UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
Commission File No.: 0-11113
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ____________
SANTA BARBARA BANCORP
(Exact Name of Registrant as Specified in its Charter)
California 95-3673456
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1021 Anacapa Street, Santa Barbara, California 93101
(Address of principal executive offices) (Zip Code)
(805) 564-6300
(Registrant's telephone number, including area code)
Not Applicable
Former name, former address and former fiscal year, if changed
since last report.
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
Common Stock - As of August 13, 1998 there were 15,397,526 shares of the
issuer's common stock outstanding.
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets
June 30, 1998 and December 31, 1997
Consolidated Statements of Income
Three Months and Six Months Ended June 30, 1998 and 1997
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1998 and 1997
Consolidated Statements of Comprehensive Income
Three Months and Six Months Ended June 30, 1998 and 1997
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Disclosures about quantitative and qualitative market risk are located
in Management's Discussion and Analysis of Financial Condition and
Results of Operations in the section on interest rate sensitivity.
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
All other schedules and compliance information called for by the instructions to
Form 10-Q have been omitted since the required information is not applicable.
<PAGE>
<TABLE>
PART 1
FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
SANTA BARBARA BANCORP & SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
(in thousands except share amounts)
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
Assets:
Cash and due from banks $ 57,457 $ 67,799
Federal funds sold and securities purchased under
agreement to resell 60,000 48,000
------------- --------------
Cash and cash equivalents 117,457 115,799
------------- --------------
Securities (Note 4):
Held-to-maturity 207,290 222,350
Available-for-sale 313,837 286,998
------------- --------------
Total securities 521,127 509,348
------------- --------------
Bankers' acceptances 4,977 49,400
Loans, net of allowance of $23,322
June 30, 1998 and $21,148 at
December 31, 1997 (Note 5) 914,977 860,400
Premises and equipment, net (Note 6) 14,712 13,595
Accrued interest receivable 10,154 10,328
Other assets (Note 7) 35,531 33,516
------------- --------------
Total assets $ 1,618,935 $ 1,592,386
============= ==============
Liabilities:
Deposits:
Noninterest bearing demand deposits $ 272,620 $ 265,751
Interest bearing deposits 1,160,998 1,138,404
------------- --------------
Total deposits 1,433,618 1,404,155
------------- --------------
Securities sold under agreements
to repurchase and Federal funds purchased 12,043 21,293
Long-term debt and other borrowings 34,000 39,000
Accrued interest payable and other liabilities 11,430 9,772
------------- --------------
Total liabilities 1,491,091 1,474,220
------------- --------------
Shareholders' equity:
Common stock (no par value; $0.33 per share stated value;
40,000,000 authorized; 15,386,024 outstanding at
June 30, 1998 and 15,162,776 at December 31, 1997) 5,130 5,081
Surplus 32,790 32,790
Accumulated other comprehensive income (Note 8) 674 496
Retained earnings 89,250 79,799
------------- --------------
Total shareholders' equity 127,844 118,166
------------- --------------
Total liabilities and shareholders' equity $ 1,618,935 $ 1,592,386
============= ==============
<FN>
See accompanying notes to consolidated condensed financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
SANTA BARBARA BANCORP & SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
(dollars in thousands except per share amounts)
<CAPTION>
For the Six-Month For the Three-Month
Periods Ended Periods Ended
June 30, June 30,
----------------------- -----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 48,567 $ 41,018 $ 22,014 $ 18,246
Interest on securities 15,568 12,978 7,856 6,403
Interest on Federal funds sold and securities
purchased under agreement to resell 2,226 2,532 1,039 1,295
Interest on bankers' acceptances 907 2,033 218 1,082
--------- --------- --------- ---------
Total interest income 67,268 58,561 31,127 27,026
--------- --------- --------- ----------
Interest expense:
Interest on deposits 21,537 18,474 10,814 9,785
Interest on securities sold under agreements
to repurchase and Federal funds purchased 507 890 209 415
Interest on other borrowed funds 1,153 1,160 559 580
--------- --------- --------- ---------
Total interest expense 23,197 20,524 11,582 10,780
--------- --------- --------- ---------
Net interest income 44,071 38,037 19,545 16,246
Provision for loan losses 6,243 6,247 639 1,690
--------- --------- --------- ---------
Net interest income after provision for loan losses 37,828 31,790 18,906 14,556
--------- --------- --------- ---------
Other operating income:
Service charges on deposits 3,089 2,568 1,568 1,373
Trust fees 5,681 4,857 2,816 2,377
Other service charges, commissions and fees, net 8,844 5,609 2,694 2,185
Net gain (loss) on securities transactions 120 (453) 67 (93)
Other operating income 372 338 211 161
--------- --------- --------- ---------
Total other income 18,106 12,919 7,356 6,003
--------- --------- --------- ---------
Other operating expense:
Salaries and benefits 18,693 15,565 9,178 7,670
Net occupancy expense 2,903 2,402 1,467 1,265
Equipment expense 2,011 1,517 1,043 871
Other expense 10,577 8,517 5,307 4,043
--------- --------- --------- ---------
Total other operating expense 34,184 28,001 16,995 13,849
--------- --------- --------- ---------
Income before income taxes 21,750 16,708 9,267 6,710
Applicable income taxes 7,693 5,572 3,139 2,211
--------- --------- --------- ---------
Net income $ 14,057 $ 11,136 $ 6,128 $ 4,499
========= ========= ========= =========
Earnings per share - basic (Note 2) $ 0.92 $ 0.74 $ 0.40 $ 0.30
Earnings per share - diluted (Note 2) $ 0.90 $ 0.72 $ 0.39 $ 0.29
<FN>
See accompanying notes to consolidated condensed financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
SANTA BARBARA BANCORP & SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(dollars in thousands)
<CAPTION>
For the Six Months Ended June 30,
1998 1997
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 14,057 $ 11,136
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 2,324 1,163
Provision for loan and lease losses 6,243 6,247
(Provision)Benefit for deferred income taxes (360) 56
Net writedown on other real estate owned -- 50
Net amortization of discounts and premiums for
securities and bankers' acceptances (773) (1,936)
Net change in deferred loan origination
fees and costs (231) 187
(Increase) decrease in accrued interest receivable 174 (1,603)
Increase in accrued interest payable 124 102
Net gain on sales and calls of securities 100 453
Increase in prepaid expenses (723) (492)
Increase (decrease) in accrued expenses 416 (2,375)
Net gain on sales of OREO -- (103)
Decrease (increase) in service fee and other
income receivable (52) 225
Increase (decrease) in income taxes payable 522 (5,375)
Other operating activities (130) 2,314
----------- ------------
Net cash provided by operating activities 21,691 10,049
----------- ------------
Cash flows from investing activities:
Proceeds from call or maturity of securities 47,280 47,612
Purchase of securities (94,406) (117,760)
Proceeds from sale of securities 37,224 74,151
Proceeds from maturity of bankers' acceptances 58,488 78,877
Purchase of bankers' acceptances (14,671) (101,534)
Net increase in loans made to customers (60,471) (108,314)
Disposition of property from defaulted loans -- 1,807
Purchase or investment in premises and equipment (2,853) (6,780)
Purchase of investment real estate -- (598)
Excess of purchase price over net assets
for purchase of First Valley Bank -- (9,822)
----------- ------------
Net cash used in investing activities (29,409) (142,361)
----------- ------------
Cash flows from financing activities:
Net increase in deposits 29,463 119,698
Net decrease in borrowings with
maturities of 90 days or less (9,250) --
Net (decrease) increase in long-term debt and other borrowings (5,000) 4,090
Proceeds from issuance of common stock 1,359 1,979
Payments to retire common stock (2,915) (2,594)
Dividends paid (4,281) (3,262)
----------- ------------
Net cash provided by financing activities 9,376 119,911
----------- ------------
Net increase (decrease) in cash and cash equivalents 1,658 (12,401)
Cash and cash equivalents at beginning of period 115,799 121,181
----------- ------------
Cash and cash equivalents at end of period $ 117,457 $ 108,780
=========== ============
Supplemental disclosure:
Interest paid during period $ 23,073 $ 20,422
Income taxes paid during period $ 4,845 $ 9,981
Non-cash additions to other real estate owned $ 200 $ 75
Non-cash additions to loans $ 317 $ --
<FN>
See accompanying notes to consolidated condensed financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
SANTA BARBARA BANCORP & SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Unaudited)
(dollars in thousands)
<CAPTION>
For the Six-Month For the Three-Month
Periods Ended Periods Ended
June 30, June 30,
---------------------------- -----------------------------
1998 1997 1998 1997
---------------------------- -----------------------------
<S> <C> <C> <C> <C>
Net income $ 14,057 $ 11,136 $ 6,128 $ 4,499
----------- ----------- ------------ ------------
Other comprehensive income, net of tax (Note 8):
Unrealized gains (loss) on securities:
Unrealized holding gains (losses) arising during period 171 60 209 493
Less: reclassification adjustment for gains (losses)
included in net income 7 (3) 32 (116)
----------- ----------- ------------ ------------
Other comprehensive income 178 57 241 377
----------- ----------- ------------ ------------
Comprehensive income $ 14,235 $ 11,193 $ 6,369 $ 4,876
=========== =========== ============ ============
<FN>
See accompanying notes to consolidated condensed financial statements.
</FN>
</TABLE>
<PAGE>
Santa Barbara Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 1998
(Unaudited)
1. Principles of Consolidation
The consolidated financial statements include the parent holding company, Santa
Barbara Bancorp ("Company"), and its wholly owned subsidiaries, Santa Barbara
Bank & Trust ("Bank") and Sanbarco Mortgage Corporation. Material intercompany
balances and transactions have been eliminated.
2. Earnings Per Share
Statement of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS
128") became effective for the Company as of December 31, 1997. Earnings per
share for all periods presented in the Consolidated Statements of Income are
computed in accordance with the provisions of this statement, and are based on
the weighted average number of shares outstanding during each year retroactively
restated for stock dividends and stock splits. Diluted earnings per share
include the effect of the potential issuance of common shares. For the Company,
these include only shares issuable on the exercise of outstanding stock options.
SFAS 128 requires the restatement of earnings per share for all prior periods
presented in the Company's financial statements.
For the six and three-month periods ended June 30, 1998 and 1997, the
computation of basic and diluted earnings per share were as follows (shares and
net income amounts in thousands):
<TABLE>
<CAPTION>
Six-month Period Three-month Period
---------------- ------------------
Basic Diluted Basic Diluted
Earnings Earnings Earnings Earnings
Per Share Per Share Per Share Per Share
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
June 30, 1998
Numerator --net income $ 14,057 $ 14,057 $ 6,128 $ 6,128
Denominator --weighted average
shares outstanding 15,308 15,308 15,331 15,331
Plus: net shares issued in
assumed stock option exercises 340 325
Diluted denominator 15,648 15,656
Earnings per share $0.92 $0.90 $0.40 $0.39
June 30, 1997
Numerator --net income $ 11,136 $ 11,136 $ 4,499 $ 4,499
Denominator --weighted average
shares outstanding 15,172 15,172 15,175 15,175
Plus: net shares issued in
assumed stock option exercises 366 372
Diluted denominator 15,538 15,547
Earnings per share $0.73 $0.72 $0.30 $0.29
</TABLE>
Weighted average shares and net shares issued in assumed stock option exercises
for the six and three-month periods ended June 30, 1998 and 1997 were adjusted
for the 2 for 1 stock split paid on April 16, 1998.
3. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in a condensed format, and therefore do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of Management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair presentation
have been reflected in the financial statements. However, the results of
operations for the three and six-month periods ended June 30, 1998, are not
necessarily indicative of the results to be expected for the full year. Certain
amounts reported for 1997 have been reclassified to be consistent with the
reporting for 1998.
For the purposes of reporting cash flows, cash and cash equivalents include cash
and due from banks, Federal funds sold, and securities purchased under agreement
to resell.
4. Securities
The Company's securities are classified as either "held-to-maturity" or
"available-for-sale." Securities for which the Company has positive intent and
ability to hold until maturity are classified as held-to-maturity. Securities
which might be sold prior to maturity because of interest rate changes, to meet
liquidity needs, or to better match the repricing characteristics of funding
sources are classified as available-for-sale. If the Company were to purchase
securities principally for the purpose of selling them in the near term for a
gain, they would be classified as trading securities. The Company holds no
securities that should be classified as trading securities.
Securities which are classified as held-to-maturity are carried at amortized
historical cost. Amortized historical cost is the purchase price increased by
the accretion of discounts or decreased by the amortization of premiums using
the effective interest method. Discount is any excess of the face value of the
security over the cost. Premium is any excess of cost over the face value of the
security. Discount is accreted and premium is amortized over the period to
maturity of the related securities, or to an earlier call date, if appropriate.
The interest income from securities that are classified as available-for-sale is
recognized in the same manner as for securities that are classified as
held-to-maturity, including the accretion of discounts and the amortization of
premiums. However, unlike the securities that are classified held-to-maturity,
securities classified available-for-sale are reported in the financial
statements at fair market value rather than at amortized cost. The after-tax
effect of unrealized gains or losses is reported as accumulated other
comprehensive income as explained in Note 9. Changes in the unrealized gains or
losses are shown as increases or decreases in this component of equity, but are
not reported as gains or losses in the statements of income of the Company.
The Bank is member of the Federal Reserve Bank of San Francisco ("FRB") and the
Federal Home Loan Bank of San Francisco ("FHLB"). The shares of stock in these
organizations required to be purchased as a condition of membership are reported
as equity securities.
The amortized historical cost and market values of securities are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
(in thousands) Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------------------------------------------
<S> <C> <C> <C> <C>
June 30, 1998 Held-to-maturity:
U.S. Treasury obligations $ 65,552 $ 433 $ (11) $ 65,974
U.S. agency obligations 32,454 106 (26) 32,534
State and municipal securities 109,284 14,481 (66) 123,699
--------------------------------------------
Total held-to-maturity 207,290 15,020 (103) 222,207
--------------------------------------------
Available-for-sale:
U.S. Treasury obligations 113,953 483 -- 114,436
U.S. agency obligations 75,163 352 -- 75,515
Collateralized mortgage obligations 80,731 316 (123) 80,924
Asset backed securities 14,380 51 -- 14,431
State and municipal securities 20,182 125 (10) 20,297
Equity securities 8,234 -- -- 8,234
--------------------------------------------
Total available-for-sale 312,643 1,327 (133) 313,837
--------------------------------------------
Total securities $ 519,933 $ 16,347 $ (236) $ 536,044
============================================
December 31, 1997 Held-to-maturity:
U.S. Treasury obligations $ 80,714 $ 410 $ (85) $ 81,039
U.S. agency obligations 32,410 112 (106) 32,416
State and municipal securities 109,226 15,847 (79) 124,994
--------------------------------------------
Total held-to-maturity 222,350 16,369 (270) 238,449
--------------------------------------------
Available-for-sale:
U.S. Treasury obligations 162,190 482 -- 162,672
U.S. agency obligations 25,930 38 (14) 25,954
Collateralized mortgage obligations 77,716 338 (6) 78,048
Asset-backed securities 4,000 8 -- 4,008
State and municipal securities 8,205 62 -- 8,267
Equity securities 8,049 -- -- 8,049
--------------------------------------------
Total available-for-sale 286,090 928 (20) 286,998
--------------------------------------------
Total securities $ 508,440 $ 17,297 $ (290) $ 525,447
============================================
</TABLE>
The Company does not expect to realize any of the unrealized gains or losses
related to the securities in the held-to-maturity portfolio because, consistent
with their classification under the provisions of SFAS 115, it is the Company's
intent to hold them to maturity. At that time the par value will be received. An
exception to this expectation occurs when securities are called prior to their
maturity, at which time gains or losses may be realized. Gains or losses may be
realized on securities in the available-for-sale portfolio.
The amortized historical cost and estimated market value of debt securities by
contractual maturity are shown below. Expected maturities may differ from
contractual maturities because certain issuers may have the right to call or
prepay obligations. Depending on the contractual terms of the security, the
Company may receive a call or prepayment penalty.
<TABLE>
<CAPTION>
(in thousands) Held-to- Available-
Maturity for-Sale Total
----------------------------------
<S> <C> <C> <C>
June 30, 1998
Amortized cost:
In one year or less $ 53,664 $ 58,998 $ 112,662
After one year through five years 103,719 221,864 325,583
After five years through ten years 10,974 9,855 20,829
After ten years 38,933 13,692 52,625
Equity securities -- 8,234 8,234
------------------------------------
Total securities $ 207,290 $ 312,643 $ 519,933
====================================
Estimated market value:
In one year or less $ 54,116 $ 59,183 $ 113,299
After one year through five years 109,212 222,837 332,049
After five years through ten years 13,501 9,830 23,331
After ten years 45,378 13,753 59,131
Equity securities -- 8,234 8,234
------------------------------------
Total securities $ 222,207 $ 313,837 $ 536,044
====================================
December 31,1997 Amortized cost:
In one year or less $ 38,427 $ 47,936 $ 86,363
After one year through five years 133,400 224,384 357,784
After five years through ten years 11,290 5,130 16,420
After ten years 39,233 591 39,824
Equity securities -- 8,049 8,049
------------------------------------
Total securities $ 222,350 $ 286,090 $ 508,440
====================================
Estimated market value:
In one year or less $ 38,373 $ 48,025 $ 86,398
After one year through five years 139,807 225,163 364,970
After five years through ten years 14,089 5,157 19,246
After ten years 46,180 604 46,784
Equity securities -- 8,049 8,049
------------------------------------
Total securities $ 238,449 $ 286,998 $ 525,447
====================================
</TABLE>
5. Loans
The balances in the various loan categories are as follows:
<TABLE>
<CAPTION>
(in thousands) June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
Real estate:
Residential $ 271,652 $ 246,283
Non-residential 241,962 249,725
Construction 21,183 16,127
Commercial loans 195,880 184,374
Home equity loans 34,796 37,150
Consumer loans 94,186 75,151
Leases 65,973 61,108
Municipal tax-exempt obligations 10,048 7,931
Other loans 2,619 3,699
------------- ------------
Total loans $ 938,299 $ 881,548
============= ============
</TABLE>
The loan balances at June 30, 1998 and December 31, 1997 are net of
approximately $2,552,000 and $2,782,000, respectively, in net loan fees and
origination costs deferred.
A loan is identified as impaired when it is probable that interest and principal
will not be collected according to the contractual terms of the loan agreement.
Because this definition is very similar to that used by Management to determine
on which loans interest should not be accrued, the Company expects that most
impaired loans will be on nonaccrual status. Therefore, in general, the accrual
of interest on impaired loans is discontinued, and any uncollected interest is
written off against interest income from other loans in the current period. No
further income is recognized until all recorded amounts of principal are
recovered in full or until circumstances have changed such that the loan is no
longer regarded as impaired.
There are some loans about which there is doubt regarding the collectibility of
interest and principal according to the contractual terms, but which are fully
secured by collateral and for which collection is being actively pursued. These
impaired loans are not classified as nonaccrual.
Impaired loans are reviewed each quarter to determine whether a valuation
allowance for loan loss is required. The amount of the valuation allowance for
impaired loans is determined by comparing the recorded investment in each loan
with its value measured by one of three methods. The first method is to estimate
the expected future cash flows and then discount them at the effective interest
rate. The second method is to use the loan's observable market price if the loan
is of a kind for which there is a secondary market. The third method is to use
the value of the underlying collateral. A valuation allowance is established for
any amount by which the recorded investment exceeds the value of the impaired
loan. If the value of the loan as determined by the selected method exceeds the
recorded investment in the loan, no valuation allowance for that loan is
established. The following table discloses balance information about the
impaired loans and the allowance related to them (dollars in thousands) as of
June 30, 1998 and December 31, 1997:
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
Loans identified as impaired $3,950 $4,980
Impaired loans for which a valuation
allowance has been determined $ 310 $ 702
Impaired loans for which no valuation
allowance was determined necessary $3,640 $4,278
Amount of valuation allowance $ 160 $ 60
</TABLE>
Because the loans currently identified as impaired have unique risk
characteristics, the valuation allowance was determined on a loan-by-loan basis.
Few impaired loans required a valuation allowance at June 30, 1998 and December
31, 1997, because most impaired loans had collateral in excess of the recorded
investment.
The following table discloses additional information (dollars in thousands)
about impaired loans for the six and three-month periods ended June 30, 1998 and
1997:
Six-month Periods Three-month Periods
Ended June 30, Ended June 30,
1996 1997 1998 1997
---- ---- ---- ----
Average amount of recorded
investment in impaired loans $6,284 $4,408 $5,381 $3,054
Collections of interest from
impaired loans and recognized
as interest income $ -- $ -- $ -- $ --
The Company also provides an allowance for losses for: (1) loans that are not
impaired and (2) losses inherent in the various loan portfolios, but which have
not been specifically identified as of the period end. This allowance is based
on review of individual loans, historical trends, current economic conditions,
and other factors.
Loans that are deemed to be uncollectible are charged-off. Uncollectibility is
determined based on the individual circumstances of the loan and historical
trends.
The valuation allowance for impaired loans of $160,000 is included with the
general allowance for loan losses to total the $23.3 million reported on the
balance sheet for June 30, 1998, which these notes accompany, and in the "All
Other" column in the statement of changes in the allowance account for the first
six months of 1998 shown below. The amounts related to tax refund anticipation
loans and to all other loans are shown separately.
<TABLE>
<CAPTION>
(in thousands) Refund All
Anticipation Other Total
-----------------------------------
<S> <C> <C> <C>
Balance, December 31, 1997 $ 325 $ 20,823 $ 21,148
Provision for loan losses 4,941 1,302 6,243
Loan losses charged against allowance (7,221) (1,441) (8,662)
Loan recoveries added to allowance 1,955 2,638 4,593
-----------------------------------
Balance, June 30, 1998 $ 0 $ 23,322 $ 23,322
===================================
</TABLE>
6. Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is charged to income over the estimated useful lives
of the assets, generally by the use of an accelerated method in the early years,
switching to the straight line method in later years. Leasehold improvements are
amortized over the terms of the related lease or the estimated useful lives of
the improvements, whichever is shorter. Depreciation expense (in thousands) was
$1,730 and $1,163 for the six-month periods ended June 30, 1998 and 1997,
respectively, and $908 and $703 for the three-month periods ended June 30, 1998
and 1997, respectively. The following table shows the balances by major category
of fixed assets:
<TABLE>
<CAPTION>
(in thousands) June 30, 1998 December 31, 1997
------------------------------------ ----------------------------------------
Accumulated Net Book Accumulated Net Book
Cost Depreciation Value Cost Depreciation Value
------------------------------------ ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Land and buildings $ 10,962 $ 4,539 $ 6,423 $ 10,902 $ 4,422 $ 6,480
Leasehold improvements 7,264 5,472 1,792 6,961 5,184 1,777
Furniture and equipment 22,865 16,368 6,497 20,392 15,054 5,338
------------------------------------ ----------------------------------------
Total $ 41,091 $ 26,379 $ 14,712 $ 38,255 $ 24,660 $ 13,595
==================================== ========================================
</TABLE>
7. Other Assets
Property acquired as a result of defaulted loans is included within other assets
on the balance sheets. As of June 30, 1998, the Company had $200,000 in property
from defaulted loans. Property from defaulted loans is carried at the lower of
the outstanding balance of the related loan at the time of foreclosure or the
estimate of the market value of the assets less disposal costs. As of December
31, 1997, the Company held some properties which it had obtained in
foreclosures. However, because of the uncertainty relating to realizing any
proceeds from their disposal in excess of the cost of disposal, the Company had
written their carrying value down to zero.
Also included in other assets on the balance sheet for June 30, 1998 and
December 31, 1997, are deferred tax assets and goodwill. In connection with the
acquisitions of First Valley Bank ("FVB") and Citizens State Bank ("CSB"), the
Company recognized the excess of the purchase price over the estimated fair
value of the assets received and liabilities assumed as $17.8 million of
goodwill. The purchased goodwill is being amortized over 15 years. Intangible
assets, including goodwill, are reviewed each year to determine if circumstances
related to their valuation have been materially affected. In the event that the
current market value is determined to be less than the current book value of the
intangible asset, a charge against current earnings would be recorded.
8. Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," became effective for the Company as of January 1, 1998. The statement
requires the reporting of components of comprehensive income other than net
income in one of the financial statements. Components of comprehensive income
are changes in equity during a period other than those resulting from
investments by owners and distributions to owners. For the Company, the only
component of comprehensive income other than net income is the unrealized gain
or loss on securities classified as available-for-sale. The aggregate amount of
such changes to equity that have not yet been recognized in net income are
reported in the equity portion of the consolidated balance sheets as accumulated
other comprehensive income.
When a security that had been classified as available-for-sale is sold, a
realized gain or loss will be included in net income and, therefore, in
comprehensive income. Consequently, the recognition of any unrealized gain or
loss for that security that had been included in comprehensive income in an
earlier period must be reversed. These adjustments are reported in the
consolidated statements of comprehensive income as reclassification adjustment
for gains (losses) included in net income.
9. New Accounting Pronouncement
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities", was issued during the second quarter of
1998 and will become effective for the Company as of January 1, 2000. This
statement is not expected to have a material impact on the operating results or
the financial position of the Company.
<PAGE>
PART 1
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Summary
Santa Barbara Bancorp (the "Company") posted earnings of $6.13 million for the
quarter ended June 30, 1998, up 36% over the same quarter last year. Second
quarter earnings continue the trend of the previous eleven quarters in which net
income has been higher than the same quarter of the prior year. Diluted per
share earnings for the second quarter of 1998 were $0.39 compared to $0.29
earned in the second quarter of 1997. The increase in net income for the quarter
compared to the same quarter of 1997 was due to increases in net interest income
and fee income.
Compared to the second quarter of 1997, net interest income (the difference
between interest income and interest expense) increased by $3.3 million in the
second quarter of 1998, an increase of 20%. This was due primarily to loan
growth in categories other than the Company's Refund Anticipation Loan ("RAL")
program. The Company's purchase of Citizens State Bank ("CSB") in October, 1997,
and the opening of two new offices in Ventura County resulted in significant
growth in loans and deposits. Interest on loans increased $3.8 million as the
loan balances increased from $788 million at June 30, 1997, to $938 million a
year later. $42 million of this growth in loans was due to the acquisition.
Deposits increased $201 million or 16% over the last 12 months, while interest
expense increased 13%.
Noninterest income, exclusive of gains or losses on securities transactions,
increased by $1.2 million over the same quarter of 1997. Service fees for
nondeposit-related services increased by $509,000, Trust and Investment Services
fees were up $439,000, and other service fees earned on the new deposit accounts
gained with the acquisition also added to the increase over 1997.
Delinquent and nonperforming loans which totaled $9.2 million at the end of the
second quarter of 1998 are approximately $400,000 higher than a year ago.
However, the Company decreased its provision for credit loss by $1.1 million
compared to the second quarter of 1997 from $1.7 million to $0.6 million. This
decrease was due to the Company taking a more significant portion of the
provision for seasonal RAL losses in the first quarter of 1998. In 1997, more of
this provision was taken in the second quarter. Provision expense for the first
six months of 1998 was virtually the same as for the first six months of 1997.
The allowance for credit loss increased from $19.2 million at June 30, 1997 to
$23.3 million at June 30, 1998.
Noninterest expenses increased in the second quarter of 1998 compared to the
same quarter of 1997, primarily due to the growth in the Company resulting from
the acquisition. Increases occurred in salary costs, occupancy, equipment and
marketing. In addition, the Company recognized approximately $7.5 million in
goodwill from the CSB acquisition, which will be amortized over a period of 15
years. Amortization expense in the second quarter of 1998 related to this
goodwill was approximately $125,000. The 23% growth rate of noninterest expense
was slightly higher than the 20% rate of growth in both noninterest income
(exclusive of gains and losses on securities) and net interest income. As a
result, the operating efficiency ratio, which measures how many cents of expense
it takes to earn a dollar of operating income, increased slightly from $0.59 for
the second quarter of 1997 to $0.60 for the second quarter of 1998.
In comparing the results for the second quarter of 1998 with the same quarter a
year ago, the acquisition of First Valley Bank ("FVB") is not among the reasons
for the increase in earnings because the results of operations for the acquired
branches of FVB are included in the second quarter 1997 amounts. In comparing
the results for the first six months of 1998 with the same period of 1997, this
acquisition does account for some of the asset and deposit growth and increase
in net income.
Business
The Company is a bank holding company. While the Company has a few operations of
its own, these are not significant in comparison to those of its major
subsidiary, Santa Barbara Bank & Trust (the "Bank"). The Bank is a
state-chartered commercial bank and is a member of the Federal Reserve System.
It offers a full range of retail and commercial banking services. These include
commercial, real estate, and consumer loans, a wide variety of deposit products,
and full trust services. The Company's second subsidiary is Sanbarco Mortgage
Corporation ("Sanbarco"). The primary business activity of Sanbarco is brokering
commercial real estate loans and servicing those loans for a fee. All references
to "the Company" apply to Santa Barbara Bancorp and its subsidiaries. "Bancorp"
will be used to refer to the parent company only.
Forward-looking Information
This analysis contains forward-looking statements with respect to the financial
conditions, results of operations and businesses of Santa Barbara Bancorp and,
assuming consummation of the merger between the two as discussed in the section
entitled "Merger with Pacific Captial Bancorp", a combined Santa Barbara
Bancorp/Pacific Capital Bancorp. These include statements relating to: (a) the
cost savings and accretion to reported earnings that will be realized from the
merger; and (b) the restructuring charges expected to be incurred in connection
with the merger. These forward-looking statements involve certain risks and
uncertainties. Factors that may cause actual results to differ materially from
those contemplated by such forward-looking statements include, among others, the
following possibilities: (1) expected cost savings from the merger are not fully
realized or realized within this expected timeframe; (2) revenues following the
merger are lower than expected; (3) competitive pressure among financial
services companies increases significantly; (4) costs or difficulties related to
the integration of the businesses of Santa Barbara Bancorp and Pacific Capital
Bancorp are greater than expected; (5) changes in the interest rate environment
reduce interest margins; (6) general economic conditions, internationally,
nationally or in the State of California, are less favorable than expected; (7)
changes in the IRS's handling of electronic filing and refund payments adversely
affect the Company's RAL and refund transfer ("RT") programs; and (8)
legislation or regulatory requirements or changes adversely affect the business
in which the combined company will be engaged.
Total Assets and Earning Assets
The chart below shows the growth in average total assets and deposits since the
fourth quarter of 1995. For the Company, changes in assets are primarily related
to changes in deposit levels, so these also have been included in the chart.
Dollar amounts are in millions. Because significant deposits are sometimes
received at the end of a quarter and are quickly withdrawn, especially at
year-end, the overall trend in the Company's growth is better shown by the use
of average balances for the quarters.
Chart 1 GROWTH IN AVERAGE ASSETS AND DEPOSITS
$1,650 AAAA
A A
$1,600 A AAA
A
$1,550 A
A
$1,500 A
A
$1,450 A
AAAAAAA DDDDDDDD
$1,400 A D
A D
$1,350 A DD
AA D
$1,300 A D
A D
$1,250 A D
AA DDDDDDD
$1,200 AAAA A D
A AAAAA A D
$1,150 AAAAA AAAA DDD
D
$1,100 D
D
$1,050 DDD
DDDDDDDDDDDDDDD
$1,000 DDDDD
$950
4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd
'95 '96 '96 '96 '96 '97 '97 '97 '97 '98 '98
A = Assets D = Deposits
Continued consolidation in the financial services industry, acquisition of a
leasing portfolio and FVB and CSB, and the opening of three Ventura County
offices in this period have contributed to the longer trend growth in both
deposits and assets.
The averages for the second quarter tend to be lower than the averages for the
first quarter because of seasonal factors. These include increases to assets and
deposits from the RAL and RT programs which primarily affect the first quarters
of each year and cash outflows for tax payments which impact the second
quarters. Deposits related to the RAL and RT programs, i.e. outstanding checks
written to taxpayers which have not cleared, averaged $41.6 million during the
first quarter of 1997 and $58.3 million during the first quarter of 1998.
Average assets during the first quarter of 1997 included RAL's of $31.2 million
and during the first quarter of 1998, average assets included $32.3 million in
RAL's. $124 million in assets and $108 million in deposits were obtained in the
FVB purchase. Without these acquired assets and liabilities, the averages for
the second and third quarters of 1997 would have been slightly less than those
for the first quarter. The CSB acquisition in the fourth quarter of 1997, added
$93.1 million in assets and $82.2 million in deposits.
Earning assets consist of the various assets on which the Company earns interest
income. The Company was earning interest on 95% of its assets during the first
half of 1998. This compares with an average of 89% for all FDIC-Insured
Commercial Banks.1 Having more of its assets earning interest helps the Company
to maintain its high level of profitability. The Company has achieved this
higher percentage by several means. Loans are structured to have interest
payable in most cases each month so that large amounts of accrued interest
receivable (which are nonearning assets) are not built up. In this manner, the
interest received can be invested to earn additional interest. The Company
leases most of its facilities under long-term contracts rather than owning them.
This, together with the aggressive disposal of real estate obtained as the
result of foreclosure avoids tying up funds that could be earning interest.
Lastly, the Company has developed systems for clearing checks faster than those
used by most banks of comparable size. This permits it to put the cash to use
more quickly. At the Company's current size, these steps have resulted in about
$93 million more assets earning interest during the first half of the year than
would be the case if the Company's ratio were similar to its FDIC peers. The
additional earnings from these assets are somewhat offset by higher lease
expense, additional equipment costs, and occasional losses taken on quick sales
of foreclosed property. However, on balance, Management believes that these
steps give the Company an earnings advantage.
Interest Rate Sensitivity
Most of the Company's earnings arise from its functioning as a financial
intermediary. As such, it takes in funds from depositors and then either loans
the funds to borrowers or invests the funds in securities and other instruments.
The Company earns interest income on the loans and securities and pays interest
expense on deposits and other borrowings. Net interest income is the difference
in dollars between the interest income earned and the interest expense paid. The
net interest margin is the ratio of net interest income to average earning
assets. This ratio is useful in allowing the Company to monitor the spread
between interest income and interest expense from month to month and year to
year irrespective of the growth of the Company's assets. If the Company is able
to maintain the net interest margin as the Company grows, the amount of net
interest income will increase.
The Company must maintain its net interest margin to remain profitable, and must
be prepared to address the risks of adverse effects on the margin as interest
rates change. Because the Company earns interest income on 95% of its assets and
pays interest expense on approximately 80% of its liabilities, these adverse
effects could be material if not managed properly. The three primary risks
related to changes in interest rates are market risk, mismatch risk, and basis
risk. The rest of this section briefly explains these risks and the steps the
Company takes to manage them. Interested readers are referred to Management's
Discussion and Analysis of Financial Condition and the Results of Operations in
the Company's Annual Report on Form 10-K for 1997 ("10-K MD&A") for a more
complete discussion.
Some of the Company's loans, securities, and deposits have rates of interest
fixed for some term. Market risk is the risk that the market value of these
financial instruments will decrease with changes in market interest rates. This
exposure to market risk is managed by limiting the amount of fixed rate assets
and by keeping maturities short. Mismatch risk is the risk that interest rate
changes may not be equally reflected in the rates of interest earned and paid
because of differences in the contractual terms of the assets and liabilities
held. The Company controls mismatch risk by attempting to roughly match the
maturities and repricing opportunities of assets and liabilities. Basis risk
arises from the fact that interest rates rarely change in a parallel or equal
manner. The interest rates associated with the various assets and liabilities
differ in how often they change, the extent to which they change, and whether
they change sooner or later than other interest rates. Avoiding concentration in
only a few types of assets or liabilities is the best means of increasing the
chance that the average interest received and paid will move in tandem. The
wider diversification means that many different rates, each with their own
volatility characteristics, will come into play.
One of the means by which the Company monitors the extent to which the
maturities or repricing opportunities of the major categories of assets and
liabilities are matched is an analysis such as that shown in Table 1. This
analysis is sometimes called a "gap" report, because it shows the gap between
assets and liabilities repricing or maturing in each of a number of periods. The
gap is stated in both dollars and as a percentage of total assets for each
period and on a cumulative basis for each period. The Company's target is stated
as a percentage of total assets and is to be no more than 15% plus or minus in
either of the first two periods, and not more than 25% plus or minus cumulative
through the first year.
Many of the categories of assets and liabilities on the balance sheet do not
have specific maturities. For the purposes of this table, the Company assigns
these pools of funds to a likely repricing period. However, the assumptions
underlying the assignment of the various classes of non-term assets and
liabilities are somewhat arbitrary in that the timing of the repricing is often
a function of competitive influences. For example, if other financial
institutions are increasing the rates offered depositors, the Company may have
no choice but to reprice sooner than it assumed in order to maintain market
share.
The first period shown in the gap report covers assets and liabilities that
mature or reprice within the first three months after quarter-end. This is the
most critical period because there would be little time to correct a mismatch
that is having an adverse impact on income. For example, if the Company had a
large negative gap for the period--with liabilities maturing or repricing within
the next three months significantly exceeding assets maturing or repricing in
that period--and interest rates rose suddenly, the Company would have to wait
for more than three months before an equal amount of assets could be repriced to
offset the higher interest expense on the liabilities. As of June 30, 1998, the
gap for this first period is a (1.62%). At the end of the fourth quarter of
1997, the gap was (0.20%) of assets.
For the next period, after three months but within six months, there is a
positive excess of assets over liabilities of 2.76%.
In the third period, after six months but within one year, liabilities exceed
assets by (22.24%) of total assets, reflecting the current customer preference
for short-term deposits. The cumulative gap within one year of (21.10%) of total
assets is within the Company's acceptable limits.
The periods of over one year are less critical because more steps can be taken
to mitigate the adverse effects of any interest rate changes arising from
repricing mismatches.
<TABLE>
Table 1--INTEREST RATE SENSITIVITY
<CAPTION>
After three After six After one Non-interest
As of June 30, 1998 Within months months year but bearing or
(in thousands) three but within but within within After five non-repricing
months six one year five years items Total
--------------------------------------------------------------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans $ 337,842 $ 107,689 $ 110,292 $ 341,992 $ 31,443 $ (11,730) $ 917,528
Cash and due from banks -- -- -- -- -- 57,457 57,457
Money market investments 64,977 -- -- -- -- -- 64,977
Securities 62,462 24,924 68,553 291,286 64,473 9,429 521,127
Other assets -- -- -- -- -- 57,846 57,846
------------------------------------------------------------------------ ------------
Total assets 465,281 132,613 178,845 633,278 95,916 113,002 $1,618,935
------------------------------------------------------------------------ ============
Liabilities and shareholders' equity:
Borrowed funds:
Repurchase agreements and
Federal funds purchased 12,043 -- -- -- -- -- 12,043
Other borrowings 3,500 2,500 5,000 23,000 -- -- 34,000
Interest-bearing deposits:
Savings and interest-bearing
transaction accounts 332,226 -- 410,569 -- -- -- 742,795
Time deposits 137,185 85,490 123,311 70,116 2,101 -- 418,203
Demand deposits -- -- -- -- -- 272,620 272,620
Other liabilities 6,576 -- -- -- -- 4,854 11,430
Shareholders' equity -- -- -- -- -- 127,844 127,844
------------------------------------------------------------------------ ------------
Total liabilities and
shareholders' equity 491,530 87,990 538,880 93,116 2,101 405,318 $1,618,935
------------------------------------------------------------------------ ============
Interest rate-
sensitivity gap $ (26,249) $ 44,623 $(360,035) $ 540,162 $ 93,815 $(292,316)
========================================================================
Gap as a percentage of
total assets (1.62%) 2.76% (22.24%) 33.37% 5.79% (18.06%)
Cumulative interest
rate-sensitivity gap $ (26,249) $ 18,374 $(341,661) $ 198,501 $ 292,316
Cumulative gap as a
percentage of total assets (1.62%) 1.13% (21.10%) 12.26% 18.06%
<FN>
Note: Net deferred loan fees, overdrafts, and the allowance for loan losses
are included in the above table as noninterest bearing or
non-repricing items. Money market investments include Federal funds
sold, securities purchased under agreements to resell, and bankers'
acceptances.
</FN>
</TABLE>
Gap reports can show mismatches in the maturities and repricing opportunities of
assets and liabilities, but have limited usefulness in measuring or managing
market risk and basis risk.
To quantify the extent of these risks both in its current position and in
transactions it might take in the future, the Company uses computer modeling.
The modeling simulates the impact of different interest rate scenarios on net
interest income and on net economic value. Net economic value or the market
value of portfolio equity is defined as the difference between the market value
of financial assets and liabilities. The hypothetical scenarios include both
sudden and gradual interest rate changes, and interest rate changes in both
directions.
The most recent modeling confirms that the Company's interest rate risk profile
is balanced, and that the results are within normal expectations.
It is standard process to compute the impacts of interest rate shocks applied to
the Company's asset and liability balances. Although interest rates normally
would not change suddenly in this manner, this exercise is valuable in
identifying exposures to risk. The resulting shock reports indicate how much of
the Company's net interest income and net economic value are "at risk"
(deviation from the base level) from the rate changes. The results reported
below for the Company's December 31, 1997, and June 30, 1998 balances indicate
that the Company's net interest income at risk over a one year period and net
economic value at risk from 2% shocks are within normal expectations for such
sudden changes:
Shocked by -2% Shocked by +2%
-------------- --------------
As of December 31, 1997
Net interest income +1.42% (1.04%)
Net economic value +14.29% (14.08%)
As of June 30, 1998
Net interest income +0.73% (1.56%)
Net economic value +14.64% (14.98%)
For these computations, the Company has made certain assumptions about the
duration of its non-maturity deposits that are important to determining net
economic value at risk. The Company engaged an outside consultant to gather and
study data on its non-maturity deposits, and the results of that study have been
incorporated into these latest models. The interest rate simulation results are
dependent upon the shape and volatility of the interest rate scenarios selected
and upon the assumptions of the rates that would be paid on the Company's
administered rate deposits as external yields change.
The changes in net interest income and net economic value resulting from the
hypothetical increases and decreases in rates are not exactly symmetrical. This
occurs because various contractual limits and non-contractual factors come into
play. An example of the former is the "interest rates cap" on loans, which may
limit the amount that rates may increase. An example of the latter is the
assumption on how low rates could be lowered on administered rate accounts. The
degree of symmetry changes as the base rate changes from period to period and as
there are changes in the Company's product mix. For instance, the assumed floors
on deposit rates are more likely to come into play in a 2% decrease if the base
rate is lower. The caps on loan rates would have more of an impact on the
overall result to the extent that consumer variable rate loans are a larger
proportion of the portfolio than in a previous period.
The Company's exposure to interest rate risk as of December 31, 1997, is
discussed in more detail in the 10-K MD&A. There have been no material changes
to this exposure during the first half of 1998.
Deposits and Related Interest Expense
While occasionally there are slight decreases in average deposits from one
quarter to the next, the overall trend is one of growth as shown in Chart 1.
This orderly growth has been planned by Management and Management anticipates
that it can be sustained because of the strong capital position and earnings
record of the Company. The increases have come by maintaining competitive
deposit rates, introducing new deposit products, the opening of new retail
branch offices, the assumption of deposits in the FVB and CSB acquisitions, and
successfully encouraging former customers of merged financial institutions to
become customers of the Company.
Table 2 presents the average balances for the major deposit categories and the
yields of interest-bearing deposit accounts for the last six quarters (dollars
in millions). As shown both in Chart 1 and in Table 2, average deposits for the
second quarter of 1998 have increased $186.3 million or 15.2% from average
deposits a year ago.
<TABLE>
Table 2--AVERAGE DEPOSITS AND RATES
<CAPTION>
1997: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
---------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
NOW accounts $ 141.0 1.10% $ 161.7 1.13% $ 161.5 1.15% $ 178.4 1.16%
Money market deposit accounts 436.3 3.80 424.1 3.79 404.9 3.71 417.0 3.75
Savings accounts 90.4 2.30 111.4 2.18 105.6 2.34 126.1 2.22
Time certificates of deposit for
less than $100,000 and IRA's 185.3 5.40 225.9 5.74 239.9 5.67 268.2 5.52
Time certificates of deposit for
$100,000 or more 85.5 5.19 112.1 5.24 124 5.75 145.1 5.44
--------- --------- --------- ---------
Interest-bearing deposits 938.5 3.71% 1,035.2 4.17% 1,035.9 4.21% 1,134.8 3.81%
Demand deposits 199.9 191.5 198.9 225.7
--------- --------- --------- ---------
Total deposits $ 1,138.4 $ 1,226.7 $ 1,234.8 $ 1,360.5
========= ========= ========= =========
1998:
NOW accounts $ 179.7 1.18% $ 179.3 1.15%
Money market deposit accounts 417.5 3.74 430.4 3.74
Savings accounts 126.7 2.31 126.6 2.30
Time certificates of deposit for
less than $100,000 and IRA's 269.6 5.53 269.9 5.42
Time certificates of deposit for
$100,000 or more 146.8 5.38 145.4 5.27
--------- ---------
Interest bearing deposits 1,140.3 3.81% 1,151.6 3.77%
Demand deposits 293.7 261.5
--------- ---------
Total deposits $ 1,434.0 $ 1,413.1
========= =========
</TABLE>
Table 2 shows that the rates paid on NOW, MMDA, and savings accounts have
remained quite stable over the last four quarters while the rates on time
certificate accounts have declined. The average rates that are paid on deposits
generally trail behind money market rates because financial institutions do not
change deposit rates with each small increase or decrease in short-term rates.
This trailing characteristic is stronger with time deposits than with deposit
types that have administered rates like NOW, MMDA, and saving accounts.
Administered rate deposit accounts are those products which the institution
reprices at its option based on competitive pressure and need for funds. This
contrasts with deposits for which the rates are set by contract for a term or
are tied to an external index. Certificates of deposit are time or term
deposits. With these accounts, even when new offering rates are established, the
average rates paid during the quarter are a blend of the rates paid on
individual accounts. Only new accounts and those which mature and are replaced
during the quarter will bear the new rate.
The average balances for noninterest-bearing demand deposits during the second
quarters of 1997 and 1998 were impacted by outstanding checks from the RAL and
RT programs discussed below in "Refund Loan and Transfer Programs."
Approximately $41.6 million of the average balance for noninterest-bearing
demand deposits in the first quarter of 1997 and $58.3 million in the first
quarter of 1998 relate to these programs. There was relatively little effect
from these checks in other quarters.
Generally, the Company offers higher rates on certificates of deposit in amounts
over $100,000 than for lesser amounts. It would be expected, therefore, that the
average rate paid on these large time deposits would be higher than the average
rate paid on time deposits with smaller balances. As may be noted in Table 2,
however, this is not the case. There are two primary reasons for this.
First, loan demand has not been so great that the Company would encourage,
through premium rates, large deposits that are not the result of stable customer
relationships. If the deposits are short-term and will be kept by the depositor
with the Company only while premium rates are paid, the Company must invest the
funds in very short-term assets, like Federal funds. Since Federal funds sold
earned between 5.30% and 5.75% during 1997 and the first six months of 1998, the
spread between the cost of premium rate CD's and the earnings on their potential
uses would be very small, if not negative. Second, a significant portion of the
under $100,000 time deposits are IRA accounts. The Company pays a higher rate on
these accounts than on other CD's because their terms tend to be relatively
longer than other CD's. These factors have served to maintain a higher average
rate paid on the smaller time deposits relative to the average rate paid on
larger deposits.
The Company has not utilized any brokered deposits.
Loans and Related Interest Income
Table 3 shows the changes in the end-of-period (EOP) and average loan portfolio
balances and taxable equivalent income and yields2 over the last seven quarters
(dollars in millions),
<TABLE>
Table 3--LOAN BALANCES AND YIELDS
<CAPTION>
EOP Average Interest Average
Quarter Ended Outstanding Outstanding and Fees Yield
- ------------------ ---------------- ---------------- --------------- -----------
<S> <C> <C> <C> <C>
December 1996 $ 684.2 $ 634.4 $ 14.9 9.35%
March 1997 719.9 723.0 22.9 12.75
June 1997 788.8 789.0 18.3 9.21
September 1997 803.9 790.7 18.3 9.26
December 1997 881.5 858.8 19.8 9.18
March 1998 919.9 926.8 26.6 11.57
June 1998 938.3 925.5 22.1 9.55
</TABLE>
The end-of-period loan balance as of June 30, 1998, has increased by $56.8
million compared to December 31, 1997, and by $149.5 million compared to June
31, 1997. Residential real estate loans have increased as a result of increased
sales activity in the Company's market areas and due to refinancing activity
prompted by the favorable interest rate environment. Most of the residential
real estate loans are adjustable rate mortgages ("ARMS") that have initial
"teaser" rates. The yield increases for these loans as the teaser rates expire.
Applicants for these loans are qualified based on the fully-indexed rate.
Effective June 1, 1998, the Company began retaining a portfolio of long term,
fixed-rate 1-4 family residential loans which totaled $46.4 million at June 30,
1998. Previously, the Company had sold almost all of its long term, fixed-rate
residential loans. Commercial loans have increased largely due to growth in
loans to agricultural borrowers. The consumer loan portfolio has increased
primarily because of the acquisition of a $7.0 million mobile home portfolio and
increased number of indirect auto loans. Indirect auto loans are loans purchased
from auto dealers. The dealers' loans must meet the credit criteria set by the
Company.
Portions of the increases in the June 1997 and December 1997 balances compared
to prior quarters relate to the acquisition of FVB and CSB, respectively.
The average balance and yield for the first quarters of 1998 and 1997 show the
impact of the RAL loans that the Company makes. The RAL loans are extended to
taxpayers who have filed their returns electronically with the IRS and do not
want to wait for the IRS to send them their refund check. The Company earns a
fixed fee per loan for advancing the funds. Because of the April 15 tax filing
date, almost all of the loans are made and repaid during the first quarter of
the year. The impact of this program on the results of operations for the first
halves of 1998 and 1997 is summarized in the section titled "Refund Anticipation
Loan and Transfer Program" below. Average yields for the first quarters of 1998
and 1997 without the effect of RAL loans were 9.09% and 9.10%, respectively.
Interest rates on most consumer loans are fixed at the time funds are advanced.
The average yields on these loans significantly lag market rates as rates rise
because the Company only has the opportunity to increase yields as new loans are
made. In a declining interest rate environment, these loans tend to track market
rates more closely. This is because the borrower may reset the rate by prepaying
the loan if the current market rate for that type of loan declines sufficiently
below the contractual rate on the original loan to warrant the customer
refinancing.
The rates on most commercial and construction loans vary with an external index
like the national prime rate or the one year constant maturity treasury ("CMT")
, or are set by reference to the Company's base lending rate. The base lending
rate is established by the Company by reference to the national prime rate
adjusting for local lending and deposit price conditions. The loans that are
tied to prime or to the Company's base lending rate adjust immediately to a
change in those rates while the loans tied to CMT usually adjust every year.
Other Loan Information
In addition to the outstanding loans reported in the accompanying financial
statements, the Company has made certain commitments with respect to the
extension of credit to customers.
<TABLE>
<CAPTION>
(in thousands) June 30, December 31,
1998 1997
------ ------
<S> <C> <C>
Standby letters of credit $ 26,642 $ 20,716
Loan commitments 33,275 43,356
Undisbursed loans 57,393 59,069
Unused consumer credit lines 64,824 59,073
Unused other credit lines 139,506 130,347
</TABLE>
The majority of the commitments are for one year or less. The majority of the
credit lines and commitments may be withdrawn by the Company subject to
applicable legal requirements. With the exception of the undisbursed loans, the
Company does not anticipate that a majority of the above commitments will be
fully drawn on by customers. Consumers do not tend to borrow the maximum amounts
available under their home equity lines and businesses typically arrange for
credit lines in excess of their immediate needs to handle contingencies.
The Company has established maximum loan amount to collateral value ratios for
commercial real estate loans ranging from 50% to 75% depending on the type of
project. Loan-to-value ratios for residential real estate loans range from 65%
to 90%. There are no specific loan-to-value ratios for other commercial,
industrial or agricultural loans not secured by real estate. The adequacy of the
collateral is established based on the individual borrower and purpose of the
loan. Consumer loans may have maximum loan-to-collateral ratios based on the
loan amount, the nature of the collateral, and other factors.
The Company defers and amortizes loan fees collected and origination costs
incurred over the lives of the related loans. For each category of loans, the
net amount of the unamortized fees and costs are reported as a reduction or
addition, respectively, to the balance reported. Because the fees are generally
less than the costs for commercial and consumer loans, the total net deferred or
unamortized amounts for these categories are additions to the loan balances.
Credit Quality and the Allowance for Credit Losses
The allowance for credit losses is provided in recognition that not all loans
will be fully paid according to their contractual terms. The Company is required
by regulation, generally accepted accounting principles, and safe and sound
banking practices to maintain an allowance that is adequate to absorb losses
that are inherent in the portfolio of loans and leases, including those not yet
identified. The adequacy of this general allowance is based on the size of the
portfolio, historical trends of charge-offs, and Management's estimates of
future charge-offs. These estimates are in turn based on the grading of
individual credits and Management's outlook for the local and national economies
and how they might affect borrowers. In addition, generally accepted accounting
standards require the establishment of a valuation allowance for impaired loans
as described in Note 5 to the financial statements.
Table 4 shows the amounts of noncurrent loans and nonperforming assets for the
Company at the end of the second quarter of 1998, and at the end of the previous
four quarters (in thousands). Also shown for both the Company and its peers3 are
the coverage ratio of the allowance to total loans and the ratio of noncurrent
loans to total loans. RAL's and the portion of the allowance for credit losses
that specifically relates to RAL's are excluded from the Company's figures and
ratios for the table for comparability. Only two other banks operate national
RAL and RT programs.
Nonperforming assets include noncurrent loans and foreclosed collateral
(generally real estate). Total nonperforming assets have increased by $613,000
at June 30, 1998, compared to June 30 1997, but as a percentage of total loans,
noncurrent loans decreased from 1.12% at June 30, 1997 to 0.99% at June 30,
1998.
<TABLE>
Table 4--ASSET QUALITY
<CAPTION>
June 30, March 31, December 31, September 30, June30,
1998 1998 1997 1997 1997
--------- --------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C>
COMPANY AMOUNTS:
Loans delinquent
90 days or more $ 748 $ 533 $ 812 $ 480 $ 2,565
Nonaccrual loans 8,500 11,437 9,095 8,143 6,270
--------- --------- --------- --------- ---------
Total noncurrent loans 9,248 11,970 9,907 8,623 8,835
Foreclosed real estate 200 200 0 108 0
--------- --------- --------- --------- ---------
Total nonper-
forming assets $ 9,448 $ 12,170 $ 9,907 $ 8,731 $ 8,835
--------- --------- --------- --------- ---------
Allowance for credit loss $ 23,322 $ 22,067 $ 21,148 $ 19,940 $ 19,174
========= ========= ========= ========= =========
COMPANY RATIOS:
Coverage ratio of
allowance for credit
losses to total loans 2.49% 2.43% 2.40% 2.48% 2.43%
Coverage ratio of
allowance for credit
losses to noncurrent loans 252% 184% 213% 231% 217%
Ratio of noncurrent
loans to total loans 0.99% 1.32% 1.12% 1.07% 1.12%
Ratio of nonperforming
assets to total assets 0.58% 0.74% 0.64% 0.61% 0.62%
FDIC PEER
GROUP RATIOS:
Coverage ratio of
allowance for credit
losses to total loans n/a 2.16% 2.11% 2.19% 2.12%
Coverage ratio of
allowance for credit
losses to noncurrent loans n/a 204% 199% 195% 190%
Ratio of noncurrent
loans to total loans n/a 1.06% 1.06% 1.12% 1.12%
Ratio of nonperforming
assets to total assets n/a 0.76% 0.77% 0.82% 0.82%
</TABLE>
The June 30, 1998, balance of noncurrent loans does not equate directly with
future charge-offs, because most of these loans are secured by collateral.
Nonetheless, Management believes it is probable that some portion will have to
be charged off and that other loans will become delinquent.
The allowance for credit losses other than RAL's has increased to $23.3 million
at June 30, 1998, from $19.2 million at June 30, 1997. This has resulted in a
coverage ratio of allowance to noncurrent loans of 252%. This is considerably
more than the 204% ratio of its peers as of March 31, 1998. The Federal Reserve
Board and other Regulatory bodies have been publicly warning financial
institutions that the current economic environment is probably close to the high
point of the credit cycle. They have suggested that lenders can expect that
credit quality will again became an issue as borrowers who now appear able to
repay their loans may become delinquent when the economy is not so healthy.
Giving consideration to these comments and based on its review of the loan
portfolio, Management considers the current amount of the allowance adequate.
Management identifies and monitors other loans which are potential problem loans
although they are not now delinquent more than 90 days. Table 5 classifies
noncurrent loans and all potential problem loans other than noncurrent loans by
loan category for June 30, 1998 (amounts in thousands).
<TABLE>
Table 5--NONCURRENT AND POTENTIAL PROBLEM LOANS
<CAPTION>
Potential Problem
Noncurrent Loans Other Than
Loans Noncurrent
----- ----------
<S> <C> <C>
Loans secured by real estate:
Construction and
land development $ 400 $ 1,106
Agricultural 107 5,602
Home equity lines 442 40
1-4 family mortgage 2,530 1,760
Multifamily 450 --
Nonresidential, nonfarm 4,186 6,082
Commercial and industrial 662 19,980
Leases 77 --
Other consumer loans 382 347
Other Loans 13 --
------- --------
Total $9,249 $34,917
======= ========
</TABLE>
The following table sets forth the allocation of the allowance for all potential
problem loans by classification as of June 30, 1998 (amounts in thousands).
Doubtful $ 473
Substandard $ 3,932
Special Mention $ 370
The total of the above numbers is less than the total allowance. Most of the
allowance is allocated to loans which are not currently regarded as potential
problem loans. This allocation is based on historical trends of losses by
category and on current economics conditions. Some of the allowance is not
allocated to any category, but instead is provided for potential losses that
have not yet been identified.
Securities and Related Interest Income
The Company has created three separate portfolios of securities for internal
management purposes. The first portfolio, for securities that will be held to
maturity, is the "Earnings Portfolio." This portfolio includes practically all
of the tax-exempt municipal securities and some of the longer term taxable
securities. The second and third portfolios consist of securities that are all
classified as available-for-sale. The second portfolio, the "Liquidity
Portfolio," is made up almost entirely of the shorter term Treasury securities.
The third portfolio, the "Discretionary Portfolio," consists of shorter term
Treasury securities, collateralized mortgage obligations, asset-backed
securities, and a few municipal securities. The Company specifies whether the
security will be held to maturity--and therefore placed in the Earnings
Portfolio--or available for sale at the time of purchase. Securities may be
transferred between the Liquidity and Discretionary Portfolios at the Company's
option. The reasons for these portfolios is explained in the 10-K MD&A.
Table 6 presents the combined securities portfolios, showing the average
outstanding balances (dollars in millions) and the yields for the last six
quarters. The yield on tax-exempt state and municipal securities has been
computed on a taxable equivalent basis. A computation using this basis increases
income for these securities in the table over the amount accrued and reported in
the accompanying financial statements. The tax-exempt income is increased to
that amount which, were it fully taxable, would yield the same income after tax
as the amount that is reported in the financial statements. The computation
assumes a combined Federal and State tax rate of approximately 42%.
<TABLE>
Table 6--AVERAGE BALANCES OF SECURITIES AND INTEREST YIELD
<CAPTION>
1997 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 240.0 5.95% $ 201.5 5.95% $ 196.7 5.93% $ 232.3 5.92%
U.S. agency 48.2 6.36 40.0 5.56 37.4 5.84 48.6 5.84
Collateralized
Mortgage Obligations 33.0 6.11 56.4 6.18 64.4 6.37 67.3 6.31
Tax-Exempt securities 86.3 12.28 101.0 11.77 108.2 11.67 117.5 11.15
Equity securities 6.2 5.94 7.2 5.70 7.4 5.76 7.7 7.43
-------- -------- -------- --------
Total $ 413.7 7.51% $ 406.1 7.39% $ 414.1 7.47% $ 473.4 7.29%
======== ======== ======== ========
1998
U.S. Treasury $ 222.9 5.85% $ 200.6 5.89%
U.S. agency 63.8 5.75 88.5 5.87
Collateralized
Mortgage Obligations 85.5 6.23 84.2 6.18
Tax-Exempt securities 118.0 11.25 127.7 10.72
Equity securities 8.1 5.37 8.2 5.41
-------- --------
Total $ 498.3 7.20% $ 509.2 7.14%
======== ========
</TABLE>
The average balances of securities increased during the last two quarters as the
Company directed funds away from bankers' acceptances for the reason explained
in the section below titled "Bankers' Acceptances."
Unrealized Gains and Losses
As explained in "Interest Rate Sensitivity" above, fixed rate securities are
subject to market risk from changes in interest rates. The relatively large
unrealized gains in the first table in Note 4 to the financial statements for
the municipal securities indicate the significant reduction in interest rates
that has occurred since most of these securities were purchased in 1985 and
1986. The unrealized gain is therefore a measure of how much more the Company
will earn on these securities until their maturity than it would on comparable
securities purchased at current market rates.
Hedges, Derivatives, and Other Disclosures
The Company established policies and procedures in 1996 to permit limited types
and amounts of off-balance sheet hedges to help manage interest rate risk. The
Company entered into an interest rate "Cap Corridor" contract in January 1997 at
a cost of approximately $90,000 to protect against the possibility of rapidly
rising rates. While Management was not predicting that interest rates would
rise, the asset/liability modeling indicated at the time that net interest
income at risk from a significant rise would be more than desired. The notional
amount of the contract is $50 million and the hedge covers a fifteen month
period that began July 1, 1997. The contract would pay the Company the rate by
which the 3-month Libor index rate exceeds 7.0% up to a maximum of 1.5%.
Subsequently, interest rates have declined and the Company is simply amortizing
the $90,000 cost over the fifteen months.
The Company has not purchased any securities arising out of a highly leveraged
transaction, and its investment policy prohibits the purchase of any securities
of less than investment grade or so-called "junk bonds."
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities", was issued during the second quarter of
1998 and will become effective for the Company as of January 1, 2000. This
statement is not expected to have a material impact on the operating results or
the financial position of the Company.
Federal Funds Sold and Securities Purchased under Agreements to Resell
Cash in excess of the amount needed to fund loans, invest in securities, or
cover deposit withdrawals is sold to other institutions as Federal funds or
invested with other institutions on a collateralized basis as securities
purchased under agreement to resell ("reverse repo agreements"). These
agreements are investments which are collateralized by securities or loans of
the borrower and mature on a daily basis. The sales of Federal funds are on an
overnight basis as well. The amount of Federal funds sold and reverse repo
agreements purchased during the quarter is an indication of Management's
estimation during the quarter of immediate cash needs and relative yields of
alternative investment vehicles.
Though they are not securities, the large amount of Federal funds sold, reverse
repo agreements and bankers' acceptances dictate that the Company include them
in its liquidity planning, discussed below in the section entitled "Liquidity",
as if they were components of the Liquidity Portfolio, discussed above in
"Securities and Related Interest Income."
Table 7 illustrates the average balance of funds sold and repurchase agreements
of the Company and the average yields over the last seven quarters (dollars in
millions).
