0708 to request an admission ticket. Your admission ticket will
be held for you at the Registration Desk on the day of the Annual Meeting. To
claim your admission ticket, you should bring with you proof of
identification. In addition, if you hold your shares through a broker, bank or
other nominee, you will need to provide proof of ownership by bringing a copy
of the voting instruction card provided by your broker or a brokerage account
statement showing your share ownership on March 13, 2000, the Record Date.
21
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[LOGO OF RECYCLED PAPER APPEARS HERE]
Printed on Recycled Paper
<PAGE>
Appendix A to Schedule 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
filed by
Providian Financial Corporation
The following "2000 Stock Incentive Plan" is being filed with the Securities and
Exchange Commission pursuant to Instruction 3 of Item 10 of Schedule 14A. It is
not to be deemed to be "soliciting material" or "filed" with the Commission.
<PAGE>
PROVIDIAN FINANCIAL CORPORATION
2000 STOCK INCENTIVE PLAN
EFFECTIVE AS OF FEBRUARY 16, 2000
<PAGE>
<TABLE>
<S> <C>
SECTION 1. INTRODUCTION...................................................................................... 1
SECTION 2. DEFINITIONS....................................................................................... 1
(a) "Affiliate"....................................................................................... 1
(b) "Award"........................................................................................... 1
(c) "Board"........................................................................................... 1
(d) "Cause"........................................................................................... 1
(e) "Change In Control"............................................................................... 2
(f) "Code"............................................................................................ 2
(g) "Committee"....................................................................................... 3
(h) "Common Stock".................................................................................... 3
(i) "Company"......................................................................................... 3
(j) "Consultant"...................................................................................... 3
(k) "Director"........................................................................................ 3
(l) "Disability"...................................................................................... 3
(m) "Employee"........................................................................................ 3
(n) "Exchange Act".................................................................................... 3
(o) "Exercise Price".................................................................................. 3
(p) "Fair Market Value"............................................................................... 3
(q) "Grant"........................................................................................... 4
(r) "Incentive Stock Option" or "ISO"................................................................. 4
(s) "Key Employee".................................................................................... 4
(t) "Non-Employee Director"........................................................................... 4
(u) "Nonstatutory Stock Option" or "NSO".............................................................. 4
(v) "Option".......................................................................................... 4
(w) "Optionee"........................................................................................ 4
(x) "Parent".......................................................................................... 4
(y) "Participant"..................................................................................... 4
(z) "Plan"............................................................................................ 4
(aa) "Retirement"...................................................................................... 4
(bb) "SAR Agreement"................................................................................... 4
(cc) "Securities Act".................................................................................. 4
(dd) "Service"......................................................................................... 5
(ee) "Share"........................................................................................... 5
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(ff) "Stock Appreciation Right" or "SAR"............................................................... 5
(gg) "Stock Grant"..................................................................................... 5
(hh) "Stock Grant Agreement"........................................................................... 5
(ii) "Stock Option Agreement".......................................................................... 5
(jj) "Subsidiary"...................................................................................... 5
(kk) "10-Percent Shareholder".......................................................................... 5
SECTION 3. ADMINISTRATION.................................................................................... 5
(a) Committee Composition............................................................................. 5
(b) Authority of the Committee........................................................................ 6
(c) Indemnification................................................................................... 6
SECTION 4. ELIGIBILITY....................................................................................... 6
(a) General Rules..................................................................................... 6
(b) Incentive Stock Options........................................................................... 7
(c) Non-Employee Director Stock....................................................................... 7
SECTION 5. SHARES SUBJECT TO PLAN............................................................................ 8
(a) Basic Limitation.................................................................................. 8
(b) Additional Shares................................................................................. 8
(c) Dividend Equivalents.............................................................................. 8
(d) Limits on Options................................................................................. 8
(e) Limits on Stock Grants............................................................................ 8
(f) Limits on SARs.................................................................................... 8
SECTION 6. TERMS AND CONDITIONS OF OPTIONS................................................................... 8
(a) Stock Option Agreement............................................................................ 8
(b) Number of Shares.................................................................................. 8
(c) Exercise Price.................................................................................... 9
(d) Exercisability and Term........................................................................... 9
(e) Modifications or Assumption of Options............................................................ 9
(f) Transferability of Options........................................................................ 9
(g) No Rights as Stockholder.......................................................................... 9
(h) Restrictions on Transfer.......................................................................... 10
SECTION 7. PAYMENT FOR OPTION SHARES......................................................................... 10
(a) General Rule...................................................................................... 10
(b) Surrender of Stock................................................................................ 10
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(c) Cashless Exercise................................................................................. 10
(d) Promissory Note................................................................................... 10
(e) Other Forms of Payment............................................................................ 10
SECTION 8. TERMS AND CONDITIONS FOR STOCK GRANTS............................................................. 10
(a) Time, Amount and Form of Awards................................................................... 10
(b) Agreements........................................................................................ 11
(c) Payment for Stock Grants.......................................................................... 11
(d) Vesting Conditions................................................................................ 11
(e) Assignment or Transfer of Stock Grants............................................................ 11
(f) Trusts............................................................................................ 11
(g) Voting and Dividend Rights........................................................................ 11
(h) Performance Based Stock Grants.................................................................... 12
SECTION 9. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS................................................. 12
(a) SAR Agreement..................................................................................... 12
(b) Number of Shares.................................................................................. 12
(c) Exercise Price.................................................................................... 12
(d) Exercisability and Term........................................................................... 12
(e) Exercise of SARs.................................................................................. 13
(f) Modification or Assumption of SARs................................................................ 13
SECTION 10. PROTECTION AGAINST DILUTION....................................................................... 13
(a) Adjustments....................................................................................... 13
(b) Participant Rights................................................................................ 13
SECTION 11. EFFECT OF A CHANGE IN CONTROL..................................................................... 14
(a) Merger or Reorganization.......................................................................... 14
(b) Acceleration...................................................................................... 14
SECTION 12. LIMITATIONS ON RIGHTS............................................................................. 14
(a) Retention Rights.................................................................................. 14
(b) Stockholders' Rights.............................................................................. 14
(c) Regulatory Requirements........................................................................... 14
SECTION 13. WITHHOLDING TAXES................................................................................. 14
(a) General........................................................................................... 14
(b) Share Withholding................................................................................. 15
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 14. DURATION AND AMENDMENTS........................................................................... 15
(a) Term of the Plan.................................................................................. 15
(b) Right to Amend or Terminate the Plan.............................................................. 15
SECTION 15. EXECUTION......................................................................................... 15
APPENDIX A PROVIDIAN FINANCIAL CORPORATION UK SUB-PLAN....................................................... A-1
</TABLE>
<PAGE>
PROVIDIAN FINANCIAL CORPORATION
2000 STOCK INCENTIVE PLAN
EFFECTIVE AS OF FEBRUARY 16, 2000
SECTION 1. INTRODUCTION.
