SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1995
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ____________________ to ___________________
Commission file Number 1-6701
PROVIDIAN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 51-0108922
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Providian Center, 400 West Market Street, Louisville, Kentucky 40202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (502) 560- 2000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $1 par value New York Stock Exchange
Pacific Stock Exchange
8 7/8% Cumulative Monthly Income
Preferred Shares* New York Stock Exchange
____________________________________________________________
*Issued by Providian LLC and the payment of dividends and payments on
liquidation or redemption are guaranteed by Providian Corporation
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months and (2) has been
subject to such filing requirements for the past 90 days. Yes X
No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.[ ]
State the aggregate market value of the voting stock held by non-
affiliates of the registrant as of March 8, 1996.
Common Stock, $1 par value - $3,977,673,144
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of March 8, 1996.
Common Stock, $1 par value - 93,844,698 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report for the year ended December 31,1995,
are incorporated by reference into Parts I and II.
Portions of the Proxy Statement for the Annual Meeting of
Stockholders to be held May 1, 1996, are incorporated by reference
into Part III.
PART 1
Item 1. BUSINESS
ORGANIZATION AND SEGMENTS
Providian Corporation (the "Company"), an insurance and diversified
financial services company based in Louisville, Kentucky, was
incorporated in Delaware in 1969 by Commonwealth Life Insurance
Company ("Commonwealth Life"). The objective was to achieve earnings
growth through acquisitions of other insurance companies and, thus,
affect economies of scale and the sharing of commonly needed
resources, while preserving the strengths of acquired companies'
marketing operations. The name of the Company was changed from
Capital Holding Corporation to Providian Corporation effective May
12, 1994.
Through affiliates of its Providian Agency Group, Providian Direct
Insurance and Providian Capital Management business units, the
Company offers accumulation, life and annuity, accident and health
and property and casualty insurance products and certain fee-based
products. The Company's Providian Bancorp affiliates provide
consumer loans, deposits and other banking and related services and
certain fee-based products.
Providian Agency Group
By 1976, the Company had acquired Peoples Life Insurance Company
("Peoples Life") in Washington, D.C.; National Standard Life
Insurance Company ("National Standard") in Orlando, Florida; Georgia
International Life Insurance Company ("Georgia International") in
Atlanta, Georgia; Home Security Life Insurance Company ("Home
Security") in Durham, North Carolina; and several other companies
that were subsequently merged into these affiliates. On October 1,
1985, Peoples Life and Home Security Life were merged to form Peoples
Security Life Insurance Company ("Peoples Security") with
headquarters in Durham. On March 31, 1987, the Company sold Georgia
International to Southmark Corporation. On April 1, 1988, National
Standard was merged into Commonwealth Life. On September 8, 1989,
the Company acquired Southlife Holding Company and its primary
operating companies, Public Savings Life Insurance Company ("Public
Savings Insurance") and Security Trust Life Insurance Company
("Security Trust"). In December, 1991, the Company created Capital
Security Life Insurance Company ("Capital Security"), as the
successor to Public Savings Insurance. On November 14, 1991, the
Company acquired Durham Corporation and its primary operating
company, Durham Life Insurance Company ("Durham Life"), with
headquarters in Raleigh, North Carolina. On September 30, 1994,
Durham Life was merged into Peoples Security. On January 31, 1996,
Capital Security was merged into Security Trust and Security Trust's
name was changed to Capital Security. Following this merger, Agency
Group's business is conducted primarily through three affiliates:
Commonwealth Life, Peoples Security and Capital Security.
Providian Direct Insurance
In 1979, Commonwealth Life's property and casualty operation was
recapitalized, made a direct subsidiary of the Company and later
renamed Providian Property and Casualty Insurance Company ("Providian
P&C"). On December 31, 1986, the Company acquired Worldwide
Underwriters Insurance Company, which has been renamed Providian Auto
and Home Insurance Company ("Providian Auto"), located in St. Louis,
Missouri, and the personal lines property and casualty insurance
business of the Wausau Insurance Companies. Concurrently, it made
Providian P&C a direct subsidiary of Providian Auto. These two
affiliates, together with Providian Fire Insurance Company, a
subsidiary of Providian P&C, form the property and casualty line of
business of the Providian Direct Insurance business unit.
Item 1. (continued)
National Liberty Corporation ("National Liberty") in Valley Forge,
Pennsylvania, was acquired on January 14, 1981, and added a
nationwide direct marketing operation to what previously had been a
regional, agent based marketing system.
In addition, National Home Life Assurance Company, which has been
renamed Providian Life and Health Insurance Company ("Providian
Life") and which is domiciled in Missouri, was also acquired as
National Liberty's primary operating company, together with its
principal subsidiaries, Veterans Life Insurance Company ("Veterans
Life") and National Home Life Insurance Company of New York, which
has been renamed First Providian Life and Health Insurance Company
("First Providian").
Effective January 15, 1993, Providian Auto acquired Academy Insurance
Group ("Academy") and its affiliates. Academy principally markets
life insurance to active duty military service personnel.
Providian Capital Management
In 1987, the group accumulation product business, previously managed
in Providian Agency Group, and the individual accumulation product
business, previously managed by National Liberty, were moved to
Providian Capital Management. Affiliates of Providian Agency Group
and Providian Direct Insurance offer these group and individual
accumulation products. In addition to the marketing and management
of accumulation (investment-type) products, Providian Capital
Management manages the Company's insurance-related investment
portfolios.
Providian Bancorp
In April, 1984, the Company acquired a controlling interest in First
Deposit Corporation (which, effective November 11, 1994, changed its
name to Providian Bancorp, Inc.), located in San Francisco,
California, which owns, among other subsidiaries, a grandfathered non-
bank bank (First Deposit National Bank) and a credit card bank
(Providian National Bank, which changed its name from First Deposit
National Credit Card Bank, effective January 1, 1995). Ownership was
increased each year until 1989 when the remaining shares were
purchased. At December 31, 1995, the Company owned 100% of the
common stock and 100% of the outstanding preferred stock of Providian
Bancorp. These affiliates form the Providian Bancorp business unit.
Financial information about business segments is included in Item 7,
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PRODUCTS
Insurance
Commonwealth Life, Peoples Security, Capital Security, Providian
Life, Veterans Life, First Providian and Academy write a variety of
group and individual, nonparticipating life insurance products.
These include universal life, traditional and interest-sensitive
whole life insurance, term life insurance, accidental death and
dismemberment coverage and premium waiver disability insurance.
Item 1. (continued)
The following table reconciles total life insurance in force for the
year ended December 31, 1995:
Total Life
Insurance (dollars
in millions)
In force at December 31, 1994 $66,074
Sales and additions 11,833
--------
77,907
Terminations:
Surrender and Conversion 2,154
Lapse 7,346
Reinsurance -
Other 2,276
---------
Subtotal 11,776
---------
In force at December 31, 1995 $66,131 (1)
----------
----------
Number of policies in force before
reinsurance ceded at December 31, 1995 6,581,221 (1)
-----------
-----------
(1)Reinsurance assumed has been included. Reinsurance ceded has not
been deducted.
Commonwealth Life, Peoples Security, Capital Security, Providian
Life, Veterans Life, First Providian and Academy also issue an
assortment of individual and group accident and health insurance
products. These include coverages for regular income during periods
of hospitalization, scheduled reimbursement for specific
hospital/surgical expenses and cancer treatments, hospice care,
deductible and co-payment amounts not covered by other health
insurance and lump sum payments for accidental death or dismemberment
and provide benefits for death and injury resulting from an accident.
Additionally, Providian Life offers a Medicare supplement product.
Providian Auto and its subsidiaries underwrite personal lines
automobile and umbrella liability coverages mainly for standard and
preferred risks.
Accumulation
The group line of accumulation products, offered through Commonwealth
Life, Peoples Security and Providian Life, consists of floating and
fixed rate guaranteed investment contracts ("GICs"), Trust GICs and
separate account products offered to group customers, including
pension funds, banks, mutual funds and other organizations. The
Trust GIC product, an off-balance sheet fee-based product, permits
the plan sponsor to own and retain assets related to these contracts
and Commonwealth Life and Peoples Security provide benefit
responsiveness in the event that qualified plan benefit requests
exceed plan cash flows.
Through Providian Life, Commonwealth Life and Peoples Security, the
Company offers individual accumulation products including immediate
life annuities (primarily structured settlements), variable
annuities, single premium and flexible premium deferred annuities and
individual retirement annuities. Single premium deferred annuities
and flexible premium deferred annuities are offered at a fixed
interest rate on either a fixed or indexed basis. In addition,
flexible premium deferred annuities are offered on a variable
contract basis.
Item 1. (continued)
Banking
Providian Bancorp affiliates offer both secured and unsecured loan
accounts, as well as a broad range of deposit products. The
receivables portfolio consists primarily of unsecured consumer loans
which use a VISA or MasterCard credit card as the credit extension
vehicle, a revolving cash loan product without a credit
card, a savings deposit secured line of credit using a VISA or
MasterCard credit card, a home equity secured loan product and
insurance premium finance installment loans. Deposit products include
retail and institutional certificates of deposit and money market
deposit accounts.
Other Products
Providian Bancorp has developed fee-based strategic protection
products and services such as Credit Protection, Home Protectionsm,
First Health Advantagesm and DriveProsm. Certain of these products
are also marketed by Providian Agency Group and Providian Direct
Insurance.
MARKETING
Providian Agency Group markets individual insurance products solely
through agents, who call on customers in their homes to sell policies
and provide related services. In addition, such agents market
certain of the fee-based products described above. Substantially all
of the agents are employees of Agency Group affiliates and do not
represent other insurers. Such representatives receive compensation
from sales commissions, and from renewal and service commissions.
The compensation arrangement is designed to reward representatives
who not only sell new policies, but who also effectively maintain and
service in-force business to meet Company sales and persistency
objectives. In addition to its agent sales organization, marketing
partnerships have also been formed whereby products are distributed
through the insurance and marketing organizations of third parties.
Providian Direct Insurance primarily uses television and print media
solicitation, direct mail, telephone and third-party programs to
market its insurance products and certain fee-based products.
Additional mail correspondence and telephone communications are used
to follow up and close sales. Sponsored marketing programs are
conducted through major banks, oil companies, department stores,
associations and other businesses with large customer bases.
Academy's products are marketed to active duty military personnel on
military bases through independent Agents/Counselors. Property and
casualty products are also marketed through a portion of the home
service agents of Agency Group.
Group accumulation products of Providian Capital Management are
marketed through a small sales staff, bank trustees, municipal GIC
brokers, GIC fund managers, brokers and direct marketing. Individual
products are marketed through financial planners, stock brokerage
firms, pension consultants, savings and loan associations, banks and
other financial institutions.
Providian Bancorp's consumer loan and deposit products are primarily
marketed using direct mail and telemarketing channels and other
direct response methods. Insurance premium finance installment loans
are primarily marketed through agents. Consumer credit products are
also endorsed by, or offered in connection with the products or
services of, unaffiliated third parties through joint marketing
arrangements with such third parties.
Except for Providian Agency Group's marketing partnerships
arrangements, the Company's Providian Agency Group affiliates
concentrate their marketing efforts in the Southeast and Mid-Atlantic
states, while the Providian Direct Insurance, Providian Capital
Management, Providian Agency Group (through its marketing Item
Item 1. (continued)
partnerships arrangements) and Providian Bancorp business units
market their products nationwide.
RISK
Risk is integral to insurance but, as is customary in the insurance
business, risk exposure is kept within acceptable limits. The
Company's subsidiaries retain no
more than $1,000,000 of life insurance and $250,000 of accidental
death benefits for any single life. Excess coverages are reinsured
externally. At December 31, 1995, approximately $3.8 billion, or
approximately 5.8 percent of total life insurance in force, was
reinsured with nonaffiliated insurance companies. The Company would
become liable for the reinsured risks if the reinsurers could not
meet their obligations.
The Company's life insurance affiliates in many cases require
evidence of insurability before issuing individual life policies
including, in some cases, a medical examination or a statement by an
attending physician. Home office underwriters review that evidence
and approve the issuance of the policy in accordance with the
application if the risk is acceptable. Some applicants who are
substandard risks are rejected, but many are offered policies with
higher premiums or restricted coverages. As of December 31, 1995,
approximately 1.96 percent of life insurance in force was represented
by risks which were substandard at the time the policy was issued.
The majority of individual health insurance is Providian Direct
Insurance business and written without evidence of insurability,
relying on safeguards such as product design, limits on the amount of
coverage, and premiums which recognize the resultant higher level of
claims.
Banking Group's unsecured consumer loans are principally generated
through direct mail solicitations sent to a prescreened list of
prospective account holders, followed by credit verification. Four
principles guide development of specific underwriting criteria for
each mailing: (i) sufficient credit history; (ii) no unacceptable
derogatory credit remarks; (iii) necessary income qualification; and
(iv) no rapid increase in outstanding debt or credit availability.
Detailed discussions about the Company's investments are included in
Note C to the Consolidated Financial Statements on pages 48 through
50 of the Company's 1995 Annual Report and Item 7, Management's
Discussion and Analysis of Financial Condition and Results of
Operations. As a diversified financial services company, many of the
Company's assets and liabilities are monetary in nature and thus are
sensitive to changes in the interest rate environment. Additional
information about interest rate risk is included in Item 7,
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
REGULATION
Insurance
The business of the Company's insurance subsidiaries is subject to
regulation and supervision by the insurance regulatory authority of
each state in which the subsidiaries are licensed to do business.
Such regulators grant licenses to transact business; regulate trade
practices; approve policy forms; license agents; approve certain
premium rates; establish minimum reserve and loss ratio requirements;
review form and content of required financial statements; prescribe
the type and amount of investments permitted; and assure that
capital, surplus and solvency requirements are met. Insurance
companies can also be required under the solvency or guaranty laws of
most states in which they do business to pay assessments up to
prescribed limits to fund policyholder losses or liabilities of
insolvent insurance companies. They are also required to file
detailed annual reports with supervisory agencies, and records of
their business are subject to examination at any time. Under the
rules of the National Association of Insurance Commissioners (the
"NAIC"), a self-regulatory organization of state insurance
commissioners, insurance companies are examined periodically by one
or more of the supervisory agencies.
Item 1. (continued)
The NAIC adopted, in December of 1992, a "Risk Based Capital for Life
and/or Health Insurers Model Act" (the "Model Act") which was
designed to identify inadequately capitalized life and health
insurers. The Model Act defines two key measures: (i) Total Adjusted
Capital, which equals an insurer's statutory capital and surplus plus
its Asset Valuation Reserve, plus half its liability for policyholder
dividends, and (ii) Risk Based Capital. Risk Based Capital is
determined by a complex formula which is intended to take into
account the various risks assumed by an insurer. The NAIC adopted a
similar, though more elaborate model act for property/casualty
insurers in December of 1993. Should an insurer's Adjusted Capital
fall below certain prescribed levels (defined in terms of its Risk
Based Capital), the Model Act provides for four different levels of
regulatory attention:
"Company Action Level": Triggered if an insurer's Adjusted Capital
is less than 100% but greater than or equal to 75% of its Risk Based
Capital; requires the insurer to submit a plan to the appropriate
regulatory authority that discusses proposed corrective action.
"Regulatory Action Level": Triggered if an insurer's Adjusted
Capital is less than 75% but greater than or equal to 50% of its Risk
Based Capital; authorizes the regulatory authority to perform a
special examination of the insurer and to issue an order specifying
corrective actions.
"Authorized Control Level": Triggered if an insurer's Adjusted
Capital is less than 50% but greater than or equal to 35% of its Risk
Based Capital; authorizes the regulatory authority to take whatever
action it deems necessary.
"Mandatory Control Level": Triggered if an insurer's Adjusted
Capital falls below 35% of its Risk Based Capital; requires the
regulatory authority to place the insurer under its control.
Since the Total Adjusted Capital levels of the Company's insurance
subsidiaries currently exceed all of the action levels as defined by
the NAIC's Model Acts, these Model Acts currently have no impact on
the Company's operations or financial condition.
Although the federal government does not directly regulate insurance
business, except with respect to Medicare supplement plans,
legislation and administration policies concerning premiums, age and
gender discrimination, financial services and taxation, among other
areas, can significantly affect the insurance business.
Banking
The primary regulator of Providian Bancorp's consumer banking
subsidiaries, First Deposit National Bank and Providian National
Bank, is the Office of the
Comptroller of the Currency ("OCC"). The banks'deposits are insured
by the Bank Insurance Fund of the FDIC and accordingly, the banks are
subject to certain regulations of the FDIC. As members of the
Federal Reserve System, the banks are also subject to regulation by
the Board of Governors of the Federal Reserve System. Regulations of
the OCC and other applicable federal regulatory agencies affect many
areas of banking operations, including capital ratios, reserve
requirements, the payment of dividends and permitted investments.
First Deposit National Bank must comply with certain restrictions
under the Bank Holding Company Act in order to maintain its
grandfathered status. These restrictions include a limitation on its
ability to engage in certain new activities and a 7% annual cap on
its asset growth. Providian National Bank's charter generally limits
it activities to credit card operations. Notwithstanding their
direct or indirect ownership of First Deposit National Bank and
Providian National Bank, neither Providian Bancorp, Inc. nor the
Company is a "bank holding company" within the meaning of the Bank
Holding Company Act.
Item 1. (continued)
The relationship between Providian Bancorp's consumer banking
subsidiaries and their customers is extensively regulated by federal
and state consumer protection laws. The most significant laws
include the federal Truth-in-Lending, Equal Credit Opportunity, Fair
Credit Reporting and Truth-in-Savings Acts. These laws impose
disclosure requirements when a consumer credit loan is advertised,
when it is extended and in connection with monthly billing
statements, limit the liability of credit card holders for
unauthorized use, prohibit certain discriminatory practices and limit
the manner in which consumer credit reports may be used.
Holding Company
States have enacted legislation requiring registration and periodic
reporting by insurance companies domiciled within their respective
jurisdictions that control or are controlled by other corporations so
as to constitute a holding company system. The Company and its
subsidiaries have registered as a holding company system pursuant to
such legislation in Kentucky, Missouri, North Carolina, New York,
Illinois and New Jersey.
Insurance holding company system statutes and rules impose various
limitations on investments in subsidiaries and may require prior
regulatory approval for the payment of dividends and other
distributions in excess of statutory net gain from operations on an
annual noncumulative basis by the registered insurance company to the
holding company or its affiliates. The NAIC is seeking changes in
state law which would further restrict the amount of dividends which
could be paid without prior approval.
Separate Accounts
Separate accounts of the Company's subsidiaries which offer
individual variable annuities are registered with the Securities and
Exchange Commission under the
Investment Company Act of 1940 and are governed by the provisions of
the Internal Revenue Code of 1986, as amended, pertaining to the tax
treatment of annuities.
Item 1. (continued)
COMPETITION
The insurance industry is highly competitive with over 2,000 life
insurance companies competing in the United States, some of which
have substantially greater financial resources, broader product lines
and larger staffs than the Company's insurance subsidiaries.
Additionally, life insurance companies face increasing competition
from banks, mutual funds and other financial entities for attracting
investment funds.
The Company's insurance subsidiaries differentiate themselves through
progressive marketing techniques, product features, price, customer
service, stability and reputation, as well as competitive credit
ratings. The insurance subsidiaries maintain their competitive
position by their focus on lower risk markets and efficient cost
structure. Other competitive strengths include integrated
asset/liability management, risk management and innovative product
engineering.
The credit card and consumer revolving loan industry business in
which Providian Bancorp's subsidiaries are engaged is highly
competitive. The industry has recently experienced rising charge-
offs and continued competitive pressure. Competitors continually
refine their use of advertising, target marketing, balance transfers,
pricing competition, incentive programs and changes in the terms of
certain credit cards, including lowering the rate of interest charged
on balances and adopting "tiered" or "risk-adjusted" or "performance-
based" rates under which the annual percentage rate is lowered or
raised for the issuer's most or least creditworthy customers.
In response to the competitive environment, Providian Bancorp's
subsidiaries have implemented a variety of new programs to attract
and retain customers, including reducing interest rates on selected
accounts and marketing additional fee-based products. Providian
Bancorp's subsidiaries have generally retained the right to alter
various charges, fees and other terms with respect to consumer credit
accounts. In addition, Providian Bancorp has experienced steady
growth in its secured loan products and is increasing its efforts to
offer additional products to underserved markets.
EMPLOYEES
The total number of persons employed by the Company and its
subsidiaries is approximately 8,600.
FOREIGN OPERATIONS
Substantially all of the Company's operations are conducted in the
United States.
ITEM 2. PROPERTIES
Principal properties of the Company and its subsidiaries include home
offices located in Louisville, Kentucky (Commonwealth Life) and
Valley Forge, Pennsylvania (National Liberty and Providian Auto and
Home Insurance), which are owned; and Louisville, Kentucky (Providian
Corporation), Durham, North Carolina (Peoples Security and Capital
Security) and San Francisco and Pleasanton, California (Providian
Bancorp), which are leased.
ITEM 3. LEGAL PROCEEDINGS
The last subsection titled "Legal Proceedings," of Note K -
Commitments and Contingencies on Page 57 of the 1995 Annual Report is
incorporated by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER
MATTERS
Common Stock Dividend and Market Data, and Quarterly Price
Ranges of Common Stock and Dividends Per Common Share on page 20
and page 37 of the Annual Report for the year ended December 31,
1995 are incorporated by reference.
Item 6. SELECTED FINANCIAL DATA
Selected Financial Data on pages 18 and 19 of the Annual Report
for the year ended December 31, 1995, is incorporated by
reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
Consolidated Results and Analysis on pages 18 and 19, Results by
Business Segment on pages 21 through 30, Asset Liability
Management and Review on pages 30 through 36 and Liquidity and
Capital Resources and Inflation on pages 36 and 37 of the Annual
Report for the year ended December 31, 1995, are incorporated by
reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of Providian Corporation
and Subsidiaries included on pages 39 through 58 and Quarterly
Financial Data on page 20 of the Annual Report for the year
ended December 31, 1995, are incorporated by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Election of Directors on pages 3 through 5 of the Proxy
Statement for the Annual Meeting of Stockholders to be held May
1, 1996, is incorporated by reference.
EXECUTIVE OFFICERS OF THE REGISTRANT
Name and Age Principal Occupation and Business Experience
Irving W. Bailey II Chairman of the Board of Directors,
Age: 54 Providian Corporation, since November 1988,
and Chief Executive Officer, Providian
Corporation, since April 1988. President,
Providian Corporation, from September 1987
to December 1994, and Chief Operating
Officer, Providian Corporation, September
1987 to April 1988. Executive Vice
President and Chief Investment Officer,
Providian Corporation, from February 1981 to
September 1987.
Shailesh J. Mehta President and Chief Operating Officer,
Age: 46 Providian Corporation, since December 1994.
Executive Vice President, Providian
Corporation, from August 1993 to December
1994. Chairman and CEO, Providian Direct
Insurance from August 1993 to December 1994.
Also, President and CEO - Providian Bancorp,
and Chairman of the Board, President and
Chief Executive Officer of Providian
Bancorp, Inc. and subsidiaries from April
1988 to January 1995. He served as
Executive Vice President and Chief Operating
Officer of Providian Bancorp from March 1986
until his election as its CEO.
Robert L. Walker Senior Vice President - Finance and Chief
Age: 45 Financial Officer, Providian Corporation,
since August 1993. He served as Vice
President and General Counsel, Providian
Corporation, from December 1991 to August
1993, and Vice President, Corporate Tax,
Providian Corporation, from March 1988 to
December 1991.
Steven T. Downey Vice President and Controller, Providian
Age: 38 Corporation, since November 1993. He served
as Director, Finance and Accounting -
Providian Capital Management, from January
1993 to November 1993, and Second Vice
President and Assistant Controller,
Providian Corporation, from August 1991 to
January 1993. Prior to joining Providian
Corporation, he was with Ernst & Young LLP,
Certified Public Accountants, from 1978 to
1991.
James V. Elliott Senior Vice President and General Counsel,
Age: 51 Providian Corporation, since January 1995.
General Counsel, Providian Bancorp, Inc.,
since 1989 and a Senior Vice President,
Providian Bancorp, Inc., from March 1993
through December, 1994. During 1993, he was
also responsible for Providian Bancorp's
emerging business operation.
EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
Name and Age Principal Occupation and Business Experience
William R. Gernert President, Providian Capital Management,
Age: 37 since 1995. He joined Providian Corporation
in 1980 and spent the majority of his time
in the investment area, first as a fixed
income portfolio manager and then as head of
the private placements/credit department. In
1990, he was named head of the institutional
marketing group. In 1992, he was promoted to
Managing Director and Chief Financial
Officer; and in 1994, in addition to his CFO
responsibilities, he also resumed management
responsibility for the group marketing
group.
Lawrence Pitterman Senior Vice President of Administration,
Age: 48 Providian Corporation, since January 1991.
Vice President, Human Resources, Providian
Bancorp, Inc. from July 1990 to December
1990; Vice President, Corporate
Communications, from 1989 to 1990; and Vice
President, First Deposit Savings Bank, from
1987 to 1989.
Robert S. Greer Chief Operating Officer and President of
Age: 48 Agency Group since July 1995. He was
President of the Home Service Division of
United Insurance Company of America since
1991, while continuing to serve as President
of Union National Life Insurance Company and
Union National Fire Insurance Company since
1985. These companies are owned by UNITRIN,
Inc.
Elaine J. Robinson Vice President and Treasurer, Providian
Age: 47 Corporation, since December 1991, Second
Vice President and Assistant Treasurer,
Providian Corporation, from November 1987 to
December 1991, and Second Vice President,
Corporate Finance, Providian Corporation,
from August 1987 to November 1987.
Kathy Madden Vice President and Corporate Auditor,
Age: 35 Providian Corporation since February 1996.
She was Director of Corporate Audit from
September 1993 to February 1996. Prior to
joining Providian Corporation, she was with
Coopers and Lybrand LLP, Certified Public
Accountants, from 1983 to 1993.
EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
Name and Age Principal Occupation and Business Experience
Frederick C. Vice President and Chief Investment Officer,
Kessell Providian Capital Management, since May
Age: 47 1993. Managing Director, Chief Investment
Officer - Providian Capital Management, from
May 1989 to May 1993, and Vice President,
Fixed Income Securities - Providian Capital
Management, Providian Corporation, from May
1985 to May 1989.
Julie A. Montanari President, Emerging Business, Providian
Age: 39 Bancorp, since 1995. She joined Providian
Bancorp as Vice President for product
development in 1985. In ten years with
Providian Bancorp, she has had
responsibility for all aspects of the
unsecured credit business including product
development, credit management, marketing,
and operations. She has also managed
Providian Bancorp's home loan, strategic
protection and secured card businesses.
A. Sami Siddiqui Executive Vice President - Providian
Age: 43 Bancorp, since January 1995. He originally
joined Providian Bancorp in 1985 as Vice
President, and for seven years, he managed
various areas of unsecured spread business,
including product development, market
management, and the marketing services
group. He was later promoted to Senior Vice
President. He worked as an independent
consultant from July 1992 through December
1994.
David B. Smith Senior Vice President and Chief Technology
Age: 44 Officer - Providian Bancorp, since January
1995. Senior Vice President of Providian
Direct Insurance during 1994. Started at
Providian Bancorp in 1986 as Vice President
of Systems and Operations and held
increasing responsibility ending as Senior
Vice President of Unsecured Lending in 1993.
Prior to joining Providian Corporation, he
was with Bank of America from 1975 to 1986
as Vice President and Risk Management
Director.
Item 11. EXECUTIVE COMPENSATION
Compensation of Directors and Executive Officers on pages 6
through 12 of the Proxy Statement for the Annual Meeting of
Stockholders to be held May 1, 1996, is incorporated by
reference.
Item l2. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Security Ownership of Certain Beneficial Owners and Management
on pages 1 and 2 of the Proxy Statement for the Annual Meeting
of Stockholders to be held May 1, 1996, are incorporated by
reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a)(1) and (2)--The response to these portions of Item 14 is
submitted as a separate section of this report.
(a)(3)--The response to this portion of Item 14 is submitted
as a separate section of this report.
(b)None.
(c) Exhibits are submitted as a separate section of this report.
(d)Financial statement schedules are submitted as a separate
section of this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Louisville, and the Commonwealth of
Kentucky, on the 21st day of February 1996:
PROVIDIAN CORPORATION
Irving W. Bailey II
Irving W. Bailey II
Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities indicated on the 21st day of February 1996:
SIGNATURE TITLE
Irving W. Bailey II Chairman, Chief Executive
Irving W. Bailey II Officer and Director
Shailesh J. Mehta President, Chief Operating
Shailesh J. Mehta Officer and Director
Robert L Walker Senior Vice President and
Robert L. Walker Chief Financial Officer
Steven T. Downey Vice President and Controller
Steven T. Downey
John L. Clendenin Director
John L. Clendenin
John M. Cranor III Director
John M. Cranor III
Joseph F. Decosimo Director
Joseph F. Decosimo
Lyle Everingham Director
Lyle Everingham
SIGNATURE TITLE
Raymond V. Gilmartin Director
Raymond V. Gilmartin
J. David Grissom Director
J. David Grissom
Watts Hill, Jr. Director
Watts Hill, Jr.
Ned C. Lautenbach Director
Ned C. Lautenbach
F. Warren McFarlan Director
F. Warren McFarlan
Director
Martha R. Seger
Larry D. Thompson Director
Larry D. Thompson
ANNUAL REPORT ON FORM 10-K
ITEM l4(a)(1), (2) and (3), (c) and (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENT SCHEDULES
LIST AND INDEX OF EXHIBITS
YEAR ENDED DECEMBER 31, 1995
PROVIDIAN CORPORATION
LOUISVILLE, KENTUCKY
FORM 10-K--ITEM 14(a)(1) and (2)
PROVIDIAN CORPORATION AND SUBSIDIARIES
INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following Consolidated Financial Statements of Providian
Corporation and Subsidiaries, included on pages 39 through 58 of the
Annual Report for the year ended December 31, 1995, are incorporated
by reference in Item 8:
Page
Consolidated Statements of Income -
Years Ended December 31, 1995, 1994 and 1993 39
Consolidated Statements of Financial Condition -
December 31, 1995 and 1994 40 - 41
Consolidated Statements of Cash Flows -
Years Ended December 31, 1995, 1994 and 1993 42
Consolidated Statements of Shareholders' Equity -
Years Ended December 31, 1995, 1994 and 1993 43
Notes to Consolidated Financial Statements 44 - 58
The following financial statement schedules and the related Report of
Independent Auditors are included in Item 14(d):
Schedule I - Summary of Investments - Other Than Investments
in Related Parties
Schedule II - Condensed Financial Information of Registrant
Schedule III - Supplementary Insurance Information
Schedule IV - Reinsurance
Information required in Schedule V, "Valuation and Qualifying
Accounts," is included in Note C to the consolidated financial
statements of Providian Corporation and subsidiaries, incorporated
herein by reference. All other schedules for which provision is made
in the applicable accounting regulation of the Securities and
Exchange Commission are not required under the related instructions
or are inapplicable and, therefore, have been omitted.
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Providian Corporation
We have audited the consolidated financial statements of
Providian Corporation and subsidiaries listed in the accompanying
index to financial statements (Item 14(a)). Our audits also included
the financial statement schedules listed in the index at Item 14(a).
These financial statements and schedules are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements and schedules based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the consolidated
financial position of Providian Corporation and subsidiaries at
December 31, 1995 and 1994, and the consolidated results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
As discussed in Note B to the consolidated financial statements,
in 1994 the Company changed its method of accounting for certain
investments in debt and equity securities.
ERNST & YOUNG LLP
/s/ Ernst and Young LLP
Louisville, Kentucky
February 5, 1996
<TABLE>
SCHEDULE I - SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS
IN RELATED PARTIES
<CAPTION>
PROVIDIAN CORPORATION AND
SUBSIDIARIES
December
31, 1995
Amount
Shown
in
Statements of
Amortized Market Financial
Cost Value Condition
Type of Investment (Dollars in millions)
<S> <C> <C> <C>
Debt securities:
Bonds:
US government &
government agencies $ 1,872 $ 1,934 $ 1,934
State and municipal 679 748 748
Foreign governments 162 177 177
Public utilities 533 549 549
Industrial and
miscellaneous 6,843 7,281 7,281
--------------------------------
Total bonds 10,089 10,689 10,689
Redeemable preferred stocks 15 16 16
---------------------------------
Total debt securities 10,104 10,705 10,705
----------------------------------
----------------------------------
Equity securities:
Common stocks:
Industrial and miscellaneous 26 26 26
Nonredeemable preferred
stocks 436 427 427
--------------------------------
Total equity securities 462 453 453
--------------------------------
--------------------------------
Trading account securities XXXXXXXXX 105 105
Commercial mortgage loans 2,740 XXXXXXXX 2,740
Residential mortgage loans 3,063 XXXXXXX 3,063
Policy loans 454 XXXXXXXX 454
Consumer loans 3,091 XXXXXXX 3,091
Real estate <F1> 60 XXXXXXX 60
Other long-term investments 320 XXXXXXX 320
Short-term investments 225 XXXXXXX 225
-----------------------------------
Total Investments $ 20,519 $ 21,216
------------------------------------
------------------------------------
<FN>
<F1> Includes real estate taken in foreclosure of $52 million in our
mortgage loan portfolio.
SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
<CAPTION>
PROVIDIAN CORPORATION (PARENT COMPANY)
CONDENSED STATEMENTS OF FINANCIAL
CONDITION December 31
1995 1994
(Dollars in millions)
<C> <C>
<S>
Assets
Cash and cash equivalents $ 55 $ 89
Investments:
Investments in and advances
to subsidiaries <F1> 3,841 2,673
Short-term investments 15 14
Notes receivable from subsidiaries<F1> 56 364
Accrued interest and accounts receivable
from subsidiaries <F1> 8 12
Other assets 58 48
-------------------
Total assets $4,033 $ 3,200
--------------------
--------------------
Liabilities and Shareholders' Equity:
Liabilities
Notes, accounts payable and other
liabilities to subsidiaries <F1> $ 197 $ 199
Short-term borrowings 50 50
Other liabilities 49 72
Long-term debt 721 694
---------------------
Total liabilities 1,017 1,015
Redeemable cumulative preferred stock
held by subsidiary <F1> 55 63
Commitments and Contingencies
Shareholders' equity
Common stock 115 115
Additional paid-in capital 50 57
Retained earnings 420 262
Equity in undistributed earnings
of subsidiaries 2,350 2,251
Equity in net unrealized investment
gain(loss) of subsidiaries 359 (344)
Common stock held in treasury - at cost (330) (214)
Unearned restricted stock (3) (5)
Total shareholders' equity 2,961 2,122
---------------------
Total liabilities and shareholders' equity $4,033 $ 3,200
---------------------
----------------------
<FN>
<F1> Eliminated in consolidation.
See notes to condensed financial
statements.
SCHEDULE II--CONDENSED FINANCIAL
INFORMATION OF REGISTRANT - CONTINUED
<CAPTION>
PROVIDIAN CORPORATION (PARENT COMPANY)
CONDENSED STATEMENTS OF INCOME Year Ended December 31
1995 1994 1993
(Dollars in millions)
<C> <C> <C>
<S>
Revenues
Dividends from subsidiaries <F1> $270 $236 $200
Interest on notes receivable from
subsidiaries <F1> 47 47 48
Management and service fees <F1> 35 28 25
Investment and other income, net 3 1 2
-------------------------
Total revenues 355 312 275
Expenses
Operating expenses 43 40 38
Interest expense 65 60 54
Interest expense on notes payable to
subsidiaries <F1> 15 13 6
--------------------------
Total expenses 123 113 98
Income before federal income tax
benefit and equity in undistributed net
income from subsidiaries 232 199 177
Federal income tax benefit 14 17 13
---------------------------
Income before equity in undistributed
net income of subsidiaries 246 216 190
Equity in undistributed net income
of subsidiaries 99 85 133
---------------------------
Net income $345 $301 $323
---------------------------
<FN> ---------------------------
<F1> Eliminated in consolidation.
See notes to condensed financial
statements.
SCHEDULE II--CONDENSED FINANCIAL
INFORMATION OF REGISTRANT - CONTINUED
<CAPTION>
PROVIDIAN CORPORATION (PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS Year Ended December 31
1995 1994 1993
(Dollars in millions)
<C> <C> <C>
<S>
Net Cash Flows provided by Operating
Activities $221 $223 $199
Cash Flows from Investment Activities:
Change in short term investments (1) (14) -
Changes in investments in and advances
to subsidiaries <F1> (58) (27) (102)
Changes in operating property - 1 (2)
Net Cash Flows used in Investment
Activities (59) (40) (104)
Cash Flows from Financing Activities:
Issuance of long-term debt 111 107 -
Repayment of long-term debt (84) - -
Redemption of preferred stock - (100) -
Redemption of redeemable cumulative
preferred stock <F1> (8) (8) (6)
Purchase of common stock for treasury (143) (139) -
Dividends (86) (82) (81)
Proceeds from exercise of stock options 14 4 8
Change in notes payable to subsidiaries<F1> - 125 (14)
Net Cash Flows used in Financing
Activities (196) (93) (93)
Net Increase (Decrease) in Cash and
Cash Equivalents or Cash Overdraft
during Year (34) 90 2
Cash and Cash Equivalents (Cash Overdraft)
at Beginning of Year 89 (1) (3)
Cash and Cash Equivalents (Cash Overdraft)
at End of Year $ 55 $ 89 $(1)
<FN>
<F1> Eliminated in consolidation.
See notes to condensed financial
statements.
</TABLE>
SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT -
CONTINUED
PROVIDIAN CORPORATION (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note A Basis of Presentation
In the parent company only condensed financial statements, the
Company's investment in subsidiaries is stated at cost plus equity in
undistributed income of subsidiaries since date of acquisition. The
condensed financial statements of the parent company should be read
in conjunction with the Consolidated Financial Statements and related
Notes of Providian Corporation and Subsidiaries.
Note B Federal Income Tax
The Company files a consolidated federal income tax return with
certain of its subsidiaries. The federal income tax benefit in the
accompanying condensed financial statements reflects the Company's
allocable share of the consolidated income tax provision. See Note G
to the Consolidated Financial Statements of Providian Corporation and
Subsidiaries for a description of the components of the consolidated
federal income tax provision.
Note C Note Payable to Providian LLC
In May 1994, Providian LLC was formed and capitalized through the
purchase of common shares by the Company. On May 12, 1994 Providian
LLC completed the issuance of 4,000,000 shares of Cumulative Monthly
Income Preferred Stock (MIPS) at $25 per share. The total proceeds of
$126,600,000 from the issuance of the MIPS and the common stock were
subsequently lent to the Company to provide permanent funding for the
redemption of the Company's Adjustable Rate Cumulative Preferred
Stock, Series F. The note receivable from the Company that results
from such loans constitutes the only material assets of Providian
LLC. The MIPS are redeemable at the option of Providian LLC (with
the Company's consent) in whole or in part on or after May 31, 1999
at a redemption price of $25 per share plus accumulated and unpaid
dividends. Upon liquidation of Providian LLC, the holders of the
MIPS are entitled to $25 per share plus accumulated and unpaid
dividends. The MIPS pays monthly dividends at an annual rate of
8.875 percent. The Company has unconditionally guaranteed all
legally declared and unpaid dividends of Providian LLC. The note
payable to Providian LLC is included in Notes, accounts payable and
other liabilities to subsidiaries in the accompanying Condensed
Statement of Financial Condition.
Note D Long-Term Debt
Long-term debt of the Company at December 31, 1995 and 1994 consisted
of Debentures and Notes in the amount of $720,830,000 and
$694,250,000, respectively. See Note H to the Consolidated Financial
Statements of Providian Corporation and Subsidiaries for a
description of the terms and aggregate maturities of the Company's
long-term debt.
SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT -
CONTINUED
PROVIDIAN CORPORATION (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note E Common Stock
During 1995 and 1994, the Company announced plans to repurchase a
total of 9.5 million shares of the Company's common stock on the open
market. Through December 31, 1995, the Company repurchased 8,244,000 shares
(3,910,000 shares in 1995 and 4,334,000 shares in 1994) at an
aggregate cost of $281,990,000 ($143,199,000 in 1995 and $138,791,000
in 1994). Between January 1, 1996 and February 5, 1996, the Company
repurchased an additional 639,000 shares at an aggregate cost of
$27,017,000.
Note F Preferred Stock
The Company has 6,000,000 shares of preferred stock, par value $5,
authorized for issuance in series.
Redeemable Cumulative Preferred Stock Held By Subsidiary
The Company has designated 667,400 shares of preferred stock as
redeemable cumulative preferred stock to be issued in different
series with varying annual dividend rates. The shares outstanding at
December 31, 1995 and 1994 were 547,400 and 627,400, respectively.
The subsidiary has the right, on an annual basis, to waive receipt of
dividends and has waived any dividends payable through 1995. The
characteristics of the redeemable preferred stock are as follows:
Shares outstanding
Dividend Shares Year at December 31 Period
Series rate authorized issued 1995 1994 redemption
B 12.25% 41,000 1980 41,000 49,200 1991-2000
C 14.00% 90,000 1981 90,000 105,000 1992-2001
D 15.00% 70,000 1982 70,000 80,000 1993-2002
E 14.25% 105,000 1982 105,00 120,000 1993-2002
0
G 12.00% 211,000 1983 91,000 104,000 1993-2002
H 11.50% 80,000 1984 80,000 90,000 1994-2003
I 12.00% 70,400 1984 70,400 79,200 1994-2003
667,400 547,400 627,400
Mandatory pro-rata sinking fund payments are required to redeem 10%
of each series of redeemable preferred stock annually, beginning
approximately ten years after issuance at $100 per share. As the
shares are redeemed, they are retired thereby reducing the total
authorized shares of each series. The Company redeemed the following
shares of cumulative preferred stock in 1995: 8,200 of the Series B;
15,000 of the Series C; 10,000 of the Series D; 15,000 of the Series
E; 13,000 of the Series G; 10,000 of Series H; and 8,800 of Series I.
The aggregate amount of mandatory pro-rata sinking fund payments
required for redemption of the redeemable preferred stock in each of
the following years are: 1996-$8,000,000; 1997-$8,000,000;
1998-$8,000,000, 1999-$8,000,000 and 2000-$8,000,000. The Company
shall have the annual non-cumulative option to double any sinking
fund payment subject to an aggregate limitation of 25% of the total
issue. The redeemable preferred stock is non-callable for
approximately ten years and callable thereafter at $105 per share
plus accrued dividends. However, in the event the Company is
required to obtain approval of a specified percentage of the holders
of the issue to effect a merger, consolidation, or sale of assets and
such
SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT -
CONTINUED
PROVIDIAN CORPORATION (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
approval is denied, then the Company may redeem the preferred stock
in its entirety at $100 per share plus accrued dividends.
Adjustable Rate Cumulative Preferred Stock
On March 2, 1994, the Company redeemed, at face value, all 1,000,000
shares of its Series F, Adjustable Rate Cumulative Preferred Stock,
at $100 per share plus accrued and unpaid dividends through the date
of redemption.
Note G Management and Service Fees
The Company provides its subsidiaries with general management
support, including services in the data processing, human resources,
legal and financial areas. The related charges are billed to the
subsidiaries being serviced as management fees, and are computed
using various allocation methods which are, in the opinion of
management, reasonable in relation to services rendered.
Note H Contribution of Note Receivable to Subsidiary
On December 29, 1995, the Company made a non-cash investment of
$307.7 million into one of its wholly-owned subsidiaries. This
investment was made through the contribution to the subsidiary of a
note receivable held by the Company.
<TABLE>
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
<CAPTION>
PROVIDIAN CORPORATION AND SUBSIDIARIES
Year Ended December 31, 1995 - (Dollars in millions)
Deferred Policy
policy & loan and
acquisition Benefit Unearned contract Premium
Segment costs<F1> reserves<F2> premiums claims income
<S> <C> <C> <C> <C> <C>
Providian Agency Group:
Life $ 801 $ 2,496 $ - $ 19 $ 359
Health 72 103 15 60
Other product lines 2 191 3 28 16 5
-----------------------------------------------------
Total 875 2,790 37 447
Providian Direct
Insurance:
Life 477 739 22 320
Health 223 109 26 180
Property & casualty 55 55 118 175
Other product lines 6 31 1 7
-----------------------------------------------------
Total 761 879 55 167 682
Providian Bancorp 35
Providian Capital
Management 64 12,692 2 66
Corporate and Other 2
-------------------------------------------------------
Consolidated $ 1,737 $ 16,361 $ 55 $ 206 1,195
========================================================
</TABLE>
<TABLE>
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
<CAPTION>
PROVIDIAN CORPORATION AND SUBSIDIARIES
Year Ended December 31, 1995 - (Dollars in millions)
Benefits Amortization
claims, and of deferred Commissions
Net increase in policy and
investment benefit acquisition expenses, Premiums
Segment income<F3> reserves<F4> costs<F5> net <F3> written
<S> <C> <C> <C> <C> <C>
Providian Agency Group:
Life $ 261 $ 268 $ 76 $ 96
Health 10 43 10 17 $ 60
Other product lines 18 32 16 5
-----------------------------------------------
Total 289 34 86 129
Providian Direct
Insurance:
Life 65 220 55 37
Health 13 83 39 38 182
Property & casualty 16 143 11 31 177
Other product lines 3 6 1 5
-------------------------------------------------
Total 97 452 106 111
Providian Bancorp 457 106 16 432
Providian Capital
Management 968 856 35 59
Corporate and Other 50 (2) 33
-----------------------------------------------------
Consolidated $ 1,861 $ 1,757 $ 241 $ 764
===================================================
</TABLE>
<TABLE>
SCHEDULE III SUPPLEMENTARY INSURANCE INFORMATION
<CAPTION>
PROVIDIAN CORPORATION AND SUBSIDIARIES
Year Ended December 31, 1994 - (Dollars in millions)
Deferred Policy
policy & loan and
acquisition Benefit Unearned contract Premium
Segment costs <F1> reserves<F2> premiums claims income
<S> <C> <C> <C> <C> <C>
Providian Agency Group:
Life $ 806 $ 2,361 $ $ 16 $ 348
Health 75 102 14 62
Other product lines 2 193 3 30
-----------------------------------------------------
Total 883 2,656 33 440
Providian Direct
Insurance:
Life 444 681 21 308
Health 213 115 27 186
Property & casualty 48 53 119 176
Other product lines 7 32 1 6
------------------------------------------------------
Total 712 828 53 168 676
Providian Bancorp 23
Providian Capital
Mangement 145 12,638 2 25
Corporate and Other 1
-----------------------------------------------------
Consolidated $ 1,765 $ 16,123 $ 53 $ 203 $1,141
=====================================================
</TABLE>
<TABLE>
SCHEDULE III SUPPLEMENTARY INSURANCE INFORMATION
<CAPTION>
PROVIDIAN CORPORATION AND SUBSIDIARIES
Year Ended December 31, 1994 - (Dollars in millions)
Benefits Amortization
claims, and of deferred Commissions
Net increase in policy and
investment benefit acquisition expenses, Premiums
Segment income<F3> reserves<F4> costs <F5> net <F3> written
<S> <C> <C> <C> <C> <C>
Providian Agency Group:
Life $ 252 $ 249 $ 78 $ 94
Health 9 44 7 16 $ 63
Other product lines 19 40 13 6
------------------------------------------
Total 280 333 85 123
Providian Direct
Insurance:
Life 61 216 52 41
Health 13 82 37 40 189
Property & casualty 16 143 9 33 175
Other product lines 3 6 1 6
-------------------------------------------------
Total 93 447 99 120
Providian Bancorp 322 71 40 301
Providian Capital
Mangement 848 681 42 48
Corporate and Other 52 30
--------------------------------------------------
Consolidated $1,595 $ 1,532 $ 270 $ 622
===================================================
</TABLE>
<TABLE>
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
<CAPTION>
PROVIDIAN CORPORATION AND SUBSIDIARIES
Year Ended December 31, 1993 - (Dollars in millions)
Deferred Policy
policy & loan and
Acquisition Benefit Unearned contract Premium
Segment costs <F1> reserves<F2> premiums claims income
<S> <C> <C> <C> <C> <C>
Providian Agency Group:
Life $ 767 $ 2,257 $ $ 19 $ 344
Health 72 102 14 66
Other product lines 3 187 4 37
---------------------------------------------------
Total 842 2,546 37 447
Providian Direct
Insurance:
Life 417 622 21 299
Health 209 125 32 198
Property & Casualty 35 47 116 144
Other product lines 12 32 1 7
--------------------------------------------------
Total 673 779 47 170 648
Providian Bancorp 33
Providian Capital
Management 109 11,718 2 71
Corporate and Other 4 2 2
---------------------------------------------------
Consolidated $ 1,657 $15,047 $ 47 $ 211 $ 1,168
====================================================
</TABLE>
<TABLE>
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
<CAPTION>
PROVIDIAN CORPORATION AND SUBSIDIARIES
Year Ended December 31, 1993 - (Dollars in millions)
claims, and of deferred Commissions
Net increase in policy and
investment benefit acquisition expenses, Premiums
Segment income<F3> reserves<F4> costs<F5> net<F3> written
<S> <C> <C> <C> <C> <C>
Providian Agency Group:
Life $ 249 $ 239 $ 74 $ 96
Health 9 47 7 15 $ 65
Other product lines 23 45 0 15 11
--------------------------------------------
Total 281 331 81 126
Providian Direct
Insurance:
Life 61 207 51 48
Health 14 82 38 45 200
Property & Casualty 16 117 7 29 146
Other product lines 4 7 6 14
---------------------------------------------
Total 95 413 102 136
Providian Bancorp 317 85 81 236
Providian Capital
Management 724 608 39 52
Corporate and Other 44 (5) 24
--------------------------------------------
Consolidated $1,461 $ 1,432 $ 303 $ 574
==============================================
<FN>
<F1> Includes value of insurance in force purchased
<F2> Includes policyholder contract deposits
<F3> See Note N to the Consolidated Financial Statements of Providian
Corporation and Subsidiaries for a description
of the basis used in the allocation of net investment income and expenses.
<F4> Includes policyholder interest on investment-type contracts, interest
on banking deposits and interest on related
hedging instruments.
<F5> Includes amortization of value of insurance in force purchased.
</TABLE>
FORM 10-K--ITEM 14(a)(3) AND (c)
PROVIDIAN CORPORATION AND SUBSIDIARIES
LIST AND INDEX OF EXHIBITS
Reference
Number Per Exhibit
Exhibit Table Description of Exhibit Number Page
(3) Certificate of Incorporation as 3.1 -
amended on December 5, 1995.
(Provided as part of electronic
submission.)
(3) By-Laws of Providian Corporation as 3.2 -
amended on February 17, 1988.
(Incorporated by reference as
Exhibit 3.3 of the Company's Annual
Report on Form 10-K for the year
ended December 31, 1989, SEC File
No. 1-6701.)
(4) Indenture dated April 1, 1983 4.1 -
between the Company and Connecticut
National Bank (as successor to
National Westminster Bank USA) for
Debt Securities (which now are 8
3/4% Sinking Fund Debentures due
January 15, 2017 and Medium Term
Notes due 1995 to 2022).
(Incorporated by reference as
Exhibit 4.2 to Registration
Statement on Form S-3, Registration
No. 2-82957 filed with the
Commission on April 8, 1983.)
(4) Supplemental Indenture, dated 4.2 -
September 1, 1989, between the
Company and Connecticut National
Bank (as successor to National
Westminster Bank USA), Supplements
the Indenture dated April 1, 1983,
between the Company and Connecticut
National Bank (as successor to
National Westminster Bank USA).
(Incorporated by reference as
Exhibit 4.1 of Form 8-K dated
September 18, 1989, SEC File No. 1-
6701.)
(4) Providian Corporation 1987 4.3 -
Shareholder Rights Agreement as
amended on November 4, 1992.
(Incorporated by reference as
Exhibit 4.5 of the Company's Annual
Report on Form 10-K for the year
ended December 31, 1992, SEC File
No. 1-6701.)
FORM 10-K--ITEM 14(a)(3) AND (c)
PROVIDIAN CORPORATION AND SUBSIDIARIES
LIST AND INDEX OF EXHIBITS (CONTINUED)
Reference
Number Per Exhibit
Exhibit Table Description of Exhibit Number Page
(4) Indenture between the Company and 4.4 -
First Trust of New York (successor-
in-interest to Morgan Guaranty
Trust Company of New York), as
Trustee, dated as of January 1,
1994. (Incorporated by reference as
Exhibit 4.4 of the Company's Annual
Report on Form 10-K for the year
ended December 31, 1993, SEC File
No. 1-6701.)
(4) Payment and Guarantee Agreement 4.5 -
dated as of May 12, 1994 between
Providian LLC and the Company.
(Incorporated by reference as
Exhibit 4.1 of Form 8-K dated May
12, 1994, SEC File No. 1-6701.)
(4) Terms of the 8 7/8% Cumulative 4.6 -
Monthly Income Preferred Stock dated
as of May 15, 1994. (Incorporated
by reference as Exhibit 4.2 of Form
8-K dated May 12, 1994, SEC File No.
1-6701.)
(10) Providian Corporation 1981 Stock 10.1 -
Option Incentive Plan, through
August 7, 1991. (Incorporated by
reference as Exhibit 10.1 of the
Company's Annual Report on Form 10-K
for the year ended December 31,
1990, SEC File No. 1-6701.)*
(10) 1991 amendments to 1981 Stock Option 10.2 -
Incentive Plan and 1989 Stock Option
Plan. (Incorporated by reference as
Exhibit 10.2 of the Company's Annual
Report on Form 10-K for the year
ended December 31, 1991, SEC File
No. 1-6701.)*
(10) Providian Corporation 1981 Tax- 10.3 -
Qualified Stock Option Plan, as
amended. (Incorporated by reference
as Exhibit 10.2 of the Company's
Annual Report on Form 10-K for the
year ended December 31, 1990, SEC
File No. 1-6701.)*
(10) Employment Agreement between the 10.4 -
Company and Irving W. Bailey II.
(Incorporated by reference as
Exhibit 10.6 of the Company's Annual
Report on Form 10-K for the year
ended December 31, 1987, SEC File
No. 1-6701.)*
FORM 10-K--ITEM 14(a)(3) AND (c)
PROVIDIAN CORPORATION AND SUBSIDIARIES
LIST AND INDEX OF EXHIBITS (CONTINUED)
Reference
Number Per Exhibit
Exhibit Table Description of Exhibit Number Page
(10) Descriptions of Company's Management 10.5 -
Incentive Plan, Providian Bancorp's
Annual Incentive Plan and Company's
Long-Term Incentive Plan.
(Incorporated by reference to the
descriptions of the Incentive
Compensation Plans as described on
Pages 6 and 7 of the Proxy Statement
for the Annual Meeting of
Stockholders held May 1, 1992, SEC
File No. 1-6701.)*
(10) Providian Corporation 1989 Stock 10.6 -
Option Plan, through August 7, 1991.
(Incorporated by reference as
Exhibit 10.6 of the Company's Annual
Report on Form 10-K for the year
ended December 31, 1990, SEC File
No. 1-6701.)*
(10) Amendment to Employment Agreement 10.7 -
between the Company and Irving W.
Bailey II. (Incorporated by
reference as Exhibit 10.7 of the
Company's Annual Report on Form 10-K
for the year ended December 31,
1989, SEC File No. 1-6701.)*
(10) Employment Agreements between the 10.8 -
Company and Shailesh J. Mehta and
Lawrence Pitterman. (Incorporated
by reference as Exhibit 10.9 of the
Company's Annual Report on Form 10-K
for the year ended December 31,
1990, SEC File No. 1-6701.)*
(10) Employment Agreements between the 10.9 -
Company and Frederick C. Kessell and
Robert L. Walker. (Incorporated by
reference as Exhibit 10.11 of the
Company's Annual Report on Form 10-K
for the year ended December 31,
1991, SEC File No. 1-6701.)*
(10) Providian Bancorp Equity Unit Plan. 10.10 -
(Incorporated by reference as
Exhibit 10.12 of the Company's
Annual Report on Form 10-K for the
year ended December 31, 1991, SEC
File No. 1-6701.)*
FORM 10-K--ITEM 14(a)(3) AND (c)
PROVIDIAN CORPORATION AND SUBSIDIARIES
LIST AND INDEX OF EXHIBITS (CONTINUED)
Reference
Number Per Exhibit
Exhibit Table Description of Exhibit Number Page
(10) Providian Corporation Deferred 10.11 -
Compensation Plan for Deferral of
Payments under the Providian
Corporation Management Incentive
Plan. (Incorporated by reference as
Exhibit 10.13 of the Company's
Annual Report on Form 10-K for the
year ended December 31, 1991, SEC
File No. 1-6701.)*
(10) Providian Corporation Deferred 10.12 -
Compensation Plan under the
Providian Corporation Long-Term
Incentive Plan. (Incorporated by
reference as Exhibit 10.14 of the
Company's Annual Report on Form 10-K
for the year ended December 31,
1991, SEC File No. 1-6701.)*
(10) Providian Bancorp Deferred 10.13 -
Compensation Plan under the
Providian Bancorp Annual Incentive
Plan. (Incorporated by reference as
Exhibit 10.15 of the Company's
Annual Report on Form 10-K for the
year ended December 31, 1991, SEC
File No. 1-6701.)*
(10) Descriptions of Providian 10.14 -
Corporation Supplemental Non-
qualified Thrift Savings Plan and
Non-qualified Pension Agreements.
(Incorporated by reference to the
descriptions of the Retirement Plans
and Thrift Savings Plan as described
on pages 7 through 9 of the Proxy
Statement for the Annual Meeting of
Stockholders held May 1, 1992, SEC
File No. 1-6701.)*
(10) Providian Corporation Stock 10.15 -
Ownership Plan (Incorporated by
reference as Exhibit 10.17 of the
Company's Annual Report on Form 10-K
for the year ended December 31,
1992, SEC File No. 1-6701.)*
(10) 1994 Amendments to 1989 Stock Option 10.16 -
Plan. (Incorporated by reference as
Exhibit 10.17 of the Company's
Annual Report on Form 10-K for the
year ended December 31, 1994.)*
(10) Employment Agreement between the 10.17 -
Company and James V. Elliott.
(Incorporated by reference as
Exhibit 10.18 of the Company's
Annual Report on Form 10-K for the
year ended December 31, 1994.)*
FORM 10-K--ITEM 14(a)(3) AND (c)
PROVIDIAN CORPORATION AND SUBSIDIARIES
LIST AND INDEX OF EXHIBITS (CONTINUED)
Reference
Number Per Exhibit
Exhibit Table Description of Exhibit Number Page
(10) Operating and Policy Committee 10.18 -
Deferred Compensation Plan.
(Incorporated by reference as
Exhibit 10.19 of the Company's
Annual Report on Form 10-K for the
year ended December 31, 1994.)*
(10) Employment agreement between the 10.18 -
Company and William R. Gernert.
(Incorporated by reference as
Exhibit 10.1 of the Company's
Quarterly Report on Form 10-Q for
the period ended June 30, 1995.)*
(10) Employment agreements between the 10.19 -
Company and Julie A. Montanari and
Robert S.Greer. (Provided as part of
electronic transmission.)*
(10) Providian Corporation's 1995 Stock 10.20 -
Option Plan. (Incorporated by
reference as Appendix A of the
Company's 1995 Proxy Statement.)
(10) Revolving Credit Facility Agreement 10.21 -
between the Company and various
domestic and international banks,
effective date August 21, 1995.
(Provided as part of electronic
submission.)
(10) Revolving Credit Agreement between 10.22 -
Providian Bancorp, Inc. and various
domestic and international banks, as
amended and restated on October 10,
1995. (Provided as part of
electronic submission.)
(12) Computation of ratio of earnings to 12.1 37
fixed charges (Provided as part of
electronic transmission.)
(13) Portions of the Annual Report for 13.1 -
the year ended December 31, 1995.
(Provided as part of electronic
transmission.)
FORM 10-K--ITEM 14(a)(3) AND (c)
PROVIDIAN CORPORATION AND SUBSIDIARIES
LIST AND INDEX OF EXHIBITS (CONTINUED)
Reference
Number Per Exhibit
Exhibit Table Description of Exhibit Number Page
(21) List of subsidiaries. (Provided as 21.1 39
part of electronic transmission.)
(23) Consent of independent auditors. 23.1 42
(Provided as part of electronic
transmission.)
(27) Financial Data Schedule. (Provided 27.1 -
as part of electronic transmission.)
* This indicates a management contract or compensatory plan or
arrangement.
Exhibit 3.1
BY-LAWS
OF
PROVIDIAN CORPORATION
ARTICLE I
Stockholders
Section 1.1 Annual Meetings. An annual meeting of
stockholders shall be held for the election of the directors
at such date, time and place, either within or without the
State of Delaware, as may be designated by resolution of the
Board of Directors from time to time. Any other proper
business may be transacted at the annual meeting.
Section 1.2 Special Meetings. (a) Any action
required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation and may
not be effected by any consent in writing by such
stockholders. Except as otherwise required by law and
subject to the rights of the holders of any class or series
of stock having a preference over the Common Stock as to
dividends or upon liquidation, special meetings of
stockholders of the Corporation may be called only by the
Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors
(whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is
presented to the Board for adoption).
(b) Special meetings of the stockholders of the
Corporation may be held at such time and at such place
within or without the State of Delaware, as may be stated in
the call.
Section 1.3. Notice of Meetings; Waiver of Notice.
Whenever stockholders are required or permitted to take any
action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the
meeting, and, in the case of a special meeting, the purpose
or purposes for which the meeting is called. No business
may be conducted at a special meeting except such business
as has been brought before the meeting pursuant to the
Corporation's notice of meeting. Unless otherwise provided
by law, the written notice of any meeting shall be given not
less than ten (10) nor more than fifty (50) days before the
date of the meeting to each stockholder entitled to vote at
such meeting. If mailed, such notice shall be deemed to be
given when deposited in the United States mail, postage
prepaid, directed to the stockholder at his address as it
appears on the records of the Corporation. A written waiver
of notice, signed by the person or persons entitled thereto,
whether before or after the time stated therein, shall be
deemed equivalent to notice. Attendance of a person at a
meeting of stockholders shall constitute a waiver of notice
of such meeting, except when the stockholder attends a
meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened.
Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the stockholders need
be specified in any written waiver of notice.
Section 1.4. Adjournments. At any meeting of
stockholders, annual or special, the Chairman of the meeting
may, without a stockholder vote, or the stockholders present
may, by majority vote, adjourn from time to time to
reconvene at the same or some other place, and notice need
not be given of any such adjourned meeting if the time and
place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting the
Corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is
for more than thirty (30) days, or if after the adjournment
a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 1.5. Quorum. At each meeting of
stockholders, except where otherwise provided by law or the
Certificate of Incorporation or these By-laws, the holders
of a majority of the outstanding shares of each class of
stock entitled to vote at the meeting, present in person or
by proxy, shall constitute quorum. In the absence of a
quorum, the Chairman of the meeting may, without a
stockholder vote, or the stockholders so present may, by
majority vote, adjourn the meeting from time to time in the
manner provided by Section 1.4 of these By-laws until a
quorum shall attend.
Section 1.6. Organization. Meetings of stockholders
shall be presided over by the Chairman of the Board or in
the Chairman's absence by the President or in their absence
by a chairman chosen at the meeting. The Secretary shall
act as secretary of the meeting, but in his absence the
chairman of the meeting may appoint any person to act as
secretary of the meeting.
Section 1.7. Voting; Proxies. Each stockholder
entitled to vote at any meeting of stockholders shall be
entitled to one vote for each share of stock held by such
stockholder which has voting power upon the matter in
question. Each stockholder entitled to vote at a meeting of
stockholders may authorize another person or persons to act
for such stockholder by proxy, but no such proxy shall be
voted or acted upon more than eleven months after its date.
Voting at meetings of stockholders need not be by written
ballot or need not be conducted by inspectors unless the
holders of a majority of the outstanding shares of all
classes of stock entitled to vote thereon present in person
or by proxy at such meeting shall so determine. At all
meetings of stockholders for election of directors a
plurality of the votes cast shall be sufficient to elect.
All other elections and questions shall, unless otherwise
provided by law or by the Certificate of Incorporation or by
these By-laws, be decided by the vote of the holders of a
majority of the outstanding shares of all classes of stock
entitled to vote thereon present in person or by proxy at
the meeting, provided that (except as otherwise required by
law or by the Certificate of Incorporation or by these By-
laws) the Board of Directors may require a larger vote upon
any election or question.
Section 1.8. Fixing Date for Determination of
Stockholders of Record. In order that the Corporation may
determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof,
or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or
exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than
sixty (60) days prior to any other action. If no record
date is fixed: (1) the record date for determining
stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day
next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; and (2) the
record date for determining stockholders for any other
purpose shall be at the close of business on the day on
which the Board of Directors adopts the resolution relating
thereto. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for
the adjourned meeting.
Section 1.9. List of Stockholders Entitled to Vote.
The Secretary shall prepare and make, at least ten (10) days
before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name
of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of
at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to beheld, which
place shall be specified in the notice of the meeting, or,
if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time
and place of the meeting during the whole time thereof and
may be inspected by any stockholder who is present. Upon
the willful neglect or refusal of the directors to produce
such a list in any meeting for the election of directors,
they shall be ineligible for election to any office at such
meeting. The stock ledger shall be the only evidence as to
who are the stockholders entitled to examine the stock
ledger, the list of stockholders of the books of the
Corporation, or to vote in person or by proxy at any meeting
of stockholders.
Section 1.10. Notice of Stockholder Business. At an
annual meeting of the stockholders, only such business shall
be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting
business must be (a) specified in the notice of meeting (or
any supplement thereto) given by or at the direction of the
Board of Directors, (b) otherwise properly brought before
the meeting by or at the direction of the Board of
Directors, or (c) otherwise properly brought before the
meeting by a stockholder. For business to be properly
brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing
to the Secretary of the Corporation. To be timely, a
stockholder's notice must be delivered to or mailed and
received at the principal executive offices of the
Corporation, not less than sixty (60) days nor more than
ninety (90) days prior to the meeting; provided, however,
that in the event that less than seventy (70) days' notice
or prior public disclosure of the date of the meeting is
given or made to stockholders, notice by the stockholder to
be timely must be so received not later than the close of
business on the tenth day following the day on which such
notice of the date of the annual meeting was mailed or such
public disclosure was made. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder
proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the
annual meeting and the reasons for conducting such business
at the annual meeting, (b) the name and address, as they
appear on the Corporation's books, of the stockholder
proposing such business, (c) the class and number of shares
of the Corporation which are beneficially owned by the
stockholder, and (d) any material interest of the
stockholder in such business. Notwithstanding anything in
these By-laws to the contrary, no business shall be
conducted at an annual meeting except in accordance with the
procedures set forth in this Section 1.10. The Chairman of
an annual meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly
brought before the meeting and in accordance with the
provisions of this Section 1.10, and if the Chairman should
so determine, the Chairman shall so declare to the meeting
and any such business not properly brought before the
meeting shall not be transacted.
ARTICLE II
Board of Directors
Section 2.1. General Powers. The Board of Directors
shall manage the business and affairs of the Corporation,
and, subject to any restrictions imposed by law, the
Articles of Incorporation or these By-laws, may exercise all
powers of the Corporation.
Section 2.2. Number and Term of Directors. (a)
Except as otherwise fixed by or pursuant to the provisions
of Article FOURTH of the Certificate of Incorporation
relating to the rights of the holders of any class or series
of stock having a preference over the Common Stock as to
dividends or upon liquidation to elect additional directors
under specified circumstances, the number of directors shall
be fixed from time to time exclusively by the Board of
Directors pursuant to resolution adopted by a majority of
the total number of authorized directors (whether or not
there exists any vacancies in previously authorized
directorships at the time any such resolutions is presented
to the Board for adoption), but shall be not less than the
minimum number prescribed by law nor more than twenty-five
(25). The directors, other than those who may be elected by
the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon
liquidation, shall be classified, with respect to the time
for which they severally hold office, into three classes, as
nearly equal in number as possible, as determined by the
Board of Directors of the Corporation, one class to be
originally elected for a term expiring at the annual meeting
of stockholders to be held in 1986, another class to be
originally elected for a term expiring at the annual meeting
of stockholders to be held in 1987, and another class to be
originally elected for a term expiring at the annual meeting
of stockholders to be held in 1988, with each class to hold
office until its successor is elected and qualified. At
each annual meeting of the stockholders of the Corporation,
the successors of the class of directors whose term expires
at that meeting shall be elected to hold office for a term
expiring at the annual meeting of stockholders held in the
third year following the year of their election.
(b) Advance notice of stockholder nominations for the
election of directors shall be given in the manner provided
in Section 2.9 of Article II of these By-laws.
(c) No person shall be eligible to serve as a director
after the annual meeting of stockholders next after such
person reaches seventy (70) years of age. When the
employment status of a director changes, that person shall
offer his or her resignation from the Board of Directors.
(d) Except as otherwise provided for or fixed by or
pursuant to the provisions of Article FOURTH of the
Certificate of Incorporation relating to the rights of the
holders of any class or series of stock having a preference
over the Common Stock as to dividends or upon liquidation to
elect additional directors under specified circumstances,
newly created directorships resulting from any increase in
the authorized number of directors or any vacancies in the
Board of Directors resulting from death, resignation,
retirement, disqualification, remove from office or other
cause may be filled only by the affirmative vote of a
majority of the remaining directors then in office, even
though less than a quorum of the Board of Directors. Any
director elected in accordance with the preceding sentence
shall hold office for the remainder of the full term of the
class of directors in which the new directorship was created
or the vacancy occurred and until such director's successor
shall have been elected and qualified. No decrease in the
number of directors constituting the Board of Directors
shall shorten the term of any incumbent director.
(e) Subject to the rights of the holders of any class
or series of stock having a preference over the Common Stock
as to dividends or upon liquidation to elect additional
directors under specified circumstances, any director, or
the entire Board of Directors, may be removed from office at
any time, but only for cause and only by the affirmative
vote of the holders of at least eighty (80) percent of the
voting power of all of the then outstanding shares of the
stock entitled to vote generally in the election of
directors, voting together as a single class.
Section 2.3. Regular Meetings. Regular meetings of
the Board of Directors may be held at such places within or
without the State of Delaware and at such times as the Board
of Directors may from time to time determine, and if so
determined notices thereof need not be given.
Section 2.4. Special Meetings. Special meetings of
the Board of Directors may be held at any time or place
within or without the State of Delaware whenever called by
the Chairman of the Board or by a majority of the Board of
Directors. Reasonable notice thereof shall be given by the
Chairman of the Board or the Secretary, or by the directors
calling the meeting, to each director who has not waived
such notice, unless all directors are present.
Section 2.5. A majority of the directors qualified
and in office at any time shall constitute a quorum for the
transaction of business at any meeting of the Board except
that if there is an event number of directors qualified and
in office, one-half of the members of the Board shall
constitute a quorum. Whether or not a quorum is present, a
majority of the directors present at any meeting of the
Board may adjourn the meeting to some later time. Unless
otherwise provided in the Certificate of Incorporation or
elsewhere in these By-laws, when a quorum is present, the
vote of a majority of the directors present shall decide any
question.
Section 2.6. Organization. Meetings of the Board of
Directors shall be presided over by the Chairman of the
Board or in his absence by the President or in their absence
by a chairman chosen at the meeting. The Secretary shall
act as secretary of the meeting, but in his absence the
chairman of the meeting may appoint any person to act as
secretary of the meeting.
Section 2.7. Informal Action by Directors. Any
action required or permitted to be taken at any meeting of
the Board of Directors, or of any committee thereof, may be
taken without a meeting if all members of the Board of
Directors or of such committee, as the case may be, consent
thereto in writing, and the writing or writings are filed
with the minutes or proceedings of the Board of Directors or
committee.
Section 2.8. Compensation. Fees for service as a
director and/or fees and reimbursement for expenses for
attendance at meetings of the Board or any committee thereof
may be fixed by resolution of the Board.
Section 2.9. Notice of Stockholder Nominees. Only
persons who are nominated in accordance with the procedures
set forth in this Section 2.9 shall be eligible for election
as directors. Nominations of persons for election to the
Board of Directors of the Corporation may be made at a
meeting of stockholders of the Corporation entitled to vote
for the election of directors at the meeting who complied
with the notice procedures set forth in this Section 2.9.
Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made pursuant
to timely notice in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice shall
meet the timeliness requirements of Section 1.10 of these By-
laws. Such stockholder's notice shall set forth (a) as to
each person whom the stockholder proposes to nominate for
election or re-election as a director, (i) the name, age,
business address and residence address of such person, (ii)
the principal occupation or employment of such person, (iii)
the class and number of shares of the Corporation which are
beneficially owned by such person and (iv) any other
information relating to such person that is required to be
disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant
to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including without limitation such person's
written consent to being named in the proxy statement as a
nominee and to serving as a director if elected); and (b) as
to the stockholder giving the notice of (i) the name and
address, as they appear on the Corporation's books, of such
stockholder and (ii) the class and number of shares of the
Corporation which are beneficially owned by such
stockholder. At the request of the Board of Directors any
person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the Corporation
that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee. No
person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the
procedures set forth in this Section 2.9. The Chairman of
the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by these By-laws,
and if the Chairman should so determine, the Chairman shall
so declare to the meeting and the defective nomination shall
be disregarded.
ARTICLE III
Committees
Section 3.1. Committees. The Board of Directors may,
by resolution passed by majority of the whole Board,
designate one or more committees, each committee to consist
of two or more of the directors of the Corporation. Any
such committee, to the extent provided in the resolution,
shall have and may exercise the powers of the Board of
Directors in the management of the business and affairs of
the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require
it.
ARTICLE IV
Officers
Section 4.1. Executive Officers; Election;
Qualifications; Term of Office; Resignation; Vacancies. The
Board of Directors shall choose a Chairman, a President, a
Secretary and a Treasurer. The Board of Directors may also
choose one or more Vice Presidents, one or more Assistant
Secretaries and one or more Assistant Treasurers. Each such
officer shall hold office until the first meeting of the
Board of Directors after the annual meeting of stockholders
next succeeding such officer's election, and until such
officer's successor is elected and qualified or until the
earlier resignation or removal of such officer. Any officer
may resign at any time upon written notice to the
Corporation. Any number of offices may be held by the same
person. Any vacancy occurring in any office of the
Corporation by death, resignation, removal or otherwise may
be filled for the unexpired portion of the term by the Board
of Directors at any regular meeting or special meeting.
Section 4.2. Chairman of the Board. The Chairman of
the Board shall preside at all meetings of the Board of
Directors and of the stockholders at which the Chairman
shall be present. The Chairman shall be the chief executive
officer and shall have general charge and supervision of the
business of the Corporation; and, in general, the Chairman
shall perform all duties incident to the office of chairman
of a corporation, and such other duties as, from time to
time, may be assigned by the Board of Directors or as may be
provided by law.
Section 4.3. President. In the absence of the
Chairman of the Board, the President shall preside at all
meetings of the Board of Directors and of the stockholders
at which the President shall be present. The President
shall have and may exercise such powers as are from time to
time assigned by the Board of Directors or by the Chairman
or as may be provided by law.
Section 4.4. Vice Presidents. The Vice President or
Vice Presidents shall perform such duties and exercise such
functions as may be assigned to them by the Board of
Directors or the Chairman of the Board or as may be provided
by law.
Section 4.5. Secretary or Assistant Secretary. The
Secretary, or if there be none, the Assistant Secretary,
shall record all the proceedings of the meetings of the
stockholders and directors and of any committees in a book
to be kept for that purpose; shall see that all notices are
duly given in accordance with the provisions of these By-
laws or as required by law; shall be custodian of the
records of the Corporation; shall see that the corporate
seal is affixed to all documents the execution of which, on
behalf of the Corporation, under its seal, is duly
authorized, and when so affixed may attest the same; and, in
general, shall perform all duties incident to the office of
Secretary of a Corporation, and such other duties as, from
time to time, may be assigned by the Board of Directors or
the Chairman or as may be provided by law.
Section 4.6. Treasurer. The Treasurer shall have
charge of and be responsible for all funds, securities,
receipts and disbursements of the Corporation, and shall
deposit or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such
banks, trust companies or other depositories as shall, from
time to time, be selected by or under authority of the Board
of Directors; if required by the Board of Directors, and
shall give a bond for the faithful discharge of the duties,
with such surety or sureties as the Board of Directors may
determine and shall keep or cause to be kept full and
accurate records of all receipts and disbursements in books
of the Corporation and shall render to the Chairman and to
the Board of Directors, whenever requested, an account of
the financial condition of the Corporation; and, in general,
shall perform all the duties incident to the office of
Treasurer of a Corporation, and such other duties as may be
assigned by the Board of Directors or the Chairman or as may
be provided by law.
Section 4.7. Other Officers. The Board of Directors
may from time to time appoint such other officers, agents or
employees, and may delegate to them such powers and duties
as it may deem desirable.
ARTICLE V
Stock
Section 5.1. Certificates. Every holder of stock
shall be entitled to have a certificate signed by or in the
name of the Corporation by the Chairman of the Board of
Directors, or the President or a Vice President, and by the
Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary, of the Corporation, certifying the
number of shares owned by such stockholder in the
Corporation. If such certificate is countersigned (1) by a
transfer agent other than the Corporation or its employee,
or (2) by a registrar other than the Corporation or its
employee, any other signature on the certificate may be a
facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such
officer, transfer agent, or registrar before such
certificate is issued, it may be issued by the Corporation
with the same effect as if such person were such officer,
transfer agent, or registrar at the date of issue.
Section 5.2. Lost, Stolen or Destroyed Stock
Certificates; Issuance of New Certificates. The Corporation
may issue a new certificate of stock in the place of any
certificate theretofore issued by it, alleged to have been
lost, stolen or destroyed, and the Corporation may require
the owner of the lost, stolen or destroyed certificate, or
the legal representative of such owner, to give the
Corporation a bond sufficient to indemnify it against any
claim that may be made against it on account of the alleged
loss, theft or destruction of any such certificate or the
issuance of such new certificate.
ARTICLE VI
Indemnity
Section 6.1. The officers, directors, employees and
agents of the Corporation shall have such rights to
indemnification as are provided in the Article ELEVENTH of
the Certificate of Incorporation of the Corporation.
ARTICLE VII
Miscellaneous
Section 7.1. Fiscal Year. The fiscal year of the
Corporation shall be determined by resolution of the Board
of Directors.
Section 7.2. Seal. The corporate seal shall have the
name of the Corporation inscribed thereon and shall be in
such form as may be approved from time to time by the Board
of Directors.
Section 7.3. Form of Records. Any records maintained
by the Corporation in the regular course of its business,
including its stock ledger, books of account, and minute
books, may be kept on, or be in the form of punch cards,
magnetic tape, photographs, micro-photographs, or any other
information clearly legible form within a reasonable time.
The Corporation shall so convert any records so kept upon
the request of any person entitled to inspect the same.
Section 7.4. Amendment of By-laws. Subject to the
provisions of the Certificate of Incorporation, these By-
laws may be altered, amended or repealed at any regular
meeting of the stockholders (or at any special meeting
thereof duly called for that purpose) by a majority vote of
the shares represented and entitled to vote at such meeting;
provided that in the notice of such special meeting notice
or such purpose shall be given. Subject to the laws of the
State of Delaware, the Certificate of Incorporation and
these By-laws, the Board of Directors may by majority vote
of those present at any meeting at which a quorum is present
amend these By-laws, or enact such other By-laws as in their
judgment may be advisable for the regulation of the conduct
of the affairs of the Corporation.
25
EMPLOYMENT AGREEMENT
AGREEMENT between Providian Corporation, a Delaware
corporation (the "Corporation"), and Robert S. Greer, Jr.
(the "Executive"), dated as of the 17th day of July, 1995.
The Board of Directors of the Corporation (the
"Board"), has determined that it is in the best interests of
the Corporation and its shareholders to assure that the
Corporation will have the continued dedication of the
Executive, notwithstanding the possibility, threat or
occurrence of a Change in Control (as defined below) of the
Corporation. The Board believes it is imperative to
diminish the inevitable distraction of the Executive by
virtue of the personal uncertainties and risks created by a
pending or threatened Change in Control and to encourage the
Executive's full attention and dedication to the Corporation
currently and in the event of any threatened or pending
Change in Control, and to provide the Executive with
compensation and benefits arrangements upon a Change in
Control which ensure that the compensation and benefits
expectations of the Executive will be satisfied and which
are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the
Board has caused the Corporation to enter into this
Agreement.
IT IS, THEREFORE, AGREED:
1. Certain Definitions. (a) The "Effective Date"
shall be the first date during the "Change in Control
Period" (as defined in Section 1(b)) on which a Change in
Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change in
Control occurs and if the Executive's employment with the
Corporation is terminated or the Executive ceases to be an
officer of the Corporation prior to the date on which a
Change in Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of
employment or cessation of status as an officer (i) was at
the request of a third party who has taken steps reasonably
calculated to effect the Change in Control or (ii) otherwise
arose in connection with the Change in Control, then for all
purposes of this Agreement the "Effective Date" shall mean
the date immediately prior to the date of such termination
of employment or cessation of status as an officer.
(b) The "Change in Control Period" shall mean the
period commencing on the date hereof and ending on the
second anniversary of such date; provided, however, that
commencing on the date one year after the date hereof, and
on each annual anniversary of such date (the date one year
after the date hereof and each annual anniversary of such
date, is hereinafter referred to as the "Renewal Date"), the
Change in Control Period shall be automatically extended so
as to terminate two years from such Renewal Date, unless at
least 60 days prior to the Renewal Date the Corporation
shall give notice to the Executive that the Change in
Control Period shall not be so extended.
2. Change in Control. For the purpose of this
Agreement, a "Change in Control" shall mean:
(a) Any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"))
becomes a beneficial owner (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of either
(i) the then outstanding shares of common stock of the
Corporation (the "Outstanding Corporation Common Stock") or
(ii) the combined voting power of the then outstanding
voting securities of the Corporation entitled to vote
generally in the election of directors (the "Outstanding
Corporation Voting Securities"); provided, however, that
beneficial ownership by any of the following shall not
constitute a Change in Control: (x) the Corporation or any
of its subsidiaries, (y) the employee benefit plan (or
related trust) sponsored or maintained by the Corporation or
any of its subsidiaries or (z) any corporation with respect
to which, following such acquisition, more than 60% of,
respectively, the then outstanding shares of common stock of
such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled
to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding
Corporation Common Stock and Corporation Voting Securities
immediately prior to such acquisition in substantially the
same proportions as their ownership, immediately prior to
such acquisition, of the Outstanding Corporation Common
Stock and Outstanding Corporation Voting Securities, as the
case may be; or
(b) Individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent
to the date hereof whose election, or nomination for
election by the Corporation's shareholders, was approved by
a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of either an
actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act); or
(c) A reorganization, merger or consolidation, with
respect to which, in each case, all or substantially all of
the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Corporation Common Stock
and Outstanding Corporation Voting Securities immediately
prior to such reorganization, merger or consolidation do
not, following such reorganization, merger or consolidation,
beneficially own, directly or indirectly, more than 60% of,
respectively, the then outstanding 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 Corporation Common Stock
and Outstanding Corporation Voting Securities, as the case
may be; or
(d) (i) Approval by the shareholders of the
Corporation of a complete liquidation or dissolution of the
Corporation or (ii) the sale or other disposition of all or
substantially all of the assets of the Corporation, other
than to a corporation, with respect to which following such
sale or other disposition, more than 60% of, respectively,
the then outstanding shares of common stock of such
corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled
to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding
Corporation Common Stock and Outstanding Corporation 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 Corporation Common Stock and
Outstanding Corporation Voting Securities, as the case may
be.
3. Employment Period. The Corporation hereby agrees
to continue the Executive in its employ for the period
commencing on the Effective Date and ending on the earlier
to occur of (i) the fifth anniversary of such date or (ii)
unless the Executive elects to continue employment beyond
the Executive's Normal Retirement Date, the first day of the
month coinciding with or next following the Executive's
Normal Retirement Date (the "Employment Period").
4. Terms of Employment. (a) Position of Duties.
(i) During the Employ-ment Period, (A) the Executive's
position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the
most significant of those held, exercised and assigned at
any time during the 90-day period immediately preceding the
Effective Date and (B) unless Executive otherwise agrees,
the Executive's services shall be performed at the location
where the Executive was employed immediately preceding the
Effective Date or at any office or location less than thirty-
five (35) miles from such location.
(ii) During the Employment Period, and excluding
periods of vacation and sick leave to which the Executive is
entitled, the Executive agrees to devote reasonable
attention and time during normal business hours to the
business and affairs of the Corporation and, to the extent
necessary to discharge the responsibilities assigned to the
Executive hereunder, to use reasonable efforts to perform
faithfully and efficiently such responsibilities. The
Executive may (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C)
manage personal investments, so long as such activities do
not significantly interfere with the performance of the
Executive's responsibilities. It is expressly understood
and agreed that to the extent that any such activities have
been conducted by the Executive prior to the Effective Date,
such prior conduct of activities, and any subsequent conduct
of activities similar in nature and scope shall not
thereafter be deemed to interfere with the performance of
the Executive's responsibilities to the Corporation.
(b) Compensation. (i) Base Salary. During the
Employment Period, the Executive shall receive an annual
base salary ("Annual Base Salary"), which shall be paid at a
bi-weekly rate, at least equal to twenty-six times the
highest bi-weekly base salary paid or payable to the
Executive by the Corporation, together with any of its
affiliated companies, during the twelve-month period
immediately preceding the month in which the Effective Date
occurs. During the Employment Period, the Annual Base
Salary shall be reviewed at least annually and shall be
increased at any time and from time to time as shall be
substantially consistent with increases in base salary
awarded in the ordinary course of business to other peer
executives of the Corporation and its affiliates. Any
increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this
Agreement. Annual Base Salary shall not be reduced after
any such increase and the term Annual Base Salary as
utilized in this Agreement shall refer to Annual Base Salary
as so increased. As used in this Agreement, the term
"affiliated companies" includes any company controlling,
controlled by or under common control with the Corporation.
(ii) Annual Bonus. In addition to Annual Base Salary,
the Executive shall be awarded, for each fiscal year during
the Employment Period, an annual bonus under the
Corporation's Management Incentive Plan (the "Annual Bonus")
in cash at least equal to the average annualized (for any
fiscal year consisting of less than twelve full months or
with respect to which the Executive has been employed by the
Corporation for less than twelve full months) bonus paid or
payable, including by reason of any deferral, to the
Executive by the Corporation and its affiliated companies in
respect of the three fiscal years immediately preceding the
fiscal year in which the Effective Date occurs (the "Recent
Average Bonus"). Each such Annual Bonus shall be payable in
March of the fiscal year next following the fiscal year for
which the Annual Bonus is awarded, unless the Executive
shall otherwise elect to defer the receipt of such Annual
Bonus.
(iii) Long Term Bonus. The Executive shall
participate in all long-term incentive plans generally
applicable to senior management of the Corporation and in
any other long-term plan in which the Executive is
designated by the Board to participate (the "Long Term
Bonus"). In the event of termination of Executive's
employment triggering compensation under Section 6(a) of
this Agreement prior to expiration of any performance cycle
(the "Performance Cycle") under a longer term incentive plan
amounts due Executive under Section 6(a) of this Agreement
shall be determined as follows:
(A) during the balance of the Performance Cycle(s) in
which the Executive is participating at the time of the
termination of his employment, the Company or the relevant
business unit and any similar companies used for comparison
purposes shall be deemed to have achieved the same rate of
growth or change in each of the relevant factors as achieved
in each such factor as of the end of the year in which such
termination occurs:
(B) using the assumptions and methods set forth in
clause (A) above, the amount of long-term incentive that the
Executive would have received at the end of the relevant
Performance Cycle(s) had his employment continued to the end
of such Performance Cycle(s) shall be computed; and
(C) the amount determined pursuant to clause (B) above
shall be multiplied by a fraction, the numerator of which
shall be the number of days in the relevant Performance
Cycle(s) during which the Executive was employed and the
denominator of which shall be the total number of days in
such Performance Cycle(s).
Payment to the Executive or his estate, as the case may
be, of any long-term incentive award shall be made promptly
after the determination of the amount of such award.
(iv) Incentive, Savings and Retirement Plans. During
the Employment Period, the Executive shall be entitled to
participate in all incentive, savings and retirement plans,
practices, policies and programs applicable generally to
other peer executives of the Corporation and its affiliated
companies, but in no event shall such plans, practices,
policies and programs provide the Executive with incentive
opportunities (measured with respect to both regular and
special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and
retirement benefit opportunities, in each case, less
favorable, in the aggregate, than the most favorable of
those provided by the Corporation and its affiliated
companies for the Executive under such plans, practices,
policies and programs as in effect at any time during the 90-
day period immediately preceding the Effective Date or if
more favorable to the Executive, those provided generally at
any time after the Effective Date to other peer executives
of the Corporation and its affiliated companies.
(v) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the
case may be, shall be eligible for participation in and
shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Corporation
and its affiliated companies, (including, without
limitation, medical, prescription, dental, disability,
salary continuance, employee life, group life, accidental
death and travel accident insurance plans and programs) to
the extent applicable generally to other peer executives of
the Corporation and its affiliated companies, but in no
event shall such plans, practices, policies and programs
provide the Executive with benefits which are less
favorable, in the aggregate, than the most favorable of such
plans, practices, policies and programs in effect for the
Executive at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to the
Executive, those provided generally at any time after the
Effective Date to other peer executives of the Corporation
and its affiliated companies.
(vi) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement
for all reasonable expenses incurred by the Executive in
accordance with the policies and procedures of the
Corporation and its affiliated companies in effect at any
time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in
effect at any time thereafter with respect to other peer
executives of the Corporation and its affiliated companies.
(vii) Fringe Benefits. During the Employment
Period, the Executive shall be entitled to fringe benefits
in accordance with the most favorable plans, practices,
programs and policies of the Corporation and its affiliated
companies in effect at any time during the 90-day period
immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect at any time
thereafter with respect to other peer executives of the
Corporation and its affiliated companies.
(viii) Office and Support Staff. During the
Employment Period, the Executive shall be entitled to an
office or offices of a size and with furnishings and other
appointments, and to secretarial and other assistance, at
least equal to the most favorable of the foregoing provided
to the Executive at any time during the 90-day period
immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect at any time
thereafter with respect to other peer executives of the
Corporation and its affiliated companies.
(ix) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance
with the most favorable plans, policies, programs and
practices of the Corporation and its affiliated companies as
in effect at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter
with respect to other peer executives of the Corporation and
its affiliated companies.
5. Termination. (a) Death or Disability. This
Agreement shall terminate automatically upon the Executive's
death. If the Corporation determines in good faith that the
Disability of the Executive has occurred during the
Employment Period (pursuant to the definition of
"Disability" set forth below), it may give the Executive
written notice in accordance with Section 12(b) of this
Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with
the Corporation shall terminate effective on the 30th day
after receipt of such notice (the "Disability Effective
Date"), provided that, within 30 days after such receipt,
the Executive shall fail to return to full-time performance
of the Executive's duties. For purposes of this Agreement,
"Disability" means the absence of the Executive from the
Executive's duties within the Corporation for 180
consecutive business days as a result of the incapacity due
to physical or mental illness which, after the expiration of
such 180 business days, is determined to be total and
permanent by a physician selected by the Corporation or its
insurers and acceptable to the Executive or the Executive's
legal representative (such agreement to acceptability not to
be withheld unreasonably).
(b) Cause. The Corporation may terminate the
Executive's employment for "Cause." For purposes of this
Agreement, "Cause" means (i) a willful and continuing
failure to perform substantially the Executive's obligations
under Section 4(a) of this Agreement (other than as a result
of the Executive's death or Disability); or (ii) conduct
undertaken by the Executive which is demonstrably willful
and deliberate on the Executive's part and which is intended
to result in (x) substantial personal enrichment of the
Executive at the expense of the Corporation and (y)
substantial injury to the Corporation; or (iii) commitment
by the Executive of a felony involving the Corporation.
