 |
MENU |
 |
HOME |
BASIC AGREEMENT
This Basic Agreement is made by and among, the Depository Insurance Corporation (hereinafter referred to as "DIC"), The Long-Term Credit Bank of Japan, Ltd. (hereinafter referred to as "LTCB") and New LTCB Partners CV (hereinafter referred to as "New LTCB Partners") (each of which is hereinafter referred to as a "Party") as of December 24, 1999;
| Whereas, | DIC intend to sell certain shares in LTCB held by DIC to New LTCB
Partners and New LTCB Partners intends to purchase such shares; and |
|
| Whereas, | New LTCB Partners intends to subscribe for additional newly issued
shares of common stock of LTCB (hereinafter referred to as the "New
Common Shares" and together with the existing common shares of LTCB,
hereinafter referred to as the "Common Shares") |
|
| Whereas, | DIC, LTCB and New LTCB Partners executed the Memorandum of Understanding
dated September 28, 1999 under which New LTCB Partners is given a priority
right to negotiate with DIC (hereinafter referred to as "MOU");
and |
|
| Whereas, | all the Parties recognize that it is desirable to make clear the
contents of discussions which have been made among the Parties pursuant to
MOU and their understanding based upon which a definitive share sale and
purchase agreement (hereinafter referred to as the "Definitive
Agreement") will be executed in line with the above intention, and |
|
| Whereas, | in pursuing the negotiation of the Basic Agreement, DIC is subject to
the instructions and supervision of Financial Reconstruction Commission
(hereinafter referred to as "FRC"). |
THEREFORE, the Parties agree:
Article 1 (Definitions)
Unless otherwise context so requires, the following terms shall have the meaning indicated below:
The term "Base Date" means the day immediately preceding the Closing Date.
The term "Closing Date" means the date of payment by New LTCB
Partners of the subscription price in the amount of 120 billion yen for 300
million New Common Shares in LTCB (400 yen per share) and the purchase by New
LTCB Partners of 2,417,075,000 issued and outstanding Common Shares for 1
billion yen; and the "Closing" means the payment of contribution
regarding such New Common Shares and such purchase of the issued and outstanding
Common Shares and transactions incidental thereto to take place on the Closing
Date.
Article 2 (Balance Sheet)
2.1 New LTCB Partners will acquire all the issued and outstanding Common Shares of LTCB except for the shares the number of which comprise less than one unit [tan-i miman kabushiki] from DIC.
2.2 An offset of deficit shall be made by DIC under Articles 62 and 72 of the Law
Concerning Emergency Measures for the Reconstruction of the Functions of the
Financial System (Kinyu Kino no Saisei no tameno Kinkyu Sochi ni kansuru Horitsu)
(Law No. 132 of October 16, 1998; hereinafter referred to as the "Financial
Reconstruction Law"). The balance sheet of LTCB to be used in order to
determine the amount of the offset of deficit shall be the one on a
non-consolidated basis. Such balance sheet shall be prepared in accordance with
the accounting standards effective as of the Base Date.
Article 3 (Share Purchase and Fund Injection)
3.1 Subject to performance of the obligations of DIC and LTCB under the Definitive Agreement, New LTCB Partners will:
(i) purchase from DIC 2,417,075,000 Common Shares which constitute all of the issued and outstanding Common Shares of LTCB except for the shares, the number of which comprises less than one unit [tan-i miman kabushiki], for consideration of 1 billion yen (approximately 0.41 yen per share); and
(ii) subscribe for 300 million newly issued Common Shares for the consideration of 120 billion yen (400 yen per share) on the Closing Date.