The Company's Board of Directors adopted the Providian Financial
Corporation 2000 Stock Incentive Plan on February 16, 2000 (the "Adoption
Date"). The Plan is an amendment and restatement of the 1997 Stock Option
Plan and the Stock Ownership Plan into this single document. The Plan is
effective on the Adoption Date; provided, however, that certain provisions
will be effective upon stockholder approval.
The purpose of the Plan is to promote the long-term success of the Company
and the creation of shareholder value by offering Key Employees an
opportunity to acquire a proprietary interest in the success of the
Company, or to increase such interest, and to encourage such Key Employees
to continue to provide services to the Company and to attract new
individuals with outstanding qualifications.
The Plan seeks to achieve this purpose by providing for Awards in the form
of Stock Grants, Stock Appreciation Rights and Options (which may
constitute Incentive Stock Options or Nonstatutory Stock Options).
The Plan shall be governed by, and construed in accordance with, the laws
of the State of Delaware (except its choice-of-law provisions).
Capitalized terms shall have the meaning provided in Section 2 unless
otherwise provided in this Plan or any related Stock Option Agreement, SAR
Agreement or Stock Grant Agreement.
SECTION 2. DEFINITIONS.
(a) "Affiliate" means any entity other than a Subsidiary, if the Company
and/or one or more Subsidiaries own not less than 50% of such entity. For
purposes of determining an individual's "Service," this definition shall
include any entity other than a Subsidiary, if the Company, a Parent and/or
one or more Subsidiaries own not less than 50% of such entity.
(b) "Award" means any award of an Option, SAR or Stock Grant under the
Plan.
(c) "Board" means the Board of Directors of the Company, as constituted
from time to time.
(d) "Cause" means a felony conviction of a Participant or the failure of a
Participant to contest prosecution for a felony, or a Participant's willful
misconduct or dishonesty (as such terms are defined by the Committee in its
sole discretion), any of which is
<PAGE>
determined by the Committee to be directly and materially harmful to the
business or reputation of the Company or its Subsidiaries or Affiliates.
(e) "Change In Control" except as may otherwise be provided in a Stock
Option Agreement, SAR Agreement or Stock Grant Agreement, means the
occurrence of any of the following:
(i) The consummation of a merger or consolidation of the
Company with or into another entity or any other corporate
reorganization, if more than 60% of the combined voting power of the
continuing or surviving entity's securities outstanding immediately
after such merger, consolidation or other reorganization is owned by
persons who were not stockholders of the Company immediately prior to
such merger, consolidation or other reorganization;
(ii) The sale, transfer or other disposition of all or
substantially all of the Company's assets;
(iii) A change in the composition of the Board, as a result of
which fewer that one-half of the incumbent directors are directors who
either (i) had been directors of the Company on the date 24 months
prior to the date of the event that may constitute a Change in Control
(the "original directors") or (ii) were elected, or nominated for
election, to the Board with the affirmative votes of at least a
majority of the aggregate of the original directors who were still in
office at the time of the election or nomination and the directors
whose election or nomination was previously so approved;
(iv) Any transaction as a result of which any person becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing at
least 20% of the total voting power represented by the Company's then
outstanding voting securities. For purposes of this Paragraph (iv),
the term "person" shall have the same meaning as when used in Sections
13(d) and 14(d) of the Exchange Act but shall exclude:
(A) A trustee or other fiduciary holding securities under
an employee benefit plan of the Company or a subsidiary of the
Company;
(B) A corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions
as their ownership of the common stock of the Company; and
(C) The Company; or
(v) A complete liquidation or dissolution of the Company.
(f) "Code" means the Internal Revenue Code of 1986, as amended, and the
regulations and interpretations promulgated thereunder.
2
<PAGE>
(g) "Committee" means a committee consisting of one or more members of the
Board that is appointed by the Board (as described in Section 3) to
administer the Plan.
(h) "Common Stock" means the Company's common stock, $0.01 par value per
Share, and such other class(es) of the Company's common stock as may be
authorized by the Board.
(i) "Company" means Providian Financial Corporation, a Delaware
corporation.
(j) "Consultant" means an individual who performs bona fide services to the
Company, a Parent, a Subsidiary or an Affiliate, other than as an Employee
or Director or Non-Employee Director.
(k) "Director" means a member of the Board who is also an Employee.
(l) "Disability" means that the Key Employee is classified as disabled
under a long-term disability policy of the Company or, if no such policy
applies, the Key Employee is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or which has lasted or
can be expected to last for a continuous period of not less than 12 months.
(m) "Employee" means any individual who is a common-law employee of the
Company, a Parent, a Subsidiary or an Affiliate.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(o) "Exercise Price" means, in the case of an Option, the amount for which
a Share may be purchased upon exercise of such Option, as specified in the
applicable Stock Option Agreement. "Exercise Price," in the case of an
SAR, means an amount, as specified in the applicable SAR Agreement, which
is subtracted from the Fair Market Value of a Share in determining the
amount payable upon exercise of such SAR.
(p) "Fair Market Value" means the market price of Shares, determined by the
Committee as follows:
(i) If the Shares were traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the average of the
high and low trading price reported by the applicable composite
transactions report for such date;
(ii) If the Shares were traded over-the-counter on the date in
question and were classified as a national market issue, then the Fair
Market Value shall be equal to the average of the high and low trading
price quoted by the NASDAQ system for such date;
(iii) If the Shares were traded over-the-counter on the date in
question but were not classified as a national market issue, then the Fair
Market Value
3
<PAGE>
shall be equal to the mean between the last reported representative bid and
asked prices quoted by the NASDAQ system for such date; and
(iv) If none of the foregoing provisions is applicable, then the
Fair Market Value shall be determined by the Committee in good faith on
such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee
shall be based on the prices reported in the Western Edition of The Wall
--------
Street Journal. Such determination shall be conclusive and binding on all
--------------
persons.
(q) "Grant" means any grant of an Award under the Plan.
(r) "Incentive Stock Option" or "ISO" means an incentive stock option
described in Code Section 422(b).
(s) "Key Employee" means an Employee, Director, Non-Employee Director or
Consultant who has been selected by the Committee to receive an Award under
the Plan.
(t) "Non-Employee Director" means a member of the Board who is not an
Employee.
(u) "Nonstatutory Stock Option" or "NSO" means a stock option that is not
an ISO.
(v) "Option" means an ISO or NSO granted under the Plan entitling the
Optionee to purchase Shares.
(w) "Optionee" means an individual, estate or other entity that holds an
Option.
(x) "Parent" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company, if each of the corporations
other than the Company owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a
Parent on a date after the adoption of the Plan shall be considered a
Parent commencing as of such date.
(y) "Participant" means an individual or estate or other entity that holds
an Award.
