<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PERSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD
COMMISSION FILE NUMBER 0-16421
PROVIDENT BANKSHARES CORPORATION
--------------------------------
(Exact Name of Registrant as Specified in its Charter)
Maryland 52-1518642
- -------------------------------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification
Number)
114 East Lexington Street, Baltimore, Maryland 21202
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(Address of Principal Executive Offices)
Not Applicable
--------------
(Former Name, former Address and Former Fiscal Year if Changed Since
Last Report)
(410) 277-7000
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(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, par value $1.00 per share, 24,548,394 shares outstanding at
August 4, 1998.
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PROVIDENT BANKSHARES CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Condition--
June 30, 1998 and 1997 and December 31, 1997 3
Consolidated Statement of Income--
Three and Six Months Ended June 30, 1998 and 1997 4
Consolidated Statement of Cash Flows--
Six Months Ended June 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition 9
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 12
PART II - OTHER INFORMATION 13
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
EXHIBIT INDEX 16
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Statements contained in this Form 10-Q which are not historical facts are
forward-looking statements, as that term is defined in the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are subject to
risk and uncertainties which could cause actual results to differ materially
from those projected. Such risk and uncertainties include potential changes in
interest rates, competitive factors in the financial services industry, general
economic conditions, the effect of new legislation and other risks detailed in
documents filed by the Company with the SEC from time to time.
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2
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<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENT OF CONDITION
Provident Bankshares Corporation and Subsidiaries
June 30, December 31, June 30,
(dollars in thousands) 1998 1997 1997
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ASSETS
<S> <C> <C> <C>
Cash and Due From Banks $ 64,373 $ 68,580 $ 68,321
Short-Term Investments 399 350 3,487
Mortgage Loans Held for Sale 99,138 66,925 27,018
Securities Available for Sale 1,483,083 983,241 981,393
Securities Held to Maturity (Market Value
$95,313 at June 30, 1997) - - 94,871
Loans:
Consumer 1,817,656 1,667,094 1,418,234
Commercial Business 314,791 288,289 302,709
Real Estate -- Construction 119,984 125,080 125,476
Real Estate -- Mortgage 496,844 620,605 637,154
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Total Loans 2,749,275 2,701,068 2,483,573
Less: Allowance for Loan Losses 38,731 36,861 32,069
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Net Loans 2,710,544 2,664,207 2,451,504
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Premises and Equipment, Net 39,391 37,402 36,838
Accrued Interest Receivable 34,899 31,032 26,614
Other Assets 65,550 75,002 28,746
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Total Assets $ 4,497,377 $ 3,926,739 $ 3,718,792
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LIABILITIES
Deposits:
Noninterest-Bearing $ 230,156 $ 196,178 $ 192,914
Interest-Bearing 2,684,520 2,558,337 2,306,620
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Total Deposits 2,914,676 2,754,515 2,499,534
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Short-Term Borrowings 342,101 347,291 603,705
Long-Term Debt 780,503 469,077 324,381
Other Liabilities 132,923 85,674 35,311
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Total Liabilities 4,170,203 3,656,557 3,462,931
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Corporation-Obligated Mandatorily Redeemable Capital Securities 39,289 - -
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STOCKHOLDERS' EQUITY
Common Stock (Par Value $1.00) Authorized 100,000,000 Shares,
Issued 24,736,963, 23,284,896 and 23,075,084 Shares;
at June 30, 1998, December 31, 1997 and June 30, 1997 24,737 23,285 23,076
Capital Surplus 171,161 131,191 125,474
Retained Earnings 90,203 113,463 109,249
Net Accumulated Other Comprehensive Income 4,274 4,733 552
Treasury Stock at Cost - 228,066 Shares (2,490) (2,490) (2,490)
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Total Stockholders' Equity 287,885 270,182 255,861
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Total Liabilities and Stockholders' Equity $ 4,497,377 $ 3,926,739 $ 3,718,792
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These financial statements should be read in conjunction with the accompanying notes.
</TABLE>
3
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME - UNAUDITED
Provident Bankshares Corporation and Subsidiaries
Three Months Ended Six Months Ended
June 30, June 30,
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(in thousands, except per share data) 1998 1997 1998 1997
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<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $ 56,743 $ 49,210 $ 112,823 $ 95,862
Interest on Securities 19,815 17,923 36,494 35,701
Tax-Advantaged Interest 696 1,923 1,579 3,871
Interest on Short-Term Investments 30 50 84 160
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Total Interest Income 77,284 69,106 150,980 135,594
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INTEREST EXPENSE
Interest on Deposits 31,153 25,124 61,200 48,674
Interest on Short-Term Borrowings 4,202 8,594 8,812 17,074
Interest on Long-Term Debt 9,739 4,905 17,038 9,808
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Total Interest Expense 45,094 38,623 87,050 75,556
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Net Interest Income 32,190 30,483 63,930 60,038
Less: Provision for Loan Losses 3,074 2,053 6,049 2,887
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Net Interest Income after Provision for Loan Losses 29,116 28,430 57,881 57,151
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NON-INTEREST INCOME
Service Charges on Deposit Accounts 7,379 6,051 13,637 11,568
Mortgage Banking Activities 3,995 2,002 5,579 4,180
Commissions and Fees 1,063 981 2,247 1,928
Net Securities Gains 725 267 1,934 338
Other Non-Interest Income 2,829 1,564 5,362 3,189
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Total Non-Interest Income 15,991 10,865 28,759 21,203
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NON-INTEREST EXPENSE
Salaries and Employee Benefits 15,230 13,903 29,587 27,650
Occupancy Expense, Net 2,531 2,448 5,013 4,842
Furniture and Equipment Expense 1,931 1,809 3,841 3,617
External Processing Fees 3,549 3,001 6,807 5,899
Capital Securities Expense 690 -- 690 --
Other Non-Interest Expense 6,730 5,748 12,344 11,703
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Total Non-Interest Expense 30,661 26,909 58,282 53,711
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Income Before Taxes 14,446 12,386 28,358 24,643
Income Tax Expense 4,721 4,392 9,328 8,720
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Net Income $ 9,725 $ 7,994 $ 19,030 $ 15,923
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Per Share Amounts:
Net Income -- Basic $ 0.40 $ 0.34 $ 0.78 $ 0.67
Net Income -- Diluted 0.38 0.33 0.75 0.65
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These financial statements should be read in conjunction with the accompanying notes.
</TABLE>
4
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS - UNAUDITED
Provident Bankshares Corporation and Subsidiaries
Six Months Ended
June 30,
- ----------------------------------------------------------------------------------------------------------
(in thousands) 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities:
Net Income $ 19,030 $ 15,923
Adjustments to Reconcile Net Income to
Net Cash Provided (Used) by Operating Activities:
Depreciation and Amortization 11,609 3,692
Provision for Loan Losses 6,049 2,887
Provision for Deferred Income Tax Benefit (2,372) (1,419)
Realized Net Securities Gains (1,934) (338)
Loans Originated or Acquired and Held for Sale (399,420) (150,373)
Proceeds from Sales of Loans 423,357 161,046
Gain on Sales of Loans (4,044) (1,383)
Other Operating Activities (1,961) 3,826
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Total Adjustments 31,284 17,938
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Net Cash Provided (Used) by Operating Activities 50,314 33,861
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Investing Activities:
Principal Collections and Maturities of Securities Available for Sale 116,548 77,480
Principal Collections and Maturities of Securities Held to Maturity -- 5,953
Proceeds on Sales of Securities Available for Sale 252,798 78,884
Purchases of Securities Held to Maturity -- (14,611)
Purchases of Securities Available for Sale (813,592) (166,720)
Loan Originations and Purchases Less Principal Collections (109,657) (230,911)
Purchases of Premises and Equipment (5,385) (3,362)
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Net Cash Used by Investing Activities (559,288) (253,287)
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Financing Activities:
Net Increase in Deposits 160,161 213,390
Net Increase (Decrease) in Short-Term Borrowings (5,190) 1,270
Proceeds from Long-Term Debt 371,825 47,000
Payments and Maturities of Long-Term Debt (60,399) (51,136)
Proceeds from Capital Securities 39,289 --
Issuance of Common Stock 5,071 2,897
Cash Dividends on Common Stock (5,941) (3,685)
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Net Cash Provided by Financing Activities 504,816 209,736
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Decrease in Cash and Cash Equivalents (4,158) (9,690)
Cash and Cash Equivalents at Beginning of Year 68,930 81,498
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Cash and Cash Equivalents at End of Period $ 64,772 $ 71,808
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Supplemental Disclosures
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Interest Paid, Net of Amount Capitalized $ 49,313 $ 38,277
Income Taxes Paid 4,652 5,345
Stock Dividend 36,350 14,606
These financial statements should be read in conjunction with the accompanying notes.
</TABLE>
5
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
PROVIDENT BANKSHARES CORPORATION AND SUBSIDIARIES
JUNE 30, 1998
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of only normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the six month period ended June 30, 1998 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998. For further information, refer to the consolidated financial statements
and notes thereto included in the Provident Bankshares Corporation's ("the
Corporation") Annual Report on Form 10-K for the year ended December 31, 1997 as
filed with the Securities and Exchange Commission on March 19, 1998.
NOTE B - PER SHARE INFORMATION
The Corporation adopted Statement of Financial Accounting Standards No.
128 - "Earnings Per Share" ("SFAS No. 128") on December 31, 1997. SFAS No. 128
requires the Corporation to change its method of computing, presenting and
disclosing earnings per share information. All prior period data presented has
been restated to conform to the provisions of SFAS No. 128. The following table
presents a summary of per share data and amounts for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
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(dollars in thousands, except per share data) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Qualifying Net Income $ 9,725 $ 7,994 $ 19,030 $ 15,923
Basic EPS Shares 24,496 23,745 24,417 23,712
Basic EPS $ 0.40 $ 0.34 $ 0.78 $ 0.67
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Dilutive Shares 1,054 667 1,113 685
Diluted EPS Shares 25,550 24,412 25,530 24,397
Diluted EPS $ 0.38 $ 0.33 $ 0.75 $ 0.65
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</TABLE>
NOTE C - INVESTMENT SECURITIES
The Corporation's investment portfolio is divided among three categories:
securities held to maturity, securities available for sale and trading account
securities. Debt securities that the Corporation has the intent and ability to
hold to maturity are included in securities held to maturity and, accordingly,
are carried at cost adjusted for amortization of premiums and accretion of
discounts using the interest method. Securities available for sale are reported
at fair value with any unrealized appreciation or depreciation in value
reported, net of applicable taxes, directly as a separate component of
stockholders' equity as accumulated other comprehensive income and therefore,
has no effect on the financial results of the Corporation's operations.
6
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<TABLE>
<CAPTION>
The aggregate amortized cost and market values of the investment securities portfolio at June 30, were as follows:
June 30, 1998
-----------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
(in thousands) Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities Available for Sale
U.S. Treasury and Government
Agencies and Corporations $ 45,287 $ 30 $ -- $ 45,317
Mortgage-Backed Securities 1,395,224 8,020 1,208 1,402,036
Municipal Securities 21,035 512 29 21,518
Other Debt Securities 14,467 -- 255 14,212
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Total Securities Available for Sale $ 1,476,013 $ 8,562 $ 1,492 $ 1,483,083
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June 30, 1997
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Gross Gross
Amortized Unrealized Unrealized Market
(in thousands) Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------------
Securities Available for Sale
U.S. Treasury and Government
Agencies and Corporations $ 74,646 $ 128 $ 503 $ 74,271
Mortgage-Backed Securities 857,281 6,001 4,645 858,637
Municipal Securities 18,875 287 150 19,012
Other Debt Securities 29,647 26 200 29,473
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Total Securities Available for Sale 980,449 6,442 5,498 981,393
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Securities Held to Maturity
U.S. Treasury and Government
Agencies and Corporations 31,479 194 1 31,672
Mortgage-Backed Securities 63,392 722 473 63,641
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Total Securities Held to Maturity 94,871 916 474 95,313
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Total Investment Securities Portfolio $ 1,075,320 $ 7,358 $ 5,972 $ 1,076,706
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</TABLE>
At June 30, 1998 a net unrealized gain of $4.3 million was reflected as
Accumulated Other Comprehensive Income which is reflected separately as a
component of Stockholders' Equity in the Consolidated Statement of Condition as
compared to a net unrealized gain of $4.7 million at December 31, 1997. For
details regarding investment securities at December 31, 1997, refer to Note 3 of
the Consolidated Financial Statements incorporated in the Corporation's 10-K
filed March 19, 1998.
7
<PAGE> 8
NOTE D - SERVICING ASSETS
Effective January 1, 1997, the Corporation adopted the provisions of
Statement of Financial Accounting Standards No. 125 - "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No.
125"). SFAS No. 125 requires the Corporation to carry any retained interest in a
transferred asset on the Statement of Condition as a servicing asset. In the
case of the Corporation, the servicing assets represent the fair value of the
servicing contracts associated with the purchase or origination and subsequent
securitization of the mortgage loans. Servicing assets are amortized in
proportion to and over the period of estimated net servicing income. Servicing
assets are evaluated periodically for impairment based on their fair value and
impairment, if any, is recognized through a valuation allowance and a charge to
operations. At June 30, 1998 no valuation allowance was required.
The following is an analysis of servicing asset balance, net of
accumulated amortization, during the period ended June 30, 1998:
<TABLE>
<CAPTION>
June 30,
(in thousands) 1998
- --------------------------------------------------------------------------------
<S> <C>
Balance at January 1, 1998 $1,984
Additions 6,261
Amortization 235
Sales of Servicing Assets 7,704
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Balance at June 30, 1998 $ 306
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</TABLE>
NOTE E - CONTINGENT LIABILITIES
In April 1997, a judgment stemming from a lawsuit alleging that Provident
Bank of Maryland ("Provident" or the "Bank") had failed to fully honor a letter
of credit was entered against Provident in the amount of $5.2 million, exclusive
of post-judgment interest. This decision reversed an earlier court holding in
favor of Provident. The Bank has appealed the decision. Management, in
consultation with legal counsel, is of the opinion that there exists a
significant possibility that the award will be reversed or substantially altered
at the appellate level. The ultimate outcome of the case will not have a
material adverse effect on the Corporation's financial statements.
NOTE F - COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income ("SFAS No. 130"). SFAS No. 130 establishes requirements for the
disclosure of comprehensive income in interim financial statements.
Comprehensive income is defined as net income plus transactions and other
occurrences which are the result of nonowner changes in equity. For the
Corporation, nonowner equity changes are comprised of unrealized gains or losses
on debt securities that will be accumulated with net income in determining
comprehensive income. This statement does not impact the historical financial
results of the Corporation's operations and is effective for years beginning
after December 15, 1997. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. Adoption of this standard
did not have an impact on the Corporation's results of operations. Presented
below is a reconcilement of net income to comprehensive income indicating the
components of other comprehensive income.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands) 1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Net Income $ 9,725 $ 7,994 $ 19,030 $ 15,923
Other Comprehensive Income:
Unrealized Holding Gains (Losses) During the Period 1,106 13,493 1,175 3,526
Less: Reclassification Adjustment for Gains Included in
Net Income (725) (267) (1,934) (338)
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Other Comprehensive Income, Before Tax 381 13,226 (759) 3,188
Income Tax (Benefit) Related to Items of Other Comprehensive Income 150 5,223 (300) 1,263
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Other Comprehensive Income, After Tax 231 8,003 (459) 1,925
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Comprehensive Income $ 9,956 $ 15,997 $ 18,571 $ 17,848
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</TABLE>
8
<PAGE> 9
NOTE G - FUTURE ACCOUNTING DISCLOSURE REQUIREMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"),
"Accounting for Derivative Instruments and Hedging Activities." The statement
becomes effective for fiscal years beginning after June 15, 1999 and will not be
applied retroactively. The statement establishes accounting and reporting
standards for derivative instruments and hedging activity. Under the standard,
all derivatives must be measured at fair value and recognized as either assets
or liabilities in the financial statements.