A termination for Cause within the meaning of clause
(i) or (ii) shall not take effect unless:
(A) the Board shall have delivered a written notice to
the Executive within 30 days of its having knowledge of one
of the circumstances constituting cause within the meaning
of clause (i) or (ii), stating which one of those
circumstances has occurred;
(B) within 30 days of such notice, the Executive is
permitted to respond and defend himself before the Board;
(C) within 15 days of the date on which the Executive
is given the opportunity to respond and defend himself
before the Board, the Executive has not remedied such
circumstance; and
(D) if the Executive has not remedied such
circumstance as provided in subclause (C) above, the Board
notifies the Executive in writing that it is terminating his
employment for Cause.
(c) Good Reason. The Executive's employment may be
terminated during the Employment Period by the Executive for
Good Reason. For purposes of this Agreement, "Good Reason"
means:
(i) (A) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position
(including status, offices, titles and reporting
requirements), authority, duties or responsibilities as
contemplated by Section 4(a) of this Agreement or (B) any
other action by the Corporation which results in a
diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not occurring in bad
faith which is remedied by the Corporation promptly after
receipt of notice thereof given by the Executive;
(ii) any failure by the Corporation to comply with any
of the provisions of Section 4(b) of this Agreement,
excluding for this purpose an isolated, insubstantial and
inadvertent failure not occurring in bad faith which is
remedied by the Corporation promptly after receipt of notice
thereof given by the Executive;
(iii) unless the Executive otherwise agrees, the
Corporation's requiring the Executive to be based at any
office or location other than that at which the Executive is
based at the Effective Date or within thirty-five (35) miles
of such location, except for travel reasonably required in
the performance of the Executive's responsibilities;
(iv) any purported termination by the Corporation of
the Executive's employment otherwise than as permitted by
this Agreement; or
(v) any failure by the Corporation to comply with and
satisfy Section 11(c) of this Agreement provided that such
successor has received at least ten days prior written
notice from the Corporation or the Executive of the
requirements of Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith
determination of "Good Reason" made by the Executive shall
be conclusive.
(d) Notice of Termination. Any termination by the
Corporation for Cause or by the Executive for Good Reason
shall be communicated by Notice of Termination to the other
party hereto given in accordance with Section 12(b) of this
Agreement. For purposes of this Agreement, a "Notice of
Termination" means a written notice which (i) indicates the
specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the
date of receipt of such notice, specifies the termination
date (which date shall be not more than 15 days after the
giving of such notice). The failure by the Executive or the
Corporation to set forth in the Notice of Termination any
fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive
or the Corporation hereunder or preclude the Executive or
the Corporation from asserting such fact or circumstance in
enforcing the Executive's or the Corporation's rights
hereunder.
(e) Date of Termination. "Date of Termination" means
(i) if the Executive's employment is terminated by the
Corporation for Cause, or by the Executive for Good Reason,
the date of receipt of the Notice of Termination or any
later date specified therein, as the case may be, (ii) if
the Executive's employment is terminated by the Corporation
other than for Cause or Disability, the Date of Termination
shall be the date on which the Corporation notifies the
Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability,
the Date of Termination shall be the date of death of the
Executive or the Disability Effective Date, as the case may
be.
6. Obligations of the Corporation upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability.
If, during the Employment Period, the Corporation shall
terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for
Good Reason:
(i) the Corporation shall pay to the Executive in a
lump sum in cash within 30 days after the Date of
Termination the aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not
theretofore paid, (2) the product of (x) the Annual Bonus
and (y) a fraction, the numerator of which is the number of
days in the current fiscal year through the Date of
Termination, and the denominator of which is 365 and (3) any
compensation previously deferred by the Executive (together
with any accrued interest or earnings thereon) and any
accrued vacation pay, in each case to the extent not
theretofore paid (the sum of the amounts described in
clauses (1), (2) and (3) shall be hereinafter referred to as
the "Accrued Obligations"); and
B. the amount equal to the product of (1) two and (2)
the sum of (x) the Executive's Annual Base Salary, (y) the
Annual Bonus and (z) any Long Term Bonus earned or accrued
but not yet paid under Section 4(b)(iii); provided, however,
that such amount shall be paid in lieu of, and the Executive
hereby waives the right to receive, any other amount of
severance relating to salary or bonus continuation to be
received by the Executive upon termination of employment of
the Executive under any severance plan, policy or
arrangement of the Corporation; and
C. a separate lump-sum supplemental retirement
benefit equal to the difference between (1) the actuarial
equivalent (utilizing for this purpose the actuarial
assumptions utilized with respect to the Corporation's
Retirement Plan (or any successor plan thereto) (the
"Retirement Plan") during the 90-day period immediately
preceding the Effective Date) of the benefit payable under
the Retirement Plan and any supplemental and/or excess
retirement plan providing benefits for the Executive (the
"SERP") which the Executive would receive if the Executive's
employment continued at the compensation level provided for
in Sections 4(b)(i) and 4(b)(ii) of this Agreement for the
remainder of the Employment Period, assuming for this
purpose that all accrued benefits are fully vested and that
benefit accrual formulas are no less advantageous to the
Executive than those in effect during the 90-day period
immediately preceding the Effective Date, and (2) the
actuarial equivalent (utilizing for this purpose the
actuarial assumptions utilized with respect to the
Retirement Plan during the 90-day period immediately
preceding the Effective Date) of the Executive's actual
benefit (paid or payable), if any, under the Retirement Plan
and the SERP;
(ii) for the remainder of the Employment Period, or
such longer period as any plan, program, practice or policy
may provide, the Corporation shall continue benefits to the
Executive and/or the Executive's family at least equal to
those which would have been provided to them in accordance
with the plans, programs, practices and policies described
in Section 4(b)(iv) of this Agreement if the Executive's
employment had not been terminated in accordance with the
most favorable plans, practices, programs or policies of the
Corporation and its affiliated companies applicable
generally to other peer executives and their families during
the 90-day period immediately preceding the Effective Date
or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer
executives of the Corporation and its affiliated companies
and their families, provided, however, that if the Executive
becomes reemployed with another employer and is eligible to
receive medical or other welfare benefits under another
employer provided plan, the medical and other welfare
benefits described herein shall be secondary to those
provided under such other plan during such applicable period
of eligibility. For purposes of determining eligibility of
the Executive for retiree benefits pursuant to such plans,
practices, programs and policies, the Executive shall be
considered to have remained employed until the end of the
Employment Period and to have retired on the last day of
such period; and
(iii) to the extent not theretofore paid or
provided, the Corporation shall timely pay or provide to the
Executive any other amounts or benefits required to be paid
or provided or which the Executive is eligible to receive
pursuant to this Agreement under any plan, program, policy
or practice or contract or agreement of the Corporation and
its affiliated companies (such other amounts and benefits
shall be hereinafter referred to as the "Other Benefits"),
but excluding solely purposes of this Section 6(a)(iii)
amounts waived by the Executive pursuant to the proviso of
Section 6(a)(i)(B).
(b) Death. If the Executive's employment is
terminated by reason of the Executive's death, this
Agreement shall terminate without further obligations to the
Executive's legal representatives under this Agreement other
than for payment of the Accrued Obligations and the timely
payment or provision of Other Benefits. All Accrued
Obligations shall be paid to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30
days of the Date of Termination. Anything in this Agreement
to the contrary notwithstanding, the Executive's family
shall be entitled to receive benefits at least equal to the
most favorable benefits provided by the Corporation and any
of its affiliated companies to surviving families of peer
executives of the Corporation and such affiliated companies
under such plans, programs, practices and policies relating
to family death benefits, if any, as in effect at any time
during the 90-day period immediately preceding the Effective
Date or, if more favorable to the Executive and/or the
Executive's family, as in effect at any time on the date of
Executive's death with respect to other peer executives of
the Corporation and its affiliated companies and their
families.
(c) Disability. If the Executive's employment is
terminated by reason of the Executive's Disability during
the Employment Period, this Agreement shall terminate
without further obligations to the Executive, other than for
payment of Accrued Obligations and the timely payment or
provision of Other Benefits. All Accrued Obligations shall
be paid to the Executive in a lump sum in cash within 30
days of the Date of Termination. With respect to the
provision of Other Benefits, the term Other Benefits as
utilized in this Section 6(c) shall include, and the
Executive shall be entitled after the Disability Effective
Date to receive, disability and other benefits at least
equal to the most favorable of those generally provided by
the Corporation and its affiliated companies to disabled
executives and/or their families in accordance with such
plans, programs, practices and policies relating to
disability, if any, as in effect generally with respect to
other peer executives and their families at any time during
the 90-day period immediately preceding the Effective Date
or, if more favorable to the Executive and/or the
Executive's family, as in effect at any time thereafter
generally with respect to other peer executives of the
Corporation and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the
Executive's employment shall be terminated for Cause during
the Employment Period, this Agreement shall terminate
without further obligations other than the obligation to pay
to the Executive Annual Base Salary through the Date of
Termination plus the amount of any compensation previously
deferred by the Executive, in each case to the extent
theretofore not paid. If the Executive terminates
employment during the Employment Period, excluding a
termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for
Accrued Obligations and the timely payment or provision of
Other Benefits. In such case, all Accrued Obligations shall
be paid to the Executive in a lump sum in cash within 30
days of the Date of Termination.
7. Non-exclusivity of Rights. Except as otherwise
provided in Sections 6(a)(i)(B), 6(a)(ii) and 6(a)(iii) of
this Agreement, nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in
any benefit, bonus, incentive or other plan or program
provided by the Corporation or any of its affiliated
companies and for which the Executive may qualify, nor shall
anything herein limit or otherwise affect such rights as the
Executive may have under any stock option or other
agreements with the Corporation or any of its affiliated
companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan or
program of the Corporation or any of its affiliated
companies at or subsequent to the Date of Termination shall
be payable in accordance with such plan or program.
8. Full Settlement. The Corporation's obligation to
make the payments provided for in this Agreement and
otherwise to perform its obligations hereunder shall not be
affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense
or other right which the Corporation may have against the
Executive or others. In no event shall the Executive be
obligated to seek other employment by way of mitigation of
the amounts payable to the Executive under any of the
provisions of this Agreement, and, except as provided in
Section 6(a)(ii) of this Agreement, such amounts shall not
be reduced whether or not the Executive obtains other
employment. The Corporation agrees to pay, to the full
extent permitted by law, all legal fees and expenses which
the Executive may reasonably incur as a result of any
contest (regardless of the outcome thereof) by the
Corporation or others of the validity or enforceability of,
or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of
any contest by the Executive about the amount of any payment
pursuant to this Agreement), plus in each case interest, on
any delayed payment at the applicable Federal rate provided
for in Section 7872(f)(2)(A) of the Internal Revenue Code of
1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that
any payment or distribution by the Company to or for the
benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any
additional payments required under this Section 9) (a
"Payment") would be subject to the excise tax imposed by
Section 4999 of the code or any interest or penalties are
incurred by the Executive with respect to such excise tax
(such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to
such taxes), including, without limitation, any income taxes
(and any interest and penalties imposed with respect
thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9,
including whether and when a Gross-Up Payment is required
and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be
made by a nationally recognized accounting firm (the
"Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15
business days of the receipt of notice from the Executive
that there has been a Payment, or such earlier time as is
requested by the Company. The Accounting Firm shall be
jointly selected by the Company and the Executive and shall
not, during the two years preceding the date of its
selection, have acted in any way on behalf of the Company.
If the Company and the Executive cannot agree on the firm to
serve as the Accounting Firm, then the Company and the
Executive shall each select a nationally recognized
accounting firm and those two firms shall jointly select a
nationally recognized accounting firm to serve as the
Accounting Firm. All fees and expenses of the Accounting
Firm shall be borne solely by the Company. Any Gross-Up
Payment, as determined pursuant to this Section 9, shall be
paid by the Company to the Executive within five days of the
receipt of the Accounting Firm's determination. If the
Accounting Firm determines that no Excise Tax is payable by
the Executive, it shall furnish the Executive with a written
opinion that failure to report the Excise Tax on the
Executive's applicable federal income tax return would not
result in the imposition of a negligence or similar penalty.
Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the
uncertainty in the application of Section 4999 of the Code
at the time of the initial determination by the Accounting
Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required
to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 9(c) and the
Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for
the benefit of the Executive.
(c) The Executive shall notify the company in writing
of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of a
Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall
apprise the Company of the nature of such claim and the date
on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the 30-
day period following the date on which he or she gives such
notice to the Company (or such shorter period ending on the
date that any payment of taxes with respect to such claim is
due). If the Company notifies the Executive in writing
prior to the expiration of such period that it desires to
contest such claim, the Executive shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in
writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional
interest and penalties) incurred in connection with such
contest and shall indemnify and hold the Executive harmless,
on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto)
imposed as a result of such representation and payment of
costs and expenses. Without limitation on the foregoing
provisions of this Section 9(c), the Company shall control
all proceedings taken in connection with such contest and,
at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such
claim and may, at its sole option, either direct the
Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court
of initial jurisdiction and in one or more appellate courts,
as the Company shall determine; provided, however, that if
the Company directs the Executive to pay such claim and sue
for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and
shall indemnify and hold the Executive harmless, on an after-
tax basis, from any Excise Tax or income tax (including
interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed
income with respect to such advance; and further provided
the Executive shall not be required by the Company to agree
to any extension of the statute of limitations relating to
the payment of taxes for the taxable year of the Executive
with respect to which such contested amount is claimed to be
due unless such extension is limited solely to such
contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the
case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 9(c), the
Executive becomes entitled to receive any refund with
respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 9(c))
promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to
Section 9(c), a determination is made that the Executive
shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior
to the expiration of 30 days after such determination, then
such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to
the extent thereof, the amount of Gross-Up Payment required
to be paid.
(e) If, pursuant to regulations issued under Section
280G or 4999 of the Code, the Company and the Executive were
required to make a preliminary determination of the amount
of an excess parachute payment (as contemplated by Q/A of
the proposed regulations under Section 280G of the Code as
issued on May 4, 1989) and thereafter a redetermination of
the Excise Tax is required under the applicable regulations,
the parties shall request the Accounting Firm to make such
redetermination. If as a result of such redetermination an
additional Gross-Up Payment is required, the amount thereof
shall be paid by the Company to the Executive within five
days of the receipt of the Accounting Firm's determination.
If the redetermination of the Excise Tax results in a
reduction of the Excise Tax, the Executive shall take such
steps as the Company may reasonably direct in order to
obtain a refund of the excess Excise Tax paid. If the
Company determines that any suit or proceeding is necessary
or advisable in order to obtain such refund, the provisions
of Section 9(c) relating to the contesting of a claim shall
apply to the claim for such refund, including, without
limitation, the provisions concerning legal representation,
cooperation by the Executive, participation by the Company
in the proceedings and indemnification by the Company. Upon
receipt of any such refund, the Executive shall promptly pay
the amount of such refund to the Company. If the amount of
the income taxes otherwise payable by the Executive in
respect of the year in which the Executive makes such
payment to the Company is reduced as a result of such
payment, the Executive shall, no later than the filing of
his income tax return in respect of such year, pay the
amount of such tax benefit to the Company. In the event
there is a subsequent redetermination of the Executive's
income taxes resulting in a reduction of such tax benefit,
the Company shall, promptly after receipt of notice of such
reduction, pay to the Executive the amount of such
reduction. If the Company objects to the calculation or
recalculation of the tax benefit, as described in the
preceding two sentences, the Accounting Firm shall make the
final determination of the appropriate amount. The
Executive shall not be obligated to pay to the Company the
amount of any further tax benefits that may be realized by
him or her as a result of paying to the Company the amount
of the initial tax benefit.
10. Confidential Information. (a) The Executive shall
not, without the prior written consent of the Corporation,
divulge, disclose or make accessible to any other person,
firm, partnership or corporation or other entity any
Confidential Information (as defined in Section 10(b) below)
pertaining to the business of the Corporation except (i)
while employed by the Corporation in the business of and for
the benefit of the Corporation or (ii) when required to do
so by a court of competent jurisdiction, by any governmental
agency having supervisory authority over the business of the
Corporation, or by any administrative body or legislative
body (including a committee thereof) with purported or
apparent jurisdiction to order the Executive to divulge,
disclose or make accessible such information.
(b) For the purposes of this Agreement, Confidential
Information shall mean all nonpublic information concerning
the Corporation's business including its products, customer
lists, financial information and marketing plans and
strategies. Confidential Information does not include the
information that is, or becomes, available to the public,
unless such availability occurs through a breach by the
Executive of the provisions of this Section.
(c) In no event shall an asserted violation of the
provisions of this Section 10 constitute a basis for
deferring or withholding any amounts otherwise payable to
the Executive under this Agreement.
11. Successors. (a) This Agreement is personal to
the Executive and without the prior written consent of the
Corporation shall not be assignable by the Executive
otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of
and be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and
be binding upon the Corporation and its successors.
(c) In the event of a Change in Control of the
Corporation, (i) any parent company or Successor shall, in
the case of a successor, by an agreement in form and
substance satisfactory to the Executive, expressly assume
and agree to perform this Agreement and, in the case of a
parent company, by an agreement in form and substance
satisfactory to the Executive, guarantee and agree to cause
the performance of this Agreement, in each case, in the same
manner and to the same extent as the Corporation would be
required to perform if no Change in Control had taken place.
12. Miscellaneous. (a) This Agreement shall be
governed by and construed in accordance with the laws of the
Commonwealth of Kentucky, without reference to principles of
conflict of laws. The captions of this Agreement are not
part of the provisions hereof and shall have no force or
effect. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder
shall be in writing and shall be given by hand delivery to
the other party or by registered or certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Executive: Robert S. Greer, Jr.
Providian Corporation
Post Office Box 32830
Louisville, Kentucky 40232
If to the Corporation: Providian Corporation
400 West Market Street
Post Office Box 32830
Louisville, Kentucky 40232
Attention: V. P. Human Resources
or to such other address as either party shall have
furnished to the other in writing in accordance herewith.
Notice and communications shall be effective when actually
received by the addressee.
(c) The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement.
(d) The Corporation may withhold from any amounts
payable under this Agreement such Federal, state or local
taxes as shall be required to be withheld pursuant to any
applicable law or regulation.
(e) The Executive's failure to insist upon strict
compliance with any provision of this Agreement shall not be
deemed to be a waiver of such provision or any other
provisions hereof.
(f) All references to sections of the Code shall be
deemed to refer to corresponding sections of any successor
federal income tax statute.
(g) This Agreement contains the entire understanding
of the Corporation and the Executive with respect to the
subject matter hereof and supersedes all prior agreements,
representations and understandings of the parties with
respect to the subject matter hereof. It is further
specifically agreed that Executive shall not otherwise be
entitled to any compensation or benefits under the terms of
the Corporation's Change in Control Policy.
(h) The Executive and the Corporation acknowledge that
the employment of the Executive by the Corporation is
currently "at will", and, prior to the Effective Date, may
be terminated by either the Executive or the Corporation at
any time. This Agreement shall terminate and there shall be
no further rights or liabilities hereunder upon a
termination of Executive's employment prior to the Effective
Date.
IN WITNESS WHEREOF, the Executive has hereunto set his
hand and, pursuant to the authorization from its Board of
Directors, the Corporation has caused these presents to be
executed in its name on its behalf, all as of the date and
year first above written.
PROVIDIAN CORPORATION
/s/ Irving W. Bailey, II
Irving W. Bailey, II
Chairman and Chief Executive
Officer
/s/ Robert S. Greer, Jr.
Robert S. Greer, Jr.
24
EMPLOYMENT AGREEMENT
AGREEMENT between Providian Corporation, a Delaware
corporation (the "Corporation"), and Julie A. Montanari (the
"Executive"), dated as of the 15th day of February, 1995.
The Board of Directors of the Corporation (the "Board"),
has determined that it is in the best interests of the
Corporation and its shareholders to assure that the
Corporation will have the continued dedication of the
Executive, notwithstanding the possibility, threat or
occurrence of a Change in Control (as defined below) of the
Corporation. The Board believes it is imperative to diminish
the inevitable distraction of the Executive by virtue of the
personal uncertainties and risks created by a pending or
threatened Change in Control and to encourage the Executive's
full attention and dedication to the Corporation currently and
in the event of any threatened or pending Change in Control,
and to provide the Executive with compensation and benefits
arrangements upon a Change in Control which ensure that the
compensation and benefits expectations of the Executive will
be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these
objectives, the Board has caused the Corporation to enter into
this Agreement.
IT IS, THEREFORE, AGREED:
1. Certain Definitions. (a) The "Effective Date" shall
be the first date during the "Change in Control Period" (as
defined in Section 1(b)) on which a Change in Control (as
defined in Section 2) occurs. Anything in this Agreement to
the contrary notwithstanding, if a Change in Control occurs
and if the Executive's employment with the Corporation is
terminated or the Executive ceases to be an officer of the
Corporation prior to the date on which a Change in Control
occurs, and if it is reasonably demonstrated by the Executive
that such termination of employment or cessation of status as
an officer (i) was at the request of a third party who has
taken steps reasonably calculated to effect the Change in
Control or (ii) otherwise arose in connection with the Change
in Control, then for all purposes of this Agreement the
"Effective Date" shall mean the date immediately prior to the
date of such termination of employment or cessation of status
as an officer.
(b) The "Change in Control Period" shall mean the period
commencing on the date hereof and ending on the second
anniversary of such date; provided, however, that commencing
on the date one year after the date hereof, and on each annual
anniversary of such date (the date one year after the date
hereof and each annual anniversary of such date, is
hereinafter referred to as the "Renewal Date"), the Change in
Control Period shall be automatically extended so as to
terminate two years from such Renewal Date, unless at least 60
days prior to the Renewal Date the Corporation shall give
notice to the Executive that the Change in Control Period
shall not be so extended.
2. Change in Control. For the purpose of this
Agreement, a "Change in Control" shall mean:
(a) Any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) becomes a beneficial
owner (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (i) the then
outstanding shares of common stock of the Corporation (the
"Outstanding Corporation Common Stock") or (ii) the combined
voting power of the then outstanding voting securities of the
Corporation entitled to vote generally in the election of
directors (the "Outstanding Corporation Voting Securities");
provided, however, that beneficial ownership by any of the
following shall not constitute a Change in Control: (x) the
Corporation or any of its subsidiaries, (y) the employee
benefit plan (or related trust) sponsored or maintained by the
Corporation or any of its subsidiaries or (z) any corporation
with respect to which, following such acquisition, more than
60% of, respectively, the then outstanding shares of common
stock of such corporation and the combined voting power of the
then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding
Corporation Common Stock and Corporation Voting Securities
immediately prior to such acquisition in substantially the
same proportions as their ownership, immediately prior to such
acquisition, of the Outstanding Corporation Common Stock and
Outstanding Corporation Voting Securities, as the case may be;
or
(b) Individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by
the Corporation's shareholders, was approved by a vote of at
least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual
were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened
election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act); or
(c) A reorganization, merger or consolidation, with
respect to which, in each case, all or substantially all of
the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Corporation Common Stock and
Outstanding Corporation Voting Securities immediately prior to
such reorganization, merger or consolidation do not, following
such reorganization, merger or consolidation, beneficially
own, directly or indirectly, more than 60% of, respectively,
the then outstanding 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
Corporation Common Stock and Outstanding Corporation Voting
Securities, as the case may be; or
(d) (i) Approval by the shareholders of the Corporation
of a complete liquidation or dissolution of the Corporation or
(ii) the sale or other disposition of all or substantially all
of the assets of the Corporation, other than to a corporation,
with respect to which following such sale or other
disposition, more than 60% of, respectively, the then
outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of
the Outstanding Corporation Common Stock and Outstanding
Corporation 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 Corporation Common Stock and
Outstanding Corporation Voting Securities, as the case may be.
3. Employment Period. The Corporation hereby agrees to
continue the Executive in its employ for the period commencing
on the Effective Date and ending on the earlier to occur of
(i) the fifth anniversary of such date or (ii) unless the
Executive elects to continue employment beyond the Executive's
Normal Retirement Date, the first day of the month coinciding
with or next following the Executive's Normal Retirement Date
(the "Employment Period").
4. Terms of Employment. (a) Position of Duties.
(i) During the Employ-ment Period, (A) the Executive's
position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be
at least commensurate in all material respects with the most
significant of those held, exercised and assigned at any time
during the 90-day period immediately preceding the Effective
Date and (B) unless Executive otherwise agrees, the
Executive's services shall be performed at the location where
the Executive was employed immediately preceding the Effective
Date or at any office or location less than thirty-five (35)
miles from such location.
(ii) During the Employment Period, and excluding periods
of vacation and sick leave to which the Executive is entitled,
the Executive agrees to devote reasonable attention and time
during normal business hours to the business and affairs of
the Corporation and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use
reasonable efforts to perform faithfully and efficiently such
responsibilities. The Executive may (A) serve on corporate,
civic or charitable boards or committees, (B) deliver
lectures, fulfill speaking engagements or teach at educational
institutions and (C) manage personal investments, so long as
such activities do not significantly interfere with the
performance of the Executive's responsibilities. It is
expressly understood and agreed that to the extent that any
such activities have been conducted by the Executive prior to
the Effective Date, such prior conduct of activities, and any
subsequent conduct of activities similar in nature and scope
shall not thereafter be deemed to interfere with the
performance of the Executive's responsibilities to the
Corporation.
(b) Compensation. (i) Base Salary. During the
Employment Period, the Executive shall receive an annual base
salary ("Annual Base Salary"), which shall be paid at a bi-
weekly rate, at least equal to twenty-six times the highest bi-
weekly base salary paid or payable to the Executive by the
Corporation, together with any of its affiliated companies,
during the twelve-month period immediately preceding the month
in which the Effective Date occurs. During the Employment
Period, the Annual Base Salary shall be reviewed at least
annually and shall be increased at any time and from time to
time as shall be substantially consistent with increases in
base salary awarded in the ordinary course of business to
other peer executives of the Corporation and its affiliates.
Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this
Agreement. Annual Base Salary shall not be reduced after any
such increase and the term Annual Base Salary as utilized in
this Agreement shall refer to Annual Base Salary as so
increased. As used in this Agreement, the term "affiliated
companies" includes any company controlling, controlled by or
under common control with the Corporation.
(ii) Annual Bonus. In addition to Annual Base Salary,
the Executive shall be awarded, for each fiscal year during
the Employment Period, an annual bonus under the Corporation's
Management Incentive Plan (the "Annual Bonus") in cash at
least equal to the average annualized (for any fiscal year
consisting of less than twelve full months or with respect to
which the Executive has been employed by the Corporation for
less than twelve full months) bonus paid or payable, including
by reason of any deferral, to the Executive by the Corporation
and its affiliated companies in respect of the three fiscal
years immediately preceding the fiscal year in which the
Effective Date occurs (the "Recent Average Bonus"). Each such
Annual Bonus shall be payable in March of the fiscal year next
following the fiscal year for which the Annual Bonus is
awarded, unless the Executive shall otherwise elect to defer
the receipt of such Annual Bonus.
(iii) Long Term Bonus. The Executive shall
participate in all long-term incentive plans generally
applicable to senior management of the Corporation and in any
other long-term plan in which the Executive is designated by
the Board to participate (the "Long Term Bonus"). In the
event of termination of Executive's employment triggering
compensation under Section 6(a) of this Agreement prior to
expiration of any performance cycle (the "Performance Cycle")
under a longer term incentive plan amounts due Executive under
Section 6(a) of this Agreement shall be determined as follows:
(A) during the balance of the Performance Cycle(s) in
which the Executive is participating at the time of the
termination of his employment, the Company or the relevant
business unit and any similar companies used for comparison
purposes shall be deemed to have achieved the same rate of
growth or change in each of the relevant factors as achieved
in each such factor as of the end of the year in which such
termination occurs:
(B) using the assumptions and methods set forth in
clause (A) above, the amount of long-term incentive that the
Executive would have received at the end of the relevant
Performance Cycle(s) had his employment continued to the end
of such Performance Cycle(s) shall be computed; and
(C) the amount determined pursuant to clause (B) above
shall be multiplied by a fraction, the numerator of which
shall be the number of days in the relevant Performance
Cycle(s) during which the Executive was employed and the
denominator of which shall be the total number of days in such
Performance Cycle(s).
Payment to the Executive or his estate, as the case may
be, of any long-term incentive award shall be made promptly
after the determination of the amount of such award.
(iv) Incentive, Savings and Retirement Plans. During the
Employment Period, the Executive shall be entitled to
participate in all incentive, savings and retirement plans,
practices, policies and programs applicable generally to other
peer executives of the Corporation and its affiliated
companies, but in no event shall such plans, practices,
policies and programs provide the Executive with incentive
opportunities (measured with respect to both regular and
special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and
retirement benefit opportunities, in each case, less
favorable, in the aggregate, than the most favorable of those
provided by the Corporation and its affiliated companies for
the Executive under such plans, practices, policies and
programs as in effect at any time during the 90-day period
immediately preceding the Effective Date or if more favorable
to the Executive, those provided generally at any time after
the Effective Date to other peer executives of the Corporation
and its affiliated companies.
(v) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the
case may be, shall be eligible for participation in and shall
receive all benefits under welfare benefit plans, practices,
policies and programs provided by the Corporation and its
affiliated companies, (including, without limitation, medical,
prescription, dental, disability, salary continuance, employee
life, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable
generally to other peer executives of the Corporation and its
affiliated companies, but in no event shall such plans,
practices, policies and programs provide the Executive with
benefits which are less favorable, in the aggregate, than the
most favorable of such plans, practices, policies and programs
in effect for the Executive at any time during the 90-day
period immediately preceding the Effective Date or, if more
favorable to the Executive, those provided generally at any
time after the Effective Date to other peer executives of the
Corporation and its affiliated companies.
(vi) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement
for all reasonable expenses incurred by the Executive in
accordance with the policies and procedures of the Corporation
and its affiliated companies in effect at any time during the
90-day period immediately preceding the Effective Date or, if
more favorable to the Executive, as in effect at any time
thereafter with respect to other peer executives of the
Corporation and its affiliated companies.
(vii) Fringe Benefits. During the Employment Period,
the Executive shall be entitled to fringe benefits in
accordance with the most favorable plans, practices, programs
and policies of the Corporation and its affiliated companies
in effect at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to the
Executive, as in effect at any time thereafter with respect to
other peer executives of the Corporation and its affiliated
companies.
(viii) Office and Support Staff. During the
Employment Period, the Executive shall be entitled to an
office or offices of a size and with furnishings and other
appointments, and to secretarial and other assistance, at
least equal to the most favorable of the foregoing provided to
the Executive at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to the
Executive, as in effect at any time thereafter with respect to
other peer executives of the Corporation and its affiliated
companies.
(ix) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance
with the most favorable plans, policies, programs and
practices of the Corporation and its affiliated companies as
in effect at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Corporation and its
affiliated companies.
5. Termination. (a) Death or Disability. This
Agreement shall terminate automatically upon the Executive's
death. If the Corporation determines in good faith that the
Disability of the Executive has occurred during the Employment
Period (pursuant to the definition of "Disability" set forth
below), it may give the Executive written notice in accordance
with Section 12(b) of this Agreement of its intention to
terminate the Executive's employment. In such event, the
Executive's employment with the Corporation shall terminate
effective on the 30th day after receipt of such notice (the
"Disability Effective Date"), provided that, within 30 days
after such receipt, the Executive shall fail to return to full-
time performance of the Executive's duties. For purposes of
this Agreement, "Disability" means the absence of the
Executive from the Executive's duties within the Corporation
for 180 consecutive business days as a result of the
incapacity due to physical or mental illness which, after the
expiration of such 180 business days, is determined to be
total and permanent by a physician selected by the Corporation
or its insurers and acceptable to the Executive or the
Executive's legal representative (such agreement to
acceptability not to be withheld unreasonably).
(b) Cause. The Corporation may terminate the
Executive's employment for "Cause." For purposes of this
Agreement, "Cause" means (i) a willful and continuing failure
to perform substantially the Executive's obligations under
Section 4(a) of this Agreement (other than as a result of the
Executive's death or Disability); or (ii) conduct undertaken
by the Executive which is demonstrably willful and deliberate
on the Executive's part and which is intended to result in (x)
substantial personal enrichment of the Executive at the
expense of the Corporation and (y) substantial injury to the
Corporation; or (iii) commitment by the Executive of a felony
involving the Corporation.
A termination for Cause within the meaning of clause (i)
or (ii) shall not take effect unless:
(A) the Board shall have delivered a written notice to
the Executive within 30 days of its having knowledge of one of
the circumstances constituting cause within the meaning of
clause (i) or (ii), stating which one of those circumstances
has occurred;
(B) within 30 days of such notice, the Executive is
permitted to respond and defend himself before the Board;
(C) within 15 days of the date on which the Executive is
given the opportunity to respond and defend himself before the
Board, the Executive has not remedied such circumstance; and
(D) if the Executive has not remedied such circumstance
as provided in subclause (C) above, the Board notifies the
Executive in writing that it is terminating his employment for
Cause.
(c) Good Reason. The Executive's employment may be
terminated during the Employment Period by the Executive for
Good Reason. For purposes of this Agreement, "Good Reason"
means:
(i) (A) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position
(including status, offices, titles and reporting
requirements), authority, duties or responsibilities as
contemplated by Section 4(a) of this Agreement or (B) any
other action by the Corporation which results in a diminution
in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and
inadvertent action not occurring in bad faith which is
remedied by the Corporation promptly after receipt of notice
thereof given by the Executive;
(ii) any failure by the Corporation to comply with any of
the provisions of Section 4(b) of this Agreement, excluding
for this purpose an isolated, insubstantial and inadvertent
failure not occurring in bad faith which is remedied by the
Corporation promptly after receipt of notice thereof given by
the Executive;
(iii) unless the Executive otherwise agrees, the
Corporation's requiring the Executive to be based at any
office or location other than that at which the Executive is
based at the Effective Date or within thirty-five (35) miles
of such location, except for travel reasonably required in the
performance of the Executive's responsibilities;
(iv) any purported termination by the Corporation of the
Executive's employment otherwise than as permitted by this
Agreement; or
(v) any failure by the Corporation to comply with and
satisfy Section 11(c) of this Agreement provided that such
successor has received at least ten days prior written notice
from the Corporation or the Executive of the requirements of
Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith
determination of "Good Reason" made by the Executive shall be
conclusive.
(d) Notice of Termination. Any termination by the
Corporation for Cause or by the Executive for Good Reason
shall be communicated by Notice of Termination to the other
party hereto given in accordance with Section 12(b) of this
Agreement. For purposes of this Agreement, a "Notice of
Termination" means a written notice which (i) indicates the
specific termination provision in this Agreement relied upon,
(ii) to the extent applicable, sets forth in reasonable detail
the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision
so indicated and (iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice,
specifies the termination date (which date shall be not more
than 15 days after the giving of such notice). The failure by
the Executive or the Corporation to set forth in the Notice of
Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of
the Executive or the Corporation hereunder or preclude the
Executive or the Corporation from asserting such fact or
circumstance in enforcing the Executive's or the Corporation's
rights hereunder.
(e) Date of Termination. "Date of Termination" means
(i) if the Executive's employment is terminated by the
Corporation for Cause, or by the Executive for Good Reason,
the date of receipt of the Notice of Termination or any later
date specified therein, as the case may be, (ii) if the
Executive's employment is terminated by the Corporation other
than for Cause or Disability, the Date of Termination shall be
the date on which the Corporation notifies the Executive of
such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the
Disability Effective Date, as the case may be.
6. Obligations of the Corporation upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability.
If, during the Employment Period, the Corporation shall
terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for
Good Reason:
(i) the Corporation shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the
aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore
paid, (2) the product of (x) the Annual Bonus and (y) a
fraction, the numerator of which is the number of days in the
current fiscal year through the Date of Termination, and the
denominator of which is 365 and (3) any compensation
previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued vacation
pay, in each case to the extent not theretofore paid (the sum
of the amounts described in clauses (1), (2) and (3) shall be
hereinafter referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) two and (2)
the sum of (x) the Executive's Annual Base Salary, (y) the
Annual Bonus and (z) any Long Term Bonus earned or accrued but
not yet paid under Section 4(b)(iii); provided, however, that
such amount shall be paid in lieu of, and the Executive hereby
waives the right to receive, any other amount of severance
relating to salary or bonus continuation to be received by the
Executive upon termination of employment of the Executive
under any severance plan, policy or arrangement of the
Corporation; and
C. a separate lump-sum supplemental retirement benefit
equal to the difference between (1) the actuarial equivalent
(utilizing for this purpose the actuarial assumptions utilized
with respect to the Corporation's Retirement Plan (or any
successor plan thereto) (the "Retirement Plan") during the 90-
day period immediately preceding the Effective Date) of the
benefit payable under the Retirement Plan and any supplemental
and/or excess retirement plan providing benefits for the
Executive (the "SERP") which the Executive would receive if
the Executive's employment continued at the compensation level
provided for in Sections 4(b)(i) and 4(b)(ii) of this
Agreement for the remainder of the Employment Period, assuming
for this purpose that all accrued benefits are fully vested
and that benefit accrual formulas are no less advantageous to
the Executive than those in effect during the 90-day period
immediately preceding the Effective Date, and (2) the
actuarial equivalent (utilizing for this purpose the actuarial
assumptions utilized with respect to the Retirement Plan
during the 90-day period immediately preceding the Effective
Date) of the Executive's actual benefit (paid or payable), if
any, under the Retirement Plan and the SERP;
(ii) for the remainder of the Employment Period, or such
longer period as any plan, program, practice or policy may
provide, the Corporation shall continue benefits to the
Executive and/or the Executive's family at least equal to
those which would have been provided to them in accordance
with the plans, programs, practices and policies described in
Section 4(b)(iv) of this Agreement if the Executive's
employment had not been terminated in accordance with the most
favorable plans, practices, programs or policies of the
Corporation and its affiliated companies applicable generally
to other peer executives and their families during the 90-day
period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the
Corporation and its affiliated companies and their families,
provided, however, that if the Executive becomes reemployed
with another employer and is eligible to receive medical or
other welfare benefits under another employer provided plan,
the medical and other welfare benefits described herein shall
be secondary to those provided under such other plan during
such applicable period of eligibility. For purposes of
determining eligibility of the Executive for retiree benefits
pursuant to such plans, practices, programs and policies, the
Executive shall be considered to have remained employed until
the end of the Employment Period and to have retired on the
last day of such period; and
(iii) to the extent not theretofore paid or provided,
the Corporation shall timely pay or provide to the Executive
any other amounts or benefits required to be paid or provided
or which the Executive is eligible to receive pursuant to this
Agreement under any plan, program, policy or practice or
contract or agreement of the Corporation and its affiliated
companies (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits"), but
excluding solely purposes of this Section 6(a)(iii) amounts
waived by the Executive pursuant to the proviso of Section
6(a)(i)(B).
(b) Death. If the Executive's employment is terminated
by reason of the Executive's death, this Agreement shall
terminate without further obligations to the Executive's legal
representatives under this Agreement other than for payment of
the Accrued Obligations and the timely payment or provision of
Other Benefits. All Accrued Obligations shall be paid to the
Executive's estate or beneficiary, as applicable, in a lump
sum in cash within 30 days of the Date of Termination.
Anything in this Agreement to the contrary notwithstanding,
the Executive's family shall be entitled to receive benefits
at least equal to the most favorable benefits provided by the
Corporation and any of its affiliated companies to surviving
families of peer executives of the Corporation and such
affiliated companies under such plans, programs, practices and
policies relating to family death benefits, if any, as in
effect at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to the
Executive and/or the Executive's family, as in effect at any
time on the date of Executive's death with respect to other
peer executives of the Corporation and its affiliated
companies and their families.
(c) Disability. If the Executive's employment is
terminated by reason of the Executive's Disability during the
Employment Period, this Agreement shall terminate without
further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of
Other Benefits. All Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of
Termination. With respect to the provision of Other Benefits,
the term Other Benefits as utilized in this Section 6(c) shall
include, and the Executive shall be entitled after the
Disability Effective Date to receive, disability and other
benefits at least equal to the most favorable of those
generally provided by the Corporation and its affiliated
companies to disabled executives and/or their families in
accordance with such plans, programs, practices and policies
relating to disability, if any, as in effect generally with
respect to other peer executives and their families at any
time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive and/or
the Executive's family, as in effect at any time thereafter
generally with respect to other peer executives of the
Corporation and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the
Executive's employment shall be terminated for Cause during
the Employment Period, this Agreement shall terminate without
further obligations other than the obligation to pay to the
Executive Annual Base Salary through the Date of Termination
plus the amount of any compensation previously deferred by the
Executive, in each case to the extent theretofore not paid.
If the Executive terminates employment during the Employment
Period, excluding a termination for Good Reason, this
Agreement shall terminate without further obligations to the
Executive, other than for Accrued Obligations and the timely
payment or provision of Other Benefits. In such case, all
Accrued Obligations shall be paid to the Executive in a lump
sum in cash within 30 days of the Date of Termination.
7. Non-exclusivity of Rights. Except as otherwise
provided in Sections 6(a)(i)(B), 6(a)(ii) and 6(a)(iii) of
this Agreement, nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in
any benefit, bonus, incentive or other plan or program
provided by the Corporation or any of its affiliated companies
and for which the Executive may qualify, nor shall anything
herein limit or otherwise affect such rights as the Executive
may have under any stock option or other agreements with the
Corporation or any of its affiliated companies. Amounts which
are vested benefits or which the Executive is otherwise
entitled to receive under any plan or program of the
Corporation or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in
accordance with such plan or program.
8. Full Settlement. The Corporation's obligation to
make the payments provided for in this Agreement and otherwise
to perform its obligations hereunder shall not be affected by
any circumstances, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which the
Corporation may have against the Executive or others. In no
event shall the Executive be obligated to seek other
employment by way of mitigation of the amounts payable to the
Executive under any of the provisions of this Agreement, and,
except as provided in Section 6(a)(ii) of this Agreement, such
amounts shall not be reduced whether or not the Executive
obtains other employment. The Corporation agrees to pay, to
the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably incur as a result of any
contest (regardless of the outcome thereof) by the Corporation
or others of the validity or enforceability of, or liability
under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest by
the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest, on any delayed payment
at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended
(the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit
of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional
payments required under this Section 9) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the code
or any interest or penalties are incurred by the Executive
with respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the
Executive shall be entitled to receive an additional payment
(a "Gross-Up Payment") in an amount such that after payment by
the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including,
without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed
upon the Gross-Up Payment, the Executive retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9,
including whether and when a Gross-Up Payment is required and
the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by a
nationally recognized accounting firm (the "Accounting Firm")
which shall provide detailed supporting calculations both to
the Company and the Executive within 15 business days of the
receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company.
The Accounting Firm shall be jointly selected by the Company
and the Executive and shall not, during the two years
preceding the date of its selection, have acted in any way on
behalf of the Company. If the Company and the Executive
cannot agree on the firm to serve as the Accounting Firm, then
the Company and the Executive shall each select a nationally
recognized accounting firm and those two firms shall jointly
select a nationally recognized accounting firm to serve as the
Accounting Firm. All fees and expenses of the Accounting Firm
shall be borne solely by the Company. Any Gross-Up Payment,
as determined pursuant to this Section 9, shall be paid by the
Company to the Executive within five days of the receipt of
the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it
shall furnish the Executive with a written opinion that
failure to report the Excise Tax on the Executive's applicable
federal income tax return would not result in the imposition
of a negligence or similar penalty. Any determination by the
Accounting Firm shall be binding upon the Company and the
Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible
that Gross-Up Payments which will not have been made by the
Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the
event that the Company exhausts its remedies pursuant to
Section 9(c) and the Executive thereafter is required to make
a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and
any such Underpayment shall be promptly paid by the Company to
or for the benefit of the Executive.
(c) The Executive shall notify the company in writing of
any claim by the Internal Revenue Service that, if successful,
would require the payment by the Company of a Gross-Up
Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall
apprise the Company of the nature of such claim and the date
on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the 30-day
period following the date on which he or she gives such notice
to the Company (or such shorter period ending on the date that
any payment of taxes with respect to such claim is due). If
the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such
claim, the Executive shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by the Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest
and penalties) incurred in connection with such contest and
shall indemnify and hold the Executive harmless, on an after-
tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a
result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Company shall control all proceedings
taken in connection with such contest and, at its sole option,
may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole
option, either direct the Executive to pay the tax claimed and
sue for a refund or contest the claim in any permissible
manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court
of initial jurisdiction and in one or more appellate courts,
as the Company shall determine; provided, however, that if the
Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment
to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax
basis, from any Excise Tax or income tax (including interest
or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with
respect to such advance; and further provided the Executive
shall not be required by the Company to agree to any extension
of the statute of limitations relating to the payment of taxes
for the taxable year of the Executive with respect to which
such contested amount is claimed to be due unless such
extension is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled
to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), the
Executive becomes entitled to receive any refund with respect
to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 9(c)) promptly pay
to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), a
determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Company does
not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after
such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
(e) If, pursuant to regulations issued under Section
280G or 4999 of the Code, the Company and the Executive were
required to make a preliminary determination of the amount of
an excess parachute payment (as contemplated by Q/A of the
proposed regulations under Section 280G of the Code as issued
on May 4, 1989) and thereafter a redetermination of the Excise
Tax is required under the applicable regulations, the parties
shall request the Accounting Firm to make such
redetermination. If as a result of such redetermination an
additional Gross-Up Payment is required, the amount thereof
shall be paid by the Company to the Executive within five days
of the receipt of the Accounting Firm's determination. If the
redetermination of the Excise Tax results in a reduction of
the Excise Tax, the Executive shall take such steps as the
Company may reasonably direct in order to obtain a refund of
the excess Excise Tax paid. If the Company determines that
any suit or proceeding is necessary or advisable in order to
obtain such refund, the provisions of Section 9(c) relating to
the contesting of a claim shall apply to the claim for such
refund, including, without limitation, the provisions
concerning legal representation, cooperation by the Executive,
participation by the Company in the proceedings and
indemnification by the Company. Upon receipt of any such
refund, the Executive shall promptly pay the amount of such
refund to the Company. If the amount of the income taxes
otherwise payable by the Executive in respect of the year in
which the Executive makes such payment to the Company is
reduced as a result of such payment, the Executive shall, no
later than the filing of his income tax return in respect of
such year, pay the amount of such tax benefit to the Company.
In the event there is a subsequent redetermination of the
Executive's income taxes resulting in a reduction of such tax
benefit, the Company shall, promptly after receipt of notice
of such reduction, pay to the Executive the amount of such
reduction. If the Company objects to the calculation or
recalculation of the tax benefit, as described in the
preceding two sentences, the Accounting Firm shall make the
final determination of the appropriate amount. The Executive
shall not be obligated to pay to the Company the amount of any
further tax benefits that may be realized by him or her as a
result of paying to the Company the amount of the initial tax
benefit.
10. Confidential Information. (a) The Executive shall
not, without the prior written consent of the Corporation,
divulge, disclose or make accessible to any other person,
firm, partnership or corporation or other entity any
Confidential Information (as defined in Section 10(b) below)
pertaining to the business of the Corporation except (i) while
employed by the Corporation in the business of and for the
benefit of the Corporation or (ii) when required to do so by a
court of competent jurisdiction, by any governmental agency
having supervisory authority over the business of the
Corporation, or by any administrative body or legislative body
(including a committee thereof) with purported or apparent
jurisdiction to order the Executive to divulge, disclose or
make accessible such information.
(b) For the purposes of this Agreement, Confidential
Information shall mean all nonpublic information concerning
the Corporation's business including its products, customer
lists, financial information and marketing plans and
strategies. Confidential Information does not include the
information that is, or becomes, available to the public,
unless such availability occurs through a breach by the
Executive of the provisions of this Section.
(c) In no event shall an asserted violation of the
provisions of this Section 10 constitute a basis for deferring
or withholding any amounts otherwise payable to the Executive
under this Agreement.
11. Successors. (a) This Agreement is personal to the
Executive and without the prior written consent of the
Corporation shall not be assignable by the Executive otherwise
than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Corporation and its successors.
(c) In the event of a Change in Control of the
Corporation, (i) any parent company or Successor shall, in the
case of a successor, by an agreement in form and substance
satisfactory to the Executive, expressly assume and agree to
perform this Agreement and, in the case of a parent company,
by an agreement in form and substance satisfactory to the
Executive, guarantee and agree to cause the performance of
this Agreement, in each case, in the same manner and to the
same extent as the Corporation would be required to perform if
no Change in Control had taken place.
12. Miscellaneous. (a) This Agreement shall be governed
by and construed in accordance with the laws of the
Commonwealth of Kentucky, without reference to principles of
conflict of laws. The captions of this Agreement are not part
of the provisions hereof and shall have no force or effect.
This Agreement may not be amended or modified otherwise than
by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(b) All notices and other communications hereunder shall
be in writing and shall be given by hand delivery to the other
party or by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive: Julie A. Montanari
Providian Bancorp, Inc.
88 Kearny Street, Suite 1900
San Francisco, California 94108
If to the Corporation: Providian Corporation
400 West Market Street
Post Office Box 32830
Louisville, Kentucky 40232
Attention: V. P. Human Resources
or to such other address as either party shall have furnished
to the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by
the addressee.
(c) The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement.
(d) The Corporation may withhold from any amounts
payable under this Agreement such Federal, state or local
taxes as shall be required to be withheld pursuant to any
applicable law or regulation.
(e) The Executive's failure to insist upon strict
compliance with any provision of this Agreement shall not be
deemed to be a waiver of such provision or any other
provisions hereof.
(f) All references to sections of the Code shall be
deemed to refer to corresponding sections of any successor
federal income tax statute.
(g) This Agreement contains the entire understanding of
the Corporation and the Executive with respect to the subject
matter hereof and supersedes all prior agreements,
representations and understandings of the parties with respect
to the subject matter hereof. It is further specifically
agreed that Executive shall not otherwise be entitled to any
compensation or benefits under the terms of the Corporation's
Change in Control Policy.
(h) The Executive and the Corporation acknowledge that
the employment of the Executive by the Corporation is
currently "at will", and, prior to the Effective Date, may be
terminated by either the Executive or the Corporation at any
time. This Agreement shall terminate and there shall be no
further rights or liabilities hereunder upon a termination of
Executive's employment prior to the Effective Date.
IN WITNESS WHEREOF, the Executive has hereunto set his
hand and, pursuant to the authorization from its Board of
Directors, the Corporation has caused these presents to be
executed in its name on its behalf, all as of the date and
year first above written.
PROVIDIAN CORPORATION
/s/ Irving W. Bailey, II
Irving W. Bailey, II
Chairman and Chief Executive
Officer
/s/ Julie A. Montanari
Julie A. Montanari
4
[NYCORP:57841.10--5865-008]
CONFORMED COPY
REVOLVING CREDIT FACILITY AGREEMENT
among
PROVIDIAN CORPORATION,
CREDIT SUISSE,
as Arranger
and as Administrative Agent,
ABN-AMRO BANK N.V.,
as Lead Manager,
and
the Banks listed in Section 2.01 hereof
dated as of August 17, 1995
TABLE OF CONTENTS
Page
I. DEFINITIONS 1
II. LOANS 19
SECTION 2.01. Commitments 19
SECTION 2.02. Competitive Bid Procedure 22
SECTION 2.03. Six-Month Review 25
SECTION 2.04. Standby Borrowing Procedure 25
SECTION 2.05. Evidence of Debt 26
SECTION 2.06. Refinancings 28
SECTION 2.07. Fees 29
SECTION 2.08. Arrangement Fees 29
SECTION 2.09. Termination and Reduction of 29
Commitments
SECTION 2.10. Continuation and Conversion of 30
Standby Loans
SECTION 2.11. Competitive Loans 31
SECTION 2.12. Interest on Competitive Loans 32
SECTION 2.13. Standby Loans 33
SECTION 2.14. Interest on Standby Loans 34
SECTION 2.15. Interest on Overdue Amounts
35
SECTION 2.16. Alternate Rate of Interest
35
SECTION 2.17. Prepayment of Loans 36
SECTION 2.18. Reserve Requirements; Change in
Circumstances
37
SECTION 2.19. Change in Legality 40
SECTION 2.20. Indemnity 41
SECTION 2.21. Pro Rata Treatment 42
SECTION 2.22. Sharing of Setoffs 42
SECTION 2.23. Tax Forms 43
III. REPRESENTATIONS AND WARRANTIES 44
SECTION 3.01. Corporate Existence 44
SECTION 3.02. Subsidiaries 45
SECTION 3.03. Authorization 45
SECTION 3.04. Governmental Approval 46
SECTION 3.05. Enforceability 46
SECTION 3.06. Financial Statements 46
SECTION 3.07. Litigation; Compliance with 47
Laws
SECTION 3.08. Federal Reserve Regulations 47
SECTION 3.09. Taxes 48
SECTION 3.10. Employee Benefit Plans 48
SECTION 3.11. Agreements 48
SECTION 3.12. Title to Properties; Possession 49
Under Lease
SECTION 3.13. Environmental Matters 49
SECTION 3.14. No Material Misstatements 50
SECTION 3.15. Investment Company Act; Public 51
Utility Holding Company Act
IV. CONDITIONS OF LENDING 51
SECTION 4.01. All Borrowings 51
SECTION 4.02. First Borrowing 52
V. COVENANTS 53
SECTION 5.01. Financial and Other Information 53
SECTION 5.02. Litigation and Other Notices 56
SECTION 5.03. Corporate Existence, etc 56
SECTION 5.04. Regulation U 57
SECTION 5.05. Senior Funded Indebtedness 57
SECTION 5.06. Statutory Surplus 57
SECTION 5.07. Ownership of Restricted 58
Subsidiaries
SECTION 5.08. Merger, Acquisition and Sale of 58
Assets
SECTION 5.09. Liens 59
SECTION 5.10. Subsidiaries 59
SECTION 5.11. Pari Passu 60
SECTION 5.12. Compliance with Environmental 60
Laws
SECTION 5.13. Preparation of Environmental 60
Reports
VI. EVENTS OF DEFAULT 60
VII. THE ADMINISTRATIVE AGENT 63
VIII. MISCELLANEOUS 66
SECTION 8.01. Notices 66
SECTION 8.02. No Waivers; Amendments 67
SECTION 8.03. Payments on Business Days 68
SECTION 8.04. Governing Law 68
SECTION 8.05. Expenses; Documentary Taxes 68
SECTION 8.06. Survival of Agreement, 69
Representations and Warranties, etc
SECTION 8.07. Participations 69
SECTION 8.08. Successors and Assigns 70
SECTION 8.09. Right of Setoff 71
SECTION 8.10. Severability 71
SECTION 8.11. Confidentiality 72
SECTION 8.12. Cover Page, Table of Contents 72
and Section Headings
SECTION 8.13. Counterparts 72
SECTION 8.14. Entire Agreement 73
Exhibits
Exhibit A-1 Form of Competitive Bid Request
Exhibit A-2 Form of Standby Borrowing Request
Exhibit B Form of Competitive Bid
Exhibit C Form of Opinion of Stites & Harbison
Exhibit D Form of Note
Exhibit E Form of Opinion of Cravath, Swaine & Moore
Schedule 1 List of All Subsidiaries
Schedule 2 List of Credit Agreements and Liens
REVOLVING CREDIT FACILITY
AGREEMENT dated as of August 17, 1995, among
PROVIDIAN CORPORATION, a Delaware corporation
(the "Company"), CREDIT SUISSE, as arranger
(in such capacity, the "Arranger") and as
administrative agent (in such capacity, the
"Administrative Agent") for the banks listed
in Section 2.01 (the "Banks"), ABN AMRO BANK
N.V., as Lead Manager, and the Banks.
The Company has requested the Banks to extend
credit to the Company in order to enable it to borrow on a
standby revolving credit basis on and after the Effective
Date (as herein defined), and at any time and from time to
time prior to the Maturity Date (as herein defined), a
principal amount not in excess of $450,000,000 at any time
outstanding. The Company has also requested the Banks to
provide a procedure pursuant to which each Bank may bid on
borrowings by the Company scheduled to mature on or prior to
the Maturity Date on an uncommitted basis. The proceeds of
such borrowings are to be used for general corporate
purposes, including, without limitation, working capital
requirements, liquidity and the repayment of maturing
commercial paper and other indebtedness of the Company. The
Banks are willing to extend such credit to the Company on
the terms and conditions herein set forth. Accordingly, the
Company and the Banks agree as follows:
I. DEFINITIONS
As used in this Agreement, the following terms
shall have the meanings specified below:
"Adjusted CD Rate" shall mean, with respect to any
CD Loan for any Interest Period, an interest rate per annum
(rounded upwards, if necessary, to the next 1/100 of 1%)
equal to the sum of (a) a rate per annum equal to the
product of (i) the Fixed CD Rate in effect for such Interest
Period and (ii) Statutory Reserves, plus (b) the Assessment
Rate. For purposes hereof, the term "Fixed CD Rate" shall
mean the arithmetic average (rounded upwards, if necessary,
to the next 1/100 of 1%) of the Quoted CD Rates of the
Reference Banks. For purposes hereof, the term "Quoted CD
Rates" shall mean, as to each Reference Bank, the arithmetic
average (rounded upwards, if necessary, to the next 1/100 of
1%) of the prevailing rates per annum bid at or about
2
10:00 a.m., New York City time, to such Reference Bank on
the first Business Day of the Interest Period applicable to
such CD Loan by three New York City negotiable certificate
of deposit dealers of recognized standing for the purchase
at face value of negotiable certificates of deposit of such
Reference Bank with a maturity comparable to such Interest
Period.
"Affiliate" shall mean, as to any person, any
other person which directly or indirectly controls, or is
under common control with, or is controlled by, such person.
"Aggregate Commitment" shall mean the aggregate of
the Commitments of all the Banks hereunder.
"Alternate Base Loan" shall mean any Loan with
respect to which the Company shall have selected an interest
rate based on the Alternate Base Rate in accordance with the
provisions of Article II.
"Alternate Base Rate" shall mean, for any day, a
fluctuating rate per annum equal to the greater of (a) the
base commercial lending rate announced from time to time by
the bank that is the Administrative Agent and (b) the rate
quoted by the bank that is the Administrative Agent at
approximately 11:00 a.m., New York City time, to dealers in
the New York Federal funds market for the overnight offering
of dollars by the bank that is the Administrative Agent for
deposit, plus .5%. For purposes of this Agreement, any
change in the Alternate Base Rate due to a change in the
rates in (a) or (b) above shall be effective on the date
such change in the applicable rate is announced. If for any
reason the Administrative Agent shall have determined (which
determination shall be conclusive absent manifest error)
that it is unable to ascertain the rate in (b) above for any
reason, including, without limitation, the inability of the
Administrative Agent to obtain sufficient bids in accordance
with the terms thereof, the Alternate Base Rate shall be the
rate in (a) above until the circumstances giving rise to
such inability no longer exist. The Administrative Agent
shall notify the Company of such occurrence within a reason
able time.
"Applicable Fee Percentage" shall mean on any date
the applicable percentage set forth below based upon the
Ratings:
Applicable
Fee Percentage
Facility
Fee
Category 1
.10%
A+ or higher by S&P;
A1 or higher by Moody's;
A+ or higher by Duff & Phelps
Category 2 .125%
Below A+ but at least A- by S&P;
Below A1 but at least A3 by Moody's;
Below A+ but at least A- by Duff & Phelps
Category 3 .20%
Below A- by S&P;
Below A3 by Moody's;
Below A- by Duff & Phelps
For purposes of the foregoing, (i) if the Ratings estab
lished by Moody's, S&P and Duff & Phelps shall fall within
different categories, all such Ratings shall be deemed to
fall in the category in which the largest number of such
Ratings shall fall (or, if there shall be no such category,
in Category 2) and (ii) if any rating established by
Moody's, S&P or Duff & Phelps shall be changed (other than
as a result of a change in the rating system of Moody's, S&P
or Duff & Phelps) such change shall be effective as of the
date on which it is first announced by the applicable rating
agency. Each change in the Applicable Fee Percentage shall
apply during the period commencing on the effective date of
such change and ending on the date immediately preceding the
effective date of the next such change. If the rating
system of Moody's, S&P or Duff & Phelps shall change, if any
such rating agency shall cease to be in the business of
rating corporate debt obligations, or if any such rating
agency shall not have a Rating in effect, the Company and
the Banks shall negotiate in good faith to amend the
references to specific ratings in this definition to reflect
such changed rating system or the non-availability of
ratings from such rating agency.
"Applicable Margin" shall mean on any date, with
respect to the Loans comprising any Standby Borrowing of
Eurodollar Loans or CD Loans, as the case may be, the
applicable spread set forth below based on the Ratings:
Applicable Margin
Eurodollar
Loan Spread CD Loan Spread
Category 1 .25% .375%
A+ or higher by S&P;
A1 or higher by Moody's;
A+ or higher by Duff & Phelps
Category 2 .275% .400%
Below A+ but at least A- by S&P;
Below A1 but at least A3 by
Moody's;
Below A+ but at least A- by
Duff & Phelps
Category 3 .35% .475%
Below A- by S&P;
Below A3 by Moody's;
Below A- by Duff & Phelps
For purposes of the foregoing, (i) if the Ratings estab
lished by Moody's, S&P and Duff & Phelps shall fall within
different categories, all such Ratings shall be deemed to
fall in the category in which the largest number of Ratings
shall fall (or, if there shall be no such category, in
Category 2) and (ii) if any rating established by Moody's,
S&P or Duff & Phelps shall be changed (other than as a
result of a change in the rating system of Moody's, S&P or
Duff & Phelps) such change shall be effective as of the date
on which it is first announced by the applicable rating
agency. Each change in the Applicable Margin shall apply
during the period commencing on the effective date of such
change and ending on the date immediately preceding the
effective date of the next such change. If the rating
system of Moody's, S&P or Duff & Phelps shall change, if any
such rating agency shall cease to be in the business of
rating corporate debt obligations, or if any such rating
agency shall not have a Rating in effect, the Company and
the Banks shall negotiate in good faith to amend the
references to specific ratings in this definition to reflect
such changed rating system or the non-availability of
ratings from such rating agency.
"Arrangement Fees" shall have the meaning given
such term in Section 2.08.
"Assessment Rate" shall mean for any date the
arithmetic average of the then current net annual assessment
rates (rounded upwards, if necessary, to the next 1/100 of
1%) that will be employed in determining amounts payable by
the Reference Banks to the Federal Deposit Insurance
Corporation (or any successor).
"Asset Valuation Reserve" shall mean the amount
shown as such in the applicable statutory financial
statements of each Designated Insurance Subsidiary.
"Board" shall mean the Board of Governors of the
Federal Reserve System of the United States.
"Borrowing" shall mean a Competitive Borrowing or
a Standby Borrowing.
"Business Day" shall mean any day not a Saturday,
Sunday or legal holiday in the State of New York on which
banks and the Federal Reserve Bank of New York are open for
business in New York City; provided, however, that when used
in connection with a Eurodollar Loan the term "Business Day"
shall also exclude any day on which banks are not open for
dealings in dollar deposits in the London Interbank Market.
"Capital Lease Obligation" shall mean, as to any
person, the obligations of such person to pay rent or other
amounts under a lease of (or other agreement conveying the
right to use) real and/or personal property which obliga
tions are required to be classified and accounted for as a
capital lease on a balance sheet of such person under
generally accepted accounting principles and, for purposes
of this Agreement, the amount of such obligations shall be
the capitalized amount thereof, determined in accordance
with generally accepted accounting principles.
"CD Loan" shall mean any Loan bearing interest at
a rate determined by reference to the Adjusted CD Rate in
accordance with the provisions of Article II.
A "Change in Control" shall be deemed to have
occurred if (a) any person or group (within the meaning of
Rule 13d-5 of the SEC as in effect on the date hereof) shall
become the owner directly or indirectly, beneficially or of
record, of shares representing more than 50% of the aggre
gate ordinary voting power represented by the issued and
outstanding capital stock of the Company in a transaction
(or series of transactions) not approved prior to its
consummation by the board of directors of the Company or
(b) a majority of the seats (other than vacant seats) on the
board of directors of the Company shall at any time have
been occupied by persons who were neither (i) nominated by
the management of the Company, nor (ii) appointed by direc
tors so nominated.
"Code" shall mean the Internal Revenue Code of
1986, as amended from time to time.
"Closing Date" shall mean the date of the first
Borrowing hereunder.
"Commitment" shall mean, with respect to each
Bank, the Commitment of such Bank hereunder as set forth in
Section 2.01, as the same may be reduced from time to time
pursuant to Section 2.09.
"Commonwealth Life" shall mean Commonwealth Life
Insurance Company, a subsidiary of the Company organized and
existing under the laws of the State of Kentucky.
"Competitive Bid" shall mean an offer by a Bank to
make a Competitive Loan pursuant to Section 2.02.
"Competitive Bid Request" shall mean a request
made pursuant to Section 2.02 in the form of Exhibit A-1.
"Competitive Borrowing" shall mean a Borrowing
consisting of simultaneous Competitive Loans from each of
the Banks whose Competitive Bid as a part of such Borrowing
has been accepted by the Company under the bidding procedure
described in Section 2.02.
"Competitive Loan" shall mean a Loan from a Bank
to the Company pursuant to the bidding procedure described
in Section 2.02.
"Designated Insurance Subsidiary" shall mean, at
all times prior to the Maturity Date, so long as it remains
a subsidiary of the Company, each Subsidiary listed in
Schedule 1 hereto under the heading "Designated Insurance
Subsidiary" and any wholly-owned subsidiary of the Company
newly organized under the laws of the United States, a state
thereof or the District of Columbia for the sole purpose of
merging or consolidating two or more Designated Insurance
Subsidiaries.
"dollars" and the symbol "$" shall mean the lawful
currency of the United States of America.
"Duff & Phelps" shall mean Duff & Phelps Credit
Rating Company, or any successor thereto.
"Effective Date" shall mean the later of
(i) August 21, 1995, and (ii) the date of satisfaction or
waiver of all conditions of lending pursuant to Article IV
hereof; provided, however, that the Effective Date shall
occur no later than September 30, 1995.
"environment" shall mean ambient air, surface
water and groundwater (including potable water, navigable
water and wetlands), the land surface or subsurface strata,
the workplace or as otherwise defined in any Environmental
Law.
"Environmental Claim" shall mean any written
accusation, allegation, notice of violation, claim, demand,
order, directive, cost recovery action or other cause of
action by, or on behalf of, any Governmental Authority or
any other person for damages, injunctive or equitable
relief, personal injury (including sickness, disease or
death), Remedial Action costs, tangible or intangible
property damage, natural resource damages, nuisance,
pollution, any adverse effect on the environment caused by
any Hazardous Material, or for fines, penalties or
restrictions, resulting from or based upon: (a) the
existence, or the continuation of the existence, of a
Release (including sudden or non-sudden, accidental or non-
accidental Releases); (b) exposure to any Hazardous
Material; (c) the presence, use, handling, transportation,
storage, treatment or disposal of any Hazardous Material; or
(d) the violation or alleged violation of any Environmental
Law or Environmental Permit.
"Environmental Law" shall mean any and all
applicable current and future treaties, laws, rules,
regulations, codes, ordinances, orders, decrees, judgments,
injunctions, notices or binding agreements issued,
promulgated or entered into by any Governmental Authority,
relating in any way to the environment, preservation or
reclamation of natural resources, the management, Release or
threatened Release of any Hazardous Material or to health
and safety matters.
"Environmental Permit" shall mean any permit,
approval, authorization, certificate, license, variance,
filing or permission required by or from any Governmental
Authority pursuant to any Environmental Law.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended, and the rules and regula
tions promulgated thereunder, as from time to time in
effect.
"ERISA Affiliate" shall mean any trade or business
(whether or not incorporated) that, together with the
Company, is treated as a single employer under
Section 414(b) or (c) of the Code, or, solely for purposes
of Section 302 of ERISA and Section 412 of the Code, is
treated as a single employer under Section 414 of the Code.
"ERISA Event" shall mean (i) any "reportable
event", as defined in Section 4043 of ERISA or the
regulations issued thereunder, with respect to a Plan;
(ii) the adoption of any amendment to a Plan that would
require the provision of security pursuant to Section
401(a)(29) of the Code or Section 307 of ERISA; (iii) the
existence with respect to any Plan of an "accumulated
funding deficiency" (as defined in Section 412 of the Code
or Section 302 of ERISA), whether or not waived; (iv) the
filing pursuant Section 412(d) of the Code or Section 303(d)
of ERISA of an application for a waiver of the minimum
funding standard with respect to any Plan; (v) the
incurrence of any liability under Title IV of ERISA with
respect to the termination of any Plan or the withdrawal or
partial withdrawal of the Company or any of its ERISA
Affiliates from any Plan or Multiemployer Plan; (vi) the
receipt by the Company or any ERISA Affiliate from the PBGC
or a plan administrator of any notice relating to the
intention to terminate any Plan or Plans or to appoint a
trustee to administer any Plan; (vii) the receipt by the
Company or any ERISA Affiliate of any notice concerning the
imposition of Withdrawal Liability or a determination that a
Multiemployer Plan is, or is expected to be, insolvent or in
reorganization, within the meaning of Title IV of ERISA;
(viii) the occurrence of a "prohibited transaction" with
respect to which the Company or any of its Subsidiaries is a
"disqualified person" (within the meaning of Section 4975 of
the Code) or with respect to which the Company or any such
Subsidiary could otherwise be liable; and (ix) any other
event or condition with respect to a Plan or Multiemployer
Plan that could result in liability of the Company.
"Eurodollar Loan" shall mean any Loan with respect
to which the Company shall have selected an interest rate
based on the LIBOR Rate in accordance with the provisions of
Article II.
"Event of Default" shall mean any of the events
described in Article VI.
"Facility Fee" shall have the meaning assigned
such term in Section 2.07.
"Fee Letter" shall have the meaning given such
term in Section 2.08
"Financial Officer" of any corporation shall mean
its chief financial officer, principal accounting officer,
treasurer or any vice president of such corporation employed
in its corporate financial division.
"Fixed Rate Loan" shall mean any Competitive Loan
made by a Bank pursuant to Section 2.02 based upon an actual
percentage rate per annum selected by the Bank, expressed as
a decimal (to no more than four decimal places).
"Funded Indebtedness" of any person shall mean at
any date (without duplication): (a) all Indebtedness
(including, in the case of the Company, its obligations
under this Agreement) that matures by its terms more than
one year from the date of determination or matures within
one year of such date but is directly or indirectly
renewable or extendable, at the option of the debtor, to a
date more than one year from such date or arises under a
revolving credit or similar agreement which obligates the
lender or lenders to extend credit over a period of more
than one year from such date and (b) all other Indebtedness
of such person which constitutes a long-term debt liability
under generally accepted accounting principles; provided
that in no event shall Funded Indebtedness of any person
include the MIPS or Indebtedness of such person arising from
a transaction pursuant to which the Company or any of the
Subsidiaries assigns with recourse a portfolio of assets to
a third party in exchange for the assignment with recourse
by such third party to it of a portfolio of assets of
substantially the same type and the net present value of the
discounted cash flows of which is substantially the same as
that of the portfolio of assets so assigned by the Company
or such Subsidiary.
"Governmental Authority" shall mean any interna
tional, federal, state, regional, local or foreign court or
governmental agency, authority, instrumentality or regula
tory body.
"Guarantee" by any person shall mean any obliga
tion, contingent or otherwise, of such person guaranteeing
any Indebtedness of another person or in any manner provid
ing for payment directly by such first-mentioned person to
the holder of such Indebtedness in order to protect such
holder against loss (whether by agreement to purchase or
repurchase such Indebtedness or otherwise); provided that
the term "Guarantee" shall not include (a) endorsements for
collection or deposit in the ordinary course of business or
indemnities for costs and expenses or (b) guarantees of
intercompany obligations of the Company or any Subsidiary.
"Hazardous Materials" shall mean all explosive or
radioactive substances or wastes, hazardous or toxic
substances or wastes, pollutants, solid, liquid or gaseous
wastes, including petroleum or petroleum distillates,
asbestos or asbestos-containing materials, polychlorinated
biphenyls ("PCBs") or PCB-containing materials or equipment,
radon gas, infectious or medical wastes and all other
substances or wastes of any nature regulated pursuant to any
Environmental Law.
"Indebtedness" shall mean, with respect to any
person, (a) all obligations of such person for borrowed
money, or with respect to deposits or advances of any kind,
(b) all obligations of such person evidenced by bonds,
debentures, notes or similar instruments, (c) all obliga
tions of such person upon which interest charges are custom
arily paid, (d) all obligations of such person created or
arising under conditional sale or other title retention
agreements relating to property purchased by such person,
(e) all obligations of such person issued or assumed as the
deferred purchase price of property or services, (f) all
Capital Lease Obligations and (g) all Guarantees of such
person of Indebtedness, but excluding all non-recourse
obligations of any person.
"Insurance" shall mean a contract whereby one
undertakes to pay or indemnify another as to loss from
certain specified contingencies or perils called "risks", or
to pay or grant a specified amount or determinable benefit
in connection with ascertainable risk contingencies, or to
act as surety, or to pay or grant an annuity, which is a
contract under which obligations are assumed with respect to
one or more payments for a specific term or terms,
including, but not limited to, those kinds of unallocated
annuity and unallocated funding agreement products commonly
known as guaranteed investment contracts, guaranteed
interest contracts, group annuities, and deposit
administration contracts, or a contract under which the
making or continuance of all or some of such payments or the
amount of any such payment is dependent upon the continuance
of human life.
"Interest Payment Date" shall mean (i) with
respect to any Eurodollar or CD Loan, the last day of the
Interest Period applicable thereto and, in the case of any
Loan with an Interest Period in excess of 3 months or
90 days, as applicable, each day that is 3 months or
90 days, respectively, after the date of such Loan or the
preceding Interest Payment Date, as the case may be, (ii) in
the case of any Alternate Base Loan or Fixed Rate Loan, the
last day of the Interest Period applicable thereto, on each
March 31, June 30, September 30 and December 31 falling
within such Interest Period and (iii) with respect to any
Loan, the date of any prepayment, repayment or conversion
thereof.
"Interest Period" shall mean (i) as to any Euro
dollar Loan that is a Standby Loan, (a) the period commenc
ing on the date of such Loan or on the last day of the
preceding Interest Period, if any, applicable to such Loan,
and ending on the numerically corresponding day (or if there
is no corresponding day, the last day) in the calendar month
that is 1, 2, 3 or 6 months thereafter, as the Company may
elect or (b) subject to availability and the Short-Term
Procedure, the period specified in the Standby Borrowing
Request therefor (which shall in no event be longer than
1 month), (ii) as to any Alternate Base Loan, a period
commencing on the date of such Loan and ending on the date
specified in the applicable Standby Borrowing Request,
(iii) as to any CD Loan, (x) a period of 30, 60, 90 or 180
days' duration, as the Company may elect, commencing on the
date of such Loan, or (y) subject to availability and the
Short-Term Procedure, the period specified in the Standby
Borrowing Request therefor (which shall in no event be
longer than 30 days); (iv) as to any Competitive Loan, the
period commencing on the date of such Loan and ending on the
date specified in the Competitive Bid in which the offer to
make the Competitive Loan was extended (which date shall be
(A) in the case of any Eurodollar Loan, the numerically
corresponding day (or, if there is no such corresponding
day, the last day) in the calendar month that is 1, 2, 3, 6,
9 or 12 months after the date of such Loan, or such shorter
period as specified in the applicable Competitive Bid
Request, or (B) in the case of any Fixed Rate Loan, such
other date as shall be specified in such Competitive Bid
Request); provided, however, that (x) if any Interest Period
would end on a day which shall not be a Business Day, such
Interest Period shall be extended to the next succeeding
Business Day unless, with respect to Eurodollar Loans only,
such next succeeding Business Day would fall in the next
calendar month, in which case such Interest Period shall end
on the next preceding Business Day and (y) no Interest
Period may be selected for an Alternate Base Loan, a
Eurodollar Loan, a CD Loan or a Fixed Rate Loan which ends
later than the Maturity Date. Interest shall accrue from
and including the first day of an Interest Period to but
excluding the last day of such Interest Period.
"Investment" shall mean any investment in any
person whether by means of share purchase, loan, advance,
extension of credit, capital contribution or otherwise
(excluding any investment in an unconsolidated Subsidiary
arising solely from retained earnings of such Subsidiary).
"Lease Obligations" shall mean, with respect to
any person, obligations (not constituting Indebtedness)
under leases of property of any kind in respect of which
such person is liable directly, but not contingently.
"LIBOR Rate" shall mean, with respect to any
Eurodollar Loan for any Interest Period, an interest rate
per annum (rounded upwards, if necessary, to the next 1/16
of 1%) equal to the average of the rates at which dollar
deposits for a maturity equal to the applicable Interest
Period are offered in immediately available funds by the
London office of each Reference Bank to leading banks in the
London Interbank Market for Eurodollars at approximately
11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period.
"Lien" shall mean, with respect to any asset, any
lien, mortgage, security interest, charge or encumbrance of
any kind, including, without limitation, the rights of a
vendor, lessor, or similar party under any conditional sale
agreement or other title retention agreement or lease
substantially equivalent thereto, any production or advance
payment, and any other right of or arrangement with any
creditor to have its claim satisfied out of any property or
assets, or the proceeds therefrom, prior to the general
creditors of the owner thereof but shall exclude (a) liens
securing non-recourse obligations of any person and
(b) liens securing obligations that arise out of Insurance.
"Life Insurance Business" shall mean the business
of insurance of human lives and health and all types of
insurance and selling activities incident thereto (includ
ing, without limitation, the issuing or granting of guaran
teed investment contracts, annuity contracts, endowment
benefits, additional benefits in the event of death or
dismemberment by accident and additional benefits in the
event of the insured's disability, optional modes of
settlement of proceeds, selling through agencies or
otherwise, servicing, data processing, investing and, with
respect to any Restricted Subsidiary, any other activity
incident to "life insurance" as that term may be defined
under the laws of the jurisdiction in which such Restricted
Subsidiary is organized).
"Loan" shall mean a Standby Loan, a Competitive
Loan, a Eurodollar Loan, a CD Loan, an Alternate Base Loan
or a Fixed Rate Loan.
"Loan Documents" shall mean this Credit Agreement
and all Exhibits hereto, any Note outstanding under this
Agreement and the Fee Letter.
"Margin" shall mean as to any Competitive Bid made
by a Bank pursuant to Section 2.02(b), the margin (expressed
as a percentage rate per annum in the form of a decimal to
no more than four decimal places) to be added to or sub
tracted from the LIBOR Rate in order to determine the inter
est rate acceptable to such Bank with respect to the Compet
itive Loan to which such bid relates.
"Margin Stock" shall have the meaning assigned to
such term in Regulation U.
"Maturity Date" shall mean the later of
(i) August 21, 2000, and (ii) five years from the date of
the satisfaction or waiver of all conditions of lending
pursuant to Article IV hereof.
"MIPS" shall mean the Cumulative Monthly Income
Preferred Stock of Providian LLC, a limited liability
company organized under the laws of the Turks and Caicos
Islands, issued as of May 12, 1994.
"Moody's" shall mean Moody's Investors Service,
Inc., or any successor thereto.
"Multiemployer Plan" shall mean a multiemployer
plan as defined in Section 4001(a)(3) of ERISA.
"Note" shall have the meaning given such term in
Section 2.05(d) hereof.
"PBGC" shall mean the Pension Benefit Guaranty
Corporation (or any successor).
"Peoples Security Life" shall mean Peoples Securi
ty Life Insurance Company, a subsidiary of the Company organ
ized and existing under the laws of the State of North
Carolina.
"person" shall mean any natural person, corpora
tion, business trust, association, company, partnership,
limited liability company or government, or any agency or
political subdivision thereof.
"Plan" shall mean any employee pension benefit
plan (other than a Multiemployer Plan) that is subject to
the provisions of Title IV of ERISA or Section 412 of the
Code or Section 307 of ERISA and in respect of which the
Company or any ERISA Affiliate is (or, if such plan were
terminated, would under Section 4069 of ERISA be deemed to
be) an "employer" as defined in Section 3(5) of ERISA.
"Properties" shall have the meaning given such
term in Section 3.13(a) hereof.
"Providian Bancorp" shall mean Providian Bancorp,
Inc., a subsidiary of the Company organized and existing
under the laws of the State of Delaware.
"Providian Life" shall mean Providian Life and
Health Insurance Company, a subsidiary of the Company
organized and existing under the laws of the State of
Missouri.
"Ratings" shall mean the ratings of Moody's, S&P
and Duff & Phelps applicable to the Company's senior unse
cured unsubordinated debt.
"Reference Banks" shall mean Credit Suisse, ABN
AMRO Bank N.V., and Deutsche Bank AG.
"Register" shall have the meaning given such term
in Section 2.05(e) hereof.
"Regulation D" shall mean Regulation D of the
Board, as the same is from time to time in effect, and all
official rulings and interpretations thereunder or thereof.
"Regulation G" shall mean Regulation G of the
Board, as the same is from time to time in effect, and all
official rulings and interpretations thereunder or thereof.
"Regulation T" shall mean Regulation T of the
Board, as the same is from time to time in effect, and all
official rulings and interpretations thereunder or thereof.
"Regulation U" shall mean Regulation U of the
Board, as the same is from time to time in effect, and all
official rulings and interpretations thereunder or thereof.
"Regulation X" shall mean Regulation X of the
Board, as the same is from time to time in effect, and all
official rulings and interpretations thereunder or thereof.
"Release" shall mean any spilling, leaking,
pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, dumping, disposing,
depositing, dispersing, emanating or migrating of any
Hazardous Material in, into, onto or through the
environment.
"Remedial Action" shall mean (a) "remedial action"
as such term is defined in 42 U.S.C. Section 9601(24), and
(b) all other actions required by any Governmental Authority
or voluntarily undertaken to: (i) cleanup, remove, treat,
abate or in any other way address any Hazardous Material in
the environment; (ii) prevent the Release or threat of
Release, or minimize the further Release, of any Hazardous
Material so it does not migrate or endanger or threaten to
endanger public health, welfare or the environment; or
(iii) perform studies and investigations in connection with,
or as a precondition to, (i) or (ii) above.
"Required Banks" shall mean, so long as any Bank
has a Commitment to make Loans hereunder, Banks holding 51%
of the Loans outstanding and Banks representing 51% of the
unused Commitments; provided, however, that for purposes of
accelerating the Loans pursuant to Article VI, Required
Banks shall mean Banks representing 66-2/3% of the Loans
outstanding. Certain matters specified in Section 8.02(b)
may not be amended or modified without the consent of each
Bank affected thereby.
"Responsible Officer" shall mean the chairman, any
vice president or a Financial Officer.
"Restricted Subsidiaries" shall mean at any time
each of (a) Commonwealth Life, (b) Providian Life,
(c) Peoples Security Life, (d) any successor Subsidiary to
any of the foregoing Subsidiaries by way of any merger or
consolidation permitted under Section 5.08(a) hereof and
(e) any Subsidiary with assets greater than or equal to 20%
of all assets of the Company and the Subsidiaries (excluding
the assets of Providian Bancorp and its subsidiaries),
computed and consolidated in accordance with generally
accepted accounting principles. Notwithstanding anything to
the contrary set forth herein, the term Restricted
Subsidiary shall not include Providian Bancorp or any of its
subsidiaries.
"S&P" shall mean Standard & Poor's Ratings Group,
or any successor thereto.
"SEC" shall mean the Securities and Exchange
Commission, or any successor thereto.
"Senior Funded Indebtedness" shall mean, at any
date, the sum of the following:
(a) the aggregate principal amount then outstand
ing of all Funded Indebtedness of the Company and the
Subsidiaries (excluding intercompany obligations), less
(b) the aggregate principal amount then outstand
ing of Subordinated Indebtedness, less
(c) the aggregate principal amount then outstand
ing of any Indebtedness of Providian Bancorp or any of
its subsidiaries.
"Shareholders' Equity" shall mean, at any time,
the sum of the following: (a) total shareholders' equity of
the Company and the consolidated Subsidiaries (including the
MIPS) less (b) the effect on shareholders' equity of
Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities", and less (c) goodwill and other intangible
assets after amortization (excluding deferred policy acquisi
tion costs and the value of insurance in force acquired by
purchase) arising in connection with any acquisition
effected by the Company and/or any of the Subsidiaries after
December 31, 1986.
"Short-Term Procedure" shall mean, in the case of
any Borrowing subject thereto, that (i) one additional
Business Day's notice by the Company to request such
Borrowing shall be required in addition to any other
applicable notice period and (ii) the Administrative Agent
shall notify all Banks with outstanding Commitments of the
amount, Type and requested Interest Period of such Borrowing
by 3:00 p.m. New York time on the date of its receipt of
notice from the Company in order to obtain each such Bank's
consent to provide its pro rata share of such Borrowing,
which consent will be deemed received (and which will
obligate such Bank to provide such pro rata share) unless
such Bank shall have communicated, by telephone or facsimile
to the Administrative Agent and the Company, its refusal to
provide its pro rata share of such Borrowing by 9:00 a.m.
New York time on the following Business Day. If any Bank
shall have so communicated its refusal, the requested
Interest Period shall be deemed unavailable for the purposes
of the requested Borrowing.
"Standby Borrowing" shall mean a Borrowing con
sisting of simultaneous Standby Loans from each of the Banks
distributed ratably among the Banks in accordance with their
respective unutilized Commitments.
"Standby Borrowing Request" shall mean a request
made pursuant to Section 2.04 in the form of Exhibit A-2.
"Standby Loan" shall have the meaning given such
term in Section 2.01.
"Statutory Reserves" shall mean a fraction (ex
pressed as a decimal) the numerator of which is the number
one and the denominator of which is the number one minus the
aggregate of the maximum reserve percentages (including,
without limitation, any marginal, special, emergency, or
supplemental reserves) expressed as a decimal established by
the Board. Such reserve percentages shall include, without
limitation, those imposed under Regulation D. Statutory
Reserves shall be adjusted automatically on and as of the
effective date of any change in any reserve percentage.
"Statutory Surplus" shall mean the sum of (i) the
amount by which the total assets of the Designated Insurance
Subsidiaries exceed the total liabilities of the Designated
Insurance Subsidiaries (as determined in accordance with
statutory accounting principles required under the laws of
the respective jurisdictions in which such Subsidiaries are
organized) and (ii) the Asset Valuation Reserve of the
Designated Insurance Subsidiaries.
"Subordinated Indebtedness" shall mean any Indebt
edness of the Company which, pursuant to a subordination
agreement or other instrument in form and substance satis
factory to the Banks, is subordinate and junior in right of
payment to the payment in full of all monetary obligations
of the Company under this Agreement, including, without
limitation, the principal of and interest on the Loans.
"subsidiary" shall mean, with respect to any
person, any other persons of which at least a majority of
the outstanding voting stock or other ownership interests
having the ordinary voting power to elect a majority of the
board of directors or other persons performing similar
functions is at the time directly or indirectly owned or
controlled by such person or one or more of its subsidiaries
or by such person and one or more of its subsidiaries.
"Subsidiary" shall mean a subsidiary of the
Company.
"Taxes" shall mean, with respect to any Bank, any
and all present or future taxes, levies, imposts, deduc
tions, charges or withholdings, and all liabilities with
respect thereto, imposed in respect of any payment made by
the Company hereunder to such Bank (other than taxes imposed
on the overall net income of such Bank by the jurisdiction
in which such Bank has its principal office or by any
political subdivision or taxing authority therein).
"Type" shall mean, with respect to any Loan or
Borrowing, whether such Loan or Borrowing is a Eurodollar,
Alternate Base, CD or Fixed Rate Loan or Borrowing.
"Wholly-Owned Subsidiary" shall mean any corpora
tion of which all the voting stock (other than directors'
qualifying shares) is at the time directly or indirectly
owned or controlled by the Company or one or more Wholly-
Owned Subsidiaries or by the Company and one or more Wholly-
Owned Subsidiaries.
"Withdrawal Liability" shall mean liability to a
Multiemployer Plan as a result of a complete or partial
withdrawal from such Multiemployer Plan, as such terms are
defined in Part I of Subtitle E of Title IV of ERISA.
"Yield" shall mean the effective interest rate
contained in a Competitive Bid specified by reference to
(i) in the case of a Fixed Rate Loan, an annual percentage
rate per annum computed on the basis of the actual number of
days elapsed in a year of 360 days and (ii) in the case of a
Eurodollar Loan, the LIBOR Rate and the Margin.
All accounting terms not specifically defined
herein shall be construed in accordance with generally
accepted accounting principles and practices consistent with
those applied in the preparation of the financial statements
referred to in Section 3.06 and all financial data submitted
pursuant to this Agreement shall be prepared in accordance
with such principles and practices, except as otherwise
expressed herein.
II. LOANS
SECTION 2.01. Commitments. (a) Subject to the
terms and conditions and relying upon the representations
and warranties herein set forth, each Bank, severally and
not jointly, agrees to make standby revolving credit loans
("Standby Loans") to the Company, at any time and from time
to time on and after the Effective Date and until the
earlier of the Maturity Date or the termination of the
Commitment of such Bank in accordance with the terms hereof,
in an amount not to exceed the unutilized Commitment of such
Bank (taking into account any utilization of such Commitment
deemed to result from the making of Competitive Loans, as
provided in Section 2.11), subject, however, to the condi
tion that at no time shall (A) the sum of (x) the outstand
ing aggregate principal amount of all Standby Loans and (y)
the outstanding aggregate principal amount of all Competi
tive Loans exceed (B) the Aggregate Commitment. Each Bank's
Commitment is set forth opposite its respective name below.
Such Commitments may be adjusted from time to time pursuant
to Section 2.09.
Approximate
Percentage of
Aggregate
Name and Address of Bank Commitment Commitment
Credit Suisse $50,000,000 11.11%
Tower 49
12 East 49th Street
New York, NY 10017-1071
Facsimile--(212) 238-5218
Telephone--(212) 238-5246
ABN AMRO Bank N.V. $40,000,000 8.89%
One PPG Place, Ste. 2950
Pittsburgh, PA 15222-5400
Facsimile--(412) 566-2266
Telephone--(412) 566-2269
Bayerische Vereinsbank A.G. $32,500,000 7.22%
333 W. Wacker Drive
Suite 680
Chicago, IL 60606
Facsimile--(312) 977-1380
Telephone--(312) 201-4113
The Dai-Ichi Kangyo Bank, Ltd. $32,500,000 7.22%
10 South Wacker, 26th Fl.
Chicago, IL 60606
Facsimile--(312) 876-2011
Telephone--(312) 715-6362
Deutsche Bank AG $32,500,000 7.22%
31 West 52nd Street
Deutsche Bank Bldg.
New York, NY 10019
Facsimile--(212) 474-8108
Telephone--(212) 474-8101
Royal Bank of Canada $32,500,000 7.22%
Financial Square
New York, NY 10005-3531
Facsimile--(212) 809-7468
Telephone--(212) 428-6277
The Sakura Bank Limited $32,500,000 7.22%
277 Park Avenue
New York, NY 10172
Facsimile--(212) 888-7651
Telephone--(212) 756-6783
The Sumitomo Bank, Limited $32,500,000 7.22%
New York Branch
277 Park Avenue
New York, NY 10172
Facsimile--(212) 224-5198
Telephone--(212) 224-4142
Banque Nationale de Paris $25,000,000 5.56%
Rookery Building
209 S. LaSalle St., 5th Fl.
Chicago, IL 60604
Facsimile--(312) 977-1380
Telephone--(312) 977-2248
Canadian Imperial Bank of $25,000,000 5.56%
Commerce
425 Lexington Avenue
New York, NY 10017
Facsimile--(212) 856-3599
Telephone--(212) 856-3638
Citibank, N.A. $25,000,000 5.56%
399 Park Avenue, 12th Floor
Zone 8
New York, NY 10043
Facsimile--(212) 935-4286
Telephone--(212) 559-8146
Credit Lyonnais $25,000,000 5.56%
New York Branch
1301 Avenue of the Americas
New York, NY 10019
Facsimile--(212) 261-3401
Telephone--(212) 261-7718
The Sanwa Bank, Limited $25,000,000 5.56%
Georgia-Pacific Center
133 Peachtree Street N.E.,
Suite 4750
Atlanta, GA 30303
Facsimile--(404) 589-1629
Telephone--(404) 586-8809
The Bank of Nova Scotia $20,000,000 4.44%
181 West Madison Street
Suite 3700
Chicago, IL 60602
Facsimile--(312) 201-4108
Telephone--(312) 201-4113
Swiss Bank Corporation $20,000,000 4.44%
Box 395
Church Street Station
New York, NY 10008
Facsimile--(212) 574-3228
Telephone--(212) 574-4142
Aggregate Commitment $450,000,000 100.00%
Within the foregoing limits, the Company may
borrow, repay and reborrow hereunder, on and after the
Effective Date and prior to the Maturity Date, subject to
the terms, provisions and limitations set forth herein.