(z) "Plan" means this Providian Financial Corporation 2000 Stock Incentive
Plan as it may be amended from time to time.
(aa) "Retirement" means retirement by a Participant in accordance with the
terms of the Company's retirement or pension plans or pursuant to a written
agreement.
(bb) "SAR Agreement" means the agreement described in Section 9 evidencing
each Award of a Stock Appreciation Right.
(cc) "Securities Act" means the Securities Act of 1933, as amended.
4
<PAGE>
(dd) "Service" means service as an Employee, Director, Non-Employee
Director, Outside Director or Consultant.
(ee) "Share" means one share of Common Stock.
(ff) "Stock Appreciation Right" or "SAR" means a stock appreciation right
awarded under the Plan.
(gg) "Stock Grant" means Shares awarded under the Plan.
(hh) "Stock Grant Agreement" means the agreement described in Section 8
evidencing each Award of a Stock Grant.
(ii) "Stock Option Agreement" means the agreement described in Section 6
evidencing each Award of an Option.
(jj) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns
stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain. A
corporation that attains the status of a Subsidiary on a date after the
adoption of the Plan shall be considered a Subsidiary commencing as of such
date.
(kk) "10-Percent Shareholder" means an individual who owns more than 10% of
the total combined voting power of all classes of outstanding stock of the
Company, its Parent or any of its Subsidiaries. In determining stock
ownership, the attribution rules of Section 424(d) of the Code shall be
applied.
SECTION 3. ADMINISTRATION.
(a) Committee Composition. A Committee appointed by the Board shall
administer the Plan. The Board shall designate one of the members of the
Committee as chairperson. Unless the Board provides otherwise, the Human
Resources Committee shall be the Committee. If no Committee has been
approved, the entire Board shall constitute the Committee. Members of the
Committee shall serve for such period of time as the Board may determine
and shall be subject to removal by the Board at any time. The Board may
also at any time terminate the functions of the Committee and reassume all
powers and authority previously delegated to the Committee.
With respect to officers or directors subject to Section 16 of the Exchange
Act, the Committee shall consist of those individuals who shall satisfy the
requirements of Rule 16b-3 (or its successor) under the Exchange Act with
respect to Awards granted to persons who are officers or directors of the
Company under Section 16 of the Exchange Act.
The Board may also appoint one or more separate committees of the Board,
each composed of one or more directors of the Company who need not qualify
under Rule
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16b-3, who may administer the Plan with respect to Key Employees who are
not considered officers or directors of the Company under Section 16 of the
Exchange Act, may grant Awards under the Plan to such Key Employees and may
determine all terms of such Awards.
Notwithstanding the foregoing, the Board shall constitute the Committee and
shall administer the Plan with respect to all Awards granted to Non-
Employee Directors.
(b) Authority of the Committee. Subject to the provisions of the Plan, the
Committee shall have full authority and discretion to take any actions it
deems necessary or advisable for the administration of the Plan. Such
actions shall include:
(i) selecting Key Employees who are to receive Awards under the
Plan;
(ii) determining the type, number, vesting requirements and other
features and conditions of such Awards;
(iii) interpreting the Plan;
(iv) making all other decisions relating to the operation of the
Plan; and
(v) adopting such plans or subplans as may be deemed necessary or
appropriate to provide for the participation by non-U.S.
employees of the Company and its Subsidiaries and Affiliates,
which plans and/or subplans shall be attached hereto as
Appendices.
The Committee may adopt such rules or guidelines, as it deems appropriate
to implement the Plan. The Committee's determinations under the Plan shall
be final and binding on all persons.
(c) Indemnification. Each member of the Committee, or of the Board, shall
be indemnified and held harmless by the Company against and from (i) any
loss, cost, liability, or expense that may be imposed upon or reasonably
incurred by him or her in connection with or resulting from any claim,
action, suit, or proceeding to which he or she may be a party or in which
he or she may be involved by reason of any action taken or failure to act
under the Plan or any Stock Option Agreement, SAR Agreement or Stock Grant
Agreement, and (ii) from any and all amounts paid by him or her in
settlement thereof, with the Company's approval, or paid by him or her in
satisfaction of any judgment in any such claim, action, suit, or proceeding
against him or her, provided he or she shall give the Company an
opportunity, at its own expense, to handle and defend the same before he or
she undertakes to handle and defend it on his or her own behalf. The
foregoing right of indemnification shall not be exclusive of any other
rights of indemnification to which such persons may be entitled under the
Company's Certificate of Incorporation or Bylaws, by contract, as a matter
of law, or otherwise, or under any power that the Company may have to
indemnify them or hold them harmless.
SECTION 4. ELIGIBILITY.
(a) General Rules. Only Employees, Directors, Non-Employee Directors and
Consultants shall be eligible for designation as Key Employees by the
Committee.
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(b) Incentive Stock Options. Only Key Employees who are common-law
employees of the Company, a Parent or a Subsidiary shall be eligible for
the grant of ISOs. In addition, a Key Employee who is a 10-Percent
Shareholder shall not be eligible for the grant of an ISO unless the
requirements set forth in Section 422(c)(5) of the Code are satisfied.
(c) Non-Employee Director Stock. Each Non-Employee Director and each non-
employee director of Providian National Bank, Providian Bank and any other
Subsidiary of the Company (each an "Outside Director"), may be awarded a
Stock Grant in accordance with the terms and conditions contained in this
Section 4(c).
(i) Participation Elections. Each Outside Director may elect to
receive a fully vested Stock Grant under the Plan in lieu of payment of a
portion of his or her annual retainer. Such an election may be for any
dollar or percentage amount equal to at least 25% of the Outside Director's
annual retainer (up to a limit of 50% of the annual retainer of Outside
Directors who are non-employee directors of affiliates). The election must
be made prior to the beginning of the annual board cycle (the "Board
Cycle"), which is currently June 1 to May 31 for the Company and the
calendar year for Providian National Bank and Providian Bank. Any amount of
the annual retainer not elected to be received as a Stock Grant shall be
payable in cash.
(ii) Grants of Stock. On a quarterly basis during a Board Cycle, each
Outside Director who has made the election described in Section 4(c)(i)
with respect to that Board Cycle shall be granted a number of fully vested
Shares pursuant to a Stock Grant having a Fair Market Value on the date of
grant equal to 25% of the amount of the annual retainer elected to be
received as a Stock Grant under Section 4(c)(i) for such Board Cycle,
rounded down to the nearest full Share. The date of grant shall be the
first day of each quarter of the Board Cycle on which the Common Stock is
traded on the New York Stock Exchange.
(iii) Matching Stock Grants. Each Outside Director receiving a Stock
Grant under Section 4(c)(ii) shall also receive, on the date of each such
quarterly Stock Grant, a number of unvested Shares pursuant to a Stock
Grant having a Fair Market Value on the date of grant equal to one-
sixteenth (1/16) of the Outside Director's annual retainer for the full
Board Cycle with respect to which the Stock Grant is granted under Section
4(c)(ii), rounded down to the nearest full Share.