<TABLE>
Table 7--AVERAGE BALANCES OF FUNDS SOLD AND SECURITIES
PURCHASED UNDER AGREEMENTS TO RESELL AND THEIR RELATED YIELDS
<CAPTION>
Average Average
Quarter Ended Outstanding Yield
------------- ----------- -----
<S> <C> <C>
December 1996 $58.3 5.34%
March 1997 94.6 5.30
June 1997 92.2 5.64
September 1997 67.0 5.61
December 1997 81.0 5.75
March 1998 83.7 5.75
June 1998 72.4 5.75
</TABLE>
The average balance sold into the market in the first quarters of 1998 and 1997
reflects the large volume of funds received from the IRS related to the refund
anticipation loans and refund transfers processed by the Company during that
time. In addition, in the first quarter of 1997, liquidity was increased in
anticipation of the financing requirements relating to the purchase of FVB.
There is another factor which impacts average balances. When the Company is in a
liability sensitive position as discussed in the section above titled "Interest
Rate Risk," Management is reluctant to purchase large amounts of longer-term
securities beyond the amounts necessary to establish and maintain the Company's
maturity ladders because that action would increase the mismatch risk. The
result is higher average balances of Federal funds sold than would otherwise be
the case. This condition has been the case for several quarters.
Bankers' Acceptances
Bankers' acceptances are notes owed by a purchaser of merchandise to a vendor.
The notes have been "accepted" or guaranteed by a bank and sold into the
financial markets and function as short-term debt much like commercial paper.
The Company has used bankers' acceptances as an alternative to short-term U.S.
Treasury securities when sufficient Treasury securities are already held to meet
the pledging requirements of certain trust and public deposits and when the
rates available are sufficiently higher than the rates available on comparable
U.S. Treasury obligations. With their relatively short maturities, bankers'
acceptances have been an effective instrument for managing the timing of
near-term cash flows. Table 8 discloses the average balances and yields of
bankers' acceptances for the last seven quarters (dollars in millions).
<TABLE>
Table 8--AVERAGE BALANCE OF BANKERS' ACCEPTANCES AND YIELDS
<CAPTION>
Average Average
Quarter Ended Outstanding Yield
-------------- ----------- -------
<S> <C> <C>
December 1996 $55.3 5.63%
March 1997 69.3 5.57
June 1997 76.3 5.69
September 1997 82.0 5.83
December 1997 60.8 5.85
March 1998 47.0 5.94
June 1998 14.3 6.09
</TABLE>
All of the acceptances held by the Company were issued by Japanese banks having
prime short-term credit quality ratings. However, because of uncertainty
regarding the Japanese economy, the Company has not replaced maturing
acceptances during the last six months and the balance has been declining. The
Company continued to monitor the remaining acceptances closely in light of the
economic troubles in Asia. The one $5 million acceptance held at June 30, 1998,
which had a maturity date of July 28, 1998, has been repaid.
Other Borrowings, Long-term Debt and Related Interest Expense
Other borrowings consist of securities sold under agreements to repurchase,
Federal funds purchased (usually only from other local financial institutions as
an accommodation to them), Treasury Tax and Loan demand notes, and borrowings
from the Federal Reserve Bank ("FRB"). Because the average total of other
borrowings represents a very small portion of the Company's source of funds
(less than 5%), all of these short-term items have been combined for the
following table.
Table 9 indicates for other borrowings the average balance (dollars in
millions), the rates and the proportion of total assets funded by them over the
last seven quarters.
<TABLE>
Table 9--OTHER BORROWINGS
<CAPTION>
Average Average Percentage of
Quarter Ended Outstanding Rate Average Total Assets
-------------- ----------- ------- ---------------------
<S> <C> <C> <C>
December 1996 $34.3 4.68% 2.8%
March 1997 43.3 4.50 3.2
June 1997 36.2 4.73 2.5
September 1997 24.1 4.97 1.7
December 1997 27.6 4.98 1.8
March 1998 24.9 4.99 1.5
June 1998 18.1 4.12 1.1
</TABLE>
Long-term debt consists of advances from the Federal Home Loan Bank of San
Francisco ("FHLB"). The Bank borrowed $38 million in December 1996 for the
acquisition of leasing assets and $10 million in September 1997 for interest
rate management. The advances are structured to amortize at $2.5 million
declining to $1.0 million per quarter through the fourth quarter of 2001.
Table 10 indicates the average balances that are outstanding (dollars in
millions) and the rates and the proportion of total assets funded by long-term
debt over the last seven quarters.
<TABLE>
Table 10--LONG-TERM DEBT
<CAPTION>
Average Average Percentage of
Quarter Ended Outstanding Rate Average Total Assets
-------------- ----------- ------- --------------------
<S> <C> <C> <C>
December 1996 $ 6.6 6.13% 0.5%
March 1997 37.6 6.13 2.8
June 1997 37.2 6.12 2.6
September 1997 42.6 6.20 3.0
December 1997 40.1 6.21 2.6
March 1998 37.6 6.19 2.3
June 1998 35.1 6.22 2.2
</TABLE>
<PAGE>
Other Operating Income
Other operating income consists of income earned other than interest. On an
annual basis, trust fees are the largest component of other operating income.
Management fees on trust accounts are generally based on the market value of
assets under administration. Table 11 shows trust income over the last seven
quarters (in thousands).
<TABLE>
Table 11--TRUST INCOME
<CAPTION>
Quarter Ended Trust Income
-------------- ------------
<S> <C>
December 1996 $2,144
March 1997 2,480
June 1997 2,377
September 1997 2,599
December 1997 2,522
March 1998 2,865
June 1998 2,816
</TABLE>
There is some variation in fees from quarter to quarter. Trust customers are
charged for the preparation of the fiduciary tax returns. The preparation
generally occurs in the first quarter of the year. This accounts for
approximately $291,000 of the fees earned in the first quarter of 1997 and
$284,000 of the fees earned in the first quarter of 1998. Variation is also
caused by the recognition of probate fees when the work is completed rather than
accrued as the work is done, because it is only upon the completion of probate
that the amount of the fee is established by the court. After adjustment for
these seasonal and non-recurring items and increasing price levels in the stock
market, trust income has been increasing because of growth in the total number
of accounts and dollar balances under management resulting from substantially
enhanced marketing efforts.
Other categories of noninterest operating income include various service
charges, fees, and miscellaneous income. Included within "Other Service Charges,
Commissions & Fees" in the following table are service fees arising from credit
card processing for merchants, escrow fees, and a number of other fees charged
for special services provided to customers. Categories of all noninterest
operating income other than trust fees and securities gains or losses are shown
in Table 12 for the last seven quarters (in thousands).
<TABLE>
Table 12--OTHER INCOME
<CAPTION>
Other Service
Service Charges Charges,
on Deposit Commissions Other
Quarter Ended Accounts & Fees Income
--------------- --------------- ------------- ------
<S> <C> <C> <C>
December 1996 $1,200 $1,284 $211
March 1997 1,195 3,454 177
June 1997 1,373 2,185 161
September 1997 1,361 1,601 240
December 1997 1,543 2,011 333
March 1998 1,521 6,150 161
June 1998 1,568 2,694 211
</TABLE>
The unusually large amounts in other service charges, commissions and fees for
the first quarters of 1998 and 1997 are due to $4.33 million and $2.16 million,
respectively, of fees received for the electronic transfer of tax refunds as
explained in the section titled "Refund Anticipation Loan and Refund Transfer
Programs." The increase in service charges on deposit accounts is a result of
growth in deposit accounts and the acquisition of accounts from FVB and CSB.
Staff Expense
The largest component of noninterest expense is staff expense. Staff size is
closely monitored in relation to the growth in the Company's revenues and
assets.
Table 13 shows the amounts of staff expense incurred over the last seven
quarters (in thousands).
<TABLE>
Table 13--STAFF EXPENSE
<CAPTION>
Salary and Profit Sharing and
Quarter Ended Other Compensation Other Employee Benefits
------------- ------------------ -----------------------
<S> <C> <C>
December 1996 $5,614 $1,329
March 1997 5,798 2,097
June 1997 5,987 1,683
September 1997 6,431 1,602
December 1997 7,000 1,229
March 1998 7,933 1,582
June 1998 7,378 1,800
</TABLE>
When the purchase of FVB was completed in the second quarter of 1997, additional
staff was hired to operate the five new branches. Staff expense increased in the
third quarter of 1997 in preparation of branch openings and in support areas to
handle growth in the volume of transactions. Staff expense also increased in the
fourth quarter of 1997 as a result of the acquisition of CSB. Besides the
addition of staff, there is usually some variation in staff expense from quarter
to quarter. Staff expense will usually increase in the first quarter of each
year because all Company exempt employees have their annual salary review in the
first quarter with merit increases effective on March 1. In 1997 and 1998, these
averaged 5% and 4% respectively. In addition, some temporary staff is added in
the first quarter for the RAL program.
Employee bonuses are paid after the end of each year from a bonus pool, the size
of which is set by the Board of Directors based on meeting or exceeding the
Company's goals for net income. The Company accrues compensation expense for the
pool for employee bonuses during the year for which they are earned rather than
in the subsequent year when they are actually paid. The accrual is based on
projected net income for the year. During the latter quarters of 1997,
Management revised the accrual amounts as it became apparent that net income
would significantly exceed the projected amount upon which bonus accrual was
originally set. Approximately one-third of the net income for 1997 was earned in
the first quarter. Assuming that a similar pattern of earnings may occur in
1998, Management accrued a larger amount for bonus expense in the first quarter
than would be expected in subsequent quarters.
There is also variability in the amounts reported above for Profit Sharing and
Other Employee Benefits. These amounts include (1) the Company's contribution to
profit sharing plans and retiree health benefits, (2) the Company's portion of
health insurance premiums and payroll taxes, and (3) payroll taxes and workers'
compensation insurance.
The Company's contributions for the profit sharing and retiree health benefit
plans are determined by a formula which is based on pre-tax income, limited by
the amount that is deductible for income taxes. In the years prior to 1997, the
deductible amount was greater than the amount computed by the formula. Assuming
that the same would be the case in 1997, the Company accrued contribution
expense relative to pre-tax income. This accounts for most of the large amount
of expense in the first quarter of 1997. As the year progressed, the pre-tax
formula generated an amount that would exceed the deductible amount and
contribution expense was reduced in the fourth quarter. For 1998, it is expected
that the Company's contribution will again be limited by the amount that can be
deducted in its tax return. With this assumption, the Company expects to accrue
contribution expense at approximately the same amount each quarter.
OTHER OPERATING EXPENSES
Table 14 shows other operating expenses over the last seven quarters (in
thousands).
<TABLE>
Table 14--OTHER OPERATING EXPENSE
<CAPTION>
Occupancy Expense Furniture& Other
Quarter Ended Bank Premises Equipment Expense
------------- ----------------- ----------- --------
<S> <C> <C> <C>
December 1996 $1,162 $ 654 $3,904
March 1997 1,137 646 4,474
June 1997 1,265 872 4,043
September 1997 1,409 938 4,671
December 1997 1,430 1,170 6,357
March 1998 1,436 968 5,270
June 1998 1,467 1,043 5,307
</TABLE>
The Company leases rather than owns most of its premises. Many of the leases
provide for annual rent adjustments. Equipment expense fluctuates over time as
needs change, maintenance is performed, and equipment is purchased. Like
occupancy expense, this category has been impacted by the opening of the new
offices in Ventura County, and by the acquisition of new branches with the FVB
purchase in the second quarter of 1997, and by the acquisition of the new CSB
branches in the fourth quarter of 1997.
Table 15 shows a detailed comparison for the major expense items in other
expense for the six-month and three-month periods ended June 30 (amounts in
thousands).
<TABLE>
Table 15--OTHER EXPENSE
<CAPTION>
Six-Month Periods Three-Month Periods
Ended June 30, Ended June 30,
------------------------------ ----------------------------
1998 1997 1998 1997
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Professional services $ 871 $ 776 $ 486 $ 389
RAL processing and incentive fees 300 607 75 (15)
Supplies and sundries 457 406 231 223
Postage and freight 492 414 181 182
Marketing 946 798 613 451
Bankcard processing 1,365 967 758 517
Credit bureau 335 293 43 64
Telephone and wire expense 761 542 370 257
Charities and contributions 209 193 103 99
Software expense 931 691 537 358
Operating losses 185 109 69 29
Armored car services 227 161 116 77
Printing 231 316 87 153
Amortization of goodwill 593 197 296 172
Other 2,674 2,136 1,342 1,087
------------- ------------- ------------ ------------
Total $ 10,577 $ 8,606 $ 5,307 $ 4,043
============= ============= ============ ============
</TABLE>
The increase in Bankcard processing fees is a result of an increase in the
number of merchant card processing transactions and from price increases charged
by processors.
RAL processing and incentive fees are paid to tax preparers and filers based on
the volume and collectibility of the loans made through them. The decline in
these fees for the six months ended June 30, 1998 compared to the same period of
1997 reflects the higher loss ratio (prior to recoveries) for the program this
year as discussed in the section below entitled "Refund Anticipation Loan and
Refund Transfer Programs."
The increase in software expense represents costs incurred to upgrade existing
software and purchase new software to meet the technological needs of the Bank.
The investment in technology keeps the Bank competitive with services our
customers demand.
The amounts in the final line of Table 15 comprise a wide variety of
miscellaneous expenses, none of which total more than 1% of revenues. Included
among these is the net operating cost or benefit of other real estate owned
("OREO"). When the Company forecloses on the real estate collateral securing
delinquent loans, it must record these assets at the lower of their fair value
(market value less estimated costs of disposal) or the outstanding amount of the
loan. Costs incurred to maintain or operate the properties are charged to
expense as they are incurred. If the fair value of the property declines below
the original estimate, the carrying amount of the property is written-down to
the new estimate of fair value and the decrease is also charged to this expense
category. If the property is sold at an amount higher than the estimated fair
value, or if income is received from the rental of the property while the
Company is attempting to dispose of it, the gain or income that is realized is
credited to this category.
Liquidity
Liquidity is the ability to raise funds on a timely basis at acceptable cost in
order to meet cash needs, such as might be caused by fluctuations in deposit
levels, customers' credit needs, and attractive investment opportunities. The
Company's objective is to maintain adequate liquidity at all times.
The Company has defined and manages three types of liquidity: (1) "immediate
liquidity," which is the ability to raise funds today to meet today's cash
obligations, (2) "intermediate liquidity," which is the ability to raise funds
during the next few weeks to meet cash obligations over that time period, and
(3) "long term liquidity," which is the ability to raise funds over the entire
planning horizon to meet anticipated cash needs due to strategic balance sheet
changes. Adequate liquidity is achieved by (1) holding liquid assets, (2)
maintaining the ability to raise deposits or borrow funds, and (3) keeping
access open to capital markets.
As explained below, there is a rough correspondence between these three means of
achieving liquidity and the three time horizons, except that the Company has not
needed to access the capital markets for liquidity purposes.
Immediate liquidity is provided by the prior day's balance of Federal funds sold
and repurchase agreements, any cash in excess of the Federal Reserve balance
requirement, unused Federal funds lines from other banks, and unused repurchase
agreement facilities with other banks or brokers. The Company maintains total
sources of immediate liquidity of not less than 5% of total assets. At the end
of June 1998, these sources of immediate liquidity were well in excess of that
minimum.
Sources of intermediate liquidity include maturities or sales of bankers'
acceptances and securities in the Liquidity and Discretionary Portfolios,
securities in the Earnings Portfolio maturing within three months, term
repurchase agreements, advances from the Federal Home Loan Bank of San
Francisco, and deposit increases from special programs. The Company projects
intermediate liquidity needs and sources over the next several weeks based on
historical trends, seasonal factors, and special transactions. Appropriate
action is then taken to cover any anticipated unmet needs. At the end of June
1998, the Company's intermediate liquidity was adequate to meet all projected
needs.
Long term liquidity would be provided by special programs to increase core
deposits, reducing the size of the investment portfolios, selling or
securitizing loans, and accessing capital markets. The Company's policy is to
plan ahead to address cash needs over the entire planning horizon from actions
and events such as market expansions, acquisitions, increased competition for
deposits, anticipated loan demand, and economic conditions and the regulatory
outlook. At the end of June 1998, the Company's long term liquidity was adequate
to meet cash needs anticipated over its planning horizon.
Capital Resources and Company Stock
Table 16 presents a comparison of several important amounts and
ratios for the second quarters of 1998 and 1997 (dollars in
thousands).
<TABLE>
Table 16--CAPITAL RATIOS
<CAPTION>
2nd Quarter 2nd Quarter
1998 1997 Change
---------------- --------------- ------------
<S> <C> <C> <C>
Amounts:
Net Income $ 6,128 $ 4,499 $ 1,629
Average Total Assets 1,610,717 1,429,012 181,705
Average Equity 126,444 113,515 12,929
Ratios:
Equity Capital to Total Assets (period end) 7.90% 8.00% (0.10%)
Annualized Return on Average Assets 1.52% 1.26% 0.26%
Annualized Return on Average Equity 19.39% 15.85% 3.53%
</TABLE>
Earnings are the largest source of capital for the Company. For reasons
mentioned in various sections of this discussion, Management expects that there
will be variations from quarter to quarter in operating earnings.
Areas of uncertainty or seasonal variations include asset quality, loan demand,
and RAL and RT operations. A substantial increase in charge-offs would require
the Company to record a larger provision for loan loss to restore the allowance
to an adequate level, and this would negatively impact earnings. If loan demand
increases, the Company will be able to reinvest proceeds from maturing
investments at higher rates, which would positively impact earnings. RAL and RT
earnings, occurring almost entirely in the first quarter, introduce significant
seasonality.
The FRB sets minimum capital guidelines for U.S. banks and bank holding
companies based on the relative risk of the various types of assets. The
guidelines require banks to have capital equivalent to at least 8% of risk
adjusted assets. To be classified as "well capitalized", the Company is required
to have capital equivalent to at least 10% of risk adjusted assets. As of June
30, 1998, the Company's risk-based capital ratio was 11.48%. The Company must
also maintain a Tier I capital (total shareholder equity less goodwill and other
intangibles) to average asset ratio of at least 4% to 5%. As of June 30, 1998,
Tier I capital was 6.94% of average tangible assets.
The Company has attempted to repurchase shares of its common stock to offset the
increased number of shares issued as a result of the exercise of employee stock
options. During the first half of 1998, approximately 91,000 shares were
repurchased compared with the issuance of approximately 176,000 shares in
connection with the exercise of stock options. In 1997, the Company had
repurchased approximately 135,000 shares to offset the effect of the issuance of
approximately 68,000 shares in connection with the exercise of stock options.
On May 27, 1998, prior to the announcement of the signing of an Agreement and
Plan of Reorganization between the Company and Pacific Capital Bancorp ("Pacific
Capital") discussed below in the section entitled "Announced Merger with Pacific
Capital," the Company had announced a program to repurchase up to $5 million of
its shares for investment purposes. No shares were in fact repurchased under the
program. On July 31, 1998, the Board of Directors suspended the program in light
of the announced transaction between the Company and Pacific Capital.
State law limits the amount of dividends that may be paid by a bank to the
lesser of the bank's retained earnings or the total of its undistributed net
income for the last three years. The dividends needed for the acquisitions of
FVB and CSB exceeded the amount allowable without prior approval of the
California Department of Financial Institutions ("CDFI"). As part of its
approval of the acquisitions, the CDFI approved the excess distributions. During
1997 and for the first and second quarters of 1998, it also approved other
dividends from the Bank to Bancorp to fund the latter's quarterly cash dividends
to its shareholders and for other incidental purposes. The Bank will continue to
need to request approval for dividends until earnings for the preceding three
years exceed dividends paid to Bancorp in the same three years. Management
expects that approval will continue to be granted due to strong earnings and the
well-capitalized position of the Bank.
There are no material commitments for capital expenditures or "off-balance
sheet" financing arrangements planned at this time. However, as the Company
pursues its stated plan to expand beyond its current market area, Management
will consider opportunities to form strategic partnerships with other financial
institutions that have compatible management philosophies and corporate cultures
and that share the Company's commitment to superior customer service and
community support. Such transactions, depending on their structure, may be
accounted for as a purchase of the other institution by the Company. To the
extent that consideration is paid in cash rather than Company stock, the assets
of the Company would increase by more than its equity and therefore the ratio of
capital to assets would decrease.
The current quarterly dividend rate is $0.15 per share. When annualized, this
represents a payout ratio of approximately 41% of earnings per share for the
trailing 12 months.
Regulation
The Company is closely regulated by Federal and State agencies. The Company and
its subsidiaries may only engage in lines of business that have been approved by
their respective regulators, and cannot open or close offices without their
approval. Disclosure of the terms and conditions of loans made to customers and
deposits accepted from customers are both heavily regulated as to content. The
Company is required by the provisions of the Community Reinvestment Act ("CRA")
to make significant efforts to ensure that access to banking services is
available to the whole community.
As a bank holding company, Bancorp is primarily regulated by the Federal Reserve
Bank ("FRB"). As a member bank of the Federal Reserve System that is
state-chartered, the Bank's primary Federal regulator is the FRB and its state
regulator is the CDFI. As a non-bank subsidiary of the Company, Sanbarco is
regulated by the FRB. Both of these regulatory agencies conduct periodic
examinations of the Company and/or its subsidiaries to ascertain their
compliance with laws, regulations, and safe and sound banking practices.
The regulatory agencies may take action against bank holding companies and banks
should they fail to maintain adequate capital or to comply with specific laws
and regulations. Such action could take the form of restrictions on the payment
of dividends to shareholders, requirements to obtain more capital from
investors, or restrictions on operations. The Company and the Bank have the
highest capital classification, "well capitalized," given by the regulatory
agencies and therefore, except for the need for approval of dividends paid from
the Bank to the Bancorp, are not subject to any restrictions as discussed above.
Management expects the Company and the Bank to continue to be classified as well
capitalized in the future.
Refund Anticipation Loan ("RAL") and Refund Transfer ("RT")
Programs
Since 1992, the Company has provided loans and refund transfers to taxpayers who
file their income tax returns electronically. These loans and transfers are made
through tax preparers across the country. The Company collects a fee for each
transaction.
If a taxpayer meets the Company's credit criteria for the RAL product, and
wishes to receive a loan with the refund as security, the taxpayer applies for
and receives an advance less the transaction fees, which are considered finance
charges. The Company is repaid directly by the IRS and remits any refund amount
over the amount due the Company to the taxpayer.
There is a higher credit risk associated with RAL's than with other types of
loans because (1) the Company does not have personal contact with the customers
of this product; (2) the customers conduct no business with the Company other
than this once a year transaction; and (3) contact subsequent to the payment of
the advance, if there is a problem with the tax return, may be difficult because
many of these taxpayers have no permanent address.
If the taxpayer does not meet the credit criteria or does not want a loan, the
Company can still facilitate the receipt of the refund by the taxpayer through
the RT program. This is accomplished by the Company authorizing the tax preparer
to issue a check to the taxpayer once the refund has been received by the
Company from the IRS. The fees received for acting as a transfer agent are less
than the fees received for the loans.
While the Company is one of very few financial institutions in the country to
operate these electronic loan and transfer programs, the electronic processing
of payments involved in these programs is similar to other payment processing
regularly done by the Company and other commercial banks for their customers
such as direct deposits and electronic bill paying. The RAL and RT programs had
significant impacts on the Company's activities and results of operations during
the first quarters of 1997 and 1998 and to a lesser extent on the second
quarters of 1997 and 1998. A more extended description of these programs may be
found in the 10-K MD&A.
The 1998 results compare to the 1997 results as follows. During the first half
of 1998, the Company has recognized fees for RAL's of $6.8 million and fees for
RT's of $5.2 million. Operating expenses totaled $1.4 million. The Company added
$4.9 million to the RAL allowance for credit loss through a charge to provision
expense during the first half of 1998 and added another $2.0 million to the
allowances from recoveries on loans charged off in prior years. The Company
charged off all remaining unpaid RAL's at June 30, 1998. Charge offs for 1998
totaled $7.2 million. The result was a pre-tax net operating income of
approximately $5.6 million. It is expected that a substantial amount of the
charged-off loans may yet be paid during the remainder of this year or during
the 1999 filing season.
For the first half of 1997, gross revenues for the RAL and RT programs were $7.4
million and $2.9 million, respectively, with operating expenses of $1.6 million.
The Company added $4.6 million to the RAL allowance for credit loss through a
charge to provision expense during the first half of 1997 and added another $1.2
million to the allowance from recoveries on loans charged off in prior years.
The Company charged-off $5.9 million in RAL's for the year. The result was a
pre-tax net operating income of approximately $4.0 million.
There is no credit risk associated with the refund transfers because checks are
issued only after receipt of the refund payment from the IRS.
Year 2000
The Company is in the process of addressing the possible exposures related to
the impact of the Year 2000. Key financial, information and operational systems
have been assessed and detailed plans have been developed to ensure that Year
2000 systems modifications will be in place by December 1998. As most of the
critical software is purchased from vendors which have either already begun to
make the necessary changes or will be doing so over the next year, the Company
is concentrating its efforts on implementing and initial testing of "Year 2000
Compliant" systems in 1998. Full system testing will be performed in 1999.
Critical software that is not Year 2000 compliant will be replaced. The Company
has budgeted approximately $1.7 million in 1998 to address the Year 2000 issue.
Most of this cost relates either to the assignment of internal staff rather than
the hiring of outside consultants or additional staff or to the purchase of
equipment and software, the cost of which will be amortized over a number of
years. Management therefore does not anticipate a material impact to the
Company's results of operations or financial position. A similar amount is
likely to be spent in 1999.
Merger with Pacific Capital Bancorp
In July 1998, the Company entered into a Definitive Agreement calling for a
merger of equals with Pacific Capital Bancorp, the holding company for First
National Bank of Central California and South Valley National Bank. The
Agreement provides for existing Pacific Capital Bancorp shareholders to receive
1.935 shares of Santa Barbara Bancorp common stock for each of their outstanding
shares of common stock. The merger transaction is being accounted for as a
pooling of interests. As of the date of the Agreement, based on the closing
price per share of Company stock, the value of the merger would be estimated to
be $287.6 million. However, the final value will be based on the price per share
at the time the transaction closes, which may result in a value more or less
than that stated above. Subject to shareholder and regulatory approvals, the
merger is expected to close in the fourth quarter of 1998. One-time charges to
be taken at the time of closing are estimated to be $6.5 to $ 7.5 million after
tax. Administrative and operational support units will be based out of Santa
Barbara, creating the merger savings that will make the transaction accretive to
earnings per share in the first full operating year for the combined company.
At June 30, 1998, Pacific Capital Bancorp reported year-to-date net income of
$5.7 million, with total assets of $816 million, total deposits of $730 million,
total loans of $439 million, and total shareholders' equity of $76 million.
First National Bank of Central California maintains offices in Monterey,
Salinas, Carmel Rancho, Watsonville, and Soledad. South Valley National Bank
maintains offices in Gilroy, Morgan Hill, Hollister, and San Juan Bautista.
- --------
1. To obtain information on the performance ratios for peer banks, the Company
primarily uses The FDIC Quarterly Banking Profile, published by the FDIC
Division of Research and Statistics. This publication provides information about
all FDIC insured banks and certain subsets based on size and geographical
location. Geographically, the Company is included in a subset that includes 12
Western states plus the Pacific Islands. The information in this publication is
based on year-to-date information provided by banks each quarter. It takes about
2-3 months to process the information, so the published data is always one
quarter behind the Company's information. For this quarter, the peer information
is for the first quarter of 1998. All peer information in this discussion and
analysis is reported in or has been derived from information reported in this
publication.
2. As required by applicable regulations, tax-exempt non-security obligations of
municipal governments are reported as part of the loan portfolio. These totaled
approximately $10.0 million as of June 30, 1998. The average yields presented in
Table 3 give effect to the tax-exempt status of the interest received on these
obligations by the use of a taxable equivalent yield, assuming a combined
Federal and State tax rate of approximately 42% (while not tax exempt for the
State of California, the State taxes paid on this Federal-exempt income is
deductible for Federal tax purposes). If their tax-exempt status were not taken
into account, interest earned on loans for the second quarter of 1998 would be
$22.0 million and the average yield would be 9.51%. There would also be
corresponding reductions for the other quarters shown in the Table 3. The
computation of the taxable equivalent yield is explained in the section titled
"Securities and Related Interest Income."
3. Peer data are computed from statistics reported in FDIC Quarterly Banking
Profile, First Quarter, 1998 for banks with total assets from $1-10 billion.
<PAGE>
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting held on April 21, 1998, Susan Trescher, an existing
shareholder of the Company, delivered proxies representing votes cast in favor
of her election as a Director. Upon review of the proxies and discussion with
Ms. Trescher, it was jointly determined that the proxies were properly executed
by shareholders of record of the Company, but that there could be a question as
to whether her solicitation of such proxies complied with applicable federal
and state securities laws. It appeared that any non-compliance was inadvertent.
The Company and Ms. Trescher agreed that, if her proxies were counted but had
not been properly solicited, the entire election of Directors at the Annual
Meeting might be questioned.
In order to avoid any uncertainty about the propriety of the election of
Directors at the Annual Meeting, the Company and Ms. Trescher agreed that it was
in the best interests of the Company and its shareholders that the Company not
rely on the proxies submitted by Ms. Trescher. However, the Company also
acknowledged that a significant number of shareholders were in favor of the
election of Ms. Trescher as a Director and concluded that it would be in the
best interests of the Company and its shareholders to have Ms. Trescher serve as
a Director.
As of the date of the Annual Meeting, the Company's Bylaws provided that the
authorized number of Directors shall be not less than seven nor more than
thirteen and that the exact number of Directors was 10. The Directors have
the power to amend the Bylaws, without the consent of the shareholders, to
change the exact number of Directors within the foregoing range.
In light of the foregoing, the Board of Directors took the following actions,
with which actions Ms. Trescher concurred.
(a) The proxies submitted by Ms. Trescher at the Annual Meeting were
not counted for purposes of the election of Directors, and the
ten Director-nominees who received the highest number of votes
were elected as the Directors.
(b) Following the election of the Directors at the Annual Meeting,
the Board of Directors held a Special Meeting at which the Board
amended the Bylaws to increase the exact number of Directors
from ten to eleven and appointed Ms. Trescher as a Director to
fill the vacancy created by the expansion of the Board.
As a result of the foregoing actions following the Annual Meeting, the Board
of Directors of the Company consisted of the ten nominee Directors identified
in the Company's proxy statement and Ms. Trescher.
Subsequent to the Annual Meeting, the Board of Directors further increased the
exact number of directors from eleven to thirteen and elected Cathy J. Odell and
Richard A. Nightingale as Directors to fill the vacancies created by the
expansion of the Board of Directors.
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index:
Exhibit Number Item Description
2 Agreement and Plan of Reorganization by and between
Santa Barbara Bancorp, and Pacific Capital Bancorp,
dated as of July 20, 1998
3 Certificate of Amendment of Articles of Incorporation
of the Company as filed with the California Secretary
of State on April 16, 1998
3.1 Amendment No. Four to Bylaws of the Company as
adopted by the Board of Directors on April 22, 1998
10 Santa Barbara Bancorp Amended and Restated Restricted
Stock Option Plan, dated December 17, 1996, as amended
March 24, 1998.
10.1 Santa Barbara Bancorp 1996 Directors Stock Option
Plan, dated December 17, 1996, as amended March 24,
1998
23 Consent of Independent Public Accountants
The consent of the independent public accountants is
filed for the purpose of incorporating the independent
public accountants' report on the 1997 financial
statements into the previously filed S-8 registration
statements.
27.0698 Financial Data Schedule for June 30, 1998
27.0697 Restated Financial Data Schedule for June 30, 1997
The restatement of the Financial Data Schedule give
effect to the two-for-one (2:1) split of outstanding
shares of Common Stock payable on April 16, 1998 and to
the adoption of Statement of Financial Accounting
Standards No. 128, which changed the computation of
earnings per share.
(b) There were no Forms 8-K filed during the quarter ended June 30,
1998.
<PAGE>
SIGNATURES
Pursuant to the Securities Exchange Act of 1934, the Company has duly caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized:
SANTA BARBARA BANCORP
DATE: August 13, 1998
David W. Spainhour
President
Chief Executive Officer
DATE: August 13, 1998
Donald Lafler
Senior Vice President
Chief Financial Officer
<PAGE>
EXHIBIT 2
AGREEMENT AND PLAN OF REORGANIZATION
BY AND BETWEEN
SANTA BARBARA BANCORP,
AND
PACIFIC CAPITAL BANCORP,
Dated as of July 20, 1998
<PAGE>
(ii)
TABLE OF CONTENTS
ARTICLE I.TERMS OF THE MERGER AND CLOSING....................................2
SECTION 1.01 Merger of Pacific with and into SBB..........................2
SECTION 1.02 Effective Date...............................................2
SECTION 1.03 Effects of the Merger........................................2
SECTION 1.04 Conversion of Pacific Common Stock...........................3
SECTION 1.05 SBB Common Stock.............................................4
SECTION 1.06 Stock Options................................................4
SECTION 1.07 Exchange Procedures; Surrender of Common Certificates........5
SECTION 1.08 Articles of Incorporation....................................7
SECTION 1.09 Bylaws.......................................................7
SECTION 1.10 Directors and Officers.......................................7
SECTION 1.11 Headquarters of Surviving Corporation........................7
SECTION 1.12 Tax Consequences.............................................7
SECTION 1.13 Employee Benefits............................................7
SECTION 1.14 Severance Payments..........................................8
ARTICLE II.THE CLOSING, THE CLOSING DATE AND THE EFFECTIVE DATE..............8
SECTION 2.01 Time and Place of the Closing and Closing Date...............8
SECTION 2.02 Actions to be Taken at the Closing by Pacific................9
SECTION 2.03 Actions to be Taken at the Closing by SBB...................10
ARTICLE III.REPRESENTATIONS AND WARRANTIES OF PACIFIC.......................12
SECTION 3.01 Organization and Qualification..............................12
SECTION 3.02 Execution and Delivery......................................14
SECTION 3.03 Capitalization..............................................14
SECTION 3.04 Compliance with Laws, Permits and Instruments...............15
SECTION 3.05 Financial Statements........................................15
SECTION 3.06 Undisclosed Liabilities.....................................16
SECTION 3.07 Litigation..................................................16
SECTION 3.08 Consents and Approvals......................................17
SECTION 3.09 Title to Assets.............................................17
SECTION 3.10 Absence of Certain Changes or Events........................17
SECTION 3.11 Leases, Contracts and Agreements............................20
SECTION 3.12 Taxes.......................................................20
SECTION 3.13 Insurance...................................................21
SECTION 3.14 No Adverse Change...........................................22
SECTION 3.15 Patents, Trademarks and Copyrights..........................22
SECTION 3.16 Transactions with Certain Persons and Entities..............22
SECTION 3.17 Evidences of Indebtedness...................................22
SECTION 3.18 Condition of Assets.........................................23
SECTION 3.19 Environmental Compliance....................................23
SECTION 3.20 Regulatory Compliance.......................................24
SECTION 3.21 Securities and Exchange Commission Reports..................24
SECTION 3.22 Absence of Certain Business Practices.......................25
SECTION 3.23 Registration Statement; Joint Proxy Statement/Prospectus....25
SECTION 3.24 Dissenting Shareholders.....................................25
SECTION 3.25 Pooling of Interests........................................25
SECTION 3.26 Books and Records...........................................25
SECTION 3.27 Forms of Instruments, Etc...................................26
SECTION 3.28 Fiduciary Responsibilities..................................26
SECTION 3.29 Guaranties..................................................26
SECTION 3.30 Voting Trust or Buy-Sell Agreements.........................26
SECTION 3.31 Employee Relationships......................................26
SECTION 3.32 Employee Benefit Plans......................................27
SECTION 3.33 Interest Rate Risk Management Instruments...................28
SECTION 3.34 Year 2000...................................................28
SECTION 3.35 Representations Not Misleading..............................29
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF SBB...........................30
SECTION 4.01 Organization and Qualification..............................30
SECTION 4.02 Execution and Delivery......................................31
SECTION 4.03 Capitalization..............................................31
SECTION 4.04 Compliance with Laws, Permits and Instruments...............32
SECTION 4.05 Financial Statements........................................33
SECTION 4.06 Undisclosed Liabilities.....................................33
SECTION 4.07 Litigation..................................................34
SECTION 4.08 Consents and Approvals......................................34
SECTION 4.09 Title to Assets.............................................34
SECTION 4.10 Absence of Certain Changes or Events........................35
SECTION 4.11 Leases, Contracts and Agreements............................37
SECTION 4.12 Taxes.......................................................38
SECTION 4.13 Insurance...................................................38
SECTION 4.14 No Adverse Change...........................................39
SECTION 4.15 Patents, Trademarks and Copyrights..........................39
SECTION 4.16 Transactions with Certain Persons and Entities..............39
SECTION 4.17 Evidences of Indebtedness...................................40
SECTION 4.18 Condition of Assets.........................................40
SECTION 4.19 Environmental Compliance....................................40
SECTION 4.20 Regulatory Compliance.......................................41
SECTION 4.21 Securities and Exchange Commission Reports..................41
SECTION 4.22 Absence of Certain Business Practices.......................42
SECTION 4.23 Registration Statement; Joint Proxy Statement/Prospectus....42
SECTION 4.24 Pooling of Interests........................................42
SECTION 4.25 Books and Records...........................................42
SECTION 4.26 Forms of Instruments, Etc...................................43
SECTION 4.27 Fiduciary Responsibilities..................................43
SECTION 4.28 Guaranties..................................................43
SECTION 4.29 Voting Trust or Buy-Sell Agreements.........................43
SECTION 4.30 Employee Relationships......................................43
SECTION 4.31 Employee Benefit Plans......................................44
SECTION 4.32 Interest Rate Risk Management Instruments...................45
SECTION 4.33 Year 2000...................................................45
SECTION 4.34 Representations Not Misleading..............................46
ARTICLE V. COVENANTS OF PACIFIC.............................................46
SECTION 5.01 Best Efforts................................................46
SECTION 5.02 Merger Agreement............................................47
SECTION 5.03 Submission of Merger to Shareholders.......................47
SECTION 5.04 Information for Applications and Statements.................47
SECTION 5.05 Required Acts of Pacific....................................48
SECTION 5.06 Prohibited Acts of Pacific..................................49
SECTION 5.07 Access; Pre-Closing Investigation...........................51
SECTION 5.08 Director and Committee Meetings.............................52
SECTION 5.09 Additional Financial Statements.............................52
SECTION 5.10 Untrue Representations......................................52
SECTION 5.11 Litigation and Claims.......................................52
SECTION 5.12 Adverse Changes.............................................52
SECTION 5.13 No Negotiation with Others..................................53
SECTION 5.14 Consents and Approvals......................................53
SECTION 5.15 Environmental Investigation; Right to Terminate Agreement...53
SECTION 5.16 Restrictions on Resales.....................................54
SECTION 5.17 Shareholder Lists...........................................55
SECTION 5.18 Employee Pension Plans......................................55
SECTION 5.19 Employee Welfare Benefit Plans..............................55
SECTION 5.20 Director Voting.............................................55
SECTION 5.21 Dividends...................................................55
SECTION 5.22 Non-Compete Agreements......................................55
SECTION 5.23 Pooling of Interests Accounting Treatment...................56
SECTION 5.24 Disclosure Schedules........................................56
ARTICLE VI. COVENANTS OF SBB................................................56
SECTION 6.01 Best Efforts................................................56
SECTION 6.02 Merger Agreement............................................56
SECTION 6.03 Regulatory Approvals and Registration Statement.............56
SECTION 6.04 Submission of Merger and Related Matters to Shareholders....57
SECTION 6.05 Information for Applications and Statements.................58
SECTION 6.06 Required Acts of SBB........................................58
SECTION 6.07 Prohibited Acts of SBB......................................59
SECTION 6.08 Access; Pre-Closing Investigation...........................61
SECTION 6.09 Director and Committee Meeting..............................62
SECTION 6.10 Additional Financial Statements.............................62
SECTION 6.11 Untrue Representations......................................62
SECTION 6.12 Litigation and Claims.......................................62
SECTION 6.13 Adverse Change..............................................62
SECTION 6.14 No Negotiation with Others..................................63
SECTION 6.15 Consents and Approvals......................................63
SECTION 6.16 Environmental Investigation; Right to Terminate Agreement...63
SECTION 6.17 Stock Options...............................................64
SECTION 6.18 Director and Officer Liability Insurance....................65
SECTION 6.19 Dividends...................................................65
SECTION 6.20 Conduct of Business in the Ordinary Course..................65
SECTION 6.21 Additions to SBB Board of Directors.........................65
SECTION 6.22 Director Voting.............................................66
SECTION 6.23 Pooling of Interests Accounting Treatment...................66
SECTION 6.24 Disclosure Schedules........................................66
ARTICLE VII.CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PACIFIC..............66
SECTION 7.01 Compliance with Representations, Warranties and Agreements..66
SECTION 7.02 Shareholder Approvals.......................................66
SECTION 7.03 Government and Other Approvals..............................67
SECTION 7.04 No Litigation...............................................67
SECTION 7.05 Delivery of Closing Documents...............................67
SECTION 7.06 Receipt of Fairness Opinion.................................67
SECTION 7.07 Receipt of Pooling Opinions.................................67
SECTION 7.08 Registration Statement......................................68
SECTION 7.09 Federal Tax Opinion.........................................68
SECTION 7.10 Dissenting Shareholders.....................................68
SECTION 7.11 Accounting Treatment........................................68
SECTION 7.12 Bylaw Amendment.............................................69
SECTION 7.13 No Material Adverse Change..................................69
ARTICLE VIII. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SBB................69
SECTION 8.01 Compliance with Representations, Warranties and Agreements..69
SECTION 8.02 Shareholder Approvals.......................................69
SECTION 8.03 Government and Other Approvals..............................69
SECTION 8.04 No Litigation...............................................70
SECTION 8.05 Delivery of Closing Documents...............................70
SECTION 8.06 Receipt of Shareholder Letters..............................70
SECTION 8.07 Receipt of Fairness Opinion.................................70
SECTION 8.08 Dissenting Shareholders.....................................70
SECTION 8.09 Receipt of Pooling Opinions.................................70
SECTION 8.10 Registration Statement......................................71
SECTION 8.11 Federal Tax Opinion.........................................71
SECTION 8.12 Accounting Treatment........................................71
SECTION 8.13 No Material Adverse Change..................................71
ARTICLE IX.EXPENSES, TERMINATION AND ABANDONMENT............................71
SECTION 9.01 Expenses.....................................................71
SECTION 9.02 Termination.................................................72
SECTION 9.03 Notice of Termination.......................................74
SECTION 9.04 Effect of Termination.......................................74
ARTICLE X. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES....................75
SECTION 10.01 Nonsurvival of Representations and Warranties..............75
ARTICLE XI. CONFIDENTIAL INFORMATION........................................75
SECTION 11.01 Definition of..............................................75
SECTION 11.02 Definition of..............................................75
SECTION 11.03 Confidentiality............................................75
SECTION 11.04 Securities Law Concerns....................................76
SECTION 11.05 Return of Subject Information..............................76
SECTION 11.06 Specific Performance/Injunctive Relief.....................76
ARTICLE XII. MISCELLANEOUS..................................................76
SECTION 12.01 Brokerage Fees and Commissions.............................76
SECTION 12.02 Entire Agreement...........................................77
SECTION 12.03 Further Cooperation........................................77
SECTION 12.04 Severability...............................................77
SECTION 12.05 Notices....................................................77
SECTION 12.06 GOVERNING LAW..............................................78
SECTION 12.07 Multiple Counterparts......................................79
SECTION 12.08 Certain Definitions........................................79
SECTION 12.09 Specific Performance.......................................80
SECTION 12.10 Attorneys' Fees and Costs..................................80
SECTION 12.11 Rules of Construction......................................80
SECTION 12.12 Binding Effect; Assignment.................................81
SECTION 12.13 Public Disclosure..........................................81
SECTION 12.14 Extension; Waiver..........................................81
SECTION 12.15 Amendments.................................................82
SECTION 12.16 Access; Due Diligence......................................82
6. SBB Common Stock........................................................4
7. Stock Options...........................................................4
Specific Performance/Injunctive Relief.....................................2
EXHIBITS
Exhibit "A". - Agreement and Plan of Merger
Exhibit "B". - SBB Option Agreement
Exhibit "C". - Pacific Option Agreement
Exhibit "D". - Opinion Matters of Counsel to Pacific
Exhibit "E". - Opinion Matters of Counsel to SBB
Exhibit "F". - Form of Shareholder Letter
Exhibit "G". - Persons to Deliver Non-Compete Agreements
Exhibit "H". - Form of Non-Compete Agreement
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and
entered into as of the 20th day of July, 1998, by and between Santa Barbara
Bancorp, a California corporation and registered bank holding company under the
Bank Holding Company Act of 1956, as amended (the "BHCA") with its principal
offices at 1021 Anacapa Street, Santa Barbara, California 93101 ("SBB"), and
Pacific Capital Bancorp, a California corporation and registered bank holding
company under the BHCA with its principal offices at 307 Main Street, Salinas,
California 93901 ("Pacific").
W I T N E S S E T H:
WHEREAS, Pacific is a California corporation duly organized and
existing under the laws of the State of California; and
WHEREAS, SBB is a California corporation duly organized and existing
under the laws of the State of California; and
WHEREAS, SBB and Pacific desire to combine their respective businesses;
and
WHEREAS, in furtherance of the combination of their respective businesses,
SBB and Pacific desire that Pacific shall be merged (the "Merger") with and into
SBB, under the articles of incorporation of SBB and with the resulting name
"Pacific Capital Bancorp" (SBB as it will exist from and after the Effective
Date (defined herein) being referred to herein as the "Surviving Corporation"),
and that (i) all of the issued and outstanding shares of common stock of Pacific
(other than shares held by dissenting shareholders, fractional share interests
and as otherwise set forth herein) shall be converted into and exchanged for
shares of common stock of the Surviving Corporation, (ii) all outstanding
options to acquire common stock of Pacific shall be converted into options to
acquire common stock of the Surviving Corporation, and (iii) all of the issued
and outstanding shares of capital stock of SBB shall continue to be issued and
outstanding shares of capital stock of the Surviving Corporation, all pursuant
to an Agreement and Plan of Merger substantially in the form attached hereto as
Exhibit "A" (the "Merger Agreement"); and
WHEREAS, it is the intent of the respective Boards of Directors of SBB and
Pacific that the Merger be structured as a "merger of equals" of SBB and Pacific
and that the Surviving Corporation be governed and operated on this basis; and
WHEREAS, as a condition to, and immediately after the execution of, this
Agreement, SBB and Pacific are entering into mutual stock option agreements in
substantially the forms attached hereto as Exhibit "B" and Exhibit "C".
WHEREAS, SBB and Pacific believe that the Merger, as provided for, and
subject to the terms and conditions set forth in this Agreement and all
exhibits, schedules and supplements hereto, is in the best interests of SBB and
Pacific and their respective shareholders; and
<PAGE>
83
WHEREAS, the respective Boards of Directors of SBB and Pacific have
approved this Agreement and the proposed transactions substantially on the terms
and conditions set forth in this Agreement and the schedules and exhibits hereto
and have authorized the execution thereof.
WHEREAS, this Agreement and the Merger Agreement will be submitted for
approval of the respective shareholders of SBB and Pacific at special meetings
of their respective shareholders; and
WHEREAS, the Merger is intended to qualify as a tax-free reorganization
within the meaning of the provisions of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code"); and
WHEREAS, SBB and Pacific desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
execution and delivery of this Agreement and certain additional agreements
related to the transactions contemplated hereby.
NOW, THEREFORE, for and in consideration of the foregoing and of the
mutual representations, warranties, covenants and agreements contained in this
Agreement, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and subject to the conditions set
forth below, the parties hereto undertake, promise, covenant and agree with each
other as follows:
ARTICLE I.
TERMS OF THE MERGER AND CLOSING
SECTION 1.01 Merger of Pacific with and into SBB
Subject to the terms and conditions of this Agreement and the Merger
Agreement, in accordance with the provisions of Section 1107 of the California
General Corporation Law (the "GCL"), on the Effective Date (as such term is
defined in Section 1.02), Pacific shall merge with and into SBB. SBB shall be
the Surviving Corporation in the Merger and shall continue its corporate
existence under the laws of the State of California. Upon consummation of the
Merger, the separate corporate existence of Pacific shall terminate.
SECTION 1.02 Effective Date
Subject to the terms and conditions of this Agreement, upon the filing
with the Secretary of State of the State of California (the "California
Secretary") of a duly executed Merger Agreement substantially in the form
attached hereto as Exhibit "A" for the merger of Pacific with and into SBB and
officers' certificates prescribed by Section 1103 of the GCL, the Merger shall
become effective. The date on which the Merger is effective as prescribed in the
Merger Agreement shall be referred to herein as the "Effective Date", which the
parties shall use their best efforts to cause to occur on the Closing Date (as
defined in Section 2.01(a)).
SECTION 1.03 Effects of the Merger
The Merger shall have the effects provided by this Agreement and as set
forth in Section 1107 of the GCL. The Surviving Corporation shall be the
successor to each of SBB and Pacific; shall be subject to all the liabilities,
obligations, duties and relations of each merging party; and shall without the
necessity of any conveyance, assignment or transfer, become the owner of all of
the assets of every kind and character formerly belonging to SBB and Pacific.
The name of the Surviving Corporation shall be "Pacific Capital Bancorp", and
Pacific shall provide SBB any consents necessary to permit the Surviving
Corporation to use such name as of the Effective Date.
SECTION 1.04 Conversion of Pacific Common Stock
(a) On the Effective Date, by virtue of the Merger and without any action
on the part of the holders of the following-described security, each share of
the common stock, no par value per share, of Pacific (the "Pacific Common
Stock") issued and outstanding immediately prior to the Effective Date (other
than shares of Pacific Common Stock (i) as to which dissenters' rights have been
perfected, or (ii) held directly or indirectly by Pacific or SBB (except for
Trust Account Shares or DPC Shares as defined in Section 1.04(d)) shall be
converted into the right to receive 1.935 shares (the "Exchange Ratio") of the
fully-paid, nonassessable and registered common stock, no par value per share,
of SBB (the "SBB Common Stock") (together with any cash payment in lieu of
fractional shares, as provided below, the "Merger Consideration").
(b) No fractional shares of SBB Common Stock shall be issued and, in lieu
thereof, holders of shares of Pacific Common Stock who would otherwise be
entitled to a fractional share interest (after taking into account all shares of
Pacific Common Stock held by such holder) shall be paid an amount in cash equal
to the product of such fractional share interest and the average of the closing
bid and asked price of a share of SBB Common Stock on the Nasdaq National Market
("Nasdaq") on the business day immediately preceding the Effective Date.
(c) All of the shares of Pacific Common Stock converted into SBB Common
Stock pursuant to this Section 1.04 shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist as of the
Effective Date, and each certificate (each a "Certificate") previously
representing any such shares of Pacific Common Stock shall thereafter represent
the right to receive (i) a certificate representing the number of whole shares
of SBB Common Stock and (ii) cash in lieu of fractional shares into which the
shares of Pacific Common Stock represented by such Certificate have been
converted pursuant to this Section 1.04. Certificates previously representing
shares of Pacific Common Stock shall be exchanged for certificates representing
whole shares of SBB Common Stock and cash in lieu of fractional shares issued in
consideration therefor upon the surrender of such Certificates in accordance
with Section 1.07, without any interest thereon. Such certificates representing
whole shares of SBB Common Stock exchanged for certificates previously
representing shares of Pacific Common Stock shall bear the name of the Surviving
Corporation.
(d) On the Effective Date, all shares of Pacific Common Stock that are
owned, directly or indirectly, by Pacific or SBB or any of their respective
subsidiaries (other than (i) shares of Pacific Common Stock held, directly or
indirectly, in trust accounts, managed accounts and the like or otherwise held
in a fiduciary capacity that are beneficially owned by third parties (any such
shares, and shares of Pacific Common Stock which are similarly held, whether
held directly or indirectly by Pacific or SBB, as the case may be, being
referred to herein as "Trust Account Shares") and (ii) shares of Pacific Common
Stock held by Pacific or any of its subsidiaries in respect of a debt previously
contracted (any such shares being referred to herein as "DPC Shares")) shall be
canceled and shall cease to exist and no stock of SBB or other consideration
shall be delivered in exchange therefor. All shares of SBB Common Stock that are
owned by Pacific or any of its subsidiaries (other than Trust Account Shares and
DPC Shares with respect to SBB Common Stock) shall be retired.
(e) If, between the date hereof and the Effective Date, the outstanding
shares of SBB Common Stock or Pacific Common Stock shall have been increased,
decreased, changed into or exchanged for a different number or kind of shares or
securities as a result of a reorganization, recapitalization, reclassification,
stock dividend, stock split, reverse stock split, or other similar change in
capitalization (a "Share Adjustment"), then the number of shares of SBB Common
Stock into which a share of Pacific Common Stock shall be converted pursuant to
subsection (a) above shall be appropriately and proportionately adjusted so that
each shareholder of Pacific shall be entitled to receive such number of shares
of SBB Common Stock as such shareholder would have received pursuant to such
Share Adjustment had the record date therefor been immediately following the
Effective Date.
(f) If any of the shares of Pacific Common Stock are "dissenting shares"
as defined under applicable provisions of Chapter 13 of the GCL, any Certificate
representing such shares shall not be converted as described in this Section
1.04, but from and after the Effective Date shall represent only the right to
receive such value as may be determined pursuant to Chapter 13 of the GCL;
provided, however, that each dissenting share of Pacific Common Stock which
shall cease to be a dissenting share shall have only such rights as are provided
under the GCL.
(g) On the Effective Date, the stock transfer books of Pacific shall be
closed, and no transfer of Pacific Common Stock theretofore outstanding shall
thereafter be made.
SECTION 1.05 SBB Common Stock
On and after the Effective Date, each share of SBB Common Stock issued
and outstanding immediately prior to the Closing Date shall remain an issued and
outstanding share of common stock of the Surviving Corporation and shall not be
affected by the Merger. References to SBB Common Stock in this Agreement as of
and after the Effective Date shall be deemed to mean the common stock of the
Surviving Corporation.
SECTION 1.06 Stock Options
(a) Between the date of this Agreement and the Effective Date, each person
holding one or more options to purchase shares of Pacific Common Stock pursuant
to any Pacific Stock Option Plan (as defined in Section 6.17), shall continue to
have the right to exercise any vested Pacific Stock Option (as defined in
Section 6.17) prior to the Effective Date.
(b) On the Effective Date, each non-statutory Pacific Stock Option which
is outstanding and unexercised immediately prior thereto shall cease to
represent a right to acquire shares of Pacific Common Stock and shall be assumed
by the Surviving Corporation and converted automatically into an option to
purchase shares of SBB Common Stock in an amount and at an exercise price
determined as provided below (and otherwise subject to the terms of the Pacific
Stock Option Plans and the agreements evidencing grants thereunder):
(i) The number of shares of SBB Common Stock to be subject to the
converted option shall be equal to the product of the number of shares of
Pacific Common Stock subject to the original option and the Exchange Ratio
(provided that such number of shares shall be rounded to the nearest one
one-hundredth of a share); and
(ii) The exercise price per share of SBB Common Stock under the
converted option shall be equal to the exercise price per share of Pacific
Common Stock under the original option divided by the Exchange Ratio
(provided that such exercise price shall be rounded to the nearest one
one-hundredth of a dollar).
(c) On the Effective Date, each Pacific Stock Option which is an
"incentive stock option" (as defined in Section 422 of the Code) and which is
outstanding and unexercised immediately prior thereto shall cease to represent a
right to acquire shares of Pacific Common Stock and shall be assumed by the
Surviving Corporation and converted automatically into an option to purchase
shares of SBB Common Stock in an amount and at an exercise price determined in a
manner which is consistent with Section 424(a) of the Code. The duration and
other terms of the converted option shall be the same as the original option,
except that all references to Pacific shall be deemed to be references to the
Surviving Corporation.
SECTION 1.07 Exchange Procedures; Surrender of Common Certificates
(a) Norwest Bank Minnesota (or any successor in interest) shall act as the
Exchange Agent in the Merger (the "Exchange Agent").
(b) As soon as practicable after the Effective Date, and in no event later
than three (3) business days thereafter, the Exchange Agent shall mail to each
holder of record of one or more Certificates (as indicated on the certified
shareholder list to be delivered to SBB in accordance with Section 2.02(I)
hereof, each a "Pacific Shareholder") a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent) and instructions for use in effecting the surrender of the Certificates
in exchange for the Merger Consideration into which the shares of Pacific Common
Stock represented by such Certificate or Certificates shall have been converted
pursuant to this Agreement.
(i) Promptly after receipt of such Certificates and letters of
transmittal, the Exchange Agent shall review the executed letters of
transmittal in order to verify proper execution thereof.
(ii) Upon proper surrender of a Certificate for exchange and
cancellation to the Exchange Agent, together with such properly completed
letter of transmittal, duly executed, the holder of such Certificate shall
be entitled to receive in exchange therefor (A) a certificate representing
that number of whole shares of SBB Common Stock to which such holder of
Pacific Common Stock shall have become entitled pursuant to the provisions
of Section 1.04, and (B) a check representing the amount of any cash in
lieu of fractional shares which such holder has the right to receive in
respect of the Certificate surrendered pursuant to this Section 1.07, and
the Certificate so surrendered shall forthwith be canceled. Until so
surrendered, each such outstanding Certificate shall be deemed for all
purposes, subject only to Chapter 13 of the GCL, to evidence solely the
right to receive such Merger Consideration from SBB as described in
Section 1.04. No interest will be paid or accrued on any cash in lieu of
fractional shares or on any unpaid dividends and distributions payable to
holders of Certificates.
(iii) Shareholders who do not provide properly completed letters of
transmittal and all appropriate Certificates to the Exchange Agent shall
receive their Merger Consideration promptly following receipt of those
properly completed documents and appropriate Certificates by the Exchange
Agent. In the event that a letter of transmittal contains an error, is
incomplete or is not accompanied by all appropriate Certificates, then the
Exchange Agent will notify such Pacific Shareholder promptly of the need
for further information.
(c) If any certificate representing shares of SBB Common Stock is to be
issued in a name other than that in which the Certificate surrendered in
exchange therefor is registered, it shall be a condition of the issuance thereof
that the Certificate so surrendered shall be properly endorsed (or accompanied
by an appropriate instrument of transfer) and otherwise in proper form for
transfer, and that the person requesting such exchange shall pay to the Exchange
Agent in advance any transfer or other taxes required by reason of the issuance
of a certificate representing shares of SBB Common Stock in any name other than
that of the registered holder of the Certificate surrendered, or required for
any other reason, or shall establish to the satisfaction of the Exchange Agent
that such tax has been paid or is not payable.
(d) In the event that any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Pacific
Shareholder claiming such Certificate to be lost, stolen or destroyed and, if
required by SBB in its sole discretion, the posting by such person of a bond in
such amount as SBB may determine is reasonably necessary as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent shall issue in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration deliverable in respect thereof pursuant to
this Agreement.
(e) Neither the Exchange Agent nor any other party to this Agreement shall
be liable to any holder of any Certificates for any amount paid to a public
official pursuant to any applicable abandoned property, escheat or similar laws.
(f) Notwithstanding anything to the contrary contained herein, no
certificates representing shares of SBB Common Stock shall be delivered to a
Pacific Shareholder who is an "affiliate" (as such term is used in Section 5.16
and Section 8.06) of Pacific unless such "affiliate" shall have theretofore
executed and delivered to SBB the Shareholder Letter referred to in Section 5.16
and Section 8.06 hereof.
(g) No dividends or other distributions of any kind which are declared
payable to the shareholders of record of the Surviving Corporation after the
Effective Date shall be paid to persons entitled to receive such certificates
for SBB Common Stock until such persons surrender their Certificates. Upon
surrender of such Certificates, the holder thereof shall be paid, without
interest, any dividends or other distributions with respect to the SBB Common
Stock as to which the record date and payment date occurred on or after the
Effective Date and before the date of surrender.
(h) Notwithstanding anything in this Agreement to the contrary, for a
period of ninety (90) days after the Closing Date, holders of Certificates
representing shares of Pacific Common Stock shall be entitled to vote as holders
of shares of SBB Common Stock notwithstanding that such Certificates
representing Pacific Common Stock have not been exchanged for shares of SBB
Common Stock as provided in this Section 1.07.
SECTION 1.08 Articles of Incorporation
Subject to the terms and conditions of this Agreement, on the Effective
Date, the Articles of Incorporation of SBB shall be the Articles of
Incorporation of the Surviving Corporation until thereafter amended in
accordance with applicable law, except that such Articles of Incorporation shall
be amended to provide that the name of the Surviving Corporation shall be
"Pacific Capital Bancorp".
SECTION 1.09 Bylaws
Subject to the terms and conditions of this Agreement, on the Effective
Date, the Bylaws of SBB shall be the Bylaws of the Surviving Corporation until
thereafter amended in accordance with applicable law.
SECTION 1.10 Directors and Officers
(a) From and after the Effective Date, the Board of Directors of the
Surviving Corporation shall consist of the persons as set forth in the Merger
Agreement attached hereto as Exhibit "A".
(b) From and after the Effective Date, the officers of the Surviving
Corporation shall be as set forth in the Merger Agreement attached hereto as
Exhibit "A".
SECTION 1.11 Headquarters of Surviving Corporation
On the Effective Date, the headquarters and principal executive offices
of the Surviving Corporation shall be located in Santa Barbara, California.
SECTION 1.12 Tax Consequences
It is intended that the Merger shall constitute a reorganization within
the meaning of Section 368(a)(1)(A) of the Code, and that this Agreement shall
constitute a "plan of reorganization" for the purpose of Section 368 of the
Code.
SECTION 1.13 Employee Benefits
SBB shall, with respect to each employee of Pacific or its Subsidiaries
at the Effective Date who continues in employment with the Surviving Corporation
or its Subsidiaries (each a "Continued Employee"), provide the benefits
described in this Section 1.13. Subject to the right of subsequent amendment,
modification or termination in the sole discretion of the Surviving Corporation
as provided in Section 5.18 and Section 5.19 hereof, each Continued Employee
shall be entitled, as an employee of the Surviving Corporation or its
Subsidiaries, to participate in SBB Employee Benefit Plans (as defined in
Section 4.31(a)) in effect as of the date of this Agreement, if such Continued
Employee shall be eligible and, if required, selected for participation therein
under the terms thereof. Continued Employees shall be eligible to participate on
the same basis as similarly situated employees of SBB and its Subsidiaries. All
such participation shall be subject to such terms of such plans as may be in
effect from time to time and this Section 1.13 is not intended to give any
Continued Employee any rights or privileges superior to those of other employees
of SBB or its Subsidiaries. The provisions of this Section 1.13 shall not be
deemed or construed so as to provide duplication of similar benefits but,
subject to that qualification, the Surviving Corporation shall, for purposes of
vesting and any age or period of service requirements for commencement of
participation with respect to any SBB Employee Plans in which a Continued
Employee may participate, credit each Continued Employee with his or her term of
service with Pacific and its Subsidiaries. Notwithstanding the foregoing, no
such credit for term of service with Pacific and its Subsidiaries shall be given
to any Continued Employee with respect to participation in or benefits received
pursuant to the Santa Barbara Bank & Trust Key Employee Retiree Health Plan and
the Santa Barbara Bank & Trust Retiree Health Plan, but such credit shall begin
to accrue under such plan with respect to Continued Employees as of the
Effective Date.