SECTION 2.02. Competitive Bid Procedure. (a) In
order to request Competitive Bids, the Company shall hand
deliver or deliver by facsimile to the Administrative Agent
a duly completed Competitive Bid Request in the form of
Exhibit A-1 hereto, to be received by the Administrative
Agent (i) in the case of Eurodollar Loans, not later than
10:00 a.m. New York time, four Business Days before a
proposed Competitive Borrowing, and (ii) in the case of
Fixed Rate Loans, not later than 12:00 noon New York time,
one Business Day before a proposed Competitive Borrowing.
No CD Loan or Alternate Base Loan shall be requested by the
Company in a Competitive Bid Request. Competitive Bid
Requests that do not conform substantially to the format of
Exhibit A-1 shall be rejected and the Administrative Agent
shall notify the Company of such rejection by telephone or
facsimile (i) in the case of Eurodollar Loans, not later
than 11:00 a.m. New York time on the date of receipt or
(ii) in the case of Fixed Rate Loans, not later than
1:00 p.m. New York time on the date of receipt. Competitive
Bid Requests shall in each case refer to this Agreement and
specify (x) whether the Loans then being requested are to be
Eurodollar Loans or Fixed Rate Loans, (y) the date of such
Loans (which shall be a Business Day) and the aggregate
principal amount thereof (which shall not be less than
$25,000,000 and shall be an integral multiple of
$5,000,000), and (z) the Interest Period with respect
thereto (which may not end after the Maturity Date). Not
later than (i) in the case of Eurodollar Loans, 12:00 noon
New York time on the date of receipt or (ii) in the case of
Fixed Rate Loans, 3:00 p.m. New York time on the date of
receipt by the Administrative Agent of a Competitive Bid
Request, the Administrative Agent shall invite by facsimile
the Banks to bid, on the terms and conditions of this
Agreement, to make Competitive Loans pursuant to the
Competitive Bid Request.
(b) Each Bank may, in its sole discretion, make
one or more Competitive Bids to the Company responsive to
the Competitive Bid Request. Each Competitive Bid by a Bank
must be received by the Administrative Agent via facsimile
in the form of Exhibit B hereto, (i) in the case of Euro
dollar Loans, not later than 9:30 a.m. New York time, three
Business Days before a proposed Competitive Borrowing or
(ii) in the case of Fixed Rate Loans, not later than
9:30 a.m. New York time, on the day of a proposed Competi
tive Borrowing. Competitive Bids that do not conform
precisely to the format of Exhibit B may be rejected by the
Company upon notice to the Administrative Agent and the
Administrative Agent shall notify the Bank of such rejection
by facsimile as soon as practicable after receipt from the
Company of a notification of rejection. Each Competitive
Bid shall refer to this Agreement and specify (x) the
maximum principal amount (which shall be an integral
multiple of $5,000,000) of the Competitive Loan that the
Bank is willing to make to the Company and (y) the Yield at
which the Bank is prepared to make the Competitive Loan. A
Competitive Bid submitted by a Bank pursuant to this para
graph (b) shall be irrevocable.
(c) The Administrative Agent shall notify the
Company by facsimile (i) in the case of Eurodollar Loans,
not later than 10:00 a.m. New York time, three Business Days
before a proposed Competitive Borrowing or (ii) in the case
of Fixed Rate Loans, not later than 10:00 a.m. New York
time, on the day of a proposed Competitive Borrowing of the
number of Competitive Bids made, the Yield and the maximum
principal amount of each Competitive Loan in respect of
which a Competitive Bid was made and the identity of the
Bank making each bid.
(d) The Company may in its sole and absolute
discretion, subject only to the provisions of this para
graph, accept or reject any Competitive Bid referred to in
paragraph (c) above. The Company shall notify the Adminis
trative Agent by facsimile or telephone whether and to what
extent it has decided to accept or reject any of or all the
bids referred to in paragraph (c) above, (i) in the case of
Eurodollar Loans, not later than 11:00 a.m. New York time,
three Business Days before a proposed Competitive Borrowing
or (ii) in the case of Fixed Rate Loans, not later than
11:00 a.m. New York time, on the day of a proposed Competi
tive Borrowing; provided, however, that (x) the Company
shall not accept a bid made at any Yield if the Company has
decided to reject a bid made at a lower Yield, (y) if the
Company declines to borrow, or it is restricted by other
conditions hereof from borrowing, the maximum principal
amount of Competitive Loans in respect of which bids at such
Yield have been made, then the Company shall accept a pro
rata portion of each bid made at the same Yield, based as
nearly as possible on the ratio of the maximum aggregate
principal amounts of Competitive Loans for which each such
bid was made (provided that if the available principal
amount of Competitive Loans to be so allocated is not
sufficient to enable Competitive Loans to be so allocated to
each such Bank in integral multiples of $5,000,000, the
Company shall select which Banks will be allocated such
Competitive Loans and will round allocations up or down to
the next higher or lower multiple of $5,000,000 as it shall
deem appropriate), and (z) no bid shall be accepted for a
Competitive Loan unless the amount of such Competitive Loan
is an integral multiple of $5,000,000 and is part of a
Competitive Borrowing in a minimum principal amount of
$25,000,000. A notice given by the Company pursuant to this
paragraph (d) shall be irrevocable.
(e) The Administrative Agent shall notify the
Banks whose Competitive Bids have been accepted of the terms
(in what amount and at what Yield) of such acceptance by
telephone promptly upon receipt of notice from the Company
pursuant to paragraph (d) of this Section 2.02, and each
successful bidder will thereupon become bound, subject to
the other applicable conditions hereof, to make the
Competitive Loan in respect of which its offer has been
accepted. Each Bank so bound shall notify the Adminis
trative Agent upon making the Competitive Loan.
(f) The Company shall not make more than four
Competitive Bid Requests during any 30-day period.
(g) If the Administrative Agent shall elect to
submit a Competitive Bid in its capacity as a Bank, it shall
submit such bid to the Company (i) in the case of Eurodollar
Loans, at least one hour earlier or (ii) in the case of
Fixed Rate Loans, at least 15 minutes earlier than the
latest time at which the other Banks are required to submit
their bids to the Administrative Agent pursuant to Sec
tion 2.02(b).
(h) All notices required by this Section 2.02
shall be made in accordance with Section 8.01.
SECTION 2.03. Six-Month Review. The Company and
the Administrative Agent shall, at the request of either
such party, review the time requirements set forth in
Section 2.02 hereof on a specified date in every other
fiscal quarter of the Company with a view to considering
changes, subject to the provisions of Section 8.02, to
accord to developments in facilities of the type provided
for herein.
SECTION 2.04. Standby Borrowing Procedure. In
order to effect a Standby Borrowing, the Company shall give
the Administrative Agent written or facsimile notice in the
form of Exhibit A-2 hereto, (i) in the case of Eurodollar
Loans, not later than 1:00 p.m., New York time, three
Business Days before a Standby Borrowing, (ii) in the case
of CD Loans, not later than 10:00 a.m., New York time, one
Business Day before a Standby Borrowing or (iii) in the case
of Alternate Base Loans, not later than 12:00 noon, New York
time, on the day of a Standby Borrowing. Such notice shall
be irrevocable and shall in each case refer to this
Agreement and specify (v) whether the Loans then being
requested are to be Eurodollar Loans, CD Loans or Alternate
Base Loans, (w) the date of such Loans (which shall be a
Business Day) and the aggregate amount thereof (which shall
not be less than $25,000,000 and shall be an integral
multiple of $5,000,000) and (x) the Interest Period with
respect thereto (which shall not end later than the Maturity
Date). If no Interest Period with respect to any Eurodollar
Loan or CD Loan is specified in any such notice, then the
Company shall be deemed to have selected an Interest Period
of one month's duration, in the case of a Eurodollar Loan,
or 30 days' duration, in the case of a CD Loan. The
Administrative Agent shall, no later than (I) the close of
business on the day of a Standby Borrowing Request for
Eurodollar Loans, (II) the close of business on the day of a
Standby Borrowing Request for CD Loans or (III) 1:00 p.m.,
New York time, on the day of a Standby Borrowing Request for
Alternate Base Loans, advise the Banks of any notice given
pursuant to this Section 2.04 and of each Bank's portion of
the requested Standby Borrowing by facsimile. Each Standby
Borrowing shall consist of Loans of the same Type made on
the same day and having the same Interest Period.
SECTION 2.05. Evidence of Debt. (a) Each Bank
shall maintain in accordance with its usual practice an
account or accounts evidencing indebtedness of the Company
to such Bank resulting from the Standby Loans and/or
Competitive Loans made by such Bank from time to time,
including the amounts of principal and interest payable and
paid to such Bank from time to time under this Agreement.
(b) The Administrative Agent shall maintain the
Register pursuant to subsection (e) hereof, and a subaccount
therein for each Bank, in which shall be recorded (i) the
amount of each Standby Loan and Competitive Loan made
hereunder, the Type thereof and the Interest Period
applicable thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from
the Company to each Bank hereunder and (iii) both the amount
of any sum received by the Administrative Agent hereunder
from the Company and each Bank's share thereof, if any.
(c) The entries made in the Register and the
subaccount for each Bank maintained pursuant to subsection
2.05(b) shall be prima facie evidence of the existence and
amounts of the obligations of the Company therein recorded;
provided, however, that the failure of any Bank or the
Administrative Agent to maintain the Register or any such
account, or any error therein, shall not in any manner
affect the obligation of the Company to repay (with
applicable interest) the Standby Loans and/or Competitive
Loans made to the Company by such Bank in accordance with
the terms of this Agreement.
(d) The Company agrees that, upon the request to
the Administrative Agent by any Bank for the purposes of
assigning all or a portion of such Bank's Loans hereunder to
a Federal Reserve Bank, the Company will execute and deliver
to such Bank a promissory note of the Company evidencing the
Loans made by such Bank substantially in the form of Exhibit
D (a "Note"), payable to the order of such Bank and in a
principal amount equal to the aggregate unpaid principal
amount of all Loans made by such Bank and outstanding from
time to time. Each Bank is hereby authorized to record the
date, Type and amount of each Loan made by such Bank, the
date and amount of each payment or prepayment of principal
thereof, each continuation thereof, each conversion of all
or a portion thereof to a Loan of another Type and the
length of each Interest Period with respect thereto, on the
schedule annexed to and constituting a part of its Note, and
any such recordation shall constitute prima facie evidence
of the accuracy of the information so recorded; provided
that the failure to make any such recordation (or any error
therein) shall not affect the obligation of the Company to
repay (with applicable interest) the Loans made to the
Company in accordance with the terms of this Agreement.
Upon the execution and delivery of any such Note, and for as
long as any such Note is outstanding, the terms of this
Agreement shall be modified mutatis mutandis to include the
Company's obligations under any such Note.
(e) The Administrative Agent, on behalf of the
Company, shall maintain at the address of the Administrative
Agent referred to in subsection 8.01(b) a copy of each
assignment and acceptance delivered to it and a register
(the "Register") for the recordation of the names and
addresses of the Banks and the Commitments of, and principal
amounts of the Loans owing to, each Bank from time to time.
The entries in the Register shall be conclusive, in the
absence of manifest error, and the Company, the
Administrative Agent and the Banks shall treat each person
whose name is recorded in the Register as the owner of a
Loan or other obligation hereunder as the owner thereof for
all purposes of this Agreement and the other Loan Documents,
notwithstanding any notice to the contrary. Any assignment
of any Loan or other obligation hereunder shall be effective
only upon appropriate entries with respect thereto being
made in the Register. The Register shall be available for
inspection by the Company or any Bank at any reasonable time
and from time to time upon reasonable prior notice.
SECTION 2.06. Refinancings. Subject to the
provisions of this Section 2.06, the Company agrees to repay
the principal amount of each Loan on the last day of the
Interest Period applicable thereto. The Company may
refinance all or any part of any Loan with a Loan of the
same or a different Type made pursuant to Section 2.02 or
Section 2.04, including, without limitation, refinancings of
Competitive Loans with Standby Loans and Standby Loans with
Competitive Loans, subject to the requirement that Euro
dollar Loans, CD Loans and Fixed Rate Loans may be prepaid
only on the last day of an applicable Interest Period and to
the other conditions and limitations set forth herein and
elsewhere in this Agreement. Any Loan or part thereof so
refinanced shall be deemed to be repaid or prepaid in
accordance with Section 2.10 or Section 2.17, as applicable,
with the proceeds of a new Borrowing hereunder and the
proceeds of the new Loan, and to the extent they do not
exceed the principal amount of the Loan being refinanced,
any such Loan or part thereof shall not be paid by the Banks
to the Administrative Agent or by the Administrative Agent
to the Company pursuant to Section 2.13(c) and
Section 2.11(b) below; provided, however, that (i) if the
principal amount extended by a Bank in a refinancing is
greater than the principal amount extended by such Bank in
the Borrowing being refinanced, then the Bank shall pay such
difference to the Administrative Agent for distribution to
the Banks described in (ii) below, (ii) if the principal
amount extended by a Bank in the Borrowing being refinanced
is greater than the principal amount being extended by such
Bank in the refinancing, the Administrative Agent shall
return the difference to such Bank out of amounts received
pursuant to (i) above (together with any interest actually
received by the Administrative Agent in respect of the
portion of such amounts returned to such Bank pursuant to
this clause (ii)), and (iii) to the extent any Bank fails to
pay the Administrative Agent amounts due from it pursuant to
(i) above, such Bank agrees to repay to the Administrative
Agent forthwith on demand such corresponding amount together
with interest thereon, for each day from the date such
amount is made available to the Company until the date such
amount is repaid to the Administrative Agent, at a rate
determined by the Administrative Agent to represent its cost
of overnight or short-term funds (which determination shall
be conclusive absent manifest error). If such Bank shall
repay to the Administrative Agent such corresponding amount,
such amount shall constitute such Bank's amount due from it
pursuant to (i) above as part of such Borrowing for purposes
of this Agreement.
SECTION 2.07. Fees. The Company agrees to pay to
each Bank, through the Administrative Agent, on each
March 31, June 30, September 30 and December 31 and on the
Maturity Date, in immediately available funds, a facility
fee calculated according to the table set forth in the
definition of "Applicable Fee Percentage" in Article I (a
"Facility Fee") at a rate per annum equal to the Applicable
Fee Percentage from time to time in effect on the amount of
the Commitment of such Bank, whether utilized or unutilized,
during the preceding quarter (or shorter period commencing
on the Effective Date and/or ending with the Maturity Date
or any date on which the Commitment of such Bank shall be
terminated). All Facility Fees shall be computed on the
basis of the actual number of days elapsed in a year of 365
or 366 days, as the case may be. The Facility Fee due to
each Bank shall commence to accrue on the Effective Date and
shall cease to accrue on the earlier of the Maturity Date or
the termination of the Commitment of such Bank as provided
herein.
SECTION 2.08. Arrangement Fees. The Company
agrees to pay the Arranger and the Administrative Agent, in
immediately available funds, those certain fees (the
"Arrangement Fees") in such amounts and at such times as are
set forth in the letter agreement dated June 21, 1995,
between the Company and the Arranger (the "Fee Letter").
SECTION 2.09. Termination and Reduction of
Commitments. The Company may permanently terminate, or from
time to time in part permanently reduce, the Commitments, in
each case upon at least three Business Days' prior written
or facsimile notice to the Administrative Agent. Such
notice shall specify the date and the amount of the termina
tion or reduction of the Commitments. Each partial reduc
tion of the Commitments shall be in an integral multiple of
$5,000,000 and in a minimum principal amount of $10,000,000.
Each reduction in the Commitments pursuant to this paragraph
shall be made ratably among the Banks in accordance with
their respective Commitments. Simultaneously with any
termination or reduction of Commitments pursuant to this
paragraph, the Company shall pay to the Administrative Agent
for the accounts of the Banks the Facility Fees on the
amount of the Commitments so terminated or reduced accrued
through the date of such termination or reduction. The
Commitments shall automatically and permanently terminate on
the Maturity Date.
SECTION 2.10. Continuation and Conversion of
Standby Loans. The provisions of this Section 2.10 apply
only to Standby Loans. The Company shall have the right at
any time on three Business Days' prior irrevocable written
or facsimile notice to the Administrative Agent (i) to
continue any Eurodollar Loan or CD Loan into a subsequent
Interest Period, (ii) to convert any Alternate Base Loan or
CD Loan into a Eurodollar Loan (specifying the Interest
Period to be applicable thereto), (iii) to convert any
Eurodollar Loan or CD Loan into an Alternate Base Loan
(specifying the Interest Period to be applicable thereto)
and (iv) to convert any Eurodollar Loan or Alternate Base
Loan into a CD Loan (specifying the Interest Period to be
applicable thereto), subject to the following:
(a) if less than all Standby Loans at the time
outstanding shall be converted, such conversion shall
be made pro rata among the Banks in accordance with the
respective principal amounts of the Standby Loans held
by the Banks immediately prior to such conversion;
(b) in the case of a conversion of less than all
Loans, the aggregate principal amount of Loans con
verted shall be at least $25,000,000, and in an
integral multiple of $5,000,000;
(c) each conversion shall be effected by each Bank
by applying the proceeds of the new Eurodollar Loan or
CD Loan or Alternate Base Loan, as the case may be, to
the Loan (or portion thereof) being converted; accrued
interest on the Loan (or portion thereof) being con
verted shall be paid by the Company at the time of
conversion;
(d) if any Loan is converted at a time other than
the end of an Interest Period applicable thereto, the
Company shall pay any increased costs associated
therewith pursuant to Section 2.20;
(e) no Loan or portion thereof may be converted
into or continued as a Eurodollar Loan less than one
month prior to the Maturity Date, except as a Borrowing
subject to the Short-Term Procedure;
(f) no Loan or portion thereof may be converted
into or continued as a CD Loan less than 30 days prior
to the Maturity Date, except as a Borrowing subject to
the Short-Term Procedure; and
(g) any portion of a Eurodollar Loan or a CD Loan
which cannot be converted into or continued as a
Eurodollar Loan or a CD Loan by reason of clause (e) or
(f) above shall be automatically converted into an
Alternate Base Loan.
In the event that the Company shall not give notice to
continue any Eurodollar Loan or CD Loan into a subsequent
Interest Period or convert any such Loan into a Loan of
another Type, such Loan (unless prepaid on or prior to the
last day of the Interest Period during which the Company
failed to give such notice) shall automatically be continued
as a Eurodollar Loan with an Interest Period of one month or
a CD Loan with an Interest Period of 30 days, respectively,
except to the extent it shall be automatically converted
into an Alternate Base Loan pursuant to clause (g) above.
The Interest Period applicable to any Eurodollar
Loan or CD Loan resulting from a conversion shall be speci
fied by the Company in the irrevocable notice of conversion
delivered pursuant to this Section; provided, however, that
if no such Interest Period shall be specified, the Company
shall be deemed to have selected an Interest Period of one
month's duration, in the case of a Eurodollar Loan, or
30 days' duration, in the case of a CD Loan.
SECTION 2.11. Competitive Loans. (a) Each
Competitive Borrowing made by the Company on any date shall
be in an integral multiple of $5,000,000 and in a minimum
aggregate principal amount of $25,000,000. Competitive
Loans shall be made in the amounts accepted by the Company
in accordance with Section 2.02(d). All Competitive Loans,
regardless of what Bank or Banks make such Loans, will be
deemed to utilize the Commitments of all Banks pro rata in
accordance with their Commitments for all purposes including
the availability of Standby Loans.
(b) Subject to Section 2.06, each Bank shall make
its portion of each Competitive Borrowing on the proposed
date thereof by paying the amount required to the Adminis
trative Agent in New York, New York, in immediately avail
able funds not later than (i) in the case of Eurodollar
Loans, 12:00 noon New York time, or (ii) in the case of
Fixed Rate Loans, 2:00 p.m. New York time, and the
Administrative Agent shall, promptly upon receipt of such
funds, credit the amounts so received to the general deposit
account of the Company with the Administrative Agent or, if
Competitive Loans are not made on such date because any
condition precedent to a borrowing herein specified shall
not have been met, return the amounts so received to the
respective Banks as soon as practicable.
(c) The Administrative Agent may assume that each
Bank that has become bound pursuant to Section 2.02(e)
hereof to provide funds for a Competitive Borrowing has made
such portion (adjusted, in the case of a refinancing
pursuant to Section 2.06 hereof, as noted in clause (i) or
(ii) of the proviso thereof, as applicable) available to the
Administrative Agent on the date of such Borrowing in
accordance with paragraph (b) above and may, in reliance
upon such assumption, make available to the Company on such
date a corresponding amount. If the Administrative Agent
shall have so made funds available then, to the extent that
any Bank shall not have made such portion available to the
Administrative Agent, such Bank agrees to repay to the
Administrative Agent forthwith on demand such corresponding
amount together with interest thereon, for each day from the
date such amount is made available to the Company until the
date such amount is repaid to the Administrative Agent, at a
rate determined by the Administrative Agent to represent its
cost of overnight or short-term funds (which determination
shall be conclusive absent manifest error). If such Bank
shall repay to the Administrative Agent such corresponding
amount, such amount shall constitute such Bank's Loan as
part of such Borrowing for purposes of this Agreement.
SECTION 2.12. Interest on Competitive Loans.
(a) Subject to the provisions of Section 2.15, each Compet
itive Loan which is a Fixed Rate Loan shall bear interest
from and including the first day of the applicable Interest
Period to but excluding the last day of such Interest Period
at a rate per annum (computed on the basis of the actual
number of days elapsed over a year of 360 days) equal to the
fixed rate of interest offered by the Bank making such Loan
and accepted by the Company pursuant to Section 2.02.
Interest on each Fixed Rate Loan shall be payable on each
Interest Payment Date applicable thereto.
(b) Subject to the provisions of Sections 2.15
and 2.16, each Competitive Loan which is a Eurodollar Loan
shall bear interest from and including the first day of the
applicable Interest Period to but excluding the last day of
such Interest Period at a rate per annum (computed on the
basis of the actual number of days elapsed over a year of
360 days) equal to the LIBOR Rate for the Interest Period in
effect for such Loan plus or minus the Margin specified by a
Bank with respect to such Loan in its Competitive Bid
submitted pursuant to Section 2.02(b). Interest on each
Eurodollar Loan shall be payable on each Interest Payment
Date applicable thereto. The applicable LIBOR Rate for each
Interest Period shall be determined by the Administrative
Agent, and such determination shall be conclusive absent
manifest error.
SECTION 2.13. Standby Loans. (a) Each Standby
Borrowing made by the Company on any date shall be in an
integral multiple of $5,000,000 and in a minimum aggregate
principal amount of $25,000,000. Standby Loans shall be
made ratably by the Banks in accordance with their respec
tive unutilized Commitments on the date of the Standby
Borrowing; provided, however, that the failure of any Bank
to make any Loan shall not in itself relieve any other Bank
of its obligation to lend hereunder.
(b) Each Standby Loan shall be a Eurodollar Loan,
a CD Loan or an Alternate Base Loan as the Company may
request subject to and in accordance with Section 2.04.
Each Bank may at its option make any Eurodollar Loan by
causing a foreign branch or affiliate of such Bank to make
such Loan; provided, however, that any exercise of such
option shall not affect the obligation of the Company to
repay such Loan. Standby Loans of more than one interest
rate option may be outstanding at the same time.
(c) Subject to Section 2.06 each Bank shall make
its portion of each Standby Borrowing on the proposed date
thereof by paying the amount required to the Administrative
Agent in New York, New York in immediately available funds
not later than 12:00 noon, New York time (or, in the case of
a Standby Borrowing comprised of Alternate Base Loans, not
later than 2:30 p.m., New York time), and the Administrative
Agent shall, promptly upon receipt of such funds, credit the
amounts so received to the general deposit account of the
Company with the Administrative Agent or, if Standby Loans
are not made on such date because any condition precedent to
a Borrowing herein specified shall not have been met, return
the amounts so received to the respective Banks as soon as
practicable.
(d) The Administrative Agent may assume that each
Bank with an outstanding Commitment hereunder has made such
Bank's portion of such Borrowing (adjusted, in the case of a
refinancing pursuant to Section 2.06 hereof, as noted in
clause (i) or (ii) of the proviso thereof, as applicable)
available to the Administrative Agent on the date of such
Borrowing in accordance with paragraph (c) above and may, in
reliance upon such assumption, make available to the Company
on such date a corresponding amount. If the Administrative
Agent shall have so made funds available then, to the extent
that any Bank shall not have made such portion available to
the Administrative Agent, such Bank agrees to repay to the
Administrative Agent forthwith on demand such corresponding
amount together with interest thereon, for each day from the
date such amount is made available to the Company until the
date such amount is repaid to the Administrative Agent, at a
rate determined by the Administrative Agent to represent its
cost of overnight or short-term funds (which determination
shall be conclusive absent manifest error). If such Bank
shall repay to the Administrative Agent such corresponding
amount, such amount shall constitute such Bank's Loan as
part of such Borrowing for purposes of this Agreement.
SECTION 2.14. Interest on Standby Loans.
(a) Subject to the provisions of Sections 2.15 and 2.16
each Standby Loan which is a Eurodollar Loan shall bear
interest from and including the first day of the applicable
Interest Period to but excluding the last day of such
Interest Period at a rate per annum (computed on the basis
of the actual number of days elapsed over a year of
360 days) equal to the LIBOR Rate for the Interest Period in
effect for such Loan plus the Applicable Margin for each day
during such Interest Period. Interest on each Eurodollar
Loan shall be payable on each Interest Payment Date
applicable thereto. The applicable LIBOR Rate for each
Interest Period shall be determined by the Administrative
Agent, and such determination shall be conclusive absent
manifest error.
(b) Subject to the provisions of Sections 2.15
and 2.16 each Standby Loan which is a CD Loan shall bear
interest from and including the first day of the applicable
Interest Period to but excluding the last day of such
Interest Period at a rate per annum (computed on the basis
of the actual number of days elapsed over a year of
360 days) equal to the Adjusted CD Rate for the Interest
Period in effect for such Loan plus the Applicable Margin
for each day during such Interest Period. Interest on each
CD Loan shall be payable on each Interest Payment Date
applicable thereto. The applicable Adjusted CD Rate shall
be determined by the Administrative Agent, and such deter
mination shall be conclusive absent manifest error.
(c) Subject to the provisions of Section 2.15
each Standby Loan which is an Alternate Base Loan shall bear
interest from and including the first day of the applicable
Interest Period to but excluding the last day of such
Interest Period at a rate per annum (computed on the basis
of the actual number of days elapsed over a year of 365 or
366 days, as the case may be) equal to the Alternate Base
Rate from time to time in effect for the Interest Period for
such Loan. Interest on each Alternate Base Loan shall be
payable on each Interest Payment Date applicable thereto.
The applicable Alternate Base Rate for each Interest Period
shall be determined by the Administrative Agent, and such
determination shall be conclusive absent manifest error.
SECTION 2.15. Interest on Overdue Amounts. If
the Company shall default in the payment of the principal of
or interest on any Loan or any other amount becoming due
hereunder, the Company shall on demand from time to time pay
interest, to the extent permitted by law, on such defaulted
amount up to (but not including) the date of actual payment
(after as well as before judgment) at a rate per annum
(computed on the basis of the actual number of days elapsed
over a year of 365 or 366 days, as the case may be) equal to
the Alternate Base Rate plus 2% per annum.
SECTION 2.16. Alternate Rate of Interest.
(a) In the event, and on each occasion, that on the day two
Business Days prior to the commencement of any Interest
Period for a Eurodollar Loan, the Administrative Agent shall
have determined that dollar deposits in the amount of the
requested principal amount of such Eurodollar Loan are not
generally available in the London Interbank Market, or that
the rate at which such dollar deposits are being offered
will not adequately and fairly reflect the cost to any Bank
of making or maintaining such Eurodollar Loan during such
Interest Period, or that reasonable means do not exist for
ascertaining the LIBOR Rate (such determinations to be made
in good faith), the Administrative Agent shall, as soon as
practicable thereafter, give written or facsimile notice of
such determination to the Company and the Banks. In the
event of any such determination, any request by the Company
for a Eurodollar Loan pursuant to Section 2.04 shall, until
the circumstances giving rise to such notice no longer
exist, be deemed to be a request for an Alternate Base Loan.
Each determination by the Administrative Agent hereunder
shall be conclusive absent manifest error. In the event of
such a determination, the Company shall have the right to
withdraw its notice of Borrowing requesting a Eurodollar
Loan at any time prior to 12:00 noon, New York time, on the
date such Loan is to be made.
(b) In the event, and on each occasion, that on
or before the day on which the Adjusted CD Rate for a CD
Loan is to be determined the Administrative Agent shall have
determined that such Adjusted CD Rate cannot be determined
for any reason, including the inability of the Administra
tive Agent to obtain sufficient bids in accordance with the
terms of the definition of Fixed CD Rate, or the Administra
tive Agent shall determine that the Adjusted CD Rate for
such CD Loan will not adequately and fairly reflect the cost
to any Bank of making or maintaining its CD Loan during such
Interest Period, the Administrative Agent shall, as soon as
practicable thereafter, give written or facsimile notice of
such determination to the Company and the Banks. In the
event of any such determination, any request by the Company
for a CD Loan pursuant to Section 2.04 shall, until the
Administrative Agent shall have advised the Company and the
Banks that the circumstances giving rise to such notice no
longer exist, be deemed to be a request for an Alternate
Base Loan. Each determination by the Administrative Agent
hereunder shall be conclusive absent manifest error. In the
event of such a determination, the Company shall have the
right to withdraw its notice of Borrowing requesting a CD
Loan at any time prior to 10:00 a.m., New York time, on the
date such Loan is to be made.
SECTION 2.17. Prepayment of Loans. (a) Prior to
the Maturity Date the Company shall have the right to prepay
any Competitive Borrowing or Standby Borrowing at any time,
in whole or in part, subject to the requirements of
Section 2.20 but otherwise without premium or penalty, upon
at least three Business Days' prior written or facsimile
notice to the Administrative Agent; provided, however, that
each such partial prepayment shall be in an integral
multiple of $5,000,000 and in a minimum aggregate principal
amount of $10,000,000.
(b) On the date of any termination or reduction
of the Commitments pursuant to Section 2.09 the Company
shall pay or prepay so much of the Loans as shall be neces
sary in order that the aggregate principal amount of the
Loans outstanding will not exceed the aggregate Commitments
following such termination or reduction. Any such payment
or prepayment shall be accomplished among the Banks ratably
based upon the aggregate amount of their Loans outstanding.
All prepayments under this paragraph shall be subject to
Section 2.20.
(c) Each notice of prepayment shall specify the
prepayment date and the aggregate principal amount of each
Borrowing to be prepaid, shall be irrevocable and shall
commit the Company to prepay such Borrowing by the amount
stated therein. All prepayments under this Section shall be
accompanied by accrued interest on the principal amount
being prepaid to the date of prepayment.
SECTION 2.18. Reserve Requirements; Change in
Circumstances. (a) It is understood that the cost to the
Banks of making or maintaining any of the Loans may fluctu
ate as a result of the applicability of, or changes in,
reserve requirements imposed by the Board, including but not
limited to reserve requirements under Regulation D in
connection with Eurocurrency Liabilities (as defined in
Regulation D) at the ratios provided for in Regulation D
from time to time. The Company agrees to pay to the Banks
from time to time, as provided in paragraph (e) below, such
amounts as shall be necessary to compensate the Banks for
the portion of the cost of making or maintaining the Loans
resulting from any such reserve requirements, it being
understood that the rates of interest applicable to the
Loans have been determined on the assumption that no such
reserve requirements exist or will exist and that such rates
do not reflect costs imposed on the Banks in connection with
such reserve requirements.
(b) Notwithstanding any other provision herein,
if after the date of this Agreement any change in applicable
law or regulation or in the interpretation or administration
thereof by any Governmental Authority charged with the
interpretation or administration thereof (whether or not
having the force of law) shall change the basis of taxation
of payments to any Bank of the principal of or interest on
any Eurodollar Loan, CD Loan or Fixed Rate Loan made by such
Bank or any other fees or amounts payable hereunder (other
than taxes imposed on the overall net income of such Bank by
the jurisdiction in which such Bank has its principal office
or by any political subdivision or taxing authority
therein), or shall impose, modify or deem applicable any
reserve, special deposit or similar requirement against
assets of, deposits with or for the account of, or credit
extended by, such Bank or shall impose on such Bank or the
London Interbank Market any other condition affecting this
Agreement or any Eurodollar Loan, CD Loan or Fixed Rate Loan
made by such Bank, and the result of any of the foregoing
shall be to increase the cost to such Bank of making or
maintaining any Eurodollar Loan, CD Loan or Fixed Rate Loan
or to reduce the amount of any sum received or receivable by
such Bank hereunder (whether of principal, interest or
otherwise) in respect thereof by an amount deemed by such
Bank to be material, then such additional amount or amounts
as will compensate such Bank for such additional costs or
reduction will be paid to such Bank upon demand to the
Company.
(c) Without limiting the generality of Sec
tion 2.18(b), if the Company shall be required by reason of
any change occurring after the date of this Agreement in
applicable law or regulation or in the interpretation or
administration thereof by any Governmental Authority charged
with the interpretation or administration thereof (whether
or not having force of law) to deduct any Taxes from or in
respect of any sum payable hereunder to any Bank (i) the sum
payable shall be increased by the amount necessary so that
after making all such required deductions (including any
deductions applicable to additional sums payable under this
Section 2.18) such Bank shall receive an amount equal to the
sum it would have received had no such deductions been made,
(ii) the Company shall make such deductions and (iii) the
Company shall pay the full amount deducted to the relevant
taxing authority or other Governmental Authority in accor
dance with applicable law. As soon as practicable after the
date of any such payment by the Company to the relevant
taxing authority or Governmental Authority, the Company
shall deliver to the Administrative Agent proof satisfactory
to the Administrative Agent evidencing payment thereof.
(d) If, after the date of this Agreement, any
Bank shall have determined that the adoption of any applica
ble law, rule, regulation or guideline regarding capital
adequacy, or any change therein, or any change in the
interpretation or administration thereof by any Governmental
Authority, central bank or comparable agency charged with
the interpretation or administration thereof, or compliance
by any Bank (or any lending office of such Bank) with any
request or directive regarding capital adequacy (whether or
not having the force of law) of any such authority, central
bank or comparable agency, has or would have the effect of
reducing the rate of return on such Bank's capital as a
consequence of its obligations hereunder to a level below
that which such Bank could have achieved but for such
adoption, change or compliance (taking into consideration
such Bank's policies with respect to capital adequacy) by an
amount deemed by such Bank to be material, then from time to
time, the Company shall pay to such Bank such additional
amount or amounts as will compensate such Bank for such
reduction.
(e) A certificate of each Bank setting forth such
amount or amounts as shall be necessary to compensate such
Bank (or participating banks pursuant to Article VIII) as
specified in paragraph (a), (b), (c) or (d) above, as the
case may be (such amounts to be determined in good faith),
shall be delivered by written or facsimile notice to the
Company and shall be conclusive absent manifest error. The
Company shall pay each Bank the amount shown as due on any
such certificate within 10 Business Days after its receipt
of the same.
(f) Failure on the part of any Bank to demand
compensation for any increased costs or reduction in amounts
received or receivable or reduction in return on capital
with respect to any Interest Period shall not constitute a
waiver of such Bank's rights to demand compensation for any
increased costs or reduction in amounts received or receiv
able or reduction in return on capital in such Interest
Period or in any other Interest Period. The protection of
this Section shall be available to each Bank regardless of
any possible contention of invalidity or inapplicability of
the law, regulation or condition which shall have been
imposed.
(g) In the event that any Bank requests from the
Company or the Company is required to pay any compensation
pursuant to this Section 2.18, the Company may, subject to
the provisions of Sections 2.17 and 2.20, provide written or
facsimile notice to such Bank (with a copy to the
Administrative Agent) that it intends to cancel the
Commitment of such Bank; provided, however, that no Commit
ment may be canceled if an Event of Default or an event
which with the passage of time or the giving of notice or
both would constitute an Event of Default shall have oc
curred and be continuing. If the Company shall have
provided notice that it intends to cancel such Bank's
Commitment, such cancellation shall be effective (subject to
the payment of all amounts owed to such Bank) three Business
Days following receipt by such Bank (and the Administrative
Agent) of such notice. On the date of any such
cancellation, the Company shall pay or prepay all amounts
owed or owing to the aforementioned Bank under this Agree
ment, including but not limited to principal of and interest
on all outstanding Loans made to the Company by the Bank and
the Facility Fees on the amount of the Commitment so can
celled accrued through the date of such cancellation;
provided, however, the Company shall have the right to seek
a substitute bank or substitute banks (which may be one or
more of the Banks) which satisfy all the requirements of
this Agreement to assume the Commitment of such cancelled
Bank and to purchase its outstanding Loans (without preju
dice to any obligation of the Company to prepay such Loans
under Section 2.17 hereof). Any substitute bank shall
become a "Bank" hereunder for all purposes hereof upon
execution and delivery to the Administrative Agent and the
Company of an accession agreement, in a form to be agreed
upon at the time, indicating the Commitment of such substi
tute Bank, which Commitment shall not exceed the Commitment
previously held by any cancelled Bank. A copy of such
agreement shall be delivered to each of the Banks. Such
substitute Bank shall not be required to make Loans here
under until a Standby Borrowing Request has been given to
the Banks pursuant to Section 2.04 hereof.
(h) Notwithstanding the foregoing, no Bank shall
be entitled to any compensation described in this
Section 2.18 unless, at the time it requests such
compensation, it is the policy or general practice of such
Bank to request compensation for comparable costs in similar
circumstances under comparable provisions of other credit
agreements for comparable customers unless specific facts or
circumstances applicable to any obligor or the transactions
contemplated by this Agreement would alter such policy or
general practice, provided that (i) nothing in this
Section 2.18(h) shall preclude a Bank from waiving the
collection of similar costs from one or more of its other
customers and (ii) the Administrative Agent shall have no
obligation to determine compliance by any Bank with this
paragraph (h).
SECTION 2.19. Change in Legality. (a) Notwith
standing anything to the contrary contained herein, if any
change in law or regulation or in the interpretation thereof
by any Governmental Authority charged with the administra
tion or interpretation thereof shall make it unlawful for
any Bank to make or maintain any Eurodollar Loan or to give
effect to its obligations as contemplated hereby, then, by
written notice to the Company and to the Administrative
Agent, such Bank may:
(i) declare that Eurodollar Loans will not there
after be made by such Bank hereunder, whereupon the
Company shall be prohibited from requesting Standby
Loans which are Eurodollar Loans from such Bank hereun
der unless such declaration is subsequently withdrawn;
and
(ii) require that all outstanding Eurodollar Loans
made by it be converted to Alternate Base Loans, in
which event (A) all such Eurodollar Loans shall be
automatically converted to Alternate Base Loans, as of
the effective date of such notice as provided in
paragraph (b) below and (B) all payments and prepay
ments of principal which would otherwise have been
applied to repay the converted Eurodollar Loans shall
instead be applied to repay Alternate Base Loans
resulting from the conversion of such Eurodollar Loans.
(b) For purposes of this Section, a notice to the
Company by any Bank pursuant to paragraph (a) above shall be
effective, if lawful, on the last day of the then current
Interest Period; in all other cases, such notice shall be
effective on the date of receipt by the Company.
SECTION 2.20. Indemnity. The Company shall
indemnify each Bank against any loss or expense which such
Bank may sustain or incur as a consequence of (a) any
failure by the Company to fulfill on the date of any Borrow
ing hereunder the applicable conditions set forth in Arti
cle IV, (b) any failure by the Company to borrow hereunder
after irrevocable notice of Borrowing pursuant to Article II
has been given or after bids have been accepted, (c) any
payment, prepayment or conversion of a Eurodollar Loan, CD
Loan or Fixed Rate Loan required or permitted by any other
provision of this Agreement or otherwise made on a date
other than the last day of the applicable Interest Period,
(d) any default in the payment or prepayment of the prin
cipal amount of any Loan or any part thereof or interest
accrued thereon, as and when due and payable (at the due
date thereof, by irrevocable notice of prepayment or other
wise), or (e) the occurrence of any Event of Default, in
each such case including, but not limited to, any loss or
reasonable expense sustained or incurred or to be sustained
or incurred in liquidating or employing deposits from third
parties acquired to effect or maintain such Loan or any part
thereof as a Eurodollar Loan, CD Loan or Fixed Rate Loan.
Such loss or reasonable expense shall include, without
limitation, an amount equal to the excess, if any, as
reasonably determined by each Bank of (i) its cost of
obtaining the funds for the Loan being paid, prepaid or
converted or not borrowed (based on the LIBOR Rate or
Adjusted CD Rate or, in the case of a Fixed Rate Loan, the
fixed rate of interest applicable thereto) for the period
from the date of such payment, prepayment or conversion or
failure to borrow to the last day of the Interest Period for
such Loan (or, in the case of a failure to borrow, the
Interest Period for such Loan which would have commenced on
the date of such failure to borrow) over (ii) the amount of
interest (as reasonably determined by such Bank) that would
be realized by such Bank in reemploying the funds so paid,
prepaid or converted or not borrowed for such period or
Interest Period, as the case may be. A certificate of each
Bank setting forth any amount or amounts which such Bank is
entitled to receive pursuant to this Section (such amounts
to be determined in good faith) shall be delivered to the
Company through the Administrative Agent and shall be
conclusive absent manifest error.
SECTION 2.21. Pro Rata Treatment. Except as
permitted under Section 2.19, (i) each payment or prepayment
of principal and each payment of interest with respect to a
Competitive Borrowing or a Standby Borrowing shall be made
pro rata among the Banks in accordance with the respective
principal amounts of the Loans extended by each Bank, if
any, with respect to such Competitive Borrowing or Standby
Borrowing, (ii) refinancings of Competitive Loans with
Standby Loans and Standby Loans which are not refinancings
of other Loans shall be made pro rata among the Banks in
accordance with their respective unutilized Commitments and
(iii) each reduction of the Commitments shall be made pro
rata among the Banks in accordance with their respective
Commitments.
SECTION 2.22. Sharing of Setoffs. Each Bank
agrees that if it shall, through the exercise of a right of
banker's lien, setoff or counterclaim against the Company,
including, but not limited to, a secured claim under Sec
tion 506 of Title 11 of the United States Code or other
security or interest arising from, or in lieu of, such
secured claim, received by such Bank under any applicable
bankruptcy, insolvency or other similar law or otherwise,
obtain payment (voluntary or involuntary) in respect of
Loans made by it as a result of which the unpaid principal
portion of the Standby Loans made by it shall be
proportionately less than the unpaid principal portion of
the Standby Loans made by any other Bank, it shall be deemed
to have simultaneously purchased from such other Bank a
participation in the Standby Loans made by such other Bank,
so that the aggregate unpaid principal amount of the Standby
Loans and the participations in Standby Loans made by each
Bank shall be in the same proportion to the aggregate unpaid
principal amount of all Standby Loans then outstanding as
the principal amount of the Standby Loans made by it prior
to such exercise of banker's lien, setoff or counterclaim
was to the principal amount of all Standby Loans outstanding
prior to such exercise of banker's lien, setoff or
counterclaim; provided, however, that if any such purchase
or purchases or adjustments shall be made pursuant to this
Section and the payment giving rise thereto shall thereafter
be recovered, such purchase or purchases or adjustments
shall be rescinded to the extent of such recovery and the
purchase price or prices or adjustment restored without
interest. The Company expressly consents to the foregoing
arrangements and agrees that any Bank holding a
participation in a Standby Loan deemed to have been so
purchased may exercise any and all rights of banker's lien,
setoff or counterclaim with respect to any and all moneys
owing by the Company to such Bank as fully as if such Bank
had made a Loan directly to the Company in the amount of
such participation.
SECTION 2.23. Tax Forms. Each Bank that is
organized under the laws of any jurisdiction other than the
United States, any State thereof or the District of Columbia
(a "Non-U.S. Bank") shall deliver to each of the Company and
the Administrative Agent one copy of either United States
Internal Revenue Service Form 1001 or Form 4224, or, in the
case of a Non-U.S. Bank claiming exemption from U.S. Federal
withholding tax under Section 871(h) or 881(c) of the Code
with respect to payments of "portfolio interest", a Form
W-8, or any subsequent versions thereof or successors
thereto (and, if such Non-U.S. Bank delivers a Form W-8, a
certificate representing that such Non-U.S. Bank is not a
bank for purposes of Section 881(c) of the Code, is not a
10-percent shareholder (within the meaning of
Section 871(h)(3)(B) of the Code) of the Company and is not
a controlled foreign corporation related to the Company
(within the meaning of Section 864(d)(4) of the Code)),
properly completed and duly executed by such Non-U.S. Bank
claiming complete exemption from, or reduced rate of,
U.S. Federal withholding tax on payments by the Company
under this Agreement and the other Loan Documents. Such
forms shall be delivered by each Non-U.S. Bank on or before
the date it becomes a party to this Agreement (or, in the
case of a participation holder or assignee, on or before the
date such participation holder or assignee becomes entitled
to benefits hereunder) and on or before the date, if any,
such Non-U.S. Bank changes its applicable lending office by
designating a different lending office. In addition, each
Non-U.S. Bank shall deliver such forms promptly upon
becoming aware of the obsolescence or invalidity of any form
previously delivered by such Non-U.S. Bank. Notwithstanding
any other provision of this Section 2.23, a Non-U.S. Bank
shall not be required to deliver any form pursuant to this
Section 2.23 that such Non-U.S. Bank is not legally able to
deliver. Nothing contained in this Section 2.23 shall
require any Bank to make available any of its tax returns
(or any other information that it deems to be confidential
or proprietary). Unless the Company and the Administrative
Agent have received such forms or other documents satis
factory to them indicating that payments hereunder are not
subject to United States withholding tax or are subject to
such tax at a rate reduced by an applicable tax treaty, the
Company shall withhold Taxes from such payments (other than
Taxes required to be deducted from such payments by reason
of any change occurring after the date of this Agreement as
provided in Section 2.18(c)) at the applicable statutory
rate in the case of payments to or for any Non-U.S. Bank.
III. REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to each of the
Banks that:
SECTION 3.01. Corporate Existence. The Company
(a) is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware;
(b) has all requisite corporate power and all material
governmental licenses, authorizations, consents and approv
als necessary to own its assets and carry on its business as
now being or as proposed to be conducted; and (c) is duly
qualified to do business and is in good standing in all
jurisdictions in which the nature of the business conducted
by it makes such qualification necessary and where failure
so to qualify would have a material adverse effect on the
consolidated financial condition or operations, or the
prospects or business taken as a whole, of the Company and
the consolidated Subsidiaries.
SECTION 3.02. Subsidiaries. Set forth in
Schedule 1 hereto is a complete and correct list of all
Subsidiaries of the Company as of July 31, 1995. Except as
disclosed in said Schedule 1, on the date of this Agreement
the Company and/or one or more of the Subsidiaries own, free
and clear of all Liens, all of the shares (except director's
qualifying shares) of the capital stock (or other ownership
interests) of all Subsidiaries and all such shares are
validly issued, fully paid and nonassessable. Except as
disclosed in said Schedule 1, each Subsidiary is a
corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation
and is duly qualified to transact business and is in good
standing in all jurisdictions in which the nature of the
business conducted by it makes such qualification necessary
(except where failure to be so organized, existing or in
good standing or to so qualify could not have a material
adverse effect on the ability of the Company to perform its
obligations under this Agreement).
SECTION 3.03. Authorization. The Company has all
requisite corporate power to make, deliver and perform, as
applicable, this Agreement (and any Notes) and to make
Borrowings hereunder and has taken all necessary corporate
action to authorize such Borrowings on the terms and
conditions of this Agreement and to authorize the execution,
delivery and performance of this Agreement (and any Notes).
Such actions by the Company will not (i) require any consent
or approval of the shareholders of the Company or any
Subsidiary, (ii) violate any provision of any law, rule,
regulation (including, without limitation, Regulation G, T,
U or X), order, writ, judgment, injunction, decree,
determination or award presently in effect having
applicability to the Company or any Subsidiary or of the
charter or by-laws of the Company or any Subsidiary,
(iii) result in a breach of or constitute a default under
any indenture or loan or credit agreement or any other
agreement, lease or instrument to which the Company or any
Subsidiary is a party or by which it or its properties may
be bound or affected, or (iv) result in, or require the
creation or imposition of, any mortgage, deed of trust,
pledge, lien, security interest or encumbrance of any nature
upon or with respect to any of the properties now owned or
hereafter acquired by the Company or any Subsidiary.
SECTION 3.04. Governmental Approval. No regis
tration with or consent or approval of, or other action by,
any Governmental Authority is or will be required in
connection with the execution, delivery and performance of
this Agreement (or any Note) or the Borrowings hereunder by
the Company.
SECTION 3.05. Enforceability. This Agreement
constitutes (and any Note, as and when duly executed and
delivered by the Company, will constitute) a legal, valid
and binding obligation of the Company, enforceable in
accordance with its terms (subject, as to the enforcement of
remedies, to applicable bankruptcy, reorganization,
insolvency, moratorium and similar laws affecting creditors'
rights generally).
SECTION 3.06. Financial Statements. (a) The
audited consolidated balance sheet of the Company and the
consolidated Subsidiaries as at December 31, 1994, and the
related consolidated statements of operations, shareholders'
equity and cash flows of the Company and the consolidated
Subsidiaries for the fiscal year ended on said date, with
the opinion thereon of Ernst & Young, and the unaudited
condensed consolidated balance sheet of the Company and the
consolidated Subsidiaries as at March 31, 1995, and the
related condensed consolidated statements of operations and
cash flows of the Company and the consolidated Subsidiaries
for the three-month period ended on such date, heretofore
furnished to each of the Banks, are complete and correct in
all material respects and fairly present the consolidated
financial condition of the Company and the consolidated
Subsidiaries as at said date and the consolidated results of
their operations for the fiscal year and three-month period
ended on said dates (subject, in the case of such financial
statements as at March 31, 1995, to normal year-end audit
adjustments), all in accordance with generally accepted
accounting principles and practices applied on a consistent
basis. Since December 31, 1994, there has been no change in
the consolidated financial condition or consolidated opera
tions, or the prospects or business taken as a whole, of the
Company and the consolidated Subsidiaries from that set
forth in said audited consolidated financial statements as
at said date which change could have a material adverse
effect on the ability of the Company to perform its obliga
tions under this Agreement.
(b) Each of the respective annual statements of
the Restricted Subsidiaries for the year ended December 31,
1994, as heretofore filed with the relevant insurance
regulators and furnished to each of the Banks, fairly
presents the financial condition and results of operations
of the entity to which said statement relates as at said
date in accordance with the statutory accounting principles
required by law to be applied in the preparation thereof.
SECTION 3.07. Litigation; Compliance with Laws.
(a) Except as disclosed to the Banks in writing prior to the
date hereof, there are not any actions, suits or proceedings
at law or in equity or by or before any Governmental
Authority now pending or, to the knowledge of the Company,
threatened against or affecting the Company or any
Subsidiary or the businesses, assets or rights of the
Company or any Subsidiary (i) which involve this Agreement
or any of the transactions contemplated hereby or (ii) as to
which there is a reasonable possibility of an adverse
determination and which, if adversely determined, could,
individually or in the aggregate, materially impair the
ability of the Company and the Subsidiaries taken as a whole
to conduct business substantially as now conducted, or
materially and adversely affect the businesses, assets,
operations, prospects or condition, financial or otherwise,
of the Company and the Subsidiaries taken as a whole, or
impair the validity or enforceability of or the ability of
the Company to perform its obligations under this Agreement.
(b) Neither the Company nor any Subsidiary is in
violation of any law, or in default with respect to any
judgment, writ, injunction, decree, rule or regulation of
any court or governmental agency or instrumentality, where
such violation or default could have a materially adverse
effect on the businesses, assets, operations, prospects or
condition, financial or otherwise, of the Company and the
Subsidiaries taken as a whole.
SECTION 3.08. Federal Reserve Regulations.
(a) Neither the Company nor any Subsidiary is engaged
principally, or as one of its important activities, in the
business of extending credit for the purpose of purchasing
or carrying Margin Stock.
(b) No part of the proceeds of the Loans will be
used, whether directly or indirectly, and whether immediate
ly, incidentally or ultimately, (i) to purchase or carry
Margin Stock or to extend credit to others for the purpose
of purchasing or carrying Margin Stock or to refund indebt
edness originally incurred for such purpose or (ii) for any
purpose which entails a violation of, or which is inconsis
tent with, the provisions of the Regulations of the Board,
including, without limitation, Regulations G, T, U and X
thereof.
SECTION 3.09. Taxes. United States Federal
income tax returns of the Company and the Subsidiaries have
been examined and closed through the fiscal year of the
Company ended December 31, 1988. Each of the Company and
the Subsidiaries has filed all United States Federal income
tax returns and all other material tax returns which are
required to be filed by it and has paid all taxes due
pursuant to such returns or pursuant to any assessment
received by the Company or any of the Subsidiaries except
where failure to pay such amounts would not have a material
adverse effect on the Company's ability to perform its
obligations under this Agreement. The charges, accruals and
reserves on the books or other records of the Company and
the Subsidiaries in respect of taxes and other governmental
charges are, in the reasonable opinion of the Company,
adequate.
SECTION 3.10. Employee Benefit Plans. Each of
the Company and its ERISA Affiliates is in compliance in all
material respects with the applicable provisions of ERISA
and the Code and the regulations and published
interpretations thereunder. No ERISA Event has occurred or
is reasonably expected to occur that, when taken together
with all other such ERISA Events, could reasonably be
expected to result in material liability of the Company or
any of its ERISA Affiliates. The present value of all
benefit liabilities under each Plan (based on those
assumptions used for purposes of Statement of Financial
Accounting Standards No. 87) did not, as of the last annual
valuation date applicable thereto, exceed by more than
$5,000,000 the fair market value of the assets of such Plan,
and the present value of all benefit liabilities of all
underfunded Plans (based on those assumptions used for
purposes of Statement of Financial Accounting Standards
No. 87) did not, as of the last annual valuation dates
applicable thereto, exceed by more than $10,000,000 the fair
market value of the assets of all such underfunded Plans.
SECTION 3.11. Agreements. None of the Company or
any of the Subsidiaries is a party to any agreement or
instrument or subject to any corporate restriction that has
a material and adverse effect on the business, properties,
assets, operations, prospects or condition, financial or
otherwise, of the Company or of the Company and the Subsidi
aries taken as a whole. None of the Company or any of the
Subsidiaries is in default in the payment or performance or
observance of any contract, agreement or other instrument to
which it is a party or by which it or its properties or
assets may be bound, which individually or together with all
other such defaults could have a material adverse effect on
the consolidated financial condition or operations, or the
prospects or business taken as a whole, of the Company and
the consolidated Subsidiaries. Schedule 2 hereto is a
complete and correct list, as of July 31, 1995 (except where
otherwise noted thereon), of each credit agreement, loan
agreement, indenture, purchase agreement, guarantee or other
arrangement (other than any uncommitted line of credit)
providing for or otherwise relating to any extension of
credit (or commitment for any extension of credit) to, or
guarantee by, the Company or any Subsidiary (other than
Providian Bancorp and its subsidiaries) the aggregate
principal or face amount of which equals or exceeds (or may
equal or exceed) $10,000,000. Each of the Company and the
Subsidiaries has good title to its properties and assets
free and clear of all Liens, other than Liens described in
said Schedule 2.
SECTION 3.12. Title to Properties; Possession
Under Lease. The Company and the Subsidiaries have good and
marketable title to, or valid leasehold interests in, all
their properties and assets, except for such properties as
are no longer used or useful in the conduct of their busi
nesses or as have been disposed of in the ordinary course of
business and except for minor defects in title that do not
interfere with the ability of the Company or any of the
Subsidiaries to conduct their businesses as now conducted.
All such assets and properties are free and clear of all
mortgages, pledges, liens, charges, security interests and
other encumbrances other than those permitted by Sec
tion 5.09 and those Liens described in Schedule 2.
SECTION 3.13. Environmental Matters. To the
knowledge of the Company,
(a) the properties owned or operated by the
Company and the Subsidiaries (the "Properties") do not
contain any Hazardous Materials in amounts or
concentrations that (i) constitute or constituted a
violation of, or (ii) could give rise to liability
under, Environmental Laws;
(b) the Properties and all operations of the
Company and the Subsidiaries are in compliance, and in
all prior periods have been in compliance, with all
Environmental Laws and Environmental Permits and all
Environmental Permits have been obtained and are in
effect;
(c) there have been no Releases or threatened
Releases at, from, under or proximate to the Properties
or otherwise in connection with the operations of the
Company or the Subsidiaries;
(d) none of the Company and the Subsidiaries has
received any notice of an Environmental Claim in
connection with the Properties or the operations of the
Company or any Subsidiary or with regard to any person
whose liabilities for environmental matters the Company
or any Subsidiary has retained or assumed, in whole or
in part, contractually, by operation of law or
otherwise, nor do the Company and the Subsidiaries have
reason to believe that any such notice will be received
or is being threatened; and
(e) Hazardous Materials have not been transported,
generated, treated, stored or disposed of from, at, on
or under any of the Properties in violation of, or in a
manner that could give rise to liability under, any
Environmental Law, nor have any of the Company and the
Subsidiaries retained or assumed any liability,
contractually, by operation of law or otherwise, with
respect to the generation, treatment, storage or
disposal of Hazardous Materials,
to the extent any such events or conditions enumerated in
paragraphs (a) through (e) above, individually or in the
aggregate, could result in any liability, obligation, loss
or reduction in value which could have a material adverse
effect on the businesses, assets, operations, prospects or
condition, financial or otherwise, of the Company and the
Subsidiaries taken as a whole.
SECTION 3.14. No Material Misstatements. No
information, report, financial statement, exhibit or sched
ule prepared or furnished by or on behalf of the Company to
any Bank in connection with this Agreement or included
herein contained or contains any material misstatement of
fact or omitted or omits to state any material fact
necessary to make the statements therein, in the light of
the circumstances under which they were made, not mis
leading.
SECTION 3.15. Investment Company Act; Public
Utility Holding Company Act. None of the Company or any of
the Subsidiaries is an "investment company" as defined in,
or subject to regulation under, the Investment Company Act
of 1940, as amended. None of the Company or any of the
Subsidiaries is a "holding company" as defined in, or
subject to regulation under, the Public Utility Holding
Company Act of 1935, as amended.
IV. CONDITIONS OF LENDING
SECTION 4.01. All Borrowings. The obligations of
each of the Banks to make Loans hereunder on the date of
each Borrowing hereunder, including each refinancing of any
Loan with a new Loan as contemplated by Section 2.06, shall
be subject to the following conditions precedent:
(a) The Administrative Agent shall have received
a notice of such Borrowing as required by Sec
tion 2.02(d) or Section 2.04, as applicable.
(b) The representations and warranties set forth
in Article III shall be true and correct in all materi
al respects on and as of the date of such Borrowing
with the same effect as if made on and as of such date.
(c) The Company shall be in compliance with all
the terms and provisions set forth herein on its part
to be observed or performed, and at the time of and
immediately after such Borrowing no Event of Default or
event which upon notice or lapse of time or both would
constitute an Event of Default shall have occurred and
be continuing.
Each Borrowing hereunder shall be deemed to be a representa
tion and warranty by the Company on the date of such Borrow
ing as to the matters specified in paragraphs (b) and (c) of
this Section 4.01. Notwithstanding the other provisions of
this Section 4.01, the refinancing of a Standby Loan with a
new Standby Loan that does not increase the outstanding
aggregate principal amount of the Standby Loans of any Bank
shall be subject only to the satisfaction of the conditions
that (i) on the date of such new Standby Loan, the Company
certifies that the representations and warranties set forth
in Section 3.07 are true and correct on and as of such date
as though made on and as of such date and (ii) at the time
of and immediately after such new Standby Loan, no Event of
Default or event which upon notice or lapse of time or both
would constitute an Event of Default shall have occurred and
be continuing.
SECTION 4.02. First Borrowing. The obligation of
the Banks to make Loans hereunder on the Closing Date is
subject to the following additional conditions precedent:
(a) The Administrative Agent, on behalf of the
Banks, shall have received a favorable written opinion
of the Company's counsel, substantially in the form set
forth as Exhibit C hereto, dated the Effective Date,
addressed to the Banks.
(b) As of the Effective Date, all legal matters
incident to this Agreement and the Borrowings hereunder
shall be satisfactory to Cravath, Swaine & Moore,
special counsel for the Arranger and the Administrative
Agent.
(c) On or before the Effective Date, the Adminis
trative Agent, on behalf of the Banks, shall have
received (i) a copy of the Company's certificate of
organization and all amendments thereto, certified by
the Secretary of State of Delaware; (ii) a certificate
of such Secretary of State, dated as of a recent date,
as to the good standing, legal existence and charter
documents of the Company on file in the office of such
Secretary of State; (iii) a certificate of the Secre
tary or an Assistant Secretary of the Company dated the
Effective Date and certifying (A) that attached thereto
is a true and complete copy of the by-laws of the
Company as in effect on the date of such certificate,
(B) that attached thereto is a true and complete copy
of resolutions adopted by the Board of Directors of the
Company authorizing the execution, delivery and per
formance of this Agreement (and any Notes) and the
Borrowings hereunder, (C) that the certificate of
incorporation of the Company has not been amended since
the date of the last amendment thereto indicated on the
certificate of the Secretary of State furnished
pursuant to clause (ii) above and (D) as to the
incumbency and specimen signature of each officer of
the Company executing this Agreement or any other
document delivered in connection herewith or therewith;
(iv) a certificate, dated the Closing Date and signed
by the principal executive officer and the principal
financial officer of the Company, confirming compliance
with the conditions precedent set forth in
paragraphs (b) and (c) of Section 4.01 and (v) such
other documents as any Bank or Cravath, Swaine & Moore,
special counsel for the Arranger and the Administrative
Agent, may reasonably request.
(d) As of the Effective Date, all rights and
obligations of the Company under or with respect to the
Syndicated Credit Facility Agreement dated as of
August 10, 1990, including any notes issued and
outstanding thereunder, shall have been terminated or
repaid and such Agreement shall have been terminated.
V. COVENANTS
The Company covenants and agrees with each Bank
that, so long as this Agreement shall remain in effect or
the principal of or interest on any Loan, the Facility Fee,
any Arrangement Fee or any other amounts or expenses payable
hereunder shall be unpaid:
SECTION 5.01. Financial and Other Information.
The Company shall deliver to each of the Banks and the
Administrative Agent:
(a) as soon as available and in any event within
60 days after the end of each of the first three
quarterly periods of each fiscal year of the Company, a
copy of the quarterly report filed by the Company with
the SEC on Form 10-Q in respect of such fiscal period,
or if the Company is not required to file such a report
in respect of such quarterly period, a condensed
consolidated statement of operations of the Company and
the consolidated Subsidiaries for such period (setting
forth in comparative form the corresponding figures for
the corresponding period in the preceding fiscal year)
and a condensed consolidated statement of cash flows of
the Company and the consolidated Subsidiaries for the
period from the beginning of the respective fiscal year
to the end of such period, and the related consolidated
balance sheet as at the end of such period (setting
forth in comparative form the corresponding figures as
at the end of the preceding fiscal year), accompanied
by a certificate of a senior financial officer of the
Company, which certificate shall state that said
financial statements fairly present the consolidated
financial condition and results of operations of the
Company and the consolidated Subsidiaries in accordance
with generally accepted accounting principles, consis
tently applied, as at the end of, and for, such period
(subject to normal year-end audit adjustments);
(b) as soon as available and in any event within
120 days after the end of each fiscal year of the
Company, a copy of the report filed by the Company with
the SEC on Form 10-K in respect of such fiscal year,
accompanied by the Company's annual report in respect
of such fiscal year or, if the Company is not required
to file such a report in respect of such fiscal year,
consolidated statements of operations, shareholders'
equity and cash flows of the Company and the consoli
dated Subsidiaries for such year and the related
consolidated balance sheet as at the end of such year,
setting forth in each case in comparative form the
corresponding figures for the preceding fiscal year,
and accompanied by an opinion thereon of independent
certified public accountants of recognized national
standing, which opinion shall state that said financial
statements fairly present the consolidated financial
condition and results of operations of the Company and
the consolidated Subsidiaries as at the end of, and
for, such fiscal year, and a certificate of such
accountants stating that, in making the examination
necessary for their opinion, they obtained no knowl
edge, except as specifically stated, of any Event of
Default;
(c) as soon as available and in any event within
120 days after the end of each fiscal year of the
Company, the annual statement of each Restricted
Subsidiary for such fiscal year as filed with the
insurance regulators supervising such Restricted
Subsidiary, each such Statement to be prepared in
accordance with the statutory accounting principles
required by law to be applied in the preparation
thereof and to be accompanied by an opinion of a senior
financial officer of the Restricted Subsidiary to which
such Statement relates stating that such Statement
fairly presents the financial condition of such
Restricted Subsidiary in accordance with such statutory
accounting principles;
(d) promptly upon their becoming available, copies
of all registration statements and regular periodic
reports which the Company shall have filed with the SEC
or any national securities exchange;
(e) promptly upon the mailing thereof to the
shareholders of the Company generally, copies of all
financial statements, reports and proxy statements so
mailed;
(f) as soon as possible after, and in any event
within ten days after the Company or any ERISA
Affiliate knows or has reason to know that, any ERISA
Event has occurred or exists that, alone or together
with any other ERISA Events that have occurred, could
reasonably be expected to result in liability of any of
the Company and the Subsidiaries in an aggregate amount
exceeding $10,000,000 or requires payments exceeding
$5,000,000 in any year, a statement of a Financial
Officer of the Company setting forth details respecting
such ERISA Event and the action, if any, which the
Company or its ERISA Affiliate proposes to take with
respect thereto (and a copy of any report or notice
required to be filed with or given to the PBGC by the
Company or an ERISA Affiliate with respect to such
event or condition);
(g) promptly after the Company knows or has reason
to know that any Event of Default has occurred, a
notice of such Event of Default, describing the same in
reasonable detail and stating that such notice is a
"Notice of Event of Default"; and
(h) from time to time such other information
regarding the business, affairs or financial condition
of the Company or any of the Subsidiaries (including,
without limitation, any Plan and any reports or other
information required to be filed under ERISA) as any
Bank or the Administrative Agent may reasonably re
quest.
The Company will furnish to each Bank and the Administrative
Agent, at the time it furnishes each report or set of
financial statements pursuant to paragraph (a) or (b) above,
a certificate of a senior financial officer of the Company
to the effect that no Event of Default has occurred and is
continuing (or, if any Event of Default has occurred and is
continuing, describing the same in reasonable detail), and
will furnish to each Bank, at the time it furnishes each set
of statutory statements pursuant to paragraph (c) above, a
certificate of a senior financial officer of the Company to
the effect that no change has occurred in the statutory
principles applied in the preparation of the statutory
statements most recently furnished to the Banks in
connection with this Agreement (or, if any change has
occurred, describing the same in reasonable detail).
SECTION 5.02. Litigation and Other Notices.
(a) The Company shall promptly give to the Administrative
Agent (and the Administrative Agent shall promptly
thereafter give to the Banks) notice upon becoming aware of
any reduction or withdrawal in the Rating established by
Moody's, S&P or Duff & Phelps.
(b) The Company shall promptly give to each Bank
and the Administrative Agent notice of the following:
any legal or arbitral proceeding, and of any
proceeding before any Governmental Authority, affecting
the Company or any of the Subsidiaries which could have
a material adverse effect on the consolidated financial
condition or operations, or the prospects or business
taken as a whole, of the Company and the consolidated
Subsidiaries; and
any development in the business or affairs of the
Company or any Subsidiary which has resulted in or
which is likely, in the reasonable judgment of the
Company, to result in a material adverse change in the
business, assets, operations or condition (financial or
otherwise) of the Company or of the Company and the
Subsidiaries taken as a whole.
SECTION 5.03. Corporate Existence, etc. (a) The
Company shall, and shall cause each of its Restricted
Subsidiaries to, preserve and maintain its corporate exis
tence (provided that nothing in this Section 5.03(a) shall
prevent any merger or consolidation permitted under clause
(a) or (b) of Section 5.08 hereof).
(b) The Company shall, and shall cause each of
the Subsidiaries to: preserve and maintain all rights,
privileges, franchises and licenses (including insurance
licenses) which are material to the consolidated financial
condition or operations, or the prospects or business taken
as a whole, of the Company and the consolidated Subsidiar
ies; comply with the requirements of all applicable laws,
rules, regulations (including environmental regulations) and
orders of Governmental Authorities if failure to comply with
such requirements would materially and adversely affect such
condition, operations, prospects or business; pay and
discharge all taxes, assessments and governmental charges or
levies imposed on it or on its income or profits or on any
of its property prior to the date on which penalties attach
thereto, except for any such tax, assessment, charge or levy
the payment of which is being contested in good faith and by
proper proceedings and against which adequate reserves are
being maintained; maintain each item of property used or
useful in its business in good working order and condition
(ordinary wear and tear excepted) unless failure to so
maintain such item would not materially and adversely affect
such condition, operations, prospects or business; permit
representatives of any Bank or the Administrative Agent,
during normal business hours, to examine, copy and make
extracts from its books and records, to inspect its proper
ties, and to discuss its business and affairs with its
officers, all to the extent reasonably requested by such
Bank or the Administrative Agent (as the case may be); and
keep insured by financially sound and reputable insurers all
property of a character usually insured by corporations
engaged in the same or similar business similarly situated
against loss or damage of the kinds and in the amounts
customarily insured against by such corporations and carry
such other insurance as is usually carried by such corpora
tions; provided, however, that to the extent it would be
consistent with the foregoing to do so, the Company and the
Subsidiaries may self-insure against loss or damage.
SECTION 5.04. Regulation U. Upon the request of
any Bank, the Company will furnish to such Bank a duly
executed Form U-l statement in conformity with the require
ments of Regulation U.
SECTION 5.05. Senior Funded Indebtedness. The
Company will not at any time permit Senior Funded Indebted
ness to exceed 70% of Shareholders' Equity.
SECTION 5.06. Statutory Surplus. The Company
will cause the Designated Insurance Subsidiaries to maintain
Statutory Surplus during each fiscal year ending on a date
specified below in an amount not less than that set forth
opposite such date:
December 31, 1995 $750,000,000
December 31, 1996 $770,000,000
December 31, 1997 $790,000,000
December 31, 1998 $810,000,000
December 31, 1999 $830,000,000
December 31, 2000 $850,000,000
SECTION 5.07. Ownership of Restricted Subsidiar
ies. The Company will at all times directly or indirectly
own, free and clear of any Liens, 100% of the issued and
outstanding shares of each class of stock of each Restricted
Subsidiary (other than directors' qualifying shares).
SECTION 5.08. Merger, Acquisition and Sale of
Assets. The Company will not merge or consolidate with or
into any other person or effect any acquisition, and will
not permit any Restricted Subsidiary to merge or consolidate
with or into any other person, to effect any acquisition or
to sell, lease, transfer or otherwise dispose of any of its
assets, and will not permit any other Subsidiary to effect
any acquisition; provided that nothing in this Section 5.08
shall prevent: (a) the merger or consolidation of any
Restricted Subsidiary or Wholly-Owned Subsidiary into or the
sale of any assets of any Restricted Subsidiary to the
Company, another Restricted Subsidiary or any other Wholly-
Owned Subsidiary of the Company newly organized under the
laws of the United States, any State thereof or the District
of Columbia for the sole purpose of merging or consolidating
two or more of the Restricted Subsidiaries; (b) the merger
or consolidation of any Restricted Subsidiary or Wholly-
Owned Subsidiary with or into any Restricted Subsidiary;
(c) the Company or any Restricted Subsidiary from merging or
consolidating with any other person so long as (i) the
Company or such Restricted Subsidiary shall be the surviving
corporation in such merger or consolidation and (ii) immedi
ately thereafter and after giving effect thereto, no Event
of Default will have occurred and be continuing; (d) the
Company or any Restricted Subsidiary from selling and
leasing back real estate assets; (e) any Restricted Sub
sidiary from disposing of Investments (other than Invest
ments in Subsidiaries significantly engaged in the Life
Insurance Business) in the ordinary course of its business;
(f) the sale of any assets of any Restricted Subsidiary
other than as permitted in (d) or (e) above; provided that
the aggregate fair market value of the consideration
received by all Restricted Subsidiaries taken as a whole
prior to the Maturity Date shall not exceed an amount equal
to 10% of all assets of the Company and its Subsidiaries
(excluding the assets of Providian Bancorp and its subsid
iaries) as at December 31, 1994, computed and consolidated
in accordance with generally accepted accounting principles;
or (g) the Company and/or any of the Subsidiaries from
effecting any acquisition so long as immediately thereafter
and after giving effect thereto, no Event of Default will
have occurred and be continuing.
SECTION 5.09. Liens. Neither the Company nor any
of the Subsidiaries will create, incur, assume or suffer to
exist any Lien upon any of its properties or assets, whether
now owned or hereafter acquired, securing any Indebtedness
of the Company or any of the Subsidiaries, except (a) Liens
existing on the date of this Agreement and disclosed in the
financial statements referred to in Section 3.06 or the
notes thereto, (b) purchase money Liens on real and tangible
personal property acquired after the date hereof, and Liens
on real or tangible personal property acquired after the
date hereof incurred in connection with any Capital Lease
Obligation, provided in each case such Lien is created
contemporaneously with such acquisition, the Indebtedness
secured by any such Lien does not exceed the cost of the
respective property covered thereby and such Lien attaches
only to the property so acquired and fixed improvements
thereto, (c) Liens on assets of persons which become Subsid
iaries of the Company as a result of any acquisition permit
ted pursuant to Section 5.08 hereof so long as such Liens
existed at the time of such acquisition and were not created
in contemplation thereof, (d) renewals and extensions of any
Lien permitted under clause (b) or (c) of this Section 5.09
to the extent that the principal amount of the Indebtedness
secured by such Lien is not increased with such renewal or
extension, (e) Liens presently existing or hereafter created
on or in respect of receivables of any subsidiary of
Providian Bancorp, (f) Liens granted solely in favor of the
Company or one or more of the Subsidiaries securing
intercompany obligations of the Company or one or more of
the Subsidiaries, and (g) any other Liens upon properties or
assets so long as the higher of book or market value of the
properties or assets (or portions thereof) to which such
Liens relate at no time prior to the Maturity Date exceeds
$500,000,000.
SECTION 5.10. Subsidiaries. The Company shall
promptly notify the Banks through the Administrative Agent
of any additions to or deletions from the list of Restricted
Subsidiaries set forth as part of Schedule 1 hereto, and of
failure by the Company or one or more of the Subsidiaries to
continue to own free and clear of all Liens any shares of
the capital stock (or other ownership interests) of any of
such Subsidiaries which the Company so owns on the date
hereof (except where such failure would not have a material
adverse effect on the ability of the Company to perform its
obligations under this Agreement).
SECTION 5.11. Pari Passu. The Company shall
ensure that any of its payment obligations under this Agree
ment will at all times rank at least equally and ratably in
all respects with its other senior unsecured Indebtedness.
SECTION 5.12. Compliance with Environmental Laws.
The Company shall comply, and cause all lessees and other
persons occupying or operating its Properties to comply, in
all material respects with all Environmental Laws and
Environmental Permits applicable to its material operations
and Properties; obtain and renew all material Environmental
Permits necessary for its operations and material
Properties; and conduct any material Remedial Action in
accordance with Environmental Laws.
SECTION 5.13. Preparation of Environmental
Reports. If a default caused by reason of a breach of
Section 3.13 or 5.12 shall have occurred and be continuing,
at the request of the Required Banks through the
Administrative Agent, the Company shall provide to the Banks
within 45 days after such request, at the expense of the
Company, an environmental site assessment report for the
Properties which are the subject of such default prepared by
an environmental consulting firm acceptable to the
Administrative Agent (such approval not to be unreasonably
withheld), indicating the presence or absence of Hazardous
Materials and the estimated cost of any compliance or
Remedial Action in connection with such Properties.
VI. EVENTS OF DEFAULT
In the case of the happening of any of the follow
ing events (herein called "Events of Default"):
(a) The Company shall default in the payment of
any principal payable by it under this Agreement when
due; or
(b) The Company shall default in the payment of
any interest on any Loan or any Facility Fee,
Arrangement Fee or any other amount (other than an
amount referred to in (a) above) payable by it under
this Agreement, and such default shall continue for a
period of 5 days; or
(c) The Company or any of the Subsidiaries shall
default in the payment when due of any principal of or
interest on any of its other Indebtedness aggregating
$20,000,000 or more and any applicable grace period
under the note, agreement, indenture or other document
evidencing such Indebtedness as in effect at the time
such default occurred shall expire; or any other
default specified in any note, agreement, indenture or
other document evidencing or relating to any such
Indebtedness shall occur and the holders of such
Indebtedness (or a trustee on behalf of such holders)
shall accelerate the maturity or require the prepayment
thereof; or
(d) Any representation, warranty, certification or
statement made or deemed made by the Company herein or
in connection with this Agreement or with the
Borrowings hereunder, in any Competitive Bid Request or
Standby Borrowing Request or in any other request,
notice, certificate, financial statement, report or
other document referred to in this Agreement or
furnished to the Administrative Agent or any Bank
thereunder, shall be breached or shall prove to have
been false or misleading as of the time made or deemed
made in any material respect; or
(e) The Company shall default in the performance
or observance of any of its obligations or agreements
under Section 5.01(f) or Sections 5.05 through 5.09
hereof; or the Company shall default in the performance
of any of its other obligations under this Agreement
and such default shall continue unremedied for a period
of 30 days after notice thereof to the Company by the
Administrative Agent or any Bank (through the Adminis
trative Agent); or
(f) The Company or any of the Subsidiaries shall
admit in writing its inability to, or be generally
unable to, pay its debts as such debts become due; or
(g) The Company or any of the Subsidiaries shall
(i) apply for or consent to the appointment of, or the
taking of possession by, a receiver, conservator,
custodian, trustee, supervisor, rehabilitator or
liquidator of itself or of all or a substantial part of
its property, (ii) make a general assignment for the
benefit of its creditors, (iii) commence a voluntary
case under the Federal Bankruptcy Code (as now or
hereafter in effect), (iv) file a petition seeking to
take advantage of any other law relating to bankruptcy,
insolvency, reorganization, supervision, rehabilita
tion, winding-up, or composition or readjustment of
debts, (v) fail to controvert in a timely and appropri
ate manner, or acquiesce in writing to, any petition
filed against it in an involuntary case under such
Bankruptcy Code, or (vi) take any corporate action for
the purpose of effecting any of the foregoing; or
(h) A proceeding or case shall be commenced,
without the application or consent of the Company or
any Subsidiary, in any court of competent jurisdiction,
seeking (i) its supervision, rehabilitation, liquida
tion, reorganization, dissolution or winding-up, or the
composition or readjustment of its debts, (ii) the
appointment of a trustee, receiver, conservator,
custodian, supervisor, rehabilitator, liquidator or the
like of the Company or such Subsidiary or of all or any
substantial part of its assets, or (iii) similar relief
in respect of the Company or such Subsidiary under any
law relating to bankruptcy, insolvency, reorganization,
supervision, rehabilitation, winding-up, or composition
or adjustment of debts, and such proceeding or case
shall continue undismissed, or an order, judgment or
decree approving or ordering any of the foregoing shall
be entered and continue unstayed and in effect, for a
period of 30 days; or an order for relief against the
Company or such Subsidiary shall be entered in an
involuntary case under such Bankruptcy Code; or
(i) One or more final and nonappealable judgments
(or judgments not being further appealed by the Company
or the Subsidiaries) for the payment of money in excess
of $25,000,000 in the aggregate shall (i) be rendered
by a court or courts against the Company and/or any of
the Subsidiaries, (ii) not be covered fully by
insurance and (iii) remain undischarged (or provision
shall not be made for the same to be fully discharged)
for a period of 30 consecutive days during which the
execution thereof shall not be stayed; or
(j) An ERISA Event shall have occurred that, in
the opinion of the Required Banks, when taken together
with all other such ERISA Events that have occurred,
could reasonably be expected to result in liability of
the Company and its ERISA Affiliates in an amount
material in relation to the consolidated financial
position of the Company and the consolidated Subsidiar
ies; or
(k) there shall have occurred a Change in Control;
then, and in any such event (other than an event described
in paragraph (g), (h) or (k) above) and at any time there
after during the continuance of such event, the Administra
tive Agent may, and at the request of the Required Banks
shall, by written or facsimile notice to the Company, take
either or both of the following actions at the same or
different times: (i) terminate forthwith the Commitments of
the Banks hereunder and (ii) declare the Loans then out
standing to be forthwith due and payable, whereupon the
principal of the Loans, together with accrued interest
thereon and any unpaid accrued Facility Fees, Arrangement
Fees and all other liabilities of the Company accrued
hereunder, shall become forthwith due and payable both as to
principal and interest, without presentment, demand, protest
or any other notice of any kind, all of which are hereby
expressly waived by the Company, anything contained herein
to the contrary notwithstanding; and in any event described
in paragraph (g), (h) or (k) above, the Commitments of the
Banks shall automatically terminate and the principal of the
Loans shall automatically become due and payable, together
with accrued interest thereon and any unpaid accrued
Facility Fees, Arrangement Fees and all other liabilities of
the Company accrued hereunder, without presentment, demand,
protest or other notice of any kind, all of which are hereby
expressly waived by the Company, anything contained herein
to the contrary notwithstanding. The Administrative Agent
shall notify the Company and each of the Banks of any
default or Event of Default as soon as practicable after the
Administrative Agent learns of any such default or Event of
Default.
VII. THE ADMINISTRATIVE AGENT
In order to expedite the various transactions
contemplated by this Agreement, Credit Suisse is hereby
appointed to act as Administrative Agent on behalf of the
Banks. Each of the Banks hereby irrevocably authorizes and
directs the Administrative Agent to take such action on
behalf of such Bank under the terms and provisions of this
Agreement, and to exercise such powers hereunder as are
specifically delegated to or required of the Administrative
Agent by the terms and provisions hereof, together with such
powers as are reasonably incidental thereto. The Adminis
trative Agent is hereby expressly authorized on behalf of
the Banks, without hereby limiting any implied authority,
(a) to receive on behalf of each of the Banks any payment of
principal of or interest on the Loans outstanding hereunder
and all other amounts accrued hereunder paid to the Adminis
trative Agent, and to distribute to each Bank its proper
share of all payments so received as soon as practicable;
(b) to give notice promptly on behalf of each of the Banks
to the Company of any Event of Default specified in this
Agreement of which the Administrative Agent has actual
knowledge acquired in connection with its agency hereunder;
and (c) to distribute promptly to each Bank copies of all
notices, agreements and other material as provided for in
this Agreement as received by such Administrative Agent.
Neither the Administrative Agent nor any of its
directors, officers, employees or agents shall be liable as
such for any action taken or omitted by any of them hereun
der except for its or his own gross negligence or willful
misconduct, or be responsible for any statement, warranty or
representation herein or the contents of any document
delivered in connection herewith or be required to ascertain
or to make any inquiry concerning the performance or obser
vance by the Company of any of the terms, conditions,
covenants or agreements of this Agreement. The
Administrative Agent shall not be responsible to the Banks
for the due execution, genuineness, validity, enforceability
or effectiveness of this Agreement or any other instrument
to which reference is made herein. The Administrative Agent
shall in all cases be fully protected in acting, or
refraining from acting, in accordance with written
instructions signed by the Required Banks (or, when
expressly required hereby, all the Banks), and, except as
otherwise specifically provided herein, such instructions
and any action taken or failure to act pursuant thereto
shall be binding on all the Banks. The Administrative Agent
shall, in the absence of knowledge to the contrary, be
entitled to rely on any paper or document believed by it in
good faith to be genuine and correct and to have been signed
or sent by the proper person or persons. Neither the
Administrative Agent nor any of its directors, officers,
employees or agents shall have any responsibility to the
Company on account of the failure or delay in performance or
breach by any Bank of any of its obligations hereunder or to
any Bank on account of the failure of or delay in perfor
mance or breach by any other Bank or the Company of any of
their respective obligations hereunder or in connection
herewith. The Administrative Agent may execute any and all
duties hereunder by or through agents or employees and shall
be entitled to advice of legal counsel selected by it with
respect to all matters arising hereunder and shall not be
liable for any action taken or suffered in good faith by it
in accordance with the advice of such counsel.
The Administrative Agent and its affiliates may
accept deposits from, lend money to and generally engage in
any kind of business with the Company or other affiliate
thereof as if it were not the Administrative Agent.
Each Bank agrees (i) to reimburse the Administra
tive Agent in the amount of such Bank's pro rata share
(based on the aggregate of its outstanding Loans and
unutilized Commitment hereunder) of any expenses incurred
for the benefit of the Banks by the Administrative Agent,
including counsel fees and compensation of agents and
employees paid for services rendered on behalf of the Banks,
not reimbursed by the Company and (ii) to indemnify and hold
harmless the Administrative Agent and any of its directors,
officers, employees or agents, on demand, in the amount of
its pro rata share, from and against any and all liabili
ties, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred
by or asserted against it in its capacity as the Administra
tive Agent or any of them in any way relating to or arising
out of this Agreement or any action taken or omitted by it
or any of them under this Agreement, to the extent not
reimbursed by the Company; provided, however, that no Bank
shall be liable to the Administrative Agent for any portion
of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from the gross negligence or willful
misconduct of the Administrative Agent or any of its
directors, officers, employees or agents.
Subject to the appointment and acceptance of a
successor Administrative Agent as provided below, (i) the
Administrative Agent may, at any time, resign as Administra
tive Agent upon 30 days' written notice to the Banks and to
the Company and (ii) the Administrative Agent may be re
moved, at any time, with or without cause, by the Company or
the Required Banks upon 30 days' written notice to the
Administrative Agent. Upon such resignation or removal the
Company shall appoint another Bank, acceptable to the
Required Banks, as Administrative Agent which shall have all
of the Administrative Agent's rights and obligations,
pursuant to an agreement supplemental hereto among the
Company and the Banks; provided, however, that if an Event
of Default or an event which with the passage of time or the
giving of notice or both would constitute an Event of
Default shall have occurred and be continuing, (i) the
Company shall not have the right to remove the
Administrative Agent and (ii) any such appointment shall
only be made by the Required Banks rather than by the
Company. The Administrative Agent shall remain as
Administrative Agent until its successor is elected or
appointed.
Each Bank acknowledges that it has, independently
and without reliance upon the Administrative Agent or any
other Bank and based on such documents and information as it
has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reli
ance upon the Administrative Agent or any other Bank and
based on such documents and information as it shall deem
appropriate at the time, continue to make its own decisions
in taking or not taking action under or based upon this
Agreement, any related agreement or any document furnished
hereunder.
VIII. MISCELLANEOUS
SECTION 8.01. Notices. Unless otherwise provided
herein, notices and other communications provided for herein
shall be in writing and shall be delivered or mailed (or in
the case of facsimile communication, delivered by facsimile)
addressed,
(a) if to the Company, to it at 400 West Market
Street, P.O. Box 32830, Louisville, KY 40232, to the
attention of Treasurer of Providian Corporation
(Facsimile No.: (502) 560-2746; Confirm: (502) 560-
2000);
(b) if to the Administrative Agent, to it at
Credit Suisse, 12 East 49th Street, 39th Floor, New
York, NY 10017, to the attention of Agency/Lisa
Perrotto (Facsimile No: (212) 238-5073; Confirm:
(212) 238-5056; and
(c) if to a Bank, to it at its address set forth
in Section 2.01.
All notices and other communications given to any
party hereto in accordance with the provisions of this
Agreement shall be deemed to have been given on the date of
receipt, in each case addressed to such party as provided in
this Section 8.01 or in accordance with the latest unrevoked
direction from such party. Notices required or permitted to
be delivered by facsimile shall be deemed received upon
confirmation of receipt by telephone.
SECTION 8.02. No Waivers; Amendments. (a) No
failure or delay of any of the Administrative Agent, any
Bank or the Company in exercising any power or right here
under shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a
right or power, preclude any other or further exercise
thereof or the exercise of any other right or power. The
rights and remedies of the Administrative Agent and the
Banks hereunder are cumulative and not exclusive of any
rights or remedies which they would otherwise have. No
waiver of any provision of this Agreement or any exhibits
hereto nor consent to any departure by the Company therefrom
shall in any event be effective unless the same shall be
authorized as provided in paragraph (b) below, and then such
waiver or consent shall be effective only in the specific
instance and for the purpose for which given. No notice or
demand on the Company in any case shall entitle the Company
to any other or further notice or demand in similar or other
circumstances. Each Bank shall be bound by any amendment,
modification, waiver or consent authorized as provided
herein.
(b) Neither this Agreement nor any provision
hereof nor any exhibit or schedule hereto may be amended or
modified except pursuant to an agreement or agreements in
writing entered into by the Company and the Required Banks;
provided, however, that no such agreement shall (i) change
the principal amount of, or extend or advance the maturity
of or any dates for the payment of principal of or interest
on, any Loan, or waive or excuse any such payment or any
part thereof, or reduce the rate of interest on any Loan,
without the written consent of each Bank affected thereby,
(ii) change the Commitment of any Bank without the written
consent of each Bank, (iii) amend or modify the provisions
of Section 2.07 of this Agreement without the written
consent of each Bank, (iv) amend or modify the provisions of
this Section 8.02(b) or the definition of the "Required
Banks" or of the "Maturity Date" without the written consent
of each Bank, or (v) amend or modify or otherwise affect the
rights or duties of the Administrative Agent hereunder
without the written consent of the Administrative Agent.
Each Bank shall be bound by any modification or amendment
authorized by this Section, and any consent by any Bank
pursuant to this Section shall bind any person subsequently
acquiring an assignment of all or a portion of a Loan from
it.
SECTION 8.03. Payments on Business Days. Except
as set forth in the definition of "Interest Period" as
applied to Eurodollar Loans, should any payment to be made
hereunder become due and payable on a day other than a
Business Day, such payment may be made on the next
succeeding Business Day and such extension of time shall in
such case be included in computing interest or fees, if any,
in connection with such payment.
SECTION 8.04. Governing Law. This Agreement
shall be construed in accordance with and governed by the
laws of the State of New York, without giving effect to
conflict of law doctrine. For purposes of this Agreement,
the Company hereby consents to the jurisdiction of the
courts of the State of New York and of the Federal courts of
the United States which are located in the State of New
York.
SECTION 8.05. Expenses; Documentary Taxes. The
Company will pay all reasonable out-of-pocket expenses
incurred by the Administrative Agent and the Arranger in
connection with the preparation, execution and delivery of
this Agreement (whether or not the transactions hereby
contemplated shall be consummated), or any amendments,
modifications or waivers of the provisions hereof, or
incurred by the Administrative Agent or any Bank in
connection with the enforcement or protection of its rights
in connection with this Agreement or with the Loans made
hereunder, and with respect to any action which may be
instituted by any person against any Bank in respect of the
foregoing, or as a result of any transaction, action or
nonaction arising from the foregoing, including, but not
limited to, the fees and disbursements of Cravath, Swaine &
Moore. The Company agrees that it shall indemnify each of
the Administrative Agent, the Arranger and each Bank from
and hold it harmless against any losses, liabilities,
damages, claims and expenses incurred by or asserted against
it in connection with this Agreement or the transactions
contemplated hereby, including, without limitation, documen
tary taxes, assessments or charges made by any Governmental
Authority by reason of the execution and delivery of this
Agreement (or any Note), but excluding any such losses,
liabilities, damages, claims and expenses which shall result
from the gross negligence or willful misconduct of such
Bank. The obligations of the Company under this
Section 8.05 shall survive the termination of this
Agreement.
SECTION 8.06. Survival of Agreement, Representa
tions and Warranties, etc. All warranties, representations
and covenants made by or deemed to have been made by the
Company herein or in any certificate or other instrument
delivered by it or on its behalf in connection with this
Agreement shall be considered to have been relied upon by
the Banks and shall survive the making of the Loans herein
contemplated regardless of any investigation made by any
Bank or on its behalf and shall continue in full force and
effect so long as any amount due or to become due hereunder
is outstanding and unpaid and so long as the Commitments
have not been terminated. All statements in any such
certificate or other instrument shall constitute
representations and warranties by the Company hereunder.
