<PAGE>
As filed with the Securities and Exchange Commission on May 4, 2000
Registration No. 333-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------------------------------
PACIFIC CAPITAL BANCORP
(Exact name of registrant as specified in its charter)
<TABLE>
<S><C>
CALIFORNIA 6022 95-3673456
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification No.) Identification No.)
</TABLE>
PACIFIC CAPITAL BANCORP
200 EAST CARRILLO STREET, SUITE 300
SANTA BARBARA, CALIFORNIA 93101
(805) 564-6298
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
JAY D. SMITH, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
PACIFIC CAPITAL BANCORP
200 EAST CARRILLO STREET
SANTA BARBARA, CALIFORNIA 93101
(805) 564-6310
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
SCOTT J. LUEDKE, ESQ. R. BRENT FAYE, ESQ.
JENKENS & GILCHRIST, LILLICK & CHARLES, LLP
A PROFESSIONAL CORPORATION TWO EMBARCADERO CENTER
1445 ROSS AVENUE, SUITE 3200 SUITE 2700
DALLAS, TEXAS 75202 SAN FRANCISCO, CALIFORNIA 94111
(214) 855-4791 (415) 984-8365
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
If the Securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
============================================================================================================================
Proposed maximum Proposed maximum
Title of each class of Amount to offering price aggregate Amount of
securities to be registered be registered (2) per unit (3) offering price (3) registration fee (4)
- --------------------------------- --------------------- --------------------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
Common Stock, no par value(1) ... 1,830,500 shares -- $43,865,690 $11,581
================================= ===================== ===================== ====================== =====================
</TABLE>
(1) Includes one attached Preferred Share Purchase Right per
share.
(2) Based upon the assumed maximum number of shares of common stock of the
Registrant issuable to holders of common stock of San Benito Bank, a
California banking corporation ("San Benito"), in the proposed merger
of a wholly owned subsidiary of the Registrant into San Benito.
(3) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(c) and Rule 457(f)(1)
under the Securities Act of 1933, as amended (the "Securities Act"),
based upon the aggregate market value as of May 3, 2000 of all shares
of San Benito common stock to be acquired by the Registrant in the
transaction described herein.
(4) Based on .000264 of the proposed maximum offering price.
--------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion, dated May 4, 2000
SAN BENITO BANK
300 TRES PINOS ROAD
HOLLISTER, CALIFORNIA 95023
MERGER PROPOSED - YOUR VOTE IS VERY IMPORTANT
May __, 2000
TO THE SHAREHOLDERS OF
SAN BENITO BANK:
We cordially invite you to attend a special meeting of shareholders
of San Benito Bank to be held at San Benito Bank located at 300 Tres Pinos Road,
Hollister, California on Tuesday, June 20, 2000 at 5:00 p.m. local time.
The purpose of the special meeting will be to consider and vote on the
Agreement and Plan of Reorganization by and between San Benito Bank and Pacific
Capital Bancorp, a bank holding company headquartered in Santa Barbara,
California, providing for, among other maters, the acquisition of San Benito
Bank by Pacific Capital. The acquisition of San Benito Bank will be accomplished
through a merger transaction involving a subsidiary of Pacific Capital.
As a result of the acquisition, you will receive shares of Pacific
Capital common stock in exchange for your shares of San Benito common stock.
Specifically, each share of San Benito common stock owned by you will be
exchanged for 0.605 shares of Pacific Capital common stock, plus an amount of
cash in lieu of any fractional shares.
Approval of the acquisition requires the affirmative vote of the
holders of at least a majority of the outstanding shares of common stock of San
Benito Bank. If approved, we anticipate the acquisition will be completed during
the third quarter of 2000. No vote of Pacific Capital shareholders is required
to approve the transaction.
The accompanying proxy statement-prospectus provides you with detailed
information about the proposed acquisition. We encourage you to read this entire
document carefully. You can also obtain more information about Pacific Capital
Bancorp in documents it has filed with the Securities and Exchange Commission
and about San Benito Bank in documents it has filed with the Federal Reserve.
After careful consideration, your Board of Directors has approved the
acquisition and believes it is in the best interests of San Benito Bank and you,
our shareholders. Accordingly, the Board unanimously recommends
that you vote "FOR" the acquisition.
We hope you can attend the special meeting in person. Whether or not
you plan to attend, it is important that your shares be represented and voted,
regardless of the number of shares you hold. Please complete, sign and date the
enclosed proxy card and return it promptly in the enclosed business-reply
envelope. IF YOU DO NOT RETURN YOUR CARD OR VOTE IN PERSON, THE EFFECT WILL BE A
VOTE AGAINST APPROVAL OF THE ACQUISITION. You can revoke your proxy by writing
to San Benito Bank's Secretary any time before the meeting, by signing and
returning a later-dated proxy or by attending the special meeting and voting in
person.
We look forward to seeing you at the special meeting.
Sincerely,
Edward T. Stephenson
President
<PAGE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE PACIFIC CAPITAL COMMON STOCK TO BE
ISSUED OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROXY
STATEMENT-PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES OFFERED THROUGH THIS DOCUMENT ARE NOT SAVINGS ACCOUNTS, DEPOSITS
OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
-------------------------
THE DATE OF THIS PROXY STATEMENT-PROSPECTUS IS MAY __, 2000, AND IT IS
FIRST BEING MAILED TO SAN BENITO BANK SHAREHOLDERS ON OR ABOUT MAY __,
2000
<PAGE>
SAN BENITO BANK
300 TRES PINOS ROAD
HOLLISTER, CALIFORNIA 95023
-------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 20, 2000
-------------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of San
Benito Bank will be held at San Benito Bank, 300 Tres Pinos Road, Hollister,
California, on Tuesday, June 20, 2000 at 5:00 p.m., local time, for the
following purpose, which is more fully described in the accompanying proxy
statement-prospectus:
APPROVAL OF ACQUISITION. To consider and vote upon a proposal to approve and
adopt an Agreement and Plan of Reorganization, dated as of February 3, 2000, by
and between San Benito Bank and Pacific Capital Bancorp, and a related Agreement
and Plan of Merger between San Benito Bank and Interim San Benito, Inc., a
wholly owned subsidiary of Pacific Capital, and related transactions, under
which Interim San Benito, Inc. will be merged with and into San Benito Bank,
with San Benito Bank as the surviving corporation, upon the terms and subject to
the conditions set forth in the Reorganization Agreement, as more fully
described in the accompanying proxy statement-prospectus.
The Agreements are attached as APPENDIX A and APPENDIX B to the
accompanying proxy statement-prospectus.
No other business will be transacted at the Meeting other than matters
incidental to the conduct of the Meeting.
The Board of Directors of San Benito Bank has fixed the close of business
on April 28, 2000, as the record date for the Meeting. Only shareholders of
record of San Benito common stock, no par value per share, at the close of
business on the record date are entitled to receive notice of, and to vote at,
the Meeting or any adjournment(s) or postponement(s) thereof. Approval of the
Merger requires the affirmative vote of the holders of at least a majority of
the outstanding shares of San Benito common stock. A failure to vote shares,
either by abstention or non-vote, will have the same effect as a vote against
approval of the Merger.
In connection with the Merger, shareholders of San Benito Bank may be
entitled to exercise dissenters' rights and to receive cash in an amount equal
to the fair market value of their shares of San Benito common stock in lieu of
receiving shares of Pacific Capital common stock in the Merger by complying with
certain procedures specified by California law. See "Rights of Dissenting
Shareholders" in the accompanying proxy statement-prospectus.
If you would like to attend the Meeting and your shares are held by a
broker, bank or other nominee, you must bring to the Meeting a recent brokerage
statement or a letter from the nominee confirming your beneficial ownership of
the shares of our common stock. You must also bring a form of personal
identification. In order to vote your shares at the Meeting, you must obtain
from the nominee a proxy issued in your name.
Your vote is important regardless of the number of shares of San Benito
common stock you own. You can ensure that your shares are voted at the Meeting
by signing and dating the enclosed proxy and returning it in the business-reply
envelope provided. Sending in a signed proxy will not affect your right to
attend the Meeting and vote in person. You may revoke your Proxy at any time
before it is voted by giving written notice to the Secretary of San Benito Bank,
by signing and returning a later-dated proxy or by voting in person at the
Meeting. All shares represented by properly executed proxies will be voted in
accordance with the specifications on the proxy card. If no such specifications
are made, proxies will be voted for approval and adoption of the reorganization
agreement.
By order of the Board of Directors,
---------------------------
Corporate Secretary
Hollister, California
May __, 2000
PLEASE DO NOT SEND ANY SHARE CERTIFICATES AT THIS TIME.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, WE URGE YOU TO DATE,
SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. YOU
MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED IN THE MANNER PROVIDED IN
THE ACCOMPANYING DOCUMENT.
<PAGE>
QUESTIONS AND ANSWERS ABOUT THIS DOCUMENT
WHAT IS THE PURPOSE OF THIS DOCUMENT?
This document serves as both a PROXY STATEMENT of San Benito Bank and a
PROSPECTUS of Pacific Capital Bancorp. As a proxy statement, it's being provided
to you because the Board of Directors of San Benito Bank is soliciting your
proxy for use at the special meeting. As a prospectus, it's being provided to
you because Pacific Capital is offering to exchange shares of its common stock
for your shares of San Benito Bank common stock.
DO I NEED TO READ THE ENTIRE DOCUMENT?
ABSOLUTELY. Much of this proxy statement-prospectus summarizes
information that is in greater detail elsewhere in this document or in the
appendices to this document. Each summary discussion is qualified by reference
to the full text. For example, the summary of the terms of the reorganization
agreement is qualified by the actual terms of the reorganization agreement, a
copy of which is attached as APPENDIX A.
IS THERE OTHER INFORMATION I SHOULD CONSIDER?
YES. Much of the business and financial information about Pacific Capital
Bancorp that may be important to you is not included in this document. Instead,
this information is INCORPORATED BY REFERENCE TO documents separately filed by
Pacific Capital with the Securities and Exchange Commission. This means that
Pacific Capital may satisfy its disclosure obligations to you by referring you
to one or more documents separately filed by it with the SEC. See "Where You Can
Find More Information" on page 89, for a list of documents that Pacific Capital
has incorporated by reference into this proxy statement-prospectus and for
instructions on how to obtain copies of these documents. These documents are
available to you without charge.
WHAT ABOUT FUTURE SEC REPORTS?
Reports filed by Pacific Capital Bancorp with the SEC after the date of
this proxy statement-prospectus and before the merger is completed are
AUTOMATICALLY INCORPORATED into this document. These reports may update, modify
or correct information in this document or in the documents incorporated by
reference.
WHAT IF THERE IS A CONFLICT BETWEEN DOCUMENTS?
You should rely on the LATER FILED DOCUMENT. Information in this proxy
statement-prospectus may update information in one or more of the Pacific
Capital Bancorp documents incorporated by reference. Similarly, information in
documents that Pacific Capital may file after the date of this proxy
statement-prospectus may update information in this proxy statement-prospectus.
WHAT IF I CHOOSE NOT TO READ THE INCORPORATED DOCUMENTS?
Information contained in a document that is incorporated by reference is
part of this proxy statement-prospectus, unless it is superseded by information
contained directly in this proxy statement-prospectus or in one or more
documents filed with the SEC after the date of this proxy statement-prospectus.
Information that is incorporated from another document is considered to have
been disclosed to you WHETHER OR NOT YOU CHOOSE TO READ THE DOCUMENT.
(i)
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE ACQUISITION
WHAT AM I BEING ASKED TO VOTE UPON?
You are being asked to vote on the acquisition of San Benito Bank by
Pacific Capital Bancorp. This acquisition will be accomplished through the
merger of San Benito Bank with a wholly owned subsidiary of Pacific Capital
Bancorp. As a result of this merger, San Benito Bank will become a wholly owned
subsidiary of Pacific Capital, and your shares of San Benito common stock will
be exchanged for shares of Pacific Capital common stock in the manner described
in this document.
Approval of the acquisition requires the affirmative vote of at least a
majority of the outstanding shares of San Benito Bank common stock. No vote of
Pacific Capital shareholders is required to approve this transaction.
WHY IS SAN BENITO BANK ENGAGING IN THIS TRANSACTION WITH PACIFIC CAPITAL
BANCORP?
The Board of Directors of San Benito Bank believes that this transaction
with Pacific Capital is in the best interests of San Benito Bank and its
shareholders, and will provide significant benefits to you and the customers and
employees of San Benito Bank. We believe that this transaction will better
position San Benito Bank and Pacific Capital to be a stronger competitor in San
Benito and Santa Clara counties in California. To review the background and
reasons for the merger in greater detail, see pages 22 and 23.
Following completion of the acquisition, it is anticipated that San
Benito Bank will be merged with First National Bank of Central California, a
wholly owned subsidiary of Pacific Capital. In addition, it is anticipated that
one representative of San Benito Bank will be nominated for election to the
Board of Directors of Pacific Capital at its annual meeting of shareholders to
be held in 2001, and that San Benito Bank will receive appropriate
representation on the Board of Directors of First National Bank.
WHAT WILL I RECEIVE IN THE ACQUISITION?
For each outstanding share of San Benito Bank common stock you own, you
will receive 0.605 shares of Pacific Capital common stock. This is called the
"exchange ratio." If, however, the average closing price of a share of Pacific
Capital common stock prior to completion of the acquisition is less than $25.00,
San Benito Bank may indicate its intent to terminate the reorganization
agreement. San Benito Bank and Pacific Capital will then attempt in good faith
to renegotiate the exchange ratio, subject to existing market conditions. If the
parties are unable to renegotiate the exchange ratio within a period of three
business days after determination of the average closing price, San Benito Bank
may terminate the transaction.
Average closing price means the average of the average closing bid and
ask price of a share of Pacific Capital common stock as reported on the Nasdaq
National Market for the twenty (20) business days ending on the fifth business
day immediately before completion of the acquisition.
Pacific Capital will not issue fractional shares in the acquisition.
Instead, you will receive a cash payment, without interest, for the value of any
fraction of a share of Pacific Capital common stock that you would otherwise be
entitled to receive based upon the market value (as determined in the
reorganization agreement) of a share of Pacific Capital common stock on the
business day before the date the acquisition is completed.
Each share of Pacific Capital common stock held by Pacific Capital
shareholders will continue to represent one share of Pacific Capital common
stock following the acquisition. After the acquisition, shareholders of San
Benito Bank will own approximately 6.9% of Pacific Capital's outstanding shares
of common stock, and current Pacific Capital shareholders will own approximately
93.1% of Pacific Capital's outstanding shares of common stock.
(ii)
<PAGE>
WHAT HAPPENS AS THE MARKET PRICE OF PACIFIC CAPITAL COMMON STOCK FLUCTUATES?
Since the conversion ratio is fixed and since the market value of Pacific
Capital common stock will fluctuate before and after the closing of the
acquisition, the value of the Pacific Capital common stock that you will receive
in the acquisition will fluctuate as well and could increase or decrease. See
"Risk Factors The consideration you will receive in the acquisition will be
affected by potential change in the stock prices of Pacific Capital and San
Benito Bank." You are urged to obtain current market prices for shares of
Pacific Capital common stock and San Benito Bank common stock.
WHAT ARE THE TAX CONSEQUENCES OF THE ACQUISITION TO ME?
The proposed transaction will constitute a tax-free reorganization for
federal income tax purposes. The exchange of shares of San Benito Bank common
stock for shares of Pacific Capital common stock generally will be tax-free to
you for federal income tax purposes. You will, however, have to pay taxes on any
cash received for fractional shares or cash received upon the exercise of
dissenter's rights. Tax matters are complicated, and the tax consequences of the
proposed transaction to you will depend on the facts of your particular
situation. To review the tax consequences to you in greater detail, see pages 31
and 32.
WILL I RECEIVE DIVIDENDS AFTER THE ACQUISITION?
Since 1991, Pacific Capital has paid a cash dividend to shareholders
every quarter. From 1969 through 1990, when it was Pacific Capital's policy to
pay dividends twice a year, Pacific Capital paid a cash dividend to its
shareholders every six months. Pacific Capital currently pays a quarterly
dividend of $0.20 per share. Pacific Capital expects that is will continue to
pay at least this amount in quarterly dividends in the immediate future. After
the acquisition, the Board of Directors of Pacific Capital will use its
discretion to decide whether and when to declare dividends and in what amount.
WHAT RISKS SHOULD I CONSIDER?
You should review "Risk Factors" on page 18. You should also review the
factors considered by San Benito Bank's Board of Directors. See "The Acquisition
- -- Background of and Reasons for the Acquisition" (pages 22 and 23).
WHEN IS THE ACQUISITION EXPECTED TO BE COMPLETED?
We are working to complete the transaction as quickly as possible
following receipt of all necessary regulatory and shareholder approvals. We
currently anticipate that this transaction will be completed in the third
quarter of 2000, although no assurance can be made that the required approvals
will be obtained or that this timetable will be met.
WHAT SHOULD I DO NOW?
After carefully reading and considering the information contained in this
document, indicate on your proxy card how you want to vote, and sign and mail it
in the enclosed envelope as soon as possible so that your shares will be
represented at the special meeting.
If you sign and send in your proxy and do not indicate how you want to
vote, your proxy will be voted in favor of the proposal to approve the
acquisition. If you do not sign and send in your proxy or you abstain, it will
have the effect of a vote against the acquisition.
The special meeting of San Benito Bank shareholders to vote on the
acquisition will take place at 5:00 p.m. on Tuesday, June 20, 2000. You
may attend the special meeting and vote your shares in person, rather than
voting by proxy. If you vote by proxy, you may withdraw your proxy up to and
including the day of the special meeting by following the directions on page 20
and either change your vote or attend the meeting and vote in person.
(iii)
<PAGE>
WHAT DO I DO IF I WANT TO CHANGE MY VOTE AFTER I HAVE MAILED MY PROXY CARD?
Send in a written revocation or a later-dated, signed proxy card to the
Secretary of San Benito Bank before the special meeting or attend the special
meeting and vote in person.
IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
Your broker will vote your shares of San Benito Bank common stock only if
you provide instructions on how to vote. You should instruct your broker how to
vote your shares by following the directions your broker provides. If you do not
provide instructions to your broker, your "street name" shares will not be voted
and this will have the effect of voting against the acquisition.
If your shares are held in "street name" and you wish to vote in person
at the special meeting, you must first obtain a proxy issued in your name from
your broker.
SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
NO. After the acquisition is completed, we will send you written
instructions for exchanging your San Benito Bank common stock certificates for
Pacific Capital common stock certificates.
WHO CAN HELP ANSWER MY QUESTIONS?
If you want additional copies of this document, or if you want to ask any
questions about the acquisition, you should contact:
Edward T. Stephenson
President
San Benito Bank
300 Tres Pinos Road
Hollister, California 95023
Telephone: (831) 638-3349
ADDITIONAL INFORMATION
This proxy statement-prospectus incorporates important business and
financial information about Pacific Capital Bancorp that is not included in or
delivered with this document. See "Where You Can Find More Information" on page
89 for a list of the documents that Pacific Capital Bancorp has incorporated
into this proxy statement-prospectus. The documents are available to you without
charge upon written or oral request made as follows:
Corporate Secretary
Pacific Capital Bancorp
200 East Carrillo Street
Santa Barbara, California 93101
(805) 564-6310
TO OBTAIN DOCUMENTS IN TIME FOR THE SPECIAL MEETING, YOUR REQUEST SHOULD
BE RECEIVED BY JUNE __, 2000.
(iv)
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THIS DOCUMENT.......................................................................(i)
QUESTIONS AND ANSWERS ABOUT THE ACQUISITION....................................................................(ii)
ADDITIONAL INFORMATION.........................................................................................(iv)
SUMMARY...........................................................................................................1
Market Price and Dividend Information......................................................................9
Selected Historical and Pro Forma Financial Data..........................................................11
Pacific Capital Bancorp Historical Selected Financial Data................................................13
San Benito Bank Historical Selected Financial Data........................................................14
Selected Unaudited Pro Forma Combined Financial Data......................................................15
Comparative Per Common Share Data.........................................................................16
Recent Developments.......................................................................................16
RISK FACTORS.....................................................................................................18
THE SPECIAL MEETING..............................................................................................19
Date, Time and Place......................................................................................19
Record Date...............................................................................................19
Vote Required.............................................................................................19
Voting and Revocation of Proxies..........................................................................20
Solicitation of Proxies...................................................................................20
Share Ownership of Management.............................................................................20
Recommendation of the San Benito Bank Board...............................................................20
Other Matters Considered at the Special Meeting...........................................................21
THE ACQUISITION..................................................................................................21
Structure of the Acquisition..............................................................................21
Background of and Reasons for the Acquisition.............................................................22
Opinion of Financial Advisor..............................................................................24
Information Concerning Certain Interests of Directors and
Officers of San Benito Bank in the
Acquisition......................................................................................29
Effect of the Acquisition on San Benito Bank's Employee
Benefit Plans....................................................................................30
Federal Income Tax Consequences...........................................................................31
Accounting Treatment of the Acquisition...................................................................32
Nasdaq Listing............................................................................................33
Resales of Pacific Capital Common Stock...................................................................33
Regulatory Approvals......................................................................................33
Effective Date............................................................................................35
Exchange of Certificates..................................................................................35
THE REORGANIZATION AGREEMENT.....................................................................................36
Basic Plan of Reorganization..............................................................................36
Representations and Warranties............................................................................36
Stock Option Agreement....................................................................................36
Conditions to the Acquisition.............................................................................36
Nonsolicitation...........................................................................................38
Treatment of Stock Options................................................................................38
Termination of the Reorganization Agreement...............................................................38
Certain Covenants; Conduct of Business Prior to Effective Time............................................39
Amendment and Waiver......................................................................................42
Director Voting...........................................................................................43
Non-compete Agreements....................................................................................43
(v)
<PAGE>
Regulatory Approvals......................................................................................43
STOCK OPTION AGREEMENT...........................................................................................43
RIGHTS OF DISSENTING SHAREHOLDERS................................................................................45
DESCRIPTION OF PACIFIC CAPITAL COMMON STOCK......................................................................48
COMPARISON OF SHAREHOLDER RIGHTS.................................................................................49
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION.....................................................56
INFORMATION ABOUT PACIFIC CAPITAL BANCORP........................................................................61
General .................................................................................................61
Subsidiaries..............................................................................................61
Regulation and Supervision................................................................................62
Management and Additional Information.....................................................................67
Information on Pacific Capital's Web Site.................................................................67
INFORMATION ABOUT SAN BENITO BANK................................................................................68
General .................................................................................................68
Competition...............................................................................................69
Property .................................................................................................70
Regulation and Supervision................................................................................70
Legal Proceedings.........................................................................................74
Management's Discussion and Analysis of Financial Condition and Results of Operations.....................75
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT..........................................................................88
EXPERTS..........................................................................................................89
Pacific Capital's Auditors................................................................................89
San Benito Bank's Auditors................................................................................89
OPINIONS.........................................................................................................89
Share Issuance............................................................................................89
Tax Matters...............................................................................................89
WHERE YOU CAN FIND MORE INFORMATION..............................................................................89
A WARNING ABOUT FORWARD-LOOKING STATEMENTS.......................................................................91
FINANCIAL STATEMENTS OF SAN BENITO BANK.........................................................................F-1
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION.....................................................................A-1
APPENDIX B
FORM OF AGREEMENT AND PLAN OF MERGER.....................................................................B-1
APPENDIX C
SAN BENITO BANK STOCK OPTION AGREEMENT...................................................................C-1
APPENDIX D
FAIRNESS OPINION OF HOEFER & ARNETT INCORPORATED.........................................................D-1
APPENDIX E
DISSENTERS' RIGHTS UNDER THE
CALIFORNIA GENERAL CORPORATION LAW.......................................................................E-1
</TABLE>
(vi)
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND MAY
NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU. FOR A MORE COMPLETE
UNDERSTANDING OF THE ACQUISITION AND FOR A MORE COMPLETE DESCRIPTION OF THE
LEGAL TERMS OF THE ACQUISITION, YOU SHOULD READ THIS ENTIRE DOCUMENT CAREFULLY,
AS WELL AS THE ADDITIONAL DOCUMENTS TO WHICH WE REFER YOU, INCLUDING THE
REORGANIZATION AGREEMENT AND THE FORM OF MERGER AGREEMENT, WHICH WE HAVE
ATTACHED AS APPENDIX A AND APPENDIX B, RESPECTIVELY. FOR INFORMATION ABOUT WHERE
TO OBTAIN THESE ADDITIONAL DOCUMENTS, READ THE INFORMATION UNDER THE CAPTION
ENTITLED "WHERE YOU CAN FIND MORE INFORMATION" ON PAGE 89.
THE ACQUISITION (PAGE 21)
Pacific Capital proposes to acquire San Benito Bank through the merger of
a subsidiary of Pacific Capital into San Benito Bank. As a result of the merger,
Pacific Capital will exchange shares of its common stock for shares of San
Benito Bank common stock so that after the acquisition is completed,
shareholders of San Benito Bank will become shareholders of Pacific Capital and
Pacific Capital will own all of the outstanding stock of San Benito Bank.
Following completion of the acquisition, it is anticipated that San
Benito Bank will be merged with First National Bank of Central California, a
wholly-owned subsidiary of Pacific Capital.
THE COMPANIES (PAGES 61 AND 68)
PACIFIC CAPITAL BANCORP
200 EAST CARRILLO STREET, SUITE 300
SANTA BARBARA, CALIFORNIA 93101
(805) 564-6298
Pacific Capital is a California corporation headquartered in Santa
Barbara, California, and a registered bank holding company for two subsidiary
banks: Santa Barbara Bank & Trust and First National Bank of Central California,
including its affiliate South Valley National Bank. Through these banking
subsidiaries, Pacific Capital provides a wide range of commercial banking and
financial services to individuals and small and medium-sized businesses
throughout the Central Coast of California, including communities in the
counties of Santa Barbara, Santa Clara, San Benito, Monterey and Ventura. In
addition to its banking subsidiaries, Pacific Capital also owns Pacific Capital
Commercial Mortgage Company (formerly Sanbarco Mortgage Company) and Pacific
Capital Services Corporation, each of which are California corporations.
At December 31, 1999, Pacific Capital had consolidated assets of $2.88
billion, deposits of $2.44 billion, loans of $1.95 billion and shareholders'
equity of $235 million. As of December 31, 1999, Pacific Capital and its
subsidiaries employed approximately 1,100 full-time equivalent employees.
SAN BENITO BANK
300 TRES PINOS ROAD
HOLLISTER, CALIFORNIA 95023
(831) 637-2265
San Benito Bank, which commenced operations in 1984, is a
California-licensed state bank and member of the Federal Reserve System. San
Benito Bank engages in a general commercial banking business in San Benito
County and Santa Clara County in the State of California from its main office,
located in Hollister, California, and its three branches located in each of
Hollister, San Juan Bautista and Gilroy, California. Its commercial banking
business includes accepting demand, savings and time deposits and making
commercial, real estate and installment loans. The bank also offers installment
note collections, issues cashier's checks, sells traveler's checks and provides
safe deposit boxes and other customary banking services. San Benito Bank does
not offer trust services or international banking services.
1
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At December 31, 1999, San Benito Bank had assets of $201.0 million,
deposits of $181.3 million, loans (net) of $107.0 million and shareholders'
equity of $18.5 million. As of March 1, 2000, the bank employed 66 full-time
employees and 22 part-time employees.
THE SPECIAL MEETING (PAGE 19)
The special meeting of shareholders of San Benito Bank will be held at
San Benito Bank, located at 300 Tres Pinos Road, Hollister, California, at
5:00 p.m., local time, on Tuesday, June 20, 2000. At the special meeting, San
Benito Bank shareholders will be asked to consider and vote upon the proposal
to approve the acquisition and adopt the reorganization agreement and the
merger agreement.
RECORD DATE; VOTING POWER (PAGE 19)
You are entitled to vote at the special meeting if you owned San Benito
Bank common stock on April 28, 2000, the record date for the San Benito Bank
special meeting. As of that date, there were 2,853,344 shares of San Benito Bank
common stock issued and outstanding held by approximately 638 holders of record.
Each holder of San Benito common stock is entitled to one vote per share on any
matter that may properly come before the meeting.
VOTE REQUIRED (PAGE 19)
Approval by the San Benito Bank shareholders of the proposal to approve
the acquisition and adopt the reorganization agreement and the merger agreement
will require the affirmative vote of at least a majority of the outstanding
shares of San Benito Bank common stock.
No vote of Pacific Capital shareholders is required to approve the
transaction.
SHARE OWNERSHIP OF MANAGEMENT (PAGE 20)
On the record date for the special meeting, the executive officers and
directors of San Benito Bank, including their affiliates, had voting power with
respect to an aggregate of 658,694 shares of San Benito common stock; not
including shares such persons could acquire through the exercise of options,
constituting approximately 23.1% of the shares of the common stock then
outstanding.
We expect that the directors and executive officers of San Benito Bank
will vote the shares of San Benito Bank common stock owned by them in favor of
the proposal to approve the acquisition and adopt the reorganization agreement
and the merger agreement and the transactions contemplated thereby. The
affirmative vote of an additional 27.0% of the outstanding shares of San
Benito Bank common stock entitled to vote at the meeting will be required to
approve this transaction.
No directors or executive officers of Pacific Capital owned shares of San
Benito Bank common stock as of the record date.
RECOMMENDATION (PAGE 20)
The Board of Directors of San Benito Bank has unanimously approved the
acquisition and adopted the reorganization agreement, and recommends a vote
"FOR" approval of the acquisition and adoption of the reorganization agreement
and the merger agreement. You should also refer to the reasons that the San
Benito Bank Board of Directors considered in determining whether to approve the
acquisition and adopt the reorganization agreement on page 22.
OPINION OF FINANCIAL ADVISOR (PAGE 24)
Hoefer & Arnett, Incorporated, independent financial advisors to San
Benito Bank, rendered an oral fairness opinion on February 1, 2000 to the San
Benito Bank Board of Directors that, as of such date, the consideration to be
received in the acquisition was fair to San Benito Bank and its shareholders
from a
2
<PAGE>
financial point of view. Hoefer & Arnett confirmed its February 1, 2000 opinion
by delivery to the San Benito Bank Board of Directors of a written fairness
opinion dated May __, 2000. A copy of the fairness opinion, setting
forth the information reviewed, assumptions made and matters considered by
Hoefer & Arnett, is attached to this document as APPENDIX D. San Benito Bank
shareholders should read the fairness opinion in its entirety.
TERMS OF THE ACQUISITION (PAGE 36)
The acquisition is governed by the terms of the reorganization agreement.
A copy of the reorganization agreement is attached to this document as APPENDIX
A. We encourage you to read the reorganization agreement in its entirety. It is
the legal document that governs the acquisition.
GENERAL. The reorganization agreement provides that a wholly owned
subsidiary of Pacific Capital will be merged with and into San Benito Bank. As a
result of the merger, San Benito Bank will become a wholly-owned subsidiary of
Pacific Capital.
CONVERSION RATIO AND EXCHANGE OF SHARES. For each outstanding share of
San Benito Bank common stock, San Benito Bank shareholders will receive 0.605
shares of Pacific Capital common stock. This is called the "exchange ratio." If,
however, the average closing price of a share of Pacific Capital common stock
prior to completion of the acquisition is less than $25.00, San Benito Bank may
indicate its intent to terminate the reorganization agreement. San Benito Bank
and Pacific Capital will then attempt in good faith to renegotiate the exchange
ratio, subject to existing market conditions. If the parties are unable to
renegotiate the exchange ratio within a period of three business days after
determination of the average closing price, San Benito Bank may terminate the
transaction.
Average closing price means the average of the average closing bid and
ask price of a share of Pacific Capital common stock as reported on the Nasdaq
National Market for the twenty (20) business days ending on the fifth business
day immediately before completion of the acquisition.
FRACTIONAL SHARES. Pacific Capital will not issue fractional shares in
the acquisition. Instead, you will receive a cash payment, without interest, for
the value of any fraction of a share of Pacific Capital common stock that you
would otherwise be entitled to receive based upon the market value (as
determined in the reorganization agreement) of a share of Pacific Capital common
stock on the business day before the date the acquisition is completed.
COMPLETION OF THE ACQUISITION. The acquisition will become effective when
we file an agreement and plan of merger and related officer's certificates with
the California Secretary of State. A copy of the form of merger agreement is
attached to this document as APPENDIX B. We encourage you to read the merger
agreement in its entirety. The reorganization agreement provides that we will
file the merger agreement as soon as practicable following satisfaction or
waiver of the conditions to the acquisition.
CONDITIONS TO THE ACQUISITION. The completion of the acquisition depends
upon the satisfaction of a number of conditions, including:
* the reorganization agreement, the merger agreement and the
transactions contemplated thereby must receive all requisite
approvals of the shareholders of San Benito Bank;
* no judgment, decree, injunction, order or proceeding will be
outstanding or threatened by any governmental entity which
prohibits or restricts the effectuation of, or threatens to
invalidate or set aside the acquisition substantially in the
form contemplated by the reorganization agreement and the merger
agreement;
* all approvals or consents of any applicable governmental agency
will have been obtained or granted for the acquisition and the
transactions contemplated by the reorganization agreement and
the merger agreement and the applicable waiting periods under
all laws will have expired;
3
<PAGE>
* the registration statement covering the shares of Pacific
Capital common stock to be issued to the shareholders of San
Benito Bank shall have been declared effective by the SEC and
shall not be the subject of any stop order or proceedings
seeking or threatening a stop order;
* Pacific Capital shall have received all state securities permits
and other authorizations necessary to issue the Pacific Capital
common stock to consummate the acquisition;
* Pacific Capital and San Benito Bank will have received a legal
opinion to the effect that the acquisition will not result in
the recognition of gain or loss for federal income tax purposes
to Pacific Capital or San Benito Bank, and the issuance of
Pacific Capital common stock will not result in the recognition
of gain or loss by holders of San Benito Bank common stock who
receive Pacific Capital common stock in the acquisition (except
for cash received in lieu of fractional shares or upon the
exercise of dissenters' rights);
* Deloitte & Touche LLP will have issued a letter to Pacific
Capital and San Benito indicating that they concur with the
conclusions of San Benito Bank's management that no conditions
exist that would preclude pooling of interests accounting
treatment, and Arthur Andersen LLP will have confirmed in
writing to Pacific Capital and San Benito Bank that the
acquisition will qualify for pooling of interests accounting
treatment if consummated in accordance with the reorganization
agreement and the merger agreement;
* San Benito Bank will have received a fairness opinion from
Hoefer & Arnett;
* there will not have occurred, between December 31, 1998 and the
completion of the acquisition, any material adverse change in
the business, financial condition, results of operations or
prospects of Pacific Capital (on a consolidated basis) or of San
Benito Bank;
* no more than 9.9% of the outstanding shares of San Benito Bank
common stock will be dissenting shares;
* the regulatory approvals for the acquisition will not impose any
conditions which Pacific Capital deems materially adverse or
materially burdensome; and
* Pacific Capital will have received from San Benito Bank, at
least 40 days prior to the closing date of the acquisition,
signed agreements from shareholders of San Benito Bank that may
be deemed to be "affiliates" of San Benito Bank, as defined for
purposes of Rule 145 under the Securities Act of 1933.
TERMINATION. Either San Benito Bank or Pacific Capital may call off the
acquisition under a number of circumstances, including if:
* San Benito Bank and Pacific Capital agree in writing;
* the acquisition is not completed before October 1, 2000;
* regulatory and/or legal restraints prevent the acquisition;
* the shareholders of San Benito Bank do not approve the
acquisition;
* the other party breaches any of its covenants in a material
respect and has failed to cure the breach within a specified
period of time; or
* a representation or warranty made by the other party is or
becomes untrue or incorrect in any material respect and is not
corrected within a specified period of time.
4
<PAGE>
In addition, Pacific Capital may call off the acquisition if:
* there has been a material adverse change with respect
to San Benito Bank;
* the representations and warranties of San Benito Bank
with regard to environmental compliance are not true
and accurate; or
* the results of environmental inspections,
investigations or surveys conducted by Pacific Capital
with respect to the properties of San Benito Bank
identify violations or potential violations of
environmental laws, or if San Benito Bank refuses to
allow Pacific Capital to conduct such inspections,
investigations or surveys.
If the acquisition is terminated by Pacific Capital because the
shareholders of San Benito Bank do not approve the acquisition, and either
the Board of Directors of San Benito Bank failed to use its best efforts to
obtain shareholder approval, or San Benito Bank shall have entered into a
merger, consolidation, reorganization, tender offer or similar transaction
with a third party within twelve months of the date of the reorganization
agreement, then San Benito Bank will pay a termination fee of $1,650,000 to
Pacific Capital, plus expenses not to exceed $150,000.
Similarly, San Benito Bank may call off the acquisition if:
* there has been a material adverse change with respect
to Pacific Capital;
* the average of the average closing bid and asked price
of a share of Pacific Capital common stock as reported
on Nasdaq for the twenty business day period
immediately preceding the fifth business day prior to
the closing date of the acquisition is less than $25.00
(provided, however, that San Benito Bank and Pacific
Capital shall have failed to renegotiate the exchange
ratio within three business days after determination of
the average price);
* San Benito Bank shall not have received a satisfactory
fairness opinion from Hoefer & Arnett; or
* San Benito Bank receives a proposal for a merger,
consolidation, reorganization, tender offer or similar
transaction with a third party, and termination of the
acquisition is required in order for the Board of
Directors of San Benito Bank to comply with its
fiduciary duties.
If the acquisition is terminated by San Benito Bank because of a merger,
consolidation, reorganization, tender offer or similar transaction with a third
party, then San Benito Bank will pay a termination fee of $1,650,000 to Pacific
Capital, plus expenses not to exceed $150,000. If, on the other hand, the
acquisition is terminated by San Benito Bank because Pacific Capital enters into
a merger, consolidation, reorganization, tender offer or similar transaction
with a third party, and the third party does not assume Pacific Capital's rights
and obligations under the acquisition, then Pacific Capital will pay a
termination fee of $1,650,000 to San Benito, plus expenses not to exceed
$150,000.
STOCK OPTION AGREEMENT (PAGE 43)
San Benito Bank has signed a stock option agreement granting Pacific
Capital an option to purchase up to 525,000 shares of San Benito Bank common
stock, or an amount equal to 19.5 percent of the shares of San Benito Bank
common stock outstanding on the date of exercise. The option is exercisable for
$19.00 per share, subject to adjustment in certain circumstances. A copy of the
stock option agreement is attached to this document as APPENDIX C. We encourage
you to read the stock option agreement in its entirety.
5
<PAGE>
Pacific Capital can exercise the option if the acquisition does not occur
because:
* The Board of Directors of San Benito Bank has approved an
acquisition or other type of corporate reorganization with a
third party, or a tender offer or exchange offer to purchase San
Benito Bank common stock;
* San Benito Bank has entered into an agreement with a third party
to effect an acquisition or other type of corporate
reorganization; or
* Any person has acquired more than 50% of the outstanding shares
of San Benito Bank common stock.
The purpose of the stock option agreement is to increase the likelihood
that we will complete the acquisition and to protect Pacific Capital if a third
party prevents the acquisition. The right to purchase common stock of San Benito
Bank is subject to compliance with applicable law, including receipt of any
necessary regulatory approvals. The stock option agreement could have the effect
of discouraging companies other than Pacific Capital from acquiring San Benito
Bank.
INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION (PAGE 29)
The directors and executive officers of San Benito Bank have interests in
the acquisition that are different from, or in addition to, yours as a
shareholder of San Benito Bank. The Board of Directors of San Benito Bank
recognized these interests and determined that they did not affect the benefits
of the acquisition to the shareholders of San Benito Bank.
If the acquisition takes place, the following will occur:
* Outstanding options to purchase shares of San Benito Bank common
stock held by directors, officers and employees of San Benito
Bank will be automatically converted into options to acquire
shares of Pacific Capital common stock, adjusted to account for
the conversion ratio;
* One representative of San Benito Bank, mutually acceptable to
San Benito Bank and Pacific Capital, will be nominated for
election to the Board of Directors of Pacific Capital at its
annual meeting of shareholders to be held in 2001;
* Upon completion of the merger of San Benito Bank into First
National Bank of Central California, the Board of Directors of
First National Bank will be expanded to include appropriate
representation from San Benito Bank;
* Certain members of senior management of San Benito Bank will
join the senior management team of First National Bank and/or
Pacific Capital;
* Certain executive officers and directors of San Benito Bank may
be entitled to receive additional cash payments under the terms
of employment contracts and supplemental compensation
agreements.
When the reorganization agreement was signed, there were outstanding
options to purchase an aggregate of 171,876 shares of San Benito Bank common
stock. Of the outstanding options, the executive officers and directors of San
Benito Bank held options to purchase 61,036 shares of San Benito Bank common
stock at a per share weighted average exercise price of $6.79. As a result of
the execution of the reorganization agreement, all stock options under San
Benito Bank's stock option plans became fully vested.
6
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES (PAGE 31)
Pacific Capital has received a legal opinion that if the acquisition is
completed in accordance with the terms set form in the reorganization agreement
between San Benito Bank and Pacific Capital, the acquisition will constitute a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended. The opinion also concludes that San Benito Bank
shareholders will not recognize gain or loss upon the exchange of their San
Benito Bank common stock solely for Pacific Capital common stock pursuant to the
acquisition. San Benito Bank shareholders receiving cash instead of fractional
shares or upon the exercise of dissenters' rights, will recognize gain or loss
on such cash received.
ACCOUNTING TREATMENT (PAGE 32)
We expect the acquisition to be accounted for as a pooling of interests,
which means that we will treat our companies as if they had always been combined
for accounting and financial reporting purposes.
RESALES OF PACIFIC CAPITAL COMMON STOCK (PAGE 33)
Shares of Pacific Capital common stock that you will receive in the
acquisition will be freely transferable, except for those shares held by persons
who may be deemed to be affiliates. Affiliates generally include directors,
specific executive officers and holders of 10% or more of outstanding voting
securities of San Benito Bank or Pacific Capital. Prior to completion of the
acquisition, San Benito Bank will provided to Pacific Capital the written
agreements of its affiliates that these persons will not dispose of their shares
of San Benito Bank common stock and Pacific Capital common stock, except in
compliance with the Securities Act of 1933 and applicable accounting rules
governing pooling of interests.
REGULATORY APPROVALS (PAGE 33)
Pacific Capital and San Benito Bank are required to make filings with or
obtain approval from the Board of Governors of the Federal Reserve System, the
Federal Deposit Insurance Corporation and the California Department of Financial
Institutions to complete the acquisition. We cannot predict whether or when we
will obtain the necessary approvals to complete the acquisition.
Regulatory filings will also be made to the Comptroller of the Currency
and the California Department of Financial Institutions with respect to the
subsequent merger of San Benito Bank into First National Bank of Central
California, a subsidiary of Pacific Capital.
DISSENTERS' RIGHTS (PAGE 45)
Shareholders of San Benito Bank may dissent from the acquisition and
demand payment in cash equal to the fair value of their shares. You may dissent
by voting against, abstaining or not voting in favor of the acquisition. You
must also write a letter to San Benito Bank requesting the purchase of your
dissenting shares and send the letter so that it is received within 30 days of
the date of a notice that we will send to you announcing the approval by
shareholders of the acquisition. The procedure for exercising dissenters' rights
is summarized under the heading "Rights of Dissenting Shareholders." The
relevant provisions of California law on dissenters' rights are attached to this
document as APPENDIX E.
DIFFERENCES IN THE RIGHTS OF SHAREHOLDERS (PAGE 49)
Both Pacific Capital and San Benito Bank are incorporated under
California law. Upon completion of the acquisition, shareholders of San Benito
Bank will become Pacific Capital shareholders. Their rights will be governed by
Pacific Capital's articles of incorporation and bylaws and will continue to be
governed by California law.
7
<PAGE>
SURRENDER OF SAN BENITO BANK SHARES (PAGE 35)
To receive certificates for your shares of Pacific Capital common stock,
you will need to surrender your San Benito Bank share certificates. After the
acquisition is completed, Pacific Capital's stock transfer agent will send you
written instructions for exchanging your stock certificates. PLEASE DO NOT SEND
IN YOUR CERTIFICATES UNTIL YOU RECEIVE THESE INSTRUCTIONS.
8
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
COMPARATIVE MARKET PRICE DATA
The following table presents (i) trading information for Pacific Capital
common stock on the Nasdaq National Market and San Benito Bank common stock on
the OTC Bulletin Board and (ii) the equivalent per share price of Pacific
Capital common stock on each of February 3, 2000 and May ___, 2000. February 3,
2000 was the last full trading day before our announcement of the signing of the
reorganization agreement. May ___, 2000 was the last practicable trading day for
which information was available before the date of this document.
<TABLE>
<CAPTION>
PRO FORMA
PACIFIC CAPITAL SAN BENITO BANK(1) EQUIVALENT
HIGH LOW CLOSE HIGH LOW CLOSE PER SHARE(2)
---- --- ----- ---- --- ----- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
February 3, 2000 $30.00 $29.75 $30.00 $26.25 $26.25 $26.25 $18.15
May ___, 2000 $___ $___ $___ $___ $___ $___ $____________
</TABLE>
- --------------------
(1) These trades are not likely to reflect the cash value a dissenting
shareholder may receive for his or her shares.
(2) Equivalent market value per share of San Benito Bank common stock
represents the closing sales price of a share of Pacific Capital common stock on
each specified dated, multiplied by the exchange ratio of 0.605.
We urge you to obtain current market quotations for Pacific Capital
common stock and San Benito Bank common stock. We expect that the market price
of Pacific Capital common stock will fluctuate between the date of this document
and the date on which the acquisition is completed and thereafter. Because the
market price of Pacific Capital common stock is subject to fluctuation, the
value of the shares of Pacific Capital common stock that you will receive in the
acquisition may increase or decrease before and after the acquisition. For more
information, see the heading "Risk Factors - The consideration you will receive
in the acquisition will be affected by potential change in the stock prices of
Pacific Capital and San Benito Bank." In addition, as a result of this
fluctuation, the amount of cash you will receive instead of a fractional share
of Pacific Capital common stock will also fluctuate.
HISTORICAL MARKET PRICES AND DIVIDENDS
PACIFIC CAPITAL BANCORP. Pacific Capital common stock is listed for
quotation on the Nasdaq National Market under the symbol "SABB." As of
__________, 2000 there were approximately _____ holders of record of Pacific
Capital common stock.
The following table sets forth, in U.S. dollars, for the calendar quarter
indicated, the high and low sales prices per share of Pacific Capital common
stock as reported on The Nasdaq National Market, and the cash dividends declared
per share of Pacific Capital common stock. The prices per share of Pacific
Capital common stock set forth below have been restated, as applicable, to
reflect all stock splits and stock dividends during the periods presented.
9
<PAGE>
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW DECLARED
---- --- --------
<S> <C> <C> <C>
1997
First Quarter $16.00 $13.82 $0.115
Second Quarter 23.25 14.94 0.115
Third Quarter 24.19 19.63 0.13
Fourth Quarter 24.50 22.75 0.13
1998
First Quarter $27.88 $22.13 $0.15
Second Quarter 34.00 25.50 0.15
Third Quarter 34.38 22.00 0.18
Fourth Quarter 26.50 22.50 0.18
1999
First Quarter $26.00 $22.00 $0.18
Second Quarter 31.94 20.13 0.18
Third Quarter 38.00 29.63 0.18
Fourth Quarter 34.75 30.63 0.18
2000
First Quarter $30.75 $21.375 $0.20
Second Quarter (through ____, ___) _______________ ______________ _______________
</TABLE>
The timing and amount of future dividends will depend on earnings, cash
requirements, the financial condition of Pacific Capital and its subsidiaries,
applicable government regulations and other factors deemed relevant by Pacific
Capital's Board of Directors.
SAN BENITO BANK. San Benito Bank common stock is quoted on the OTC
Bulletin Board under the symbol "SABH." On the record date for the special
meeting, there were approximately 638 holders of record of San Benito Bank
common stock.
The following table indicates, in U.S. dollars, the range of high and
low reported sale prices, for the calendar quarters indicated, based upon
information provided by investment firms handling trades in San Benito Bank
stock. The following table also sets forth, in U.S. dollars, the cash dividends
declared for the periods presented. Because of the limited trading volume, there
is not an active trading market for San Benito Bank common stock. The prices
listed below are inter-dealer prices, and do not necessarily represent actual
transactions and do not include retail mark-up, mark downs or commissions. The
table does not include transactions made privately by individuals. Shareholders
may obtain current quotes on San Benito Bank common stock by contacting a
stockbroker. The prices per share of San Benito Bank common stock set forth
below have been restated, as applicable, to reflect all stock splits and stock
dividends during the periods presented, including the 10% stock dividends
declared and paid in February 1997 and 1998 and the 2-for-1 stock split
effective in July 1998.
10
<PAGE>
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW DECLARED
---- --- --------
<S> <C> <C> <C>
1997
First Quarter $10.45 $ 9.09 $ --
Second Quarter 10.00 9.20 --
Third Quarter 10.23 10.00 --
Fourth Quarter 11.59 10.23 --
1998
First Quarter $13.13 $11.88 $ --
Second Quarter 13.63 12.13 --
Third Quarter 16.38 14.25 --
Fourth Quarter 17.00 16.38 --
1999
First Quarter $20.00 $17.00 $ 0.18
Second Quarter 23.00 19.75 --
Third Quarter 24.00 22.50 --
Fourth Quarter 24.00 23.50 --
2000
First Quarter $25.50 $14.25 $ --
Second Quarter (through ____, ___) __________ ___________ ___________
</TABLE>
The ability of San Benito Bank to pay dividends is restricted by law.
See "Information About San Benito Bank - Regulation and Supervision."
Additionally, as a result of the reorganization agreement, and the requirements
of accounting for the acquisition as a pooling of interests, San Benito Bank
will not pay a cash dividend in 2000.
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
We are providing the following financial information to aid you in your
analysis of the financial aspects of the acquisition. The historical selected
financial data in the following tables shows financial results actually achieved
by each of Pacific Capital and San Benito Bank for the periods presented. These
are the historical figures. Pacific Capital's annual historical figures are
derived from its consolidated financial statements audited by Arthur Andersen
LLP, independent public accountants for Pacific Capital. San Benito Bank's
annual historical figures as of December 31, 1999 and 1998 and for each of the
three years in the period ended December 31, 1999 are derived from financial
statements audited by Deloitte & Touche LLP, independent public accountants
for San Benito Bank, included in this document. San Benito Bank's annual
historical figures for other periods presented are also derived from audited
financial statements. All per share information for San Benito Bank has been
adjusted retroactively for the 2-for-1 stock split effective in July 1998 and
all prior stock dividends and stock splits. The annual historical information
presented below should be read together with the audited financial statements
of Pacific Capital, incorporated in this document by reference, and of San
Benito Bank, included in this document beginning on page F-1. To find
information regarding Pacific Capital, see "Where You Can Find More
Information" (page 89).
Pro forma combined figures are simply the arithmetical combination of
Pacific Capital's and San Benito Bank's separate financial results. You should
not assume that the combined company of Pacific Capital and San Benito Bank
would have achieved the pro forma combined results if they had actually been
combined during the periods presented. These pro forma presentations treat the
companies as if they had always been combined for accounting and financial
reporting purposes, a method known as pooling of
11
<PAGE>
interests accounting. When you read this information, you should also read the
information under the heading "Unaudited Pro Forma Condensed Combined Financial
Information" (page 56).
Pacific Capital expects to incur acquisition and other non-recurring
expenses as a result of acquiring San Benito Bank. Pacific Capital also
anticipates that the acquisition will provide the combined company with
financial benefits such as reduced operating expenses and the opportunity to
earn additional revenue. However, none of these anticipated expenses or benefits
has been factored into the pro forma combined income statement information. For
that reason, the pro forma combined information, while helpful in illustrating
the financial attributes of the combined company under one set of assumptions,
does not attempt to predict or suggest future results. For further explanation
about these risks, read the information under "A Warning About Forward-Looking
Information" and "Risk Factors - We may not successfully integrate our business
operations."
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<PAGE>
PACIFIC CAPITAL BANCORP HISTORICAL SELECTED FINANCIAL DATA
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------- ------------- -------------- --------------- ---------------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C> <C> <C>
SUMMARIZED INCOME
STATEMENT:
Net Interest Income................. $ 143,787 $ 125,526 $ 107,682 $ 85,168 $ 76,312
Provision for Loan Losses........... 6,375 9,123 8,500 4,949 10,451
Noninterest Income.................. 41,618 38,221 30,442 22,102 20,671
Noninterest Expense................. 110,389 106,082 83,053 69,316 61,321
Income Tax Expense.................. 24,367 18,975 16,288 11,301 8,185
---------------- ------------- -------------- --------------- ---------------
Net Income.......................... $ 44,274 $ 29,567 $ 30,283 $ 21,704 $ 17,026
================ ============= ============== =============== ===============
PER COMMON SHARE DATA:
Net Income per Diluted Average Share $ 1.79 $ 1.21 $ 1.25 $ 0.90 $ 0.71
Dividends Declared per Share........ $ 0.72 $ 0.66 $ 0.49 $ 0.36 $ 0.28
Shareholders' Equity (period end)... $ 9.55 $ 8.84 $ 8.10 $ 7.42 $ 7.06
FINANCIAL POSITION AT PERIOD END:
Loans, Net of Unearned Income....... $ 1,981,879 $1,582,781 $ 1,311,364 $ 1,078,716 $ 863,571
Total Assets........................ $ 2,879,282 $2,649,418 $ 2,357,105 $ 1,920,759 $ 1,743,213
Deposits............................ $ 2,440,181 $2,329,676 $ 2,087,553 $ 1,660,265 $ 1,519,528
Long-Term Debt...................... $ 85,000 $ 42,900 $ 38,000 $ 38,000 $ --
Shareholders' Equity................ $ 234,573 $ 214,000 $ 190,724 $ 171,239 $ 161,550
SELECTED FINANCIAL RATIOS:
Return on Average Assets............ 1.59% 1.19% 1.43% 1.23% 1.08%
Return on Average Common Equity..... 19.44% 14.19% 16.55% 12.91% 10.88%
Return on Average Total Equity...... 19.44% 14.19% 16.55% 12.91% 10.88%
Net Interest Margin................. 5.54% 5.41% 5.42% 5.20% 5.23%
Nonperforming Assets as % of Total
Loans and Foreclosed Property... 0.72% 0.52% 0.94% 1.15% 1.98%
Nonperforming Loans as % of Total
Loans (net of unearned income).. 0.72% 0.52% 0.94% 0.96% 1.46%
Loan Reserve as % of Loans.......... 1.45% 1.85% 1.94% 1.88% 1.86%
Net Charge-Offs as % of Average
Loans........................... 0.38% 0.37% 0.34% 0.08% 1.34%
Earnings to Fixed Charges(1)
Excluding Interest Expense on
Deposits...................... 244% 400% 394% 1116% 993%
Including Interest Expense on
Deposits...................... 163% 160% 164% 167% 155%
Equity to Assets...................... 8.15% 8.08% 8.09% 8.92% 9.27%
Tangible Equity to Tangible Assets.... 7.61% 7.45% 7.32% 8.89% 9.25%
Tier 1 Risk-based Capital............. 10.50% 10.46% 11.23% 14.70% 16.49%
Total Risk-Based Capital.............. 11.75% 11.70% 12.35% 15.78% 17.67%
</TABLE>
- ---------------
(1) The ratio of earnings to fixed charges is computed by dividing the sum of
net income plus fixed charges such as lease obligations and interest
expense on long-term debt by the fixed charges.
13
<PAGE>
SAN BENITO BANK HISTORICAL SELECTED FINANCIAL DATA
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------- ------------- -------------- --------------- ---------------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C> <C> <C>
SUMMARIZED INCOME
STATEMENT:
Net Interest Income................. $ 9,392 $ 7,752 $ 6,767 $ 5,857 $ 5,024
Provision for Loan Losses........... 700 190 200 100 130
Noninterest Income.................. 1,774 1,235 933 736 693
Noninterest Expense................. 7,004 5,870 4,916 4,086 3,643
Income Tax Expense.................. 1,203 995 830 792 655
---------------- ------------- -------------- --------------- ---------------
Net Income.......................... $ 2,259 $ 1,932 $ 1,754 $ 1,615 $ 1,289
================ ============= ============== =============== ===============
PER COMMON SHARE DATA:
Net Income per Diluted Average Share $ 0.77 $ 0.68 $ 0.63 $ 0.60 $ 0.48
Dividends Declared per Share........ $ 0.18 $ -- $ -- $ -- $ --
Shareholders' Equity (period end)... $ 6.48 $ 6.08 $ 5.85 $ 5.63 $ 5.40
FINANCIAL POSITION AT PERIOD END:
Loans, Net of Unearned Income....... $ 108,747 $ 87,495 $ 72,516 $ 59,883 $ 52,444
Total Assets........................ $ 201,027 $ 175,928 $ 135,688 $ 113,837 $ 105,333
Deposits............................ $ 181,276 $ 158,356 $ 119,930 $ 100,634 $ 93,534
Long-Term Debt...................... $ 17 $ 26 $ -- $ -- $ --
Shareholders' Equity................ $ 18,468 $ 16,495 $ 14,248 $ 12,440 $ 10,843
SELECTED FINANCIAL RATIOS:
Return on Average Assets............ 1.21% 1.25% 1.42% 1.50% 1.33%
Return on Average Common Equity..... 13.14% 12.64% 13.16% 13.85% 12.73%
Return on Average Total Equity...... 13.14% 12.64% 13.16% 13.85% 12.73%
Net Interest Margin................. 5.56% 5.54% 5.92% 5.90% 5.60%
Nonperforming Assets as % of Total
Loans and Foreclosed Property... 1.94% 0.81% 0.87% 0.60% 0.82%
Nonperforming Loans as % of Total
Loans (net of unearned income).. 1.94% 0.81% 0.64% 0.11% 0.22%
Loan Reserve as % of Loans.......... 1.63% 1.37% 1.53% 1.71% 2.04%
Net Charge-Offs as % of Average
Loans........................... 0.14% 0.12% 0.16% 0.27% 0.08%
Earnings to Fixed Charges(1)
Excluding Interest Expense on
Deposits...................... 2378% 2176% 3105% 3861% 4067%
Including Interest Expense on
Deposits...................... 173% 168% 180% 190% 170%
Equity to Assets......................... 9.19% 9.38% 10.50% 10.93% 10.29%
Tangible Equity to Tangible Assets....... 9.22% 9.46% 10.53% 10.94% 11.31%
Tier 1 Risk-based Capital................ 13.70% 14.35% 15.39% 16.67% 16.72%
Total Risk-Based Capital................. 14.95% 15.41% 16.60% 17.92% 17.96%
</TABLE>
- ---------------
(1) The ratio of earnings to fixed charges is computed by dividing the sum of
net income plus fixed charges such as lease obligations and interest
expense on long-term debt by the fixed charges.
14
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
(UNAUDITED)
PACIFIC CAPITAL BANCORP AND SAN BENITO BANK
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------- ------------- -------------- --------------- ---------------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C> <C> <C>
SUMMARIZED INCOME
STATEMENT:
Net Interest Income................. $ 153,179 $ 133,278 $ 114,449 $ 91,025 $ 81,336
Provision for Loan Losses........... 7,075 9,313 8,700 5,049 10,581
Noninterest Income.................. 43,392 39,456 31,375 22,838 21,364
Noninterest Expense................. 117,393 111,952 87,969 73,402 64,964
Income Tax Expense.................. 25,570 19,970 17,118 12,093 8,840
---------------- ------------- -------------- --------------- ---------------
Net Income.......................... $ 46,533 $ 31,499 $ 32,037 $ 23,319 $ 18,315
================ ============= ============== =============== ===============
PER COMMON SHARE DATA:
Net Income per Diluted Average Share 1.75 1.20 1.24 0.90 0.71
Dividends Declared per Share(1)..... 0.72 0.66 0.49 0.36 0.28
Shareholders' Equity (period end)... 9.63 8.92 8.19 7.52 7.15
FINANCIAL POSITION AT PERIOD END:
Loans, Net of Unearned Income....... $ 2,090,626 $1,670,276 $ 1,383,880 $ 1,138,599 $ 916,015
Total Assets........................ $ 3,080,309 $2,825,346 $ 2,492,793 $ 2,034,596 $ 1,848,546
Deposits............................ $ 2,621,457 $2,488,032 $ 2,207,483 $ 1,760,899 $ 1,613,062
Long-Term Debt...................... $ 85,017 $ 42,926 $ 38,000 $ 38,000 $ --
Shareholders' Equity................ $ 253,041 $ 230,495 $ 204,972 $ 183,679 $ 172,393
SELECTED FINANCIAL RATIOS:
Return on Average Assets............ 1.57% 1.20% 1.43% 1.25% 1.09%
Return on Average Common Equity..... 19.00% 14.08% 16.32% 12.97% 10.99%
Return on Average Total Equity...... 19.00% 14.08% 16.32% 12.97% 10.99%
Net Interest Margin................. 5.54% 5.42% 5.45% 5.24% 5.25%
Nonperforming Assets as % of Total
Loans and Foreclosed Property... 0.78% 0.53% 0.93% 1.12% 1.91%
Nonperforming Loans as % of Total
Loans (net of unearned income).. 0.78% 0.53% 0.92% 0.91% 1.39%
Loan Reserve as % of Loans.......... 1.46% 1.83% 1.92% 1.87% 1.87%
Net Charge-Offs as % of Average
Loans........................... 0.37% 0.36% 0.33% 0.09% 1.27%
Earnings to Fixed Charges(2)
Excluding Interest Expense on
Deposits...................... 251% 415% 408% 1169% 1046%
Including Interest Expense on
Deposits...................... 163% 160% 165% 168% 156%
Equity to Assets...................... 8.21% 8.16% 8.22% 9.03% 9.33%
Tangible Equity to Tangible Assets.... 7.72% 7.57% 7.50% 9.01% 9.36%
Tier 1 Risk-based Capital............. 10.69% 10.69% 11.47% 14.81% 16.51%
Total Risk-Based Capital.............. 11.94% 11.92% 12.59% 15.91% 17.69%
</TABLE>
- ---------------------
(1) Pro forma dividends per share represent historical dividends per share paid
by Pacific Capital.