(iv) Vesting. Shares pursuant to a Stock Grant awarded under Section
4(c)(iii) shall vest with respect to 50% of the Shares under each Stock
Grant three years from the first day of the Board Cycle to which the
election to receive a Stock Grant under Section 4(c)(i) corresponds (the
"Vesting Commencement Date"). The remaining 50% of the Shares under each
Stock Grant awarded under Section 4(c)(iii) shall vest six years from the
Vesting Commencement Date.
(v) Escrow. Shares granted under this Section 4(c) may be held in
escrow and shall be subject to such forfeiture restrictions as the Board
determines in a uniform and nondiscriminatory manner.
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(vi) Other Terms. Shares granted under this Section 4(c) shall
otherwise be subject to the terms of the Plan applicable to Non-Employee
Directors or to Participants generally (other than provisions specifically
applying only to Employees).
SECTION 5. SHARES SUBJECT TO PLAN.
(a) Basic Limitation. The stock issuable under the Plan shall be
authorized but unissued Shares or treasury Shares. The aggregate number of
Shares reserved for Awards under the Plan shall not exceed 23,906,286;
provided, that only 6,000,000 Shares may be used for Stock Grants and,
pending stockholder approval of the combined Share pool, only 17,906,986
Shares may be used for Options.
(b) Additional Shares. If Awards are forfeited or terminate for any other
reason before being exercised, then the Shares underlying such Awards shall
again become available for Awards under the Plan. If SARs are exercised,
then only the number of Shares (if any) actually issued in settlement of
such SARs shall reduce the number available under Section 5(a) and the
balance shall again become available for Awards under the Plan.
(c) Dividend Equivalents. Any dividend equivalents distributed under the
Plan shall not be applied against the number of Shares available for
Awards.
(d) Limits on Options. No Key Employee shall receive Options to purchase
Shares during any fiscal year covering in excess of 1,384,800 Shares.
(e) Limits on Stock Grants. No Key Employee shall receive Stock Grants
during any fiscal year covering in excess of 225,000 Shares (in addition to
Stock Grants awarded under Section 8(h)).
(f) Limits on SARs. No Key Employee shall receive Awards of SARs for more
than 50% of the Shares subject to the corresponding Option.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
(a) Stock Option Agreement. Each Grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the
Company. Such Option shall be subject to all applicable terms and
conditions of the Plan and may be subject to any other terms and conditions
that are not inconsistent with the Plan and that the Committee deems
appropriate for inclusion in a Stock Option Agreement. The provisions of
the various Stock Option Agreements entered into under the Plan need not be
identical. The Stock Option Agreement shall also specify whether the Option
is an ISO or an NSO.
(b) Number of Shares. Each Stock Option Agreement shall specify the number
of Shares that are subject to the Option and shall be subject to adjustment
of such number in accordance with Section 10.
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(c) Exercise Price. An Option's Exercise Price shall be established by the
Committee and set forth in a Stock Option Agreement. To the extent required
by applicable law, the Exercise Price of an ISO shall not be less than 100%
of the Fair Market Value (110% for 10-Percent Shareholders) of a Share on
the date of Grant.
(d) Exercisability and Term. Each Stock Option Agreement shall specify the
date when all or any installment of the Option is to become exercisable.
The Stock Option Agreement shall also specify the term of the Option;
provided that the term of an Option shall in no event exceed 10 years from
the date of Grant. Notwithstanding the previous sentence, an ISO that is
granted to a 10-Percent Shareholder shall have a maximum term of five
years. Unless the applicable Stock Option Agreement provides otherwise, the
following rules shall govern the exercisability and term of Options: if the
Service of an Optionee is terminated for Cause, then the Option shall
terminate immediately. If the Service of an Optionee is terminated for any
reason other than for Cause, death, Disability or Retirement, then the
Option may be exercised by such Optionee or his or her personal
representative within 90 days after the date of such termination. In the
event of the Retirement of an Optionee, the Option may be exercised within
five years after the date of Retirement. In the event of the death or
Disability of an Optionee while providing Service, the Option shall become
fully vested and immediately exercisable, and may be exercised within five
years after the date of death or determination of Disability. In the event
of a termination due to Disability, an ISO will be treated as an NSO one
year and one day after such termination. In the event of a termination due
to Retirement, an ISO will be treated as an NSO 91 days after such
termination. In the event of a Change in Control, all Options shall vest
and become immediately exercisable. Notwithstanding any other provision of
the Plan, no Option can be exercised after the expiration date provided in
the applicable Stock Option Agreement. In no event shall the Company be
required to issue fractional Shares upon the exercise of an Option.
(e) Modifications or Assumption of Options. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding options or may
accept the cancellation of outstanding options (whether granted by the
Company or by another issuer) in return for the grant of new Options for
the same or a different number of Shares and at the same or a different
Exercise Price. The foregoing notwithstanding, no modification of an Option
shall, without the consent of the Optionee, alter or impair his or her
rights or obligations under such Option.
(f) Transferability of Options. Except as otherwise provided in the
applicable Stock Option Agreement and then only to the extent permitted by
applicable law, no Option shall be transferable by the Optionee other than
by will or by the laws of descent and distribution. Except as otherwise
provided in the applicable Stock Option Agreement, an Option may be
exercised during the lifetime of the Optionee only or by the guardian or
legal representative of the Optionee. No Option or interest therein may be
assigned, pledged or hypothecated by the Optionee during his or her
lifetime, whether by operation of law or otherwise, or be made subject to
execution, attachment or similar process.
(g) No Rights as Stockholder. An Optionee, or a transferee of an Optionee,
shall have no rights as a stockholder with respect to any Common Stock
covered by an Option until
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such person becomes entitled to receive such Common Stock by filing a
notice of exercise and paying the Exercise Price pursuant to the terms of
such Option.
(h) Restrictions on Transfer. Any Shares issued upon exercise of an Option
shall be subject to such rights of repurchase, rights of first refusal and
other transfer restrictions as the Committee may determine. Such
restrictions shall apply in addition to any restrictions that may apply to
holders of Shares generally and shall also comply to the extent necessary
with applicable law.
SECTION 7. PAYMENT FOR OPTION SHARES.
(a) General Rule. The entire Exercise Price of Shares issued upon exercise
of Options shall be payable in cash at the time when such Shares are
purchased, except as follows:
(i) In the case of an ISO granted under the Plan, payment shall be
made only pursuant to the express provisions of the applicable Stock Option
Agreement. The Stock Option Agreement may specify that payment may be made
in any form(s) described in this Section 7.
(ii) In the case of an NSO granted under the Plan, the Committee may,
in its discretion at any time, accept payment in any form(s) described in
this Section 7.