The accounting for changes in fair value (gains and losses) of a
derivative is dependent on the intended use of the derivative and its
designation. Derivatives may be used to: 1) hedge exposure to change the fair
value of a recognized asset or liability or a firm commitment, referred to as a
fair value hedge, 2) hedge exposure to variable cash flow of forecasted
transactions, referred to as a cash flow hedge, 3) hedge foreign currency
exposure.
The corporation only engages in fair value and cash flow hedges. In both
types of hedges, the effective portions of the hedges, although included in
earnings, do not affect corporate net income. Ineffective portions of hedges are
reported in and affect net earnings immediately. Derivatives not designed as a
hedging instrument have the changes in their fair value recognized in earnings
in the period of change. Management is currently assessing the potential impact
of SFAS No. 133 on future corporate operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
PROVIDENT BANKSHARES CORPORATION AND SUBSIDIARIES
FINANCIAL REVIEW
EARNINGS SUMMARY
Provident Bankshares Corporation recorded net income for the quarter ended
June 30, 1998 of $9.7 million or $.40 per share basic and $.38 diluted. This
represented a 21.7% increase in net income over the same period a year ago. Net
income for the quarter ended June 30, 1997 was $8.0 million or $.34 per share
basic and $.33 diluted. The higher earnings in 1998 were mainly due to loan
growth and increased fee income. Average consumer loans outstanding grew $503
million as total average loans increased 17% to $2.77 billion. Non-interest
income growth was driven by a 20% increase in fee based services on higher
account volume. Operating expenses net of capital securities expenses increased
11.4 percent from the second quarter of 1997. This increase is associated with
continued network expansion, upgrading of branch technology and increased
mortgage banking business. There was a $3.1 million provision for loan losses
during the quarter with net charge-offs of $2.1 million. The $1.0 million
increase in provision is mainly related to the growth in loans.
NET INTEREST INCOME
Growth in average earning assets offset in part by a higher cost of
liabilities raised tax-equivalent net interest income to $32.5 million for the
second quarter of 1998, a $1.75 million increase over the prior year.
Provident's interest income on earning assets rose $8.2 million from the
second quarter of 1997, the result of a $551 million expansion in average
earning asset balances. Growth in total average earning assets was provided by
increases of $503 million in consumer loans, $77.4 million in investment and
$65.8 million in mortgage loans held for sale. Real estate mortgages decreased
$96.3 million mainly driven by a $52 million loan sale during the second
quarter. The yield declined 25 basis points to 7.63% versus 7.88% the prior
year.
9
<PAGE> 10
Total interest expense for the second quarter of 1998 was $6.5 million
above a year ago, the combined result of an increase of 11 basis points in the
average rate paid and a $451 million increase in the average outstanding balance
of interest-bearing liabilities. Included in this increase were $345 million in
brokered deposits, $39 million in money market certificates of deposits, $55
million in interest bearing demand/money market deposits and $62 million in
individual retirement account deposits. Savings and direct certificates of
deposit declined $5 million and $75 million, respectively. Borrowed money
increased $30 million.
As a result of off-balance sheet transactions undertaken to insulate the
bank from interest rate risks, interest income increased by $95 thousand and
interest expense increased by $42 thousand, for a total increase of $53 thousand
in net interest income for the quarter ending June 30, 1998. Included in this
net interest income increase was the amortization of closed positions which
reduced interest income by $54 thousand and increased interest expense by $469
thousand (a net decrease of $523 thousand) for the current quarter. Without the
amortization of closed positions, off-balance sheet positions increased net
interest income $576 thousand for the current quarter.
The forward yield curve indicates that short-term rates will decrease by 3
basis points and long term rates will increase 3 basis points over the next
twelve months. The Corporation's analysis indicates that if management does not
adjust its June 30, 1998 off-balance sheet positions and the forward yield curve
assumptions occur, off-balance sheet positions, including amortization of closed
positions, would increase net interest income by $1.0 million over the next
twelve months. This compares to an increase in net interest income of $732
thousand should interest rates remain unchanged. Amortization of closed
positions will reduce net interest income $1.13 million over the next twelve
months. Thus, without amortization of closed positions, net interest income
would increase $2.13 million over the next twelve months if the forward yield
curve assumptions occur and $1.86 million if rates remain unchanged.
PROVISION FOR LOAN LOSSES
The Corporation recorded a $3.1 million provision for loan losses for the
quarter, with net charge-offs of $2.1 million for the second quarter of 1998
compared to $842 thousand for the same period of 1997. The Corporation continues
to emphasize loan quality and closely monitors potential problem credits. Senior
managers meet at least monthly to review the credit quality of the loan
portfolios and at least quarterly with executive management to review the
adequacy of the allowance for loan losses. The allowance for loan losses at June
30, 1998 was $38.7 million, up from the $32.1 million a year ago. At June 30,
1998, the allowance represented 1.41% of total loans and 283% of non-performing
loans. Total non-performing loans were $13.7 million at June 30, 1998.
Non-performing loans as a percent of loans outstanding as of June 30, 1998 were
.50%.
In April of 1997, a judgment stemming from a lawsuit alleging that
Provident Bank of Maryland had failed to fully honor a letter of credit was
entered against Provident in the amount of $5.2 million, exclusive of
post-judgment interest. This decision reversed an earlier court holding in favor
of Provident. The Bank has appealed the decision. Management, in consultation
with legal counsel, is of the opinion that there exists a significant
possibility that the award will be reversed or substantially altered at the
appellate level. The ultimate outcome of the case will not have a material
adverse effect on the Corporation's financial statements.
NON-INTEREST INCOME
Non-interest income exclusive of securities gains totaled $15.3 million in
the second quarter of 1998 compared to $10.6 million in 1997. This increase was
driven by a $2.0 million increase in mortgage banking activities, a $1.3 million
increase in deposit service fees driven by higher account volume and loan fees
increased $1.1 million. Mortgage banking income was driven by increased
originations which totaled $218 million during the second quarter of 1998
compared to $71 million during the same quarter of 1997. Sales of mortgage loans
resulted in $2.6 million in gains for the second quarter of 1998 as compared to
$662 thousand for the same period in 1997.
10
<PAGE> 11
NON-INTEREST EXPENSE
Second quarter non-interest expense was $30.7 million, compared to $26.9
million for the same period last year. Salaries and benefits increased $1.3
million mainly related to merit increases and incentives associated with
increased mortgage originations. Occupancy costs increased $83 thousand over
last year and furniture and equipment expense increased $122 thousand. These
increases were required by branch network expansion and upgrades of technology.
External processing fees increased $548 thousand due to increased account
volume. During the second quarter of 1998, $40 million of capital securities
were issued resulting in $690 thousand in related expenses for the quarter. All
other expenses increased a total of $982 thousand mainly associated with a $826
thousand increase in marketing expenses.
INCOME TAXES
Provident recorded income tax expense of $4.7 million on income before
taxes of $14.5 million, an effective tax rate of 32.7%. During the second
quarter of 1997, Provident's tax expense was $4.4 million on pre-tax income of
$12.4 million, an effective tax rate of 35.5%. The decrease in the effective tax
rate is primarily due to lower state income tax expense.
FINANCIAL REVIEW FOR SIX MONTHS ENDED JUNE 30, 1998 AND 1997
For the six months ending June 30, 1998, net income was $19.03 million or
$.78 per share-basic and $.75 diluted, compared to $15.92 million or $.67 per
share basic and $.65 diluted for six months ended June 30, 1997. This
improvement in earnings was attributable to a $4.01 million rise in tax
equivalent net-interest income and a $7.56 million increase in non-interest
income. These increases more than offset a $4.57 million increase in operating
expense and a $3.16 million increase in the provision for loan losses.
The $4.01 million increase in tax-equivalent net interest income for 1998
was the result of a $465 million increase in average earning assets over the
prior year. Net interest margin dropped by 21 basis points caused by a decline
of 14 basis points in yields and a 13 basis point increase in costs on
interest-bearing liabilities.
The provision for loan losses increased $3.16 million to $6.05 million in
1998. The increase was the result of overall loan growth in the loan portfolios
of $266 million.
Non-interest income, excluding net securities gains (losses), increased
29% to $26.8 million. Deposit service charges rose $2.1 million over the prior
year to $13.6 million, mortgage banking activities were up $1.4 million to $5.6
million, and commissions and fees were up 17% to $2.2 million.
Provident's non-interest expense rose 8.5% in 1998 over 1997. Salaries and
employee benefits increased $1.9 million attributable to merit increases and new
branches. Commissions were up associated with increased activity within
Provident Mortgage Corp. Occupancy costs grew $171 thousand or 3.5% over 1997.
Total furniture and equipment expense increased $224 thousand due to upgrading
of technology in the bank's office automation and branch platform systems.
External processing increased $908 thousand due to increased account volumes.
Provident recorded an income tax expense of $9.3 million in 1998 based on
pre-tax income of $28.36 million, which represented an effective tax rate of
32.9%. This compares with a 35.4% effective tax rate for 1997.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs using two digits
rather than four to define the applicable year. Any of the Corporation's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or
11
<PAGE> 12
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions.
The Corporation utilizes a third party processor for the majority of its
data processing requirements. Provident is working with this servicer as well as
with all of the Corporation's other significant suppliers of data processing
software and hardware. The Corporation presently believes that timely
modifications to existing software and or hardware will neutralize the Year 2000
Issue.
The Corporation will utilize both internal and external resources to
reprogram, or replace, and test the software for Year 2000 modifications. The
Corporation plans to complete the Year 2000 project by December 31, 1998. The
total cost of the Year 2000 project is not expected to exceed $1.0 million and
is not expected to have a material effect on the results of operations.
The costs of the project and the date on which the Corporation plans to
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events including the
continued availability of certain resources, third party modification plans and
other factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, and similar uncertainties.
FINANCIAL CONDITION
Total assets of the Corporation increased $571 million from December 31,
1997 to June 30, 1998 as investments increased $500 million and loan balances
increased $48 million. Consumer loans were up $151 million and commercial
business loans were up $27 million from December 31, 1997. Real estate
construction loans declined $5 million and real estate mortgage loans $124
million. The decline in mortgage loans was primarily related to the sale of
loans during the quarter. Total deposits ended the quarter at $2.9 billion, an
increase of $160 million over the December 31, 1997 level. Non-interest bearing
deposits increased $34 million from December 31, 1997 while interest bearing
deposits increased $126 million. Borrowings increased $306 million from December
31, 1997 ending the quarter at $1.12 billion. In April 1998, the Corporation
issued $40 million of trust capital securities, which were outstanding as of
June 30, 1998. A subsidiary trust of the Corporation issued these capital
securities, and the Corporation received the proceeds by issuing junior
subordinated debentures to the trust. These capital securities are considered
tier 1 capital for regulatory purposes.
The primary source of liquidity at June 30, 1998 were loans held for sale
and investments available for sale, which totaled $1.6 billion. This represents
38% of total liabilities compared to 29% at December 31, 1997.
At quarter-end, the leverage ratio was 7.70% and total stockholders'
equity represented 11.31% of risk adjusted assets. These ratios exceed the
minimum requirements of the current leverage capital and risk-based capital
standards established by regulatory agencies.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For information regarding market risk at December 31, 1997, see "Interest
Sensitivity Management" and Note 13 to the Consolidated Financial Statements in
the Corporation's Form 10-K filed with the Commission on March 19, 1998. The
market risk of the Corporation has not experienced any significant changes as of
June 30, 1998. Additionally, refer to "Net Interest Income" in Item 2 -
Management's Discussion and Analysis of Results of Operations and Financial
Condition for additional quantitative and qualitative discussions about market
risk at June 30, 1998.
12
<PAGE> 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None.
Item 2. Changes in Securities and Use of Proceeds - See "Management's
Discussion and Analysis of Results of Operations and Financial
Condition - Financial Condition" for a discussion of the Capital
Trust Securities issued by a subsidiary of the Corporation.
In addition, on July 15, 1998, the Corporation's Board of
Directors authorized an amendment of the Corporation's Stockholder
Protection Rights Plan dated as of January 18, 1995 between
Provident Bankshares Corporation and Provident Bank of Maryland,
as Rights Agent, regarding the definition of the exercise price.
The Agreement is included herein as Exhibit 4.1.
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of Provident Bankshares
Corporation was held on April 15, 1998.
PROPOSAL I
Election of Directors.
The following persons were elected as directors at the 1998
Annual Meeting of Stockholders. The corresponding votes for each
director and their terms of office which continue until the
respective Annual Meeting of Stockholders is reflected below.
<TABLE>
<CAPTION>
For % Withheld %
--- - -------- -
<S> <C> <C> <C> <C>
1999 Annual Meeting:
Enos K. Fry 19,893,472 98.6 281,644 1.4
Herbert W. Jorgensen 19,895,025 98.6 280,091 1.4
2001 Annual Meeting:
Robert B. Barnhill, Jr. 19,905,356 98.7 269,760 1.3
Melvin A. Bilal 19,896,429 98.6 278,687 1.4
Ward B. Coe, III 19,890,176 98.6 284,940 1.4
M. Jenkins Cromwell, Jr. 19,887,567 98.6 287,549 1.4
Frederick W. Meier 19,905,268 98.7 269,848 1.3
Sister Rosemarie Nassif 19,881,416 98.5 293,700 1.5
</TABLE>
The following persons continue to serve as directors until the
1999 Annual Meeting of Stockholders: Charles W. Cole, Jr., Barbara
B. Lucas, Francis G. Riggs, and Carl W. Stern; until the 2000
Annual Meeting of Stockholders: Dr. Calvin W. Burnett, Pierce B.
Dunn, Mark K. Joseph, Peter M. Martin, and Shela K. Riggs.
PROPOSAL II
The Stockholders approved the amendment to the Sixth Article of
the Corporation's Articles of Incorporation, authorizing the
Corporation to issue a total of 105,000,000 shares of stock with
16,665,614 (82.6%) shares cast in favor, 3,409,873 (16.9%) shares
cast against and 99,629 (.5%) abstaining.
PROPOSAL III
The Stockholders approved the amendment of the Stock Option Plan
to increase the number of shares available under the Plan by
500,000 on a "post split" basis with 15,992,867 (79.3%) shares
cast in favor, 4,059,599 (20.1%) shares cast against and 122,650
(.6%) abstaining.
PROPOSAL IV
The Stockholders ratified the selection of Coopers & Lybrand LLP
as independent auditors for 1998, with 20,075,862 (99.5%) shares
cast in favor, 32,905 (.2%) shares cast against and 66,349 (.3%)
abstaining.
13
<PAGE> 14
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits filed as part of this report are listed below:
(3.1) Provident Bankshares Corporation Articles of Incorporation,
as amended *
(3.2) Provident Bankshares Corporation Amended and Restated Bylaws
(4.1) Stockholder Protection Rights Agreement dated as of
January 18, 1995 between Provident Bankshares Corporation and
Provident Bank of Maryland, as Rights Agent, as amended
(11) Statement re: Computation of Per Share Earnings
(27) Financial Data Schedule
(b) Reports on Form 8-K
There were no current reports on Form 8-K filed during the
quarter ended June 30, 1998.
* Incorporated by reference from the Corporation's Form S-8 (File No.
333-58881) filed with the Securities and Exchange Commission on July
10, 1998.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements 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.
PROVIDENT BANKSHARES CORPORATION
--------------------------------
Registrant
August 14, 1998 /s/ Peter M. Martin
-------------------
Peter M. Martin
President, Chairman and Chief
Executive Officer
August 14, 1998 /s/ R. Wayne Hall
-----------------
R. Wayne Hall
Treasurer
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description Sequentially Numbered Page
- ------- ----------- --------------------------
<S> <C>
(3.1) Provident Bankshares Corporation Articles of Incorporation, as amended * --
(3.2) Provident Bankshares Corporation Amended and Restated Bylaws 16
(4.1) Stockholder Protection Rights Agreement dated as of January 18, 1995 32
between Provident Bankshares Corporation and Provident Bank of
Maryland, as Rights Agent, as amended
(11) Statement re: Computation of Per Share Earnings 81
(27) Financial Data Schedule 82
* Incorporated by reference from the Corporation's Form S-8 (File No. 333-58881) filed with the
Securities and Exchange Commission on July 10, 1998.
