<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
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 Section 240.14a-11(c) or Section 240.14a-12
PROVIDIAN 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] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] 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:
-------------------------------------------------------------------------
(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:
-------------------------------------------------------------------------
[_] 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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Notes:
<PAGE>
[LOGO OF PROVIDIAN CORP.]
March 28, 1995
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Providian Corporation to be held on Friday, May 5, 1995, in the Lobby of One
Commonwealth Place, 680 Fourth Avenue, Louisville, Kentucky, commencing at
10:30 a.m., Eastern Daylight Time. Your Board of Directors and management look
forward to greeting personally those stockholders able to attend.
This year, in addition to electing four directors and ratifying independent
auditors, you are being asked to consider and vote upon adopting the 1995 Stock
Option Plan and the Management Incentive Plan and amending the Stock Ownership
Plan. These matters are discussed in greater detail in the accompanying proxy
statement.
Your Board of Directors recommends a vote FOR the election of directors, FOR
approval of independent auditors, FOR adoption of the 1995 Stock Option Plan,
FOR adoption of the Management Incentive Plan and FOR amendments to the Stock
Ownership Plan.
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 promptly.
If you have any questions or comments about matters discussed in the proxy
statement or the operation of your company, we'd be happy to hear from you.
Please call our Shareholder Relations Department, collect, at (502) 560-2391.
We look forward to seeing you at the Annual Meeting in Louisville.
Sincerely,
[SIGNATURE OF IRVING W. BAILEY]
Irving W. Bailey II
Chairman and Chief Executive Officer
<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders of Providian Corporation (the "Company")
will be held at 10:30 a.m. Eastern Daylight Time on Friday, May 5, 1995, in the
Lobby of One Commonwealth Place, 680 Fourth Avenue, Louisville, Kentucky.
The purposes of the meeting will be to:
(1) Elect four directors;
(2) Consider and act upon a proposal to adopt the Company's 1995 Stock Option
Plan;
(3) Consider and act upon a proposal to adopt the Company's Management
Incentive Plan;
(4) Consider and act upon a proposal to amend the Company's Stock Ownership
Plan;
(5) Consider and act upon a proposal to ratify the appointment of independent
auditors; and
(6) Transact any other business that may properly come before the meeting.
While only stockholders of record who own Providian common stock at the close
of business on March 10, 1995, will be entitled to vote at the meeting, all
stockholders are invited to attend.
By Order of the Board of Directors
ROBERT MICHAEL SLAVEN
Secretary
PROVIDIAN CORPORATION
Louisville, Kentucky
March 28, 1995
<PAGE>
PROVIDIAN CORPORATION
400 WEST MARKET STREET
LOUISVILLE, KENTUCKY 40202
PROXY STATEMENT
PROXY SOLICITATION AND VOTING RIGHTS
The Board of Directors of Providian Corporation (the "Company") is soliciting
proxies to be voted at the Annual Meeting of Stockholders (the "Annual
Meeting") to be held at 10:30 a.m. on Friday, May 5, 1995, in the Lobby of One
Commonwealth Place, 680 Fourth Avenue, Louisville, Kentucky, and at any
adjournment thereof. The Company is first sending this proxy statement and
accompanying proxy to stockholders on or about March 28, 1995.
VOTING RIGHTS
The Board of Directors has fixed the close of business on March 10, 1995, as
the record date for determining stockholders entitled to receive notice of, and
to vote at, the Annual Meeting (the "Record Date"). On the Record Date, there
were 97,067,445 shares of the Company's common stock, par value $1 per share
(the "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
upon at the Annual Meeting. A majority of such shares of Common Stock present
in person or by proxy will constitute a quorum for the transaction of business
at the Annual Meeting.
Each share of Common Stock represented at the Annual Meeting by a properly
executed proxy will be voted according to the instructions indicated on the
proxy. IF NO INSTRUCTIONS ARE INDICATED, SUCH SHARES OF COMMON STOCK WILL BE
VOTED FOR THE ELECTION OF ALL NOMINEES FOR DIRECTOR AND FOR THE PROPOSALS
CONTAINED IN THIS PROXY STATEMENT. A stockholder may revoke a proxy by voting
at the meeting, giving written notice of revocation to the Secretary of the
Company, or submitting a later-dated proxy at any time before the voting.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by the
inspectors of election appointed for the meeting, who also will determine
whether or not a quorum is present. The inspectors of election will treat
abstentions as shares that are present and entitled to vote for purposes of
determining the presence of a quorum, but as unvoted for purposes of
determining the approval of any matter submitted to the stockholders for a
vote. If a broker indicates on the proxy that it does not have discretionary
authority as to certain shares to vote on a particular matter, those shares
will not be considered as present and entitled to vote with respect to that
matter.
The Company will bear the expense of soliciting proxies. In addition to the use
of the mails, proxies may be solicited personally, by telephone or other means
of communication. The Company has retained D.F. King & Co., Inc., to help
solicit proxies for an estimated fee of $8,000 plus out-of-pocket costs and
expenses.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of the Record Date, the Company knew of no person who beneficially owned
more than five percent of any class of the Company's voting securities.
1
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The number of shares of Common Stock owned by each director or nominee, each of
the executive officers named in the Summary Compensation Table in this Proxy
Statement, and directors, nominees and executive officers as a group, as of the
Record Date, is shown in the following table.
<TABLE>
<CAPTION>
Name of director,
nominee
or executive
officer Number of
or number in shares
group owned/1/
--------------------------------------------------------------
<S> <C>
Lee Adrean 48,380/2/
Irving W. Bailey II 465,777/3/
John L. Clendenin 1,719
John M. Cranor III 4,532
Joseph F. Decosimo 12,484
Lyle Everingham 7,458
Raymond V. Gilmartin 804
J. David Grissom 25,590
Watts Hill, Jr. 52,320
F. Warren McFarlan 5,426
Shailesh J. Mehta 59,826/4/
Martha R. Seger 1,214
Florence R. Skelly 1,604
Larry D. Thompson 1,335
Joseph M. Tumbler 108,396/5/
Robert L. Walker 26,149/6/
John L. Weinberg 25,458
Directors and executive officers as a group (23) 983,490/7/
--------------------------------------------------------------
</TABLE>
/1/Except for officers who have been granted options under the Company's stock
option plans, no director, nominee or officer currently has any right to
acquire Common Stock through the exercise of options, warrants, stock rights
or conversion privileges. Unless stated otherwise, sole voting and investment
powers are held by the owners named.
/2/Includes 9,909 shares directly held by Mr. Adrean; 1,444 shares held in Mr.
Adrean's account under the Company's Thrift Savings Plan over which Mr. Adrean
holds limited investment power; 6,093 shares held in Mr. Adrean's account
under the Company's Stock Ownership Plan subject to vesting requirements set
forth in footnote 3 to the Summary Compensation Table in this Proxy Statement;
and 30,934 shares which Mr. Adrean has the right to acquire pursuant to stock
options exercisable within 60 days of the Record Date.
/3/Includes 147,199 shares directly held by Mr. Bailey; 7,259 shares held in
Mr. Bailey's account under the Company's Thrift Savings Plan over which Mr.
Bailey holds limited investment power; 20,185 shares held in Mr. Bailey's
account under the Company's Stock Ownership Plan subject to the vesting
requirements set forth in footnote 3 to the Summary Compensation Table; and
291,134 shares which Mr. Bailey has the right to acquire pursuant to stock
options exercisable within 60 days of the Record Date.
/4/Includes 35,982 shares directly held by Mr. Mehta; 1,000 shares held in Mr.
Mehta's Individual Retirement Account; 584 shares held in Mr. Mehta's account
under the Providian Bancorp 401(k) Plan over which Mr. Mehta holds limited
investment power; 410 shares held in Mr. Mehta's account under the Company's
Thrift Savings Plan over which Mr. Mehta holds limited investment power;
12,482 shares held in Mr. Mehta's account under the Company's Stock Ownership
Plan subject to vesting requirements set forth in footnote 3 to the Summary
Compensation Table; and 9,368 shares which Mr. Mehta has the right to acquire
pursuant to stock options exercisable within 60 days of the Record Date.
/5/Includes 17,959 shares directly held by Mr. Tumbler; 4,628 shares held in
Mr. Tumbler's account under the Company's Thrift Savings Plan over which Mr.
Tumbler holds limited investment power; 8,431 shares held in Mr. Tumbler's
account under the Company's Stock Ownership Plan subject to the vesting
requirements set forth in footnote 3 to the Summary Compensation Table; and
77,378 shares which Mr. Tumbler has the right to acquire pursuant to stock
options exercisable within 60 days of the Record Date.
/6/Includes 5,823 shares directly held by Mr. Walker; 936 shares held in Mr.
Walker's account under the Company's Thrift Savings Plan over which Mr. Walker
holds limited investment power; 3,123 shares held in Mr. Walker's account
under the Company's Stock Ownership Plan subject to the vesting requirements
set forth in footnote 3 to the Summary Compensation Table; and 16,267 shares
which Mr. Walker has the right to acquire pursuant to stock options
exercisable within 60 days of the Record Date.
/7/Includes 843,546 shares beneficially owned by all executive officers, of
which 22,779 shares are held in such officers' accounts under certain tax-
qualified defined contribution plans over which they hold limited investment
power; and of which 67,722 shares are held in such officers' accounts under
the Company's Stock Ownership Plan subject to the vesting requirements set
forth in footnote 3 to the Summary Compensation Table; and includes 511,065
shares that the same group of officers has the right to acquire pursuant to
stock options exercisable within 60 days of the Record Date. No director,
nominee or executive officer beneficially owned more than one percent of the
Common Stock outstanding on the Record Date, and ownership by all constituted
one percent of the Common Stock outstanding on the Record Date.
2
<PAGE>
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. Four directors are to be elected at the Annual
Meeting to serve for a term of three years expiring in 1998.
Directors will be elected by a plurality of the votes cast at the Annual
Meeting. All nominees have consented to be named and to serve if elected. The
Company does not presently know of anything 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 the number of directors to be elected at the Annual Meeting will
be reduced accordingly. All of the nominees are current directors of the
Company.
Ms. Florence Skelly and Mr. John Weinberg will retire as directors following
the Annual Meeting, in accordance with the mandatory retirement provisions of
the Company's By-laws.
For each of the four nominees, as well as the eight directors whose terms
continue after the Annual Meeting, information follows as to 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.
NOMINEES FOR ELECTION AT THE ANNUAL MEETING:
JOHN M. CRANOR III, 48
Director since 1991.
President and Chief Executive Officer of KFC Corporation, 1989
to 1994; President, Pepsi-Cola East, 1988 to 1989.
[PHOTO]
J. DAVID GRISSOM, 56
Director since 1978.
Chairman, Mayfair Capital, 1989 to present; Vice Chairman, PNC
Financial Corp., 1987 to 1989.
Other directorships: Columbia/HCA Healthcare Corporation;
Churchill Downs, Incorporated; LG&E Energy Corp.; Transco Energy
Company; Regal Cinemas, Inc.; and Sphere Drake Holdings, Ltd.
[PHOTO]
F. WARREN MCFARLAN, 57
Director since 1986.
Senior Associate Dean and Professor of Business Administration,
Harvard Business School, 1973 to present; a member of the
Harvard faculty since 1964.
Other directorships: Pioneer Hi-Bred International, Inc.; and
[PHOTO] Computer Sciences Corporation.
MARTHA R. SEGER, PH.D., 63
Director since 1991.
Distinguished Visiting Professor of Finance, Central Michigan
University, 1993 to present; John M. Olin Distinguished Fellow,
University of Arizona, 1991 to 1993; Member, Board of Governors
of the Federal Reserve System, 1984 to 1991.
Other directorships: Amerisure Companies; Xerox Corp.; Kroger
[PHOTO] Co.; Johnson Controls, Inc.; Amoco Co.; Fluor Corp.; and Tucson
Electric Power Co.
3
<PAGE>
DIRECTORS CONTINUING IN OFFICE WHOSE TERMS EXPIRE IN 1996 ARE:
IRVING W. BAILEY II, 53
Director since 1987.
Chairman and Chief Executive Officer, Providian Corporation,
1988 to present; President, 1988 to 1994; Chief Operating
Officer, 1987 to 1988; Executive Vice President and Chief
Investment Officer, 1981 to 1987.
Other directorships: Computer Sciences Corporation; and
[PHOTO] BellSouth Telecommunications, Inc.
JOHN L. CLENDENIN, 60
Director since 1984.
Chairman and Chief Executive Officer, BellSouth Corporation,
1984 to present.
Other directorships: BellSouth Corporation; Springs Industries,
Inc.; Equifax Inc.; National Service Industries, Inc.; Kroger
Co.; Coca-Cola Enterprises, Inc.; Wachovia Corporation; and RJR
Nabisco, Inc.
[PHOTO]
RAYMOND V. GILMARTIN, 54
Director since 1993.
Chairman, President and Chief Executive Officer, Merck & Co.,
Inc., 1994 to present; Chairman, President and Chief Executive
Officer, Becton Dickinson & Co., 1989 to 1994.
Other directorships: Merck & Co., Inc.; and Public Service
[PHOTO] Enterprise Group, Inc.
SHAILESH J. MEHTA, 45
Director since 1994.
President and Chief Operating Officer, Providian Corporation,
1994 to present; Executive Vice President, 1993 to 1994;
Chairman and Chief Executive Officer, Providian Direct
Insurance, 1993 to 1994; Chairman, President and Chief Executive
Officer, Providian Bancorp, 1988 to 1994; Executive Vice
President and Chief Operating Officer, Providian Bancorp, 1986
to 1988.