3.2 Subject to performance of the obligations of New LTCB Partners under the Definitive Agreement, DIC will:
(i) of the Common Shares of LTCB held by DIC on the Closing Date, sell to New
LTCB Partners 2,417,075,000 Common Shares for consideration of 1 billion yen
(approximately 0.41 yen per share) and request that LTCB purchase 212 Common
Shares, the number of which comprises less than one unit [tan-i miman kabushiki],
in consideration of 87 yen;
(ii) of the convertible preferred shares of LTCB held by DIC on the Closing Date, continue to own 74,528,000 shares, in accordance with their existing terms (1% annual dividend; convertible to Common Shares at the conversion price of 180 yen per share; mandatory conversion in 2008) while all of the balance of LTCB's preferred shares shall be canceled by LTCB; and
(iii) if after the Closing, LTCB requests the subscription of shares under Article 4 of the Law Concerning Earlier Sound Operation of Financial Functions (Law No. 143 of October 22, 1999) (hereinafter referred to as the "Earlier Sound Operation Law"), subscribe for up to 600 million newly-issued non-voting, preferred, and non-par value shares of LTCB in the amount of up to 240 billion yen (400 yen per share) subject to the approval of subscription by FRC. The actual terms and conditions for subscription of the preferred shares will be decided after review by FRC of the plan for the improvement of the operation submitted (pursuant to the instructions of New LTCB Partners) by LTCB as an issuing financial institution categorized as an institution with sound shareholder equity under the Earlier Sound Operation Law (subject to a condition that as of the date of the approval, LTCB has achieved 4% under the capital adequacy requirements). If FRC's formal approval of the subscription of such preferred stock with the same terms and conditions as those set forth under Section 3.4 below and with the payment date being the day to be set forth in the Definitive Agreement, is not given within a period of around 10 business days to be finalized in the Definitive Agreement after the date of formal application which is after the Closing Date, New LTCB Partners may terminate the Definitive Agreement and rescind all of the transactions consummated by it with respect to LTCB on or after the Closing Date.
3.3 If New LTCB Partners so requests, LTCB will, under the Earlier Sound Operation Law in conjunction with the capital increase by a subscription of shares pursuant to the previous paragraph, make a capital reduction in such amount as is necessary in order to offset all or part of the capital deficit upon which capital reduction such capital increase is conditioned.
3.4 The preferred shares referred to in Section 3.2 (iii) shall have the following terms:
(i) conversion period: the holder may convert the preferred shares into Common Shares on or after the 5th anniversary of the date of issuance of the preferred shares (hereinafter referred to as the "Issuance Date for Preferred Shares");
(ii) conversion price: on the 5th, 6th and 7th anniversaries of the Issuance Date for Preferred Shares, the conversion price shall be adjusted upwards or downwards, as the case may be, to the lower of 400 yen per share or the market price, if the Common Shares of LTCB are publicly traded, or to the lower of 400 yen per share or the net asset value per share, if the Common Shares are not publicly traded; provided that at no time and under no circumstances will the conversion price be less than 300 yen per share; provided, however, that the calculation method shall be clarified in the Definitive Agreement;
(iii) mandatory conversion: the preferred shares will be mandatorily converted into Common Shares on the 7th anniversary date of the Issuance Date for Preferred Shares at the then current conversion price; and,
(iv) dividends: dividends will be determined by the FRC. New LTCB Partners wishes the rate to be the lowest possible rate.
3.5 From time to time (which time may occur at the time of an initial public offering, or later), if the aggregate market value of shares in LTCB held by DIC under Section 3.2 (ii) and (iii) above exceeds 500 billion yen, LTCB may request DIC to sell a certain number of its Common Shares or preferred shares of LTCB at the fair price. Such consent shall not be unreasonably withheld by DIC and the price and manner of the sale shall be determined after consultation with LTCB. If the preferred shares are convertible at such time, LTCB may request that the preferred shares be converted into Common Shares for purposes of such sale.
3.6 The parties hereto shall take all respective necessary actions, including
affirmative vote at a general shareholders meeting of LTCB, to consummate the
share purchase, issuance of shares, share cancellation, capital reduction and
increase and fund injection provided for under this Article 3.
Article 4 (Representation, Etc.)