(b) Surrender of Stock. To the extent that this Section 7(b) is
applicable, payment for all or any part of the Exercise Price may be made
with Shares which have already been owned by the Optionee for such duration
as is necessary to avoid a charge to the Company's earnings. Such Shares
shall be valued at their Fair Market Value on the date prior to the date of
exercise (or as of such other date as the Committee in a uniform and
nondiscriminatory manner shall determine).
(c) Cashless Exercise. To the extent that this Section 7(c) is applicable,
payment for all or a part of the Exercise Price may be made through a
"cashless exercise" program established by the Company.
(d) Promissory Note. To the extent that this Section 7(d) is applicable,
payment for all or any part of the Exercise Price may be made with a full-
recourse promissory note.
(e) Other Forms of Payment. To the extent that this Section 7(e) is
applicable, payment may be made in any other form that is consistent with
applicable laws, regulations and rules.
SECTION 8. TERMS AND CONDITIONS FOR STOCK GRANTS.
(a) Time, Amount and Form of Awards. Awards under this Section 8 may be
granted in the form of a Stock Grant. A Stock Grant may also be awarded in
combination with NSOs, and such an Award may provide that the Stock Grant
will be forfeited in the event that the related NSOs are exercised.
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(b) Agreements. Each Stock Grant awarded under the Plan shall be evidenced
by a Stock Grant Agreement between the Participant and the Company. Such
Awards shall be subject to all applicable terms and conditions of the Plan
and may be subject to any other terms and conditions that are not
inconsistent with the Plan that the Committee deems appropriate for
inclusion in the applicable Stock Grant Agreement. The provisions of the
Stock Grant Agreements entered into under the Plan need not be identical.
(c) Payment for Stock Grants. Stock Grants may be issued with or without
cash consideration under the Plan.
(d) Vesting Conditions. Each Stock Grant shall become vested, in full or
in installments, upon satisfaction of the conditions specified in the
applicable Stock Grant Agreement. Unless the Stock Grant Agreement
provides otherwise, in the event of a Change in Control, all Stock Grants
shall fully vest. If a Participant who is not an Outside Director ceases
to provide Service by reason of death, Disability or Retirement, or an
Outside Director ceases to be a director for any reason other than for
cause (as determined by the disinterested members of the Board or the
applicable Subsidiary's board of directors), then the Stock Grant(s) held
by the Participant shall fully vest.
(e) Assignment or Transfer of Stock Grants. Except as provided in Section
13, or in a Stock Grant Agreement, or as required by applicable law, a
Stock Grant awarded under the Plan shall not be anticipated, assigned,
attached, garnished, optioned, transferred or made subject to any
creditor's process, whether voluntarily, involuntarily or by operation of
law. Any act in violation of this Section 8(e) shall be void. However, this
Section 8(e) shall not preclude a Participant from designating a
beneficiary who will receive any outstanding Stock Grant Awards in the
event of the Participant's death, nor shall it preclude a transfer of Stock
Grant Awards by will or by the laws of descent and distribution.
(f) Trusts. Notwithstanding this Section 8 or any other provisions of the
Plan, but subject to advance written approval by the Committee, in its sole
discretion (and such conditions as the Committee may specify), a
Participant may transfer or assign a Stock Grant to the trustee of a trust
that is revocable by such Participant alone. Stock Grants held by such
trustee shall be subject to all of the conditions and restrictions set
forth in the Plan and in the applicable Stock Grant Agreement, as if such
trustee were a party to such Stock Grant Agreement.
(g) Voting and Dividend Rights. The holder of a Stock Grant awarded under
the Plan shall have the same voting, dividend and other rights as the
Company's other stockholders. A Stock Grant Agreement, however, may require
that the holder of such Stock Grant invest any cash dividends received in
additional Shares subject to the Stock Grant. Such additional Shares
subject to the Stock Grant shall be subject to the same conditions and
restrictions as the Stock Grant with respect to which the dividends were
paid. Such additional Shares subject to the Stock Grant shall not reduce
the number of Shares available under Section 5.
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(h) Performance Based Stock Grants. Subject to stockholder approval of
this Section 8(h), the Committee, in its discretion, also may make
discretionary Stock Grants to Employees. Such discretionary Stock Grants
may be made only (i) as a hiring bonus, (ii) as a reward for extraordinary
performance, or (iii) to provide additional incentives for future
performance. Any Stock Grant made pursuant to this Section 8(h) will be
subject to the achievement of performance objectives established by the
Committee. Such performance objectives shall be established pursuant to the
requirements of Code Section 162(m). The performance objectives with
respect to any performance periods (which may be up to 36 months in
duration) shall be based upon the Company's (and/or a business unit's)
earnings, earnings per share, revenue, expenses, net interest margin or
return on equity, as well as any individual performance objectives which
the Committee may establish, and shall be calculated in accordance with the
formula established for such performance period. An Employee shall only be
entitled to receive a Stock Grant pursuant to this Section 8(h) upon
attainment of the pre-established performance objectives. Before any Shares
of a Stock Grant are issued with respect to a performance period, the
Committee shall certify in writing that the performance objectives for such
period have been satisfied. In no event shall the Committee award to any
Employee Stock Grants for more than 276,961 Shares in any performance
period under this Section 8(h).
SECTION 9. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS.
(a) SAR Agreement. Each Award of an SAR under the Plan shall be evidenced
by an SAR Agreement between the Participant and the Company. Such SAR shall
be subject to all applicable terms of the Plan and may be subject to any
other terms that are not inconsistent with the Plan. The provisions of the
various SAR Agreements entered into under the Plan need not be identical.
SARs may be granted in consideration of a reduction in the Participant's
other compensation.
(b) Number of Shares. Each SAR Agreement shall specify the number of
Shares to which the SAR pertains and is subject to adjustment of such
number in accordance with Section 10.
(c) Exercise Price. Each SAR Agreement shall specify the Exercise Price.
An SAR Agreement may specify an Exercise Price that varies in accordance
with a predetermined formula while the SAR is outstanding.
(d) Exercisability and Term. Each SAR Agreement shall specify the date
when all or any installment of the SAR is to become exercisable. The SAR
Agreement shall also specify the term of the SAR. An SAR Agreement may
provide for accelerated exercisability in the event of the Participant's
death, Disability or Retirement or other events and may provide for
expiration prior to the end of its term in the event of the termination of
the Participant's Service. SARs shall be awarded in combination with
Options or Stock Grants, and such an Award shall provide that the SARs will
not be exercisable unless the related Options or Stock Grants are
forfeited. An SAR may be included in an ISO only at the time of Grant but
may be included in an NSO at the time
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of Grant or at any subsequent time, but not later than six months before
the expiration of such NSO. An SAR granted under the Plan may provide that
it will be exercisable only in the event of a Change in Control.
