PACIFIC CAPITAL BANCORP
1001 S. Main Street
Salinas, California 93901
September 13, 1996
Dear Shareholder:
You are cordially invited to attend a Special Meeting of the
Shareholders of Pacific Capital Bancorp ("Pacific Capital") to be held at Corral
de Tierra Country Club, 81 Corral de Tierra Road, Salinas, California, at 4:00
p.m., local time, on Tuesday, October 22, 1996 (the "Meeting").
At the Meeting, Pacific Capital shareholders will be asked to consider
and vote upon a proposal to adopt and approve an Agreement and Plan of
Reorganization dated as of July 18, 1996 (the "Agreement") by and between
Pacific Capital and South Valley Bancorporation ("South Valley") and a Merger
Agreement between Pacific Capital and South Valley (collectively, the
"Agreements"), and the transactions contemplated thereby, pursuant to which
South Valley will merge with and into Pacific Capital and Pacific Capital shall
be the surviving corporation (the "Merger"), as more fully described in the
accompanying Joint Proxy Statement/Prospectus. Copies of the Agreements are
attached to the Joint Proxy Statement/Prospectus as Annex A. No other business
will be transacted at the Meeting other than matters incidental to the conduct
of the Meeting.
As a result of the Merger, each share of South Valley common stock
("South Valley Common Stock") outstanding at the effective time of the Merger
(other than shares with respect to which dissenters' rights are perfected) will
be converted into .92 of a share of Pacific Capital common stock, without par
value ("Pacific Capital Common Stock"), subject to certain potential downward
adjustments described in the Agreement and the accompanying Joint Proxy
Statement/Prospectus. No fractional shares of Pacific Capital Common Stock shall
be issued to holders of shares of South Valley Common Stock, and, in lieu
thereof, cash will be paid to South Valley shareholders in accordance with the
Agreement.
Under the California General Corporation Law, the approval and adoption
of the Agreements and the transactions contemplated thereby requires the
affirmative vote of the holders of a majority of the outstanding shares of
Pacific Capital Common Stock. The proposed Merger is also subject to certain
regulatory approvals and satisfaction of the conditions contained in the
Agreement.
THE PACIFIC CAPITAL BOARD OF DIRECTORS, BY UNANIMOUS VOTE OF ALL
DIRECTORS, HAS APPROVED THE AGREEMENTS AND THE TRANSACTIONS CONTEMPLATED
THEREBY, INCLUDING THE MERGER, AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
APPROVAL AND ADOPTION OF THE AGREEMENTS AND THE TRANSACTIONS CONTEMPLATED
THEREBY, INCLUDING THE MERGER, AT THE MEETING.
The accompanying Notice and Joint Proxy Statement/Prospectus describe
the matters to be acted upon at the Meeting. Shareholders are urged to review
carefully the attached Joint Proxy Statement/Prospectus, including the annexes
thereto. Such documents contain a detailed description of the Merger, its terms
and conditions and the transactions contemplated thereby.
Your continuing interest in the business of Pacific Capital is
appreciated, and we hope you will attend the Meeting in person. It is important
that your shares be represented at the Meeting. Accordingly, whether or not you
plan to attend the Meeting, please sign, date and return the enclosed Proxy
promptly in the postage-paid envelope that has been provided to you for your
convenience. If you wish to vote in accordance with the recommendation of your
Board of Directors, it is not necessary to specify your choices; you may merely
sign, date and return the enclosed Proxy.
Sincerely,
Clayton C. Larson
President
<PAGE>
SOUTH VALLEY BANCORPORATION
500 Tennant Station
Morgan Hill, California 95037
September 13, 1996
Dear Shareholder:
You are cordially invited to attend a Special Meeting of the
Shareholders of South Valley Bancorporation ("South Valley") to be held at
Golden Oak Restaurant, 16695 Condit Road, Morgan Hill, California, at 3:00 p.m.,
local time, on Wednesday, October 16, 1996 (the "Meeting").
At the Meeting, South Valley shareholders will be asked to consider and
vote upon a proposal to adopt and approve an Agreement and Plan of
Reorganization dated as of July 18, 1996 (the "Agreement"), by and between
Pacific Capital Bancorp ("Pacific Capital") and South Valley and a Merger
Agreement between Pacific Capital and South Valley (collectively, the
"Agreements") and the transactions contemplated thereby, pursuant to which South
Valley will merge with and into Pacific Capital and Pacific Capital shall be the
surviving corporation (the "Merger"), as more fully described in the
accompanying Joint Proxy Statement/Prospectus. Copies of the Agreements are
attached to the Joint Proxy Statement/Prospectus as Annex A. No other business
will be transacted at the Meeting other than matters incidental to the conduct
of the Meeting.
As a result of the Merger, each share of South Valley common stock
("South Valley Common Stock") outstanding at the effective time of the Merger
(other than shares with respect to which dissenters' rights are perfected) will
be converted into .92 of a share of Pacific Capital common stock, without par
value ("Pacific Capital Common Stock"), subject to certain potential downward
adjustments described in the Agreement and the accompanying Joint Proxy
Statement/Prospectus. No fractional shares of Pacific Capital Common Stock shall
be issued to holders of shares of South Valley Common Stock, and, in lieu
thereof, cash will be paid to South Valley shareholders in accordance with the
Agreement.
Under the California General Corporation Law, the approval and adoption
of the Agreements and the transactions contemplated thereby requires the
affirmative vote of the holders of a majority of the outstanding shares of South
Valley Common Stock. The proposed Merger is also subject to certain regulatory
approvals and satisfaction of the conditions contained in the Agreement.
THE SOUTH VALLEY BOARD OF DIRECTORS, BY UNANIMOUS VOTE OF ALL
DIRECTORS, HAS APPROVED THE AGREEMENTS AND THE TRANSACTIONS CONTEMPLATED
THEREBY, INCLUDING THE MERGER, AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
APPROVAL AND ADOPTION OF THE AGREEMENTS AND THE TRANSACTIONS CONTEMPLATED
THEREBY, INCLUDING THE MERGER, AT THE MEETING.
South Valley shareholders have previously received a copy of our
enclosed Annual Report. The materials that are new are the Pacific Capital
Annual and Quarterly Reports, the South Valley Quarterly Report and the Joint
Proxy Statement/Prospectus. The accompanying Notice and Joint Proxy
Statement/Prospectus describe the matters to be acted upon at the Meeting.
Shareholders are urged to review carefully the attached Joint Proxy
Statement/Prospectus, including the annexes thereto. Such documents contain a
detailed description of the Merger, its terms and conditions and the
transactions contemplated thereby.
Your continuing interest in the business of South Valley is
appreciated, and we hope you will attend the Meeting in person. It is important
that your shares be represented at the Meeting. Accordingly, whether or not you
plan to attend the Meeting, please sign, date and return the enclosed Proxy
promptly in the postage-paid envelope that has been provided to you for your
convenience. If you wish to vote in accordance with the recommendation of your
Board of Directors, it is not necessary to specify your choices; you may merely
sign, date and return the enclosed Proxy.
Sincerely,
Brad L. Smith
President and Chief Executive Officer
<PAGE>
PACIFIC CAPITAL BANCORP
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 22, 1996
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of
Pacific Capital Bancorp ("Pacific Capital") will be held at Corral de Tierra
Country Club, 81 Corral de Tierra Road, Salinas, California, on Tuesday, October
22, 1996 at 4:00 p.m., local time (the "Meeting"), for the following purposes,
all of which are more fully described in the accompanying Proxy
Statement/Prospectus:
To consider and vote upon a proposal to adopt and approve the Agreement
and Plan of Reorganization dated as of July 18, 1996 (the "Agreement")
by and between Pacific Capital and South Valley Bancorporation ("South
Valley") and a Merger Agreement between Pacific Capital and South
Valley (collectively, the "Agreements") and the transactions
contemplated thereby, pursuant to which South Valley will merge with
and into Pacific Capital and Pacific Capital shall be the surviving
corporation (the "Merger").
The Agreements are set forth in Annex A to the accompanying Joint 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 PACIFIC CAPITAL BANCORP UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR THE MERGER.
The Pacific Capital Board of Directors has fixed the close of business
on September 10, 1996, as the record date for the Meeting. Only Pacific Capital
shareholders of record at the close of business on such date are entitled to
notice of and to vote at the Meeting. Approval of the Merger requires the
affirmative vote of the holders of not less than a majority of the outstanding
shares of Pacific Capital Common Stock.
Your vote is important regardless of the number of shares you own. Each
shareholder, even though he or she may not plan to attend the Meeting in person,
is requested to sign, date and return the enclosed Proxy without delay in the
enclosed postage-paid envelope. You may revoke your Proxy at any time prior to
its exercise. Any shareholder present in person at the Meeting or at any
adjournments or postponements thereof may revoke his or her Proxy and vote
personally on each matter brought before the Meeting.
By Order of the Board of Directors
James L. Gattis
Corporate Secretary
September 13, 1996
Salinas, California
PLEASE DATE AND SIGN THE ENCLOSED PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE>
SOUTH VALLEY BANCORPORATION
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 16, 1996
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of South
Valley Bancorporation ("South Valley") will be held at Golden Oak Restaurant,
16695 Condit Road, Morgan Hill, California, on Wednesday, October 16, 1996 at
3:00 p.m., local time (the "Meeting"), for the following purposes, all of which
are more fully described in the accompanying Proxy Statement/Prospectus:
To consider and vote upon a proposal to adopt and approve the Agreement
and Plan of Reorganization dated as of July 18, 1996 (the "Agreement")
by and between Pacific Capital Bancorp ("Pacific Capital") and South
Valley and a Merger Agreement between Pacific Capital and South Valley
(collectively, the "Agreements") and the transactions contemplated
thereby, pursuant to which South Valley will merge with and into
Pacific Capital and Pacific Capital shall be the surviving corporation
(the "Merger").
The Agreements are set forth in Annex A to the accompanying Joint 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 SOUTH VALLEY BANCORPORATION UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR THE MERGER.
The South Valley Board of Directors has fixed the close of business on
August 27, 1996, as the record date for the Meeting. Only South Valley
shareholders of record at the close of business on such date are entitled to
notice of and to vote at the Meeting. Approval of the Merger requires the
affirmative vote of the holders of not less than a majority of the outstanding
shares of South Valley Common Stock.
Your vote is important regardless of the number of shares you own. Each
shareholder, even though he or she may not plan to attend the Meeting in person,
is requested to sign, date and return the enclosed Proxy without delay in the
enclosed postage-paid envelope. You may revoke your Proxy at any time prior to
its exercise. Any shareholder present in person at the Meeting or at any
adjournments or postponements thereof may revoke his or her Proxy and vote
personally on each matter brought before the Meeting.
By Order of the Board of Directors
Sandra L. Ogle
Corporate Secretary
September 13, 1996
Morgan Hill, California
PLEASE DATE AND SIGN THE ENCLOSED PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE>
RULE NO. 424(b)(3)
REGISTRATION NO. 333-10381
PACIFIC CAPITAL BANCORP
PROSPECTUS
-----------------------------
JOINT PROXY STATEMENT
PACIFIC CAPITAL BANCORP
Special Meeting of Shareholders to be held on October 22, 1996
SOUTH VALLEY BANCORPORATION
Special Meeting of Shareholders to be held on October 16, 1996
--------
This Joint Proxy Statement/Prospectus (the "Joint Proxy
Statement/Prospectus") of Pacific Capital Bancorp ("Pacific Capital") and South
Valley Bancorporation ("South Valley") is being furnished to shareholders of
Pacific Capital in connection with the solicitation of Proxies by the Board of
Directors of Pacific Capital for use at the Special Meeting of Shareholders of
Pacific Capital to be held at Corral de Tierra Country Club, 81 Corral de Tierra
Road, Salinas, California, on Tuesday, October 22, 1996 at 4:00 p.m., local
time, and at any adjournments or postponements thereof (the "Pacific Capital
Meeting") and is being furnished to shareholders of South Valley in connection
with the solicitation of Proxies by the Board of Directors of South Valley for
use at the Special Meeting of Shareholders of South Valley to be held at Golden
Oak Restaurant, 16695 Condit Road, Morgan Hill, California, on Wednesday,
October 16, 1996 at 3:00 p.m., local time, and at any adjournments or
postponements thereof (the "South Valley Meeting").
At the meetings referred to above, the shareholders of record of Pacific
Capital and South Valley will consider and vote upon a proposal to approve and
adopt an Agreement and Plan of Reorganization dated as of July 18, 1996 (the
"Agreement") by and between Pacific Capital and South Valley and a Merger
Agreement by and between Pacific Capital and South Valley (collectively, the
"Agreements"), the merger of South Valley with and into Pacific Capital (the
"Merger") and the transactions contemplated thereby as more fully described
herein. Copies of the Agreements are attached to this Joint Proxy
Statement/Prospectus as Annex A. Pursuant to the Agreements, upon consummation
of the Merger, each share of South Valley common stock ("South Valley Common
Stock") outstanding at the Effective Time (as defined herein) of the Merger
(other than shares with respect to which dissenters' rights have been perfected)
will be converted into .92 of a share (the "Exchange Ratio") of common stock of
Pacific Capital, without par value (the "Pacific Capital Common Stock"), subject
to certain potential downward adjustments described in the Agreement and this
Joint Proxy Statement/Prospectus. No fractional shares of Pacific Capital Common
Stock shall be issued to holders of South Valley Common Stock, and, in lieu
thereof, cash will be paid to South Valley shareholders in accordance with the
Agreement. The Exchange Ratio will be adjusted pursuant to formulas set forth in
the Agreement if (i) the average of the closing price per share of Pacific
Capital Common Stock quoted on the OTC Bulletin Board for each of the thirty
consecutive trading days prior to two business days prior to the Effective Date
(as defined herein) of the Merger (the "Determination Date") (such average
price, the "Average Price") is more than $31.50 or if the Average Price is more
than 12.5% below $27.00, the closing price on the last business day prior to the
date of the Agreement; or (ii) certain Significant Liabilities (as defined
herein under "Summary--Exchange Ratio; Conversion of Shares of South Valley
Common Stock," and "The Merger--Possible Adjustments to Exchange Ratio or
Termination of the Agreement") arise prior to the Determination Date, as more
fully described herein. If the Average Price on the Determination Date is more
than 12.5% below $27.00, the closing price on the last business day prior to the
date of the Agreement, South Valley may accept the Exchange Ratio, as adjusted
for Significant Liabilities, or South Valley shall have the right, but not the
obligation, to renegotiate the Exchange Ratio. Should South Valley fail to
accept the Exchange Ratio, as adjusted, or should the parties fail to
renegotiate the Exchange Ratio, the Agreement may be terminated by South Valley.
If the Average Price is more than $31.50, the Exchange Ratio will be adjusted
according to the following formula:
(Average Price + $31.50)/2
.92 x --------------------------
Average Price
Based on the closing price on the OTC Bulletin Board of Pacific Capital
Common Stock on July 17, 1996 of $27.00 per share, each holder of South Valley
Common Stock would receive the equivalent of $24.84 per share for each share of
South Valley Common Stock, assuming the Average Price on the Determination Date
is $27.00 and assuming there is no adjustment for Significant Liabilities.
This Joint Proxy Statement/Prospectus and the accompanying letter of the
President, Notice of Special Meeting and Proxy are first being mailed to
shareholders of Pacific Capital on or about September 16, 1996. This Joint Proxy
Statement/Prospectus and the accompanying letter of the President and Chief
Executive Officer, Notice of Special Meeting and Proxy are first being mailed to
shareholders of South Valley on or about September 16, 1996.
This Joint Proxy Statement/Prospectus also serves as a prospectus for
Pacific Capital under the Securities Act of 1933, as amended (the "Securities
Act"), for the issuance of shares of Pacific Capital Common Stock in the Merger.
On July 17, 1996, the closing price of Pacific Capital Common Stock on the OTC
Bulletin Board was $27.00. There is limited trading and no established public
trading market for South Valley Common Stock. On July 17, 1996 the closing price
of South Valley Common Stock was $14.50. See "Market Price and Dividend Data."
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS JOINT PROXY STATEMENT/
PROSPECTUS. THE PROPOSED MERGER IS A COMPLEX TRANSACTION. SHAREHOLDERS ARE
STRONGLY URGED TO READ AND CONSIDER CAREFULLY THIS JOINT PROXY
STATEMENT/PROSPECTUS IN ITS ENTIRETY.
THE SECURITIES TO BE ISSUED IN THE MERGER PURSUANT TO THIS JOINT PROXY
STATEMENT/PROSPECTUS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE SECURITIES TO BE
ISSUED IN THE MERGER ARE NOT DEPOSITS AND ARE NOT INSURED BY THE FEDERAL
DEPOSITION INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
-------------
The date of this Prospectus is September 16, 1996
<PAGE>
AVAILABLE INFORMATION
NO PERSON IS AUTHORIZED BY PACIFIC CAPITAL OR SOUTH VALLEY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION, OTHER THAN ANY INFORMATION OR
REPRESENTATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS, IN CONNECTION
WITH THE SOLICITATION AND THE OFFERING MADE BY THIS JOINT PROXY
STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS JOINT PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY OR AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES IN ANY
JURISDICTION IN WHICH A SOLICITATION OR OFFERING MAY NOT LAWFULLY BE MADE.
NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL IMPLY THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF PACIFIC CAPITAL
OR SOUTH VALLEY SINCE THE DATE HEREOF.
Pacific Capital is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). In accordance
therewith, Pacific Capital files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information filed by Pacific Capital with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. and at the Chicago Regional Office, Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois, and the New York Regional Office,
Seven World Trade Center, 13th Floor, New York, New York. Copies of such
material also can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
Documents filed with the Commission via the Electronic Data Gathering, Analysis
and Retrieval System ("EDGAR") may be obtained through the Commission's website
at http://www.sec.gov.
Pacific Capital has filed with the Commission a Registration Statement
on Form S-4 under the Securities Act of 1933, as amended, relating to the shares
of Pacific Capital Common Stock to be issued in connection with the Merger
(together with any amendments thereto, the "Registration Statement"). This Joint
Proxy Statement/Prospectus also constitutes the Prospectus of Pacific Capital
filed as part of the Registration Statement and does not contain all of the
information set forth in the Registration Statement and exhibits thereto. The
Registration Statement and the exhibits thereto may be inspected and copied, at
prescribed rates, at the public reference facilities maintained by the
Commission at the addresses set forth above.
Statements contained in this Joint Proxy Statement/Prospectus or in any
document incorporated by reference herein relating to the contents of any
contract or other document referred to herein or therein are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement or such other
document, each such statement being qualified in all respects by such reference.
i
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE
DOCUMENTS WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THE DOCUMENTS
INCORPORATED HEREIN BY REFERENCE BY PACIFIC CAPITAL (OTHER THAN CERTAIN EXHIBITS
TO SUCH DOCUMENTS) ARE AVAILABLE WITHOUT CHARGE UPON REQUEST FROM THE CORPORATE
SECRETARY, PACIFIC CAPITAL BANCORP, 1001 S. MAIN STREET, SALINAS, CALIFORNIA
93901 (TELEPHONE (408) 757-4900). THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE
BY SOUTH VALLEY (OTHER THAN CERTAIN EXHIBITS TO SUCH DOCUMENTS) ARE AVAILABLE
WITHOUT CHARGE UPON REQUEST FROM THE CORPORATE SECRETARY, SOUTH VALLEY
BANCORPORATION, 500 TENNANT STATION, MORGAN HILL, CALIFORNIA 95037 (TELEPHONE
(408) 848-2161). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS IN ADVANCE
OF THE MEETINGS TO WHICH THIS JOINT PROXY STATEMENT/PROSPECTUS RELATES, ANY
REQUEST SHOULD BE MADE BY SEPTEMBER 30, 1996.
The following documents of Pacific Capital are hereby incorporated by
reference in this Joint Proxy Statement/Prospectus and shall be deemed to be a
part hereof from the date of filing of those documents: Pacific Capital's Annual
Report on Forms 10-K and 10-K/A for the fiscal year ended December 31, 1995;
Pacific Capital's Quarterly Report on Form 10-Q for the quarter ended March 31,
1996; Pacific Capital's Quarterly Report on Form 10-Q for the quarter ended June
30, 1996; and all other reports and documents filed by Pacific Capital pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of this Joint Proxy Statement/Prospectus and prior to the termination of the
offering of Pacific Capital Common Stock to which this Joint Proxy
Statement/Prospectus relates.
In addition, the following portions of Pacific Capital's Annual Report
to Shareholders for the year ended December 31, 1995 are hereby incorporated by
reference to this Joint Proxy Statement/Prospectus and shall be deemed to be a
part hereof: Selected Financial Information and Comparative per Share Data, page
1, of the Annual Report, Management's Discussion and Analysis, pages 15 to 24 of
the Annual Report; Stock Activity, page 24 of the Annual Report, and
Consolidated Financial Statements and Independent Accountants' Opinion, pages 4
to 14 of the Annual Report.
The following documents of South Valley are hereby incorporated by
reference in this Joint Proxy Statement/Prospectus and shall be deemed to be a
part hereof from the date of filing of those documents: South Valley's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995; South Valley's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996; South
Valley's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996; and
all other reports and documents filed by South Valley pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Joint Proxy Statement/Prospectus and prior to the termination of the
offering of Pacific Capital Common Stock to which this Joint Proxy
Statement/Prospectus relates.
In addition, the following portions of South Valley's Annual Report to
Shareholders for the year ended December 31, 1995 are hereby incorporated by
reference to this Joint Proxy Statement/Prospectus and shall be deemed to be a
part hereof: Selected Financial Data, page 1 of the Annual Report; Management's
Discussion and Analysis, pages 4 to 14 of the Annual Report; Investor
Information, page 27 of the Annual Report and Consolidated Financial Statements,
pages 15 to 26 of the Annual Report.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Joint Proxy Statement/Prospectus to the extent that such
statement is modified or replaced by a statement contained herein or in any
other subsequently
filed document that also is or is deemed to be incorporated by reference into
this Joint Proxy Statement/Prospectus. Any such statement so modified or
superseded shall not be deemed, except as so modified or replaced, to constitute
a part of this Joint Proxy Statement/Prospectus.
ii
<PAGE>
All information contained in this Joint Proxy Statement/Prospectus
relating to Pacific Capital has been supplied by Pacific Capital, and
all information relating to South Valley has been supplied by South
Valley. Neither Pacific Capital nor South Valley warrants the accuracy
or completeness of information relating to the other party. Pacific
Capital makes no representation as to the accuracy or completeness of
any South Valley documents filed by Pacific Capital with the Commission
pursuant to the Exchange Act.
ACCOMPANYING DOCUMENTS
This Joint Proxy Statement/Prospectus is accompanied by a copy of
Pacific Capital's Annual Report to Shareholders for the year ended December 31,
1995 and Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.
This Joint Proxy Statement/Prospectus is also accompanied by a copy of
South Valley's Annual Report to Shareholders for the year ended December 31,
1995 and Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.
Other than the historical facts contained herein, this Joint Proxy
Statement/Prospectus contains forward-looking statements that may involve
substantial risks and uncertainties. For a discussion of such risks and
uncertainties, please see the section entitled "Certain Considerations" and the
annual and quarterly reports filed by Pacific Capital and South Valley which
accompany this Joint Proxy Statement/Prospectus and are incorporated by
reference herein. In addition to the risks and uncertainties discussed therein,
the following factors should be considered. The successful combination of
Pacific Capital and South Valley is dependent upon a number of factors,
including but not limited to, the timing and extent of cost savings to be
realized in the combination and the ability of Pacific Capital and its
subsidiaries to compete effectively in their expanded market area after the
combination. There can be no assurance that cost savings will be realized on a
timely basis or that Pacific Capital and its subsidiaries, after the combination
will effectively compete in their expanded market. As the banking industry in
California continues to consolidate and face increased competition from other
types of financial services companies, community banks such as Pacific Capital's
subsidiaries after the combination will continue to confront increased
competition for customers.
iii
<PAGE>
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION........................................................ i
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............................. ii
ACCOMPANYING DOCUMENTS.......................................................iii
SUMMARY .................................................................... 1
Information about the Parties....................................... 1
Pacific Capital Special Meeting of Shareholders..................... 2
South Valley Special Meeting of Shareholders........................ 2
Certain Considerations.............................................. 3
Reasons for the Merger; Recommendation of the Boards of Directors... 3
Opinion of South Valley's Financial Advisor......................... 3
Effective Date of the Merger........................................ 3
Exchange Ratio; Possible Adjustments to Exchange Ratio.............. 3
Treatment of Stock Options.......................................... 5
Conditions and Regulatory Approvals................................. 5
Nonsolicitation Agreements.......................................... 6
Certain Tax Consequences............................................ 6
Amendment and Termination........................................... 6
Expenses ........................................................... 7
Accounting Treatment................................................ 7
Dissenters' Rights of Appraisal..................................... 8
Market Price and Dividend Data...................................... 8
Differences in Rights of Shareholders............................... 9
Pacific Capital Summary of Results for the Year Ended
December 31, 1995 and the Six MonthsEnded June 30, 1996.... 9
Selected Historical and Pro Forma Financial Data.................... 10
INTRODUCTION................................................................. 18
INFORMATION ABOUT PACIFIC CAPITAL............................................ 18
Directors of Pacific Capital........................................ 19
Committees of the Board of Directors................................ 24
Executive Officers.................................................. 25
Executive Compensation.............................................. 25
Stock Options Grants and Exercises.................................. 26
Option/SAR Grants in Last Fiscal Year............................... 27
Aggregated Option Exercises in Last Fiscal Year and
FY-End Option Values................................................ 27
Employment Contracts................................................ 27
Executive Salary Continuation Agreements............................ 28
Other Compensation and Compensation of Directors.................... 28
Compliance with Section 16(a) of the
Securities Exchange Act of 1934..................................... 28
Certain Relationships and Related Transactions...................... 29
Indebtedness of Management.......................................... 29
INFORMATION ABOUT SOUTH VALLEY............................................... 29
Directors of South Valley........................................... 30
iv
<PAGE>
TABLE OF CONTENTS
(Continued)
Page
Committees of the Board of Directors................................ 32
Director Compensation............................................... 33
Executive Management................................................ 33
Executive Compensation.............................................. 33
Option Grants in Last Fiscal Year................................... 35
Aggregated Option Exercises in the Last Fiscal Year and
Fiscal Year End Option Values....................................... 35
Compliance with Section 16(a) of the Securities Exchange
Act of 1934......................................................... 35
Certain Relationships with Related Transactions;
Transactions with Management and Others............................. 35
Indebtedness of Management.......................................... 35
VOTING AND PROXIES........................................................... 36
Date, Time and Place of Pacific Capital and
South Valley Meetings............................................... 36
Matters to be Considered at the Meetings............................ 36
Record Date and Outstanding Shares.................................. 36
Voting of Proxies................................................... 36
Pacific Capital Shareholder Vote Required........................... 37
South Valley Shareholder Vote Required.............................. 37
Solicitation of Proxies............................................. 37
Principal Shareholders of Pacific Capital........................... 37
Principal Shareholders of South Valley.............................. 38
CERTAIN CONSIDERATIONS....................................................... 38
Shares Eligible for Future Sale; Dilution........................... 38
Interests of South Valley Officers and Directors in the Merger...... 39
Real Estate Lending Activities; Nonperforming Assets................ 40
Organizational Structure and Operations After the Merger............ 40
Legislative and Regulatory Environment.............................. 40
THE MERGER................................................................... 41
Background of the Merger............................................ 41
Reasons for the Merger; Recommendation of the Board of Directors.... 41
Material Contracts.................................................. 43
Opinion of South Valley's Financial Advisor......................... 43
Effective Date of the Merger........................................ 50
Exchange Ratio; Conversion of Shares of South Valley Common Stock... 51
Possible Adjustments to Exchange Ratio or
Termination of the Agreement........................................ 51
Exchange of South Valley Stock Certificates;
Fractional Interests................................................ 53
Treatment of Stock Options...........................................54
Covenants of Pacific Capital and South Valley; Conduct of
Business Prior to the Merger........................................ 54
Management and Operations Following the Merger...................... 56
Representations and Warranties; Conditions to the Merger............ 56
Required Regulatory Approvals....................................... 57
Trading Market for Stock............................................ 58
Nonsolicitation Agreements.......................................... 58
Certain Tax Consequences............................................ 58
Amendment; Termination.............................................. 59
Expenses ........................................................... 60
Accounting Treatment................................................ 61
v
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TABLE OF CONTENTS
(Continued)
Page
Resales of Pacific Capital Common Stock............................. 61
DISSENTERS' RIGHTS OF APPRAISAL.............................................. 61
DESCRIPTION OF PACIFIC CAPITAL CAPITAL STOCK................................. 63
Common Stock........................................................ 63
Preferred Stock..................................................... 63
DESCRIPTION OF SOUTH VALLEY CAPITAL STOCK.................................... 64
Common Stock........................................................ 64
Serial Preferred Stock.............................................. 64
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS................................ 64
Authorized Capital.................................................. 64
Directors........................................................... 64
Notice of Shareholder Proposals..................................... 65
Call of Special Meeting of Shareholders............................. 65
EXPERTS .................................................................... 65
LEGAL MATTERS................................................................ 66
Annex A Agreement and Plan of Reorganization and Merger Agreement
Annex B Fairness Opinion of Hoefer & Arnett Incorporated
Annex C California General Corporation Law Chapter 13 - Dissenters' Rights
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SUMMARY
The following is a summary of certain information contained elsewhere
in this Joint Proxy Statement/Prospectus. Reference is made to, and this Summary
is qualified in its entirety by, the more detailed information contained
elsewhere in this Joint Proxy Statement/Prospectus, in the attached Annexes and
in the documents incorporated herein by reference. Shareholders are urged to
read carefully this Joint Proxy Statement/Prospectus and the attached Annexes in
their entirety. Certain capitalized terms which are used but not defined in this
Summary are defined elsewhere in this Joint Proxy Statement/Prospectus.
Information about the Parties
Pacific Capital is a California corporation and bank holding company
which was incorporated on January 26, 1983 and registered under the Bank Holding
Company Act of 1956, as amended (the "BHC Act"). First National Bank of Central
California, the Company's wholly-owned banking subsidiary ("FNB"), commenced
operations on April 2, 1984, under the name of First National Bank of Monterey
County. FNB is a full service commercial bank serving Monterey, Salinas, Carmel,
Watsonville, Prunedale and surrounding areas in Monterey County and Santa Cruz
County in California. The Company itself does not engage in any business
activities other than the ownership of FNB and the ownership of one other
wholly-owned subsidiary, Pacific Capital Services Corporation ("PCSC").
PCSC has no active operations at this time.
FNB provides a wide range of commercial banking services to
individuals, professionals, and small and medium sized businesses. The services
provided include those typically offered by commercial banks, such as: checking,
interest checking and savings accounts, travelers checks, safe deposit boxes,
collection services, night depository facilities and wire and telephone
transfers. In addition to the above deposit services, FNB also provides a full
array of loan products including commercial, real estate and consumer loans as
well as a variety of government assisted loan programs such as SBA or Rural
Economic Community Development Service guaranteed loans. The deposits of each
depositor of FNB are insured up to $100,000 by the Federal Deposit Insurance
Corporation (the "FDIC"). Professional firms, individuals and businesses form
the core of FNB's customer and deposit base.
Pacific Capital's principal executive offices are located at 1001 S.
Main Street, Salinas, California 93901, and its telephone number at that
location is (408) 757-4900.
South Valley is a California corporation organized in 1982 and
registered under the BHC Act to act as the bank holding company of South Valley
National Bank, a national bank ("SVNB") with headquarters in Morgan Hill and
branch offices in Gilroy, Hollister and San Juan Bautista. In 1983, South Valley
purchased all of the outstanding common stock of SVNB. Other than holding the
shares of SVNB, South Valley conducts no significant activities, although it is
authorized, with the prior approval of the Board of Governors of the Federal
Reserve System (the "FRB"), South Valley's principal regulator, to engage in a
variety of activities which are deemed closely related to the business of
banking.
SVNB engages in general commercial banking in southern Santa Clara
County and in San Benito County, offering traditional commercial banking
services to the business, professional and consumer communities, with emphasis
on larger consumer accounts, small and mid-size business accounts and
professional accounts. To the fullest extent possible, loans are written on a
variable rate basis. Commercial, real estate, and consumer loans are offered and
tailored to the individual needs of the borrower. SVNB's marketing efforts focus
on local customers, both in selling SVNB's services and attracting deposits.
SVNB accepts noninterest-bearing and interest-bearing demand accounts, as well
as traditional savings accounts and time certificates of deposit with
competitively priced interest rates.
South Valley's principal executive offices are located at 500 Tennant
Station, Morgan Hill, California 95037, and its telephone number is (408)
848-2161.
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Pacific Capital Special Meeting of Shareholders
The Pacific Capital Meeting (including any adjournments or
postponements thereof) will be held at Corral de Tierra Country Club, 81 Corral
de Tierra Road, Salinas, California, on Tuesday, October 22, 1996, at 4:00 p.m.,
local time. At the Pacific Capital Meeting, holders of Pacific Capital Common
Stock will consider and vote upon a proposal to adopt and approve the Agreements
and the transactions contemplated thereby, including the Merger. Only holders of
record of Pacific Capital Common Stock at the close of business on September 10,
1996 (the "Pacific Capital Record Date") will be entitled to notice of, and to
vote at, the Pacific Capital Meeting.
The approval of the Merger by the Pacific Capital shareholders will
constitute approval and adoption of the Agreements and each of the transactions
contemplated thereby, including the Merger, as more fully described herein. The
affirmative vote of the holders of a majority of the outstanding shares of
Pacific Capital Common Stock entitled to vote at the Pacific Capital Meeting is
required to adopt and approve the Agreements and the transactions contemplated
thereby, including the Merger. Such approval is a condition to, and required
for, consummation of the Merger. See "The Merger--Representations and
Warranties; Conditions to the Merger."
As of the Pacific Capital Record Date, there were 2,593,699 shares of
Pacific Capital Common Stock outstanding, of which 329,186 shares were
beneficially owned by directors of Pacific Capital and their respective
affiliates. The directors of Pacific Capital have agreed to vote the shares of
Pacific Capital Common Stock held by them (which includes all shares as to which
the directors have sole or shared voting power) for the approval of the Merger.
To Pacific Capital's knowledge, as of the Pacific Capital Record Date, directors
and executive officers of South Valley did not beneficially own any shares of
Pacific Capital Common Stock. Accordingly, approval of the Merger at the Pacific
Capital Meeting is expected to require the affirmative vote of an additional
967,665 shares of Pacific Capital Common Stock outstanding on the Pacific
Capital Record Date voted by the remaining shareholders of Pacific Capital.
A Pacific Capital shareholder giving a Proxy has the power to revoke
that Proxy prior to its exercise. See "Voting and Proxies."
South Valley Special Meeting of Shareholders
The South Valley Meeting (including any adjournments or postponements
thereof) will be held at Golden Oak Restaurant, 16695 Condit Road, Morgan Hill,
California, on Wednesday, October 16, 1996, at 3:00 p.m., local time. At the
South Valley Meeting, holders of South Valley Common Stock will consider and
vote upon a proposal to adopt and approve the Agreements and the transactions
contemplated thereby, including the Merger. Only holders of record of South
Valley Common Stock at the close of business on August 27, 1996 (the "South
Valley Record Date") will be entitled to notice of, and to vote at, the South
Valley Meeting.
The approval of the Merger by the South Valley shareholders will
constitute approval and adoption of the Agreements and each of the transactions
contemplated thereby, including the Merger, as more fully described herein. The
affirmative vote of the holders of a majority of the outstanding shares of South
Valley Common Stock entitled to vote at the South Valley Meeting is required to
adopt and approve the Agreements and the transactions contemplated thereby,
including the Merger. Such approval is a condition to, and required for,
consummation of the Merger. See "The Merger--Representations and Warranties;
Conditions to the Merger."
As of the South Valley Record Date, there were 1,315,438 shares of
South Valley Common Stock outstanding, of which 304,496 shares were beneficially
owned by directors of South Valley and their respective affiliates. The
directors of South Valley have agreed to vote the shares of South Valley Common
Stock held by them (which includes all shares as to which the directors have
sole or shared voting power) for the approval of the Merger. To South Valley's
knowledge, as of the South Valley Record Date, directors and executive officers
of Pacific Capital did not beneficially own any shares of South Valley Common
Stock. Accordingly, approval of the Merger at the Meeting is expected to require
the affirmative vote of an additional 353,224 shares of South Valley Common
Stock outstanding on the South Valley Record Date voted by the remaining
shareholders of South Valley.
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<PAGE>
A South Valley shareholder giving a Proxy has the power to revoke that
Proxy prior to its exercise. See "Voting and Proxies."
Certain Considerations
See "Certain Considerations" for a discussion of certain factors that
should be carefully considered by Pacific Capital and South Valley shareholders
in deciding whether to vote for approval of the Agreements and the Merger. Such
section discusses Pacific Capital Common Stock eligible for future sale which
may have a dilutive effect, interests of South Valley officers and directors in
the Merger, real estate lending activities, organizational structure and
management, operations after the Merger and the legislative and regulatory
environment.
Reasons for the Merger; Recommendation of the Boards of Directors
The Boards of Directors of Pacific Capital and South Valley believe
that the Merger is in the best interests of Pacific Capital and South Valley,
respectively, and their shareholders. The Boards of Directors of Pacific Capital
and South Valley have each unanimously approved the Merger and recommend
approval of the Merger by their shareholders.
In evaluating the recommendations of the respective Boards of
Directors, shareholders should carefully consider the matters described under
"Certain Considerations," "The Merger--Background of the Merger" and "--Reasons
for the Merger; Recommendation of the Board of Directors."
Opinion of South Valley's Financial Advisor
South Valley's financial advisor, Hoefer & Arnett Incorporated
("Hoefer"), has concluded that the Exchange Ratio, as it may be adjusted
pursuant to the Agreement, is fair from a financial point of view to South
Valley's shareholders.
The text of the fairness opinion, which sets forth certain assumptions
made, matters considered and limits on the review undertaken by Hoefer, is
attached to this Joint Proxy Statement/Prospectus as Annex B. South Valley
shareholders are urged to read the fairness opinion in its entirety. The
Agreement requires that such fairness opinion be updated prior to the Effective
Date, if requested by South Valley. See "The Merger--Opinion of South Valley's
Financial Advisor," which also contains a discussion of the fees to be paid to
Hoefer. A substantial portion of the fees to be paid to Hoefer is contingent
upon consummation of the Merger.
Effective Date of the Merger
The Merger will be effective upon the date and at the time of the
filing with the California Secretary of State of a duly executed Merger
Agreement and the officers' certificates prescribed by Section 1103 of the
California General Corporation Law (the "GCL") or upon any subsequent date
specified in the Merger Agreement. The date and time on which the Merger is
effective as specified in the Merger Agreement are referred to herein as the
"Effective Date" and the "Effective Time," respectively. It is presently
anticipated that the Merger will be consummated on or prior to December 31,
1996. However, it is possible that the Effective Date may occur before or extend
beyond such date.
Exchange Ratio; Possible Adjustments to Exchange Ratio
On the Effective Date, each issued and outstanding share of South
Valley Common Stock (except for shares as to which dissenters' rights have been
perfected) shall be converted into .92 of a share (the "Exchange Ratio") of
Pacific Capital Common Stock subject to certain potential downward adjustments
described in the Agreement and this Joint Proxy Statement/Prospectus. No
fractional shares of Pacific Capital Common Stock shall be issued to holders of
South Valley Common Stock and, in lieu thereof, cash will be paid to South
Valley shareholders in accordance with the Agreement. Based on a closing price
of Pacific Capital Common Stock of $27.00 on July 17, 1996 (and assuming this is
the Average Price, as defined below), the Exchange Ratio would be .92 (the
equivalent
3
<PAGE>
of $24.84 per share of South Valley Common Stock) if there is not an adjustment
for Significant Liabilities, as defined below.
The Exchange Ratio will be adjusted for any Significant Liabilities
(regardless of whether the price of Pacific Capital Common Stock changes) if in
the aggregate the Significant Liabilities total more than $500,000. "Significant
Liabilities" means those liabilities or expenses (whether operating or capital
in nature) relating to those categories and events described in the next
sentence which have not been reflected as reductions to South Valley's
consolidated book value pursuant to generally accepted accounting principles as
of June 30, 1996, adjusted for any applicable taxes (whether actual or
estimated). Significant Liabilities consist of the following categories or
events to which Pacific Capital has not consented in writing: (i) new or
expanded contingent liabilities based upon threatened or pending litigation or
other proceedings or hazardous or toxic substances and legal fees and costs
(whether actual or estimated) related thereto; and (ii) any expenses, fines,
fees, penalties or similar obligations, except those which arose in the Ordinary
Course of Business as defined in the Agreement and except severance payments or
other existing payment obligations. Significant Liabilities shall not include
fees of South Valley's financial advisors or South Valley's legal fees directly
attributable to this Merger, provided such financial advisory and legal fees do
not exceed $800,000 in the aggregate.
As a result of any Significant Liabilities totaling more than $500,000
in the aggregate through the close of business on the day preceding the
Effective Date, the Exchange Ratio shall be adjusted as follows:
(Significant Liabilities - $500,000)
.92 - ------------------------------------
$39 Million
If, as of two days preceding the Effective Date, the average of the
closing price of Pacific Capital Common Stock quoted on the OTC Bulletin Board
(calculated by taking an average of the closing prices quoted on the OTC
Bulletin Board on each of the thirty consecutive trading days prior to two
business days prior to the Effective Date, rounded to four decimal places,
whether or not trades occurred on those days (the "Average Price")), is more
than $31.50 or if the Average Price is more than 12.5% below $27.00, the closing
price on the last business day prior to the date of the Agreement, then the
Exchange Ratio will be adjusted as follows, rounded to four decimal places:
(1) If the Average Price is more than 12.5% below $27.00, the closing
price on the last business day prior to the date of this Agreement, South Valley
may accept the Exchange Ratio (.92) as adjusted for any Significant Liabilities,
or Pacific Capital and South Valley shall have the right, but not the
obligation, to renegotiate the Exchange Ratio. Should South Valley fail to
accept the Exchange Ratio as described in the preceding sentence or should the
parties fail to renegotiate the Exchange Ratio, South Valley may terminate the
Agreement pursuant to the provisions of the Agreement.
(2) If the Average Price is more than $31.50, the Exchange Ratio as
adjusted for any Significant Liabilities will be adjusted according to the
following formula:
(Average Price + $31.50)/2
.92 x --------------------------
Average Price
Immediately following consummation of the Merger, based on the number
of shares of Pacific Capital Common Stock and South Valley Common Stock
outstanding on the respective record dates, the former shareholders of South
Valley will hold approximately 33% of the shares of the issued and outstanding
common stock of Pacific Capital assuming the Exchange Ratio remains at .92. Each
share of Pacific Capital Common Stock issued and outstanding immediately prior
to consummation of the Merger will remain outstanding and unchanged as a result
of the Merger. See "The Merger--Exchange Ratio; Conversion of Shares of South
Valley Common Stock."
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<PAGE>
Treatment of Stock Options
As of the South Valley Record Date, options to purchase 175,208 shares
of South Valley Common Stock were outstanding under the South Valley 1991
Directors' Stock Option Plan and 1995 Stock Option Plan (the "Option Plans").
The Agreement provides that each option holder has the right (i) to exercise any
vested options granted under the Options Plans to acquire South Valley Common
Stock prior to the Effective Date; and/or (ii) receive the fair value, as of the
Effective Date, of any unexercised vested and/or unvested options granted under
the Option Plans which fair value shall be determined by an independent
financial advisor to Pacific Capital and shall be paid on the Effective Date by
Pacific Capital in the form of Pacific Capital Common Stock rounded down to the
nearest whole share. See "The Merger--Treatment of Stock Options."
Conditions and Regulatory Approvals
The respective obligations of Pacific Capital and South Valley to
effect the Merger are subject to various conditions described in "The
Merger--Representations and Warranties; Conditions to the Merger."
The Merger will occur only if all required government approvals are in
effect or have been obtained (without the imposition of any materially
burdensome conditions as determined by Pacific Capital in its reasonable
judgment), the Agreements are approved by the majority of the outstanding shares
of Pacific Capital Common Stock and South Valley Common Stock, respectively, the
representations and warranties of the parties are true and correct in all
material respects on and as of the Effective Date, and certain other conditions
are satisfied.
Consummation of the Merger is subject to satisfaction of certain other
conditions or the waiver of such conditions by the party entitled to do so. Such
conditions include, among other things, the following: (i) except as disclosed
in writing prior to July 18, 1996, the absence of a material adverse change
since December 31, 1995, in the business, financial condition, properties,
results of operations or prospects of either party; (ii) the absence of
significant legal impediments to the Merger; (iii) the effectiveness of a
registration statement with respect to the Pacific Capital Shares to be issued
to South Valley shareholders as a result of the Merger; (iv) the receipt of a
tax opinion of the independent accountants or legal counsel to Pacific Capital
to the effect that, among other things, under federal and state tax laws, the
Merger will not result in any recognized gain or loss to Pacific Capital or
South Valley and, except for cash received in lieu of fractional shares, no gain
or loss will be recognized by holders of South Valley Common Stock who receive
Pacific Capital Common Stock in exchange for the South Valley Common Stock which
they hold; (v) receipt of letters and reports from South Valley's and Pacific
Capital's independent public accountants relating to the Registration Statement
and South Valley's and Pacific Capital's unaudited financial statements,
respectively; (vi) receipt of a letter from South Valley's independent public
accountants to the effect that no conditions exist which would preclude South
Valley from accounting for the Merger with Pacific Capital as a pooling of
interests as those conditions relate to South Valley; (vii) receipt by South
Valley of a fairness opinion from its financial advisor; (viii) receipt of a
letter from Pacific Capital's independent public accountants to the effect that
the Merger will qualify for the pooling of interests method of accounting in
accordance with generally accepted accounting principles, (ix) receipt of all
consents by other parties to and required by material agreements of Pacific
Capital and South Valley, respectively, (x) South Valley shall have taken any
actions necessary to have SVNB amend its Bylaws to increase the number of
authorized directors to permit the appointment of three additional directors
designated by Pacific Capital; (xi) Pacific Capital shall have amended its
Bylaws to increase the number of authorized directors on its board to permit the
appointment of three additional directors by South Valley and acceptable to
Pacific Capital; (xii) Pacific Capital shall have obtained designation of
Pacific Capital Common Stock as a Nasdaq National Market security, and (xiii)
the aggregate number of shares of Pacific Capital Common Stock and South Valley
Common Stock held by persons who have taken all steps at or prior to the
respective shareholders meeting to be paid the value of such shares under the
GCL shall not exceed 9% of the outstanding shares of Pacific Capital Common
Stock and South Valley Common Stock.
In addition, certain other conditions must be satisfied, or must be
waived by Pacific Capital, in order for Pacific Capital to be obligated to
consummate the Merger, including but not limited to the conditions that (i)
South Valley shall have taken corrective action, if any, recommended by or
resulting from its most recent compliance examinations and any significant
regulatory compliance violations shall have been corrected by South Valley prior
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<PAGE>
to the Effective Date and (ii) prior to the Effective Date, South Valley shall
be in compliance with all requirements, if any, arising from its most recent
safety and soundness regulatory examination.
Nonsolicitation Agreements
As a condition to consummation of the Merger under the Agreement, the
directors of South Valley have each entered into a nonsolicitation agreement
(collectively, the "Nonsolicitation Agreements") with Pacific Capital. Pursuant
to the Nonsolicitation Agreements each director, except as a director, officer
or employee of Pacific Capital or any subsidiary thereof, shall not, without the
prior written consent of Pacific Capital, for a two-year period following the
Merger (i) directly or indirectly, solicit any customers of South Valley or
Pacific Capital or their subsidiaries or successors within the counties of Santa
Clara, Monterey and San Benito in the State of California or (ii) induce any
employee of South Valley or Pacific Capital or their subsidiaries to leave the
employment thereof.
The Nonsolicitation Agreements further provide that each director shall
treat as confidential all information concerning Pacific Capital's or South
Valley's or their respective subsidiary's records, properties, books, contracts,
commitments and affairs, including but not limited to, information regarding
accounts, shareholders, finances, strategies, marketing, customers, customer
lists and potential customers and other information of a similar nature not
available to the public.