SECTION 1.14 Severance Payments
The severance benefits set forth in Schedule 1.14 hereto shall be
provided to employees of Pacific who may be terminated (i) by Pacific on the
Effective Date upon confirmation that such employees would be entitled to the
severance benefit, or (ii) by the Surviving Corporation or any of its
Subsidiaries without cause within one year following the Effective Date.
SECTION 1.15 Mutual Stock Option Agreements. As a condition to the
execution of this Agreement, SBB and Pacific are executing and delivering each
to the other an Option Agreement in substantially the form attached hereto as
Exhibit "B" and Exhibit "C".
ARTICLE II.
THE CLOSING, THE CLOSING DATE AND THE EFFECTIVE DATE
.SECTION 2.01 Time and Place of the Closing and Closing Date
(a) On a date mutually agreeable to SBB and Pacific which is not less than
10 business days nor more than 30 calendar days after the receipt of all
necessary regulatory, corporate, shareholder and other approvals and the
expiration of any mandatory waiting periods, or on such other date mutually
agreeable to SBB and Pacific (herein called the "Closing Date"), a meeting (the
"Closing") will take place at which the parties to this Agreement will exchange
certificates, opinions, letters and other documents in order to determine
whether all of the conditions set forth in Articles VII and VIII of this
Agreement have been satisfied or waived or whether any condition exists that
would permit a party to this Agreement to terminate this Agreement. If no such
condition then exists, or if no party elects to exercise any right it may have
to terminate this Agreement, then and thereupon the appropriate parties shall
execute such documents and instruments as may be necessary or appropriate in
order to effect the transactions contemplated by this Agreement.
(b) The Closing shall take place at the offices of Santa Barbara Bank &
Trust ("SBB&T"), 1021 Anacapa Street, Santa Barbara, California 93101-2036 on
the Closing Date, or at such other place to which the parties may mutually
agree.
SECTION 2.02 Actions to be Taken at the Closing by Pacific
At the Closing, Pacific shall execute and acknowledge, or cause to be
executed and acknowledged (as appropriate), and deliver to SBB such documents
and certificates necessary or appropriate to carry out the terms and provisions
of this Agreement, including without limitation, the following (all of such
actions constituting conditions precedent to SBB's obligations to close
hereunder):
A. True, correct and complete copies of the Articles of
Incorporation of Pacific and all amendments thereto, duly certified as of
a recent date by the California Secretary.
B. True, correct and complete copies of the Articles of Association
of First National Bank of Central California and South Valley National
Bank (collectively, the "Subsidiary Banks") and all amendments thereto,
duly certified as of a recent date by the Office of
the Comptroller of the Currency (the "OCC").
C. True, correct and complete copies of the Articles of
Incorporation of the Pacific Subsidiaries (as defined in Section 3.01(a)),
other than the Subsidiary Banks, and all amendments thereto, duly
certified as of a recent date by the California Secretary.
D. A certificate of existence, dated as of a recent date, issued by
the California Secretary, duly certifying as to the existence of Pacific
and the Pacific Subsidiaries, other than the Subsidiary Banks, under the
laws of the State of California.
E. Certificates to do business, dated as of a recent date, issued by
the OCC, duly certifying as to the authority of each of the Subsidiary
Banks to transact the business of banking under the laws of the United
States.
F. Certificates of good standing, dated as of a recent date, issued
by the California Franchise Tax Board, duly certifying as to the good
standing of Pacific and each of the Pacific Subsidiaries in the State of
California.
G. Certificates, dated as of a recent date, issued by the Federal
Deposit Insurance Corporation (the "FDIC"), duly certifying that the
deposits of each of the Subsidiary Banks are insured by the FDIC pursuant
to the Federal Deposit Insurance Act.
H. A letter, dated as of a recent date, from the Federal Reserve
Bank of San Francisco, to the effect that Pacific is a registered bank
holding company under the BHCA.
I. A certificate, dated as of the Closing Date, executed by the
Secretary or other appropriate executive officer of Pacific, pursuant to
which such officer shall certify: (a) the due adoption by the Board of
Directors of Pacific of corporate resolutions attached to such certificate
authorizing the execution and delivery of this Agreement and the other
agreements and documents contemplated hereby, including, but not limited
to, the Merger Agreement, and the taking of all actions contemplated
hereby and thereby; (b) the due adoption by the shareholders of Pacific of
resolutions authorizing the Merger and the execution and delivery of this
Agreement and the Merger Agreement and the other agreements and documents
contemplated hereby and thereby and the taking of all actions contemplated
hereby and thereby; (c) the incumbency and true signatures of those
officers of Pacific duly authorized to act on its behalf in connection
with the transactions contemplated by this Agreement and to execute and
deliver this Agreement and the Merger Agreement and other agreements and
documents contemplated hereby and thereby and the taking of all actions
contemplated hereby and thereby on behalf of Pacific; (d) that the copy of
the Bylaws of Pacific attached to such certificate is true and correct and
such Bylaws have not been amended except as reflected in such copy; and
(e) a true and correct copy of the list of Pacific Shareholders as of the
Closing Date.
J. A certificate, dated as of the Closing Date, executed by an
executive officer of Pacific, pursuant to which Pacific shall certify, to
the best knowledge of such executive officer, that (i) all of the
representations and warranties made in Article III of this Agreement are
true and correct in all material respects on and as of the date of such
certificate as if made on such date and that, except as expressly
permitted by this Agreement, there shall have been no Material Adverse
Change (as defined in Section 12.08(C) hereof) with respect to Pacific
since December 31, 1997, and (ii) Pacific has performed and complied in
all material respects with all of its obligations and agreements required
to be performed on or prior to the Closing Date under this Agreement.
K. Any signed Non-Compete Agreements (as defined in Section 5.22)
from those persons identified on Exhibit "G" attached hereto as Pacific,
consistent with Pacific's obligations to use its best efforts as set forth
in Section 5.22 hereof, has been able to obtain on or before the Closing
Date.
L. All consents required to be obtained by Pacific from third
parties to consummate the transactions contemplated by this Agreement.
M. An opinion of counsel to Pacific substantially in the form of
Exhibit "D" attached hereto.
N. All other documents required to be delivered to SBB by Pacific
under the provisions of this Agreement, and all other documents,
certificates and instruments as are reasonably requested by SBB or its
counsel.
SECTION 2.03 Actions to be Taken at the Closing by SBB
At the Closing, SBB shall execute and acknowledge (as appropriate) and deliver
to Pacific such documents and certificates necessary or appropriate to carry out
the terms and provisions of this Agreement, including without limitation, the
following (all of such actions constituting conditions precedent to Pacific's
obligations to close hereunder):
A. True, correct and complete copies of SBB's Articles of
Incorporation and all amendments thereto, duly certified as of a recent
date by the California Secretary.
B. True, correct and complete copies of the Articles of
Incorporation of SBB&T, and all amendments thereto, duly certified as of a
recent date by the Commissioner of Financial Institutions of the State of
California (the "California Commissioner").
C. True, correct and complete copies of the Articles of
Incorporation of Sanbarco Mortgage Company ("Sanbarco") and all
amendments thereto, duly certified as of a recent date by the
California Secretary.
D. Good standing and existence certificates for SBB and Sanbarco,
dated as of a recent date, issued by the appropriate state officials, duly
certifying as to the existence and good standing of each of SBB and
Sanbarco in the State of California.
E. Certificate of Existence, dated as of a recent date, issued by
the California Commissioner, duly certifying as to the existence of SBB&T
under the laws of the State of California.
F. Certificates of good standing, dated as of a recent date, issued
by the California Franchise Tax Board, duly certifying as to the good
standing of SBB and each of the SBB Subsidiaries in the State of
California.
G. Certificate, dated as of a recent date, issued by the FDIC, duly
certifying that the deposits of SBB&T are insured by the FDIC pursuant to
the Federal Deposit Insurance Act.
H. A letter, dated as of a recent date, from the Federal Reserve
Bank of San Francisco, to the effect that SBB is a registered bank holding
company under the BHCA.
I. A certificate, dated as of the Closing Date, executed by the
Secretary or an Assistant Secretary of SBB pursuant to which such officer
shall certify: (a) the due adoption by the Board of Directors of SBB of
corporate resolutions attached to such certificate authorizing the
execution and delivery of this Agreement and the other agreements and
documents contemplated hereby and the taking of all actions contemplated
hereby and thereby; (b) the due adoption by the shareholders of SBB of
resolutions authorizing the Merger and the execution and delivery of this
Agreement and the Merger Agreement and the other agreements and documents
contemplated hereby and thereby and the taking of all actions contemplated
hereby and thereby; (c) the incumbency and true signatures of those
officers of SBB duly authorized to act on its behalf in connection with
the transactions contemplated by this Agreement and to execute and deliver
this Agreement and other agreements and documents contemplated hereby and
the taking of all actions contemplated hereby and thereby on behalf of
SBB, and (d) that the copy of the Bylaws of SBB attached to such
certificate is true and correct and such Bylaws have not been amended
except as reflected in such copy.
J. A certificate, dated as of the Closing Date, executed by a duly
authorized officer of SBB, pursuant to which SBB shall certify, to the
best knowledge of such officer, that (i) all of the representations and
warranties made in Article IV of this Agreement are true and correct in
all material respects on and as of the date of such certificate as if made
on such date and that, except as expressly permitted by this Agreement,
there shall have been no Material Adverse Change (as defined in Section
12.08(C) hereof) with respect to SBB since December 31, 1997, and (ii) SBB
has performed and complied in all material respects with all of its
obligations and agreements required to be performed on or prior to the
Closing Date under this Agreement.
K. All consents required to be obtained by SBB from third parties to
consummate the transactions contemplated by this Agreement.
L. An opinion of counsel to SBB substantially in the form of Exhibit
"E" attached hereto.
M. All other documents required to be delivered to Pacific by SBB
under the provisions of this Agreement, and all other documents,
certificates and instruments as are reasonably requested by Pacific or its
counsel.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF PACIFIC
Pacific hereby makes the representations and warranties set forth in this
Article III to SBB.
.SECTION 3.01 Organization and Qualification
(a) Pacific is a California corporation duly organized, validly existing
under the laws of the State of California, and in good standing under all laws,
rules and regulations applicable to corporations located in the State of
California. Pacific is a bank holding company registered under the BHCA. Pacific
has all requisite corporate power and authority (including all licenses,
franchises, permits and other governmental authorizations as are legally
required) to carry on its business as now being conducted, to own, lease and
operate its properties and assets, including, but not limited to, as now owned,
leased or operated, and to enter into and carry out its obligations under this
Agreement and the Merger Agreement. Schedule 3.01(a) sets forth a complete list
of each Subsidiary (as defined in Section 12.08(B)) of Pacific (collectively,
the "Pacific Subsidiaries"). Except as set forth on Schedule 3.01(a), Pacific
does not own or control any Affiliate (as defined in Section 12.08(A) hereof)
other than the Pacific Subsidiaries. True and complete copies of the Articles of
Incorporation and Bylaws of Pacific and the Pacific Subsidiaries (other than the
Subsidiary Banks), as amended to date, certified by the Secretary of Pacific and
each Pacific Subsidiary, as applicable, have been delivered to SBB.
(b) Each of the Subsidiary Banks is a national banking association duly
organized, validly existing and in good standing under the laws of the United
States of America, and in good standing under all laws, rules, and regulations
applicable to national banking associations located in the State of California.
Each of the Subsidiary Banks has all requisite corporate power and authority
(including all licenses, franchises, permits and other governmental
authorizations as are legally required) to carry on their respective businesses
as now being conducted, to own, lease and operate its properties and assets,
including, but not limited to, as now owned, leased or operated. True and
complete copies of the Articles of Association and Bylaws of each of the
Subsidiary Banks, as amended to date, certified by the Secretary of each
Subsidiary Bank, have been delivered to SBB. Each of the Subsidiary Banks is an
insured bank as defined in the Federal Deposit Insurance Act (the "FDIA").
Neither of the Subsidiary Banks own or control any Affiliate (as defined in
Section 12.08(A) hereof) or Subsidiary (as defined in Section 12.08(B) hereof).
Except for assessability under 12 U.S.C. ss.55, all of the issued and
outstanding shares of capital stock of the Subsidiary Banks are owned by Pacific
free and clear of all liens, encumbrances, rights of first refusal, options or
other restrictions of any nature whatsoever, and all such shares are duly
authorized and validly issued and are fully paid, nonassessable and free of
preemptive rights of any person. There are no options, warrants or rights
outstanding to acquire any capital stock of the Subsidiary Banks and no person
or entity has any other right to purchase or acquire any unissued shares of
stock of any of the Subsidiary Banks, nor does any such Subsidiary Bank have any
obligation of any nature with respect to its unissued shares of stock.
(c) Each of Pacific Subsidiaries, other than the Subsidiary Banks, is a
California corporation duly organized, validly existing and in good standing
under the laws of the State of California, and in good standing under all laws,
rules, and regulations applicable to corporations located in the State of
California. Each such Pacific Subsidiary has all requisite corporate power and
authority (including all licenses, franchises, permits and other governmental
authorizations as are legally required) to carry on their respective businesses
as now being conducted, to own, lease and operate its properties and assets,
including, but not limited to, as now owned, leased or operated. All of the
issued and outstanding shares of capital stock of each such Pacific Subsidiary
is owned by Pacific free and clear of all liens, encumbrances, rights of first
refusal, options or other restrictions of any nature whatsoever, and all such
shares are duly authorized and validly issued and are fully paid, nonassessable
and free of preemptive rights of any person. There are no options, warrants or
rights outstanding to acquire any capital stock of the Pacific Subsidiaries and
no person or entity has any other right to purchase or acquire any unissued
shares of stock of any of the Pacific Subsidiaries, nor does any such Pacific
Subsidiary have any obligation of any nature with respect to its unissued shares
of stock.
(d) Except as required by the National Bank Act, the nature of the
business of Pacific and the Pacific Subsidiaries does not require any of them to
be licensed or qualified to do business in any jurisdiction other than the State
of California. Except as disclosed on Schedule 3.01(d), neither Pacific nor the
Pacific Subsidiaries have any equity interest, direct or indirect, in any other
bank or corporation or in any partnership, joint venture or other business
enterprise or entity, except as acquired through settlement of indebtedness,
foreclosure, the exercise of creditors' remedies or in a fiduciary capacity, and
the business carried on by Pacific and the Pacific Subsidiaries has not been
conducted through any other direct or indirect Subsidiary or Affiliate of
Pacific or the Pacific Subsidiaries.
(e) Neither Pacific nor any of Pacific Subsidiaries that is neither a
bank, a bank operating subsidiary or a bank service corporation, directly or
indirectly, engages in any activity prohibited by the Board of Governors of the
Federal Reserve System (the "Federal Reserve"). Without limiting the generality
of the foregoing, any equity investment of Pacific and each Pacific Subsidiary
that is not a bank, a bank operating subsidiary or a bank service corporation,
is not prohibited by the Federal Reserve.
(f) Neither of the Subsidiary Banks, directly or indirectly, engages in
any activity prohibited by the OCC.
SECTION 3.02 Execution and Delivery
Pacific has taken all corporate action necessary to authorize the
execution, delivery and (provided the required regulatory and shareholder
approvals are obtained) performance of this Agreement and the other agreements
and documents contemplated hereby to which it is a party, including, but not
limited to, the Merger Agreement. This Agreement has been, and the other
agreements and documents contemplated hereby, including, but not limited to, the
Merger Agreement, have been or at Closing will be, duly executed by Pacific and
each constitutes and will constitute the legal, valid and binding obligation of
Pacific, enforceable in accordance with its respective terms and conditions,
except as enforceability may be limited by bankruptcy, conservatorship,
insolvency, moratorium, reorganization, receivership or similar laws and
judicial decisions affecting the rights of creditors generally and by general
principles of equity (whether applied in a proceeding at law or in equity).
SECTION 3.03 Capitalization
The entire authorized capital stock of Pacific consists of (i)
20,000,000 shares of Pacific Common Stock, 4,503,945 shares of which are fully
paid, validly issued, nonassessable and outstanding, and 321,376 additional
shares of which have been reserved for issuance to holders of outstanding
Pacific Stock Options (as defined in Section 6.17 hereto), and (ii) 20,000,000
shares of preferred stock, no par value per share (the "Pacific Preferred
Stock"), of which no shares of Pacific Preferred Stock are issued or
outstanding. Schedule 3.03 contains a list of each of the Pacific Stock Option
Plans, including (i) the number of outstanding options with respect to each
Pacific Stock Option Plan, (ii) the weighted average exercise price per share
with respect to each Pacific Stock Option Plan, (iii) a list of all option
holders with respect to each Pacific Stock Option Plan, and (iv) the number of
vested and unvested Pacific Stock Options with respect to each such option
holder in each Pacific Stock Option Plan. All Pacific Stock Options were issued
and, upon issuance in accordance with the terms of the outstanding option
agreements, the shares of Pacific Common Stock shall be issued in compliance
with all applicable securities laws. Except as disclosed in Schedule 3.03, there
are no (i) other outstanding equity securities of any kind or character,
including but not limited to preferred stock, (ii) outstanding subscriptions,
options, convertible securities, rights, warrants, calls or other agreements or
commitments of any kind issued or granted by, or binding upon, Pacific to
purchase or otherwise acquire any security of or equity interest in Pacific or
(iii) outstanding subscriptions, options, rights, warrants, calls, convertible
securities, irrevocable proxies or other agreements or commitments obligating
Pacific to issue any shares of, restricting the transfer of or otherwise
relating to shares of its capital stock of any class. All of the issued and
outstanding shares of Pacific Common Stock have been duly authorized, validly
issued and are fully paid and nonassessable, and have not been issued in
violation of the preemptive rights of any person. Such shares of Pacific Common
Stock have been issued in full compliance with applicable law. There are no
restrictions applicable to the payment of dividends on the shares of Pacific
Common Stock, except pursuant to applicable laws and regulations, and all
dividends declared prior to the date of this Agreement have been paid.
SECTION 3.04 Compliance with Laws, Permits and Instruments
(a) Except as set forth in Schedule 3.04, Pacific and the Pacific
Subsidiaries, as applicable, are in compliance with, and are not in default (or
with the giving of notice or the passage of time will be in default) under, or
in violation of, (i) any provision of the Articles of Incorporation or Bylaws of
Pacific or the Pacific Subsidiaries (other than the Subsidiary Banks), (ii) any
provision of the Articles of Association or Bylaws of the Subsidiary Banks (iii)
any material provision of any loan agreement, security or pledge agreement,
mortgage, indenture, lease, contract, agreement or other instrument applicable
to Pacific or the Pacific Subsidiaries or their respective assets, operations,
properties or businesses now conducted or heretofore conducted or (iv) any
permit, concession, grant, franchise, license, authorization, judgment, writ,
injunction, order, decree, award, statute, federal, state or local law,
ordinance, rule or regulation of any court, arbitrator or any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality applicable to Pacific, the Pacific Subsidiaries or their
respective assets, operations, properties or businesses now conducted or
heretofore conducted, which noncompliance or violation would, individually or in
the aggregate, reasonably be anticipated to have a material adverse effect on
the business results of operations, financial condition or (insofar as they can
reasonably be foreseen) prospects of Pacific taken as a whole.
(b) The execution, delivery and (provided the required regulatory and
shareholder approvals are obtained) performance of this Agreement and the other
agreements contemplated hereby, including, but not limited to the Merger
Agreement, and the consummation of the transactions contemplated hereby and
thereby will not conflict with, or result, by itself or with the giving of
notice or the passage of time, in any violation of or default or loss of a
benefit under, (i) any provision of the Articles of Incorporation or Bylaws of
Pacific and the Pacific Subsidiaries (other than the Subsidiary Banks), (ii) any
provision of the Articles of Association or Bylaws of the Subsidiary Banks,
(iii) any material provision of any mortgage, indenture, lease, contract,
agreement or other instrument applicable to Pacific, the Pacific Subsidiaries or
their assets, operations, properties or businesses, or (iv) any permit,
concession, grant, franchise, license, authorization, judgment, writ,
injunction, order, decree, statute, law, ordinance, rule or regulation
applicable to Pacific, the Pacific Subsidiaries or their assets, operations,
properties or businesses.
SECTION 3.05 Financial Statements
(a) Pacific has furnished to SBB true and complete copies of (i) the
audited consolidated balance sheets of Pacific as of December 31, 1996 and 1997,
and the related audited consolidated statements of income, stockholders' equity
and cash flows for the years ended December 31, 1995, 1996 and 1997, (ii) an
unaudited consolidated balance sheet of Pacific as of March 31, 1998, and the
related unaudited consolidated statement of income for the three-month period
ended March 31, 1998 (such balance sheets and the related statements of income,
stockholders' equity and cash flows are collectively referred to herein as the
"Pacific Financial Statements"). Except as described in the notes to the Pacific
Financial Statements, the Pacific Financial Statements fairly present, in all
material respects, the consolidated financial position of Pacific as of the
respective dates thereof and the results of operations and changes in financial
position of Pacific for the periods then ended, in conformity with generally
accepted accounting principles ("GAAP"), applied on a basis consistent with
prior periods (subject, in the case of the unaudited interim financial
statements, to normal year-end adjustments and the fact that they do not contain
all of the footnote disclosures required by GAAP), except as otherwise noted
therein, and the accounting records underlying the Pacific Financial Statements
accurately and fairly reflect in all material respects the transactions of
Pacific. The Pacific Financial Statements do not contain any items of
extraordinary or nonrecurring income or any other income not earned in the
ordinary course of business except as expressly specified therein.
(b) Pacific has furnished, or has caused the Subsidiary Banks to furnish,
to SBB with true and complete copies of the Report of Condition and Income
("Call Reports") for each of the Subsidiary Banks for the periods ended December
31, 1996, December 31, 1997 and March 31, 1998. Such Call Reports fairly
presents, in all material respects, the financial position of the Subsidiary
Banks and the results of their operations at the dates and for the periods
indicated in conformity with the Instructions for the Preparation of Call
Reports as promulgated by applicable regulatory authorities. The Call Reports do
not contain any items of special or nonrecurring income or any other income not
earned in the ordinary course of business except as expressly specified therein.
Each of the Subsidiary Banks has calculated its allowance for loan losses in
accordance with GAAP, which includes regulatory accounting principles ("RAP")
where applicable, as applied to banking institutions and in accordance with all
applicable rules and regulations. To the best knowledge of Pacific, the
allowance for loan losses account for each of the Subsidiary Banks is, and as of
the Closing Date will be, adequate in all material respects to provide for all
losses, net of recoveries relating to loans previously charged off, on all
outstanding loans of each such Subsidiary Bank.
SECTION 3.06 Undisclosed Liabilities
Neither Pacific nor any of the Pacific Subsidiaries has any material
liability or obligation, accrued, absolute, contingent or otherwise and whether
due or to become due (including, without limitation, unfunded obligations under
any service recognition or severance agreement, whether written or oral, or
Pacific Employee Plans (as defined in Section 3.32 hereof) or material
liabilities for federal, state or local taxes or assessments or material
liabilities under any agreement that are not reflected in or disclosed in the
Pacific Financial Statements, except (i) those liabilities and expenses incurred
in the ordinary course of business and consistent with prudent business
practices since the date of the Pacific Financial Statements or (ii) as
disclosed on Schedule 3.06.
SECTION 3.07 Litigation
Except as set forth on Schedule 3.07, there are no actions, claims,
suits, investigations, reviews or other legal, quasi-judicial or administrative
proceedings of any kind or nature now pending or, to the best knowledge of
Pacific, threatened against or affecting Pacific, any of the Pacific
Subsidiaries or any of their respective current or former officers and directors
(while acting in such capacity) at law or in equity, or by or before any
federal, state or municipal court or other governmental or administrative
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, that in any manner involves Pacific, the Pacific Subsidiaries or any of
their current or former officers or directors (while acting in such capacity) or
any of their properties or capital stock that would reasonably be anticipated to
result in a Material Adverse Change with respect to Pacific or materially and
adversely affect the transactions contemplated by this Agreement, and Pacific
does not know or have any reason to be aware of any basis for the same. No legal
action, suit or proceeding or judicial, administrative or governmental
investigation is pending or, to the knowledge of Pacific, threatened against
Pacific or any of the Pacific Subsidiaries that questions the validity of this
Agreement or the agreements contemplated hereby, including, but not limited to,
the Merger Agreement, or any actions taken or to be taken by Pacific pursuant
hereto or thereto or seeks to enjoin or otherwise restrain the transactions
contemplated hereby or thereby.
SECTION 3.08 Consents and Approvals
Pacific's Board of Directors (at a meeting called and duly held) has
resolved, subject to its fiduciary duties to the shareholders of Pacific, to
recommend approval and adoption by Pacific's shareholders of the Merger, this
Agreement and the Merger Agreement. Except for shareholder and regulatory
approvals and except as disclosed in Schedule 3.08, no approval, consent, order
or authorization of, or registration, declaration or filing with, any
governmental authority or other third party is required on the part of Pacific
in connection with the execution, delivery or performance of this Agreement or
the agreements contemplated hereby, including, but not limited to, the Merger
Agreement, or the consummation by Pacific of the transactions contemplated
hereby or thereby.
SECTION 3.09 Title to Assets
Pacific and each of the Pacific Subsidiaries has good and indefeasible
title to all of its assets and properties including, without limitation, all
personal and intangible properties reflected in the Pacific Financial Statements
or acquired subsequent thereto, subject to no liens, mortgages, security
interests, encumbrances or charges of any kind, except (i) as described in
Schedule 3.09, (ii) as noted in the Pacific Financial Statements, or as set
forth in the documents delivered to SBB pursuant to this Section 3.09, (iii)
statutory liens not yet delinquent, (iv) consensual landlord liens, (v) minor
defects and irregularities in title and encumbrances that do not materially
impair the use thereof for the purpose for which they are held, (vi) pledges of
assets in the ordinary course of business to secure public funds deposits, and
(vii) those assets and properties disposed of for fair value in the ordinary
course of business since the dates of the Pacific Financial Statements. Schedule
3.09 includes a copy of the title policy of insurance with respect to each
parcel of real property owned by Pacific and the Pacific Subsidiaries.
SECTION 3.10 Absence of Certain Changes or Events
Except as disclosed on Schedule 3.10, since December 31, 1997, Pacific,
including the Pacific Subsidiaries, has conducted its business only in the
ordinary course and has not, other than in the ordinary course of business and
consistent with past practices and safe and sound banking practices:
A. Incurred any obligation or liability, absolute, accrued, contingent
or otherwise, whether due or to become due, which individually or in the
aggregate, has had a material adverse effect on the business, results of
operations, financial condition, or (insofar as they can reasonably be
foreseen) prospects of Pacific and the Pacific Subsidiaries taken as a
whole, except for deposits taken and federal funds purchased and current
liabilities for trade or business obligations;
B. Discharged or satisfied any lien, charge or encumbrance or
paid any obligation or liability, whether absolute or contingent, due
or to become due;
C. Declared or made any payment of dividends or other distribution to
its shareholders, or purchased, retired or redeemed, or obligated itself
to purchase, retire or redeem, any of its shares of capital stock or other
securities;
D. Issued, reserved for issuance, granted, sold or authorized the
issuance of any shares of its capital stock or other securities or
subscriptions, options, warrants, calls, rights or commitments of any kind
relating to the issuance thereto;
E. Acquired any capital stock or other equity securities or acquired
any equity or ownership interest in any bank, corporation, partnership or
other entity (except (i) through settlement of indebtedness, foreclosure,
or the exercise of creditors' remedies or (ii) in a fiduciary capacity,
the ownership of which does not expose it to any liability from the
business, operations or liabilities of such person);
F. Mortgaged, pledged or subjected to lien, charge, security interest
or any other encumbrance or restriction any of its property, business or
assets, tangible or intangible except (i) as described in Schedule 3.09,
(ii) statutory liens not yet delinquent, (iii) consensual landlord liens,
(iv) minor defects and irregularities in title and encumbrances that do
not materially impair the use thereof for the purpose for which they are
held, (v) pledges of assets to secure public funds deposits, and (vi) for
those assets and properties disposed of for fair value since the dates of
the Pacific Financial Statements.
G. Sold, transferred, leased to others or otherwise disposed
of any of its assets or canceled or compromised any debt or claim, or
waived or released any right or claim of material value;
H. Terminated, canceled or surrendered, or received any notice of or
threat of termination or cancellation of any contract, lease or other
agreement or suffered any damage, destruction or loss (whether or not
covered by insurance), which, in any case or in the aggregate, would have
a material adverse effect on the business, results of operations,
financial condition, or (insofar as they can reasonably be foreseen)
prospects of Pacific and the Pacific Subsidiaries taken as a whole;
I. Disposed of, permitted to lapse, transferred or granted any rights
under, or entered into any settlement regarding the breach or infringement
of, any United States or foreign license or Pacific Proprietary Right (as
defined in Section 3.15 hereof) or modified any existing rights with
respect thereto;
J. Made any change in the rate of compensation, commission, bonus or
other direct or indirect remuneration payable, or paid or agreed or orally
promised to pay, conditionally or otherwise, any bonus, extra
compensation, pension or severance or vacation pay, to or for the benefit
of any of its shareholders, directors, officers, employees or agents, or
entered into any employment or consulting contract or other agreement with
any director, officer or employee or adopted, amended in any material
respect or terminated any pension, employee welfare, retirement, stock
purchase, stock option, stock appreciation rights, termination, severance,
income protection, golden parachute, savings or profit-sharing plan
(including trust agreements and insurance contracts embodying such plans),
any deferred compensation, or collective bargaining agreement, any group
insurance contract or any other incentive, welfare or employee benefit
plan or agreement maintained by it for the benefit of its directors,
employees or former employees, except (i) compensation adjustments
contemplated within Pacific's 1998 budget and approved in advance by SBB
(which approval shall not be unreasonably withheld), (ii) employee
severance benefits contemplated by Section 12.16 of this Agreement, and
(iii) periodic increases consistent with past practices;
K. Except for improvements or betterments relating to Pacific
Properties (as defined in Section 3.19 hereof), made any capital
expenditures or capital additions or betterments in excess of an
aggregate of $1,000,000;
L. Instituted, had instituted against it, settled or agreed to settle
any litigation, action or proceeding before any court or governmental
body, other than routine collection suits instituted by it to collect
amounts owed or suits in which the amount in controversy is less than
$100,000;
M. Permitted any change, event or condition that, in any case or in
the aggregate, has caused or may result in a Material Adverse Change, or
any Material Adverse Change in earnings or costs or relations with its
employees, agents, depositors, loan customers, correspondent banks or
suppliers;
N. Except for the transactions contemplated by this Agreement
or as otherwise permitted hereunder, entered into any transaction, or
entered into, modified or amended any contract or commitment;
O. Entered into or given any promise, assurance or guarantee of the
payment, discharge or fulfillment of any undertaking or promise made by
any person, firm or corporation other than letters of credit issued in the
ordinary course of business;
P. Sold, or knowingly disposed of, or otherwise divested itself of the
ownership, possession, custody or control, of any corporate books or
records of any nature that, in accordance with sound business practice,
normally are retained for a period of time after their use, creation or
receipt, except at the end of the normal retention period;
Q. Made any, or acquiesced with any, change in any accounting
methods, principles or material practices, except as required by GAAP
or RAP;
R. Sold (provided, however, that payment at maturity is not deemed a
sale) any investment securities in a single transaction involving a book
gain or loss of more than $100,000 on such sale or purchased any
investment securities, other than purchases of U.S. Treasury securities
with a maturity of two years or less;
S. Made, renewed, extended the maturity of, or altered any of the
material terms of any criticized loan to any single borrower and his
related interests without regard to whether such transaction was in the
ordinary course of business or whether it was consistent with past or safe
and sound banking practices; or
T. Entered into any agreement or made any commitment whether
in writing or otherwise to take any of the types of action described in
subsections A. through S. above.
SECTION 3.11 Leases, Contracts and Agreements
Schedule 3.11 sets forth a complete listing of all leases, subleases,
licenses, contracts and agreements to which Pacific, including any of the
Pacific Subsidiaries, is a party (the "Pacific Contracts"), and which (i) relate
to real property used by Pacific in its operation, (ii) involve payments to or
by Pacific in excess of $100,000 during the term of such Pacific Contracts
(exclusive of unfunded loan commitments and letters of credit issued by
Pacific), or (iii) involve any unfunded loan commitments and letters of credit
issued by Pacific where the borrower's total direct and indirect indebtedness to
Pacific is in excess of $2,000,000. True and correct copies of all such Pacific
Contracts (other than unfunded loan commitments and letters of credit issued by
Pacific) are included with Schedule 3.11. For the purposes of this Agreement,
the Pacific Contracts shall be deemed not to include loans made by, Federal
funds sold or purchased by, repurchase agreements made by, spot foreign exchange
transactions of, bankers acceptances of or deposits by Pacific. Except as set
forth in Schedule 3.11, no participations or loans have been sold which have buy
back, recourse or guaranty provisions which create contingent or direct
liabilities of Pacific. To the knowledge of Pacific, all of the Pacific
Contracts are legal, valid and binding obligations of the parties to the Pacific
Contracts enforceable in accordance with their terms, subject to the effects of
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to creditors' rights generally and to general equitable principles, and
are in full force and effect. Except as described in Schedule 3.11, all rent and
other payments by Pacific and any Pacific Subsidiary under the Pacific Contracts
are current, there are no existing defaults by Pacific or any Pacific Subsidiary
under the Pacific Contracts and no termination, condition or other event has
occurred which (whether with or without notice, lapse of time or the happening
or occurrence of any other event) would constitute a default. Pacific and each
Pacific Subsidiary has a good and indefeasible leasehold interest in each parcel
of real property leased by it free and clear of all mortgages, pledges, liens,
encumbrances and security interests.
SECTION 3.12 Taxes
Pacific has duly and timely filed with the appropriate Federal, state
and local governmental agencies all tax returns and reports required to be
filed, including, without limitation, income, excise, property, sales, use,
franchise, value added, unemployment, employees' income withholding and social
security taxes, imposed by the United States or by any foreign country or by any
state, municipality, subdivision or instrumentality of the United States or of
any foreign country, or by any other taxing authority, and has paid, or has
established adequate reserves for the payment of, all taxes and assessments that
are or are claimed to be due, payable or owed by Pacific, or for which Pacific
may have liability, whether as a result of its own activities or by virtue of
its affiliation with other entities and all interest and penalties thereon,
whether disputed or not. All such tax returns and reports are accurately
prepared and all deposits required by law to be made by Pacific with respect to
employees' withholding taxes have been duly made. Pacific is not and has not
been delinquent in the payment of any foreign or domestic tax, assessment or
governmental charge or deposit and has no tax deficiency or claim outstanding,
proposed or assessed against it, and, to Pacific's knowledge, there is no basis
for any such deficiency or claim. Except as set forth in Schedule 3.12, within
the last six (6) years, Pacific's Federal income tax return has not been audited
or examined and no such audit is currently pending or, to Pacific's knowledge,
threatened. Pacific has not been granted any extension of time with respect to
the date on which any tax return not yet filed was or is due to be filed by or
with respect to Pacific or any waiver or agreement by Pacific for the extension
of time for the assessment or collection of any tax. Except as set forth in
Schedule 3.12, Pacific (i) within the past six (6) years, has not committed any
violation of any applicable Federal, state, local or foreign tax laws, and (ii)
with respect to all prior years, has not committed any violation of any
applicable Federal, state, local or foreign tax laws that is likely to result in
a Material Adverse Change with respect to Pacific.
The amounts set up as provisions for current or deferred taxes on the
Pacific Financial Statements are sufficient in all material respects for the
payment of all unpaid Federal, state, county, local, foreign or other taxes
(including any interest or penalties) of or on behalf of Pacific applicable to
the periods covered by the Pacific Financial Statements, and all years and
periods prior thereto. True and complete copies of the Federal income tax
returns of Pacific as filed with the Internal Revenue Service (the "IRS") for
the years ended December 31, 1995, 1996, and 1997, have been delivered to SBB.
SECTION 3.13 Insurance
Schedule 3.13 contains an accurate and complete list and brief
description of all policies of insurance, including fidelity and bond insurance,
of Pacific, including the Pacific Subsidiaries. All such policies (a) are valid,
outstanding and enforceable except as enforceability may be limited by
bankruptcy, conservatorship, insolvency, moratorium, reorganization,
receivership, or similar laws and judicial decisions affecting the rights of
creditors generally and by general principles of equity (whether applied in a
proceeding at law or equity), (b) will not in any significant respect be
affected by, and will not terminate or lapse by reason of, the transactions
contemplated by this Agreement, and (c) are presently in full force and effect,
no notice has been received of the cancellation, or threatened or proposed
cancellation, of any such policy and there are no unpaid premiums due thereon.
Pacific, including the Pacific Subsidiaries, is not in default with respect to
the provisions of any such policy and has not failed to give any notice or
present any claim thereunder in a due and timely fashion. Except as set forth on
Schedule 3.13, neither Pacific nor any of the Pacific Subsidiaries has been
refused any insurance with respect to its assets or operations, nor has its
insurance been limited by any insurance carrier to which Pacific and the Pacific
Subsidiaries has applied for any such insurance within the last two (2) years.
Each property of Pacific, including the Pacific Subsidiaries, is insured for the
benefit of Pacific in amounts deemed adequate by Pacific's management against
risks customarily insured against. There have been no claims under any fidelity
bonds of Pacific or any of the Pacific Subsidiaries within the last three (3)
years, and Pacific is not aware of any facts that would form the basis of a
claim under such bonds.
SECTION 3.14 No Adverse Change
Except as disclosed in the Schedules to this Agreement or in the
representations and warranties made in this Article III, there has not been any
Material Adverse Change since December 31, 1997, nor has any event or condition
occurred that has resulted in, or has a reasonable possibility of resulting in
the future, in a Material Adverse Change with respect to Pacific.
SECTION 3.15 Patents, Trademarks and Copyrights
Except as disclosed in Schedule 3.15, Pacific and the Pacific
Subsidiaries do not own or require the use of any patent, patent application,
patent right, invention, process, trademark (whether registered or
unregistered), trademark application, trademark right, trade name, service name,
service mark, copyright or any trade secret ("Pacific Proprietary Rights") for
their respective businesses or operations, except for licensed computer
software. To the knowledge of Pacific, neither Pacific nor any of the Pacific
Subsidiaries are infringing upon or otherwise acting adversely to any Pacific
Proprietary Right owned by any other person or persons. There is no claim or
action by any such person pending, or, to the knowledge of Pacific, threatened,
with respect thereto.
SECTION 3.16 Transactions with Certain Persons and Entities
Except as disclosed in Schedule 3.16, neither Pacific nor any of the
Pacific Subsidiaries owe any amount to (excluding deposit liabilities), or have
any loan (excluding loans to participants from the Pacific Capital 401(k) Plan),
contract, lease, commitment or other obligation from or to any of the respective
present or former directors or executive officers (other than compensation for
current services not yet due and payable and reimbursement of expenses arising
in the ordinary course of business) of Pacific and the Pacific Subsidiaries, and
none of such persons owes any amount to Pacific or the Pacific Subsidiaries.
Except as set forth in Schedule 3.16, there are no understandings, agreements
(whether written or oral), instruments, commitments, perquisites, extensions of
credit, tax sharing or allocation agreements or other contractual agreements of
any kind between or among Pacific and the Pacific Subsidiaries, whether on its
own behalf or in its capacity as trustee or custodian for the funds of any
employee benefit plan (as defined in the Employee Retirement Income Security Act
of 1974, as amended ("ERISA")), and any present or former officers or directors
of Pacific or the Pacific Subsidiaries. True and correct copies of any such
written understandings, agreements, instruments, etc., are included with
Schedule 3.16.
SECTION 3.17 Evidences of Indebtedness
All evidences of indebtedness and leases that are reflected as assets of
Pacific and the Pacific Subsidiaries are, to Pacific's best knowledge, legal,
valid and binding obligations of the respective obligors thereof, enforceable in
accordance with their respective terms (except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
creditors generally and the availability of injunctive relief, specific
performance and other equitable remedies) and are not subject to any known or
threatened defenses, offsets or counterclaims that may be asserted against
Pacific, the Pacific Subsidiaries or the present holder thereof, except as
disclosed in Schedule 3.17. The credit files of Pacific, including the Pacific
Subsidiaries, contain all material information (excluding general, local or
national industry, economic or similar conditions) known to Pacific that is
reasonably required to evaluate in accordance with generally prevailing
practices in the banking industry the collectibility of the loan portfolio of
Pacific (including loans that will be outstanding if any of them advances funds
they are obligated to advance). Pacific has disclosed all of the substandard,
doubtful, loss, nonperforming or loans identified as problem loans on the
internal watch list of each of the Subsidiary Banks, a copy of which as of May
31, 1998, has been provided to SBB. Except as disclosed in Schedule 3.17,
Pacific is not aware of, nor has Pacific received notice of, any past or present
conditions, events, activities, practices or incidents that may result in a
violation of any Environmental Law (as defined in Section 12.08(D) hereof) with
respect to any real property securing any indebtedness reflected as an asset of
Pacific or any Pacific Subsidiary.
SECTION 3.18 Conditions of Assets
All tangible assets used by Pacific, including the Pacific Subsidiaries,
are in good operating condition, ordinary wear and tear excepted, and conform
with all applicable ordinances, regulations, zoning and other laws, whether
Federal, state or local. None of Pacific's or the Pacific Subsidiaries' premises
or equipment are in need of maintenance or repairs other than ordinary routine
maintenance and repairs that are not material in nature or cost.
SECTION 3.19 Environmental Compliance
(a) Pacific is not aware of, nor has Pacific received notice of, any past
or present conditions, events, activities, practices or incidents that are in
violation of Environmental Laws (as defined in Section 12.08(D) hereof) or that
may interfere with or prevent Pacific's continued compliance in all respects
with all Environmental Laws.
(b) Pacific and the Pacific Subsidiaries have obtained all permits,
licenses and authorizations that are required under any Environmental Laws.
(c) To Pacific's knowledge, no Hazardous Materials (as defined in Section
12.08(E) hereof) exist on, about, or within any of the Pacific Properties (as
defined in this Section 3.19), nor, to Pacific's knowledge, have any Hazardous
Materials previously existed on, about or within or been used, generated,
stored, transported, disposed of, on or released from any of the Pacific
Properties in violation of any Environmental Law. The use that Pacific,
including the Pacific Subsidiaries, makes and intends to make of the Pacific
Properties will not result in the use, generation, storage, transportation,
accumulation, disposal or release of any Hazardous Material on, in or from any
of the Pacific Properties in violation of any Environmental Law.
(d) There is no action, suit, proceeding, investigation or inquiry before
any court, administrative agency or other governmental authority pending or, to
Pacific's knowledge, threatened against Pacific or any Pacific Subsidiary
relating in any way to any Environmental Law. To the best of Pacific's
knowledge, neither Pacific nor any Pacific Subsidiary has any liability for
remedial action under any Environmental Law. Pacific has not received any
request for information by any governmental authority with respect to the
condition, use or operation of any of the Pacific Properties nor has Pacific
received any notice of any kind from any governmental authority or other person
with respect to any violation of or claimed or potential liability of any kind
under any Environmental Law (including, without limitation, any letter, notice
or inquiry from any person or governmental entity informing Pacific that it is
or may be liable in any way under any Environmental Law, or requesting
information to enable such a determination to be made).
(e) As used in this Section 3.19, the term "Pacific Property" or "Pacific
Properties" shall include all real property currently owned or leased by Pacific
or any of the Pacific Subsidiaries, including, but not limited to, properties
that Pacific or any Pacific Subsidiary has foreclosed on as well as the
Subsidiary Banks' respective banking premises and all improvements and fixtures
thereon. The phrase "to Pacific's knowledge" or similar phrases as used in this
Section 3.19 shall mean the current actual knowledge of executive management of
Pacific.
SECTION 3.20 Regulatory Compliance
All reports, records, registrations, statements, notices and other
documents or information required to be filed by Pacific and the Pacific
Subsidiaries during the last two (2) years with any federal or state regulatory
authority including, without limitation, the Federal Reserve, the OCC, the FDIC
and the IRS have been duly and timely filed and all information and data
contained in such reports, records or other documents are true, accurate,
correct and complete. Except as disclosed on Schedule 3.20, Pacific and the
Pacific Subsidiaries are not now nor have been, within the past six (6) years
subject to any memorandum of understanding, cease and desist order, written
agreement or other formal administrative action with any such regulatory bodies.
Pacific does not believe any such regulatory bodies have any present intent to
place Pacific or the Pacific Subsidiaries under any new administrative action.
Except as set forth on Schedule 3.20, there are no actions or proceedings
pending or threatened against Pacific or any Pacific Subsidiary by or before any
such regulatory bodies or any other nation, state or subdivision thereof, or any
other entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
SECTION 3.21 Securities and Exchange Commission Reports
Pacific has previously made available to SBB an accurate and complete
copy of each (a) final registration statement, prospectus, report, schedule and
definitive proxy statement filed since January 1, 1995 by Pacific with the
Securities and Exchange Commission (the "S.E.C.") pursuant to the Securities Act
of 1933, as amended (the "Securities Act"), or the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and prior to the date hereof (the
"Pacific Reports"), and (b) communication mailed by Pacific to its shareholders
since January 1, 1995 and prior to the date hereof, and no such registration
statement, prospectus, report, schedule, proxy statement or communication
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances in which they were made, not
misleading, except that information as of a later date shall be deemed to modify
information as of an earlier date. Since January 1, 1995, Pacific has timely
filed all Pacific Reports and other documents required to be filed by it under
the Securities Act and the Exchange Act, and, as of their respective dates, all
Pacific Reports complied in all material respects with the published rules and
regulations of the S.E.C. with respect thereto.
SECTION 3.22 Absence of Certain Business Practices
Except as set forth on Schedule 3.22, neither Pacific, any of the
Pacific Subsidiaries nor any officer, employee or agent of Pacific or the
Pacific Subsidiaries, nor any other person acting on their behalf, has, directly
or indirectly, within the past ten (10) years, given or agreed to give any gift
or similar benefit to any customer, supplier, governmental employee or other
person who is or may be in a position to help or hinder the business of Pacific
as a whole (or assist Pacific in connection with any actual or proposed
transaction) that (i) would subject Pacific or any of the Pacific Subsidiaries
to any damage or penalty in any civil, criminal or governmental litigation or
proceeding, (ii) if not given in the past, would have resulted in a Material
Adverse Change with respect to Pacific, or (iii) if not continued in the future
would result in a Material Adverse Change with respect to Pacific or would
subject Pacific to suit or penalty in any private or governmental litigation or
proceeding.
SECTION 3.23 Registration Statement; Joint Proxy Statement/Prospectus
None of the information supplied or to be supplied by Pacific or any of
its directors, officers, employees or agents for inclusion in the Registration
Statement (as defined in Section 5.03(c)) or the Joint Proxy
Statement/Prospectus (as defined in Section 5.03(c)), or any amendment thereof
or supplement thereto, will be false or misleading with respect to any material
fact, or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or at the time of the Pacific Shareholders' Meeting and the SBB
Shareholders' Meeting, be false or misleading with respect to any material fact,
or omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of any proxy for the
Pacific Shareholders' Meeting and the SBB Shareholders' Meeting. All documents
that Pacific is responsible for filing with any regulatory or governmental
agency in connection with the Merger will comply in all material respects with
the provisions of applicable law.
SECTION 3.24 Dissenting Shareholders
Except as set forth on Schedule 3.24, Pacific has no knowledge of any
plan or intention on the part of any of the shareholders of Pacific to make
written demand for payment of the fair value of their shares of Pacific Common
Stock in the manner provided by applicable law.
SECTION 3.25 Pooling of Interests
As of the date of this Agreement, Pacific has no reason to believe that
the Merger will not qualify as a "pooling of interests" for accounting purposes.
SECTION 3.26 Books and Records
The minute books, stock certificate books and stock transfer ledgers of
Pacific and the Pacific Subsidiaries (i) have been kept accurately in the
ordinary course of business, (ii) are complete and correct in all material
respects, (iii) reflect transactions representing bona fide transactions, and
(iv) do not fail to reflect transactions involving the business of Pacific or
the Pacific Subsidiaries that were required to have been set forth therein and
that have not been accurately so set forth.
SECTION 3.27 Forms of Instruments, Etc.
Pacific will make available to SBB upon written request copies of all
standard forms of notes, mortgages, deeds of trust and other routine documents
of a like nature used on a regular and recurring basis by Pacific and the
Pacific Subsidiaries in the ordinary course of their businesses.
SECTION 3.28 Fiduciary Responsibilities
Except as disclosed in Schedule 3.28, Pacific and the Subsidiary Banks
have performed in all material respects all of their duties as a trustee,
custodian, guardian or as an escrow agent in a manner that complies in all
material respects with all applicable laws, regulations, orders, agreements,
instruments and common law standards.
SECTION 3.29 Guaranties
None of the obligations or liabilities of Pacific or the Pacific
Subsidiaries are guaranteed by any other person, firm or corporation, nor is any
outstanding obligation or liability of any other person, firm or corporation
guaranteed by Pacific or the Pacific Subsidiaries, except in the ordinary course
of business, according to prudent business practices and in compliance with
applicable law.
SECTION 3.30 Voting Trust or Buy-Sell Agreements
Pacific is not aware of any agreement between or among any of its
shareholders relating to a right of first refusal with respect to the purchase
or sale by any such shareholder of capital stock of Pacific or any voting
agreement or voting trust with respect to shares of capital stock of Pacific
(other than that contemplated by Section 5.20).
SECTION 3.31 Employee Relationships
Pacific and the Pacific Subsidiaries (including their respective
officers and directors while acting in such capacities) have complied in all
material respects with all applicable laws relating to its relationships with
its employees, and Pacific believes that the relationships between Pacific,
including the Pacific Subsidiaries (including their respective officers and
directors while acting in such capacities), and its employees are good. To the
knowledge of Pacific, no key executive officer or manager of any of the
operations operated by Pacific and the Pacific Subsidiaries or any group of
employees of Pacific and the Pacific Subsidiaries have any present plans to
terminate their employment with Pacific or any Pacific Subsidiary. Neither
Pacific nor any of the Pacific Subsidiaries is a party to any oral or written
contracts or agreements granting benefits or rights to employees or any
collective bargaining agreement or to any conciliation agreement with the
Department of Labor, the Equal Employment Opportunity Commission or any federal,
state or local agency that requires equal employment opportunities or
affirmative action in employment. There are no unfair labor practice complaints
pending against Pacific, including any of the Pacific Subsidiaries, before the
National Labor Relations Board and no similar claims pending before any similar
state, local or foreign agency. There is no activity or proceeding of any labor
organization (or representative thereof) or employee group to organize any
employees of Pacific, including any Pacific Subsidiary, nor of any strikes,
slowdowns, work stoppages, lockouts or threats thereof, by or with respect to
any such employees. Pacific and the Pacific Subsidiaries are in compliance in
all material respects with all applicable laws respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and neither Pacific nor any of the Pacific Subsidiaries are engaged in any
unfair labor practice.
SECTION 3.32 Employee Benefit Plans
(a) Set forth on Schedule 3.32(a) is a complete and correct list of all
"employee benefit plans" (as defined in ERISA), all specified fringe benefit
plans as defined in Section 6039D of the Code, and all other bonus, incentive,
compensation, deferred compensation, profit sharing, stock option, stock
appreciation right, stock bonus, stock purchase, employee stock ownership,
savings, severance, supplemental unemployment, layoff, salary continuation,
retirement, pension, health, life insurance, disability, group insurance,
vacation, holiday, sick leave, fringe benefit or welfare plan or any other
similar plan, agreement, policy or understanding (whether written or oral,
qualified or nonqualified, currently effective or terminated), and any trust,
escrow or other agreement related thereto, which (a) is maintained or
contributed to by Pacific or any Pacific Subsidiary, or with respect to which
Pacific and the Pacific Subsidiaries has any liability, and (b) provides
benefits, or describes policies or procedures applicable to any officer,
employee, service provider, former officer or former employee of Pacific or any
Pacific Subsidiary, or the dependents of any such person, regardless of whether
funded (the "Pacific Employee Plans").
(b) No Pacific Employee Plan is a defined benefit plan within the meaning
of section 3(35) of ERISA. Pacific has delivered or made available to SBB true,
accurate and complete copies of the documents comprising each Pacific Employee
Plan, and such other documents, records or other materials related thereto
reasonably requested by SBB. To the best knowledge of Pacific, there have been
no prohibited transactions, breaches of fiduciary duty or any other breaches or
violations of any law applicable to the Pacific Employee Plans that would
subject SBB or Pacific to any liabilities. Each Pacific Employee Plan intended
to be qualified under section 401(a) of the Code has a current favorable
determination letter and, to the best knowledge of Pacific, has been operated in
compliance with applicable law and in accordance with its terms. However,
Pacific has a ruling request pending with the Internal Revenue Service that
compensation elected to be deferred by employees pursuant to the "Executive
Compensation Deferral Plan" and the transfer and retention of those sums
deferred to the "Executive Compensation Deferral Trust" will result in no
current inclusion of the income to those employees or their beneficiaries
pursuant to Sections 83, 451 or 402(b) of the Code. There are no pending claims,
lawsuits or actions relating to any Pacific Employee Plan (other than ordinary
course claims for benefits) and, to the best knowledge of Pacific, none are
threatened. No written or oral representations have been made to any employee or
former employee of Pacific or the Pacific Subsidiaries promising or guaranteeing
any employer payment or funding for the continuation of medical, dental, life or
disability coverage for any period of time beyond the end of the current plan
year (except to the extent of coverage required under section 4980B of the
Code). Compliance with FAS 106 will not create any material change to the
Pacific Financial Statements. Except as required in connection with qualified
plan amendments required by tax law changes and except for those plans
identified on Schedule 3.32(b), the consummation of the transactions
contemplated by this Agreement will not accelerate the time of payment or
vesting, or increase the amount, of compensation due to any employee, officer,
former employee or former officer of Pacific or any Pacific Subsidiary.
(c) With respect to each "employee benefit plan" (as defined in ERISA)
maintained or contributed to or required to be contributed to, currently or in
the past, by any trade or business with which Pacific is required by any of the
rules contained in the Code or ERISA to be treated as a single employer (the
"Controlled Group Plans"):
(i) To the knowledge of Pacific, all Controlled Group Plans that are
"group health plans" (as defined in the Code and ERISA) have been operated
up to the Closing in a manner so as to not subject Pacific to any material
liability under Section 4980B of the Code; and
(ii) There is no Controlled Group Plan that is a defined benefit
plan (as defined in Section 3(35) of ERISA), nor has there been in the
last five (5) calendar years.
(iii) There is no Controlled Group Plan that is a "multiple employer
plan" or "multiemployer plan" (as either such term is defined in ERISA),
nor has there been in the last five (5) calendar years.
SECTION 3.33 Interest Rate Risk Management Instruments
All interest rate swaps, caps, floors and option agreements and other
interest rate risk management arrangements, whether entered into for the account
of Pacific or any Pacific Subsidiary or for the account of a customer of Pacific
or any Pacific Subsidiary, were entered into in the ordinary course of business
and, to Pacific's knowledge, in accordance with prudent banking practice and
applicable rules, regulations and policies of any regulatory authority and with
counterparites believed to be financially responsible at the time and are legal,
valid and binding obligations of Pacific or a Pacific Subsidiary enforceable in
accordance with their terms (except as may be limited by bankruptcy, insolvency,
moratorium, reorganization or similar laws affecting the rights of creditors
generally and the availability of equitable remedies), and are in full force and
effect. Pacific and each Pacific Subsidiary have duly performed in all material
respects all of their material obligations thereunder to the extent that such
obligations to perform have accrued; and, to Pacific's knowledge, there are no
material breaches, violations or defaults or allegations or assertions of such
by any party thereunder.
SECTION 3.34 Year 2000
(a) To the best of Pacific's knowledge, Pacific and the Subsidiary Banks
are in compliance with those certain guidances and statements issued by the
Federal Financial Institutions Examination Council (the "FFIEC") in connection
with the century date change that will take place on January 1, 2000, which
guidances are dated as of June 1996, May 5, 1997, December 17, 1997, March 17,
1998, April 10, 1998, and May 13, 1998 (together with any subsequent FFIEC
issuances on the Year 2000, the "Interagency Statements").
Pacific and the Subsidiary Banks have:
(i) Inventoried and assessed the technologies it uses, particularly
its computer hardware and software, to identify potential problems areas
related to the Year 2000;
(ii) Developed and implemented a Year 2000 Plan, including
comprehensive testing plans, to prepare its "mission critical" information
technology to: (a) process date/time data accurately and without
interruption (including, but not limited to, calculating, comparing, and
sequencing) from, into, and between the years 1999 and 2000, and leap year
calculations; (b) respond to two-digit year-date input in a way that
resolves the ambiguity as to century in a disclosed, defined, and
predetermined manner; and (c) store and provide output of date information
in ways that are unambiguous as to century; and
(iii) Commenced the development of, and by September 30, 1998 will
have completed the development of, contingency plans to ensure continuity
of business in the event of: (a) failure to complete any tasks required by
the Year 2000 Plan, such as remediation or validation; or (b) any
externally caused business interruption related to the century date
change.
(iv) Taken commercially reasonable steps to investigate and test the
ability of its "mission critical" information technology to share and
exchange date/time data accurately and without interruption or material
delay with its key vendors and suppliers.
(b) If Pacific and the Subsidiary Banks have been examined by federal or
state regulators for Year 2000 readiness, they have not received a rating that
would cause delay or denial of any regulatory approval of this Agreement and the
transactions contemplated hereby.
(c) Pacific's estimate of the out-of-pocket expenses payable to third
parties necessary to complete its consolidated Year 2000 Compliance efforts is
not in excess of $500,000.
SECTION 3.35 Representations Not Misleading
To Pacific's knowledge, all material facts relating to the business
operations, properties, assets, liabilities (contingent or otherwise) and
financial condition of Pacific and the Pacific Subsidiaries have been disclosed
to SBB in or in connection with this Agreement. No representation or warranty by
Pacific contained in this Agreement, nor any statement, exhibit or schedule
furnished to SBB by Pacific under and pursuant to, or in anticipation of or in
connection with, this Agreement, contains or will contain on the Closing Date
any untrue statement of a material fact or omits or will omit to state a
material fact necessary to make the statements contained herein or therein, in
light of the circumstances under which it was or will be made, not misleading
and such representations and warranties would continue to be true and correct
following disclosure to any governmental authority having jurisdiction over
Pacific or its properties of the facts and circumstances upon which they were
based. Except as disclosed herein, there is no matter that materially adversely
affects Pacific or Pacific's ability to perform the transactions contemplated by
this Agreement or the other agreements contemplated hereby, or to the knowledge
of Pacific, will in the future result in a Material Adverse Change with respect
to Pacific, other than general economic conditions. No information material to
the Merger and that is necessary to make the representations and warranties
herein contained not misleading, has been withheld by Pacific.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF SBB
SBB hereby makes the representations and warranties set forth in this
Article IV to Pacific.
SECTION 4.01 Organization and Qualification
(a) SBB is a corporation, duly organized, validly existing under the laws
of the State of California, and in good standing under all laws, rules, and
regulations applicable to corporations located in the State of California. SBB
is a bank holding company registered under the BHCA. SBB has all requisite
corporate power and authority (including all licenses, franchises, permits and
other governmental authorizations as are legally required) to carry on its
business as now being conducted, to own, lease and operate its properties and
assets, including, but not limited to, as now owned, leased or operated and to
enter into and carry out its obligations under this Agreement and the Merger
Agreement. Schedule 4.01(a) sets forth a complete list of each Subsidiary (as
defined in Section 12.08(B)) of SBB (collectively, the "SBB Subsidiaries").
Except as set forth on Schedule 4.01(a), SBB does not own or control any
Affiliate (as defined in Section 12.08(A) hereof) other than the SBB
Subsidiaries, and neither of the SBB Subsidiaries owns or controls any Affiliate
or Subsidiary. True and complete copies of the Articles of Incorporation and
Bylaws of SBB and the SBB Subsidiaries, as amended to date, certified by the
Secretary of SBB and each SBB Subsidiary, as applicable, have been delivered to
Pacific.
(b) SBB&T is a California banking corporation duly organized, validly
existing and in good standing under the laws of the State of California. SBB&T
has all requisite corporate power and authority (including all licenses,
franchises, permits and other governmental authorizations as are legally
required) to carry on its business as now being conducted, to own, lease and
operate its properties and assets, including, but not limited to, as now owned,
leased or operated. SBB&T is an insured bank as defined in the FDIA. All of the
issued and outstanding shares of capital stock of SBB&T are owned by SBB free
and clear of all liens, encumbrances, rights of first refusal, options or other
restrictions of any nature whatsoever, and all such shares are duly authorized
and validly issued and are fully paid, nonassessable and free of preemptive
rights of any person. There are no options, warrants or rights outstanding to
acquire any capital stock of the SBB&T, and no person or entity has any other
right to purchase or acquire any unissued shares of stock of SBB&T, nor does
SBB&T have any obligation of any nature with respect to its unissued shares of
stock.
(c) Each of the SBB Subsidiaries, other than SBB&T, is a California
corporation duly organized, validly existing and in good standing under the laws
of the State of California, and in good standing under all laws, rules, and
regulations applicable to corporations located in the State of California. Each
such SBB Subsidiary has all requisite corporate power and authority (including
all licenses, franchises, permits and other governmental authorizations as are
legally required) to carry on their respective businesses as now being
conducted, to own, lease and operate its properties and assets, including, but
not limited to, as now owned, leased or operated. All of the issued and
outstanding shares of capital stock of each such SBB Subsidiary is owned by SBB
free and clear of all liens, encumbrances, rights of first refusal, options or
other restrictions of any nature whatsoever, and all such shares are duly
authorized and validly issued and are fully paid, nonassessable and free of
preemptive rights of any person. There are no options, warrants or rights
outstanding to acquire any capital stock of the SBB Subsidiaries and no person
or entity has any other right to purchase or acquire any unissued shares of
stock of any of the SBB Subsidiaries, nor does any such SBB Subsidiary have any
obligation of any nature with respect to its unissued shares of stock.
(d) The nature of the business of SBB and the SBB Subsidiaries do not
require any of them to be licensed or qualified to do business in any
jurisdiction other than the State of California. Except as disclosed on Schedule
4.01(d), neither SBB nor any of the SBB Subsidiaries has any equity interest,
direct or indirect, in any other bank or corporation or in any partnership,
joint venture or other business enterprise or entity, except as acquired through
settlement of indebtedness, foreclosure, the exercise of creditors' remedies or
in a fiduciary capacity, and the business carried on by SBB and the SBB
Subsidiaries has not been conducted through any other direct or indirect
Subsidiary or Affiliate of SBB or the SBB Subsidiaries.
