| 1. |
Basic Characteristics, etc., of the Basic Agreement
| (1) |
The Deposit Insurance Corporation ("DIC"), The Long-Term
Credit Bank of Japan, Ltd. ("LTCB") and New LTCB Partners
CV ("New LTCB Partners") entered into the Basic Agreement
for acquisition of LTCB on December 24, 1999 [Premises].
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| (2) |
The Basic Agreement is not legally binding and enforceable, except
for Article 14 (Procedures and Miscellaneous Matters) [Section
14.1].
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| (3) |
DIC will negotiate the transaction contemplated in the Basic
Agreement exclusively with New LTCB Partners during a period between
the date of execution of the Basic Agreement up to February 29, 2000
[Section 14.2].
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| (4) |
The Basic Agreement will terminate, in the absence of a written
consent between the Parties to extend it, on the date of execution
of the Definitive Agreement or February 29, 2000, whichever comes
first; provided, however, that DIC or New LTCB Partners may cancel
the Basic Agreement if the other party does not continue faithful
negotiations or it materially breaches any of the provisions of the
Basic Agreement [Section 14.2].
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| 2. |
Method, Amount, etc., of Acquisition
| (1) |
New LTCB Partners will purchase from DIC the entire Common Shares
(except for the shares, the number of which comprises less than one
unit [tan-i miman kabushiki]) out of the issued shares of LTCB
(approximately 2.4 billion Common Shares and 100 million preferred
shares [See Note* below]) for one billion yen [Sections 3.1
and 3.2].
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| (2) |
Of the issued preferred shares of LTCB, DIC will continue to own
about 74.53 million preferred shares, while the remaining about
25.47 million preferred shares will be canceled without
consideration [Section 3.2]. |
| Note*: |
The issued preferred shares were acquired by the repealed
Resolution and Collection Bank from LTCB under the abolished
Financial System Stabilization Law at the purchase price of 130
billion yen, and then were acquired by DIC for 0 yen upon the
commencement of the Temporary Nationalization of LTCB. The current
terms are as follows:
| -- |
Dividend rate is 1% per annum.
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| -- |
Convertible into the Common Shares; the conversion price
fixed at 180 yen per share since October 1, 1999.
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| -- |
Mandatory conversion to be made in 2008, but convertible at
any time prior thereto.
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| 3. |
New Capital Increase; Capital Adequacy Requirement
| (1) |
New LTCB Partners will subscribe for 300 million newly issued
Common Shares of New LTCB for 120 billion yen (400 yen per share)
[Section 3.1].
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| (2) |
As an "adequately capitalized" financial institution
(with at least 4% of the capital adequacy ratio as of the date of
approval), New LTCB will request in accordance with the Financial
Function Early Strengthening Law that the Government subscribe for
600 million newly issued non-voting, non-par value preferred shares
of New LTCB for 240 billion yen (400 yen per share). Other principal
terms are as follows and if an approval with the almost identical
terms and conditions as those set forth below is not given within
around ten business days from the date of the application after its
acquisition of LTCB, New LTCB Partners may cancel the Definitive
Agreement [Sections 3.2 and 3.4].
| -- |
Convertible on and the fifth year.
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| -- |
Conversion price is 400 yen per share or market price (net
asset value per share before listing), whichever is lower (,
provided that it should not be reduced below 300 yen).
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| -- |
Mandatory conversion on the seventh year.
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| -- |
Dividends will be determined by the Financial Reconstruction
Commission ("FRC") and New LTCB Partners expects the
possible lowest level. |
| Note: |
After the conversion into Common Shares, DIC will own not
more than 33.0% of the entire issued shares, including the
issued preferred shares in 2.(2) above.
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| (3) |
Capital adequacy ratio will be around 13% (after recognition of
unrealized gains from the shares owned (as described below),.
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| 4. |
Compensation for Loss by DIC
DIC will compensate for loss based on the non-consolidated balance sheet
of LTCB. Such balance sheet will be prepared in accordance with the
accounting standards in effect at the time of acquisition of LTCB [Section
2.2].
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| 5. |
Treatment of Shares held by LTCB (Retained Shares needed for LTCB's
business)
| (1) |
Shares held by LTCB will be sold in accordance with (2) to (6)
below and the aggregate profit of 250 billion yen will be realized
which will be applied to strengthen the capital of new LTCB.