Certain Tax Consequences
It is anticipated that the principal federal income tax consequences of
the Merger will be as follows: (a) the Merger will be part of a reorganization
within the meaning of section 368(a) of the Internal Revenue Code of 1986, as
amended; (b) no gain or loss will be recognized by the shareholders of South
Valley who receive Pacific Capital Common Stock in exchange for the South Valley
Common Stock which they hold, except in respect of cash received for fractional
shares; (c) the holding period of the Pacific Capital Common Stock in the hands
of the former South Valley shareholders will include the holding period of their
exchanged South Valley Common Stock; and (d) the tax basis of the shares of
Pacific Capital Common Stock received by the shareholders of South Valley will
be the same as the tax basis of their exchanged South Valley Common Stock. In
order to satisfy one of the conditions to consummation of the Merger (see "The
Merger--Representations and Warranties; Conditions to the Merger"), Pacific
Capital and South Valley each expects to receive an opinion of Pacific Capital's
independent accountants or legal counsel to the effect that the Merger will have
the foregoing and certain other tax consequences. For a detailed discussion of
the income tax consequences of the Merger, see "The Merger--Certain Tax
Consequences." South Valley shareholders should consult their personal tax
advisors as to the consequences of the Merger to them under United States
federal, state or local law, or applicable foreign tax laws.
Amendment and Termination
The Agreement may be amended by Pacific Capital and South Valley at any
time prior to the Effective Date without the approval of the shareholders of
Pacific Capital or the shareholders of South Valley with respect to any of its
terms except the terms relating to the form or amount of consideration to be
delivered to the South Valley shareholders in the Merger. The Agreements may be
terminated by the mutual consent of the Boards of Directors of both Pacific
Capital and South Valley at any time prior to the consummation of the Merger.
The Agreement may be terminated by Pacific Capital as follows: (i) on,
or after December 31, 1996, if (A) any of the conditions to which the
obligations of Pacific Capital are subject has not been fulfilled, or (B) such
conditions have been fulfilled or waived by Pacific Capital and South Valley
shall have failed to complete the Merger; (ii) if (A) Pacific Capital has become
aware of any facts or circumstances of which it was not aware on the date of the
Agreement and which materially adversely affect South Valley and SVNB or their
respective business, properties, results of operations, financial condition or
prospects taken as a whole; (B) a material adverse change shall have occurred
since December 31, 1995, in the business, properties, financial condition,
results of operations or prospects of South Valley and SVNB taken as a whole;
(C) there has been a material breach (including any material anticipatory
breach) on the part of South Valley of its obligations under the Agreement or
any material breach (including any material anticipatory breach) of any
covenants or conditions contained in the Agreement which, in
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<PAGE>
either event, has not been cured within 20 business days after receipt of
written notice of such breach; or (D) based on the continuing fiduciary duties
of the South Valley Board of Directors to the shareholders of South Valley,
South Valley fails to act or refrains from doing any act required of South
Valley pursuant to the Agreement as a result of a bona fide offer for a Business
Combination (as such term is defined in the Agreement).
The Agreement may be terminated by South Valley as follows: (i) on or
after December 31, 1996, if (A) any of the conditions to which the obligations
of South Valley are subject has not been fulfilled, or (B) such conditions have
been fulfilled or waived but Pacific Capital shall have failed to complete the
Merger; provided, however, that if Pacific Capital is engaged at the time in
litigation relating to an attempt to obtain one or more of the government
approvals which are required to consummate the Merger or if Pacific Capital
shall be contesting in good faith any litigation which seeks to prevent
consummation of the Merger, such nonfulfillment shall not give South Valley the
right to terminate the Agreement until the earlier of (X) eight months after the
date of the Agreement and (Y) 60 days after the completion of such litigation
and of any further regulatory or judicial action pursuant thereto; or (ii) if
(A) South Valley has become aware of any facts or circumstances of which it was
not aware on the date of the Agreement and which materially adversely affect
Pacific Capital or FNB or their business, properties, operations, financial
condition or prospects (taken as a whole); (B) a material adverse change shall
have occurred since December 31, 1995, in the business, properties, financial
condition, results of operations or prospects of Pacific Capital and FNB taken
as a whole; (C) there has been a material breach (including any material
anticipatory breach) on the part of Pacific Capital of its obligations under the
Agreement or any material breach (including any material anticipatory breach) of
any conditions or covenants contained in the Agreement which, in either event,
has not been cured within 20 business days after receipt of written notice of
such breach; (D) Pacific Capital shall solicit or make any offer to any third
party or accept any offer from any third party regarding a Business Combination
(as such term is defined in the Agreement) of Pacific Capital with any other
entity or person that is not conditioned upon performance by Pacific Capital or
its successor of all obligations of Pacific Capital under the Agreement; or (E)
South Valley fails to accept the Exchange Ratio or the parties fail to
renegotiate the Exchange Ratio.
Expenses
Pacific Capital and South Valley have each agreed to pay their own
costs incurred incident to the performance of their obligations under the
Agreements. See "The Merger--Expenses" and "--Amendment; Termination." The
following reflects Pacific Capital and South Valley estimated merger-related
expenses as of July 23, 1996.
Pacific Capital South Valley Total
--------------- ------------ -----
(in thousands)
Financial advisory.............. $ 0 $ 525 $ 525
Professional fees............... $ 230 $ 250 $ 480
Printing and other.............. $ 25 $ 25 $ 50
-------- -------- -------
Total......................... $ 255 $ 800 $ 1,055
-------- -------- -------
Accounting Treatment
The Merger is expected to be accounted for as a pooling of interests,
and it is a condition to Pacific Capital's and South Valley's respective
obligation to consummate the Merger that Pacific Capital shall have received a
letter from KPMG Peat Marwick LLP, Pacific Capital's independent public
accountants, to the effect that the Merger will qualify for such accounting
treatment. 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. See "The
Merger--Representations and Warranties; Conditions to the Merger" and
"--Accounting Treatment."
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Dissenters' Rights of Appraisal
Shareholders of Pacific Capital Common Stock or South Valley Common
Stock who exercise dissenters' rights with respect to the Merger in accordance
with the statutory procedures prescribed in the GCL may be entitled to receive
cash for their stock if such shareholders did not vote "FOR" the approval and
adoption of the Agreements and the transactions contemplated thereby and
otherwise act to perfect their rights as dissenting shareholders pursuant to the
GCL. If a holder of Pacific Capital Common Stock or South Valley Common Stock
votes "FOR" the approval and adoption of the Agreements, including the Merger,
and the transactions contemplated thereby, (including by executing and returning
a proxy to Pacific Capital or South Valley with no voting instructions indicated
thereon) such holder will lose any dissenters' rights that may exist with
respect to the subject shares. Shares which abstain from voting and "broker
non-votes" (shares as to which brokerage firms have not received voting
instructions from their clients and therefore do not have the authority to vote
the Shares at the respective meetings) will have the same legal effect as a vote
against the Merger. For a description of dissenters' rights under the GCL and
the method of perfecting such rights, see "Voting and Proxies" and "Dissenters'
Rights of Appraisal."
Market Price and Dividend Data
Pacific Capital Common Stock is listed and traded on the OTC Bulletin
Board under the symbol "PABN." It is a condition to the Merger that Pacific
Capital Common Stock be listed for trading on the Nasdaq National Market prior
to the Effective Date. There is limited trading and no established public
trading market for South Valley Common Stock which is traded on the
over-the-counter market and quoted on the "pink sheets" published by the
National Quotation Bureau, Inc. (the "Pink Sheets"). Hoefer, who has been
engaged by South Valley in connection with the Merger, is one of three market
makers in South Valley Common Stock and is also a market maker for Pacific
Capital Common Stock. See "The Merger--Opinion of South Valley's Financial
Advisor."
The following table sets forth the average of the last reported bid and
asked price per share for South Valley Common Stock as quoted on the Pink Sheets
and the last reported sales price of Pacific Capital Common Stock on the OTC
Bulletin Board, on July 18, 1996, the trading date prior to the public
announcement of the Merger, and on September 10, 1996, the latest practicable
trading day before the printing of this Joint Proxy Statement/Prospectus, and
equivalent per share prices for South Valley Common Stock based on the prices of
Pacific Capital Common Stock.
Historical Equivalent
Market Value Pro Forma
Per Share Market Value(1)
----------------------------- ---------------
Pacific Capital South Valley South Valley
--------------- ------------ ---------------
Last Trade Prior to:
July 18, 1996........... $27.00 $14.50 $24.84
September 10, 1996...... $26.25 $21.50 $24.15
- ----------------------------
(1) The equivalent pro forma market value per share of South Valley Common
Stock represents the last reported sales price per share of Pacific Capital
Common Stock multiplied by the Exchange Ratio of .92. The Exchange Ratio is
subject to adjustment as provided in the Agreement. See "The
Merger--Possible Adjustments to Exchange Ratio or Termination of the
Agreement."
Following the Merger, no shares of South Valley Common Stock will be
outstanding, and Pacific Capital Common Stock will be traded on the Nasdaq
National Market.
Pacific Capital has paid quarterly cash dividends since March, 1994.
Pacific Capital's Board of Directors considers the advisability and amount of
proposed dividends each quarter. Pacific Capital's primary source of funds
8
<PAGE>
for the payment of dividends is its principal banking subsidiary, FNB, whose
ability to pay dividends to Pacific Capital is subject to various legal and
regulatory restrictions.
South Valley has paid quarterly cash dividends since 1994. South
Valley's primary source of funds for the payment of dividends is its principal
banking subsidiary, SVNB, whose ability to pay dividends is subject to various
legal and regulatory restrictions.
Additional information regarding market price and dividend information
of Pacific Capital's and South Valley's stock is included in Pacific Capital's
Annual Report to Shareholders for the year ended December 31, 1995 and South
Valley's Annual Report to Shareholders for the year ended December 31, 1995. See
"Available Information," "Incorporation of Certain Documents by Reference" and
"Accompanying Documents."
Differences in Rights of Shareholders
Pacific Capital and South Valley are both organized under the GCL and,
while similarities in rights exist for shareholders of Pacific Capital and South
Valley, there are differences between the provisions of the articles of
incorporation of each company and the bylaws of each company. Both Pacific
Capital and South Valley operate within the framework of the BHC Act and are
regulated by the FRB. See "Certain Considerations--Legislative and Regulatory
Environment," and "Certain Differences in Rights of Shareholders."
Pacific Capital Summary of Results for the Year Ended December 31, 1995 and the
Six Months Ended June 30, 1996
Year Ended December 31, 1995
Net income for 1995 was $5,034,000 or $1.86 per share, an increase of
$695,000 or $0.21 per share over 1994. The increased earnings in 1995 resulted
from an interest rate environment which had a beneficial impact on the net
interest margin, active management of noninterest expense and maintaining a low
level of credit losses. The return on average shareholders' equity was 12.2% in
1995, compared to 11.7% in 1994.
Outstanding total loans averaged $201,360,000 in 1995 compared to
$190,721,000 during 1994. This represents an increase of $10,639,000 or 5.6%. A
majority of the loan portfolio consists of loans secured by commercial,
industrial, and residential real estate. As of December 31, 1995, real estate
mortgage and construction loans represented $143,119,000 or 67.7% of total
loans, an increase of $3,950,000 or 2.8% from the prior year. Commercial loans
not secured by real estate totaled $49,862,000 or 23.6% of the total loan
portfolio at December 31, 1995. This represented an increase of $6,079,000 or
13.9% over 1994. Consumer loans increased $780,000 or 6.9% during 1995. Consumer
loans, as of December 31, 1995, represent 5.7% of the total loan portfolio,
compared to 5.6% of the 1994 loan portfolio.
Average total deposits increased $8,267,000 or 2.9% during 1995 and
average non-interest bearing deposits grew $3,674,00 or 5.8% during 1995.
Average interest-bearing deposits increased $4,593,000 or 2.1% in 1995.
Shareholders' equity increased $4,226,000 or 10.9% in 1995. The
increase was primarily a result of retention of 1995 net income and the exercise
of stock options, offset in part by a repurchase of outstanding shares and a
total cash dividend of $0.53 per share paid during 1995.
Six Months Ended June 30, 1996
Net income for the six months ended June 30, 1996 was $2,759,000 or
$1.01 per share compared to $2,612,000 or $0.97 per share during the same period
in 1995. This $147,000 or 5.6% increase in net income is due mainly to a
$247,000 increase in net interest income combined with a $330,000 decrease in
the FDIC assessment. These items were partially offset by a $333,000 increase in
salaries and benefits. The increase in net interest income is due to growth in
average total deposits of $40,202,000 and growth in average total loans of
$24,084,000 as compared to the same 1995 period.
9
<PAGE>
Outstanding loans were $236,372,000 at June 30, 1996 compared to
$211,344,000 at December 31, 1995, a $25,028,000 or 11.8% increase. The increase
in outstanding loans from December 31, 1995 to June 30, 1996 resulted primarily
from an increase in commercial loans of $9,354,000, an increase in real estate
mortgage loans of $8,159,000 and an increase in tax-exempt municipal leases of
$5,850,000.
Total deposits at June 30, 1996 were $344,671,000 compared to
$307,819,000 at December 31, 1995, a $36,852,000 or 12.0% increase. Non-interest
bearing demand deposits increased $269,000, interest bearing demand deposits
increased $1,823,00 and savings and money market deposit accounts increased
$8,912,000 in the first six months of 1996. Certificates of deposit increased by
$25,848,000 or 31.4% during the first six months of 1996. The loan to deposit
ratio at June 30,1996 was 68.6% and is the same as the ratio at December 31,
1995. Total assets as of June 30, 1996 increased 10.6% compared to year end
1995.
Selected Historical and Pro Forma Financial Data
The following tables present selected historical and pro forma combined
financial information for Pacific Capital and South Valley. The following
financial data should be read in conjunction with the historical consolidated
financial statements, the unaudited interim historical consolidated financial
statements, and the unaudited pro forma combined financial information and the
notes to such statements, certain of which are included elsewhere in this Joint
Proxy Statement/Prospectus or incorporated by reference herein. The unaudited
pro forma combined financial information presents selected financial information
based on the historical financial statements of Pacific Capital and South Valley
giving effect to the proposed Merger under the pooling of interests method of
accounting and the assumptions and adjustments described in the notes thereto.
See "Pro Forma (Unaudited) Combined Financial Information." The unaudited pro
forma combined and pro forma equivalent financial information do not indicate
the results of operation or financial position that would have occurred if the
Merger had been in effect on the dates or for the periods indicated or that may
occur in the future.
10
<PAGE>
<TABLE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
<CAPTION>
Six Months Ended June 30,
(Dollars in thousands, except share Year Ended December 31,
and per share amounts) (Dollars in thousands, except share and per share amounts)
----------------------------------- ----------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Information
PACIFIC CAPITAL (historical)
Income before cumulative effect
of change in accounting method.. $1.01 $0.97 $1.86 $1.65 $1.18 $1.10 $1.11
Cumulative effect of change in
accounting method............... - - - - $0.21 - -
Net income........................ $1.01 $0.97 $1.86 $1.65 $1.39 $1.10 $1.11
Cash dividend .................... $0.30 $0.25 $0.53 $0.40 $0.30 - -
Book value........................ $16.91 $16.51 $16.50 $15.65 $15.23 $14.80 $14.20
Weighted average Common and
equivalent shares outstanding.. 2,738,616 2,683,094 2,700,850 2,627,561 2,650,127 2,646,488 2,675,848
SOUTH VALLEY (historical)(3)
Net income........................ $0.78 $0.59 $1.20 $1.43 $1.01 $0.79 $0.82
Cash dividend .................... 0.18 $0.15 $0.29 $0.15 - - -
Book value........................ $13.61 $12.87 $13.36 $12.37 $11.12 $10.11 $9.32
Weighted average Common and
equivalent shares outstanding... 1,331,770 1,316,406 1,316,102 1,314,167 1,314,167 1,314,167 1,314,167
PACIFIC CAPITAL and SOUTH VALLEY
(pro forma combined)(1)
Income before
cumulative effect
of change in accounting method.. $0.96 $0.87 $1.69 $1.62 $1.16 $1.03 $1.04
Cumulative effect of change in
accounting method............... - - - - $0.14 - -
Net income........................ $0.96 $0.87 $1.69 $1.62 $1.30 $1.03 $1.04
Cash dividend .................... $0.30 $0.25 $0.53 $0.40 $0.30 - -
Book value........................ $16.24 $15.18 $15.88 $14.44 $13.26 $12.21 $11.18
Weighted average Common and
equivalent shares outstanding.. 3,963,844 3,894,188 3,911,664 3,836,595 3,859,161 3,855,522 3,884,882
SOUTH VALLEY pro forma
equivalent (2)
Income before cumulative effect of
change in accounting method..... $0.88 $0.80 $1.55 $1.49 $1.07 $0.95 $0.96
Cumulative effect of change in
accounting method............... - - - - $0.13 - -
Net income........................ $0.88 $0.80 $1.55 $1.49 $1.20 $0.95 $0.96
Cash dividend .................... $0.28 $0.23 $0.49 $0.37 $0.28 - -
Book value........................ $14.94 $13.96 $14.61 $13.28 $12.20 $11.23 $10.29
PACIFIC CAPITAL (historical)
Results of operations:
Net interest income............... $9,604 $9,357 $18,816 $16,971 $15,082 $14,298 $13,768
Provision for loan losses......... - - 135 100 890 925 441
Noninterest income................ 1,040 952 1,875 2,088 2,365 2,339 2,173
Noninterest expense............... 6,154 6,045 12,342 11,968 11,691 11,251 10,908
Income before cumulative effect
of change in accounting method.. 2,759 2,612 5,034 4,339 3,139 2,921 2,959
Cumulative effect of change in
accounting method............... - - - - 549 - -
Net income........................ $2,759 $2,612 $5,034 $4,339 $3,688 $2,921 $2,959
11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
(Dollars in thousands, except share Year Ended December 31,
and per share amounts) (Dollars in thousands, except share and per share amounts)
----------------------------------- ------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
Balance sheet (end of period):
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets...................... $391,045 $337,117 $353,579 $343,879 $308,767 $307,737 $291,240
Net loans ........................ 234,029 199,826 208,947 198,342 178,085 181,392 194,595
Deposits.......................... 344,671 293,883 307,819 303,229 271,773 272,940 259,991
Shareholders' equity.............. 43,973 40,968 42,976 38,750 35,432 32,787 29,751
Financial ratios (end of period):
Tier 1 risk-based capital......... 15.79% 17.72% 17.60% 16.83% 17.06% 15.74% 14.04%
Total risk-based capital.......... 16.63% 18.74% 18.59% 17.89% 18.26% 16.87% 15.06%
Leverage ratio.................... 11.65% 12.60% 12.00% 11.38% 11.36% 11.01% 10.70%
Allowance for loan losses
to period end loans............. 0.99% 1.17% 1.13% 1.21% 1.39% 1.28% 1.09%
SOUTH VALLEY (historical)
Results of operations:
Net interest income............... $5,051 $4,228 $8,891 $7,985 $6,501 $6,036 $5,950
Provisions for loan losses........ 179 150 392 379 388 340 295
Noninterest income................ 559 628 1,108 783 666 577 559
Noninterest expense............... 3,719 3,470 7,010 5,377 4,754 4,684 4,452
Net income........................ 1,035 783 1,577 1,886 1,326 1,041 1,081
Balance sheet (end of period):
Total assets...................... $176,462 $158,148 $177,273 $143,870 $128,191 $125,919 $117,487
Net loans......................... 92,249 87,364 88,238 88,241 84,065 80,776 79,977
Deposits.......................... 156,678 138,932 157,689 124,641 110,702 109,154 102,225
Shareholders' equity.............. 17,885 16,916 17,557 16,252 14,607 13,281 12,244
Financial ratios (end of period):
Tier 1 risk-based capital......... 15.10% 15.20% 14.80% 15.50% 15.30% 14.50% 13.80%
Total risk-based capital.......... 16.30% 16.30% 16.00% 16.70% 16.60% 15.80% 14.90%
Leverage ratio.................... 10.30% 11.60% 10.10% 12.10% 12.00% 11.30% 10.50%
Allowance for loan losses to
period end loans................ 1.54% 1.31% 1.46% 1.48% 1.45% 1.37% 1.23%
PACIFIC CAPITAL and SOUTH VALLEY
(pro forma combined)
Results of operations:
Net interest income............... $14,655 $13,585 $27,707 $24,956 $21,583 $20,334 $19,718
Provision for loan losses......... 179 150 527 479 1,278 1,265 736
Noninterest income................ 1,599 1,580 2,983 2,871 3,031 2,916 2,732
Noninterest expense............... 9,873 9,515 19,352 17,345 16,445 15,935 15,360
Income before cumulative effect of
change in accounting method..... 3,794 3,395 6,611 6,225 4,465 3,962 4,040
Cumulative effect of change in
accounting method............... - - - - 549 - -
Net income........................ $3,794 $3,395 $6,611 $6,225 $5,014 $3,962 $4,040
Balance sheet (end of period):
Total assets...................... $567,507 $495,265 $530,852 $487,749 $436,958 $433,656 $408,727
Net loans......................... 326,278 287,190 297,185 286,583 262,150 262,168 274,572
Deposits.......................... 501,349 432,815 465,508 427,870 382,475 382,094 362,216
Shareholders' equity.............. 61,858 57,884 60,533 55,002 50,039 46,068 41,995
Financial ratios (end of period):
Tier 1 risk-based capital......... 15.57% 16.92% 16.72% 16.40% 16.52% 15.42% 13.97%
Total risk-based capital.......... 16.53% 17.95% 17.75% 17.52% 17.74% 16.58% 15.02%
Leverage ratio.................... 11.20% 12.27% 11.38% 11.59% 11.54% 11.10% 10.63%
Allowance for loan losses to
period end loans................ 1.16% 1.23% 1.25% 1.32% 1.43% 1.33% 1.15%
</TABLE>
12
<PAGE>
NOTES TO SELECTED FINANCIAL INFORMATION
1. The pro forma combined per share data for net income has been calculated
using Pacific Capital's average number of fully diluted Common Stock
outstanding for the period presented increased by South Valley's weighted
average Common Stock and equivalent shares outstanding multiplied by the
Exchange Ratio of .92 shares for each share of South Valley Common Stock.
The pro forma combined per share data for dividends declared has been
conformed to historical per share data for Pacific Capital. The pro forma
combined book value per share has been calculated using shares of Pacific
Capital Common Stock outstanding increased by the South Valley Common Stock
outstanding multiplied by the Exchange Ratio of .92 shares for each share
of South Valley Common Stock outstanding. Such pro forma per share data
assumes no dissenting shareholders.
2. South Valley pro forma equivalent per share data is based on Pacific
Capital and South Valley pro forma combined per share data multiplied by an
Exchange Ratio of .92.
3. Per share information for South Valley has been restated to reflect the 10%
stock dividend declared and paid in the first quarter of 1996.
13
<PAGE>
PRO FORMA (UNAUDITED) COMBINED FINANCIAL INFORMATION
At the Effective Time, South Valley will merge with and into Pacific
Capital and the separate existence of South Valley will cease. All assets and
liabilities of South Valley will become assets and liabilities of Pacific
Capital. In addition, the number of shares of Pacific Capital Common Stock
outstanding will be increased by the number of shares of Pacific Capital Common
Stock issued to holders of South Valley Common Stock and options for South
Valley Common Stock in the Merger.
The following tables show unaudited pro forma financial information for
Pacific Capital and South Valley. The unaudited pro forma income statement
assumes that the Merger had taken place at the beginning of the earliest period
presented and the unaudited pro forma balance sheet assumes that the Merger took
place on June 30, 1996. Unaudited pro forma income statements are shown for the
years ended December 31, 1995, 1994 and 1993 and June 30, 1996 and an unaudited
pro forma balance sheet is shown as of June 30, 1996.
<TABLE>
SELECTED PRO FORMA COMBINED FINANCIAL STATEMENTS OF
PACIFIC CAPITAL AND SOUTH VALLEY
(UNAUDITED)
<CAPTION>
Six Months Ended June 30, 1996 Year Ended December 31, 1995
------------------------------------- -------------------------------------
(Dollars in thousands except share
and per share amounts)
Historical Historical Pro Forma Historical Historical Pro Forma
Pacific South Combined(1) Pacific South Combined(1)
Capital Valley Capital Valley
---------- ---------- ----------- ---------- ---------- ------------
Pro Forma Consolidated Summary of Operations
<S> <C> <C> <C> <C> <C> <C>
Interest and fees on loans $10,857 $ 5,102 $15,959 $20,461 $10,029 $30,490
Interest on investment
securities and other
interest income 3,007 1,948 4,955 5,384 2,804 8,188
------- ------- ------- ------- ------- -------
Total interest income 13,864 7,050 20,914 25,845 12,833 38,678
------- ------- ------- ------- ------- -------
Interest on deposits 4,260 1,982 6,242 7,029 3,893 10,922
Interest on other borrowed
funds -- 17 17 -- 49 49
------- ------- ------- ------- ------- -------
Total interest expense 4,260 1,999 6,259 7,029 3,942 10,971
------- ------- ------- ------- ------- -------
Net interest income 9,604 5,051 14,655 18,816 8,891 27,707
Provision for loan losses -- 179 179 135 392 527
------- ------- ------- ------- ------- -------
Net interest income after
provision for loan losses 9,604 4,872 14,476 18,681 8,499 27,180
------- ------- ------- ------- ------- -------
Service charges on deposit
accounts 706 444 1,150 1,805 951 2,756
Other income 334 115 449 70 157 227
------- ------- ------- ------- ------- -------
Total noninterest income 1,040 559 1,599 1,875 1,108 2,983
Salaries and benefits 3,540 1,941 5,481 6,638 3,351 9,989
Occupancy expense 716 244 960 1,399 560 1,959
Equipment expense 532 199 731 1,035 410 1,445
Other operating expense 1,366 1,335 2,701 3,270 2,689 5,959
------- ------- ------- ------- ------- -------
Total noninterest expense 6,154 3,719 9,873 12,342 7,010 19,352
Income before taxes 4,490 1,712 6,202 8,214 2,597 10,811
Income taxes 1,731 677 2,408 3,180 1,020 4,200
------- ------- ------- ------- ------- -------
Income before cumulative
effect of accounting change $ 2,759 $ 1,035 $ 3,794 $ 5,034 $ 1,577 $ 6,611
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1994 Year Ended December 31, 1993
------------------------------------- -------------------------------------
Historical Historical Pro Forma Historical Historical Pro Forma
Pacific South Combined(1) Pacific South Combined(1)
Capital Valley Capital Valley
---------- ---------- ----------- ---------- ---------- ------------
Pro Forma Consolidated Summary of Operations
<S> <C> <C> <C> <C> <C> <C>
Interest and fees on loans $17,329 $ 9,101 $26,430 $15,557 $ 7,793 $23,350
Interest on investment
securities and other
interest income 4,827 1,773 6,600 4,700 1,296 5,996
------- ------- ------- ------- ------- -------
Total interest income 22,156 10,874 33,030 20,257 9,089 29,346
------- ------- ------- ------- ------- -------
Interest on deposits 5,183 2,802 7,985 5,150 2,486 7,636
Interest on other borrowed
funds 2 87 89 25 102 127
------- ------- ------- ------- ------- -------
Total interest expense 5,185 2,889 8,074 5,175 2,588 7,763
------- ------- ------- ------- ------- -------
Net interest income 16,971 7,985 24,956 15,082 6,501 21,583
Provision for loan losses 100 379 479 890 388 1,278
------- ------- ------- ------- ------- -------
Net interest income after
provision for loan losses 16,871 7,606 24,477 14,192 6,113 20,305
------- ------- ------- ------- ------- -------
Service charges on deposit
accounts 1,838 723 2,561 1,733 581 2,314
Other income 250 60 310 632 85 717
------- ------- ------- ------- ------- -------
Total noninterest income 2,088 783 2,871 2,365 666 3,031
Salaries and benefits 6,027 2,703 8,730 5,801 2,410 8,211
Occupancy expense 1,271 508 1,779 1,309 562 1,871
Equipment expense 1,038 337 1,375 1,035 344 1,379
Other operating expense 3,632 1,829 5,461 3,546 1,438 4,984
------- ------- ------- ------- ------- -------
Total noninterest expense 11,968 5,377 17,345 11,691 4,754 16,445
Income before taxes 6,991 3,012 10,003 4,866 2,025 6,891
Income taxes 2,652 1,126 3,778 1,727 699 2,426
------- ------- ------- ------- ------- -------
Income before cumulative
effect of accounting change $ 4,339 $ 1,886 6,225 $ 3,139 $ 1,326 $ 4,465
======= ======= ======= ======= ======= =======
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1996 Year Ended December 31, 1995
------------------------------------- -------------------------------------
(Dollars in thousands except share
and per share amounts)
Historical Historical Pro Forma Historical Historical Pro Forma
Pacific South Combined(1) Pacific South Combined(1)
Capital Valley Capital Valley
---------- ---------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Cumulative effect of change
in accounting method - - - - -
Net income $2,759 $1,035 $3,794 $5,034 $1,577 $6,611
====== ====== ====== ====== ====== ======
Per share
Income before cumulative effect
of accounting change $1.01 $0.78 $0.96 $1.86 $1.20 $1.69
Cumulative effect of change
in accounting method - - - - -
Net income $1.01 $0.78 $0.96 $1.86 $1.20 $1.69
===== ===== ===== ===== ===== =====
Weighted average common and
equivalent shares outstanding 2,739 1,332 3,964 2,701 1,316 3,912
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1994 Year Ended December 31, 1993
------------------------------------- -------------------------------------
Historical Historical Pro Forma Historical Historical Pro Forma
Pacific South Combined(1) Pacific South Combined(1)
Capital Valley Capital Valley
---------- ---------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Cumulative effect of change
in accounting method - - - $ 549 - $ 549
Net income $4,339 $1,886 $6,225 $3,688 $1,326 $5,014
====== ====== ====== ====== ====== ======
Per share
Income before cumulative effect
of accounting change $1.65 $1.43 $1.62 $1.18 $1.01 $1.16
Cumulative effect of change
in accounting method - - - $0.21 - $0.14
Net income $1.65 $1.43 $1.62 $1.39 $1.01 $1.30
===== ===== ===== ===== ===== =====
Weighted average common and
equivalent shares outstanding 2,628 1,314 3,837 2,650 1,314 3,859
</TABLE>
15
<PAGE>
<TABLE>
PACIFIC CAPITAL AND SOUTH VALLEY
PRO FORMA COMBINED BALANCE SHEET
(UNAUDITED)
June 30, 1996
(Dollars in thousands)
<CAPTION>
Pro Forma
Adjustments
--------------- Pro Forma
Pacific Capital South Valley Debits Credits Combined Total
--------------- ------------ ------ ------- --------------
<S> <C> <C> <C> <C> <C>
Assets:
Cash and due from banks....................... $24,044 $9,215 $33,259
Fed funds sold................................ 25,692 12,200 37,892
Certificates of deposit....................... -- -- --
Securities available-for-sale................. 79,824 45,841 125,665
Securities held-to-maturity................... 6,079 5,722 11,801
Mortgage loans held for sale.................. 4,538 -- 4,538
Total loans, net.............................. 234,029 92,249 326,278
Premises and equipment........................ 8,837 5,935 14,772
Other assets.................................. 8,002 5,300 13,302
-------- -------- ------- ------- --------
Total assets................................ $391,045 $176,462 -- -- $567,507
======== ======== ======= ======= ========
Liabilities:
Deposits...................................... $344,671 $156,678 $501,349
Short-term borrowings......................... -- 967 967
Other liabilities............................. 2,401 932 3,333
Long-term debt................................ -- -- --
-------- --------- ------- ------- ---------
Total liabilities........................... 347,072 158,577 -- -- 505,649
Shareholders' equity:
Preferred stock............................... -- -- --
Common stock.................................. 31,179 13,123 44,302
Retained earnings............................. 13,413 5,179 18,592
Unrealized loss on securities
available for sale.......................... (619) (417) (1,036)
------ ------ ------- ------- --------
Total shareholders' equity.................. 43,973 17,885 -- -- 61,858
Total liabilities and shareholders' equity.. $391,045 $176,462 -- -- $567,507
======== ======== ======= ======= ========
</TABLE>
16
<PAGE>
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
1. There are no adjustments to the historical balance sheet or statements of
income of Pacific Capital and South Valley to arrive at the pro forma
combined balance sheet and pro forma combined statements of income. Total
costs to be incurred by Pacific Capital and South Valley in connection
with the Merger are estimated to be approximately $1,055,000 net of
expenses incurred prior to June 30, 1996. These costs, relating to legal,
printing, accounting, and other related expenses, will be charged against
net income of the combined company in the periods in which they are
incurred. Accordingly, the effect of these costs has not been reflected in
the pro forma combined financial statements.
2. The pro forma combined per share data for net income has been calculated
using Pacific Capital's weighted average number of fully diluted common
and equivalent shares increased by such common and equivalent shares of
South Valley Common Stock (after adjustment using the exchange ratio of
.92 shares of Pacific Capital Common Stock for each share of South Valley
Common Stock). Such pro forma per share data assumes no dissenting Pacific
Capital or South Valley shareholders.
17
<PAGE>
INTRODUCTION
This Joint Proxy Statement/Prospectus is being furnished to
shareholders of Pacific Capital Bancorp ("Pacific Capital") and South Valley
Bancorporation ("South Valley") in connection with the solicitation of proxies
by the Pacific Capital Board of Directors for use at the special meeting of
shareholders of Pacific Capital to be held at Corral de Tierra Country Club, 81
Corral de Tierra Road, Salinas, California, on Tuesday, October 22, 1996 at 4:00
p.m., local time, and at any adjournments or postponements thereof and the
solicitation of proxies by the South Valley Board of Directors for use at the
special meeting of shareholders of South Valley to be held at Golden Oak
Restaurant, 16695 Condit Road, Morgan Hill, California, on Wednesday, October
16, 1996 at 3:00 p.m., local time, and at any adjournments or postponements
thereof.
At the respective meetings, the shareholders of record of Pacific
Capital common stock ("Pacific Capital Common Stock") as of the close of
business on September 10, 1996 (the "Pacific Capital Record Date") and the
shareholders of record of South Valley common stock ("South Valley Common
Stock") as of the close of business on August 27, 1996 (the "South Valley Record
Date"), will consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Reorganization dated as of July 18, 1996 (the "Agreement")
by and between Pacific Capital and South Valley and a Merger Agreement between
Pacific Capital and South Valley (collectively, the "Agreements") and the
transactions contemplated thereby. Copies of the Agreements are attached as
Annex A hereto and more fully described herein. The Agreements provide, among
other things, that South Valley will merge with and into Pacific Capital (the
"Merger") and, except as described herein, each share of South Valley Common
Stock will be converted into .92 of a fully paid and nonassessable share of
Pacific Capital Common Stock subject to certain potential adjustments as set
forth in the Agreement. See "The Merger--Exchange Ratio; Conversion of Shares of
South Valley Common Stock," "--Possible Adjustments to Exchange Ratio or
Termination of the Agreement" and "--Treatment of Stock Options." The date on
which this Joint Proxy Statement/Prospectus is first being sent to shareholders
of Pacific Capital and South Valley is on or about September 16, 1996.
This Joint Proxy Statement/Prospectus also serves as a prospectus under
the Securities Act of 1933, as amended (the "Securities Act"), for the Pacific
Capital Common Stock to be issued in connection with the consummation of the
Merger.
INFORMATION ABOUT PACIFIC CAPITAL
Pacific Capital is a California corporation and bank holding company
which was incorporated on January 26, 1983. First National Bank of Central
California, the Company's wholly-owned banking subsidiary ("FNB"), commenced
operations on April 2, 1984, under the name of First National Bank of Monterey
County. FNB is a full service commercial bank serving Monterey, Salinas, Carmel,
Watsonville, Prunedale and surrounding areas in Monterey and Santa Cruz Counties
in California. The Company itself does not engage in any business activities
other than the ownership of FNB and the ownership of one other wholly-owned
subsidiary, Pacific Capital Services Corporation ("PCSC"). PCSC has no active
operations at this time.
FNB provides a wide range of commercial banking services to
individuals, professionals, and small and medium sized businesses. The services
provided include those typically offered by commercial banks, such as: checking,
interest checking and savings accounts, travelers checks, safe deposit boxes,
collection services, night depository facilities and wire and telephone
transfers. In addition to the above deposit services, FNB also provides a full
array of loan products including commercial, real estate and consumer loans as
well as a variety of government assisted loan programs such as SBA or Rural
Economic Community Development Service guaranteed loans. The deposits of each
depositor of FNB are insured up to $100,000 by the Federal Deposit Insurance
Corporation (the "FDIC"). Professional firms, individuals and businesses form
the core of FNB's customer and deposit base.
Most of FNB's deposits are obtained from individuals, professionals and
small and medium sized businesses. As of June 30, 1996, FNB had a total of
17,919 accounts representing 10,091 demand deposit (checking) accounts with an
average balance of approximately $12,454 each; 5,521 savings, interest-bearing
18
<PAGE>
demand, and money market accounts with an average balance of approximately
$19,199 each; and 2,307 other time accounts with an average balance of
approximately $46,843 each.
FNB engages in a full complement of lending activities, including
commercial, consumer/installment and short-term real state loans, with a
particular emphasis on short- and medium-term commercial obligations. Commercial
lending activities are directed principally toward small- to medium-sized
businesses, such as professional firms, retail, light industry and manufacturing
to which FNB makes (a) loans for working capital, (b) loans secured by
receivable and inventory, (c) term loans for equipment; and (d) real estate
development loans. In addition to conventional commercial lending, FNB also
offers an array of government assisted loan products including SBA guaranteed
loans, SBA 504 loans (primarily for commercial real estate transactions), Rural
Economic Community Development Services guaranteed loans and loans guaranteed
under the State of California guarantee program. FNB also works to meet the
needs of the local municipalities by providing lease financing for a wide
variety of equipment purchases including energy retrofit, fire trucks, police
cars, portable classrooms, etc. Consumer lending is oriented primarily to the
needs of FNB's customers, with an emphasis on automobile financing and real
estate loans. Real estate loans include home loans, equity advance loans and
construction loans.
FNB concentrates its lending activities in the following areas: real
estate loans, commercial loans and consumer loans to individuals. As of June 30,
1996, these three categories accounted for approximately 65%, 28.7% and 5.6%,
respectively, of FNB's loan portfolio. As of June 30, 1996, FNB had total loans
outstanding of $234,029. No material portion of FNB's loan portfolio is
concentrated within a single industry or group of related industries.
FNB currently operates five branch offices: the Monterey branch located
at 495 Washington Street, Monterey; the Salinas branch located at 1001 South
Main Street, Salinas; the Oldtown office located at 307 Main Street, Salinas;
the Carmel branch located in the Carmel Rancho Shopping Center, Carmel; and the
Watsonville branch located at 655 Main Street, Watsonville. In addition to a
banking office, the Oldtown office in Salinas houses all of SVNB's
administrative functions as well as Data Processing/Operations department and a
Community/Board room.
Directors of Pacific Capital
The following table sets forth certain information with
respect to the current Board of Directors of Pacific Capital, as well as all
directors and officers of Pacific Capital as a group. All of the shares shown in
the following table are owned both of record and beneficially, and the person
named possesses sole voting power, except as otherwise indicated in the notes to
the table.
19
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially
Owned As of
September 10, 1996(1)
-- ---------------------
Director of
Positions and Offices Held Pacific Capital Percent of
Nominee Age With Pacific Capital and FNB Since Amount Class
- ------- --- ---------------------------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Charles E. 71 Director of Pacific Capital 1983 24,665(2) .94%
Bancroft and FNB
Gene 54 Director of Pacific Capital 1990 26,559(2)(3) 1.01%
DiCicco and FNB
Lewis L. 71 Director of Pacific Capital 1983 32,447(2)(4) 1.24%
Fenton and FNB
Gerald T. 67 Director of Pacific Capital 1983 22,834(2) .87%
Fry and FNB
James L. 58 Secretary and Director of 1983 30,134(2) 1.15%
Gattis Pacific Capital and FNB
Stanley R. 57 Director of Pacific Capital 1983 29,056(2)(5) 1.11%
Haynes and FNB
D. Vernon 56 Chairman of the Board, 1983 69,302(6) 2.65%
Horton Chief Executive Officer, and
Director of Pacific Capital
and FNB
Hubert W. 70 Director of Pacific Capital 1990 37,961(2) 1.45%
Hudson and FNB
William J. 64 Director of Pacific Capital 1983 31,419(2)(7) 1.20%
Keller and FNB
Clayton C. 50 President, Chief 1983 76,758(8) 2.94%
Larson Administrative Officer and
Director of Pacific CapitaL
and FNB
William S. 62 Director of Pacific Capital and FNB 1983 50,697(2)(9) 1.94%
McAfee
William H. 68 Director of Pacific Capital 1983 33,872(2)(10) 1.30%
Pope and FNB
William K. 69 Director of Pacific Capital 1990 43,531(2)(11) 1.67%
Sambrailo and FNB
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially
Owned As of
September 10, 1996(1)
-- ---------------------
Director of
Positions and Offices Held Pacific Capital Percent of
Nominee Age With Pacific Capital and FNB Since Amount Class
- ------- --- ---------------------------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Robert B. 74 Director of Pacific Capital 1983 40,347(2) 1.55%
Sheppard and FNB
Clyn Smith, 76 Director of Pacific Capital and FNB 1984 48,945(2)(12) 1.87%
Jr.
All directors and officers 607,629(13) 21.16%
of Pacific Capital as
a group (17 in number)
<FN>
(1) Adjusted to reflect a 5% stock dividend paid to shareholders of record as
of December 1, 1995.
(2) Includes 6,379 shares subject to presently exercisable options granted
under Pacific Capital's 1992 Directors' Stock Option Plan and 11,025
shares issuable upon exercise of options granted under Pacific Capital's
1994 Stock Option Plan.
(3) Includes 6,627 shares subject to presently exercisable options granted
under Pacific Capital's 1984 Stock Option Plan and 2,528 shares held by
DiCicco Centers, a partnership in which Mr. DiCicco is a general partner.
(4) Includes 5,422 shares held by Wells Fargo Bank, Trustee of the Lewis L.
Fenton Managed Individual Retirement Account.
(5) Includes 5,505 shares held by Stanley Haynes, trustee of the Stanley
Haynes Family Revocable Inter Vivos Trust dated 9/13/91, 3,478 shares held
by Cinderella Showcase, Inc., a corporation controlled by Mr. Haynes,
2,231 shares held in an IRA, and 438 shares held by Mr. Haynes and his
daughter as joint tenants.
(6) Includes 18,231 shares subject to presently exercisable options granted
under Pacific Capital's 1984 Stock Option Plan and 5,909 shares allocated
as of December 31, 1995, to Mr. Horton's account pursuant to Pacific
Capital's Employee Stock Ownership Plan, 1,930 shares held in an IRA, and
612 shares held by the 1987 First National Bank of Central California
Irrevocable Nonqualified Deferred Compensation Trust, FBO D. Vernon
Horton.
(7) Represents 7,173 shares held in an IRA and 6,842 shares held by William
James Keller and Clara Downs Keller, Trustees of the 1986 Keller Revocable
Trust U/D/T dated 9/9/86 F/B/O William James Keller and Clara Downs
Keller.
(8) Includes 18,231 shares subject to presently exercisable options granted
under Pacific Capital's 1984 Stock Option Plan and 5,799 shares allocated
as of December 31, 1995, to Mr. Larson's account pursuant to Pacific
Capital's Employee Stock Ownership Plan, 6,616 shares held in an IRA, and
4,544 shares held in the 1987 First National Bank of Central California
Irrevocable Nonqualified Deferred Compensation Trust, FBO Clayton C.
Larson. Also includes 61 shares held for Derek Larson and 59 shares each
held for Jamie Larson and Jill Larson, by Sharon Larson under the
California Uniform Gift to Minors Act and 578 shares held by Mrs. Larson
in an IRA.
(9) Represents 27,276 shares held by the William S. McAfee, MD, Inc., TR
Revised Profit Sharing Plan over which Dr. McAfee exercises sole voting
and investment control and 1,471 held by a defined benefit plan of which
Dr. McAfee's wife is trustee.
(10) Includes 12,821 shares held by W. H. Pope, Inc., as to which Mr. Pope
exercises sole voting and investment control and 988 shares held in an
IRA.
(11) Represents 9,819 shares held by the Charles Sambrailo Paper Company Profit
Sharing Plan over which Mr. Sambrailo exercises voting and investment
control, 129 shares held by Mr. Sambrailo and Clarence J. Ferrari, Jr.,
Co-Trustees of the Charles P. Sambrailo, Jr., QTIP Trust UTA dated
10/1/76, as amended and 16,179 shares held by William K. Sambrailo TR, or
his successor trustee under Revocable Trust Agreement dated 9/1/89, as
amended, FBO William K. Sambrailo.
(12) Includes 1,027 shares owned by Dr. Smith's wife and 30,514 shares held by
Clyn Smith, Jr., Trustee of the Clyn Smith, Jr., Living Trust 6/3/82.
(13) Includes 48,558 shares subject to presently exercisable options granted
under Pacific Capital's 1984 Stock Option Plan, 82,927 shares subject to
presently exercisable options granted under the 1991 Director's Stock
Option Plan and 146,475 shares subject to presently exercisable options
granted under the 1994 Stock Option Plan. Also includes 18,059 shares
allocated under Pacific Capital's Employee Stock Ownership Plan.
</FN>
</TABLE>
21
<PAGE>
The following information with respect to the principal occupation or
employment of each director and executive officer, the principal business of the
corporation or other organization in which such occupation or employment is
carried on, and in regard to other affiliations and business experience during
the past five (5) years, has been furnished to Pacific Capital by the respective
directors and executive officers. Except for PCSC and Pacific Capital's
wholly-owned banking subsidiary, FNB, none of the corporations or organizations
discussed below is an affiliate of Pacific Capital.
CHARLES E. BANCROFT is a director, President and Chief Executive Officer
of Sequoia Insurance Company, a California domicile property and casualty
insurance company. He also serves as President of the Coalition of Independent
Casualty Companies of America (CICCA). He was formerly director and officer for
Pace America, from which he resigned in August 1994. Until June 30, 1986, Mr.
Bancroft served as Chairman, President and Chief Executive Officer of Calmutual
Insurance Company, a successor to California Mutual Insurance Company, for which
Mr. Bancroft served as Chairman and Chief Executive Officer for eighteen years.
Mr. Bancroft has also held numerous civic and trade-related offices and
directorships.
DENNIS A. DECIUS is Executive Vice President and Chief Financial Officer
of Pacific Capital, Senior Vice President and Chief Financial Officer of FNB,
and Chief Financial Officer and Secretary of PCSC. Mr. DeCius' banking career
began in 1959 when he joined the Federal Reserve Bank of San Francisco. During
his nine and one-half years with the Federal Reserve Bank of San Francisco, he
held various positions and spent six years serving in the capacity of Assistant
Auditor. In 1970, he was employed by Valley National Bank of Arizona as
Assistant Branch Manager/Operations. In 1973, he moved to El Camino Bank,
Anaheim, California as the Vice President and Cashier and served in that
capacity until June of 1974 when he joined Valley National Bank, Salinas,
California as Vice President and Cashier. Mr. DeCius rejoined Valley National
Bank of Arizona in 1976 as Project Coordinator. In 1979, Mr. DeCius accepted a
position with Valley Bank of Nevada as Vice President/Manager of Depositor
Services, and, during the remainder of his tenure, also served in the positions
of Vice President, Chief Auditor and Vice President of Human Resources. In 1982,
he joined Chino Valley Bank, Chino, California as Senior Vice President and
Cashier. Mr. DeCius serves as a director and Chairman of Western Payments
Alliance.
GENE DICICCO founded and is a principal in DiCicco Nurseries, Inc.,
Sunnyvale Floral Shippers, Inc., DiCicco Centers and Watsonville Nurseries. He
has had active involvement as a board member, President, or committee chair in
the Watsonville Chamber of Commerce, Rotary Club, Watsonville Community Hospital
and Watsonville YMCA. Mr. DiCicco is presently President of the Board of
Directors for Watsonville Community Hospital. He also has held positions of
responsibility in trade organizations serving rose growers in the United States.
DALE R. DIEDERICK is Senior Vice President/Loan Administration for FNB. He
has been with FNB since 1984 and was elected an executive officer in January
1993. Mr. Diederick was with Valley National Bank, Salinas from 1977-1984 and
served as a regional supervisor responsible for the loan operations of nine
branches prior to joining FNB. He was a branch manager with Household Finance
Company prior to beginning his banking career. Mr. Diederick has also served as
an instructor for Robert Morris Associates in both consumer lending and
commercial lending courses.