(e) Neither SBB nor any of the SBB Subsidiaries that is neither a bank, a
bank operating subsidiary or a bank service corporation, directly or indirectly,
engages in any activity prohibited by the Federal Reserve. Without limiting the
generality of the foregoing, any equity investment of SBB and each subsidiary
that is not a bank, a bank operating subsidiary or a bank service corporation,
is not prohibited by the Federal Reserve.
(f) SBB&T does not, directly or indirectly, engage in any activity
prohibited by the Federal Reserve or the California Commissioner.
SECTION 4.02 Execution and Delivery
SBB has taken all corporate action necessary to authorize the execution,
delivery and (provided the required regulatory and shareholder approvals are
obtained) performance of this Agreement and the other agreements and documents
contemplated hereby to which it is a party, including, but not limited to, the
Merger Agreement. This Agreement has been, and the other agreements and
documents contemplated hereby, including, but not limited to, the Merger
Agreement, have been or at Closing will be, duly executed by SBB and each
constitutes the valid and binding obligation of SBB, enforceable in accordance
with its respective terms and conditions, except as enforceability may be
limited by bankruptcy, conservatorship, insolvency, moratorium, reorganization,
receivership or similar laws and judicial decisions affecting the rights of
creditors generally and by general principles of equity (whether applied in a
proceeding at law or in equity).
SECTION 4.03 Capitalization
The entire authorized capital stock of SBB consists of 40,000,000 shares
of SBB Common Stock, 15,397,463 shares of which are fully paid, validly issued,
nonassessable and outstanding, and 1,128,680 additional shares of which have
been reserved for issuance to holders of outstanding stock options to purchase
shares of SBB Common Stock. Schedule 4.03 contains a list of each plan
administered by SBB or any SBB Subsidiary pursuant to which options to purchase
shares of SBB Common Stock ("SBB Stock Options") have been or may be granted
(the "SBB Stock Option Plans"), including (i) the number of outstanding options
with respect to each SBB Stock Option Plan, (ii) the weighted average exercise
price per share with respect to each SBB Stock Option Plan, (iii) a list of all
option holders with respect to each SBB Stock Option Plan, and (iv) the number
of vested and unvested SBB Stock Options with respect to each such option holder
in each SBB Stock Option Plan. All SBB Stock Options were issued and, upon
issuance in accordance with the terms of the outstanding option agreements, the
shares of SBB Common Stock shall be issued in compliance with all applicable
securities laws. Except as disclosed in Schedule 4.03, there are no (i) other
outstanding equity securities of any kind or character, (ii) outstanding
subscriptions, options, convertible securities, rights, warrants, calls or other
agreements or commitments of any kind issued or granted by, or binding upon, SBB
to purchase or otherwise acquire any security of or equity interest in SBB or
(iii) outstanding subscriptions, options, rights, warrants, calls, convertible
securities, irrevocable proxies or other agreements or commitments obligating
SBB to issue any shares of, restricting the transfer of or otherwise relating to
shares of its capital stock of any class. All of the issued and outstanding
shares of SBB Common Stock have been duly authorized, validly issued and are
fully paid and nonassessable, and have not been issued in violation of the
preemptive rights of any person. Such shares of SBB Common Stock have been
issued in full compliance with applicable law. There are no restrictions
applicable to the payment of dividends on the shares of SBB Common Stock, except
pursuant to applicable laws and regulations, and all dividends declared prior to
the date of this Agreement have been paid.
SECTION 4.04 Compliance with Laws, Permits and Instruments
(a) Except as set forth in Schedule 4.04, SBB and the SBB Subsidiaries, as
applicable, are in compliance with, and are not in default (or with the giving
of notice or the passage of time will be in default) under, or in violation of,
(i) any provision of the Articles of Incorporation or Bylaws of SBB or any SBB
Subsidiary, (ii) any material provision of any loan agreement, security or
pledge agreement, mortgage, indenture, lease, contract, agreement or other
instrument applicable to SBB or any SBB Subsidiary or their respective assets,
operations, properties or businesses now conducted or heretofore conducted or
(iii) any permit, concession, grant, franchise, license, authorization,
judgment, writ, injunction, order, decree, award, statute, federal, state or
local law, ordinance, rule or regulation of any court, arbitrator or any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality applicable to SBB, the SBB Subsidiaries or
their respective assets, operations, properties or businesses now conducted or
heretofore conducted, which noncompliance or violation would, individually or in
the aggregate, reasonably be anticipated to have a material adverse effect on
the business, results of operations, financial condition, or (insofar as they
can reasonably be foreseen) prospects of SBB taken as a whole.
(b) The execution, delivery and (provided the required regulatory and
shareholder approvals are obtained) performance of this Agreement and the other
agreements contemplated hereby, including but not limited to the Merger
Agreement, and the consummation of the transactions contemplated hereby and
thereby, will not conflict with, or result, by itself or with the giving of
notice or the passage of time, in any violation of or default or loss of a
benefit under, (i) any provision of the Articles of Incorporation or Bylaws of
SBB or any SBB Subsidiary, (ii) any material provision of any mortgage,
indenture, lease, contract, agreement or other instrument applicable to SBB, the
SBB Subsidiaries or their assets, operations, properties or businesses, or (iii)
any permit, concession, grant, franchise, license, authorization, judgment,
writ, injunction, order, decree, statute, law, ordinance, rule or regulation
applicable to SBB, the SBB Subsidiaries or their assets, operations, properties
or businesses.
SECTION 4.05 Financial Statements
(a) SBB has furnished to Pacific true and complete copies of (i) the
audited consolidated balance sheets of SBB as of December 31, 1996 and 1997, and
the related audited consolidated statements of income, stockholders' equity and
cash flows for the years ended December 31, 1995, 1996 and 1997, (ii) an
unaudited consolidated balance sheet of SBB as of March 31, 1998, and the
related unaudited consolidated statement of income for the three-month period
ended March 31, 1998 (such balance sheets and the related statements of income,
stockholders' equity and cash flows are collectively referred to herein as the
"SBB Financial Statements"). Except as described in the notes to the SBB
Financial Statements, the SBB Financial Statements fairly present, in all
material respects, the consolidated financial position of SBB as of the
respective dates thereof and the results of operations and changes in financial
position of SBB for the periods then ended, in conformity with GAAP, applied on
a basis consistent with prior periods (subject, in the case of the unaudited
interim financial statements, to normal year-end adjustments and the fact that
they do not contain all of the footnote disclosures required by GAAP), except as
otherwise noted therein, and the accounting records underlying the SBB Financial
Statements accurately and fairly reflect in all material respects the
transactions of SBB. The SBB Financial Statements do not contain any items of
extraordinary or nonrecurring income or any other income not earned in the
ordinary course of business except as expressly specified therein.
(b) SBB has furnished, or has caused SBB&T to furnish, to Pacific with
true and complete copies of the Call Reports of SBB&T for the periods ended
December 31, 1996, December 31, 1997 and March 31, 1998. Such Call Reports
fairly presents, in all material respects, the financial position of SBB&T and
the results of its operations at the dates and for the periods indicated in
conformity with the Instructions for the Preparation of Call Reports as
promulgated by applicable regulatory authorities. The Call Reports do not
contain any items of special or nonrecurring income or any other income not
earned in the ordinary course of business except as expressly specified therein.
SBB&T has calculated its allowance for loan losses in accordance with GAAP,
which includes RAP where applicable, as applied to banking institutions and in
accordance with all applicable rules and regulations. To the best knowledge of
SBB, the allowance for loan losses account for SBB&T is, and as of the Closing
Date will be, adequate in all material respects to provide for all losses, net
of recoveries relating to loans previously charged off, on all outstanding loans
of SBB&T.
SECTION 4.06 Undisclosed Liabilities
Neither SBB nor any of the SBB Subsidiaries has any material liability
or obligation, accrued, absolute, contingent or otherwise and whether due or to
become due (including, without limitation, unfunded obligations under any
service recognition or severance agreement, whether written or oral, or SBB
Employee Plans (as defined in Section 4.31 hereof) or material liabilities for
federal, state or local taxes or assessments or material liabilities under any
agreement that are not reflected in or disclosed in the SBB Financial
Statements, except (i) those liabilities and expenses incurred in the ordinary
course of business and consistent with prudent business practices since the date
of the SBB Financial Statements or (ii) as disclosed on Schedule 4.06.
SECTION 4.07 Litigation
Except as set forth on Schedule 4.07, there are no actions, claims,
suits, investigations, reviews or other legal, quasi-judicial or administrative
proceedings of any kind or nature now pending or, to the best knowledge of SBB,
threatened against or affecting SBB, any of the SBB Subsidiaries or any of their
respective current or former officers and directors (while acting in such
capacity) at law or in equity, or by or before any federal, state or municipal
court or other governmental or administrative department, commission, board,
bureau, agency or instrumentality, domestic or foreign, that in any manner
involves SBB, the SBB Subsidiaries or any of their current or former officers or
directors (while acting in such capacity) or any of their properties or capital
stock that would reasonably be anticipated to result in a Material Adverse
Change with respect to SBB, or materially and adversely affect the transactions
contemplated by this Agreement, and SBB does not know or have any reason to be
aware of any basis for the same. No legal action, suit or proceeding or
judicial, administrative or governmental investigation is pending or, to the
knowledge of SBB, threatened against SBB or any of the SBB Subsidiaries that
questions the validity of this Agreement or the agreements contemplated hereby,
including, but not limited to, the Merger Agreement, or any actions taken or to
be taken by SBB pursuant hereto or thereto or seeks to enjoin or otherwise
restrain the transactions contemplated hereby or thereby.
SECTION 4.08 Consents and Approvals
SBB's Board of Directors (at a meeting called and duly held) has
resolved, subject to its fiduciary duties to the shareholders of SBB, to
recommend approval and adoption by SBB's shareholders of the Merger, this
Agreement and the Merger Agreement. Except for shareholder and regulatory
approvals and except as disclosed in Schedule 4.08, no approval, consent, order
or authorization of, or registration, declaration or filing with, any
governmental authority or other third party is required on the part of SBB in
connection with the execution, delivery or performance of this Agreement or the
agreements contemplated hereby, including, but not limited to, the Merger
Agreement, or the consummation by SBB of the transactions contemplated hereby or
thereby.
SECTION 4.09 Title to Assets
SBB and each of the SBB Subsidiaries has good and indefeasible title to
all of its assets and properties including, without limitation, all personal and
intangible properties reflected in the SBB Financial Statements or acquired
subsequent thereto, subject to no liens, mortgages, security interests,
encumbrances or charges of any kind, except (i) as described in Schedule 4.09,
(ii) as noted in the SBB Financial Statements, (iii) statutory liens not yet
delinquent, (iv) consensual landlord liens, (v) minor defects and irregularities
in title and encumbrances that do not materially impair the use thereof for the
purpose for which they are held, (vi) pledges of assets in the ordinary course
of business to secure public funds deposits, and (vii) those assets and
properties disposed of for fair value in the ordinary course of business since
the dates of the SBB Financial Statements. Schedule 4.09 includes a copy of the
title policy of insurance with respect to each parcel of real property owned by
SBB and the SBB Subsidiaries.
SECTION 4.10 Absence of Certain Changes or Events
Except as disclosed on Schedule 4.10, since December 31, 1997, SBB,
including the SBB Subsidiaries, has conducted its business only in the ordinary
course and has not, other than in the ordinary course of business and consistent
with past practices and safe and sound banking practices:
A. Incurred any obligation or liability, absolute, accrued, contingent
or otherwise, whether due or to become due, which individually or in the
aggregate, has had a material adverse effect on the business, results of
operations, financial condition, or (insofar as they can reasonably be
foreseen) prospects of SBB and the SBB Subsidiaries taken as a whole,
except for deposits taken and federal funds purchased and current
liabilities for trade or business obligations;
B. Discharged or satisfied any lien, charge or encumbrance or
paid any obligation or liability, whether absolute or contingent, due
or to become due;
C. Declared or made any payment of dividends or other distribution to
its shareholders, or purchased, retired or redeemed, or obligated itself
to purchase, retire or redeem, any of its shares of capital stock or other
securities;
D. Issued, reserved for issuance, granted, sold or authorized the
issuance of any shares of its capital stock or other securities or
subscriptions, options, warrants, calls, rights or commitments of any kind
relating to the issuance thereto;
E. Acquired any capital stock or other equity securities or acquired
any equity or ownership interest in any bank, corporation, partnership or
other entity (except (i) through settlement of indebtedness, foreclosure,
or the exercise of creditors' remedies or (ii) in a fiduciary capacity,
the ownership of which does not expose it to any liability from the
business, operations or liabilities of such person);
F. Mortgaged, pledged or subjected to lien, charge, security interest
or any other encumbrance or restriction any of its property, business or
assets, tangible or intangible except (i) as described in Schedule 4.09,
(ii) statutory liens not yet delinquent, (iii) consensual landlord liens,
(iv) minor defects and irregularities in title and encumbrances that do
not materially impair the use thereof for the purpose for which they are
held, (v) pledges of assets to secure public funds deposits, and (vi) for
those assets and properties disposed of for fair value since the dates of
the SBB Financial Statements.
G. Sold, transferred, leased to others or otherwise disposed
of any of its assets or canceled or compromised any debt or claim, or
waived or released any right or claim of material value;
H. Terminated, canceled or surrendered, or received any notice of or
threat of termination or cancellation of any contract, lease or other
agreement or suffered any damage, destruction or loss (whether or not
covered by insurance), which, in any case or in the aggregate, would have
a material adverse effect on the business, results of operations,
financial condition, or (insofar as they can reasonably be foreseen)
prospects of SBB and the SBB Subsidiaries taken as a whole;
I. Disposed of, permitted to lapse, transferred or granted any rights
under, or entered into any settlement regarding the breach or infringement
of, any United States or foreign license or SBB Proprietary Right (as
defined in Section 4.15 hereof) or modified any existing rights with
respect thereto;
J. Made any change in the rate of compensation, commission, bonus or
other direct or indirect remuneration payable, or paid or agreed or orally
promised to pay, conditionally or otherwise, any bonus, extra
compensation, pension or severance or vacation pay, to or for the benefit
of any of its shareholders, directors, officers, employees or agents, or
entered into any employment or consulting contract or other agreement with
any director, officer or employee or adopted, amended in any material
respect or terminated any pension, employee welfare, retirement, stock
purchase, stock option, stock appreciation rights, termination, severance,
income protection, golden parachute, savings or profit-sharing plan
(including trust agreements and insurance contracts embodying such plans),
any deferred compensation, or collective bargaining agreement, any group
insurance contract or any other incentive, welfare or employee benefit
plan or agreement maintained by it for the benefit of its directors,
employees or former employees, except (i) compensation adjustments
contemplated within SBB's 1998 budget and approved in advance by Pacific
(which approval shall not be unreasonably withheld), and (ii) periodic
increases consistent with past practices;
K. Except for improvements or betterments relating to SBB Properties
(as defined in Section 4.19(e) hereof), made any capital expenditures or
capital additions or betterments in excess of an aggregate of $4,000,000;
L. Instituted, had instituted against it, settled or agreed to settle
any litigation, action or proceeding before any court or governmental
body, other than routine collection suits instituted by it to collect
amounts owed or suits in which the amount in controversy is less than
$200,000;
M. Permitted any change, event or condition that, in any case or in
the aggregate, has caused or may result in a Material Adverse Change, or
any Material Adverse Change in earnings or costs or relations with its
employees, agents, depositors, loan customers, correspondent banks or
suppliers;
N. Except for the transactions contemplated by this Agreement
or as otherwise permitted hereunder, entered into any transaction, or
entered into, modified or amended any contract or commitment;
O. Entered into or given any promise, assurance or guarantee of the
payment, discharge or fulfillment of any undertaking or promise made by
any person, firm or corporation other than letters of credit issued in the
ordinary course of business;
P. Sold, or knowingly disposed of, or otherwise divested itself of the
ownership, possession, custody or control, of any corporate books or
records of any nature that, in accordance with sound business practice,
normally are retained for a period of time after their use, creation or
receipt, except at the end of the normal retention period;
Q. Made any, or acquiesced with any, change in any accounting
methods, principles or material practices, except as required by GAAP
or RAP;
R. Sold (provided, however, that payment at maturity is not deemed a
sale) any investment securities in a single transaction involving a book
gain or loss of more than $200,000 on such sale or purchased any
investment securities, other than purchases of U.S. Treasury securities
with a maturity of two years or less;
S. Made, renewed, extended the maturity of, or altered any of the
material terms of any criticized loan to any single borrower and his
related interests without regard to whether such transaction was in the
ordinary course of business or whether it was consistent with past or safe
and sound banking practices; or
T. Entered into any agreement or made any commitment whether
in writing or otherwise to take any of the types of action described in
subsections A. through S. above.
SECTION 4.11 Leases, Contracts and Agreements
Schedule 4.11 sets forth a complete listing of all leases, subleases,
licenses, contracts and agreements to which SBB, including any of the SBB
Subsidiaries, is a party (the "SBB Contracts"), and which (i) relate to real
property used by SBB in its operation, (ii) involve payments to or by SBB in
excess of $200,000 during the term of such SBB Contracts (exclusive of unfunded
loan commitments and letters of credit issued by SBB), or (iii) involve any
unfunded loan commitments and letters of credit issued by SBB where the
borrower's total direct and indirect indebtedness to SBB is in excess of
$4,000,000. True and correct copies of all such SBB Contracts (other than
unfunded loan commitments and letters of credit issued by SBB) are included with
Schedule 4.11. For the purposes of this Agreement, the SBB Contracts shall be
deemed not to include loans made by, Federal funds sold or purchased by,
repurchase agreements made by, spot foreign exchange transactions of, bankers
acceptances of or deposits by SBB. Except as set forth in Schedule 4.11, no
participations or loans have been sold which have buy back, recourse or guaranty
provisions which create contingent or direct liabilities of SBB. To the
knowledge of SBB, all of the leases, subleases, licenses, contracts and
agreements to which SBB or any SBB Subsidiary is a party are legal, valid and
binding obligations of the parties to such contracts enforceable in accordance
with their terms, subject to the effects of bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to creditors' rights
generally and to general equitable principles, and are in full force and effect.
Except as described in Schedule 4.11, all rent and other payments by SBB and any
SBB Subsidiary under such contracts are current, there are no existing defaults
by SBB or any SBB Subsidiary under such contracts, and no termination, condition
or other event has occurred which (whether with or without notice, lapse of time
or the happening or occurrence of any other event) would constitute a default.
SBB and each SBB Subsidiary has a good and indefeasible leasehold interest in
each parcel of real property leased by it free and clear of all mortgages,
pledges, liens, encumbrances and security interests.
SECTION 4.12 Taxes
SBB has duly and timely filed with the appropriate Federal, state and
local governmental agencies all tax returns and reports required to be filed,
including, without limitation, income, excise, property, sales, use, franchise,
value added, unemployment, employees' income withholding and social security
taxes, imposed by the United States or by any foreign country or by any state,
municipality, subdivision or instrumentality of the United States or of any
foreign country, or by any other taxing authority, and has paid, or has
established adequate reserves for the payment of, all taxes and assessments that
are or are claimed to be due, payable or owed by SBB, or for which SBB may have
liability, whether as a result of its own activities or by virtue of its
affiliation with other entities and all interest and penalties thereon, whether
disputed or not. All such tax returns and reports are accurately prepared and
all deposits required by law to be made by SBB with respect to employees'
withholding taxes have been duly made. SBB is not and has not been delinquent in
the payment of any foreign or domestic tax, assessment or governmental charge or
deposit and has no tax deficiency or claim outstanding, proposed or assessed
against it, and, to SBB's knowledge, there is no basis for any such deficiency
or claim. Except as set forth in Schedule 4.12, within the last six (6) years,
SBB's Federal income tax return has not been audited or examined and no such
audit is currently pending or, to SBB's knowledge, threatened. SBB has not been
granted any extension of time with respect to the date on which any tax return
not yet filed was or is due to be filed by or with respect to SBB or any waiver
or agreement by SBB for the extension of time for the assessment or collection
of any tax. Except as set forth in Schedule 4.12, SBB (i) within the past six
(6) years, has not committed any violation of any applicable Federal, state,
local or foreign tax laws, and (ii) with respect to all prior years, has not
committed any violation of any applicable Federal, state, local or foreign tax
laws that is likely to result in a Material Adverse Change with respect to SBB.
The amounts set up as provisions for current or deferred taxes on the SBB
Financial Statements are sufficient in all material respects for the payment of
all unpaid Federal, state, county, local, foreign or other taxes (including any
interest or penalties) of or on behalf of SBB applicable to the periods covered
by the SBB Financial Statements, and all years and periods prior thereto. True
and complete copies of the Federal income tax returns of SBB as filed with the
IRS for the years ended December 31, 1995, 1996, and 1997, have been delivered
to Pacific.
SECTION 4.13 Insurance
Schedule 4.13 contains an accurate and complete list and brief
description of all policies of insurance, including fidelity and bond insurance,
of SBB, including the SBB Subsidiaries. All such policies (a) are valid,
outstanding and enforceable except as enforceability may be limited by
bankruptcy, conservatorship, insolvency, moratorium, reorganization,
receivership, or similar laws and judicial decisions affecting the rights of
creditors generally and by general principles of equity (whether applied in a
proceeding at law or equity), (b) will not in any significant respect be
affected by, and will not terminate or lapse by reason of, the transactions
contemplated by this Agreement, and (c) are presently in full force and effect,
no notice has been received of the cancellation, or threatened or proposed
cancellation, of any such policy and there are no unpaid premiums due thereon.
SBB, including the SBB Subsidiaries, is not in default with respect to the
provisions of any such policy and has not failed to give any notice or present
any claim thereunder in a due and timely fashion. Except as set forth on
Schedule 4.13, neither SBB nor any SBB Subsidiary has been refused any insurance
with respect to its assets or operations, nor has its insurance been limited by
any insurance carrier to which SBB and the SBB Subsidiaries has applied for any
such insurance within the last two (2) years. Each property of SBB, including
the SBB Subsidiaries, is insured for the benefit of SBB in amounts deemed
adequate by SBB's management against risks customarily insured against. There
have been no claims under any fidelity bonds of SBB or any of the SBB
Subsidiaries within the last three (3) years, and SBB is not aware of any facts
that would form the basis of a claim under such bonds.
SECTION 4.14 No Adverse Change
Except as disclosed in the Schedules to this Agreement or in the
representations and warranties made in this Article IV, there has not been any
Material Adverse Change since December 31, 1997, nor has any event or condition
occurred that has resulted in, or has a reasonable possibility of resulting in
the future, in a Material Adverse Change with respect to SBB.
SECTION 4.15 Patents, Trademarks and Copyrights
Except as disclosed in Schedule 4.15, SBB and the SBB Subsidiaries do
not own or require the use of any patent, patent application, patent right,
invention, process, trademark (whether registered or unregistered), trademark
application, trademark right, trade name, service name, service mark, copyright
or any trade secret ("SBB Proprietary Rights") for their respective businesses
or operations, except for licensed computer software. To the knowledge of SBB,
neither SBB nor any of the SBB Subsidiaries are infringing upon or otherwise
acting adversely to any SBB Proprietary Right owned by any other person or
persons. There is no claim or action by any such person pending, or, to the
knowledge of SBB, threatened, with respect thereto.
SECTION 4.16 Transactions with Certain Persons and Entities
Except as disclosed in Schedule 4.16, neither SBB nor any of the SBB
Subsidiaries owe any amount to (excluding deposit liabilities), or have any loan
(excluding loans to participants from the Santa Barbara Bank & Trust 401(k)
Plan), contract, lease, commitment or other obligation from or to any of the
present or former directors or executive officers (other than compensation for
current services not yet due and payable and reimbursement of expenses arising
in the ordinary course of business) of SBB and the SBB Subsidiaries, and none of
such persons owes any amount to SBB or the SBB Subsidiaries. Except as set forth
in Schedule 4.16, there are no understandings, agreements (whether written or
oral), instruments, commitments, perquisites, extensions of credit, tax sharing
or allocation agreements or other contractual agreements of any kind between or
among SBB and the SBB Subsidiaries, whether on its own behalf or in its capacity
as trustee or custodian for the funds of any employee benefit plan (as defined
in ERISA) and any present or former officers or directors of SBB or the SBB
Subsidiaries. True and correct copies of any such written understandings,
agreements, instruments, etc., are included with Schedule 4.16.
SECTION 4.17 Evidences of Indebtedness
All evidences of indebtedness and leases that are reflected as assets of
SBB and the SBB Subsidiaries are, to SBB's best knowledge, legal, valid and
binding obligations of the respective obligors thereof, enforceable in
accordance with their respective terms (except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
creditors generally and the availability of injunctive relief, specific
performance and other equitable remedies) and are not subject to any known or
threatened defenses, offsets or counterclaims that may be asserted against SBB,
the SBB Subsidiaries or the present holder thereof, except as disclosed in
Schedule 4.17. The credit files of SBB, including the SBB Subsidiaries, contain
all material information (excluding general, local or national industry,
economic or similar conditions) known to SBB that is reasonably required to
evaluate in accordance with generally prevailing practices in the banking
industry the collectibility of the loan portfolio of SBB (including loans that
will be outstanding if any of them advances funds they are obligated to
advance). SBB has disclosed all of the substandard, doubtful, loss,
nonperforming or loans identified as problem loans on the internal watch list of
SBB&T, a copy of which as of May 31, 1998, has been provided to Pacific. Except
as disclosed in Schedule 4.17, SBB is not aware of, nor has SBB received notice
of, any past or present conditions, events, activities, practices or incidents
that may result in a violation of any Environmental Law (as defined in Section
12.08(D) hereof) with respect to any real property securing any indebtedness
reflected as an asset of SBB or any SBB Subsidiary.
SECTION 4.18 Condition of Assets
All tangible assets used by SBB, including the SBB Subsidiaries, are in
good operating condition, ordinary wear and tear excepted, and conform with all
applicable ordinances, regulations, zoning and other laws, whether Federal,
state or local. Except as set forth on Schedule 4.18, none of SBB's or the SBB
Subsidiaries' premises or equipment are in need of maintenance or repairs other
than ordinary routine maintenance and repairs that are not material in nature or
cost.
SECTION 4.19 Environmental Compliance
(a) Except as set forth on Schedule 4.19(a), SBB is not aware of, nor has
SBB received notice of, any past or present conditions, events, activities,
practices or incidents that are in violation of Environmental Laws (as defined
in Section 12.08(D) or that may interfere with or prevent SBB's continued
compliance in all respects with all Environmental Laws.
(b) SBB and the SBB Subsidiaries have obtained all permits, licenses and
authorizations that are required under any Environmental Laws.
(c) Except as set forth on Schedule 4.19(c), to SBB's knowledge, no
Hazardous Materials (as defined in Section 12.08(E) hereof) exist on, about, or
within any of the SBB Properties (as defined in this Section 4.19), nor, to
SBB's knowledge, have any Hazardous Materials previously existed on, about or
within or been used, generated, stored, transported, disposed of, on or released
from any of the SBB Properties in violation of any Environmental Law. The use
that SBB, including the SBB Subsidiaries, makes and intends to make of the SBB
Properties will not result in the use, generation, storage, transportation,
accumulation, disposal or release of any Hazardous Material on, in or from any
of the SBB Properties in violation of any Environmental Law.
(d) There is no action, suit, proceeding, investigation or inquiry before
any court, administrative agency or other governmental authority pending or, to
SBB's knowledge, threatened against SBB or any SBB Subsidiary relating in any
way to any Environmental Law. To the best of SBB's knowledge, neither SBB nor
any SBB Subsidiary has any liability for remedial action under any Environmental
Law. SBB has not received any request for information by any governmental
authority with respect to the condition, use or operation of any of the SBB
Properties nor has SBB received any notice of any kind from any governmental
authority or other person with respect to any violation of or claimed or
potential liability of any kind under any Environmental Law (including, without
limitation, any letter, notice or inquiry from any person or governmental entity
informing SBB that it is or may be liable in any way under any Environmental
Law, or requesting information to enable such a determination to be made).
(e) As used in this Section 4.19, the term "SBB Property" or "SBB
Properties" shall include all real property currently owned or leased by SBB or
any of the SBB Subsidiaries, including, but not limited to, properties that SBB
or any SBB Subsidiary has foreclosed on as well as SBB&T's respective banking
premises and all improvements and fixtures thereon. The phrase "to SBB's
knowledge" or similar phrases as used in this Section 4.19 shall mean the
current actual knowledge of executive management of SBB.
SECTION 4.20 Regulatory Compliance
All reports, records, registrations, statements, notices and other
documents or information required to be filed by SBB and the SBB Subsidiaries
during the last two (2) years with any federal or state regulatory authority
including, without limitation, the Federal Reserve, the FDIC, the California
Commissioner and the IRS have been duly and timely filed and all information and
data contained in such reports, records or other documents are true, accurate,
correct and complete. Except as disclosed on Schedule 4.20, SBB and the SBB
Subsidiaries are not now nor have been, within the past six (6) years subject to
any memorandum of understanding, cease and desist order, written agreement or
other formal administrative action with any such regulatory bodies. SBB does not
believe any such regulatory bodies have any present intent to place SBB or the
SBB Subsidiaries under any new administrative action. Except as set forth on
Schedule 4.20, there are no actions or proceedings pending or threatened against
SBB or any SBB Subsidiary by or before any such regulatory bodies or any other
nation, state or subdivision thereof, or any other entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
SECTION 4.21 Securities and Exchange Commission Reports
SBB has previously made available to Pacific an accurate and complete
copy of each (a) final registration statement, prospectus, report, schedule and
definitive proxy statement filed since January 1, 1995 by SBB with the S.E.C.
pursuant to the Securities Act or the Exchange Act, and prior to the date hereof
(the "SBB Reports"), and (b) communication mailed by SBB to its shareholders
since January 1, 1995 and prior to the date hereof, and no such registration
statement, prospectus, report, schedule, proxy statement or communication
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances in which they were made, not
misleading, except that information as of a later date shall be deemed to modify
information as of an earlier date. Since January 1, 1995, SBB has timely filed
all SBB Reports and other documents required to be filed by it under the
Securities Act and the Exchange Act, and, as of their respective dates, all SBB
Reports complied in all material respects with the published rules and
regulations of the S.E.C. with respect thereto.
SECTION 4.22 Absence of Certain Business Practices
Except as set forth on Schedule 4.22, neither SBB, the SBB Subsidiaries
nor any officer, employee or agent of SBB or the SBB Subsidiaries, nor any other
person acting on their behalf, has, directly or indirectly, within the past ten
(10) years, given or agreed to give any gift or similar benefit to any customer,
supplier, governmental employee or other person who is or may be in a position
to help or hinder the business of SBB as a whole (or assist SBB in connection
with any actual or proposed transaction) that (i) would subject SBB or any of
the SBB Subsidiaries to any damage or penalty in any civil, criminal or
governmental litigation or proceeding, (ii) if not given in the past, would have
resulted in a Material Adverse Change with respect to SBB, or (iii) if not
continued in the future, would result in a Material Adverse Change with respect
to SBB or would subject SBB to suit or penalty in any private or governmental
litigation or proceeding.
SECTION 4.23 Registration Statement; Joint Proxy Statement/Prospectus
None of the information supplied or to be supplied by SBB or any of its
directors, officers, employees or agents for inclusion in the Registration
Statement (as defined in Section 5.03(c)) or the Joint Proxy
Statement/Prospectus (as defined in Section 5.03(c)), or any amendment thereof
or supplement thereto, will be false or misleading with respect to any material
fact, or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or at the time of the Pacific Shareholders' Meeting and the SBB
Shareholders' Meeting, be false or misleading with respect to any material fact,
or omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of any proxy for the
Pacific Shareholders' Meeting and the SBB Shareholders' Meeting. All documents
that SBB is responsible for filing with any regulatory or governmental agency in
connection with the Merger will comply in all material respects with the
provisions of applicable law.
SECTION 4.24 Pooling of Interests
As of the date of this Agreement, SBB has no reason to believe that the
Merger will not qualify as a "pooling of interests" for accounting purposes.
SECTION 4.25 Books Records
The minute books, stock certificate books and stock transfer ledgers of
SBB and the SBB Subsidiaries (i) have been kept accurately in the ordinary
course of business, (ii) are complete and correct in all material respects,
(iii) reflect transactions representing bona fide transactions, and (iv) do not
fail to reflect transactions involving the business of SBB or the SBB
Subsidiaries that were required to have been set forth therein and that have not
been accurately so set forth.
SECTION 4.26 Forms of Instruments, Etc.
SBB will make available to Pacific upon written request copies of all
standard forms of notes, mortgages, deeds of trust and other routine documents
of a like nature used on a regular and recurring basis by SBB and the SBB
Subsidiaries in the ordinary course of their businesses.
SECTION 4.27 Fiduciary Responsibilities
Except as disclosed in Schedule 4.27, SBB and the SBB Subsidiaries have
performed in all material respects all of their duties as a trustee, custodian,
guardian or as an escrow agent in a manner that complies in all material
respects with all applicable laws, regulations, orders, agreements, instruments
and common law standards.
SECTION 4.28 Guaranties
None of the obligations or liabilities of SBB or the SBB Subsidiaries
are guaranteed by any other person, firm or corporation, nor is any outstanding
obligation or liability of any other person, firm or corporation guaranteed by
SBB or the SBB Subsidiaries, except in the ordinary course of business,
according to prudent business practices and in compliance with applicable law.
SECTION 4.29 Voting Trust or Buy-Sell Agreements
SBB is not aware of any agreement between or among any of its
shareholders relating to a right of first refusal with respect to the purchase
or sale by any such shareholder of capital stock of SBB or any voting agreement
or voting trust with respect to shares of capital stock of SBB.
SECTION 4.30 Employee Relationships
SBB and the SBB Subsidiaries (including their respective officers and
directors while acting in such capacities) has complied in all material respects
with all applicable laws relating to its relationships with its employees, and
SBB believes that the relationships between SBB, including the SBB Subsidiaries
(including their respective officers and directors while acting in such
capacities) and its employees are good. To the knowledge of SBB, no key
executive officer or manager of any of the operations operated by SBB and the
SBB Subsidiaries or any group of employees of SBB and the SBB Subsidiaries have
any present plans to terminate their employment with SBB or any SBB Subsidiary.
Neither SBB nor any of the SBB Subsidiaries is a party to any oral or written
contracts or agreements granting benefits or rights to employees or any
collective bargaining agreement or to any conciliation agreement with the
Department of Labor, the Equal Employment Opportunity Commission or any federal,
state or local agency that requires equal employment opportunities or
affirmative action in employment. There are no unfair labor practice complaints
pending against SBB, including any of the SBB Subsidiaries, before the National
Labor Relations Board and no similar claims pending before any similar state,
local or foreign agency. There is no activity or proceeding of any labor
organization (or representative thereof) or employee group to organize any
employees of SBB, including any SBB Subsidiary, nor of any strikes, slowdowns,
work stoppages, lockouts or threats thereof, by or with respect to any such
employees. SBB and the SBB Subsidiaries are in compliance in all material
respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, and neither
SBB nor any of the SBB Subsidiaries are engaged in any unfair labor practice.
SECTION 4.31 Employee Benefit Plans
(a) Set forth on Schedule 4.31 is a complete and correct list of all
"employee benefit plans" (as defined in ERISA), all specified fringe benefit
plans as defined in Section 6039D of the Code, and all other bonus, incentive,
compensation, deferred compensation, profit sharing, stock option, stock
appreciation right, stock bonus, stock purchase, employee stock ownership,
savings, severance, supplemental unemployment, layoff, salary continuation,
retirement, pension, health, life insurance, disability, group insurance,
vacation, holiday, sick leave, fringe benefit or welfare plan or any other
similar plan, agreement, policy or understanding (whether written or oral,
qualified or nonqualified, currently effective or terminated), and any trust,
escrow or other agreement related thereto, which (a) is maintained or
contributed to by SBB or any SBB Subsidiary, or with respect to which SBB and
the SBB Subsidiaries has any liability, and (b) provides benefits, or describes
policies or procedures applicable to any officer, employee, service provider,
former officer or former employee of SBB or any SBB Subsidiary, or the
dependents of any such person, regardless of whether funded (the "SBB Employee
Plans").
(b) No SBB Employee Plan is a defined benefit plan within the meaning of
section 3(35) of ERISA. SBB has delivered or made available to Pacific true,
accurate and complete copies of the documents comprising each SBB Employee Plan,
and such other documents, records or other materials related thereto reasonably
requested by Pacific To the best knowledge of SBB, there have been no prohibited
transactions, breaches of fiduciary duty or any other breaches or violations of
any law applicable to the SBB Employee Plans that would subject SBB to any
liabilities. Each SBB Employee Plan intended to be qualified under section
401(a) of the Code has a current favorable determination letter and, to the best
knowledge of SBB, has been operated in compliance with applicable law and in
accordance with its terms. There are no pending claims, lawsuits or actions
relating to any SBB Employee Plan (other than ordinary course claims for
benefits) and, to the best knowledge of SBB, none are threatened. No written or
oral representations have been made to any employee or former employee of SBB or
the SBB Subsidiaries promising or guaranteeing any employer payment or funding
for the continuation of medical, dental, life or disability coverage for any
period of time beyond the end of the current plan year (except to the extent of
coverage required under section 4980B of the Code). SBB is in compliance with
FAS 106. Except as required in connection with qualified plan amendments
required by tax law changes, the consummation of the transactions contemplated
by this Agreement will not accelerate the time of payment or vesting, or
increase the amount, of compensation due to any employee, officer, former
employee or former officer of SBB or any SBB Subsidiary.
(c) With respect to each "employee benefit plan" (as defined in ERISA)
maintained or contributed to or required to be contributed to, currently or in
the past, by any trade or business with which SBB is required by any of the
rules contained in the Code or ERISA to be treated as a single employer (the
"Controlled Group Plans"):
(i) To the knowledge of SBB, all Controlled Group Plans that are "group
health plans" (as defined in the Code and ERISA) have been operated
to the Closing in a manner so as to not subject SBB to any material
liability under Section 4980B of the Code; and
(ii) There is no Controlled Group Plan that is a defined benefit plan (as
defined in Section 3(35) of ERISA), nor has there been in the last
five (5) calendar years.
(iii) There is no Controlled Group Plan that is a "multiple employer plan"
or "multiemployer plan" (as either such term is defined in ERISA),
nor has there been in the last five (5) calendar years.
SECTION 4.32 Interest Rate Risk Management Instruments
All interest rate swaps, caps, floors and option agreements and other
interest rate risk management arrangements, whether entered into for the account
of SBB or any SBB Subsidiary or for the account of a customer of SBB or any SBB
Subsidiary, were entered into in the ordinary course of business and, to SBB's
knowledge, in accordance with prudent banking practice and applicable rules,
regulations and policies of any regulatory authority and with counterparites
believed to be financially responsible at the time and are legal, valid and
binding obligations of SBB or an SBB Subsidiary enforceable in accordance with
their terms (except as may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the rights of creditors generally and
the availability of equitable remedies), and are in full force and effect. SBB
and each SBB Subsidiary have duly performed in all material respects all of
their material obligations thereunder to the extent that such obligations to
perform have accrued; and, to SBB's knowledge, there are no material breaches,
violations or defaults or allegations or assertions of such by any party
thereunder.
SECTION 4.33 Year 2000
(a) To the best of SBB's knowledge, SBB and SBB&T are in compliance with
those certain guidances and statements issued by the FFIEC in connection with
the century date change that will take place on January 1, 2000, which guidances
are dated as of June 1996, May 5, 1997, December 17, 1997, March 17, 1998, April
10, 1998, and May 13, 1998 (together with any subsequent FFIEC issuances on the
Year 2000, the "Interagency Statements"). SBB and SBB&T have:
(i) Inventoried and assessed the technologies it uses, particularly
its computer hardware and software, to identify potential problems areas
related to the Year 2000;
(ii) Developed and implemented a Year 2000 Plan, including
comprehensive testing plans, to prepare its "mission critical" information
technology to: (a) process date/time data accurately and without
interruption (including, but not limited to, calculating, comparing, and
sequencing) from, into, and between the years 1999 and 2000, and leap year
calculations; (b) respond to two-digit year-date input in a way that
resolves the ambiguity as to century in a disclosed, defined, and
predetermined manner; and (c) store and provide output of date information
in ways that are unambiguous as to century; and
(iii) Commenced the development of, and by September 30, 1998 will
have completed the development of, contingency plans to ensure continuity
of business in the event of: (a) failure to complete any tasks required by
the Year 2000 Plan, such as remediation or validation; or (b) any
externally caused business interruption related to the century date
change.
(iv) Taken commercially reasonable steps to investigate and test the
ability of its "mission critical" information technology to share and
exchange date/time data accurately and without interruption or material
delay with its key vendors and suppliers.
(b) If SBB and SBB&T have been examined by federal or state regulators for
Year 2000 readiness, neither has received a rating that would cause delay or
denial of any regulatory approval of this Agreement and the transactions
contemplated hereby.
(c) SBB's estimate of the out-of -pocket expenses payable to third parties
to complete its consolidated Year 2000 Compliance efforts is not in excess of
$1,300,000.
SECTION 4.34 Representations Not Misleading
To SBB's knowledge, all material facts relating to the business
operations, properties, assets, liabilities (contingent or otherwise) and
financial condition of SBB and the SBB Subsidiaries have been disclosed to
Pacific in or in connection with this Agreement. No representation or warranty
by SBB contained in this Agreement, nor any statement, exhibit or schedule
furnished to Pacific by SBB under and pursuant to, or in anticipation of or in
connection with, this Agreement, contains or will contain on the Closing Date
any untrue statement of a material fact or omits or will omit to state a
material fact necessary to make the statements contained herein or therein, in
light of the circumstances under which it was or will be made, not misleading
and such representations and warranties would continue to be true and correct
following disclosure to any governmental authority having jurisdiction over SBB
or its properties of the facts and circumstances upon which they were based.
Except as disclosed herein, there is no matter that materially adversely affects
SBB or SBB's ability to perform the transactions contemplated by this Agreement
or the other agreements contemplated hereby, or to the knowledge of SBB, will in
the future result in a Material Adverse Change with respect to SBB, other than
general economic conditions. No information material to the Merger and that is
necessary to make the representations and warranties herein contained not
misleading, has been withheld by SBB.
ARTICLE V.
COVENANTS OF PACIFIC
Pacific hereby makes the covenants set forth in this Article V to SBB.
SECTION 5.01 Best Efforts
Pacific will use its best efforts to perform and fulfill all conditions
and obligations on its part to be performed or fulfilled under this Agreement
and to cause the consummation of the transactions contemplated hereby in
accordance with the terms and conditions of this Agreement.
SECTION 5.02 Merger Agreement
Pacific will, as soon as practicable after the execution of this
Agreement, duly authorize and enter into the Merger Agreement, the form of which
is attached hereto as Exhibit "A", and perform all of its obligations
thereunder.
SECTION 5.03 Submission of Merger to Shareholders
Pacific shall:
(a) Duly call, give notice of, convene and hold, on a date mutually
selected by Pacific and SBB, a meeting of its shareholders (the "Pacific
Shareholders' Meeting") as soon as practicable for the purpose of
approving and adopting the Merger and the Merger Agreement and the
transactions contemplated hereby and thereby as required by the GCL;
(b) Not impose a requirement that the holders of more than the
minimum required percentage (as set forth in Pacific's current Articles of
Incorporation, current Bylaws or pursuant to provisions of the GCL
requiring the lowest percentage vote) of the Pacific Common Stock entitled
to vote on the Merger and the Merger Agreement approve the Merger and the
Merger Agreement;
(c) Cooperate and assist SBB in (i) preparing a Registration
Statement on Form S-4 relating to the shares of SBB Common Stock to be
issued to the Shareholders of Pacific as the Merger Consideration (the
"Registration Statement") and a Joint Proxy Statement/Prospectus,
including letter to shareholders, notice of special meeting, proxy
statement and form of proxy (collectively, the "Joint Proxy
Statement/Prospectus") and (ii) filing the Registration Statement and the
Joint Proxy Statement/Prospectus (forming a part of the Registration
Statement) with the S.E.C., including furnishing to SBB all information
concerning Pacific that SBB may reasonably request in connection with
preparation of such Registration Statement and Joint Proxy
Statement/Prospectus;
(d) Subject to the fiduciary duties of the Pacific Board of
Directors to the shareholders of Pacific, (i) include in the Joint Proxy
Statement/Prospectus the recommendation of the Pacific Board of Directors
that the shareholders of Pacific vote in favor of the approval and
adoption of the Merger and the Merger Agreement and the transactions
contemplated hereby and thereby, (ii) use its best efforts to obtain such
shareholder approval of the Merger and the Merger Agreement, and (iii)
perform such other acts as may reasonably be requested by SBB to ensure
that such shareholder approval of the Merger and the Merger Agreement is
obtained; and
(e) Cause the Joint Proxy Statement/Prospectus to be mailed to the
shareholders of Pacific as soon as practicable.
SECTION 5.04 Information for Applications and Statements
Pacific will promptly, but in no event later than ten (10) business days
after receipt of a request by SBB, furnish to SBB all information, data and
documents concerning Pacific, including, but not limited to, financial
statements, required for inclusion in any application or statement to be made by
SBB to, or filed by SBB with, any governmental body in connection with the
transactions contemplated by this Agreement (including the Registration
Statement and the Joint Proxy Statement/Prospectus), or in connection with any
other transactions during the pendency of this Agreement, and Pacific represents
and warrants that all information so furnished for such statements and
applications shall be true and correct in all material respects and shall not
omit any material fact required to be stated therein or necessary to make the
statements made, in light of the circumstances under which they were made, not
misleading. Pacific shall otherwise fully cooperate with SBB in the filing of
any applications or other documents necessary to consummate the transactions
contemplated by this Agreement.
SECTION 5.05 Required Acts of Pacific
Prior to the Closing, Pacific shall, and, as applicable, shall cause the
Pacific Subsidiaries to, unless otherwise permitted in writing by SBB:
(a) Operate only in the ordinary course of business and consistent
with prudent banking practices;
(b) Except as required by prudent business practices, use all
reasonable efforts to preserve its business organization intact and to
retain its present customers, depositors and employees, and to maintain
all offices, machinery, equipment, materials, supplies, inventories,
vehicles and other properties owned, leased or used by it (whether under
its control or the control of others), in good operating condition and
repair, ordinary wear and tear excepted;
(c) Perform all of its obligations under contracts, leases and
documents relating to or affecting its assets, properties and business,
except such obligations as Pacific may in good faith reasonably dispute;
(d) Maintain in full force and effect all insurance policies now in
effect or renewals thereof and, except as required by prudent business
practices that do not jeopardize insurance coverage, give all notices and
present all claims under all insurance policies in due and timely fashion,
and Pacific and the Pacific Subsidiaries shall have the authority to
purchase a rider to Pacific's existing policy of directors' and officers'
liability insurance providing for the continuation of coverage provided by
such policy for a period of 36 months following the Effective Date with
respect to actions occurring prior to the Effective Date to the extent
that such coverage is obtainable for an aggregate premium not to exceed
$125,000;
(e) File all reports required to be filed with governmental
authorities and observe and conform, in all material respects, to all
applicable laws, rules, regulations, ordinances, codes, orders, licenses
and permits, except those being contested in good faith by appropriate
proceedings;
(f) Timely file all tax returns required to be filed by it and
promptly pay all taxes, assessments, governmental charges, duties,
penalties, interest and fines that become due and payable, except those
being contested in good faith by appropriate proceedings;
(g) Withhold from each payment made to each of its employees the
amount of all taxes (including, but not limited to, federal income taxes,
FICA taxes and state and local income and wage taxes) required to be
withheld therefrom and pay the same to the proper tax receiving officers;
and
(h) Account for all transactions and prepare all financial
statements of Pacific in accordance with GAAP (unless otherwise instructed
by RAP in which instance account for such transaction in accordance with
RAP).
SECTION 5.06 Prohibited Acts of Pacific
Prior to the Closing, Pacific and, as applicable, the Pacific Subsidiaries
shall not, without the prior written consent of SBB:
(a) Take any action that would reasonably be anticipated to result
in a Material Adverse Change with respect to Pacific;
(b) Take or fail to take any action that would cause or permit the
representations and warranties made in Article III hereof to be inaccurate
at the time of the Closing or preclude Pacific from making such
representations and warranties at the time of the Closing;
(c) Change its Articles of Incorporation or Bylaws or its authorized
capital stock, or change the Articles of Association, Bylaws or authorized
capital stock of any Pacific Subsidiary;
(d) Except as explicitly permitted hereunder or in accordance with
applicable law, engage in any transaction with any affiliated person or
allow such persons to acquire any assets from Pacific or any Pacific
Subsidiary except in the form of wages, salaries, fees for legal services
and reimbursement of expenses and by loans secured by liquid collateral
having a fair market value at least equal to the principal balance due on
such loan to its officers, directors and employees in the ordinary course
of business;
(e) Discharge or satisfy any lien, charge or encumbrance or pay any
obligation or liability, whether absolute or contingent, due or to become
due, except in the ordinary course of business consistent with prudent
banking practices and except for liabilities incurred in connection with
the transactions contemplated hereby;
(f) Except as provided in Section 5.21, declare or make any payment
of dividends or other distributions to its shareholder, or purchase,
retire or redeem, or obligate itself to purchase, retire or redeem, any of
its shares of capital stock or other securities;
(g) Issue, reserve for issuance, grant, sell or authorize the
issuance of any shares of its capital stock or other securities or
subscriptions, options, warrants, calls, rights or commitments of any kind
relating to the issuance thereto (except for the issuance of Pacific
Common Stock pursuant to the valid exercise of Pacific Stock Options, as
defined in Section 6.17 hereof, which are outstanding on the date of this
Agreement);
(h) Grant any new stock options or accelerate the vesting of any
existing stock options, except as provided in this Agreement;
(i) Accelerate the vesting of pension or other benefits in favor of
employees of Pacific or any Pacific Subsidiary;
(j) Acquire any capital stock or other equity securities or acquire
any equity or ownership interest in any bank, corporation, partnership or
other entity (except (i) through settlement of indebtedness, foreclosure,
or the exercise of creditors' remedies or (ii) in a fiduciary capacity,
the ownership of which does not expose it to any liability from the
business, operations or liabilities of such person);
(k) Mortgage, pledge or subject to lien or charge, or grant any
security interest or any other encumbrance or restriction any of its
property, business or assets, tangible or intangible except in the
ordinary course of business and consistent with prudent banking practices;
(l) Sell, transfer, lease to others or otherwise dispose of any of
its assets or cancel or compromise any debt or claim, or waive or release
any right or claim of material value, except in the ordinary course of
business and consistent with past practices and safe and sound banking
principles;
(m) Make any change in the rate of compensation, commission, bonus
or other direct or indirect remuneration payable, or pay or agree or
orally promise to pay, conditionally or otherwise, any bonus, extra
compensation, pension or severance or vacation pay, to or for the benefit
of any of its shareholders, directors, officers, employees or agents, or
enter into any employment or consulting contract (other than as
contemplated by this Agreement) or other agreement with any director,
officer or employee or adopt, amend in any material respect or terminate
any pension, employee welfare, retirement, stock purchase, stock option,
stock appreciation rights, termination, severance, income protection,
golden parachute, savings or profit-sharing plan (including trust
agreements and insurance contracts embodying such plans), any deferred
compensation, or collective bargaining agreement, any group insurance
contract or any other incentive, welfare or employee benefit plan or
agreement maintained by it for the benefit of its directors, employees or
former employees, except (i) employee severance benefits contemplated by
Section 12.16 of this Agreement, and (ii) in the ordinary course of
business and consistent with past practices and safe and sound banking
principles;
(n) Except for improvements or betterments relating to Pacific
Properties, make any capital expenditures or capital additions or
betterments in excess of an aggregate of $1,000,000;
(o) Hire or employ any person as a replacement for an existing
position with an annual salary equal to or greater than $60,000 or hire or
employ any person for any newly created position;
(p) Sell or knowingly dispose of, or otherwise divest itself of the
ownership, possession, custody or control, of any corporate books or
records of any nature that, in accordance with sound business practice,
normally are retained for a period of time after their use, creation or
receipt, except at the end of the normal retention period;
(q) Make any, or acquiesce with any, change in any accounting
methods, principles or material practices, except as required by changes
in GAAP as concurred in by Pacific's independent auditors;
(r) Sell any investment securities in a transaction involving a book
gain or loss of more than $100,000 on such sale or purchase any investment
securities other than purchases of U.S. Treasury securities with a
maturity of two years or less (and only after giving notice to SBB of any
purchases in excess of $5,000,000);
(s) Make, renew, extend the maturity of, or alter any of the
material terms of any loan, other than classified loans (which are
addressed in Section 5.06(t), to any single borrower and his or her
related interests in excess of the principal amount of $2,000,000;
provided, however, that SBB shall be deemed to have given its consent
under this Section 5.06(s) unless SBB objects to such transaction no later
than 48 hours (weekends and bank holidays shall not count) after actual
receipt by SBB of all information relating to the making, renewal or
alteration of such loan;
(t) Make, renew, extend the maturity of, or alter any of the
material terms of any classified loan to any single borrower and his or
her related interests in excess of the principal amount of $250,000;
provided, however, that SBB shall be deemed to have given its consent
under this Section 5.06(t) unless SBB objects to such transaction no later
than 48 hours (weekends and bank holidays shall not count) after actual
receipt by SBB of all information relating to the making, renewal or
alteration of such loan; or
(u) Create any new branches or enter into any acquisitions or leases
of real property, including both new leases and lease extensions.
SECTION 5.07 Access; Pre-Closing Investigation
Subject to the provisions of Article XI, Pacific shall afford the
officers, directors, employees, attorneys, accountants, investment bankers and
authorized representatives of SBB full access to the properties, books,
contracts and records of Pacific and the Pacific Subsidiaries, permit SBB to
make such inspections (including without limitation with regard to such
properties physical inspection of the surface and subsurface thereof and any
structure thereon pursuant to Section 5.15) as they may require and furnish to
SBB during such period all such information concerning Pacific and the Pacific
Subsidiaries and its affairs as SBB may reasonably request, in order that SBB
may have full opportunity to make such reasonable investigation as it shall
desire to make of the affairs of Pacific and the Pacific Subsidiaries,
including, without limitation, access sufficient to verify the absence of any
Material Adverse Change with respect to Pacific, the accuracy of the
representations and warranties made by Pacific in this Agreement, the value of
the assets and the liabilities of Pacific and the satisfaction of the conditions
precedent to SBB's obligations described in Article VIII of this Agreement. SBB
shall use its best efforts not to disrupt the normal business operations of the
Pacific and the Pacific Subsidiaries. Pacific agrees at any time, and from time
to time, to furnish to SBB as soon as practicable, any additional information
that SBB may reasonably request.
SECTION 5.08 Director and Committee Meetings
Pacific shall give notice to two (2) designees of SBB and shall invite
such persons to attend all regular and special meetings of the Board of
Directors of Pacific and all regular and special meetings of any board or senior
management committee of Pacific, provided, however, that Pacific reserves the
right to exclude such invitees from any portion of any such meeting at any time.
Such invitees shall be designated by SBB subject to the consent of Pacific,
which consent shall not be unreasonably withheld. In addition, Pacific shall
provide SBB with copies of the minutes of all regular and special meetings of
the Board of Directors of Pacific and minutes of all regular and special
meetings of any board or senior management committee of Pacific (except portions
of such minutes which are devoted to the discussion of this Agreement or the
Merger or which, upon the advise of counsel, are otherwise privileged). Copies
of such minutes shall be provided to SBB within five (5) business days following
the date of such meeting.
SECTION 5.09 Additional Financial Statements
Pacific shall promptly furnish SBB with true and complete copies of (i)
Call Reports of each of the Subsidiary Banks for the quarter ended June 30, 1998
and each quarter thereafter until the Effective Date, (ii) monthly directors'
reports of Pacific, and (iii) unaudited month-end financial statements of
Pacific.
SECTION 5.10 Untrue Representations
Pacific shall promptly notify SBB in writing if Pacific becomes aware of
any fact or condition that makes untrue, or shows to have been untrue, in any
material respect, any schedule or any other information furnished to SBB or any
representation or warranty made in or pursuant to this Agreement or that results
in Pacific's failure to comply with any covenant, condition or agreement
contained in this Agreement.
SECTION 5.11 Litigation and Claims
Pacific shall promptly notify SBB in writing of any litigation, or of
any claim, controversy or contingent liability that is expected to become the
subject of litigation, against Pacific or any Pacific Subsidiary or affecting
any of their respective properties if such litigation or potential litigation
would, in the event of an unfavorable outcome, result in a Material Adverse
Change with respect to Pacific, and Pacific shall promptly notify SBB of any
legal action, suit or proceeding or judicial, administrative or governmental
investigation, pending or, to the knowledge of Pacific, threatened against
Pacific or any Pacific Subsidiary that questions or is likely to question the
validity of this Agreement or the agreements contemplated hereby, including, but
not limited to, the Merger Agreement or any actions taken or to be taken by
Pacific pursuant hereto or thereto or seeks to enjoin or otherwise restrain the
transactions contemplated hereby or thereby.
SECTION 5.12 Adverse Changes
Pacific shall promptly notify SBB in writing if any change or
development shall have occurred or, to the knowledge of Pacific, been threatened
(or any development shall have occurred or been threatened involving a
prospective change) in the business, financial condition, operations or
prospects of Pacific or the Pacific Subsidiaries that has or may reasonably be
expected to have or lead to a Material Adverse Change with respect to Pacific or
that would adversely affect, prevent or delay the obtaining of any regulatory
approval for the consummation of the transactions contemplated by this
Agreement. Notwithstanding the disclosure to SBB of any such change, Pacific
shall not be relieved of any liability to SBB pursuant to this Agreement for,
nor shall the providing of such information by Pacific to SBB be deemed a waiver
by SBB of, the breach of any representation or warranty of Pacific contained in
this Agreement.
SECTION 5.13 No Negotiation with Others
Until the Effective Date or the earlier termination of this Agreement,
Pacific shall not, directly or indirectly, nor shall it permit any of its
officers, directors, employees, representatives or agents to, directly or
indirectly: (i) encourage, solicit or initiate discussions or negotiations with,
or (ii) except upon advice of counsel to the extent required to fulfill the
fiduciary duties owed to the shareholders of Pacific, entertain, discuss or
negotiate with, or provide any information to, or cooperate with, any
corporation, partnership, person or other entity or group (other than SBB or its
Affiliates or associates or officers, partners, employees or other authorized
representatives of SBB or such Affiliates or associates) concerning any merger,
tender offer or other takeover offer, sale of substantial assets, sale of shares
of capital stock or similar transaction involving Pacific. As soon as
practicable following receipt of any unsolicited written offer, Pacific will
communicate to SBB the terms of any proposal or request for information.
SECTION 5.14 Consents and Approvals
Pacific shall use its best efforts to obtain at the earliest practicable
time all consents and approvals from third parties necessary to consummate the
transactions contemplated by this Agreement.
SECTION 5.15 Environmental Investigation; Right to Terminate Agreement
(a) SBB and its consultants, agents and representatives shall have the
right, to the same extent that Pacific has such right, but not the obligation or
responsibility, to inspect any Pacific Property, including, without limitation,
conducting asbestos surveys and sampling, environmental assessments and
investigation, and other environmental surveys and analyses including soil and
ground sampling ("Environmental Inspections") at any time on or prior to the
date which is forty-five (45) calendar days from the date of this Agreement. SBB
shall notify Pacific prior to any physical inspections of the Pacific Property,
and Pacific may place reasonable restrictions on the time of such inspections.
If, as a result of any such Environmental Inspection, further investigation
("secondary investigation") including, without limitation, test borings, soil,
water and other sampling is deemed desirable by SBB, SBB shall (i) notify
Pacific of any Pacific Property for which it intends to conduct such a secondary
investigation and the reasons for such secondary investigation, and (ii)
commence such secondary investigation, on or prior to the date which is sixty
(60) calendar days from the date of this Agreement. SBB shall give reasonable
notice to Pacific of such secondary investigations, and Pacific may place
reasonable time and place restrictions on such secondary investigations.
(b) SBB shall have the right to terminate this Agreement if (i) the
factual substance of any warranty or representation set forth in Section 3.19 is
not true and accurate; (ii) the results of such Environmental Inspection,
secondary investigation or other environmental survey are disapproved by SBB
because the environmental inspection, secondary investigation or other
environmental survey identifies violations or potential violations of
Environmental Laws; (iii) Pacific has refused to allow SBB to conduct an
Environmental Inspection or secondary investigation in a manner that SBB
reasonably considers necessary; (iv) the Environmental Inspection, secondary
investigation or other environmental survey identifies any past or present
event, condition or circumstance that would or potentially would require
remedial or cleanup action by Pacific that would result in a Material Adverse
Change; (v) the Environmental Inspection, secondary investigation or other
environmental survey identifies the presence of any underground or above ground
storage tank in, on or under any Pacific Property that is not shown to be in
compliance with all Environmental Laws applicable to the tank either now or at a
future time certain, or that has had a release of petroleum or some other
Hazardous Material that has not been cleaned up to the satisfaction of the
relevant governmental authority or any other party with a legal right to compel
cleanup; or (vi) the Environmental Inspection, secondary investigation or other
environmental survey identifies the presence of any asbestos-containing material
in, on or under any Pacific Property, the removal of which would result in a
Material Adverse Change. On or prior to the date which is ninety (90) calendar
days from the date of this Agreement, SBB shall advise Pacific in writing as to
whether SBB intends to terminate this Agreement in accordance with Section 9.02
because SBB disapproves of the results of the Environmental Inspection,
secondary investigation or other environmental survey. Pacific shall have the
opportunity to correct any objected to violations or conditions to SBB's
reasonable satisfaction prior to the date which is one hundred and fifteen (115)
calendar days from the date of this Agreement. In the event that Pacific fails
to demonstrate its satisfactory correction of the violations or conditions to
SBB, SBB may terminate the Agreement on or before the date which is one hundred
and twenty-five (125) days from the date of this Agreement.
(c) Pacific agrees to make available to SBB and its consultants, agents
and representatives all documents and other material relating to environmental
conditions of any Pacific Property including, without limitation, the results of
other environmental inspections and surveys. Pacific also agrees that all
engineers and consultants who prepared or furnished such reports may discuss
such reports and information with SBB and shall be entitled to certify the same
in favor of SBB and its consultants, agents and representatives and make all
other data available to SBB and its consultants, agents and representatives.
(d) For purposes of this Section, the term "Pacific Property" or "Pacific
Properties" shall have the same meaning given in Section 3.19(e).
SECTION 5.16 Restrictions on Resales
At least forty (40) days prior to the Closing Date, Pacific shall
deliver to SBB a list identifying each person who may reasonably be deemed an
"affiliate" of Pacific within the meaning of such term as used in Rule 145 under
the Securities Act. Pacific shall obtain and deliver to SBB, not less than
thirty-one (31) days prior to the Closing Date, the signed agreement, in the
form of Exhibit "F" hereto (the "Shareholder Letter"), of each "affiliate" of
Pacific, and of any person who may become an "affiliate" of Pacific after the
date of this Agreement, regarding (i) compliance with the provisions of such
Rule 145, and (ii) compliance with the requirements of Accounting Principles
Board Opinion No. 16 regarding the disposition of shares of Pacific Common Stock
or SBB Common Stock (or reduction of risk with respect thereto) until such time
as the financial results covering at least thirty (30) days of post-Merger
combined operations have been published. Pacific shall notify all "affiliates"
as far in advance as is reasonably practicable of the date on which the thirty
(30) day period prior to the Closing Date is likely to begin.