| The Definitive Agreement shall contain such representation and warranty
clauses and indemnity clause as contained in usual merger and acquisition
agreements. The term of such representation, warranty and indemnity shall
be 5 years from the due date of the filing of the return for the national
corporation tax for the fiscal year during which the Closing Date falls,
in respect of tax matters, and 3 years from the Closing Date in respect of
the other matters. DIC shall indemnify the New LTCB Partners against
hidden, unrealized or contingent liabilities and loss of any kind and
litigation liability, existed or pending, respectively, as of the Base
Date, of LTCB whenever they are realized or reaches a final judgment (in
the case of litigation liability). The treatment of the cases where
hidden, unrealized or contingent liabilities and loss of any kind and
litigation liability, existed or pending, as of the Base Date, are
realized or reaches a final judgment (in the case of litigation liability)
in respect of LTCB's subsidiaries will be addressed in the Definitive
Agreement. There shall be no ceiling to the aggregate amount of
indemnification liabilities. However, no indemnification liability accrues
(other than those related to the tax representation ) if the aggregate of
all the amounts (irrespective of their magnitudes but excluding those
related to the representation in respect of tax returns) which would be
subject to indemnification is 5 billion yen or less. If the aggregate of
the amounts which would be subject to indemnification is more than 5
billion yen, the indemnification liability shall arise in respect of the
excess over the 5 billion yen; provided, however, that actual
indemnification liability shall arise only in respect of the amounts which
are more than 100 million yen per one case and constituting such excess
portion. |
Article 5 (Covenants)
|
The Definitive Agreement shall contain such covenant clauses as contained in
usual merger and acquisition agreements. |
Article 6 (Shares Portfolio Etc. presently held by LTCB)
6.1 Except for cases where shares are sold in accordance with this Article 6, LTCB shall continue to own all Japanese listed or non-listed shares which are owned by LTCB as of the date of the Definitive Agreement. LTCB shall prepare the list of shares retained by LTCB (other than shares of LTCB's subsidiaries designated in the Definitive Agreement and shares which are subject to contractual selling restrictions, etc.; hereinafter the same will apply in this Article) as of the date to be agreed upon in the Definitive Agreement (hereinafter referred to as the "Determination Date") setting forth names of issuers, numbers, book values and market prices as of the same date (in respect of non-listed shares, fair prices calculated based upon formula to be stipulated in the Definitive Agreement; hereinafter the same will apply in this Article) of such shares and deliver such list to New LTCB Partners and DIC on the date to be agreed upon in the Definitive Agreement. Among such shares retained by LTCB, shares which have unrealized loss as of the Determination Date shall be sold by LTCB before the Closing Date to DIC (in the case where the relevant shares are qualified under Section 6.5) or at the market. The prices at which the above-mentioned shares with unrealized loss are sold to DIC shall be the market prices shown in the list prepared by LTCB in accordance with the provisions of this Section. Such prices shall be those permitted under applicable laws.
6.2 New LTCB Partners shall designate shares the aggregate unrealized gains for which is the amount necessary for LTCB to achieve 4% capital adequacy ratio as the "Shares For First Sale" and shares the aggregate unrealized gains for 250 billion less the above-mentioned amount as the "Shares For Second Sale" and notify DIC and LTCB of such designation in writing by the date to be agreed upon in the Definitive Agreement. Shares retained by LTCB other than the Shares For First Sale and the Shares For Second Sale shall be sold by LTCB before the Closing Date to DIC (in the case where the relevant shares are qualified under Section 6,5) or at the market (such selection shall be made at the same time as the designation under this Section). The prices at which the above-mentioned shares with unrealized gain other than the Shares For First Sale and the Shares For Second Sale are sold to DIC shall be the market prices shown in the list prepared by LTCB in accordance with the provisions of Section 6.1; provided, however, that such prices shall be the ones permitted under the applicable laws.
6.3 LTCB shall sell the Shares For First Sale in the afternoon of the Closing Date and the Shares For Second Sale within 90 days from the Closing Date (provided, however, that sale to DIC shall be made on one or two specific dates as one (or two) transaction(s)), either to DIC (in the case where the relevant shares are qualified under Section 6.5) at the market or to DIC (such selection shall be made at the same time as the designation under Section 6.2). The prices at which the Shares For First Sale and the Shares For Second Sale are sold to DIC shall be the market prices shown in the list prepared by LTCB in accordance with the provisions of Section 6.1; provided, however, that such prices shall be the ones permitted under the applicable laws.