LEWIS L. FENTON is a practicing attorney serving as of counsel to Fenton &
Keller, a professional corporation with offices in Monterey and Salinas, and to
Hoge, Fenton, Jones and Appel, Inc. of San Jose. Mr. Fenton received his A.B.
degree from Stanford University in 1948 and his L.L.B. degree from Stanford
University Law School in 1950 and has been a member of the California Bar
Association since that time. Mr. Fenton is a member of the American Bar
Association, the Monterey and Santa Clara County Bar Associations, the National
Association of Railroad Trial Counsel, the Association of Defense Counsel of
Northern California (serving as President during 1966-1967) and the
International Academy of Trial Lawyers. He is certified as an Advocate by the
American Board of Trial Advocates, the National Board of Trial Advocates and is
a fellow of the American College of Trial Lawyers.
GERALD T. FRY is the Chief Financial Officer of OPI-Office Products, Inc.
in Monterey and served as a member of the Monterey City Council beginning in
1963, having been re-elected six times. Mr. Fry also served as
22
<PAGE>
Mayor of Monterey, having been elected three times. He has been actively engaged
in the office products sales field since 1960.
JAMES L. GATTIS is a self-employed real estate developer and is active in
commercial real estate development and the renovation of commercial buildings in
Salinas. Mr. Gattis is the former owner of Jim Gattis Men's Wear and is
President of Keystone Plus, Inc. which is a management consulting company. Mr.
Gattis serves as a Founding Director of the California International Airshow,
and Director of Cherry's Jubilee, Salinas Valley Memorial Hospital Foundation,
Community Foundation for Monterey County and is a director of the Steinbeck
Center Foundation.
STANLEY R. HAYNES has been President of Cinderella Showcase, Inc., since
1967, a retail carpet firm with three stores in Salinas and two stores in San
Luis Obispo. Mr. Haynes is a former member of the Evans-Black Carpets National
Dealer Advisory Council, a former member of the Board of Directors of the Retail
Carpet Institute and was named America's Floor Covering Dealer of the year in
1978.
D. VERNON HORTON is Chairman of the Board, Chief Executive Officer and a
director of Pacific Capital and FNB. Mr. Horton's banking career commenced in
1964 with Valley National Bank, Salinas. He served that bank in various
capacities including lending, operations and business development and in 1979
was appointed Chief Executive Officer and a member of the Board of Directors. In
August of 1981 he was appointed President of Valley National Bank. He resigned
all positions with Valley National Bank on December 31, 1983 to join Pacific
Capital and FNB. Mr. Horton is also a director of PCSC. He serves as a director
of Cherry's Jubilee and the California Rodeo Association.
HUBERT W. HUDSON is a consultant to McSherry & Hudson, Watsonville, a
general insurance agency, a position he has held since January 1995 when he sold
his partnership interest which he had held since 1950. In addition to his
insurance business, Mr. Hudson is an investor in several Santa Cruz County
properties including Aptos Station, a shopping center in Aptos, and properties
in the City of Watsonville held by the partnership, Arthur Road Properties of
Watsonville. He is past President of the Watsonville Rotary Club, Watsonville
Insurance Agents Association and Past Director of the Independent Insurance
Agents Association of California. He is a member of SCORE, a counseling service
to small businesses.
WILLIAM J. KELLER has been a practicing urologist in Salinas since 1964. A
graduate of the University of Illinois with a degree in chemistry, he attended
medical school at the University of Illinois Medical Center in Chicago and
received his M.D. degree in 1957. His internship in Chicago in 1957 and 1958 was
followed by a four-year residency in urology at the Southern Pacific Hospital in
San Francisco. Following a two-year tour of duty as a captain in the Medical
Corps at Womack Army Hospital in Fort Bragg, North Carolina, he moved to
Salinas. Professional activities include membership in the California Medical
Association and Monterey County Medical Society (President 1975-76). Dr. Keller
is also a Fellow of the American College of Surgeons and a Diplomate of the
American Board of Urology. He is Past President of the Salinas Rotary Club.
CLAYTON C. LARSON is President, Chief Administrative Officer and a
director of Pacific Capital and FNB. Mr. Larson's banking career commenced in
1972 when he joined Valley National Bank, as a loan officer. During his tenure
with Valley National Bank he attained the position of Senior Vice
President/Branch Administrator and in 1981 became a director of that bank. In
addition to his duties as Branch Administrator, he was responsible for the
marketing activities of the bank and was chairman of the salary committee. Mr.
Larson is also President and a director of PCSC. He serves on the Board of
Trustees of the Monterey Institute of International Studies and is currently
President of the Community Foundation of Monterey County.
WILLIAM S. McAFEE is a physician and surgeon specializing in
otolaryngology and head and neck surgery in Monterey since 1968. Dr. McAfee
graduated from Ohio Wesleyan University in 1956, received his M.D. degree from
the Ohio State University College of Medicine in 1961 and served his internship
and residency between 1962 and 1966 at the Herbert C. Moffitt - University of
California Hospital in San Francisco. He was board certified in otolaryngology
in 1966, has been a Fellow of the American College of Surgeons since 1972 and is
a Fellow in the American Academy of Facial Plastic and Reconstructive Surgery.
Dr. McAfee is the President of the Monterey Peninsula Surgery Center. He serves
on the Monterey County Medical Society Board of Directors, is a member of the
California Medical Association and is past President of the Monterey Rotary
Club.
23
<PAGE>
WILLIAM H. POPE is a retired certified public accountant. In 1960, Mr.
Pope was instrumental in the formation of the firm of Kasavan and Pope, of which
he was the senior partner, which now has offices in Salinas and Monterey. He
holds memberships in the American Institute of Certified Public Accountants as
well as the California Society of CPAs.
WILLIAM K. SAMBRAILO joined the Charles Sambrailo Paper Company,
Watsonville, a produce packaging supplies company, in 1962 and has served as its
President since 1989. He is also Secretary/Treasurer of S&S Trucking, a common
carrier, a partner in Charles Sambrailo & Sons, and a partner in Samco Plastics,
Inc., an injection mold and manufacturing company.
ROBERT B. SHEPPARD retired in 1981 as Vice Chairman of the Board of
Directors of Allstate Insurance Companies, culminating a thirty-year career in
the insurance industry. He was President of Allstate Insurance Companies and
Allstate Enterprises, Inc. from 1973 to 1980. Mr. Sheppard served on the
Executive Committee of the United States Olympic Committee from 1976 to 1988 and
is currently a trustee of the United States Olympic Foundation. He is also a
Trustee of Community Hospital of the Monterey Peninsula. In addition, Mr.
Sheppard is a consultant and a member of the Compensation Committee to The
Doctors Co., a medical malpractice insurer.
CLYN SMITH, JR., is a general surgeon who began his practice in Monterey,
California in 1949 and retired from practice in 1984. Dr. Smith graduated (A.B.)
from Stanford University in 1940 and received his M.D. degree from Stanford
University School of Medicine in 1944. He is a Fellow of the American College of
Surgeons and a Diplomate of the American Board of Surgery. He served his
internship at the Highland-Alameda County Hospital in Oakland in 1943-44
followed by two years of military service in the Army Medical Corps. He was
resident in surgery at the Samuel Merritt Hospital in Oakland, CA in 1946-47 and
was resident in surgery at the Highland-Alameda County Hospital in Oakland, CA
in 1947-49. Professional activities include membership in the American Medical
Association, California Medical Association and the Monterey County Medical
Society, of which he is a past President. Dr. Smith is a former member of the
Board of Directors of the Carmel Foundation and the Carmel Bach Festival.
No director or executive officer of Pacific Capital or FNB has any family
relationship with any other director or executive officer of Pacific Capital or
FNB.
No director or nominee as a director of Pacific Capital is a director of
any company with a class of securities registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended, or subject to the requirements of
Section 15(d) of such Act or of any company registered as an investment company
under the Investment Company Act of 1940, as amended.
Committees of the Board of Directors
The Board of Directors has formed a standing audit committee of Pacific Capital,
which meets in conjunction with the audit committee of FNB and has the same
membership. The members of Pacific Capital's Audit Committee are Messrs. Pope,
Fenton, Fry, Haynes, Keller and McAfee. The Board of Directors of FNB has
established an Executive Committee as well as committees for Loan,
Investment/Asset liability, Audit/Security, Human Resources, Insurance,
Information Services and Marketing. The Board of Directors performs the function
of the compensation committee and the Executive Committee performs the function
of the nominating committee of Pacific Capital. In accordance with the
requirements of the Commission, the Human Resources Committee of the Board of
Directors of FNB has prepared the Report on Executive Compensation.
The Board of Directors of Pacific Capital met twelve (12) times during 1995.
During 1995, each director of Pacific Capital attended at least 75% of the
meetings of the Board of Directors and of the meetings of committees on which
each director served.
24
<PAGE>
<TABLE>
Executive Officers
The following table sets forth certain information with respect to the executive
officers of Pacific Capital:
<CAPTION>
Name Age Positions Held With Pacific Capital Executive Officer Since
- ---- --- ----------------------------------- -----------------------
<S> <C> <C> <C>
D. Vernon Horton 56 Chairman of the Board, and 1983
Chief Executive Officer and Director
Clayton C. Larson 49 President, Chief Administrative 1983
Officer and Director
Dennis A. DeCius 56 Executive Vice President and 1983
Chief Financial Officer
Dale R. Diederick 46 Senior Vice President/ 1993
Loan Administration
</TABLE>
Executive Compensation
The following table sets forth a summary of the compensation paid
(for services rendered in all capacities) during Pacific Capital's past three
fiscal years to D. Vernon Horton, Chief Executive Officer of Pacific Capital,
and to Clayton C. Larson, Dennis A. DeCius and Dale R. Diederick, executive
officers of Pacific Capital whose annual compensation for 1995 exceeded
$100,000.
25
<PAGE>
<TABLE>
<CAPTION>
Long-Term
Other Compensation
Annual ----
Compensation All Other
Name Position Year Salary Bonus (1) Awards Compensation
-------
Options
<S> <C> <C> <C> <C> <C> <C> <C> <C>
D. Vernon Horton Chief Executive Officer 1995 $171,254 $155,250 $11,150 0 $90,556 (2)
1994 $159,328 $135,000 $11,050 0 $57,332
1993 $153,200 $110,000 $11,492 0 $45,517
Clayton C. Larson President 1995 $165,672 $155,250 $12,650 $70,575 (3)
1994 $154,128 $135,000 $9,447 0 $40,866
1993 $148,200 $110,000 $13,050 0 $27,482
Dennis A. DeCius Executive Vice President/ 1995 $109,027 $67,650 $7,812 0 $63,208 (4)
Chief Financial Officer 1994 $102,856 $61,500 $6,200 0 $41,026
Senior Vice President/ 1993 $98,900 $50,000 $6,200 0 $28,533
Dale R. Diederick Loan Administration 1995 $87,192 $22,000 $3,325 0 $24,814 (5)
<FN>
(1) Includes dollar value of perquisites, consisting entirely of a car
allowance.
(2) Includes for 1995 the cash value of shares allocated to Mr. Horton's ESOP
account ($52,948), $1,500 contributed by Pacific Capital to Mr. Horton's
account in Pacific Capital's 401(k) Plan, $6,284 paid in life insurance
and medical coverage premiums for Mr. Horton and $29,824 accrued under Mr.
Horton's Salary Continuation Agreement.
(3) Includes for 1995 the cash value of shares allocated to Mr. Larson's ESOP
account ($52,094), $1,500 contributed by Pacific Capital to Mr. Larson's
account in Pacific Capital's 401(k) Plan, $5,858 paid in life insurance
and medical coverage premiums for Mr. Larson and $11,123 accrued under Mr.
Larson's Salary Continuation Agreement.
(4) Includes for 1995 the cash value of shares allocated to Mr. DeCius' ESOP
account ($38,219), $1,500 contributed by Pacific Capital to Mr. DeCius'
account in Pacific Capital's 401(k) Plan, $5,217 paid by Pacific Capital
for life insurance and medical coverage premiums for Mr. DeCius and
$18,272 accrued under Mr. DeCius' Salary Continuation Agreement.
(5) Includes for 1995 the cash value of shares allocated to Mr. Diederick's
ESOP account ($23,647), $1,167 contributed by Pacific Capital to Mr.
Diederick's 401(k) Plan.
</FN>
</TABLE>
Stock Options Grants and Exercises
In addition to Pacific Capital's 1984 Stock Option Plan, the
Board of Directors of Pacific Capital adopted the Pacific Capital Bancorp 1994
Stock Option Plan on September 27, 1994, in which the Chief Executive Officer
and other executive officers of Pacific Capital participate. The 1994 Stock
Option Plan set aside 489,000 shares (adjusted to reflect all stock dividends,
stock splits and option exercises) of Pacific Capital's Common Stock for which
options may be granted to the directors, officers and employees of Pacific
Capital. The 1994 Stock Option Plan was approved by the shareholders of Pacific
Capital at Pacific Capital's 1995 Annual Meeting of Shareholders. The 1994 Stock
Option Plan extends for a period of ten (10) years and is administered by a
three-member committee of the Board of Directors. All committee members qualify
as "disinterested persons" within the meaning of the Rule 16b-3 of the Exchange
Act.
The 1994 Stock Option Plan provides for the issuance of options
which qualify as incentive stock options and under Section 422A of the Internal
Revenue Code, as amended, as well as nonqualified options. Incentive stock
options are subject to different tax treatment than nonqualified options. The
exercise price of any option may not be less than 100% of the fair market value
of the shares subject to option on the date the option is granted.
Within three (3) months following termination of directorship or
employment for any reason other than death, disability, or cause, an optionee
may exercise his or her option to the extent such option was exercisable on the
date of termination. If an optionee's employment or status as an officer or
director is terminated by death or disability, such optionee or such optionee's
qualified representative or estate has the right for a period of twelve (12)
months following the date of such death or disability or exercise the option to
the extent the optionee was entitled to exercise such option on the date of the
optionee's death or disability, provided the actual date of exercise is in no
event after the expiration of the term of the option. If an optionee is
terminated for cause, neither the optionee nor the optionee's estate is entitled
to exercise any option with respect to any shares of Pacific Capital Common
Stock.
26
<PAGE>
No options under the 1984 or 1994 Stock Option Plans were
exercised by any of the executive officer of Pacific Capital during the 1995
fiscal year.
The following table shows the stock options granted to named
executive officers during the last completed fiscal year:
<TABLE>
Option/SAR Grants in Last Fiscal Year
<CAPTION>
Potential
Realizable Value at
Assumed Annual Alternative
Rates of Stock Price to and
Appreciation Grant Date
for Option Term Value
Individual Grants
Number of % of
Securities Total
Under- Options/
lying SARs
Option/ Granted to Exercise
SARs Employees or Base Grant Date
Granted in Fiscal Price Expiration Present
Name (#) Year ($/Sh) Date 5%($) 10%($) Value $
<S> <C> <C> <C> <C> <C> <C> <C>
Dale R.
Diederick 3,000 24.0% $19.00 05/18/04 $85,847 $90,843 $0
</TABLE>
The following table shows the value at December 31, 1995, of unexercised options
held by the named executive officers:
<TABLE>
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
<CAPTION>
Number of securities Value of
underlying unexercised unexercised
options at fiscal year-end (#) in-the-money options
at fiscal year-end ($)
Shares acquired Value Realized ($) Exercisable/ Exercisable/
Name on exercise (#) unexercisable unexercisable
<S> <C> <C> <C> <C>
D. Vernon Horton 0 0 18,231/0 $205,363/$0
Clayton C. Larson 0 0 18,231/0 $205,363/$0
Dennis A. DeCius 0 0 5,469/0 $61,606/$0
Dale R. Diederick 0 0 787/2,363 $5,631/$16,907
</TABLE>
Employment Contracts
FNB entered into a three-year employment agreement with Mr.
Horton on May 22, 1996, pursuant to which he serves as Chairman of the Board of
FNB. The agreement provides for an annual salary of $183,241 subject to annual
increases within the sole discretion of the Board of Directors of FNB. FNB may
also pay an annual discretionary cash bonus to Mr. Horton based upon his efforts
and performance. The amount of such bonus, if any, will be determined within the
sole discretion of the Board of Directors of FNB. If Mr. Horton is terminated
without cause during the course of the agreement, he will be entitled to receive
severance pay in an amount equal to six months' salary at his then prevailing
salary. In the event of a change in control by merger or purchase of FNB and/or
Pacific Capital into or by another entity, not resulting from financial
difficulties or insolvency of FNB or Pacific Capital, Mr. Horton shall receive
two and one-half times his annual base salary plus any bonus due him for the
average of the three years immediately preceding the effective time of such
change of control. In any other event, Mr. Horton will be entitled only to the
salary earned up to the date of termination. If a program is established which
provides for a calculable annual bonus, he also will be entitled to receive a
pro rata bonus based upon the fraction of the calendar year during which he was
employed. Mr. Horton has been provided with an automobile for use during the
term of the agreement. Mr. Horton is also being reimbursed for all ordinary and
necessary expenses incurred by him in connection with activities associated with
promoting the business of FNB. Further, Mr. Horton has been furnished a term
life insurance policy in the face amount of $250,000 and with health, accident
and disability insurance for himself and his family.
27
<PAGE>
FNB entered into a three-year employment agreement with Mr.
Larson on May 22, 1996, pursuant to which he serves as President and Chief
Administrative Officer of FNB. The agreement provides for an annual salary of
$177,275, subject to annual increases within the sole discretion of the Board of
Directors of FNB. The remaining terms of Mr. Larson's agreement regarding
automobile, bonuses, termination, expenses, insurance and severance pay are
identical to those contained in Mr. Horton's agreement.
FNB entered into a three-year employment agreement with Mr.
DeCius on May 22, 1996, pursuant to which he serves as Senior Vice President and
Chief Financial Officer of FNB. The agreement provides for an annual salary of
$116, 659, subject to annual increases within the sole discretion of the Board
of Directors of FNB. The remaining terms of Mr. DeCius' agreement regarding
automobile, bonuses, termination, expenses, insurance and severance pay are
identical to those contained in Mr. Horton's agreement with the exception of the
severance amount paid to Mr. DeCius in the event of a change in control. Mr.
DeCius would receive one and one-half times his annual base salary plus any
bonus due him for the average of the three years immediately preceding the
effective time of such change in control.
Executive Salary Continuation Agreements
On August 22, 1989, Messrs. Horton, Larson and DeCius each
entered into an Executive Salary Continuation Agreement with FNB. The agreements
provide that if the Executive continues to be employed by FNB at least until he
reaches age 65, the Executive may retire or continue to work past age 65. Upon
the Executive's retirement, FNB will pay an annual amount of $75,000, $70,000
and $50,000 to Messrs. Horton, Larson and DeCius, respectively, payable monthly
for a period of 180 months following such retirement, subject to certain
conditions set forth in the agreements. The Executive may also elect to take
"early retirement" provided he has reached age 55 and has completed 10 years of
service. If he so elects, he will receive monthly payments determined pursuant
to a formula set forth in the agreements for a period of 180 months.
If the Executive has been employed by Pacific Capital for a
period of at least 3 continuous years, and the Executive's employment is
terminated by Pacific Capital without cause, the Executive will be considered to
be vested in 20% of the total amount he would otherwise receive and will become
vested in an additional 10% for each succeeding year until he becomes 100%
vested. In the event of a change in control of Pacific Capital, the Executive
will become fully vested and, if his employment is terminated as a result of
said change in control, will be entitled to the full amount as a severance
payment.
FNB purchased single premium life insurance policies on Messrs.
Horton, Larson and DeCius in order to assist in meeting its obligations under
the agreements and to indemnify FNB against loss. FNB is named as owner and
beneficiary under each of the insurance policies.
Other Compensation and Compensation of Directors
The Chairman of the Board of FNB receives $500 for each regular
meeting of the Board of Directors attended, while other non-employee directors
receive $200. FNB directors who serve as members of FNB's Loan and Discount
Committee receive $200 for each meeting attended. The Chairman of the Audit and
Security Committee receives $300 and other non-employee directors receive $100
for each meeting attending. The Chairman of the Investment Asset/Liability
Committee receives $100 and other non-employee directors receive $50 for each
meeting attended. FNB directors who serve as members of FNB's Executive
Committee, Human Resources, Information Services and/or Insurance Committees
receive $100 for each meeting attended.
FNB, on behalf of certain of its directors who desire group
medical insurance coverage, paid $21,797 in insurance premium payments for such
coverage in 1995.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires
Pacific Capital's officers and directors, and any persons who own more than ten
percent of a registered class of Pacific Capital's equity securities, to file
reports of ownership and changes in ownership with the Commission. Officers,
directors and greater than ten-percent shareholders are required by Commission
regulation to furnish Pacific Capital with copies of all Section 16(a) forms
28
<PAGE>
they file. To the best knowledge of Pacific Capital, there are no persons who
own more than ten percent of Pacific Capital's Common Stock.
Based solely on its review of the copies of such forms received
by it or written representations from certain reporting persons that no Form 5s
were required for those persons, Pacific Capital believes that, for the fiscal
year ended December 31, 1995 all filing requirements applicable to its officers
and directors have been satisfied.
Certain Relationships and Related Transactions
FNB's Administrative and Oldtown office is leased from James L.
Gattis, a director of Pacific Capital, pursuant to a lease for a total of 17,033
square feet of office space in a building located at 307 Main Street, Salinas,
California. The initial lease commenced on May 1, 1989, for a five (5) year term
with three consecutive five-year options to renew. The first option commenced on
January 1, 1994. The initial rental rate under the lease was $10,600 per month
and is increased annually to reflect changes in the Consumer Price Index for all
items for the San Francisco/Oakland Metropolitan Area, using October, 1988 as
the base month. FNB also pays all taxes and assessments levied against the
leased premises and also pays for all utilities. FNB paid $188,060 in rent for
these premises during 1995.
Based on available market lease rate information, FNB's Board of
Directors has determined that the lease rate is competitive with and comparable
to market lease rates in Salinas, California and that the terms of the lease are
no less favorable to FNB than would be the terms of a lease with an unrelated
party.
FNB obtained various insurance policies through the insurance
agency of McSherry & Hudson, of which Director Hubert W. Hudson was a partner
during 1995. FNB paid $150,062 in insurance premiums to McSherry & Hudson in
1995.
Indebtedness of Management
Some of the directors and executive officers of Pacific Capital,
and members of their immediate families and the companies with which they have
been associated, have been customers of and have had banking transactions with
FNB in the ordinary course of FNB's business since January 1, 1995, and FNB
expects to have such banking transactions in the future. All loans and
commitments to lend included in such transactions were made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons and, in the opinion of FNB,
did not involve more than the normal risk of collectibility or present other
unfavorable features.
INFORMATION ABOUT SOUTH VALLEY
South Valley is a California corporation organized in 1982 to act as the
bank holding company of South Valley National Bank, a national bank ("SVNB")
with headquarters in Morgan Hill and branch offices in Gilroy, Hollister and San
Juan Bautista. In 1983, South Valley purchased all of the outstanding common
stock of SVNB. Other than holding the shares of SVNB, South Valley conducts no
significant activities, although it is authorized, with the prior approval of
the Board of Governors of the Federal Reserve System (the "FRB"), South Valley's
principal regulator, to engage in a variety of activities which are deemed
closely related to the business of banking.
SVNB engages in general commercial banking in southern Santa Clara County
and in San Benito County, offering traditional commercial banking services to
the business, professional and consumer communities, with emphasis on larger
consumer accounts, small and mid-size business accounts and professional
accounts. To the fullest extent possible, loans are written on a variable rate
basis. Commercial, real estate, and consumer loans are offered and are tailored
to the individual needs of the borrower. SVNB's marketing efforts focus on local
customers, both in selling SVNB's services and attracting deposits. SVNB accepts
noninterest-bearing and interest-bearing demand accounts, as well as traditional
savings accounts and time certificates of deposit with competitively priced
interest rates.
29
<PAGE>
The main offices of South Valley and SVNB are located at 500 Tennant
Station in Morgan Hill, California; SVNB's Gilroy office is located at 8000
Santa Teresa Blvd.; SVNB's Hollister office is located at 1730 Airline Highway;
and SVNB's San Juan Bautista office is located at 301 Third Street.
SVNB's commercial lending is focused on providing short term loans and
lines of credit to professional service firms and local businesses. Commercial
clients include small retail businesses, light industry manufacturing companies
and various professional service firms. Emphasis is placed on the borrower's
earnings history, capitalization, secondary sources of repayment (such as
accounts receivable) and, in many instances, tertiary sources of repayment (such
as personal guarantees or personal assets). Through community involvement in
Chambers of Commerce, rotary clubs, civic organizations and redevelopment
activities, officers of SVNB stay in close contact with the leaders and decision
makers within the communities.
In addition, SVNB offers construction loans, generally for single-family
residences and multi-unit projects. Real estate and construction loans are
typically secured by first deeds of trust and guarantees from principals of the
borrower. The economic viability of the project and the borrower's credit
worthiness are primary considerations in the loan underwriting decision. SVNB
uses independent local appraisers, conservative loan-to-value ratios (e.g.,
generally not to exceed 75% of the appraised value of the property) and close
monitoring of the projects during construction phases, and, in the absence of
rapid declines in real estate values, ultimate collectibility of these secured
loans is considered by SVNB's management to be better than the average mix of
commercial loans. SVNB does not make long term fixed rate real estate loans and,
therefore, material sustained increases or decreases in general interest rate
levels have only a short-term effect on SVNB's net yield on real estate loans.
SVNB engages in consumer lending in the form of home equity loans and
lines of credit, loans to individuals for household, family and other personal
expenditures and unsecured personal loans. SVNB also issues credit cards to
consumers and businesses.
As of June 30, 1996, commercial loans and lines of credit represented
approximately 35.1% of SVNB's total loan portfolio, real estate loans
approximately 35.2% of the total loan portfolio, and consumer loans
approximately 15.0% of the total loan portfolio. Real estate construction loans
at June 30, 1996 comprised approximately 14.7% of the loan portfolio.
SVNB's deposits are principally obtained from individuals, small and
medium-size businesses and professional firms. As of June 30, 1996, SVNB had
approximately 6,172 accounts, totalling approximately $35,078,000 of noninterest
bearing demand deposits, with an average balance of approximately $5,683 and
approximately 13,694 accounts totalling $121,600,000 in interest bearing demand,
time and savings deposits with an average balance of approximately $8,880.
SVNB's deposits are insured by the FDIC up to the legal limit thereon, which is
currently $100,000 per depositor.
Directors of South Valley
The following table sets forth certain information regarding the current
directors of South Valley. There are no arrangements or understandings by which
any of the executive officers or directors of either South Valley or the SVNB
were selected. There is no family relationship between any of the directors and
executive officers. For information regarding beneficial ownership of South
Valley Common Stock by South Valley officers and directors, see "Voting and
Proxies--Interests of South Valley Officers and Directors in the Merger."
30
<PAGE>
================================================================================
Name Age Positions Held with the South Valley and SVNB
================================================================================
Laurence M. Connell 62 Director of South Valley since 1982; Director of
SVNB since 1983.
- --------------------------------------------------------------------------------
Richard L. Conniff 49 Senior Vice President and Chief Financial Officer
of SVNB since 1995.
- --------------------------------------------------------------------------------
Joseph A. Filice 59 Director of South Valley since 1982; Director of
SVNB since 1983.
- --------------------------------------------------------------------------------
Eugene R. Guglielmo 46 Director of South Valley since 1982; Director of
SVNB since 1983.
- --------------------------------------------------------------------------------
Roger C. Knopf 55 Chairman of South Valley and SVNB since 1995;
Director of South Valley since 1982; Director of
SVNB since 1983.
- --------------------------------------------------------------------------------
Edward J. Lazzarini 67 Director of South Valley since 1982; Director of
SVNB since 1983.
- --------------------------------------------------------------------------------
R. Kurt Michielssen 44 Senior Vice President and Credit Administrator of
SVNB since 1984.
- --------------------------------------------------------------------------------
Donald G. Mountz 65 Director of South Valley and SVNB since 1984.
- --------------------------------------------------------------------------------
James R. Price 70 Director of South Valley and SVNB since 1994.
- --------------------------------------------------------------------------------
Mary Lou Rawitser 52 Director of South Valley and SVNB since 1994.
- --------------------------------------------------------------------------------
Brad L. Smith 46 Director of South Valley since 1985; President and
Chief Executive Officer of South Valley since 1994;
Director, President and Chief Executive Officer of
SVNB since 1985.
================================================================================
The principal occupation(s) during the past five (5) years of
each director of South Valley whose name appears in the table above is as
follows:
LAURENCE M. CONNELL has been owner and President of Connell
Realty Inc., a real estate brokerage located in Gilroy, California, since 1969.
JOSEPH A. FILICE has been the President of Filice Accountancy
Corporation located in Gilroy, California, since 1980.
EUGENE R. GUGLIELMO has been the General Manager and Secretary of
Emilio Guglielmo Winery, Inc., located in Morgan Hill, California, since 1972.
ROGER C. KNOPF has been the owner and President of Knopf
Construction Co., a custom home builder located in Morgan Hill, California,
since 1979.
EDWARD J. LAZZARINI has been the owner and President of Lazzco,
Inc., a real estate rental company located in Morgan Hill, California, since
1978. He has been a practicing certified public accountant since 1957.
DONALD G. MOUNTZ has been the President and Chief Executive
Officer of Mountz, Inc., a manufacturer and marketer of precision torque
equipment located in San Jose, California, since 1965.
31
<PAGE>
JAMES R. PRICE has been the President of LynRob Enterprises, a
real estate development firm located in Morgan Hill, California since 1990.
Previously, Mr. Price served as Chairman of ASCO Air Conditioning, Inc., a
heating and air conditioning contractor located in Morgan Hill, California.
MARY LOU RAWITSER has been a financial planner in Gilroy,
California since 1978.
None of South Valley's or SVNB's directors is a director of any
other company with a class of securities registered pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or subject
to the requirements of Section 15(d) of the Exchange Act or any company
registered under the Investment Company Act of 1940.
Committees of the Board of Directors
There were fifty-eight (58) meetings of South Valley's and SVNB's
Boards of Directors and their respective Committees during the fiscal year ended
December 31, 1995. Each director attended at least 75% of the aggregate number
of Board of Directors meetings and meetings held by all committees of the board
on which each such director served.
The Boards of Directors of South Valley and SVNB have established
the following standing committees, with membership as noted:
The Executive Committee is chaired by Mr. Knopf. Messrs.
Lazzarini, Mountz and Smith are also members. The Executive Committee has
general authority to perform those functions delegated to it by the Board of
Directors or by the Chairman of the Board of Directors. The Executive Committee
held eight (8) meetings during 1995.
The Audit Committee (a) recommends to the Board of Directors an
outside accounting firm to conduct an annual audit of the books and records of
South Valley and SVNB, (b) reviews with such accounting firm the results of the
annual audit, (c) reviews the performance of the accounting firm, and (d)
consults with the accounting firm with regard to the adequacy of internal
accounting controls. The Audit Committee is chaired by Mr. Knopf and includes
the entire Board of Directors except Mr. Smith. The Audit Committee held four
(4) meetings during 1995.
The Stock Option Committee's principal function is to administer
South Valley's stock option plans. The Committee is chaired by Mr. Knopf and
includes the entire Board of Directors. The Stock Option Committee held one (1)
meeting during 1995.
South Valley has no standing Nominating Committee. The selection
of South Valley's nominees for directors may be carried out by the Board of
Directors or by any shareholder pursuant to the procedure outlined in Section
2.3 of South Valley's Bylaws.
The Directors Loan and Investment Committee reviews and evaluates
the loan and investment policies and portfolios of SVNB. The committee also
reviews and approves loan requests which exceed the discretionary lending limits
of management's loan committee. The Directors Loan and Investment Committee is
chaired by Mr. Filice and includes Messrs. Connell, Knopf, Lazzarini and Smith.
The Directors Loan and Investment Committee held twenty-two (22) meetings during
1995.
The Personnel Committee reviews recommendations of management
concerning changes in salaries, promotions, job titles and fringe benefits for
SVNB officers, and any other necessary personnel matters that relate to policies
and procedures. The Personnel Committee is chaired by Mr. Knopf and includes the
entire Board. The Personnel Committee held one (1) meeting during 1995.
32
<PAGE>
Director Compensation
Directors other than Mr. Smith are compensated at the standard
rate of $500 per month for all board meetings held during that month, plus $150
for each committee meeting attended, except for the Chairman, who receives a
standard rate of $1,000 per month for all services. Mr. Smith, as an inside
director, does not receive any director compensation. Except as described, there
are no other standard arrangements pursuant to which directors of South Valley
or SVNB are compensated for services as director, including any additional
amounts payable for committee participation or special assignments, and there
are no other arrangements pursuant to which any director of South Valley of SVNB
was compensated during South Valley's last fiscal year for services as director.
As a group, directors of South Valley received $71,000 as compensation for
services during 1995.
Executive Management
RICHARD L. CONNIFF has been a Senior Vice President and Chief
Financial Officer of South Valley and SVNB since September 1995. Mr. Conniff was
President and Chief Executive Officer of California Security Bank, San Jose,
California during the first part of 1995. From 1984 to 1994 he was President and
Chief Executive Officer of Business Bancorp and its subsidiary, California
Business Bank, N.A., San Jose, California.
R. KURT MICHIELSSEN has been a Senior Vice President and Credit
Administrator of SVNB since 1984. Previously, he was an Assistant Vice President
and Loan Officer at Wells Fargo Bank.
BRAD L. SMITH has been President and Chief Executive Officer of
SVNB since 1985 and has been President and Chief Executive Officer of South
Valley since 1994. He was formerly a Vice President with Pacific Valley Bank
managing its Gilroy office. Mr. Smith also serves as Chairman of the newly
formed Good Samaritan Charitable Foundation Board of Trustees, a not-for-profit
organization providing medical services to Santa Clara County.
Executive Compensation
The following Summary Compensation Table sets forth the aggregate
cash compensation paid to the Chief Executive Officer and all other executive
officers of South Valley and SVNB for services provided during the fiscal years
ended December 31, 1995, 1994 and 1993.
33
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================
Long-Term Compensation
Annual Compensation -------------------------------------------------
Awards Payouts
- ----------------------------------------------------------------------------------------------------------------------------
Restricted Securities
Other Annual Stock Underlying LTIP All Other
Name and Salary Bonus Compensa- Awards Options/ Payouts Compensa-
Principal Position(1) Year ($)(2) ($)(3) tion ($) (4) ($) SARs (#)(5) ($) tion ($)(6)
============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Brad L. Smith 1995 149,487 48,200 -- -- -- -- 12,386
President and CEO of 1994 146,922 58,916 -- -- -- -- 10,200
South Valley and SVNB 1993 141,620 48,000 -- -- -- -- 11,160
- -----------------------------------------------------------------------------------------------------------------------------
R. Kurt Michielssen 1995 91,901 15,500 -- -- -- -- 6,509
Senior Vice President of 1994 83,200 18,720 -- -- -- -- 6,389
SVNB 1993 80,533 13,000 -- -- -- -- 4,961
- -----------------------------------------------------------------------------------------------------------------------------
Thomas A. Sa(7) 1995 51,002 -- -- -- -- -- --
Senior Vice President 1994 77,000 14,580 -- -- -- -- 3,222
and CFO of South 1993 62,000 10,500 -- -- -- -- 3,741
Valley and SVNB
- -----------------------------------------------------------------------------------------------------------------------------
Richard L. Conniff(8) 1995 33,333 6,200 -- -- -- -- --
Senior Vice President
and CFO of South
Valley and SVNB
=============================================================================================================================
<FN>
(1) All individuals named in the table are officers of SVNB. Amounts disclosed
in the table reflect compensation earned as officers of SVNB. Messrs.
Smith, Sa and Conniff also served as unsalaried officers of South Valley.
(2) Amounts shown include cash and noncash earned and received by executive
officers as well as amounts earned but deferred at the election of those
officers under the 401(k) Plan.
(3) Amounts indicated as bonus payments were earned for performance during
1995, 1994 and 1993, but paid in the first quarter of the following years,
1996, 1995 and 1994, respectively.
(4) No executive officer received perquisites or other personal benefits in
excess of the lesser of $50,000 or 10% of each such officer's total annual
salary and bonus during 1995, 1994 and 1993.
(5) South Valley has adopted a 1995 Stock Option Plan (the "1995 Plan").
Pursuant to the 1995 Plan, options may be granted to directors, executive
officers and key employees of South Valley and SVNB. Options granted under
the 1995 Plan may be either incentive options or nonstatutory options.
Options granted under the 1995 plan become exercisable in accordance with
a vesting schedule established at the time of grant. Vesting may not
extend beyond ten years from the date of grant. Upon a change in control,
options do not become fully vested and exercisable, but may be assumed or
equivalent options may be substituted by a successor to South Valley. See
"The Merger--Treatment of Stock Options" regarding the rights of South
Valley option holders in connection with the Merger. Options granted under
the 1995 Plan are adjusted to protect against dilution in the event of
certain changes in South Valley's capitalization, including stock splits
and stock dividends. Options were granted to executive officers under the
1995 Plan during the first quarter of 1996. All options granted under the
1995 Plan to the named executive officers were incentive stock options and
for an exercise price equal to the fair market value of South Valley's
Common Stock on the date of grant. No executive officer received grants of
options under any stock option plan during 1995, 1994 or 1993.
(6) South Valley has an Employee Stock Ownership Plan ("ESOP") in which,
generally, all full time salaried employees over the age of twenty are
eligible to participate. Each year South Valley may contribute Common
Stock and/or cash to the ESOP which is allocated to each participant in
proportion to his or her total annual regular compensation for the year.
The ESOP may borrow funds which, in addition to South Valley's cash
contribution, may be used to purchase South Valley's Common Stock from
South Valley or on the open market. South Valley's total accrued
contributions to the ESOP for the calendar year 1995, 1994 and 1993 were
$92,000, $111,100, and $81,800, respectively.
South Valley also has a 401(k) tax deferred savings plan in which, o
generally, all employees are eligible to participate. Participating
employees may defer a portion of their compensation to the 401(k) Plan.
South Valley, at its option, may make matching contributions on
participant deferrals at a rate determined annually by South Valley (32%
in 1995, 41% in 1994, and 35% in 1993). The matching contribution vests
over a period of seven years. For the calendar years 1995, 1994 and 1993
South Valley's accrued contributions to the 401(k) Plan were $30,000,
$33,700 and $26,000 respectively. See "The Merger--Covenants of Pacific
Capital and South Valley; Conduct of Business Prior to the Merger"
regarding the effect of the Merger on the 401(k) Plan.
Amounts shown include South Valley matching cash contributions made under
the 401(k) Plan and cash allocations to accounts under the ESOP for the
benefit of the named executives.
34
<PAGE>
(7) Mr. Sa resigned from his position as Senior Vice President and Chief
Financial Officer for SVNB and South Valley effective August 4, 1995.
(8) Mr. Conniff joined South Valley and SVNB as Senior Vice President and
Chief Financial Officer as of September 5, 1995
</FN>
</TABLE>
Option Grants in Last Fiscal Year
The table reflecting options grants during the fiscal year 1995 has
been omitted as no option grants were made to the named executive officers
during 1995.
Aggregated Option Exercises in the Last Fiscal Year and Fiscal Year End Option
Values
The table reflecting aggregated options exercised during fiscal year
1995 has been omitted as no options were exercised by any of the named executive
officers of South Valley during 1995. There were no options outstanding at 1995
year-end either exercisable or unexercisable by any of the named executive
officers of South Valley as all options had previously expired.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Exchange Act requires South Valley's directors,
executive officers and shareholders beneficially owning ten percent (10%) or
more of South Valley's securities, to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
South Valley's equity securities. Officers and directors and 10% or more
shareholders are required by Commission regulation to furnish South Valley with
copies of all Section 16(a) forms they file. To South Valley's knowledge, based
solely on review of the copies of such reports furnished to South Valley and
written representations that no other reports were required during the fiscal
year ended December 31, 1995, all Section 16(a) filing requirements applicable
to its officers, directors and beneficial owners of 10% or more of South
Valley's securities appear to have been met.
Certain Relationships with Related Transactions; Transactions with Management
and Others
There were no transactions or series of similar transactions, since the
beginning of South Valley's last fiscal year, or any currently proposed
transaction or series of transactions, to which South Valley or SVNB was or is
to be a party, in which the amount involved exceeds $60,000 and in which any
directors, executive officer, nominee for directors of 5% shareholder of South
Valley or SVNB, or any member of the immediate family of any such person had or
will have a direct or indirect material interest.
Indebtedness of Management
The directors and officers of South Valley, and certain of the business
and professional organizations with which they are associated, have had, but are
not obligated to have, banking transactions with SVNB in the ordinary course of
business. Loans and commitments to loans included in such transactions have been
and will continue to be in made in accordance with applicable law and on
substantially the same terms, including interest rates and collateral
requirements, as those prevailing at the time for comparable transactions with
other persons of similar credit-worthiness and which do not involve more than
the normal risk of collectibility or present other unfavorable features.
35
<PAGE>
VOTING AND PROXIES
Date, Time and Place of Pacific Capital and South Valley Meetings
The Pacific Capital Meeting will be held at Corral de Tierra Country
Club, 81 Corral de Tierra Road, Salinas, California on Tuesday, October 22, 1996
at 4:00 p.m. The South Valley Meeting will be held at Golden Oak Restaurant,
16695 Condit Road, Morgan Hill, California on Wednesday, October 16, 1996 at
3:00 p.m.
Matters to be Considered at the Meetings
At the Pacific Capital and South Valley Meetings, holders of record of
Pacific Capital Common Stock and South Valley Common Stock, respectively, will
consider and vote upon a proposal to approve and adopt the Agreements and the
transactions contemplated thereby, including the Merger.
Record Date and Outstanding Shares
Shareholders of record of Pacific Capital Common Stock at the close of
business on September 10, 1996 (the "Pacific Capital Record Date") are entitled
to notice of and to vote at the Pacific Capital Meeting. At the Pacific Capital
Record Date, there were 1,587 holders of record of Pacific Capital Common Stock
and 2,593,699 shares of Pacific Capital Common Stock were issued and
outstanding. Except for the shareholders identified below under "Principal
Shareholders of Pacific Capital," there were no other persons known to the
management of Pacific Capital to be the beneficial owners of more than 5% of the
outstanding shares of Pacific Capital Common Stock.
Shareholders of record of South Valley Common Stock at the close of
business on August 27, 1996 ("South Valley Capital Record Date") are entitled to
notice of and to vote at the South Valley Meeting. At the South Valley Record
Date there were 476 holders of record of South Valley Common Stock and 1,315,438
shares of South Valley Common Stock were issued and outstanding. Except for the
shareholders identified below under "Principal Shareholders of South Valley,"
there were no other persons known to the management of South Valley to be the
beneficial owners of more than 5% of the outstanding shares of South Valley
Common Stock.
Voting of Proxies
Under the California General Corporation Law (the "GCL"), the approval
and adoption of the Agreements and the transactions contemplated thereby,
including the Merger, requires the affirmative vote of the holders of a majority
of the outstanding shares of Pacific Capital Common Stock and South Valley
Common Stock, respectively. Holders of at least a majority of the outstanding
shares of Pacific Capital Common Stock and South Valley Common Stock must be
represented, either in person or by proxy, at the Pacific Capital Special
Meeting of Shareholders and South Valley Special Meeting of Shareholders,
respectively, for a quorum to be present.
Each properly completed proxy returned in time for voting at the
Pacific Capital Meeting or South Valley Meeting, unless revoked by a
shareholder, will be voted in accordance with the instructions indicated on the
proxy, or, if no instructions are provided, will be voted "FOR" approval and
adoption of the Agreements and the transactions contemplated thereby. No matters
other than those referred to in this Joint Proxy Statement/Prospectus will be
brought before the Pacific Capital Meeting or South Valley Meeting, except for
matters incidental to the conduct of such meeting. Pacific Capital and South
Valley have agreed in the Agreement that neither Pacific Capital or any member
of the Pacific Capital Board of Directors nor South Valley or any member of the
South Valley Board of Directors will submit any other matters for approval at
the respective special meeting of shareholders, except with the other party's
prior approval. The grant of a proxy will also confer discretionary authority on
the persons named in the proxy to vote on matters incident to the conduct of the
meeting, including any adjournment or postponement thereof.
A shareholder may revoke a proxy at any time before it is exercised by
filing with the Corporate Secretary of Pacific Capital or South Valley (as the
case may be), a written instrument revoking the proxy, by submitting a
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duly executed Proxy bearing a later date or by attending the Pacific Capital
Meeting or South Valley Meeting, as the case may be, and voting in person.
Shares which abstain from voting and "broker nonvotes" (shares as to
which brokerage firms have not received voting instructions from their clients
and therefore do not have the authority to vote the shares at the meeting) will
be counted for purposes of determining a quorum. Because the affirmative vote of
at least a majority of the outstanding shares of Pacific Capital Common Stock or
South Valley Common Stock, as the case may be, is required to approve the
Merger, both abstentions and broker nonvotes will have the same legal effect as
votes against the Merger. See "Dissenters' Rights of Appraisal."
Pacific Capital Shareholder Vote Required
Under California law, approval of the Merger Agreement and related
matters by Pacific Capital shareholders requires the affirmative vote of the
holders of a majority of the outstanding shares of Pacific Capital Common Stock.
South Valley Shareholder Vote Required
Under California law, approval of the Merger Agreement and related
matters by South Valley shareholders requires the affirmative vote of the
holders of a majority of the outstanding shares of South Valley Common Stock.
Solicitation of Proxies
Pacific Capital and South Valley will bear the cost of the solicitation
of proxies from their respective shareholders. In addition to solicitation by
mail, the directors, officers and employees of Pacific Capital and South Valley
may solicit proxies from the shareholders by telephone or telegram or in person.
Such persons will not be additionally compensated, but will be reimbursed for
reasonable out-of-pocket expenses incurred in connection with such solicitation.
Arrangements will also be made with brokerage firms, nominees, fiduciaries and
other custodians, for the forwarding of solicitation materials to the beneficial
owners of shares held of record by such persons, and Pacific Capital and South
Valley will reimburse such persons for their reasonable out-of-pocket expenses
in connection therewith.
THE BOARDS OF DIRECTORS OF PACIFIC CAPITAL AND SOUTH VALLEY HAVE
UNANIMOUSLY APPROVED THE AGREEMENTS AND THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE MERGER, AND RECOMMEND THAT PACIFIC CAPITAL SHAREHOLDERS AND SOUTH
VALLEY SHAREHOLDERS, RESPECTIVELY, VOTE "FOR" APPROVAL AND ADOPTION OF THE
AGREEMENTS AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER.
SOUTH VALLEY SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR
PROXIES. A TRANSMITTAL FORM WITH INSTRUCTIONS WITH RESPECT TO THE SURRENDER OF
SOUTH VALLEY STOCK CERTIFICATES WILL BE MAILED TO EACH SOUTH VALLEY SHAREHOLDER
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THE MERGER.
Principal Shareholders of Pacific Capital
As of the Record Date, no person or group known to Pacific Capital
owned beneficially more than 5% of the outstanding shares of Pacific Capital
Common Stock.
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Principal Shareholders of South Valley
The following table sets forth certain information regarding all
shareholders who beneficially own more than 5% of the outstanding shares of
South Valley Common Stock as of South Valley Record Date.
Name and Address Amount and Nature of Percent
Title of Class of Beneficial Owner Beneficial Ownership of Class(1)
- -------------- ------------------- -------------------- -----------
Common Stock Stanley G. Kazezski 67,000 5.1%
550 Ortega Ave., 219-B
Mountain View, CA
94040-1581
Common Stock Roger C. Knopf 114,330(2) 8.7%
14692 Knopf Court
Morgan Hill, CA 95037
(1) All percentages are calculated on the basis of the number of shares
outstanding as of South Valley Record Date (1,315,438) plus shares subject
to options that are currently exercisable or will become exercisable
within sixty (60) days after the South Valley Record Date (1,452).
(2) Includes 2,744 shares held in the name of Mr. Knopf's children and 26,283
shares held by the Knopf Construction Co. Retirement Plan.