SECTION 5.17 Shareholder Lists
After the date of this Agreement, Pacific shall from time to time make
available to SBB, upon request, a list of its shareholders and their addresses,
a list showing all transfers of the Pacific Common Stock and such other
information as SBB may reasonably request regarding both the ownership and prior
transfers of the Pacific Common Stock.
SECTION 5.18 Employee Pension Plans
Pacific agrees the employee pension plans of Pacific, including the
Pacific Capital 401(k) Plan and the Pacific Employee Stock Ownership Plan
(collectively, the "Pacific Pension Plans") may be frozen, modified or merged
into similar employee pension plans maintained by SBB or SBB&T, including the
Santa Barbara Bank & Trust Employee Stock Ownership Plan and the Santa Barbara
Bank & Trust 401(k) Plan, on or after the Effective Date, as determined by the
Surviving Corporation in its sole discretion, subject to compliance with
applicable law, so long as any such action preserves the rights of the
participants in such Pacific Pension Plans (including, without limitation,
vesting rights).
SECTION 5.19 Employee Welfare Benefit Plans
Pacific agrees that Pacific's employee welfare benefit plans, as defined
in Section 3(1) of ERISA, may be terminated, modified or merged into SBB's
welfare benefit plans on or after the Effective Date, as determined by the
Surviving Corporation in its sole discretion, subject to compliance with
applicable law so long as any such action preserves the rights of participants
in such plans.
SECTION 5.20 Director Voting
Pacific shall use its best efforts to have each of its directors agree
to vote, or cause to be voted, all shares of Pacific Common Stock beneficially
owned by them at the Pacific Shareholders' Meeting in favor of the Merger.
Subject to such directors' fiduciary duties, each such director shall execute
such documents as are reasonably necessary to evidence their determination to
vote their shares of Pacific Common Stock in favor of the Merger at the Pacific
Shareholders' Meeting.
SECTION 5.21 Dividends
Pacific shall not declare, set aside or pay any dividend in respect of
the Pacific Common Stock or make any other distribution to shareholders
(including, without limitation, any stock dividend, dividends in kind or other
distribution), whether in cash, stock or other property, after the date of this
Agreement, except that Pacific may declare and pay its regular quarterly
dividend on the Pacific Common Stock not to exceed $0.25 per share at
approximately the same time during each quarter which it has historically
declared and paid such dividend; provided, however, that Pacific and SBB shall
cooperate with each other to coordinate the record and payment dates of their
respective dividends for the quarter in which the Effective Date occurs such
that the holders of Pacific Common Stock shall receive a quarterly dividend from
either Pacific or SBB, but not from both with respect to such quarter.
SECTION 5.22 Non-Compete Agreements
Prior to the Closing Date, Pacific shall use its best efforts to cause
each of the persons identified on Exhibit "G" to enter into an agreement not to
compete with the Surviving Corporation to be dated as of the Closing Date and to
become effective on the Effective Date (each a "Non-Compete Agreement"). The
form of the Non-Compete Agreement is attached as Exhibit "G" hereto.
SECTION 5.23 Pooling of Interests Accounting Treatment
Pacific shall, and shall use its best efforts to cause its directors and
officers to, use all commercially reasonable efforts not inconsistent with the
terms of this Agreement to structure and consummate the Merger and all actions
related thereto in a manner that will qualify the Merger for "pooling of
interests" accounting treatment as determined by SBB's independent accounting
firm and by any securities regulatory body which shall review the Registration
Statement, including without limitation, the S.E.C.
SECTION 5.24 Disclosure Schedules
Pacific agrees at or prior to the Closing to provide SBB with
supplemental Schedules to be delivered by Pacific pursuant to this Agreement
reflecting any material changes thereto between the date of this Agreement and
the Closing Date.
ARTICLE VI.
COVENANTS OF SBB
SBB hereby makes the covenants set forth in this Article VI to Pacific.
SECTION 6.01 Best Efforts
SBB will use its best efforts to perform and fulfill all conditions and
obligations on its part to be performed of fulfilled under this Agreement and to
cause the consummation of the transactions contemplated hereby in accordance
with the terms and conditions of this Agreement.
SECTION 6.02 Merger Agreement
SBB will, as soon as practicable after the execution of this Agreement,
enter into the Merger Agreement, the form of which is attached hereto as Exhibit
"A", and perform all of its obligations thereunder.
SECTION 6.03 Regulatory Approvals and Registration Statement
(a) SBB, with the cooperation of Pacific, shall promptly file or cause to
be filed applications for all regulatory approvals required to be obtained by
SBB in connection with this Agreement and the transactions contemplated hereby,
including but not limited to the necessary applications for the prior approval
of the Merger by the Federal Reserve under the BHCA. SBB shall use its best
efforts to obtain all such regulatory approvals and any other approvals from
third parties at the earliest practicable time.
(b) SBB shall reserve and make available for issuance in connection with
the Merger and in accordance with the terms of this Agreement, the SBB Common
Stock for the Merger Consideration and shall, with the cooperation of Pacific,
file with the S.E.C. the Registration Statement, which Registration Statement
will contain the Joint Proxy Statement/Prospectus, and SBB shall use its best
efforts to cause the Registration Statement to become effective. At the time the
Registration Statement becomes effective, the Registration Statement shall
comply in all material respects with the provisions of the Securities Act and
the published rules and regulations thereunder, and shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not false or
misleading, and at the time of mailing thereof to the shareholders of SBB and
Pacific, at the time of the SBB Shareholders's Meeting (as defined in Section
6.04) and the Pacific Shareholders' Meeting and on the Effective Date, the Joint
Proxy Statement/Prospectus included as part of the Registration Statement, as
amended or supplemented by any amendment or supplement, shall not contain any
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein not false or misleading.
(c) SBB shall timely file all documents required to obtain all necessary
Blue Sky permits and approvals, if any, required to carry out the transactions
contemplated by this Agreement, shall pay all expenses incident thereto and
shall use its best efforts to obtain such permits and approvals on a timely
basis.
(d) SBB shall promptly and properly prepare and file (i) any application
required to list on Nasdaq the shares of SBB Common Stock to be issued pursuant
to the Merger, and (ii) any filings required under the Exchange Act, relating to
the Merger and the transactions contemplated herein.
(e) SBB shall keep Pacific reasonably informed as to the status of such
applications and filings, and SBB shall promptly furnish Pacific and its counsel
with copies of all such regulatory filings and all correspondence for which
confidential treatment has not been requested.
(f) SBB shall not take any action at any time after the Effective Date
which would cause the Merger not to qualify as a reorganization within the
meaning of Section 368 of the Code.
SECTION 6.04 Submission of Merger and Related Matters to Shareholders
SBB shall:
(a) Duly call, give notice of, convene and hold, on a date mutually
selected by SBB and Pacific, a meeting of its shareholders (the "SBB
Shareholders' Meeting") as soon as practicable for the purpose of (i)
approving and adopting the Merger and the Merger Agreement and the
transactions contemplated hereby and thereby as required by the GCL, and
(ii) approving and adopting an amendment to the Bylaws of SBB to increase
the number of authorized directors who may serve on the Board of Directors
of SBB to not more than fifteen (15) persons (the "Bylaw Amendment");
(b) Not impose a requirement that the holders of more than the
minimum required percentage (as set forth in SBB's current Articles of
Incorporation, current Bylaws or pursuant to provisions of the GCL
requiring the lowest percentage vote) of the SBB Common Stock entitled to
vote on the Merger and the Merger Agreement and the Bylaw Amendment
approve the Merger and the Merger Agreement and the Bylaw Amendment;
(c) Subject to the fiduciary duties of the SBB Board of Directors to
the shareholders of SBB, (i) include in the Joint Proxy
Statement/Prospectus the recommendation of the SBB Board of Directors that
the shareholders of SBB vote in favor of the approval and adoption of the
Merger and the Merger Agreement and the transactions contemplated hereby
and thereby and the Bylaw Amendment, (ii) use its best efforts to obtain
such shareholder approval of the Merger and the Merger Agreement and the
Bylaw Amendment, and (iii) perform such other acts as may reasonably be
requested by Pacific to ensure that such shareholder approval of the
Merger and the Merger Agreement and the Bylaw Amendment is obtained; and
(d) Cause the Joint Proxy Statement/Prospectus to be mailed to the
shareholders of SBB as soon as practicable.
SECTION 6.05 Information for Applications and Statements
SBB will promptly, but in no event later than ten (10) business days
after receipt of a request by Pacific, furnish to Pacific all information, data
and documents concerning SBB, including, but not limited to, financial
statements, required for inclusion in any application or statement to be made by
Pacific to, or filed by Pacific with, any governmental body in connection with
the transactions contemplated by this Agreement, or in connection with any other
transactions during the pendency of this Agreement, and SBB represents and
warrants that all information so furnished for such statements and applications
shall be true and correct in all material respects and shall not omit any
material fact required to be stated therein or necessary to make the statements
made, in light of the circumstances under which they were made, not misleading.
SBB shall otherwise fully cooperate with Pacific in the filing of any
applications or other documents necessary to consummate the transactions
contemplated by this Agreement.
SECTION 6.06 Required Acts of SBB
Prior to the Closing, SBB shall, and, as applicable, shall cause the SBB
Subsidiaries to, unless otherwise permitted in writing by Pacific:
(a) Operate only in the ordinary course of business and consistent
with prudent banking practices;
(b) Except as required by prudent business practices, use all
reasonable efforts to preserve its business organization intact and to
retain its present customers, depositors and employees, and to maintain
all offices, machinery, equipment, materials, supplies, inventories,
vehicles and other properties owned, leased or used by it (whether under
its control or the control of others), in good operating condition and
repair, ordinary wear and tear excepted;
(c) Perform all of its obligations under contracts, leases and
documents relating to or affecting its assets, properties and business,
except such obligations as SBB may in good faith reasonably dispute;
(d) Maintain in full force and effect all insurance policies now in
effect or renewals thereof and, except as required by prudent business
practices that do not jeopardize insurance coverage, give all notices and
present all claims under all insurance policies in due and timely fashion;
(e) File all reports required to be filed with governmental
authorities and observe and conform, in all material respects, to all
applicable laws, rules, regulations, ordinances, codes, orders, licenses
and permits, except those being contested in good faith by appropriate
proceedings;
(f) Timely file all tax returns required to be filed by it and
promptly pay all taxes, assessments, governmental charges, duties,
penalties, interest and fines that become due and payable, except those
being contested in good faith by appropriate proceedings;
(g) Withhold from each payment made to each of its employees the
amount of all taxes (including, but not limited to, federal income taxes,
FICA taxes and state and local income and wage taxes) required to be
withheld therefrom and pay the same to the proper tax receiving officers;
and
(h) Account for all transactions and prepare all financial
statements of SBB in accordance with GAAP (unless otherwise instructed by
RAP in which instance account for such transaction in accordance with
RAP).
SECTION 6.07 Prohibited Acts of SBB
Prior to the Closing, SBB and, as applicable, the SBB Subsidiaries shall
not, without the prior written consent of Pacific:
(a) Take any action that would reasonably be anticipated to result
in a Material Adverse Change with respect to SBB;
(b) Take or fail to take any action that would cause or permit the
representations and warranties made in Article IV hereof to be inaccurate
at the time of the Closing or preclude SBB from making such
representations and warranties at the time of the Closing;
(c) Except as contemplated by this Agreement, change its Articles of
Incorporation or Bylaws or its authorized capital stock, or change the
Articles of Incorporation, Bylaws or authorized capital stock of any SBB
Subsidiary;
(d) Except as explicitly permitted hereunder or in accordance with
applicable law, engage in any transaction with any affiliated person or
allow such persons to acquire any assets from SBB or any SBB Subsidiary
except in the form of wages, salaries, fees for legal services and
reimbursement of expenses and by loans secured by liquid collateral having
a fair market value at least equal to the principal balance due on such
loan to its officers, directors and employees in the ordinary course of
business;
(e) Discharge or satisfy any lien, charge or encumbrance or pay any
obligation or liability, whether absolute or contingent, due or to become
due, except in the ordinary course of business consistent with prudent
banking practices and except for liabilities incurred in connection with
the transactions contemplated hereby;
(f) Except as provided in Section 6.19, declare or make any payment
of dividends or other distributions to its shareholder, or purchase,
retire or redeem, or obligate itself to purchase, retire or redeem, any of
its shares of capital stock or other securities;
(g) Except as required pursuant to the terms of this Agreement, and
except for the issuance of SBB Common Stock pursuant to the valid exercise
of SBB Stock Options, as defined in Section 4.03 hereof, which are
outstanding on the date of this Agreement, issue, reserve for issuance,
grant, sell or authorize the issuance of any shares of its capital stock
or other securities or subscriptions, options, warrants, calls, rights or
commitments of any kind relating to the issuance thereto;
(h) Grant any new stock options or accelerate the vesting of any
existing stock options, except as provided in this Agreement;
(i) Accelerate the vesting of pension or other benefits in favor of
employees of SBB or any SBB Subsidiary;
(j) Acquire any capital stock or other equity securities or acquire
any equity or ownership interest in any bank, corporation, partnership or
other entity (except (i) through settlement of indebtedness, foreclosure,
or the exercise of creditors' remedies or (ii) in a fiduciary capacity,
the ownership of which does not expose it to any liability from the
business, operations or liabilities of such person);
(k) Mortgage, pledge or subject to lien or charge, or grant any
security interest or any other encumbrance or restriction any of its
property, business or assets, tangible or intangible except in the
ordinary course of business and consistent with prudent banking practices;
(l) Sell, transfer, lease to others or otherwise dispose of any of
its assets or cancel or compromise any debt or claim, or waive or release
any right or claim of material value, except in the ordinary course of
business and consistent with past practices and safe and sound banking
principles;
(m) Make any change in the rate of compensation, commission, bonus
or other direct or indirect remuneration payable, or pay or agree or
orally promise to pay, conditionally or otherwise, any bonus, extra
compensation, pension or severance or vacation pay, to or for the benefit
of any of its shareholders, directors, officers, employees or agents, or
enter into any employment or consulting contract (other than as
contemplated by this Agreement) or other agreement with any director,
officer or employee or adopt, amend in any material respect or terminate
any pension, employee welfare, retirement, stock purchase, stock option,
stock appreciation rights, termination, severance, income protection,
golden parachute, savings or profit-sharing plan (including trust
agreements and insurance contracts embodying such plans), any deferred
compensation, or collective bargaining agreement, any group insurance
contract or any other incentive, welfare or employee benefit plan or
agreement maintained by it for the benefit of its directors, employees or
former employees, except in the ordinary course of business and consistent
with past practices and safe and sound banking principles;
(n) Except for improvements or betterments relating to SBB
Properties, make any capital expenditures or capital additions or
betterments in excess of an aggregate of $2,000,000;
(o) Hire or employ any person as a replacement for an existing
position with an annual salary equal to or greater than $120,000;
(p) Sell or knowingly dispose of, or otherwise divest itself of the
ownership, possession, custody or control, of any corporate books or
records of any nature that, in accordance with sound business practice,
normally are retained for a period of time after their use, creation or
receipt, except at the end of the normal retention period;
(q) Make any, or acquiesce with any, change in any accounting
methods, principles or material practices, except as required by changes
in GAAP as concurred in by SBB's independent auditors;
(r) Make, renew, extend the maturity of, or alter any of the
material terms of any loan, other than classified loans (which are
addressed in Section 6.07(s), to any single borrower and his or her
related interests in excess of the principal amount of $4,000,000;
provided, however, that Pacific shall be deemed to have given its consent
under this Section 6.07(r) unless Pacific objects to such transaction no
later than 48 hours (weekends and bank holidays shall not count) after
actual receipt by Pacific of all information relating to the making,
renewal or alteration of such loan; or
(s) Make, renew, extend the maturity of, or alter any of the
material terms of any classified loan to any single borrower and his or
her related interests in excess of the principal amount of $500,000;
provided, however, that Pacific shall be deemed to have given its consent
under this Section 6.07(s) unless Pacific objects to such transaction no
later than 48 hours (weekends and bank holidays shall not count) after
actual receipt by Pacific of all information relating to the making,
renewal or alteration of such loan.
SECTION 6.08 Access; Pre-Closing Investigation
Subject to the provisions of Article XI, SBB shall afford the officers,
directors, employees, attorneys, accountants, investment bankers and authorized
representatives of Pacific full access to the properties, books, contracts and
records of SBB and the SBB Subsidiaries, permit Pacific to make such inspections
as they may require and furnish to Pacific during such period all such
information concerning SBB and the SBB Subsidiaries and its affairs as Pacific
may reasonably request, in order that Pacific may have full opportunity to make
such reasonable investigation as it shall desire to make of the affairs of SBB
and the SBB Subsidiaries, including, without limitation, access sufficient to
verify the absence of any Material Adverse Change with respect to SBB, the
accuracy of the representations and warranties made by SBB in this Agreement,
the value of the assets and the liabilities of SBB and the satisfaction of the
conditions precedent to Pacific's obligations described in Article VII of this
Agreement. Pacific shall use its best efforts not to disrupt the normal business
operations of the SBB and the SBB Subsidiaries. SBB agrees at any time, and from
time to time, to furnish to Pacific as soon as practicable, any additional
information that Pacific may reasonably request.
SECTION 6.09 Director and Committee Meeting
SBB shall give notice to two (2) designees of Pacific and shall invite
such persons to attend all regular and special meetings of the Board of
Directors of SBB and all regular and special meetings of any board or senior
management committee of SBB, provided, however, that SBB reserves the right to
exclude such invitees from any portion of any such meeting at any time. Such
invitees shall be designated by Pacific subject to the consent of SBB, which
consent shall not be unreasonably withheld. In addition, SBB shall provide
Pacific with copies of the minutes of all regular and special meetings of the
Board of Directors of SBB and minutes of all regular and special meetings of all
regular and special meetings of any board or senior management committee of SBB
(except portions of such minutes which are devoted to the discussion of this
Agreement or the Merger or which, upon the advise of counsel, are otherwise
privileged). Copies of such minutes shall be provided to Pacific within five (5)
business days following the date of such meeting.
SECTION 6.10 Additional Financial Statements
SBB shall promptly furnish Pacific with true and complete copies of (i)
Call Reports of SBB&T for the quarter ended June 30, 1998 and each quarter
thereafter until the Effective Date, (ii) monthly directors' reports of SBB, and
(iii) unaudited month-end financial statements of SBB.
SECTION 6.11 Untrue Representations
SBB shall promptly notify Pacific in writing if SBB becomes aware of any
fact or condition that makes untrue, or shows to have been untrue, in any
material respect, any schedule or any other information furnished to Pacific or
any representation or warranty made in or pursuant to this Agreement or that
results in SBB's failure to comply with any covenant, condition or agreement
contained in this Agreement.
SECTION 6.12 Litigation and Claims
SBB shall promptly notify Pacific in writing of any litigation, or of
any claim, controversy or contingent liability that is expected to become the
subject of litigation, against SBB or any SBB Subsidiary or affecting any of
their respective properties if such litigation or potential litigation would, in
the event of an unfavorable outcome, result in a Material Adverse Change with
respect to SBB, and SBB shall promptly notify Pacific of any legal action, suit
or proceeding or judicial, administrative or governmental investigation, pending
or, to the knowledge of SBB, threatened against SBB or any SBB Subsidiary that
questions or might question the validity of this Agreement or the agreements
contemplated hereby, including, but not limited to, the Merger Agreement, or any
actions taken or to be taken by SBB pursuant hereto or thereto or seeks to
enjoin or otherwise restrain the transactions contemplated hereby or thereby.
SECTION 6.13 Adverse Change
SBB shall promptly notify Pacific in writing if any change or
development shall have occurred or, to the knowledge of SBB, been threatened (or
any development shall have occurred or been threatened involving a prospective
change) in the business, financial condition, operations or prospects of SBB or
the SBB Subsidiaries that has or may reasonably be expected to have or lead to a
Material Adverse Change with respect to SBB or that would adversely affect,
prevent or delay the obtaining of any regulatory approval for the consummation
of the transactions contemplated by this Agreement. Notwithstanding the
disclosure to Pacific of any such change, SBB shall not be relieved of any
liability to Pacific pursuant to this Agreement for, nor shall the providing of
such information by SBB to Pacific be deemed a waiver by Pacific of, the breach
of any representation or warranty of SBB contained in this Agreement.
SECTION 6.14 No Negotiation with Others
Until the Effective Date or the earlier termination of this Agreement,
SBB shall not, directly or indirectly, nor shall it permit any of its officers,
directors, employees, representatives or agents to, directly or indirectly: (i)
encourage, solicit or initiate discussions or negotiations with, or (ii) except
upon advice of counsel to the extent required to fulfill the fiduciary duties
owed to the shareholders of SBB, entertain, discuss or negotiate with, or
provide any information to, or cooperate with, any corporation, partnership,
person or other entity or group (other than Pacific or its Affiliates or
associates or officers, partners, employees or other authorized representatives
of Pacific or such Affiliates or associates) concerning any merger, tender offer
or other takeover offer, sale of substantial assets, sale of shares of capital
stock or similar transaction involving SBB (unless any such transaction is
expressly conditioned upon the performance by SBB of all of SBB's obligations
under this Agreement). As soon as practicable following receipt of any
unsolicited written offer, SBB will communicate to Pacific the terms of any
proposal or request for information.
SECTION 6.15 Consents and Approvals
SBB shall use its best efforts to obtain all consents and approvals from
third parties necessary to consummate the transactions contemplated by this
Agreement at the earliest practicable time.
SECTION 6.16 Environmental Investigation; Right to Terminate Agreement
(a) Pacific and its consultants, agents and representatives shall have the
right, to the same extent that SBB has such right, but not the obligation or
responsibility, to inspect any SBB Property, including, without limitation,
conducting asbestos surveys and sampling, environmental assessments and
investigation, and other environmental surveys and analyses including soil and
ground sampling ("Environmental Inspections") at any time on or prior to the
date which is forty-five (45) calendar days from the date of this Agreement.
Pacific shall notify SBB prior to any physical inspections of the SBB Property,
and SBB may place reasonable restrictions on the time of such inspections. If,
as a result of any such Environmental Inspection, further investigation
("secondary investigation") including, without limitation, test borings, soil,
water and other sampling is deemed desirable by Pacific, Pacific shall (i)
notify SBB of any SBB Property for which it intends to conduct such a secondary
investigation and the reasons for such secondary investigation, and (ii)
commence such secondary investigation, on or prior to the date which is sixty
(60) calendar days from the date of this Agreement. Pacific shall give
reasonable notice to SBB of such secondary investigations, and SBB may place
reasonable time and place restrictions on such secondary investigations.
(b) Pacific shall have the right to terminate this Agreement if (i) the
factual substance of any warranty or representation set forth in Section 4.19 is
not true and accurate; (ii) the results of such Environmental Inspection,
secondary investigation or other environmental survey are disapproved by Pacific
because the environmental inspection, secondary investigation or other
environmental survey identifies violations or potential violations of
Environmental Laws; (iii) SBB has refused to allow Pacific to conduct an
Environmental Inspection or secondary investigation in a manner that Pacific
reasonably considers necessary; (iv) the Environmental Inspection, secondary
investigation or other environmental survey identifies any past or present
event, condition or circumstance that would or potentially would require
remedial or cleanup action by SBB that would result in a Material Adverse
Change; (v) the Environmental Inspection, secondary investigation or other
environmental survey identifies the presence of any underground or above ground
storage tank in, on or under any SBB Property that is not shown to be in
compliance with all Environmental Laws applicable to the tank either now or at a
future time certain, or that has had a release of petroleum or some other
Hazardous Material that has not been cleaned up to the satisfaction of the
relevant governmental authority or any other party with a legal right to compel
cleanup; or (vi) the Environmental Inspection, secondary investigation or other
environmental survey identifies the presence of any asbestos-containing material
in, on or under any SBB Property, the removal of which would result in a
Material Adverse Change. On or prior to the date which is ninety (90) calendar
days from the date of this Agreement, Pacific shall advise SBB in writing as to
whether Pacific intends to terminate this Agreement in accordance with Section
9.02 because Pacific disapproves of the results of the Environmental Inspection,
secondary investigation or other environmental survey. SBB shall have the
opportunity to correct any objected to violations or conditions to Pacific's
reasonable satisfaction prior to the date which is one hundred and fifteen (115)
calendar days from the date of this Agreement. In the event that SBB fails to
demonstrate its satisfactory correction of the violations or conditions to
Pacific, Pacific may terminate the Agreement on or before the date which is one
hundred and twenty-five (125) days from the date of this Agreement.
(c) SBB agrees to make available to Pacific and its consultants, agents
and representatives all documents and other material relating to environmental
conditions of any SBB Property including, without limitation, the results of
other environmental inspections and surveys. SBB also agrees that all engineers
and consultants who prepared or furnished such reports may discuss such reports
and information with Pacific and shall be entitled to certify the same in favor
of Pacific and its consultants, agents and representatives and make all other
data available to Pacific and its consultants, agents and representatives.
(d) For purposes of this Section, the term "SBB Property" or "SBB
Properties" shall have the same meaning given in Section 4.19(e).
SECTION 6.17 Stock Options
(a) On the Effective Date, each outstanding option to purchase shares of
Pacific Common Stock (a "Pacific Stock Option") issued pursuant to the Pacific
Capital Bancorp 1984 Stock Option Plan, the Pacific Capital Bancorp 1994 Stock
Option Plan and the Pacific Capital Bancorp 1991 Directors Stock Option Plan
(together, the "Pacific Stock Option Plans"), whether or not exercisable or
vested, shall be assumed by SBB as hereinafter provided. Each Pacific Stock
Option shall be deemed to constitute an option to acquire, on the same terms and
conditions as were applicable under such Pacific Stock Option, the number of
full shares of SBB Common Stock calculated in accordance with the provision of
Section 1.06(b). In no event shall SBB be required to issue fractional shares of
SBB Common Stock upon the exercise of a converted option.
(b) SBB shall reserve and make available for issuance in connection with
the Merger and in accordance with the terms of this Agreement the number of full
shares of SBB Common Stock calculated in accordance with Section 1.06(b). As
soon as practicable after the Effective Date, SBB shall deliver to each holder
of Pacific Stock Options appropriate notices setting forth such holders' rights
pursuant to the Pacific Stock Option Plans, and the agreements evidencing the
grants of such Pacific Stock Options shall continue in effect on the same terms
and conditions (subject to the conversion required by Section 1.06(b) after
giving effect to the Merger and the assumption by SBB as set forth above). To
the extent necessary to effectuate the provisions of this Section 6.17, SBB may
deliver new or amended agreements reflecting the terms of each Pacific Stock
Option assumed by SBB and amend the Pacific Stock Option Plans to reflect the
terms hereof.
(c) As soon as practicable after the Effective Date, SBB shall file with
the S.E.C. a registration statement on an appropriate form with respect to the
shares of SBB Common Stock subject to such converted options, and shall use its
best efforts to maintain the effectiveness of such registration statement or
registration statements (and maintain the status of the prospectus or
prospectuses with respect thereto) for so long as such options remain
outstanding.
SECTION 6.18 Director and Officer Liability Insurance
Upon the Effective Date, any executive officer or director of Pacific
who becomes and officer or director of SBB (including any subsidiaries thereof)
shall be included in SBB's director and officer insurance policy.
SECTION 6.19 Dividends
SBB shall not declare, set aside or pay any dividend in respect of the
SBB Common Stock or make any other distribution to shareholders (including,
without limitation, any stock dividend, dividends in kind or other
distribution), whether in cash, stock or other property, after the date of this
Agreement, except that SBB may declare and pay its regular quarterly dividend on
the SBB Common Stock not to exceed $0.18 per share at approximately the same
time during each quarter which it has historically declared and paid such
dividend; provided, however, that SBB and Pacific shall cooperate with each
other to coordinate the record and payment dates of their respective dividends
for the quarter in which the Effective Date occurs such that the holders of
Pacific Common Stock shall receive a quarterly dividend from either Pacific or
SBB, but not from both with respect to such quarter.
SECTION 6.20 Conduct of Business in the Ordinary Course
Except as specifically provided for in this Agreement, SBB shall conduct
its business in the ordinary course as heretofore conducted. For purposes of
this Section 6.20, the ordinary course of business shall consist of the banking
and related business as presently conducted by SBB and the SBB Subsidiaries.
SECTION 6.21 Additions to SBB Board of Directors
SBB shall, prior to the Effective Date, take all action necessary to
effect the Bylaw Amendment so as to permit the number of directors of the
Surviving Corporation identified on Schedule One to Exhibit "A" hereto to be
designated.
SECTION 6.22 Director Voting
SBB shall use its best efforts to have each of its directors agree to
vote, or cause to be voted, all shares of SBB Common Stock beneficially owned by
them at the SBB Shareholders' Meeting in favor of the Merger. Subject to such
directors' fiduciary duties, each such director shall execute such documents as
are reasonably necessary to evidence their determination to vote their shares of
SBB Common Stock in favor of the Merger at the SBB Shareholders' Meeting.
SECTION 6.23 Pooling of Interests Accounting Treatment
SBB shall, and shall use its best efforts to cause its directors and
officers to, use all commercially reasonable efforts not inconsistent with the
terms of this Agreement to structure and consummate the Merger and all actions
related thereto in a manner that will qualify the Merger for "pooling of
interests" accounting treatment as determined by SBB's independent accounting
firm and by any securities regulatory body which shall review the Registration
Statement, including without limitation, the S.E.C.
SECTION 6.24 Disclosure Schedules
SBB agrees at or prior to the Closing to provide Pacific with supplemental
Schedules to be delivered by SBB pursuant to this Agreement reflecting any
material changes thereto between the date of this Agreement and the Closing
Date.
ARTICLE VII.
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PACIFIC
All obligations of Pacific under this Agreement are subject to the
fulfillment (or, if legally permissible, waiver by Pacific), prior to or at the
Closing, of each of the following conditions:
.SECTION 7.01 Compliance with Representations, Warranties and Agreements
(a) All representations and warranties made by SBB in this Agreement or in
any document or schedule delivered to Pacific pursuant hereto shall have been
true and correct in all material respects when made and shall be true and
correct in all material respects as of the Closing Date with the same force and
effect as if such representations and warranties were made at and as of the
Closing Date, except with respect to those representations and warranties
specifically made as of an earlier date (in which case such representations and
warranties shall be true as of such earlier date).
(b) SBB shall have performed or complied in all material respects with all
agreements, terms, covenants and conditions required by this Agreement to be
performed or complied with by SBB prior to or at the Closing.
SECTION 7.02 Shareholder Approval
The holders of at least the minimum required percentage of SBB Common
Stock and Pacific Common Stock entitled to vote on the Agreement, the Merger
Agreement and the Merger shall have approved the Agreement, the Merger Agreement
and the Merger, and the holders of at least the minimum required percentage of
SBB Common Stock entitled to vote on the Bylaw Amendment shall have approved the
Bylaw Amendment.
SECTION 7.03 Government and Other Approvals
SBB and Pacific shall have received approvals, acquiescence or consents,
all on terms and conditions mutually acceptable to SBB and Pacific, of the
transactions contemplated by this Agreement, and the Merger Agreement, from all
necessary governmental agencies and authorities and other third parties,
including but not limited to the S.E.C., and the Federal Reserve, and all
applicable waiting periods shall have expired, and SBB and Pacific shall have
received the approvals and consents of all third parties required to consummate
this Agreement and the other agreements contemplated hereby, including, but not
limited to, the Merger Agreement and the transactions contemplated hereby and
thereby. Such approvals and the transactions contemplated hereby shall not have
been contested or threatened to be contested by any Federal or state
governmental authority or by any other third party (except shareholders
asserting statutory dissenters' appraisal rights) by formal proceedings.
SECTION 7.04 No Litigation
No action shall have been taken, and no statute, rule, regulation or
order shall have been promulgated, enacted, entered, enforced or deemed
applicable to this Agreement, the Merger, or the transactions contemplated
hereby or thereby by any Federal, state or foreign government or governmental
authority or by any court, domestic or foreign, including the entry of a
preliminary or permanent injunction, that would: (a) make this Agreement or any
other agreement contemplated hereby, including, but not limited to, the Merger
Agreement, or the transactions contemplated hereby or thereby illegal, invalid
or unenforceable, (b) require the divestiture of a material portion of the
assets of SBB, (c) impose material limits in the ability of any party to this
Agreement to consummate the Agreement or any other agreement contemplated
hereby, including, but not limited to, the Merger Agreement, or the transactions
contemplated hereby or thereby, (d) otherwise result in a Material Adverse
Change, or (e) if the Agreement or any other agreement contemplated hereby,
including, but not limited to, the Merger Agreement, or the transactions
contemplated hereby or thereby are consummated, subject Pacific or subject any
officer, director, shareholder or employee of Pacific to criminal or civil
liability. No action or proceeding before any court or governmental authority,
domestic or foreign, by any government or governmental authority or by any other
person, domestic or foreign, shall be threatened, instituted or pending that
would reasonably be expected to result in any of the consequences referred to in
clauses (a) through (e) above.
SECTION 7.05 Delivery of Closing Documents
Pacific shall have received all documents required to be received from
SBB on or prior to the Closing Date as set forth in Section 2.03 hereof, all in
form and substance reasonably satisfactory to Pacific.
SECTION 7.06 Receipt of Fairness Opinion
The Board of Directors of Pacific shall have received, on or before the
date of the mailing of the Joint Proxy Statement/Prospectus, from its investment
advisor, Van Kasper & Company, an unqualified written opinion to the effect that
the Merger is fair to the shareholders of Pacific from a financial point of
view.
SECTION 7.07 Receipt of Pooling Opinions
Pacific shall have received an opinion letter, dated as of the Closing
Date, from KPMG Peat Marwick LLP, independent public accountants for Pacific, to
the effect that Pacific qualifies as an entity that may be a party to a business
combination for which the "pooling of interests" method of accounting would be
available under Accounting Principles Board Opinion No. 16 ("APB 16"). Pacific
shall have also received an opinion letter, dated as of the Closing Date, from
Arthur Andersen LLP, independent public accountants for SBB, to the effect that
the Merger will qualify for "pooling of interests" accounting treatment under
APB 16 if closed and consummated in accordance with this Agreement. In addition,
there shall have been no determination by any court, tribunal, regulatory agency
or other governmental entity, that the Merger fails or will fail to qualify for
"pooling of interests" accounting treatment.
SECTION 7.08 Registration Statement
The Registration Statement, including any amendments or supplements
thereto, shall be effective under the Securities Act and no stop order
suspending the effectiveness of the Registration Statement shall be in effect or
proceedings for purpose pending before or threatened by the S.E.C. All state
securities permits or approvals required by applicable state securities laws to
consummate the transactions contemplated by this Agreement and the Merger
Agreement shall have been received and remain in effect.
SECTION 7.09 Federal Tax Opinion
Pacific shall have received a copy of the opinion of Jenkens &
Gilchrist, P.C., counsel to SBB, to the effect that if the Merger is consummated
in accordance with the terms set forth in this Agreement (i) the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code,
(ii) no gain or loss will be recognized for federal income tax purposes by the
holders of shares of Pacific Common Stock upon receipt of the Merger
Consideration (except for cash received in lieu of fractional shares), (iii) the
basis of shares of SBB Common Stock received by the shareholders of Pacific will
be the same as the basis of shares of Pacific Common Stock exchanged therefor,
and (iv) the holding period of the shares of SBB Common Stock received by such
shareholders will include the holding period of the shares of Pacific Common
Stock exchanged therefor, provided such shares were held as capital assets as of
the Effective Date. In rendering such opinion, such counsel may require and rely
upon representations and covenants including those contained in certificates of
officers of SBB, Pacific and others.
SECTION 7.10 Dissenting Shareholders
Holders of not more than a certain percentage (not to exceed 9.9%) of
the issued and outstanding shares of Pacific Common Stock shall have demanded or
be entitled to demand payment of the fair value of their shares as dissenting
shareholders under applicable provisions of the GCL such that their receipt of
cash pursuant to the exercise of their appraisal rights, when combined with all
other cash transactions required to be considered under GAAP, would result in
the Merger not qualifying for "pooling of interests" accounting treatment under
GAAP.
SECTION 7.11 Accounting Treatment
All accounting and tax treatment, entries and adjustments in connection
with the transactions contemplated by this Agreement and the other agreements
contemplated hereby shall be reasonably satisfactory to Pacific, Pacific shall
not have received notification from any proper regulatory authority that
Pacific's accounting and tax treatment, entries and adjustments used in
connection with the Merger are improper, and Pacific shall not have been
required by any such regulatory authority to make any accounting or tax
adjustments that would constitute a Material Adverse Change.
SECTION 7.12 Bylaw Amendment
SBB shall have taken all actions necessary to effect the Bylaw Amendment.
SECTION 7.13 No Material Adverse Change
There shall have been no Material Adverse Change with respect to SBB
since December 31, 1997.
ARTICLE VIII.
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SBB
All obligations of SBB under this Agreement are subject to the fulfillment
(or, if legally permissible, waiver by SBB), prior to or at the Closing, of each
of the following conditions:
SECTION 8.01 Compliance with Representations, Warranties and Agreements
(a) All representations and warranties made by Pacific in this Agreement
or in any document or schedule delivered to SBB pursuant hereto shall have been
true and correct in all material respects when made and shall be true and
correct in all material respects as of the Closing Date with the same force and
effect as if such representations and warranties were made at and as of the
Closing Date, except with respect to those representations and warranties
specifically made as of an earlier date (in which case such representations and
warranties shall be true as of such earlier date).
(b) Pacific shall have performed or complied in all material respects with
all agreements, terms, covenants and conditions required by this Agreement to be
performed or complied with by Pacific prior to or at the Closing.
SECTION 8.02 Shareholder Approvals
The holders of at least the minimum required percentage of Pacific
Common Stock and SBB Common Stock entitled to vote on the Agreement, the Merger
Agreement and the Merger shall have approved the Agreement, the Merger Agreement
and the Merger; and the holding of at least the minimum percentage of SBB Common
Stock entitled to vote on the Bylaw Amendment shall have approved the Bylaw
Amendment.
SECTION 8.03 Government and Other Approvals
SBB and Pacific shall have received approvals, acquiescence or consents,
all on terms and conditions mutually acceptable to SBB and Pacific, of the
transactions contemplated by this Agreement and the Merger Agreement, from all
necessary governmental agencies and authorities and other third parties,
including but not limited to the S.E.C. and the Federal Reserve, and all
applicable waiting periods shall have expired, and SBB and Pacific shall have
received the approvals and consents of all third parties required to consummate
this Agreement and the other agreements contemplated hereby, including, but not
limited to, the Merger Agreement and the transactions contemplated hereby and
thereby. Such approvals and the transactions contemplated hereby shall not have
been contested or threatened to be contested by any Federal or state
governmental authority or by any other third party (except shareholders
asserting statutory dissenters' appraisal rights) by formal proceedings. It is
understood that, if such contest is brought by formal proceedings, SBB may, but
shall not be obligated to, answer and defend such contest or otherwise pursue
this transaction over such objection.
SECTION 8.04 No Litigation
No action shall have been taken, and no statute, rule, regulation or
order shall have been promulgated, enacted, entered, enforced or deemed
applicable to this Agreement, the Merger, or the transactions contemplated
hereby or thereby by any Federal, state or foreign government or governmental
authority or by any court, domestic or foreign, including the entry of a
preliminary or permanent injunction, that would (a) make this Agreement or any
other agreement contemplated hereby, including, but not limited to, the Merger
Agreement, or the transactions contemplated hereby or thereby illegal, invalid
or unenforceable, (b) require the divestiture of a material portion of the
assets of Pacific, (c) impose material limits in the ability of any party to
this Agreement to consummate the Agreement or any other agreement contemplated
hereby, including, but not limited to, the Merger Agreement, or the transactions
contemplated hereby or thereby, (d) otherwise result in a Material Adverse
Change, or (e) if the Agreement or any other agreement contemplated hereby,
including, but not limited to, the Merger Agreement, or the transactions
contemplated hereby or thereby are consummated, subject SBB or subject any
officer, director, shareholder or employee of SBB to criminal or civil
liability. No action or proceeding before any court or governmental authority,
domestic or foreign, by any government or governmental authority or by any other
person, domestic or foreign, shall be threatened, instituted or pending that
would reasonably be expected to result in any of the consequences referred to in
clauses (a) through (e) above.
SECTION 8.05 Delivery of Closing Documents
SBB shall have received all documents required to be received from
Pacific on or prior to the Closing Date as set forth in Section 2.02 hereof, all
in form and substance reasonably satisfactory to SBB.
SECTION 8.06 Receipt of Shareholder Letters
SBB shall have received from Pacific, at least 31 days prior to the
Closing Date, the signed Shareholder Letters, in the form attached hereto as
Exhibit "F" hereof, of each person who may reasonably be deemed an "affiliate"
of Pacific within the meaning of such term as used in Rule 145 under the
Securities Act.
SECTION 8.07 Receipt of Fairness Opinion
The Board of Directors of SBB shall have received, on or before the date
of the mailing of the Joint Proxy Statement/Prospectus, from its investment
advisor, The Bank Advisory Group, Inc., an unqualified written opinion to the
effect that the Merger is fair to the shareholders of SBB from a financial point
of view.
SECTION 8.08 Dissenting Shareholders
Holders of not more than a certain percentage (not to exceed 9.9%) of
the issued and outstanding shares of Pacific Common Stock shall have demanded or
be entitled to demand payment of the fair value of their shares as dissenting
shareholders under applicable provisions of the GCL such that their receipt of
cash pursuant to the exercise of their appraisal rights, when combined with all
other cash transactions required to be considered under GAAP, would result in
the Merger not qualifying for "pooling of interests" accounting treatment under
GAAP.
SECTION 8.09 Receipt of Pooling Opinions
SBB shall have received an opinion letter, dated as of the Closing Date,
from KPMG Peat Marwick LLP, independent public accountants for Pacific, to the
effect that Pacific qualifies as an entity that may be a party to a business
combination for which the "pooling of interests" method of accounting would be
available under APB 16. SBB shall have also received an opinion letter, dated as
of the Closing Date, from Arthur Andersen LLP, its independent public
accountants, to the effect that the Merger will qualify for "pooling of
interests" accounting treatment under APB 16 if closed and consummated in
accordance with this Agreement. In addition, there shall have been no
determination by any court, tribunal, regulatory agency or other governmental
entity, that the Merger fails or will fail to qualify for "pooling of interests"
accounting treatment.
SECTION 8.10 Registration Statement
The Registration Statement, including any amendments or supplements
thereto, shall be effective under the Securities Act and no stop order
suspending the effectiveness of the Registration Statement shall be in effect or
proceedings for purpose pending before or threatened by the S.E.C. All state
securities permits or approvals required by applicable state securities laws to
consummate the transactions contemplated by this Agreement and the Merger
Agreement shall have been received and remain in effect.
SECTION 8.11 Federal Tax Opinion
SBB shall have received an opinion of its counsel, Jenkens & Gilchrist,
P.C., to the effect that if the Merger is consummated in accordance with the
terms set forth in this Agreement (i) the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code, (ii) no gain or
loss will be recognized for federal income tax purposes by the holders of shares
of Pacific Common Stock upon receipt of the Merger Consideration (except for
cash received in lieu of fractional shares), (iii) the basis of shares of SBB
Common Stock received by the shareholders of Pacific will be the same as the
basis of shares of Pacific Common Stock exchanged therefor, and (iv) the holding
period of the shares of SBB Common Stock received by such shareholders will
include the holding period of the shares of Pacific Common Stock exchanged
therefor, provided such shares were held as capital assets as of the Effective
Date. In rendering such opinion, such counsel may require and rely upon
representations and covenants including those contained in certificates of
officers of SBB, Pacific and others.
SECTION 8.12 Accounting Treatment
All accounting and tax treatment, entries and adjustments in connection
with the transactions contemplated by this Agreement and the other agreements
contemplated hereby shall be reasonably satisfactory to SBB, SBB shall not have
received notification from any proper regulatory authority that SBB's accounting
and tax treatment, entries and adjustments used in connection with the Merger
are improper, and SBB shall not have been required by any such regulatory
authority to make any accounting or tax adjustments that would constitute a
Material Adverse Change.
SECTION 8.13 No Material Adverse Change
There shall have been no Material Adverse Change with respect to Pacific
since December 31, 1997.
ARTICLE IX.
EXPENSES, TERMINATION AND ABANDONMENT
SECTION 9.01 Expenses
Each of the parties hereto shall bear its respective costs and expenses
incurred in connection with the consummation of the transactions contemplated by
this Agreement; provided, however, in the event that:
(a) this Agreement is terminated by SBB because (i) the Merger
Agreement is not approved by the required vote of shareholders at the
Pacific Shareholders' Meeting, and (ii) the Board of Directors of Pacific
(subject to compliance with its fiduciary duties as advised by counsel)
shall have failed to have used its best efforts to obtain shareholder
approval, Pacific shall pay to SBB within ten (10) business days after
such termination (y) a termination fee of $7,650,000, and (z) all
documented fees and expenses of SBB related to this Agreement and the
transactions contemplated hereby (which fees and expenses, as communicated
to Pacific by SBB within five (5) business days after termination, shall
not exceed $250,000); and
(b) this Agreement is terminated by Pacific because (i) the Merger
Agreement is not approved by the required vote of shareholders at the SBB
Shareholders' Meeting, and (ii) the Board of Directors of SBB (subject to
compliance with its fiduciary duties as advised by counsel) shall have
failed to have used its best efforts to obtain shareholder approval, SBB
shall pay to Pacific within ten (10) business days after such termination
(y) a termination fee of $7,650,000, and (z) all documented fees and
expenses of Pacific related to this Agreement and the transactions
contemplated hereby (which fees and expenses, as communicated to SBB by
Pacific within five (5) business after termination, shall not exceed
$250,000); and
(c) this Agreement is terminated by Pacific because of a Third Party
Transaction (as defined in Section 9.02, Pacific shall pay to SBB within
ten (10) business days after such termination (y) a termination fee of
$7,650,000, and (z) all documented fees and expenses of SBB related to
this Agreement and the transactions contemplated hereby (which fees and
expenses, as communication to Pacific by SBB within five (5) business days
after termination, shall not exceed $250,000).
The parties hereto acknowledge that the agreements contained in this Section
9.01 are an integral part of the transactions contemplated in this Agreement,
and that, without these agreements, SBB and Pacific would not enter into this
Agreement.
SECTION 9.02 Termination
Subject to any payments as provided in Section 9.01, this Agreement may
be terminated, and the Merger may be abandoned, at any time prior to the
Effective Date:
(a) by mutual written agreement between SBB and Pacific, if the
Board of Directors of each party so determines by vote of a majority of
the members of its entire Board;
(b) by either SBB or Pacific, if the Effective Date has not occurred
by January 31, 1999, or such later date as may be mutually agreed to by
SBB and Pacific;
(c) by SBB, if there has been a Material Adverse Change with
respect to Pacific;
(d) by Pacific, if there has been a Material Adverse Change with
respect to SBB.
(e) by either SBB or Pacific, by written notice to the other, if the
other has breached any of its covenants in Article V or Article VI of this
Agreement, as the case may be, in any material respect and has failed to
correct or cure any such breach within twenty (20) business days after
notice thereof is given by the nonbreaching party;
(f) by either SBB or Pacific, by written notice to the other, if any
representation or warranty given or made by such other party in this
Agreement or in any schedule or other document delivered by such other
party in accordance with the terms of this Agreement, is or becomes untrue
or incorrect in any material respect and is not corrected within twenty
(20) business days after written notice thereof is given by the party
terminating this Agreement to the party giving or making such
representation or warranty, provided that any such notice shall be
delivered promptly upon discovery of the breach;
(g) by either SBB or Pacific, if (i) any of the transactions
contemplated by this Agreement or the Merger Agreement are disapproved by
any regulatory authority whose approval is required to consummate such
transactions, (ii) any court of competent jurisdiction in the United
States or other United States (federal or state) governmental body shall
have issued an order, decree or ruling or taken any other action
restraining, enjoining, invalidating or otherwise prohibiting the
Agreement or the transactions contemplated hereby and such order, decree,
ruling or other action shall have been final and nonappealable, or (iii)
either Pacific or SBB reasonably determines, in good faith and after
consulting with counsel, there is substantial likelihood that any
necessary regulatory approval will not be obtained or will be obtained
only upon a condition or conditions that make it inadvisable to proceed
with the transactions contemplated by this Agreement;
(h) by SBB or Pacific, if the Merger Agreement is not approved by
the required vote of shareholders of Pacific or SBB;
(i) by Pacific, by written notice to SBB, if (i) a proposal for a
Third Party Transaction (as defined below) involving Pacific has been made
or received and the Board of Directors of Pacific determines, in the
exercise of its good faith judgment (based on written advice of
independent legal counsel) that such termination is required in order for
Pacific's Board of Directors to comply with its fiduciary duties to
Pacific's shareholders, or (ii) following receipt by Pacific of a proposal
for a Third Party Transaction, the Board of Directors of Pacific shall
have altered its determination to recommend that the shareholders of
Pacific approve this Agreement or shall have failed to proceed to hold the
special Pacific Shareholders' Meeting to approve this Agreement, in either
case of which Pacific shall give SBB prompt written notice of its election
to terminate this Agreement pursuant to this Section 9.02(i).
For purposes of this Section 9.02(i), a "Third Party Transaction"
shall include (i) any successful tender offer for more than 50% of the
outstanding shares of Pacific, (ii) any merger or consolidation of Pacific
with or into any entity other than SBB or an affiliate of SBB, (iii) any
sale of all or substantially all of the assets of Pacific, (iv) any
reorganization of Pacific or other transaction that results or when
completed would result in a disposition of substantially all of the assets
of Pacific, or (v) the issuance, sale or disposition of securities
representing 50% or more of the common stock of Pacific;
(j) by SBB pursuant to the terms of Section 5.15(b) hereof;
(k) by Pacific pursuant to the terms of Section 6.16(b) hereof;
(l) by Pacific, if the average of the average closing bid and asked
price of a share of SBB Common Stock as reported on Nasdaq for the twenty
(20) business day period immediately preceding the fifth (5th) business
day prior to the Closing Date (the "SBB Average Price") shall be less than
$22.95 (which number shall be appropriately adjusted to give effect to any
Share Adjustment relative to shares of SBB Common Stock); provided,
however, that if the SBB Average Price shall be less than $22.95, Pacific
and SBB shall attempt in good faith to renegotiate the Exchange Ratio,
subject to existing market conditions. Should the parties fail to so
renegotiate the Exchange Ratio within three (3) business days after
determination of the SBB Average Price, Pacific may terminate this
Agreement pursuant to this Section 9.02(l);
(m) by Pacific, if Pacific shall not have received an unqualified
written opinion from its investment advisor, dated as of the mailing of
the Proxy Statement/Prospectus, to the effect that the Merger is fair to
the shareholders of Pacific from a financial point of view; or
(n) by SBB, if SBB shall not have received an unqualified written
opinion from its investment advisor, dated as of the mailing of the Proxy
Statement/Prospectus, to the effect that the Merger is fair to the
shareholders of SBB from a financial point of view.
SECTION 9.03 Notice of Termination
The power of termination provided for by Section 9.02 hereof may be
exercised only by a notice given in writing, as provided in Section 12.05 of
this Agreement.
SECTION 9.04 Effect of Termination
Without limiting any other relief to which either party hereto may be
entitled for breach of this Agreement, in the event of the termination and
abandonment of this Agreement pursuant to the provisions of Section 9.02 hereof,
no party to this Agreement shall have any further liability or obligation in
respect of this Agreement, except for (a) liability of a party pursuant to
Section 9.01 hereof, and (b) the provisions of Article XI hereof shall remain
applicable.
ARTICLE X.
NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES
SECTION 10.1 Nonsurvival of Representations and Warranties
The parties hereto agree that all of their respective representations and
warranties contained in this Agreement shall not survive Closing.
ARTICLE XI.
CONFIDENTIAL INFORMATION
SECTION 11.01 Definition of "Recipient," "Disclosing Party," "Representa-
tive", and "Person".
For purposes of this Article XI, the term "Recipient" shall mean the party
receiving the Subject Information (as defined in Section 11.02) and the term
"Disclosing Party" shall mean the party furnishing the Subject Information. The
terms "Recipient" or "Disclosing Party", as used herein, include: (1) all
persons and entities related to or affiliated in any way with the Recipient or
the Disclosing Party, as the case may be, and (2) any person or entity
controlling, controlled by or under common control with the Recipient or the
Disclosing Party, as the case may be. The term "Representative" as used herein,
shall include all directors, officers, shareholders, employees, representatives,
advisors, attorneys, accountants and agents of any of the foregoing. The term
"person" as used in this Article XI shall be broadly interpreted to include,
without limitation, any corporation, company, group, partnership, governmental
agency or individual.
SECTION 11.02 Definitions of "Subject Information"
For purposes of this Article XI, the term "Subject Information" shall
mean all information furnished to the Recipient or its Representatives (whether
prepared by the Disclosing Party, its Representatives or otherwise and whether
or not identified as being nonpublic, confidential or proprietary) by or on
behalf of the Disclosing Party or its Representatives relating to or involving
the business, operations or affairs of the Disclosing Party or otherwise in
possession of the Disclosing Party. The term "Subject Information" shall not
include information that (i) was already in the Recipient's possession at the
time it was first furnished to Recipient by or on behalf of Disclosing Party,
provided that such information is not known by the Recipient to be subject to
another confidentiality agreement with or other obligation of secrecy to the
Disclosing Party, its Subsidiaries or another party, or (ii) becomes generally
available to the public other than as a result of a disclosure by the Recipient
or its Representatives, or (iii) becomes available to the Recipient on a
non-confidential basis from a source other than the Disclosing Party, its
Representative or otherwise, provided that such source is not known by the
Recipient to be bound by a confidentiality agreement with or other obligation of
secrecy to the Disclosing Party, its Representative or another party.
SECTION 11.03 Confidentiality
Each Recipient hereby agrees that the Subject Information will be used
solely for the purpose of reviewing and evaluating the transactions contemplated
by this Agreement and the other agreements contemplated hereby, including the
Merger Agreement, and that the Subject Information will be kept confidential by
the Recipient and the Recipient's Representatives; provided, however, that (i)
any of such Subject Information may be disclosed to the Recipient's
Representatives (including, but not limited to, the Recipient's accountants and
attorneys) who need to know such information for the purpose of evaluating any
such possible transaction between the Disclosing Party and the Recipient (it
being understood that such Representatives shall be informed by the Recipient of
the confidential nature of such information and that the Recipient shall direct
and cause such persons to treat such information confidentially); and (ii) any
disclosure of such Subject Information may be made to which the Disclosing Party
consents in writing prior to any such disclosure by Recipient.
SECTION 11.04 Securities Law Concerns
Each Recipient hereby acknowledges that the Recipient is aware, and the
Recipient will advise the Recipient's Representatives who are informed as to the
matters that are the subject of this Agreement, that the United States
securities laws prohibit any person who has received material, non-public
information from an issuer of securities from purchasing or selling securities
of such issuer or from communicating such information to any other person under
circumstances in which it is reasonably foreseeable that such person is likely
to purchase or sell such securities.
SECTION 11.05 Return of Subject Information
In the event of termination of this Agreement or the Merger Agreement,
for any reason, the Recipient shall promptly return to the Disclosing Party all
material containing or reflecting any of the Subject Information other than
information contained in any application, notice or other document filed with
any governmental agency and not returned to the Recipient by such governmental
agency. In making any such filing, the Recipient will request confidential
treatment of such Subject Information included in any application, notice or
other document filed with any governmental agency.
SECTION 11.06 Specific Performance/Injunctive Relief
Each Recipient acknowledges that the Subject Information constitutes
valuable, special and unique property of the Disclosing Party critical to its
business and that any breach of Article XI of this Agreement by it will give
rise to irreparable injury to the Disclosing Party that is not compensable in
damages. Accordingly, each Recipient agrees that the Disclosing Party shall be
entitled to obtain specific performance and/or injunctive relief against the
breach or threatened breach of Article XI of this Agreement by the Recipient or
its Representatives. Each Recipient further agrees to waive, and use its
reasonable efforts to cause its Representatives to waive, any requirement for
the securing or posting of any bond in connection with such remedies. Such
remedies shall not be deemed the exclusive remedies for a breach of Article XI
of this Agreement, but shall be in addition to all other remedies available at
law or in equity to the Disclosing Party.
ARTICLE XII.
MISCELLANEOUS
SECTION 12.01 Brokerage Fees and Commissions
(a) SBB hereby represents to Pacific that, except as set forth on Schedule
12.01(a), no agent, representative or broker has represented SBB or any or all
of the shareholders in connection with the transactions described in this
Agreement. Pacific shall have no responsibility or liability for any fees,
expenses or commissions payable to any agent, representative or broker of SBB or
any shareholder of SBB, and SBB hereby agrees to indemnify and hold Pacific
harmless for any amounts owed to any agent, representative or broker of SBB or
any shareholder of SBB.
(b) Pacific hereby represents to SBB that, except as set forth on Schedule
12.01(b), no agent, representative or broker has represented Pacific or any or
all of the shareholders in connection with the transactions described in this
Agreement. SBB shall have no responsibility or liability for any fees, expenses
or commissions payable to any agent, representative or broker of Pacific or any
shareholder of Pacific, and Pacific hereby agrees to indemnify and hold SBB
harmless for any amounts owed to any agent, representative or broker of Pacific
or any shareholder of Pacific.
SECTION 12.02 Entire Agreement
This Agreement and the other agreements, documents, schedules, exhibits and
instruments executed and delivered by the parties to each other at the Closing
constitute the full understanding of the parties, a complete allocation of risks
between them and a complete and exclusive statement of the terms and conditions
of their agreement relating to the subject matter hereof and supersede any and
all prior agreements, whether written or oral, that may exist between the
parties with respect thereto. Except as otherwise specifically provided in this
Agreement, no conditions, usage of trade, course of dealing or performance,
understanding or agreement purporting to modify, vary, explain or supplement the
terms or conditions of this Agreement shall be binding unless hereafter or
contemporaneously herewith made in writing and signed by the party to be bound,
and no modification shall be effected by the acknowledgment or acceptance of
documents containing terms or conditions at variance with or in addition to
those set forth in this Agreement.
SECTION 12.03 Further Cooperation
The parties agree that they will, at any time and from time to time
after the Closing, upon request by the other and without further consideration,
do, perform, execute, acknowledge and deliver all such further acts, deeds,
assignments, assumptions, transfers, conveyances, powers of attorney,
certificates and assurances as may be reasonably required in order to fully
consummate the transactions contemplated hereby in accordance with this
Agreement or to carry out and perform any undertaking made by the parties
hereunder.
SECTION 12.04 Severability
In the event that any provision of this Agreement is held to be illegal,
invalid or unenforceable under present or future laws, then (a) such provision
shall be fully severable and this Agreement shall be construed and enforced as
if such illegal, invalid or unenforceable provision were not a part hereof; (b)
the remaining provisions of this Agreement shall remain in full force and effect
and shall not be affected by such illegal, invalid or unenforceable provision or
by its severance from this Agreement; and (c) there shall be added automatically
as a part of this Agreement a provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible and still be legal, valid
and enforceable.
SECTION 12.05 Notices
Any and all payments (other than payments at the Closing), notices,
requests, instructions and other communications required or permitted to be
given under this Agreement after the date hereof by any party hereto to any
other party may be delivered personally or by nationally recognized overnight
courier service or sent by mail or (except in the case of payments) by telex or
facsimile transmission, at the respective addresses or transmission numbers set
forth below and shall be effective (a) in the case of personal delivery, telex
or facsimile transmission, when received; (b) in the case of mail, upon the
earlier of actual receipt or five (5) business days after deposit in the United
States Postal Service, first class certified or registered mail, postage
prepaid, return receipt requested; and (c) in the case of nationally-recognized
overnight courier service, one (1) business day after delivery to such courier
service together with all appropriate fees or charges and instructions for such
overnight delivery. The parties may change their respective addresses and
transmission numbers by written notice to all other parties, sent as provided in
this Section 12.05. All communications must be in writing and addressed as
follows:
IF TO PACIFIC:
Pacific Capital Bancorp
307 Main Street
Salinas, California 93901
Telecopy: (408) 646-9748
Attention: Mr. Clayton C. Larson,
President and Chief Administrative Officer
WITH A COPY TO:
Mr. James E. Topinka
Preston Gates & Ellis LLP
One Maritime Plaza
Suite 2400
San Francisco, California 94111
Telecopy: (415) 788-8819
IF TO SBB:
Santa Barbara Bancorp
1021 Anacapa Street
Santa Barbara, California 93101-2036
Telecopy: (804) 564-6293
Attention: Mr. David W. Spainhour,
President and Chief Executive Officer
WITH A COPY TO:
Mr. Charles E. Greef
Mr. Peter G. Weinstock
Jenkens & Gilchrist,
a Professional Corporation
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202-2799
Telecopy: (214) 855-4300
SECTION 12.06 GOVERNING LAW
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OF CALIFORNIA (INCLUDING THOSE LAWS RELATING TO CHOICE OF LAW)
APPLYING TO CONTRACTS ENTERED INTO AND TO BE PERFORMED WITHIN THE STATE OF
CALIFORNIA, WITHOUT REGARD FOR THE PROVISIONS THEREOF REGARDING CHOICE OF LAW.
VENUE FOR ANY CAUSE OF ACTION ARISING FROM THIS AGREEMENT SHALL LIE IN SANTA
BARBARA, CALIFORNIA.
SECTION 12.07 Multiple Counterparts
For the convenience of the parties hereto, this Agreement may be
executed in multiple counterparts, each of which shall be deemed an original,
and all counterparts hereof so executed by the parties hereto, whether or not
such counterpart shall bear the execution of each of the parties hereto, shall
be deemed to be, and shall be construed as, one and the same Agreement. A
telecopy or facsimile transmission of a signed counterpart of this Agreement
shall be sufficient to bind the party or parties whose signature(s) appear
thereon.
SECTION 12.08 Certain Definitions
A. "Affiliate" means, with respect to any person or entity, any
person or entity that, directly or indirectly, controls, is controlled by,
or is under common control with, such person or entity in question. For
the purposes of this definition, "control" (including, with correlative
meaning, the terms "controlled by" and "under common control with") as
used with respect to any person or entity, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of
the management and policies of such person or entity, whether through the
ownership of voting securities or by contract or otherwise.
B. "Subsidiary" means, when used with reference to an entity, any
corporation, a majority of the outstanding voting securities of which are
owned directly or indirectly by such entity or any partnership, joint
venture or other enterprise in which any entity has, directly or
indirectly, any equity interest.