[PHOTO]
4
<PAGE>
DIRECTORS CONTINUING IN OFFICE WHOSE TERMS EXPIRE IN 1997 ARE:
JOSEPH F. DECOSIMO, 69
Director since 1981.
Senior Partner, Joseph Decosimo and Company, 1971 to present.
[PHOTO]
LYLE EVERINGHAM, 68
Director since 1980.
Retired Chairman and Chief Executive Officer, Kroger Co., and
officer of that corporation or one of its divisions since 1963;
Chairman of the Executive Committee through May, 1991.
Other directorships: Kroger Co.; Cincinnati Milacron, Inc.; and
Federated Department Stores, Inc.
[PHOTO]
WATTS HILL, JR., 68
Director since 1974.
Business and Financial Consultant, Watts Hill, Jr. & Associates,
1973 to present.
[PHOTO]
LARRY D. THOMPSON, 49
Director since 1994.
Partner, King & Spalding (a law firm); he has been a partner
with the firm since 1986./1/
[PHOTO]
---------------------
/1/The Company retained King & Spalding during 1994 to perform certain
legal services.
5
<PAGE>
COMMITTEES OF THE BOARD
The Board has several committees which perform various functions, including
those described below.
The AUDIT COMMITTEE makes recommendations to the Board of Directors with
respect to engagement of the Company's independent auditors, reviews with the
independent auditors the plan and results of the auditing engagement, and
reviews the Company's system of internal controls and accounting practices. The
members of the Audit Committee are Dr. Seger (Chair) and Messrs. Decosimo,
Gilmartin, Grissom, Thompson and Weinberg. The Audit Committee met four times
during 1994.
The HUMAN RESOURCES COMMITTEE reviews and approves the compensation and
benefits policies and practices of the Company except that approval of the
salaries and bonuses of the Chairman of the Board, President and members of the
Operating and Policy Committee of the Company are reserved to the full Board of
Directors. The committee also recommends to the Board nominations for directors
of the Company. In addition, the committee administers the Company's stock
option plans and Stock Ownership Plan. The Human Resources Committee is
comprised of Messrs. Everingham (Chair), Clendenin, Cranor, Hill and McFarlan,
and Ms. Skelly. The Human Resources Committee met five times during 1994.
DIRECTORS' MEETINGS
The Company's Board of Directors met six times in 1994. Each director attended
at least 75 percent of all Board and committee meetings held in 1994 during the
period when he or she was a director and committee member.
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 $30,000, and may elect to receive all
or a portion of this amount in shares of Common Stock. Directors who elect to
receive all or a portion of their retainer in Common Stock will receive an
award equal to 25 percent of their retainer in shares of restricted stock under
the Company's Stock Ownership Plan. Such restricted stock vests one-half after
three years or in the event of death, disability or retirement during such
three year period. The balance vests after six years if the director does not
dispose of the related shares of unrestricted Common Stock during such vesting
periods or in the event of death, disability or retirement during the final
three year vesting period. Non-employee directors are paid an additional $1,000
for attending the Annual Meeting and each Board and committee meeting.
Committee chairs receive an additional $300 for each meeting they conduct. The
Company's directors also are reimbursed for necessary and reasonable expenses
incurred in the performance of their duties as directors. In addition to this
compensation, the Company has purchased for each director (other than officers
of the Company) from Commonwealth Life Insurance Company, UniversaLife
insurance policies, which provide a death benefit of $100,000 to a beneficiary
designated by the director. To the extent that these policies create additional
taxable income for these directors, the Company also reimburses each director
as necessary to compensate for any additional taxes.
6
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table shows information for the last three fiscal years with
regard to compensation for services rendered in all capacities to the Company
by the Chief Executive Officer and the other four most highly compensated
executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
Annual
Compensation Awards Payouts
-------------------------------------------------------------------------------------------------------------------------
Other Restricted Securities
Name and Annual Stock Underlying LTIP All Other
Principal Salary Compensation Award(s) Options/ Payouts Compensation
Position Year ($)/1/ Bonus ($) ($)/2/ ($)/3/,/4/ SARs (#) ($) ($)/5/
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Irving W. Bailey II 1994 708,077 462,860 18,979 400,635 210,850 1,139,815 23,366
Chairman and CEO 1993 666,154 457,400 20,749 114,347 60,000 19,959
1992 669,808 577,415 22,191 144,285 51,200 22,104
Shailesh J. Mehta 1994 430,993 363,670 19,289 213,428 156,725/7/ 406,635 17,301
President and COO 1993 369,266 336,000 805,240/6/ 24,200/7/ 8,356/8/ 12,186
1992 323,925 229,400 57,315 15,200/7/ 75,193/8/ 4,800
Joseph M. Tumbler 1994 345,692 111,900 165,910 95,250 551,954 10,080
President and CEO-- 1993 317,539 213,000 53,233 16,300 6,954
Providian Capital 1992 304,269 208,000 51,952 18,000 10,041
Management
Lee Adrean 1994 290,000 44,100 803 124,058 79,725 452,240 9,570
President-- 1993 254,023 139,000 34,746 13,000 4,947
Agency Group 1992 228,462 139,000 34,711 12,000 4,800
Robert L. Walker 1994 217,377 107,100 67,827 63,500 164,274 6,521
Senior Vice President-- 1993 180,335 76,000 18,986 9,000 5,191
Finance and Chief 1992 160,962 60,000 14,942 7,000 4,829
Financial Officer
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/Represents amounts received as salary during the year. Such amounts may
vary in any given year as a result of the number of pay periods during such
year.
/2/Represents amounts reimbursed during the fiscal year for the payment of
taxes.
/3/Represents the dollar value of restricted stock awarded under the Company's
Stock Ownership Plan ("SOP"). Restricted Stock awards under the SOP are
matched with a like number of shares of non-restricted stock and are intended
to replace a portion of cash amounts previously paid under the Company's other
incentive plans. One half of such restricted stock will vest if all
nonrestricted shares are held for three years or in the event of death,
disability or retirement during such three year period. The other half will
vest if such nonrestricted stock is held for six years or in the event of
death, disability or retirement during the final three year vesting period,
except in the event of a change in control of the Company, in which case such
shares vest immediately.
/4/Dividends are paid on restricted stock awards under the SOP at the same
rate as paid to all stockholders. On December 31, 1994, Irving W. Bailey II
held 16,844 restricted shares having a then market value of $520,059; Shailesh
J. Mehta held 29,857 restricted shares having a then market value of $921,853;
Joseph M. Tumbler held 7,624 restricted shares having a then market value of
$235,391; Lee Adrean held 5,775 restricted shares having a then market value
of $178,303; and Robert L. Walker held 2,350 restricted shares having a then
market value of $72,556.
/5/Represents Company contributions or liabilities under the Company's defined
contribution plans, which include a qualified and a nonqualified plan. Under
the qualified plan, the following contributions were made: Mr. Bailey received
$4,950, Mr. Mehta received $4,889, Mr. Tumbler received $4,210, Mr. Adrean
received $4,950 and Mr. Walker received $4,500. Under the nonqualified plan,
the increases in the Company's liabilities were as follows: $18,416 for Mr.
Bailey, $12,399 for Mr. Mehta, $5,870 for Mr. Tumbler, $4,620 for Mr. Adrean
and $2,021 for Mr. Walker. With respect to Mr. Mehta, contributions for 1992
and 1993 were made under the 401(k) Plan of Providian Bancorp ("Bancorp"), a
wholly-owned subsidiary of the Company.
/6/Includes the market value of 20,000 restricted shares awarded under the SOP
subject to performance and time based restrictions, which restrictions have
been terminated, and the shares were released to Mr. Mehta, effective January
3, 1995.
/7/Represents options granted under the Company's 1989 Stock Option Plan and
the 1995 Stock Option Plan (subject to stockholder approval of the 1995 Stock
Option Plan) and Equity Units granted under the Bancorp Equity Unit Plan. (See
footnote 3 to the Option/SAR Grants table.)
/8/Represents interim payout to Mr. Mehta based on the 1991-1993 three-year
performance cycle under the Long Term Incentive Plan, with payment of 90
percent of such amount in 1992, the remaining 10 percent in 1993 and the
balance of payout in May 1994.
7
<PAGE>
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS (SARS)
The following table contains information concerning the grant of stock options
under the Company's 1989 Stock Option Plan and the 1995 Stock Option Plan
(subject to stockholder approval of the 1995 Stock Option Plan) to the named
executive officers of the Company in 1994. Included is information on potential
realizable value(s) to the named executive officers, all optionees as a group,
and all of the Company's stockholders, assuming growth of the Common Stock at
the stated rates of appreciation.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term/1/
----------------------------------------------------------------------------------------------------
Number of % of Total
Securities Options/
Underlying SARs
Options/ Granted to Exercise
SARs Employees or Base
Granted in Fiscal Price Expiration
Name (#) Year ($/Sh)/2/ Date 0% ($) 5% ($) 10% ($)
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Irving W. Bailey II 44,850 2.66 32.8125 11/9/04 0 925,507 2,345,416
166,000 9.83 40.8750 12/6/01 0 382,695 3,141,758
Shailesh J. Mehta 16,425 0.97 32.8125 11/9/04 0 338,940 858,940
20,000 1.18 30.7500 12/7/04 0 386,770 980,152
117,000 6.93 40.8750 12/6/01 0 269,731 2,214,372
3,300/3/ 34.74 67.4400 6/30/04 0 139,962 354,691
Joseph M. Tumbler 14,250 0.84 32.8125 11/9/04 0 294,057 745,199
81,000 4.80 40.8750 12/6/01 0 186,737 1,533,027
Lee Adrean 12,225 0.72 32.8125 11/9/04 0 252,270 639,302
67,500 4.00 40.8750 12/6/01 0 155,614 1,277,522
Robert L. Walker 9,000 0.53 32.8125 11/9/04 0 185,720 470,652
54,500 3.23 40.8750 12/6/01 0 125,644 1,031,481
All Optionees/4/,/5/ 680,475 40.30 31.5000 8/10/04 0 13,480,333 34,161,810
All Optionees/4/,/6/ 1,008,000 59.70 40.8750 12/6/01 0 2,323,837 19,077,666
All Stockholders N/A N/A N/A N/A 0/7/
----------------------------------------------------------------------------------------------------
</TABLE>
/1/The amounts shown represent certain assumed rates of appreciation only.
Actual gains, if any, on stock option exercises are dependent on the future
performance of the Company's Common Stock and overall condition of the stock
market, as well as the optionholder's continued employment through the vesting
period. The amounts reflected in this table may not necessarily be achieved.
/2/The exercise price of options granted under the Company's 1989 Stock Option
Plan is equal to the average of the Company's high and low price of the Common
Stock on the date of grant. The exercise price of the options granted under
the Company's 1995 Stock Option Plan (subject to stockholder approval of the
1995 Stock Option Plan) is equal to 133% of the average of the Company's high
and low price of the Common Stock on the date of grant. The grant value of
Equity Units is based on book value and the market value of certain assets
determined by quarterly valuations. With respect to the 1989 Stock Option
Plan, options vest one-third per year and are fully vested after three years
and vest immediately upon the death, disability or retirement of the optionee
or change in control of the Company. With respect to the options granted under
the 1995 Stock Option Plan, options vest one year from the date of grant and
vest immediately upon the death or disability of the optionee or change in
control of the Company. Options granted under the 1989 Stock Option Plan
expire 10 years from the date of grant, and the options granted under the 1995
Stock Option Plan expire 7 years from the date of grant.
/3/Denotes the number of Equity Units granted under the Providian Bancorp
Equity Unit Plan. Units vest one-third per year and are fully vested after
three years. The percentage shown reflects total Equity Units granted to Mr.
Mehta to total Equity Units granted to all participants during 1994. In
addition, Equity Units vest immediately upon a change in control. All Equity
Units expire 10 years from the date of grant.
/4/Optionees will realize benefit only upon an increase in the price of the
Company's Common Stock, which will benefit all stockholders commensurately.
With respect to options granted under the 1995 Stock Option Plan, such
optionees will realize benefit only upon an increase in the price of the
Company's Common Stock above the grant price which was set at approximately
133% of the then market price. A zero percentage gain in the stock price
appreciation will result in zero dollars for the optionee.
/5/Denotes options granted under the 1989 Stock Option Plan. The percentage
shown reflects the ratio of total options granted under the 1989 Stock Option
Plan to total options granted under the 1989 and 1995 Stock Option Plans.
/6/Denotes options granted under the 1995 Stock Option Plan. The percentage
shown reflects the ratio of total options granted under the 1995 Stock Option
Plan to total options granted under the 1989 and 1995 Stock Option Plans.
/7/Although all other stockholders would not realize any increase in the value
of their stock without stock price appreciation, the zero amount does not
reflect the value of dividends that stockholders may receive over the ten or
seven year option term. Based on the number of shares of Common Stock
outstanding as of the close of business on March 10, 1995, and assuming the
Company's current dividend rate remains in effect, total dividends received by
all stockholders during the ten year period would be $873,607,005. There is no
guarantee that dividends, in fact, will be paid throughout such period or, if
paid, that the dividend rate will not change. Optionees will not receive
dividends until such time as they exercise the options.
8
<PAGE>
OPTION/SAR EXERCISES AND HOLDINGS
The following table sets forth information with respect to the named executives
concerning the exercise of options and/or SARs during 1994, and unexercised
options and SARs held as of the end of 1994.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs at In-the-Money Options/SARs
FY-End (#) at FY-End ($)/1/
----------------------------------------------------------------------------------------
Shares
Acquired on Value
Exercise Realized
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Irving W.
Bailey II 0 0 291,134 267,916 2,861,776 0
Shailesh J.
Mehta 0 0 9,368 167,157 0 12,500
Equity
Units 0 0 107,060 10,767 6,710,596 330,425
Joseph M.