SECTION 8.07. Participations. (a) Each Bank may
sell participations to one or more banks in all or a portion
of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its
Commitment and the Loans owing to it) provided, however,
that (i) such Bank's obligations under this Agreement shall
remain unchanged, (ii) such Bank shall remain solely
responsible to the other parties hereto for the performance
of such obligations, (iii) the participating banks shall be
entitled to the cost protection provisions contained in
Section 2.18 and Section 2.20 to the extent such Bank is
entitled to such provisions as of the effective date of each
such participation (but in no event shall the amounts of
such cost protection exceed the amounts to which such Bank
is entitled as of such effective date), but shall not be
entitled to directly or indirectly exercise any voting
rights under this Agreement (provided, however, that the
Administrative Agent shall have no obligation to determine
compliance by any Bank with such restriction on voting
rights) and (iv) the Company, the Administrative Agent and
the other Banks shall continue to deal solely and directly
with such Bank in connection with such Bank's rights and
obligations under this Agreement.
(b) Any Bank may, in connection with any partici
pation or proposed participation pursuant to this Sec
tion 8.07, disclose to the participant or proposed partici
pant any information relating to the Company furnished to
such Bank by or on behalf of the Company; provided that
prior to any such disclosure, each such participant or
proposed participant shall agree in writing (subject to
customary exceptions) to preserve the confidentiality of any
confidential information relating to the Company received
from such Bank.
SECTION 8.08. Successors and Assigns.
(a) Whenever in this Agreement any of the parties hereto is
referred to, such reference shall be deemed to include the
successors and assigns of such party, and all covenants,
promises and agreements by or on behalf of the Company, the
Administrative Agent or the Banks that are contained in this
Agreement shall bind and inure to the benefit of their
respective successors and assigns; provided, however, that
(i) the Company may not assign or transfer any of its rights
or obligations hereunder and (ii) without limiting the right
of any Bank to sell participations pursuant to Section 8.07,
no Bank may assign any portion of its rights or obligations
hereunder except in accordance with paragraphs (b) and (c)
below.
(b) Any Bank may at any time assign all or any
portion of its rights under this Agreement to a Federal
Reserve Bank; provided that no such assignment shall release
a Bank from any of its obligations hereunder.
(c) Any Bank may at any time assign all or any
portion of its rights and obligations under this Agreement
to one or more banks with the prior written consent of the
Borrower; provided, that any such assignment shall be with
respect to a Commitment or Loan of at least $10,000,000. An
assignment fee of $3,500 shall be payable by each assigning
Bank to the Administrative Agent for each assignment
hereunder.
(d) Upon its receipt of an assignment and
acceptance executed by an assigning Bank and an assignee
(and, in the case of an assignee that is not then a Bank or
an affiliate thereof, by the Administrative Agent) together
with payment by the assignee or the assigning Bank to the
Administrative Agent of the assignment fee of $3,500 (except
in the case of an assignment by a Bank to its affiliate),
the Administrative Agent shall (i) promptly accept such
assignment and acceptance and (ii) on the effective date
determined pursuant thereto record the information contained
therein in the Register and give notice of such acceptance
and recordation to the Bank and the Company.
(e) Any Bank may, in connection with any
assignment or proposed assignment pursuant to this Sec
tion 8.08, disclose to the assignee or proposed assignee any
information relating to the Company furnished to such Bank
by or on behalf of the Company; provided that prior to any
such disclosure, each such assignee or proposed assignee
shall agree in writing (subject to customary exceptions) to
preserve the confidentiality of any confidential information
relating to the Company received from such Bank.
SECTION 8.09. Right of Setoff. If any Event of
Default shall have occurred and be continuing and any Bank
shall have requested the Administrative Agent to declare the
Loans immediately due and payable pursuant to Article VI,
each Bank is hereby authorized at any time and from time to
time, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other
indebtedness at any time owing by such Bank to or for the
credit or the account of the Company against any of and all
the obligations of the Company now or hereafter existing
under this Agreement, irrespective of whether or not such
Bank shall have made any demand under this Agreement and
although such obligations may be unmatured. Each Bank
agrees promptly to notify the Company after any such setoff
and application made by such Bank, but the failure to give
such notice shall not affect the validity of such setoff and
application. The rights of each Bank under this Section are
in addition to other rights and remedies (including, without
limitation, other rights of setoff) which such Bank may
have.
SECTION 8.10. Severability. In the event any one
or more of the provisions contained in this Agreement should
be held invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining
provisions contained herein and therein shall not in any way
be affected or impaired thereby. The parties shall endeavor
in good faith negotiations to replace the invalid, illegal
or unenforceable provisions with valid provisions the
economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.
SECTION 8.11. Confidentiality. Each of the
Banks, the Arranger and the Administrative Agent agrees that
it shall maintain in confidence any information relating to
the Company furnished to it by or on behalf of the Company
(other than information that (x) has become generally
available to the public other than as a result of a dis
closure by such party, (y) has been independently developed
by such party without violating this Section or (z) was
available to such party from a third party having, to such
party's knowledge, no obligation of confidentiality to the
Company) and shall not reveal the same other than
(i) to its directors, officers, employees,
affiliates and advisers with a need to know;
(ii) as contemplated by Sections 8.07(b) and
8.08(e);
to the extent necessary to comply with law or
any legal process or the requirements of any Govern
mental Authority or of any securities exchange on which
securities of the disclosing party or any Affiliate of
the disclosing party are listed or traded;
as part of normal reporting or review procedures
to Governmental Authorities or its parent companies,
Affiliates or auditors; and
in order to enforce its rights under this
Agreement in a legal proceeding.
SECTION 8.12. Cover Page, Table of Contents and
Section Headings. The cover page, Table of Contents and
Section headings used herein are for convenience of refer
ence only, are not part of this Agreement and are not to
affect the construction of or be taken into consideration in
interpreting this Agreement.
SECTION 8.13. Counterparts. This Agreement may
be signed in any number of counterparts, each of which shall
constitute an original but all of which when taken together
shall constitute but one contract, and shall become effec
tive when copies hereof which, when taken together, bear the
signatures of each of the parties hereto shall have been
received by the Banks, the Administrative Agent and the
Company.
SECTION 8.14. Entire Agreement. This Agreement,
including the exhibits and schedules hereto, constitutes the
entire agreement and understanding of the parties hereto
with respect to the subject matter of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed by their duly authorized
officers as of the day and year first above written.
PROVIDIAN CORPORATION,
by
/s/ Elaine J. Robinson
Name: Elaine J. Robinson
Title: Vice President and
Treasurer
[Seal]
Attest:
/s/ R. Michael Slaven
Name: R. Michael Slaven
Title: Secretary
CREDIT SUISSE, as Administrative
Agent and Arranger,
by
/s/ Kathleen D. O'Brien
Name:
Kathleen D. O'Brien
e: Member of Senior
Management
by
/s/ Heather J. Riekenberg
Name:
Heather J. Riekenberg
Titl
e: Associate
CREDIT SUISSE, in its individual
capacity,
by
/s/ William P. Murray
Name:
William P. Murray
Titl
e: Member of Senior
Management
by
/s/ Kristinn R. Kristinsson
Name:
Kristinn R. Kristinsson
Titl
e: Associate
ABN AMRO BANK N.V.,
by
/s/ J. M. Janovsky
Name:
J. M. Janovsky
Titl
e: Group Vice President
by
/s/ K. C. Toth
Name:
K. C. Toth
Titl
e: Vice President
BAYERISCHE VEREINSBANK A.G.,
by
/s/ Ed. C. Bennett
Name:
Ed C. Bennett
Titl
e: Vice President
by
/s/ Kendal Baker
Name:
Kendal Baker
Titl
e: Vice President
THE DAI-ICHI KANGYO BANK, LTD.,
by
/s/ Ryoichi Yamauchi
Name:
Ryochi Yamauchi
Title: Senior Vice
President
and Joint General
Manager
DEUTSCHE BANK A.G.,
by
/s/ David E. Moyer
Name:
David E. Moyer
Titl
e: Vice President
by
/s/ Gayma Z. Shivnarain
Name:
Gayma Z. Shivnarain
Titl
e: Vice President
ROYAL BANK OF CANADA,
by
/s/ Yvonne Bernard
Name:
Yvonne Bernard
Titl
e: Manager
THE SAKURA BANK LIMITED,
by
/s/ Hiroshi Shimazaki
Name:
Hiroshi Shimazaki
Titl
e: Senior Vice President
& Manager
THE SUMITOMO BANK, LIMITED,
by
/s/ Yoshinori Kawamura
Name:
Yoshinori Kawamura
Titl
e: Joint General Manager
BANQUE NATIONALE DE PARIS,
by
/s/ William J. Krummen
Name:
William J. Krummen
Titl
e: Vice President
CANADIAN IMPERIAL BANK OF COMMERCE,
by
/s/ Lu Ann Bowers
Name:
Lu Ann Bowers
Titl
e: Authorized Signatory
CITIBANK, N.A.,
by
/s/ Peter C. Bickford
Name:
Peter C. Bickford
Titl
e: Vice President
CREDIT LYONNAIS,
by
/s/ Sebastian Rocco
Name:
Sebastian Rocco
Titl
e: First Vice President
THE SANWA BANK, LIMITED,
by
/s/ Virginia C. Mahoney
Name:
Virginia C. Mahoney
Titl
e: Vice President
THE BANK OF NOVA SCOTIA,
by
/s/ A. S. Norsworthy
Name:
A. S. Norsworthy
Titl
e: Assistant Agent
THE SWISS BANK CORP.,
by
/s/ Susan N. Isquith
Name:
Susan N. Isquith
Titl
e: Director, Credit Risk
Management
by
/s/ Edward J. McDonnell III
Name:
Edward J. McDonnell III
Titl
e: Associate Director,
International Finance
Division
EXHIBIT A-1
FORM OF COMPETITIVE BID REQUEST
Credit Suisse, as Administrative
Agent for the Banks party to the
Credit Agreement referred to below
[Address]
[Date]
Attention:
Dear Sirs:
The undersigned, Providian Corporation (the
"Company"), refers to the Revolving Credit Facility
Agreement, dated as of August 17, 1995 (the "Credit
Agreement"), among the Company, the Banks named therein and
Credit Suisse, as Arranger and as Administrative Agent for
the Banks. Capitalized terms used herein and not defined
herein shall have the meanings assigned to such terms in the
Credit Agreement. The Company hereby gives you notice
pursuant to Section 2.02(a) of the Credit Agreement that it
requests a Competitive Borrowing under the Credit Agreement,
and in that connection sets forth below the terms on which
such Competitive Borrowing is requested to be made:
(A) Date of
Competitive
Borrowing
_______________
(B) Aggregate principal amount of
Competitive
Borrowing / 1
_______________
(C) Interest
rate basis / 2
_______________
(D) Interest
Period / 3
_______________
Upon acceptance of any or all of the Loans offered
by Banks in response to this request, the Company shall be
deemed to have represented that the conditions to lending
specified in Section 4.01(b) and (c) of the Credit Agreement
have been satisfied.
Very truly yours,
PROVIDIAN CORPORATION,
By
____________________________
Title: [Responsible Officer]
EXHIBIT A-2
FORM OF STANDBY BORROWING REQUEST
Credit Suisse, as Administrative
Agent for the Banks party to the
Credit Agreement referred to below
[Address]
[Date]
Attention:
Dear Sirs:
The undersigned, Providian Corporation (the
"Company"), refers to the Revolving Credit Facility
Agreement, dated as of August 17, 1995 (the "Credit
Agreement"), among the Company, the Banks named therein and
Credit Suisse, as Arranger and as Administrative Agent for
the Banks. Capitalized terms used herein and not defined
herein shall have the meanings assigned to such terms in the
Credit Agreement. The Company hereby gives you notice
pursuant to Section 2.04 of the Credit Agreement that it
requests a Standby Borrowing under the Credit Agreement, and
in that connection sets forth below the terms on which such
Standby Borrowing is requested to be made:
(A) Date of
Standby
Borrowing
_______________
(B) Aggregate principal amount of
Standby
Borrowing / 4
_______________
(C) Interest
rate basis / 5
_______________
(D) Interest
Period / 6
_______________
Upon receipt of the Loans made by the Banks in
response to this request, the Company shall be deemed to
have represented and warranted that the conditions to
lending specified in Section 4.01(b) and (c) of the Credit
Agreement have been satisfied.
Very truly yours,
PROVIDIAN CORPORATION,
by
_____________________________
Title: [Responsible Officer]
EXHIBIT B
FORM OF COMPETITIVE BID
Credit Suisse, as Administrative
Agent for the Banks party to the
Credit Agreement referred to below
[Address]
[Date]
Attention:
Dear Sirs:
The undersigned, [Name of Bank], refers to the
Revolving Credit Facility Agreement, dated as of August 17,
1995 (the "Credit Agreement"), among Providian Corporation
(the "Company"), the Banks named therein and Credit Suisse,
as Arranger and as Administrative Agent for the Banks.
Capitalized terms used herein and not defined herein shall
have the meanings assigned to such terms in the Credit
Agreement. The undersigned hereby makes a Competitive Bid
pursuant to Section 2.02(b) of the Credit Agreement, in
response to the Competitive Bid Request made by the Company
on , , and in that connection sets forth
below the terms on which such Competitive Bid is made:
(A) Maximum
principal amount / 7
____________________
(B) (1) Fixed Rate
Loan--Yield
____________________
(2) Eurodollar Loan--Margin ____________________
The undersigned hereby confirms that it is
prepared to extend credit to the Company upon acceptance by
the Company of this bid in accordance with Section 2.02(d)
of the Credit Agreement.
Very truly yours,
[NAME OF BANK]
[ADDRESS],
By
_________________________
Title:
EXHIBIT C
[LETTERHEAD OF COMPANY'S COUNSEL]
[ ], 1995
To the Banks party to the Credit Agreement
referred to below and Credit Suisse,
as Arranger and as Administrative Agent
under such Credit Agreement
Gentlemen:
We have acted as counsel to Providian Corporation
(the "Company") in connection with the Revolving Credit
Facility Agreement (the "Credit Agreement") dated as of
August 17, 1995, among the Company, certain other financial
institutions described as Banks therein (the "Banks") and
Credit Suisse, as Arranger and as Administrative Agent for
the Banks. Terms defined in the Credit Agreement are used
herein as defined therein.
As a basis for rendering our opinion, we have
examined an executed original of the Credit Agreement and
have examined the originals or conformed copies of such
corporate records, agreements, and instruments of the
Company, such certificates of public officials and of
officers and corporate counsel of the Company and the
Restricted Subsidiaries of the Company, and such other
documents and records, and such matters of law, as we have
deemed appropriate.
This opinion is based on such applicable laws,
statutes, ordinances, rules, and regulations as exist on
this date, and we express no opinion as to the effect which
any future amendments, changes, additions, or modifications
thereto or thereof may have on the future performance of the
Credit Agreement. We assume no obligation to update or
supplement our opinion to reflect any facts or circumstances
which may later come to our attention or changes in the law
which may occur in the future.
This opinion is rendered solely for the benefit of
the parties addressed, and may not be relied on by any other
party without our prior written consent. This opinion is
limited to the matters expressly stated herein, and no
opinion is implied or may be inferred as to any other
matters.
Based upon the above, we are of the opinion that:
1. The Company is a corporation duly organized,
validly existing, and in good standing under the laws of the
State of Delaware. The Company is duly qualified to do
business and is in good standing in all jurisdictions in
which the nature of the business conducted by it makes such
qualification necessary and where failure so to qualify
would have a material adverse effect on its business,
financial condition, operations or prospects. The Company
has all requisite corporate power and all material
governmental licenses, authorizations, consents and
approvals necessary to own its assets and carry on its
businesses as now being or as proposed to be conducted, to
execute, deliver and perform the Credit Agreement (and any
Notes), and to enter into Loans as contemplated under the
Credit Agreement.
2. Each Restricted Subsidiary is a corporation
duly organized, validly existing, and in good standing under
the laws of its jurisdiction of organization. Each
Restricted Subsidiary is duly qualified to transact business
and is in good standing in all jurisdictions in which the
nature of the business conducted by it makes such
qualification necessary and where failure to be so
organized, existing or in good standing or to so qualify
would have a material adverse effect on the business,
financial condition, or operations of the Company and its
consolidated Subsidiaries taken as a whole.
3. The execution, delivery and performance by the
Company of the Credit Agreement (and any Notes) and the
making of Loans as contemplated under it: (a) have been
duly authorized by all necessary corporate actions; (b) do
not require any consent or approval of the stockholders of
the Company or any Restricted Subsidiary; (c) do not violate
(1) any provision of any law, rule or regulation, (2) the
certificate or articles of incorporation or by-laws of the
Company or any Restricted Subsidiary or (3) to the best of
our knowledge after due inquiry, any order, writ, judgment,
injunction, decree, determination, or award applicable to
the Company or any Restricted Subsidiary; (d) to the best of
our knowledge after due inquiry, do not conflict with or
result in a breach of or constitute a default under any
indenture, loan, deed of trust, credit agreement, or any
other agreement, lease, or instrument to which the Company
or any Restricted Subsidiary is a party or by which it or
its properties may be bound or affected; and (e) to the best
of our knowledge after due inquiry do not result in, or
require, the creation or imposition of any mortgage, deed of
trust, pledge, lien, security interest, or encumbrance of
any nature upon or with respect to any of the properties now
owned or hereafter acquired by the Company or any Restricted
Subsidiary.
4. The Credit Agreement has been duly executed
and delivered and constitutes the Company's legal, valid,
and binding obligation, enforceable against the Company in
accordance with its terms, except that:
(a) enforcement thereof may be subject to bank
ruptcy, insolvency, reorganization, moratorium, or
other similar laws now or hereafter in effect relating
generally to creditors' rights; and
(b) the remedies of specific performance and
injunction and other forms of equitable relief (regard
less of whether enforcement is considered in a proceed
ing in equity or law) are subject to certain equitable
defenses and to the discretion of the court before
which any proceeding for them may be brought.
5. Except as disclosed in the financial state
ments referred to in Section 3.06 of the Credit Agreement
(or the notes related thereto) or as disclosed in writing to
the Banks pursuant to Section 3.07 of the Credit Agreement,
there are, to the best of our knowledge after due inquiry,
no actions, suits or proceedings at law or in equity or by
or before any governmental or regulatory authority or
agency, pending or, to our knowledge, threatened against or
affecting the Company or any of the Restricted Subsidiaries,
or the businesses, assets or rights of the Company or any of
the Restricted Subsidiaries:
(a) which involve the Credit Agreement or any of
the transactions contemplated by it; or
(b) as to which there is a reasonable possibility
of an adverse determination and which, if adversely
determined, individually or in the aggregate, could:
(1) materially impair the ability of the
Company (or of the Company and the Restricted
Subsidiaries taken as a whole) to conduct business
substantially as now conducted;
(2) have a material adverse effect on
the businesses, assets, operations, prospects, or
condition, financial or otherwise, of the Company
(or of the Company and the Restricted Subsidiaries
taken as a whole); or
(3) impair the validity or
enforceability of, or the ability of the Company
to perform its obligations under, the Credit
Agreement.
6. To the best of our knowledge after due
inquiry, neither the Company nor any Restricted Subsidiary
is in violation of any law, or in default with respect to
any judgment, writ, injunction, decree, rule or regulation
of any court or governmental agency or instrumentality,
where such violation or default could have a material
adverse effect on the businesses, assets, operations,
prospects or condition, financial or otherwise, of the
Company (or of the Company and the Restricted Subsidiaries
taken as a whole).
7. The Company's execution, delivery, and perfor-
mance of the Credit Agreement (and any Notes), and the
making of Loans as contemplated under the Credit Agreement,
do not require any authorizations, consents, approvals, or
licenses of, or filings or registrations with, any
governmental or regulatory authority or agency, domestic or
foreign, or the authorization, consent or approval of any
other person.
8. Neither the Company nor any Restricted Subsid
iary is, or immediately after application of the proceeds of
the Loans will be, an "investment company" within the
meaning of the Investment Company Act of 1940, as amended,
and neither the Company nor any Restricted Subsidiary is,
directly or indirectly, controlled by or acting on behalf of
any person which is an "investment company" within the
meaning of said Act. Neither the Company nor any of its
Subsidiaries is a "holding company" within the meaning of
the Public Utility Holding Company Act of 1935, as amended.
9. The Company's borrowing the Loans under the
Credit Agreement and using the proceeds from them as
contemplated by the Credit Agreement will not violate
Regulation G, T, U or X.
Our opinion is limited solely to the laws of the
Commonwealth of Kentucky, the federal laws of the United
States and the General Corporation Law of the State of
Delaware. We express no opinion as to the laws of any other
jurisdiction.
We are furnishing this opinion to you and your
counsel in respect of the Credit Agreement and the Loans.
It is not to be relied upon for any other purpose.
Very truly yours,
[ ]
EXHIBIT D
FORM OF NOTE
[ ] New York, New York
[Date of Initial
Borrowing]
FOR VALUE RECEIVED, the undersigned, PROVIDIAN
CORPORATION, a Delaware corporation (the "Company"), hereby
promises to pay to the order of [ ] (the "Bank"), at
the office of Credit Suisse (the "Administrative Agent"), at
, on (i) the last day of each Interest
Period, as defined in the Revolving Credit Facility
Agreement dated as of August 17, 1995, among the Company,
the Banks named therein and Credit Suisse as Arranger and as
Administrative Agent (the "Credit Agreement"), the principal
amount of Loans made by the Bank to the Company pursuant to
Sections 2.01 and 2.02 or 2.04, as applicable, of the Credit
Agreement to which such Interest Period applies (subject to
refinancing or conversion as provided in the Credit
Agreement) and (ii) on the Maturity Date, any amount of the
principal amount stated hereon remaining unpaid as of such
date of Loans made by the Bank to the Company pursuant to
Sections 2.01 and 2.02 or 2.04, as applicable, of the Credit
Agreement, in lawful money of the United States of America
in same day funds, and to pay interest from the date hereof
on such principal amount from time to time outstanding, in
like funds, at said office, at a rate or rates per annum and
payable on such dates as determined pursuant to the Credit
Agreement.
The Company promises to pay interest, on demand,
on any overdue principal and, to the extent permitted by
law, overdue interest from their due dates at a rate or
rates determined as set forth in the Credit Agreement.
The Company hereby waives diligence, presentment,
demand, protest and notice of any kind whatsoever. The
nonexercise by the holder of any of its rights hereunder in
any particular instance shall not constitute a waiver
thereof in that or any subsequent instance.
All borrowings evidenced by this Note and all
payments and prepayments of the principal hereof and
interest hereon and the respective dates thereof shall be
endorsed by the holder hereof on the schedule attached
hereto and made a part hereof, or on a continuation thereof
which shall be attached hereto and made a part hereof, or
otherwise recorded by such holder in its internal records;
provided, however, that any failure of the holder hereof to
make such a notation or any error in such notation shall not
in any manner affect the obligation of the Company to make
payments of principal and interest in accordance with the
terms of this Note and the Credit Agreement.
This Note is fully incorporated as an obligation
of the Company under the Credit Agreement which, among other
things, contains provisions for the acceleration of the
maturity hereof upon the happening of certain events, for
optional prepayment of the principal hereof prior to the
maturity thereof and for the amendment or waiver of certain
provisions of the Credit Agreement, all upon the terms and
conditions therein specified. This Note shall be construed
in accordance with and governed by the laws of the State of
New York and any applicable laws of the United States of
America.
PROVIDIAN CORPORATION,
by
_______________________
Title:
August 17, 1995
To each of the Banks party to the
$450,000,000 Revolving Credit Facility
Agreement, dated as of August 17, 1995,
among Providian Corporation, Credit
Suisse, as Arranger and as Administrative
Agent for said Banks, the Lead Manager party
thereto and said Banks.
Providian Corporation
Ladies and Gentlemen:
We have acted as counsel to Credit Suisse
individually, as Arranger and as Administrative Agent (each
as hereinafter defined), in connection with the execution
and delivery of the $450,000,000 Revolving Credit Facility
Agreement, dated as of August 17, 1995, among Providian
Corporation (the "Company"), Credit Suisse, as arranger (in
such capacity, the "Arranger") and as administrative agent
(in such capacity, the "Administrative Agent") for the banks
party thereto (the "Banks"), the Lead Manager party thereto,
and the Banks. Capitalized terms used and not otherwise
defined herein shall have the meanings assigned to such
terms in the Agreement.
In this connection we have examined the following
documents, each of which, unless otherwise indicated, is
dated the date hereof:
1. Counterparts of the Agreement executed by the
Company, the Administrative Agent and each Bank.
2. A certificate of the Secretary of the Company
with respect to (i) the By-laws of the Company, (ii) certain
resolutions adopted by the Board of Directors of the
Company, (iii) amendments of the certificate of
incorporation of the Company and (iv) the incumbency and
signatures of certain officers of the Company, delivered
pursuant to Section 4.02(c) of the Agreement.
3. An opinion of Stites and Harbison delivered
pursuant to Section 4.02(a) of the Agreement.
4. A certificate of a Financial Officer of the
Company with respect to the termination of a certain Credit
Agreement, delivered pursuant to Section 4.02(d) of the
Agreement.
5. Copies of the Certificate of Incorporation of
the Company, together with all amendments, and a certificate
of good standing, all certified by the appropriate
governmental officer in the Company's jurisdiction of
incorporation and delivered pursuant to Section 4.02(c) of
the Agreement.
We have assumed the authenticity of all such
documents submitted to us as originals, the genuineness of
all signatures, the due authority of the parties executing
such documents and the conformity to the originals of all
such documents submitted to us as copies. We have relied,
as to factual matters, on the documents we have examined.
Our opinions expressed below are limited to the
law of the State of New York and the Federal law of the
United States, and we do not express any opinions concerning
any other law.
Based upon and subject to the foregoing and upon
such investigation as we have deemed necessary, we are of
the opinion that:
(i) the certificates and opinion referred to in
items 2, 3, 4 and 5 above appear to be substantially
responsive to the requirements of Section 4.02 of the
Agreement; and
(ii) assuming that the Agreement has been duly
authorized, executed and delivered by the Company, the
Arranger and Administrative Agent, the Lead Manager and
each Bank, the Agreement constitutes a legal, valid and
binding obligation of the Company enforceable against
the Company in accordance with its terms, subject to
applicable bankruptcy, reorganization, fraudulent
conveyance, insolvency, moratorium and other similar
laws from time to time in effect and except that
(A) rights of acceleration and the availability of
equitable remedies, including the remedy of specific
performance, may be limited by general principles of
equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law) and
(B) we express no opinion as to the effect of the law
of any jurisdiction (other than the State of New York)
wherein the Company or any Bank, including any lending
office thereof, may be located which limits rates of
interest which may be charged or collected by such
Bank.
Very truly yours,
Schedule 1
LIST OF ALL SUBSIDIARIES
(Each person listed below is a corporation except for
Capital Liberty, L.P. and Camden Asset Management, L.P.,
which are limited partnerships.)
A. DESIGNATED INSURANCE SUBSIDIARIES
Subsidiary Domicile Percent of Voting
Securities Held By
Commonwealth Life Kentucky 100% Capital General
Insurance Company Development
Corporation
Agency Holding I, Inc. Delaware 100% Commonwealth
Life Insurance
Company
Agency Investments Delaware 100% Agency Holding
I, Inc. I, Inc.
Commonwealth Agency, Kentucky 100% Commonwealth
Inc. Life Insurance
Company
Peoples Security Life North 100% Providian
Insurance Company Carolina Corporation
Agency Holding II, Delaware 100% Peoples
Inc. Security Life
Insurance Company
Agency Investments Delaware 100% Agency Holding
II, Inc. II, Inc.
Agency Holding III, Delaware 100% Peoples
Inc. Security Life
Insurance Company
Agency Investment Delaware 100% Agency Holding
III, Inc. III, Inc.
Ammest Realty Texas 100% Peoples
Corporation Security Life
Insurance Company
Providian Life and Missouri 100% Capital
Health Insurance Liberty, L.P.
Company
Veterans Life Illinois 100% Providian Life
Insurance Company and Health Insurance
Company
National Pennsylvania 100% Veterans Life
Information Systems Insurance Company
Corporation
First Providian New York 100% Veterans Life
Life and Health Insurance Company
Insurance Company
Capital Security Life North 100% Providian
Insurance Company Carolina Corporation
Security Trust Life Kentucky 100% Capital
Insurance Company Security Life
Insurance Company
Independence Florida 100% Capital
Automobile Security Life
Association, Inc. Insurance Company
Independence Georgia 100% Capital
Automobile Club, Inc. Security Life
Insurance Company
B. OTHER SUBSIDIARIES
Subsidiary Domicile Percent of Voting
Securities Held
By
Providian Agency Group, Kentucky 100% Providian
Inc. Corporation
College Resource Group, Kentucky 100% Providian
Inc. Agency Group,
Inc.
Knight Insurance Massachu 100% College
Agency, Inc. setts Resource Group,
Inc.
Knight Tuition Massachu 100% Knight
Payment Plans, Inc. setts Insurance Agency,
Inc.
Knight New 100% Knight
Insurance Agency (New Hampshir Insurance Agency,
Hampshire), Inc. e Inc.
Providian Assignment Kentucky 100% Providian
Corporation Corporation
Providian Capital Delaware 100% Providian
Management, Inc. Corporation
Providian Capital Delaware 100% Providian
Management Real Estate Capital
Services, Inc. Management, Inc.
Capital Real Estate Delaware 100% Providian
Development Corporation Corporation
KB Currency Advisors, Delaware 33 1/3% Capital
Inc. Real Estate
Development
Corporation
Capital General Delaware 100% Providian
Development Corporation Corporation
Capital 200 Block Delaware 100% Providian
Corporation Corporation
Capital Values Financial Pennsylv 100% Providian
Services, Inc. ania Corporation
Providian Securities Pennsylv 100% Capital
Corporation ania Values Financial
Services, Inc.
Capital Broadway Kentucky 100% Providian
Corporation Corporation
Providian Investment Delaware 100% Providian
Advisors, Inc. Corporation
Southlife, Inc. Tennesse 100% Providian
e Corporation
Providian Bancorp. Inc. Delaware 100% Providian
Corporation
First Deposit Service Californ 100% Providian
Corporation ia Bancorp, Inc.
First Deposit Life Arkansas 100% Providian
Insurance Company Bancorp, Inc.
First Deposit National United 100% Providian
Bank States Bancorp, Inc.
Winnisquam Community New 96% First Deposit
Hampshir National Bank
Development e
Corporation
(nonprofit
corporation)
Providian National Bank United 100% Providian
States Bancorp, Inc.
Providian National Californ 100% Providian
Bancorp ia Bancorp, Inc.
Commonwealth Premium Californ 100% Providian
Finance ia National Bancorp
Providian Credit Delaware 100% Providian
Corporation Bancorp, Inc.
Providian Credit Utah 100% Providian
Services, Inc. Bancorp, Inc.
National Liberty Pennsylv 100% Providian
Corporation ania Corporation
National Assets Pennsylv 100% National
Management Corporation ania Liberty
Corporation
Compass Rose Development Pennsylv 100% National
Corporation ania Liberty
Corporation
Association Consultants, Illinois 100% National
Inc. Liberty
Corporation
Valley Forge Associates, Pennsylv 100% National
Inc. ania Liberty
Corporation
Veterans Benefits Plans, Pennsylv 100% National
Inc. ania Liberty
Corporation
Veterans Insurance Delaware 100% National
Services, Inc. Liberty
Corporation
Financial Planning Washingt 100% National
Services, Inc. on, D.C. Liberty
Corporation
Providian Auto and Home Missouri 100% Providian
Insurance Company Corporation
Academy Insurance Group, Delaware 100% Providian
Inc. Auto and Home
Insurance Company
Academy Life Missouri 100% Academy
Insurance Company Insurance Group,
Inc.
Pension Life New 100% Academy
Insurance Company of Jersey Insurance Group,
America Inc.
Academy Services, Delaware 100% Academy
Inc. Insurance Group,
Inc.
Ammest Development Kansas 100% Academy
Corporation, Inc. Insurance Group,
Inc.
Ammest Insurance Californ 100% Academy
Agency, Inc. ia Insurance Group,
Inc.
Ammest Massachusetts Massachu 100% Academy
Insurance Agency, Inc. setts Insurance Group,
Inc.
Ammest Realty, Inc. Pennsylv 100% Academy
ania Insurance Group,
Inc.
Ampac, Inc. Texas 100% Academy
Insurance Group,
Inc.
Ampac Insurance Pennsylv 100% Academy
Agency, Inc. ania Insurance Group,
Inc.
Data/Mark Services, Delaware 100% Academy
Inc. Insurance Group,
Inc.
Force Financial Delaware 90% Academy
Group, Inc. Insurance Group,
Inc.
Force Financial Massachu 100% Force
Services, Inc. setts Financial Group,
Inc.
Military Associates, Pennsylv 100% Academy
Inc. ania Insurance Group,
Inc.
NCOAA Management Texas 100% Academy
Company Insurance Group,
Inc.
NCOA Motor Club, Georgia 100% Academy
Inc. Insurance Group,
Inc.
Unicom Pennsylv 100% Academy
Administrative Services, ania Insurance Group,
Inc. Inc.
Unicom Germany 100% Unicom
Administrative Services Administrative
GmbH Services, Inc.
Providian Property and Kentucky 100% Providian
Casualty Insurance Auto and Home
Company Insurance Company
Providian Fire Kentucky 100% Providian
Insurance Company Property and
Casualty
Insurance Company
Capital Liberty, L.P. Delaware 50% Providian
Corporation
(General
Partnership
Interests)
40% Commonwealth
Life Insurance
Company (Limited
Partnership
Interests)
10% Peoples
Security Life
Insurance Company
(Limited
Partnerships
Interests)
Benefit Plans, Inc. Delaware 100% Providian
Corporation
DurCo Agency, Inc. Virginia 100% Benefit
Plans, Inc.
Camden Asset Management, Californ 51% Commonwealth
L.P. ia Life Insurance
Company (Limited
Partner)
Schedule 2
LIST OF CREDIT AGREEMENTS AND LIENS
Description Amount
Outstanding
7/31/95
Indenture dated April 1, 1983
between Providian Corporation
and Shawmut Bank Connecticut,
N.A., as successor to National
Westminster Bank USA, amended
by a First Supplemental
Indenture dated as of
September 1, 1989, covering an
unlimited amount of unsecured
debentures, notes or other
evidences of indebtedness
including:
8.75% Sinking Fund Debentures $95,000,000
due 2017
8.83% - 9.99% Medium Term $151,000,000
Notes - Series A, having an
aggregate initial public
offering price not to exceed
$200,000,000 maturing 5 to
12 years from their issue
dates
8.53% - 10.00% Medium Term $175,000,000
Notes - Series B, having an
aggregate initial public
offering price not to exceed
$175,000,000, maturing 5 to 30
years from their issue dates
7.04% - 9.00% Medium Term $117,750,000
Notes - Series C, having an
aggregate initial public
offering price not to exceed
$225,000,000, maturing 5 to
12 years from their issue
dates
Indenture dated January 1,
1994 between Providian
Corporation and First Trust,
N.A. as successor to Morgan
Guaranty Trust Company of New
York, covering an unlimited
amount of unsecured
debentures, notes or other
evidences of indebtedness
including:
Fixed Rate, Floating Rate or $190,551,568
Zero Coupon Medium Term Notes
- - Series D, having an
aggregate initial public
offering price not to exceed
$400,000,000, maturing 9
months or more from their
issue dates
$300,000,000 unsecured None
Revolving Credit Facility
Agreement dated June 19, 1992
as amended September 30, 1994,
among Providian Corporation
and various domestic and
international banks. Under
the agreement, Providian
Corporation can borrow on a
committed standby basis and
under competitive bid
procedures. The agreement
expires June 19, 1997.
Providian Corporation is $25,000,000
currently authorized to issue
up to $950,000,000 of
commercial paper with Chase
Manhattan Bank as issuing and
paying agent and Goldman Sachs
Inc. as dealer.
$450,000,0000 unsecured None
Syndicated Credit Facility
Agreement dated August 10,
1990, among Providian
Corporation and various
international financial
institutions. Under the
agreement, Providian
Corporation can borrow on a
committed standby basis and
under competitive bid
procedures. This agreement
expires August 21, 1995.
$100,000,000 unsecured None
committed revolving credit
facility established by
Providian Corporation with
Credit Suisse dated
October 11, 1994, having an
initial term of 364 days and
renewable annually.
_______________________________
1/ Not less than $25,000,000 and in integral multiples
of $5,000,000.
2/ Eurodollar Loan or Fixed Rate Loan.
3/ Which shall be subject to the definition of Interest
Period and end not later than the Maturity Date.
4/ Not less than $25,000,000 and in integral multiples
of $5,000,000.
5/ Eurodollar Loan, CD Loan or Alternate Base Loan.
6/ Which shall be subject to the definition of Interest
Period and end not later than the Maturity Date.
7/ In integral multiples of $5,000,000.
Page
$800,000,000
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of October 10, 1995
among
FIRST DEPOSIT NATIONAL BANK,
PROVIDIAN NATIONAL BANK,
PROVIDIAN CREDIT CORPORATION
and
PROVIDIAN CREDIT SERVICES, INC.,
as Borrowers,
PROVIDIAN BANCORP, INC.,
as Guarantor,
THE LENDERS NAMED HEREIN,
as Lenders
and
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION),
as Administrative Agent
and
BANK OF AMERICA NATIONAL TRUST CITICORP USA, INC.
AND SAVINGS ASSOCIATION
CREDIT LYONNAIS, SAN FRANCISCO BRANCH
CREDIT SUISSE NATIONSBANK OF TEXAS, N.A.
as Co-Agents
Table of Contents
This Table of Contents is not part of the Agreement
to which it is attached but is inserted for convenience of
reference only.
Page
Section 1. Definitions 1
1.01 Defined Terms 2
1.02 Other Definitional Provisions 14
Section 2. Amount and Terms of Commitments 14
2.01 Syndicated Loan Commitments 14
2.02 Procedure for Syndicated Loan Borrowing 15
2.03 Competitive Bid Option Loans 15
2.04 Swing Line Loans 19
2.05 Changes of Commitments 20
2.06 Fees.. 21
2.07 Lending Offices 22
2.08 Several Obligations 22
2.09 Evidence of Indebtedness 22
2.10 Optional Prepayments and Conversions or
Continuations of Eurodollar Loans 22
2.11 Mandatory Prepayments and Reductions of
Commitments 23
2.12 Extension of Termination Date 24
2.13 New Lenders 25
2.14 Increases in Commitments 25
2.15 Transition Provisions 26
Section 3. Payments of Principal and Interest 27
3.01 Repayment of Loans 27
3.02 Interest 27
Section 4. Payments; Pro Rata Treatment; Computations; Etc. 28
4.01 Payments 28
4.02 Pro Rata Treatment 28
4.03 Computations 29
4.04 Minimum Amounts 29
4.05 Certain Notices 30
4.06 Non-Receipt of Funds by the Agent 30
4.07 Sharing of Payments, Etc. 31
Section 5. Yield Protection, Etc. 32
5.01 Additional Costs 32
5.02 Limitation on Types of Loans 34
5.03 Illegality 34
5.04 Treatment of Affected Loans 34
5.05 Compensation 35
5.06 U.S. Taxes 36
Section 6. Conditions Precedent 37
6.01 Effective Date 37
6.02 Initial and Subsequent Loans 39
6.03 Initial and Subsequent Loans to PCSI 39
Section 7. Representations and Warranties 39
7.01 Financial Condition 40
7.02 No Change 40
7.03 Corporate Existence; Compliance with Law 40
7.04 Corporate Power; Authorization; Enforceable
Obligations 41
7.05 No Legal Bar 41
7.06 No Material Litigation 41
7.07 No Default 41
7.08 Ownership of Property; Liens 41
7.09 Taxes 41
7.10 Federal Regulations 42
7.11 ERISA 42
7.12 Investment Company Act; Other Regulations 42
7.13 Subsidiaries 42
7.14 Purpose of Loans 43
7.15 True and Complete Disclosure 43
7.16 Public Utility Holding Company Act 43
Section 8. Certain Covenants of Each Obligor 43
8.01 Financial Statements, Etc. 43
8.02 Litigation 45
8.03 Existence, Etc. 45
8.04 Insurance 46
8.05 Notices 46
8.06 Limitation on Fundamental Changes 48
8.07 Limitation on Sale of Assets 48
8.08 Limitation on Liens 49
8.09 Limitation on Transactions with Affiliates 50
Section 9. Additional Obligor-Specific Covenants 50
9.01 Guarantor Covenants 50
9.02 Covenants of FDNB, PNB and PCSI 50
9.03 Covenants of PCC 51
Section 10. Guarantee 51
10.01 Guarantee 51
10.02 Right of Set-off 51
10.03 No Subrogation 52
10.04 Amendments, etc. re Obligations; Waiver of
Rights 52
10.05 Guarantee Absolute and Unconditional 53
10.06 Reinstatement 53
Section 11. Events of Default 53
Section 12. The Agent 56
12.01 Appointment, Powers and Immunities 56
12.02 Reliance by Agent 57
12.03 Defaults 57
12.04 Rights as a Lender 57
12.05 Indemnification 57
12.06 Non-Reliance on Agent and Other Lenders 58
12.07 Failure to Act 58
12.08 Resignation or Removal of Agent 58
12.09 Co-Agents 59
Section 13. Miscellaneous 59
13.01 Waiver 59
13.02 Notices 59
13.03 Expenses, Etc. 59
13.04 Amendments, Etc. 60
13.05 Successors and Assigns 61
13.06 Assignments and Participations 61
13.07 Survival 64
13.08 Captions 64
13.09 Counterparts 64
13.10 Independence of Covenants 64
13.11 [Reserved] 64
13.12 Severability 64
13.13 Integration 64
13.14 Governing Law 65
13.15 Submission to Jurisdiction; Waivers 65
13.16 Waivers of Jury Trial 65
SCHEDULE I - Subsidiaries
SCHEDULE II - Section 8.08(c) Existing
Liens
EXHIBIT A - Form of Assignment and Acceptance
EXHIBIT B - Form of CBO Quote Request
EXHIBIT C - Form of CBO Quote
EXHIBIT D-1 - Form of Notice of Borrowing of CBO Loans
EXHIBIT D-2 -Form of Notice of Borrowing of Syndicated Loans
EXHIBIT D-3 -Form of Notice of Borrowing of Swing Line Loans
EXHIBIT E -Form of Opinion of Counsel to the Obligors
EXHIBIT F-1 - Form of Syndicated Note
EXHIBIT F-2 - Form of Competitive Bid Note
EXHIBIT G - Form of Additional Lender Addendum
EXHIBIT H - Form of Increased Commitment Addendum
EXHIBIT I - Form of Opinion of Counsel to the Lenders
AMENDED AND RESTATED CREDIT AGREEMENT, dated as of
October 10, 1995, among FIRST DEPOSIT NATIONAL BANK, a
national banking association incorporated, organized and
existing under the laws of the United States of America
("FDNB"), PROVIDIAN NATIONAL BANK (formerly First Deposit
National Credit Card Bank), a national banking association
incorporated, organized and existing under the laws of the
United States of America ("PNB"), PROVIDIAN CREDIT CORPORATION
(formerly Providian National Credit Corporation), a
corporation organized and existing under the laws of the State
of Delaware ("PCC"), PROVIDIAN CREDIT SERVICES, INC., a
corporation organized and existing under the laws of the State
of Utah ("PCSI"; together with FDNB, PNB and PCC, the
"Borrowers"); PROVIDIAN BANCORP, INC., a corporation organized
and existing under the laws of the State of Delaware (the
"Guarantor"; together with the Borrowers, the "Obligors"); the
banks and financial institutions listed on the signature pages
hereof under the caption "LENDERS" or which, pursuant to
Section 2.12, 2.13 or 13.06(b) hereof, shall become a "Lender"
hereunder (individually, a "Lender" and, collectively, the
"Lenders"); and THE CHASE MANHATTAN BANK (NATIONAL
ASSOCIATION), a national banking association, as
administrative agent for the Lenders (in such capacity,
together with any successor appointed pursuant to
Section 12.08, the "Agent").
RECITALS
A. FDNB, PNB, PCC, the Guarantor, the Agent and the
banks and financial institutions parties thereto (the
"Existing Lenders") entered into a $500,000,000 Credit
Agreement, dated as of October 14, 1994 (the "Existing
Agreement").
B. FDNB, PNB, PCC and the Guarantor have requested
that the Lenders enter into this Amended and Restated Credit
Agreement for the purpose of extending the Termination Date,
increasing the aggregate principal amount of the commitments,
adding PCSI as a Borrower, adding certain new Lenders, and
making certain other amendments.
AGREEMENT
The parties hereto hereby agree that from and after
the Effective Date (as hereinafter defined):
I. The Dai-Ichi Kangyo Bank, Ltd. and ABN-AMRO Bank
N.V. (the "Additional Lenders") shall be parties to the
Agreement, as amended and restated hereby, with the rights and
obligations of Lenders hereunder, including, without
limitation, the obligations to make Loans in an aggregate
amount not to exceed their respective Commitments hereunder;
II. PCSI shall be a party to the Agreement, as
amended and restated hereby, with the rights and obligations
of a Borrower hereunder, including, without limitation, the
right to make borrowings under this Agreement in an aggregate
amount not to exceed the PCSI Borrowing Limit; and
III. The Existing Agreement shall be amended and
restated in its entirety as follows:
Section 1. Definitions.
1.01 Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"Additional Lender": as defined in paragraph I
above.
"Additional Lender Addendum": an agreement,
substantially in the form attached hereto as Exhibit G, made
by a financial institution becoming a "Lender" hereunder and
accepted by the Borrowers and the Agent in accordance with
Section 2.13.
"Affiliate": as to any Person, any other Person
which, directly or indirectly, is in control of, is controlled
by, or is under common control with, such Person. For
purposes of this definition, "control" of a Person means the
power, directly or indirectly, either (a) to vote 10% or more
of the securities having ordinary voting power for the
election of directors of such Person or (b) to direct or cause
the direction of the management and policies of such Person,
whether by contract or otherwise.
"Agent": as defined in the preamble.
"Agreement": this Amended and Restated Credit
Agreement, as amended, supplemented or otherwise modified from
time to time.
"Applicable Lending Office": for each Lender and for
each Type of Loan, the "Lending Office" of such Lender (or of
an affiliate of such Lender) designated for such Type of Loan
on the signature pages hereof or such other office of such
Lender (or of an affiliate of such Lender) as such Lender may
from time to time specify to the Agent and each Borrower as
the office at which its Loans of such Type are to be made and
maintained.
"Applicable Margin": for each Type of Syndicated
Loan, the rate per annum set forth opposite such Type of Loan
below:
Base Rate Loan 0.0000%
Eurodollar Loan 0.1750%
"Assignment and Acceptance": an assignment and
acceptance, substantially in the form attached hereto as
Exhibit A, made by a Lender and an assignee of such Lender and
accepted by the Guarantor and the Agent in accordance with and
to the extent required by Section 13.06(b).
"Available Commitment": as to any Lender at any
time, an amount equal to the excess, if any, of (a) the amount
of such Lender's Commitment over (b) the aggregate principal
amount of all Syndicated Loans made by such Lender then
outstanding.
"Bankruptcy Code": the Federal Bankruptcy Code of
1978, as amended from time to time.
"Base Rate": for any day, a rate per annum equal to
the greater of (a) the Prime Rate in effect on such day and
(b) the Federal Funds Rate in effect on such day plus 1/2 of
1%. Any change in the Base Rate due to a change in the Prime
Rate or the Federal Funds Rate shall be effective as of the
opening of business on the effective day of such change in the
Prime Rate or the Federal Funds Rate, respectively.
"Base Rate Loans": Loans the rate of interest
applicable to which is based upon the Base Rate.
"Borrowing Date": any Business Day specified in a
notice pursuant to Section 2.02, 2.03 or 2.04 as a date on
which a Borrower requests the Lenders to make Loans hereunder.
"Business Day": any day on which (a) commercial
banks are not authorized or required to close in New York
City, San Francisco or the State of New Hampshire and (b) if
such day relates to the giving of notices or quotes in
connection with a LIBOR Auction or to a borrowing of, a
payment or prepayment of principal of or interest on, a
Conversion of or into, or an Interest Period for, a Eurodollar
Loan or a LIBOR Market Loan or a notice by any Borrower with
respect to any such borrowing, payment, prepayment, Conversion
or Interest Period, dealings in Dollar deposits are carried
out in the London interbank market.
"Capital Stock": any and all shares, interests,
participations or other equivalents (however designated) of
capital stock of a corporation, any and all equivalent
ownership interests in a Person (other than a corporation) and
any and all warrants or options to purchase any of the
foregoing.
"CBO Quote": an offer in accordance with
Section 2.03(c) by a Lender to make a Competitive Bid Option
Loan with one single specified interest rate.
"CBO Quote Request": as defined in Section 2.03(b).
"Chase": The Chase Manhattan Bank (National
Association).
"Class": as to any Loan, its nature as a
Competitive Bid Option Loan, a Swing Line Loan or a Syndicated
Loan.
"Co-Agents": Bank of America National Trust and
Savings Association, Citicorp USA, Inc., Credit Lyonnais, San
Francisco Branch, Credit Suisse and NationsBank of Texas, N.A.
"Code": the Internal Revenue Code of 1986, as
amended from time to time.
"Commitment": as to any Lender, the obligation of
such Lender to make Syndicated Loans in an aggregate amount at
any one time outstanding up to but not exceeding the amount
set opposite the name of such Lender on the signature pages
hereof under the caption "Commitment", or if such Lender has
entered into an Increased Commitment Addendum or one or more
Assignment and Acceptances, and with respect to each Lender
that becomes a Lender pursuant to an Assignment and Acceptance
or an Additional Lender Addendum, as set forth in such
Increased Commitment Addendum, Assignment and Acceptance or
Additional Lender Addendum (as the same may be reduced from
time to time pursuant to Section 2.05). The original
aggregate principal amount of the Commitments is $800,000,000.
"Commitment Percentage": as to any Lender at any
time, the percentage which such Lender's Commitment then
constitutes of the aggregate Commitments (or, at any time
after the Commitments shall have expired or terminated, the
percentage which the aggregate principal amount of such
Lender's Loans then outstanding (plus, in the case of each
Lender other than the Swing Line Lender, such Lender's
participation in Unrefunded Swing Line Loans and minus, in the
case of the Swing Line Lender, the aggregate participations of
the Lenders in the Unrefunded Swing Line Loans) constitutes of
the aggregate principal amount of the Loans then outstanding).
"Commitment Period": the period from and including
the date hereof to but not including the Termination Date or
such earlier date on which the Commitments shall terminate as
provided herein.
"Commonly Controlled Entity": with respect to any
Obligor, an entity, whether or not incorporated, which is
under common control with such Obligor within the meaning of
Section 4001 of ERISA or is part of a group which includes
such Obligor and which is treated as a single employer under
Section 414 of the Code.
"Competitive Bid Option Loans": loans provided for
in Section 2.03.
"Consolidated Finance Assets": as of any date of
determination, with respect to any Person, the sum of (a) all
cash and cash equivalents; (b) short-term investment grade
securities; and (c) all consumer loan receivables, credit card
receivables, premium finance receivables, residential mortgage
receivables and other consumer receivables arising in the
ordinary course of business and any other assets consented to
in writing by the Required Lenders, less any such receivables
which are sixty or more days past due, determined, in each
case, on a gross basis.
"Consolidated Funded Debt": as of any date of
determination, with respect to any Person, the consolidated
Indebtedness of such Person and its Consolidated Subsidiaries.
"Consolidated Pre-tax Income": with respect to any
period, the net income of the Guarantor and its Consolidated
Subsidiaries plus (or minus) income tax expense (or benefit)
to the extent deducted (or added) in calculating such net
income.
"Consolidated Pre-tax Return on Assets": as of the
last day of any Quarterly Period of the Guarantor, the
percentage equivalent of a fraction, the numerator of which is
the Consolidated Pre-Tax Income for the twelve months ending
on such date and the denominator of which is the average on a
monthly basis of all assets of the Guarantor and its
Consolidated Subsidiaries for such twelve-month period.
"Consolidated Senior Funded Debt": as of any date of
determination, with respect to any Person, (A) the
Consolidated Funded Debt of such Person and its Consolidated
Subsidiaries less (B) the Consolidated Subordinated Debt of
such Person and its Consolidated Subsidiaries included in (A).
"Consolidated Shareholders' Equity": as of any date
of determination, with respect to any Person, the consolidated
total stockholders' equity of such Person and its Consolidated
Subsidiaries.
"Consolidated Subordinated Debt": as of any date of
determination, with respect to any Person, the Subordinated
Debt of such Person and its Consolidated Subsidiaries.
"Consolidated Subsidiary": as of any date of
determination, with respect to any Person, each Subsidiary of
such Person (whether now existing or hereafter created or
acquired) the financial statements of which shall or should be
consolidated with the financial statements of such Person.
"Consolidated Tangible Capital": as of any date of
determination, with respect to any Person, (a) Consolidated
Shareholders' Equity less goodwill and identifiable
intangibles of such Person (other than identified intangibles
consisting of originated mortgage servicing rights, purchased
mortgage servicing rights and purchased credit card
relationships to the extent that such intangibles are
"qualifying intangible assets" under the OCC's risk based
capital guidelines, with any limitations thereunder determined
on a consolidated basis) plus (b) Consolidated Subordinated
Debt minus (c) the excess, if any, of (i) Consolidated
Subordinated Debt of such Person over (ii) 25% of the amount
calculated pursuant to clauses (a) and (b) of this definition.
"Continue", "Continuation" and "Continued" shall
refer to the continuation pursuant to Section 2.10 of a
Eurodollar Loan as a Eurodollar Loan from one Interest Period
to the next Interest Period.
"Contractual Obligation": as to any Person, any
provision of any security issued by such Person or of any
material agreement, instrument or other undertaking to which
such Person is a party or by which it or any of its property
is bound.
"Convert", "Conversion" and "Converted" shall refer
to a conversion pursuant to Section 2.10 of one Type of
Syndicated Loan into another Type of Syndicated Loan, which
may be accompanied by the transfer by a Lender (at its sole
discretion but subject to the proviso in the first sentence of
5.01(c)) of a Loan from one Applicable Lending Office to
another.
"Credit Documents": this Agreement and the Fee
Letter.
"Default": any of the events specified in
Section 11, whether or not any requirement for the giving of
notice, the lapse of time, or both, or any other condition,
has been satisfied.
"Dollars" and "$": dollars in lawful currency of
the United States of America.
"Effective Date": as defined in Section 6.01.
"ERISA": the Employee Retirement Income Security
Act of 1974, as amended from time to time.
"ERISA Affiliate": with respect to any Obligor, any
corporation or trade or business that is a member of any group
of organizations (i) described in Section 414(b) or (c) of the
Code and the regulations issued thereunder of which such
Obligor is a member and (ii) solely with respect to potential
liability under Section 302(c)(11) of ERISA or
Section 412(c)(11) of the Code or the lien created under
Section 302(f) of ERISA or Section 412(n) of the Code,
described in Section 414(m) or (o) of the Code and the
regulations issued thereunder of which such Obligor is a
member.
"ERISA Multiemployer Plan": with respect to any
Obligor, a multiemployer plan as defined in Section 3(37) of
ERISA to which such Obligor or any of its ERISA Affiliates has
an obligation to contribute.
"ERISA Pension Plan": with respect to any Obligor,
an employee pension benefit plan as defined in Section 3(2) of
ERISA, other than a Multiemployer Plan, which is maintained by
such Obligor or any of its ERISA Affiliates.
"ERISA Plan": an ERISA Pension Plan or an ERISA
Welfare Plan.
"ERISA Welfare Plan": with respect to any Obligor,
an employee welfare benefit plan as defined in Section 3(1) of
ERISA, other than a Multiemployer Plan, which is maintained by
such Obligor or any of its ERISA Affiliates.
"Eurocurrency Reserve Requirements": for any day as
applied to a Eurodollar Loan, the aggregate (without
duplication) of the rates (expressed as a decimal fraction) of
reserve requirements in effect on such day (including, without
limitation, basic, supplemental, marginal and emergency
reserves under any regulations of the Board of Governors of
the Federal Reserve System or other Governmental Authority
having jurisdiction with respect thereto) dealing with reserve
requirements prescribed for eurocurrency funding (currently
referred to as "Eurocurrency Liabilities" in Regulation D of
such Board) maintained by a member bank of such System with
deposits exceeding $1 billion in respect of eurodollar
currency funding liabilities.
"Eurodollar Base Rate": with respect to each day
during each Interest Period pertaining to a Eurodollar Loan,
the rate per annum equal to the arithmetic mean (rounded
upward to the nearest 1/16th of 1%) of the respective rates
notified to the Agent by each of the Reference Lenders as the
rate at which such Reference Lender is offered Dollar deposits
at or about 10:00 A.M., New York City time, two Business Days
prior to the beginning of such Interest Period (a) in the
interbank eurodollar market where the eurodollar and foreign
currency and exchange operations in respect of its Eurodollar
Loans are then being conducted, (b) for delivery on the first
day of such Interest Period, (c) for the number of days
comprised therein and (d) in an amount comparable to the
amount of its Eurodollar Loan to be outstanding during such
Interest Period.
"Eurodollar Loans": Syndicated Loans the interest
rates on which are determined on the basis of the Eurodollar
Rate.
"Eurodollar Rate": with respect to each day during
each Interest Period pertaining to a Eurodollar Loan, a rate
per annum determined for such day in accordance with the
following formula (rounded upward to the nearest 1/100th
of 1%):
Eurodollar Base Rate
1.00 - Eurocurrency Reserve Requirements
"Event of Default": any of the events specified in
Section 11, provided that any requirement for the giving of
notice, the lapse of time, or both, or any other condition,
has been satisfied.
"Existing Agreement": as defined in the recitals.
"Existing Lenders": as defined in the recitals.
"Extended Termination Date": the fourth (4th)
anniversary date of the Effective Date, provided that if such
date is not a Business Day, the Extended Termination Date
shall be the next preceding Business Day.
"Facility Fee": as defined in Section 2.06(a).
"Facility Fee Rate": for each Quarterly Period, the
percentage set forth below opposite the Consolidated Tangible
Capital of the Guarantor as of the Quarterly Date immediately
preceding such Quarterly Period:
Consolidated Tangible Capital Facility Fee Rate
greater than or equal to
$400,000,000 0.1250%
less than $400,000,000 0.1500%
"FDIA": the Federal Deposit Insurance Act, as
amended, or any successor statute.
"FDIC": as defined in Section 8.01(h).
"FDNB": as defined in the preamble.
"Federal Funds Rate": for any day, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of
1%) equal to the weighted average of the rates on overnight
federal funds transactions with members of the Federal Reserve
System arranged by federal funds brokers on such day, as
published on the next succeeding Business Day by the Federal
Reserve Bank of New York, provided that (a) if the day for
which such rate is to be determined is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Business Day as so
published on the next succeeding Business Day and (b) if such
rate is not so published for any Business Day, the Federal
Funds Rate for such Business Day shall be the arithmetic mean
of three rates quoted by Federal funds brokers to Chase on
such Business Day on such transactions as determined by the
Agent.
"Fee Letter": the letter dated August 19, 1994
between the Obligors and the Agent relating to certain agency
and other fees in respect of the credit facilities provided
hereunder.
"Financing Lease": any lease of property, real or
personal, the obligations of the lessee in respect of which
are required in accordance with GAAP to be capitalized on a
balance sheet of the lessee.
"First Scheduled Termination Date": the third (3rd)
anniversary date of the Effective Date, provided that if such
date is not a Business Day, the First Scheduled Termination
Date shall be the preceding Business Day.
"GAAP": generally accepted accounting principles in
the United States of America in effect from time to time,
except that for purposes of Sections 9.01, 9.02 and 9.03, GAAP
shall be determined on the basis of such principles in effect
on the date hereof and consistent with those used in the
preparation of the audited financial statements referred to in
Section 7.01.
"Governmental Authority": any nation or government,
any state or other political subdivision thereof and any
entity exercising executive, legislative, judicial, regulatory
or administrative functions of or pertaining to government.
"Guarantee Obligation": as to any Person (the
"guaranteeing person"), any obligation of the guaranteeing
person guaranteeing or intended to guarantee any Indebtedness
(the "primary obligations") of any other Person (the "primary
obligor") in any manner, whether directly or indirectly,
including, without limitation, any obligation of the
guaranteeing person, whether or not contingent, (i) to
purchase any such primary obligation or any property
constituting direct or indirect security therefor, (ii) to
advance or supply funds (1) for the purchase or payment of any
such primary obligation or (2) to maintain working capital or
equity capital of the primary obligor or otherwise to maintain
the net worth or solvency of the primary obligor, (iii) to
purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation
of the ability of the primary obligor to make payment of such
primary obligation or (iv) otherwise to assure or hold
harmless the owner of any such primary obligation against loss
in respect thereof; provided, however, that the term Guarantee
Obligation shall not include endorsements of instruments for
deposit or collection in the ordinary course of business. The
amount of any Guarantee Obligation of any guaranteeing person
shall be deemed to be the lower of (a) an amount equal to the
stated or determinable amount of the primary obligation in
respect of which such Guarantee Obligation is made and (b) the
maximum amount for which such guaranteeing person may be
liable pursuant to the terms of the instrument embodying such
Guarantee Obligation, unless such primary obligation and the
maximum amount for which such guaranteeing person may be
liable are not stated or determinable, in which case the
amount of such Guarantee Obligation shall be such guaranteeing
person's maximum reasonably anticipated liability in respect
thereof as determined by such guaranteeing person in good
faith.
"Guarantor": as defined in the preamble.
"Increased Commitment Addendum": an agreement,
substantially in the form attached hereto as Exhibit H, made
by a Lender and accepted by the Obligors and the Agent in
accordance with Section 2.14.
"Indebtedness": of any Person at any date, (a) all
indebtedness of such Person for borrowed money (including,
without limitation, deposits but excluding non-interest
bearing deposits classified as official checks of such Person)
or for the deferred purchase price of property or services
(other than trade liabilities and other current or accrued
liabilities arising in the ordinary course of business and
payable in accordance with customary practices), (b) any other
indebtedness of such Person which is evidenced by a note,
bond, debenture, credit agreement or similar instrument,
(c) all obligations of such Person under Financing Leases,
(d) all obligations of such Person in respect of acceptances
issued or created for the account of such Person and (e) all
indebtedness for borrowed money secured by any Lien on any
property owned by such Person even though such Person has not
assumed or otherwise become liable for the payment thereof;
provided, however, that the term Indebtedness shall not
include any repurchase obligation of such Person with respect
to U.S. Government securities on a book entry basis for a
period of no more than three months where the repurchase
obligation matures no later than the maturity of underlying
government obligation and where such Person owns the
corresponding underlying government obligation.
"Insured Depository Institution": an "insured
depository institution" as defined in the FDIA, 12 U.S.C.A.
1813(c)(2) (or any successor provision of the FDIA).
"Interest Period":
(a) with respect to any Eurodollar Loan, each
period commencing on the date such Eurodollar Loan is
made or Converted from a Loan of another Type or the last
day of the next preceding Interest Period for such Loan
and ending on (1) the numerically corresponding day in
the first, second, third or sixth calendar month
thereafter, as the Borrower may select as provided in
Section 4.05, except that each Interest Period that
commences on the last Business Day of a calendar month
(or on any day for which there is no numerically
corresponding day in the appropriate subsequent calendar
month) shall end on the last Business Day of the
appropriate subsequent calendar month or (2) for any
period of less than one month or more than six months
selected by the Borrower and acceptable to each Lender as
provided in Section 4.05, the last day of such period;
(b) with respect to any Set Rate Loan, the period
commencing on the date such Set Rate Loan is made and
ending on any Business Day at least 7 days thereafter, as
the Borrower may select as provided in Section 2.03(b);
and
(c) with respect to any LIBOR Market Loan, the
period commencing on the date such LIBOR Market Loan is
made and ending on the numerically corresponding day in
that number of calendar months thereafter as the Borrower
may select as provided in Section 2.03(b), except that
each such Interest Period that commences on the last
Business Day of a calendar month (or any day for which
there is no numerically corresponding day in the
appropriate subsequent calendar month) shall end on the
last Business Day of the appropriate subsequent calendar
month.
Notwithstanding the foregoing: (i) if any Interest Period for
any Eurodollar Loan or Competitive Bid Option Loan would
otherwise end after the Termination Date, such Interest Period
shall, subject to clause (iii) below, end on the Termination
Date; (ii) subject to clause (i) above, each Interest Period
that would otherwise end on a day which is not a Business Day
shall end on the next succeeding Business Day (or, in the
case of an Interest Period for a Eurodollar Loan or a LIBOR
Market Loan, if such next succeeding Business Day falls in the
next succeeding calendar month, on the next preceding Business
Day); and (iii) subject to clause (ii) above, except as
permitted in Section 4.05, no Interest Period for any Loan
(other than a Set Rate Loan or a Swing Line Loan) shall have a
duration of less than one month (in the case of a Eurodollar
Loan or a LIBOR Market Loan) and, if the Interest Period for
any Eurodollar Loan or LIBOR Market Loan would otherwise be a
shorter period, a Eurodollar Loan or LIBOR Market Loan shall
not be available hereunder for such period.
"Lenders": as defined in the preamble.
"LIBO Margin": as defined in Section 2.03(c)(ii)(C).
"LIBO Rate": for any LIBOR Market Loan, a rate per
annum equal to the Eurodollar Rate for the Interest Period for
such Loan.
"LIBOR Auction": a solicitation of CBO Quotes
setting forth LIBO Margins based on the LIBO Rate pursuant to
Section 2.03.
"LIBOR Market Loans": Competitive Bid Option Loans
interest rates on which are determined on the basis of LIBO
Rates pursuant to a LIBOR Auction.
"Lien": any mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory
or other), charge or other security interest or any
preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other
title retention agreement and any Financing Lease having
substantially the same economic effect as any of the
foregoing).
"Loan": any loan made by any Lender pursuant to
this Agreement.
"Majority Lenders": at any time, Lenders the
Commitment Percentages of which aggregate more than 50%.
"Material Adverse Effect": with respect to any
Obligor, a material adverse effect on (a) the financial
condition of such Obligor and its Subsidiaries taken as a
whole, (b) the ability of such Obligor to perform its material
obligations under any of the Credit Documents to which it is a
party, (c) the validity or enforceability of any material
provisions of the Credit Documents or (d) the rights and
remedies of the Lenders and the Agent under any of the Credit
Documents but, in the case of this clause (d), excluding any
developments and events generally applicable to comparable
banks and financial institutions.
"Material Subsidiary": as to any Person, a
Subsidiary, in which (a) such Person's and its other
Subsidiaries' proportionate share of the total assets (after
intercompany eliminations) of such Subsidiary exceeds
10 percent of the total assets of such Person and its
Subsidiaries consolidated as of the end of the most recently
completed fiscal year; or (b) such Person's and its other
Subsidiaries' equity in the income from continuing operations
before income taxes, extraordinary items, and the cumulative
effect of a change in accounting principles of such Subsidiary
exceeds 10 percent of such income of such Person and its
Subsidiaries consolidated for the most recently completed
fiscal year.
"New Lender": as defined in Section 2.13.
"Obligations": the collective reference to the
unpaid principal of and interest on the Loans and all other
amounts owing by the Borrowers to the Agent and the Lenders
(including, without limitation, interest accruing at the then
applicable rate provided in this Agreement after the maturity
of the Loans and interest accruing at the then applicable rate
provided in this Agreement after the filing of any petition in
bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to any Borrower
whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding), whether direct or
indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred under this Agreement or any
other Credit Document, in each case whether on account of
principal, interest, reimbursement obligations, fees,
indemnities, costs, expenses or otherwise (including, without
limitation, all fees and disbursements of counsel to the Agent
or to the Lenders that are required to be paid by the
Borrowers pursuant to the terms of this Agreement).
"OCC": the United States Office of the Comptroller
of Currency.
"Participant": as defined in Section 13.06(c).
"PBGC": the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA, or
any successor thereto.
"PCC": as defined in the preamble.
"PCSI": as defined in the preamble.
"PCSI Borrowing Limit": at any time during any of
the periods set forth below, the amount set forth opposite
such period:
Period PCSI Borrowing Limit
From the Effective Date to
but excluding the first $150,000,000
anniversary thereof
From the first anniversary of
the Effective Date to but
excluding the second $250,000,000
anniversary thereof
From the second anniversary
of the Effective Date to but
excluding the third $350,000,000
anniversary thereof
Thereafter The aggregate amount of the
Commitments
"Person": an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other
entity of whatever nature.
"Plan": at a particular time, any employee benefit
plan which is covered by ERISA and in respect of which a
Borrower or a Commonly Controlled Entity is (or, if such plan
were terminated at such time, would under Section 4069 of
ERISA be deemed to be) an "employer" as defined in Section
3(5) of ERISA.
"PNB": as defined in the preamble.
"Post-Default Rate": in respect of any principal of
or interest on any Loan or any other amount under this
Agreement or any other Credit Document that is not paid when
due, after giving effect to any applicable grace period
(whether at stated maturity, by acceleration, by mandatory
prepayment or otherwise), a rate per annum during the period
from and including the due date to but excluding the date on
which such amount is paid in full equal to 2% plus the Base
Rate as in effect from time to time (provided that, if the
amount so in default is principal of a Eurodollar Loan or a
Competitive Bid Option Loan and the due date thereof is a day
other than the last day of the Interest Period therefor, the
"Post-Default Rate" for such principal shall be, for the
period from and including such due date to but excluding the
last day of the Interest Period, 2% plus the interest rate for
such Loan as provided in Section 3.02 and, thereafter, the
rate provided for above in this definition).
"Prime Rate": the rate of interest per annum
publicly announced from time to time by Chase as its prime
commercial lending rate in effect at its Principal Office (the
Prime Rate not being intended to be the lowest rate of
interest charged by Chase in connection with extensions of
credit to debtors).
"Principal Office": the principal office of Chase,
located on the date hereof at 1 Chase Manhattan Plaza, New
York, New York 10081.
"Property": any right or interest in or to property
of any kind whatsoever, whether real, personal or mixed and
whether tangible or intangible.
"Quarterly Dates": the last day of March, June,
September and December in each year; provided that if any such
day is not a Business Day, then such Quarterly Date shall be
the next preceding Business Day.
"Quarterly Period": each fiscal quarter of the
Guarantor or part thereof during the period from the date of
this Agreement to the Termination Date.
"Quotation Date": as defined in Section 2.03(b).
"Receivable": any amount owing, from time to time,
with respect to a credit card, consumer revolving or consumer
installment loan account, residential mortgage loan account or
other consumer receivable owned by a Borrower, including
without limitation, amounts owing for payment of goods and
services, cash advances, convenience checks, annual membership
fees, finance charges, late charges, credit insurance premiums
and cash advance fees and fees relating to additional consumer
products.
"Reference Lenders": Chase, Credit Suisse and Bank
of America National Trust and Savings Association or any
successor designated pursuant to Section 2.05(c).
"Register": as defined in Section 13.06(h).
"Regulation U": Regulation U of the Board of
Governors of the Federal Reserve System as in effect from time
to time.
"Regulatory Change": with respect to any Lender,
any change after the date of this Agreement in Federal, state
or foreign law or regulations (other than a voluntary change
by such Lender of its status from a national Lender to a state
Lender or thrift or vice versa) or the adoption or making
after such date of any interpretation, directive or request
applying to a class of banks or financial institutions
including such Lender of or under any Federal, state or
foreign law or regulations (whether or not having the force of
law and whether or not failure to comply therewith would be
unlawful) by any court or governmental or monetary authority
charged with the interpretation or administration thereof.
"Required Lenders": at any time, Lenders the
Commitment Percentages of which aggregate more than 66-2/3%.
"Requirement of Law": as to any Person, the
Certificate of Incorporation and By-Laws or other
organizational or governing documents of such Person, and any
law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each
case applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is
subject.
"Responsible Officer": with respect to any Obligor,
the chairman of the board, the chief executive officer,
president, executive vice president, chief financial officer,
senior financial officer, treasurer, vice president, finance
or any senior vice president of such Obligor or, with respect
to financial matters, the chief financial officer, senior
financial officer, treasurer, controller, vice president,
finance or vice president, corporate development of such
Obligor; provided, that the term Responsible Officer shall
also include any officer of such Obligor having a different
title but performing the same or similar functions as the
above-designated officers.
"Set Rate": as defined in Section 2.03(c)(ii)(D).
"Set Rate Auction": a solicitation of CBO Quotes
setting forth Set Rates pursuant to Section 2.03.
"Set Rate Loans": Competitive Bid Option Loans the
interest rates on which are determined on the basis of Set
Rates pursuant to a Set Rate Auction.
"Subordinated Debt": with respect to any Person,
any unsecured Indebtedness of such Person the payment of the
principal of and interest on which and other payment
obligations of such Person in respect thereof are subordinated
to the prior payment in full of the principal of and interest
(including post-petition interest) on the Loans and all other
payment obligations and liabilities of such Person to the
Agent and the Lenders hereunder; provided that the terms of
such subordination may allow payments on such Indebtedness if
no Default or Event of Default has occurred and is continuing
hereunder.
"Subsidiary": as to any Person, a corporation,
partnership or other entity of which shares of stock or other
ownership interests having ordinary voting power (other than
stock or such other ownership interests having such power only
by reason of the happening of a contingency) to elect a
majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time
owned, or the management of which is otherwise controlled,
directly or indirectly through one or more intermediaries, or
both, by such Person.
"Swing Line Amount": $50,000,000.
"Swing Line Base Rate": for any day, with respect
to any Swing Line Base Rate Loan, a rate per annum equal to
(x) the Federal Funds Rate for such day plus (y) 0.3750% per
annum.
"Swing Line Base Rate Loans": Swing Line Loans that
bear interest at rates based upon the Swing Line Base Rate.
"Swing Line Commitment": the obligation of the Swing
Line Lender to make Swing Line Loans in an aggregate amount at
any one time outstanding up to but not exceeding the Swing
Line Amount.
"Swing Line Lender": Chase.
"Swing Line Loans": as defined in Section 2.04(a).
"Swing Line Money Market Loans": Swing Line Loans
that bear interest at rates based upon the Swing Line Money
Market Rate.
"Swing Line Money Market Rate": the rate of interest
per annum applicable to a Swing Line Money Market Loan to a
Borrower as agreed by the Swing Line Lender and a Borrower
pursuant to Section 2.04(b).
"Syndicated Loans": as defined in Section 2.01.
"Termination Date": (i) (A) the First Scheduled
Termination Date or (B) if the Termination Date has been
extended pursuant to Section 2.12, the Extended Termination
Date, or (ii) such earlier date as the Commitments shall be
terminated pursuant to Section 2.05(b) or 11.
"Type": as to any Loan, its nature as a Base Rate
Loan, a Eurodollar Loan, a Swing Line Base Rate Loan, a Swing
Line Money Market Loan, a LIBOR Market Loan or a Set Rate
Loan.
"Unrefunded Eurodollar Loans": as defined in
Section 2.15(b).
"Unrefunded Swing Line Loans": as defined in
Section 2.04(d).
"Utilization Fee": as defined in Section 2.06(b).
"Utilization Fee Rate": 0.1250% per annum.
1.02 Other Definitional Provisions.
(a) Unless otherwise specified therein, all terms
defined in this Agreement shall have the defined meanings when
used in any certificate or other document made or delivered
pursuant hereto.
(b) As used herein, and any certificate or other
document made or delivered pursuant hereto, accounting terms
relating to the Obligors and their respective Subsidiaries not
defined in Section 1.01 and accounting terms partly defined in
Section 1.01, to the extent not defined, shall have the
respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder"
and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular
provision of this Agreement, and Section, Schedule and Exhibit
references are to this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein
shall be equally applicable to both the singular and plural
forms of such terms.
Section 2. Amount and Terms of Commitments.
2.01 Syndicated Loan Commitments.
(a) Subject to the terms and conditions hereof,
each Lender severally agrees to make Syndicated Loans
("Syndicated Loans") to any and each Borrower from time to
time during the Commitment Period on any Business Day in an
aggregate principal amount at any one time outstanding not to
exceed the amount of such Lender's Commitment, provided that
the aggregate principal amount of all Syndicated Loans,
together with the aggregate principal amount of all
Competitive Bid Option Loans and all Swing Line Loans at any
one time outstanding to all the Borrowers shall not exceed an
amount equal to the aggregate amount of the Commitments in
effect at such time, and provided, further, that the aggregate
principal amount of all Loans to PCSI at any one time
outstanding shall not exceed an amount equal to the PCSI
Borrowing Limit at such time. During the Commitment Period
each Borrower may use the Commitments by borrowing, prepaying
the Syndicated Loans in whole or in part, reborrowing,
Converting Syndicated Loans of one Type into Syndicated Loans
of another Type or Continuing Syndicated Loans of one Type as
Syndicated Loans of the same Type, all in accordance with the
terms and conditions hereof.
(b) The Syndicated Loans may from time to time be
(i) Eurodollar Loans, (ii) Base Rate Loans or (iii) a
combination thereof, as determined by the applicable Borrower
and notified to the Agent in accordance with Sections 2.02 and
2.10, provided that no Syndicated Loan shall be made as a
Eurodollar Loan after the day that is one month prior to the
Termination Date.
(c) The Competitive Bid Option Loans and Swing Line
Loans made by a Lender shall not reduce the Commitment of such
Lender to make Syndicated Loans, except to the extent that the
aggregate principal amount of all Syndicated Loans, together
with the aggregate principal amount of all Competitive Bid
Option Loans and all Swing Line Loans at any one time
outstanding to all the Borrowers shall exceed an amount equal
to the aggregate amount of the Commitments in effect at such
time.
2.02 Procedure for Syndicated Loan Borrowing. Each
Borrower may borrow under the Commitments during the
Commitment Period on any Business Day, provided that each
Borrower shall give the Agent irrevocable notice prior to
11:00 A.M., New York City time, (a) three Business Days prior
to the requested Borrowing Date, if all or any part of the
requested Syndicated Loans are to be initially Eurodollar
Loans, or (b) on the requested Borrowing Date, otherwise,
specifying (i) the amount to be borrowed, (ii) the requested
Borrowing Date, (iii) whether the borrowing is to be of
Eurodollar Loans, Base Rate Loans or a combination thereof and
(iv) if the borrowing is to be entirely or partly of
Eurodollar Loans, the amount of such Type of Loan and the
length of the initial Interest Period therefor. Each
borrowing under the Commitments shall be in an amount equal to
(x) in the case of Base Rate Loans, at least $5,000,000 (or,
if the then Available Commitments are less than $5,000,000,
such lesser amount) and (y) in the case of Eurodollar Loans,
$5,000,000 or a whole multiple of $1,000,000 in excess
thereof. Upon receipt of any such notice from a Borrower, the
Agent shall promptly notify each Lender thereof. Each Lender
will make the amount of its pro rata share of each borrowing
available to the Agent for the account of such Borrower at
account number NYAON 900-9-000002 maintained by the Agent with
Chase at the Principal Office prior to 1:00 P.M., New York
City time, on the Borrowing Date requested by such Borrower in
funds immediately available to the Agent. Such borrowing will
then be made available to such Borrower by the Agent by
depositing the aggregate of the amounts made available to the
Agent by the Lenders, in like funds as received by the Agent,
in the account of such Borrower at such office, or in another
account designated by such Borrower in a notice to the Agent
hereunder.
2.03 Competitive Bid Option Loans.
(a) Subject to the terms and conditions of this
Agreement, any Borrower may request the Lenders to make offers
to make Competitive Bid Option Loans to such Borrower from
time to time during the Commitment Period on any Business Day.
The Lenders may, but shall have no obligation to, make such
offers and such Borrower may, but shall have no obligation to,
accept any such offers in the manner set forth in this Section
2.03. Competitive Bid Option Loans may be LIBOR Market Loans
or Set Rate Loans, provided that the aggregate principal
amount of all Competitive Bid Option Loans, together with the
aggregate principal amount of all Syndicated Loans and all
Swing Line Loans, at any one time outstanding to all Borrowers
shall not exceed an amount equal to the aggregate amount of
the Commitments at such time, and, provided, further, that the
aggregate principal amount of all Loans to PCSI at any one
time outstanding shall not exceed an amount equal to the PCSI
Borrowing Limit at such time.
(b) When any Borrower wishes to request offers to
make Competitive Bid Option Loans, it shall give the Agent
(which shall promptly notify the Lenders) notice (a "CBO Quote
Request") no later than 11:00 a.m. New York City time on
(x) the fourth Business Day prior to the date of borrowing
proposed therein, in the case of a LIBOR Auction or (y) the
Business Day next preceding the date of borrowing proposed
therein, in the case of a Set Rate Auction (or, in any such
case, such other time and date as such Borrower and the Agent,
with the consent of the Majority Lenders, may agree). Each
Borrower may request offers to make Competitive Bid Option
Loans for up to three different Interest Periods in a single
notice (for which purpose Interest Periods in different
lettered clauses of the definition of the term "Interest
Period" shall be deemed to be different Interest Periods even
if they are coterminous); provided that the request for each
separate Interest Period shall be deemed to be a separate CBO
Quote Request for a separate borrowing (a "Competitive Bid
Option Borrowing"). Each such notice shall be substantially
in the form of Exhibit B hereto and shall specify as to each
Competitive Bid Option Borrowing:
(i) the proposed date of such borrowing, which
shall be a Business Day;
(ii) the aggregate amount of such Competitive
Bid Option Borrowing, which shall be at least $5,000,000
(or a larger whole multiple of $1,000,000) but shall not
cause the limit specified in Section 2.03(a) to be
violated;
(iii) the duration of the Interest Period
applicable thereto;
(iv) whether the CBO Quotes requested for a
particular Interest Period are for LIBOR Market Loans or
Set Rate Loans; and
(v) if the CBO Quotes requested are for Set
Rate Loans, the date on which the CBO Quotes are to be
submitted if it is before the proposed date of borrowing
(the date on which such CBO Quotes are to be submitted is
called the "Quotation Date").
(c) (i) Each Lender may submit one or more CBO
Quotes, each containing an offer to make a Competitive Bid
Option Loan in response to any CBO Quote Request; provided
that, if a Borrower's request under Section 2.03(b) specified
more than one Interest Period, such Lender may make a single
submission containing one or more CBO Quotes for each such
Interest Period. Each CBO Quote must be submitted to the
Agent not later than (x) 2:30 p.m. New York City time on the
fourth Business Day prior to the proposed date of borrowing,
in the case of a LIBOR Auction or (y) 9:45 a.m. New York City
time on the Quotation Date, in the case of a Set Rate Auction
(or, in any such case, such other time and date as the
Borrower requesting such bids and the Agent, with the consent
of the Majority Lenders, may agree); provided that any CBO
Quote may be submitted by Chase (or its Applicable Lending
Office) only if Chase (or such Applicable Lending Office)
notifies the requesting Borrower of the terms of the offer
contained therein not later than (x) 2:15 p.m. New York City
time on the fourth Business Day prior to the proposed date of
borrowing, in the case of a LIBOR Auction or (y) 9:30 a.m. New
York City time on the Quotation Date, in the case of a Set
Rate Auction. Subject to Sections 5.03, 6.02 and 11 hereof,
any CBO Quote so made shall be irrevocable except with the
consent of the Agent given on the instructions of the
requesting Borrower.
(ii) Each CBO Quote shall be substantially in the
form of Exhibit C hereto and shall specify:
(A) the proposed date of borrowing and the Interest
Period therefor;
(B) the principal amount of the Competitive Bid
Option Loan for which each such offer is being made,
which principal amount shall be at least $5,000,000 (or a
larger whole multiple of $1,000,000); provided that the
aggregate principal amount of all Competitive Bid Option
Loans for which a Lender submits CBO Quotes (x) may be
greater or less than the Available Commitment of such
Lender but (y) may not exceed the principal amount of the
Competitive Bid Option Borrowing for a particular
Interest Period for which offers were requested;
(C) in the case of a LIBOR Auction, the margin
above or below the applicable LIBO Rate (the "LIBO
Margin") offered for each such Competitive Bid Option
Loan, expressed as a percentage (rounded, if necessary,
to the nearest 1/10,000th of 1%) to be added to or
subtracted from the applicable LIBO Rate;
(D) in the case of a Set Rate Auction, the rate of
interest per annum (rounded, if necessary, to the nearest
1/10,000th of 1%) offered for each such Competitive Bid
Option Loan (the "Set Rate"); and
(E) the identity of the quoting Lender.
Unless otherwise agreed by the Agent and the requesting
Borrower, no CBO Quote shall contain qualifying, conditional
or similar language or propose terms other than or in addition
to those set forth in the applicable CBO Quote Request (other
than a condition limiting the aggregate amount of Competitive
Bid Option Loans for which such CBO Quote may be accepted)
and, in particular, no CBO Quote may be conditioned upon
acceptance by such Borrower of all (or some specified minimum
other than set forth herein) of the principal amount of the
Competitive Bid Option Loans for which such CBO Quote is being
made.
(d) The Agent shall (x) in the case of a Set Rate
Auction, as promptly as practicable after the CBO Quote is
submitted (but in any event not later than 10:15 a.m. New York
City time on the Quotation Date) or (y) in the case of a LIBOR
Auction, by 4:00 p.m. New York City time on the day a CBO
Quote is submitted, notify the requesting Borrower of the
terms (i) of any CBO Quote submitted by a Lender in accordance
with Section 2.03(c) and (ii) of any CBO Quote that amends,
modifies or is otherwise inconsistent with a previous CBO
Quote submitted by such Lender with respect to the same CBO
Quote Request. Any such subsequent CBO Quote shall be
disregarded by the Agent unless such subsequent CBO Quote is
submitted solely to correct a manifest error in such former
CBO Quote. The Agent's notice to the requesting Borrower
shall specify (A) the aggregate principal amount of the
Competitive Bid Option Borrowing for which offers have been
received and (B) the respective principal amounts and LIBO
Margins or Set Rates, as the case may be, so offered by each
Lender (identifying the Lender that made each CBO Quote).
(e) Not later than (x) 10:00 a.m. New York City
time on the third Business Day prior to the proposed date of
borrowing, in the case of a LIBOR Auction or (y) 11:00 a.m.
New York City time on the Quotation Date, in the case of a Set
Rate Auction (or, in any such case, such other time and date
as the requesting Borrower and the Agent, with the consent of
the Majority Lenders, may agree), the requesting Borrower
shall notify the Agent of its acceptance or nonacceptance of
the offers so notified to it pursuant to Section 2.03(d) (and
the failure of the requesting Borrower to give such notice by
such time shall constitute nonacceptance) and the Agent shall
promptly notify each affected Lender. In the case of
acceptance, such notice shall be in substantially the form of
Exhibit D-1 hereto and shall specify the aggregate principal
amount of offers that are accepted for each Interest Period.
The requesting Borrower may accept any CBO Quote in whole or
in part (provided that any CBO Quote accepted in part shall be
at least $5,000,000 or a larger whole multiple of $1,000,000,
but provided, further, that the CBO Quote with the highest
LIBO Margin or Set Rate of the CBO Quotes that are accepted
for each Competitive Bid Option Borrowing may be accepted in
part for less than $5,000,000, but shall be for at least
$1,000,000 or a larger whole multiple thereof); provided that:
(i) the aggregate principal amount of each
Competitive Bid Option Borrowing may not exceed the
applicable amount set forth in the related CBO Quote
Request;
(ii) the aggregate principal amount of each
Competitive Bid Option Borrowing shall be at least
$5,000,000 (or a larger whole multiple of $1,000,000) but
shall not cause the limits specified in Section 2.03(a)
to be violated;
(iii) acceptance of offers may be made only in
ascending order of LIBO Margins or Set Rates, as the case
may be, in each case beginning with the lowest rate so
offered; and
(iv) the requesting Borrower may not accept any
offer where the Agent has advised such Borrower that such
offer fails to comply with Section 2.03(c)(ii) or
otherwise fails in any material respect to comply with
the requirements of this Agreement (including, without
limitation, Section 2.03(a)).
If offers are made by two or more Lenders with the same LIBO
Margins or Set Rates, as the case may be, for a greater
aggregate principal amount than the amount in respect of which
offers are accepted for the related Interest Period, the
principal amount of Competitive Bid Option Loans in respect of
which such offers are accepted shall be allocated by the
requesting Borrower among such Lenders as nearly as possible
(in amounts of at least $5,000,000 or larger multiples of
$1,000,000, except that if such Lenders' LIBO Margins or Set
Rates are the highest of those accepted, such Borrower may
allocate Competitive Bid Option Loans to such Lenders in
amounts of less than $5,000,000, but such Loans shall be for
at least $1,000,000 or a larger whole multiple thereof) in
proportion to the aggregate principal amount of such offers.
Determinations by the requesting Borrower of the amounts of
Competitive Bid Option Loans shall be conclusive in the
absence of manifest error. Notwithstanding anything else
herein to the contrary, the requesting Borrower shall not be
obligated to accept any CBO Quote unless it shall have
delivered a notice of acceptance as provided in this Section
2.03(e).
(f) Any Lender whose offer to make any Competitive
Bid Option Loan has been accepted shall, not later than
1:00 p.m. New York City time on the date specified for the
making of such Loan, make the amount of such Loan available to
the Agent at account number NYAON 900-9-000002 maintained by
the Agent with Chase at the Principal Office in immediately
available funds, for account of the requesting Borrower. Such
borrowing will then be made available to such Borrower by the
Agent by depositing the aggregate of the amounts made
available to the Agent by the Lenders, in like funds as
received by the Agent, in the account of such Borrower at such
office, or in another account designated by such Borrower in a
notice to the Agent hereunder.
(g) Except for the purpose and to the extent
expressly stated in Section 2.05(b), the amount of any
Competitive Bid Option Loan made by any Lender shall not
constitute a utilization of such Lender's Commitment.
(h) Promptly following each Competitive Bid Option
Borrowing, the Agent shall notify each Lender of the ranges of
bids submitted and the highest and lowest bids accepted for
each Interest Period requested by the requesting Borrower and
the aggregate amount borrowed pursuant to such Competitive Bid
Option Borrowing.
(i) Each Borrower which makes a Competitive Bid
Loan request shall pay to the Agent an administrative fee of
$750 (regardless of the number of Interest Periods in such
request).
2.04 Swing Line Loans.
(a) Each Borrower may request the Swing Line Lender
to make, and the Swing Line Lender agrees, upon the terms and
subject to the conditions hereof, to make, loans (each, a
"Swing Line Loan") to such Borrower from time to time during
the Commitment Period on any Business Day in an aggregate
amount not to exceed at any time outstanding the Swing Line
Lender's Swing Line Commitment in effect at such time;
provided, that (i) the aggregate principal amount of all Swing
Line Loans, together with the aggregate principal amount of
all Competitive Bid Option Loans and all Syndicated Loans at
the time outstanding to all Borrowers shall not exceed an
amount equal to the aggregate amount of the Commitments in
effect at such time, (ii) the aggregate principal amount of
all Swing Line Loans made by the Swing Line Lender, together
with the aggregate principal amount of all Syndicated Loans
made by the Swing Line Lender at the time outstanding to all
Borrowers, shall not exceed the greater of Swing Line Lender's
Commitment or the Swing Line Commitment in effect at such time
and (iii) the aggregate principal amount of all Loans to PCSI
at any one time outstanding shall not exceed an amount equal
to the PCSI Borrowing Limit at such time. Each borrowing of
Swing Line Loans shall be in an amount not less than
$2,500,000 and in integral multiples of $500,000 in excess
thereof, and shall bear interest as provided in Section 3.02.
On the terms and subject to the conditions of this Agreement,
each Borrower may borrow under this Section 2.04, repay
pursuant to Section 3.01 or prepay and reborrow under this
Section 2.04.