(2) The ratio of earnings to fixed charges is computed by dividing the sum of
net income plus fixed charges such as lease obligations and interest
expense on long-term debt by the fixed charges.
15
<PAGE>
COMPARATIVE PER COMMON SHARE DATA
The following table shows comparative per share data for Pacific
Capital on a historical and pro forma combined basis and for San Benito Bank
common stock on a historical and pro forma equivalent basis. The information in
the table assumes that Pacific Capital will account for the acquisition as a
"pooling of interests" and will exchange 0.605 shares of its common stock for
each share of San Benito Bank common stock. See "The Acquisition -Structure of
the Acquisition." The EQUIVALENT PRO FORMA information for San Benito Bank is
calculated by multiplying the pro forma basic and diluted earnings per share,
the historical cash dividends per share and the pro forma shareholders' equity
per share by the exchange ratio of 0.605. All figures in the table reflect the
restatement of per share amounts for all stock dividends and stock splits of
Pacific Capital and San Benito Bank through the date of this proxy
statement-prospectus.
You should read the following data with the historical financial
statements and related notes of Pacific Capital and San Benito Bank. San Benito
Bank's financial statements are included in this document beginning on page F-1.
Pacific Capital's historical financial statements are included or incorporated
in documents filed by Pacific Capital with the SEC. See "Where You Can Find More
Information" on page 89. Amounts are in U.S. dollars.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
NET INCOME PER COMMON SHARE:
Historical
Pacific Capital $1.79 $1.21 $1.25
San Benito Bank 0.77 0.68 0.63
Pro forma combined per Pacific Capital share 1.75 1.20 1.24
Equivalent pro forma per San Benito Bank share 1.06 0.73 0.75
CASH DIVIDENDS PER COMMON SHARE:
Historical
Pacific Capital $0.72 $0.66 $0.49
San Benito Bank 0.18 -- --
Pro forma combined per Pacific Capital share(1) 0.72 0.66 0.49
Equivalent pro forma per San Benito Bank share 0.44 0.40 0.30
BOOK VALUE PER COMMON SHARE (PERIOD END):
Historical
Pacific Capital $9.55 $8.84 $8.10
San Benito Bank 6.48 6.08 5.85
Pro forma combined per Pacific Capital share 9.63 8.92 8.19
Equivalent pro forma per San Benito Bank share 5.83 5.40 4.95
</TABLE>
- ---------------------
(1) Pacific Capital's pro forma dividends per share represent historical
dividends per share paid by Pacific Capital.
RECENT DEVELOPMENTS
On March 23, 2000, Pacific Capital entered into an Agreement and Plan
of Reorganization to acquire Los Robles Bancorp, Thousand Oaks, California, and
its wholly owned banking subsidiary, Los Robles Bank.
Los Robles Bank operates three banking offices in California, one each
in Thousand Oaks, Westlake Village and Camarillo, and has two loan production
offices in California, one in Thousand Oaks
16
<PAGE>
and one in Orange County. Following completion of the transaction, it is
anticipated that Los Robles Bank will be merged into Santa Barbara Bank & Trust;
a wholly owned subsidiary of Pacific Capital.
At December 31, 1999, Los Robles Bancorp reported net income of $2.08
million and consolidated assets of $149 million.
The acquisition of Los Robles Bancorp will be accounted under the
purchase method of accounting for business combinations, and is expected to be
accretive to Pacific Capital's earnings in the first full year of operations.
Under the terms of the agreement, each outstanding share of Los Robles Bancorp
common stock will be exchanged for $23.1375 in cash, and each outstanding stock
option to acquire shares of the common stock of Los Robles Bancorp will be
converted into cash equal to the difference between $23.1375 and the exercise
price of the stock option. This places the aggregate value of the transaction at
approximately $32.5 million, representing 2.73 times Los Robles Bancorp's book
value at December 31, 1999, and 15.6 times 1999 earnings.
The agreement has been approved by the board of directors of both
companies. The acquisition of Los Robles Bancorp, which is subject to conditions
usual and customary for acquisition transactions of this type, including receipt
of regulatory approval, approval of the shareholders of Los Robles Bancorp and
satisfaction of other terms and conditions, is expected to be completed during
the third quarter of 2000, although there can be no assurance that the
transaction will be completed. See "Where You Can Find More Information" on page
89.
17
<PAGE>
RISK FACTORS
In addition to the other information included in this document,
including the matters addressed in "A Warning about Forward-Looking Statements",
you should consider the matters described below carefully in determining whether
to approve the reorganization agreement and the transactions contemplated
thereby, including the acquisition.
THE CONSIDERATION YOU WILL RECEIVE IN THE ACQUISITION WILL BE AFFECTED BY
POTENTIAL CHANGE IN THE STOCK PRICES OF PACIFIC CAPITAL AND SAN BENITO BANK.
This means that at the time of the special meeting, you will not know
the exact value of the Pacific Capital common stock that you will receive when
the acquisition is completed. We presently anticipate that the acquisition will
be completed during the third quarter of 2000, although no assurance can be made
that this timetable will be met. The market prices of San Benito Bank common
stock and Pacific Capital common stock when the acquisition is completed may
vary from their prices at the date of this document and at the date of the
special meeting. Such variations in the market prices of Pacific Capital common
stock and San Benito Bank common stock may result from changes in the business,
operations or prospects of San Benito Bank, Pacific Capital or the combined
company, market assessments of the likelihood that the acquisition will be
consummated and the timing thereof, regulatory considerations, general market
and economic conditions and other factors.
We urge you to obtain current market quotations for Pacific Capital
common stock and San Benito Bank common stock.
THERE ARE UNCERTAINTIES IN INTEGRATING OUR BUSINESS OPERATIONS AND REALIZING
ENHANCED EARNINGS.
If we are unable to integrate our businesses successfully, this could
hurt our combined business. The acquisition involves the integration of two
companies that have previously operated independently. Successful integration of
San Benito Bank's operations will depend primarily on Pacific Capital's ability
to consolidate operations, systems and procedures and to eliminate redundancies
and costs. No assurance can be given that Pacific Capital and San Benito Bank
will be able to integrate their operations without encountering difficulties
including, without limitation, the loss of key employees and customers, the
disruption of their respective ongoing businesses or possible inconsistencies in
standards, controls, procedures and policies.
THE FINANCIAL SERVICES BUSINESS IS HIGHLY COMPETITIVE, WHICH COULD ADVERSELY
AFFECT PACIFIC CAPITAL'S EARNINGS AND PROFITABILITY AND PACIFIC CAPITAL'S STOCK
PRICE.
Banking and financial services business in California generally, and
Pacific Capital's and San Benito Bank's market areas specifically, is highly
competitive. Pacific Capital, through its subsidiary banks, and San Benito Bank
compete for loans, deposits and customers for financial services with other
commercial banks, savings and loan associations, securities and brokerage
companies, mortgage companies, insurance companies, finance companies, money
market funds, credit unions and other nonbank financial service providers. Many
of these competitors are much larger in total assets and capitalization, have
greater access to capital markets and offer a broader array of financial
services than Pacific Capital or San Benito Bank. There can be no assurance that
Pacific Capital or San Benito Bank will be able to compete effectively in their
respective markets, and the results of operations of Pacific Capital following
completion of the acquisition could be materially and adversely affected if
circumstances affecting the nature or level of competition change. See
"Information about Pacific Capital Bancorp" and "Information about San Benito
Bank."
GOVERNMENT REGULATION AND LEGISLATION COULD HURT BUSINESS AND PROSPECTS OF
BANKS.
San Benito Bank and the banking subsidiaries of Pacific Capital are
subject to extensive state and federal regulation, supervision and legislation
which govern almost all aspects of their operations. Their businesses are
particularly susceptible to being affected by the enactment of federal and state
legislation
18
<PAGE>
which may have the effect of increasing or decreasing the cost of doing
business, modifying permissible activities or enhancing the competitive position
of other financial institutions. These laws are subject to change from time to
time and are primarily intended for the protection of consumers, depositors and
the deposit insurance funds and not for the protection of shareholders of
Pacific Capital or San Benito Bank. Pacific Capital cannot predict what effect
any presently contemplated or future changes in the laws or regulations or their
interpretations would have on its business and prospects, but it could be
material and adverse. For information about regulation and supervision of banks
and bank holding companies, see "Information About Pacific Capital Bancorp
- -Regulation and Supervision" and "Information About San Benito Bank - Regulation
and Supervision."
THE SPECIAL MEETING
DATE, TIME AND PLACE
We are furnishing this proxy statement-prospectus and the enclosed
form of proxy to you in connection with the solicitation of proxies by the
Board of Directors of San Benito Bank for use at a special meeting of
shareholders of San Benito Bank. The special meeting will be held at San
Benito Bank, 300 Tres Pinos Road, Hollister, California on Tuesday, June 20,
2000 at 5:00 p.m. local time.
PURPOSE OF THE SPECIAL MEETING
The purpose of the special meeting is to consider and vote upon the
Agreement and Plan of Reorganization, dated as of February 3, 2000, by and
between Pacific Capital and San Benito Bank, and a related Agreement and Plan of
Merger, providing for, among other things, the acquisition by Pacific Capital of
San Benito Bank through the merger of a subsidiary of Pacific Capital with and
into San Benito Bank. The Agreement and Plan of Reorganization and the form of
Agreement and Plan of Merger are attached to this proxy statement-prospectus as
APPENDIX A and APPENDIX B, respectively, and are incorporated in this document
by reference.
RECORD DATE
Only shareholders of record at the close of business on April 28,
2000, the record date, are entitled to notice of and to vote at the special
meeting or any adjournment or postponement thereof. At the close of business
on April 28, 2000, there were 2,853,344 shares of San Benito Bank common stock
issued and outstanding held by approximately 638 shareholders of record.
VOTE REQUIRED
Each share of San Benito Bank common stock outstanding on April 28,
2000, entitles the holder to cast one vote upon each matter properly submitted
at the special meeting. Approval of the acquisition requires the affirmative
vote of the holders of at least a majority of the shares of San Benito Bank
common stock outstanding as of April 28, 2000, voting in person or by proxy.
Brokers who hold shares of San Benito Bank common stock as nominees will
not have discretionary authority to vote such shares in the absence of
instructions from the beneficial owners of those shares. Any shares of San
Benito Bank common stock for which a broker has submitted an executed proxy but
for which the beneficial owner of the shares has not given instructions on
voting to such broker are referred to as "broker non-votes."
Abstentions and broker non-votes will be counted for purposes of
establishing the presence of a quorum at the special meeting. Because approval
of the acquisition requires the affirmative vote of at least a majority of the
outstanding shares of San Benito Bank common stock, abstentions and broker
non-votes will have the same effect as a vote against approval of the
acquisition. Accordingly, the San Benito Bank
19
<PAGE>
board of directors urges you to complete, date and sign the accompanying proxy
and return it promptly in the enclosed envelope.
VOTING AND REVOCATION OF PROXIES
A form of proxy is enclosed with this proxy statement-prospectus. You
are requested to complete, date and sign the form of proxy and return it
promptly to San Benito Bank in the enclosed business reply envelope. If a proxy
is properly executed and returned in time for voting, it will be voted in
accordance with the instructions indicated on the proxy. If a proxy is signed
and returned without indicating any voting instructions, shares of San Benito
Bank common stock represented by the proxy will be voted "FOR" the acquisition
and in the discretion of the individuals named as proxies as to any other matter
that may come before the special meeting or any adjournment or postponement
thereof including, among other things, a motion to adjourn or postpone the
special meeting to another time and/or place, for the purpose of soliciting
additional proxies or otherwise. No proxy which is voted against the acquisition
will be voted in favor of any such adjournment or postponement.
If you would like to attend the special meeting and your shares of San
Benito Bank common stock are held in "street name" by a broker, bank or other
nominee, you must bring to the special meeting a recent brokerage statement or a
letter from the nominee confirming your beneficial ownership of these shares of
San Benito Bank common stock. You must also bring a form of personal
identification. In order to vote your "street name" shares at the special
meeting, you must obtain a proxy issued in your name from your nominee.
A proxy may be revoked at any time before it is voted. You may revoke a
proxy by giving written notice of revocation to the Secretary of San Benito
Bank, by executing and delivering a later-dated proxy to San Benito Bank or by
attending the special meeting and voting in person. If you wish to revoke a
proxy by written notice, please mail the notice so that it is received on or
before June 13, 2000, to Secretary, San Benito Bank, 300 Tres Pinos Road,
Hollister, California 95023.
SOLICITATION OF PROXIES
San Benito Bank will bear the costs of this solicitation of proxies.
Solicitations may be made by mail, telephone, telegraph or personally by
directors, officers and employees of San Benito Bank, none of whom will receive
additional compensation for performing such services. Pacific Capital will pay
all of the expenses of printing and mailing this proxy statement-prospectus.
SHARE OWNERSHIP OF MANAGEMENT
As of April 28, 2000, directors and executive officers of San Benito
Bank and their affiliates, beneficially owned an aggregate of 658,394 shares
of San Benito Bank common stock, not including shares the directors and
executive officers could acquire through the exercise of stock options,
constituting approximately 23.1% of the shares of San Benito Bank common stock
outstanding on that date and entitled to vote at the special meeting. We
currently expect that all directors and executive officers of San Benito Bank
will vote their shares of San Benito Bank common stock in favor of the
acquisition.
RECOMMENDATION OF THE SAN BENITO BANK BOARD
The Board of Directors of San Benito Bank has approved the
reorganization agreement, the form of merger agreement and the related
transactions, including the acquisition. The Board of Directors of San Benito
Bank believes that the acquisition is fair and in the best interests of San
Benito Bank and its shareholders. The Board of Directors of San Benito Bank
unanimously recommends that you vote "FOR" approval of the acquisition.
20
<PAGE>
OTHER MATTERS CONSIDERED AT THE SPECIAL MEETING
The Board of Directors of San Benito Bank does not intend to bring any
matter before the special meeting other than as described in the notice of
special meeting of shareholders, nor does it know of any matter to be brought
before the special meeting by others. If, however, any other matters properly
come before the special meeting, the individuals named as proxies will vote such
proxy in their discretion.
THE ACQUISITION
THE FOLLOWING IS A SUMMARY DESCRIPTION OF THE MATERIAL ASPECTS OF THE
ACQUISITION. THIS DESCRIPTION DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE APPENDICES ATTACHED TO THIS PROXY
STATEMENT-PROSPECTUS, INCLUDING THE REORGANIZATION AGREEMENT AND THE FORM OF
MERGER AGREEMENT, WHICH ARE ATTACHED AS APPENDIX A AND APPENDIX B, RESPECTIVELY,
TO THIS PROXY STATEMENT-PROSPECTUS. WE URGE YOU TO READ THE APPENDICES IN THEIR
ENTIRETY.
STRUCTURE OF THE ACQUISITION
The acquisition of San Benito Bank will be accomplished through the
merger of a wholly owned subsidiary of Pacific Capital, Interim San Benito,
Inc., with and into San Benito Bank. Pacific Capital will then be the parent
bank holding company for San Benito Bank. The articles of incorporation and
bylaws of San Benito Bank in effect immediately prior to the effective date of
the acquisition will be the articles of incorporation and bylaws of San Benito
Bank immediately after the acquisition.
As a result of the merger, the reorganization agreement provides that
each outstanding share of San Benito Bank common stock, other than shares as to
which statutory dissenters' rights are perfected, will be exchanged for 0.605
shares of Pacific Capital common stock. No fractional shares of Pacific Capital
common stock will be issued. Rather, cash, without interest, will be paid
instead of any fractional share interest based on the average of the closing bid
and asked price of Pacific Capital common stock as reported on the Nasdaq
National Market on the business day immediately preceding the effective date of
the merger. The exchange ratio will be adjusted to reflect any stock split,
stock dividend, recapitalization or similar transaction with respect to Pacific
Capital common stock, so that each San Benito Bank shareholder shall receive the
number of shares of Pacific Capital common stock it would have received prior to
such stock split, stock dividend, recapitalization or similar transaction.
San Benito Bank may terminate the acquisition if the average of the
average closing bid and asked price of a share of Pacific Capital common stock
as reported on Nasdaq National Market for the twenty business day period
immediately preceding the fifth business day prior to the closing date of the
acquisition is less than $25.00, and Pacific Capital and San Benito Bank fail to
renegotiate the exchange of shares within three business days after determining
such average price. We can give no assurance as to the closing bid and asked
price of Pacific Capital common stock on the effective date of the acquisition,
or as to the actual exchange ratio at which your shares are exchanged as of the
effective date, or as to the market or trading value of Pacific Capital common
stock following the effective date of the acquisition.
You are urged to obtain current market quotations for Pacific Capital
common stock and San Benito Bank common stock. We expect that the market price
of Pacific Capital common stock will fluctuate between the date of this
document, the date of the special meeting and the date on which the acquisition
is completed and thereafter. Because the market price of Pacific Capital common
stock is subject to fluctuation, the value of the shares of Pacific Capital
common stock that you will receive in the acquisition may increase or decrease
before and after the acquisition. This risk is further explained under "Risk
Factors--The consideration you will receive in the acquisition will be affected
by potential change in the stock prices of Pacific Capital and San Benito Bank."
Shareholders of San Benito Bank will have the right to exercise their
dissenters' rights under California law in connection with the acquisition. See
"Rights of Dissenting Shareholders."
21
<PAGE>
Following the acquisition, Pacific Capital intends to merge San Benito
Bank with and into Pacific Capital's wholly owned national bank subsidiary,
First National
Bank of Central California.
BACKGROUND OF AND REASONS FOR THE ACQUISITION
BACKGROUND OF THE ACQUISITION
During the second half of 1999, the Board of Directors of San Benito
Bank engaged the services Hoefer & Arnett, Incorporated as its financial
advisor in connection with a potential merger or acquisition transaction. On
August 24, 1999, Hoefer & Arnett presented to the Board of Directors a review
of the potential buyers which may have an interest in San Benito Bank and
conducted an analysis of the price which these buyers might be able to offer
to San Benito Bank. A total of 9 institutions were considered, and it was
initially decided that a first group of five institutions would be approached
and given an opportunity to submit offers to acquire San Benito Bank.
In the fall of 1999, two of these institutions decided not to
participate in the bidding. One of these institutions indicated that while no
pricing guidance had been provided, it believed it could not competitively bid
against other institutions showing an interest, including Pacific Capital
Bancorp. An additional financial institution, not previously considered, also
expressed interest in acquiring San Benito Bank. Based on the inflated value of
this institution's stock price, its distance from San Benito County, and the
institution's small size, the San Benito Bank Board decided not to pursue this
interest.
Three organizations, including Pacific Capital Bancorp, reviewed an
extensive due diligence package prepared by San Benito Bank before submitting
initial indications of interest on October 29, 1999. During November and
December 1999, certain executive officers and the Chairman of the Board of
San Benito Bank met with each of the three respective bidders for several
hours in order to ascertain each bidders' approach to the acquisition, its
operating philosophy, and its future prospects.
Upon review of these proposals, the Board of San Benito Bank decided, on
November 18, 1999, to give Pacific Capital Bancorp and one other institution the
opportunity to conduct further due diligence and to hold meetings with
management of these two institutions to discuss potential cost savings. A third
institution was initially excluded from this process because the offer submitted
was not deemed to be competitive with the other two.
Pacific Capital Bancorp and the other institution conducted extensive
due diligence and, on December 20, 1999, submitted their final offers which were
subject to limited confirmatory due diligence. The third institution indicated a
willingness to submit another proposal. However, its scheduling constraints did
not enable it to conduct due diligence and it submitted its final proposal
subject to completion of full due diligence.
At a meeting held on December 21, 1999, Hoefer & Arnett reviewed with
the Board of San Benito Bank the merits of each proposal, the valuation of
each of the offered stocks and the execution risks involved in each of the
transactions. The Board decided that a combination with Pacific Capital
Bancorp was in the best interest of the bank and its shareholders, but
directed Hoefer & Arnett to approach Pacific Capital Bancorp and request that
institution to improve its bid. After additional negotiations, Pacific
Capital Bancorp raised its offer to 0.605 shares of its common stock for each
outstanding share of San Benito Bank common stock.
The final offer from Pacific Capital Bancorp was considered by the San
Benito Bank Board on February 1, 2000 in connection with a review of the
definitive agreement. The offer was perceived to be on the high side of the
range of fair prices and well in excess of the typical multiples offered in
California bank transactions, and accordingly the definitive agreement was
approved. The parties concluded negotiations and executed the reorganization
agreement on February 3, 2000 and a public announcement was made.
22
<PAGE>
REASONS FOR THE ACQUISITION
In determining to approve the reorganization agreement and recommend
that San Benito Bank's shareholders approve and authorize the reorganization
agreement, the San Benito Bank Board of Directors consulted with San Benito
Bank's senior management, its financial advisor, as well as its legal counsel,
and considered the following material factors:
- - the increased liquidity to be provided to San Benito Bank's shareholders
by receiving shares of Pacific Capital common stock in exchange for
their shares of San Benito Bank common stock. The Board of Directors of
San Benito Bank believed that because there would be a larger number of
shareholders and outstanding shares of Pacific Capital after the
acquisition, and because Pacific Capital common stock is listed on the
Nasdaq National Market System, the shareholders of San Benito Bank would
have the benefit of a more active market for their shares after
completion of the acquisition;
- - the ability of the San Benito Bank shareholders to receive cash
dividends on shares of Pacific Capital common stock received in the
acquisition;
- - the economic conditions and prospects for the markets in which San
Benito Bank operates, and competitive pressures in the financial
services industry in general and the banking industry in particular;
- - the enhancement of San Benito Bank's competitiveness and its ability to
serve its customers, depositors, creditors, other constituents and the
communities in which it operates as a result of a business combination
with another Northern California bank, like First National Bank of
Central California, and the state-wide capacity provided by being a
subsidiary of Pacific Capital;
- - information concerning the business, results of operations, asset
quality and financial condition of San Benito Bank and Pacific Capital
on a stand-alone and combined basis, and the future growth prospects of
San Benito Bank and Pacific Capital following the acquisition;
- - the cost savings and operational synergies which the management of San
Benito Bank believes may be achieved as a result of the acquisition;
- - an assessment that, in the current economic environment, expansion
through acquisition by another financial institution is most
economically advantageous to San Benito Bank's shareholders when
compared to other alternatives like de novo branch openings or branch
acquisitions;
- - the terms and conditions of the reorganization agreement and related
agreements;
- - the potential downsides of the acquisition. These were principally the
possible adverse effect on some employees of San Benito Bank and the
potential adverse effect on San Benito Bank's customers of San Benito
Bank being a subsidiary of an out-of-area parent;
- - Hoefer & Arnett's analysis of the financial condition, results of
operations, business, prospects and stock price of San Benito Bank and
comparison of San Benito Bank to other banks and bank holding companies
operating in its industry;
- - an analysis of the terms of other acquisitions in the banking industry;
- - the opinion of Hoefer & Arnett to the effect that, as of the date of the
opinion, the exchange ratio is fair, from a financial point of view, to
the holders of San Benito Bank common stock;
- - the expectation that the acquisition will constitute a tax-free
reorganization for federal income tax purposes; and
23
<PAGE>
- - the expectation that the acquisition will be treated as a pooling of
interests for accounting purposes.
The above discussion of the factors considered by the San Benito Bank
Board of Directors is not intended to be exhaustive. In view of the variety and
nature of the factors considered by the San Benito Bank Board of Directors, the
San Benito Bank Board of Directors did not find it practicable to assign
relative weights to the specific factors considered in reaching its decision.
OPINION OF FINANCIAL ADVISOR
GENERAL
San Benito Bank engaged Hoefer & Arnett to act as its exclusive
financial advisor in connection with the acquisition. Hoefer & Arnett agreed
to assist San Benito Bank in analyzing, structuring, negotiating, and
effecting a transaction with Pacific Capital. San Benito Bank selected Hoefer
& Arnett because Hoefer & Arnett is a nationally recognized
investment-banking firm with substantial experience in transactions similar
to the acquisition and is familiar with San Benito Bank and its business. As
part of its investment banking business, Hoefer & Arnett is continually
engaged in the valuation of businesses and their securities in connection
with mergers and acquisitions.
As part of its engagement, representatives of Hoefer & Arnett attended
the meeting of the San Benito Bank Board held on February 1, 2000, during which
the Board considered and approved the reorganization agreement. At the February
1, 2000 meeting, Hoefer & Arnett rendered an oral opinion (subsequently
confirmed in writing) that, as of that date, the consideration to be received in
the acquisition was fair to San Benito Bank and its shareholders from a
financial point of view. That opinion was reconfirmed in writing as of May __,
2000.
The full text of Hoefer & Arnett's updated written opinion is attached
as APPENDIX D to this proxy statement-prospectus and is incorporated into this
proxy statement-prospectus by reference. You are urged to read the opinion in
its entirety for a description of the procedures followed, assumptions made,
matters considered, and qualifications and limitations on the review undertaken
by Hoefer & Arnett.
Hoefer & Arnett's opinion is directed to the Board of Directors of San
Benito Bank and addresses only the merger consideration. It does not address the
underlying business decision to proceed with the acquisition and does not
constitute a recommendation to you as
to how you should vote at the special
meeting with respect to the acquisition or any related matter.
In rendering its opinion, Hoefer & Arnett:
- reviewed, among other things:
- the reorganization agreement;
- Annual Reports to Shareholders of San Benito
Bank and Pacific Capital;
- FFIEC Consolidated Reports of San Benito Bank;
- Quarterly Reports on Form 10-Q of Pacific
Capital; and
- certain internal financial analyses and forecasts
for San Benito Bank and Pacific Capital prepared by
management.
- held discussions with members of senior management of San
Benito Bank and Pacific Capital regarding:
- past and current business operations;
- regulatory relationships;
- financial condition; and
- future prospects of the respective companies.
- compared certain financial and stock market information
for San Benito Bank and Pacific Capital with similar
information for certain other companies with publicly
traded securities;
24
<PAGE>
- reviewed the financial terms of certain recent business
combinations in the banking industry; and
- performed other studies and analyses that it considered
appropriate.
The projections furnished to Hoefer & Arnett and used by it in some of
its analyses were prepared by the senior management of San Benito Bank. San
Benito Bank does not publicly disclose internal management projections of the
type provided to Hoefer & Arnett in connection with its review of the
acquisition. As a result, these projections were not prepared with a view
towards public disclosure. The projections were based on numerous variables and
assumptions which are inherently uncertain, including factors related to general
economic and competitive conditions. Accordingly, actual results could vary
significantly from those contained in the projections.
The following is a summary of the material analyses performed that
Hoefer & Arnett presented to the Board of Directors of San Benito Bank on
February 1, 2000 in connection with its February 1, 2000 oral opinion:
ANALYSIS OF THE MERGER CONSIDERATION
Hoefer & Arnett calculated the multiple which the merger consideration
represents based on the exchange ratio as described in the reorganization
agreement of each share of San Benito Bank being exchanged for 0.605 shares of
Pacific Capital and the closing price of Pacific Capital common stock as of
January 28, 2000. Based on the $29.75 closing price of Pacific Capital on
January 28, 2000, the merger consideration represented a per share value of
$18.00 for each share of San Benito Bank common stock. The multiples were
calculated based on San Benito Bank's September 30, 1999 book value per share of
$6.22 and its last twelve month earnings per share of $0.77. The price to book
value was 2.89 times and the price to last twelve month earnings per share was
23.4 times.
SELECTED PEER GROUP ANALYSIS
Hoefer & Arnett compared the financial performance and market
performance of San Benito Bank to those of a group of comparable banks and bank
holding companies. The comparisons were based on:
- various financial measures, including:
- earnings performance;
- operating efficiency;
- capital adequacy; and
- asset quality.
- various measures of market performance, including;
- market to book values and
- price to earnings.
To perform this analysis, Hoefer & Arnett used the financial
information as of and for the twelve months and quarter ended September 30, 1999
and market price information as of January 28, 2000. The companies in the peer
group were California regional banks that had total assets ranging from
approximately $200.0 million to $600.0 million.
25
<PAGE>
Hoefer & Arnett's analysis showed the following concerning San Benito
Bank's financial performance:
<TABLE>
<CAPTION>
PEER
SAN BENITO GROUP
PERFORMANCE MEASURE BANK AVERAGES
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Return on Average Assets, last twelve months 1.23 % 1.46 %
Return on Average Equity, last twelve months 13.32 % 15.79 %
Net Interest Margin, last twelve months 5.64 % 5.81 %
Efficiency Ratio, last twelve months 63.35 % 58.19 %
Equity to Assets 8.78 % 9.25 %
Non-performing Assets and Past Due Loans to Total Assets 0.14 % 0.44 %
Loan Loss Reserve to Non-performing Assets and Past Due Loans 492.33 % 284.99 %
Price to Trailing Twelve Months Earnings 34.09 x 12.76 x
Price to 2000 Estimated Earnings 27.93 x 10.42 x
Price to Book Value Multiples 4.22 x 1.88 x
</TABLE>
ANALYSIS OF COMPARABLE ACQUISITION TRANSACTIONS
In rendering its opinion, Hoefer & Arnett analyzed selected comparable
merger and acquisition transactions of both pending and completed bank deals,
comparing the acquisition price relative to book value, last twelve month
earnings, premium to market price and premium to implied price. The analysis
included a comparison of the low to high of the above ratios for completed and
pending acquisitions in California transactions from January 1, 1998 to January
28, 2000 with announced transaction values less than $100.0 million and return
on average assets greater than 1.0%.
The information in the following table summarizes the material
information analyzed by Hoefer & Arnett in connection with the acquisition. The
summary is not a complete description of the analysis performed by Hoefer &
Arnett and should not be construed independently of the other information
considered by Hoefer & Arnett in rendering its opinion. Selecting portions of
Hoefer & Arnett's analysis or isolating certain aspects of the comparable
transactions without considering all analysis and factors, could create an
incomplete or potentially misleading view of the evaluation process.
MULTIPLE OF PRICE TO FACTORS
<TABLE>
<CAPTION>
SAN BENITO
BANK/
PACIFIC
CAPITAL
COMPARABLE COMPARABLE COMPARABLE BANCORP
GROUP GROUP GROUP ACQUISITION
FACTOR CONSIDERED (1) LOW MEDIAN HIGH (2)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trailing Twelve Months Earnings 10.6x 19.9x 33.0x 23.4x
Book Value 1.3x 2.6x 5.0x 2.8x
Premium to Market Price -2.8% 19.9% 52.6% -31.4%
Premium to Implied Market Price (3) -2.8% 19.9% 52.6% 51.3%
</TABLE>
- -----------------------
(1) Financial data as of September 30, 1999.
(2) Based on an exchange ratio of 0.605 and Pacific Capital Bancorp price of
$29.75 as of January 28, 2000.
(3) Implied market price is $11.00; the average of the median imputed public
market values as of January 28, 2000.
No company or transaction used as a comparison in this analysis is
identical to San Benito Bank, Pacific Capital or the acquisition. Accordingly,
an analysis of these results is not mathematical. Rather, it involves complex
considerations and judgements concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading value of the companies to which they are being compared.
26
<PAGE>
CONTRIBUTION ANALYSIS
Hoefer & Arnett reviewed the relative contribution of each of San
Benito Bank and Pacific Capital to selected pro forma balance sheet and income
statement items of the combined entity. The contribution analysis showed:
<TABLE>
<S> <C>
San Benito Bank Contribution To:
Combined Shareholders' Equity 7.2%
Combined 1999 Estimated Net Income without Cost Savings 4.9%
Combined Total Assets 6.6%
San Benito Bank Estimated Pro Forma Ownership 6.2%
</TABLE>
Hoefer & Arnett compared the relative contribution of the balance sheet
and income statement items with the estimated pro forma ownership for San Benito
Bank shareholders based on an exchange ratio of 0.605.
DISCOUNTED DIVIDEND ANALYSIS
Hoefer & Arnett estimated the present value of future cash flows that
would accrue to a holder of a share of San Benito Bank common stock assuming
that the shareholder held the stock of five years and then sold it. The analysis
was based on balance sheet and earnings forecasts prepared by management on a
stand-alone, independent basis beginning October 1999 and ending in December
2004. Annual dividend cash flows were assumed for San Benito Bank based on a
minimum required tangible common equity to tangible assets ratio of 7.5%. San
Benito Bank's value at the end of 2004 was determined by using terminal price to
earnings multiples from 11.0 times to 13.0 times. The terminal value and the
dividends received were discounted at a rate of 12.5% and 15.0%. These rates
were selected because, in Hoefer & Arnett's experience, it represents the
risk-adjusted rates of return that investors in securities such as the San
Benito Bank common stock would require. On the basis of these assumptions,
Hoefer & Arnett calculated a range of present values ranging from $12.58 to
$15.62. These values were compared to the $18.00 offer from Pacific Capital.
SELECTED PEER GROUP ANALYSIS
Hoefer & Arnett compared the financial performance and market
performance of Pacific Capital to those of a group of comparable banks and bank
holding companies. The comparisons were based on:
- various financial measures, including:
- earnings performance;
- operating efficiency;
- capital adequacy; and
- asset quality.
- various measures of market performance, including;
- market to book values and
- price to earnings.
To perform this analysis, Hoefer & Arnett used the financial
information as of and for the twelve months and quarter ended September 30, 1999
and market price information as of January 28, 2000. The companies in the peer
group were California regional banks that had total assets ranging from $1.2
billion to $7.2 billion.
27
<PAGE>
Hoefer & Arnett's analysis showed the following concerning Pacific
Capital's financial performance:
<TABLE>
<CAPTION>
PACIFIC PEER
CAPITAL GROUP
PERFORMANCE MEASURE BANCORP AVERAGES
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Return on Average Assets, last twelve months 1.28 % 1.32 %
Return on Average Equity, last twelve months 15.55 % 18.38 %
Net Interest Margin, last twelve months 5.73 % 4.97 %
Efficiency Ratio, last twelve months 53.61 % 54.27 %
Equity to Assets 7.99 % 6.77 %
Non-performing Assets and Past Due Loans to Total Assets 0.51 % 0.44 %
Loan Loss Reserve to Non-performing Assets and Past Due Loans 379.18 % 193.61 %
Price to Trailing Twelve Months Earnings 20.95 x 13.72 x
Price to 2000 Estimated Earnings 14.51 x 13.97 x
Price to Book Value Multiples 3.20 x 2.82 x
</TABLE>
OTHER ANALYSES
Hoefer & Arnett reviewed the relative financial and market performance
of San Benito Bank and Pacific Capital to a variety of relevant industry peer
groups and indices. Hoefer & Arnett also reviewed earnings estimates, balance
sheet composition, historical stock performance, and other financial information
for Pacific Capital.
This summary provides a general description of the material analyses
prepared by Hoefer & Arnett in connection with the rendering of its opinion. The
preparation of a fairness opinion is not necessarily susceptible to partial
analysis or summary description. Hoefer & Arnett believes that its analysis and
the summary must be considered as a whole and that selecting portions of its
analysis, or selecting part of the summary, without considering all factors and
analyses, would create an incomplete view of the process underlying the analysis
set forth in Hoefer & Arnett's presentation and opinion. The ranges of
valuations resulting from any particular analysis described above should not be
taken to be Hoefer & Arnett's view of the actual value of San Benito Bank or
Pacific Capital. The fact that any specific analysis has been referred to in the
summary is not meant to indicate that a specific analysis was given greater
weight that any other analysis.
In preparing its analysis, Hoefer & Arnett made numerous assumptions
about industry performance, business and economic conditions, and other matters,
many of which are beyond the control of Hoefer & Arnett and San Benito Bank. The
analyses performed by Hoefer & Arnett are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable than
that suggested by such analyses and do not purport to be appraisals or reflect
the prices at which a business may be sold or the prices at which any securities
may trade at the present time or at any time in the future. In addition, Hoefer
& Arnett's opinion, along with its presentation to the Board of Directors of San
Benito Bank, was just one of the many factors taken into consideration by the
San Benito Bank Board of Directors in approving the reorganization agreement.
In connection with its opinion dated May __, 2000,
Hoefer & Arnett performed procedures to update, as necessary, certain of the
analyses previously described. Hoefer & Arnett reviewed the assumptions on
which these analyses were based and the factors considered in connection
therewith. Hoefer & Arnett did not perform any analysis in addition to those
previously described in updating its February 1, 2000 oral opinion.
Hoefer & Arnett has not independently verified the information
previously described and, for purposes of this opinion, has assumed the
accuracy, completeness and fairness thereof. Hoefer & Arnett has assumed that
information contained in the proxy statement-prospectus reflects the best
currently available estimates and judgments of the management of San Benito Bank
and Pacific Capital, respectively,
28
<PAGE>
as to the likely future financial performance of San Benito Bank and Pacific
Capital. Hoefer & Arnett also assumed, without independent verification, that
the aggregate allowances for loan losses for San Benito Bank and Pacific Capital
are adequate to cover those losses. Hoefer & Arnett did not make or obtain any
evaluations or appraisals of the property of San Benito Bank or Pacific Capital,
and Hoefer & Arnett did not examine any individual credit files.
The Board of Directors of San Benito Bank retained Hoefer & Arnett as
an independent contractor to act as financial advisor to San Benito Bank
regarding the acquisition. As part of its investment banking business, Hoefer &
Arnett is continually engaged in the valuation of banking businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate
and other purposes. Hoefer & Arnett has experience in, and knowledge of, the
valuation of banking enterprises. In the ordinary course of its business as a
broker-dealer, Hoefer & Arnett may, from time to time, purchase securities from,
and sell securities to, San Benito Bank and Pacific Capital. As a market maker
in securities, Hoefer & Arnett may from time to time have a long or short
position in, and buy or sell, debt or equity securities of San Benito Bank and
Pacific Capital for Hoefer & Arnett's own account and for the accounts of its
customers.
Under the terms of its engagement letter with San Benito Bank, Hoefer &
Arnett received a fee of $5,000 upon execution of the engagement letter and
$35,000 upon the announcement by San Benito Bank of a definitive agreement, and
will receive an additional fee equal to 1.25% of the value of the transaction
(less $40,000) payable at the time of closing. As of the date of this proxy
statement-prospectus, Hoefer & Arnett has received $40,000 of such fee. San
Benito Bank has also agreed to indemnify Hoefer & Arnett against certain
liabilities, including liabilities under the federal securities laws, and to
reimburse Hoefer & Arnett for certain out-of-pocket expenses, not to exceed
$10,000 without the prior written approval of San Benito Bank.
INFORMATION CONCERNING CERTAIN INTERESTS OF DIRECTORS AND OFFICERS OF SAN BENITO
BANK IN THE ACQUISITION
SHARE OWNERSHIP
As of the record date, the directors and executive officers of San
Benito Bank beneficially owned an aggregate of 658,394 shares of San Benito
Bank common stock (excluding 39,724 shares subject to presently exercisable
options).
STOCK OPTION PLANS
As a result of the execution of the reorganization agreement, all stock
options under San Benito Bank's stock option plans became fully vested. Any
options not exercised prior to consummation of the acquisition will be converted
into options to purchase Pacific Capital common stock. See "The Reorganization
Agreement - Treatment of Stock Options."
EMPLOYMENT AGREEMENTS
Edward T. Stephenson, Victor F. Davis, Ronald L. Roberts, and one
other officer each has an employment agreement with San Benito Bank. These
agreements provide that if the officer's employment is terminated or the
employee's position, responsibilities, duties, salary, benefits or location
of employment are adversely changed as a result of a change in control of San
Benito Bank, like the acquisition, the officer will be entitled to receive a
severance payment. Mr. Stephenson's severance payment will equal two times
his annual compensation and each of the other officers will be entitled to
receive a severance payment equal to one and one-half times his annual
compensation, including salary and bonus or other payments, payable over 18
months , with annual compensation being calculated as the average annual
compensation paid during the five (5) years preceding the change in control.
29
<PAGE>
EXECUTIVE SUPPLEMENTAL COMPENSATION AGREEMENTS
San Benito Bank has entered into Executive Supplemental Compensation
Agreements with Messrs. Stephenson, Roberts and Davis for the purpose of
providing additional compensation benefits to these executive officers after
they cease to be employed by the San Benito Bank. Specifically, under these
agreements, payments would be made to the executive officer (or to his
beneficiary, as the case may be) upon termination of employment (except for
termination for cause), disability prior to retirement, or death, including
death prior to retirement. In the event of a change in control of San Benito
Bank, like the acquisition, benefits would be paid if the executive is
terminated, if an adverse and material change in his position, responsibilities,
duties, salary or location results from such change in control, or if he is
otherwise demoted.
DIRECTOR SUPPLEMENTAL COMPENSATION AGREEMENTS
San Benito Bank has entered into Director Supplemental Compensation
Agreements with each non-employee director of San Benito Bank. These director
agreements provide that upon normal retirement from the Board of Directors at
age 70, and if so provided by San Benito Bank policy, a director shall be
entitled to serve for three (3) years as a "director emeritus" of San Benito
Bank, and in that role will be eligible to receive an annual payment of up to
$6,000, depending on the years of service which the director previously provided
to San Benito Bank. Further, the director would be entitled to receive, to the
extent vested, both during his tenure as a director emeritus and after
retirement, until death, a sum determined with reference to the after-tax income
from certain assumed life insurance contracts, whether or not such contracts are
in fact purchased by San Benito Bank, adjusted for specified costs.
Similar to the Executive Supplemental Compensation Agreements described
above, benefits also would be payable in the event of termination of service
without cause (for example, failure of San Benito Bank to renominate the
director for election, without cause), death prior to retirement or following
retirement (in which case benefits would be paid to the director's
beneficiaries), disability prior to retirement, or a change in control of San
Benito Bank such as the acquisition. In the event of a change in control of the
bank, benefits would be paid if the director had reached age 55, unless
distribution of benefits at age 70 was selected by the director.
OTHER
After the acquisition, Mr. Stephenson will remain as President of
San Benito Bank, which will be operated as an affiliate of First National
Bank of Central California, a subsidiary of Pacific Capital Bancorp. One
member of the Board of Directors of San Benito Bank will be nominated for
election to the Pacific Capital Bancorp Board of Directors at the company's
annual shareholders' meeting in 2001, and additional members of the current
Board of San Benito Bank will join the Board of First National Bank of
Central California following the close of the transaction.
EFFECT OF THE ACQUISITION ON SAN BENITO BANK'S EMPLOYEE BENEFIT PLANS
We anticipate that on or after the effective date of the acquisition,
the employee pension and benefit plans of San Benito Bank may be frozen,
terminated, modified or merged into similar employee pension plans maintained by
Pacific Capital or its subsidiaries, at the discretion of Pacific Capital, as
long as any action preserves the rights, including vesting rights, of
participants in the San Benito Bank employee pension plans.
When the acquisition becomes effective, each employee of San Benito
Bank on the effective date of the acquisition who continues in employment with
Pacific Capital or one of its subsidiaries will be entitled to participate in
Pacific Capital employee benefit plans in effect as of the date of the
reorganization agreement, if the employee is eligible and, if required, selected
for participation in such benefit plans under the terms of such benefit plans.
All participation in Pacific Capital employee benefit plans will be subject to
the terms of such plans. For the purpose of vesting and any age or period of
service requirements for commencement of participation in Pacific Capital
employee benefit plans, each San Benito Bank employee
30
<PAGE>
who continues as an employee of Pacific Capital after the effective date of the
acquisition will receive credit for his or her term of service with San Benito
Bank (except with respect to participation in the Santa Barbara Bank & Trust Key
Employee Retiree Health Plan and the Santa Barbara Bank & Trust Retiree Health
Plan).
EFFECT OF THE ACQUISITION ON SAN BENITO BANK'S STOCK OPTION PLANS
As a result of the execution of the reorganization agreement, all
outstanding options to purchase shares of San Benito Bank common stock issued
pursuant to the San Benito Bank 1984 Amended Stock Option Plan and the San
Benito Bank 1995 Stock Option Plan become fully vested and exercisable. On the
effective date of the acquisition, Pacific Capital will assume each unexercised
option to purchase shares of San Benito Bank common stock issued pursuant to
these stock option plans will be converted into and deemed to constitute an
option to acquire shares of Pacific Capital common stock.
Except as provided in the following paragraph, assumed stock options
shall be converted into the right to purchase shares of Pacific Capital common
stock equal to the product of the number of shares of San Benito Bank common
stock subject to the original option and the exchange ratio under the
reorganization agreement. The exercise price per share of Pacific Capital common
stock under the converted option will be equal to the exercise price per share
of San Benito Bank common stock under the original option divided by the
exchange ratio under the reorganization agreement.
Each option to purchase San Benito Bank common stock which is an
"incentive stock option" and which is outstanding and unexercised immediately
prior to the effective date, shall be assumed by Pacific Capital and converted
automatically into an option to purchase shares of Pacific Capital common stock
in an amount and at an exercise price determined in a manner which is consistent
with Section 424(a) of the Internal Revenue Code.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the anticipated material federal income
tax consequences of the acquisition to the San Benito Bank shareholders who are
citizens or residents of the United States and who, as of the effective date of
the acquisition, hold their shares of San Benito Bank as capital assets for
federal income tax purposes. This discussion is for general information only and
does not address the federal income tax consequences that may be relevant to
particular shareholders in light of their personal investment circumstances or
to certain types of shareholders, including insurance companies, tax-exempt
organizations (including ESOPs), financial institutions, broker-dealers, "S"
corporations, limited liability corporations, foreign individuals and entities,
and taxpayers subject to alternative minimum tax, who may be subject to special
treatment under the federal income tax laws.
The following discussion is based upon the current provisions of the
Internal Revenue Code of 1986, as amended, existing, temporary and proposed
regulations thereunder, reports of congressional committees, court decisions and
current administrative rulings and practices. Any of these authorities could be
repealed, overruled or modified at any time after the date hereof. Any such
change could be retroactive and, accordingly, could modify the tax consequences
of the acquisition discussed herein. No ruling from the Internal Revenue Service
with respect to the matters discussed herein has been requested, and there is no
assurance that the Internal Revenue Service would agree with the conclusions set
forth in this discussion.
The summary does not address issues of state, local or foreign
taxation. The summary also does not address the tax consequences to holders of
San Benito Bank stock options who, in connection with the acquisition, exercise
their options or allow their options to be assumed by Pacific Capital.
31
<PAGE>
The anticipated U.S. federal income tax consequences to San Benito Bank
shareholders are as follows:
* A shareholder who receives shares of Pacific Capital common stock
in exchange for shares of San Benito Bank common stock will not
recognize any gain or loss on the receipt of the shares of Pacific
Capital common stock, except for cash received in lieu of a
fractional share. The shareholder's gain or loss on the receipt of
cash in lieu of a fractional share will equal the difference
between the cash received and the basis of the fractional share
exchanged.
* A shareholder's aggregate tax basis of the shares of Pacific
Capital common stock received will be the same as the
shareholder's aggregate tax basis in the shares of San Benito Bank
common stock exchanged in the acquisition, less basis allocable to
a fractional share of Pacific Capital common stock for which cash
is received.
* The holding period of the shares of Pacific Capital common stock
received by a shareholder will include the holding period of the
shareholder's shares of San Benito Bank common stock exchanged in
the acquisition, but only if the shares of San Benito Bank common
stock were held as a capital asset at the time the acquisition is
completed.
Pacific Capital and San Benito Bank are not required to complete the
acquisition unless they receive an opinion of Jenkens & Gilchrist, a
Professional Corporation, that these will be the U.S. federal income tax
consequences of the acquisition. The opinion may make certain assumptions and
may rely on representations of the parties to the acquisition as to factual
matters. It will reflect Jenkens & Gilchrist's judgment as to the tax status of
the acquisition under the Internal Revenue Code and will not be binding on the
Internal Revenue Service. There is no assurance that the Internal Revenue
Service will not take a contrary position regarding the tax consequences of the
acquisition, nor is there any assurance that the Internal Revenue Service would
not prevail in the event the tax consequences of the acquisition were litigated.
THIS U.S. FEDERAL INCOME TAX SUMMARY IS INCLUDED FOR GENERAL INFORMATION
ONLY AND MAY OR MAY NOT BE APPLICABLE DEPENDING UPON A SHAREHOLDER'S PARTICULAR
SITUATION. SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISORS CONCERNING THE TAX
CONSEQUENCES TO THEM OF THE ACQUISITION, INCLUDING THE TAX CONSEQUENCES UNDER
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN
FEDERAL OR OTHER TAX LAW. SAN BENITO BANK STOCK OPTION HOLDERS SHOULD CONSULT
THEIR TAX ADVISORS AS TO THE CONSEQUENCES OF EXERCISING THEIR OPTIONS OR
ALLOWING THEIR OPTIONS TO BE ASSUMED BY PACIFIC CAPITAL.
ACCOUNTING TREATMENT OF THE ACQUISITION
Pacific Capital anticipates that the acquisition will be accounted for as
a pooling of interests for accounting and financial reporting purposes. Under
this method of accounting, recorded assets and liabilities of Pacific Capital
and San Benito Bank are carried forward at their previously recorded amounts,
income of the combined corporations will include income of Pacific Capital and
San Benito Bank for the entire fiscal year in which the acquisition occurs, and
the reported income of the separate corporations for prior periods will be
combined. No recognition of goodwill in the combination is required of any party
to the acquisition.
For the acquisition to qualify as a pooling of interests, it must satisfy
a number of conditions including that substantially all of the San Benito Bank
common stock be exchanged for Pacific Capital common stock. If any of the
conditions to pooling of interests accounting is not satisfied, then the
acquisition would not qualify for pooling of interests accounting treatment, and
a condition to the obligation of Pacific Capital to consummate the acquisition
would not be satisfied. Each of Pacific Capital and San Benito Bank have agreed
that they will use their respective best efforts to ensure that the acquisition
will qualify for pooling of interests accounting treatment. In addition, certain
affiliates of Pacific Capital and San Benito Bank will agree that they will not
sell any Pacific Capital common stock or San Benito Bank common stock within 30
days before the effective date of the acquisition, nor sell any Pacific Capital
common stock until such time as Pacific Capital has published financial results
covering at least 30 days of the combined operations of Pacific Capital and San
Benito Bank after the merger.
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NASDAQ LISTING
The shares of Pacific Capital common stock to be issued in the
acquisition will be listed for trading on the Nasdaq National Market.
RESALES OF PACIFIC CAPITAL COMMON STOCK
All shares of Pacific Capital common stock received by you in the
acquisition will be freely transferable under the Securities Act of 1933, except
for shares issued to San Benito Bank shareholders who are considered to be
"affiliates" of San Benito Bank under Rule 145 under the Securities Act or of
Pacific Capital under Rule 144 under the Securities Act. The definition of
"affiliate" is complex and depends on the specific facts, but generally includes
directors, executive officers, 10% stockholders and other persons with the power
to direct the management and policies of the company in question.
Affiliates of San Benito Bank may not sell the shares of Pacific Capital
common stock received in the acquisition except (a) pursuant to an effective
registration statement under the Securities Act, (b) in compliance with an
exemption from the registration requirements of the Securities Act or (c) in
compliance with Rule 144 and Rule 145 under the Securities Act. Generally, those
rules permit resales of stock received by affiliates so long as Pacific Capital
has complied with certain reporting requirements and the selling stockholder
complies with certain volume and manner of sale restrictions for a limited
period of time following the acquisition.
Securities and Exchange Commission guidelines regarding qualifying for
the pooling of interests method of accounting also limit sales of shares of the
acquiring company and acquired company by affiliates of either company in a
business combination such as the acquisition. These guidelines indicate that the
pooling of interests method of accounting will generally not be challenged on
the basis of sales by affiliates if these persons do not dispose of any of the
shares of the corporation they own or any shares of the corporation they receive
in connection with a merger during the period beginning 30 days before the
acquisition and ending when financial results covering at least 30 days of post-
acquisition operations of the combined entity have been published.
San Benito Bank has agreed to use its best efforts to deliver to Pacific
Capital signed agreements from each person who may be deemed to be an affiliate
of San Benito Bank that the person will not sell, transfer or otherwise dispose
of the shares of Pacific Capital common stock to be received by the person in
the acquisition, except in compliance with the applicable provisions of the
Securities Act and the rules and regulations promulgated thereunder and
applicable rules governing pooling of interests accounting.
This proxy statement-prospectus does not cover any resales of Pacific
Capital common stock received by affiliates of San Benito Bank.
REGULATORY APPROVALS
Under the reorganization agreement, Pacific Capital and San Benito Bank
have agreed to use their best efforts to obtain all necessary actions,
extensions, waivers, consents and approvals from any governmental authority
necessary, proper or advisable to consummate the transactions contemplated by
the reorganization agreement.
The approval of both the Federal Reserve Board under the Bank Holding
Company Act of 1956, and the California Department of Financial Institutions
under the California Financial Code, are required for the acquisition of San
Benito Bank by Pacific Capital. Additionally, the approval of the Federal
Deposit Insurance Corporation under the Federal Deposit Insurance Act is
required for the merger of Interim San Benito, Inc. with and into San Benito
Bank. Finally, the approval of the Office of the Comptroller of the Currency
under the National Bank Act is required for the merger of San Benito Bank with
and into First National Bank of Central California. We cannot predict whether or
when we will obtain the necessary approvals to complete the acquisition and
related transactions.
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The closing of the acquisition is conditioned on the receipt of approval
from the Federal Reserve Board, the California Department of Financial
Institutions and the Federal Deposit Insurance Corporation, all on terms
mutually acceptable to Pacific Capital and San Benito Bank. If any of these
agencies imposes any conditions that Pacific Capital considers will materially
and adversely affect Pacific Capital or will materially burden Pacific Capital,
then Pacific Capital will use commercially reasonable efforts to obtain the
removal of the condition. If the condition is not removed, Pacific Capital is
not required to complete the acquisition.
FEDERAL RESERVE
Section 3 of the Bank Holding Company Act requires the Federal Reserve
Board, when considering a transaction similar to the acquisition, to take into
consideration the financial and managerial resources, including the competence,
experience and integrity of the officers, directors and principal stockholders,
and the future prospects of the existing and proposed institutions and the
effect of the transaction on the convenience and needs of the communities to be
served. In considering financial resources and future prospects, the Federal
Reserve Board will, among other things, evaluate the adequacy of the capital
levels of the parties to a proposed transaction and of the resulting
institutions.
The Bank Holding Company Act prohibits the Federal Reserve Board from
approving a merger if it would result in a monopoly or be in furtherance of any
combination or conspiracy to monopolize or to attempt to monopolize the business
of banking in any part of the United States or its effect in any section of the
country would be substantially to lessen competition or to tend to create a
monopoly, or if it would in any other respect result in a restraint of trade,
unless the Federal Reserve Board finds that the anti-competitive effects of the
merger are clearly outweighed by the probable effect of the transaction in
meeting the convenience and needs of the communities to be served.
In addition, under the Community Reinvestment Act of 1977, as amended,
the Federal Reserve Board must take into account the record of performance of
the depository institution subsidiaries of Pacific Capital and San Benito Bank
in meeting the credit needs of the communities served by such institutions,
including low- and moderate-income neighborhoods.
The acquisition may not be completed until the 30th day, or, with the
consent of the relevant agencies, the 15th day, following the date of the
Federal Reserve Board approval, during which period the United States Department
of Justice may comment adversely on the acquisition or challenge the acquisition
on antitrust grounds. The commencement of an antitrust action would stay the
effectiveness of the Federal Reserve Board approval unless a court specifically
orders otherwise.
CALIFORNIA DEPARTMENT OF FINANCIAL INSTITUTIONS
The California Commissioner of Financial Institutions may not approve the
acquisition of control of a state bank, such as San Benito Bank, if the
Commissioner finds that any of the following are true:
* that the proposed acquisition of control would result in a
monopoly or would be in furtherance of any combination or
conspiracy to monopolize or to attempt to monopolize the business
of banking in any part of the state of California;
* that the effect of the proposed acquisition of control in any
section of the state of California may be substantially to lessen
competition or to tend to create a monopoly or that the proposed
acquisition of control would in any other manner be in restraint
of trade, and that the anticompetitive effects of the proposed
acquisition of control are not clearly outweighed in the public
interest by the probable effect of the transaction in meeting the
convenience and needs of the community to be served;
* that the financial condition of the acquiror is such as might
jeopardize the financial stability of the bank or the acquiror, or
prejudice the interest of the depositors, creditors, or
shareholders of the bank or the acquiror;
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* that plans or proposals to liquidate the bank or the acquiror, to
sell the assets of the bank or the acquiror, to merge or
consolidate the bank or the acquiror, or to make any other major
change in the business, corporate structure or management of the
bank or the acquiror are not fair and reasonable to the
depositors, creditors, and shareholders of the bank or the
acquiror;
* that the competence, experience or integrity of the acquiror
indicates that it would not be in the interest of the depositors,
creditors or shareholders of the bank or the acquiror or in the
interest of the public to permit such person to control the bank
or the acquiror;
* that the proposed acquisition is unfair, unjust or inequitable to
the bank or the acquiror or to the depositors, creditors or
shareholders of the bank or the acquiror; or
* that the applicant neglects, fails or refuses to furnish to the
Commissioner all the information required by the Commissioner.
The Commissioner will either approve or deny the acquisition within a period of
60 days from the filing of the application. Such period may be extended with the
consent of Pacific Capital.
FEDERAL DEPOSIT INSURANCE CORPORATION
Section 18(c) of the Federal Deposit Insurance Act requires approval of
the Federal Deposit Insurance Corporation for any merger transaction in which a
non-FDIC insured entity is merged into an FDIC insured bank. Pursuant to the
terms of the reorganization agreement and the merger agreement, Interim San
Benito, Inc., a non-insured, interim corporation, will be merged with and into
San Benito Bank, with San Benito Bank as the resulting bank.
EFFECTIVE DATE
If the acquisition is approved by the shareholders of San Benito Bank,
all required governmental and other consents are obtained and the other
conditions to the acquisition are satisfied or waived, the acquisition will be
completed and made effective on the date and at the time that the merger
agreement and accompanying officer's certificates are filed with the California
Secretary of State.
It is anticipated that the acquisition will be completed during the third
quarter of 2000, although no assurance can be made that this timetable will
be met.
EXCHANGE OF CERTIFICATES
As soon as practicable after completion of the acquisition, Pacific
Capital will cause Norwest Bank Minnesota, N.A., its exchange agent, to mail to
you, unless you perfect your right to dissent, a letter of transmittal and
instructions for use to surrender the certificates representing shares of San
Benito Bank common stock in exchange for certificates representing shares of
Pacific Capital common stock.
SAN BENITO BANK SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL
THEY RECEIVE SUCH INSTRUCTIONS.
Promptly after surrender of one or more certificates for San Benito Bank
common stock, together with a properly completed letter of transmittal, you will
receive a certificate or certificates representing the number of shares of
Pacific Capital common stock to which you are entitled and, where applicable, a
check for the amount payable in cash instead of issuing a fractional share.
Lost, stolen, mutilated or destroyed certificates will be treated in accordance
with the existing procedures of Pacific Capital.
After the acquisition, you will be entitled to vote the number of shares
of Pacific Capital common stock into which your San Benito common stock has been
converted, regardless of whether you have surrendered your San Benito Bank stock
certificate(s). The reorganization agreement provides, however, that no dividend
or distribution payable to the holders of record of Pacific Capital common stock
at or as of
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any time after the effective date of the acquisition will be paid to the holder
of any San Benito Bank stock certificate until the holder physically surrenders
his or her certificate, promptly after which time all dividends or distributions
will be paid, without interest.
THE REORGANIZATION AGREEMENT
THE FOLLOWING IS A SUMMARY OF CERTAIN PROVISIONS OF THE REORGANIZATION
AGREEMENT, A COPY OF WHICH IS ATTACHED TO THIS PROXY STATEMENT-PROSPECTUS AS
APPENDIX A. THE REORGANIZATION AGREEMENT IS INCORPORATED BY REFERENCE INTO THIS
PROXY STATEMENT-PROSPECTUS. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE REORGANIZATION AGREEMENT. SHAREHOLDERS OF SAN
BENITO BANK ARE ENCOURAGED TO READ THE REORGANIZATION AGREEMENT CAREFULLY AND IN
ITS ENTIRETY.
BASIC PLAN OF REORGANIZATION
The reorganization agreement provides for the acquisition of San Benito
Bank by Pacific Capital, through the merger of Interim San Benito, Inc., a
wholly owned subsidiary of Pacific Capital, with and into San Benito Bank. San
Benito Bank shall be the surviving corporation in the merger, and the separate
corporate existence of Interim San Benito, Inc. will terminate. The acquisition
will be accomplished in accordance with the terms of the reorganization
agreement, the principal terms of which are discussed in the following sections.
REPRESENTATIONS AND WARRANTIES
The reorganization agreement contains numerous representations and
warranties by Pacific Capital and San Benito Bank, including representations and
warranties with respect to their individual organizations, authorizations to
enter into the reorganization agreement, capitalization, financial statements
and pending and threatened litigation. These representations and warranties will
not survive the closing date of the acquisition.
STOCK OPTION AGREEMENT
In connection with the reorganization agreement, San Benito Bank granted
to Pacific Capital an option to purchase up to 525,000 shares of San Benito Bank
common stock, representing approximately 19.5% of the shares of San Benito Bank
outstanding, at a price of $19.00 per share. The option is intended to increase
the likelihood that Pacific Capital will complete the acquisition in accordance
with the terms of the reorganization agreement. See "Stock Option Agreement"
(pages 43 through 45).
