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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
MARK ONE
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1997
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
COMMISSION FILE NUMBER 0-25034
GREATER BAY BANCORP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
CALIFORNIA 77-0387041
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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2860 WEST BAYSHORE ROAD, PALO ALTO, CALIFORNIA 94303
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (650) 813-8200
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, NO PAR VALUE
9.75% CUMULATIVE TRUST PREFERRED SECURITIES OF GBB CAPITAL I
GUARANTEE OF GREATER BAY BANCORP WITH RESPECT TO THE
9.75% CUMULATIVE TRUST PREFERRED SECURITIES OF GBB CAPITAL I
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the Common Stock held by non-affiliates, based
upon the closing sale price of the Common Stock on March 16, 1998, as reported
on the Nasdaq National Market System, was approximately $191,441,000. Shares
of Common Stock held by each officer, director and holder of 5% or more of the
outstanding Common Stock have been excluded in that such persons may be deemed
to be affiliates. Such determination of affiliate status is not necessarily a
conclusive determination for other purposes.
As of March 16, 1998, 4,071,082 shares of the Registrant's Common Stock were
outstanding.
DOCUMENT INCORPORATED BY REFERENCE: PART OF FORM 10K INTO WHICH
INCORPORATED:
(1) Annual Report to Shareholders
for the fiscal year ended December 31, Part II
1997.
Part III
(2) Definitive Proxy statement for
Annual Meeting of Shareholders to be
filed within 120 days of the fiscal
year ended December 31, 1997.
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PART I
Discussions of certain matters contained in this Annual Report on Form 10-K
may constitute forward-looking statements within the meaning of the Section
27A of the Securities and Exchange Act, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, (the "Exchange Act") and as such,
may involve risks and uncertainties. These forward-looking statements relate
to, among other things, expectations of the business environment in which
Greater Bay Bancorp (referred to as the "Company" when such reference includes
Greater Bay Bancorp and its subsidiaries, collectively, "Greater Bay" when
referring only to the parent company and "the Banks" when referring only to
Greater Bay's banking subsidiaries, Cupertino National Bank, Mid-Peninsula
Bank and Peninsula Bank of Commerce) operates, projections of future
performance, perceived opportunities in the market and statements regarding
the Company's mission and vision. The Company's actual results, performance
and achievements may differ materially from the results, performance and
achievements expressed or implied in such forward-looking statements. For a
discussion of some of the factors that might cause such a difference, see
"Item 1. Business--Summary of Business Considerations and Certain Factors That
May Affect Future Results of Operations and/or Stock Price."
ITEM 1. BUSINESS.
GREATER BAY
Greater Bay is a bank holding company operating Cupertino National Bank
("CNB"), Mid-Peninsula Bank ("MPB") and Peninsula Bank of Commerce ("PBC")
with nine regional offices in Cupertino, Millbrae, Palo Alto, Redwood City,
San Bruno, San Mateo, and San Jose, California. At December 31, 1997, the
Company had total assets of $1,092.4 million, total net loans of $660.6
million and total deposits of $973.4 million.
HISTORY
Greater Bay Bancorp is the result of the merger (the "1996 Merger"),
effective November 27, 1996, of Cupertino National Bancorp ("Cupertino") and
Mid-Peninsula Bancorp ("Mid-Peninsula").Cupertino was formed in 1984 as the
holding company for CNB, a national banking association which began operating
in 1985. Mid-Peninsula was formed in 1984 under the name San Mateo County
Bancorp ("San Mateo") as the bank holding company of San Mateo County National
Bank, which subsequently changed its name to WestCal National Bank ("WestCal")
in 1991. In 1994, WestCal was merged into MPB, a California state chartered
bank organized in 1987, and San Mateo concurrently changed its name to Mid-
Peninsula Bancorp. On December 23, 1997, the Company completed a merger with
PBC (the "PBC Merger"), whereby PBC became a wholly owned subsidiary of
Greater Bay. PBC was formed in 1981, as a California state chartered bank.
Both of the mergers were accounted for as pooling-of-interests business
combinations and, accordingly, all financial data for the periods prior to the
mergers have been restated to include the results of the acquired entities.
The creation of the Company was undertaken with the intention of achieving
seven primary goals. These goals included (i) developing a greater banking
presence throughout the San Francisco Bay Area by increasing the number of
banking offices available to clients; (ii) reaching a critical mass in the
Company's market areas in order to better meet competitive challenges inherent
in the banking and financial services industries; (iii) enabling the resulting
Company to maximize the utilization of capital by increasing the float and
marketability of its common stock and, by virtue of its larger size, obtaining
access to a lower cost of capital; (iv) providing an opportunity to realize
operating efficiencies made available by the combination of the Banks; (v) the
ability to generate increased loan and fee income from the Banks' clients as a
result of the higher lending limits available to the combined entity; (vi) the
ability to leverage marketing expense and thereby improve the return on the
combined entity's marketing investment; and (vii) enabling the Banks to cross-
sell services.
SUPER COMMUNITY BANKING PHILOSOPHY
In order to meet the demands of the increasingly competitive banking and
financial services industries, management has adopted a business philosophy
referred to as the "Super Community Banking Philosophy."
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The Super Community Banking Philosophy is based on management's belief that
banking customers value doing business with locally managed institutions that
can provide a full service commercial banking relationship through an
understanding of the customer's financial needs and the flexibility to
customize products and services to meet those needs. Management further
believes that banks are better able to build successful customer relationships
by affiliating with a holding company that provides cost effective
administrative support services while promoting bank autonomy and flexibility.
To implement this philosophy, Greater Bay operates CNB, MPB and PBC as
separate subsidiaries by retaining their independent names along with their
individual Boards of Directors. The Banks have established strong reputations
and customer followings in their respective market areas through attention to
client service and an understanding of client needs. In an effort to
capitalize on the identities and reputations of the Banks, the Company will
continue to market its services under the CNB, MPB and PBC names, primarily
through each Bank's relationship managers. The primary focus for the Banks'
relationship managers is to cultivate and nurture their client relationships.
Relationship managers are assigned to each borrowing client to provide
continuity in the relationship. This emphasis on personalized relationships
requires that all of the relationship managers maintain close ties to the
communities in which they serve, so they are able to capitalize on their
efforts through expanded business opportunities for the Banks.
While client service decisions and day-to-day operations are maintained at
the Banks, Greater Bay offers the advantages of affiliation with a multi-bank
holding company by providing improved access to the capital markets and
expanded client support services, such as business cash management,
international trade services and accounting services. In addition, Greater Bay
provides centralized administrative functions, including support in credit
policy formulation and review, investment management, data processing,
accounting and other specialized support functions thereby allowing the Banks
to focus on client service.
CORPORATE GROWTH STRATEGY
The Company's goal is to become the preeminent financial services company
based in the San Francisco Bay Area markets. The Company's business strategy
is to focus on increasing its market share within the communities it serves
through continued internal growth. The Company also will pursue opportunities
to expand its market share through select acquisitions that management
believes complement the Company's businesses. Management will consider
acquisitions which would expand its presence in its current market areas of
San Francisco, Santa Clara and San Mateo Counties, and pursue opportunities to
expand its market through acquisitions in other parts of the Bay Area.
RECENT EVENTS
On February 24, 1998 the Company and Pacific Rim Bancorporation ("PRB"), the
holding company of Golden Gate Bank, a California state chartered bank
("Golden"), signed a definitive agreement for a merger between the two
companies. The terms of the agreement provide for PRB shareholders to receive
approximately 545,000 shares of Greater Bay Bancorp stock subject to certain
adjustments based on movements in the Company's stock price, in a tax-free
exchange to be accounted for as a pooling-of-interests. Following the
transaction, the shareholders of PRB will own approximately 12% of the
combined company. The transaction is expected to be completed late in the
second quarter of 1998 or early in the third quarter of 1998, subject to
regulatory approvals. As of December 31, 1997 Golden had $107.3 million in
assets, $98.4 million in deposits, and $8.6 million in shareholders' equity.
Golden's office is located in the San Francisco financial district. The
combined Company, on a pro-forma basis would have had total assets of
approximately $1,199.7 million and equity of over $76 million.
The transaction is anticipated to be accretive to the Company's core
earnings in 1998 based on reductions in operating expenses and revenue
enhancements resulting from an expanded product line, increased lending
capacity and an increased market awareness that can be utilized by Golden.
Management of each of the organizations believe that significant opportunities
exist to enhance the spectrum of financial services offered to both existing
and future clients of Golden while also increasing market penetration in the
San Francisco Peninsula market areas.
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THE BANKS
Cupertino National Bank
CNB presently has four banking offices. At December 31, 1997, CNB had total
assets of $471.2 million, total net loans of $345.9 million and total deposits
of $423.5 million.
Mid-Peninsula Bank
MPB presently has three banking offices. At December 31, 1997, MPB had total
assets of $402.5 million, total net loans of $243.2 million and total deposits
of $359.1 million.
Peninsula Bank of Commerce
PBC presently has two banking offices. At December 31, 1997, PBC had total
assets of $210.9 million, total net loans of $71.6 million and total deposits
of $193.9 million. PBC holds $88.1 million from a single depositor (the
Special Deposit). The Special Deposit represents the settlement fund for a
class action lawsuit not involving the Company. Due to the uncertainty of the
time the Special Deposit will remain with PBC, management has invested the
proceeds from this deposit in agency securities with maturities of less than
90 days.
Banking Services
Through their networks of regional offices, the Banks provide a wide range
of commercial banking services to small and medium-sized businesses, real
estate developers and property managers, business executives, professionals
and other individuals. In addition, the Company's trust division, Greater Bay
Trust Company, provides trust services to support the trust needs of the
Banks' clients.
The Banks offer a wide range of deposit products. These include the normal
range of personal and business checking and savings accounts, time deposits
and individual retirement accounts. The Banks also offer a wide range of
specialized services designed to attract and service the needs of customers
and include cash management and international trade services for business
clients, traveler's checks, safe deposit and MasterCard and Visa merchant
deposits services.
The Banks also engage in the full complement of lending activities,
including commercial, real estate and consumer loans. The Banks provide
commercial loans for working capital and business expansion to small and
medium-sized businesses with annual revenues generally in the range of $1.0
million to $50.0 million. The Banks' commercial clients are drawn from a wide
variety of manufacturing, wholesale and service businesses. The Banks provide
interim real estate loans primarily for construction in the Banks' primary
service areas of single-family residences, which typically range between
approximately $500,000 and $1.0 million, and multi-unit projects, which
typically range between approximately $1.5 million and $4.0 million. The Banks
provide medium term commercial real estate loans or credits for the financing
of commercial or industrial buildings where the properties are either used by
the owner for business purposes or have income derived from tenants, which
typically range between approximately $750,000 and $3.0 million. Loans to
professionals and other individual clients cover a full range of consumer
services, such as automobile, aircraft, home improvement and home equity
loans, and other secured and unsecured lines of credit, including credit
cards.
Through the Company's Small Business Administration ("SBA") Department,
loans are made to smaller businesses and are generally 65% to 80% guaranteed
by the SBA. In 1994, CNB was named a Preferred Lender by the SBA. Preferred
Lender status is awarded by the SBA to lenders who have demonstrated superior
ability to generate, underwrite and service loans guaranteed by the SBA, and
results in more rapid turnaround of loan applications submitted to the SBA for
approval.
The Company's Venture Banking Group serves the needs of companies in their
start-up and development phase. This unit meets the needs of such clients in
the Company's service area by allowing them to access a
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banking relationship early in their development. The loans to this target
group of clients are generally secured by the accounts receivable, inventory
and equipment of the companies. The financial strength of these companies also
tends to be bolstered by the presence of venture capital investors among their
shareholders.
MARKET AREA
The Banks concentrate on marketing their services to small and medium-sized
businesses, professionals and individuals in Santa Clara, San Francisco and
San Mateo Counties. CNB's primary base of operations is in Cupertino,
California, which is in the center of the geographical area referred to as
"Silicon Valley", and CNB's operations extend throughout Santa Clara County.
Santa Clara County has a population of approximately 1,650,000 and its median
annual household income exceeds $77,000. MPB's primary base of operations is
centered in Palo Alto, California and extends north through San Mateo County.
San Mateo County has a population of approximately 700,000, and its median
annual household income is nearly $78,000. PBC's primary base of operations is
centered in Millbrae, California, includes northern San Mateo County and
extends into San Francisco County. San Francisco County has a population in
excess of 760,000, with a mean annual household income exceeding $59,000.
The commercial base of Santa Clara and San Mateo Counties is diverse and
includes computer and semiconductor manufacturing, professional services,
biotechnology, printing and publishing, aerospace, defense and real estate
construction, as well as wholesale and retail trade. As a result of its
geographic concentration, the Company's results depend largely upon economic
conditions in these areas. While the economy in the Company's market areas
have exhibited positive economic and employment trends, there is no assurance
that such trends will continue. A deterioration in economic conditions could
have material adverse impact on the quality of the Company's loan portfolio
and the demand for its product and services, and accordingly its results of
operations. See "Item 1. Business--Summary of Business Considerations and
Certain Factors That May Affect Future Results of Operations and/or Stock
Price."
LENDING ACTIVITIES
Underwriting and Credit Administration
The lending activities of each of the Banks is guided by the basic lending
policies established by its Board of Directors. Each loan must meet minimum
underwriting criteria established in the Bank's lending policy. Lending
authority is granted to officers of each Bank on a limited basis. Loan
requests exceeding individual officer approval limits are approved by the
Officers Loan Committees of the respective Banks. Loan requests exceeding
these limits are submitted to the Greater Bay Officers Loan Committee, which
consists of the President and Chief Executive Officer of Greater Bay, the
Executive Vice President and Chief Lending Officer of Greater Bay, the
Executive Vice President and Chief Credit Officer of MPB and the Senior Vice
President and Chief Credit Officer of Greater Bay. Loan requests which exceed
the limits of the Greater Bay Officers Loan Committee are submitted to the
Directors Loan Committee for final approval. The Directors Loan Committee
consists of four outside directors. Each of these committees meet on a regular
basis in order to provide timely responses to the Banks' clients.
The Company's credit administration function includes an internal review and
the regular use of an outside loan review firm. In addition, the Greater Bay
Officers Loan Committee and Chief Financial Officer review information at
least once a month related to delinquencies, nonperforming assets, classified
assets and other pertinent information to evaluate credit risk within each
Bank's loan portfolio and to recommend general reserve percentages and
specific reserve allocations. The information reviewed by this committee is
submitted to the Boards of Directors of the Company on a monthly basis.
Loan Portfolio
Approximately 47.8% of the Company's gross loan portfolio was in commercial
loans at December 31, 1997, and real estate construction and land loans
represented approximately 16.2% of total loans, primarily for
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residential projects. In addition, 26.5% of the Company's loans were real
estate term loans, which are primarily secured by commercial properties. The
balance of the portfolio consists of consumer loans.
The interest rates charged for the loans made by the Banks vary with the
degree of risk, size and maturity of the loans. Rates are generally affected
by competition, associated factors stemming from the client's deposit
relationship with the Bank and the Banks' cost of funds.
Commercial Loans. In their commercial lending activities, the Banks provide
personalized financial services to the diverse commercial and professional
businesses in their market areas. Commercial loans, including those made by
the Venture Banking Group, consist primarily of short-term loans (normally
with a maturity of under one year) for working capital and business expansion.
Commercial loans typically include revolving lines of credit collateralized by
inventory, accounts receivable and equipment. Emphasis is placed on the
borrower's earnings history, capitalization, secondary sources of repayment,
and in some instances, third party guarantees or highly liquid collateral
(such as time deposits and investment securities). Commercial loan pricing is
generally at a rate tied to the prime rate (as quoted in the Wall Street
Journal) or the Banks' reference rates.
The Venture Banking Group serves the needs of companies in their start-up
and development phase. Typical clients include technology companies, ranging
from multimedia, software and telecommunications providers to bio-technology
and medical device firms. The Venture Banking Group provides innovative
lending products and other financial services, tailored to the needs of start-
up and growth-stage companies. Borrowings are generally secured by minimum
cash balances, accounts receivable, intellectual property rights, inventory
and equipment of the companies. Because these companies are in the start-up or
development phase, many of them will not generate any revenues for several
years. The Company often receives warrants from these companies as part of the
compensation for its services.
The Company participates in many SBA programs and, through CNB, is a
"preferred lender." Preferred lender status is granted to a lender which has
made a certain number of SBA loans and which, in the opinion of the SBA, has
qualified staff who are experienced in SBA lending. The Company utilizes both
the 504 program, which is focused toward longer-term financing of buildings,
and other long-term assets, and the 7A program which is primarily used for
financing of the equipment, inventory and working capital needs of eligible
businesses generally over a three- to seven-year term. As a preferred lender,
the Company has the authority to authorize, on behalf of the SBA, the SBA
guaranty on loans under the 7A program. This can represent a substantial
savings in serving a customer's needs. The Company's collateral position in
the SBA loans is enhanced by the SBA guaranty in the case of 7A loans, and by
lower loan-to-value ratios under the 504 program. The Company generally sells
the guaranteed portion of its SBA loans in the secondary market.
Real Estate Construction and Land Loans. The Banks' real estate construction
loan activity has focused on providing short-term (generally less than one
year maturity) loans to individuals and developers with whom the Banks have
established relationships for the construction primarily of single family
residences in the Banks' market areas. Prior to 1994, the Banks concentrated
their construction loan activity on owner-occupied custom residences. During
1994, as real estate values began to stabilize, the Banks also entered the
construction loan market for multi-unit single family residential projects.
Subsequently, the Banks continued to expand their real estate construction
portfolio with the help of the improving real estate market in Northern
California.
Residential real estate construction loans are typically secured by first
deeds of trust and require guarantees of the borrower. The economic viability
of the project and the borrower's credit-worthiness are primary considerations
in the loan underwriting decision. Generally, these loans provide an
attractive yield, but may carry a higher than normal risk of loss or
delinquency, particularly if general real estate values decline. The Banks
utilize approved independent local appraisers and loan-to-value ratios which
generally do not exceed 65% to 75% of the appraised value of the property. The
Banks monitor projects during the construction phase through regular
construction inspections and a disbursement program tied to the percentage of
completion of each project.
The Banks also occasionally make land loans to person who intends to
construct a single family residence on the lot generally within twelve months.
In addition, the Banks have occasionally in the past, and may to a
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greater extent in the future, make commercial real estate construction loans
to high net worth clients with adequate liquidity for construction of office
and warehouse properties. Such loans are typically secured by first deeds of
trust and require guarantees of the borrower.
Real Estate Term Loans. The Banks provide medium-term commercial real estate
loans secured by commercial or industrial buildings where the properties are
either used by the owner for business purposes (owner-user properties) or have
income derived from tenants ("investment properties"). The Company's loan
policies require the principal balance of the loan, generally between $400,000
and $3.0 million, to be no more than 70% of the stabilized appraised value of
the underlying real estate collateral. The loans, which are typically secured
by first deeds of trust only, generally have terms of no more than seven to
ten years and are amortized over 20 years. Most of these loans have rates tied
to the prime rate, with many adjusting whenever the prime rate changes; the
remaining loans adjust every two or three years depending on the term of the
loan.
Consumer and Other Loans. The Banks' consumer and other loan portfolio is
divided between installment loans secured by automobiles and aircraft, and
home improvement loans and equity lines of credit which are often secured by
residential real estate. Installment loans tend to be fixed rate and longer-
term (one-to-five year maturity), while the equity lines of credit and home
improvement loans are generally floating rate and are reviewed for renewal on
an annual basis. The Banks also have a minimal portfolio of credit card loans,
issued as an additional service to its clients.
DEPOSITS
The Banks' deposits are obtained primarily from small and medium-sized
businesses, business executives, professionals and other individuals. Each of
the Banks offers the usual and customary range of depository products provided
by commercial banks. The Banks' deposits are not received from a single
depositor or group of affiliated depositors, the loss of any one of which
would have a material adverse effect on the business of the Company or any of
the Banks. Rates paid on deposits vary among the categories of deposits due to
different terms, the size of the individual deposit, and rates paid by
competitors on similar deposits.
CNB has two business units that provide significant support to its deposit
base. The Greater Bay Trust Company has approximately 10% of its trust assets
under management in liquid funds that are retained in CNB money market demand
accounts. At December 31, 1997, these funds totaled approximately $59.0
million. The Venture Banking Group, which finances companies in their start-up
and development stage, is another source of deposits as most of the start-up
phase companies have significant liquidity that is deposited in the bank as
part of the banking relationship. At December 31, 1997, clients of the Venture
Banking Group had approximately $76.3 million in deposits at CNB.
TRUST SERVICES
The Greater Bay Trust Company, which is a division of CNB, offers a full
range of fee-based trust services directly to its clients and administers
several types of retirement plans, including corporate pension plans, 401(k)
plans and individual retirement plans, with an emphasis on the investment
management, custodianship and trusteeship of such plans. In addition, the
Greater Bay Trust Company acts as executor, administrator, guardian and/or
trustee in the administration of the estates of individuals. Investment and
custodial services are provided for corporations, individuals and nonprofit
organizations. Total assets under management by the Greater Bay Trust Company
were approximately $577.7 million at December 31, 1997, compared to $418.0
million at December 31, 1996 and $270.0 million at December 31, 1995.
COMPETITION
The banking and financial services business in California generally, and in
the Banks' market areas specifically, is highly competitive. The increasingly
competitive environment is a result primarily of changes in regulation,
changes in technology and product delivery systems, and the accelerating pace
of consolidation
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among financial service providers. The Banks compete for loans, deposits and
customers for financial services with other commercial banks, savings and loan
associations, securities and brokerage companies, mortgage companies,
insurance companies, finance companies, money market funds, credit unions, and
other nonbank financial service providers. Many of these competitors are much
larger in total assets and capitalization, have greater access to capital
markets and offer a broader array of financial services than the Banks. In
order to compete with the other financial service providers, the Banks
principally rely upon local promotional activities, personal relationships
established by officers, directors and employees with its clients, and
specialized services tailored to meet its clients' needs. In those instances
where the Banks are unable to accommodate a customer's needs, the Banks may
arrange for those services to be provided by its correspondents. The Banks
have nine offices located in the Santa Clara and San Mateo Counties. Neither
the deposits nor loans of the offices of the respective Banks exceed 1% of all
financial services companies located in such counties.
EFFECT OF ECONOMIC CONDITIONS, GOVERNMENTAL POLICIES AND LEGISLATION
Banking is a business that depends on rate differentials. In general, the
difference between the interest rate paid by the Banks on their deposits and
their other borrowings and the interest rate received by the Banks on loans
extended to their clients and securities held in the Banks' portfolios
comprises the major portion of the Banks' earnings. These rates are highly
sensitive to many factors that are beyond the control of the Banks.
Accordingly, the earnings and growth of the Banks are subject to the influence
of domestic and foreign economic conditions, including inflation, recession
and unemployment.
The commercial banking business is not only affected by general economic
conditions but is also influenced by the monetary and fiscal policies of the
federal government and the policies of regulatory agencies, particularly the
Board of Governors of the Federal Reserve System (the "Federal Reserve"). The
Federal Reserve implements national monetary policies (with objectives such as
curbing inflation and combating recession) by its open-market operations in
United States Government securities, by adjusting the required level of
reserves for financial institutions subject to its reserve requirements and by
varying the target federal funds rate discount rates applicable to borrowings
by depository institutions. The actions of the Federal Reserve in these areas
influence the growth of bank loans, investments and deposits and also affect
interest rates charged on loans and paid on deposits. The nature and impact of
any future changes in monetary policies cannot be predicted.
From time to time, legislation is enacted which has the effect of increasing
the cost of doing business, limiting or expanding permissible activities or
affecting the competitive balance between banks and other financial services
providers. Proposals to change the laws and regulations governing the
operations and taxation of banks, bank holding companies and other financial
services provider are frequently made in Congress, in the California
legislature and before various bank regulatory and other professional
agencies. The likelihood of any major legislative changes and the impact such
changes might have on Greater Bay or the Banks are impossible to predict.
EMPLOYEES
At December 31, 1997, the Company had 245 full-time employees. None of the
employees are covered by a collective bargaining agreement. The Company
considers its employee relations to be satisfactory.
SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under both
federal and state law. This regulation is intended primarily for the
protection of depositors and the deposit insurance fund and not for the
benefit of stockholders of the Company. Set forth below is a summary
description of certain laws which relate to the regulation of Greater Bay and
the Banks. The description does not purport to be complete and is qualified in
its entirety by reference to the applicable laws and regulations.
In recent years, significant legislative proposals and reforms affecting the
financial services industry have been discussed and evaluated by Congress.
Such proposals include legislation to revise the Glass-Steagall Act
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and the Bank Holding Company Act of 1956, as amended (the "BHCA"), and the
expand permissible activities for banks, principally to facilitate the
convergence of commercial and investment banking. Certain proposals also
sought to expand insurance activities of banks. It is unclear whether any of
these proposals, or any form of them, will be introduced in the current
Congress and become law. Consequently, it is not possible to determine what
effect, if any, they may have on the Company and the Banks.
Greater Bay
Greater Bay, as a registered bank holding company, is subject to regulation
under the BHCA. Greater Bay is required to file with the Federal Reserve
quarterly and annual reports and such additional information as the Federal
Reserve may require pursuant to the BHCA. The Federal Reserve may conduct
examinations of Greater Bay and its subsidiaries.
The Federal Reserve may require that Greater Bay terminate an activity or
terminate control of or liquidate or divest certain subsidiaries or affiliates
when the Federal Reserve believes the activity or the control of the
subsidiary or affiliate constitutes a significant risk to the financial
safety, soundness or stability of any of its banking subsidiaries. The Federal
Reserve also has the authority to regulate provisions of certain bank holding
company debt, including authority to impose interest ceilings and reserve
requirements on such debt. Under certain circumstances, Greater Bay must file
written notice and obtain approval from the Federal Reserve prior to
purchasing or redeeming its equity securities.
Under the BHCA and regulations adopted by the Federal Reserve, a bank
holding company and its nonbanking subsidiaries are prohibited from requiring
certain tie-in arrangements in connection with any extension of credit, lease
or sale of property or furnishing of services. Further, Greater Bay is
required by the Federal Reserve to maintain certain levels of capital. See
"Capital Standards" herein.
Greater Bay is required to obtain the prior approval of the Federal Reserve
for the acquisition of more than 5% of the outstanding shares of any class of
voting securities or substantially all of the assets of any bank or bank
holding company. Prior approval of the Federal Reserve is also required for
the merger or consolidation of Greater Bay and another bank holding company.
Greater Bay is prohibited by the BHCA, except in certain statutorily
prescribed instances, from acquiring direct or indirect ownership or control
of more than 5% of the outstanding voting shares of any company that is not a
bank or bank holding company and from engaging directly or indirectly in
activities other than those of banking, managing or controlling banks or
furnishing services to its subsidiaries. However, Greater Bay, subject to the
prior approval of the Federal Reserve, may engage in any, or acquire shares of
companies engaged in, activities that are deemed by the Federal Reserve to be
so closely related to banking or managing or controlling banks as to be a
proper incident thereto.
Under Federal Reserve regulations, a bank holding company is required to
serve as a source of financial and managerial strength to its subsidiary banks
and may not conduct its operations in an unsafe or unsound manner. In
addition, it is the Federal Reserve's policy that in serving as a source of
strength to its subsidiary banks, a bank holding company should stand ready to
use available resources to provide adequate capital funds to its subsidiary
banks during periods of financial stress or adversity and should maintain the
financial flexibility and capital-raising capacity to obtain additional
resources for assisting its subsidiary banks. A bank holding company's failure
to meet its obligations to serve as a source of strength to its subsidiary
banks will generally be considered by the Federal Reserve to be an unsafe and
unsound banking practice or a violation of the Federal Reserve's regulations
or both.
Greater Bay is also a bank holding company within the meaning of Section
3700 of the California Financial Code. As such, Greater Bay and its
subsidiaries are subject to examination by, and may be required to file
reports with, the California Department of Financial Institutions.
9
<PAGE>
The Company's securities are registered with the Securities and Exchange
Commission under the Exchange Act. As such, the Company is subject to the
information, proxy solicitation, insider trading, and other requirements and
restrictions of the Exchange Act.
The Banks
CNB, as a national banking association, is subject to primary supervision,
examination and regulation by the Office of the Comptroller of the Currency
(the "Comptroller"). MPB as a California state chartered bank and member of
the Federal Reserve system, is subject to primary supervision, periodic
examination and regulation by the Commissioner of the Department of Financial
Institutions ("Commissioner") and the Federal Reserve. PBC, as a California
state chartered bank which is not member of the Federal Reserve System, is
subject to primary supervision, periodic examination and regulation by the
Commissioner and the Federal Deposit Insurance Corporation ("FDIC") If, as a
result of an examination of a bank, the bank regulatory agencies should
determine that the financial condition, capital resources, asset quality,
earnings prospects, management, liquidity or other aspects of the bank's
operations are unsatisfactory or that the bank or its management is violating
or has violated any law or regulation, various remedies are available to the
bank regulatory agencies. Such remedies include the power to enjoin "unsafe or
unsound" practices, to require affirmative action to correct any conditions
resulting from any violation or practice, to issue an administrative order
that can be judicially enforced, to direct an increase in capital, to restrict
the growth of the bank, to assess civil monetary penalties, to remove officers
and directors and ultimately to terminate a bank's deposit insurance, which
would result in a revocation of the bank's charter. None of the Banks has been
the subject of any such actions by their respective regulatory agencies.
The deposits of the Banks are insured by the FDIC in the manner and to the
extent provided by law. For this protection, the Banks pay a semiannual
statutory assessment. See "Premiums for Deposit Insurance" herein.
Various requirements and restrictions under the laws of the State of
California and the United States affect the operations of the Banks. State and
federal statutes and regulations relate to many aspects of the Banks'
operations, including levels of capital, reserves against deposits, interest
rates payable on deposits, loans, investments, mergers and acquisitions,
borrowings, dividends, locations of branch offices and capital requirements.
Restrictions on Dividends
Greater Bay is a legal entity separate and distinct from the Banks. Greater
Bay's ability to pay cash dividends is limited by state law.
There are statutory and regulatory limitations on the amount of dividends
which may be paid to Greater Bay by the Banks. California law restricts the
amount available for cash dividends by state chartered banks, such as MPB and
PBC, to the lesser of retained earnings or the bank's net income for its last
three fiscal years (less any distributions made to shareholders by the bank or
by any majority-owned subsidiary of the bank during such period).
Notwithstanding this restriction, a bank may, with the prior approval of the
Commissioner, make a distribution to its shareholders in an amount not
exceeding the greater of the retained earnings of the bank, net income for
such bank's last fiscal year or the net income of the bank for its current
year. The prior approval of the Comptroller is required if the total of all
dividends declared by a national bank, such as CNB, in any calendar year
exceeds the bank's net profits (as defined) for that year combined with its
retained net profits (as defined) for the preceding two years, less any
required transfers to surplus or a fund for the retirement of any preferred
stock.
The bank regulatory agencies also have authority to prohibit banks from
engaging in activities that, in their respective opinions, constitute unsafe
or unsound practices in conducting its business. It is possible, depending
upon the financial condition of the bank in question and other factors, that
the bank regulatory agencies could assert that the payment of dividends or
other payments might, under some circumstances, be such an unsafe or
10
<PAGE>
unsound practice. Further, the bank regulatory agencies have established
guidelines with respect to the maintenance of appropriate levels of capital by
banks or bank holding companies under their jurisdiction. Compliance with the
standards set forth in such guidelines and the restrictions that are or may be
imposed under the prompt corrective action provisions of federal law could
limit the amount of dividends which the Banks or Greater Bay may pay. See
"Prompt Corrective Action and Other Enforcement Mechanisms" herein and
"Capital Standards" herein for a discussion of these additional restrictions
on capital distributions.
Substantially all of Greater Bay's revenues, including funds available for
the payment of dividends and other operating expenses, are, and will continue
to be, dividends paid by the Banks. At December 31, 1997, the Banks had $12.1
million in the aggregate available for the payment of cash dividends.
Limitations on Affiliated Transactions
The Banks are subject to certain restrictions imposed by federal law on any
extensions of credit to, or the issuance of a guarantee or letter of credit on
behalf of, Greater Bay or other affiliates, the purchase of or investments in
stock or other securities thereof, the taking of such securities as collateral
for loans and the purchase of assets of Greater Bay or other affiliates. Such
restrictions prevent Greater Bay and such other affiliates from borrowing from
the Banks unless the loans are secured by marketable obligations or other
acceptable collateral of designated amounts. Further, such secured loans and
investments by the Banks to or in Greater Bay or to or in any other affiliate
is limited to 10% of the respective bank's capital stock and surplus (as
defined by federal regulations) and such secured loans and investments are
limited, in the aggregate, to 20% of the respective banks' capital stock and
surplus (as defined by federal regulations). California law also imposes
certain restrictions with respect to transactions involving Greater Bay and
other controlling persons of the Banks. Additional restrictions on
transactions with affiliates may be imposed on the Banks under the prompt
corrective action provisions of federal law. See "Prompt Corrective Action and
Other Enforcement Mechanisms" herein.
Capital Standards
The Federal Reserve, the Comptroller and the FDIC have adopted risk-based
minimum capital guidelines intended to provide a measure of capital that
reflects the degree of risk associated with a banking organization's
operations for both transactions reported on the balance sheet as assets and
transactions, such as letters of credit and recourse arrangements, which are
recorded as off balance sheet items. Under these guidelines, nominal dollar
amounts of assets and credit equivalent amounts of off balance sheet items are
multiplied by one of several risk adjustment percentages, which range from 0%
for assets with low credit risk, such as certain U.S. Treasury securities, to
100% for assets with high credit risk, such as commercial loans.
The federal banking agencies require a minimum ratio of qualifying total
capital to risk-adjusted assets of 8% and a minimum ratio of Tier 1 capital to
risk-adjusted assets of 4%. In addition to the risked-based guidelines,
federal banking regulators require banking organizations to maintain a minimum
amount of Tier 1 capital to total assets, referred to as the leverage ratio.
For a banking organization rated in the highest of the five categories used by
regulators to rate banking organizations, the minimum leverage ratio of Tier 1
capital to total assets must be 3%. For all banking organizations not rated in
the highest category, the minimum leverage ratio must be at least 100 to 200
basis points above the 3% minimum, or 4% to 5%. In addition to these uniform
risk-based capital guidelines and leverage ratios that apply across the
industry, the regulators have the discretion to set individual minimum capital
requirements for specific institutions at rates significantly above the
minimum guidelines and ratios.
Prompt Corrective Action and Other Enforcement Mechanisms
Federal law requires each federal banking agency to take prompt corrective
action to resolve the problems of insured depository institutions, including
but not limited to those that fall below one or more prescribed minimum
capital ratios. In accordance with federal law, each federal banking agency
has promulgated regulations defining the following five categories in which an
insured depository institution will be placed, based
11
<PAGE>
on the level of its capital ratios: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized. At December 31, 1997, each of the Banks, and the Company as
a whole exceeded the required ratios for classification as "well capitalized".
An institution that, based upon its capital levels, is classified as "well
capitalized," "adequately capitalized" or "undercapitalized" may be treated as
though it were in the next lower capital category if the appropriate federal
banking agency, after notice and opportunity for hearing, determines that an
unsafe or unsound condition or an unsafe or unsound practice warrants such
treatment. At each successive lower capital category, an insured depository
institution is subject to more restrictions. The federal banking agencies,
however, may not treat a significantly undercapitalized institution as
"critically undercapitalized" unless its capital ratio actually warrants such
treatment.
A bank may fall into the critically undercapitalized category if its
"tangible equity" does not exceed two-percent of the banks total assets.
Federal guidelines generally define "tangible equity" as a banks tangible
assets less liabilities. Federal regulators may, among other alternatives,
require the appointment of a conservator or a receiver for a critically
undercapitalized bank. In California, the Commissioner may require the
appointment of a conservator or receiver for a state-chartered bank if its
tangible equity does not exceed three percent of the bank's total assets or $1
million.
In addition to measures taken under the prompt corrective action provisions,
commercial banking organizations may be subject to potential enforcement
actions by the federal regulators for unsafe or unsound practices in
conducting their businesses or for violations of any law, rule, regulation or
any condition imposed in writing by the agency or any written agreement with
the agency. See "Potential Enforcement Actions" herein.
Safety and Soundness Standards
The federal banking agencies adopted final guidelines establishing standards
for safety and soundness, as required by Federal Deposit Insurance Corporation
Improvement Act. These standards are designed to identify potential safety and
soundness concerns and ensure that action is taken to address those concerns
before they pose a risk to the deposit insurance funds. The standards relate
to (i) internal controls, information systems and internal audit systems; (ii)
loan documentation; (iii) credit underwriting; (iv) asset growth; (v)
earnings; and (vi) compensation, fee and benefits. If a federal banking agency
determines that an institution fails to meet any of these standards, the
agency may require the institution to submit to the agency an acceptable plan
to achieve compliance with the standard. In the event the institution fails to
submit an acceptable plan within the time allowed by the agency or fails in
any material respect to implement an accepted plan, the agency must, by order,
require the institution to correct the deficiency. Effective October 1, 1996,
the federal banking agencies promulgated safety and soundness regulations and
accompanying interagency compliance guidelines on asset quality and earnings
standards. These new guidelines provide six standards for establishing and
maintaining a system to identify problem assets and prevent those assets from
deteriorating. The institution should: (i) conduct periodic asset quality
reviews to identify problem assets; (ii) estimate the inherent losses in those
assets and establish reserves that are sufficient to absorb estimated losses;
(iii) compare problem asset totals to capital; (iv) take appropriate
corrective action to resolve problem assets; (v) consider the size and
potential risks of material asset concentrations; and (vi) provide periodic
asset reports with adequate information for management and the board of
directors to assess the level of asset risk. These new guidelines also set
forth standards for evaluating and monitoring earnings and for ensuring that
earnings are sufficient for the maintenance of adequate capital and reserves.
Premiums for Deposit Insurance
The Banks' deposit accounts are insured by the Bank Insurance Fund ("BIF"),
as administered by the FDIC, up to the maximum permitted by law. Insurance of
deposits may be terminated by the FDIC upon a finding that the institution has
engaged in unsafe or unsound practices, is in an unsafe or unsound condition
to continue
12
<PAGE>
operation, or has violated any applicable law, regulation, rule, order, or
condition imposed by the FDIC or the institutions primary regulator.
The FDIC charges an annual assessment for the insurance of deposits, which
as of December 31, 1997, ranging from 0 to 27 basis points per $100 of insured
deposit, based on the risk a particular institution poses to its deposit
insurance fund. The risk classification is based on an institutions capital
group and supervisory subgroup assignment. Pursuant to the Economic Growth and
Paperwork Reduction Act of 1996 (the "Act"), at January 1, 1997, the Bank
began paying, in addition to its normal deposit insurance premium as a member
of the BIF, an amount equal to approximately 1.3 basis points per $100 of
insured deposits toward the retirement of the Financing Corporation bond
("FICO Bonds") issued in the 1980s to assist in the recovery of the savings
and loan industry. Member of the Savings Association Insurance Fund ("SAIF"),
by contrast, pay, in addition to their normal deposit insurance premium,
approximately 6.4 basis points. Under the Act, the FDIC is not permitted to
establish SAIF assessment rates that are lower that comparable BIF assessment
rates. Beginning no later than January 1, 2000, the rate paid to retire the
FICO Bonds will be equal for members of the BIF and the SAIF. The Act also
provides for the merging of the BIF and the SAIF by January 1, 1999 provided
there are no financial institutions still chartered as savings associations at
the time. Should the insurance funds be merged before January 1, 2000, the
rate paid by all members of this new fund to retire the FICO Bonds would be
equal.
Interstate Banking and Branching
The BHCA currently permits bank holding companies from any state to acquire
banks and the bank holding companies located in any other state, subject to
certain conditions, including certain nationwide--and state-imposed
concentration limits. The Company has the ability, subject to certain
restrictions, to acquire by acquisition or merger branches outside its home
state. The establishment of new interstate branches is also possible in those
states with laws that expressly permit it. Interstate branches are subject to
certain laws of the states in which they are located. Competition may increase
further as banks branch across state lines and enter new markets.
Community Reinvestment Act and Fair Lending Developments
The Banks are subject to certain fair lending requirements and reporting
obligations involving home mortgage lending operations and Community
Reinvestment Act ("CRA") activities. The CRA generally requires the federal
banking agencies to evaluate the record of a financial institution in meeting
the credit needs of its local communities, including low and moderate income
neighborhoods. In addition to substantial penalties and corrective measures
that may be required for a violation of certain fair lending laws, the federal
banking agencies may take compliance with such laws and CRA into account when
regulating and supervising other activities.
A banks compliance with its CRA obligations is based on a performance-based
evaluation system which bases CRA ratings on an institutions lending service
and investment performance. When a bank holding company applies for approval
to acquire a bank or other bank holding company, the Federal Reserve will
review the assessment of each subsidiary bank of the applicant bank holding
company, and such records may be the basis for denying the application. In
connection with its assessment of CRA performance, the appropriate bank
regulatory agency assigns a rating of "outstanding," "satisfactory," "needs to
improve" or "substantial noncompliance." Based on examinations conducted
during May 1996 and December 1996, CNB and PBC were rated satisfactory. Based
on an examination conducted during July 1997, MPB was rated outstanding.
Potential Enforcement Actions
Commercial banking organizations, such as the Banks, and their institution-
affiliated parties, which include Greater Bay, may be subject to potential
enforcement actions by the Federal Reserve, the FDIC, the Commissioner and/or
the Comptroller for unsafe or unsound practices in conducting their businesses
or for violations of any law, rule, regulation or any condition imposed in
writing by the agency or any written agreement with the agency. Enforcement
actions may include the imposition of a conservator or receiver, the
13
<PAGE>
issuance of a cease-and-desist order that can be judicially enforced, the
termination of insurance of deposits (in the case of the Banks), the
imposition of civil money penalties, the issuance of directives to increase
capital, the issuance of formal and informal agreements, the issuance of
removal and prohibition orders against institution affiliated parties and the
imposition of restrictions and sanctions under the prompt corrective action
provisions of the FDIC Improvement Act. Additionally, a holding company's
inability to serve as a source of strength to its subsidiary banking
organizations could serve as an additional basis for a regulatory action
against the holding company. Neither Greater Bay nor the Banks has been
subject to any such enforcement actions.
Year 2000 Compliance
In May 1997, the Federal Financial Institutions Examination Council issued
an interagency statement to the chief executive officers of all federally
supervised financial institutions regarding Year 2000 project management
awareness. It is expected that unless financial institutions address the
technology issues relating to the coming of the year 2000, there will be major
disruptions in the operations of financial institutions. The statement
provides guidelines to financial institutions, providers of data services, and
all examining personnel of the federal banking
agencies regarding the year 2000 problem. The federal banking agencies intend
to conduct year 2000 compliance examinations, and the failure to implement a
year 2000 program may be seen by the federal banking agencies as an unsafe and
unsound banking practice. In addition, federal banking agencies will be taking
into account year 2000 compliance programs when analyzing applications and may
deny an application based on year 2000 related issues.
SUMMARY OF BUSINESS CONSIDERATIONS AND CERTAIN FACTORS THAT MAY AFFECT FUTURE
RESULTS OF OPERATIONS AND/OR STOCK PRICE
Interest Rate Risk
Banking companies' earnings depend largely on the relationship between the
cost of funds, primarily deposits, and the yield on earning assets. This
relationship, known as the interest rate spread, is subject to fluctuation and
is affected by economic and competitive factors which influence interest
rates, the volume and mix of interest-earning assets and interest-bearing
liabilities, and the level of non-performing assets. Fluctuations in interest
rates affect the demand of customers for the Company's products and services.
The Company is subject to interest rate risk to the degree that its interest-
bearing liabilities reprice or mature more slowly or more rapidly or on a
different basis than its interest-earning assets. Given the Company's current
volume and mix of interest-bearing liabilities and interest-earning assets,
the Company's interest rate spread could be expected to increase during times
of rising interest rates and, conversely, to decline during times of falling
interest rates. Although the Company believes its current level of interest
rate sensitivity is reasonable, significant fluctuations in interest rates may
have an adverse effect on the Company's results of operations.
Economic Conditions and Geographic Concentration
The Company's operations are located in Northern California and concentrated
primarily in Santa Clara and San Mateo Counties, which includes the area known
as the "Silicon Valley." As a result of the geographic concentration, the
Company's results depend largely upon economic conditions in these areas. A
deterioration in economic conditions in the Company's market areas,
particularly in the technology and real estate industries on which these areas
depend, could have a material adverse impact on the quality of the Company's
loan portfolio and the demand for its products and services, and accordingly,
its results of operations. See "Item 1. Business--Market Area."
Government Regulation and Monetary Policy
The banking industry is subject to extensive federal and state supervision
and regulation. Such regulation limits the manner in which Greater Bay and the
Banks conduct their respective businesses, undertake new investments and
activities and obtain financing. This regulation is designed primarily for the
protection of the deposit insurance funds and consumers, and not to benefit
holders of the Company's securities. Financial institution regulation has been
the subject of significant legislation in recent years, and may be the subject
of further significant legislation in the future, none of which is in the
control of the Company. Significant new laws
14
<PAGE>
or changes in, or repeals of, existing laws may cause the Company's results to
differ materially. Further, federal monetary policy, particularly as
implemented through the Federal Reserve System, significantly affects credit
conditions for the Company, primarily through open market operations in United
States government securities, the discount rate for bank borrowings and bank
reserve requirements, and a material change in these conditions would be
likely to have a material impact on the Company's results of operations. See
"Item 1. Business--Supervision and Regulation."
Competition
The banking and financial services business in California generally, and in
the Banks' market areas specifically, is highly competitive. Many of the
Banks' competitors are much larger in total assets and capitalization, have
greater access to capital markets and offer a broader array of financial
services than the Banks. There can be no assurance that the Banks will be able
to compete effectively in their markets and the results of operations of the
Company could be adversely affected if circumstances affecting the nature or
level of competition change. See "Item 1. Business--Competition."
Credit Quality
A significant source of risk for the Company arises from the possibility
that losses will be sustained because borrowers, guarantors and related
parties may fail to perform in accordance with the terms of their loans. The
Company has adopted underwriting and credit monitoring procedures and credit
policies, including the establishment and review of the allowance for credit
losses, that management believes are appropriate to minimize this risk by
assessing the likelihood of nonperformance, tracking loan performance and
diversifying the Company's credit portfolio. Such policies and procedures,
however, may not prevent unexpected losses that could materially adversely
affect the Company's results of operations.
Prospects of the Company after the PBC Merger and Ability to Integrate
Operations
The earnings, financial condition and prospects of the Company after the PBC
Merger will depend in part of the Company's ability to successfully integrate
the operations and management of PBC as a new wholly owned subsidiary, and to
continue to implement the Company's Super Community Banking Philosophy. There
can be no assurance that the Company will be able to effectively and
profitably integrate the operations and management of PBC, or that the Company
will be able to continue to profitably implement its Super Community Banking
Philosophy. See Item 1. "Business--Super Community Banking Philosophy." The
PBC Merger was effected in December 1997, and integration of operations and
management are in the early stages. In addition, there can be no assurance
that the Company will be able to fully realize the potential revenue
enhancement expected as a result of the PBC Merger. Further, although the
Company's Board of Directors and the PBC Board of Directors do not anticipate
cost savings as a result of the PBC Merger to be significant (as compared to
potential revenue enhancement as a result of the PBC Merger), there can be no
assurance that the Company will be able to fully realize any of the potential
cost savings expected as a result of the Banks and PBC being able to share
administrative and other resources under a common parent company. Finally,
there can be no assurance that any cost savings which are realized will not be
offset by losses in revenues or other charges to earnings.
Year 2000 Compliance
The Company has an ongoing program designed to ensure that its operational
and financial systems will not be adversely affected by year 2000 software
failures, due to processing errors arising from calculations using the year
2000 date. The Company expects to incur additional costs over the next three
years implementing a program to redevelop, replace, or repair its computer
applications to try to make them "year 2000 compliant". While the Company
believes it is doing everything technologically possible to assure year 2000
compliance, it is to some extent dependent upon vendor cooperation. The
Company is requiring its computer systems and software vendors to represent
that the products provided are, or will be, year 2000 compliant, and has
planned a program of testing for compliance. The Company also recognizes that
compliance with year 2000 issues can impact its clients' abilities to perform
and is taking steps to evaluate the year 2000 risk profile of its current and
future clients. The Company also recognizes that any year 2000 compliance
failures could result in additional expense to the Company.
15
<PAGE>
The Company is also evaluating the extent to which it would be prudent to
obtain insurance against year 2000 risk, not only in its own performance, but
also with respect to the performance of its vendors and clients.,
Other Risks
From time to time, the Company details other risks with respect to its
business and financial results and conditions in its filings with the
Securities and Exchange Commission.
ITEM 2. PROPERTIES.
The Company occupies its administrative offices under a lease which,
including options to renew, expires in 2002. MPB occupies its offices under
leases expiring at various dates, including options to renew, through 2009.
CNB occupies its offices under leases expiring at various dates, including
options to renew, through 2018. PBC owns its main office and occupies its San
Bruno office under a lease expiring, including options to renew, in 2019.
The Company believes its present facilities are adequate for its present
needs and anticipated future growth. The Company believes that, if necessary,
it could secure suitable alternative facilities on similar terms without
adversely affecting operations.
ITEM 3. LEGAL PROCEEDINGS.
From time to time, the Company is involved in certain legal proceedings
arising in the normal course of its business. Management believes that the
outcome of these matters will not have a material adverse effect on the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
A Special Meeting of Shareholders of Greater Bay was held on November 19,
1997. At the meeting, the following matters were voted upon:
1. To approve the principal terms of the agreement and Plan of
Reorganization dated as of September 5, 1997, by and among the Company, GBB
Acquisition Corp. ("Newco") and PBC, pursuant to which Newco will merge
with and into PBC with PBC surviving the PBC Merger.
<TABLE>
<S> <C>
Shares Voted For: 1,898,860
Shares Voted Against: 1,383
Shares Abstained: 8,025
Broker Nonvotes: 453,162
</TABLE>
2. To amend the articles of incorporation of the Company to increase to
12 million the number of shares of common stock of the Company authorized
to be issued by the Company:
<TABLE>
<S> <C>
Shares Voted For: 2,336,422
Shares Voted Against: 11,945
Shares Abstained: 13,063
Broker Nonvotes: 0
</TABLE>
3. To amend, upon consummation of the PBC Merger, the Greater Bay Bancorp
1996 Stock Option Plan to increase by 456,326 the number of shares of
common stock of the Company issuable thereunder, and to provide that all of
the shares issuable under such plan may be issued pursuant to the exercise
of incentive or nonqualified stock options.
<TABLE>
<S> <C>
Shares Voted For: 1,742,092
Shares Voted Against: 145,897
Shares Abstained: 20,279
Broker Nonvotes: 453,162
</TABLE>
16
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's stock is traded on the Nasdaq National Market ("Nasdaq") under
the symbol "GBBK". Prior to September 9, 1996, the Company's common stock was
not listed on any exchange nor was it quoted by Nasdaq. It was, however,
listed with the National Quotation Service and on the Over The Counter
Bulletin Board. Hoefer & Arnett, Incorporated and Van Kasper & Company acted
as the primary market makers and facilitated trades in the Company's common
stock. The Company's common stock was listed on Nasdaq on September 9, 1996.
Based on information provided to the Company from Hoefer & Arnett, the range
of high and low bid quotations for the Common Stock for the first three
quarters of 1996, are set forth below. Such quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not represent
actual transactions. Quotations subsequent to September 30, 1996 reflect the
high and low sales prices for the Company's common stock as reported by
Nasdaq.
<TABLE>
<CAPTION>
CASH DIVIDENDS
FOR THE PERIOD INDICATED HIGH LOW DECLARED (1)
- ------------------------ ------ ------ --------------
<S> <C> <C> <C>
1997
First Quarter.................................... $27.63 $23.75 $0.15
Second Quarter................................... 31.50 24.88 0.15
Third Quarter.................................... 44.50 31.88 0.15
Fourth Quarter................................... 53.50 42.00 0.15
1996
First Quarter.................................... $18.75 $16.50 $0.15
Second Quarter................................... 22.13 17.75 0.15
Third Quarter.................................... 21.00 18.00 0.15
Fourth Quarter................................... 24.38 21.13 0.15
</TABLE>
- --------
(1) Includes only those dividends declared by Greater Bay, and excludes those
dividends paid by Cupertino National Bancorp prior to the 1996 Merger and
by PBC prior to the PBC Merger. In 1996, Cupertino National Bancorp
declared and paid dividends of $0.10 to its shareholders. PBC declared
dividends of $3.20 and $1.35 per share, in 1997 and 1996, respectively, to
its shareholders. On a consolidated basis, the Company has declared
dividends of $1.04 and $0.60 per share in 1997 and 1996 respectively.
The Company estimates there were approximately 2,200 shareholders at March
16, 1998.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
Information regarding Selected Consolidated Financial Data appears under the
caption "Financial Highlights" in the Company's Annual Report to Shareholders
for the fiscal year ended December 31, 1997 and is incorporated herein by
reference. Such information also appears at Exhibit 13 hereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Information regarding Management's Discussion and Analysis of Financial
Condition and Results of Operations appears under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
the Company's Annual Report to Shareholders for the fiscal year ended December
31, 1997 and is incorporated herein by reference. Such information also
appears at Exhibit 13 hereto.
17
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Information regarding Quantitative and Qualitative Disclosures About Market
Risk appears under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Quantitative and Qualitative
Disclosures About Market Risk" in the Company's Annual Report to Shareholders
for the fiscal year ended December 31, 1997 and is incorporated herein by
reference. Such information also appears at Exhibit 13 hereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Information regarding Financial Statements and Supplementary Data appears
under the captions "Consolidated Balance Sheets," "Consolidated Statements of
Operations," "Consolidated Statements of Equity," "Consolidated Statements of
Cash Flows" and "Notes to Consolidated Financial Statements" in the Company's
Annual Report to Shareholders for the fiscal year ended December 31, 1997 and
is incorporated herein by reference. Such information also appears at Exhibit
13 hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Company intends to file a definitive proxy statement (the "Proxy
Statement") with the Securities and Exchange Commission within 120 days of
December 31, 1997 for the Annual Meeting of Shareholders to be held on May 26,
1998. Information regarding directors of Greater Bay will appear in the Proxy
Statement under the caption "DISCUSSION OF PROPOSALS RECOMMENDED BY THE
BOARD--Proposal 1: Elect Four Directors" and is incorporated herein by
reference. Information regarding executive officers of Greater Bay will appear
in the Proxy Statement under the caption "INFORMATION ABOUT DIRECTORS AND
EXECUTIVE OFFICERS--Executive Officers" and is incorporated herein by
reference. Information regarding compliance with Section 16(a) of the Exchange
Act will appear in the Proxy Statement under the caption "INFORMATION ABOUT
DIRECTORS AND EXECUTIVE OFFICERS--Section 16(a) Beneficial Ownership Reporting
Compliance by Directors and Executive Officers" and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information regarding executive compensation will appear in the Proxy
Statement under the captions "INFORMATION ABOUT DIRECTORS AND EXECUTIVE
OFFICERS--How We Compensate Executive Officers," "--How We Compensate
Directors," "--Employment Contracts, Termination of Employment and Change of
Control Arrangements," "-- Executive Committee's Report on Executive
Compensation" and "--Performance Graph" and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information regarding security ownership of certain beneficial owners and
management will appear in the Proxy Statement under the caption "INFORMATION
ABOUT GREATER BAY STOCK OWNERSHIP" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information regarding certain relationships and related transactions will
appear in the Proxy Statement under the caption "INFORMATION ABOUT DIRECTORS
AND EXECUTIVE OFFICERS--Certain Relationships and Related Transactions" and is
incorporated herein by reference.