</TABLE>
16
<PAGE> 1
PROVIDENT BANKSHARES CORPORATION
AMENDED AND RESTATED BYLAWS
---------------------------
ARTICLE I - OFFICES
-------------------
The principal office of the Corporation in Maryland shall be located at
114 East Lexington Street, Baltimore, Maryland 21202. The Corporation may have
such other offices, either within or without the State of Maryland as the Board
of Directors may designate or as the business of the Corporation may from time
to time require.
ARTICLE II - STOCKHOLDERS
-------------------------
Section 1 - ANNUAL MEETING
--------------
The annual meeting of the stockholders of the Corporation shall be held at
such time during April of each year as the Board of Directors shall, in their
discretion, fix. The business to be transacted at the annual meting shall
include the election of directors, consideration of the report of the President,
and any other business properly brought before the meeting in accordance with
Section 7(b).
Section 2 - SPECIAL MEETINGS
----------------
A special meeting of the stockholders may be called at any time for any
purpose or purposes by the Chairman of the Board, the President, or by a
majority of the Board of Directors and a special meeting of stockholders shall
be called by the Secretary of the Corporation upon the request in writing of the
holders of a majority of all shares outstanding and entitled to vote on the
business to be transacted at such meeting. Notwithstanding the first sentence of
this Section 2, the Secretary of the Corporation shall not be obligated to call
a special meeting of the stockholders requested by stockholders for the purpose
of taking any action that is non-binding or advisory in nature.
Section 3 - PLACE OF MEETING
----------------
The Board of Directors may designate any place, either within or without
the State of Maryland as the place of meeting for any annual or special meeting
of stockholders. If no designation is made, or if a special meeting be otherwise
called, the place of the meeting shall be the principal office of the
Corporation in Maryland.
Section 4 - NOTICE OF MEETING; WAIVER OF NOTICE
-----------------------------------
Not less than ten (10) days or more than ninety (90) days before the date
of every stockholders meeting, the Secretary shall give to each stockholder
entitled to vote at such meeting,
<PAGE> 2
written or printed notice stating 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, either by mail or by presenting it to him personally or by leaving it
at his residence or usual place of business. Notwithstanding the foregoing
provisions, a written waiver of notice, signed by the person entitled to notice,
whether before or after the time stated therein, shall be equivalent to notice.
Attendance of a person entitled to notice at a meeting, in person or by proxy,
shall constitute a waiver of notice of such meeting, except when such person
attends the 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.
Section 5 - QUORUM
------
At any meeting of stockholders, a majority of the shares entitled to vote
a the meeting, present in person or by proxy, shall constitute a quorum. The
affirmative vote of a majority of the shares present at a meeting of
stockholders, duly called and at which a quorum is present, shall be sufficient
to take or to authorize action upon any matter which may properly come before
the meeting unless more than a majority of votes is required by statute or by
the Certificate of Incorporation of the Corporation.
In the absence of a quorum a majority of the shares represented in person
or by proxy may adjourn the meeting from time to time not exceeding a total of
thirty (30) days without further notice other than that by announcement at such
meeting. At such adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted at the meeting
originally called. The stockholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum.
Section 6 - ORGANIZATION
------------
The Chairman of the Board of the Corporation or, in his absence, the
President of the Corporation, or in his absence such person as the Board of
Directors may have designated or, in the absence of such a person, such person
as may be chosen by the holders of a majority of the shares entitled to vote who
are present, in person or by proxy, shall call to order any meeting of the
stockholders and act as chairman of the meeting. In the absence of the Secretary
of the Corporation, the secretary of the meeting shall be such person as the
chairman appoints.
Section 7 - CONDUCT OF BUSINESS
-------------------
(a) The chairman of any meeting of stockholders shall determine the order
of business and the procedures at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seem to him or her in order.
The date and time of the opening and closing of the polls for each matter upon
which the stockholders will vote at the meeting shall be announced at the
meeting.
2
<PAGE> 3
(b) At any annual meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting (i) by or at the
direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is entitled to vote with respect thereto and who complies with
the notice procedures set forth in this Section 7(b). For business to be
properly brought before an annual meeting by a stockholder, the business must
relate to a proper subject matter for stockholder action and 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 or mailed to
and received at the principal executive office of the Corporation not less than
one hundred-twenty (120) days prior to the date of the annual meeting; provided,
however, that in the event that less than one hundred-thirty (130) 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 received not later
than the close of business on the 10th 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 such stockholder proposes to bring before the annual meeting (i) 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, (ii) the name
and address, as they appear on the Corporation's books, of the stockholder
proposing such business, (iii) the class and number of shares of the
Corporation's capital stock that are beneficially owned by such stockholder,
(iv) a statement disclosing (I) whether such stockholder is acting with or on
behalf of any other person and (II) if applicable, the identity of such person,
and (v) any material interest of such stockholder in such business.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
brought before or conducted at an annual meeting except in accordance with the
provisions of this Section 7(b). The Chairman of the Board or other person
presiding over the annual meeting shall, if the facts so warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 7(b) and, if he should so
determine, he shall so declare to the meeting and any such business so
determined to be not properly brought before the meeting shall not be
transacted.
(c) Only persons who are nominated in accordance with the procedures set
forth in these Bylaws 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 at which directors are to be elected only (i) by or
at the direction of the Board of Directors or (ii) by any stockholder of the
Corporation entitled to vote for the election of Directors at the meeting who
complies with the notice procedures set forth in this Section 7(c). Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made by timely notice in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice shall be delivered or mailed
to and received at the principal executive office of the Corporation not less
than one hundred-twenty (120) days prior to the date of the meeting; provided,
however, that in the event that less than one hundred-thirty (130) days' notice
or prior 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 10th day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made. Such
stockholder's notice shall set forth (i) as to each person whom such stockholder
proposes to nominate for election or re-elections as a Director, all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of Directors, or
3
<PAGE> 4
is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
Director if elected); and (ii) as to the stockholder giving the notice (x) the
name and address, as they appear on the Corporation's books, of such
stockholder, (y) the class and number of shares of the Corporation's Capital
Stock that are beneficially owned by such stockholder, and (z) a statement
disclosing (I) whether such stockholder or any nominee thereof is acting with or
on behalf of any other person and (II) if applicable, the identity of such
person.
Section 8 - VOTING
------
Unless the Certificate of Incorporation provides for a greater or lesser
number of votes per share or limits or denies voting rights, each outstanding
share of stock, regardless of class, is entitled to one (1) vote on each matter
submitted to a vote at a meeting of stockholders.
Section 9 - PROXIES
-------
At all meetings of stockholders, a stockholder may vote the shares owned
of record by him either in person or by proxy executed in writing by the
stockholder or by his duly authorized attorney-in-fact. Such proxy shall be
filed with the Secretary of the Corporation before or a the time of the meeting.
No proxy shall be valid after eleven (11) months from the date of its execution,
unless otherwise provided in the proxy.
Section 10 - LIST OF STOCKHOLDERS
--------------------
For at least ten (10) days prior to every meeting of stockholders, a full,
true and complete list of all stockholders entitled to vote at such meeting,
showing the address of each stockholder and the number and class of shares
registered in his or her name and certified by the transfer agent for such class
or by the officer having charge of the Corporation's stock ledger shall be open
to the examination of any stockholder for any purpose germane to the meeting,
during ordinary business hours at the Corporation's principal office in
Maryland. Such list shall be open for inspection at such meeting by any
stockholder present.
Section 11 - CONDUCT OF VOTING
-----------------
At all meetings of stockholders, unless the voting is conducted by
inspectors, the proxies and ballots shall be received, and all questions
touching the qualification of voters and the validity of proxies and the
acceptance or rejection of votes shall be decided by the chairman of the
meeting. If demanded by stockholders, present in person or by proxy, entitled to
cast ten percent (10%) in number of votes entitled to be cast, or if ordered by
the chairman, the voting shall be conducted by two inspectors, in which event
the proxies and ballots shall be received, and all questions touching the
qualification of voters and the validity of proxies and the acceptance or
rejection of votes, shall be decided by such inspectors. Unless so demanded or
ordered, voting need not be conducted by inspectors. The stockholders at any
meeting may choose an inspector or inspectors to act at such
4
<PAGE> 5
meeting, and in default or such election the chairman of the meeting may appoint
an inspector or inspectors. No candidate for election as a director at a meeting
shall serve as an inspector thereat.
ARTICLE III - DIRECTORS
-----------------------
Section 1 - GENERAL POWERS
--------------
The business and affairs of the Corporation shall be managed by its Board
of Directors. The Board of Directors may exercise all the powers of the
Corporation, except those conferred on or reserved to the stockholders by
statute or by the Certificate of Incorporation or the Bylaws. The Board may
adopt such rules and regulations for the conduct of their meetings and the
management of the Corporation as they may deem proper, and which are not
inconsistent with these Bylaws and with the Maryland General Corporation Law.
Section 2 - NUMBER
------
The number of directors of the Corporation shall be at least three (3);
provided, however, that a majority of the entire Board of Directors may be
resolution set the number of directors at such number as it may determine, but
such action shall not affect the tenure of office of any director. Each director
shall hold office until his successor is elected and qualified or until his
earlier resignation or removal.
Section 3 - ELECTION AND TENURE
-------------------
(a) The directors shall be divided into three (3) classes, as nearly equal
in number as possible, with the term of office of the first class to expire at
the 1991 annual meeting of stockholders, the term of office of the second class
to expire at the 1992 annual meeting of stockholders, and the term of office of
the third class to expire at the 1993 annual meeting of stockholders. At each
annual meeting of stockholders beginning in 1991, successors to the class of
directors whose term expires at that annual meeting shall be elected for a term
of three (3) years.
(b) Notwithstanding the provisions of Article III, Section 3(a) above, the
term of office of a director of the Corporation shall expire upon the date of
the annual meeting of stockholders immediately following the date on which the
director reaches sixty-eight (68) years of age, and upon the date of such annual
meeting of stockholders such individual shall cease to be a director of the
Corporation. The vacancy created by such expiration shall be filled in
accordance with Article III, Section 4.
Section 4 - VACANCIES
---------
Subject to the rights of the holders of any class or series of preferred
stock then outstanding, any vacancy in the Board of Directors, including one
occurring because of an increase in the authorized number of directors, shall be
filled by a majority vote of the remaining directors at any regular or special
meeting of the Board of Directors, but if a vacancy exists at the time of any
annual
5
<PAGE> 6
meeting of stockholders, such vacancy shall be filled by majority vote of the
shares entitled to vote at such meeting. An individual chosen to fill a vacancy
created by the death, removal, resignation or expiration of the term of a
director shall hold office for the remainder of the departed director's term and
until his successor is elected and qualified, or until his earlier resignation
or removal. An individual chosen to fill a vacancy created by an increase in the
authorized number of directors of the Corporation shall hold office for such
term as the Board of Directors shall specify in accordance with Article III,
Section 3(a), and in any event until his successor is elected and qualified or
until his earlier resignation or removal.
Section 5 - REGULAR MEETINGS
----------------
The Board of Directors shall meet for the purposes of organization, the
election of officers and the transaction of other business after the close of
each meeting of stockholders at which a Board of Directors shall have been
elected. Other regular meetings of the Board of Directors shall be held at such
times and such places, either within or without the State of Maryland, as may be
designated from time to time by the Chief Executive Officer or by the Board of
Directors.
Section 6 - SPECIAL MEETINGS
----------------
Special meetings of the Board of Directors may be called by the Chairman
of the Board or by the Chief Executive Officer, or by a majority of the Board of
Directors in writing. The person or persons authorized to call special meetings
of the Board of Directors may fix any place, either within or without the State
of Maryland, as the place for holding the special meeting of the Board of
Directors called by them.
Section 7 - NOTICE
------
The Secretary shall give notice to each director of the time and place of
every regular or special meeting of the Board of Directors. Notice is given to a
director when it is delivered personally to him, left at his residence or usual
place of business, or sent by telephone or telegraph, at least 24 hours before
the time of the meeting, or in the alternative, when it is mailed to his address
as it appears on the records of the Corporation, at least 72 hours before the
time of the meeting. Any director may waive notice of any meeting either before
or after the holding thereof by written waiver filed with the records of the
meeting. The attendance of a director at a meeting shall constitute a waiver of
notice of such meeting, except where a director attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need by specified in the
notice or waiver of notice of such meeting.
Section 8 - TELEPHONIC MEETINGS
-------------------
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of a conference
telephone or similar communications
6
<PAGE> 7
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this Section 8 shall
constitute presence in person at such meeting.
Section 9 - QUORUM
------
A majority of the total number of directors shall constitute a quorum for
the transaction of business, but if less than such quorum is present at a
meeting, a majority of the directors present may adjourn the meeting without
further notice from time to time until a quorum shall attend. At any such
adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 10 - MANNER OF ACTING
----------------
The vote of the majority of the directors present at a meeting at which a
quorum is present shall be the action of the Board of Directors unless the
concurrence of a greater proportion is required for such action by the
Certificate of Incorporation.
Section 11 - INFORMAL ACTION
---------------
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 a
written consent to such action is signed by all members of the Board of
Directors or the committee, as the case may be, and such written consent if
filed with the minutes of the proceedings of the Board of Directors.
Section 12 - REMOVAL OF DIRECTORS
--------------------
Any or all of the directors may be removed, at any time, but then only for
cause and then only by the affirmative vote of the holders of at least 80% of
the shares then entitled to vote at any election of directors.
Section 13 - RESIGNATION
-----------
A director may resign at any time by giving written notice to the Board,
the President or the Secretary of the Corporation. Unless otherwise specified in
the notice, the resignation shall take effect upon receipt thereof by the Board
or such officer, and the acceptance of the resignation shall not be necessary to
make it effective.
Section 14 - COMPENSATION
------------
By resolution of the Board of Directors, a fixed sum and expenses, if any,
for attendance at each regular or special meeting of the Board of Directors or
of committees thereof, and other compensation for their services as such or on
such committees, may be paid to directors, as may compensation for such other
services as a director may render to the Corporation.
7
<PAGE> 8
Section 15 - COMMITTEES
----------
The Board of Directors may, by resolution passed by a majority of the
entire Board, designate an executive committee, a nominating committee, an audit
committee, a compensation and human resources committee or other committees,
each committee to consist of two or more directors of the Corporation. The Board
may designate one or more directors as alternate members of any meeting of any
committee, who may replace any absent or disqualified member at any meeting of
any committee. A majority of the total number of committee members shall
constitute a quorum for the conduct of a committee's business and affairs, and
the vote of a majority of the members constituting said quorum shall be the act
of that committee. In the absence or disqualification of a member of a
committee, the member or members remaining and not disqualified from voting,
whether or not such member or members constitute a quorum, may unanimously
appoint another member of the Board of Directors to act as a member at the
committee meeting in place of the absent or disqualified committee member.
Any such committee, to the extent provided in the resolution of the Board
of Directors, shall have and may exercise all the powers and authority 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; provided, however, that any such committee shall
have no power or authority with reference to (i) amending the Certificate of
Incorporation, (ii) adopting an agreement of merger or consolidation under Title
3 of the Maryland General Corporation Law, (iii) recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, (iv) recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, (v) declaring
dividends or distributions on stock, (vi) issuing stock other than as provided
by the Maryland General Corporation Law, or (vii) amending the Bylaws of the
Corporation.
ARTICLE IV - OFFICERS
---------------------
Section 1 - EXECUTIVE AND OTHER OFFICERS
----------------------------
The Corporation shall have a President, who shall be a director of the
Corporation, a Secretary and a Treasurer. It may also have a Chairman of the
Board, who shall be a director of the Corporation and shall be an executive
officer if he is designated as the chief executive officer of the Corporation.