Tumbler 0 0 77,378 112,116 610,027 0
Lee Adrean 0 0 30,934 91,891 248,087 0
Robert L.
Walker 0 0 16,267 71,833 83,675 0
</TABLE>
--------------------------------------------------------------------------------
/1/As to options, based on the average of the high and low price of the Common
Stock on December 31, 1994 of $31.375 per share. As to Equity Units,
represents estimated fair market value of $82.17 per Equity Unit outstanding
under the Providian Bancorp Equity Unit Plan as of December 31, 1994.
PENSION PLANS
The following table shows the estimated pension benefits payable to a covered
participant upon retirement at age 65 under the Company's qualified defined
benefit pension plan, as well as the nonqualified supplemental pension plan
that provides benefits that would otherwise be denied participants by reason of
certain Internal Revenue Code limitations on qualified plan benefits. Estimated
pension benefits are based on remuneration covered under the plans and years of
service with the Company and its subsidiaries.
PROVIDIAN CORPORATION RETIREMENT PLAN ESTIMATED BENEFIT TABLE
<TABLE>
<CAPTION>
5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
Remuneration of Service of Service of Service of Service of Service of Service
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 400,000 $ 34,596 $ 69,204 $103,800 $138,404 $ 173,004 $ 207,612
500,000 43,356 86,700 130,056 173,400 216,756 260,112
600,000 52,104 104,208 156,300 208,404 260,508 312,612
700,000 60,852 121,704 182,556 243,408 304,260 365,112
800,000 69,600 139,200 208,800 278,400 348,000 417,612
900,000 78,348 156,708 235,056 313,404 391,752 470,112
1,000,000 87,096 174,204 261,300 348,408 435,504 522,612
1,100,000 95,856 191,700 287,556 383,400 479,256 575,112
1,200,000 104,604 209,208 313,800 418,404 523,008 627,612
1,300,000 113,352 226,704 340,056 453,408 566,592 680,112
1,400,000 122,100 244,200 366,300 488,400 610,500 732,612
1,500,000 130,848 261,708 392,556 523,404 654,252 785,112
1,600,000 139,596 279,204 418,800 558,408 698,004 837,612
1,700,000 148,356 296,700 445,056 593,400 741,756 890,112
1,800,000 157,101 314,202 471,300 628,404 785,508 942,612
1,900,000 165,851 331,702 497,553 663,404 829,255 995,106
2,000,000 174,601 349,202 523,803 698,404 873,005 1,047,606
2,100,000 183,351 366,702 550,053 733,404 916,755 1,100,106
2,200,000 192,101 384,202 576,303 768,404 960,505 1,152,606
2,300,000 200,851 401,702 602,553 803,404 1,004,255 1,205,106
2,400,000 209,601 419,202 628,803 838,404 1,048,005 1,257,606
-------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
The compensation covered by the plans includes all compensation in the form of
salary and bonuses as shown in the Summary Compensation Table, plus deferrals
under the Company's Thrift Savings Plan and the Providian Bancorp 401(k) Plan
and certain pre-tax contributions to the Company's flexible benefits plan. The
benefits are computed on a straight-life annuity basis and are subject to
deduction for Social Security offset amounts. For purposes of computing this
offset, the table assumes a participant is normal retirement age (65) as of
December 31, 1994. Credited years of service under the plans and other
arrangements as of December 31, 1994, for the named executive officers were as
follows: Mr. Bailey, 14; Mr. Mehta, 7; Mr. Tumbler, 7; Mr. Adrean, 5; Mr.
Walker, 7.
HUMAN RESOURCES COMMITTEE EXECUTIVE COMPENSATION REPORT
The Company's executive compensation programs are administered by the Human
Resources Committee (the "Committee"), a committee of the Board of Directors
composed 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. None of the non-employee directors has any
interlocking or other relationship with the Company that would call into
question his or her independence as a Committee member.
COMPENSATION PHILOSOPHY
The policies which govern executive compensation continue to align changes in
total compensation with changes in the value created for our shareholders.
These policies require that our executive compensation program:
. reflect a clear risk-based pay-for-performance relationship;
. integrate executive compensation with the Corporation's annual business
planning and measurement process;
. reward executives with direct ownership in the Corporation and align their
personal interests with shareholder interests to continually reinforce
building shareholder value; and
. attract and retain key executives critical to the Corporation's long-term
success.
The Company's executive compensation program has been and continues to be based
on the following three components, each of which supports our overall
compensation philosophy.
BASE SALARY
The Company uses a consistent methodology to determine base salaries for all
employees. Salary ranges are established for specific positions and job
families using relevant salary surveys. Individual salaries are then determined
to assure competitive pay, given individual performance. For executive
positions, the Company annually participates in surveys of diversified
insurance companies. In addition, an independent consulting firm provides an
assessment of our competitive position as compared to a 19-company peer group.
This peer group is subject to periodic review and is modified as competitors
merge or are acquired or as new competitors emerge with sufficient market
capitalization. This 19-company peer group is consistent with the peer group
depicted in the Performance Graph in the Proxy Statement. Base salaries for
executives are reviewed by the Committee relative to competitive pay levels, as
well as against individual performance objectives, with the goal of positioning
base salaries near the 50th percentile of our relevant competitive markets.
In 1993, a diversified insurance company survey of 1992 base salaries among
competitor CEO's indicated that Mr. Bailey's salary was at the median for the
group and that 1994 salary increases were projected to range from 4.5% to 5.0%.
In February 1994, the Committee recommended a 1994 increase of $35,000 or 6.7%,
which provided a new base salary of $715,000 for Mr. Bailey. This decision
reflected in part the Committee's desire to maintain a competitive base salary
for Mr. Bailey, following a modest base salary increase of 3.9% in 1993. In
June 1994, an analysis of proxy statements of our 19-company peer group
indicated that CEOs within these companies received average base salary
increases of 7.4% in 1993.
10
<PAGE>
ANNUAL INCENTIVES
The Company provides annual incentive award opportunities for executives based
upon the operating earnings of the Company and the Company's various business
units, as well as the successful achievement of individual performance
objectives, which are established annually. The earnings plan is set for the
upcoming year as part of the Company's annual business planning process and is
approved by the Committee before the annual performance cycle commences. The
Committee reviews and approves award payouts in the February following the
annual performance cycle, based upon the prior year's performance results. A
portion of annual incentive awards may be paid to participants in stock, under
the provisions of the Stock Ownership Plan. It has been the Company's policy to
set challenging earnings targets which, if achieved, would position total
annual cash compensation above median competitive levels. Achieving target
earnings per share (EPS) performance would position Mr. Bailey's total annual
cash compensation above the median (at approximately the 60th percentile) for
chief executive officers of the 19-company peer group as well as a broader
group of diversified insurance companies. Earnings performance above or below
this target results in a formula-driven award by the Committee.
Mr. Bailey's annual incentive award for 1994 was based on the degree to which
target EPS for the Company were achieved. We recommended that he receive an
award of $462,860, based upon the Company's achieving EPS of $3.75 which were
slightly below the EPS target established for 1994.
LONG TERM INCENTIVES
The Company has provided executives both cash and equity-based long term
incentive opportunities. Under the Company's Long Term Incentive Plan (LTIP),
cash incentive awards are based upon the Company's relative earnings growth and
return on equity (ROE) over three-year performance cycles, as measured against
the 19-company peer group depicted in the Performance Graph in this Proxy
Statement. For participants in business units, awards are, in part, based on
such measures as, expense ratio, return on capital and return on assets
relative to predetermined performance levels. Three-year LTIP performance
cycles for 1991-93 and 1992-94 are complete with the 1993-95 cycle ending
December 31, 1995. These performance cycles resulted in payment to executives
in May of 1994 and may result in payments in May 1995 and 1996, if
predetermined corporate and business unit performance objectives are met. Each
participant has an award opportunity determined as a percent of salary in the
last year of the performance cycle. An individual opportunity is based on
position, function and responsibilities and typically would position total
compensation at the 60th percentile of our relevant competitive markets.
In May, Mr. Bailey received a Long-Term Incentive Award for the three-year
performance cycle for 1991-93 of $1,139,815. (There were no long-term
incentives awarded in 1992 and 1993.) This award was based on the Company
achieving an average ROE of 16.2% for the cycle, ranking third among the peer
companies and an average earnings growth rate of 10.3% ranking seventh among
the peer group. These performance levels placed Providian well above the target
rank of seventh (approximately 63rd percentile) and Mr. Bailey's award was
calculated commensurate with this superior performance.
In December, the Committee recommended and approved with the full Board's
concurrence terminating the 1994-96 Long Term Incentive Plan and substituting
stock options under the plan subject to stockholder approval as discussed in
the Proxy Statement, which would directly link compensation to stock
performance and increased shareholder value. As a result, Mr. Bailey was
awarded 166,000 stock options with an exercise price of $40.875 which
represents a 33% premium over the market price (average of high or low) of
$30.6875 on the grant date.
Through the Company's Stock Ownership Plan (SOP), a portion (25%) of all
executive incentive awards is paid in Common Stock, based on this Committee's
administration of the Plan. This percentage was established by the Committee in
1992 as a result of a competitive pay positioning analysis. The amount of SOP
awards granted to executives is based on identical performance measures
employed by the Committee to determine annual and long term incentive awards,
as described above. Stock awarded to participants under the SOP is deposited
into an account in the participant's name and matched with an equal number of
shares of restricted stock. Participants are free to withdraw the awarded
shares of Common Stock at any time, but will forfeit all shares of matching
restricted stock if the withdrawal occurs prior to the end of the applicable
restriction period.
11
<PAGE>
In May, we approved an SOP grant equal to 25 percent of Mr. Bailey's 1994 LTIP
incentive plan award, or 9,639 shares at $29.5625 per share (the average of the
high and low price of the Common Stock on the award date), matched by an equal
number of restricted shares, which will fully vest if Mr. Bailey holds the
awarded shares for a six year period. In February 1995, we approved an SOP
grant equal to 25% of Mr. Bailey's annual incentive award for 1994 or 3,341
shares at $34.625 price.
The Company also provides grants of stock options under the 1989 Stock Option
Plan to executives and other employees. These option grants tie rewards 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 grant price
(determined by the average of the high and low price of the Common Stock on the
date of grant). Options vest in equal amounts over three years and require the
executive to be employed by the Company at the time of vesting. Options expire
ten years from the date of grant. Through these grants, we intend to motivate
executives to improve long-term stock performance. A similar plan currently
provides "phantom" stock grants, in the form of Equity Units, to executives and
other employees of Providian Bancorp.
In granting stock options and/or equity units, the Committee takes into account
competitive grant practices within the diversified insurance industry, the
executive's level of responsibility, individual contribution and total
annualized compensation. The market value of grant at the time of award
reflects a percentage of current base salary for recipients. These percentages,
on average, compare to median values for grant value within the industry. Mr.
Bailey was awarded a grant of 44,850 stock options at an exercise price of
$32.8125 per share on November 8, 1994.
SUMMARY OF CEO COMPENSATION
Overall, we have attempted to ensure that Mr. Bailey's base salary remains
competitive, but have placed the greater percentage of his total compensation
at risk and related to Company performance. For Mr. Bailey, 53 percent of
target annualized cash compensation is explicitly linked to achieving targeted
earnings and longer-term (three-year) earnings growth and ROE performance
levels. The annual and multi-year cash incentives require sustained financial
performance and the restricted stock and stock options require increased
shareholder value.
OMNIBUS BUDGET RECONCILIATION ACT OF 1993
The Omnibus Budget Reconciliation Act of 1993 (OBRA) established several new
criteria for continued tax deductibility of executive compensation in excess of
$1 million. This Committee and the Board have reviewed and approved adoption of
the Providian Management Incentive Plan and a new Stock Option Plan, as well as
modifications to the Stock Ownership Plan, for review and approval by
shareholders. We believe that these plans respond to the OBRA requirements and
would preserve compensation deductibility for the Company's executive officers.
HUMAN RESOURCES COMMITTEE
Lyle Everingham (Chair)
John L. Clendenin
John M. Cranor III
Watts Hill, Jr.
F. Warren McFarlan
Florence R. Skelly
12
<PAGE>
PERFORMANCE GRAPH
Set forth below is a line-graph presentation comparing cumulative, five-year
stockholder returns on an indexed basis with the Standard & Poor's 500 Stock
Index and an index of peer issuers selected by the Company. The Human Resources
Committee of the Board of Directors has approved a group of 19 publicly-traded
life insurance companies as its index of peer issuers. These companies were
selected to provide consistency with the Company's LTIP program; earnings data
from these same 19 companies will be used to determine LTIP payouts for the
1993-95 LTIP cycle. A list of these companies follows the graph below:
<TABLE>
[GRAPH APPEARS HERE]
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG PROVIDIAN CORPORATION, S&P 500 INDEX AND PEER GROUP
<CAPTION>
Measurement Period PROVIDIAN S&P
(Fiscal Year Covered) CORPORATION 500 INDEX PEER GROUP
------------------- ----------- --------- ----------
<S> <C> <C> <C>
Measurement Pt-
12/31/89 $100.0 $100.0 $100.0
FYE 12/31/90 $ 77.3 $ 96.9 $ 87.4
FYE 12/31/91 $128.8 $126.3 $123.9
FYE 12/31/92 $149.4 $135.9 $168.8
FYE 12/31/93 $156.5 $149.5 $175.6
FYE 12/31/94 $133.5 $151.6 $163.1
</TABLE>
* Assumes that the value of the investment in Company Common Stock and each
index was $100 on December 31, 1989 and that all dividends were reinvested.