CERTAIN CONSIDERATIONS
In deciding whether to approve the Merger, Pacific Capital shareholders
and South Valley shareholders should carefully consider the following factors,
in addition to the other matters set forth or incorporated by reference herein:
Shares Eligible for Future Sale; Dilution
Shares of Pacific Capital Common Stock eligible for future sale could
have a dilutive effect on the market for Pacific Capital Common Stock and could
adversely affect the market price. The Articles of Incorporation of Pacific
Capital authorize the issuance of 20,000,000 shares of Pacific Capital Common
Stock of which 2,593,699 shares were outstanding at September 10, 1996. Pursuant
to its stock option plans, at July 18, 1996, the date of the Agreement, Pacific
Capital had outstanding stock options to purchase an aggregate of 315,403 shares
of Pacific Capital Common Stock. Such options have exercise prices of between
$7.53 and $24.63 per share. As of September 10, 1996, 452,495 shares of Pacific
Capital Common Stock remained available for option grants under Pacific
Capital's stock option plans. Sales of substantial amounts of Pacific Capital
Common Stock in the public market following the Merger could adversely affect
the market price of Pacific Capital Common Stock. There are no restrictions in
the Agreement preventing Pacific Capital from issuing additional shares after
the Merger.
On December 14, 1993, the Board of Directors of Pacific Capital adopted
a stock repurchase program which provides for the repurchase in the open market
of not more than 300,000 shares of Pacific Capital's Common Stock at an
aggregate purchase price not to exceed $5,000,000. As of September 10, 1996,
Pacific Capital had repurchased 155,164 shares of its common stock at a total
cost of $2,671,599.
There can be no assurance given as to the market value of Pacific
Capital Common Stock after the Merger which may be affected by future
acquisitions, if any, and other factors, including but not limited to, general
economic conditions and fluctuating interest rates.
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Interests of South Valley Officers and Directors in the Merger
As of the South Valley Record Date, the following directors and
executive officers of South Valley beneficially owned shares of South Valley
Common Stock as follows:
Name and Address Amount and Name of Percent of
of Beneficial Owner Office Beneficial Ownership(2) Class(3)
- ------------------------------------------------------------------- ----------
Laurence M. Connell Director 11,151(4) 0.8%
Richard L. Conniff SVP and CFO -- --
Joseph A. Filice Director 18,356(5) 1.4%
Eugene R. Guglielmo Director 40,640(6) 3.1%
Roger C. Knopf Chairman 114,330(7) 8.7%
Edward J. Lazzarini Director 11,396(8) 0.9%
R. Kurt Michielssen SVP 1,758 0.1%
Donald G. Mountz Director 28,327(9) 2.2%
James R. Price Director 39,454(10) 3.0%
Mary Lou Rawitser Director 1,892(11) 0.1%
Brad L. Smith Director, President
and CEO 38,644(12) 2.9%
All directors and executive
officers as a group
(11 persons) 305,948 23.2%
- ------------------------
(1) The address for each person listed in the table is the address of South
Valley, 500 Tennant Station, Morgan Hill, California 95037.
(2) All shares are calculated on the basis of the number of current shares
held plus shares subject to options that are currently exercisable or will
become exercisable within sixty (60) days after the South Valley Record
Date.
(3) All percentages are calculated on the basis of the number of shares
outstanding as of South Valley Record Date plus shares subject to options
that are currently exercisable or will become exercisable within sixty
(60) days after the South Valley Record Date.
(4) Includes 1,005 shares held by an IRA trust for the benefit of Mr. Connell
and 1,005 shares held by an IRA trust for the benefit of his wife.
(5) Includes 16,490 shares held in trust for which Mr. Filice and his wife are
trustees and beneficiaries and 1,866 shares representing Mr. Filice's 10%
pro rata share of 18,660 shares held by Filereno Investments, a
partnership.
(6) Includes 29,184 shares held in the name of Emilio Guglielmo Winery, Inc.,
of which Mr. Guglielmo is a shareholder, director and executive officer
1,831 shares owned by Emilio Guglielmo Winery, Inc. Profit Sharing Plan
and 200 shares held in the name of Mr. Guglielmo's children.
(7) Includes 2,744 shares held in the name of Mr. Knopf's children and 26,283
shares held by the Knopf Construction Co. Retirement Plan.
(8) Includes 5,500 shares held by an IRA trust for the benefit of Mr.
Lazzarini, 235 shares held by an IRA trust for the benefit of his wife and
3,025 shares held by the Lazzco Inc. Deferred Benefit Pension Plan Trust.
(9) Includes 14,294 shares held by D.G. Mountz Assoc. Employee's Profit
Sharing Trust and 14,033 held in the name of the Mountz Family Trust.
(10) Includes 3,741 shares held in the name of the Price Family Trust and
35,713 shares held by LynRob Enterprises, Inc. Profit Sharing Trust.
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(11) Includes options to purchase 1,452 shares immediately exercisable by Ms.
Rawitser.
(12) Includes 4,345 vested shares held in the name of Mr. Smith by the South
Valley National Bank ESOP, of which Mr. Smith is a Trustee.
Executive officers of South Valley have entered into employment
agreements with South Valley and SVNB. See also "The Merger--Material
Contracts."
Real Estate Lending Activities; Nonperforming Assets
The loan portfolios of Pacific Capital and South Valley are dependent on
real estate. At June 30, 1996, real estate served as the principal source of
collateral with respect to approximately 49.9% of South Valley's loan portfolio,
64% of Pacific Capital's loan portfolio, and 60% of pro forma combined Pacific
Capital and South Valley loan portfolio. A worsening of current economic
conditions and rising interest rates could have an adverse effect on the demand
for new loans, the ability of borrowers to repay outstanding loans and the value
of real estate and other collateral securing loans as well as Pacific Capital's
financial condition in general and the market value for Pacific Capital Common
Stock. Acts of nature, including earthquakes, which may cause uninsured damage
and other loss of value to real estate that secures these loans, may also
negatively impact Pacific Capital's financial condition.
South Valley's nonperforming assets were $2.9 million or 1.67% of total
assets at June 30, 1996, as compared to $3.6 million or 2.03% of total assets at
December 31, 1995, and $3.6 million or 2.51% of total assets at December 31,
1994. Pacific Capital's nonperforming assets were $2.2 million or 0.55% of total
assets at June 30, 1996, as compared to $1.9 million or 0.55% of total assets at
December 31, 1995, and $2.6 million or 0.77% of total assets at December 31,
1994. There are no assurances that nonperforming assets will not increase and
adversely affect the financial condition of South Valley and/or Pacific Capital.
See "The Merger--Reasons for the Merger; Recommendation of the Board of
Directors," "--Representations and Warranties; Conditions to the Merger," and
"Incorporation of Certain Documents by Reference."
Organizational Structure and Operations After the Merger
Upon the consummation of the Merger, South Valley will be merged with
and into Pacific Capital and SVNB will be a subsidiary of Pacific Capital.
Pacific Capital anticipates that after the Effective Date, a significant
percentage of South Valley's existing employees and customers will be retained.
There are no assurances, however, that South Valley customers will not move
their banking relationships to other financial institutions and that a greater
than anticipated number of South Valley employees will not remain employed by
Pacific Capital after the Merger. In addition, while Pacific Capital expects to
achieve operating cost savings through the consolidation of certain operations,
the elimination of duplicative corporate and administrative expenses and the
elimination of certain positions at South Valley, there can be no assurance that
Pacific Capital will be able to realize such cost savings. See "The
Merger--Covenants of Pacific Capital and South Valley; Conduct of Business Prior
to the Merger" and "--Management and Operations Following the Merger."
Legislative and Regulatory Environment
The banking and financial services businesses in which Pacific Capital
and South Valley engage are highly regulated. The laws and regulations affecting
such businesses are under constant review by Congress and applicable regulatory
agencies and may be changed dramatically in the future. Such changes could
affect the business of bank holding companies and banks. For example, in
September 1994, the President signed legislation amending the Bank Holding
Company Act of 1986, as amended (the "BHC Act"), and the Federal Deposit
Insurance Act (the "FDI Act") to provide for interstate banking and branching
and in 1995 California accelerated the application of such legislation to
California banks. Such changes may affect the competitive environment in which
Pacific Capital and South Valley and their respective subsidiaries operate and
may affect the amount of capital that banks and bank holding companies are
required to maintain, the premiums paid for or the availability of deposit
insurance or other matters directly affecting earnings. It is not certain what
changes will occur or the effect that any such changes would have on the
profitability of the combined company, its ability to achieve certain cost
savings or compete effectively or its ability to take advantage of new
opportunities after the Merger. See "The Merger--Management
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and Operations Following the Merger," "Supplemental Historical Information," and
"Incorporation of Certain Documents by Reference."
Pacific Capital and South Valley are both organized under the corporate
law of California and are bank holding companies which principally operate
within the framework of the BHC Act and are regulated by the FRB.
THE MERGER
Background of the Merger
The following is a brief summary of the events that led to the execution
of the Agreement.
South Valley Board of Directors has been considering various
alternatives to increase the value of South Valley and provide a return to its
shareholders. In March 1996, Pacific Capital made an inquiry to South Valley
regarding the possibility of combining the two entities. To assist in exploring
possible alternatives for increasing the value of South Valley in addition to a
combination with Pacific Capital, South Valley Board of Directors retained
Hoefer & Arnett Incorporated ("Hoefer") in April 1996. Thereafter, South Valley
Board of Directors considered various strategic alternatives, including
combining with Pacific Capital.
After considering such alternatives, the Board of Directors of South
Valley instructed Hoefer to investigate further Pacific Capital's expression of
interest in acquiring South Valley. Pacific Capital confirmed its interest in
making a proposal to acquire South Valley. The parties executed a
confidentiality agreement on April 2, 1996 which was followed by a written
expression of interest by Pacific Capital on April 24, 1996. Thereafter, the
parties engaged in preliminary due diligence which was completed in June 1996.
After the completion of due diligence, Pacific Capital continued to
negotiate and develop the terms of a potential transaction with South Valley.
The South Valley Board of Directors met on June 11, 1996 to continue discussion
of certain terms of the proposed transaction. Pacific Capital communicated to
the South Valley Board revised proposed terms in a written expression of
interest dated June 20, 1996, which the South Valley Board reviewed at a meeting
held on June 26, 1996. The South Valley Board authorized its management to
proceed to negotiate a definitive agreement with Pacific Capital based upon such
revised terms reviewed during its meeting on June 26, 1996, subject to
resolution of certain issues. On July 12, 1996, the Pacific Capital Board of
Directors met to review the status of negotiations and the Board of Directors
authorized management to proceed to negotiate and execute a definitive agreement
with South Valley, subject to the resolution of specific issues that were
successfully resolved. On July 15, 1996, the South Valley Board met to review
the terms of the proposed definitive agreement and authorized management to
execute the document, subject to final resolution of certain remaining issues.
Subsequent to successful resolution of specific issues, and following issuance
of a fairness opinion by South Valley's financial advisor, Hoefer, the Agreement
was executed by South Valley and Pacific Capital on July 18, 1996.
See "--Reasons for the Merger; Recommendation of the Board of Directors"
and "--Opinion of South Valley's Financial Advisor."
Reasons for the Merger; Recommendation of the Board of Directors
The Boards of Directors of Pacific Capital and South Valley believe that
the Merger is fair and in the best interests of the shareholders of Pacific
Capital and South Valley, respectively.
In reaching its conclusion to approve the Merger, the Pacific Capital
Board of Directors considered numerous factors, including the following:
(1) the Pacific Capital Board of Directors' review of the provisions of
the Agreements and related documents with Pacific Capital's legal
advisors;
(2) the current prospects and financial conditions of Pacific Capital as
an independent community bank holding company;
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(3) the creation of additional value for shareholders of Pacific Capital
which cannot be achieved on its own which results from cost savings
and potential revenue enhancements from the Merger;
(4) the similar but not overlapping markets of both Pacific Capital and
South Valley and the fact that each company is familiar with the
other's market such that a combined entity would be a stronger
competitor in their respective markets; and
(5) the fact that the geographic market areas of each company are
contiguous resulting in a larger geographic market area on a
combined basis.
The Board of Directors of Pacific Capital did not assign relative
weights to the factors or determine that any factor was of particular
importance. Rather, the Board viewed its position and made its recommendation
based on the totality of the information presented to and considered by it.
In reaching its conclusion to approve the Merger, the South Valley Board
of Directors considered numerous factors, including the following:
(1) the opinion of Hoefer that the Exchange Ratio is fair from a
financial point of view to the shareholders of South Valley; in this
regard, the South Valley Board of Directors considered the premium
represented by the consideration offered to shareholders in relation
to the book value per share of South Valley Common Stock;
(2) the South Valley Board of Directors' review of the provisions of the
Agreements and related documents with Hoefer and South Valley's
legal advisors;
(3) the fact that the Merger will be tax-deferred for federal income tax
purposes to the holders of South Valley Common Stock (other than in
respect to cash paid in lieu of fractional shares and for
dissenters' rights);
(4) the market liquidity and dividend history of Pacific Capital Common
Stock;
(5) the current financial condition and prospects of South Valley as an
independent community bank holding company;
(6) the current and prospective economic and regulatory environment,
burdens and constraints affecting banking organizations and
commercial banks such as South Valley and SVNB and the changing
competitive environment for banking services; and
(7) the probable impact of the Merger on customers and employees and the
communities served by South Valley and SVNB.
The Board of directors of South Valley did not assign relative weights
to the factors or determine that any factor was of particular importance.
Rather, the Board viewed its position and made its recommendation based on the
totality of the information presented to and considered by it.
THE PACIFIC CAPITAL BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
AGREEMENTS AND TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER, BE
ADOPTED AND APPROVED BY THE SHAREHOLDERS OF PACIFIC CAPITAL.
SOUTH VALLEY BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE AGREEMENTS AND
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER, BE ADOPTED AND APPROVED
BY THE SHAREHOLDERS OF SOUTH VALLEY.
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Material Contracts
On March 28, 1996, SVNB entered into an employment agreement with Brad
L. Smith, the President and Chief Executive Officer for SVNB and South Valley,
and a member of both their Boards of Directors. The agreement provides for base
salary in the amount of $153,150 per year, subject to increase upon Mr. Smith's
annual review. Mr. Smith is entitled to receive an annual cash bonus under the
agreement based upon goals and performance criteria established by the Board of
Directors each year during the term of the agreement. The agreement also
provides for (a) the grant of stock options, in the discretion of the Board of
Directors, to acquire South Valley Common Stock, (b) a policy of additional
supplemental disability insurance equal to 50% of his base salary payable until
he reaches age 65, (c) $650,000 worth of term life insurance, (d) an automobile
for his business use, including insurance thereon, and (e) severance pay in the
amount of two times his average annual compensation for the previous five years
upon a change in control of South Valley or SVNB by merger, acquisition,
consolidation, reorganization, liquidation or dissolution.
On March 28, 1996, SVNB entered into an employment agreement with
Richard L. Conniff, the Senior Vice President and Chief Financial Officer for
SVNB and South Valley. The agreement provides for base salary in the amount of
$100,000 per year, subject to increase upon Mr. Conniff's annual review. Mr.
Conniff is entitled to receive an annual cash bonus under the agreement based
upon goals and performance criteria established by the Board of Directors each
year during the term of the agreement. The agreement also provides for (a) the
grant of stock options, in the discretion of the Board of Directors, to acquire
South Valley Common Stock, (b) an automobile allowance in the amount of $700 per
month, and (c) severance pay in the amount of one times his average annual
compensation upon a change in control of South Valley or SVNB by merger,
acquisition, consolidation, reorganization, liquidation or dissolution.
On March 28, 1996, SVNB entered into an employment agreement with R.
Kurt Michielssen, SVNB's Senior Vice President and Credit Administrator. The
agreement provides for a base salary in the amount of $90,000 per year, subject
to increase upon Mr. Michielssen's annual review. Mr. Michielssen is entitled to
receive an annual cash bonus under the agreement based upon goals and
performance criteria established by the Board of Directors each year during the
term of the agreement. The agreement also provides for (a) the grant of stock
options, in the discretion of the Board of Directors, to acquire South Valley
Common Stock, (b) an automobile allowance in the amount of $300 per month, and
(c) severance pay in the amount of one times his average annual compensation for
the previous five years upon a change in control of South Valley or SVNB by
merger, acquisition, consolidation, reorganization, liquidation or dissolution.
Opinion of South Valley's Financial Advisor
Hoefer & Arnett
The South Valley Board of Directors retained Hoefer to render financial
advisory and investment banking services in connection with the Merger. Hoefer
has rendered a written opinion (the "Fairness Opinion") to the South Valley
Board of Directors to the effect that the Exchange Ratio in the Agreement, as it
may be adjusted, is fair to the holders of South Valley Common Stock from a
financial point of view. No limitations were imposed by the South Valley Board
of Directors upon Hoefer with respect to the investigations made or procedures
followed in rendering the Fairness Opinion.
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A copy of the Fairness Opinion, dated as of July 18, 1996, which sets
forth certain assumptions made, matters considered and limits on the review
undertaken by Hoefer, is attached hereto as Annex B. The shareholders of South
Valley are urged to read the Fairness Opinion in its entirety. The following
summary of the procedures and analysis performed and assumptions used by Hoefer
is qualified in its entirety by reference to the text of such Fairness Opinion.
Hoefer's Fairness Opinion is for the information of the South Valley Board
solely for its use in evaluating the fairness from a financial point of view of
the Exchange Ratio and is not intended to be, and does not constitute, a
recommendation to any shareholder as to how such shareholder should vote at the
Meeting. In rendering the Fairness Opinion, Hoefer was not engaged as an agent
or fiduciary of South Valley's shareholders or any other third party. Hoefer's
Fairness Opinion is not an opinion as to the structure, terms or effect of any
aspect of the Agreement or the Merger and does not in any manner address South
Valley's underlying business decision to enter into the Agreement.
The financial projections and underlying assumptions included herein
were derived by Hoefer based upon information provided by South Valley and
Pacific Capital as well as Hoefer's own assessment of general economic and
market conditions. No other experts named elsewhere herein have been involved in
or consulted with respect to said projections and assumptions.
In arriving at its opinion, Hoefer reviewed and analyzed, among other
things, the following: (i) the Agreement; (ii) Annual Reports to Shareholders of
South Valley and Pacific Capital and Annual Reports on Form 10-K of Pacific
Capital and South Valley; (iii) Quarterly Reports on Form 10-Q of Pacific
Capital and South Valley; (iv) certain other publicly available financial and
other information concerning South Valley and Pacific Capital and the trading
markets for the publicly traded securities of South Valley and Pacific Capital;
(v) publicly available information concerning other banks and bank holding
companies, the trading markets for their securities and the nature and terms of
certain other merger transactions Hoefer believed relevant to its inquiry; and
(vi) evaluations and analyses prepared and presented to the South Valley Board
of Directors or a committee thereof in connection with the business combination
with Pacific Capital. Hoefer also held discussions with senior management of
South Valley and of Pacific Capital concerning their past and current
operations, financial condition and prospects, as well as the results of
regulatory examinations.
Hoefer reviewed with senior management of South Valley operating budgets
for 1996 prepared by South Valley for South Valley as a stand-alone entity,
assuming the Merger did not occur. Hoefer reviewed with the senior management of
Pacific Capital operating budgets for 1996 prepared by Pacific Capital for
Pacific Capital as a stand-alone entity, assuming the Merger did not occur, and
discussed with the senior management of Pacific Capital the possible operating
cost savings potentially attainable resulting from the Merger. Such cost savings
projections were prepared by Hoefer based partially upon discussions with
Pacific Capital senior management and Hoefer's own assessment of the operating
cost savings realizable in the Merger. Hoefer also reviewed with the managements
of South Valley and Pacific Capital earnings growth assumptions for the years
1997 through 2000 for their respective companies. Certain pro forma financial
projections for the years 1996 through 2000 for the combined entity were derived
by Hoefer based upon the information discussed above, as well as Hoefer's
assessment of general economic, market and financial conditions. In certain
cases, such combined pro forma financial projections included the possible
operating cost savings believed by Hoefer to be realizable in the Merger.
In conducting its review and in arriving at its opinion, Hoefer relied
upon and assumed the accuracy and completeness of the financial and other
information provided to it or publicly available and did not attempt
independently to verify the same. Hoefer relied upon the managements of South
Valley and Pacific Capital as to the reasonableness of the financial and
operating forecasts, information and possible operating cost savings (and the
assumptions and bases therefor) provided to it, and Hoefer assumed that such
forecasts, information and possible operating cost savings reflected the best
currently available estimates and judgments of the applicable managements.
Hoefer also assumed, without independent verification, that the aggregate
allowances for loan losses for South Valley and Pacific Capital are adequate to
cover such losses. Hoefer did not make or obtain any evaluations or appraisals
of the properties of South Valley or Pacific Capital or their respective
subsidiaries, nor did it examine any individual loan credit files or evaluate
the collateral therefor. For purposes of its opinion, Hoefer assumed that the
Merger will have the tax, accounting and legal effects (including, without
limitation, that the Merger will be accounted for as a pooling of interests)
described in the Agreement. Hoefer's opinion is limited to the fairness, from a
financial point of view, to the holders of South Valley Common Stock of the
Exchange Ratio, as adjusted, in the Merger and does not address South Valley's
underlying business decision to proceed with the Merger.
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As more fully discussed below, Hoefer considered such financial and
other factors as Hoefer deemed appropriate under the circumstances, including
among others the following: (i) the historical and current financial position
and results of operations of South Valley and Pacific Capital, including
interest income, interest expense, net interest income, net interest margin,
provision for loan losses, noninterest income, noninterest expense, earnings,
dividends, internal capital generation, book value, intangible assets, return on
assets, return on shareholders' equity, capitalization, the amount and type of
nonperforming assets, loan losses and the allowance for loan losses, all as set
forth in the financial statements for South Valley and for Pacific Capital; (ii)
the assets and liabilities of South Valley and Pacific Capital, including the
loan, investment and mortgage portfolios, deposits, other liabilities,
historical and current liability sources and costs and liquidity; and (iii) the
nature and terms of certain other merger transactions involving banks and bank
holding companies. Hoefer also took into account its assessment of general
economic, market and financial conditions and its experience in other
transactions, as well as its experience in securities valuation and its
knowledge of the banking industry generally. Hoefer's opinion is necessarily
based upon conditions as they existed and could be evaluated on the date of the
Fairness Opinion and the information made available to it through that date.
In connection with rendering its Fairness Opinion to the South Valley
Board of Directors, Hoefer performed certain financial analyses, which are
summarized below. Hoefer believes that its analyses must be considered as a
whole and that selecting portions of such analyses and the factors considered
therein, without considering all factors and analyses, could create an
incomplete view of the analyses and the processes underlying Hoefer's Fairness
Opinion. The preparation of a fairness opinion is a complex process involving
subjective judgments and is not necessarily susceptible to partial analysis or
summary description. In its analyses, Hoefer made numerous assumptions with
respect to industry performance, business and economic conditions, and other
matters, many of which are beyond the control of South Valley and Pacific
Capital. Any estimates contained in Hoefer's analyses are not necessarily
indicative of future results or values, which may be significantly more or less
favorable than such estimates. Estimates of values of companies do not purport
to be appraisals or necessarily reflect the prices at which companies or their
securities may actually be sold. None of the financial analyses performed by
Hoefer was assigned a greater significance by Hoefer than any other.
Financial forecasts of South Valley and Pacific Capital prepared by
Hoefer were based on information provided by the respective companies as well as
Hoefer's own assessment of general economic, market and financial conditions.
All such information was reviewed with the respective managements of South
Valley and Pacific Capital. Neither South Valley nor Pacific Capital publicly
discloses internal management financial forecasts of the type provided to Hoefer
in connection with its review of the proposed Merger. Such forecasts were not
prepared with a view towards public disclosure. The forecasts and possible
operating cost savings prepared by Hoefer were based on numerous variables and
assumptions which are inherently uncertain, including, without limitation,
factors related to general economic and market conditions. Accordingly, actual
results could vary significantly from those set forth in such forecasts and
projections.
Set forth below is a brief summary of the analyses performed by Hoefer
in preparation of the Fairness Opinion. Hoefer assumed for purposes of its
opinion that the Merger will be accounted for as a pooling of interests
transaction under generally accepted accounting principles. Unless otherwise
noted in this summary, Hoefer used an Exchange Ratio of 0.92 times the number of
shares of South Valley Common Stock that would be exchanged if the Effective
Time were the same as the date of the Fairness Opinion. The Exchange Ratio and
possible adjustments to the Exchange Ratio were developed pursuant to extensive
negotiations between South Valley and Pacific Capital. An Exchange Ratio of 0.92
does not necessarily reflect the lowest possible Exchange Ratio under the terms
of the Agreement, and there can be no assurance that the Exchange Ratio as
finally determined in accordance with the Agreement will not be lower than 0.92.
The analyses also focused on core financial and operating statistics which were
not specifically adjusted for nonrecurring charges, unless otherwise stated.
Pro Forma Merger and Contribution Analysis. Hoefer compared the changes
in the amount of earnings, book value and dividends attributable to one share of
South Valley Common Stock before the Merger with the amounts attributable to the
shares of Pacific Capital Common Stock for which such shares of South Valley
would be exchanged under the Agreement. The following assumptions regarding
earnings and dividends underlie the pro forma results.
45
<PAGE>
The analysis assumes, unless otherwise stated, Merger-related operating
cost savings estimates prepared by Hoefer based partially upon discussions with
the senior management of Pacific Capital and Hoefer's own assessment of the cost
savings realizable in the Merger, assuming the Merger is completed during the
second half of 1996. These possible operating cost savings represent
approximately 6.9% of the combined company's projected noninterest expense in
1996 on a pre-tax basis. The possible operating cost savings, expressed as a
percentage of the combined companies' projected noninterest expense, is within
the range of operating cost savings, expressed as a percentage of the acquiree's
projected noninterest expense announced in similar transactions reviewed by
Hoefer.
Hoefer performed pro forma merger analyses assuming the stated earnings
projections for Pacific Capital and South Valley and the Merger-related
projected operating cost savings by Pacific Capital. In addition, Hoefer
analyzed certain pro forma merger scenarios in order to assess the impact on
South Valley of different levels of projected earnings as well as various
degrees of projected Merger-related operating cost savings.
The impact on South Valley of volatility in Pacific Capital's earnings
and the level of Merger-related operating cost savings was shown by calculating
pro forma results assuming Pacific Capital's earnings as projected, as well as
75% and 125% of Pacific Capital's projected earnings. In order to measure the
impact on South Valley of volatility of South Valley's earnings to the pro forma
results, Hoefer also examined the earnings impact on South Valley resulting at
those levels of Pacific Capital earnings if South Valley achieved 75% and 125%
of its projected earnings. The 0.92 Exchange Ratio was used to make the
calculations in each case, unless otherwise stated.
In order to assess the impact on South Valley shareholders of
variability of the possible operating cost savings projected by Hoefer to be
realizable in the Merger, Hoefer compared the earnings, book value and dividends
attributable to one share of South Valley Common Stock before the Merger with
the earnings, book value and dividends attributable to the shares of Pacific
Capital Common Stock for which such shares of South Valley would be exchanged,
assuming 75% and 50% of the possible operating cost savings are realized. In
general, failure to fully realize the projected operating cost savings in the
Merger does not significantly affect the conclusions of the analysis, although
the changes in earnings, book value and indicated dividends attributable to one
share of South Valley Common Stock as a result of the Merger are less favorable
than those shown for the analysis assuming full realization of the possible
operating cost savings.
The following table presents the results of an analysis of differences
in earnings, book value and dividends attributable to one share of South Valley
Common Stock before the Merger and attributable to the portion of a share of
Pacific Capital Common Stock for which such shares of South Valley would be
exchanged using an Exchange Ratio of 0.92 under the above described
methodologies:
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<PAGE>
Projected Changes in Book Value and Earnings Per Share
(Exchange Ratio 0.92)
Comparative changes in projected earnings
Percentage of Projected (stand-alone compared to pro forma)
Earnings Achieved By: --------------------------------------------
South Valley/Pacific Capital 1997 1998 1999 2000
- ---------------------------- ------- ------ ------ ------
100% / 100%
Change in book value 4.95% 4.42% 3.91% 3.39%
Change in earnings per share 10.99 16.22 15.08 14.62
Change in dividend 40.17 46.22 45.25 44.30
75% / 125%
Change in book value 5.15% 4.98% 4.93% 4.96%
Change in earnings per share 13.14 20.12 21.65 23.32
Change in dividend 42.73 51.60 53.37 55.17
125% / 75%
Change in book value 4.74% 3.87% 2.89% 1.81%
Change in earnings per share 9.44 11.98 9.38 6.59
Change in dividend 37.69 41.08 37.64 34.29
Analysis of Other Merger Transactions. Hoefer analyzed other bank and
bank holding company merger and acquisition transactions in California completed
during the period from January 1, 1995 to June 6, 1996 where the total
consideration paid had a value between $5 million and $350 million. Hoefer
compared price to earnings, price to book value and price less tangible book
value to total deposits multiples of the assumed Exchange Ratio to the high,
median and low multiples of all transactions. California-specific transactions
were reviewed due to the difference in the economic climate between California
and the rest of the country and a comparison with non-California transactions
could be misleading. Hoefer assumed a Pacific Capital Common Stock price of
$27.00, the closing market price at July 18, 1996, and South Valley's annualized
earnings and book value for or at the period ended June 30, 1996.
<TABLE>
Set forth below is certain information relating to the Exchange Ratio
described above, and the high, median and low transaction multiples summarized
above:
<CAPTION>
Proposed Pacific Capital/
California transactions greater South Valley Merger
than $5 million and less than Exchange Ratio
$350 million from January 1, 1995 to June 6, 1996 .92x*
------------------------------------------------- ------------------------
High Median Low
---- ------ ---
<S> <C> <C> <C> <C>
Price to earnings 60.69x 17.50x 0.50x 15.24x
Price to book value 2.57 1.50 1.00 1.72
Price less tangible book
value to total deposits 15.00% 4.90% 0.00% 10.69%
<FN>
- ------------------------
* Not adjusted for potential Significant Liabilities as set forth in the Agreement.
</FN>
</TABLE>
The bank merger and acquisition transactions for the period from January
1, 1995 to June 6, 1996 included in the above multiples are set forth below.
Except as otherwise noted, the acquiror and the acquiree are both located in the
State of California.
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<PAGE>
Acquiror Acquiree
- --------------------------------- -----------------------------
Mid-Peninsula Bancorp Cupertino National Bancorp
Cal Fed Bancorp First Citizens Bank
BanPonce (Puerto Rico) Combancorp
ValliCorp Holdings, Inc. Auburn Bancorp
Monarch Bancorp Western Bank
Dartmouth Capital (New Hampshire) Commerce Security
US Bancorp (Oregon) California Bancshares
Bank of Yorba Linda Bank of Westminster
Home Interstate Bank CU Bancorp
Union Safe Deposit Bank Great Valley Bank
CVB Financial Corp. Citizens Commercial
Central Coast Bancorp Cypress Coast Bank
The Pacific Bank Burlingame Bancorp
Shinhan Bank Marine National
FP Bancorp RB Bancorp
FP Bancorp Rancho Santa Fe National Bank
Dartmouth Capital (New Hampshire) Liberty National Bank
City National Corp First Los Angeles Bank
ValliCorp Holdings CoBank Financial
California State Bank Landmark Bancorp
Eldorado Bankcorp Mariners Bancorp
ValliCorp Holdings, Inc. El Capitan National Bank
Comerica, Inc. (Missouri) MetroBank
CU Bankcorp Corporate Bank
Western Bank Bank of Encino
Discounted Cash Flow Analysis. Hoefer examined the results of a
discounted cash flow analysis designed to compare the present value, under
certain assumptions, of cash flows that would be attained if South Valley
remained independent through 2000, with the present value of cash flows
projected to be achieved by the combined entities during the same period. The
results produced in the analysis did not purport to be indicative of actual
values or expected values of South Valley or the shares of South Valley Common
Stock.
In calculating the present values through the discounted cash flow
analysis, Hoefer analyzed the effect of possible earnings variability and
possible Merger-related operating cost savings variability, among other items,
by assuming varying levels of projected earnings for South Valley and Pacific
Capital. The three cases examined were: (1) South Valley earnings as projected
and Pacific Capital earnings as projected; (2) South Valley earnings at 75% of
projected earnings and Pacific Capital earnings at 125% of projected earnings;
and (3) South Valley earnings at 125% of projected earnings and Pacific Capital
earnings at 75% of projected earnings. Pro forma combined cash flows were
calculated assuming the combinations of the cash flows in each of these cases
and were compared to the cash flows of South Valley on a stand-alone basis as
well as to the cash flows of South Valley acquired in 2000 by a larger financial
institution. All cases were analyzed assuming realization of the operating cost
savings, prepared by Hoefer, in the amounts and time periods previously
indicated, unless otherwise stated. See "--Pro Forma Merger and Contribution
Analysis."
The discount rates used ranged from 10% to 14%. For South Valley
stand-alone analyses, the terminal price multiples applied to 2000 estimated
earnings ranged from 10x to 16x. The lower levels of the price/earnings
multiples range reflected an estimated future trading range of South Valley,
while the higher levels of the price/earnings multiples range were more
indicative of a future sale of South Valley's stock to a larger financial
institution. For the pro forma combined analyses, the terminal price/earnings
multiples also ranged from 10x to 16x.
For South Valley stand-alone analyses, the cash flows were comprised of
the projected stand-alone dividends per share in years 1997 through 2000 plus
the terminal value of South Valley's Common Stock at year-end 2000 (calculated
by applying each one of the assumed terminal price/earnings multiples as stated
above to 2000 projected
48
<PAGE>
South Valley earnings per share). For the pro forma combined analyses, the cash
flows were comprised of the projected pro forma combined dividends per share in
years 1997 through 2000 plus the terminal value of the pro forma combined
entity's stock at year-end 2000 (calculated by applying each one of the assumed
terminal price/earnings multiples as stated above to 2000 projected pro forma
combined earnings per share). The discount rates described above were then
applied to these cash flows to obtain the present values per share of South
Valley Common Stock.
The following table presents the results of the discounted cash flow
analysis described above using a discount rate of 12%, the mid-point of the
range of discount rates employed in the analysis:
Projected Present Value of Discounted Cash Flows
(Exchange Ratio 0.92)*
Percentage of Projected Percentage of Possible Cost Savings Realized
Earnings Achieved by --------------------------------------------
South Valley/Pacific Capital 10x Earnings 16x Earnings
- ---------------------------- ------------ ------------
100%/100%
South Valley stand-alone $14.76 $22.94
Pro forma combined 17.64 27.02
Percentage change
in South Valley 19.51% 17.79%
75%/125%
South Valley stand-alone $13.96 $21.69
Pro forma combined 17.92 27.45
Percentage change
in South Valley 28.37% 26.56%
125%/75%
South Valley stand-alone $15.58 $24.24
Pro forma combined 17.37 26.60
Percentage change
in South Valley 11.49% 9.74%
- ------------------------
* Not adjusted for potential Significant Liabilities as set forth in the
Agreement.
The analysis showed that use of a higher (lower) level of projected
Pacific Capital earnings raised (lowered) the resulting present value for a
given level of South Valley earnings, on a pro forma combined basis. The
analysis also showed that use of a lower (higher) discount rate or a higher
(lower) terminal price/earnings multiple raised (lowered) the calculated present
values. In all cases, for a given discount rate and a given price/earnings
multiple, the analysis showed that the financial terms of the Merger offered a
higher present value per share of South Valley Common Stock than if South Valley
remained independent through 2000 or was acquired in 2000 by a larger financial
institution. However, the examples shown above do not necessarily indicate that
a direct comparison of the present values obtained using the same terminal
price/earnings multiple and/or discount rate for South Valley stand-alone, South
Valley acquired in 2000 by a larger financial institution, and pro forma
combined entity cash flows, are the only comparisons which can be made.
Comparable Company Analysis. Hoefer examined recent historical data on
South Valley and Pacific Capital based upon information from the companies' 1995
Annual Reports to Shareholders and subsequent quarterly information. Hoefer
analyzed certain credit and operating statistics for South Valley and Pacific
Capital, comparing these statistics to data for a peer group of California banks
using the Hoefer & Arnett Banking Universe West and Southwest Coverage Area
First Quarter 1996 performance updates (the "Universe"). Eighty-six California
institutions participate in the Universe. Both Pacific Capital and South Valley
are participants in the Universe. The
49
<PAGE>
comparisons made are as of or for the period ending March 31, 1996, and assumed
a Pacific Capital Common Stock price of $27.00 and a South Valley Common Stock
Price of $13.50, the closing market prices at May 28, 1996, unless otherwise
noted. The following table summarizes the results of the comparable company
analysis described above:
<TABLE>
Comparable Company Analysis
(as of March 31, 1996)
<CAPTION>
Pacific Capital South Valley Universe Median
--------------- ------------ ---------------
<S> <C> <C> <C>
Total assets............................. $366,906 $174,511 $214,745
Market capitalization.................... $ 70,223 $ 17,741 $ 23,466
Price to tangible equity per share....... 1.62x 1.03x 1.24x
Price to 1995 earnings per share......... 14.46x 11.25x 11.29x
Tangible equity to tangible assets....... 11.83% 10.10% 9.02%
Nonperforming assets to total assets..... 0.58% 2.16% 1.33%
Loan loss reserve to nonperforming
loans................................ 177.50% 81.49% 129.27%
Return on assets......................... 1.51% 1.07% 1.07%
Return on equity......................... 12.25% 10.27% 11.83%
Efficiency ratio......................... 58.52% 67.44% 68.66%
</TABLE>
Hoefer concluded based on the above analyses that the Exchange Ratio is
fair from a financial point of view to the holders of South Valley Common Stock.
Hoefer is an investment banking firm continually engaged in the valuation
of businesses and securities, including financial institutions and their
securities, in connection with mergers and acquisitions, negotiated
underwritings, private offerings of securities, secondary distributions of
listed and unlisted securities and valuations for estate, corporate and other
purposes.
As a normal part of its business, Hoefer analyzes securities of financial
institutions for the purposes of providing, among other things, transactional
advice and assistance, investment research and capital financing activities.
Hoefer currently conducts dealer markets in the shares of more than 120
independent financial institutions, including Pacific Capital and South Valley.
In addition, the principals of Hoefer have substantial experience in investment
and commercial banking, some of which may be deemed applicable to the Fairness
Opinion. Hoefer has not previously provided services to either Pacific Capital
or South Valley. Hoefer and certain of its principals own less than 1% of
Pacific Capital's Common Stock.
Financial Advisory Fees. South Valley has agreed to pay Hoefer for merger
advisory and other services, including its Fairness Opinion, as follows:
(a) $100,000 payable upon the signing of the Agreement;
(b) An additional fee equal to 1.50% of the aggregate
consideration paid; such additional fee to be reduced by the
amount payable under the immediately preceding clause (a).
South Valley has also agreed to reimburse Hoefer for all out-of-pocket
expenses which may be incurred by it in connection with the rendering of the
Fairness Opinion, not to exceed $20,000 without the consent of South Valley, and
to indemnify Hoefer against certain liabilities. No portion of the fee is
contingent upon the conclusions reached in the Fairness Opinion.
Effective Date of the Merger
The Agreement provides that the Merger will be effective upon the date
and time of the filing with the California Secretary of State of a duly executed
Merger Agreement and officers' certificates prescribed by Section 1103 of the
GCL or upon any subsequent date set forth in the Merger Agreement (the
"Effective Date" and
50
<PAGE>
"Effective Time," respectively). Although the parties have not adopted any
formal timetable, it is presently anticipated that the Merger will be
consummated on or prior to December 31, 1996, assuming all the conditions set
forth in the Agreement are theretofore satisfied or waived; however, it is
possible that the Effective Date may extend beyond such date.
Exchange Ratio; Conversion of Shares of South Valley Common Stock
At the Effective Time, by virtue of the Merger and without any action on
the part of the holders of South Valley Common Stock, each issued and
outstanding share of South Valley Common Stock (other than any shares as to
which dissenters' rights have been perfected) will be converted into .92 of a
fully paid, nonassessable and registered share of Pacific Capital Common Stock,
subject to certain adjustments. See "--Possible Adjustments to Exchange Ratio or
Termination of the Agreement." All such shares of South Valley Common Stock
shall no longer be outstanding and shall automatically be canceled and retired
and shall cease to exist, and each certificate previously representing any such
shares shall thereafter represent the Pacific Capital Common Stock into which
such South Valley Common Stock have been converted. Certificates previously
representing South Valley Common Stock shall be exchanged for certificates
representing whole shares of Pacific Capital Common Stock issued in
consideration therefor upon the surrender of such certificates. Cash will be
paid in lieu of any fractional shares of Pacific Capital Common Stock. See
"--Exchange of South Valley Stock Certificates; Fractional Interests." From and
after the Effective Date, the holders of certificates formerly representing
South Valley Common Stock shall cease to have any rights with respect thereto
other than any dissenters' rights they may have perfected pursuant to Chapter 13
of the GCL. See "Dissenters' Rights of Appraisal."
Possible Adjustments to Exchange Ratio or Termination of the Agreement
The Agreement provides that the Exchange Ratio may be adjusted as more
fully described below. The effect of the adjustments would be to reduce the
Exchange Ratio below .92.
On the Effective Date, each issued and outstanding share of South Valley
Common Stock (except for shares as to which dissenters' rights have been
perfected) shall be converted into .92 of a share (the "Exchange Ratio") of
Pacific Capital Common Stock subject to potential adjustments in certain
circumstances. No fractional shares of Pacific Capital Common Stock shall be
issued to holders of South Valley Common Stock and, in lieu thereof, cash will
be paid to South Valley shareholders in accordance with the Agreement. Based on
a closing price of Pacific Capital Common Stock of $27.00 on July 17, 1996 and
assuming this is the Average Price, as defined below, the Exchange Ratio would
be .92 (the equivalent of $24.84 per share of South Valley Common Stock) if
there is no adjustment for Significant Liabilities, as defined below.
The Exchange Ratio will be adjusted for any Significant Liabilities
(regardless of whether the price of Pacific Capital Common Stock changes) if in
the aggregate the Significant Liabilities total more than $500,000. "Significant
Liabilities" means those liabilities or expenses (whether operating or capital
in nature) relating to those categories and events described in the next
sentence which have not been reflected as reductions to South Valley's
consolidated book value pursuant to generally accepted accounting principles as
of June 30, 1996, adjusted for any applicable taxes (whether actual or
estimated). Significant Liabilities consist of the following categories or
events to which Pacific Capital has not consented in writing: (i) new or
expanded contingent liabilities based upon threatened or pending litigation or
other proceedings or hazardous or toxic substances and legal fees and costs
(whether actual or estimated) related thereto; and (ii) any expenses, fines,
fees, penalties or similar obligations, except those which arose in the Ordinary
Course of Business as defined in the Agreement and except severance payments or
other existing payment obligations. Significant Liabilities shall not include
fees of South Valley's financial advisors or South Valley's legal fees directly
attributable to this Merger, provided such financial advisory and legal fees do
not exceed $800,000 in the aggregate.
As a result of any Significant Liabilities totaling more than $500,000 in
the aggregate through the close of business on the day preceding the Effective
Date, the Exchange Ratio shall be adjusted as follows:
(Significant Liabilities - $500,000)
.92 - ------------------------------------
$39 Million
51
<PAGE>
The following table illustrates a range of possible Exchange Ratios assuming
Significant Liabilities between $500,000 and $1,000,000 and certain possible
Exchange Ratios from the above table.
Certain Possible Level of Significant Liabilities
Exchange Ratios* $500,000 $750,000 $1,000,000 $1,250,000 $1,500,000
- --------------- -------- -------- ---------- ---------- ----------
0.9200 0.9200 0.9136 0.9072 0.9008 0.8944
0.9128 0.9128 0.9064 0.9000 0.8936 0.8872
0.9058 0.9058 0.8994 0.8930 0.8866 0.8802
0.8991 0.8991 0.8927 0.8863 0.8799 0.8735
0.8925 0.8925 0.8861 0.8797 0.8733 0.8669
0.8862 0.8862 0.8798 0.8734 0.8670 0.8606
0.8800 0.8800 0.8736 0.8672 0.8608 0.8544
* The Exchange Ratios listed are possible Exchange Ratios assuming Average
Prices of Pacific Capital Common Stock between $23.63 and $34.50 per share.
See the following page for such calculations.
If, as of two days preceding the Effective Date, the average of the
closing price of Pacific Capital Common Stock quoted on the OTC Bulletin Board
(calculated by taking an average of the closing prices quoted on the OTC
Bulletin Board on each of the thirty consecutive trading days prior to two
business days prior to the Effective Date, rounded to four decimal places,
whether or not trades occurred on those days (the "Average Price")), is more
than $31.50 or if the Average Price is more than 12.5% below $27.00, the closing
price on the last business day prior to the date of the Agreement, then the
Exchange Ratio will be adjusted as follows, rounded to four decimal places:
(1) If the Average Price is more than 12.5% below $27.00, the closing
price on the last business day prior to the date of this Agreement, South Valley
may accept the Exchange Ratio (.92) as adjusted for any Significant Liabilities
or Pacific Capital and South Valley shall have the right, but not the
obligation, to renegotiate the Exchange Ratio. Should South Valley fail to
accept the Exchange Ratio as described in the preceding sentence or should the
parties fail to renegotiate the Exchange Ratio, South Valley may terminate the
Agreement pursuant to the provisions of the Agreement.
(2) If the Average Price is more than $31.50, the Exchange Ratio, as
adjusted for any Significant Liabilities, will be adjusted according to the
following formula:
(Average Price + $31.50)/2
.92 x ---------------------------
Average Price
Immediately following consummation of the Merger, based on the number of
shares of Pacific Capital Common Stock and South Valley Common Stock outstanding
on the respective record dates, the former shareholders of South Valley will
hold approximately 33% of the shares of the issued and outstanding common stock
of Pacific Capital assuming the Exchange Ratio remains at .92. Each share of
Pacific Capital Common Stock issued and outstanding immediately prior to
consummation of the Merger will remain outstanding and unchanged as a result of
the Merger. See "The Merger--Exchange Ratio; Conversion of Shares of South
Valley Common Stock."
There is no ceiling in the Agreement which would limit the amount of the
Average Price in the above formula, nor is there any limit to the downward
adjustment of the Exchange Ratio where the Average Price exceeds $31.50 other
than the provisions permitting South Valley to renegotiate the Exchange Ratio or
to terminate the Agreement. Further, the Agreement does not provide for an
adjustment to the Exchange Ratio if the Average Price is more than 12.5% below
$27.00, the closing price of Pacific Capital Common Stock on the last business
day prior to the date of the Agreement.
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<PAGE>
The following table illustrates a range of possible Exchange Ratios
assuming Average Prices of Pacific Capital Common Stock between $23.63 and
$34.50 per share and no adjustment for Significant Liabilities.
Average Price of
Pacific Capital Common Stock Exchange Ratio
---------------------------- --------------
$23.63 to $31.50 0.9200
32.00 0.9128
32.50 0.9058
33.00 0.8991
33.50 0.8925
34.00 0.8862
34.50 0.8800
Exchange of South Valley Stock Certificates; Fractional Interests
Prior to the Effective Date, Pacific Capital has agreed to appoint
First Interstate Bank or its successor, or any other bank or trust company
mutually acceptable to South Valley and Pacific Capital, as exchange agent (the
"Exchange Agent") for the purpose of exchanging certificates representing South
Valley Common Stock, and on and after the Effective Date, Pacific Capital will
issue and deliver to the Exchange Agent certificates representing the Pacific
Capital Common Stock to be delivered to holders of South Valley Common Stock. As
soon as practicable after the Effective Date, each holder of South Valley Common
Stock, upon surrender to the Exchange Agent of one or more certificates for such
South Valley Common Stock for cancellation, will be entitled to receive a
certificate representing the number of Pacific Capital Common Stock into which
such number of shares of South Valley Common Stock will have been converted and
a payment in cash with respect to fractional shares, if any.
No dividends or other distributions of any kind which are declared
payable to shareholders of record of the Pacific Capital Common Stock on or
after the Effective Date will be paid to persons entitled to receive such
certificates for Pacific Capital Common Stock until such persons surrender their
certificates representing South Valley Common Stock. Upon surrender of
certificates representing South Valley Common Stock, the holder thereof shall be
paid, without interest, any dividends or other distributions with respect to the
Pacific Capital Common Stock as to which the record date and payment date
occurred on or after the Effective Date and on or before the date of surrender.
If any certificate for Pacific Capital Common Stock is to be issued in
a name other than that in which the certificate for South Valley Common Stock
surrendered in exchange therefor is registered, it shall be a condition of such
exchange that the person requesting such exchange shall pay to the Exchange
Agent any transfer costs, taxes or other expenses required by reason of the
issuance of certificates for such Pacific Capital Common Stock in a name other
than the registered holder of the certificate surrendered, or such persons shall
establish to the satisfaction of Pacific Capital and the Exchange Agent that
such costs, taxes or other expenses have been paid or are not applicable.