(e) Exercise of SARs. If, on the date when an SAR expires, the Exercise
Price under such SAR is less than the Fair Market Value on such date but
any portion of such SAR has not been exercised or surrendered, then such
SAR shall automatically be deemed to be exercised as of such date with
respect to such portion. Upon exercise of an SAR, the Participant (or any
person having the right to exercise the SAR after his or her death) shall
receive from the Company (i) Shares, (ii) cash or (iii) any combination of
Shares and cash, as the Committee shall determine. The amount of cash
and/or the Fair Market Value of Shares received upon exercise of SARs
shall, in the aggregate, be equal to the amount by which the Fair Market
Value (on the date of surrender) of the Shares subject to the SARs exceeds
the Exercise Price.
(f) Modification or Assumption of SARs. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding SARs or may
accept the cancellation of outstanding SARs (including stock appreciation
rights granted by another issuer) in return for the grant of new SARs for
the same or a different number of Shares and at the same or a different
Exercise Price. The foregoing notwithstanding, no modification of an SAR
shall, without the consent of the Participant, alter or impair his or her
rights or obligations under such SAR.
SECTION 10. PROTECTION AGAINST DILUTION.
(a) Adjustments. In the event of a subdivision of the outstanding Shares,
a declaration of a dividend payable in Shares, a declaration of a dividend
payable in a form other than Shares in an amount that has a material effect
on the price of Shares, a combination or consolidation of the outstanding
Shares (by reclassification or otherwise) into a lesser number of Shares, a
recapitalization, a spin-off or a similar occurrence, the Committee shall
make such adjustments as it, in its sole discretion, deems appropriate in
one or more of:
(i) the number of Shares available for future Awards under Section
5;
(ii) the per person limits on Awards in Section 5 and Section 8(h);
(iii) the number of Shares covered by each outstanding Award; or
(iv) the Exercise Price under each outstanding SAR or Option.
(b) Participant Rights. Except as provided in this Section 10, a
Participant shall have no rights by reason of any issue by the Company of
stock of any class or securities convertible into stock of any class, any
subdivision or consolidation of shares of stock of any class, the payment
of any stock dividend or any other increase or decrease in the number of
shares of stock of any class.
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SECTION 11. EFFECT OF A CHANGE IN CONTROL.
(a) Merger or Reorganization. In the event that the Company is a party to
a merger or other reorganization, outstanding Awards shall be subject to
the agreement of merger or reorganization. Such agreement may provide,
without limitation, for the assumption of outstanding Awards by the
surviving corporation or its parent, for their continuation by the Company
(if the Company is a surviving corporation), for accelerated vesting or for
their cancellation with or without consideration, in all cases without the
consent of the Participant.
(b) Acceleration. The Committee may determine, at the time of granting an
Award or thereafter, that such Award shall become fully vested as to all
Shares subject to such Award in the event that a Change in Control occurs
with respect to the Company.
SECTION 12. LIMITATIONS ON RIGHTS.
(a) Retention Rights. Neither the Plan nor any Award granted under the
Plan shall be deemed to give any individual a right to remain an employee,
consultant or director of the Company, a Parent, a Subsidiary or an
Affiliate. The Company and its Parents and Subsidiaries and Affiliates
reserve the right to terminate the Service of any person at any time, and
for any reason, subject to applicable laws, the Company's Certificate of
Incorporation and Bylaws and a written employment agreement (if any).
(b) Stockholders' Rights. A Participant shall have no dividend rights,
voting rights or other rights as a stockholder with respect to any Shares
covered by his or her Award prior to the issuance of such Shares. No
adjustment shall be made for cash dividends or other rights for which the
record date is prior to the date when such Shares are issued, except as
expressly provided in Section 10.
(c) Regulatory Requirements. Any other provision of the Plan
notwithstanding, the obligation of the Company to issue Shares or other
securities under the Plan shall be subject to all applicable laws, rules
and regulations and such approval by any regulatory body as may be
required. The Company reserves the right to restrict, in whole or in part,
the delivery of Shares or other securities pursuant to any Award prior to
the satisfaction of all legal requirements relating to the issuance of such
Shares or other securities, to their registration, qualification or listing
or to an exemption from registration, qualification or listing.
SECTION 13. WITHHOLDING TAXES.
(a) General. A Participant shall make arrangements satisfactory to the
Company for the satisfaction of any withholding tax obligations that arise
in connection with his or her Award. The Company shall not be required to
issue any Shares or make any cash payment under the Plan until such
obligations are satisfied.
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(b) Share Withholding. If a public market for the Company's Shares exists,
the Committee may permit a Participant to satisfy all or part of his or her
withholding or income tax obligations by having the Company withhold all or
a portion of any Shares that otherwise would be issued to him or her or by
surrendering all or a portion of any Shares that he or she previously
acquired. Such Shares shall be valued based on the value of the actual
trade or, if there is none, the Fair Market Value as of the previous day.
Any payment of taxes by assigning Shares to the Company may be subject to
restrictions, including, but not limited to, any restrictions required by
rules of the Securities and Exchange Commission.
SECTION 14. DURATION AND AMENDMENTS.
(a) Term of the Plan. The Plan, as set forth herein, shall become
effective on the date of its adoption by the Board; provided, however,
that, as provided in Sections 5(a) and 8(h), certain provisions are subject
to the approval of the Company's stockholders. To the extent required by
applicable law, the Plan shall terminate on the date that is 10 years after
its original adoption by the Board and may be terminated on any earlier
date pursuant to Section 14(b).
(b) Right to Amend or Terminate the Plan. The Board may amend or terminate
the Plan at any time and for any reason. The termination of the Plan, or
any amendment thereof, shall not affect any Award previously granted under
the Plan. No Awards shall be granted under the Plan after the Plan's
termination. An amendment of the Plan shall be subject to the approval of
the Company's stockholders only to the extent required by applicable laws,
regulations or rules.
SECTION 15. EXECUTION.
To record the adoption of the Plan by the Board, the Company has caused its
duly authorized officer to execute this Plan on behalf of the Company.
PROVIDIAN FINANCIAL CORPORATION
By______________________________
Title___________________________
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APPENDIX A
PROVIDIAN FINANCIAL CORPORATION
UK SUB-PLAN
SECTION 1. BACKGROUND AND PURPOSE.
(a) The Company's Board of Directors adopted the Providian Financial
Corporation 2000 Stock Incentive Plan (the "Plan") on February 16, 2000.
The Plan is an amendment and restatement of the 1997 Stock Option Plan and
the Stock Ownership Plan into a single document.
(b) On May 11, 1999 the Company's Board of Directors adopted a UK sub-plan
both in respect of the 1997 Stock Option Plan and the Stock Ownership Plan,
as an amendment and restatement of the two aforementioned plans. This
document constitutes the additional provisions (the "UK Sub-Plan") that are
to be read in conjunction with the Plan and are applicable to those
Participants under the Plan who are liable to income tax in the United
Kingdom. This UK Sub-Plan was adopted by the Company on March 24, 2000, as
an amendment and restatement of the Plan.