C. "Material Adverse Change" means any material adverse change
(excluding the occurrence of expenses in connection with the Merger) since
December 31, 1997 in the business, results of operations, condition
(financial or otherwise), assets, properties, liabilities (absolute,
accrued, contingent or otherwise), reserves of Pacific or SBB, as the case
may be, and their respective Subsidiaries taken as a whole, and
specifically includes, without limitation, with respect to Pacific, any
change that reduces the tangible shareholders' equity of Pacific below
$70,000,000, or, with respect to SBB, any change that reduces the tangible
shareholders' equity of SBB below $118,000,000.
D. "Environmental Laws" mean all federal, state and local laws,
regulations, statutes, ordinances, codes, rules, decisions, orders or
decrees relating or pertaining to the public health and safety or the
environment, or otherwise governing the generation, use, handling,
collection, treatment, storage, transportation, recovery, recycling,
removal, discharge or disposal of Hazardous Materials, including, without
limitation, the Solid Waste Disposal Act, 42 U.S.C. 6901 et seq., as
amended ("SWDA," also known as "RCRA" for a subsequent amending act), (b)
the Comprehensive Environmental Response, Compensation and Liability Act,
42 U.S.C. ss.9601 et seq., as amended ("CERCLA"), (c) the Clean Water Act,
33 U.S.C. ss.1251 et seq., as amended ("CWA"), (d) the Clean Air Act, 42
U.S.C. ss.7401 et seq., as amended ("CAA"), (e) the Toxic Substances
Control Act, 15 U.S.C. ss.2601 et seq., as amended ("TSCA"), (f) the
Emergency Planning and Community Right to Know Act, 15 U.S.C. ss.2601 et
seq., as amended ("EPCRKA"), and (g) the Occupational Safety and Health
Act, 29 U.S.C. ss. 651 et seq., as amended.
E. "Hazardous Material" means, without limitation, (a) any
"hazardous wastes" as defined under RCRA, (b) any "hazardous substances"
as defined under CERCLA, (c) any toxic pollutants as defined under CWA,
(d) any hazardous air pollutants as defined under CAA, (e) any hazardous
chemicals as defined under TSCA, (f) any hazardous substances or extremely
hazardous substances as defined under EPCRKA, (g) asbestos, (h)
polychlorinated biphenyls, (i) underground storage tanks, whether empty,
filled or partially filled with any substance, (j) any substance the
presence of which on the property in question is prohibited under any
Environmental Law, and (k) any other substance which under any
Environmental Law requires special handling or notification of or
reporting to any federal, state or local governmental entity in its
generation, use, handling, collection, treatment, storage, re-cycling,
treatment, transportation, recovery, removal, discharge or disposal.
Notwithstanding the foregoing, "Hazardous Material" shall not include
materials employed in normal consumer or office uses, such as gasoline,
lubricants, printing materials, cleaners, disinfectants, pesticides,
building materials, fluorescent lights and ballasts, batteries and
refrigerants, as long as such materials are used and stored only in
quantities typical of consumer and office uses.
SECTION 12.09 Specific Performance
Each of the parties hereto acknowledges that the other parties would be
irreparably damaged and would not have an adequate remedy at law for money
damages in the event that any of the covenants contained in this Agreement were
not performed in accordance with its terms or otherwise were materially
breached. Each of the parties hereto therefore agrees that, without the
necessity of proving actual damages or posting bond or other security, the other
party shall be entitled to temporary and/or permanent injunction or injunctions
to prevent breaches of such performance and to specific enforcement of such
covenants in addition to any other remedy to which they may be entitled, at law
or in equity.
SECTION 12.10 Attorneys' fees and Costs
In the event attorneys' fees or other costs are incurred to secure
performance of any of the obligations herein provided for, or to establish
damages for the breach thereof, or to obtain any other appropriate relief,
whether by way of prosecution or defense, the prevailing party shall be entitled
to recover reasonable attorneys' fees and costs incurred therein.
SECTION 12.11 Rules of Construction
Each use herein of the masculine, neuter or feminine gender shall be
deemed to include the other genders. Each use herein of the plural shall include
the singular and vice versa, in each case as the context requires or as it is
otherwise appropriate. The word "or" is used in the inclusive sense. All
articles and sections referred to herein are articles and sections,
respectively, of this Agreement and all exhibits and schedules referred to
herein are exhibits and schedules, respectively, attached to this Agreement.
Descriptive headings as to the contents of particular sections are for
convenience only and shall not control or affect the meaning, construction or
interpretation of any provision of this Agreement. Any and all schedules,
exhibits, annexes, statements, reports, certificates or other documents or
instruments referred to herein or attached hereto are and shall be incorporated
herein by reference hereto as though fully set forth herein verbatim.
SECTION 12.12 Binding Effect; Assignment
All of the terms, covenants, representations, warranties and conditions
of this Agreement shall be binding upon, and inure to the benefit of and be
enforceable by, the parties hereto and their respective successors,
representatives and permitted assigns. Nothing expressed or referred to herein
is intended or shall be construed to give any person other than the parties
hereto any legal or equitable right, remedy or claim under or in respect of this
Agreement, or any provision herein contained, it being the intention of the
parties hereto that this Agreement, the assumption of obligations and statements
of responsibilities hereunder, and all other conditions and provisions hereof
are for the sole benefit of the parties to this Agreement and for the benefit of
no other person. Nothing in this Agreement shall act to relieve or discharge the
obligation or liability of any third party to any party to this Agreement, nor
shall any provision give any third party any right of subrogation or action over
or against any party to this Agreement. No party to this Agreement shall assign
this Agreement, by operation of law or otherwise, in whole or in part, without
the prior written consent of the other parties. Any assignment made or attempted
in violation of this Section 12.12 shall be void and of no effect.
SECTION 12.13 Public Disclosure
Neither SBB nor Pacific will make, issue or release any announcement,
statement, press release, acknowledgment or other public disclosure of the
existence of, or reveal the terms, conditions or the status of, this Agreement
or the transactions contemplated hereby without the prior written consent of the
other parties to this Agreement; provided, however, that notwithstanding the
foregoing, SBB and Pacific will be permitted to make any public disclosures or
governmental filings as legal counsel may deem necessary to maintain compliance
with or to prevent violations of applicable federal or state laws or regulations
or which may be necessary to obtain regulatory approval for the transactions
contemplated hereby.
SECTION 12.14 Extension; Waiver
At any time prior to the Closing Date, the parties may (i) extend the
time for the performance of any of the obligations or other acts of the other
parties hereto, (ii) waive any inaccuracies in the representations and
warranties contained herein or in any document, certificate or writing delivered
pursuant hereto, or (iii) waive compliance with any of the agreements or
conditions contained herein. Such action shall be evidenced by a signed written
notice given in the manner provided in Section 12.05 hereof. No party to this
Agreement shall by any act (except by a written instrument given pursuant to
Section 12.05 hereof) be deemed to have waived any right or remedy hereunder or
to have acquiesced in any breach of any of the terms and conditions hereof. No
failure to exercise, nor any delay in exercising any right, power or privilege
hereunder by any party hereto shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. A waiver of any party of any right or remedy on any one occasion
shall not be construed as a bar to any right or remedy that such party would
otherwise have on any future occasion or to any right or remedy that any other
party may have hereunder.
SECTION 12.15 Amendments
To the extent permitted by applicable law, this Agreement may be amended
by action taken by or on behalf of the Board of Directors of SBB and Pacific at
any time before or after adoption of this Agreement by the shareholders of SBB
and Pacific but, after any submission of this Agreement to such shareholders for
approval, no amendment shall be made that (i) decreases the Merger Consideration
to be paid for the Pacific Common Stock as set forth in Section 1.04 or (ii)
materially and adversely affects the rights of the shareholders of either SBB or
Pacific hereunder without the requisite approval of such shareholders. This
Agreement may be amended, modified or supplemented only by an instrument in
writing executed by the party against which enforcement of the amendment,
modification or supplement is sought.
SECTION 12.16 Access; Due Diligence
(a) Subject to the confidentiality provisions of Article XI, Pacific
shall, for a period of forty-five (45) calendar days following the date of this
Agreement, afford the officers, directors, employees, attorneys, accountants,
investment bankers and authorized representatives of SBB full access to the
properties, books, contracts and records of Pacific in order to conduct due
diligence of Pacific to assess the condition and results of operations of
Pacific.
(b) Subject to the confidentiality provisions of Article XI, SBB shall,
for a period of forty-five (45) calendar days following the date of this
Agreement, afford the officers, directors, employees, attorneys, accountants,
investment bankers and authorized representatives of Pacific full access to the
properties, books, contracts and records of SBB in order to conduct due
diligence of SBB to assess the condition and results of operations of SBB.
[Signatures Follow]
<PAGE>
IN WITNESS WHEREOF, SBB and Pacific have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
SANTA BARBARA BANCORP
By:
William S. Thomas, Jr., Vice
Chairman and Chief Operating Officer
and
By:
Kent M. Vining, Senior Vice
President
PACIFIC CAPITAL BANCORP
By:
D. Vernon Horton, Chairman of the
Board and Chief Executive Officer
and
By:
Clayton C. Larson, President and
Chief Administrative Officer
<PAGE>
1
EXHIBIT "A"
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Merger Agreement"), is made and
entered into as of the _____ day of July, 1998, by and between Santa Barbara
Bancorp, a California corporation and registered bank holding company under the
Bank Holding Company Act of 1956, as amended (the "BHCA") with its principal
offices at 1021 Anacapa Street, Santa Barbara, California 93101 ("SBB") and
Pacific Capital Bancorp, a California corporation and registered bank holding
company under the BHCA with its principal offices at 307 South Main Street,
Salinas, California ("Pacific").
W I T N E S S E T H:
WHEREAS, Pacific is a California corporation duly organized and
existing under the laws of the State of California; and
WHEREAS, SBB is a California corporation duly organized and existing
under the laws of the State of California; and
WHEREAS, SBB and Pacific desire to combine their respective businesses;
and
WHEREAS, in furtherance of the combination of their respective businesses,
SBB and Pacific desire that Pacific shall be merged with and into SBB, under the
articles of incorporation of SBB and with the resulting name "Pacific Capital
Bancorp" (SBB as it will exist from and after the Effective Date (defined
herein) being referred to herein as the "Surviving Corporation"), and that (i)
all of the issued and outstanding shares of common stock of Pacific (other than
shares held by dissenting shareholders, fractional share interests and as
otherwise set forth herein) shall be converted into and exchanged for shares of
common stock of the Surviving Corporation, (ii) all outstanding options to
acquire common stock of Pacific shall be converted into options to acquire
common stock of the Surviving Corporation, and (iii) all of the issued and
outstanding shares of capital stock of SBB shall continue to be issued and
outstanding shares of capital stock of the Surviving Corporation, all pursuant
this Merger Agreement; and
WHEREAS, pursuant to the authority given by and in accordance with the
provisions of the California General Corporate Law, as amended (the "GCL"), a
majority of the members of the respective Boards of Directors of SBB and Pacific
have approved this Merger Agreement and the proposed transactions on the terms
and conditions set forth in this Merger Agreement and the schedules hereto and
have authorized the execution hereof; and
WHEREAS, SBB and Pacific desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
execution and delivery of this Agreement and certain additional agreements
related to the transactions contemplated hereby.
NOW, THEREFORE, for and in consideration of the foregoing premises, and
subject to the following terms and conditions, the parties hereto undertake,
promise, covenant and agree with each other as follows:
1. Merger of Pacific and SBB. On the Effective Date (as defined in
Section 15), Pacific shall be merged with and into SBB pursuant to the
provisions of Section 1107 of the GCL (the "Merger"). SBB shall be the surviving
corporation in the Merger (the "Surviving Corporation") and shall continue its
corporate existence under the laws of the State of California. Upon consummation
of the Merger, the separate corporate existence of Pacific shall terminate.
2. Effects of the Merger. The Merger shall have the effects as set forth
in Section 1107 of the GCL. The Surviving Corporation shall be deemed to be the
successor to each of SBB and Pacific; shall be subject to all the liabilities,
obligations, duties and relations of each merging corporation; and shall without
the necessity of any conveyance, assignment or transfer, become the owner of all
of the assets of every kind and character formerly belonging to SBB and Pacific.
Except as provided in Section 3 herein, on the Effective Date the Articles of
Incorporation and Bylaws of SBB shall be the Articles of Incorporation and
Bylaws of the Surviving Corporation until the same shall be amended in
accordance with applicable law.
3. Amendment to Articles of Incorporation of Surviving Corporation. On the
Effective Date, Article One to the Articles of Incorporation of the Surviving
Corporation as specified in Section 2 hereof shall be amended to provide that
the name of the Surviving Corporation shall be "Pacific Capital Bancorp".
4. Directors and Officers. The directors and officers of the Surviving
Corporation at the Effective Date shall be as set forth on Schedule One to this
Agreement and each of such persons shall hold office from the Effective Date
until their respective successors are duly elected or appointed and qualified in
the manner provided in the Articles of Incorporation and Bylaws of the Surviving
Corporation or as otherwise provided by law.
5. Conversion of the Pacific Common Stock.
(a) On the Effective Date, by virtue of the Merger and without any action
on the part of the holders of the following-described security, each share of
the common stock, no par value per share, of Pacific (the "Pacific Common
Stock") issued and outstanding immediately prior to the Effective Date (other
than shares of Pacific Common Stock (i) as to which dissenters' rights have been
perfected, or (ii) held directly or indirectly by Pacific or SBB (except for
Trust Account Shares or DPC Shares as defined in Section 5(d)) shall be
converted into the right to receive 1.935 shares (the "Exchange Ratio") of the
fully-paid, nonassessable and registered common stock, no par value per share,
of SBB (the "SBB Common Stock") (together with any cash payment in lieu of
fractional shares, as provided below, the "Merger Consideration").
(b) No fractional shares of SBB Common Stock shall be issued and, in lieu
thereof, holders of shares of Pacific Common Stock who would otherwise be
entitled to a fractional share interest (after taking into account all shares of
Pacific Common Stock held by such holder) shall be paid an amount in cash equal
to the product of such fractional share interest and the average of the closing
bid and asked price of a share of SBB Common Stock on the Nasdaq National Market
on the business day immediately preceding the Effective Date.
(c) All of the shares of Pacific Common Stock converted into SBB Common
Stock pursuant to this Section 5 shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist as of the
Effective Date, and each certificate (each a "Certificate") previously
representing any such shares of Pacific Common Stock shall thereafter represent
the right to receive (i) a certificate representing the number of whole shares
of SBB Common Stock and (ii) cash in lieu of fractional shares into which the
shares of Pacific Common Stock represented by such Certificate have been
converted pursuant to this Section 5. Certificates previously representing
shares of Pacific Common Stock shall be exchanged for certificates representing
whole shares of SBB Common Stock and cash in lieu of fractional shares issued in
consideration therefor upon the surrender of such Certificates to the Exchange
Agent, without any interest thereon. Such certificates representing whole shares
of SBB Common Stock exchanged for certificates previously representing shares of
Pacific Common Stock shall bear the name of the Surviving Corporation.
(d) On the Effective Date, all shares of Pacific Common Stock that are
owned, directly or indirectly, by Pacific or SBB or any of their respective
subsidiaries (other than (i) shares of Pacific Common Stock held, directly or
indirectly, in trust accounts, managed accounts and the like or otherwise held
in a fiduciary capacity that are beneficially owned by third parties (any such
shares, and shares of Pacific Common Stock which are similarly held, whether
held directly or indirectly by Pacific or SBB, as the case may be, being
referred to herein as "Trust Account Shares") and (ii) shares of Pacific Common
Stock held by Pacific or any of its subsidiaries in respect of a debt previously
contracted (any such shares being referred to herein as "DPC Shares")) shall be
canceled and shall cease to exist and no stock of SBB or other consideration
shall be delivered in exchange therefor. All shares of SBB Common Stock that are
owned by Pacific or any of its subsidiaries (other than Trust Account Shares and
DPC Shares with respect to SBB Common Stock) shall be retired.
(e) If, between the date hereof and the Effective Date, the outstanding
shares of SBB Common Stock or Pacific Common Stock shall have been increased,
decreased, changed into or exchanged for a different number or kind of shares or
securities as a result of a reorganization, recapitalization, reclassification,
stock dividend, stock split, reverse stock split, or other similar change in
capitalization (a "Share Adjustment"), then the number of shares of SBB Common
Stock into which a share of Pacific Common Stock shall be converted pursuant to
subsection (a) above shall be appropriately and proportionately adjusted so that
each shareholder of Pacific shall be entitled to receive such number of shares
of SBB Common Stock as such shareholder would have received pursuant to such
Share Adjustment had the record date therefor been immediately following the
Effective Date.
(f) If any of the shares of Pacific Common Stock are "dissenting shares"
as defined under applicable provisions of Chapter 13 of the GCL, any Certificate
representing such shares shall not be converted as described in this Section 5,
but from and after the Effective Date shall represent only the right to receive
such value as may be determined pursuant to Chapter 13 of the GCL; provided,
however, that each dissenting share of Pacific Common Stock which shall cease to
be a dissenting share shall have only such rights as are provided under the GCL.
. On and after the Effective Date, each share of SBB Common Stock issued
and outstanding immediately prior to the Closing Date shall remain an issued and
outstanding share of common stock of the Surviving Corporation and shall not be
affected by the Merger. References to SBB Common Stock in this Merger Agreement
as of and after the Effective Date shall be deemed to mean the common stock of
the Surviving Corporation.
.. Stock Options
(a) On the Effective Date, each non-statutory option to purchase shares of
Pacific Common Stock granted pursuant to a stock option plan maintained by
Pacific and which is outstanding and unexercised immediately prior thereto shall
cease to represent a right to acquire shares of Pacific Common Stock and shall
be assumed by the Surviving Corporation and converted automatically into an
option to purchase shares of SBB Common Stock in an amount and at an exercise
price determined as provided below (and otherwise subject to the terms of the
stock option plans of Pacific and the agreements evidencing grants thereunder):
(i) The number of shares of SBB Common Stock to be subject to the
converted option shall be equal to the product of the number of shares of
Pacific Common Stock subject to the original option and the Exchange Ratio
(provided that such number of shares shall be rounded to the nearest one
one-hundredth of a share); and
(ii) The exercise price per share of SBB Common Stock under the
converted option shall be equal to the exercise price per share of Pacific
Common Stock under the original option divided by the Exchange Ratio
(provided that such exercise price shall be rounded to the nearest one
one-hundredth of a dollar).
(b) On the Effective Date, each option to purchase shares of Pacific
Common Stock granted pursuant to a stock option plan maintained by Pacific and
which is an "incentive stock option" (as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code")) and which is outstanding and
unexercised immediately prior thereto shall cease to represent a right to
acquire shares of Pacific Common Stock and shall be assumed by the Surviving
Corporation and converted automatically into an option to purchase shares of SBB
Common Stock in an amount and at an exercise price determined in a manner which
is consistent with Section 424(a) of the Code. The duration and other terms of
the converted option shall be the same as the original option, except that all
references to Pacific shall be deemed to be references to the Surviving
Corporation.
8. Stock Transfer Books. On the Effective Date, the stock transfer books
of Pacific shall be closed, and no transfer of Pacific Common Stock theretofore
outstanding shall thereafter be made.
9. The Shareholders' Meetings. The Merger shall be submitted to the
shareholders of the each of SBB and Pacific at meetings to be called and held as
promptly as practicable. Upon approval of the Merger by the requisite vote of
the shareholders of each of SBB and Pacific, this Merger Agreement shall be made
effective as soon as practicable thereafter in the manner provided in Section 15
hereof.
10. Dissenters' Rights. Any shareholder of Pacific who perfects his or her
dissenter's rights in accordance with the provisions of Chapter 13 of the GCL
shall be governed by such provisions of law.
11. Conditions to Consummation of the Merger. Consummation of the Merger
as provided herein shall be conditioned upon: (i) consummation of the Agreement
and Plan of Reorganization by and between SBB and Pacific, (ii) the receipt of
all consents, orders and approvals and satisfaction of all other requirements
prescribed by law which are necessary for the consummation of the Merger,
including without limitation, the approval of the Board of Governors of the
Federal Reserve System.
12. Termination. This Merger Agreement may be terminated and abandoned at
any time prior to or on the Closing Date, whether before or after action thereon
by the shareholders of SBB and Pacific, by mutual consent of the Boards of
Directors of both SBB and Pacific.
13. Effect of Termination. In the event of the termination and abandonment
of this Merger Agreement pursuant to the provisions of Section 12 hereof, the
same shall be of no further force or effect and there shall be no liability by
reason of this Merger Agreement or the termination thereof on the part of either
SBB, Pacific or the directors, officers, employees, agents or stockholders of
either of them.
14. Waiver and Amendment. Any of the terms or conditions of this Merger
Agreement may be waived at any time, whether before or after action thereon by
the shareholders of SBB and Pacific, by the party that is entitled to the
benefits thereof. This Merger Agreement may be amended by action taken by or on
behalf of the board of directors of SBB and Pacific at any time before or after
adoption of this Merger Agreement by the shareholders of SBB and Pacific but,
after any submission of this Agreement to such shareholders for approval, no
amendment shall be made that (i) decreases the Merger Consideration to be paid
for the Pacific Common Stock as set forth in Section 5, or (ii) materially and
adversely affects the rights of the shareholders of either SBB or Pacific
hereunder without the requisite approval of such shareholders. Any waiver,
modification or amendment of this Merger Agreement shall be in writing.
15. Effective Date. Subject to the terms, and upon satisfaction on or
before the Closing Date of all requirements of law, and the conditions specified
in this Merger Agreement, the Merger shall become effective on the date
specified in the Certificate of Merger to be issued by the Secretary of State of
the State of California under the seal of his office, such date being herein
called the "Effective Date."
16. Multiple Counterparts. For the convenience of the parties hereto, this
Merger Agreement may be executed in multiple counterparts, each of which shall
be deemed an original, and all counterparts hereof so executed by the parties
hereto, whether or not such counterpart shall bear the execution of each of the
parties hereto, shall be deemed to be, and shall be construed as, one and the
same Merger Agreement. A telecopy or facsimile transmission of a signed
counterpart of this Merger Agreement shall be sufficient to bind the party or
parties whose signature(s) appear thereon.
17. Governing Law. THIS MERGER AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA.
18. Further Assurances. Each party hereto agrees from time to time, as and
when requested by the other party hereto, or by its successors or assigns, to
execute and deliver, or cause to be executed and delivered, all such deeds and
instruments and to take or cause to be taken such further or other acts, either
before or after the Effective Date, as may be deemed necessary or desirable in
order to vest in and confirm to the Surviving Corporation title to and
possession of any assets of SBB or Pacific acquired or to be acquired by reason
of or as a result of the Merger and otherwise to carry out the intent and
purposes hereof, and the officers and directors of the parties hereto are fully
authorized in the name of their respective corporate names to take any and all
such actions.
19. Assignment. This Merger Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns,
but no party to this Merger Agreement shall assign this Merger Agreement, by
operation of law or otherwise, in whole or in part, without the prior written
consent of the other parties. Any assignment made or attempted in violation of
this Section 19 shall be void and of no effect.
20. Severability. In the event that any provision of this Merger Agreement
is held to be illegal, invalid or unenforceable under present or future laws,
then (a) such provision shall be fully severable and this Merger Agreement shall
be construed and enforced as if such illegal, invalid or unenforceable provision
were not a part hereof; (b) the remaining provisions of this Merger Agreement
shall remain in full force and effect and shall not be affected by such illegal,
invalid or unenforceable provision or by its severance from this Merger
Agreement; and (c) there shall be added automatically as a part of this Merger
Agreement a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and still be legal, valid and
enforceable.
21. Specific Performance. Each of the parties hereto acknowledges that the
other parties would be irreparably damaged and would not have an adequate remedy
at law for money damages in the event that any of the covenants contained in
this Merger Agreement were not performed in accordance with its terms or
otherwise were materially breached. Each of the parties hereto therefore agrees
that, without the necessity of proving actual damages or posting bond or other
security, the other party shall be entitled to temporary and/or permanent
injunction or injunctions to prevent breaches of such performance and to
specific enforcement of such covenants in addition to any other remedy to which
they may be entitled, at law or in equity.
22. Rules of Construction. Descriptive headings as to the contents of
particular sections are for convenience only and shall not control or affect the
meaning, construction or interpretation of any provision of this Merger
Agreement. Each use herein of the masculine, neuter or feminine gender shall be
deemed to include the other genders. Each use herein of the plural shall include
the singular and vice versa, in each case as the context requires or as it is
otherwise appropriate. The word "or" is used in the inclusive sense.
23. Articles, Sections, Exhibits and Schedules. Unless otherwise
indicated, all articles and sections referred to herein are articles and
sections, respectively, of this Merger Agreement, and all exhibits referred to
herein are exhibits attached to this Merger Agreement. Any and all schedules,
exhibits, annexes, statements, reports, certificates or other documents or
instruments referred to herein or attached hereto are and shall be incorporated
herein by reference hereto as though fully set forth herein verbatim.
24. Binding Effect. All of the terms, covenants, representations,
warranties and conditions of this Merger Agreement shall be binding upon, and
inure to the benefit of and be enforceable by, the parties hereto and their
respective successors, representatives and permitted assigns. Nothing expressed
or referred to herein is intended or shall be construed to give any person other
than the parties hereto any legal or equitable right, remedy or claim under or
in respect of this Merger Agreement, or any provision herein contained, it being
the intention of the parties hereto that this Merger Agreement, the assumption
of obligations and statements of responsibilities hereunder, and all other
conditions and provisions hereof are for the sole benefit of the parties to this
Merger Agreement and for the benefit of no other person. Nothing in this Merger
Agreement shall act to relieve or discharge the obligation or liability of any
third party to any party to this Merger Agreement, nor shall any provision give
any third party any right of subrogation or action over or against any party to
this Merger Agreement.
[Signatures Follow]
<PAGE>
IN WITNESS WHEREOF, SBB and Pacific have caused this Merger Agreement to
be executed in counterparts by their duly authorized officers and their
corporate seals to be hereunto affixed as of the date first above written, and
the directors constituting a majority of the Board of Directors of such
corporations have hereunto subscribed their names.
PACIFIC CAPITAL BANCORP
D. Vernon Horton, Chairman of the Board
and Chief Executive Officer
and
James L. Gattis, Secretary
The Directors of
PACIFIC CAPITAL BANCORP
Salinas, California
Charles E. Bancroft Gene Dicicco
Lewis L. Fenton Gerald T. Fry
Eugene R. Guglielmo James L. Gattis
Stanley R. Haynes Hubert W. Hudson
William J. Keller Roger C. Knopf
William S. McAfee William H. Pope
Mary Lou Rawitser William K. Sambrailo
Robert B. Sheppard
<PAGE>
SANTA BARBARA BANCORP
Donald M. Anderson, Chairman of the Board
and
Jay D. Smith, Corporate Secretary
The Directors of
SANTA BARBARA BANCORP
Santa Barbara, California
Donald M. Anderson David W. Spainhour
William S. Thomas, Jr. Frank Barranco, M.D.
Edward E. Birch, Ph.D. Terrill F. Cox
Richard M. Davis Anthony Guntermann
Dale E. Hanst Harry B. Powell
Susan Trescher
SCHEDULE ONE
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
DIRECTORS
Donald M. Anderson - Chairman
Frank Barranco, M.D.
Edward E. Birch, Ph.D
Terrill F. Cox
Richard M. Davis
Anthony Guntermann
Dale E. Hanst
D. Vernon Horton
Roger C. Knopf
Clayton C. Larson
William H. Pope
Harry Powell
David W. Spainhour
William S. Thomas, Jr.
Susan Trescher
OFFICERS
Donald M. Anderson - Chairman
David W. Spainhour - President
William S. Thomas, Jr. - Vice Chairman and Chief Operating Officer
D. Vernon Horton - Vice Chairman
Clayton C. Larson - Vice Chairman
David A. Abts - Executive Vice President
Donald E. Barry - Executive Vice President
Donald Lafler - Senior Vice President and Chief Financial
Officer
John J. McGrath - Senior Vice President
Jay D. Smith - Senior Vice President, General
Counsel and Corporate Secretary
Catherine R. Steinke - Senior Vice President
Kent M. Vining - Senior Vice President and Strategic
Planning Officer
<PAGE>
EXHIBIT "B"
SANTA BARBARA STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT, dated as of July 20, 1998 (the"Agreement"),
is by and between Santa Barbara Bancorp, a California corporation ("Issuer"),
and Pacific Capital Bancorp, a California corporation ("Grantee").
WHEREAS, Issuer and Grantee have entered into an Agreement and Plan of
Reorganization dated as of July 20, 1998 (the "Merger Agreement") providing for,
among other things, the merger of Grantee with and into Issuer, with Issuer as
the surviving corporation; and
WHEREAS, as a condition and inducement to Grantee's execution of the
Merger Agreement, Grantee has required that Issuer agree, and Issuer has agreed,
to grant Grantee the Option (as defined below);
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Merger Agreement, and intending to be legally bound hereby, Issuer and
Grantee agree as follows:
1 . Defined Terms. Capitalized terms which are used but not defined herein shall
have the meanings ascribed to such terms in the Merger Agreement.
2. Grant of Option. Subject to the terms and conditions set forth herein, Issuer
hereby grants to Grantee an irrevocable option (the "Option") to purchase up to
3,002,505 shares (the "Option Shares") of common stock of Issuer, no par value
("Issuer Common Stock"), at a purchase price per Option Share (the "Purchase
Price") equal to $30.00; provided, however, that in no event shall the number of
shares of Issuer Common Stock for which this Option is exercisable exceed 19.5%
of the Issuer's issued and outstanding shares of Common Stock. The number of
shares of Issuer Common Stock that may be received upon the exercise of the
Option and the Purchase Price are subject to adjustment as herein set forth.
3. Exercise of Option.
(a) Provided that (i) Grantee shall not be in material breach of the
agreements or covenants contained in this Agreement or the Merger Agreement, and
(ii) no preliminary or permanent injunction or other order against the delivery
of the Option Shares issued by any court of competent jurisdiction in the United
States shall be in effect, Grantee may exercise the Option, in whole or in part,
at any time and from time to time, but only following the occurrence of a
Purchase Event (as defined below); provided that the Option shall terminate and
be of no further force or effect upon the earlier to occur of (A) the Effective
Time of the Merger, (B) the termination of the Merger Agreement in accordance
with the terms thereof before the occurrence of a Purchase Event or a
Preliminary Purchase Event (other than a termination of the Merger Agreement by
Grantee pursuant to Section 9.02(e), 9.02(f) or 9.02(m) of the Merger Agreement
(an "Issuer Termination")); (C) the close of business on the 365th day after the
occurrence of an Issuer Termination; and (D) the close of business on the 365th
day after termination of the Merger Agreement (other than an Issuer Termination)
following the occurrence of a Purchase Event or a Preliminary Purchase Event
(hereinafter sometimes referred to as the "Termination Date"); provided that any
purchase of Option Shares upon the exercise of the Option shall be subject to
compliance with applicable law, including, without limitation, the Bank Holding
Company Act of 1956 (the "BHCA"), and any other required consent of any
regulatory authority. The rights set forth in Section 8 of this Agreement shall
terminate when the right to exercise the Option terminates (other than as a
result of a complete exercise of the Option) as set forth herein.
(b) As used herein, a "Purchase Event" means any of the following
events:
(i) without Grantee's prior written consent, Issuer shall have
authorized, recommended, publicly proposed or publicly announced an
intention to authorize, recommend or propose, or entered into an
agreement with any person (other than Grantee or any subsidiary of
Grantee) to effect an Acquisition Transaction (as defined below). As
used herein, the term "Acquisition Transaction" shall mean (A) any
tender offer for more than 50% of the outstanding shares of Issuer, (B)
any merger or consolidation of Issuer with or into any entity other than
Grantee or a subsidiary of Grantee, (C) any sale of all or substantially
all of the assets of Issuer, (D) any reorganization of Issuer or other
transaction that results or when completed would result in a disposition
of substantially all of the assets of Issuer, or (E) the issuance, sale
or other disposition of shares representing more than 50% of the shares
of Issuer.
(ii)any person (other than Grantee or any subsidiary of Grantee)
shall have acquired beneficial ownership (as such term is defined in
Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) of, or the right to acquire beneficial
ownership of, or any "group" (as such term is defined under the Exchange
Act) shall have been formed which beneficially owns or has the right to
acquire beneficial ownership of more than 50% of the shares of Issuer.
(c) As used herein, a "Preliminary Purchase Event" means any of the
following events:
(i) any person (other than Grantee or any subsidiary of Grantee)
shall have commenced (as such term is defined in Rule 14d-2 under the
Exchange Act) or shall have filed a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect
to a tender offer or exchange offer to purchase any shares of Issuer
Common Stock such that, upon consummation of such offer, such person
would own or control more than 50% of the then outstanding shares of
Issuer Common Stock (such an offer being referred to herein as a "Tender
Offer" or an "Exchange Offer", respectively); or
(ii)the holders of Issuer Common Stock shall not have approved the
Merger Agreement in accordance with all applicable law, the Articles of
Incorporation or Bylaws of the Issuer or any other agreement or,
contract or law to which such holders of Issuer Common Stock are
subject, including, if applicable, but not limited to, at the meeting of
such shareholders held for the purpose of voting on the Merger
Agreement, such meeting shall not have been held or shall have been
canceled prior to termination of the Merger Agreement or Issuer's Board
of Directors shall have withdrawn or modified in a manner adverse to
Grantee the recommendation of Issuer's Board of Directors with respect
to the Merger Agreement, in each case, after it shall have been publicly
announced that any person (other than Grantee or any subsidiary of
Grantee) shall have (A) made, or disclosed an intention to make, a
proposal to engage in an Acquisition Transaction, (B) commenced a Tender
Offer or filed a registration statement under the Securities Act with
respect to an Exchange Offer or (C) filed an application (or given a
notice), whether in draft or final form, under applicable banking or
corporate law or any other applicable law, including, without
limitation, the BHCA, seeking approval to engage in an Acquisition
Transaction.
As used in this Agreement, "person" shall have the meaning specified in Sections
3(a)(9) and 13(d)(3) of the Exchange Act.
(d) Issuer shall notify Grantee promptly in writing of the occurrence of
any Preliminary Purchase Event or Purchase Event, it being understood that the
giving of such notice by Issuer shall not be a condition to the right of Grantee
to exercise the Option.
(e) In the event Grantee wishes to exercise the Option, it shall send to
Issuer a written notice (the date of which being herein referred to as the
"Notice Date") specifying (i) the total number of Option Shares it intends to
purchase pursuant to such exercise and (ii) subject to the next sentence, a
place and date not earlier than three (3) business days nor later than fifteen
(15) business days after the Notice Date for the closing (the "Closing") of such
purchase (the "Closing Date"). If prior notification to or consent of any
regulatory authority is required in connection with such purchase, then,
notwithstanding the prior occurrence of the Termination Date, the Closing Date
shall be extended for such period as shall be necessary to enable such prior
notification or consent to occur or to be obtained (and the expiration of any
mandatory waiting period). Issuer shall co-operate with Grantee in the filing of
any applications or documents necessary to obtain any required consent or in
connection with any required prior notification and the Closing shall occur
immediately following receipt of such consent (or the filing of any such prior
notification and the expiration of any mandatory waiting periods).
4. Payment and Delivery of Certificates.
(a) On each Closing Date, Grantee shall (i) pay to Issuer, in immediately
available funds by wire transfer to a bank account designated by Issuer, an
amount equal to the Purchase Price multiplied by the number of Option Shares to
be purchased on such Closing Date, and (ii) present and surrender this Agreement
to the Issuer at the address of the Issuer specified herein.
(b) At each Closing, simultaneously with the delivery of immediately
available funds and surrender of this Agreement as provided in Section 4(a)
above, (i) Issuer shall deliver to Grantee (A) a certificate or certificates
representing the Option Shares to be purchased at such Closing, which Option
Shares shall be free and clear of all liens, claims, charges and encumbrances of
any kind whatsoever and subject to no pre-emptive rights, and (B) if the Option
is exercised in part only, a new Stock Option Agreement, executed by Issuer,
with the same terms as this Agreement evidencing the right to purchase the
balance of the shares of Issuer Common Stock purchasable hereunder, and (ii)
Grantee shall deliver to Issuer a letter agreeing that Grantee shall not offer
to sell or otherwise dispose of such Option Shares in violation of applicable
federal and state law or of the provisions of this Agreement.
(c) In addition to any other legend that is required by applicable law,
certificates for the Option Shares delivered at each Closing shall be endorsed
with a restrictive legend which shall read substantially as follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND PURSUANT
TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS OF JULY 20, 1998. A COPY OF
SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER HEREOF WITHOUT CHARGE UPON RECEIPT
BY THE ISSUER OF A WRITTEN REQUEST THEREFOR.
It is understood and agreed that the above legend shall be removed by delivery
of substitute certificates without such legend if Grantee shall have delivered
to Issuer an opinion of counsel in form and substance reasonably satisfactory to
Issuer and its counsel, to the effect that such legend is not required for
purposes of the Securities Act.
(d) Upon the giving by Grantee to Issuer of the written notice of exercise
of the Option provided for under Section 3(e) of this Agreement, the tender of
the applicable Purchase Price in immediately available funds and the tender of
this Agreement to Issuer, Grantee shall be deemed to be the holder of record of
the shares of Issuer Common Stock issuable upon such exercise, notwithstanding
that the stock transfer books of Issuer shall then be closed or that
certificates representing such shares of Issuer Common Stock shall not then be
actually delivered to Grantee. Issuer shall pay all expenses, and any and all
United States federal, state, and local taxes and other charges that may be
payable in connection with the preparation, issuance and delivery of stock
certificates under this Section in the name of Grantee or its assignee,
transferee, or designee.
(e) Issuer agrees (i) that it shall at all times maintain, free from
pre-emptive rights, sufficient authorized but unissued or treasury shares of
Issuer Common Stock so that the Option may be exercised without additional
authorization of Issuer Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Issuer Common
Stock, (ii) that it will not, by amendment to its Articles of Incorporation or
Bylaws or through. reorganization, consolidation, merger, dissolution or sale of
assets, or by any other voluntary act, avoid or seek to avoid the observance or
performance of any of the covenants, stipulations or conditions to be observed
or performed hereunder by Issuer, (iii) promptly to take all action as may from
time to time be required (including (A) complying (if applicable) with all pre
merger notification, reporting and waiting period requirements specified in 15
U.S.C. ss. 18a and regulations promulgated thereunder and (B) in the event,
under any federal or state law, prior notice to or consent of any regulatory
authority is necessary before the Option may be exercised co-operating fully
with Grantee in preparing any required application or notice and providing such
information to such regulatory authority as such regulatory authority may
require) in order to permit Grantee to exercise the Option and Issuer duly and
effectively to issue shares of Issuer Common Stock pursuant hereto, and (iv)
promptly to take all action provided herein to protect the rights of Grantee
against dilution.
5. Representations and Warranties of Issuer. Issuer hereby represents and
warrants to Grantee as follows:
(a) Due Authorization. Issuer has all requisite corporate power and
authority to enter into this Agreement and, subject to any approvals referred to
herein, to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Issuer. This Agreement has been duly executed and delivered by Issuer.
(b) Authorized Stock. Issuer has taken all necessary corporate and other
action to authorize and reserve and to permit it to issue, and, at all times
from the date hereof until the obligation to deliver Issuer Common Stock upon
the exercise of the Option terminates, will have reserved for issuance, upon
exercise of the Option, the number of shares of Issuer Common Stock necessary
for Grantee to exercise the Option, and Issuer will take all necessary corporate
action to authorize and reserve for issuance all additional shares of Issuer
Common Stock or other securities which may be issued pursuant to Section 7 of
this Agreement upon exercise of the Option. The shares of Issuer Common Stock to
be issued upon due exercise of the Option, including all additional shares of
Issuer Common Stock or other securities which may be issuable pursuant to
Section 7 of this Agreement, upon issuance pursuant hereto, shall be duly and
validly issued, fully paid and nonassessable, and shall be delivered free and
clear of all liens, claims, charges and encumbrances of any kind or nature
whatsoever, including any pre-emptive right of any shareholder of Issuer.
(c) No Violation. The execution and delivery of this Agreement does not,
and the consummation of the transactions contemplated hereby will not, conflict
with, or result in any violation pursuant to any provisions of the Articles of
Incorporation or By-laws of Issuer or, subject to obtaining any approvals or
consents contemplated hereby, result in any violation of any loan or credit
agreement, note, mortgage, indenture, lease, plan or other agreement,
obligation, instrument, permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Issuer or its
properties or assets which violation would have a Material Adverse Effect on the
Issuer.
6. Representations and Warranties of Grantee. Grantee hereby represents and
warrants to Issuer that: (a) Due Authorization. Grantee has all requisite
corporate power and
authority to enter to this Agreement and, subject to any approvals or consents
referred to herein, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Grantee. This Agreement has been duly executed
and delivered by Grantee.
(b) Purchase Not for Distribution. This Option is not being, and any
Option Shares or other securities acquired by Grantee upon exercise of the
Option will not be, acquired with a view to the public distribution thereof and
will not be transferred or otherwise disposed of except in a transaction
registered or exempt from registration under the Securities Act.
7. Adjustment upon Changes in Capitalization, etc.
(a) In the event of any change in Issuer Common Stock by reason of a stock
dividend stock split, split-up, recapitalization, combination, exchange of
shares or similar transaction, the type and number of shares or securities
subject to the Option, and the Purchase Price therefor, shall be adjusted
appropriately, and proper provision shall be made in the agreements governing
such transaction so that Grantee shall receive, upon exercise of the Option, the
number and class of shares or other securities or property that Grantee would
have received in respect of Issuer Common Stock if the Option had been exercised
immediately prior to such event, or the record date therefor, as applicable. If
any additional shares of Issuer Common Stock are issued after the date of this
Agreement (other than pursuant to an event described in the first sentence of
this Section 7(a)), the number of shares of Issuer Common Stock subject to the
Option shall be adjusted so that, after such issuance, the Option, together with
any shares of Issuer Common Stock previously issued pursuant hereto, equals
19.5% of the number of shares of Issuer Common Stock then issued and
outstanding, without giving effect to any shares subject to or issued pursuant
to the Option.
(b) In the event that, prior to the Termination Date, Issuer shall enter
in an agreement:
(i) to consolidate with or merge into any person, other than Grantee
or one of its subsidiaries, and shall not be the continuing or surviving
corporation of such consolidation or merger; (ii) to permit any person,
other than Grantee or one of its subsidiaries, to merge into Issuer where
Issuer shall be the continuing or surviving corporation, but, in
connection with such merger, the then outstanding shares of Issuer Common
Stock shall be changed into or exchanged for stock or other securities of
Issuer or any other person or cash or any other property or the
outstanding shares of Issuer Common Stock immediately prior to such merger
shall after such merger represent less than 50% of the outstanding shares
and share equivalents of the merged company; or (iii)to sell or otherwise
transfer all or substantially all of its assets to any person, other than
Grantee or one of its subsidiaries, then, and in each such case, the
agreement governing such transaction shall make proper provisions so that,
upon the consummation of any such transaction and upon the terms and
conditions set forth herein, the Option, notwithstanding the fact that as
of the date of consummation of such transaction the Termination Date shall
have occurred, shall be converted into, or exchanged for, an option (the
"Substitute Option"), at the election of Grantee, of either (x) the
Acquiring Corporation (as defined below), (y) any person that controls the
Acquiring Corporation, or (z) in the case of a merger described in clause
(ii), the Issuer (in each case, such entity being referred to as the
"Substitute Option Issuer").
(c) The Substitute Option shall have the same terms as the Option,
provided that, if the terms of the Substitute Option cannot, because of the
applicability of any law or regulation, have the exact terms as the Option, such
terms shall be as similar as possible and in no event less advantageous to
Grantee. The Substitute Option Issuer shall also enter into an agreement with
the then-holder or holders of the Substitute Option in substantially the same
form as this Agreement, which shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares
of the Substitute Common Stock (as hereinafter defined) as is equal to the
Assigned Value (as hereinafter defined) multiplied by the number of shares of
the Issuer Common Stock for which the Option was theretofore exercisable,
divided by the Average Price (as hereinafter defined). The exercise price of
each share of Substitute Common Stock subject to the Substitute Option (the
"Substitute Purchase Price") shall be equal to the Purchase Price multiplied by
a fraction in which the numerator is the number of shares of the Issuer Common
Stock for which the Option was theretofore exercisable and the denominator is
the number of shares for which the Substitute Option is exercisable.
(e) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (x) the continuing or
surviving corporation of a consolidation or merger with respect to which
Issuer is one of the parties (if other than Issuer), (y) the Issuer in a
consolidation or merger or in which the Issuer is the continuing or
surviving corporation, and (z) the transferee of all or any substantial
part of the Issuer's assets.
(ii)"Assigned Value" shall mean the highest of (x) the price per
share of the Issuer Common Stock at which a Tender Offer or Exchange
Offer therefor has been made by any person (other than Grantee), (y) the
price per share of the Issuer Common Stock to be paid by any person
(other than the Grantee) pursuant to an agreement with Issuer, or (z)
the highest last sales price per share of Issuer Common Stock quoted on
any national securities exchange (including the NASDAQ - National Market
System) (or if Issuer Common Stock is not quoted on any such national
securities exchange, the highest bid price per share on any day as
quoted on the principal trading market or securities exchange on which
such shares are traded as reported by a recognized source chosen by
Grantee) within the six-month period immediately preceding the agreement
described in Section 7(b) above; provided, however, that in the event of
a sale of less than all of Issuer's assets, the Assigned Value shall be
the sum of the price paid in such sale for such assets and the current
market value of the remaining assets of Issuer as determined by a
nationally recognized investment banking firm selected by Grantee,
divided by the number of shares of the Issuer Common Stock outstanding
at the time of such sale. In the event a Tender Offer or Exchange Offer
is made for the Issuer Common Stock or an agreement is entered into for
a merger or consolidation involving consideration other than cash, the
value of the securities or other property issuable or deliverable in
exchange for the Issuer Common Stock shall be determined by a nationally
recognized investment banking firm mutually selected by Grantee and
Issuer (or if applicable, Acquiring Corporation), provided that if a
mutual selection cannot be made as to such investment banking firm, it
shall be selected by Grantee.
(iii) "Average Price" shall mean the average last sales price of a
share of the Substitute Common Stock for the one year immediately
preceding the consolidation, merger or sale in question, as quoted on any
national securities exchange (including the NASDAQ National Market
System), and if the Substitute Common Stock is not quoted on any such
national securities exchange, the average of the bid price for the one
year period described above, as quoted on the principal trading market or
securities exchange on which such Substitute Common Stock is traded, as
reported by a recognized source, as chosen by Grantee, but in no event
higher than the last sales price or closing price or the bid price of the
shares of the Substitute Common Stock on the day preceding such
consolidation, merger, or sale; provided that if Issuer is the issuer of
the Substitute Option, the Average Price shall be computed with respect to
a share of common stock issued by Issuer, the person merging into Issuer
or by any company which controls or is controlled by such person, as
Grantee may elect.
(iv) "Substitute Common Stock" shall mean the common stock issued by
the Substitute Option Issuer upon the exercise of the Substitute Option.
(f) In no event pursuant to any of the foregoing paragraphs shall the
Substitute Option be exercisable for more than 19.5% of the aggregate of the
shares of the Substitute Common Stock outstanding prior to exercise of the
Substitute Option. In the event that the Substitute Option would be exercisable
for more than 19.5% of the aggregate of the shares of the Substitute Common
Stock but for this clause (f), the Substitute Option Issuer shall make a cash
payment to Grantee equal to the amount of (i) the value of the Substitute Option
without giving effect to the limitation in this clause (f) in excess of (ii) the
value of the Substitute Option after giving effect to the limitation in this
clause (f). This difference in value shall be determined by a nationally
recognized investment banking firm selected by Grantee.
(g) Issuer shall not enter into any transaction described in subsection
(b) of this Section 7 unless the Acquiring Corporation and any person that
controls the Acquiring Corporation assumes in writing all of the obligations of
Issuer hereunder and takes all other actions that may be necessary so that the
provisions of this Section 7 are given full force and effect (including, without
limitation, any action that may be necessary so that the shares of Substitute
Common Stock are in no way distinguished from or have lesser economic value
(other than any diminution resulting from the fact that the Substitute Common
Stock is "restricted securities" within the meaning of Rule 144 under the
Securities Act) than other shares of common stock issued by the Substitute
Option Issuer).
(h) The provisions of Sections 8, 9 and 10 shall apply, with appropriate
adjustments, to any securities for which the Option becomes exercisable pursuant
to this Section 7 and, as applicable, references in such sections to "Issuer,"
"Option," "Purchase Price," and "Issuer Common Stock" shall be deemed to be
references to "Substitute Option Issuer," "Substitute Option, " "Substitute
Purchase Price, " and "Substitute Common Stock, " respectively.
8. Repurchase at the Option of Grantee.
(a) Subject to the last sentence of Section 3(a) of this Agreement, at the
request of Grantee at any time commencing upon the first occurrence of a
Repurchase Event (as defined in Section 8(d)) and ending at the close of
business 365 days thereafter, Issuer shall repurchase from Grantee the Option
and all shares of Issuer Common Stock purchased by Grantee pursuant hereto with
respect to which Grantee then has beneficial ownership. The date on which
Grantee exercises its rights under this Section 8 is referred to as the "Request
Date". Such repurchase shall be at an aggregate price (the "Section 8 Repurchase
Consideration") equal to the sum of:
(i) the aggregate Purchase Price paid by Grantee for any shares of
Issuer Common Stock acquired pursuant to complete or partial exercise of
the Option with respect to which Grantee then has beneficial ownership;
(ii) the excess, if any, of (x) the Applicable Price (as defined
below) for each share of Issuer Common Stock over (y) the Purchase Price
(subject to adjustment pursuant to Section 7), multiplied by the number of
shares of Issuer Common Stock with respect to which the Option has not
been exercised; and
(iii) the excess, if any, of the Applicable Price over the Purchase
Price (subject to adjustment pursuant to Section 7) paid (or, in the case
of Option Shares with respect to which the Option has been exercised but
the Closing Date has not occurred, payable) by Grantee for each share of
Issuer Common Stock with respect to which the Option has been exercised
and with respect to which Grantee then has beneficial ownership,
multiplied by the number of such shares.
(b) If Grantee exercises its rights under this Section 8, Issuer shall,
within ten (10) business days after the Request Date, pay the Section 8
Repurchase Consideration to Grantee in immediately available funds, and
contemporaneously with such payment Grantee shall surrender to Issuer the Option
and the certificates evidencing the shares of Issuer Common Stock purchased
thereunder with respect to which Grantee then has beneficial ownership, and
Grantee shall warrant that it has sole record and beneficial ownership of such
shares and that the same are then free and clear of all liens, claims, charges
and encumbrances of any kind whatsoever. Notwithstanding the foregoing, to the
extent that prior notification to or consent of any regulatory authority is
required in connection with the payment of all or any portion of the Section 8
Repurchase Consideration, or Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from repurchasing the
Option and/or the Option Shares in full, Issuer shall immediately so notify
Grantee and thereafter deliver from time to time, and as permitted by applicable
law or regulation, that portion of the Section 8 Repurchase Consideration that
it is not then so prohibited from paying within five business days after the
date on which Issuer is no longer prohibited; provided, however, that if Issuer
at any time is prohibited under applicable law or regulation, or as a
consequence of administrative policy, from delivering to the Grantee the Section
8 Repurchase Consideration, in full (and Issuer hereby undertakes to use its
best efforts to obtain all required consents of regulatory authorities and to
file any required notices as promptly as practicable in order to accomplish such
repurchase), the Grantee may, at its option, revoke its request that Issuer
repurchase the Option or the Option Shares either in whole or to the extent of
the prohibition, whereupon, in the latter case, Issuer shall promptly (i)
deliver to the Grantee that portion of the Section 8 Repurchase Consideration
that Issuer is not prohibited from delivering; and (ii) deliver, to the Grantee
either (A) a new Stock Option Agreement evidencing the right of Issuer to
purchase that number of shares of Common Stock obtained by multiplying the
number of shares of Common Stock for which the surrendered Stock Option
Agreement was exercisable at the time of delivery of the notice of repurchase by
a fraction, the numerator of which is the Section 8 Repurchase Consideration
less the portion thereof theretofore delivered to the Grantee and the
denominator of which is the Section 8 Repurchase Consideration, or (B) a
certificate for the Option Shares it is then prohibited from repurchasing.
Notwithstanding anything herein to the contrary, all of Grantee's rights
under this Section 8 shall terminate on the Termination Date of this Option
pursuant to Section 3(a) of this Agreement.
(c) For purposes of this Agreement, the "Applicable Price" means the
highest of: (i) the highest price per share of Issuer Common Stock paid for any
such share by the person or groups described in Section 8(d)(i) below; (ii) the
price per share of Issuer Common Stock received by holders of Issuer Common
Stock in connection with any merger or other business combination transaction
described in Section 7(b)(i), 7(b)(ii) or 7(b)(iii) above; or (iii) the highest
last sales price per share of Issuer Common Stock quoted on any national
securities exchange (including the NASDAQ - National Market System) (or if
Issuer Common Stock is not quoted on any such national securities exchange, the
highest bid price per share as quoted on the principal trading market or
securities exchange on which such shares are traded as reported by a recognized
source chosen by Grantee) during the sixty (60) business days preceding the
Request Date; provided, however, that in the event of a sale of less than all of
Issuer's assets, the Applicable Price shall be the sum of the price paid in such
sale for such assets and the current market value of the remaining assets of
Issuer as determined by a nationally recognized investment banking firm selected
by Grantee, divided by the number of shares of the Issuer Common Stock
outstanding at the time of such sale. If the consideration to be offered, paid
or received pursuant to either of the foregoing clauses (i) or (ii) shall be
other than in cash, the value of such consideration shall be determined in good
faith by an independent nationally recognized investment banking firm selected
by Grantee and reasonably acceptable to Issuer, which determination shall be
conclusive for all purposes of this Agreement.
(d) As used herein, a "Repurchase Event" shall occur if (i) any person
(other than Grantee or any subsidiary of Grantee) shall have acquired beneficial
ownership of (as such term is defined in Rule l3d-3 promulgated under the
Exchange Act), or the right to acquire beneficial ownership of, or any "group"
(as such term is defined under the Exchange Act) shall have been formed which
beneficially owns or has the right to acquire beneficial ownership of, more than
50% of the then outstanding shares of Issuer Common Stock, or (ii) any of the
transactions described in Section 7(b)(i), 7(b)(ii) or 7(b)(iii) of this
Agreement shall be consummated.
9. Registration Rights.
(a) Demand Registration Rights. Issuer shall, subject to the conditions of
subparagraph (c) below, if requested by Grantee, as expeditiously as possible
prepare and file a registration statement under the Securities Act if such
registration is necessary in order to permit the sale or other disposition of
any or all shares of Issuer Common Stock or other securities that have been
acquired by or are issuable to Grantee upon exercise of the Option in accordance
with the intended method of sale or other disposition stated by Grantee in such
request, including without limitation a "shelf'" registration statement under
Rule 415 under the Securities Act or any successor provision, and Issuer shall
use its best efforts to qualify such shares or other securities for sale under
any applicable state securities laws.
(b) Additional Registration Rights. If Issuer at any time after the
exercise of the Option proposes to register any shares of Issuer Common Stock
under the Securities Act in connection with an underwritten public offering of
such Issuer Common Stock, Issuer will promptly give written notice to Grantee
(and any permitted transferee) of its intention to do so and, upon the written
request of Grantee (or any such permitted transferee of Grantee) given within 30
days after receipt of any such notice (which request shall specify the number of
shares of Issuer Common Stock intended to be included in such underwritten
public offering by Grantee (or such permitted transferee)), Issuer will cause
all such shares, the holders of which shall have requested participation in such
registration, to be so registered and included in such underwritten public
offering; provided, that the Issuer may elect not to cause all of the shares for
which the Grantee has requested participation in such registration to be
registered and included in such underwritten public offering if the
underwriters, for good business reasons and in good faith, object to such
inclusion.
(c) Conditions to Required Registration. Issuer shall use all reasonable
efforts to cause each registration statement referred to in subparagraph (a)
above to become effective and to obtain all consents or waivers of other parties
which are required therefor and to keep such registration statement effective,
provided, however, Issuer shall not be required to register Option Shares under
the Securities Act pursuant to subparagraph (a) above:
(i) prior to the earliest of (a) termination of the Merger
Agreement, and (b) a Purchase Event or a Preliminary Purchase Event;
(ii)on more than two occasions;
(iii)more than once during any calendar year; and
(iv)within 90 days after the effective date of a registration
referred to in subparagraph (b) above pursuant to which the holder or
holders of the Option Shares concerned were afforded the opportunity to
register such shares under the Securities Act and such shares were
registered as requested.
In addition to the foregoing, Issuer shall not be required to maintain the
effectiveness of any registration statement after the expiration of 180 days
from the effective date of such registration statement. Issuer shall use all
reasonable efforts to make any filings, and take all steps, under all applicable
state securities laws to the extent necessary to permit the sale or other
disposition of the Option Shares so registered in accordance with the intended
method of distribution for such shares.
(d) Expenses. Except where applicable state law prohibits such payments,
Issuer will pay all of its expenses (including, without limitation, registration
fees, qualification fees, blue sky fees and expenses, legal expenses, printing
expenses and the costs of special audits or "cold comfort" letters, expenses of
underwriters, excluding discounts and commissions but including liability
insurance if Issuer so desires or the underwriters so require, and the
reasonable fees and expenses of any necessary special experts) in connection
with each registration pursuant to subparagraph (a) or (b) above (including the
related offerings and sales by holders of Option Shares) and all other
qualifications, notifications or exemptions pursuant to subparagraph (a) or (b)
above; provided, however, that fees and expenses of counsel to the Grantee and
any other expenses incurred by the Grantee in connection with such registration
shall be borne by the Grantee.
(e) Indemnification. In connection with any registration under
subparagraph (a) or (b) above Issuer hereby indemnifies the holder of the Option
Shares, and each underwriter thereof, including each person, if any, who
controls such holder or underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, losses, claims, damages and liabilities
caused by any untrue, or alleged untrue, statement of a material fact contained
in any registration statement or prospectus or notification or offering circular
(including any amendments or supplements thereto) or any preliminary prospectus,
or caused by any omission, or alleged omission, to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such expenses, losses, claims, damages or
liabilities of such indemnified party are caused by any untrue statement or
alleged untrue statement that was included by Issuer in any such registration
statement or prospectus or notification or offering circular (including any
amendments or supplements thereto) in reliance upon and in conformity with,
information furnished in writing to Issuer by such indemnified party expressly
for use therein, and Issuer and each officer, director and controlling person of
Issuer shall be indemnified by such holder of the Option Shares, or by such
underwriter, as the case may be, for all such expenses, losses, claims, damages
and liabilities caused by any untrue, or alleged untrue, statement, that was
included by Issuer in any such registration statement or prospectus or
notification or offering circular (including any amendments or supplements
thereto) in reliance upon, and in conformity with, information furnished in
writing to Issuer by such holder or such underwriter, as the case may be,
expressly for such use.
Promptly upon receipt by a party indemnified under this subparagraph (e)
of notice of the commencement of any action against such indemnified party in
respect of which indemnity or reimbursement may be sought against any
indemnifying party under this subparagraph (e), such indemnified party shall
notify the indemnifying party in writing of the commencement of such action, but
the failure so to notify the indemnifying party shall not relieve it of any
liability which it may otherwise have to any indemnified party under this
subparagraph (e). In case notice of commencement of any such action shall be
given to the indemnifying party as above provided, the indemnifying party shall
be entitled to participate in and, to the extent it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense of such
action at its own expense, with counsel chosen by it and satisfactory to such
indemnified party. The indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel (other than reasonable costs of investigation)
shall be paid by the indemnified party unless (i) the indemnifying party either
agrees to pay the same, (ii) the indemnifying party fails to assume the defense
of such action with counsel satisfactory to the indemnified party, or (iii) the
indemnified party has been advised by counsel that one or more legal defenses
may be available to the indemnifying party that may be contrary to the interest
of the indemnified party, in which case the indemnifying party shall be entitled
to assume the defense of such action notwithstanding its obligation to bear fees
and expenses of such counsel. No indemnifying party shall be liable for any
settlement entered into without its consent, which consent may not be
unreasonably withheld.
If the indemnification provided for in this subparagraph (e) is
unavailable to a party otherwise entitled to be indemnified in respect of any
expenses, losses, claims, damages or liabilities referred to herein, then the
indemnifying party, in lieu of indemnifying such party otherwise entitled to be
indemnified, shall contribute to the amount paid or payable by such party to be
indemnified as a result of such expenses, losses, claims, damages or liabilities
in such proportion as is appropriate to reflect the relative benefits received
by Issuer, the selling shareholders and the underwriters from the offering of
the securities and also the relative fault of Issuer, the selling shareholders
and the underwriters in connection with the statements or omissions which
resulted in such expenses, losses, claims, damages or liabilities, as well as
any other relevant equitable considerations. The amount paid or payable by a
party as a result of the expenses, losses, claims, damages and liabilities
referred to above shall be deemed to include any legal or other fees or expenses
reasonably incurred by such party in connection with investigating or defending
any action or claim; provided, however, that in no case shall the holders of the
Option Shares be responsible, in the aggregate, for any amount in excess of the
net offering proceeds attributable to its Option Shares included in the
offering. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11 (f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. Any
obligation by any holder to indemnify shall be several and not joint with other
holders.
In connection with any registration pursuant to subparagraph (a) or (b)
above, Issuer and each holder of any Option Shares (other than Grantee) shall
enter into an agreement containing the indemnification provisions of this
subparagraph (e).
(f) Miscellaneous Reporting. Issuer shall comply with all reporting
requirements and will do all such other things as may be necessary to permit the
expeditious sale at any time of any Option Shares by the holder thereof in
accordance with and to the extent permitted by any rule or regulation
promulgated by the SEC from time to time. Issuer shall at its expense provide
the holder of any Option Shares with any information necessary in connection
with the completion and filing of any reports or forms required to be filed by
them under the Securities Act or the Exchange Act, or required pursuant to any
state securities laws or the rules of any stock exchange.
(g) Issue Taxes. Issuer will pay all stamp taxes in connection with the
issuance and the sale of the Option Shares and in connection with the exercise
of the Option, and will save Grantee harmless, without limitation as to time,
against any and all liabilities, with respect to all such taxes.
10. Quotation; Listing. If Issuer Common Stock or any other securities to be
acquired upon exercise of the Option are then authorized for quotation or
trading or listing on any national securities exchange (including the NASDAQ -
National Market System) or any securities exchange, Issuer, upon the request of
Grantee, will promptly file an application, if required, to authorize for
quotation or trading or listing the shares of Issuer Common Stock or other
securities to be acquired upon exercise of the Option on any such national
securities exchange and will use its best efforts to obtain approval, if
required, of such quotation or listing as soon as practicable.
11. Division of Option. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of Grantee, upon presentation and
surrender of this Agreement at the principal office of Issuer for other
Agreements providing for Options of different denominations entitling the holder
thereof to purchase in the aggregate the same number of shares of Issuer Common
Stock purchasable hereunder. The terms "Agreement" and "Option" as used herein
include any other Agreements and related Options for which this Agreement (and
the Option granted hereby) may be exchanged. Upon receipt by Issuer of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Agreement, and (in the case of loss, theft, or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of.
like tenor and date.