The Board of Directors may designate who shall serve as chief executive officer,
having general supervision of the business and affairs of the Corporation, and
as chief operating officer, having supervision of the operations of the
Corporation; in the absence of a designation the President shall serve as chief
executive officer and chief operating officer. The Corporation may have one or
more Executive Vice-Presidents, one or more Assistant Vice-Presidents, one or
more Assistant Secretaries and one or more Assistant Treasurers. A person may
hold more than one office in the Corporation but may not serve concurrently as
Post President and Vice-President of the Corporation.
8
<PAGE> 9
Section 2 - CHAIRMAN OF THE BOARD
---------------------
The Chairman of the Board, of one be elected, shall preside at all
meetings of the Board of Directors and of the stockholders at which he shall be
present. He shall have and may exercise such duties and powers as are from time
to time assigned to him by the Board of Directors.
Section 3 - PRESIDENT
---------
In the absence of the Chairman of the Board, the President shall preside
at all meetings of the stockholders and of the Board of Directors at which he
shall be present; he may sign and execute, in the name of the Corporation, all
authorized deeds, mortgages, bonds, contracts or other instruments, except in
cases in which the signing and execution thereof shall have been expressly
delegated to some other office or agent of the Corporation; and, in general, he
shall perform all duties usually performed by a president of a corporation and
such other duties as may from time to time be assigned to him by the Board of
Directors or by the chief executive officer of the Corporation.
Section 4 - EXECUTIVE VICE-PRESIDENTS
-------------------------
The Executive Vice-President or Executive Vice-Presidents, at the request
of the chief executive officer or the President or in the President's absence or
during his inability to act, shall perform the duties and exercise the functions
of the President, and when so acting shall have the powers of the President. If
there be more than one Executive Vice-President, the Board of Directors may
determine which one or more of the Executive Vice-Presidents shall perform any
of such duties or exercise any of such functions, or if such determination is
not made by the Board of Directors, the chief executive officer may make such
determination; otherwise any of the Executive VicePresidents may perform any of
such duties or exercise any of such functions. The Executive VicePresident or
Executive Vice-Presidents shall have such other powers and perform such other
duties, and have such additional descriptive designations in their titles (if
any), as may be assigned by the Board of Directors or the Chief Executive
Officer.
Section 5 - VICE-PRESIDENTS
---------------
In the absence of the Chairman of the Board, the chief executive officer
and the chief operating officer (if designated), all Executive Vice-Presidents,
and all Senior Vice-Presidents (if such office then exists), such Vice President
as may be designated from time to time by the Board of Directors shall be vested
with the powers of the President and shall perform his duties. In addition
thereto, all Vice Presidents shall perform such duties as may be assigned to
them by the Board of Directors, the Chairman of the Board, the chief executive
officer or the President.
Section 6 - SECRETARY
---------
The Secretary shall keep the minutes of the meetings of the stockholders,
of the Board of Directors and of any committees, in books provided for the
purpose; he shall see that all notices are
9
<PAGE> 10
duly given in accordance with the provisions of the Bylaws or as required by
law; he shall be custodian of the records of the Corporation; he shall witness
all documents on behalf of the Corporation, the execution of which is duly
authorized, see that the corporate seal is affixed where such document is
required to be under its seal, and, when so affixed, may attest the same; and,
in general, he shall perform all duties incident to the office of a secretary of
a corporation, and such other duties as may from time to time be assigned to him
by the Board of Directors or the President.
Section 7 - 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 monies or other
valuable effects in such banks, trust companies or other depositories as shall,
from time to time, be selected by the Board of Directors. In general, he shall
perform all the duties incident to the office of a treasurer of a corporation,
and such other duties as may from time to time be assigned to him by the Board
of Directors, the chief executive officer or the President.
Section 8 - ASSISTANT OFFICERS
------------------
The Assistant Vice-Presidents shall have such duties as may from time to
time be assigned to them by the Board of Directors or the President. The
Assistant Secretaries shall have such duties as may from time to time be
assigned to them by the Board of Directors or the Secretary. The Assistant
Treasurers shall have such duties as may from time to time be assigned to them
by the Board of Directors or the Treasurer.
Section 9 - SUBORDINATE OFFICERS
--------------------
The Corporation may have such subordinate officers as the Board of
Directors may from time to time deem desirable. Each such officer shall hold
office for such period and perform such duties as the Board of Directors, the
President or the committee or officer designated pursuant to Article IV, Section
11 may prescribe.
Section 10 - COMPENSATION
------------
The Board of Directors shall have power to fix the salaries and other
compensation and remuneration, of whatever kind, of all officers of the
Corporation. It may authorize any committee or officer, upon whom the power of
appointing subordinate officers may have been conferred, to fix the salaries,
compensation and remuneration of such subordinate officers.
Section 11 - ELECTION, TENURE AND REMOVAL OF OFFICERS
----------------------------------------
The Board of Directors shall elect the officers. The Board of Directors
may from time to time authorize any committee or officer to appoint subordinate
officers. An officer serves for one year and until his successor is elected and
qualified. If the Board of Directors in its judgment finds
10
<PAGE> 11
that the best interests of the Corporation will be served, it may remove any
officer or agent of the Corporation. The removal of an officer or agent does not
prejudice any of his contract rights. The Board of Directors (or any committee
or officer authorized by the Board of Directors) may fill a vacancy which occurs
in any office for the unexpired portion of the term of that office.
ARTICLE V - STOCK
-----------------
Section 1 - CERTIFICATES FOR STOCK
----------------------
Each stockholder shall be entitled to certificates which represent and
certify the shares of stock he holds in the Corporation. Each stock certificate
shall include on its face the name of the Corporation, the name of the
stockholder and the class of stock and number of shares represented by the
certificate and be in such form, not inconsistent with law or with the
Certificate of Incorporation, as shall be approved by the Board of Directors or
any officer or officers designated for such purpose by resolution of the Board
of Directors. Each stock certificate shall be signed by the President, an
Executive Vice-President or the Chairman of the Board, and countersigned by the
Secretary, an Assistant Secretary, the Treasurer, or an Assistant Treasurer.
Each certificate shall be sealed with the actual corporate seal or a facsimile
of it or in any other form and the signatures on each certificate may be either
manual or facsimile signatures. A certificate is valid and may be issued whether
or not an officer who signed it is still an officer of the Corporation when it
is issued.
Section 2 - TRANSFERS
---------
The Board of Directors shall have power and authority to make such rules
and regulations as it may deem expedient concerning the issue, transfer and
registration of certificates of stock, and may appoint transfer agents and
registrars thereof. The duties of transfer agent and registrar may be combined.
Section 3 - RECORD DATE AND CLOSING OF TRANSFER BOOKS
-----------------------------------------
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.
Section 4 - STOCK LEDGER
------------
The Corporation shall maintain a stock ledger which contains the name and
address of each stockholder and the number of shares of stock of each class
registered in the name of each stockholder. The stock ledger may be in written
form or in any other form which can be converted within a reasonable time into
written form for visual inspection. The original or a duplicate of the
11
<PAGE> 12
stock ledger shall be kept at the offices of a transfer agent for the particular
class of stock, within or without the State of Maryland, or, if none, at the
principal office or the principal executive offices of the Corporation in the
State of Maryland.
Section 5 - CERTIFICATION OF BENEFICIAL OWNERS
----------------------------------
The Board of Directors may adopt by resolution a procedure by which a
stockholder of the Corporation may certify in writing to the Corporation that
any shares of stock registered in the name of the stockholder are held for the
account of a specified person other than the stockholder. The resolution shall
set forth the class of stockholders who may certify; the purpose for which the
certification may be made, the form of certification and the information to be
contained in it; if the certification is with respect to a record date or
closing of the stock transfer books, the time after the record date or closing
of the stock transfer books within which the certification must be received by
the Corporation; and any other provisions with respect to the procedure which
the Board considers necessary or desirable. On receipt of a certification which
complies with the procedure adopted by the Board in accordance with this
Section, the person specified in the certification is, for the purpose set forth
in the certification, the holder of record of the specified stock in place of
the stockholder who makes the certification.
Section 6 - LOST, STOLEN OR DESTROYED STOCK CERTIFICATES
--------------------------------------------
The Board of Directors of the Corporation may determine the conditions for
issuing a new stock certificate in place of one which is purportedly alleged to
have been lost, stolen or destroyed, or the Board of Directors may delegate such
power to any officer or officers of the Corporation. In its discretion, the
Board of Directors or such officer or officers may refuse to issue such new
certificate except upon the order of a court having jurisdiction in the
premises.
ARTICLE VI - FINANCE
--------------------
Section 1 - CHECKS, DRAFTS, ETC.
--------------------
All checks, drafts and orders for the payment of money, notes and other
evidences of indebtedness, issued in the name of the Corporation, shall, unless
otherwise provided by resolution of the Board of Directors, be signed by the
President, an Executive Vice-President or a VicePresident and countersigned by
the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary.
Section 2 - ANNUAL STATEMENT OF AFFAIRS
---------------------------
There shall be prepared annually a full and correct statement of the
affairs of the Corporation, to include a balance sheet and a financial statement
of operations for the preceding fiscal year. The statement of affairs shall be
submitted at the annual meeting of the stockholders and, within twenty (20) days
after the meeting, placed on file at the Corporation's principal office. Such
statement shall be prepared or caused to be prepared by such executive officer
of the Corporation as may be
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<PAGE> 13
designated in an additional or supplementary bylaw adopted by the Board of
Directors. If no other executive officer is so designated, it shall be the duty
of the President to prepare or cause to be prepared such statement.
Section 3 - FISCAL YEAR
-----------
The fiscal year of the Corporation shall commence on the first day of
January and end on the last day of December in each year.
ARTICLE VII - SUNDRY PROVISIONS
-------------------------------
Section 1 - BOOKS AND RECORDS
-----------------
The Corporation shall keep correct and complete books and records of its
accounts and transactions and minutes of the proceedings of its stockholders and
Board of Directors and of any executive or other committee when exercising any
of the powers of the Board of Directors. The books and records of the
Corporation may be in written form or in any other form which can be converted
within a reasonable time into written form for visual inspection. Minutes shall
be recorded in written form but may be maintained in the form of a reproduction.
Section 2 - CORPORATE SEAL
--------------
The Board of Directors shall provide a suitable seal, bearing the name of
the Corporation, which shall be in the charge of the Secretary. The Board of
Directors may authorize one or more duplicate seals and provide for the custody
thereof.
Section 3 - BONDS
-----
The Board of Directors may require any officer, agent or employee of the
Corporation to give a bond to the Corporation, conditioned upon the faithful
discharge of his duties, with one or more sureties and in such amount as may be
satisfactory to the Board of Directors.
Section 4 - VOTING UPON SHARES IN OTHER CORPORATIONS
----------------------------------------
Stock of other corporations or associations, registered in the name of the
Corporation, may be voted by the Chief Executive Officer, the President, an
Executive Vice-President or a proxy appointed by any of them. The Board of
Directors, however, may by resolution appoint some other person to vote such
shares, in which case such person shall be entitled to vote such shares upon the
production of a certified copy of such resolution.
Section 5 - MAIL
----
Any notice or other document which is required by these Bylaws to be
mailed shall be deposited in the United States mails, postage prepaid.
13
<PAGE> 14
Section 6 - EXECUTION OF DOCUMENTS
----------------------
A person who holds more than one office in the Corporation may not act in
more than one capacity to execute, acknowledge, or verify an instrument required
by law to be executed, acknowledged or verified by more than one officer.
Section 7 - AMENDMENT OF BYLAWS
-------------------
The Board of Directors shall have the power and authority to amend, alter
or repeal these Bylaws or any provision thereof, and may from time to time make
additional Bylaws.
ARTICLE VIII - INDEMNIFICATION
------------------------------
Section 1 - RIGHT TO INDEMNIFICATION
------------------------
Each person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "proceeding"), by reason of the
fact that he, or a person of whom he is the legal representative, is or was a
director, officer, employee or agent of the Corporation or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise (including service with respect to employee benefit plans), whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the Maryland General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said Law permitted the Corporation to provide prior
to such amendment) against all expenses, liability and loss (including
attorney's fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by such person
in connection therewith; provided, however, that the Corporation shall indemnify
any such person seeking indemnity in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. Such right to
indemnification under this Section shall be a contract right and shall include
the right of an officer or director to be paid by the Corporation expenses
incurred in defending any civil or criminal action, suit or proceeding in
advance of the final disposition of any such action, suit or proceeding, upon
the receipt by the Corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Section or otherwise.
Section 2 - RIGHT OF CLAIMANT TO BRING SUIT
-------------------------------
If a claim for indemnification or advancement of expenses under Section 1
is not paid in full by the Corporation within ninety (90) days after a written
claim for such has been received by the
14
<PAGE> 15
Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking
has been tendered to the Corporation) that the claimant has not met the
standards of conduct which make it permissible under the Maryland General
Corporation Law for the Corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense shall be on the Corporation.
Nether the failure of the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) to make a determination prior to
the commencement of such action that indemnification of the claimant is proper
in the circumstances because he meets the applicable standard of conduct set
forth in the Maryland General Corporation Law, nor an actual determination by
the Corporation (including its Board of Directors, independent legal counsel, or
its stockholders) that the claimant did not meet such applicable standard of
conduct, shall be a defense to the action or cerate a presumption that claimant
has not met the applicable standard of conduct.
Section 3 - NON-EXCLUSIVITY OF RIGHTS
-------------------------
The rights conferred on any person by Sections 1 and 2 of this Article
VIII shall not be exclusive of any other right which such person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaw, agreement, vote of stockholders or disinterested directors
or otherwise.
Section 4 - INSURANCE
---------
The Corporation may maintain insurance, at its expense, to protect itself
and any such director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
such expense, liability or loss, whether or not the Corporation would have the
power to indemnify such person against such expense, liability or loss under the
Maryland General Corporation Law.
IN WITNESS WHEREOF, these bylaws are hereby certified as the duly adopted
By-laws of the Corporation.
---------------------------------
Secretary
15
<PAGE> 1
STOCKHOLDER PROTECTION RIGHTS AGREEMENT
<PAGE> 2
STOCKHOLDER PROTECTION RIGHTS AGREEMENT
dated as of
January 18, 1995
between
PROVIDENT BANKSHARES CORPORATION
and
PROVIDENT BANK OF MARYLAND,
as Rights Agent
<PAGE> 3
STOCKHOLDER PROTECTION RIGHTS AGREEMENT
---------------------------------------
STOCKHOLDER PROTECTION RIGHTS AGREEMENT (as amended from time to time,
this "Agreement"), dated as of January 18, 1995, between Provident Bankshares
Corporation, a Maryland corporation (the "Company"), and Provident Bank of
Maryland, as Rights Agent (the "Rights Agent", which term shall include any
successor Rights Agent hereunder).