All dividends or distributions, and any cash to be paid in lieu of
fractional shares, if held by the Exchange Agent for payment or delivery to the
holders of unsurrendered certificates representing South Valley Common Stock and
unclaimed at the end of one year from the Effective Date, shall (together with
any interest earned thereon) at such time be paid or redelivered by the Exchange
Agent to Pacific Capital, and after such time any holder of a certificate
representing South Valley Common Stock who has not surrendered such certificate
to the Exchange Agent shall, subject to applicable law, look as a general
creditor only to Pacific Capital for payment or delivery of such Pacific Capital
Common Stock and dividends or distributions or cash, as the case may be.
No fractional shares of Pacific Capital Common Stock shall be issued to
holders of South Valley Common Stock. In lieu thereof, each such holder entitled
to a fraction of a share of Pacific Capital Common Stock shall receive, at the
time of surrender of the certificate or certificates representing such holder's
South Valley Common Stock, an amount in cash equal to the Average Price
multiplied by the fraction of a share of Pacific Capital Common Stock to which
such holder otherwise would be entitled. No such holder shall be entitled to
dividends, voting rights, interest on the value of, or any other rights in
respect of a fractional share.
53
<PAGE>
Treatment of Stock Options
Each person holding one or more options to purchase South Valley Common
Stock pursuant to the South Valley 1991 Directors' Stock Option Plan or 1995
Stock Option Plan (the "Option Plans") will have the right, in his or her
discretion, to:
(i) exercise any vested options granted under the Option Plans to
acquire South Valley Common Stock prior to the Effective Date; and/or
(ii) receive the fair value, as of the Effective Date, of any
unexercised vested and/or unvested options granted under the Option
Plans which fair value shall be determined by an independent financial
advisor to Pacific Capital and shall be paid on the Effective Date by
Pacific Capital in the form of Pacific Capital Common Stock rounded
down to the nearest whole share.
As of the South Valley Record Date, options to acquire 175,208 shares
of South Valley Common Stock were outstanding under the Option Plans. See
"Certain Considerations--Interests of South Valley Officers and Directors in the
Merger."
Covenants of Pacific Capital and South Valley; Conduct of Business Prior to the
Merger
The Agreement contains covenants of Pacific Capital and South Valley
concerning, among other things, (i) the cooperation of each party to obtain all
necessary or appropriate government approvals in order to cause the Merger to be
consummated; (ii) the prompt notification by either party of any event which
would cause or constitute a breach of any of the representations, warranties or
covenants of that party; (iii) the right of each party to review the other
party's books and records and the delivery of financial statements; (iv) the
cooperation by both parties in the issuance of any press releases; (v)
restrictions on either party to enter into a merger, consolidation, or other
takeover proposal involving any third party; (vi) restrictions on the payment of
dividends; (vii) the termination, modification or merger of the South Valley
Cash or Deferred 401(k) Plan into the Pacific Capital 401(k) Plan; (viii) the
termination, modification or merger of South Valley's employee welfare benefits
plan into Pacific Capital's employee welfare benefits plan; (ix) the addition of
any South Valley officer or director who becomes an officer or director of
Pacific Capital (including any subsidiary) to Pacific Capital's director and
officer insurance policy; (x) the execution of employment agreements between
SVNB and any executive employee of SVNB who shall become or remain an executive
employee after the Effective Date; (xi) the amendment of Pacific Capital's
Bylaws to increase the number of authorized directors to permit the appointment
of three additional directors to be designated by South Valley and acceptable to
Pacific Capital, (xii) the amendment of SVNB's Bylaws to increase the number of
authorized directors to permit the appointment of three additional directors by
Pacific Capital; (xiii) the execution of Nonsolicitation Agreements by the
directors of South Valley; and (xiv) the listing of the Pacific Capital Common
Stock as a Nasdaq National Market security.
The Agreement provides that Pacific Capital and South Valley shall
conduct their respective businesses in the ordinary course as such business was
conducted prior to entering into the Agreement. The Agreement further provides
that South Valley will not, without the prior written consent of Pacific
Capital, among other things: (i) make or approve any increase in the
compensation payable to any director, officer, employee or agent with an annual
salary in excess of $70,000; (ii) sell, lease, pledge, assign, encumber or
otherwise dispose of any of its assets except in the Ordinary Course of
Business, for adequate value, without recourse and consistent with its customary
practice; (iii) with respect to any extension of credit in excess of $50,000
waive or release any right or collateral or cancel or compromise any debt or
claim, except in the Ordinary Course of Business; (iv) make, renegotiate, renew,
increase, extend or purchase any loans, advances or loan commitments, in each
case to any of its officers, directors or any affiliated or related persons of
such directors or officers except in the Ordinary Course of Business consistent
with its established loan procedures and in compliance with FRB Regulation O;
(v) take any action to create, relocate or terminate the operations of any
banking office or branch, or to form any new subsidiary or affiliated entity;
(vi) settle or otherwise take any action to release or reduce any of its rights
with respect to any litigation involving a claim of more than $50,000 or claims
of more than $75,000 in the aggregate in which it is a party; (vii) without
first having obtained the written consent of Pacific Capital, which consent
shall not be unreasonably withheld, cause the officers of South Valley to: (A)
commit to any new contract or extend any existing contract that would obligate
South Valley for an aggregate amount over time in excess of $50,000 (including
data
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processing, servicing or any other agreement or contract); (B) accelerate the
vesting of pension or other benefit; (C) grant any new stock options or
accelerate the vesting of any existing stock options; or (D) fail to promptly
notify Pacific Capital in writing upon becoming aware of the occurrence of any
of the following: (1) the classification of any loan in the amount of $50,000 or
more as substandard, doubtful or loss; (2) the filing or commencement of any
legal action or other proceeding or investigation against South Valley (or any
director or executive officer); or (3) the monthly pretax earnings of South
Valley are less than $200,000. For purposes of the Agreement, "Ordinary Course
of Business" means the banking and related business as presently conducted by
South Valley.
The Agreement also provides that South Valley will, among other things,
consult with Pacific Capital on problem loan workout strategies, and obtain
Pacific Capital's concurrence on any loan loss in excess of $15,000 (or $50,000
in the aggregate) or any writedown of other real estate owned.
Except with the prior written consent of the other party and as
provided in the Agreement, Pacific Capital and South Valley have each agreed to
not amend its Articles of Incorporation or Bylaws; make any change in its
respective authorized, issued or outstanding capital stock or any other equity
security; issue, sell, pledge, assign or otherwise encumber or dispose of, or
purchase, redeem or otherwise acquire, any of its shares of capital stock or
other equity securities or enter into any agreement, call or commitment of any
character to do so; grant or issue any stock option relating to, or right to
acquire, or security convertible into, shares of its capital stock or other
equity security; purchase, redeem, retire or otherwise acquire (other than in a
fiduciary capacity) any shares of, or any security convertible into, capital
stock or other equity securities, or agree to do any of the foregoing, except
that Pacific Capital may grant options or issue shares pursuant to its 1994
Stock Option Plan, 1991 Directors Stock Option Plan and 1984 Stock Option Plan
or repurchase shares of Pacific Capital Common Stock pursuant to its share
repurchase plan and South Valley may issue shares pursuant to its 1991
Directors' Stock Option Plan and 1995 Stock Option Plan with respect to options
outstanding as of the date of the Agreement.
Business Combination. The Agreement provides that Pacific Capital shall
not solicit nor make any offer to any third party or accept any offer from any
third party regarding a Business Combination of Pacific Capital with any other
entity or person unless such offer is expressly conditioned upon the performance
by Pacific Capital or its successor in interest of all Pacific Capital's
obligations under the Agreement. In the event Pacific Capital fails to comply
with such provisions or if Pacific Capital terminates the Agreement,
notwithstanding the fact that all terms and conditions thereof have been
satisfied by South Valley and no event has occurred which provide Pacific
Capital the right to terminate the Agreement, South Valley shall be entitled to
terminate the Agreement without liability to Pacific Capital and Pacific Capital
shall pay to South Valley, on demand, the sum of $1,000,000. "Business
Combination" is defined in the Agreement as any tender or exchange offer,
proposal for a merger, consolidation, or other takeover proposal involving any
party hereto (except as explicitly contemplated in the Agreement) or any offer
or proposal to acquire in any manner a 10% or greater equity interest in, or a
substantial portion of any party to the Agreement other than transactions
contemplated thereunder.
Subject to the continuing fiduciary duties of the Board of Directors of
South Valley, prior to the Effective Date, neither South Valley, nor any
officer, director or affiliate of South Valley, nor any investment banker,
attorney, accountant or other agent, advisor or representative retained by South
Valley shall (i) solicit or encourage, directly or indirectly, any inquiries,
discussions or proposals for, continue, propose or enter into discussions or
negotiations looking toward, or enter into any agreement or understanding
providing for, any Business Combination; or (ii) disclose, directly or
indirectly, any nonpublic information to any corporation, partnership, person or
other entity or group concerning the business and properties of South Valley or
afford any such party access to the properties, books or records of South Valley
or otherwise assist or encourage any such party in connection with the
foregoing, or (iii) furnish or cause to be furnished any information concerning
the business, financial condition, operations, properties or prospects of South
Valley to another person, having any actual or prospective role with respect to
any such transaction; provided, however, that with respect to any investment
banker, South Valley shall use its best efforts to ensure that said investment
banker complies with the foregoing. The Agreement also requires South Valley to
notify Pacific Capital within two business days of the receipt by it of any
indication of interest in any Business Combination.
In the event the Board of Directors of South Valley receives a bona
fide offer for a Business Combination and reasonably determines that its duty to
act or refrain from acting pursuant to the Agreement is inconsistent with its
continuing fiduciary duties to the shareholders of South Valley, its duty to act
or refrain from acting pursuant
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to the Agreement is excused and will not constitute a breach of the Agreement,
or create any claim or cause of action asserting any liability against any
member of the Board of Directors of South Valley. If the Agreement is terminated
by Pacific Capital for reasons relating to South Valley's failure to act or
refraining from doing any act pursuant to the Agreement as a result of a bona
fide offer for a Business Combination by South Valley or if a Business
Combination involving South Valley occurs within twelve months following
termination of the Agreement as a result of the interference of a third party
who thereafter attempts to acquire South Valley, South Valley shall pay to
Pacific Capital, on demand, the sum of $1,000,000.
Management and Operations Following the Merger
On the Effective Date, South Valley will be merged with and into
Pacific Capital, at which time SVNB will become a wholly-owned subsidiary bank
of Pacific Capital. All rights, franchises and interests of South Valley will be
assumed by and vested in Pacific Capital. The Articles of Incorporation and
Bylaws of South Valley in effect immediately prior to the Effective Date shall
be terminated following the Merger, and the directors and officers of Pacific
Capital prior to the Effective Date will be the directors and officers of
Pacific Capital following the Merger. In connection with the Merger, Pacific
Capital shall amend its Bylaws to increase the authorized number of directors to
permit the appointment of three additional directors to be designated by South
Valley and acceptable to Pacific Capital.
South Valley has agreed that South Valley's employee benefit plans, as
defined in section 3(1) of the Employee Retirement Income Security Act of 1974,
as amended, may be terminated, modified or merged into Pacific Capital's welfare
benefit plans on or after the Effective Date as determined by Pacific Capital in
its sole discretion, subject to compliance with applicable law so long as any
such action preserves the rights of the participants in such plans, including,
without limitation, vesting rights.
It is expected that all data processing, check processing, bookkeeping,
consumer lending, residential real estate lending, accounting, internal auditing
and all other administrative functions of South Valley, except for branch
functions and regional management functions described above, will be centralized
with Pacific Capital's other similar functions.
Representations and Warranties; Conditions to the Merger
The Agreement contains representations and warranties by Pacific
Capital and South Valley regarding, among other things, their respective
organization, authorization to enter into the Agreements, corporate power to
carry out the terms of the Agreements, capitalization, the accuracy of their
respective financial statements, the timely filing of tax returns, title to real
property, certain environmental liabilities, employment contracts and benefits
and various aspects of their respective loans and other assets.
The Merger will occur only if all required government approvals are in
effect or have been obtained (without the imposition of any materially
burdensome conditions as determined by Pacific Capital in its reasonable
judgment) (see "--Required Regulatory Approvals"), the Agreements are approved
by the majority of the outstanding shares of Pacific Capital Common Stock and
South Valley Common Stock and the representations and warranties of the parties
are true and correct in all material respects on and as of the Effective Date.
Consummation of the Merger is subject to satisfaction of certain other
conditions or the waiver of such conditions by the party entitled to do so. Such
conditions include, among other things, the following: (i) except as disclosed
in writing prior to July 18, 1996, the absence of a material adverse change
since December 31, 1995, in the business, financial condition, properties,
results of operations or prospects of either party; (ii) the absence of
significant legal impediments to the Merger; (iii) the effectiveness of a
registration statement with respect to the Pacific Capital shares to be issued
to South Valley shareholders as a result of the Merger; (iv) the receipt of a
tax opinion of the independent accountants or legal counsel to Pacific Capital
to the effect that, among other things, under federal and state tax laws, the
Merger will not result in any recognized gain or loss to Pacific Capital or
South Valley and, except for cash received in lieu of fractional shares, no gain
or loss will be recognized by holders of South Valley Common Stock who receive
Pacific Capital Common Stock in exchange for South Valley Common Stock which
they hold; (v) receipt of letters and reports from South Valley's and Pacific
Capital's independent public accountants relating to the Registration Statement
and South Valley's and Pacific Capital's unaudited financial
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statements; (vi) receipt of a letter from South Valley's independent public
accountants to the effect that no conditions exist which would preclude South
Valley accounting for the Merger with Pacific Capital as a pooling of interests
as those conditions relate to South Valley; (vii) receipt by South Valley of a
fairness opinion from its financial advisor; (viii) receipt of a letter from
Pacific Capital's independent public accountants to the effect that the Merger
will qualify for the pooling of interests method of accounting in accordance
with generally accepted accounting principles, (ix) receipt of all consents by
other parties to and required by material agreements of Pacific Capital and
South Valley, respectively, (x) South Valley shall have taken any actions
necessary to have SVNB amend its Bylaws to increase the number of authorized
directors to permit the appointment of three additional directors designated by
Pacific Capital; (xi) Pacific Capital shall have amended its Bylaws to increase
the number of authorized directors on its board to permit the appointment of
three additional directors by South Valley and acceptable to Pacific Capital;
(xii) Pacific Capital shall have obtained designation of Pacific Capital Common
Stock as a Nasdaq National Market security, and (xiii) the aggregate number of
shares of Pacific Capital Common Stock and South Valley Common Stock held by
persons who have taken all steps at or prior to the respective shareholders
meeting to be paid the value of such shares under the GCL shall not exceed 9% of
the outstanding shares of Pacific Capital Common Stock and South Valley Common
Stock.
In addition, certain other conditions must be satisfied, or must be
waived by Pacific Capital, in order for Pacific Capital to be obligated to
consummate the Merger, including but not limited to the conditions that (i)
South Valley shall have taken corrective action, if any, recommended by or
resulting from its most recent compliance examinations and any significant
regulatory compliance violations shall have been corrected by South Valley prior
to the Effective Date and (ii) prior to the Effective Date, South Valley shall
be in compliance with all requirements, if any, arising from its most recent
safety and soundness regulatory examination.
Required Regulatory Approvals
The Merger must be approved by the FRB pursuant to the provisions of
the BHC Act. This federal statute provides that no transaction may be approved
which would result in a monopoly or (i) which 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 United States, or (ii) whose effect in
any section of the country may be substantially to lessen competition, or to
tend to create a monopoly, or which in any manner would be in restraint of
trade, unless the FRB finds that the anticompetitive effects of the proposed
transaction are 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. In conducting a review of any application for a merger, the FRB is
required to consider the financial and managerial resources and future prospects
of the companies and the banks concerned and the convenience and needs of the
community to be served. The FRB has the authority to deny an application if it
concludes that the requirements of the Community Reinvestment Act of 1977, as
amended, are not satisfied.
Pacific Capital filed a final application to merge South Valley into
Pacific Capital on August 23, 1996. Receipt of final regulatory approval by the
FRB is a pre-condition to the consummation of the Merger under the terms of the
Agreement. See "--Representations and Warranties; Conditions to the Merger."
Pacific Capital expects that the FRB will act on and approve its application in
the fourth quarter of 1996.
A transaction approved by the FRB may not be consummated for at least
30 days (in some circumstances a 15-day waiting period is allowed) after such
approval. During such period, the Department of Justice may commence a legal
action challenging the transaction under federal antitrust laws. If the
Department of Justice does not commence a legal action during such 30-day period
(in some circumstances a 15-day waiting period is allowed), it may not
thereafter challenge the transaction except in an action commenced under the
antimonopoly provisions of Section 2 of the Sherman Antitrust Act.
The BHC Act provides for the publication of notice and the opportunity
for administrative hearings relating to an application for approval under the
BHC Act and authorizes the FRB to permit interested parties to intervene in the
proceedings. If an interested party is permitted to intervene, such intervention
could substantially delay the regulatory approval required for consummation of
the Merger.
Based on current precedents, the respective managements of Pacific
Capital and South Valley believe that the Merger will be approved by the FRB and
the Merger will not be subject to challenge by the Department of
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Justice under federal antitrust laws. However, no assurance can be provided that
the FRB or the Department of Justice will concur in this assessment or that, in
connection with the grant of any approval by the FRB, any action taken, or
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger, will not contain conditions which are materially
burdensome to Pacific Capital within the meaning of the Agreement. If a
materially burdensome condition is imposed in connection with a government
approval, a condition to Pacific Capital's obligation to consummate the Merger
will be deemed not to have occurred and Pacific Capital would have the right to
terminate the Agreement.
Trading Market for Stock
The Pacific Capital Common Stock is listed on the OTC Bulletin Board.
Pacific Capital intends to cause the shares of Pacific Capital Common Stock to
be issued in the Merger and the shares of Pacific Capital Common Stock to be
issued for unexercised vested and unvested South Valley stock options to be
approved for listing on the Nasdaq National Market, subject to official notice
of issuance, prior to the Effective Date.
There is limited trading and no established public trading market for
South Valley Common Stock, which is currently traded on the over-the-counter
market and quoted on the "pink sheets" published by the National Quotation
Bureau, Inc. (the "Pink Sheets"). If the Merger is consummated, Pacific Capital
will take appropriate action to cause South Valley Common Stock to cease to be
quoted on the Pink Sheets and public trading of such shares will cease.
Nonsolicitation Agreements
As a condition to consummation of the Merger under the Agreement, the
directors of South Valley have each entered into a nonsolicitation agreement
(collectively, the "Nonsolicitation Agreements") with Pacific Capital. Pursuant
to the Nonsolicitation Agreements, each director, except as a director, officer
or employee of Pacific Capital or any subsidiary thereof, shall not, without the
prior written consent of Pacific Capital, for a two-year period following the
Merger (i) directly or indirectly, solicit any customers of South Valley or
Pacific Capital or their respective subsidiaries or successors within the
counties of Santa Clara, Monterey and San Benito in the State of California or
(ii) induce any employee of South Valley or Pacific Capital or their respective
subsidiary's to leave the employment thereof.
The Nonsolicitation Agreements further provide that each director shall
treat as confidential all information concerning Pacific Capital's or South
Valley's or their respective subsidiaries records, properties, books, contracts,
commitments and affairs, including but not limited to, information regarding
accounts, shareholders, finances, strategies, marketing, customers, customer
lists and potential customers and other information of a similar nature not
available to the public.
Certain Tax Consequences
In order to satisfy one of the conditions to consummation of the Merger
(see "--Representations and Warranties; Conditions to the Merger"), Pacific
Capital and South Valley each expects to receive, with respect to United States
federal income tax law and California state tax law, an opinion from Pacific
Capital's legal counsel or independent accountants, based upon the assumptions
and understandings contained in the opinion, to the effect that the Merger will
be part of a reorganization within the meaning of section 368(a) of the Internal
Revenue Code of 1986, as amended (the "IRC"), and that, accordingly, for United
States federal income tax, California personal income and California franchise
tax purposes:
(i) the Merger will not result in any recognized gain or loss
to Pacific Capital or South Valley;
(ii) except for any cash received in lieu of any fractional
share, no gain or loss will be recognized by holders of South Valley
Common Stock who receive Pacific Capital Common Stock in exchange for
South Valley Common Stock which they hold;
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(iii) the holding period of Pacific Capital Common Stock
exchanged for South Valley Common Stock will include the holding period
of the South Valley Common Stock for which it is exchanged, assuming
the shares of South Valley Common Stock are capital assets in the hands
of the holder thereof at the Effective Date; and
(iv) the basis of the Pacific Capital Common Stock received in
the exchange will be the same as the basis of the South Valley Common
Stock for which it was exchanged, less any basis attributable to
fractional shares for which cash is received.
In general with respect to dissenting shareholders, if the South Valley
Common Stock is held as a capital asset on the Effective Date, a dissenting
shareholder will recognize a capital gain or loss measured by the difference
between the amount of cash received and the basis of the South Valley Common
Stock. However, if such dissenting shareholder owns, directly or constructively
through application of section 318 of the IRC, any shares of South Valley Common
Stock as to which dissenters' rights are not exercised and perfected, or
otherwise directly or constructively holds Pacific Capital Common Stock, such
shareholder may be treated as having received a dividend in the amount of cash
paid to the shareholder in exchange for the shares as to which dissenters'
rights are perfected. The constructive ownership rules of section 318 of the IRC
apply in certain specified circumstances to attribute ownership of stock of a
corporation from the shareholder actually owning the stock, whether an
individual, a trust, a partnership or a corporation, to certain members of the
individual's family or to certain individuals, trusts, partnerships or
corporations in which that shareholder has an ownership or beneficial interest,
or which have an ownership or beneficial interest in that shareholder; a
shareholder is also considered under these rules to own any stock with respect
to which that shareholder holds exercisable options. Each shareholder who
intends to dissent from the Merger should consult such shareholder's own tax
advisor with respect to the application of the constructive ownership rules to
the shareholder's particular circumstances.
THE UNITED STATES FEDERAL INCOME TAX, CALIFORNIA PERSONAL INCOME TAX
AND CALIFORNIA FRANCHISE TAX DISCUSSION SET FORTH ABOVE IS BASED UPON CURRENT
LAW AND IS INTENDED FOR GENERAL INFORMATION ONLY. EACH SOUTH VALLEY SHAREHOLDER
IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR CONCERNING THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER TO SUCH SHAREHOLDER, INCLUDING THE APPLICABILITY AND
EFFECT OF STATE, LOCAL AND OTHER TAX LAWS.
Amendment; Termination
The Agreement may be amended by Pacific Capital and South Valley at any
time prior to the Effective Date without the approval of the shareholders of
Pacific Capital or the shareholders of South Valley with respect to any of its
terms except the terms relating to the form or amount of consideration to be
delivered to the South Valley shareholders in the Merger. The Agreements may be
terminated by the mutual consent of the Boards of Directors of both Pacific
Capital and South Valley at any time prior to the consummation of the Merger.
The Agreement may be terminated by Pacific Capital as follows: (i) on
or after December 31, 1996, if (A) any of the conditions to which the
obligations of Pacific Capital are subject has not been fulfilled, or (B) such
conditions have been fulfilled or waived by Pacific Capital and South Valley
shall have failed to complete the Merger; (ii) if (A) Pacific Capital has become
aware of any facts or circumstances of which it was not aware on the date of the
Agreement and which materially adversely affect South Valley and SVNB or their
respective business, properties, results of operations, financial condition or
prospects taken as a whole; (B) a material adverse change shall have occurred
since December 31, 1995, in the business, properties, financial condition,
results of operations or prospects of South Valley and SVNB taken as a whole;
(C) there has been a material breach (including any material anticipatory
breach) on the part of South Valley of its obligations, conditions or covenants
under the Agreement or any material breach (including any material anticipatory
breach) of any covenants or conditions contained in the Agreement which, in
either event, has not been cured within 20 business days after receipt of
written notice of such breach; or (D) based on the continuing fiduciary duties
of the South Valley Board of Directors to the shareholders of South Valley,
South Valley fails to act or refrains from doing any act required of South
Valley pursuant to the Agreement as a result of a bona fide offer for a Business
Combination.
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The Agreement may be terminated by South Valley as follows: (i) on or
after December 31, 1996, if (A) any of the conditions to which the obligations
of South Valley are subject has not been fulfilled, or (B) such conditions have
been fulfilled or waived but Pacific Capital shall have failed to complete the
Merger; provided, however, that if Pacific Capital is engaged at the time in
litigation relating to an attempt to obtain one or more of the government
approvals which are required to consummate the Merger or if Pacific Capital
shall be contesting in good faith any litigation which seeks to prevent
consummation of the Merger, such nonfulfillment shall not give South Valley the
right to terminate the Agreement until the earlier of (X) eight months after the
date of the Agreement and (Y) 60 days after the completion of such litigation
and of any further regulatory or judicial action pursuant thereto; or (ii) if
(A) South Valley has become aware of any facts or circumstances of which it was
not aware on the date of the Agreement and which materially adversely affect
Pacific Capital or FNB or their business, properties, operations, financial
condition or prospects taken as a whole; (B) a material adverse change shall
have occurred since December 31, 1995, in the business, properties, financial
condition, results of operations or prospects of Pacific Capital and FNB taken
as a whole; (C) there has been a material breach (including any material
anticipatory breach) on the part of Pacific Capital of its obligations under the
Agreement or there has been a material breach (including any material
anticipatory breach) of any conditions or covenants contained in the Agreement
which, in either event, has not been cured within 20 business days of receipt of
written notice of such breach; (D) Pacific Capital shall solicit or make any
offer to any third party or accept any offer from any third party regarding a
Business Combination of Pacific Capital with any other entity or person that is
not conditioned upon performance by Pacific Capital or its successor of all
obligations of Pacific Capital under the Agreement; or (E) South Valley fails to
accept the Exchange Ratio or the parties fail to renegotiate the Exchange Ratio.
The right to terminate the Agreement may be exercised by Pacific
Capital or South Valley, as the case may be, only by giving written notice,
signed on behalf of such party by its Chairman of the Board or President, to the
other party.
If there has been a material breach by either party in the performance
of any obligations under the Agreement, which shall not have been cured within
twenty business days after written notice thereof has been given to the
defaulting party, the nondefaulting party will have the right to terminate the
Agreement upon written notice to the other party. In any event, the
nondefaulting party will have no obligation to consummate any transaction or
take any further steps toward such consummation contemplated under the Agreement
until such breach is cured.
Termination of the Agreement does not terminate or affect the
obligations of Pacific Capital or South Valley to pay expenses (see
"--Expenses"), to maintain the confidentiality of the other party pursuant to
the Agreement, to make certain termination payments as described below, or to
comply with the notice, attorneys' fees, governing law and third party
beneficiary provisions of the Agreement and shall not affect any agreement after
such termination.
South Valley shall pay to Pacific Capital, on demand, the sum of
$1,000,000 if the Agreement is terminated by Pacific Capital for reasons
relating to South Valley's failure to act or refrain from doing any act pursuant
to the Agreement as a result of a bona fide offer for a Business Combination or
if a Business Combination involving South Valley occurs within 12 months
following termination of the Agreement as a result of the interference of a
third party or group who thereafter attempts to acquire South Valley.
If the Agreement is terminated by South Valley for reasons relating to
a Business Combination by Pacific Capital or if Pacific Capital terminates the
Agreement notwithstanding the fact that all terms and conditions of the
Agreement have been satisfied by South Valley and no event has occurred which
provides Pacific Capital the right under the Agreement to terminate the
Agreement, Pacific Capital shall pay to South Valley, on demand, the sum of
$1,000,000.
Expenses
Pacific Capital and South Valley have each agreed to pay, without right
of reimbursement from the other party and whether or not the transactions
contemplated by the Agreements shall be consummated, their own costs incurred
incident to the performance of their obligations under the Agreements, including
without limitation, costs incident to the preparation of the Agreements and this
Joint Proxy Statement/Prospectus (including the audited financial statements of
South Valley contained herein) and incident to the consummation of the Merger
and of the
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other transactions contemplated in the Agreements, including the fees and
disbursements of counsel, accountants, consultants and financial advisers
employed by such party in connection therewith.
South Valley shall bear its own costs of printing and distributing
(including postage) this Joint Proxy Statement/Prospectus and other information
relating to these transactions to its shareholders.
Accounting Treatment
South Valley and Pacific Capital expect that the Merger will qualify
for pooling of interests accounting treatment. Under this method of accounting,
Pacific Capital's prior period financial statements will be restated on a
combined basis with those of South Valley, with all intercompany accounts being
eliminated and all expenses relating to the Merger being deducted from combined
income.
It is a condition to Pacific Capital's and South Valley's obligation to
consummate the Merger that, among other things, Pacific Capital and South Valley
receive a letter from KPMG Peat Marwick LLP ("KPMG"), Pacific Capital's
independent public accountants, to the effect that KPMG believes that the Merger
will qualify for the pooling of interests method of accounting in accordance
with generally accepted accounting principles and all applicable rules,
regulations and policies of the Commission. In addition, it also is a condition
to such obligations that no determination will have been made 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.
Representatives of KPMG, as accountants of Pacific Capital are expected to be
present at the Pacific Capital Special Meeting of Shareholders and available to
respond to questions.
South Valley's independent public accountants for the most recently
completed fiscal year are Deloitte & Touche LLP. Representatives of Deloitte &
Touche LLP, as accountants of South Valley, are expected to be present at the
South Valley Special Meeting of Shareholders and available to respond to
questions.
Resales of Pacific Capital Common Stock
The Pacific Capital Common Stock issued pursuant to the Merger will be
freely transferable under the Securities Act, except for shares issued to any
South Valley shareholder who may be deemed to be an "affiliate" of Pacific
Capital or South Valley for purposes of Rule 145 under the Securities Act. Each
director of South Valley is deemed to be such an affiliate. It is expected that
each such director and each other person deemed to be an affiliate will enter
into an agreement with Pacific Capital providing that such person will not
transfer any Pacific Capital Common Stock received in the Merger, except in
compliance with the Securities Act and applicable rules thereunder.
DISSENTERS' RIGHTS OF APPRAISAL
If the Agreement is approved by the required vote of Pacific Capital
shareholders and South Valley shareholders, respectively, and is not abandoned
or terminated, shareholders of Pacific Capital and South Valley who did not vote
"FOR" the Merger may be entitled to certain dissenters' appraisal rights under
Chapter 13 of the GCL.
The following discussion is not a complete statement of the GCL
relating to dissenters' rights, and is qualified in its entirety by reference to
sections 1300 through 1312 of the GCL attached to this Joint Proxy
Statement/Prospectus as Annex C and incorporated herein by reference. This
discussion and sections 1300 through 1312 of the GCL should be reviewed
carefully by any Pacific Capital or South Valley shareholder who wishes to
exercise statutory dissenters' rights or wishes to preserve the right to do so,
since failure to comply with the required procedures will result in the loss of
such rights.
If the Merger is consummated, those shareholders who elect to exercise
their dissenters' rights and who timely perfect such rights in accordance with
applicable law will be entitled to receive the "fair market value" of their
shares in cash. Pursuant to section 1300(a) of the GCL, such "fair market value"
would be determined as of the day before the first announcement of the terms of
the Merger, excluding any appreciation or depreciation in
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consequence of the proposed Merger, but adjusted for any stock split, reverse
stock split, or share dividend which becomes effective thereafter. For example,
assuming the "fair market value" of Pacific Capital Common Stock on July 17,
1996, the day before the first announcement of the terms of the Merger, is the
closing price of the stock on the OTC Bulletin Board, then a dissenting
shareholder of Pacific Capital Common Stock may be entitled to receive $27.00
per share.
Shares must satisfy each of the following requirements to qualify as
dissenting shares ("Dissenting Shares") under the GCL: (i) the shares must have
been outstanding on the Pacific Capital or South Valley Record Date (and,
therefore, shares acquired after such Record Date upon exercise of options to
purchase common stock may not constitute Dissenting Shares); (ii) the shares
must not have been voted "FOR" approval and adoption of the Agreements and the
transactions contemplated thereby, including the Merger; and (iii) the holder of
such shares must submit certificates for endorsement as described below. If a
holder of Pacific Capital Common Stock or South Valley Common Stock votes "FOR"
the approval and adoption of the Agreements, including the Merger, and the
transactions contemplated thereby (including by executing and returning a proxy
with no voting instructions indicated thereon) such holder will lose any
dissenters' rights that may exist with respect to the subject shares.
If the Merger is approved at the meetings, Pacific Capital and South
Valley will, within ten days after such approval, mail to any shareholder who
may have a right to require Pacific Capital or South Valley, as the case may be,
to purchase his or her shares for cash as a result of making such a demand (as
described below), a notice that the required shareholder approval and adoption
of the Agreements and the transactions contemplated thereby, including the
Merger, was obtained (the "Notice of Approval") accompanied by a copy of
sections 1300 through 1304 of the GCL. The Notice of Approval will set forth the
price determined by Pacific Capital and South Valley to represent the "fair
market value" of any Dissenting Shares (which shall constitute an offer by
Pacific Capital or South Valley to purchase such Dissenting Shares at such
stated price) and will set forth a brief description of the procedures to be
followed by such shareholders who wish to exercise their dissenters' rights.
Within 30 days after the date on which the Notice of Approval was
mailed: (i) Pacific Capital or South Valley, as the case may be, or their
respective transfer agents must receive the demand of the dissenting shareholder
which is required by law to contain a statement concerning the number and class
of shares held of record by such dissenting shareholder which the dissenting
shareholder demands that Pacific Capital or South Valley purchase and a
statement of what such dissenting shareholder claims to be the fair market value
of the Dissenting Shares as of July 18, 1996, the day before the announcement of
the proposed Merger (the statement of fair market value in such demand by the
dissenting shareholder constitutes an offer by the dissenting shareholder to
sell the Dissenting Shares at such price); and (ii) the dissenting shareholder
must submit share certificate(s) representing the Dissenting Shares to Pacific
Capital or South Valley, as the case may be, at the respective principal office
or at the office of the transfer agent for Pacific Capital or South Valley. The
certificate(s) will be stamped or endorsed with a statement that the shares are
Dissenting Shares or will be exchanged for certificates of appropriate
denomination so stamped or endorsed. If the price contained in the Notice of
Approval is acceptable to the dissenting shareholder, the dissenting shareholder
may demand the same price. This would constitute an acceptance of the offer by
Pacific Capital or South Valley to purchase the dissenting shareholder's stock
at the price stated in the Notice of Approval.
If Pacific Capital or South Valley, as the case may be, and a
dissenting shareholder agree upon the price to be paid for the Dissenting
Shares, upon the dissenting shareholder's surrender of the certificates
representing the Dissenting Shares, such price (together with interest thereon
at the legal rate on judgments from the date of the agreement between Pacific
Capital or South Valley and the dissenting shareholder) is required by law to be
paid to the dissenting shareholder within 30 days after such agreement or within
30 days after any statutory or contractual conditions to the Merger are
satisfied, whichever is later, subject to the surrender of the certificates
therefor.
If Pacific Capital or South Valley, as the case may be, and a
dissenting shareholder disagree as to the price for such Dissenting Shares or
disagree as to whether such Dissenting Shares are entitled to be classified as
Dissenting Shares, such holder may, within six months after the Notice of
Approval is mailed, file a complaint in the Superior Court of the proper county
requesting the court to make such determinations or, alternatively, may
intervene in any pending action brought by any other dissenting shareholder.
Costs of such an action (including compensation of appraisers) are required to
be assessed as the court considers equitable, but must be assessed
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against Pacific Capital or South Valley, as the case may be, if the appraised
value as determined by the court exceeds the price offered by Pacific Capital or
South Valley.
The court action to determine the fair market value of the shares will
be suspended if litigation is instituted to test the sufficiency or regularity
of the votes of the shareholders in authorizing the Merger. Furthermore, no
shareholder who has appraisal rights under Chapter 13 of the GCL has any right
to attack the validity of the Merger or to have the Merger set aside or
rescinded except in an action to test whether the number of shares required to
authorize or approve the Merger has been legally voted in favor of the Merger.
Dissenting Shares may lose their status as such and the right to demand
payment will terminate if (i) the Merger is abandoned (in which case Pacific
Capital or South Valley, as the case may be, shall pay on demand to any
dissenting shareholder who has initiated proceedings in good faith as provided
under Chapter 13 of the GCL all necessary expenses and reasonable attorneys'
fees incurred in such proceedings); (ii) the Dissenting Shares are transferred
before being submitted for endorsement or are surrendered for conversion into
shares of another class; (iii) the dissenting shareholder and Pacific Capital or
South Valley, as the case may be, do not agree upon the status of the shares as
Dissenting Shares or upon the price of such shares and the dissenting
shareholder fails to file suit against Pacific Capital or South Valley, as the
case may be, or intervene in a pending action within six months following the
date on which the Notice of Approval was mailed to the shareholder; or (iv) the
dissenting shareholder withdraws his or her demand for the purchase of the
Dissenting Shares with the consent of Pacific Capital or South Valley, as the
case may be.
DESCRIPTION OF PACIFIC CAPITAL CAPITAL STOCK
The authorized capital stock of Pacific Capital consists of 20,000,000
shares of Common Stock, without par value, and 20,000,000 shares of Preferred
Stock, no par value. As of the Pacific Capital Record Date, 2,593,699 shares of
Pacific Capital Common Stock, no shares of Preferred Stock were outstanding and
an additional 767,898 shares of the authorized Pacific Capital Common Stock were
available for future grant and reserved for issuance to holders of outstanding
stock options, under Pacific Capital's stock option plans.
Common Stock
Holders of Pacific Capital Common Stock are entitled to one vote for
each share held of record on all matters submitted to a vote of shareholders,
except that, upon giving the notice required by the Pacific Capital Bylaws,
shareholders may cumulate their votes for the election of directors.
Shareholders are entitled to receive ratably such dividends as may be legally
declared by Pacific Capital's Board of Directors. There are legal and regulatory
restrictions on the ability of South Valley to declare and pay dividends. See
"Market Price and Dividend Data." In the event of a liquidation, common
shareholders are entitled to share ratably in all assets remaining after payment
of liabilities and liquidation preferences for securities with a priority over
the Pacific Capital Common Stock. Shareholders of Pacific Capital Common Stock
have no preemptive or conversion rights. Pacific Capital Common Stock is not
subject to calls or assessments. The transfer agent and registrar for Pacific
Capital Common Stock is First Interstate Bank or its successor.
Preferred Stock
The Pacific Capital Board of Directors is authorized to fix the rights,
preferences, privileges and restrictions of the Preferred Stock and may
establish series of such stock and determine the variations between series. If
and when any Preferred Stock is issued, the holders of Preferred Stock may have
a preference over holders of Pacific Capital Common Stock upon the payment of
dividends, upon liquidation of Pacific Capital, in respect of voting rights and
in the redemption of the capital stock of Pacific Capital. The issuance of any
Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of Pacific Capital without further action of its shareholders.
The issuance of such stock with voting and conversion rights may adversely
affect the voting power of the holders of Pacific Capital Common Stock. Pacific
Capital has no present plans to issue any shares of Preferred Stock.
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DESCRIPTION OF SOUTH VALLEY CAPITAL STOCK
The authorized capital stock of South Valley consists of 4,000,000
shares of Common Stock, no par value and 2,000,000 shares of Serial Preferred
Stock. As of the South Valley Record Date, 1,315,438 shares of South Valley
Common Stock were issued and outstanding, no shares of Preferred Stock were
issued and outstanding and 175,208 South Valley Shares were reserved for
issuance to holders of outstanding and unexercised stock options under the South
Valley Stock Option Plans.
Common Stock
Holders of South Valley Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of shareholders, except
that, upon giving the notice required by the South Valley Bylaws, shareholders
may cumulate their votes for the election of directors. Shareholders are
entitled to receive ratably such dividends as may be legally declared by South
Valley's Board of Directors. There are legal and regulatory restrictions on the
ability of South Valley to declare and pay dividends. See "Market Price and
Dividend Data." In the event of a liquidation, common shareholders are entitled
to share ratably in all assets remaining after payment of liabilities and
securities. The transfer agent and registrar for South Valley Common Stock is
U.S. Stock Transfer Corporation.
Serial Preferred Stock
The Serial Preferred Stock may be issued from time to time in one or
more series, and the South Valley Board of Directors is authorized to fix or to
alter the rights, preferences, privileges and restrictions granted to or imposed
upon any wholly unissued series of the preferred stock, and the number of shares
constituting any such series and a designation thereof. The South Valley Board
of Directors may also increase or decrease the number of shares of that series,
but not below the number of such series then outstanding. In case the number of
shares of any series is so decreased, the shares constituting such decrease
shall resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series. The issuance of any
Serial Preferred Stock may have the effect of delaying, deferring or preventing
a change in control of South Valley without further action of its shareholders.
The issuance of such stock with voting and conversion rights may adversely
affect the voting power of the holders of South Valley Common Stock. South
Valley has no present plans to issue any shares of Serial Preferred Stock.
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS
Both Pacific Capital and South Valley are incorporated under the GCL.
Accordingly, if the Merger is consummated, the shareholders of South Valley will
become shareholders of Pacific Capital and their rights as shareholders will
continue to be governed by the GCL. However, the provisions of the Articles of
Incorporation of Pacific Capital and the Bylaws of Pacific Capital differ from
the Articles of Incorporation of South Valley and the Bylaws of South Valley.
The following summarizes the differences that could materially affect the rights
of shareholders of South Valley after consummation of the Merger.
Authorized Capital
Pacific Capital. The authorized capital stock of Pacific Capital consists of
20,000,000 shares of Common Stock and 20,000,000 shares of Preferred Stock. See
"Description of Pacific Capital Common Stock."
South Valley. The authorized capital stock of South Valley consists of 4,000,000
shares of Common Stock and 2,000,000 shares of Preferred Stock. See "Description
of South Valley Common Stock."
Directors
Pacific Capital. Under the Pacific Capital Bylaws, the authorized number of
directors shall not be less than eight nor more than fifteen. The exact number
of directors may be changed by a resolution of the Board of Directors and is
currently fixed at fifteen. In connection with the Merger, Pacific Capital shall
amend its Bylaws to increase
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the number of authorized directors on its board to permit the appointment of
three additional directors to be designated by South Valley and acceptable to
Pacific Capital. Pursuant to Pacific Capital Bylaws, the Board of Directors is
authorized to amend the Bylaws without shareholder approval, except for the
Bylaw provision governing the number of directors.
South Valley. The South Valley Bylaws provide that the authorized number of
directors shall not be less than five nor more than twenty-five. The exact
number of directors may be changed by a resolution of the Board of Directors and
is currently fixed at nine. Pursuant to South Valley's Bylaws, the Board of
Directors is authorized to amend the Bylaws without shareholder approval, except
for the Bylaw provision governing the number of directors.
Cumulative Voting. The Pacific Capital Bylaws and the South Valley Bylaws
provide for cumulative voting in connection with the election of directors. With
cumulative voting, a shareholder may give one candidate a number of votes equal
to the number of directors to be elected multiplied by the number of votes to
which such shareholder's shares are entitled or the shareholder may distribute
the votes to which such shareholder's shares are entitled on the same principle
among as many candidates as such shareholder chooses. With cumulative voting,
the holder or holders of a minority of the outstanding shares can more readily
elect a representative or representatives to the Board of Directors by
cumulating their votes. Because of such cumulative voting provisions, the CGCL
provides that, if less than the entire Board of Directors is be removed, no
director may be removed without cause if the votes cast against such removal
would be sufficient to elect such director with cumulative voting.
Limitation of Directors' Liability. Both the Pacific Capital Articles of
Incorporation and the South Valley Articles of Incorporation provide that the
liability of directors for monetary damages shall be eliminated to the fullest
extent permissible under California law.
Notice of Shareholder Proposals
Pacific Capital. The Pacific Capital Bylaws do not require advance notice of
shareholder proposals. However, the Pacific Capital Bylaws require not less than
21 nor more than 60 days advance written notice of shareholder nominations for
the Board of Directors. Additionally, the Pacific Capital Bylaws require that no
shareholder may cumulate votes in favor of any candidate for election to the
Board of Directors unless such candidate's name has been placed in nomination
prior to voting and the shareholder has given notice prior to the meeting of the
shareholder's intention to cumulative votes.
South Valley. The South Valley Bylaws do not require advance notice of
shareholder proposals. However, the South Valley Bylaws require that written
notice of shareholder nominations for the Board of Directors be received by the
President of South Valley not more than 60 days prior to any shareholder meeting
called for the election of directors, and not more than ten days after the date
the notice of such meeting is sent to shareholders; provided that if ten days
notice of such meeting is given to shareholders, such notice of intention to
nominate must be received by the President of South Valley prior to the opening
of such meeting. Additionally, the South Valley Bylaws require that no
shareholder may cumulate votes in favor of any candidate for election to the
Board of Directors unless such candidate's name has been placed in nomination
prior to voting and the shareholder has given notice prior to the meeting of the
shareholder's intention to cumulate votes.
Call of Special Meeting of Shareholders
Pacific Capital Bylaws and the South Valley Bylaws. Both the Pacific Capital
Bylaws and the South Valley Bylaws provide that special meetings of shareholders
may be called by the Board of Directors, the Chairman of the Board, the
President or by holders of shares entitled to cast not less than 10% of the
votes at the meeting.
EXPERTS
The Consolidated Financial Statements of Pacific Capital as of December
31, 1995 and 1994, and for each of the years in the three-year period ended
December 31, 1995, have been incorporated by reference herein and in the
Registration Statement in reliance upon the report of KPMG, independent
certified public accountants, and
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upon the authority of said firm as experts in accounting and auditing. Such
report contains an explanatory paragraph regarding the adoption of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes.
The Financial Statements incorporated in this Joint Proxy
Statement/Prospectus by reference from South Valley Bancorporation's Annual
Report on Form 10-K for the year ended December 31, 1995, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report which is
incorporated herein by reference and has been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
LEGAL MATTERS
The validity of the shares of Pacific Capital Common Stock offered
hereby in connection with the Merger will be passed upon for Pacific Capital by
Graham & James LLP, San Francisco, California.