18
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)1. FINANCIAL STATEMENTS
Information regarding Financial Statements appears under the captions
"Consolidated Balance Sheets as of December 31, 1997 and 1996,"
"Consolidated Statements of Operations for the years ended December 31,
1997, 1996 and 1995," "Consolidated Statements of Equity for the years
ended December 31, 1997, 1996 and 1995," "Consolidated Statements of
Cash Flows for the years ended December 31, 1997, 1996 and 1995" and
"Notes to Consolidated Financial Statements" in the Company's Annual
Report to Shareholders for the fiscal year ended December 31, 1997 which
is incorporated herein by reference. Such information also appears at
Exhibit 13 hereto.
2. FINANCIAL STATEMENT SCHEDULES
All financial statement schedules are omitted because of the absence of
the conditions under which they are required to be provided or because
the required information is included in the financial statements listed
above and/or related notes.
3. EXHIBITS
See Item 14(c) below.
(b)REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the fourth
quarter of 1997.
(c)EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
Reference is made to the Exhibit Index and exhibits filed as part of
this report.
(d)ADDITIONAL FINANCIAL STATEMENTS
Not applicable.
19
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON THE 30TH DAY OF
MARCH, 1998.
Greater Bay Bancorp
/s/ David L. Kalkbrenner
By: __________________________________
David L. Kalkbrenner
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ David L. Kalkbrenner President, Chief Executive March 30, 1998
- ------------------------------ Officer and Director
David L. Kalkbrenner (Principal Executive
Officer)
/s/ Steven C. Smith Executive Vice President, March 30, 1998
- ------------------------------ Chief Operating Officer and
Steven C. Smith Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ George R. Corey Director March 30, 1998
- ------------------------------
George R. Corey
/s/ John M. Gatto Director March 30, 1998
- ------------------------------
John M. Gatto
/s/ James E. Jackson Director March 30, 1998
- ------------------------------
James E. Jackson
/s/ Rex D. Lindsay Director March 30, 1998
- ------------------------------
Rex D. Lindsay
Director
- ------------------------------
George M. Marcus
/s/ Duncan L. Matteson Director March 30, 1998
- ------------------------------
Duncan L. Matteson
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Glen McLaughlin Director March 30, 1998
- -------------------------------
Glen McLaughlin
/s/ Dick J. Randall Director March 30, 1998
- -------------------------------
Dick J. Randall
/s/ Donald H. Seiler Director March 30, 1998
- -------------------------------
Donald H. Seiler
/s/ Roger V. Smith Director March 30, 1998
- -------------------------------
Roger V. Smith
/s/ Warren R. Thoits Director March 30, 1998
- -------------------------------
Warren R. Thoits
/s/ Edwin E. van Bronkhorst Director March 30, 1998
- -------------------------------
Edwin E. van Bronkhorst
</TABLE>
21
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
------- -------
<C> <S>
2 Agreement and Plan of Reorganization by and among Greater Bay Bancorp,
Pacific Rim Bancorporation and the Leo K.W. Lum PRB Revocable Trust
dated February 24, 1998.
3.1 Articles of Incorporation of Greater Bay Bancorp, as amended.
3.2 Bylaws of Greater Bay Bancorp, as amended.
4.1 Junior Subordinated Indenture dated as of March 31, 1997 between
Greater Bay Bancorp and Wilmington Trust Company, as Trustee. ++
4.2 Officers' Certificate and Company Order, dated March 31, 1997.++
4.3 (Reserved.)
4.4 Certificate of Trust of GBB Capital I.+
4.5 Trust Agreement of GBB Capital I dated as of February 28, 1997.+
4.6 Amended and Restated Trust Agreement of GBB Capital I, among Greater
Bay Bancorp, Wilmington Trust Company and the Administrative Trustees
named therein dated as of March 31, 1997.++
4.7 Trust Preferred Certificate of GBB Capital I.++
4.8 Common Securities Certificate of GBB Capital I.++
4.9 Guarantee Agreement between Greater Bay Bancorp and Wilmington Trust
Company, dated as of March 31, 1997.++
4.10 Agreement as to Expenses and Liabilities, dated as of March 31,
1997.++
4.11 Form of Subordinated Debentures; incorporated herein by reference from
Exhibit 1 of Cupertino National Bancorp's Form 8-K (File No. 0-18015),
filed with the Commission on October 25, 1995.
4.12 Supplemental Debenture Agreement of Cupertino National Bancorp dated
as of November 22, 1996.+
4.13 Supplemental Debenture Agreement dated November 27, 1996 between
Cupertino National Bancorp and Mid-Peninsula Bancorp. +
4.14 Supplemental Debenture Agreement, dated as of March 27, 1997.++
10.1 Employment Agreement with David L. Kalkbrenner, dated March 3, 1992;
incorporated herein by reference from Exhibit 10.15 to Mid-Peninsula
Bancorp's Annual Report on Form 10-K for the year ended December 31,
1994 (File No. 0-25034), filed with the Commission on March 30, 1995.*
10.1.1 Amendment No. 1 to Employment Agreement with David L. Kalkbrenner,
dated March 27, 1998.*
10.2 Employment, Severance and Retirement Benefits Agreement with Steven C.
Smith dated July 31, 1995.*+
10.2.1 Amendment No. 1 to Employment, Severance and Retirement Benefits
Agreement with Steven C. Smith, dated March 27, 1998.*
10.3 Employment, Severance and Retirement Benefits Agreement with David R.
Hood dated July 31, 1995.*+
10.3.1 Amendment No. 1 to Employment, Severance and Retirement Benefits
Agreement with David R. Hood, dated March 27, 1998.*
10.4 Greater Bay Bancorp 1996 Stock Option Plan, as amended; incorporated
herein by reference from Exhibit 99.1 to Greater Bay Bancorp's
Registration Statement on Form S-8 (Registration No. 333-47747), filed
with the Commission on March 11, 1998.*
10.5 Greater Bay Bancorp 401(k) Profit Sharing Plan.*
10.6 Greater Bay Bancorp Employee Stock Purchase Plan; incorporated herein
by reference from Greater Bay Bancorp's Proxy Statement for Annual
Meeting of Shareholders (File No. 000-25034), filed with the
Commission on May 13, 1997.*
10.6.1 Amendment to Greater Bay Bancorp Employee Stock Purchase Plan.*
10.7 Greater Bay Bancorp Change of Control Pay Plan I.*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
------- -------
<C> <S>
10.8 Greater Bay Bancorp Change of Control Pay Plan II.*
10.9 Greater Bay Bancorp Termination and Layoff Plan I.*
10.10 Greater Bay Bancorp Termination and Layoff Plan II.*
10.11 Greater Bay Bancorp 1997 Elective Deferred Compensation Plan.*
10.12 Form of Indemnification Agreement between Greater Bay Bancorp and with
directors and certain executive officers. +
11 Statements re Computation of Earnings per Share.
12 Statement re Computation of Ratios of Earnings to Fixed Charges.
13 Annual Report to Shareholders for the fiscal year ended December 31,
1997.
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
27 Financial Data Schedule.
27.2 Financial Data Schedule.
</TABLE>
- --------
* Represents executive compensation plans and arrangements of Greater Bay
Bancorp.
+ Incorporated by reference from Greater Bay Bancorp's Registration Statement
on Form S-1 (Registration No. 333-22783) dated March 5, 1997.
++ Incorporated by reference from Greater Bay Bancorp's current report on Form
8-K (File No. 000-25034) dated June 5, 1997.
<PAGE>
EXHIBIT 2
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
GREATER BAY BANCORP,
PACIFIC RIM BANCORPORATION
AND
THE LEO K.W. LUM PRB REVOCABLE TRUST
February 24, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
AGREEMENT AND PLAN OF REORGANIZATION 1
ARTICLE I DEFINITIONS..................................................... 1
-----------
"Affiliate" of, or a person "Affiliated".............................. 1
"Agreement of Merger"................................................. 2
"Average Closing Price"............................................... 2
"Banks"............................................................... 2
"Benefit Arrangements"................................................ 2
"BHC Act"............................................................. 2
"Business Day"........................................................ 2
"C&L"................................................................. 2
"CFC"................................................................. 2
"CGCL"................................................................ 2
"Classified Credits".................................................. 2
"Closing"............................................................. 2
"Closing Date"........................................................ 2
"CNB"................................................................. 2
"Code"................................................................ 2
"Commissioner"........................................................ 2
"Competing Transaction"............................................... 2
"Comptroller"......................................................... 2
"Conversion Ratio".................................................... 2
"Covered Party"....................................................... 3
"DFI"................................................................. 3
"Effective Time of the Merger"........................................ 3
"Employee Plans"...................................................... 3
"Encumbrance"......................................................... 3
"Environmental Regulations"........................................... 3
"ERISA"............................................................... 3
"Escrow Agent"........................................................ 3
"Escrow Agreement".................................................... 3
"Exchange Act"........................................................ 3
"Exchange Agent"...................................................... 3
"FDIC"................................................................ 3
"Financial Statements of GBB"......................................... 3
"Financial Statements of PRB"......................................... 3
"FRB"................................................................. 3
"GAAP"................................................................ 4
"GBB"................................................................. 4
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
"GBB Conflicts and Consents List"...................................... 4
"GBB Filings".......................................................... 4
"GBB 401(k) Plan"...................................................... 4
"GBB Litigation List".................................................. 4
"GBB Operating Loss List".............................................. 4
"GBB Stock"............................................................ 4
"GBB Stock Option Plan"................................................ 4
"GBB Supplied Information"............................................. 4
"GBB Undisclosed Liabilities List"..................................... 4
"Golden"............................................................... 4
"Golden 401(k) Plan"................................................... 4
"Governmental Entity".................................................. 4
"Hazardous Materials".................................................. 4
"Immediate Family"..................................................... 4
"Investment Security".................................................. 4
"IRS".................................................................. 4
"Lum Non-Compete Agreement"............................................ 4
"Material Adverse Effect".............................................. 5
"Merger"............................................................... 5
"MPB".................................................................. 5
"New Certificates"..................................................... 5
"Old Certificates"..................................................... 5
"Operating Loss"....................................................... 5
"PBC".................................................................. 5
"Peat Marwick"......................................................... 5
"PRB".................................................................. 5
"PRB Book Value"....................................................... 5
"PRB Conflicts and Consents List"...................................... 5
"PRB Contract List".................................................... 5
"PRB Employee Plan List"............................................... 5
"PRB Environmental Compliance List".................................... 5
"PRB Filings".......................................................... 5
"PRB Indemnification List"............................................. 5
"PRB Insurance List"................................................... 5
"PRB Investment Securities List"....................................... 5
"PRB List"............................................................. 6
"PRB Litigation List".................................................. 6
"PRB Loan List"........................................................ 6
"PRB Offices List"..................................................... 6
"PRB Operating Losses List"............................................ 6
"PRB Personal Property List"........................................... 6
"PRB Real Property List"............................................... 6
"PRB Stock"............................................................ 6
"PRB Supplied Information"............................................. 6
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
"PRB Tax List"......................................................... 6
"PRB Undisclosed Liabilities List"..................................... 6
"Person"............................................................... 6
"Registration Rights Agreement"........................................ 6
"Related Group of Persons"............................................. 6
"Scheduled Contracts".................................................. 6
"SEC".................................................................. 6
"Securities Act"....................................................... 6
"Shareholder's Agreement".............................................. 6
"Special Termination Right"............................................ 6
"Surviving Corporation"................................................ 6
"Tanks"................................................................ 7
"Takeover Proposal".................................................... 7
Top-Up Option.......................................................... 7
"Understanding"........................................................ 7
"Woolwine Non-Compete Agreement"....................................... 7
ARTICLE II TERMS OF MERGER................................................ 7
---------------
2.1 Effect of Merger and Surviving Corporation..................... 7
2.2 Stock of PRB................................................... 7
2.3 Conversion of PRB Common Stock................................. 8
2.4 Effect on GBB Stock............................................ 8
2.5 Fractional Shares.............................................. 8
2.6 Exchange Procedures............................................ 9
2.7 Directors of Surviving Corporation and Golden.................. 10
2.8 Executive Officers of Surviving Corporation and Golden......... 10
ARTICLE III THE CLOSING.................................................... 10
-----------
3.1 Closing Date................................................... 10
3.2 Execution of Agreements........................................ 10
3.3 Further Assurances............................................. 11
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PRB.......................... 11
-------------------------------------
4.1 Incorporation, Standing and Power.............................. 11
4.2 Capitalization................................................. 11
4.3 Subsidiaries................................................... 12
4.4 Financial Statements........................................... 12
4.5 Reports and Filings............................................ 12
4.6 Authority of PRB............................................... 13
4.7 Insurance...................................................... 13
4.8 Personal Property.............................................. 13
4.9 Real Estate.................................................... 14
4.10 Litigation..................................................... 14
4.11 Taxes.......................................................... 14
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
4.12 Compliance with Laws and Regulations........................... 15
4.13 Performance of Obligations..................................... 17
4.14 Employees...................................................... 17
4.15 Brokers and Finders............................................ 17
4.16 Material Contracts............................................. 17
4.17 Certain Material Changes....................................... 19
4.18 Licenses and Permits........................................... 20
4.19 Undisclosed Liabilities........................................ 20
4.20 Employee Benefit Plans......................................... 20
4.21 Corporate Records.............................................. 22
4.22 Accounting Records............................................. 22
4.23 Offices and ATMs............................................... 22
4.24 Operating Losses............................................... 22
4.25 Loan Portfolio................................................. 23
4.26 Investment Securities.......................................... 23
4.27 Power of Attorney.............................................. 23
4.28 Facts Affecting Regulatory Approvals........................... 23
4.29 Accounting and Tax Matters..................................... 23
4.30 Indemnification................................................ 23
4.31 Community Reinvestment Act..................................... 23
4.32 Derivative Transactions........................................ 24
4.33 Trust Administration........................................... 24
4.34 Disclosure Documents and Applications.......................... 24
4.35 Accuracy and Currentness of Information Furnished.............. 24
ARTICLE V ADDITIONAL REPRESENTATIONS AND WARRANTIES
-----------------------------------------
OF THE SHAREHOLDER............................................. 24
------------------
5.1 Investment Representations and Covenants of the Shareholder.... 25
5.2 Legend......................................................... 25
5.3 Authorization.................................................. 25
5.4 Reliance....................................................... 26
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF GBB.......................... 26
-------------------------------------
6.1 Incorporation, Standing and Power.............................. 26
6.2 Capitalization................................................. 26
6.3 Financial Statements........................................... 26
6.4 Reports and Filings............................................ 27
6.5 Authority...................................................... 27
6.6 Subsidiaries................................................... 28
6.7 Brokers and Finders............................................ 28
6.8 Certain Material Changes....................................... 28
6.9 Licenses and Permits........................................... 28
6.10 Corporate Records.............................................. 29
6.11 Accounting Records............................................. 29
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
6.12 Facts Affecting Regulatory Approvals............................................. 29
6.13 Accounting and Tax Matters....................................................... 29
6.14 Litigation....................................................................... 29
6.15 Operating Losses................................................................. 29
6.16 Undisclosed Liabilities.......................................................... 29
6.17 Disclosure Documents and Applications............................................ 30
6.18 Accuracy and Currentness of Information Furnished................................ 30
ARTICLE VII COVENANTS OF PRB AND THE SHAREHOLDER
------------------------------------
PENDING EFFECTIVE TIME OF THE MERGER............................................. 30
------------------------------------
7.1 Limitation on PRB's Conduct Prior to Effective Time of the Merger................ 30
7.2 Affirmative Conduct of PRB Prior to Effective Time of the Merger................. 33
7.3 Access to Information............................................................ 35
7.4 Review by Accountants............................................................ 36
7.5 Filings.......................................................................... 36
7.6 Notices; Reports................................................................. 36
7.7 Certain Loans and Other Extensions of Credit..................................... 37
7.8 Applications..................................................................... 37
7.9 Reserved......................................................................... 37
7.10 D&O Coverage..................................................................... 37
7.11 Removal of Conditions............................................................ 38
ARTICLE VIII COVENANTS OF GBB PENDING EFFECTIVE TIME OF THE MERGER........................... 38
------------------------------------------------------
8.1 Limitation on GBB's Conduct Prior to Effective Time of the Merger................ 38
8.2 Affirmative Conduct of GBB Prior to Effective Time of the Merger................. 38
8.3 Access to Information............................................................ 39
8.4 Filings.......................................................................... 39
8.5 Applications..................................................................... 40
8.6 Blue Sky......................................................................... 40
8.7 Notices; Reports................................................................. 40
8.8 Removal of Conditions............................................................ 40
8.9 Reservation, Issuance and Registration of GBB Stock.............................. 40
8.10 Indemnification of PRB and Golden Directors and Officers......................... 40
8.11 Takeover Proposals............................................................... 42
8.12 Financial Statements............................................................. 42
8.13 NASDAQ Listing................................................................... 43
ARTICLE IX ADDITIONAL COVENANTS............................................................. 43
--------------------
9.1 Best Efforts..................................................................... 43
9.2 Public Announcements............................................................. 43
9.3 Appointment of Directors......................................................... 43
ARTICLE X CONDITIONS PRECEDENT TO THE MERGER............................................... 43
----------------------------------
10.1 Shareholder Approval............................................................. 43
</TABLE>
v
<PAGE>
<TABLE>
<S> <C>
10.2 No Judgments or Orders.......................................................... 44
10.3 Regulatory Approvals............................................................ 44
10.4 Pooling-of-Interests............................................................ 44
10.5 Tax Opinion..................................................................... 44
10.6 Escrow Agreement................................................................ 44
ARTICLE XI CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PRB
----------------------------------------------
AND THE SHAREHOLDER............................................................. 45
-------------------
11.1 Legal Opinion................................................................... 45
11.2 Representations and Warranties; Performance of Covenants........................ 45
11.3 Authorization of Merger......................................................... 45
11.4 Absence of Certain Changes...................................................... 45
11.5 Officers' Certificate........................................................... 45
11.6 Appointment of Directors........................................................ 46
11.7 Registration Rights Agreement................................................... 46
ARTICLE XII CONDITIONS PRECEDENT TO OBLIGATIONS OF GBB...................................... 46
------------------------------------------
12.1 Legal Opinion................................................................... 46
12.2 Representations and Warranties; Performance of Covenants........................ 46
12.3 Authorization of Merger......................................................... 46
12.4 Third Party Consents............................................................ 46
12.5 Absence of Certain Changes...................................................... 47
12.6 Officers' Certificate........................................................... 47
12.7 Shareholder's Certificate....................................................... 47
12.8 Shareholder's Agreement......................................................... 47
12.9 Non-Compete Agreements.......................................................... 47
12.10 PRB Book Value, Deferred Tax Valuation Allowance and
Golden Loan Loss Reserve........................................................ 47
ARTICLE XIII EMPLOYEE BENEFITS............................................................... 47
-----------------
13.1 Merger of 401(k) Plans.......................................................... 47
13.2 Other PRB and Golden Employee Benefit Plans..................................... 48
ARTICLE XIV TERMINATION..................................................................... 48
-----------
14.1 Termination..................................................................... 48
14.2 Termination Date................................................................ 49
14.3 Effect of Termination........................................................... 49
14.4 Force Majeure................................................................... 49
14.5 Special GBB Rights of Termination............................................... 50
ARTICLE XV MISCELLANEOUS................................................................... 50
-------------
15.1 Expenses........................................................................ 50
15.2 Competing Transaction Fee....................................................... 51
15.3 Notices......................................................................... 51
</TABLE>
vi
<PAGE>
<TABLE>
<S> <C>
15.4 Successors and Assigns.......................................................... 52
15.5 Counterparts.................................................................... 52
15.6 Effect of Representations and Warranties........................................ 53
15.7 Third Parties................................................................... 53
15.8 Lists; Exhibits; Integration.................................................... 53
15.9 Knowledge....................................................................... 53
15.10 Governing Law................................................................... 53
15.11 Captions........................................................................ 53
15.12 Severability.................................................................... 53
15.13 Waiver and Modification; Amendment.............................................. 53
15.14 Attorneys' Fees................................................................. 54
</TABLE>
EXHIBIT LIST
vii
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
------------------------------------
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is made and
entered into as of the 24th day of February, 1998, by and among GREATER BAY
BANCORP, a California corporation ("GBB"), PACIFIC RIM BANCORPORATION, a
California Corporation ("PRB") and the LEO K.W. LUM PRB REVOCABLE TRUST (the
"Shareholder).
WHEREAS, the Boards of Directors of GBB and PRB deem advisable and in
the best interests of their respective shareholders the merger of PRB with and
into GBB (the "Merger") upon the terms and conditions set forth herein and in
accordance with the California General Corporation Law (the "CGCL") (GBB,
following the effectiveness of the Merger, being hereinafter sometimes referred
to as the "Surviving Corporation");
WHEREAS, the Boards of Directors of GBB and PRB have approved the
Merger pursuant to this Agreement and pursuant to the Agreement of Merger by and
between GBB and PRB (the "Agreement of Merger"), in substantially the form of
Exhibit A attached hereto, pursuant to which PRB will merge with and into GBB
- ---------
and each outstanding share of PRB common stock, no par value ("PRB Stock"), will
be converted into the right to receive a specified amount of GBB common stock,
no par value ("GBB Stock"), upon the terms and subject to the conditions set
forth herein;
WHEREAS, the Merger is intended to qualify as a tax-free
reorganization within the meaning of the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended; and
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with the transactions
contemplated by this Agreement.
NOW, THEREFORE, on the basis of the foregoing recitals and in
consideration of the mutual covenants, agreements, representations and
warranties contained herein, the parties hereto do covenant and agree as
follows:
ARTICLE I
DEFINITIONS
-----------
Except as otherwise expressly provided for in this Agreement, or
unless the context otherwise requires, as used throughout this Agreement the
following terms shall have the respective meanings specified below:
1
<PAGE>
"Affiliate" of, or a person "Affiliated" with, a specific person(s) is
a person that directly or indirectly, through one or more intermediaries,
controls, or is controlled by, or is under common control with, the person(s)
specified.
"Agreement of Merger" means the Agreement of Merger substantially in
the form attached hereto as Exhibit A.
---------
"Average Closing Price" means the average of the daily closing price
of a share of GBB Stock reported on the Nasdaq National Market System during the
10 consecutive trading days ending at the end of the third trading day
immediately preceding the Effective Time of the Merger.
"Banks" means CNB, MPB and PBC.
"Benefit Arrangements" has the meaning set forth in Section 4.20(b).
"BHC Act" means the Bank Holding Company Act of 1956, as amended.
"Business Day" means any day other than a Saturday, Sunday or day on
which a bank chartered under the laws of the State of California is closed.
"C&L" means Coopers & Lybrand LLP, GBB's independent accountants.
"CFC" means the California Financial Code.
"CGCL" means the California General Corporation Law.
"Classified Credits" has the meaning set forth in Section 7.7.
"Closing" means the consummation of the Merger provided for in Article
II of this Agreement on the Closing Date (as defined herein) at the offices of
Greater Bay Bancorp, 2860 West Bayshore Road, Palo Alto, California, or at such
other place as the parties may agree upon.
"Closing Date" means the date which is the first Friday which follows
the last to occur of: (i) the receipt of all permits, authorizations, approvals
and consents specified in Section 10.3 hereof; and (ii) the expiration of all
applicable waiting periods required by law.
"CNB" means Cupertino National Bank & Trust, a national banking
association and wholly-owned subsidiary of GBB.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commissioner" means the Commissioner of the Department of Financial
Institutions of the State of California.
2
<PAGE>
"Competing Transaction" has the meaning set forth in Section 7.1(n).
"Comptroller" means the Comptroller of the Currency.
"Conversion Ratio" has the meaning set forth in Section 2.3(a).
"Covered Party" has the meaning set forth in Section 4.30.
"DFI" means the Department of Financial Institutions of the State of
California.
"Effective Time of the Merger" means the date upon which the Merger is
consummated and the Agreement of Merger is filed with the Secretary of State of
the State of California.
"Employee Plans" has the meaning set forth in Section 4.20(a).
"Encumbrance" means any option, pledge, security interest, lien,
charge, encumbrance or restriction (whether on voting or disposition or
otherwise), whether imposed by agreement, understanding, law or otherwise.
"Environmental Regulations" has the meaning set forth in Section
4.12(b).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" means the entity selected by GBB and the Shareholder to
initially serve as the escrow agent under the Escrow Agreement.
"Escrow Agreement" means the agreement, dated as of the Closing Date,
by and among GBB, the Shareholder and the Escrow Agent, substantially in the
form of Exhibit B.
---------
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Agent" means U.S. Stock Transfer Corporation or such other
exchange agent appointed by GBB and acceptable to PRB and the Shareholder to
effect the exchange contemplated by Article II hereof.
"FDIC" means the Federal Deposit Insurance Corporation
"Financial Statements of GBB" means the audited consolidated
financial statements of GBB consisting of the consolidated statements of
condition as of December 31, 1993, 1994, 1995, and 1996, the related
consolidated statements of income, shareholders' equity and cash flows for the
years then ended and the related notes thereto and related opinions thereon for
the years then ended.
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"Financial Statements of PRB" means the audited consolidated financial
statements of PRB consisting of the consolidated statements of condition as of
December 31, 1993, 1994, 1995 and 1996 the related statements of operations,
shareholder's equity and cash flows for the years then ended and the related
notes thereto and related opinions thereon for the years then ended.
"FRB" means the Board of Governors of the Federal Reserve System.
"GAAP" means generally accepted accounting principles as used in the
United States as in effect at the time any applicable financial statements were
prepared.
"GBB" means Greater Bay Bancorp, a California corporation.
"GBB Conflicts and Consents List" has the meaning set forth in Section
6.5.
"GBB Filings" has the meaning set forth in Section 6.4.
"GBB 401(k) Plan" means the Greater Bay Bancorp 401(k) Profit Sharing
Plan.
"GBB Litigation List" has the meaning set forth in Section 6.14.
"GBB Operating Loss List" has the meaning set forth in Section 6.15.
"GBB Stock" means the common stock, no par value, of GBB.
"GBB Stock Option Plan" means the Greater Bay Bancorp 1996 Stock
Option Plan, as amended.
"GBB Supplied Information" has the meaning set forth in Section 6.17.
"GBB Undisclosed Liabilities List" has the meaning set forth in
Section 6.16.
"Golden" means Golden Gate Bank, a California chartered nonmember
bank and wholly-owned subsidiary of PRB.
"Golden 401(k) Plan" means the Golden Gate Bank Profit Sharing Plan.
"Governmental Entity" means any court or tribunal in any jurisdiction
or any United States federal, state, municipal, domestic, foreign or other
similar administrative authority or instrumentality.
"Hazardous Materials" has the meaning set forth in Section 4.12(b).
"Immediate Family" means a person's spouse, parents, in-laws,
children and siblings.
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"Investment Security" means any equity security or debt security as
defined in Statement of Financial Accounting Standards No. 115.
"IRS" means the Internal Revenue Service.
"Lum Non-Compete Agreement" means the agreement, dated as of the
Closing Date, by and between GBB and Leo K.W. Lum, substantially in the form of
Exhibit C.
- ---------
"Material Adverse Effect" means when used in connection with GBB, PRB
or their respective subsidiaries, as the case may be, any condition, change or
effect that, individually or when taken together with all other such conditions,
changes or effects that existed or occurred prior to the date of determination
of the existence or occurrence of the Material Adverse Effect, is or is
reasonably likely to be materially adverse to the business, operations, assets
(including intangible assets), financial condition or results of operations of
GBB or PRB and their respective subsidiaries, taken as a whole, as applicable.
"Merger" means the merger of PRB with and into GBB pursuant to this
Agreement and the Agreement of Merger.
"MPB" means Mid-Peninsula Bank, a California chartered Federal Reserve
member bank and wholly-owned subsidiary of GBB.
"New Certificates" has the meaning set forth in Section 2.6(b).
"Old Certificates" has the meaning set forth in Section 2.6(b).
"Operating Loss" has the meaning set forth in Section 4.24.
"PBC" means Peninsula Bank of Commerce, a California chartered
nonmember bank and wholly-owned subsidiary of GBB.
"Peat Marwick" means KPMG Peat Marwick LLP, PRB's independent
accountants.
"PRB" means Pacific Rim Bancorporation, a California corporation.
"PRB Book Value" means PRB's shareholder's equity as reflected on the
financial statements to be provided by PRB to GBB pursuant to Section 12.10.
"PRB Conflicts and Consents List" has the meaning set forth in
Section 4.6.
"PRB Contract List" has the meaning set forth in Section 4.16.
"PRB Employee Plan List" has the meaning set forth in Section 4.20.
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"PRB Environmental Compliance List" has the meaning set forth in
Section 4.12.
"PRB Filings" has the meaning set forth in Section 4.5.
"PRB Indemnification List" has the meaning set forth in Section 4.30.
"PRB Insurance List" has the meaning set forth in Section 4.7.
"PRB Investment Securities List" has the meaning set forth in Section
4.26.
"PRB List" means any list required to be furnished by PRB to GBB
herewith.
"PRB Litigation List" has the meaning set forth in Section 4.10.
"PRB Loan List" has the meaning set forth in Section 4.25.
"PRB Offices List" has the meaning set forth in Section 4.23.
"PRB Operating Losses List" has the meaning set forth in Section
4.24.
"PRB Personal Property List" has the meaning set forth in Section
4.8.
"PRB Real Property List" has the meaning set forth in Section 4.9.
"PRB Stock" means the common stock, no par value, of PRB.
"PRB Supplied Information" has the meaning set forth in Section 4.34.
"PRB Tax List" has the meaning set forth in Section 4.11.
"PRB Undisclosed Liabilities List" has the meaning set forth in
Section 4.19.
"Person" means any individual, corporation, association, partnership,
trust, joint venture, other entity or unincorporated body.
"Registration Rights Agreement" means the registration rights
agreement, dated as of the Closing Date, by and between GBB and the Shareholder,
substantially in the form of Exhibit D.
---------
"Related Group of Persons" means Affiliates, members of an Immediate
Family or other Persons deemed to be a group as defined in Section 13(d)(3) of
the Exchange Act.
"Scheduled Contracts" has the meaning set forth in Section 4.16.
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"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Shareholder's Agreement" means the shareholder's agreement, dated as
of the date hereof, by and between GBB and the Shareholder, substantially in the
form of Exhibit E.
---------
"Special Termination Right" has the meaning set forth in Section 14.5.
"Surviving Corporation" means the California corporation created by
the Merger of PRB with and into GBB.
"Tanks" has the meaning set forth in Section 4.12(b).
"Takeover Proposal" means any written inquiry, proposal or offer from
any Person relating to any direct or indirect acquisition or purchase of 50% or
more of the assets of GBB or of 50% or more of any class of equity securities of
GBB or any tender offer or exchange offer that if consummated would result in
any Person beneficially owning 50% or more of any class of equity securities of
GBB, or any merger, consolidation, business combination, sale of substantially
all assets, recapitalization, liquidation, dissolution or similar transaction
involving GBB, other than the transactions contemplated by this Agreement.
"Top-Up Option" means, in the event that the Average Closing Price is
less than $48.00, the right of GBB to elect to issue that number of shares of
GBB Stock equal to the quotient obtained by dividing $26,880,000 by the Average
Closing Price.
"Understanding" means any contract, agreement, understanding,
commitment or offer, whether oral or written, which may become a binding
obligation if accepted by another Person.
"Woolwine Non-Compete Agreement" means the agreement, dated as of the
Closing Date, by and between GBB and James R. Woolwine, substantially in the
form of Exhibit F.
---------
ARTICLE II
TERMS OF MERGER
---------------
2.1 Effect of Merger and Surviving Corporation. At the Effective
------------------------------------------
Time of the Merger, PRB will be merged with and into GBB pursuant to the terms,
conditions and provisions of the Agreement of Merger and in accordance with the
applicable provisions of the CGCL. By virtue of the Merger, at the Effective
Time of the Merger, all the rights, privileges, powers and franchises and all
property and assets of every kind and description of PRB and GBB as they exist
at the Effective Time of the Merger shall be vested in and be held and enjoyed
by the Surviving
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Corporation, without further act or deed, and all the interests of every kind of
PRB and GBB, including all debts due to either of them on whatever account,
shall be the property of the Surviving Corporation as they were of PRB and GBB
and the title to any interest in real property and any interest in personal
property vested by deed or otherwise in either PRB or GBB shall not revert or be
in any way impaired by reason of the Merger; and all rights of creditors and
liens upon any property of PRB and GBB shall be preserved unimpaired and all
debts, liabilities and duties of PRB and GBB shall be debts, liabilities and
duties of the Surviving Corporation and may be enforced against it to the same
extent as if said debts, liabilities and duties had been incurred or contracted
by it.
2.2 Stock of PRB. Subject to Section 2.5, each share of common
------------
stock, no par value, of PRB issued and outstanding immediately prior to the
Effective Time of the Merger shall, without any further action on the part of
PRB or the Shareholder, be automatically canceled and cease to be an issued and
outstanding share of PRB Stock and shall be converted into shares of the
Surviving Corporation on the basis set forth herein.
2.3 Conversion of PRB Common Stock. (a) At the Effective Time of
------------------------------
the Merger, pursuant to the Agreement of Merger, all of the shares of PRB Stock
shall be converted into shares of GBB Stock on the following basis (the
"Conversion Ratio"):
(i) If the Average Closing Price is $48.00, 560,000 shares
of GBB Stock.
(ii) If the Average Closing Price is between $48.00 and
$54.00, a number of shares of GBB Stock equal to 560,000 minus the product of
(a) 5,000 multiplied by (b) the Average Closing Price minus $48.00.
(iii) If the Average Closing Price is $54.00, 530,000 shares
of GBB Stock.
(iv) If the Average Closing Price is greater than $54.00, a
number of shares of GBB Stock equal to the quotient obtained by dividing: (a)
the sum of (i) $28,620,000 plus (ii) the product of (x) 212,000 times (y) the
difference between the Average Closing Price and $54.00; by (b) the Average
Closing Price.
(v) If the Average Closing Price is less than $48.00, and
GBB elects to exercise the Top-Up Option, a number of shares of GBB Stock equal
to the quotient obtained by dividing $26,880,000 by the Average Closing Price.
If, however, GBB does not elect to exercise the Top-Up Option, PRB may terminate
the Agreement pursuant to Section 14.1(h) or may proceed with the Merger, in
which case the Conversion Ratio will be 560,000 shares of GBB Stock.
(b) If, prior to the Effective Time of the Merger, GBB shall
declare a stock dividend or distribution upon or subdivide, split up, reclassify
or combine the GBB Stock, or make
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a distribution on the GBB Stock in any security convertible into GBB Stock, as
of a record date prior to the Effective Time of the Merger, appropriate
adjustment or adjustments (rounded to two digits to the right of the decimal
point) will be made to the Conversion Ratio.
2.4 Effect on GBB Stock. On the Effective Time of the Merger, each
-------------------
outstanding share of GBB Stock shall remain an outstanding share of GBB Stock
and shall not be converted or otherwise affected by the Merger.
2.5 Fractional Shares. No fractional shares of GBB Stock shall be
-----------------
issued in the Merger. In lieu thereof, the Shareholder shall receive an amount
in cash equal to the product (calculated to the nearest hundredth) obtained by
multiplying (a) the Average Closing Price times (b) the fraction of the share of
GBB Stock to which the Shareholder would otherwise be entitled. The Shareholder
shall not be entitled to dividends or other rights in respect of any such
fraction.
2.6 Exchange Procedures.
-------------------
(a) As of the Effective Time of the Merger, GBB shall have
deposited with the Exchange Agent for the benefit of the Shareholder, for
exchange in accordance with this Section 2.6 through the Exchange Agent,
certificates representing the shares of GBB Stock issuable pursuant to Section
2.3 in exchange for shares of PRB Stock outstanding immediately prior to the
Effective Time of the Merger, and funds in an amount not less than the amount of
cash payable in lieu of fractional shares of GBB Stock which would otherwise be
payable in connection with Section 2.3 hereof but for the operation of Section
2.5 of this Agreement.
(b) Upon surrender for cancellation by the Shareholder to the
Exchange Agent of one or more certificates for shares of PRB Stock ("Old
Certificates"), accompanied by stock powers duly endorsed in blank, the Exchange
Agent shall, promptly after the Effective Time of the Merger, deliver (i) to the
Escrow Agent, the number of shares of GBB Stock required to be deposited
pursuant to the Escrow Agreement; and (ii) to the Shareholder, in exchange for
such surrendered Old Certificates, new certificates representing the appropriate
number of shares of GBB Stock to which the Shareholder is entitled pursuant to
this Agreement ("New Certificates"), together with a check for payment of cash
in lieu of fractional interests. Until surrendered as contemplated by this
Section 2.6, each Old Certificate shall be deemed at any time after the
Effective Time of the Merger to represent only the right to receive upon such
surrender the New Certificate representing shares of GBB Stock and cash in lieu
of any fractional interests as contemplated by Section 2.5.
(c) No dividends or other distributions that are declared or
made on GBB Stock will be paid to the Shareholder until the Old Certificates
have been surrendered in exchange for New Certificates in the manner herein
provided, but upon such surrender, such dividends or distributions, from and
after the Effective Time of the Merger, will be paid to the Shareholder in
accordance with the terms of such GBB Stock, but without interest thereon.
(d) All shares of GBB Stock issued upon the surrender for
exchange of PRB Stock in accordance with the terms hereof (including any cash
paid pursuant to Section 2.5)
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shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of PRB Stock, and there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of PRB Stock which were outstanding immediately prior
to the Effective Time of the Merger. If, after the Effective Time of the Merger,
Old Certificates are presented to GBB for any reason, they shall be canceled and
exchanged as provided in this Agreement.
(e) No transfer taxes shall be payable by the Shareholder in
respect of the issuance of New Certificates, except that if any New Certificate
is to be issued in a name other than that in which the Old Certificate
surrendered shall have been registered, it shall be a condition of such issuance
that the Person requesting such issuance shall properly endorse the certificate
or certificates and shall pay to GBB any transfer taxes payable by reason
thereof, or of any prior transfer of such surrendered certificate, or establish
to the satisfaction of GBB that such taxes have been paid or are not payable.
(f) Any GBB Stock (other than shares delivered in accordance
with the Escrow Agreement) or cash delivered to the Exchange Agent (together
with any interest or profits earned thereon) and not issued pursuant to this
Article II at the end of three months from the Effective Time of the Merger
shall be returned to GBB.
(g) The Exchange Agent shall not be entitled to vote or exercise
any rights of ownership with respect to the shares of GBB Stock held by it from
time to time hereunder, except that it shall receive and hold all dividends or
other distributions paid or distributed with respect to such shares of GBB Stock
for the account of the Persons entitled thereto.
2.7 Directors of Surviving Corporation and Golden. Immediately after
---------------------------------------------
the Effective Time of the Merger (i) the Board of Directors of the Surviving
Corporation shall be comprised of the persons serving as directors of GBB
immediately prior to the Effective Time of the Merger and Leo K.W. Lum; and (ii)
the Board of Directors of Golden shall be comprised of the persons serving as
directors of Golden immediately prior to the Effective Time of the Merger and
Duncan L. Matteson and David L. Kalkbrenner or such other persons designated by
GBB and reasonably acceptable to Golden. Such persons shall serve until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified. For a period of one year from the Closing Date,
persons serving as directors of Golden shall be entitled to receive director and
committee member fees and benefits in a manner consistent with Golden's and
PRB's current practice, but in an aggregate amount not to exceed $150,000.
Thereafter, such persons shall receive fees and benefits in a manner consistent
with the fees and benefits paid to directors of GBB's other subsidiary banks.
2.8 Executive Officers of Surviving Corporation and Golden.
------------------------------------------------------
Immediately after the Effective Time of the Merger, the executive officers of
the Surviving Corporation shall be comprised of the persons serving as the
executive officers of GBB immediately prior to the Effective Time of the Merger.
Immediately after the Effective Time of the Merger and subject to execution and
delivery to GBB of the Woolwine Non-Compete Agreement, James R. Woolwine shall
continue
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<PAGE>
to serve in his present capacity as an executive officer of Golden. Subject to
execution and delivery to GBB of the Lum Non-Compete Agreement, Leo K.W. Lum
shall continue to serve as Executive Chairman of Golden after the Effective Time
of the Merger.
ARTICLE III
THE CLOSING
-----------
3.1 Closing Date. The Closing shall take place on the Closing Date.
------------
3.2 Execution of Agreements. As soon as practicable after execution
-----------------------
of this Agreement, the Agreement of Merger together with all other agreements
and documents necessary to consummate the transactions described herein shall be
executed by GBB, PRB and the Shareholder, as applicable. On the Closing Date,
the Agreement of Merger, together with all requisite certificates, shall be duly
filed with the Secretary of State of the State of California as required by
applicable law and regulations.
3.3 Further Assurances. At the Closing, the parties hereto shall
------------------
deliver, or cause to be delivered, such documents or certificates as may be
necessary in the reasonable opinion of counsel for any of the parties, to
effectuate the transactions contemplated by this Agreement. From and after the
Effective Time of the Merger, each of the parties hereto covenants and agrees,
without the necessity of any further consideration whatsoever, to execute,
acknowledge and deliver any and all other documents and instruments and take any
and all such other action as may be reasonably necessary or desirable to more
effectively carry out the intent and purpose of this Agreement and the Agreement
of Merger.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PRB AND THE SHAREHOLDER
---------------------------------------------------------
PRB and the Shareholder, jointly and severally, represent and warrant
to GBB as follows (all of the representations and warranties of the Shareholder,
other than those in Sections 4.1, 4.2, 4.3, 4.23, 4.31, 4.32 and 4.33, are made
solely to the knowledge of the Shareholder):
4.1 Incorporation, Standing and Power. PRB has been duly organized,
---------------------------------
is validly existing and in good standing as a corporation under the laws of the
State of California and is registered as a bank holding company under the BHC
Act. Golden is a California state chartered bank duly organized, validly
existing and in good standing and is authorized by the DFI to conduct a general
banking business. Golden's deposits are insured by the FDIC in the manner and
to the extent provided by law. Each of PRB and Golden has all requisite
corporate power and authority to own, lease and operate their respective
properties and assets and to carry on their respective business as presently
conducted. Neither the scope of the business of PRB or Golden nor the
11
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location of any of their respective properties requires that either PRB or
Golden be licensed to do business in any jurisdiction other than the State of
California where the failure to be so licensed would, individually or in the
aggregate, have a Material Adverse Effect. PRB has furnished to GBB true and
correct copies of its and Golden's articles of incorporation and bylaws, as
amended, and in effect as of the date hereof.
4.2 Capitalization.
--------------
(a) As of the date of this Agreement, the authorized capital
stock of PRB consists of 4,000,000 shares, of which 1,000,000 are Class A Common
Stock, no par value, 2,000,000 are Class B Common Stock, no par value, and
1,000,000 are preferred stock. As of the date of this Agreement, 100,000 shares
of Class A Common Stock are outstanding. All of the outstanding shares are duly
authorized, validly issued, fully paid and nonassessable and are owned of record
and beneficially by the Shareholder. There are no outstanding options, warrants
or other rights in or with respect to the unissued shares of PRB Stock, and
there are no outstanding shares of preferred stock, nor any securities
convertible into such stock, and PRB is not obligated to issue any additional
shares of its common stock, preferred stock or any additional options, warrants
or other rights in or with respect to the unissued shares of such stock or any
other securities convertible into such stock.
(b) As of the date of this Agreement, the authorized capital
stock of Golden consists of 5,000,000 shares of common stock, of which 308
shares are outstanding and owned of record and beneficially by PRB. All of the
outstanding shares of such common stock are duly authorized, validly issued,
fully paid and nonassessable. There are no outstanding options, warrants or
other rights in or with respect to the unissued shares of such common stock or
any other securities convertible into such stock, and Golden is not obligated to
issue any additional shares of its common stock or any options, warrants or
other rights in or with respect to the unissued shares of such stock or any
other securities convertible into such stock.
4.3 Subsidiaries. Other than Golden, PRB does not own, directly or
------------
indirectly (except as pledgee pursuant to loans or upon acquisition in
satisfaction of debt previously contracted), the outstanding stock or equity or
other voting interest in any corporation, partnership, joint venture or other
entity.
4.4 Financial Statements. PRB has previously furnished to GBB a copy
--------------------
of the Financial Statements of PRB. The Financial Statements of PRB: (a)
present fairly the consolidated financial condition of PRB as of the respective
dates indicated and its consolidated results of operations and changes in cash
flows, for the respective periods then ended, subject, in the case of the
unaudited interim financial statements, to normal recurring adjustments; and
(b) have been prepared in accordance with GAAP consistently applied (except as
otherwise indicated therein).
4.5 Reports and Filings. Since December 31, 1994, each of PRB and
-------------------
Golden has filed all reports, returns, registrations and statements (such
reports and filings referred to as "PRB Filings"), together with any amendments
required to be made with respect thereto, that were required
12
<PAGE>
to be filed with (a) the FRB, (b) the FDIC, (c) the DFI and (d) any other
applicable Governmental Entity, including taxing authorities, except where the
failure to file such reports, returns, registrations or statements has not had
and is not reasonably expected to have a Material Adverse Effect. Except as
disclosed in the PRB Filings, no adverse administrative actions have been taken
or orders issued in connection with such PRB Filings. As of their respective
dates, each of such PRB Filings (y) complied in all material respects with all
laws and regulations enforced or promulgated by the Governmental Entity with
which it was filed (or was amended so as to be in compliance promptly following
discovery of any such noncompliance); and (z) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Any financial
statement contained in any of such PRB Filings that was intended to present the
financial position, results of operations or cash flows of PRB on a consolidated
basis fairly presented the financial position, results of operations or cash
flows of PRB on a consolidated basis and was prepared in accordance with GAAP or
banking regulations consistently applied, except as stated therein, during the
periods involved. PRB has furnished GBB with true and correct copies of all PRB
Filings filed by PRB since December 31, 1994.
4.6 Authority of PRB. The execution and delivery by PRB of this
----------------
Agreement and of the Agreement of Merger and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of PRB, and assuming
the accuracy of the representations contained in Section 6.5 hereof, this
Agreement is, and the Agreement of Merger will be, upon due execution and
delivery by the respective parties thereto, a valid and binding obligation of
PRB enforceable in accordance with their respective terms, except as the
enforceability thereof may be limited by bankruptcy, liquidation, receivership,
conservatorship, insolvency, moratorium or other similar laws affecting the
rights of creditors generally and by general equitable principles. Except as
set forth in a list furnished by PRB to GBB (the "PRB Conflicts and Consents
List"), neither the execution and delivery by PRB of this Agreement or the
Agreement of Merger, the consummation of the transactions contemplated herein or
therein, nor compliance by PRB with any of the provisions hereof or thereof,
will: (a) conflict with or result in a breach of any provision of its or
Golden's articles of incorporation, as amended, or bylaws, as amended; (b)
constitute a breach of or result in a default (or give rise to any rights of
termination, cancellation or acceleration, or any right to acquire any
securities or assets) under any of the terms, conditions or provisions of any
material note, bond, mortgage, indenture, franchise, license, permit, agreement
or other instrument or obligation to which PRB or Golden is a party, or by which
PRB or Golden or any of their respective properties or assets are bound; (c)
result in the creation or imposition of any Encumbrance on any of the properties
or assets of PRB or Golden; or (d) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to PRB or Golden or any of their
respective properties or assets. Except as set forth in the PRB Conflicts and
Consents List, no consent of, approval of, notice to or filing with any
Governmental Entity having jurisdiction over any aspect of the business or
assets of PRB or Golden, and no consent of, approval of or notice to any other
Person, is required in connection with the execution and delivery by PRB of this
Agreement, the Agreement of Merger or the consummation by PRB of the Merger or
the transactions contemplated hereby or thereby, except (i) such approvals as
may be required by the FDIC, the FRB, the OCC and the DFI; and (ii) the filing
of the Agreement of Merger with the Secretary of State.
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4.7 Insurance. Each of PRB and Golden has policies of insurance with
---------
respect to its assets and business against such casualties and contingencies and
in such amounts, types and forms as are customarily appropriate for its
business, operations, properties and assets. All such insurance policies are in
full force and effect. Except as set forth in a list furnished by PRB to GBB
(the "PRB Insurance List"), no insurer under any such policy has canceled or
indicated an intention to cancel or not to renew any such policy or generally
disclaimed liability thereunder. Except as set forth in the PRB Insurance List,
neither PRB nor Golden is in default under any such policy and all material
claims thereunder have been filed in a timely fashion. Set forth in the PRB
Insurance List is a list of all policies of insurance carried and owned by
either PRB or Golden showing the name of the insurance company, the nature of
the coverage, the policy limit, the annual premiums and the expiration dates.
There has been furnished to GBB a copy of each such policy of insurance.
4.8 Personal Property. Each of PRB and Golden has good and
-----------------
marketable title to all its material properties and assets reflected on the PRB
Financial Statements as of December 31, 1997 or acquired after that date, other
than real property, owned or stated to be owned by PRB or Golden, free and clear
of all Encumbrances except as disposed of in the ordinary course of business or:
(a) as set forth in the Financial Statements of PRB; (b) for Encumbrances for
current taxes and assessments not yet due and payable; (c) for Encumbrances
incurred in the ordinary course of business, including pledges to secure
deposits and other liens incurred in the ordinary course of the banking
business; (d) for Encumbrances that are not substantial in character, amount or
extent and that do not materially detract from the value, or interfere with
present use, of the property subject thereto or affected thereby, or otherwise
materially impair the conduct of business of PRB; or (e) as set forth in a list
furnished by PRB to GBB (the "PRB Personal Property List.")
4.9 Real Estate. PRB has furnished GBB a list of real property,
-----------
including leaseholds and all other interests in real property (other than
security interests), owned by PRB or Golden (the "PRB Real Property List") as of
December 31, 1994 or acquired after that date. With respect to real property
interests presently owned by PRB or Golden, each of PRB and Golden has duly
recorded or caused to be recorded, in the appropriate county, all recordable
interests in such real property. Either PRB or Golden has good and marketable
title to such real property, and valid leasehold interests in the leaseholds,
described in the PRB Real Property List, free and clear of all Encumbrances,
except (a) for rights of lessors, co-lessees or sublessees in such matters that
are reflected in the lease; (b) for current taxes not yet due and payable; (c)
for Encumbrances of public record; (d) for such Encumbrances, if any, as do not
materially detract from the value of or materially interfere with the present
use of such property; and (e) as described in the PRB Real Property List. PRB
has furnished GBB with true and correct copies of all leases included in the PRB
Real Property List, all title insurance policies and all documents evidencing
recordation of all recordable interests in real property included in the PRB
Real Property List.
4.10 Litigation. Except as set forth in the PRB Filings or in a list
----------
furnished by PRB to GBB (the "PRB Litigation List"), there is no private or
governmental suit, claim, action or proceeding pending, nor to PRB's knowledge
threatened, against PRB or Golden or against any of their respective directors,
officers or employees relating to the performance of their duties in such
capacities or against or affecting any properties of PRB or Golden which, if
adversely determined,
14
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would have a Material Adverse Effect. Also, except as disclosed in the PRB
Filings or in the PRB Litigation List, there are no material judgments, decrees,
stipulations or orders against PRB or Golden or enjoining their respective
directors, officers or employees in respect of, or the effect of which is to
prohibit, any business practice or the acquisition of any property or the
conduct of business in any area.
4.11 Taxes. Each of PRB and Golden has filed all federal and foreign
-----
income tax returns, all state and local franchise and income tax, real and
personal property tax, sales and use tax, premium tax, excise tax and other tax
returns required to be filed and has paid all taxes, together with any interest
and penalties owing in connection therewith, shown on such returns to be due in
respect of the periods covered by such returns, other than taxes which are being
contested in good faith and for which adequate reserves have been established.
Neither PRB nor Golden has filed a consent pursuant to Section 341(f) of the
Code. The tax and audit positions taken by PRB and Golden in connection with
the tax returns described in the first sentence of this paragraph were
reasonable in all material respects and were asserted in good faith. Each of
PRB and Golden has filed all required payroll tax returns, has fulfilled all tax
withholding obligations and has paid over to the appropriate governmental
authorities the proper amounts with respect to the foregoing. Adequate
provision has been made in the books and records of PRB and Golden and, to the
extent required by GAAP, reflected in the Financial Statements of PRB, for all
tax liabilities, including interest or penalties, whether or not due and payable
and whether or not disputed, with respect to any and all federal, foreign, state
and local taxes for the periods covered by such financial statements and for all
prior periods. PRB has furnished GBB a list (the "PRB Tax List") of the federal
tax returns of PRB and Golden, as applicable, which have been duly filed with
the IRS on or after December 31, 1992, and the foreign, state or local tax
returns of PRB and Golden, as applicable, which have been duly filed with the
appropriate taxing authority on or after December 31, 1992. The PRB Tax List
also contains a complete list of each year for which any federal, state, local
or foreign tax authority has obtained or has requested an extension of the
statute of limitations from PRB or Golden and lists each tax case of PRB or
Golden currently pending in audit, at the administrative appeals level or in
litigation. The PRB Tax List further lists the date and issuing authority of
each statutory notice of deficiency, notice of proposed assessment and revenue
agent's report issued to PRB or Golden within the last twelve (12) months.
Except as set forth in the PRB List, neither the IRS nor any foreign, state or
local taxing authority has, during the past three years, examined or is in the
process of examining any federal, foreign, state or local tax returns of PRB or
Golden. To the knowledge of PRB, neither the IRS nor any foreign, state or
local taxing authority is now asserting or threatening to assert any deficiency
or claim for additional taxes (or interest thereon or penalties in connection
therewith) except as set forth on the PRB Tax List.
4.12 Compliance with Laws and Regulations.
------------------------------------
(a) Neither PRB nor Golden is in default under or in breach of
any provision its articles of incorporation, as amended, or bylaws, as amended,
or law, ordinance, rule or regulation promulgated by any Governmental Entity,
where such default or breach would have a Material Adverse Effect.
15
<PAGE>
(b) The representations and warranties in this Section 4.12(b)
apply only to matters which would have a Material Adverse Effect. Without
limiting Section 4.12(a), to the best of PRB's knowledge and except as set forth
on a list furnished by PRB to GBB (the "PRB Environmental Compliance List") (i)
each of PRB and Golden is in compliance with all Environmental Regulations; (ii)
there are no Tanks on or about PRB Property; (iii) there are no Hazardous
Materials on, below or above the surface of, or migrating to or from PRB
Property; (iv) neither PRB nor Golden has loans outstanding secured by real
property that is not in compliance with Environmental Regulations or which has a
leaking Tank or upon which there are Hazardous Materials on or migrating to or
from; (v) neither PRB, Golden nor any of their Affiliates has been an "operator"
of any PRB Property for purposes of establishing liability under the
Environmental Regulations; and (vi) without limiting Section 4.10 or the
foregoing representations and warranties contained in clauses (i) through (v),
as of the date of this Agreement, there is no claim, action, suit or proceeding,
or notice thereof, before any Governmental Entity pending against PRB or Golden
or concerning property securing PRB loans and there is no outstanding judgment,
order, writ, injunction, decree, or award against or affecting PRB Property or
property securing PRB or Golden loans, relating to the foregoing representations
(i) - (v), in each case the noncompliance with which, or the presence of which
would have a Material Adverse Effect. For purposes of this Section 4.12(b), the
term "Environmental Regulations" shall mean all applicable statutes,
regulations, rules, ordinances, codes, licenses, permits, orders, approvals,
plans, authorizations, concessions, franchises and similar items, of all
Governmental Entities and all applicable judicial, administrative and regulatory
decrees, judgments, and orders relating to the protection of human health or the
environment, including, without limitation: all requirements, including, but not
limited to those pertaining to reporting, licensing, permitting, investigation,
and remediation of emissions, discharges, releases or threatened releases of
Hazardous Materials, chemical substances, pollutants, contaminants or hazardous
or toxic substances, materials or wastes whether solid, liquid or gaseous in
nature, into the air, surface water, groundwater or land, or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of chemical substances, pollutants, contaminants or
hazardous or toxic substances, materials or wastes, whether solid, liquid or
gaseous in nature and all requirements pertaining to the protection of the
health and safety of employees or the public. "PRB Property" shall mean real
estate currently owned, leased or otherwise used by PRB, or in which PRB has an
investment or security interest (by mortgage, deed of trust, sale and lease-back
or otherwise), including, without limitation, properties under foreclosure and
properties held by PRB in its capacity as a trustee or otherwise. "Tank" shall
mean treatment or storage tanks, sumps, or water, gas or oil wells and
associated piping transportation devices. "Hazardous Materials" shall mean any
substance the presence of which requires investigation or remediation under any
federal, state or local statute, regulation, ordinance, order, action, policy or
common law; or which is or becomes defined as a hazardous waste, hazardous
substance, hazardous material, used oil, pollutant or contaminant under any
federal, state or local statute, regulation, rule or ordinance or amendments
thereto including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. Section 9601, et seq.); the Resource
Conservation and Recovery Act (42 U.S.C. Section 6901, et seq.); the Clean Air
Act, as amended (42 U.S.C. Section 7401, et seq.); the Federal Water Pollution
Control Act, as amended (33 U.S.C. Section 1251, et seq.); the Toxic Substances
Control Act, as amended (15 U.S.C. Section 9601, et seq.); the Occupational
Safety and Health Act, as amended (29 U.S.C. Section 651; the
16
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Emergency Planning and Community Right-to-Know Act of 1986 (42 U.S.C. Section
11001, et seq.); the Mine Safety and Health Act of 1977, as amended (30 U.S.C.