6.4 In the case where LTCB elects the sale at the market under Sections 6.1, 6.2 or 6.3, LTCB shall consult with DIC in advance. DIC will not oppose the proposed sale but it will have the right (hereinafter referred to as the "Right to Specify the Purchaser") to buy the relevant shares in light of the stock market as of the date of actual sale and other elements; provided, however, that the Right to Specify the Purchaser will not be exercised if (i) (a) the price of the proposed sale is a fair market price reflecting the size and liquidity of the relevant shares from DIC's standpoint and (b) it is clear to DIC that the proposed sale will not have a disruptive impact on the relevant stock market or if (ii) the issuer of the relevant shares has consented thereto. If DIC purchases such shares, the price shall be the fair market price; provided, however, that such price must be the one permitted under the applicable laws.
6.5 In order to have LTCB enjoy strong business relationship with issuers of shares, upon request of New LTCB Partners, DIC shall deposit with LTCB Trust & Banking such shares. DIC will not dispose of shares so deposited without LTCB's approval for five years after the Closing Date, and LTCB or LTCB Trust & Banking will retain nominal title and actual voting rights with respect to these shares. LTCB will have the option for said five years to repurchase any of such shares so deposited at the fair market price at the time of repurchase; provided, however, that upon LTCB's exercise of such an option, DIC has an option to elect not to resell the relevant shares, but will not unreasonably refuse to sell such shares. If DIC elects not to resell and the then existing trust period would otherwise end within one year from the date of such election, the trust period in respect of such shares will be extended until the first anniversary of the date of such election. During the trust period including the extended period and the trust period after DIC's election not to resell, LTCB will continue to have a similar option to repurchase and the DIC will also continue to have a similar option not to resell.
Shares purchased by DIC pursuant to its Right to Specify the Purchaser
described in Section 6.4 will be subject to the arrangement described in this
Section 6.5.
Article 7 (Warranty of Loan Related Assets)
7.1 Cancellation:
(1) Two Conditions
In the transaction contemplated by this Basic Agreement and the Definitive Agreement, DIC will be deemed to have transferred the Loan Related Assets (defined below) to LTCB as of the Closing Date. LTCB shall have a right (hereinafter referred to as the "Cancellation Right") to cancel a portion of sale of the Loan Related Assets, retroactively effective as of the Closing Date, if a defect is found and 20% reduction of value is recognized in association with the Loan Related Assets during the three years after the Closing Date.
"Loan Related Assets" shall mean the following assets and other claims and the principal amount of such assets and claims shall be determined as set forth below, provided that if with respect to a borrower the aggregate principal amount of the assets and claims described in items (a), (b) and (c) is less than 100 million yen, whether or not recorded on the balance sheet of LTCB, then such assets and claims shall not be included in Loan Related Assets:
a) loans, foreign exchange contracts, securities loaned, accrued interest, accrued revenue, suspense payments, advance payments related to loans and disbursements, possessed by LTCB on the Base Date; the balance.
b) commitments to extend credit by LTCB outstanding on the Base Date; the amount of the commitment to extend credit less the amount of the commitment to extend credit performed before the Base Date.
c) guarantees and acceptances made or accepted by LTCB as of the Base Date; the amount of the guarantees and acceptances.
d) in relation to claims which fall under any of the above mentioned items a), b) or c), claims renewed or rolled-over after the Base Date, new claims extended to a separate entity as a result of a corporate split, etc. made after the Base Date, claims of LTCB acquired after the Base Date by subrogation through the exercise of a guaranty given by LTCB, etc. or other claims which are in substance the same; provided that the outstanding principal amount of such claims shall not exceed the amount set forth in items a), b) and c) above with respect to the relevant claim.
e) derivative transactions which are related to loans and were entered into for the purposes of hedging.
(2) Defect
a) Definition of a Defect
Existence of Defect shall mean a case where, for those loans judged to be "appropriate for LTCB to continue to own" by the FRC, the basis of such judgment as "appropriate" turns out to have changed or become untrue within three years from the Base Date. The cases are not regarded as a Defect where the book value reduction is caused by any reason attributable solely to New LTCB Partners, or New LTCB after the purchase of LTCB.
b) Provisions regarding prima facie evidence of existence of a Defect
The following cases shall be deemed as prima facie evidence of existence of defect. In application of the following provisions, the borrower classification (in the results of the self-assessment under the criteria in force as of September 1998 inspected and accepted by the Finanicial Supervisory Agency, with amendments as of October 27, 1998) utilized in the process to determine appropriateness of aassets in February 1999 shall be used.