(b) Each borrowing of Swing Line Loans shall be
made on notice, given not later than 3:30 p.m. (New York City
time) on the date of the proposed borrowing, by the Borrower
requesting such Swing Line Loan to the Agent. The Agent shall
give prompt notice thereof to the Swing Line Lender. Each
such notice of a borrowing of Swing Line Loans shall be
substantially in the form of Exhibit D-3 hereto (a "Notice of
Swing Line Borrowing") and shall be by telephone (promptly
confirmed in writing), telefacsimile (promptly confirmed by
telephone) or delivered by hand, specifying therein (i) the
requested date of such borrowing; (ii) the requested amount of
such borrowing and (iii) whether the Swing Line Loans
requested by such notice will bear interest at the Swing Line
Money Market Rate (as such rate may be agreed between the
requesting Borrower and the Agent as of the date of the making
of such Swing Line Loan) or the Swing Line Base Rate. The
Swing Line Lender will make such borrowing available to the
Agent within two (2) hours after receipt of such notice of
such borrowing at account number NYAON 900-9-000002 maintained
by the Agent with Chase at the Principal Office in immediately
available funds, for account of the requesting Borrower. Such
borrowing will then be made available to such Borrower by the
Agent by depositing the aggregate of the amounts made
available to the Agent by the Swing Line Lender, in like funds
as received by the Agent, in the account of such Borrower at
such office, or in another account designated by such Borrower
in a notice to the Agent hereunder.
(c) The amount of each Swing Line Loan shall be
payable on the seventh (7th) Business Day following the making
of such Loan and in any event on the Termination Date. A
Borrower may prepay any Swing Line Loan on any Business Day
only upon notice, which shall be irrevocable, to the Agent,
received by the Agent not later than 12:00 noon (New York City
time) on such Business Day and otherwise given in accordance
with Section 4.05. Notwithstanding the occurrence of any
Default or Event of Default or noncompliance with the
conditions precedent set forth in Section 6, if any Swing Line
Loans shall remain outstanding at 10:00 A.M., New York City
time, on the seventh Business Day following the Borrowing Date
thereof and if by such time on such seventh Business Day the
Agent shall have received neither (i) a notice of borrowing
delivered pursuant to Section 2.02 requesting that Loans be
made pursuant to Section 2.01 on such Business Day in an
amount at least equal to the aggregate principal amount of
such Swing Line Loans, nor (ii) any other notice indicating
the related Borrower's intent to repay such Swing Line Loans
with funds obtained from other sources, the Agent shall be
deemed to have received a Notice of Borrowing from such
Borrower pursuant to Section 2.02 requesting that Base Rate
Loans be made pursuant to Section 2.01 on such Business Day in
an amount equal to the aggregate amount of such Swing Line
Loans, and the procedures set forth in Section 2.02 shall be
followed in making such Base Rate Loans. The proceeds of such
Base Rate Loans shall be applied to repay such Swing Line
Loans.
(d) If, for any reason, Base Rate Loans may not be
made pursuant to paragraph (c) of this Section 2.04 to repay
Swing Line Loans as required by such paragraph, effective on
the date such Base Rate Loans would otherwise have been made,
each Lender severally agrees that it shall unconditionally and
irrevocably, without regard to the occurrence of any Default
or Event of Default, to the extent of such Lender's Commitment
Percentage, purchase a participating interest in such Swing
Line Loans ("Unrefunded Swing Line Loans"). Each Lender will
immediately transfer to the Agent, in immediately available
funds, the amount of its participation, and the proceeds of
such participation shall be distributed by the Agent to the
Swing Line Lender in such amount as will reduce the amount of
the participating interest retained by the Swing Line Lender
in its Swing Line Loans to its Commitment Percentage of the
Base Rate Loans which were to have been made pursuant to
paragraph (c) of this Section 2.04. Each Lender shall share
on a pro rata basis (calculated by reference to its
participating interest in such Swing Line Loans) in any
interest which accrues thereon and in all repayments thereof.
All payments in respect of Unrefunded Swing Line Loans and
participations therein shall be made in accordance with
Section 4.02.
2.05 Changes of Commitments.
(a) The aggregate amount of the Commitments and the
Swing Line Commitment shall be automatically reduced to zero
on the Termination Date.
(b) The Borrowers shall have the right at any time
or from time to time (i) so long as no Swing Line Loans,
Syndicated Loans or Competitive Bid Option Loans are
outstanding, to terminate the Commitments and (ii) to reduce
the aggregate unused amount of the Commitments (for which
purpose use of the Commitments shall be deemed to include the
aggregate principal amount of all Swing Line Loans,
Competitive Bid Option Loans and Syndicated Loans); provided
that (x) the Borrowers shall give notice of each such
termination or reduction as provided in Section 4.05 and
(y) each partial reduction shall be in an aggregate amount at
least equal to $10,000,000 or in whole multiples of
$10,000,000 in excess thereof or, if less, the amount of the
Available Commitments.
(c) Provided that no Default or Event of Default
shall have occurred and be continuing, the Borrowers, may, at
any time, replace any Lender that has requested compensation
from any Borrower pursuant to Section 5.01 or 5.06 or whose
obligations in respect of Eurodollar Loans or LIBOR Market
Loans have been suspended pursuant to Section 5.03 by giving
not less than ten (10) Business Days' prior notice to the
Agent (which shall promptly notify such Lender) that it
intends to replace such Lender with respect to its Commitment
with one or more banks or financial institutions (including,
but not limited to, any other Lender under this Agreement)
selected by the Borrowers and acceptable to the Swing Line
Lender and the Agent (which acceptance shall not be
unreasonably withheld). Upon the effective date of any
replacement under this Section 2.05(c) and as a condition to
such replacement, (i) the replacement bank or financial
institution shall purchase the Loans of the Lender being
replaced and such Lender's rights hereunder for a purchase
price equal to the outstanding principal amount of the Loans
payable to such Lender plus accrued and unpaid interest on
such Loans and accrued and unpaid Facility Fees or Utilization
Fees and any other amounts payable to such Lender hereunder
and (ii) an Assignment and Acceptance shall be executed and
delivered by such Lender and replacement bank at the expense
of the Borrowers and accepted by the Agent as provided in
Section 13.06(b), whereupon such replacement bank or financial
institution shall become a "Lender" for all purposes of this
Agreement having a Commitment in the amount of such Lender's
Commitment assumed by it, and such Commitment of the Lender
being replaced shall be terminated upon such effective date
and all of such Lender's rights and obligations under this
Agreement shall terminate (provided that the obligations of
the Borrowers under Sections 5.01, 5.05, 5.06 and 13.03 to
such Lender shall survive such replacement as provided in
Section 13.07). If the Commitment of any Lender that is a
Reference Lender (or whose Applicable Lending Office is a
Reference Lender, as the case may be) shall terminate (other
than pursuant to Section 11 hereof) such Reference Lender
shall thereupon cease to be a Reference Lender and, if as a
result of the foregoing, there shall only be two Reference
Lenders remaining, then the Agent (with the approval of the
Borrowers, such approval not to be unreasonably withheld)
shall, by notice to the Borrowers and the Lenders, designate
another Lender as a Reference Lender, so that there shall at
all times be three Reference Lenders.
(d) The Commitments once terminated or reduced may
not be reinstated.
2.06 Fees.
(a) The Borrowers jointly and severally agree to
pay to the Agent for the account of each Lender a fee (a
"Facility Fee") on the daily average amount of such Lender's
Commitment (whether or not such Commitment has been used, in
whole or in part, by the making of Loans hereunder) for the
period from and including the date of this Agreement to but
not including the earlier of the date such Commitment is
terminated and the Termination Date, at a rate per annum equal
to the Facility Fee Rate. Accrued Facility Fees shall be
payable in arrears on each Quarterly Date and on the earlier
of the date the Commitments are terminated and the Termination
Date.
(b) For each Quarterly Period from the date of this
Agreement to and including the Termination Date during which
the daily average aggregate principal amount of all Syndicated
Loans and Swing Line Loans outstanding exceeds an amount equal
to 50% of the daily average of the total Commitments in
effect, each Borrower agrees to pay to the Agent for the
account of the Lenders a fee (a "Utilization Fee") on such
Borrower's proportionate share (based on the Loans outstanding
to all Borrowers) of the excess of (i) the daily average
principal amount of all Syndicated Loans and Swing Line Loans
outstanding during such Quarterly Period over (ii) 50% of the
daily average of the total Commitments in effect during such
Quarterly Period, at a rate per annum equal to the Utilization
Fee Rate. Accrued Utilization Fees, if any, shall be payable
in arrears on each Quarterly Date and on the earlier of the
date the Commitments are terminated and the Termination Date.
(c) The Borrowers jointly and severally agree to
pay to the Agent an administrative agency fee pursuant to the
terms of the Fee Letter.
2.07 Lending Offices. The Loans of each Type made
by each Lender shall be made and maintained at such Lender's
Applicable Lending Office for Loans of such Type.
2.08 Several Obligations. The failure of any
Lender to make any Loan to be made by it on the date specified
therefor shall not relieve any other Lender of its obligation
to make its Loan on such date, but neither any Lender nor the
Agent shall be responsible for the failure of any other Lender
to make a Loan to be made by such other Lender, and no Lender
shall have any obligation to the Agent or any other Lender for
the failure by such Lender to make any Loan required to be
made by such Lender. The amounts payable by any Borrower at
any time hereunder to each Lender shall be separate and
independent debts.
2.09 Evidence of Indebtedness.
(a) Each Lender shall maintain in accordance with
its usual practice an account or accounts evidencing the
indebtedness of the Borrowers to the Applicable Lending Office
of such Lender resulting from each Loan made by such
Applicable Lending Office of such Lender from time to time,
including amounts of principal and interest payable and paid
to such Applicable Lending Office of such Lender from time to
time under this Agreement.
(b) The Agent shall maintain the Register pursuant
to Section 13.06(h), and a subaccount for each Lender, in
which Register and subaccount (taken together) shall be
recorded (i) the amount of each Loan made hereunder, the
Borrower of each Loan, the Type and Class of each Loan made
and the Interest Period applicable thereto, (ii) the amount of
any principal or interest due and payable or to become due and
payable from each Borrower to each Lender hereunder and
(iii) the amount of any sum received by the Agent hereunder
from any Borrower and any Lender's share thereof.
(c) The entries made in the Register and accounts
maintained pursuant to paragraphs (a) and (b) of this
Section 2.09 shall, to the extent permitted by applicable law,
be prima facie evidence of the existence and amounts of the
obligations of the Borrowers therein recorded; provided,
however, that the failure of any Lender or the Agent to
maintain such account, such Register or such subaccount, as
applicable, or any error therein, shall not in any manner
affect the obligation of each Borrower to repay (with
applicable interest) the Loans made to such Borrower by such
Lender in accordance with the terms of this Agreement.
2.10 Optional Prepayments and Conversions or
Continuations of Eurodollar Loans. Subject to Sections 4.04,
5.01, 5.02 and 5.03, any Borrower shall have the right to
prepay, in whole or in part, Syndicated Loans, or to Convert
Syndicated Loans of one Type into Syndicated Loans of another
Type or Continue Syndicated Loans of one Type as Syndicated
Loans of the same Type, at any time or from time to time,
without premium or penalty (but without limiting the
obligations of such Borrower under Section 5.05), provided
that: (a) the Borrower shall give the Agent notice of each
such prepayment, Conversion or Continuation as provided in
Section 4.05 hereof (and, upon the date specified in any such
notice of prepayment, the amount to be prepaid shall become
due and payable hereunder), and (b) upon any prepayment of any
Eurodollar Loan prior to the last day of the Interest Period
applicable thereto, the Borrower shall pay to each Lender, in
addition to any other amounts payable by the Borrower
hereunder in connection with such prepayment, any amounts
payable to such Lender pursuant to Section 5.05(a).
Notwithstanding the foregoing, and without limiting the rights
and remedies of the Lenders under Section 11 hereof, in the
event that any Event of Default shall have occurred and be
continuing, the Agent may (and at the request of the Majority
Lenders shall) suspend the right of any Borrower to Convert
any Loan into a Eurodollar Loan, or to Continue any Loan as a
Eurodollar Loan, in which event all Syndicated Loans shall be
Converted (on the last day(s) of the respective Interest
Periods therefor) or Continued, as the case may be, as Base
Rate Loans. No Borrower shall have any right to prepay
Competitive Bid Option Loans.
2.11 Mandatory Prepayments and Reductions of
Commitments.
(a) If, at any time, the aggregate principal amount
of Loans outstanding exceeds the aggregate amount of the
Commitments, the Borrowers will, within one (1) Business Day,
prepay an amount of Loans (together with accrued interest
thereon and amounts payable pursuant to Section 5.05) such
that, after giving effect thereto, the aggregate principal
amount of Loans outstanding to all Borrowers does not exceed
such aggregate amount of the Commitments.
(b) The Borrowers shall repay the aggregate
principal amount of all Loans to the Borrowers hereunder
(together with accrued interest thereon) and any other amounts
owing to any Lender that shall have declined to extend the
Termination Date as set forth in Section 2.12 on the
Termination Date in effect with respect to such Lender without
giving effect to such extension.
(c) If, on any Business Day, the aggregate
principal amount of Swing Line Loans outstanding exceeds the
Swing Line Commitment in effect on such Business Day (other
than by reason of the application of the proceeds of any
Syndicated Loans made to the Borrower on such Business Day)
the Borrowers shall, within one (1) Business Day after notice
thereof delivered by the Agent to the Borrowers, prepay an
amount of Swing Line Loans (together with accrued interest
thereon and amounts payable pursuant to Section 5.05) such
that, after giving effect thereto, the aggregate principal
amount of such Swing Line Loans does not exceed such Swing
Line Commitment.
(d) If, on any Business Day on which any Syndicated
Loans are made or are to be made to any Borrower, the effect
of the making of any such Loan is or would be to cause the
aggregate amount of the Syndicated Loans and the Swing Line
Loans of the Swing Line Lender to exceed the greater of the
Swing Line Lender's Commitment or the Swing Line Commitment
in effect on such Business Day after giving effect to the
making of such Loan, such Borrower shall, on such Business
Day, apply such portion of the proceeds of such Syndicated
Loans as is required to prepay an amount of Swing Line Loans
(together with accrued interest thereon and amounts payable
pursuant to Section 5.05) such that, after giving effect
thereto, the aggregate principal amount of the Syndicated
Loans and Swing Line Loans of the Swing Line Lender does not
exceed the greater of the Swing Line Lender's Commitment or
the Swing Line Commitment in effect at such time. Each
Borrower hereby irrevocably authorizes and directs the Agent
to apply such portion of the proceeds of such Syndicated
Loans, otherwise payable to such Borrower's account pursuant
to Section 2.02, to the Swing Line Lender in satisfaction of
such Borrower's prepayment obligation under this Section
2.11(d).
2.12 Extension of Termination Date.
(a) The Borrowers may, by notice given to the Agent
(which shall promptly deliver a copy thereof to the Lenders)
not less than sixty (60) days prior to the first, second or
third anniversaries of the Effective Date request that the
Termination Date for all Lenders be extended for one
additional year; provided that the Borrowers may obtain only
one such extension. Not later than thirty (30) days after the
Borrowers shall have made such request, each Lender, acting in
its sole discretion, shall notify the Agent of its response to
such request; provided that any Lender which fails to respond
to any such request shall be deemed to have denied such
request. Such extension shall be effective as to each Lender
agreeing to such extension when (i) each Borrower shall have
delivered a certificate to the Agent to the effect that no
Default or Event of Default shall have occurred and be
continuing with respect to such Borrower either on the date of
the notice requesting such extension or the last date for the
Lenders' responses, (ii) each Obligor shall have delivered a
certificate to the Agent to the effect that each of the
representations and warranties of such Obligor set forth
herein or in any Credit Document shall be true and complete in
all material respects on and as of each of the date of such
notice and the last date for the Lenders' responses with the
same force and effect as if made on and as of each such date
(or, if any such representation or warranty is expressly
stated to have been made as of a specific date, as of such
specific date) and (iii) Lenders having not less than 50% of
the Commitments as in effect at such time shall have agreed to
such extension. Each Lender shall make its own independent
decision upon a request for extension of the Termination Date
and no Lender shall be bound by the decision of any other
Lender. The Agent shall give each Lender notice of the
responses of all of the Lenders within 45 days of receipt of
such request from the Borrowers. In connection with any
extension of the Termination Date, the aggregate amount of the
Commitments shall be permanently reduced on the First
Scheduled Termination Date by the aggregate amount of the
Commitments of all Lenders electing not to extend the
Termination Date for an additional year from such date which
have not been replaced pursuant to paragraph (b).
(b) If the Borrowers shall have requested an
extension of the Termination Date pursuant to paragraph (a)
and Lenders having not less than 50% of the Commitments shall
agree to such extension pursuant thereto, the Borrowers shall
have the right on or before the First Scheduled Termination
Date to replace any Lender which has not agreed to extend the
Termination Date beyond such date with, and otherwise add to
this Agreement, one or more other banks or financial
institutions (which may include any Lender) with the approval
of the Agent (which approval shall not be unreasonably
withheld), each of which additional banks or financial
institutions shall have entered into an Assignment and
Acceptance pursuant to which such additional bank or financial
institution shall accept an assignment of such replaced
Lender's Loans and shall undertake a Commitment (and, if any
such additional bank or financial institution is a Lender, the
Commitment so undertaken shall be in addition to such Lender's
existing Commitment hereunder on such date), provided that the
Commitments so undertaken shall not exceed the aggregate
Commitments of all non-extending Lenders. If the Termination
Date has been extended to the Extended Termination Date
pursuant to this Section 2.12, on the First Scheduled
Termination Date, (i) the Borrowers shall repay in full all
Loans outstanding on such date made by any Lender which has
not agreed to extend the Termination Date beyond such date and
all other amounts owed to such Lender, and (ii) each Lender
that has increased its Commitment and each additional bank or
financial institution undertaking a Commitment shall make
Loans hereunder to the Borrowers in such amounts as shall be
necessary to cause the outstanding amount of such existing
Lender's or additional bank's or financial institution's share
of the Syndicated Loans of all Lenders, expressed as a
percentage, to be equal to such existing Lender's or such
additional bank's or financial institution's Commitment
Percentage (after giving effect to such increase in any such
existing Lender's Commitment). The proceeds of such Loans
shall be applied by the Agent on behalf of the Borrowers to
the partial repayment of the other Lenders' Loans (including
Loans of existing Lenders that have increased their
Commitments) to the extent necessary to effect such proration
(and the pro-rata and sharing provisions of Section 4.02 shall
not be applicable to such payment).
2.13 New Lenders. During the period from the first
anniversary of the Effective Date to the Termination Date with
the consent of the Borrowers and upon notification to the
Agent, one or more additional banks or financial institutions
may become a party to this Agreement by executing an addendum
hereto with the Obligors and the Agent, substantially in the
form of Exhibit G, whereupon such bank or financial
institution (each, a "New Lender") shall become a Lender for
all purposes and to the same extent as if originally a party
hereto and shall be bound by and entitled to the benefits of
this Agreement, provided that, after giving effect to such
addition, (i) the aggregate Commitments shall not exceed
$1,000,000,000 and (ii) no Lender shall have a Commitment
which equals or exceeds 25% of the aggregate Commitments.
Effective as of the date on which any such New Lender becomes
a Lender pursuant to the provisions of this Section 2.13, the
aggregate Commitments shall be increased by the amount of such
New Lender's Commitment. Each New Lender undertaking a
Commitment shall make Loans hereunder to the Borrowers in such
amounts as shall be necessary to cause the outstanding amount
of such New Lender's share of the Syndicated Loans of all
Lenders, expressed as a percentage, to be equal to such New
Lender's Commitment Percentage. The proceeds of such Loans
shall be applied by the Agent on behalf of the Borrowers to
the partial repayment of the other Lenders' Loans to the
extent necessary to effect such proration (and the pro-rata
and sharing provisions of Section 4.02 shall not be applicable
to such payment). Notwithstanding anything herein to the
contrary, if there are Eurodollar Loans outstanding to any
Borrower, a financial institution that becomes a New Lender
will make Eurodollar Loans to such Borrower (pro rata
according to its Commitment Percentage) having Interest
Periods corresponding to the then unexpired portions of the
respective Interest Periods of such Eurodollar Loans and
bearing interest at a rate equal to the respective interest
rates then applicable to such Eurodollar Loans. Promptly
following the addition of a New Lender hereunder, the Agent
shall advise the Lenders of such addition, of the amount of
its Commitment and of the amount of any borrowing from it
hereunder made simultaneously upon its addition.
2.14 Increases in Commitments. During the period
from the first anniversary of the Effective Date to the
Termination Date at the request of the Borrowers and upon
notification to the Agent, any Lender may increase the amount
of its Commitment by executing an addendum hereto with the
Obligors and the Agent, substantially in the form of
Exhibit H, whereupon such Lender shall be bound by and
entitled to the benefits of this Agreement with respect to the
full amount of its Commitment as so increased, provided that,
after giving effect to any such increase, (i) the aggregate
Commitments shall not exceed $1,000,000,000 and (ii) no Lender
shall have a Commitment which equals or exceeds 25% of the
aggregate Commitments. Effective as of the date on which any
such Lender increases its Commitment pursuant to the
provisions of this Section 2.14, the aggregate Commitments
shall be increased by the amount of such Lender's additional
Commitment. If on the date upon which such Lender increases
its Commitment pursuant to this Section 2.14 there is an
unpaid principal amount of Syndicated Loans under
Section 2.01, each Borrower to whom Syndicated Loans are
outstanding shall borrow from such Lender through the Agent,
subject to Section 6, an amount determined by multiplying the
amount of the increase in such Lender's Commitment by a
fraction, the numerator of which shall be the then unpaid
principal amount of the Syndicated Loans outstanding under
Section 2.01 and the denominator of which shall be the
aggregate Commitments of the Lenders other than the amount of
the additional Commitment of such Lender. Notwithstanding
anything herein to the contrary, if there are Eurodollar Loans
outstanding to any Borrower, such Lender may increase its
Commitment and make Eurodollar Loans to such Borrower having
Interest Periods corresponding to the then unexpired portions
of the respective Interest Periods of such Eurodollar Loans
and bearing interest at a rate equal to the respective
interest rates then applicable to such Eurodollar Loans. The
Agent shall advise the Lenders of such increase in the
Commitment of a Lender and of the amount of any borrowing from
it hereunder made simultaneously upon such increase.
2.15 Transition Provisions. (a) If on the
Effective Date there is an unpaid principal amount of
Syndicated Loans which are Base Rate Loans, each Additional
Lender and each Lender whose Commitment has increased pursuant
to the amendment and restatement of the Existing Agreement
shall make Loans hereunder to the Borrowers in such amounts as
shall be necessary to cause the outstanding amount of each
such Lender's share of the Base Rate Loans of all Lenders,
expressed as a percentage, to be equal to such Lender's
Commitment Percentage. The proceeds of such Loans shall be
applied by the Agent on behalf of the Borrowers to the partial
repayment of the other Lenders' Base Rate Loans to the extent
necessary to cause the outstanding amount of each such other
Lender's share of the Base Rate Loans of all Lenders,
expressed as a percentage, to be equal to such other Lender's
Commitment Percentage (and the pro-rata and sharing provisions
of Section 4.02 shall not be applicable to such payment).
(b) If on the Effective Date there is an unpaid
principal amount of Syndicated Loans which are Eurodollar
Loans or Competitive Bid Option Loans, the Additional Lenders
and the Lenders whose Commitments have increased pursuant to
the amendment and restatement of the Existing Agreement shall
not be required to make any advances in respect thereof,
provided that, in the case of Syndicated Loans which are
Eurodollar Loans, if such Eurodollar Loans are converted or
continued on the last day of the Interest Period therefor,
such conversion or continuation shall be pro rata according to
the Commitments of the Lenders after giving effect to the
amendment and restatement of the Existing Agreement, and
provided, further, that if, for any reason any such Eurodollar
Loans are not repaid on the last day of the Interest Period
therefor, effective on such last day, each Additional Lender
and each Lender whose Commitment has increased pursuant to the
amendment and restatement of this Agreement severally agrees
that it shall unconditionally and irrevocably, without regard
to the occurrence of any Default or Event of Default, purchase
a participating interest in such Eurodollar Loans ("Unrefunded
Eurodollar Loans") in an amount equal to, in the case of an
Additional Lender, such Lender's Commitment Percentage of such
Eurodollar Loans, and, in the case of a Lender whose
Commitment shall have increased, the product of the principal
amount of such Eurodollar Loans and a fraction the numerator
of which is the amount of the increase in such Lender's
Commitment and the denominator of which is the aggregate
amount of the Commitments. Each such Lender will immediately
transfer to the Agent, in immediately available funds, the
amount of its participation, and the proceeds of such
participations shall be distributed by the Agent to the other
Lenders in such amounts as will reduce the amount of the
participating interest retained by each such other Lender in
such Eurodollar Loans to their respective Commitment
Percentages of such Eurodollar Loans. Each Lender shall share
on a pro rata basis (calculated by reference to its
participating interest in such Eurodollar Loans) in any
interest which accrues thereon and in all repayments thereof.
All payments in respect of Unrefunded Eurodollar Loans and
participations therein shall be made in accordance with
Section 4.02.
Section 3. Payments of Principal and Interest.
3.01 Repayment of Loans.
(a) Each Borrower hereby promises to pay to the
Agent for the account of each Lender the entire outstanding
principal amount of such Lender's Syndicated Loans to such
Borrower, and each such Syndicated Loan shall mature and be
payable in full, on the Termination Date.
(b) Each Borrower hereby promises to pay to the
Agent for the account of each Lender that makes any
Competitive Bid Option Loan to such Borrower the entire
principal amount of such Competitive Bid Option Loan, and such
Competitive Bid Option Loan shall mature and be payable in
full, on the last day of the Interest Period for such
Competitive Bid Option Loan.
(c) Each Borrower hereby promises to pay to the
Agent for the account of the Swing Line Lender the entire
outstanding principal amount of the Swing Line Lender's Swing
Line Loans, and such Swing Line Loans shall mature and be
payable in full, on the seventh (7th) Business Day following
the date each such Loan is made and in any event on the
Termination Date.
3.02 Interest. Each Borrower hereby promises to
pay to the Agent for account of each Lender interest on the
unpaid principal amount of each Loan made by such Lender to
the Borrower for the period from and including the date of the
Loan to but excluding the date such Loan shall be paid or
prepaid in full, at the following rates per annum:
(a) during such periods as such Loan is a Base Rate
Loan, the Base Rate (as in effect from time to time);
(b) during such periods as such Loan is a
Eurodollar Loan, for each Interest Period relating
thereto, the Eurodollar Rate for such Loan for such
Interest Period plus the Applicable Margin;
(c) if such Loan is a LIBOR Market Loan, the LIBO
Rate for such Loan for the Interest Period therefor plus
(or minus) the LIBO Margin quoted by the Lender making
such Loan in accordance with Section 2.03;
(d) if such Loan is a Set Rate Loan, the Set Rate
for such Loan for the Interest Period therefor quoted by
the Lender making such Loan in accordance with Section
2.03;
(e) if such Loan is a Swing Line Money Market Loan,
the Swing Line Money Market Rate agreed by the Swing Line
Lender and the Borrower with respect to such Loan; and
(f) if such Loan is a Swing Line Base Rate Loan,
the Swing Line Base Rate (as in effect from time to
time).
Notwithstanding the foregoing, so long as any Event of Default
shall have occurred and be continuing with respect to a
Borrower, such Borrower hereby promises to pay to the Agent
for the account of each Lender interest at the applicable Post-
Default Rate (but not in excess of that permitted by
applicable law) on any principal of and interest on any Loan
made by such Lender to such Borrower and on any other amount
owing by such Borrower hereunder or under any other Credit
Document. Accrued interest on each Loan shall be payable
(i) in the case of a Base Rate Loan, quarterly on the
Quarterly Dates, (ii) in the case of a Eurodollar Loan or a
Competitive Bid Option Loan, on the last day of the Interest
Period therefor and, in addition, if such Interest Period is
longer than three months, on each Quarterly Date, and (iii) in
the case of any Loan, upon the payment or prepayment thereof
or the Conversion of such Loan to a Loan of another Type (but
only on the principal amount so paid, prepaid or Converted),
except that interest payable at the Post-Default Rate shall be
payable from time to time on demand. Promptly after the
determination of any interest rate provided for herein or any
change therein, the Agent shall give notice thereof to the
Lenders to which such interest is payable and to the
Borrowers.
SECTION 4. Payments; Pro Rata Treatment;
Computations; Etc.
4.01 Payments.
(a) Except to the extent otherwise provided herein,
all payments of principal, interest and other amounts to be
made by any Obligor under this Agreement, and, except to the
extent otherwise provided therein, all payments to be made by
any Obligor under any other Credit Document, shall be made in
Dollars, in immediately available funds, without deduction,
set-off or counterclaim, to the Agent at account number
NYAON 900-9-000002 maintained by the Agent with Chase at the
Principal Office, not later than 2:00 p.m. New York City time
on the date on which such payment shall become due (each such
payment made after such time on such due date to be deemed to
have been made on the next succeeding Business Day).
(b) Each Obligor shall, at the time of making each
payment under this Agreement, specify to the Agent (which
shall so notify the intended recipient(s) thereof) the Loans
or other amounts payable by such Obligor hereunder to which
such payment is to be applied (and in the event that such
Obligor fails to so specify, or if an Event of Default has
occurred and is continuing, the Agent may distribute such
payment to the Lenders for application in accordance with
Section 4.02 or in such manner as the Majority Lenders may
determine to be appropriate).
(c) Each payment received by the Agent under this
Agreement for account of any Lender shall be paid by the Agent
promptly to such Lender, in immediately available funds, for
account of such Lender's Applicable Lending Office for the
Loan or other obligation in respect of which such payment is
made.
(d) If the due date of any payment under this
Agreement would otherwise fall on a day that is not a Business
Day, such date shall be extended to the next succeeding
Business Day, and interest shall be payable for any principal
so extended for the period of such extension.
4.02 Pro Rata Treatment. Except to the extent
otherwise provided herein: (a) each borrowing of Syndicated
Loans from the Lenders under Section 2.01 shall be made from
the Lenders, each payment of a Facility Fee under Section 2.06
and each payment of a Utilization Fee under Section 2.06 in
respect of Commitments and Loans, respectively, shall be made
for account of the Lenders, and each termination or reduction
of the amount of the Commitments under Section 2.05 shall be
applied to the respective Commitments of the Lenders, pro rata
according to the amounts of their respective Commitments;
(b) the making, Conversion and Continuation of Syndicated
Loans of a particular Type (other than Conversions provided
for by Section 5.04) shall be made pro rata among the Lenders
according to the amounts of their Commitments (in the case of
making of Syndicated Loans) or their respective Syndicated
Loans (in the case of Conversions and Continuations of Loans)
and the Interest Period for each Loan of such Type at the time
of the making, Conversion or Confirmation thereof shall be
coterminous with the Interest Period of each other Loan of
such Type made, Converted or Continued at such time (other
than Loans of such Type for which a different Interest Period
has been chosen in accordance with the terms of this
Agreement); (c) each payment or prepayment of principal of
Syndicated Loans by any Borrower shall be made for account of
the Lenders pro rata in accordance with the respective unpaid
principal amounts of the Syndicated Loans held by them,
provided that if immediately prior to giving effect to any
such payment in respect of any Syndicated Loans the
outstanding principal amount of the Syndicated Loans shall not
be held by the Lenders pro rata in accordance with their
respective Commitments in effect at the time such Loans were
made (by reason of a failure of a Lender to make a Loan
hereunder in the circumstances described in the last paragraph
of Section 13.04), then such payment shall be applied to the
Syndicated Loans in such manner as shall result, as nearly as
is practicable, in the outstanding principal amount of the
Syndicated Loans being held by the Lenders pro rata in
accordance with their respective Commitments; (d) each payment
of interest on Syndicated Loans by any Borrower shall be made
for account of the Lenders pro rata in accordance with the
amounts of interest on such Loans then due and payable to the
respective Lenders; and (e) each payment or prepayment of
principal of Loans by any Borrower shall be made for account
of the Lenders pro rata in accordance with the respective
unpaid principal amounts of each Loan then due and payable.
4.03 Computations. Facility Fees and interest on
Competitive Bid Option Loans, Swing Line Base Rate Loans and
Eurodollar Loans shall be computed on the basis of a year of
360 days and actual days elapsed (including the first day but
excluding the last day) occurring in the period for which
payable and Utilization Fees and interest on Base Rate Loans
shall be computed on the basis of a year of 365 or 366 days,
as the case may be, and actual days elapsed (including the
first day but excluding the last day) occurring in the period
for which payable. Notwithstanding the foregoing, (i) for
each day that the Base Rate is calculated by reference to the
Federal Funds Rate, interest on Base Rate Loans shall be
computed on the basis of a year of 360 days and actual days
elapsed and (ii) interest on Set Rate Loans with an Interest
Period of 270 days or more shall be computed on the basis of a
360-day year consisting of twelve 30-day months.
4.04 Minimum Amounts. Except as provided in
Section 2.02 and 2.04(a) and except for mandatory prepayments
made pursuant to Section 2.11 and Conversions or prepayments
made pursuant to Section 5.04 and except for any Loans
required to be made pursuant to Section 2.15, each borrowing,
Conversion and partial prepayment of principal of Loans shall
be in an aggregate amount at least equal to $5,000,000 or in
multiples of $1,000,000 in excess thereof (borrowings,
Conversions or prepayments of or into Loans of different Types
or, in the case of Eurodollar Loans, having different Interest
Periods at the same time hereunder to be deemed separate
borrowings, Conversions and prepayments for purposes of the
foregoing, one for each Type or Interest Period). Anything in
this Agreement to the contrary notwithstanding, the aggregate
principal amount of Eurodollar Loans having the same Interest
Period shall be in an amount at least equal to $5,000,000 or
in multiples of $1,000,000 in excess thereof.
4.05 Certain Notices. Except as otherwise provided
in Section 2.03 with respect to the borrowing of Competitive
Bid Option Loans and in Section 2.04 with respect to the
borrowing of Swing Line Loans, notices by any Borrower to the
Agent of terminations or reductions of the Commitments, of
borrowings, Conversions, Continuations and optional
prepayments of Loans and of Classes and Types of Loans and of
the duration of Interest Periods shall be irrevocable and
shall be effective only if received by the Agent not later
than 11:00 a.m. New York City time on the number of Business
Days prior to the date of the relevant termination, reduction,
borrowing, Conversion, Continuation or prepayment or the first
day of such Interest Period specified below:
Number of
Notice Business Days
Prior
Termination or reduction of 3
Commitments
Borrowing or prepayment of, or 0
Conversions into, Base Rate
Loans
Borrowing or prepayment of, 3
Conversions into, Continuations
as, or duration of Interest
Period for, Eurodollar Loans
Duration of Interest Period for 4
Eurodollar Loans of less than
one month or more than six
months
Each such notice of termination or reduction shall specify the
amount of the Commitments to be terminated or reduced. Each
such notice of borrowing of Syndicated Loans shall be in
substantially the form of Exhibit D-2 hereto, specifying the
amount (subject to Section 4.04) and Type of each Loan to be
borrowed and the date of borrowing. Each such notice of
Conversion, Continuation or optional prepayment shall specify
the Type of Loans to be borrowed, Converted, Continued or
prepaid and the amount (subject to Section 4.04) (and, in the
case of a Conversion, the Type of Loan to result from such
Conversion) and the date of Conversion, Continuation or
optional prepayment (which shall be a Business Day). Each
such notice of the duration of an Interest Period shall
specify the Loans to which such Interest Period is to relate.
The Agent shall promptly notify the Lenders of the contents of
each such notice. In the event that such notice from the
Borrower requests a borrowing or Continuation of, or a
Conversion into, a Eurodollar Loan specifying an Interest
Period of less than one month or more than six months, each
Lender shall notify the Agent not later than 11:00 a.m. (New
York City time) one Business Day after receipt of such notice
as to whether funds are available to such Lender in the amount
and for the Interest Period requested. Unless such funds are
so available to each Lender, such notice from the Borrower
shall be deemed to be canceled. In the event that the
Borrower fails to select the Type of Loan, or the duration of
any Interest Period for any Eurodollar Loan, within the time
period and otherwise as provided in this Section 4.05, such
Loan (if outstanding as a Eurodollar Loan) will be
automatically Converted into a Base Rate Loan on the last day
of the then current Interest Period for such Loan or (if
outstanding as a Base Rate Loan) will remain as, or (if not
then outstanding) will be made as, a Base Rate Loan.
4.06 Non-Receipt of Funds by the Agent. Unless the
Agent shall have been notified by a Lender or any Borrower
(the "Payor") prior to the date on which the Payor is to make
payment to the Agent of (in the case of a Lender) the proceeds
of a Loan to be made by such Lender hereunder or (in the case
of a Borrower) a payment to the Agent for account of one or
more of the Lenders hereunder (such payment being herein
called the "Required Payment"), which notice shall be
effective upon receipt, that the Payor does not intend to make
the Required Payment to the Agent, the Agent may assume that
the Required Payment has been made and may, in reliance upon
such assumption (but shall not be required to), make the
amount thereof available to the intended recipient(s) on such
date and, if the Payor has not in fact made the Required
Payment to the Agent, the recipient(s) of such payment shall,
on demand, repay to the Agent the amount so made available
together with interest thereon in respect of each day during
the period commencing on the date such amount was so made
available by the Agent until the date the Agent recovers such
amount at a rate per annum equal to, for each of the first
three days following the date such amount was made available
by the Agent, the Federal Funds Rate for such day, and
following such three day period, the interest rate applicable
to the Loans corresponding to such amount, and, if such
recipient(s) shall fail promptly to make such payment, the
Agent shall be entitled to recover such amount, on demand,
from the Payor, together with interest as aforesaid.
4.07 Sharing of Payments, Etc.
(a) Each Borrower agrees that, in addition to (and
without limitation of) any right of set-off, banker's lien or
counterclaim the Agent or a Lender may otherwise have, the
Agent and each Lender shall be entitled, at its option, to
offset balances held by it for account of such Borrower at any
of its offices, in Dollars or in any other currency, against
any principal of or interest on any of such Lender's Loans or
any other amount payable to such Lender or to the Agent
hereunder, that is not paid when due (regardless of whether
the balances are then due to such Borrower), in which case it
shall promptly notify such Borrower and the Agent thereof,
provided that the Agent's or Lender's failure to give such
notice shall not affect the validity thereof.
(b) If any Lender shall obtain from any Borrower
payment of any principal of or interest on any Loan owing to
it or payment of any other amount under this Agreement or any
other Credit Document through the exercise of any right of set-
off, banker's lien or counterclaim or similar right or
otherwise (other than from the Agent as provided herein), and,
as a result of such payment, such Lender shall have received a
greater percentage of the principal of or interest on the
Loans or such other amounts then due hereunder or thereunder
by such Borrower to such Lender than the percentage received
by any other Lender except as permitted hereunder, it shall
promptly purchase from such other Lenders participations in
(or, if and to the extent specified by such Lender, direct
interests in) the Loans or such other amounts, respectively,
owing to such other Lenders (or in interest due thereon, as
the case may be) in such amounts, and make such other
adjustments from time to time as shall be equitable, to the
end that all the Lenders shall share the benefit of such
excess payment (net of any expenses that may be incurred by
such Lender in obtaining or preserving such excess payment)
pro rata in accordance with the unpaid principal of and/or
interest on the Loans or such other amounts, respectively,
owing to each of the Lenders, provided that if at the time of
such payment the outstanding principal amount of the
Syndicated Loans shall not be held by the Lenders pro rata in
accordance with their respective Commitments in effect at the
time such Loans were made (by reason of a failure of a Lender
to make a Loan hereunder in the circumstances described in the
last paragraph of Section 13.04), then such purchases of
participations and/or direct interests shall be made in such
manner as will result, as nearly as is practicable, in the
outstanding principal amount of the Syndicated Loans being
held by the Lenders pro rata according to the amounts of such
Commitments. To such end all the Lenders shall make
appropriate adjustments among themselves (by the resale of
participations sold or otherwise) if such payment is rescinded
or must otherwise be restored.
(c) Nothing contained herein shall require any
Lender to exercise any such right or shall affect the right of
any Lender to exercise, and retain the benefits of exercising,
any such right with respect to any other indebtedness or
obligation of any Borrower. If, under any applicable
bankruptcy, insolvency or other similar law any Lender
receives a secured claim in lieu of a set-off to which this
Section 4.07 applies, such Lender shall, to the extent
practicable, exercise its rights in respect of such secured
claim in a manner consistent with the rights of the Lenders
entitled under this Section 4.07 to share in the benefits of
any recovery on such secured claim.
Section 5. Yield Protection, Etc.
5.01 Additional Costs.
(a) Each Borrower agrees to pay directly to each
Lender from time to time within 15 days after request is made
by such Lender and receipt by such Borrower of the certificate
of such Lender described in Section 5.01(c) such amounts as
such Lender may reasonably determine to be necessary to
compensate such Lender for any increase in the costs that such
Lender reasonably determines are attributable to its making or
maintaining any Eurodollar Loans to such Borrower or its
obligation to make any Eurodollar Loans hereunder to such
Borrower by an amount such Lender deems to be material, or any
reduction in any amount receivable by such Lender hereunder in
respect of any of such Loans or such obligation (such
increases in costs and reductions in amounts receivable being
herein called "Additional Costs"), resulting from any
Regulatory Change that:
(i) changes the basis of taxation of any
amounts payable to such Lender under this Agreement in
respect of any of such Loans (other than taxes imposed on
or measured by the overall net income of such Lender or
of its Applicable Lending Office for any of such Loans by
any jurisdiction in which such Lender has its principal
office or such Applicable Lending Office or is subject to
taxation other than as a result of the transactions
contemplated by this Agreement); or
(ii) imposes or modifies any reserve, special
deposit or similar requirements (other than Eurocurrency
Reserve Requirements) relating to any extensions of
credit or other assets of, or any deposits with or other
liabilities of, such Lender or any commitment of such
Lender (including, without limitation, the Commitment of
such Lender hereunder).
If any Lender requests compensation from any Borrower under
this Section 5.01(a), such Borrower may, by notice to such
Lender (with a copy to the Agent), suspend the obligation of
such Lender thereafter to make or Continue Loans to such
Borrower of the Type with respect to which such compensation
is requested, or to Convert Loans of any other Type into Loans
of such Type, until the Regulatory Change giving rise to such
request ceases to be in effect (in which case the provisions
of Section 5.04 shall be applicable), provided that such
suspension shall not affect the right of such Lender to
receive the compensation so requested.
(b) Without limiting the effect of the foregoing
provisions of this Section 5.01 (but without duplication),
each Borrower agrees to pay directly to each Lender from time
to time on request such amounts as such Lender may reasonably
determine to be necessary to compensate such Lender (or,
without duplication, the bank holding company of which such
Lender is a subsidiary) for any increase in such costs that it
reasonably determines to be material which are attributable to
the maintenance by such Lender (or any Applicable Lending
Office or such bank holding company), pursuant to any law or
regulation or any interpretation, directive or request
(whether or not having the force of law and whether or not
failure to comply therewith would be unlawful) of any court or
governmental or monetary authority (i) following any
Regulatory Change or (ii) changing after the date hereof the
interpretation or administration of any risk-based capital
guideline or other requirement (whether or not having the
force of law and whether or not the failure to comply
therewith would be unlawful) heretofore or hereafter issued by
any government or governmental or supervisory authority
implementing at the national level the Basle Accord
(including, without limitation, the Final Risk-Based Capital
Guidelines of the Board of Governors of the Federal Reserve
System (12 C.F.R. Part 208, Appendix A; 12 C.F.R. Part 225,
Appendix A) and the Final Risk-Based Capital Guidelines of the
Office of the Comptroller of the Currency (12 C.F.R. Part 3,
Appendix A)), of capital in respect of its Commitment or Loans
to such Borrower (such compensation to include, without
limitation, an amount equal to any reduction of the rate of
return on equity of such Lender (or any Applicable Lending
Office or such bank holding company) to a level below that
which such Lender (or any Applicable Lending Office or such
bank holding company) could have achieved but for such law,
regulation, interpretation, directive or request). For
purposes of this Section 5.01(b), "Basle Accord" shall mean
the proposals for risk-based capital framework described by
the Basle Committee on Lending Regulations and Supervisory
Practices in its paper entitled "International Convergence of
Capital Measurement and Capital Standards" dated July 1988, as
amended, modified and supplemented and in effect from time to
time or any replacement thereof.
(c) Each Lender shall notify each Borrower of any
event occurring after the date of this Agreement entitling
such Lender to compensation under paragraph (a) or (b) of this
Section 5.01 as promptly as practicable, but in any event
within 30 days, after such Lender obtains actual knowledge
thereof; provided that each Lender will designate a different
Applicable Lending Office for the Loans of such Lender
affected by such event if such designation will avoid the need
for, or reduce the amount of, such compensation and will not,
in the sole opinion of such Lender, be disadvantageous to such
Lender, except that such Lender shall have no obligation to
designate an Applicable Lending Office located in the United
States of America. Each Lender will furnish to each Borrower
a certificate setting forth the basis and amount of each
request by such Lender for compensation under paragraph (a) or
(b) of this Section 5.01. Determinations and allocations by
any Lender for purposes of this Section 5.01 of the effect of
any Regulatory Change pursuant to paragraph (a) of this
Section 5.01, or of the effect of capital maintained pursuant
to paragraph (b) of this Section 5.01, on its costs or rate of
return of maintaining Loans or its obligation to make Loans,
or on amounts receivable by it in respect of Loans, and of the
amounts required to compensate such Lender under this Section
5.01, shall be prima facie evidence of such determinations and
allocations.
(d) Notwithstanding the foregoing, no Lender shall
be entitled to any compensation described in Section 5.01(a)
or (b) unless, at the time it requests such compensation, it
is the policy or general practice of such Lender to request
compensation for comparable costs in similar circumstances
under comparable provisions of other credit agreements for
comparable customers unless specific facts or circumstances
applicable to any Obligor or the transactions contemplated by
this Agreement would alter such policy or general practice,
provided that nothing in this Section 5.01(d) shall preclude a
Lender from waiving the collection of similar costs from one
or more of its other customers.
(e) If any Lender fails to give the notice
described in Section 5.01(c) within 30 days after it obtains
actual knowledge of the event required to be described in such
notice, such Lender shall, with respect to any compensation
that would otherwise be owing to such Lender under paragraph
(a) or (b) of this Section 5.01, only be entitled to payment
for increased costs incurred from after the date that such
Lender does give such notice.
5.02 Limitation on Types of Loans. Anything herein
to the contrary notwithstanding, if, on or prior to the
determination of any Eurodollar Rate for any Interest Period:
(a) the Agent is advised by the Reference Banks,
that quotations of interest rates for the relevant
deposits referred to in the definition of "Eurodollar
Rate" in Section 1.01 hereof are not being provided in
the relevant amounts or for the relevant maturities for
purposes of determining rates of interest for any
Eurodollar Loans or LIBOR Market Loans as provided
herein; or
(b) if the related Loans are Syndicated Loans, the
Majority Lenders notify the Agent that the relevant rates
of interest referred to in the definition of "Eurodollar
Rate" in Section 1.01 hereof upon the basis of which the
rate of interest for Eurodollar Loans for such Interest
Period is to be determined are not likely adequately to
cover the cost to such Lenders of making or maintaining
such Type of Loans for such Interest Period (which
determination by the Majority Lenders, shall be
conclusive);
then the Agent shall give each affected Borrower and each
Lender prompt notice thereof and, so long as such condition
remains in effect, the Lenders shall be under no obligation to
make additional Loans of such Type, to Continue Loans of such
Type or to Convert Loans of any other Type into Loans of such
Type, and the Borrowers shall, on the last day(s) of the then
current Interest Period(s) for the outstanding Loans of such
Type, either prepay such Loans or Convert such Loans into
another Type of Loan in accordance with Section 2.10.
5.03 Illegality. Notwithstanding any other
provision of this Agreement, in the event that it becomes
unlawful for any Lender or its Applicable Lending Office to
honor its obligation to make or maintain Eurodollar Loans or
LIBOR Market Loans hereunder, then such Lender shall promptly
notify the Borrowers thereof (with a copy to the Agent) and
such Lender's obligation to make or Continue, or to Convert
Loans of any other Type into, Eurodollar Loans shall be
suspended until such time as such Lender may again make and
maintain Eurodollar Loans (in which case the provisions of
Section 5.04 shall be applicable), and such Lender shall no
longer be obligated to make any LIBOR Market Loan that it
offered to make prior to such event.
5.04 Treatment of Affected Loans. If the
obligation of any Lender to make a Eurodollar Loan or to
Continue, or to Convert Loans of any other Type into, Loans of
a particular Type shall be suspended pursuant to Section 5.01
or 5.03 (Loans of such Type being herein called "Affected
Loans" and such Type being herein called the "Affected Type"),
such Lender's Affected Loans shall be automatically Converted
into Base Rate Loans on the last day(s) of the then current
Interest Period(s) for Affected Loans (or, in the case of a
Conversion required by Section 5.03, on such earlier date as
required by law) and, unless and until such Lender gives
notice as provided below that the circumstances specified in
Section 5.01 or 5.03 that gave rise to such Conversion no
longer exist:
(a) to the extent that such Lender's Affected Loans
have been so Converted, all payments and prepayments of
principal that would otherwise be applied to such
Lender's Affected Loans shall be applied instead to its
Base Rate Loans; and
(b) all Loans that would otherwise be made or
Continued by such Lender as Loans of the Affected Type
shall be made or Continued instead as Base Rate Loans,
and all Loans of such Lender that would otherwise be
Converted into Loans of the Affected Type shall be
Converted instead into (or shall remain as) Base Rate
Loans.
If such Lender gives notice to the Borrowers with a copy to
the Agent that the circumstances specified in Section 5.01 or
5.03 that gave rise to the Conversion of such Lender's
Affected Loans pursuant to this Section 5.04 no longer exist
(which such Lender agrees to do promptly upon such
circumstances ceasing to exist) at a time when Loans of the
Affected Type made by other Lenders are outstanding, such
Lender's Base Rate Loans shall be automatically Converted, on
the first day(s) of the next succeeding Interest Period(s) for
such outstanding Loans of the Affected Type, to the extent
necessary so that, after giving effect thereto, all Syndicated
Loans held by the Lenders holding Loans of the Affected Type
and by such Lender are held pro rata (as to principal amounts,
Types and Interest Periods) in accordance with their
respective Commitments.
5.05 Compensation. Each Borrower shall pay to the
Agent for account of each Lender, upon the request of such
Lender through the Agent, such amount or amounts as shall be
sufficient (in the reasonable opinion of such Lender) to
compensate it for any loss, cost or expense that such Lender
reasonably determines is attributable to:
(a) any payment, mandatory or optional prepayment
or Conversion of a Eurodollar Loan, LIBOR Market Loan or
a Set Rate Loan made by such Lender to such Borrower for
any reason (including, without limitation, the
acceleration of the Loans pursuant to Section 11 hereof)
on a date other than the last day of the Interest Period
for such Loan; or
(b) any failure by such Borrower for any reason
(including, without limitation, the failure of any of the
conditions precedent specified in Section 6 hereof to be
satisfied but excluding any failure by such Borrower due
to an event or circumstance described in Section 5.02 or
5.03) to borrow a Eurodollar Loan or a Competitive Bid
Option Loan (with respect to which, in the case of a
Competitive Bid Option Loan, such Borrower has accepted a
CBO Quote) from such Lender on the date for such
borrowing specified in the relevant notice of borrowing
given pursuant to Section 2.02 or 2.03(e).
Without limiting the effect of the preceding sentence, such
compensation shall be an amount equal to the excess, if any,
of (i) the amount of interest that otherwise would have
accrued on the principal amount so paid, prepaid or Converted
or not borrowed for the period from the date of such payment,
prepayment, Conversion or failure to borrow to the last day of
the then current Interest Period for such Loan (or, in the
case of a failure to borrow, the Interest Period for such Loan
that would have commenced on the date specified for such
borrowing) at the applicable rate of interest for such Loan
provided for herein less the Applicable Margin (and less any
LIBO Margin above the applicable LIBO Rate in the case of any
LIBOR Market Loans) over (ii) the amount of interest that
otherwise would have accrued on such principal amount at a
rate per annum equal to the interest component of the amount
such Lender would have bid in the London interbank market (if
such Loan is a Eurodollar Loan or a LIBOR Market Loan) or the
United States secondary certificate of deposit market (or
other comparable United States market agreeable to such Lender
and such Borrower, if such amount cannot be determined for the
United States secondary certificate of deposit market) (if
such Loan is a Set Rate Loan or a Swing Line Money Market
Loan) for Dollar deposits of leading banks in amounts
comparable to such principal amount and with maturities
comparable to such period (as reasonably determined by such
Lender).
5.06 U.S. Taxes.
(a) Each Borrower agrees to pay to each Lender that
is not a U.S. Person such additional amounts as are necessary
in order that the net payment of any amount due to such non-
U.S. Person by such Borrower hereunder after deduction for or
withholding in respect of any U.S. Tax imposed with respect to
such payment (or in lieu thereof, payment of such U.S. Tax by
such non-U.S. Person), will not be less than the amount stated
herein to be then due and payable, provided that the foregoing
obligation to pay such additional amounts shall not apply:
(i) to any payment to a Lender hereunder unless
such Lender is, on the date hereof (or on the date it
becomes a Lender as provided in Section 2.12, 2.13 or
13.06(b) hereof) and on the date of any change in the
Applicable Lending Office of such Lender, entitled to
submit either a Form 1001 (relating to such Lender and
entitling it to a complete exemption from withholding on
all payments to be received by it hereunder in respect of
the Loans) or Form 4224 (relating to all payments to be
received by such Lender hereunder in respect of the
Loans); or
(ii) to any U.S. Tax that would not have been
imposed but for the failure by such non-U.S. Person to
comply with applicable certification, information,
documentation or other reporting requirements concerning
the nationality, residence, identity or connections with
the United States of America of such non-U.S. Person if
such compliance is required by statute or regulation of
the United States of America as a precondition to relief
or exemption from such U.S. Tax.
For the purposes of this Section 5.06(a), (w) "Form 1001"
shall mean Form 1001 (Ownership, Exemption, or Reduced Rate
Certificate) of the Department of the Treasury of the United
States of America, (x) "Form 4224" shall mean Form 4224
(Exemption from Withholding of Tax on Income Effectively
Connected with the Conduct of a Trade or Business in the
United States) of the Department of the Treasury of the United
States of America (or in relation to either such Form such
successor and related forms as may from time to time be
adopted by the relevant taxing authorities of the United
States of America to document a claim to which such Form
relates), (y) "U.S. Person" shall mean a citizen, national or
resident of the United States of America, a corporation,
partnership or other entity created or organized in or under
any laws of the United States of America, or any estate or
trust that is subject to Federal income taxation regardless of
the source of its income and (z) "U.S. Taxes" shall mean any
present or future tax, assessment or other charge or levy
imposed by or on behalf of the United States of America or any
taxing authority thereof or therein.
(b) Within 30 days after paying any amount to the
Agent or any Lender from which it is required by law to make
any deduction or withholding, and within 30 days after it is
required by law to remit such deduction or withholding to any
relevant taxing or other authority, each Borrower shall
deliver to the Agent for delivery to such non-U.S. Person
evidence in the control of such Borrower and reasonably
satisfactory to such Person of such deduction, withholding or
payment (as the case may be).
(c) Each Lender which is not a U.S. Person agrees
that:
(i) it shall, no later than the date of this
Agreement (or, in the case of a Lender which becomes a
party hereto pursuant to Section 2.12, 2.13 or 13.06(b)
after the date hereof, the date upon which the Lender
becomes a party hereto) deliver to the Borrowers and the
Agent two accurate and complete signed originals of
Form 4224 or Form 1001, as appropriate, in each case
indicating that the Lender is on the date of delivery
thereof entitled to receive payments under this Agreement
free from withholding of U.S. Taxes;
(ii) if at any time the Lender makes any changes
necessitating a new Form 4224 or Form 1001 or at any time
any Borrower shall not be able to continue to rely on any
Form 4224 or 1001 previously submitted by such Lender,
such Lender shall, to the extent legally entitled to do
so at such time, promptly deliver to the Borrowers and
the Agent in replacement for, or in addition to, the
forms previously delivered by it hereunder, two accurate
and complete signed originals of Form 4224 or two
accurate and complete signed originals of Form 1001, as
appropriate, in each case indicating that the Lender is
on the date of delivery thereof entitled to receive
payments under this Agreement free from withholding of
U.S. Taxes;
(iii) it shall, promptly upon any Borrower's
reasonable request to that effect, deliver to such
Borrower and the Agent such other forms or similar
documentation as may be required from time to time by any
applicable law, treaty, rule or regulation in order to
establish such Lender's tax status for withholding
purposes.
(d) Notwithstanding anything herein to the
contrary, no Borrower will be required to pay any additional
amounts in respect of U.S. Taxes:
(i) if the obligation to pay such additional
amounts would not have arisen but for a failure by such
Lender to comply with its obligations under
Section 5.06(c);
(ii) if such Lender shall have delivered to the
Borrowers and the Agent a Form 4224 or a Form 1001 in
respect of such Applicable Lending Office pursuant to
Section 5.06(c), and such Lender shall not on the date of
delivery thereof or at any time thereafter be entitled to
exemption from deduction or withholding of U.S. Taxes in
respect of payments by such Borrower hereunder for the
account of such Applicable Lending Office for any reason
other than as a result of a change in United States law
or regulations or in the official interpretation of such
law or regulations by any governmental authority charged
with the interpretation or administration thereof after
the Effective Date (or, in the case of a Lender which
becomes a party hereto pursuant to Section 2.12, 2.13 or
13.06(b) after the date hereof, the date upon which such
Lender becomes a party hereto);
(iii) with respect to each Lender, if such
additional amounts represent taxes imposed on its income,
or franchise taxes imposed on it, by the jurisdiction of
its Applicable Lending Office, or by the jurisdiction
under the laws of which the Lender is organized, or, in
either such case, any political subdivision or taxing
authority thereof or therein.
Section 6. Conditions Precedent.
6.01 Effective Date. This amendment and
restatement of the Existing Agreement shall become effective
on the first date (the "Effective Date") that each of the
following conditions shall have been satisfied or fulfilled
(or waived in accordance with Section 13.04):
(a) Documents. The receipt by the Agent of the
following documents, each of which shall be satisfactory
to the Agent in form and substance:
(i) Corporate Documents. The following
documents, each certified as indicated below:
(1) a copy of the charter, as amended and
in effect, of each Obligor certified as of a recent
date by the secretary or assistant secretary of such
Obligor, and a certificate from the Comptroller of
the Currency or the Secretary of State of its
jurisdiction of incorporation, as the case may be,
dated as of a recent date, as to the good standing
of such Obligor; and
(2) a certificate of the secretary or an
assistant secretary of each Obligor, dated the
Effective Date and certifying (A) that attached
thereto is a true and complete copy of the by-laws
of such Obligor as amended and in effect at all
times from the date on which the resolutions
referred to in clause (B) were adopted to and
including the date of such certificate, (B) that
attached thereto is a true and complete copy of
resolutions duly adopted by the board of directors
of such Obligor authorizing the execution, delivery
and performance of such of the Credit Documents to
which such Obligor is or is intended to be a party
and the extensions of credit hereunder, and that
such resolutions have not been modified, rescinded
or amended and are in full force and effect,
(C) that the charter of such Obligor has not been
amended since the date of the certification thereto
furnished pursuant to clause (1) above, and (D) as
to the incumbency and specimen signature of each
officer of such Obligor executing the Credit
Documents and each other document to be delivered by
such Obligor in connection therewith (and the Agent
and each Lender may conclusively rely on such
certificate until it receives notice in writing from
such Obligor).
(ii) Status and Officer's Certificates. Each
of the conditions set forth in Section 6.02(a) and
(b) shall be true and the Agent shall have received
a certificate of a senior officer of each Borrower,
dated the Effective Date, to the effect set forth in
Section 6.02(a) and(b).
(iii) Opinion of Counsel to the Obligors. An
opinion, dated the Effective Date, of in-house
counsel to the Obligors, substantially in the form
of Exhibit E hereto and covering such other matters
as the Agent may reasonably request.
(iv) Opinion of Counsel to the Agent. An
opinion, dated the Effective Date, of Gibson, Dunn &
Crutcher, counsel to the Agent, substantially in the
form of Exhibit I hereto.
(v) Credit Agreement. Counterparts of this
Agreement duly executed on behalf of each Obligor
and each of the Agent and the Lenders.
(vi) Other Documents. Such other documents as
the Agent may reasonably request.
(b) Payment of Accrued Interest. The Obligors
shall have paid to the Agent, for the account of the
Existing Lenders, all Facility Fees and all interest
accrued on outstanding Loans, to the extent such fees or
interest was due and payable on or before the Effective
Date.
(c) Amendment Fee. The Obligors shall have paid
the Agent the amendment fee due pursuant to the letter
agreement dated September 5, 1995 among the Agent and the
Obligors.
The Agent shall promptly give the Borrowers and each Lender
notice of the Effective Date.
6.02 Initial and Subsequent Loans. The obligation
of any Lender to make to any Borrower its initial Loan
(including any Swing Line Loan, Competitive Bid Option Loan or
Syndicated Loan), any subsequent Swing Line Loan or
Competitive Bid Option Loan and any subsequent Syndicated Loan
(other than Syndicated Loans made pursuant to Section 2.04(c))
that increases the principal amount of outstanding Syndicated
Loans, upon the occasion of each borrowing, is subject to the
conditions precedent that, both immediately prior to the
making of such Loan and also after giving effect thereto and
to the intended use thereof:
(a) No Default. No Default or Event of Default
with respect to such Borrower or the Guarantor shall have
occurred and be continuing;
(b) Representations and Warranties True. The
representations and warranties made by such Borrower and
the Guarantor in Section 7 hereof and in each of the
other Credit Documents, shall be true and complete on and
as of the date of the making of such Loan or other
extension of credit with the same force and effect as if
made on and as of such date (or, if any such
representation or warranty is expressly stated to have
been made as of a specific date, as of such specific
date); and
(c) Notice. All notices of such borrowing shall
have been properly and timely given in accordance with
the requirements of this Agreement.
Each notice of borrowing by any Borrower hereunder shall
constitute a certification by such Borrower to the effect set
forth in the preceding sentence (both as of the date of such
notice and, unless such Borrower otherwise notifies the Agent
prior to the date of such borrowing, as of the date of such
borrowing).
6.03 Initial and Subsequent Loans To PCSI. The
obligation of any Lender to make to PCSI its initial Loan
(including any Swing Line Loan, Competitive Bid Option Loan or
Syndicated Loan), any subsequent Swing Line Loan or
Competitive Bid Option Loan and any subsequent Syndicated Loan
(other than Syndicated Loans made pursuant to Section 2.04(c))
that increases the principal amount of outstanding Syndicated
Loans, upon the occasion of each borrowing, is subject to the
additional condition precedent that PCSI shall have become,
and shall continue to be, an Insured Depository Institution.
Each notice of borrowing by PCSI hereunder shall constitute a
certification by PCSI to the effect set forth in the preceding
sentence (both as of the date of such notice and, unless PCSI
otherwise notifies the Agent prior to the date of such
borrowing, as of the date of such borrowing).
Section 7. Representations and Warranties.
To induce the Agent and the Lenders to enter into
this Agreement and to make the Loans, each Obligor (but in the
case of Section 7.01, only the Guarantor) hereby represents
and warrants to the Agent and each Lender that:
7.01 Financial Condition. The consolidated balance
sheet of the Guarantor and its Consolidated Subsidiaries as at
December 31, 1994 and the related consolidated statements of
income and of cash flows for the fiscal year ended on such
date, reported on by Ernst & Young, copies of which have
heretofore been furnished to each Lender, present fairly the
consolidated financial condition of the Guarantor and its
Consolidated Subsidiaries as at such date, and the
consolidated results of their operations and their
consolidated cash flows for the fiscal year then ended. The
unaudited consolidated balance sheet of the Guarantor and its
Consolidated Subsidiaries as at June 30, 1995 and the related
unaudited consolidated statements of income and of cash flows
for the six-month period ended on such date, certified by a
Responsible Officer, copies of which have heretofore been
furnished to each Lender, present fairly the consolidated
financial condition of the Guarantor and its Consolidated
Subsidiaries as at such date, and the consolidated results of
their operations and their consolidated cash flows for the six-
month period then ended (subject to normal year-end audit
adjustments). All such financial statements, including the
related schedules and notes thereto, have been prepared in
accordance with GAAP applied consistently throughout the
periods involved (except as approved by such accountants or
Responsible Officer, as the case may be, and as disclosed
therein). Neither the Guarantor nor any of its Consolidated
Subsidiaries had, at the date of the most recent balance sheet
referred to above, any material Guarantee Obligation,
contingent liability or liability for taxes, or any long-term
lease or unusual forward or long-term commitment, including,
without limitation, any interest rate or foreign currency swap
or exchange transaction, which are required to be, but which
are not, reflected in the foregoing statements or in the notes
thereto. During the period from December 31, 1994 to and
including the date hereof there has been no sale, transfer or
other disposition by the Guarantor or any of its Consolidated
Subsidiaries of any material part of its business or property,
other than assets securitized in the ordinary course of
business or assets transferred from one Consolidated
Subsidiary to another, and no purchase or other acquisition of
any business or property (including any capital stock of any
other Person) material in relation to the consolidated
financial condition of the Guarantor and its Consolidated
Subsidiaries at December 31, 1994.
7.02 No Change. From December 31, 1994 to the
Effective Date, there has been no development or event in or
relating to the business and affairs of such Obligor (other
than developments and events generally applicable to similarly
situated businesses) which has had or would reasonably be
expected to have a Material Adverse Effect on such Obligor.
7.03 Corporate Existence; Compliance with Law.
Each of such Obligor and its Material Subsidiaries (a) is duly
organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, (b) has the
corporate power and authority, and the legal right, to own and
operate its property, to lease the property it operates as
lessee and to conduct the business in which it is currently
engaged, (c) is duly qualified as a foreign corporation and in
good standing under the laws of each jurisdiction where its
ownership, lease or operation of property or the conduct of
its business requires such qualification, except to the extent
that the failure to so qualify would not, in the aggregate,
reasonably be expected to have a Material Adverse Effect on
such Obligor, and (d) is in compliance with all Requirements
of Law except to the extent that the failure to comply
therewith would not, in the aggregate, reasonably be expected
to have a Material Adverse Effect on such Obligor.
7.04 Corporate Power; Authorization; Enforceable
Obligations. Such Obligor has the corporate power and
authority, and the legal right, to make, deliver and perform
the Credit Documents to which it is a party and to borrow
hereunder and has taken all necessary corporate action to
authorize the borrowings on the terms and conditions of this
Agreement and to authorize the execution, delivery and
performance of the Credit Documents to which it is a party.
No consent or authorization of, filing with, notice to or
other act by or in respect of, any Governmental Authority is
required for the borrowings by such Obligor hereunder or with
the execution, delivery, performance, validity or
enforceability by such Obligor of the Credit Documents to
which such Obligor is a party, except such as have been
obtained or will be obtained as and when required or if the
failure to obtain such consent or take such other action would
not reasonably be expected to have a Material Adverse Effect
on such Obligor. This Agreement has been, and each other
Credit Document to which it is a party will be, duly executed
and delivered on behalf of such Obligor. This Agreement
constitutes, and each other Credit Document to which it is a
party when executed and delivered will constitute, a legal,
valid and binding obligation of such Obligor enforceable
against such Obligor in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and
by general equitable principles (whether enforcement is sought
by proceedings in equity or at law).
7.05 No Legal Bar. The execution, delivery and
performance of the Credit Documents to which such Obligor is a
party, the borrowings hereunder and the use of the proceeds
thereof will not violate any Requirement of Law or Contractual
Obligation of such Obligor or of any of its Material
Subsidiaries and will not result in, or require, the creation
or imposition of any Lien on any of its or their respective
properties or revenues pursuant to any such Requirement of Law
or Contractual Obligation, except to the extent such violation
or Lien would not reasonably be expected to have a Material
Adverse Effect on such Obligor.
7.06 No Material Litigation. No litigation,
investigation or proceeding of or before any arbitrator or
Governmental Authority is pending or, to the knowledge of such
Obligor, threatened by or against such Obligor or any of its
Material Subsidiaries or against any of its or their
respective properties or revenues (a) with respect to any of
the Credit Documents or any of the transactions contemplated
hereby or thereby, or (b) which would reasonably be expected
to have a Material Adverse Effect on such Obligor.
7.07 No Default. Neither such Obligor nor any of
its Material Subsidiaries is in default under or with respect
to any of its Contractual Obligations in any respect which
would reasonably be expected to have a Material Adverse Effect
on such Obligor. No Default or Event of Default has occurred
and is continuing with respect to such Obligor.
7.08 Ownership of Property; Liens. As of the
Effective Date (i) each of such Obligor and its Material
Subsidiaries has valid record title in fee simple to, or a
valid leasehold interest in, all its real property, and valid
title to, or a valid leasehold interest in, all its other
property, and (ii) none of such property is subject to any
Lien except as permitted by Section 8.08.
7.09 Taxes. Each of such Obligor and its Material
Subsidiaries has filed or caused to be filed all tax returns
which, to the knowledge of such Obligor, are required to be
filed and has paid all taxes shown to be due and payable on
said returns or on any assessments made against it or any of
its property and all other taxes, fees or other charges
imposed on it or any of its property by any Governmental
Authority (other than any amount the validity of which is
currently being contested in good faith by appropriate
proceedings and with respect to which reserves in conformity
with GAAP have been provided on the books of such Obligor or
such Material Subsidiary, as the case may be); as of the
Effective Date no tax Lien has been filed, and, to the
knowledge of such Obligor, no claim is being asserted, with
respect to any such tax, fee or other charge.
7.10 Federal Regulations. No part of the proceeds
of any Loans to such Obligor will be used for "purchasing" or
"carrying" any "margin stock" within the respective meanings
of each of the quoted terms under Regulation G or Regulation U
of the Board of Governors of the Federal Reserve System as now
and from time to time hereafter in effect or for any purpose
which violates the provisions of the Regulations of such Board
of Governors. The value of all margin stock owned directly or
indirectly by such Obligor does not and will not constitute
more than 25% of the total assets of such Obligor.
7.11 ERISA. With respect to such Obligor's ERISA
Plans:
(a) each such ERISA Plan is in compliance in all
material respects with, and has been administered in all
material respects in compliance with, the terms of such
plan, the applicable provisions of ERISA (to the extent
said plan is an ERISA Plan), the Code (to the extent said
plan is intended to comply with the Code) and any other
Federal or state law;
(b) a favorable determination of qualification
under Section 401(a) or Section 403(a) of the Code of
each ERISA Pension Plan of such Obligor which is intended
to be so qualified and each amendment thereto, and a
recognition of exemption from federal income taxation
under Section 501(a) of each funded ERISA Welfare Plan of
such Obligor, has been received from the Internal Revenue
Service, and nothing has occurred since the date of each
such determination or recognition that would affect
adversely such qualification or exemption;
(c) the amount for which such Obligor or any ERISA
Affiliate would be liable pursuant to the provisions of
Section 4062 or 4064 of ERISA with respect to each ERISA
Pension Plan would be not greater than $20,000,000 if
such plan had terminated as of the date of this
representation; and
(d) as of the most recent valuation date of each
ERISA Pension Plan of such Obligor, the market value of
plan assets of each such ERISA Pension Plan subject to
Section 302 of ERISA or to Section 412 of the Code is not
less than (i) the greater of (1) the plan's accrued
liability as determined under Section 302(c)(7)(A)(i)(II)
of ERISA and Section 412(c)(7)(A)(i)(II) of the Code and
(2) the present value of vested benefits of the plan as
determined on the basis of PBGC Form 1 less (ii)
$20,000,000.
7.12 Investment Company Act; Other Regulations.
Such Obligor is not an "investment company", or a company
"controlled" by an "investment company", within the meaning of
the Investment Company Act of 1940, as amended. Such Obligor
is not subject to regulation under any Federal or state
statute or regulation (other than Regulation X of the Board of
Governors of the Federal Reserve System) which limits its
ability to incur Indebtedness other than, in the case of FDNB,
PNB and PCSI, statutes and regulations generally applicable to
national banks and FDIC-insured institutions and, in the case
of PCSI, statutes and regulations generally applicable to Utah
industrial loan corporations.
7.13 Subsidiaries. All the Subsidiaries of such
Obligor at the date hereof are listed on Schedule I.
7.14 Purpose of Loans. The proceeds of any Loans
to such Obligor shall be used by such Obligor to finance such
Obligor's consumer asset programs and for other general
corporate purposes, including, without limitation, commercial
paper backup.
7.15 True and Complete Disclosure. All factual
information, when taken as a whole, furnished in writing by
such Obligor to the Agent pursuant to or in connection with
this Agreement is accurate in all material respects on the
date as of which such information is dated or certified and is
not incomplete by reason of omitting to state a material fact
respecting such Obligor and necessary to make such
information, when taken as a whole, not misleading in any
material respect, in light of the circumstances under which
such information was provided.
7.16 Public Utility Holding Company Act. Neither
such Obligor nor any of its Subsidiaries is a "holding
company", or an "affiliate" of a "holding company" or a
"subsidiary company" of a "holding company", within the
meaning of the Public Utility Holding Company Act of 1935, as
amended.
Section 8. Certain Covenants of Each Obligor.
Each Obligor, as applicable, covenants and agrees
with the Lenders and the Agent that, so long as any Commitment
or Loan is outstanding and until payment in full of all
amounts payable by any Obligor hereunder:
8.01 Financial Statements, Etc. Each Borrower, in
the case of clauses (a), (d), (f), (g) and (h), and the
Guarantor, in the case of clauses (b), (c), (e), (f) and (g),
shall deliver to each of the Agent and the Lenders:
(a) as soon as available and in any event within
forty-five (45) days after the end of each of the first
three (3) quarterly fiscal periods of each fiscal year of
such Borrower, consolidated statements of income of such
Borrower and its Consolidated Subsidiaries for the period
from the beginning of the respective fiscal year to the
end of such period, and the related consolidated balance
sheets of such Borrower and its Consolidated Subsidiaries
as at the end of such period, setting forth in each case
in comparative form the corresponding consolidated
figures for the corresponding period in the preceding
fiscal year, accompanied by a certificate of a senior
financial or accounting officer of such Borrower stating
that said consolidated financial statements fairly
present the consolidated financial condition and results
of operations of such Borrower and its Consolidated
Subsidiaries in accordance with GAAP, as at the end of,
and for, such period (subject to normal year-end audit
adjustments), provided, that PCSI shall not be obligated
to deliver any such statements until such time as PCSI
becomes an Insured Depository Institution;
(b) as soon as available and in any event within
forty-five (45) days after the end of each of the first
three (3) quarterly fiscal periods of each fiscal year of
the Guarantor, consolidated statements of income,
retained earnings and cash flows of the Guarantor and its
Consolidated Subsidiaries for such period and for the
period from the beginning of the respective fiscal year
to the end of such period, and the related consolidated
balance sheets of the Guarantor and its Consolidated
Subsidiaries as at the end of such period, setting forth
in each case in comparative form the corresponding
consolidated figures for the corresponding period in the
preceding fiscal year, accompanied by a certificate of a
senior financial or accounting officer of the Guarantor
stating that said consolidated financial statements
fairly present the consolidated financial condition and
results of operations of the Guarantor and its
Consolidated Subsidiaries at the end of, and for, such
period (subject to normal year-end audit adjustments);
(c) as soon as available and in any event within
ninety (90) days after the end of each fiscal year of the
Guarantor, (i) consolidated statements of income,
retained earnings and cash flows of the Guarantor and its
Consolidated Subsidiaries for such fiscal year and the
related consolidated balance sheets of the Guarantor and
its Consolidated Subsidiaries as at the end of such
fiscal year, setting forth in each case in comparative
form the corresponding consolidated figures for the
preceding fiscal year, and accompanied by an opinion
thereon of independent certified public accountants of
recognized national standing, which opinion shall state
that said consolidated financial statements fairly
present the consolidated financial condition and results
of operations of the Guarantor and its Consolidated
Subsidiaries as at the end of, and for, such fiscal years
in accordance with GAAP and (ii) supplemental
consolidating statements of financial condition and
supplemental consolidating statements of income of the
Guarantor and its Consolidated Subsidiaries as of the end
of such fiscal year and including the results of
operations during such fiscal year (separately disclosing
balance sheet and income statement information for each
Borrower), accompanied by an opinion thereon of
independent certified public accountants of recognized
national standing, which opinion shall state that said
consolidating financial statements are fairly stated in
all material respects in relation to the consolidated
financial statements of the Guarantor and its
Consolidated Subsidiaries taken as a whole;
(d) at the time each Borrower furnishes each set of
financial statements pursuant to paragraph (a) above and
at the time the Guarantor furnishes each set of financial
statements pursuant to paragraph (c) above, a certificate
of a senior financial or accounting officer of each
Borrower (i) to the effect that to such officer's
knowledge no Default or Event of Default has occurred and
is continuing (or, if any Default or Event of Default has
occurred and is continuing, describing the same in
reasonable detail and describing the action, if any, that
such Borrower has taken or proposes to take with respect
thereto) and (ii) setting forth in reasonable detail the
computations necessary to determine whether such Borrower
is in compliance with Section 9.02 or 9.03, as the case
may be, as of the end of the respective quarterly fiscal
period or fiscal year;
(e) at the time it furnishes each set of financial
statements pursuant to paragraph (b) or (c) above, a
certificate of a senior financial or accounting officer
of the Guarantor (i) to the effect that to such officer's
knowledge no Default or Event of Default has occurred and
is continuing (or, if any Default or Event of Default has
occurred and is continuing, describing the same in
reasonable detail and describing the action, if any, that
the Guarantor has taken or proposes to take with respect
thereto) and (ii) setting forth in reasonable detail the
computations necessary to determine Consolidated Tangible
Capital of the Guarantor and to determine whether the
Guarantor is in compliance with Section 9.01 as of the
end of the respective quarterly fiscal period or fiscal
year;
(f) promptly upon receipt thereof, copies of any
reports and management letters submitted to such Obligor
by such accountants in connection with any annual or
interim audit of the books of such Obligor and its
Subsidiaries, together with such Obligor's responses
thereto, if any;
(g) from time to time such other information
regarding the financial condition, operations, business
or prospects of such Obligor (including, without
limitation, any Plan or Multiemployer Plan and any
reports or other information required to be filed under
ERISA) as the Agent may reasonably request; and
(h) with respect only to FDNB and PNB, promptly
after their filing with, or release by, the OCC, copies
of the publicly available portion of such Borrower's
quarterly Call Reports (or successors) to the OCC and, if
permitted by applicable law, copies of any reports of
examination by the OCC, and with respect only to PCSI
after PCSI becomes an Insured Depository Institution,
promptly after their filing with, or release by, the
Federal Deposit Insurance Corporation (the "FDIC") or any
other applicable Governmental Authority, copies of the
publicly available portion of PCSI's quarterly Call
Reports (or successors) to the FDIC or such other
Governmental Authority and, if permitted by applicable
law, copies of any reports of examination by the FDIC or
such other Governmental Authority.
8.02 Litigation. Each Obligor will promptly give
to the Agent notice of all legal or arbitral proceedings, and
of all proceedings by or before any Governmental Authority,
and any material development in respect of such legal or other
proceedings, against such Obligor or any of its Subsidiaries,
which have a reasonable likelihood of being adversely
determined and which, if adversely determined, would
reasonably be expected to result in a Material Adverse Effect.
8.03 Existence, Etc. Each Obligor will, and will
cause each of its Material Subsidiaries to:
(a) preserve and maintain its legal existence and
all of its material rights, privileges, licenses and
franchises if failure to maintain such rights,
privileges, licenses and franchises would reasonably be
expected to have a Material Adverse Effect on such
Obligor; provided that nothing in this Section 8.03 shall
prohibit any transaction expressly permitted under
Section 8.06 hereof;
(b) comply with the requirements of all applicable
laws, rules, regulations and orders of Governmental
Authorities if failure to comply with such requirements
would reasonably be expected to have a Material Adverse
Effect on such Obligor;
(c) pay and discharge all taxes, assessments and
governmental charges or levies imposed on it or on its
income or profits or on any of its significant Property
prior to the date on which penalties attach thereto,
except for any such tax, assessment, charge or levy the
payment of which is being contested in good faith and by
proper proceedings and against which adequate reserves
are being maintained;
(d) keep adequate records and books of account, in
which complete entries will be made in accordance with
generally accepted accounting principles consistently
applied; and
(e) upon at least five Business Days' prior notice,
permit officers and employees of the Agent or, with the
consent of such Obligor, a Lender, to visit and inspect
any of the properties of such Obligor and to examine and
audit the minute books, books of account and other
records of such Obligor and make copies thereof or
extracts therefrom, and discuss its affairs, finances and
accounts with its officers and, at the request of the
Agent and the consent of such Obligor, with such
Obligor's independent accountants, during normal business
hours as often as the Agent may reasonably desire.
8.04 Insurance. Each Obligor will, and will cause
each of its Material Subsidiaries to, maintain insurance in
full force and effect with responsible insurance companies
having, in the case of an insurer which is the issuer of any
of such Obligor's major policies, at the time any such policy
is issued or renewed, a rating of at least A- by Standard &
Poor's Corporation or A3 by Moody's Investors Service, Inc. or
A by A. M. Best Company (or, if such an insurer is not rated
by any of the foregoing agencies, a policyholder surplus of at
least $100,000,000), against such risks, on such properties
and in such amounts as is customarily maintained by similar
businesses; and file with the Agent upon its request a
detailed list of the insurance companies, the amounts and
rates of the insurance, the dates of the expiration thereof
and the properties and risks covered thereby; provided,
however, to the extent that it would be consistent with
prudent business practice and customary among corporations
engaged in similar businesses, such Obligor may self-insure
for damage or loss.
8.05 Notices. Each Obligor will promptly give
notice to the Agent of:
(a) the occurrence of any Default or Event of
Default;
(b) as soon as possible, and in any event within
ten days after such Obligor knows or has reason to
believe that any of the events or conditions specified
below with respect to any ERISA Plan or ERISA
Multiemployer Plan of such Obligor has occurred or
exists, a statement signed by a Responsible Officer
setting forth details respecting such event or condition
and the action, if any, that such Obligor or ERISA
Affiliate thereof proposes to take with respect thereto
(and a copy of any report or notice required to be filed
with or given to PBGC by such Obligor or ERISA Affiliate
with respect to such event or condition):
(i) any reportable event, as defined in
Section 4043(b) of ERISA and the regulations issued
thereunder (other than any event the reporting
requirement with respect to which has been waived by
PBGC), with respect to an ERISA Pension Plan of such
Obligor, (provided that a failure to meet the
minimum funding standard of Section 302 of ERISA or
Section 412 of the Code, including, without
limitation, the failure to make on or before its due
date a required installment under Section 302(e) of
ERISA or Section 412(m) of the Code, shall be
treated as a reportable event regardless of the
issuance of any waivers in accordance with
Section 412(d) of the Code); and any request for a
waiver under Section 412(d) of the Code for any
ERISA Pension Plan of such Obligor;
(ii) the distribution under Section 4041 of
ERISA of a notice of intent to terminate any ERISA
Pension Plan of such Obligor or any action taken by
such Obligor or any ERISA Affiliate to terminate any
ERISA Pension Plan;
(iii) the institution by PBGC of proceedings
under Section 4042 of ERISA for the termination of,
or the appointment of a trustee to administer, any
ERISA Pension Plan of such Obligor, any event or
condition which might constitute grounds for the
institution of such proceedings, or the receipt by
such Obligor or any ERISA Affiliate of a notice that
such a proceeding has been instituted by PBGC with
respect to an ERISA Multiemployer Plan of such
Obligor;
(iv) the complete or partial withdrawal from
an ERISA Multiemployer Plan by such Obligor or any
ERISA Affiliate that results in liability under
Section 4204 of ERISA (including the obligation to
satisfy secondary liability as a result of a
purchaser default) or Section 4201 of ERISA (in
either case without regard to reduction or waiver of
such liability under Section 4207 or 4208 of ERISA)
or the receipt by such Obligor or any ERISA
Affiliate of notice from an ERISA Multiemployer Plan
that it is in reorganization or insolvency pursuant
to Section 4241 or 4245 of ERISA or that it intends
to terminate or has terminated under Section 4041A
of ERISA;
(v) the institution of a proceeding on behalf
of any ERISA Multiemployer Plan against such Obligor
or any ERISA Affiliate to enforce Section 515 of
ERISA, which proceeding is not dismissed within
30 days;
(vi) the cessation of operations at a facility
which would subject such Obligor or any ERISA
Affiliate to the provisions of Section 4062(e) of
ERISA;
(vii) the withdrawal from an ERISA Pension
Plan by such Obligor or any ERISA Affiliate that
results in liability in accordance with the
provisions of Section 4063 of ERISA;
(viii) the termination of an ERISA Pension
Plan to which such Obligor or any ERISA Affiliate
contributed, or was required to contribute, at any
time within the five plan years preceding the date
of termination so as to become subject to the
provisions of Section 4064 of ERISA;
(ix) the adoption of an amendment to any ERISA
Pension Plan that, pursuant to Section 307 of ERISA
or Section 401(a)(29) the Code, would require such
Obligor or any ERISA Affiliate timely to provide
security to the plan in accordance with the
provisions of said Section or would result in the
loss of tax-exempt status of the trust of which such
plan is a part if such security is not timely
provided;
(x) the funded current liability percentage,
within the meaning of Section 302(d)(8) of ERISA and
Section 412(l)(8) of the Code, of each ERISA Pension
Plan of such Obligor is less than 60%.
(xi) the aggregate amount of accumulated
benefit obligations, determined in accordance with
Statement of Accounting Standards No. 87, of all
ERISA Plans of such Obligor which are ERISA Pension
Plans exceeds the aggregate fair market value of
plan assets of all such plans by more than
$20,000,000;
(xii) the aggregate amount of transition
obligations, determined in accordance with Statement
of Financial Accounting Standards No. 106 (or,
before such Statement is applicable to such Obligor
or any ERISA Affiliate, a good faith estimate of
such transition obligation), of all ERISA Welfare
Plans of such Obligor (other than ERISA Pension
Plans) which has not been recognized as an income
expense in the income statement of such Obligor and
its subsidiaries exceeds $20,000,000;
(xiii) any transaction or occurrence
proscribed by Section 406 of ERISA, or subject to
tax under Section 4975 of the Code, for which a
statutory exemption is not available;
(xiv) the payment under any ERISA Plan of such
Obligor (including but not limited to individual
employment and severance agreements) which is not
deductible for federal income tax purposes by virtue
of Section 280G of the Code;
(xv) the filing or overt threat of any action,
suit or claim (other than a routine claim for
benefits), including but not limited to a civil or
criminal action or civil penalty pursuant to the
provisions of Title I, Subtitle B, Part 5 of ERISA,
in respect of any ERISA Plan of such Obligor against
such plan, such Obligor or any ERISA Affiliate, or
any other person which could result in liability of
such Obligor or any ERISA Affiliate; and
(xvi) from time to time such other information
regarding any ERISA Plan of, and any reports or
other information required to be filed under ERISA
by, such Obligor or any of its Subsidiaries as any
Lender or the Agent may reasonably request.
Each notice pursuant to this Section shall be
accompanied by a statement of a Responsible Officer setting
forth details of the occurrence referred to therein and
stating what action the Obligor proposes to take with respect
thereto. Notice of any event described in this Section 8.05
which relates to more than one Obligor need only be given by
one Obligor, provided such notice specifies all Obligors to
which such event applies.
8.06 Limitation on Fundamental Changes. Each
Obligor shall not, and shall not permit its Material
Subsidiaries to, enter into any merger, consolidation or
amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell,
lease, assign, transfer or otherwise dispose of, all or
substantially all of its property, business or assets, or make
any material change in the character of its present business,
except:
(a) any Subsidiary of such Obligor may be merged or
consolidated with or into any Person (provided that the
surviving entity shall be a wholly owned direct or
indirect Subsidiary of the Guarantor);
(b) any Subsidiary of such Obligor may convey,
sell, lease, assign, transfer or otherwise dispose of any
or all of its assets (upon voluntary liquidation or
otherwise) to such Obligor or to any other wholly owned
direct or indirect Subsidiary of the Guarantor; and
(c) changes in the character of its present
business if after giving effect to such change such
Obligor and its Material Subsidiaries will be principally
engaged in the business of offering, selling, servicing
or owning consumer products and services (including,
without limitation, consumer financial products and
services).
8.07 Limitation on Sale of Assets. Each Obligor
shall not, and shall not permit its Material Subsidiaries to,
convey, sell, lease, assign, transfer or otherwise dispose of
any of its property, business or assets (including, without
limitation, receivables and leasehold interests), whether now
owned or hereafter acquired, or, in the case of any Material
Subsidiary, issue or sell any shares of such Material
Subsidiary's Capital Stock to any Person other than such
Obligor or any wholly owned direct or indirect Subsidiary of
the Guarantor, except:
(a) the sale or other disposition of property which
is obsolete, worn out or no longer used or useful in the
ordinary course of business;
(b) as permitted under Section 8.09 hereof;
(c) the sale of Receivables if (A) such sale is
intended to be without recourse and (B) after giving
effect to such sale such Obligor will be in compliance
with all of the applicable covenants contained in
Sections 8 and 9, and no Default or Event of Default will
occur by reason of such sale;
(d) sales, leases and dispositions of assets other
than Receivables in the ordinary course of its business
in arm's length transactions for full and fair value;
(e) as permitted by Section 8.06(b); and
(f) any sale of assets to any Person not covered by
(a) through (e) above, if after giving effect to such
sale such Obligor will be in compliance with all of the
applicable covenants contained in Sections 8 and 9 and no
Default or Event of Default will occur by reason of such
sale.
8.08 Limitation on Liens. Each Obligor shall not,
and shall not permit its Material Subsidiaries to, create,
incur, assume or suffer to exist any Lien upon any of its
property, assets or revenues, whether now owned or hereafter
acquired, except for:
(a) Liens incidental to the conduct of the business
of such Obligor or its Material Subsidiaries or the
ownership of its assets or properties and not incurred in
connection with the borrowing of money or the acquisition
of any asset and which in the aggregate do not materially
detract from the business, properties, condition
(financial or otherwise) or operations, present or
prospective, of such Obligor;
(b) Liens securing purchase money debt, so long as
each such Lien secures only the Indebtedness incurred to
purchase the property subject to such Lien;
(c) Liens in existence on the date hereof as set
forth in Schedule II, provided that, unless permitted
under Section 8.08(a), no such Lien is spread to cover
any additional property after the date hereof and that
the amount of Indebtedness secured thereby is not
increased;
(d) in the case of FDNB and PNB, Liens granted to
the Federal Reserve Bank of Boston to secure advances or
other transactions incidental to the conduct of the
business of such Borrower, including loans to meet
liquidity requirements;
(e) Liens resulting from the recharacterization of
any transaction intended to be a non-recourse sale as
Indebtedness for borrowed money; and
(f) other Liens consented to in writing by the
Agent and the Majority Lenders; provided that the Agent
and the Lenders shall not unreasonably withhold such
consent.
8.09 Limitation on Transactions with Affiliates.
Each Obligor shall not enter into any transaction, including,
without limitation, any purchase, sale, lease or exchange of
property or the rendering of any service, with any Affiliate
unless such transaction is (a) in the ordinary course of the
Obligor's or such Affiliate's business, or is upon fair and
reasonable terms no less favorable to such Obligor than it
would obtain in a comparable arm's length transaction with a
Person which is not an Affiliate and (b) in compliance with
all applicable law.
Section 9. Additional Obligor-Specific Covenants.
9.01 Guarantor Covenants. The Guarantor further
covenants and agrees with the Lenders that, so long as any
Commitment or Loan is outstanding, the Guarantor will not:
(a) Maintenance of Consolidated Tangible Capital.
Permit Consolidated Tangible Capital at any time during any of
the calendar years set forth below to be less than the amount
set forth below opposite such year:
Year Amount
1995 $275,000,00
0
1996 $300,000,00
0
1997 $325,000,00
0
1998 and $350,000,00
thereafter 0
(b) Maintenance of Consolidated Pre-tax Return on
Assets. Permit the Consolidated Pre-tax Return on Assets as
of the end of any Quarterly Period to be less than 1.0%,
provided that the Guarantor will not be deemed to be in breach
of this covenant if Consolidated Pre-tax Return on Assets as
of the end of a particular Quarterly Period is less than 1.0%
so long as within 60 days after the end of such Quarterly
Period the Guarantor provides a certificate to the Agent
certifying that it has obtained cash, cash equivalents or
short-term investment grade securities as a capital
contribution in an aggregate amount greater than or equal to
the difference between (i) the amount of Consolidated Pre-tax
Income for the preceding four Quarterly Periods which would
have caused the Consolidated Pre-tax Return on Assets as of
the end of such Quarterly Period to be equal to 1.0% and
(ii) the actual Consolidated Pre-tax Income for such four
preceding Quarterly Periods.