Section 801, et seq.); the Safe Drinking Water Act (42 U.S.C. Section 300f, et
seq.); and all comparable state and local laws, including without limitation,
the Carpenter-Presley-Tanner Hazardous Substance Account Act (State Superfund),
the Porter-Cologne Water Quality Control Act, Section 25140, 25501(j) and (k),
25501.1,25281 and 25250.1 of the California Health and Safety Code and/or
Article I of Title 22 of the California Code of Regulations, Division 4, Chapter
30; laws of other jurisdictions or orders and regulations; or the presence of
which causes or threatens to cause a nuisance, trespass or other common law tort
upon real property or adjacent properties or poses or threatens to pose a hazard
to the health or safety of persons or without limitation, which contains
gasoline, diesel fuel or other petroleum hydrocarbons; polychlorinated biphenyls
(PCBs), asbestos or urea formaldehyde foam insulation. Except as otherwise
provided in this Agreement and subject to their obligations under Section 15.9,
this Section 4.12 shall not be deemed to require PRB or Golden to conduct or
require investigations of properties which are covered by this Section 4.12(b).
(c) PRB has provided to GBB phase I environmental assessments
with respect to each interest in real property set forth on the PRB Real
Property List as to which such a phase I environmental investigation has been
prepared by or on behalf of PRB or Golden. The PRB Real Property list shall
disclose each such property as to which such an assessment has not been prepared
on behalf of PRB or Golden.
4.13 Performance of Obligations. Each of PRB and Golden has
--------------------------
performed in all material respects all of the obligations required to be
performed by it to date and is not in default under or in breach of any term or
provision of any covenant, contract, lease, indenture or any other covenant to
which it is a party, is subject or is otherwise bound, and no event has occurred
that, with the giving of notice or the passage of time or both, would constitute
such default or breach, where such default or breach would have a Material
Adverse Effect. Except for loans and leases made by PRB or Golden in the
ordinary course of business, to PRB's knowledge, no party with whom PRB or
Golden has an agreement that is of material importance to the business of PRB is
in default thereunder.
4.14 Employees. There are no controversies pending or threatened
---------
between either PRB or Golden and any of its employees that are likely to have a
Material Adverse Effect. Neither PRB nor Golden is a party to any collective
bargaining agreement with respect to any of its employees or any labor
organization to which its employees or any of them belong.
4.15 Brokers and Finders. Except for the obligation to Hoefer &
-------------------
Arnett Incorporated as set forth in a letter agreement dated February 24, 1998,
a copy of which has been furnished to GBB, PRB is not a party to or obligated
under any agreement with any broker or finder relating to the transactions
contemplated hereby, and neither the execution of this Agreement nor the
consummation of the transactions provided for herein will result in any
liability to any broker or finder.
17
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4.16 Material Contracts. Except as set forth in a list furnished by
------------------
PRB to GBB (the "PRB Contract List") hereto (all items listed or required to be
listed in such PRB Contract List being referred to herein as "Scheduled
Contracts"), neither PRB nor Golden is a party or otherwise subject to:
(a) any employment, deferred compensation, bonus or consulting
contract that (i) has a remaining term, as of the date of this Agreement, of
more than one year in length of obligation on the part of PRB or Golden and is
not terminable by PRB or Golden within one year without penalty or (ii) requires
payment by PRB or Golden of $25,000 or more per annum;
(b) any advertising, brokerage, licensing, dealership,
representative or agency relationship or contract requiring payment by PRB or
Golden of $25,000 or more per annum;
(c) any contract or agreement that restricts PRB or Golden (or
would restrict any Affiliate of PRB or Golden or the Surviving Corporation
(including GBB and its subsidiaries) after the Effective Time of the Merger)
from competing in any line of business with any Person or using or employing the
services of any Person;
(d) any lease of real or personal property providing for annual
lease payments by or to PRB or Golden in excess of $25,000 per annum other than
(A) financing leases entered into in the ordinary course of business in which
PRB or Golden is lessor and (B) leases of real property presently used by PRB as
banking offices;
(e) any mortgage, pledge, conditional sales contract, security
agreement, option, or any other similar agreement with respect to any interest
of PRB or Golden (other than as mortgagor or pledgor in the ordinary course of
its banking business or as mortgagee, secured party or deed of trust beneficiary
in the ordinary course of its business) in personal property having a value of
$25,000 or more;
(f) other than as described in the PRB Filings or as set forth
in the PRB Employee Plan List, any stock purchase, stock option, stock bonus,
stock ownership, profit sharing, group insurance, bonus, deferred compensation,
severance pay, pension, retirement, savings or other incentive, welfare or
employment plan or material agreement providing benefits to any present or
former employees, officers or directors of PRB or Golden;
(g) any agreement to acquire equipment or any commitment to make
capital expenditures of $25,000 or more;
(h) other than agreements entered into in the ordinary course of
business, including sales of other real estate owned, any agreement for the sale
of any property or assets in which PRB or Golden has an ownership interest or
for the grant of any preferential right to purchase any such property or asset;
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<PAGE>
(i) any agreement for the borrowing by PRB or Golden of any
money (other than liabilities or interbank borrowings made in the ordinary
course of its banking business and reflected in the financial records of PRB or
Golden);
(j) any restrictive covenant contained in any material deed to
or lease of real property owned or leased by PRB or Golden (as lessee) that
materially restricts the use, transferability or value of such property;
(k) any guarantee or indemnification which involves the sum of
$25,000 or more, other than letters of credit or loan commitments issued in the
normal course of business;
(l) any supply, maintenance or landscape contracts not
terminable by PRB or Golden without penalty on 30 days' or less notice and which
provides for payments in excess of $25,000 per annum;
(m) other than as disclosed with reference to subparagraph (k)
of this Section 4.16, any material agreement which would be terminable other
than by PRB or Golden as a result of the consummation of the transactions
contemplated by this Agreement;
(n) any contract of participation with any other bank in any
loan in excess of $25,000 or any sales of assets of PRB or Golden with recourse
of any kind to PRB or Golden except the sale of mortgage loans, servicing
rights, repurchase or reverse repurchase agreements, securities or other
financial transactions in the ordinary course of business;
(o) any agreement providing for the sale or servicing of any
loan or other asset which constitutes a "recourse arrangement" under applicable
regulation or policy promulgated by a Governmental Entity (except for agreements
for the sale of guaranteed portions of loans guaranteed in part by the U. S.
Small Business Administration and related servicing agreements);
(p) any contract relating to the provision of data processing
services to PRB or Golden;
(q) any other agreement of any other kind which involves future
payments or receipts or performances of services or delivery of items requiring
payment of $25,000 or more to or by PRB or Golden other than payments made under
or pursuant to loan agreements, participation agreements and other agreements
for the extension of credit in the ordinary course of their business; or
(r) any agreement that, alone or in conjunction with any other
agreements, would result in a deduction disallowance under Section 280G of the
Code or imposition of an excise tax under Section 4999 of the Code.
True copies of all Scheduled Contracts, including all amendments and
supplements thereto, have been furnished to GBB.
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4.17 Certain Material Changes. Except as specifically required,
------------------------
permitted or effected by this Agreement, since December 31, 1997, there has not
been, occurred or arisen any of the following (whether or not in the ordinary
course of business unless otherwise indicated):
(a) Any change in any of the assets, liabilities, permits,
methods of accounting or accounting practices, business or manner of conducting
business, of PRB or Golden or any other event or development that has had or may
reasonably be expected to have a Material Adverse Effect;
(b) Any damage, destruction or other casualty loss (whether or
not covered by insurance) that has had or may reasonably be expected to have a
Material Adverse Effect or that may involve a loss of more than $25,000 in
excess of applicable insurance coverage;
(c) Any amendment, modification or termination of any existing,
or entry into any new, material contract or permit that has had or may
reasonably be expected to have a Material Adverse Effect;
(d) Any disposition by PRB or Golden of an asset the lack of
which has had or may reasonably be expected to have a Material Adverse Effect;
or
(e) Any direct or indirect redemption, purchase or other
acquisition by PRB or Golden of any equity securities or any declaration,
setting aside or payment of any dividend (except, in the case of the
declaration, setting aside or payment of a cash dividend, as disclosed in the
Financial Statements of PRB) or other distribution on or in respect of PRB Stock
whether consisting of money, other personal property, real property or other
things of value.
4.18 Licenses and Permits. Each of PRB and Golden has all material
--------------------
licenses and permits that are necessary for the conduct of its business, and
such licenses are in full force and effect, except for any failure to be in full
force and effect that would not, individually or in the aggregate, have a
Material Adverse Effect. The respective properties, assets, operations and
businesses of PRB and Golden are and have been maintained and conducted, in all
material respects, in compliance with all applicable licenses and permits. The
respective properties and operations of PRB and Golden are and have been
maintained and conducted, in all material respects, in compliance with all
applicable laws and regulations.
4.19 Undisclosed Liabilities. Neither PRB nor Golden has any
-----------------------
liabilities or obligations, either accrued or contingent, that are material to
PRB on a consolidated basis and that have not been: (a) reflected, reserved for
or disclosed in the Financial Statements of PRB; (b) incurred subsequent to
December 31, 1997 in the ordinary course of business; or (c) disclosed in a list
furnished by PRB to GBB (the "PRB Undisclosed Liabilities List") or on any other
PRB List. PRB does not know of any facts that would form the basis for the
assertion against it of any liability, obligation or claim (including, without
limitation, that of any regulatory authority) that is likely to result in or
cause a Material Adverse Effect and is not fairly reflected in the Financial
Statements of PRB or otherwise disclosed in this Agreement.
20
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4.20 Employee Benefit Plans.
----------------------
(a) PRB has previously made available to GBB copies of each
"employee benefit plan," as defined in Section 3(3) of ERISA, which is subject
to any provision of ERISA and covers any employee, whether active or retired, of
PRB, together with all amendments thereto, all related summary plan descriptions
(to the extent one is required by law), the determination letter from the IRS,
and the annual reports for the most recent three years (Form 5500 including, if
applicable, Schedule B thereto) prepared in connection with any such plan. Such
plans are hereinafter referred to collectively as the "Employee Plans." PRB does
not participate in an employee benefit pension plan that is a "multiemployer
plan" within the meaning of Section 3(37) of ERISA that would subject PRB to a
material amount of liability with respect to any such plan. Each Employee Plan
which is intended to be qualified in form and operation under Section 401(a) of
the Code is so qualified and the associated trust for each such Employee Plan is
exempt from tax under Section 501(a) of the Code. No event has occurred that
will subject such Employee Plans to a material amount of tax under Section 511
of the Code. All amendments required to bring each Employee Plan into conformity
with all of the applicable provisions of ERISA, the Code and all other
applicable laws have been made, except for any amendment which would be given
retroactive effect if made prior to the expiration of the applicable remedial
amendment period and without causing a Material Adverse Effect. Except as
disclosed in a list furnished by PRB to GBB (the "PRB Employee Plan List"), all
Employee Plans were in effect for substantially all of 1997, and there has been
no material amendment thereof (other than amendments required to comply with
applicable law) or increase in the cost thereof or benefits thereunder on or
after January 1, 1998.
(b) PRB has previously made available to GBB copies or
descriptions of each plan or arrangement maintained or otherwise contributed to
by PRB which is not an Employee Plan and which (exclusive of base salary and
base wages) provides for any form of current or deferred compensation, bonus,
stock option, profit sharing, benefit, retirement, incentive, group health or
insurance, welfare or similar plan or arrangement for the benefit of any
employee or class of employees, whether active or retired, of PRB (such plans
and arrangements being collectively referred to herein as "Benefit
Arrangements"). Except as disclosed in the PRB Employee Plan List hereto, all
Benefit Arrangements which are in effect were in effect for substantially all of
1997. There has been no material amendment thereof or increase in the cost
thereof or benefits payable thereunder since January 1, 1998. Except as set
forth in the PRB Employee Plan List, there has been no material increase in the
compensation of or benefits payable to any senior executive employee of PRB
since December 31, 1997, nor any employment, severance or similar contract
entered into with any such employee, nor any amendment to any such contract,
since December 31, 1997. There is no contract, agreement or benefit arrangement
covering any employee of PRB which individually or collectively could give rise
to the payment of any amount which would constitute an "excess parachute
payment," as such term is defined in Section 280(G) of the Code.
(c) With respect to all Employee Plans and Benefit Arrangements,
PRB is in material compliance (other than noncompliance the cost or liability
for which is not material) with the requirements prescribed by any and all
statutes, governmental or court orders, or governmental rules or regulations
currently in effect, including but not limited to ERISA and the
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Code, applicable to such plans or arrangements. All material government reports
and filings required by law have been properly and timely filed and all
information required to be distributed to participants or beneficiaries has been
distributed with respect to each Employee Plan. PRB has performed all of its
obligations under all such Employee Plans and Benefit Arrangements in all
material aspects. There is no pending or, to the knowledge of PRB, threatened
legal action, proceeding or investigation against or involving any Employee Plan
or Benefit Arrangement which could result in a material amount of liability to
such Employee Plan. To the knowledge of PRB, no condition exists that could
constitute grounds for the termination of any Employee Plan under Section 4042
of ERISA; no "prohibited transaction," as defined in Section 406 of ERISA and
Section 4975 of the Code, has occurred with respect to any Employee Plan, or any
other employee benefit plan maintained by PRB which is covered by Title I of
ERISA, which could subject any person (other than a person for whom PRB is not
directly or indirectly responsible) to a material amount of liability under
Title I of ERISA or to the imposition of a material amount of tax under Section
4975 of the Code which could have a material adverse effect on the business,
assets, financial condition, results of operations or prospects of PRB; nor has
any Employee Plan subject to Part III of Subtitle B of Title I of ERISA or
Section 412 of the Code, or both, incurred any "accumulated funding deficiency,"
as defined in Section 412 of the Code, whether or not waived; nor has PRB failed
to make any contribution or pay any amount due and owing as required by the
terms of any Employee Plan or Benefit Arrangement, which liability would
constitute a material liability. No "reportable event" as defined in Title IV of
ERISA has occurred with respect to any of the Employee Plans (except for any
reportable event for which notice has been waived by the PBGC). To the knowledge
of PRB, PRB has not incurred nor expects to incur, directly or indirectly, a
material amount of liability under Title IV or ERISA arising in connection with
the termination of, or a complete or partial withdrawal from, any plan covered
or previously covered by Title IV of ERISA which could constitute a liability of
GBB or of any of its affiliates (including PRB) at or after the Effective Time
of the Merger.
(d) Except for Scheduled Contracts set forth in the PRB Contract
List or as set forth in the PRB Employee Plan List, as the case may be, each
Employee Plan or Benefit Arrangement and each personal services contract, fringe
benefit, consulting contract or similar arrangement with or for the benefit of
any officer, director, employee or other person can be terminated by PRB within
a period of 30 days following the Effective Time of the Merger, without payment
of any amount as a penalty, bonus, premium, severance pay or other compensation
for such termination.
(e) All group health plans of PRB have been operated in
compliance with the group health plan continuation coverage requirements of
Section 4980B of the Code in all material respects and any failure to comply
with such requirements would not constitute a material liability of PRB.
4.21 Corporate Records. The minute books of each of PRB and Golden
-----------------
accurately reflect all material actions taken to this date by the respective
shareholders, board of directors and committees of each of PRB and Golden and
contain true and complete copies of their respective articles of incorporation,
bylaws and other charter documents, and all amendments thereto.
22
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4.22 Accounting Records. Each of PRB and Golden maintains accounting
------------------
records which fairly and validly reflect, in all material respects, its
transactions and accounting controls exist sufficient to provide reasonable
assurances that such transactions are, in all material respects, (i) executed in
accordance with its management's general or specific authorization, and (ii)
recorded as necessary to permit the preparation of financial statements in
conformity with GAAP. Such records, to the extent they contain important
information pertaining to PRB or Golden which is not easily and readily
available elsewhere, have been duplicated, and such duplicates are stored safely
and securely.
4.23 Offices and ATMs. PRB has furnished to GBB a list (the "PRB
----------------
Offices List") setting forth the headquarters of each of PRB and Golden
(identified as such) and each of the offices and automated teller machines
("ATMs") maintained and operated by PRB or Golden (including, without
limitation, representative and loan production offices and operations centers)
and the location thereof. Except as set forth on the PRB Offices List, neither
PRB nor Golden maintains any other office or ATM or is doing business at any
other location, and neither PRB nor Golden has applied for or received
permission to open any additional branch or operate at any other location.
4.24 Operating Losses. PRB has furnished to GBB a list (the "PRB
----------------
Operating Losses List") setting forth any Operating Loss (as herein defined)
which has occurred at PRB during the period after December 31, 1997 to the date
of the Agreement. To the knowledge of PRB, no action has been taken or omitted
to be taken by any employee of PRB that has resulted in the incurrence by PRB of
an Operating Loss or that, to the knowledge of PRB, might reasonably be expected
to result in the incurrence of any individual Operating Loss which, net of any
insurance proceeds payable in respect thereof, would exceed $10,000 on an
individual basis, or $50,000 in the aggregate. For purposes of this section
"Operating Loss" means any loss resulting from cash shortages, lost or misposted
items, disputed clerical and accounting errors, forged checks, payment of checks
over stop payment orders, counterfeit money, wire transfers made in error,
theft, robberies, defalcations, check kiting, fraudulent use of credit cards or
ATMs, civil money penalties, fines, litigation, claims or other similar acts or
occurrences.
4.25 Loan Portfolio. PRB has furnished to GBB a list (the "PRB Loan
--------------
List") that sets forth as of December 31, 1997 a description of (a) by type and
classification, if any, each loan, lease, other extension of credit or
commitment to extend credit by PRB; (b) by type and classification, all loans,
leases, other extensions and commitments to extend credit of PRB that have been
classified by its bank examiners or auditors (external or internal) as "Watch
List," "Substandard," "Doubtful," "Loss" or any comparable classification; and
(c) all consumer loans due to PRB as to which any payment of principal, interest
or any other amount is 90 days or more past due.
4.26 Investment Securities. PRB has furnished to GBB a list (the "PRB
---------------------
Investment Securities List") setting forth a description of each Investment
Security held by PRB or Golden on December 31, 1997. The PRB Investment
Securities List sets forth, with respect to each such Investment Security: (i)
the issuer thereof; (ii) the outstanding balance or number of shares; (iii) the
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maturity, if applicable; (iv) the title of issue; and (v) the classification
under SFAS No. 115. Neither PRB nor Golden has any Investment Security
classified as trading.
4.27 Power of Attorney. Neither PRB nor Golden has granted any Person
-----------------
a power of attorney or similar authorization that is presently in effect or
outstanding.
4.28 Facts Affecting Regulatory Approvals. To the best knowledge of
------------------------------------
PRB, there is no fact, event or condition applicable to PRB or Golden which
will, or reasonably could be expected to, adversely affect the likelihood of
securing the requisite approvals or consents of any Governmental Entity to the
Merger and the transactions contemplated by this Agreement.
4.29 Accounting and Tax Matters. To the best knowledge of PRB,
--------------------------
neither PRB nor Golden has through the date hereof taken or agreed to take any
action that would prevent GBB from accounting for the business combination to be
effected by the Merger as a pooling-of-interests or would prevent the Merger
from qualifying as a tax-free reorganization under the Code.
4.30 Indemnification. Other than pursuant to the provisions of their
---------------
respective articles of incorporation or bylaws, neither PRB nor Golden is a
party to any indemnification agreement with any of its present officers,
directors, employees, agents or other persons who serve or served in any other
capacity with any other enterprise at the request of PRB or Golden (a "Covered
Party"), and to the best knowledge of PRB, there are no claims for which any
Covered Party would be entitled to indemnification by PRB or Golden if such
provisions were deemed in effect, except as set forth in a list furnished by PRB
to GBB (the "PRB Indemnification List").
4.31 Community Reinvestment Act. PRB has received rating of
--------------------------
"satisfactory" in its most recent examination or interim review with respect to
the Community Reinvestment Act. PRB has not been advised of any supervisory
concerns regarding PRB's compliance with the Community Reinvestment Act.
4.32 Derivative Transactions. Neither PRB nor Golden is a party to a
-----------------------
transaction in or involving forwards, futures, options on futures, swaps or
other derivative instruments, other than repurchase agreements, reverse
repurchase agreements or similar instruments or transactions entered into in the
ordinary course of the banking business.
4.33 Trust Administration. PRB does not presently exercise trust
--------------------
powers, including, but not limited to, trust administration, and neither it nor
any predecessor has exercised such trust powers for a period of at least 3 years
prior to the date hereof. The term "trusts" as used in this Section 4.33
includes (i) any and all common law or other trusts between an individual,
corporation or other entities and PRB or a predecessor, as trustee or co-
trustee, including, without limitation, pension or other qualified or
nonqualified employee benefit plans, compensation, testamentary, inter vivos,
and charitable trust indentures; (ii) any and all decedents' estates where PRB
or a predecessor is serving or has served as a co-executor or sole executor,
personal representative or administrator, administrator de bonis non,
administrator de bonis non with will annexed, or in any similar fiduciary
capacity; (iii) any and all guardianships, conservatorships or
24
<PAGE>
similar positions where PRB or a predecessor is serving or has served as a co-
grantor or a sole grantor or a conservator or co-conservator of the estate, or
any similar fiduciary capacity; and (iv) any and all agency and/or custodial
accounts and/or similar arrangements, including plan administrator for employee
benefit accounts, under which PRB or a predecessor is serving or has served as
an agent or custodian for the owner or other party establishing the account with
or without investment authority.
4.34 Disclosure Documents and Applications. None of the information
-------------------------------------
supplied or to be supplied by or on behalf of PRB ("PRB Supplied Information")
for inclusion in any documents to be filed with the SEC, the FRB, the FDIC, the
DFI or any other Governmental Entity in connection with the transactions
contemplated in this Agreement, will, at the respective times such documents are
filed or become effective and in light of the circumstances under which the
information was supplied, contain any untrue statement of a material fact, or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
4.35 Accuracy and Currentness of Information Furnished. The
-------------------------------------------------
representations and warranties made by PRB hereby or in the PRB Lists or
schedules hereto do not contain any untrue statement of a material fact or omit
to state any material fact which is necessary under the circumstances under
which they were made to prevent the statements contained herein or in such
schedules from being misleading.
ARTICLE V
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER
------------------------------------------------------------
The Shareholder represents and warrants to GBB as follows:
5.1 Investment Representations and Covenants of the Shareholder.
-----------------------------------------------------------
(a) The Shareholder understands that the GBB Stock being issued
in the Merger has not been registered under the Securities Act and is being
offered and sold pursuant to an exemption from registration contained in the
Securities Act based in part upon the representations of the Shareholder
contained herein.
(b) The Shareholder knows of no public solicitation or
advertisement of an offer in connection with the proposed issuance and sale of
the GBB Stock.
(c) The Shareholder is acquiring the GBB Stock to be issued
pursuant to the Merger for its own account for investment and not as a nominee
and not with a view to the distribution thereof.
25
<PAGE>
(d) The Shareholder acknowledges that GBB shall make a notation
in its stock books regarding the restrictions on transfer set forth in Section
5.2 and shall transfer such shares on the books of GBB only to the extent not
inconsistent therewith or with the Registration Rights Agreement.
(e) The Shareholder acknowledges that it is aware of Rule 144
promulgated under the Securities Act, which permits limited public resales of
securities acquires in a nonpublic offering, subject to the satisfaction of
certain conditions.
5.2 Legend. The Shareholder understands and acknowledges that the
------
certificate evidencing its shares of GBB Stock acquired pursuant to the Merger
will be imprinted with a legend stating in substance the following:
THE COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, NOR REGISTERED OR QUALIFIED UNDER ANY STATE
SECURITIES LAWS, AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS SO REGISTERED OR
AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREOF IS
AVAILABLE.
The Shareholder and GBB acknowledge and agree that this legend and the
notation in GBB's stock books referred to in Section 5.1(d) will be removed upon
due registration of the shares of GBB Stock acquired in the Merger pursuant to
the Registration Rights Agreement, the expiration of the applicable holding
period or otherwise in accordance with the Securities Act and the regulations of
the SEC thereunder.
5.3 Authorization. The Shareholder has the full power and authority
-------------
to execute, deliver and perform this Agreement. Assuming the accuracy of the
representations in Sections 4.6 and 6.5 hereof, this Agreement when executed and
delivered by the Shareholder will constitute a valid and legally binding
obligation of the Shareholder, enforceable in accordance with its terms, subject
to laws of general application relating to bankruptcy, insolvency and the relief
of debtors and other laws of general applicable affecting enforcement of
creditors' rights generally, rules of law governing specific performance,
injunctive relief and other equitable remedies, and limitations of public
policy.
5.4 Reliance. The Shareholder has been furnished with such written
--------
and oral information regarding GBB, and the Shareholder has had the opportunity
to ask questions of, and receive answers from, GBB or any Person acting on GBB's
behalf, concerning the business, operations, assets (including intangible
assets), financial condition, results of operations and prospects of GBB and the
Banks, as the Shareholder has deemed necessary or appropriate for purposes of
the Shareholder's investment decision. Notwithstanding the provisions of the
preceding sentence or the other provisions of this Article V, however, no
examination or review of the business
26
<PAGE>
and operations of GBB and the Banks by the Shareholder shall constitute a waiver
or relinquishment on its part of the right to rely upon the representations and
warranties made by GBB herein.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF GBB
-------------------------------------
GBB represents and warrants to PRB and the Shareholder as follows:
6.1 Incorporation, Standing and Power. GBB has been duly organized,
---------------------------------
is validly existing and in good standing as a corporation under the laws of the
State of California and is registered as a bank holding company under the BHC
Act. GBB has all requisite corporate power and authority to own, lease and
operate its properties and assets and to carry on its business as presently
conducted. GBB is duly qualified and in good standing as a foreign
corporations, and is authorized to do business, in all states or other
jurisdictions in which such qualification or authorization is necessary, except
where the failure to be so qualified or authorized would not, individually or in
the aggregate, have a Material Adverse Effect. True and correct copies of the
articles of incorporation and bylaws of GBB have been furnished to PRB. Such
articles of incorporation and bylaws are in full force and effect as of the date
hereof.
6.2 Capitalization. As of the date of this Agreement, the authorized
--------------
capital stock of GBB consists of 12,000,000 shares of common stock, no par
value, of which 4,078,526 shares are outstanding and 4,000,000 shares of
preferred stock, no par value, of which no shares are outstanding. All of the
outstanding shares of GBB Stock are duly authorized, validly issued, fully paid
and nonassessable. The GBB Stock to be issued in the Merger has been duly
authorized, will be validly issued, fully paid and nonassessable and will be
free and clear of any preemptive rights.
6.3 Financial Statements. GBB has previously furnished to PRB a copy
--------------------
of the Financial Statements of GBB. The Financial Statements of GBB: (a)
present fairly the consolidated financial condition of GBB as of the respective
dates indicated and its consolidated results of operations and changes in cash
flows, as applicable, for the respective periods then ended, subject, in the
case of the unaudited consolidated interim financial statements, to normal
recurring adjustments; and (b) have been prepared in accordance with GAAP
consistently applied (except as otherwise indicated therein).
6.4 Reports and Filings. Since December 31, 1994, GBB has filed all
-------------------
reports, returns, registrations and statements (such reports and filings
referred to as "GBB Filings"), together with any amendments required to be made
with respect thereto, that were required to be filed with (a) the SEC, (b) the
FRB, (c) the FDIC, (d) the OCC, (e) the DFI and (f) any other applicable
Governmental Entity, including taxing authorities, except where the failure to
file such reports, returns, registrations or statements has not had and is not
reasonably expected to have a Material Adverse Effect. No adverse
administrative actions have been taken or orders issued in connection with such
GBB Filings. As of their respective dates, each of such GBB Filings (y)
complied in all material respects with all laws and regulations enforced or
promulgated by the Governmental Entity
27
<PAGE>
with which it was filed (or was amended so as to be in such compliance promptly
following discovery of any such noncompliance); and (z) did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Any financial
statement contained in any of such GBB Filings that was intended to present the
financial position, results of operations or cash flows of GBB on a consolidated
basis fairly presented the financial position, results of operations or cash
flows of GBB on a consolidated basis and was prepared in accordance with GAAP or
banking regulations consistently applied, except as stated therein, during the
periods involved. GBB has furnished to PRB true and correct copies of all GBB
Filings filed by GBB since December 31, 1994.
6.5 Authority. The execution and delivery by GBB of this Agreement
---------
and of the Agreement of Merger and the consummation of the transactions
contemplated hereby and thereby, have been duly and validly authorized by all
necessary corporate and shareholder action on the part of GBB, and this
Agreement and the Agreement of Merger will be upon due execution and delivery by
the respective parties hereto, a valid and binding obligation of GBB enforceable
in accordance with their respective terms, except as the enforceability thereof
may be limited by bankruptcy, liquidation, receivership, conservatorship,
insolvency, moratorium or other similar laws affecting the rights of creditors
generally and by general equitable principles. Except as set forth in a list
furnished by GBB to PRB (the "GBB Conflicts and Consents List"), neither the
execution and delivery by GBB of this Agreement or the Agreement of Merger, the
consummation of the transactions contemplated herein or therein, nor compliance
by GBB with any of the provisions hereof or thereof, will: (a) conflict with or
result in a breach of any provision of its articles of incorporation, as
amended, or bylaws, as amended; (b) constitute a breach of or result in a
default (or give rise to any rights of termination, cancellation or
acceleration, or any right to acquire any securities or assets) under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture,
franchise, license, permit, agreement or other instrument or obligation to which
GBB or any subsidiary of GBB is a party, or by which GBB, or any subsidiary of
GBB or any of its respective properties or assets is bound; (c) result in the
creation or imposition of any Encumbrance on any of the properties or assets of
GBB or any subsidiary; or (d) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to GBB or any subsidiary of GBB or any of
their respective properties or assets. Except as set forth in the "GBB
Conflicts and Consents List," no consent of, approval of, notice to or filing
with any Governmental Entity having jurisdiction over any aspect of the business
or assets of GBB, and no consent of, approval of or notice to any other Person,
is required in connection with the execution and delivery by GBB of this
Agreement or the Agreement of Merger, or the consummation by GBB of the Merger
or the transactions contemplated hereby or thereby, except (i) such approvals as
may be required by the SEC, the FRB, the FDIC, the OCC and the DFI; and (ii)
filing of the Agreement of Merger with the Secretary of State of the State of
California.
6.6 Subsidiaries. As of the date of this Agreement, and except for
------------
its investments in the Banks (all of which are wholly owned subsidiaries) and
GBB Capital I, GBB does not own, directly or indirectly (except as a pledgee
pursuant to loans or upon acquisition in satisfaction of debt
28
<PAGE>
previously contracted), the outstanding stock or equity or other voting interest
in any other corporation, partnership, joint venture or other entity.
6.7 Brokers and Finders. GBB is not a party to or obligated under
-------------------
any agreement with any broker or finder relating to the transactions
contemplated hereby, and neither the execution of this Agreement nor the
consummation of the transactions provided for herein will result in any
liability to any broker or finder.
6.8 Certain Material Changes. Except as specifically required,
------------------------
permitted or effected by this Agreement or as disclosed in any GBB Filings,
since December 31, 1997, there has not been, occurred or arisen any of the
following (whether or not in the ordinary course of business unless otherwise
indicated):
(a) Any change in any of the assets, liabilities, permits,
methods of accounting or accounting practices, business, or manner or conducting
business, of GBB or its subsidiaries or any other event or development that has
had or may reasonably be expected to have a Material Adverse Effect;
(b) Any damage, destruction or other casualty loss (whether or
not covered by insurance) that has had or may reasonably be expected to have a
Material Adverse Effect;
(c) Any amendment, modification or termination of any existing,
or entry into any new, material contract or permit that has had or may
reasonably be expected to have a Material Adverse Effect; or
(d) Any disposition by GBB of an asset the lack of which has had
or may reasonably be expected to have a Material Adverse Effect.
6.9 Licenses and Permits. GBB and each subsidiary of GBB have all
--------------------
material licenses and permits that are necessary for the conduct of their
respective businesses, and such licenses are in full force and effect, except
for any failure to be in full force and effect that would not, individually or
in the aggregate, have a Material Adverse Effect. The respective properties,
assets, operations and businesses of GBB and each subsidiary of GBB are and have
been maintained and conducted, in all material respects, in compliance with all
applicable licenses and permits. The properties and operations of GBB and each
subsidiary of GBB are and have been maintained and conducted, in all material
respects, in compliance with all applicable laws and regulations.
6.10 Corporate Records. The minute books of GBB and its subsidiaries
-----------------
accurately reflect all material actions taken to this date by the respective
shareholders, boards of directors and committees of GBB and its subsidiaries and
contain true and complete copies of their respective articles of incorporation,
bylaws and other charter documents, and all amendments thereto.
6.11 Accounting Records. GBB and its subsidiaries maintain accounting
------------------
records which fairly and validly reflect, in all material respects, their
transactions and accounting controls
29
<PAGE>
exist sufficient to provide reasonable assurances that such transactions are, in
all material respects, (i) executed in accordance with their management's
general or specific authorization, and (ii) recorded as necessary to permit the
preparation of financial statements in conformity with GAAP. Such records, to
the extent they contain important information pertaining to GBB and its
subsidiaries which is not easily and readily available elsewhere, have been
duplicated, and such duplicates are stored safely and securely.
6.12 Facts Affecting Regulatory Approvals. To the best knowledge of
------------------------------------
GBB, there is no fact, event or condition applicable to GBB or any of its
subsidiaries which will, or reasonably could be expected to, adversely affect
the likelihood of securing the requisite approvals or consents of any
Governmental Entity to the Merger and transactions contemplated by this
Agreement.
6.13 Accounting and Tax Matters. To the best knowledge of GBB, GBB
--------------------------
has not through the date hereof taken or agreed to take any action that would
prevent it from accounting for the business combination to be effected by the
Merger as a pooling-of-interests or would prevent the Merger from qualifying as
a tax-free reorganization under the Code.
6.14 Litigation. Except as set forth in the GBB Filings or in a list
----------
furnished by GBB to PRB (the "GBB Litigation List"), there is no private or
governmental suit, claim, action or proceeding pending, nor to GBB's knowledge
threatened, against GBB or against any of its directors, officers or employees
relating to the performance of their duties in such capacities or against or
affecting any properties of GBB which, if adversely determined, would have a
Material Adverse Effect. Also, except as disclosed in the GBB Filings or in the
GBB Litigation List, there are no material judgments, decrees, stipulations or
orders against GBB or enjoining its directors, officers or employees in respect
of, or the effect of which is to prohibit, any business practice or the
acquisition of any property or the conduct of business in any area.
6.15 Operating Losses. GBB has furnished to PRB a list (the "GBB
----------------
Operating Losses List") setting forth any Operating Loss which has occurred at
GBB or the Banks during the period after December 31, 1997 to the date of the
Agreement. To the knowledge of GBB, no action has been taken or omitted to be
taken by any employee of GBB or the Banks that has resulted in the incurrence by
GBB of an Operating Loss or that, to the knowledge of GBB, might reasonably be
expected to result in the incurrence of any individual Operating Loss which, net
of any insurance proceeds payable in respect thereof, would exceed $10,000 on an
individual basis, or $50,000 in the aggregate.
6.16 Undisclosed Liabilities. GBB does not have any liabilities or
-----------------------
obligations, either accrued or contingent, that are material to GBB on a
consolidated basis and that have not been: (a) reflected, reserved for or
disclosed in the Financial Statements of GBB; (b) incurred subsequent to
December 31, 1997 in the ordinary course of business; or (c) disclosed in a list
furnished by GBB to PRB (the "GBB Undisclosed Liabilities List") or on any other
GBB List. GBB does not know of any facts that would form the basis for the
assertion against it of any liability, obligation or claim (including, without
limitation, that of any regulatory authority) that is likely to result in or
cause a
30
<PAGE>
Material Adverse Effect and is not fairly reflected in the Financial Statements
of GBB or otherwise disclosed in this Agreement.
6.17 Disclosure Documents and Applications. None of the information
-------------------------------------
supplied or to be supplied by or on behalf of GBB or any of its subsidiaries
("GBB Supplied Information") for inclusion in any documents to be filed with
the SEC, the FRB, the FDIC, the DFI or any other Governmental Entity in
connection with the transactions contemplated in this Agreement, will, at the
respective times such documents are filed or become effective and in light of
the circumstances under which the information was supplied, contain any untrue
statement of a material fact, or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
6.18 Accuracy and Currentness of Information Furnished. The
-------------------------------------------------
representations and warranties made by GBB hereby or in the GBB Lists or
schedules hereto do not contain any untrue statement of material fact or omit to
state any material fact which is necessary under the circumstances under which
they were made to prevent the statements contained herein or in such schedules
from being misleading.
ARTICLE VII
COVENANTS OF PRB AND THE SHAREHOLDER
------------------------------------
PENDING EFFECTIVE TIME OF THE MERGER
------------------------------------
PRB and the Shareholder covenant and agree with GBB as follows:
7.1 Limitation on PRB's Conduct Prior to Effective Time of the
----------------------------------------------------------
Merger. Between the date hereof and the Effective Time of the Merger, except as
contemplated by this Agreement and subject to requirements of law and
regulation, PRB agrees to conduct its business (and to cause Golden to conduct
its business), and the Shareholder agrees to cause PRB and Golden to conduct
their respective businesses, in the ordinary course in substantially the manner
heretofore conducted and in accordance with sound banking practices, and PRB and
Golden shall not, and the Shareholder shall cause PRB and Golden not to, without
the prior written consent of GBB:
(a) issue, sell or grant any PRB Stock, Golden Stock, any other
securities (including long term debt) of PRB or Golden, or any rights, options
or securities to acquire any PRB Stock, Golden Stock or any other securities
(including long term debt) of PRB or Golden;
(b) declare, set aside or pay any dividend or make any other
distribution upon or split, combine or reclassify any shares of capital stock or
other securities of PRB or Golden;
(c) purchase, redeem or otherwise acquire any capital stock or
other securities of PRB or Golden or any rights, options or securities to
acquire any capital stock or other securities of PRB or Golden;
31
<PAGE>
(d) except as may be required to effect the transactions contemplated
herein, amend its articles of incorporation or bylaws;
(e) grant any general or uniform increase in the rate of pay of
employees or employee benefits;
(f) grant any increase in salary, incentive compensation or employee
benefits or pay any bonus to any Person or voluntarily accelerate the vesting of
any employee benefits;
(g) make any capital expenditure or commitments with respect thereto
in excess of $25,000 in the aggregate, except for ordinary repairs, renewals and
replacements;
(h) compromise or otherwise settle or adjust any assertion or claim
of a deficiency in taxes (or interest thereon or penalties in connection
therewith), extend the statute of limitations with any tax authority or file any
pleading in court in any tax litigation or any appeal from an asserted
deficiency, or file or amend any federal, foreign, state or local tax return, or
make any tax election;
(i) grant, renew or commit to grant or renew any extension of credit
if such extension of credit, together with all other credit then outstanding to
the same Person and all Affiliated Persons, would exceed $100,000 on an
unsecured basis, or $500,000 if secured by a lien on real estate or cash;
(j) change its tax or accounting policies and procedures or any
method or period of accounting unless required by GAAP or a Governmental Entity;
(k) grant or commit to grant any extension of credit or amend the
terms of any such credit outstanding on the date hereof to any executive
officer, director or holder of ten percent (10%) or more of the outstanding PRB
Stock, or any Affiliate of such Person, if such credit would exceed $25,000;
(l) close any offices at which business is conducted or open any new
offices;
(m) adopt or enter into any new employment agreement or other
employee benefit plan or arrangement or amend or modify any employment agreement
or employee benefit plan or arrangement of any such type except for such
amendments as are required by law;
(n) initiate, solicit or encourage (including by way of furnishing
information or assistance), or take any other action to facilitate, any
inquiries or the making of any proposal which constitutes, or may reasonably be
expected to lead to, any Competing Transaction (as such term is defined below),
or negotiate with any person in furtherance of such inquiries or to obtain a
Competing Transaction, or agree to or endorse any Competing Transaction, or
authorize or
32
<PAGE>
permit any of its officers, directors or employees or any investment banker,
financial advisor, attorney, accountant or any other representative retained by
it or any of its Affiliates to take any such action, and PRB shall promptly
notify GBB (orally and in writing) of all of the relevant details relating to
all inquiries and proposals which it may receive relating to any of such
matters. For purposes of this Agreement, "Competing Transaction" shall mean any
of the following involving PRB or Golden: any merger, consolidation, share
exchange or other business combination; a sale, lease, exchange, mortgage,
pledge, transfer or other disposition of assets of PRB or Golden representing
ten percent (10%) or more of the assets of PRB or Golden; a sale of shares of
capital stock (or securities convertible or exchangeable into or otherwise
evidencing, or any agreement or instrument evidencing, the right to acquire
capital stock), representing ten percent (10%) or more of the voting power of
PRB or Golden; a tender offer or exchange offer for at least ten percent (10%)
of the outstanding shares; or a public announcement of an unsolicited bona fide
proposal, plan, or intention to do any of the foregoing. The Shareholder
acknowledges that this Section 7.1(n) shall apply equally to the Shareholder as
it does to PRB and Golden, and the Shareholder covenants that it will comply
with the provisions hereof;
(o) change any of its basic policies and practices with respect
to liquidity management and cash flow planning, marketing, deposit origination,
lending, budgeting, profit and tax planning, personnel practices or any other
material aspect of its business or operations, except such changes as may be
required in the opinion of management to respond to economic or market
conditions or as may be required by any Governmental Entity;
(p) grant any Person a power of attorney or similar authority;
(q) make any investment by purchase of stock or securities
(including an Investment Security), contributions to capital, property transfers
or otherwise in any other Person, except for federal funds or obligations of the
United States Treasury or an agency of the United States Government the
obligations of which are entitled to or implied to have the full faith and
credit of the United States government and which have an original maturity not
in excess of one year, in any case, in the ordinary course of business
consistent with past practices and which are not designated as trading;
(r) amend or modify any Scheduled Contract or enter into any
agreement or contract that would be a Scheduled Contract under Section 4.16;
(s) sell, transfer, mortgage, encumber or otherwise dispose of
any assets or release or waive any claim, except in the ordinary course of
business and consistent with past practices;
(t) take any action which would or is reasonably likely to (i)
adversely affect the ability of GBB or PRB to obtain any necessary approval of
any Governmental Entity required for the transactions contemplated hereby; (ii)
adversely affect PRB's ability to perform its covenants and agreements under
this Agreement; or (iii) result in any of the conditions to the
33
<PAGE>
performance of GBB's or PRB's obligations hereunder, as set forth in Articles X
or XI herein not being satisfied;
(u) make any special or extraordinary payments to any Person;
(v) reclassify any Investment Security from hold-to-maturity or
available for sale to trading;
(w) sell any security other than in the ordinary course of
business, or engage in gains trading;
(x) take title to any real property without conducting prior
thereto an environmental investigation, which investigation shall disclose the
absence of any suspected environmental contamination;
(y) agree or make any commitment to take any actions prohibited
by this Section 7.1;
(z) take or cause to be taken any action which would prevent GBB
from accounting for the business combination to be effected by the Merger as a
pooling-of-interests;
(aa) notwithstanding any recoveries received with respect to
loans previously charged off, reduce the allowance for loan and lease losses,
except as a result of chargeoffs;
(bb) settle any claim, action or proceeding involving any
liability for monetary damages or enter into any settlement agreement containing
material obligations; provided, however, that GBB shall not unreasonably
withhold its consent to any settlement which is proposed by PRB;
(cc) make, acquire a participation in, or reacquire an interest
in a participation sold of, any loan that is not in compliance with its normal
credit underwriting standards, policies and procedures as in effect on January
1, 1998; or renew, extend the maturity of, or alter any of the material terms of
any such loan for a period of greater than six months; or
(dd) incur any indebtedness for borrowed money or assume,
guaranty, endorse or otherwise as an accommodation become responsible for the
obligations of any other person, except for (i) in connection with banking
transactions with banking customers in the ordinary course of business, or (ii)
short-term borrowings made at prevailing market rates and terms.
7.2 Affirmative Conduct of PRB Prior to Effective Time of the Merger.
----------------------------------------------------------------
Between the date hereof and the Effective Time of the Merger, PRB shall (and
shall cause Golden to), and the Shareholder shall cause each of PRB and Golden,
as applicable, to:
34
<PAGE>
(a) use its commercially reasonable efforts consistent with this
Agreement to maintain and preserve intact its present business organization and
to maintain and preserve its relationships and goodwill with account holders,
borrowers, employees and others having business relationships with PRB;
(b) use its commercially reasonable efforts to keep in full
force and effect all of the existing material permits and licenses of PRB;
(c) use its commercially reasonable efforts to maintain
insurance coverage at least equal to that now in effect on all properties for
which it is responsible and on its business operations;
(d) perform its material contractual obligations and not become
in material default on any such obligations;
(e) duly observe and conform in all material respects to all
lawful requirements applicable to its business;
(f) maintain its assets and properties in good condition and
repair, normal wear and tear excepted;
(g) promptly notify GBB regarding receipt from any tax authority
of any notification of the commencement of an audit, any request to extend the
statute of limitations, any statutory notice of deficiency, any revenue agent's
report, any notice of proposed assessment, or any other similar notification of
potential adjustments to the tax liabilities of PRB, or any actual or threatened
collection enforcement activity by any tax authority with respect to tax
liabilities of PRB;
(h) make available to GBB monthly unaudited balance sheets and
income statements of PRB within twenty-five (25) days after the close of each
calendar month;
(i) not later than the 20th day of each calendar month, amend or
supplement the PRB Lists prepared and delivered pursuant to Article IV to ensure
that the information set forth in the PRB Lists accurately reflects the then-
current status of PRB. PRB shall further amend or supplement the PRB Lists as
of the Closing Date if necessary to reflect any additional information that
needs to be included in the PRB Lists;
(j) use its commercially reasonable efforts to obtain any third
party consent with respect to any contract, agreement, lease, license,
arrangement, permit or release that is material to the business of PRB or that
is contemplated in this Agreement as required in connection with the Merger;
(k) maintain an allowance for loan and lease losses consistent
with practices and methodology as in effect on the date of the execution of this
Agreement and take such actions as are necessary to comply with the requirements
of subsection (ii) to Section 12.10 hereof;
35
<PAGE>
(l) furnish to GBB, as soon as practicable, and in any event
within 15 days after it is prepared, a copy of any report submitted to the PRB
or Golden Board of Directors or any committee thereof, provided, however, that
PRB need not furnish to GBB communications of PRB's legal counsel regarding
PRB's rights and obligation under this Agreement or the transactions
contemplated hereby, or books, records and documents covered by confidentiality
agreements or filed with any Governmental Entity on a confidential basis (other
than confidentially filed portions of any notice or application filed in
connection with the transactions contemplated by this Agreement, which shall be
furnished to GBB) or covered by the attorney-client privilege, or which are
attorneys' work product;
(m) use its commercially reasonable efforts to protect and
preserve all rights to the use of the name "Pacific Rim Bancorporation" and to
take any actions reasonably requested by GBB to ensure that such rights will
inure to the benefit of GBB upon the Effective Time of the Merger. and
(n) furnish to Manatt, Phelps & Phillips, LLP promptly upon its
written request such written representations and certificates as deemed
reasonably necessary or appropriate for purposes of enabling Manatt, Phelps &
Phillips, LLP to render the tax opinion referred to in Section 10.5 hereof.
7.3 Access to Information.
---------------------
(a) PRB will afford, and the Shareholder shall cause PRB to
afford, upon reasonable notice, to GBB and its representatives, counsel,
accountants, agents and employees reasonable access during normal business hours
to all of its business, operations, properties, books, files and records and
will do everything reasonably necessary to enable GBB and its representatives,
counsel, accountants, agents and employees to make a complete examination of the
financial statements, business, assets and properties of PRB and Golden and the
condition thereof and to update such examination at such intervals as GBB shall
reasonably deem appropriate. Such examination shall be conducted in cooperation
with the officers of PRB and Golden and in such a manner as to minimize any
disruption of, or interference with, the normal business operations of PRB. Upon
the request of GBB, PRB will request (and the Shareholder shall cause PRB to
request) Peat Marwick to provide reasonable access to representatives of C&L
working on behalf of GBB to auditors' work papers with respect to the business
and properties of PRB, including tax accrual work papers prepared for PRB during
the preceding sixty (60) months, other than (a) books, records and documents
covered by the attorney-client privilege, or that are attorneys' work product,
and (b) books, records and documents that PRB is legally obligated to keep
confidential. No examination or review conducted under this section shall
constitute a waiver or relinquishment on the part of GBB of the right to rely
upon the representations and warranties made by PRB herein; provided, that GBB
shall disclose to PRB any fact or circumstance it may discover which GBB
believes renders any representation or warranty made by PRB hereunder incorrect
in any respect. GBB covenants and agrees that it, its subsidiaries, and their
respective representatives, counsel, accountants, agents and employees will hold
in strict confidence all documents and information concerning PRB so obtained
from any of them so obtained (except to the extent that such documents or
information are
36
<PAGE>
a matter of public record or any of the public information of any applications
required to be filed with any Governmental Entity to obtain the approvals and
consents required to effect the transactions contemplated hereby), and if the
transactions contemplated herein are not consummated, such confidence shall be
maintained and all such documents shall be returned to PRB.
(b) Subject to subsection (a) above, a representative of GBB,
selected by GBB in its sole discretion, shall be authorized and permitted to
review each loan, lease or other credit funded or renewed by PRB or Golden after
the date hereof, and all information associated with such loan, lease or other
credit within three Business Days of such funding or renewal, such review to
take place, if possible, on PRB's premises.
(c) A representative of GBB, selected by GBB in its sole
discretion, shall be permitted by PRB to attend all regular and special Board of
Directors' and committee meetings of PRB and Golden from the date hereof until
the Effective Time of the Merger; provided, however, that the attendance of such
representative shall not be permitted at any meeting, or portion thereof, for
the purpose of discussing the transactions contemplated by this Agreement or the
obligations of PRB under this Agreement or other matters where attendance of
said representative could reasonably be expected to jeopardize PRB's or Golden's
ability to assert the attorney-client privilege.
7.4 Review by Accountants. Promptly upon request of GBB, PRB will
---------------------
request (and the Shareholder in its capacity as a shareholder shall cause PRB to
request) Peat Marwick to permit representatives of C&L working on behalf of GBB
to review and examine the work papers of Peat Marwick relating to PRB and the
Financial Statements of PRB and to review and examine the work papers of Peat
Marwick relating to any future completed audits or completed reviews of PRB.
7.5 Filings. PRB and the Shareholder agree that through the
-------
Effective Time of the Merger, each of PRB's and Golden's reports, registrations,
statements and other filings required to be filed with any applicable
Governmental Entity will comply in all material respects with all the applicable
statutes, rules and regulations enforced or promulgated by the Governmental
Entity with which it will be filed and none will contain any untrue statement of
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Any financial statement contained in any
such report, registration, statement or other filing that is intended to present
the financial position of the entity to which it relates will fairly present the
financial position of such entity and will be prepared in accordance with GAAP
or applicable banking regulations consistently applied during the periods
involved.
7.6 Notices; Reports. PRB and the Shareholder each will promptly
----------------
notify GBB of any event of which PRB or the Shareholder obtains knowledge which
has had or may have a Material Adverse Effect on the financial condition,
operations, business or prospects of PRB or Golden, or in the event that PRB or
the Shareholder determines that it is unable to fulfill any of the conditions to
the performance of GBB's obligations hereunder, as set forth in Articles X or
XII herein, and PRB and the Shareholder each will furnish GBB (i) as soon as
available, and in any event
37
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within ten (10) days after it is prepared, any report by PRB or Golden for
submission to the Board of Directors of PRB or Golden or committees thereof,
(ii) as soon as available, all proxy statements, information statements,
financial statements, reports, letters and communications sent by PRB to the
Shareholder, and all reports to be filed by PRB or Golden with the FRB, the FDIC
or the DFI after the date hereof, and (iii) the public portions (subject to
Section 7.8) of such other existing reports as GBB may reasonably request
relating to PRB or Golden.
7.7 Certain Loans and Other Extensions of Credit. PRB will
--------------------------------------------
promptly inform GBB of the amounts and categories of any loans, leases or other
extensions of credit that have been classified by any bank regulatory authority
or by any unit of Golden or by any other Person as "Criticized," "Specially
Mentioned," "Substandard," "Doubtful," "Loss" or any comparable classification
("Classified Credits"). PRB will furnish GBB, as soon as practicable, and in
any event within 20 days after the end of each calendar month, schedules
including the following: (a) Classified Credits (including with respect to each
credit its classification category and the originating unit); (b) nonaccrual
credits (including the originating unit); (c) accrual exception credits that are
delinquent 90 or more days and have not been placed on nonaccrual status
(including its originating unit); (d) credits delinquent as to payment of
principal or interest (including its originating unit), including an aging into
current-to-29, 30-59, 60-89, and 90+ day categories; (e) participating loans and
leases, stating, with respect to each, whether it is purchased or sold and the
originating unit; (f) loans or leases (including any commitments) by Golden to
any PRB or Golden director, officer at or above the senior vice president level,
or shareholder holding ten percent (10%) or more of the capital stock of PRB,
including with respect to each such loan or lease the identity and, to the
knowledge of PRB, the relation of the borrower to PRB or Golden, and the
outstanding and undrawn amounts; (g) letters of credit (including the
originating unit); (h) loans or leases wholly or partially charged off during
the previous month (including with respect to each loan or lease, the
originating amount, the write-off amount and its originating unit); and (i)
other real estate or assets acquired in satisfaction of debt.
7.8 Applications. Subject to Section 8.5, PRB and the Shareholder
------------
each will promptly prepare any applications necessary to consummate the
transactions contemplated hereby, and each further agrees to provide any
information requested by GBB for the preparation of any applications by GBB
necessary to consummate the transactions contemplated hereby. PRB and the
Shareholder each shall afford GBB a reasonable opportunity to review all such
applications (including confidential or nonpublic portions thereof) and all
amendments and supplements thereto before the filing thereof. PRB will use its
commercially reasonable efforts and the Shareholder will use its commercially
reasonable efforts to obtain all regulatory approvals or consents necessary to
effect the Merger and the transactions contemplated herein.
7.9 Reserved.
--------
7.10 D&O Coverage. In the event that GBB is unable to have PRB's
------------
directors and officers added to GBB's directors' and officers' liability
insurance policy pursuant to Section 8.10(c) hereof and upon GBB's request, PRB
shall (and the Shareholder shall cause PRB to) use its commercially reasonable
efforts to obtain (i) coverage for a period of at least 36 months following
38
<PAGE>
the Effective Time of the Merger for the directors and officers of PRB under a
directors' and officers' liability insurance policy which is no less protective
in terms of coverage or limitations than now possessed by PRB covering acts or
omissions occurring prior to the Effective Time of the Merger and actions
related to this Agreement, and (ii) coverage for a period of at least 36 months
following the Effective Time of the Merger under a bankers' blanket bond which
is no less protective in terms of coverage or limitations than now possessed by
PRB covering acts or omissions occurring prior to the Effective Time of the
Merger and actions related to this Agreement.