The 19 companies used for purposes of peer comparison are: AFLAC Inc.;
American General Corp.; American National Insurance Co.; AON Corp.; Conseco;
Equitable of Iowa Companies; First Colony Corp.; Home Beneficial Corp.;
Independent Insurance Group, Inc.; Jefferson-Pilot Corp.; The Liberty Corp.;
Lincoln National Corp.; ReliaStar Financial Corporation (formerly The NWNL
Companies); Provident Life & Accident Insurance Co. of America; Torchmark
Corp.; Transamerica Corp.; Unitrin; UNUM Corp.; and USLIFE Corp.
The Peer Group Index used in the Company's 1994 Proxy Statement (the "1994
Index") included all the foregoing companies except Equitable of Iowa; Conseco;
First Colony Corp.; Independent Insurance Group, Inc.; and Transamerica Corp.
The 1994 Index also included First Executive Corp.; Southwestern Life
Corporation (formerly I.C.H. Corp.); Monarch Capital Corp.; USLICO Corp.; and
Washington National Corp. These companies were removed, with the approval of
the Human Resources Committee, for reasons of insolvency, poor performance
and/or low market capitalization levels.
If the group of companies included in the 1994 Index had comprised the current
Peer Group Index, the levels for that index, instead of those reflected in the
chart above, would have been as follows: 1989--$100; 1990--$83.4; 1991--$118.0;
1992--$157.9; 1993--$161.1; and 1994--$151.6.
13
<PAGE>
EXECUTIVE EMPLOYMENT AND CHANGE IN CONTROL AGREEMENTS
Since 1988, Mr. Bailey has served as Chairman and Chief Executive Officer of
the Company pursuant to a five-year employment agreement. Beginning in February
1993, the agreement became automatically renewable for one-year periods unless
terminated by either party pursuant to the terms of the agreement. The
agreement provides for an initial base salary of $475,000, subject to annual
review, and entitles Mr. Bailey to participate in the Company's management
incentive compensation plans. The agreement entitles Mr. Bailey to a
supplemental pension to be paid at age sixty equal to 50 percent of the average
of his total cash compensation (base salary, annual incentives and long term
incentives) for the five highest consecutive years of his employment with the
Company in the ten years preceding the date of his retirement, subject to
offset by pension amounts and certain Social Security benefits otherwise
received by Mr. Bailey. If Mr. Bailey's employment is terminated without cause,
he will be entitled to salary and bonus payments and participation in the
Company's employee benefit plans for 24 months following such termination, as
well as a payout with respect to stock options then held by Mr. Bailey. In the
event of such termination following a change in control of the Company (as
defined in the agreement and described below), Mr. Bailey will be entitled to
the same benefits except that such payment (other than continued participation
in employee benefit plans) will be made to him in a lump sum. The agreement
also provides for indemnification by the Company of Mr. Bailey for any excise
taxes in the event that benefits paid pursuant to a change in control trigger
adverse tax consequences.
Under the agreement, a change in control occurs when (a) any person (except the
Company, any of its subsidiaries, any Company sponsored or maintained employee
benefit plan and any corporation with an identity of beneficial ownership)
becomes the beneficial owner of 20 percent or more of the outstanding Common
Stock or the Company's outstanding Voting Securities (hereafter defined); (b)
the individuals who were directors on August 9, 1989, including subsequent
directors who are approved by a majority of the individuals who were directors
on August 9, 1989, cease to represent a majority of the Board of Directors; (c)
the Company is reorganized, merged or consolidated such that all or
substantially all of the persons beneficially owning the Company's outstanding
Common Stock and outstanding Voting Securities before the reorganization,
merger or consolidation will beneficially own more than 60 percent of the
outstanding common stock and Voting Securities of the corporation resulting
from the reorganization, merger or consolidation; or (d) the Company is
liquidated, dissolved or sells all or substantially all of its assets, except
to a corporation with an identity of beneficial ownership. A corporation has an
identity of beneficial ownership if 60 percent of its outstanding shares of
common stock and its outstanding Voting Securities will be beneficially owned,
after acquiring the threshold 20 percent of the Company's outstanding Common
Stock or outstanding Voting Securities or all or substantially all of the
Company's assets, by all or substantially all of the persons beneficially
owning the Company's outstanding Common Stock and outstanding Voting Securities
before the acquisition in substantially the same proportion. "Voting
Securities," as used herein, means the combined voting power of outstanding
voting securities entitled to vote generally in an election of directors.
The Company has entered into agreements with Messrs. Adrean, Mehta, Tumbler,
Walker and five other officers of the Company, three of whom are executive
officers, providing certain benefits upon termination of employment following a
change in control of the Company (as defined in the agreements and described
below). Pursuant to the agreements, if a covered executive's employment is
terminated within five years after the date of a change in control for any
reason other than death, disability, or for cause, the executive is entitled to
severance pay and certain other benefits. The severance payments are based on
the executive's annual compensation, multiplied by a factor of two. Under the
agreements, a change in control is defined to include the events described in
Mr. Bailey's agreement except that the date of the Board of Directors for
purposes of subsection (b) varies depending on the date of the particular
agreement and that under subsection (c), a change in control occurs when the
Company is reorganized, merged or consolidated such that all or substantially
all of the persons beneficially owning the Company's outstanding Common Stock
and outstanding Voting Securities before the reorganization, merger or
consolidation do not beneficially own more than 60 percent of the outstanding
common stock and outstanding Voting Securities of the corporation resulting
from the reorganization, merger or consolidation. The agreements also provide
for indemnification by the Company of the executive for any excise taxes in the
event that benefits paid pursuant to a change in control trigger adverse tax
consequences to the executive.
14
<PAGE>
In 1990, the Board approved a change in control policy (the "Policy") for all
regular, full-time employees who are involuntarily terminated, other than for
cause or as a result of death or disability, within a two-year period following
a change in control of the Company. A change in control, under the Policy,
occurs under the same circumstances described in the executive officers'
agreements above except that the date of the Board of Directors for purposes of
subsection (b) is August 8, 1989. Under the Policy, full-time employees are
generally eligible to receive a lump sum payment in an amount equal to one week
of the employee's average compensation (including base and incentive award for
incentive-eligible employees and base only for all others) for each six months
of service. The Policy provides for a minimum severance amount regardless of
the length of the employee's prior service and also subjects severance benefits
to a maximum based on organizational levels. The Policy does not apply to the
officers covered by the change in control agreements described above.
In April 1986, Mr. Mehta joined Providian Bancorp as Executive Vice President
and Chief Operating Officer in accordance with the terms of a written offer of
employment (the "Offer"). Under the terms of the Offer, Providian Bancorp
established a deferred compensation account for Mr. Mehta and agreed to make
contributions to it in an amount equal to 20 percent of Mr. Mehta's base salary
less the cost of any Bancorp employee benefits elected by Mr. Mehta. Amounts
held in the deferred compensation account are to be paid to Mr. Mehta upon
termination of employment. The Offer was amended August 5, 1992, to discontinue
the obligation to contribute to the deferred compensation account effective
July 31, 1992. In lieu thereof, Mr. Mehta became entitled to participate in the
Company's qualified defined benefit pension plan and nonqualified supplemental
pension plan, with his employment commencement date deemed to be January 1,
1988 for purposes of the nonqualified supplemental pension plan as reflected in
the Providian Corporation Retirement Plan Estimated Benefit Table. In the event
of Mr. Mehta's termination of employment, amounts payable under these pension
plans will be comparable to the continuation of his original agreement, with
any shortfall to be paid to Mr. Mehta in the form of a nonqualified annuity.
PROPOSAL 2: TO ADOPT THE COMPANY'S 1995 STOCK OPTION PLAN
The Company's existing Stock Option Plan was approved by stockholders of the
Company at the 1989 Annual Meeting. The principal purposes of the existing plan
are to advance the interest of the Company by enabling it and its operating
companies to attract and retain key employees through opportunities for
investment in the Company's Common Stock.
The Board of Directors has approved, subject to stockholder approval at the
Annual Meeting, the Providian Corporation 1995 Stock Option Plan (the "1995
Plan"). If approved by the stockholders, the 1995 Plan will replace the
Company's 1989 Stock Option Plan and no further options will be granted under
the 1989 Stock Option Plan.
The following summary of the 1995 Plan is subject to, and qualified in its
entirety by, the full text of the 1995 Plan, which is set forth in Appendix A
attached to this Proxy Statement.
GENERAL
Shares Subject to the Plan. The 1995 Plan authorizes the grant of stock
options, as described below, for up to 4,500,000 shares of Common Stock, which
shares may be authorized and unissued shares, or issued shares reacquired by
the Company or a combination thereof. The Plan also authorizes the award of
stock appreciation rights ("SARs") in tandem with options, in an amount not to
exceed one-half of the number of options to which the SARs relate. Shares of
stock which are attributable to options which expire or are otherwise
terminated, canceled or surrendered without being exercised or are forfeited
will be available for issuance in connection with future grants under the 1995
Plan. The 1995 Plan provides for adjustments to reflect any future stock
dividends, stock splits or other relevant capitalization changes.
Term of the Plan. The 1995 Plan will become effective upon its approval by the
Company's stockholders. No options may be granted under the 1995 Plan after May
5, 2005. In December 1994, options to purchase a total of 1,008,000 shares of
Common Stock were granted to 27 employees under the 1995 Plan, including the
following options granted to each of the executive officers named in the
Summary Compensation Table and to
15
<PAGE>
all executive officers as a group: Irving W. Bailey II, 166,000 shares;
Shailesh J. Mehta, 117,000 shares; Joseph M. Tumbler, 81,000 shares; Lee
Adrean, 67,500 shares; Robert L. Walker, 54,500 shares; and all executive
officers as a group, 658,400 shares. These grants were made expressly subject
to approval of the 1995 Plan by stockholders of the Company.
Eligibility and Administration. The Human Resources Committee (a committee of
directors none of whom are employees of the Company) will have full authority
to administer the 1995 Plan, including, without limitation, the sole
discretionary authority to determine the persons to receive options under the
1995 Plan, the number of shares to be subject to each option and the terms and
conditions of grant and exercise. All grants under the 1995 Plan will be made
in consideration of services rendered or to be rendered by key salaried
employees ("employees") of the Company or its subsidiaries, to encourage them
to achieve the Company's profit, growth and performance objectives through
Common Stock ownership.
No more than 500,000 options may be granted to any participant during any
calendar year. The total number of persons who may receive grants under the
1995 Plan is limited to key salaried employees who are responsible for or
contribute to the management, growth or profitability of the business of the
Company or its subsidiaries. The participants under the 1995 Plan will be
selected, from time to time, by the Human Resources Committee. It is not
possible at this time to determine who will be selected to receive option
grants, but it is expected that each such determination will be made on the
basis of an individual's present and potential contributions to the Company.
Through fiscal 1994, 525 individuals had received stock option grants under the
existing 1989 Stock Option Plan.
STOCK OPTIONS
The stock options to be granted under the 1995 Plan may be either incentive
stock options or nonqualified stock options. The terms of any nonqualified
stock option, including without limitation the exercise price and period of
exercise, will be determined by the Human Resources Committee in its sole
discretion at the time of grant. All stock options will be exercisable within
ten years after the date of the grant. No stock option can be granted at an
exercise price of less than 100% of fair market value on the date the stock
option is granted. The exercise price of an option may be paid in cash or in
shares of Common Stock (valued at fair market value on the date of payment)
having an aggregate fair market value at the time of exercise equal to the
option exercise price, or through a combination of cash and shares of Common
Stock. Options will be exercisable on terms to be determined by the Human
Resources Committee at the time of grant. In the case of incentive stock
options, the aggregate fair market value (determined as of the date the stock
option is granted) of the stock granted to any option holder (under all plans
of the Company or any subsidiary) which may become exercisable for the first
time in any calendar year may not exceed $100,000, or such other limit as may
be imposed under the Internal Revenue Code of 1986. As determined by the Human
Resources Committee at or after the time of grant, upon exercise of such stock
option, any withholding tax required by law to be remitted by a participant to
the Company upon the exercise of an option may be paid in cash or by the
withholding of shares otherwise issuable upon exercise, or by a combination of
cash and shares of Common Stock.
If the employment of a participant is terminated for cause, all then
outstanding options for such participant, whether or not exercisable, shall
terminate immediately. If the employment of a participant is terminated for any
reason other than for cause, death, disability or retirement, to the extent
then outstanding options of such participant are exercisable, such options may
be exercised by such participant or his personal representative at any time
prior to the earlier of the expiration date of the options or the date which is
ninety (90) days after the date of such termination of employment. In the event
of the retirement of a participant, to the extent then outstanding options of
such participant are exercisable, such options may be exercised by the
participant (a) in the case of nonqualified stock options, within five years
after the date of retirement and (b) in the case of incentive stock options,
within ninety (90) days after retirement as incentive stock options or four
years nine months thereafter as nonqualified stock options; provided, however,
that no such options may be exercised on a date subsequent to their expiration.
In the event of the death or disability of a participant while employed by the
Company or a subsidiary, all then outstanding options of such participant shall
become fully vested and immediately exercisable, and may be exercised at any
time (q) in the case of nonqualified stock options, within
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five years after the date of death or determination of disability, (r) in the
case of incentive stock options, within one year after the date of
determination of disability as incentive stock options, or four years
thereafter as nonqualified stock options, and (s) in the case of incentive
stock options within five years after the date of death; provided however, that
no such options may be exercised on a date subsequent to their expiration.
Options may be exercised to the extent provided in the 1995 Plan (x) in the
event of the death of a participant, by the person or persons to whom rights
pass by will or by the laws of descent and distribution, or if appropriate, the
legal representative of his estate and (y) in the event of the disability of a
participant, by the participant, or if such participant is incapacitated, by
his legal representative.