| I. | If any of the following events occurs with respect to a loan to a Normal
Borrower or a so-called Need Caution A Borrower (a type of so-called Need
Caution Borrower, who has no net operating carry forward as of the latest
settlement of accounts, and has been paying both the principal amount and the
interest in compliance with the original agreement) within three years from the
Base Date, such event shall be deemed as prima facie evidence of the existence
of a Defect:
|
|||||||||
| II. |
If the principal element, based on which a loan to a so-called Need Caution Borrower or a lower class Borrower (except for a loan to a Need Caution Borrower referred to in (1) above) has been determined as "appropriate assets" is one of the items listed below, the fact described below shall be deemed as prima facie evidence of existence of a Defect.
|
|||||||||
| III. |
With respect to all Borrowers, the occurrence of any of the following shall be deemed as prima facie evidence of the existence of a Defect:
|
(3) Exercisable Term for the Cancellation Right
The Cancellation Right shall be exercisable at any time on or prior to the 3rd anniversary of the Closing Date; provided, however, that LTCB may extend such term for another three months after the 3rd anniversary of the Closing Date, solely for the purpose of establishing and presenting the facts as they were on or prior to the 3rd anniversary.
(4) 20% Reduction
20% reduction means that the aggregate book value (minus the loan loss reserves at such time) for all loans to a borrower is reduced by 20% or more from the aggregate initial book value (minus the initial loan loss reserves).
(5) Abandonment of claims and the Cancellation Right
If a request for abandonment of claims is made (upon which a Defect is deemed to have occurred) and accepted by the new LTCB, the Cancellation Right shall be deemed to have been waived.
On the other hand, a request for easement of lending conditions is made by a
borrower who is in financial difficulties in an attempt for restructuring (upon
which a Defect is deemed to have occurred) and accepted by the new LTCB under
circumstances where there is a reasonable ground for DIC to consider such
request as reasonable, the Cancellation Right shall not be deemed to have been
waived at that time, and the exercise of the Cancellation Right shall be held
for three years from the Base Date.
7.2 Effect of Cancellation:
(1) Effect of cancellation
When a Cancellation Right is exercised, DIC will pay LTCB an amount equal to the Initial Book Value (the Initial Principal Amount less the Applicable Initial Loan Loss Reserve) of such canceled Loan Related Assets and in exchange therefor DIC will obtain such Loan Related Assets. If LTCB has received principal payments of the relevant Loan Related Asset or proceeds from the sale of collateral or guarantor (including corporations) payments, DIC may deduct such amounts from the amount to be paid to LTCB mentioned above.
Whenever LTCB intends to transfer a Loan Related Asset to DIC, LTCB may negotiate in each case with DIC to repurchase such Loan Related Asset from DIC at the then Current Book Value after deducting the amount of the loan loss reserve.
Each of the Capitalized terms in this Section 7.2 shall be defined in the Definitive Agreement.
(2) Force Majeure
If an event of force majeure such as war, natural calamity or economic great depression occurs within three years after the purchase of LTCB and a debtor's condition is deteriorated as a result thereof, the payment obligation of DIC shall be subject to restriction. If an event which appears to come within the force majeure, DIC and LTCB shall discuss in good faith the relevant matters including as to whether the event constitutes the force majeure and whether the deterioration of the debtor was caused by that force majeure event and shall determine the fair shares of the burden between the parties.
7.3 Procedures for Cancellation
In the event LTCB elects to exercise the Cancellation Right with respect to one or more Loan Related Assets, or portion thereof, LTCB shall deliver to DIC a cancellation notice. Such notice shall be made on a quarterly basis. DIC shall pay the Initial Book Value of the canceled Loan Related Assets within the period determined in the Definitive Agreement from the receipt of such notice unless DIC sends notice to LTCB notifying LTCB of DIC's intention to dispute the determination. If DIC sends such notice to LTCB, DIC and LTCB shall faithfully discuss. If such discussion is not successful, the determination shall be reviewed by an internationally recognized accounting firm that LTCB and DIC mutually agree. LTCB and DIC will respect the results of the review by such accounting firm; provided, however, that this shall not deny the right of LTCB or DIC to file a suit in respect of the result of such review. Whenever DIC determines to comply with the results of the review of the accounting firm or the decision of the court confirming DIC's payment obligation becomes final, DIC shall pay the Initial Book Value of the canceled Loan Related Assets.