W I T N E S S E T H :
-------------------
WHEREAS, the Board of Directors of the Company has (a) authorized and
declared a dividend of one right ("Right") in respect of each share of Common
Stock (as hereinafter defined) held of record as of the close of business on
January 30, 1998 (the "Record Time") and (b) as provided in Section 2.4,
authorized the issuance of one Right in respect of each share of Common Stock
issued after the Record Time and prior to the Separation Time (as hereinafter
defined) and, to the extent provided in Section 5.3, each share of Common Stock
issued after the Separation Time;
WHEREAS, subject to Sections 3.1, 5.1 and 5.10, each Right entitles the
holder thereof, after the Separation Time, to purchase securities of the Company
(or, in certain cases, of certain other entities) pursuant to the terms and
subject to the conditions set forth herein; and
WHEREAS, the Company desires to appoint the Rights Agent to act on behalf
of the Company, and the Rights Agent is willing so to act, in connection with
the issuance, transfer, exchange and replacement of Rights Certificates (as
hereinafter defined), the exercise of Rights and other matters referred to
herein;
NOW THEREFORE, in consideration of the premises and the respective
agreements set forth herein, the parties hereby agree as follows:
<PAGE> 4
ARTICLE I
CERTAIN DEFINITIONS
-------------------
1.1 Certain Definitions. For purposes of this Agreement, the following
--------------------
terms have the meanings indicated:
"Acquiring Person" shall mean any Person who is a Beneficial Owner of 10%
or more of the outstanding shares of Common Stock; provided, however, that the
term "Acquiring Person" shall not include any Person (i) who is the Beneficial
Owner of 10% or more of the outstanding shares of Common Stock on the date of
this Agreement or who shall become the Beneficial Owner of 10% or more of the
outstanding shares of Common Stock solely as a result of an acquisition by the
Company of shares of Common Stock, until such time hereafter or thereafter as
any of such Persons shall become the Beneficial Owner (other than by means of a
stock dividend or stock split) of any additional shares of Common Stock, (ii)
who is the Beneficial Owner of 10% or more of the outstanding shares of Common
Stock but who acquired Beneficial Ownership of shares of Common Stock without
any plan or intention to seek or affect control of the Company, if such Person
promptly enters into an irrevocable commitment promptly to divest, and
thereafter promptly divests (without exercising or retaining any power,
including voting, with respect to such shares), sufficient shares of Common
Stock (or securities convertible into, exchangeable into or exercisable for
Common Stock) so that such Person ceases to be the Beneficial Owner of 10% or
more of the outstanding shares of Common Stock or (iii) who Beneficially Owns
shares of Common Stock consisting solely of one or more of (A) shares of Common
Stock Beneficially Owned pursuant to the grant or exercise of an option granted
to such Person by the Company in connection with an agreement to merge with, or
acquire, the Company entered into prior to a Flip-in Date, (B) shares of Common
Stock (or securities convertible into, exchangeable into or exercisable for
Common Stock),
4
<PAGE> 5
Beneficially Owned by such Person or its Affiliates or Associates at the time of
grant of such option, (C) shares of Common Stock (or, securities convertible
into, exchangeable into or exercisable for Common Stock) acquired by Affiliates
or Associates of such Person after the time of such grant which, in the
aggregate, amount to less than 1% of the outstanding shares of Common Stock and
(D) shares of Common Stock (or securities convertible into, exchangeable into or
exercisable for Common Stock) which are held by such Person in trust accounts,
managed accounts and the like or otherwise held in a fiduciary capacity, that
are beneficially owned by third persons who are not Affiliates or Associates of
such Person or acting together with such Person to hold such shares, or which
are held by such Person in respect of a debt previously contracted. In addition,
the Company, any wholly-owned Subsidiary of the Company and any employee stock
ownership or other employee benefit plan of the Company or a wholly-owned
Subsidiary of the Company shall not be an Acquiring Person.
"Affiliate" and "Associate" shall have the respective meanings ascribed to
such terms in Rule 12b-2 under the Securities Exchange Act of 1934, as such Rule
is in effect on the date of this Agreement.
A Person shall be deemed the "Beneficial Owner", and to have "Beneficial
Ownership" of, and to "Beneficially Own", any securities as to which such Person
or any of such Person's Affiliates or Associates is or may be deemed to be the
beneficial owner of pursuant to Rule 13d-3 and 13d-5 under the Securities
Exchange Act, as such Rules are in effect on the date of this Agreement as well
as any securities as to which such Person or any of such Person's Affiliates or
Associates has the right to become Beneficial Owner (whether such right is
exercisable immediately or only after the passage of time or the occurrence of
conditions) pursuant to any agreement, arrangement or understanding, or upon the
exercise of conversion rights, exchange rights, rights (other than the
5
<PAGE> 6
Rights), warrants or options, or otherwise; provided, however, that a Person
-------- -------
shall not be deemed the "Beneficial Owner", or to have "Beneficial Ownership"
of, or to "Beneficially Own", any security (i) solely because such security has
been tendered pursuant to a tender or exchange offer made by such Person or any
of such Person's Affiliates or Associates until such tendered security is
accepted for payment or exchange or (ii) solely because such Person or any of
such Person's Affiliates or Associates has or shares the power to vote or direct
the voting of such security pursuant to a revocable proxy given in response to a
public proxy or consent solicitation made to more than ten holders of shares of
a class of stock of the Company registered under Section 12 of the Securities
Exchange Act of 1934 and pursuant to, and in accordance with, the applicable
rules and regulations under the Securities Exchange Act of 1934, except if such
power (or the arrangements relating thereto) is then reportable under Item 6 of
Schedule 13D under the Securities Exchange Act of 1934 (or any similar provision
of a comparable or successor report). Notwithstanding the foregoing, no officer
or director of the Company shall be deemed to Beneficially Own any securities of
any other Person by virtue of any actions such officer or director takes in such
capacity. For purposes of this Agreement, in determining the percentage of the
outstanding shares of Common Stock with respect to which a Person is the
Beneficial Owner, all shares as to which such Person is deemed the Beneficial
Owner shall be deemed outstanding.
"Business Day" shall mean any day other than a Saturday, Sunday or a day
on which banking institutions in Baltimore, Maryland are generally authorized or
obligated by law or executive order to close.
6
<PAGE> 7
"Close of business" on any given date shall mean 5:00 p.m. Baltimore,
Maryland time on such date (or, if such date is not a Business Day, 5:00 p.m.
Baltimore, Maryland time on the next succeeding Business Day).
"Common Stock" shall mean the shares of Common Stock, par value $1.00 per
share, of the Company.
"Exchange Time" shall mean the time at which the right to exercise the
Rights shall terminate pursuant to Section 3.1(c) hereof.
"Exercise Price" shall mean, as of any date, the price at which a holder
may purchase the securities issuable upon exercise of one whole Right. The
Exercise Price shall equal $120, subject to adjustment in accordance with the
terms hereof from and after July 15, 1998.
"Expiration Time" shall mean the earliest of (i) the Exchange Time, (ii)
the Redemption Time, (iii) January 18, 2005 and (iv) upon the merger of the
Company into another corporation pursuant to an agreement entered into prior to
a Flip-in Date.
"Flip-in Date" shall mean the tenth business day after any Stock
Acquisition Date or such earlier or later date as the Board of Directors of the
Company may from time to time fix by resolution adopted prior to the Flip-in
Date that would otherwise have occurred.
"Flip-over Entity", for purposes of Section 3.2, shall mean (i) in the
case of a Flip-over Transaction or Event described in clause (i) of the
definition thereof, the Person issuing any securities into which shares of
Common Stock are being converted or exchanged and, if no such securities are
being issued, the other party to such Flipover Transaction or Event and (ii) in
the case of a Flipover Transaction or Event referred to in clause (ii) of the
definition thereof, the Person receiving the greatest portion of the assets or
earning power being transferred in such Flip-over
7
<PAGE> 8
Transaction or Event, provided in all cases if such Person is a subsidiary of a
corporation, the parent corporation shall be the Flip-over Entity.
"Flip-over Stock" shall mean the capital stock (or similar equity
interest) with the greatest voting power in respect of the election of directors
(or other persons similarly responsible for direction of the business and
affairs) of the Flip-over Entity.
"Flip-over Transaction or Event" shall mean a transaction or series of
transactions after a Flip-in Date in which, directly or indirectly, (i) the
Company shall consolidate or merge or participate in a share exchange with any
other Person if, at the time of the consolidation, merger or share exchange or
at the time the Company enters into any agreement with respect to any such
consolidation, merger or share exchange, the Acquiring Person Controls the Board
of Directors of the Company and either (A) any term of or arrangement concerning
the treatment of shares of capital stock in such consolidation, merger or share
exchange relating to the Acquiring Person is not identical to the terms and
arrangements relating to other holders of the Common Stock or (B) the Person
with whom the transaction or series of transactions occurs is the Acquiring
Person or an Affiliate or Associate of the Acquiring Person or (ii) the Company
shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell
or otherwise transfer) assets (A) aggregating more than 50% of the assets
(measured by either book value or fair market value) or (B) generating more than
50% of the operating income or cash flow, of the Company and its Subsidiaries
(taken as a whole) to any Person (other than the Company or one or more of its
wholly-owned Subsidiaries) or to two or more such Persons which are Affiliates
or Associates or otherwise acting in concert, if, at the time of the entry by
the Company (or any such Subsidiary) into an agreement with respect to such sale
or transfer of assets, the Acquiring Person Controls the Board of Directors of
the Company. An Acquiring Person shall be deemed to Control the Company's Board
of Directors when, following a
8
<PAGE> 9
Flip-in Date, the persons who were director's of the Company before the Flip-in
Date shall cease to constitute a majority of the Company's Board of Directors.
"Market Price" per share of any securities on any date shall mean the
average of the daily closing prices per share of such securities (determined as
described below) on each of the 20 consecutive Trading Days through and
including the Trading Day immediately preceding such date; provided, however,
that if an event of a type analogous to any of the events described in Section
2.4 hereof shall have caused the closing prices used to determine the Market
Price on any Trading Days during such period of 20 Trading Days not to be fully
comparable with the closing price on such date, each such closing price so used
shall be appropriately adjusted in order to make it fully comparable with the
closing price on such date. The closing price per share of any securities on any
date shall be the last reported sale price, regular way, or, in case no such
sale takes place or is quoted on such date, the average of the closing bid and
asked prices, regular way, for each share of such securities, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange, Inc.
or, if the securities are not listed or admitted to trading on the New York
Stock Exchange, Inc., as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the securities are listed or admitted to trading
or, if the securities are not listed or admitted to trading on any national
securities exchange, as reported by the National Association of Securities
Dealers, Inc. Automated Quotation System or such other system then in use, or,
if on any such date the securities are not listed or admitted to trading on any
national securities exchange or quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional market maker
making a market in
9
<PAGE> 10
the securities selected by the Board of Directors of the Company; provided,
however, that if on any such date the securities are not listed or admitted to
trading on a national securities exchange or traded in the over-the-counter
market, the closing price per share of such securities on such date shall mean
the fair value per share of securities on such date as determined in good faith
by the Board of Directors of the Company, after consultation with a nationally
recognized investment banking firm, and set forth in a certificate delivered to
the Rights Agent.
"Person" shall mean any individual, firm, partnership, association, group
(as such term is used in Rule 13d-5 under the Securities Exchange Act of 1934,
as such Rule is in effect on the date of this Agreement), corporation or other
entity.
"Preferred Stock" shall mean the series of Class A Preferred Stock, par
value $1.00 per share, of the Company created by Articles Supplementary in
substantially the form set forth in Exhibit B hereto appropriately completed.
"Redemption Price" shall mean an amount equal to one cent, $0.01.
"Redemption Time" shall mean the time at which the right to exercise the
Rights shall terminate pursuant to Section 5.1 hereof.
"Separation Time" shall mean the close of business on the earlier of (i)
the tenth business day (or such later date as the Board of Directors of the
Company may from time to time fix by resolution adopted prior to the Separation
Time that would otherwise have occurred) after the date on which any Person
commences a tender or exchange offer which, if consummated, would result in such
Person's becoming an Acquiring Person and (ii) the Flip-in Date; provided, that
if the foregoing results in the Separation Time being prior to the Record Time,
the Separation Time shall be the Record Time and provided further, that if any
tender or exchange offer referred to in
10
<PAGE> 11
clause (i) of this paragraph is cancelled, terminated or otherwise withdrawn
prior to the Separation Time without the purchase of any shares of Common Stock
pursuant thereto, such offer shall be deemed, for purposes of this paragraph,
never to have been made.
"Stock Acquisition Date" shall mean the first date of public announcement
by the Company (by any means) that an Acquiring Person has become such.
"Subsidiary" of any specified Person shall mean any corporation or other
entity of which a majority of the voting power of the equity securities or a
majority of the equity interest is Beneficially owned, directly or indirectly,
by such Person.
"Trading Day," when used with respect to any securities, shall mean a day
on which the New York Stock Exchange, Inc. is open for the transaction of
business or, if such securities are not listed or admitted to trading on the New
York Stock Exchange, Inc., a day on which the principal national securities
exchange on which such securities are listed or admitted to trading is open for
the transac tion of business or, if such securities are not listed or admitted
to trading on any national securities exchange, a Business Day.
ARTICLE II
THE RIGHTS
2.1 Summary of Rights. As soon as practicable after the Record Time, the
-----------------
Company will mail a letter summarizing the terms of the Rights to each holder of
record of Common Stock as of the Record Time, at such holder's address as shown
by the records of the Company.
2.2 Legend on Common Stock Certificates. Certificates for the Common Stock
------------------------------------
issued after the Record Time but prior to the Separation Time shall evidence one
Right for each share of
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<PAGE> 12
Common Stock represented thereby and shall have impressed on, printed on,
written on or otherwise affixed to them the following legend:
Until the Separation Time (as defined in the Rights Agreement
referred to below), this certificate also evidences and entitles the
holder hereof to certain Rights as set forth in a Rights Agreement, dated
as of January 18, 1995 (as such may be amended from time to time, the
"Rights Agreement"), between Provident Bankshares Corporation (the
"Company") and Provident Bank of Maryland, as Rights Agent, the terms of
which are hereby incorporated herein by reference and a copy of which is
on file at the principal executive offices of the Company. Under certain
circumstances, as set forth in the Rights Agreement, such Rights may be
redeemed, may become exercisable for securities or assets of the Company
or of another entity, may be exchanged for shares of Common Stock or other
securities or assets of the Company, may expire, may become void (if they
are "Beneficially Owned" by an "Acquiring Person" or an Affiliate or
Associate thereof, as such terms are defined in the Rights Agreement, or
by any transferee of any of the foregoing) or may he evidenced by separate
certificates and may no longer be evidenced by this certificate. The
Company will mail or arrange for the mailing of a copy of the Rights
Agreement to the holder of this certificate without charge promptly after
the receipt of a written request therefor.
Certificates representing shares of Common Stock that are issued and
outstanding at the Record Time shall evidence one Right for each share of Common
Stock evidenced thereby notwithstanding the absence of the foregoing legend.
2.3 Exercise of Rights; Separation of Rights. Subject to Sections 3.1, 5.1
----------------------------------------
and 5.10 and subject to adjustment as herein set forth, each Right will entitle
the holder thereof, after the Separation Time and prior to the Expiration Time,
to purchase, for the Exercise Price, one one-hundredth of a share of Preferred
Stock.
(b) Until the Separation Time, (i) no Right may be exercised and
(ii) each Right will be evidenced by the certificate for the associated share of
Common Stock (together, in the case of certificates issued prior to the Record
Time, with the letter mailed to the record holder thereof pursuant to Section
2.1) and will be transferable only together with, and will be transferred by a
transfer (whether with or without such letter) of, such associated share.
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<PAGE> 13
(c) Subject to this Section 2.3 and to Sections 3.1, 5.1 and 5.10,
after the Separation Time and prior to the Expiration Time, the Rights (i) may
be exercised and (ii) may be transferred independent of shares of Common Stock.
Promptly, following the Separation Time, the Rights Agent will mail to each
holder of record of Common Stock as of the Separation Time (other than any
Person whose Rights have become void pursuant to Section 3.1(b)), at such
holder's address as shown by the records of the Company (the Company hereby
agreeing to furnish copies of such records to the Rights Agent for this
purpose), (x) a certificate (a "Rights Certificate") in substantially the form
of Exhibit A hereto appropriately completed, representing the number of Rights
held by such holder at the Separation Time and having such marks of
identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
law or with any rule or regulation made pursuant thereto or with any rule or
regulation of any national securities exchange or quotation system on which the
Rights may from time to time be listed or traded, or to conform to usage, and
(y) a disclosure statement describing the Rights.
(d) Subject to Sections 3.1, 5.1 and 5.10, Rights may be exercised
on any Business Day after the Separation Time and prior to the Expiration Time
by submitting to the Rights Agent the Rights Certificate evidencing such Rights
with an Election to Exercise (an "Election to Exercise") substantially in the
form attached to the Rights Certificate duly completed, accompanied by payment
in cash, or by certified or official bank check or money order payable to the
order of the Company, of a sum equal to the Exercise Price multiplied by the
number of Rights being exercised and a sum sufficient to cover any transfer tax
or charge which may be payable in respect of any transfer involved in the
transfer or delivery of Rights Certificates or the issuance or delivery of
13
<PAGE> 14
certificates for shares or depositary receipts (or both) in a name other than
that of the holder of the Rights being exercised.