CONDITIONS TO THE ACQUISITION
The obligations of Pacific Capital and San Benito Bank to consummate the
acquisition are subject to the satisfaction or waiver on or before the
completion of the acquisition of numerous conditions, including the following:
* the reorganization agreement, the merger agreement and the related
transactions must receive all requisite approvals of the
shareholders of San Benito Bank;
* no judgment, decree, injunction, order or proceeding will be
outstanding or threatened by any governmental entity which
prohibits or restricts the completion of, or threatens to
invalidate or set aside the acquisition substantially in the form
contemplated by the reorganization agreement and the merger
agreement;
* all approvals or consents of any applicable governmental agency
will have been obtained or granted for the acquisition and the
transactions contemplated by the reorganization agreement and the
merger agreement and the applicable waiting periods under all laws
will have expired;
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* the registration statement covering the shares of Pacific Capital
common stock to be issued to the shareholders of San Benito Bank
will have been declared effective by the SEC and will not be the
subject of any stop order or proceedings seeking or threatening a
stop order;
* Pacific Capital shall have received all state securities permits
and other authorizations necessary to issue the Pacific Capital
common stock to consummate the acquisition;
* Pacific Capital and San Benito Bank will have received an opinion
from Jenkens & Gilchrist, a Professional Corporation to the effect
that the acquisition will not result in the recognition of gain or
loss for federal income tax purposes to Pacific Capital or San
Benito Bank, the issuance of Pacific Capital common stock will not
result in the recognition of gain or loss by holders of San Benito
Bank common stock who receive Pacific Capital common stock in the
acquisition (except for cash received in lieu of fractional
shares); and
* Deloitte & Touche LLP will have issued a letter to Pacific
Capital and San Benito indicating that they concur with the
conclusions of San Benito Bank's management that no conditions
exist that would preclude pooling of interests accounting
treatment, and Arthur Andersen LLP will have confirmed in writing
to Pacific Capital and San Benito Bank that the acquisition will
qualify for pooling of interests accounting treatment if
consummated in accordance with the reorganization agreement and
the merger agreement.
The obligation of Pacific Capital to consummate the acquisition is also
subject to fulfillment of various other conditions, including the following:
* there will not have occurred, between December 31, 1998 and the
completion of the acquisition, any material adverse change in the
business, financial condition, results of operations or prospects
of San Benito Bank;
* no more than 9.9% of the outstanding shares of San Benito Bank
common stock will be dissenting shares;
* the regulatory approvals for the acquisition will not impose any
conditions which Pacific Capital deems materially adverse or
materially burdensome; and
* Pacific Capital will have received from San Benito Bank, at least
40 days prior to the closing date of the acquisition, signed
agreements from shareholders of San Benito Bank who may be deemed
to be "affiliates" of San Benito Bank, as defined for purposes of
Rule 145 under the Securities Act of 1933.
The obligation of San Benito Bank to consummate the acquisition are also
subject to the fulfillment of other conditions, including the following:
* there will not have occurred, between December 31, 1998 and the
completion of the acquisition, any material adverse change in the
business, financial condition, results of operations or prospects
of Pacific Capital on a consolidated basis; and
* receipt of a fairness opinion from Hoefer & Arnett.
Additionally, the consummation of the acquisition is subject to the
performance of covenants, the execution and delivery of ancillary documents, the
accuracy of representations and warranties and the receipt of various legal
opinions, third-party consents, officers' certificates and other documents.
If these and other conditions are not satisfied or waived, the
reorganization agreement may be terminated. The reorganization agreement may
also be terminated upon the occurrence of certain other events which are more
fully described under the heading entitled "The Reorganization Agreement --
Termination of the Reorganization Agreement."
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NONSOLICITATION
Under the terms of the reorganization agreement, San Benito Bank has
agreed not to encourage, solicit or initiate any merger, tender offer or other
takeover offer, sale of substantial assets, sale of shares of capital stock or
similar transaction involving San Benito Bank. In addition, San Benito Bank has
agreed, unless it determines, with advice of counsel, that its fiduciary duty
requires otherwise, not to participate in any negotiations or discussions
regarding, or furnish any information concerning or otherwise cooperate in any
way in connection with, any effort or attempts to effect any competing
transaction with or involving any entity other than Pacific Capital. This
restriction does not apply, however, if San Benito Bank receives a bona fide
offer from a person other than Pacific Capital and the San Benito Bank Board of
Directors responds in accordance with applicable fiduciary obligations. San
Benito Bank has agreed to promptly notify Pacific Capital of the terms of any
proposal which it may receive in respect of any competing transaction.
TREATMENT OF STOCK OPTIONS
The reorganization agreement provides that each and every option to
purchase shares of San Benito Bank common stock issued and outstanding
immediately before the completion of the merger and all obligations of San
Benito Bank under the San Benito Bank stock option plans will, on and after the
completion of the merger, be assumed by Pacific Capital and be considered to be
options to purchase shares of Pacific Capital common stock. See "The
Acquisition - Effect of the Acquisition on San Benito Bank's Stock Option
Plans."
TERMINATION OF THE REORGANIZATION AGREEMENT
Either San Benito Bank or Pacific Capital may call off the acquisition
under a number of circumstances, including if:
* San Benito Bank and Pacific Capital agree in writing;
* the acquisition is not completed before October 1, 2000;
* regulatory and/or legal restraints prevent the acquisition;
* the shareholders of San Benito Bank do not approve the
acquisition;
* the other party breaches any of its covenants in a material
respect and has failed to cure the breach within a specified
period of time; or
* a representation or warranty made by the other party is or
becomes untrue or incorrect in any material respect and is not
corrected within a specified period of time;
In addition, Pacific Capital may call off the acquisition if:
* there has been a material adverse change in the business, results
of operations, condition (financial or otherwise), assets,
properties, liabilities or reserves of San Benito Bank;
* the representations and warranties of San Benito Bank relating to
environmental compliance are not true and accurate; or
* the results of environmental inspections, investigations or
surveys conducted by Pacific Capital with respect to the
properties of San Benito Bank identify violations or potential
violations of environmental laws, or if San Benito Bank refuses
to allow Pacific Capital to conduct inspections, investigations
or surveys.
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If the acquisition is terminated by Pacific Capital because the
shareholders of San Benito Bank do not approve the acquisition, and either the
Board of Directors of San Benito Bank failed to use its best efforts to obtain
shareholder approval, or San Benito Bank enters into a merger, consolidation,
reorganization, tender offer or similar transaction with a third party within
twelve months of the date of the reorganization agreement, then San Benito Bank
will pay a termination fee of $1,650,000 to Pacific Capital, plus expenses not
to exceed $150,000.
San Benito Bank may call off the acquisition if:
* there has been a material adverse change in the business, results
of operations, condition (financial or otherwise), assets,
properties, liabilities or reserves of Pacific Capital;
* the average of the average closing bid and asked price of a share
of Pacific Capital 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 of the acquisition is
less than $25.00 (provided, however, that San Benito Bank and
Pacific Capital shall have failed to renegotiate the exchange
ratio within three (3) business days after determination of the
average price);
* San Benito Bank does not receive a satisfactory fairness opinion
from Hoefer & Arnett; or
* San Benito Bank receives a proposal for a merger, consolidation,
reorganization, tender offer or similar transaction with a third
party, and termination of the acquisition is required in order for
the Board of Directors of San Benito Bank to comply with its
fiduciary duties.
If the acquisition is terminated by San Benito Bank because of a merger,
consolidation, reorganization, tender offer or similar transaction with a third
party, then San Benito Bank will pay a termination fee of $1,650,000 to Pacific
Capital, plus expenses not to exceed $150,000. If, on the other hand, the
acquisition is terminated by San Benito Bank because Pacific Capital enters into
a merger, consolidation, reorganization, tender offer or similar transaction
with a third party, and the third party does not assume Pacific Capital's rights
and obligations under the acquisition, then Pacific Capital will pay a
termination fee of $1,650,000 to San Benito, plus expenses not to exceed
$150,000.
CERTAIN COVENANTS; CONDUCT OF BUSINESS PRIOR TO EFFECTIVE TIME
The reorganization agreement provides that, during the period from the
date of the reorganization agreement to the completion of the acquisition, San
Benito Bank will conduct its business only in the normal and ordinary course of
business and consistent with prudent banking practices and will not, without the
prior written consent of Pacific Capital, do any of the following:
* take any action that would reasonably be anticipated to result in
a material adverse change with respect to San Benito Bank;
* take or fail to take any action that would cause or permit the
representations and warranties made by San Benito Bank in the
reorganization agreement to be inaccurate at the time of the
closing of the acquisition or preclude San Benito Bank from making
such representations and warranties at the time of the closing of
the acquisition;
* change its articles of incorporation or bylaws or its authorized
capital stock;
* except as explicitly permitted under the reorganization agreement
or in accordance with applicable law, engage in any transaction
with any affiliated person or allow such persons to acquire any
assets from San Benito Bank, except (i) in the form of wages,
salaries, fees for legal services and reimbursement of expenses,
and (ii) loans to its officers, directors and employees made in
the ordinary course of business and consistent with San Benito
Bank's past practice (provided that San Benito Bank shall
immediately notify Pacific Capital after making
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any such loans after the date of the reorganization agreement, and
shall provide Pacific Capital with appropriate loan file
documentation for each loan);
* discharge or satisfy any lien, charge or encumbrance or pay any
obligation or liability, except in the ordinary course of business
consistent with prudent banking practices and except for
liabilities incurred in connection with the transactions
contemplated by the reorganization agreement;
* declare or make any payment of dividends or other distributions to
the San Benito Bank shareholders, or purchase, retire or redeem,
or obligate itself to purchase, retire or redeem, any of its
shares of capital stock or other securities (except as consistent
with prior practices of San Benito Bank in terms of both amount
and timing and in an amount not to exceed 25% of San Benito Bank's
year-end net income);
* issue or authorize the issuance of any shares of its capital stock
or other securities or options of any kind, except for the
issuance of San Benito Bank common stock under the valid exercise
of San Benito Bank stock options as contemplated by the
reorganization agreement and that were outstanding on the date of
the reorganization agreement;
* grant any new stock options or permit the acceleration of vesting
of any existing stock options, except as provided in the San
Benito Bank stock option plans and in the reorganization
agreement;
* accelerate the vesting of pension or other benefits in favor of
employees of San Benito Bank, except as provided in various
deferred compensation plans of San Benito Bank;
* acquire any capital stock or other equity securities or acquire
any equity or ownership interest in any entity, except through
settlement of indebtedness or foreclosure, or in a fiduciary
capacity;
* mortgage, pledge or subject to lien or charge, or grant any
security interest or any other encumbrance or restriction on any
of its property, business or assets, except in the ordinary course
of business and consistent with prudent banking practices;
* sell, transfer, lease 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;
* make any change in the rate of compensation, commission, bonus or
other remuneration of any of San Benito Bank's directors,
officers, employees or agents;
* enter into any employment or consulting contract (other than as
contemplated in the reorganization agreement) or other agreement
with any director, officer or employee of San Benito Bank;
* 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 San Benito Bank
for the benefit of its directors, employees or former employees,
except as contemplated by the reorganization agreement;
* make any capital expenditures or capital additions or betterments
in excess of an aggregate of $100,000, except for improvements or
betterments relating to property owned or leased by San Benito
Bank as of the date of the reorganization agreement;
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* hire or employ any person as a replacement for an existing
position with an annual salary equal to or greater than $50,000 or
hire or employ any person for any newly-created position;
* 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;
* make any, or acquiesce with any, change in any (i) credit
underwriting standards or practices, (ii) asset liability
management techniques, or (iii) accounting methods, principles or
material practices, except as required by changes in GAAP as
concurred in by San Benito Bank's independent auditors, or as
required by any applicable regulatory authority;
* take any action that would prevent the acquisition from qualifying
as a business combination transaction for which "pooling of
interests" accounting is available;
* sell any investment securities in a transaction involving a book
gain or loss of more than $50,000 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 Pacific Capital of any purchases in excess of
$1,000,000);
* make, renew, extend the maturity of, or alter any of the material
terms of any loan, other than classified loans, to any single
borrower and his or her related interests in excess of the
principal amount of $350,000;
* 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 $100,000;
or
* create any new branches or enter into any acquisitions or leases
of real property, including both new leases and lease extensions.
The reorganization agreement also provides that San Benito Bank will:
* use all reasonable efforts to preserve its present business
organization and its relationships and goodwill with its present
depositors, borrowers, employees and others having business
relationships with San Benito Bank, and to maintain all offices,
machinery, equipment, materials supplies, inventories, vehicles
and other properties of San Benito Bank in good operating
condition and repair;
* perform all of its obligations under contracts, leases and
documents relating to or affecting its assets, properties and
business, except such obligations as San Benito Bank may in good
faith reasonably dispute;
* maintain in full force and effect all insurance policies now in
effect or as renewed 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;
* file all reports required to be filed with governmental
authorities and observe and conform with, in all material
respects, all applicable laws, rules, regulations, ordinances,
codes, orders, licenses and permits, except those being contested
in good faith by appropriate proceedings;
* 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;
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* withhold the proper amounts for all taxes, and pay all required
taxes;
* periodically furnish to Pacific Capital information, loan reports
and updates of information previously provided;
* account for all transactions and prepare all financial statements
of San Benito Bank in accordance with GAAP (unless otherwise
instructed by RAP, in which instance account for such transaction
in accordance with RAP);
The reorganization agreement also provides that Pacific Capital will not,
without the prior written consent of San Benito Bank:
* take any action which would reasonably be anticipated to result in
a material adverse change with respect to Pacific Capital;
* take or fail to take any action that would cause or permit the
representations and warranties made in the reorganization
agreement to be inaccurate at the time of the closing of the
acquisition or preclude Pacific Capital from making such
representations and warranties at the time of the closing; or
* 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 Capital's independent auditors.
The reorganization agreement also provides that Pacific Capital will:
* duly observe and conform in all material respects to all lawful
requirements applicable to its business;
* on the effective date of the acquisition, have the directors and
officers of San Benito Bank who become officers or directors of
Pacific Capital or its subsidiaries added to Pacific Capital's
directors' and officers' liability insurance policy;
* file all necessary regulatory applications; and
* reserve for issuance sufficient shares of Pacific Capital common
stock to issue in connection with the acquisition.
AMENDMENT AND WAIVER
Subject to applicable law, the reorganization agreement may be amended at
any time by action of the Boards of Directors of Pacific Capital and San Benito
Bank without action by their shareholders if the amendment is in writing and
executed by the party against which enforcement of the amendment is sought.
However, after any submission of the reorganization agreement to the
shareholders of San Benito Bank for approval, no amendment shall be made that
decreases the consideration to be paid to the San Benito Bank shareholders for
the San Benito Bank common stock, or that materially and adversely affects the
rights of the shareholders of San Benito Bank under the reorganization
agreement, without the requisite approval of the shareholders of San Benito
Bank. In addition, either Pacific Capital or San Benito Bank by action of their
respective Boards of Directors, may, at any time prior to the closing date of
the acquisition, extend the performance of any obligation or action required by
the reorganization agreement, waive inaccuracies in representations and
warranties or waive compliance with any agreements or conditions for their
respective benefit contained in the reorganization agreement.
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DIRECTOR VOTING
Under the terms of the reorganization agreement, San Benito Bank has
agreed to use its best efforts to cause each of its directors to vote all shares
of San Benito Bank common stock owned by them in favor of the acquisition,
increasing the likelihood that the reorganization agreement will be approved by
the shareholders of San Benito Bank. Subject to fiduciary duties, each director
may execute appropriate documents to evidence his determination to vote their
shares of San Benito Bank common stock in favor of the acquisition.
NON-COMPETE AGREEMENTS
Prior to the closing date of the acquisition, San Benito Bank has agreed
to use its best efforts to cause Edward T. Stephenson and Gerald T. McCullough
to enter into non-compete agreements with Pacific Capital, to be dated as of the
closing date of the acquisition and to become effective on the effective date of
the acquisition. The non-compete agreements will provide that Messrs. Stephenson
and McCullough agree, among other things and with limited exceptions, not to
solicit the banking business of any current customers of San Benito Bank, or
participate or engage in any business which is competitive with Pacific Capital
or its subsidiaries for a period of two years after the effective date of the
acquisition.
REGULATORY APPROVALS
Under the reorganization agreement, Pacific Capital and San Benito Bank
have agreed to use their best efforts to obtain all necessary consents and
approvals of third parties for the acquisition. Completion of the acquisition is
conditioned upon the receipt of approval from the Federal Reserve Board, the
Federal Deposit Insurance Corporation, and the California Department of
Financial Institutions. Additionally, the merger of San Benito Bank with and
into First National Bank of Central California will require the prior approval
of the Office of the Comptroller of the Currency. See "The Acquisition --
Regulatory Approvals" (pages 33 through 35).
STOCK OPTION AGREEMENT
THE FOLLOWING IS A SUMMARY OF THE MATERIAL TERMS OF THE STOCK OPTION
AGREEMENT GRANTED BY SAN BENITO BANK TO PACIFIC CAPITAL IN CONNECTION WITH THE
REORGANIZATION AGREEMENT. A COPY OF THE STOCK OPTION AGREEMENT IS ATTACHED TO
THIS PROXY STATEMENT-PROSPECTUS AS APPENDIX C. THE STOCK OPTION AGREEMENT IS
INCORPORATED BY REFERENCE INTO THIS PROXY STATEMENT-PROSPECTUS. THIS SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE STOCK OPTION
AGREEMENT. SHAREHOLDERS OF SAN BENITO BANK ARE ENCOURAGED TO READ THE STOCK
OPTION AGREEMENT CAREFULLY AND IN ITS ENTIRETY.
GENERAL
In connection with the reorganization agreement, San Benito Bank granted
to Pacific Capital an option to purchase up to 525,000 shares of San Benito Bank
common stock, representing approximately 19.5% of the shares of San Benito Bank
outstanding, at a price of $19.00 per share.
The option is intended to increase the likelihood that we will complete
the acquisition in accordance with the terms of the reorganization agreement.
Some aspects of the stock option agreement may have the effect of discouraging
persons who might, prior to the time the acquisition is completed, be interested
in acquiring San Benito Bank or a significant interest in San Benito Bank from
considering or proposing such an acquisition, even if they were prepared to pay
a higher price per share for San Benito Bank common stock than the price per
share implicit in the exchange ratio used in the reorganization agreement.
Attempts to acquire San Benito Bank or an interest in San Benito Bank
could cause the option to become exercisable and give Pacific Capital the right
to receive a portion of any premium offered to San
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Benito Bank shareholders. This right would significantly increase the cost of a
proposed transaction to a potential acquiror when compared to the cost if the
stock option agreement did not exist. This increased cost might discourage a
potential acquiror from proposing to pay a higher price per share to acquire San
Benito Bank than it might otherwise have been willing to pay. In addition, the
management of San Benito Bank believes that exercise of the option is likely to
prohibit any reasonably foreseeable acquiror of San Benito Bank, other than
Pacific Capital, from accounting for any acquisition of San Benito Bank under
the pooling of interests accounting method, thereby further diminishing San
Benito Bank's attractiveness to such an acquiror. Finally, because Pacific
Capital would be a 19.5% shareholder of San Benito Bank after it exercises the
option, exercise of the option would increase the ability of Pacific Capital to
obtain the approval of San Benito Bank's shareholders to consummate the
acquisition with Pacific Capital and adversely affect the ability of a third
party to obtain San Benito Bank shareholder approval for an alternative
transaction.
Pacific Capital may exercise the option only following the occurrence of
a "purchase event," as defined below. The option terminates, however, upon the
earlier to occur of
* the effective time of the acquisition; or
* 365 days after (a) the termination of the reorganization agreement
on or following the occurrence of a "preliminary purchase event"
or "purchase event" or (b) termination of the reorganization
agreement by Pacific Capital because of a material breach of the
agreement by San Benito Bank or because San Benito Bank engages,
solicits or lends assistance to a business combination transaction
with an entity other than Pacific Capital; or
* any other termination of the reorganization agreement prior to the
occurrence of a purchase event or preliminary purchase event.
A "purchase event" includes the following:
* The Board of Directors of San Benito Bank enters into or agrees to
engage in or recommends to its shareholders a merger or other form
of business combination with an entity other than Pacific Capital,
or a tender offer for more than 50% of the outstanding San Benito
Bank common stock, or a sale of substantially all the assets of
San Benito Bank to an entity other than Pacific Capital; or
* any third party acquires ownership of, or the right to acquire
ownership of, more than 50% of San Benito Bank common stock.
A "preliminary purchase event" includes the following:
* any third party shall have commenced, or shall have filed a
registration statement with respect to a tender or exchange offer
which would give such party more than 50% of the San Benito Bank
common stock;
* any third party files an application with a government agency to
enter into a merger or other business combination with San Benito
Bank; or
* the San Benito Bank shareholders fail to approve the
reorganization agreement, or the San Benito Bank shareholders'
meeting is not held, or the San Benito Bank Board of Directors
shall have withdrawn or modified its recommendation to approve the
merger agreement, in each case following an announcement by a
third party of its intention to engage in a business combination
or commence a tender offer or exchange offer for San Benito Bank
common stock.
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REPURCHASE OBLIGATION
In connection with consummation of a merger or other business combination
with a third party or the acquisition by a third party of the majority of San
Benito Bank common stock, the stock option agreement provides that Pacific
Capital may require San Benito Bank to repurchase the option and any option
shares already acquired for cash. The repurchase price is equal to the amount
paid for any option shares Pacific Capital has already acquired plus the excess
of (a) the applicable price, as defined in this discussion, for each option
share over (b) the purchase price per option share multiplied by the number of
option shares with respect to which the option has not been exercised, plus the
excess of (c) the applicable price for each option share over (d) the purchase
price paid or payable per option share multiplied by the number of option shares
with respect to which the option has been exercised.
The "applicable price" means the highest price of
* the price of San Benito Bank common stock at which a third party
has made a tender offer or exchange offer for those shares;
* the highest bid price of San Benito Bank common stock as quoted on
the principal trading market or securities exchange on which
shares are traded or reported during the sixty business days
preceding the date on which Pacific Capital requests the
repurchase; or
* the price per share received by San Benito Bank shareholders in
any merger or other business combination with a party other than
Pacific Capital.
LISTING AND REGISTRATION RIGHTS
The stock option agreement provides that San Benito Bank has agreed to
list the option shares on a national securities exchange (if San Benito common
stock is not then listed, but qualifies for listing) and to grant Pacific
Capital customary rights to require registration by San Benito Bank of option
shares for sale by Pacific Capital under the securities laws.
SUBSTITUTE OPTION
The stock option agreement provides that if San Benito Bank agrees to be
acquired through merger or other business combination, then the agreement
governing that transaction shall provide that the option shall, upon
consummation of any stock transaction, be converted into an option to acquire
securities of the acquiror.
PROFIT LIMITATION
The stock option agreement provides that Pacific Capital's total profit
with respect to the option may not exceed $2.5 million.
RIGHTS OF DISSENTING SHAREHOLDERS
San Benito Bank shareholders who do not vote in favor of the acquisition
are entitled to certain rights under Chapter 13 of the California General
Corporation Law. Chapter 13 is reprinted in APPENDIX E to this proxy
statement-prospectus. All references in Chapter 13 and in this section to
"shareholder" are to the record holder of dissenting shares. A person who has
beneficial interest in shares of San Benito Bank common stock that are held of
record in the name of another person, like a broker or nominee, and who wishes
to exercise his or her dissenter's rights should act promptly to cause the
shareholder of record to follow the steps summarized in this discussion
properly, and in a timely manner to perfect his or her dissenter's rights.
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The following discussion is not a complete statement of the law relating
to the rights of dissenting shareholders and is qualified in its entirety by
APPENDIX E which is incorporated into this proxy statement-prospectus by
reference. Any shareholders who wish to exercise dissenters' rights, or who wish
to preserve the right to do so, should review this discussion and APPENDIX E
carefully, since failure to comply with the procedures required by Chapter 13
will result in the loss of dissenters' rights.
When the acquisition is completed, shareholders of San Benito Bank who
elect to exercise their dissenter's rights and who properly and timely perfect
those rights, will be entitled to receive the "fair market value," in cash, of
their shares. Section 1300(a) of the California General Corporation Law provides
that "fair market value" would be determined as of the day before the first
announcement of the terms of the acquisition, excluding any appreciation caused
by the acquisition. That date was February 2, 2000. See "Market Price and
Dividend Information."
If the acquisition is approved at the San Benito Bank special meeting of
shareholders, San Benito Bank will, within 10 days of the approval, mail a
notice to all record holders of shares of San Benito Bank common stock who did
not vote in favor of the acquisition, stating that the required shareholder
approval of the acquisition was obtained. The notice of approval will state the
price determined by San Benito Bank to represent the "fair market value" of any
dissenting shares, and will describe the procedures to be followed by dissenting
shareholders who wish to pursue further their statutory rights. The procedures
include a timely written demand that must be made upon San Benito Bank in order
to perfect the right to dissent. The notice of approval will include a copy of
Sections 1300 through 1304 of the California General Corporation Law.
Under Section 1301(a) of the California General Corporation Law, San
Benito Bank's statement in the notice of approval of its determination of the
fair market value of San Benito Bank common stock will constitute an offer by
San Benito Bank to purchase from its shareholders any dissenting shares at that
price, assuming the acquisition is completed. However, San Benito Bank's
determination of fair market value is not binding on its shareholders, and if a
dissenting shareholder chooses not to accept that offer, he or she has the right
during a period of 6 months following the mailing of the San Benito Bank notice
of approval to commence a lawsuit to have the fair market value, as defined in
Section 1300(a), determined by a court. The fair market value as determined by
the court could be higher or lower than the amount offered by San Benito Bank in
its notice of approval and any determination by the court would be binding on
both the dissenting shareholder or shareholders involved in the lawsuit and San
Benito Bank, as applicable.
Any record holder of San Benito Bank common stock who wishes to exercise
dissenters' rights, or to preserve the right to do so, must make a written
demand upon San Benito Bank that San Benito Bank pay the shareholder in cash the
fair market value of his or her dissenting shares.
The demand by holders of San Benito Bank common stock should be sent to
San Benito Bank, 300 Tres Pinos Road, Hollister, California 95023 Attention:
President. The written demand must state the number of shares held of record by
the shareholder, the number of shares which the shareholder demands that San
Benito Bank purchase for cash, and must also contain a statement of the amount
which the shareholder claims to be the fair market value of the dissenting
shares, as of the day before the announcement of the acquisition. That statement
will constitute an offer by the shareholder to sell his or her dissenting shares
to San Benito Bank at that price. The certificates for shares of San Benito Bank
common stock must also be included with the written demand.
A proxy card or ballot directing a vote against the acquisition is not
sufficient to meet the requirements for a written demand. The written demand and
the dissenting shareholder's share certificate(s) must be received by San Benito
Bank within 30 days after the date on which the San Benito Bank notice of
approval was mailed to the shareholder. The certificate(s) will be stamped or
endorsed with a statement that the shares are dissenting shares and returned to
the dissenting shareholder.
In addition, those shareholders may not have voted in favor of approval
of the acquisition, either in person or by proxy. A shareholder may vote in
favor of approval of the acquisition as to part of his or her shares without
jeopardizing the dissenting status of those shares not voted in favor of
approval of the
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acquisition. However, a shareholder should clearly specify the number of shares
not voted in favor of approval of the acquisition.
A dissenting shareholder will be bound by the terms of the acquisition,
and will lose the right to receive the fair market value of his or her shares in
cash if:
* the shareholder votes in favor of approval of the acquisition; or
* San Benito Bank does not receive the shareholder's written demand
within 30 days after the San Benito Bank notice of approval was
mailed to the shareholder; or
* the shareholder otherwise fails to comply in a timely manner with
the procedures of Chapter 13 as discussed in this section or
contained in APPENDIX E.
Dissenting shares may lose their status as dissenting shares if any of
the following occurs:
* the acquisition is abandoned;
* the shares are transferred before being submitted to San Benito
Bank for endorsement;
* the shareholder withdraws his or her demand with the consent of
San Benito Bank in the absence of an agreement between the
shareholder and San Benito Bank as to the price of his or her
shares; or
* the shareholder fails to file suit against San Benito Bank or
otherwise fails to become a party to the suit within 6 months
following the mailing of the San Benito Bank notice of approval.
San Benito Bank will pay the fair market value of dissenting shares at
the later of 30 days following an agreement as to the amount to be paid, or
within 30 days after all statutory and contractual conditions to the acquisition
are satisfied. However, if the payment cannot be made due to the provisions set
forth in the California Financial Code or the California General Corporation Law
dealing with restrictions on a corporation's ability to distribute funds or
assets to a shareholder, then those shareholders holding dissenting shares will
become creditors of San Benito Bank and their claims will be payable as soon as
permissible under those provisions. See "Information About San Benito Bank --
Regulation and Supervision."
This discussion summarizes some provisions of Chapter 13 of the
California General Corporation Law, but shareholders of San Benito Bank
considering the exercise of their rights under those sections should read in
full Chapter 13, which is reproduced in APPENDIX E and should consult their own
legal advisors. The receipt of cash payment for dissenting shares will result in
recognition of gain or loss for federal income tax purposes by the dissenting
shareholders.
One condition to the obligation of Pacific Capital to consummate the
acquisition is that dissenting shares constitute less than 9.9% of the
outstanding shares of San Benito Bank common stock. In calculating this
percentage, Pacific Capital will not include shareholders that either withdraw
their demand for San Benito Bank to purchase their shares or that lose their
dissenters' appraisal rights.
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DESCRIPTION OF PACIFIC CAPITAL COMMON STOCK
Described below is a summary of the material features of the Pacific
Capital common stock.
GENERAL
Pacific Capital has authority to issue up to 60,000,000 shares of
Pacific Capital common stock, without par value, and 1,000,000 shares of
preferred stock, without par value.
At April 26, 2000, there were 24,605,308 shares of Pacific Capital
common stock issued and outstanding and 1,458,165 additional shares reserved
for issuance to holders of outstanding stock options granted under stock
option plans maintained by Pacific Capital. In connection with the adoption
by Pacific Capital of a shareholder rights plan and pursuant to a Certificate
of Determination of Rights, Preference and Privileges dated as of December
15, 1999, Pacific Capital designated 60,000 shares of its authorized
preferred stock as Series A Preferred Stock. There are no shares of preferred
stock outstanding.
The Pacific Capital Board of Directors, without shareholder approval,
may authorize one or more classes of serial preferred stock with preferences
or voting rights that may adversely affect the rights of holders of Pacific
Capital common stock. Although it is not possible to state the actual effect
any issuance of serial preferred stock might have upon the rights of holders
of the Pacific Capital common stock, the issuance of serial preferred stock
might:
- restrict dividends on Pacific Capital common stock if preferred
stock dividends have not been paid;
- dilute the voting power and equity interest of holders of Pacific
Capital common stock to the extent that any preferred stock series
has voting rights or is convertible into Pacific Capital common
stock; or
- prevent current holders of Pacific Capital common stock from
participating in Pacific Capital's assets upon liquidation until
any liquidation preferences granted to the holders of the serial
preferred stock are satisfied.
In addition, Pacific Capital's issuance of serial preferred stock,
may, under certain circumstances, have the effect of discouraging an attempt
to change control of Pacific Capital. The Pacific Capital Board of Directors
has adopted a shareholder rights plan and distributed preferred share
purchase rights to protect Pacific Capital from improper takeover tactics and
unfair takeover bids. See "Comparison of Shareholder Rights - Shareholder
Rights Plan" for a description of Pacific Capital's shareholder rights plan.
VOTING RIGHTS
Shareholders of Pacific Capital common stock are entitled to vote on
all matters submitted for approval by the shareholders of Pacific Capital.
The holders of Pacific Capital common stock are entitled to one vote per
share of stock owned.
Shareholder approval of most actions requires the approval of a
majority of the shares represented and voting, whether in person or by proxy,
assuming a quorum is present (which shares voting affirmatively also
constitute a majority of the required quorum). A quorum for any shareholder
meeting is the representation at the meeting of the holders of a majority of
the outstanding shares entitled to vote. California law requires the approval
by the holders of at least a majority of the outstanding shares for some
matters, including reorganizations and the sale of all or substantially all
of Pacific Capital's assets, the dissolution of Pacific Capital, amendments
to Pacific Capital's articles of incorporation, and certain amendments to its
bylaws. Shareholders of Pacific Capital are not entitled to cumulate votes
when electing directors.
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DIVIDEND RIGHTS
Shareholders of Pacific Capital common stock are entitled to receive
dividends and distributions from Pacific Capital when and as declared by the
Pacific Capital Board of Directors out of funds legally available for
distribution. Any dividends or other distributions on Pacific Capital common
stock will be distributed ratably among the holders of Pacific Capital common
stock based upon the number of shares owned of record.
PREEMPTIVE RIGHTS
Shareholders of Pacific Capital common stock have no preemptive or
similar rights to participate in any future stock issuances or offerings by
Pacific Capital.
LIQUIDATION RIGHTS
In the event of the liquidation of Pacific Capital, the assets
remaining after payment or other satisfaction of all of Pacific Capital's
outstanding debts and obligations shall be distributed equally among the
holders of Pacific Capital common stock, on the basis of the number of shares
owned of record by each holder. No holder of any shares of Pacific Capital
common stock shall have any right to receive the distribution of any assets
other than cash.
ASSESSMENT AND REDEMPTION
The outstanding shares of Pacific Capital common stock are nonassessable,
and Pacific Capital has no right to redeem any or all of the Pacific Capital
common stock at any time or upon the occurrence of any event.
TRANSFER AGENT
The transfer agent and registrar for Pacific Capital common stock is
Norwest Bank Minnesota, N.A.
COMPARISON OF SHAREHOLDER RIGHTS
In the acquisition, you will exchange your shares of San Benito Bank
common stock for shares of Pacific Capital common stock. Both Pacific Capital
and San Benito Bank are organized under the laws of the State of California
and are subject to provisions of the California General Corporation law. In
addition, San Benito Bank, as a banking corporation, is subject to provisions
of the California Financial Code.
On consummation of the acquisition, you will become a shareholder of
Pacific Capital. The articles of incorporation and bylaws of Pacific Capital,
in addition to the California General Corporation Law, will govern your
rights as a shareholder of Pacific Capital.
Described below is a summary of the material differences between the
rights of a holder of Pacific Capital common stock and a holder of San Benito
Bank common stock.
GENERAL
PACIFIC CAPITAL. The common stock of Pacific Capital has no
preemptive, subscription or conversion rights, or redemption or repurchase
provisions. These shares are non-assessable and require no sinking fund. Each
shareholder is entitled to receive dividends that may be declared by the
Board of Directors and to share pro rata in the event of dissolution or
liquidation. Pacific Capital's Board of Directors may issue additional shares
of common stock without shareholder approval. The holders are entitled to one
vote per share on all matters presented to them and do not have cumulative
voting in the election of directors.
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SAN BENITO BANK. The common stock of San Benito Bank has no
preemptive, subscription or conversion rights, or redemption or repurchase
provisions. These shares are non-assessable and require no sinking fund. Each
shareholder is entitled to receive dividends that may be declared by the
Board of Directors and to share pro rata in the event of dissolution or
liquidation. San Benito Bank's Board of Directors may issue additional shares
of common stock without shareholder approval. The holders are entitled to one
vote per share on all matters presented to them except that, on prior notice,
they have the right to cumulate votes in the election of directors.
Cumulative voting allows a shareholder to cast a number of votes equal to the
number of directors to be elected multiplied by the number of shares held in
the shareholder's name on the record date. This total number of votes may be
cast for one nominee or may be distributed among as many candidates as the
shareholder desires. The candidates, up to the number of directors to be
elected, receiving the highest number of votes are elected.
AUTHORIZED CAPITAL STOCK
PACIFIC CAPITAL. The authorized capital stock of Pacific Capital
consists of 60,000,000 shares of common stock, and 1,000,000 shares of
preferred stock. As of April 26, 2000, there were 24,605,308 shares of
Pacific Capital common stock issued and outstanding, and 1,458,165 additional
shares were reserved for issuance to holders of outstanding Pacific Capital
stock options. As of that date, there were 60,000 shares of preferred stock
designated, and none issued or outstanding.
SAN BENITO BANK. The authorized capital stock of San Benito Bank
consists of 9,765,624 shares of common stock, and 2,000,000 shares of
preferred stock, without par value. As of the record date for the special
meeting, there were 2,853,344 shares of San Benito Bank common stock issued
and outstanding, and 171,876 additional shares were reserved for issuance
to holders of outstanding San Benito Bank stock options. As of the record
date for the special meeting, there were no shares of preferred stock issued
or outstanding.
SHAREHOLDER MATTERS
ACTIONS BY SHAREHOLDERS WITHOUT A MEETING
CALIFORNIA CORPORATE LAW. The California General Corporation Law
generally provides that any action that may be taken at any meeting of
shareholders of a California corporation may be taken by the shareholders by
written consent without a meeting. Generally such action by written consent
shall be effective as of the date that written consents have been received
from holders of outstanding shares having not less than the minimum number of
votes that would be necessary to authorize the taking of such action at a
meting at which all outstanding shares entitled to vote thereon were present
and voted. Generally this requires that any action taken by written consent
must be approved by a majority of the outstanding voting stock.
A California corporation is required to give prompt notice to all of
the non-consenting shareholders of any action taken by written consent and
action with respect to the following matters shall not be effective until ten
(10) days after receipt of written consents from the requisite number of
shareholders: (a) approval of a contract or other transaction with an
interested director, as determined under Section 310 of the California
General Corporation Law; (b) the indemnification of any officer, director
employee or other agent of the corporation; (c) any merger, consolidation,
sale of assets or similar transaction with respect to which shareholder
approval is required under Section 1201 of the California General Corporation
Law; or (d) any plan for distribution of the assets of the corporation other
than in accordance with the rights of any outstanding shares of preferred
stock.
PACIFIC CAPITAL. Pacific Capital's articles of incorporation and
bylaws have adopted the California General Corporation Law procedures, and
have also established the following additional procedures for shareholder
action by written consent and without a meeting:
- No corporate action taken by written consent of the
shareholders shall be effective until the later of (i)
twenty (20) days after the date of the commencement of the
solicitation (as
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such term is defined in Rule 14a-1 promulgated under the
Securities Exchange Act of 1934) of consents and (ii) such
date as may be specified in the proxy statement or
information statement furnished in connection with the
solicitation, provided that the foregoing shall not apply
to any action to be taken by written consent pursuant to a
solicitation of not more than ten (10) persons. A consent
solicitation shall be deemed to commence when a proxy
statement or information statement containing the
information required by law is first furnished to the
shareholders of Pacific Capital.
- Any written consents delivered in connection with any
solicitation of consents or other proposed action by
written consent shall be effective on delivery of the
original or certified copy of the consent to Pacific
Capital and shall be valid only for a maximum of sixty (60)
days after the date of the earliest dated consent delivered
to Pacific Capital. A shareholder may revoke a written
consent at any time prior to the time that written consents
of the number of shares required to authorize the proposed
action have been filed with the Secretary of Pacific
Capital. A revocation of a consent shall be effective upon
receipt of the revocation by the applicable person.
- Pacific Capital shall engage independent inspectors of
election for the purposes of reviewing the validity of any
consents or revocations of consents.
SAN BENITO BANK. San Benito's Bank's bylaws have adopted the California
General Corporation Law procedures for action by shareholders without a
meeting. Unanimous written consent of the shareholders is required for the
election of directors to non-vacant positions.
SHAREHOLDER NOMINATIONS
PACIFIC CAPITAL. Pacific Capital's bylaws establish procedures for the
nomination of any person for election as a director by any shareholder. These
procedures generally require that the shareholder submit to the Secretary of
Pacific Capital (a) a written nomination not less than fourteen (14) nor more
than fifty (50) days prior to the scheduled date for the meeting and (b) certain
information about the nominee and the shareholder. However, if less than 21 days
notice of the meeting is given to shareholders, such nomination shall be mailed
or delivered to the Secretary of Pacific Capital not later than the close of
business on the 7th day following the date on which the notice of the meeting is
mailed to the shareholders. The Chairperson of any meeting of shareholders may
disregard any nomination not made in accordance with the provisions of Pacific
Capital's bylaws and may instruct the inspectors of the election to disregard
any votes cast for such nominee. These procedures do not apply to (i) the
election of directors at a meeting called under Section 305 of the California
General Corporation Law to fill a vacancy on the Board of Directors or (ii) the
election of directors by written consent without a meeting.
SAN BENITO BANK. San Benito Bank's bylaws establish procedures for the
nomination of any person for election as a director by any shareholder. These
procedures generally require that the shareholder submit to the President of San
Benito Bank written notification of such shareholder's intention to make a
nomination not less than 21 days nor more than 60 days prior to any meeting of
shareholders called for election of directors. Such notification shall contain
certain information about the nominee and the shareholder.
NOTICE OF SHAREHOLDER PROPOSALS
PACIFIC CAPITAL. Pacific Capital's bylaws establish procedures for
shareholders to submit proposals, other than nominations for election as
directors, for action by the shareholders at any meeting of shareholders.
Proposals by shareholders for action at any meeting of shareholders must be
submitted as follows:
- If the proposal is submitted by any shareholder other than
the shareholder(s) who requested the meeting, the
shareholder must deliver written notice of the proposal to
the Secretary of Pacific Capital not later than the close of
business on the 90th day nor
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<PAGE>
earlier than the close of business on the 120th day prior to
the first anniversary of the preceding year's annual
meeting; provided that in the event that the date of the
annual meeting is more than thirty (30) days before or more
than sixty (60) days after such anniversary date, to be
timely delivered the proposal must be delivered (i) not
earlier than the close of business on the 120th day prior to
such annual meeting and (ii) not later than the close of
business on the late of (x) the 90th day prior to such
annual meeting or (y) the 10th day following the day on
which public announcement of the date of such meeting is
first made. In no event shall the public announcement of an
adjournment of an annual meeting or the adjournment of an
annual meeting commence a new time period of delivery of a
shareholder's proposal.
- If the proposal is submitted by any of the shareholder(s)
who requested the meeting, the shareholder(s) must deliver
written notice of the proposal to the Secretary of Pacific
Capital simultaneously with the shareholder(s) submission of
their request for the meeting.
- Notwithstanding the foregoing, any shareholder may submit
for consideration at a meeting any proposal which is
directly related to a matter which is specifically
identified in the notice of the meeting as a matter on which
action will be requested.
- No shareholder, other than the shareholder(s) on whose
behalf the meeting is noticed and called, may submit more
than one (1) proposal for consideration at any one (1)
meeting of shareholders.
SAN BENITO BANK. San Benito Bank's bylaws do not establish procedures for
shareholders to submit proposals, other than nominations for election as
directors, for action by the shareholders at any meeting of shareholders.
DIRECTORS
NUMBER
PACIFIC CAPITAL. Presently the authorized number of Directors of Pacific
Capital is not less than nine (9) nor more than thirteen (13) with the exact
number of Directors set at twelve (12). The Board of Directors of Pacific
Capital may vary the exact number of Directors within the foregoing range
without shareholder approval.
SAN BENITO BANK. The bylaws of San Benito Bank provide that the
authorized number of directors of San Benito Bank shall be not less than eight
(8) nor more than fifteen (15), unless changed by amendment of the articles of
incorporation or, if not prohibited by the articles, by an amendment of the
bylaws adopted by the shareholders. The exact number of directors is presently
set at nine (9), which number may be varied by the Board of Directors within
the above range without shareholder approval.
ELECTION
PACIFIC CAPITAL. Shareholders of Pacific Capital do not have the right
to cumulate their votes in the election of directors.
SAN BENITO BANK. Shareholders of San Benito Bank are entitled to
cumulate their votes for the election of directors. Cumulative voting allows a
shareholder to cast a number of votes equal to the number of directors to be
elected multiplied by the number of shares held in the shareholder's name on
the record date. This total number of votes may be cast for one nominee or may
be distributed among as many candidates as the shareholder desires. The
candidates, up to the number of directors to be elected, receiving the highest
number of votes are elected.
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<PAGE>
AMENDMENT OF ARTICLES OF INCORPORATION AND BYLAWS
PACIFIC CAPITAL. The California General Corporation Law and the articles
of incorporation and bylaws of Pacific Capital generally provide that: (a)
amendments of the articles of incorporation must be approved by the Board of
Directors and the holders of a majority of the outstanding shares entitled to
vote; and (b) amendments of the bylaws may be approved by either the Board of
Directors or the holders of a majority of the outstanding shares entitled to
vote, except that an amendment specifying or changing a fixed number of
directors or the maximum or minimum number of directors or changing from a
fixed to a variable number of directors, or vice versa, must be approved by the
holders of a majority of the outstanding shares entitled to vote. In addition,
an amendment of the articles of incorporation or bylaws that would reduce the
fixed number of directors or the minimum number of directors to a number less
than five (5) cannot be adopted if the votes cast against its adoption at a
meeting of shareholders or the shares not consenting in the case of action by
written consent are equal to or greater than 16.67% of the outstanding shares
entitled to vote.
In addition, Pacific Capital's articles of incorporation provide that
any amendment or repeal of the "fair price" provisions described in the
following section must be approved by at least 66.67% of the outstanding voting
shares of Pacific Capital common stock.
SAN BENITO BANK. The articles of incorporation of San Benito Bank may be
amended in accordance with the California General Corporation Law. The bylaws
of San Benito Bank may be amended by the shareholders or by the directors in
accordance with the California General Corporation Law.
FAIR PRICE PROVISION
PACIFIC CAPITAL. Pacific Capital's articles of incorporation contain a
provision of a type commonly known as a "fair price" provision. In general, the
articles of incorporation require the approval by holders of at least 66.67% of
the outstanding voting shares (as defined in the articles of incorporation) of
Pacific Capital as a condition for any merger, certain other business
combinations and similar transactions involving Pacific Capital and any holder
of 10% or more of the outstanding voting shares of Pacific Capital unless either
(a) the transaction is approved by a majority of the "disinterested directors"
(namely, members of the Board of Directors who are neither affiliated with the
ten percent shareholder nor nominated, elected or appointed to the Board of
Directors by such shareholder) or (b) certain minimum price, form of
consideration and procedural requirements are met. The articles of incorporation
also require the approval by the holders of at least 66.67% of the outstanding
voting shares of Pacific Capital to amend or repeal, or adopt provisions
inconsistent with the "fair price" provisions at any time in the future.
The "fair price" provisions are intended to provide a measure of
assurance that all shareholders of Pacific Capital will be treated similarly in
the event of certain business combinations involving a ten percent shareholder.
The overall effect of these proposals may be to render more difficult the
accomplishment of any merger or other business combinations or the assumption of
control by a substantial shareholder without the prior approval of the Board of
Directors, and thus to make more difficult the removal of management. The "fair
price" provisions in Pacific Capital's articles of incorporation are designed to
protect minority shareholders from a purchaser using two-tier pricing and
similar tactics in an attempt to take over Pacific Capital. The provisions are
not designed to prevent or discourage tender offers for all of Pacific Capital's
common stock or business combinations approved by a majority of the
disinterested directors. They generally should not prevent a tender offer or
other business combination in which each shareholder receives substantially the
same price for his or her shares as each other shareholder or which the Board of
Directors has approved.
The acquisition of San Benito Bank is not a business combination within
the meaning of the "fair price" provision.
SAN BENITO BANK. San Benito's articles of incorporation do not contain
a "fair price" provision.
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<PAGE>
SHAREHOLDER RIGHTS PLAN
PACIFIC CAPITAL. Pacific Capital recently adopted a shareholder rights
plan providing that holders of a share of Pacific Capital common stock also hold
one right to purchase one one-thousandth of a share of Pacific Capital's Series
A preferred stock for each share of Pacific Capital common stock held by the
shareholder. On December 14, 1999, the Board of Directors of Pacific Capital
declared and paid a dividend of one Right for each outstanding share of Pacific
Capital common stock. Each Right entitles the holder to purchase from Pacific
Capital one one-thousandth of a share of Series A Preferred at an exercise price
of $120, subject to adjustment. The description and terms of the Rights are
contained in a Stockholders Rights Agreement between Pacific Capital and Norwest
Bank Minnesota, N.A., as rights agent, and the following description is
qualified in its entirety by the Rights Agreement.
Shareholder rights plans, such as the one adopted by Pacific Capital, are
intended to encourage potential hostile acquirors of a "target" corporation to
negotiate with the board of directors of the target corporation in order to
avoid the occurrence of the triggering events specified in the plans.
Shareholder rights plans are intended to give the directors of a target
corporation the opportunity to assess the fairness and appropriateness of a
proposed transaction in order to determine whether or not it is in the best
interests of the corporation and its shareholders. Notwithstanding these
purposes and intentions of shareholder rights plans, such plans, including that
of Pacific Capital, could have the effect of discouraging a business combination
which shareholders believe to be in their best interests.
The Rights are not exercisable until the Distribution Date, as defined in
the Rights Agreement and discussed below. Unless extended or earlier redeemed by
Pacific Capital, the Rights will expire on November 30, 2009. The Rights attach
and trade only with the common stock of Pacific Capital and, until exercisable,
are evidenced by certificates for shares of common stock. Certificates for
shares of Pacific Capital common stock to be issued to shareholders of San
Benito Bank in connection with the acquisition will evidence the Rights and will
contain a notation incorporating the Rights Agreement by reference.
Each Right will separate from the common stock, Rights Certificates will
be issued and the Rights will become exercisable upon the Distribution Date.
Once issued, the Rights Certificates alone will evidence the Rights.
The Distribution Date is generally 20 business days after the earlier to
occur of (i) a public announcement that a person or group of affiliated or
associated persons has acquired beneficial ownership of 15% or more of the
outstanding shares of Pacific Capital common stock, (ii) the date, following the
change in the Board of Directors after the commencement of a tender or exchange
offer, on which a person enters into an agreement with Pacific Capital or any of
its subsidiaries generally providing for a merger or consolidation of the
company, a purchase of all or a substantial portion of the company's assets, or
a purchase of 15% or more of the Pacific Capital common stock then outstanding,
or (iii) commencement of a tender or exchange offer by any person pursuant to
which such person would acquire ownership of 15% or more of the Pacific Capital
common stock then outstanding, unless the tender or exchange offer is for all
outstanding shares of common stock at a price and on terms determined by at
least a majority of the outside directors of Pacific Capital to be (a) at a
price which is fair to Pacific Capital's shareholders and not inadequate, and
(b) otherwise in the best interests of Pacific Capital and its shareholders.
Following the Distribution Date, holders of Rights will be entitled to
receive, upon exercise and the payment of $120 per Right, one one-thousandth
share of the Series A Preferred. The Series A Preferred purchasable upon
exercise of the Right will not be redeemable. Each share of Series A Preferred
purchased upon exercise of a Right will be entitled to an aggregate dividend of
1,000 times the dividend declared per share of common stock. In the event of
liquidation of Pacific Capital, the holders of Series A Preferred will be
entitled to a minimum preferential liquidation payment equal to $1,000 per
share, plus an amount equal to accrued and unpaid dividends. Following the
payment of this amount to the holders of the Series A Preferred, the holders of
shares of common stock shall be entitled to receive an amount equal to $1.00 per
share of common stock. Following the payment of the foregoing amounts on the
Series A Preferred and the common stock, the holders of Series A Preferred and
the holders of common stock shall receive their ratable and proportionate share
of the remaining assets to be distributed on liquidation in the ratio of 1,000
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<PAGE>
to 1 with respect to the Series A Preferred and common stock, on a per share
basis, respectively. In the event of a consolidation, merger or similar
transaction by Pacific Capital, the holders of Series A Preferred will be
entitled to receive an amount per share equal to 1,000 times the aggregate
amount of cash, securities or other property for which shares of common stock
are exchanged in the transaction. Each share of Series A Preferred will have
1,000 votes, voting together with the shares of common stock.
Because of the nature of the dividend, liquidation and voting rights of
the shares of the Series A Preferred, the value of the one one-thousandth
interest in a share of Series A Preferred purchasable upon exercise of each
Right should approximate the value of one share of common stock.
Unless the Rights are earlier redeemed, in the event that Pacific Capital
is acquired in a merger or other business combination transaction or 50% or more
of its consolidated assets or earning power are sold, proper provision will be
made so that each holder of a Right will thereafter have the right to receive,
upon the exercise thereof at the then current exercise price of the Right, that
number of shares of common stock of the acquiring company which at the time of
such transaction will have a market value of two times the exercise price of the
Right. Similarly, unless the Rights are earlier redeemed, in the event that any
person becomes the beneficial owner of 15% or more of Pacific Capital's common
stock then outstanding, each holder of a Right which has not previously been
exercised (other than Rights beneficially owned by the acquiring person, which
shall be void) will have the right to receive, upon exercise of the Right, that
number of shares of Pacific Capital common stock having a market value of two
times the exercise price of the Right.
At any time after the acquisition by a person of 15% or more of Pacific
Capital's outstanding common stock and prior to the acquisition by such
acquiring person of 50% or more of the outstanding common stock, the Board of
Directors of Pacific Capital may exchange the Rights (other than Rights owned
by the acquiring person), in whole or in part, at an exchange ratio of one
share of Pacific Capital common stock per Right.
The Rights generally may be redeemed by Pacific Capital at $0.01 per
Right at any time prior to 20 business days after a public announcement that a
person or group has acquired beneficial ownership of 15% or more of the
outstanding shares of Pacific Capital common stock. After this 20-day period,
the Rights are redeemable only if a person or group commences a tender or
exchange offer and, with 270 days after the commencement of the offer, there is
an election of Directors of Pacific Capital which results in a change in a
majority of the directors. If there is an election and change in the Board of
Directors, Pacific Capital may redeem the Rights at a price of $0.01 per Right
at any time within 180 days after the date of the election. If Pacific Capital
redeems the Rights during this 180-day period, it must follow certain procedures
set forth in the Rights Agreement which are intended to enhance the
shareholder's ability to receive fair value for their shares of Pacific Capital
common stock. Accordingly, the Rights will not interfere with any merger or
business combination approved by the Board of Directors as being in the best
interests of the shareholders.
Until a Right is exercised, the holder will have no rights as a
shareholder of Pacific Capital (other than any rights resulting from the
holder's ownership of common stock), including the right to vote or receive
dividends.
SAN BENITO BANK. San Benito Bank does not have a shareholder rights plan.
ADDITIONAL ANTI-TAKEOVER PROVISIONS
In addition to the shareholder rights plan and the "fair price" provision
in Pacific Capital's articles of incorporation, provisions of Pacific Capital's
bylaws establish procedures for shareholder nomination of Directors, for
shareholder action by written consent and without a meeting and for submission
of shareholder proposals. These provisions may be considered to have an
"anti-takeover" effect and may discourage any attempt to take over control of
Pacific Capital. These bylaw provisions may discourage any attempt to take over
control of Pacific Capital as they may limit the action that can be taken by the
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<PAGE>
interested company and may lengthen the period of time required to acquire
control of Pacific Capital or to amend Pacific Capital's articles of
incorporation or bylaws.
The Board of Directors of Pacific Capital has determined that, while the
foregoing provisions might be deemed to have some "anti-takeover" effect, the
principal effect of these provisions is to protect the shareholders of Pacific
Capital and to provide the Board and the shareholders a reasonable opportunity
to evaluate and respond to any unsolicited acquisition proposal.
DIVIDENDS
PACIFIC CAPITAL. Shareholders are entitled to dividends when declared by
the Pacific Capital Board of Directors, after satisfaction of the prior rights
of holders of outstanding preferred stock, if any, subject to certain
restrictions on payment of dividends imposed by California law. See "Information
About Pacific Capital Bancorp - Regulation and Supervision."
SAN BENITO BANK. Shareholders of San Benito Bank are entitled to
dividends when declared by the San Benito Bank Board of Directors, after
satisfaction of the prior rights of holders of outstanding preferred stock, if
any, subject to certain restrictions on payment of dividends imposed by
California law. See "Information About San Benito Bank - Regulation and
Supervision."
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed Combined Balance Sheet as of
December 31, 1999, combines the historical consolidated balance sheets of
Pacific Capital Bancorp and San Benito Bank as if the combination of these
entities had been effective on December 31, 1999, after giving effect to certain
adjustments. These adjustments are based on estimates. The Unaudited Pro Forma
Condensed Combined Statements of Operations for the years ended December 31,
1999, 1998 and 1997 present the combined results of operations of Pacific
Capital Bancorp and San Benito Bank as if the combination had been effective at
the earliest period presented. The Unaudited Pro Forma Condensed Combined
Financial Information has been prepared from, and should be read in conjunction
with, the historical consolidated financial statements and notes thereto of
Pacific Capital Bancorp and San Benito Bank.
The Unaudited Pro Forma Condensed Combined Financial Information and
accompanying notes reflect the application of the pooling of interests method of
accounting for the acquisition. Under this method of accounting, the recorded
assets, liabilities, shareholders' equity, income and expenses of Pacific
Capital Bancorp and San Benito Bank are combined and reflected at their
historical amounts.
The pro forma combined figures shown in the Unaudited Pro Forma
Condensed Combined Financial Information are simply arithmetical combinations
of Pacific Capital Bancorp's and San Benito Bank's separate financial results;
you should not assume that Pacific Capital Bancorp or San Benito Bank would
have achieved the pro forma combined results if they had actually been combined
during the periods presented.
Information about the pending acquisition of Los Robles Bancorp by
Pacific Capital Bancorp is set forth in the Summary under "Recent Developments."
The combined company expects to achieve acquisition benefits in the form
of operating cost savings. The pro forma earnings, which do not reflect any
direct costs or potential savings which are expected to result from the
consolidation of the operations of Pacific Capital Bancorp and San Benito Bank,
are not indicative of the results of future operations. No assurances can be
given with respect to the ultimate level of expense savings. For further
explanation about these risks, read the information under "A Warning About
Forward-Looking Information" and "Risk Factors--We may not successfully
integrate our business operations."
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<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PACIFIC CAPITAL SAN BENITO PRO FORMA
BANCORP BANK ADJUSTMENTS (1) (2) COMBINED
---------------- ----------------- --------------------- ---------------
<S> <C> <C> <C> <C>
ASSETS:
Cash and non-interest bearing
balances due from banks ................ $ 121,500 $ 9,956 $131,456
Interest-bearing deposits in other
financial institutions ................. -- 2,555 2,555
Securities:
Held to Maturity ....................... 153,264 32,134 185,398
Available for Sale ..................... 528,426 26,273 554,699
Fed funds sold and securities
purchased under resale agreements....... -- 9,640 9,640
Loans, net of unearned income ............ 1,981,879 108,747 2,090,626
Less: reserve for loan losses .......... (28,686) (1,768) (30,454)
---------------- ----------------- --------------------- ---------------
Loans, net ............................ 1,953,193 106,979 -- 2,060,172
---------------- ----------------- --------------------- ---------------
Property and equipment ................... 35,175 2,336 37,511
Intangibles .............................. 16,633 85 16,718
Other Assets ............................. 71,091 11,069 82,160
---------------- ----------------- --------------------- ---------------
Total Assets .......................... $2,879,282 $201,027 -- $3,080,309
================ ================= ===================== ===============
LIABILITIES AND EQUITY:
Noninterest-bearing deposits ............. $ 546,193 $ 37,408 $ 583,601
Interest-bearing deposits ................ 1,893,988 143,868 2,037,856
---------------- ----------------- --------------------- ---------------
Total deposits ........................ 2,440,181 181,276 2,621,457
Fed funds purchased and other
short-term borrowings................... 80,507 -- 80,507
Long-term debt ........................... 98,801 17 98,818
Other liabilities ........................ 25,220 1,266 26,486
---------------- ----------------- --------------------- ---------------
Total liabilities ..................... 2,644,709 182,559 -- 2,827,268
---------------- ----------------- --------------------- ---------------
Stockholders' equity .....................
Common stock ............................. 8,186 15,628 $ (15,053) 8,761
Surplus .................................. 99,283 -- 15,053 114,336
Retained earnings ........................ 133,551 3,158 136,709
Unrealized net (depreciation),
available for sale securities .......... (6,447) (318) (6,765)
---------------- ----------------- --------------------- ---------------
Total stockholders' equity ............... 234,573 18,468 -- 253,041
---------------- ----------------- --------------------- ---------------
Total liabilities and
stockholders' equity ................... $2,879,282 $ 201,027 -- $3,080,309
================ ================= ===================== ===============
Stockholders' equity per share .......... $ 9.55 $ 6.48 9.63
</TABLE>
- ---------------------
(1) Based on the exchange ratio of 0.605 shares of Pacific Capital common
stock for each share of San Benito Bank common stock, 1,724,664
additional shares of Pacific Capital common stock would have been
issued as of December 31, 1999, on the acquisition of San Benito Bank.
(2) Merger expenses and nonrecurring changes directly related to the
business combination will be expensed as incurred. Pacific Capital
estimates the total of such charges will be approximately $1,125,000 on
a pretax basis and $652,500 on an after-tax basis, or a reduction of
$0.02 in earnings per share. The effect of such charges, the majority
of which are anticipated to be recorded in the third quarter of 2000
upon consummation of the acquisition, are not reflected in the Pro
Forma Combined Condensed Balance Sheet.
57
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-----------------------------------------------------------------------
PACIFIC CAPITAL SAN BENITO PRO FORMA
BANCORP BANK COMBINED
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Interest income .................................. $ 211,643 $ 14,011 $ 225,654
Interest expense ................................. 67,856 4,619 72,475
--------------------- --------------------- ---------------------
Net interest income ............................ 143,787 9,392 153,179
Provision for loan losses ........................ 6,375 700 7,075
--------------------- --------------------- ---------------------
Net interest income after
provision for loan losses ...................... 137,412 8,692 146,104
Noninterest income ............................... 41,618 1,774 43,392
Noninterest expense(1) ........................... 110,389 7,004 117,393
--------------------- --------------------- ---------------------
Income before taxes ............................ 68,641 3,462 72,103
Income tax expense ............................... 24,367 1,203 25,570
--------------------- --------------------- ---------------------
Net Income ....................................... $ 44,274 $ 2,259 $ 46,533
--------------------- --------------------- ---------------------
--------------------- --------------------- ---------------------
Net income available to common
shareholders ................................... $ 44,274 $ 2,259 $ 46,533
Net income per diluted common share(2)............ $ 1.79 $ 0.77 $ 1.75
Average diluted common shares
outstanding(2).................................. 24,790 2,913 26,552
</TABLE>
- ----------------------
(1) Merger expenses and nonrecurring charges directly related to the
business combination will be expensed as incurred. Pacific Capital
estimates the total of such charges will be approximately
$1,125,000 on a pretax basis and $652,000 on an after-tax basis,
or a reduction of $0.03 in earnings per share. The effect of such
charges, the majority of which are anticipated to be recorded in
the third quarter of 2000 upon consummation of the acquisition,
are not reflected in the Pro Forma Combined Condensed Statement of
Operations for the year ended December 31, 1999.