12. Miscellaneous.
(a) Expenses. Except as otherwise provided in Section 9 of this Agreement,
each of the parties hereto shall bear and pay all costs and expenses incurred by
it or on its behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel.
(b) Waiver and Amendment. Any provision of this Agreement may be waived at
any time by the party that is entitled to the benefits of such provision if such
waiver is in writing. This Agreement may not be modified, amended, altered or
supplemented except upon the execution and delivery of a written agreement
executed by the parties hereto.
(c) Entire Agreement; No Third Party Beneficiary; Severability. This
Agreement, together with the Merger Agreement and the other documents and
instruments referred to herein and therein, between Grantee and Issuer (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof and (b) is not intended to confer upon any person other
than the parties hereto (other than any transferees of the Option Shares or any
permitted transferee of this Agreement pursuant to Section 12(h)) any rights or
remedies hereunder. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction or a federal or state
regulatory agency to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
If for any reason such court or regulatory agency determines that the Option
does not permit Grantee to acquire, or does not require Issuer to repurchase,
the full number of shares of Issuer Common Stock as provided in Sections 3 and 8
(as adjusted pursuant to Section 7), it is the express intention of Issuer to
allow Grantee to acquire or to require Issuer to repurchase such lesser number
of shares as may be permissible without any amendment or modification hereof.
(d) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of California without regard to any
applicable conflicts of law rules.
(e) Descriptive Heading. The descriptive headings contained herein are for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
confirmation) or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or a such other address
for a party as shall be specified by like notice):
IF TO ISSUER TO:
Santa Barbara Bancorp
1021 Anacapa Street
Santa Barbara, California 93101-2036
Telecopy: (804) 564-6293
Attention: Mr. David W. Spainhour,
President and Chief Executive Officer
WITH A COPY TO:
Mr. Charles E. Greef
Mr. Peter G. Weinstock
Jenkens & Gilchrist,
a Professional Corporation
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202-2799
Telecopy: (214) 855-4300
IF TO GRANTEE TO:
Pacific Capital Bancorp
307 Main Street
Salinas, California 93901
Telecopy: (408) 646-9748
Attention: Mr. Clayton C. Larson,
President and Chief Administrative Officer
WITH A COPY TO:
Mr. James E. Topinka
Preston Gates & Ellis LLP
One Maritime Plaza
Suite 2400
San Francisco, California 94111
Telecopy: (415) 788-8819
(g) Counterparts. This Agreement and any amendments hereto may be executed
in multiple counterparts, each of which shall be considered one and the same
agreement and shall become effective when both counterparts have been signed, it
being understood that both parties need not sign the same counterpart.
(h) Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder or under the Option shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other party, except that Grantee may assign this
Agreement to a wholly owned subsidiary of Grantee and Grantee may assign its
rights hereunder in whole or in part after the occurrence of a Purchase Event.
Subject to the preceding sentence, this Agreement shall be binding upon, inure
to the benefit of and be enforceable by the parties and their respective
successors and assigns.
(i) Further Assurances. In the event of any exercise of the Option by
Grantee, Issuer and Grantee shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
(j) Specific Performance. The parties hereto agree that this Agreement may
be enforced by either party through specific performance, injunctive relief and
other equitable relief. Both parties further agree to waive any requirement for
the securing or posting of any bond in connection with the obtaining of any such
equitable relief and that this provision is without prejudice to any other
rights that the parties hereto may have for any failure to perform this
Agreement.
IN WITNESS WHEREOF, Issuer and Grantee have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the day
and year first written above.
PACIFIC CAPITAL BANCORP
By:________________________________________
D. Vernon Horton, Chairman of the
Board and Chief Executive Officer
and
By:_______________________________________
Clayton C. Larson, President and
Chief Administrative Officer
SANTA BARBARA BANCORP
By:_______________________________________
William S. Thomas, Jr., Vice
Chairman and Chief Operating Officer
and
By:_______________________________________
Kent M. Vining, Senior Vice
President
<PAGE>
EXHIBIT "C"
PACIFIC STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT, dated as of July 20, 1998 (the"Agreement"),
is by and between Pacific Capital Bancorp, a California corporation ("Issuer"),
and Santa Barbara Capital Bancorp, a California corporation ("Grantee").
WHEREAS, Issuer and Grantee have entered into an Agreement and Plan of
Reorganization dated as of July 20, 1998 (the "Merger Agreement") providing for,
among other things, the merger of Issuer with and into Grantee, with Grantee as
the surviving corporation; and
WHEREAS, as a condition and inducement to Grantee's execution of the
Merger Agreement, Grantee has required that Issuer agree, and Issuer has agreed,
to grant Grantee the Option (as defined below);
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Merger Agreement, and intending to be legally bound hereby, Issuer and
Grantee agree as follows:
1 . Defined Terms. Capitalized terms which are used but not defined herein shall
have the meanings ascribed to such terms in the Merger Agreement.
2. Grant of Option. Subject to the terms and conditions set forth herein, Issuer
hereby grants to Grantee an irrevocable option (the "Option") to purchase up to
878,269 shares (the "Option Shares") of common stock of Issuer, no par value
("Issuer Common Stock"), at a purchase price per Option Share (the "Purchase
Price") equal to $58.00; provided, however, that in no event shall the number of
shares of Issuer Common Stock for which this Option is exercisable exceed 19.5%
of the Issuer's issued and outstanding shares of Common Stock. The number of
shares of Issuer Common Stock that may be received upon the exercise of the
Option and the Purchase Price are subject to adjustment as herein set forth.
3. Exercise of Option.
(a) Provided that (i) Grantee shall not be in material breach of the
agreements or covenants contained in this Agreement or the Merger Agreement, and
(ii) no preliminary or permanent injunction or other order against the delivery
of the Option Shares issued by any court of competent jurisdiction in the United
States shall be in effect, Grantee may exercise the Option, in whole or in part,
at any time and from time to time, but only following the occurrence of a
Purchase Event (as defined below); provided that the Option shall terminate and
be of no further force or effect upon the earlier to occur of (A) the Effective
Time of the Merger, (B) the termination of the Merger Agreement in accordance
with the terms thereof before the occurrence of a Purchase Event or a
Preliminary Purchase Event (other than a termination of the Merger Agreement by
Grantee pursuant to Section 9.02(e), 9.02(f) or 9.02(n) of the Merger Agreement
(an "Issuer Termination")); (C) the close of business on the 365th day after the
occurrence of an Issuer Termination; and (D) the close of business on the 365th
day after termination of the Merger Agreement (other than an Issuer Termination)
following the occurrence of a Purchase Event or a Preliminary Purchase Event
(hereinafter sometimes referred to as the "Termination Date"); provided that any
purchase of Option Shares upon the exercise of the Option shall be subject to
compliance with applicable law, including, without limitation, the Bank Holding
Company Act of 1956 (the "BHCA"), and any other required consent of any
regulatory authority. The rights set forth in Section 8 of this Agreement shall
terminate when the right to exercise the Option terminates (other than as a
result of a complete exercise of the Option) as set forth herein.
(b) As used herein, a "Purchase Event" means any of the following
events:
(i) without Grantee's prior written consent, Issuer shall have
authorized, recommended, publicly proposed or publicly announced an
intention to authorize, recommend or propose, or entered into an
agreement with any person (other than Grantee or any subsidiary of
Grantee) to effect an Acquisition Transaction (as defined below). As
used herein, the term "Acquisition Transaction" shall mean (A) any
tender offer for more than 50% of the outstanding shares of Issuer, (B)
any merger or consolidation of Issuer with or into any entity other than
Grantee or a subsidiary of Grantee, (C) any sale of all or substantially
all of the assets of Issuer, (D) any reorganization of Issuer or other
transaction that results or when completed would result in a disposition
of substantially all of the assets of Issuer, or (E) the issuance, sale
or other disposition of shares representing more than 50% of the shares
of Issuer.
(ii)any person (other than Grantee or any subsidiary of Grantee)
shall have acquired beneficial ownership (as such term is defined in
Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) of, or the right to acquire beneficial
ownership of, or any "group" (as such term is defined under the Exchange
Act) shall have been formed which beneficially owns or has the right to
acquire beneficial ownership of more than 50% of the shares of Issuer.
(c) As used herein, a "Preliminary Purchase Event" means any of the
following events:
(i) any person (other than Grantee or any subsidiary of Grantee)
shall have commenced (as such term is defined in Rule 14d-2 under the
Exchange Act) or shall have filed a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect
to a tender offer or exchange offer to purchase any shares of Issuer
Common Stock such that, upon consummation of such offer, such person
would own or control more than 50% of the then outstanding shares of
Issuer Common Stock (such an offer being referred to herein as a "Tender
Offer" or an "Exchange Offer", respectively); or
(ii)the holders of Issuer Common Stock shall not have approved the
Merger Agreement in accordance with all applicable law, the Articles of
Incorporation or Bylaws of the Issuer or any other agreement or,
contract or law to which such holders of Issuer Common Stock are
subject, including, if applicable, but not limited to, at the meeting of
such shareholders held for the purpose of voting on the Merger
Agreement, such meeting shall not have been held or shall have been
canceled prior to termination of the Merger Agreement or Issuer's Board
of Directors shall have withdrawn or modified in a manner adverse to
Grantee the recommendation of Issuer's Board of Directors with respect
to the Merger Agreement, in each case, after it shall have been publicly
announced that any person (other than Grantee or any subsidiary of
Grantee) shall have (A) made, or disclosed an intention to make, a
proposal to engage in an Acquisition Transaction, (B) commenced a Tender
Offer or filed a registration statement under the Securities Act with
respect to an Exchange Offer or (C) filed an application (or given a
notice), whether in draft or final form, under applicable banking or
corporate law or any other applicable law, including, without
limitation, the BHCA, seeking approval to engage in an Acquisition
Transaction.
As used in this Agreement, "person" shall have the meaning specified in Sections
3(a)(9) and 13(d)(3) of the Exchange Act.
(d) Issuer shall notify Grantee promptly in writing of the occurrence of
any Preliminary Purchase Event or Purchase Event, it being understood that the
giving of such notice by Issuer shall not be a condition to the right of Grantee
to exercise the Option.
(e) In the event Grantee wishes to exercise the Option, it shall send to
Issuer a written notice (the date of which being herein referred to as the
"Notice Date") specifying (i) the total number of Option Shares it intends to
purchase pursuant to such exercise and (ii) subject to the next sentence, a
place and date not earlier than three (3) business days nor later than fifteen
(15) business days after the Notice Date for the closing (the "Closing") of such
purchase (the "Closing Date"). If prior notification to or consent of any
regulatory authority is required in connection with such purchase, then,
notwithstanding the prior occurrence of the Termination Date, the Closing Date
shall be extended for such period as shall be necessary to enable such prior
notification or consent to occur or to be obtained (and the expiration of any
mandatory waiting period). Issuer shall co-operate with Grantee in the filing of
any applications or documents necessary to obtain any required consent or in
connection with any required prior notification and the Closing shall occur
immediately following receipt of such consent (or the filing of any such prior
notification and the expiration of any mandatory waiting periods).
4. Payment and Delivery of Certificates.
(a) On each Closing Date, Grantee shall (i) pay to Issuer, in immediately
available funds by wire transfer to a bank account designated by Issuer, an
amount equal to the Purchase Price multiplied by the number of Option Shares to
be purchased on such Closing Date, and (ii) present and surrender this Agreement
to the Issuer at the address of the Issuer specified herein.
(b) At each Closing, simultaneously with the delivery of immediately
available funds and surrender of this Agreement as provided in Section 4(a)
above, (i) Issuer shall deliver to Grantee (A) a certificate or certificates
representing the Option Shares to be purchased at such Closing, which Option
Shares shall be free and clear of all liens, claims, charges and encumbrances of
any kind whatsoever and subject to no pre-emptive rights, and (B) if the Option
is exercised in part only, a new Stock Option Agreement, executed by Issuer,
with the same terms as this Agreement evidencing the right to purchase the
balance of the shares of Issuer Common Stock purchasable hereunder, and (ii)
Grantee shall deliver to Issuer a letter agreeing that Grantee shall not offer
to sell or otherwise dispose of such Option Shares in violation of applicable
federal and state law or of the provisions of this Agreement.
(c) In addition to any other legend that is required by applicable law,
certificates for the Option Shares delivered at each Closing shall be endorsed
with a restrictive legend which shall read substantially as follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND PURSUANT
TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS OF JULY 20, 1998. A COPY OF
SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER HEREOF WITHOUT CHARGE UPON RECEIPT
BY THE ISSUER OF A WRITTEN REQUEST THEREFOR.
It is understood and agreed that the above legend shall be removed by delivery
of substitute certificates without such legend if Grantee shall have delivered
to Issuer an opinion of counsel in form and substance reasonably satisfactory to
Issuer and its counsel, to the effect that such legend is not required for
purposes of the Securities Act.
(d) Upon the giving by Grantee to Issuer of the written notice of exercise
of the Option provided for under Section 3(e) of this Agreement, the tender of
the applicable Purchase Price in immediately available funds and the tender of
this Agreement to Issuer, Grantee shall be deemed to be the holder of record of
the shares of Issuer Common Stock issuable upon such exercise, notwithstanding
that the stock transfer books of Issuer shall then be closed or that
certificates representing such shares of Issuer Common Stock shall not then be
actually delivered to Grantee. Issuer shall pay all expenses, and any and all
United States federal, state, and local taxes and other charges that may be
payable in connection with the preparation, issuance and delivery of stock
certificates under this Section in the name of Grantee or its assignee,
transferee, or designee.
(e) Issuer agrees (i) that it shall at all times maintain, free from
pre-emptive rights, sufficient authorized but unissued or treasury shares of
Issuer Common Stock so that the Option may be exercised without additional
authorization of Issuer Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Issuer Common
Stock, (ii) that it will not, by amendment to its Articles of Incorporation or
Bylaws or through. reorganization, consolidation, merger, dissolution or sale of
assets, or by any other voluntary act, avoid or seek to avoid the observance or
performance of any of the covenants, stipulations or conditions to be observed
or performed hereunder by Issuer, (iii) promptly to take all action as may from
time to time be required (including (A) complying (if applicable) with all pre
merger notification, reporting and waiting period requirements specified in 15
U.S.C. ss. 18a and regulations promulgated thereunder and (B) in the event,
under any federal or state law, prior notice to or consent of any regulatory
authority is necessary before the Option may be exercised co-operating fully
with Grantee in preparing any required application or notice and providing such
information to such regulatory authority as such regulatory authority may
require) in order to permit Grantee to exercise the Option and Issuer duly and
effectively to issue shares of Issuer Common Stock pursuant hereto, and (iv)
promptly to take all action provided herein to protect the rights of Grantee
against dilution.
5. Representations and Warranties of Issuer. Issuer hereby represents and
warrants to Grantee as follows:
(a) Due Authorization. Issuer has all requisite corporate power and
authority to enter into this Agreement and, subject to any approvals referred to
herein, to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Issuer. This Agreement has been duly executed and delivered by Issuer.
(b) Authorized Stock. Issuer has taken all necessary corporate and other
action to authorize and reserve and to permit it to issue, and, at all times
from the date hereof until the obligation to deliver Issuer Common Stock upon
the exercise of the Option terminates, will have reserved for issuance, upon
exercise of the Option, the number of shares of Issuer Common Stock necessary
for Grantee to exercise the Option, and Issuer will take all necessary corporate
action to authorize and reserve for issuance all additional shares of Issuer
Common Stock or other securities which may be issued pursuant to Section 7 of
this Agreement upon exercise of the Option. The shares of Issuer Common Stock to
be issued upon due exercise of the Option, including all additional shares of
Issuer Common Stock or other securities which may be issuable pursuant to
Section 7 of this Agreement, upon issuance pursuant hereto, shall be duly and
validly issued, fully paid and nonassessable, and shall be delivered free and
clear of all liens, claims, charges and encumbrances of any kind or nature
whatsoever, including any pre-emptive right of any shareholder of Issuer.
(c) No Violation. The execution and delivery of this Agreement does not,
and the consummation of the transactions contemplated hereby will not, conflict
with, or result in any violation pursuant to any provisions of the Articles of
Incorporation or By-laws of Issuer or, subject to obtaining any approvals or
consents contemplated hereby, result in any violation of any loan or credit
agreement, note, mortgage, indenture, lease, plan or other agreement,
obligation, instrument, permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Issuer or its
properties or assets which violation would have a Material Adverse Effect on the
Issuer.
6. Representations and Warranties of Grantee. Grantee hereby represents and
warrants to Issuer that: (a) Due Authorization. Grantee has all requisite
corporate power and
authority to enter to this Agreement and, subject to any approvals or consents
referred to herein, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Grantee. This Agreement has been duly executed
and delivered by Grantee.
(b) Purchase Not for Distribution. This Option is not being, and any
Option Shares or other securities acquired by Grantee upon exercise of the
Option will not be, acquired with a view to the public distribution thereof and
will not be transferred or otherwise disposed of except in a transaction
registered or exempt from registration under the Securities Act.
7. Adjustment upon Changes in Capitalization, etc.
(a) In the event of any change in Issuer Common Stock by reason of a stock
dividend stock split, split-up, recapitalization, combination, exchange of
shares or similar transaction, the type and number of shares or securities
subject to the Option, and the Purchase Price therefor, shall be adjusted
appropriately, and proper provision shall be made in the agreements governing
such transaction so that Grantee shall receive, upon exercise of the Option, the
number and class of shares or other securities or property that Grantee would
have received in respect of Issuer Common Stock if the Option had been exercised
immediately prior to such event, or the record date therefor, as applicable. If
any additional shares of Issuer Common Stock are issued after the date of this
Agreement (other than pursuant to an event described in the first sentence of
this Section 7(a)), the number of shares of Issuer Common Stock subject to the
Option shall be adjusted so that, after such issuance, the Option, together with
any shares of Issuer Common Stock previously issued pursuant hereto, equals
19.5% of the number of shares of Issuer Common Stock then issued and
outstanding, without giving effect to any shares subject to or issued pursuant
to the Option.
(b) In the event that, prior to the Termination Date, Issuer shall enter
in an agreement:
(i) to consolidate with or merge into any person, other than Grantee
or one of its subsidiaries, and shall not be the continuing or surviving
corporation of such consolidation or merger; (ii) to permit any person,
other than Grantee or one of its subsidiaries, to merge into Issuer where
Issuer shall be the continuing or surviving corporation, but, in
connection with such merger, the then outstanding shares of Issuer Common
Stock shall be changed into or exchanged for stock or other securities of
Issuer or any other person or cash or any other property or the
outstanding shares of Issuer Common Stock immediately prior to such merger
shall after such merger represent less than 50% of the outstanding shares
and share equivalents of the merged company; or (iii)to sell or otherwise
transfer all or substantially all of its assets to any person, other than
Grantee or one of its subsidiaries, then, and in each such case, the
agreement governing such transaction shall make proper provisions so that,
upon the consummation of any such transaction and upon the terms and
conditions set forth herein, the Option, notwithstanding the fact that as
of the date of consummation of such transaction the Termination Date shall
have occurred, shall be converted into, or exchanged for, an option (the
"Substitute Option"), at the election of Grantee, of either (x) the
Acquiring Corporation (as defined below), (y) any person that controls the
Acquiring Corporation, or (z) in the case of a merger described in clause
(ii), the Issuer (in each case, such entity being referred to as the
"Substitute Option Issuer").
(c) The Substitute Option shall have the same terms as the Option,
provided that, if the terms of the Substitute Option cannot, because of the
applicability of any law or regulation, have the exact terms as the Option, such
terms shall be as similar as possible and in no event less advantageous to
Grantee. The Substitute Option Issuer shall also enter into an agreement with
the then-holder or holders of the Substitute Option in substantially the same
form as this Agreement, which shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares
of the Substitute Common Stock (as hereinafter defined) as is equal to the
Assigned Value (as hereinafter defined) multiplied by the number of shares of
the Issuer Common Stock for which the Option was theretofore exercisable,
divided by the Average Price (as hereinafter defined). The exercise price of
each share of Substitute Common Stock subject to the Substitute Option (the
"Substitute Purchase Price") shall be equal to the Purchase Price multiplied by
a fraction in which the numerator is the number of shares of the Issuer Common
Stock for which the Option was theretofore exercisable and the denominator is
the number of shares for which the Substitute Option is exercisable.
(e) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (x) the continuing or
surviving corporation of a consolidation or merger with respect to which
Issuer is one of the parties (if other than Issuer), (y) the Issuer in a
consolidation or merger or in which the Issuer is the continuing or
surviving corporation, and (z) the transferee of all or any substantial
part of the Issuer's assets.
(ii)"Assigned Value" shall mean the highest of (x) the price per
share of the Issuer Common Stock at which a Tender Offer or Exchange
Offer therefor has been made by any person (other than Grantee), (y) the
price per share of the Issuer Common Stock to be paid by any person
(other than the Grantee) pursuant to an agreement with Issuer, or (z)
the highest last sales price per share of Issuer Common Stock quoted on
any national securities exchange (including the NASDAQ - National Market
System) (or if Issuer Common Stock is not quoted on any such national
securities exchange, the highest bid price per share on any day as
quoted on the principal trading market or securities exchange on which
such shares are traded as reported by a recognized source chosen by
Grantee) within the six-month period immediately preceding the agreement
described in Section 7(b) above; provided, however, that in the event of
a sale of less than all of Issuer's assets, the Assigned Value shall be
the sum of the price paid in such sale for such assets and the current
market value of the remaining assets of Issuer as determined by a
nationally recognized investment banking firm selected by Grantee,
divided by the number of shares of the Issuer Common Stock outstanding
at the time of such sale. In the event a Tender Offer or Exchange Offer
is made for the Issuer Common Stock or an agreement is entered into for
a merger or consolidation involving consideration other than cash, the
value of the securities or other property issuable or deliverable in
exchange for the Issuer Common Stock shall be determined by a nationally
recognized investment banking firm mutually selected by Grantee and
Issuer (or if applicable, Acquiring Corporation), provided that if a
mutual selection cannot be made as to such investment banking firm, it
shall be selected by Grantee.
(iii) "Average Price" shall mean the average last sales price of a
share of the Substitute Common Stock for the one year immediately
preceding the consolidation, merger or sale in question, as quoted on any
national securities exchange (including the NASDAQ National Market
System), and if the Substitute Common Stock is not quoted on any such
national securities exchange, the average of the bid price for the one
year period described above, as quoted on the principal trading market or
securities exchange on which such Substitute Common Stock is traded, as
reported by a recognized source, as chosen by Grantee, but in no event
higher than the last sales price or closing price or the bid price of the
shares of the Substitute Common Stock on the day preceding such
consolidation, merger, or sale; provided that if Issuer is the issuer of
the Substitute Option, the Average Price shall be computed with respect to
a share of common stock issued by Issuer, the person merging into Issuer
or by any company which controls or is controlled by such person, as
Grantee may elect.
(iv) "Substitute Common Stock" shall mean the common stock issued by
the Substitute Option Issuer upon the exercise of the Substitute Option.
(f) In no event pursuant to any of the foregoing paragraphs shall the
Substitute Option be exercisable for more than 19.5% of the aggregate of the
shares of the Substitute Common Stock outstanding prior to exercise of the
Substitute Option. In the event that the Substitute Option would be exercisable
for more than 19.5% of the aggregate of the shares of the Substitute Common
Stock but for this clause (f), the Substitute Option Issuer shall make a cash
payment to Grantee equal to the amount of (i) the value of the Substitute Option
without giving effect to the limitation in this clause (f) in excess of (ii) the
value of the Substitute Option after giving effect to the limitation in this
clause (f). This difference in value shall be determined by a nationally
recognized investment banking firm selected by Grantee.
(g) Issuer shall not enter into any transaction described in subsection
(b) of this Section 7 unless the Acquiring Corporation and any person that
controls the Acquiring Corporation assumes in writing all of the obligations of
Issuer hereunder and takes all other actions that may be necessary so that the
provisions of this Section 7 are given full force and effect (including, without
limitation, any action that may be necessary so that the shares of Substitute
Common Stock are in no way distinguished from or have lesser economic value
(other than any diminution resulting from the fact that the Substitute Common
Stock is "restricted securities" within the meaning of Rule 144 under the
Securities Act) than other shares of common stock issued by the Substitute
Option Issuer).
(h) The provisions of Sections 8, 9 and 10 shall apply, with appropriate
adjustments, to any securities for which the Option becomes exercisable pursuant
to this Section 7 and, as applicable, references in such sections to "Issuer,"
"Option," "Purchase Price," and "Issuer Common Stock" shall be deemed to be
references to "Substitute Option Issuer," "Substitute Option, " "Substitute
Purchase Price, " and "Substitute Common Stock, " respectively.
8. Repurchase at the Option of Grantee.
(a) Subject to the last sentence of Section 3(a) of this Agreement, at the
request of Grantee at any time commencing upon the first occurrence of a
Repurchase Event (as defined in Section 8(d)) and ending at the close of
business 365 days thereafter, Issuer shall repurchase from Grantee the Option
and all shares of Issuer Common Stock purchased by Grantee pursuant hereto with
respect to which Grantee then has beneficial ownership. The date on which
Grantee exercises its rights under this Section 8 is referred to as the "Request
Date". Such repurchase shall be at an aggregate price (the "Section 8 Repurchase
Consideration") equal to the sum of:
(i) the aggregate Purchase Price paid by Grantee for any shares of
Issuer Common Stock acquired pursuant to complete or partial exercise of
the Option with respect to which Grantee then has beneficial ownership;
(ii) the excess, if any, of (x) the Applicable Price (as defined
below) for each share of Issuer Common Stock over (y) the Purchase Price
(subject to adjustment pursuant to Section 7), multiplied by the number of
shares of Issuer Common Stock with respect to which the Option has not
been exercised; and
(iii) the excess, if any, of the Applicable Price over the Purchase
Price (subject to adjustment pursuant to Section 7) paid (or, in the case
of Option Shares with respect to which the Option has been exercised but
the Closing Date has not occurred, payable) by Grantee for each share of
Issuer Common Stock with respect to which the Option has been exercised
and with respect to which Grantee then has beneficial ownership,
multiplied by the number of such shares.
(b) If Grantee exercises its rights under this Section 8, Issuer shall,
within ten (10) business days after the Request Date, pay the Section 8
Repurchase Consideration to Grantee in immediately available funds, and
contemporaneously with such payment Grantee shall surrender to Issuer the Option
and the certificates evidencing the shares of Issuer Common Stock purchased
thereunder with respect to which Grantee then has beneficial ownership, and
Grantee shall warrant that it has sole record and beneficial ownership of such
shares and that the same are then free and clear of all liens, claims, charges
and encumbrances of any kind whatsoever. Notwithstanding the foregoing, to the
extent that prior notification to or consent of any regulatory authority is
required in connection with the payment of all or any portion of the Section 8
Repurchase Consideration, or Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from repurchasing the
Option and/or the Option Shares in full, Issuer shall immediately so notify
Grantee and thereafter deliver from time to time, and as permitted by applicable
law or regulation, that portion of the Section 8 Repurchase Consideration that
it is not then so prohibited from paying within five business days after the
date on which Issuer is no longer prohibited; provided, however, that if Issuer
at any time is prohibited under applicable law or regulation, or as a
consequence of administrative policy, from delivering to the Grantee the Section
8 Repurchase Consideration, in full (and Issuer hereby undertakes to use its
best efforts to obtain all required consents of regulatory authorities and to
file any required notices as promptly as practicable in order to accomplish such
repurchase), the Grantee may, at its option, revoke its request that Issuer
repurchase the Option or the Option Shares either in whole or to the extent of
the prohibition, whereupon, in the latter case, Issuer shall promptly (i)
deliver to the Grantee that portion of the Section 8 Repurchase Consideration
that Issuer is not prohibited from delivering; and (ii) deliver, to the Grantee
either (A) a new Stock Option Agreement evidencing the right of Issuer to
purchase that number of shares of Common Stock obtained by multiplying the
number of shares of Common Stock for which the surrendered Stock Option
Agreement was exercisable at the time of delivery of the notice of repurchase by
a fraction, the numerator of which is the Section 8 Repurchase Consideration
less the portion thereof theretofore delivered to the Grantee and the
denominator of which is the Section 8 Repurchase Consideration, or (B) a
certificate for the Option Shares it is then prohibited from repurchasing.
Notwithstanding anything herein to the contrary, all of Grantee's rights
under this Section 8 shall terminate on the Termination Date of this Option
pursuant to Section 3(a) of this Agreement.
(c) For purposes of this Agreement, the "Applicable Price" means the
highest of: (i) the highest price per share of Issuer Common Stock paid for any
such share by the person or groups described in Section 8(d)(i) below; (ii) the
price per share of Issuer Common Stock received by holders of Issuer Common
Stock in connection with any merger or other business combination transaction
described in Section 7(b)(i), 7(b)(ii) or 7(b)(iii) above; or (iii) the highest
last sales price per share of Issuer Common Stock quoted on any national
securities exchange (including the NASDAQ - National Market System) (or if
Issuer Common Stock is not quoted on any such national securities exchange, the
highest bid price per share as quoted on the principal trading market or
securities exchange on which such shares are traded as reported by a recognized
source chosen by Grantee) during the sixty (60) business days preceding the
Request Date; provided, however, that in the event of a sale of less than all of
Issuer's assets, the Applicable Price shall be the sum of the price paid in such
sale for such assets and the current market value of the remaining assets of
Issuer as determined by a nationally recognized investment banking firm selected
by Grantee, divided by the number of shares of the Issuer Common Stock
outstanding at the time of such sale. If the consideration to be offered, paid
or received pursuant to either of the foregoing clauses (i) or (ii) shall be
other than in cash, the value of such consideration shall be determined in good
faith by an independent nationally recognized investment banking firm selected
by Grantee and reasonably acceptable to Issuer, which determination shall be
conclusive for all purposes of this Agreement.
(d) As used herein, a "Repurchase Event" shall occur if (i) any person
(other than Grantee or any subsidiary of Grantee) shall have acquired beneficial
ownership of (as such term is defined in Rule l3d-3 promulgated under the
Exchange Act), or the right to acquire beneficial ownership of, or any "group"
(as such term is defined under the Exchange Act) shall have been formed which
beneficially owns or has the right to acquire beneficial ownership of, more than
50% of the then outstanding shares of Issuer Common Stock, or (ii) any of the
transactions described in Section 7(b)(i), 7(b)(ii) or 7(b)(iii) of this
Agreement shall be consummated.
9. Registration Rights.
(a) Demand Registration Rights. Issuer shall, subject to the conditions of
subparagraph (c) below, if requested by Grantee, as expeditiously as possible
prepare and file a registration statement under the Securities Act if such
registration is necessary in order to permit the sale or other disposition of
any or all shares of Issuer Common Stock or other securities that have been
acquired by or are issuable to Grantee upon exercise of the Option in accordance
with the intended method of sale or other disposition stated by Grantee in such
request, including without limitation a "shelf'" registration statement under
Rule 415 under the Securities Act or any successor provision, and Issuer shall
use its best efforts to qualify such shares or other securities for sale under
any applicable state securities laws.
(b) Additional Registration Rights. If Issuer at any time after the
exercise of the Option proposes to register any shares of Issuer Common Stock
under the Securities Act in connection with an underwritten public offering of
such Issuer Common Stock, Issuer will promptly give written notice to Grantee
(and any permitted transferee) of its intention to do so and, upon the written
request of Grantee (or any such permitted transferee of Grantee) given within 30
days after receipt of any such notice (which request shall specify the number of
shares of Issuer Common Stock intended to be included in such underwritten
public offering by Grantee (or such permitted transferee)), Issuer will cause
all such shares, the holders of which shall have requested participation in such
registration, to be so registered and included in such underwritten public
offering; provided, that the Issuer may elect not to cause all of the shares for
which the Grantee has requested participation in such registration to be
registered and included in such underwritten public offering if the
underwriters, for good business reasons and in good faith, object to such
inclusion.
(c) Conditions to Required Registration. Issuer shall use all reasonable
efforts to cause each registration statement referred to in subparagraph (a)
above to become effective and to obtain all consents or waivers of other parties
which are required therefor and to keep such registration statement effective,
provided, however, Issuer shall not be required to register Option Shares under
the Securities Act pursuant to subparagraph (a) above:
(i) prior to the earliest of (a) termination of the Merger
Agreement, and (b) a Purchase Event or a Preliminary Purchase Event;
(ii)on more than two occasions;
(iii)more than once during any calendar year; and
(iv)within 90 days after the effective date of a registration
referred to in subparagraph (b) above pursuant to which the holder or
holders of the Option Shares concerned were afforded the opportunity to
register such shares under the Securities Act and such shares were
registered as requested.
In addition to the foregoing, Issuer shall not be required to maintain the
effectiveness of any registration statement after the expiration of 180 days
from the effective date of such registration statement. Issuer shall use all
reasonable efforts to make any filings, and take all steps, under all applicable
state securities laws to the extent necessary to permit the sale or other
disposition of the Option Shares so registered in accordance with the intended
method of distribution for such shares.
(d) Expenses. Except where applicable state law prohibits such payments,
Issuer will pay all of its expenses (including, without limitation, registration
fees, qualification fees, blue sky fees and expenses, legal expenses, printing
expenses and the costs of special audits or "cold comfort" letters, expenses of
underwriters, excluding discounts and commissions but including liability
insurance if Issuer so desires or the underwriters so require, and the
reasonable fees and expenses of any necessary special experts) in connection
with each registration pursuant to subparagraph (a) or (b) above (including the
related offerings and sales by holders of Option Shares) and all other
qualifications, notifications or exemptions pursuant to subparagraph (a) or (b)
above; provided, however, that fees and expenses of counsel to the Grantee and
any other expenses incurred by the Grantee in connection with such registration
shall be borne by the Grantee.
(e) Indemnification. In connection with any registration under
subparagraph (a) or (b) above Issuer hereby indemnifies the holder of the Option
Shares, and each underwriter thereof, including each person, if any, who
controls such holder or underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, losses, claims, damages and liabilities
caused by any untrue, or alleged untrue, statement of a material fact contained
in any registration statement or prospectus or notification or offering circular
(including any amendments or supplements thereto) or any preliminary prospectus,
or caused by any omission, or alleged omission, to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such expenses, losses, claims, damages or
liabilities of such indemnified party are caused by any untrue statement or
alleged untrue statement that was included by Issuer in any such registration
statement or prospectus or notification or offering circular (including any
amendments or supplements thereto) in reliance upon and in conformity with,
information furnished in writing to Issuer by such indemnified party expressly
for use therein, and Issuer and each officer, director and controlling person of
Issuer shall be indemnified by such holder of the Option Shares, or by such
underwriter, as the case may be, for all such expenses, losses, claims, damages
and liabilities caused by any untrue, or alleged untrue, statement, that was
included by Issuer in any such registration statement or prospectus or
notification or offering circular (including any amendments or supplements
thereto) in reliance upon, and in conformity with, information furnished in
writing to Issuer by such holder or such underwriter, as the case may be,
expressly for such use.
Promptly upon receipt by a party indemnified under this subparagraph (e)
of notice of the commencement of any action against such indemnified party in
respect of which indemnity or reimbursement may be sought against any
indemnifying party under this subparagraph (e), such indemnified party shall
notify the indemnifying party in writing of the commencement of such action, but
the failure so to notify the indemnifying party shall not relieve it of any
liability which it may otherwise have to any indemnified party under this
subparagraph (e). In case notice of commencement of any such action shall be
given to the indemnifying party as above provided, the indemnifying party shall
be entitled to participate in and, to the extent it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense of such
action at its own expense, with counsel chosen by it and satisfactory to such
indemnified party. The indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel (other than reasonable costs of investigation)
shall be paid by the indemnified party unless (i) the indemnifying party either
agrees to pay the same, (ii) the indemnifying party fails to assume the defense
of such action with counsel satisfactory to the indemnified party, or (iii) the
indemnified party has been advised by counsel that one or more legal defenses
may be available to the indemnifying party that may be contrary to the interest
of the indemnified party, in which case the indemnifying party shall be entitled
to assume the defense of such action notwithstanding its obligation to bear fees
and expenses of such counsel. No indemnifying party shall be liable for any
settlement entered into without its consent, which consent may not be
unreasonably withheld.
If the indemnification provided for in this subparagraph (e) is
unavailable to a party otherwise entitled to be indemnified in respect of any
expenses, losses, claims, damages or liabilities referred to herein, then the
indemnifying party, in lieu of indemnifying such party otherwise entitled to be
indemnified, shall contribute to the amount paid or payable by such party to be
indemnified as a result of such expenses, losses, claims, damages or liabilities
in such proportion as is appropriate to reflect the relative benefits received
by Issuer, the selling shareholders and the underwriters from the offering of
the securities and also the relative fault of Issuer, the selling shareholders
and the underwriters in connection with the statements or omissions which
resulted in such expenses, losses, claims, damages or liabilities, as well as
any other relevant equitable considerations. The amount paid or payable by a
party as a result of the expenses, losses, claims, damages and liabilities
referred to above shall be deemed to include any legal or other fees or expenses
reasonably incurred by such party in connection with investigating or defending
any action or claim; provided, however, that in no case shall the holders of the
Option Shares be responsible, in the aggregate, for any amount in excess of the
net offering proceeds attributable to its Option Shares included in the
offering. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11 (f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. Any
obligation by any holder to indemnify shall be several and not joint with other
holders.
In connection with any registration pursuant to subparagraph (a) or (b)
above, Issuer and each holder of any Option Shares (other than Grantee) shall
enter into an agreement containing the indemnification provisions of this
subparagraph (e).
(f) Miscellaneous Reporting. Issuer shall comply with all reporting
requirements and will do all such other things as may be necessary to permit the
expeditious sale at any time of any Option Shares by the holder thereof in
accordance with and to the extent permitted by any rule or regulation
promulgated by the SEC from time to time. Issuer shall at its expense provide
the holder of any Option Shares with any information necessary in connection
with the completion and filing of any reports or forms required to be filed by
them under the Securities Act or the Exchange Act, or required pursuant to any
state securities laws or the rules of any stock exchange.
(g) Issue Taxes. Issuer will pay all stamp taxes in connection with the
issuance and the sale of the Option Shares and in connection with the exercise
of the Option, and will save Grantee harmless, without limitation as to time,
against any and all liabilities, with respect to all such taxes.
10. Quotation; Listing. If Issuer Common Stock or any other securities to be
acquired upon exercise of the Option are then authorized for quotation or
trading or listing on any national securities exchange (including the NASDAQ -
National Market System) or any securities exchange, Issuer, upon the request of
Grantee, will promptly file an application, if required, to authorize for
quotation or trading or listing the shares of Issuer Common Stock or other
securities to be acquired upon exercise of the Option on any such national
securities exchange and will use its best efforts to obtain approval, if
required, of such quotation or listing as soon as practicable.
11. Division of Option. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of Grantee, upon presentation and
surrender of this Agreement at the principal office of Issuer for other
Agreements providing for Options of different denominations entitling the holder
thereof to purchase in the aggregate the same number of shares of Issuer Common
Stock purchasable hereunder. The terms "Agreement" and "Option" as used herein
include any other Agreements and related Options for which this Agreement (and
the Option granted hereby) may be exchanged. Upon receipt by Issuer of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Agreement, and (in the case of loss, theft, or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of.
like tenor and date.
12. Miscellaneous.
(a) Expenses. Except as otherwise provided in Section 9 of this Agreement,
each of the parties hereto shall bear and pay all costs and expenses incurred by
it or on its behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel.
(b) Waiver and Amendment. Any provision of this Agreement may be waived at
any time by the party that is entitled to the benefits of such provision if such
waiver is in writing. This Agreement may not be modified, amended, altered or
supplemented except upon the execution and delivery of a written agreement
executed by the parties hereto.
(c) Entire Agreement; No Third Party Beneficiary; Severability. This
Agreement, together with the Merger Agreement and the other documents and
instruments referred to herein and therein, between Grantee and Issuer (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof and (b) is not intended to confer upon any person other
than the parties hereto (other than any transferees of the Option Shares or any
permitted transferee of this Agreement pursuant to Section 12(h)) any rights or
remedies hereunder. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction or a federal or state
regulatory agency to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
If for any reason such court or regulatory agency determines that the Option
does not permit Grantee to acquire, or does not require Issuer to repurchase,
the full number of shares of Issuer Common Stock as provided in Sections 3 and 8
(as adjusted pursuant to Section 7), it is the express intention of Issuer to
allow Grantee to acquire or to require Issuer to repurchase such lesser number
of shares as may be permissible without any amendment or modification hereof.
(d) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of California without regard to any
applicable conflicts of law rules.
(e) Descriptive Heading. The descriptive headings contained herein are for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
confirmation) or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or a such other address
for a party as shall be specified by like notice):
IF TO ISSUER TO:
Pacific Capital Bancorp
307 Main Street
Salinas, California 93901
Telecopy: (408) 646-9748
Attention: Mr. Clayton C. Larson,
President and Chief Administrative Officer
WITH A COPY TO:
Mr. James E. Topinka
Preston Gates & Ellis LLP
One Maritime Plaza
Suite 2400
San Francisco, California 94111
Telecopy: (415) 788-8819
IF TO GRANTEE TO:
Santa Barbara Bancorp
1021 Anacapa Street
Santa Barbara, California 93101-2036
Telecopy: (804) 564-6293
Attention: Mr. David W. Spainhour,
President and Chief Executive Officer
WITH A COPY TO:
Mr. Charles E. Greef
Mr. Peter G. Weinstock
Jenkens & Gilchrist,
a Professional Corporation
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202-2799
Telecopy: (214) 855-4300
(g) Counterparts. This Agreement and any amendments hereto may be executed
in multiple counterparts, each of which shall be considered one and the same
agreement and shall become effective when both counterparts have been signed, it
being understood that both parties need not sign the same counterpart.
(h) Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder or under the Option shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other party, except that Grantee may assign this
Agreement to a wholly owned subsidiary of Grantee and Grantee may assign its
rights hereunder in whole or in part after the occurrence of a Purchase Event.
Subject to the preceding sentence, this Agreement shall be binding upon, inure
to the benefit of and be enforceable by the parties and their respective
successors and assigns.
(i) Further Assurances. In the event of any exercise of the Option by
Grantee, Issuer and Grantee shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
(j) Specific Performance. The parties hereto agree that this Agreement may
be enforced by either party through specific performance, injunctive relief and
other equitable relief. Both parties further agree to waive any requirement for
the securing or posting of any bond in connection with the obtaining of any such
equitable relief and that this provision is without prejudice to any other
rights that the parties hereto may have for any failure to perform this
Agreement.
IN WITNESS WHEREOF, Issuer and Grantee have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the day
and year first written above.
PACIFIC CAPITAL BANCORP
By:________________________________________
D. Vernon Horton, Chairman of the
Board and Chief Executive Officer
and
By:_______________________________________
Clayton C. Larson, President and
Chief Administrative Officer
SANTA BARBARA BANCORP
By:_______________________________________
William S. Thomas, Jr., Vice
Chairman and Chief Operating Officer
and
By:_______________________________________
Kent M. Vining, Senior Vice
President
<PAGE>
EXHIBIT "D"
OPINION MATTERS OF COUNSEL TO PACIFIC
1. Pacific is a California corporation, duly organized, validly existing and
in good standing under the laws of the State of California and has the
power and authority to own its property and carry on its business as now
conducted.
2. Pacific is a bank holding company registered under the BHCA.
3. Each of the Subsidiary Banks (i) is a national banking association formed
under the laws of the United States, (ii) is authorized to transact the
business of banking permitted under the laws of the United States and
(iii) has the power and authority to own its property and carry on its
business as now conducted.
4. Each of the Pacific Subsidiaries (other than the Subsidiary Banks) are
duly organized, validly existing and in good standing under the laws of
the state of their incorporation, and each has the power and authority to
own its property and carry on its business as now conducted.
5. Each of the Agreement, the Merger Agreement and the Option Agreement
delivered by Pacific to SBB has been duly authorized by all necessary
corporate action on the part of Pacific, has been executed and delivered
by Pacific, and, with respect to the Agreement and the Merger Agreement,
constitutes the valid and legally binding obligation of Pacific,
enforceable in accordance with its respective terms.
6. The execution, delivery and performance by Pacific of this Agreement
and the Merger Agreement will not violate any covenants or conditions
of the Articles of Incorporation or Bylaws of Pacific, will not violate
any provision of law, and, to the best of our knowledge, will not
violate any order of any court or governmental agency or result in the
creation or imposition of any lien, charge or encumbrance upon the
assets of Pacific, including the Pacific Subsidiaries, pursuant to the
provisions of any indenture, mortgage, trust, franchise, permit,
license, note or other agreement or instrument known to such counsel to
which Pacific is a party.
7. To the best knowledge of such counsel, there are no actions, suits or
proceedings pending or threatened against or affecting Pacific or any
of the Pacific Subsidiaries, at law or in equity or before or by any
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, that questions the validity of
the Agreement or the agreements contemplated thereby, that seeks to
enjoin or otherwise restrain the transactions contemplated by the
Agreement.
8. The entire authorized capital stock of Pacific consists of (i)
20,000,000 shares of common stock, no par value per share, ________
shares of which are fully paid, validly issued, nonassessable and
outstanding, and _________ shares of which are subject to outstanding
stock options, and (ii) 20,000,000 shares of preferred stock, no par
value per share, no shares of which are issued and outstanding. Except
for outstanding options to acquire up to _______ shares of common stock
of Pacific, there are, to the best of our knowledge, no (i) other
outstanding equity securities of any kind or character,
(ii) outstanding subscriptions, options, convertible securities,
rights, warrants, calls or other agreements or commitments of any kind
issued or granted by, or binding upon, Pacific to purchase or otherwise
acquire any security of or equity interest in Pacific or
(iii) outstanding subscriptions, options, rights, warrants, calls,
convertible securities, irrevocable proxies or other agreements or
commitments obligating Pacific or any of the Pacific Subsidiaries to
issue any shares of, restricting the transfer of or otherwise relating
to shares of its capital stock of any class, and, to the best of our
knowledge, none of the issued and outstanding shares of the capital
stock of Pacific or any Pacific Subsidiary has been issued in violation
of the preemptive or subscription rights of any person.
9. To the best of our knowledge, all approvals and consents necessary for
Pacific to consummate the transactions contemplated by this Agreement and
the Merger Agreement, including the Merger, have been obtained.
10. Such other matters as counsel for SBB may reasonably request.
In giving the foregoing opinions, such counsel may rely upon the opinion
of other legal counsel satisfactory to SBB and upon certificates of public
officials and officers and directors of Pacific. Such opinions may be based on
such assumptions and subject to such qualifications and limitations and in such
form as are usual in legal opinions in similar situations.
<PAGE>
EXHIBIT "E"
OPINION MATTERS OF COUNSEL TO SBB
1. SBB is a corporation validly existing and in good standing under the laws
of the State of California and has the power and authority to own its
property and carry on its business as now conducted.
2. SBB is a bank holding company registered under the BHCA.
3. SBB&T is a California banking corporation, duly organized, validly
existing and in good standing under the laws of the State of California
and has the power and authority to own its property and carry on its
business as now conducted.
4. Each of the SBB Subsidiaries (other than SBB&T) are duly organized,
validly existing and in good standing under the laws of the state of their
incorporation, and each has the power and authority to own its property
and carry on its business as now conducted.
5. Each of the Agreement, the Merger Agreement and the Option Agreement to be
delivered by SBB to Pacific has been duly authorized by all necessary
corporate action on the part of SBB, has been executed and delivered by
SBB, and, with respect to the Agreement and the Merger Agreement,
constitute the valid and legally binding obligation of SBB, enforceable in
accordance with its respective terms.
6. The shares of SBB Common Stock to be issued pursuant to the Merger have
been duly authorized and, when issued to the shareholders of Pacific in
accordance with the terms of the Agreement, will be validly issued, fully
paid and nonassessable, with no personal liability attaching to the
ownership thereof.
7. The execution, delivery and performance by SBB of this Agreement and
the Merger Agreement will not violate any covenants or conditions of
the Articles of Incorporation or Bylaws of SBB, will not violate any
provision of law, and, to the best of our knowledge, will not violate
any order of any court or governmental agency or result in the creation
or imposition of any lien, charge or encumbrance upon the assets of
SBB, including the SBB Subsidiaries, pursuant to the provisions of any
indenture, mortgage, trust, franchise, permit, license, note or other
agreement or instrument known to such counsel to which SBB is a party.
8. To the best knowledge of such counsel, there are no actions, suits or
proceedings pending or threatened against or affecting SBB or any of
the SBB Subsidiaries, at law or in equity or before or by any
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, that questions the validity of
the Agreement or the agreements contemplated thereby, that seeks to
enjoin or otherwise restrain the transactions contemplated by the
Agreement.
9. To the best of our knowledge, all approvals and consents necessary for SBB
to consummate the transactions contemplated by this Agreement and the
Merger Agreement, including the Merger have been obtained.
10. The Registration Statement (except for (i) financial statements,
footnotes and schedules and other financial, tabular and statistical
information contained in or incorporated by reference into the
Registration Statement and (ii) any material relating to Pacific which
is incorporated by reference into the Registration Statement, as to
which we express no opinion) complies as to form in all material
respects with the Securities Act of 1933, as amended (the "1933 Act")
and the rules and regulations of the Securities and Exchange Commission
promulgated thereunder in effect as of the date of effectiveness of
such Registration Statement. The Registration Statement has become
effective under the 1933 Act, and we are not aware that any stop order
suspending the effectiveness thereof has been issued or any proceedings
for that purpose have been instituted or are pending or threatened
under the 1933 Act.
11. Such other matters as counsel for Pacific may reasonably request.
In giving the foregoing opinions, such counsel may rely upon the opinion
of other legal counsel satisfactory to Pacific and upon certificates of public
officials and officers and directors of SBB. Such opinions may be based on such
assumptions and subject to such qualifications and limitations as are usual in
legal opinions in similar situations.
<PAGE>
EXHIBIT "F"
FORM OF SHAREHOLDER LETTER
_________________, 1998
Santa Barbara Bancorp
1021 Anacapa Street
Santa Barbara, California 93101-2036
Attention: Mr. David W. Spainhour
President and Chief Executive Officer
Re: Agreement and Plan of Reorganization, dated July 20, 1998, (the
"Agreement"), by and between Santa Barbara Bancorp ("SBB") and
Pacific Capital Bancorp ("Pacific")
Gentlemen:
I have been advised that I may be deemed to be an affiliate of Pacific, as
that term is defined for purposes of paragraphs (c) and (d) of Rule 145 ("Rule
145") of the Rules and Regulations of the Securities and Exchange Commission
(the "Commission") promulgated under the Securities Act of 1933, as amended (the
"Securities Act").
Pursuant to the terms and conditions of the Agreement, each share of
common stock of Pacific owned by me as of the effective date of the merger
contemplated by the Agreement (the "Merger") may be converted into the right to
receive shares of common stock of SBB and cash in lieu of any fractional share.
As used in this letter, the shares of common stock of Pacific owned by me as of
_______________ (the date 30 days prior to the anticipated effective date of the
Merger) are referred to as the "Pre-Merger Shares" and the shares of common
stock of SBB which may be received by me in the Merger in exchange for my
Pre-Merger Shares are referred to as the "Post-Merger Shares." This letter is
delivered to SBB pursuant to Section 5.16 of the Agreement.
A. I represent and warrant to SBB and agree that:
1. I shall not make any sale, transfer or other disposition of the
Post-Merger Shares I receive pursuant to the Merger in violation of the
Securities Act or the Rules and Regulations of the Commission promulgated
thereunder.
<PAGE>
Santa Barbara Bancorp
_____________, 1998
Page 3
2. I understand that the issuance of the Post-Merger Shares to me
pursuant to the Merger will be registered with the Commission under the
Securities Act. I also understand that, because I may be deemed an
"affiliate" of Pacific and because any distributions by me of the
Post-Merger Shares will not be registered under the Securities Act, such
Post-Merger Shares must be held by me unless (i) the sale, transfer or
other distribution has been registered under the Securities Act, (ii) the
sale, transfer or other distribution of such Post-Merger Shares is made in
accordance with the provisions of Rule 145, or (iii) in the opinion of
counsel acceptable to SBB some other exemption from registration under the
Securities Act is available with respect to any such proposed
distribution, sale, transfer or other disposition of such Post-Merger
Shares.
3. In no event will I sell the Pre-Merger Shares or the Post-Merger
Shares, as the case may be, or otherwise transfer or reduce my risk
relative to the Pre-Merger Shares or Post-Merger Shares, as the case may
be, during the period beginning 30 days prior to the date on which the
Merger is consummated and ending on the date that SBB has published
financial results covering at least 30 days of the combined operations of
SBB and Pacific.
B. I understand and agree that:
1. Stop transfer instructions will be issued with respect to the
Post-Merger Shares and there will be placed on the certificates
representing such Post-Merger Shares, or any certificate delivered in
substitution therefor, a legend stating in substance:
"The shares represented by this Certificate were issued in a
transaction to which Rule 145 under the Securities Act of 1933, as
amended, applied. The shares represented by this certificate may be
transferred only in accordance with the terms of a letter agreement
dated ______________, 1998, by the registered holder in favor of
Santa Barbara Bancorp, a copy of which agreement is on file at the
principal offices of Santa Barbara Bancorp."
2. Unless the transfer by me of Post-Merger Shares is a sale made in
compliance with the provisions of Rule 145(d) or made pursuant to an
effective registration statement under the Securities Act, SBB reserves
the right to place the following legend on the certificates issued to my
transferee:
"The shares represented by this Certificate have not been registered
under the Securities Act of 1933, as amended, and were acquired from
a person who received such shares in a transaction to which Rule 145
under the Securities Act of 1933, as amended, applied. The shares
have not been acquired by the holder with a view to, or for resale
in connection with, any distribution thereof within the meaning of
the Securities Act of 1933, as amended, and may not be sold or
otherwise transferred unless the shares have been registered under
the Securities Act of 1933, as amended, or an exemption from
registration is available."
I understand and agree that the legends set forth in paragraphs 1 and 2
above shall be removed by delivery of substitute certificates without any legend
if I deliver to SBB a copy of a letter from the staff of the Commission, or an
opinion of counsel in form and substance satisfactory to SBB, to the effect that
no such legend is required for the purpose of the Securities Act.
I have carefully read this letter and the Agreement and understand the
requirements of each and the limitations imposed upon the distribution, sale,
transfer or other disposition of Pre-Merger Shares or Post-Merger Shares by me.
Very truly yours,
<PAGE>
EXHIBIT "G"
PERSONS TO DELIVER NON-COMPETE AGREEMENTS
Eugene R. Guglielmo
Mary Lou Rawitser
Brad L. Smith
<PAGE>
EXHIBIT "H"
FORM OF NON-COMPETE AGREEMENT
This Non-Compete Agreement (the "Agreement") is made and entered into as
of the ____day of _________________ 1998, by and between SANTA BARBARA BANCORP,
a California corporation ("SBB"), and _________________, an individual resident
of the State of California ("Seller").
WITNESSETH:
WHEREAS, the Seller is a shareholder of Pacific Capital Bancorp
("Pacific") and an [officer/director] of Pacific or one or more of its
subsidiaries, including the First National Bank of Central California and South
Valley National Bank (the "Subsidiary Banks"); and
WHEREAS, SBB and Pacific are parties to that certain Agreement and Plan of
Reorganization, dated July 20, 1998 (the "Reorganization Agreement"), pursuant
to which Pacific will be merged with and into SBB (the "Merger"), and SBB will
acquire all of the capital stock of Pacific in exchange for shares of the common
stock of SBB; and
WHEREAS, pursuant to the terms of the Reorganization Agreement, all
shareholders of Pacific, including Seller, will exchange 100% of the shares of
capital stock of Pacific owned by them at the effective date of the Merger for
shares of the capital stock of SBB; and
WHEREAS, Pacific owns 100% of the issued and outstanding capital stock
of each of the Subsidiary Banks; and
WHEREAS, SBB, as the surviving corporation following the Merger, will
continue to carry on the business presently conducted by Pacific and the
Subsidiary Banks; and
WHEREAS, as a condition to consummation of the transactions contemplated
by the Reorganization Agreement, SBB and Seller are required to enter into this
Agreement (terms with their initial letter capitalized and not otherwise defined
herein shall have the meanings assigned to them in the Reorganization
Agreement);.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and intending to be legally bound hereby, the parties agree as
follows:
1. Non-compete Covenants. For and in consideration of consummation of the
Merger and the other transactions contemplated by the Reorganization Agreement,
execution of this Agreement by SBB, and the payment by SBB to Seller of the
consideration set forth in Section 2 of this Agreement, Seller agrees that for a
period of two (2) years after the date of this Agreement, Seller shall not,
directly or indirectly, individually or as an employee, partner, officer,
director or shareholder or in any other capacity whatsoever:
A. Solicit the banking business of any current customers of either
of the Subsidiary Banks;
B. Within Monterey County, California, San Benito County,
California, Santa Clara County, California or Santa Cruz County,
California:
(i) acquire, charter, operate or enter into any franchise or
other operating agreement with any financial institution,
(ii) serve as an officer, director, agent or seller to any
financial institution, or
(iii) establish or operate a branch or other office of a
financial institution.
C. Recruit, hire, assist others in recruiting or hiring, discuss
employment with, or refer others concerning employment, any person
who is, or within the preceding twelve (12) months was, an employee
of either Subsidiary Bank or Pacific.
If any court of competent jurisdiction should determine that any term or
terms of this covenant is too broad in terms of time, geographic area, lines of
commerce or otherwise, such court shall reform such term or terms in order that
such term or terms comply with applicable law, and shall enforce such reformed
term or terms to the maximum extent permissible under California law.
2. Compensation. For and in consideration of the matters contained in this
Agreement, SBB agrees to pay to Seller a total of $__________, of which $______
shall be payable to Seller on the Closing Date and $______ shall be payable on
each of the first and second anniversary of this Agreement. Payment may be made
by either (i) a wire transfer of immediately available funds to the account
designated in writing by Seller, (ii) check, or (iii) cashier's check.
3. Term and Termination.
A. The term of the Agreement shall commence on the Effective Date of the
Merger, and shall terminate and all obligations hereunder shall cease, except
for liabilities or claims that shall have arisen or accrued in connection with
such termination, two (2) years after the Effective Date.
B. The failure by any party to this Agreement on any occasion to exercise
its right to terminate this Agreement as provided herein shall not be deemed to
be a waiver of such party's right to terminate this Agreement in respect to that
breach (provided it shall be continuing) or of any subsequent breach.
. Seller acknowledges that performance of the terms of this Agreement
constitutes valuable, special and unique property of SBB critical to its
business and that any breach of this Agreement by him will give rise to
irreparable injury to SBB that is not compensable in money damages. Accordingly,
Seller agrees that SBB shall be entitled to obtain specific performance and/or
injunctive relief against the breach or threatened breach of this Agreement by
Seller. Seller further agrees to waive any requirement for the securing or
posting of any bond or the proof of any actual damages in connection with such
remedies. Such remedies shall not be exclusive and shall be in addition to any
other remedy that SBB may have at law or in equity.
5. Deductions. SBB shall not deduct from Seller's fee any Federal, state
and local income taxes, social security taxes or other amounts as SBB would be
required to deduct under applicable laws and governmental regulations if such
payments were made to its employees.
6. Reasonableness of Restrictions. Seller has carefully read and
considered the provisions of this Agreement and, having done so, agrees that the
restrictions set forth in this Agreement contain reasonable limitations as to
time, geographical area, scope of activity to be restrained, and do not impose a
greater restraint than is necessary to compensate SBB for the consideration paid
to the Seller pursuant to the Reorganization Agreement and to protect the
goodwill or other legitimate business interests of SBB.
7. Extension of Term of Restrictive Covenant. If Seller violates any
restrictive covenant contained in Section 1, or if an action to enforce a
restrictive covenant contained in Section 1 is pending in a court of competent
jurisdiction, then the term of such restrictive covenant will be extended by
adding to it the number of days that Seller's violation continues and the number
of days during which such court action is pending. If there are both a violation
and a pending court action, then the number of days that each continues will be
added to the term of such restrictive covenant, but days on which both continue
will be counted only once.
8. Disparagement of SBB. Seller agrees, without limitation, not to
disparage or otherwise malign SBB's, including its subsidiaries, or the
Subsidiary Banks' business or banking reputation.
9. Successors and Assigns. This Agreement shall be binding upon the
parties and their heirs, legal representatives, successors and assigns. SBB may
assign its interest in this Agreement, and all covenants, conditions and
provisions hereunder shall inure to the benefit of and be enforceable by its
assignee or successor-in-interest. The rights and obligations of Seller under
this Agreement are personal to him, and no such rights, benefits or obligations
shall be assignable, except that his personal representatives and heirs may
enforce the obligations of SBB hereunder.
10. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH
AND GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA (INCLUDING THOSE LAWS
RELATING TO CHOICE OF LAW) APPLYING TO CONTRACTS ENTERED INTO AND TO BE
PERFORMED WITHIN THE STATE OF CALIFORNIA, WITHOUT REGARD FOR THE PROVISIONS
THEREOF REGARDING CHOICE OF LAW.
11. Legal Construction. If any one or more of the provisions contained in
this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, any provision shall be fully severable, such
invalidity, illegality or unenforceability shall not affect any other provision
hereof, and this Agreement shall be construed and enforced as if such invalid,
illegal or unenforceable provision had never been contained herein, and the
remaining provisions of this Agreement shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable provision or by
its severance from this Agreement. Furthermore, in lieu of such illegal, invalid
or unenforceable provision, there shall be added automatically as a part of this
Agreement, a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be valid and enforceable.
12. Notice. Unless otherwise provided herein, any and all payments,
notices, requests, instructions and other communications required or permitted
to be given under this Agreement after the date hereof by any party hereto to
any other party may be delivered personally or by nationally recognized
overnight courier service or sent by mail or (except in the case of payments) by
telex or facsimile transmission, at the respective addresses or transmission
numbers set forth below and shall be effective (a) in the case of personal
delivery, telex or facsimile transmission, when received; (b) in the case of
mail, upon the earlier of actual receipt or five (5) business days after deposit
in the United States Postal Service, first class certified or registered mail,
postage prepaid, return receipt requested; and (c) in the case of
nationally-recognized overnight courier service, one (1) business day after
delivery to such courier service together with all appropriate fees or charges
and instructions for such overnight delivery. The parties may change their
respective addresses and transmission numbers by written notice to all other
parties, sent as provided in this Section 12. All communications must be in
writing and addressed as follows:
IF TO SELLER:
IF TO COMPANY:
Santa Barbara Bancorp
1021 Anacapa Street
Santa Barbara, California 93101-2036
Telecopy: (804) 564-6293
Attention: Mr. David W. Spainhour
President and Chief Executive Officer
13. Remedies. If Seller breaches or threatens to breach any term or
provision contained herein, SBB will be entitled to seek and obtain a temporary
restraining order, a temporary injunction, and a permanent injunction to enjoin
and prohibit Seller from violating the terms and provisions of this Agreement.
SBB's right to seek and obtain such relief will not be construed to prevent SBB
from pursuing, either concurrently or conjunctively, any other legal or
equitable remedies available by contract, law, or otherwise for such breach or
threatened breach, nor to preclude SBB from seeking to recover damages from
Seller.