STOCK APPRECIATION RIGHTS
The 1995 Plan also authorizes the Human Resources Committee to grant SARs in
tandem with any stock option granted to a participant. The Human Resources
Committee may not, however, issue SARs in tandem with stock options with
respect to more than 50 percent, in the aggregate, of the shares underlying
options granted to any one participant. If the Human Resources Committee issues
SARs in tandem with a stock option granted under the Plan, the SARs will be
subject to the same terms and conditions as the related option and will be
exercisable only to the extent that such option is exercisable. A grant of SARs
will require, as a condition to its exercise, that the participant surrender,
unexercised, the related option. Upon exercise of an SAR, the participant will
be entitled to receive an aggregate value equal to the product of (a) the
excess of the fair market value of one share of Common Stock on the date of
exercise over the option exercise price multiplied by (b) the number of SARs
being exercised. The Human Resources Committee will have the right to determine
whether such aggregate value will be paid in the form of shares of Common
Stock, cash or a combination of both. Although SARs have been available under
the 1989 Stock Option Plan, no SARs have been granted.
CHANGE IN CONTROL
In the event of a Change in Control of the Company, options not previously
exercisable and vested will become fully vested and immediately exercisable.
For purposes of the 1995 Plan, a Change in Control will occur under the same
circumstances described in the change in control policy adopted by the Board of
Directors in 1990 (see "Executive Employment and Change in Control
Agreements"), except that the date for determining incumbent directors is May
5, 1995.
TERMINATION AND AMENDMENT
The Board of Directors may amend, modify or terminate the 1995 Plan at any time
without restriction. However, no amendment may, without stockholder approval
(to the extent required), increase the total number of shares which may be
issued under the 1995 Plan (other than in the case of adjustments to reflect
future stock dividends, stock splits or other relevant capitalization changes),
change the class of employees eligible to participate in the 1995 Plan, extend
the maximum period during which options may be exercised or extend the period
during which options may be granted, or materially increase the benefits
accruing to participants under the 1995 Plan. The Human Resources Committee may
amend or alter the terms of any option or any agreement relating thereto at any
time, but no such action may affect or in any way impair the rights of an
option holder under any option previously granted without such holder's
consent.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the principal federal income tax
consequences of transactions under the 1995 Plan based on current federal
income tax laws. This summary is not intended to be exhaustive and, among other
things, does not describe state, local or foreign tax consequences.
Accordingly, a participant should consult a tax advisor with respect to the tax
aspects of the 1995 Plan.
Nonqualified Stock Options. In general, (i) an optionee will not be subject to
tax at the time a nonqualified stock option is granted, and (ii) an optionee
will include in ordinary income in the taxable year in which he or she
exercises a nonqualified stock option an amount equal to the difference between
the exercise price and the
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fair market value of the Common Stock on the date of exercise. Upon disposition
of the Common Stock acquired upon exercise, any appreciation or depreciation
after the date ordinary income is recognized will be treated as capital gain
(or loss). The Company generally will be entitled to a deduction in an amount
equal to a recipient's ordinary income in the Company's taxable year in which
the optionee includes such amount in income or, under certain circumstances, a
later taxable year.
Incentive Stock Options. No taxable income will be realized by an option holder
upon the grant or exercise of an incentive stock option. If shares are issued
to an option holder pursuant to the exercise of an incentive stock option
granted under the 1995 Plan and if no disqualifying disposition of such shares
is made by such option holder within two years after the date of grant or
within one year after the receipt of such shares by such option holder, then
(i) upon a sale of such shares, any amount realized in excess of the exercise
price of the incentive stock option will be taxed to such option holder as a
long-term capital gain and any loss sustained will be a long-term capital loss,
and (ii) no deduction will be allowed to the Company. However, if shares
acquired upon the exercise of an incentive stock option are disposed of prior
to the expiration of either holding period described above, generally (i) the
option holder will realize ordinary income in the year of disposition in an
amount equal to the excess (if any) of the fair market value of the shares at
exercise (or, if less, the amount realized on the disposition of the shares)
over the exercise price thereof, and (ii) the Company will be entitled to
deduct such amount. Any additional gain or loss recognized by the option holder
will be taxed as a short-term or long-term capital gain or loss, as the case
may be, and will not result in any deduction by the Company. If an incentive
stock option is exercised at a time when it no longer qualifies as an incentive
stock option, the stock option will be treated as a nonqualified stock option.
Stock Appreciation Rights. No income will be realized by a recipient in
connection with the grant of any SAR. The recipient must include in ordinary
income the amount of cash received upon the exercise of an SAR. If the
recipient receives shares of Common Stock upon the exercise of an SAR, the
recipient will incur taxable income to the extent of the aggregate amount of
appreciation in the value of the underlying shares of Common Stock at the time
of exercise over the exercise price. The Company will be entitled to a
deduction equal to the amount included in such participant's income by reason
of the exercise of any SAR.
VOTE REQUIRED
Approval of the 1995 Plan requires the affirmative vote of the holders of a
majority of the outstanding shares of the Company's Common Stock present or
represented at the Annual Meeting and entitled to vote on the proposal.
Abstentions and broker non-votes will not be counted as votes cast either for
or against the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO ADOPT THE 1995
STOCK OPTION PLAN.
PROPOSAL 3: TO ADOPT THE COMPANY'S MANAGEMENT INCENTIVE PLAN
The Company's existing management incentive plan was first adopted by the Board
of Directors on February 17, 1993. The principal purposes of the existing
incentive compensation plan are to advance the interests of the Company and its
subsidiaries by integrating executive compensation with the Company's business
planning and measurement process.
The Board of Directors has approved, subject to stockholder approval at the
Annual Meeting, the Providian Corporation Management Incentive Plan (the
"Incentive Plan"). If approved by the stockholders, the Incentive Plan will
become effective as of January 1, 1995.
The following summary of the Incentive Plan is subject to, and qualified in its
entirety by, the full text of the Incentive Plan, which is set forth in
Appendix B attached to this Proxy Statement.
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GENERAL
Eligibility and Administration. All key salaried employees of the Company or
its subsidiaries will be eligible to receive awards under the Incentive Plan.
The Incentive Plan will be administered by the Human Resources Committee, which
will have full authority to select those employees to whom awards under the
Plan will be made and, subject to the provisions of the Plan, to determine the
amount and frequency of awards and the terms and conditions of awards. Through
fiscal 1994, 251 individuals had received awards under the Company's existing
incentive compensation plan.
Incentive Awards. Awards will be made by the Company to a participant as
compensation for services to the Company or a subsidiary. Payment of an award
will generally depend upon achievement by the Company (or an operating unit of
the Company) and the participant of annual performance objectives established
by the Human Resources Committee. These performance objectives will be
established annually within 90 days after the commencement of the year to which
the performance objectives relate. Generally, a participant will only be
eligible for an incentive award if the Company and the participant both attain
the pre-established performance objectives. The amount of a participant's award
will be determined based upon the incentive award level established by the
Human Resources Committee for the participant expressed as a percentage of his
or her salary. In no event, however, may any award under the Incentive Plan
exceed $1.3 million. Incentive award levels may be adjusted downward based upon
a participant's performance with respect to the participant's individual
performance objectives.
The performance objectives with respect to annual performance periods will be
based upon the Company's and/or the operating unit's earnings, earnings per
share, revenue, expenses, margin or return on equity and will be calculated in
accordance with the formula established for such annual performance period. The
Human Resources Committee will be required to certify in writing before an
award is paid with respect to an annual performance period that the performance
objectives for such period have been satisfied.
Payment of Awards. A participant whose employment with the Company ceases prior
to distribution of awards for the annual performance period for any reason
other than death, retirement or disability shall not be eligible for any award
for such period. A participant whose active employment with the Company ceases
prior to the end of the annual performance period as a result of death,
retirement or disability, shall be eligible for a prorated amount of an award
based upon length of active employment during the annual performance period and
the attainment of the performance objectives for such period. A participant who
transfers employment from the Company to a subsidiary, from a subsidiary to the
Company, among subsidiaries, or from one position to another within the Company
or within one subsidiary prior to the end of the annual performance period may
be eligible for an award if the Human Resources Committee determines such is
appropriate and that the performance objectives for such period have been
satisfied. When a participant commences employment or becomes a participant
subsequent to the commencement of the annual performance period, that
participant shall be eligible for a prorated amount of the incentive award
based upon the length of employment during the performance period and subject
to the provisions of the Incentive Plan. The individual performance objectives
applicable with respect to a participant (1) whose active employment terminates
due to death, disability or retirement during the annual performance period,
(2) who transfers positions with the Company or a subsidiary or between or
among the Company and its subsidiaries during such period, or (3) who commences
employment or becomes a participant subsequent to the commencement of such
period shall be determined by the Human Resources Committee subject to the same
rules and limitations applicable to the establishment of all performance
objectives under the Incentive Plan. Awards shall be paid or credited as soon
as practicable following the end of the annual performance period.
TERMINATION AND AMENDMENT
Unless sooner terminated by the Board of Directors, the Incentive Plan will
terminate on, and no awards will be granted after, January 1, 2005. The Board
of Directors may amend or modify the Incentive Plan at any time. However, to
the extent required under Section 162(m) of the Internal Revenue Code of 1986,
as amended, for qualified performance-based compensation, no such amendment or
modification may be made without approval by stockholders of the Company. The
Human Resources Committee may amend the terms of any award at any time, but no
such amendment may impair the rights of any participant without the
participant's consent.
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VOTE REQUIRED
Approval of the Incentive Plan requires the affirmative vote of the holders of
a majority of the outstanding shares of the Company's Common Stock present or
represented at the Annual Meeting and entitled to vote on the proposal.
Abstentions and broker non-votes will not be counted as votes cast either for
or against the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO ADOPT THE
MANAGEMENT INCENTIVE PLAN.
PROPOSAL 4: TO AMEND THE COMPANY'S STOCK OWNERSHIP PLAN
The Board of Directors recommends that stockholders approve amendments to the
Company's Stock Ownership Plan (the "Plan") to (i) reduce the aggregate number
of shares of Common Stock which may be granted under the Plan from 3,600,000
(adjusted to reflect a two-for-one stock split effected in 1993) to 2,000,000,
(ii) increase the maximum number of matching shares of Restricted Stock
(defined below) which may be awarded to a participant under the Plan from 100
percent to 200 percent of a related grant of Nonrestricted Stock (defined
below), and (iii) address tax deductibility limits imposed by the Omnibus
Budget Reconciliation Act of 1993 ("OBRA").
DESCRIPTION OF THE PLAN
The Plan was approved by stockholders at the 1992 Annual Meeting and, adjusted
to reflect the two-for-one stock split effected in 1993, authorizes the award
of up to 3.6 million shares of Common Stock to key employees of the Company and
its subsidiaries and non-employee directors of the Company. The Plan allows
non-employee directors of the Company to receive 25 percent of their annual
retainer fee in Common Stock, matched by an equal number of restricted shares
of Common Stock, and permits the Human Resources Committee (the "Committee") to
make similar awards to key employees in lieu of awards traditionally granted
under the Company's cash incentive compensation plans.
The Committee determines the timing and number of shares of Common Stock
("Nonrestricted Stock") to be awarded to employee participants, takes into
account, among other factors, the salary and other performance related
compensation being received by the employee from the Company, including amounts
awarded under other incentive plans of the Company. The Committee also has
discretion to make awards of restricted Common Stock, subject to the
restrictions described below ("Restricted Stock"), for hiring bonuses,
extraordinary performance rendered or as an incentive to the achievement of
future performance targets. Upon each grant of Nonrestricted Stock, employee
participants will simultaneously be awarded matching shares of Restricted
Stock, the amount to be determined by the Committee as a percentage of, but no
greater than, the number of shares of Nonrestricted Stock granted at such time.
Although the Committee has complete discretion as to the amount and timing of
awards to employee participants, to date the Committee has awarded shares of
Nonrestricted Stock equal to 25 percent of amounts otherwise traditionally
payable under cash incentive compensation plans and an equal number of shares
of matching Restricted Stock. One half of these matching restricted shares will
vest if all of the simultaneously awarded Nonrestricted Stock is held for three
years, and the other half will vest if such Nonrestricted Stock is held for six
years. Each non-employee director will receive shares of Nonrestricted Stock
equal in value to 25 percent of the retainer fee which the non-employee
director would have otherwise received in cash, and will simultaneously be
awarded an equal number of shares of matching Restricted Stock which will vest
in a similar manner.
At December 31, 1994, a total of 223,258 shares of Nonrestricted Stock and
224,716 shares of Restricted Stock have been issued under the Plan to
approximately 365 employees of the Company and 11 non-employee directors. A
copy of the Plan and a description of its provisions were provided to
stockholders in the Company's proxy statement for the 1992 Annual Meeting.
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DESCRIPTION OF THE AMENDMENTS
The Board of Directors amended the Plan on February 15, 1995, subject to
stockholder approval at the Annual Meeting. The amendments (i) reduce the
maximum number of shares of Common Stock available for issuance under the Plan;
(ii) increase the maximum number of shares of Restricted Stock which may be
issued as matching grants; (iii) revise the eligibility provisions to specify
that all key salaried employees of the Company shall be eligible to receive
awards under the Plan; (iv) limit the aggregate value of Nonrestricted Stock
which may be granted to a participant in any year under the Plan to 25 percent
of the total incentive award earned by the participant for such year under the
Company's Management Incentive Plan; (v) impose certain objective performance
criteria on the discretionary grant of additional shares of Restricted Stock;
and (vi) make certain technical changes intended to conform the Plan to the
requirements for deductibility of executive compensation under OBRA.