7.11 Removal of Conditions. In the event of the imposition of a
---------------------
condition to any regulatory approvals which PRB or the Shareholder deems to
materially adversely affect it or to be materially burdensome as provided in
Section 10.3 hereof, PRB shall (and the Shareholder shall cause PRB to) promptly
notify GBB of the imposition of such condition, and PRB and the Shareholder
shall use their commercially reasonable efforts for purposes of obtaining the
removal of such condition.
ARTICLE VIII
COVENANTS OF GBB
----------------
PENDING EFFECTIVE TIME OF THE MERGER
------------------------------------
GBB covenants and agrees with PRB and the Shareholder as follows:
8.1 Limitation on GBB's Conduct Prior to Effective Time of the
----------------------------------------------------------
Merger. Between the date hereof and the Effective Time of the Merger, except as
- ------
contemplated by this Agreement and subject to requirements of law and regulation
generally applicable to bank holding companies and banks, each of GBB and its
subsidiaries shall not, without the prior written consent of PRB:
(a) take any action which would or is reasonably likely to (i)
adversely affect the ability of GBB to obtain any necessary approvals of any
Governmental Entity required for the transactions contemplated hereby; (ii)
adversely affect GBB's ability to perform its covenants and agreements under
this Agreement; or (iii) result in any of the conditions to the performance of
GBB's obligations hereunder, as set forth in Articles X or XII herein not being
satisfied;
(b) take or cause to be taken any action which would disqualify
the Merger as a "reorganization" within the meaning of Section 368 of the Code
or prevent GBB from accounting for the business combination to be effected by
the Merger as a pooling-of-interests;
(c) amend its articles of incorporation in any respect which
would materially and adversely affect the rights and privileges attendant to the
GBB Stock; or
(d) agree or make any commitment to take any actions prohibited
by this Section 8.1.
39
<PAGE>
8.2 Affirmative Conduct of GBB Prior to Effective Time of the Merger.
----------------------------------------------------------------
Between the date hereof and the Effective Time of the Merger, GBB shall:
(a) use its commercially reasonable efforts consistent with this
Agreement, and cause each of its subsidiaries to use its commercially reasonable
efforts consistent with this Agreement, to maintain and preserve intact their
respective present business organizations and to maintain and preserve the
relationships and goodwill with account holders, borrowers, employees and others
having business relationships with GBB or any subsidiary of GBB;
(b) duly observe and conform in all material respects to all
lawful requirements applicable to the business of GBB or any subsidiary of GBB;
(c) make available to PRB monthly unaudited consolidated balance
sheets and consolidated income statements of GBB within twenty-five (25) days
after the close of each calendar month;
(d) use its commercially reasonable efforts to obtain any third
party consent with respect to any contract, agreement, lease, license,
arrangement, permit or release that is material to the business of GBB on a
consolidated basis or that is contemplated in this Agreement as required in
connection with the Merger; and
(e) not later than the 20th day of each calendar month, amend or
supplement the GBB Lists prepared and delivered pursuant to Article VI to ensure
that the information set forth in the GBB Lists accurately reflects the then-
current status of GBB and its subsidiaries. GBB shall further amend or
supplement the GBB Lists as of the Closing Date if necessary to reflect any
additional information that needs to be included in the GBB Lists.
(f) furnish to Manatt, Phelps & Phillips, LLP promptly upon its
written request such written representations and certificates as deemed
reasonably necessary or appropriate for purposes of enabling Manatt, Phelps &
Phillips, LLP to render the tax opinion referred to in Section 10.5 hereof.
8.3 Access to Information. Upon reasonable request by PRB, GBB shall
---------------------
(i) make its Chief Executive Officer, Chief Operating Officer/Chief Financial
Officer and Controller available to discuss with PRB and its representatives
GBB's operations and (ii) shall provide PRB with written information which is
(a) similar to the written information that PRB reviewed in connection with this
Agreement, and (b) related to GBB's business condition, operations and
prospects. No examination or review conducted under this section shall
constitute a waiver or relinquishment on the part of PRB of the right to rely
upon the representations and warranties made by GBB herein; provided, that PRB
shall disclose to GBB any fact or circumstance it may discover which PRB
believes renders any representation or warranty made by GBB hereunder incorrect
in any material respect. PRB covenants and agrees that it and its
representatives, counsel, accountants, agents and employees will hold in strict
confidence all documents and information concerning GBB so obtained (except to
the extent that such documents or information are a matter of public record or
any of the public
40
<PAGE>
information of any applications required to be filed with any Governmental
Entity to obtain the approvals and consents required to effect the transactions
contemplated hereby), and if the transactions contemplated herein are not
consummated, such confidence shall be maintained and all such documents shall be
returned to GBB.
8.4 Filings. GBB agrees that through the Effective Time of the
-------
Merger, each of its reports, registrations, statements and other filings
required to be filed with any applicable Governmental Entity will comply in all
material respects with all the applicable statutes, rules and regulations
enforced or promulgated by the Governmental Entity with which it will be filed
and none will contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Any financial statement contained in any such report, registration,
statement or other filing that is intended to present the financial position of
the entities or entity to which it relates will fairly present the financial
position of such entities or entity and will be prepared in accordance with GAAP
or applicable banking regulations consistently applied during the periods
involved.
8.5 Applications. GBB will promptly prepare and file or cause to be
------------
prepared and filed such regulatory applications and notices as deemed necessary
to consummate the transactions contemplated hereby. GBB shall afford PRB a
reasonable opportunity to review all such applications and notices (including
confidential or nonpublic portions thereof) and all amendments and supplements
thereto before the filing thereof. GBB will use its commercially reasonable
efforts to obtain all regulatory approvals or consents necessary to effect the
Merger.
8.6 Blue Sky. GBB shall take any action required to be taken under
--------
any applicable state securities laws in connection with the issuance of the GBB
Stock in the Merger, and PRB and the Shareholder agree to furnish all
information deemed necessary or appropriate in connection with any such action.
8.7 Notices; Reports. GBB will promptly notify PRB of any event of
----------------
which GBB obtains knowledge which has had or may have a Material Adverse Effect
on GBB or in the event that GBB determines that it is unable to fulfill any of
the conditions to the performance of PRB's obligations hereunder, as set forth
in Articles X or XI herein, and GBB will furnish PRB (i) as soon as available,
and in any event within ten (10) days after it is prepared, any report by GBB
for submission to the Board of Directors of GBB or committees thereof, (ii) as
soon as available, all proxy statements, information statements, financial
statements, reports, letters and communications sent by GBB to its shareholders
or other security holders, and (iii) all reports filed by GBB with the SEC, the
FRB, the FDIC, the OCC or the DFI.
8.8 Removal of Conditions. In the event of the imposition of a
---------------------
condition to any regulatory approvals which GBB deems to materially adversely
affect it or to be materially burdensome as provided in Section 10.3 hereof, GBB
shall promptly notify PRB of the imposition of such condition and shall use its
commercially reasonable efforts for purposes of obtaining the removal of such
condition.
41
<PAGE>
8.9 Reservation, Issuance and Registration of GBB Stock. GBB shall
---------------------------------------------------
reserve and make available for issuance in connection with the Merger and in
accordance with the terms and conditions of this Agreement such number of shares
of GBB Stock to be issued to the Shareholder in the Merger pursuant to Article
II hereof.
8.10 Indemnification of PRB and Golden Directors and Officers.
--------------------------------------------------------
(a) From and after the Effective Time of the Merger, in the
event of any threatened or actual claim, action, suit, proceeding or
investigation, whether civil, criminal or administrative, including, without
limitation, any such claim, action, suit, proceeding or investigation in which
any Covered Party (including any person who becomes a Covered Party prior to the
Effective Time of the Merger), is, or is threatened to be, made a party based in
whole or in part on, or arising out of, or pertaining to (i) the fact that he or
she was a director, officer or employee of PRB or Golden or (ii) this Agreement,
the Agreement of Merger or any of the transactions contemplated hereby or
thereby, whether in any case asserted or arising before or after the Effective
Time of the Merger, with respect to matters occurring prior to the Effective
Time of the Merger, provided that the Covered Party acted in good faith and in a
manner he/she believed to be in the best interests of PRB or Golden (or other
standard of conduct applicable under the circumstances), GBB shall indemnify and
hold harmless, as and to the fullest extent permitted by applicable law, each
such Covered Party against any losses, claims, damages, liabilities, costs,
expenses (including reasonable attorneys' fees and expenses in advance of the
final disposition of any claim, suit, proceeding or investigation to each
Covered Party to the fullest extent permitted by applicable law, subject to
GBB's receipt of a written undertaking from each such Covered Party to reimburse
GBB in full for all such amounts in the event that the Covered Party is
ultimately adjudicated as liable in a proceeding on the merits), judgments,
fines and amounts paid in settlement in connection with any such threatened or
actual claim, action, suit, proceeding or investigation, the Covered Parties as
a group may retain counsel reasonably satisfactory to them; provided, however,
that (x) GBB shall have the right to assume the defense thereof and upon such
assumption GBB shall not be liable to any Covered Party for any legal expenses
of other counsel or any other expenses subsequently incurred by any Covered
Party in connection with the defense thereof, except that if GBB elects not to
assume such defense or if counsel for the Covered parties reasonably advises the
Covered Parties that there are issues which conflicts of interest between GBB
and the Covered Parties, the Covered Parties may retain counsel (subject to the
following sentence) reasonably satisfactory to them, and GBB shall pay the
reasonable fees and expenses of such counsel for the Covered Parties, (y) GBB
shall not be liable for any settlement effected without its prior written
consent (which consent shall not be unreasonably withheld) and (z) GBB shall
have no obligation hereunder to any Covered Party when and if a court of
competent jurisdiction shall ultimately determine, and such determination shall
have become final, that indemnification of the Covered Party in the manner
contemplated hereby is prohibited by applicable law or regulation or is
otherwise not authorized. For purposes of this section, the Covered Parties as a
group may retain only one law firm reasonably acceptable to the group unless
there is, under applicable standards of professional conduct, a conflict on any
significant issue between the positions of any two or more Covered Parties.
Notwithstanding anything to the contrary herein, GBB's agreement set forth above
shall be limited to cover claims only to the extent that those claims are not
covered under PRB's directors' and officers' or any other
42
<PAGE>
insurance policies. GBB's obligations under this section shall continue in full
force and effect for a period of three (3) years from the Effective Time of the
Merger; provided, however, that all rights to indemnification in respect of any
claim asserted or made within such period shall continue until final disposition
of such claim.
(b) GBB agrees that all rights to indemnification and all
limitations on liability existing in favor of the Covered Parties as provided in
the articles of incorporation and bylaws of PRB and Golden as in effect on the
date hereof, or pursuant to any agreement set forth on the PRB Indemnification
List, with respect to matters occurring prior to the Effective Time of the
Merger shall continue in full force and effect, and shall be honored by GBB or
its successors in interest as if they were the indemnifying party thereunder,
for a period of three (3) years from the Effective Time of the Merger; provided,
however, that all rights to indemnification in respect of any claim asserted or
made within such period shall continue until final disposition of such claim.
The provisions of this Section 8.10 are intended to be for the benefit of, and
shall be enforceable by, each Covered Party and their respective heirs and
representatives. In the event any Covered Party brings any action or suit to
enforce any rights under this Section 8.10, the prevailing party shall be
entitled to reasonable legal fees and costs pursuant to Section 15.14 (as if he
or she were a party to this Agreement).
(c) GBB shall use its commercially reasonable efforts to have
PRB's directors and officers added to GBB's directors' and officers' liability
insurance policy, or to have such persons covered by PRB's existing directors'
and officers' liability policy, or so-called "tail coverage" obtained in
connection with PRB's existing policy, providing for coverage for a period of
three (3) years following the Effective Time of the Merger; provided, however,
that GBB shall not be obligated to make annual premium payments for such
insurance to the extent that such premiums exceed 125% of the premiums paid as
of the date hereof by PRB for such insurance.
8.11 Takeover Proposals.
------------------
(a) GBB (or any agent thereof) shall not make any offer to any
third party regarding a Takeover Proposal with any other entity in which GBB
will be the survivor (or accept any offer where it will be the survivor) unless
such offer (or acceptance) is expressly conditioned upon the performance by GBB
or any successor in interest of GBB's obligations under this Agreement. GBB
acknowledges that the restrictions and agreements contained in the preceding
sentence are reasonable and necessary to protect the legitimate interests of PRB
and the Shareholder, and that any violation of the preceding sentence will cause
substantial and irreparable injury to them that would not be quantifiable and
for which no adequate remedy would exist at law, and agrees and consents to, in
addition to all other remedies that may be available to them, the entry of an
injunction by any court of competent jurisdiction against consummation of any
transaction involving GBB and another party which does not comply with this
Section 8.11(a) until such transaction does so comply.
(b) GBB (or any agent thereof) shall not accept any offer from a
third party regarding a Takeover Proposal with any other entity in which GBB
will not be the survivor (or make any offer where it will not be the survivor)
unless such acceptance (or offer) is expressly conditioned
43
<PAGE>
upon the performance by GBB or any successor in interest of GBB's obligations
under this Agreement. In the event that GBB violates the preceding sentence, PRB
and the Shareholder shall be entitled to terminate this Agreement without any
liability to GBB pursuant to Section 14.1(b), provided, however, that the
obligations and liabilities of GBB set forth in Section 15.1(a) shall continue
in full force and effect.
8.12 Financial Statements. GBB will promptly deliver when available
--------------------
to PRB prior to the Effective Time of the Merger true and correct copies of all
audited or unaudited financial statements prepared after the date hereof.
8.13 NASDAQ Listing. GBB shall use its commercially reasonable
--------------
efforts to cause the shares of GBB Stock to be issued in the Merger to be
approved for listing on the NASDAQ Stock Market, subject to official notice of
issuance, as promptly as reasonably practicable following the Effective Time of
the Merger.
ARTICLE IX
ADDITIONAL COVENANTS
--------------------
The parties hereto hereby mutually covenant and agree with each other
as follows:
9.1 Best Efforts. Subject to the terms and conditions of this
------------
Agreement, each party will use its best efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate the transactions
contemplated by this Agreement as promptly as practical.
9.2 Public Announcements. No press release or other public
--------------------
disclosure of matters related to this Agreement or any of the transactions
contemplated hereby shall be made by GBB or PRB unless the other party shall
have provided its prior consent to the form and substance thereof; provided,
however, that nothing herein shall be deemed to prohibit any party hereto from
making any disclosure which its counsel deems necessary or advisable in order to
fulfill such party's disclosure obligations imposed by law.
9.3 Appointment of Directors. GBB agrees to take all necessary
------------------------
action including, if necessary, increasing the authorized number of its
directors, to appoint Leo K.W. Lum to the Board of Directors of GBB effective as
of the Effective Time of the Merger.
PRB agrees to take all necessary action including, if necessary,
increasing the authorized number of its directors, to appoint Duncan L.
Matteson, or such other GBB designee reasonably acceptable to PRB and Golden, to
the Board of Directors of Golden effective as of the Effective Time of the
Merger.
44
<PAGE>
ARTICLE X
CONDITIONS PRECEDENT TO THE MERGER
----------------------------------
The obligations of each of the parties hereto to consummate the
transactions contemplated herein are subject to the satisfaction, on or before
the Closing Date, of the following conditions:
10.1 Shareholder Approval. The Agreement and the transactions
--------------------
contemplated hereby shall have received all requisite approvals of the
Shareholder.
10.2 No Judgments or Orders. No judgment, decree, injunction, order
----------------------
or proceeding shall be outstanding or threatened by any Governmental Entity
which prohibits or restricts the effectuation of, or threatens to invalidate or
set aside, the Merger substantially in the form contemplated by this Agreement,
unless counsel to the party against whom such action or proceeding was
instituted or threatened renders to the other parties hereto a favorable opinion
that such judgment, decree, injunction, order or proceeding is without merit.
10.3 Regulatory Approvals. To the extent required by applicable law
--------------------
or regulation, all approvals or consents of any Governmental Entity shall have
been obtained or granted for the Merger and the transactions contemplated hereby
and the applicable waiting periods under all laws shall have expired. All other
statutory or regulatory requirements for the valid completion of the
transactions contemplated hereby shall have been satisfied. In addition, all
regulatory approvals and consents of any Governmental Entity shall have been
obtained without the imposition of any conditions that are or would become
applicable to GBB, PRB, the Shareholder or the Surviving Corporation that in
good faith and in the reasonable opinion of the Board of Directors of GBB or
PRB, as applicable, would so materially and adversely affects the anticipated
economic and business benefits to GBB, PRB or the Shareholder of the
transactions contemplated by this Agreement as to render consummation of such
transactions inadvisable.
10.4 Pooling-of-Interests. Prior to the Effective Time of the
--------------------
Merger, C&L shall have delivered a letter to GBB 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 SEC.
Additionally, prior to the Effective Time of the Merger, Peat Marwick shall have
delivered a letter to GBB to the effect that, as of the Effective Time of the
Merger, no conditions exist with respect to either PRB or Golden that would
preclude accounting for the Merger as a pooling-of-interests.
10.5 Tax Opinion. GBB, PBC and the Shareholder shall have received
-----------
from Manatt, Phelps & Phillips, LLP an opinion reasonably satisfactory to GBB,
PBC and the Shareholder that the Merger shall not result in a recognition of
gain or loss for federal or California income tax purposes to GBB or PBC, nor
shall the issuance of GBB Stock in the Merger result in recognition of gain or
loss by the Shareholder, and such opinions shall not have been withdrawn or
modified in any material respect.
45
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10.6 Escrow Agreement. The Escrow Agreement shall have been executed
----------------
and delivered by and among GBB, the Shareholder and the Escrow Agent.
ARTICLE XI
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PRB
----------------------------------------------
AND THE SHAREHOLDER
-------------------
All of the obligations of PRB and the Shareholder to effect the
transactions contemplated hereby shall be subject to the satisfaction, on or
before the Closing Date, of the following conditions, any of which may be waived
in writing by PRB and the Shareholder:
11.1 Legal Opinion. PRB and the Shareholder shall have received the
-------------
opinion of Manatt, Phelps & Phillips, LLP, attorneys for GBB, dated as of the
Closing Date, in substantially the form of Exhibit G hereto.
---------
11.2 Representations and Warranties; Performance of Covenants. All
--------------------------------------------------------
the covenants, terms and conditions of this Agreement to be complied with and
performed by GBB on or before the Closing Date shall have been complied with and
performed in all material respects. Each of the representations and warranties
of GBB contained in Article VI hereof shall have been true and correct in all
material respects (except that where any statement in a representation or
warranty expressly includes a standard of materiality, such statement shall be
true and correct in all respects) on and as of the date of this Agreement and
(except to the extent such representations and warranties speak as of an earlier
date or for changes expressly contemplated by this Agreement) on and as of the
Closing Date, with the same effect as though such representations and warranties
had been made on and as of the Closing Date. It is understood and acknowledged
that the representations being made on and as of the Closing Date shall be made
without giving effect to any update with respect to the GBB Lists in accordance
with Section 8.2(e).
11.3 Authorization of Merger. All actions necessary to authorize the
-----------------------
execution, delivery and performance of this Agreement and the Agreement of
Merger by GBB and the consummation of the transactions contemplated hereby and
thereby shall have been duly and validly taken by the Board of Directors of GBB,
as required by applicable law, and GBB shall have full power and right to merge
pursuant to the Agreement of Merger.
11.4 Absence of Certain Changes. Between the date of this Agreement
--------------------------
and the Effective Time of the Merger, there shall not have occurred any event
that has had or could reasonably be expected to have a Material Adverse Effect
on GBB, whether or not such event, change or effect is reflected in the GBB
Lists as amended or supplemented after the date of this Agreement, other than
events, changes or developments resulting from changes in general economic
conditions or conditions specifically and adversely affecting the banking
industry.
46
<PAGE>
11.5 Officers' Certificate. There shall have been delivered to PRB
---------------------
on the Closing Date a certificate executed by the Chief Executive Officer and
the Chief Financial Officer of GBB certifying, to the best of their knowledge,
compliance with all of the provisions of Sections 11.2, 11.3 and 11.4.
11.6 Appointment of Directors. All necessary action shall have been
------------------------
taken to have Leo K.W. Lum elected or appointed to serve, as of, the Effective
Time of the Merger, as a director of GBB, with such titles and committee
assignments as set forth in the Employment Agreement.
11.7 Registration Rights Agreement. The Registration Rights
-----------------------------
Agreement shall have been entered into between the Shareholder and GBB.
ARTICLE XII
CONDITIONS PRECEDENT TO
-----------------------
OBLIGATIONS OF GBB
------------------
All of the obligations of GBB to effect the transactions contemplated
hereby shall be subject to the satisfaction, on or before the Closing Date, of
the following conditions, any of which may be waived in writing by GBB:
12.1 Legal Opinion. GBB shall have received the opinion of
-------------
Pillsbury, Madison & Sutro, LLP, attorneys for PRB and the Shareholder, dated as
of the Closing Date, in substantially the form of Exhibit H hereto.
---------
12.2 Representations and Warranties; Performance of Covenants. All
--------------------------------------------------------
the covenants, terms and conditions of this Agreement to be complied with and
performed by PRB and the Shareholder at or before the Closing Date shall have
been complied with and performed in all material respects. Each of the
representations and warranties of PRB and the Shareholder contained in Articles
IV and V hereof shall have been true and correct in all material respects
(except that where any statement in a representation or warranty expressly
includes a standard of materiality, such statement shall be true and correct in
all respects) on and as of the date of this Agreement and (except to the extent
such representations and warranties speak as of an earlier date or for changes
expressly contemplated by this Agreement) on and as of the Closing Date, with
the same effect as though such representations and warranties had been made on
and as of the Closing Date. It is understood and acknowledged that the
representations being made on and as of the Closing Date shall be made without
giving effect to any update with respect to the PRB Lists in accordance with
Section 7.2(i).
12.3 Authorization of Merger. All actions necessary to authorize the
-----------------------
execution, delivery and performance of this Agreement and the Agreement of
Merger by PRB and the Shareholder and the consummation of the transactions
contemplated hereby and thereby shall have
47
<PAGE>
been duly and validly taken by the Board of Directors and Shareholder of PRB,
and PRB shall have full power and right to merge pursuant to the Agreement of
Merger.
12.4 Third Party Consents. PRB and the Shareholder each shall have
--------------------
obtained all consents of other parties to its respective material mortgages,
notes, leases, franchises, agreements, licenses and permits as may be necessary
to permit the Merger and the transactions contemplated herein to be consummated
without a material default, acceleration, breach or loss of rights or benefits
thereunder.
12.5 Absence of Certain Changes. Between the date of this Agreement
--------------------------
and the Effective Time of the Merger, there shall not have occurred any event
that has had or could reasonably be expected to have a Material Adverse Effect
on PRB, whether or not such event, change or effect is reflected in the PRB
Lists as amended or supplemented after the date of this Agreement, other than
events, changes or developments resulting from changes in general economic
conditions or conditions specifically and adversely affecting the banking
industry.
12.6 Officers' Certificate. There shall have been delivered to GBB
---------------------
on the Closing Date a certificate executed by the Chief Executive Officer and
the Chief Financial Officer of PRB certifying, to the best of their knowledge,
compliance with all of the provisions of Sections 12.2, 12.3, 12.4, and 12.5.
12.7 Shareholder's Certificate. There shall have been delivered to
-------------------------
GBB on the Closing Date a certificate executed by the Shareholder certifying, to
the best knowledge of the Shareholder, compliance with all of the provisions of
Sections 12.2, 12.3, 12.4, and 12.5.
12.8 Shareholder's Agreement. The Shareholder's Agreement shall have
-----------------------
been executed and delivered to GBB.
12.9 Non-Compete Agreements. The Lum Non-Compete Agreement and the
----------------------
Woolwine Non-Compete Agreement shall have been executed and delivered to GBB.
12.10 PRB Book Value, Deferred Tax Valuation Allowance and Golden
-----------------------------------------------------------
Loan Loss Reserve. At least five Business Days prior to the Effective Time of
- -----------------
the Merger, PRB shall provide GBB with PRB's financial statements as of the
close of business on the last day of the month ending within 45 days prior to
the Effective Time of the Merger. Such financial statements shall have been
prepared in all material respects in accordance with GAAP and other applicable
legal and accounting requirements, and reflect all period-end accruals and other
adjustments. At the close of business on the last day of the month ending within
45 days of the Effective Time of the Merger (i) the PRB Book Value, as
determined in accordance with such financial statements, plus PRB's deferred tax
valuation allowance, as determined by Peat Marwick and confirmed by C&L, shall
be not less than $9.2 million; and (ii) Golden's loan loss reserve shall be in
an amount equal to or exceeding 1.70% of Golden's gross loans. Any funds
necessary to satisfy the loan loss reserve requirement shall be contributed by
PRB to Golden from PRB's available cash resources.
48
<PAGE>
ARTICLE XII
EMPLOYEE BENEFITS
-----------------
13.1 Merger of 401(k) Plans. GBB intends to merge the Golden 401(k)
----------------------
Plan with and into the GBB 401(k) Plan as soon as administratively feasible
after the Effective Time of the Merger. In no event shall the Golden 401(k)
Plan be merged with and into the GBB 401(k) Plan, however, unless GBB
determines, in its sole discretion, that: (i) the Golden 401(k) Plan is a
qualified plan under Section 401(a) of the Code, both as to the form of the
Golden 401(k) Plan and as to its operation; and (ii) there are no facts in
existence that would be reasonably likely to adversely affect the qualified
status of the Golden 401(k) Plan. This analysis shall be made prior to the
Effective Time of the Merger and, if the above determinations are made, the
Golden 401(k) Plan shall be merged with and into the GBB 401(k) Plan as soon as
administratively feasible after the Effective Time of the Merger. If it is
determined that the Golden 401(k) Plan is not a qualified plan as described
above, PRB agrees to use its best efforts to have the Golden 401(k) Plan
qualified prior to the Effective Time of the Merger. If the Golden 401(k) Plan
is merged into the GBB 401(k) Plan, former participants in the Golden 401(k)
Plan who are employed by PRB or Golden as of the Effective Time of the Merger
shall be credited by GBB with their term of service and vesting percentages
under the Golden 401(k) Plan. If the Golden 401(k) Plan is not merged into the
GBB 401(k) Plan, the parties hereby agree that the Golden 401(k) Plan will be
terminated immediately prior to the Effective Time of the Merger, upon
satisfaction or waiver of applicable conditions to Closing.
13.2 Other PRB and Golden Employee Benefit Plans. As soon as
-------------------------------------------
practicable after the Effective Time of the Merger, all other PRB and Golden
employee benefit plans will be discontinued or merged into GBB plans, in the
sole discretion of GBB, and employees of PRB or Golden, as applicable, shall
become eligible for the tax qualified and nonqualified employee benefit plans of
GBB on the same terms as such plans and benefits are generally offered from time
to time to employees of GBB or its subsidiaries. For purposes of determining
such employment eligibility and vesting under the tax-qualified employee benefit
plans of GBB, GBB shall recognize such employees' years of service with PRB or
Golden, as applicable, beginning on the date such employees commenced employment
with PRB or Golden through the Effective Time of the Merger.
ARTICLE XIV
TERMINATION
-----------
14.1 Termination. This Agreement may be terminated at any time prior
-----------
to the Effective Time of the Merger upon the occurrence of any of the following:
(a) By mutual agreement of the parties, in writing;
49
<PAGE>
(b) By PRB immediately upon expiration of twenty (20) days
from delivery of written notice by PRB to GBB of GBB's breach of or failure to
satisfy any covenant or agreement contained herein resulting in a material
impairment of the benefit reasonably expected to be derived by PRB from the
performance or satisfaction of such covenant or agreement (provided that such
breach has not been waived by PRB or cured by GBB, as the case may be, prior to
expiration of such twenty (20) day period);
(c) By GBB immediately upon expiration of twenty (20) days
from delivery of written notice by GBB to PRB of PRB's or the Shareholder's
breach of or failure to satisfy any covenant or agreement contained herein
resulting in a material impairment of the benefit reasonably expected to be
derived by GBB from the performance or satisfaction of such covenant or
agreement (provided that such breach has not been waived by GBB or cured by PRB,
as the case may be, prior to expiration of such twenty (20) day period);
(d) By PRB or GBB upon the expiration of thirty (30) days
after any Governmental Entity denies or refuses to grant any approval, consent
or authorization required to be obtained in order to consummate the transactions
contemplated by this Agreement unless, within said thirty (30) day period after
such denial or refusal, all parties hereto agree to submit the application to
the regulatory authority that has denied, or refused to grant the approval,
consent or qualification requested;
(e) By PRB or GBB if any conditions set forth in Article X
shall not have been met by July 31, 1998;
(f) By PRB if any of the conditions set forth in Article XI
shall not have been met, or by GBB if any of the conditions set forth in Article
XII shall not have been met, by July 31, 1998, or such earlier time as it
becomes apparent that such condition shall not be met;
(g) By GBB if PRB shall have failed to act or refrain from
doing any act pursuant to Section 7.1(n); or
(h) By PRB if the Average Closing Price is less than $48.00
and GBB has not, within two (2) Business Days from the date of calculation of
the Average Closing Price, provided written notice to PRB of GBB's election to
exercise the Top-Up Option.
14.2 Termination Date. This Agreement shall be terminated if the
----------------
Closing Date shall not have occurred by July 31, 1998, unless extended in
writing by the parties.
14.3 Effect of Termination. In the event of termination of this
---------------------
Agreement by either PRB or GBB as provided in Section 14.1 or pursuant to
Section 14.2, neither GBB, PRB nor the Shareholder shall have any further
obligation or liability to the other party except (i) with respect to the last
sentences of each of Section 7.3(a), Section 8.3, Sections 8.11(a) and 8.11(b),
(ii) with respect to Section 15.1 and Section 15.2, and (iii) to the extent such
termination results from a party's
50
<PAGE>
material breach of the warranties and representations made by it, or material
failure in performance of any of its covenants, agreements or obligations
hereunder.
14.4 Force Majeure. GBB, PBC and the Shareholder agree that,
-------------
notwithstanding anything to the contrary in this Agreement, in the event this
Agreement is terminated solely as a result of a failure of a condition, which
failure is due to a natural disaster or an act of war, and provided neither
party has materially failed to observe the obligations of such party under this
Agreement, neither party shall be obligated to pay to the other party to this
Agreement any expenses or otherwise be liable hereunder.
14.5 Special GBB Rights of Termination. PRB shall deliver to GBB all
---------------------------------
remaining PRB Lists or portions thereof not heretofore delivered to GBB as
promptly as practicable after the date hereof and in no event more than ten (10)
days after the date hereof. In recognition of the fact that PRB, as of the date
hereof, may not have, as of the date hereof, delivered to GBB all of the PRB
Lists or all portions thereof, in addition to GBB's other termination rights
herein, GBB shall have the following right (the "Special Termination Right"):
at any time after the date of this Agreement through and including the date that
is five (5) days after delivery by PRB to GBB of all remaining PRB Lists or
portions thereof, in form and detail of presentation reasonably satisfactory to
GBB, GBB shall be entitled to terminate this Agreement if GBB shall identify any
circumstance which, in the reasonable business judgment of the Board of
Directors of GBB, acting in good faith and with due regard for principles of
fair dealing, could (x) materially and adversely impact the reasonably expected
financial or business benefits to GBB of the transactions contemplated by this
Agreement; (y) be inconsistent in any material and adverse respect with any of
the representations or warranties of PRB or the Shareholder contained in this
Agreement; or (z) deviate materially and adversely from PRB's financial
statements for the year or quarter ended December 31, 1997. GBB shall exercise
the Special Termination Right by written notice to PRB and the Shareholder.
ARTICLE XV
MISCELLANEOUS
-------------
15.1 Expenses.
--------
(a) GBB hereby agrees that if this Agreement is terminated by
PRB pursuant to Section 14.1(b), GBB shall promptly and in any event within 10
days after such termination pay PRB all Expenses (as defined in Section 15.1(d)
below) of PRB, but not to exceed $200,000. In addition to the payment of its
Expenses pursuant to the preceding sentence, in the event PRB and the
Shareholder terminate this Agreement because of GBB's violation of Section
8.11(b), GBB or its successor in interest shall wire to PRB within three (3)
Business Days of demand, in immediately available funds, the sum of $1,375,000.
GBB shall have no further liability or obligation to PRB or the Shareholder upon
the payment contemplated by this Section 15.1(a).
51
<PAGE>
(b) PRB hereby agrees that if the Agreement is terminated by
GBB pursuant to Section 14.1(c), PRB shall promptly and in any event within 10
days after such termination pay GBB all Expenses of GBB, but not to exceed
$200,000.
(c) Except as otherwise provided herein, all Expenses incurred
by GBB or PRB in connection with or related to the authorization, preparation
and execution of this Agreement, the other transaction documents and all other
matters related to the closing of the transactions contemplated hereby,
including, without limiting the generality of the foregoing, all fees and
expenses of agents, representatives, counsel, investment bankers and accountants
employed by either such party or its affiliates, shall be borne solely and
entirely by the party which has incurred the same. PRB and the Shareholder
expressly acknowledge and agree that, as of the date hereof, PRB maintains
approximately $1.2 million in cash and other resources at the holding company
level, and that all Expenses of PRB shall be paid from such resources.
(d) "Expenses" as used in this Agreement shall include all
reasonable out-of-pocket expenses (including all fees and expenses of attorneys,
accountants, investment bankers, experts and consultants to the party and its
affiliates) incurred by the party or on its behalf in connection with the
consummation of the transactions contemplated by this Agreement.
15.2 Competing Transaction Fee. As an inducement to GBB to enter
-------------------------
into this Agreement, in the event this Agreement is terminated by GBB because of
a failure by PRB, Golden or the Shareholder to comply with the obligations
specified in Section 7.1(n), or if PRB or Golden otherwise consummates a
Competing Transaction prior to termination of this Agreement or during the 12-
month period following termination of this Agreement, in addition to the
Expenses payable to GBB under Section 15.1(b), PRB shall wire to GBB within
three (3) Business Days of demand, or shall cause the third party to such a
Competing Transaction to wire to GBB within three (3) Business Days of demand,
the sum of $1,375,000, which sum the parties hereto acknowledge as representing:
(i) GBB's direct costs and expenses incurred in negotiating and undertaking to
carry out the transactions contemplated hereby, (ii) GBB's indirect costs and
expenses incurred in connection with the transactions contemplated hereby,
including but not limited to GBB's management time devoted to negotiating and
preparing for the transactions contemplated hereby and (iii) GBB's loss as a
result of the transactions contemplated by this Agreement not being consummated.
PRB and the Shareholder shall have no further liability or obligation to GBB
upon the payment contemplated by this Section 15.2.
15.3 Notices. Any notice, request, instruction or other document to
-------
be given hereunder by any party hereto to another shall be in writing and
delivered personally or by confirmed facsimile transmission or sent by
registered or certified mail, postage prepaid, with return receipt requested,
addressed as follows:
52
<PAGE>
To GBB: Greater Bay Bancorp
2860 West Bayshore Road
Palo Alto, California 94303
Attention: Steven C. Smith
Telephone Number: (650) 813-8200
Facsimile Number: (650) 494-9220
With a copy to: Manatt, Phelps & Phillips, LLP
11355 West Olympic Boulevard
Los Angeles, California 90064
Attention: T. Hale Boggs, Esq.
Telephone Number: (310) 312-4269
Facsimile Number: (310) 312-4224
To PRB: Pacific Rim Bancorporation
344 Pine Street
San Francisco, California 94104
Attention: James R. Woolwine
Telephone Number: (415) 421-9000
Facsimile Number: (415) 986-6083
With copies to: Pillsbury, Madison & Sutro LLP
235 Montgomery Street
San Francisco, California 94104
Attention: Jonathan D. Joseph, Esq.
Telephone Number: (415) 983-1071
Facsimile Number: (415) 983-1200
To the Shareholder: The Leo K.W. Lum PRB Revocable Trust
c/o Leo K.W. Lum, Trustee
Golden Gate Bank
344 Pine Street
San Francisco, California 94104
Telephone Number: (415) 421-9000
Facsimile Number: (415) 986-6083
With copies to: Pillsbury, Madison & Sutro LLP
235 Montgomery Street
San Francisco, California 94104
Attention: Jonathan D. Joseph, Esq.
Telephone Number: (415) 983-1071
Facsimile Number: (415) 983-1200
53
<PAGE>
Any such notice, request, instruction or other document shall be
deemed received on the date delivered personally or delivered by confirmed
facsimile transmission, or on the third Business Day after it was sent by
registered or certified mail, postage prepaid. Any of the persons shown above
may change its address for purposes of this section by giving notice in
accordance herewith.
15.4 Successors and Assigns. All terms and conditions of this
----------------------
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective transferees, successors and assigns; provided,
however, that this Agreement and all rights, privileges, duties and obligations
of the parties hereto may not be assigned or delegated by any party hereto and
any such attempted assignment or delegation shall be null and void.
15.5 Counterparts. This Agreement and any exhibit hereto may be
------------
executed in one or more counterparts, all of which, taken together, shall
constitute one original document and shall become effective when one or more
counterparts have been signed by the appropriate parties and delivered to each
party hereto.
15.6 Effect of Representations and Warranties. The representations
----------------------------------------
and warranties contained in this Agreement or in any List shall survive for a
period of twelve (12) months after the Effective Time of the Merger.
15.7 Third Parties. Each party hereto intends that this Agreement
-------------
shall not benefit or create any right or cause of action to any person other
than parties hereto. As used in this Agreement the term "parties" shall refer
only to GBB, PRB or the Shareholder as the context may require.
15.8 Lists; Exhibits; Integration. Each List, exhibit and letter
----------------------------
delivered pursuant to this Agreement shall be in writing and shall constitute a
part of the Agreement, although Lists and letters need not be attached to each
copy of this Agreement. This Agreement and all other agreements executed
pursuant to the terms of this Agreement, together with such Lists, exhibits and
letters, constitutes the entire agreement between the parties pertaining to the
subject matter hereof and supersedes all prior agreements and understandings of
the parties in connection therewith.
15.9 Knowledge. Whenever any statement herein or in any list,
---------
certificate or other document delivered to any party pursuant to this Agreement
is made "to the knowledge" or "to the best knowledge" of any party or another
Person, such party or other Person shall make such statement only after
conducting an investigation reasonable under the circumstances of the subject
matter thereof, and each such statement shall constitute a representation that
such investigation has been conducted.
15.10 Governing Law. This Agreement is made and entered into in the
-------------
State of California, except to the extent that the provisions of federal law are
mandatorily applicable, and the laws of the State of California shall govern the
validity and interpretation hereof and the performance of the parties hereto of
their respective duties and obligations hereunder.
54
<PAGE>
15.11 Captions. The captions contained in this Agreement are for
--------
convenience of reference only and do not form a part of this Agreement and shall
not affect the interpretation hereof.
15.12 Severability. If any portion of this Agreement shall be deemed
------------
by a court of competent jurisdiction to be unenforceable, the remaining portions
shall be valid and enforceable only if, after excluding the portion deemed to be
unenforceable, the remaining terms hereof shall provide for the consummation of
the transactions contemplated herein in substantially the same manner as
originally set forth at the date this Agreement was executed.
15.13 Waiver and Modification; Amendment. No waiver of any term,
----------------------------------
provision or condition of this Agreement, whether by conduct or otherwise, in
any one or more instances, shall be deemed to be or construed as a further or
continuing waiver of any such term, provision or condition of this Agreement.
Except as otherwise required by law, this Agreement and the Agreement of Merger,
when executed and delivered, may be modified or amended by action of the Boards
of Directors of GBB or PRB without action by their respective shareholders
(except as to amendments relating to the Shareholder itself). This Agreement
may be modified or amended only by an instrument of equal formality signed by
the parties or their duly authorized agents.
15.14 Attorneys' Fees. If any legal action or any arbitration upon
---------------
mutual agreement is brought for the enforcement of this Agreement or because of
an alleged dispute, controversy, breach, or default in connection with this
Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees and other costs and expenses incurred in that action or
proceeding, in addition to any other relief to which it may be entitled.
[The remainder of this page is intentionally left blank.]
55
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have duly executed
this Agreement as of the day and year first above written.
GREATER BAY BANCORP
By: /s/ Duncan L. Matteson
___________________________________
Duncan L. Matteson
Co-Chairman
By: /s/ David L. Kalkbrenner
___________________________________
David L. Kalkbrenner
President and Chief Executive
Officer
ATTEST:
/s/ Steven C. Smith
________________________
Assistant Secretary
PACIFIC RIM BANCORPORATION
By: /s/ Leo K.W. Lum
___________________________________
Leo K.W. Lum
Chairman and Chief Executive
Officer
ATTEST:
/s/ Sherry A. Price
_____________________
Secretary
THE LEO K.W. PRB REVOCABLE TRUST
By: /s/ Leo K.W. Lum
___________________________________
Leo K.W. Lum, not in his
individual capacity but solely
as Trustee
56
<PAGE>
EX-3.1
2
ARTICLES OF INCORPORATION
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
SAN MATEO COUNTY BANCORP
ONE: NAME.
- - ---
The name of the corporation is San Mateo County Bancorp.
TWO: PURPOSE.
- - ---
The purpose of the corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the
trust company business, or the practice of a profession permitted to
be incorporated by the California Corporation Code.
THREE: AGENT FOR SERVICE OF PROCESS.
- - -----
<PAGE>
The name and address of the corporation's initial agent for
service of process is: Fred R. Brinkop, 500 Allerton Street, Redwood
City, CA 94063.
FOUR: AUTHORIZED STOCK.
- - ----
(a) The corporation is authorized to issue two classes of shares
designated "Preferred Stock" and "Common Stock", respectively. The
number of shares of Preferred Stock authorized to be issued is
4,000,000 and the number of shares of Common Stock authorized to be
issued is 6,000,000.
(b) The Preferred Stock may be divided into such number of series
as the board of directors may determine. The board of directors is
authorized to determine and alter the rights, preferences, privileges
and restrictions granted to or imposed upon any wholly unissued series
of Preferred Stock, and to fix the number of shares of any series of
Preferred Stock and the designation of any such series of Preferred
Stock. The board of directors, within the limits and restrictions
stated in any resolution or resolutions of the board of directors
originally fixing the number of shares constituting any series, may
increase or decrease (but not below the number of shares of such
series then outstanding) the number of shares of any series subsequent
to the issue of shares of that series.
IN WITNESS WHEREOF, for the purpose of forming this corporation under
the laws of the State of California, the undersigned, constituting the sole
incorporator of this corporation, has executed these Articles of Incorporation.
/s/ Fred R. Brinkop
--------------------------
Fred R. Brinkop
Sole Incorporator
The undersigned declares under penalty or perjury that h is the person
who executed these Articles of Incorporation and that this instrument is the act
and dead of the undersigned.
Executed this 7 day of Nov, 1984, at San Francisco, California.
/s/ Fred R. Brinkop
--------------------------
Fred R. Brinkop
CERTIFICATE OF AMENDMENT OF
ARTICLES OF INCORPORATION OF
SAN MATEO COUNTY BANCORP
Leo D. Taylor and Douglas S. McGlashan hereby certify that:
1. They are the President and Secretary, respectively, of SAN MATEO COUNTY
BANCORP, a California corporation.
2. The Articles of Incorporation of this corporation are amended to add
the following Article Five:
<PAGE>
"FIVE: INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS.
----
(a) Limitation of Directors' Liability. The liability of the directors
----------------------------------
of the corporation for monetary damages shall be eliminated to the fullest
extent permissible under California law.
(b) Indemnification of Corporate Agents. The corporation is authorized
-----------------------------------
to provide indemnification of its agents (as defined in Section 317 of the
California General Corporation Law) for breach of their duty to the corporation
and its shareholders through bylaw provisions or through agreements with the
agents, or both, in excess of the indemnification otherwise permitted by such
Section 317, subject to the limits on such excess indemnification set forth in
Section 204 of the California General Corporation Law.
(c) Repeal or Modification. Any repeal or modification of the
----------------------
foregoing provisions of this Article V shall not adversely affect any right of
indemnification or limitation of liability of an agent of the corporation
relating to acts or omissions occurring prior to such repeal or modification."
1.
3. The foregoing Certificate of Amendment of Articles of Incorporation
has been duly approved by the Board of Directors.
4. The foregoing Certificate of Amendment of Articles of Incorporation
has been duly approved by the required vote of shareholders in accordance with
Section 902 of the California General Corporation Law. The total number of
outstanding shares of capital stock of the corporation is 347,675 shares of
Common Stock. The number of shares voting in favor of the Certificate of
Amendment of Articles of Incorporation equaled or exceeded the vote required.
The percentage vote required was more than 50% of the outstanding Common Stock.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this Certificate of Amendment of
Articles of Incorporation are true of our own knowledge.
Executed at San Mateo, California this 21st day of June, 1988.
---- ----
/s/ Leo D. Taylor
-------------------------------
Leo D. Taylor, President
/s/ Douglas S. McGlashan
-------------------------------
Douglas S. McGlashan, Secretary
2.
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
<PAGE>
Owen D. Conley and Robert M. Lubin certify that:
1. They are the Chairman of the Board and Secretary, respectively, of San Mateo
County Bancorp, a California corporation.
2. Article One of the articles of incorporation of this corporation is amended
to read as follows:
"The name of this corporation shall be Mid-Peninsula Bancorp."
3. The foregoing amendment of articles of incorporation has been duly approved
by the board of directors.
4. The foregoing amendment of articles of incorporation has been duly approved
by the required vote of shareholders in accordance with Section 902 of the
Corporations Code. The total number of outstanding shares of common stock of
the corporation is 465,369. The number of shares voting in favor of the
amendment equaled or exceeded the vote required. The percentage vote
required was more than 50%. There are no shares of preferred stock
outstanding.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
DATE: October 3, 1994
/s/ OWEN D. CONLEY
---------------------------
Owen D. Conley
Chairman of the Board
/s/ ROBERT M. LUBIN
---------------------------
Robert M. Lubin
Secretary
MERGER AGREEMENT
THIS MERGER AGREEMENT (the "Merger Agreement") is made and entered into as
of November 15, 1996, by and between MID-PENINSULA BANCORP, a California
corporation ("Mid-Peninsula"), and CUPERTINO NATIONAL BANCORP, a California
corporation ("Cupertino").
RECITALS
A. Mid-Peninsula is a corporation duly organized, validly existing and
doing business in good standing under the laws of the State of California with
authorized capital stock of six million (6,000,000) shares of no par value
common stock of which, on the date hereof, there are One Million, Six Hundred
Thirty-Seven Thousand, Five Hundred Ninety-Three (1,637,593) shares issued and
outstanding (individually, a "Mid-Peninsula Share" and together the "Mid-
Peninsula Shares") and four million (4,000,000) shares of preferred stock of
which, on the date hereof, there are no shares issued and outstanding.
B. Cupertino is a corporation duly organized, validly existing and doing
business in good standing under the laws of the State of California with
authorized capital stock of six million (6,000,000) shares of no par value
common stock of which, on the date hereof, there are One Million Nine Hundred
Five Thousand, Nine Hundred Fifty-Eight (1,905,958) shares issued and
outstanding (individually a "Cupertino Share" and together the "Cupertino
Shares") and 4,000,000 shares of preferred stock of which, on the date hereof,
<PAGE>
there are no shares issued and outstanding.
C. Mid-Peninsula and Cupertino have entered into a Second Amended
Agreement and Plan of Reorganization and Merger, dated August 20, 1996 (the
"Agreement"), which contemplates the merger of Cupertino with and into Mid-
Peninsula (the "Merger") upon and in accordance with the terms and conditions
set forth in the Agreement and this Merger Agreement.
D. The respective Boards of Directors of Mid-Peninsula and Cupertino deem
it desirable and in the best interests of Mid-Peninsula and Cupertino and their
respective shareholders that Cupertino be merged with and into Mid-Peninsula as
provided in the Agreement and this Merger Agreement pursuant to the laws of the
State of California and that Mid-Peninsula change its name to Greater Bay
Bancorp ("Bancorp") which shall be the surviving corporation ("Surviving
Corporation").
E. The respective Boards of Directors of Mid-Peninsula and Cupertino have
adopted resolutions approving this Merger Agreement and the Agreement and have
recommended that the Merger be approved by the shareholders of their respective
corporations.
F. The respective shareholders of each of Mid-Peninsula and Cupertino, at
meetings duly held, have duly approved and adopted this Merger Agreement, the
Agreement and approved the Merger.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein set forth and for the purpose of prescribing
the terms and conditions of the Merger, the parties hereto agree as follows:
ARTICLE I
THE MERGER
----------
1.1 Effect of Merger. At the Effective Time of the Merger (as defined in
----------------
Article VII hereof), Cupertino shall be merged with and into Mid-Peninsula,
Mid-Peninsula shall change its name to Greater Bay Bancorp, which shall
thereupon be the Surviving Corporation, and the separate corporate existence of
Cupertino shall cease.
1.2 Rights and Duties of Surviving Corporation. At and after the Effective
------------------------------------------
Time of the Merger, all rights, privileges, powers and franchises and all
property and assets of every kind and description of Cupertino shall be vested
in and be held and enjoyed by Bancorp as the Surviving Corporation, without
further act or deed; all the estates and interests of every kind of Cupertino,
including all debts due to it, shall be as effectively the property of Bancorp
as the Surviving Corporation as they were of Cupertino; the title to any real
estate vested by deed or otherwise in Cupertino shall not revert or be in any
way impaired by reason of the Merger; and Bancorp shall be deemed to be the same
entity as each of Cupertino and Mid-Peninsula and shall be subject to all of
their duties and liabilities of every kind and description. All rights of
creditors and liens upon any property of Mid-Peninsula or Cupertino shall be
preserved unimpaired and all debts, liabilities and duties of Mid-Peninsula or
Cupertino shall be the debts, liabilities and duties of Bancorp as the Surviving
Corporation and may be enforced against it to the same extent as if such debts,
liabilities and duties had been incurred or contracted by it.
ARTICLE II
CONVERSION OF SHARES
--------------------
<PAGE>
2.1 Conversion of Shares. In and by virtue of the Merger and at the
--------------------
Effective Time of the Merger, pursuant to this Merger Agreement, each
Mid-Peninsula Share and each Cupertino Share issued and outstanding immediately
prior to the Effective time of the Merger shall, at the Effective Time of the
Merger, be converted.
a. Effect on Mid-Peninsula Shares. At the Effective Time of the
------------------------------
Merger, each Mid-Peninsula Share issued and outstanding immediately prior to the
Effective Time of the Merger shall, on and after the Effective Time of the
Merger, remain issued and outstanding and shall automatically and for all
purposes be deemed to represent one share of the common stock, without par
value, of Bancorp as the Surviving Corporation ("Bancorp Shares").
b. Conversion of Cupertino Shares. At the Effective Time of the
------------------------------
Merger, each Cupertino Share outstanding immediately prior to the Effective Time
of the Merger shall, by virtue of the Merger and without any action on the part
of the holder thereof, be exchanged for
2
and converted into .81522 (the "Conversion Ratio") of a Bancorp Share. From and
after the Effective Time of the Merger, each holder of Cupertino Shares
immediately prior to the Effective Time of the Merger (other than holders of
Dissenting Shares, as defined below) shall have the right to receive, upon
surrender of the certificates theretofore representing such Cupertino Shares,
one or more certificates representing shares of Bancorp Shares equal to the
number of Cupertino Shares represented by each surrendered certificate
multiplied by the Conversion Ratio.
2.2 Fractional Shares. No fractional Bancorp Shares shall be issued in the
-----------------
Merger. In lieu thereof, each record holder of Cupertino Shares who would
otherwise be entitled to receive a fractional Bancorp Share shall receive,
subject to prior surrender of certificates representing Cupertino Shares, an
amount in cash equal to the product (calculated to the nearest hundredth)
obtained by multiplying the average of the bid and asked prices quoted by each
brokerage firm acting as a market maker of Mid-Peninsula Shares for a Mid-
Peninsula Share for each of the twenty (20) consecutive trading days up to and
including the last business day of the calendar month end immediately prior to
the Closing Date (as defined in the Agreement), by the fraction of a Bancorp
Share to which such holder would otherwise be entitled. No such holder shall be
entitled to dividends, voting rights, interest, or any other rights in respect
of any such fractional share.
2.3 Exchange Procedures.
-------------------
a. At and after the Effective Time of the Merger, Mid-Peninsula will
deliver or cause to be delivered to U.S. Stock Transfer Corporation, which shall
serve as exchange agent (the "Exchange Agent"), such number of blank
certificates representing Bancorp Shares sufficient to issue the number of
Bancorp Shares issuable in the Merger and an amount of cash sufficient for
payment of any fractional shares.
b. As soon as practicable after the Effective Time of the Merger, the
Exchange Agent will send written notice of exchange procedures to each record
holder of certificates representing Cupertino Shares converted pursuant to
<PAGE>
Section 2.1(b) of this Merger Agreement.
c. Upon surrender for cancellation to the Exchange Agent of one or
more certificates evidencing Cupertino Shares ("Cupertino Certificates"),
accompanied by a duly executed letter of transmittal in proper form, the
Exchange Agent shall promptly deliver to each holder of such surrendered
Cupertino Certificates one or more new certificates representing the appropriate
number of Bancorp Shares ("Bancorp Certificates") to which such holder is
entitled, together with one or more checks for payment of cash in lieu of
fractional interests to be issued in respect of the Cupertino Shares so
surrendered.
d. Until Cupertino Certificates have been surrendered and exchanged
for Bancorp Certificates as herein provided, each outstanding Cupertino
Certificate shall represent, on and after the Effective Time of the Merger, the
right to receive the number of Bancorp Shares into which the number of Cupertino
Shares shown thereon have been converted. No dividends or other distributions of
any kind which are declared payable to holders of record of the Bancorp
3
Shares after the Effective Time of the Merger will be paid to persons otherwise
entitled to receive the same until such persons have surrendered their Cupertino
Certificates in exchange for Bancorp Certificates in the Manner herein provided,
but upon such surrender, such dividends or other distributions, from and after
the Effective Time of the Merger, will be paid to such persons in accordance
with the terms of such Bancorp Shares. In no event shall the persons entitled to
receive such dividends or other distributions be entitled to receive interest on
such dividends or other distributions.
e. No. transfer taxes shall be payable by any holder of Cupertino
Shares in respect of the issuance of Bancorp Certificates for Bancorp Shares,
except that if any Bancorp Certificate for Bancorp Shares is to be issued in a
name other than that in which the Cupertino Certificate surrendered shall be
been registered, it shall be a condition of such issuance that the person
requesting such issuance shall properly endorse the certificate or certificates
and shall pay to Bancorp any transfer taxes payable by reason thereof, or of any
prior transfer of such surrendered certificate, or establish to the satisfaction
of Bancorp that such taxes have been paid or are not payable.
f. Any Bancorp Shares delivered to the Exchange Agent and not issued
pursuant hereto at the end of one (1) year from the Effective Time of the Merger
shall be returned to Bancorp, in which event the persons, if any, entitled
thereto shall look only to Bancorp for payment thereof.
g. Notwithstanding anything to the contrary set forth herein, if any
holder of Cupertino Shares shall be unable to surrender his or her Cupertino
Certificates because such certificates have been lost or destroyed, such holder
may deliver in lieu thereof an indemnity bond in form and substance and with
surety satisfactory to Bancorp.
h. The Exchange Agent shall not be entitled to vote or exercise any
rights of ownership with respect to the Bancorp Shares held by it from time to
time hereunder, except that it shall receive and hold all dividends or other
distributions paid or distributed with respect to such Bancorp Shares for the
account of the persons entitled thereto. 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
Cupertino Shares and unclaimed at the end of one (1) year from the Effective
Time of the Merger, shall (together with any interest earned thereon) at such
time be paid or redelivered by the Exchange Agent to Bancorp, and after such
time any holder of certificate representing Cupertino Shares who has not
<PAGE>
surrendered such certificate to the Exchange Agent shall, subject to applicable
law, look as a general creditor only to Bancorp for payment or delivery of such
dividends or distributions or cash, as the case may be.