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ANNEX A
================================================================================
AGREEMENT AND PLAN OF REORGANIZATION
between
PACIFIC CAPITAL BANCORP
and
SOUTH VALLEY BANCORPORATION
DATED AS OF JULY 18, 1996
================================================================================
<PAGE>
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
<S> <C> <C>
1. THE MERGER.................................................................................... 1
1.1 Effective Time....................................................................... 1
1.2 Effect of the Merger................................................................. 1
2. CONVERSION AND CANCELLATION OF SHARES......................................................... 2
2.1 Conversion of Common Stock of South Valley........................................... 2
2.2 Fractional Shares.................................................................... 2
2.3 Surrender of South Valley Shares..................................................... 3
2.4 No Further Transfers of South Valley Shares.......................................... 3
2.5 Adjustments.......................................................................... 3
2.6 Treatment of Stock Options........................................................... 3
3. COVENANTS OF THE PARTIES...................................................................... 4
3.1 Covenants of Pacific Capital......................................................... 4
(a) Reservation, Issuance and Registration of Pacific Capital Common Stock...... 4
(b) Government Approvals........................................................ 4
(c) Notification of Breach of Representations, Warranties and Covenants......... 4
(d) Financial Statements........................................................ 4
(e) Press Releases.............................................................. 5
(f) Business Combinations....................................................... 5
(g) Director and Officer Liability Insurance.................................... 5
(h) Approval by Pacific Capital Shareholders.................................... 5
(i) Access to Properties, Books and Records; Confidentiality.................... 5
(j) Dividends................................................................... 6
(k) Executive Employees......................................................... 6
(l) Conduct of Business in the Ordinary Course.................................. 6
(m) Additions to Pacific Capital Board of Directors............................. 6
(n) Nasdaq National Market Listing.............................................. 6
(o) Changes in Capital Stock.................................................... 6
3.2 Covenants of South Valley............................................................ 6
(a) Approval by South Valley Shareholders....................................... 6
(b) Shareholder Lists and Other Information..................................... 7
(c) Government Approvals........................................................ 7
(d) Capital Commitments and Expenditures........................................ 7
(e) Notification of Breach of Representations, Warranties and Covenants......... 7
(f) Financial Statements........................................................ 7
(g) Compensation................................................................ 8
(h) Conduct of Business in the Ordinary Course.................................. 8
(i) Press Releases.............................................................. 9
(j) No Merger or Solicitation................................................... 10
(k) South Valley Cash or Deferred 401(k) Plan................................... 10
(l) Changes in Capital Stock.................................................... 10
(m) Dividends................................................................... 11
(n) Accounting Methods.......................................................... 11
(o) Affiliates.................................................................. 11
(p) Additional Agreements....................................................... 11
(q) Access to Properties, Books and Records; Confidentiality.................... 11
(r) Employee Welfare Benefit Plans.............................................. 11
(s) Nonsolicitation Agreements.................................................. 11
(t) Additions to SVNB Board of Directors........................................ 11
3.3 Covenants of the Parties............................................................. 11
4. REPRESENTATIONS AND WARRANTIES OF SOUTH VALLEY................................................ 11
(a) Corporate Status and Power to Enter Into Agreements......................... 12
(b) Articles, Bylaws, Books and Records......................................... 12
(c) Compliance With Laws, Regulations and Decrees............................... 12
(d) Capitalization.............................................................. 12
(e) Equity Interests............................................................ 13
-i-
<PAGE>
(f) Financial Statements, Regulatory Reports.................................... 13
(g) Tax Returns................................................................. 13
(h) Material Adverse Change..................................................... 14
(i) No Undisclosed Liabilities.................................................. 14
(j) Properties and Leases....................................................... 14
(k) Material Contracts.......................................................... 15
(l) Employment Contracts and Benefits........................................... 15
(m) Compliance With ERISA....................................................... 16
(n) Collective Bargaining and Employment Agreements............................. 16
(o) Compensation of Officers and Employees...................................... 16
(p) Legal Actions and Proceedings............................................... 17
(q) Execution and Delivery of the Agreement..................................... 17
(r) Insurance................................................................... 17
(s) Transactions With Affiliates................................................ 17
(t) Information in Registration Statement....................................... 18
(u) Accuracy of Representations and Warranties.................................. 18
(v) Loans....................................................................... 18
(w) Restrictions on Investments................................................. 18
5. REPRESENTATIONS AND WARRANTIES OF PACIFIC CAPITAL............................................. 18
(a) Corporate Status and Power to Enter Into Agreements......................... 18
(b) Articles, Bylaws, Books and Records......................................... 19
(c) Compliance With Laws, Regulations and Decrees............................... 19
(d) Capitalization.............................................................. 19
(e) Equity Interests............................................................ 20
(f) Financial Statements, Regulatory Reports.................................... 20
(g) Tax Returns................................................................. 20
(h) Material Adverse Change..................................................... 21
(i) No Undisclosed Liabilities.................................................. 21
(j) Properties and Leases....................................................... 21
(k) Material Contracts.......................................................... 22
(l) Employment Contracts and Benefits........................................... 22
(m) Compliance With ERISA....................................................... 23
(n) Collective Bargaining and Employment Agreements............................. 23
(o) Compensation of Officers and Employees...................................... 23
(p) Legal Actions and Proceedings............................................... 24
(q) Execution and Delivery of the Agreement..................................... 24
(r) Insurance................................................................... 24
(s) Transactions With Affiliates................................................ 24
(t) Information in Registration Statement....................................... 25
(u) Accuracy of Representations and Warranties.................................. 25
(v) Loans....................................................................... 25
(w) Restrictions on Investments................................................. 25
6. SECURITIES ACT OF 1933; SECURITIES EXCHANGE ACT OF 1934....................................... 25
(a) Preparation and Filing of Registration Statement............................ 25
(b) Effectiveness of Registration Statement..................................... 26
(c) Sales and Resales of Common Stock........................................... 26
(d) Rule 145.................................................................... 26
7. CONDITIONS TO THE OBLIGATIONS OF PACIFIC CAPITAL.............................................. 26
(a) Representations and Warranties.............................................. 26
(b) Compliance and Performance Under Agreement.................................. 26
(c) Material Adverse Change..................................................... 26
(d) Approval of Agreement....................................................... 27
(e) Officer's Certificate....................................................... 27
(f) Opinion of Counsel.......................................................... 27
(g) Absence of Legal Impediment................................................. 27
(h) Effectiveness of Registration Statement..................................... 27
(i) Government Approvals........................................................ 27
(j) Tax Opinion................................................................. 27
(k) Dissenting Shares........................................................... 28
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<PAGE>
(l) Unaudited Financials........................................................ 28
(m) Closing Documents........................................................... 28
(n) Consents.................................................................... 28
(o) Additions to SVNB Board of Directors........................................ 28
(p) Pooling-of-Interests Accounting............................................. 28
(r) Regulatory Examination...................................................... 28
(s) Accountant's Letter......................................................... 28
8. CONDITIONS TO THE OBLIGATIONS OF SOUTH VALLEY................................................. 28
(a) Representations and Warranties.............................................. 29
(b) Compliance and Performance Under Agreement.................................. 29
(c) Material Adverse Change..................................................... 29
(d) Approval of Agreement....................................................... 29
(e) Officer's Certificate....................................................... 29
(f) Opinion of Counsel.......................................................... 29
(g) Effectiveness of Registration Statement..................................... 29
(h) Government Approvals........................................................ 29
(i) Tax Opinion................................................................. 29
(j) Closing Documents........................................................... 29
(k) Absence of Legal Impediment................................................. 30
(l) Fairness Opinion............................................................ 30
(m) Pooling-of-Interests Accounting Treatment................................... 30
(n) Additions to Pacific Capital Board of Directors............................. 30
(o) Dissenting Shares........................................................... 30
(p) Nasdaq National Market Listing.............................................. 30
(q) Accountant's Letter......................................................... 30
9. CLOSING....................................................................................... 30
(a) Closing Date................................................................ 30
(b) Delivery of Documents....................................................... 30
(c) Filings..................................................................... 30
10. EXPENSES...................................................................................... 30
11. AMENDMENT; TERMINATION........................................................................ 31
(a) Amendment................................................................... 31
(b) Termination................................................................. 31
(c) Notice...................................................................... 32
(d) Breach of Obligations....................................................... 32
(e) Termination and Expenses.................................................... 32
12. MISCELLANEOUS................................................................................. 32
(a) Notices..................................................................... 32
(b) Binding Agreement........................................................... 32
(c) Governing Law............................................................... 32
(d) Attorneys' Fees............................................................. 32
(e) Entire Agreement; Severability.............................................. 33
(f) Counterparts................................................................ 33
(g) Waivers..................................................................... 33
(h) No Survival of Representations and Warranties............................... 33
(i) Knowledge................................................................... 33
SCHEDULE OF EXHIBITS
Exhibit A - Merger Agreement
Exhibit B - Certificate of Pacific Capital Directors
Exhibit C - Certificate of South Valley Directors
Exhibit D - Certificate of Affiliates
Exhibit E - Nonsolicitation Agreement
Exhibit F - Opinion of South Valley Counsel
Exhibit G - Opinion of Pacific Capital Counsel
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION, dated as of July 15, 1996
("Agreement"), is between PACIFIC CAPITAL BANCORP, a California corporation
("Pacific Capital"), and SOUTH VALLEY BANCORPORATION, a California corporation
("South Valley").
A. South Valley is the sole shareholder of South Valley National Bank,
a national association ("SVNB"), and Pacific Capital is the sole shareholder of
First National Bank of Central California, a national association ("FNB").
B. The Boards of Directors of Pacific Capital and South Valley deem it
advisable and in the best interests of Pacific Capital, South Valley and their
respective shareholders to consummate the business combination provided for
herein whereby Pacific Capital would acquire South Valley and the goodwill
associated therewith through the merger of South Valley with and into Pacific
Capital with Pacific Capital as the survivor (the "Merger") such that on the
effective date of the Merger, Pacific Capital will be the surviving corporation.
C. This Agreement and the Merger Agreement, as defined herein, have
been approved by the Boards of Directors of Pacific Capital and South Valley and
will be submitted for approval of the respective shareholders of South Valley
and Pacific Capital at special meetings of their respective shareholders.
D. 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 "IRC").
E. Pursuant to the Merger and subject to the terms and conditions
herein, each holder of common stock of South Valley will receive, in exchange
for common stock of South Valley, Pacific Capital common stock in the ratio of
.92 of a share of Pacific Capital common stock for each share of South Valley
common stock, subject to adjustment as more fully set forth in this Agreement.
In consideration of the foregoing and the respective representations,
warranties, covenants and agreements provided for or contained herein, the
parties hereto agree as follows:
1. THE MERGER.
1.1 Effective Time. Subject to the terms and conditions of this
Agreement, upon the filing with the California Secretary of State of a duly
executed Merger Agreement substantially in the form attached hereto as Exhibit A
for the merger of South Valley into Pacific Capital (the "Merger Agreement") and
officers' certificates prescribed by Section 1103 of the California General
Corporation Law ("GCL") the Merger shall become effective (the "Effective
Time"). The date on which the Merger is effective as specified in the Merger
Agreements shall be referred to herein as the "Effective Date."
1.2 Effect of the Merger. Subject to the terms and conditions of this
Agreement and the Merger Agreement, at the Effective Time on the Effective Date,
South Valley shall be merged with and into Pacific Capital and Pacific Capital
shall be the surviving corporation (the "Surviving Corporation") in the Merger.
All assets, rights, goodwill, privileges, immunities, powers, franchises and
interests of South Valley in and to every type of property (real, personal and
mixed) and choses in action, as they exist as of the Effective Date, including
appointments, designations and nominations and all other rights and interests as
trustee, executor, administrator, registrar of stocks and bonds, guardian of
estate, assignee, receiver and in every other fiduciary capacity, shall pass and
be transferred to and vest in the Surviving Corporation by virtue of the Merger
at the Effective Time without any deed, conveyance or other transfer; the
separate existence of South Valley shall cease and the corporate existence of
Pacific Capital as the Surviving Corporation shall continue unaffected and
unimpaired by the Merger; and the Surviving Corporation shall be deemed to be
the same entity as South Valley and shall be subject to all of its duties and
liabilities of every kind and description. The Surviving Corporation shall be
responsible and liable for all the liabilities and obligations of South Valley
and any claim existing or action or proceeding pending by or against South
Valley may be prosecuted as if the Merger had not taken place, or the Surviving
Corporation may be substituted in its place. Neither the rights of creditors nor
any liens upon the property of South Valley shall be impaired by reason of the
Merger.
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2. CONVERSION AND CANCELLATION OF SHARES.
2.1 Conversion of Common Stock of South Valley. At the Effective Time,
by virtue of the Merger and without any action on the part of the holder of any
common stock of South Valley (a "South Valley Share" or "South Valley Shares"):
(a) Each issued and outstanding South Valley Share (other than
fractional shares or any shares as to which dissenters' rights have been
perfected) shall be converted into .92 of a fully paid and nonassessable share
of the registered common stock, without par value, of Pacific Capital (the
"Pacific Capital Common Stock" or "Pacific Capital Shares"), subject to
adjustment as specified in subsections (b) and (c) herein (the "Exchange
Ratio"). All such South Valley Shares shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each
certificate previously representing any such shares shall thereafter represent
the Pacific Capital Shares into which such South Valley Shares have been
converted. Certificates previously representing South Valley Shares shall be
exchanged for certificates representing whole shares of Pacific Capital Common
Stock issued in consideration therefor upon the surrender of such certificates
in accordance with Section 2.3.
(b) The Exchange Ratio shall be adjusted downward for any Significant
Liabilities (as defined below) to the extent that such Significant Liabilities
total more than $500,000. "Significant Liabilities", as used in this Agreement,
shall mean those liabilities or expenses described below which have not been
reflected as reductions to South Valley's consolidated book value pursuant to
generally accepted accounting principles as of June 30, 1996 adjusted for any
applicable taxes (whether actual or estimated). Significant Liabilities shall
consist of (i) new or expanded contingent liabilities based upon threatened or
pending litigation or other proceedings or hazardous or toxic substances and
legal fees and costs (whether actual or estimated) related thereto; and (ii) any
expenses, fines, fees, penalties or similar obligations, except those which
arose in the Ordinary Course of Business as defined in Section 3.2(h)(i) and
except severance payments or other existing payment obligations. Significant
Liabilities shall not include fees of South Valley's financial advisors or South
Valley's legal fees directly attributable to this Merger, provided such
financial advisory and legal fees do not exceed $800,000 in the aggregate. As a
result of any Significant Liabilities in excess of $500,000 in the aggregate
through the close of business on the day preceding the Effective Date, the
Exchange Ratio shall be reduced by an amount calculated as follows:
.92 - (Significant Liabilities - $500,000)
------------------------------------
$39 Million
(c) If, as of two days preceding the Effective Date, the average of the
closing price of Pacific Capital Common Stock quoted on the OTC Bulletin Board
(calculated by taking an average of the closing prices quoted on the OTC
Bulletin Board on each of the thirty (30) consecutive trading days prior to two
business days prior to the Effective Date, rounded to 4 decimal places, whether
or not trades occurred on those days (the "Average Price")) is more than $31.50
or if the Average Price is more than 12.5% below the closing price on the last
business day prior to the date of this Agreement, then the Exchange Ratio will
be adjusted as follows, rounded to 4 decimal places:
(1) If the Average Price is more than 12.5% below the
closing price on the last business day prior to the date of this Agreement,
South Valley may accept the Exchange Ratio calculated solely in accordance with
Sections 2.1(a) and (b) hereof or Pacific Capital and South Valley shall have
the right, but not the obligation, to renegotiate the Exchange Ratio. Should
South Valley fail to accept the Exchange Ratio as described in the preceding
sentence or should the parties fail to renegotiate the Exchange Ratio, South
Valley may terminate this Agreement pursuant to the provisions of Section 11(b).
(2) If the Average Price is more than $31.50, the Exchange
Ratio as adjusted pursuant to Section 2.1(b), will be adjusted according to the
following formula:
.92 x (Average Price + $31.50)/2
--------------------------
Average Price
(d) From and after the Effective Time, the holders of certificates
formerly representing South Valley Shares shall cease to have any rights with
respect thereto other than any dissenters' rights they have perfected pursuant
to Chapter 13 of the GCL.
2.2 Fractional Shares. Notwithstanding any other provision of this
Agreement, no fractional shares of Pacific Capital Common Stock shall be issued
to holders of South Valley Shares. In lieu thereof, each such holder entitled to
a fraction of a share of Pacific Capital Common Stock shall receive, at the time
of surrender of the certificate or certificates representing such holder's South
Valley Shares, an amount in cash equal to the Average Price (defined in Section
2.1(c)) multiplied by the fraction of a share of Pacific Capital Common Stock to
which such
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holder otherwise would be entitled. No such holder shall be entitled to
dividends, voting rights, interest on the value of, or any other rights in
respect of a fractional share.
2.3 Surrender of South Valley Shares.
(a) Prior to the Effective Date, Pacific Capital shall appoint First
Interstate Bank or its successor, or any other bank or trust company mutually
acceptable to South Valley and Pacific Capital, as exchange agent (the "Exchange
Agent") for the purpose of exchanging certificates representing the Pacific
Capital Shares. At and after the Effective Date, Pacific Capital shall issue and
deliver to the Exchange Agent certificates representing the Pacific Capital
Shares, as shall be required to be delivered to holders of South Valley Shares
pursuant to Section 2.1 of this Agreement. As soon as practicable after the
Effective Date, each holder of South Valley Shares converted pursuant to Section
2.1, upon surrender to the Exchange Agent of one or more certificates for such
South Valley Shares for cancellation, will be entitled to receive a certificate
representing the number of Pacific Capital Shares determined in accordance with
Section 2.1 and a payment in cash with respect to fractional shares, if any,
determined in accordance with Section 2.2.
(b) No dividends or other distributions of any kind which are declared
payable to shareholders of record of the Pacific Capital Shares after the
Effective Date will be paid to persons entitled to receive such certificates for
Pacific Capital Shares until such persons surrender their certificates
representing South Valley Shares. Upon surrender of such certificate
representing South Valley Shares, the holder thereof shall be paid, without
interest, any dividends or other distributions with respect to the Pacific
Capital Shares as to which the record date and payment date occurred on or after
the Effective Date and on or before the date of surrender.
(c) If any certificate for Pacific Capital Shares is to be issued in a
name other than that in which the certificate for South Valley Shares
surrendered in exchange therefor is registered, it shall be a condition of such
exchange that the person requesting such exchange shall pay to the Exchange
Agent any transfer costs, taxes or other expenses required by reason of the
issuance of certificates for such Pacific Capital Shares in a name other than
the registered holder of the certificate surrendered, or such persons shall
establish to the satisfaction of Pacific Capital and the Exchange Agent that
such costs, taxes or other expenses have been paid or are not applicable.
(d) All dividends or distributions, and any cash to be paid pursuant to
Section 2.2 in lieu of fractional shares, if held by the Exchange Agent for
payment or delivery to the holders of unsurrendered certificates representing
South Valley Shares and unclaimed at the end of one year from the Effective
Date, shall (together with any interest earned thereon) at such time be paid or
redelivered by the Exchange Agent to Pacific Capital, and after such time any
holder of a certificate representing South Valley Shares who has not surrendered
such certificate to the Exchange Agent shall, subject to applicable law, look as
a general creditor only to Pacific Capital for payment or delivery of such
dividends or distributions or cash, as the case may be.
2.4 No Further Transfers of South Valley Shares. On the Effective Date,
the stock transfer books of South Valley shall be closed and no transfer of
South Valley Shares theretofore outstanding shall thereafter be made.
2.5 Adjustments. If, between the date of this Agreement and the
Effective Date, the outstanding shares of Pacific Capital Common Stock shall
have been changed into a different number of shares or a different class by
reason of any reclassification, recapitalization, reorganization, merger,
consolidation, split-up, combination, exchange of shares or readjustment, or a
stock or other dividend thereon shall be declared (except pursuant to Section
3.1(j) below) with a record date within such period, the number of Pacific
Capital Shares to be issued and delivered in the Merger in exchange for each
outstanding South Valley Share shall be correspondingly adjusted with the result
that the holders of South Valley Shares shall receive the same economic benefit
set forth in Section 2.1 above.
2.6 Treatment of Stock Options. Each person holding one or more options
to purchase South Valley Shares pursuant to the 1991 Directors' Stock Option
Plan and the 1995 Stock Option Plan (the "Option Plans"), shall have the right
to:
(a) exercise any vested options granted under the Option Plans to
acquire South Valley Shares prior to the Effective Date and South Valley will
facilitate the exercise of those options by allowing the options to be exercised
and taxes paid by South Valley withholding the appropriate number of shares from
the shares subject to the options or by any other method permitted by applicable
law; and/or
(b) receive the fair value, as of the Effective Date, of any
unexercised vested and/or unvested options granted under the Option Plans which
fair value shall be determined by an independent financial advisor to Pacific
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<PAGE>
Capital and shall be paid on the Effective Date by Pacific Capital in the form
of Pacific Capital Common Stock rounded down to the nearest whole share.
3. COVENANTS OF THE PARTIES.
3.1 Covenants of Pacific Capital.
(a) Reservation, Issuance and Registration of Pacific Capital Common
Stock. Pacific Capital shall reserve and make available for issuance in
connection with the Merger and in accordance with the terms of this Agreement
(i) the Pacific Capital Shares; and (ii) the maximum number of shares of common
stock of Pacific Capital to which the option holders of South Valley may be
entitled pursuant to Section 2.6 above at or after the Effective Date. Pacific
Capital shall file and cause to be declared effective at or before the Effective
Time pursuant to the Securities Act of 1933, as amended (the "1933 Act") one or
more registration statements covering all such shares and shall cause all such
shares to be issued in compliance with the 1933 Act and in compliance with all
applicable state securities laws and regulations. It is anticipated that a
registration statement (the "Registration Statement") will be filed on Form S-4
and will include the Proxy Statement referred to in Section 3.2(a) below.
(b) Government Approvals. Prior to the Effective Date, Pacific Capital,
with the cooperation of South Valley, shall use its best efforts in good faith
to take or cause to be taken as promptly as practicable all such steps as shall
be necessary to obtain (i) the prior approval of the Merger by the Board of
Governors of the Federal Reserve System (the "FRB") under the Bank Holding
Company Act of 1956, as amended ("BHC Act"), and (ii) all other consents and
approvals of government agencies as are required by law or otherwise, and shall
do any and all acts deemed by Pacific Capital to be necessary or appropriate in
order to cause the Merger to be consummated on the terms provided in this
Agreement as promptly as practicable. All approvals referred to in clauses (i)
and (ii) of this Section 3.1(b) are hereinafter referred to as the "Government
Approvals."
(c) Notification of Breach of Representations, Warranties and
Covenants. Pacific Capital shall promptly give written notice to South Valley
upon becoming aware of the occurrence or impending or threatened occurrence of
any event which would cause or constitute a breach of any of the
representations, warranties or covenants of Pacific Capital contained or
referred to in the Merger Agreement or this Agreement and shall use its best
efforts to prevent the same or remedy the same promptly.
(d) Financial Statements.
(i) Pacific Capital has delivered or shall deliver to South
Valley prior to the Effective Date true and correct copies of
consolidated statements of income, changes in shareholders' equity and
statements of cash flows for the six (6) months ended June 30, 1996,
any subsequent quarter ends, and for the years ended December 31, 1995,
1994, 1993, 1992 and 1991, and consolidated balance sheets at June 30,
1996, any subsequent quarter ends, and for the years ended December 31,
1995, 1994, 1993, 1992 and 1991. Such consolidated financial statements
at and for the years ended December 31, 1995, 1994, 1993, 1992 and 1991
have been audited by KPMG Peat Marwick LLP ("KPMG") and include an
opinion of such accounting firm to the effect that such financial
statements have been prepared in accordance with generally accepted
accounting principles ("GAAP") and present fairly, in all material
respects, the consolidated financial position, results of operations
and cash flow of Pacific Capital at the dates indicated and for the
periods then ending. The opinions of such accounting firm do not and
shall not contain any qualifications.
(ii) Pacific Capital has provided or shall provide to South
Valley at or prior to the Effective Date copies of all financial
statements and proxy statements, issued or to be issued to Pacific
Capital's shareholders and/or directors after December 31, 1995 and at
or prior to the Effective Date.
(iii) Pacific Capital has provided or shall provide to South
Valley prior to the Effective Date copies of (a) its Annual Report on
Form 10-K for the years ended December 31, 1995, 1994, 1993, 1992 and
1991 as filed with the Securities and Exchange Commission (the
"Commission"); (b) all periodic reports required to be filed by it
pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended (the "1934 Act") since December 31, 1993; and (c) all
proxy statements, annual reports and other written materials furnished
to Pacific Capital shareholders since December 31, 1993, and all other
material reports relating to Pacific Capital filed by Pacific Capital
or any of its subsidiaries with the Office of the
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Comptroller of the Currency (the "OCC"), the FRB or the Commission
during 1993, 1994, 1995 and in 1996 prior to the Effective Date. As of
their respective dates, each of the documents provided hereunder
complied or shall comply in all material respects with all legal and
regulatory requirements applicable thereto.
(iv) Pacific Capital shall cause to be delivered to South
Valley letters of KPMG, Pacific Capital's independent auditors, dated a
date no more than two business days prior to the date on which the
Registration Statement (as defined herein) shall become effective and
two business days before the Closing, and addressed to South Valley, in
form and substance reasonably satisfactory to South Valley, and in
scope and substance consistent with applicable professional standards
for letters delivered by independent public accountants in connection
with registration statements similar to the Registration Statement.
(e) Press Releases. Pacific Capital shall not issue any press release
or written statement for general circulation to the public relating to the
Merger, this Agreement or the Merger Agreement unless previously provided to
South Valley for review and approval (which approval will not be unreasonably
withheld or delayed) and shall cooperate with South Valley in the development
and distribution of all news releases and other public information disclosures
with respect to this Agreement or the Merger; provided that Pacific Capital may,
without the consent of South Valley, make any disclosure with regard to this
Agreement or the Merger that it determines is required under any applicable law
or regulation and shall provide a copy thereof to South Valley.
(f) Business Combinations. Pacific Capital shall not solicit nor make
any offer to any third party or accept any offer from any third party regarding
a Business Combination of Pacific Capital with any other entity or person unless
such offer is expressly conditioned upon the performance by Pacific Capital or
its successor in interest of all Pacific Capital's obligations under this
Agreement. In the event Pacific Capital fails to comply with the provisions of
this Section 3.1(f), South Valley shall be entitled to terminate this Agreement
without any liability to Pacific Capital or any agent thereof pursuant to
Section 11(b), provided, however, that the obligations and liabilities of
Pacific Capital set forth in Section 11(e) hereof shall continue in full force
and effect. As used in this Agreement, "Business Combination" shall mean any
tender or exchange offer, proposal for a merger, consolidation, or other
takeover proposal involving any party hereto (except as explicitly contemplated
in this Agreement) or any offer or proposal to acquire in any manner a 10% or
greater equity interest in, or a substantial portion of any party hereto other
than transactions contemplated hereunder.
(g) Director and Officer Liability Insurance. Upon the Effective Date,
any South Valley executive officer or director who becomes an officer or
director of Pacific Capital (including any subsidiaries thereof) shall be
included in Pacific Capital's director and officer insurance policy. Pacific
Capital shall cooperate with South Valley to obtain extended coverage under
South Valley's director and officer insurance policy to cover claims made for a
period of two years after the Effective Time regarding acts or omissions of
South Valley's directors or officers prior to the Effective Time.
(h) Approval by Pacific Capital Shareholders. Pacific Capital shall
cause the Merger, this Agreement and the Merger Agreement to be submitted
promptly for the approval of its shareholders at a special meeting to be called
and held in accordance with applicable laws. Subject to its continuing fiduciary
duties to the shareholders of Pacific Capital, the Board of Directors of Pacific
Capital, in authorizing the execution and delivery of this Agreement by Pacific
Capital, shall recommend that this Agreement and the Merger be approved. Pacific
Capital shall use its best efforts to cause such meeting of its shareholders to
take place as soon as possible subject to effectiveness of the Registration
Statement (as defined in Section 6(a)(i)). In connection with the call of such
meeting, Pacific Capital shall cause such proxy materials to be mailed to its
shareholders. Subject to its continuing fiduciary duties to the shareholders of
Pacific Capital, the Board of Directors of Pacific Capital shall at all times
prior to and during such meeting of Pacific Capital shareholders recommend that
the transactions contemplated hereby be adopted and approved, and, subject to
such fiduciary duties, use its best efforts to cause such adoption and approval.
Within 15 business days after the time of execution and delivery of this
Agreement, members of the Board of Directors of Pacific Capital shall deliver to
South Valley undertakings in the form attached hereto as Exhibit B confirming
such directors' approval of the transactions contemplated hereby, setting forth
such directors' commitment to use his best efforts to cause the shareholders of
Pacific Capital to adopt and approve the transactions contemplated hereby,
subject to their above-mentioned continuing fiduciary duties to the shareholders
of Pacific Capital. Except with the prior approval of South Valley, neither
Pacific Capital nor any member of its Board of Directors shall, at the Pacific
Capital shareholders' meeting, submit any other matters for approval of its
shareholders, other than matters incidental to the conduct of such meeting.
(i) Access to Properties, Books and Records; Confidentiality. Prior to
the Effective Time, Pacific Capital shall give South Valley and its counsel and
accountants full access, during normal business hours and upon
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<PAGE>
reasonable request, to all of its properties, books, contracts, commitments and
records including, but not limited to, the corporate, financial and operational
records, papers, reports, instructions, procedures, tax returns and filings tax
settlement letters, material contracts or commitments, regulatory examinations
and correspondence and shall allow South Valley to make copies of such materials
(to the extent not legally prohibited) and shall furnish South Valley with all
such information concerning its affairs as South Valley may reasonably request.
(j) Dividends. Except for customary quarterly dividends consistent with
past practices and policies, Pacific Capital shall not declare, set aside or pay
any dividend or other distribution in respect of its common stock (including,
without limitation, any stock dividend, dividends in kind or other
distribution).
(k) Executive Employees. Executive employees of South Valley or SVNB
who shall become or remain, as the case may be, executive employees of SVNB
after the Effective Date shall enter into employment agreements with SVNB which
are mutually acceptable to SVNB and such executive employees. In the event that
existing employment agreements with executive employees of SVNB are terminated,
the terms and conditions of such employment agreements shall be complied with.
(l) Conduct of Business in the Ordinary Course. Pacific Capital shall
conduct its business in the ordinary course as heretofore conducted. For
purposes of this Section 3.1(l), the ordinary course of business shall consist
of the banking and related business as presently conducted by Pacific Capital.
(m) Additions to Pacific Capital Board of Directors. Pacific Capital
shall amend its Bylaws or take any other action necessary to increase the number
of authorized directors on its board to permit the appointment of three
additional directors to be designated by South Valley and acceptable to Pacific
Capital at least five business days prior to the Closing Date.
(n) Nasdaq National Market Listing. Pacific Capital shall apply to
Nasdaq for the designation of Pacific Capital Common Stock, including the shares
of Pacific Capital Common Stock to be issued pursuant to this Agreement, as a
Nasdaq National Market security and shall use its best efforts to obtain such
designation not later than the Effective Date.
(o) Changes in Capital Stock. At or after the date hereof and at or
prior to the Effective Time, except with the prior written consent of South
Valley, Pacific Capital shall not amend its Articles of Incorporation or Bylaws;
make any change in its authorized, issued or outstanding capital stock or any
other equity security; issue, sell, pledge, assign or otherwise encumber or
dispose of, or purchase, redeem or otherwise acquire, any of its shares of
capital stock or other equity securities or enter into any agreement, call or
commitment of any character so to do; grant or issue any stock option relating
to, right to acquire, or security convertible into, shares of its capital stock
or other equity security; purchase, redeem, retire or otherwise acquire (other
than in a fiduciary capacity) any shares of, or any security convertible into,
its capital stock or other equity securities, or agree to do any of the
foregoing, except that nothing herein shall prohibit the grant of options or the
issuance of shares pursuant to the Pacific Capital Option Plans (as defined
herein) or the repurchase of shares of Pacific Capital Common Stock pursuant to
its share repurchase program.
3.2 Covenants of South Valley.
(a) Approval by South Valley Shareholders. South Valley shall cause the
Merger, this Agreement and the Merger Agreement to be submitted promptly for the
approval of its shareholders at a special meeting to be called and held in
accordance with applicable laws. Subject to its continuing fiduciary duties to
the shareholders of South Valley, the Board of Directors of South Valley, in
authorizing the execution and delivery of this Agreement by South Valley, shall
recommend that this Agreement and the Merger be approved. South Valley shall use
its best efforts to cause such meeting of its shareholders to take place as soon
as possible, subject to effectiveness of the Registration Statement (as defined
in Section 6(a)(i)). In connection with the call of such meeting, South Valley
shall cause such proxy materials to be mailed to its shareholders (the proxy
materials, together with any amendments or supplements thereto, being herein
referred to as the "Proxy Statement"). Subject to its continuing fiduciary
duties to the shareholders of South Valley, the Board of Directors of South
Valley shall at all times prior to and during such meeting of South Valley
shareholders recommend that the transactions contemplated hereby be adopted and
approved, and, subject to such fiduciary duties, use its best efforts to cause
such adoption and approval. Within 15 business days after the time of execution
and delivery of this Agreement, members of the Board of Directors of South
Valley shall deliver to Pacific Capital undertakings in the form attached hereto
as Exhibit C confirming such directors' approval of the transactions
contemplated hereby, setting forth such directors' commitment to vote his shares
of South Valley stock in favor of the transactions contemplated hereby, setting
forth such directors' commitment to use his best efforts to cause the
shareholders of South Valley to adopt and approve the transactions contemplated
hereby, subject to their above-mentioned continuing fiduciary duties to the
shareholders of South Valley. Except with the prior
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approval of Pacific Capital, neither South Valley nor any member of its Board of
Directors shall, at the South Valley shareholders' meeting, submit any other
matters for approval of its shareholders, other than matters incidental to the
conduct of such meeting.
(b) Shareholder Lists and Other Information. After execution hereof,
South Valley shall from time to time make available to Pacific Capital, upon
request, a list of its shareholders and their addresses, a list showing all
transfers of the South Valley Common Stock and such other information as Pacific
Capital shall reasonably request regarding both the ownership and prior
transfers of the South Valley Common Stock.
(c) Government Approvals. South Valley shall cooperate in all
reasonable respects with Pacific Capital in its undertaking pursuant to Section
3.1(b) to obtain the Government Approvals and South Valley further agrees,
subject to the continuing fiduciary duties of the Board of Directors of South
Valley to the shareholders of South Valley, to take such actions as may be
reasonably requested by Pacific Capital to cause the Merger to be consummated on
the terms provided in the Merger Agreement and this Agreement as promptly as is
practicable.
(d) Capital Commitments and Expenditures. After the execution of this
Agreement, no new capital commitments in excess of $50,000 shall be entered
into, and no capital expenditures in excess of $100,000 in the aggregate shall
be made by South Valley. South Valley shall not create any new branches or,
except as permitted pursuant to Section 3.2(h), enter into any acquisitions or
leases of real property, including both new leases and lease extensions without
the prior approval of Pacific Capital.
(e) Notification of Breach of Representations, Warranties and
Covenants. South Valley shall promptly give written notice to Pacific Capital
upon becoming aware of the occurrence or impending or threatened occurrence of
any event which would cause or constitute a breach of any of the
representations, warranties or covenants of South Valley contained or referred
to in this Agreement and shall use its best efforts to prevent the same or
remedy the same promptly.
(f) Financial Statements.
(i) South Valley has delivered or shall deliver to Pacific
Capital prior to the Effective Date true and correct copies of
consolidated statements of income, changes in shareholders' equity and
statements of cash flows for the six (6) months ended June 30, 1996 any
subsequent quarter ends, and for the fiscal years ended December 31,
1995, 1994, 1993, 1992 and 1991 and consolidated balance sheets at June
30, 1996 and any subsequent quarter ends, and for the fiscal years
ended December 31, 1995, 1994, 1993, 1992 and 1991. Such consolidated
financial statements at December 31, 1995, 1994, 1993, 1992 and 1991
and for the fiscal years ended December 31, 1995, 1994, 1993, 1992 and
1991 have been audited by Deloitte & Touche LLP as independent public
accountants for South Valley and include an opinion of such accounting
firm to the effect that such financial statements have been prepared in
accordance with GAAP and present fairly, in all material respects, the
consolidated financial position, results of operations and cash flows
of South Valley at the dates indicated and for the periods then ending.
The opinions of such accounting firm do not and shall not contain any
qualifications.
(ii) South Valley shall provide to Pacific Capital, at or
prior to the Effective Date, copies of all financial statements and
proxy statements issued to South Valley's shareholders and/or directors
after December 31, 1995 and at or prior to the Effective Date.
(iii) South Valley has provided or shall provide to Pacific
Capital prior to the Effective Date copies of (a) its Annual Report on
Form 10-K for the years ended December 31, 1995, 1994, 1993, 1992 and
1991, as filed with the Commission; (b) all periodic reports required
to be filed by it pursuant to Section 13(a) or 15(d) of the 1934 Act
since December 31, 1993; and (c) all proxy statements and other written
material furnished to South Valley's shareholders since December 31,
1993, and all other material reports relating to South Valley filed by
South Valley or any of its subsidiaries with the OCC, the FRB or the
Commission during 1993, 1994, 1995 and in 1996 prior to the Effective
Date. As of their respective dates, each of the documents provided
hereunder complied or shall comply in all material respects with all
legal and regulatory requirements applicable thereto.
(iv) South Valley shall cause to be delivered to Pacific
Capital letters of Deloitte & Touche LLP, South Valley's independent
auditors, dated a date no more than two business days prior to the date
on which the Registration Statement (as defined herein) shall become
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effective and two business days before the Closing, and addressed to
Pacific Capital, in form and substance reasonably satisfactory to
Pacific Capital, and in scope and substance consistent with applicable
professional standards for letters delivered by independent public
accountants in connection with registration statements similar to the
Registration Statement.
(g) Compensation. South Valley shall not make or approve any increase
in the compensation (including but not limited to compensation through any
profit sharing, pension, retirement, severance, incentive or other employee
benefit program or arrangement), payable or to become payable by South Valley to
any of their officers, employees or agents with annual salaries in excess of
$70,000 at the date hereof nor shall any bonus payment or any agreement or
commitment to make a bonus payment be made (except with Pacific Capital's prior
approval which shall not be unreasonably withheld), nor shall any stock option,
warrant or other right to acquire capital stock be granted, or employment
agreement (other than any such employment agreement that may arise by operation
of law upon the hiring of any new employee) or consulting agreement be entered
into by South Valley with any such directors, officers, employees or agents
unless Pacific Capital has given its prior written consent. Nothing herein shall
prevent the payment to South Valley employees (with salaries of $70,000 or less
at the date hereof) of regular salary increases, in connection with regular
salary reviews consistent with past practices, as heretofore disclosed to
Pacific Capital. South Valley shall not hire any new employee at an annual rate
in excess of current customary practice or, in any event, in excess of $50,000
per year, except with the prior written consent of Pacific Capital, which
consent shall not be unreasonably withheld.
(h) Conduct of Business in the Ordinary Course. As used in this Section
3.2(h), the term "South Valley" shall collectively mean South Valley and SVNB.
Prior to the Effective Time:
(i) South Valley shall conduct its businesses in the
ordinary course as heretofore conducted. For purposes of this
Agreement, the "Ordinary Course of Business" shall consist of the
banking and related businesses as presently conducted by South Valley.
Unless Pacific Capital has given its previous written consent to any
act or omission to the contrary, South Valley shall, through the
Effective Date, cause its officers to:
A. use their best efforts to preserve its business and
business organizations intact;
B. use their best efforts to preserve the goodwill of
customers and others having business relations with it and take no
action that would materially impair the benefit to Pacific Capital of
the goodwill of South Valley, or the other benefits of the Merger;
C. consult with Pacific Capital as to the making of any
decisions or the taking of any actions in matters other than in the
Ordinary Course of Business;
D. maintain its properties in customary repair, working
order and condition (reasonable wear and tear excepted);
E. comply in all material respects with all laws,
regulations and decrees applicable to the conduct of its business;
F. keep in force at not less than its present limits all
policies of insurance (including deposit insurance of the FDIC) to the
extent reasonably practicable in light of the prevailing market
conditions in the insurance industry;
G. use its best efforts, subject to Section 3.2(g), to keep
available to Pacific Capital the services of its present officers and
employees (it being understood that South Valley shall have the right
to terminate the employment of any officer or employee in accordance
with its established employment procedures);
H. comply with all orders, agreements and memoranda of
understanding made by or with the OCC or any other regulatory authority
of competent jurisdiction and promptly forward to Pacific Capital all
communications received from any such authority that are not prohibited
by such authority from being so disclosed and inform Pacific Capital of
any material restrictions imposed by any governmental authority on the
business of South Valley or SVNB;
I. file in a timely manner (taking into account any
extensions duly obtained) all reports, tax returns and other documents
required to be filed with federal, state, local and other authorities;
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J. conduct a phase I environmental audit prior to
foreclosure on any real property concerning which South Valley has
knowledge that asbestos or asbestos-containing materials, PCB's or
PCB-contaminated materials, any petroleum product, or hazardous
substance or waste (as defined under any applicable environmental laws)
was or is present, manufactured, recycled, reclaimed, released, stored,
treated, or disposed of, and provide the results of such audit to and
consult with Pacific Capital regarding the significance of the audit
prior to the foreclosure on any such property;
K. not sell, lease, pledge, assign, encumber or otherwise
dispose of any of its assets except in the Ordinary Course of Business,
for adequate value, without recourse and consistent with its customary
practice;
L. with respect to any extension of credit in excess of
$50,000 not waive or release any right or collateral or cancel or
compromise any debt or claim, except in the Ordinary Course of
Business;
M. not make, renegotiate, renew, increase, extend or
purchase any loans, advances or loan commitments, in each case to any
of its officers, directors or any affiliated or related persons of such
directors or officers except in the Ordinary Course of Business
consistent with its established loan procedures and in compliance with
FRB Regulation O;
N. not take any action to create, relocate or terminate the
operations of any banking office or branch, or to form any new
subsidiary or affiliated entity;
O. not settle or otherwise take any action to release or
reduce any of its rights with respect to any litigation involving a
claim of more than $50,000 or claims of more than $75,000 in the
aggregate in which it is a party;
P. consult with Pacific Capital on problem loan workout
strategies, and obtain Pacific Capital's concurrence on any loan loss
in excess of $15,000 (or $50,000 in the aggregate) or any writedown of
other real estate owned.
(ii) South Valley shall not, without first having obtained
the written consent of Pacific Capital, which consent shall not be
unreasonably withheld, cause the officers of South Valley to:
A. commit to any new contract or extend any existing
contract that would obligate South Valley for an aggregate amount over
time in excess of $50,000 (including data processing, servicing or any
other agreement or contract);
B. accelerate the vesting of pension or other benefits;
C. grant any new stock options or accelerate the vesting of
any existing stock options to fulfill the requirements of Section 2.6
above; or
D. fail to promptly notify Pacific Capital in writing upon
becoming aware of the occurrence of any of the following:
(1) the classification of any loan in the amount
of $50,000 or more as substandard, doubtful or loss;
(2) the filing or commencement of any legal action
or other proceeding or investigation against South Valley
(or any director or executive officer); or
(3) the monthly pretax earnings of South Valley
are less than $200,000.
(i) Press Releases. South Valley shall not issue any press release or
written statement for general circulation relating to this Agreement or the
Merger unless previously provided to Pacific Capital for review and approval
(which approval will not be unreasonably withheld or delayed) and shall
cooperate with Pacific Capital in
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the development and distribution of all news releases and other public
information disclosures with respect to this Agreement or the Merger; provided
that South Valley may, without the consent of Pacific Capital, make any
disclosure with regard to this Agreement or the Merger that it determines is
required under any applicable law or regulation and shall provide a copy thereof
to Pacific Capital.
(j) No Merger or Solicitation.
(i) Subject to the continuing fiduciary duties of the Board
of Directors of South Valley to the shareholders of South Valley, prior
to the Effective Time, South Valley shall not effect or agree to effect
any Business Combination (as defined in Section 3.1(f)), acquire or
agree to acquire any of its own capital stock or the capital stock
(except in a fiduciary capacity) or assets (except in the Ordinary
Course of Business) of any other entity, or commence any proceedings
for winding up and dissolution affecting either of them.
(ii) Subject to the continuing fiduciary duties of the Board
of Directors of South Valley to the shareholders of South Valley, prior
to the Effective Date, neither South Valley, nor any officer, director
or affiliate of South Valley, nor any investment banker, attorney,
accountant or other agent, advisor or representative retained by South
Valley shall (A) solicit or encourage, directly or indirectly, any
inquiries, discussions or proposals for, continue, propose or enter
into discussions or negotiations looking toward, or enter into any
agreement or understanding providing for, any Business Combination; or
(B) disclose, directly or indirectly, any nonpublic information to any
corporation, partnership, person or other entity or group concerning
the business and properties of South Valley or afford any such party
access to the properties, books or records of South Valley or otherwise
assist or encourage any such party in connection with the foregoing, or
(C) furnish or cause to be furnished any information concerning the
business, financial condition, operations, properties or prospects of
South Valley to another person, having any actual or prospective role
with respect to any such transaction; provided, however, that with
respect to any investment banker, South Valley shall use its best
efforts to ensure that said investment banker complies with the
foregoing.
(iii) South Valley shall notify Pacific Capital of the
details of any indication of interest of any person, corporation, firm,
association or group to acquire by any means a controlling interest in
South Valley or engage in any Business Combination with South Valley
within two business days of any such indication of interest.
(iv) In the event the Board of Directors of South Valley
receives a bona fide offer for a Business Combination with another
entity, and reasonably determines, upon advice of counsel, that as a
result of such offer, any duty to act or to refrain from doing any act
pursuant to this Agreement is inconsistent with the continuing
fiduciary duties of said Board of Directors to the shareholders of
South Valley, such failure to act or refrain from doing any act shall
not constitute the failure of any condition, breach of any covenant or
otherwise constitute any breach of this Agreement, provided, however,
that any such failure to act or refrain from doing any act shall
entitle Pacific Capital to terminate this Agreement pursuant to Section
11(b) and provided further, that the obligations and liabilities of
South Valley set forth in Section 11(e) hereof shall continue in full
force and effect but neither South Valley nor its officers, directors
or agents shall have any further liability with regard thereto for any
failure to act or omission of any act pursuant to this subsection (iv).
(k) South Valley Cash or Deferred 401(k) Plan. South Valley agrees the
South Valley Cash or Deferred 401(k) Plan (the "Plan") may be terminated,
frozen, modified or merged into the Pacific Capital 401(k) Plan on or after the
Effective Date, as determined by Pacific Capital in its sole discretion, subject
to compliance with applicable law so long as any such action preserves the
rights of the participants in such Plan (including, without limitation, vesting
rights).
(l) Changes in Capital Stock. At or after the date hereof and at or
prior to the Effective Time, except with the prior written consent of Pacific
Capital, South Valley shall not amend its Articles of Incorporation or Bylaws;
make any change in its authorized, issued or outstanding capital stock or any
other equity security; issue, sell, pledge, assign or otherwise encumber or
dispose of, or purchase, redeem or otherwise acquire, any of its shares of
capital stock or other equity securities or enter into any agreement, call or
commitment of any character so to do; grant or issue any stock option relating
to, right to acquire, or security convertible into, shares of its capital stock
or other equity security; purchase, redeem, retire or otherwise acquire (other
than in a fiduciary capacity) any shares of, or any security convertible into,
its capital stock or other equity securities, or agree to do any of the
foregoing, except
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that nothing herein shall prohibit the issuance of shares pursuant to the Option
Plans with respect to options outstanding at the date of this Agreement (except
as limited in Section 2.6).
(m) Dividends. Except for customary quarterly dividends consistent with
past practices and policies, South Valley shall not declare, set aside or pay
any dividend or other distribution in respect of its common stock (including,
without limitation, any stock dividend or other distribution).
(n) Accounting Methods. South Valley shall not change its methods of
accounting in effect at December 31, 1995, except as required by changes in GAAP
as concurred in by its independent auditors.
(o) Affiliates. At least 40 days prior to the Closing, South Valley
shall deliver to Pacific Capital a letter identifying all persons who are
"affiliates" of South Valley for purposes of Rule 145 under the 1933 Act. South
Valley shall use all reasonable efforts to cause each person named in the letter
delivered by it to deliver to Pacific Capital prior to the Closing a written
"affiliates" agreement, in substantially the form attached hereto as Exhibit D,
providing that such person shall dispose of the Pacific Capital Common Stock to
be received by such person in the Merger only in accordance with applicable law
and, in addition, in such agreement, such affiliate shall represent that they
have no present plan or intention to dispose of any such shares of Pacific
Capital Common Stock.
(p) Additional Agreements. In case at any time after the Effective Time
any further action is necessary or desirable to carry out the purposes of this
Agreement or to vest the Surviving Corporation with full title to all
properties, assets, rights, approvals, immunities and franchises of South
Valley, the proper officers and directors of each party to this Agreement shall
take all such necessary or appropriate action.
(q) Access to Properties, Books and Records; Confidentiality. Prior to
the Effective Time, South Valley shall give Pacific Capital and its counsel and
accountants full access, during normal business hours and upon reasonable
request, to all of its properties, books, contracts, commitments and records
including, but not limited to, the corporate, financial and operational records,
papers, reports, instructions, procedures, tax returns and filings tax
settlement letters, material contracts or commitments, regulatory examinations
and correspondence and shall allow Pacific Capital to make copies of such
materials (to the extent not legally prohibited) and shall furnish Pacific
Capital with all such information concerning its affairs as Pacific Capital may
reasonably request.
(r) Employee Welfare Benefit Plans. South Valley agrees that South
Valley's employee welfare benefit plans, as defined in Section 3(1) of Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), may be terminated,
modified or merged into Pacific Capital's welfare benefit plans on or after the
Effective Date, as determined by Pacific Capital in its sole discretion, subject
to compliance with applicable law so long as any such action preserves the
rights of the participants in such plans, including, without limitation, vesting
rights.
(s) Nonsolicitation Agreements. South Valley shall use its best efforts
to have each of its directors execute a nonsolicitation agreement substantially
in the form attached hereto as Exhibit E.
(t) Additions to SVNB Board of Directors. South Valley shall take any
actions necessary to have SVNB amend its Bylaws or to take any actions to
increase the number of authorized directors on SVNB's board to permit the
appointment of three additional directors to be designated by Pacific Capital at
least five business days prior to the Closing Date.