(2) Net income per diluted common share and average diluted common
shares outstanding shown in the pro forma analysis reflect the
restatement of share amounts for all stock dividends and stock
splits of Pacific Capital and San Benito Bank through the date
of this proxy statement-prospectus.
58
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------------------------
PACIFIC CAPITAL SAN BENITO PRO FORMA
BANCORP BANK COMBINED
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Interest income .................................. $ 193,639 $ 11,898 $ 205,537
Interest expense ................................. 68,113 4,146 72,259
--------------------- --------------------- ---------------------
Net interest income ............................ 125,526 7,752 133,278
Provision for loan losses ........................ 9,123 190 9,313
--------------------- --------------------- ---------------------
Net interest income after
provision for loan losses ...................... 116,403 7,562 123,965
Noninterest income ............................... 38,221 1,235 39,456
Noninterest expense(1) ........................... 106,082 5,870 111,952
--------------------- --------------------- ---------------------
Income before taxes ............................ 48,542 2,927 51,469
Income tax expense ............................... 18,975 995 19,970
--------------------- --------------------- ---------------------
Net Income ....................................... $ 29,567 $ 1,932 $ 31,499
--------------------- --------------------- ---------------------
--------------------- --------------------- ---------------------
Net income available to common
shareholders ................................... $ 29,567 $ 1,932 $ 31,499
Net income per diluted common share(2) ........... $ 1.21 $ 0.68 $ 1.20
Average diluted common shares
outstanding(2) ................................ 24,447 2,836 26,163
</TABLE>
- ---------------------
(1) Merger expenses and nonrecurring charges directly related to the
business combination will be expensed as incurred. Pacific Capital
estimates the total of such charges will be approximately
$1,125,000 on a pretax basis and $652,000 on an after-tax basis,
or a reduction of $0.03 in earnings per share. The effect of such
charges, the majority of which are anticipated to be recorded in
the third quarter of 2000 upon consummation of the acquisition,
are not reflected in the Pro Forma Combined Condensed Statement of
Operations for the year ended December 31, 1998.
(2) Net income per diluted common share and average diluted common
shares outstanding shown in the pro forma analysis reflect the
restatement of share amounts for all stock dividends and stock
splits of Pacific Capital and San Benito Bank through the date
of this proxy statement-prospectus.
59
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------------------------
PACIFIC CAPITAL SAN BENITO PRO FORMA
BANCORP BANK COMBINED
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Interest income .................................. $ 168,272 $ 9,903 $ 178,175
Interest expense ................................. 60,590 3,136 63,726
--------------------- --------------------- ---------------------
Net interest income ............................ 107,682 6,767 114,449
Provision for loan losses ........................ 8,500 200 8,700
--------------------- --------------------- ---------------------
Net interest income after
provision for loan losses ...................... 99,182 6,567 105,749
Noninterest income ............................... 30,442 933 31,375
Noninterest expense(1) ........................... 83,053 4,916 87,969
--------------------- --------------------- ---------------------
Income before taxes ........................... 46,571 2,584 49,155
Income tax expense ............................... 16,288 830 17,118
--------------------- --------------------- ---------------------
Net Income ....................................... $ 30,283 $ 1,754 $ 32,037
--------------------- --------------------- ---------------------
--------------------- --------------------- ---------------------
Net income available to common shareholders ...... $ 30,283 $ 1,754 $ 32,037
Net income per diluted common share(2) ........... $ 1.25 $ 0.63 $ 1.24
Average diluted common shares outstanding (2)..... 24,188 2,794 25,878
</TABLE>
- --------------------
(1) Merger expenses and nonrecurring charges directly related to the
business combination will be expensed as incurred. Pacific Capital
estimates the total of such charges will be approximately
$1,125,000 on a pretax basis and $652,000 on an after-tax basis,
or a reduction of $0.03 in earnings per share. The effect of such
charges, the majority of which are anticipated to be recorded in
the third quarter of 2000 upon consummation of the acquisition,
are not reflected in the Pro Forma Combined Condensed Statement of
Operations for the year ended December 31, 1997.
(2) Net income per diluted commmon share and average diluted common
shares outstanding shown in the pro forma analysis reflect the
restatement of share amounts for all stock dividends and stock
splits of Pacific Capital and San Benito Bank through the date
of this proxy statement-prospectus.
60
<PAGE>
INFORMATION ABOUT PACIFIC CAPITAL BANCORP
GENERAL
Pacific Capital is a California corporation incorporated in 1981 and a
bank holding company registered under the Bank Holding Company Act. Pacific
Capital is the holding company and sole shareholder of two commercial banks
located in California: Santa Barbara Bank & Trust and First National Bank of
Central California, including its affiliate South Valley National Bank. In
addition to its banking subsidiaries, Pacific Capital also owns Pacific Capital
Commercial Mortgage Company (formerly Sanbarco Mortgage Company) and Pacific
Capital Services Corporation, each of which are California corporations. As a
registered bank holding company, Pacific Capital is subject to supervision and
regulation by the Federal Reserve.
At December 31, 1999, Pacific Capital had consolidated assets of $2.88
billion, deposits of $2.44 billion, loans of $1.95 billion and shareholders's
equity of $235 million. As of December 31, 1999, Pacific Capital and its
subsidiaries employed approximately 1,100 full-time equivalent employees. The
principal executive offices of Pacific Capital are located at 200 East Carrillo
Street, Suite 300, Santa Barbara, California 93101, and its telephone number is
(805) 564-6298.
Additional information regarding Pacific Capital and its subsidiaries is
included in the Pacific Capital documents incorporated by reference herein. See
"Where You Can Find More Information."
SUBSIDIARIES
Santa Barbara Bank & Trust was originally chartered in 1960 as Santa
Barbara National Bank. In 1979, the bank converted to a California state bank
charter and changed its name to "Santa Barbara Bank & Trust". In 1995, Santa
Barbara Bank & Trust became a member of the Federal Reserve System and is
presently subject to examination and regulation by the Federal Reserve Board and
the Commissioner of Financial Institutions of the State of California. Santa
Barbara Bank & Trust operates from 27 locations serving the California
communities of Buellton, Camarillo, Carpinteria, Fillmore, Goleta, Lompoc, Los
Olivos, Montecito, Oxnard, Santa Barbara, Santa Maria, Santa Paula, Solvang,
Vandenberg Village, Ventura and surrounding communities in Santa Barbara and
Ventura counties. The deposits of Santa Barbara Bank & Trust are insured by the
FDIC to the fullest extent authorized by law.
First National Bank of Central California (formerly First National Bank
of Monterey County) commenced operations on April 2, 1984. In 1998, First
National Bank merged with an affiliate bank, South Valley National Bank. The
operations of the former South Valley National Bank continue to be operated by
First National Bank under the name "South Valley National Bank." First National
Bank operates from six locations serving Monterey, Salinas, Carmel, Watsonville,
and surrounding areas in Monterey and Santa Cruz Counties in California, plus
four locations operated under the South Valley name in Morgan Hill, Gilroy,
Hollister, San Juan Bautista, and surrounding areas in Santa Clara and San
Benito Counties in California. The primary federal regulator for First National
Bank of Central California is the Office of the Comptroller of the Currency, and
the deposits of First National Bank are insured by the FDIC to the fullest
extent authorized by law.
Each of Santa Barbara Bank & Trust and First National Bank of Central
California, including South Valley National Bank, offers a full range of
commercial banking services to households, professionals, and small- to
medium-sized businesses. These include various commercial, real estate and
consumer loan, leasing and deposit products. These banks offer other services
including electronic fund transfers and safe deposit boxes to both individuals
and businesses. In addition, services such as lockbox payment servicing, foreign
exchange, letters of credit, and cash management are offered to business
customers. Santa Barbara Bank & Trust and First National Bank also offer trust
and investment services to individuals and businesses. These include acting as
trustee or agent for living and testamentary trusts, employee benefit trusts,
and profit sharing plans. Investment management and advisory services are also
provided.
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Pacific Capital Commercial Mortgage Company (formerly Sanbarco Mortgage
Company), a California corporation, was formed in 1988 and is primarily involved
in mortgage brokering services and the servicing of brokered loans. Pacific
Capital Services Corporation, a California corporation, was incorporated in 1985
to arrange and broker residential, commercial and construction loans and other
extensions of credit. It is currently an inactive corporation.
REGULATION AND SUPERVISION
TO THE EXTENT THAT THE FOLLOWING INFORMATION DESCRIBES STATUTORY AND
REGULATORY PROVISIONS, IT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF THOSE PROVISIONS. ALSO, SUCH STATUTES, REGULATIONS AND POLICIES ARE
CONTINUALLY UNDER REVIEW BY CONGRESS AND STATE LEGISLATURES AND FEDERAL AND
STATE REGULATORY AGENCIES. A CHANGE IN STATUTES, REGULATIONS OR REGULATORY
POLICIES APPLICABLE TO PACIFIC CAPITAL COULD HAVE A MATERIAL EFFECT ON THE
BUSINESS OF PACIFIC CAPITAL.
GENERAL
Pacific Capital, its banking subsidiaries and its nonbanking subsidiaries
are subject to extensive regulation by federal and state agencies. The
regulation of bank holding companies and their subsidiaries is intended
primarily for the protection of depositors, federal deposit insurance funds and
the banking system as a whole and not for the protection of security holders.
This regulatory environment, among other things, may restrict Pacific
Capital's ability to diversify into certain areas of financial services, acquire
depository institutions in certain markets and pay dividends on its capital
stock. It may also require Pacific Capital to provide financial support to one
or more of its banking subsidiaries, maintain capital balances in excess of
those desired by management and pay higher deposit insurance premiums as a
result of the deterioration in the financial condition of depository
institutions in general.
REGULATORY AGENCIES
BANK HOLDING COMPANY. Pacific Capital Bancorp, as a bank holding company,
is subject to regulation under the Bank Holding Company Act and to inspection,
examination and supervision by the Federal Reserve.
SUBSIDIARY BANKS. First National Bank of Central California, as a
national banking association, is subject to regulation and examination primarily
by the Office of the Comptroller of the Currency and secondarily by the Federal
Reserve and the Federal Deposit Insurance Corporation. Santa Barbara Bank &
Trust, as a California banking corporation, is subject to regulation and
examination by the California Department of Financial Institutions and, as a
member of the Federal Reserve System, the Federal Reserve.
NONBANK SUBSIDIARIES. Pacific Capital's nonbank subsidiaries also are
subject to regulation by the Federal Reserve and are subject to the laws and
regulations of both the federal government and those states in which they
conduct business.
BANK HOLDING COMPANY ACTIVITIES
BANKING-RELATED REQUIREMENT. Under the Bank Holding Company Act, bank
holding companies generally may not acquire the beneficial ownership or control
of more than 5% of the voting shares, or substantially all of the assets of any
company, including a bank, without the Federal Reserve's prior approval. Also,
bank holding companies generally may engage, directly or indirectly, only in
banking and such other activities as the Federal Reserve determines to be
closely related to banking.
Effective March 11, 2000, subject to certain conditions, bank holding
companies that elect to become financial holding companies may affiliate with
securities firms and insurance companies and engage in other activities that are
financial in nature. Also effective March 11, 2000, no prior regulatory approval
will be required for a financial holding company to acquire a company, other
than a bank or savings
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association, engaged in activities that are financial in nature or incidental to
activities that are financial in nature, as determined by the Federal Reserve.
See "Financial Modernization".
INTERSTATE BANKING. Under the Riegle-Neal Interstate Banking and
Branching Act (Riegle-Neal Act), a bank holding company may acquire banks in
states other than its home state, subject to any state requirement that the bank
has been organized and operating for a minimum period of time, not to exceed
five years, and the requirement that the bank holding company not control, prior
to or following the proposed acquisition, more than 10% of the total amount of
deposits of insured depository institutions nationwide or, unless the
acquisition is the bank holding company's initial entry into the state, more
than 30% of such deposits in the state, or such lesser or greater amount set by
the state.
The Riegle-Neal Act also authorizes banks to merge across state lines,
thereby creating interstate branches. States may opt out of the Riegle-Neal Act
and thereby prohibit interstate mergers in the state.
REGULATORY APPROVAL. In determining whether to approve a proposed bank
acquisition, federal banking regulators will consider, among other factors, the
effect of the acquisition on competition, the public benefits expected to be
received from the acquisition, the projected capital ratios and levels on a
post-acquisition basis, and the acquiring institution's record of addressing the
credit needs of the communities it serves, including the needs of low and
moderate income neighborhoods, consistent with the safe and sound operation of
the bank, under the Community Reinvestment Act of 1977.
DIVIDEND RESTRICTIONS
Pacific Capital Bancorp is a legal entity separate and distinct from its
two subsidiary banks and other subsidiaries. Its principal source of funds to
pay dividends on its common stock is dividends from its subsidiaries. Various
federal and state statutory provisions and regulations limit the amount of
dividends that Pacific Capital's bank subsidiaries may pay without regulatory
approval.
Dividends payable by First National Bank of Central California without
the express approval of the OCC are limited to the bank's retained net profits
for the preceding two calendar years plus retained net profits up to the date of
any dividend declaration in the current calendar year. The OCC defines retained
net profits as net income, less dividends declared during the period, both of
which are based on regulatory accounting principles.
Under California law, the board of directors of Santa Barbara Bank &
Trust may declare a cash dividend, subject to the restriction that the amount
available for the payment of cash dividends is limited to the lesser of the
bank's retained earnings, or the bank's net income for the latest three fiscal
years, less dividends previously declared during that period, or, with the
approval of the CDFI, to the greater of the retained earnings of the bank, the
net income of the bank for its last fiscal year or the net income of the bank
for its current fiscal year. Federal Reserve regulations also govern the payment
of dividends by a state member bank, such as Santa Barbara Bank & Trust. Under
Federal Reserve regulations, dividends may not be paid unless both capital and
earnings limitations have been met. First, no dividend may be paid if it would
result in a withdrawal of capital or exceed the bank's net profits then on hand,
after deducting its losses and bad debts. Exceptions to this limitation are
available only upon the prior approval of the Federal Reserve and the approval
of two-thirds of the bank's shareholders. Second, a state member bank may not
pay a dividend without the prior written approval of the Federal Reserve if the
total of all dividends declared in one year exceeds the total of net profits for
that year plus the preceding two calendar years, less any required transfers to
surplus under state or federal law.
Federal bank regulatory agencies have broad authority to prohibit Pacific
Capital's subsidiary banks from engaging in unsafe or unsound practices in
conducting their businesses. The payment of dividends, depending on the
financial condition of the bank in question, could be deemed an unsafe or
unsound practice. The ability of Pacific Capital's subsidiary banks to pay
dividends in the future is currently influenced, and could be further
influenced, by bank regulatory policies and capital guidelines.
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HOLDING COMPANY STRUCTURE
TRANSFER OF FUNDS FROM BANKING SUBSIDIARIES. Pacific Capital's banking
subsidiaries are subject to restrictions under federal law that limit the
transfer of funds or other items of value from these subsidiaries to Pacific
Capital and its nonbanking subsidiaries, including affiliates, whether in the
form of loans and other extensions of credit, investments and asset purchases,
or as other transactions involving the transfer of value from a subsidiary to an
affiliate or for the benefit of an affiliate. Unless an exemption applies, these
transactions by a banking subsidiary with a single affiliate are limited to 10%
of the subsidiary bank's capital and surplus and, with respect to all covered
transactions with affiliates in the aggregate, to 20% of the subsidiary bank's
capital and surplus. Also, loans and extensions of credit to affiliates
generally are required to be secured in specified amounts.
SOURCE OF STRENGTH DOCTRINE. The Federal Reserve has a policy that a bank
holding company is expected to act as a source of financial and managerial
strength to each of its subsidiary banks and, under appropriate circumstances,
to commit resources to support each subsidiary bank. This support may be
required at times when the bank holding company may not have the resources to
provide it. Capital loans from Pacific Capital to either of its subsidiary banks
are subordinate in right of payment to deposits and certain other indebtedness
of the subsidiary bank. In addition, in the event of Pacific Capital's
bankruptcy, any commitment by Pacific Capital to a federal bank regulatory
agency to maintain the capital of a subsidiary bank will be assumed by the
bankruptcy trustee and entitled to a priority of payment.
DEPOSITOR PREFERENCE. The Federal Deposit Insurance Act provides that, in
the event of the "liquidation or other resolution" of an insured depository
institution, the claims of depositors of the institution, including the claims
of the FDIC as subrogee of insured depositors, and certain claims for
administrative expenses of the FDIC as receiver will have priority over other
general unsecured claims against the institution. If an insured depository
institution fails, insured and uninsured depositors, along with the FDIC, will
have priority in payment ahead of unsecured, nondeposit creditors, including
Pacific Capital.
LIABILITY OF COMMONLY CONTROLLED INSTITUTIONS. Under the FDI Act, an
insured depository institution is generally liable for any loss incurred, or
reasonably expected to be incurred, by the FDIC in connection with (a) the
default of a commonly controlled insured depository institution or (b) any
assistance provided by the FDIC to a commonly controlled insured depository
institution in danger of default. "Default" means generally the appointment of a
conservator or receiver. "In danger of default" means generally the existence of
certain conditions indicating that a default is likely to occur in the absence
of regulatory assistance.
CAPITAL REQUIREMENTS
Pacific Capital and its two subsidiary banks are subject to capital
adequacy requirements and guidelines administered by the Federal Reserve, the
OCC and the FDIC.
The Federal Deposit Insurance Corporation Act of 1991 required that the
Federal Reserve, the OCC and the FDIC adopt regulations defining five capital
tiers for banks: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
material adverse effect on Pacific Capital's business.
Quantitative measures, established by the regulators to ensure capital
adequacy, require that Pacific Capital and its two subsidiary banks maintain
minimum ratios of total capital to risk-weighted assets of eight percent (8%)
and of Tier 1 capital to risk-weighted assets of four percent (4%).
There are two categories of capital under the guidelines. Tier 1 capital
includes common shareholders' equity, qualifying preferred stock and, for bank
holding companies, trust preferred securities, less goodwill and certain other
deductions, including the unrealized net gains and losses, after applicable
taxes, on available-for-sale securities carried at fair value. Tier 2 capital
includes preferred stock not
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qualifying as Tier 1 capital, mandatory convertible debt, subordinated debt, the
allowance for loan losses and net unrealized gains on marketable securities,
subject to limitations established by the guidelines. Total capital is the sum
of Tier 1 capital and Tier 2 capital, and at least half of total capital must be
in the form of Tier 1 capital.
Under the guidelines, capital is compared to the relative risk related to
the balance sheet. To derive the risk included in the balance sheet, one of four
risk weights (0%, 20%, 50% and 100%) is applied to different balance sheet and
off-balance sheet assets, primarily based on the relative credit risk of the
counterparty. For example, claims guaranteed by the U.S. government or one of
its agencies are risk-weighted at 0%. Off-balance sheet items, such as loan
commitments and derivative financial instruments, are also assigned one of the
above risk weights after calculating balance sheet equivalent amounts. For
example, ceratin loan commitments are converted at 50% and then risk-weighted at
100%. Derivative financial instruments are converted to balance sheet
equivalents based on notional values, replacement costs and remaining
contractual terms. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and
other factors. In addition, the federal banking agencies have specified minimum
"leverage ratio" (the ratio of Tier 1 capital to quarterly average total assets)
guidelines for bank holding companies and state member banks. The minimum
leverage ratio guideline is three percent (3%) for banking organizations that
meet certain specified criteria, including that they have the highest regulatory
rating. All other banking organizations and state member banks are required to
maintain a leverage ratio of three percent (3%) plus an additional cushion of at
least two percent (2%).
The Federal Reserve's capital guidelines provide that banking
organizations experiencing internal growth or making acquisitions are expected
to maintain strong capital positions substantially above the minimum supervisory
levels, without significant reliance on intangible assets. Also, the guidelines
indicate that the Federal Reserve will consider a "tangible Tier 1 leverage
ratio" in evaluating proposals for expansion or new activities. The tangible
Tier 1 leverage ratio is the ratio of a banking organization's Tier 1 capital
(excluding intangibles) to total assets (excluding intangibles).
The Federal Reserve, the FDIC and the OCC have adopted rules to
incorporate market and interest rate risk components into their risk-based
capital standards. Amendments to the risk-based capital requirements,
incorporating market risk, became effective January 1, 1998. Under the new
market risk requirements, capital will be allocated to support the amount of
market risk related to a financial institution's ongoing trading activities.
At December 31, 1999, Pacific Capital's ratio of total capital (the sum
of Tier 1 and Tier 2 capital) to risk-weighted assets was 11.8%, and its ratio
of Tier 1 capital to risk-weighted assets was 10.5%. Pacific Capital's leverage
ratio at December 31, 1999 was 7.9%.
Based on the most recent regulatory notifications received from the OCC
and the Federal Reserve, respectively, both First National Bank of Central
California and Santa Barbara Bank & Trust are well capitalized. To be
categorized as well capitalized, the institution must maintain a risk-based
total capital ratio of at least ten percent (10%), a risk-based Tier 1 capital
ratio of at least six percent (6%) and a leverage ratio of at least five percent
(5%), and not be subject to a capital directive order. There are no conditions
or events since receiving such notifications that management believes have
changed the risk-based capital category of Pacific Capital's subsidiary banks.
The FDI Act requires federal bank regulatory agencies to take "prompt
corrective action" with respect to FDIC-insured depository institutions that do
not meet minimum capital requirements. A depository institution's treatment for
purposes of the prompt corrective action provisions will depend upon how its
capital levels compare to various capital measures and certain other factors, as
established by regulation.
As an additional means to identify problems in the financial management
of depository institutions, the FDI Act requires federal bank regulatory
agencies to establish certain non-capital safety and soundness standards for
institutions for which they are the primary federal regulator. The standards
relate generally
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to operations and management, asset quality, interest rate exposure and
executive compensation. The agencies are authorized to take action against
institutions that fail to meet such standards.
FDIC INSURANCE
Through the Bank Insurance Fund, the FDIC insures the deposits of Pacific
Capital's two depository institution subsidiaries up to prescribed limits for
each depositor. The amount of FDIC assessments paid by each BIF member
institution is based on its relative risk of default as measured by regulatory
capital ratios and other factors. Specifically, the assessment rate is based on
the institution's capitalization risk category and supervisory subgroup
category. An institution's capitalization risk category is based on the FDIC's
determination of whether the institution is well capitalized, adequately
capitalized or less than adequately capitalized. An institution's supervisory
subgroup category is based on the FDIC's assessment of the financial condition
of the institution and the probability that FDIC intervention or other
corrective action will be required.
The BIF assessment rate currently ranges from zero to 27 cents per $100
of domestic deposits. The FDIC may increase or decrease the assessment rate
schedule on a semi-annual basis. An increase in the BIF assessment rate could
have a material adverse effect on Pacific Capital's earnings, depending on the
amount of the increase. The FDIC is authorized to terminate a depository
institution's deposit insurance upon a finding by the FDIC that the
institution's financial condition is unsafe or unsound or that the institution
has engaged in unsafe or unsound practices or has violated any applicable rule,
regulation, order or condition enacted or imposed by the institution's
regulatory agency. The termination of deposit insurance for either of Pacific
Capital's subsidiary depository institutions could have a material adverse
effect on Pacific Capital's earnings.
All FDIC-insured depository institutions must pay an annual assessment to
provide funds for the payment of interest on bonds issued by the Financial
Corporation, a federal corporation chartered under the authority of the Federal
Housing Finance Board. The bonds, commonly referred to as FICO bonds, were
issued to capitalize the Federal Savings and Loan Insurance Corporation.
FDIC-insured depository institutions will continue to pay an assessment rate
equal to the rate assessed on deposits insured by the Savings Association
Insurance Fund.
FISCAL AND MONETARY POLICIES
Pacific Capital's business and earnings are affected significantly by the
fiscal and monetary policies of the federal government and its agencies. Pacific
Capital is particularly affected by the policies of the Federal Reserve, which
regulates the supply of money and credit in the United States. Among the
instruments of monetary policy available to the Federal Reserve are (a)
conducting open market operations in United States government securities, (b)
changing the discount rate of borrowings of depository institutions, (c)
imposing or changing reserve requirements against depository institutions'
deposits, and (d) imposing or changing reserve requirements against certain
borrowing by banks and their affiliates. These methods are used in varying
degrees and combinations to directly affect the availability of bank loans and
deposits, as well as the interest rates charged on loans and paid on deposits.
For that reason alone, the policies of the Federal Reserve have a material
effect on the earnings of Pacific Capital.
COMPETITION
The financial services industry is highly competitive. Pacific Capital's
banking subsidiaries compete with various financial services providers, such as
banks, savings and loan associations, credit unions, finance companies, mortgage
banking companies, insurance companies, and money market and mutual fund
companies. They also face increased competition from non-banking institutions
such as brokerage houses and insurance companies, as well as from financial
services subsidiaries of commercial and manufacturing companies. Many of these
competitors enjoy the benefits of advanced technology, fewer regulatory
constraints and lower cost structures.
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Beginning March 11, 2000, securities firms and insurance companies that
elect to become financial holding companies may acquire banks and other
financial institutions. This recent development may significantly change the
competitive environment in which Pacific Capital and its subsidiaries conduct
business. See "Financial Modernization" below. The financial services industry
is also likely to become even more competitive as further technological advances
enable more companies to provide financial services. These technological
advances may diminish the importance of depository institutions and other
financial intermediaries in the transfer of funds between parties.
FINANCIAL MODERNIZATION
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act which, effective March 11, 2000, permits bank holding
companies to become financial holding companies and thereby affiliate with
securities firms and insurance companies and engage in other activities that are
financial in nature. A bank holding company may become a financial holding
company by filing a declaration that it wishes to become a financial holding
company and if each of its subsidiary banks is well capitalized under the FDICIA
prompt corrective action provisions, is well managed, and has at least a
satisfactory rating under the CRA. No prior regulatory approval is required for
a financial holding company to acquire a company, other than a bank or savings
association, engaged in activities that are financial in nature or incidental to
activities that are financial in nature, as determined by the Federal Reserve.
The Gramm-Leach-Bliley Act defines "financial in nature" to include
securities underwriting, dealing and market making; sponsoring mutual funds and
investment companies; insurance underwriting and agency; merchant banking
activities; and activities that the Federal Reserve has determined to be closely
related to banking. A national bank also may engage, subject to limitations on
investment, in activities that are financial in nature, other than insurance
underwriting, insurance company portfolio investment, real estate development
and real estate investment, through a financial subsidiary of the bank, if the
bank is well capitalized, well managed and has at least a satisfactory CRA
rating. Subsidiary banks of a financial holding company or national banks with
financial subsidiaries must continue to be well capitalized and well managed in
order to continue to engage in activities that are financial in nature without
regulatory actions or restrictions, which could include divestiture of the
financial in nature subsidiary or subsidiaries. In addition, a financial holding
company or a bank may not acquire a company that is engaged in activities that
are financial in nature unless each of the subsidiary banks of the financial
holding company or the bank has a CRA rating of satisfactory or better.
MANAGEMENT AND ADDITIONAL INFORMATION
Information concerning executive compensation, the principal holders of
voting securities, certain relationships and related transactions, and other
related matters concerning Pacific Capital is included or incorporated by
reference in its annual report on Form 10-K for the year ended December 31,
1999. Pacific Capital's annual report on Form 10-K is incorporated by reference
into this proxy statement-prospectus. San Benito Bank shareholders who want a
copy of this annual report or any document incorporated by reference into the
report may contact Pacific Capital at the address or phone number indicated
below under "Where You Can Find More Information."
INFORMATION ON PACIFIC CAPITAL'S WEB SITE
Information on the Internet web site of Pacific Capital or any subsidiary
of Pacific Capital is not part of this proxy statement-prospectus, and you
should not rely on that information in deciding whether to approve the
acquisition unless that information is also in this document or in a document
that is incorporated by reference into this proxy statement-prospectus.
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INFORMATION ABOUT SAN BENITO BANK
GENERAL
San Benito Bank engages in a general commercial banking business in San
Benito County and Santa Clara County in the State of California from its main
banking office located at 300 Tres Pinos Road, Hollister, California, its
branches located at 530 San Benito Street, Hollister, California, 301 The
Alameda, Suite G, San Juan Bautista, California, 751 First Street, Gilroy,
California and a loan production office at 330 Tres Pinos Road, Suites D-I and 2
Hollister, California.
San Benito Bank commenced operations in 1984 as a California-licensed
state bank and member of the Federal Reserve System.
San Benito Bank conducts a commercial banking business which includes
accepting demand, savings and time deposits and making commercial, real estate
and installment loans. It also offers installment note collections, issues
cashier's checks, sells traveler's checks and provides safe deposit boxes and
other customary banking services. San Benito Bank does not offer trust services
or international banking services and does not plan to do so in the near future.
In 1994, San Benito Bank made mutual funds and annuities available to customers
through Sentra Securities, an unaffiliated corporation.
The Bank's operating policy since its inception has emphasized serving
the banking needs of individuals and the business and professional communities
in Hollister, California and its surrounding area.
At December 31, 1999, San Benito Bank had assets of $201.0 million,
deposits of $181.3 million, loans (net) of $107.0 million and shareholders'
equity of $18.5 million.
At December 31, 1999, the total of San Benito Bank's installment credit
card and other loans outstanding was $15,095,000, the total of commercial loans
outstanding was $37,471,000, and the total of real estate loans outstanding was
$56,181,000 ($28,504,000 in construction loans and $27,677,000 in other),
representing 13.9%, 34.4% and 51.7%, respectively of the Bank's loan portfolio.
The Bank accepts real estate, listed securities, savings and time deposits,
automobiles, machinery, equipment and certain receivables as collateral for
loans.
At December 31, 1998, the total of San Benito Bank's installment, credit
card and other loans outstanding was $13,298,000, the total of commercial loans
outstanding was $31,830,000, and the total of real estate loans outstanding was
$42,367,000 ($27,499,000 in construction loans and $14,868,000 in other),
representing 15.2%, 36.4% and 48.4%, respectively of the Bank's loan portfolio.
Most of San Benito Bank's business is with customers located in and
around San Benito County and in southern Santa Clara County in California.
The local real estate industry is important to the Bank's business because
significant portions of the Bank's loan portfolio are for real estate
purposes and/or are secured by real property. At December 31, 1999, San
Benito Bank had outstanding real estate loans and commitments to extend
credit for real estate purposes totaling $70.6 million and other loans and
commitments to extend credit secured by real estate totaling $5.3 million.
At December 31, 1998, San Benito Bank had outstanding real estate loans
and commitments to extend credit for real estate purposes totaling $61 million
and other loans and commitments to extend credit secured by real estate totaling
$3 million.
In extending credit and commitments to borrowers for real estate
purposes, San Benito Bank's policy is to obtain deeds of trust and, in some
cases, guarantees as security. The repayment of such loans is primarily expected
to come from the sale of the related property or from the borrower's cash flow.
The Bank's requirement for collateral and guarantees is determined on a
case-by-case basis in
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connection with management's evaluation of the credit worthiness of the
borrower. Credit losses from lending transactions related to real estate compare
favorably with the Bank's credit losses on its loan portfolio as a whole.
Although real estate loans may be subject to risk in the event of a
serious downturn in regional real property values, based upon management's
evaluation of sales or reaffirmation of appraisals, San Benito Bank has not
experienced any significant reductions in collateral value of such loans.
However, no assurance can be given that significant reductions in collateral
value will not occur in the future. Further, for the three years covered by the
financial statements contained in this proxy statement-prospectus, real estate
loans in the aggregate amount of only $4,000 have been charged off by the Bank.
Other real estate acquired by foreclosure is stated at the lower of the recorded
investment in the property or its estimated fair value less costs to sell. At
the time of foreclosure, the value of the underlying loan is written down to the
estimated fair value less costs to sell by a charge to the allowance for credit
losses, if necessary. Any subsequent write-downs are charged to other expenses.
Operating expenses of such properties, net of related income and gains and
losses on their disposition are included in other expenses. Other real estate
acquired by foreclosure and included in other assets was $0, $0 and $169,000 at
December 31, 1999, 1998 and 1997, respectively.
The Bank's deposits are attracted from individual and commercial
customers. A material portion of the Bank's deposits has not been obtained from
a single person or a few persons, the loss of any one or more of which would
have a material adverse effect on the business of San Benito Bank, nor is a
material portion of the Bank's loans concentrated within a single industry or
group of related industries.
In order to attract loan and deposit business from individuals and small
businesses, the Bank maintains lobby hours from 9 a.m. to 5 p.m., Monday through
Thursday, from 9 a.m. to 6 p.m. on Fridays and from 9 a.m. to 1 p.m. on
Saturdays. The Bank also maintains drive-up window hours from 9 a.m. to 6 p.m.,
Monday through Friday and from 9 a.m. to 1 p.m. on Saturdays, and 4 automated
teller machines operate 24 hours per day, seven days per week, at the Bank's
headquarters banking office and three branches.
San Benito Bank employed sixty-six (66) full-time employees and
twenty-two (22) part-time employees as of March 1, 2000.
COMPETITION
The banking business in California generally, and in San Benito Bank's
primary service area specifically, is highly competitive with respect to both
loans and deposits, and is dominated by a relatively small number of major banks
with many offices operating over a wide geographic area. Among the advantages
such major banks have over San Benito Bank are their ability to finance wide
ranging advertising campaigns and to allocate their investment assets, including
loans, to regions of higher yield and demand. Such banks offer certain services
such as international banking and trust services which are not offered directly
by San Benito Bank but which San Benito Bank has offered indirectly through
correspondent institutions when its customers sought these services. In
addition, by virtue of their greater total capitalization, such banks have
substantially higher lending limits than San Benito Bank. Legal lending limits
to an individual customer are limited to a percentage of a bank's total capital
accounts. As of December 31, 1999, San Benito Bank's legal loan limits to
individual customers were approximately $3,061,000 for unsecured loans and
$5,102,000 for secured loans. For borrowers desiring loans in excess of San
Benito Bank's lending limits, San Benito Bank may, in the future, make such
loans on a participation basis with its correspondent banks taking the amount of
loans in excess of San Benito Bank's lending limits. In other cases, San Benito
Bank may refer such borrowers to larger banks or other lending institutions.
As of December 31, 1999, there were eleven (11) operating bank offices in
San Benito Bank's primary service area, which consists principally of the county
of San Benito, California and the City of Gilroy, California. The Bank's primary
service area also contained four (4) offices of savings and loan
69
<PAGE>
associations. San Benito Bank's primary service area is oriented towards light
industry, small businesses and agriculture.
San Benito Bank relies substantially on local promotional activity,
personal contacts by its officers, directors and employees, referrals by its
shareholders, extended hours, personalized service and its reputation in the
communities it serves to compete effectively.
PROPERTY
San Benito Bank operates from four facilities, three (3) of which are
located in San Benito County and one (1) of which is located in Santa Clara
County. The main office is located at 300 Tres Pinos Road, Hollister,
California. The two-story 13,724 square foot facility was built in 1989 and is
the Bank's administrative headquarters. The land and building are owned by the
Bank and had a book value of $150,000 and $1,166,000 respectively, at December
31, 1999. The Bank's San Benito County branches are located at 301 The Alameda,
Suite G, in San Juan Bautista and 530 San Benito Street in Hollister. Both
branches occupy approximately 1800 square feet. The Bank domiciles its SBA,
mortgage lending, and Visa departments at 330 Tres Pinos Road, Suites D-1 and 2,
which contain about 3700 square feet. In October 1997, the Bank opened a full
service branch at 751 First Street, Gilroy, California. This branch occupies
4,368 square feet. All facilities other than the administrative headquarters are
leased. The various operating leases expire through 2003 but the agreements
include options to extend for ten to fifteen years. Lease rates are adjusted
periodically for changes in certain economic indices. Lease expense was $152,000
in 1999, $141,000 in 1998 and $86,000 in 1997. Minimum annual lease commitments
under these leases are as follows:
<TABLE>
<CAPTION>
Annual Lease Commitments
-------------------------
<S> <C>
2000 $139,000
2001 100,000
2002 79,000
2003 9,000
TOTAL $327,000
========
</TABLE>
REGULATION AND SUPERVISION
TO THE EXTENT THAT THE FOLLOWING INFORMATION DESCRIBES STATUTORY AND
REGULATORY PROVISIONS, IT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF THOSE PROVISIONS. ALSO, SUCH STATUTES, REGULATIONS AND POLICIES ARE
CONTINUALLY UNDER REVIEW BY CONGRESS AND STATE LEGISLATURES AND FEDERAL AND
STATE REGULATORY AGENCIES. A CHANGE IN STATUTES, REGULATIONS OR REGULATORY
POLICIES APPLICABLE TO SAN BENITO BANK COULD HAVE A MATERIAL EFFECT ON THE
BUSINESS OF SAN BENITO BANK.
GENERAL
As a California state licensed bank, San Benito Bank is subject to
regulation, supervision and periodic examination by the CDFI. The Bank also is a
member of the Federal Reserve System and as such is subject to regulation,
supervision and periodic examination by the Federal Reserve. The Bank's deposits
are insured by the FDIC to the maximum amount permitted by law, which is
currently $100,000 per depositor in most cases. As an insured bank, San Benito
Bank is subject to certain regulations of the FDIC.
The regulations of these state and federal bank regulatory agencies
govern most aspects of the Bank's business and operations, including but not
limited to, the scope of its business, its investments, its reserves against
deposits, the nature and amount of any collateral for loans, the timing of
availability of deposited funds, the issuance of securities, the payment of
dividends, bank expansion and bank activities, including real estate development
and insurance activities. The Bank is also subject to the requirements and
restrictions of various consumer laws and regulations.
70
<PAGE>
CAPITAL ADEQUACY REQUIREMENTS
San Benito Bank is subject to the Federal Reserve's regulations governing
capital adequacy. As noted below, the federal banking agencies have adopted
regulations which could impose additional capital requirements on banks based on
market risk and have added a component to the uniform bank rating system which
addresses sensitivity to market risk, including interest rate risk.
The Federal Reserve capital guidelines for state member banks set total
capital requirements and define capital in terms of "core capital elements," or
Tier 1 capital and "supplemental capital elements," or Tier 2 capital. Tier 1
capital is generally defined as the sum of the core capital elements less
goodwill and certain intangibles. The following items are defined as core
capital elements: (i) common stockholders' equity; (ii) qualifying noncumulative
perpetual preferred stock and related surplus; and (iii) minority interests in
the equity accounts of consolidated subsidiaries. Supplementary capital elements
include: (i) allowance for loan and lease losses (which cannot exceed 1.25% of
an institution's risk-weighted assets); (ii) perpetual preferred stock, long
term preferred stock, and related surplus not qualifying as core capital; (iii)
hybrid capital instruments, including mandatory convertible debt securities; and
(iv) term subordinated debt and intermediate-term preferred stock and related
surplus. At least fifty percent (50%) of the qualifying total capital base must
consist of Tier 1 capital. The maximum amount of Tier 2 capital that may be
recognized for risk-based capital purposes is limited to one-hundred percent
(100%) of Tier 1 capital, net of goodwill.
State member banks are required to maintain a minimum ratio of qualifying
total capital to risk-weighted assets of eight percent (8%), at least one-half
of which must be in the form of Tier 1 capital. Risk based capital ratios are
calculated with reference to risk weighted assets, including both on and
off-balance sheet exposures, which are multiplied by certain risk weights
assigned by the Federal Reserve and the FDIC to those assets.
The Federal Reserve has established a minimum leverage ratio of three
percent (3%) Tier 1 capital to total assets for member banks that have received
the highest composite regulatory rating and are not anticipating or experiencing
any significant growth. All other institutions are required to maintain a
leverage ratio of at least 100 to 200 basis points above the 3% minimum for a
minimum of four percent (4%) or five percent (5%).
Described below are Bank's risk based and leverage capital ratios as of
December 31, 1999:
RISK-BASED CAPITAL RATIO AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
Amount Risk Based Ratio
------ ----------------
<S> <C> <C>
Tier 1 Capital $ 18,701,000 13.69%
Total Capital $ 20,408,000 14.95%
Total Capital minimum requirement $ 10,924,000 8.00%
Excess $ 9,484,000 6.95%
Risk-weighted assets $136,551,000
</TABLE>
LEVERAGE RATIO AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
Amount Leverage Ratio (1)
------ --------------
<S> <C> <C>
Tier 1 Capital $ 18,701,000 9.22%
Minimum Leverage Ratio $ 8,111,000 4.00%
Excess $ 10,590,000 5.22%
Average assets $202,779,000
</TABLE>
- ---------------------
(1) Tier 1 Capital to average total assets.
71
<PAGE>
The risk-based capital ratio previously discussed focuses principally on
broad categories of credit risk, and may not take into account many other
factors that can affect a bank's financial condition. These factors include
overall interest rate risk exposure; liquidity, funding and market risks; the
quality and level of earnings; concentrations of credit risk; certain risks
arising from nontraditional activities; the quality of loans and investments;
the effectiveness of loan and investment policies; and management's overall
ability to monitor and control financial and operating risks, including the risk
presented by concentrations of credit and nontraditional activities. The federal
banking agencies have addressed many of these areas in related rule-making
proposals and under FDICIA, some of which are discussed herein. In addition to
evaluating capital ratios, an overall assessment of capital adequacy must take
account of each of these other factors including, in particular, the level and
severity of problem and adversely classified assets. For this reason, the final
supervisory judgment on a bank's capital adequacy may differ significantly from
the conclusions that might be drawn solely from the absolute level of the bank's
risk-based capital ratio. In light of the foregoing, the agencies have stated
that banks generally are expected to operate above the minimum risk-based
capital ratio. Banks contemplating significant expansion plans, as well as those
institutions with high or inordinate levels of risk, should hold capital
commensurate with the level and nature of the risks to which they are exposed.
Further, the banking agencies recently have adopted modifications to the
risk-based capital regulations to include standards for interest rate risk
exposures. Interest rate risk is the exposure of a bank's current and future
earnings and equity capital arising from movements in interest rates. While
interest rate risk is inherent in a bank's role as financial intermediary, it
introduces volatility to bank earnings and to the economic value of the bank.
The banking agencies have addressed this problem by implementing changes to the
capital standards to include a bank's exposure to declines in the economic value
of its capital due to changes in interest rates as a factor that the banking
agencies will consider in evaluating an institution's capital adequacy. Bank
examiners will consider a bank's historical financial performance and its
earnings exposure to interest rate movements as well as qualitative factors such
as the adequacy of a bank's internal interest rate risk management.
Finally, institutions with significant trading activities must measure
and hold capital for exposure to general market risk arising from fluctuations
in interest rates, equity prices, foreign exchange rates and commodity prices
and exposure to specific risk associated with debt and equity positions in the
trading portfolio. General market risk refers to changes in the market value of
on-balance-sheet assets and offbalance-sheet items resulting from broad market
movements. Specific market risk refers to changes in the market value of
individual positions due to factors other than broad market movements and
includes such risks as the credit risk of an instrument's issuer. The additional
capital requirements apply effective January 1, 1998 to institutions with
trading assets and liabilities equal to 10% or more of total assets or trading
activity of $1 billion or more. The federal banking agencies may apply the
market risk regulations on a case by case basis to institutions not meeting the
eligibility criteria if necessary for safety and soundness reasons.
In connection with the recent regulatory attention to market risk and
interest rate risk, the federal banking agencies will evaluate an institution in
its periodic examination on the degree to which changes in interest rates,
foreign exchange rates, commodity prices or equity prices can affect a financial
institution's earnings or capital. In addition, the agencies will focus in the
examination on an institution's ability to monitor and manage its market risk,
and will provide management with a clearer and more focused indication of
supervisory concerns in this area.
In certain circumstances, the Federal Reserve may determine that the
capital ratios for a state member bank must be maintained at levels which are
higher than the minimum levels required by the regulations. A bank which does
not achieve and maintain the required capital levels may be issued a capital
directive by the Federal Reserve to ensure the maintenance of required capital
levels. In addition, the Bank is required to meet capital guidelines of the FDIC
concerning the maintenance of an adequate allowance for loan and lease losses.
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<PAGE>
PAYMENT OF DIVIDENDS
Under state law, the Board of Directors of a California state chartered
bank may declare a cash dividend, subject to the restriction that the amount
available for the payment of cash dividends is limited to the lesser of the
bank's retained earnings, or the bank's net income for the latest three fiscal
years, less dividends previously declared during that period, or, with the
approval of the CDFI, to the greater of the retained earnings of the bank, the
net income of the bank for its last fiscal year or the net income of the bank
for its current fiscal year.
Federal Reserve regulations also govern the payment of dividends by a
state member bank. Under Federal Reserve regulations, dividends may not be paid
unless both capital and earnings limitations have been met. First, no dividend
may be paid if it would result in a withdrawal of capital or exceed the bank's
net profits then on hand, after deducting its losses and bad debts. Exceptions
to this limitation are available only upon the prior approval of the Federal
Reserve and the approval of two-thirds of the bank's shareholders. Second, a
state member bank may not pay a dividend without the prior written approval of
the Federal Reserve if the total of all dividends declared in one year exceeds
the total of net profits for that year plus the preceding two calendar years,
less any required transfers to surplus under state or federal law.
The Federal Reserve has broad authority to prohibit a bank from engaging
in banking practices which it considers to be unsafe or unsound. It is possible,
depending upon the financial condition of the bank in question and other
factors, that the Federal Reserve may assert that the payment of dividends or
other payments by the bank is considered an unsafe or unsound banking practice
and therefore, implement corrective action to address such a practice.
Accordingly, the future payment of cash dividends by San Benito Bank will
generally depend not only on the Bank's earnings during any fiscal period, but
also on the Bank meeting certain capital requirements and the maintenance of an
adequate allowance for loan and lease losses.
EXTENSIONS OF CREDIT TO INSIDERS AND TRANSACTIONS WITH
AFFILIATES
Sections 22(h) of the Federal Reserve Act and Federal Reserve Regulation
O place limitations and conditions on loans or extensions of credit to: a bank's
or bank holding company's executive officers, directors and principal
shareholders (i.e., in most cases those persons who own, control or have power
to vote more than ten percent (10%) of any class of voting securities); any
company controlled by any such executive officer, director or shareholder (i.e.,
where the person directly or indirectly or acting through or in concert with one
or more other persons owns, controls or has the power to vote twenty-five
percent (25%) or more of any class of voting securities, controls the election
of a majority of directors, or has the power to exercise a controlling influence
over management or policies); or any political or campaign committee controlled
by such executive officer, director or principal shareholder.
Loans extended to any of these persons must comply with
loan-to-one-borrower limits, require prior full board approval when aggregate
extensions of credit to such person exceed specified amounts, must be made on
substantially the same terms (including interest rates and collateral) as, and
following credit-underwriting procedures that are not less stringent than,
those prevailing at the time for comparable transactions with noninsiders, and
must not involve more that the normal risk of repayment or present other
unfavorable features. Regulation O also prohibits a bank from paying an
overdraft on an account of an executive officer or director, except pursuant to
a written pre-authorized interest-bearing extension of credit plan that
specifies a method of repayment or a written pre-authorized transfer of funds
from another account of the officer or director at the bank.
IMPACT OF MONETARY POLICIES
The earnings and growth of San Benito Bank is subject to the influence of
domestic and foreign economic conditions, including inflation, recession and
unemployment. The earnings of the Bank are affected not only by general economic
conditions but also by the monetary and fiscal policies of the United States and
federal agencies, particularly the Federal Reserve. The Federal Reserve can and
does implement
73
<PAGE>
national monetary policy, such as seeking to curb inflation and combat
recession, by its open market operations in United States Government securities
and by its control of the discount rates applicable to borrowings by banks from
the Federal Reserve System. The actions of the Federal Reserve in these areas
influence the growth of bank loans, investments and deposits and affect the
interest rates charged on loans and paid on deposits. As demonstrated recently
by the Federal Reserve's actions regarding interest rates, its policies have had
a significant effect on the operating results of commercial banks and are
expected to continue to do so in the future. The nature and timing of any future
changes in monetary policies are not predictable.
RECENT LEGISLATION
From time to time, legislation is enacted which has the effect of
increasing the cost of doing business, limiting or expanding permissible
activities or affecting the competitive balance between banks and other
financial institutions. Proposals to change the laws and regulations governing
the operations and taxation of banks and other financial institutions are
frequently made in Congress, in the California legislature and before various
bank regulatory agencies. Most recently, President Clinton signed into law the
Gramm-Leach-Bliley Act. This legislation eliminates many of the barriers that
have separated the insurance, securities and banking industries since the Great
Depression. The federal banking agencies (the Federal Reserve, FDIC, OCC) among
others, are currently drafting regulations to implement the Gramm-Leach-Bliley
Act. The likelihood of any major change from these regulations, and the impact
such change may have on the Bank is impossible to predict.
GRAMM-LEACH-BLILEY ACT
The Gramm-Leach-Bliley Act, signed into law on November 12, 1999, is the
result of a decade of debate in the Congress regarding a fundamental reformation
of the nation's financial system. The law is subdivided into seven titles, by
functional area. Title I acts to facilitate affiliations among banks, insurance
companies and securities firms. Title II narrows the exemptions from the
securities laws previously enjoyed by banks, requires the Federal Reserve and
the SEC to work together to draft rules governing certain securities activities
of banks and creates a new, voluntary investment bank holding company. Title III
restates the proposition that the states are the functional regulators for all
insurance activities, including the insurance activities of federally-chartered
banks. The law bars the states from prohibiting insurance activities by
depository institutions. The law encourages the states to develop uniform or
reciprocal rules for the licensing of insurance agents. Title IV prohibits the
creation of additional unitary thrift holding companies. Title V imposes
significant requirements on financial institutions related to the transfer of
nonpublic personal information. These provisions require each institution to
develop and distribute to accountholders an information disclosure policy, and
requires that the policy allow customers to, and for the institution to, honor a
customer's request to "opt-out" of the proposed transfer of specified nonpublic
information to third parties. Title VI reforms the Federal Home Loan Bank system
to allow broader access among depository institutions to the systems advance
programs, and to improve the corporate governance and capital maintenance
requirements for the system. Title VII addresses a multitude of issues including
disclosure of ATM surcharging practices, disclosure of agreements among
non-governmental entities and insured depository institutions which donate to
non-governmental entities regarding donations made in connection with the
Community Reinvestment Act, and disclosure by the recipient non-governmental
entities of how such funds are used. Additionally, the law extends the period of
time between CRA examinations of community banks.
San Benito Bank intends to comply with all provisions of the
Gramm-Leach-Bliley Act and all implementing regulations as they become
effective, and the Bank intends to develop appropriate policies and procedures
to meet its responsibilities in connection with
the privacy provisions of Title V of that Act.
LEGAL PROCEEDINGS
In the normal course of business, San Benito Bank is occasionally made a
party to actions seeking to recover damages from the Bank. In the opinion of
management, the ultimate disposition of these matters will not have a material
adverse effect on the Bank's financial condition.
74
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Management's discussion and analysis of financial condition and results
of operations is designed to provide a better understanding of significant
trends relating to San Benito Bank's financial condition, results of operations,
liquidity, and capital resources as reflected in the financial statements as of
and for the years ended December 31, 1999, 1998 and 1997. This analysis should
be read in conjunction with the financial statements and notes thereto included
in this document. Readers should also review the information under "A Warning
About Forward-Looking Information."
RESULTS OF OPERATIONS
San Benito Bank's operating results depend primarily on the level of net
interest income (the difference between the interest earned on loans and
investments less interest expense on deposit accounts and borrowings). The
primary factors affecting the level of interest income are the Bank's interest
rate margin (the difference between the yield earned on interest earning assets
and the rate paid on interest-bearing liabilities), as well as the difference
between the relative amounts of average interest-earning assets and average
interest-bearing liabilities.
The Bank's net income for the year ended December 31, 1999 was
$2,259,000, or $0.81 per share using basic earnings per share. This compares to
a net income of $1,932,000 and $1,754,000, or $0.72 and $0.66 per share for the
years ended December 31, 1998 and 1997, respectively. Diluted earnings per
share, which reflects the potential dilution that could occur if outstanding
stock options were exercised, were $0.77, $0.68, and $0.63 over the same
periods. The return on average assets for 1999 was 1.21% compared to 1.25% in
1998 and 1.42% in 1997. The return on average shareholders equity was 13.14% in
1999 compared to 12.64% in 1998 and 13.16% in 1997.
The following table sets forth certain ratios of profitability, liquidity
and capital for the years ended December 31, 1999, 1998, and 1997.(1)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net Income:
To average assets 1.21% 1.25% 1.42%
To average shareholders' equity 13.14% 12.64% 13.16%
Dividends declared per share to net income per share 21.96% 0.00% 0.00%
Average shareholders' equity to average assets 9.19% 9.92% 10.81%
</TABLE>
- ------------------
(1) These ratios were calculated on an annualized basis.
Net income for 1999 exceeded net income for 1998 by $327,000. This
resulted primarily from the addition, on average, of $28,942,000 of earning
assets. The increase of earning assets generated additional interest income of
$2,113,000 after the effect of lower rates during 1999. The Bank's performance
also benefitted from lower interest rates on deposits as the average cost of
deposits declined from 3.02% in 1998 to 2.74% in 1999. Consequently the Bank
experienced a growth in net interest income of $1,640,000. Combined with an
increase of $539,000 in noninterest income, the Bank's earnings growth more than
compensated for a $1,134,000 increase in noninterest expense and an additional
$510,000 provision for credit losses.
The $178,000 increase in the Bank's net income for 1998 compared to 1997
was due primarily to an increase of $1,995,000 in interest income versus a
$1,010,000 rise in the Bank's cost of funds. Average interest-earning assets
(time deposits with other banks, federal funds sold, investment securities and
loans) were $139,892,000 and $114,219,000 for the years ended December 31, 1998
and 1997, respectively. The 22% increase in average earning assets occurred
primarily within the Bank's investment portfolio, and was fueled by deposit
growth of $28,423,000, the bulk of which occurred within time deposits. Total
average
75
<PAGE>
assets increased from $123,324,000 in 1997 to $154,031,000 in 1998. Net income
in 1998 was also impacted by the expenses associated with a branch office opened
in Gilroy, California during October of 1997. Approximately $392,000 of net
expense was recognized in 1998.
The following tables set forth the Bank's average balance sheets for the
years ended December 31, 1999, 1998 and 1997 and analysis of interest ratio and
interest rate differential (in thousands):
<TABLE>
<CAPTION>
1999
----------------------------------------
Average
ASSETS Average Amount of Yield/
Balance Interest Rate Paid
------- -------- ---------
<S> <C> <C> <C>
Taxable investment securities............................................... $ 50,404 $ 3,077 6.10%
State and political investment securities (1)............................... 7,704 369 4.79%
Federal funds sold.......................................................... 8,490 443 5.22%
Time deposits with other banks.............................................. 2,894 155 5.36%
Loans (2)(3)................................................................ 99,342 9,967 10.03%
------------ -----------
Total Interest-earning assets.......................................... 168,834 $ 14,011 8.30%
-----------
-----------
Less allowance for loan losses.............................................. (1,338)
Cash & due from banks....................................................... 9,028
Premises and equipment...................................................... 2,505
Other assets................................................................ 8,102
------------
Total Assets............................................................ $ 187,131
------------
------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing demand deposits............................................ $ 30,720 $ 439 1.43%
Savings deposits............................................................ 27,649 507 1.83%
Other time deposits......................................................... 77,544 3,673 4.74%
------------ -----------
Total Interest-bearing liabilities...................................... 135,913 $ 4,619 3.40%
-----------
-----------
Demand deposits............................................................. 32,838
Other liabilities........................................................... 1,190
Shareholders' equity........................................................ 17,190
------------
Total liabilities and shareholders' equity.............................. $ 187,131
------------
------------
Interest income and average rate earned on earning assets................... $ 14,011 8.30%
Interest expense and average interest cost related to earning assets........ 4,619 3.40%
Net Interest income and net yield on earning assets..................... $ 9,392 5.56%
-----------
-----------
</TABLE>
- ---------------------
(1) Applicable state and political subdivision securities yields have not been
calculated on a taxable equivalent basis.
(2) Nonaccrual loans are included in totals for average loans.
(3) Loan interest income includes amortization of loan fees of $584,000,
$606,000 and $433,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
76
<PAGE>
<TABLE>
<CAPTION>
1998
------------------------------------------
Average
ASSETS Average Amount of Yield/
Balance Interest Rate Paid
------- -------- ---------
<S> <C> <C> <C>
Taxable investment securities............................................... $ 43,415 $ 2,699 6.22%
State and political investment securities(1)................................ 4,437 235 5.30%
Federal funds sold.......................................................... 10,325 537 5.20%
Time deposits with other banks.............................................. 2,414 145 6.01%
Loans (2)(3)................................................................ 79,301 8,282 10.44%
------------ -------------
Total Interest-earning assets........................................... 139,892 $ 11,898 8.51%
-------------
-------------
Less allowance for loan losses.............................................. (1,126)
Cash & due from banks....................................................... 6,634
Premises and equipment...................................................... 2,562
Other assets................................................................ 6,069
------------
Total Assets............................................................ $ 154,031
------------
------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing demand deposits............................................ $ 29,092 $ 497 1.71%
Savings deposits............................................................ 26,561 696 2.62%
Other time deposits......................................................... 56,401 2,953 5.24%
------------ -------------
Total Interest-bearing liabilities...................................... 112,054 $ 4,146 3.70%
-------------
-------------
Demand deposits............................................................. 25,394
Other liabilities........................................................... 1,300
Shareholders' equity........................................................ 15,283
------------
Total liabilities and shareholders' equity.............................. $ 154,031
------------
------------
Interest income and average rate earned on earning assets................... $ 11,898 8.51%
Interest expense and average interest cost related to earning assets........ 4,146 3.70%
-------------
Net Interest income and net yield on earning assets..................... $ 7,752 5.54%
-------------
-------------
</TABLE>
- ---------------------
(1) Applicable state and political subdivision securities yields have not been
calculated on a taxable equivalent basis.
(2) Nonaccrual loans are included in totals for average loans.
(3) Loan interest income includes amortization of loan fees of $584,000,
$606,000 and $433,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
77
<PAGE>
<TABLE>
<CAPTION>
1997
-----------------------------------------
Average
ASSETS Average Amount of Yield/
Balance Interest Rate Paid
------- -------- ---------
<S> <C> <C> <C>
Taxable investment securities............................................... $ 33,637 $ 2,153 6.40%
State and political investment securities (1)............................... 4,875 263 5.39%
Federal funds sold.......................................................... 5,016 256 5.10%
Time deposits with other banks.............................................. 45 3 6.67%
Loans (2)(3)................................................................ 70,646 7,228 10.23%
------------ -----------
Total Interest-earning assets........................................... 114,219 $ 9,903 8.67%
===========
Less allowance for loan losses.............................................. (1,020)
Cash & due from banks....................................................... 4,886
Premises and equipment...................................................... 2,259
Other assets................................................................ 2,980
------------
Total Assets............................................................ $ 123,324
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing demand deposits............................................ $ 27,096 $ 547 2.02%
Savings deposits............................................................ 29,004 813 2.80%
Other time deposits......................................................... 33,375 1,776 5.32%
------------ -----------
Total Interest-bearing liabilities...................................... 89,475 $ 3,136 3.50%
===========
Demand deposits............................................................. 19,550
Other liabilities........................................................... 968
Shareholders' equity........................................................ 13,331
------------
Total liabilities and shareholders' equity.............................. $ 123,324
============
Interest income and average rate earned on earning assets................... $ 9,903 8.67%
Interest expense and average interest cost related to earning assets........ 3,136 3.50%
-----------
Net Interest income and net yield on earning assets..................... $ 6,767 5.92%
===========
</TABLE>
- ----------------------
(1) Applicable state and political subdivision securities yields have not been
calculated on a taxable equivalent basis.
(2) Nonaccrual loans are included in totals for average loans.
(3) Loan interest income includes amortization of loan fees of $584,000,
$606,000 and $433,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
San Benito Bank concentrates its lending activities in four principal
areas: commercial loans, including financial and agricultural loans, consumer
loans, real estate secured loans and real estate construction loans. Interest
rates charged for loans made by the Bank vary with the degree of risk, the size
and maturity of the loans, the borrower's relationship with the Bank and
prevailing money market rates indicative of the Bank's cost of funds. The
majority of the Bank's loans are direct loans made to individuals and local
businesses. The Bank makes loans to borrowers whose applications include a sound
purpose, a viable repayment source and a plan of repayment established at
inception and generally backed by a secondary source of repayment.
The composition of the loan portfolio at December 31, 1999, 1998, 1997,
1996 and 1995 is summarized in the table below (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial $ 37,471 $ 31,830 $ 25,941 $ 22,325 $ 19,112
Real estate-construction 28,504 27,499 14,982 9,637 8,464
Real estate - other 27,677 14,868 18,662 16,516 15,663
Installment 13,267 12,019 11,368 10,115 7,986
Other 1,828 1,279 1,563 1,290 1,219
------- ------ ------ ------ ------
Total $ 108,747 $ 87,495 $ 72,516 $ 59,883 $ 52,444
======= ====== ====== ------ ------
</TABLE>
Interest and fees on loans totaled $9,967,000 and $8,282,000 for the
years ended December 31, 1999 and 1998, which equated to an increase of 20%.