Changes in Share Provisions. The reduction in the maximum number of shares
available for issuance under the Plan is being proposed in recognition of the
proposal to adopt the 1995 Stock Option Plan and the Company's desire to avoid
a substantial increase in the shares reserved for issuance under these two
plans. In addition, the Company's utilization experience under the Plan has
been less than anticipated at the time of its original adoption. The proposed
increase in the maximum matching percentage of Restricted Stock awards under
the Plan is intended to allow the Company greater flexibility in administering
its long term incentive compensation programs by placing greater emphasis on
equity-based awards.
Discussion of OBRA and Related Plan Amendments. Tax legislation known as OBRA
was passed by Congress and signed into law by the President in 1993. Under
OBRA, subject to certain exceptions and transition provisions, the allowable
deduction for compensation paid or accrued with respect to the chief executive
officer and each of the four most highly compensated employees of a publicly-
held corporation is limited to $1 million per year for fiscal years beginning
on or after January 1, 1994. Certain types of compensation are exempted from
this deduction limitation, including payments subject to: (1) the attainment of
an objective performance goal; (2) administration of the plan by outside
directors; and (3) stockholder approval of performance-based compensation.
In order to satisfy the requirement of OBRA with respect to the award of Common
Stock under the Plan, stockholders must now approve the maximum number of
shares of Nonrestricted Stock and Restricted Stock that can be awarded under
the Plan to any single employee in any year. The amendments adopted by the
Board and recommended for stockholder approval limit the number of shares which
may be granted to any single employee during any fiscal year of the Company. In
addition, the discretionary grant of additional shares of Restricted Stock will
be subject to achievement by the Company and/or an eligible employee of
performance objectives established by the Committee. These performance
objectives will be based on the same kinds of performance measures which the
Committee may use in making awards under the Management Incentive Plan.
Approval of the amendments by stockholders is intended to qualify awards made
under the Plan under OBRA, thus preserving the Company's tax deduction for such
awards.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, shares of Nonrestricted Stock granted under
the Plan to employee participants will result in ordinary income to the
participant equal to the value of the stock at the time of grant, unless the
participant is subject to Section 16(b) of the Securities Exchange Act of 1934
("Section 16(b)"). In the case of participants subject to Section 16(b), which
includes all non-employee directors, the grant of shares of Nonrestricted Stock
will result in ordinary income equal to the value of the shares six months
after the date of grant, unless the participant makes an election under Section
83(b) of the Internal Revenue Code of 1986, as amended, to be taxed
immediately. In the case of Restricted Stock, a participant will recognize
(except in certain limited circumstances) ordinary income in an amount equal to
the fair market value of the shares on the date the restriction lapses. The
Company will be entitled to a corresponding deduction at the time of ordinary
income recognition by the participant. The proposed amendments to the Plan to
limit the number of shares of Nonrestricted Stock and Restricted Stock which
may be granted to any participant in any year are intended to exclude such
compensation from the $1 million limitation on deductibility.
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VOTE REQUIRED
Approval of the amendments to the Stock Ownership Plan requires the affirmative
vote of the holders of a majority of the outstanding shares of the Company's
Common Stock present or represented at the Annual Meeting and entitled to vote
on the proposal. Abstentions and broker non-votes will not be counted as votes
cast either for or against the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO AMEND THE STOCK
OWNERSHIP PLAN.
PROPOSAL 5: TO RATIFY 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 1995, 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 1969.
If the appointment of Ernst & Young LLP is not ratified by a majority of the
votes cast at the 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.
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
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 the Annual Meeting.
To be included in next year's proxy statement, stockholder proposals for the
1996 Annual Meeting must be received in writing by November 28, 1995, by the
Secretary, Providian Corporation, Post Office Box 32830, Louisville, Kentucky
40232. The Board of Directors will decide, subject to the rules of the
Securities and Exchange Commission, whether such proposals are to be included
in the proxy and proxy statement.
Stockholders also may recommend candidates for directors. 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 1996 Annual Meeting and subsequent annual
meetings. Recommendations should be submitted in writing no later than October
31 of each year to the Human Resources Committee, c/o Secretary, Providian
Corporation, Post Office Box 32830, Louisville, Kentucky 40232.
In addition to these requirements, the Company's By-laws impose notice
requirements on a stockholder nominating a director or submitting a proposal to
an annual meeting. Such notice shall be submitted to the Secretary of the
Company no earlier than 90, nor later than 60, days before an annual meeting,
and shall contain the information prescribed by the By-laws, copies of which
are available from the Secretary. These requirements apply even if the
stockholder does not desire to have his or her nomination or proposal included
in the Company's proxy statement.
PROVIDIAN CORPORATION
By: ROBERT MICHAEL SLAVEN
Secretary
Louisville, Kentucky
March 28, 1995
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APPENDIX A
PROVIDIAN CORPORATION
1995 STOCK OPTION PLAN
ARTICLE 1. PURPOSE
The purpose of this 1995 Stock Option Plan ("Plan") is to advance the interest
of Providian Corporation, a Delaware corporation ("Company"), by enabling it
and its operating companies to attract and retain the best available personnel
for positions of substantial responsibility, and to provide key employees of
the Company and its operating companies with an opportunity for investment in
the Company Common Stock; thereby giving them an additional incentive to
increase their efforts on behalf of the long term success of the Company and
its operating companies. Upon adoption of the Plan by the Company's
stockholders, the Plan shall replace the Company's 1989 Stock Option Plan;
however, the termination of such plan shall not effect the grants and awards
made under such plan prior to termination.
ARTICLE 2. DEFINITIONS AND CONSTRUCTION
2.1 Definitions. As used in the Plan, terms defined parenthetically immediately
after their use shall have the respective meanings provided by such
definitions, and the terms set forth below shall have the following meanings
(in either case, such meanings shall apply equally to both the singular and
plural forms of the terms defined);
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Cause" shall mean a felony conviction of a Participant or the failure of a
Participant to contest prosecution for a felony, or a Participant's willful
misconduct or dishonesty (as such terms are defined by the Committee in its
sole discretion), any of which is determined by the Committee to be
directly and materially harmful to the business or reputation of the
Company or its Subsidiaries.
(c) "Change of Control" shall mean:
i. When any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Exchange Act) becomes a beneficial owner
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
20 percent or more of either (A) the Outstanding Common Stock or (B) the
Outstanding Voting Securities; provided, however, that beneficial
ownership by any of the following shall not constitute a Change of
Control: (1) the Company; (2) any employee benefit plan (or related
trust) sponsored or maintained by the Company; or (3) any corporation
with respect to which, following such acquisition, more than 60 percent
of, respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the
election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Common
Stock and Outstanding Voting Securities, immediately prior to such
acquisition in substantially the same proportions as their ownership,
immediately prior to such acquisition, of the Outstanding Common Stock
and Outstanding Voting Securities, as the case may be; or
ii. When individuals who, as of the date hereof, constitute the Board cease
for any reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director of the
Company subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at
least a majority of the directors of the Company then comprising the
Board shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of
either an actual or threatened election contest (as such term is used
in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act);
or
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iii. A reorganization, merger or consolidation, with respect to which, in
each case, all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding
Common Stock and Outstanding Voting Securities immediately prior to
such reorganization, merger or consolidation do not, following such
reorganization, merger or consolidation, beneficially own, directly or
indirectly, more than 60 percent of, respectively, the then
outstanding shares of common stock and the combined voting power of
the then outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the corporation
resulting from such reorganization, merger or consolidation in
substantially the same proportions as their ownership, immediately
prior to such reorganization, merger or consolidation of the
Outstanding Common Stock and Outstanding Voting Securities, as the
case may be; or
iv. (A) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company or (B) the sale or other
disposition of all or substantially all of the assets of the Company,
other than to a corporation, with respect to which following such sale
or other disposition, more than 60 percent of, respectively, the then
outstanding shares of common stock of such corporation and the combined
voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Common Stock and
Outstanding Voting Securities immediately prior to such sale or other
disposition in substantially the same proportion as their ownership,
immediately prior to such sale or other disposition, of the Outstanding
Common Stock and Outstanding Voting Securities, as the case may be.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time, or any successor thereto, together with any regulations
promulgated thereunder.
(e) "Committee" shall mean the committee described in Section 3.1.
(f) "Common Stock" shall mean the Company's common stock, $1 par value per
share.
(g) "Disability" shall mean when a Participant is considered permanently
disabled under a disability insurance policy carried by the Company, or, if
no such policy is carried by the Company, when a Participant is permanently
and totally disabled within the meaning of section 22(e) of the Code.
(h) "Effective Date" shall mean the date described in Section 9.1.
(i) "Employee" shall mean an individual who is a full-time or part-time
employee of the Company or a Subsidiary.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time.
(k) "Fair Market Value" of the Shares shall mean, as of any applicable date,
the mean between the highest and lowest sale price of the Shares as
reported on the New York Stock Exchange Composite Tape, or if no such
reported sale of the Shares shall have occurred on such date, on the next
preceding date on which there was such a reported sale. If there shall be
any material alteration in the present system of reporting sale prices of
the Shares, or if the Shares shall no longer be listed on the New York
Stock Exchange, the fair market value of the Shares as of a particular date
shall be determined by such method as shall be determined by the Committee.
(l) "Incumbent Board" shall mean the individuals who on the date of adoption of
this Plan by the Board of Directors constitute the Board of Directors.
(m) "ISOs" shall have the meaning given such term in Section 6.1.
(n) "NQSOs" shall have the meaning given such term in Section 6.1.
(o) "Option" shall mean an option to purchase Shares granted pursuant to
Article 6 (and, if applicable, related stock appreciation rights).
(p) "Option Agreement" shall mean an agreement evidencing the grant of an
Option, as described in Section 6.2.
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(q) "Option Exercise Price" shall mean the purchase price per Share subject to
an Option, which shall not be less than the Fair Market Value of the Share
on the day on which the Option is granted.
(r) "Outstanding Common Stock" shall mean the then outstanding shares of Common
Stock.
(s) "Outstanding Voting Securities" shall mean the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors of the Company.
(t) "Participant" shall mean any Employee who is a key salaried employee of the
Company or its Subsidiaries and who is selected by the Committee to receive
an Award under the Plan.
(u) "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of
the Exchange Act and as used in Sections 13(d) and 14(d) thereof, including
a "group" as defined in Section 13(d) thereof.
(v) "Plan" shall mean this Providian Corporation 1995 Stock Option Plan as the
same may be amended from time to time.
(w) "Retirement" shall mean retirement by a Participant in accordance with the
terms of the Company's retirement or pension plans or pursuant to a written
agreement.
(x) "Shares" shall mean the shares of Common Stock.
(y) "Subsidiary" shall mean, with respect to the Company, any corporation or
other Person of which a majority of its voting power, equity securities, or
equity interest is owned directly or indirectly by the Company.
2.2 Gender. Except where otherwise indicated by the context, reference to the
masculine gender shall include the feminine gender.
2.3 Severability. In the event any provision of the Plan shall be held illegal
or invalid for any reason, the illegality or invalidity shall not affect the
remaining parts of the Plan, and the Plan shall be construed and enforced as if
the illegal or invalid provision had not been included.
ARTICLE 3. ADMINISTRATION
3.1 The Committee. The Plan shall be administered by the Human Resources
Committee of the Board, or by any other committee (the "Committee") appointed
by the Board which shall include two or more directors of the Company who are
"disinterested persons" within the meaning of Rule 16b-3 (or any successor
provision) promulgated under the Exchange Act and all of whom shall be "outside
directors" within the meaning of Proposed Treasury Regulation (S)1.162-27 (or
any successor provision) promulgated under the Code. The members of the
Committee shall be appointed from time to time by, and shall serve at the
discretion of, the Board.
3.2 Authority of the Committee. Subject to the provisions of the Plan, the
Committee shall have full authority to administer the Plan, including without
limitation, the authority to:
(a) approve Participants to whom Options are granted;
(b) determine the size, types and frequency of Options granted under the Plan;
(c) determine the terms and conditions of Options, including any restrictions
or conditions to the Option, which need not be identical for all
Participants;
(d) accelerate the exercisability of, and accelerate or waive any or all the
restrictions and conditions applicable to, any Option, for any reason;
(e) modify the duration of an Option exercise period or term of an Award;
(f) construe and interpret the Plan and any agreement or instrument entered
into under the Plan;
(g) establish, amend and rescind rules and regulations for the Plan's
administration; and
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(h) amend the terms and conditions of any outstanding Option to the extent such
terms and conditions are within the discretion of the Committee as provided
in the Plan.
The Committee shall have sole discretion to make all other determinations which
may be necessary or advisable for the administration of the Plan. To the extent
permitted by law and Rule 16b-3 promulgated under the Exchange Act, the
Committee may delegate its authority as identified hereunder.
3.3 Decisions Binding. All determinations and decisions made by the Committee
pursuant to the provisions of the Plan, and all related orders or resolutions
of the Board, shall be final, conclusive and binding on all Persons, including
the Company, its stockholders, Employees, Participants and their estates and
beneficiaries.
3.4 Section 16 Compliance; Bifurcation of Plan. It is the intention of the
Company that the Plan and the administration of the Plan comply in all respects
with Section 16(b) of the Exchange Act and the rules and regulations
promulgated thereunder. If any Plan provision, or any aspect of the
administration of the Plan, is found not to be in compliance with Section 16(b)
of the Exchange Act, the provision or administration shall be deemed null and
void, and in all events the Plan shall be construed in favor of its meeting the
requirements of Rule 16b-3 promulgated under the Exchange Act. Notwithstanding
anything in the Plan to the contrary, the Board or the Committee, in its
discretion, may bifurcate the Plan so as to restrict, limit or condition the
use of any provision of the Plan to Participants who are subject to Section 16
of the Exchange Act without so restricting, limiting or conditioning the Plan
with respect to other Participants.