2.4 Dissenting Shareholders. Notwithstanding the provisions of this
-----------------------
Article II to the contrary, any Cupertino Shares held by persons who have
satisfied the requirements of Chapter 13 of the California General Corporation
Law (the "GCL") and who have not effectively withdrawn or lost their dissenters'
rights under Chapter 13 (such shares being referred to as "Dissenting Shares"),
shall not be converted pursuant to this Merger Agreement, but the holders
4
thereof shall be entitled only to such rights as are afforded them by Chapter 13
of the GCL. Each dissenting shareholder who is entitled to payment for his or
her Cupertino Shares pursuant to Chapter 13 of the GCL shall receive payment in
an amount determined pursuant to Chapter 13 of the GCL.
ARTICLE III
ARTICLES OF INCORPORATION
-------------------------
At the Effective Time of the Merger, the Articles of Incorporation of
Mid-Peninsula, as in effect immediately prior to the Effective Time of the
Merger, shall be amended (a) to change its name to Greater Bay Bancorp, (b) to
establish a super-majority vote requirement of the Board of Directors equal to a
two-thirds vote on certain matters, and (c) to limit the liability of the
directors and provide expanded indemnification rights of agents of the
Surviving Corporation to the maximum extent permitted by law, as set forth in
Exhibit I attached hereto and incorporated herein by this reference, and, as so
- - ---------
amended, shall hereto and incorporated herein by this reference, and, as
amended, shall be the Articles of Incorporation of Bancorp as the Surviving
Corporation from and after the Effective Time of the Merger until amended in
accordance with its provisions and as provided by law.
ARTICLE IV
BYLAWS
------
At the Effective Time of the Merger, the Bylaws of Mid-Peninsula as in
effect immediately prior to the Effective time of the Merger shall be amended
(a) to provide for a range in the number of authorized directors of not less
than seven (7) and not more than thirteen (13), with the exact number of
directors fixed at ten (10); and (b) to require a two-thirds (2/3rds vote of the
Board of Directors of Bancorp to approve certain matters affecting Bancorp,
including (i) a merger, sale of control or sale of material assets of Bancorp,
(ii) acquisitions by Bancorp, (iii) creation of new business units of Bancorp or
its subsidiaries, (iv) material changes in operating budgets of Bancorp or its
subsidiaries, (v) material changes in the business organization or
organizational structure of Bancorp or its subsidiaries, (vi) termination of any
executive officer or senior officer appointed to the Executive Management
Committee of Bancorp, and (vii) any change in the authorized range of directors;
and, as so amended, the Bylaws of Mid-Peninsula shall, at and after the
Effective Time of the Merger, be the Bylaws of Bancorp as the Surviving
Corporation until further amended as provided by law.
ARTICLE V
DIRECTORS
---------
At the Effective Time of the Merger, the Board of Directors of Bancorp as
the Surviving Corporation shall consist of five (5) members appointed by the
<PAGE>
Board of Directors of Mid-Peninsula and five (5) members appointed by the Board
of Directors of Cupertino, in each case as designated in the Agreement. Such
persons shall serve as the Directors of the Surviving Corporation until such
time as their successors have been duly elected and qualified.
5
ARTICLE VI
FURTHER ACTION
--------------
The parties shall deliver, or cause to be delivered, such documents or
certificates as may be necessary, in the reasonable opinion of counsel for any
of the parties, to effectuate the transactions set forth in this Merger
Agreement. If, at any time after the Effective Time of the Merger, Bancorp as
the Surviving Corporation or its successors or assigns shall determine that any
further conveyance, assignment or other documents or any further action is
necessary or desirable to further effectuate the transactions set forth herein
or contemplated hereby, the officers and directors of the parties hereto shall
execute and deliver, or cause to be executed and delivered, all such documents
as may be reasonably required to effectuate such transactions.
ARTICLE VII
EFFECTIVE TIME OF THE MERGER
----------------------------
The Merger will become effective upon the filing, in accordance with
Section 1103 of the GCL, of an executed copy of this Merger Agreement and all
other requisite accompanying certificates in the office of the California
Secretary of State. The date and time of such filing with the California
Secretary of State is referred to herein as the "Effective Time of the Merger."
ARTICLE VIII
CONDITIONS TO MERGER
--------------------
The filing of this Merger Agreement with the California Secretary of State
as provided in Article VII above is conditioned upon the fulfillment, prior to
such filing, of all the conditions to the Merger set forth in the Agreement.
ARTICLE IX
TERMINATION
-----------
This Merger Agreement may, by the mutual consent and action of the Boards
of Directors of Mid-Peninsula and Cupertino, be abandoned at any time before or
after approval thereof by the shareholders of Mid-Peninsula and Cupertino, but
not later than the filing of this Merger Agreement with the California Secretary
of State pursuant to Section 1103 of the GCI. This Merger Agreement shall
automatically be terminated and of no further force and effect if, prior to the
filing of an executed copy hereof with the California Secretary of State as
provided in Article VII hereof, the Agreement is terminated in accordance with
the terms thereof.
ARTICLE X
GENERAL PROVISIONS
------------------
10.1 Successors and Assigns. This Merger Agreement shall be binding upon
and enforceable by the parties hereto and their respective successors, assigns
and transferees, but this Merger Agreement may not be assigned by any party
without the written consent of the other parties.
<PAGE>
6
10.2 Governing Law. This Merger Agreement has been executed in the State
-------------
of California, and the laws of the State of California shall govern the validity
and interpretation hereof and the performance by the parties hereto.
10.3 Amendments. This Agreement, when duly executed and delivered, may
----------
be modified or amended by action of the Board of Directors of Mid-Peninsula and
Cupertino to the extent permitted by law without action by their respective
shareholders. This Merger Agreement may be modified or amended only by an
instrument of equal formality signed by the parties or their duly authorized
agents.
10.4 Entire Agreement. This Merger Agreement and the Agreement,
----------------
together with all exhibits hereto and thereto and all documents referenced
herein and therein, constitute the entire agreement of Mid-Peninsula and
Cupertino, and supersede any prior written or oral negotiations, discussions,
understandings and agreements between them, concerning the subject matter
contained herein and therein.
10.5 Counterparts. This Merger Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original instrument, but
all of which together shall constitute but one and the same agreement.
IN WITNESS WHEREOF, Mid-Peninsula and Cupertino, pursuant to the approval
and authority duly given by resolution of their respective Boards of Directors,
have caused this Merger Agreement to be signed by their respective Presidents
and Secretaries on the day and year first above written.
CUPERTINO NATIONAL BANCORP, MID-PENINSULA BANCORP,
a California corporation a California corporation
By /s/ C. Donald Allen By /s/ David L. Kalkbrenner
---------------------------- -----------------------------
C. Donald Allen, President David L. Kalkbrenner, President
and Chief Executive Officer and Chief Executive Officer
By /s/ Steven C. Smith By /s/ Warren R. Thoits
---------------------------- -----------------------------
Steven C. Smith, Secretary Warren R. Thoits, Secretary
7
EXHIBIT 1
---------
AMENDMENT TO ARTICLES OF INCORPORATION
OF
MID-PENINSULA BANCORP
1. Article One of the Articles of Incorporation is amended to read as
follows:
<PAGE>
"ONE: NAME.
---
The name of the corporation is Greater Bay Bancorp."
2. Article Five of the Articles of Incorporation is amended to read as
follows:
"FIVE DIRECTOR LIABILITY; INDEMNIFICATION OF AGENTS.
----
(a) The liability of the directors of the corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law.
(b) The indemnification of an agent [as defined in California
Corporations Code section 317(a)] of this corporation, whether by bylaws,
agreement or otherwise, for breach of duty to this corporation and its
stockholders, may, to the extent not prohibited under California Corporations
Code sections 317 and 204(a) , exceed the indemnification otherwise
permitted by section 317 of the Corporations Code."
3. The following Article Six is added to the Articles of Incorporation:
"SIX: SUPER-MAJORITY VOTING BY DIRECTORS.
---
The vote of not less than two-thirds of all members of the
board of directors shall be required to approve any of the following types of
matters affecting the corporation.
(a) Any merger, sale of control or sale of material assets of the
corporation.
(b) Any material acquisition by the corporation.
(c) The creation of any new business unit of the corporation or any
subsidiary of the corporation.
(d) Any operating budget, or any material change therein, of the
corporation or any subsidiary of the corporation.
(e) Any material change in the business organization or
organizational structure of the corporation or any subsidiary of the
corporation.
(f) Termination of the employment of any executive or senior officer
appointed to the Executive Management Committee of the corporation.
(g) Any change in the authorized range of the number of directors of
the corporation."
Certificate of Officers
Pursuant to Section 1103 of the
California Corporations Code
Mid-Peninsula Bancorp
David L. Kalkbrenner and Carol H. Rowland certify that:
1. They are the duly elected and acting Chief Executive Officer and Chief
Financial Officer, respectively, of Mid-Peninsula Bancorp.
2. This certificate is attached to the Merger Agreement dated as of
November 15, 1996, providing for the merger of Mid-Peninsula Bancorp and
Cupertino National Bancorp, with Mid-Peninsula Bancorp being the surviving
corporation of the merger and changing its name to Greater Bay Bancorp.
<PAGE>
3. The Merger Agreement in the form attached has been approved by the
Board of Directors of the Corporation.
4. The principal terms of the Merger Agreement in the form attached were
approved by the corporation by the vote of a number of shares of each class
entitled to vote on the merger which equaled or exceeded the vote required, such
classes, the total number of outstanding shares of each class entitled to vote
on the merger and the percentage vote required of each class being as follows:
Name of Class Shares Outstanding Vote Required
------------- ------------------ -------------
Common Stock 1,637,593 Majority of shares outstanding
IN WITNESS WHEREOF, the undersigned have executed this certificate on
November 15, 1996.
/s/ DAVID L. KALKBRENNER /s/ CAROL H. ROWLAND
-------------------------- --------------------------
David L. Kalkbrenner Carol H. Rowland
Chief Executive Officer Chief Financial Officer
The undersigned, Chief Executive Officer and Chief Financial Officer,
respectively, of Mid-Peninsula Bancorp, a California corporation, each declares
under penalty of perjury that the matters set out in the foregoing Certificate
are true of his or her own knowledge.
Executed at Palo Alto, California on November 15, 1996.
/s/ DAVID L. KALKBRENNER /s/ CAROL H. ROWLAND
-------------------------- --------------------------
David L. Kalkbrenner Carol H. Rowland
Chief Executive Officer Chief Financial Officer
Certificate of Officers
Pursuant to Section 1103 of the
California Corporations Code
Cupertino National Bancorp
C. Donald Allen and Heidi R. Wulfe certify that:
1. They are the duly elected and acting Chief Executive Officer and Chief
Financial Officer, respectively, of Cupertino National Bancorp.
2. This certificate is attached to the Merger Agreement dated as of
November 15, 1996, providing for the merger of Cupertino National Bancorp with
and into Mid-Peninsula Bancorp, with Mid-Peninsula Bancorp being the surviving
corporation of the merger and changing its name to Greater Bay Bancorp.
3. The Merger Agreement in the form attached has been approved by the
Board of Directors of the corporation.
<PAGE>
4. The principal terms of the Merger Agreement in the form attached were
approved by the corporation by the vote of a number of shares of each class
entitled to vote on the merger which equaled or exceeded the vote required, such
classes, the total number of outstanding shares of each class entitled to vote
on the merger and the percentage vote required of each class being as follows:
Name of class Shares Outstanding Vote Required
------------- ------------------ -------------
Common Stock 1,905,958 Majority of shares outstanding
IN WITNESS WHEREOF, the undersigned have executed this certificate on
November 15, 1996.
/s/ C. Donald Allen /s/ Heidi R. Wulfe
-------------------------- --------------------------
C. Donald Allen Heidi R. Wulfe
Chief Executive Officer Chief Executive Officer
The undersigned, Chief Executive Officer and Chief Executive Officer,
respectively, of Cupertino National Bancorp, a California corporation, each
declares under penalty of perjury that the matters set out in the foregoing
Certificate are true of his or her own knowledge.
Executed at Cupertino, California on November 15, 1996.
/s/ C. Donald Allen /s/ Heidi R. Wulfe
-------------------------- --------------------------
C. Donald Allen Heidi R. Wulfe
Chief Executive Officer Chief Executive Officer
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
David L. Kalkbrenner and Steven C. Smith verify that:
1. They are the President and Chief Executive Officer and the Assistant
Secretary, respectively, of GREATER BAY BANCORP, a California corporation.
2. The Articles of Incorporation of this corporation are amended by adding
thereto a new Article SEVEN to read as follows:
"SEVEN. ELIMINATION OF CUMULATIVE VOTING.
No holder of any class of stock of the corporation shall be entitled to
cumulate votes at any election of directors of the corporation."
3. The foregoing amendment of Articles of Incorporation has been duly approved
by the Board of Directors.
4. The foregoing amendment of Articles of Incorporation has been duly approved
by the required vote of shareholders in accordance with Section 902 of the
<PAGE>
Corporations Code. The total number of outstanding shares of the
corporation entitled to vote with respect to the amendment is 3,300,827.
The number of shares voting in favor of the amendment equaled or exceeded
the vote required. The percentage vote required was more than 50%.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
to our own knowledge.
DATE: May 9, 1997
/s/ David L. Kalkbrenner
------------------------------------
David L. Kalkbrenner, President and
Chief Executive Officer
/s/ Steven C. Smith
------------------------------------
Steven C. Smith, Assistant Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
David L. Kalkbrenner and Steven C. Smith certify that:
1. They are the President and Chief Executive Officer and the Assistant
Secretary, respectively, of GREATER BAY BANCORP, a California corporation.
2. Paragraph (a) of Article FOUR of the Articles of Incorporation of this
corporation is amended to read as follows:
"(a) The Corporation is authorized to issue two (2) classes of
shares of stock: one class of shares to be called "Common Stock"; the
second class of shares to be called "Preferred Stock." The total number
of shares of stock of which the Corporation shall have authority to
issue is Sixteen Million (16,000,000), of which Twelve Million
(12,000,000) shall be Common Stock and Four Million (4,000,000) shall be
Preferred Stock."
3. The foregoing amendment of Articles of Incorporation has been duly
approved by the Board of Directors.
4. The foregoing amendment of Articles of Incorporation has been duly
approved by the required vote of shareholders in accordance with Section 902 of
the Corporations Code. The total number of outstanding shares of the corporation
entitled to vote with respect to the amendment is 3,339,131. The number of
shares voting in favor of the amendment equaled or exceeded the vote required.
The percentage vote required was more than 50%.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
DATED: December 2, 1997.
/s/ David L. Kalkbrenner
-------------------------------
David L. Kalkbrenner, President
and Chief Executive Officer
/s/ Steven C. Smith
-------------------------------
Steven C. Smith, Assistant
Secretary
[SEAL]
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
GREATER BAY BANCORP
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I Applicability..................................................................... 1
Section 1. Applicability of Bylaws......................................................... 1
ARTICLE II Offices........................................................................... 1
Section 1. Principal Executive Office...................................................... 1
Section 2. Other Offices................................................................... 1
Section 3. Change in Location or Number of Offices......................................... 1
ARTICLE III Meetings of Shareholders.......................................................... 1
Section 1. Place of Meetings............................................................... 1
Section 2. Annual Meetings................................................................. 1
Section 3. Special Meetings................................................................ 1
Section 4. Notice of Annual, Special or Adjourned Meetings................................. 2
Section 5. Record Date..................................................................... 3
Section 6. Quorum; Action at Meetings...................................................... 3
Section 7. Adjournment..................................................................... 4
Section 8. Validation of Defectively Called, Noticed or Held Meetings...................... 4
Section 9. Voting for Election of Directors................................................ 4
Section 10. Proxies......................................................................... 5
Section 11. Inspectors of Election.......................................................... 5
Section 12. Action by Written Consent....................................................... 5
ARTICLE IV Directors......................................................................... 6
Section 1. Number of Directors............................................................. 6
Section 2. Election of Directors........................................................... 6
Section 3. Term of Office.................................................................. 7
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Section 4. Vacancies....................................................................... 7
Section 5. Removal......................................................................... 7
Section 6. Resignation..................................................................... 8
Section 7. Fees and Compensation........................................................... 8
ARTICLE V Committees of the Board of Directors.............................................. 8
Section 1. Designation of Committees....................................................... 8
Section 2. Powers of Committees............................................................ 8
ARTICLE VI Meetings of the Board of Directors and Committees Thereof......................... 9
Section 1. Place of Meetings............................................................... 9
Section 2. Organization Meeting............................................................ 9
Section 3. Other Regular Meetings.......................................................... 9
Section 4. Special Meetings................................................................ 9
Section 5. Notice of Special Meetings...................................................... 9
Section 6. Validation of Defectively Held Meetings......................................... 10
Section 7. Quorum; Action at Meetings; Telephone Meetings.................................. 10
Section 8. Adjournment..................................................................... 10
Section 9. Action Without a Meeting........................................................ 10
Section 10. Meetings of and Action by Committees............................................ 10
ARTICLE VII Officers......................................................................... 10
Section 1. Officers........................................................................ 10
Section 2. Election of Officers............................................................ 11
Section 3. Subordinate Officers, Etc....................................................... 11
Section 4. Removal and Resignation......................................................... 11
Section 5. Vacancies....................................................................... 11
Section 6. Chairman of the Board........................................................... 11
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 7. President....................................................................... 11
Section 8. Vice President.................................................................. 12
Section 9. Secretary....................................................................... 12
Section 10. Treasurer....................................................................... 12
ARTICLE VIII Records and Reports............................................................... 12
Section 1. Minute Book - Maintenance and Inspection........................................ 12
Section 2. Share Resister - Maintenance and Inspection..................................... 12
Section 3. Books and Records of Account - Maintenance and Inspection....................... 13
Section 4. Bylaws - Maintenance and Inspection............................................. 13
Section 5. Annual Report to Shareholders................................................... 13
ARTICLE IX Miscellaneous..................................................................... 13
Section 1. Checks, Drafts, Etc............................................................. 13
Section 2. Contracts, Etc. - How Executed.................................................. 13
Section 3. Certificates of Stock........................................................... 13
Section 4. Lost Certificates............................................................... 13
Section 5. Representation of Shares of Other Corporations.................................. 14
Section 6. Construction and Definitions.................................................... 14
Section 7. Indemnification of Corporate Agents; Purchase of Liability Insurance............ 14
ARTICLE X Amendments........................................................................ 15
Section 1. Amendments...................................................................... 15
</TABLE>
iii
<PAGE>
BYLAWS
OF
GREATER BAY BANCORP
ARTICLE I
APPLICABILITY
-------------
Section 1. Applicability of Bylaws. These Bylaws govern, except as
-----------------------
otherwise provided by statute or its Articles of Incorporation, the management
of the business and the conduct of the affairs of the Corporation.
ARTICLE II
OFFICES
-------
Section 1. Principal Executive Office. The location of the principal
--------------------------
executive office of the Corporation is 420 Cowper Street, Palo Alto, California
94301-1504.
Section 2. Other Offices. The Board of Directors may establish other
-------------
offices at any place or places within or without the State of California.
Section 3. Change in Location or Number of Offices. The Board of
---------------------------------------
Directors may change any office from one location to another or eliminate any
office or offices.
ARTICLE III
MEETINGS OF SHAREHOLDERS
------------------------
Section 1. Place of Meetings. Meetings of the shareholders shall be held
-----------------
at any place within or without the State of California designated by the Board
of Directors, or, in the absence of such designation, at the principal executive
office of the Corporation.
Section 2. Annual Meetings. An annual meeting of the shareholders shall
---------------
be held within 180 days following the end of the fiscal year of the Corporation
at a date and time designated by the Board of Directors. Directors shall be
elected at each annual meeting and any other proper business may be transacted
thereat.
Section 3. Special Meetings. (a) Special meetings of the shareholders
----------------
may be called by a majority of the Board of Directors, the Chairman of the
Board, the President or the holders of shares entitled to cast not less than 10
percent of the votes at such meeting.
<PAGE>
(b) Any request for the calling of a special meeting of the
shareholders shall (1) be in writing, (2) specify the date and time thereof
which date shall be not less than 35 nor more than 60 days after receipt of the
request, (3) specify the general nature of the business to be transacted thereat
and (4) be given either personally or by first-class mail, postage prepaid, or
other means of written communication to the Chairman of the Board, President,
any Vice President or Secretary of the Corporation. The officer receiving a
proper request to call a special meeting of the shareholders shall cause notice
to be given pursuant to the provisions of Section 4 of this article to the
shareholders entitled to vote thereat that a meeting will be held at the date
and time specified by the person or persons calling the meeting.
(c) No business may be transacted at a special meeting unless the
general nature thereof was stated in the notice of such meeting.
Section 4. Notice of Annual, Special or Adjourned Meetings. (a) Whenever
-----------------------------------------------
any meeting of the shareholders is to be held, a written notice of such meeting
shall be given in the manner described in subdivision (d) of this section not
less than 10 nor more than 60 days before the date thereof to each shareholder
entitled to vote thereat. The notice shall state the place, date and hour of the
meeting and (1) in the case of a special meeting, the general nature of the
business to be transacted or (2) in the case of the annual meeting, those
matters which the Board of Directors, at the time of the giving of the notice,
intend to present for action by the shareholders including, whenever directors
are to be elected at a meeting, the names of nominees intended at the time of
giving of the notice to be presented by management for election.
(b) Any proper matter may be presented at an annual meeting for
action, except as is provided in subdivision (f) of Section 601 of the
Corporations Code of the State of California.
(c) Notice need not be given of an adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken, except that if the adjournment is for more than 45 days or if after the
adjournment a new record date is provided for the adjourned meeting, a notice of
the adjourned meeting shall be given to each shareholder of record entitled to
vote thereat.
(d) Notice of any meeting of the shareholders or any report shall
be given either personally or by first class mail, postage prepaid, or other
means of written communication, addressed to the shareholder at his address
appearing on the books of the Corporation or given by him to the Corporation for
the purpose of notice; or if no such address appears or is given, at the place
where the principal executive office of the Corporation is located or by
publication at least once in a newspaper of general circulation in the county in
which the principal executive office is located. The notice or report shall be
deemed to have been given at the time when delivered personally to the recipient
or deposited in the mail or sent by other means of written communication. An
affidavit of mailing of any notice or report in accordance with the provisions
of these Bylaws or the General Corporation Law of the State of California,
executed by the Secretary, assistant secretary or any transfer agent of the
Corporation, shall be prima facie evidence of the notice or report.
----- -----
2
<PAGE>
(e) If any notice or report addressed to the shareholder at his
address appearing on the books of the Corporation is returned to the Corporation
by the United States Postal Service marked to indicate that the United States
Postal Service is unable to deliver the notice or report to the shareholder at
such address, all future notices or reports shall be deemed to have been duly
given without further mailing if the same shall be available for the shareholder
upon his written demand at the principal executive office of the Corporation for
a period of one year from the date of the giving of the notice or report to all
other shareholders.
Section 5. Record Date. (a) The Board of Directors may fix a time in the
-----------
future as a record date for the determination of the shareholders (1) entitled
to notice of any meeting or to vote thereat, (2) entitled to receive payment of
any dividend or other distribution or allotment of any rights or (3) entitled to
exercise any rights in respect of any other lawful action. The record date so
fixed shall be not more than 60 nor less than 10 days prior to the date of any
meeting of the shareholders nor more than 60 days prior to any other action.
(b) In the event no record date is fixed:
a. The record date for determining the shareholders entitled
to notice of or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held.
b. The record date for determining shareholders entitled to
give consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors has been taken, shall be the day on which the
first written consent is given.
c. The record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto, or the 60th day prior to the
date of such other action, whichever is later.
(c) Only shareholders of record at the close of business on the
record date are entitled to notice and to vote or to receive a dividend,
distribution or allotment of rights or to exercise the rights, as the case may
be, notwithstanding any transfer of any shares on the books of the Corporation
after the record date.
(d) A determination of shareholders of record entitled to notice
of or to vote at a meeting of shareholders shall apply to any adjournment of the
meeting unless the Board of Directors fixes a new record date for the adjourned
meeting, but the Board shall fix a new record date if the meeting is adjourned
for more than 45 days from the date set for the original meeting.
Section 6. Quorum; Action at Meetings. (a) A majority of the shares
--------------------------
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of the shareholders.
(b) Except as provided in subdivision (c) of this section, the
affirmative vote of a majority of the shares represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute at least a majority of the required
3
<PAGE>
quorum) shall be the act of the shareholders, unless the vote of a greater
number is required by Law or the Articles of Incorporation.
(c) The shareholders present at a duly called or held meeting at
which a quorum is present may continue to transact business until adjournment
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum, if any action taken (other than adjournment) is approved by at least a
majority of the shares required to constitute a quorum.
Section 7. Adjournment. Any meeting of the shareholders may be adjourned
-----------
from time to time whether or not a quorum is present by the vote of a majority
of the shares represented thereat either in person or by proxy. At the adjourned
meeting the Corporation may transact any business which might have been
transacted at the original meeting.
Section 8. Validation of Defectively Called, Noticed or Held Meetings.
----------------------------------------------------------
(a) The transactions of any meeting of the shareholders, however called and
noticed, and wherever held, are as valid as though had at a meeting duly held
after regular call and notice, if a quorum is present either in person or by
proxy, and if, either before or after the meeting, each of the persons entitled
to vote thereat, not present in person or by proxy, signs a written waiver of
notice or a consent to the holding of the meeting or an approval of the minutes
thereof. All such waivers, consents and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
(b) Attendance of a person at a meeting shall constitute a waiver
of notice of, and presence at, such meeting, except (1) when the person objects,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened and (2) that attendance at a meeting
is not a waiver of any right to object to the consideration of any matter
required by the General Corporation Law of the State of California to be
included in the notice but not so included, if such objection is expressly made
at the meeting.
(c) Any written waiver of notice shall comply with subdivision
(f) of Section 601 of the Corporations Code of the State of California.
Section 9. Voting for Election of Directors. (a) Shareholders shall
--------------------------------
not be permitted to cumulate their votes for the election of directors.
(b) Elections for directors may be by voice vote or by ballot
unless any shareholder entitled to vote demands election by ballot at the
meeting prior to the voting, in which case the vote shall be by ballot.
(c) In any election of directors, the candidates receiving the
highest number of votes of the shares entitled to be voted for them up to the
number of directors of each class to be elected by such shares are elected as
directors. If, at any meeting of shareholders, due to a vacancy or vacancies or
otherwise, directors of more than one class of the Board of Directors are to be
elected, each class of directors to be elected at the meeting shall be elected
in a separate election.
4
<PAGE>
Section 10. Proxies. (a) Every person entitled to vote shares may
-------
authorize another person or persons to act with respect to such shares by a
written proxy signed by him or his attorney-in-fact and filed with the Secretary
of the Corporation. A proxy shall be deemed signed if the shareholder's name is
placed on the proxy (whether by manual signature, typewriting, telegraphic
transmission or otherwise) by him or his attorney-in-fact.
(b) Any duly executed proxy shall continue in full force and
effect until the expiration of the term specified therein or upon its earlier
revocation by the person executing it prior to the vote pursuant thereto (1) by
a writing delivered to the Corporation stating that it is revoked, (2) by a
subsequent proxy executed by the person executing the proxy or (3) by the
attendance at the meeting and voting in person by the person executing the
proxy. No proxy shall be valid after the expiration of 11 months from the date
thereof unless otherwise provided in the proxy. The date contained on the form
of proxy shall be deemed to be the date of its execution.
(c) A proxy which states that it is irrevocable for the period
specified therein shall be subject to the provisions of subdivisions (e) and (f)
of Section 705 of the Corporations Code of the State of California.
Section 11. Inspectors of Election. (a) In advance of any meeting of the
----------------------
shareholders, the Board of Directors may appoint either one or three persons
(other than nominees for the office of director) as inspectors of election to
act at such meeting or any adjournments thereof. If inspectors of election are
not so appointed, or if any person so appointed fails to appear or refuses to
act, the chairman of any such meeting may, and on the request of any shareholder
or his proxy shall, appoint inspectors of election (or persons to replace those
who so fail or refuse to act) at the meeting. If appointed at a meeting on the
request of one or more shareholders or the proxies thereof, the majority of
shares represented in person or by proxy shall determine whether one or three
inspectors are to be appointed.
(b) The duties of inspectors of election and the manner of
performance thereof shall be as prescribed in Section 707 of the Corporations
Code of the State of California.
Section 12. Action by Written Consent. (a) Subject to subdivisions (b)
-------------------------
and (c) of this section, any action which may be taken at any annual or special
meeting of the shareholders may be taken without a meeting, without a vote and
without prior notice, if a consent in writing, setting forth the action so
taken, is signed by the holders of outstanding shares having not less than the
minimum number of votes which would be necessary to authorize or take such
action at a meeting in which all shares entitled to vote thereon were present
and voted. All such consents shall be filed with the Secretary of the
Corporation and maintained with the corporate records.
5
<PAGE>
(b) Except for the election of a director by written consent to
fill a vacancy (other than a vacancy created by removal), directors may be
elected by written consent only by the unanimous written consent of all shares
entitled to vote for the election of directors. In the case of an election of a
director by written consent to fill a vacancy (other than a vacancy created by
removal), any such election requires the consent of a majority of the
outstanding shares entitled to vote.
(c) Unless the consents of all shareholders entitled to vote have
been solicited in writing, notice of any shareholder approval without a meeting
by less than unanimous written consent shall be given as provided in subdivision
(b) of Section 603 of the Corporations Code of the state of California.
(d) Any shareholder giving a written consent, or his
proxyholders, or a personal representative of the shareholder or their
respective proxyholders, may revoke the consent by a writing received by the
Corporation prior to the time that written consents of the number of shares
required to authorized the proposed action have been filed with the Secretary of
the Corporation, but may not do so thereafter. Such revocation is effective upon
its receipt by the Secretary of the Corporation.
ARTICLE IV
DIRECTORS
---------
Section 1. Number of Directors. (a) The authorized number of directors
-------------------
shall be no less than seven (7) nor more than thirteen (13). The exact number of
directors shall be fixed from time to time, within the limits specified in this
subdivision, by an amendment of subdivision (b) of this section adopted by the
Board of Directors.
(b) The exact number of directors shall be thirteen (13) until
changed as provided in subdivision (a) of this section.
(c) The maximum or minimum authorized number of directors may
only be changed by an amendment of this section approved by the vote or written
consent of a majority of the outstanding shares entitled to vote; provided,
however, that an amendment reducing the minimum number to a number less than 5
shall not be adopted if the votes cast against its adoption at a meeting (or the
shares not consenting in the case of action by written consent) exceed 16-2/3%
of such outstanding shares; and provided, further, that in no case shall the
stated maximum authorized number of directors exceed two times the stated
minimum number of authorized directors minus one.
Section 2. Classification, Election and Term of Office.
-------------------------------------------
(a) Nomination for election of directors may be made by the Board
of Directors or by any holder of any outstanding class of capital stock of the
Corporation entitled to vote for the election of directors. Notice of intention
to make any nominations shall be made in writing and shall be delivered or
mailed to the President of the Corporation not less than twenty-one (21) days
nor more than sixty (60) days prior to any meeting of shareholders called for
the election of directors; provided, however, that if less than twenty-one (21)
days' notice is given to shareholders, such notice of intention to nominate
shall be mailed or delivered to the President of the Corporation not later than
the close of business on the tenth (10th) day following the day on which the
notice of meeting was mailed; provided, further, that if notice of such meeting
is sent by third class mail (if permitted by law), no notice of intention to
make nominations shall be required. Such notification shall contain the
following information to the extent known to the notifying shareholder.
(1) the name and address of each proposed nominee;
(2) the principal occupation of each proposed nominee;
(3) the number of shares of capital stock of the Corporation owned by each
proposed nominee;
(4) the name and residence address of the notifying shareholder; and
(5) the number of shares of capital stock of the Corporation owned by the
notifying shareholder.
Nominations not made in accordance herewith may, in the discretion of the
Chairman of the meeting, be disregarded and upon the Chairman's instructions,
the inspectors of election can disregard all votes cast for each such nominee.
A copy of this paragraph shall be set forth in a notice to shareholders of any
meeting at which directors are to be elected.
(b) In the event that the authorized number of directors shall be
fixed at nine (9) or more, the Board of Directors shall be divided into three
classes, designated Class I, Class II and Class III. Each class shall consist of
one-third of the directors or as close an approximation as possible. The initial
term of office of the directors of Class I shall expire at the annual meeting to
be held during fiscal year 1998, the initial term of office of the directors of
Class II shall expire at the annual meeting to be held during fiscal 1999 and
the initial term of office of the directors of Class III shall expire at the
annual meeting to be held during fiscal year 2000. At each annual meeting,
commencing with the annual meeting to be held during fiscal year 1998, each of
the successors to the directors of the class whose term shall have expired at
such annual meeting shall be elected for a term running until the third annual
meeting next succeeding his or her election and until his or her successor shall
have been duly elected and qualified.
In the event that the authorized number of directors shall be fixed with at
least six (6) but less than nine (9), the Board of Directors shall be divided
into two classes, designated Class I and Class II. Each class shall consist of
one-half of the directors or as close an approximation as possible. At each
annual meeting, each of the successors to the directors of the class whose
term shall have expired at such annual meeting shall be elected for a term
running until the second annual meeting next succeeding his or her election
and until his or her successor shall have been duly elected and qualified.
Notwithstanding the rule that the classes shall be as nearly equal in
number of directors as possible, in the event of any change in the authorized
number of directors, each director then continuing to serve as such shall
nevertheless continue as a director of the class of which he or she is a member
until the expiration of his or her current term, or his or her prior death,
resignation or removal.
At each annual election, the directors chosen to succeed those whose terms
then expire shall be of the same class as the directors they succeed, unless,
by reason of any intervening changes in the authorized number of directors,
the Board of Directors shall designate one or more directorships whose term
then expires as directorships of another class in order more nearly to achieve
equality of number of directors among the classes.
This section may only be amended or repealed by approval of the Board of
Directors and the outstanding shares (as defined in Section 152 of the
California General Corporation Law) voting as a single class, notwithstanding
Section 903 of the California General Corporation Law.
6
<PAGE>
Section 3. Term of Office. Each director, including a director elected
--------------
to fill a vacancy, shall hold office until the expiration of the term for which
he is elected and until a successor has been elected.
Section 4. Vacancies. (a) A vacancy in the Board of Directors exists
---------
whenever any authorized position of director is not then filled by a duly
elected director, whether caused by death, resignation, removal, change in the
authorized number of directors or otherwise.
(b) Except for a vacancy created by the removal al a director,
vacancies on the Board of Directors may be filled by a majority of the directors
then in office, whether or not less than a quorum, or by a sole remaining
director. A vacancy created by the removal of a director shall be filled only by
shareholders.
(c) The shareholders may elect a director at any time to fill any
vacancy not filled by the directors.
Section 5. Removal. (a) The Board of Directors may declare vacant the
-------
office of a director who has been declared of unsound mind by an order of court
or convicted of a felony.
(b) Any or all of the directors may be removed without cause if
such removal is approved by a majority of the outstanding shares entitled to
vote; provided, however, that no director may be removed (unless the entire
Board of Directors is removed) if whenever the votes
7
<PAGE>
cast against removal, or not consenting in writing to such removal, would be
sufficient to elect such director if voted cumulatively at an election at which
the same total number of votes were cast (or, if such action is taken by written
consent, all shares entitled to vote were voted) and the entire number of
directors authorized at the time of his most recent election were then being
elected.
(c) Any reduction of the authorized number of directors does not
remove any director prior to the expiration of his term of office.
Section 6. Resignation. Any director may resign effective upon giving
-----------
written notice to the Chairman of the Board, the President, the Secretary or the
Board of Directors of the Corporation, unless the notice specifies a later time
for the effectiveness of such resignation. If the resignation is effective at a
future time, a successor may be elected to take office when the resignation
becomes effective.
Section 7. Fees and Compensation. Directors may be paid for their
---------------------
services in such capacity a sum in such amounts, at such times and upon such
conditions as may be determined from time to time by resolution of the Board of
Directors, and may be reimbursed for their expenses, if any, incurred in such
capacity, including (without limitation) expenses of attendance at any meeting
of the Board. No such payments shall preclude any director from serving the
Corporation in any other capacity and receiving compensation in any manner
therefor.
ARTICLE V
COMMITTEES OF THE BOARD OF DIRECTORS
------------------------------------
Section 1. Designation of Committees. The Board of Directors may, by
-------------------------
resolution adopted by a majority of the authorized number of directors,
designate (1) one or more committees, each consisting of two or more directors
and (2) one or more directors as alternate members of any committee, who may
replace any absent member at any meeting thereof. Any member or alternate member
of a committee shall serve at the pleasure of the Board.
Section 2. Powers of Committees. Any committee, to the extent provided
--------------------
in the resolution of the Board of Directors designating such committee, shall
have all the authority of the Board, except with respect to:
(a) The approval of any action for which the General Corporation
Law of the State of California also requires any action by the shareholders;
(b) The filling of vacancies on the Board or in any committee
thereof;
(c) The fixing of compensation of the directors for serving on
the Board or on any committee thereof;
(d) The amendment or repeal of these Bylaws or the adoption of
new bylaws;
8
<PAGE>
(e) The amendment or repeal of any resolution of the Board which
by its express terms is not so amenable or resealable;
(f) A distribution to the shareholders of the Corporation, except
at a rate or in a periodic amount or within a price range determined by the
Board of Directors; or
(g) The designation of other committees of the Board or the
appointment of members or alternate members thereof.
ARTICLE VI
MEETINGS OF THE BOARD OF DIRECTORS
----------------------------------
AND COMMITTEES THEREOF
----------------------
Section 1. Place of Meetings. Regular meetings of the Board of Directors
-----------------
shall be held at any place within or without the State of California which has
been designated from time to time by the Board or, in the absence of such
designation, at the principal executive office of the Corporation. Special
meetings of the Board shall be held either at any place within or without the
State of California which has been designated in the notice of the meeting or,
if not stated in the notice or if there is no notice, at the principal executive
office of the Corporation.
Section 2. Organization Meeting. Immediately following each annual
--------------------
meeting of the shareholders the Board of Directors shall hold a regular meeting
for the purpose of organization and the transaction of other business. Notice of
any such meeting is not required.
Section 3. Other Regular Meetings. Other regular meetings of the Board
----------------------
of Directors shall be held without call at such time as shall be designated from
time to time by the Board. Notice of any such meeting is not required.
Section 4. Special Meetings. Special meetings of the Board of Directors
----------------
may be called at any time for any purpose or purposes by the Chairman of the
Board or the President or any vice president or the Secretary or any two
directors. Notice shall be given of any special meeting of the Board.
Section 5. Notice of Special Meetings. (a) Notice of the time and place
--------------------------
of special meetings of the Board of Directors shall be delivered personally or
by telephone to each director or sent to each director by first-class mail or
telegraph, charges prepaid. Such notice shall be given four days prior to the
holding of the special meeting if sent by mail or 48 hours prior to the holding
thereof if delivered personally or given by telephone or telegraph. The notice
or report shall be deemed to have been given at the time when delivered
personally to the recipient or deposited in the mail or sent by other means of
written communication.
(b) Notice of any special meeting of the Board of Directors need
not specify the purpose thereof and need not be given to any director who signs
a waiver of notice, whether before or after the meeting, or who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to him.
9
<PAGE>
Section 6. Validation of Defectively Held Meetings. The transactions of
---------------------------------------
any meeting of the Board of Directors, however called and noticed or wherever
held, are as valid as though had at a meeting duly held after regular call and
notice if a quorum is present and if, either before or after the meeting, each
of the directors not present signs a written waiver of notice, a consent to
holding the meeting or an approval of the minutes thereof. Such waivers,
consents and approvals (1) need not specify the purpose of any meeting of the
Board of Directors and (2) shall be filed with the corporate records or made a
part of the minutes of the meeting.
Section 7. Quorum; Action at Meetings; Telephone Meetings. (a) A
----------------------------------------------
majority of the authorized number of directors shall constitute a quorum for the
transaction of business. Every act or decision done or made by a majority of the
directors present at a meeting duly held at which a quorum is present is the act
of the Board of Directors, unless action by a greater proportion of the
directors is required by law or the Articles of Incorporation.
(b) A meeting at which a quorum is initially present may continue
to transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for such
meeting.
(c) Members of the Board of Directors may participate in a
meeting through use of conference telephone or similar communications equipment
so long as all members participating in such meeting can hear one another.
Section 8. Adjournment. A majority of the directors present, whether or
-----------
not a quorum is present, may adjourn any meeting to another time and place. If
the meeting is adjourned for more than 24 hours, notice of any adjournment to
another time or place shall be given prior to the time of the adjourned meeting
to the directors who were not present at the time of the adjournment.
Section 9. Action Without a Meeting. Any action required or permitted to
------------------------
be taken by the Board of Directors may be taken without a meeting, if all
members of the Board individually or collectively consent in writing to such
action. Such written consent or consents shall be filed with the minutes of the
proceedings of the Board. Such action by written consent shall have the same
force and effort as a unanimous vote of such directors.
Section 10. Meetings of and Action by Committees. The provisions of this
------------------------------------
Article apply to committees of the Board of Directors and action by such
committees with such changes in the language of those provisions as are
necessary to substitute the committee and its members for the Board and its
members.
ARTICLE VII
OFFICERS
--------
Section 1. Officers. The Corporation shall have as officers, a
--------
President, a Secretary and a Treasurer. The Treasurer is the chief financial
officer of the Corporation unless the Board of Directors has by resolution
designated a vice president or other officer to be the chief financial
10
<PAGE>
officer. The Corporation may also have at the discretion of the Board, a
Chairman of the Board, one or more vice presidents, one or more assistant
secretaries, one or more assistant treasurers and such other officers as may be
appointed in accordance with the provisions of Section 3 of this Article. One
person may hold two or more offices.
Section 2. Election of Officers. The officers of the Corporation, except
--------------------
such officers as may be appointed in accordance with the provisions of Section 3
or Section 5 of this Article, shall be chosen by the Board of Directors.
Section 3. Subordinate Officers, Etc. The Board of Directors may appoint
-------------------------
by resolution, and may empower the Chairman of the Board, if there be such an
officer, or the President, to appoint such other officers as the business of the
Corporation may require, each of whom shall hold office for such period, have
such authority and perform such duties as are determined from time to time by
resolution of the Board or, in the absence of any such determination, as are
provided in these Bylaws. Any appointment of an officer shall be evidenced by a
written instrument filed with the Secretary of the Corporation and maintained
with the corporate records.
Section 4. Removal and Resignation. (a) Any officer may be removed,
-----------------------
either with or without cause, by the Board of Directors or, except in case of
any officer chosen by the Board, by any officer upon whom such power of removal
may be conferred by resolution of the Board.
(b) Any officer may resign at any time effective upon giving
written notice to the Chairman of the Board, President, any vice president or
Secretary of the Corporation, unless the notice specifies a later time for the
effectiveness of such resignation.
Section 5. Vacancies. A vacancy in any office because of death,
---------
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in these Bylaws for regular appointments to such office.
Section 6. Chairman of the Board. If there is a Chairman of the Board,
---------------------
he shall, if present, preside at all meetings of the Board of Directors,
exercise and perform such other powers and duties as may be from time to time
assigned to him by resolution of the Board and, if there is no President, the
Chairman of the Board shall be the chief executive officer of the Corporation
and have the power and duties set forth in Section 7 of this Article.
Section 7. President. Subject to such supervisory powers, if any, as may
---------
be given by the Board of Directors to the Chairman of the Board, if there be
such an officer, the President shall be the chief executive officer and general
manager of the Corporation and shall, subject to the control of the Board, have
general supervision, direction and control of the business and affairs of the
Corporation. He shall preside at all meetings of the shareholders and, in the
absence of the Chairman of the Board, or if there be none, at all meetings of
the Board. He shall have the general powers and duties of management usually
vested in the office of president of a corporation, and shall have such other
powers and duties as may be prescribed from time to time by resolution of the
Board.
11
<PAGE>
Section 8. Vice President. In the absence or disability of the
--------------
President, the vice presidents in order of their rank as fixed by the Board of
Directors or, if not ranked, the Vice President designated by the Board, shall
perform all the duties of the President, and when so acting shall have all the
powers of, and be subject to all the restrictions upon, the President. The vice
presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the Board or as the
President may from time to time delegate.
Section 9. Secretary. (a) The Secretary shall keep or cause to be kept
---------
(1) the minute book, (2) the share register and (3) the seal, if any, of the
Corporation.
(b) The Secretary shall give, or cause to be given, notice of all
meetings of the shareholders and of the Board of Directors required by these
Bylaws or by law to be given, and shall have such other powers and perform such
other duties as may be prescribed from time to time by the Board.
Section 10. Treasurer. (a) The Treasurer shall keep, or cause to be kept,
---------
the books and records of account of the Corporation.
(b) The Treasurer shall deposit all monies and other valuables in
the name and to the credit of the Corporation with such depositories as may be
designated from time to time by resolution of the Board of Directors. He shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, shall render to the President and the Board, whenever they request
it, an account of all of his transactions as Treasurer and of the financial
condition of the Corporation, and shall have such other powers and perform such
other duties as may be prescribed from time to time by the Board or as the
President may from time to time delegate.
ARTICLE VIII
RECORDS AND REPORTS
-------------------
Section 1. Minute Book - Maintenance and Inspection. The Corporation
----------------------------------------
shall keep or cause to be kept in written form at its principal executive office
or such other place as the Board of Directors may order, a minute book which
shall contain a record of all actions by its shareholders, Board or committees
of the Board including the time, date and place of each meeting; whether a
meeting is regular or special and, if special, how called; the manner of giving
notice of each meeting and a copy thereof; the names of those present at each
meeting of the Board or committees thereof; the number of shares present or
represented at each meeting of the shareholders; the proceedings of all
meetings; any written waivers of notice, consents to the holding of a meeting or
approvals of the minutes thereof; and written consents for action without a
meeting.
Section 2. Share Resister - Maintenance and Inspection. The Corporation
-------------------------------------------
shall keep or cause to be kept at its principal executive office or, if so
provided by resolution of the Board of Directors, at the Corporation's transfer
agent or registrar, a share register, or a duplicate share register, which shall
contain the names of the shareholders and their addresses, the number and
12
<PAGE>
classes of shares held by each, the number and date of certificates issued for
the same and the number and date of cancellation of every certificate
surrendered for cancellation.
Section 3. Books and Records of Account - Maintenance and Inspection.
---------------------------------------------------------
The Corporation shall keep or cause to be kept at its principal executive office
or such other place as the Board of Directors may order, adequate and correct
books and records of account.
Section 4. Bylaws - Maintenance and Inspection. The Corporation shall
-----------------------------------
keep at its principal executive office or, in the absence of such office in the
State of California, at its principal business office in that state, the
original or a copy of the Bylaws as amended to date.
Section 5. Annual Report to Shareholders. The annual report to the
-----------------------------
shareholders described in Section 1501 of the Corporations Code of the State of
California is expressly dispensed with, but nothing herein shall be interpreted
as prohibiting the Board of Directors from issuing annual or other periodic
reports to the shareholders of the Corporation as they see fit.
ARTICLE IX
MISCELLANEOUS
-------------
Section 1. Checks, Drafts, Etc. All checks, drafts or other orders for
-------------------
payment of money, notes or other evidences of indebtedness, and any assignment
or endorsement thereof, issued in the name of or payable to the Corporation,
shall be signed or endorsed by such person or persons and in such manner as,
from time to time, shall be determined by resolution of the Board of Directors.
Section 2. Contracts, Etc. - How Executed. The Board of Directors,
------------------------------
except as otherwise provided in these Bylaws, may authorize any officer or
officers, agent or agents, to enter into any contract or execute any instrument
in the name of and on behalf of the Corporation, and such authority may be
general or confined to specific instances; and, unless so authorized or ratified
by the Board, no officer, employee or other agent shall have any power or
authority to bind the Corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or to any amount.
Section 3. Certificates of Stock. All certificates shall be signed in
---------------------
the name of the Corporation by the Chairman of the Board or the President or a
vice president and by the Treasurer or an assistant treasurer or the Secretary
or an assistant secretary, certifying the number of shares and the class or
series thereof owned by the shareholder. Any or all of the signatures on a
certificate may be by facsimile signature. In case any officer, transfer agent
or registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if such person were an officer, transfer agent or registrar at
the date of issue.
Section 4. Lost Certificates. Except as provided in this section, no new
-----------------
certificate for shares shall be issued in lieu of an old certificate unless the
latter is surrendered to the Corporation
13
<PAGE>
and canceled at the same time. The Board of Directors may in case any share
certificate or certificate for any other security is lost, stolen or destroyed,
authorize the issuance of a new certificate in lieu thereof, upon such terms and
conditions as the Board may require, including provision for indemnification of
the Corporation secured by a bond or other adequate security sufficient to
protect the Corporation against any claim that may be made against it, including
any expense or liability, on account of the alleged loss, theft or destruction
of such certificate or the issuance of such new certificate.
Section 5. Representation of Shares of Other Corporations. Any person
----------------------------------------------
designated by resolution of the Board of Directors or, in the absence of such
designation, the Chairman of the Board, the President or any vice president or
the Secretary, or any other person authorized by any of the foregoing, is
authorized to vote on behalf of the Corporation any and all shares of any other
corporation or corporations, foreign or domestic, owned by the Corporation.
Section 6. Construction and Definitions. Unless the context otherwise
----------------------------
requires, the general provisions, rules of construction and definitions
contained in the Corporations Code of the State of California shall govern the
construction of these Bylaws.
Section 7. Indemnification of Corporate Agents; Purchase of Liability
----------------------------------------------------------
Insurance. (a) The Corporation shall, to the maximum extent permitted by the
- ---------
General Corporation Law of the State of California, and as the same may from
time to time be amended, indemnify each of its agents against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
in connection with any proceeding to which such person was or is a party or is
threatened to be made a party arising by reason of the fact that such person is
or was an agent of the Corporation. For purposes of this Section 7, an "agent"
of the Corporation includes any person who is or was a director, officer,
employee or other agent of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, employee or agent of another foreign
or domestic corporation, partnership, joint venture, trust or other enterprise,
or was a director, officer, employee or agent of a foreign or domestic
corporation which was a predecessor corporation of the Corporation or of another
enterprise at the request of such predecessor corporation; "proceeding" means
any threatened, pending or completed action or proceeding, whether civil,
criminal, administrative or investigative, and includes an action or proceeding
by or in the right of the Corporation to procure a judgment in its favor; and
"expenses" includes attorneys' fees and any expenses of establishing a right to
indemnification under this subdivision (a).
(b) The Corporation shall, if and to the extent the Board of
Directors so determines by resolution, purchase and maintain insurance in an
amount and on behalf of such agents of the Corporation as the Board may specify
in such resolution against any liability asserted against or incurred by the
agent in such capacity or arising out of the agent's status as such whether or
not the Corporation would have the capacity to indemnify the agent against such
liability under the provisions of this Section.
14
<PAGE>
ARTICLE X
AMENDMENTS
----------
Section 1. Amendments. New bylaws may be adopted or these Bylaws may be
----------
amended or repealed by the affirmative vote of a majority of the outstanding
shares entitled to vote. Subject to the next preceding sentence, bylaws (other
than a bylaw or amendment thereof specifying or changing a fixed number of
directors or the maximum or minimum number, or changing from a fixed to a
variable board or vice versa) may be adopted, amended or repealed by the Board
of Directors.
15
<PAGE>
EXHIBIT 10.1.1
AMENDMENT NO. 1 TO
EMPLOYMENT AGREEMENT
DATED MARCH 27, 1998
RECITALS
--------
WHEREAS, Mid-Peninsula Bank ("Employer"), a California state chartered
bank and wholly owned subsidiary of Greater Bay Bancorp (formerly Mid-Peninsula
Bancorp), and David L. Kalkbrenner ("Employee") previously entered into an
Employment Agreement dated March 3, 1992 (the "Agreement") which sets forth the
terms and conditions of Employee's employment with Employer;
WHEREAS, upon the November 27, 1996 merger of Mid-Peninsula Bancorp
("Mid-Peninsula") and Cupertino National Bancorp pursuant to which Mid-Peninsula
survived and was renamed Greater Bay Bancorp ("Greater Bay"), Employee was
appointed as President and Chief Executive Officer of Greater Bay and has
continued to serve as President and Chief Executive Officer of Employer;
WHEREAS, Section 16(d) of the Agreement provides Employee with
severance benefits upon the termination of the Agreement by Employer for any of
the reasons set forth in Section 16, and Section 16(e) of the Agreement provides
Employee with severance benefits in the event Employee's employment is
terminated within two years after the consummation of a change in control (as
defined therein);
WHEREAS, the Board of Directors of Greater Bay has approved and
adopted the Greater Bay Bancorp Termination and Layoff Pay Plan II (the
"Termination Plan II"), effective January 1, 1998, which provides Employee with
severance benefits upon his involuntary termination of employment;
WHEREAS, the Board of Directors of Greater Bay has approved and
adopted the Greater Bay Bancorp Change in Control Pay Plan II (the "Change in
Control Plan II"), effective January 1, 1998, which provides Employee with
severance benefits upon his termination of employment on account of a change in
control; and
WHEREAS, due to the implementation of the Termination Plan II
and the Change in Control Plan II, Employee and Employer agree that it is
appropriate to delete Sections 16(d) and 16(e) from the Agreement.
<PAGE>
NOW THEREFORE, in accordance with the foregoing recitals:
1. The parties hereby agree to amend the Agreement by deleting
Sections 16(d) and 16(e) of the Agreement in their entirety, effective
January 1, 1998.
2. Except as expressly set forth in this Amendment No. 1 to
Employment Agreement, no provision of the Agreement is waived and the Agreement
is not otherwise amended or modified, and shall remain in full force and effect.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment No. 1 to Employment Agreement as of the day and year first above
written.
EMPLOYER:
MID-PENINSULA BANK
By /s/ Shawn Saunders
------------------
Name: Shawn Saunders
--------------
Title: SVP, CFO
--------
EMPLOYEE:
/s/David L. Kalkbrenner
- --------------------------------------
David L. Kalkbrenner
3
<PAGE>
EXHIBIT 10.2.1
AMENDMENT NO. 1 TO
EMPLOYMENT, SEVERANCE AND RETIREMENT BENEFITS AGREEMENT
DATED MARCH 27, 1998
RECITALS
--------
WHEREAS, Cupertino National Bancorp ("Cupertino"), its wholly owned
subsidiary Cupertino National Bank (the "Bank") and Steven C. Smith ("Employee")
previously entered into an employment agreement entitled the "Employment,
Severance and Retirement Benefits Agreement" dated July 31, 1995 and effective
as of September 1, 1994 (the "Agreement"), which sets forth the terms and
conditions of Employee's employment with Cupertino and the Bank;
WHEREAS, upon the November 27, 1996 merger of Mid-Peninsula Bancorp
("Mid-Peninsula") and Cupertino pursuant to which Mid-Peninsula survived and was
renamed Greater Bay Bancorp ("Greater Bay"), Greater Bay succeeded to the
obligations of Cupertino under the Agreement;
WHEREAS, Sections 5.3 and 5.4 of the Agreement provide that upon
Employee's involuntary termination of employment or upon his termination of
employment on account of a change in control (as defined therein), Employee will
be entitled to severance benefits payable in such amount and upon such terms as
provided under Sections 5.3 and 5.4 of the Agreement;
WHEREAS, Section 6 of the Agreement provides that upon Employee's
cessation of employment upon the Employee's retirement age, Employee will be
entitled to certain retirement benefits payable in such amount and upon such
terms as provided under Section 6 of the Agreement;
WHEREAS, the Board of Directors of Greater Bay has approved and
adopted the Greater Bay Bancorp Termination and Layoff Pay Plan II (the
"Termination Plan II"), effective January 1, 1998, which provides Employee with
severance benefits upon his involuntary termination of employment;
WHEREAS, the Board of Directors of Greater Bay has approved and
adopted the Greater Bay Bancorp Change in Control Pay Plan II (the "Change in
Control Plan II"), effective January 1, 1998, which provides Employee with
severance benefits upon Employee's termination of employment on account of a
change in control;
WHEREAS, the Board of Directors of Greater Bay has approved and
adopted the Greater Bay Bancorp Supplemental Executive Retirement Plan ("SERP"),
effective December 31, 1997, which provides Employee with certain retirement
benefits pursuant to the terms and conditions set forth in the SERP;
<PAGE>
WHEREAS, due to implementation of the Termination Plan for Key
Executives and the Change in Control Plan for Key Executives, Greater Bay, the
Bank and Employee agree that it is appropriate to delete Sections 5.3 and 5.4
from the Agreement, effective January 1, 1998; and
WHEREAS, due to the implementation of the SERP, Greater Bay, the Bank
and Employee agree that it is appropriate to delete Section 6 from the
Agreement, effective December 31, 1997.