Total interest income and fees on loans represented 71%
78
<PAGE>
and 70% of total interest income for the years ended December 31, 1999 and 1998,
respectively. At year-end 1999, the total of non-accrual loans was $1,474,000
compared to $707,000 at year-end 1998.
Interest and fees on loans totaled $8,282,000 and $7,228,000 for the
years ended December 31, 1998 and 1997, which equated to an increase of 15%.
Total interest income and fees on loans represented 70% and 73% of total
interest income for the years ended December 31, 1998 and 1997. At year-end
1998, the total of non-accrual loans was $707,000 compared to $464,000 at
year-end 1997.
The following table sets forth, for the periods indicated, a summary of
the changes in interest earned and interest incurred resulting from changes in
asset and liability volume and changes in average rates (in thousands):
<TABLE>
<CAPTION>
1999 Compared To 1998 1998 Compared To 1997
------------------------------------- -------------------------------------
Net Net
Volume Rate (4) Change Volume Rate (4) Change
------ -------- ------ ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in:
Income from earning assets:
Investment securities (1).... $ 658 $ (136) $ 522 $ 735 $ (75) $ 660
Federal funds sold........... (95) 1 (94) 271 10 281
Loans (2)(3)................. 2,093 (408) 1,685 886 168 1,054
--------- -------- --------- --------- -------- ---------
Total........................ $ 2,656 $ (543) $ 2,113 $ 1,892 $ 103 $ 1,995
========= ======== ========= ========= ======== =========
Interest expense:
Deposits:
Interest-bearing demand...... $ 28 $ (86) $ (58) $ 40 $ (90) $ (50)
Savings...................... 29 (218) (189) (68) (49) (117)
Certificates of deposit...... 1,107 (387) 720 1,225 (48) 1,177
--------- -------- --------- --------- -------- ---------
Total........................ $ 1,164 $ (691) $ 473 $ 1,197 $ (187) $ 1,010
========= ======== ========= ========= ======== =========
Interest differential.................. $ 1,492 $ 148 $ 1,640 $ 695 $ 290 $ 985
========= ======== ========= ========= ======== =========
</TABLE>
- ----------------------
(1) Applicable state and political subdivision security yields have not been
calculated on a tax equivalent basis.
(2) Nonaccrual loans are included in totals for average loans.
(3) Loan interest income includes amortization of loan fees of $584,000,
$606,000 and $433,000 for the years ended December 31, 1999, 1998 and 1997.
(4) The change in net interest due to both rate and volume has been included in
the rate variance.
Interest income earned on investment securities and federal funds sold
totaled $4,044,000 and $3,616,000 for the years ended December 31, 1999 and
1998, respectively, an increase of 12%, and $2,675,000 for the year ended
December 31, 1997. The investment portfolio grew by $10,736,000 on average
between year-end 1998 and 1999, respectively. This growth resulted in additional
interest income of $522,000 after the impact of lower rates during that period.
In 1998 the investment portfolio posted growth on average of $11,709,000 and
consequently produced additional interest income of $660,000 after the impact of
yields lower than those recorded for 1997.
79
<PAGE>
The following tables set forth the amortized cost and fair market value
of investment securities at December 31, 1999, 1998 and 1997 and the maturities
and weighted average yield of investment securities at December 31, 1999 (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
----------------------- ----------------------- -----------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
---- ----- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities .......... $ 500 $ 501 $ 501 $ 515 $ 3,503 $ 3,518
Obligations of U.S. Government
agencies ..................... 50,637 48,677 51,948 52,127 36,272 36,664
Obligations of states and political
subdivisions ................. 7,461 7,099 8,332 8,496 4,035 4,101
Other ............................. 348 426 - - - -
--------- --------- --------- --------- --------- ---------
Total .................... $ 58,946 $ 56,703 $ 60,781 $ 61,138 $ 43,810 $ 44,283
========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
MATURING
After 1 After 5
In 1 Year Year Years Over
or Less Through 5 Through 10 10 Years Total
------------------- ---------------- --------------- --------------- ---------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
----- ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury
Securities............... $ 500 6.98% - - - - - - $ 500 6.98%
Obligations of U.S.
Government agencies...... - - $32,209 6.09% $ 15,964 6.08% $ 2,465 7.21% 50,638 6.14%
States and political
subdivisions (1)......... - - 2,130 8.06% - - 5.330 6.56% 7,460 6.99%
Other..................... 348 0% - - - - - - 348 -
-------- ------ -------- -------- -------
Total............. $ 848 4.12% $34,339 6.21% $ 15,964 6.08 $ 7,795 6.77% $58,946 6.22%
======== ======= ========= ======== =======
</TABLE>
- --------------------
(1) Applicable state and political subdivisions yields have been calculated on a
taxable equivalent basis.
Average deposits were $168,751,000, $137,448,000 and $109,025,000 for
the years ended December 31, 1999, 1998 and 1997, respectively. This equated to
an increase of 23% for 1999 compared to 1998 and also 26% for 1998 compared to
1997. Interest expense totaled $4,619,000 for 1999, compared to $4,146,000 for
1998 and $3,136.000 for 1997. This equated to a cost of deposits of 2.74%, 3.02%
and 2.88% for 1999, 1998, and 1997 respectively. In 1998 the bank's deposit mix
began to change as customers moved from savings accounts to time deposits. On
average in 1997 time deposits accounted for 31% of total deposits while savings
accounts were 27% of total deposits. In 1998 these ratios were 41% and 19%. This
trend continued into 1999 when savings deposits accounted for 16% of total
deposits while time deposits reached 46% of deposits. This shift reflected the
decline in rates experienced over this period and the resultant search for yield
by customers in the bank's market place. As a competitive measure the bank
designed a flexible certificate of deposit product in late 1997 which
facilitated the shift in deposit mix. The bank's cost of time deposits during
this three- year period, declined from 5.32% in 1997 to 5.24% in 1998 and then
to 4.74% in 1999. Also during this period, non-interest bearing deposits rose
from 18% of total deposits to 19.5% of total deposits which helped to lower
deposit costs.
80
<PAGE>
The following table sets forth the average amount of and the average
rate paid on certain deposit categories which were in excess of 10% of average
deposits for the years ended December 31, 1999, 1998, 1997, 1996 and 1995 (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----------------- ----------------- ----------------- ---------------- ----------------
Avg Bal Rate Avg Bal Rate Avg Bal Rate Avg Bal Rate Avg Bal Rate
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest bearing demand
deposits $32,838 0.00% $25,394 0.00% $19,550 0.00% $15,982 0.00% $13,824 0.00%
Interest bearing demand
deposits 30,720 1.43% 29,092 1.71% 27,096 2.02% 25,167 1.94% 21,921 2.69%
Savings deposits 27,649 1.83% 26,561 2.62% 29,004 2.80% 29,667 2.83% 32,498 3.73%
Time deposits 77,544 4.74% 56,401 5.24% 33,375 5.32% 24,160 5.25% 17,236 5.31%
-------- -------- -------- ------- -------
$168,751 $137,448 $109,025 $94,976 $85,479
======== ======== ======== ======= =======
</TABLE>
The following table sets forth the maturity of time certificates of
deposits of $100,000 or more and other time deposits of $100,000 or more at
December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
December 31, 1999
-----------------
<S> <C>
Three months or less $20,829
Over 3 through 6 months $11,077
Over 6 through 12 months $ 8,769
Over 12 months $ 740
</TABLE>
Management seeks to maintain asset quality and control risk through
credit analysis and periodic review of outstanding loans. In determining the
adequacy of the loan loss allowance, management relies primarily on its review
of the loan portfolio and periodic independent credit evaluations. Problem loans
are examined on a individual basis to determine estimated probable loss. In
addition, management considers historical net loss experience for each loan
category, and current and anticipated economic conditions affecting each loan
category. Management believes that the $1,768,000 allowance for loan losses at
December 31, 1999 is adequate to absorb known risks in the Bank's loan
portfolio. However, no assurance can be given that adverse economic conditions
or other circumstances will not result in increased losses in the portfolio.
Net loans charged to the allowance for loan losses totaled $135,000, or
0.1%, $99,000, or 0.1% and $111,000, or 0.2% of average loans outstanding during
the years ended December 31, 1999,1998 and 1997, respectively. The allowance for
loan losses was $1,786,000 at December 31, 1999 compared to $1,203,000 at
December 31, 1998 and $1,112,000 at December 31, 1997. Additions to the
allowance are made on a monthly basis through charges to operations and are
reflected in the Bank's statements of income as provision for loan losses. As a
percent of total loans outstanding, the allowance for loan losses was 1.6%, 1.4%
and 1.5% at December 31, 1999, 1998 and 1997, respectively. The Bank provided
$700,000 for loan losses in 1999 versus a provision of $190,000 in 1998 and
$200,000 in 1997, respectively. The larger provision recorded in 1999 reflected
management's assessment of known risks in the loan portfolio.
A summary of nonaccrual, past due and restructured loans at December
31, 1999, 1998, 1997, 1996 and 1995 is set forth below (in thousands):
<TABLE>
<CAPTION>
December 31,
------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nonaccrual $ 1,474 $ 707 $ 464 $ 63 $ 63
Accruing loans past due 90 635 - - - -
days or more Restructured loans 0 0 0 0 54
--------- -------- ------- -------- --------
$ 2,109 $ 707 $ 464 $ 63 $ 117
--------- -------- ------- -------- --------
--------- -------- ------- -------- --------
</TABLE>
The Bank's financial statements are prepared on the accrual basis of
accounting, including the recognition of interest income on the loan portfolio.
Interest income from nonaccrual loans is not accrued in the financial
statements.
81
<PAGE>
Loans are placed in a nonaccrual status and any accrued but unpaid
interest income is reversed and charged against income when a decision is made
to retake any or all collateral securing a loan, regardless of whether action
has commenced to retake such collateral; official notice is received of any
bankruptcy petition filing; the payment of interest or principal is ninety (90)
days or more past due; or in the opinion of management the collectibility of any
portion of principal or interest is thought to be doubtful, even though none of
the other conditions listed above exist. Nonaccrual loans at December 31, 1999,
1998, 1997, 1996 and 1995 constituted approximately 1.36%, 0.81%, 0.64%, 0.11%
and 0.12% of total gross loans respectively. Loans in the nonaccrual category
are treated as nonaccrual loans even though the Bank may ultimately recover all
or a portion of the interest due. The classification of a loan as a nonaccrual
loan is not necessarily indicative of a potential charge-off. The Bank believes
its procedures for administering and reviewing its loan portfolio are effective
in identifying loans where significant problems exist. At December 31, 1999,
1998, 1997 and 1996 there were no restructured loans. At December 31, 1995 there
was $54,000 in restructured loans.
Loans on which accrual of interest has been discontinued amounted to
$1,474,000 at December 31, 1999 and are included in loan totals on the balance
sheet. If interest on these loans had been accrued such income would have
approximated $49,000. Any payments on these loans would be applied to principal
until the loan was removed from nonaccrual status. At December 31, 1999, there
were no commitments to lend additional funds to borrowers whose loans were
classified as nonaccrual.
The following table summarizes loan loss experience for the years
indicated (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loans outstanding at end of period $ 108,747 $ 87,495 $ 72,516 $ 59,883 $ 52,444
-------- ------- ------- ------ -------
-------- ------- ------- ------ -------
Average loans outstanding during period $ 99,342 $ 79,301 $ 70,646 $ 55,705 $ 51,480
-------- ------- ------- ------ -------
-------- ------- ------- ------ -------
Balance at beginning of period 1,203 1,112 1,023 1,071 981
Loans charged-off:
Commercial (106) (10) (121) (82) (41)
Real estate-construction - - - - -
Real estate - other - - - (4) -
Installment (80) (103) (107) (88) (22)
-------- ------- ------- ------ -------
Total loans charged-off (186) (113) (228) (174) (63)
-------- ------- ------- ------ -------
Recoveries of loans previously charged-off
Commercial 12 4 39 1 5
Real estate-construction - - - - -
Real estate - other - - - - -
Installment 39 10 78 25 18
-------- ------- ------- ------ -------
Total Recoveries 51 14 117 26 23
-------- ------- ------- ------ -------
Net (charge-offs)recoveries (135) (99) (111) (148) (40)
Provision for loan losses 700 190 200 100 130
-------- ------- ------- ------ -------
Balance at end of period $ 1,768 $ 1,203 $ 1,112 $ 1,023 $ 1,071
-------- ------- ------- ------ -------
-------- ------- ------- ------ -------
Allowance for loan losses as a percentage of 1.63% 1.37% 1.53% 1.71% 2.04%
outstanding loan balance
Net charge-offs to average loans outstanding 0.14% 0.12% 0.16% 0.27% 0.08%
</TABLE>
Management considers a number of factors in determining the amount of
the allowance for credit losses, including: (1) the Bank's historical experience
of charged-off loans as a percentage of total loans, (2) trends in nonaccrual
and past due loans, (3) trends in the proportion of loans with certain Risk
Grades, (4) amounts calculated by applying a certain Risk Code percentage to
each grade of loan, (5) specific allowances for problem loan relationships in
excess of $ 100,000 based on the individual facts and circumstances specific to
each loan relationship, and (6) pervasive factors such as concentrations in the
loan portfolio and general economic trends.
82
<PAGE>
Based on such considerations, management has estimated the necessary
allowance for credit losses at December 31, 1999 to be $1,768,000.
The risk elements of various loan types are initially assigned by the
supervising loan officer and reviewed for appropriateness by the Loan Committee.
The Risks are then validated by a outside loan examiner periodically throughout
the year. Loans are monitored for timely payments during the term and any
problems, are reported to administration immediately. Periodic submission of
financial data is required on some loans which is reviewed by the lending
officer and collateral is inspected when appropriate. The bank monitors the
economic conditions of the area in-order to anticipate any problems that might
arise.
The risk associated with loan concentrations is considered low to
moderate. Total real estate loans are 52.0% of total loans, compared to a budget
of 49.2%, Total consumer credit (includes installment loans and credit card) is
13.6% compared to a budget of 14.8% and all commercial loans are 34.4% compared
to a budget of 36%.
Growth in the Bank's marketing area has created a higher than usual
demand for construction loans, which are approved for well established
developers or where a pre-approved buyer is in place. Real estate loans are
considered low risk because of the higher than normal demand for housing.
Commercial loans are considered moderate risk and usually kept to a one-year
maturity in-order to review financial data and monitor the financial health of
the borrower. Installment loan portfolio is considered low risk because of the
large number of accounts and the smaller size of each loan.
The over all loan portfolio is considered by management to be of low to
moderate risk.
Management's estimate of the approximate amount of anticipated
charge-off 's during the next full year of operations is presented below. Such
estimate is based on using the highest percentage of charged-off loans to total
loans the Bank has ever incurred, adjusted to reflect the troubled loans that
the Bank is aware of and monitoring closely.
Anticipated charge-offs during the next full year of operations:
<TABLE>
<S> <C> <C>
- Commercial Loans $450
- Real Estate - Construction 50
- Real Estate - Other 25
- Installment Loans 100
- Other Loans 30
----
$655
----
----
</TABLE>
Net interest income after provision for loan losses totaled $8,692,000,
$7,562,000 and $6,567,000 for the years ended December 31, 1999, 1998 and 1997,
respectively. This equated to a 15% increase for both 1999 compared to 1998 and
1998 compared to 1997.
Non-interest income, which consists primarily of service charges on
deposit accounts, was $1,774,000 for the year ended December 31, 1999 compared
to $1,235,000 for the year ended December 31, 1998, a 44% increase. This
increase resulted principally from the recognition of $348,000 derived from the
demutualization of Canada Life Insurance from which the bank purchased several
policies in conjunction with its supplemental employee retirement plan and
deferred compensation plan. Non-interest income totaled $933,000 for the year
ended December 31, 1997. The 32% increase in non-interest income for 1998
compared to 1997 was due primarily to an increase in mortgage loan origination
fees which accounted for $81,000 of the improvement.
Non-interest expense increased to $7,004,000 in 1999, from $5,870,000
in 1998, a 19% increase. This was consistent with the 19% increase between 1998
and 1997 when $4,916,000 of non-interest expense was recognized. The largest
component of non-interest expense is salary and employee benefits, which was
$3,712,000, $3,102,000 and $2,567,000 in 1999, 1998 and 1997, respectively. The
number of full-time equivalent employees was 81, 75 and 69, at December 31,
1999, 1998 and 1997, respectively.
83
<PAGE>
The 20% increase in salary and employee benefits expense in 1999 compared to
1998 was concentrated in salaries which reflected the addition of 6 full-time
equivalent employees and normal annual increases. Other significant factors
included a $54,000 increase in bonus and 401(k) accruals, a $92,000 rise in
expense for group insurance and a $42,000 increase in payroll taxes. The 21%
increase in salary and employee benefits expense for 1998 compared to 1997 was
due primarily to the expense associated with staffing of the Gilroy office which
opened in October 1997 and impacted all twelve months of 1998. Bonus and 401(k)
matching expenses also increased by $34,000. Historically the Bank has accrued
10% of pretax income for this purpose. Expense associated with group insurance
climbed $87,000 in 1998 due to higher premiums and additional enrollments. The
Bank experienced a $17,000 increase in payroll taxes corresponding with the rise
in salary expense. Occupancy expense remained relatively stable between 1999 and
1998, but increased $121,000 or 38% between 1998 and 1997. The bulk of the
additional expense was concentrated in the Gilroy office, which as mentioned
previously, began operating in October of 1997. Other operating expense rose
from $1,535,000 in 1997 to $1,631,000 in 1998 and then to $1,901,000 in 1999.
This trend reflected the Bank's asset growth. When expressed as a percentage of
average assets ratios for other operating expenses were 1.24%, 1.06% and 1.02%
in 1997, 1998 and 1999, respectively.
LIQUIDITY MANAGEMENT
The objectives of San Benito Bank's liquidity management are to provide
funds to meet customer loan demand and deposit withdrawals, as well as normal
operating expenses. The Bank maintains liquid assets (cash, demand deposits due
from banks, short-term time deposits, federal funds sold, and available-for-sale
investment securities) to meet its liquidity requirements without reliance on
short term borrowings or brokered deposits. Additional sources of liquidity are
maturing loans and investments. At December 31, 1999, liquid assets totaled
$48,424,000 compared with $47,110,000 and $31,144,000 at December 31, 1998 and
1997, respectively. These totals equated to 27%, 30% and 26% of total deposits,
at December 31, 1999,1998 and 1997, respectively. The rise in liquidity between
1997 and 1998 reflected a decline in total loans in relation to total deposits
and the resultant allocation of excess funds to liquid investments. The 27%
ratio experienced in 1999 resulted from a higher loan to deposit ratio than
experienced at year-end 1998.
Total gross loans outstanding at December 31, 1999, 1998 and 1997 were
$108,747,000, $87,495,000 and $72,516,000, respectively. This equated to 21%
loan growth between 1997 and 1998 and 24% from 1998 to 1999. Average loans
outstanding during the years ended December 31, 1999, 1998 and 1997 totaled
$99,343,000, $79,301,000 and $70,646,000, respectively. The liquidity ratio for
net loans (gross loans less deferred loan fees and allowance for loan losses) to
total deposits was 59%, 54% and 60% at December 31, 1999, 1998 and 1997,
respectively.
The Bank's primary source of liquidity in the long-term is expected to
be earnings of the Bank and acquisition of core deposits. To augment short-term
liquidity needs, the Bank maintains unsecured lines of credit in the amount of
$9,000,000 with correspondent banks and a separate repurchase facility with a
borrowing capacity of approximately $13,000,000. If the Bank's growth results in
greater cash needs, additional sources of liquidity will be pursued, including
loans, sale of common stock and other forms of financing.
CAPITAL RESOURCES
In 1999, 1998 and 1997, San Benito Bank's capital adequacy ratios
exceeded the levels required by the Federal Reserve. The regulations issued by
the Federal Reserve generally establish guidelines for measuring and assessing
"risk-based" capital by segregating assets and specified off-balance sheet
commitments into risk weighted categories, with higher levels of capital
required for the categories perceived as representing greater risk. In addition,
the Bank is also required to meet certain Federal Reserve guidelines concerning
the maintenance of an adequate allowance for loan losses.
Under the guidelines, the Bank is currently required to maintain a
total risk-based capital ratio of 8.0%. At December 31, 1999, the total
risk-based capital ratio of the Bank was 14.95%, compared to 15.41% at December
31, 1998 and 16.60% at December 31, 1997. Additionally, federal banking
84
<PAGE>
regulators have issued leverage ratio guidelines which supplement the risk-based
guidelines. Currently the minimum leverage ratio requirement applicable to the
Bank is 4.0%. At December 31, 1999, 1998 and 1997, the Bank exceeded this
requirement with a leverage ratio of 9.22%, 9.46% and 10.53%, respectively.
Management believes San Benito Bank is in compliance with all
applicable capital requirements.
IMPACT OF INFLATION
Inflation affects San Benito Bank's financial position as well as its
operating results. It is management's opinion that the effects of inflation on
the financial statements have not been material.
IMPACT OF NEW ACCOUNTING STANDARDS
In June 1998 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities. As amended by SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 137" this statement is
effective for fiscal years beginning after June 15, 2000, with earlier
application permitted. Management believes the effect of adoption of this
statement on the Bank's financial statements will not be material.
QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
Economic or market risk is the risk that the underlying value of the
bank will change when rates change. This change would be caused by the value of
long-term assets changing more or less than the value of long-term liabilities.
The Bank takes economic risk primarily when it makes fixed-rate loans or
purchases fixed-rate investments. It is the risk that interest rates will change
and these fixed-rate assets will change in value. If rates decline the Bank will
benefit (the Bank will have assets with a yield greater than today's yields and
thus will have greater value); but if rates increase the bank will suffer a loss
in value on these fixed-rate assets. This change in value usually is not
recognized in the bank's earnings. The change in the value of securities is
recognized as a change in earnings only when they are sold or held in a Trading
account. The change in value is recognized as a change in capital only when they
are held in an Available for Sale accounts.
Even though the change in market value often is not recognized either
in earnings or in capital, the impact is real to the long-term value of the
Bank. Therefore, the Bank controls the level of economic risk by limiting the
amount of long-term, fixed-rate loans it will make and by setting a limit on
concentrations and maturities of securities.
The following table presents information concerning loan maturities and
sensitivity to changes in interest rates of components of the loan portfolio, as
well as loans that have fixed or floating interest rates at December 31, 1999
(in thousands):
<TABLE>
<CAPTION>
December 31, 1999
-----------------
After one
One Year Through Five Years
or Less Five and Over
------- ---- --------
<S> <C> <C> <C>
Maturity Distribution of Selected Loans:
Commercial $ 22,072 $ 8,957 $ 6,442
Real estate-construction 19,103 5,525 3,876
------ ----- -----
$ 41,175 $ 14,482 $ 10,318
====== ====== ======
Sensitivity to Changes in Interest Rates:
Loans with fixed interest rates $ 9,878 $ 6,567
Loans with floating interest rates 4,604 3,751
----- -----
$ 14,482 $ 10,318
====== ======
</TABLE>
85
<PAGE>
San Benito Bank defines interest rate risk as the risk that the Bank's
net interest income or capital will change when interest rates change. Economic,
or market risk, by comparison, is the risk that the value of the Bank's fixed
rate assets and liabilities will change when interest rates change.
If the Bank's net interest income (NII) moves in the same direction as
interest rates, then the Bank is "asset sensitive" (interest income changes more
than cost of funds). If NII move in the opposite direction from the change in
rates, then the Bank is "liability sensitive" (cost of funds changes more than
interest income).
A change in net interest income as a result of changes in interest
rates is caused by three factors. First there are different volumes of assets
and liabilities maturing and repricing (the traditional gap). Secondly, rates on
different asset and liability types change by different amounts - the
"multiplier" effect. (for example, the national prime rate has historically
moved further than any of the Bank's deposit rates). Thirdly, different
instruments reprice at different times - the "timing" factor. The combination
causes a change in the Bank's net interest margin.
It is the policy of San Benito Bank to control the exposure of the
Bank's earnings to changing interest rates by generally maintaining a position
within a reasonable range around an "earnings neutral" or "balanced" position.
This is defined as the mix of assets and liabilities that generate a net
interest income that is not affected by interest rate changes.
There are three reasons for establishing a target range rather than an
exact earnings neutral position. Measuring interest rate risk is not an exact
science. We can only estimate the earnings impact of a change in rates, and
this estimate may change as the rate environment changes (this is often called
"basis risk"). Also, the mix of assets and liabilities available in the Bank's
market may not produce an exact earnings neutral position thus forcing the Bank
to forego good business opportunities if it must keep a totally balanced
position. Lastly, a neutral position does not allow the Bank to modestly
position itself to take advantage of a rising or falling rate trend (e.g.
keeping investments shorter when rates are rising).
The following tables set forth the distribution of repricing
opportunities of San Benito Bank's interest-earning assets and interest-bearing
liabilities, the interest rate sensitivity gap (i.e., interest rate sensitive
assets less interest rate sensitive liabilities), cumulative interest-earning
assets and interest-bearing liabilities, the cumulative interest rate
sensitivity gap, the ratio of cumulative interest-earning assets to cumulative
interest-bearing liabilities and the cumulative gap as a percentage of total
assets and total interest-earning assets as of December 31, 1999 and 1998. The
tables also set forth the time periods during which interest-earning assets and
interest-bearing liabilities will mature or may reprice in accordance with their
contractual terms. The interest rate relationships between the repriceable
assets and repriceable liabilities are not necessarily constant and may be
affected by many factors, including the behavior of customers in response to
changes in interest rates. This table should, therefore, be used only as a guide
to the possible effect changes in interest rates might have on the net interest
income of San Benito Bank.
86
<PAGE>
<TABLE>
<CAPTION>
December 31, 1999
Amounts Maturing or Repricing In:
-------------------------------------------------------
Over 3 Over 1 Weighted
3 Months Months to Year to Over Fair Average
or Less 12 Months 5 Years 5 Years Total Value Yield
------- --------- ------- ------- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Interest-bearing deposits in other
financial institutions $ 2,555 $ 2,555 $ 2,555 5.34%
Federal funds sold $ 9,640 9,640 9,640 5.21%
Investment securities(1) 952 194 $ 32,642 $ 24,619 58,407 56,703 5.98%
Loans, excluding
nonaccrual loans 59,394 5,544 32,801 9,534 107,273 106,500 9.46%
--------- --------- -------- -------- -------- --------
Total 69,986 8,293 65,443 34,153 177,875 175,398
--------- --------- -------- -------- -------- --------
--------- --------- -------- -------- -------- --------
INTEREST BEARING LIABILITIES:
Interest bearing demand, money
market and savings $ 58,502 $ 58,502 $ 58,502 1.59%
Time certificates of deposit 36,095 $ 47,108 $ 2,163 - 85,366 83,736 4.88%
--------- --------- -------- -------- -------- --------
Total $ 94,597 $ 47,108 $ 2,163 - $143,868 $142,238
--------- --------- -------- -------- -------- --------
--------- --------- -------- -------- -------- --------
Period Gap $(24,611) $(38,815) $ 63,280 $ 34,153
Cumulative interest earning assets 69,986 78,279 143,722 177,875
Cumulative interest bearing
liabilities 94,597 141,705 143,868 143,868
Cumulative Gap $(24,611) $(63,426) $ (146) $ 34,007
Cumulative interest earning
assets to Cumulative interest
bearing liabilities 0.74 0.55 1.00 1.24
Cumulative gap as a percent of:
Total assets (12.24%) (31.55%) (0.07%) 16.92%
Interest earning assets (13.84%) (35.66%) (0.08%) 19.12%
</TABLE>
- -----------------
(1) Applicable state and political subdivision security yields have not
been calculated on a tax equivalent basis.
<TABLE>
<CAPTION>
December 31, 1998
Amounts Maturing or Repricing In:
--------------------------------------------------------
Over 3 Over 1 Weighted
3 Months Months to Year to Over Fair Average
or Less 12 Months 5 Years 5 Years Total Value Yield
------- --------- ------- ------- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Interest-bearing deposits in other
financial institutions $ 1,287 $ 297 $ 2,546 $ 4,130 $ 4,180 5.48%
Federal funds sold $ 5,595 5,595 5,595 4.73%
Investment securities(1) 248 16 $ 30,847 $ 29,792 60,903 61,138 6.24%
Loans, excluding nonaccrual loans 43,101 8,331 30,422 4,934 86,788 87,023 9.33%
--------- --------- --------- -------- -------- ---------
Total $ 50,231 $ 8,644 $ 63,815 $ 34,726 157,416 157,936
--------- --------- --------- -------- -------- ---------
--------- --------- --------- -------- -------- ---------
INTEREST BEARING LIABILITIES:
Interest bearing demand,
money market and savings $ 58,263 $ 58,263 $ 58,263 1.58%
Time certificates of deposit 20,464 $ 44,723 $ 1,990 - 67,177 65,734 4.79%
--------- --------- --------- -------- -------- ---------
Total $ 78,727 $ 44,723 $ 1,990 $ - $125,440 $ 123,997
--------- --------- --------- -------- -------- ---------
--------- --------- --------- -------- -------- ---------
Period Gap $(28,496) $(36,079) $ 61,825 $ 34,726
Cumulative interest earning assets $ 50,231 $ 58,875 $ 122,690 $157,416
Cumulative interest bearing
liabilities $ 78,727 $ 123,450 $ 125,440 $125,440
Cumulative Gap $(28,496) $(64,575) $ (2,750) $ 31,976
Cumulative interest earning assets
to Cumulative interest bearing
liabilities 0.64 0.48 0.98 1.25
Cumulative gap as a percent of:
Total assets (16.20%) (36.71%) (1.56%) 18.18%
Interest earning assets (18.10%) (41.02%) (1.75%) 20.31%
</TABLE>
- --------------------
(1) Applicable state and political subdivision security yields have not
been calculated on a tax equivalent basis.
87
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
PACIFIC CAPITAL
Information concerning securities ownership of certain beneficial
owners and management of Pacific Capital can be found in Pacific Capital's
proxy statement for its 2000 annual meeting of shareholders. See "Where You
Can Find More Information."
SAN BENITO BANK
The following table sets forth certain information regarding the
beneficial ownership of San Benito Bank common stock as of March 31, 2000 by:
(i) each of its directors, (ii) each of its executive officers, and (iii) all
directors and executive officers as a group. As of March 31, 2000, no person
known to San Benito Bank owned beneficially more than 5% of the outstanding
shares of San Benito common stock. Unless otherwise indicated, each person or
entity named below has an address c/o San Benito Bank's principal executive
offices and has sole voting and investment power with respect to all shares of
San Benito Bank common stock shown as beneficially owned by such person or
entity, except to the extent authority is shared by spouses under applicable
law. There is no family relationship between any of the directors or principal
officers of San Benito Bank.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
AS OF MARCH 31, 2000
---------------------
POSITIONS HELD DIRECTOR
NAME AGE WITH SAN BENITO BANK SINCE NUMBER PERCENT OF CLASS
- ---- --- ----------------------- ----- ------ ----------------
<S> <C> <C> <C> <C> <C>
Thomas F. Barry 76 Director 1984 3,600(1) 1.13%
Ronald L. Darby, M.D. 56 Director and 1983 65,298(2) 2.28%(2)
Assistant Secretary of
the Board
Victor F. Davis 44 Senior Vice President, N/A 24,554(3) 0.86%(3)
Cashier and Chief
Financial Officer
Albert F. Guerra 53 Director and Vice 1983 66,138(2)(4) 2.31%(2)(4)
Chairman of the Board
John D. Maness 79 Director 1985 31,168(2) 1.09%(2)
Gerald T. McCullough 64 Chairman of the Board 1983 122,388(2)(5) 4.28%(2)(5)
and Director
Ronald L. Roberts 62 Senior Vice President N/A 35,510 1.24%
and Senior Loan
Officer
Ray A. Sabbatini 74 Director 1983 65,244(2) 2.28%(2)
Enos N. Silva 75 Director 1983 57,098(2) 2.00%(2)
Edward T. Stephenson 65 President, Chief Executive 1983 114,404(6) 4.01%(6)
Officer and Director
Robert W. Yant 78 Director and Secretary 1983 123,356(7) 4.32%(7)
of the Board
ALL DIRECTORS AND 708,758(8) 24.41%(8)
OFFICERS OF SAN
BENITO BANK AS A
GROUP (12 PERSONS)
</TABLE>
(1) Includes 1,330 shares subject to presently exercisable options granted
pursuant to the San Benito Bank 1995 Stock Option Plan.
(2) Includes 5,320 shares subject to presently exercisable options granted
pursuant to the San Benito Bank 1995 Stock Option Plan.
(3) Includes 14,454 shares subject to presently exercisable options granted
pursuant to the San Benito Bank 1984 Amended Stock Option Plan.
(4) Includes beneficial ownership of 51,216 shares owned by Guerra
Associates, a partnership in which Mr. Guerra is a partner and 9,602
shares held individually.
(5) Includes beneficial interest in 568 shares held as Trustee.
88
<PAGE>
(6) Includes 896 shares held as Trustee.
(7) Includes 2,660 shares subject to presently exercisable options granted
pursuant to the San Benito Bank 1995 Stock Option Plan.
(8) Includes 14,454 and 35,910 shares subject to presently exercisable
options granted pursuant to the San Benito Bank 1984 Amended Stock Option
Plan and the San Benito Bank 1995 Stock Option Plan, respectively.
EXPERTS
PACIFIC CAPITAL'S AUDITORS
The consolidated financial statements of Pacific Capital and subsidiaries
as of December 31, 1999 and 1998, and for each of the years in the three-year
period ended December 31, 1999, incorporated by reference in this proxy
statement-prospectus, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herewith in reliance upon the authority of said firm as experts in
giving said reports.
SAN BENITO BANK'S AUDITORS
The financial statements of San Benito Bank as of December 31, 1999 and
1998, and for each of the years in the three-year period ended December 31,
1999, included in this proxy statement-prospectus, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report
appearing herein, and are included in reliance upon the report of such firm
given their authority as experts in accounting and auditing.
Representatives of Deloitte & Touche LLP are expected to be present at the
special meeting. These representatives will have the opportunity to make a
statement if they desire to do so and are expected to be available to respond to
appropriate questions.
OPINIONS
SHARE ISSUANCE
Jay D. Smith, Senior Vice President and General Counsel of Pacific Capital
Bancorp, has rendered a legal opinion that the shares of Pacific Capital common
stock offered hereby, when issued in accordance with the terms of the
reorganization agreement, will be validly issued, fully paid and nonassessable.
Mr. Smith beneficially owns shares of Pacific Capital common stock and options
to purchase additional shares of Pacific Capital common stock. As of the date of
this proxy statement-prospectus, the total number of shares Mr. Smith owns or
has the right to acquire upon exercise of his options is less than 1% of the
outstanding shares of Pacific Capital common stock.
TAX MATTERS
Jenkens & Gilchrist, a Professional Corporation, as special counsel to
Pacific Capital, has given a legal opinion regarding the material U.S. federal
income tax consequences of the acquisition. See "The Acquisition - Federal
Income Tax Consequences."
WHERE YOU CAN FIND MORE INFORMATION
PACIFIC CAPITAL'S SEC FILINGS
Pacific Capital files annual, quarterly and current reports, proxy
statements and other information with the SEC. Pacific Capital's filings are
available to the public over the Internet at the SEC's web site at
http://www.sec.gov. You may also read and copy any document filed by Pacific
Capital with the SEC at the SEC's public reference rooms located at 450 Fifth
Street, N.W., Washington, D.C. 20549, 7 World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Please call the SEC at 1-800-SEC-0330 for further
information
89
<PAGE>
on the public reference rooms. You can also obtain copies of Pacific Capital's
SEC filings at prescribed rates by writing to the Public Reference Section of
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Pacific Capital's SEC
filings are also available to the public from commercial document retrieval
services.
SAN BENITO BANK'S FEDERAL RESERVE FILINGS
San Benito Bank files annual, quarterly and current reports, proxy
statements and other information with the Board of Governors of the Federal
Reserve System. You may read and copy any document filed by San Benito Bank with
the Federal Reserve at the Federal Reserve, Division of Banking Supervision and
Regulation, 20th Street and Constitution, Washington, D.C. 20551. The
information may also be obtained from the Federal Reserve by writing to the
referenced address or by calling (202) 452-3244. San Benito Bank's Federal
Reserve filings are also available to the public from commercial document
retrieval services or by calling Victor F. Davis, Chief Financial officer at
(831) 637-2265.
REGISTRATION STATEMENT
Pacific Capital filed a registration statement on Form S-4 to register
with the SEC the shares of Pacific Capital common stock to be issued to San
Benito Bank shareholders in the acquisition. This proxy statement-prospectus is
part of that registration statement. As allowed by SEC rules, this proxy
statement-prospectus does not contain all of the information you can find in the
registration statement or the exhibits to the registration statement.
DOCUMENTS INCORPORATED BY REFERENCE
Some of the information you may want to consider in deciding how to vote on
the acquisition is not physically included in this proxy statement-prospectus.
Instead, the information is "incorporated by reference" to documents filed as
appendixes to this proxy statement-prospectus or to documents that have been
filed by Pacific Capital with the SEC.
This proxy statement-prospectus incorporates by reference the Pacific
Capital SEC documents set forth below. All of the documents were filed under SEC
File No. 000-11113.
- Annual Report on Form 10-K for the year ended December 31, 1999,
including information specifically incorporated by reference into the
Form 10-K from Pacific Capital's Annual Report to Shareholders and
Pacific Capital's definitive Notice and Proxy Statement for its 2000
Annual Meeting of Shareholders;
- Current Reports on Form 8-K filed March 7, 2000 and
April 12, 2000;
- The description of Pacific Capital's common stock contained in the
Registration Statement on Form 8-A filed April 29, 1983, including
any amendment or report filed to update such description;
- The description of Pacific Capital's preferred share purchase rights
contained in the Registration Statement on Form 8-A filed December 17,
1999, including any amendment or report filed to update such
description; and
- All reports and definitive proxy or information statements filed by
Pacific Capital pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 after the date of this proxy
statement-prospectus and before completion of the acquisition and the
exchange of Pacific Capital common stock for San Benito common stock.
Pacific Capital will provide, without charge, copies of any report
incorporated by reference into this proxy statement-prospectus, excluding
exhibits other than those that are specifically incorporated by reference in
this proxy statement-prospectus. You may obtain a copy of any document
incorporated by reference by writing or calling Pacific Capital as follows:
90
<PAGE>
Pacific Capital Bancorp
Corporate Secretary
200 East Carrillo Street, Suite 300
Santa Barbara, California 93101
(805) 564-6310
TO ENSURE DELIVERY OF THE COPIES IN TIME FOR THE SPECIAL MEETING, YOUR
REQUEST SHOULD BE RECEIVED BY PACIFIC CAPITAL BY JUNE __, 2000.
- --------------------------------------------------------------------------------
In deciding how to vote on the acquisition, you should rely only on the
information contained or incorporated by reference in this proxy
statement-prospectus. Neither Pacific Capital nor San Benito Bank has authorized
any person to provide you with any information that is different from what is
contained in this proxy statement-prospectus. This proxy statement-prospectus is
dated May __, 2000. You should not assume that the information contained in
this proxy statement-prospectus is accurate as of any date other than such
date, and neither the mailing to you of this proxy statement-prospectus nor
the issuance to you of shares of Pacific Capital common stock will create
stock will create any implication to the contrary.
- --------------------------------------------------------------------------------
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
Pacific Capital Bancorp and San Benito Bank have each made forward-looking
statements in this document and in certain documents that we refer to in this
document that are subject to risks and uncertainties. These statements are based
on the beliefs and assumptions of the respective company's management, and on
information currently available to such management. Forward-looking statements
include the information concerning possible or assumed future results of
operations of Pacific Capital and/or San Benito Bank under "Questions and
Answers About the Acquisition," "Summary," "The Acquisition-Background of and
Reasons for the Acquisition," "Selected Unaudited Pro Forma Combined Financial
Data," and "Management's Discussion and Analysis of Financial Condition and
Results of Operation," and statements preceded by, followed by or that include
the words "believes," "expects," "anticipates," "intends," "plans," "estimates"
or similar expressions.
In particular, we have made statements in this document regarding expected
cost savings from the acquisition, the anticipated accretive effect of the
acquisition and Pacific Capital's anticipated performance in future periods.
With respect to estimated cost savings, Pacific Capital has made assumptions
regarding the extent of operational overlap between Pacific Capital and San
Benito Bank, the amount of general and administrative expense consolidation,
costs relating to converting San Benito Bank's operations and data processing to
Pacific Capital's systems, the size of anticipated reductions in fixed labor
costs, the amount of severance expenses, the extent of the charges that may be
necessary to align the companies' respective accounting reserve policies and the
costs related to the acquisition. The realization of the expected cost savings
are subject to the risk that the foregoing assumptions are inaccurate.
Moreover, any statements in this document regarding the anticipated
accretive effect of the acquisition and Pacific Capital's anticipated
performance in future periods are subject to risks relating to the following:
- expected cost savings from the acquisition may not be
fully realized or realized within the expected
time-frame;
- revenues following the acquisition may be lower than expected, or
deposit attrition, operating costs or customer loss and business
disruption following the acquisition may be greater than expected;
- competitive pressures among depository and other financial
institutions may increase significantly;
91
<PAGE>
- costs of difficulties related to the integration of the
businesses of Pacific Capital and San Benito
Bank may be greater than expected;
- changes in the interest rate environment may reduce
margins;
- general economic or business conditions, either nationally or in
California, may be less favorable than expected, resulting in, among
other things, a deterioration in credit quality or a reduced demand for
credit;
- legislative or regulatory changes, including changes in accounting
standards, may adversely affect the businesses in which Pacific Capital
and San Benito Bank are engaged;
- changes may occur in the securities markets; and
- competitors of Pacific Capital and San Benito Bank may have greater
financial resources to develop products that enable such competitors to
compete more successfully than Pacific Capital
and San Benito Bank.
Management of Pacific Capital believes these forward-looking statements are
reasonable; however, undue reliance should not be placed on such forward-looking
statements, which are based on current expectations.
Forward-looking statements are not guarantees of performance. They
involve risks, uncertainties and assumptions. The future results and
shareholder values of Pacific Capital following completion of the acquisition
may differ materially from those expressed in these forward-looking statements.
Many of the factors that will determine these results and values are beyond
Pacific Capital's and San Benito Bank's ability to control or predict. For
those statements, Pacific Capital and San Benito Bank claim the protection of
the safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995.
92
<PAGE>
<TABLE>
INDEX TO FINANCIAL STATEMENTS OF SAN BENITO BANK
<S> <C>
Report of Independent Auditors.........................................................................F-2
Balance Sheets as of December 31, 1999 and 1998........................................................F-3
Statements of Income for the years ended December 31,
1999, 1998 and 1997....................................................................................F-4
Statements of Stockholders' Equity for the years ended
December 31, 1999, 1998 and 1997.......................................................................F-5
Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997....................................................................................F-6
Notes to Financial Statements..........................................................................F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders,
SAN BENITO BANK:
We have audited the accompanying balance sheets of SAN BENITO BANK as of
December 31, 1999 and 1998, and the related statements of income, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of SAN BENITO BANK at December 31, 1999 and
1998, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1999 in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
Hollister, California
January 24, 2000
(February 3, 2000 as to Note 16)
F-2
<PAGE>
SAN BENITO BANK
<TABLE>
<CAPTION>
BALANCE SHEETS, DECEMBER 31, 1999 AND 1998
- -----------------------------------------------------------------------------------------------------------------
ASSETS 1999 1998
- ------ ---- ----
<S> <C> <C>
CASH AND CASH EQUIVALENTS:
Cash and due from banks $ 9,956,000 $ 9,266,000
Federal funds sold 9,640,000 5,595,000
------------- ------------
Total cash and cash equivalents (Notes 1, 11) 19,596,000 14,861,000
INTEREST-BEARING DEPOSITS IN OTHER
FINANCIAL INSTITUTIONS (Note 11) 2,555,000 4,130,000
INVESTMENT SECURITIES (Notes 1, 2, 11) 58,407,000 60,903,000
LOANS:
Commercial 37,471,000 31,830,000
Real estate - construction 28,504,000 27,499,000
Real estate - other 27,677,000 14,868,000
Installment 13,267,000 12,019,000
Credit cards 935,000 849,000
Other loans 893,000 430,000
------------- ------------
Total loans (Notes 1, 9, 11, 12, 13) 108,747,000 87,495,000
Allowance for credit losses (Notes 1, 3) (1,768,000) (1,203,000)
------------- ------------
Loans, net 106,979,000 86,292,000
BANK PREMISES AND EQUIPMENT,
Net (Notes 1, 4) 2,336,000 2,583,000
EQUIPMENT LEASED TO OTHERS,
Net (Notes 1, 5) 1,161,000 46,000
CASH SURRENDER VALUE OF LIFE INSURANCE 6,072,000 3,903,000
ACCRUED INTEREST RECEIVABLE AND OTHER ASSETS
(Note 1, 10) 3,921,000 3,210,000
------------- ------------
TOTAL $201,027,000 $175,928,000
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS:
Noninterest-bearing demand $ 37,408,000 $ 32,916,000
Interest-bearing demand 32,850,000 31,124,000
Time 85,366,000 67,177,000
Savings 25,652,000 27,139,000
------------- ------------
Total deposits (Note 11) 181,276,000 158,356,000
ACCRUED INTEREST PAYABLE AND OTHER LIABILITIES
(Note 11) 1,283,000 1,077,000
-------------- ------------
TOTAL LIABILITIES 182,559,000 159,433,000
------------- ------------
STOCKHOLDERS' EQUITY:
Preferred stock, no par value: authorized, 2,000,000 shares;
none issued - -
Common stock, no par value: authorized, 9,765,624 shares;
outstanding: 1999, 2,850,684; 1998, 2,714,010 shares;
(Note 8) 15,628,000 15,029,000
Shares held in deferred compensation trust
(40,919 shares in 1999 and none in 1998), net of deferred
obligation - -
Retained earnings 3,158,000 1,395,000
Accumulated other comprehensive income - net unrealized gain
(loss) on
securities, net of taxes of ($222,000) in 1999 and $51,000
in 1998
(Note 1) (318,000) 71,000
Stockholders' equity (Note 14) 18,468,000 16,495,000
------------- ------------
TOTAL $201,027,000 $175,928,000
============= ============
</TABLE>
See notes to financial statements.
F-3
<PAGE>
SAN BENITO BANK
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- ----------------------------------------------------------------------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME:
Loans (including fees) (Note 1) $ 9,967,000 $ 8,282,000 $ 7,228,000
Investment securities (Note 2) 3,601,000 3,079,000 2,419,000
Federal funds sold 443,000 537,000 256,000
------------- ------------- -------------
Total interest income 14,011,000 11,898,000 9,903,000
INTEREST ON DEPOSITS 4,619,000 4,146,000 3,136,000
------------- ------------- -------------
NET INTEREST INCOME 9,392,000 7,752,000 6,767,000
PROVISION FOR CREDIT LOSSES (Note 3) 700,000 190,000 200,000
-------------- ------------- -------------
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES 8,692,000 7,562,000 6,567,000
------------- ------------- -------------
OTHER INCOME:
Service charges on deposit accounts 697,000 632,000 552,000
Lease income 179,000 23,000 34,000
Gain on sale of loans 143,000 227,000 178,000
Other (Note 15) 755,000 353,000 169,000
------------- ------------- -------------
Total other income 1,774,000 1,235,000 933,000
------------- ------------- -------------
OTHER EXPENSES:
Salaries and employee benefits 3,712,000 3,102,000 2,567,000
Occupancy 460,000 440,000 319,000
Furniture and equipment 931,000 697,000 495,000
Other operating expenses (Note 15) 1,901,000 1,631,000 1,535,000
------------- ------------- -------------
Total other expenses 7,004,000 5,870,000 4,916,000
------------- ------------- -------------
INCOME BEFORE TAXES ON INCOME 3,462,000 2,927,000 2,584,000
TAXES ON INCOME (Notes 1, 7) 1,203,000 995,000 830,000
------------- ------------- -------------
NET INCOME $ 2,259,000 $ 1,932,000 $ 1,754,000
============= ============= =============
Basic Earnings per Share (Note 1) $ .81 $ .72 $ .66
======= ====== ======
Diluted Earnings per Share (Note 1) $ .77 $ .68 $ .63
======= ====== ======
</TABLE>
See notes to financial statements.
F-4
<PAGE>
SAN BENITO BANK
<TABLE>
<CAPTION>
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED OTHER
COMPREHENSIVE
INCOME FROM
COMMON STOCK UNREALIZED TOTAL
COMPREHENSIVE ------------------------ RETAINED GAIN (LOSS) ON STOCKH0LDER'S
SHARES AMOUNT EARNINGS SECURITIES EQUITY INCOME
--------- ----------- ----------- ----------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 2,210,662 $ 8,981,000 $ 3,443,000 $ 16,000 $ 12,440,000
1997
NET INCOME - - 1,754,000 - 1,754,000 $ 1,754,000
NET CHANGE IN
UNREALIZED
GAIN ON - - - 22,000 22,000 22,000
AVAILABLE-FOR-SALE -----------
SECURITIES, Net of
taxes of $16,000
COMPREHENSIVE INCOME $ 1,776,000
============
STOCK OPTIONS EXERCISED 5,188 19,000 - - 19,000
STOCK DIVIDEND -10% 221,066 2,542,000 (2,542,000) - -
STOCK REPURCHASED (428) (4,000) - - (4,000)
TAX BENEFIT OF STOCK
OPTIONS - 17,000 - - 17,000
EXERCISED
------------ ------------ ------------ ---------------- ------------
BALANCE, DECEMBER 31, 1997 2,436,488 11,555,000 2,655,000 38,000 14,248,000
NET INCOME - - 1,932,000 - 1,932,000 $ 1,932,000
NET CHANGE IN
UNREALIZED GAIN ON
AVAILABLE-FOR-SALE - - - 33,000 33,000 33,000
SECURITIES, -----------
Net of taxes of $24,000 $ 1,965,000
COMPREHENSIVE INCOME ===========
STOCK OPTIONS EXERCISED 34,368 104,000 - - 104,000
STOCK DIVIDEND - 10% 243,648 3,192,000 (3,192,000) - -
STOCK REPURCHASED (494) (6,000) - - (6,000)
TAX BENEFIT OF STOCK
OPTIONS - 184,000 - - 184,000
EXERCISED
------------ ------------ ------------ ---------------- ------------
BALANCE, DECEMBER 31, 1998 2,714,010 15,029,000 1,395,000 71,000 16,495,000
NET INCOME - - 2,259,000 - 2,259,000 $2,259,000
NET CHANGE IN
UNREALIZED GAIN
(LOSS) ON - - - (389,000) (389,000) (389,000)
AVAILABLE-FOR-SALE ----------
SECURITIES, Net of
taxes of $273,000
COMPREHENSIVE INCOME $1,870,000
==========
STOCK OPTIONS EXERCISED 141,584 405,000 - - 405,000
SHARES REPURCHASED (4,910) (110,000) - - (110,000)
CASH DIVIDEND - - (496,000) - (496,000)
TAX BENEFIT OF STOCK
OPTIONS - 304,000 - - 304,000
EXERCISED
------------ ------------ ------------ ---------------- ------------
BALANCE, DECEMBER 31, 1999 2,850,684 $ 15,628,000 $ 3,158,000 $ (318,000) $ 18,468,000
============ ============ ============ ================ ============
</TABLE>
See notes to financial statements.
F-5
<PAGE>
SAN BENITO BANK
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- -------------------------------------------------------------------------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,259,000 $ 1,932,000 $ 1,754,000
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation 709,000 501,000 359,000
Amortization and accretion 14,000 51,000 38,000
Provision for credit losses 700,000 190,000 200,000
Deferred income taxes (335,000) (163,000) (121,000)
Gain on sale of equipment - (6,000) (1,000)
Gain on life insurance (348,000) - -
(Gain) loss on sale of other real estate acquired
by foreclosure (6,000) (4,000) 7,000
Write-down of other real estate acquired by
foreclosure - - 15,000
Changes in:
Accrued interest receivable and other assets (1,969,000) (2,303,000) (1,339,000)
Accrued interest payable and other liabilities
206,000 (457,000) 732,000
---------- ---------- ----------
Net cash provided (used) by operating activities 1,230,000 (259,000) 1,644,000
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of interest-bearing deposits
with other financial institutions 1,674,000 - -
Purchases of interest-bearing deposits in other
financial institutions (99,000) (3,139,000) (991,000)
Proceeds from maturities of investment securities:
Available-for-sale 5,998,000 9,000,000 6,991,000
Held-to-maturity 1,637,000 16,855,000 7,466,000
Purchases of investment securities:
Available-for-sale (4,466,000) (19,000,000) (11,997,000)
Held-to-maturity (1,000,000) (23,877,000) (3,413,000)
Net increase in loans (21,651,000) (15,078,000) (12,912,000)
Purchases of bank premises and equipment (314,000) (444,000) (791,000)
Purchases of Equipment leased to others (1,308,000) - -
Proceeds from sale of other real estate acquired by
foreclosure 270,000 173,000 274,000
Proceeds from sale of equipment 45,000 6,000 1,000
------------- ------------- -------------
Net cash used by investing activities (19,214,000) (35,504,000) (15,372,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in noninterest-bearing deposits 4,492,000 12,030,000 3,055,000
Net increase in interest-bearing deposits 239,000 3,425,000 1,304,000
Net increase in time deposits 18,189,000 22,971,000 14,937,000
Proceeds from stock options exercised 295,000 105,000 19,000
Common stock repurchased - (6,000) (4,000)
Cash dividend (496,000) - -
-------------- ------------ -----------
Net cash provided by financing activities 22,719,000 38,525,000 19,311,000
---------- ---------- ----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 4,735,000 2,762,000 5,583,000
------------- ------------- -------------
(Continued)
F-6
<PAGE>
SAN BENITO BANK
<CAPTION>
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (CONCLUDED)
- -------------------------------------------------------------------------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
NET INCREASE IN CASH AND
CASH EQUIVALENTS $ 4,735,000 $ 2,762,000 $ 5,583,000
CASH AND CASH EQUIVALENTS:
BEGINNING OF YEAR 14,861,000 12,099,000 6,516,000
------------- -------------- --------------
END OF YEAR $ 19,596,000 $ 14,861,000 $ 12,099,000
============= ============== ==============
OTHER CASH FLOW INFORMATION:
Interest paid $ 4,650,000 $ 4,111,000 $ 3,102,000
Income taxes paid 1,230,000 $ 1,233,000 $ 836,000
</TABLE>
INFORMATION REGARDING NONCASH INVESTING ACTIVITIES: In 1999 and 1997, loans
transferred to other real estate acquired by foreclosure were $264,000 and
$169,000, respectively. No foreclosures occurred in 1998.
In 1999, Stock option exercises and stock repurchases totalling $110,000 were
performed through a "stock-for-stock" exercise under the Bank's deferred
compensation plan (see Note 10).
See notes to financial statements.
F-7
<PAGE>
SAN BENITO BANK
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- ------------------------------------------------------------------------------
l. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - SAN BENITO BANK operates three branches in San
Benito County and one branch in Santa Clara County, California. The
Bank's primary source of revenue is interest from loans to customers, who
are predominately small and middle-market businesses and middle-income
individuals primarily located in San Benito County and Santa Clara
County, California.
SIGNIFICANT ACCOUNTING POLICIES - The accounting policies followed by SAN
BENITO BANK (the Bank) conform with generally accepted accounting
principles and with practices within the banking industry. The
significant policies are summarized below:
CASH AND CASH EQUIVALENTS include cash on hand, amounts due from banks
and federal funds sold. Generally, federal funds sold are for one-day
periods.
INVESTMENT SECURITIES are classified as held-to-maturity, trading or
available-for-sale at acquisition.
Investment securities classified as held-to-maturity are stated at
amortized cost and consist of debt securities for which the Bank has the
positive intent and ability to hold to maturity.
Investment securities classified as trading consist of securities for
which the Bank has the intent to hold principally for sale in the near
term, and are stated at fair value with a corresponding recognition of
the unrealized gain or loss in earnings. The Bank held no investment
securities classified as trading in 1999 or 1998.
Investment securities classified as available-for-sale consist of
securities for which the Bank neither intends to hold principally for
sale in the near term, nor to hold to maturity. Such securities are
stated at fair value. The net unrealized gain or loss is included as a
separate component of stockholders' equity (net of tax effect) until
realized. Gains and losses on sales of investment securities, if any, are
determined on a specific identification basis.
LOANS are stated at the amount of principal outstanding. Interest income
is recognized either on a simple interest basis or using methods which
approximate a level yield on principal amounts outstanding. Loans are
placed on nonaccrual status when principal or interest is past due 90
days, except for loans that are well secured and in the process of
collection. When interest accrual is discontinued, all unpaid accrued
interest is reversed. Interest income is subsequently recognized only to
the extent cash payments are received.
The Bank originates and, in certain instances sells, small business
loans. In determining the gain realized on loans sold, the recorded
investment is allocated between the portion of the loan sold and the
portion retained based on an estimate of the relative fair values of
those portions as of the date the loan is sold.
F-8
<PAGE>
SBA loans held for sale are stated at the lower of cost or aggregate
market value. The Bank had no SBA loans held for sale at December 31,
1999 or 1998.
The Bank retains servicing on the portion of SBA loans sold. The amount
of SBA loans serviced for others was approximately $6,414,000 and
$5,919,000 at December 31, 1999 and 1998, respectively.
Interest income on loans includes tax-exempt income of approximately
$318,000, $382,000, and $478,000 in 1999, 1998 and 1997, respectively.
LOAN ORIGINATION FEES and certain direct loan origination costs are
deferred and the net amount is amortized over the life of the loan. The
deferred amount is offset against the related loan balance and was
$459,000 and $378,000 at December 31, 1999 and 1998, respectively.
ALLOWANCE FOR CREDIT LOSSES is maintained at a level deemed appropriate
by management to provide for known and inherent risks in existing loans
and commitments to extend credit. The allowance is increased by charges
to income and decreased by charge-offs (net of recoveries). Management's
periodic evaluation of the adequacy of the allowance is based on the
Bank's past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's ability to
repay, the estimated value of any underlying collateral, and current
economic conditions.
A loan is impaired when, based on current information and events, it is
probable that the Bank will be unable to collect all amounts due
according to the contractual terms of the loan agreement. Impaired loans
are measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a practical
expedient, at the loan's observable market price or the fair value of the
collateral if the loan is collateral-dependent.
BANK PREMISES AND EQUIPMENT AND EQUIPMENT LEASED TO OTHERS is stated at
cost less accumulated depreciation. Depreciation is computed on the
straight-line basis over the estimated useful lives of the related
assets.
OTHER REAL ESTATE ACQUIRED BY FORECLOSURE is stated at the lower of the
recorded investment in the property or its estimated fair value less
costs to sell. At the time of foreclosure, the value of the underlying
loan is written down to the estimated fair value less costs to sell by a
charge to the allowance for credit losses, if necessary. Any subsequent
write-downs are charged to other expenses. Operating expenses of such
properties, net of related income, and gains and losses on their
disposition are included in other expenses. No other real estate acquired
by foreclosure was included in other assets at December 31, 1999 or 1998.
INCOME TAXES are provided based upon the asset and liability method of
income tax reporting. Deferred income taxes are provided for temporary
differences in the recognition of assets and liabilities for tax and
financial reporting purposes. Differences arise principally from
differing methods in reporting provisions for credit losses, depreciation
and state franchise taxes. A valuation allowance is used to adjust the
carrying value of deferred tax assets to the amount that will more likely
than not be realized.
EARNINGS PER SHARE. Basic earnings per share is computed by dividing net
income by the weighted average number of common shares outstanding for
the period. Diluted earnings per share reflects the potential dilution
that could occur if outstanding stock options were exercised. Diluted
earnings per share is computed by dividing net income by the weighted
average shares outstanding plus the
F-9
<PAGE>
equivalent shares related to stock options. All earnings per share
information has been adjusted retroactively for the 10% stock dividends
declared by the Board of Directors in February 1998 and 1997 and the 2
for 1 stock split effective in July 1998.
The weighted average shares used in computing earnings per share are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Weighted average shares used in computing:
Basic earnings per share 2,787,000 2,694,000 2,676,000
Diluted potential common shares from
exercise of stock options, using the
treasury stock method. 126,000 142,000 118,000
-------------- --------------- ------------
Diluted earnings per share 2,913,000 2,836,000 2,794,000
============== =============== ============
</TABLE>
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. Material estimates that are particularly susceptible to
significant changes in the near term relate to the determination of the
allowance for credit losses.
STOCK-BASED COMPENSATION - The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with APB No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES and no compensation expense has
been recognized in the accompanying financial statements for employee
stock options agreements.
Note 8 to the financial statements contains a summary of the proforma
effects to reported net income and diluted earnings per share if the Bank
had elected to recognize compensation costs based on the grant date fair
value of the options as prescribed by Statement of Financial Accounting
Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION.
DISCLOSURES ABOUT OPERATING SEGMENTS - SFAS No. 131, "DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION", established annual
and interim reporting standards for an enterprise's operating segments
and related disclosures about its products, services, geographic areas
and major customers. Management has determined that since all of the
commercial banking products and services of the Bank are available in
each branch of the Bank, all branches are located within the same
economic environment and management does not allocate resources based on
the performance of different lending or transaction activities, no
financial disclosures about operating segments are necessary.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - In June
1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES," which establishes accounting and
reporting standards for derivative instruments and hedging activities.
As amended by SFAS No. 137,
F-10
<PAGE>
"ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES -
DEFERRAL OF THE EFFECTIVE DATE OF FASB STATEMENT NO. 133," this
statement is effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000, with earlier application permitted.