3.3 Covenants of the Parties. Each party shall use its best efforts to
cause its officers, directors, employees, auditors, agents, and attorneys to
cooperate with the other in the reasonable requests for information by the other
parties hereto. Each party shall treat as confidential all such information in
the same manner as each party treats similar confidential information of its
own, and if this Agreement is terminated, each party shall continue to treat all
such information as confidential and to cause its employees to keep all such
information confidential and shall return such documents theretofore delivered
by the other party as the other party shall request, and shall use such
information, or cause it to be used, solely for the purposes of evaluating and
completing the transactions contemplated hereby; provided that each party may
disclose any such information to the extent required by federal or state
securities laws or otherwise required by any governmental agency or authority,
or by generally accepted accounting principles. The foregoing confidentiality
obligations shall not apply in respect of any information publicly available or
to any information previously known to the party in question, the use of which
is not otherwise restricted.
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4. REPRESENTATIONS AND WARRANTIES OF SOUTH VALLEY.
South Valley represents and warrants to Pacific Capital, except as
disclosed to Pacific Capital in writing on the date of this Agreement (the
"South Valley Disclosure Statement"), that:
(a) Corporate Status and Power to Enter Into Agreements. South Valley
(i) is a corporation duly incorporated, validly existing and in good standing
under the laws of California and is a registered bank holding company under the
BHC Act, (ii) subject to the approval of this Agreement and the transactions
contemplated hereby by the shareholders of South Valley and the FRB, it has all
necessary corporate power to enter into this Agreement and to carry out all of
the terms and provisions hereof and thereof to be carried out by it, and (iii)
is not subject to any directive, order (formal or informal) or agreement, of the
FRB or any other regulatory authority having jurisdiction over its business or
any of its assets or properties, and (iv) is in full compliance with any
agreements, understandings or orders of the FRB or any other regulatory
authority having jurisdiction over its business or any of its assets or
properties. SVNB (i) holds a currently valid license issued by the OCC to engage
in business as a national association under the National Bank Act, and (ii) is
not subject to any directive, order (formal or informal) or agreement, of the
OCC or any other regulatory authority having jurisdiction over its business or
any of its assets or properties, and (iii) is in full compliance with any
agreements, understandings or orders of the OCC or any other regulatory
authority having jurisdiction over its business or any of its assets or
properties. Neither the scope of the business of South Valley or SVNB nor the
location of their respective properties requires it to be licensed to do
business in any jurisdiction other than the State of California.
(b) Articles, Bylaws, Books and Records. The copies of the respective
Articles of Incorporation or Association and Bylaws of South Valley and SVNB to
be delivered to Pacific Capital prior to the date hereof are complete and
accurate copies thereof as in effect on the date hereof. The minute books of
South Valley and SVNB made available to Pacific Capital contain a complete and
accurate record of all meetings of the Board of Directors (and committees
thereof) and shareholders. The corporate books and records (including financial
statements) of South Valley and SVNB fairly reflect the material transactions to
which South Valley or SVNB is a party or by which their respective properties
are subject or bound, and such books and records have been properly kept and
maintained. The Articles of Incorporation and Bylaws of South Valley and the
Articles of Association and Bylaws of SVNB and all amendments thereto have been
duly approved by all requisite corporate action and by the appropriate
regulatory authority to the extent required by law.
(c) Compliance With Laws, Regulations and Decrees. To the best
knowledge of South Valley and SVNB, each (i) has the corporate power to own or
lease its properties and to conduct its business as currently conducted, (ii)
has complied with, and is not in default in any material respects of any laws,
regulations, ordinances, orders or decrees applicable to the conduct of its
business and the ownership of its properties, including but not limited to all
federal and state laws (including but not limited to the Bank Secrecy Act),
rules and regulations relating to the offer, sale or issuance of securities, and
the operation of a national association, other than where such noncompliance or
default is not likely to result in a material limitation on the conduct of its
business or is not likely to otherwise have a material adverse effect on South
Valley or SVNB taken as a whole, (iii) has not failed to file with the proper
federal, state, local or other authorities any material report or other document
required to be so filed, (iv) has all material approvals, authorizations,
consents, licenses, clearances and orders of, and have currently effective all
registrations with, all governmental and regulatory authorities which are
necessary to the business and operations of South Valley and SVNB as now being
conducted, and (v) has received no notification, formally or informally, from
any agency or department of any federal, state or local government or any
regulatory agency or the staff thereof (A) asserting that South Valley or SVNB
is not in material compliance with any of the statutes, regulations or
ordinances which such government or regulatory authority enforces, or (B)
threatening to revoke any licenses, franchise, permit or governmental
authorization of South Valley or SVNB.
(d) Capitalization. The authorized capital stock of South Valley
consists of 4,000,000 shares of South Valley common stock, no par value, of
which 1,313,986 are duly authorized, validly issued, fully paid and
nonassessable and currently outstanding. The authorized capital stock of SVNB
consists of 500,000 shares of SVNB common stock, no par value, of which 400,000
are duly authorized, validly issued, fully paid and nonassessable and currently
outstanding. Said stock has been issued in compliance with all applicable
registration or qualification provisions of state and federal securities laws.
No other equity securities of South Valley or SVNB have been issued or are
outstanding. There are currently outstanding options to purchase 176,660 shares
of South Valley common stock, at a weighted average exercise price of $13.49 per
share, issued pursuant to the Option Plans. Said options were issued and, upon
issuance in accordance with the terms of the outstanding options said shares
shall be issued, in compliance with all applicable securities laws. There are no
outstanding (i) options, agreements, calls or commitments of any character which
would obligate South Valley to issue, sell, pledge, assign or otherwise encumber
or dispose of, or to purchase, redeem or otherwise acquire, any South Valley
common stock or any other equity security of South Valley, or (ii) warrants or
options relating to, rights to acquire, or debt or equity securities
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convertible into, shares of South Valley common stock or any other equity
security of South Valley. Attached to the South Valley Disclosure Statement is a
list of all option holders and the number of vested and unvested options as of
June 30, 1996. The outstanding common stock of South Valley has been duly and
validly registered with the Commission pursuant to the 1934 Act, to the extent
required thereunder.
(e) Equity Interests. Except as disclosed in the South Valley
Disclosure Statement or as collateral for outstanding loans held in its loan
portfolio, South Valley does not own, directly or indirectly, any equity
interest in any bank, corporation, or other entity.
(f) Financial Statements, Regulatory Reports. No financial statement or
other document provided or to be provided to Pacific Capital as required by
Section 3.2(f) hereof, as of the date of such document, contained, or as to
documents to be delivered after the date hereof, will contain, any untrue
statement of a material fact, or, at the date thereof, omitted or will omit to
state a material fact necessary in order to make the statements contained
therein, in light of the circumstances under which such statements were or will
be made, not misleading; provided, however, that information as of a later date
shall be deemed to modify information as of any earlier date. South Valley and
SVNB have filed all material documents and reports relating to South Valley
and/or SVNB required to be filed by South Valley or SVNB with the Commission,
the FRB, the OCC or any other governmental authority having jurisdiction over
their businesses or any of their assets or properties. All such reports conform
in all material respects with the requirements promulgated by such regulatory
agencies. All compliance or corrective action relating to South Valley required
by governmental authorities and regulatory agencies having jurisdiction over
South Valley and SVNB have been taken. South Valley and SVNB have not received
notification, formally or informally, from any agency or department of any
federal, state or local government or any regulatory agency or the staff thereof
(A) asserting that South Valley and/or SVNB is not in compliance with any of the
statutes, regulations or ordinances which such government or regulatory
authority enforces, or (B) threatening to revoke any license, franchise, permit
or governmental authorization of South Valley and/or SVNB. Neither South Valley
nor SVNB is subject to any order, agreement or written directive with any
regulatory authority with respect to its assets or business except for matters
of general application. South Valley and SVNB have paid all assessments made or
imposed by any governmental agency. South Valley shall make available to Pacific
Capital for inspection copies of all annual management letters and opinions and
all reviews, correspondence and other documents in the files of South Valley
prepared by Deloitte & Touche LLP or any other certified public accountant
engaged by South Valley and delivered to South Valley since January 1, 1991. The
consolidated financial records of South Valley have been, and are being and
shall be, maintained in all material respects in accordance with all applicable
legal and accounting requirements sufficient to insure that all transactions
reflected therein are, in all material respects, executed in accordance with
management's general or specific authorization and recorded in conformity with
GAAP at the time in effect. The data processing equipment, data transmission
equipment, related peripheral equipment and software used by South Valley in the
operation of its business to generate and retrieve its financial records are
adequate for the current needs of South Valley.
(g) Tax Returns.
(i) South Valley has timely filed all federal, state,
county, local and foreign tax returns required to be filed by it,
including, without limitation, estimated tax, use tax, excise tax, real
property and personal property tax reports and returns, employer's
withholding tax returns, other withholding tax returns and Federal
Unemployment Tax Returns, and all other reports or other information
required or requested to be filed by each of them, and each such
return, report or other information was, when filed, complete and
accurate in all material respects. South Valley has paid all taxes,
fees and other governmental charges, including any interest and
penalties thereon, when they have become due and payable, except those
that are being contested in good faith, which contested matters have
been disclosed in writing to Pacific Capital. South Valley has not
requested to give or has given any currently effective waivers
extending the statutory period of limitation applicable to any tax
return required to be filed by either of them for any period. There are
no claims pending against South Valley for any alleged deficiency in
the payment of any taxes, and no pending or threatened audits,
investigations or claims for unpaid taxes or relating to any liability
in respect of any taxes. There have been no events, including a change
in ownership, that would result in a reappraisal and establishment of a
new base-year full value for purposes of Articles XIII.A of the
California Constitution, of any real property owned in whole or in part
by South Valley or to the best of South Valley's knowledge, of any real
property leased by South Valley.
(ii) South Valley shall deliver to Pacific Capital when
available, copies of all its and its subsidiaries' tax returns with
respect to taxes payable to the United States of America and the State
of California for the fiscal years ended December 31, 1995, 1994 and
1993.
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(iii) No consent has been filed relating to South Valley
pursuant to Section 341(f) of the IRC.
(h) Material Adverse Change. Except as reflected on South Valley's
financial statements issued prior to the date hereof and delivered to Pacific
Capital or as otherwise disclosed in writing by South Valley to Pacific Capital
prior to the date hereof, since December 31, 1995, there has been (i) no
material adverse change in the business, assets, licenses, permits, franchises,
results of operations or financial condition of South Valley and SVNB taken as a
whole (whether or not in the Ordinary Course of Business), (ii) no change in any
of the assets, licenses, permits or franchises of South Valley or that has had
or, to South Valley's knowledge, can reasonably be expected to have a material
adverse effect on any of the items listed in clause (h)(i) above, (iii) no
damage, destruction, or other casualty loss (whether or not covered by
insurance) that has had or can reasonably be expected to have a material adverse
effect on any of the items listed in clause (h)(i) above, (iv) no amendment,
modification, or termination of any existing, or entering into of any new,
contract, agreement, plan, lease, license, permit or franchise that is material
to the business, financial condition, assets, liabilities or operations of South
Valley and SVNB taken as a whole, except in the Ordinary Course of Business; or
(v) no disposition by South Valley of one or more assets that, individually or
in the aggregate, are material to South Valley and SVNB taken as a whole, except
sales of assets in the Ordinary Course of Business.
(i) No Undisclosed Liabilities. Except for items for which reserves
have been established in the unaudited consolidated balance sheets of South
Valley as of June 30, 1996, since such date South Valley has not incurred or
discharged, and is not legally obligated with respect to, any indebtedness,
liability (including, without limitation, a liability arising out of an
indemnification, guarantee, hold harmless or similar arrangement) or obligation
(accrued or contingent, whether due or to become due, and whether or not
subordinated to the claims of its general creditors), other than as a result of
operations in the Ordinary Course of Business. South Valley has not knowingly
made nor shall make any representations or covenants in any such agreement that
contained or shall contain any untrue statement of a material fact or omitted or
shall omit to state a material fact necessary in order to make the statements
contained therein, in light of the circumstances under which such
representations and/or covenants were made or shall be made, not misleading. No
cash, stock or other dividend or any other distribution with respect to the
stock of South Valley has been declared, set aside or paid, nor have any shares
of the stock of South Valley been purchased, redeemed or otherwise acquired,
directly or indirectly, by South Valley since June 30, 1996.
(j) Properties and Leases.
(i) South Valley and SVNB have good and marketable title,
free and clear of all liens and encumbrances and the right of
possession, subject to existing leaseholds, to all real properties and
good title to all other property and assets, tangible and intangible,
reflected in the South Valley unaudited consolidated balance sheet as
of June 30, 1996 (except property held as lessee under leases entered
into since June 30, 1996 and disclosed in writing prior to the date
hereof and except personal property sold or otherwise disposed of since
June 30, 1996 in the Ordinary Course of Business), except (a) liens for
taxes or assessments not delinquent, (b) such other liens and
encumbrances and imperfections of title as do not materially affect the
value of such property as reflected in the South Valley unaudited
consolidated balance sheet as of June 30, 1996, or as currently shown
on the books and records of South Valley and which do not interfere
with or impair the present and continued use, or (c) immaterial
exceptions disclosed in title reports and preliminary title reports,
copies of which shall be provided to Pacific Capital. All tangible
properties of South Valley conform in all material respects with all
applicable ordinances, regulations and zoning laws. All material
tangible properties of South Valley and SVNB are in a good state of
maintenance and repair and are adequate for the current business of
South Valley. No properties of South Valley or SVNB and, to the best of
South Valley's knowledge, no properties in which it holds a collateral
or contingent interest or purchase option, are the subject of any
pending or to the best of South Valley's knowledge, threatened
investigation, claim or proceeding relating to the use, storage or
disposal on such property of or contamination of such property by any
toxic or hazardous waste material or substance. To South Valley's
knowledge, South Valley and SVNB do not own, possess or have a
collateral or contingent interest or purchase option in any properties
or other assets which contain or have located within or thereon any
hazardous or toxic waste material or substance unless the location of
such hazardous or toxic waste material or other substance or its use
thereon conforms in all material respects with all federal, state and
local laws, rules, regulations or other provisions regulating the
discharge of materials into the environment. As to any asset not owned
or leased by South Valley or SVNB, to the best of South Valley's
knowledge, neither South Valley nor SVNB has controlled, directed or
participated in the operation or
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management of any such asset or any facilities or enterprise conducted
thereon, such that it has become an owner or operator of such asset
under applicable environmental laws.
(ii) All properties held by South Valley or SVNB under
leases are held under valid, binding and enforceable leases, with such
exceptions as are not material and do not interfere with the conduct of
the business of South Valley or SVNB, and South Valley or SVNB, as the
case may be, enjoys quiet and peaceful possession of such leased
property. South Valley is not in default in any material respect under
any material lease, agreement or obligation regarding its properties to
which it is a party or by which it is bound.
(iii) Except as disclosed to Pacific Capital in the South
Valley Disclosure Statement, all of South Valley's and SVNB's rights
and obligations under the leases referred to in Section 4(j)(ii) above
do not require the consent of any other party to the transaction
contemplated by this Agreement. Where required, South Valley shall use
its best efforts to obtain, prior to the Effective Date, the consent of
all parties to any such transactions.
(k) Material Contracts. Except as disclosed to Pacific Capital in the
South Valley Disclosure Statement and excluding loans, lines of credit, loan
commitments or letters of credit to which South Valley or SVNB is a party,
neither South Valley nor SVNB is a party to or bound by any contract or other
agreement made in the Ordinary Course of Business which involves aggregate
future payments by or to it of more than $50,000 and which is made for a fixed
period expiring more than one year from the date hereof, and neither South
Valley nor SVNB is a party to or bound by any agreement not made in the Ordinary
Course of Business which is to be performed at or after the date hereof. Each of
the contracts and agreements disclosed to Pacific Capital pursuant to this
Section 4(k) is a legal and binding obligation (subject to applicable
bankruptcy, insolvency and similar laws affecting creditors' rights generally
and subject, as to enforceability, to equitable principles of general
applicability), and no material breach or default (and no condition which, with
notice or passage of time, or both, could become a breach or default) exists
with respect thereto. No power of attorney or similar authorization given
directly or indirectly by South Valley is currently outstanding.
(l) Employment Contracts and Benefits.
(i) South Valley shall provide to Pacific Capital access to
all bonus, incentive compensation, profit-sharing, pension, retirement,
stock purchase, stock option, deferred compensation, severance,
hospitalization, medical, dental, vision, group insurance, death
benefits, disability and other fringe benefit plans, trust agreements,
arrangements and commitments of South Valley and SVNB (including but
not limited to such plans, agreements, arrangements and commitments
applicable to former employees or retired employees, or for which such
persons are eligible), if any, together with copies of all such plans,
agreements, arrangements and commitments that are documented, any and
all contracts of employment and has made available to Pacific Capital
any Board of Directors' minutes (or committee minutes) from meetings
held within the five-year period ending as of the Closing authorizing,
approving or guaranteeing such plans and contracts.
(ii) With respect to each employee benefit plan (as defined
in Section 3(3) of ERISA) of South Valley which is subject to the
reporting, disclosure and record retention requirements set forth in
the IRC and Part 1 of Subtitle B of Title I of ERISA and the
regulations thereunder, each of such requirements has been met in all
material respects on a timely basis.
(iii) With respect to each employee benefit plan (as defined
in Section 3(3) of ERISA) of South Valley which is subject to Part 4 of
Subtitle B of Title I of ERISA, none of the following now exists or has
existed within the six-year period ending on the date hereof:
(1) Any act or omission constituting a material violation of
Section 402 of ERISA;
(2) Any act or omission constituting a material violation of
Section 403 of ERISA;
(3) Any act or omission by South Valley or any of its
subsidiaries, or by any director, officer or employee thereof,
constituting a material violation of Sections 404 and 405 of ERISA;
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(4) To the best of South Valley's knowledge, any act or
omission by any other person constituting a material violation of
Sections 404 or 405 of ERISA;
(5) Any act or omission which constitutes a material
violation of Sections 406 or 407 of ERISA and is not exempted by
Section 408 of ERISA or which constitutes a material violation of
Section 4975(c) of the IRC and is not exempted by Section 4975(d) of
the IRC; or
(6) Any act or omission constituting a material violation of
Sections 503, 510 or 511 of ERISA.
(iv) All contributions, premiums or other payments due from
South Valley and its subsidiaries to (or under) any employee benefit
plan of South Valley have been fully paid or adequately provided for on
the audited financials for the year ended December 31, 1995 and the
unaudited financials for the period ended June 30, 1996. All accruals
thereon (including, where appropriate, proportional accruals for
partial periods) have been made in all material respects in accordance
with GAAP consistently applied on a reasonable basis.
(v) Each employee benefit plan of South Valley complies in
all material respects with all applicable requirements of (A) the Age
Discrimination in Employment Act of 1967, as amended, and the
regulations thereunder and (B) Title VII of the Civil Rights Act of
1964, as amended, and the regulations thereunder.
(vi) Each employee benefit plan of South Valley complies in
all material respects with all applicable requirements of (A) the
health care continuation coverage provisions of the Consolidated
Omnibus Budget Reconciliation Act of 1985, and the regulations
thereunder.
(vii) South Valley shall disclose in writing to Pacific
Capital the names of each director, officer and employee of South
Valley and SVNB.
(m) Compliance With ERISA. South Valley has not, since its inception,
either maintained or contributed to an employee pension benefit plan, as defined
in Section 3(2) of ERISA, including multiemployer plans, other than the Plan and
a true and accurate copy of which has been provided to Pacific Capital. With
respect to the Plan and its related trust (the "South Valley Trust"), as of the
Effective Time, (i) the Plan will in all material respects be (and currently is)
in compliance in form with all the applicable requirements of Section 401(a) of
the IRC, and the form of the South Valley Trust will be exempt from income tax
under Section 501(a) of the IRC; (ii) the Plan represents the adoption of a
standardized prototype plan that received a favorable opinion letter ("Opinion
Letter") from the Internal Revenue Service ("IRS") as to its form dated April 1,
1992; (iii) South Valley relies on such Opinion Letter as authorized under IRS
Revenue Procedure 96-4 as support for the fact that the Plan is qualified under
section 401(a) of the IRC; (iv) no contributions have exceeded the limitations
set forth in Section 415 of the IRC; (v) required filings with the IRS and
Department of Labor with respect to the Plan and the South Valley Trust for
periods from inception and ending at or prior to the Effective Time will have
been made by South Valley and the plan administrator; (vi) there shall have been
no material violation of Parts 1 and 4 of Subtitle B of Title I of ERISA or of
Section 4975 of the IRC; and (vii) there shall have been no action, claim or
demand of any kind known to South Valley brought by any claimant or
representative of such claimant under the Plan or South Valley Trust where South
Valley may be either (A) liable directly on such action, claim or demand, or (B)
obligated to indemnify any person, group of persons or entity with respect to
such action, claim or demand, unless such action, claim or demand is covered by
adequate reserves reflected in South Valley's June 30, 1996 financial statements
or an insurer of South Valley has agreed to defend against and pay the amount of
any resulting liability without reservation.
(n) Collective Bargaining and Employment Agreements. Except as provided
in this Agreement or as disclosed to Pacific Capital in the South Valley
Disclosure Statement, South Valley does not have any union or collective
bargaining or written employment agreements, contracts or other agreements with
any labor organization or with any member of management, or any management or
consultation agreement not terminable at will by South Valley without liability
and no such contract or agreement has been requested by, or is under discussion
by management with, any group of employees, any member of management or any
other person. There are no material controversies pending between South Valley
and any current or former employees, and to the best of their knowledge, there
are no efforts presently being made by any labor union seeking to organize any
of such employees.
(o) Compensation of Officers and Employees. Except as disclosed to
Pacific Capital in the South Valley Disclosure Statement and except as otherwise
provided in this Agreement, (i) no officer or employee of South Valley or SVNB
is receiving aggregate direct remuneration at a rate exceeding $65,000 per
annum, and (ii) the consummation of the transactions contemplated by this
Agreement will not (either alone or upon the
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occurrence of any additional or further acts or events) result in any payment
(whether of severance pay or otherwise) becoming due from South Valley, SVNB or
Pacific Capital to any employee of South Valley or SVNB.
(p) Legal Actions and Proceedings. Except as disclosed to Pacific
Capital in writing prior to the date hereof, neither South Valley nor SVNB is a
party to, or to the best of their knowledge threatened with, any legal action or
other proceeding or investigation before any court, any arbitrator of any kind
or any government agency, and, to the best of South Valley's knowledge, neither
South Valley nor SVNB is subject to any potential adverse claim, the outcome of
which could involve the payment or receipt by South Valley or SVNB of any amount
in excess of $25,000, unless an insurer of South Valley has agreed to defend
against and pay the amount of any resulting liability without reservation, or,
if any such legal action, proceeding, investigation or claim will not involve
the payment by South Valley or SVNB of a monetary amount, which could materially
adversely affect South Valley, SVNB or their respective businesses or properties
or the transactions contemplated hereby. South Valley has no knowledge of any
pending or threatened claims or charges under the Community Reinvestment Act,
before the Equal Employment Opportunity Commission, the California Department of
Fair Housing & Economic Development, the California Unemployment Appeals Board,
or any human relations commission. There is no labor dispute, strike, slow-down
or stoppage pending or, to the best of the knowledge of South Valley, threatened
against South Valley or SVNB.
(q) Execution and Delivery of the Agreement.
(i) The execution and delivery of this Agreement has been
duly authorized by the Board of Directors of South Valley and, when
this Agreement and the Merger have been duly approved by the
affirmative vote of the holders of a majority of the outstanding shares
of South Valley common stock at a meeting of shareholders duly called
and held, this Agreement and the Merger will be duly and validly
authorized by all necessary corporate action on the part of South
Valley.
(ii) This Agreement has been duly executed and delivered by
South Valley and (assuming due execution and delivery by and
enforceability against Pacific Capital) constitutes the legal and
binding obligations of South Valley.
(iii) The execution and delivery by South Valley of this
Agreement and the consummation of the transactions herein (A) do not
violate any provision of the Articles of Incorporation or Bylaws of
South Valley, any provision of federal or state law or any governmental
rule or regulation (assuming (1) receipt of the Government Approvals,
(2) receipt of the requisite South Valley shareholder approval referred
to in Section 3.2(a) hereof, (3) due registration of the Pacific
Capital Shares under the 1933 Act, (4) receipt of appropriate permits
or approvals under applicable state securities laws, and (5) accuracy
of the representations of Pacific Capital set forth herein), and (B) do
not require any consent of any person under, conflict with or result in
a breach of, or accelerate the performance required by any of the terms
of, any material debt instrument, lease, license, covenant, agreement
or understanding to which South Valley is a party or by which it is
bound or any order, ruling, decree, judgment, arbitration award or
stipulation to which South Valley is subject, or constitute a material
default thereunder or result in the creation of any lien, claim,
security interest, encumbrance, charge, restriction or similar right of
any third party upon any of the properties or assets of South Valley.
(r) Insurance. South Valley and SVNB are and continuously since their
respective inceptions have been, insured with reputable insurers against all
risks normally insured against by corporations such as South Valley and national
associations, and all of the insurance policies (including directors' and
officers' liability insurance) and bonds maintained by South Valley are in full
force and effect, and to the best of its knowledge, South Valley is not in
material default thereunder and all material claims thereunder have been filed
in due and timely fashion. In the best judgment of the management of South
Valley, such insurance coverage is adequate for South Valley. Since December 31,
1990, there has not been any damage to, destruction of, or loss of any assets of
South Valley not covered by insurance that could materially and adversely affect
the business, financial condition, properties, assets or results of operations
of South Valley and SVNB taken as a whole.
(s) Transactions With Affiliates. Except as may arise in the Ordinary
Course of Business, South Valley has not extended credit, committed to extend
credit, or transferred any asset to or assumed or guaranteed any liability of
the employees or directors of South Valley, or any spouse or child of any of
them, or to any of their "affiliates" or "associates" as such terms are defined
in Rule 405 under Regulation C of the 1933 Act. South Valley has not entered
into any other transactions with the employees or directors of South Valley or
any spouse or child of any of them, or any of their affiliates or associates,
except as disclosed in writing to Pacific Capital in the South
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Valley Disclosure Statement. Any such transactions have been on terms no less
favorable than those which would prevail in an arm's-length transaction with an
independent third party.
(t) Information in Registration Statement. The information pertaining
to South Valley which will be furnished to Pacific Capital for or on behalf of
South Valley for inclusion in the Registration Statement, the Prospectus or the
Proxy Statement (each as herein defined), or in the applications to be filed to
obtain the Government Approvals (the "Applications"), will not contain any
untrue statement of any material fact or omits or will omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they are made, not
misleading; provided, however, that information of a later date shall be deemed
to modify information as of an earlier date. All financial statements of South
Valley included in the Prospectus and Proxy Statement will present fairly in all
material respects the financial condition and results of operations of South
Valley at the dates and for the periods covered by such statements in accordance
with GAAP consistently applied throughout the periods covered by such
statements. South Valley shall promptly advise Pacific Capital in writing if
prior to the Effective Time South Valley shall obtain knowledge of any facts
that would make it necessary to amend the Registration Statement, the Proxy
Statement or any Application, or to supplement the Prospectus, in order to make
the statements therein not misleading or to comply with applicable law.
(u) Accuracy of Representations and Warranties. No representation or
warranty by South Valley, and no statement by South Valley in any certificate,
agreement, schedule or other document furnished in connection with the
transactions contemplated by this Agreement, contains or will contain any untrue
statement of a material fact or omits or will omit to state any material fact
necessary to make such representation, warranty or statement not misleading to
Pacific Capital; provided, however, that information as of a later date shall
automatically modify information as of an earlier date.
(v) Loans. South Valley has disclosed to Pacific Capital in writing
prior to the date hereof, and will promptly inform Pacific Capital of the
amounts of all loans, leases, other extensions of credit or commitments, or
other interest-bearing assets of SVNB, that have been classified as of the date
hereof or hereafter by any internal bank examiner or any bank regulatory agency
as "Other Loans Specially Mentioned," "Special Mention," "Substandard,"
"Doubtful," "Loss," or words of similar import in the case of loans (or that
would have been so classified, in the case of other interest-bearing assets, had
they been loans). South Valley has furnished and will continue to furnish to
Pacific Capital true and accurate information concerning the loan portfolio of
SVNB, and no material information with respect to the loan portfolio has been or
will be withheld from Pacific Capital. All loans and investments of SVNB are
legal, valid and binding obligations enforceable in accordance with their
respective terms and are not subject to any setoffs, counterclaims or disputes
(subject to applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally and subject, as to enforceability, to equitable
principles of general applicability), except as disclosed to Pacific Capital in
writing or reserved for in the unaudited balance sheet of South Valley as of
June 30, 1996, and were duly authorized under and made in compliance with
applicable federal and state laws and regulations. South Valley and SVNB do not
have any extensions of credit, investments, guarantees, indemnification
agreements or commitments for the same (including without limitation commitments
to issue letters of credit, to create acceptances, or to repurchase securities,
federal funds or other assets) other than those documented on the books and
records of South Valley and SVNB.
(w) Restrictions on Investments. Except for pledges to secure public
and trust deposits and repurchase agreements in the Ordinary Course of Business
or those securities classified as "held-to-maturity" as defined under SFAS No.
115, none of the investments reflected in the unaudited balance sheet of South
Valley as of June 30, 1996, and none of the investments made by South Valley or
SVNB since June 30, 1996, is subject to any restriction, whether contractual or
statutory, which materially impairs the ability of South Valley to freely
dispose of such investment at any time.
5. REPRESENTATIONS AND WARRANTIES OF PACIFIC CAPITAL.
Pacific Capital represents and warrants to South Valley, except as
disclosed to South Valley in writing on the date of this Agreement (the "Pacific
Capital Disclosure Statement"), that:
(a) Corporate Status and Power to Enter Into Agreements. Pacific
Capital (i) is a corporation duly incorporated, validly existing and in good
standing under the laws of California and is a registered bank holding company
under the BHC Act, (ii) subject to the approval of this Agreement and the
transactions contemplated hereby by the shareholders of Pacific Capital and the
FRB, it has all necessary corporate power to enter into this Agreement and to
carry out all of the terms and provisions hereof and thereof to be carried out
by it, and (iii) is not subject to any directive, order (formal or informal) or
agreement, of the FRB or any other regulatory authority having jurisdiction over
its business or any of its assets or properties, and (iv) is in full compliance
with any agreements,
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<PAGE>
understandings or orders of the FRB or any other regulatory authority having
jurisdiction over its business or any of its assets or properties. FNB (i) holds
a currently valid license issued by the OCC to engage in business as a national
association under the National Bank Act, and (ii) is not subject to any
directive, order (formal or informal) or agreement, of the OCC or any other
regulatory authority having jurisdiction over its business or any of its assets
or properties, and (iii) is in full compliance with any agreements,
understandings or orders of the OCC or any other regulatory authority having
jurisdiction over its business or any of its assets or properties. Neither the
scope of the business of Pacific Capital or FNB nor the location of their
respective properties requires it to be licensed to do business in any
jurisdiction other than the State of California.
(b) Articles, Bylaws, Books and Records. The copies of the respective
Articles of Incorporation or Association and Bylaws of Pacific Capital and FNB
to be delivered to South Valley prior to the date hereof are complete and
accurate copies thereof as in effect on the date hereof. The minute books of
Pacific Capital and FNB made available to South Valley contain a complete and
accurate record of all meetings of the Board of Directors (and committees
thereof) and shareholders. The corporate books and records (including financial
statements) of Pacific Capital and FNB fairly reflect the material transactions
to which Pacific Capital or FNB is a party or by which their respective
properties are subject or bound, and such books and records have been properly
kept and maintained. The Articles of Incorporation and Bylaws of Pacific Capital
and the Articles of Association and Bylaws of FNB and all amendments thereto
have been duly approved by all requisite corporate action and by the appropriate
regulatory authority to the extent required by law.
(c) Compliance With Laws, Regulations and Decrees. To the best
knowledge of Pacific Capital and FNB, each (i) has the corporate power to own or
lease its properties and to conduct its business as currently conducted, (ii)
has complied with, and is not in default in any material respects of any laws,
regulations, ordinances, orders or decrees applicable to the conduct of its
business and the ownership of its properties, including but not limited to all
federal and state laws (including but not limited to the Bank Secrecy Act),
rules and regulations relating to the offer, sale or issuance of securities, and
the operation of a national association, other than where such noncompliance or
default is not likely to result in a material limitation on the conduct of its
business or is not likely to otherwise have a material adverse effect on Pacific
Capital or FNB taken as a whole, (iii) has not failed to file with the proper
federal, state, local or other authorities any material report or other document
required to be so filed, (iv) has all material approvals, authorizations,
consents, licenses, clearances and orders of, and have currently effective all
registrations with, all governmental and regulatory authorities which are
necessary to the business and operations of Pacific Capital and FNB as now being
conducted, and (v) has received no notification, formally or informally, from
any agency or department of any federal, state or local government or any
regulatory agency or the staff thereof (A) asserting that Pacific Capital or FNB
is not in material compliance with any of the statutes, regulations or
ordinances which such government or regulatory authority enforces, or (B)
threatening to revoke any licenses, franchise, permit or governmental
authorization of Pacific Capital or FNB.
(d) Capitalization. The authorized capital stock of Pacific Capital
consists of 20,000,000 shares of common stock, without par value, of which
2,607,438 shares are duly authorized, fully paid, validly issued, nonassessable
and are currently outstanding and 20,000,000 shares of preferred stock, without
par value, of which no preferred shares are issued or outstanding. The
authorized capital stock of FNB consists of 1,800,000 shares of FNB common
stock, $5.00 par value, of which 1,800,000 are duly authorized, validly issued,
fully paid and nonassessable and currently outstanding. Said stock has been
issued in compliance with all applicable registration or qualification
provisions of state and federal securities laws. No other equity securities of
Pacific Capital or FNB have been issued or are outstanding. There are currently
outstanding options to purchase 169,319 shares of Pacific Capital Common Stock,
at a weighted average exercise price of $16.36 per share, issued pursuant to the
1994 Stock Option Plan. There are currently outstanding options to purchase
89,306 shares of Pacific Capital Common Stock, at a weighted average exercise
price of $14.50 per share, issued pursuant to the 1991 Directors Stock Option
Plan. There are currently outstanding options to purchase 56,778 shares of
Pacific Capital Common Stock, at a weighted average exercise price of $14.50 per
share, issued pursuant to the 1984 Stock Option Plan. The foregoing option plans
are referred to herein collectively as the "Pacific Capital Option Plans." Said
options were issued and, upon issuance in accordance with the terms of the
outstanding options said shares shall be issued, in compliance with all
applicable securities laws. There are no outstanding (i) options, agreements,
calls or commitments of any character which would obligate Pacific Capital to
issue, sell, pledge, assign or otherwise encumber or dispose of, or to purchase,
redeem or otherwise acquire, any Pacific Capital common stock or any other
equity security of Pacific Capital, or (ii) warrants or options relating to,
rights to acquire, or debt or equity securities convertible into, shares of
Pacific Capital common stock or any other equity security of Pacific Capital.
Attached to the Pacific Capital Disclosure Statement is a list of all option
holders and the number of vested and unvested options as of June 30, 1996. The
outstanding common stock of Pacific Capital has been duly and validly registered
with the Commission pursuant to the 1934 Act, to the extent required thereunder.
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(e) Equity Interests. Except as disclosed in the Pacific Capital
Disclosure Statement or as collateral for outstanding loans held in its loan
portfolio, Pacific Capital does not own, directly or indirectly, any equity
interest in any bank, corporation, or other entity.
(f) Financial Statements, Regulatory Reports. No financial statement or
other document provided or to be provided to South Valley as required by Section
3.1(d) hereof, as of the date of such document, contained, or as to documents to
be delivered after the date hereof, will contain, any untrue statement of a
material fact, or, at the date thereof, omitted or will omit to state a material
fact necessary in order to make the statements contained therein, in light of
the circumstances under which such statements were or will be made, not
misleading; provided, however, that information as of a later date shall be
deemed to modify information as of any earlier date. Pacific Capital and FNB
have filed all material documents and reports relating to Pacific Capital and/or
FNB required to be filed by Pacific Capital or FNB with the Commission, the FRB,
the OCC or any other governmental authority having jurisdiction over their
businesses or any of their assets or properties. All such reports conform in all
material respects with the requirements promulgated by such regulatory agencies.
All compliance or corrective action relating to Pacific Capital required by
governmental authorities and regulatory agencies having jurisdiction over
Pacific Capital and FNB have been taken. Pacific Capital and FNB have not
received notification, formally or informally, from any agency or department of
any federal, state or local government or any regulatory agency or the staff
thereof (A) asserting that
Pacific Capital and/or FNB is not in compliance with any of the statutes,
regulations or ordinances which such government or regulatory authority
enforces, or (B) threatening to revoke any license, franchise, permit or
governmental authorization of Pacific Capital and/or FNB. Neither Pacific
Capital nor FNB is subject to any order, agreement or written directive with any
regulatory authority with respect to its assets or business except for matters
of general application. Pacific Capital and FNB have paid all assessments made
or imposed by any governmental agency. Pacific Capital shall make available to
South Valley for inspection copies of all annual management letters and opinions
and all reviews, correspondence and other documents in the files of Pacific
Capital prepared by KPMG or any other certified public accountant engaged by
Pacific Capital and delivered to Pacific Capital since January 1, 1991. The
consolidated financial records of Pacific Capital have been, and are being and
shall be, maintained in all material respects in accordance with all applicable
legal and accounting requirements sufficient to insure that all transactions
reflected therein are, in all material respects, executed in accordance with
management's general or specific authorization and recorded in conformity with
GAAP at the time in effect. The data processing equipment, data transmission
equipment, related peripheral equipment and software used by Pacific Capital in
the operation of its business to generate and retrieve its financial records are
adequate for the current needs of Pacific Capital.
(g) Tax Returns.
(i) Pacific Capital has timely filed all federal, state,
county, local and foreign tax returns required to be filed by it,
including, without limitation, estimated tax, use tax, excise tax, real
property and personal property tax reports and returns, employer's
withholding tax returns, other withholding tax returns and Federal
Unemployment Tax Returns, and all other reports or other information
required or requested to be filed by each of them, and each such
return, report or other information was, when filed, complete and
accurate in all material respects. Pacific Capital has paid all taxes,
fees and other governmental charges, including any interest and
penalties thereon, when they have become due and payable, except those
that are being contested in good faith, which contested matters have
been disclosed in writing to South Valley. Pacific Capital has not
requested to give or has given any currently effective waivers
extending the statutory period of limitation applicable to any tax
return required to be filed by either of them for any period. There are
no claims pending against Pacific Capital for any alleged deficiency in
the payment of any taxes, and no pending or threatened audits,
investigations or claims for unpaid taxes or relating to any liability
in respect of any taxes. There have been no events, including a change
in ownership, that would result in a reappraisal and establishment of a
new base-year full value for purposes of Articles XIII.A of the
California Constitution, of any real property owned in whole or in part
by Pacific Capital or to the best of Pacific Capital's knowledge, of
any real property leased by Pacific Capital.
(ii) Pacific Capital shall deliver to South Valley when
available, copies of all its and its subsidiaries' tax returns with
respect to taxes payable to the United States of America and the State
of California for the fiscal years ended December 31, 1995, 1994 and
1993.
(iii) No consent has been filed relating to Pacific Capital
pursuant to Section 341(f) of the IRC.
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(h) Material Adverse Change. Except as reflected on Pacific Capital's
financial statements issued prior to the date hereof and delivered to South
Valley or as otherwise disclosed in writing by Pacific Capital to South Valley
prior to the date hereof, since December 31, 1995, there has been (i) no
material adverse change in the business, assets, licenses, permits, franchises,
results of operations or financial condition of Pacific Capital and FNB taken as
a whole (whether or not in the Ordinary Course of Business), (ii) no change in
any of the assets, licenses, permits or franchises of Pacific Capital or that
has had or, to Pacific Capital's knowledge, can reasonably be expected to have a
material adverse effect on any of the items listed in clause (h)(i) above, (iii)
no damage, destruction, or other casualty loss (whether or not covered by
insurance) that has had or can reasonably be expected to have a material adverse
effect on any of the items listed in clause (h)(i) above, (iv) no amendment,
modification, or termination of any existing, or entering into of any new,
contract, agreement, plan, lease, license, permit or franchise that is material
to the business, financial condition, assets, liabilities or operations of
Pacific Capital and FNB taken as a whole, except in the Ordinary Course of
Business; or (v) no disposition by Pacific Capital of one or more assets that,
individually or in the aggregate, are material to Pacific Capital and FNB taken
as a whole, except sales of assets in the Ordinary Course of Business.
(i) No Undisclosed Liabilities. Except for items for which reserves
have been established in the unaudited consolidated balance sheets of Pacific
Capital as of June 30, 1996, since such date Pacific Capital has not incurred or
discharged, and is not legally obligated with respect to, any indebtedness,
liability (including, without limitation, a liability arising out of an
indemnification, guarantee, hold harmless or similar arrangement) or obligation
(accrued or contingent, whether due or to become due, and whether or not
subordinated to the claims of its general creditors), other than as a result of
operations in the Ordinary Course of Business. Pacific Capital has not knowingly
made nor shall make any representations or covenants in any such agreement that
contained or shall contain any untrue statement of a material fact or omitted or
shall omit to state a material fact necessary in order to make the statements
contained therein, in light of the circumstances under which such
representations and/or covenants were made or shall be made, not misleading. No
cash, stock or other dividend or any other distribution with respect to the
stock of Pacific Capital has been declared, set aside or paid, nor have any
shares of the stock of Pacific Capital been purchased, redeemed or otherwise
acquired, directly or indirectly, by Pacific Capital since June 30, 1996.
(j) Properties and Leases.
(i) Pacific Capital and FNB have good and marketable title,
free and clear of all liens and encumbrances and the right of
possession, subject to existing leaseholds, to all real properties and
good title to all other property and assets, tangible and intangible,
reflected in the Pacific Capital unaudited consolidated balance sheet
as of June 30, 1996 (except property held as lessee under leases
entered into since June 30, 1996 and disclosed in writing prior to the
date hereof and except personal property sold or otherwise disposed of
since June 30, 1996 in the Ordinary Course of Business), except (a)
liens for taxes or assessments not delinquent, (b) such other liens and
encumbrances and imperfections of title as do not materially affect the
value of such property as reflected in the Pacific Capital unaudited
consolidated balance sheet as of June 30, 1996, or as currently shown
on the books and records of Pacific Capital and which do not interfere
with or impair the present and continued use, or (c) immaterial
exceptions disclosed in title reports and preliminary title reports,
copies of which shall be provided to South Valley. All tangible
properties of Pacific Capital conform in all material respects with all
applicable ordinances, regulations and zoning laws. All material
tangible properties of Pacific Capital and FNB are in a good state of
maintenance and repair and are adequate for the current business of
Pacific Capital. No properties of Pacific Capital or FNB and, to the
best of Pacific Capital's knowledge, no properties in which it holds a
collateral or contingent interest or purchase option, are the subject
of any pending or, to the best of Pacific Capital's knowledge,
threatened investigation, claim or proceeding relating to the use,
storage or disposal on such property of or contamination of such
property by any toxic or hazardous waste material or substance. To
Pacific Capital's knowledge, Pacific Capital and FNB do not own,
possess or have a collateral or contingent interest or purchase option
in any properties or other assets which contain or have located within
or thereon any hazardous or toxic waste material or substance unless
the location of such hazardous or toxic waste material or other
substance or its use thereon conforms in all material respects with all
federal, state and local laws, rules, regulations or other provisions
regulating the discharge of materials into the environment. As to any
asset not owned or leased by Pacific Capital or FNB, to the best of
Pacific Capital's knowledge, neither Pacific Capital nor FNB has
controlled, directed or participated in the operation or management of
any such asset or any facilities or enterprise conducted thereon, such
that it has become an owner or operator of such asset under applicable
environmental laws.
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(ii) All properties held by Pacific Capital or FNB under
leases are held under valid, binding and enforceable leases, with such
exceptions as are not material and do not interfere with the conduct of
the business of Pacific Capital or FNB, and Pacific Capital or FNB, as
the case may be, enjoys quiet and peaceful possession of such leased
property. Pacific Capital is not in default in any material respect
under any material lease, agreement or obligation regarding its
properties to which it is a party or by which it is bound.
(iii) Except as disclosed to South Valley in the Pacific
Capital Disclosure Statement, all of Pacific Capital's and FNB's rights
and obligations under the leases referred to in Section 5(j)(ii) above
do not require the consent of any other party to the transaction
contemplated by this Agreement. Where required, Pacific Capital shall
use its best efforts to obtain, prior to the Effective Date, the
consent of all parties to any such transactions.
(k) Material Contracts. Except as disclosed to South Valley in the
Pacific Capital Disclosure Statement and excluding loans, lines of credit, loan
commitments or letters of credit to which Pacific Capital or FNB is a party,
neither Pacific Capital nor FNB is a party to or bound by any contract or other
agreement made in the Ordinary Course of Business which involves aggregate
future payments by or to it of more than $50,000 and which is made for a fixed
period expiring more than one year from the date hereof, and neither Pacific
Capital nor FNB is a party to or bound by any agreement not made in the Ordinary
Course of Business which is to be performed at or after the date hereof. Each of
the contracts and agreements disclosed to South Valley pursuant to this Section
5(k) is a legal and binding obligation (subject to applicable bankruptcy,
insolvency and similar laws affecting creditors' rights generally and subject,
as to enforceability, to equitable principles of general applicability), and no
material breach or default (and no condition which, with notice or passage of
time, or both, could become a breach or default) exists with respect thereto. No
power of attorney or similar authorization given directly or indirectly by
Pacific Capital is currently outstanding.
(l) Employment Contracts and Benefits.
(i) Pacific Capital shall provide to South Valley access to
all bonus, incentive compensation, profit-sharing, pension, retirement,
stock purchase, stock option, deferred compensation, severance,
hospitalization, medical, dental, vision, group insurance, death
benefits, disability and other fringe benefit plans, trust agreements,
arrangements and commitments of Pacific Capital and FNB (including but
not limited to such plans, agreements, arrangements and commitments
applicable to former employees or retired employees, or for which such
persons are eligible), if any, together with copies of all such plans,
agreements, arrangements and commitments that are documented, any and
all contracts of employment and has made available to South Valley any
Board of Directors' minutes (or committee minutes) from meetings held
within the five-year period ending as of the Closing authorizing,
approving or guaranteeing such plans and contracts.
(ii) With respect to each employee benefit plan (as defined
in Section 3(3) of ERISA) of Pacific Capital which is subject to the
reporting, disclosure and record retention requirements set forth in
the IRC and Part 1 of Subtitle B of Title I of ERISA and the
regulations thereunder, each of such requirements has been met in all
material respects on a timely basis.
(iii) With respect to each employee benefit plan (as defined
in Section 3(3) of ERISA) of Pacific Capital which is subject to Part 4
of Subtitle B of Title I of ERISA, none of the following now exists or
has existed within the six-year period ending on the date hereof:
(1) Any act or omission constituting a material violation of
Section 402 of ERISA;
(2) Any act or omission constituting a material violation of
Section 403 of ERISA;
(3) Any act or omission by Pacific Capital or any of its
subsidiaries, or by any director, officer or employee thereof,
constituting a material violation of Sections 404 and 405 of ERISA;
(4) To the best of Pacific Capital's knowledge, any act or
omission by any other person constituting a material violation of
Sections 404 or 405 of ERISA;
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(5) Any act or omission which constitutes a material
violation of Sections 406 or 407 of ERISA and is not exempted by
Section 408 of ERISA or which constitutes a material violation of
Section 4975(c) of the IRC and is not exempted by Section 4975(d) of
the IRC; or
(6) Any act or omission constituting a material violation of
Sections 503, 510 or 511 of ERISA.
(iv) All contributions, premiums or other payments due from
Pacific Capital and its subsidiaries to (or under) any employee benefit
plan of Pacific Capital have been fully paid or adequately provided for
on the audited financials for the year ended December 31, 1995 and the
unaudited financials for the period ended June 30, 1996. All accruals
thereon (including, where appropriate, proportional accruals for
partial periods) have been made in all material respects in accordance
with GAAP consistently applied on a reasonable basis.
(v) Each employee benefit plan of Pacific Capital complies
in all material respects with all applicable requirements of (A) the
Age Discrimination in Employment Act of 1967, as amended, and the
regulations thereunder and (B) Title VII of the Civil Rights Act of
1964, as amended, and the regulations thereunder.