NOW THEREFORE, in accordance with the foregoing recitals:
1. The parties hereby agree to amend the Agreement by deleting
Section 5.3 and Section 5.4 of the Agreement in their entirety, effective
January 1, 1998, and Section 6 of the Agreement in its entirety, effective
December 31, 1997.
2. Except as expressly set forth in this Amendment No. 1 to
Employment Agreement, no provision of the Agreement is waived and the Agreement
is not otherwise amended or modified, and shall remain in full force and effect.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment No. 1 to Employment, Severance and Retirement Benefits Agreement as of
the day and year first above written.
GREATER BAY BANCORP
By /s/ Shawn Saunders
------------------
Name: Shawn Saunders
--------------
Title: SVP, Controller
---------------
CUPERTINO NATIONAL BANK
By /s/ Shawn Saunders
------------------
Name: Shawn Saunders
--------------
Title: SVP, CFO
--------
EMPLOYEE
/s/ Steven C. Smith
- -------------------------------------
Steven C. Smith
3
<PAGE>
EXHIBIT 10.3.1
AMENDMENT NO. 1 TO
EMPLOYMENT, SEVERANCE AND RETIREMENT BENEFITS AGREEMENT
DATED MARCH 27, 1998
RECITALS
--------
WHEREAS, Cupertino National Bancorp ("Cupertino"), its wholly owned
subsidiary Cupertino National Bank (the "Bank") and David R. Hood ("Employee")
previously entered into an employment agreement entitled the "Employment,
Severance and Retirement Benefits Agreement" dated July 31, 1995 and effective
as of September 1, 1994 (the "Agreement"), which sets forth the terms and
conditions of Employee's employment with Cupertino and the Bank;
WHEREAS, upon the November 27, 1996 merger of Mid-Peninsula Bancorp
("Mid-Peninsula") and Cupertino pursuant to which Mid-Peninsula survived and was
renamed Greater Bay Bancorp ("Greater Bay"), Greater Bay succeeded to the
obligations of Cupertino under the Agreement;
WHEREAS, Sections 5.3 and 5.4 of the Agreement provide that upon
Employee's involuntary termination of employment or upon his termination of
employment on account of a change in control (as defined therein), Employee will
be entitled to severance benefits payable in such amount and upon such terms as
provided under Sections 5.3 and 5.4 of the Agreement;
WHEREAS, Section 6 of the Agreement provides that upon Employee's
cessation of employment upon the Employee's retirement age, Employee will be
entitled to certain retirement benefits payable in such amount and upon such
terms as provided under Section 6 of the Agreement;
WHEREAS, the Board of Directors of Greater Bay has approved and
adopted the Greater Bay Bancorp Termination and Layoff Pay Plan II (the
"Termination Plan II"), effective January 1, 1998, which provides Employee with
severance benefits upon his involuntary termination of employment;
WHEREAS, the Board of Directors of Greater Bay has approved and
adopted the Greater Bay Bancorp Change in Control Pay Plan II (the "Change in
Control Plan II"), effective January 1, 1998, which provides Employee with
severance benefits upon Employee's termination of employment on account of a
change in control;
WHEREAS, the Board of Directors of Greater Bay has approved and
adopted the Greater Bay Bancorp Supplemental Executive Retirement Plan ("SERP"),
effective December 31, 1997, which provides Employee with certain retirement
benefits pursuant to the terms and conditions set forth in the SERP;
<PAGE>
WHEREAS, due to implementation of the Termination Plan for Key
Executives and the Change in Control Plan for Key Executives, Greater Bay, the
Bank and Employee agree that it is appropriate to delete Sections 5.3 and 5.4
from the Agreement, effective January 1, 1998; and
WHEREAS, due to the implementation of the SERP, Greater Bay, the Bank
and Employee agree that it is appropriate to delete Section 6 from the
Agreement, effective December 31, 1997.
NOW THEREFORE, in accordance with the foregoing recitals:
1. The parties hereby agree to amend the Agreement by deleting
Section 5.3 and Section 5.4 in their entirety, effective January 1, 1998, and
Section 6 of the Agreement in its entirety, effective December 31, 1997.
2. Except as expressly set forth in this Amendment No. 1 to
Employment Agreement, no provision of the Agreement is waived and the Agreement
is not otherwise amended or modified, and shall remain in full force and effect.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment No. 1 to Employment, Severance and Retirement Benefits Agreement as of
the day and year first above written.
GREATER BAY BANCORP
By /s/ Shawn Saunders
------------------
Name: Shawn Saunders
--------------
Title: SVP, Controller
---------------
CUPERTINO NATIONAL BANK
By /s/ Shawn Saunders
------------------
Name: Shawn Saunders
--------------
Title: SVP, CFO
--------
EMPLOYEE
/s/ David R. Hood
- -------------------
David R. Hood
3
<PAGE>
EXHIBIT 10.5
REGIONAL
PROTOTYPE PROFIT SHARING PLAN AND TRUST/CUSTODIAL
ACCOUNT
NONSTANDARD PLAN ADOPTION AGREEMENT AA #003
The Employer named below adopts the Regional Prototype Profit Sharing Plan
and Trust/Custodial Account and makes the following specified elections under
the Adoption Agreement.
A. ACCOUNTING, EFFECTIVE DATE AND OTHER DATA
1. NAME AND ADDRESS OF EMPLOYER
Employer Name Greater Bay Bancorp
Address 2860 West Bayshore Road
City, State, ZIP Palo Alto, CA 94303
2. TYPE OF BUSINESS ORGANIZATION (Select one.)
[ ] Sole Proprietorship [ ] Partnership
[X] Corporation [ ] Subchapter S Corporation
3. EFFECTIVE DATE 1/1/88
(If the Employer is adopting this Plan as a restatement of an existing
plan, the date should be the original effective date of the existing plan.
Otherwise, the date should be the date the Employer chooses the Plan to be
effective.)
4. RESTATED DATE 1/1/97
(Complete only if this Plan is a restatement of a plan previously
adopted.) If this Plan is a restatement of a previously existing plan,
attach an addendum listing any optional forms of benefit which must be
included in this plan under Code Section 411(d)(6) and the regulations
thereunder which are not listed elsewhere in the Plan.
5. EMPLOYER TAX YEAR END 12/31
6. PLAN YEAR END 12/31
7. EMPLOYER IDENTIFICATION NUMBER 77-0387041
8. PLAN NUMBER (3 digits) 001
9. DESCRIPTION OF TRADE OR BUSINESS Banking
10.LIMITATION YEAR END 12/31
(If this item is not completed, the limitation year end shall be the
calendar year end.)
B. ELIGIBILITY
1. SERVICE REQUIREMENT (Specify whole years or months.)
Page 1.
<PAGE>
a. Whole Years
-- Year(s) of Service [Not more than 2(1 if the Plan allows 401(k)
contributions). If more than 1 Year of Service is required, the Plan
must provide 100% immediate vesting under Section E.1.]
b. Months
Months of Service [Not more than 24 (12 months if the Plan allows
401(k) contributions). If more than 12 Months of Service is elected,
the Plan must provide 100% immediate vesting under Section E.1.]
2. MINIMUM AGE REQUIREMENT (Specify.) 21 (May not exceed age 21.)
3. EXCLUDED CLASSES OF EMPLOYEES
(Describe. Employees of an Affiliate must be specified as excluded if the
Affiliate, if any, does not adopt the Plan under Section O.)
None.
4. ELIGIBILITY FOR EMPLOYER CONTRIBUTIONS (Check all that apply.)
A participant shall be eligible to receive an allocation of Employer
contributions for a Plan Year if he/she meets the following requirements:
a. [X] The participant must be employed on the last day of the Plan Year.
b. [X] The participant must complete 1,000 Hours of Service during the Plan
Year unless the Plan is Top-Heavy for such Plan Year.
c. [X] The requirements of 4.a. and 4.b. (above) shall not apply if the
participant terminates employment due to [X] death [X] disability
[X] retirement.
d. If elective deferrals are elected under Section D. of this Adoption
Agreement, the requirements of 4.a. and 4.b. (above) [_] shall [X] shall
not apply to Employer contributions made pursuant to a salary reduction
agreement.
e. If elective deferrals are elected under Section D. of this Adoption
Agreement and matching contributions are elected under Section D.4., the
requirements of 4.a. and 4.b. above [_] shall
[X] shall not apply to such matching contributions.
5. ENTRY DATES
The Plan shall have the following entry dates:
a. [_] The Plan Anniversary Date.*
b. [_] The Plan Anniversary Date and a date six months from the Plan
Anniversary Date.
c. [X] Other* First day of calendar month
* If only one entry date per year is provided and an employee enters the Plan
on the entry date following the date on which the employee satisfies the
eligibility requirements, the maximum age and service requirements in
Sections B.1. and B.2. (above) must be reduced by (Omega sign appears here)
year.
6. PLAN ENTRY
An employee shall enter the Plan on the Plan entry date [X] following [_]
prior to [_] closest to the date on which the employee meets the eligibility
requirements of the Plan.
7. ELECTION NOT TO PARTICIPATE
Page 2
<PAGE>
The Plan [_] shall [_] shall not permit an eligible Employee or
Participant to elect not to participate.
8. YEARS OF SERVICE
1000 (Not more than 1,000) Hours of Service shall be required to
constitute a Year of Service for eligibility and vesting purposes.
C. DEFINITION OF COMPENSATION
1. Compensation shall mean:
[X] Wages, tips and other compensation box on Form W-2.
[_] Section 3401(a) wages.
[_] 415 safe-harbor compensation.
2. Compensation shall mean the amount which is actually paid to the
participant during:
[X] The Plan Year.
[_] The taxable year ending with or within the Plan Year.
[_] The limitation year ending with or within the Plan Year.
3. Compensation [X] shall [_] shall not include Employer contributions
made pursuant to a salary reduction agreement which are not includible
in the gross income of the employee under Sections 125, 402(a)(8),
402(h) or 403(b) of the Code.
4. Compensation shall not include:
[_] Bonuses
[_] Overtime
[_] Other (Specify):
(NOTE: These exclusions shall not apply if the Plan is integrated with
social security or for purposes of determining the minimum required
contribution for years in which the Plan is Top-Heavy.)
5. This definition of compensation shall be effective as of 1/1/97.
6. Compensation shall be taken into account:
[_] From the date of entry into the Plan.
[X] For the entire period in which the employee becomes a participant.
D. ELECTIVE DEFERRALS
Complete this section only if elective deferrals or voluntary nondeductible
employee contributions are allowed under this Plan.
1. ELECTIVE DEFERRALS
A participant may elect to have his or her compensation reduced by the
following percentage or amount per pay period, or for a specified pay
period or periods, as designated in writing to the plan administrator.
(Check any applicable options and fill in the appropriate blanks.)
a. [X] An amount not in excess of 15.00% of a participant's
compensation.
b. [_] An amount not in excess of $ (specify dollar amount) of a
participant's compensation per year.
2. CASH OR DEFERRED ELECTIONS
Page 3
<PAGE>
[X] Check here if a participant may base elective deferrals on cash
bonuses that, at the participant's election, may be contributed to
the CODA or received by the participant in cash.
3. ELECTIONS
a. A participant may elect to commence deferrals (under 1. or 2.
above) as of beginning any calendar month (enter at least one date
during the calendar year).
b. A participant may elect to terminate or modify the amount of
deferrals as of Modify at the beginning of any calendar quarter;
terminate at any time. (enter at least one date during the calendar
year).
4. MATCHING CONTRIBUTIONS
a. The Employer will make matching contributions to the Plan on behalf
of:
[X] All participants who are employed on the last day of the
calendar quarter.
[_] All participants who are nonhighly compensated employees.
b. Matching contributions will be made on behalf of each participant
in the amount of:
1) [_] % of the elective deferral made for each Plan Year.
2) [X] The sum of: (i) 62.50% of the portion of the elective
deferral which does not exceed 8.00% of the participant's
compensation; plus (ii) 0.00% of the portion of the
elective deferral which exceeds 8.00% of the participant's
compensation.
3) [_] An amount to be determined by the Employer each year.
Note: The percentage of the portion of elective deferrals in
D(4)(b)(2)(ii) cannot be greater than the percentage
of the portion of elective deferrals in D(4)(b)(2)(i).
c. The Employer shall not match elective deferrals in 1.a. or 1.b.
above in excess of $ or in excess of % of the participant's
compensation.
d. All Employer matching contributions shall be [_] qualified
[X] nonqualified.
Page 4
<PAGE>
e. Forfeitures of excess aggregate contributions and forfeitures of
any nonqualified matching contributions shall be:
[X] Used to reduce Employer contributions.
[_] Allocated after all other forfeitures under the Plan, to each
participant's matching contribution account in the ratio which
each participant's compensation for the Plan Year bears to the
total compensation of all participants for such Plan Year.
Qualified Matching Contributions shall mean matching
contributions which are subject to the distribution and
nonforfeitability requirements of Section 401(k) of the Code
when made.
5. QUALIFIED NONELECTIVE CONTRIBUTIONS
a. The Employer [X] will [_] will not make qualified nonelective
contributions to the Plan. If the Employer does make such
contribution to the Plan, then the amount of such contributions for
each Plan Year shall be an amount determined by the Employer.
b. The allocation of qualified nonelective contributions shall be made
to the account of:
[_] All participants.
[X] Only nonhighly compensated participants.
6. VOLUNTARY NONDEDUCTIBLE CONTRIBUTIONS
Participants [_] will [X] will not be allowed to make nondeductible
voluntary employee contributions.
7. HARDSHIP WITHDRAWALS
Hardship withdrawals of elective deferrals [X] shall [_] shall not be
permitted.
8. EXCESS ELECTIVE DEFERRALS
Participants who claim excess elective deferrals for the preceding
taxable year must submit their claims in writing to the plan
administrator by 2/15. (Specify a date before April 15.)
E. VESTING
1. SCHEDULE (Select one.) Any employee hired by 12/31/96 will be 100%
vested in all accounts. Any employee hired after 12/31/96 will
vest in accordance with the following schedule:
5 -
Years(s) 100% Year 3 - 7 Specify Specify
of Immediate Cliff Year % %
Service [_] [_] [_] [X] [_]
1 100% 0% 0% 25%
2 100% 0% 0% 50%
3 100% 0% 20% 75% (not less
than 20%)
4 100% 0% 40% 100% (not less
than 40%)
5 100% 100% 60% 100% (not less
than 60%)
6 100% 100% 80% 100% (not less
than 80%)
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7 100% 100% 100% 100% 100%
2. EXCLUSIONS: (Check all applicable ones. Does not apply if 100%
immediate vesting in Section E.1. above has been selected.)
a. [_] Exclude Year(s) of Service prior to effective date of the Plan
(except periods during which the Employer maintained a
predecessor to this Plan).
b. [_] Exclude Year(s) of Service prior to or during the computation
year in which the employee attains age 18 (age 22 for Plan
Years beginning before 1/1/85).
3. Schedule to apply as of the first day of the Plan Year for which the
Plan is Top-Heavy. (Select one.)
[_] 100% Immediate [_] 2/20 Vesting [_] 3-Year Cliff
F. NORMAL RETIREMENT AGE
65.0 (May not be earlier than age 59 (Omega sign appears here) or later
than age 65.)
G. EARLY RETIREMENT AGE
(May not be earlier than age 55.)
Early retirement shall only be available to participants who have completed
__ Years of Service.
H. SERVICE WITH PREVIOUS EMPLOYER (Select One.)
1. [_] Service with a previous Employer will not be taken into account
except to the extent service is required to be given pursuant to
Code Section 414(a) and the regulations thereunder.
2. [X] Service with the following previous Employer(s) shall be taken into
account for purposes of eligibility (Section B.1) and vesting
(Section E.1.). For any participant who was an employee of
Cupertino National Bank, Mid-Peninsula Bank, and Peninsula Bank of
Commerce as of the date these entities were acquired by Greater Bay
Bancorp.
I. LIMITATIONS ON ALLOCATIONS
If the Employer maintains or has ever maintained another qualified plan in
which any participant in this Plan is (or was) a participant or could
become a participant, complete this section. The Employer must also
complete this section if it maintains a welfare benefit fund, as defined in
Section 419(e) of the Code, or an individual medical account, as defined in
Section 415(i)(2) of the Code, under which amounts are treated as annual
additions with respect to any participant in this Plan.
1. DEFINED CONTRIBUTION PLAN (Select one.)
If the participant is covered under another qualified defined
contribution plan maintained by the Employer, other than a regional
prototype plan:
[_] The provisions of Article VII of the Plan Document will apply as if
the other plan were a regional prototype plan.
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[_] Provide the method under which the plans will limit total annual
additions to the maximum permissible amount, and will properly
reduce any excess amounts in a manner that precludes Employer
discretion.
2. DEFINED BENEFIT PLAN
If the participant is or has ever been a participant in a defined
benefit plan maintained by the Employer or an Affiliate, the annual
additions to this and/or another qualified defined contribution plan,
or projected annual benefit in one or more qualified defined benefit
plans shall be reduced so that the sum of the defined contribution
fraction and the defined benefit fraction will not exceed 1.0.
(Describe in an addendum attached to this Adoption Agreement. The
method specified shall preclude discretion by the Employer or
Affiliate.)
J. ALLOCATION OF EMPLOYER CONTRIBUTIONS AND FORFEITURES
(Complete only if an integrated allocation formula is chosen.)
Note: An integrated formula may not be elected if the Employer or an
Affiliate maintains any other plan integrated with social security and such
other plan covers employees who are also participants in the Plan.
INTEGRATION LEVEL (Select one.)
The integration level shall be equal to the taxable wage base or such
lesser amount elected below by the Employer. The taxable wage base is the
maximum amount of earnings which may be considered wages for a year under
Section 3121(a)(1) of the Code in effect as of the beginning of the Plan
Year.
[_] Taxable Wage Base
[_] $ (a dollar amount less than the taxable wage base)
[_] % of Taxable Wage Base (not to exceed 100%)
K. ADMINISTRATIVE ELECTIONS
1. PAYOUTS OF SMALL ACCOUNT BALANCES
Employer [X] will [_] will not automatically make a total distribution
of the participant's vested interest if it is $3,500 or less upon
retirement, termination of employment or disability.
2. DISTRIBUTIONS AT TERMINATION OF EMPLOYMENT
[X] A participant [X] may [_] may not take a total distribution of
his/her vested account balance if he/she terminates employment for
reasons other than death, disability, or retirement.
[_] A participant may take a total distribution of his/her vested
account balance if he/she terminates employment for reasons other
than death, disability, or retirement if the total benefit is
$ or less.
3. HARDSHIP WITHDRAWALS
Hardship withdrawals [X] shall [_] shall not be allowed under the Plan.
4. PARTICIPANT LOANS
Plan loans to participants [X] shall [_] shall not be allowed.
If loans are allowed, a minimum loan amount of $1,000.00 shall apply.
(Amount cannot exceed $1,000).
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<PAGE>
5. PARTICIPANT-DIRECTED INVESTMENTS
Participant-directed investments [X] shall [_] shall not be allowed.
6. ROLLOVERS
Rollovers of funds, by participants, from other plans to this Plan [X] shall
[_] shall not be allowed.
7. TRANSFERS
Transfers of funds, by participants, from other plans to this Plan [X] shall
[_] shall not be allowed.
8. HOURS OF SERVICE
Rather than compute service based upon actual Hours of Service, the Employer
may elect to compute service based upon one of the alternatives listed
below. If selected, this method will be applied to all employees under the
Plan. (Check one if desired. If no box i s checked, service will be based
upon actual hours worked.)
[_] An employee will be credited with 10 Hours of Service for each day in
which the employee would be credited with 1 Hour of Service.
[_] An employee will be credited with 45 Hours of Service for each week in
which the employee would be credited with at least 1 Hour of Service.
[_] An employee will be credited with 95 Hours of Service for each
semimonthly pay period in which the employee would be credited with at
least 1 Hour of Service.
[_] An employee will be credited with 190 Hours of Service for each
month in which the employee would be credited with at least 1 Hour of
Service.
9. INVESTMENT IN EMPLOYER SECURITIES
The Plan may acquire and hold up to 100% of the market value of its assets
in securities issued by the Employer.
10. IN-SERVICE WITHDRAWALS
Participants who have not otherwise met a distributable event [_] shall
[X] shall not be permitted to make withdrawals from the Plan during service
with the Employer.
11. FORFEITURES
Forfeitures arising under Section 9.3 of the Plan Document shall be
allocated: (Select one.)
a. [X] For the Plan Year in which the forfeiture occurs.
b. [_] For the Plan Year immediately following the Plan Year in which the
forfeiture occurred.
c. [_] For the Plan Year in which the participant incurs five consecutive
one-year breaks in service.
d. [_] For the Plan Year immediately following the Plan Year in which the
participant incurs five consecutive one-year breaks in service.
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<PAGE>
L. SPECIAL RULES FOR TOP-HEAVY PLANS (Select one.)
This section must be completed if the Plan is a Top-Heavy Plan (see
definition in Section 3.48 of the Plan Document) and the Employer or an
Affiliate maintains another plan or plans in addition to this Plan.
[X] The minimum contribution and benefit requirements of Code Section 416
will be satisfied as provided in Section 5.4 of the Plan Document.
[_] The minimum contribution and benefit requirements of Code Section 416
will be satisfied as provided in the addendum attached to the Adoption
Agreement. (Specify in an addendum attached to the Adoption Agreement
the method for coordinating all such plans with this Plan so that the
minimum contribution and benefit requirements will be met.)
M. FILING PLAN WITH INTERNAL REVENUE SERVICE
The adopting Employer may not rely on an opinion letter issued by the
National Office of the Internal Revenue Service as evidence that the Plan
is qualified under Section 401 of the Internal Revenue Code. In order to
obtain reliance with respect to Plan qualification, the Employer must apply
to the appropriate key district office for a determination letter.
This Adoption Agreement may be used only in conjunction with Regional Basic
Plan Document 01.
N. ADOPTION AND ADVICE
By executing this document, the Employer agrees to be bound by all the
terms and conditions of the Plan (including the Adoption Agreement) and
further certifies and warrants that it has relied on the advice of an
independent adviser as to the legal and tax effects of adopting the Plan.
Failure to properly complete all items on this Adoption Agreement may
result in disqualification of the Plan.
The sponsoring organization will notify the adopting Employer of any
amendments made to the Plan or discontinuance or abandonment of the Plan.
The name, address and telephone number of the sponsoring organization or
its agent is imprinted on the top of the Adoption Agreement.
Page 9
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O. SIGNATURE AND DATE
Executed this 31 day of December, 1997.
EMPLOYER
Name of Business Greater Bay Bancorp
By /s/ [SIGNATURE APPEARS HERE]
-----------------------------------------------------------------------
Its (Title) EVP, COO & CFO
AFFILIATES (Must be executed on behalf of any Affiliates. Attach addendum
with signatures if more than one Affiliate.)
Name of Business
By
-----------------------------------------------------------------------
Its (Title)
P. CUSTODIAN/TRUSTEE (Select one.)
CAUTION: READ INSTRUCTIONS BEFORE COMPLETING.
Instructions: The Financial Institution may act as Custodian, but only if
the Employer and any Affiliates are sole proprietorships or partnerships. A
corporate plan may not use a Custodian. In addition, an individual may not
serve as a Custodian. Select Financial Institution Trustee only if the
Financial Institution has full trust powers under applicable state and/or
federal laws. By executing this Plan as Custodian or Trustee, the Financial
Institution warrants and represents that it is qualified to act as Custodian
or Trustee, as the case may be, under all applicable federal and state laws
and regulations.
[_] Financial Institution Custodian
[X] Financial Institution Trustee
[_] Self-Trusteed Plan
CUSTODIAN OR TRUSTEE
Name Greater Bay Trust Company
Address 400 Emerson Street
City, State, ZIP Palo, Alto, CA 94302
By /s/ Debra Reed
-----------------------------------------------------------
Its (Title) DEBRA REED
VICE PRESIDENT AND
SENIOR TRUST OFFICER
Page 10
<PAGE>
Q. SPONSOR
Bankers Systems, Inc.
Page 11
<PAGE>
ADDITIONAL SUMMARY OF PLAN DESCRIPTION INFORMATION
1. Plan Name Greater Bay Bancorp 401(k) Plan
2. Employer's Phone Number (650) 813-8215
3. AGENT
Name Greater Bay Bancorp
Address 2860 West Bayshore Road
City, State ZIP Palo Alto, CA 94303
4. TYPE OF PLAN ADMINISTRATION
[_] Employer provided administration
[X] Contract (Third Party) administration
[_] Insurer provided administration
5. ADDENDUM
[_] Check here if the Employer has amended its qualified plan from a plan
other than from Bankers Systems and the employer has added an addendum to
continue required optional forms of benefit (i.e. payment schedule,
timing, commencement, medium of distribution, etc.)
Page 12
<PAGE>
Table of Contents
ARTICLE I Introduction.................................................... 1
1.1 Adoption of Plan................................................ 1
1.2 Purpose......................................................... 1
1.3 Restatement..................................................... 1
ARTICLE II Interpretation of Plan.......................................... 1
2.1 Gender and Number............................................... 1
2.2 Titles to Sections.............................................. 1
2.3 Applicable Law.................................................. 1
2.4 Severability.................................................... 1
2.5 Definitions......................................................1
ARTICLE III Definitions..................................................... 1
3.1 Accumulated Profits............................................. 1
3.2 Administrative Committee........................................ 1
3.3 Adoption Agreement.............................................. 1
3.4 Affiliate....................................................... 1
3.5 Beneficiary..................................................... 1
3.6 Break in Service................................................ 1
3.7 Code............................................................ 1
3.8 Compensation.................................................... 1
3.9 Computation Year................................................ 2
3.10 Custodian....................................................... 2
3.11 Determination Date.............................................. 2
3.12 Disability...................................................... 2
3.13 Earned Income................................................... 2
3.14 Effective Date.................................................. 2
3.15 Employee........................................................ 2
3.16 Employee Rollover Account....................................... 2
3.17 Employee Transfer Account....................................... 2
3.18 Employee Voluntary Contribution Account......................... 2
3.19 Employer........................................................ 2
3.20 Highly Compensated Employee..................................... 2
3.21 Fiscal Year..................................................... 2
3.22 Fund............................................................ 2
3.23 Hour of Service................................................. 2
3.24 Integration Level............................................... 3
3.25 Integration Percentage.......................................... 3
3.26 Investment Manager.............................................. 3
3.27 Key Employee.................................................... 3
3.28 Leased Employee................................................. 3
3.29 Limitation Year................................................. 3
3.30 Named Fiduciaries............................................... 3
3.31 Non-Key Employee................................................ 3
3.32 Normal Retirement Age........................................... 3
3.33 Normal Retirement Date.......................................... 3
3.34 Owner-Employee.................................................. 3
3.35 Participant..................................................... 3
3.36 Participant's Account........................................... 3
3.37 Plan............................................................ 3
3.38 Plan Anniversary................................................ 3
3.39 Plan Valuation Date............................................. 3
3.40 Plan Year....................................................... 3
3.41 Profits......................................................... 3
3.42 Qualified Joint and Survivor Annuity............................ 3
3.43 Qualified Preretirement Survivor Annuity........................ 3
3.44 Restated Date................................................... 3
3.45 Self-Employed Individual........................................ 3
3.46 Shareholder Employee............................................ 3
3.47 Sponsor......................................................... 3
3.48 Top Heavy....................................................... 4
3.49 Top Heavy Ratio................................................. 4
3.50 Trustee......................................................... 4
3.51 Vested Interest, Vesting or Vested.............................. 4
3.52 Year of Service................................................. 4
ARTICLE IV Eligibility..................................................... 4
4.1 Initial Eligibility............................................. 4
4.2 Special Participation Rules for Certain Employees............... 4
4.3 Special Rule for Owner-Employees................................ 4
4.4 Computing Years and Months of Service for Eligibility........... 4
4.5 Administrative Requirements..................................... 4
4.6 Effective Date.................................................. 4
4.7 Election Not to Participate..................................... 4
ARTICLE V Contributions and Allocations................................... 4
5.1 Funding Policy for Plan Benefits................................ 4
5.2 Determination of Employer Contributions......................... 5
5.3 Allocation of Employer Contributions and
Adjustments for Gains and Losses............................... 5
5.4 Special Minimum Allocations and Contributions................... 5
5.5 Voluntary Employee Contributions................................ 6
5.6 Rollover Contributions.......................................... 6
5.7 Transfer Contributions.......................................... 6
5.8 Special Rule for Leased Employees............................... 6
5.9 Waiver of Funding Standards..................................... 6
5.10 Effective Date.................................................. 6
ARTICLE VI Salary Deferral or Cash or Deferred Arrangement................. 6
6.1 Applicability................................................... 6
6.2 Elective Deferrals.............................................. 6
6.3 Dollar Limit on Elective Deferrals.............................. 6
6.4 Distribution of Excess Elective Deferrals....................... 6
6.5 Average Deferral Percentage Test................................ 6
6.6 Distribution of Excess Contributions............................ 7
6.7 Recharacterization of Excess Contributions...................... 7
6.8 Matching Contributions.......................................... 7
6.9 Limitations on Employee Contributions and
Matching Contributions........................................ 7
6.10 Distribution of Excess Aggregate Contributions.................. 7
6.11 Qualified Nonelective Contributions............................. 8
6.12 Nonforfeitability............................................... 8
6.13 Limitations on Distributions.................................... 8
6.14 Hardship Distributions.......................................... 8
6.15 Definitions..................................................... 8
ARTICLE VII Limitation on Allocations....................................... 9
7.1 Limitation...................................................... 9
7.2 Disposition of Excess Amount.................................... 9
7.3 Limitation of Other Plans....................................... 9
7.4 Limitations - Defined Benefit Plans............................. 9
7.5 Definitions..................................................... 9
ARTICLE VIII Retirement, Disability Benefits and
In-Service Withdrawals..........................................10
8.1 Normal Retirement Date..........................................10
8.2 Disability......................................................10
8.3 Postponed Retirement............................................10
8.4 In-Service Withdrawals..........................................10
8.5 Qualified Domestic Relations Orders.............................10
ARTICLE IX Vesting and Termination of Employment...........................10
9.1 Participant's Vested Interest...................................10
9.2 Computing Years of Service for Vesting..........................11
9.3 Distribution of Vested Interest.................................11
9.4 Declaration of Forfeitures......................................11
9.5 Effective Date..................................................11
ARTICLE X Joint and Survivor and Preretirement
Survivor Annuity Requirements...................................11
10.1 Application of Article..........................................11
10.2 Qualified Joint and Survivor Annuity............................11
10.3 Qualified Preretirement Survivor Annuity........................11
10.4 Definitions.....................................................11
10.5 Notice Requirements.............................................12
10.6 Safe Harbor Rules...............................................12
10.7 Transitional Rules..............................................12
10.8 Cash Out For Small Amounts......................................12
10.9 Requirements Relating to Life Insurance.........................13
10.10 Purchase of Annuity Contracts...................................13
10.11 Restrictions on Immediate Distributions.........................13
ARTICLE XI Manners of Distribution - Lifetime Payments.....................13
11.1 Applicability of This Article...................................13
11.2 Optional Modes of Distribution..................................13
11.3 Commencement of Benefits........................................13
11.4 Limitations on Commencement of Benefits.........................13
11.5 Cash or in Kind Distributions...................................13
11.6 Election and Claim Procedure....................................13
11.7 Annuities.......................................................13
11.8 Direct Rollovers................................................13
11.8.2 Definitions.....................................................13
ARTICLE XII Death Benefits..................................................14
12.1 Applicability of this Article...................................14
12.2 Designation of Beneficiary......................................14
12.3 Optional Modes of Distribution Upon Death.......................14
12.4 Disclaimer by Beneficiary.......................................14
ARTICLE XIII Withdrawals and Loans...........................................14
13.1 Hardship Withdrawals............................................14
13.2 Withdrawal of Voluntary Contributions...........................14
13.3 Loans to Plan Participants......................................14
13.4 Effective Date..................................................15
ARTICLE XIV Distribution Requirements.......................................15
14.1 General Rule....................................................15
14.2 Required Beginning Date.........................................15
14.3 Limits on Distribution Periods..................................15
14.4 Determination of Amount to be Distributed Each Year.............15
14.4.1 Individual Account..............................................15
14.4.2 Other Forms.....................................................15
14.5 Death Distribution Provisions...................................15
14.5.1 Distribution Beginning After Death..............................15
14.5.2 Distribution Beginning Before Death.............................15
14.6 Definitions.....................................................15
14.6.1 Applicable Life Expectancy......................................15
14.6.2 Designated Beneficiary..........................................15
14.6.3 Distribution Calendar Year......................................15
14.6.4 Life Expectancy.................................................15
14.6.5 Participant's Benefit...........................................15
14.6.6 Required Beginning Date.........................................15
14.7 Transitional Rule...............................................16
ARTICLE XV Administration..................................................16
15.1 Plan Administrator..............................................16
15.2 Delegation......................................................16
15.3 Administrative Committee........................................16
15.4 Reports and Records.............................................16
15.5 Establishment of Funding Policy.................................16
15.6 Payment of Expenses.............................................16
15.7 Indemnification.................................................16
ARTICLE XVI Fund and Trustee................................................16
16.1 Trustee.........................................................16
16.2 Trust Fund......................................................16
16.3 Responsibility of the Trustee...................................16
16.4 Compensation and Expenses.......................................17
16.5 Records and Accounting..........................................17
16.6 Record Retention................................................17
16.7 Resignation and Removal of Trustee..............................17
16.8 Dealings of Others With Trustee.................................17
16.9 Trustee's Power to Protect Itself on Account of Taxes...........17
16.10 Other Powers of Trustee.........................................17
16.11 Purchase of Life Insurance......................................18
16.12 Participant Direction of Investment.............................18
16.13 Prohibited Transactions.........................................18
16.14 Indemnity of Trustee............................................18
ARTICLE XVII Fund and Custodian..............................................18
17.1 Custodian.......................................................18
17.2 Custodian Fund..................................................18
17.3 Responsibilities of the Custodian...............................18
17.4 Compensation and Expenses.......................................19
17.5 Records and Accountings.........................................19
17.6 Record Retention................................................19
17.7 Resignation and Removal of Custodian............................19
17.8 Changes in Organization of Custodian............................19
17.9 Dealings of Others With Custodian...............................19
17.10 Funding Policy..................................................19
17.11 Custodian's Power to Protect Itself on Account of Taxes.........19
17.12 Investment of the Fund..........................................19
17.13 Purchase of Insurance...........................................19
17.14 Investment Direction by Participants............................19
17.15 Prohibited Transactions.........................................20
17.16 Indemnity.......................................................20
ARTICLE XVIII Amendment, Termination and Merger...............................20
18.1 Amendment by Employer...........................................20
18.2 Amendment by Sponsor............................................20
18.3 Limitation on Amendments........................................20
18.4 Termination of Plan.............................................20
18.5 Merger..........................................................20
18.6 Withdrawal by Sponsor or Failure to Qualify Under Code..........20
ARTICLE XIX Miscellaneous...................................................20
19.1 No Guaranty of Employment.......................................20
19.2 Spendthrift Provisions..........................................20
19.3 Conflict of Interest............................................20
19.4 Disclaimers.....................................................20
19.5 Role of Sponsor.................................................20
19.6 Exclusive Benefit...............................................20
<PAGE>
BANKERS SYSTEMS, INC.
REGIONAL BASIC PLAN DOCUMENT 01
ARTICLE I Introduction
1.1 Adoption of Plan
The Employer shall adopt the Plan by executing the Bankers Systems,
Inc. Standard or Nonstandard Profit Sharing or Money Purchase Adoption
Agreements or by adopting the Bankers Systems Standard Profit Sharing and
Money Purchase Adoption Agreements as paired plans. Execution of a Money
Purchase Adoption Agreement shall mean that the provisions of this basic
plan document that relate to the money purchase plan shall constitute the
Plan. Execution of a Profit Sharing Adoption Agreement shall mean that the
provisions of this basic plan document that relate to the profit sharing
plan shall constitute the Plan.
1.2 Purpose
The principal purposes of this Plan are to: (a) allow eligible
Employees and their Beneficiaries to share in the prosperity of the
Employer's business; in the event a Profit Sharing Adoption Agreement is
executed (b) promote a strong interest in the successful operation of the
Employer's business and to promote loyalty to the Employer; and (c) provide
eligible Employees and their Beneficiaries with the opportunity to
accumulate funds for their retirement.
1.3 Restatement
In the event this Plan is a restatement of another plan, as signified
by the completion of a date specified in Section A.4 of the Adoption
Agreement, Employees who terminate employment with the Employer prior to
the Restated Date shall be subject to the terms of the plan in effect prior
to its restatement, except as otherwise provided herein. All other Employees
shall be subject to the terms of this Plan.
ARTICLE II Interpretation of Plan
2.1 Gender and Number
Except when otherwise indicated by the context, the masculine gender
shall include the feminine and neuter, and words used in the singular shall
include the plural whenever appropriate.
2.2 Titles to Sections
Titles to Articles and Sections are for general information only, and
the Plan shall not be construed by reference thereto.
2.3 Applicable Law
This Plan shall be construed and enforced in a manner that is
consistent with the Employee Retirement Income Security Act of 1974, as
amended, and the Internal Revenue Code of 1986, as amended. To the extent
state law has not been preempted by federal law, the laws of the state of
the Employer's principal place of business shall control.
2.4 Severability
In case any provision of this Plan shall be held illegal or invalid
for any reason, or would result in the denial of tax exempt status for the
Plan and trust, such provision shall not affect the remaining provisions of
the Plan and the Plan shall be construed and enforced as if such provision
had not been included herein during the time for which such provision is
held to be illegal, invalid or result in the denial of tax exempt status.
2.5 Definitions
Whenever used in the Plan, the terms set out in Article III shall have
the meanings ascribed to them, unless otherwise expressly provided herein,
and when the defined meaning is intended, the term is capitalized.
ARTICLE III Definitions
3.1 Accumulated Profits
"Accumulated Profits" shall mean, in the case of an Employer which is
a corporation, Profits originating in prior Fiscal Years which have been
retained by the Employer.
3.2 Administrative Committee
"Administrative Committee" shall mean the committee appointed by the
Employer as provided in Section 15.3.
3.3 Adoption Agreement
"Adoption Agreement" shall mean the agreement executed by the Employer
and Trustee or Custodian for purposes of adopting the Plan and setting forth
those provisions of the Plan which relate to the Employer's participation
thereunder.
3.4 Affiliate
"Affiliate" shall mean an employer which is required to be aggregated
with such Employer under Sections 414(b), (c), (m) or (o) of the Code.
3.5 Beneficiary
"Beneficiary" or "Beneficiaries" shall mean the person or persons,
natural or legal, entitled to receive any benefits from the Plan which may
become payable by reason of the death of the Participant.
3.6 Break in Service
"Break in Service" shall mean a Computation Year during which an
Employee completes 500 or fewer Hours of Service.
3.7 Code
"Code" shall mean the Internal Revenue Code of 1986, as amended.
3.8 Compensation
Compensation, as elected by the Employer in the Adoption Agreement,
shall mean all of each Participant's a) Wages, tips, and other compensation
box on Form W-2 b) Section 3401(a) wages or c) 415 safe-harbor compensation.
For any self-employed individual covered under the Plan, Compensation will
mean Earned Income.
The Wages, Tips, and Other Compensation box on Form W-2 is the
information required to be reported under Section 6041 and 6051 of the Code.
It is wages as defined in Section 3401(a) and all other payments of
compensation to an Employee by the Employer (in the course of the Employer's
trade or business) for which the Employer is required to furnish the
Employee a written statement under Sections 6041(d) and 6051(a)(3) of the
Code. Compensation must be determined without regard to any rules under
Section 3401(a) that limit the remuneration included in wages based on the
nature or location of the employment or the services performed [such as the
exception for agricultural labor in Section 3401(a)(2)].
Section 3401(a) wages is defined as wages within the meaning of
Section 3401(a) for the purposes of income tax withholding at the source but
determined without regard to any rules that limit the remuneration included
in wages based on the nature or location of the employment or the services
performed [such as the exception for agricultural labor in Section
3401(a)(2)]
415 safe-harbor wages is defined as wages, salaries, and fees for
professional services and other amounts received (without regard to whether
or not an amount is paid in cash) for personal services actually rendered in
the course of employment with the Employer maintaining the Plan to the
extent that the amounts are includible in gross income [including, but not
limited to, commissions paid salesmen, compensation for services on the
basis of a percentage of profits, commissions on insurance premiums, tips,
bonuses, fringe benefits, and reimbursements or other expense allowances
under a nonaccountable plan (as described in 1.62-2(c))], and excluding the
following:
(a) Employer contributions to a plan of deferred compensation which are not
includible in the Employee's gross income for the taxable year in which
contributed, or Employer contributions under a simplified employee
pension plan to the extent such contributions are deductible by the
Employee, or any distributions from a plan of deferred compensation;
(b) Amounts realized from the exercise of a nonqualified stock option or
when restricted stock (or property) held by the Employee either becomes
freely transferable or is no longer subject to a substantial risk of
forfeiture;
(c) Amounts realized from the sale, exchange or other disposition of stock
acquired under a qualified stock option; and
(d) Other amounts which received special tax benefits, or contributions made
by the Employer (whether or not under a salary reduction agreement)
towards the purchase of an annuity contract described in Section 403(b)
of the Code (whether or not the contributions are actually excludable
from the gross income of the Employee).
For any self-employed individual Compensation will mean Earned Income.
For Limitation Years beginning after December 31, 1991, for purposes of
applying the limitations of this Article, Compensation for a Limitation Year
is the Compensation actually paid or made available during such Limitation
Year. Notwithstanding the preceding sentence, Compensation for a Participant
in a defined contribution plan who is permanently and totally disabled (as
defined in Section 22(e)(3) of the Internal Revenue Code) is the
Compensation such Participant would have received for the Limitation Year if
the Participant had been paid at the rate of Compensation paid immediately
before becoming permanently and totally disabled; such imputed Compensation
for the disabled Participant may be taken into account only if the
Participant is not a Highly Compensated Employee (as defined in Section
414(q) of the Code) and contributions made on behalf of such Participant are
nonforfeitable when made.
Compensation shall include only that compensation which is actually
paid to the Participant during the determination period. Except as provided
elsewhere in this Plan, the determination period shall be the period
elected by the Employer in the Adoption Agreement. If the Employer makes no
election, the determination period shall be the Plan Year.
Notwithstanding the above, if elected by the Employer in the Adoption
Agreement, Compensation shall include any amount which is contributed by the
Employer pursuant to a salary reduction agreement and which is not
includible in the gross income of the Employee under Sections 125.402(a)(8),
402(h) or 403(b) of the Code.
For years beginning after December 31, 1988, and before January 1,
1994, the annual Compensation of each Participant taken into account for
determining all benefits provided under the Plan for any determination
period shall not exceed $200,000, as adjusted.
In addition to other applicable limitations set forth in the plan, and
notwithstanding any other provision of the plan to the contrary, for plan
years beginning on or after January 1, 1994, the annual compensation of each
employee taken into account under the plan shall not exceed the OBRA '93
annual compensation limit. The OBRA '93 annual compensation limit is
$150,000, as adjusted by the Commissioner for increases in the cost of
living in accordance with section 401(a)(17)(B) of the Internal Revenue
Code. The cost-of-living adjustment in effect for a calendar year applies to
any period, not exceeding 12 months, over which compensation is determined
(determination period) beginning in such calendar year. If a determination
period consists of fewer than 12 months, the OBRA '93 annual compensation
limit will be multiplied by a fraction, the numerator of which is the number
of months in the determination period, and the denominator of which is 12.
For plan years beginning on or after January 1, 1994, any reference in
this plan to the limitation under section 401(a)(17) of the Code shall mean
the OBRA '93 annual compensation limit set forth in this provision.
If compensation for any prior determination period is taken into
account in determining an employee's benefits accruing in the current plan
year, the compensation for that prior determination period is subject to the
OBRA '93 annual compensation limit in effect for that prior determination
period. For this purpose, for determination periods beginning before the
first day of the first plan year beginning on or after January 1, 1994, the
OBRA '93 annual compensation limit is $150,000.
In determining the Compensation of a Participant for purposes of this
$150,000 limitation, the rules of Section 414(q)(6) of the Code shall apply,
except in applying such rules, the term "family" shall include only the
spouse of the Participant and any lineal descendants of the Participant who
have not attained age 19 before the close of the year. If, as a result of
the application of such rules the adjusted $150,000 limitation is exceeded,
then (except for purposes of determining the portion of Compensation up to
the Integration Level if this Plan provides for permitted disparity), the
limitation shall be prorated among the affected
<PAGE>
individuals in proportion to each such individual's Compensation as
determined under this Section prior to the application of this limitation.
3.9 Computation Year
"Computation Year" shall mean, for purposes of determining eligibility
and break in service to participate in the Plan, a consecutive 12-month
period measured from the date an Employee first completes an Hour of Service
for the Employer or an Affiliate or an anniversary of such date. For all
other purposes, "Computation Year" shall mean the Plan Year.
3.10 Custodian
"Custodian" shall mean the Financial Institution which has executed
this Plan as Custodian as provided in the Adoption Agreement, and any
successor Custodian.
3.11 Determination Date
"Determination Date" shall mean the last day of the preceding Plan
Year or, in the case of the first Plan Year of the Plan, the last day of
such Plan Year. In the event the Employer or an Affiliate maintains another
plan or plans in addition to this Plan, "Determination Date" shall mean the
determination dates of all such plans which fall within the same calendar
year as the Determination Date for this Plan.
3.12 Disability
"Disability" or "Disabled" shall mean a medically determinable
physical or mental impairment which prevents an Employee from engaging in
any substantial gainful activity and which can be expected to result in
death or which has lasted or can be expected to last for a continuous period
of not less than 12 months.
3.13 Earned Income
"Earned Income" means the net earnings from self-employment in the
trade or business with respect to which the Plan is established, for which
personal services of the individual are a material income-producing factor.
Net earnings will be determined without regard to items not included in
gross income and the deductions allocable to such items. Net earnings are
reduced by contributions by the Employer to a qualified plan to the extent
deductible under Section 404 of the Code.
Net earnings shall be determined with regard to the deduction allowed
to the taxpayer by Section 164(f) of the Code for taxable years beginning
after December 31, 1989.
3.14 Effective Date
"Effective Date" shall mean the date the Plan is effective, as
provided in Section A.3 of the Adoption Agreement.
3.15 Employee
"Employee" shall mean any person employed by the Employer or an
Affiliate, including a Self-Employed individual. The term "Employee", for
purposes of this Plan only, shall also include a Leased Employee, except to
the extent described in Section 5.8. For purposes of this Section, the term
"Leased Employee" means any person other than a common law employee of the
Employer or Affiliate who is deemed to be an Employee of the Employer or
Affiliate under Sections 414(n) or (o) of the Code.
3.16 Employee Rollover Account
"Employee Rollover Account" shall mean a sub-account established as
part of a Participant's Account for the purpose of identifying that portion
of a Participant's Account which is attributable to a tax-free rollover from
another qualified plan. The maintenance of such sub-account is for
accounting purposes only and segregation of the assets of the Plan shall not
be required.
3.17 Employee Transfer Account
"Employee Transfer Account" shall mean a sub-account established as
part of a Participant's Account for the purpose of identifying that portion
of the Participant's Account which is attributable to tax-free transfers
from the Trustee or Custodian of another qualified plan to the Trustee or
Custodian of this Plan. The maintenance of such sub-account is for
accounting purposes only and segregation of the assets of the Plan shall not
be required.
3.18 Employee Voluntary Contribution Account
"Employee Voluntary Contribution Account" shall mean a sub-account
established as part of a Participant's Account for the purpose of
identifying that portion of the Participant's Account which is attributable
to the Participant's own voluntary nondeductible contributions. The
maintenance of such sub-account is for accounting purposes only and
segregation of the assets of the Plan shall not be required.
3.19 Employer
"Employer" shall mean the corporation, partnership or sole
proprietorship which has adopted this Plan, as described in Section A.1 of
the Adoption Agreement.
3.20 Highly Compensated Employee
The term "Highly Compensated Employee" includes highly compensated
active employees and highly compensated former employees.
A highly compensated active employee includes any Employee who
performs service for the Employer during the determination year and who,
during the look-back year: (a) received Compensation from the Employer in
excess of $75,000 (as adjusted pursuant to Section 415(d) of the Code); (b)
received Compensation from the Employer in excess of $50,000 (as adjusted
pursuant to Section 415(d) of the Code) and was a member of the top-paid
group for such year; or (c) Was an officer of the Employer and received
Compensation during such year that is greater than 50 percent of the dollar
limitation in effect under Section 415(b)(1)(A) of the Code. The term Highly
Compensated Employee also includes: (a) Employees who are both described in
the preceding sentence if the term "determination year" is substituted for
the term "look-back year" and the Employee is one of the 100 Employees who
received the most Compensation from the Employer during the determination
year; and (b) Employees who are 5-percent owners at any time during the
look-back year or determination year.
If no officer has satisfied the Compensation requirement of (c) above
during either a determination year or look-back year, the highest paid
officer for such year shall be treated as a Highly Compensated Employee.
For this purpose, the determination year shall be the Plan Year. The
look-back year shall be the twelve-month period immediately preceding the
determination year.
A highly compensated former employee includes any Employee who
separated from service (or was deemed to have separated) prior to the
determination year, performs no service for the Employer during the
determination year, and was a highly compensated active employee for either
the separation year or any determination year ending on or after the
Employee's 55th birthday.
If an Employee is, during a determination year or look-back year, a
family member of either a 5-percent owner who is an active or former
employee or a Highly Compensated Employee who is one of the 10 most highly
compensated employees ranked on the basis of Compensation paid by the
Employer during such year, then the family member and the 5-percent owner
or top-ten Highly Compensated Employee shall be aggregated.
In such case, the family member and 5-percent owner or top-ten Highly
Compensated Employee shall be treated as a single Employee receiving
Compensation and Plan contributions or benefits equal to the sum of such
Compensation and contributions or benefits of the family member and 5-
percent owner or top-ten Highly Compensated Employee. For purposes of this
Section, family member includes the spouse, lineal ascendants, and
descendants of the Employee or former employee and the spouses of such
lineal ascendants and descendants.
The determination of who is a Highly Compensated Employee, including
the determinations of the number and identity of Employees in the top-paid
group, the top 100 Employees, the number of Employees treated as officers
and the Compensation that is considered, will be made in accordance with
Section 414(q) of the Code and the regulations thereunder.
3.21 Fiscal Year
"Fiscal Year" shall mean the Employer's fiscal year as described in
Section A.5 of the Adoption Agreement.
3.22 Fund
"Fund" shall mean the aggregate of the assets of the Plan held by the
Trustee or Custodian.
3.23 Hour of Service
"Hour of Service" shall mean:
(a) Each hour for which an Employee is paid, or entitled to payment, for the
performance of duties for the Employer or an Affiliate. These hours shall
be credited to the Employee for the Computation Year or Years in which
the duties are performed;
(b) Each hour for which an Employee is paid, or entitled to payment, by the
Employer or an Affiliate on account of a period of time during which no
duties are performed (irrespective of whether the employment relationship
has terminated) due to vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty or leave of absence. No
more than 501 Hours of Service shall be credited under this paragraph for
any single continuous period (whether or not such period occurs in a
single Computation Year). Notwithstanding the foregoing, Hours of Service
shall not be credited on account of payments made under a plan maintained
solely for the purpose of complying with applicable workers'
Compensation, unemployment Compensation, or disability insurance laws nor
shall Hours of Service be credited on account of a payment which solely
reimburses an Employee for medical or medically-related expenses incurred
by the Employee.
(c) Each hour for which back pay, irrespective of mitigation of damages, is
either awarded or agreed to by the Employer or an Affiliate. The same
Hours of Service shall not be credited both under paragraph (a) or
paragraph (b) as the case may be, and under this paragraph (c). These
hours shall be credited to the Employee for the Computation Year or Years
to which the award or agreement pertains rather than the Computation Year
in which the award, agreement or payment is made. Hours of Service will
be credited for employment with other members of an affiliated service
group (under Section 414(m) of the Code), a controlled group of
corporations (under Section 414(b) of the Code), or a group of trades or
businesses under common control (under Section 414(c) of the Code) of
which the adopting Employer is a member, and any other entity required to
be aggregated with the Employer pursuant to Section 414(o) of the Code
and the regulations thereunder. Hours of Service will also be credited
for any individual considered an Employee of this Plan under Section
414(n) or Section 414(o) of the Code and the regulations thereunder.
(d) Hours required to be credited for any period of service with the armed
forces of the United States which the Employee entered from employment
with the Employer or an Affiliate on account of induction or enlistment
under federal law, provided the Employee returns to employment with the
Employer (or Affiliate) within the period prescribed by federal law
during which his re-employment rights are protected by law or, in the
absence of such a law, within 90 days from the date his release or
discharge from military service is available.
(e) For purposes of paragraphs (a) and (b), a payment shall be deemed to be
made by or due from the Employer or an Affiliate regardless of whether
such payment is made by or due from the Employer or an Affiliate directly
or indirectly through, among others, a trust fund or insurer to which the
Employer or an Affiliate contributes or pays premiums, regardless of
whether contributions made or due to the trust fund, insurer or other
entity are for the benefit of particular Employees or are on behalf of a
group of Employees in the aggregate.
(f) For purposes of paragraphs (b) and (c), in the case of an Employee
without a regular work schedule, Hours of Service shall be credited based
on a daily average of the Employee's Hours of Service otherwise
determined under paragraphs (a), (b) and (c) for the 12 months
immediately preceding the date of determination, or during his entire
employment with the Employer or an Affiliate ending immediately prior to
the date of determination if employed by the Employer or an Affiliate for
less than 12 months.
(g) To the extent not otherwise provided herein, Hours under this Section
shall be calculated and credited pursuant to Sections 2530.200b-2 of the
Department of Labor Regulations which are incorporated herein by
reference.
<PAGE>
(h) Hours of Service for a previous employer should be included to the
extent designated in the Adoption Agreement provided, however, if the
Employer maintains the plan of a predecessor employer, service with such
employer will be treated as service for the Employer.
(i) Hours of Service shall be determined by the Employer from the records
determined by it to accurately reflect this information.
(j) Solely for determining whether a Break in Service, as defined in Section
3.6, for participation and vesting purposes has occurred in a
Computation Year, an individual who is absent from work for maternity or
paternity reasons shall receive credit for the Hours of Service which
would otherwise have been credited to such individual but for such
absence, or in any case in which such hours cannot be determined, 8
Hours of Service per day of such absence. For purposes of this
subsection, an absence from work for maternity or paternity reasons
means an absence (i) by reason of pregnancy of the individual, (ii) by
reason of a birth of a child of the individual, (iii) by reason of the
placement of a child with the individual in connection with the adoption
of such child by such individual, or (iv) for purposes of caring for
such child for a period beginning immediately following such birth or
placement. The Hours of Service credited under this subsection shall be
credited in the Computation Year in which the absence begins if the
crediting is necessary to prevent a Break in Service in that year, or in
all other cases, in the following Computation Year.