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| (2) |
LTCB will deliver a list of shares which it holds as of the
determination date (any day before the acquisition of LTCB) setting
forth names of issuers, numbers, book values and market prices as of
the same date. Shares which have unrealized loss as of the
determination date shall be sold to DIC (in case that the shares
come within (5) below) or to the market prior to the date of
acquisition (the price of sale to DIC shall be the prices indicated
on in the list ). [Section 6.1]
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| (3) |
New LTCB Partners shall designate from the above list 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 which
is the amount equal to 250 billion yen less the above-mentioned
amount as the "Shares for Second Sale", and notify DIC and
LTCB thereof. [Section 6.2]
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| (4) |
Shares retained by LTCB other than the Shares for First Sale and
the Shares for Second Sale shall be sold by LTCB before the
acquisition of LTCB, the Shares for First Sale shall be sold in the
afternoon of the date of the acquisition of LTCB and the Shares for
Second Sale shall be sold within 90 days after the acquisition, to
DIC (in case the Shares come within (5) below) or to the market
(selection of sale either to DIC or to the market of individual
Shares in such three categories shall be made at the time of the
designation at (3) above, and the prices of sale to DIC shall be the
prices indicated on the list). [Section 6.2, 6.3]
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| (5) |
DIC will purchase the Shares needed for the business relationship
of LTCB and entrust them with LTCB Trust and Banking. DIC will not
sell such Shares during the five years after the acquisition of LTCB
without consent of new LTCB, and LTCB or LTCB Trust and Banking will
retain nominal title and actual voting rights with respect to the
Shares and new LTCB may repurchase such Shares in principle from
time to time at the then fair market price (DIC may refuse to resell
the Shares but if such refusal is made in the fifth year of the
trust term, the trust term with respect to the refused share will be
extended for another year after the refusal. The same applies when
DIC refuses to resell the Shares during such an extended period).
[Section 6.5]
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| (6) |
Shares not needed for the business relationship of LTCB will be
sold to the market or DIC (in case of (7) below) at the fair price.
If DIC purchases the Shares, such Shares will not be entrusted with
LTCB Trust and Banking. [Section 6.5]
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| (7) |
When the Shares will be sold to the market, LTCB or new LTCB shall
consult with DIC in advance. DIC will not oppose such sale but in
light of the stock market, etc., has a right to specify DIC as
purchaser and purchase them at the fair market price. [Section 6.4]
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| 6. |
Sale of LTCB Shares held by DIC
| (1) |
If the aggregate market value of the new LTCB shares held by DIC
exceeds 500 billion yen, new LTCB may request DIC to sell a certain
number of its shares at the market at a fair price and to convert
the preferred shares held by DIC to the common shares for the
purpose of such sale. [Section 3.5]
| (Note 1) |
If the price of the common shares of new LTCB reaches 440
yen per share, the market value of the shares held by DIC will
reach 500 billion yen after conversion into the common share.
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| (Note 2) |
If the price of the common shares of new LTCB reaches 465
yen per share and all issued preferred shares of 2.(2) are
converted into the common shares and all such shares are sold,
then the capital gain of DIC arising out of these issued the
preferred shares will be 250 billion yen.
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| (2) |
DIC will not unreasonably refuse such request. [Section 3.5]
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| 7. |
Continuous Ownership of the Loan Related Assets, etc.
| (1) |
New LTCB shall continue to hold all Loan Related Assets which were
determined by FRC as assets "appropriate" (hereinafter
simply "appropriate") for LTCB to continue to own.
[Article 9]
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| (2) |
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 upon the following basic policy at least for
three years after the acquisition of LTCB.
Namely, unless compelling reasons otherwise require, (i) not sell
the Loan Related Assets, (ii) not collect abruptly and (iii) meet
the proper finance need of a borrower by, for example, renewals and
provision of seasonal funds. [Article 10]
| (Note 1) |
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.
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| (Note 2) |
With respect to (2) above, the term "compelling
reason" shall mean (a) in respect of (i) above, loan
participation, securitization of loans, etc. for the purpose
of LTCB's financing which are not contrary to the purpose of
protection of a borrower and (b) in respect of (ii) and (iii)
above, cases where it is reasonably foreseeable that LTCB
would incur losses if it does not collect or consents to
renewals, etc.