(c) The purpose of this UK Sub-Plan is to advance the interest of the
Company by enabling it and its operating companies to attract and retain
the best available personnel for positions of substantial responsibility in
the United Kingdom and to provide key directors and employees of the
Company and its operating companies, in the United Kingdom, with an
opportunity for investment in the Company; thereby giving them an
additional incentive to increase their efforts on behalf of the long term
success of the Company and its operating companies.
SECTION 2. DEFINITION AND CONSTRUCTION.
(a) All terms used in this UK Sub-Plan shall have the meaning ascribed to
them in the Plan, and if not defined in the Plan, shall be given their normal
and ordinary meaning except that:
(i) "Cause" means a conviction of a Participant of an offence
triable on indictment or triable either way under the laws of
the United Kingdom or any other comparable offence under the
laws of any other country or a Participant's wilful misconduct
or dishonesty (as such terms are defined by the Committee in its
sole discretion), any of which is determined by the Committee to
be directly and materially harmful to the business or reputation
of the Company or its Subsidiaries or its Affiliates;
(ii) "Consultant" means an individual who performs bona fide services
to the Company, a Parent, a Subsidiary or an Affiliate, other
than as an Employee or Director or Non-Employee Director, who in
any such case is liable to income tax in the United Kingdom in
respect of an Award;
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(iii) "Director" means a member of the Board who is also an Employee
and who is liable to income tax in the United Kingdom in respect
of an Award;
(iv) "Employee" means an individual who is a full-time or part-time
employee of the Company or a subsidiary, who in any case is
liable to income tax in the United Kingdom in respect of an
Award;
(v) "Non-Employee Director" means a member of the Board who is not
an Employee but who is liable to income tax in the United
Kingdom in respect of an Award;
(vi) "Non-statutory Stock Option" or "NSO" means a United Kingdom
share option which has not received the approval of the Inland
Revenue for the purposes of Section 185 Income and Corporation
Taxes Act 1988.
(vii) "UK Sub-Plan" means the provisions contained herein to be known
as the Providian Financial Corporation 2000 Stock Incentive Plan
UK Sub-Plan, as the same may be amended from time to time;
(b) Any references to Incentive Stock Options or ISOs in the Plan shall be
ignored for the purposes of this UK Sub-Plan.
(c) Any reference to a liability to income tax in the United Kingdom in
respect of an Award shall be deemed to include any such liability arising
in respect of Grant, vesting, exercise or any other event.
SECTION 3. INCORPORATION OF PLAN.
This UK Sub-Plan shall be ancillary and secondary to the Plan, and the
provisions of this UK Sub-Plan shall be applicable to any Key Employee, Optionee
or Participant who has or shall have a liability to United Kingdom income tax in
respect of his or her Award, in which case the provisions of this UK Sub-Plan
shall equally apply as well as the provisions of the Plan under which the Award
was granted. For the avoidance of doubt, this UK Sub-Plan does not apply to any
Key Employees, Optionees or Participants who do not have a United Kingdom income
tax liability in respect of their Award.
SECTION 4. VESTING PERIOD.
Any vesting period, when defined by the passage of time, pursuant to Section 8
of the Plan, in respect of a Stock Grant, shall not exceed a period of five
years from the date the Stock Grant is awarded, unless the Committee expressly
determines otherwise.
SECTION 5. WITHHOLDING.
(a) A Participant shall indemnify and keep indemnified, the Company, the
Parent, the Subsidiaries and the Affiliates (collectively the "Group"), on
demand in respect of any
17
<PAGE>
income tax or primary Class I National Insurance contribution for which any
such company is liable to account to the Inland Revenue under the Pay-As-
You-Earn ("PAYE") system and for which it would not have been liable to
account but for the Participant's participation in the Plan (save to the
extent that any such company has already recovered any such income tax or
National Insurance contribution by deduction under the PAYE system).
(b) Any company in the Group shall be entitled, if it wishes, to deduct
and retain any amount to which it is entitled under this Section 5 from any
payment which is due from it to the Participant.
(c) The Company (in its own right and as trustee for any other company in
the Group) shall have a lien over any Shares, whether fully or partly paid,
which have been issued, or are to be issued, to a Participant as security
for an amount to which any company in the Group is entitled under this
Section 5 from the Participant. The Company shall be entitled to register
in the names of such nominee for the Participant as the Company shall
direct such number of shares to be issued upon exercise of the Option as
the Company determines will have sufficient value, after taking into
account any expenses of sale, to cover any amount under this Section 5,
such shares (the "Indemnity Shares") to be held by the nominee on the
following basis:
(i) if the Participant makes full payment of any sum due under this
Section 5 within 30 days of written demand therefor being made
by the Company, the Indemnity Shares shall be re-registered in
the Participant's name; and
(ii) if the Participant does not make payment as specified above,
then the nominee shall be authorised and instructed to sell such
number of the Indemnity Shares as the Company may direct be sold
and shall account to (a) the relevant company for the proceeds
of sale up to the amount required to satisfy the Participant's
liability under this Section 5 and (b) the Participant for any
balance of any said proceeds after deducting any expenses of
sale.
(d) For the avoidance of doubt, this Section 5 shall apply in addition to
the provisions of Section 3(c) of the Plan.
18
<PAGE>
Appendix B to Schedule 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
filed by
Providian Financial Corporation
The following "2000 Management Incentive Plan" is being filed with the
Securities and Exchange Commission pursuant to Instruction 3 of Item 10 of
Schedule 14A. It is not to be deemed to be "soliciting material" or "filed"
with the Commission.
<PAGE>
PROVIDIAN FINANCIAL CORPORATION
2000 MANAGEMENT INCENTIVE PLAN
(AMENDED AND RESTATED FEBRUARY 16, 2000)
1. PURPOSE
The purpose of this amended and restated Plan is to motivate and reward eligible
employees for good performance by making a portion of their cash compensation
dependent on the achievement of certain Performance Goals related to the
performance of Providian Financial Corporation (the "Company") and its operating
units. This Plan is designed to ensure that the incentives paid hereunder to
executive officers of the Company are deductible under Section 162(m) of the
Internal Revenue Code of 1986, as amended, and the regulations and
interpretations promulgated thereunder (the "Code"). Accordingly, the adoption
of this Plan as to "covered employees" under Code Section 162(m) is subject to
the approval of the Company's stockholders pursuant to Code Section 162(m).
2. PARTICIPANTS
The participants in this Plan shall be key employees of the Company, as
determined by the Committee.
3. THE COMMITTEE
The Committee shall consist of at least two outside directors of the Company
that satisfy the requirements of Code Section 162(m). The Committee shall have
the sole discretion and authority to administer and interpret this Plan in
accordance with Code Section 162(m). Unless the Board provides otherwise, the
Human Resources Committee of the Company's Board of Directors shall be the
Committee.