9.02 Covenants of FDNB, PNB and PCSI. Each of FDNB
and PNB further covenants and agrees with the Lenders that, so
long as any Commitment or Loan is outstanding, FDNB and PNB
will, and PCSI further covenants and agrees with the Lenders
that, so long as any Loan is outstanding to PCSI, PCSI will:
(a) Maintenance of Ratio of Funded Debt to Equity.
Not permit the ratio of (i) the Consolidated Funded Debt of
such Borrower to (ii) the Consolidated Shareholders' Equity of
such Borrower to exceed 10 to 1.
(b) Maintenance of Capital. (i) Maintain at all
times such amount of capital as may be prescribed by the Board
of Governors of the Federal Reserve System from time to time,
whether by regulation, agreement or order and (ii) be "well
capitalized" (as defined in 12 U.S.C. 1831o, as amended,
reenacted or redesignated from time to time).
9.03 Covenants of PCC. PCC further covenants and
agrees with the Lenders that, so long as any Loan is
outstanding to PCC, PCC will:
(a) Maintenance of Ratio of Senior Funded Debt to
Consolidated Tangible Capital. Not permit the ratio of
(i) the Consolidated Senior Funded Debt of PCC to
(ii) Consolidated Tangible Capital of PCC to exceed 8 to 1.
(b) Maintenance of Ratio of Finance Assets to
Senior Funded Debt. Not permit the ratio of (i) Consolidated
Finance Assets of PCC to (ii) the Consolidated Senior Funded
Debt of PCC to be less than 1.10 to 1.
Section 10. Guarantee.
10.01 Guarantee.
(a) The Guarantor hereby unconditionally and
irrevocably guarantees to the Lenders and their respective
successors, indorsees, transferees and assigns, the prompt and
complete payment by the Borrowers to the Agent on behalf of
the Lenders when due (whether at the stated maturity, by
acceleration or otherwise) of the Obligations (including,
without limitation, any Obligations resulting from increases
in the aggregate Commitments pursuant to Section 2.13 or 2.14)
without set-off or counterclaim in Dollars at the Principal
Office of the Agent in accordance with the terms of this
Agreement.
(b) The Guarantor further agrees to pay all
reasonable out-of-pocket costs and expenses of the Lenders and
the Agent (including, without limitation, reasonable counsels'
fees) in connection with any Event of Default and any
enforcement or collection proceedings resulting therefrom or
in connection with the protection or preservation of rights or
interests following an Event of Default or the negotiation of
any restructuring or "work-out" (whether or not consummated)
of the obligations of the Guarantor under this Section 10
following an Event of Default.
(c) No payment or payments made by any Borrower or
any other Person or received or collected by the Agent or any
Lender from any Borrower or any other Person by virtue of any
action or proceeding or any set-off or appropriation or
application, at any time or from time to time, in reduction of
or in payment of the Obligations shall be deemed to modify,
reduce, release or otherwise affect the liability of the
Guarantor hereunder which shall, notwithstanding any such
payment or payments, continue to be effective until the
Obligations are paid in full and the Commitments are
terminated.
(d) The Guarantor agrees that whenever, at any
time, or from time to time, it shall make any payment to the
Agent or any Lender on account of its liability under this
Section 10, it will notify the Agent and such Lender in
writing that such payment is made under this Section 10 for
such purpose.
10.02 Right of Set-off. The Agent and each Lender
is hereby irrevocably authorized at any time and from time to
time after the occurrence and during the continuation of an
Event of Default, without notice to the Guarantor, any such
notice being expressly waived by the Guarantor, to set off and
appropriate and apply any and all deposits (general or
special, time or demand, provisional or final), in any
currency, and any other credits, indebtedness or claims, in
any currency, in each case whether direct or indirect,
absolute or contingent, matured or unmatured, at any time held
or owing by the Agent or such Lender or any bank controlled by
such Lender to or for the credit or the account of the
Guarantor, or any part thereof in such amounts as the Agent or
such Lender may elect, against or on account of the
obligations and liabilities of the Guarantor to the Agent or
such Lender hereunder as the Agent or such Lender may elect,
whether or not the Agent or such Lender has made any demand
for payment and although such obligations, liabilities and
claims may be contingent or unmatured. The Agent and each
Lender shall notify the Guarantor promptly of any such set-off
and the application made by the Agent or such Lender, as the
case may be, of the proceeds thereof; provided that the
failure to give such notice shall not affect the validity of
such set-off and application. The rights of the Agent and
each Lender under this paragraph are in addition to other
rights and remedies (including, without limitation, other
rights of set-off) which the Agent or such Lender may have.
10.03 No Subrogation. Notwithstanding anything to
the contrary in this Agreement, the Guarantor hereby
irrevocably waives all rights which may have arisen in
connection with this Agreement to be subrogated to any of the
rights (whether contractual, under the Bankruptcy Code,
including Section 509 thereof, under common law or otherwise)
of the Lenders against the Borrowers or against any collateral
security or guarantee or right of offset held by the Lenders
for the payment of the Obligations to the extent that any such
right would constitute the Guarantor a "creditor" of the
Borrowers within the meaning of Section 547 of the Bankruptcy
Code. So long as the Obligations remain outstanding, if any
amount shall be paid by or on behalf of the Borrowers to the
Guarantor on account of any of the rights waived in this
paragraph, such amount shall be held by the Guarantor in
trust, segregated from other funds of such Guarantor, and
shall, forthwith upon receipt by such Guarantor, be turned
over to the Agent in the form received by the Guarantor (duly
indorsed by the Guarantor to the Lender, if required), to be
applied against the Obligations, whether matured or unmatured,
in such order as the Agent may determine. The provisions of
this paragraph shall survive the termination of this Agreement
and the payment in full of the Obligations and the termination
of the Commitments.
10.04 Amendments, etc. re Obligations; Waiver of
Rights. The Guarantor shall remain obligated hereunder
notwithstanding that, without any reservation of rights
against the Guarantor, and without notice to or further assent
by the Guarantor (except as provided in Section 13.04), any
demand for payment of any of the Obligations made by the Agent
or any Lender may be rescinded by the Agent or such Lender,
and any of the Obligations continued, and the Obligations, or
the liability of any other party upon or for any part thereof,
or any collateral security or guarantee therefor or right of
offset with respect thereto, may, from time to time, in whole
or in part, be renewed, extended, amended, modified,
accelerated, compromised, waived, surrendered or released by
the Agent or any Lender, and this Agreement and any other
documents executed and delivered in connection therewith may
be amended, modified, supplemented or terminated, in whole or
in part, as the Agent (or the Majority Lenders, as the case
may be) may deem advisable from time to time, and any
collateral security, guarantee or right of offset at any time
held by the Agent or any Lender for the payment of the
Obligations may be sold, exchanged, waived, surrendered or
released. Neither the Agent nor any Lender shall have any
obligation to protect, secure, perfect or insure any Lien at
any time held by it as security for the Obligations or for
this Agreement or any property subject thereto. When making
any demand hereunder against the Guarantor, the Agent or any
Lender may, but shall be under no obligation to, make a
similar demand on the related Borrower or any other guarantor,
and any failure by the Agent or any Lender to make any such
demand or to collect any payments from the Borrowers or any
such other guarantor or any release of the Borrowers or such
other guarantor shall not relieve the Guarantor of its
obligations or liabilities hereunder, and shall not impair or
affect the rights and remedies, express or implied, or as a
matter of law, of the Agent or any Lender against the
Guarantor. For the purposes hereof "demand" shall include the
commencement and continuance of any legal proceedings.
10.05 Guarantee Absolute and Unconditional. The
Guarantor waives any and all notice of the creation, renewal,
extension or accrual of any of the Obligations and notice of
or proof of reliance by the Agent or any Lender upon the
obligations of the Guarantor under this Agreement or
acceptance of this guarantee; the Obligations, and any of
them, shall conclusively be deemed to have been created,
contracted or incurred, or renewed, extended, amended or
waived, in reliance upon the obligations of the Guarantor
under this Agreement; and all dealings between the Borrowers
or the Guarantor, on the one hand, and the Agent and the
Lenders, on the other, shall likewise be conclusively presumed
to have been had or consummated in reliance upon the
obligations of the Guarantor under this Agreement. The
Guarantor waives diligence, presentment, protest, demand for
payment and notice of default or nonpayment to or upon any
Borrower or the Guarantor with respect to the Obligations.
The obligations of the Guarantor under this Section 10 shall
be construed as a continuing, absolute and unconditional
guarantee of payment without regard to (a) the validity, or
enforceability of this Agreement, any of the Obligations or
any other collateral security therefor or guarantee or right
of offset with respect thereto at any time or from time to
time held by the Agent or any Lender, (b) any defense, set-off
or counterclaim (other than a defense of payment or
performance) which may at any time be available to or be
asserted by any Borrower against the Agent or any Lender, or
(c) any other circumstance whatsoever (with or without notice
to or knowledge of the Borrowers or the Guarantor) which
constitutes, or might be construed to constitute, an equitable
or legal discharge of any Borrower for the Obligations, or of
the Guarantor under this Agreement, in bankruptcy or in any
other instance. When pursuing its rights and remedies
hereunder against the Guarantor, the Agent and any Lender may,
but shall be under no obligation to, pursue such rights and
remedies as it may have against any Borrower or any other
Person or against any collateral security or guarantee for the
Obligations or any right of offset with respect thereto, and
any failure by the Agent or any Lender to pursue such other
rights or remedies or to collect any payments from any
Borrower or any such other Person or to realize upon any such
collateral security or guarantee or to exercise any such right
of offset, or any release of any Borrower or any such other
Person or of any such collateral security, guarantee or right
of offset, shall not relieve the Guarantor of any liability
hereunder, and shall not impair or affect the rights and
remedies, whether express, implied or available as a matter of
law, of the Agent or any Lender against the Guarantor. The
obligations of the Guarantor under this Agreement shall remain
in full force and effect and be binding in accordance with and
to the extent of its terms upon the Guarantor and its
successors and assigns thereof, and shall inure to the benefit
of the Agent and the Lenders, and their respective successors,
indorsees, transferees and assigns, until all the Obligations
and the obligations of the Guarantor under this Guarantee
shall have been satisfied by payment in full and the
Commitments shall be terminated, notwithstanding that from
time to time during the term of the Credit Agreement the
Borrowers may be free from any Obligations.
10.06 Reinstatement. The obligations of the
Guarantor under this Agreement shall continue to be effective,
or be reinstated, as the case may be, if at any time payment,
or any part thereof, of any of the Obligations is rescinded or
must otherwise be restored or returned by the Agent or any
Lender upon the insolvency, bankruptcy, dissolution,
liquidation or reorganization of any Borrower or upon or as a
result of the appointment of a receiver, intervenor or
conservator of, or trustee or similar officer for, any
Borrower or any substantial part of its property, or
otherwise, all as though such payments had not been made.
Section 11. Events of Default.
If any of the following events ("Events of Default")
shall occur and be continuing:
(a) Any Borrower shall fail to pay any principal
of any Loan when due in accordance with the terms thereof
or hereof; or any Borrower shall fail to pay any interest
on any Loan, any Facility Fee, any Utilization Fee or any
other amount payable by such Borrower hereunder, within
three Business Days after any such interest, fee or other
amount becomes due in accordance with the terms thereof
or hereof; or
(b) The Guarantor shall fail to pay any amount
pursuant to Section 10 hereof within seven Business Days
after such amount becomes due in accordance with the
terms thereof; or
(c) Any representation or warranty made or deemed
made by any Obligor herein or which is contained in any
certificate furnished by it at any time under this
Agreement shall prove to have been incorrect in any
material respect on or as of the date made or deemed
made; or
(d) Any Obligor shall default in the observance or
performance of any agreement contained in Section 8.06,
8.07, 9.01 (subject to the cure right provided therein),
9.02 or 9.03; or
(e) Any Obligor shall default in the observance or
performance of any other agreement contained in this
Agreement (other than as provided in paragraphs (a)
through (d) of this Section), and such default shall
continue unremedied for a period of 30 days after the
Agent has given notice of such default to such Obligor;
or
(f) Any Borrower or any of its Material
Subsidiaries or the Guarantor shall (i) default in any
payment of principal of or interest of any Indebtedness
(other than the Loans) or in the payment of any Guarantee
Obligation in an aggregate amount in excess of
$10,000,000 in the case of any Borrower and its Material
Subsidiaries and $20,000,000 in the case of the
Guarantor, and such default shall remain uncured or
unwaived within the cure period or grace period, if any,
provided in the instrument or agreement under which such
Indebtedness or Guarantee Obligation was created; or
(ii) default in the observance or performance of any
other agreement or condition relating to any such
Indebtedness or Guarantee Obligation or contained in any
instrument or agreement evidencing, securing or relating
thereto, or any other event shall occur or condition
exist, the effect of which default or other event or
condition is to cause, or to permit the holder or holders
of such Indebtedness or beneficiary or beneficiaries of
such Guarantee Obligation (or a trustee or agent on
behalf of such holder or holders or beneficiary or
beneficiaries) to cause, with the giving of notice if
required, such Indebtedness to become due prior to its
stated maturity or such Guarantee Obligation to become
payable and such default shall remain uncured or unwaived
within the cure period or grace period, if any, provided
therein; or
(g) (i) Any Borrower or any of its Material
Subsidiaries or the Guarantor shall commence any case,
proceeding or other action (A) under any existing or
future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or
relief of debtors, seeking to have an order for relief
entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to
it or its debts, or (B) seeking appointment of a
receiver, trustee, custodian, conservator or other
similar official for it or for all or any substantial
part of its assets, or any Borrower or any of its
Material Subsidiaries or the Guarantor shall make a
general assignment for the benefit of its creditors; or
(ii) there shall be commenced against any Borrower or any
of its Material Subsidiaries or the Guarantor any case,
proceeding or other action of a nature referred to in
clause (i) above which (A) results in the entry of an
order for relief or any such adjudication or appointment
or (B) remains undismissed, undischarged or unbonded for
a period of 60 days; or (iii) there shall be commenced
against any Borrower or any of its Material Subsidiaries
or the Guarantor any case, proceeding or other action
seeking issuance of a warrant of attachment, execution,
distraint or similar process against all or any
substantial part of its assets which results in the entry
of an order for any such relief which shall not have been
vacated, discharged, or stayed or bonded pending appeal
within 60 days from the entry thereof; or (iv) any
Borrower or any of its Material Subsidiaries or the
Guarantor shall take any corporate action for the purpose
of effecting any of the acts set forth in clause (i),
(ii), or (iii) above; or (v) any Borrower or any of its
Material Subsidiaries or the Guarantor shall admit in
writing its inability to, pay its debts as they become
due; or
(h) An event or condition specified in Section
8.05(b) hereof shall occur or exist with respect to any
ERISA Plan and, as a result of such event or condition,
together with all other such events or conditions, any
Obligor or any ERISA Affiliate shall incur or in the
opinion of the Majority Lenders shall be reasonably
likely to incur a liability to or in respect of an ERISA
Plan or to PBGC (or any combination of the foregoing)
which would constitute, in the determination of the
Majority Lenders, a Material Adverse Effect with respect
to such Obligor; or
(i) One or more judgments or decrees shall be
entered against any Obligor or any of its Material
Subsidiaries involving in the aggregate a liability (not
paid or fully covered by insurance) of, in the case of a
Borrower and its Material Subsidiaries, $10,000,000 or
more, and in the case of the Guarantor and its Material
Subsidiaries, $20,000,000 or more, and shall remain
unvacated, undischarged, unstayed or unbonded pending
appeal within 30 days from the entry thereof; or
(j) Providian Corporation, a Delaware corporation,
shall cease to own, directly or indirectly, at least
66-2/3% of the voting stock of the Guarantor;
(k) The Guarantor shall cease to own directly 100%
of the voting stock of each Borrower; or
(l) Any Borrower or any Material Subsidiary of such
Borrower which is an Insured Depository Institution shall
enter into a capital maintenance agreement or be required
to submit a capital restoration plan of the type referred
to in 12 U.S.C. 1831o(b)(2)(c).
then, and in any such event, (A) if such event is an Event of
Default specified in clause (i) or (ii) of paragraph (g) above
with respect to the Guarantor (other than an Event of Default
caused solely by a case, proceeding or other action with
respect to a Borrower), automatically the Commitments and the
Swing Line Commitment to lend to all Borrowers shall
immediately terminate and the Loans hereunder (with accrued
interest thereon) and all other amounts owing by any Obligor
under this Agreement shall immediately become due and
payable, (B) if such event is an Event of Default specified in
clause (i) or (ii) of paragraph (g) above with respect to a
Borrower, automatically the Commitments and the Swing Line
Commitment to lend to such Borrower shall immediately
terminate and the Loans to such Borrower hereunder (with
accrued interest thereon) and all other amounts owing by such
Borrower under this Agreement shall immediately become due
and payable, (C) if such event is any other Event of Default
with respect to the Guarantor or any Event of Default
specified in paragraph (b), (j) or (k), either or both of the
following actions may be taken: (i) with the consent of the
Majority Lenders, the Agent may, or upon the request of the
Majority Lenders, the Agent shall, by notice to the Guarantor
and the Borrowers declare the Commitments and the Swing Line
Commitment to lend to all Borrowers to be terminated
forthwith, whereupon the Commitments and the Swing Line
Commitment shall immediately terminate; and (ii) with the
consent of the Majority Lenders, the Agent may, or upon the
request of the Majority Lenders, the Agent shall, by notice to
the Guarantor and the Borrowers, declare the Loans to all
Borrowers hereunder (with accrued interest thereon) and all
other amounts owing by any Obligor under this Agreement to be
due and payable forthwith, whereupon the same shall
immediately become due and payable and (D) if such event is
any other Event of Default with respect to any Borrower,
either or both of the following actions may be taken:
(i) with the consent of the Majority Lenders, the Agent may,
or upon the request of the Majority Lenders, the Agent shall,
by notice to such Borrower declare the Commitments and the
Swing Line Commitment to lend to such Borrower to be
terminated forthwith, whereupon the Commitments and the Swing
Line Commitment to lend to such Borrower shall immediately
terminate; and (ii) with the consent of the Majority Lenders,
the Agent may, or upon the request of the Majority Lenders,
the Agent shall, by notice to such Borrower, declare the Loans
to such Borrower hereunder (with accrued interest thereon) and
all other amounts owing by such Borrower under this Agreement
to be due and payable forthwith, whereupon the same shall
immediately become due and payable. Except as expressly
provided above in this Section, presentment, demand, protest
and all other notices of any kind are hereby expressly waived.
Section 12. The Agent.
12.01 Appointment, Powers and Immunities. Each
Lender hereby appoints and authorizes the Agent to act as its
agent hereunder with such powers as are specifically delegated
to the Agent by the terms of this Agreement, together with
such other powers as are reasonably incidental thereto. The
Agent (which term as used in this sentence and in Section
12.05 and the first sentence of Section 12.06 shall include
reference to its affiliates and its own and its affiliates'
officers, directors, employees and agents): (a) shall have no
duties or responsibilities except those expressly set forth in
this Agreement and in the other Credit Documents, and shall
not by reason of this Agreement or any other Credit Document
be a trustee for any Lender; (b) shall not be responsible to
the Lenders for any recitals, statements, representations or
warranties contained in this Agreement or in any other Credit
Document, or in any certificate or other document referred to
or provided for in, or received by any of them under, this
Agreement or any other Credit Document, or for the value,
validity, effectiveness, genuineness, enforceability or
sufficiency of this Agreement or any other Credit Document or
any other document referred to or provided for herein or
therein or for any failure by any Borrower or any other Person
to perform any of its obligations hereunder or thereunder;
(c) shall not be required to initiate or conduct any
litigation or collection proceedings hereunder or under any
other Credit Document; (d) shall not be responsible for any
action taken or omitted to be taken by it hereunder or under
any other Credit Document or under any other document or
instrument referred to or provided for herein or therein or in
connection herewith or therewith, except for its own gross
negligence or willful misconduct. The Agent may employ agents
and attorneys-in-fact and shall not be responsible for the
negligence or misconduct of any such agents or attorneys-in-
fact selected by it in good faith. The Agent may deem and
treat the Lender specified in the Register with respect to any
amount owing hereunder as the owner thereof for all purposes
hereof unless and until a notice of the assignment or transfer
thereof shall have been filed with the Agent, together with
the consent of the Borrowers and the Agent to such assignment
or transfer (to the extent provided in Section 13.06(b)
hereof).
12.02 Reliance by Agent. The Agent shall be
entitled to rely upon any certification, notice or other
communication (including, without limitation, any thereof by
telephone, telecopy, telex, telegram or cable) believed by it
to be genuine and correct and to have been signed or sent by
or on behalf of the proper Person or Persons, and upon advice
and statements of legal counsel, independent accountants and
other experts selected by the Agent. As to any matters not
expressly provided for by this Agreement or any other Credit
Document, the Agent shall in all cases be fully protected in
acting, or in refraining from acting, hereunder or thereunder
in accordance with instructions given by the Majority Lenders
or, if provided herein, in accordance with the instructions
given by the Majority Lenders or all of the Lenders as is
required in such circumstance, and such instructions of such
Lenders and any action taken or failure to act pursuant
thereto shall be binding on all of the Lenders.
12.03 Defaults. The Agent shall not be deemed to
have knowledge or notice of the occurrence of a Default or
Event of Default (other than the non-payment of principal of
or interest on Loans or of Facility Fee or Utilization Fee)
unless the Agent has received notice from a Lender or an
Obligor specifying such Default or Event of Default and
stating that such notice is a "Notice of Default". In the
event that the Agent receives such a notice of the occurrence
of a Default or Event of Default, the Agent shall give prompt
notice thereof to the Lenders (and shall give each Lender
prompt notice of each such non-payment). The Agent shall
(subject to Sections 12.01, 12.07 and 13.04 hereof) take such
action with respect to such Default or Event of Default as
shall be directed by the Majority Lenders, provided that,
unless and until the Agent shall have received such
directions, the Agent may (but shall not be obligated to) take
such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable
in the best interest of the Lenders except to the extent that
this Agreement expressly requires that such action be taken,
or not be taken, only with the consent or upon the
authorization of the Majority Lenders or all of the Lenders.
12.04 Rights as a Lender. With respect to its
Commitment and the Loans made by it, Chase (and any successor
acting as Agent) in its capacity as a Lender hereunder shall
have the same rights and powers hereunder as any other Lender
and may exercise the same as though it were not acting as the
Agent, and the term "Lender" or "Lenders" shall, unless the
context otherwise indicates, include the Agent in its
individual capacity. Chase (and any successor acting as
Agent) and its affiliates may (without having to account
therefor to any Lender) accept deposits from, lend money to,
make investments in and generally engage in any kind of
banking, trust or other business with the Obligors (and any of
their respective Subsidiaries or Affiliates) as if it were not
acting as the Agent, and Chase and its affiliates may accept
fees and other consideration from the Obligors for services in
connection with this Agreement or otherwise without having to
account for the same to the Lenders.
12.05 Indemnification. The Lenders agree to
indemnify the Agent (to the extent not reimbursed under
Section 13.03 or otherwise on behalf of the Borrowers, but
without limiting the obligations of the Borrowers under
Section 13.03) ratably in accordance with their respective
Commitments, for any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses
or disbursements of any kind and nature whatsoever that may be
imposed on, incurred by or asserted against the Agent (in its
capacity as Agent) (including by any Lender) arising out of or
by reason of any investigation in or in any way relating to or
arising out of this Agreement or any other Credit Document or
any other documents contemplated by or referred to herein or
therein or the transactions contemplated hereby or thereby
(including, without limitation, the costs and expenses that
any Borrower is obligated to pay under Section 13.03 hereof,
but excluding, unless a Default or Event of Default has
occurred and is continuing, normal administrative costs and
expenses incident to the performance of its agency duties
hereunder) or the enforcement of any of the terms hereof or
thereof or of any such other documents, provided that no
Lender shall be liable for any of the foregoing to the extent
they arise from the gross negligence or willful misconduct of
the party to be indemnified.
12.06 Non-Reliance on Agent and Other Lenders.
Each Lender agrees that it has, independently and without
reliance on the Agent or any other Lender, and based on such
documents and information as it has deemed appropriate, made
its own credit analysis of the Obligors and the decision to
enter into this Agreement and that it will, independently and
without reliance upon the Agent or any other Lender, and based
on such documents and information as it shall deem appropriate
at the time, continue to make its own analysis and decisions
in taking or not taking action under this Agreement or any
other Credit Document. The Agent shall not be required to
keep itself informed as to the performance or observance by
the Obligors of this Agreement or any of the other Credit
Documents or any other document referred to or provided for
herein or therein or to inspect the Properties or books of the
Obligors. Except for notices, reports and other documents and
information expressly required to be furnished to the Lenders
by the Agent hereunder, the Agent shall not have any duty or
responsibility to provide any Lender with any credit or other
information concerning the affairs, financial condition or
business of any Obligor or any Subsidiary of any Obligor (or
any of their affiliates) that may come into the possession of
the Agent or any of its affiliates.
12.07 Failure to Act. Except for action expressly
required of the Agent hereunder, the Agent shall in all cases
be fully justified in failing or refusing to act hereunder and
thereunder unless it shall receive further assurances to its
reasonable satisfaction from the Lenders of their
indemnification obligations under Section 12.05 against any
and all liability and expense that may be incurred by it by
reason of taking or continuing to take any such action.
12.08 Resignation or Removal of Agent. Subject to
the appointment and acceptance of a successor Agent as
provided below, the Agent may resign at any time by giving
notice thereof to the Lenders and the Borrowers, and the Agent
may be removed at any time with or without cause by the
Majority Lenders. If the Agent also then serves in the
capacity of the Swing Line Lender, such resignation or removal
of the Agent shall not constitute resignation or removal of
the Swing Line Lender. Upon any such resignation or removal,
the Majority Lenders shall with the consent of the Borrowers
which consent shall not be unreasonably withheld have the
right to appoint a successor Agent, which shall be a Lender;
provided that if upon the date of such appointment an Event of
Default shall exist, such consent of the Borrowers shall not
be required. If no successor Agent shall have been so
appointed by the Majority Lenders and shall have accepted such
appointment within 30 days after the retiring Agent's giving
of notice of resignation or the Majority Lenders' removal of
the retiring Agent, then the retiring Agent may, on behalf of
the Lenders, appoint a successor Agent with the consent of the
Borrowers (such consent not to be unreasonably withheld), that
shall be a Lender with a combined capital and surplus of at
least $2,000,000,000. Upon the acceptance of any appointment
as Agent hereunder by a successor Agent (with the consent of
the Borrowers as may be provided above), such successor Agent
shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and
obligations hereunder. After any retiring Agent's resignation
or removal hereunder as Agent, the provisions of this Section
12 shall continue in effect for its benefit in respect of any
actions taken or omitted to be taken by it while it was acting
as the Agent.
12.09 Co-Agents. The Co-Agents shall have no
duties or responsibilities or be entitled to any of the rights
of the Agent under this Agreement or under any other Credit
Document.
Section 13. Miscellaneous.
13.01 Waiver. No failure on the part of the Agent
or any Lender to exercise and no delay in exercising, and no
course of dealing with respect to, any right, power or
privilege under this Agreement or other Credit Document shall
operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege under this Agreement
or other Credit Document preclude any other or further
exercise thereof or the exercise of any other right, power or
privilege. The remedies provided herein are cumulative and
not exclusive of any remedies provided by law.
13.02 Notices. All notices, requests and other
communications provided for herein and under the other Credit
Documents (including, without limitation, any modifications
of, or waivers or consents under, this Agreement) shall be
given or made in writing (including, without limitation, by
telex or telecopy), or, with respect to notices given pursuant
to Section 2.03 or 2.04, by telephone, confirmed in writing by
telecopier by the close of business on the day the notice is
given, delivered (or telephoned, as the case may be) to the
intended recipient at the "Address for Notices" specified
below its name on the signature pages hereof; or, as to any
party, at such other address as shall be designated by such
party in a notice to each other party. Except as otherwise
provided in this Agreement, all such communications shall be
deemed to have been duly given when transmitted by telex or
telecopier or personally delivered or, in the case of a mailed
notice, upon receipt, in each case given or addressed as
aforesaid.
13.03 Expenses, Etc. Each Borrower severally
agrees to pay or reimburse each of the Lenders and the Agent,
as the case may be, within 15 days after receipt of written
demand for such Borrower's Allocable Portion (as hereinafter
defined) of: (a) all reasonable out-of-pocket costs and
expenses of the Agent (including, without limitation, the
reasonable fees and expenses of Gibson, Dunn & Crutcher,
special New York counsel to the Agent and the Lenders), in
connection with (i) the negotiation, preparation, execution
and delivery of this Agreement and the other Credit Documents
and the extension of credit hereunder and (ii) any
modification, supplement or waiver of any of the terms of this
Agreement or any of the other Credit Documents; (b) all
reasonable out-of-pocket costs and expenses of the Lenders and
the Agent (including, without limitation, reasonable counsels'
fees) in connection with (i) any Event of Default and any
enforcement or collection proceedings resulting therefrom or
in connection with the protection or preservation of rights or
interests following an Event of Default or the negotiation of
any restructuring or "work-out" (whether or not consummated)
of the obligations of the Obligors hereunder and under the
other Credit Documents following an Event of Default and
(ii) the enforcement of this Section 13.03; and (c) all
transfer, stamp, documentary or other similar taxes,
assessments or charges levied by any governmental or revenue
authority in respect of this Agreement or any of the other
Credit Documents or any other document referred to herein or
therein, provided, that the fees and expenses of the Agent and
of counsel to the Agent and the Lenders in connection with the
negotiation, preparation, execution and delivery of this
Agreement and the other Credit Documents shall be payable by
the Borrowers only to the extent specified in the letter
agreement dated September 5, 1995 among the Agent and the
Obligors, and provided, further, that the fees and expenses of
counsel to the Agent in connection with the negotiation,
preparation, execution and delivery of this Agreement and the
other Credit Documents shall not be payable by the Lenders.
Each Borrower hereby severally agrees (i) to
indemnify the Agent and each Lender and their respective
directors, officers, employees, attorneys and agents from, and
hold each of them harmless against such Borrower's Allocable
Portion (as hereinafter defined) of any and all losses,
liabilities, claims, damages or expenses incurred by any of
them (including, without limitation, any and all losses,
liabilities, claims, damages or expenses incurred by the Agent
to any Lender) arising out of or by reason of any
investigation or litigation or other proceedings (including
any threatened investigation or litigation or other
proceedings, but excluding any investigation, litigation or
proceeding solely between Lenders or between the Agent and any
Lender or Lenders) (whether or not the Agent or any Lender or
such other indemnified Person is a party thereto) relating to
the extensions of credit hereunder or any actual or proposed
use by the Borrowers or any of their Subsidiaries of the
proceeds of any of the extensions of credit hereunder,
including, without limitation, the reasonable fees and
disbursements of counsel incurred in connection with any such
investigation or litigation or other proceedings (but
excluding any such losses, liabilities, claims, damages or
expenses incurred by reason of the gross negligence or willful
misconduct of the Person to be indemnified) and (ii) not to
assert any claim against the Agent, any Lender, any of their
affiliates, or any of their respective directors, officers,
employees, attorneys and agents, on any theory of liability,
for special, indirect, consequential or punitive damages
arising out of or otherwise relating to any of the
transactions contemplated herein or in any other Credit
Document, other than claims arising by reason of the gross
negligence or willful misconduct of any such Person.
As used in this Section 13.03, a Borrower's
"Allocable Portion" of any cost, expense or other amount
payable under this Section 13.03 shall mean (a) if such cost,
expense or other amount is directly attributable to the Loans
made to such Borrower or any action taken or omitted to be
taken by such Borrower, 100% of such amount and (b) if such
cost, expense or other amount is not directly attributable to
one or more specific Borrowers, such amount multiplied by (i)
if Loans are outstanding, the percentage equivalent of a
fraction the numerator of which is the principal amount of
Loans outstanding to such Borrower and the denominator of
which is the aggregate amount of Loans outstanding to all
Borrowers and (ii) if no Loans are outstanding, 25%.
13.04 Amendments, Etc. Except as otherwise
expressly provided in this Agreement, any provision of any
Credit Document may be modified or supplemented only by an
instrument in writing signed by the Guarantor, the Borrowers
and the Majority Lenders, or by the Guarantor, the Borrowers
and the Agent acting with the consent of the Majority Lenders,
and any provision of any Credit Document may be waived by the
Majority Lenders or by the Agent acting with the consent of
the Majority Lenders; provided that: (a) no modification,
supplement or waiver shall, unless by an instrument signed by
all of the Lenders or by the Agent acting with the consent of
all of the Lenders: (i) increase, or extend the term of any of
the Commitments (other than as contemplated by Section 2.12,
2.13 or 2.14), or extend the time or waive any requirement for
the reduction or termination of any of the Commitments (other
than as contemplated by Section 2.12, 2.13 or 2.14),
(ii) extend the date fixed for the payment of principal of or
interest on any Loan (other than Swing Line Loans) or any fee
hereunder, (iii) reduce the amount of any such payment of
principal, (iv) reduce the rate at which interest is payable
thereon or any fee is payable hereunder, (v) alter the rights
or obligations of the Borrowers to prepay Loans, (vi) alter
the terms of this Section 13.04, (vii) modify the definition
of either of the terms "Majority Lenders" or "Required
Lenders" or modify in any other manner the number or
percentage of the Lenders required to make any determinations
or waive any rights hereunder or to modify any provision
hereof, (viii) alter the terms of Section 10, or (ix) alter
the terms of Section 4.02; (b) any modification or supplement
of Section 12 or the imposition of any additional duties or
obligations upon the Agent shall require the consent of the
Agent; and (c) no term or condition relating to the Swing Line
Loans or affecting the rights or duties of the Swing Line
Lender may be amended or waived unless in writing and signed
by the Swing Line Lender; provided that the consent of all of
the Lenders shall be required to extend the date of payment of
any Swing Line Loan beyond the Termination Date.
Any such waiver and any such amendment, supplement
or modification shall apply equally to each of the Lenders and
shall be binding upon the Borrowers, the Lenders, the Agent
and all future holders of the obligations owing hereunder. In
the case of any waiver, the Borrowers, the Lenders and the
Agent shall be restored to their former position and rights
hereunder and under any other Credit Documents, and any
Default or Event of Default waived shall be deemed to be cured
and not continuing; but no such waiver shall extend to any
subsequent or other Default or Event of Default, or impair any
right consequent thereon.
Anything in this Agreement to the contrary
notwithstanding, if at a time when the conditions precedent
set forth in Section 6 to any Syndicated Loan hereunder are,
in the opinion of the Majority Lenders, satisfied, any Lender
shall fail to fulfill its obligations to make such Loan, then,
for so long as such failure shall continue, such Lender shall
be deemed for all purposes relating to amendments,
modifications, waivers or consents under this Agreement or any
of the other Credit Documents (including, without limitation,
under this Section 13.04 and under Section 12.08) to have no
Loans or Commitments, shall not be treated as a "Lender"
hereunder when performing the computation of Majority Lenders,
and shall have no rights under the first paragraph of this
Section 13.04; provided that any action taken by the other
Lenders with respect to the matters referred to in clause (a)
of the first paragraph of this Section 13.04 shall not be
effective as against such Lender unless consented to by such
Lender.
13.05 Successors and Assigns. This Agreement shall
be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns.
13.06 Assignments and Participations.
(a) No Obligor may assign any of its rights or
obligations hereunder or under any other Credit Document
without the prior consent of all of the Lenders and the Agent.
(b) Each Lender may assign any of its Loans, and
its Commitment (but only with the consent of the Borrowers and
the Agent, each such consent not to be unreasonably withheld
or delayed), provided that (i) no such consent by the
Borrowers or the Agent shall be required in the case of any
assignment to another Lender or if the assignee is an
affiliate of the assigning Lender; (ii) any partial assignment
shall be in an amount at least equal to $10,000,000;
(iii) each such assignment by a Lender of its Syndicated Loans
or Commitment shall be made in such manner so that the same
portion of its Syndicated Loans and Commitment is assigned to
the respective assignee and, if Syndicated Loans held by such
Lender are outstanding to more than one Borrower, such
Syndicated Loans shall be assigned to such assignee pro rata
in accordance with the amount thereof outstanding to each such
Borrower and (iv) the parties to each such assignment shall
execute and deliver to the Guarantor, the Borrowers and the
Agent an Assignment and Acceptance. Upon such execution and
delivery of the Assignment and Acceptance, and upon consent
thereto by the Guarantor and the Agent, to the extent required
above, the assignee shall have, to the extent of such
assignment (unless otherwise provided in such assignment with
the consent of the Guarantor and the Agent), the obligations,
rights and benefits of a Lender hereunder holding the
Commitment and Loans (or portions thereof) assigned to it (in
addition to the Commitment and Loans, if any, theretofore held
by such assignee) provided that, with respect to any
Regulatory Change or other event entitling such assignee to
receive any amount pursuant to Section 5.01, 5.05 or 5.06
which Regulatory Change or event has occurred prior to the
date of such assignment, such assignee shall not be entitled
to receive any greater amount with respect to such Regulatory
Change or other event pursuant to Section 5.01, 5.05 or 5.06
than the assigning Lender would have been entitled to receive
in respect of the amount of Loans assigned to such assignee if
such assignment had not occurred. The assigning Lender shall,
to the extent of such assignment, be released from the
Commitment (or portion thereof) so assigned. Upon each such
assignment the assignee Lender or the assignor Lender shall
pay the Agent an assignment fee of $2,500; provided that no
fee shall be payable upon an assignment by a Lender to an
affiliate of such Lender or an assignment or pledge by a
Lender to a Federal Reserve Bank pursuant to Section 13.06(d).
(c) Any Lender may, in the ordinary course of its
commercial banking business and in accordance with applicable
law, at any time sell to one or more banks or other entities
("Participants") participating interests in any Loan owing to
such Lender, any Commitment of such Lender or any other
interest of such Lender hereunder and under the other Credit
Documents, after giving at least 10 days' prior written notice
of such proposed participation (other than a participation to
be sold to an affiliate of such Lender) to the Obligors. In
the event of any such sale by a Lender of a participating
interest to a Participant, such Lender's obligations under
this Agreement to the other parties to this Agreement shall
remain unchanged, such Lender shall remain solely responsible
for the performance thereof, such Lender shall remain the
holder of any such obligation owing to it under this Agreement
for all purposes under this Agreement and the other Credit
Documents, and the Borrowers, the Guarantor and the Agent
shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under
this Agreement and the other Credit Documents. Each Obligor
agrees that if amounts outstanding under this Agreement are
due and payable, or shall have been declared or shall have
become due and payable by such Obligor upon the occurrence of
an Event of Default, each Participant shall, to the maximum
extent permitted by applicable law, be deemed to have the
right of setoff in respect of its participating interest in
amounts owing under this Agreement to the same extent as if
the amount of its participating interest were owing directly
to it as a Lender under this Agreement, provided that, in
purchasing such participating interest, such Participant shall
be deemed to have agreed to share with the Lenders the
proceeds thereof as provided in Section 4.07 as fully as if it
were a Lender hereunder. The Borrowers also agree that each
Participant shall be entitled to the benefits of Sections
5.01, 5.05 and 5.06 with respect to its participation in the
Commitments and the Loans outstanding from time to time as if
it was a Lender; provided that, in the case of Section 5.06,
such Participant shall have complied with the requirements of
said Section and provided, further, that no Participant shall
be entitled to receive any greater amount pursuant to any such
Section than the transferor Lender would have been entitled to
receive in respect of the amount of the participation
transferred by such transferor Lender to such Participant had
no such transfer occurred. In no event shall a Lender that
sells a participation agree with the Participant to take or
refrain from taking any action hereunder or under any other
Credit Document except that such Lender may agree with the
Participant that it will not, without the consent of the
Participant, agree to (i) increase or extend the term, or
extend the time or waive any requirement for the reduction or
termination, of such Lender's related Commitment, (ii) extend
the date fixed for the payment of principal of or interest on
the related Loan or Loans or any portion of any fee hereunder
payable to the Participant, (iii) reduce the amount of any
such payment of principal, (iv) reduce the rate at which
interest is payable thereon, or any fee hereunder payable to
the Participant, to a level below the rate at which the
Participant is entitled to receive such interest or fee,
(v) alter the rights or obligations of the Borrowers to prepay
the related Loans, (vi) release the Guarantor from its
obligations under Section 10 or (vii) change the terms of
Section 4.02.
(d) In addition to the assignments and
participations permitted under the foregoing provisions of
this Section 13.06, any Lender may assign and pledge all or
any portion of its Loans to any Federal Reserve Bank as
collateral security pursuant to Regulation A and any Operating
Circular issued by such Federal Reserve Bank. No such
assignment shall release the assigning Lender from its
obligations hereunder. In order to facilitate such pledge or
assignment, each Borrower hereby agrees that, upon request of
any Lender at any time and from time to time after such
Borrower has made its initial borrowing hereunder, such
Borrower shall provide to such Lender, at such Borrower's own
expense, a promissory note, substantially in the form of
Exhibit F-1 or F-2, as the case may be, evidencing the Loans
owing to such Lender.
(e) A Lender may furnish any information concerning
the Guarantor and any of the Borrowers or any of their
respective Subsidiaries in the possession of such Lender from
time to time to assignees and Participants (including
prospective assignees and Participants), subject, however, to
the provisions of Section 13.06(g).
(f) Anything in this Section 13.06 to the contrary
notwithstanding, no Lender may assign or participate any
interest in any Loan held by it hereunder to a Borrower or any
of its Affiliates or Subsidiaries without the prior written
consent of each Lender.
(g) Each of the Lenders and the Agent agrees (on
behalf of itself and each of its affiliates, directors,
officers, employees and representatives) to use reasonable
precautions to keep confidential, in accordance with their
customary procedures for handling confidential information of
this nature and in accordance with safe and sound Lending
practices and not to disclose to any third party or any
department or personnel of such Lender or the Agent engaged in
a consumer finance business competitive with any Borrower, any
non-public information supplied to it by the Guarantor or any
Borrower pursuant to this Agreement which is identified by the
Guarantor or such Borrower as being confidential at the time
the same is delivered to the Lenders or the Agent, provided
that nothing herein shall limit the disclosure of any such
information (i) to the extent required by statute, rule,
regulation or judicial process, (ii) to counsel for any of the
Lenders or the Agent, (iii) to bank examiners, auditors or
accountants, (iv) to the Agent or any other Lender, (v) in
connection with any litigation to which any one or more of the
Lenders or the Agent is a party, (vi) to any assignee or
Participant (or prospective assignee or Participant) so long
as such assignee or Participant (or prospective assignee or
Participant) consents to the terms of this Section 13.06(g),
(vii) which was in the possession of such Lender or its
affiliates as shown by clear and convincing evidence prior to
the Borrowers furnishing it to such Lender, or (viii) which is
received by such Lender, without restriction as to its
disclosure or use, from a Person who, to such Lender's
knowledge or reasonable belief, was not prohibited from
disclosing it by any duty of confidentiality.
(h) The Agent shall maintain at its address
referred to in Section 13.02 a copy of each Assignment and
Acceptance delivered to it and a register (the "Register") for
the recordation of the names and addresses of the Lenders and
the Commitment of, and principal amount of the Loans owing to,
each Lender from time to time. The entries in the Register
shall be prima facie evidence of the existence and amounts of
the obligations of the Borrowers therein recorded, and the
Guarantor, the Borrowers, the Agent and the Lenders may treat
each Person whose name is recorded in the Register as the
owner of the Loan recorded therein for all purposes of this
Agreement. The Register shall be available for inspection and
copying by the Guarantor, the Borrowers or any Lender at any
reasonable time and from time to time upon reasonable prior
notice.
13.07 Survival. The obligations of the Borrowers
(and of the Guarantor as guarantor) under Sections 5.01, 5.05,
5.06 and 13.03 (subject to the provisions of Section 2.04(c))
and the obligations of the Lenders under Section 12.05 shall
survive the repayment of the Loans and the termination of the
Commitments. In addition, each representation and warranty
made, or deemed to be made by a notice of any extension of
credit, herein or pursuant hereto shall survive the making of
such representation and warranty, and no Lender shall be
deemed to have waived, by reason of making any extension of
credit hereunder, any Default which may arise by reason of
such representation or warranty proving to have been false or
misleading, notwithstanding that such Lender or the Agent may
have had notice or knowledge or reason to believe that such
representation or warranty was false or misleading at the time
such extension of credit was made.
13.08 Captions. The table of contents and captions
and section headings appearing herein are included solely for
convenience of reference and are not intended to affect the
interpretation of any provision of this Agreement.
13.09 Counterparts. This Agreement may be executed
in any number of counterparts, all of which taken together
shall constitute one and the same instrument and any of the
parties hereto may execute this Agreement by signing any such
counterpart.
13.10 Independence of Covenants. All covenants
under this Agreement shall each be given independent effect so
that if a particular action or condition is not permitted by
any such covenant or any exception thereto, the fact that it
would be permitted by another covenant, by an exception
thereto, or be otherwise within the limitations thereof, shall
not avoid the occurrence of a Default or an Event of Default
if such action is taken or condition exists.
13.11 [Reserved].
13.12 Severability Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating
the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
13.13 Integration This Agreement and the other
Credit Documents represent the agreement of the Guarantor, the
Borrowers, the Agent and the Lenders with respect to the
subject matter hereof, and there are no promises,
undertakings, representations or warranties by the Agent or
any Lender relative to the subject matter hereof not expressly
set forth or referred to herein or in the other Credit
Documents.
13.14 Governing Law. THIS AGREEMENT AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH,
THE LAW OF THE STATE OF NEW YORK.
13.15 Submission to Jurisdiction; Waivers. Each of
the Obligors hereby irrevocably and unconditionally:
(a) submits for itself and its property in
any legal action or proceeding relating to this
Agreement and the other Credit Documents to
which it is a party, or for recognition and
enforcement of any judgment in respect thereof,
to the non-exclusive general jurisdiction of
the Courts of the State of New York, the courts
of the United States of America for the
Southern District of New York, and appellate
courts from any thereof;
(b) consents that any such action or
proceeding may be brought in such courts and
waives any objection that it may now or
hereafter have to the venue of any such action
or proceeding in any such court or that such
action or proceeding was brought in an
inconvenient court and agrees not to plead or
claim the same;
(c) agrees that service of process in any
such action or proceeding may be effected by
mailing a copy thereof by registered or
certified mail (or any substantially similar
form of mail), postage prepaid, to such Obligor
at its address set forth below or at such other
address of which the Agent shall have been
notified pursuant thereto; and
(d) agrees that nothing herein shall affect
the right to effect service of process in any
other manner permitted by law or shall limit
the right to sue in any other jurisdiction.
13.16 Waivers of Jury Trial. THE BORROWERS, THE
GUARANTOR, THE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER CREDIT
DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed and delivered as of the day
and year first above written.
FIRST DEPOSIT NATIONAL BANK
By
Name:David J. Petrini
Title: Vice President and
Senior Financial
Officer
Address for Notices:
c/o Providian Bancorp, Inc.
88 Kearny Street, Suite 1900
San Francisco, CA 94108
Attention: Vice President
and Senior Financial
Officer
Telecopier No.:
(415) 398-0731
Telephone No.: (415) 398-2893
PROVIDIAN NATIONAL BANK
(formerly First Deposit National
Credit Card Bank)
By
Name:David J. Petrini
Title: Vice President and
Senior Financial
Officer
Address for Notices:
c/o Providian Bancorp, Inc.
88 Kearny Street, Suite 1900
San Francisco, CA 94108
Attention: Vice President
and Senior Financial
Officer
Telecopier No.:
(415) 398-0731
Telephone No.: (415) 398-2893
PROVIDIAN CREDIT CORPORATION
(formerly Providian National
Credit Corporation)
By
Name:David J. Petrini
Title: Vice President and
Senior Financial
Officer
Address for Notices:
c/o Providian Bancorp, Inc.
88 Kearny Street, Suite 1900
San Francisco, CA 94108
Attention: Vice President
and Senior Financial
Officer
Telecopier No.:
(415) 398-0731
Telephone No.: (415) 398-2893
PROVIDIAN CREDIT SERVICES, INC.
By
Name:David J. Petrini
Title: Vice President and
Senior Financial
Officer
Address for Notices:
c/o Providian Bancorp, Inc.
88 Kearny Street, Suite 1900
San Francisco, CA 94108
Attention: Vice President
and Senior Financial
Officer
Telecopier No.:
(415) 398-0731
Telephone No.: (415) 398-2893
PROVIDIAN BANCORP, INC., as
Guarantor
By
Name:David J. Petrini
Title: Vice President and
Senior Financial
Officer
Address for Notices:
c/o Providian Bancorp, Inc.
88 Kearny Street, Suite 1900
San Francisco, CA 94108
Attention: Vice President
and Senior Financial
Officer
Telecopier No.:
(415) 398-0731
Telephone No.: (415) 398-2893
Commitment [NAME OF LENDER]
By
Name: [Printed]
Title:
Lending Office for Base Rate
Loans:
Lending Office for Loans other
than Base Rate Loans:
Address for Notices:
_____________________________
____
_____________________________
____
Attention:
___________________________
Telex No.:
__________________________
Telecopier No.:
______________________
Telephone No.:
_______________________
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION),
as Agent
By______________________________
___
Name: Dennis L. Cogan
Title: Vice President
Address for Notices to Chase as
Agent:
The Chase Manhattan Bank
(National Association)
4 Chase Metro Tech Center
13th Floor
Brooklyn, New York 11245
Attention: New York Agency
Telex No.: 6720516 (Answerback:
CMBNYAUW)
Telecopier No.: (718)
242-6909/6910
Telephone No.: (718) 242-7945
SCHEDULE I
Subsidiaries
Subsidiaries of Providian Bancorp, Inc.
First Deposit National Bank
Providian National Bank
Providian Credit Corporation
Providian National Bancorp
First Deposit Service Corporation
First Deposit Life Insurance Company
Providian Credit Services, Inc.
Subsidiary of First Deposit National Bank
Winnisquam Community Development Corporation
Subsidiary of Providian National Bancorp
Commonwealth Premium Finance
SCHEDULE II
Existing Liens
None except as permitted by Section 8.08
NA952710.080/2+
FORM OF ASSIGNMENT AND ACCEPTANCE
Dated ________, 19__
Reference is made to the Amended and Restated Credit
Agreement dated as of ____________, 1995 (as amended or
modified from time to time, the "Credit Agreement") among
FIRST DEPOSIT NATIONAL BANK, a national banking association
incorporated, organized and existing under the laws of the
United States of America ("FDNB"), PROVIDIAN NATIONAL BANK, a
national banking association incorporated, organized and
existing under the laws of the United States of America
("PNB"), PROVIDIAN CREDIT CORPORATION, a corporation organized
and existing under the laws of the State of Delaware ("PCC"),
PROVIDIAN CREDIT SERVICES, INC, a corporation organized and
existing under the laws of the State of Utah ("PCSI"; together
with FDNB, PNB and PCC, the "Borrowers"); PROVIDIAN BANCORP,
INC., a corporation organized and existing under the laws of
the State of Delaware (the "Guarantor"; together with the
Borrowers, the "Obligors"); the banks and financial
institutions listed on the signature pages thereof under the
caption "LENDERS" or which, pursuant to Section 2.12, 2.13 or
13.06(b) thereof, shall become a "Lender" thereunder
(individually, a "Lender" and, collectively, the "Lenders");
and THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), a
national banking association, as administrative agent for the
Lenders (in such capacity, together with any successor
appointed pursuant to Section 12.08 thereof, the "Agent").
Terms defined in the Credit Agreement and not
otherwise defined herein are used herein as therein defined.
________________ (the "Assignor") and
_______________ (the "Assignee") agree as follows:
1. The Assignor hereby sells and assigns to the
Assignee, without recourse and the Assignee hereby purchases
and assumes from the Assignor, that portion of the Assignor's
rights and obligations under the Credit Agreement as of the
date hereof (other than in respect of Competitive Bid Option
Loans) specified in Section 1 of Schedule 1 hereto. Such
portion of the Assignor's Commitment and of outstanding
Syndicated Loans owing to the Assignor being purchased and
assumed by Assignee constitutes the percentage interest
specified in Section 2 of Schedule 1 hereto in and to the
aggregate Commitments of all of the Lenders and the aggregate
principal amount of all of the Syndicated Loans outstanding.
2. The Assignor (i) represents and warrants that
as of the date hereof its Commitment (after giving effect to
any assignments thereof made prior to the date hereof, whether
or not such assignments have become effective, but without
giving effect hereto or to any other assignments thereof also
made on the date hereof) is in the dollar amount specified as
the Assignor's Commitment in Section 3 of Schedule 1 hereto
and the aggregate outstanding principal amount of Syndicated
Loans owing to it (after giving effect to any assignments
thereof made prior to the date hereof, whether or not such
assignments have become effective, but without giving effect
hereto or to any other assignments thereof also made on the
date hereof) is in the dollar amount specified as the
aggregate outstanding principal amount of such Loans owing to
the Assignor in Section 3 of Schedule l hereto; (ii)
represents and warrants that as of the date hereof its
Commitment and the aggregate outstanding principal amount of
Syndicated Loans owing to Assignor (after giving effect to any
assignments thereof made prior to the date hereof, whether or
not such assignments have become effective, and giving effect
hereto or to any other assignments thereof also made on the
date hereof) constitutes the percentage interest specified in
Section 4 of Schedule 1 hereto in and to the aggregate
Commitments of all of the Lenders and the aggregate principal
amount of all Syndicated Loans outstanding and its Commitment
(after giving effect to any assignments thereof made prior to
the date hereof, whether or not such assignments have become
effective, and giving effect hereto or to any other
assignments thereof also made on the date hereof) is in the
dollar amount specified as the Assignor's Commitment in
Section 4 of Schedule 1 hereto and the aggregate outstanding
principal amount of Syndicated Loans owing to it (after giving
effect to any assignments thereof made prior to the date
hereof, whether or not such assignments have become effective,
and giving effect hereto or to any other assignments thereof
also made on the date hereof) is in the dollar amount
specified as the aggregate outstanding principal amount of
such Loans owing to the Assignor in Section 4 of Schedule 1
hereto; (iii) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it
hereunder and that such interest is free and clear of any
adverse claim; (iv) makes no representation or warranty and
assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with
any Credit Document or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of any of
the Credit Documents or any other instrument or document
furnished pursuant thereto; and (v) makes no representation or
warranty and assumes no responsibility with respect to the
financial condition of any of the Borrowers or any other
Obligor or the performance or observance by any of the
Borrowers or any other Obligor of any of its obligations under
any Credit Document to which it is a party or any other
instrument or document furnished pursuant thereto.
3. The Assignee (i) confirms that it has received
a copy of the Credit Agreement, together with copies of the
financial statements referred to in Section 7.01 thereof or
the financial statements most recently delivered by the
Borrowers and the Guarantor pursuant to Section 8.01 thereof
and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to
enter into this Assignment and Acceptance; (ii) agrees that it
will, independently and without reliance upon the Agent, the
Assignor or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue
to make its own credit decisions in taking or not taking
action under the Credit Documents; (iii) appoints and
authorizes the Agent to take such action as agent on its
behalf and to exercise such powers under the Credit Documents
as are delegated to the Agent by the terms thereof, together
with such powers as are reasonably incidental thereto; (iv)
agrees to be bound by the provisions of the Credit Agreement
and agrees that it will perform in accordance with their terms
all of the obligations which by the terms of the Credit
Documents are required to be performed by it as a Lender; (v)
specifies as its Applicable Lending Offices (and address for
notices) the office(s) set forth beneath its name on the
signature page hereof; and (vi) attaches the forms prescribed
by the Internal Revenue Service of the United States
certifying as to the Assignee's status for purposes of
determining exemption from United States withholding taxes
with respect to all payments to be made to the Assignee under
the Credit Documents or such other documents as are necessary
to indicate that all such payments are subject to such rates
at a rate reduced by an applicable tax treaty.1
4. Following the execution of this Assignment and
Acceptance by the Assignor and the Assignee, it will be
delivered to the Borrowers and the Agent for acceptance,
together with payment to the Agent of the $2,500 assignment
fee; provided that no fee shall be payable upon an assignment
by a Lender to an Affiliate of such Lender or upon an
assignment or pledge by a Lender to a Federal Reserve Bank
pursuant to Section 13.06(d) of the Credit Agreement. The
effective date of this Assignment and Acceptance shall be the
date of acceptance thereof by the Agent and the Borrowers or
such later date specified on Schedule 1 hereto (the "Effective
Date").
5. Upon such acceptance and recording by the
Agent, as of the Effective Date, (i) the Assignee shall be a
party to the Credit Agreement and, to the extent provided in
this Assignment and Acceptance, have the rights and
obligations of a Lender thereunder and under the Credit
Documents and (ii) the Assignor shall, to the extent provided
in this Assignment and Acceptance, relinquish its rights and
be released from its obligations under the Credit Documents.
6. Upon such acceptance and recording by the
Agent, from and after the Effective Date, the Agent shall make
all payments under the Credit Documents in respect of the
interest assigned hereby (including, without limitation, all
payments of principal, interest and commitment fees with
respect thereto) to the Assignee. The Assignor and Assignee
shall make all appropriate adjustments in payments under the
Credit Documents for periods prior to the Effective Date
directly between themselves.
7. This Assignment and Acceptance shall be
governed by, and construed in accordance with, the laws of the
State of New York.
IN WITNESS WHEREOF, the parties hereto have caused
this Assignment and Acceptance to be executed by their
respective officers thereunto duly authorized, as of the date
first above written, such execution being made on Schedule 1
hereto.
Schedule 1
to
Assignment and Acceptance
Dated _______________, 199___
Section 1.
Assignee's purchased portion of
Assignor's (i) Commitment and
(ii) outstanding Syndicated Loans
owing to the Assignor: (i) $___
(ii) $___
Section 2.
Assignee's percentage interest in
aggregate Commitments of all Lenders
and in aggregate principal amount
of Syndicated Loans outstanding
(after giving effect hereto): ____%
Section 3.
Assignor's Commitment
(before giving effect hereto): $___
Aggregate outstanding principal
amount of Syndicated Loans
owing to the Assignor
(before giving effect hereto): $___
Section 4.
Assignor's percentage interest in
aggregate Commitments of all
Lenders and in aggregate
principal amount of Syndicated
Loans outstanding (after
giving effect hereto): ____%
Assignor's Commitment
(after giving effect hereto): $___
Aggregate outstanding principal amount
of Syndicated Loans owing to
the Assignor (after giving effect hereto): $___
Section 5.
Effective Date2: ___________________, 199_
[NAME OF ASSIGNOR]
By:________________________
_____
Title:
[NAME OF ASSIGNEE]
By:________________________
______
Title:
Accepted this day Lending Office for Base
Rate Loans:
of ___________, 199__ [Address]
THE CHASE MANHATTAN BANK Lending Office for other
(National Association), Types of Loans:
as Administrative Agent [Address]
By:__________________________ Address for Notices
Title: [Address]
Accepted this ___________ day of _________, 199__3:
PROVIDIAN BANCORP, INC.,
as Guarantor
By:__________________________
Title:
FIRST DEPOSIT NATIONAL BANK
By:__________________________
Title:
PROVIDIAN NATIONAL BANK
By:__________________________
Title:
PROVIDIAN CREDIT CORPORATION
By:__________________________
Title:
PROVIDIAN CREDIT SERVICES, INC.
By:__________________________
Title:
NA952610.063/2+
FORM OF CBO QUOTE REQUEST
[Date]
To: The Chase Manhattan Bank (National Association), as
Agent
From: [Borrower]
Re: CBO Quote Request
Pursuant to Section 2.03 (b) of the Amended and
Restated Credit Agreement dated as of ____________, 1995 (the
"Credit Agreement") among the undersigned, the other Borrowers
party thereto, Providian Bancorp, Inc., as Guarantor, the
Lenders named therein, and The Chase Manhattan Bank (National
Association), as Administrative Agent, we hereby give notice
that we request CBO Quotes for the following proposed
Competitive Bid Option Borrowing(s):
Borrowing Quotation Interest
Date Date[*1] Amount[*2] Type[*3] Period[*4]
[Pursuant to Section 4.03 of the Credit Agreement,
interest on a Set Rate Loan with an Interest Period of 270
days or more shall be computed on the basis of a 360-day year
consisting of twelve 30-day months.] [*5]
Terms used herein have the meanings assigned to them
in the Credit Agreement.
[NAME OF BORROWER]
By:
Name:
Title:
____________________
[1] For use if a Set Rate in a Set Rate Auction is requested
to be submitted before the proposed date of borrowing.
[2] Each amount must be $5,000,000 or a larger multiple of
$1,000,000.
[3] Insert either "LIBO Margin" (in the case of LIBOR Market
Loans) or "Set Rate" (in the case of Set Rate Loans).
[4] A whole number of months, in the case of a LIBOR Market
Loan or, in the case of a Set Rate Loan, a period of at
least 7 days after the making of such Set Rate Loan and
ending on a Business Day.
[5] Insert if Set Rate Loans with an Interest Period of 270
days or more are requested.
NA952610.064/1+
FORM OF CBO QUOTE
To: The Chase Manhattan Bank (National Association), as
Agent
Attention:
Re: CBO Quote to
[Borrower] (the "Borrower")
This CBO Quote is given in accordance with
Section 2.03(c) of the Amended and Restated Credit Agreement
dated as of ___________, 1995 (the "Credit Agreement") among
[Name of Borrower], the other Borrowers party thereto,
Providian Bancorp, Inc., as Guarantor, the Lenders named
therein and The Chase Manhattan Bank (National Association),
as Administrative Agent. Terms defined in the Credit
Agreement are used herein as defined therein.
In response to the Borrower's invitation dated
__________, 199__ ,we hereby make the following CBO Quote(s)
on the following terms:
l. Quoting Lender:
2. Person to contact at Quoting Lender:
3. We hereby offer to make Competitive Bid Option
Loan(s) in the following principal amount[s], for the
following Interest Period(s) and at the following
rate(s):
Borrowin Quotatio Interest
g n Amount[* Type[*3] Period[* Rate[*5]
Date Date[*1] 2] 4]
[Pursuant to Section 4.03 of the Credit Agreement,
interest on a Set Rate Loan with an Interest Period of 270
days or more shall be computed on the basis of a 360-day year
consisting of twelve 30-day months.] [*6]
We understand and agree that the offer(s) set forth
above, subject to the satisfaction of the applicable
conditions set forth in the Credit Agreement, irrevocably
obligate[s] us to make the Competitive Bid Option Loan(s) for
which any offer(s) (is/are) accepted, in whole or in part
(subject to Section 2.03 of the Credit Agreement).
Very truly yours,
[NAME OF LENDER]
By:
Authorized Officer
Dated: _____________________
___________________________
[1] As specified in the related CBO Quote Request.
[2] The principal amount bid for each Interest Period may not
exceed the principal amount requested. Bids must be made
for at least $5,000,000 or a larger multiple of
$1,000,000.
[3] Indicate "LIBO Margin" (in the case of LIBOR Market
Loans) or "Set Rate" (in the case of Set Rate Loans).
[4] A whole number of months, in the case of a LIBOR Market
Loan or, in the case of a Set Rate Loan, a period of at
least 7 days after the making of such Set Rate Loan and
ending on a Business Day, as specified in the related CBO
Quote Request.
[5] For a LIBOR Market Loan, specify margin over or under the
LIBO Rate determined for the applicable Interest Period.
Specify percentage (rounded, if necessary, to the nearest
1/10,000th of 1%) and specify whether "PLUS" or "MINUS".
For a Set Rate Loan, specify rate of interest per annum
(rounded, if necessary, to the nearest 1/10,000th of 1%).
[6] Insert if Set Rate Loans with an Interest Period of 270
days or more were requested.
FORM OF NOTICE OF BORROWING
OF COMPETITIVE BID OPTION LOANS
[Date]
TO: The Chase Manhattan Bank (National Association), as
Administrative Agent
FROM: [Name of Borrower]
RE: Notice of Borrowing of Competitive Bid Option Loans
The undersigned refers to the Amended and Restated
Credit Agreement, dated as of ___________, 1995 (the
"Credit Agreement"; terms defined therein being used
herein as therein defined) among [Name of Borrower], the
other Borrowers party thereto, Providian Bancorp, Inc.,
as Guarantor, the Lenders party thereto and The Chase
Manhattan Bank (National Association), as Administrative
Agent; and hereby gives you notice, irrevocably, pursuant
to and in accordance with Section 2.03(e) of the Credit
Agreement, that the undersigned hereby accepts the
following offers notified to the undersigned pursuant to
Section 2.03(d), in an aggregate principal amount of
$____________, in respect of the CBO Quote Request dated
_________, 199_ delivered by the undersigned to the Agent
pursuant to Section 2.03(b):
Borrowi Quotati Interes
Lender ng on Amount Type t Rate
Date Date Period
[Pursuant to Section 4.03 of the Credit Agreement,
interest on a Set Rate Loan with an Interest Period of 270
days or more shall be computed on the basis of a 360-day year
consisting of twelve 30-day months.] [*1]
The undersigned hereby certifies that the following
statements will be true on the date[s] set forth under the
caption "Borrowing Date" above:
(A) the representations and warranties made by the
undersigned and the Guarantor in Section 7 of the Credit
Agreement and in each of the other Credit Documents to
which it is a party are true and complete before and
after giving effect to the Competitive Bid Option Loans
specified above, with the same force and effect as if
made on and as of such date (or, if any such
representation or warranty is expressly stated to have
been made as of a specific date, as of such specific
date); and
(B) no Default or Event of Default with respect to
the undersigned or the Guarantor has occurred and is
continuing, or would result from the making of such
Competitive Bid Option Loans.
Very truly yours,
[NAME OF BORROWER]
By:____________________________
Title:
FORM OF NOTICE OF BORROWING
OF SYNDICATED LOANS
[Date]
TO: The Chase Manhattan Bank (National Association), as
Administrative Agent
FROM: [Name of Borrower] (the "Borrower")
RE: Notice of Borrowing of Syndicated Loans
The undersigned refers to the Amended and Restated
Credit Agreement, dated as of ________________, 1995 (the
"Credit Agreement"; terms defined therein being used herein as
therein defined) among the undersigned, the other Borrowers
party thereto, Providian Bancorp, Inc., as Guarantor, the
Lenders party thereto, and The Chase Manhattan Bank (National
Association), as Administrative Agent; and hereby gives you
notice, irrevocably, pursuant to Section 4.05 of the Credit
Agreement, that the undersigned hereby requests a borrowing or
borrowings of Syndicated Loans under the Credit Agreement, and
in connection therewith sets forth below the information
relating to such borrowing or borrowings (the "Proposed
Borrowing") as required by Section 4.05 of the Credit
Agreement:
(i) The Business Day of the Proposed Borrowing is
__________, 199_.
(ii) The aggregate amount of the Proposed Borrowing is
$_______4 [which shall be comprised of Loans of $________
("Borrowing 1") and $________ ("Borrowing 2")].5
(iii) The Loans comprising the Proposed Borrowing are
[Base Rate Loans] [Eurodollar Loans].
6(iv) The Interest Period for each Eurodollar Loan made
as part of the Proposed Borrowing is _____ month[s]7
[with respect to Borrowing 1 and _____ month[s] with
respect to Borrowing 2].
The undersigned hereby certifies that the following
statements will be true on the date of the Proposed Borrowing:
(A) the representations and warranties made by the
undersigned and the Guarantor in Section 7 of the Credit
Agreement and in each of the other Credit Documents to
which it is a party are true and complete before and
after giving effect to the Proposed Borrowing, with the
same force and effect as if made on and as of such date
(or, if any such representation or warranty is expressly
stated to have been made as of a specific date, as of
such specific date);
(B) no Default or Event of Default with respect to
the undersigned or the Guarantor has occurred and is
continuing, or would result from such Proposed Borrowing.
Very truly yours,
[NAME OF BORROWER]
By:
Title:
FORM OF NOTICE OF BORROWING
OF SWING LINE LOANS
[Date]
TO: The Chase Manhattan Bank (National Association), as
Administrative Agent
FROM: [Name of Borrower]
RE: Notice of Borrowing of Swing Line Loans
The undersigned refers to the Amended and Restated
Credit Agreement, dated as of __, 1995 (the "Credit
Agreement"; terms defined therein being used herein as therein
defined) among the undersigned, the other Borrowers party
thereto, Providian Bancorp, Inc., as Guarantor, the Lenders
party thereto, and The Chase Manhattan Bank (National
Association), as Administrative Agent; and hereby gives you
notice, irrevocably, pursuant to Section 2.04 of the Credit
Agreement, that the undersigned hereby requests a borrowing of
Swing Line Loans under the Credit Agreement, and in connection
therewith sets forth below the information relating to such
borrowing (the "Proposed Borrowing") as required by Section
2.04 of the Credit Agreement:
(i) The Proposed Borrowing is requested from The
Chase Manhattan Bank (National Association).
(ii) The Business Day of the Proposed Borrowing is
______ 199_.
(ii) The aggregate amount of the Proposed Borrowing
is $_____.
(iii) The Loans comprising the Proposed
Borrowing will bear interest at the [Swing Line Base Rate]
[Swing Line Money Market Rate].
The undersigned hereby certifies that the following
statements will be true on the date of the Proposed Borrowing:
(A) the representations and warranties made by the
undersigned and the Guarantor in Section 7 of the Credit
Agreement and in each of the other Credit Documents to
which it is a party are true and complete before and
after giving effect to the Proposed Borrowing, with the
same force and effect as if made on and as of such date
(or, if any such representation or warranty is expressly
stated to have been made as of a specific date, as of
such specific date);
(B) no Default or Event of Default with respect to
the undersigned or the Guarantor has occurred and is
continuing, or would result from such Proposed Borrowing.
Very truly yours,
[NAME OF BORROWER]
By:
_____________________________
Name:
Title:
October __, 1995
The Chase Manhattan Bank (National
Association), as Administrative Agent,
and the Lenders party to the Credit
Agreement (as hereinafter defined)
Re: Amended and Restated Credit
Agreement
Ladies and Gentlemen:
I have acted as in-house counsel for Providian
Bancorp, Inc., a Delaware corporation ("PBI"), First Deposit
National Bank, a national banking association ("FDNB"),
Providian National Bank, a national banking association
("PNB"), Providian Credit Corporation, a Delaware corporation
("PCC"), and Providian Credit Services, Inc., a Utah
corporation ("PCSI"), in connection with the Amended and
Restated Credit Agreement dated as of October __, 1995 (the
"Credit Agreement") among FDNB, PNB, PCC and PCSI, as
borrowers (collectively, the "Borrowers"), PBI, as guarantor
(the "Guarantor" and, together with the Borrowers, the
"Obligors"), the lenders party thereto from time to time (the
"Lenders") and The Chase Manhattan Bank (National
Association), as administrative agent for the Lenders (in such
capacity, the "Agent"). All capitalized terms used but not
defined herein have the respective meanings given to such
terms in the Credit Agreement.
This opinion is being furnished to you pursuant
to Section 6.01(a)(iii) of the Credit Agreement.
For purposes of rendering this opinion, I have
examined originals or copies identified to my satisfaction of
the following documents:
(a) the Credit Agreement,
including the Exhibits and
Schedules thereto;
(b) the Fee Letter; and
(c) the articles of
association, articles of
incorporation or certificate of
incorporation, as the case may
be, and by-laws, each as amended
to the date hereof, of each of
the Obligors.
The documents referred to in items (a) and (b)
above are sometimes referred to herein as the "Credit
Documents."
In addition, I have made such inquiries and
investigations and examined such corporate records of the
Obligors as I have deemed necessary to render the opinions set
forth herein.
As used herein, the phrase "to my knowledge"
refers to my actual knowledge based on my review of the
documents listed above and the information, inquiries and
investigations described herein and no others.
For purposes of this opinion, I have assumed
(i) the due authorization, execution and delivery of the
Credit Documents by each of the Lenders and the Agent, as
applicable; (ii) that each such Lender and the Agent have the
legal power to act in the capacities in which they are to act
under the Credit Documents; (iii) the conformity to the
original documents of any documents submitted to me as
certified or photostatic copies, the authenticity of such
documents and the genuineness of all signatures on such
documents; (iv) that each of the Credit Documents is the
legal, valid and binding obligation of each of the Lenders and
the Agent, as applicable, enforceable against each such party
in accordance with its terms; and (v) that each of the Lenders
and the Agent has performed and will perform its obligations
thereunder.
Based upon the foregoing, and subject to the
qualifications, limitations and assumptions hereinafter set
forth, I am of the opinion that:
1. Each of the Guarantor and PCC is a
corporation validly existing and in good standing under the
laws of the State of Delaware. PCSI is a corporation validly
existing and in good standing under the laws of the State of
Utah. Each of FDNB and PNB is a national banking association
validly existing and in good standing under the laws of the
United States of America.
2. Each of the Obligors has all requisite
corporate power and authority to own and operate its
properties, to conduct its business in the manner in which it
presently is conducted and to execute, deliver and perform its
obligations under each of the Credit Documents to which it is
a party.
3. Each of the Credit Documents to which an
Obligor is a party has been duly authorized by all necessary
corporate action on the part of such Obligor.
4. Neither the execution and delivery by any
Obligor of the Credit Documents to which it is a party nor the
performance by such Obligor of its obligations thereunder
constitutes or will result in a breach of such Obligor's
charter or by-laws or, to my knowledge, any order of any court
or governmental authority having jurisdiction over such
Obligor or constitutes a violation of any applicable federal
law, law of the State of California or the General Corporation
Law of the State of Delaware. Neither the execution and
delivery by any Obligor of the Credit Documents to which it is
a party nor the performance by such Obligor of its obligations
thereunder will conflict with, or result in any material
breach of, or constitute a default under, or result in the
creation or imposition of any lien upon any property or assets
of such Obligor pursuant to, or require any consent not
obtained under, any indenture, mortgage, deed of trust,
agreement or other instrument to which such Obligor is a party
or by which it or any of its property or assets are bound or
to which it is subject, which conflict, breach or default, or
lien created or imposed, or the failure to obtain such
consent, would have a material adverse effect on the financial
condition of such Obligor and its Subsidiaries taken as a
whole or the ability of such Obligor to perform its
obligations under the Credit Documents to which it is a party.
5. Except as disclosed in the Credit
Agreement or in any Schedule or Exhibit thereto, to my
knowledge there is pending or threatened no action, suit or
proceeding or governmental investigation, or any order, writ,
injunction or decree, against any Obligor before or by any
court, arbitrator or governmental or administrative body that
challenges the validity or enforceability of any of the Credit
Documents or the transactions contemplated thereby or that
restrains, prevents or imposes material adverse conditions
upon, or seeks to restrain, prevent or impose material adverse
conditions upon, any such transaction or in which there is a
reasonable probability of an adverse decision against such
Obligor and which, if adversely determined, would reasonably
be expected to have a material adverse effect on the financial
condition of such Obligor and its Subsidiaries taken as a
whole or the ability of such Obligor to perform its
obligations under the Credit Documents to which it is a party.
6. None of the Obligors is an "investment
company" or a person directly or indirectly controlled by an
"investment company" within the meaning of the Investment
Company Act of 1940, as amended. None of the Obligors is a
"holding company", or an "affiliate" of a "holding company" or
a "subsidiary company" of a "holding company", within the
meaning of the Public Utility Holding Company Act of 1935, as
amended.
7. Neither the making of any Loans pursuant
to, nor application of the proceeds thereof in accordance
with, the Credit Agreement will violate Regulation U or X
promulgated by the Board of Governors of the Federal Reserve
System.
The foregoing opinions are subject to the
following qualifications, limitations and assumptions:
A. I render no opinion herein as to matters
involving the laws of any jurisdiction other than the State of
California, the General Corporation Law of the State of
Delaware, the United States of America and, subject to the
limitations set forth in paragraph B below, the Business
Corporation Law of the State of Utah. This opinion is limited
to the effect of the present state of such laws, as applied to
the facts on which I have relied (as set forth above), in
existence on the date hereof. I express no opinion as to the
laws of any other time or jurisdiction or the applicability of
the laws of any particular jurisdiction. I assume no
obligation to revise or supplement this opinion in the event
of future changes in such laws or the interpretations thereof
or such facts, and I assume no responsibility to advise you of
any such changes.
B. Insofar as the opinions regarding PCSI
expressed in paragraphs 1, 2 and 3 above involve the laws of
the State of Utah, I have relied, with your consent, solely on
the opinion of Van Cott, Bagley, Cornwall & McCarthy dated the
date hereof, a copy of which is being concurrently delivered
to you, and I have made no independent examination of the laws
of such jurisdiction. In connection with the above opinions
regarding PCSI, I note that PCSI, which has an application for
deposit insurance pending before the Federal Deposit Insurance
Corporation, is not currently an Insured Depository
Institution, and that PCSI will not have authority to accept
insured deposits and conduct certain lending activities until
such time as it becomes an Insured Depository Institution.
C. This opinion is delivered solely for your
benefit in connection with the Credit Agreement and may not be
relied upon by any person other than the Agent and the Lenders
(including any Lender becoming a party to the Credit Agreement
after the date hereof pursuant to the terms of the Credit
Agreement) or by the Agent or the Lenders in any other
context, nor may this opinion be used, circulated, published,
communicated or otherwise referred to or made available to any
other Person except that the Agent and the Lenders may provide
this opinion (i) to bank examiners and other regulatory
authorities should they so request or in connection with their
normal examinations, (ii) to the independent auditors and
attorneys of the Agent and the Lenders, (iii) pursuant to
order or legal process of any court or governmental agency,
(iv) in connection with any legal action to which the Agent or
any Lender is a party arising out of the transactions
contemplated by the Credit Agreement or (v) to any permitted
prospective transferee (including any prospective Participant)
of the Loans or Commitments. This opinion may not be quoted
without my prior written consent.
Very truly yours,
Mary Ellen Richey
General Counsel
[TO COME]
[FORM OF SYNDICATED NOTE]
PROMISSORY NOTE
$_______________ [__________ , 1995]
New York, New York
FOR VALUE RECEIVED, [NAME OF BORROWER], [a national
banking association incorporated, organized and existing under
the laws of the United States of America] [a Delaware
corporation ] [a Utah corporation] (the "Borrower"), hereby
promises to pay to the order of _____________ (the "Lender"),
for the account of its respective Applicable Lending Offices
provided for in the Credit Agreement referred to below, at the
principal office of The Chase Manhattan Bank (National
Association) at 1 Chase Manhattan Plaza, New York, New York
10081, the principal sum of Dollars (or
such lesser amount as shall equal the aggregate unpaid
principal amount of the Syndicated Loans made by the Lender to
the Borrower under the Credit Agreement), in lawful money of
the United States of America and in immediately available
funds, on the dates and in the principal amounts provided in
the Credit Agreement, and to pay interest on the unpaid
principal amount of each such Syndicated Loan, at such office,
in like money and funds, for the period commencing on the date
of such Syndicated Loan until such Syndicated Loan shall be
paid in full, at the rates per annum and on the dates provided
in the Credit Agreement.
The date, amount, Type, interest rate and duration
of Interest Period (if applicable) of each Syndicated Loan
made by the Lender to the Borrower, and each payment made on
account of the principal thereof, shall be recorded by the
Lender on its books and, prior to any transfer of this Note,
endorsed by the Lender on the schedule attached hereto or any
continuation thereof, each of which recordations or
endorsements shall constitute prima facie evidence of the
matters set forth therein; provided that the failure of the
Lender to make any such recordation or endorsement shall not
affect the obligations of the Borrower to make a payment when
due of any amount owing under the Credit Agreement or
hereunder in respect of the Syndicated Loans made by the
Lender.
This Note is one of the promissory notes referred to
in Section 13.06(d) of the Amended and Restated Credit
Agreement dated as of ______________ __, 1995 (as modified and
supplemented and in effect from time to time, the "Credit
Agreement") among the Borrower, the other Borrowers party
thereto, Providian Bancorp, Inc., as Guarantor, the Lenders
named therein and The Chase Manhattan Bank (National
Association), as Administrative Agent, and evidences
Syndicated Loans made by the Lender thereunder. Terms used
but not defined in this Note have the respective meanings
assigned to them in the Credit Agreement.
The Credit Agreement provides for the acceleration
of the maturity of this Note upon the occurrence of certain
events and for prepayments of Loans upon the terms and
conditions specified therein.
Except as permitted by Section 13.06 of the Credit
Agreement, this Note may not be assigned by the Lender to any
other Person.
The Borrower hereby waives diligence, presentment,
protest, demand and notice of every kind.
This Note shall be governed by, and construed in
accordance with, the law of the State of New York.
[NAME OF BORROWER]
By_______________________
Title:
SCHEDULE OF SYNDICATED LOANS
This Note evidences Syndicated Loans made, Continued
or Converted under the within-described Credit Agreement to
the Borrower, on the dates, in the principal amounts, of the
Types, bearing interest at the rates and having Interest
Periods (if applicable) of the durations set forth below,
subject to the payments, Continuations, Conversions and
prepayments of principal set forth below:
Amount
Paid,
Date Durati Prepaid
Made, Princip on , Unpaid
Continued al Type Intere of Continu Princip Notatio
or Amount of st Intere ed al n
Converted of Loan Rate st or Amount Made by
Loan Period Convert
ed
[FORM OF COMPETITIVE BID OPTION NOTE]
PROMISSORY NOTE
[_____________, 1995]
New York, New York
FOR VALUE RECEIVED, [NAME OF BORROWER], [a national
banking association incorporated, organized and existing under
the laws of the United States of America] [a Delaware
corporation] [a Utah corporation] (the "Borrower"), hereby
promises to pay to the order of_____________ (the "Lender"),
for the account of its respective Applicable Lending Offices
provided for in the Credit Agreement referred to below, at the
principal office of The Chase Manhattan Bank (National
Association) at 1 Chase Manhattan Plaza, New York, New York
10081, the aggregate unpaid principal amount of the
Competitive Bid Option Loans made by the Lender to the
Borrower under the Credit Agreement, in lawful money of the
United States of America and in immediately available funds,
on the dates and in the principal amounts provided in the
Credit Agreement, and to pay interest on the unpaid principal
amount of each such Competitive Bid Option Loan, at such
office, in like money and funds, for the period commencing on
the date of such Competitive Bid Option Loan until such
Competitive Bid Option Loan shall be paid in full, at the
rates per annum and on the dates provided in the Credit
Agreement.
The date, amount, Type, interest rate and maturity
date of each Competitive Bid Option Loan made by the Lender to
the Borrower, and each payment made on account of the
principal thereof, shall be recorded by the Lender on its
books and, prior to any transfer of this Note, endorsed by the
Lender on the schedule attached hereto or any continuation
thereof, each of which recordations or endorsements shall
constitute prima facie evidence of the matters set forth
therein; provided that the failure of the Lender to make any
such recordation or endorsement shall not affect the
obligations of the Borrower to make a payment when due of any
amount owing under the Credit Agreement or hereunder in
respect of the Competitive Bid Option Loans made by the
Lender.
This Note is one of the promissory notes referred to
in Section 13.06(d) of the Amended and Restated Credit
Agreement dated as of __, 1995 (as modified and supplemented
and in effect from time to time, the "Credit Agreement") among
the Borrower, the other Borrowers party thereto, Providian
Bancorp, Inc., as Guarantor, the Lenders named therein
(including the Lender) and The Chase Manhattan Bank (National
Association), as Administrative Agent, and evidences
Competitive Bid Option Loans made by the Lender thereunder.
Terms used but not defined in this Note have the respective
meanings assigned to them in the Credit Agreement.
The Credit Agreement provides for the acceleration
of the maturity of this Note upon the occurrence of certain
events and for prepayments of Loans upon the terms and
conditions specified therein.
Except as permitted by Section 13.06 of the Credit
Agreement, this Note may not be assigned by the Lender to any
other Person.
The Borrower hereby waives diligence, presentment,
protest, demand and notice of every kind.
This Note shall be governed by, and construed in
accordance with, the law of the State of New York.
[NAME OF BORROWER]
By_______________________
Title:
SCHEDULE OF LOANS
This Note evidences Competitive Bid Option Loans
made under the within-described Credit Agreement to the
Borrower, on the dates, in the principal amounts, of the
Types, bearing interest at the rates and maturing on the dates
set forth below, subject to the payments and prepayments of
principal set forth below:
Princip Maturi Amount Unpaid
Date of al Type Intere ty Paid or Princip Notatio
Loan Amount of st Date Prepaid al n
of Loan Rate of Amount Made by
Loan Loan
ADDITIONAL LENDER ADDENDUM
ADDENDUM, dated _____________________, to the
Amended and Restated Credit Agreement dated as of
____________, 1995 (as amended or modified from time to time,
the "Credit Agreement") among FIRST DEPOSIT NATIONAL BANK, a
national banking association incorporated, organized and
existing under the laws of the United States of America
("FDNB"), PROVIDIAN NATIONAL BANK, a national banking
association incorporated, organized and existing under the
laws of the United States of America ("PNB"), PROVIDIAN CREDIT
CORPORATION, a corporation organized and existing under the
laws of the State of Delaware ("PCC"), PROVIDIAN CREDIT
SERVICES, INC., a corporation organized and existing under the
laws of the State of Utah ("PCSI"; together with FDNB, PNB and
PCC, the "Borrowers"); PROVIDIAN BANCORP, INC., a corporation
organized and existing under the laws of the State of Delaware
(the "Guarantor"; together with the Borrowers, the
"Obligors"); the banks and financial institutions listed on
the signature pages thereof under the caption "LENDERS" or
which, pursuant to Section 2.12, 2.13 or 13.06(b) thereof,
shall become a "Lender" thereunder (individually, a "Lender"
and, collectively, the "Lenders"); and THE CHASE MANHATTAN
BANK (NATIONAL ASSOCIATION), a national banking association,
as administrative agent for the Company (in such capacity,
together with any successor appointed pursuant to
Section 12.08 thereof, the "Agent").
W I T N E S S E T H :
WHEREAS, the Credit Agreement provides that a
financial institution; although not originally a party
thereto, may become a party to the Credit Agreement with the
consent of the Borrowers by executing and delivering to the
Obligors and the Agent an addendum to the Credit Agreement in
substantially the form of this Addendum; and
WHEREAS, the undersigned was not an original party
to the Credit Agreement but now desires to become a party
thereto;
NOW, THEREFORE, the undersigned hereby agrees as
follows:
1. The undersigned (i) confirms that it has
received a copy of the Credit Agreement, together with copies
of the financial statements referred to in Section 7.01
thereof or the financial statements most recently delivered by
the Borrowers and the Guarantor pursuant to Section 8.01
thereof and such other documents and information as it has
deemed appropriate to make its own credit analysis and
decision to become a Lender; (ii) agrees that it will,
independently and without reliance upon the Agent or any other
Lender and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under the Credit
Documents; (iii) appoints and authorizes the Agent to take
such action as agent on its behalf and to exercise such powers
under the Credit Documents as are delegated to the Agent by
the terms thereof, together with such powers as are reasonably
incidental thereto; (iv) agrees to be bound by the provisions
of the Credit Agreement and agrees that it will perform in
accordance with their terms all of the obligations which by
the terms of the Credit Documents are required to be performed
by it as a Lender; (v) specifies as its Applicable Lending
Offices (and address for notices) the office(s) set forth
beneath its name on the signature page hereof; (vi) attaches
the forms prescribed by the Internal Revenue Service of the
United States certifying as to the status of the undersigned
for purposes of determining exemption from United States
withholding taxes with respect to all payments to be made to
it under the Credit Documents or such other documents as are
necessary to indicate that all such payments are subject to
such rates at a rate reduced by an applicable tax treaty; and
(vii) and agrees that it shall on the date this Addendum is
accepted by the Borrowers and the Agent become a Lender for
all purposes of the Credit Agreement to the same extent as if
originally a party thereto.
2. The amount of the Commitment of the
undersigned shall be
.
3. Terms defined in the Credit Agreement and
not otherwise defined herein are used herein as therein
defined.
IN WITNESS WHEREOF, the undersigned has caused this
Addendum to be executed and delivered by a duly authorized
officer on the date first above written
[NAME OF LENDER]
By:
_____________________________
Name:
[Printed]____________________
_____________________________
Lending Office for Base Rate
Loans:
Lending Office for Loans
other than Base Rate
Loans:
Address for Notices:
Attention:
Telex No.:
Telecopier No.:
Telephone No.:
Accepted this ___ day of
____________, 199__.
THE CHASE MANHATTAN BANK
(National Association), as Administrative Agent
By:
Title:
Accepted this ___ day of
____________, 199__.
PROVIDIAN BANCORP, INC.
As Guarantor
By:
Title:
Accepted this ___ day of
____________, 199__.
FIRST DEPOSIT NATIONAL BANK
By:
Title:
Accepted this ___ day of
____________, 199__.
PROVIDIAN NATIONAL BANK
By:
Title:
Accepted this ___ day of
____________, 199__.
PROVIDIAN CREDIT CORPORATION
By:
Title:
Accepted this ___ day of
____________, 199__.
PROVIDIAN CREDIT SERVICES, INC.
By:
Title:
INCREASED COMMITMENT ADDENDUM
ADDENDUM, dated _____________________, to the
Amended and Restated Credit Agreement dated as of
____________, 1995 (as amended or modified form time to time,
the "Credit Agreement") among FIRST DEPOSIT NATIONAL BANK, a
national banking association incorporated, organized and
existing under the laws of the United States of America
("FDNB"), PROVIDIAN NATIONAL BANK, a national banking
association incorporated, organized and existing under the
laws of the United States of America ("PNB"), PROVIDIAN CREDIT
CORPORATION, a corporation organized and existing under the
laws of the State of Delaware ("PCC"), PROVIDIAN CREDIT
SERVICES, INC., a corporation organized and existing under the
laws of the State of Utah ("PCSI"; together with FDNB, PNB and
PCC, the "Borrowers"); PROVIDIAN BANCORP, INC., a corporation
organized and existing under the laws of the State of Delaware
(the "Guarantor"; together with the Borrowers, the
"Obligors"); the banks and financial institutions listed on
the signature pages thereof under the caption "LENDERS" or
which, pursuant to Section 2.12, 2.13 or 13.06(b) thereof,
shall become a "Lender" thereunder (individually, a "Lender"
and, collectively, the "Lenders"); and THE CHASE MANHATTAN
BANK (NATIONAL ASSOCIATION), a national banking association,
as administrative agent for the Company (in such capacity,
together with any successor appointed pursuant to
Section 12.08 thereof, the "Agent").
W I T N E S S E T H :
WHEREAS, the Credit Agreement provides in
subsection 2.14 thereof that any Lender with the consent of
the Borrowers may increase the amount of its Commitment by
executing and delivering to the Obligors and the Agent an
addendum to the Credit Agreement in substantially the form of
this Addendum; and
WHEREAS, the undersigned now desires to increase the
amount of its Commitment under the Credit Agreement;
NOW, THEREFORE, the undersigned hereby agrees as
follows:
1. The undersigned agrees, subject to the
terms and conditions of the Credit Agreement, that it
shall on the date this Addendum is accepted by the
Obligors and the Agent have its Commitment increased
$____________, thereby making the amount of its
Commitment $_______________.
2. Terms defined in the Credit Agreement and
not otherwise defined herein are used herein as therein
defined.
IN WITNESS WHEREOF, the undersigned has caused this
Addendum to be executed and delivered by a duly authorized
officer on the date first above written
[NAME OF LENDER]
By:
Title:
Accepted this ___ day of
____________, 199__.
THE CHASE MANHATTAN BANK
(National Association), as Administrative Agent
By:
Title:
Accepted this ___ day of
____________, 199_.
PROVIDIAN BANCORP, INC.,
as Guarantor
By:
Title:
Accepted this ___ day of
____________, 199_.
FIRST DEPOSIT NATIONAL BANK
By:
Title:
Accepted this ___ day of
____________, 199_.
PROVIDIAN NATIONAL BANK
By:
Title:
Accepted this ___ day of
____________, 199_.
PROVIDIAN CREDIT CORPORATION
By:
Title:
Accepted this ___ day of
____________, 199_.
PROVIDIAN CREDIT SERVICES, INC.