Management believes adoption of this statement will not have a
material effect on the Bank's financial statements.
2. INVESTMENT SECURITIES
The stated values of investment securities at December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Available-for-sale (at fair value) $26,273,000 $28,119,000
Held-to-maturity (at amortized cost) 32,134,000 32,784,000
----------- -----------
Total $58,407,000 $60,903,000
=========== ===========
</TABLE>
F-11
<PAGE>
The amortized cost and approximate fair values of investment securities
at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1999
----------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES:
Obligations of other
U.S. Government agencies $ 26,464,000 $ 617,000 $ 25,847,000
Other 348,000 $ 78,000 - 426,000
-------------- --------- ------------- ---------------
Total $ 26,812,000 $ 78,000 $ 617,000 $ 26,273,000
============== ========= ============= ===============
HELD-TO-MATURITY SECURITIES:
U.S. Treasury securities $ 500,000 $ 1,000 $ 501,00
Obligations of other
U.S. Government agencies 24,173,000 2,000 $ 1,345,000 22,830,000
Obligations of states and
political subdivisions 7,461,000 63,000 425,000 7,099,000
-------------- --------- ------------- ---------------
Total $ 32,134,000 $ 66,000 $ 1,770,000 $ 30,430,000
============== ========= ============= ===============
1998
----------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
AVAILABLE-FOR-SALE SECURITIES:
Obligations of other
U.S. Government agencies $ 27,997,000 $ 126,000 $ 4,000 $ 28,119,000
============== ========== ============= ===============
HELD-TO-MATURITY SECURITIES:
U.S. Treasury securities $ 501,000 $ 14,000 $ - $ 515,000
Obligations of other
U.S. Government agencies 23,951,000 65,000 8,000 24,008,000
Obligations of state and
political subdivisions 8,332,000 201,000 37,000 8,496,000
-------------- --------- ------------- ---------------
Total $ 32,784,000 $ 280,000 $ 45,000 $ 33,019,000
============== ========== ============= ===============
</TABLE>
No sales of available-for-sale securities or held-to-maturity securities
occurred in 1999, 1998 or 1997.
F-12
<PAGE>
The scheduled maturities of investment securities at December 31, 1999
are as follows:
<TABLE>
<CAPTION>
Available-for-sale securities Held-to-maturity securities
--------------------------------- ----------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
Maturing within 1 year $ 348,000 $ 426,000 $ 500,000 $ 501,000
Maturing within 5 years 23,998,000 23,432,000 9,215,000 8,955,000
Maturing after 5 years but
before 10 years - - 16,669,000 15,628,000
Maturing after 10 years 2,466,000 2,415,000 5,750,000 5,346,000
------------- ------------- ------------- -------------
Total $ 26,812,000 $ 26,273,000 $ 32,134,000 $ 30,430,000
============= ============= ============= ============
</TABLE>
Interest income on investment securities includes tax-exempt income of
approximately $368,000, $226,000 and $266,000 in 1999, 1998 and 1997,
respectively. Securities with carrying values of $6,730,000 and
$10,344,000 were pledged at December 31, 1999 and 1998, respectively, to
collateralize public deposits or for other reasons as required by law or
contract.
3. ALLOWANCE FOR CREDIT LOSSES
The activity in the allowance for credit losses is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance, January 1 $ 1,203,000 $ 1,112,000 $ 1,023,000
Provision for credit losses 700,000 190,000 200,000
Loans charged off (186,000) (113,000) (228,000)
Recoveries 51,000 14,000 117,000
------------- ------------- -------------
Balance, December 31 $ 1,768,000 $ 1,203,000 $ 1,112,000
============= ============= =============
</TABLE>
At December 31, 1999, 1998 and 1997 loans totaling $1,474,000, $707,000
and $464,000, respectively, were on nonaccrual status. Interest due but
excluded from interest income on such loans was $49,000, $58,000 and
$30,000 in 1999, 1998 and 1997, respectively. At December 31, 1999 all
nonaccrual loans have been identified as impaired. The portion of the
allowance for credit losses related to such impaired loans was $657,000
and $87,000 at December 31, 1999 and 1998, respectively. During 1999 and
1998, the average recorded investment in impaired loans was $373,000 and
$574,000, respectively. Interest income recognized on impaired loans was
$1,000 during 1999 and none in 1998.
F-13
<PAGE>
4. BANK PREMISES AND EQUIPMENT
Bank premises and equipment at December 31 consists of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Land $ 150,000 $ 150,000
Building and improvements 2,109,000 2,115,000
Equipment and furniture 3,404,000 3,038,000
Construction in progress - 46,000
-------------- -------------
Total 5,663,000 5,349,000
Accumulated depreciation (3,327,000) (2,766,000)
--------------- ---------------
Net $ 2,336,000 $ 2,583,000
============== =============
</TABLE>
Depreciation expense related to bank premises and equipment was $561,000,
$483,000 and $332,000 for the years ended December 31, 1999, 1998 and
1997, respectively.
5. EQUIPMENT LEASED TO OTHERS
Equipment leased to others at December 31, consists of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Data processing equipment $ 1,308,000 $ 129,000
Accumulated depreciation (147,000) (83,000)
--------------- --------------
Net $ 1,161,000 $ 46,000
============== =============
</TABLE>
Depreciation expense related to equipment leased to others was $148,000,
$18,000 and $27,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
The Bank leases data processing equipment to others under various
operating leases expiring in 2002. Lease income was $179,000, $23,000 and
$34,000 in 1999, 1998 and 1997, respectively.
The future minimum lease revenue from these leases is approximately as
follows:
<TABLE>
<S> <C>
2000 $ 572,000
2001 572,000
2002 343,000
---------------
Total $ 1,487,000
===============
</TABLE>
F-14
<PAGE>
6. LEASE COMMITMENTS
The Bank leases certain facilities under various operating leases
expiring in 2003. The lease agreements include options to extend for ten
to fifteen years. Rental rates are adjusted periodically for changes in
certain economic indices. Rent expense was $152,000 in 1999, $141,000 in
1998 and $86,000 in 1997. Minimum annual lease commitments under these
leases are as follows:
<TABLE>
<S> <C>
2000 $ 139,000
2001 100,000
2002 79,000
2003 9,000
------------
Total $ 327,000
============
</TABLE>
7. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 901,000 $ 828,000 $ 643,000
State 391,000 353,000 308,000
-------------- ------------ ----------
Total current 1,292,000 1,181,000 951,000
-------------- ------------ ----------
Deferred:
Federal (69,000) (148,000) (89,000)
State (20,000) (38,000) (32,000)
--------------- ------------- -----------
Total deferred (89,000) (186,000) (121,000)
--------------- ------------- -----------
Total provision $ 1,203,000 $ 995,000 $ 830,000
============== ============ ==========
</TABLE>
The total tax provision differs from that computed by applying the
statutory U.S. Federal income tax rate to income before taxes as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------- -------------------------- ----------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Income tax at the
statutory rate $ 1,212,000 35.0% $ 1,024,000 35.0% $ 904,000 35.0%
Increases (decreases) resulting from:
Graduated rates (35,000) (1.0) (29,000) (1.0) (26,000) (1.0)
State income tax -
net of Federal tax
effect 244,000 7.0 209,000 7.2 185,000 7.2
Tax-exempt income (213,000) (6.2) (210,000) (7.2) (229,000) (8.9)
Other (5,000) (0.1) 1,000 0.0 (4,000) (0.2)
----------- ------- ------------ ------- ----------- -------
Total $ 1,203,000 34.7% $ 995,000 34.0% $ 830,000 32.1%
=========== ======= ============ ======= =========== =======
</TABLE>
F-15
<PAGE>
Net deferred income tax assets of $1,094,000 and $759,000 at December 31,
1999 and 1998, respectively, are included in other assets. Such net
deferred tax assets consist of the following assets and (liabilities):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Provision for credit losses $ 720,000 $ 479,000
Depreciation 43,000 67,000
State income taxes 36,000 51,000
Deferred compensation 155,000 103,000
Capital loss carryforward 14,000 14,000
Net unrealized gain on available-for-sale
investment securities 222,000 (50,000)
Gain on demutualization of insurance company (156,000) -
Other 74,000 109,000
------------- ----------
Subtotal 1,108,000 773,000
Valuation allowance (14,000) (14,000)
-------------- ----------
Net deferred tax asset $ 1,094,000 $ 759,000
============= ==========
</TABLE>
8. STOCK OPTION PLAN
Under the provisions of the Bank's stock option plan, the Board of
Directors may grant options to purchase shares of common stock at prices
determined by the Board to be not less than fair market value at date of
grant. The options become exercisable in equal amounts over 5 years and
expire 10 years from the date of grant.
A summary of stock option activity, adjusted to give retroactive effect
to stock dividends and splits, follows:
<TABLE>
<CAPTION>
Weighted
Option Price Average
Shares Per Share Price Per Share
------ --------- ---------------
<S> <C> <C> <C>
Outstanding, January 1, 1997 269,312 $2.41-6.62 $ 3.90
Granted 46,200 $10.00-10.91 $ 10.30
Exercised (5,706) $2.41 $ 2.41
Expired (5,324) $6.62 $ .62
-------
Outstanding, December 31, 1997 304,482 $2.41-10.91 $ 4.83
Exercised (34,368) $2.41-6.62 $ 4.03
-------
Outstanding, December 31, 1998 270,114 $2.41-10.91 $ 5.06
Granted 50,000 $19.63-21.00 $ 20.73
Exercised (141,584) $2.41-6.62 $ 2.86
Expired (3,994) $6.62 $ 6.62
-------
Outstanding, December 31, 1999 174,536 $3.66-$21.00 $ 11.29
=======
</TABLE>
F-16
<PAGE>
Additional information regarding options outstanding as of December 31,
1999 is as follows:
OPTIONS OUTSTANDING
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER REMAINING WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE
------------------------ ----------- ---------------- ----------------
<S> <C> <C> <C>
$3.66-$6.62 78,336 5.00 $ 4.99
$10.00-$10.91 46,200 7.66 $ 10.30
$19.63-$21.00 50,000 9.31 $ 20.73
-----------
$3.66-$21.00 174,536 6.93 $ 10.90
===========
</TABLE>
OPTIONS EXERCISABLE
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING EXERCISE PRICE
------------------------ ----------- ----------------
<S> <C> <C>
$3.66-$6.62 57,024 $ 5.57
$10.00-$10.91 18,480 $ 10.30
$3.66-10.91 75,504 $ 6.73
</TABLE>
At December 31, 1999, 1998 and 1997, options for 75,504, 194,280 and
204,510, respectively, with weighted average exercise prices of $6.73,
$3.76 and $3.16 per share, respectively, were exercisable. At December
31, 1999, 102,906 shares were available for additional grants.
As discussed in Note 1, the Company accounts for its stock-based awards
using the intrinsic value method in accordance with Accounting Principles
Board Statement No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES and its
related interpretations. Accordingly, no compensation expense has been
recognized in the financial statements for employee stock arrangements.
Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, (SFAS 123) requires the disclosure of pro forma
net income and earnings per share had the Company adopted the fair value
method as of the beginning of fiscal 1995. Under SFAS 123, the fair value
of stock-based awards to employees is calculated through the use of
option pricing models that require subjective assumptions, including
future stock price volatility and expected time to exercise, which
greatly affect the calculated values. The Company's calculations were
made using the Black-Scholes option pricing model with the following
weighted average assumptions: expected life, 60 months; stock volatility,
16.30%, 13.46% and 13.30% in 1999, 1998 and 1997, respectively; risk free
interest rates, 6.15%; and no dividends during the expected term. No
options were granted in 1998. The estimated weighted average fair value
per share of options granted in 1999, 1997 and 1996 was $6.15, $2.57 and
$1.91, respectively. If the computed fair values of the 1999, 1997 and
1996 awards had been amortized to expense over the vesting period of the
awards, pro forma net income would have been $2,205,000 ($.79 basic
earnings per share and $.76 diluted earnings per share) in 1999,
$1,899,000 ($.71 basic earnings per share and $.67 diluted earnings per
share) in 1998 and $1,729,000 ($.65 basic earnings per share and $.62
diluted earnings per share) in 1997. However, the impact of outstanding
non-vested stock options granted prior to December 15, 1995 has been
excluded from the pro forma calculation; accordingly, the 1999, 1998
and 1997 pro forma
F-17
<PAGE>
adjustments are not indicative of future period pro forma adjustments,
when the calculation will apply to all applicable stock options.
9. RELATED PARTY TRANSACTIONS
The Bank, in the normal course of business, has made loans and committed
lines of credit to certain directors under terms consistent with the
Bank's normal lending policies. Such loans and commitments at December
31, are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Outstanding loans $ 1,983,000 $ 2,494,000
Committed lines of credit $ 1,060,000 $ 1,270,000
</TABLE>
The aggregate activity for loans to directors for 1999 is summarized as
follows:
<TABLE>
<S> <C>
Balance, January 1, 1999 $ 2,494,000
Principal additions 814,000
Principal reductions (1,325,000)
---------------
Balance, December 31, 1999 $ 1,983,000
==============
</TABLE>
10. EMPLOYEE BENEFIT PLANS
The Bank has a 401(k) Profit Sharing Plan under which eligible employees
may elect to make tax deferred contributions. At the discretion of the
Board of Directors, the Bank annually matches 50% of employees'
contributions, up to the first 6% of participants' compensation. The Bank
may make additional discretionary contributions to the plan each year.
All employees meeting age and service requirements are eligible to
participate in the plan. Bank contributions vest after 7 years of
service. Bank contributions during 1999, 1998 and 1997 totaled $62,000,
$44,000 and $45,000, respectively.
During 1996, the Bank adopted a deferred compensation plan whereby key
management employees and directors can defer a portion of their annual
compensation. Amounts deferred accrue interest at a rate of 9% annually.
Accumulated benefits are paid upon retirement over 15 years. Total
deferred compensation was $346,000 and $230,000 at December 31, 1999 and
1998, respectively. In addition to the deferral of compensation, the plan
allows participants the opportunity to defer taxable income derived from
the exercise of stock options. The participants may, after making an
election to defer receipt of the option shares for a specified period of
time, use a "stock-for-stock" exercise to tender to the Bank mature
shares with a fair value equal to the exercise price of the stock options
exercised. The Bank simultaneously delivers new shares to the participant
equal to the value of shares surrendered and the remaining shares under
option are placed in a trust administered by the Bank, to be distributed
in accordance with the terms of each participant's election to defer.
During 1999 4,910 shares with a fair value of approximately $110,000 were
tendered to the Bank using a "stock-for-stock" exercise and, at December
31, 1999 40,919 shares were held in the Deferred Compensation Trust.
During 1998 the Bank established a defined contribution retirement plan
for the benefit of the directors and certain executive officers of the
Bank and, in connection with establishing the Plan, purchased single
premium life insurance policies for each participant. Contributions to
the plan are
F-18
<PAGE>
based on the excess of increases in the cash surrender values of the
insurance policies over a specified rate, and such contributions
continue until the death of the participant. Pension expense related
to the Plan was approximately $73,000 in 1999 and $56,000 in 1998. The
cash surrender value of the related life insurance policies totaled
approximately $2,876,000 and $2,774,000 at December 31, 1999 and 1998,
respectively, and is included in other assets.
11. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
CASH AND CASH EQUIVALENTS - The carrying amount of cash and cash
equivalents is a reasonable estimate of fair value.
INTEREST-BEARING DEPOSITS IN OTHER FINANCIAL INSTITUTIONS - Fair values
for deposits in other financial institutions were estimated by
discounting the future cash flows using rates currently offered for
deposits of similar size and similar remaining maturities.
INVESTMENT SECURITIES - Fair values for investment securities are based
on quoted market prices.
LOANS, NET - Fair values for variable rate loans which reprice
frequently, effectively adjusting the interest rate to maintain a market
rate of return, were estimated based on the carrying values, adjusted
for the allowance for credit losses.
Fair values for fixed-rate loans were estimated by discounting the future
cash flows using rates currently being offered for loans of similar type
and terms to borrowers of similar credit quality, adjusted for the
allowance for credit losses.
DEPOSIT LIABILITIES - The fair values for demand deposits and savings
are based on the amounts payable on demand at the reporting date, which
are their carrying values. The fair values for time deposits were
estimated by discounting the future cash flows using rates currently
offered for deposits of similar size and of similar remaining maturities.
SHORT-TERM BORROWINGS - The carrying amount of short-term borrowings is
a reasonable estimate of fair value.
OFF-BALANCE SHEET INSTRUMENTS - The fair value of commitments to extend
credit is estimated using the fees currently charged to enter into
similar agreements, taking into account the remaining terms of the
agreements and the present credit-worthiness of the borrowers. The fair
values of standby and commercial letters of credit are based on fees
currently charged for similar agreements or on the estimated cost to
terminate them or otherwise settle the obligations with the
counterparties. The fair value of such off-balance sheet instruments were
not significant at December 31, 1999 and 1998 and, therefore, have not
been included in the following table.
F-19
<PAGE>
The estimated fair values of the Bank's financial instruments at December
31, are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------- --------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and cash equivalents $ 19,596,000 $ 19,596,000 $ 14,861,000 $14,861,000
Interest-bearing deposits in
other financial institutions 2,555,000 2,555,000 4,130,000 4,180,000
Investment securities 58,407,000 56,703,000 60,903,000 61,138,000
Loans, net 106,979,000 106,206,000 86,292,000 86,187,000
FINANCIAL LIABILITIES:
Deposits:
Demand 70,258,000 70,258,000 64,040,000 64,040,000
Time 85,366,000 83,736,000 67,177,000 65,734,000
Savings 25,652,000 25,652,000 27,139,000 27,139,000
Short-term liabilities - - 116,000 116,000
</TABLE>
12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In the normal course of business, to meet the financing needs of its
customers, the Bank is a party to financial instruments with
off-balance-sheet risk, such as commitments to extend credit and
standby letters of credit.
The Bank's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit and standby letters of credit is represented by the contractual
amount of those instruments. The Bank uses the same credit policies in
making commitments and conditional obligations as it does for
on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's credit worthiness on a
case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on
management's credit evaluation. Collateral held varies but may include
accounts receivable, inventory, property, plant and equipment,
income-producing commercial properties, residences and other real
property.
Standby letters of credit are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support private borrowing
arrangements. Most letters of credit are for maturities of one year or
less. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan commitments to
customers, including types of collateral held.
F-20
<PAGE>
Financial instruments whose contract amounts represent
off-balance-sheet risk consist of the following at December 31, 1999:
<TABLE>
<CAPTION>
CONTRACTUAL
AMOUNT
------
<S> <C>
Commitments to extend credit $ 38,779,000
Standby letters of credit $ -
</TABLE>
13. SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
Most of the Bank's business is with customers located in and around
San Benito County, California. The local real estate industry is
important to the Bank's business because significant portions of the
Bank's loan portfolio are for real estate purposes and/or are
secured by real property. At December 31, 1999 the Bank had
outstanding real estate loans and commitments to extend credit for
real estate purposes totaling $70.6 million and other loans and
commitments to extend credit secured by real estate totaling $5.3
million.
In extending credit and commitments to borrowers for real estate
purposes, the Bank's policy is to obtain deeds of trust and, in some
cases, guarantees as security. The repayment of such loans is
primarily expected to come from the sale of the related property or
from the borrower's cash flows. The Bank's requirement for
collateral and guarantees is determined on a case-by-case basis in
connection with management's evaluation of the credit worthiness of
the borrower. Credit losses from lending transactions related to
real estate compare favorably with the Bank's credit losses on its
loan portfolio as a whole.
14. CAPITAL ADEQUACY
The Bank is subject to various regulatory capital requirements
administered by federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and, possibly,
additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's
assets, liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices. The Bank's capital
amounts and classification are also subject to qualitative judgments
by the regulators about components, risk weighting and other
factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier 1 capital (as
defined in the regulations) to risk-weighted assets (as defined),
and of Tier 1 capital (as defined) to average assets (as defined).
Management believes, as of December 31, 1999 and 1998, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1999 and 1998, the most recent notification from
the Federal Reserve Bank categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Bank must maintain minimum total
risk-based, Tier 1 risk-
F-21
<PAGE>
based, and Tier 1 leverage ratios as set forth in the table. There
are no conditions or events since that notification that
management believes have changed the institution's category.
The Bank's actual capital amounts and ratios are also presented in
the table.
<TABLE>
<CAPTION>
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES: ACTION PROVISIONS:
----------------------- ----------------------- ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------------ ------ ------------ ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital
(to Risk Weighted
Assets) $ 20,408,000 14.95% $ 10,924,000 8.00% $ 13,655,000 10.00%
Tier 1 Capital
(to Risk Weighted
Assets) $ 18,701,000 13.70% $ 5,462,000 4.00% $ 8,193,000 6.00%
Tier 1 Capital
(to Average Assets) $ 18,701,000 9.22% $ 8,111,000 4.00% $ 10,139,000 5.00%
As of December 31, 1998:
Total Capital
(to Risk Weighted
Assets) $ 17,544,000 15.41% $ 9,108,000 8.00% $ 11,385,000 10.00%
Tier 1 Capital
(to Risk Weighted
Assets) $ 16,341,000 14.35% $ 4,554,000 4.00% $ 6,831,000 6.00%
Tier 1 Capital
(to Average Assets) $ 16,341,000 9.46% $ 6,907,000 4.00% $ 8,634,000 5.00%
</TABLE>
The ability of the bank to pay cash dividends in the future is
restricted by State and Federal law. As such, cash dividends declared
by a Bank in any calendar year generally may not exceed the lesser of
its undistributed net income for the preceding three fiscal years, less
previous cash dividends, or its retained earnings. Under these
provisions, and considering minimum regulatory capital requirements,
the amount available for distribution was approximately $3,158,000 as
of December 31, 1999.
15. DETAIL OF OTHER INCOME AND OTHER OPERATING EXPENSES
Other income for the years ended December 31, 1999, 1998 and 1997
consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Gain on life insurance $ 348,000
Earning on cash surrender value of life insurance 169,000 $ 89,000 $ 28,000
238,000 264,000 141,000
--------- ---------- ---------
Total 755,000 $ 353,000 $ 169,000
========= ========== =========
</TABLE>
F-22
<PAGE>
Other operating expenses for the years ended December 31, 1999, 1998
and 1997 consist of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Outside services $ 347,000 $ 403,000 $ 269,000
Stationery and supplies 191,000 242,000 177,000
Postage 114,000 99,000 109,000
Advertising 80,000 72,000 142,000
Other 1,118,000 866,000 838,000
----------- ----------- -----------
Total $ 1,901,000 $ 1,631,000 $ 1,535,000
=========== =========== ===========
</TABLE>
16. SUBSEQUENT EVENT
On February 3, 2000, the Bank entered into an agreement and
plan of merger with Pacific Capital Bancorp. Under the terms
of the agreement, each outstanding share of San Benito Bank
common stock will be converted into the right to receive .605
shares of Pacific Capital Bancorp common stock. The
transaction, which is subject to regulatory approval and the
approval of San Benito Bank shareholders, is expected to close
during the second quarter of 2000.
F-23
<PAGE>
APPENDIX A
==============================================================================
AGREEMENT AND PLAN OF REORGANIZATION
BY AND BETWEEN
PACIFIC CAPITAL BANCORP
AND
SAN BENITO BANK
Dated as of February 3, 2000
==============================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I.
ACQUISITION OF SAN BENITO BY PACIFIC.........................................A-2
SECTION 1.01 Merger of Newco with and into San Benito..................... .A-2
SECTION 1.02 Effective Date.................................................A-2
SECTION 1.03 Effects of the Merger..........................................A-2
SECTION 1.04 Conversion of San Benito Common Stock..........................A-2
SECTION 1.05 Stock Options..................................................A-4
SECTION 1.06 Exchange Procedures; Surrender of Common Certificates..........A-5
SECTION 1.07 Articles and Bylaws.............................................A-6
SECTION 1.08 Directors......................................................A-6
SECTION 1.09 Tax Consequences...............................................A-6
SECTION 1.10 Employee Benefits..............................................A-6
SECTION 1.11 Severance Payments............................................A-7
SECTION 1.12 Stock Option Agreement.........................................A-7
SECTION 1.13 Access; Due Diligence...........................................A-7
ARTICLE II.
THE CLOSING, THE CLOSING DATE AND THE EFFECTIVE DATE.........................A-8
SECTION 2.01 Time and Place of the Closing and Closing Date.................A-8
SECTION 2.02 Actions to be Taken at the Closing by San Benito...............A-8
SECTION 2.03 Actions to be Taken at the Closing by Pacific.................A-10
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF SAN BENITO................................A-11
SECTION 3.01 Organization and Qualification................................A-11
SECTION 3.02 Capitalization................................................A-11
SECTION 3.03 Execution and Delivery........................................A-12
SECTION 3.04 Consents and Approvals........................................A-12
SECTION 3.05 Financial Statements..........................................A-12
SECTION 3.06 Investments....................................................A-13
SECTION 3.07 List of Loans..................................................A-13
SECTION 3.08 Title to Assets...............................................A-14
SECTION 3.09 Deposit Summary..............................................A-14
SECTION 3.10 Undisclosed Liabilities.......................................A-14
SECTION 3.11 Litigation....................................................A-14
SECTION 3.12 Compliance with Laws, Permits and Instruments.................A-15
SECTION 3.13 Community Reinvestment Act...................................A-15
SECTION 3.14 Fair Housing Act Home Mortgage Disclosure Act
and Equal Credit Opportunity Act.............................A-15
SECTION 3.15 Usury Laws and Other Consumer Compliance Laws................A-16
SECTION 3.16 Bank Secrecy Act.............................................A-16
SECTION 3.17 Absence of Certain Changes or Events..........................A-16
SECTION 3.18 Leases, Contracts and Agreements..............................A-18
SECTION 3.19 Taxes.........................................................A-19
SECTION 3.20 Insurance.....................................................A-19
SECTION 3.21 No Adverse Change.............................................A-20
SECTION 3.22 Patents, Trademarks and Copyrights............................A-20
SECTION 3.23 Transactions with Certain Persons and Entities................A-20
SECTION 3.24 Evidences of Indebtedness.....................................A-20
(i)
<PAGE>
SECTION 3.25 Condition of Assets...........................................A-21
SECTION 3.26 Environmental Compliance......................................A-21
SECTION 3.27 Regulatory Compliance.........................................A-22
SECTION 3.28 Periodic Reports..............................................A-22
SECTION 3.29 Absence of Certain Business Practices.........................A-22
SECTION 3.30 Registration Statement; Proxy Statement/Prospectus............A-23
SECTION 3.31 Dissenting Shareholders.......................................A-23
SECTION 3.32 Pooling of Interests..........................................A-23
SECTION 3.33 Books and Records.............................................A-23
SECTION 3.34 Forms of Instruments, Etc.....................................A-23
SECTION 3.35 Fiduciary Responsibilities....................................A-23
SECTION 3.36 Guaranties....................................................A-23
SECTION 3.37 Voting Trust or Buy-Sell Agreements...........................A-24
SECTION 3.38 Employee Relationships........................................A-24
SECTION 3.39 Employee Benefit Plans........................................A-24
SECTION 3.40 Interest Rate Risk Management Instruments.....................A-27
SECTION 3.41 Representations Not Misleading................................A-28
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PACIFIC...................................A-28
SECTION 4.01 Organization and Qualification................................A-28
SECTION 4.02 Capitalization................................................A-29
SECTION 4.03 Execution and Delivery........................................A-29
SECTION 4.04 Compliance with Laws, Permits and Instruments.................A-30
SECTION 4.05 Financial Statements..........................................A-30
SECTION 4.06 Undisclosed Liabilities.......................................A-31
SECTION 4.07 Litigation....................................................A-31
SECTION 4.08 Consents and Approvals........................................A-31
SECTION 4.09 Taxes.........................................................A-31
SECTION 4.10 No Adverse Change.............................................A-32
SECTION 4.11 Regulatory Compliance.........................................A-32
SECTION 4.12 Securities and Exchange Commission Reports....................A-32
SECTION 4.13 Registration Statement; Proxy Statement/Prospectus............A-33
SECTION 4.14 Representations Not Misleading................................A-33
SECTION 4.15 Title to Assets...............................................A-33
SECTION 4.16 Community Reinvestment Act...................................A-33
SECTION 4.17 Fair Housing Act Home Mortgage Disclosure Act
and Equal Credit Opportunity Act.............................A-34
SECTION 4.18 Usury Laws and Other Consumer Compliance Laws................A-34
SECTION 4.19 Bank Secrecy Act.............................................A-34
SECTION 4.20 Leases, Contracts and Agreements..............................A-34
SECTION 4.21 Pooling of Interests..........................................A-35
SECTION 4.22 Books and Records.............................................A-35
SECTION 4.23 Employee Relationships........................................A-35
SECTION 4.24 Employee Benefit Plans........................................A-36
SECTION 4.25 Interest Rate Risk Management Instruments.....................A-37
SECTION 4.26 Environmental Compliance......................................A-37
ARTICLE V.
COVENANTS OF SAN BENITO.....................................................A-38
SECTION 5.01 Best Efforts..................................................A-38
SECTION 5.02 Merger Agreement..............................................A-38
(ii)
<PAGE>
SECTION 5.03 Submission of Merger to Shareholders.........................A-38
SECTION 5.04 Information for Applications and Statements...................A-39
SECTION 5.05 Required Acts of San Benito. ................................A-39
SECTION 5.06 Prohibited Acts of San Benito. ..............................A-40
SECTION 5.07 Access; Pre-Closing Investigation.............................A-42
SECTION 5.08 Director and Committee Meetings...............................A-43
SECTION 5.09 Additional Financial Statements. ............................A-43
SECTION 5.10 Untrue Representations........................................A-43
SECTION 5.11 Litigation and Claims.........................................A-43
SECTION 5.12 Adverse Changes...............................................A-43
SECTION 5.13 No Negotiation with Others....................................A-44
SECTION 5.14 Consents and Approvals........................................A-44
SECTION 5.15 Environmental Investigation; Right to Terminate Agreement.....A-44
SECTION 5.16 Restrictions on Resales.......................................A-45
SECTION 5.17 Shareholder Lists.............................................A-45
SECTION 5.18 Employee Pension Plans........................................A-46
SECTION 5.19 Employee Welfare Benefit Plans................................A-46
SECTION 5.20 San Benito Stock Option Plans................................A-46
SECTION 5.21 Director Voting...............................................A-46
SECTION 5.22 Dividends.....................................................A-46
SECTION 5.23 Non-Compete Agreements........................................A-46
SECTION 5.24 Pooling of Interests Accounting Treatment.....................A-47
SECTION 5.25 Disclosure Schedules..........................................A-47
SECTION 5.26 Additional Accruals and Reserves.............................A-47
ARTICLE VI.
COVENANTS OF PACIFIC...........................................................A-47
SECTION 6.01 Best Efforts..................................................A-47
SECTION 6.02 Incorporation and Organization of Newco........................A-47
SECTION 6.03 Merger Agreement..............................................A-47
SECTION 6.04 Regulatory Approvals and Registration Statement...............A-47
SECTION 6.05 Information for Applications and Statements...................A-48
SECTION 6.06 Acts of Newco. ..............................................A-49
SECTION 6.07 Prohibited Acts of Pacific. .................................A-49
SECTION 6.08 Access; Pre-Closing Investigation.............................A-49
SECTION 6.09 Untrue Representations........................................A-49
SECTION 6.10 Litigation and Claims.........................................A-49
SECTION 6.11 Adverse Change................................................A-50
SECTION 6.12 Consents and Approvals........................................A-50
SECTION 6.13 Stock Options.................................................A-50
SECTION 6.14 Director and Officer Liability Insurance......................A-50
SECTION 6.15 Conduct of Business in the Ordinary Course....................A-51
SECTION 6.16 Pooling of Interests Accounting Treatment.....................A-51
SECTION 6.17 Disclosure Schedules..........................................A-51
SECTION 6.18 Assumption of Obligations....................................A-51
ARTICLE VII.
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SAN BENITO.......................A-51
SECTION 7.01 Compliance with Representations, Warranties and Agreements....A-51
SECTION 7.02 Shareholder Approval..........................................A-52
SECTION 7.03 Government and Other Approvals................................A-52
SECTION 7.04 No Litigation.................................................A-52
(iii)
<PAGE>
SECTION 7.05 Delivery of Closing Documents.................................A-52
SECTION 7.06 Receipt of Fairness Opinion...................................A-52
SECTION 7.07 Receipt of Pooling Opinions...................................A-52
SECTION 7.08 Registration Statement........................................A-53
SECTION 7.09 Federal Tax Opinion...........................................A-53
SECTION 7.10 Accounting Treatment..........................................A-53
SECTION 7.11 No Material Adverse Change....................................A-53
ARTICLE VIII.
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PACIFIC..........................A-53
SECTION 8.01 Compliance with Representations, Warranties and Agreements....A-54
SECTION 8.02 Shareholder Approvals.........................................A-54
SECTION 8.03 Government and Other Approvals................................A-54
SECTION 8.04 No Litigation.................................................A-54
SECTION 8.05 Delivery of Closing Documents.................................A-55
SECTION 8.06 Receipt of Shareholder Letters................................A-55
SECTION 8.07 Dissenting Shareholders.......................................A-55
SECTION 8.08 Receipt of Pooling Opinions...................................A-55
SECTION 8.09 Registration Statement........................................A-55
SECTION 8.10 Federal Tax Opinion...........................................A-55
SECTION 8.11 Accounting Treatment..........................................A-56
SECTION 8.12 No Material Adverse Change....................................A-56
ARTICLE IX.
EXPENSES, TERMINATION AND ABANDONMENT.......................................A-56
SECTION 9.01 Expenses.......................................................A-56
SECTION 9.02 Termination...................................................A-57
SECTION 9.03 Notice of Termination.........................................A-58
SECTION 9.04 Effect of Termination.........................................A-58
ARTICLE X.
NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES...............................A-59
SECTION 10.01 Nonsurvival of Representations and Warranties................A-59
ARTICLE XI.
CONFIDENTIAL INFORMATION....................................................A-59
SECTION 11.01 Definition of "Recipient," "Disclosing
Party," "Representative" and "Person"........................A-59
SECTION 11.02 Definition of "Subject Information"..........................A-59
SECTION 11.03 Confidentiality..............................................A-59
SECTION 11.04 Securities Law Concerns......................................A-60
SECTION 11.05 Return of Subject Information................................A-60
SECTION 11.06 Specific Performance/Injunctive Relief...............................A-60
ARTICLE XII.
MISCELLANEOUS...............................................................A-60
SECTION 12.01 Brokerage Fees and Commissions...............................A-60
SECTION 12.02 Entire Agreement.............................................A-61
SECTION 12.03 Further Cooperation..........................................A-61
SECTION 12.04 Severability.................................................A-61
SECTION 12.05 Notices......................................................A-61
(iv)
<PAGE>
SECTION 12.06 GOVERNING LAW................................................A-62
SECTION 12.07 Multiple Counterparts........................................A-62
SECTION 12.08 Certain Definitions..........................................A-63
SECTION 12.09 Specific Performance.........................................A-64
SECTION 12.10 Attorneys' Fees and Costs....................................A-64
SECTION 12.11 Rules of Construction........................................A-64
SECTION 12.12 Binding Effect; Assignment...................................A-65
SECTION 12.13 Public Disclosure............................................A-65
SECTION 12.14 Extension; Waiver............................................A-65
SECTION 12.15 Amendments...................................................A-66
</TABLE>
(v)
<PAGE>
EXHIBITS
<TABLE>
<S> <C> <C>
EXHIBIT "A" - Agreement and Plan of Merger
EXHIBIT "B" - San Benito Option Agreement
EXHIBIT "C" - Opinion Matters of Counsel to San Benito
EXHIBIT "D" - Opinion Matters of Counsel to Pacific
EXHIBIT "E" - Form of Shareholder Letter
EXHIBIT "F" - Persons to Deliver Non-Compete Agreements
EXHIBIT "G" - Form of Non-Compete Agreement
EXHIBIT "H" - Form of Lessor Estoppel Certificate
EXHIBIT "I" - Form of Sublessor Estoppel Certificate
</TABLE>
(vi)
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
and entered into as of the 3rd day of February, 2000, by and between PACIFIC
CAPITAL 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 in Santa Barbara, California ("Pacific"), and SAN BENITO BANK,
a California banking corporation with its principal offices in Hollister,
California ("San Benito").
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, San Benito is a California banking corporation duly organized
and existing under the laws of the State of California; and
WHEREAS, this Agreement provides for the incorporation of a new
corporation ("Newco") as a direct or indirect wholly owned subsidiary of Pacific
in order for Pacific to directly or indirectly acquire 100% of the stock of San
Benito through the merger of Newco with and into the Bank (the "Merger"); and
WHEREAS, as a result of the Merger (i) all of the issued and
outstanding shares of common stock of San Benito (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
Pacific, and (ii) all outstanding options to acquire common stock of San Benito
shall be converted into options to acquire common stock of Pacific, all pursuant
to an Agreement and Plan of Merger substantially in the form attached hereto as
EXHIBIT "A" (the "Merger Agreement"); and
WHEREAS, Pacific and San Benito 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; 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, Pacific and San Benito 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 Pacific
and San Benito and their respective shareholders; and
WHEREAS, the respective boards of directors of Pacific and San Benito
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.
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
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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.
ACQUISITION OF SAN BENITO BY PACIFIC
SECTION 1.01 MERGER OF NEWCO WITH AND INTO SAN BENITO. Subject to the
terms and conditions of this Agreement and the Merger Agreement, Pacific and San
Benito shall cause Newco to be merged with and into San Benito on the Effective
Date (as such term is defined in Section 1.02) in accordance with the provisions
of Section 1107 of the California General Corporation Law (the "GCL"). San
Benito shall be the surviving corporation in the Merger (the "Resulting Bank")
and shall continue its corporate existence under the laws of the State of
California. Upon consummation of the Merger, the separate corporate existence of
Newco 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" 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
Resulting Bank shall be deemed to be a continuation in entity and identity of
each of San Benito and Newco; 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 San Benito and
Newco. If, on the Effective Date, San Benito is acting as trustee, guardian,
executor, administrator, custodian or in any other fiduciary capacity, the
Resulting Bank shall, without the necessity of any judicial action or action by
the creator of such trust, continue such office, trust or fiduciary relationship
and shall perform all of the duties and obligations and exercise all of the
powers and authority connected with or incidental to such fiduciary relationship
in the same manner as though the Resulting Bank had been originally named or
designated as such fiduciary. The naming or designating by a testator, or the
creator of a living trust, of San Benito to act as trustee, guardian, executor
or in any other fiduciary capacity shall be considered the naming or designating
of the Resulting Bank. The name of the Resulting Bank shall be "San Benito
Bank." The existing offices and facilities of San Benito shall be the principal
office and facilities of the Resulting Bank following the Merger.
SECTION 1.04 CONVERSION OF SAN BENITO 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 San Benito (the "San
Benito Common Stock") issued and outstanding immediately prior to the Effective
Date (other than shares of San Benito Common Stock as to which dissenters'
rights have been perfected or shares held directly or indirectly by San Benito
or Pacific (except for Trust Account
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Shares or DPC Shares as defined in subsection (h) below) shall be converted into
the right to receive 0.605 shares (the "Exchange Ratio") of the fully-paid,
nonassessable and registered common stock, no par value per share, of Pacific
(the "Pacific Common Stock") (together with any cash payment in lieu of
fractional shares, as provided in subsection (b) below, the "Merger
Consideration").
(b) No fractional shares of Pacific Common Stock shall be issued and,
in lieu thereof, holders of shares of San Benito Common Stock who would
otherwise be entitled to a fractional share interest (after taking into account
all shares of San Benito 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 Pacific Common Stock on
the Nasdaq National Market ("Nasdaq") on the business day immediately preceding
the Effective Date.
(c) All of the shares of San Benito Common Stock converted into Pacific
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 San Benito Common Stock shall thereafter
represent the right to receive (i) a certificate representing the number of
whole shares of Pacific Common Stock and (ii) cash in lieu of fractional shares
into which the shares of San Benito Common Stock represented by such Certificate
have been converted pursuant to this Section 1.04. Certificates previously
representing shares of San Benito Common Stock shall be exchanged for
certificates representing whole shares of Pacific 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.
(d) If, between the date hereof and the Effective Date, the outstanding
shares of Pacific Common Stock or San Benito 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 Pacific Common Stock into which a share of San Benito Common Stock
shall be converted pursuant to subsection (a) above shall be appropriately and
proportionately adjusted so that each shareholder of San Benito shall be
entitled to receive such number of shares of Pacific Common Stock as such
shareholder would have received pursuant to such Share Adjustment had the record
date therefor been immediately following the Effective Date.
(e) If any of the shares of San Benito 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 San Benito Common Stock
which shall cease to be a dissenting share shall have only such rights as are
provided under the GCL.
(f) The number of shares of common stock of Newco outstanding at the
Effective Date shall, by virtue of the Merger and without any action on the part
of Pacific or any other party as holder thereof, be converted into shares of
common stock of the Resulting Bank, no par value per share, with the effect that
the number of shares of the common stock of the Resulting Bank outstanding
immediately after the Effective Date shall be equal to the aggregate number of
shares of San Benito Common Stock issued and outstanding immediately prior to
the Effective Date.
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(g) On the Effective Date, the stock transfer books of San Benito shall
be closed, and no transfer of San Benito Common Stock theretofore outstanding
shall thereafter be made.
(h) On the Effective Date, all shares of San Benito Common Stock that
are owned, directly or indirectly, by San Benito or Pacific or any of their
respective subsidiaries (other than (i) shares of San Benito 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 San Benito Common Stock which are
similarly held, whether held directly or indirectly by San Benito or Pacific, as
the case may be, being referred to herein as "Trust Account Shares") and (ii)
shares of San Benito Common Stock held by San Benito 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 Pacific or
other consideration shall be delivered in exchange therefor.
SECTION 1.05 STOCK OPTIONS.
(a) Between the date of this Agreement and the Effective Date, each
person holding one or more options to purchase shares of San Benito Common Stock
pursuant to any San Benito Stock Option Plan (as defined in Section 6.13), shall
continue to have the right to exercise any vested San Benito Stock Option (as
defined in Section 6.13) prior to the Effective Date.
(b) On the Effective Date, each non-statutory San Benito Stock Option
which is outstanding and unexercised immediately prior thereto shall cease to
represent a right to acquire shares of San Benito Common Stock and shall be
assumed by Pacific and converted automatically into an option to purchase shares
of Pacific Common Stock in an amount and at an exercise price determined as
provided below (and otherwise subject to the terms of the San Benito Stock
Option Plans and the agreements evidencing grants thereunder):
(i) The number of shares of Pacific Common Stock to be subject
to the converted option shall be equal to the product of the number of
shares of San Benito 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 Pacific Common Stock
under the converted option shall be equal to the exercise price per
share of San Benito 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 San Benito 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 San Benito Common Stock and shall be assumed Pacific
and converted automatically into an option to purchase shares of Pacific Common
Stock in an amount and at an exercise price determined in a manner which is
consistent with Section 424(a) of the Code.
(d) The duration and other terms of any converted option pursuant to
this Section 1.05 shall be the same as the original option, except that all
references to San Benito shall be deemed to be references to Pacific.
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SECTION 1.06 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 ten (10) business days thereafter, the Exchange Agent shall mail to
each holder of record as of the Effective Date of one or more Certificates (as
indicated on the certified shareholder list to be delivered to Pacific in
accordance with Section 2.02(F) hereof, each a "San Benito 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 San Benito Common Stock represented by such Certificate or
Certificates shall have been converted pursuant to this Agreement and the Merger
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 Pacific Common
Stock to which such holder of San Benito 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 1.06, 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 Pacific 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
San Benito Shareholder promptly of the need for further information.
(c) If any certificate representing shares of Pacific 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 Pacific Common Stock in any name other
than that of the registered holder of the Certificate surrendered,
or required
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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 San Benito
Shareholder claiming such Certificate to be lost, stolen or destroyed and, if
required by Pacific in its sole discretion, the posting by such person of a bond
in such amount as Pacific 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 Pacific Common Stock shall be delivered to a
San Benito Shareholder who is an "affiliate" (as such term is used in Section
5.16 and Section 8.06) of San Benito unless such "affiliate" shall have
theretofore executed and delivered to Pacific 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 Pacific after the Effective Date shall
be paid to persons entitled to receive such certificates for Pacific 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 Pacific 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 sixty (60) days after the Effective Date, holders of Certificates
representing shares of San Benito Common Stock shall be entitled to vote as
holders of shares of Pacific Common Stock notwithstanding that such Certificates
representing San Benito Common Stock have not been exchanged for shares of
Pacific Common Stock as provided in this Section 1.06.
SECTION 1.07 ARTICLES AND BYLAWS. The Articles and Bylaws,
respectively, of the Resulting Bank shall be as set forth in the Merger
Agreement.
SECTION 1.08 DIRECTORS. In connection with the annual meeting of
shareholders of Pacific to be held in 2001, one (1) representative of San
Benito, mutually satisfactory to Pacific and San Benito, shall be nominated by
the Nominating Committee of the Board of Directors of Pacific to stand for
election to the Board of Directors of Pacific.
SECTION 1.09 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 1.10 EMPLOYEE BENEFITS. Pacific shall, with respect to each
employee of San Benito at the Effective Date who continues in employment with
Pacific or its Subsidiaries (each a
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"Continued Employee"), provide the benefits described in this Section 1.10.
Subject to the right of subsequent amendment, modification or termination in the
sole discretion of Pacific as provided in Section 5.18 and Section 5.19 hereof,
each Continued Employee shall be entitled, as an employee of Pacific or its
Subsidiaries, to participate in Pacific Employee Benefit Plans (as defined in
Section 12.08(F)) 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. All such participation shall be subject to such terms
of such plans as may be in effect from time to time and this Section 1.10 is not
intended to give any Continued Employee any rights or privileges superior to
those of other employees of Pacific or its Subsidiaries. The provisions of this
Section 1.10 shall not be deemed or construed so as to provide duplication of
similar benefits but, subject to that qualification, Pacific shall, for purposes
of vesting and any age or period of service requirements for commencement of
participation with respect to any Pacific Employee Plans in which a Continued
Employee may participate, credit each Continued Employee with his or her term of
service with San Benito. Notwithstanding the foregoing, no such credit for term
of service with San Benito 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 1.11 SEVERANCE PAYMENTS. The severance benefits set forth in
Schedule 1.11 hereto shall be provided to employees of San Benito who may be
terminated (i) by San Benito on the Effective Date upon confirmation that such
employees would be entitled to the severance benefit, or (ii) by Pacific or any
of its Subsidiaries without cause within one year following the Effective Date.
SECTION 1.12 STOCK OPTION AGREEMENT. As a condition to the execution of
this Agreement, San Benito is executing and delivering to Pacific a Stock Option
Agreement in substantially the form attached hereto as EXHIBIT "B".
SECTION 1.13 ACCESS; DUE DILIGENCE. Subject to the confidentiality
provisions of Article XI, San Benito shall, for a period of fifteen (15)
business days following the date that a countersigned original of this Agreement
is received by Pacific, afford the officers, directors, employees, attorneys,
accountants, investment bankers and authorized representatives of Pacific and
its Subsidiaries full access to the properties, books, contracts and records of
San Benito in order to conduct due diligence of San Benito to assess the
condition and results of operations of San Benito. Pacific may terminate this
Agreement by giving written notice pursuant to Section 12.05 within thirty (30)
days after the date of this Agreement if its due diligence review of San Benito
discloses material liabilities, obstacles to the mergers or other circumstances
that are not disclosed in this Agreement or the Schedules hereto, and that in
the good faith judgement of Pacific materially alter the economic basis for or
feasibility of the Merger; PROVIDED, HOWEVER, that the sole remedy that Pacific
shall have in such event shall be termination of this Agreement.
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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 Pacific and San Benito 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 Pacific and San Benito (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 Pacific, 200 East
Carrillo Street, Suite 300, Santa Barbara, California 93101 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 SAN BENITO. At the
Closing, San Benito shall execute and acknowledge, or cause to be executed and
acknowledged (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 the Articles of
Incorporation of San Benito and all amendments thereto, duly certified
as of a recent date by the California Secretary of State (the
"California Secretary").
B. A certificate, dated as of a recent date, issued by the
California Department of Financial Institutions, duly certifying as to
the organization of San Benito under the laws of the State of
California and authorization to conduct commercial banking business
within the State of California.
C. A certificate of status dated as of a recent date, issued
by the California Secretary, duly certifying as to the good legal
standing of San Benito under the laws of the State of California.
D. A certificate of good standing, dated as of a recent date,
issued by the California Franchise Tax Board, duly certifying as to the
good standing of San Benito in the State of California.
E. A certificate, dated as of a recent date, issued by the
Federal Deposit Insurance Corporation (the "FDIC"), duly certifying
that the deposits of San Benito are insured by the FDIC pursuant to the
Federal Deposit Insurance Act (the "FDIA").
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F. A certificate, dated as of the Closing Date, executed by
the Corporate Secretary or other appropriate executive officer of San
Benito, pursuant to which such officer shall certify: (a) the due
adoption by the Board of Directors of San Benito 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 San Benito 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 San Benito 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 San Benito;
(d) that the copy of the Bylaws of San Benito 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 the San Benito Shareholders as of the Closing Date.
G. A certificate, dated as of the Closing Date, executed by an
executive officer of San Benito, pursuant to which San Benito 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 San Benito since December 31, 1998, and (ii) San Benito 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.
H. Signed Non-Compete Agreements (as defined in Section 5.23)
from those persons identified on EXHIBIT "F" attached hereto and in
substantially the form attached hereto as EXHIBIT "G".
I. All consents required to be obtained by San Benito from
third parties to consummate the transactions contemplated by this
Agreement.
J. An opinion of counsel to San Benito addressing each of the
matters identified in EXHIBIT "C" attached hereto.
K. Lessor Estoppel Certificates, in the form attached hereto
as EXHIBIT "H", and Sublessor Estoppel Certificates, in the form
attached hereto as EXHIBIT "I", as applicable, relative to each of the
Leased Properties identified in Section 3.18 and dated as of date
within one week of the Closing Date.
M. All other documents required to be delivered to Pacific by
San Benito under the provisions of this Agreement, and all other
documents, certificates and instruments as are reasonably requested by
Pacific or its counsel.
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SECTION 2.03 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 San Benito 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 San Benito's obligations to close
hereunder):
A. True, correct and complete copies of Pacific's Articles of
Incorporation and all amendments thereto, duly certified as of a recent
date by the California Secretary of State (the "California Secretary").
B. True, correct and complete copies of the Articles of
Incorporation and all amendments thereto, of Newco, duly certified as
of a recent date by the California Secretary.
C. Certificates of status, dated as of a recent date, issued
by the California Secretary, duly certifying as to the good legal
standing of each of Pacific and Newco under the laws of the State of
California.
D. 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 each of Pacific and Newco in the State of California.
E. 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.
F. A certificate, dated as of the Closing Date, executed by
the Secretary or an Assistant Secretary 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 and the
taking of all actions contemplated hereby and thereby; (b) 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 other agreements and documents contemplated hereby and
the taking of all actions contemplated hereby and thereby on behalf of
Pacific, and (c) 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.
G. A certificate, dated as of the Closing Date, executed by a
duly authorized officer of Pacific, pursuant to which Pacific 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 Pacific
since December 31, 1998, 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.
H. All consents required to be obtained by Pacific or Newco
from third parties to consummate the transactions contemplated by this
Agreement.
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I. An opinion of counsel to Pacific addressing each of the
matters identified in EXHIBIT "D" attached hereto.
J. All other documents required to be delivered to San Benito
by Pacific under the provisions of this Agreement, and all other
documents, certificates and instruments as are reasonably requested by
San Benito or its counsel.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF SAN BENITO
San Benito hereby makes the representations and warranties set forth in
this Article III to Pacific.
SECTION 3.01 ORGANIZATION AND QUALIFICATION.
(a) San Benito is a California banking 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 banking corporations located
in the State of California which are member banks of the Federal Reserve System
(the "Federal Reserve"). San Benito 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. San Benito
does not conduct any trust business. True and complete copies of the Articles of
Incorporation and Bylaws of San Benito, as amended to date, certified by the
Corporate Secretary of San Benito, have been delivered to Pacific. San Benito is
an insured bank as defined in the FDIA and a member bank of the Federal Reserve.
(b) The nature of the business of San Benito does not require it to be
qualified to do business in any jurisdiction other than the State of California.
San Benito does not engage in any activity that is prohibited by the FDIC or the
Federal Reserve.
(c) San Benito does not own or control any Affiliate (as defined in
Section 12.08(A) hereof) or Subsidiary (as defined in Section 12.08(B) hereof).
Except as disclosed on Schedule 3.01(c), San Benito does not 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
San Benito has not been conducted through any other direct or indirect
Subsidiary or Affiliate of San Benito.
SECTION 3.02 CAPITALIZATION. The entire authorized capital stock of San
Benito consists of (i) 9,765,624 shares of San Benito Common Stock, 2,853,344
shares of which are fully paid, validly issued, nonassessable and outstanding,
and 171,876 additional shares of which have been reserved for issuance to
holders of outstanding San Benito Stock Options (as defined in Section 6.13
hereto), and (ii) 2,000,000 shares of preferred stock, no par value per share
(the "San Benito Preferred Stock"), of which no shares of San Benito Preferred
Stock are issued or outstanding. Schedule 3.02 contains a list of each of the
San Benito Stock Option Plans, including (i) the number of outstanding options
with respect to
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each San Benito Stock Option Plan, (ii) the exercise price per share with
respect to each San Benito Stock Option, (iii) a list of all option holders
with respect to each San Benito Stock Option Plan, and (iv) the number of
vested and unvested San Benito Stock Options with respect to each such option
holder in each San Benito Stock Option Plan. All San Benito Stock Options
were issued and, upon issuance in accordance with the terms of the
outstanding option agreements, the shares of San Benito Common Stock shall be
issued in compliance with all applicable securities laws. Except as disclosed
in Schedule 3.02, 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, San Benito to purchase or otherwise acquire any security of or
equity interest in San Benito or (iii) outstanding subscriptions, options,
rights, warrants, calls, convertible securities, irrevocable proxies or other
agreements or commitments obligating San Benito 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 San Benito
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 San Benito 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 San Benito Common Stock, except
pursuant to applicable laws and regulations, and all dividends declared prior
to the date of this Agreement have been paid.
SECTION 3.03 EXECUTION AND DELIVERY. San Benito 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 San Benito and each constitutes and will constitute the legal, valid
and binding obligation of San Benito, 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 3.04 CONSENTS AND APPROVALS. San Benito's Board of Directors
(at a meeting called and duly held) has resolved, subject to its fiduciary
duties to the shareholders of San Benito, to recommend approval and adoption by
San Benito's shareholders of the Merger, this Agreement and the Merger
Agreement. Except for shareholder and regulatory approvals and except as
disclosed in Schedule 3.04, 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 San Benito 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 San Benito of the transactions contemplated hereby or thereby,
including, but not limited to, the Merger.
SECTION 3.05 FINANCIAL STATEMENTS.
(a) San Benito has furnished to Pacific true and complete copies of (i)
the audited balance sheets of San Benito as of December 31, 1997 and 1998, and
the related audited statements of income, stockholders' equity and cash flows
for the years ended December 31, 1996, 1997 and 1998, (ii) an unaudited balance
sheet of San Benito as of September 30, 1999, and the related unaudited
statement
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of income for the nine-month period ended September 30, 1999 (such balance
sheets and the related statements of income, stockholders' equity and cash
flows are collectively referred to herein as the "San Benito Financial
Statements"). Except as described in the notes to the San Benito Financial
Statements, the San Benito Financial Statements fairly present, in all
material respects, the financial position of San Benito as of the respective
dates thereof and the results of operations and changes in financial position
of San Benito 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 San Benito
Financial Statements accurately and fairly reflect in all material respects
the transactions of San Benito. The San Benito 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) San Benito has furnished Pacific with true and complete copies of
the Report of Condition and Income ("Call Reports") for San Benito for the
periods ended December 31, 1997, December 31, 1998 and September 30, 1999. Such
Call Reports fairly presents, in all material respects, the financial position
of San Benito 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.
To the best of its knowledge, San Benito 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 San Benito,
the allowance for loan losses account for San Benito 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 San Benito.
SECTION 3.06 INVESTMENTS. San Benito has furnished to Pacific, as
Schedule 3.06 of this Agreement, a complete list, as of December 31, 1999, of
all securities, including municipal bonds, owned by San Benito (the "Securities
Portfolio"). All securities in the Securities Portfolio are owned by San Benito
(i) of record, and (ii) beneficially, free and clear of all mortgages, liens,
pledges and encumbrances, except as disclosed in Schedule 3.06.
SECTION 3.07 LIST OF LOANS. Schedule 3.07 contains a true and complete
list, as of December 31, 1999, of all loans (individually, a "Loan" and
collectively, the "Loans") of San Benito, showing for each such Loan the
outstanding principal balance due, before reduction for any discount. All
currently outstanding Loans of San Benito, including any current extensions of
any Loan, were solicited, originated and currently exist in material compliance
with all applicable requirements of federal and state law and regulations
promulgated thereunder. The Loans are adequately documented and each note
evidencing a Loan or credit agreement or security instrument related to a Loan
constitutes a valid and binding obligation of the obligor thereunder,
enforceable in accordance with the terms thereof, except where the failure
thereof, individually or in the aggregate, would not have a material adverse
effect on the condition (financial or otherwise), operations or prospects of San
Benito. For the purposes of this Section, the phrase "enforceable in accordance
with the terms thereof" does not mean that the borrower has the financial
ability to pay a Loan or that any collateral is sufficient to result in payment
of the Loan secured thereby. There are no oral modifications or amendments or
additional agreements related to the Loans that are not reflected in San
Benito's
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records, and no claim of defense as to the enforcement of any Loan has been
asserted, and San Benito is not aware of any acts or omissions that would
give rise to any claim or right of rescission, set off, counterclaim or
defense, except where such claim would not have, either individually or in
the aggregate, a material adverse effect on the condition (financial or
otherwise), operations or prospects of San Benito.
SECTION 3.08 TITLE TO ASSETS. San Benito has good and indefeasible
title to all of its assets and properties including, without limitation, other
real estate owned and all personal and intangible properties reflected in the
San Benito 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 3.08, (ii) as noted in the San Benito
Financial Statements, or as set forth in the documents delivered to Pacific
pursuant to this Section 3.08, (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 San
Benito Financial Statements. Schedule 3.08 includes (a) a Property Information
Sheet (the form of which is prepared by the American Industrial Real Estate
Association) and (b) a copy of the title policy of insurance with respect to
each parcel of real property owned by San Benito.
SECTION 3.09 DEPOSIT SUMMARY. Schedule 3.09 contains a summary of the
amounts and types of the deposits held by San Benito as of December 31, 1999 and
the weighted average interest rates being paid thereon as of such date (the
"Deposit Summary"). The Deposit Summary and other data and information provided
by San Benito, relating to assets, liabilities and business of San Benito is
true, complete and correct in all material respects as of the date thereof.
SECTION 3.10 UNDISCLOSED LIABILITIES. San Benito does not have any
material liability or obligation, accrued, absolute, contingent or otherwise and
whether due or to become due (including, without limitation, unfunded
obligations under any employment, deferred compensation, supplemental
compensation, service recognition or severance agreement, whether written or
oral, or San Benito Employee Plans (as defined in Section 3.39 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 San Benito 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 San Benito Financial Statements or (ii)
as disclosed on Schedule 3.10.
SECTION 3.11 LITIGATION. Except as set forth on Schedule 3.11, 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 San Benito, threatened against or affecting San
Benito or any of its current or former officers and directors (while acting in
such capacity) at law or in equity, 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 San Benito or any of its current or former officers or directors (while
acting in such capacity) or any of their properties or capital stock. No matter
described in Schedule 3.11 would reasonably be anticipated to result in a
Material Adverse Change with respect to San Benito or materially and adversely
affect the transactions contemplated by this Agreement, and San Benito 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 best
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knowledge of San Benito, threatened against San Benito 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 San Benito pursuant hereto or thereto or seeks to enjoin or otherwise
restrain the transactions contemplated hereby or thereby.
SECTION 3.12 COMPLIANCE WITH LAWS, PERMITS AND INSTRUMENTS.
(a) Except as set forth in Schedule 3.12, San Benito is in compliance
with, and is 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 San Benito, (ii) any material provision of any
loan agreement, security or pledge agreement, mortgage, indenture, lease,
contract, agreement or other instrument applicable to San Benito or its 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 or, to the best of its
knowledge, any 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 San Benito or its 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 San Benito.
(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
San Benito, (ii) any provision of any mortgage, indenture, lease, contract,
agreement or other instrument applicable to San Benito or its assets,
operations, properties or businesses, or (iii) any permit, concession, grant,
franchise, license, authorization, judgment, writ, injunction, order, decree or,
to the best of its knowledge, any statute, law, ordinance, rule or regulation
applicable to San Benito or its assets, operations, properties or businesses.
SECTION 3.13 COMMUNITY REINVESTMENT ACT. San Benito is in compliance
with the Community Reinvestment Act (12 U.S.C. Section 2901 et seq.) and all
regulations promulgated thereunder, and San Benito has supplied Pacific with
copies of San Benito's current Community Reinvestment Act ("CRA") Statement, all
letters and written comments received by San Benito since January 1, 1996
pertaining thereto and any responses by San Benito to such comments. San Benito
had a rating of "satisfactory" or better as of its most recent CRA compliance
examination and knows of no reason why it would not receive a rating of
"satisfactory" or better at its next CRA compliance examination or why any other
governmental entity may seek to restrain, delay or prohibit the transactions
contemplated by this Agreement as a result of any act or omission of San Benito
under the CRA.