(e) Upon receipt of a Rights Certificate, with an Election to
Exercise accompanied by payment as set forth in Section 2.3(d), and subject to
Sections 3.1, 5.1 and 5.10, the Rights Agent will thereupon promptly (i)(A)
requisition from a transfer agent stock certificates evidencing such number of
shares or other securities to be purchased (the Company hereby irrevocably
authorizing its transfer agents to comply with all such requisitions) and (B) if
the Company elects pursuant to Section 5.5 not to issue certificates
representing fractional shares, requisition from the depositary selected by the
Company depositary receipts representing the fractional shares to be purchased
or requisition from the Company the amount of cash to be paid in lieu of
fractional shares in accordance with Section 5.5 and (ii) after receipt of such
certificates, depositary receipts and/or cash, deliver the same to or upon the
order of the registered holder of such Rights Certificate, registered (in the
case of certificates or depositary receipts) in such name or names as may be
designated by such holder.
(f) In case the holder of any Rights shall exercise less than all
the Rights evidenced by such holder's Rights Certificate, a new Rights
Certificate evidencing the Rights remaining unexercised will be issued by the
Rights Agent to such holder or to such holder's duly authorized assigns.
(g) The Company covenants and agrees that it will (i) take all such
action as may be necessary to ensure that all shares delivered upon exercise of
Rights shall, at the time of delivery of the certificates for such shares
(subject to payment of the Exercise Price), be duly and validly authorized,
executed, issued and delivered and fully paid and nonassessable; (ii) take all
such action as may be necessary to comply with any applicable requirements of
the Securities Act of 1933 or the
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<PAGE> 15
Securities Exchange Act of 1934, and the rules and regulations thereunder, and
any other applicable law, rule or regulation, in connection with the issuance of
any shares upon exercise of Rights; and (iii) pay when due and payable any and
all federal and state transfer taxes and charges which may be payable in respect
of the original issuance or delivery of the Rights Certificates or of any shares
issued upon the exercise of Rights, provided that the Company shall not be
required to pay any transfer tax or charge which may be payable in respect of
any transfer involved in the transfer or delivery of Rights Certificates or the
issuance or delivery of certificates for shares in a name other than that of the
holder of the Rights being transferred or exercised.
2.4 Adjustments to Exercise Price; Number of Rights. (a) In the event the
------------------------------------------------
Company shall at any time after the Record Time and prior to the Separation Time
(i) declare or pay a dividend on Common Stock payable in Common Stock, (ii)
subdivide the outstanding Common Stock or (iii) combine the outstanding Common
Stock into a smaller number of shares of Common Stock, (x) the Exercise Price in
effect after such adjustment will be equal to the Exercise Price in effect
immediately prior to such adjustment divided by the number of shares of Common
Stock (the "Expansion Factor") that a holder of one share of Common Stock
immediately prior to such dividend, subdivision or combination would hold
thereafter as a result thereof and (y) each Right held prior to such adjustment
will become that number of Rights equal to the Expansion Factor, and the
adjusted number of Rights will be deemed to be distributed among the shares of
Common Stock with respect to which the original Rights were associated (if they
remain outstanding) and the shares issued in respect of such dividend,
subdivision or combination, so that each such share of Common Stock will have
exactly one Right associated with it. Each adjustment made pursuant to this
15
<PAGE> 16
paragraph shall be made as of the payment or effective date for the applicable
dividend, subdivision or combination.
In the event the Company shall at any time after the Record Time and prior
to the Separation Time issue any shares of Common Stock otherwise than in a
transaction referred to in the preceding paragraph, each such share of Common
Stock so issued shall automatically have one new Right associated with it, which
Right shall be evidenced by the certificate representing such share. To the
extent provided in Section 5.3, Rights shall be issued by the Company in respect
of shares of Common Stock that are issued or sold by the Company after the
Separation Time.
(b) In the event the Company shall at any time after the Record Time
and prior to the Separation Time issue or distribute any securities or assets in
respect of, in lieu of or in exchange for Common Stock (other than pursuant to a
regular periodic cash dividend or a dividend paid solely in Common Stock)
whether by dividend, in a reclassification or recapitalization (including any
such transaction involving a merger, consolidation or share exchange), or
otherwise, the Company shall make such adjustments, if any, in the Exercise
Price, number of Rights and/or securities or other property purchasable upon
exercise of Rights as the Board of Directors of the Company, in its sole
discretion, may deem to be appropriate under the circumstances in order to
adequately protect the interests of the holders of Rights generally, and the
Company and the Rights Agent shall amend this Agreement as necessary to provide
for such adjustments.
(c) Each adjustment to the Exercise Price made pursuant to this
Section 2.4 shall be calculated to the nearest cent. Whenever an adjustment to
the Exercise Price is made pursuant to this Section 2.4, the Company shall (i)
promptly prepare a certificate setting forth such adjustment and a brief
statement of the facts accounting for such adjustment and (ii) promptly file
with the Rights Agent and with each transfer agent for the Common Stock a copy
of such certificate.
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<PAGE> 17
(d) Rights certificates shall represent the securities purchasable
under the terms of this Agreement, including any adjustment or change in the
securities purchasable upon exercise of the Rights, even though such
certificates may continue to express the securities purchasable at the time of
issuance of the initial Rights Certificates.
2.5 Date on Which Exercise is Effective. Each person in whose name any
--------------------------------------
certificate for shares is issued upon the exercise of Rights shall for all
purposes be deemed to have become the holder of record of the shares represented
thereby on the date upon which the Rights Certificate evidencing such Rights was
duly surrendered and payment of the Exercise Price for such Rights (and any
applicable taxes and other governmental charges payable by the exercising holder
hereunder) was made; provided, however, that if the date of such surrender and
-------- -------
payment is a date upon which the stock transfer books of the Company are closed,
such person shall be deemed to have become the record holder of such shares on,
and such certificate shall be dated, the next succeeding Business Day on which
the stock transfer books of the Company are open.
2.6 Execution, Authentication, Delivery and Dating of Rights Certificates.
---------------------------------------------------------------------
(a) The Rights Certificates shall be executed on behalf of the Company by its
Chairman of the Board, President or one of its Vice Presidents, under its
corporate seal reproduced thereon attested by its Secretary or one of its
Assistant Secretaries. The signature of any of these officers on the Rights
Certificates may be manual or facsimile.
Rights Certificates bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the countersignature and delivery of such Rights
Certificates.
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<PAGE> 18
Promptly after the Separation Time, the Company will notify the Rights
Agent of such Separation Time and will deliver Rights Certificates executed by
the Company to the Rights Agent, for countersignature, and, subject to Section
3.1(b), the Rights Agent shall manually countersign and deliver such Rights
Certificates to the holders of the Rights pursuant to Section 2.3(c) hereof. No
Rights Certificate shall be valid for any purpose unless manually countersigned
by the Rights Agent.
(b) Each Rights Certificate shall be dated the date of countersignature
thereof.
2.7 Registration, Registration of Transfer and Exchange.(a) After the
-------------------------------------------------------
Separation Time, the Company will cause to be kept a register (the "Rights
Register") in which, subject to such reasonable regulations as it may prescribe,
the Company will provide for the registration and transfer of Rights. The Rights
Agent is hereby appointed "Rights Registrar" for the purpose of maintaining the
Rights Register for the Company and registering Rights and transfers of Rights
after the Separation Time as herein provided. In the event that the Rights Agent
shall cease to be the Rights Registrar, the Rights Agent will have the right to
examine the Rights Register at all reasonable times after the Separation Time.
After the Separation Time and prior to the Expiration Time, upon surrender
for registration of transfer or exchange of any Rights Certificate, and subject
to the provisions of Section 2.7(c) and (d), the Company will execute, and the
Rights Agent will countersign and deliver, in the name of the holder or the
designated transferee or transferees, as required pursuant to the holder's
instructions, one or more new Rights Certificates evidencing the same aggregate
number of Rights as did the Rights Certificate so surrendered.
(b) Except as otherwise provided in Section 3.1(b), all Rights
issued upon any registration of transfer or exchange of Rights Certificates
shall be the valid obligations of the
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<PAGE> 19
Company, and such Rights shall be entitled to the same benefits under this
Agreement as the Rights surrendered upon such registration of transfer or
exchange.
(c) Every Rights Certificate surrendered for registration of
transfer or exchange shall be duly endorsed, or be accompanied by a written
instrument of transfer in form satisfactory to the Company or the Rights Agent,
as the case may be, duly executed by the holder thereof or such holder's
attorney duly authorized in writing. As a condition to the issuance of any new
Rights Certificate under this Section 2.7, the Company may require the payment
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in relation thereto.
(d) The Company shall not be required to register the transfer or
exchange of any Rights after such Rights have become void under Section 3.1(b),
been exchanged under Section 3.1(c) or been redeemed or terminated under Section
5.1.
2.8 Mutilated, Destroyed, Lost and Stolen Rights Certificates. (a) If
-------------------------------------------------------------
any mutilated Rights Certificate is surrendered to the Rights Agent prior to the
Expiration Time, then, subject to Sections 3.1(b), 3.1(c) and 5.1, the Company
shall execute and the Rights Agent shall countersign and deliver in exchange
therefor a new Rights Certificate evidencing the same number of Rights as did
the Rights Certificate so surrendered.
(b) If there shall be delivered to the Company and the Rights Agent
prior to the Expiration Time (i) evidence to their satisfaction of the
destruction, loss or theft of any Rights Certificate and (ii) such security or
indemnity as may be required by them to save each of them and any of their
agents harmless, then, subject to Sections 3.1(b), 3.1(c) and 5.1 and in the
absence of notice to the Company or the Rights Agent that such Rights
Certificate has been acquired by a bona fide purchaser, the Company shall
execute and upon its request the Rights
19
<PAGE> 20
Agent shall countersign and deliver, in lieu of any such destroyed, lost or
stolen Rights Certificate, a new Rights Certificate evidencing the same number
of Rights as did the Rights Certificate so destroyed, lost or stolen.
(c) As a condition to the issuance of any new Rights Certificate
under this Section 2.8, the Company may require the payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in relation
thereto and any other expenses (including the fees and expenses of the Rights
Agent) connected therewith.
(d) Every new Rights Certificate issued pursuant to this Section 2.8
in lieu of any destroyed, lost or stolen Rights Certificate shall evidence an
original additional contractual obligation of the Company, whether or not the
destroyed, lost or stolen Rights Certificate shall be at any time enforceable by
anyone, and, subject to Section 3.1(b), shall be entitled to all the benefits of
this Agreement equally and proportionately with any and all other Rights duly
issued hereunder.
2.9 Persons Deemed Owners. Prior to due presentment of a Rights
-----------------------
Certificate (or, prior to the Separation Time, the associated Common Stock
certificate) for registration of transfer, the Company, the Rights Agent and any
agent of the Company or the Rights Agent may deem and treat the person in whose
name such Rights Certificate (or, prior to the Separation Time, such Common
Stock certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby for all purposes whatsoever, including the payment of the
Redemption Price and neither the Company nor the Rights Agent shall be affected
by any notice to the con trary. As used in this Agreement, unless the context
otherwise requires, the term "holder" of any
20
<PAGE> 21
Rights shall mean the registered holder of such Rights (or, prior to the
Separation Time, the associated shares of Common Stock).
2.10 Delivery and Cancellation of Certificates. All Rights Certificates
------------------------------------------
surrendered upon exercise or for registration of transfer or exchange shall, if
surrendered to any person other than the Rights Agent, be delivered to the
Rights Agent and, in any case, shall be promptly cancelled by the Rights Agent.
The Company may at any time deliver to the Rights Agent for cancellation any
Rights Certificates previously countersigned and delivered hereunder which the
Company may have acquired in any manner whatsoever, and all Rights Certificates
so delivered shall be promptly cancelled by the Rights Agent. No Rights
Certificates shall be countersigned in lieu of or in exchange for any Rights
Certificates cancelled as provided in this Section 2.10, except as expressly
permitted by this Agreement. The Rights Agent shall return all cancelled Rights
Certificates to the Company.
2.11 Agreement of Rights Holders. Every holder of Rights by accepting the
---------------------------
same consents and agrees with the Company and the Rights Agent and with every
other holder of Rights that:
(a) prior to the Separation Time, each Right will be transferable
only together with, and will be transferred by a transfer of, the associated
share of Common Stock;
(b) after the Separation Time, the Rights Certificates will be
transferable only on the Rights Register as provided herein;
(c) prior to due presentment of a Rights Certificate (or, prior to
the Separation Time, the associated Common Stock certificate) for registration
of transfer, the Company, the Rights Agent and any agent of the Company or the
Rights Agent may deem and treat the person
21
<PAGE> 22
in whose name the Rights Certificate (or, prior to the Separation Time, the
associated Common Stock certificate) is registered as the absolute owner thereof
and of the Rights evidenced thereby for all purposes whatsoever, and neither the
Company nor the Rights Agent shall be affected by any notice to the contrary;
(d) Rights beneficially owned by certain Persons will, under the
circumstances set forth in Section 3.1(b), become void; and
(e) This Agreement may be supplemented or amended from time to time
pursuant to Section 2.4(b) or 5.4 hereof.
ARTICLE III
ADJUSTMENTS TO THE RIGHTS IN
THE EVENT OF CERTAIN TRANSACTIONS
3.1 Flip-in. (a) In the event that prior to the Expiration Time a Flip-in
-------
Date shall occur, except as provided in this Section 3.1, each Right shall
constitute the right to purchase from the Company, upon exercise thereof in
accordance with the terms hereof (but subject to Section 5.10), that number of
shares of Common Stock having an aggregate Market Price on the Stock Acquisition
Date equal to twice the Exercise Price for an amount in cash equal to the
Exercise Price (such right to be appropriately adjusted in order to protect the
interests of the holders of Rights generally in the event that on or after such
Stock Acquisition Date an event of a type analogous to any of the events
described in Section 2.4(a) or (b) shall have occurred with respect to the
Common Stock).
(b) Notwithstanding the foregoing, any Rights that are or were
Beneficially Owned on or after the Stock Acquisition Date by an Acquiring Person
or an Affiliate or
22
<PAGE> 23
Associate thereof or by any transferee, direct or indirect, of any of the
foregoing shall become void and any holder of such Rights (including
transferees) shall thereafter have no right to exercise or transfer such Rights
under any provision of this Agreement. If any Rights Certificate is presented
for assignment or exercise and the Person presenting the same will not complete
the certification set forth at the end of the form of assignment or notice of
election to exercise and provide such additional evidence of the identity of the
Beneficial Owner and its Affiliates and Associates (or former Beneficial Owners
and their Affiliates and Associates) as the Company shall reasonably request,
then the Company shall be entitled conclusively to deem the Beneficial Owner
thereof to be an Acquiring Person or an Affiliate or Associate thereof or a
transferee of any of the foregoing and accordingly will deem the Rights
evidenced thereby to be void and not transferable or exercisable.
(c) The Board of Directors of the Company may, at its option, at any
time after a Flip-in Date and prior to the time that an Acquiring Person becomes
the Beneficial Owner of more than 50% of the outstanding shares of Common Stock,
elect to exchange all (but not less than all) the then outstanding Rights (which
shall not include Rights that have become void pursuant to the provisions of
Section 3.1(b)) for shares of Common Stock at an exchange ratio of one share of
Common Stock per Right, appropriately adjusted in order to protect the interests
of holders of Rights generally in the event that after the Separation Time an
event of a type analogous to any of the events described in Section 2.4(a) or
(b) shall have occurred with respect to the Common Stock (such exchange ratio,
as adjusted from time to time, being hereinafter referred to as the "Exchange
Ratio").