(vi) Each employee benefit plan of Pacific Capital complies
in all material respects with all applicable requirements of (A) the
health care continuation coverage provisions of the Consolidated
Omnibus Budget Reconciliation Act of 1985, and the regulations
thereunder.
(vii) Pacific Capital shall disclose in writing to South
Valley the names of each director, officer and employee of Pacific
Capital and FNB.
(m) Compliance With ERISA. Pacific Capital has not, since its
inception, either maintained or contributed to an employee pension benefit plan,
as defined in Section 3(2) of ERISA, including multiemployer plans, other than
the Pacific Capital 401(k) Plan (the "Pacific Capital Plan") and a true and
accurate copy of which has been provided to South Valley. With respect to the
Pacific Capital Plan and its related trust (the "Trust"), as of the Effective
Time, (i) the Pacific Capital Plan will in all material respects be (and
currently is) in compliance in form with all the applicable requirements of
Section 401(a) of the IRC, and the form of Trust will be exempt from income tax
under Section 501(a) of the IRC; (ii) the Pacific Capital Plan represents the
adoption of a standardized prototype plan that received a favorable opinion
letter ("Opinion Letter") from the Internal Revenue Service ("IRS") as to its
form dated April 1, 1992; (iii) Pacific Capital relies on such Opinion Letter as
authorized under IRS Revenue Procedure 96-4 as support for the fact that the
Pacific Capital Plan is qualified under section 401(a) of the IRC; (iv) no
contributions have exceeded the limitations set forth in Section 415 of the IRC;
(v) required filings with the IRS and Department of Labor with respect to the
Pacific Capital Plan and the Trust for periods from inception and ending at or
prior to the Effective Time will have been made by Pacific Capital and the plan
administrator; (vi) there shall have been no material violation of Parts 1 and 4
of Subtitle B of Title I of ERISA or of Section 4975 of the IRC; and (vii) there
shall have been no action, claim or demand of any kind known to Pacific Capital
brought by any claimant or representative of such claimant under the Pacific
Capital Plan or Trust where Pacific Capital may be either (A) liable directly on
such action, claim or demand, or (B) obligated to indemnify any person, group of
persons or entity with respect to such action, claim or demand, unless such
action, claim or demand is covered by adequate reserves reflected in Pacific
Capital's June 30, 1996 financial statements or an insurer of Pacific Capital
has agreed to defend against and pay the amount of any resulting liability
without reservation.
(n) Collective Bargaining and Employment Agreements. Except as provided
in this Agreement or as disclosed to South Valley in the Pacific Capital
Disclosure Statement, Pacific Capital does not have any union or collective
bargaining or written employment agreements, contracts or other agreements with
any labor organization or with any member of management, or any management or
consultation agreement not terminable at will by Pacific Capital without
liability and no such contract or agreement has been requested by, or is under
discussion by management with, any group of employees, any member of management
or any other person. There are no material controversies pending between Pacific
Capital and any current or former employees, and to the best of their knowledge,
there are no efforts presently being made by any labor union seeking to organize
any of such employees.
(o) Compensation of Officers and Employees. Except as disclosed to
South Valley in the Pacific Capital Disclosure Statement and except as otherwise
provided in this Agreement, (i) no officer or employee of Pacific Capital or FNB
is receiving aggregate direct remuneration at a rate exceeding $65,000 per
annum, and (ii) the consummation of the transactions contemplated by this
Agreement will not (either alone or upon the occurrence of any additional or
further acts or events) result in any payment (whether of severance pay or
otherwise) becoming due from Pacific Capital, FNB or Pacific Capital to any
employee of Pacific Capital or FNB.
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(p) Legal Actions and Proceedings. Except as disclosed to South Valley
in writing prior to the date hereof, neither Pacific Capital nor FNB is a party
to, or, to the best of their knowledge, threatened with, any legal action or
other proceeding or investigation before any court, any arbitrator of any kind
or any government agency, and to the best of Pacific Capital's knowledge,
neither Pacific Capital nor FNB is subject to any potential adverse claim, the
outcome of which could involve the payment or receipt by Pacific Capital or FNB
of any amount in excess of $50,000, unless an insurer of Pacific Capital has
agreed to defend against and pay the amount of any resulting liability without
reservation, or, if any such legal action, proceeding, investigation or claim
will not involve the payment by Pacific Capital or FNB of a monetary amount,
which could materially adversely affect Pacific Capital, FNB or their respective
businesses or properties or the transactions contemplated hereby. Pacific
Capital has no knowledge of any pending or threatened claims or charges under
the Community Reinvestment Act, before the Equal Employment Opportunity
Commission, the California Department of Fair Housing & Economic Development,
the California Unemployment Appeals Board, or any human relations commission.
There is no labor dispute, strike, slow-down or stoppage pending or, to the best
of the knowledge of Pacific Capital, threatened against Pacific Capital or FNB.
(q) Execution and Delivery of the Agreement.
(i) The execution and delivery of this Agreement has been
duly authorized by the Board of Directors of Pacific Capital and, when
this Agreement and the Merger have been duly approved by the
affirmative vote of the holders of a majority of the outstanding shares
of Pacific Capital common stock at a meeting of shareholders duly
called and held, this Agreement and the Merger will be duly and validly
authorized by all necessary corporate action on the part of Pacific
Capital.
(ii) This Agreement has been duly executed and delivered by
Pacific Capital and (assuming due execution and delivery by and
enforceability against Pacific Capital) constitutes the legal and
binding obligations of Pacific Capital.
(iii) The execution and delivery by Pacific Capital of this
Agreement and the consummation of the transactions herein (A) do not
violate any provision of the Articles of Incorporation or Bylaws of
Pacific Capital, any provision of federal or state law or any
governmental rule or regulation (assuming (1) receipt of the Government
Approvals, (2) receipt of the requisite Pacific Capital shareholder
approval referred to in Section 3.1(h) hereof, (3) due registration of
the Pacific Capital Shares under the 1933 Act, (4) receipt of
appropriate permits or approvals under applicable state securities
laws, and (5) accuracy of the representations of Pacific Capital set
forth herein), and (B) do not require any consent of any person under,
conflict with or result in a breach of, or accelerate the performance
required by any of the terms of, any material debt instrument, lease,
license, covenant, agreement or understanding to which Pacific Capital
is a party or by which it is bound or any order, ruling, decree,
judgment, arbitration award or stipulation to which Pacific Capital is
subject, or constitute a material default thereunder or result in the
creation of any lien, claim, security interest, encumbrance, charge,
restriction or similar right of any third party upon any of the
properties or assets of Pacific Capital.
(r) Insurance. Pacific Capital and FNB are and continuously since their
respective inceptions have been, insured with reputable insurers against all
risks normally insured against by corporations such as Pacific Capital and
national associations, and all of the insurance policies (including directors'
and officers' liability insurance) and bonds maintained by Pacific Capital are
in full force and effect, and to the best of its knowledge, Pacific Capital is
not in material default thereunder and all material claims thereunder have been
filed in due and timely fashion. In the best judgment of the management of
Pacific Capital, such insurance coverage is adequate for Pacific Capital. Since
December 31, 1990, there has not been any damage to, destruction of, or loss of
any assets of Pacific Capital not covered by insurance that could materially and
adversely affect the business, financial condition, properties, assets or
results of operations of Pacific Capital and FNB taken as a whole.
(s) Transactions With Affiliates. Except as may arise in the Ordinary
Course of Business, Pacific Capital has not extended credit, committed to extend
credit, or transferred any asset to or assumed or guaranteed any liability of
the employees or directors of Pacific Capital, or any spouse or child of any of
them, or to any of their "affiliates" or "associates" as such terms are defined
in Rule 405 under Regulation C of the 1933 Act. Pacific Capital has not entered
into any other transactions with the employees or directors of Pacific Capital
or any spouse or child of any of them, or any of their affiliates or associates,
except as disclosed in writing to South Valley in the Pacific
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Capital Disclosure Statement. Any such transactions have been on terms no less
favorable than those which would prevail in an arm's-length transaction with an
independent third party.
(t) Information in Registration Statement. The information pertaining
to Pacific Capital in the Registration Statement, the Prospectus or the Proxy
Statement (each as herein defined), or in the Applications, will not contain any
untrue statement of any material fact or omits or will omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they are made, not
misleading; provided, however, that information of a later date shall be deemed
to modify information as of an earlier date. All financial statements of Pacific
Capital included in the Prospectus and Proxy Statement will present fairly in
all material respects the financial condition and results of operations of
Pacific Capital at the dates and for the periods covered by such statements in
accordance with GAAP consistently applied throughout the periods covered by such
statements. Pacific Capital shall promptly advise South Valley in writing if
prior to the Effective Time Pacific Capital shall obtain knowledge of any facts
that would make it necessary to amend the Registration Statement, the Proxy
Statement or any Application, or to supplement the Prospectus, in order to make
the statements therein not misleading or to comply with applicable law.
(u) Accuracy of Representations and Warranties. No representation or
warranty by Pacific Capital, and no statement by Pacific Capital in any
certificate, agreement, schedule or other document furnished in connection with
the transactions contemplated by this Agreement, contains or will contain any
untrue statement of a material fact or omits or will omit to state any material
fact necessary to make such representation, warranty or statement not misleading
to South Valley; provided, however, that information as of a later date shall
automatically modify information as of an earlier date.
(v) Loans. Pacific Capital has disclosed to South Valley in writing
prior to the date hereof, and will promptly inform South Valley of the amounts
of all loans, leases, other extensions of credit or commitments, or other
interest-bearing assets of FNB, that have been classified as of the date hereof
or hereafter by any internal bank examiner or any bank regulatory agency as
"Other Loans Specially Mentioned," "Special Mention," "Substandard," "Doubtful,"
"Loss," or words of similar import in the case of loans (or that would have been
so classified, in the case of other interest-bearing assets, had they been
loans). Pacific Capital has furnished and will continue to furnish to South
Valley true and accurate information concerning the loan portfolio of FNB, and
no material information with respect to the loan portfolio has been or will be
withheld from South Valley. All loans and investments of FNB are legal, valid
and binding obligations enforceable in accordance with their respective terms
and are not subject to any setoffs, counterclaims or disputes (subject to
applicable bankruptcy, insolvency and similar laws affecting creditors' rights
generally and subject, as to enforceability, to equitable principles of general
applicability), except as disclosed to South Valley in writing or reserved for
in the unaudited balance sheet of Pacific Capital as of June 30, 1996, and were
duly authorized under and made in compliance with applicable federal and state
laws and regulations. Pacific Capital and FNB do not have any extensions of
credit, investments, guarantees, indemnification agreements or commitments for
the same (including without limitation commitments to issue letters of credit,
to create acceptances, or to repurchase securities, federal funds or other
assets) other than those documented on the books and records of Pacific Capital
and FNB.
(w) Restrictions on Investments. Except for pledges to secure public
and trust deposits and repurchase agreements in the Ordinary Course of Business
or those securities classified as "held-to-maturity" as defined under SFAS No.
115, none of the investments reflected in the unaudited balance sheet of Pacific
Capital as of June 30, 1996, and none of the investments made by Pacific Capital
or FNB since June 30, 1996, is subject to any restriction, whether contractual
or statutory, which materially impairs the ability of Pacific Capital to freely
dispose of such investment at any time.
6. SECURITIES ACT OF 1933; SECURITIES EXCHANGE ACT OF 1934.
(a) Preparation and Filing of Registration Statement. Pacific Capital
shall promptly prepare and file with the Commission (i) the Registration
Statement as defined in Section 3.1(a) above under and pursuant to the
provisions of the 1933 Act for the purpose of registering the Pacific Capital
Shares and, (ii) shall prepare and file, one or more registration statements or
amendments to existing registration statements under the 1933 Act for the
purpose of registering the maximum number of shares of common stock of Pacific
Capital to which the option holders of South Valley shall be entitled to receive
pursuant to Section 2.6 above on the Effective Date. Pacific Capital and South
Valley shall promptly prepare a proxy statement (the "Proxy Statement") which
shall be part of the Registration Statement for the purpose of submitting this
Agreement and the Merger (including the principal terms thereof) to the
shareholders of South Valley and Pacific Capital for their approval. South
Valley and Pacific Capital shall cooperate in all reasonable respects with
regard to the preparation of the Proxy Statement. The Proxy Statement in
definitive form is expected to serve as the prospectus (the "Prospectus") to be
included in the
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Registration Statement. Pacific Capital and South Valley shall each provide
promptly to the other such information concerning its business and financial
condition and affairs as may be required or appropriate for inclusion in the
Registration Statement, the Prospectus or the Proxy Statement, and shall cause
its counsel and auditors to cooperate with the other's counsel and auditors in
the preparation of the Registration Statement, the Prospectus and the Proxy
Statement.
(b) Effectiveness of Registration Statement. Pacific Capital and South
Valley shall use their best efforts to have the Registration Statement and any
amendments or supplements thereto declared effective under the 1933 Act on or
before the Effective Date, and thereafter they shall distribute at their own
cost the Proxy Statement to holders of their common stock in accordance with
applicable laws and their Articles of Incorporation and Bylaws.
(c) Sales and Resales of Common Stock. Pacific Capital shall not be
required to maintain the effectiveness of the Registration Statement for the
purpose of sale or resale of the Pacific Capital Shares by any person.
(d) Rule 145. Securities representing Pacific Capital Shares issued to
persons deemed to be affiliates of South Valley (as determined by counsel to
Pacific Capital) under Rule 145 of the Rules and Regulations under the 1933 Act
pursuant to the Merger Agreement may be subject to stop transfer orders and may
bear a restrictive legend in substantially the following form:
The security represented by this instrument has been issued or
transferred to the registered holder as the result of a
transaction to which Rule 145 under the 1933 Act applies. The
security represented by this instrument may not be sold,
hypothecated, transferred or assigned, and the issuer shall
not be required to give effect to any attempted sale,
hypothecation, transfer or assignment, except (i) pursuant to
a then current effective registration under the 1933 Act, (ii)
in a transaction permitted by the Commission's Rule 145; (iii)
in a transaction which, in the opinion of counsel satisfactory
to the issuer, is not required to be registered under the 1933
Act, or (iv) pursuant to an applicable no action letter or
interpretative release.
Should any opinion of counsel described in clause (ii) of the foregoing legend
indicate that the legend and any stop transfer order then in effect with respect
to the shares may be removed, Pacific Capital will upon request substitute
unlegended securities and remove any stop transfer orders. Pacific Capital shall
timely file annual and quarterly reports pursuant to all applicable securities
laws.
7. CONDITIONS TO THE OBLIGATIONS OF PACIFIC CAPITAL.
The obligations of Pacific Capital under this Agreement are, at its
option, subject to fulfillment at or prior to the Effective Date of each of the
following conditions; provided, however, that any one or more of such conditions
may be waived by the Board of Directors of Pacific Capital at any time at or
prior to the Effective Time:
(a) Representations and Warranties. The representations and warranties
of South Valley in Section 4 hereof shall be true and correct in all material
respects on the date hereof and as of the Effective Date, with the same effect
as though such representations and warranties had been made on and as of such
date except as to any representation or warranty which specifically relates to a
specified date and does not contain any material inaccuracies or omissions the
circumstances as to which either individually or in the aggregate have, or
reasonably could be expected to have, a material adverse effect on the business,
financial condition, results of operations or prospects of South Valley and SVNB
taken as a whole.
(b) Compliance and Performance Under Agreement. South Valley shall have
performed and complied in all material respects with all terms of this Agreement
required to be performed or complied with by it at or prior to the Effective
Date. Each of the directors of South Valley also shall have performed and
complied in all material respects with all of the terms and conditions of the
undertaking referred to in Section 3.2(a) above.
(c) Material Adverse Change. Except as disclosed to Pacific Capital in
writing prior to the date hereof, no material adverse change shall have occurred
since December 31, 1995, in the business, financial condition, properties,
results of operations or prospects of South Valley and SVNB taken as a whole and
South Valley shall not be a party to or, so far as South Valley is aware,
threatened with, and to South Valley's knowledge there is no reasonable basis
for, any legal action or other proceeding before any court, any arbitrator of
any kind or any government agency if, in the reasonable judgment of Pacific
Capital, such legal action or proceeding could materially
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adversely affect South Valley and SVNB or their business, financial condition,
properties, results of operations or prospects taken as a whole.
(d) Approval of Agreement. This Agreement and the Merger shall have
been duly approved by the affirmative vote of the holders of a majority of the
outstanding shares of South Valley Common Stock at the meeting of shareholders
duly called and held after distributing the Proxy Statement to all shareholders
entitled to vote at such meeting as required by Section 3.2(a) hereof and by the
affirmative vote of the holders of a majority of the outstanding shares of
Pacific Capital Common Stock at the meeting of shareholders duly called and held
after distributing the Proxy Statement to all shareholders entitled to vote at
such meeting as required by Section 3.1(h) hereof.
(e) Officer's Certificate. Pacific Capital shall have received a
certificate, dated the Effective Date, signed on behalf of South Valley by its
Chief Executive Officer and by its Chief Financial Officer, to the effect that
the conditions in Sections 7(a)- (c) and as to the approval of the shareholders
of South Valley in Section 7(d) have been satisfied.
(f) Opinion of Counsel. The counsel of South Valley shall have
delivered to Pacific Capital an opinion in substantially the form attached
hereto as Exhibit F.
(g) Absence of Legal Impediment. No significant legal impediment to the
Merger shall have arisen and no litigation, proceeding or investigation shall be
pending or threatened before any court or government agency relating to the
transactions contemplated by this Agreement which affords a material basis for a
determination that it would be inadvisable or inexpedient to continue to carry
out the terms of, or to attempt to consummate the transactions contemplated by
this Agreement.
(h) Effectiveness of Registration Statement. The Registration Statement
and any amendments or supplements thereto shall have become effective under the
1933 Act, no stop order suspending the effectiveness of such Registration
Statement shall be in effect and no proceedings for such purpose shall have been
initiated or threatened by or before the Commission. 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.
(i) Government Approvals. All Government Approvals shall be in effect,
and all conditions or requirements prescribed by law or by any such Government
Approval shall have been satisfied; provided, however, that no Government
Approval shall be deemed to have been received if it shall require the
divestiture or cessation of any of the present businesses or operations
conducted by either of the parties hereto or shall impose any other condition or
requirement, which divestiture, cessation, condition or requirement Pacific
Capital in its reasonable judgment shall deem to be materially burdensome (in
which case Pacific Capital shall promptly notify South Valley). For purposes of
this Agreement no condition shall be deemed to be "materially burdensome" if
such condition does not materially differ from conditions regularly imposed by
the FRB in orders approving transactions of the type contemplated by this
Agreement and compliance with such condition would not (A) require the taking of
any action materially inconsistent with the manner in which Pacific Capital or
South Valley has conducted its business previously, (B) have a material adverse
effect upon the business, financial condition or results of operations of
Pacific Capital or South Valley, or (C) preclude satisfaction of any of the
material conditions to consummation of the transactions contemplated by this
Agreement.
(j) Tax Opinion. Pacific Capital and South Valley shall have received
an opinion of Pacific Capital's counsel or independent accountants, subject to
assumptions and exceptions normally included, in form and substance reasonably
satisfactory to Pacific Capital and its counsel, substantially to the effect
that under federal income tax law and California income and franchise tax law:
(i) The Merger will not result in any recognized gain or
loss to Pacific Capital or South Valley;
(ii) Except for any cash received in lieu of any fractional
share, no gain or loss will be recognized by holders of South Valley
Shares who receive Pacific Capital Shares in exchange for the South
Valley Shares which they hold;
(iii) The holding period of Pacific Capital Shares exchanged
for South Valley Shares will include the holding period of the South
Valley Shares for which it is exchanged, assuming the shares of South
Valley Shares are capital assets in the hands of the holder thereof at
the Effective Date; and
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(iv) The basis of the Pacific Capital Shares received in the
exchange will be the same as the basis of the South Valley Shares for
which it was exchanged, less any basis attributable to fractional
shares for which cash is received.
(k) Dissenting Shares. The aggregate number of shares of South Valley
Common Stock and Pacific Capital Common Stock held by persons who have taken all
of the steps required at or prior to the shareholders' meetings referenced in
Sections 3.2(a) and 3.1(h), respectively, to perfect their right (if any) to be
paid the value of such shares under the GCL shall not exceed 9% of the
outstanding shares of South Valley Common Stock and Pacific Capital Common
Stock.
(l) Unaudited Financials. Not later than three business days prior to
the Effective Date, South Valley shall have furnished Pacific Capital a copy of
its most recently prepared unaudited year-to-date consolidated financial
statements, including a balance sheet and year-to-date statement of income and
statement of cash flows of South Valley, each prepared in accordance with GAAP.
At least five business days prior to the Effective Time, all attorneys,
accountants, investment bankers and other advisors and agents for South Valley
shall have submitted to South Valley (with a copy to Pacific Capital) estimates
of their fees and expenses for all services rendered in any respect in
connection with the transactions contemplated hereby to the extent not already
paid, and based on such estimates, South Valley shall have prepared and
submitted to Pacific Capital a summary of such fees and expenses for the
transaction which shall be reflected in the foregoing financial statement. At
the Effective Time, (i) such advisors shall have submitted their final bills for
such fees and expenses to South Valley for services rendered, with a copy to be
delivered to Pacific Capital, and based on such summary, South Valley shall have
prepared and submitted to Pacific Capital a final calculation of such fees and
expenses, (ii) South Valley shall have accrued and paid the amount of such fees
and expenses as calculated above after Pacific Capital has been given an
opportunity to review all such bills and calculation of such fees and expenses,
and (iii) such advisors shall have released Pacific Capital from liability for
any fees and expenses.
(m) Closing Documents. Pacific Capital shall have received from South
Valley such certificates and other closing documents as counsel for Pacific
Capital shall reasonably request.
(n) Consents. South Valley shall have received, or Pacific Capital
shall have satisfied itself that South Valley will receive, all consents of
other parties to and required by material mortgages, notes, leases, franchises,
agreements, licenses and permits applicable to South Valley, in each case in
form and substance reasonably satisfactory to Pacific Capital, and no such
consent or license or permit shall have been withdrawn or suspended.
(o) Additions to SVNB Board of Directors. South Valley shall have taken
any actions necessary to have SVNB amend its Bylaws or to take any other actions
to increase the number of authorized directors on SVNB's board to permit the
appointment of three additional directors to be designated by Pacific Capital at
least five business days prior to the Closing Date.
(p) Pooling-of-Interests Accounting. Pacific Capital shall have
determined and shall have received a letter from KPMG to the effect that the
Merger shall qualify for the pooling-of-interests method of accounting in
accordance with GAAP and all applicable rules, regulations and policies of the
Commission. 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.
(q) Compliance Examinations. Prior to the Effective Date, South Valley
shall have taken corrective action, if any, recommended by or resulting from its
most recent compliance examinations and any significant regulatory compliance
violations shall have been corrected by South Valley prior to the Effective
Date.
(r) Regulatory Examination. Prior to the Effective Date, South Valley
shall be in compliance with all requirements, if any, arising from its most
recent safety and soundness regulatory examination.
(s) Accountant's Letter. Pacific Capital shall have received letters
addressed to Pacific Capital from Deloitte & Touche LLP pursuant to the
provisions of Section 3.2(f)(iv).
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8. CONDITIONS TO THE OBLIGATIONS OF SOUTH VALLEY.
The obligations of South Valley under this Agreement are, at its
option, subject to the fulfillment at or prior to the Effective Time of each of
the following conditions provided, however, that any one or more of such
conditions may be waived by the Board of Directors of South Valley at any time
at or prior to the Effective Time:
(a) Representations and Warranties. The representations and warranties
of Pacific Capital in Section 5 hereof shall be true and correct in all material
respects on the date hereof and as of the Effective Date, with the same effect
as though such representations and warranties had been made on and as of such
date except as to any representation or warranty which specifically relates to a
specified date and does not contain any material inaccuracies or omissions the
circumstances as to which either individually or in the aggregate have, or
reasonably could be expected to have, a material adverse effect on the business,
financial condition, results of operations or prospects of Pacific Capital and
FNB taken as a whole.
(b) Compliance and Performance Under Agreement. Pacific Capital and its
subsidiaries shall have performed and complied in all material respects with all
of the terms of this Agreement required to be performed or complied with by them
at or prior to the Effective Time. Each of the directors of Pacific Capital also
shall have performed and complied in all material respects with the terms and
conditions of the undertaking referred to in Section 3.1(h) above.
(c) Material Adverse Change. Except as disclosed to South Valley in
writing prior to the date hereof, no material adverse change shall have occurred
since December 31, 1995, in the business, financial condition, properties,
results of operations or prospects of Pacific Capital and FNB taken as a whole,
and Pacific Capital shall not be a party to or so far as Pacific Capital is
aware, threatened with, and to Pacific Capital's knowledge there is no
reasonable basis for, any legal action or other proceeding before any court, any
arbitrator of any kind or any government agency if in the reasonable judgment of
South Valley, such legal action or proceeding could materially adversely affect
Pacific Capital and FNB or its business, financial condition, properties,
results of operations or prospects taken as a whole.
(d) Approval of Agreement. This Agreement and the Merger shall have
been duly approved by the affirmative vote of the holders of a majority of the
outstanding shares of South Valley Common Stock at a meeting of shareholders
duly called and held after distributing the Proxy Statement to all shareholders
entitled to vote at such meeting as required by Section 3.2(a) hereof and by the
affirmative vote of the holders of a majority of the outstanding shares of
Pacific Capital Common Stock at the meeting of shareholders duly called and held
after distributing the Proxy Statement to all shareholders entitled to vote at
such meeting as required by Section 3.1(h) hereof.
(e) Officer's Certificate. South Valley shall have received a
certificate, dated the Effective Date, signed on behalf of Pacific Capital by
its President and Chief Executive Officer and Chief Financial Officer,
certifying to the fulfillment of the conditions stated in Sections 8(a)-(c) and
as to the approval of the Shareholders of Pacific Capital in Section 8(d)
hereof.
(f) Opinion of Counsel. The counsel of Pacific Capital shall have
delivered to South Valley an opinion in substantially the form attached hereto
as Exhibit G.
(g) Effectiveness of Registration Statement. The Registration Statement
and any amendments or supplements thereto shall have become effective under the
1933 Act. No stop order suspending the effectiveness of the Registration
Statement shall be in effect and no proceedings for such purpose shall have been
initiated or threatened by or before the Commission. 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.
(h) Government Approvals. The Government Approvals shall have been
received and shall be in effect, and all conditions or requirements prescribed
by law or by any such Government Approval shall have been satisfied.
(i) Tax Opinion. Pacific Capital and South Valley shall have received
the opinions referred to in Section 7(j) hereof which opinions shall meet the
requirements of such Section.
(j) Closing Documents. South Valley shall have received from Pacific
Capital such certificates and other closing documents as counsel for South
Valley shall reasonably request.
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(k) Absence of Legal Impediment. No significant legal impediment to the
Merger shall have arisen and no litigation, proceeding or investigation shall be
pending or threatened before any court or government agency relating to the
transactions contemplated by this Agreement which affords a material basis for a
determination that it would be inadvisable or inexpedient to continue to carry
out the terms of, or to attempt to consummate the transactions contemplated by
this Agreement.
(l) Fairness Opinions. The Board of Directors of South Valley shall
have received an opinion of Hoefer & Arnett, Incorporated dated the date of this
Agreement within three business days of the effective date of the Registration
Statement and if requested by South Valley, the Closing Date to the effect that
the terms of the Merger are fair, from a financial point of view, to South
Valley and its shareholders and such opinion shall not have been withdrawn prior
to the Effective Date.
(m) Pooling-of-Interests Accounting Treatment. South Valley shall have
determined and shall have received a letter from Deloitte & Touche LLP to the
effect that the Merger shall qualify for the pooling-of-interests method of
accounting in accordance with GAAP and all applicable rules, regulations and
policies of the Commission. 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.
(n) Additions to Pacific Capital Board of Directors. Pacific Capital
shall have amended its Bylaws or taken any other action necessary to increase
the number of authorized directors on its board to permit the appointment of
three additional directors to be designated by South Valley and acceptable to
Pacific Capital at least five business days prior to the Closing Date.
(o) Dissenting Shares. The aggregate number of shares of South Valley
Common Stock and Pacific Capital Common Stock held by persons who have taken all
of the steps required at or prior to the shareholders' meetings referenced in
Sections 3.2(a) and 3.1(h), respectively, to perfect their right (if any) to be
paid the value of such shares under the GCL shall not exceed 9% of the
outstanding shares of South Valley Common Stock and Pacific Capital Common
Stock.
(p) Nasdaq National Market Listing. Pacific Capital shall have obtained
designation of Pacific Capital Common Stock, including shares of Pacific Capital
Common Stock issued pursuant to this Agreement, as a Nasdaq National Market
security.
(q) Accountant's Letter. South Valley shall have received letters
addressed to South Valley from KPMG prepared pursuant to the provisions of
Section 3.1(d)(iv).
9. CLOSING.
(a) Closing Date. The closing (the "Closing") shall, unless another
date, time or place is agreed to in writing by Pacific Capital and South Valley,
be held at the offices of Graham & James, 1 Maritime Plaza, San Francisco,
California on the Effective Date. In no event shall the Closing be later than
sixty (60) days after the Effective Date.
(b) Delivery of Documents. At the Closing, the opinions, certificates
and other documents required to be delivered by this Agreement shall be
delivered.
(c) Filings. At the Closing, Pacific Capital and South Valley shall
instruct their respective representatives to make or confirm such filings as
shall be required in the opinion of counsel to Pacific Capital and South Valley
to give effect to the Merger.
10. EXPENSES.
Pacific Capital and South Valley hereto agree to pay, without right of
reimbursement from the other party and whether or not the transactions
contemplated by this Agreement or the Merger Agreement shall be consummated, the
costs incurred by each such party incident to the performance of its obligations
under this Agreement and the Merger Agreement, including without limitation,
costs incident to the preparation of this Agreement, the Registration Statement,
Prospectus and the Proxy Statement (including the audited financial statements
of the parties contained therein) and incident to the consummation of the Merger
and of the other transactions contemplated herein and in the Merger Agreement,
including the fees and disbursements of counsel, accountants, consultants and
financial advisers
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employed by such party in connection therewith. South Valley shall bear its own
costs of printing and distributing (including postage) the Proxy Statement to
its shareholders and other information relating to these transactions.
11. AMENDMENT; TERMINATION.
(a) Amendment. This Agreement and the Merger Agreement may be amended
by Pacific Capital and South Valley at any time prior to the Effective Time
without the approval of the shareholders of Pacific Capital and shareholders of
South Valley with respect to any of their terms except the terms relating to the
form or amount of consideration to be delivered to the South Valley shareholders
in the Merger.
(b) Termination. This Agreement and the Merger Agreement may be
terminated as follows:
(i) By the mutual consent of the Boards of Directors of both
Pacific Capital and South Valley at any time prior to the consummation
of the Merger.
(ii) By the Board of Directors of Pacific Capital on or
after December 31, 1996, if (A) any of the conditions in Section 7 to
which the obligations of Pacific Capital are subject have not been
fulfilled, or (B) such conditions have been fulfilled or waived by
Pacific Capital and South Valley shall have failed to complete the
Merger.
(iii) By the Board of Directors of Pacific Capital if (A)
after the date of South Valley's Disclosure Statement, Pacific Capital
has become aware of any facts or circumstances of which it was not
previously aware and which materially adversely affect South Valley and
SVNB or their respective business, properties, results of operations,
financial condition or prospects (taken as a whole), (B) a material
adverse change shall have occurred since December 31, 1995, in the
business, properties, financial condition, results of operations or
prospects of South Valley and SVNB taken as a whole, (C) there has been
a material breach (including any material anticipatory breach) on the
part of South Valley of its obligations under this Agreement, or any
material breach (including any material anticipatory breach) of any
covenants or conditions contained in this Agreement which, in either
event, has not been cured as provided in Section 11(d), or (D) the
provisions of Section 3.2(j)(iv) become operable.
(iv) By the Board of Directors of South Valley on or after
December 31, 1996, if (A) any of the conditions contained in Section 8
to which the obligations of South Valley are subject have not been
fulfilled, or (B) such conditions have been fulfilled or waived but
Pacific Capital shall have failed to complete the Merger; provided,
however, that if Pacific Capital is engaged at the time in litigation
(including an administrative appeal procedure) relating to an attempt
to obtain one or more of the Governmental Approvals or if Pacific
Capital shall be contesting in good faith any litigation which seeks to
prevent consummation of the transactions contemplated hereby, such
nonfulfillment shall not give South Valley the right to terminate this
Agreement until the earlier of (A) eight (8) months after the date of
this Agreement and (B) sixty (60) days after the completion of such
litigation and of any further regulatory or judicial action pursuant
thereto including any further action by a governmental agency as a
result of any judicial remand, order or directive or otherwise or any
waiting period with respect thereto.
(v) By the Board of Directors of South Valley if (A) after
the date of Pacific Capital's Disclosure Statement South Valley has
become aware of any facts or circumstances of which it was previously
not aware and which materially adversely affect Pacific Capital and FNB
or their respective business, properties, results of operations,
financial condition or prospects (taken as a whole), (B) a material
adverse change shall have occurred since December 31, 1995 in the
business, properties, financial condition, results of operations or
prospects of Pacific Capital and FNB taken as a whole, (C) there has
been a material breach (including any material anticipatory breach) on
the part of Pacific Capital of its obligations under this Agreement or
any material breach (including any material anticipatory breach) of any
conditions or covenants contained in this Agreement, which, in either
event, has not been cured as provided in Section 11(d), (D) Pacific
Capital fails to comply with the provisions of Section 3.1(f) or (E)
South Valley fails to accept the Exchange Ratio or the parties fail to
renegotiate the Exchange Ratio as provided in Section 2.1(c)(1).
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(c) Notice. The power of termination hereunder may be exercised by
Pacific Capital or South Valley, as the case may be, only by giving written
notice, signed on behalf of such party by its Chairman of the Board or
President, to the other party.
(d) Breach of Obligations. If there has been a material breach by
either party of the representations, covenants, agreements or other obligations
contained herein which shall not have been cured within twenty (20) business
days after written notice thereof has been given to the defaulting party, the
nondefaulting party shall have the right to terminate this Agreement upon
written notice to the other party. In any event, the nondefaulting party shall
have no obligation to consummate any transaction or take any further steps
toward such consummation contemplated hereunder until such breach is cured.
(e) Termination and Expenses. Termination of this Agreement shall not
terminate or affect the obligations of the parties to pay expenses as provided
in Section 10, to maintain the confidentiality of the other party's information
pursuant to Section 3.3, or the provisions of this Section 11(e) or of Sections
12(a), (d) or (e) or the second sentence of Section 12(b) below and shall not
affect any agreement after such termination. If this Agreement shall be
terminated by Pacific Capital pursuant to Section 11(b)(iii)(D), or if a
Business Combination involving South Valley occurs within twelve (12) months
following termination of this Agreement pursuant to Section 11(b) as a result of
the interference of a third party or group who thereafter attempts to acquire
South Valley, South Valley shall pay to Pacific Capital, on demand, the sum of
$1,000,000. If this Agreement shall be terminated by South Valley pursuant to
Section 11(b)(v)(D) or if Pacific Capital terminates this Agreement
notwithstanding the fact that all terms and conditions of this Agreement have
been satisfied by South Valley and no event has occurred which provides Pacific
Capital the right under this Agreement to terminate the Agreement, Pacific
Capital shall pay to South Valley, on demand, the sum of $1,000,000. Any payment
required pursuant to this Section 11(e) shall be paid no more than two business
days after demand by the party entitled to make such demand by wire transfer of
immediately available federal funds. Except as otherwise provided in this
Agreement South Valley and Pacific Capital agree that any termination of this
Agreement shall not in any manner release or be construed as so releasing either
party from any liability or damage to the other party or parties arising out of,
in connection with or otherwise relating to, directly or indirectly, such
parties' failure in performance of any of its covenants or agreements hereunder.
12. MISCELLANEOUS.
(a) Notices. Any notice or other communication required or permitted
under this Agreement shall be effective only if it is in writing and delivered
personally, or by overnight express or by facsimile or sent by first class
United States mail, postage prepaid, registered or certified mail, addressed as
follows:
To Pacific Capital: To South Valley:
D. Vernon Horton, Chairman Roger Knopf, Chairman
Pacific Capital Bancorp Brad L. Smith, President &
1001 South Main Street Chief Executive Officer
Salinas, California 93902-1786 South Valley Bancorporation
8000 Santa Teresa Boulevard
Clayton C. Larson, President Gilroy, California 95020
Pacific Capital Bancorp
495 Washington Street
P.O. Box 2718
Monterey, California 93942
With a copy to: With a copy to:
James E. Topinka, Esq. Glenn T. Dodd, Esq.
Graham & James LLP Bronson, Bronson & McKinnon LLP
One Maritime Plaza, Suite 300 10 Almaden Boulevard, Suite 600
San Francisco, California 94111 San Jose, CA 95113-2237
or to such other address as either party may designate by notice to the other,
and shall be deemed to have been given upon receipt.
(b) Binding Agreement. This Agreement is binding upon and is for the
benefit of Pacific Capital and South Valley and their respective successors and
permitted assigns. This Agreement is not made for the benefit of any person,
firm, corporation or association not a party hereto (except as provided in
Section 3.1(g)), and no other person, firm, corporation or association shall
acquire or have any right under or by virtue of this Agreement. No
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party may assign this Agreement or any of its rights, privileges, duties or
obligations hereunder without the prior written consent of the other party to
this Agreement.
(c) Governing Law. This Agreement shall be governed by and construed in
accordance with the substantive laws of the State of California.
(d) Attorneys' Fees. In any action at law or suit in equity in relation
to this Agreement, the prevailing party in such action or suit shall be entitled
to receive a reasonable sum for its attorneys' fees and all other reasonable
costs and expenses incurred in such action or suit.
(e) Entire Agreement; Severability. This Agreement and the documents,
certificates, agreements, letters, schedules and exhibits attached or required
to be delivered pursuant hereto set forth the entire agreement and understanding
of the parties in respect of the transactions contemplated hereby, and supersede
all prior agreements, arrangements and understandings relating to the subject
matter hereof. Each provision of this Agreement shall be interpreted in a manner
to be effective and valid under applicable law, but if any provision hereof
shall be prohibited or ruled invalid under applicable law, the validity,
legality and enforceability of the remaining provisions shall not, except as
otherwise required by law, be affected or impaired as a result of such
prohibition or ruling.
(f) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(g) Waivers. Prior to or at the Effective Time, each of Pacific Capital
and South Valley shall have the right to waive any default in the performance of
any term of this Agreement by the other, to waive or extend the time for the
compliance or fulfillment by the other of any and all of the other's obligations
under this Agreement and to waive any or all of the conditions precedent to its
obligations under this Agreement, except any condition which, if not satisfied,
would result in the violation of any law or applicable governmental regulation.
No failure to exercise and no delay in exercising any right, remedy or power
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy or power hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy or power provided
herein or by law or in equity. The waiver by any party of the time for
performance of any act or condition hereunder does not constitute a waiver of
the act or condition itself. Any requests for waivers or waivers granted
pursuant to this Section 12(g) shall be in accordance with the provisions of
Section 12(a) hereof.
(h) No Survival of Representations and Warranties. The representations
and warranties of the parties to this Agreement shall terminate on the Closing.
(i) Knowledge. Wherever the term "to the best knowledge" or similar
terms are used in this Agreement in connection with a party's representations or
warranties, it shall mean actual knowledge after due inquiry of a party's
executive officers.
Pacific Capital and South Valley have each caused this Agreement and
Plan of Reorganization to be signed by its authorized officer and attested by
the signature of its Secretary all as of the day and year first written above.
ATTEST: PACIFIC CAPITAL BANCORP
/s/ James L. Gattis /s/ Clayton C. Larson
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Secretary Clayton C. Larson,
President and Chief Administrative Officer
ATTEST: SOUTH VALLEY BANCORPORATION
/s/ Sandra L. Ogle /s/ Brad L. Smith
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Secretary Brad L. Smith,
President and Chief Executive Officer
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ANNEX B
FAIRNESS OPINION
July 18, 1996
Members of the Board of Directors
South Valley Bancorporation
500 Tennant Station
Morgan Hill, CA 95037
Members of the Board:
You have requested our opinion as investment bankers as to the fairness, from a
financial point of view, to the shareholders of South Valley Bancorporation
("South Valley") of the Exchange Ratio, as defined in the Agreement and Plan of
Reorganization, dated as of July 19, 1996 (the "Agreement"), in the proposed
merger (the "Merger") of South Valley with and into Pacific Capital Corporation
("Pacific Capital"), pursuant to the Agreement and subject to the terms and
conditions therein, each holder of common stock of South Valley will receive, in
exchange for common stock of South Valley, Pacific Capital common stock in the
ratio of 0.92 shares of Pacific Capital common stock for each share of South
Valley common stock subject certain adjustments as described in the Agreement.
We have acted for South Valley and for the Board of Directors as financial
advisor in connection with this transaction and will receive a fee for our
services. We have not previously provided investment banking and financial
advisory services to South Valley or Pacific Capital. We currently are a market
maker in South Valley and Pacific Capital Common Shares.
In arriving at our opinion, we have reviewed and analyzed, among other things,
the following: (i) the Agreement; (ii) Annual Reports to Shareholders and Annual
Reports on Form 10-K of South Valley and Pacific Capital for the year ended
December 31, 1995; (iii) Quarterly Reports on Form 10-Q of Pacific Capital and
quarterly FDIC Call reports for South Valley and Pacific Capital for the
quarters ended March 31, 1996 and June 30, 1996; (iv) certain other publicly
available financial and other information concerning South Valley and Pacific
Capital and the trading markets for the publicly traded securities of South
Valley and Pacific Capital; (v) publicly available information concerning other
banks and holding companies, the trading markets for their securities and the
nature and terms of certain other merger transactions we believe relevant to our
inquiry; and (vi) evaluations and analyses prepared and presented to the Board
of Directors of South Valley or a committee thereof in connection with this
business combination with Pacific Capital. We have held discussions with senior
management of South Valley and of Pacific Capital concerning their past and
current operations, financial condition and prospects, as well as the results of
regulatory examinations.
We have reviewed with senior management of South Valley earnings projections for
1996 for South Valley as a stand-alone entity, assuming the Merger does not
occur, prepared by South Valley. We reviewed with the senior management of
Pacific Capital earnings projections for 1996 for Pacific Capital as a
stand-alone entity, assuming the Merger does not occur prepared by Pacific
Capital, as well as projected operating cost savings expected to be achieved in
the years 1997 through 2000 resulting from the Merger. We have also reviewed
with the managements of South Valley and Pacific Capital earnings growth
assumptions for the years 1997 through 2000 for their respective companies.
Certain pro forma financial projections for the years 1996 through 2000 for the
combined entity were derived by us based upon the
<PAGE>
South Valley Bancorporation
July 18, 1996
Page 2
projections and growth assumptions discussed above, as well as our own
assessment of general economic, market and financial conditions. In certain
cases, such combined pro forma financial projections included projected
operating cost savings derived by us based upon the projections discussed above
and believed by us to be realizable in the Merger.
In conducting our review and in arriving at our opinion, we have relied upon and
assumed the accuracy and completeness of the financial and other information
provided to us or publicly available, and we have not assumed any responsibility
for independent verification of the same. We have relied upon the managements of
South Valley and Pacific Capital as to the reasonableness of the financial and
operating forecasts, projections and projected operating cost savings (and the
assumptions and bases therefor) provided to us, and we have assumed that such
forecasts, projections and projected operating cost savings reflect the best
currently available estimates and judgments of the applicable managements. We
have also assumed, without assuming any responsibility for the independent
verification of same, that the aggregate allowances for loan losses for South
Valley and Pacific Capital are adequate to cover such losses. We have not made
or obtained any evaluations or appraisals of the property of South Valley or
Pacific Capital, nor have we examined any individual loan credit files. For
purposes of this opinion, we have assumed that the Merger will have the tax,
accounting and legal effects (including, without limitation, that the Merger
will be accounted for as a pooling-of-interest) described in the Agreement and
assumed the accuracy of the disclosures set forth in the Agreement. Our opinion
as expressed herein is limited to the fairness, from a financial point of view,
to the holders of the Common Shares of South Valley of the Exchange Ratio in the
Merger and does not address South Valley's underlying business decision to
proceed with the Merger.
We have considered such financial and other factors as we have deemed
appropriate under the circumstances, including among others the following: (i)
the historical and current financial position and results of operations of South
Valley and Pacific Capital, including interest income, interest expense, net
interest income, net interest margin, provision for loan losses, non-interest
income, non-interest expense, earnings, dividends, internal capital generation,
book value, intangible assets, return on assets, return on shareholders' equity,
capitalization, the amount and type of non-performing assets, loan losses and
the reserve for loan losses, all as set forth in the financial statements for
South Valley and for Pacific Capital; (ii) the assets and liabilities of South
Valley and Pacific Capital, including the loan, investment and mortgage
portfolios, deposits, other liabilities, historical and current liability
sources and costs and liquidity; and (iii) the nature and terms of certain other
merger transactions involving banks and bank holding companies. We have also
taken into account our assessment of general economic, market and financial
conditions and our experience in other transactions, as well as our experience
in securities valuation and our knowledge of the banking industry generally. Our
opinion is necessarily based upon conditions as they exist and can be evaluated
on the date hereof and the information made available to us through the date
hereof.
<PAGE>
South Valley Bancorporation
July 18, 1996
Page 3
It is understood that this letter is for the information of the Board of
Directors of South Valley only and may not be relied upon by any other person or
used for any other purpose without our prior written consent. This letter does
not constitute a recommendation to the Board of Directors or to any shareholder
of South Valley with respect to any approval of the Merger.
Based upon and subject to the foregoing, we are of the opinion as investment
bankers that, as of the date hereof, the Exchange Ratio in the Merger is fair,
from a financial point of view, to the holders of the Common Shares of South
Valley.
Very truly yours,
HOEFER & ARNETT INCORPORATED
<PAGE>
ANNEX C
CALIFORNIA GENERAL CORPORATION LAW
SS. 1300. REORGANIZATION OR SHORT-FORM MERGER; DISSENTING SHARES; CORPORATE
PURCHASE AT FAIR MARKET VALUE; DEFINITIONS
(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.
1.
<PAGE>
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
SS. 1301. NOTICE TO HOLDERS OF DISSENTING SHARES IN REORGANIZATIONS; DEMAND FOR
PURCHASE; TIME; CONTENTS
(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 1300, 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.
(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.
SS. 1302. SUBMISSION OF SHARE CERTIFICATES FOR ENDORSEMENT; UNCERTIFICATED
SECURITIES
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
2.
<PAGE>
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.
SS. 1303. PAYMENT OF AGREED PRICE WITH INTEREST; AGREEMENT FIXING FAIR MARKET
VALUE; FILING; 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.
SS. 1304. ACTION TO DETERMINE WHETHER SHARES ARE DISSENTING SHARES OR FAIR
MARKET VALUE; LIMITATION; JOINDER; CONSOLIDATION; DETERMINATION OF ISSUES;
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.
3.
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SS. 1305. REPORT OF APPRAISERS; CONFIRMATION; DETERMINATION BY COURT; JUDGMENT;
PAYMENT; APPEAL; COSTS
(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).
SS. 1306. PREVENTION OF IMMEDIATE PAYMENT; STATUS AS CREDITORS; INTEREST
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.
4.
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SS. 1307. DIVIDENDS ON DISSENTING SHARES
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.
SS. 1308. RIGHTS OF DISSENTING SHAREHOLDERS PENDING VALUATION; WITHDRAWAL OF
DEMAND FOR PAYMENT
Except as expressly limited in this chapter, holders of dissenting
shares continue to have an 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.
SS. 1309. TERMINATION OF DISSENTING SHARE AND SHAREHOLDER 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
enforcement in accordance with Section 1302 or are surrendered for conversion
into shares of another class in accordance with the articles.
(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.
SS. 1310. SUSPENSION OF RIGHT TO COMPENSATION OR VALUATION PROCEEDINGS;
LITIGATION OF SHAREHOLDERS' APPROVAL
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.
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SS. 1311. EXEMPT 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.
SS. 1312. RIGHT OF DISSENTING SHAREHOLDER TO ATTACK, SET ASIDE OR RESCIND MERGER
OR REORGANIZATION; RESTRAINING ORDER OR INJUNCTION; CONDITIONS
(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.
6.