The Definitive Agreement shall contain more detailed procedures for exercise
of the Cancellation Right.
Article 8 (Board of Directors and Management)
After the Closing Date, LTCB's Board of Directors is expected to have 15 or
more members majority of which are Japanese. Mr. Masamoto Yashiro will serve as
Chairman, President, and Chief Executive Officer. New LTCB Partners has invited
Messrs. Takashi Imai and Hirotaro Higuchi to serve as directors. New LTCB
Partners are planning to invite five other Japanese nationals to serve as
directors. Messrs. Timothy Collins and J. Christopher Flowers will serve as
directors, and New LTCB Partners has invited Mr. Paul A. Volcker to serve as
senior advisor. Five other directors are planned to be drawn from New LTCB
Partners' non-Japanese investors and other reputable individuals.
Article 9 (Continuous Ownership of the Loan Related Assets)
Despite the change in the shareholder, New LTCB shall succeed all the Loan
Related Assets which were determined as "assets appropriate for LTCB to
continue to own" as of February 1999 pursuant to this Basic Agreement.
Article 10 (Basic Policy Regarding Loans to Borrowers of the Accepted Loan Related Assets)
In order for LTCB to maintain its good customer relationships with Borrowers of the Loan Related Assets which continue to be owned by new LTCB, New LTCB Partners represents that it will have LTCB to manage loans based on the following basic policy at least for three years from the Closing Date.
Unless compelling reasons otherwise require:
(i) not sell the Loan Related Assets;
(ii) not collect abruptly; and
(iii) meet the proper finance need of Borrowers by, for example, renewals and provision of seasonal funds.
The term "not collect abruptly" in (ii) above shall mean LTCB will honor a borrower's contractual right in respect of the relevant due date and will not change the due date adversely against the borrower.
Compelling reasons referred to in the above shall mean (a) in respect of (i) above, loan participations, securitization of loans, etc. for the purposes of LTCB's financing which are not contrary to the purpose of this Article (i.e., protection for Borrowers) and (b) in respect of (ii) and (iii), cases where it is reasonably foreseeable that LTCB would incur losses if it does not collect, or consents to renewal, etc.
This Article 10 will not restrict the Cancellation Right provided for in
Article 7 above.
Article 11(Confidentiality)
New LTCB Partners today executed and delivered to DIC and LTCB an agreement
on confidentiality separately herefrom.
Article 12 (Termination of the Agreement)
The Definitive Agreement shall contain the provisions pursuant to which
either Party may terminate the Definitive Agreement under certain circumstances.
Article 13 (Notice)
The Definitive Agreement shall contain the provisions regarding notice to be
made by the Parties.
Article 14 (Procedures and Miscellaneous Matters)
14.1 The Parties confirm that this Basic Agreement is not legally biding and enforceable except for Section 14.1 through Section 14.6.
14.2 DIC shall exclusively negotiate the transaction contemplated herein with New LTCB Partners during a period between the date hereof to February 29, 2000, along the line of this Basic Agreement. This Basic Agreement shall terminate, in the absence of a written consent between the Parties to extend it, on the earlier date of the date of execution of the Definitive Agreement or February 29, 2000; provided, however, that either of DIC or New LTCB Partners may terminate this Basic Agreement if the other party does not continue faithful negotiations or it materially breaches the provisions of this Basic Agreement.
14.3 This Basic Agreement shall bind, and inure to the benefit of, the parties hereto and their respective successors only and not be intended to inure to the benefit of any third party.
14.4 This Basic Agreement shall be interpreted by Japanese law.
14.5 The Japanese version of this Basic Agreement shall be authoritative.
14.6 The parties agree that Tokyo District Court shall have exclusive
jurisdiction over and in connection with the subject matter hereof.
Depository Insurance Corporation
Director Noboru Matsuda
The Long-Term Credit Bank of Japan, Ltd.
Representative Director and President
Takashi Anzai
New LTCB Partners CV
__________________________
Representative
Masamoto Yashiro
__________________________
Representative
Timothy C. Collins
__________________________
Representative
J. Christopher Flowers