4. AMOUNT OF BONUS
A participant's bonus payment, if any, is based on (i) an individual target set
by the Committee in writing with respect to the Performance Period and (ii) the
Performance Goal or Goals for the Performance Period (increased or decreased, in
each case in accordance with factors adopted by the Committee with respect to
the Performance Period that relate to unusual items). However, no bonus in
excess of 200% of the annualized highest rate of base salary paid to any
executive of the Company with respect to 1999 as reported in the Company's proxy
statement for the 2000 Annual Meeting will be paid to any participant with
respect to a Performance Period. The Committee may also reduce an individual's
maximum bonus calculated under the preceding formula in its sole discretion.
This Plan's "Performance Goals" may include one or more of the following: (i)
earnings; (ii) earnings per share; (iii) revenue; (iv) expenses; (v) net
interest margin; and (vi) return on equity, each with respect to the Company
and/or any operating unit(s) of the Company, as determined by the Committee in
its sole discretion. A "Performance Period" shall be, with respect to a
participant, any period not exceeding 36 months, as determined by the Committee
in its sole discretion. Bonuses to be paid to participants who are not subject
to the
<PAGE>
limitations of Code Section 162(m) may take into account other factors. The
Committee, in its sole discretion, may permit a participant to defer receipt of
cash that would otherwise be delivered to the participant under this Plan. Any
such deferral elections shall be subject to such rules and procedures as
determined by the Committee in its sole discretion. The selection and adjustment
of applicable Performance Goals, and the establishment of targets, shall occur
in compliance with the rules of Code Section 162(m).
5. PAYMENT OF BONUS
Subject to the Committee's discretion, the payment of a bonus generally requires
that the participant be on the Company's payroll as of the date the bonus is to
be paid. The Committee may make exceptions to this requirement in the case of
retirement, death or disability or under other circumstances, as determined by
the Committee in its sole discretion. Bonus payments may be made (i) in cash,
(ii) in shares of Company stock granted under the Company's 2000 Stock Incentive
Plan, as replaced, modified, amended or supplemented from time to time (the
"2000 Stock Plan") or under the Company's 1999 Non-Officer Equity Incentive
Plan, as replaced, modified, amended or supplemented from time to time (the
"1999 Non-Officer Plan"), and/or (iii) in options to purchase Company stock
granted under the Company's 2000 Stock Plan or the 1999 Non-Officer Plan, as
determined by the Committee in its sole discretion. The number of shares
granted shall be determined by dividing the cash amount forgone by the fair
market value (as defined under the 2000 Stock Plan or the 1999 Non-Officer Plan)
of a share on the date in question. Options granted pursuant to this Section 5
shall have a fair value equal to the amount of cash forgone, which fair value
shall be based on the Black-Scholes or other objective method determined by the
Committee, in its sole discretion. No bonus shall be paid unless and until the
Committee certifies in writing the extent to which the Performance Goal(s)
applicable to a participant have been achieved or exceeded. The Committee may
establish different Performance Periods for different participants, and the
Committee may establish concurrent or overlapping Performance Periods.
6. AMENDMENT AND TERMINATION
The Board of Directors reserves the right to amend or terminate this Plan at any
time with respect to future services of participants. Plan amendments will
require stockholder approval only to the extent required by applicable law.
7. LEGAL CONSTRUCTION
Except where otherwise indicated by the context, any masculine term used herein
also shall include the feminine; the plural shall include the singular and the
singular shall include the plural. In the event any provision of this Plan
shall be held illegal or invalid for any reason, the illegality or invalidity
shall not affect the remaining parts of this Plan, and this Plan shall be
construed and enforced as if the illegal or invalid provision had not been
included. The granting of awards under this Plan shall be subject to all
applicable laws, rules and regulations, and to such approvals by any
governmental agencies or national securities exchanges as may be required. This
Plan and all awards shall be construed in accordance with and governed by the
laws of the State of Delaware, but without regard to its conflict of law
provisions. Captions are
2
<PAGE>
provided herein for convenience only, and shall not serve as a basis for
interpretation or construction of this Plan.
3
<PAGE>
P R O X Y
PROVIDIAN FINANCIAL CORPORATION
201 MISSION STREET
SAN FRANCISCO, CALIFORNIA 94105
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints David J. Petrini, Ellen Richey and Seth Barad,
and each of them, proxies with power of substitution to vote all shares of
Common Stock which the undersigned would be entitled to vote at the Annual
Meeting of Providian Financial Corporation (the "Company") to be held at 10:30
a.m., Pacific time, on Wednesday, May 10, 2000 and any adjournments or
postponements thereof, on the matters set forth below and any other business
that may properly come before the meeting.
1. Election of three directors. Nominees for directors are Shailesh J. Mehta,
F. Warren McFarlan and Larry D. Thompson.
2. Approval of the combination of the Company's 1997 Stock Option Plan and
Stock Ownership Plan as the Amended and Restated 2000 Stock Incentive Plan.
3. Approval of the material terms of the Amended and Restated 2000 Management
Incentive Plan.
4. Ratification of the appointment of Ernst & Young LLP as the Company's
independent auditors.
SEE REVERSE SIDE
<PAGE>
Please mark your votes as in this example. [X]
IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR ALL PROPOSALS.
- -------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL PROPOSALS.
- -------------------------------------------------------------------------------
1. Election of Directors:
FOR [ ] WITHHELD [ ]
For all, except:
---------------------------------------
2. Approval of the combination of the Company's 1997 Stock Option Plan and
Stock Ownership Plan as the Amended and Restated 2000 Stock Incentive Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Approval of the material terms of the Amended and Restated 2000 Management
Incentive Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Ratification of Appointment of Independent Auditors
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Please sign exactly as your name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
_______________________ ___________________
SIGNATURE(S) DATE
PLEASE DETACH HERE. COMPLETE, SIGN AND RETURN CARD.
YOUR VOTE IS IMPORTANT. Providian Financial Corporation encourages you to take
advantage of new and convenient ways by which you can vote your shares. You may
vote your shares electronically through the Internet or by telephone. This
eliminates the need to return the proxy card.
To vote your shares electronically, you must use the control number printed in
the box above and have your social security number and the proxy card available.
The sequence of numbers appearing in the box above, just below the perforation,
is your personal code to access the system.
. To vote over the Internet, access the web site
http://www.eproxyvote.com/pvn 24 hours a day, 7 days a week.
. To vote over the telephone, call toll-free, (877) 779-8683 24 hours a
day, 7 days a week from the U.S. and Canada.
Your electronic vote authorizes the named proxies in the same manner as if you
marked, signed, dated and returned the proxy card.
If you choose to vote your shares electronically, do not mail back your proxy
card.
Thank you for voting.