23
<PAGE> 24
Immediately upon the action of the Board of Directors of the Company
electing to exchange the Rights, without any further action and without any
notice, the right to exercise the Rights will terminate and each Right (other
than Rights that have become void pursuant to Sec tion 3.1(b)) will thereafter
represent only the right to receive a number of shares of Common Stock equal to
the Exchange Ratio. Promptly after the action of the Board of Directors electing
to exchange the Rights, the Company shall give notice thereof (specifying the
steps to be taken to receive shares of Common Stock in exchange for Rights) to
the Rights Agent and the holders of the Rights (other than Rights that have
become void pursuant to Section 3.1(b)) outstanding immediately prior thereto by
mailing such notice in accordance with Section 5.9.
Each Person in whose name any certificate for shares is issued upon the
exchange of Rights pursuant to this Section 3.1(c) or Section 3.1(d) shall for
all purposes be deemed to have become the holder of record of the shares
represented thereby on, and such certificate shall be dated, the date upon which
the Rights Certificate evidencing such Rights was duly surrendered and payment
of any applicable taxes and other governmental charges payable by the holder was
made; provided, however, that if the date of such surrender and payment is a
-------- -------
date upon which the stock transfer books of the Company are closed, such Person
shall be deemed to have become the record holder of such shares on, and such
certificate shall be dated, the next succeeding Business Day on which the stock
transfer books of the Company are open.
(d) whenever the Company shall become obligated under Section 3.1(a)
or (c) to issue shares of Common Stock upon exercise of or in exchange for
Rights, the Company, at its option, may substitute therefor shares of Preferred
Stock, at a ratio of one one-hundredth of a share of Preferred Stock for each
share of Common Stock so issuable.
24
<PAGE> 25
(e) In the event that there shall not be sufficient treasury shares
or authorized but unissued shares of Common Stock or Preferred Stock of the
Company to permit the exercise or exchange in full of the Rights in accordance
with Section 3.1(a) or (c), the Company shall either (i) call a meeting of
stockholders seeking approval to cause sufficient additional shares to be
authorized (provided that if such approval is not obtained the Company will take
the action specified in clause (ii) of this sentence) or (ii) take such action
as shall be necessary to ensure and provide, to the extent permitted by
applicable law and any agreements or instruments in effect on the Stock
Acquisition Date to which it is a party, that each Right shall thereafter
constitute the right to receive, (x) at the Company's option, either (A) in
return for the Exercise Price, debt or equity securities or other assets (or a
combination thereof) having a fair value equal to twice the Exercise Price, or
(B) without payment of consideration (except as otherwise required by applicable
law), debt or equity securities or other assets (or a combination thereof)
having a fair value equal to the Exercise Price, or (y) if the Board of
Directors of the Company elects to exchange the Rights in accordance with
Section 3.1(c), debt or equity securities or other assets (off a combination
thereof) having a fair value equal to the product of the Market Price of a share
of Common Stock on the Flip-in Date times the Exchange Ratio in effect on the
Flip-in Date, where in any case set forth in (x) or (y) above the fair value of
such debt or equity securities or other assets shall be as determined in good
faith by the Board of Directors of the Company, after consultation with a
nationally recognized investment banking firm.
3.2 Flip-over. (a) Prior to the Expiration Time, the Company shall not
---------
enter into any agreement with respect to, consummate or permit to occur any
Flip-over Transaction or Event unless and until it shall have entered into a
supplemental agreement with the Flip-over Entity, for
25
<PAGE> 26
the benefit of the holders of the Rights, providing that, upon consummation or
occurrence of the Flip-over Transaction or Event (i) each Right shall thereafter
constitute the right to purchase from the Flip-over Entity, upon exercise
thereof in accordance with the terms hereof, that number of shares of Flip-over
Stock of the Flip-over Entity having an aggregate Market Price on the date of
consummation or occurrence of such Flip-over Transaction or Event equal to twice
the Exercise Price for an amount in cash equal to the Exercise Price (such right
to be appropriately adjusted in order to protect the interests of the holders of
Rights generally in the event that after such date of consummation or occurrence
an event of a type analogous to any of the events described in Section 2.4(a) or
(b) shall have occurred with respect to the Flip-over Stock) and (ii) the
Flip-over Entity shall thereafter be liable for, and shall assume, by virtue of
such Flip-over Transaction or Event and such supplemental agreement, all the
obligations and duties of the Company pursuant to this Agreement. The provisions
of this Section 3.2 shall apply to successive Flip-over Transactions or Events.
(b) Prior to the Expiration Time, unless the Rights will be redeemed
pursuant to Section 5.1 hereof in connection therewith, the Company shall not
enter into any agreement with respect to, consummate or permit to occur any
Flip-over Transaction or Event if at the time thereof there are any rights,
warrants or securities outstanding or any other arrangements, agreements or
instruments that would eliminate or otherwise diminish in any material respect
the benefits intended to be afforded by this Rights Agreement to the holders of
Rights upon consummation of such transaction.
26
<PAGE> 27
ARTICLE IV
THE RIGHTS AGENT
4.1 General. (a) The Company hereby appoints the Rights Agent to act as
-------
agent for the Company in accordance with the terms and conditions hereof, and
the Rights Agent hereby accepts such appointment. The Company agrees to pay to
the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted to be done by the Rights Agent in connection with the
acceptance and administration of this Agreement, including the costs and
expenses of defending against any claim of liability.
(b) The Rights Agent shall be protected and shall incur no liability
for or in respect of any action taken, suffered or omitted by it in connection
with its administration of this Agreement in reliance upon any certificate for
securities purchasable upon exercise of Rights, Rights Certificate, certificate
for other securities of the Company, instrument of assignment or transfer, power
of attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper person or persons.
4.2 Merger or Consolidation or Change of Name of Rights Agent. (a) Any
------------------------------------------------------------
corporation into which the Rights Agent or any successor Rights Agent may be
merged or with
27
<PAGE> 28
which it may be consolidated, or any corporation resulting from any merger or
consolidation to which the Rights Agent or any successor Rights Agent is a
party, or any corporation succeeding to the shareholder services business of the
Rights Agent or any successor Rights Agent, will be the successor to the Rights
Agent under this Agreement without the execution or filing of any paper or any
further act on the part of any of the parties hereto, provided that such
corporation would be eligible for appointment as a successor Rights Agent under
the provisions of Section 4.4 hereof. In case at the time such successor Rights
Agent succeeds to the agency created by this Agreement any of the Rights
Certificates have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of the predecessor Rights Agent and
deliver such Rights Certificates so countersigned; and in case at that time any
of the Rights Certificates have not been countersigned, any successor Rights
Agent may countersign such Rights Certificates either in the name of the
predecessor Rights Agent or in the name of the successor Rights Agent; and in
all such cases such Rights Certificates will have the full force provided in the
Rights Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent is changed and
at such time any of the Rights Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Rights Certificates so countersigned; and in case at that time
any of the Rights Certificates shall not have been countersigned, the Rights
Agent may countersign such Rights Certificates either in its prior name or in
its changed name; and in all such cases such Rights Certificates shall have the
full force provided in the Rights Certificates and in this Agreement.
28
<PAGE> 29
4.3 Duties of Rights Agent. The Rights Agent undertakes the duties and
-----------------------
obligations imposed by this Agreement upon the following terms and conditions,
by all of which the Company and the holders of Rights Certificates, by their
acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be
legal counsel for the Company), and the opinion of such counsel will be full and
complete authori zation and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement
the Rights Agent deems it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to he conclusively proved and
established by a certificate signed by a person believed by the Rights Agent to
be the Chairman of the Board, the President or any Vice President and by the
Treasurer or any Assistant Treasurer or the Secretary or any Assistant Secretary
of the Company and delivered to the Rights Agent; and such certificate will be
full authorization to the Rights Agent for any action taken or suffered in good
faith by it under the provisions of this Agreement in reliance upon such
certificate.
(c) The Rights Agent will be liable hereunder only for its own
negligence, bad faith or willful misconduct.
(d) The Rights Agent will not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the
certificates for securities purchasable upon exercise of Rights or the Rights
Certificates (except its countersignature
29
<PAGE> 30
thereof) or be required to verify the same, but all such statements and recitals
are and will be deemed to have been made by the Company only.
(e) The Rights Agent will not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof (except
the due authorization, execution and delivery hereof by the Rights Agent) or in
respect of the validity or execution of any certificate for securities
purchasable upon exercise of Rights or Rights Certificate (except its
countersignature thereof); nor will it be responsible for any breach by the
Company of any covenant or condition contained in this Agreement or in any
Rights Certificate; nor will it be responsible for any change in the
exercisability of the Rights (including the Rights becoming void pursuant to
Section 3.1(b) hereof) or any adjustment required under the provisions of
Section 2.4, 3.1 or 3.2 hereof or responsible for the manner, method or amount
of any such adjustment or the ascertaining of the existence of facts that would
require any such adjustment (except with respect to the exercise of Rights after
receipt of the certificate contemplated by Section 2.4 describing any such
adjustment); nor will it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any
securities purchasable upon exercise of Rights or any Rights or as to whether
any securities purchasable upon exercise of Rights will, when issued, be duly
and validly authorized, executed, issued and delivered and fully paid and
nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge
and deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably be
required by the Rights Agent for the carrying out or performing by the Rights
Agent of the provisions of this Agreement.
30
<PAGE> 31
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
person believed by the Rights Agent to be the Chairman of the Board, the
President or any Vice President or the Secretary or any Assistant Secretary or
the Treasurer or any Assistant Treasurer of the Company, and to apply to such
persons for advice or instructions in connection with its duties, and it shall
not be liable for any action taken or suffered by it in good faith in accordance
with instructions of any such person.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in Common Stock, Rights or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not
Rights Agent under this Agreement. Nothing herein shall preclude the Rights
Agent from acting in any other capacity for the Company or for any other legal
entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent will not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
4.4 Change of Rights Agent. The Rights Agent may resign and be discharged
----------------------
from its duties under this Agreement upon 90 days' notice (or such lesser notice
as is acceptable to the Company) in writing mailed to the Company and to each
transfer agent of Common Stock by
31
<PAGE> 32
registered or certified mail, and to the holders of the Rights in accordance
with Section 5.9. The Company may remove the Rights Agent upon 30 days' notice
in writing, mailed to the Rights Agent and to each transfer agent of the Common
Stock by registered or certified mail, and to the holders of the Rights in
accordance with Section 5.9. If the Rights Agent should resign or be removed or
otherwise become incapable of acting, the Company will appoint a successor to
the Rights Agent. If the Company fails to make such appointment within a period
of 30 days after such removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated Rights Agent or by
the holder of any Rights (which holder shall, with such notice, submit such
holder's Rights Certificate for inspection by the Company), then the holder of
any Rights may apply to any court of competent jurisdiction for the appointment
of a new Rights Agent. Any successor Rights Agent, whether appointed by the
Company or by such a court, shall be a corporation organized and doing business
under the laws of the United States or of the State of Maryland or any other
State of the United States, in good standing, which is authorized under such
laws to exercise the powers of the Rights Agent contemplated by this Agreement
and is subject to supervision or examination by federal or state authority and
which has at the time of its appointment as Rights Agent a combined capital and
surplus of at least $50,000,000. After appointment, the successor Rights Agent
will be vested with the same powers, rights, duties and responsibilities as if
it had been originally named as Rights Agent without further act or deed; but
the predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Company will file notice
thereof in writing with the
32
<PAGE> 33
predecessor Rights Agent and each transfer agent of the Common Stock, and mail a
notice thereof in writing to the holders of the Rights. Failure to give any
notice provided for in this Section 4.4, however, or any defect therein, shall
not affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
ARTICLE V
MISCELLANEOUS
5.1 Redemption. (a) The Board of Directors of the Company may, at its
----------
option, at any time prior to the close of business on the Flip-in Date, elect to
redeem all (but not less than all) the then outstanding Rights at the Redemption
Price and the Company, at its option, may pay the Redemption Price either in
cash or shares of Common Stock or other securities of the Company deemed by the
Board of Directors, in the exercise of its sole discretion, to be at least
equivalent in value to the Redemption Price.
(b) Immediately upon the action of the Board of Directors of the
Company electing to redeem the Rights (or, if the resolution of the Board of
Directors electing to redeem the Rights states that the redemption will not be
effective until the occurrence of a specified future time or event, upon the
occurrence of such future time or event), without any further action and without
any notice, the right to exercise the Rights will terminate and each Right will
thereafter represent only the right to receive the Redemption Price in cash or
securities, as determined by the Board of Directors. Promptly after the Rights
are redeemed, the Company shall give notice of such redemption to the Rights
Agent and the holders of the then outstanding Rights by mailing such notice in
accordance with Section 5.9.
33
<PAGE> 34
5.2 Expiration. The Rights and this Agreement shall expire at the
----------
Expiration Time and no Person shall have any rights pursuant to this Agreement
or any Right after the Expiration Time, except, if the Rights are exchanged or
redeemed, as provided in Section 3.1 or 5.1 hereof.
5.3 Issuance of New Rights Certificates. Notwithstanding any of the
---------------------------------------
provisions of this Agreement or of the Rights to the contrary, the Company may,
at its option, issue new Rights Certificates evidencing Rights in such form as
may be approved by its Board of Directors to reflect any adjustment or change in
the number or kind or class of shares of stock purchasable upon exercise of
Rights made in accordance with the provisions of this Agreement. In addition, in
connection with the issuance or sale of shares of Common Stock by the Company
following the Separation Time and prior to the Expiration Time pursuant to the
terms of securities convertible or redeemable into shares of Common Stock or to
options, in each case issued or granted prior to, and outstanding at, the
Separation Time, the Company shall issue to the holders of such shares of Common
Stock, Rights Certificates representing the appropriate number of Rights in
connection with the issuance or sale of such shares of Common Stock; provided,
--------
however, in each case, (i) no such Rights Certificate shall be issued, if, and
- -------
to the extent that, the Company shall be advised by counsel that such issuance
would create a significant risk of material adverse tax consequences to the
Company or to the Person to whom such Rights Certificates would be issued, (ii)
no such Rights Certificates shall be issued if, and to the extent that,
appropriate adjustment shall have otherwise been made in lieu of the issuance
thereof, and (iii) the Company shall have no obligation to distribute Rights
Certificates to any Acquiring Person or Affiliate or Associate of an Acquiring
Person or any transferee of any of the foregoing.
34
<PAGE> 35
5.4 Supplements and Amendments. The Company and the Rights Agent may from
--------------------------
time to time supplement or amend this Agreement without the approval of any
holders of Rights (i) prior to the close of business on the Flip-in Date, in any
respect and (ii) after the close of business on the Flip-in Date, to make any
changes that the Company may deem necessary or desirable and which shall not
materially adversely affect the interests of the holders of Rights generally or
in order to cure any ambiguity or to correct or supplement any provision
contained herein which may be inconsistent with any other provisions herein or
otherwise defective. The Rights Agent will duly execute and deliver any
supplement or amendment hereto requested by the Company which satisfies the
terms of the preceding sentence.
5.5 Fractional Shares. If the Company elects not to issue certificates
------------------
representing fractional shares upon exercise or redemption of Rights, the
Company shall, in lieu thereof, in the sole discretion of the Board of
Directors, either (a) evidence such fractional shares by depositary receipts
issued pursuant to an appropriate agreement between the Company and a depositary
selected by it, providing that each holder of a depositary receipt shall have
all of the rights, privileges and preferences to which such holder would be
entitled as a beneficial owner of such fractional share, or (b) sell such shares
on behalf of the holders of Right and pay to the registered holder of such
Rights the appropriate fraction of p rice per share received upon such sale.
5.6 Rights of Action. Subject to the terms of this Agreement (including
----------------
Section 3.1(b)), rights of action in respect of this Agreement, other than
rights of action vested solely in the Rights Agent, are vested in the respective
holders of the Rights; and any holder of any Rights, without the consent of the
Rights Agent or of the holder of any other Rights, may, on such holder's own
behalf and for such holder's own benefit and the benefit of other holders of
35
<PAGE> 36
Rights, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, such holder's
right to exercise such holder's Rights in the manner provided in such holder's
Rights Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and will be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened violations
of, the obligations of any Person subject to this Agreement.