3.24 Integration Level
"Integration Level" shall mean the Compensation amount selected in the
Adoption Agreement by an Employer which has selected an integrated formula
in the Adoption Agreement.
3.25 Integration Percentage
"Integration Percentage" shall mean the percentage selected in the
Adoption Agreement by an Employer which has selected an integrated formula
in the Adoption Agreement.
3.26 Investment Manager
"Investment Manager" shall mean any fiduciary of the Plan, other than
a Named Fiduciary, who: (a) has the power to manage, acquire or dispose of
any assets of the Plan; (b) is registered as an investment advisor under the
investment Advisor's Act of 1940, is a bank defined in that Act, or is an
insurance company qualified to perform services described in (a) above
under the laws of more than one state; (c) has been appointed by the
Employer as provided herein; and (d) has acknowledged in writing that it is
a fiduciary with respect to the Plan.
3.27 Key Employee
"Key Employee" shall mean, as of any Determination Date, any Employee
or former Employee or his Beneficiary who, at any time during the Plan Year
(which includes the Determination Date) or during the preceding four Plan
Years (the "five-year testing period") is: (a) an officer of the Employer or
Affiliate, if such individual's annual Compensation for one or more of the
Plan Years during the five-year testing period in which he is an officer
exceeds 50% of the applicable dollar limitation under Section 415(b)(1)(A)
of the Code for the calendar year in which such Plan Year ends; (b) one of
the Employees owning the ten largest percentage interests in the Employer or
any Affiliates, taking into account only those Employees whose annual
Compensation for one or more such Plan Years of ownership during the five-
year testing period exceeds the applicable dollar limitation under Section
415(c)(1)(A) of the Code for the calendar year in which such Plan Year ends
and who during one or more such Plan Years in the five-year testing period
owns more than one-half percent (1/2%) interest in the Employer or any
Affiliate; (c) a more than five-percent (5%) owner of the Employer or
Affiliate; (d) or a more than one-percent (1%) owner of the Employer or
Affiliate whose annual Compensation for one or more Plan Years of ownership
during the five-year testing period exceeds $150,000. Annual Compensation
means Compensation as defined in Section 415(c)(3) of the Code but including
amounts contributed by the Employer pursuant to a salary reduction agreement
which are excludable from the Employee's gross income under Sections 125,
402(a)(8), 402(h), or 403(b) of the Code. For purposes of determining
whether an officer should be considered a Key Employee, no more than 50
Employees or if lesser, the greater of 3 or 10% of all Employees shall be
considered an officer. The 10% factor will apply to the greatest number of
Employees employed during the five-year testing period by the Employer and
any Affiliates. If the maximum number of officers that must be counted is
reached, the officers that shall be considered Key Employees shall be those
who had the largest Compensation for any Plan Year in which he was an
officer in the five-year testing period. For purposes of determining who is
one of the 10 largest owners of the Employer or Affiliate, in the event two
Employees have the same percentage interest, the Employee having the greater
Compensation for any Plan Year of ownership in the five-year testing period
shall be considered to own the larger interest for a Plan Year. The
constructive ownership rules of Section 318 of the Code (or the principles
of that Section in the case of an unincorporated Employer or Affiliate) will
apply to determine ownership in the Employer or Affiliate to the extent
provided in Section 416(i)(1) of the Code and the regulations thereunder.
3.28 Leased Employee
"Leased Employee" means any person (other than an Employee of the
recipient) who pursuant to an agreement between the recipient and any other
person ("leasing organization") has performed services for the recipient (or
the recipient and related persons determined in accordance with Section
414(n)(6) of the Code) on a substantially full time basis for a period of at
least one year and such services are of a type historically performed by
employees in the business field of the recipient Employer. Contributions or
benefits provided a Leased Employee by the leasing organization which are
attributable to services performed for the recipient Employer shall be
treated as provided by the recipient Employer.
A Leased Employee shall not be considered an Employee of the recipient
if: (i) such employee is covered by a money purchase pension plan providing
(1) a nonintegrated employer contribution rate of at least 10 percent of
Compensation, as defined in Section 415(c)(3) of the Code, but including
amounts contributed pursuant to a salary reduction agreement which are
excludable from he employee's gross income under Section 125, Section
402(a)(8), Section 402(h) or Section 403(b) of the Code, (2) immediate
participation, and (3) full and immediate vesting; and (ii) leased Employees
do not constitute more an 20 percent of the recipient's nonhighly
compensated workers.
3.29 Limitation Year
"Limitation Year" shall mean the 12-consecutive month period
designated in Section A.10 of the Adoption Agreement. All qualified plans of
the Employer and Affiliates shall utilize the same 12-month period as the
Limitation Year. If the Limitation Year is amended to a different 12-
consecutive month period, the new Limitation Year must begin on a date which
is within the Limitation Year in which the amendment is made.
3.30 Named Fiduciaries
"Named Fiduciaries" shall mean the Employer and the Trustee.
3.31 Non-Key Employee
"Non-key Employee" shall mean any Employee, including a former Key
Employee, who does not fall within the definition of a "Key Employee" under
Section 3.27.
3.32 Normal Retirement Age
"Normal Retirement Age" shall mean the age designated in the Adoption
Agreement. In the event the Employer or Affiliate enforces a mandatory
retirement age consistent with applicable laws prohibiting age
discrimination, the Normal Retirement Age shall mean such mandatory
retirement age if that age is less than the age designated in the Adoption
Agreement.
3.33 Normal Retirement Date
"Normal Retirement Date" shall mean the first day of the month after
the Participant attains his Normal Retirement Age.
3.34 Owner-Employee
"Owner-Employee" shall mean a Self-Employed individual owning more
than 10% of either the capital or profits interest of the Employer or an
Affiliate, if the Employer or Affiliate is an unincorporated business.
3.35 Participant
"Participant" shall mean an Employee who has satisfied the
requirements for eligibility in the Plan and who has commenced participation
in the Plan. An Employee shall cease to be a Participant when he or she is
no longer eligible to receive allocations under the Plan and he or she has
received a total distribution of his or her account balance.
3.36 Participant's Account
"Participant's Account" shall mean an account established to identify
the Participant's share of the Trust Fund. Maintenance of such individual
account is for accounting purposes only and segregation of the assets of the
Plan shall not be required.
3.37 Plan
"Plan" shall mean the plan of the Employer as incorporated in this
plan document and custodial account trust agreement, including any
amendments hereto and including the provisions of the Adoption Agreement
executed by the Employer.
3.38 Plan Anniversary
"Plan Anniversary" shall mean the day following the plan year-end as
designated in the Adoption Agreement.
3.39 Plan Valuation Date
"Plan Valuation Date" shall mean the last day of the Plan Year and the
last day of such additional and more frequent intervals as the Employer may
select for valuing Plan assets, charging Participants' Account with
distributions and allocating gains and losses. The Employer, in its sole
discretion, may elect to treat any date in the Plan Year as a Plan Valuation
Date if the Employer finds it necessary or desirable in order for
Participants' Accounts to fairly reflect each Participant's interest in the
Trust Fund.
3.40 Plan Year
"Plan Year" shall mean a consecutive twelve-month period as specified
in the Adoption Agreement.
3.41 Profits
"Profits" shall mean net income or net profits as determined by the
Employer from the Employer's or Affiliate's books of account in accordance
with its customary method of accounting, consistently applied, before any
deduction for federal or state income taxes or for contributions hereunder.
3.42 Qualified Joint and Survivor Annuity
"Qualified Joint and Survivor Annuity" shall mean an annuity payable
for the life of the Participant with a survivor annuity payable to his
surviving spouse which is not less than 50% nor greater than 100% of the
amount of the annuity payable during the joint lives of the Participant and
such spouse. Unless the Participant elects otherwise, the survivor annuity
shall be 50% of the annuity payable during the joint lives of the
Participant and his surviving spouse.
3.43 Qualified Preretirement Survivor Annuity
"Qualified Preretirement Survivor Annuity" shall mean an annuity for
the life of the Participants' surviving spouse commencing on the date the
Participant would have attained his Normal Retirement Age which shall be
provided as described in Section 10.3.
3.44 Restated Date
"Restated Date" shall mean the date this Plan document is effective as
a replacement for a prior plan document, as specified in Section A.4 of the
Adoption Agreement.
3.45 Self-Employed Individual
"Self-Employed" shall mean an individual who is the sole proprietor of
the Employer or an adopting Affiliate or an individual who is a partner in
the Employer or an adopting Affiliate and who has Earned Income from the
Employer or an adopting Affiliate, or would have Earned Income if the
Employer or adopting Affiliate had a Profit. The term "Self-Employed" shall
include any individual who has been a Self-Employed individual during any
prior Fiscal Year.
3.46 Shareholder Employee
"Shareholder Employee" shall mean an Employee or officer who owns, or
is considered to own within the meaning of Section 318(a)(1) of the Code,
more than 5% of the outstanding stock of the Employer or adopting Affiliate
for any Fiscal Year in which the Employer or adopting Affiliate is a
Subchapter S corporation.
3.47 Sponsor
"Sponsor" shall mean the entity which is identified in the Adoption
Agreement as the Sponsor of the Prototype Plan.
<PAGE>
3.48 Top Heavy
"Top Heavy" shall mean a condition of the Plan whereby the Top
Heavy Ratio for the Plan, or the Top Heavy Ratio for the required or
permissive aggregation group of which the Plan is a part, exceeds 60%.
The required aggregation group shall include each qualified plan of the
Employer or an Affiliate in which at least one Key Employee
participates or has participated at any time during the 5-year period
ending on the Determination Date (regardless of whether the Plan has
terminated) and any other qualified plan of the Employer or Affiliate
which enables a plan in which at least one Key Employee participates to
meet the requirements of Sections 401(a)(4) or 410 of the Code. The
permissive aggregation group shall include the required aggregation
group plus any other plan or plans of the Employer or Affiliate which,
when considered as a group with the required aggregation group, would
continue to satisfy the requirements of Sections 401(a)(4) and 410 of
the Code.
3.49 Top Heavy Ratio
"Top Heavy Ratio" shall mean:
(a) If the Employer or an Affiliate maintains one or more defined
contributions plans (including any simplified employee pension
plan) and the Employer or Affiliate has not maintained any defined
benefit plan which during the 5-year period ending on the
Determination Date has or has had accrued benefits, the Top Heavy
Ratio for this Plan alone or for the required or permissive
aggregation group described in Section 3.48 is a fraction, the
numerator of which is the sum of the account balances of all Key
Employees as of the Determination Date, and the denominator of
which is the sum of all account balances (including any part of any
account balance distributed in the 5-year period ending on the
Determination Date), both computed in accordance with Section 416
of the Code and the regulations thereunder. Both the numerator and
denominator of the Top Heavy Ratio are increased to reflect any
contribution not actually made as of the Determination Date, but
which is required to be taken into account on that date under
Section 416 of the Code and the regulations thereunder.
(b) If the Employer or an Affiliate maintains one or more defined
contribution plans (including any simplified employee pension plan)
and the Employer or Affiliate maintains or has maintained one or
more defined benefit plans which during the 5-year period ending on
the Determination Date has or has had any accrued benefits, the Top
Heavy Ratio for any required or permissive aggregation group
described in Section 3.48 is a fraction, the numerator of which is
the sum of account balances under the aggregated defined
contribution plan or plans for all Key Employees, determined in
accordance with (a) above, and the present value of accrued
benefits under the aggregated defined benefit plan or plans for all
Key Employees as of the Determination Date, and the denominator of
which is the sum of the account balances under the aggregated
defined contribution plan or plans for all Participants, determined
in accordance with (a) above, and the present value of accrued
benefits under the defined benefit plan or plans for all
participants as of the Determination Date, all determined in
accordance with Section 416 of the Code and the regulations
thereunder. The accrued benefits under a defined benefit plan in
both the numerator and denominator of the Top Heavy Ratio are
increased for any distribution of an accrued benefit made in the
five-year period ending on the Determination Date.
(c) For purposes of (a) and (b) above, the value of account balances
and the present value of accrued benefits will be determined as of
the most recent valuation date that falls within or ends with the
12-month period ending on the Determination Date, except as
provided in Section 416 of the Code and the regulations thereunder,
for the first and second Plan Years of a defined benefit plan. The
account balances and accrued benefits of a Participant, (i) who is
not a Key Employee but who was a Key Employee in a prior year, or
(ii) who has not been credited with at least 1 Hour of Service with
any employer maintaining the plan at any time during the 5-year
period ending on the Determination Date, will be disregarded. The
present value of a participant's accrued benefit under a defined
benefit plan shall be computed using a 5% interest assumption and
the 1984 Unisex Pension Mortality Table. The calculation of the Top
Heavy Ratio, and the extent to which distributions, rollovers, and
transfers are taken into account will be made in accordance with
Section 416 of the Code and the regulations thereunder. Deductible
employee contributions will not be taken into account for purposes
of computing the Top Heavy Ratio. When aggregating plans, the value
of account balances and accrued benefits will be calculated with
reference to the determination dates that fail within the same
calendar year.
The accrued benefit of a Participant other than a Key Employee
shall be determined under (i) the method, if any, that uniformly
applies for accrual purposes under all defined benefit plans
maintained by the Employer, or (ii) if there is no such method, as
if such benefit accrued not more rapidly than the slowest accrual
rate permitted under the fractional rule of Section 411(b)(1)(C) of
the Code.
For purposes of this Section, "valuation date" shall mean the
Plan Valuation Date defined herein which falls on the last day of
the Plan Year when used with respect to this Plan. With respect to
any other plan of the Employer or an Affiliate, "valuation date"
shall mean the date on which contributions are credited and gains
and losses allocated under a defined contribution plan or the date
used for computing Plan costs for minimum funding purposes
(regardless of whether a valuation is performed for a year) under a
defined benefit plan.
3.50 Trustee
"Trustee" shall mean the corporate or individual Trustee or
Trustees who have executed this Plan and any successor Trustees duly
appointed as provided herein.
3.51 Vested Interest, Vesting or Vested
"Vested Interest", "Vesting" or "Vested" shall mean a right to a
Participant's Account which is nonforfeitable.
3.52 Year of Service
"Year of Service" shall mean a 12-consecutive month period in which
an Employee has 1.000 or more Hours of Service or such lesser Hours of
Service specified in the Adoption Agreement.
ARTICLE IV Eligibility
4.1 Initial Eligibility
An Employee shall begin participation in the Plan based upon the
provisions elected in the Adoption Agreement. An Employee who meets the
eligibility requirements but terminates employment prior to entering the
Plan shall not enter the Plan. The Plan shall have the entry dates
listed in the Adoption Agreement. Notwithstanding the foregoing, an
Employee who is in a unit of Employees covered under a collective
bargaining agreement between the Employer or Affiliate (or its
representatives) and Employee representatives if retirement benefits
were the subject of good faith bargaining and if 2 percent or less of
the Employees who are covered pursuant to that agreement are
professionals as defined in Section 1.410(b)-9 of the regulations, shall
not be eligible to participate in the Plan unless such collective
bargaining agreement specifically provides for his participation herein
and, provided further, that Employees who are nonresident aliens with no
earned income from the Employer which constitutes income from sources
within the United States shall not be eligible to participate in the
Plan. For purposes of this Section, the term "Employee representatives"
does not include any organization more than half of whose members are
Employees who are owners, officers or executives of the Employer or an
Affiliate.
4.2 Special Participation Rules for Certain Employees
A Participant who terminates employment with the Employer or an
Affiliate and then later returns shall participate in the Plan
immediately on the date he returns. An Employee who has satisfied the
requirements of Section 4.1 and who terminates employment with the
Employer or an adopting Affiliate before commencing participation shall
participate: (a) on the entry date coincident with or immediately
following the date he is re-employed by the Employer or such Affiliate
if he returns to employment with the Employer or such Affiliate on or
before the entry date on which he would have commenced participation in
the Plan if he had not terminated employment: or (b) immediately if the
Employee returns to employment with the Employer or adopting Affiliate
after the entry date on which he would have participated in the Plan if
he had not terminated employment. An Employee who is not a member of an
eligible class of Employees and subsequently becomes a member of an
eligible class of Employees shall commence participation in the Plan
immediately if he has satisfied the eligibility requirements described
in the Adoption Agreement and would have previously become a Participant
if he had been in the eligible class.
4.3 Special Rule for Owner-Employees
If this Plan provides for contributions or benefits for one or more
Owner-Employees who control both the business for which this Plan is
established and 1 or more other trades or businesses, the plans must,
when aggregated as a single plan, satisfy Section 401(a) and (d) for the
Employees of this and all other trades or businesses.
If the Plan provides contributions or benefits for 1 or more Owner-
Employees who control one or more other trades or businesses, the
employees of the other trades or businesses must be included in a Plan
which satisfies Sections 401(a) and (d) of the Code and which provides
contributions and benefits not less favorable than provided for Owner-
Employees under this Plan.
If an individual is covered as an Owner-Employee under the plans of
two or more trades or businesses which are not controlled and the
individual controls a trade or business, then the contributions or
benefits of the employees under the plan of the trades or business which
are controlled must be as favorable as those provided for him under the
most favorable plan of the trade or business which is not controlled.
For purposes of this Section, an Owner-Employee, or two or more
Owner-Employees, will be considered to control a trade or business if
the Owner-Employee, or two or more Owner-Employees together: (a) own the
entire interest in an unincorporated trade or business: or (b) in the
case of a partnership, own more than 50 percent of either capital
interest or the profits interest in the partnership.
For the purposes of this Section, an Owner-Employee, or two or more
Owner-Employees shall be treated as owning any interest in a partnership
which is owned, directly or indirectly, by a partnership which such
Owner-Employee, or such two or more Owner-Employees, are considered to
control within the meaning of the preceding sentence.
4.4 Computing Years and Months of Service for Eligibility
Years of Service shall be credited to the applicable Computation
Year. Years of Service in the applicable Computation Years shall be
taken into account for purposes of determining if an Employee has
satisfied the eligibility requirements of Section 4.1. A Month of
Service shall be defined as a calendar month in which an Employee
completes at least 1 Hour of Service.
4.5 Administrative Requirements
As a condition of participation in the Plan, the Employer may
require an Employee to furnish such information as may be reasonably
required by the Employer, Trustee or Custodian for the maintenance of
records and proper Plan administration.
4.6 Effective Date
If this Plan is a restatement of a previously existing plan, the
provisions of this Plan shall become effective as of the later of the
Restated Date or the first day of the first Plan Year beginning after
December 31, 1988.
4.7 Election Not to Participate
Each Employee shall have, at the time he or she becomes eligible to
participate in the Plan, the right to make a one-time irrevocable
election not to participate in the Plan.
ARTICLE V Contributions and Allocations
5.1 Funding Policy for Plan Benefits
The benefits under this Plan shall be funded with contributions by
the Employer and its adopting Affiliates, if any, and voluntary
Employee contributions, rollover contributions and transfer
contributions to the extent permitted by the Adoption
<PAGE>
Agreement and made by the Employees. If the Employer has adopted a Money
Purchase Adoption Agreement, Employer contributions shall be reduced by any
forfeitures if so elected in the Adoption Agreement. If the Employer has
adopted a Profit Sharing Adoption Agreement forfeitures shall be added to
the Employer contributions. In the event Employees of an Affiliate are
Participants, the Affiliate shall make contributions to the Plan on the
same basis, expressed as a percentage of Compensation, as the Employer, but
only for such of its Employees as are Participants in the Plan. Forfeitures
arising with respect to an Employee shall be allocated to the Participant's
Accounts of all Employees of the Employer and Affiliate.
5.2 Determination of Employer Contributions
If the Employer or any Affiliates execute a Profit Sharing Adoption
Agreement, the Employer and such Affiliates shall contribute to the Fund
for each Plan Year such amount as the Employer shall determine in its sole
discretion without regard to earnings and Profits. In the event the
Employer or any Affiliates execute a Money Purchase Adoption Agreement, the
Employer and such Affiliates shall contribute to the Fund for each Plan
Year the percentage of each Participant's Compensation specified in the
Adoption Agreement. In no event shall the Employer or Affiliate contribute
an amount such that an allocation or contribution in excess of the maximum
amount permitted under Article VII would be made to any Participant. The
Employer and any adopting Affiliates may make their contribution at any
time during the Plan Year or within the time prescribed by law for filing
their respective federal income tax returns.
5.3 Allocation of Employer Contributions and Adjustments for Gains and
Losses
Once each Plan Valuation Date, the Employer shall:
(a) Charge each Participant's Account with any distributions which have
occurred since the last Plan Valuation Date:
(b) Value the Fund in a manner that reflects its current fair market value:
(c) Allocate gains and losses of the Fund, exclusive of gains and losses
attributable to Participant directed investments described in Section
16.12 or 17.14 to each Participant's Account in the ratio that the
adjusted balance of each such Participant's Account since the last Plan
Valuation Date (excluding Participant-directed investments) bears to
the aggregate of all such Participant Accounts. For purposes of this
subsection, the "adjusted balance" of a Participant's Account shall be
the balance of the Participant's Account since the last Plan Valuation
Date, increased by any contributions to the Participant's Account and
decreased by any distributions, or it may be determined by the
Employer/Plan Administrator in a nondiscriminatory manner, which
equitably reflects contribution and distribution activity during the
Plan Year. The account balance shall also be adjusted by funds which
become or cease to be Participant-directed investments. These amounts
shall be prorated based upon the number of days since the last Plan
Valuation Date. Gains and losses attributable to Participant-directed
investments, as described in Section 16.12 or 17.14 shall be allocated
separately to the Participant's Account from which they are derived.
(d) If the Employer has executed a Profit Sharing Adoption Agreement and a
basic nonintegrated formula has been selected, credit the Participant's
Account of each Participant eligible for an Employer contribution with
contributions made by the Employer and Affiliate and forfeitures in the
ratio that each Participant's Compensation for the Plan Year bears to
the Compensation of all Participants for the Plan Year, subject,
however, to the provisions of Section 5.4 if applicable.
(e) If the Plan is Top Heavy and the Employer has executed a Profit Sharing
Adoption Agreement and an integrated formula has been selected, credit
the Participant's Account for each Participant eligible for an
Employer contribution with contributions made by the Employer and
Affiliates and forfeitures as follows:
STEP ONE: Contributions and forfeitures will be allocated to each
Participant's Account in the ratio that each Participant's Total
Compensation bears to all Participant's Total Compensation, but not in
excess of 3%.
STEP TWO: Any contributions and forfeitures remaining after the
allocation in Step One will be allocated to each Participant's Account
in the ratio that each Participant's Compensation for the Plan Year in
excess of the Integration Level bears to the excess Compensation of all
Participants but not in excess of 3%.
STEP THREE: Any contributions and forfeitures remaining after the
allocation in Step Two will be allocated to each Participant's Account
in the ratio that the sum of each Participant's Total Compensation and
Compensation in excess of the Integration Level bears to the sum of all
Participant's Total Compensation and Compensation in excess of the
Integration Level, but not in excess of the profit-sharing maximum
disparity rate.
STEP FOUR: Any remaining Employer contributions or forfeitures will
be allocated to each Participant's Account in the ratio that each
Participant's Total Compensation for the Plan Year bears to all
Participant's Total Compensation.
The Integration Level shall be equal to the taxable wage base or such
lesser amount elected by the Employer in the Adoption Agreement. The
taxable wage base is the maximum amount of earnings which may be
considered wages for a year under Section 3121(a)(1) of the Code in
effect as of the beginning of the plan year.
Compensation shall mean Compensation as defined in Section 3.8 of the
Plan.
The maximum disparity rate varies depending upon the Integration
Level chosen in the Adoption Agreement.
1) If the Integration Level is equal to the taxable wage base, the
maximum disparity rate is 2.7%.
2) If the Integration Level is equal to $10,000 or 20% of the taxable
wage base (if greater), the maximum disparity rate is 2.7%.
3) If the Integration Level is more than 80% but less than 100% of the
taxable wage base, the maximum disparity rate is 2.4%.
4) If the Integration Level is not more than 80% of the taxable wage
base but greater than the amount described in (2) above, the
maximum disparity rate is 1.3%.
If the Plan is not Top Heavy, allocate contributions by beginning at
Step 3 and increasing the maximum disparity rate by 3%.
(f) If the Employer has executed a Money Purchase Adoption Agreement and a
nonintegrated contribution formula has been selected, credit the
Participant's Account for each Participant eligible for an Employer
contribution with contributions made by the Employer or Affiliate,
reduced by any forfeitures if so elected in the Adoption Agreement, in
an amount equal to the percentage of Compensation for the Plan Year
specified in the Adoption Agreement, subject, however, to the
provisions of Section 5.4 to the extent applicable.
(g) If the Employer has executed a Money Purchase Adoption Agreement and an
integrated contribution formula has been selected, credit the
Participant's Account for each Participant eligible for an Employer
contribution with contributions made by the Employer or Affiliate
reduced by only forfeitures, if so elected in the Adoption Agreement in
an amount equal to the percentage of Compensation for the Plan Year
specified in the Adoption Agreement. If the Employer has elected to
allocate forfeitures to Participant's accounts, any forfeitures for the
Plan Year shall be allocated to Participant's accounts as described in
Section 5.3(d) above. The maximum money purchase disparity rate varies
depending upon the integration Level chosen in the Adoption Agreement.
1) If the Integration Level is equal to the taxable wage base, the
maximum disparity rate is 5.7%.
2) If the Integration Level is equal to $10,000 or 20% of the taxable
wage base (if greater), the maximum disparity rate is 5.7%.
3) If the Integration Level is more than 80% but less than 100% of the
taxable wage base, the maximum disparity rate is 5.4%.
4) If the Integration Level is not more than 80% of the taxable wage
base but greater than the amount described in (2), above the
maximum disparity rate is 4.3%.
5.4 Special Minimum Allocations and Contributions
In the event the Plan is Top Heavy for a Plan Year, the following
provisions shall apply for such Plan Year, notwithstanding any contrary
provisions in this plan:
(a) Any election in the Adoption Agreement limiting Employer contributions
to Participants with 1,000 or more Hours of Service for the Plan Year
shall not apply.
(b) If the Employer and any Affiliates do not maintain another plan or
plans in addition to this Plan, the Employer (or Affiliate)
contributions for each Participant eligible for an Employer
contribution, plus forfeitures if the Plan is a profit sharing plan,
shall be equal to 3% of his Compensation for the Plan Year or, if less
(the highest percentage of the first $150,000 of Compensation allocated
to a Key Employee. The minimum allocation is determined without regard
to any Social Security contribution or elective deferrals or Employer
matching contributions if such options are available under the Plan.
(c) In the event the Employer or an Affiliate maintains any other plan in
addition to this Plan and if the other plan consists solely of the
Bankers Systems, Inc. Nonstandard Money Purchase of Profit Sharing Plan
(designated Plan 004-01 and 003-01 respectively), or Banker's Systems,
Inc. Standard Money Purchase or Profit Sharing Plan (designated Plan
002-01 and 001-01 respectively) and a Participant participates in both
standard or nonstandard Plans, the Employer contribution to the
Participant's Account of a Participant who is eligible for an Employer
contribution in the Money Purchase Plan shall be at least equal to the
lesser of (i) 3% of his Compensation or (ii) the percentage of the
first $150,000 of Compensation allocated under both the Profit Sharing
and Money Purchase Plans to the Participant's Accounts of the Key
Employee whose total allocation and contribution (expressed as a
percentage of Compensation is the hightest unless such contribution is
otherwise provided under the Plan without regard to this subsection.
The minimum allocation is determined without regard to any Social
Security contribution
(d) In the event the Employer or an Affiliate maintains any other plan in
addition to this Plan and if such other plan or plans is a defined
contribution plan, and a Participant does not participate in such other
plan or plans, the allocation of Employer contributions and forfeitures
to the Participant's Account of a Participant who is eligible for an
Employer contribution shall in no event be less than the amount
described in Section 5.4(b) above.
(e) In the event the Employer or an Affiliate maintains any other plan in
addition to this Plan and if such other plan or plans is a defined
contribution plan in which a Participant also participates other than a
Bankers Systems Financial Services plan described in subsection (c),
the minimum allocation described in subsection (d) above shall be
reduced by the allocation of Employer contributions and forfeitures
made to each other plan or plans in which the Participant also
participates.
(f) In the event the Employer or an Affiliate maintains any other plan in
addition to the Plan and if such other plan or plans include a defined
benefit plan in which a Participant does not participate or if the
defined benefit plan is not Top Heavy whether or not the Participant
participates in such a plan, a Participant who is eligible for Employer
contributions shall be entitled to an allocation to his Participant's
Account for Employer contributions and forfeitures shall not be less
than 3% of his Compensation, reduced by any allocations to the
Participant under any other defined contribution plan maintained by the
Employer or
<PAGE>
affiliate in which the Participant also participates.
(g) In the event the Employer or an Affiliate maintains any other plan in
addition to this Plan and if such other plan or plans include a defined
benefit plan in which the Participant also participates and such
defined benefit plan is also Top Heavy, the allocation of Employer
contributions and forfeitures to the Participant's Account of any
Participant who is eligible for Employer contributions shall in no
event be less than 5% of his Compensation, reduced by the allocation to
his account in any other defined contribution plan described in this
Section.
(h) Notwithstanding the provisions of subsections (c) through (g), the
Employer may provide in Section J. of the Adoption Agreement a method
of furnishing the minimum contributions and benefits required by Code
Section 416 in the case of multiple plans.
The amount of the minimum allocations described in this Section
shall be computed as of the Determination Date.
5.5 Voluntary Employee Contributions
If a Profit Sharing Plan is adopted and the CODA Section is completed
the Employer may elect in the Adoption Agreement to allow the Participant
to make nondeductible voluntary Employee contributions. The voluntary
Employee contributions shall not exceed 10% of the Participant's
Compensation. This 10% limit shall be cumulative, taking into account the
Participant's aggregate Compensation for all the Plan Years in which he
has been a Participant in the Plan. Voluntary Employee contributions
shall also be subject to the limitations of Section 6.9. The rules and
procedures established by the Employer, if any, may specify a method for
remitting such contributions, including payroll deduction. The rules and
procedures may be modified from time to time or rescinded. Qualified
voluntary Employee contributions, as defined in Section 219(e)(2) of the
Code shall be prohibited. No forfeiture of a Participant's nonvested
account balance will occur solely as a result of an Employee's withdrawal
of Employee contributions.
By making a voluntary contribution to the Plan, the Participant agrees
that he has not designated such contributions as a qualified voluntary
Employee contribution and will not claim a deduction from his income tax
for such contribution. Voluntary Employee contributions shall be placed
in the Employee's Voluntary Contribution Account.
5.6 Rollover Contributions
The Employer may elect in the Adoption Agreement to allow Employees to
make, and the Trustee or Custodian to accept, rollover contributions from
other qualified plans. Rollover contributions may be accepted on behalf
of an Employee notwithstanding that he is not yet eligible to participate
in the Plan. If an Employee makes a rollover contribution to the Plan
before he becomes a Participant, he shall be treated as a Participant in
all respects, except that he shall not be entitled to an allocation of
Employer contributions or forfeitures nor may he make voluntary Employee
contributions. The rules and procedures established by the Employer, if
any, may require the Employee to furnish satisfactory evidence that any
proposed rollover to this Plan can properly be made under applicable
provisions of the Code.
5.7 Transfer Contributions
The Employer may elect in the Adoption Agreement to allow Employees to
make, and the Trustee or Custodian to accept, transfers from other
qualified plans. Transfer contributions may be accepted on behalf of an
Employee notwithstanding that he is not yet eligible to participate in
the Plan. If an Employee makes a transfer to the Plan before he becomes a
Participant, he shall be treated as a Participant in all respects, except
that he shall not be entitled to an allocation of Employer contributions
or forfeitures nor may he make voluntary Employee contributions. The
rules and procedures established by the Employer, if any, may require the
Employee to furnish satisfactory evidence that any proposed transfer to
this Plan can properly be made under applicable provisions of the Code.
If any transfer is made from a plan which is subject to the Qualified
Joint and Survivor Annuity requirements of Section 9.2, the Employee
Transfer Account shall be divided into one or more sub-accounts to
identify that portion of the Participant's Account which is subject to
the Qualified Joint and Survivor and Qualified Preretirement Annuity
requirements of the Plan.
5.8 Special Rule for Leased Employees
Contributions or benefits provided by a leasing organization which are
attributable to services performed for the Employer or an adopting
Affiliate shall be treated as provided by the Employer or such Affiliate.
No contributions need to be provided on behalf of a leased employee if
the leased employee is covered by the leasing organization under a money
purchase pension plan which provides: (a) a nonintegrated Employer
contributions rate of at least 10% of Compensation; (b) immediate
participation; and (c) full and immediate vesting. The term "Leased
Employee" shall have the meaning provided in Section 3.28.
5.9 Waiver of Funding Standards
In the event the Employer executed a Money Purchase Plan Adoption
Agreement and obtains a waiver of the minimum funding standards for any
Plan Year, the Employer shall be considered to have amended this
Prototype Plan to create an individually designed plan which must be
submitted to the appropriate IRS Key District Office for approval to
attain continued reliance.
5.10 Effective Date
If this Plan is a restatement of a previously existing plan, the
provisions of Section 5.3 shall become effective as of the later of the
Restated Date or the first day of the first Plan Year beginning after
December 31, 1988.
ARTICLE VI Salary Deferral or Cash or Deferred Arrangement
6.1 Applicability
This Article shall apply if the Employer has chosen a cash or
deferred arrangement in the Profit Sharing Adoption Agreement.
6.2 Elective Deferrals
As provided in the CODA Section to the Profit Sharing Adoption
Agreement an Employee may elect to defer a portion of his or her salary
under a salary reduction agreement or elect to defer lump sum payments
under a cash or deferred arrangement. Amounts deferred by the Participant
shall be contributed to this Plan and allocated to the Participant's
Elective Deferral Account. The amount of such Elective Deferrals shall be
limited in accordance with the terms of the Adoption Agreement and the
provisions of this Article.
A Participant shall be allowed to begin, terminate, or amend a
deferral election in accordance with the terms set forth in the CODA
Section to the Adoption Agreement. Such election may not be made
retroactively. A Participant shall notify the Employer of such election
in the form and manner specified by the Plan Administrator.
6.3 Dollar Limit on Elective Deferrals
No Participant shall be permitted to have Elective Deferrals made
under this Plan, or any other qualified plan maintained by the Employer,
during any taxable year, in excess of the dollar limitations contained in
Section 402(g) of the Code in effect at the beginning of such taxable
year.
6.4 Distribution of Excess Elective Deferrals
Excess Elective Deferrals shall mean those Elective Deferrals that are
includible in a Participant's gross income under Section 402(g) of the
Code to the extent such Participant's Elective Deferrals for a taxable
year exceed the dollar limitation under such Code Section. Excess
Elective Deferrals shall be treated as Annual Additions under the plan,
unless such amounts are distributed no later than the first April 15
following the close of the Participant's taxable year.
A Participant may assign to this Plan any Excess Elective Deferrals
made during a taxable year of the Participant by notifying the Plan
Administrator on or before the date specified in the Adoption Agreement
of the amount of the Excess Elective Deferrals to be assigned to the
Plan. A Participant is deemed to notify the Plan Administrator of any
Excess Elective Deferrals that arise by taking into account only those
Elective Deferrals made to this Plan and any other plans of this
Employer.
Notwithstanding any other provisions of the Plan, Excess Elective
Deferrals, plus any income and minus any loss allocable thereto, shall be
distributed no later than April 15 to any Participant to whose account
Excess Elective Deferrals were assigned for the preceding year and who
claims Excess Elective Deferrals for such taxable year.
Determination of income or loss: Excess Elective Deferrals shall be
adjusted for any income or loss up to the date of distribution. The
income or loss allocable to Excess Elective Deferrals is the sum of: (1)
income or loss allocable to the Participant's Elective Deferral account
for the taxable year multiplied by a fraction, the numerator of which is
such Participant's Excess Elective Deferrals for the year and the
denominator is the Participant's Account balance attributable to Elective
Deferrals without regard to any income or loss occurring during such
taxable year; and (2) ten percent of the amount determined under (1)
multiplied by the number of whole calendar months between the end of the
Participant's taxable year and the date of distribution, counting the
month of distribution if distribution occurs after the 15th of such
month.
6.5 Average Deferral Percentage Test
The Actual Deferral Percentage (hereinafter "ADP") for Participants
who are Highly Compensated Employees for each Plan Year and the ADP for
Participants who are Nonhighly Compensated Employees for the same Plan
Year must satisfy one of the following tests:
(a) The ADP for Participants who are Highly Compensated Employees for the
Plan Year shall not exceed the ADP for Participants who are Nonhighly
Compensated Employees for the same Plan Year multiplied by 1.25; or
(b) The ADP for Participants who are Highly Compensated Employees for the
Plan Year shall not exceed the ADP for Participants who are Nonhighly
Compensated Employees for the same Plan Year multiplied by 2.0,
provided that the ADP for Participants who are Highly Compensated
Employees does not exceed the ADP for Participants who are Nonhighly
Compensated Employees by more than two (2) percentage points.
(c) Special Rules:
(i) The ADP for any Participant who is a Highly Compensated
Employee for the Plan Year and who is eligible to have Elective
Deferrals and Qualified Nonelective Contributions or Qualified
Matching Contributions or both, if treated as Elective
Deferrals for purposes of the ADP test) allocated to his or her
accounts under two or more arrangements described in Section
401(k) of the Code, that are maintained by the Employer, shall
be determined as if such Elective Deferrals (and, if
applicable, such Qualified Nonelective Contributions or
Qualified Matching Contributions, or both) were made under a
single arrangement. If a Highly Compensated Employee
participates in two or more cash or deferred arrangements that
have different Plan Years, all cash or deferred arrangements
ending with or within the same calendar year shall be treated
as a single arrangement.
(ii) In the event that this Plan satisfies the requirements of
Section 401(k), 401(a)(4) or 410(b) of the Code only if
aggregated with one or more other plans, or if one or more
other plans satisfy the requirement of such Sections of the
Code only if aggregated with this plan, then this Section shall
be applied by determining the ADP of Employees as if all such
plans were a single plan. For Plan Years beginning after
December 31, 1989, plans may be aggregated in order to satisfy
Section 401(k) of the Code only if they have the same Plan
Year.
(iii) For purposes of determining the ADP of a Participant who is a
5-percent owner or one of the ten most highly-paid Highly
Compensated Employees, the Elective Deferrals (and Qualified
Nonelective Contributions, or Qualified Matching Contributions,
or both, if treated as Elective Deferrals for purposes of the
ADP test) and Compensation of such Participant shall include
the Elective Deferrals (and, if applicable, Qualified
Nonelective Contributions and Qualified Matching Contributions,
or both) and Compensation
<PAGE>
for the Plan Year of Family Members (as defined in Section 414(q)(6)
of the Code). Family Members, with respect to such Highly
Compensated Employees, shall be disregarded as separate Employees in
determining the ADP both for Participants who ar Nonhighly
Compensated Employees and for Participants who are Highly
Compensated Employees.
(iv) For purposes of determining the ADP test, Elective Deferrals,
Qualified Nonelective Contributions and Qualified Matching
Contributions must be made before the last day of the twelve-month
period immediately following the Plan Year to which contributions
relate.
(v) The Employer shall maintain records sufficient to demonstrate
satisfaction of the ADP test and the amount of Qualified Nonelective
Contributions or Qualified Matching Contributions, or both, used in
such test.
(vi) The determination and treatment of the ADP amount of any Participant
shall satisfy such other requirements as may be prescribed by the
Secretary of the Treasury.
(vii) For purposes of calculating Average Deferral Percentages for
purposes of the ADP Test, the Employer shall take Qualified Matching
Contributions and Qualified Nonelective Contributions into
account in amounts necessary to meet the ADP Test. The amount and
type of contribution to include shall be determined by the Employer.
6.6 Distribution of Excess Contributions
"Excess Contributions" shall mean, with respect to any Plan Year,
the excess of:
(a) The aggregate amount of Employer contributions actually taken into
account in computing the ADP of Highly Compensated Employees for such
Plan Year, over
(b) The maximum amount of such contributions permitted by the ADP test
(determined by reducing contributions made on behalf of Highly
Compensated Employees in order of the ADPs, beginning with the highest of
such percentages).
Notwithstanding any other provision of this Plan. Excess
Contributions, plus any income and minus any loss allocable thereto, shall be
distributed no later than the last day of each Plan Year to Participants to
whose accounts such Excess Contributions were allocated for the preceding
Plan Year. If such excess amounts are distributed more than 2 1/2 months
after the last day of the Plan Year in which such excess amounts arose, a ten
(10) percent excise tax will be imposed on the Employer maintaining the Plan
with respect to such amounts. Such distributions shall be made to Highly
Compensated Employees on the basis of the respective portions of the Excess
Contributions attributable to each of such Employees. Excess Contributions of
Participants who are subject to the family member aggregation rules shall be
allocated among the family members in proportion to the Elective Deferrals
(and amounts treated as Elective Deferrals) of each family member that is
combined to determine the combined ADP.
Excess Contributions (including the amounts recharacterized) shall be
treated as Annual Additions under the Plan.
Determination of Income or Loss: Excess Contributions shall be adjusted
for any income or loss up to the date of distribution. The income or loss
allocable to Excess Contributions is the sum of: (1) income or loss allocable
to the Participant's Elective Deferral account (and, if applicable, the
Qualified Nonelective Contribution account or the Qualified Matching
Contributions account or both) for the Plan Year multiplied by a fraction,
the numerator of which is such Participant's Excess Contributions for the
year and the denominator is the Participant's account balance attributable to
Elective Deferrals (and Qualified Nonelective Contributions or Qualified
Matching Contributions, or both, if any of such contributions are included in
the ADP test) without regard to any income or loss occurring during such Plan
Year: and (2) ten percent of the amount determined under (1) multiplied by
the number of whole calendar months between the end of the Plan Year and the
date of distribution, counting the month of distribution if distribution
occurs after the 15th of such month.
Accounting for Excess Contributions: Excess Contributions shall be
distributed from the Participant's Elective Deferral account and Qualified
Matching Contribution account (if applicable) in proportion to the
Participant's Elective Deferrals and Qualified Matching Contributions (to the
extent used in the ADP test) for the Plan Year, Excess Contributions shall be
distributed from the Participant's Qualified Nonelective Contribution account
only to the extent that such Excess Contributions exceed the balance in the
Participant's Elective Deferral account and Qualified Matching Contribution
account.
6.7 Recharacterization of Excess Contributions
A Participant may treat his or her Excess Contributions as an amount
distributed to the Participant and then contributed by the Participant to the
Plan. Recharacterized amounts will remain nonforfeitable and subject to the
same distribution requirements as Elective Deferrals. Amounts may not be
recharacterized by Highly Compensated Employee to the extent that such amount
in combination with other Employee Contributions made by that Employee would
exceed any stated limit under the Plan on Employee Contributions.
Recharacterization must occur no later than two and one-half months after the
last day of the Plan Year in which such Excess Contributions arose and is
deemed to occur no earlier than the date the last Highly Compensated Employee
is informed in writing of the amount recharacterized and the consequences
thereof. Recharacterized amounts will be taxable to the Participant for the
Participant's tax year in which the Participant would have received them in
cash.
6.8 Matching Contributions
Matching Contributions will be made by the Employer to match Elective
Deferrals if such option is chosen in the CODA Section to the Adoption
Agreement, if Qualified Matching Contributions are elected, those
contributions are fully vested when made. If Nonqualified Matching
Contributions are elected, these contributions shall be vested in accordance
with the vesting provisions generally applicable to Employer contributions.
In any event, Matching contributions shall be fully vested at Normal
Retirement Age, upon the complete or partial termination of the profit-
sharing plan, or upon the complete discontinuance of Employer contributions.
Forfeitures of Matching contributions, other than Excess Aggregate
contributions, shall be allocated to Participants Accounts or used to reduce
Employer matching contributions as described in the CODA Section to the
Adoption Agreement.
6.9 Limitations on Employee Contributions and Matching Contributions
Any contribution that exceeds the amount allowed under the ACP test
will not be allocated to any participants accounts.
The Average Contribution Percentage (ACP) for Participants who are Highly
Compensated Employees for each Plan Year and the ACP for Participants who are
Nonhighly Compensated Employees for the same Plan Year must satisfy one of
the following tests:
(a) The ACP for Participants who are Highly Compensated Employees for the
Plan Year shall not exceed the ACP for Participants who are Nonhighly
Compensated Employees for the same Plan Year multiplied by 1.25, or
(b) The ACP for Participants who are Highly Compensated Employees for the
Plan Year shall not exceed the ACP for Participants who are Nonhighly
Compensated Employees for the same Plan Year multiplied by two (2),
provided that the ACP for Participants who are Highly Compensated
Employees does not exceed the ACP for Participants who are Nonhighly
Compensated Employees by more than two (2) percentage points.
Special Rules:
1) Multiple Use: If 1 or more Highly Compensated Employees participate in
both a CODA and a plan subject to the ACP test maintained by the
Employer and the sum of the ADP and ACP of those Highly Compensated
Employees subject to either or both tests exceeds the Aggregate Limit,
then the ACP of those Highly Compensated Employees who also
participate in a CODA will be reduced (beginning with such Highly
Compensated Employee whose ACP is the highest) so that the limit is
not exceeded. The amount by which each Highly Compensated Employee's
Contribution Percentage Amounts is reduced shall be treated as an
Excess Aggregate Contribution. The ADP and ACP of the Highly
Compensated Employees are determined after any corrections required to
meet the ADP and ACP tests. Multiple use does not occur if either the
ADP or ACP of the Highly Compensated Employees does not exceed 1.25
multiplied by the ADP or ACP of the Nonhighly Compensated Employees.
2) For purposes of this Section, the Contribution Percentage for any
Participant who is a Highly Compensated Employee and who is eligible
to have Contribution Percentage Amounts allocated to his or her
account under two or more plans described in Section 401(a) of the
Code, or arrangements described in Section 401(m) of the Code that are
maintained by the Employer, shall be determined as if the total of
such Contribution Percentage Amounts was made under each plan.
If a Highly Compensated Employee participates in two or more cash
or deferred arrangements that have different Plan Years, all cash or
deferred arrangements ending with or within the same calendar year
shall be treated as a single arrangement.
3) In the event that this Plan satisfies the requirements of Sections
401(m), 401(a)(4) or 410(b) of the Code only if aggregated with one or
more other plans, or if one or more other plans satisfy the
requirements of such Sections of the Code only if aggregated with this
Plan, then this Section shall be applied by determining the
Contribution Percentage of Employees as if all such plans were a
single plan. For plan Years beginning after December 31, 1989, plans
may be aggregated in order to satisfy Section 401(m) of the Code only
if they have the same Plan Year.
4) For purposes of determining the Contribution Percentage of a
Participant who is a five-percent owner or one of the ten most highly-
paid Highly Compensated Employees, the Contribution Percentage Amounts
and Compensation of such Participants shall include the Contribution
Percentage Amounts and Compensation for the Plan Year of Family
Members (as defined in Section 414(q)(6) of the Code). Family Members,
with respect to Highly Compensated Employees shall be disregarded as
separate Employees in determining the Contribution Percentage both for
Participants who are Nonhighly Compensated Employees and for
Participants who are Highly Compensated Employees.
5) For purposes of determining the Contribution Percentage test. Employee
Contributions are considered to have been made in the Plan Year in
which contributed to the trust. Matching Contributions and Qualified
Nonelective Contributions will be considered made for a Plan Year if
made no later than the end of the twelve-month period beginning on the
day after the close of the Plan Year.
6) The Employer shall maintain records sufficient to demonstrate
satisfaction of the ACP test and the amount of Qualified Nonelective
Contributions or Qualified Matching Contributions, or both, used in
such test.
7) The determination and treatment of the Contribution Percentage of any
Participant shall satisfy such other requirements as may be prescribed
by the Secretary of the Treasury.
6.10 Distribution of Excess Aggregate Contributions
Notwithstanding any other provision of this Plan. Excess Aggregate
Contributions, plus any
<PAGE>
income and minus any loss allocable thereto should be forfeited, if
forfeitable, or if not forfeitable distributed no later than the last day of
each Plan Year to Participants to whose accounts such Excess Aggregate
Contributions were allocated for the preceding Plan Year. Excess Aggregate
Contributions of Participants who are subject to the family member
aggregation rules shall be allocated among the family members in proportion
to the Employee and Matching Contributions (or amounts treated as Matching
Contributions) of each family member that is combined to determine the
combined ACP. If such Excess Aggregate Contributions are distributed more
than 2 1/2 months after the last day of the Plan Year in which such excess
amounts arose, a ten (10) percent excise tax will be imposed on the Employer
maintaining the Plan with respect to those amounts. Excess Aggregate
Contributions shall be treated as Annual Additions under the Plan.
"Excess Aggregate Contributions" shall mean, with respect to any Plan
Year, the excess of:
(a) The aggregate Contribution Percentage Amounts taken into account in
computing the numerator of the Contribution Percentage actually made on
behalf of Highly Compensated Employees for such Plan Year, over
(b) The maximum Contribution Percentage Amounts permitted by the ACP test
(determined by reducing contributions made on behalf of Highly
Compensated Employees in order of their Contribution Percentages
beginning with the highest of such percentages).
Such determination shall be made after first determining Excess
Elective Deferrals pursuant to Section 6.4 and then determining Excess
Contributions pursuant to Section 6.6.
Determination of Income or Loss: Excess Aggregate Contributions shall
be adjusted for any income or loss up to the date of distribution. The
income or loss allocable to Excess Aggregate Contributions is the sum of:
(1) income or loss allocable to the Participant's Employee Contribution
account, Matching Contribution account (if any, and if all amounts therein
are not used in the ADP test) and, if applicable, Qualified Nonelective
Contribution account and Elective Deferral account and Elective Deferral
account for the Plan Year multiplied by a fraction, the numerator of which
is such Participant's Excess Aggregate Contributions for the year and the
denominator is the Participant's Account balance(s) attributable to
Contribution Percentage Amounts without regard to any income or loss
occurring during such Plan Year: and (2) ten percent of the amount
determined under (1) multiplied by the number of whole calendar months
between the end of the Plan Year and the date of distribution, counting the
month of distribution if distribution occurs after the 15th of such month.
Forfeitures of Excess Aggregate Contributions: Forfeitures of Excess
Aggregate Contributions may either be reallocated to the accounts of
Nonhighly Compensated Employees or applied to reduce Employer contributions,
as elected by the Employer in Section D.4 of the Adoption Agreement.
Accounting for Excess Aggregate Contributions: Excess Aggregate
Contributions shall be forfeited, if forfeitable or distributed on a pro-
rata basis from the Participant's Employee Contribution account,
Matching Contribution account, and Qualified Matching Contribution account
(and, if applicable, the Participant's Qualified Nonelective Contribution
account or Elective Deferral account, or both).
6.11 Qualified Nonelective Contributions
The Employer may elect to make Qualified Nonelective Contributions
under the Plan on behalf of Employees as provided in the Adoption Agreement.
In addition, in lieu of distributing Excess Contributions as provided
in Section 6.6 of the Plan, or Excess Aggregate Contributions as provided in
Section 6.10 of the Plan, and to the extent elected by the Employer in the
Adoption Agreement, the Employer may make Qualified Nonelective
Contributions on behalf of Nonhighly Compensated Employees that are
sufficient to satisfy either the Actual Deferral Percentage test or the
Average Contribution Percentage test, or both, pursuant to regulations under
the Code.
If Qualified Nonelective Contributions are made to the Plan, these
contributions shall be allocated to the accounts of all Participants or only
Nonhighly Compensated Participants (as elected in the Adoption Agreement) in
the ratio that each Participant's Compensation bears to the total
Compensation of all Participants sharing in the forfeiture.
6.12 Nonforfeitability
The Participant's accrued benefit derived from Elective Deferrals,
Qualified Nonelective Contributions, Employee Contributions, and Qualified
Matching Contributions is nonforfeitable. Separate accounts for Elective
Deferrals, Qualified Nonelective Contributions, Employee Contributions,
Matching Contributions, and Qualified Matching Contributions will be
maintained for each Participant. Each account will be credited with the
applicable contributions and earnings thereon.
6.13 Limitations on Distributions
Elective Deferrals. Qualified Nonelective Contributions, and Qualified
Matching Contributions, and income allocable to each are not distributable
to a Participant or his or her beneficiary or beneficiaries, in accordance
with such Participant's or beneficiary or beneficiaries election, earlier
than upon separation from service, death, or disability.
Such amounts may also be distributed upon:
(a) Termination of the Plan without the establishment of another defined
contribution plan.
(b) The disposition by a corporation to an unrelated corporation of
substantially all of the assets (within the meaning of Section 409(d)(2)
of the Code) used in a trade or business of such corporation if such
corporation continues to maintain this Plan after the disposition, but
only with respect to Employees who continue employment with the
corporation acquiring such assets.
(c) The disposition by a corporation to an unrelated entity of such
corporation's interest in a subsidiary (within the meaning of Section
409(d)(3) of the Code) if such corporation continues to maintain this
Plan, but only with respect to Employees who continue employment with
such subsidiary.
(d) The attainment of age 59 1/2 in the case of a profit-sharing plan.
(e) The hardship of the Participant as described in Section 6.14, if so
elected in the CODA Section to the Adoption Agreement.
All distributions that may be made pursuant to one or more of the
foregoing distributable events are subject to the spousal and Participant
consent requirements (if applicable) contained in Sections 401(a)(11) and
417 of the Code.
6.14 Hardship Distributions
Distribution of Elective Deferrals (and earnings credited to a
Participant's Account as of the end of the last Plan Year ending before July
1, 1989) may be made to a Participant in the event of hardship. For the
purposes of this Section, hardship is defined as an immediate and heavy
financial need of the Employee where such Employee lacks other available
resources. Hardship distributions are subject to the spousal consent
requirements contained in Sections 401(a)(11) and 417 of the Code.
Special Rules:
(a) The following are the only financial needs considered immediate and
heavy: expenses incurred or necessary for medical care, described in
Section 213(d) of the Code, of the Employee, the Employee's spouse,
children, or dependents: the purchase (excluding mortgage payments) of a
principal residence for the Employee: payments of tuition and related
educational fees for the next 12 months of post-secondary education for
the Employee, the Employee's spouse, children or dependents: or the need
to prevent the eviction of the Employee from, or a foreclosure on the
mortgage of, the Employee's principal residence.
(b) A distribution will be considered as necessary to satisfy an immediate
and heavy financial need of the Employee only if:
1) The Employee has obtained all distributions, other than hardship
distributions, and all nontaxable loans under all plans maintained by
the Employer;
2) All plans maintained by the Employer provide that the Employee's
Elective Deferrals (and Employee Contributions) will be suspended for
twelve months after the receipt of the hardship distribution;
3) The distribution is not in excess of the amount of an immediate and
heavy financial need (including amounts necessary to pay any federal,
state or local income taxes or penalties reasonably anticipated to
result from the distribution); and
4) All plans maintained by the Employer provide that the Employee may
not make Elective Deferrals for the Employee's taxable year
immediately following the taxable year of the hardship distribution
in excess of the applicable limit under Section 402(g) of the Code
for such taxable year less the amount of such Employee's Elective
Deferrals for the taxable year of the hardship distribution.
6.15 Definitions
For purposes of this Article, the following definitions apply:
(a) "Elective Deferrals" shall mean any Employer contributions made to the
Plan at the election of the Participant, in lieu of cash Compensation,
and shall include contributions made pursuant to a salary reduction
agreement or other deferral mechanism. With respect to any taxable year,
a Participant's Elective Deferral is the sum of all Employer
contributions made on behalf of such Participant pursuant to an election
to defer under any qualified CODA as described in Section 401(k) of the
Code, any simplified employee pension cash or deferred arrangement as
described in Section 402(h)(1)(B), any eligible deferred Compensation
plan under Section 457, any plan as described under Section 501(c)(18),
and any Employer contributions made on the behalf of a Participant for
the purchase of an annuity contract under Section 403(b) pursuant to a
salary reduction agreement. Elective Deferrals shall not include any
deferrals properly distributed as excess Annual Additions.
(b) "Qualified Matching Contributions" shall mean Matching Contributions
which are subject to the distribution and nonforfeitability requirements
under Section 401(k) of the Code when made.