ARTICLE 4. SHARES AVAILABLE UNDER THE PLAN
4.1 Number of Shares. Subject to adjustment as provided in Section 4.3, the
number of Shares reserved for issuance upon the exercise of Options is
4,500,000 Shares. Any Shares issued under the Plan may consist, in whole or in
part, of authorized and unissued Shares or treasury Shares. If and to the
extent an Option shall expire or terminate for any reason without having been
exercised in full (including a cancellation and regrant of an Option), or shall
be forfeited, the Shares associated with such Options shall again become
available for Options under the Plan.
4.2 Adjustments in Authorized Shares and Outstanding Awards. In the event of a
merger, reorganization, consolidation, recapitalization, reclassification,
split-up, spin-off, separation, liquidation, stock dividend, stock split,
reverse stock split, share repurchase, share combination, share exchange,
issuance of warrants, rights or debentures, or other change in the corporate
structure of the Company affecting the Shares, the Committee may substitute or
adjust the total number and class of Shares or other stock or securities which
may be issued under the Plan, and the number, class and/or price of Shares or
other stock or securities subject to outstanding Options, as it determines to
be appropriate and equitable to prevent dilution or enlargement of the rights
of Participants and to preserve, without exceeding, the value of any
outstanding Options; provided, that the number of Shares or other stock or
securities subject to any Option shall always be a whole number.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
Persons eligible to receive Awards under this plan shall be those Employees who
are key salaried employees of the Company or its Subsidiaries. A Participant
shall be any such eligible Employee who is designated by the Committee in its
sole discretion to receive an Option under the Plan.
ARTICLE 6. STOCK OPTIONS
6.1 Grant of Options. Subject to the terms and provisions of the Plan, the
Committee may grant Options to Participants at any time and from time to time
in the form of options which are intended to qualify as incentive stock options
within the meaning of section 422 of the Code ("ISOs"), Options which are not
intended to so qualify ("NQSOs") or a combination thereof. No more than 500,000
Options may be granted to any Participant during any calendar year. The
Committee may issue stock appreciation rights in tandem with any Option granted
to a Participant; provided, however, that the Committee may not issue stock
appreciation rights in tandem with Option with respect to more than 50 percent,
in the aggregate, of the shares under Options
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granted to any one Participant. If stock appreciation rights are issued in
tandem with an Option, the exercise of such Option shall cause a pro tanto
cancellation of the related stock appreciation rights issued in tandem with
such Option. The exercise of a stock appreciation right issued in tandem with
an Option shall cause a pro tanto cancellation of such Shares under Option.
6.2 Option Agreement. Each Option Award shall be evidenced by an Option
Agreement that shall specify the Option Exercise Price, the duration of the
Option, the number of Shares to which the Option relates (and if any stock
appreciation rights are to be issued in tandem with such Option) and such other
provisions as the Committee may determine or which are required by the Plan.
The Option Agreement shall also specify whether the Option is intended to be an
ISO or a NQSO and shall include such provisions applicable to the particular
type of Option granted. In no event shall the Option Exercise Price be less
than the Fair Market Value of the Shares on the date the Option is granted.
6.3 Duration of Options. Subject to Section 3.2(e), each Option shall expire at
such time as is determined by the Committee at the time of grant; provided,
however, that no Option shall be exercised later than the tenth (10th)
anniversary of its grant.
6.4 Exercise of Options. Options shall be exercisable at such times and be
subject to such restrictions and conditions as the Committee shall approve at
the time of grant, which need not be the same for each grant or for each
Participant. Options shall be exercised by delivery to the Company of a written
notice of exercise, setting forth the number of Shares with respect to which
the Option is to be exercised and accompanied by an arrangement acceptable to
the Company to provide full payment of the Option Exercise Price on or prior to
the settlement date and all applicable withholding taxes.
6.5 Stock Appreciation Rights. If the Committee issues stock appreciation
rights in tandem with an Option granted under this Plan, such rights shall be
subject to the same terms and conditions as the related Option and shall be
exercisable only to the extent that such Option is exercisable. A grant of
stock appreciation rights shall require, as a condition to its exercise, that
the grantee surrender to the Committee, unexercised, the related Option. Upon
exercise of a stock appreciation right, the grantee shall be entitled to
receive an aggregate value equal to the product of (a) the excess of the fair
market value of one Share on the date of exercise over the Option Exercise
Price multiplied by (b) the number of the stock appreciation rights being
exercised. The Committee shall have the right to determine whether such
aggregate value shall be paid to such grantee in Shares, cash, or part in cash
and part in Shares. No fractional shares will be issued, but instead cash will
be paid in lieu of the fractional Share to which the grantee would otherwise be
entitled.
6.6 Payment of Option Exercise Price. The Option Exercise Price for Shares as
to which an Option is exercised shall be paid to the Company in full at the
time of exercise, at the discretion of the Committee, either (a) in cash in the
form of currency or other cash equivalent acceptable to the Company, (b) by
tendering Shares having a Fair Market Value at the time of exercise equal to
the Option Exercise Price, (c) any other reasonable consideration that the
Committee may deem appropriate or (d) by a combination of the forms of
consideration described in (a), (b) and (c) of this Section 6.6. The Committee
may permit the cashless exercise of Options as described in Regulation T
promulgated by the Federal Reserve Board, subject to applicable securities law
restrictions, or by any other means which the Committee determines to be
consistent with the Plan's purpose and applicable law.
6.7 Sale, Merger or Change in Control. (a) Upon a Change of Control, any then
outstanding Options held by a Participant shall become fully vested and
immediately exercisable.
(b) If the Company agrees to sell all or substantially all of its assets for
cash or property or for a combination of cash and property or agrees to any
merger, consolidation, reorganization, division or other corporate transaction
in which Stock is converted into another security or into the right to receive
securities or property and such agreement does not provide for the assumption
or substitution of the Options granted under the Plan on a basis that is fair
and equitable to holders of such Options as determined by the Board, each
Option granted to a Participant at the direction and discretion of the Board
(1) may (subject to such conditions, if any, as the Board deems appropriate) be
canceled unilaterally by the Company in exchange for (A) whole shares of Stock
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(and cash for any fractional share) the number of which, if any, shall be
determined by the Committee on a date set by the Committee for this purpose by
dividing (i) the excess of the then Fair Market Value of the Stock then subject
to exercise under such Option (as determined without regard to any vesting
schedule for such Option) over the Option Exercise Price of such Stock by (ii)
the then Fair Market Value of a share of such Stock, or (B) the right to
exercise his or her outstanding Option in full on any date before the date as
of which the Board unilaterally cancels such Option in full or (2) may be
canceled unilaterally by the Company if the Option Exercise Price equals or
exceeds the Fair Market Value of a share of Stock on a date set by the Board.
If the exchange described in this Section 6.7(b)(1) would result in a violation
of Section 16 of the Exchange Act for a Participant, each such Option may be
canceled unilaterally by the Company after advance written notice to such
Participant.
6.8 Termination of Employment. If the employment of a Participant is terminated
for Cause, all then outstanding Options of such Participant, whether or not
exercisable, shall terminate immediately. If the employment of a Participant is
terminated for any reason other than for Cause, death, Disability or
Retirement, to the extent then outstanding Options of such Participant are
exercisable, such Options may be exercised by such Participant or his personal
representative at any time prior to the earlier of the expiration date of the
Options or the date which is ninety (90) days after the date of such
termination of employment. In the event of the Retirement of a Participant, to
the extent then outstanding Options of such Participant are exercisable, such
Options may be exercised by the Participant (a) in the case of NQSOs, within
five years after the date of Retirement and (b) in the case of ISOs, within
ninety (90) days after Retirement as ISOs or four years nine months thereafter
as NQSOs; provided, however, that no such Options may be exercised on a date
subsequent to their expiration. In the event of the death or Disability of a
Participant while employed by the Company or a Subsidiary, all then outstanding
Options of such Participant shall become fully vested and immediately
exercisable, and may be exercised at any time (q) in the case of NQSOs, within
five years after the date of death or determination of Disability, (r) in the
case of ISOs, within one year after the date of determination of Disability as
ISOs, or four years thereafter as NQSOs, and (s) in the case of ISOs within
five years after the date of death; provided however, that no such Options may
be exercised on a date subsequent to their expiration. Options may be exercised
as provided in this Section 6.8 (x) in the event of the death of a Participant,
by the person or persons to whom rights pass by will or by the laws of descent
and distribution, or if appropriate, the legal representative of his estate and
(y) in the event of the Disability of a Participant, by the Participant, or if
such Participant is incapacitated, by his legal representative.
ARTICLE 7. EFFECTIVE DATE, AMENDMENT, MODIFICATION AND TERMINATION
7.1 Effective Date. The Plan shall become effective upon approval by the
Company's stockholders. The Committee may, in its discretion, authorize the
grant of Options, the issuance or exercise of which shall be expressly subject
to the conditions that (a) approval by the Company's stockholders shall have
been obtained, (b) the Shares reserved for issuance under the Plan shall have
been duly listed, upon official notice of issuance, upon the New York Stock
Exchange and (c) a registration statement under the Securities Act of 1933, as
amended, with respect to such Shares shall have become effective.
7.2 Termination Date. The Plan shall terminate on the earliest to occur of (a)
the tenth (10th) anniversary of the Effective Date, (b) the date when all
Shares available under the Plan shall have been acquired pursuant to the
exercise of Awards or (c) such other date as the Board may determine in
accordance with Section 7.3.
7.3 Amendment, Modification and Termination. The Board may, at any time, amend,
modify or terminate the Plan. However, to the extent required by sections 422
or 162(m) of the Code, Section 16 of the Exchange Act and the rules promulgated
thereunder, any national securities exchange or system on which the Shares are
then listed or reported or a regulatory body having jurisdiction with respect
hereto, no such amendment, modification or termination shall be made without
approval of stockholders of the Company to:
(a) materially increase (within the meaning of Rule 16b-3 to Section 16 of the
Exchange Act or any successor rule ("Rule 16b-3") the benefits accruing to
Participants under the Plan;
(b) materially increase (within the meaning of Rule 16b-3) or otherwise
increase (for purposes of the Code) the total amount of Shares which may be
issued under the Plan, except as provided in Section 4.3; or
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(c) materially modify (within the meaning of Rule 16b-3) or otherwise modify
(for purposes of the Code) the class of Employees eligible to participate
in the Plan.
The Committee may amend the terms of any Award, prospectively or retroactively,
but no such amendment shall impair the rights of any Participant without such
Participant's consent.
7.4 Awards Previously Granted. No amendment, modification or termination of the
Plan shall in any manner adversely affect any outstanding Award without the
written consent of the Participant holding such Award.
ARTICLE 8. NO GRANTING OF EMPLOYMENT RIGHTS
Neither the Plan, nor any action taken under the Plan, shall be construed as
giving any Employee the right to become a Participant, nor shall an Option
under the Plan be construed as giving a Participant any right with respect to
continuance of employment by the Company. The Company expressly reserves the
right to terminate, whether by dismissal, discharge or otherwise, a
Participant's employment at any time, with or without Cause, except as may
otherwise be provided by any written agreement between the Company and the
Participant. This Plan is not intended to alter, amend or modify the terms of
any written employment agreement between the Company and any Participant. In
the event of a conflict between the terms of this Plan and such agreement, the
rights of the Participant shall be determined in accordance with the terms of
the employment agreement.
ARTICLE 9. WITHHOLDING
9.1 Tax Withholding. A Participant shall remit to the Company an amount
sufficient to satisfy Federal and state taxes (including the Participant's FICA
obligation) required by law to be withheld with respect to any grant, exercise
or payment made under or as a result of the Plan.
9.2 Share Withholding. With respect to withholding required upon the exercise
of Options, a Participant may, subject to the discretion of the Committee, make
an election (a "Tax Election") to satisfy the withholding requirement with
respect to such Shares, in whole or in part, by having the Company withhold
Shares having a Fair Market Value on the date the withholding tax is to be
determined equal to the amount required to be withheld under applicable law;
provided, however, that with respect to a Participant subject to Section 16(b)
of the Exchange Act, the Participant makes the Tax Election. Notwithstanding
the foregoing, the Committee may, by the adoption of rules or otherwise, (x)
modify the provisions of this Section 9.2 or impose such other restrictions or
limitations on Tax Elections as may be necessary to ensure that the Tax
Elections will be exempt transactions under Section 16 of the Exchange Act and
(y) permit Tax Elections to be made at such other times and subject to such
other conditions as the Committee determines will constitute exempt
transactions under Section 16 of the Exchange Act.
ARTICLE 10. INDEMNIFICATION
No member of the Board or the Committee, nor any officer or Employee acting on
behalf of the Board or the Committee, shall be personally liable for any
action, determination or interpretation taken or made with respect to the Plan,
and all members of the Board, the Committee and each and any officer or
Employee of the Company acting on their behalf shall, to the extent permitted
by law, be fully indemnified and protected by the Company with respect to any
such action, determination or interpretation.
ARTICLE 11. SUCCESSORS
All obligations of the Company with respect to Awards granted under the Plan
shall be binding on any successor to the Company, whether the existence of such
successor is a result of a direct or indirect purchase, merger, consolidation
or otherwise, of all or substantially all of the business and/or assets of the
Company.
ARTICLE 12. GOVERNING LAW
To the extent not preempted by Federal law, the Plan, and all agreements under
the Plan, shall be governed by, and construed in accordance with, the laws of
the State of Delaware without regard to its conflict of laws rules.