By:
Title:
NA952610.068/6+
October 10, 1995
(212) 351-3951 C 14073-00164
To: The Chase Manhattan Bank (National Association),
as Administrative Agent, and the Lenders party to the
Credit Agreement (as hereinafter defined)
Ladies and Gentlemen:
We have acted as special counsel to The Chase
Manhattan Bank (National Association) as Agent and the Lenders
(as hereinafter defined) in connection with the Amended and
Restated Credit Agreement dated as of October 10, 1995 (the
"Credit Agreement") among (i) First Deposit National Bank, a
national banking association incorporated, organized and
existing under the laws of the United States of America
("FDNB"), Providian National Bank, a national banking
association incorporated, organized and existing under the
laws of the United States of America ("PNB"), Providian Credit
Corporation, a corporation organized and existing under the
laws of the State of Delaware ("PCC"), Providian Credit
Services, Inc., a corporation organized and existing under the
laws of the State of Utah ("PCSI; together with FDNB, PNB and
PCC, the "Borrowers"), (ii) Providian Bancorp, a corporation
organized existing under the laws of the State of Delaware
(the "Guarantor"; together with the Borrowers, the
"Obligors"), (iii) the lenders party thereto from time to time
(the "Lenders") and (iv) The Chase Manhattan Bank (National
Association) as administrative agent for Lenders (in such
capacity, the " Agent"). This opinion is being rendered to
you pursuant to Section 6.01(a)(iv) of the Credit Agreement.
All capitalized terms used but not defined herein have the
respective meanings given to such terms in the Credit
Agreement.
In rendering this opinion, we have examined an
executed copy of each of the Credit Documents.
We have, with your permission, assumed, without
independent investigation or inquiry with respect to any such
matter, that:
(a) each of the Obligors is a corporation,
partnership or other entity validly existing and in good
standing under the laws of the jurisdiction of its
organization, with all requisite corporate or other power and
authority to execute, deliver and perform its obligations
under each Credit Document to which it is a party; the
execution and delivery of each such Credit Document by each
such Obligor, and the performance of the obligations of each
such Obligor, have been duly authorized by all necessary
corporate action on the part of each such Obligor; and each
such Credit Document has been duly executed and delivered by
or on behalf of each such Obligor or by a person or persons
thereunto duly authorized;
(b) to the extent that the obligations of the
Obligors may be dependent upon such matters, each of the Agent
and the Lenders has all requisite corporate power and
authority to execute, deliver and perform its respective
obligations under each Credit Document to which it is a party;
the execution and delivery of each such Credit Document and
performance of such obligations have been duly authorized by
all necessary corporate action on the part of the Agent and
the Lenders; each such Credit Document has been duly executed
and delivered by or on behalf of each of the Agent and the
Lenders; and each such Credit Document is a legal, valid and
binding obligation of each of the Agent and the Lenders,
enforceable against each of them its accordance with its
terms;
(c) the documents submitted to us as originals are
authentic and the documents submitted to us as certified or
reproduction copies conform to the originals; and
(d) there are no agreements or understandings
between or among the Agent, the Lenders, the Obligors or third
parties that would expand, modify or otherwise affect the
terms of the Credit Documents or the respective rights or
obligations of the parties thereunder, and the Credit
Documents correctly and completely set forth the intent of all
parties thereto.
Based upon the foregoing and subject to the
qualifications, limitations and assumptions set forth below,
we are of the opinion that each of the Credit Documents to
which an Obligor is party constitutes the legal, valid and
binding obligation of such Obligor, enforceable against each
such Obligor in accordance with its terms.
The foregoing opinion is subject to the following
qualifications, limitations and assumptions:
A. We render no opinion herein as to matters
involving the laws of any jurisdiction other than the State of
New York and the United States of America. This opinion is
limited to the effect of the present state of the laws of the
State of New York and of the United States of America and the
facts as they presently exist. We assume no obligation to
revise or supplement this opinion in the event of future
changes in such laws or the interpretations thereof or such
facts.
B. Our opinions are subject to (i) the effect of
bankruptcy, insolvency reorganization, moratorium, arrangement
or other similar laws affecting enforcement of creditors'
rights generally (including, without limitation, the effect of
statutory or other laws regarding fraudulent transfers or
conveyances or preferential transfers); (ii) the application
of general principles of equity, whether considered in a case
or proceeding at law or in equity, including, without
limitation, concepts of materiality, reasonableness, good
faith and fair dealing and the possible unavailability of
specific performance or other equitable relief (whether sought
in a proceeding at law or in equity); and (iii) the
qualification that indemnification provisions in the Credit
Documents may be unenforceable to the extent that such
indemnification relates to claims made under any federal or
state securities laws or is otherwise limited by public
policy.
C. We express no opinion as to the legality,
validity, binding effect or enforceability (whether according
to its terms or otherwise) of: (i) any provision of any
Credit Document to the effect that rights or remedies are not
exclusive, that every right or remedy is cumulative and may be
exercised in addition to any other right or remedy, that the
election of some particular remedy does not preclude recourse
to one or more other remedies or that failure to exercise or
delay in exercising rights or remedies will not operate as a
waiver of any such right or remedy; (ii) any waiver or any
consent relating to the rights of the Obligors under any
Credit Document or applicable law or duties owing to the
Obligors existing as a matter of law to the extent such
waivers or consents are found by a court to be against public
policy or are ineffective pursuant to applicable law;
(iii) any waiver or consent contained in any Credit Document
relating to such rights or duties that is broadly or vaguely
stated or unknown future rights; (iv) any provision of any
Credit Document requiring written amendments or waivers of
such documents insofar as it suggests that oral or other
modifications, amendments or waivers could not effectively be
agreed upon by the parties or that the doctrine of promissory
estoppel might not apply; (v) Section 10.02 of the Credit
Agreement; (vi) any provision in any Credit Document waiving
the right to object to venue or with respect to the
jurisdiction of the United States District Court for the
Southern District of New York; and (vii) the effect of the
laws of any jurisdiction in which any Bank is located (other
than New York) that limit the interest, fees or other charges
such Bank may impose.
This opinion is rendered to the Agent and the
Lenders in connection with the Credit Agreement and may not be
relied upon by any person other than the Agent and the Lenders
(including any Lender becoming a party to the Credit Agreement
after the date hereof pursuant to the terms of the Credit
Agreement) or by the Agent or the Lenders in any other
context, nor may any copies of this opinion be provided to any
other Person except that the Agent and the Lenders may provide
this opinion (i) to bank examiners and other regulatory
authorities should they so request or in connection with their
normal examinations, (ii) to the independent auditors and
attorneys of the Agent and the Lenders, (iii) pursuant to
order or legal process of any court or governmental agency,
(iv) in connection with any legal action to which the Agent or
any Lender is a party arising out of the transactions
contemplated by the
Credit Agreement or (v) to any permitted prospective
transferee of the Loans or Commitments. This opinion may not
be quoted without the prior written consent of this Firm.
Very truly yours,
GIBSON, DUNN & CRUTCHER
NA952780.181/7+
_______________________________
1 If the Assignee is organized under the laws of a
jurisdiction outside the United States.
2 This date should be no earlier than the date of
acceptance by the Agent, and the Guarantor (to the extent
required by the Credit Agreement).
3 Acceptance required only to the extent provided in the
Credit Agreement.
* All numbered footnotes appear on the last page of this
Exhibit.
* All numbered footnotes appear on the last page of this
Exhibit.
* Insert if Set Rate Loans with an Interest Period of 270
days or more are accepted.
4 To be used if different Interest Periods are selected
with respect to different borrowings of Eurodollar Loans
included in the Proposed Borrowing.
5 To be expanded to "Borrowing 3" etc., if necessary.
6 To be included for a Proposed Borrowing comprised, in
whole or in part, of Eurodollar Loans.
7 To be used if the Proposed Borrowing is comprised of
more than one borrowing of Eurodollar Loans and different
Interest Periods are selected with respect to different
borrowings of Eurodollar Loans.
<TABLE>
EXHIBIT 12.1
<CAPTION>
PROVIDIAN CORPORATION AND SUBSIDIARIES
COMPUTATION OF HISTORICAL RATIO OF
EARNINGS TO FIXED CHARGES
Years
Ended
Decemb
er 31
1995 1994 1993 1992 1991
(Dolla
rs in
millio
ns)
<S> <C> <C> <C> <C> <C>
Earnings as Adjusted:
Pretax income from continuing $ 506 $ $ $ $
operations 441 487 452 346
Interest expense, excluding interest on
banking deposits, annuities and other
financial products 114 87 73 81 89
Portion of rent expense representing
the
interest factor 8 7 8 9 5
Subtotal 628 535 568 542 440
Interest expense on banking deposits 105 62 54 65 87
Subtotal 733 597 622 607 527
Interest expense on annuities and other
financial products 1,005 755 683 704 757
Total $1,738
$1,352 $1,305 $1,311 $1,284
Fixed Charges:
Interest incurred, excluding interest
incurred
on banking deposits, annuities and
other
financial products $ 114 $ $ $ $
87 73 81 89
Portion of rent expense representing
the
interest factor 8 7 8 9 5
Subtotal 122 94 81 90 94
Interest incurred on banking deposits 105 62 54 65 87
Subtotal 227 156 135 155 181
Interest incurred on annuities and
other
financial products 1,014 757 686 704 757
Total $1,241 $ $ $ $
913 821 859 938
Ratio of Earnings to Fixed Charges:
Excluding interest on banking
deposits, annuities, and other
financial products <F1> 5.1 5.7 7.0 6.0 4.7
Including interest on
banking deposits <F2> 3.2 3.8 4.6 3.9 2.9
Including interest on banking
deposits, annuities and other
financial products <F3> 1.4 1.5 1.6 1.5 1.4
<FN>
EXHIBIT 12.1 (CONTINUED)
COMPUTATION OF HISTORICAL RATIO OF EARNINGS TO FIXED CHARGES
<F1> For the purpose of computing the ratio of earnings to
fixed charges, earnings have been calculated by adding
to pretax income from continuing operations the amount of
fixed charges reduced for capitalized interest and
increased for amortization of previously capitalized
interest. Fixed charges consists of interest on debt
and a portion of net rentalexpense, approximately one-third,
deemed to represent interest.
<F2> Computation of this ratio is the same as described in
note (1) above except that fixed charges also includes
interest on banking deposits.
<F3> Computation of this ratio is the same as described in
note (1) above except that fixed charges also includes
interest on banking deposits,annuities and other financial
products.
</TABLE>
<PAGE>
Financial Report
Management's Discussion and Analysis | 18
Management's Responsibilities for Financial Reporting | 38
Report of Ernst & Young LLP, Independent Auditors | 38
Consolidated Statements of Income | 39
Consolidated Statements of Financial Condition | 40
Consolidated Statements of Cash Flows | 42
Consolidated Statements of Shareholders' Equity | 43
Notes to Consolidated Financial Statements | 44
- --------------------------------------------------------------------------------
17 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
Management's Discussion and Analysis
This Management's Discussion and Analysis reviews the consolidated financial
condition of Providian Corporation at December 31, 1995 and 1994, the
consolidated results of operations for the three years ended December 31, 1995
and, where appropriate, factors that may affect future financial performance.
Management's Discussion and Analysis should be read in conjunction with the
Consolidated Financial Statements, Notes to Consolidated Financial Statements
and Selected Financial Data.
Consolidated Results and Analysis
Providian's 1995 net income was $3.60 per common and common equivalent share
(hereinafter called "per common share"), up 19.2% from the $3.02 per common
share reported in 1994. Net income per common share for 1994 was down 3.2% from
$3.12 in 1993. Excluding a nonrecurring deferred income tax charge of $11.7
million, or $.12 per common share, resulting from the passage of tax legislation
in 1993, net income per common share declined 6.8% in 1994 from 1993.
Net income of $345.3 million in 1995 included net realized investment losses
(net of related deferred acquisition cost amortization and taxes) of $46.7
million, or $.49 per common share. These results include pretax losses of $52.8
million from investments and securities and $15.7 million from provisions for
mortgage loan losses. Net income in 1994 and 1993 included net realized
investment losses of $.73 and $.20 per common share, respectively. The results
in 1994 included pretax losses of $26.9 million from investment and securities,
provisions for mortgage loan losses of $21.0 million and a $52.4 million
nonrecurring first quarter write-off of an impaired investment in a limited
partnership.
Pretax Operating Earnings by Business Segment
(Dollars in millions)
The graph below is a stacked bar chart reflecting the Operating Earnings by each
Business Segment for the years ended December 31, 1993 through 1995. Total
pretax operating earnings appear at the top of each bar.
[GRAPH APPEARS HERE]
Business Segment 1993 1994 1995
- ---------------- ---- ---- ----
Providian Bancorp $118 $150 $188
Providian Direct Insurance 98 110 113
Providian Agency Group 194 182 182
Providian Capital Management 134 137 135
Corporate and Other (35) (32) (43)
---- ---- ----
Total Pretax Operating Earnings $509 $547 $575
Operating earnings applicable to common shareholders were $4.09 per common
share. Operating profitability improved 9.1% in 1995 and 9.0% in 1994, after
excluding the nonrecurring deferred income tax charge. Providian Bancorp's
outstanding
Selected Financial Data
(Amounts in millions except per common share information)
<TABLE>
<CAPTION>
Year Ended December 31 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Realized investment gain (loss) $ (69) $ (100) $ (20)
Total revenues 3,388 2,959 2,879
Cumulative effect of change in accounting principle -- -- --
Net income 345 301 323
Total assets $26,839 $23,613 $22,929
Long-term debt 721 694 589
Company-obligated mandatorily redeemable preferred securities of Providian LLC 100 100 --
Realized shareholders' equity (a) 2,596 2,431 2,479
Total shareholders' equity (b) 2,961 2,122 2,493
- ------------------------------------------------------------------------------------------------------------------
Per Common Share:
Operating earnings (c) $ 4.09 $ 3.75 $ 3.32
Income before cumulative effect of change in accounting principle 3.60 3.02 3.12
Cumulative effect of change in accounting principle -- -- --
Net income 3.60 3.02 3.12
Realized shareholders' equity (a) 27.52 24.93 23.45
Total shareholders' equity (b) 31.38 21.75 23.59
Cash dividends paid .90 .80 .73
Closing market price 40.75 30.88 37.13
Operating return on realized equity (d) 15.7% 15.5% 15.0%
Common shares outstanding at year end 94.4 97.5 101.4
Weighted average common and common equivalent shares outstanding 95.9 99.3 101.1
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Realized shareholders' equity excludes from total shareholders' equity the
net unrealized investment gain (loss) on debt securities and redeemable
preferred stocks, net of adjustments for deferred acquisition costs and
deferred income taxes.
(b) Effective January 1, 1994, the Company adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities."
- --------------------------------------------------------------------------------
18 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
results were the major contributor to the earnings increase in both 1995 and
1994. Providian's mix of businesses and continued ability to identify and
implement profit improvement initiatives has allowed for steady earnings growth.
Operating return on realized equity was 15.7% in 1995, up from 15.5% in 1994
and 15.0% in 1993.
Consolidated revenues were up 14.5% (1994 -- up 2.8%). Consolidated revenues
included pretax net realized investment losses of $68.5 million, $100.3 million
and $20.2 million in 1995, 1994 and 1993, respectively. Revenues, as discussed
hereinafter, exclude realized investment gains and losses. Revenues on this
basis were $3.5 billion, up 13.0% (1994 -- $3.1 billion, up 5.5%) primarily due
to increases in investment income and consumer loan servicing fees. The increase
in investment income of 16.7% was attributable to higher interest yields on and
continued growth in invested assets. Consumer loan servicing fees increased by
21.0% due to higher securitized consumer loan balances at Providian Bancorp.
Other income increased by $35.0 million due to growth in fee-based income as the
Company continues to focus on building its fee-based businesses. Revenue growth
of $160.2 million in 1994 was primarily due to higher yields and deposit growth
at Providian Capital Management and an increase in consumer loan servicing fees
at Providian Bancorp. Total benefits and expenses were up $363.5 million, or
14.4%, in 1995. Benefit and contract reserves increased by $188.8 million, or
27.0%, during 1995 due to higher credited interest on policyholder balances
resulting from the effect of the
The graph below is a stacked bar chart reflecting the Revenues by Business
Segment for the years ended December 31, 1993 through 1995. Total revenues
appear on the top of each bar.
Revenues by Business Segment
(Dollars in millions)
[GRAPH APPEARS HERE]
Business Segment 1993 1994 1995
- ---------------- ----- ----- -----
Providian Bancorp $ 540 $ 592 $ 793
Providian Direct Insurance 757 780 786
Providian Agency Group 735 726 743
Providian Capital Management 833 908 1,085
Corporate and Other 14 (47) (19)
----- ----- -----
Total Revenues $2,879 $2,959 $3,388
significant increase in interest rates during 1994. General, administrative and
other expenses were up $130.1 million, or 23.7%, due to growth in business
volume and a reduction in the deferral of acquisition costs at Providian
Bancorp. This reduction in the deferral of acquisition costs also accounted for
much of the 9.9% decrease from the 1994 amortization expense. Interest expense
was up $26.1 million, or 30.4%, primarily due to increased levels of short-term
borrowings at Providian Bancorp used to fund the significant growth in
receivables during 1995.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
1992 1991 1990 1989 1988 1987 1986 1985
- ---------------------------------------------------------------------------------------------
$ 6 $ (19) $ (123) $ 124 $ 25 $ 14 $ 169 $ 5
2,838 2,660 2,577 2,500 2,046 1,785 1,640 1,362
-- -- -- (56) -- -- (104) --
322 250 166 220 190 179 169 134
$20,588 $18,873 $16,669 $14,970 $12,963 $10,357 $8,295 $6,722
589 611 386 330 263 288 193 274
-- -- -- -- -- -- -- --
2,196 1,947 1,553 1,516 1,258 1,186 1,173 1,074
2,186 1,931 1,553 1,516 1,258 1,186 1,173 1,074
- ---------------------------------------------------------------------------------------------
$ 3.18 $ 2.89 $ 2.57 $ 2.23 $ 1.91 $ 1.66 $ 1.63 $ 1.26
3.14 2.66 1.70 2.93 2.00 1.74 2.62 1.23
-- -- -- (.62) -- -- (1.03) --
3.14 2.66 1.70 2.31 2.00 1.74 1.59 1.23
20.66 18.03 15.66 14.81 12.89 11.51 10.61 9.60
20.55 17.86 15.66 14.81 12.89 11.51 10.61 9.60
.66 .60 .54 .50 .47 .44 .41 .39
36.13 31.81 19.56 26.00 16.38 13.50 15.31 14.69
16.2% 17.1% 17.0% 16.5% 15.7% 14.4% 16.7% 13.9%
94.8 92.7 89.6 92.3 89.8 94.4 101.2 101.4
100.5 90.7 91.8 90.6 91.3 98.4 101.5 101.3
- ---------------------------------------------------------------------------------------------
</TABLE>
(c) Operating earnings per common share exclude from net income applicable to
common stock realized investment gains and losses and related deferred
acquisition cost amortization, net of taxes.
(d) Operating return on realized equity is computed as operating earnings less
dividends on company-obligated mandatorily redeemable preferred securities
of Providian LLC and dividends for nonconvertible preferred stock, divided
by a rolling four quarter average of total shareholders' equity, exclusive
of the nonconvertible preferred stock and the net unrealized investment gain
(loss) on debt securities and redeemable preferred stocks, net of
adjustments for deferred acquisition costs and deferred income taxes.
- --------------------------------------------------------------------------------
19 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
Supplemental Earnings Data
(Dollars in millions)
<TABLE>
<CAPTION>
Period Ended December 31 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating earnings before federal income tax (a) $ 575 $ 547 $ 509 $ 456 $ 373
Federal income tax on operating earnings before impact on deferred
taxes due to tax law change 177 170 155 130 103
- --------------------------------------------------------------------------------------------------------------
Operating earnings before impact of tax law change 398 377 354 326 270
Federal income tax impact on deferred taxes due to tax law change (b) -- -- 12 -- --
- --------------------------------------------------------------------------------------------------------------
Operating earnings 398 377 342 326 270
Realized investment gain (loss), net of tax (47) (69) (18) 3 (15)
Related amortization, net of tax -- (3) (1) (7) (5)
Dividends on company-obligated mandatorily redeemable preferred
securities of Providian LLC (6) (4) -- -- --
- --------------------------------------------------------------------------------------------------------------
Net Income 345 301 323 322 250
Dividends on nonconvertible preferred stock -- 1 7 7 9
- --------------------------------------------------------------------------------------------------------------
Net Income Applicable to Common Stock $ 345 $ 300 $ 316 $ 315 $ 241
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Operating earnings exclude from net income realized investment gains and
losses and related deferred acquisition cost amortization, net of taxes, and
dividends on company-obligated mandatorily redeemable preferred securities
of Providian LLC.
(b) A nonrecurring deferred tax charge of $11.7 million, or $.12 per common
share, was recorded as a result of the Omnibus Budget Reconciliation Act of
1993.
Quarterly Financial Data
(Dollars in millions except per common share)
<TABLE>
<CAPTION>
Per Common Share
Investment ----------------------
Premiums and Other Realized Benefits
and Other Income, Investment and Net Operating Net
Considerations Net(a) Gain (Loss) Expenses Income Earnings(b) Income
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1995
4th Quarter $292 $584 $ 1 $726 $103 $1.08 $1.08
3rd Quarter 297 580 (19) 727 89 1.05 .93
2nd Quarter 311 562 (16) 733 84 1.00 .88
1st Quarter 295 536 (35) 696 69 .96 .72
- ------------------------------------------------------------------------------------------------------------
1994
4th Quarter $279 $515 $(40) $653 $ 69 $ .97 $ .70
3rd Quarter 283 486 (7) 632 86 .95 .87
2nd Quarter 288 473 (16) 627 82 .93 .82
1st Quarter 291 444 (37) 606 64 .90 .62
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes investment income, net of expenses, consumer loan servicing fees
and other income, net.
(b) Operating earnings per common share exclude from net income applicable to
common stock realized investment gains and losses and related deferred
acquisition cost amortization, net of taxes.
Quarterly Price Ranges of Common Stock and Dividends Per Common Share
<TABLE>
<CAPTION>
High Low Dividend High Low Dividend
- --------------------------------------------------------------------------------------------
1995 1994
<S> <C> <C> <C> <C> <C> <C> <C>
4th Quarter $42.88 $37.75 $.225 4th Quarter $33.50 $29.88 $.20
3rd Quarter 41.88 34.75 .225 3rd Quarter 34.00 28.63 .20
2nd Quarter 37.50 33.50 .225 2nd Quarter 33.13 28.75 .20
1st Quarter 36.88 30.88 .225 1st Quarter 38.13 31.00 .20
- --------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
20 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
Results by Business Segment
Providian Bancorp
(Dollars in millions)
<TABLE>
<CAPTION>
Period Ended December 31 1995 %Change 1994 %Change 1993 %Change
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans $435.4 47.7% $294.9 (1.9)% $300.6 (0.3)%
Investment securities 21.7 (19.8) 27.1 67.7 16.2 (28.6)
- --------------------------------------------------------------------------------------------------------------
Total interest income 457.1 42.0 322.0 1.6 316.8 (2.3)
Interest expense:
Deposits 105.1 48.7 70.7 (16.5) 84.7 (22.0)
Borrowings 52.2 74.7 29.9 45.1 20.6 (30.2)
- --------------------------------------------------------------------------------------------------------------
Total interest expense 157.3 56.4 100.6 (4.5) 105.3 (23.7)
- --------------------------------------------------------------------------------------------------------------
Net interest income 299.8 35.4 221.4 4.7 211.5 13.6
Provision for loan losses 79.9 58.8 50.3 (14.6) 58.9 (25.4)
- --------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 219.9 28.5 171.1 12.1 152.6 42.4
Other income:
Loan servicing fees 250.2 21.0 206.8 19.7 172.8 23.2
Late charges, other fees and other 85.6 36.2 62.8 25.0 50.3 89.4
- --------------------------------------------------------------------------------------------------------------
Total other income 335.8 24.5 269.6 20.9 223.1 33.7
Other expenses:
General, administrative and other expenses, net 351.7 40.5 250.3 41.8 176.5 31.4
Amortization of loan acquisition costs 16.1 (60.0) 40.4 (50.4) 81.5 76.6
- --------------------------------------------------------------------------------------------------------------
Total other expenses 367.8 26.5 290.7 12.7 258.0 42.9
- --------------------------------------------------------------------------------------------------------------
Pretax earnings $187.9 25.2% $150.0 27.4% $117.7 25.9%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Description Providian Bancorp (Bancorp) markets consumer loans, deposit
products and other banking services using mail, telephone and other direct
response channels. Consumer loans include unsecured credit cards, unsecured
revolving lines, revolving home equity loans and a credit card secured by an
interest-bearing savings account. In addition to lending products, Bancorp
provides money market deposit accounts to retail customers and certificates of
deposit to both retail and institutional customers.
Profit Drivers Key profit drivers for Bancorp's spread-based businesses are
portfolio asset growth, the level of credit losses, the cost to acquire
customers and pricing (rates offered to borrowers). While cost of funds is also
considered an important profit driver for most financial institutions, Bancorp
limits its exposure to changes in interest rates through various asset/
liability management strategies (see separate discussion later in this section).
As a result of these strategies and the relatively stable cost of funds, the
previously mentioned profit drivers have a much stronger influence on the
profitability of the spread-based businesses than cost of funds. Key profit
drivers for Bancorp's fee-based businesses include the number of customer
relationships, pricing, servicing costs, persistency and the cost to acquire
customers. By providing value to the customer, Bancorp's strategy is to
profitably build sustainable, long-term customer relationships generating both
spread- and fee-based income.
Results Bancorp had another outstanding year in 1995, with continued strong
growth in credit card and home equity loan products, as well as growth in fee-
based income. The higher earnings were driven by the Primary Lender strategy,
which offers custom-tailored services to fulfill the specific needs of
individual customers. In 1995 and 1994, the increase in revenues was primarily
due to growth in consumer receivable accounts and balances. Bancorp also
realized higher fee-based income and improved net credit loss rates in both
years. These results were partially offset by increases in expenses due to
growth in business volume.
Total managed loans grew 41.5% to $6.7 billion in 1995 compared to $4.7
billion in 1994. Growth in both 1995 and 1994 resulted from strong customer
acceptance of core product offerings such as VISA(R) Gold, marketed via the
Primary Lender strategy. Balances for Providian Home Loans, Bancorp's home
equity loan product, grew 53.9% to $715.4 million at the end of 1995.
Loan loss reserves as a percentage of period-end on-balance sheet credit card
receivables has decreased slightly over the last three years reflecting the
strong credit quality of on-balance sheet portfolios. The on-balance sheet net
credit loss rate showed some improvement from prior years and is consistent with
Bancorp's performance-based pricing strategies that incorporate credit loss
protection into customer pricing. On-balance
- --------------------------------------------------------------------------------
21 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
Providian Bancorp
(Dollars in millions)
<TABLE>
<CAPTION>
Period Ended December 31 1995 %Change 1994 %Change 1993 %Change
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Managed loan portfolio: (a)(b)
Credit card receivables $ 5,588.9 36.9% $ 4,083.6 16.3% $ 3,509.8 7.6%
Equity lines of credit 715.4 53.9 465.0 48.8 312.4 43.7
Other consumer loans 243.0 46.5 165.8 32.5 125.2 103.0
Credit card receivables held
for securitization 123.3 N/A -- N/A -- N/A
- -------------------------------------------------------------------------------------------------------
Total managed loans 6,670.6 41.5 4,714.4 19.4 3,947.4 11.5
Securitized credit card
receivables (3,485.9) 47.2 (2,368.7) 18.2 (2,004.4) 12.9
- -------------------------------------------------------------------------------------------------------
Total on-balance sheet loans $ 3,184.7 35.8% $ 2,345.7 20.7% $ 1,943.0 10.1%
- -------------------------------------------------------------------------------------------------------
On-balance sheet credit card
receivable statistics: (c)
Average credit card
receivables $ 1,989.1 46.2% $ 1,360.6 (7.5)% $ 1,470.9 1.0%
Net credit losses incurred 58.6 28.3 45.6 (24.5) 60.4 (7.2)
Net credit loss rate (d) 2.94% 3.35% 4.11%
Delinquency rate (e) 2.41% 2.25% 2.20%
Managed credit card receivable
statistics:
Average credit card
receivables $ 4,870.6 34.7% $ 3,617.0 8.7% $ 3,326.6 5.7%
Net credit losses incurred 218.8 28.6 170.2 (0.4) 170.9 (1.3)
Net credit loss rate (d) 4.49% 4.71% 5.14%
Delinquency rate (e) 3.22% 2.97% 2.90%
Net interest margin (f) 12.43% 13.55% 14.05%
- -------------------------------------------------------------------------------------------------------
</TABLE>
(a) Credit cards include unsecured revolving lines of credit. Other consumer
loans include Secured Card loans and insurance premium financing loans.
(b) Securitized credit card receivables, which are sold without recourse, are
off-balance sheet.
(c) On-balance sheet credit card receivable statistics exclude credit card
receivables held for securitization.
(d) Net credit loss rate reflects annualized principal amounts written off, less
recoveries, as a percentage of average credit card receivables.
(e) Delinquencies represent credit card receivables which are 31 days or more
past due at period end.
(f) Net interest margin on managed credit card receivables is computed as
interest income, less interest expense, divided by average managed credit card
receivables.
sheet credit card receivable delinquencies, consisting of past due loans 31
days or more, have increased slightly but are in line with Bancorp's
expectations considering seasonal and other trends. The net credit loss rate for
managed credit cards has improved over the last two years primarily due to
strong receivable growth.
Bancorp has engaged in non-recourse sales of its consumer loans through
securitization since 1989. Securitization, the process of selling a pool of
assets to investors, is used by Bancorp as a tool to manage growth within
banking regulatory guidelines as well as to manage capital more efficiently and
provide an alternative source of funding to support continued business growth.
These sales occur on a non-recourse basis, which means the investors cannot look
to Bancorp to make up credit losses experienced by the portfolio. Securitized
loan balances are removed from the balance sheet for financial and regulatory
purposes. Bancorp continues to service the loans and earns fee income generated
by the pool in excess of the contractual amounts paid to investors. The amount
of fee income earned by Bancorp is dependent on a number of factors including
the total balance in the pool and the level of credit losses in the pool. During
1995, Bancorp continued to utilize the Master Trust created in 1993 and
securitized $1.5 billion in credit card receivables from the Trust. In addition,
Bancorp created a new facility to provide for the securitization of credit card
receivables on a revolving basis through the issuance of commercial paper. As of
December 31, 1995, $125 million of credit card receivables had been securitized
using this facility. Total securitized balances at year end were $3.5 billion.
Overall, the objective of Bancorp's asset/liability management process is to
provide maximum levels of net interest income, while limiting interest rate and
liquidity risk to acceptable levels and facilitating funding needs. As part of
this process, Bancorp monitors and projects changes in the level of assets due
to customer activity on outstanding and newly issued products. Projected changes
in asset levels are monitored on a daily and weekly basis and are used to
determine the level of funding required during a particular period. Bancorp has
a policy of monitoring and managing the amount of funding that matures during a
particular period (weekly or monthly), as well as managing the level of
individual customer concentrations in the portfolio. As a grandfathered
institution under the Competitive Equality Banking Act of 1987 (CEBA), First
Deposit National Bank (FDNB) must limit average on-balance sheet asset growth to
7% per annum. Balance sheet structure, particularly funding sources to be
replaced by securitized loans, is managed as part of the planning for the size
and timing of the transactions. FDNB has complied with CEBA growth constraints
since its inception. Bancorp utilizes other subsidiaries, which are not subject
to the CEBA growth constraints, to also fund its growth in receivables.
- --------------------------------------------------------------------------------
22 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
<TABLE>
<CAPTION>
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Period Ended December 31 1995 %Change 1994 %Change 1993 %Change
- ---------------------------------------------------------------------------------------------------------------------
Reserves for possible credit losses by product: (a)
Credit card receivables $ 83.6 19.2% $ 70.1 (1.8)% $ 71.4 (10.8)%
Equity lines of credit and other consumer loans 9.8 61.0 6.1 67.6 3.7 25.9
- ---------------------------------------------------------------------------------------------------------------------
Total reserves for possible credit losses $ 93.4 22.6% $ 76.2 1.5% $ 75.1 (9.5)%
- ---------------------------------------------------------------------------------------------------------------------
Reserves as a percent of period-end on balance-sheet
credit card receivables (b) 3.97% 4.09% 4.74%
- ---------------------------------------------------------------------------------------------------------------------
Banking deposits:
Savings deposits $ 482.1 22.4% $ 393.9 8.3% $ 363.7 4.3%
Time and CDs less than $100,000 562.5 8.4 519.0 31.3 395.3 4.1
CDs of $100,000 or greater:
0-3 months 436.9 (1.4) 442.9 (14.4) 517.6 6.2
3-12 months 458.6 85.8 246.8 (7.3) 266.1 36.0
1-5 years 217.7 N/M 77.8 N/M 10.7 (54.5)
- ---------------------------------------------------------------------------------------------------------------------
Total CDs of $100,000 or greater 1,113.2 45.0 767.5 (3.4) 794.4 12.5
- ---------------------------------------------------------------------------------------------------------------------
Total banking deposits $2,157.8 28.4% $1,680.4 8.2% $1,553.4 8.3%
- ---------------------------------------------------------------------------------------------------------------------
Total revenues (c) $ 792.9 34.0% $ 591.6 9.6% $ 539.9 10.0%
- ---------------------------------------------------------------------------------------------------------------------
Assets $3,285.7 40.1% $2,344.8 17.1% $2,002.0 1.4%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Reserve for possible credit losses relates only to Bancorp's on-balance
sheet loans, excluding credit card receivables held for securitization.
(b) On-balance sheet credit card statistics exclude credit card receivables held
for securitization.
(c) Revenues exclude realized investment gains and losses.
Bancorp structures its deposit maturities to fund current assets and, in the
event of securitization of assets, to comply with asset growth restrictions
imposed by banking laws. Bancorp accesses funds from a variety of sources with
varying interest rate structures and terms, including Federal Deposit Insurance
Corporation insured retail money market accounts and certificates of deposit,
wholesale certificates of deposit, short-term borrowings that include bank notes
and term Federal funds, as well as the asset securitization program. Such
funding diversification provides flexibility, continuity and availability of
funds at optimal prices.
Bancorp's operations are subject to interest rate risk to the extent that
changes in rates could impact its cost of funds and net interest margin. As a
result, Bancorp uses interest rate swap and cap agreements to manage the risk
associated with the repricing characteristics of its interest-earning assets and
interest-bearing liabilities. These interest rate agreements are used to modify
the interest rate characteristics of the underlying asset or liability in order
to decrease the interest rate risk to a level deemed appropriate by management.
Due to the effective use of these types of interest rate agreements, Bancorp's
net interest margin is largely insulated from rapid changes in interest rates,
and therefore is expected to remain relatively stable in the current interest
rate environment.
Bancorp is exposed to counterparty credit risk associated with these
derivative financial instruments. These derivatives are traded "over-the-
counter" with highly rated, nationally recognized financial institutions and
dealers that carry at least investment grade ratings. Additionally, Bancorp
manages its credit risk by closely monitoring and limiting its exposure to each
counterparty.
Outlook Bancorp has been successful with its business diversification
strategy, and has become a multi-market, multi-product provider of financial
services. Bancorp has diversified its sources of earnings in a number of ways,
including fee income from various fee-based products, a "universal" unsecured
offer appealing to both revolving borrowers and higher volume credit card
purchasers (Primary Lender), fee- and spread-based income on the Secured Card
product and spread-based income from Providian Home Loans. Bancorp has also
continued to protect and grow its unsecured spread business despite increasing
industry competition. This has been accomplished by expanding the Primary
Lender strategy to new market segments, while also enhancing customer
relationships with fee-based products and improved value-added services.
Going forward, Bancorp will continue its focus on achieving growth in assets
and income in its traditional consumer loan businesses by adding new Primary
Lender, Secured Card and Providian Home Loans customer relationships while
controlling costs and managing credit quality. This business should continue to
diversify into niche markets where it can leverage its capabilities.
- --------------------------------------------------------------------------------
23 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
<TABLE>
<CAPTION>
Providian Direct Insurance
(Dollars in millions)
Period Ended December 31 1995 %Change 1994 %Change 1993 %Change
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Premiums:
Life $320.3 4.1% $307.6 2.9% $298.9 27.2%
Health 180.1 (3.2) 186.1 (6.0) 198.0 8.1
Property and Casualty 174.8 (0.9) 176.5 22.7 143.7 2.7
Other 6.5 0.2 6.4 (9.8) 7.1 (17.0)
- ----------------------------------------------------------------------------------------------------------------
Total premiums 681.7 0.8 676.6 4.5 647.7 14.3
Investment and other income, net 104.8 1.6 103.1 (5.8) 109.5 30.1
- ----------------------------------------------------------------------------------------------------------------
Total revenues (a) 786.5 0.9 779.7 3.0 757.2 16.3
Benefits and expenses:
Benefits and reserves 451.8 1.1 446.8 8.1 413.3 15.7
Commissions, net 18.0 (4.1) 18.7 4.9 17.9 32.0
General, administrative and other expenses, net 93.2 (8.4) 101.7 (14.0) 118.2 16.4
Amortization (a) 111.0 8.3 102.5 (6.7) 109.9 16.9
- ----------------------------------------------------------------------------------------------------------------
Total benefits and expenses 674.0 0.6 669.7 1.6 659.3 16.4
- ----------------------------------------------------------------------------------------------------------------
Pretax earnings: (b)
Life 72.1 11.9 64.5 14.1 56.5 39.9
Health 36.5 (12.6) 41.8 (8.8) 45.8 6.0
Property and Casualty 9.3 (8.6) 10.1 23.8 8.2 24.1
Other (5.4) 16.0 (6.4) 49.4 (12.6) N/M
- ----------------------------------------------------------------------------------------------------------------
Pretax earnings $112.5 2.3% $110.0 12.4% $ 97.9 15.8%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Revenues exclude realized investment gains and losses, and amortization
expense excludes acquisition cost amortization related to investment gains and
losses.
(b) Pretax earnings exclude realized investment gains and losses and related
deferred acquisition cost amortization.
Description Providian Direct Insurance (PDI) markets Life, Health and personal
lines Property and Casualty insurance and related fee-based products to
individuals directly and through third-party organizations primarily using
television, direct mail and telephone. PDI also markets its products to retired
and active duty military service personnel through an agency field force of an
operating subsidiary, Academy Insurance Group (Academy). Academy has the
endorsement of the Non Commissioned Officers Association (NCOA), providing its
agents/counsellors with preferred access to military personnel.
Profit Drivers The more significant profit drivers for PDI's business include
the overall level of sales and persistency as well as claims and operating
expense management. PDI's practice is to design profitability into its products
through its underwriting and rate structuring activities, while actively
managing its markets. This approach includes first looking for high-potential
markets and then identifying the types of products that can profitably serve
needs in those markets.
Results Pretax earnings in 1995 increased due to growth in fee income and
investment income and lower expenses as a result of a continuing focus on cost
management. For example, PDI consolidated certain operations into its home
office during the year as a means of reducing overall costs and creating
operating efficiencies. The 1994 increase in pretax earnings was due primarily
to a strong focus on profit improvement initiatives, including premium rate
increases for several life and health products, an ongoing emphasis on
persistency improvement and cost management, and a 1993 loss on discontinued
businesses.
Total PDI revenues were up from 1994 reflecting increases in Life premium
income, revenue from fee-based products and higher investment income. Focus on
the sales process to improve market selection, testing and customer management
resulted in increased sales in 1995, driven by a significant improvement in
Health sales to new customers in the direct response channels and fee-based
product sales. Life premium income grew due to increased sales and the 1995
acquisition of a block of business. Health premiums declined from continued
lapsation of the business due to the attrition of an in force block of
supplemental Medicare product. Overall, Property and Casualty premium income
declined due to withdrawing from the homeowners business and repositioning the
military auto and agency businesses; however, premiums from direct auto, the
core product offerings, improved substantially over 1994. While premium growth
slowed in 1995, enhanced customer conservation programs have partially offset
the weaker sales levels in 1994 and 1993 by improving persistency.
Life pretax earnings in 1995 were up primarily due to higher investment income
on asset growth, and lower expenses resulting from cost management initiatives
and lower claims expense due to tighter underwriting controls. Life pretax
earnings in 1994 increased due to reduced spending and increased premium volume
resulting from improved persistency and rate increases.
Health pretax earnings declined as increased sales, increased retention
efforts and expense management were not enough to offset lapsation of existing
business. Overall Health premiums declined due to attrition of the in force
block of supplemental Medicare product. In addition, attrition was above pricing
- --------------------------------------------------------------------------------
24 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
<TABLE>
<CAPTION>
(Dollars in millions)
Period Ended December 31 1995 %Change 1994 %Change 1993 %Change
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Annualized premium sales:
Life $ 57.2 3.3% $ 55.3 (7.7)% $ 59.9 22.0%
Health 36.4 33.5 27.3 39.8 19.6 (14.2)
Fee-based health products 6.5 33.0 4.9 N/A -- N/A
Property and Casualty 32.4 6.7 30.3 72.2 17.6 53.1
- -----------------------------------------------------------------------------------------------------------------
Total annualized premium sales $ 132.5 12.4% $ 117.8 21.4% $ 97.1 16.4%
- -----------------------------------------------------------------------------------------------------------------
Property and Casualty net written premiums $ 176.7 0.9% $ 175.1 20.0% $ 145.8 3.7%
- -----------------------------------------------------------------------------------------------------------------
Life margin on premium 22.5% 21.0% 18.9%
Health margin on premium and fee-based income 19.8% 22.3% 23.1%
Property and Casualty ratios:
Loss/LAE 81.6% 80.7% 81.2%
Expense 22.1 22.7 23.9
- -----------------------------------------------------------------------------------------------------------------
Combined ratio 103.7% 103.4% 105.1%
- -----------------------------------------------------------------------------------------------------------------
Assets $2,298.1 11.8% $2,056.4 (1.2)% $2,080.9 28.8%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
expectations for two new products offered in 1995, although initial response to
the products was favorable. One of these products is no longer being marketed
and the second is being reconfigured for a 1996 offering. Partially offsetting
the attrition is a Medicare preferred provider program that enables customers to
receive supplemental coverage when they use contracted providers. In addition,
sales of fee-based products grew $1.6 million from 1994 as these products were
well received by customers. In 1994, Health earnings decreased due to lower
premium volume partially offset by lower spending.
Property and Casualty pretax earnings were down slightly from 1994. The
results reflect a strategic repositioning of the military auto business. The
increase in Property and Casualty earnings in 1994 was primarily due to improved
loss experience in the direct response auto business and continued cost
containment efforts. The combined ratio (the primary profit measure for the
property and casualty business) represents the relationship of losses and
expenses to premiums. The combined ratio was higher in 1995 reflecting the cost
of exiting non-core businesses, investing in new technology programs, primarily
in fraud detection, and the cost of consolidating operations.
Outlook PDI's three primary markets, ordinary life, supplemental health and
personal auto insurance, remain the most profitable segments of the overall
insurance industry. Given the success of direct response, more competitors are
entering this channel to increase profitable sales, leading to increased
competition for traditional "low-cost" television advertising. To provide
additional sources of income, PDI will opportunistically expand products through
the partner channel.
During 1996, television economics and/or volume may prove unacceptable income
generators because of station access problems and fewer viewers on traditional
target channels due to the Olympics and presidential campaigns. The continued
military downsizing and base closings also represent an external risk present in
our military Life and Property and Casualty businesses. PDI has made the
decision to no longer market homeowners insurance, the earnings of which are
more volatile.
Continuous intense focus on the direct marketing channel and targeted
distribution through partner channels should provide the foundation for
achievement of PDI's business strategies. Management believes that the ability
to attract sufficient leads, convert them quickly, and provide excellent service
and additional value-adding offers over time will be critical to PDI's success.
Management is in the process of developing and testing direct offer models which
are customized insurance offers designed to meet individual customer needs.
These "universal" models are patterned after Bancorp's Primary Lender strategy.
Management anticipates these models will improve PDI's direct response marketing
capabilities and premium growth. Property and Casualty results should continue
to be favorably impacted by risk management initiatives to re-underwrite
existing contracts, reprice new business and implement fraud detection programs
and other claims savings initiatives.
- --------------------------------------------------------------------------------
25 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
<TABLE>
<CAPTION>
Providian Agency Group
(Dollars in millions)
Period Ended December 31 1995 %Change 1994 %Change 1993 %Change
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Premiums:
Life $359.6 3.4% $347.8 1.0% $344.4 3.7%
Health 59.6 (4.5) 62.4 (4.7) 65.5 1.3
Other 28.1 (6.8) 30.1 (19.3) 37.3 (7.2)
- -----------------------------------------------------------------------------------------------------------
Total premiums 447.3 1.6 440.3 (1.5) 447.2 2.4
Investment and other income, net 295.8 3.4 286.0 (0.6) 287.6 (0.9)
- -----------------------------------------------------------------------------------------------------------
Total revenues (a) 743.1 2.3 726.3 (1.2) 734.8 1.1
Benefits and expenses:
Benefits and reserves 342.8 2.8 333.5 0.7 331.2 1.2
Commissions, net 55.5 9.4 50.7 (0.7) 51.1 (11.9)
General, administrative and other expenses, net 73.9 1.4 72.9 (2.2) 74.6 (0.5)
Amortization (a) 88.8 1.8 87.2 3.5 84.2 10.0
- -----------------------------------------------------------------------------------------------------------
Total benefits and expenses 561.0 3.1 544.3 0.6 541.1 0.8
- -----------------------------------------------------------------------------------------------------------
Pretax earnings: (b)
Life 175.9 (1.8) 179.0 (3.6) 185.7 1.4
Health 2.9 (28.4) 4.0 3.8 3.9 52.6
Other 3.3 N/M (1.0) N/M 4.1 (9.7)
- -----------------------------------------------------------------------------------------------------------
Pretax earnings $182.1 0.0% $182.0 (6.0)% $193.7 1.8%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(a) Revenues exclude realized investment gains and losses, and amortization
expense excludes acquisition cost amortization related to investment gains and
losses.
(b) Pretax earnings exclude realized investment gains and losses and related
deferred acquisition cost amortization.
Description Providian Agency Group (PAG) markets traditional and interest-
sensitive individual life and health insurance products and related services
through home service representatives of PAG's principal operating subsidiaries,
including Commonwealth Life Insurance Company (Commonwealth Insurance), Peoples
Security Life Insurance Company (Peoples Security Insurance) and Capital
Security Life Insurance Company (Capital Security Insurance). PAG is a market-
focused distributor of insurance products committed to meeting the needs of low-
and middle-income families, primarily in the Southeastern and Mid-Atlantic
states. In addition, PAG leverages its insurance capabilities by marketing
insurance products in partnerships with several third-party insurance and
marketing organizations.
Profit Drivers Premium growth, interest spreads, spending levels and
underwriting margins are key drivers of PAG's profitability. Premium growth is
driven by three important factors: the number and retention of agents in the
field, agent productivity and policy persistency. The individual life insurance
business is a mature market in which first year premiums are expected to grow
slowly as the primary insurance-buying population decreases slightly over the
next several years. In response, PAG has reduced its spending levels by
streamlining operations and strengthening its risk management capabilities. PAG
has also been successful in retaining its current business and in generating a
relatively stable stream of earnings.
Results PAG pretax earnings were essentially even with 1994 as Life premium
growth and the continued benefit of cost management initiatives were offset by
higher mortality levels, resulting from an unusual number of large claims during
the first half of 1995. Life pretax earnings, which account for more than 96% of
PAG's 1995 income, increased for the same reasons noted above. Pretax earnings
decreased in 1994 primarily due to lower interest spreads and lower earnings on
certain marketing partnerships, partially offset by reduced operating costs.
Revenues increased primarily due to Life premium growth and higher investment
income. Net investment and other income increased due to growth in invested
assets. The decrease in revenues in 1994 reflected declining investment yields
and certain
- --------------------------------------------------------------------------------
26 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
<TABLE>
<CAPTION>
(Dollars in millions)
Period Ended December 31 1995 %Change 1994 %Change 1993 %Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Annualized premium sales:
Life $ 64.9 (0.1)% $ 65.0 (10.9)% $ 73.0 (13.5)%
Health 6.3 (12.3) 7.2 (20.3) 9.0 28.8
Fee-based health product (a) 5.3 N/A -- N/A -- N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Total annualized premium sales $ 76.5 6.0% $ 72.2 (12.0)% $ 82.0 (10.2)%
- ------------------------------------------------------------------------------------------------------------------------------------
Annualized premium termination rates:
Life 14.3% 14.5% 16.2%
Health 14.3 14.8 17.2
- ------------------------------------------------------------------------------------------------------------------------------------
Total Life and Health termination rates 14.3% 14.5% 16.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Total termination rates, including fee-based product (a) 14.5% 14.5% 16.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Annualized premium gain rates:
Life 1.7% 1.8% 2.5%
Health (2.3) (1.2) (0.2)
- ------------------------------------------------------------------------------------------------------------------------------------
Total annualized Life and Health premium gain rates 1.3% 1.5% 2.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Total annualized premium gain rates, including fee-based
product (a) 2.2% 1.5% 2.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Assets $5,291.8 16.1% $4,556.3 (2.7)% $4,682.5 12.3%
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Includes a fee-based product (i.e., First Health Advantage/(SM)/) introduced
during June 1995
</TABLE>
terminated marketing partnerships, partially offset by growth in Life premium in
force. The decrease in net investment income in 1994 was due to increased bond
and mortgage payoffs requiring reinvestment in lower yielding investments, which
more than offset PAG's invested asset growth. Total 1995 sales increased due to
the introduction of First Health Advantage/SM/ (FHA), a fee-based product, and
strong partnership sales. The successful introduction of the FHA product has
indicated that both the agent field force and customers have a need for non-
insurance financial products. This product is designed to be a door opener for
the agent force; however, PAG must guard against potential displacement of sales
of its traditional insurance products. Sales of fee-based products in 1995 more
than offset a decline in Life and Health sales. Life sales in 1994 decreased by
10.9% from 1993, primarily from a reduction in the number of working agents,
which was undertaken to increase the volume of business serviced by each agent.
Although sales were down slightly for insurance products in 1995 and 1994, PAG
has been successful in retaining the in force business. The Life and Health
termination rates reflect PAG's continued emphasis on conserving the in force
block of business.
Outlook Despite the characterization of the insurance market as mature, PAG
believes enhanced premium and profitability growth can be achieved through
strengthened consumer marketing approaches. PAG is in the process of developing
and implementing a growth strategy to capitalize on premium growth capacity that
exists within the current field structure. This strategy focuses on achieving a
greater proportion of sales from new customers, opening new homes through
innovative sources of leads and by marketing an expanded portfolio of financial
products. During 1995, PAG began to test leads generated by PDI and expects to
fully implement a profitable lead sharing program with PDI in 1996. The success
of FHA in 1995 provided experience that will be leveraged as additional non-
insurance financial products are tested and implemented. This growth strategy
also encompasses refined segmentation approaches responsive to local markets, as
well as improving field operational performance through more consistent
execution. Additionally, PAG will continue to focus on reducing operating costs
and refining its risk management activities in order to improve profitability.
- --------------------------------------------------------------------------------
27 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
<TABLE>
<CAPTION>
Providian Capital Management
(Dollars in millions)
Period Ended December 31 1995 %Change 1994 %Change 1993 %Change
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Premiums $ 65.6 N/M $ 24.7 (65.3)% $ 71.1 (35.4)%
Investment and other income, net 1,019.1 15.4% 883.4 16.0 761.7 2.6
- ---------------------------------------------------------------------------------------------------------------
Total revenues (a) 1,084.7 19.4 908.1 9.0 832.8 (2.3)
Benefits and expenses:
Benefits and reserves 856.2 25.6 681.5 12.1 608.0 (8.0)
Commissions, net 11.3 N/M 4.1 (36.0) 6.4 22.6
General, administrative and other expenses, net 47.3 8.6 43.6 (4.3) 45.5 (1.1)
Amortization (a) 34.9 (17.6) 42.3 9.1 38.8 93.2
- ---------------------------------------------------------------------------------------------------------------
Total benefits and expenses 949.7 23.1 771.5 10.4 698.7 (4.6)
- ---------------------------------------------------------------------------------------------------------------
Pretax earnings: (b)
Spread-based 118.6 (9.2) 130.7 (0.4) 131.3 10.2
Fee-based 16.4 N/M 5.9 N/M 2.8 N/M
- ---------------------------------------------------------------------------------------------------------------
Pretax earnings $ 135.0 (1.1)% $136.6 1.9% $134.1 11.6%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Revenues exclude realized investment gains and losses, and amortization
expense excludes acquisition cost amortization related to investment gains and
losses.
(b) Pretax earnings exclude realized investment gains and losses and related
deferred acquisition cost amortization.
Description Providian Capital Management (PCM) is responsible for the marketing
and management of spread- and fee-based retirement and savings products issued
through the Company's life insurance subsidiaries as well as the management of
all insurance-related invested assets. In the spread-based management business,
PCM receives deposits from customers, and in most situations, guarantees to
return the full principal plus interest at a specified or formula-driven rate.
These funds are invested to earn income and capital appreciation sufficient to
cover customer guarantees, pay expenses and produce a profit. In the fee-based
business, PCM assumes little, if any, investment risk. Fee-based products
provide certain liquidity and withdrawal benefits or tax advantages to customers
but generally do not guarantee the performance of underlying assets.
PCM offers a broad array of financial products, including floating and fixed
rate guaranteed investment contracts (GICs), Trust GIC (synthetic GICs) and
separate account products offered to Group customers, including pension funds,
banks, mutual funds and other organizations. These contracts have stated as well
as indeterminant maturities. PCM markets Individual annuities which include
fixed and variable contracts and immediate life annuities (primarily structured
settlements) to customers through banks, securities brokerage firms, financial
planners and third-party marketing organizations.
Profit Drivers The level of PCM's profits is a function of a number of business
and economic factors which may change in importance from time to time given
market conditions and management's perspective of and tolerance for risk.
Profits on spread-based products represent the excess of investment earnings
over the interest credited on policyholder deposits and related costs. Profits
are primarily driven by changes in interest rates, product growth, mix of assets
and liabilities, credit experience and spending levels. Interest rate exposure
is controlled through asset/liability strategies designed to appropriately
manage the estimated durations of both assets and liabilities (explained on
pages 30 through 32). To control credit risk, PCM maintains strict underwriting
standards and emphasizes a diverse investment portfolio. The current
asset/liability mix will result over time in lower spread margins in a rising
interest rate environment and higher spread margins in a falling interest rate
environment.
In order to mitigate the risks and profit variability in spread-based
products, PCM is reducing its interest rate risk and strategically moving toward
a higher concentration of fee-based products. Profits for these products will be
driven by PCM's ability to continue to aggressively grow the business, maintain
fee income margins, achieve economies of scale and control operating costs.
Results PCM's 1995 pretax earnings were down slightly from 1994, primarily due
to lower net interest margins partially offset by modest spread-based product
growth, income on substantial fee-based product growth and reduced amortization
of acquisition costs. Earnings in 1994 were slightly higher than 1993 as a
result of higher product volumes, higher yields on invested assets and the
absence of the one-time reverse mortgage
- --------------------------------------------------------------------------------
28 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
<TABLE>
<CAPTION>
(Dollars in millions)
Period Ended December 31 1995 %Change 1994 %Change 1993 %Change
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Policyholder deposits on-balance sheet:
Spread-based:
Group $ 6,857.8 (7.5)% $ 7,417.5 11.8% $ 6,635.0 14.5%
Individual 5,783.2 11.6 5,181.7 (0.4) 5,203.1 7.5
- ----------------------------------------------------------------------------------------------------------------------------
Total spread-based 12,641.0 0.3 12,599.2 6.4 11,838.1 11.3
Fee-based 1,637.3 61.7 1,012.4 24.0 816.7 99.0
- ----------------------------------------------------------------------------------------------------------------------------
Total policyholder deposits on-balance sheet 14,278.3 4.9 13,611.6 7.6 12,654.8 14.6
Fee-based products off-balance sheet 12,490.4 41.4 8,836.4 88.3 4,692.5 N/M
- ----------------------------------------------------------------------------------------------------------------------------
Total policyholder deposits and other fee-based
products $26,768.7 19.2% $22,448.0 29.4% $17,347.3 37.7%
- ----------------------------------------------------------------------------------------------------------------------------
Change in policyholder deposits and fee-based
products:
Spread-based $ 41.8 $ 761.1 $1,204.4
Fee-based 624.9 195.7 406.3
Fee-based products off-balance sheet 3,654.0 4,143.9 3,134.9
- ----------------------------------------------------------------------------------------------------------------------------
Total change in policyholder deposits and fee-based
products $ 4,320.7 $ 5,100.7 $ 4,745.6
- ----------------------------------------------------------------------------------------------------------------------------
Mean spread-based policyholder deposits $12,910.9 3.3% $12,502.0 8.7% $11,499.2 12.9%
Margin on mean spread-based policyholder deposits
(basis points) 92 105 114
- ----------------------------------------------------------------------------------------------------------------------------
Assets $14,499.7 9.2% $13,279.7 2.7% $12,931.9 13.4%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
shutdown costs experienced in 1993, offset by higher credited rates to
customers. Revenues, driven primarily by investment income earned on spread-
based products and fees earned on fee-based products, have trended up in both
1995 and 1994 as a result of higher product balances and investment yields.
Spread-based profit margins (defined as the ratio of pretax earnings to mean
spread-based products) were 92 basis points in 1995, down from 1994 and 1993.
This trend is due to the negative impact of rising interest rates during 1994
which continued into early 1995. Spread-based margins recovered over the latter
half of 1995 as the decline in interest rates in 1995 began to take effect.
Group spread-based product balances declined $559.7 million from 1994 levels
for two reasons. PCM exercised its right to terminate a significant block of
certain GIC contracts because the guaranteed index was considered too expensive.
In addition, sales of GIC products slowed considerably in the second half of
1995 as a result of intense competition for funds at levels PCM chose not to
meet in the current interest rate environment. Individual spread-based products
grew in 1995 primarily due to a coinsurance agreement with North American
Security Life executed in June 1995. Individual spread-based sales slowed
considerably in the latter half of 1995 due to the current low rates as
potential customers elected to participate in alternative investments such as
stock mutual funds and variable annuities. Individual spread-based sales were at
higher levels in 1994 as compared to 1993, but product balances declined due to
higher customer withdrawals resulting from a combination of a conservative
crediting strategy and the expiration of surrender charges on a higher
percentage of policies. The growth in fee-based balances reflects PCM's
strategic commitment to producing a more stable earnings stream. Group fee-based
products are dominated by the Trust GIC product, an off-balance sheet fee-based
product that provides benefit responsiveness on contracts and affords book value
accounting for the plan sponsor. PCM was the industry sales leader in 1995 as
demand for this product continues to substantially exceed original expectations;
Trust GIC has attracted $12.1 billion in customer balances since its inception
in 1991. Individual fee-based variable annuity sales continue to increase each
year based on the development of new distribution channels and products and
significant asset appreciation.
Outlook The retirement and savings markets are growing very rapidly due to the
maturing population. PCM's chosen segments of that market, the defined
contribution and retirement annuity segments, are growing even more rapidly. PCM
is significantly focused on developing its fee-based and Individual spread-based
businesses while looking to return Group spread-based balances to year end 1994
levels.
The combination of lower interest rates and a flat yield curve, along with
aggressive competitor pricing and a trend for plan sponsors to move from
traditional GICs to synthetic GICs, makes it a significant challenge to acquire
new profitable spread-based business. On the other hand, this environment should
help fee-based synthetic GIC sales. A primary emphasis in 1996 will be to
evaluate the distribution channels available to PCM for its Individual products
and implement the strategy that is best suited for profitable product growth. In
addition, new markets that offer profitable growth opportunities for both
Individual and Group products are being explored.
- --------------------------------------------------------------------------------
29 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
<TABLE>
<CAPTION>
Corporate and Other
(Dollars in millions)
Period Ended December 31 1995 %Change 1994 %Change 1993 %Change
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues (a) $ 49.8 (7.0)% $ 53.6 55.4% $ 34.5 (68.6)%
Expenses:
General, administrative and other expenses, net 33.0 11.7 29.6 63.6 18.1 (80.8)
Interest expense 59.8 6.7 56.0 10.3 50.8 6.1
- ------------------------------------------------------------------------------------------------------------------------------
Total expenses 92.8 8.4 85.6 24.3 68.9 (51.6)
- ------------------------------------------------------------------------------------------------------------------------------
Pretax loss (b) $ (43.0) 34.3% $ (32.0) (6.8)% $ (34.4) 5.8%
- ------------------------------------------------------------------------------------------------------------------------------
Assets $1,463.3 6.3% $1,376.2 11.7% $1,231.7 (13.4)%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Revenues exclude realized investment gains and losses.
(b) Pretax loss excludes realized investment gains and losses and related
deferred acquisition cost amortization and dividends on company-obligated
mandatorily redeemable preferred securities of Providian LLC.
Corporate and Other includes activities of a general corporate nature such as
debt service, corporate-wide marketing programs, intersegment eliminations, an
allocation of net investment income for the capital allocated to business
segments, adjustments given to the business segments for tax preferenced
investments, intercompany service fees and real estate development activities.
This category also includes the results of businesses that have not yet been
integrated into Providian's other business segments.
An important step in the evolution from a holding company to an integrated
operating company is to build brand identity in the Providian name. The
Corporate and Other pretax loss was up $11.0 million from 1994 as a result of
these brand building initiatives, increased tax preferenced adjustments and
higher interest expense resulting from the issuance of additional medium-term
notes in order to prefund 1996 maturities due to favorable rates. These items
were partially offset by favorable variances in net investment income on capital
invested in the business segments. The variance in 1994 was primarily influenced
by higher net investment income on capital invested in the business segments,
partially offset by higher corporate expenses and higher interest expense on
corporate debt due to the issuance of additional medium-term notes in 1994.
Over the next few years, the pretax loss in this segment is expected to grow
as the Company invests in tax favored investments thus increasing the tax
preferenced income adjustments given to the business segments. On a consolidated
basis, this variance will be offset as the Company's tax rate decreases.
Asset/Liability Management
In both the Company's insurance and banking operations, asset/liability
management represents a key element of the Company's overall risk management
program. The following discussion addresses the integrated management of assets
and liabilities, along with the use of derivative financial instruments,
performed by PCM related to the insurance operations. The management process for
banking operations is discussed separately under the Providian Bancorp section.
The objective of asset/liability management is to support the achievement of
business strategies, while enhancing economic value, earnings and liquidity over
time. The asset/liability management process focuses on a variety of risks,
including market risk (primarily interest rate risk) and credit risk. Effective
management of these risks is an important determinant of profit levels and
variability of earnings and surplus.
PCM manages interest rate risk by employing a variety of modeling techniques,
including duration analysis. Duration reflects the price sensitivity of a
financial instrument to changes in interest rates. For the simplest forms of
assets or liabilities, duration is proportional to their weighted average life,
with weights equal to the discounted present value of estimated cash flows. This
methodology causes near term cash flows to have a greater proportional weight
than cash flows further in the future. For more complex assets and liabilities
with optional cash flows, for example, callable bonds, mortgage-backed
securities or insurance liabilities, additional adjustments are made in
estimating an effective duration number. The net duration level represents the
difference between the estimated durations of policy liabilities and those of an
equal amount of assets which support those
- --------------------------------------------------------------------------------
30 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
liabilities. Net duration levels are adjusted throughout the year to reflect
changing business and economic conditions and are managed within a range
considered appropriate by management. PCM manages the net duration level within
an acceptable range by changing the nature of underlying assets or liabilities
in the portfolio and through the use of derivatives. Generally, asset durations
are longer than liability durations. At December 31, 1995, asset durations were
longer than liability durations by approximately .8 years. During 1995, net
duration levels averaged .9 years. While quantitatively estimated, evaluation of
the net duration level is a subjective process. Additionally, there is no
generally accepted method of calculating the duration of liabilities, and others
might have estimated durations differently. Accordingly, net duration levels
among companies may not be comparable.
PCM manages interest rate risk by employing various risk management programs,
among other techniques, that adjust the overall net duration level or which
modify the interest rate characteristics of the underlying assets or
liabilities. The major programs employed to manage interest rate risk include
the use of derivative financial instruments such as interest rate swaps
(including basis swaps) and futures contracts. Interest rate swaps generally
involve the exchange of fixed and floating rate interest payments on an
underlying notional amount. Basis swaps involve the exchange of one floating
interest rate payment for another floating interest rate payment determined from
different floating rate indices. Futures are contracts which call for the future
delivery of securities in which the seller agrees to deliver on a specified
date, a specified instrument at a specified price. PCM historically has used
interest rate swaps to convert fixed rate GIC liabilities to floating rate
liabilities, to adjust the net duration level of the overall portfolio and to
reduce basis risk by exchanging floating interest rate payments utilizing an
index that better correlates with the underlying assets and liabilities.
Additionally, futures contracts have been used to adjust the net duration level
of the overall portfolio and to reduce market risk related to certain products
that provide a return based on the market performance of a designated index.
These derivative financial instruments are an integral part of PCM's risk
management process.
PCM manages credit risk through a stringent ongoing credit review, approval
and monitoring process. Credit risk is defined as the risk that a loss will
occur due to a borrower or swap counterparty defaulting on a loan or swap
contract when the contract is in a favorable economic position to the Company.
Master netting agreements are entered into with swap counterparties to reduce
the exposure to credit risk with the individual counterparty. Credit limits are
established for each borrower and swap counterparty and are considered based on
total net credit exposure to the borrower, including both derivatives and debt
securities. In the event that the individual borrower or derivative counterparty
credit risk exceeds the pre-established credit limit as determined by PCM,
action is taken to reduce either the derivative or the bond exposure with the
counterparty. PCM also monitors exposure to counterparty credit risk through the
performance of sensitivity testing. "Worst-case" scenarios are considered to
determine the maximum credit risk exposure on derivatives associated with the
individual counterparty. This maximum exposure is then aggregated with other
non-derivative credit risk associated with the individual counterparty to
determine compliance with the total individual counterparty credit limit
established by PCM during the credit review process. A majority of the
derivatives (interest rate swap and cap agreements) are traded "over-the-
counter" with highly rated, creditworthy counterparties, while futures contracts
are traded on a market exchange. The exchange traded nature of futures contracts
reduces credit risk due to the clearinghouse function of the exchange, and due
to the daily settlement of gains or losses on virtually all exchange traded
contracts. See Note D of the accompanying Consolidated Financial Statements for
additional information on credit risk.
The asset/liability management process is also designed to monitor liability
and asset characteristics on both the individual product and aggregate levels.
Each major product category is supported by a separate asset portfolio, which is
managed in accordance with a pre-established baseline asset strategy. This
baseline strategy represents an appropriate balancing of each product's
liability characteristics with the assets supporting those liabilities.
Baselines are developed and updated through extensive financial modeling to
design the optimal asset baseline suited to the individual product. These
analyses, which reflect asset and liability durations, liquidity, and other risk
characteristics, are used to design the aggregate portfolio of assets and
liabilities within desired risk tolerances while producing appropriate expected
returns. Aggregate portfolio management takes advantage of offsetting
characteristics of individual products and makes aggregate portfolio adjustments
to obtain a better overall balance of asset and liability characteristics than
that available at the individual product level.
PCM has the flexibility to actively manage a significant portion of the
investment portfolio. Securities are evaluated among sectors for relative value
based on their current price and long-term outlook, and positions are moved from
fully valued sectors to undervalued ones, capturing the incremental returns when
those sectors regain market equilibrium. This flexibility adds value for
shareholders but also has the potential to introduce incremental volatility to
net income, as bonds are bought and sold in both rising and falling interest
rate environments. However, the management of the investment portfolio is
subject to several risk management constraints, including those designed to
insure preservation of a strong capital position, optimization of future
earnings and management of the level of realized gains and losses and resultant
tax effects.
The current accounting model required by the FASB, which values some assets at
fair value and other assets and all liabilities at historical cost, does not
accurately portray overall economic
- --------------------------------------------------------------------------------
31 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
results. Considering the closely integrated manner in which the Company manages
its assets and liabilities, the concept of adjusting certain assets to fair
value, principally reflecting changes in the interest rate environment, without
making a similar adjustment to liabilities, distorts reported financial results.
Due to this potential for distortion, fair value disclosure is provided in
Note E of the accompanying Consolidated Financial Statements. Statement of
Financial Accounting Standards (SFAS) No. 107, "Disclosures about Fair Value of
Financial Instruments," requires disclosure of fair values for selected
financial instruments but does not require disclosure of fair value for
traditional insurance liabilities. The Company has elected to provide additional
fair value disclosure for all financial instruments, including traditional
insurance liabilities, in an effort to more properly reflect changes in
shareholders' equity resulting from fluctuations in interest rates. The fair
values of individual asset and liability categories as presented differ from
carrying amounts principally as a result of changes in the interest rate
environment, including changes in various credit spreads.
To illustrate further, the current accounting model resulted in a $703 million
increase in the net unrealized investment gain (loss) component of shareholders'
equity at December 31, 1995 as compared to December 31, 1994. As disclosed in
Note E, the fair value of shareholders' equity increased $675 million when all
other assets and liabilities were marked to fair value. This increase was
primarily attributable to the significant improvement in the bond market during
1995. Interest rates on intermediate term Treasuries (3 to 5 year maturities)
decreased over 250 basis points during the year. Additionally, treasury stock
repurchases of $143.2 million caused a reduction both in the reported value and
fair value of shareholders' equity in 1995. While the fair value disclosures do
not provide an indication of the fair value of the Company, the information does
provide a more balanced picture of the economic position of the Company due to
interest rate changes than provided by only marking debt and equity securities
to market as required by SFAS No. 115.
Asset/Liability Review
Cash and invested assets were $21.9 billion at December 31, 1995, up 13.8% (1994
- -- $19.3 billion, up 2.9%). Excluding Providian Bancorp assets, invested assets
related to insurance operations were $18.5 billion in 1995 compared to $16.8
billion in 1994. The discussion which follows relates solely to the invested
assets and liabilities of the insurance operations. As investment manager for
the Company's invested assets related to insurance operations, PCM manages the
distribution of assets to optimize risk adjusted returns in accordance with its
baseline strategies. Overall, the distribution of invested assets related to
insurance operations remains similar to year end 1994.
The Company has historically had a low default rate in public and private
bonds. This is due to PCM's ability to prudently seek out and manage among
sectors within various asset classes. Additionally, selectivity and thorough
credit underwriting have proven effective for residential and commercial
mortgages.
Distribution of Insurance
Invested Assets
December 31, 1995
(Dollars in millions)
The graph below is a pie chart reflecting the percentage Distribution of
Insurance Invested Assets by investment type at December 31, 1995. The legend
contains the dollar amount of each investment in millions as well as total
insurance invested assets.
Distribution of Insurance Invested Assets
December 31, 1995
(Dollars in millions)
[GRAPH APPEARS HERE]
% of
Investment Type Amount Total
- ---------------- ------- -----
Public Bonds $ 8,851 47.7%
Residential Mortgages 3,063 16.5
Commercial Mortgages 2,740 14.8
Private Bonds 1,913 10.3
Cash, Cash Equivalents and Short Term
Investments 771 4.2
Common and Preferred Stocks 494 2.7
Alternative Investment Strategies 421 2.3
Real Estate and Other 288 1.5
------- -----
Total Insurance Invested Assets $18,541 100.0%
Public and private bonds account for the majority of invested assets. The
bonds are distributed across various industry sectors resulting in no
significant concentration in any one industry sector. The Company maintains a
high credit quality investment portfolio with 4.9% of invested assets at
December 31, 1995 and 1994, representing below investment grade bonds.
Approximately 90% of the bond portfolio is categorized as National Association
of Insurance Commissioners ("NAIC") designation 1 or 2. These NAIC designations
are given only to the highest quality investments as rated by the Securities
Valuation Office of the NAIC.
Distribution of Public and Private Bonds
by Industry Sector
December 31, 1995
(Dollars in millions)
The graph below is a pie chart reflecting the percentage Distribution of Public
and Private Bonds by industry sector at December 31, 1995. The legend contains
the dollar amount of each investment in millions as well as total public and
private bonds.
Distribution of Public and Private Bonds by Industry Sector
December 31, 1995
(Dollars in millions)
[GRAPH APPEARS HERE]
% of
Industry Sector Amount Total
- ---------------- ------- -----
Industrial $ 4,845 45.0%
Mortgage Backed 1,890 17.6
Government Obligations 1,749 16.2
Financial Services 1,258 11.7
Public Utilities 609 5.7
Other 413 3.8
------- -----
Total Public and Private Bonds $10,764 100.0%
Excluded from the foregoing below investment grade percentages at December 31,
1995 were $14.3 million (amortized cost of $21.3 million) of public bonds
related to Kmart Corporation, which were downgraded from investment grade to
below investment grade subsequent to year end. The Company also has in its
investment portfolio $18.0 million (amortized cost of $23.7 million) of Kmart
secured private bonds. Additionally, the Company
- --------------------------------------------------------------------------------
32 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
has commercial mortgage loans outstanding to third-party developers or owners,
which are primarily secured by real estate where Kmart is a tenant. The
Company's proportionate exposure to Kmart relating to these commercial mortgages
is $65.9 million at December 31, 1995. Based on information currently available
and the nature of this exposure to Kmart, the Company does not believe that the
subsequent downgrade to below investment grade status will result in a material
loss on any of the Company's investments related to Kmart.
There were minimal securities in the bond or equity portfolios that were
delinquent as to interest or dividends at December 31, 1995. Default and loss
experience in these portfolios was excellent with no defaults and no other
significant losses as a result of impairments in value during 1995. During
1994, the Company wrote off its $52.4 million investment in Granite Partners, a
limited partnership which invested in complex mortgage-backed securities, as a
result of an unexpected, rapid, and total deterioration in value of the limited
partnership.
The Company's bond and equity portfolios are highly diversified among
industries and types of securities. Included in the portfolios were $1.9
billion of mortgage-backed securities (MBS), which are debt instruments backed
by pools of mortgages, the majority of which are guaranteed by a federal agency
with respect to principal and interest payments.
MBS provide diversification, excellent credit quality (generally AAA), and
good liquidity characteristics to the total portfolio. The primary investment
uncertainty with MBS is the timing of cash flows due to the uncertainty of the
timing of prepayments of the underlying mortgages rather than the loss of
principal (i.e. credit risk). While MBS are subject to changing prepayment
patterns (as are callable corporate bonds), the investment in MBS should be
viewed in the context of the broader portfolios, and in light of the integrated
manner in which the Company manages its assets and liabilities. The Company's
MBS portfolio comprised 10.2% and 13.2% of total invested assets at December 31,
1995 and 1994, respectively.
Generic mortgage-backed pass-through securities were the largest component
of MBS in the portfolio, representing 57% of the total MBS portfolio at December
31, 1995. Pass-through securities represent a pool of mortgages packaged as
shares, whose income passes from debtors through an intermediary to an investor.
The Company's pass-through holdings consist primarily of AAA rated, mortgage-
backed issues, over half of which are government agency guaranteed.
Collateralized Mortgage Obligations (CMOs) represent the other component of
MBS owned by the Company. CMOs are securities which pool together mortgage
pass-throughs and separate the cash flows to create securities with average
lives which are shorter or longer than pass-through securities by themselves.
The bonds created by this process are called "tranches". The Company's CMO
holdings include a wide variety of individual issues, and are highly
concentrated in shorter, more stable tranches. The Company has only nominal
exposure to higher-volatility CMO tranches, such as interest-only or residual
securities.
A portion of the MBS portfolio, approximately 21%, has coupons which adjust
with changes in short-term interest rates, such as LIBOR and Treasury bills, and
some of which may be subject to caps and floors. While yields on both fixed
rate and floating rate MBS investments will vary somewhat with changes in
prepayment speeds, the overall impact of variability in yields on the portfolio
is not significant relative to total invested asset yields.
The following table provides the detail of mortgage-backed securities as of
December 31, 1995:
<TABLE>
<CAPTION> Mortgage-Backed Securities by Type
----------------------------------
Market Value
Amortized Cost (carrying value)
- -----------------------------------------------------------------------------
<S> <C> <C>
(Dollars in millions)
Pass-throughs $1,062 $1,077
CMOs 795 813
- -----------------------------------------------------------------------------
Total $1,857 $1,890
=============================================================================
</TABLE>
The Company engages in commercial mortgage and residential mortgage lending
in the course of its management of the insurance-related portfolio.
Substantially all the commercial mortgage loans originated are first mortgage
loans with maximum loan-to-value ratios of 75%. PCM requires minimum debt
service coverage from existing cash flows of 1.2 times. At the time of
origination of the mortgage loan, an on-site inspection of the collateral and
research concerning the borrower and the market are completed. In addition, new
mortgage loans require engineering and environmental studies. Currently, multi-
family apartments, credit-anchored shopping centers, industrial facilities and,
to a lesser extent, agribusiness lending are preferred projects for mortgage
loans. Mortgage loans are not currently offered on projects secured by raw
land, unanchored shopping centers and special purpose type properties.
<PAGE>
The graph represented below is a pie chart reflecting the percentage of total
Commercial Mortgage Loans by Geographic* Location based on ACLI defined regions
at December 31, 1995. The legend contains the dollar amount by region in
millions as well as total commercial mortgage loans.
Commercial Mortgage Loan Principal Balance by Geographic* Location
December 31, 1995
(Dollars in millions)
[GRAPH APPEARS HERE]
% of
Category Amount Total
-------- ------ ------
South Atlantic $ 584 20.5%
East North Central 565 19.8
West South Central 468 16.5
Pacific 409 14.4
Middle Atlantic 305 10.7
East South Central 298 10.5
Mountain 123 4.3
New England 53 1.8
West North Central 42 1.5
------ ------
Total Commercial Mortgage Loans $2,847 100.0%
* Based on ACLI defined regions
- --------------------------------------------------------------------------------
33 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
In addition to its stringent underwriting standards, PCM minimizes credit risk
through various means, including limiting average loan balances, diversification
by borrower and property type and, significantly, through a geographic
dispersion of similar property types.
PCM's mortgage loan philosophy is conservative in loan origination and
proactive in identifying and resolving problem loan situations. It includes an
"early warning" system designed to assist in detecting potential problems before
actual delinquencies occur, so that these loans can be reviewed monthly to
monitor results and take further action, as necessary. Included in the Company's
commercial mortgage loan portfolio are certain loans which pay interest only
with the full principal payment due upon maturity. During the next three years,
$979.8 million (1996 -- $327.6 million; 1997 -- $308.4 million; and 1998 --
$343.8 million) of these commercial mortgage loans will mature. The Company does
not expect to incur any material credit losses in excess of amounts currently
reserved. Additionally, the Company does not expect that the maturity of these
loans will have a significant impact on its overall liquidity position over the
next three years. Problem commercial mortgage loans (based on American Council
of Life Insurance (ACLI) standards, which include loans past due 60 days or
more, restructured loans, loans in the process of foreclosure and real estate
acquired through foreclosure) as of December 31, 1995, amounted to 3.0% of
outstanding commercial loans, compared to the 4.6% reported at the end of 1994.
These results compared very favorably to industry results of 16.7% at September
30, 1995, the latest date for which such information is available.
The Company also maintains a residential mortgage loan
Commercial Mortgage
Loan Principal Balance
by Property Type
December 31, 1995
(Dollars in millions)
The graph below is a pie chart reflecting the percentage of total Commercial
Mortgage Loan Principal Balance by Property Type at December 31, 1995. The
legend contains the dollar amount by property type in millions as well as total
commercial mortgage loans.
Commercial Mortgage Loan Principal Balance by Property Type
December 31, 1995
(Dollars in millions)
[GRAPH APPEARS HERE]
% of
Category Amount Total
- -------- ------ ------
Retail $ 903 31.7%
Apartment 784 27.6
Office 621 21.8
Industrial 232 8.1
Health Care 142 5.0
Hotel 89 3.1
Other 76 2.7
------ ------
Total Commercial Mortgage Loans $2,847 100.0%
portfolio with conservative underwriting standards. Residential mortgages
increased by $513.0 million in 1995 as the Company purchased "jumbo" adjustable
rate mortgage loans, which are considered a good asset/liability management fit.
Loans are acquired from approved originators and legal documentation is reviewed
to ensure a first lien position. Quality control reviews are additionally
performed on 10% of all loans, which includes "re-creating" the credit files to
protect against fraud or significant inaccuracy.
Included in the Company's residential mortgage loans in the Pacific region are
$961.2 million in California loans. Pool insurance has been obtained on 22.5% of
these California based mortgage loans to reduce exposure to any potential loss
that might result from weakening real estate values in that state. Pool
insurance on new residential mortgage loans originated may not be available in
future years due to the potential withdrawal from this market of the major
writers of this type of insurance.
Residential Mortgage
Loan Principal Balance by
Geographic* Location
December 31, 1995
(Dollars in millions)
The graph represented below is a pie chart reflecting the percentage of total
Residential Mortgage Loans by Geographic Location based on ACLI defined regions
at December 31, 1995. The legend contains the dollar amount by region in
millions as well as total residential mortgage loans.
Residential Mortgage Loan Principal Balance by Geographic* Location
December 31, 1995
(Dollars in millions)
[GRAPH APPEARS HERE]
% of
Category Amount Total
- -------- ------ ------
Pacific $1,108 36.2%
Middle Atlantic 463 15.2
South Atlantic 454 14.8
Mountain 344 11.2
East North Central 215 7.0
New England 202 6.6
West South Central 139 4.5
West North Central 93 3.1
East South Central 43 1.4
------ ------
Total Residential Mortgage Loans $3,061 100.0%
*Based on ACLI defined regions
Problem residential mortgage loans (based on Mortgage Bankers Association
("MBA") standards, which include loans past due 30 days or more and loans in the
process of foreclosure, and are based on number of loans) were 3.3% and 3.0% at
December 31, 1995 and 1994, respectively. The MBA average for such loans was
5.3% at September 30, 1995, the latest date for which such information is
available, and 5.3% at December 31, 1994.
Mortgage loans on which the Company has discontinued the accrual of interest
and restructured loans accruing interest as of December 31, 1995 and 1994, are
as follows:
<TABLE>
<CAPTION>
Mortgage Loans
-----------------------------------
Commercial Residential
------------ ------------
1995 1994 1995 1994
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(Dollars in millions)
Non-accrual loans $28.5 $68.2 $31.8 $10.7
Restructured loans, accruing
interest 14.5 4.3 -- --
- ------------------------------------------------------------------------
Total $43.0 $72.5 $31.8 $10.7
========================================================================
</TABLE>
- --------------------------------------------------------------------------------
34 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
The decrease in non-accrual commercial mortgage loans is primarily due to the
successful resolution of several delinquent loans and the improving commercial
real estate market trends. As of December 31, 1995, the Company had
approximately $63.1 million of commercial mortgage loans with identified
potential problems which could cause these loans to be included in one of the
above categories in the future. However, the Company does not currently
anticipate any material losses from these loans.
The Company had $420.9 million invested in alternative investment strategies
at December 31, 1995, including $146.7 million invested in a traditional
convertible arbitrage strategy. This strategy, under contract with a majority
owned investment manager, focuses on hedged investments using exchangeable
securities, such as convertible bonds, preferred stocks, warrants and options,
in combination with the underlying common stocks. The convertible bonds
underlying this strategy are, in general, below investment grade. The risk
associated with the convertible bond position is substantially mitigated by a
related short stock position. In the event of a gradual credit deterioration in
the underlying convertible bond position, the decline in the bond's value is
expected to be significantly offset by the related short stock position, thereby
ordinarily allowing for profitable liquidation of the investment.
The Company also had alternative strategy investments in other programs, most
of which are managed under contract by external investment managers. These
investments, some of which may have below investment grade characteristics,
generally participate in arbitrage strategies and are made primarily in the form
of limited partnership arrangements. The strategies underlying these investments
are diverse and are expected to be generally uncorrelated to changes in interest
rates. The structure of a limited partnership agreement affords PCM little
control over the day-to-day investment decisions of these partnerships. PCM
manages its exposure to these types of investments by performing appropriate
credit and underwriting reviews prior to the initial investment, by limiting the
amount that can be invested in any one strategy and by ongoing monitoring. At
December 31, 1995, the largest investment in any one of these other strategies
or limited partnerships was $57.7 million.
Additionally, the Company began investing during 1995 as a limited partner in
affordable housing partnerships which provide tax credits to its investors. At
December 31, 1995, the Company's investment in affordable housing partnerships
was $53.2 million. Due to the favorable nature of the tax credits, the Company
plans to make additional investments in these types of partnerships during 1996.
With respect to the Company's liabilities, the following tables contain
information on the Company's major insurance products with related interest
components. In addition to these products, the Company also offers products
whose return to the customer is represented by the market performance of the
underlying assets. These products are included in the separate account
liabilities reported in the Consolidated Statements of Financial Condition.
<TABLE>
<CAPTION>
Mean
Year Ended Deposits and Effective Effective
December 31, 1995 Reserves Interest* Rate* Rate**
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(Dollars in millions)
Guaranteed investment
contracts $6,523 $406 6.22% 6.57%
Fixed annuities 3,588 191 5.32 5.33
Payout products 1,237 107 8.67 8.67
Market indexed products 861 56 6.47 28.29
Single premium life 702 32 4.51 4.51
Life, health and other 3,566 205 5.76 5.76
========================================================================
Mean
Year Ended Deposits and Effective Effective
December 31, 1994 Reserves Interest* Rate* Rate**
- ------------------------------------------------------------------------
(Dollars in millions)
Guaranteed investment
contracts $6,558 $316 4.82% 5.96%
Fixed annuities 3,307 179 5.42 5.42
Payout products 1,180 103 8.72 8.72
Market indexed products 741 34 4.65 4.51
Single premium life 715 33 4.64 4.64
Life, health and other 3,397 192 5.65 5.65
========================================================================
*After related hedges **Before related hedges
</TABLE>
GICs are either floating rate, indeterminate maturity contracts (39% of GIC
deposits) or fixed rate, fixed maturity contracts (61% of GIC deposits).
Floating rate contracts credit interest based on various indices which reset
monthly and allow the contractholder to withdraw funds with advance notice
periods ranging from three to twelve months. There is no withdrawal penalty.
Beginning in 1995, the Company continued to enhance its own liquidity position
by offering only fixed maturity GICs which have no early withdrawal provisions.
At December 31, 1995, the total GIC portfolio was comprised of $4.7 billion, or
approximately 80%, of GICs with early withdrawal provisions (requiring 90 to 180
day notice provisions) and $1.2 billion, or approximately 20%, of GICs with no
early withdrawal provisions. The fixed maturity contracts, which are
synthetically converted to floating rate contracts using interest rate swaps
based primarily on three-month or six-month LIBOR, mature as follows (dollars in
millions): 1996 -- $1,346.7; 1997 -- $1,286.2; 1998 -- $1,167.3; 1999 -- $592.0;
and 2000 -- $191.9. Included in the above amounts are maturities related to the
market indexed products.
Fixed annuities include single premium and flexible premium deferred
annuities. The contracts typically have a first-year surrender charge of 5.0 to
7.0%, which generally declines to zero over five to six years. The average
remaining surrender charge on policies still in the surrender period is 3.9%. As
of December 31, 1995, approximately 66% or $2.5 billion of fixed annuities were
subject to a surrender charge. Fixed annuities as of December 31, 1995 also
included $966.7 million of market value adjustment annuities, having a market
value adjustment on withdrawal prior to the end of the interest guarantee
period, which ranges from one to seven years. Approximately 41% or $396 million
of these fixed annuity contracts are synthetically converted to floating rate
contracts using interest rate swaps based on one-year LIBOR.
- --------------------------------------------------------------------------------
35 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
Payout products include structured settlements and pension buyout annuities
which pay fixed periodic benefits to contractholders. Early withdrawals are
prohibited. Annual benefit payments on this line are currently about $98
million. This cash outflow is scheduled to taper off over the next 20 years, but
some payments will continue further into the next century.
Market indexed products provide a return based on the market performance of a
designated index, such as the S&P 500 or the Lehman Brothers Bond Index. The
Company utilizes futures contracts and interest rate swaps in order to hedge the
market risk associated with these products, effectively converting the liability
to a floating rate based primarily on one-month or three-month LIBOR. At
December 31, 1995, there were $915.4 million outstanding related to these
products.
Single premium life contracts have minimal surrender provisions. However, 1987
changes in the federal tax laws "grandfathered" favorable tax treatment for
existing contracts, thus creating a significant withdrawal disincentive.
The life, health and other category contains a full range of traditional and
interest-sensitive life and health insurance products which contain standard
insurance surrender provisions.
In addition to the above products, PCM also had $12.1 billion of Trust GIC
contracts at December 31, 1995. With Trust GIC, the customer retains legal title
to the assets and receives the investment performance over time. PCM controls
investment-related risks by setting investment guidelines and routinely
monitoring compliance. The underlying investment portfolios predominately
include Treasuries, federal agency securities, high quality corporate bonds, and
low volatility mortgage-backed instruments. PCM provides benefit responsiveness
on the Trust GIC contracts affording book value accounting treatment for the
plan sponsor. PCM provides benefit advances, if necessary, for appropriately
defined, benefit responsive events. Potential advances are mitigated and managed
through stringent plan underwriting, product structure and diversification.
During 1995, the monthly average amount funded to customers totaled $3.2
million, or less than .03% of the monthly average Trust GIC commitment balance
of $10.4 billion.
Liquidity and Capital Resources
Providian is a legal entity, separate and distinct from its subsidiaries, and
has no business operations. The primary sources of cash to meet obligations,
including principal and interest payments with respect to indebtedness, are
dividends and other statutorily permitted payments from its subsidiaries.
The liquidity requirements of the Company are primarily met by a stable base
of cash flows from insurance premiums (particularly from the home service
Providian Agency Group operations, which are very predictable and relatively
immune to disintermediation), from banking operations, investments and from
other product sales.
A strong liquidity position is critical to the Company's continuing financial
strength. The availability of cash is essential to the timely payment of
policyholders, debt and other obligations, and is instrumental to realizing
opportunities in today's fast-paced financial markets. As a result, the
Company's liquidity position is actively monitored and managed and is considered
sufficient to satisfy its foreseeable financial obligations.
Product design and investment strategies play a major role in liquidity
management. The Company's products provide significant customer value, which
protects against sudden cash demands (disintermediation). In addition, many
insurance contracts contain withdrawal notice provisions or early withdrawal
penalties and pay interest rates that are reset regularly to market levels,
which protect against disintermediation. Liquidity risks are minimized further
by investment strategies which provide for high quality asset portfolios and by
active, integrated asset/liability management processes.
Net cash flows from operations in 1995 were $1.5 billion, up from $1.0 billion
and $1.1 billion in 1994 and 1993, respectively. The increase over last year
primarily related to lower federal income taxes paid and higher accruals for
credited interest on policyholder balances in 1995 as compared to 1994. See the
Consolidated Statements of Cash Flows for additional information regarding
liquidity and funding.
Investment commitments are planned to coincide with expected cash flows.
Normal day-to-day cash variations are met by a commercial paper program.
Commercial paper borrowings averaged $52.1 million in 1995 at a weighted average
interest rate of 5.97%. Commercial paper outstanding at December 31, 1995 was
$49.5 million compared to $49.7 million at the end of 1994. In addition to the
corporate commercial paper program, Commonwealth Insurance, Peoples Security
Insurance and Providian Life and Health Insurance Company (Providian Life and
Health) each have $50 million in available commercial paper programs. There were
no borrowings under these programs in 1995.
Supplementing the commercial paper programs, the Company has committed lines
of credit of $850 million which serve as a contingency reserve should adverse
conditions materialize. There were no borrowings under these lines of credit
during the year. In addition, the Company's bond and stock portfolio of $11.3
billion at December 31, 1995 provides a significant source of short-term
liquidity.