5.7 Holder of Rights Not Deemed a Stockholder. No holder, as such, of any
-----------------------------------------
Rights shall be entitled to vote, receive dividends or be deemed for any purpose
the holder of shares or any other securities which may at any time be issuable
on the exercise of such Rights, nor shall anything contained herein or in any
Rights Certificate be construed to confer upon the holder of any Rights, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in Section 5.8 hereof), or to receive dividends or subscription rights,
or otherwise, until such Rights shall have been exercised or exchanged in
accordance with the provisions hereof.
5.8 Notice of Proposed Actions. In case the Company shall propose after
---------------------------
the Separation Time and prior to the Expiration Time (i) to effect or permit
occurrence of any Flip-over Transaction or Event or (ii) to effect the
liquidation, dissolution or winding up of the Company, then, in each such case,
the Company shall give to each holder of a Right, in
36
<PAGE> 37
accordance with Section 5.9 hereof, a notice of such proposed action, which
shall specify the date on which such Flip-over Transaction or Event,
liquidation, dissolution, or winding up is to take place, and such notice shall
be so given at least 20 Business Days prior to the date of the taking of such
proposed action.
5.9 Notices. Notices or demands authorized or required by this Agreement
-------
to be given or made by the Rights Agent or by the holder of any Rights to or on
the Company shall be sufficiently given or made if delivered or sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
Provident Bankshares Corporation
114 East Lexington Street
Baltimore, MD 21202
Attention: Secretary
Any notice or demand authorized or required by this Agreement to be given
or made by the Company or by the holder of any Rights to or on the Rights Agent
shall be sufficiently given or made if delivered or sent by first-class mail,
postage prepaid, addressed (until another address is filed in writing with the
Company) as follows:
Provident Bank of Maryland
114 East Lexington Street
Baltimore, MD 21202
Notices or demands authorized or required by this Agreement to be given or
m&de by the Company or the Rights Agent to or on the holder of any Rights shall
be sufficiently given or made if delivered or sent by first-class mail, postage
prepaid, addressed to such holder at the address of such holder as it appears
upon the registry books of the Rights Agent or, prior to the Separation Time, on
the registry books of the transfer agent for the Common Stock. Any notice
37
<PAGE> 38
which is mailed in the manner herein provided shall be deemed given, whether or
not the holder receives the notice.
5.10 Suspension of Exercisability. To the extent that the Company
------------------------------
determines in good faith that some action will or need be taken pursuant to
Section 3.1 or to comply with federal or state securities laws, the Company may
suspend the exercisability of the Rights for a reasonable period in order to
take such action or comply with such laws. In the event of any such suspension,
the Company shall issue as promptly as practicable a public announcement stating
that the exercisability or exchangeability of the Rights has been temporarily
suspended. Notice thereof pursuant to Section 5.9 shall not be required.
Failure to give a notice pursuant to the provisions of this Agreement
shall not affect the validity of any action taken hereunder.
5.11 Costs of Enforcement. The Company agrees that if the Company or any
---------------------
other Person the securities of which are purchasable upon exercise of Rights
fails to fulfill any of its obligations pursuant to this Agreement, then the
Company or such Person will reimburse the holder of any Rights for the costs and
expenses (including legal fees) incurred by such holder in actions to enforce
such holder's rights pursuant to any Rights or this Agreement.
5.12 Successors. All the covenants and provisions of this Agreement by or
----------
for the benefit of the Company or the Rights Agent shall bind and inure to the
benefit of their respective successors and assigns hereunder.
5.13 Benefits of this Agreement. Nothing in this Agreement shall be
----------------------------
construed to give to any Person other than the Company, the Rights Agent and the
holders of the Rights any legal
38
<PAGE> 39
or equitable right, remedy or claim under this Agreement and this Agreement
shall be for the sole and exclusive benefit of the Company, the Rights Agent and
the holders of the Rights.
5.14 Determination and Actions by The Board of Directors, etc. The Board
---------------------------------------------------------
of Directors of the Company shall have the exclusive power and authority to
administer this Agreement and to exercise all rights and powers specifically
granted to the Board or to the Company, or as may be necessary or advisable in
the administration of this Agreement, including, without limitation, the right
and power to (i) interpret the provisions of this Agreement and (ii) make all
determinations deemed necessary or advisable for the administration of this
Agreement. All such actions, calculations, interpretations and determinations
(including, for purposes of clause (y) below, all omissions with respect to the
foregoing) which are done or made by the Board in good faith, shall (x) be
final, conclusive and binding on the Company, the Rights Agent, the holders of
the Rights and all other parties, and (y) not subject the Board of Directors of
the Company to any liability to the holders of the Rights.
5.15 Descriptive Headings. Descriptive headings appear herein for
----------------------
convenience only and shall not control or affect the meaning or construction of
any of the provisions hereof.
5.16 Governing Law. THIS AMENDMENT SHALL BE DEEMED TO BE A CONTRACT MADE
--------------
UNDER THE LAWS OF THE STATE OF MARYLAND AND FOR ALL PURPOSES SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF SUCH STATE APPLICABLE TO
CONTRACTS TO BE MADE AND PERFORMED ENTIRELY WITHIN SUCH STATE.
39
<PAGE> 40
5.17 Counterparts. This Amendment may be executed in any number of
------------
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
5.18 Severability. If any term or provision hereof or the application
------------
thereof to any circumstance shall, in any jurisdiction and to any extent, be
invalid or unenforceable, such term or provision shall be ineffective as to such
jurisdiction to the extent of such invalidity or unenforceability without
invalidating or rendering unenforceable the remaining terms and provisions
hereof or the application of such term or provision to circumstances other than
those as to which it is held invalid or unenforceable.
40
<PAGE> 41
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
PROVIDENT BANKSHARES CORPORATION
By: /s/ Carl W. Stearn
--------------------------------------
Name: Carl W. Stearn
Title: Chairman of the Board and Chief
Executive Officer
PROVIDENT BANK OF MARYLAND
By: /s/ Peter M. Martin
--------------------------------------
Name: Peter M. Martin
Title: President
41
<PAGE> 42
EXHIBIT A
---------
(Form of Rights Certificate]
Certificate No. W- _______ Rights
THE RIGHTS ARE SUBJECT TO REDEMPTION
OR MANDATORY EXCHANGE, AT THE OPTION
OF THE COMPANY, ON THE TERMS SET
FORTH IN THE RIGHTS AGREEMENT. RIGHTS
BENEFICIALLY OWNED BY ACQUIRING
PERSONS OR AFFILIATES OR ASSOCIATES
THEREOF (AS SUCH TERMS ARE DEFINED IN
THE RIGHTS AGREEMENT) OR TRANSFEREES
OF ANY OF THE FOREGOING WILL BE VOID.
Rights Certificate
PROVIDENT BANKSHARES CORPORATION
This certifies that ____________________ , or registered assigns, is the
registered holder of the number of Rights set forth above, each of which
entitles the registered holder thereof, subject to the terms, provisions and
conditions of the Stockholder Protection Rights Agreement, dated as of January
18, 1995 (as amended from time to time, the "Rights Agreement"), between
Provident Bankshares Corporation, a Maryland corporation (the "Company"), and
Provident Bank of Maryland, as Rights Agent (the "Rights Agent", which term
shall include any successor Rights Agent under the Rights Agreement), to
purchase from the Company at any time after the Separation.
<PAGE> 43
Time (as such term is defined in the Rights Agreement) and prior to the close of
business on January 18, 2005, one one-hundredth of a fully paid share of Class A
Preferred Stock, par value $1.00 per share (the "Preferred Stock"), of the
Company (subject to adjustment as provided in the Rights Agreement) at the
Exercise Price referred to below, upon presentation and surrender of this Rights
Certificate with the Form of Election to Exercise duly executed at the principal
office of the Rights Agent in Baltimore, Maryland. The Exercise Price shall be
$120 per Right and shall be subject to adjustment in certain events as provided
in the Rights Agreement.
In certain circumstances described in the Rights Agreement, the Rights
evidenced hereby may entitle the registered holder thereof to purchase
securities of an entity other chan the Company or securities or assets of the
Company other than Preferred Stock, all as provided in the Rights Agreement.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and'the holders of the Rights Certificates. Copies of
the Rights Agreement are on file at the principal office of the Company and are
available without cost upon written request.
This Rights Certificate, wich or without other Rights Certificates, upon
surrender at the office of the Rights Agent designated for such purpose, may be
exchanged for another Rights Certificate or Rights Certificates of like tenor
evidencing an aggregate number of Rights equal to the aggregate number of Rights
evidenced by the Rights Certificate or Rights Certificates surrendered. If this
Rights Certificate shall be exercised in part, the registered holder shall be
entitled to receive,
2
<PAGE> 44
upon surrender hereof, another Rights Certificate or Rights Certificates for the
number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, each Right evidenced by
this Certificate may be (a) redeemed by the Company under certain circumstances,
at its option, at a redemption price of $0.01 per Right or (b) exchanged by the
Company under certain circumstances, at its option, for one share of Common
Stock or one one-hundredth of a share of Preferred Stock per Right (or, in
certain cases, other securities or assets of the Company), subject in each case
co adjustment in certain events as provided in the Rights Agreement.
No holder of this Rights Certificate, as such, shall be entitled to vote
or receive dividends or be deemed for any purpose the holder of any securities
which may at any time be issuable on the exercise hereof, nor shall anything
contained in the Rights Agreement or herein be construed to confer upon the
holder hereof, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in the Rights Agreement), or to receive
dividends or subscription rights, or otherwise, until the Rights evidenced by
this Rights Certificate shall have been exercised or exchanged as provided in
the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any purpose
until it shall have been counter-signed by the Rights Agent.
3
<PAGE> 45
WITNESS the facsimile signature of the proper officers of the Company and
its corporate seal.
Date: ____________________
ATTEST: PROVIDENT BANKSHARES CORPORATION
____________________________ By_______________________
Secretary
Countersigned:
PROVIDENT BANK OF MARYLAND
By:
--------------------------
Authorized Signature
4
<PAGE> 46
FORM OF ASSIGNMENT
------------------
(To be executed by the registered holder if such holder desires to transfer this
Rights Certificate.)
FOR VALUE RECEIVED _______________________ hereby
___________________________ sells, assigns and transfers unto (Please print name
and address of transferee) this Rights Certificate, together with all right,
title and interest therein, and does hereby irrevocably constitute and appoint
_______________ Attorney, to transfer the within Rights Certificate on the books
of the within-named Company, with full power of substitution.
Dated: _______________ , 199__
Signature Guaranteed: --------------------------------------
Signature
(Signature must correspond to name as
written upon the face of this Rights
Certificate in every particular,
without alteration or enlargement or
any change whatsoever)
Signatures must be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee Medallion program), pursuant to
SEC Rule l7Ad-15.
================================================================================
(To be completed if true)
<PAGE> 47
The undersigned hereby represents, for the benefit of all holders of Rights and
shares of Common Stock, that the Rights evidenced by this Rights Certificate are
not, and, to the knowledge of the undersigned, have never been, Beneficially
Owned by an Acquiring Person or an Affiliate or Associate thereof (as defined in
the Rights Agreement).
--------------------------------------
Signature
================================================================================
NOTICE
In the event the certification set forth above is not completed in connection
with a purported assignment, the Company will deem the Beneficial Owner of the
Rights evidenced by the enclosed Rights Certificate to be an Acquiring Person or
an Affiliate or Associate thereof (as defined in the Rights Agreement) or a
transferee of any of the foregoing and accordingly will deem the Rights
evidenced by such Rights Certificate to be void and not transferable or
exercisable.
2
<PAGE> 48
FORM OF ELECTION TO EXERCISE
----------------------------
(To be executed if holder desires to
exercise the Rights Certificate.)
TO: PROVIDENT BANKSHARES CORPORATION
The undersigned hereby irrevocably elects to exercise
________________________ whole Rights represented by the attached Rights
Certificate to purchase the shares of Participating Preferred Stock issuable
upon the exercise of such Rights and requests that certificates for such shares
be issued in the name of:
---------------------------------------
Address:
---------------------------------------
---------------------------------------
Social Security or Other Taxpayer
Identification Number:
--------------------- ----------------------------
If such number of Rights shall not be all the Rights evidenced by this Rights
Certificate, a new Rights Certificate for the balance of such Rights shall be
registered in the name of and delivered to:
---------------------------------------
Address:
---------------------------------------
---------------------------------------
Social Security or Other Taxpayer
Identification Number:
--------------------- ----------------------------
Dated: _______________, 199__
Signature Guaranteed: --------------------------------------
Signature (Signature must correspond
to name as written upon the face of
the attached Rights Certificate in
every particular, without alteration
or enlargement or any change
whatsoever)
<PAGE> 49
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
================================================================================
(To be completed if true)
The undersigned hereby represents, for the benefit of all holders of
Rights and shares of Common Stock, that the Rights evidenced by the attached
Rights Certificate are not, and, to the knowledge of the undersigned, have never
been, Beneficially Owned by an Acquiring Person or an Affiliate or Associate
thereof (as defined in the Rights Agreement)
--------------------------------------
Signature
================================================================================
NOTICE
------
In the event the certification set forth above is not completed in
connection with a purported exercise, the Company will deem the Beneficial Owner
of the Rights evidenced by the attached Rights Certificate to be an Acquiring
Person or an Affiliate or Associate thereof (as defined in the Rights Agreement)
or a transferee of any of the foregoing and accordingly will deem the Rights
evidenced by such Rights Certificate to be void and not transferable or
exercisable.
2
<PAGE> 1
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<PAGE> 2
<TABLE>
<CAPTION>
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Three Months Ended Six Months Ended
June 30 June 30
(in thousands, except per share data) 1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------
Basic:
- -----
<S> <C> <C> <C> <C>
Average shares outstanding 24,496 23,745 24,417 23,712
============ ============= ============= ============
Net Income $ 9,725 $ 7,994 $19,030 $15,923
============ ============= ============= ============
Per Share Amount $ 0.40 $ 0.34 $0.78 $ 0.67
============ ============= ============= ============
Diluted:
- -------
Average shares outstanding 24,496 23,745 24,417 23,712
Net effect of dilutive stock options based
on the treasury stock method using the
average market price or quarter end price,
whichever is greater 1,054 667 1,113 685
------------ ------------- ------------- ------------
Total Shares Outstanding 25,550 24,412 25,530 24,397
============ ============= ============= ============
Net Income $ 9,725 $ 7,994 $19,030 $15,923
============ ============= ============= ============
Per Share Amount $ 0.38 $ 0.33 $ 0.75 $ 0.65
------------ ------------- ------------- ------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-Q and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000818969
<NAME> Provident Bankshares Corporation
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 64,373
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,483,083
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 2,749,275
<ALLOWANCE> 38,731
<TOTAL-ASSETS> 4,497,377
<DEPOSITS> 2,914,676
<SHORT-TERM> 342,101
<LIABILITIES-OTHER> 132,923
<LONG-TERM> 780,503
39,289
0
<COMMON> 24,737
<OTHER-SE> 263,148
<TOTAL-LIABILITIES-AND-EQUITY> 4,497,377
<INTEREST-LOAN> 112,823
<INTEREST-INVEST> 36,578
<INTEREST-OTHER> 1,579
<INTEREST-TOTAL> 150,980
<INTEREST-DEPOSIT> 61,200
<INTEREST-EXPENSE> 87,050
<INTEREST-INCOME-NET> 63,930
<LOAN-LOSSES> 6,049
<SECURITIES-GAINS> 1,934
<EXPENSE-OTHER> 31,457
<INCOME-PRETAX> 28,358
<INCOME-PRE-EXTRAORDINARY> 28,358
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,030
<EPS-PRIMARY> 0.78
<EPS-DILUTED> 0.75
<YIELD-ACTUAL> 3.30
<LOANS-NON> 13,669
<LOANS-PAST> 23,356
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 36,861
<CHARGE-OFFS> 4,725
<RECOVERIES> 546
<ALLOWANCE-CLOSE> 38,731
<ALLOWANCE-DOMESTIC> 38,731
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