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| 8. |
Initial Reserve
Initial reserve shall be appropriately made in accordance with
self-assessment guidance based on the FSA inspection manual and the
Practical Guidance of the Japanese Institute of Certified Public
Accountants Association at the time of the acquisition of LTCB.
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| 9. |
Assurance against Defect of Loan Related Assets
| (1) |
DIC is deemed to have sold and transferred the Loan Related Assets
to new LTCB at the time of the acquisition purchase of LTCB.
[Section 7.1]
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| (2) |
New LTCB may cancel transfer of such assets if a defect is found
and 20% reduction of value is recognized in respect of such assets
within 3 years from the acquisition of LTCB. [Section 7.1]
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| (3) |
In the case of such cancellation, in exchange for return of such
assets, DIC shall pay back to new LTCB an amount equal to the
initial book value (minus the initial loan loss reserve; hereinafter
the same shall apply); provided, however, that if there have been
repayments, their amounts shall be deducted. [Section 7.2]
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| (4) |
"20% reduction" referred to in (2) above, shall mean
that the aggregate book value (minus the loan loss reserves at such
time; hereinafter the same shall apply) for all loans to a borrower
is reduced by 20% or more from the aggregate initial book value.
[Section 7.1]
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| (5) |
A "Defect" referred to in (2) above, shall mean a case,
where, for those loans judged to be "Appropriate" by the
FRC, the basis of such judgment as "Appropriate" turns out
to have changed or become untrue within 3 years from the acquisition
of LTCB. 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 acquisition of LTCB. [Section 7.1]
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| (6) |
If the basis based on which FRC judged a loan to be
"Appropriate" is not clearly stated (for example, a case
where loans to a normal borrower have been judged to be
"Appropriate" in principle), and if a certain objective
event occurs in respect of the relevant borrower, new LTCB may
presume it as a prima facie evidence of existence of a Defect.
[Section 7.1]
| (Note) |
For example, if overdue of three months or longer of the
principal or the interest occurs in respect of a normal
borrower within 3 years from the acquisition of LTCB, new LTCB
may presume it as a prima facie evidence of existence of a
Defect.
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| (7) |
If new LTCB receives and accepts a formal request to forgive a
loan from the relevant borrower, new LTCB shall lose the
cancellation right in respect of the relevant assets. [Section 7.1]
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| (8) |
The Loan Related Assets subject to cancellation right shall be
limited to those having face value of 100 million yen or more per
one borrower and shall include the Loan Related Assets which are
substantially identical to the original loans, such as renewals,
roll-overs, etc. made after the acquisition of LTCB, but shall not
include loans newly extended. [Section 7.1]
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| (9) |
If an event of force majeure such as war, natural calamity or
economic great depression occurs within 3 years from the acquisition
of LTCB and a borrower's condition is deteriorated as a result
thereof, DIC's payment obligation shall be subject to restriction.
In such a case, DIC and new LTCB shall discuss in good faith to
determine how the loss should be borne in a fair manner, which
discussion includes the issue as to whether the deterioration of the
borrower's condition is caused by such force majeure event. [Section
7.2]
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| (10) |
In the case where new LTCB exercise the cancellation right, new
LTCB shall notify DIC on a quarterly basis. If DIC objects and
mutual agreement is not reached, the issue shall be reviewed by an
accounting firm which both parties agree upon. New LTCB and DIC
shall respect the result of such review but can go to a court if
either party still has objection. [Section 7.3]
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| 10. |
Representation, etc.
The Definitive Agreement shall contain such representations and warranty
clauses and indemnity clause as contained in usual merger and acquisition
agreements. The effective term thereof shall be 5 years from the due date
of the filing of the tax return for the business year during which the
acquisition of LTCB falls for breach of representations relating to tax
matters and 3 years from the acquisition of LTCB for a breach of
representations relating to matters other than tax. In respect of
indemnification relating to breach of representations other than those
relating to tax matters, no indemnification liability accrues if the
aggregate amount of damages is 5 billion yen or less. Only portion in
excess of 5 billion yen and only a breach of representation resulting in
100 million yen or more for one event, is indemnified by DIC [Article 4]
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| 11. |
Covenants
The Definitive Agreement shall contain such covenant clauses as contained
in usual merger and acquisition agreements. [Article 5]
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( |
This is the summary of the Basic Agreement prepared by the Secretariat
of FRC and please refer to the Basic Agreement on the detailed points.)
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