SECTION 3.14 FAIR HOUSING ACT HOME MORTGAGE DISCLOSURE ACT AND EQUAL
CREDIT OPPORTUNITY ACT. San Benito is in material compliance with the Fair
Housing Act (42 U.S.C. Section 3601 ET SEQ.), the Home Mortgage Disclosure Act
(12 U.S.C. Section 2801 ET SEQ.) and the Equal Credit Opportunity Act (15 U.S.C.
Section 1691 ET SEQ.) and all regulations promulgated
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thereunder. San Benito has not received any notices of any violation of said
acts or any of the regulations promulgated thereunder, nor does San Benito
have any notice of, or knowledge of, any threatened administrative inquiry,
proceeding or investigation with respect to San Benito's compliance with said
acts.
SECTION 3.15 USURY LAWS AND OTHER CONSUMER COMPLIANCE Laws. All
loans of San Benito have been made substantially in accordance with all
applicable statutes and regulatory requirements at the time such loan or any
renewal thereof, including without limitation Regulation Z (12 C.F.R. Section
226 ET SEQ.) issued by the Federal Reserve, thE Federal Consumer Credit
Protection Act (15 U.S.C. Section 1601 ET SEQ.) and all statutes and
regulationS governing the operations of California banking corporations. Each
Loan by San Benito was made in the ordinary course of its business.
SECTION 3.16 BANK SECRECY ACT. San Benito is in material compliance
with the Bank Secrecy Act (12 U.S.C. Sections 1730(d) and 1829(b)) and all
regulations promulgated thereunder, and San Benito has properly certified all
foreign deposit accounts and has made all necessary tax withholdings on all of
its deposit accounts. San Benito has timely and properly filed and maintained
all requisite Currency Transaction Reports and other related forms, including,
but not limited to, any requisite Custom Reports required by any agency of the
United States Treasury Department, including, but not limited to, the Internal
Revenue Service (the "IRS").
SECTION 3.17 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed
on Schedule 3.17, since December 31, 1998, San Benito 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 San Benito, 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
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(i) as described in Schedule 3.08, (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 San Benito 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 San Benito;
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 San Benito
Proprietary Right (as defined in Section 3.22 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 San Benito's 1999/2000 budget and approved in advance by Pacific
(which approval shall not be unreasonably withheld), (ii) employee
severance benefits contemplated by Section 1.11 of this Agreement, and
(iii) periodic increases consistent with past practices;
K. Except for improvements or betterments relating to San
Benito Properties (as defined in Section 3.26 hereof), made any capital
expenditures or capital additions or betterments in excess of an
aggregate of $100,000;
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
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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. Taken any action that has caused San Benito to be an entity
not eligible to participate in a business combination transaction for
which "pooling of interests" accounting treatment is sought.
S. 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;
T. 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
U. 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 T. above.
SECTION 3.18 LEASES, CONTRACTS AND AGREEMENTS. Schedule 3.18 sets forth
a complete listing of all leases, subleases, licenses, contracts and agreements
to which San Benito is a party AND which (i) relate to real property used by San
Benito in its operation (the "Leased Properties"), or (ii) involve payments to
or by San Benito in excess of $50,000 during the term of such San Benito
Contracts (exclusive of unfunded loan commitments and letters of credit issued
by San Benito), or (iii) involve any unfunded loan commitments and letters of
credit issued by San Benito where the borrower's total direct and indirect
indebtedness to San Benito is in excess of $250,000 (the "San Benito
Contracts"). True and correct copies of all such San Benito Contracts (other
than unfunded loan commitments and letters of credit issued by San Benito) are
included with Schedule 3.18. For the purposes of this Agreement, the San Benito
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 San Benito. Except as set forth in
Schedule
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3.18, no participations or loans have been sold which have buy back,
recourse or guaranty provisions which create contingent or direct liabilities of
San Benito. To the best knowledge of San Benito, all of the San Benito Contracts
are legal, valid and binding obligations of the parties to the San Benito
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 3.18, all rent and
other payments by San Benito under the San Benito Contracts are current, there
are no existing defaults by San Benito under the San Benito 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. San Benito 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. The transactions
contemplated by this Agreement, including the Merger, will not result in any
material breach or termination of any such leasehold interest in the Leased
Properties.
SECTION 3.19 TAXES. San Benito 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 San
Benito, or for which San Benito 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 San Benito with respect to employees' withholding taxes have been duly made.
San Benito 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 San
Benito's best knowledge, there is no basis for any such deficiency or claim.
Except as set forth in Schedule 3.19, within the last six (6) years, San
Benito's Federal income tax return has not been audited or examined and no such
audit is currently pending or, to San Benito's best knowledge, threatened. San
Benito 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 San Benito or any waiver or agreement by San Benito for the extension of time
for the assessment or collection of any tax. Except as set forth in Schedule
3.19, San Benito (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 San Benito.
The amounts set up as provisions for current or deferred taxes on the
San Benito 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 San Benito applicable
to the periods covered by the San Benito Financial Statements, and all years and
periods prior thereto. True and complete copies of the Federal income tax
returns of San Benito as filed with the IRS for the years ended December 31,
1996, 1997, and 1998, have been delivered to Pacific.
SECTION 3.20 INSURANCE. Schedule 3.20 contains an accurate and complete
list and brief description of all policies of insurance, including fidelity and
bond insurance, of San Benito. All such policies (a) are valid, outstanding and
enforceable except as enforceability may be limited by
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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. San Benito 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 3.20,
San Benito has not been refused any insurance with respect to its assets or
operations, nor has its insurance been limited by any insurance carrier to
which San Benito has applied for any such insurance within the last two (2)
years. Each property of San Benito is insured for the benefit of San Benito
in amounts deemed adequate by San Benito's management against risks
customarily insured against. There have been no claims under any fidelity
bonds of San Benito within the last three (3) years, and San Benito is not
aware of any facts that would form the basis of a claim under such bonds.
SECTION 3.21 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, 1998, 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 San Benito.
SECTION 3.22 PATENTS, TRADEMARKS AND COPYRIGHTS. Except as disclosed in
Schedule 3.22, San Benito does 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 ("San Benito Proprietary Rights")
for its business or operations, except for licensed computer software. To the
best knowledge of San Benito, it is not infringing upon or otherwise acting
adversely to any San Benito Proprietary Right owned by any other person or
persons. There is no claim or action by any such person pending, or, to the best
knowledge of San Benito, threatened, with respect thereto.
SECTION 3.23 TRANSACTIONS WITH CERTAIN PERSONS AND ENTITIES. Except as
disclosed in Schedule 3.23, San Benito does not owe any amount to (excluding
deposit liabilities), or have any loan, 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 San Benito, and none of such persons owes any amount to San Benito.
Except as set forth in Schedule 3.23, 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 San Benito, 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 San Benito. True
and correct copies of any such written understandings, agreements, instruments,
etc., are included with Schedule 3.23.
SECTION 3.24 EVIDENCES OF INDEBTEDNESS. All evidences of indebtedness
and leases that are reflected as assets of San Benito are, to San Benito'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
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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 San Benito or the present holder thereof, except as disclosed in
Schedule 3.24. The credit files of San Benito contain all material
information (excluding general, local or national industry, economic or
similar conditions) known to San Benito that is reasonably required to
evaluate in accordance with generally prevailing practices in the banking
industry the collectibility of the loan portfolio of San Benito (including
loans that will be outstanding if any of them advances funds they are
obligated to advance). San Benito has disclosed all of the substandard,
doubtful, loss, nonperforming or loans identified as problem loans on its
internal watch list, a copy of which as of December 31, 1999, has been
provided to Pacific. Except as disclosed in Schedule 3.24, San Benito is not
aware of, nor has San Benito 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 San Benito.
SECTION 3.25 CONDITION OF ASSETS. All tangible assets used by San
Benito 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 San Benito's 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 3.26 ENVIRONMENTAL COMPLIANCE.
(a) San Benito is not aware of, nor has San Benito 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 San Benito's continued compliance in all
respects with all Environmental Laws.
(b) San Benito has obtained all permits, licenses and authorizations
that are required under any Environmental Laws.
(c) To San Benito's best knowledge, no Hazardous Materials (as defined
in Section 12.08(E) hereof) exist on, about, or within any of the San Benito
Properties (as defined in this Section 3.26) in violation of any Environmental
Laws, nor, to San Benito's best 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 San Benito Properties
in violation of any Environmental Law AND which have not been subsequently
remediated. The use that San Benito makes and intends to make of the San Benito
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 San Benito 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 San Benito's best knowledge, threatened against San Benito relating in
any way to any Environmental Law. To the best of San Benito's knowledge, San
Benito has no liability for remedial action under any Environmental Law. San
Benito has not received any request for information by any governmental
authority with respect to the condition, use or operation of any of the San
Benito Properties nor has San Benito received any notice of any kind from any
governmental authority or other person with respect to any violation of
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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 San Benito 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 3.26, the term "San Benito Property" or
"San Benito Properties" shall include all real property currently owned or
leased by San Benito, including, but not limited to, properties that San Benito
has foreclosed on as well as the banking premises and all improvements and
fixtures thereon. The phrase "to San Benito's knowledge" or similar phrases as
used in this Section 3.26 shall mean the current actual knowledge of executive
management of San Benito.
SECTION 3.27 REGULATORY COMPLIANCE. All reports, records,
registrations, statements, notices and other documents or information required
to be filed by San Benito during the last two (2) years with any federal or
state regulatory authority including, without limitation, the California
Department of Financial Institutions, the Federal Reserve, 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 3.27, San Benito is not now nor has 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. San Benito does not believe any such regulatory bodies
have any present intent to place San Benito under any new administrative action.
Except as set forth on Schedule 3.27, there are no actions or proceedings
pending or threatened against San Benito 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 3.28 PERIODIC REPORTS. San Benito 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, 1996 by San Benito with the Federal Reserve and/or 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 "San
Benito Reports"), and (b) communication mailed by San Benito to its shareholders
since January 1, 1996 and prior to the date hereof. Except as set forth on
Schedule 3.28, 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, 1996, San Benito has timely filed all San Benito 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 San Benito Reports complied in all material
respects with the published rules and regulations of the Federal Reserve and the
S.E.C. with respect thereto.
SECTION 3.29 ABSENCE OF CERTAIN BUSINESS PRACTICES. Except as set forth
on Schedule 3.29, to the best of San Benito's knowledge, neither San Benito nor
any officer, employee or agent of San Benito, 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 San Benito
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as a whole (or assist San Benito in connection with any actual or proposed
transaction) that (i) would subject San Benito 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 San Benito, or (iii) if not continued in the future would result
in a Material Adverse Change with respect to San Benito or would subject San
Benito to suit or penalty in any private or governmental litigation or
proceeding.
SECTION 3.30 REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. None
of the information supplied or to be supplied by San Benito or any of its
directors, officers, employees or agents for inclusion in the Registration
Statement (as defined in Section 5.03(c)) or the 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 San Benito Shareholders' Meeting (as defined in Section 5.03(a)), 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 San Benito Shareholders'
Meeting. All documents that San Benito 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 3.31 DISSENTING SHAREHOLDERS. Except as set forth on Schedule
3.31, San Benito has no knowledge of any plan or intention on the part of any of
the shareholders of San Benito to make written demand for payment of the fair
value of their shares of San Benito Common Stock in the manner provided by
applicable law.
SECTION 3.32 POOLING OF INTERESTS. As of the date of this Agreement,
San Benito has no reason to believe that the Merger will not qualify as a
"pooling of interests" for accounting purposes.
SECTION 3.33 BOOKS AND RECORDS. The minute books, stock certificate
books and stock transfer ledgers of San Benito (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 San Benito
that were required to have been set forth therein and that have not been
accurately so set forth.
SECTION 3.34 FORMS OF INSTRUMENTS, ETC. San Benito will make available
to Pacific upon 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 San Benito in the ordinary course of their businesses.
SECTION 3.35 FIDUCIARY RESPONSIBILITIES. Except as disclosed in
Schedule 3.35, San Benito has performed in all material respects all of its
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 3.36 GUARANTIES. None of the obligations or liabilities of San
Benito 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 San Benito, except in the ordinary course of business, according
to prudent business practices and in compliance with applicable law.
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SECTION 3.37 VOTING TRUST OR BUY-SELL AGREEMENTS. San Benito 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 San Benito or any voting agreement or voting
trust with respect to shares of capital stock of San Benito (other than that
contemplated by Section 5.21).
SECTION 3.38 EMPLOYEE RELATIONSHIPS. San Benito (including its 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 San Benito believes that the relationships between San Benito
(including its officers and directors while acting in such capacities), and its
employees are good. To the best knowledge of San Benito, no key executive
officer or manager of any of the operations operated by San Benito or any group
of employees of San Benito have any present plans to terminate their employment
with San Benito. San Benito is not 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 San
Benito before the National Labor Relations Board and no similar claims pending
before any similar state, local or foreign agency. To the best of its knowledge,
there is no activity or proceeding of any labor organization (or representative
thereof) or employee group to organize any employees of San Benito, nor of any
strikes, slowdowns, work stoppages, lockouts or threats thereof, by or with
respect to any such employees. San Benito is 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 San
Benito is not engaged in any unfair labor practice.
SECTION 3.39 EMPLOYEE BENEFIT PLANS.
(a) Set forth on Schedule 3.39(a) is a complete and correct list of all
"employee benefit plans" (as defined in ERISA), all "multiemployer 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 San Benito, or
with respect to which San Benito has any liability, and (b) provides benefits,
or describes policies or procedures applicable to, or for the welfare of any
officer, director, independent contractor, employee, service provider, former
officer or former employee of San Benito, or the dependents or spouses of any
such person, regardless of whether funded (the "San Benito Employee Plans").
True, accurate and complete copies of the documents comprising each San Benito
Employee Plan, including each trust, funding vehicle, documents, records or
other materials related thereto, are included in Schedule 3.39(a).
(b) No San Benito Employee Plan is a defined benefit plan within the
meaning of Section 3(35) of ERISA or is otherwise subject to Title IV of ERISA,
and San Benito has never sponsored or otherwise maintained such a plan. To the
best knowledge of San Benito, there have been no prohibited transactions,
breaches of fiduciary duty or any other breaches or violations of any law
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applicable to the San Benito Employee Plans that would subject Pacific or San
Benito to any taxes, penalties, or other liabilities. Each San Benito Employee
Plan that is represented to be qualified under Section 401(a) of the Code has a
favorable determination letter and has no amendments for which the remedial
amendment period under Section 401(b) of the Code has expired. To the best
knowledge of San Benito, each such San Benito Employee Plan is so qualified and
has been operated in compliance with applicable law and in accordance with its
terms and any related trust is exempt from federal income tax under Section
501(a) of the Code. There are no pending claims, lawsuits or actions relating to
any San Benito Employee Plan (other than ordinary course claims for benefits)
and, to the best knowledge of San Benito, none are threatened. No written or
oral representations have been made to any employee or former employee of San
Benito promising or guaranteeing any employer payment or funding for the
continuation of medical, dental, life or disability coverage or any other
welfare benefit (as defined in ERISA Section 3(1)) 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 would not create any
material change to the San Benito Financial Statements. Except as required in
connection with qualified plan amendments required by tax law changes and except
for those San Benito Employee Plans identified on Schedule 3.39(b), the
consummation of the transactions contemplated by this Agreement will not cause a
termination or partial termination, or otherwise accelerate the time of payment,
exercise, or vesting, or increase the amount of compensation due to any
employee, officer, former employee or former officer of San Benito. There are no
surrender charges, penalties, or other costs or fees that would be imposed by
any person against San Benito, a San Benito Employee Plan, or any other person,
including without limitation, a San Benito Employee Plan participant or
beneficiary, as a result of the hypothetical liquidation as of the Closing Date
of any insurance, annuity, or investment contracts or any other similar
investment held by any San Benito Employee Plan.
(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 San Benito 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 best knowledge of San Benito, all Controlled Group
Plans that are "group health plans" (as defined in Section 5000(b)(1)
of the Code and Section 733(a) of ERISA) have been operated up to the
Closing in a manner so as to not subject San Benito to any material
liability under Sections 4980B or 4980D of the Code;
(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; and
(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.
Each such Controlled Group Plan is included in the listing of San Benito
Employee Plans on Schedule 3.39(a).
(d) Except as set forth on Schedule 3.39(d), all San Benito Employee
Plan documents, annual reports or returns, audited or unaudited financial
statements, actuarial valuations, summary annual reports, and summary plan
descriptions issued with respect to the San Benito Employee Plans
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are correct, complete, and current in all material respects, have been timely
filed, and there have been no changes in the information set forth therein.
(e) Except as set forth on Schedule 3.39(e), no payment that is owed or
may become due to any director, officer, employee, or agent of San Benito as a
result of the Merger will be non-deductible to San Benito or Pacific, as the
case may be, or subject to tax under Sections 280G or 4999, nor will San Benito
or Pacific be required to "gross up" or otherwise compensate any such person
because of the imposition of any excise tax on a payment to such person.
(f) With respect to the San Benito Bank 1996 Deferred Compensation Plan
and each Executive Supplemental Compensation Agreement, Director Supplemental
Agreement, Life Insurance Endorsement Method Split Dollar Plan Agreement, and
Deferred Fee Agreement that is maintained or contributed to or required to be
contributed to, currently or in the past, by San Benito (the "Deferred
Compensation Plans"):
(i) Each of the Deferred Compensation Plans is a "top hat
plan" (as defined in Section 201(2) of ERISA), and a statement,
pursuant to Section 2520.104-23 of the Department of Labor Regulation,
has been timely filed for each such plan;
(ii) The value of the assets and the cash surrender value of
any insurance policy maintained pursuant to each of the Deferred
Compensation Plans exceeds the benefit payments and other liabilities
that are payable to participants in such plan as of the Closing Date;
(iii) Schedule 3.39(f)(iii) sets forth the following
information with respect to the 1996 Deferred Compensation Plan:
(A) the name and age of each participant;
(B) the value of each participant's deferral account
as of December 31, 1999 (which shall be updated to the Closing
Date);
(C) the amount of the irrevocable deferral election
made by each participant and the specified number of plan
years that such election is effective; and
(D) the value of each participant's death benefit and
the following information as of the date of this Agreement
(which shall be updated to the Closing Date) regarding each
insurance policy purchased in connection with the death
benefit: name of the insurer, name of the policyholder, name
of each covered insured, issue date, policy number, policy
name, policy form, face amount, cash value, total amount of
premiums paid, and the number and annual cost of remaining
premiums due;
(iv) Schedule 3.39(f)(iv) sets forth the following information
with respect to each Executive Supplemental Compensation Agreement:
(A) the name of each participant;
(B) the value of each participant's benefit account
as of December 31, 1999 (which shall be updated to the Closing
Date); and
(C) the value of each participant's death benefit and
the following information as of the date of this Agreement
(which shall be updated to the Closing Date) regarding each
insurance policy purchased in connection with the benefits
under agreement: name of the insurer, name of the
policyholder, name of each covered insured, issue date, policy
number, policy name, policy form, face amount, cash value,
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total amount of premiums paid, and the number and annual cost
of remaining premiums due;
(v) Schedule 3.39(f)(v) sets forth the following information
with respect to each Director Supplemental Compensation Agreement:
(A) the name of each participant;
(B) the value of each participant's benefit account
as of December 31, 1999 (which shall be updated to the Closing
Date); and
(C) the value of each participant's death benefit and
the following information as of the date of this Agreement
(which shall be updated to the Closing Date) regarding each
insurance policy purchased in connection with the benefits
under agreement: name of the insurer, name of the
policyholder, name of each covered insured, issue date, policy
number, policy name, policy form, face amount, cash value,
total amount of premiums paid, and the number and annual cost
of remaining premiums due;
(vi) Schedule 3.39(f)(vi) sets forth the following information
with respect to each Life Insurance Endorsement Method Split Dollar
Plan Agreement:
(A) the name of each participant; and
(B) the following information as of the date of this
Agreement (which shall be updated to the Closing Date)
regarding each insurance policy purchased in connection with
agreement: name of the insurer, name of the policyholder, name
of each covered insured, issue date, policy number, policy
name, policy form, face amount, cash value, total amount of
premiums paid, and the number and annual cost of remaining
premiums due; and
(vii) Schedule 3.39(f)(vii) sets forth the following
information with respect to each Deferred Fee Agreement:
(A) the name and age of each participant;
(B) the value of each participant's deferral account
as of December 31, 1999 (which shall be updated to the Closing
Date); and
(C) the value of each participant's death benefit and
the following information as of the date of this Agreement
(which shall be updated to the Closing Date) regarding each
insurance policy purchased in connection with the death
benefit: name of the insurer, name of the policyholder, name
of each covered insured, issue date, policy number, policy
name, policy form, face amount, cash value, total amount of
premiums paid, and the number and annual cost of remaining
premiums due.
SECTION 3.40 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 San Benito or
for the account of a customer of San Benito, were entered into in the ordinary
course of business and, to San Benito's best knowledge, in accordance with
prudent banking practice and applicable rules, regulations and policies of any
regulatory authority and with counterparties believed to be financially
responsible at the time and are legal, valid and binding obligations of San
Benito 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. San Benito has duly performed in all material
respects all of its material obligations thereunder to the extent that such
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obligations to perform have accrued; and, to San Benito's best knowledge, there
are no material breaches, violations or defaults or allegations or assertions of
such by any party thereunder.
SECTION 3.41 REPRESENTATIONS NOT MISLEADING. To San Benito's best
knowledge, all material facts relating to the business operations, properties,
assets, liabilities (contingent or otherwise) and financial condition of San
Benito have been disclosed to Pacific in or in connection with this Agreement.
No representation or warranty by San Benito contained in this Agreement, nor any
statement, exhibit or schedule furnished to Pacific by San Benito 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 San Benito or its properties of
the facts and circumstances upon which they were based. Except as disclosed
herein, there is no matter that materially and adversely affects San Benito or
San Benito's ability to perform the transactions contemplated by this Agreement
or the other agreements contemplated hereby, or to the best knowledge of San
Benito, will in the future result in a Material Adverse Change with respect to
San Benito, 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 San Benito.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PACIFIC
Pacific hereby makes the representations and warranties set forth in
this Article IV to San Benito.
SECTION 4.01 ORGANIZATION AND QUALIFICATION.
(a) Pacific 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.
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. True and
complete copies of the Articles of Incorporation and Bylaws of Pacific, as
amended to date, certified by the Secretary of Pacific, have been delivered to
San Benito.
(b) Schedule 4.01(b) sets forth a complete list of each Subsidiary (as
defined in Section 12.08(B)) of Pacific (collectively, the "Pacific
Subsidiaries"); including Santa Barbara Bank & Trust and First National Bank of
Central California (such banks are referred to as the "Pacific Banking
Subsidiaries"). Except as set forth on Schedule 4.01(b), (i) Pacific does not
own or control any Affiliate (as defined in Section 12.08(A) hereof) other than
the Pacific Subsidiaries, and (ii) none of the Pacific Subsidiaries owns or
controls any Affiliate or Subsidiary. 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
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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.
(c) The nature of the business of Pacific and the Pacific 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(c), neither Pacific nor any of the Pacific 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.
SECTION 4.02 CAPITALIZATION. The entire authorized capital stock of
Pacific consists of (i) 60,000,000 shares of Pacific Common Stock, 24,554,294
shares of which are fully paid, validly issued, nonassessable and outstanding,
and 1,511,957 additional shares of which have been reserved for issuance to
holders of outstanding stock options to purchase shares of Pacific Common Stock,
and (ii) 1,000,000 shares of preferred stock, 60,000 shares of which are
designated and no shares of which are issued or outstanding. Except as disclosed
in Schedule 4.02, 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, 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 4.03 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 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).
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SECTION 4.04 COMPLIANCE WITH LAWS, PERMITS AND INSTRUMENTS.
(a) Except as set forth in Schedule 4.04, 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/Association
or Bylaws of Pacific or any Pacific Subsidiary, (ii) any material provision of
any loan agreement, security or pledge agreement, mortgage, indenture, lease,
contract, agreement or other instrument applicable to Pacific or any Pacific
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 or, to the best of its knowledge, any 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/Association or
Bylaws of Pacific or any Pacific Subsidiary, (ii) 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 (iii) any permit, concession, grant, franchise, license,
authorization, judgment, writ, injunction, order, decree or, to the best of its
knowledge, any statute, law, ordinance, rule or regulation applicable to
Pacific, the Pacific Subsidiaries or their assets, operations, properties or
businesses.
SECTION 4.05 FINANCIAL STATEMENTS. Pacific has furnished to San Benito
true and complete copies of (i) the audited consolidated balance sheets of
Pacific as of December 31, 1997 and 1998, and the related audited consolidated
statements of income, stockholders' equity and cash flows for the years ended
December 31, 1996, 1997 and 1998, (ii) an unaudited consolidated balance sheet
of Pacific as of September 30, 1999, and the related unaudited consolidated
statement of income for the three-month period ended September 30, 1999 (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 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.
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SECTION 4.06 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 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 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 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, 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 best
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 4.08 CONSENTS AND APPROVALS. Except for 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 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 4.09 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 best knowledge,
there is no basis for any such deficiency or claim. Except as set forth in
Schedule 4.09, within the last six (6) years, Pacific's Federal income tax
return has not been audited
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or examined and no such audit is currently pending or, to Pacific's best
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 4.09, 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 IRS for the years ended December 31, 1996,
1997, and 1998, have been delivered to San Benito
SECTION 4.10 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, 1998, 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 4.11 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 limita
tion, the Federal Reserve, the FDIC, the Office of the Comptroller of the
Currency (the "OCC"), 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 4.11, 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 4.11, 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 4.12 SECURITIES AND EXCHANGE COMMISSION REPORTS. Pacific has
previously made available to San Benito an accurate and complete copy of each
final registration statement, prospectus, report, schedule and definitive proxy
statement filed since January 1, 1996 by Pacific with the S.E.C. pursuant to the
Securities Act or the Exchange Act, and prior to the date hereof (the "Pacific
Reports"). Except as set forth in Schedule 4.12, no such registration statement,
prospectus, report, schedule or proxy statement 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, 1996, Pacific has timely filed all Pacific Reports and other
documents required to be filed by it under the Securities Act
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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 4.13 REGISTRATION STATEMENT; 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 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 San Benito 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 San Benito 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 4.14 REPRESENTATIONS NOT MISLEADING. To Pacific's best
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 San Benito 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
San Benito 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 best
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.
SECTION 4.15 TITLE TO ASSETS. Pacific has good and indefeasible title
to assets and properties material to the business of Pacific and the Pacific
Subsidiaries including, without limitation, real property and 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 4.15,
(ii) as noted in the Pacific 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 Pacific Financial Statements.
SECTION 4.16 COMMUNITY REINVESTMENT ACT. The Pacific Banking
Subsidiaries are in compliance with the CRA and all regulations promulgated
thereunder, and Pacific has made available to San Benito copies of current CRA
Statements for each Pacific Banking Subsidiary, all letters and
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written comments received by the Pacific Banking Subsidiaries since January 1,
1996 pertaining thereto and any responses by the Pacific Banking Subsidiaries
to such comments. Each Pacific Banking Subsidiary had a rating of
"satisfactory" or better as of its most recent CRA compliance examination and
knows of no reason why it would not receive a rating of "satisfactory" or
better at its next CRA compliance examination or why any other governmental
entity may seek to restrain, delay or prohibit the transactions contemplated by
this Agreement as a result of any act or omission of any Pacific Banking
Subsidiary under the CRA.
SECTION 4.17 FAIR HOUSING ACT HOME MORTGAGE DISCLOSURE ACT AND EQUAL
CREDIT OPPORTUNITY ACT. Each Pacific Banking Subsidiary is in material
compliance with the Fair Housing Act (42 U.S.C. Section 3601 ET SEQ.), the Home
Mortgage Disclosure Act (12 U.S.C. Section 2801 ET SEQ.) and the Equal Credit
Opportunity Act (15 U.S.C. Section 1691 ET SEQ.) and all regulations
promulgated thereunder. No Pacific Banking Subsidiary has received any notices
of any violation of said acts or any of the regulations promulgated thereunder,
nor does any Pacific Banking Subsidiary have any notice of, or knowledge of,
any threatened administrative inquiry, proceeding or investigation with respect
to its compliance with said acts.
SECTION 4.18 USURY LAWS AND OTHER CONSUMER COMPLIANCE LAWS. All loans
originated by a Pacific Banking Subsidiary have been made substantially in
accordance with all applicable statutes and regulatory requirements at the time
such loan or any renewal thereof, including without limitation Regulation Z (12
C.F.R. Section 226 ET SEQ.) issued by the Federal Reserve, the Federal Consumer
Credit Protection Act (15 U.S.C. Section 1601 ET SEQ.) and all statutes and
regulations governing the operations of California banking corporations or
national banking associations, as the case may be. Each such loan was made in
the ordinary course of business of a Pacific Banking Subsidiary.
SECTION 4.19 BANK SECRECY ACT. Each Pacific Banking Subsidiary is in
material compliance with the Bank Secrecy Act (12 U.S.C. Sections 1730(d) and
1829(b)) and all regulations promulgated thereunder, and each Pacific Banking
Subsidiary has properly certified all foreign deposit accounts and has made all
necessary tax withholdings on all of its respective deposit accounts. Each
Pacific Banking Subsidiary has timely and properly filed and maintained all
requisite Currency Transaction Reports and other related forms, including, but
not limited to, any requisite Custom Reports required by any agency of the
United States Treasury Department, including, but not limited to, the IRS.
SECTION 4.20 LEASES, CONTRACTS AND AGREEMENTS. Schedule 4.20 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 AND which (i) relate to real property used by Pacific in its operation,
or (ii) involve annual payments to or by Pacific in excess of $1,000,000 and
are material to the business or operations of Pacific and the Pacific
Subsidiaries (exclusive of unfunded loan commitments and letters of credit
issued by a Pacific Banking Subsidiary), or (iii) involve any unfunded loan
commitments and letters of credit issued by a Pacific Banking Subsidiary where
the borrower's total direct and indirect indebtedness to such Pacific Banking
Subsidiary is in excess of $15,000,000 (the "Pacific Contracts"). True and
correct copies of all such Pacific Contracts (other than unfunded loan
commitments and letters of credit issued by a Pacific Banking Subsidiary) are
included with Schedule 4.20. 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 a Pacific Banking Subsidiary. Except
as set forth in Schedule 4.20, 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 best knowledge of
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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 4.20, 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. The
transactions contemplated by this Agreement, including the Merger, will not
result in any material breach or termination of any such leasehold interest.
SECTION 4.21 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 4.22 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 any Pacific Subsidiary that were required to have
been set forth therein and that have not been accurately so set forth.
SECTION 4.23 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 best 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. To the best of its
knowledge, 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.
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SECTION 4.24 EMPLOYEE BENEFIT PLANS.
(a) Set forth on Schedule 4.24(a) is a complete and correct list of all
"employee benefit plans" (as defined in ERISA), all "multiemployer 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, or for the welfare of, any officer, director,
independent contractor, employee, service provider, former officer or former
employee of Pacific or any Pacific Subsidiary, or the dependents or spouses 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 or is otherwise subject to Title IV of ERISA,
and Pacific has never sponsored or otherwise maintained such a plan. Pacific has
delivered or made available to San Benito 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 San Benito.
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 Pacific to any
material taxes, penalties, or other 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.
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). Pacific is in compliance with FAS
106. Except as required in connection with qualified plan amendments required by
tax law changes and except for those plans identified on Schedule 4.24(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.
(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 best knowledge of Pacific, all Controlled Group
Plans that are "group health plans" (as defined in Section 5000(b)(1)
of the Code and Section 733(a) of ERISA) have been operated up to the
Closing in a manner so as to not subject Pacific to any material
liability under Sections 4980B or 4980D of the Code; and
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(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 4.25 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
(including any Pacific Subsidiary) or for the account of a customer of Pacific
(including any Pacific Banking Subsidiary), were entered into in the ordinary
course of business and, to Pacific's best knowledge, in accordance with prudent
banking practice and applicable rules, regulations and policies of any
regulatory authority and with counterparties 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 (including any
Pacific Subsidiary) has duly performed in all material respects all of its
material obligations thereunder to the extent that such obligations to perform
have accrued; and, to Pacific's best knowledge, there are no material breaches,
violations or defaults or allegations or assertions of such by any party
thereunder.
SECTION 4.26 ENVIRONMENTAL COMPLIANCE.
(a) Except as set forth on Schedule 4.26(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) Except as set forth on Schedule 4.26(c), to Pacific's best
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
4.26) in violation of any Environmental Laws, nor, to Pacific's best 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 AND which have not
been subsequently remediated. 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 best 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
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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 4.26, the term "Pacific Property" or
"Pacific Properties" shall include all real property currently owned or leased
by Pacific or any of the Pacific Subsidiaries that is material in the conduct of
its business, including, but not limited to, banking premises and material
improvements and fixtures thereon. The phrase "to Pacific's knowledge" or
similar phrases as used in this Section 4.26 shall mean the current actual
knowledge of executive management of Pacific.
ARTICLE V.
COVENANTS OF SAN BENITO
San Benito hereby makes the covenants set forth in this Article V to
Pacific.
SECTION 5.01 BEST EFFORTS. San Benito 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. San Benito will duly authorize and, as
soon as practicable after the San Benito Shareholders' Meeting (as defined in
Section 5.03(a)), 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. San Benito shall:
(a) Duly call, give notice of, convene and hold, on a date mutually
selected by San Benito and Pacific, a meeting of its shareholders (the "San
Benito 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, including the Merger, as required by the GCL;
(b) Not impose a requirement that the holders of more than the minimum
required percentage (as set forth in San Benito's current Articles of
Incorporation, current Bylaws or pursuant to provisions of the GCL requiring the
lowest percentage vote) of the San Benito Common Stock entitled to vote on the
Merger and the Merger Agreement approve the Merger and the Merger Agreement;
(c) Cooperate and assist Pacific in (i) preparing a Registration
Statement on Form S-4 relating to the shares of Pacific Common Stock to be
issued to the Shareholders of San Benito as the Merger Consideration (the
"Registration Statement") and a proxy statement/prospectus, including letter to
shareholders, notice of special meeting and form of proxy (collectively, the
"Proxy Statement/Prospectus") and (ii) filing the Registration Statement and the
Proxy Statement/Prospectus (forming a part of the Registration Statement) with
the S.E.C., including furnishing to Pacific all information concerning San
Benito that Pacific may reasonably request in connection with preparation of
such Registration Statement and Proxy Statement/Prospectus;
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(d) Subject to the fiduciary duties of the San Benito Board of
Directors to the shareholders of San Benito, (i) include in the Proxy
Statement/Prospectus the recommendation of the San Benito Board of Directors
that the shareholders of San Benito 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 Pacific to ensure that such shareholder approval of
the Merger and the Merger Agreement is obtained; and
(e) Cause the Proxy Statement/Prospectus to be mailed to the
shareholders of San Benito as soon as practicable following the effectiveness of
the Registration Statement.
SECTION 5.04 INFORMATION FOR APPLICATIONS AND STATEMENTS. San Benito
will promptly, but in no event later than ten (10) business days after receipt
of a written request by Pacific, furnish to Pacific all information, data and
documents concerning San Benito, 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 (including the Registration
Statement and the Proxy Statement/Prospectus), or in connection with any other
transactions during the pendency of this Agreement, and San Benito 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. San Benito 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 5.05 REQUIRED ACTS OF SAN BENITO. Prior to the Closing, San
Benito shall, 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 San Benito 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 San Benito
shall have the authority to purchase a rider to San Benito's existing policy of
directors' and officers' liability insurance providing for the continuation of
coverage provided by such policy for a period of thirty-six (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
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$30,000; PROVIDED, HOWEVER, in the event the premium for such coverage
exceeds $30,000, San Benito must first obtain the written consent of Pacific,
which consent will not be unreasonably withheld;
(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 San Benito 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 SAN BENITO. Prior to the Closing, San
Benito 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 San Benito;
(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 San Benito 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;
(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 San Benito, except (i) in the form of
wages, salaries, fees for legal services and reimbursement of expenses and (ii)
loans to its officers, directors and employees made in the ordinary course of
business and consistent with San Benito's past practice; provided that, with
respect to all such loans made after the date of this Agreement, San Benito
shall immediately thereafter notify Pacific and provide appropriate loan file
documentation with respect to each such loan made;
(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 5.22, 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;
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(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 San Benito Common Stock pursuant to
the valid exercise of San Benito Stock Options, as defined in Section 6.13
hereof, which are outstanding on the date of this Agreement);
(h) Grant any new stock options or, except as provided by the San
Benito Stock Option Plans, accelerate the vesting, or permit the acceleration of
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 San Benito, except as provided in the deferred compensation plans
of San Benito listed on Schedule 5.06(i);
(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 1.11 of this Agreement,
(ii) compensation adjustments contemplated within San Benito's 1999/2000 budget
approved in advance by Pacific (which approval shall not be unreasonably
withheld) and consistent with safe and sound banking principles, and (iii)
except as required by applicable law or outstanding agreements listed on
Schedule 5.06(m);
(n) Except for improvements or betterments relating to San Benito
Properties, make any capital expenditures or capital additions or betterments in
excess of an aggregate of $100,000;
(o) Hire or employ any person as a replacement for an existing position
with an annual salary equal to or greater than $50,000 or hire or employ any
person for any newly created position;
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(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 (i) credit
underwriting standards or practices, (ii) asset liability management techniques,
or (iii) accounting methods, principles or material practices, except as
required by changes in GAAP as concurred in by San Benito's independent
auditors, or as required by any applicable regulatory authority;
(r) Take any action that would prevent the Merger from qualifying as a
business combination transaction for which "pooling of interests" accounting is
available.
(s) Sell any investment securities in a transaction involving a book
gain or loss of more than $50,000 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 Pacific of any purchases in
excess of $1,000,000);
(t) 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(u)), to any single borrower and his or her related interests in excess of
the principal amount of $350,000; PROVIDED, HOWEVER, that Pacific shall be
deemed to have given its consent under this Section 5.06(t) 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;
(u) 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 $100,000; PROVIDED, HOWEVER, that
Pacific shall be deemed to have given its consent under this Section 5.06(u)
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
(v) 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, San Benito 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 San Benito, permit Pacific 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 Pacific during such period all such
information concerning San Benito 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 San Benito,
including, without limitation, access sufficient to verify the absence of any
Material Adverse Change with respect to San Benito, the accuracy of the
representations and warranties made by San Benito in this Agreement, the value
of the assets and the liabilities of San Benito and the satisfaction of the
conditions precedent to Pacific's obligations described in Article VIII of this
Agreement. Pacific shall use its best efforts not to disrupt the normal business
operations of
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San Benito. San Benito 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 5.08 DIRECTOR AND COMMITTEE MEETINGS. San Benito 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 San Benito and all
regular and special meetings of any board or senior management committee of San
Benito; PROVIDED, HOWEVER, that San Benito reserves the right to exclude such
invitees from any portion of any such meeting specifically relating to the
transactions contemplated by this Agreement or which, upon the advice of
counsel, are otherwise privileged. In addition, San Benito shall provide Pacific
with copies of the minutes of all regular and special meetings of the Board of
Directors of San Benito and minutes of all regular and special meetings of any
board or senior management committee of San Benito held on or after the date of
this Agreement (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 fifteen (15) business days following the date of such meeting.
SECTION 5.09 ADDITIONAL FINANCIAL STATEMENTS. San Benito shall promptly
furnish Pacific with true and complete copies of (i) Exchange Act reports and
Call Reports of San Benito for the year and/or quarter ended December 31, 1999
and each quarter thereafter until the Effective Date, (ii) monthly directors'
reports of San Benito, and (iii) unaudited month-end financial statements of San
Benito.
SECTION 5.10 UNTRUE REPRESENTATIONS. San Benito shall promptly notify
Pacific in writing if San Benito 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 San Benito's
failure to comply with any covenant, condition or agreement contained in this
Agreement.
SECTION 5.11 LITIGATION AND CLAIMS. San Benito 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 San
Benito or affecting any of its properties if such litigation or potential
litigation would, in the event of an unfavorable outcome, result in a Material
Adverse Change with respect to San Benito, and San Benito shall promptly notify
Pacific of any legal action, suit or proceeding or judicial, administrative or
governmental investigation, pending or, to the best knowledge of San Benito,
threatened against San Benito 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 San
Benito pursuant hereto or thereto or seeks to enjoin or otherwise restrain the
transactions contemplated hereby or thereby.
SECTION 5.12 ADVERSE CHANGES. San Benito shall promptly notify Pacific
in writing if any change or development shall have occurred or, to the best
knowledge of San Benito, been threatened (or any development shall have occurred
or been threatened involving a prospective change) in the business, financial
condition, operations or prospects of San Benito that has or may reasonably be
expected to have or lead to a Material Adverse Change with respect to San Benito
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, San
Benito shall not be relieved of any liability to Pacific pursuant to this
Agreement for,
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nor shall the providing of such information by San Benito to Pacific be
deemed a waiver by Pacific of, the breach of any representation or warranty
of San Benito contained in this Agreement.
SECTION 5.13 NO NEGOTIATION WITH OTHERS. Until the Effective Date or
the earlier termination of this Agreement, San Benito 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 San Benito, 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 San Benito. As soon as practicable following receipt of any
unsolicited written offer, San Benito will communicate in writing to Pacific the
terms of any proposal or request for information.
SECTION 5.14 CONSENTS AND APPROVALS. San Benito 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) Pacific and its consultants, agents and representatives shall have
the right, to the same extent that San Benito has such right, but not the
obligation or responsibility, to inspect any San Benito 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 San Benito prior to any physical
inspections of the San Benito Property, and San Benito 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 San Benito of any San
Benito 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
San Benito of such secondary investigations, and San Benito 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 3.26 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) San Benito 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 San Benito that would result in a Material Adverse
Change; (v) the Environmental Inspection, secondary investigation or other
environmental
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survey identifies the presence of any underground or above ground storage
tank in, on or under any San Benito 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 San Benito 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 San Benito 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. San Benito 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 San
Benito 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) San Benito agrees to make available to Pacific and its consultants,
agents and representatives all documents and other material relating to
environmental conditions of any San Benito Property including, without
limitation, the results of other environmental inspections and surveys. San
Benito 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 "San Benito Property" or
"San Benito Properties" shall have the same meaning given in Section 3.26(e).
SECTION 5.16 RESTRICTIONS ON RESALES. At least forty (40) days prior to
the Closing Date, San Benito shall deliver to Pacific a list identifying each
person who may reasonably be deemed an "affiliate" of San Benito within the
meaning of such term as used in Rule 145 under the Securities Act. San Benito
shall obtain and deliver to Pacific, not less than thirty-one (31) days prior to
the Closing Date, the signed agreement, in the form of EXHIBIT "E" hereto (the
"Shareholder Letter"), of each "affiliate" of San Benito, and of any person who
may become an "affiliate" of San Benito 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 San Benito Common Stock or Pacific 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. San Benito 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, San
Benito shall from time to time make available to Pacific, upon request, a list
of its shareholders and their addresses, a list showing all transfers of San
Benito Common Stock and such other information as Pacific may reasonably request
regarding both the ownership and prior transfers of San Benito Common Stock.
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SECTION 5.18 EMPLOYEE PENSION PLANS. San Benito agrees the employee
pension plans of San Benito, including the San Benito Bank 401(k)/Profit Sharing
Plan, as amended (collectively, the "San Benito Pension Plans") may be frozen,
modified or merged into similar employee pension plans maintained by Pacific or
any Pacific Subsidiary, including the Pacific Capital Bancorp Employee Stock
Ownership Plan and the Incentive and Investment and Salary Savings Plan, on or
after the Effective Date, as determined by Pacific in its sole discretion,
subject to compliance with applicable law, so long as any such action preserves
the rights of the participants in such San Benito Pension Plans (including,
without limitation, vesting rights).
SECTION 5.19 EMPLOYEE WELFARE BENEFIT PLANS. San Benito agrees that San
Benito's employee welfare benefit plans, as defined in Section 3(1) of ERISA,
may be terminated, modified or merged into Pacific's welfare benefit plans on or
after the Effective Date, as determined by Pacific 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 SAN BENITO STOCK OPTION PLANS. The Board of Directors of
San Benito shall, pursuant to the terms of the San Benito Stock Option Plans (as
defined in Section 6.13), provide for the assumption by Pacific of all
outstanding San Benito Stock Options (as defined in Section 6.13), whether or
not exercisable or vested, in the manner set forth in Section 6.13. Within
thirty (30) days following the date of this Agreement, San Benito shall use its
best efforts to obtain from each employee who maintains an employment contract
with San Benito and who holds or has held a San Benito Stock Option a signed
acknowledgment indicating that the economic value of the difference between the
market value and the exercise price of any San Benito Stock Option granted to
such employee of San Benito is not included or factored into any calculation of
such employee's compensation for purposes of any severance arrangement relative
to such employee. Signed acknowledgments shall be delivered to Pacific at
Closing pursuant to Section 2.02(L).
SECTION 5.21 DIRECTOR VOTING. San Benito shall use its best efforts to
have each of its directors agree to vote, or cause to be voted, all shares of
San Benito Common Stock beneficially owned by them at the San Benito
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 San
Benito Common Stock in favor of the Merger at the San Benito Shareholders'
Meeting.
SECTION 5.22 DIVIDENDS. Except as consistent with prior practices in
previous years in terms of both amount and timing (which amount shall not exceed
25% of San Benito's year-end net income), San Benito shall not declare, set
aside or pay any dividend in respect of San Benito 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.
SECTION 5.23 NON-COMPETE AGREEMENTS. Prior to the Closing Date, San
Benito shall use its best efforts to cause each of the persons identified on
EXHIBIT "F" to enter into an agreement not to compete with Pacific 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.
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SECTION 5.24 POOLING OF INTERESTS ACCOUNTING TREATMENT. San Benito
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 Pacific's independent accounting firm and by any
securities regulatory body which may review the Registration Statement,
including, without limitation, the S.E.C.
SECTION 5.25 DISCLOSURE SCHEDULES. San Benito agrees at or prior to the
Closing to provide Pacific with supplemental Schedules to be delivered by San
Benito pursuant to this Agreement reflecting any material changes thereto
between the date of this Agreement and the Closing Date.
SECTION 5.26 ADDITIONAL ACCRUALS AND RESERVES. San Benito shall
establish such additional accruals and reserves as may be necessary to conform
San Benito's accounting and credit loss reserve practices and methods to those
of Pacific and Pacific's plans with respect to the conduct of San Benito's
business following the Merger and to provide for the costs and expenses relating
to the consummation by San Benito of the Merger and the other transactions
contemplated by this Agreement. Pacific acknowledges that the establishment of
such accruals and reserves and provision for such costs and expenses (i) shall
not be deemed to cause the San Benito Financial Statements to have been prepared
other than in accordance with GAAP, (ii) shall not constitute a material adverse
change in the condition of San Benito, and (iii) shall not constitute a breach
of any provision of this Agreement by San Benito.
ARTICLE VI.
COVENANTS OF PACIFIC
Pacific hereby makes the covenants set forth in this Article VI to San
Benito.
SECTION 6.01 BEST EFFORTS. Pacific 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 INCORPORATION AND ORGANIZATION OF NEWCO. Pacific will
incorporate, or will cause the incorporation of, Newco under the laws of the
State of California.
SECTION 6.03 MERGER AGREEMENT. Pacific will, and will cause Newco to,
as soon as practicable after the San Benito Shareholders' Meeting, enter into
the Merger Agreement, the form of which is attached hereto as EXHIBIT "A", and
Pacific shall perform, and shall cause Newco to perform, all of their respective
obligations thereunder.
SECTION 6.04 REGULATORY APPROVALS AND REGISTRATION STATEMENT.
(a) Pacific, with the cooperation of San Benito, shall promptly file or
cause to be filed applications for all regulatory approvals required to be
obtained by Pacific 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, the California
Department
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of Financial Institutions and the FDIC. Pacific shall use its best efforts to
obtain all such regulatory approvals and any other approvals from third
parties at the earliest practicable time.
(b) Pacific shall reserve and make available for issuance in connection
with the Merger and in accordance with the terms of this Agreement, the Pacific
Common Stock for the Merger Consideration and shall, with the cooperation of San
Benito, file with the S.E.C. the Registration Statement, which Registration
Statement will contain the Proxy Statement/Prospectus, and Pacific 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 San
Benito, at the time of the San Benito Shareholders' Meeting and on the Effective
Date, the 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) Pacific 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) Pacific shall promptly and properly prepare and file (i) any
application required to list on Nasdaq the shares of Pacific 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) Pacific shall keep San Benito reasonably informed as to the status
of such applications and filings, and Pacific shall promptly furnish San Benito
and its counsel with copies of all such regulatory filings and all
correspondence for which confidential treatment has not been requested.
(f) Pacific 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 6.05 INFORMATION FOR APPLICATIONS AND STATEMENTS. Pacific will
promptly, but in no event later than ten (10) business days after receipt of a
written request by San Benito, furnish to San Benito all information, data and
documents concerning Pacific and Newco, including, but not limited to, financial
statements, required for inclusion in any application or statement to be made by
San Benito to, or filed by San Benito 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 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 San Benito in the
filing of any applications or other documents necessary to consummate the
transactions contemplated by this Agreement.
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SECTION 6.06 ACTS OF NEWCO. Prior to the Closing, Pacific shall not
cause Newco to take any action or execute any agreement, document or certificate
except as contemplated by this Agreement and the other agreements contemplated
hereby, including, but not limited to, the Merger Agreement.
SECTION 6.07 PROHIBITED ACTS OF PACIFIC. Prior to the Closing, Pacific
and, as applicable, the Pacific Subsidiaries shall not, without the prior
written consent of San Benito:
(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 IV 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) 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;
SECTION 6.08 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 San Benito reasonable access to the properties, books,
contracts and records of Pacific and the Pacific Subsidiaries, permit San Benito
to make such inspections as they may require and furnish to San Benito during
such period all such information concerning Pacific and the Pacific Subsidiaries
and its affairs as San Benito may reasonably request, in order that San Benito
may have the 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 San Benito's obligations described in Article VII of this
Agreement. San Benito shall use its best efforts not to disrupt the normal
business operations of Pacific and the Pacific Subsidiaries. Pacific agrees at
any time, and from time to time, to furnish to San Benito as soon as
practicable, any additional information that San Benito may reasonably request.
SECTION 6.09 UNTRUE REPRESENTATIONS. Pacific shall promptly notify San
Benito 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 San Benito or any representation or warranty
made in or pursuant to this Agreement or that results in Pacific's failure to
comply with any material covenant, condition or agreement contained in this
Agreement.
SECTION 6.10 LITIGATION AND CLAIMS. Pacific shall promptly notify San
Benito of any legal action, suit or proceeding or judicial, administrative or
governmental investigation, pending or, to the best knowledge of Pacific,
threatened against Pacific or any Pacific 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 Pacific pursuant hereto or thereto or seeks to enjoin or otherwise
restrain the transactions contemplated hereby or thereby.
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SECTION 6.11 ADVERSE CHANGE. Pacific shall promptly notify San Benito
in writing if any change or development shall have occurred or, to the best
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 San Benito of
any such change, Pacific shall not be relieved of any liability to San Benito
pursuant to this Agreement for, nor shall the providing of such information by
Pacific to San Benito be deemed a waiver by San Benito of, the breach of any
representation or warranty of Pacific contained in this Agreement.
SECTION 6.12 CONSENTS AND APPROVALS. Pacific 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 6.13 STOCK OPTIONS.
(a) On the Effective Date, each outstanding option to purchase shares
of San Benito Common Stock (a "San Benito Stock Option") issued pursuant to the
San Benito Bank 1984 Amended Stock Option Plan and the San Benito Bank 1995
Stock Option Plan (together, the "San Benito Stock Option Plans"), whether or
not exercisable or vested, shall be assumed by Pacific as hereinafter provided.
Each San Benito Stock Option shall be deemed to constitute an option to acquire,
on the same terms and conditions as were applicable under such San Benito Stock
Option, the number of full shares of Pacific Common Stock calculated in
accordance with the provision of Section 1.05. In no event shall Pacific be
required to issue fractional shares of Pacific Common Stock upon the exercise of
a converted option.
(b) Pacific 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 Pacific Common Stock calculated in accordance with Section 1.05.
As soon as practicable after the Effective Date, Pacific shall deliver to each
holder of San Benito Stock Options appropriate notices setting forth such
holders' rights pursuant to the San Benito Stock Option Plans, and the
agreements evidencing the grants of such San Benito Stock Options shall continue
in effect on the same terms and conditions (subject to the conversion required
by Section 1.05 after giving effect to the Merger and the assumption by Pacific
as set forth above). To the extent necessary to effectuate the provisions of
this Section 6.13, Pacific may deliver new or amended agreements reflecting the
terms of each San Benito Stock Option assumed by Pacific and amend the San
Benito Stock Option Plans to reflect the terms hereof.
(c) As soon as practicable after the Effective Date, Pacific shall file
with the S.E.C. a registration statement on an appropriate form with respect to
the shares of Pacific 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 6.14 DIRECTOR AND OFFICER LIABILITY INSURANCE. Upon the
Effective Date, any executive officer or director of San Benito who becomes an
officer or director of Pacific (including any Pacific Subsidiary) shall be
included in Pacific's director and officer insurance policy.
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SECTION 6.15 CONDUCT OF BUSINESS IN THE ORDINARY COURSE. Except as
specifically provided for in this Agreement, Pacific shall conduct its business
in the ordinary course as heretofore conducted. For purposes of this Section
6.15, the ordinary course of business shall consist of the banking and related
business as presently conducted by Pacific and the Pacific Subsidiaries, and
engaging in acquisitions and assisting in the management of its Subsidiaries.
SECTION 6.16 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 Pacific's independent accounting firm and by any
securities regulatory body which may review the Registration Statement,
including without limitation, the S.E.C.
SECTION 6.17 DISCLOSURE SCHEDULES. Pacific agrees at or prior to the
Closing to provide San Benito 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.
SECTION 6.18 ASSUMPTION OF OBLIGATIONS. If, prior to the Effective
Date, Pacific should enter into a definitive agreement with a third party
providing for (i) the acquisition of 50% or more of the outstanding capital
stock of Pacific by such third party or an affiliate of such third party, (ii)
any merger or consolidation of Pacific into any entity of which Pacific is not
the surviving entity, (iii) the sale of all or substantially all of the assets
of Pacific, (iv) any reorganization of Pacific in a transaction that will result
in the disposition of substantially all of the assets of Pacific, or (v) the
issuance and sale or disposition of securities representing 50% or more of the
Pacific Common Stock, Pacific will expressly provide for the assumption by such
third party of Pacific's rights and obligations under this Agreement with San
Benito.
ARTICLE VII.
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SAN BENITO
All obligations of San Benito under this Agreement are subject to the
fulfillment (or, if legally permissible, waiver by San Benito), 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 Pacific in this
Agreement or in any document or schedule delivered to San Benito pursuant hereto
shall have been true and correct 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.
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SECTION 7.02 SHAREHOLDER APPROVAL. The holders of at least the minimum
required percentage of San Benito 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.
SECTION 7.03 GOVERNMENT AND OTHER APPROVALS. Pacific and San Benito
shall have received approvals, acquiescence or consents, all on terms and
conditions mutually acceptable to Pacific and San Benito, 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., the Federal Reserve, the FDIC and the California
Department of Financial Institutions, and all applicable waiting periods shall
have expired, and Pacific and San Benito 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 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 San Benito or subject any officer, director, shareholder or employee of
San Benito 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. San Benito shall have
received all documents required to be received from Pacific on or prior to the
Closing Date as set forth in Section 2.03 hereof, all in form and substance
reasonably satisfactory to San Benito.
SECTION 7.06 RECEIPT OF FAIRNESS OPINION. The Board of Directors of San
Benito shall have received, on or before the date of the mailing of the Proxy
Statement/Prospectus, from its investment advisor, Hoefer & Arnett Incorporated,
an unqualified written opinion to the effect that the Merger Consideration is
fair to the shareholders of San Benito from a financial point of view.
SECTION 7.07 RECEIPT OF POOLING OPINIONS. San Benito shall have
received an opinion letter, dated as of the Closing Date, from Deloitte & Touche
LLP, independent public accountants for San Benito, to the effect that San
Benito qualifies as an entity that may be a party to a business
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combination for which the "pooling of interests" method of accounting would
be available under Accounting Principles Board Opinion No. 16 ("APB 16"). San
Benito shall have also received a copy of an opinion letter, dated as of the
Closing Date, from Arthur Andersen LLP, independent public accountants for
Pacific, 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. San Benito shall have received a copy
of the opinion of Jenkens & Gilchrist, P.C., counsel to Pacific, 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 San Benito Common Stock upon
receipt of the Merger Consideration (except for cash received in lieu of
fractional shares), (iii) the basis of shares of Pacific Common Stock received
by the shareholders of San Benito will be the same as the basis of shares of San
Benito Common Stock exchanged therefor, and (iv) the holding period of the
shares of Pacific Common Stock received by such shareholders will include the
holding period of the shares of San Benito 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 Pacific,
San Benito and others.
SECTION 7.10 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 San Benito, San Benito shall not have received notification from
any proper regulatory authority that San Benito's accounting and tax treatment,
entries and adjustments used in connection with the Merger are improper, and San
Benito 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 7.11 NO MATERIAL ADVERSE CHANGE. There shall have been no
Material Adverse Change with respect to Pacific since December 31, 1998.
ARTICLE VIII.
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:
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SECTION 8.01 COMPLIANCE WITH REPRESENTATIONS, WARRANTIES AND
AGREEMENTS.
(a) All representations and warranties made by San Benito in this
Agreement or in any document or schedule delivered to Pacific pursuant hereto
shall have been true and correct 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) San Benito 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 San Benito prior to or at the
Closing.
SECTION 8.02 SHAREHOLDER APPROVALS. The holders of at least the minimum
required percentage of San Benito 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.
SECTION 8.03 GOVERNMENT AND OTHER APPROVALS. Pacific and San Benito
shall have received approvals, acquiescence or consents, all on terms and
conditions acceptable to 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.,
the Federal Reserve, the FDIC and the California Department of Financial
Institutions, and all applicable waiting periods shall have expired, and Pacific
and San Benito 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, Pacific 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 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 San Benito, (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
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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. Pacific shall have received
all documents required to be received from San Benito on or prior to the Closing
Date as set forth in Section 2.02 hereof, all in form and substance reasonably
satisfactory to Pacific.
SECTION 8.06 RECEIPT OF SHAREHOLDER LETTERS. Pacific shall have
received from San Benito, at least 31 days prior to the Closing Date, the signed
Shareholder Letters, in the form attached hereto as EXHIBIT "E" hereof, of each
person who may reasonably be deemed an "affiliate" of San Benito within the
meaning of such term as used in Rule 145 under the Securities Act.
SECTION 8.07 DISSENTING SHAREHOLDERS. Holders of not more than a
certain percentage (not to exceed 9.9%) of the issued and outstanding shares of
San Benito 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 APB 16.
SECTION 8.08 RECEIPT OF POOLING OPINIONS. Pacific shall have received
an opinion letter, dated as of the Closing Date, from Deloitte & Touche LLP,
independent public accountants for San Benito, to the effect that San Benito
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.
Pacific 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 8.09 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 8.10 FEDERAL TAX OPINION. Pacific 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 San Benito Common Stock upon receipt of
the Merger Consideration (except for cash received in lieu of fractional
shares), (iii) the basis of shares of Pacific Common Stock received by the
shareholders of San Benito will be the same as the basis of shares of San Benito
Common Stock exchanged therefor, and (iv) the holding period of the shares of
Pacific Common Stock received by such shareholders will include the holding
period of the shares of San Benito Common Stock exchanged therefor, provided
such shares were held as capital assets as of the
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Effective Date. In rendering such opinion, such counsel may require and rely
upon representations and covenants including those contained in certificates
of officers of Pacific, San Benito and others.
SECTION 8.11 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 8.12 NO MATERIAL ADVERSE CHANGE. There shall have been no
Material Adverse Change with respect to San Benito since December 31, 1998.
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 Pacific because (i) the Merger
Agreement is not approved by the required vote of shareholders at the San Benito
Shareholders' Meeting, and (ii) either (a) the Board of Directors of San Benito
(subject to compliance with its fiduciary duties as advised by counsel) shall
have failed to have used its best efforts to obtain shareholder approval or (b)
San Benito shall have entered into an agreement to effect a Third Party
Transaction (as defined in Section 9.02(i) herein) within twelve (12) months
from the date of this Agreement, San Benito shall pay to Pacific within ten (10)
business days after such termination (y) a termination fee of $1,650,000, 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 San Benito by Pacific within five (5) business days after termination, shall
not exceed $150,000) ; or
(b) this Agreement is terminated by San Benito because of a Third Party
Transaction (as defined in Section 9.02(i) herein), San Benito shall pay to
Pacific within ten (10) business days after such termination (y) a termination
fee of $1,650,000, 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 San Benito by Pacific within five (5) business days
after termination, shall not exceed $150,000); or
(c) this Agreement is terminated by San Benito due to the failure of
Pacific to perform its obligations pursuant to Section 6.18, Pacific shall pay
to San Benito within ten (10) business days after such termination (y) a
termination fee of $1,650,000, and (z) all documented fees and expenses of San
Benito related to this Agreement and the transactions contemplated hereby (which
fees and expenses, as communicated to Pacific by San Benito within five (5)
business days after termination, shall not exceed $150,000).
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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, San Benito 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 Pacific and San Benito, 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 Pacific or San Benito, if the Effective Date has not
occurred by the close of business on October 1, 2000, or such later date as may
be mutually agreed to by Pacific and San Benito;
(c) by Pacific, if there has been a Material Adverse Change with
respect to San Benito;
(d) by San Benito, if there has been a Material Adverse Change with
respect to Pacific.