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APPENDIX B
PROVIDIAN CORPORATION
MANAGEMENT INCENTIVE PLAN
ARTICLE 1. PURPOSE
The purpose of this Management Incentive Plan ("Plan") is to advance the
interest of Providian Corporation, a Delaware corporation ("Company"), and its
subsidiaries, by integrating executive compensation with the Company's business
planning and measurement process. Incentives under the Plan will consist of
opportunities to receive monetary payments.
ARTICLE 2. DEFINITIONS AND CONSTRUCTION
2.1 Definitions. As used in the Plan, terms defined parenthetically immediately
after their use shall have the respective meanings provided by such
definitions, and the terms set forth below shall have the following meanings
(in either case, such meanings shall apply equally to both the singular and
plural forms of the terms defined):
(a) "Award" shall mean a monetary payment made in accordance with Article 5
upon the achievement of the pre-established performance objectives.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Cause" shall mean a felony conviction of a Participant or the failure of a
Participant to contest prosecution for a felony, or a Participant's willful
misconduct or dishonesty, any of which is determined by the Committee to be
directly and materially harmful to the business or reputation of the
Company or its Subsidiaries.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time, or any successor thereto, together with any regulations
promulgated thereunder.
(e) "Committee" shall mean the committee described in Section 3.1.
(f) "Disability" shall mean when a Participant is considered permanently
disabled under a disability insurance policy carried by the Company, or, if
no such policy is carried by the Company, when a Participant is permanently
and totally disabled within the meaning of section 22(e) of the Code.
(g) "Effective Date" shall mean the date described in Section 6.1.
(h) "Employee" shall mean an individual who is a full-time or part-time
employee of the Company or a Subsidiary.
(i) "Incentive Fund" shall mean that pool of monies from which incentive awards
may be paid.
(j) "Operating Unit" shall mean any operating entity within the Company
designated by the Committee as a Business Unit for purposes of the Plan.
(k) "Participant" shall mean any Employee selected by the Committee to receive
an Award under the Plan.
(l) "Subsidiary" shall mean, with respect to the Company, any corporation of
which a majority of its voting power, equity securities, or equity interest
is owned directly or indirectly by the Company.
2.2 Gender. Except where otherwise indicated by the context, reference to the
masculine gender shall include the feminine gender.
2.3 Severability. In the event any provision of the Plan shall be held illegal
or invalid for any reason, the illegality or invalidity shall not affect the
remaining parts of the Plan, and the Plan shall be construed and enforced as if
the illegal or invalid provision had not been included.
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ARTICLE 3. ADMINISTRATION
3.1 The Committee. The Plan shall be administered by the Human Resources
Committee of the Board, or by any other committee (the "Committee") appointed
by the Board all of whom shall be "outside directors" within the meaning of
Treasury Regulation (S)1.162-27 (or any successor provision) promulgated under
the Code. The members of the Committee shall be appointed from time to time by,
and shall serve at the discretion of, the Board.
3.2 Authority of the Committee. Subject to the provisions of the Plan and the
requirements under section 162(m) of the Code for qualified performance-based
compensation, the Committee shall have full authority to administer the Plan,
including without limitation, the authority to:
(a) select Participants to whom Awards are granted;
(b) determine the size, types and frequency of Awards granted under the Plan;
(c) determine the terms and conditions of Awards, including any restrictions or
conditions to the Award, which need not be identical for all Participants;
(d) accelerate the exercisability of, and accelerate or waive any or all the
restrictions and conditions applicable to, any Award, for any reason;
(e) construe and interpret the Plan and any agreement or instrument entered
into under the Plan;
(f) establish, amend and rescind rules and regulations for the Plan's
administration; and
(g) amend the terms and conditions of any outstanding Award to the extent such
terms and conditions are within the discretion of the Committee as provided
in the Plan.
The Committee shall have sole discretion to make all other determinations which
may be necessary or advisable for the administration of the Plan. To the extent
permitted by law, the Committee may delegate its authority as identified
hereunder.
3.3 Decisions Binding. All determinations and decisions made by the Committee
pursuant to the provisions of the Plan, and all related orders or resolutions
of the Board, shall be final, conclusive and binding on all Persons, including
the Company, its stockholders, Employees, Participants and their estates and
beneficiaries.
3.4 Bifurcation of Plan. Notwithstanding anything in the Plan to the contrary,
the Board or the Committee, in its discretion, may bifurcate the Plan so as to
restrict, limit or condition the use of any provision of the Plan to
Participants who are "covered employees" within the meaning of Section 162(m)
of the Code without restricting, limiting or conditioning the Plan with respect
to other Participants.
ARTICLE 4. ELIGIBILITY AND PARTICIPATION
Persons eligible to receive Awards under this plan shall be those Employees who
are key salaried employees of the Company or its Subsidiaries.
ARTICLE 5. AWARDS
5.1 Awards. An Award may be made by the Company to a Participant as
compensation for services to the Company or a Subsidiary. Payment of an Award
will depend on achievement by the Company (and/or an Operating Unit) and the
Participant of annual performance objectives established by the Committee. Such
performance objectives shall be established annually within 90 days after the
commencement of the year to which the performance objective relates. A
Participant shall only be eligible for an Award if the Company and the
Participant both attain the pre-established performance objectives. The amount
of a Participant's Award shall be determined based on the incentive award level
established by the Committee for such Participant expressed as a percentage of
salary. In no event shall any Award under the Plan exceed $1,200,000. Incentive
award levels may be adjusted downward based on the Employee's performance with
respect to such Employee's individual performance objectives.
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5.2 Annual Performance Objectives. The performance objectives with respect to
annual performance periods shall be based upon the Company's and/or the
Operating Unit's earnings, earnings per share, revenue, expenses, margin or
return on equity and shall be calculated in accordance with the formula
established for such annual performance period. The Committee shall certify in
writing before an Award is paid with respect to an annual performance period
that the performance objectives for such period have been satisfied.
5.3 Incentive Fund. Awards are to be paid from an Incentive Fund established
for the Company or an Operating Unit. The amount of the Incentive Fund shall be
determined based on the salaries of the Company and/or Operating Unit
Participants and the performance of the Company and/or Operating Unit.
5.4 Payment of Awards. A Participant whose employment with the Company ceases
prior to distribution of Awards for the annual performance period for any
reason other than death, Retirement or Disability shall not be eligible for any
Award for such period. A Participant whose active employment with the Company
ceases prior to end of the annual performance period as a result of death,
Retirement or Disability, shall be eligible for a prorated amount of an Award
based upon length of active employment during the annual performance period and
the attainment of the performance objectives for such period. A Participant who
transfers employment from the Company to a Subsidiary, from a Subsidiary to the
Company, among Subsidiaries, or from one position to another within the Company
or within one Subsidiary prior to the end of the annual performance period may
be eligible for an Award if the Committee determines such is appropriate and
that the performance objectives for such period have been satisfied. When a
Participant commences employment or becomes a Participant subsequent to the
commencement of the annual performance period, that Participant shall be
eligible for a prorated amount of an incentive award based upon the length of
employment during the performance Period and subject to the provisions of the
Plan. The individual performance objectives applicable with respect to a
Participant (1) whose active employment terminates due to death, Disability or
Retirement during the annual performance period, (2) who transfers positions
within the Company or a Subsidiary or between or among the Company and its
Subsidiaries during such period, or (3) who commences employment or becomes a
Participant subsequent to the commencement of such period shall be determined
by the Committee subject to the same rules and limitations applicable to the
establishment of all performance objectives under the Plan. Awards shall be
paid or credited as soon as practicable following the end of the annual
performance period.
5.5 Designation of Beneficiary. Each Participant may, from time to time, name
any beneficiary or beneficiaries (who may be named contingently or
successively) to whom the right to receive payments is to be paid in case of
the Participant's death before receiving any or all such payments. Each such
designation shall revoke all prior designations by the Participant, shall be in
a form prescribed by the Company and shall be effective only when filed by the
Participant in writing with the Committee during the Participant's lifetime. In
the absence of any such designation, benefits remaining unpaid at the
Participant's death shall be paid to the Participant's estate.
ARTICLE 6. EFFECTIVE DATE, AMENDMENT, MODIFICATION AND TERMINATION
6.1 Effective Date. The Plan shall become effective as of January 1, 1995,
provided the stockholders of the Company approve the Plan.
6.2 Termination Date. The Plan shall terminate on the earliest to occur of (a)
the tenth (10th) anniversary of the Effective Date, or (b) such other date as
the Board may determine in accordance with Section 6.3.
6.3 Amendment, Modification and Termination. The Board may, at any time, amend,
modify or terminate the Plan. However, to the extent required under Code
section 162(m) for qualified performance-based compensation, no such amendment,
modification or termination shall be made without the approval of stockholders
of the Company. The Committee may amend the terms of any Award, prospectively
or retroactively, but no such amendment shall impair the rights of any
Participant without such Participant's consent.
B-3
<PAGE>
ARTICLE 7. NO GRANTING OF EMPLOYMENT RIGHTS
Neither the Plan, nor any action taken under the Plan, shall be construed as
giving any Employee the right to become a Participant, nor shall an Award under
the Plan be construed as giving a Participant any right with respect to
continuance of employment by the Company or a Subsidiary. The Company expressly
reserves the right to terminate, whether by dismissal, discharge or otherwise,
a Participant's employment at any time, with or without Cause, except as may
otherwise be provided by any written agreement between the Company or a
Subsidiary and the Participant. This Plan is not intended to alter, amend or
modify the terms of any written employment agreement between the Company and
any Participant. In the event of a conflict between the terms of this Plan and
such agreement, the rights of the Participant shall be determined in accordance
with the terms of the employment agreement.
ARTICLE 8. WITHHOLDING
A Participant shall remit to the Company an amount sufficient to satisfy
Federal and state taxes (including the Participant's FICA obligation) required
by law to be withheld with respect to any payment made under or as a result of
the Plan.
ARTICLE 9. INDEMNIFICATION
No member of the Board or the Committee, nor any officer or Employee acting on
behalf of the Board or the Committee, shall be personally liable for any
action, determination or interpretation taken or made with respect to the Plan,
and all members of the Board, the Committee and each and any officer or
Employee of the Company acting on their behalf shall, to the extent permitted
by law, the Company's charter, by-laws or other agreements be fully indemnified
and protected by the Company with respect to any such action, determination or
interpretation.
ARTICLE 10. SUCCESSORS
All obligations of the Company with respect to Awards granted under the Plan
shall be binding on any successor to the Company, whether the existence of such
successor is a result of a direct or indirect purchase, merger, consolidation
or otherwise, of all or substantially all of the business and/or assets of the
Company.
ARTICLE 11. GOVERNING LAW
To the extent not preempted by Federal law, the Plan, and all agreements under
the Plan, shall be governed by, and construed in accordance with, the laws of
the State of Delaware without regard to its conflict of laws rules.
B-4
<PAGE>
P R O X Y
PROVIDIAN CORPORATION
P.O. BOX 32830
LOUISVILLE, KENTUCKY 40232
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Irving W. Bailey II, J. David Grissom and John
M. Cranor III, 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 Corporation (the "Company") on May 5, 1995 at 10:30
a.m., E.D.T., and any adjournments thereof, upon the matters set forth below
and any other business that may properly come before the meeting.
1. Election of four Directors. Nominees for directors are John M. Cranor III,
J. David Grissom, F. Warren McFarlan, and Martha R. Seger, Ph.D.
2. Adoption of the Company's 1995 Stock Option Plan.
3. Adoption of the Company's Management Incentive Plan.
4. Amendment of the Company's Stock Ownership Plan.
5. Ratification of the Appointment of Ernst & Young LLP as Independent
Auditors.
SEE REVERSE
SIDE
<PAGE>
--------------------------------------------------------------------------------
[X] Please mark your votes as in this example. | 9863
|_____
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL PROPOSALS.
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL PROPOSALS.
--------------------------------------------------------------------------------
FOR WITHHELD
1. Election of Directors (see reverse) [_] [_]
For, except vote withheld from the following nominee(s):
--------------------------------------------------------
FOR AGAINST ABSTAIN
2. Adoption of 1995 Stock Option Plan [_] [_] [_]
FOR AGAINST ABSTAIN
3. Adoption of Management Incentive Plan [_] [_] [_]
FOR AGAINST ABSTAIN
4. Amendment of Stock Ownership Plan [_] [_] [_]
FOR AGAINST ABSTAIN
5. Ratification of appointment of Auditors [_] [_] [_]
--------------------------------------------------------------------------------
Please sign exactly as 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
[LOGO OF PROVIDIAN CORPORATION]
Providian Corporation
Annual Meeting of Stockholders
May 5, 1995
10:30 a.m.
Lobby of One Commonwealth Place
680 Fourth Avenue
Louisville, Kentucky
<PAGE>
--------------------------------------------------------------------------------
[X] Please mark your votes as in this example. | 9893
|_____
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL PROPOSALS.
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL PROPOSALS.
--------------------------------------------------------------------------------
FOR WITHHELD
1. Election of Directors (see reverse) [_] [_]
For, except vote withheld from the following nominee(s):
--------------------------------------------------------
FOR AGAINST ABSTAIN
2. Adoption of 1995 Stock Option Plan [_] [_] [_]
FOR AGAINST ABSTAIN
3. Adoption of Management Incentive Plan [_] [_] [_]
FOR AGAINST ABSTAIN
4. Amendment of Stock Ownership Plan [_] [_] [_]
FOR AGAINST ABSTAIN
5. Ratification of appointment of Auditors [_] [_] [_]
--------------------------------------------------------------------------------
Please sign exactly as 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
[LOGO OF PROVIDIAN CORPORATION]
Providian Corporation
Annual Meeting of Stockholders
May 5, 1995
10:30 a.m.
Lobby of One Commonwealth Place
680 Fourth Avenue
Louisville, Kentucky