Providian Bancorp analyzes its current and future liquidity needs to support
its deposit portfolio and asset growth and maintains a revolving credit
agreement. The agreement, which was amended and restated on October 10, 1995,
provides for $800 million of available lines of credit. The agreement provides
liquidity for the existing deposit base as well as satisfying short-term funding
requirements. Outstanding borrowings under the agreement were $321.0 million at
December 31, 1995, compared to $235.0 million at the end of 1994, as additional
borrowings were utilized in 1995 to fund Bancorp's growth in consumer loans.
Bancorp uses securitization of consumer loans as an alternative source of
funding to support its continued business growth.
The Company's Series D medium-term note program permits the issuance of up to
$400 million in medium-term notes. During
- --------------------------------------------------------------------------------
36 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
1995, $110.5 million of these notes were issued ($106.5 million issued in 1994)
leaving a remaining capacity of $183.0 million. The proceeds from these
issuances were primarily used to fund 1995 maturities of long-term debt of $84.0
million. The remaining proceeds will be used to help fund 1996 maturities of
long-term debt. Between January 1, 1996 and February 5, 1996, the Company issued
an additional $20 million of Series D medium-term notes. The ratio of long-term
debt to total realized capital (including long-term debt and the company-
obligated mandatorily redeemable preferred securities of Providian LLC and
excluding the unrealized investment gain (loss) on debt securities and
redeemable preferred stocks, net of adjustments for deferred acquisition costs
and deferred income taxes) was 21.1% at December 31, 1995, compared with 21.5%
at the end of 1994.
The following table reflects the debt and claims-paying ability ratings for
Providian Corporation and its major insurance subsidiaries at December 31, 1995:
<TABLE>
<CAPTION>
Standard Duff & A.M.
& Poor's Moody's Phelps Best
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
Providian Corporation
Ratings:
Senior Debt AA A2 AA-
Monthly Income
Preferred Stock AA- a2 A+
Commercial Paper A-1+ P-1 D-1+
Claims Paying/Financial
Strength Ratings:
Commonwealth Insurance AAA Aa3 AA+ A+
Peoples Security Insurance AAA Aa3 AA+ A+
Providian Life and Health AA A1 AA+ A+
Commercial Paper Ratings:
Commonwealth Insurance A-1+ P-1 D-1+
Peoples Security Insurance A-1+ P-1 D-1+
Providian Life and Health A-1+
==============================================================
</TABLE>
During 1995, Duff & Phelps upgraded Providian Life and Health Insurance
Company's claims-paying ability rating to AA+ from AA. In addition, Moody's
Investors Service upgraded the financial strength rating for Providian Life and
Health to A1 from A2 and in February 1996 assigned a P-1 commercial paper rating
to Providian Life and Health.
In 1994, the National Association of Insurance Commissioners (NAIC)
implemented a risk-based capital formula for the life insurance industry
designed to establish minimum levels of statutory capital and surplus. The
formula assigns various weighting factors to reflect the perceived risk of each
insurer's business. The formula focuses on: (1) asset impairment risks, (2)
insurance risks, (3) interest rate risks, and (4) general business risks. The
adjusted capital levels of the Company's life insurance subsidiaries currently
exceed all of the regulatory action levels.
The Office of the Comptroller of Currency (OCC) requires that its regulated
institutions maintain a minimum risk-based capital ratio of 10% to achieve "well
capitalized" status. First Deposit National Bank and Providian National Bank, as
OCC regulated entities, have maintained "well capitalized" status, and as of
December 31, 1995, their risk-based capital ratios were 10.89% and 12.27%,
respectively.
Inflation
As a diversified financial services company, the Company's assets and
liabilities are inherently sensitive to the overall level of and changes in
interest rates, which are traditionally linked to changes in inflation. Some of
the Company's assets benefit when interest rates increase while others lose
value. Likewise, some liabilities perform better in a rising environment, while
others are adversely affected. The converse is true when interest rates decline.
In response to these sensitivities, the Company has instituted what it believes
to be a very effective asset/liability management process. The objective of this
process is to optimize net interest margins within prescribed risk tolerances,
while also protecting net asset values (see separate discussion of
Asset/Liability Management). Despite such management activities, however,
changes in interest rates could cause net interest margins to fluctuate from
historical levels.
Common Stock Dividend and Market Data
The Company has increased its dividend in each year since its founding in 1969.
In 1995, the increase was 12.5% compared with a 9.6% increase in 1994. The
quarterly dividend of $.25 per common share declared by the Board of Directors
for the first quarter of 1996 represents an increase of 11.1% over the 1995
quarterly rate. The ten-year annual compounded growth rate has been 8.9%,
measurably higher than the approximate 6.4% compound growth rate for the
companies that make up the Dow Jones Industrial Average. The Company's annual
dividend growth rate has been more than twice the compound annual growth rate of
the Consumer Price Index over the same ten-year period, providing shareholders
with an income stream that has outpaced inflation by a wide margin.
The market price for the Company's common stock was $40.75 per common share at
December 31, 1995, compared with $30.88 per common share at December 31, 1994
and $37.13 per common share at December 31, 1993. The price-earnings multiple
(calculated on the last twelve months' net income per common share) was 11.3
compared to 10.2 at the end of 1994 and 11.9 at the end of 1993. The New York
Stock Exchange is the principal market in which the Company's stock is traded
(ticker symbols: PVN -- common; and PVN Pr M -- Monthly Income Preferred Stock
(MIPS)). The Company's common shares are also listed on the Pacific Stock
Exchange.
Approximately 15,900 named individuals and institutions own Providian stock
including approximately 5,800 associates who own stock through the Company's
Thrift Savings Plan. The Company repurchased approximately 3.9 million shares of
its common stock in 1995 at an average price of $36.63 per common share. After
completing these repurchases, the Company held 21.0 million common shares in
treasury at December 31, 1995, at an average cost of $15.77 per common share.
The Company repurchased approximately 639 thousand additional shares of its
stock through February 5, 1996 through open market purchases.
- --------------------------------------------------------------------------------
37 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
Management's Responsibilities
for Financial Reporting
The consolidated financial statements appearing in this Annual Report have been
prepared by management, which is responsible for their preparation, integrity
and fair presentation. The statements have been prepared in accordance with
generally accepted accounting principles and necessarily include some amounts
that are based on management's best estimates and judgments.
Management is responsible for the system of internal controls over financial
reporting at Providian and its affiliates, a system designed to provide
reasonable assurance regarding the preparation of reliable published financial
statements. This system is augmented by written policies and procedures
including a code of conduct to foster a strong ethical climate, a program of
internal audit, and the selection and training of qualified personnel.
Management believes that the Company's system of internal controls over
financial reporting provides reasonable assurance that the financial records are
reliable for preparing financial statements.
The Audit Committee of the Board of Directors, composed solely of outside
Directors, meets with the independent auditors, management and internal auditors
periodically to discuss internal controls over financial reporting, auditing and
financial reporting matters. The Committee reviews with the independent auditors
the scope and results of the audit effort. The Committee also meets with the
independent auditors and with internal auditors without management present to
ensure that these groups have free access to the Committee.
The independent auditors are recommended by the Audit Committee of the Board
of Directors, selected by the Board of Directors and ratified by the
shareholders. Based upon their audit of the consolidated financial statements,
the independent auditors, Ernst & Young LLP, have issued their Auditors' Report,
which appears on this page.
/s/ Irving W. Bailey II /s/ Shailesh J. Mehta
- ----------------------- -----------------------
Irving W. Bailey II Shailesh J. Mehta
Chairman and President and
Chief Executive Officer Chief Operating Officer
/s/ Robert L. Walker
- --------------------------------
Robert L. Walker
Senior Vice President -- Finance
and Chief Financial Officer
Report of Ernst & Young LLP, Independent Auditors
Board of Directors and Shareholders
Providian Corporation
We have audited the accompanying consolidated statements of financial condition
of Providian Corporation and subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of income, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Providian
Corporation and subsidiaries at December 31, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note B to the consolidated financial statements, in 1994 the
Company changed its method of accounting for certain investments in debt and
equity securities.
/s/ Ernst & Young LLP
---------------------
Louisville, Kentucky
February 5, 1996
- --------------------------------------------------------------------------------
38 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
Consolidated Statements of Income
(Dollars in millions except per common and common equivalent share)
Providian Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year Ended December 31 1995 1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations $1,195 $1,141 $1,168
Investment income, net of expenses 1,861 1,595 1,461
Consumer loan servicing fees 250 207 173
Realized investment loss (69) (100) (20)
Other income, net 151 116 97
- ----------------------------------------------------------------------------------------
Total Revenues 3,388 2,959 2,879
Benefits and Expenses:
Benefits and claims 868 832 847
Increase in benefit and contract reserves 889 700 585
Commissions, net 85 73 75
General, administrative and other expenses, net 679 549 499
Amortization:
Deferred policy and loan acquisition costs 220 249 284
Value of insurance in force purchased 21 21 19
Goodwill 8 8 12
Interest expense 112 86 71
- ----------------------------------------------------------------------------------------
Total Benefits and Expenses 2,882 2,518 2,392
Income before Federal Income Tax 506 441 487
Federal Income Tax 155 136 164
- ----------------------------------------------------------------------------------------
Net Income before Dividends on Company-Obligated Mandatorily
Redeemable Preferred Securities of Providian LLC 351 305 323
Dividends on Company-Obligated Mandatorily Redeemable
Preferred Securities of Providian LLC 6 4 --
- ----------------------------------------------------------------------------------------
Net lncome 345 301 323
Dividends on Nonconvertible Preferred Stock -- 1 7
- ----------------------------------------------------------------------------------------
Net lncome Applicable to Common Stock $ 345 $ 300 $ 316
- ----------------------------------------------------------------------------------------
Net Income Per Common and Common Equivalent Share $ 3.60 $ 3.02 $ 3.12
- ----------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>
- --------------------------------------------------------------------------------
39 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
Consolidated Statements of Financial Condition
(Dollars in millions)
<TABLE>
<CAPTION>
December 31 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments:
Securities available for sale, at fair value:
Bonds and redeemable preferred stocks (amortized cost of $10,104
and $10,299 in 1995 and 1994, respectively) $10,705 $ 9,744
Common and nonredeemable preferred stocks (cost of $462
and $611 in 1995 and 1994, respectively) 453 557
Trading account securities, at fair value 105 115
Commercial mortgage loans 2,740 2,650
Residential mortgage loans 3,063 2,550
Consumer loans 3,091 2,270
Policy loans 454 391
Real estate 60 71
Other long-term investments 320 237
Short-term investments 225 110
- -------------------------------------------------------------------------------------------------
Total Investments 21,216 18,695
Cash and cash equivalents 708 573
Investment income due and accrued 303 307
Operating property -- at cost, less accumulated depreciation and amortization 178 167
Deferred policy and loan acquisition costs 1,481 1,492
Value of insurance in force purchased 256 273
Goodwill 214 222
Separate account assets 2,070 1,353
Other assets 413 531
- -------------------------------------------------------------------------------------------------
Total Assets $26,839 $23,613
=================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
40 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
Providian Corporation and Subsidiaries
<TABLE>
<CAPTION>
December 31 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Shareholders' Equity
Liabilities
Policy liabilities:
Benefit reserves $ 9,503 $ 8,706
Policyholder contract deposits 6,858 7,417
Policy and contract claims 206 203
Other policyholders' funds 185 184
- --------------------------------------------------------------------------
Total Policy Liabilities 16,752 16,510
Banking deposits 2,158 1,680
Accrued expenses and other liabilities 1,572 1,004
Separate account liabilities 2,070 1,353
Long-term debt 721 694
Deferred federal income tax 505 150
- --------------------------------------------------------------------------
Total Liabilities 23,778 21,391
Commitments and Contingencies
Company-Obligated Mandatorily Redeemable Preferred
Securities of Providian LLC 100 100
Shareholders' Equity
Common stock, $1 par:
300,000,000 shares authorized;
Issued -- 115,325,000 shares 115 115
Additional paid-in capital 50 57
Net unrealized investment gain (loss) 359 (344)
Retained earnings 2,770 2,513
Common stock held in treasury -- at cost:
1995 -- 20,967,000 shares; 1994 -- 17,789,000 shares (330) (214)
Unearned restricted stock (3) (5)
- --------------------------------------------------------------------------
Total Shareholders' Equity 2,961 2,122
- --------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $26,839 $23,613
==========================================================================
See Notes to Consolidated Financial Statements.
</TABLE>
- --------------------------------------------------------------------------------
41 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
Consolidated Statements of Cash Flows
(Dollars in millions)
Providian Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year Ended December 31 1995 1994 1993
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operations:
Net income $ 345 $ 301 $ 323
Adjustments to reconcile net income to net cash flows from operations:
Increase in policy liabilities 998 669 703
Amortization of deferred policy and loan acquisition costs 220 249 284
Amortization of value of insurance in force purchased and goodwill 29 29 31
Provision for consumer loan losses 80 50 59
Change in investment income due and accrued 4 19 29
Depreciation and other amortization, net 16 12 27
Net sales (purchases) of trading account securities 9 (49) --
Realized investment loss 69 100 20
Change in current federal income tax 53 (95) 32
Provision (benefit) for deferred federal income tax 2 -- (29)
Policy and loan acquisition costs deferred:
General, administrative and other expenses (225) (198) (242)
Commissions (84) (89) (104)
Other (32) (1) (27)
- ------------------------------------------------------------------------------------------------------
Net Cash Flows provided by Operations 1,484 997 1,106
Cash Flows from Investment Activities:
Available for sale securities sold 4,934 4,862 --
Available for sale securities acquired (4,213) (4,927) --
Other investments sold or matured 1,364 608 14,722
Other investments acquired (1,911) (1,549) (16,009)
Additions to operating property (45) (38) (40)
Net increase in credit card receivables and other consumer loans (2,486) (981) (780)
Proceeds from securitization of credit card receivables 1,824 575 1,469
Purchase of consumer loans (241) (49) (914)
Net cash received from coinsurance transaction 310 -- --
All other investment activities (91) (49) (81)
- ------------------------------------------------------------------------------------------------------
Net Cash Flows used in Investment Activities (555) (1,548) (1,633)
Cash Flows from Financing Activities:
Change in short-term borrowings 414 205 (76)
Deposits in universal life and investment-type products 1,779 2,862 2,917
Withdrawals from universal life and investment-type products (3,277) (2,676) (2,323)
Net increase in certificates of deposit 392 117 81
Increase in other banking deposits 86 10 38
Issuance of company-obligated mandatorily redeemable
preferred securities of Providian LLC -- 100 --
Redemption of preferred stock -- (100) --
Issuance of long-term debt 111 106 --
Repayment of long-term debt (84) (2) (35)
Purchase of common stock for treasury (143) (139) --
Dividends on preferred and common stock (86) (82) (81)
Proceeds from exercise of stock options 14 4 8
- ------------------------------------------------------------------------------------------------------
Net Cash Flows provided by (used in) Financing Activities (794) 405 529
- ------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents During Year 135 (146) 2
Cash and Cash Equivalents at Beginning of Year 573 719 717
- ------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 708 $ 573 $ 719
======================================================================================================
See Notes to Consolidated Financial Statements.
</TABLE>
- --------------------------------------------------------------------------------
42 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
Consolidated Statements of Shareholders' Equity
(Dollars in millions)
Providian Corporation and Subsidiaries
<TABLE>
<CAPTION>
Net Common
Additional Unrealized Stock Held Unearned Total
Preferred Common Paid-in Investment Retained in Restricted Shareholders'
Stock Stock Capital Gain (Loss) Earnings Treasury Stock Equity
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993 $ 237 $ 58 $ 60 $ (35) $2,057 $(191) $-- $2,186
Net income 323 323
Dividends:
Preferred (7) (7)
Common (76) (76)
Common stock split 57 (58) (1)
Change in net unrealized
investment gain (loss) 52 52
Issuance of 5,928,000 common
shares from treasury on
conversion of 1,068,000
shares Series J Preferred
Stock, and cash paid in
lieu of fractional shares (137) 47 90 --
Issuance of 584,000 common
shares under employee
benefit plans, including
tax benefit 6 (1) 10 15
Award of 118,000 unearned
restricted common shares to
employees, less 8,000 shares
forfeited and related
amortization 2 2 (3) 1
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 100 115 57 17 2,296 (89) (3) 2,493
Adjustment to beginning
balance for change in
accounting method 262 262
Net income 301 301
Dividends:
Preferred (1) (1)
Common (81) (81)
Change in net unrealized
investment gain (loss) (623) (623)
Purchase of 4,334,000
common shares for treasury (139) (139)
Redemption of 1,000,000
shares Series F Adjustable
Rate Cumulative Preferred
Stock (100) (100)
Issuance of 330,000 common
shares under employee
benefit plans, including
tax benefit 1 (2) 10 9
Award of 147,000 unearned
restricted common shares to
employees, less 34,000 shares
forfeited and related
amortization (1) 4 (2) 1
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 -- 115 57 (344) 2,513 (214) (5) 2,122
Net income 345 345
Dividends on common stock (88) (88)
Change in net unrealized
investment gain (loss) 703 703
Purchase of 3,910,000
common shares for treasury (143) (143)
Issuance of 732,000 common
shares under employee
benefit plans, including
tax benefit (6) 26 20
Award of 69,000 unearned
restricted common shares to
employees, less 63,000 shares
forfeited and related
amortization (1) 1 2 2
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31,
1995 $ -- $ 115 $ 50 $ 359 $2,770 $(330) $(3) $2,961
===============================================================================================================================
See Notes to Consolidated Financial Statements.
</TABLE>
- --------------------------------------------------------------------------------
43 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
Notes to Consolidated Financial Statements
Note A -- Nature of Operations
Providian Corporation (the "Company") is a leading provider of consumer
financial services. Through its insurance and banking operations, the Company
offers various types of insurance, consumer credit and savings deposits, and
individual annuity and group pension products.
Providian Bancorp (Bancorp) offers consumer lending and deposit products, such
as credit cards, revolving credit lines, home equity loans, money market deposit
accounts and certificates of deposit, nationwide through direct mail and
telephone distribution channels.
Providian Direct Insurance (PDI) provides whole and term life insurance
products as well as supplemental accident and health insurance and property and
casualty insurance products. PDI utilizes direct response methods, such as
television, telephone and mail to reach low- to middle-income households
nationwide. PDI also markets life and health insurance to enlisted military
personnel, both active duty and retirees.
Providian Agency Group (PAG) primarily offers individual life insurance
products (such as whole life, interest-sensitive and term life plans) through
home sales representatives. PAG markets to middle- and low-income individuals
and families, primarily in rural and small-town areas throughout the Southeast
and Mid-Atlantic states. PAG also leverages its insurance capabilities by
marketing insurance products in partnership with third-party insurance and
marketing organizations.
Providian Capital Management (PCM) provides fixed rate and variable individual
annuities as well as group traditional and synthetic guaranteed investment
contracts (GICs) and payout annuities. Through the Company's insurance
susidiaries, PCM markets its annuities to individuals through banks, financial
planners and third-party marketing organizations. PCM also markets its fee- and
spread-based group products to pension plans, banks and other organizations.
Note B -- Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP) designed for
shareholder reporting to measure income on a going-concern basis. Insurance and
banking subsidiaries of the Company also submit financial reports to regulatory
authorities based on regulatory accounting practices designed to measure
solvency, which differ significantly from GAAP. Certain 1994 and 1993 amounts
have been reclassified to conform with the 1995 presentation. These
reclassifications had no significant effect on the Company's financial position
or results of operations.
Principles of Consolidation
The consolidated financial statements include the accounts of Providian
Corporation and all of its subsidiaries. All significant intercompany accounts
and transactions are eliminated in consolidation.
Management's Estimates
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and the accompanying notes. Actual results could differ
from those estimates.
Significant estimates are utilized in the calculation of deferred policy
acquisition costs, benefit reserves and allowances for uncollectible mortgage
and consumer loans. It is reasonably possible that these estimates may change in
the near term, thereby possibly having a material effect on the financial
statements.
Investments
Debt and equity securities that are not bought and held principally for the
purpose of selling them in the near term or those which are not intended to be
held to maturity are classified as available for sale and are carried at fair
value. Unrealized gains and losses on securities available for sale are credited
or charged, net of applicable taxes and adjustments to related deferred policy
acquisition costs, directly to shareholders' equity as a component of net
unrealized investment gain (loss) and are recognized in income as a realized
gain (loss) upon disposition of the investment.
Debt and equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading. Trading
account securities are carried at fair value with the unrealized gain or loss
included as a component of investment income.
Mortgage and consumer loans are carried at unpaid balances, net of allowances
for uncollectible amounts. It is the Company's policy to discontinue the accrual
of interest on mortgage loans when more than 90 days delinquent and on consumer
loans when more than 180 days delinquent. Interest received on non-accrual
mortgage loans generally is either applied against principal or reported as
interest income, according to management's judgment as to the collectibility of
principal. Real estate taken in foreclosure is recorded at the lower of cost or
fair value. Other real estate is carried at cost less depreciation, generally
calculated using the straight-line method. Policy loans are carried at unpaid
balances. Other long-term investments are carried at cost or on the equity
method, as appropriate. Short-term investments and cash equivalents are carried
at cost, which approximates market value.
Realized gains and losses on investments sold, net of unamortized gains and
losses of related hedging instruments and provisions for other than temporary
impairment in the value of investments retained, are included in income. The
cost of
- --------------------------------------------------------------------------------
44 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
investments sold is determined on a first-in, first-out basis. Dividends on
redeemable preferred stocks and interest on bonds and loans are credited to
income as they accrue. Dividends on common and nonredeemable preferred stocks
are credited to income on ex-dividend dates.
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of
a Loan," as amended by SFAS No. 118, "Accounting by Creditors for Impairment of
a Loan -- Income Recognition and Disclosures." These Statements, which establish
accounting standards for creditors when a loan is deemed impaired, are primarily
applicable to the commercial loan portfolio, as large groups of smaller balance
homogeneous loans such as credit card, consumer installment loans, or
residential mortgages are excluded. The adoption of these Statements did not
have a material effect on the Company's financial position or results of
operations.
Effective January 1, 1994, the Company adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Under this Statement,
securities are classified either as held to maturity, available for sale or
trading. Upon adoption of SFAS No. 115, the Company classified substantially all
of its securities as available for sale. As a result of the adoption of SFAS No.
115, the net unrealized investment gain (loss) component of shareholders' equity
increased by $261,400,000. The adoption of SFAS No. 115 had no effect on net
income. In accordance with the Statement, prior year financial statements were
not restated to reflect the change in accounting principle.
The Financial Accounting Standards Board issued SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," which is effective for calendar year 1996 financial statements. This
Statement requires impairment losses to be recorded on long-lived assets used in
operations when indications of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Long-lived assets held for disposal are required to be valued
at the lower of the assets' carrying amount or fair value less cost to sell.
SFAS No. 121 will be adopted by the Company in the first quarter of 1996 and
will not have a material effect on the Company's financial position or results
of operations, based on current circumstances.
Derivative Financial Instruments
The Company manages interest rate and market risk by using derivative financial
instruments to adjust the overall net duration level of the portfolio or to
modify the interest rate or market characteristics of the underlying assets or
liabilities. For those derivative financial instruments designated and used to
hedge changes in fair value of an underlying security due to changes in interest
rates, Company policy requires that the correlation of the change in fair value
between the derivative financial instrument and the underlying security be
between 80% to 125% during the hedge period. If the correlation deviates from
this range and is not expected to return to this range in the near term, Company
policy requires that hedge accounting be terminated. Certain derivative
financial instruments are also used to hedge interest rate risk by changing the
interest characteristics of the underlying hedged asset or liability, for
example, to convert an asset or liability from a fixed rate to a floating rate.
Interest Rate Swap, Cap and Floor Agreements Interest rate swap agreements
generally involve the exchange of fixed and floating rate interest payments,
without an exchange of the underlying principal amount. Interest rate cap
agreements involve the payment of a maximum fixed interest rate when an indexed
rate exceeds that fixed rate. Interest rate floor agreements involve the payment
of a minimum fixed interest rate when that rate exceeds an indexed rate. The
fair values of interest rate caps, floors and swap agreements accounted for as
hedges are recorded in the Consolidated Statements of Financial Condition in a
manner similar to the underlying asset or liability which is being hedged. See
Note D for additional information related to these interest rate swap
agreements. The amounts to be paid or received as a result of these agreements
are accrued and recognized in the Consolidated Statements of Income through an
adjustment to investment income, benefits and claims or increase in benefit and
contract reserves. Gains or losses realized on closed or terminated agreements
accounted for as hedges are deferred and amortized to investment income on a
constant yield basis over the expected remaining life of the hedged item, which
typically approximates the term of the hedging instrument prior to its
termination.
Futures and Forwards Futures and forwards are contracts which call for the
delayed delivery of securities in which the seller agrees to deliver on a
specified future date, a specified instrument at a specified price. The daily
change in market value of forwards and futures contracts used to adjust the net
duration level of the overall portfolio is recognized in realized investment
losses in the Consolidated Statements of Income. The daily change in market
value for futures contracts used as accounting hedges for products that provide
a return based on the market performance of a designated index is included in
benefits and claims in the Consolidated Statements of Income. Margin
requirements on futures contracts, equal to the change in market value, usually
are settled on a daily basis.
- --------------------------------------------------------------------------------
45 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
Options Options are contracts that give the option purchaser the right, but not
the obligation, to buy or sell, within a specified period of time, a financial
instrument at a specified price. The Company generally hedges written option
positions with counterbalancing futures or purchased option positions. Options
are carried at market value, with realized and unrealized gains and losses
recognized in income or, if the option contract qualifies as a hedge, as an
adjustment to the carrying amount of the asset or liability being hedged.
Asset Securitizations
The Company actively engages in non-recourse sales of certain credit card and
revolving credit line receivables through securitization. Since the receivables
are sold at par value, no gains or losses are recorded at the time of the sale.
Upon the sale, the underlying credit card and revolving credit line receivables,
the related deferred acquisition costs and allowance for possible credit losses
are removed from the Consolidated Statements of Financial Condition.
The Company continues to service the related accounts after the receivables
are securitized. The amount of credit card and revolving credit line interest
income and fee revenue in excess of interest paid to the owners of the
securitized assets, credit losses and other trust expenses is recognized monthly
over the life of the transaction when earned and is included in consumer loan
servicing fees in the Consolidated Statements of Income. Other transaction costs
are deferred and amortized as a reduction of servicing fees.
Some of the securitization transactions include credit enhancement facilities
at levels determined by the rating agencies. The providers of the credit
enhancement have no other recourse to the Company. The Company does not receive
collateral from any party to the securitizations, nor does the Company have any
risk of counterparty nonperformance.
Operating Property
Operating property, including real estate, furniture and fixtures, and data
processing hardware and related systems, is recorded at cost, which, for
significant additions, includes interest capitalized. These assets are
depreciated or amortized over their estimated useful lives, principally using
the straight-line method.
Policy and Loan Acquisition Costs
The costs of acquiring new individual life, annuity, accident and health and
property and casualty insurance policies are deferred to the extent recoverable
from future premiums or expected gross profits. These costs consist principally
of commissions; product-related printing, mailing, and solicitation costs; and
other issue and marketing-related administrative expenses. The amortization
policy is explained under Premiums, Benefits and Expenses. Mortgage loan
commitment fees, net of direct costs incurred for successful efforts in
acquiring loans, are deferred and amortized as income over the expected life of
the loan, generally seven years. The direct costs of acquiring consumer loans
are netted against related credit card and credit line fees, if any, and
deferred and amortized on a straight-line basis, generally over one year for
credit card products and five or seven years for consumer credit line products.
Other Intangibles
The value of insurance in force purchased is an asset that is recorded in
connection with the acquisition of an insurance company. The initial value is
determined by an actuarial study using expected future gross profits as a
measurement of the net present value of the insurance purchased, which is
amortized on a constant yield basis, with the accrual of interest added to the
unamortized balance using rates ranging from 6.25% to 15%. The balance is
amortized over the estimated life of the insurance in force over a period not to
exceed 30 years for individual life insurance, 25 years for individual accident
and health insurance and 15 years for property and casualty insurance. Goodwill
is amortized over a period not to exceed 40 years using the straight-line
method.
Separate Accounts
Separate account assets and liabilities represent funds segregated by the
Company for the benefit of certain policyholders and employee groups who
generally bear the investment risk. The separate account assets and liabilities
are carried at fair value. Premiums received and the accumulated value portion
of benefits paid to the separate account policyholders are excluded from the
amounts reported in the Consolidated Statements of Income. Fees charged on
policyholders' deposits are included in other income, net.
Certain separate accounts provide policyholders with a guaranteed return
consistent with the performance of an index such as the S&P 500. These separate
accounts are included in the general account assets and liabilities for GAAP
purposes due to the nature of the guaranteed return. However, these products are
sold and reported as separate accounts for statutory purposes.
- --------------------------------------------------------------------------------
46 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
Benefit Reserves and Policyholder Contract Deposits
Traditional Life Insurance and Accident and Health Insurance Products
Traditional life insurance products include those contracts with fixed and
guaranteed premiums and benefits, and consist principally of whole life and term
insurance policies, limited-payment life insurance policies and certain
annuities with life contingencies. Accident and health insurance products
include coverages for regular income during periods of hospitalization,
scheduled reimbursement for specific hospital/surgical expenses and cancer
treatments, and lump sum payments for accidental death or dismemberment.
Reserves on traditional life and accident and health insurance products are
calculated by using a net level premium method and assumptions, determined at
the time of policy issue, as to investment yields, mortality, morbidity and
withdrawals. The assumptions are based on projections of past experience and
include provisions for possible unfavorable deviation. Reserves on most such
individual policies are based on assumed investment yields which range from a
level 3.0% for policies issued before 1951 to a rate grading from 7.5% to 5.5%
for policies issued after 1980. Reserves on individual policies acquired by
purchase are based on assumptions considered appropriate as of the date of
purchase, with an assumed investment yield grading from 9.0% to 5.5%.
Universal Life and Investment-Type Products Universal life products include
universal life and other interest-sensitive life insurance policies. Investment-
type products consist primarily of guaranteed investment contracts and single
premium and flexible premium annuity and life contracts.
Benefit reserves and policyholder contract deposits on these products are
determined following the retrospective deposit method and consist of policy
values that accrue to the benefit of the policyholder, before deduction of
surrender charges.
Interest Rate Assumptions
The weighted average assumed investment yield for policy reserves and deposits
was 6.3% in 1995, 6.1% in 1994 and 6.0% in 1993.
Policy and Contract Claims
Policy and contract claims, principally related to accident and health and
property and casualty insurance policies, are based on estimates of future
trends in claim severity and frequency.
Banking Deposits
Banking deposits consist primarily of savings deposits, time deposits and
certificates of deposit of $100,000 or more. Interest on banking deposits and
related hedging instruments is reflected in the Consolidated Statements of
Income in benefits and claims.
Premiums, Benefits and Expenses
Traditional Life Insurance and Accident and Health Insurance Products Premiums
for individual life policies are recognized when due; premiums for accident and
health and all other policies are reported as earned proportionately over their
policy terms.
Benefit claims (including an estimated provision for claims incurred but not
reported), benefit reserve changes, and expenses (except those deferred) are
charged to income as incurred. Deferred policy acquisition costs are charged to
income over periods of 25 years or less for traditional life insurance policies
and 20 years or less for accident and health policies. Amortization is
determined principally by using the sum-of-the-years premium method and
assumptions generally consistent with those used for computing benefit reserves.
These practices are designed to match benefits and expenses with related
premiums and thereby spread income recognition over expected policy lives.
Universal Life and Investment-Type Products Premiums for these products consist
of policy charges for the cost of insurance, policy initiation, administration
and surrenders during the period. Expenses include interest credited to policy
account balances, net payments or receipts related to interest rate exchange
agreements and benefit payments made in excess of policy account balances.
Credited interest rates ranged from 4.0% to 8.0% in 1995.
Deferred policy acquisition costs are amortized in relation to the incidence
of expected gross profits, including realized investment gains and losses, over
the expected life of the policies, not to exceed 25 years for universal life-
type contracts and 15 years for investment-type contracts.
Federal Income Tax
Deferred income tax assets and liabilities reflect the future tax consequences
of differences between the reported amounts of assets and liabilities in the
accompanying financial statements and those in the Company's income tax returns.
Benefit Plans
The cost of the Company's defined benefit retirement plan is
- --------------------------------------------------------------------------------
47 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
determined using the projected unit credit method, plus amortization of prior
service cost and gains and losses over the expected future service period of
plan participants. The Company's funding policy is to contribute amounts to the
plan sufficient to meet regulatory minimum funding requirements, plus such
additional amounts as it may determine appropriate from time to time.
Contributions to the defined contribution retirement, profit sharing and thrift
savings plans are expensed as incurred. The cost of plans providing life
insurance benefits for active employees, and life and health insurance benefits
for eligible retirees, is accrued generally over participants' active periods of
service.
Stock Based Compensation
The Company grants stock options for a fixed number of shares to employees with
an exercise price equal to or greater than the fair market value of the shares
at the date of grant. The Company accounts for stock option grants in accordance
with APB Opinion No. 25, "Accounting for Stock Issued to Employees," and
accordingly, recognizes no compensation expense for the stock option grants.
Treasury Stock
Repurchased shares of the Company's common stock are included in treasury stock
at cost. Shares issued from treasury stock under employee benefit plans and for
exercise of stock options are at original cost on a last-in, first-out basis.
Net Income Per Common and Common Equivalent Share
Per common and common equivalent share amounts in the Consolidated Statements of
Income have been calculated using net income after provision for dividends on
nonconvertible preferred stock, divided by the weighted average number of common
and common equivalent shares outstanding during the year (1995 -- 95,861,000
shares; 1994 -- 99,319,000 shares; and 1993 -- 101,132,000 shares). Fully
diluted net income per common share is not presented as it approximates net
income per common and common equivalent share.
Consolidated Statements of Cash Flows
Cash and cash equivalents consist of highly liquid investments with maturities
of three months or less at their time of purchase. Cash paid for interest on
debt was $107,147,000, $82,370,000 and $71,470,000 in 1995, 1994 and 1993,
respectively. Cash paid for federal income taxes was $116,895,000, $230,507,000
and $154,999,000 in 1995, 1994 and 1993, respectively. Note C -- Investments
The following tables contain amortized cost and market value information on
equity securities (common and nonredeemable preferred stocks) and debt
securities (bonds and redeemable preferred stocks) classified as available for
sale at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
December 31, 1995 Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(Dollars in millions)
Debt securities:
U.S. government
obligations $ 788 $ 37 $ l $ 824
States and political
subdivisions 679 69 -- 748
Foreign government
obligations(a) 162 15 -- 177
Corporate 6,161 450 40 6,571
Foreign corporate(a) 457 41 3 495
Mortgage-backed 1,857 46 13 1,890
- ------------------------------------------------------------------------------------------------
Total debt securities 10,104 658 57 10,705
Equity securities 462 9 18 453
- ------------------------------------------------------------------------------------------------
Total available for sale $10,566 $667 $ 75 $11,158
================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
December 31, 1994 Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(Dollars in millions)
Debt securities:
U. S. government
obligations $ 509 $ 2 $ 28 $ 483
States and political
subdivisions 633 19 20 632
Foreign government
obligations(a) 193 -- 16 177
Corporate 6,095 89 433 5,751
Foreign corporate(a) 521 2 45 478
Mortgage-backed 2,348 6 131 2,223
- ------------------------------------------------------------------------------------------------
Total debt securities 10,299 118 673 9,744
Equity securities 611 2 56 557
- ------------------------------------------------------------------------------------------------
Total available for sale $10,910 $120 $729 $10,301
================================================================================================
(a) Substantially all are U.S. dollar denominated.
</TABLE>
The amortized cost and market value of available for sale debt securities at
December 31, 1995, by contractual maturity, follows. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations, sometimes without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Market
December 31, 1995 Cost Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
(Dollars in millions)
Due in one year or less $ 79 $ 80
Due after one year through five years 1,267 1,288
Due after five years through ten years 2,195 2,277
Due after ten years 4,706 5,170
- ------------------------------------------------------------------------------------------------
Subtotal 8,247 8,815
Mortgage-backed securities 1,857 1,890
- ------------------------------------------------------------------------------------------------
Total debt securities $10,104 $10,705
================================================================================================
- ------------------------------------------------------------------------------------------------
48 | PROVIDIAN 1995 ANNUAL REPORT
</TABLE>
<PAGE>
Net unrealized gains (losses) on investments classified as available for sale
are reduced by deferred federal income taxes and adjustments to deferred policy
acquisition costs that would have been required as an adjustment to income had
such gains and losses been realized. Net unrealized investment gain (loss) on
available for sale securities as of December 31, 1995 and 1994 is summarized as
follows:
<TABLE>
<CAPTION>
December 31 1995 1994
- -------------------------------------------------------------------------
(Dollars in millions)
<S> <C> <C>
Net unrealized investment gain (loss)
on available for sale securities before
adjustments for the following: $ 592 $(609)
Amortization of deferred
policy acquisition costs (40) 79
Deferred federal income taxes (193) 186
- -------------------------------------------------------------------------
Net unrealized investment gain (loss)
on available for sale securities $ 359 $(344)
=========================================================================
</TABLE>
Additionally, the following table shows the annual change in net unrealized
investment gain (loss) and the amount of realized investment gain (loss) on debt
and equity securities for the years ended December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
Year Ended December 31 1995 1994 1993
- ----------------------------------------------------------------------
(Dollars in millions)
<S> <C> <C> <C>
Change in unrealized
investment gain (loss)
Available for sale:
Debt securities $1,156 $(1,018) $ 45
Equity securities 45 (59) 43
Held for investment:
Debt securities -- -- 255
Change in unrealized
investment gain (loss) included
in investment income:
Trading account securities:
Debt securities $ 9 $ (10) $ --
Equity securities -- 1 --
Realized investment gain (loss):
Debt securities $ (44) $ (28) $ 16
Equity securities (7) (3) 12
Other investments (2) (48) (15)
======================================================================
</TABLE>
Proceeds during 1995 and 1994 from sales of available for sale securities were
$4,934,071,000 and $4,862,207,000, respectively. Gross gains of $115,074,000 and
$75,804,000 and gross losses of $115,090,000 and $124,776,000 were realized on
the sales of available for sale securities in 1995 and 1994, respectively. Gross
gains of $4,991,000 and $21,532,000 and gross losses of $56,112,000 and
$3,418,000 were realized on related hedging instruments in 1995 and 1994,
respectively. Included in the above amounts in 1995 are gross losses of
$56,112,000 on futures transactions used as an economic hedge of the available
for sale debt securities portfolio. Proceeds during 1993 from sales of debt
securities were $11,114,981,000. Gross gains of $384,268,000 and gross losses of
$45,887,000 were realized on sales of debt securities in 1993. Gross gains of
$13,666,000 and gross losses of $335,928,000 on related hedging instruments were
realized on those sales in 1993. Included in realized investment gain (loss) in
other investments in the preceding table in 1994 is a $52,403,000 nonrecurring
loss on the Company's impaired investment in Granite Partners.
Federal income tax in 1995, 1994 and 1993 includes a benefit of $21,554,000,
$31,501,000 and $1,911,000, respectively, for the tax effect of total realized
losses.
Consumer loans have been reduced by the sales, without recourse, of unsecured
receivables under asset securitization plans during 1995 and 1994 of
$1,583,796,000 and $525,711,000, respectively. Total unsecured receivables
outstanding under securitization plans were $3,485,843,000 as of December 31,
1995. Additionally, there were $123,300,000 of unsecured receivables held for
future securitization as of December 31, 1995.
An analysis of the allowance for loan losses on consumer and mortgage loans
for the years ended December 31, 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
Consumer Mortgage
----------------------- -----------------------
Year Ended December 31 1995 1994 1993 1995 1994 1993
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in millions)
Balance at beginning
of period $ 76 $ 75 $ 83 $ 52 $ 51 $ 47
Current period provision 80 50 59 16 21 34
Current period chargeoffs,
net of recoveries (63) (49) (67) (18) (20) (30)
- ---------------------------------------------------------------------------------
Balance at end of period $ 93 $ 76 $ 75 $ 50 $ 52 $ 51
=================================================================================
</TABLE>
Mortgage loans which have been non-income producing for the preceding twelve
months were $6,349,000 and $20,700,000 at December 31, 1995 and 1994,
respectively. At December 31, 1995, the recorded investment in mortgage loans
that were considered to be impaired under SFAS No. 114 was $111,500,000 with
related allowances for credit losses of $17,200,000. The average recorded
investment in impaired loans during 1995 was $105,400,000. For the year ended
December 31, 1995, the Company recognized $6,800,000 of interest income on those
impaired loans which included $6,100,000 of interest income recognized using the
cash basis method of income recognition.
- --------------------------------------------------------------------------------
49 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
Net Investment Income
Gross investment income, net of payments or receipts on related interest rate
exchange agreements, by type of investment, and investment expenses for the
years ended December 31, 1995, 1994 and 1993, were as follows:
<TABLE>
<CAPTION>
Year Ended December 31 1995 1994 1993
- --------------------------------------------------------
(Dollars in millions)
<S> <C> <C> <C>
Gross investment income:
Available for sale and
held for investment:
Debt securities $ 817 $ 805 $ 694
Equity securities 44 61 30
Trading account securities 21 4 --
Mortgage loans 462 399 422
Consumer loans 458 314 316
Policy loans 27 23 18
Real estate and other long-term
investments 44 16 24
Short-term investments and
cash equivalents 37 23 23
- ---------------------------------------------------------
Total 1,910 1,645 1,527
Less investment expenses 49 50 66
- ---------------------------------------------------------
Investment income,
net of expenses $1,861 $1,595 $1,461
=========================================================
</TABLE>
Note D -- Financial Instruments
The Company utilizes a variety of financial instruments in its asset/liability
management process and to meet its customers' financing needs. The
asset/liability management process focuses on the management of a variety of
risks, including market (primarily interest rate risk) and credit risks.
Effective management of these risks is an important determinant of
profitability. Instruments used in this process and to meet the customers'
financing and investing needs include derivative financial instruments,
primarily interest rate swap agreements and futures contracts, and commitments
to extend credit. Other derivatives, such as interest rate cap and floor
agreements, options and forwards are used to a much lesser extent in the
asset/liability management process. All of these instruments involve (to varying
degrees) elements of market and credit risks in excess of the amounts recognized
in the accompanying financial statements at a given point in time. The contract
or notional values of all of these instruments reflect the extent of involvement
in the various types of financial instruments.
The Company's exposure to market risk (including interest rate risk) is the
risk of market volatility and potential disruptions in the market which may
result in certain instruments being less valuable. The Company monitors and
controls its exposure to this risk primarily through the use of total portfolio
analysis of net duration levels, a monthly mark to market process and ongoing
monitoring of interest rate movements.
The Company's exposure to credit risk is the risk of loss from a counterparty
failing to perform according to the terms of the contract. This exposure
includes settlement risk (risk that the counterparty defaults after the Company
has delivered funds or securities under the terms of the contract) which results
in an accounting loss and replacement cost risk (cost to replace the contract at
current market rates should the counterparty default prior to the settlement
date). There is no off-balance sheet exposure to credit risk that would result
in an immediate accounting loss (settlement risk) associated with counterparty
non-performance on interest rate swap agreements (including caps and floors),
futures, forwards and options. Interest rate swap, cap and floor agreements are
subject to replacement cost risk, which equals the cost to replace those
contracts in a net gain position should a counterparty default. These
instruments, as well as futures, forwards and options, are subject to market
risk, which is the possibility that future changes in market prices may make the
instruments less valuable. Credit loss exposure resulting from non-performance
by a counterparty for commitments to extend credit is represented by the
contractual amounts of the instruments.
The credit risk on all financial instruments, whether on- or off-balance
sheet, is controlled through an ongoing credit review, approval and monitoring
process. The Company determines, on an individual counterparty basis, the need
for collateral or other security to support financial instruments with credit
risk, and establishes individual and aggregate counterparty exposure limits. In
order to limit exposure associated with counterparty non-performance on interest
rate exchange agreements, the Company enters into master netting agreements with
its counterparties. These master netting agreements provide that, upon default
of either party, contracts in gain positions will be offset with contracts in
loss positions and the net gain or loss will be received or paid, respectively.
Assuming every counterparty defaulted, the cost of replacing those interest rate
contracts in a net gain position, after consideration of the aforementioned
master netting agreements, was $116,574,000 and $6,252,000 at December 31, 1995
and 1994, respectively.
The Company manages interest rate risk through the use of duration analysis.
Duration is a key portfolio management tool and is measured for both assets and
liabilities. For the simplest forms of assets or liabilities, duration is
proportional to their weighted average life, with weights equal to the
discounted present value of estimated cash flows. This methodology causes near-
term cash flows to have a greater proportional weight than cash flows further in
the future. For more complex assets and liabilities with optional cash flows,
for example, callable bonds, mortgage-backed securities, or traditional
insurance liabilities, additional adjustments are made in estimating an
effective duration number. The Company uses derivatives as a less costly and
less burdensome alternative to restructuring the underlying cash instruments to
manage interest rate risk based upon the aggregate net duration level of its
aggregate portfolio.
- --------------------------------------------------------------------------------
50 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
The following table provides information for each significant derivative
product type. The Company uses futures contracts primarily to adjust the net
duration level of the overall portfolio and to reduce market risk related to
certain products that provide a return based on the market performance of a
designated index. Interest rate swaps are used in the overall asset/liability
management process to modify the interest rate characteristics of the underlying
asset or liability. These interest rate swaps generally provide for the exchange
of the difference between fixed and floating (primarily six month or less London
Interbank Offered Rate (LIBOR)) interest amounts based upon an underlying
notional amount. The basis swaps are contracts where the Company receives an
amount based primarily upon six month or less LIBOR and pays an amount based on
either a short-term Treasury or Prime rate. The following information is based
on the assumption that rates will remain constant at December 31, 1995 levels.
To the extent that actual rates change, the variable interest rate information
will change accordingly. The following table illustrates the maturities and
weighted average rates by type of derivative product held at December 31, 1995:
<TABLE>
<CAPTION>
Maturity Schedule by Year for Derivative Products
--------------------------------------------------
2000-
1996 1997 1998 1999 2002 Total
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in millions)
Receive Fixed Swaps
Notional value $ 280 $ 448 $1,149 $1,016 $1,839 $4,732
Weighted average:
Receive rate 7.68% 6.40% 5.90% 6.90% 6.90% 6.66%
Pay rate 5.90 5.79 5.84 5.75 5.82 5.81
Pay Fixed Swaps
Notional value $ -- $ 50 $ 525 $ 9 $ 16 $ 600
Weighted average:
Receive rate -- 5.00% 5.83% 5.88% 5.90% 5.76%
Pay rate -- 7.04 6.12 5.66 6.19 6.19
Basis Swaps
Notional value $ 12 $ 358 $ 10 $ 110 $ -- $ 490
Weighted average:
Receive rate 17.11% 9.89% 5.90% 5.95% -- 9.10%
Pay rate 5.99 6.26 5.94 6.29 -- 6.25
Other Derivative
Products (a)
Notional or
contract value $ 914 $ 48 $ 249 $ 166 $ 767 $2,144
- --------------------------------------------------------------------------------------------------------
Total notional or
contract value.................................... $1,206 $ 904 $1,933 $1,301 $2,622 $7,966
========================================================================================================
Total Weighted
Average Rates
on Swaps:
Receive rate...................................... 8.06% 7.78% 5.88% 6.80% 6.89% 6.77%
Pay rate.......................................... 5.90 6.06 5.93 5.80 5.83 5.89
========================================================================================================
</TABLE>
(a) Other derivative products include interest rate caps and floors, futures,
forward rate agreements and options.
The following table summarizes the activity by notional or contract value in
derivative products for 1995, 1994 and 1993:
<TABLE>
<CAPTION>
Receive Pay Fixed/ Other
Fixed/Pay Receive Derivative
Floating Floating Basis Futures Products(a)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(Dollars in millions)
Balance at
January 1, 1993 $ 4,807 $ 4,399 $ 463 $ 97 $ 2,892
Additions 1,858 1,856 120 7,204 1,641
Maturities (646) (76) (55) -- (1,244)
Terminations (1,384) (3,942) (2) (6,569) (2,102)
- -----------------------------------------------------------------------------------
Balance at
December 31, 1993 4,635 2,237 526 732 1,187
Additions 3,061 10 315 7,030 250
Maturities (555) (281) (33) -- (424)
Terminations (3,270) (1,699) -- (6,499) (258)
- -----------------------------------------------------------------------------------
Balance at
December 31, 1994 3,871 267 808 1,263 755
Additions 1,631 541 183 4,066 1,359
Maturities (770) (208) (457) -- (6)
Terminations -- -- (44) (4,503) (790)
- -----------------------------------------------------------------------------------
Balance at
December 31, 1995 $ 4,732 $ 600 $ 490 $ 826 $ 1,318
===================================================================================
</TABLE>
(a) Other derivative products include interest rate caps and floors, forward
rate agreements, options and foreign currency forwards.
During 1994 and 1993, the Company terminated or closed certain interest rate
swaps which were accounted for as hedges. The net deferred gains on these
agreements were $71,219,000 and $116,262,000 as of December 31, 1995 and 1994,
respectively, and are being amortized to investment income over the expected
remaining life of the related investment, generally four to ten years.
The net unrealized gain (loss) on all derivative instruments is off-balance
sheet. The following table summarizes the unrealized gains and losses on
derivative instruments as of December 31, 1995 and 1994:
<TABLE>
<CAPTION>
Total Net
Notional Unrealized Unrealized Unrealized
December 31, 1995 Value Gains Losses Gain (Loss)
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(Dollars in millions)
Receive fixed $4,732 $134 $ 6 $128
Pay fixed 600 -- 11 (11)
Basis 490 -- 3 (3)
Other derivative
products(a) 2,144 -- 1 (1)
- ------------------------------------------------------------------------
Total $7,966 $134 $21 $113
========================================================================
</TABLE>
- --------------------------------------------------------------------------------
51 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
<TABLE>
<CAPTION>
Total Net
Notional Unrealized Unrealized Unrealized
December 31, 1994 Value Gains Losses Gain (Loss)
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
(Dollars in millions)
Receive fixed $3,871 $ 9 $134 $(125)
Pay fixed 267 3 -- 3
Basis 808 2 3 (1)
Other derivative
products (a) 2,018 2 2 --
- ---------------------------------------------------------------------
Total $6,964 $ 16 $139 $(123)
=====================================================================
</TABLE>
(a) Other derivative products include interest rate caps and floors, futures,
forward rate agreements, options and foreign currency forwards.
Commitments
Consumer credit line loan commitments are agreements to lend to a customer as
long as there is no violation of any condition established in the contract. In
addition, these commitments can be withdrawn by the Company at any time after 30
days notice, or without notice as permitted by law. It is anticipated that
commitment amounts will only be partially drawn upon based on overall customer
usage patterns and, therefore, do not necessarily represent future cash
requirements.
The Company has issued Trust GIC contracts to plan sponsors pursuant to the
terms of which the plan sponsor retains legal title to the assets and receives
the investment performance related to these contracts. The Company guarantees to
provide benefit responsiveness, which may take the form of annuities, in the
event that qualified plan benefit requests exceed plan cash flows. The plan
sponsor agrees to reimburse the Company for such benefit payments with interest,
either at a fixed or floating rate, from future plan contributions and asset
cash fiows or proceeds from the future sales of plan assets. In return for this
guarantee, the Company receives a premium which varies based on such elements as
benefit responsive exposure and contract size. The Company thoroughly
underwrites the plan(s) for the possibility of having to make benefit payments.
Additionally, the plan sponsor must agree to the investment guidelines
established by the Company which help to ensure appropriate credit quality and
cash flow availability from plan assets. Funding requirements to date have been
minimal and management does not anticipate any future funding requirements which
would have a material effect on reported financial results.
Other commitments primarily consist of agreements to lend to a customer at
some future time, subject to conditions established in the contract. Since it is
likely some commitments may expire or be withdrawn without being fully drawn
upon, the total commitment amounts do not necessarily represent future cash
requirements. The Company evaluates individually each customer's
creditworthiness. Collateral may be obtained, if deemed necessary, based on a
credit evaluation of the counterparty. The collateral may include commercial
and/or residential real estate.
The following table summarizes the Company's commitments as of December 31,
1995 and 1994:
<TABLE>
<CAPTION>
Year Ended December 31 1995 1994
- ------------------------------------------------------------------
<S> <C> <C>
(Dollars in millions)
Consumer credit lines $ 9,121 $6,745
Trust GIC contracts 12,122 8,498
Other commitments 849 1,008
==================================================================
</TABLE>
Concentrations of Credit Risk
The Company invests its cash and cash equivalents with major financial
institutions, in U.S. government agency securities and in commercial paper of
companies with strong credit ratings. The investments mature within 90 days and,
therefore, are subject to little risk. The Company has not experienced credit
losses related to these investments.
The Company limits credit risk by diversifying its investment portfolio among
common and preferred stocks, public and private bonds and commercial and
residential mortgage loans. It further diversifies these portfolios between and
within industry sectors, by geography and by property type. Credit risk is also
limited by maintaining stringent underwriting standards and purchasing insurance
protection in certain cases.
In addition, the Company establishes credit approval processes, limits and
monitoring procedures on an individual counterparty basis. It underwrites and
originates commercial and residential loans through its insurance and banking
subsidiaries. As a result, management believes that significant concentrations
of credit risk do not exist.
Note E -- Fair Values of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosure of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate that
value. In cases where quoted market prices are not available, fair values are
based on estimates using discounted cash flow or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including
the discount rate and estimates of the amount and timing of future cash flows.
SFAS No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. The fair value amounts presented
herewith do not include an amount for the value associated with customer or
agent relationships, the expected interest margin (interest earnings over
interest credited) to be earned in the future on investment-type products, or
other intangible items. Accordingly, the aggregate fair value amounts presented
do not necessarily represent the underlying value of the Company.
The following statement reflects fair values for those instruments
specifically covered by SFAS No. 107 along with a fair value amount for those
traditional insurance liabilities for which disclosure is permitted but not
required; all other assets and liabilities have been reflected at their carrying
amount.
- --------------------------------------------------------------------------------
52 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
<TABLE>
<CAPTION>
1995 1994
-------------------- --------------------
Carrying Carrying
December 31 Fair Value Amount Fair Value Amount
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(Dollars in millions)
Assets
Investments:
Securities available for sale:
Bonds and redeemable
preferred stocks (a) $10,705 $10,705 $ 9,744 $ 9,744
Common and
nonredeemable
preferred stocks (a) 453 453 557 557
Trading account securities (a) 105 105 115 115
Commercial mortgage loans 2,913 2,740 2,769 2,650
Residential mortgage loans 3,065 3,063 2,458 2,550
Consumer loans 3,737 3,091 2,802 2,270
Policy loans 454 454 391 391
Real estate and other
investments (a) 605 605 418 418
- ----------------------------------------------------------------------------
Total Investments 22,037 21,216 19,254 18,695
Cash and cash equivalents (a) 708 708 573 573
Deferred policy and
loan acquisition costs -- 1,481 -- 1,492
Value of insurance in
force purchased -- 256 -- 273
Goodwill (a) 214 214 222 222
Separate account assets (a) 2,070 2,070 1,353 1,353
Other assets (a) 894 894 1,005 1,005
- ----------------------------------------------------------------------------
Total Assets $25,923 $26,839 $22,407 $23,613
============================================================================
1995 1994
-------------------- --------------------
Carrying Carrying
December 31 Fair Value Amount Fair Value Amount
- ----------------------------------------------------------------------------
(Dollars in millions)
Liabilities
Policy liabilities:
Benefit reserves $ 8,079 $ 9,503 $ 6,812 $ 8,706
Policyholder
contract deposits 6,965 6,858 7,311 7,417
Policy and contract claims and
other policyholders' funds 384 391 374 387
- ----------------------------------------------------------------------------
Total Policy Liabilities 15,428 16,752 14,497 16,510
Banking deposits 2,172 2,158 1,676 1,680
Accrued expenses and
other liabilities (a) 1,572 1,572 1,004 1,004
Separate account liabilities (a) 2,070 2,070 1,353 1,353
Long-term debt 796 721 699 694
Deferred federal income tax 656 505 388 150
Derivative instruments
relating to:
Benefit reserves (8) -- (1) --
Policyholder contract deposits (101) -- 119 --
Banking deposits (5) -- 6 --
Long-term debt 1 -- (1) --
- ----------------------------------------------------------------------------
Total Liabilities 22,581 23,778 19,740 21,391
- ----------------------------------------------------------------------------
Company-Obligated Mandatorily
Redeemable Preferred
Securities of Providian LLC (a) 100 100 100 100
- ----------------------------------------------------------------------------
Total Shareholders' Equity $ 3,242 $ 2,961 $ 2,567 $ 2,122
============================================================================
</TABLE>
(a) These balance sheet items are carried at fair value or are not covered by
SFAS No. 107 and are reported at carrying amounts.
Valuation Methods and Assumptions
Bonds, Preferred Stocks and Common Stocks Fair values for debt and equity
securities (including trading account securities) are based on quoted market
prices, where available. For debt securities for which a quoted market price is
not available, fair values are estimated using a pricing matrix or quoted prices
of comparable instruments.
Commercial and Residential Mortgage Loans Fair values of commercial and
residential mortgage loans are estimated utilizing discounted cash flow
calculations, using current market interest rates for loans with similar terms
to borrowers of similar credit quality.
Consumer Loans Fair values of consumer credit line loans are determined by
discounting the estimated future cash flows, adjusted for differences in loan
characteristics at rates for securities backed by similar loans. Variable rate
equity lines secured by second deeds of trust with interest rate floors
approximate carrying amounts plus a floor premium calculated using external
market valuations.
For variable rate loans that reprice monthly with no applicable floor and no
significant change in credit risk, carrying amounts approximate fair values. The
fair values of consumer loans include a value for loan servicing rights related
to securitized loans.
Policy Loans The carrying amounts of policy loans approximate their fair
values.
Policy Liabilities Fair values for liabilities under floating rate GICs
approximate carrying amounts. Fair values for liabilities under other
investment-type insurance contracts are estimated using discounted cash flow
calculations, based on current interest rates for similar contracts. Fair values
for liabilities under traditional insurance contracts are estimated using
discounted cash flow calculations based on current interest rate and pricing
assumptions. Other policy liabilities represent obligations which are
anticipated to be settled in the near term where fair values approximate their
carrying amounts. The fair values of policy liabilities represent the fair
values of the insurance contracts as a whole which implicitly eliminates
deferred policy acquisition costs and value of insurance in force purchased.
Banking Deposits The fair values for demand deposits (money market accounts and
certain savings accounts) are equal to the amount payable on demand at the
reporting date, that is, their carrying amount. The carrying amounts for
variable rate certificates of deposit approximate their fair values. Fair values
for fixed rate certificates and other fixed rate deposits are estimated using
discounted cash flow calculations based on interest rates currently offered on
deposits of similar remaining maturities.
Long-Term Debt Fair values of publicly traded debt are based
- -------------------------------------------------------------------------------
53 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
on quoted market prices, where available. In instances where a quoted market
price is not available, fair values are based on discounted cash flow analyses
by an external source, using a current borrowing rate for similar debt
arrangements.
Deferred Federal Income Tax Included in this caption is a projected liability
for federal income tax which may be incurred as a result of the excess of
estimated fair value over reported values of the assets, liabilities and
derivative instruments. This projected tax liability of $151,000,000 and
$238,000,000 at December 31, 1995 and 1994, respectively, has been computed on a
non-discounted basis assuming a statutory federal income tax rate of 35% for
both 1995 and 1994.
Derivative Instruments Derivative instruments include interest rate swap, cap
and floor agreements. Fair values for these interest rate exchange agreements
are based on pricing models or formulas using current assumptions.
Note F -- Accumulated Depreciation and Amortization
Accumulated depreciation and amortization were as follows:
<TABLE>
<CAPTION>
December 31 1995 1994
- ----------------------------------------------------
(Dollars in millions)
<S> <C> <C>
Investment real estate $ 3 $ 3
Operating property 214 180
Value of insurance in force purchased 271 250
Goodwill 96 88
====================================================
</TABLE>
The value of insurance in force purchased is an asset that represents the
present value of future profits on business acquired. An analysis of the value
of insurance in force purchased for the years ended December 31, 1995, 1994 and
1993 is as follows:
<TABLE>
<CAPTION>
Year Ended December 31 1995 1994 1993
- -------------------------------------------------------
(Dollars in millions)
<S> <C> <C> <C>
Balance at beginning of period $273 $284 $229
Additions resulting from
acquisitions 4 10 74
Accretion of interest during
the year 27 29 31
Amortization of asset (48) (50) (50)
- -------------------------------------------------------
Balance at end of period $256 $273 $284
=======================================================
</TABLE>
Amortization of the value of insurance in force purchased in each of the
following years is expected to be: 1996 -- $44,754,000; 1997 -- $42,294,000;
1998 -- $39,603,000; 1999 -- $36,494,000 and 2000 -- $33,576,000.
Note G -- Federal Income Tax
Federal income tax expense (benefit) for the years ended December 31, 1995, 1994
and 1993 consisted of the following:
<TABLE>
<CAPTION>
Year Ended December 31 1995 1994 1993
- ----------------------------------------------
(Dollars in millions)
<S> <C> <C> <C>
Current $153 $136 $193
Deferred 2 -- (29)
- ----------------------------------------------
Total federal income tax $155 $136 $164
==============================================
</TABLE>
The following is a reconciliation of the federal statutory income tax rate to
the Company's actual effective income tax rate:
<TABLE>
<CAPTION>
Percent of GAAP Pretax Income
-----------------------------
Year Ended December 31 1995 1994 1993
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
Tax-preferenced investment income (3.4) (3.4) (3.3)
Impact on deferred of enacted
tax rate change -- -- 2.4
Other items, net (.9) (.7) (.3)
- ---------------------------------------------------------------------------------
Effective income tax rate 30.7% 30.9% 33.8%
=================================================================================
</TABLE>
Deferred tax liabilities and assets consisted of the following:
<TABLE>
<CAPTION>
December 31 1995 1994
- --------------------------------------------------------------
<S> <C> <C>
(Dollars in millions)
Deferred tax liabilities:
Deferred policy and
loan acquisition costs $424 $439
Market discount on investments 29 26
Value of insurance in force purchased 77 80
Prepaid pension asset 33 33
Net unrealized gain on available
for sale securities 193 --
Other 6 5
- --------------------------------------------------------------
Total deferred tax liabilities 762 583
Deferred tax assets:
Policy liabilities 76 68
Employee benefit accruals 43 38
Loan loss reserve 68 62
Net unrealized loss on available
for sale securities -- 186
Net deferred investment gains 25 40
Other 45 39
- --------------------------------------------------------------
Total deferred tax assets 257 433
- --------------------------------------------------------------
Net deferred tax liabilities $505 $150
==============================================================
</TABLE>
As a result of the Omnibus Budget Reconciliation Act of 1993, enacted on
August 10, 1993 and made retroactive to January 1, 1993, the federal statutory
income tax rate increased to 35% from 34%. The effect of the change in tax
legislation increased income tax expense by $16,771,000 for the year ended
December 31, 1993, including a one-time charge of $11,682,000 as a result of
applying the newly enacted tax rate to deferred tax balances as of August 10,
1993, and a $5,089,000 impact on current taxes for 1993 due to the change in the
statutory tax rate.
- --------------------------------------------------------------------------------
54 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
Prior to 1984, a portion of the life insurance subsidiaries' current income
was not subject to current income tax and was accumulated in tax accounts known
as policyholders' surplus. The total of the life insurance subsidiaries'
balances accumulated in the policyholders' surplus accounts as of December 31,
1983 amounted to $256,996,000 and was frozen at that time as a result of the Tax
Reform Act of 1984. Accordingly, no additions to the policyholders' surplus
accounts have been made since that date. Distributions from these accounts would
be subject to current income tax. At December 31, 1995, the life insurance
subsidiaries could have paid (or deemed to have paid) to the Company additional
dividends, subject to statutory limitations on subsidiary dividends as discussed
in Note J, of approximately $1,233,994,000 before being subject to tax on any
portion of the policyholders' surplus accounts. Since the Company believes that
the policyholders' surplus accounts will not be subject to current income tax in
the foreseeable future, no provision has been made for the related deferred
income taxes of $89,949,000.
Note H -- Debt
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31 1995 1994
- ---------------------------------------------------------
(Dollars in millions)
<S> <C> <C>
Debentures:
Sinking Fund 8.75% due 2017 $ 95 $ 95
Notes:
8.95% to 9.50% medium-term
notes due 1995, noncallable -- 84
8.17% to 8.97% medium-term
notes due 1996, noncallable 66 66
7.043% to 9.79% medium-term
notes due 1997, noncallable 57 57
8.11% to 9.35% medium-term
notes due 1998, noncallable 13 l3
8.83% to 8.90% medium-term
notes due 1999, noncallable 70 70
6.92% to 9.99% medium-term
notes due 2000, noncallable 10 5
6.57% to 9.875% medium-term
notes due 2001 to 2025, noncallable,
net of unamortized discount of $9 in 1995 385 279
10.00% medium-term notes due
2021, callable at par in 2001 25 25
- ---------------------------------------------------------
Total long-term debt $721 $694
=========================================================
</TABLE>
Aggregate maturities and sinking fund requirements of long-term debt in each
of the following years are: 1996 -- $65,750,000; 1997 -- $57,500,000;
1998 --$13,000,000; 1999 -- $75,000,000 and 2000 -- $15,000,000.
Between January 1, 1996 and February 5, 1996, the Company issued an additional
$20,000,000 of medium-term notes with maturities ranging from 10 to 30 years and
rates ranging from 6.31% to 7.05%.
Debentures
The 8.75% Sinking Fund Debentures are subject to an annual sinking fund
beginning in 1998 and to a 10-year refunding provision, which may be reduced to
the extent that the debentures are acquired through early redemption provisions
or on the open market.
Revolving Credit Facility Agreements
The Company entered into a Revolving Credit Facility Agreement, with various
domestic and international banks, effective June 19, 1992 with an expiration
date of June 19, 1997. The agreement provides for an aggregate principal amount
of $300,000,000 in unsecured borrowings with a facility fee of .125% per annum
based on the commitment at the time, regardless of usage, and on the Company's
senior debt ratings. The facility enables the Company to borrow on a standby
basis and under competitive bid procedures. The loans bear interest based on one
of the following options: fixed rates determined by the participating banks;
LIBOR adjusted for a margin; LIBOR plus a margin of .25%; an adjusted
certificate of deposit rate plus a margin of .375%; or the higher of the base
commercial lending rate or the federal funds rate plus .50%. The above margins
are based on the Company's senior debt ratings. There have been no borrowings
under this agreement.
The Company entered into a five-year Revolving Credit Facility Agreement, with
various domestic and international banks, effective August 21, 1995. The
agreement provides for an aggregate principal amount of $450,000,000 in
unsecured borrowings with a facility fee of .10% per annum based on the
commitment at the time, regardless of usage, and on the Company's senior debt
ratings. The facility enables the Company to borrow on a standby basis as well
as under competitive bid procedures. The loans bear interest based on one of the
following options: fixed rates determined by the participating banks; LIBOR
adjusted for a margin; LIBOR plus a margin of .25%; an adjusted certificate of
deposit rate plus .375%; or the higher of the base commercial lending rate or
the federal funds rate plus .50%. The above margins are based on the Company's
senior debt ratings. This agreement replaced the Company's Syndicated Credit
Facility Agreement which expired in August 1995. There have been no borrowings
under this agreement.
The Company renewed a short-term committed revolving credit facility effective
October 10, 1995 having an initial 364 day term that may be renewed annually.
The unsecured agreement provides for an aggregate principal amount of
$100,000,000 with a facility fee of .08% per annum on the daily average balance.
The borrowings bear interest based upon one of the following options: higher of
the federal funds rate plus .25% or the base commercial lending rate; LIBOR plus
.225%; or an adjusted certificate of deposit rate plus .35%. There have been no
borrowings under this facility.
Revolving Credit Agreement
- --------------------------------------------------------------------------------
55 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
Certain subsidiaries of Providian Bancorp, Inc., a wholly-owned subsidiary of
the Company, maintain a revolving credit agreement with various domestic and
international banks. The agreement, which was amended and restated on October
10, 1995, provides for an aggregate principal amount of $800,000,000, with a
facility fee of .125% or .15% per annum of the total commitment amount,
determined on the basis of Providian Bancorp's consolidated tangible capital.
Revolving credit loans under the agreement bear interest based on one of the
following options: greater of the federal funds rate plus .50% or the prime
commercial lending rate of the agent bank; LIBOR plus .175%, or a competitive
bid option rate. The agreement expires October 10, 1998, with an optional one-
year extension. At December 31, 1995 and 1994, outstanding borrowings under the
agreement were $321,000,000 and $235,000,000, respectively.
Summary of Short-Term Borrowings
In addition to the credit facilities previously discussed, the Company may use
other borrowing sources, such as commercial paper, federal funds purchased,
repurchase agreements and bank notes, to meet its short-term financing needs.
The following table summarizes all outstanding short-term borrowings (included
in accrued expenses and other liabilities in the Consolidated Statements of
Financial Condition) and the weighted average interest rate on those borrowings
as of December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
-------------------------------------
Weighted Weighted
Average Average
Interest Interest
December 31 Balance Rate Balance Rate
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
(Dollars in millions)
Commercial paper $ 50 5.85% $ 50 6.14%
Borrowings under
Providian Bancorp:
Revolving credit agreement 321 6.03 235 6.41
Federal funds purchased 336 5.73 198 6.03
Bank notes 190 5.82 -- --
====================================================================
</TABLE>
Note I -- Company-Obligated Mandatorily Redeemable
Preferred Securities of Providian LLC
In May 1994, Providian LLC was formed and capitalized through the purchase of
common shares by the Company. Providian LLC exists solely for the purpose of
issuing preferred and common shares and lending the proceeds to the Company. The
notes receivable from the Company that result from such loans constitute the
only material assets of Providian LLC. On May 12, 1994, Providian LLC completed
the issuance of 4,000,000 shares of Cumulative Monthly Income Preferred Stock
(MIPS) at $25 per share to replace the Company's Adjustable Rate Cumulative
Preferred Stock, Series F, which had been redeemed (see Note J). The MIPS are
redeemable at the option of Providian LLC (with the Company's consent) in whole
or in part on or after May 31, 1999 at a redemption price of $25 per share plus
accumulated and unpaid dividends. Upon liquidation of Providian LLC, the holders
of the MIPS are entitled to $25 per share plus accumulated and unpaid dividends.
The MIPS pay monthly dividends at an annual rate of 8.875%. The Company has
unconditionally guaranteed all legally declared and unpaid dividends of
Providian LLC.
Note J -- Shareholders' Equity and Restrictions
Common Stock
During 1995 and 1994, the Company announced plans to repurchase a total of 9.5
million shares of the Company's common stock on the open market. Through
December 31, 1995, the Company repurchased 8,244,000 shares (3,910,000 shares in
1995 and 4,334,000 shares in 1994) at an aggregate cost of $281,990,000
($143,199,000 in 1995 and $138,791,000 in 1994). Between January 1, 1996 and
February 5, 1996, the Company repurchased an additional 639,000 shares at an
aggregate cost of $27,017,000.
Preferred Stock
The Company has 6,000,000 shares of preferred stock authorized for issuance. At
December 31, 1995, there were 5,453,000 shares of preferred stock available for
issuance. The remaining 547,000 shares of preferred stock are held by
Commonwealth Life Insurance Company, a wholly-owned subsidiary of the Company,
and are eliminated from the Consolidated Statements of Financial Condition.
On March 2, 1994, the Company redeemed, at face value, all 1,000,000 shares of
its Series F, Adjustable Rate Cumulative Preferred Stock, at $100 per share plus
accrued and unpaid dividends through the date of redemption.
Effective June 16, 1993, each of the remaining 1,068,000 outstanding shares of
Series J, Junior Noncumulative Preferred Stock was exchanged for 5.55 shares of
the Company's common stock and all rights of the holders of Series J preferred
stock, including the right to receive dividends, were terminated.
Shareholder Rights Plan
The Company adopted in 1987 a Shareholder Rights Plan designed to deter those
takeover initiatives deemed not to be in the best interest of its shareholders.
Under the Plan, as amended on November 4, 1992, a Common Share Purchase Right
(Right) with an exercise price of $75 is attached to each outstanding share of
the Company's common stock. The Rights detach and become exercisable when any
person or group acquires 20% or more (or announces a tender offer for 20% or
more) of the Company's common stock, at which time each Right (other than those
held by the acquiring company) will entitle the holder to purchase that number
of shares of common stock of the Company with a market value of two times the
exercise price. If the Company is acquired in a merger or other business
combination or 50% or more of its consolidated assets or earning power are sold,
each Right will entitle the holder to purchase that number of shares of stock of
the acquiring company at the
- --------------------------------------------------------------------------------
56 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
exercise price having a market value of two times that price.
The Rights, which expire December 15, 1999, are redeemable by action of the
Board of Directors at a price of $.01 per Right at any time prior to their
becoming exercisable.
Statutory Limitations on Subsidiary Dividends
The Company's insurance subsidiaries are subject to limitations on the payment
of dividends to the Company. Generally, dividends during any year may not be
paid, without prior regulatory approval, in excess of the lesser of (and with
respect to life and health subsidiaries in the state of Missouri, in excess of
the greater of): (a) 10% of the insurance subsidiaries' statutory surplus as of
the preceding December 31; or (b) the insurance subsidiaries' statutory gain
from operations for the preceding year. The banking subsidiaries' payment of
dividends are restricted by certain risk weighted capital requirements and
required regulatory approval for dividends in excess of the current and prior
two year's earnings. These subsidiaries were in compliance with those
requirements at December 31, 1995.
The following table is a comparison of subsidiaries' statutory net income and
consolidated GAAP net income. Statutory shareholders' equity for the insurance
subsidiaries consisted of capital and surplus of $63,933,000 and $1,144,622,000,
respectively, in 1995 and $28,678,000 and $1,156,260,000, respectively, in 1994.
In converting to GAAP, typical adjustments to insurance statutory amounts
include: (a) costs of acquiring new policies are deferred and amortized over the
premium-paying period or in relation to the incidence of expected gross profits;
(b) benefit reserves are calculated using more realistic investment, mortality
and withdrawal assumptions; (c) deferred income taxes are provided; (d)
acquisitions accounted for as purchases recognize the fair value of assets and
liabilities acquired; and (e) statutory non-admitted assets are restored for
GAAP. In converting to GAAP for banking purposes, the direct costs of acquiring
consumer loans are deferred and amortized over one, five or seven years,
depending on the product and loan servicing income deferred in trust
receivables.
<TABLE>
<CAPTION>
Year Ended December 31 1995 1994 1993
- -------------------------------------------------------------------------
<S> <C> <C> <C>
(Dollars in millions)
Statutory gain (loss) from insurance operations:
Life insurance companies $ 205 $ 186 $ 165
Property and casualty insurance companies 1 (2) 9
- -------------------------------------------------------------------------
Total statutory gain from insurance operations 206 184 174
Realized investment loss, net of tax (3) (24) (6)
- -------------------------------------------------------------------------
Total insurance statutory net income 203 160 168
Banking net income 117 101 128
- -------------------------------------------------------------------------
Total statutory net income $ 320 $ 261 $ 296
- -------------------------------------------------------------------------
Consolidated GAAP net income $ 345 $ 301 $ 323
=========================================================================
</TABLE>
The Company believes that contractual and statutory limitations impose no
practical restrictions on the Company's dividend and common stock repurchase
plans.
Note K -- Commitments and Contingencies
Leases
At December 31, 1995, future minimum rental commitments under noncancellable
leases aggregated $86,174,000 through 2012 for office space and aggregated
$10,790,000 through 2001 for data processing and other equipment. Total payments
under these commitments in each of the following years are: 1996 -- $17,150,000;
1997 -- $13,358,000; 1998 -- $10,698,000; 1999 -- $8,732,000 and 2000 --
$5,708,000. The leases contain no significant restrictions or obligations, and
capital leases included are not material.
Reinsurance and Underwriting Risk
To limit risk, the Company retains no more than $1,000,000 of life insurance and
$250,000 of accidental death benefits for any single life. Excess coverages are
reinsured externally, and at December 31, 1995, amounted to approximately 5.8%
of total life insurance in force. The Company would become liable for the
reinsured benefits if the reinsurers could not meet their obligations.
Underwriting standards for individual life policies generally require evidence
of insurability. If applications involving substandard risks are accepted,
higher premiums are charged or coverage is limited. Other coverages may be
written without evidence of insurability, with product design, pricing or other
requirements compensating for the higher level of anticipated claims.
Effective June 30, 1995, the Company entered into a coinsurance agreement with
North American Security Life (NASL). This agreement coinsures existing deposits
of NASL's fixed annuities and the fixed account portion of their variable
annuity product business. In addition, this agreement includes prospective
coinsurance of additional annual fixed annuity deposits from the future sales of
NASL's fixed and variable annuities. Under the agreement, the Company received
cash and invested assets in exchange for its coinsurance of more than $720
million of fixed annuity deposits. At December 31, 1995, there were $729 million
of fixed annuity deposits outstanding which were coinsured by the Company.
Legal Proceedings
In the normal course of business, the Company and its subsidiaries are parties
to a number of lawsuits. Management believes that these suits will be resolved
with no material financial impact on the Company.
- --------------------------------------------------------------------------------
57 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
Note L -- Benefit Plans
The Company has a defined benefit pension plan covering most of its full-time
employees. The plan is non-contributory and provides benefits that are based on
employees' years of service and highest consecutive five-year average
compensation during the last ten years of employment. Employee groups not
participating in the defined benefit pension plan are covered by a defined
contribution retirement plan. In addition, the Company has a thrift savings plan
which provides for partial employer matching of participant contributions. The
Company and its subsidiaries also provide certain life insurance and health care
benefits, including benefits to eligible retirees. Retiree medical insurance was
discontinued for those employees retiring after June 1, 1989.
Note M -- Stock Ownership and Stock Option Plans
The Providian Corporation Stock Ownership Plan (the "Plan") provides for the
award of up to 2,000,000 shares of the Company's common stock (subject to
certain adjustments) on a nonrestricted or restricted basis. Under the Plan, a
portion of key salaried employees' incentive awards (and non-employee directors'
compensation) may be paid in nonrestricted shares of the Company's common stock
and matched with an award of restricted shares. Recipients of all stock awards
have the right to vote their respective shares and to receive cash dividends.
Nonrestricted stock can be withdrawn after the grant date, subject to forfeiture
of the matching restricted shares. Restricted stock cannot be sold or
transferred by the recipient prior to the vesting period, which is three years
for 50% of the shares and six years for the remaining shares. During 1995, there
were 69,000 shares (145,000 shares and 78,000 shares in 1994 and 1993,
respectively) issued under the Plan which were nonrestricted and 69,000 shares
(147,000 shares and 78,000 shares in 1994 and 1993, respectively) which were
restricted. At December 31, 1995, there were 1,505,000 shares available for
future award. Unearned compensation under the Plan is recorded as Unearned
restricted stock in the Consolidated Statements of Financial Condition and is
being amortized over the vesting period.
The Company has a stock option plan for key salaried employees which
authorizes the Board of Directors to grant, before May 5, 2005, options to
purchase a total of 4,500,000 shares of common stock and related stock
appreciation rights, subject to various terms, at not less than fair market
value. Generally, the options granted become exercisable at the rate of one-
third per year beginning one year after the date granted, and must be exercised
not later than ten years after the grant date. During 1994, certain options were
granted to senior management at a price in excess of the fair market value on
the date of grant. These options granted become exercisable one year after the
date granted and must be exercised not later than seven years after the grant
date. At December 31, 1995, there were 2,661,000 shares available for future
grant (3,492,000 shares and 1,549,000 shares in 1994 and 1993, respectively) and
options for 2,747,000 shares were exercisable (2,108,000 shares and 1,682,000
shares in 1994 and 1993, respectively). Plan activity for the most recent three
years follows:
<TABLE>
<CAPTION>
Number of Option Price
Options Per Share
- --------------------------------------------------------------------------
<S> <C> <C>
Outstanding at January 1, 1993 3,043,580 $ 9.08-$31.91
Granted 698,700 38.31- 43.06
Exercised (575,577) 9.08- 31.78
Canceled or forfeited (162,090) 10.63- 43.06
- --------------------------------------------------------------------------
Outstanding at December 31, 1993 3,004,613 12.53- 43.06
Granted 1,688,475 30.75- 40.88
Exercised (189,617) 12.69- 31.78
Canceled or forfeited (171,449) 21.75- 43.06
- --------------------------------------------------------------------------
Outstanding at December 31, 1994 4,332,022 12.53- 43.06
Granted 1,015,000 36.25- 40.88
Exercised (694,193) 12.53- 31.78
Canceled or forfeited (432,634) 31.50- 43.06
- --------------------------------------------------------------------------
Outstanding at December 31, 1995 4,220,195 $14.84-$43.06
==========================================================================
</TABLE>
Note N -- Segment Information
The operations of the Company and its subsidiaries have been classified into
five business segments as follows: Providian Bancorp, Providian Direct
Insurance, Providian Agency Group, Providian Capital Management and Corporate
and Other. These segments reflect the management structure of the organization,
and are distinguished by products and/or marketing methods.
See business segment information on pages 21 and 23 through 30 for revenues,
income before federal income tax and assets for each of the three years in the
period ended December 31, 1995.
Segment revenues include: premiums and other considerations, including amounts
assessed for mortality coverage, contract administration, initiation or
surrender; net investment income; consumer loan servicing fees; and other
income, net.
Net investment income, on a fully taxable equivalent basis, reflects a charge
to the business segments and income to corporate for capital employed to support
the operations of each segment. Net investment income is then allocated to the
product lines of each segment based on policy liabilities. Expenses are charged
to pretax segment income (and within business segments to product lines) as
incurred, or are allocated on bases considered reasonable; however, other
acceptable methods of allocation might produce different results.
Capital expenditures and depreciation expense are not material and,
consequently, are not reported.
- --------------------------------------------------------------------------------
58 | PROVIDIAN 1995 ANNUAL REPORT
<PAGE>
GRAPHICS APPENDIX
1. Page 18 of Management's Discussion and Analysis in the 1995 Annual Report
contains a stacked bar chart reflecting the Pretax Operating Earnings by each
Business Segment for the years ended December 31, 1993 through 1995. Total
pretax operating earnings appear at the top of each bar.
2. Page 19 of Management's Discussion and Analysis in the 1995 Annual Report
contains a stacked bar chart reflecting the Revenues by Business Segment for the
years ended December 31, 1993 through 1995. Total revenues appear on the top of
each bar.
3. Page 32 of Management's Discussion and Analysis in the 1995 Annual Report
contains a pie chart reflecting the percentage Distribution of Insurance
Invested Assets by investment type at December 31, 1995. The legend contains the
dollar amount of each investment in millions as well as total insurance invested
assets.
4. Page 32 of Management's Discussion and Analysis in the 1995 Annual Report
contains a pie chart reflecting the percentage Distribution of Pubic and Private
Bonds by Industry Type t December 31, 1995. The legend contains the dollar
amount of each industry sector in ,millions as well as total public and private
bonds.
5. Page 33 of Management's Discussion and Analysis in the 1995 Annual Report
contains a pie chart reflecting the percentage of total Commercial Mortgage
Loans by Geographic Location based on ACLI defined regions at December 31, 1995.
The legend contains the dollar amount by region in millions as well as total
commercial mortgage loans.
6. Page 34 of Management's Discussion and Analysis in the 1995 Annual Report
contains a pie chart reflecting the percentage of total Commercial Mortgage Loan
Principal Balance by Property Type at December 31, 1995. The legend contains the
dollar amount by property type in millions as well as total commercial mortgage
loans.
7. Page 34 of Management's Discussion and Analysis in the 1995 Annual Report
contains a pie chart reflecting the percentage of total Residential Mortgage
Loans by Geographic Location based on ACLI defined regions at December 31, 1995.
The legend contains the dollar amount by region in millions as well as total
residential mortgage loans.
EXHIBIT 21.1
LIST OF SUBSIDIARIES
as of December 31, 1995
State or other jurisdiction of
Corporation incorporation or organization
Academy Insurance Group, Inc. Delaware
Academy Life Insurance Company Missouri
Academy Services, Inc. Delaware
Agency Holding I, Inc. Delaware
Agency Holding II, Inc. Delaware
Agency Holding III, Inc. Delaware
Agency Investments I, Inc. Delaware
Agency Investments II, Inc. Delaware
Agency Investments III, Inc. Delaware
Ammest Development Corporation, Inc. Kansas
Ammest Insurance Agency, Inc. California
Ammest Massachusetts Insurance Agency, Inc. Massachusetts
Ammest Realty Corporation Texas
Ammest Realty, Inc. Pennsylvania
Ampac, Inc. Texas
Ampac Insurance Agency, Inc. Pennsylvania
Association Consultants, Inc. Illinois
Benefit Plans, Inc. Delaware
Capital 200 Block Corporation Delaware
Capital Broadway Corporation Kentucky
Capital General Development Corporation Delaware
Capital Liberty, L.P. Delaware
Capital Real Estate Development Corporation Delaware
Capital Security Life Insurance Company North Carolina
Capital Values Financial Services, Inc. Pennsylvania
College Resource Group, Inc. Kentucky
Commonwealth Agency, Inc. Kentucky
Commonwealth Life Insurance Company Kentucky
Commonwealth Premium Finance California
Compass Rose Development Corporation Pennsylvania
Data/Mark Services, Inc. Delaware
DurCo Agency, Inc. Virginia
Financial Planning Services, Inc. Dist. of Columbia
First Deposit Life Insurance Company Arkansas
First Deposit National Bank United States
First Deposit Service Corporation California
First Providian Life and Health Insurance New York
Company1
Force Financial Group, Inc. Delaware
Force Financial Services, Inc. Massachusetts
Independence Automobile Association, Inc. Florida
Independence Automobile Club, Inc. Georgia
EXHIBIT 21.1
LIST OF SUBSIDIARIES (Continued)
as of December 31, 1995
State or other jurisdiction of
Corporation incorporation or organization
KB Currency Advisors, Inc. Delaware
Knight Insurance Agency, Inc. Massachusetts
Knight Insurance Agency (New Hampshire), New Hampshire
Inc.
Knight Tuition Payment Plans, Inc. Massachusetts
Military Associates, Inc. Pennsylvania
National Home Life Corporation2 Pennsylvania
National Liberty Corporation Pennsylvania
NCOAA Management Company Texas
NCOA Motor Club, Inc. Georgia
NL/UL Joint Venture none
Pension Life Insurance Company of America New Jersey
Peoples Security Life Insurance Company North Carolina
Providian Agency Group, Inc. Kentucky
Providian Assignment Corporation3 Kentucky
Providian Auto and Home Insurance Company4 Missouri
Providian Bancorp, Inc. Delaware
Providian Capital Management, Inc. Delaware
Providian Capital Management Real Estate Delaware
Services,
Inc.
Providian Corporation Delaware
Providian Corporation Political Action United States
Committee
Providian Corporation Voluntary Employees' Kentucky
Beneficiary Association
Providian Credit Corporation5 Delaware
Providian Credit Services, Inc.6 Utah
Providian Fire Insurance Company7 Kentucky
Providian Investment Advisors, Inc.8 Delaware
Providian Life and Health Insurance Company9 Missouri
Providian LLC Turks & Caicos
Is.
Providian National Bancorp California
Providian National Bank10 United States
Providian Property and Casualty Insurance Kentucky
Company11
Providian Securities Corporation12 Pennsylvania
Providian Services, Inc.13 Pennsylvania
Security Trust Life Insurance Company Kentucky
Southlife, Inc. Tennessee
Unicom Administrative Services, Inc. Pennsylvania
EXHIBIT 21.1
LIST OF SUBSIDIARIES (Continued)
as of December 31, 1995
State or other jurisdiction of
Corporation incorporation or organization
Unicom Administrative Services GmbH Germany
Valley Forge Associates, Inc. Pennsylvania
Veterans Benefits Plans, Inc. Pennsylvania
Veterans Insurance Services, Inc. Delaware
Veterans Life Insurance Company Illinois
Wannalancit Corp.14 Massachusetts
Winnisquam Community Development New Hampshire
Corporation
_______________________________
1 Name changed from National Home Life Assurance Company of
New York, 3/6/95.
2 Name changed from National Assets Management Corporation,
9/25/95.
3 Name changed from Capital Assignment Corporation, 7/1/95.
4 Name changed from Worldwide Underwriters Insurance
Company, 7/1/95.
5 Name changed from Providian National Credit Corporation,
5/10/95.
6 Name changed from First Deposit Financial Corporation,
6/15/95.
7 Name changed from Capital Landmark Insurance Company,
6/30/95.
8 Name changed from Providian Capital Management Investment
Advisors, Inc.,
6/23/95.
9 Name changed from National Home Life Assurance Company,
4/3/95.
10 Name changed from First Deposit National Credit Card Bank,
1/1/95.
11 Name changed from Capital Enterprise Insurance Company,
6/30/95.
12 Name changed from Capital Values Securities Corporation,
4/24/95.
13 Name changed from National Information Systems
Corporation, 12/7/95.
14 Incorporated 3/22/95.
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration
Statement No. 33-49719 on Form S-3 dated June 25, 1993, as amended by
Pre-Effective Amendment No. 1 dated September 2, 1993, Pre-Effective
Amendment No. 2 dated November 12, 1993 and Pre-Effective Amendment
No. 3 dated January 12, 1994; Registration Statement No. 33-35006 on
Form S-3 dated May 25, 1990; Registration Statement No. 33-34655 on
Form S-8 dated April 24, 1990, as amended by Post Effective Amendment
No. 1; Registration Statement No. 33-47336 on Form S-8 dated
April 21, 1992, (which also serves as Post Effective Amendment No. 2
to Registration Statement No. 33-34655), as amended by Post Effective
Amendment No. 2; Registration Statement No. 2-77160 on Form S-8 dated
May 14, 1982, as amended by Post Effective Amendment No. 9;
Registration Statement No. 33-39989 on Form S-8 dated April 16, 1991
and Registration Statement No. 33-47335 on Form S-8 dated April 21,
1992 (which also serves as Post Effective Amendment No. 1 to
Registration Statement No. 33-39989), of our report dated February 5,
1996, included herein, with respect to the consolidated financial
statements and schedules of Providian Corporation included or
incorporated by reference in this Annual Report (Form 10-K) for the
year ended December 31, 1995.
ERNST & YOUNG LLP
/s/ Ernst and Young LLP
Louisville, Kentucky
March 26, 1996
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF PROVIDIAN CORPORATION AND
SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 10,705
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 453
<MORTGAGE> 5,803 <F1>
<REAL-ESTATE> 60
<TOTAL-INVEST> 21,216
<CASH> 708
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 1,481
<TOTAL-ASSETS> 26,839 <F2>
<POLICY-LOSSES> 9,894 <F3>
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 6,858
<NOTES-PAYABLE> 721
<COMMON> 115
100 <F4>
0
<OTHER-SE> 2,846 <F5>
<TOTAL-LIABILITY-AND-EQUITY> 26,839 <F6>
1,195
<INVESTMENT-INCOME> 1,861
<INVESTMENT-GAINS> (69)
<OTHER-INCOME> 401 <F7>
<BENEFITS> 1,757 <F8>
<UNDERWRITING-AMORTIZATION> 249 <F9>
<UNDERWRITING-OTHER> 764 <F10>
<INCOME-PRETAX> 506
<INCOME-TAX> 155
<INCOME-CONTINUING> 345
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 345
<EPS-PRIMARY> 3.60
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Includes Commercial and Residental mortgage loans
<F2>Includes Consumer Loans of $3,091
<F3>Includes Benefit reserves and other policy liabilities
<F4>Consists of Company-Obligated Mandatorily Redeemable
Preferred Securities of Providian LLC.
<F5>Includes Additional paid-in capital, Net unrealized investment gain,
Retained
earnings, Common stock held in treasury and Unearned restricted stock.
<F6>Includes Banking Deposits of $2,158.
<F7>Includes Consumer loan servicing fees of $250.
<F8>Includes Benefits and claims and Increase in benefit and contract reserves.
<F9>Includes Amortization of deferred policy and loan acquistion costs,
value of
insurance in force purchased and goodwill.
<F10>Includes Commissions, net and General, administrative and other expenses,net.
</FN>
</TABLE>