(e) by either Pacific or San Benito, 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 Pacific or San Benito, 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 Pacific or San Benito, 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 San Benito or Pacific 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 Pacific or San Benito, if the Merger Agreement is not approved
by the required vote of shareholders of San Benito;
(i) by San Benito, by written notice to Pacific, if (i) a proposal for
a Third Party Transaction (as defined below) involving San Benito has been made
or received and the Board of
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Directors of San Benito 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 San Benito's Board of Directors to
comply with its fiduciary duties to San Benito's shareholders, or (ii)
following receipt by San Benito of a proposal for a Third Party Transaction,
the Board of Directors of San Benito shall have altered its determination to
recommend that the shareholders of San Benito approve this Agreement, the
Merger Agreement and/or the Merger or shall have failed to proceed to hold
the San Benito Shareholders' Meeting to approve this Agreement, the Merger
Agreement and/or the Merger, in either case of which San Benito shall give
Pacific 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 San Benito, (ii) any merger or consolidation of San Benito with or
into any entity other than Pacific or an affiliate of Pacific, (iii) any sale of
all or substantially all of the assets of San Benito, (iv) any reorganization of
San Benito or other transaction that results or when completed would result in a
disposition of substantially all of the assets of San Benito, or (v) the
issuance, sale or disposition of securities representing 50% or more of the
common stock of San Benito;
(j) by Pacific pursuant to the terms of Section 1.13 hereof;
(k) by Pacific pursuant to the terms of Section 5.15(b) hereof;
(l) by San Benito, if the average of the average closing bid and asked
price of a share of Pacific 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 "Pacific Average Price") shall be less than
$25.00 (which number shall be appropriately adjusted to give effect to any Share
Adjustment relative to shares of Pacific Common Stock); PROVIDED, HOWEVER, that
if the Pacific Average Price shall be less than $25.00, San Benito and Pacific
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 Pacific
Average Price, San Benito may terminate this Agreement pursuant to this Section
9.02(l); or
(m) by San Benito, if San Benito 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 Consideration is fair
to the shareholders of San Benito 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.
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ARTICLE X.
NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES
SECTION 10.01 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,"
"REPRESENTATIVE" 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 DEFINITION 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
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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) Pacific hereby represents to San Benito that, except as set forth
on Schedule 12.01(a), no agent, representative or broker has represented Pacific
or any or all of the shareholders in connection with the transactions described
in this Agreement. San Benito 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 San Benito harmless for any amounts owed to any agent, representative
or broker of Pacific or any shareholder of Pacific.
(b) San Benito hereby represents to Pacific that, except as set forth
on Schedule 12.01(b), no agent, representative or broker has represented San
Benito or any or all of the shareholders in
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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 San Benito or any
shareholder of San Benito, and San Benito hereby agrees to indemnify and hold
Pacific harmless for any amounts owed to any agent, representative or broker
of San Benito or any shareholder of San Benito.
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:
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IF TO SAN BENITO:
San Benito Bank
300 Tres Pinos Road
Hollister, California 95023
Telecopy: (831) 637-8091
Attention: Mr. Edward T. Stephenson,
President and Chief Executive Officer
WITH A COPY TO:
R. Brent Faye, Esq.
Lillick & Charles LLP
2 Embarcadero Center
Suite 2700
San Francisco, California 94111
Telecopy: (415) 984-8300
IF TO PACIFIC:
Pacific Capital Bancorp
200 East Carrillo Street
Suite 300
Santa Barbara, California 93101
Telecopy: (805) 882-3888
Attention: Mr. David W. Spainhour,
President and Chief Executive
Officer
WITH A COPY TO:
Charles E. Greef, Esq.
Scott J. Luedke, Esq.
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
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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, 1998 in the business, results of operations,
condition (financial or otherwise), assets, properties, liabilities
(absolute, accrued, contingent or otherwise), reserves of San Benito or
Pacific, as the case may be, and their respective Subsidiaries taken as
a whole, and specifically includes, without limitation, with respect to
San Benito, any change that reduces the tangible shareholders' equity
of San Benito below $17,500,000, or, with respect to Pacific, any
change that reduces the tangible shareholders' equity of Pacific below
$225,000,000.
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. Section 9601 ET SEQ., as
amended ("CERCLA"), (c) the Clean Water Act, 33 U.S.C. Section 1251 ET
SEQ., as amended ("CWA"), (d) the Clean Air Act, 42 U.S.C. Section 7401
ET SEQ., as amended ("CAA"), (e) the Toxic Substances Control Act, 15
U.S.C. Section 2601 ET SEQ., as amended ("TSCA"), (f) the Emergency
Planning and Community Right to Know Act, 15 U.S.C. Section 2601 ET
SEQ., as amended ("EPCRKA"), and (g) the Occupational Safety and Health
Act, 29 U.S.C. Section 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
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biphenyls, (i) any substance the presence of which on the property
in question is prohibited under any Environmental Law, and (j) 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.
F. "Pacific Employee Benefit Plans" mean 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.
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
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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 Pacific nor San Benito 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, Pacific
and San Benito 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.
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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 Pacific and San Benito at any time before or after adoption of this
Agreement by the shareholders of San Benito but, after any submission of this
Agreement to the shareholders of San Benito for approval, no amendment shall be
made that (i) decreases the Merger Consideration to be paid for the San Benito
Common Stock as set forth in Section 1.04 or (ii) materially and adversely
affects the rights of the shareholders of San Benito 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.
[SIGNATURES FOLLOW]
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<PAGE>
IN WITNESS WHEREOF, Pacific and San Benito have caused this Agreement
to be executed by their duly authorized officers as of the date first
above written.
PACIFIC CAPITAL BANCORP,
a California corporation
By: /s/ DAVID W. SPAINHOUR
------------------------------------
David W. Spainhour, President and Chief
Executive Officer
and
By: /s/ CLAYTON C. LARSON
------------------------------------
Clayton C. Larson, Vice Chairman
SAN BENITO BANK,
a California banking corporation
By: /s/ GERALD T. MCCULLOUGH
------------------------------------
Gerald T. McCullough, Chairman of the Board
and
By: /s/ EDWARD T. STEPHENSON
------------------------------------
Edward T. Stephenson, President and
Chief Executive Officer
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<PAGE>
APPENDIX B
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Merger Agreement"), is made
and entered into as of the _____ day of ____________, 2000, by and between SAN
BENITO BANK, a California banking corporation headquartered in Hollister,
California ("San Benito") and INTERIM SAN BENITO, INC. , a California
corporation("Newco"), and joined in by PACIFIC CAPITAL BANCORP, a California
corporation and registered bank holding company ("Pacific").
WHEREAS, San Benito is a California banking corporation duly organized
and existing under the laws of the State of California having its principal
office in the City of Hollister, State of California, with authorized capital
stock consisting of 9,765,624 shares of common stock, no par value per share
(the "San Benito Common Stock"); and
WHEREAS, Newco is an interim California corporation duly organized and
existing under the laws of the State of California, with authorized capital
stock consisting of 1,000 shares of common stock, par value $1.00 per share (the
"Newco Common Stock"), all of which is issued and outstanding and owned by
Pacific; and
WHEREAS, San Benito and Pacific have entered into an Agreement and Plan
of Reorganization providing for the acquisition of San Benito by Pacific by
merger of a direct or indirect wholly owned subsidiary of Pacific with and into
San Benito (the "Merger"); and
WHEREAS, as a result of the Merger (i) all of the issued and
outstanding shares of San Benito Common Stock (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
Pacific, (ii) all outstanding options to acquire San Benito Common Stock shall
be converted into options to acquire common stock of Pacific; 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 San Benito and
Newco have approved this Merger Agreement pursuant to which Newco shall be
merged with and into San Benito on the terms and conditions set forth in this
Merger Agreement and the schedules hereto and have authorized the execution
hereof; and
WHEREAS, the Board of Directors of Pacific has approved this Merger
Agreement, authorized Pacific to join in and be bound by this Merger Agreement,
and authorized the undertakings herein made by Pacific; and
WHEREAS, San Benito, Newco 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 Merger 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 NEWCO AND SAN BENITO. At the Effective Date (as defined in
Section 14), Newco shall be merged with and into San Benito pursuant to the
provisions of Section 1107 of the GCL ("Section 1107") as amended. The current
Articles of Incorporation and Bylaws of San Benito shall constitute the Articles
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of Incorporation and Bylaws of the bank resulting from the Merger (the
"Resulting Bank") until the same shall be amended and changed as provided by
law.
2. EFFECTS OF THE MERGER. The Merger shall have the effects set forth
in Section 1107. The Resulting Bank shall be deemed to be a continuation in
entity and identity of each of San Benito and Newco; shall be subject to all the
liabilities, obligations, duties and relations of each merging entity, 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 San
Benito and Newco.
3. NAME AND OFFICES OF THE RESULTING BANK. The name of the Resulting
Bank shall be "SAN BENITO BANK." The existing office and facilities of San
Benito shall be the principal office and facilities of the Resulting Bank
following the Merger.
4. DIRECTORS AND OFFICERS. The directors, advisory directors and
officers of the Resulting Bank at the Effective Date shall be as set forth on
SCHEDULE ONE to this Merger 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 Resulting Bank or as otherwise provided by law.
5. CONVERSION OF SAN BENITO 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 San Benito Common Stock issued and outstanding immediately prior to the
Effective Date (other than shares of San Benito Common Stock as to which
dissenters' rights have been perfected or held directly or indirectly by San
Benito or Pacific (except for Trust Account Shares or DPC Shares as defined in
Section 5(g)) shall be converted into the right to receive 0.605 shares (the
"Exchange Ratio") of the fully-paid, nonassessable and registered common stock,
no par value per share, of Pacific (the "Pacific Common Stock") (together with
any cash payment in lieu of fractional shares, as provided in Section 5(b)
below, the "Merger Consideration").
(b) No fractional shares of Pacific Common Stock shall be issued and,
in lieu thereof, holders of shares of San Benito Common Stock who would
otherwise be entitled to a fractional share interest (after taking into account
all shares of San Benito 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 Pacific Common Stock on
the Nasdaq National Market on the business day immediately preceding the
Effective Date.
(c) All of the shares of San Benito Common Stock converted into Pacific
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 San Benito Common Stock shall thereafter
represent the right to receive (i) a certificate representing the number of
whole shares of Pacific Common Stock and (ii) cash in lieu of fractional shares
into which the shares of San Benito Common Stock represented by such Certificate
have been converted pursuant to this Section 5. Certificates previously
representing shares of San Benito Common Stock shall be exchanged for
certificates representing whole shares of Pacific Common Stock and cash in lieu
of fractional shares issued in consideration therefor upon the surrender of such
Certificates to the exchange agent for Pacific, without any interest thereon.
(d) If, between the date hereof and the Effective Date, the outstanding
shares of Pacific Common Stock or San Benito 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,
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<PAGE>
stock dividend, stock split, reverse stock split, or other similar change in
capitalization (a "Share Adjustment"), then the number of shares of Pacific
Common Stock into which a share of San Benito Common Stock shall be converted
pursuant to subsection (a) above shall be appropriately and proportionately
adjusted so that each shareholder of San Benito shall be entitled to receive
such number of shares of Pacific Common Stock as such shareholder would have
received pursuant to such Share Adjustment had the record date therefor been
immediately following the Effective Date.
(e) If any of the shares of San Benito 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 San Benito Common Stock which
shall cease to be a dissenting share shall have only such rights as are provided
under the GCL.
(f) The number of shares of Newco Common Stock outstanding at the
Effective Date shall, by virtue of the Merger and without any action on the part
of Pacific or any other party as holder thereof, be converted into shares of
common stock of the Resulting Bank, no par value per share, with the effect that
the number of shares of the common stock of the Resulting Bank outstanding
immediately after the Effective Date shall be equal to the aggregate number of
shares of San Benito Common Stock issued and outstanding immediately prior to
the Effective Date.
(g) On the Effective Date, all shares of San Benito Common Stock that
are owned, directly or indirectly, by San Benito or Pacific or any of their
respective subsidiaries (other than (i) shares of San Benito 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 San Benito Common Stock which are
similarly held, whether held directly or indirectly by San Benito or Pacific, as
the case may be, being referred to herein as "Trust Account Shares") and (ii)
shares of San Benito Common Stock held by San Benito 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 Pacific or other consideration shall be delivered in exchange therefor. All
shares of Pacific Common Stock that are owned by San Benito (other than Trust
Account Shares and DPC Shares with respect to Pacific Common Stock) shall be
retired.
6. STOCK OPTIONS.
(a) On the Effective Date, each non-statutory option to purchase
shares of San Benito Common Stock granted pursuant to a stock option plan
maintained by San Benito and which is outstanding and unexercised immediately
prior thereto shall cease to represent a right to acquire shares of San
Benito Common Stock and shall be assumed by Pacific and converted
automatically into an option to purchase shares of Pacific 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 San Benito and the
agreements evidencing grants thereunder):
(i) The number of shares of Pacific Common Stock to be subject
to the converted option shall be equal to the product of the number of
shares of San Benito 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 Pacific Common Stock
under the converted option shall be equal to the exercise price per
share of San Benito 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).
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<PAGE>
(b) On the Effective Date, each option to purchase shares of San Benito
Common Stock granted pursuant to a stock option plan maintained by San Benito
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 San Benito Common Stock and shall be assumed by Pacific and
converted automatically into an option to purchase shares of Pacific Common
Stock in an amount and at an exercise price determined in a manner which is
consistent with Section 424(a) of the Code.
(c) The duration and other terms of any converted option pursuant to
this Section 6 shall be the same as the original option, except that all
references to San Benito shall be deemed to be references to Pacific.
7. STOCK TRANSFER BOOKS. The stock transfer books of San Benito and
Newco shall be closed as of the close of business at the Effective Date, and no
transfer of record of any of the shares of San Benito Common Stock or Newco
Common Stock shall thereafter be made.
8. SAN BENITO SHAREHOLDER'S MEETING. The Merger and this Merger
Agreement shall be submitted to (i) the shareholders of San Benito at a meeting
to be called and held as promptly as practicable and (ii) the sole shareholder
of Newco by written consent of the sole shareholder. Upon approval of the Merger
and this Merger Agreement by the requisite vote of the shareholders of San
Benito and the approval of the sole shareholder of Newco, this Merger Agreement
shall be made effective as soon as practicable thereafter in the manner provided
in Section 14 hereof.
9. DISSENTERS' RIGHTS. Any shareholder of San Benito 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.
10. 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 Pacific and San Benito, (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, the Federal Deposit Insurance Corporation and the
California Department of Financial Institutions.
11. 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 San Benito, by mutual consent of the Boards of
Directors of both Newco and San Benito.
12. EFFECT OF TERMINATION. In the event of the termination and
abandonment of this Merger Agreement pursuant to the provisions of Section 11
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 San Benito, Newco, Pacific or the directors, officers, employees,
agents or stockholders of any of them.
13. WAIVER, AMENDMENT AND MODIFICATION. 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 San Benito, by the party that is entitled
to the benefits thereof. This Merger Agreement may be modified or amended by
action taken by or on behalf of the board of directors of Pacific and San Benito
at any time before or after adoption of this Merger Agreement by the
shareholders of San Benito but, after any submission of this Merger Agreement to
such shareholders for approval, no amendment shall be made that (i) decreases
the Merger Consideration to be paid for the San Benito Common Stock as set forth
in Section 5, or (ii) materially and adversely affects the rights of the
shareholders of San Benito hereunder without the requisite approval of such
shareholders. Any waiver, modification or amendment of this Merger Agreement
shall be in writing.
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<PAGE>
14. 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 at the close of
business 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
authorizing the Resulting Bank to conduct the business of banking, such date
being herein called the "Effective Date."
15. 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.
16. GOVERNING LAW. THIS MERGER AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA.
17. 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 Resulting Bank title to and
possession of any assets of Newco or San Benito 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.
18. 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 18 shall be void and of no effect.
19. 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.
20. 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.
21. 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
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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.
22. 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.
23. 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]
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IN WITNESS WHEREOF, San Benito and Newco 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.
SAN BENITO BANK,
a California banking corporation
--------------------------------------------------
Edward T. Stephenson, President and Chief Executive
Officer
and
--------------------------------------------------
Robert W. Yant, Secretary
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<PAGE>
INTERIM SAN BENITO, INC.,
a California corporation
--------------------------------------------------
William S. Thomas, Jr., President
and
--------------------------------------------------
Jay D. Smith, Secretary
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<PAGE>
Pacific hereby joins in the foregoing Merger Agreement, and undertakes
that it will be bound thereby and will do and perform all acts and things
therein referred to or provided to be done by it.
IN WITNESS WHEREOF, Pacific has caused this undertaking to be made in
counterparts by its duly authorized officers and its corporate seal to be
hereunto affixed as of the date first above written.
PACIFIC CAPITAL BANCORP,
a California corporation
[ SEAL ]
--------------------------------
David W. Spainhour,
President and Chief Executive Officer
and
--------------------------------
Jay D. Smith, Secretary
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<PAGE>
APPENDIX C
SAN BENITO STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT, dated as of March 2, 2000
(the"Agreement"), is by and between SAN BENITO BANK, a California banking
corporation ("Issuer"), and PACIFIC CAPITAL BANCORP, a California corporation
and registered bank holding company (including any successor in interest,
"Grantee").
WHEREAS, Issuer and Grantee have entered into an Agreement and Plan of
Reorganization dated as of February 3, 2000 (the "Reorganization Agreement")
providing for, among other things, the merger of Issuer with a wholly owned
subsidiary of Grantee (the "Merger"); and
WHEREAS, as a condition and inducement to Grantee's execution of the
Reorganization 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 Reorganization 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 Reorganization 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
525,000 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 $19.00; 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 Reorganization
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
Reorganization Agreement in accordance with the terms thereof before the
occurrence of a Purchase Event or a Preliminary Purchase Event (as defined
below) other than a termination of the Reorganization Agreement by Grantee
pursuant to Sections 9.02(e), 9.02(f) or 9.02(m) of the Reorganization Agreement
(a "Default Termination"); (C) the close of business on the 365th day after the
occurrence of a Default Termination; and (D) the close of business on the 365th
day after termination of the Reorganization Agreement (other than by reason of a
Default 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
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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 Reorganization 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 Reorganization Agreement, such meeting shall not
have been held or shall have been canceled prior to termination of
the Reorganization 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
Reorganization 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, the Bank Merger Act, as
amended, or the change in Bank Control Act of 1978, as amended,
seeking approval to engage in an Acquisition Transaction; or
(iii) any person (other than Grantee or any subsidiary of
Grantee) shall have made a bona fide proposal to Issuer or its
shareholders by public announcement, or written communication that is
or becomes the subject of public disclosure, to engage in an
Acquisition Transaction; or
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(iv) after a proposal is made by a third party to Issuer or
its shareholders to engage in an Acquisition Transaction, or such third
party states its intention to the Issuer to make such a proposal if the
Reorganization Agreement terminates, Issuer shall have breached any
representation, warranty, covenant or agreement contained in the
Reorganization Agreement and such breach would entitle Grantee to
terminate the Reorganization Agreement under Article IX thereof
(without regard to the cure period provided for therein unless such
cure is promptly effected without jeopardizing consummation of the
Merger pursuant to the terms of the Reorganization Agreement); or
(v) any person (other than Grantee or any subsidiary of
Grantee), other than in connection with a transaction to which Grantee
has given its prior written consent, shall have filed an application or
notice with any regulatory authority for 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 (not to exceed 120 days) 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 cooperate 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:
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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 FEBRUARY
2000. 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 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 cooperating 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
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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 preemptive 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 Bylaws 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
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(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.
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(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;
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(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
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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. If Issuer or any successor in interest
to Issuer (including any holding company of Issuer) is or shall become subject
to the registration requirements of the Securities Act of 1933, as amended,
Issuer (including any such successor or holding company of 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
Reorganization 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
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(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
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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
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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. LIMITATION ON TOTAL PROFIT.
(a) Notwithstanding anything to the contrary contained herein, in no
event shall Grantee's Total Profit (as defined below in Section 12(b) hereof)
with respect to this Agreement exceed $2,500,000 and, if it otherwise would
exceed such amount, Grantee, at its sole election, shall either (i) reduce the
number of shares of Issuer Common subject to the Option, (ii) deliver to Issuer
for cancellation Option Shares previously purchased by Grantee in exchange for
the Purchase Price with respect to such Option Shares, or (iii) any combination
thereof, so that Grantee's actually realized Total Profit shall not exceed
$2,500,000 after taking into account the foregoing actions.
(b) As used herein, the term "Total Profit" shall mean the aggregate
amount (after taxes) of the following: (i) the amount received by Grantee
pursuant to Issuer's repurchase of the Option (or any portion thereof) pursuant
to Section 8 hereof, (ii)(x) the amount received by Grantee pursuant to Issuer's
repurchase of Option Shares pursuant to Section 8 hereof, less (y) Grantee's
purchase price for such Option Shares, and (iii) any equivalent amount with
respect to the Substitute Option.
13. 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 Reorganization 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 13(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 and as limited pursuant to Section 12), 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.
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(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:
San Benito Bank
300 Tres Pinos Road
Hollister, California 95023
Telecopy: (831) 637-8091
Attention: Mr. Edward T. Stephenson,
President and Chief Executive Officer
WITH A COPY TO:
Mr. R. Brent Faye
Lillick & Charles LLP
2 Embarcadero Center
Suite 2700
San Francisco, California 94111
Telecopy: (415) 984-8300
IF TO GRANTEE TO:
Pacific Capital Bancorp
200 East Carrillo Street
Suite 300
Santa Barbara, California 93101
Telecopy: (805) 882-3888
Attention: Mr. David W. Spainhour,
President and Chief Executive Officer
WITH A COPY TO:
Mr. Charles E. Greef
Mr. Scott J. Luedke
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)
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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.
[SIGNATURES FOLLOW]
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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.
SAN BENITO BANK,
a California banking corporation
By: /s/ Gerald T. McCullough
------------------------------------------------
Gerald T. McCullough, Chairman of the Board
and
By: /s/ Edward T. Stephenson
------------------------------------------------
Edward T. Stephenson, President and
Chief Executive Officer
PACIFIC CAPITAL BANCORP,
a California corporation
By: /s/ David W. Spainhour
------------------------------------------------
David W. Spainhour, President and Chief
Executive Officer
and
By: /s/ Clayton C. Larson
------------------------------------------------
Clayton C. Larson, Vice Chairman
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APPENDIX D
[LETTERHEAD OF HOEFER & ARNETT INCORPORATED]
May __, 2000
The Board of Directors
San Benito Bank
300 Tres Pinos Road
Hollister, California 95023
Members of the Board:
You have requested our opinion as investment bankers as to the fairness, from a
financial point of view, to the holders of the outstanding shares of Common
Stock, no par value, of San Benito Bank ("SABH") of the Exchange Ratio, as
defined in Section 1.04(a) of the Agreement and Plan of Reorganization dated as
of February 3, 2000 (the "Agreement"), in the proposed merger (the "Merger") of
SABH with a wholly-owned subsidiary of Pacific Capital Bancorp ("SABB").
Hoefer & Arnett Incorporated, as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. Hoefer &
Arnett Incorporated provides a full range of financial advisory and securities
services and, in the course of its normal trading activities, may from time to
time effect transactions and hold securities, of SABH or SABB for its own
account and for the accounts of customers. We are familiar with SABH having
acted as its financial advisor in connection with the Agreement.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Annual Report to Shareholders of SABH and SABB for the years
ended December 31, 1997, 1998 and 1999; Annual Report on Form 10-K of SABB for
the year ended December 31, 1998 and 1999; certain quarterly FFIEC Consolidated
Reports of SABH; certain interim reports to shareholders and Quarterly Report
on Form 10-Q of SABB; certain other communications from SABH and SABB to the
their respective shareholders; and certain internal financial analyses and
forecasts for SABH and SABB prepared by their respective managements including
forecasts for certain costs savings and revenue opportunities (the "Synergies")
expected to be achieved as a result of the Merger. We also have held
discussions with members of the senior management of SABH and SABB regarding
the strategic rationale for, and the potential benefits of, the Merger and the
past and current business operations, regulatory relationships, financial
condition and future prospects of their respective companies. In addition, we
have reviewed the reported price and trading activity for the shares of SABH
and SABB, compared certain financial and stock market information for SABH and
SABB with similar information for certain other companies the securities of
which are publicly traded, reviewed the financial terms of certain recent
business combinations in the commercial banking industry and performed such
other studies and analyses as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial and
other information reviewed by us and have assumed such accuracy and completeness
for purposes of rendering this opinion. In that regard, we have assumed, with
your consent, that the financial forecasts, including, without limitation, the
Synergies and projections regarding under-performing and non-performing assets
and net charge-offs have been reasonably prepared on a basis reflecting the best
currently available judgments and estimates of SABH and SABB and that such
forecasts will be realized in the amounts and at the times contemplated thereby.
We are not experts in the evaluation of loan and lease portfolios for purposes
of assessing the adequacy of the allowances for losses with
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respect thereto and have assumed, with your consent, that such allowances for
each of SABH and SABB are in the aggregate adequate to cover all such losses.
In addition, we have not reviewed individual credit files nor have we made an
independent evaluation or appraisal of the assets and liabilities of SABH,
SABB or any of their subsidiaries and we have not been furnished with any
such evaluation or appraisal. We also have assumed, with your consent, that
the Merger will be accounted for as a pooling of interests under generally
accepted accounting principles and that obtaining any necessary regulatory
approvals and third party consents for the Merger or otherwise will not have
a material adverse effect on SABH, SABB or the combined company pursuant to
the Merger. In addition, our opinion does not address the relative merits of
the Merger as compared to any alternative business transaction that might be
available to SABH.
Our advisory services and the opinion expressed herein are provided for the
information and assistance of the Board of Directors of SABH in connection with
its consideration of the Merger and such opinion does not constitute a
recommendation as to how any holder of shares of SABH should vote with respect
to such transaction.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that as of the date hereof the Conversion
Ratio pursuant to the Agreement is fair from a financial point of view to the
holders of the outstanding shares of Common Stock of San Benito Bank.
Very truly yours,
HOEFER & ARNETT INCORPORATED
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APPENDIX E
DISSENTERS' RIGHTS UNDER THE
CALIFORNIA GENERAL CORPORATION LAW
Section 1300. SHORT-FORM MERGER; PURCHASE OF SHARES AT FAIR MARKET VALUE;
"DISSENTING SHARES" AND DISSENTING SHAREHOLDER
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of Section
25100 or (B) listed on the list of OTC margin stocks issued by the Board of
Governors of the Federal Reserve System, and the notice of meeting of
shareholders to act upon the reorganization summarizes this section and Sections
1301, 1302, 1303 and 1304; provided, however, that this provision does not apply
to any shares with respect to which there exists any restriction on transfer
imposed by the corporation or by any law or regulation; and provided, further,
that this provision does not apply to any class of shares described in
subparagraph (A) or (B) if demands for payment are filed with respect to 5
percent or more of the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted in
favor of the reorganization or, (B) if described in subparagraph (A) or (B) of
paragraph (1) (without regard to the provisos in that paragraph), were voted
against the reorganization, or which were held of record on the effective date
of a short-form merger; provided, however, that subparagraph (A) rather than
subparagraph (B) of this paragraph applies in any case where the approval
required by Section 1201 is sought by written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the
corporation purchase at their fair market value, in accordance with Section
1301.
(4) Which the dissenting shareholder has submitted for
endorsement, in accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
Section 1301. DISSENTER'S RIGHTS; DEMAND ON CORPORATION FOR PURCHASE OF SHARES
(a) If, in the case of a reorganization, any shareholders of a
corporation have a right under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, to require the corporation to
purchase their shares for cash, such corporation shall mail to each such
shareholder a notice of the approval of the reorganization by its outstanding
shares (Section 152) within 10 days after the date of such approval, accompanied
by a copy of Sections 1301, 1302, 1303, 1304 and this section, a statement of
the price determined by the corporation to represent the fair market value of
the dissenting shares, and a brief description of the procedure to be followed
if the shareholder desires to exercise the shareholder's right under such
sections. The statement of price constitutes an offer by the corporation to
purchase at the price stated any dissenting shares as defined in subdivision (b)
of Section 1300, unless they lose their status as dissenting shares under
Section 1309.
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(b) Any shareholder who has a right to require the corporation to
purchase the shareholder's shares for cash under Section 1300, subject to
compliance with paragraphs (3) and (4) of subdivision (b) thereof, and who
desires the corporation to purchase such shares shall make written demand upon
the corporation for the purchase of such shares and payment to the shareholder
in cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
Section 1302. DISSENTING SHARES, STAMPING OR ENDORSING
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
Section 1303. DISSENTING SHAREHOLDER ENTITLED TO AGREED PRICE WITH INTEREST;
TIME OF PAYMENT
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later; and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
Section 1304. DISSENTERS ACTIONS; JOINDER; CONSIDERATION; APPOINTMENT OF
APPRAISERS
(a) If the corporation denies that the shares are dissenting shares, or
the corporation and the shareholder fail to agree upon the fair market value of
the shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be
joined as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If
the status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
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Section 1305. APPRAISERS DUTY AND REPORT; COURT JUDGEMENT; PAYMENT; APPEAL;
COSTS OF ACTION
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more, than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
Section 1306. DISSENTING SHAREHOLDERS; EFFECT OF PREVENTION OF PAYMENT OF FAIR
MARKET VALUE
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to an
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
Section 1307. DISSENTING SHARES; DISPOSITION OF DIVIDENDS
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
Section 1308. DISSENTING SHARES; RIGHTS AND PRIVILEGES
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
Section 1309. DISSENTING SHARES; LOSS OF STATUS
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement
in accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
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(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
Section 1310. SUSPENSION OF CERTAIN PROCEEDINGS WHILE LITIGATION IS PENDING
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
Section 1311. CHAPTER INAPPLICABLE TO CERTAIN CLASSES OF SHARES
This chapter, except Section 1312, does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid in
respect to such shares in the event of a reorganization or merger.
Section 1312. VALIDITY OF REORGANIZATION OR SHORT FORM MERGER, ATTACK ON;
SHAREHOLDERS' RIGHTS; BURDEN OF PROOF
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
E-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICER
Section 317 of the California General Corporation Law authorizes a court
to award, or a corporation's Board of Directors to grant indemnity to directors,
officers, employees and other agents of the corporation ("Agents") in terms
sufficiently broad to permit such indemnification under certain circumstances
for liabilities (including reimbursement for expenses incurred) arising under
the Securities Act of 1933, as amended.
The Board of Directors of Registrant has resolved to indemnify the
officers and directors of Registrant to the full extent permitted by Section 317
of the California General Corporation Law, and Article VI of Registrant's Bylaws
provides for indemnification of officers and directors to the same extent. On
January 27, 1988, Registrant's Board of Directors approved amendments to
Registrant's Articles of Incorporation providing for the indemnification of
directors and officers of Registrant to the fullest extent permitted under
California law. These amendments limit the personal monetary liability of
directors in performing their duties on behalf of Registrant, to the extent
permitted by the California General Corporation Law, and permit Registrant to
indemnify its directors and officers against certain liabilities and expenses,
to the extent permitted by the California General Corporation Law. These
amendments and the entering into of indemnification agreements were approved by
Registrant's shareholders at the annual meeting of shareholders held on March
30, 1988. In addition, Registrant maintains a directors' and officers' liability
insurance policy that insures its directors and officers against certain
liabilities, including certain liabilities under the Securities Act of 1933.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following exhibits are filed as part of this Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- --------------------------------------------------------------------------------
<S> <C>
(2)(a)* Agreement and Plan of Reorganization, dated February
3, 2000, by and between Pacific Capital Bancorp and
San Benito Bank (Included as Appendix A to the
accompanying Proxy Statement-Prospectus, without
certain exhibits).
(2)(b)* Form of Agreement and Plan of Merger by and between
San Benito Bank and Interim San Benito, Inc., and
joined in by Pacific Capital Bancorp (Included as
Appendix B to the accompanying Proxy
Statement-Prospectus).
(3)(a)** Certificate of Restatement of Articles of
Incorporation of Pacific Capital Bancorp dated
January 27, 1999.
(3)(b)* Certificate of Determination for the Series A
Preferred Stock of Pacific Capital Bancorp
(3)(c)** Amended and Restated Bylaws of Pacific Capital
Bancorp dated January 26, 1999.
(4)(a)* San Benito Bank Stock Option Agreement (Included as
Appendix C to the accompanying Proxy
Statement-Prospectus).
(4)(b)** Stockholders Rights Agreement, dated as of December
14, 1999, between Pacific Capital Bancorp and Norwest
Bank Minnesota, N.A., as Rights Agent
(5)* Opinion of Jay D. Smith regarding legality of the
shares to be issued.
(8)* Opinion of Jenkens & Gilchrist, a Professional
Corporation, regarding U.S. federal income tax
consequences of the acquisition.
(23)(a)* Consent of Arthur Andersen LLP.
II-1
<PAGE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- --------------------------------------------------------------------------------
<S> <C>
(23)(b)* Consent of Deloitte & Touche LLP.
(23)(c)* Consent of Jay D. Smith (Included in opinion
regarding legality).
(23)(d)* Consent of Jenkens & Gilchrist, a Professional
Corporation (Included in opinion regarding U.S.
federal income tax consequences).
(23)(e)* Consent of Hoefer & Arnett Incorporated
(24)* Power of Attorney (The manually signed power of
attorney is set forth in the signature page of the
Registration Statement).
(99)(a)* Form of Proxy Card for San Benito Bank Special
Meeting.
(99)(b)*** Fairness Opinion of Hoefer & Arnett Incorporated
(Included as Appendix D to the accompanying Proxy
Statement-Prospectus).
(99)(c)* Excerpts from the California General Corporation Law
(dissenters rights) (Included as Appendix E to the
accompanying Proxy Statement- Prospectus).
</TABLE>
- -----------------
* Filed herewith.
** Incorporated by reference.
*** To be filed by Amendment.
Note: The Registrant agrees to furnish supplementally a copy of any
omitted schedule to the Commission upon request.
Note: No long-term debt instrument issued by Pacific Capital Bancorp
exceeds 10% of the consolidated total assets of Pacific Capital
Bancorp and its subsidiaries. In accordance with paragraph 4(iii)
of Item 601 of Regulation S-K, Pacific Capital Bancorp will
furnish to the Commission upon request copies of long-term debt
instruments and related agreements.
(b) No financial statement schedules are required to be filed herewith
pursuant to Item 21(b) or (c) of this Form.
ITEM 22. UNDERTAKINGS
(1) The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) (ss. 230.424(b) of
this chapter) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
II-2
<PAGE>
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such information
in the registration statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be in the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(2) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(3) The undersigned Registrant hereby undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus is sent
or given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulations S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(4) The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(5) The Registrant undertakes that every prospectus (a) that is filed
pursuant to paragraph (4) immediately preceding, or (b) that purports to meet
the requirements of section 10(a)(3) of the Securities Act of 1933 and is used
in connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the time shall be deemed
to be the initial bona fide offering thereof.
(6) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(7) The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
II-3
<PAGE>
(8) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and not
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Santa Barbara,
California, on April 25, 2000.
PACIFIC CAPITAL BANCORP
By: /s/ David W. Spainhour
-------------------------------------
David W. Spainhour
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated. Each person whose signature appears below
in so signing also makes, constitutes and appoints Donald Lafler and Jay D.
Smith, jointly and severally, his true and lawful attorneys-in-fact, with full
power of substitution and resubstitution, for him or her and in his or her name,
place and stead, in any and all capacities, to execute and cause to be filed
with the Securities and Exchange Commission any and all amendments and
post-effective amendments to this Registration Statement, with exhibits thereto
and other documents in connection therewith, granting unto said
attorneys-in-fact full power and authority to do and perform each and every act
and thing requisite and necessary to be done, as fully to all intents and
purposes as he or she might or could do in person, and hereby ratifies and
confirms all that said attorneys-in-fact or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Donald M. Anderson Chairman of the Board and April 25, 2000
- -------------------------------------- Director
Donald M. Anderson
/s/ David W. Spainhour President, Chief Executive Officer and Director April 25, 2000
- -------------------------------------- (Principal Executive Officer)
David W. Spainhour
/s/ William S. Thomas, Jr. Vice Chairman, Chief Operating Officer April 25, 2000
- -------------------------------------- and Director
William S. Thomas, Jr.
/s/ Donald Lafler Executive Vice President and Chief Financial April 25, 2000
- -------------------------------------- Officer (Principal Financial Officer)
Donald Lafler
/s/ Edward J. Czajka Vice President (Principal April 25, 2000
- -------------------------------------- Accounting Officer)
Edward J. Czajka
/s/ D. Vernon Horton Vice Chairman and Director April 25, 2000
- --------------------------------------
D. Vernon Horton
/s/ Clayton C. Larson Vice Chairman and Director April 25, 2000
- --------------------------------------
Clayton C. Larson
/s/ Edward E. Birth Director April 25, 2000
- --------------------------------------
Edward E. Birch
II-5
<PAGE>
/s/ Richard M. Davis Director April 25, 2000
- --------------------------------------
Richard M. Davis
/s/ Dale E. Hanst Director April 25, 2000
- ---------------------------------------
Dale E. Hanst
/s/ Roger C. Knopf Director April 25, 2000
- ---------------------------------------
Roger C. Knopf
/s/ Harry B. Powell Director April 25, 2000
- ---------------------------------------
Harry B. Powell
/s/ Kathy J. Odell Director April 25, 2000
- ---------------------------------------
Kathy J. Odell
/s/ William H. Pope Director April 25, 2000
- ---------------------------------------
William H. Pope
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
(2)(a) Agreement and Plan of Reorganization, dated February
3, 2000, by and between Pacific Capital Bancorp and
San Benito Bank (Included as Appendix A to the
accompanying Proxy Statement-Prospectus, without
certain exhibits).
(2)(b) Form of Agreement and Plan of Merger by and between
San Benito Bank and Interim San Benito, Inc., and
joined in by Pacific Capital Bancorp (Included as
Appendix B to the accompanying Proxy
Statement-Prospectus).
(3)(a) Certificate of Restatement of Articles of
Incorporation of Pacific Capital Bancorp dated
January 27, 1999 is incorporated by reference to
Exhibit 4.1 to the Pacific Capital Bancorp
Registration Statement on Form S-8 (Registration No.
333-74831) filed March 18, 1999.
(3)(b) Certificate of Determination for the Series A
Preferred Stock of Pacific Capital Bancorp.
(3)(c) Amended and Restated Bylaws of Pacific Capital
Bancorp, dated January 26, 1999, is incorporated
by reference to Exhibit 4.2 to the Pacific
Capital Bancorp Registration Statement on Form S-8
(Registration No. 333-74831) filed March 18, 1999.
(4)(a) San Benito Bank Stock Option Agreement (Included as
Appendix C to the accompanying Proxy
Statement-Prospectus).
(4)(b) Stockholder Rights Agreement, dated as of December
14, 1999, between Pacific Capital Bancorp and Norwest
Bank Minnesota, N.A., as Rights Agent is incorporated
by reference to Exhibit 1 to the Pacific Capital
Bancorp Registration Statement on Form 8-A, filed
December 17, 1999.
(5) Opinion of Jay D. Smith as to the legality of the
shares to be issued.
(8) Opinion of Jenkens & Gilchrist, a Professional
Corporation, regarding the U.S. federal income tax
consequences of the acquisition.
(23)(a) Consent of Arthur Andersen LLP.
(23)(b) Consent of Deloitte & Touche LLP.
(23)(c) Consent of Jay D. Smith (Included in opinion
regarding legality of the shares to be issued).
(23)(d) Consent of Jenkens & Gilchrist, a Professional
Corporation (Included in opinion regarding U.S.
federal income tax consequences).
(23)(e) Consent of Hoefer & Arnett, Incorporated
(24) Power of Attorney (The manually signed power of
attorney is set forth in the signature page of the
Registration Statement).
(99)(a) Form of Proxy Card for San Benito Bank Special
Meeting.
(99)(b) Fairness Opinion of Hoefer & Arnett, Incorporated
(Included in Appendix D to the accompanying Proxy
Statement-Prospectus).
(99)(c) Excerpts from the California General Corporation
Law (dissenters rights) (Included in Appendix E to
the accompanying Proxy Statement-Prospectus).
</TABLE>
II-7
<PAGE>
EXHIBIT 3(b)
CERTIFICATE OF DETERMINATION
OF
RIGHTS, PREFERENCE AND PRIVILEGES
OF
SERIES A PREFERRED STOCK OF PACIFIC CAPITAL BANCORP
David W. Spainhour and Donald J. Smith hereby certify that:
1. They are the duly elected and acting President and Secretary,
respectively, of Pacific Capital Bancorp, a California corporation.
2. Pursuant to authority given by said corporation's Articles of
Incorporation, the Board of Directors of said corporation has duly adopted
the following recitals and resolutions:
WHEREAS, the Articles of Incorporation of this corporation provide for
a class of shares known as Preferred Stock, issuable from time to time
in one or more series; and
WHEREAS, the Board of Directors of this corporation is authorized to
determine or alter the rights, preferences, privileges and restrictions
granted to or imposed upon any wholly unissued series of Preferred
Stock, to fix the number of shares constituting any such series, and to
determine the designation thereof, or any of them; and
WHEREAS, this corporation has not issued a series of Preferred Stock,
and the Board of Directors of this corporation desires, pursuant to its
authority as aforesaid, to determine and fix the rights, preferences,
privileges and restrictions relating to a series of said Preferred
Stock and the number of shares constituting the designation of said
series;
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby
fixes and determines the designation of, the number of shares
constituting, and the rights, preferences, privileges and restrictions
relating to, said series of Preferred Stock as follows:
1. DESIGNATION OF PREFERRED SHARES. The corporation shall have
one series of Preferred Stock which shall be designated "Series A
Preferred Stock" (the "Series A Preferred Stock"). (The Series A
Preferred Stock is hereinafter sometimes referred to as the "Preferred
Stock".)
2. NUMBER OF PREFERRED SHARES. The number of shares
constituting the Series A Preferred Stock shall be Sixty Thousand
(60,000). Such number of shares may be increased or decreased by
resolution of the Board; provided that no decrease shall reduce the
number of shares of Series A Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved
for issuance upon the exercise of outstanding options, rights or
warrants or upon the conversion of any outstanding securities issued by
the corporation convertible into Series A Preferred Stock.
3. DIVIDENDS AND DISTRIBUTIONS. Subject to the rights of the
holders of any shares
<PAGE>
of any series of Preferred Stock (or any similar stock) ranking
prior and superior to the Series A Preferred Stock with respect to
dividends, the holders of the Series A Preferred Stock shall only be
entitled, when and if declared by the Board of Directors of the
corporation, to dividends out of the retained earnings of the
corporation; PROVIDED that no dividend or distribution may be
declared or paid on any shares of Common Stock or any shares of
Series A Preferred Stock unless at the same time an equivalent
dividend or distribution is declared or paid on all outstanding
shares of Common Stock and Series A Preferred Stock. Subject to the
provision for adjustment hereinafter set forth, the amount of the
dividend or other distribution payable with respect to the Series A
Preferred Stock shall be payable at the rate per share of Series A
Preferred Stock equal to 1,000 times the aggregate per share amount
of all cash dividends, and 1,000 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common
Stock or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock. In the
event the corporation shall at any time or from time to time after
December 14, 1999 (the "Rights Dividend Declaration Date") declare
or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision, combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise
than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each
such case the amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under
the preceding sentence shall be adjusted by multiplying such amount
by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event. The right to
dividends on shares of the Series A Preferred Stock shall not be
cumulative, and no right shall accrue to holders of shares of Common
Stock or Series A Preferred Stock by reason of the fact that
dividends on said shares are not or have not been declared in any
period.
4. VOTING RIGHTS. The holders of shares of Series A
Preferred Stock shall have the following voting rights.
(a) Subject to the provision for adjustment
hereinafter set forth, each share of Series A Preferred Stock shall
entitle the holder thereof to 1,000 votes on all matters submitted to a
vote of the stockholders of the corporation. In the event the
corporation shall at any time or from time to time after the Rights
Dividend Declaration Date declare or pay any dividend on the Common
Stock payable in shares of Common Stock, or effect a subdivision,
combination or consolidation of the outstanding shares of Common Stock
(by reclassification or otherwise than by payment of a dividend in
shares of Common Stock) into a greater or lesser number of shares of
Common Stock, then in each such case the number of votes per share to
which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(b) Except as otherwise provided herein, in any
Certificate of Determination creating a series of Preferred Stock or
any similar stock, or by law, the holders of shares of Series A
Preferred Stock and the holders of shares of Common Stock and any other
capital
<PAGE>
stock of the corporation having general voting rights shall vote
together as one class on all matters submitted to a vote of
stockholders of the corporation.
(c) Except as set forth herein, or as otherwise
provided by law, holders of Series A Preferred Stock shall have no
special voting rights and their consent shall not be required (except
to the extent they are entitled to vote with holders of Common Stock as
set forth herein) for taking any corporate action.
5. REACQUIRED SHARES. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition
thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock and may be reissued
as part of a new series of Preferred Stock subject to the conditions
and restrictions on issuance set forth in any Certificate of
Determination creating a series of Preferred Stock or any similar stock
or as otherwise required by law.
6. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) Upon any liquidation (voluntary or otherwise),
dissolution or winding up of the corporation, no distribution shall be
made to the holders of shares of Common Stock or other stock ranking
junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Preferred Stock unless, prior thereto, the
holders of shares of Series A Preferred Stock shall have received an
amount equal to $1,000 per share of Series A Preferred Stock, plus an
amount equal to accrued and unpaid dividends and distributions thereon
to the date of such payment (the "Series A Liquidation Preference").
Following the payment of the full amount of the Series A Liquidation
Preference, no additional distributions shall be made to the holders of
shares of Series A Preferred Stock unless, prior thereto, the holders
of shares of Common Stock shall have received an amount equal to $1.00
per share of Common Stock (the "Common Amount"). Following the payment
of the full amount of the Series A Liquidation Preference and the
Common Amount in respect of all outstanding shares of Series A
Preferred Stock and Common Stock, respectively, holders of Series A
Preferred Stock and holders of shares of Common Stock shall receive
their ratable and proportionate share of the remaining assets to be
distributed on liquidation of the corporation in the ratio of 1,000 to
1 with respect to such Series A Preferred Stock and Common Stock, on a
per share basis, respectively.
(b) In the event that there are not sufficient assets
available to permit payment in full of the Series A Liquidation
Preference and the liquidation preferences of all other series of
Preferred Stock, if any, which rank on a parity with the Series A
Preferred Stock, then such remaining assets shall be distributed
ratably to the holders of such Series A Preferred Stock and parity
shares in proportion to their respective liquidation preferences. In
the event, that, after payment in full of the Series A Liquidation
Preference, there are not sufficient remaining assets available to
permit payment in full of the Common Amount, then such remaining assets
shall be distributed ratably to the holders of Common Stock.
(c) In the event the corporation shall at any time or
from time to time after the Rights Dividend Declaration Date declare or
pay any dividend on the Common Stock payable in shares of Common Stock,
or effect a subdivision, combination or consolidation of
<PAGE>
the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock)
into a greater or lesser number of shares of Common Stock, then, in
each such case, (i) the Series A Liquidation Preference in effect
immediately prior to such event shall be adjusted by multiplying
such Series A Liquidation Preference by a fraction the numerator of
which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately
prior to such event and (ii) the Common Amount in effect immediately
prior to such event shall be adjusted by multiplying such Common
Amount by a fraction the numerator of which is the number of shares
of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
7. CONSOLIDATION, MERGER, ETC. In case the corporation shall
enter into any consolidation, merger, combination or other transaction
in which the shares of Common Stock are exchanged for or changed into
other stock or securities, cash and/or any other property, then in any
such case the shares of Series A Preferred Stock shall at the same time
be similarly exchanged or changed in an amount per share, subject to
the provision for adjustment hereinafter set forth, equal to 1,000
times the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which
each share of Common Stock is changed or exchanged. In the event the
corporation shall at any time or from time to time after the Rights
Dividend Declaration Date declare or pay any dividend on the Common
Stock payable in shares of Common Stock, or effect a subdivision,
combination or consolidation of the outstanding shares of Common Stock
(by reclassification or otherwise than by payment of a dividend in
shares of Common Stock) into a greater or lesser number of shares of
Common Stock, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or change of shares of
Series A Preferred Stock shall be adjusted by multiplying such amount
by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
8. NO REDEMPTION. The shares of Series A Preferred Stock shall
not be redeemable.
9. RANK. The Series A Preferred Stock shall rank, with respect
to the payment of dividends and the distribution of assets, junior to
all other series of the corporation's Preferred Stock, unless the terms
of any such series shall provide otherwise.
10. AMENDMENT. This Certificate of Determination shall not be
amended in any manner which would materially alter or change the
rights, preferences and privileges of the Series A Preferred Stock so
as to affect them adversely without the affirmative vote of the holders
of at least two-thirds (2/3) of the outstanding shares of Series A
Preferred Stock, voting together as a single class.
3. The authorized number of shares of Preferred Stock of the
corporation is 1,000,000. No shares of any series of Preferred Stock are
issued and outstanding. The
<PAGE>
authorized number of shares of Series A Preferred Stock of the corporation is
60,000, and no shares of Series A Preferred Stock are issued and outstanding.
The authorized number of shares of Common Stock of the corporation is
60,000,000, of which 24,521,095 shares are issued and outstanding.
IN WITNESS WHEREOF, the undersigned has hereunto set their hands as of
December 15, 1999.
/s/ David W. Spainhour
-----------------------------
David W. Spainhour, President
/s/ J. Donald Smith
-----------------------------
J. Donald Smith, Secretary
The undersigned, David W. Spainhour and Donald J. Smith, the President
and Secretary, respectively, of Pacific Capital Bancorp, a California
corporation, declares under penalty of perjury that the matters set out in the
foregoing Certificate are true of his own knowledge.
Executed at Santa Barbara, California on December 15, 1999.
/s/ David W. Spainhour
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David W. Spainhour
/s/ Jay Donald Smith
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J. Donald Smith
<PAGE>
EXHIBIT (5)
[LETTERHEAD OF JAY D. SMITH
SENIOR VICE PRESIDENT AND GENERAL COUNSEL OF
PACIFIC CAPITAL BANCORP]
May 3, 2000
Board of Directors
Pacific Capital Bancorp
200 East Carrillo Street
Santa Barbara, California 93101
Re: Pacific Capital Bancorp - Registration Statement on Form S-4
Ladies and Gentlemen:
In connection with the proposed registration under the Securities Act
of 1933, as amended, of 1,830,500 shares of the common stock of Pacific Capital
Bancorp, a California corporation (the "Company"), and associated stock purchase
rights (such shares and rights collectively referred to as the "Shares"), which
are proposed to be issued by the Company in connection with the merger (the
"Merger") of a wholly-owned subsidiary of the Company with and into San Benito
Bank, I have examined such corporate records and other documents, including the
registration statement on Form S-4 relating to the Shares, and have reviewed
such matters of law as I have deemed necessary for this opinion, and I advise
you that in my opinion:
1. The Company is a corporation duly organized and existing under
the laws of the state of California.
2. All necessary corporate action on the party of the Company has
been taken to authorize the issuance of the Shares in
connection with the Merger, and, when issued as described in
the registration statement, the Shares will be legally and
validly issued, fully paid and nonassessable.
I consent to the filing of this opinion as an exhibit to the
registration statement.
Sincerely,
/s/ Jay D. Smith
Jay D. Smith
<PAGE>
EXHIBIT (8)
[LETTERHEAD OF JENKENS & GILCHRIST, A PROFESSIONAL CORPORATION]
May 4, 2000
Board of Directors
Pacific Capital Bancorp
200 East Carrillo Street
Santa Barbara, California 93101
Re: Pacific Capital Bancorp - Registration Statement on Form S-4:
Ladies and Gentlemen:
We have acted as special counsel to Pacific Capital Bancorp, a
California corporation ("Pacific"), in connection with the proposed merger (the
"Merger") of Interim San Benito, Inc., a California corporation and wholly owned
subsidiary of Pacific ("Newco"), with and into San Benito Bank, a California
banking corporation ("San Benito") and the registration of 1,830,500 shares of
the common stock of Pacific ("Pacific Common Stock") that may be issued pursuant
to the Agreement and Plan of Reorganization (the "Reorganization Agreement")
dated February 3, 2000, all as described in the Form S-4 registration statement
filed with the Securities and Exchange Commission (the "Commission") on May 4,
2000 (as thereafter amended from time to time and together with all exhibits
thereto, the "Registration Statement"). Except as otherwise indicated,
capitalized terms used herein shall have the meanings assigned to them in the
Registration Statement.
Set forth below are our opinions and the assumptions and documents upon
which we have relied in rendering our opinions.
A. DOCUMENTS REVIEWED
In connection with the opinions rendered below, we have reviewed and
relied upon the following documents:
1. the Registration Statement,
2. the Reorganization Agreement,
3. the form of Agreement and Plan of Merger to be entered into
by and between Newco and San Benito, and joined in by Pacific (the "Merger
Agreement"),
4. the Certificates of Pacific and San Benito attached hereto
as Exhibit "A" and Exhibit "B," respectively (collectively, the "Certificates"),
and
5. such other documents as we have deemed necessary or
appropriate for purposes of this opinion.
B. ASSUMPTIONS
In connection with the opinions rendered below, we have assumed:
1. that all signatures on all documents submitted to us are
genuine, that all documents submitted to us as originals are authentic, that all
documents submitted to us as copies are accurate, that all information submitted
to us is accurate and complete, and that all persons executing and delivering
originals or copies of documents examined by us are competent to execute and
deliver such documents; and
<PAGE>
2. that the Merger and the other transactions specified in the
Reorganization Agreement will be consummated as contemplated in the
Reorganization Agreement, without waiver of any material provision thereof.
C. OPINIONS
Based solely upon the documents and assumptions set forth above, and
conditioned upon the initial and continuing accuracy of the factual
representations set forth in the Certificates as of the date hereof and as of
the date of the Effective Time of the Merger, it is our opinion that for United
States federal income tax purposes:
1. The Merger will constitute a reorganization within the
meaning of Section 368(a)(1)(A) of the Code.
2. Based on the Merger qualifying as a reorganization within
the meaning of Section 368(a) of the Code:
(a) Pacific and San Benito will each be a party to
the reorganization within the meaning of Section 368(c) of the
Code.
(b) No gain or loss will be recognized by the holders
of San Benito Common Stock upon the receipt of Pacific Common
Stock except for cash received in lieu of fractional shares.
(c) The aggregate tax basis of the shares of Pacific
Common Stock received by a San Benito stockholder will be
equal to the aggregate tax basis of San Benito Common Stock
exchanged therefore, excluding any basis allocable to a
fractional share of Pacific Common Stock for which cash is
received.
(d) The holding period of the shares of Pacific
Common Stock received by a San Benito stockholder will include
the holding period or periods of San Benito Common Stock
exchanged therefore, provided that the San Benito Common Stock
is held as a capital asset within the meaning of Section 1221
of the Code at the Effective Date of the Merger.
D. LIMITATIONS
1. Except as otherwise indicated, the opinions contained in
this letter are based upon the Code and its legislative
history, the Treasury regulations promulgated thereunder (the
"Regulations"), judicial decisions, and current administrative
rulings and practices of the Internal Revenue Service, all as
in effect on the date of this letter. These authorities may be
amended or revoked at any time. Any such changes may or may
not be retroactive with respect to transactions entered into
or contemplated prior to the effective date thereof and could
significantly alter the conclusions reached in this letter.
There is no assurance that legislative, judicial, or
administrative changes will not occur in the future. We assume
no obligation to update or modify this letter to reflect any
developments that may occur after the date of this letter.
2. The opinions expressed herein represent counsel's best
legal judgment and are not binding upon the Internal Revenue
Service or the courts and are dependent upon the accuracy and
completeness of the documents we have reviewed under the
circumstances, the assumptions made and the factual
representations contained in the Certificates. To the extent
that any of the factual representations provided to us in the
Certificates is with respect to matters set forth in the Code
or the Regulations, we have reviewed with the individuals
making such factual representations the relevant portions of
the Code and the applicable Regulations and are reasonably
satisfied that such individuals understand such provisions and
are capable of making such factual representations. We have
made no independent investigation of the assumptions set forth
above, or the facts contained in the documents, the factual
representations set forth in the Certificates, the
Registration Statement or the Reorganization Agreement. No
facts have come to our attention, however, that would cause us
to question the accuracy and completeness of such assumptions,
facts or documents in a material way. Any material inaccuracy
or incompleteness in these documents, assumptions or factual
representations (whether made by any or all of Pacific or San
Benito) could adversely affect the opinions stated herein.
3. No opinion is expressed as to any federal income tax
consequence of the Merger or the other transactions
contemplated by the Reorganization Agreement except as
specifically set forth herein, and this opinion may not be
relied upon except with respect to the consequences
specifically discussed herein. This opinion does not address
the various state, local or foreign tax consequences that may
result from the Merger or the other transactions contemplated
by the Reorganization Agreement.
4. This opinion letter is issued for your benefit and the
benefit of the shareholders of Pacific and no other person
or entity may rely hereon without
<PAGE>
our express written consent. This opinion letter may be
filed as an exhibit to the Registration Statement. Furthermore, we consent to
the reference to Jenkens & Gilchrist, a Professional Corporation, under the
captions "Opinions - Tax Matters" and "The Acquisition - Federal Income Tax
Consequences." In giving this consent, we do not thereby admit that we are
within the category of persons whose consent is required under section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
Commission promulgated thereunder.
Very truly yours,
JENKENS & GILCHRIST,
a Professional Corporation
By: /s/ William P. Bowers
-----------------------
William P. Bowers,
Authorized Signatory
<PAGE>
EXHIBIT (23)(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this S-4 registration statement of our report
dated February 4, 2000, included in Pacific Capital Bancorp's Form 10-K for
the year ended December 31, 1999, and to all references to our Firm included
in this registration statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
May 3, 2000
<PAGE>
EXHIBIT (23)(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Pacific Capital
Bancorp on Form S-4 of our report dated January 24, 2000 (February 3, 2000 as
to Note 16) on the financial statements of San Benito Bank, appearing in the
Proxy Statement-Prospectus, which is part of this Registration Statement.
We also consent to the references to us under the headings "Selected
Historical and Pro Forma Financial Data" and "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Hollister, California
May 3, 2000
<PAGE>
EXHIBIT 23(e)
CONSENT OF HOEFER & ARNETT INCORPORATED
We hereby consent to the inclusion of our form of opinion letter to
the Board of Directors of San Benito Bank as Appendix D to the Proxy
Statement/Prospectus relating to the proposed agreement and plan of
reorganization and merger among Pacific Capital Bancorp and San Benito Bank
contained in the Registration Statement on Form S-4 as filed with the
Securities and Exchange Commission and to the references to our firm and our
opinion in the Proxy Statement/Prospectus. In giving our consent, we do not
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder, nor do we
admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Securities
Act of 1933, as amended, or the rules and regulations of the Securities and
Exchange Commission thereunder.
HOEFER & ARNETT INCORPORATED
/s/ Jean-Luc Servat
----------------------------------------
By: Jean-Luc Servat
Managing Director
Dated: May 3, 2000
<PAGE>
EXHIBIT (99)(a)
PROXY
SAN BENITO BANK
SPECIAL MEETING OF SHAREHOLDERS
to be held June 20, 2000
THIS REVOCABLE PROXY IS SOLICITED BY
THE BOARD OF DIRECTORS OF SAN BENITO BANK
The undersigned shareholder of San Benito Bank, a California banking
corporation ("San Benito"), hereby appoints _______________ and _______________
(the "Proxies"), and either of them, with full power to act alone and with full
power of substitution and revocation, as proxies of the undersigned to attend
the Special Meeting of Shareholders of San Benito Bank to be held at
San Benito Bank, 300 Tres Pinos Road, Hollister, California, on Tuesday, June
20, 2000, at 5:00 p.m. local time, and any adjournment or postponement
thereof, and to vote the number of shares the undersigned would be entitled
to vote if personally present upon the following items and to vote according
to their discretion on any other matter which may properly be presented for
action at said meeting or any adjournment or postponement thereof:
1. ACQUISITION. To adopt and approve the Agreement and Plan of
Reorganization, dated February 3, 2000, by and between San Benito Bank
and Pacific Capital Bancorp ("Pacific Capital"), and an Agreement and
Plan of Merger between San Benito and Interim San Benito, Inc., a
wholly owned subsidiary of Pacific Capital, and joined in by Pacific
Capital, and the transactions contemplated thereby, including the
acquisition of San Benito bank by Pacific Capital as a result of the
merger of Interim San Benito, Inc. with and into San Benito.
[ ] For [ ] Against [ ] Abstain
2. OTHER BUSINESS. In their discretion, the Proxies are authorized to vote
upon such other business as may properly come before the Special
Meeting and at any and all adjournments thereof, including matters
incidental to the conduct of the Special Meeting. The Board of
Directors at present knows of no other business to be presented by or
on behalf of San Benito Bank or the Board of Directors at the Special
Meeting.
The undersigned hereby ratifies and confirms all that said Proxies, or
either of them or their substitutes, may lawfully do or cause to be done by
virtue hereof, and acknowledges receipt of the Notice of said Special Meeting of
Shareholders and the Proxy Statement Prospectus accompanying it.
THIS PROXY WILL BE VOTED AS SPECIFIED BY YOU ABOVE, OR IF NO CHOICE IS
SPECIFIED, THIS PROXY WILL BE VOTED "FOR" THE PROPOSAL SET FORTH ABOVE.
<PAGE>
Please sign exactly as name appears. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
provide full corporate name and name and capacity of the authorized officer
signing on behalf of such corporation. If a partnership, please provide
partnership name and name and capacity of the person signing on behalf of such
partnership.
I/We do [___] - OR - I/We do not [___] plan to attend the Special Meeting.
Dated:_________________________, 2000
Signature:____________________________
Signature:____________________________
(If held jointly)
SHAREHOLDERS ARE URGED TO MARK, DATE, SIGN AND RETURN THIS PROXY IN THE ENVELOPE
PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