14. No Delay, Waiver, Etc. No delay on the part of the parties hereto in
exercising any power or right hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any power or right hereunder preclude
other or further exercise thereof or the exercise of any other power or right.
15. Modification. No amendment hereof shall be effective unless contained
in a written instrument signed by the parties hereto.
16. Headings. The descriptive headings of the several sections of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
[Signatures Follow]
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
"Seller"
SANTA BARBARA BANCORP,
a California corporation
David W. Spainhour, President and Chief
Executive Officer
<PAGE>
EXHIBIT 3
CERTIFICATE OF AMENDMENT OF
ARTICLES OF INCORPORATION
OF
SANTA BARBARA BANCORP
David W. Spainhour and Jay D. Smith certify that:
1. They are the president and secretary, respectively, of SANTA BARBARA
BANCORP, a California corporation.
2. Article Third of the Articles of Incorporation of this Corporation is
amended in its entirety to read as follows:
"THIRD: AUTHORIZED STOCK
This Corporation is authorized to issue only one class of shares
of stock, designated as "Common Stock". The total number of such
shares which this Corporation is authorized to issue is forty million
(40,000,000). Upon the amendment of this Article to read as set forth
herein, each outstanding share of Common Stock of this Corporation
shall be converted into two (2) shares of Common Stock."
3. The foregoing amendment to the Articles of Incorporation of this
Corporation has been duly approved by the Board of Directors of this
Corporation.
4. The foregoing amendment to the Articles of Incorporation of this
Corporation is not required to be approved by a vote of the shareholders
pursuant to Section 902(c) of the California Corporations Code.
<PAGE>
Each of the undersigned declares under penalty of perjury under the laws
of the State of California that the statements contained in the foregoing
Certificate are true and correct of his own knowledge, and that this declaration
was executed on this fifteenth day of April, 1998, at Santa Barbara,
California.
------------------------------------------
David W. Spainhour, President
------------------------------------------
Jay D. Smith, Secretary
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF RESOLUTION
SANTA BARBARA BANCORP
Santa Barbara, California
AMENDMENT NUMBER FOUR TO BYLAWS
This is to certify that I am the duly elected, qualified and acting
Secretary of the above-named Corporation and that by resolution of the Board of
Directors of the Corporation duly adopted at the meeting held on April 22, 1998,
Section 3.2.1 of the Bylaws of the Corporation was amended as follows:
Authorized Number: The number of directors who may be authorized to
serve on the Board of Directors of the Corporation shall be no less than
seven (7) nor more than thirteen (13). Until a different number within the
foregoing limits is specified in an amendment to this Section 3.2.1 duly
adopted by the Board of Directors or the shareholders, the exact number of
authorized directors shall be eleven (11).
I hereby certify that the foregoing resolution now stands on record on the
books of said Corporation, and has modified, repealed or set aside in any
manner, and is now in full force and effect.
Dated at Santa Barbara,
California
Jay Donald Smith
Secretary
<PAGE>
EXHIBIT 10
SANTA BARBARA BANCORP
RESTRICTED STOCK OPTION PLAN
(As Amended effective March 24, 1998
SANTA BARBARA BANCORP hereby adopts the following employee stock option
plan:
1. PURPOSES OF THE PLAN
The purposes of this Plan are to attract, motivate and retain the best
available officers and employees, and to provide them with additional incentive
to promote the success of the Company's business.
2. DEFINITIONS
As used herein, the following definitions shall apply:
2.1 "Board of Directors" means the Board of Directors of the Company.
2.2 "Code" means the Internal Revenue Code of 1986, as amended.
2.3 "Commission" means the Securities and Exchange Commission.
2.4 "Committee" means the Committee of the Board of Directors that shall
administer the Plan.
2.5 "Common Stock" means the Common Stock of the Company.
2.6 "Company" means Santa Barbara Bancorp, a California corporation.
2.7 "Donative Transfer" means any transfer of an Option or Reload Option
made for donative purposes or without the payment or receipt by or on behalf of
the Optionee of any cash, property or other consideration. For purposes of this
Section, neither an Optionee's receipt of or eligibility for a deduction, credit
or similar allowance for federal or state income tax or estate tax purposes nor
the transferee's use for family or support purposes of any proceeds realized
from the sale of the any shares of Common Stock acquired on exercise of an
Option shall be deemed to be the receipt of consideration.
2.8 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.9 "Fair Market Value" means, as of any date, the value of the Common
Stock determined as follows.
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<PAGE>
2.9.1 If the Common Stock is listed on an established stock exchange
or a national market system, including without limitation the Nasdaq National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, the Fair Market Value of a share of Common Stock
shall be the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in the Common Stock) on the last market trading day
prior to the date of determination.
2.9.2 If the Common Stock is quoted on the NASDAQ System (but not on
the Nasdaq National Market thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the date of
determination.
2.10 "Option" means a stock option granted pursuant to the Plan and shall
include Reload Options. All Options granted hereunder shall be "nonstatutory
stock options" and each such Option shall be evidenced by a written Stock Option
Agreement.
2.11 "Optioned Stock" means the Common Stock subject to an Option.
2.12 "Optionee" means an employee who receives an Option.
2.13 "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
2.14 "Plan" means this restricted Stock Option Plan, as amended and
restated.
2.15 "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3 in effect at the time in question.
2.16 "Section 16(b)" means Section 16(b) of the Exchange Act.
2.17 "Stock Option Agreement" means a written agreement between the
Company and an Optionee evidencing the terms and conditions of an individual
Option grant. Each Option Agreement is subject to the terms and conditions of
the Plan. The terms and provisions of each Option Agreement need not be the
same.
2.18 "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined as Section 424(f) of the Code.
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<PAGE>
3. OPTIONS
Pursuant to the Plan, two separate types of options for Common Stock may
be granted:
3.1 Incentive Options. Incentive Stock Options ("Incentive Options");
and
3.2 Non-Qualified Options. Non-Qualified Stock Options ("Non-Qualified
Options").
Incentive Options are intended to qualify as incentive stock options within the
meaning of Section 422 of the Code. Non-Qualified Options are not intended to so
qualify. Unless specified otherwise, all the provisions of this Plan relate
equally to both Incentive Options and Non-Qualified Options. Each Option granted
under this Plan shall be evidenced by a Stock Option Agreement between the
Company and the Optionee, designating the type of Option being issued and
containing such other terms and conditions as deemed appropriate.
4. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Board of Directors or the Committee.
The Committee shall consist of not less than three persons all of whom shall be
members of the Board of Directors. None of the members of the Board of Directors
or the Committee shall be eligible to be allocated any Options pursuant to this
Plan. No person shall be appointed to be a member of the Committee if such
person was eligible to be allocated any stock options pursuant to this Plan at
any time within one (1) year prior to his or her appointment to the Committee.
For purposes of this Section, a person shall be deemed to be eligible to be
allocated any Options pursuant to this Plan during any period if, during such
period, such person is eligible to receive a Reload Option pursuant to this
Plan. Members of the Committee shall serve at the pleasure of the Board of
Directors. No member of the Board of Directors or the Committee shall be liable
for any action or determination undertaken or made in good faith with respect to
the Plan, any Stock Option Agreement or any Option granted under the Plan.
Subject to the provisions contained herein, the Board of Directors or the
Committee shall determine:
4.1 Employees to Receive Option. The employees to whom Options shall be
granted;
4.2 Type of Options to be Granted. Whether Options to be granted shall
be Incentive Options or Non-Qualified Options or both;
4.3 Number of Shares. The number of shares to be optioned to each such
employee;
4.4 Option Price. The price to be paid for the shares upon the exercise
of each Option;
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<PAGE>
4.5 Option Period. The period within which each Option shall be
exercised; and
4.6 Other Terms and Conditions. The terms and conditions of each Stock
Option Agreement between the Company and each employee to whom the Board of
Directors or the Committee has granted an Option; which terms and conditions
shall be in accordance with the provisions of this Plan but may include any
other or additional terms or conditions not inconsistent with this Plan and need
not be identical for every Stock Option Agreement.
5. GRANT OF OPTIONS
5.1 Effective Date of Option Grant. The "grant" of an Option pursuant to
this Plan shall be deemed to have occurred on the latest of: (a) the date the
Board of Directors or the Committee announces the grant of the Option; or (b)
such later date designated by the Board of Directors or the Committee or set
forth in the Stock Option Agreement.
6. ELIGIBILITY
Full-time salaried employees of the Company who shall, in the judgment of
the Board of Directors or the Committee, be qualified by position, training, or
ability to contribute substantially to the success of the Company, shall be
eligible to participate in the Plan. The number of shares allocable to any
person by means of Options under this Plan is to be reasonable, as determined by
the Board of Directors or the Committee, in relation to the purposes of the Plan
and the needs and capabilities of the Company. No Option may be granted to any
employee owning more than ten percent (10%) of the voting power of all classes
of stock of the Company or its Parent or any Subsidiary.
7. RESERVE OF SHARES
7.1 Reserve. Subject to the provisions of Section 6.2, below, the maximum
aggregate number of shares of Common Stock reserved for issuance upon the
exercise of Options granted under the Plan is 1,000,000 shares of authorized but
unissued shares of Common Stock of the Company. No more than the total number of
shares held in this Reserve shall be issued under the Plan pursuant to the
exercise of Incentive Options and Non-Qualified Options in the aggregate.
7.2 Adjustments In Reserve. If the outstanding shares of Common Stock are
increased or decreased, or are changed into or exchanged for a different number
or kind of shares or other securities, as a result of the occurrence of an event
described in Section 24 or Section 25, below, then and in such event,
appropriate adjustments shall be made in the number and/or kind of shares or
other securities for which Options may thereafter be granted under this Plan. In
the event that any outstanding Option under the Plan expires or is terminated
without exercise, or with only partial exercise, prior to the end of the period
during which Options may be granted under the Plan, the shares allocable to the
unexercised portion of any such Option may be added back into the Reserve and
may again be subject to Option under the Plan.
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<PAGE>
8. OPTION EXERCISE PRICE
8.1 Establishment of Option Price. The price per share required to be paid
upon exercise of any Option granted hereunder, whether an Incentive Option or a
Non-Qualified Option, shall be 100% of the fair market value per share, as
determined by the Board of Directors or the Committee, of the Common Stock at
the time of the grant of the Option.
8.2 Payment of Option Price. The Option price shall be payable either (a)
in cash in immediately available funds, or (b) with stock of the Company, valued
at its then Fair Market Value. In the event that the Option price is paid,
whether in whole or in part, through the tender of shares of Common Stock
already owned by the Option holder, then the Option must be exercised for a
minimum of at least 100 shares, or the total number of shares subject to the
outstanding Option being exercised, if less than 100 shares.
8.3 Exchange of Options. Notwithstanding the foregoing, in the event that
any Option is granted under this Plan in exchange for the surrender by the
grantee of another Option for the Common Stock, the Board of Directors or the
Committee, in its discretion, may establish the exercise price under the new
Option at the same price as provided in the Option which is surrendered, but
only to the extent of the number of shares then subject to the Option which is
surrendered.
9. OPTION PERIOD
The term of any Incentive Option granted pursuant to this Plan shall not
exceed five (5) years. The term of any Non-Qualified Option shall not exceed ten
(10) years. The aggregate Fair Market Value, as determined by the Board of
Directors or the Committee, of the shares of Common Stock with respect to which
an Incentive Option granted under this Plan is exercisable for the first time by
an Optionee during any calendar year shall not exceed the difference between (a)
One Hundred Thousand Dollars ($100,000) and (b) the sum of the Fair Market
Value, as determined by the Board of Directors or the Committee, as of the time
the Incentive Options, if any, were granted, of the shares of Common Stock
covered by all Incentive Options which were granted to the Optionee under this
Plan and all other incentive stock option plans of the Company and which are
exercisable for the first time by the Optionee during such calendar year. If an
Incentive Option is granted pursuant to which the aggregate fair market value of
shares with respect to which it first becomes exercisable in any calendar year
exceeds such $100,000 limitation, the portion of such Option which is in excess
of the $100,000 limitation shall be treated as a Non-qualified Option pursuant
to Section 422(d)(1) of the Code. This Section is intended to comply with the
provisions of Section 422 of the Code and shall be interpreted so as to comply
with the provisions of such Section of the Code. Nothing in this Section shall
obligate the Company to grant Options or any additional Options to any employee
under this Plan or any other stock option plan here or hereafter adopted by the
Company by reason of the treatment of any Options as Non-Qualified Options under
this Section.
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<PAGE>
10. EXERCISE; VESTING
Options granted hereunder (whether Incentive Options or Non-Qualified
Options) shall become exercisable ("vest") in accordance with such schedule as
the Board of Directors or the Committee, in the exercise of its discretion, may
deem appropriate in any particular case. To the extent not so provided by the
Board of Directors or the Committee, Options shall vest as follows: The
aggregate number of shares covered by the Option shall be divided by the number
of years included in the Option term (each such year being hereinafter called an
"Option Year"). The Employee shall become entitled to purchase the number of
shares of Common Stock resulting from the foregoing division at the end of each
Option Year. Notwithstanding anything in the Plans to the contrary, (a) Options
granted under this Plan shall vest and become exercisable over a period no
longer than five (5) years and at a rate not less than twenty percent (20%) per
year, and (b) no Option granted under this Plan shall be exercisable for at
least six (6) months following the date of the grant of the Option, except in
case of death or disability.
11. EXPIRATION OF OPTIONS
Notwithstanding any other provisions of this Plan or the terms of any
Stock Option Agreement, Options granted pursuant to this Plan shall expire upon
the occurrence of any of the following events:
11.1 Termination of Employment. Thirty (30) days following the termination
of the Optionee's employment, other than as a result of the Optionee's
retirement, death or disability (but in no event beyond the period of time for
which the Optionee is granted);
11.2 Retirement. Immediately upon retirement of the Optionee in accordance
with the Company's retirement policy, provided that the Optionee may within
three (3) months after the date of retirement (but in no event beyond the period
of time for which the Option is granted) exercise the Option as to those shares
with respect to which any vesting installments, if any, had accrued as of the
date on which the employee retired; and
11.3 Death or Disability. Twelve (12) months after the death or permanent
disability (as defined in the Company's Incentive and Investment Profit Sharing
Plan and Trust) of the Optionee while in the employ of the Company (but in no
event beyond the period of time for which the Option is granted). During such
twelve-month period the Optionee (or his or her personal representative) or the
persons to whom the Optionee's rights under the Option shall have passed by will
or by the applicable laws of descent and distribution shall have the right to
exercise the Option to the extent that any vesting installments, if any, had
accrued as of the date of Optionee's death or disability.
12. METHOD OF EXERCISE
Options granted pursuant to this Plan shall be exercised by delivery to
the Board of Directors or the Committee of a written notice specifying (a) the
number of shares which an
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<PAGE>
Optionee (or his or her personal representative) then desires to purchase, (b)
the name or names in which Optionee (or his or her personal representative)
desires to have the shares issued, and (c) whether the Options being exercised
are Incentive Options or Non-Qualified Options. Said notice shall be accompanied
by full payment of the aggregate purchase price of such Options in immediately
available funds (or stock of the Company). The Company shall, as soon as
practicable thereafter, issue and deliver to the Optionee and/or any other
persons designated in the notice of exercise, the necessary certificate or
certificates evidencing the number of shares purchased (excluding any fractional
shares), in the name of the Optionee and/or in the name of the other persons
designated in the notice of exercise. The Optionee may designate in the notice
of exercise that some or all of the shares to be issued upon such exercise shall
be issued in the name of Optionee's spouse, the trustee of a revocable trust in
which Optionee and his or her spouse are the sole primary beneficiaries,
Optionee's prior spouse, or any combination of the foregoing. Notwithstanding
anything herein to the contrary, Optionee may not designate in the notice of
exercise that any of the shares of Common Stock or other securities shall be
issued to Optionee's prior spouse unless such issuance is to be made pursuant to
a domestic relations order as defined in the Code or Title I of the Employee
Income Retirement Security Act, or the rules thereunder. The Board of Directors
or the Committee may rely on a representation of the person exercising the
Option, or such other evidence as the Board of Directors or the Committee deems
appropriate, for purposes of determining the propriety of the exercise of any
Option and the compliance of such exercise with the terms of this Plan and any
applicable Stock Option Agreement. The Board of Directors or the Committee shall
have no obligation to independently investigate the propriety of the exercise of
any Option or the compliance of such exercise with the terms of this Plan or any
applicable Stock Option Agreement.
13. RELOAD FEATURES
13.1 Grant of Reload Options. Whenever the holder of any Option (the
"Original Option") outstanding under this Plan (whether an Incentive Option or a
Non-Qualified Option, and including any Reload Options granted under the
provisions of this Section 14) exercises the Original Option and makes payment
of the option price by tendering shares of the Common Stock of the Company
previously held by him or her, then the holder of that Option shall be entitled
to receive and the Company shall grant a new Option (the "Reload Option") for
that number of additional shares of the Common Stock of the Company which is
equal to the number of shares tendered by the Optionee in payment of the option
price for the Original Option being exercised. All such Reload Options granted
hereunder shall be on the following terms and conditions.
13.1.1 Option Price. The option price per share shall be an amount
equal to the then current Fair Market Value per share of the Common Stock, as of
the date of exercise of the Original Option, as determined by the Board of
Directors or the Committee.
13.1.2 Expiration Date. The option exercise period shall expire,
and the Reload Option shall no longer be exercisable, on the expiration of the
option period of the
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Original Option or five (5) years from the date of the grant of the Reload
Option, whichever is later.
13.1.3 Vesting Period. Any Reload Option granted under this Section
14 shall "vest" and first become exercisable one (1) year following the date of
exercise of the Original Option.
13.1.4 Other Terms. All other terms of Reload Options granted
hereunder shall be identical to the terms and conditions of the Original Option,
the exercise of which gives rise to the grant of the Reload Option. Further, the
character of the Reload Option shall be the same as the character of the
Original Option, namely if the Original Option is an Incentive Option, the
Reload Option shall be an Incentive Option; and if the Original Option is a
Non-Qualified Option, the Reload Option shall also be a Non-Qualified Option.
13.2 Restrictions on Reload Options. Any and all Reload Options granted
pursuant to this Section 14 (or Section 16, below) shall be subject to the
following conditions and restrictions:
13.2.1 No Reload on Existing Incentive Options. Notwithstanding
Section 14.1, above, no Reload Option shall be granted pursuant to Section 13.3,
below, upon the exercise of any Incentive Option which is outstanding as of the
effective date of this Plan [?].
13.2.2 Holding Period of Shares Tendered. No Reload Option shall be
granted pursuant to Section 14.1, above, unless the shares tendered upon
exercise of the Original Option in payment therefore have been held by the
Employee for a period of more than six (6) months prior to the exercise of the
Original Option.
13.2.3 Holding Period of Original Option Shares. If the shares of
Common Stock of the Company which are issued upon exercise of the Original
Option are sold within one (1) year following the exercise of the Original
Option, then the Reload Option shall immediately terminate.
13.2.4 Exception. The holding period restrictions set forth in
Sections 14.2.2 and 14.2.3 above shall not apply to an Optionee's (a) transfer
of shares of Common Stock to the Company in payment of all or any portion of the
purchase price upon exercise of an Option, whether an Original Option or a
Reload Option, or (b) satisfaction of his withholding obligation, if any,
pursuant to Section 16 below by the withholding of shares that would otherwise
be issued as a result of the exercise of an Option.
13.3 "Grandfather" Provisions. The Company acknowledges that there are
outstanding Options granted to employees under the Company's prior employee
Stock Option Plan, which Plan expired in calendar year 1993, and that said Plan
contained "reload" features similar to those contained herein. To the extent
that any such outstanding Options under said Stock Option Plan are exercised
after the expiration of that Plan, the Board of Directors or the
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Committee shall have the power, in its sole discretion, to grant to any such
Option holders a Reload Option under and containing the terms specified in this
Plan.
14. TRANSFERABILITY OF OPTIONS
14.1 Restriction on Transfer. Except as specifically set forth in Section
hereof, no Option or Reload Option may be sold, pledged, assigned, hypothecated,
transferred, or otherwise disposed of in any manner, other than by will or the
laws of descent and distribution.
14.2. Limited Transferability. A Stock Option Agreement may provide that
an Optionee may transfer all or a portion of any Non-Qualified Option or
Non-Qualified Reload Option in accordance with provisions of this Section . If a
Stock Option Agreement permits the transfer of any Non-Qualified Option or
Non-Qualified Reload Option, any transfer that does not comply with all of the
provisions of this Section and the Stock Option Agreement shall be null and void
ab initio. The provisions of the Stock Option Agreements dealing with the
transferability of the Options need not be identical for all Options and the
provision for transferability with respect to one Option shall not require the
provision for transferability with respect to any other Option. (For purposes of
this Section, Non-Qualified Options and NonQualified Reload Options which may be
transferred are referred to as "Transferable Option".)
14.2.1 Permitted Transferees. A Transferable Option may be
transferred by the Optionee only to one or more of the following: (a) the
Optionee's spouse, parents and lineal descendants, including adopted children
(the "Immediate Family Members"); (b) a trust established by the Optionee and
with respect to which all beneficial interests are held by one or more of the
Optionee, the Immediate Family Members, and a tax-exempt charitable organization
which has only a contingent residual interest in the trust; (c) a partnership or
limited liability company established by the Optionee and in which all
beneficial interests are held by one or more of the Optionee and the Immediate
Family Members; (d) a tax-exempt educational, religious or charitable
organization, as those terms are defined in Section 501(c)(3) of the Code; and
(e) such other persons and entities as the Company may specifically approve in
writing after written notice from the Optionee. The Company may require as a
condition to the transfer of any Transferable Option under this Section that the
transferee provide to the Company reasonable evidence that the proposed
transferee is described in one of the foregoing clauses.
14.2.2 Permitted Transfers. Any transfer of a Transferable Option
under this Section must be either a Donative Transfer, a transfer to a
partnership or limited liability company described in clause (c) of Section
above, pursuant to which the Optionee receives only his or her interest in the
partnership or limited liability company, or a transfer specifically approved in
writing by the Company after written notice from the Optionee.
14.2.3 Minimum Transfer. Any transfer of a Transferable Option or a
Reload Option must be with respect to not less than one hundred (100) shares of
Optioned Stock and may be made only in whole number multiples of one hundred
(100) shares of Optioned Stock.
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14.2.4 Notice to the Company. The Optionee shall give the Company at
least ten (10) days prior written notice of any proposed transfer of a
Transferable Option pursuant to this Section and shall include with such notice:
A. The name and address of the proposed transferee and a
statement of the basis on which the proposed transferee is a permitted
transferee under Section hereof; and
B. The proposed transferee's written agreement to accept the
Transferable Option and any shares of Common Stock acquired on exercise of the
Transferable Option subject to all of the terms and conditions of this Plan and
the applicable Stock Option Agreement, including the provisions dealing with the
termination of the Transferable Option on the death or disability of the
Optionee or the termination of the Optionee's employment with the Company.
14.2.5 No Further Transfer. Notwithstanding anything in this Plan or
any Stock Option Agreement to the contrary, a transferee of any Transferable
Option shall not have the right to further transfer all or any portion of the
Transferable Option, other than (a) by will or the laws of descent and
distribution, or (b), if the transferee is a trust, pursuant to the terms of the
trust agreement by reason of the death of any settlor.
14.2.6 No Transfer of Incentive Options. Notwithstanding anything in
this Plan or any Stock Option Agreement to the contrary, an Optionee may not
transfer any Incentive Option or Reload Option granted with respect to an
Incentive Option other than by will or the laws of descent and distribution.
14.2.7 Further Acts. The Company may require as a condition to the
transfer of any Transferable Option such additional information and agreements
from the Optionee and the proposed transferee as the Company may deem necessary
or beneficial for purposes of complying with this Section or any applicable
federal or state law, rule or regulation.
14.2.8 Disclaimer. The Company's acceptance of any transfer of a
Transferable Option shall not be considered legal or tax advice to the Optionee
or the proposed transferee as to their compliance with any applicable law, rule
or regulation or the legal or tax consequences of such transfer or the
subsequent exercise of the Transferable Option or the sale or exchange of any of
the shares of Common Stock acquired on exercise of the Transferable Option.
15. TAX WITHHOLDING
To the extent that the exercise of any Option granted hereunder gives rise
to an obligation on the part of the Company to withhold from Optionee's wages,
the Company shall do so on such terms and in accordance with such procedures as
may be required under applicable law.
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At the election of the Optionee, withholding may be made through the surrender
of shares of the Common Stock or through the withholding of shares of Common
Stock which would otherwise be issued as a result of the exercise. If
withholding is made through the surrender or withholding of shares of the Common
Stock, the Board of Directors or the Committee, in its sole discretion, may
grant Reload Option(s), on the terms specified in Section 14, above, for the
number of shares so surrendered or withheld.
16. NO SHAREHOLDER RIGHTS
An Option holder shall not be deemed to be a shareholder of the Company
with respect to Options unless and until the shares of Common Stock covered by
the Option shall have been issued upon exercise thereof and are paid for in
full.
17. SECURITIES COMPLIANCE
Options granted pursuant to this Plan shall be subject to the requirement
that if at any time the Board of Directors or the Committee shall determine, in
its discretion, that the listing, registration, or qualification of the shares
covered thereby is required upon any securities exchange or under any state or
federal law, or the consent or approval of any governmental regulatory authority
is necessary or desirable as a condition of the exercise of such Option, the
Option may not be exercised, in whole or in part, unless and until such listing,
registration, qualification, consent or approval shall have effected or obtained
free of any conditions not acceptable to the Board of Directors or the
Committee.
18. TERM OF PLAN
No Option shall be granted under this Plan after ten (10) years from the
date of the original adoption of the Plan by the Board of Directors or the
original approval of the Plan by a majority of the voting shares, whichever
event first occurred.
19. AMENDMENT OF PLAN
The Board of Directors of the Company may at any time suspend, amend, or
terminate the Plan, and may, with the consent of an Option holder, make such
modification of the terms and conditions of Options granted hereunder as it
shall deem advisable; provided that, any amendment or modification which would:
19.1 Number of Shares. Materially increase the number or shares which may
be issued pursuant to the Plan (other than in accordance with Section 24 and
Section 25. below);
19.2 Eligibility. Materially modify the requirements as to eligibility
for participation in the Plan; or
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19.3 Increase in Benefits. Otherwise materially increase the benefits
accruing to participants under the Plan;
shall be subject to approval thereof by shareholders of the Company holding not
less than a majority of the voting power.
20. SUBSTITUTION OF OPTIONS
Notwithstanding the provisions of Section 20, above, the Board of
Directors or the Committee may grant to an Option holder, if he or she is
otherwise eligible, additional Options under this Plan or, with the consent of
the Option holder, grant new Options under this Plan in lieu of any outstanding
Options for a number of shares, at a purchase price and for a term which in any
respect is greater or lesser than that of the earlier Option, subject to those
limitations as to Options otherwise set forth herein.
21. LIMITS ON AMENDMENTS
This Plan may not, without approval of the shareholders of the Company, be
amended in any manner that will cause Incentive Options issued under it to fail
to meet the requirements of incentive stock Options as defined in Section 422 of
the Code, or to change the maximum number of shares which any one person may
receive.
22. EFFECT ON SUSPENSION OR TERMINATION OF PLAN
No Option may be granted during any suspension, or after termination, of
this Plan. Amendment, suspension, or termination of the Plan shall not, without
the consent of the Option holder, alter or impair any rights or obligations
under any Option or Stock Option Agreement theretofore granted under the Plan.
23. RECAPITALIZATION OF COMPANY
Except as otherwise provided herein, appropriate and proportionate
adjustments shall be made in the number and class of shares subject to the Plan
and to the Options granted under the Plan, and the exercise price of such
Options, in the event of a stock dividend (but only on Common Stock), stock
split, reverse stock split, recapitalization, reorganization or like change in
the capital structure of the Company. To the extent that the foregoing
adjustments relate to stock or securities of the Company, such adjustments shall
be made by the Board of Directors or the Committee, the determination of which
in that respect shall be final, binding, and conclusive; provided that no
Incentive Option granted under the Plan shall be adjusted in a manner that
causes the Option to fail to continue to qualify as an incentive stock option
within the meaning of Section 422 of the Code.
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24. REORGANIZATION OR LIQUIDATION OF THE COMPANY
In the event of (a) the liquidation of the Company, (b) a merger,
reorganization, or consolidation of the Company with any other corporation in
which the Company is not the surviving corporation or the Company becomes a
wholly-owned subsidiary of another corporation, or (c) the sale of all or
substantially all of the Company's assets, any unexercised Options then
outstanding shall be deemed cancelled unless the surviving corporation in any
such merger, reorganization or consolidation or the acquiring corporation in any
such sale elects to assume the Options under the Plan or to issue substitute
options in place thereof; provided that if any Options granted under the Plan
would be cancelled in accordance with the foregoing, the Optionee shall have the
right, exercisable during a 10-day period ending on the fifth day prior to the
effective date of such liquidation, merger, reorganization, consolidation or
sale, to exercise the Optionee's Option in whole or in part without regard to
any installment exercise provisions in the Optionee's Stock Option Agreement. If
any Options or portion thereof originally designated as Incentive Options would
cease to qualify as incentive stock options under the Code as a result of the
exercise of such Options in accordance with the preceding sentence, then such
Incentive Options or portion thereof shall be redesignated as Non-qualified
Options. The Company shall give each Optionee at least thirty (30) days prior
written notice of the anticipated effective date of any such liquidation,
merger, reorganization, consolidation or sale. Notwithstanding anything in this
Plan or in any Stock Option Agreement to the contrary, (i) all Option exercises
effected during the foregoing 10-day period shall be deemed to be effective
immediately prior to the closing of such liquidation, merger, reorganization,
consolidation or sale and (ii), if the Company abandons or otherwise fails to
close any such liquidation, merger, reorganization, consolidation or sale, then
(A) all exercises during the foregoing 10-day period shall cease to be effective
ab initio and (B) the outstanding Options shall be exercisable as otherwise
determined under the applicable Stock Option Agreement and without consideration
of this Section or the corresponding provisions of any Stock Option Agreement.
25. APPROVAL OF SHAREHOLDERS; EFFECTIVE DATE
This Plan shall not take effect until approved by the affirmative vote of
the holders of a majority of the Common Stock of the Company present, or
represented, and entitled to vote at a meeting of shareholders duly held in
accordance with the laws of the State of California, solicited in accordance
with the rules and regulations of the Securities and Exchange Commission, which
approval must occur within the period beginning twelve (12) months before and
ending twelve (12) months after the date such amendments are adopted by the
Board of Directors.
26. STOCK OPTION AGREEMENTS
The Stock Option Agreements entered into hereunder shall contain such
other provisions, including, without limitation, restrictions upon the exercise
of an Option, as the Board of Directors or the Committee shall deem advisable.
Incentive Stock Option Agreements shall contain such limitations and
restrictions upon the exercise of the Incentive Options as shall be
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necessary in order that such Incentive Options will constitute an "incentive
stock option" as defined in Section 422 of the Code or to conform to any change
in the law. The terms and provisions of the Stock Option Agreements need not be
identical for all Options granted under the Plan.
27. INDEMNIFICATION
In addition to such other rights of indemnification as they may have as
members of the Board of Directors, the members of the Board of Directors and the
Committee shall be indemnified by the Company against reasonable expenses,
including attorney's fees, actually and necessarily incurred in connection with
the defense of any action, suit, or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any Option
granted thereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any action, suit,
or proceeding, except in relation to matters as to which it shall be adjudged in
such action, suit, or proceeding that such member is liable for negligence or
misconduct in the performance of his or her duties. The indemnification provided
for in this Section shall be available only if, within sixty (60) days after
institution of any such action, suit, or proceeding, the member of the Board of
Directors or the Committee seeking indemnification shall in writing offer the
Company the opportunity, at its own expense, to handle and defend the same.
28. EFFECT OF AMENDMENTS
28.1 Non-Qualified Options. From and after December 17, 1996, the date of
this Amended and Restated Plan, all of the terms and provisions of the Plan as
amended and restated shall apply to all Non-Qualified Options which are
outstanding as of such date and the Stock Option Agreements covering such
Non-Qualified Options shall be deemed automatically amended to reflect the
amended and restated terms of this Plan.
28.2 Incentive Options. From and after December 17, 1996, the date of this
Amended and Restated Plan, all of the terms and provisions of the Plan as
amended and restated shall apply to all Incentive Options which are outstanding
as of such date and the Stock Option Agreements covering such Incentive Options
shall be deemed automatically amended to reflect the amended and restated terms
of this Plan; provided that in no event shall any of the terms or provisions of
the Plan as amended and restated apply to any Incentive Option, and no Stock
Option Agreement for an Incentive Option shall be deemed amended to include any
of the terms and provisions of the Plan as amended and restated, if such
application or amendment would be deemed to be a modification of the Incentive
Option under the Code and such modification would result in such Incentive
Option ceasing to qualify as an incentive stock option under the Code.
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28.3 No Change in Price or Term. Notwithstanding anything in this Plan to
the contrary, in no event shall the amendment of any Stock Option Agreement in
accordance with the provisions of this Section change any or all of the number
of shares covered by any Option or the exercise price, vesting schedule or term
of the Option.
28.4 Amended Stock Option Agreements. Any Optionee who holds an Option
that is deemed amended under this Section may at any time deliver to the Company
his or her existing Stock Option Agreement and request that the Company deliver
to the Optionee a new Stock Option Agreement incorporating the amended and
restated terms and provisions of the Plan. The Company shall deliver to the
Optionee a new Stock Option Agreement promptly after the Optionee's delivery of
the existing Stock Option Agreement. NOTWITHSTANDING ANYTHING IN THIS PLAN TO
THE CONTRARY, THE OPTIONEE SHALL BE SOLELY RESPONSIBLE FOR DETERMINING WHETHER
THE AMENDMENT OF A STOCK OPTION AGREEMENT WILL CONSTITUTE A MODIFICATION OF THE
OPTION AND THE COMPANY SHALL HAVE TO RESPONSIBILITY OR LIABILITY NO THE OPTIONEE
BY REASON OF THE AMENDMENT OF A STOCK OPTION AGREEMENT BEING A MODIFICATION OF
THE OPTION.
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CERTIFICATE OF SECRETARY
The undersigned, being the Corporate Secretary of the Company, does hereby
certify that:
(a) the foregoing Plan was adopted by the Board of Directors of the
Company at a duly called and held meeting of the Board of Directors on January
29, 1992, and that the Plan was approved by the shareholders of the Company at a
duly called and held meeting of the shareholders on April 28, 1992;
(b) the Amended and Restated Plan effective as of November 22, 1994, was
adopted by the Board of Directors of the Company at a duly called and held
meeting of the Board of Directors on November 22, 1996;
(c) the Amended and Restated Plan effective as of February 27, 1996, was
adopted by the Board of Directors of the Company at a duly called and held
meeting of the Board of Directors on February 27, 1996, and was approved by the
shareholders of the Company at a duly called and held meeting of shareholders on
April 23, 1996;
(d) the Plan was amended at a duly called and held meeting of the Board of
Directors on December 17, 1996, and that the amendments adopted by the Board of
Directors on December 17, 1996, did not need to be approved by the shareholders
of the Company; and
(e) the Plan was amended at a duly called and held meeting of the Board of
Directors on March 24, 1998, and that the amendments adopted by the Board of
Directors on March 24, 1998, did not need to be approved by the shareholders of
the Company.
Dated:________________, 1998
Jay D. Smith, Esq., Corporate Secretary
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EXHIBIT 10.1
SANTA BARBARA BANCORP
1996 DIRECTORS STOCK OPTION PLAN (As Amended March 24, 1998)
1. PURPOSES OF THE PLAN
The purposes of this 1996 Directors Stock Option Plan are to attract,
motivate and retain the best available Directors for the Company and each of the
Parent and Subsidiaries and to provide them with additional incentive to promote
the success of the Company's business.
2. DEFINITIONS
As used herein, the following definitions shall apply:
2.1 "Board of Directors" means the Board of Directors of the Company.
2.2 "Code" means the Internal Revenue Code of 1986, as amended.
2.3 "Commission" means the Securities and Exchange Commission.
2.4 "Committee" means the Committee of the Board of Directors that shall
administer the Plan.
2.5 "Common Stock" means the Common Stock of the Company.
2.6 "Company" means Santa Barbara Bancorp, a California corporation.
2.7 "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
2.8 "Donative Transfer" means any transfer of an Option or Reload Option
made for donative purposes or without the payment or receipt by or on behalf of
the Optionee of any cash, property or other consideration. For purposes of this
Section, neither an Optionee's receipt of or eligibility for a deduction, credit
or similar allowance for federal or state income tax or estate tax purposes nor
the transferee's use for family or support purposes of any proceeds realized
from the sale of the any shares of Common Stock acquired on exercise of an
Option shall be deemed to be the receipt of consideration.
2.9 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.10 "Fair Market Value" means, as of any date, the value of the Common
Stock determined as follows.
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2.10.1 If the Common Stock is listed on an established stock
exchange or a national market system, including without limitation the Nasdaq
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, the Fair Market Value of a share of
Common Stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such system or exchange (or the
exchange with the greatest volume of trading in the Common Stock) on the last
market trading day prior to the date of determination.
2.10.2 If the Common Stock is quoted on the NASDAQ System (but not
on the Nasdaq National Market thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the date of
determination.
2.11 "Option" means a stock option granted pursuant to the Plan and shall
include Reload Options. All Options granted hereunder shall be "nonstatutory
stock options" and each such Option shall be evidenced by a written Stock Option
Agreement.
2.12 "Optioned Stock" means the Common Stock subject to an Option.
2.13 "Optionee" means a Director who receives an Option.
2.14 "Plan" means this 1996 Directors Stock Option Plan.
2.15 "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3 in effect at the time in question.
2.16 "Section 16(b)" means Section 16(b) of the Exchange Act.
2.17 "Stock Option Agreement" means a written agreement between the
Company and an Optionee evidencing the terms and conditions of an individual
Option grant. Each Option Agreement is subject to the terms and conditions of
the Plan. The terms and provisions of each Option Agreement need not be the
same.
2.18 "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined as Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN
3.1 Original Reserve. Subject to the provisions of Section and Section of
the Plan, the maximum aggregate number of shares which are reserved for issuance
upon exercise of Options granted under the Plan is One Hundred Fifty Thousand
(150,000) shares of Common Stock.
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3.2 Adjustments In Reserve. In the event that any outstanding Option
granted under the Plan expires or is terminated without exercise, or with only
partial exercise, prior to the end of the period during which Options may be
granted under the Plan, the shares allocable to the unexercised portion of such
Option shall be added back into the Reserve and may again be subject to option
under the Plan.
4. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Board of Directors or the Committee.
The Committee shall consist of not less than two (2) Directors all of whom shall
be Non-Employee Directors of the Company within the meaning of Rule 16b-3.
Members of the Committee shall serve at the pleasure of the Board of Directors.
No member of the Board of Directors or the Committee shall be liable for any
action or determination undertaken or made in good faith with respect to the
Plan or any agreement executed pursuant to the Plan. Subject to the terms of
this Plan, the Board of Directors or the Committee shall determine:
4.1 Directors to Receive Option. The Directors to whom options shall be
granted;
4.2 Number of Shares. The number of shares of Common Stock to be
optioned to each such Director;
4.3 Option Price. The price to be paid for the shares of Common Stock
upon the exercise of each Option;
4.4 Option Period. The period within which each Option shall be or
become exercisable; and
4.5 Other Terms and Conditions. The terms and conditions of the Stock
Option Agreement between the Company and each Director to whom an Option is
granted under the Plan; which terms and conditions shall be in accordance with
the provisions of this Plan but may include any other or additional terms or
conditions not inconsistent with this Plan. The terms and conditions of each
Stock Option Agreement need not be identical.
5. ELIGIBILITY
Options may be granted only to Directors of the Company, or any
Subsidiary, who are not otherwise employed by the Company or any Subsidiary. In
addition, notwithstanding any other provision contained in this Plan, no
Director shall be eligible to participate in the Plan if such individual owns
stock and securities possessing more than ten percent (10%) of the total
combined voting power or value of all classes of stock of the Company or any
Subsidiary. Notwithstanding anything in this Plan to the contrary, no person
shall be entitled to the grant of more than one Option during or with respect to
any year by reason of such person acting as a Director of more than one of the
Company or a Subsidiary. No person shall be eligible to
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receive the grant of an Option under this Plan unless he or she is a Director of
the Company or such Subsidiary on the date of such grant.
6. EFFECTIVE DATE OF OPTION GRANT.
The "grant" of an Option pursuant to this Plan shall be deemed to have
occurred on the later of: (a) the date the Committee announces the grant of the
Option; or (b) such later date set by the Committee or set forth in the Stock
Option Agreement.
7. TERM OF PLAN
This Plan has been adopted by the Board of Directors as of February 27,
1996. The term of the Plan shall begin as of February 27, 1996, and shall
continue until December 31, 2005, unless terminated sooner in accordance with
the provisions of the Plan.
8. TERM OF OPTION
Subject to the provisions of Section , below, the term of each Option
shall be five (5) years from the date of grant thereof.
9. EXERCISE PRICE AND CONSIDERATION
9.1 Exercise Price. The exercise price per share for the shares to be
issued upon exercise of an Option shall be 100% of the Fair Market Value per
share of Common Stock on the date of grant of the Option.
9.2 Consideration. The consideration to be paid for the shares to be
issued upon exercise of an Option shall consist entirely of cash, cashier's or
bank certified check, or other shares of Common Stock having a Fair Market Value
on the date of exercise of the Option equal to the exercise price for the shares
as to which the Option is being exercised, or any combination of such methods of
payment. In the event that the exercise price is paid, whether in whole or in
part, through the tender of shares of Common Stock already owned by the
Optionee, then the Option must be exercised for a minimum of at least 100 shares
or the total number of shares subject to the Option, if less than 100 shares.
10. EXERCISE OF OPTION
10.1 Six-Month Vesting Period. Any Option shall become exercisable only
after the expiration of six (6) months following the date of grant of such
Option. Thereafter, the Option shall be fully vested and shall be exercisable in
whole or in part at any time and from time to time during the term of the
Option.
10.2 Procedure for Exercise. An Option shall be deemed to be exercised
when the Optionee has delivered to the Company written notice of such exercise
and full payment of the
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exercise price for the shares with respect to which the Option is being
exercised. Full payment shall consist of such consideration as is allowable
under Section , above. An Option may not be granted or exercised for a fraction
of a share. Exercise of an Option in any manner shall result in a decrease in
the number of shares which thereafter may be available, both for the purposes of
the Plan and for issuance under the Option, by the number of shares as to which
the Option is exercised. Optionee may designate in the notice of exercise that
some or all of the shares of Common Stock or other securities to be issued upon
such exercise shall be issued in the name of Optionee's spouse, the trustee of a
revocable trust in which Optionee and his or her spouse are the sole primary
beneficiaries, Optionee's prior spouse, or any combination of the foregoing.
Notwithstanding anything herein to the contrary, Optionee may not designate in
the notice of exercise that any of the shares of Common Stock or other
securities shall be issued to Optionee's prior spouse unless such issuance is to
be made pursuant to a domestic relations order as defined in the Code or Title I
of the Employee Income Retirement Security Act, or the rules thereunder. The
Company may rely on a representation of the Optionee, or such other evidence as
the Company deems appropriate, for purposes of determining the propriety of the
exercise of any Option and the compliance of such exercise with the terms of
this Plan and any applicable Stock Option Agreement. The Company shall have no
obligation to independently investigate the propriety of the exercise of any
Option or the compliance of such exercise with the terms of this Plan or any
applicable Stock Option Agreement.
10.3 Rights as a Shareholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing the shares of Common
Stock, the Optionee shall have no right to vote or receive dividends or any
other rights as a shareholder with respect to the Optioned Stock,
notwithstanding the exercise of the Option. No adjustment shall be made in the
exercise price payable on the exercise of any Option or the number of shares of
Common Stock or other securities or property issuable upon exercise of an Option
for any dividend, distribution or other right for which the record date is prior
to the date the stock certificate is issued to Optionee with respect to any
Optioned Stock, except as provided in Section and Section , below.
10.4 Termination of Status as Director. If an Optionee's continuous status
as a Director is terminated other than for cause or by reason of the Optionee's
death or disability, the Optionee may, but only within the three (3)-month
period from the date of the termination of the Optionee's status as a Director
(but not later than the expiration of the term of the Option), exercise any
outstanding Option (including any Reload Option) to the extent that the Option
was exercisable at the date of such termination. If the Optionee does not
exercise the Option in full during such 3-month period, the unexercised portion
of the Option shall terminate at the close of business, California time, on the
last business day of such 3-month period and thereafter shall not be exercisable
in whole or in part. Notwithstanding anything in this Section to the contrary,
if the Option is not exercisable on the date of the termination of the
Optionee's status as a Director, then the Option shall terminate simultaneously
with the termination of the Optionee's status as a Director and thereafter shall
not be exercisable in whole or in part.
-5-
<PAGE>
10.5 Disability of Optionee. Notwithstanding the provisions of Section ,
above, if an Optionee's continuous status as a Director is terminated as a
result of the Optionee's death or disability, the Optionee or his or her estate
or personal representative may exercise the Option to the extent that the Option
was exercisable at the date of such termination in whole or in part at any time
and from time to time during the twelve (12)-month period from the date of the
termination of the Optionee's status as a Director. If the Optionee does not
exercise the Option in full during such 12-month period, the unexercised portion
of the Option shall terminate at the close of business, California time, on the
last business day of such 12-month period and thereafter shall not be
exercisable in whole or in part. Notwithstanding anything in this Section to the
contrary, if the Option is not exercisable on the date of the termination of the
Optionee's status as a Director, then the Option shall terminate simultaneously
with the termination of the Optionee's status as a Director and thereafter shall
not be exercisable in whole or in part.
10.6 Termination for Cause. If an Optionee's continuous status as a
Director is terminated for cause, all outstanding Options held by the Optionee
shall terminate simultaneously with the termination of the Optionee's status as
a Director and thereafter shall not be exercisable in whole or in part. For
purposes of this Section, an Optionee's status as a Director shall be deemed to
be terminated for "cause" as of the date on which the Optionee is removed as a
Director for any reason described in Section 304 of the California General
Corporation Law.
10.7 Status as a Director. The termination of an Optionee's status as a
Director shall be deemed to occur on the effective date of the earliest of (a)
the Optionee's resignation as a Director, (b) the removal of the Optionee as a
Director, and (c) the Optionee's death.
11. RELOAD FEATURES
11.1 Grant of Reload Options. Whenever the holder of an Option granted
under this Plan (including any Reload Options granted under the provisions of
this Section or Section , below) (the "Original Option") exercises the Original
Option and makes payment of the exercise price by tendering shares of the Common
Stock previously held by the Optionee, then the Optionee shall be entitled to
receive and the Company shall grant the Optionee a new option (the "Reload
Option") for that number of shares of the Common Stock which is equal to the
number of shares tendered by the Optionee in payment of the exercise price for
the Original Option being exercised. All such Reload Options granted hereunder
shall be on the following terms and conditions.
11.1.1 Exercise Price. The exercise price per share shall be an
amount equal to the Fair Market Value per share of the Common Stock as of the
date of exercise of the Original Option.
11.1.2 Expiration Date. The term of the Reload Option shall begin as
of the date of exercise of the Original Option and, unless terminated sooner
pursuant to the terms of this Plan or the Stock Option Agreement, shall
terminate five (5) years thereafter.
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<PAGE>
11.1.3 Vesting Period. Any Reload Option shall become exercisable
one (1) year following the date of grant of such Reload Option. Thereafter the
Reload Option shall be fully vested and shall be exercisable in whole or in part
at any time and from time to time during the term of the Reload Option.
11.1.4 Other Terms. All other terms of Reload Options granted
hereunder shall be identical to the terms and conditions of the Original Option,
the exercise of which gives rise to the grant of the Reload Option.
11.2 Restrictions on Reload Options. Any and all Reload Options granted
pursuant to this Section (or Section , below) shall be subject to the following
conditions and restrictions.
11.2.1 Holding Period of Shares Tendered. No Reload Option shall be
granted pursuant to Section , above, unless the shares of Common Stock tendered
upon exercise of the Original Option in payment therefore have been held by the
Optionee for a period of more than six (6) months prior to the exercise of the
Original Option. The Company may rely on a representation of the Optionee, or
such other evidence as the Company deems appropriate, for purposes of
determining the holding period of any shares surrendered on exercise of an
Option and the compliance of such exercise with the terms of this Plan and any
applicable Stock Option Agreement. The Company shall have no obligation to
independently investigate the holding period or the propriety of the exercise of
any Option or the compliance of such exercise with the terms of this Plan or any
applicable Stock Option Agreement.
11.2.2 Holding Period of Original Option Shares. If any of the
shares of Common Stock of the Company which are issued upon exercise of the
Original Option are sold within one (1) year following the exercise of the
Original Option, then the Reload Option shall immediately terminate.
11.2.3 Exception. The holding period restrictions set forth in
Sections and , above, shall not apply to an Optionee's transfer of shares of
Common Stock (a) to the Company in payment of all or any portion of the exercise
price upon exercise of an Option, whether an Original Option or a Reload Option,
or (b) in satisfaction of the Optionee's income tax withholding obligation, if
any, by the transfer of shares to the Company or by the Company's withholding of
shares that would otherwise be issued as a result of the exercise of an Option,
or (c) to the acquiring party in any transaction described in Section 16, below,
in which the Company is not the surviving corporation, or (d) to any person
described in Section 13.2.1 hereof so long as the transfer satisfies the
conditions of Section 13.2 hereof.
12. TRANSFERABILITY OF OPTIONS
12.1 Restriction on Transfer. Except as specifically set forth in Section
13.2 hereof, no Option or Reload Option may be sold, pledged, assigned,
hypothecated, transferred,
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<PAGE>
or otherwise disposed of in any manner, other than by will or the laws of
descent and distribution.
12.2. Limited Transferability. A Stock Option Agreement may provide that
an Optionee may transfer all or any portion of any Option or Reload Option in
accordance with the provisions of this Section 13.2. If a Stock Option Agreement
permits the transfer of any Option or Reload Option, any transfer that does not
comply with all of the provisions of this Section 13.2 and the Stock Option
Agreement shall be null and void ab initio. The provisions of the Stock Option
Agreements dealing with the transferability of the Options need not be identical
for all Options and the provision for transferability with respect to one Option
shall not require the provision for transferability with respect to any other
Option.
12.2.1 Permitted Transferees. An Option or Reload Option may be
transferred or assigned by the Optionee only to one or more of the following:
(a) the Optionee's spouse, parents and lineal descendants, including adopted
children (the "Immediate Family Members"); (b) a trust established by the
Optionee and with respect to which all beneficial interests are held by one or
more of the Optionee, the Immediate Family Members, and a tax-exempt charitable
organization which has only a contingent residual interest in the trust; (c) a
partnership or limited liability company established by the Optionee and in
which all beneficial interests are held by one or more of the Optionee and the
Immediate Family Members; (d) a tax-exempt educational, religious or charitable
organization, as those terms are defined in Section 501(c)(3) of the Code; and
(e) such other persons and entities as the Company may specifically approve in
writing after written notice from the Optionee. The Company may require as a
condition to the transfer of any Option or Reload Option under this Section that
the transferee provide to the Company reasonable evidence that the proposed
transferee is described in one of the foregoing clauses.
12.2.2 Permitted Transfers. Any transfer of an Option or Reload
Option under this Section 13.2 must be either a Donative Transfer, a transfer to
a partnership or limited liability company described in clause (c) of Section
13.2.1 above, or a transfer specifically approved in writing by the Company
after written notice from the Optionee.
12.2.3 Minimum Transfer. Any transfer of an Option or a Reload
Option must be with respect to not less than one hundred (100) shares of
Optioned Stock and may be made only in whole number multiples of one hundred
(100) shares of Optioned Stock.
12.2.4 Notice to the Company. The Optionee shall give the Company at
least ten (10) days prior written notice of any proposed transfer of an Option
or Reload Option pursuant to this Section 13.2 and shall include with such
notice:
A. The name and address of the proposed transferee and a
statement of the basis on which the proposed transferee is a permitted
transferee under Section 13.2.1 hereof; and
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<PAGE>
B. The proposed transferee's written agreement to accept the
transferred Option or Reload Option and any shares of Common Stock acquired on
exercise of the Option or Reload Option subject to all of the terms and
conditions of this Plan and the applicable Stock Option Agreement, including the
provisions dealing with the termination of the Option or Reload Option on the
death or disability of the Optionee or the termination of the Optionee's status
as a Director of the Company.
12.2.5 No Further Transfer. Notwithstanding anything in this Plan or
any Stock Option Agreement to the contrary, a transferee of any Option or Reload
Option shall not have the right to further transfer all or any portion of the
transferred Option, other than (a) by will or the laws of descent and
distribution, or (b), if the transferee is a trust, pursuant to the terms of the
trust agreement by reason of the death of any settlor.
12.2.6 Further Acts. The Company may require as a condition to the
transfer of any Option or Reload Option such additional information and
agreements from the Optionee and the proposed transferee as the Company may deem
necessary or beneficial for purposes of complying with this Section or any
applicable federal or state law, rule or regulation.
12.2.7 Disclaimer. The Company's acceptance of any transfer of an
Option or Reload Option shall not be considered legal or tax advice to the
Optionee or the proposed transferee as to their compliance with any applicable
law, rule or regulation or the legal or tax consequences of such transfer or the
subsequent exercise of the transferred Option or the sale or exchange of any of
the shares of Common Stock acquired on exercise of the transferred Option.
13. TAX WITHHOLDING
To the extent that the exercise of any Option (including any Reload
Option) granted hereunder gives rise to an income tax withholding obligation on
the part of the Company with respect to the Optionee, the Company may satisfy
such obligation on such terms and in accordance with such procedures as it deems
appropriate under applicable law. At the election of the Optionee, such
withholding obligation may be satisfied through the Optionee's surrender of
shares of Common Stock owned by the Optionee or through the Company's retention
of shares of the Common Stock which would otherwise be issued as a result of the
exercise of the Option. If withholding is made in shares of Common Stock, the
Company shall grant to the Optionee a Reload Option, on the terms specified in
Section hereof for the number of shares so withheld.
14. RECAPITALIZATION OF COMPANY
Except as otherwise provided herein, appropriate and proportionate
adjustments shall be made in the number and class of shares subject to the Plan
and to the Options granted under the Plan, and the exercise price of such
Options, in the event of a stock dividend (but only on
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<PAGE>
Common Stock), stock split, reverse stock split, recapitalization,
reorganization or like change in the capital structure of the Company. To the
extent that the foregoing adjustments relate to stock or securities of the
Company, such adjustments shall be made by the Committee, the determination of
which in that respect shall be final, binding, and conclusive.
15. REORGANIZATION OR LIQUIDATION OF THE COMPANY
In the event of (a) a liquidation of the Company, or (b) a merger,
reorganization, or consolidation of the Company with any other corporation in
which the Company is not the surviving corporation or the Company becomes a
wholly owned subsidiary of another corporation, or (c) any sale of all or
substantially all of the Company's assets, any unexercised Options then
outstanding under the Plan shall be deemed cancelled as of the effective date of
any such liquidation, merger, reorganization, consolidation or sale, unless the
surviving corporation in any such merger, reorganization or consolidation or the
acquiring corporation in any such sale elects to assume the Options under the
Plan or to issue substitute options in place thereof; provided that, if any
Options granted under the Plan would be cancelled in accordance with the
foregoing, the Optionee shall have the right, exercisable during a 10-day period
ending on the fifth day prior to the effective date of such liquidation, merger,
reorganization, consolidation or sale, to exercise the Options in whole or in
part even though the Option otherwise was not then exercisable. The Company
shall give each Optionee at least thirty (30) days' prior written notice of the
anticipated effective date of any such liquidation, merger, reorganization,
consolidation or sale. Notwithstanding anything in this Plan or in any Stock
Option Agreement to the contrary, (i) all Option exercises effected during the
foregoing 10-day period shall be deemed to be effective immediately prior to the
closing of such liquidation, merger, reorganization, consolidation or sale and
(ii) if the Company abandons or otherwise fails to close any such liquidation,
merger, reorganization, consolidation or sale, then (A) all exercises during the
foregoing 10-day period shall cease to be effective ab initio and (B) the
outstanding Options shall be exercisable as otherwise determined under the
applicable Stock Option Agreements and without consideration of this Section or
the corresponding provisions of any Stock Option Agreement.
16. AMENDMENT AND TERMINATION OF THE PLAN
16.1 Amendment and Termination. The Board of Directors may amend or
terminate the Plan from time to time in such respects as the Board may deem
advisable; provided that the following revisions or amendments shall require
approval of the shareholders of the Company entitled to vote:
16.1.1 Number of Shares. Any material increase in the number or
shares which may be issued pursuant to the Plan (other than in accordance with
Section and , above);
16.1.2 Eligibility. Any material modification of the requirements
as to eligibility for participation in the Plan; or
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<PAGE>
16.1.3 Increase in Benefits. Any material increase in the benefits
accruing to participants under the Plan.
16.2 Effect of Amendment or Termination. Any amendment or termination of
the Plan shall not affect Options already granted and such Options shall remain
in full force and effect as if this Plan had not been amended or terminated,
unless mutually agreed otherwise between the Optionee and the Company, which
agreement must be in writing and signed by the Optionee and the Company.
17. CONDITIONS UPON ISSUANCE OF SHARES
17.1 Compliance with Law. Shares of Common Stock shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
17.2 Investment Intent. As a condition to the exercise of an Option, the
Company may require the person exercising such Option to represent and warrant
at the time of any such exercise that the shares of Common Stock are being
purchased only for investment and without any present intention to sell or
distribute such shares if, in the opinion of counsel for the Company, such a
representation is required by applicable law.
17.3 Governmental Consents. Inability of the Company to obtain authority
from any regulatory body having jurisdiction, which authority is deemed by the
Company's counsel to be necessary to the lawful issuance and sale of any shares
of Common Stock hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell, or any delay in issuing or selling, such shares
as to which such requisite shall not have been obtained.
18. RESERVE OF SHARES
During the term of this Plan, the Company will at all times reserve and
keep available such number of shares as shall be sufficient to satisfy the
requirements of the Plan (the Plan "Reserve").
19. OPTION AGREEMENT
Each Option granted hereunder shall be evidenced by a written Stock Option
Agreement (the "Stock Option Agreement").
-11-
<PAGE>
20. INDEMNIFICATION
In addition to such other rights of indemnification as they may have as
members of the Board of Directors and/or employees of the Company, the members
of the Committee administering the Plan shall be indemnified by the Company
against reasonable expenses, including attorneys' fees, actually and necessarily
incurred in connection with the defense of any action, suit, or proceeding, or
in connection with any appeal therein, to which they or any of them may be a
party by reason of any action taken or failure to act under or in connection
with the Plan, any Stock Option Agreement or any Option granted under the Plan,
and against all amounts paid or payable by them in settlement thereof (provided
such settlement is approved by independent legal counsel selected by the
Company) or paid or payable by them in satisfaction of a judgment in any action,
suit, or proceeding, except in relation to matters as to which it shall be
adjudged in such action, suit, or proceeding that such person is liable for
gross negligence or willful misconduct in the performance of his or her duties.
The indemnification provided in this Section shall be available only if, within
sixty (60) days after institution of any such action, suit, or proceeding, the
person seeking indemnification shall in writing offer the Company the
opportunity, at its own expense, to handle and defend the same.
21. EFFECTIVE DATE OF PLAN; SHAREHOLDER APPROVAL
The Plan was adopted by action of the Board of Directors taken at a duly
noticed and held meeting on February 27, 1996. The effectiveness of the Plan
shall be subject to approval by the shareholders of the Company within twelve
(12) months after the aforesaid date of the adoption of the Plan. The manner and
method for approval of the Plan by the shareholders of the Company must comply
with Rule 16b-3. If the Plan has not been previously approved by the
shareholders of the Company, the Plan shall terminate on January 31, 1997.
22. EFFECT OF AMENDMENTS
22.1 Amendment of Options. From and after December 17, 1996, the date of
this Amended Plan, all of the terms and provisions of the Plan as amended shall
apply to all Options which are outstanding as of such date and the Stock Option
Agreements covering such Options shall be deemed automatically amended to
reflect the amended terms of this Plan.
22.2 No Change in Price or Term. Notwithstanding anything in this Plan to
the contrary, in no event shall the amendment of any Stock Option Agreement in
accordance with the provisions of this Section change any or all of the number
of shares covered by any Option or the exercise price, vesting schedule or term
of the Option.
22.3 Amended Stock Option Agreements. Any Optionee who holds an Option
that is deemed amended under this Section may at any time deliver to the Company
his or her existing Stock Option Agreement and request that the Company deliver
to the Optionee a new Stock Option Agreement incorporating the amended and
restated terms and provisions of the Plan. The Company shall deliver to the
Optionee a new Stock Option Agreement promptly after
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<PAGE>
the Optionee's delivery of the existing Stock Option Agreement. NOTWITHSTANDING
ANYTHING IN THIS PLAN TO THE CONTRARY, THE OPTIONEE SHALL BE SOLELY RESPONSIBLE
FOR DETERMINING WHETHER THE AMENDMENT OF A STOCK OPTION AGREEMENT WILL
CONSTITUTE A MODIFICATION OF THE OPTION AND THE COMPANY SHALL HAVE NO
RESPONSIBILITY OR LIABILITY TO THE OPTIONEE BY REASON OF THE AMENDMENT OF A
STOCK OPTION AGREEMENT BEING A MODIFICATION OF THE OPTION.
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<PAGE>
CERTIFICATE OF SECRETARY
The undersigned, being the Corporate Secretary of the Company, does hereby
certify that:
(a) the foregoing Plan was adopted by the Board of Directors of the
Company at a duly called and held meeting of the Board of Directors on February
27, 1996, and the Plan was approved by the shareholders of the Company at a duly
called and held meeting of the shareholders on April 23, 1996;
(b) the Plan was amended at duly called and held meetings of the Board of
Directors on August 27, 1996, and September 25, 1996, and that the amendments
adopted by the Board of Directors on August 27, 1996, and September 25, 1996,
did not need to be approved by the shareholders of the Company;
(c) the Plan was amended at a duly called and held meeting of the Board of
Directors on December 17, 1996, and that the amendments adopted by the Board of
Directors on December 17, 1996, did not need to be approved by the shareholders
of the Company; and
(d) the Plan was amended at a duly called and held meeting of the Board of
Directors on March 24, 1998, and that the amendments adopted by the Board of
Directors on March 24, 1998, did not need to be approved by the shareholders of
the Company.
Dated: ___________, 1998
Jay D. Smith, Esq.
Corporate Secretary
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<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated January 30, 1998, incorporated by reference in the Form 10-K, into
Santa Barbara Bancorp and subsidiaries' previously filed Form S-8 Registration
Statements File Nos. 33-5493, 2-83293, 33-43560 and 33-48724. It should be noted
that we have not audited any financial statements of the company subsequent to
December 31, 1997 or performed any audit procedures subsequent to the date of
our report.
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