(c) "Qualified Nonelective Contributions" shall mean contributions (other
than Matching Contributions or Qualified Matching Contributions) made by
the Employer and allocated to Participants' accounts that the
Participants may not elect to receive in cash until distributed from the
Plan; that are nonforfeitable when made; and that are distributable only
in accordance with the distribution provisions that are applicable to
Elective Deferrals and Qualified Matching Contributions.
(d) "Actual Deferral Percentage" shall mean, for a specified group of
Participants for a Plan Year, the average of the ratios (calculated
separately for each Participant in such group) of (1) the amount of
Employer contributions actually paid over to the trust on behalf of such
Participant for the Plan Year to (2) the Participant's Compensation for
such Plan Year (whether or not the Employee was a Participant for the
entire Plan Year). Employer contributions on behalf of any Participant
shall include: (1) any Elective Deferrals made pursuant to the
Participant's deferral election, including Excess Elective Deferrals of
Highly Compensated Employees, but excluding Elective Deferrals that are
taken into account in the Contribution Percentage test (provided the ADP
test if satisfied both with and without exclusion of these Elective
Deferrals); and (2) at the election of the Employer Qualified
Nonelective Contributions and Qualified Matching Contributions. For
purposes of computing Actual Deferral Percentages, an Employee who would
be a Participant but for the failure to make Elective Deferrals shall be
treated as a Participant on whose behalf no Elective Deferrals are made.
(e) "Aggregate Limit" shall mean the sum of (i) 125 percent or the greater
of the ADP of the Nonhighly Compensated Employees for the Plan Year or
the ACP of Nonhighly Compensated Employees under the Plan subject to
Section 401(m) of the Code for the
<PAGE>
Plan Year beginning with or within the Plan Year of the CODA and (ii)
the lesser of 200 percent or two plus the lesser of such ADP or ACP.
(f) "Average Contribution Percentage" shall mean the average of the
Contribution Percentages of the Eligible Participants in a group.
(g) "Contribution Percentage" shall mean the ratio (expressed as a
percentage) of the Participant's Contribution Percentage Amounts to
the Participant's Compensation for the Plan Year (whether or not the
Employee was a Participant for the entire Plan Year).
(h) "Contribution Percentage Amounts" shall mean the sum of the Employee
Contributions, Matching Contributions, and Qualified Matching
Contributions (to the extent not taken into account for purposes of
the ADP test) made under the Plan on behalf of the Participant for the
Plan Year. Such Contributions Percentage Amounts shall not include
Matching Contributions that are forfeited either to correct Excess
Aggregate Contributions or because the contributions to which they
relate are Excess Deferrals, Excess Contributions, or Excess Aggregate
Contributions. If the Employer elects to make Qualified Nonelective
contributions to the Plan, these Qualified Nonelective contributions
(to the extent not taken into account for the ADP test) shall be
included in an amount necessary to pass the Average Contribution
Percentage test and to meet the nondiscrimination requirements of
Section 401(a)(4) of the Code. The Employer also may elect to use
Elective Deferrals in the Contribution Percentage Amounts so long as
the ADP test is met before the Elective Deferrals are used in the ACP
test and continues to be met following the exclusion of those Elective
Deferrals that are used to meet the ACP test.
(i) "Eligible Participant" shall mean any Employee who is eligible to make
an Employee Contribution, or an Elective Deferral (if the Employer
takes such contributions into account in the calculation of the
Contribution Percentage), or to receive a Matching Contribution
(including forfeitures) or a Qualified Matching Contribution. If an
Employee Contribution is required as a condition of participation in
the Plan, any Employee who would be a Participant in the Plan if such
Employee made such a contribution shall be treated as an eligible
Participant on behalf of whom no Employee Contributions are made.
(j) "Employee Contribution" shall mean any contribution made to the Plan
by or on behalf of a Participant that is included in the Participant's
gross income in the year in which made and that is maintained under a
separate account to which earnings and losses are allocated.
(k) "Matching Contribution" shall mean an Employer contribution made to
this or any other defined contribution plan on behalf of a Participant
on account of an Employee Contribution made by such Participant, or on
account of a Participant's Elective Deferral, under a plan maintained
by the Employer.
ARTICLE VII Limitation on Allocations
7.1 Limitation
If a Participant does not participate in, and has never participated
in, another qualified plan or welfare benefit fund (as defined in Section
419(e) of the Code) maintained by the Employer or an Affiliate, or an
individual medical account, (as defined in Section 415(1)(2) of the Code)
maintained by the Employer, which provides an Annual Addition as defined in
Section 7.5. the amount of Annual Additions which may be credited to a
Participant's Account for any Limitation Year shall not exceed the lesser
of the Maximum Permissible Amount or any other limitation contained in this
Plan. If the Employer contribution that would otherwise be contributed or
allocated to a Participant's Account would cause the Annual Additions for
the Limitation Year to exceed the Maximum Permissible Amount, the amount
contributed or allocated shall be reduced so that the Annual Additions for
the Limitation Year will equal the Maximum Permissible Amount. Prior to
determining the Participant's actual Compensation for the Limitation Year,
the Employer may determine the Maximum Permissible Amount for a Participant
on the basis of a reasonable estimation of the Participant's Compensation
for the Limitation Year, uniformly determined for all Participants
similarly situated. As soon as is administratively feasible after the end
of the Limitation Year, the Maximum Permissible Amount for the Limitation
Year will be determined on the basis of the Participant's actual
Compensation for the Limitation Year.
7.2 Disposition of Excess Amount
If pursuant to Section 7.1 or as a result of the allocation of
forfeitures, there is an Excess Amount, the excess will be disposed of as
follows:
(a) Any Elective Deferrals (within the meaning of Section 402(g) of the
Code) or nondeductible voluntary Employee contributions, to the extent
they would reduce the Excess Amount, will be returned to the
Participant;
(b) If after the application of paragraph (a) an Excess Amount still
exists, and the Participant is covered by the Plan at the end of a
Limitation Year, the Excess Amount in the Participant's Account will
be used to reduce Employer contributions (including any allocation of
forfeitures) for such Participant in the next Limitation Year, and
each succeeding Limitation Year if necessary;
(c) If after the application of paragraph (a) an Excess Amount still
exists, and the Participant is not covered by the Plan at the end of a
Limitation Year, the Excess Amount will be held unallocated in a
suspense account. The suspense account will be applied to reduce
future Employer contributions (including allocation of any
forfeitures) for all remaining Participants in the next Limitation
Year, and each succeeding Limitation Year if necessary.
(d) If a suspense account is in existence at any time during a Limitation
Year pursuant to this Section, it will not participate in the
allocation of the Plan's investment gains and losses. If a suspense
account is in existence at any time during a particular Limitation
Year, all amounts in the suspense account must be allocated and
reallocated to Participants' accounts before any Employer
contributions or any Employee contributions may be made to the Plan
for that Limitation Year. Excess amounts may not be distributed to
Participants or former Participants.
7.3 Limitation if Other Plans
If, in addition to this Plan, the Employer or Affiliate maintains
any other qualified Regional Prototype defined contribution plan, welfare
benefit fund (as defined in Section 419(e) of the Code), or an individual
medical account (as defined in Section 415(i)(2) of the Code), which provides
an Annual Addition as defined in Section 7.5 the amount of Annual Additions
which may be credited to a Participant's Account under this Plan for any
Limitation Year will not exceed the lesser of the Maximum Permissible Amount
reduced by the Annual Additions credited to a Participant's Account under such
other plans, welfare benefit funds, or individual medical accounts for the
same Limitation Year, or any other limitation in this Plan. If the Annual
Additions with respect to the Participant under all other qualified defined
contribution plans and welfare benefit funds maintained by the Employer or
Affiliates are less than the Maximum Permissible Amount and the contribution
that would otherwise be allocated to the Participant's Account under this Plan
would cause the Annual Additions for the Limitation Year to exceed this
limitation, the amount allocated will be reduced so that the Annual Additions
under all such plans and funds for the Limitation Year will equal the Maximum
Permissible Amount. If the Annual Additions with respect to the Participant
under such other defined contribution plans and welfare benefit funds in the
aggregate are equal to or greater than the Maximum Permissible Amount, no
amount will be allocated to the Participant's Account under this Plan for the
Limitation Year. Prior to determining the Participant's actual Compensation
for the Limitation Year, the Employer may determine the Maximum Permissible
Amount in the manner described in Section 7.1. As soon as is administratively
feasible after the end of the Limitation Year, the Maximum Permissible Amount
for the Limitation Year will be determined on the basis of the Participant's
actual Compensation for the Limitation Year. If, pursuant to this Section, or
as a result of allocation of forfeitures, a Participant's Annual Additions
under this Plan and such other plans result in an Excess Amount, the Excess
Amount will be deemed to consist of the Annual Additions last allocated,
except that Annual Additions attributable to a welfare benefit fund or
individual medical account will be deemed as have been allocated first
regardless of the actual allocation date. If an Excess Amount was allocated to
a Participant on a Valuation Date of this Plan which coincides with a
Valuation Date of another plan, the Excess Amount attributed to this Plan will
be the product of:
(a) the total Excess Amount allocated as of such date times
(b) the ratio of (i) the Annual Additions allocated to the Participant
for the Limitation Year as of such date under this Plan, to (ii) the
total Annual Additions allocated to the Participant for the Limitation
Year as of such date under this and all the other Qualified Regional
Prototype defined contribution plans.
Any Excess Amount attributed to this Plan will be disposed in the
manner described in Section 7.2. If the Employer also maintains another
qualified plan in addition to this Plan and such other plan is not a
Regional Prototype Plan, Annual Additions which may be credited to any
Participant's Account under this Plan for any Limitation Year will be
limited in accordance with this Section as though such other Plan was a
Regional Prototype Plan unless the Employer provides other limitations in
the Adoption Agreement:
7.4 Limitations - Defined Benefit Plans
If the Employer maintains, or at any time maintained, a qualified
defined benefit plan which covered any Participant in this Plan, the sum of
the Participant's defined benefit plan fraction and defined contribution plan
fraction will not exceed 1.0 in any Limitation Year. The Annual
Additions credited to any such Participant's Account under this Plan in any
Limitation Year shall be limited as provided in Section 1 of the Adoption
Agreement:
7.5 Definitions
For purposes of this Article and Section 1 of the Adoption Agreement
only, the following terms shall have the meanings ascribed to them:
(a) "Annual Additions" shall mean the sum of the following amounts
credited to a Participant's Account for the Limitation Year:
(i) Employer contributions:
(ii) Forfeitures, and
(iii) Employee contributions.
For this purpose any Excess Amount applied under Section 6.2 and 7.2
in the Limitation Year to reduce Employer contributions will be considered
Annual Additions for such Limitation Year Amounts allocated for Limitation
Years beginning after March 31, 1985 to an individual medical account as
defined in Section 415(i)(1) of the Code, which is part of a pension or
annuity plan maintained by the Employer or Affiliate, shall be treated as
Annual Additions to a defined contribution plan. In addition, amounts
derived from contributions paid or accrued after December 31, 1985 in
taxable years ending after such date which are attributable to post
retirement medical benefits allocated to the separate account of a Key
Employee (as defined in Section 419(d)(3) of the Code) under a welfare
benefit fund (as defined in Section 419(e) of the Code), maintained by the
Employer or an Affiliate, are treated as Annual Additions to a defined
contribution plan.
(b) "Compensation" shall mean a Participant's earned income wages,
salaries, and fees for professional services and other amounts
received for personal services actually rendered in the course of
employment with the Employer maintaining the Plan (including, but not
limited to, commissions paid salesmen. Compensation for services on
the basis of a percentage or profits, commissions on insurance
premiums, tips and bonuses; and excluding the following:
(i) Employer contributions to a plan of deferred Compensation which
are not includible in the Employee's gross income for the
taxable year in which contributed, or Employer contributions
under a simplified employee pension plan to the extent such
contributions are deductible by the Employee, or any
distributions from a plan of deferred Compensation:
(ii) Amounts realized from the exercise of a nonqualified stock
option or when restricted
<PAGE>
stock (or property) held by the Employer either becomes
freely transferable or is no longer subject to a substantial
risk of forfeiture:
(iii)Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock
option; and
(iv) Other amounts which received special tax benefits, or
contributions made by the Employer (whether or not under a
salary reduction agreement) towards the purchase of an
annuity described in Section 403(b) of the Code (whether or
not the amounts are actually excludable from the gross
income of the Employee).
For purposes of applying the limitations of this
Article, Compensation for a Limitation Year is the
Compensation actually paid or includible in gross income
during such Limitation Year. Notwithstanding the preceding
sentence, Compensation for a Participant in a defined
contribution plan who is permanently and totally disabled
(as defined in Section 22(e)(3) of the Code) is the
Compensation such Participant would have received for the
Limitation Year if the Participant had been paid at the rate
of Compensation paid immediately before becoming permanently
and totally disabled. Such imputed Compensation for the
disabled Participant may be taken into account only if the
Participant is not a Highly Compensated Employee (as defined
in Section 414(Q) of the Code) and contributions made on
behalf of such Participant are nonforfeitable when made.
(c) "Defined Benefit Fraction" shall mean a fraction, the numerator
of which is the sum of the Participant's annual benefit under all
the defined benefit plans (whether or not terminated) maintained
by the Employer or an Affiliate, and the denominator of which is
the lesser of 125% of the dollar limitation determined for the
Limitation Year under Sections 415(b) and (d) of the Code or 140%
of the highest average Compensation, including any adjustments
under Section 415(b) of the Code.
Notwithstanding the above, if the Participant was a
Participant, as of the first day of the first Limitation Year
beginning after December 31, 1986, in one or more defined benefit
plans maintained by the Employer or Affiliate when were in
existence on May 6, 1986, the denominator of this fraction will
not be less than 125% of the sum of the Projected Annual Benefits
under such plans which the Participant had accrued as of the
close of the last Limitation Year beginning before January 1,
1987, disregarding any changes in the terms and conditions of the
Plan after May 5, 1986. The preceding sentence applies only if
the defined benefit plans individually and in the aggregate
satisfied the requirements of Section 415 of the Code for all
Limitation Years beginning before January 1, 1987.
(d) "Defined Contribution Fraction" shall mean a fraction, the
numerator of which is the sum of the Annual Additions to the
Participant's Account under all the defined contribution plans
(whether or not terminated) maintained by the Employer for the
current and all prior Limitation Years, [including the Annual
Additions attributable to the Participant's nondeductible
Employee contributions to all defined benefit plans, whether or
not terminated, maintained by the Employer, and the Annual
Additions attributable to all welfare benefit funds maintained by
the Employer or an Affiliate (as defined in Section 419(e) of the
Code), and individual medical accounts (as defined in Section
415(i)(2) of the Code), maintained by the Employer], and the
denominator of which is the sum of the maximum aggregate amounts
for the current and all prior Limitation Years of service with
the Employer or Affiliate (regardless of whether a defined
contribution plan was maintained by the Employer or Affiliate).
The maximum aggregate amount in any Limitation Year is the lesser
of 125% of the dollar limitation determined under Sections 415(b)
and (d) of the Code (in effect under Section 415(c)(1)(A) of the
Code) or 35% of the Participant's Compensation for such year.
If the Employee was a Participant, as of the end of the
first day of the first Limitation Year beginning after December
31, 1986, in one or more defined contribution plans maintained by
the Employer or Affiliate which were in existence on May 6, 1986,
the numerator of this fraction will be adjusted if the sum of
this fraction and the Defined Benefit Fraction would otherwise
exceed 1.0 under the terms of this plan. Under the adjustment, an
amount equal to the product of (i) the excess of the sum of the
fractions over 1.0 times (ii) the denominator of this fraction,
will be permanently subtracted from the numerator of this
fraction. The adjustment is calculated using the fractions as
they would be computed as of the end of the first day of the
first Limitation Year beginning before January 1, 1987, and
disregarding any changes in the terms and conditions of the Plan
made after May 5, 1986, but using the Section 415 Limitation
applicable to the first Limitation Year beginning on or after
January 1, 1987.
The Annual Addition for any Limitation Year beginning before
January 1, 1987, shall not be recomputed to treat all employee
contributions as Annual Additions.
(e) "Employer" shall mean the Employer that adopts this Plan and all
members of a controlled group of corporations (as defined in
Section 414(b) of the Code as modified by Section 415(h)), all
commonly controlled trades or businesses (as defined in Section
414(c) as modified by Section 415(h)) or Affiliated service
groups (as defined in Section 414(m)) of which the adopting
Employer is a part, and any other entity required to be
aggregated with the Employer pursuant to regulations under
Section 414(o) of the Code.
(f) "Excess Amount" shall mean the excess of the Participant's Annual
Additions for the Limitation Year over the Maximum Permissible
Amount.
(g) "Highest Average Compensation" shall mean the average
Compensation for the three consecutive years of service with the
Employer that produces the highest average. A year of service
with the Employer is the 12-consecutive month period defined in
Section 3.52.
(h) "Limitation Year" shall mean a calendar year, or the 12-
consecutive month period elected by the Employer in Section A.10
of the Adoption Agreement. All qualified plans maintained by the
employer must use the same Limitation Year. If the Limitation
Year is amended to a different 12-consecutive month period, the
new Limitation Year must begin on a date within the Limitation
Year in which the amendment is made.
(i) "Regional Prototype" plan shall mean a plan the form of which is
the subject of a favorable notification letter from the Internal
Revenue Service.
(j) "Maximum Permissible Amount" shall mean the maximum Annual
Addition that may be contributed or allocated to a Participant's
Account under the Plan for any Limitation Year and shall not
exceed the lesser of:
(i) the defined contribution dollar limitation, or
(ii) 25 percent of the Participant's Compensation for the
Limitation Year.
The Compensation limitation referred to in (b) shall not
apply to any contribution for medical benefits (within the
meaning of Section 401(h) or Section 419A(f)(2) of the Code)
which is otherwise treated as an Annual Addition under
Section 415(f)(1) or 419A(d)(2) of the Code. If a short
Limitation Year is created because of an amendment changing
the Limitation Year to a different 12-consecutive month
period, the Maximum Permissible Amount will not exceed the
defined contribution dollar limitation multiplied by the
following fraction:
Number of months in the short Limitation Year
_____________________________________________
12
(k) "Defined Contribution Dollar Limitation" shall mean $30,000 or if
greater, one-fourth of the defined benefit dollar limitation set
forth in Section 415(b)(1) of the Code as in effect for the
Limitation Year.
(l) "Projected Annual Benefit" shall mean the annual retirement
benefit (adjusted to an actuarially equivalent straight life
annuity if such benefit is expressed in a form other than a
straight life annuity or Qualified Joint and Survivor Annuity to
which the Participant would be entitled under the terms of the
Plan assuming:
(i) the Participant will continue employment until Normal
Retirement Age under the Plan (or current age, if
later), and
(ii) the Participant's Compensation for the current
Limitation Year and all other relevant factors used to
determine benefits under the Plan will remain constant
for all future Limitation Years.
ARTICLE VIII Retirement, Disability Benefits and In-Service Withdrawals
8.1 Normal Retirement Date
A Participant who has attained the Normal Retirement Age specified in
Adoption Agreement, shall be entitled to a distribution of the value of his
Participant's Account. Such distribution shall be made at the time and in
the manner described in Articles X and XI.
8.2 Disability
A Participant who becomes Disabled shall have a 100% Vested Interest
in his Participant's Account and shall be entitled to a distribution of his
Participant's Account at the time and in the manner described in Article
IX. The Employer shall determine whether a Participant is Disabled based on
such evidence as it deems appropriate. A determination of Disability by the
Employer shall not constitute any warranty or assurance by the Employer that
a distribution can be made to a Participant free from the penalty on
premature distributions in Section 72(t) of the Code.
8.3 Postponed Retirement
A Participant may elect to postpone his retirement beyond his Normal
Retirement Date unless the Employer imposes a mandatory retirement date
consistent with applicable law. Distribution of the Participant's Account
shall be made at the time and in the manner described in Article X.
8.4 In-Service Withdrawals
If the Employer has executed the Nonstandard Profit Sharing Adoption
Agreement #003 and the Employer permits in-service withdrawals, a
Participant who is not otherwise eligible for a distribution from the Plan
may elect to receive a distribution of all or a part of the vested portion
of his Participant's Account (excluding amounts attributable to Employee
elective contributions to a cash or deferred arrangement). A Participant may
withdraw only those amounts which have been in the Participant's Account for
at least two (2) full Plan Years.
Any withdrawals under this Section 8.4 shall be subject to the
requirements of Article X.
8.5 Qualified Domestic Relations Orders
Notwithstanding any language in the Plan to the contrary, the Plan
Administrator may direct the Trustee or Custodian to distribute funds
subject to a qualified domestic relations order as soon as reasonably
practical after the Plan Administrator determines that the order is
qualified. These funds may be distributed although the Participant has not
otherwise reached an event of distribution under the Plan.
ARTICLE IX Vesting and Termination of Employment
9.1 Participant's Vested Interest
A Participant shall always have a 100% Vested Interest in his Employee
Voluntary Contribution Account Employee Rollover Account and Employee
Transfer Account. He shall also have a 100% Vested Interest in his entire
Participant's Account upon reaching his Normal Retirement Age and upon
death. Upon termination of employment for any reason other than death,
disability or retirement, a Participant shall have a Vested Interest in that
portion of his Participant's Account attributable to Employer or Affiliate
contributions in accordance with the vesting schedule elected in the
Adoption Agreement provided, however, that in the event that a
nonstandardized plan is adopted (Adoption Agreements 003 and 004) and the
Plan becomes Top Heavy for any Plan Year, the vesting schedule shall be as
elected in Section D.3 or E.3 of the Adoption Agreement. The minimum vesting
schedule applies to all benefits within the meaning of Section 411(a)(7) of
the Code except those attributable to Employee contributions, including
benefits accrued before the effective date of Section
<PAGE>
416 and benefits accrued before the Plan become top-heavy. Further, no
decrease in a Participant's nonforfeitable percentage may occur in the
event the Plan's status as top-heavy changes for any Plan Year. However,
this Section does not apply to the account balances of any Employee who
does not have an Hour of Service after the Plan has initially become
top-heavy and such Employee's account balance attributable to Employer
contributions and forfeitures will be determined without regard to this
Section. In the event the Plan subsequently becomes Non-Top Heavy after
being Top Heavy, the vesting schedule selected in Section D.1 or E.1
shall become the vesting schedule for the Plan, subject, however, to the
restrictions of Section 15.3 as it relates to amendments affecting
vesting.
9.2 Computing Years of Service for Vesting
An Employee who completes 1,000 or more Hours of Service during the
applicable Computation Year shall be credited with a Year of Service for
Vesting. All of a Participant's Years of Service for Vesting shall be
taken into account for the purpose of computing his Vested Interest
except that:
(a) Years of Service prior to age 18 (or age 22 for Plan Years beginning
before January 1, 1985) and prior to the Effective Date of the Plan
shall not be taken into account to the extent excluded in the
Adoption Agreement; and
(b) Years of Service after a period of 5 consecutive 1-year Breaks in
Service shall not be required to be taken into account for the
purposes of determining a Participant's Vested Interest in that
portion of his Participant's Account in which he was not Vested
which accrued prior to such Breaks in Service, but both such pre-
break and post-break Years of Service shall be taken into account
for the purpose of computing the Participant's Vested Interest in
that portion of his Participant's Account which accrues after such
Breaks in Service. Both accounts will share in the earnings and
losses of the fund.
In the case of a Participant who does not have 5 consecutive 1-year
Breaks in Service, both the pre-break and post-break service will
count in vesting both the pre-break and post-break Employer-derived
account balance.
9.3 Distribution of Vested Interest
If an Employee terminates service and the value of the Employee's
vested account balance derived from Employer and Employee contributions
is not greater than $3,500, if the Employer so elects in the Adoption
Agreement, the Employee will receive a distribution of the value of the
entire vested portion of such account balance and the nonvested portion
will be treated as forfeiture. For purposes of this Section, if the
value of an Employee's vested account balance is zero, the Employee
shall be deemed to have received a distribution of such vested account
balance. A Participant's vested account balance shall not include
accumulated deductible Employee contributions within the meaning of
Section 72(o)(5)(B) of the Code for Plan Years beginning prior to
January 1, 1989.
If an Employee terminates service, and elects, in accordance with the
requirements of Articles X and XI, to receive the value of the
Employee's vested account balance, the nonvested portion will be treated
as a forfeiture. If the Employee elects to have distributed less than
the entire vested portion of the account balance derived from Employer
contributions, the part of the nonvested portion that will be treated as
a forfeiture is the total nonvested portion multiplied by a fraction,
the numerator of which is the amount of the distribution attributable to
Employer contributions and the denominator of which is the total value
of the vested Employer derived account balance.
If an Employee receives or is deemed to receive a distribution
pursuant to this Section and the Employee resumes employment covered
under this Plan, the Employee's Employer-derived account balance will be
restored to the amount on the date of distribution if the Employee
repays to the Plan the full amount of the distribution attributable to
Employer contributions before the earlier of 5 years after the first
date on which the Participant is subsequently reemployed by the
Employer, or the date the Participant incurs 5 consecutive 1-year breaks
in service following the date of the distribution. If an Employee is
deemed to receive a distribution pursuant to this Section, and the
Employee resumes employment covered under this Plan before the date the
Participant incurs 5 consecutive 1-year breaks in service, upon the
reemployment of such Employee, the Employer-derived account balance of
the Employee will be restored to the amount of the date of such deemed
distribution.
9.4 Declaration of Forfeitures
In addition to a case where a forfeiture arises under Section 9.3 as a
result of a cash out, a forfeiture of the Participant's nonvested
interest in his Participant's Account shall also occur if the
Participant terminates employment with the Employer and all Affiliates
and incurs 5 consecutive 1-year Breaks in Service.
9.5 Effective Date
If this Plan is a restatement of a previously existing plan, the
vesting schedule chosen in the Adoption Agreement shall be effective as
of the later of the Restated Date or the first day of the first Plan
Year beginning after December 31, 1988.
ARTICLE X Joint and Survivor and Preretirement Survivor Annuity Requirements
10.1 Application of Article
In the event this Article applies to the Plan, it shall take
precedence over all conflicting provisions. Without limiting the
generality of the foregoing, in the event this Article applies to this
Plan, it shall take precedence over any conflicting provision of
Articles VIII, IX, XI, XII and XIII. This Article will apply only if
this Plan is a money purchase pension plan, a target benefit plan or
this plan is determined to be a direct or indirect transferee of a
defined benefit plan, a money purchase pension plan (including a target
benefit plan), or a stock bonus plan or profit sharing plan, or any
other plan which is itself a direct or indirect transferee, where the
transferor plan provided for the payment of benefits in the form of a
life annuity to the Participant, provided the funds were transferred to
this Plan effective on or after January 1, 1985. If the provisions of
this Article are applicable, they shall apply to any Participant who is
credited with at least one Hour of Service on or after August 23, 1984,
and such other Participants as provided in Section 10.7. If otherwise
applicable, the provisions of this Article shall apply only to the sub-
account of the Employee Transfer Account attributable to the transfers
described in this Section. In the event a separate sub-account has not
been established, the provisions of this Article shall apply to the
entire Participant's Account of each Participant who participated in the
transferor plan.
10.2 Qualified Joint and Survivor Annuity
Unless an optional form of benefit is selected pursuant to a Qualified
Election within the 90-day period ending on the Annuity Starting Date, a
married Participant's Vested Interest in the portion of his
Participant's Account subject to this Article shall be paid in the form
of a Qualified Joint and Survivor Annuity. If a Participant is not
married, his Vested Account Balance shall be paid in the form of a life
annuity. The Participant may elect to have such annuity distributed upon
attainment of the earliest retirement age under the Plan.
10.3 Qualified Preretirement Survivor Annuity
Unless an optional form of benefit has been selected pursuant to a
Qualified Election, if a Participant dies before the Annuity Starting
Date then the Participant's Vested Account Balance to the extent subject
to this Article shall be applied toward the purchase of an annuity for
the life of the Surviving Spouse, if any. The surviving spouse may elect
to have such annuity distributed within a reasonable period after the
Participant's death.
10.4 Definitions
(a) "Earliest Retirement Age" shall mean the earliest date on which, under
the Plan, the Participant could elect to receive benefits hereunder.
(b) "Election Period" shall mean the period which begins on the first day of
the Plan Year in which the Participant attains age 35 and ends on the
date of the Participant's death. If a Participant separates from service
prior to the first day of the Plan Year in which age 35 is attained,
with respect to the balance of the Participant's Account as of the date
of termination of employment, the Election Period shall begin on the
date of termination of employment.
A Participant who will not attain the age of 35 by the end of any
current Plan Year may make a special Qualified Election to waive the
Qualified Preretirement Survivor Annuity for the period beginning on the
date of the election and ending on the first day of the Plan Year in
which the Participant will attain age 35. This election shall not be
valid unless the Participant receives a notice similar to the notice for
Qualified Preretirement Survivor Annuities described in Section 10.5. If
a Participant makes this special Qualified Election prior to age 35,
Qualified Preretirement Survivor Annuity coverage will be automatically
reinstated as of the first day of the Plan Year in which the Participant
attains age 35. Any new waiver on or after such date shall be subject to
the full requirements of this Article.
(c) "Qualified Election" shall mean a waiver of a Qualified Joint and
Survivor Annuity or a Qualified Preretirement Survivor Annuity. Any
waiver of a Qualified Joint and Survivor Annuity or a Qualified
Preretirement Annuity shall not be effective unless (i) the
Participant's spouse consents in writing to the election; (ii) the
election designates a specific beneficiary, including any class of
beneficiaries or any contingent beneficiaries, which may not be changed
without spousal consent (or the spouse expressly permits designations by
the Participant without any further spousal consent); (iii) the spouse's
consent acknowledges the effect of the election; and (iv) the spouse's
consent is witnessed by a Plan representative or a notary public.
Additionally, a Participant's waiver of the Qualified Joint and Survivor
Annuity shall not be effective unless the election designates a form of
benefit payment which may not be changed without spousal consent (or the
spouse expressly permits designations by the Participant without any
further spousal consent). If it is established to the satisfaction of a
Plan representative that such written consent may not be obtained
because there is no Spouse or that the Spouse cannot be located, a
waiver will be deemed a Qualified Election. Any consent by a spouse
obtained under this provision (or establishment that the consent of the
spouse may not be obtained) shall be effective only with respect to such
spouse. A consent that permits designations by the Participant without
any requirement of further consent by such spouse must acknowledge that
the spouse has the right to consent to a specific beneficiary, and a
specific form of benefit where applicable and that the spouse
voluntarily elects to relinquish either or both of such rights. A
revocation of a prior waiver may be made by a Participant without the
consent of the Spouse at any time before the commencement of benefits.
The number of revocations shall not be limited. No consent obtained
under this provision shall be valid unless the Participant has received
notice as provided in Section 10.5 below.
(d) "Qualified Joint and Survivor Annuity" shall mean an immediate annuity
for the life of the Participant with a survivor annuity for the life of
the spouse which is not less than 50 percent and not more than 100
percent of the amount of the annuity which is payable during the joint
lives of the Participant and the Spouse and which is the amount of
benefit which can be purchased with the Participant's Vested Interest
in the portion of his Participant's Account which is subject to this
Article. The percentage for the survivor portion of the Qualified Joint
and Survivor Annuity shall be as elected by the Participant in writing
during the Election Period, if no such election is made, the percentage
shall be 50%.
(e) "Spouse (Surviving Spouse)" shall mean the spouse or surviving spouse of
the Participant, provided that a former spouse will be treated as the
Spouse or the Surviving Spouse to the extent provided under a qualified
domestic relations order as described in Section 414(p) of the Code.
(f) "Qualified Preretirement Survivor Annuity" shall mean a life annuity
payable to the Spouse on the Participant's death and which is in an
amount which can be purchased with the Participant's Vested Account
Balance which is subject to this Article.
(g) "Annuity Starting Date" shall mean the first day of the first period for
which an amount is paid as an annuity or any other form.
<PAGE>
(ii) vested Account Balance shall mean the aggregate value of the
Participant's vested account balances derived from Employer and
Employee contributions (including rollovers), whether vested
before or upon death, including the proceeds of insurance
contracts, if any, on the Participant's life. The provisions of
this Article shall apply to a Participant who is vested in
amounts attributable to Employer contributions, Employee
contributions (or both) at the time of death or distribution.
10.5 Notice Requirements
In the case of a Qualified Joint and Survivor Annuity as
described in Section 10.2, the Employer shall no less than 30 days and
no more than 90 days prior to the Annuity Starting Date provide each
Participant, within a reasonable period prior to the commencement of
benefits, a written explanation of: (a) the terms and conditions of a
Qualified Joint and Survivor Annuity; (b) the Participant's right to
make and the effect of an election to waive the Qualified Joint and
Survivor Annuity form of benefit; (c) the rights of a Participant's
Spouse; and (d) the right to make, and the effect of, a revocation of
a previous election to waive the Qualified Joint and Survivor Annuity.
In the case of a Qualified Preretirement Survivor Annuity, as
described in Section 10.3, the Employer shall provide each Participant
within the applicable period, a written explanation of the Qualified
Preretirement Survivor Annuity in such terms and in such manner as
would be comparable to the explanation provided for meeting the
requirements of this Section applicable to a Qualified Joint and
Survivor Annuity. The applicable period for a Participant is whichever
of the following periods ends last; (i) the period beginning with the
first day of the Plan Year in which the Participant attains age 32 and
ending with the close of the Plan Year preceding the Plan Year in
which the Participant attains age 35; (ii) a reasonable period ending
after the individual become a Participant; (iii) a reasonable period
ending after this Article first applies to the Participant.
Notwithstanding the foregoing, notice must be provided within a
reasonable period ending after separation from service in the case of
a Participant who separates from service before attaining age 35.
For purposes of applying the preceding paragraph, a reasonable
period ending after the enumerated events described in (ii) and (iii)
is the end of the two-year period beginning one year prior to the case
the applicable event occurs, and ending one year after that date. In
the case of a Participant who separates from service before the Plan
Year in which age 35 is attained, notice shall be provided within the
two-year period beginning one year prior to separation and ending one
year after separation. If such a Participant thereafter returns to
employment with the Employer, the applicable period for such
Participant shall be redetermined.
If a distribution is one to which sections 401(a)(11) and 417 of
the Internal Revenue Code do not apply, such distribution may commence
less than 30 days after the notice required under section 1.411(a)-
11(c) of the Income Tax Regulations is given, provided that:
(a) the plan administrator clearly informs the participant that the
participant has a right to a period of at least 30 days after
receiving the notice to consider the decision of whether or not
to elect a distribution (and, if applicable, a particular
distribution option), and
(b) the participant, after receiving the notice, affirmatively elects
a distribution.
10.6 Safe Harbor Rules
10.6.1 This Section shall apply to a Participant in a profit-sharing
plan, and to any distribution, made on or after the first day of the
first Plan Year beginning after December 31, 1988, from or under a
separate account attributable solely to accumulated deductible
Employee contributions, as defined in Section 72(o)(5)(B) of the Code,
and maintained on behalf of a Participant in a money purchase pension
plan, (including a target benefit plan) if the following conditions
are satisfied: (a) the Participant does not or cannot elect payments
in the form of a life annuity; and (b) on the death of a Participant,
the Participant's vested account balance will be paid to the
Participant's surviving spouse, but if there is no surviving spouse,
or if the surviving spouse has consented in a manner conforming to a
qualified election, then to the Participant's designated beneficiary.
The surviving spouse may elect to have distribution of the vested
account balance commence within the 90-day period following the date
of the Participant's death. The account balance shall be adjusted for
gains or losses occurring after the Participant's death in accordance
with the provisions of the Plan governing the adjustment of account
balances for other types of distributions. This Section 10.6 shall not
be operative with respect to a Participant in a profit sharing plan if
the plan is a direct or indirect transferee of a defined benefit
plan, money purchase plan, a target benefit plan, stock bonus, or
profit sharing plan which is subject to the survivor annuity
requirements of Section 401(a)(11) and Section 417 of the Code. If
this Section 10.6 is operative, then the provisions of this Article,
other than Section 10.7, shall be inoperative.
10.6.2 The Participant may waive the spousal death benefit described in
this Section at any time provided that no such waiver shall be
effective unless it satisfies the conditions described in Section
10.4(c) (other than the notification requirement) that would apply to
the Participant's waiver of the Qualified Preretirement Survivor
Annuity.
10.6.3 For purposes of this Section 10.6, vested account balance shall
mean, in the case of a money purchase pension plan or a target benefit
plan, the Participant's separate account balance attributable solely
to accumulated deductible Employee contributions within the meaning of
Section 72(o)(5)(B) of the Code. In the case of a profit sharing plan,
vested account balance shall have the same meaning as provided in
Section 10.4(h).
10.7 Transitional Rules
Notwithstanding the general effective dates provided in this Plan
and this Article, the provisions of this Article shall also apply to
the Participants described in this Section.
(a) Any living Participant not receiving benefits on August 23, 1984,
who would otherwise not receive the benefits prescribed by the
previous Sections of this Article must be given the opportunity
to elect to have the prior Sections of this Article apply if such
Participant is credited with at least one Hour of Service under
this Plan or a predecessor plan in a Plan Year beginning on or
after January 1, 1976, and such Participant had at least 10 years
of vesting service when he or she separated from service.
(b) Any living Participant not receiving benefits on August 23, 1984,
who was credited with at least one Hour of Service under this
Plan, or a predecessor plan on or after September 2, 1974, and
who is not otherwise credited with any service in a Plan Year
beginning on or after January 1, 1976, must be given the
opportunity to have his or her benefits paid in accordance with
subsection (d) of this Section.
(c) The respective opportunities to elect (as described in
subsections (a) and (b) above) must be afforded to the
appropriate Participants during the period commencing on August
23, 1984, and ending on the date benefits would otherwise
commence to said Participants.
(d) Any Participant who has elected pursuant to subsection (b) of
this Article and any Participant who does not elect under
subsection (a) or who meets the requirements of subsection (a)
except that such Participant does not have at least 10 Years of
Service when he separates from service, shall have his benefits
distributed in accordance with all of the following requirements
if benefits would have been payable in the form of a life
annuity.
(i) Automatic joint and survivor annuity.
If benefits in the form of a life annuity become payable
to a married Participant who:
(1) begins to receive payments under the Plan on or after
Normal Retirement Age;
or
(2) dies on or after Normal Retirement Age while still
working for the Employer; or
(3) begins to receive payments on or after the qualified
early retirement age; or
(4) separates from service on or after attaining Normal
Retirement Age (or the qualified early retirement age)
and after satisfying the eligibility requirements for
the payment of benefits under their Plan and thereafter
dies before beginning to receive such benefits; then
such benefits will be received under this Plan in the
form of a Qualified Joint and Survivor Annuity, unless
the Participant has elected otherwise during the
election period. The election period must begin at
least 6 months before the Participant attains qualified
early retirement age and end not more than 90 days
before the commencement of benefits. Any election
hereunder will be in writing and may be changed by the
Participant at any time.
(ii) Election of early survivor annuity. A Participant who is employed
after attaining the qualified early retirement age will be given
the opportunity to elect, during the election period, to have a
survivor annuity payable on death. If the Participant elects the
survivor annuity, payments under such annuity must not be less
than the payments which would have been made to the spouse under
the Qualified Joint and Survivor Annuity if the Participant had
retired on the day before his death. Any election under this
provision will be in writing and may be changed by the
Participant at any time. The election period begins on the later
of (1) the 90th day before the Participant attains the qualified
early retirement age, or (2) the date on which participation
begins, and ends on the date the Participant terminates
employment.
(iii)For purposes of this subsection (d):
(1) Qualified early retirement age is the latest of: (A) the
earliest date, under the Plan, on which the Participant may
elect to receive retirement benefits, (B) the first day of
the 120th month beginning before the Participant reaches
Normal Retirement Age, or (C) the date the Participant
begins participation.
(2) Qualified Joint and Survivor Annuity is an annuity for the
life of the Participant with a survivor annuity for the life
of the Spouse as described in Section 10.4(c).
10.8 Cash Out for Small Amounts
If an Employee terminates service, and the value of the
Employee's vested account balance derived from Employer and Employee
contributions is not greater than $3,500, if the Employer so elects in
the Adoption Agreement, the Employee will receive a distribution of
the value of the entire vested portion of such account balance and the
nonvested portion will be treated as a forfeiture. For purposes of
this Section, if the value of an Employee's vested account balance is
zero, the Employee shall be deemed to have received a distribution of
such vested account balance. A Participant's vested account balance
shall not include accumulated deductible Employee contributions within
the meaning of Section 72(o)(5)(B) of the Code for Plan Years
beginning prior to January 1, 1989.
If an Employee terminates service, and elects, in accordance with
the requirements of Section 10.4(c), to receive the value of the
Employee's vested account balance, the nonvested portion will be
treated as a forfeiture. If the Employee elects to have distributed
less than the entire vested portion of the account balance derived
from Employer contributions, the part of the nonvested portion that
will be treated as a forfeiture is the total nonvested portion
multiplied by a fraction, the numerator of which is the amount of the
distribution attributable to Employer contributions and the
denominator of which is the total value of the vested Employer-derived
account balance.
If an Employee receives or is deemed to receive a distribution
pursuant to this Section and the Employee resumes employment covered
under this Plan, the Employee's Employer-derived account balance will
be restored to the amount on the date of distribution if the Employee
repays to the Plan the full amount of the distribution attributable to
Employer contributions before the earlier of 5 years after the first
date on which the Participant is subsequently reemployed by the
Employer, or the
<PAGE>
date that Participant incurs 5 consecutive 1-year breaks in service
following the date of the distribution.
10.9 Requirements Relating to Life Insurance
If the provisions of this Article apply and life insurance has
been purchased for the Participant's benefit under the Plan, the
Trustee (or Employer in the case of a Plan which utilizes a Custodian)
shall, as owner of the policy, name a Beneficiary and select a
settlement option which provides for payment in the form of a
Qualified Joint and Survivor Annuity, as applicable, if payment in
such form is required by the provisions of this Article.
10.10 Purchase of Annuity Contracts
The Employer shall direct the Trustee or Custodian, whichever is
applicable, as to the purchase of any annuity contract under this
Article. The annuity contract shall be purchased from a legal reserve
life insurance company qualified to do business in the state where the
Plan is located. The Employer shall direct the purchase of an annuity
contract based on such considerations as the Employer, in its sole
discretion and in a nondiscriminatory manner, deems appropriate.
10.11 Restrictions on Immediate Distributions
If the value of a Participant's vested account balance derived
from Employer and Employee contributions exceeds (or at the time of
any prior distributions exceeded) $3,500, and the account balance is
immediately distributable, the Participant and the Participant's
Spouse (or where either the Participant or the Spouse has died the
survivor) must consent to any distribution of such account balance.
The consent of the Participant and the Participant's Spouse shall be
obtained in writing within the 90-day period ending on the annuity
starting date. The annuity starting date is the first day of the first
period for which an amount is paid as an annuity or any other form.
The Plan Administrator shall notify the Participant and the
Participant's Spouse of the right to defer any distribution until the
Participant's account balance is no longer immediately distributable.
Such notification shall include a general description of the material
features, and an explanation of the relative values of, the optional
forms of benefit available under the Plan in a manner that would
satisfy the notice requirements of Section 417(a)(3) of the Code, and
shall be provided no less than 30 days and no more than 90 days prior
to the annuity starting date.
Notwithstanding the foregoing, only the Participant need consent
to the commencement of a distribution in the form of a Qualified Joint
and Survivor Annuity while the account balance is immediately
distributable. Furthermore, if payment in the form of a Qualified
Joint and Survivor Annuity is not required with respect to the
Participant pursuant to Section 10.1 of the Plan, only the Participant
need consent to the distribution of an account balance that is
immediately distributable. Neither the consent of the Participant nor
the Participant's Spouse shall be required to the extent that a
distribution is required to satisfy Section 401(a)(9) or Section 415
of the Code. In addition, upon termination of this Plan if the Plan
does not offer an annuity option (purchased from a commercial
provider), the Participant's account balance will, without the
Participant's consent, be distributed to the Participant or
transferred to another defined contribution plan (other than an
employee stock ownership plan as defined in Section 4975(e)(7) of the
Code) within the same controlled group. An account balance is
immediately distributable if any part of the account balance could be
distributed to the Participant (or surviving spouse) before the
Participant attains (or would have attained if not deceased) the later
of Normal Retirement Age or age 62.
For purposes of determining the applicability of the foregoing
consent requirements to distributions made before the first day of the
first Plan Year beginning after December 31, 1988, the Participant's
vested account balance shall not include amounts attributable to
accumulated deductible Employee contributions within the meaning of
Section 72(o)(5)(B) of the Code.
ARTICLE XI Manners of Distribution - Lifetime Payments
11.1 Applicability of This Article
Provisions of this Article relating to optional forms of benefit
shall apply to all plans unless the plan is a money purchase or target
benefit plan or if the provisions of Article X otherwise apply. The
provisions of this Article relating to optional forms of benefit shall
also apply if the provisions of Article X do apply but the Participant
has elected to waive the Qualified Joint Survivor Annuity as provided
under Article X.
11.2 Optional Modes of Distribution
Upon a Participant's retirement, Disability or termination of
employment, he or she shall be entitled to elect to have the Vested
Interest in his Participant's Account paid to him in one of the
following ways:
(a) In a lump sum;
(b) In two or more annual installments;
(c) By the purchase by the Trustee or Custodian and distribution of a
single premium nontransferable annuity contract; provided,
however, that no annuity may be purchased which provides benefits
conditioned on the survival of any person; or
(d) A combination of the methods specified in subsections (a), (b) and
(c) above.
Notwithstanding an election by a Participant or the requirements
of Article X, the Employer may elect in the Adoption Agreement to
distribute the Participant's Vested Interest in his Participant's
Account in a lump sum if such Vested Interest is $3,500, or less and
the distribution is made before the payment of the Participant's
benefit begins. In the event the balance of the Participant's Account
attributable to Employer contributions exceeds $3,500 or the payment
of the Participant's benefit has commenced, the Employer may
distribute the Participant's Vested Interest in his Participant's
Account only with the written consent of the Participant and, in the
event the Plan is subject to the requirements of Article X, the
consent of his spouse, or where the Participant has died, the written
consent of the Beneficiary alone. If the Participant is not 100%
Vested in his Participant's Account, the distribution shall be subject
to the provisions of Section 9.3.
11.3 Commencement of Benefits
In the case of retirement or Disability, the Participant shall be
entitled to elect the date on which benefits are to be paid or
commence, subject to the provisions of this Section and Article XIV.
In the case of termination of employment for reasons other than death,
Disability or retirement, the payment of benefits may be deferred
until the Participant's Normal Retirement Date or his earlier death or
Disability if the Employer has so elected in the Adoption Agreement.
If a Participant separates from service before satisfying the age
requirement for early retirement, but has satisfied the service
requirement, the Participant will be entitled to elect an early
retirement benefit upon satisfaction of such age requirement.
11.4 Limitations on Commencement of Benefits
Unless the Participant elects otherwise, benefits shall commence
no later than 60 days after the close of the Plan Year in which the
latest of the following events occur: (a) the date the Participant
attains his Normal Retirement Age, (b) the tenth anniversary of the
Plan Year in which he commenced participation in the Plan, or (c) the
date he terminates employment with the Employer (and any Affiliates).
In the event a Participant's consent or, the consent of his spouse or
Beneficiary is necessary before a distribution can be made, the
failure to provide such consent shall be considered an election to
defer the commencement of benefits.
Regardless of an election by the Participant or the Employer, the
distribution of benefits must commence no later than the April 1
following the calendar year in which the Participant attains age
70 1/2 and the amount of each year's distribution must meet the
requirements of Article XIV.
11.5 Cash or in Kind distributions
All distributions under the Plan shall be in cash unless the
Employer determines to make and the Participant agrees to accept
distributions in kind. If in kind, the value of the assets distributed
shall be determined by the Employer in its sole discretion and shall
be valued at their fair market value on the date of distribution or as
near thereto as is practicable.
11.6 Election and Claim Procedure
Elections required or permitted to be made by a Participant or
Beneficiary shall follow the form and procedures prescribed by the
Employer. The Employer shall notify a Participant in writing within
(90) days of his written application for benefits of his eligibility
or noneligibility for benefits under the Plan. If the Employer
determines that a Participant is not eligible for benefits or full
benefits, the notice shall set forth (a) the specific reasons for such
denial, (b) a specific reference to the provision of the Plan on which
the denial is based, (c) a description of any additional information
or material necessary for the claimant to perfect his claim, and a
description of why it is needed, and (d) an explanation of the Plan's
claim review procedure and other appropriate information as to the
steps to be taken if the Participant wishes to have his claim
reviewed. If the Employer determines that there are special
circumstances requiring additional time to make a decision, the
Employer shall notify the Participant of the special circumstances and
the date by which a decision is expected to be made, and may extend
the time for up to an additional 90-day period. If a Participant is
determined by the Employer to be not eligible for benefits, or if the
Participant believes that he is entitled to greater or different
benefits, he shall have the opportunity to have his claim reviewed by
the Employer by filing a petition for review with the Employer within
(60) days after receipt by him of the notice issued by the Employer.
Said petition shall state the specific reasons the Participant
believes he is entitled to benefits or greater or different benefits.
Within (60) days after receipt by the Employer of said petition, the
Employer shall afford the Participant (and his counsel, if any) any
opportunity to present his position to the Employer orally or in
writing, and said Participant (or his counsel) shall have the right to
review the pertinent documents, and the Employer shall notify the
Participant of its decision in writing within said (60) day period,
stating specifically the basis of said decision written in a manner
calculated to be understood by the Participant and the specific
provisions of the Plan on which the decision is based. If, because of
the need for a hearing, the (60) day period is not sufficient, the
decision may be deferred for up to another (60) day period at the
election of the Employer, but notice of this deferral shall be given
to the Participant.
In the event of the death of a Participant, the same procedure
shall be applicable to his Beneficiaries.
11.7 Annuities
Any annuity contract distributed by the Plan under the provisions
of this Article or any other Articles shall be nontransferrable. The
terms of any annuity contract purchased and distributed by the Plan to
a Participant or Spouse shall comply with the requirements of this
Plan.
11.8 Direct Rollovers
11.8.1 This Section applies to distributions made on or after January
1, 1993. Notwithstanding any provision of the Plan to the contrary
that would otherwise limit a distributee's election under this
Section, a distributee may elect at the time and in the manner
prescribed by the Plan Administrator, to have any portion of an
eligible rollover distribution paid directly to an eligible retirement
plan specified by the distributee in a direct rollover.
11.8.2 Definitions
(a) Eligible rollover distribution: An eligible rollover distribution
is any distribution of all or any portion of the balance to the
credit of the distributee, except that an eligible rollover
distribution does not include: any distribution that is one of a
series of substantially equal periodic payments (not less
frequently than annually) made for the life (or life expectancy)
of the distributee or the joint lives (or joint life
expectancies) of the distributee and the distributee's designated
beneficiary, or for a specified period of ten years or more; any
distribution to the extent such distribution is required under
Section 401(a)(9) of the Code; and the portion of any
distribution that is not includible in gross income (determined
without regard to the exclusion for net unrealized appreciation
with respect to Employer securities).
(b) Eligible retirement plan: An eligible retirement plan is an
individual retirement account described in Section 408(a) of the
Code, an individual retirement annuity described in Section
408(b) of the Code, an annuity plan
<PAGE>
described in Section 403 (a) of the Code, or qualified trust described
in Section 401(a) of the Code, that accepts the distributee's eligible
rollover distribution. However, in the case of an eligible rollover
distribution to the surviving spouse, an eligible retirement plan is
an individual retirement account or individual retirement annuity.
(c) Distributee: A distributee includes an Employee or former Employee. In
addition, the Employee's or former Employee's surviving spouse and the
Employee's or former Employee's spouse or former spouse who is the
alternate payee under a qualified domestic relations order, as defined
in Section 414(p) of the Code, are distributees with regard to the
interest of the spouse or former spouse.
(d) Direct rollover: A direct rollover is a payment by the Plan to the
eligible retirement plan specified by the distributee.
ARTICLE XII Death Benefits
12.1 Applicability of This Article
Provisions of this Article relating to designations of Beneficiary and
optional modes of distribution upon death shall apply to all plans unless
the plan is a money purchase or target benefit plan or if the provisions of
Article X otherwise apply. These provisions shall also apply if the
Qualified Preretirement Survivor Annuity was waived by the Participant in
accordance with Article X prior to the date of death or by the Participant's
Spouse after the date of death.
12.2 Designation of Beneficiary
Subject to the provisions of Article X, distribution upon the death of
a Participant shall be made to the person or persons designated in a written
Beneficiary designation signed by the Participant and filed with the
Employer prior to the Participant's death. The Beneficiary designation may
be revoked or modified by filing a new designation with the Employer any
time before the Participant's death. Notwithstanding the foregoing, in the
case of a Participant who has at least one Hour of Service on or after
August 23, 1984, if the Participant is married on the date of his death, the
Participant's Spouse on the date of his death shall be the Participant's
Beneficiary (both under the Plan and under any life insurance contracts held
under the Plan for the Participant's benefits) regardless of the designation
made by the Participant, unless such Spouse consents to any designation or
revocation of a designation which has the effect of naming someone other
than such Spouse as a Beneficiary. Such consent:
(a) Shall be in writing;
(b) Shall be signed by such Spouse;
(c) Shall acknowledge the effect of the designation made by the Participant;
and
(d) Shall be witnessed by a Plan representative or notary public.
The consent of the Participant's Spouse, if required, shall extend
only to the specific Beneficiary or Beneficiaries and the method of
distribution described in the designation to which the consent applies. If
the Participant establishes to the satisfaction of a Plan representative
that such written consent cannot be obtained because the Participant is not
married or his Spouse cannot be located, no such consent shall be required.
Any consent obtained under this Section shall not be valid with respect to
any other spouse.
12.3 Optional Modes of Distribution Upon Death
Subject to Article X, if a Participant dies before benefits have
commenced, distribution of his entire Participant's Account, plus the face
value of any life insurance held for the Participant's benefit which is in
excess of such life insurance contract's cash value, shall be made to his
Beneficiary in one of the following ways:
(a) In a lump sum;
(b) In two or more annual installments;
(c) By the purchase by the Trustee or Custodian and distribution
of a single premium nontransferable annuity contract; provided, however,
that no annuity may be purchased which provides benefits conditioned on
the survival of any person; or
(d) A combination of the methods specified in subsections (a), (b) and (c)
above.
Notwithstanding an election by a Participant (or his Beneficiary) or
the requirements of Article X, the Employer may distribute the balance
of the Participant's Account in a lump sum if benefits have not
otherwise commenced and if the Participant's Vested Interest in his
Participant's Account is $3,500 or less. If such Vested Interest is more
than $3,500, or benefits have already commenced, distribution in a lump
sum may be made only with the written consent of the Participant's
Beneficiary.
The election of a method of distribution shall be made by the
Participant in a written designation filed with the Employer before his
death in accordance with Section 10.4(c). If no written designation is
made by the Participant, the Beneficiary shall elect the method of
distribution.
12.4 Disclaimer by Beneficiary
A Beneficiary shall be entitled to disclaim all or any portion of the
distribution payable under this Article. In the event such a disclaimer is
made, the disclaimed amount shall be payable in the manner specified in the
Participant's Beneficiary designation or, if not so specified, to the
remaining Beneficiary or Beneficiaries as if the disclaiming Beneficiary
died on the date before the date of the Participant's death. A Beneficiary
who disclaims any distribution shall not have any power of appointment over
the amount disclaimed nor any other power of any nature to direct or control
the disposition of the disclaimed amount.
ARTICLE XIII Withdrawals and Loans
13.1 Hardship Withdrawals
Upon the application of any Participant, if so elected in the Adoption
Agreement, the Employer in accordance with its uniform, nondiscriminatory
policy and based on the standards of this Section, may permit such
Participant to make a withdrawal of part of the amount then credited to his
Participant's Account. The provisions of this Article shall not apply to
Employee Deferrals, Qualified Nonelective Contributions, Qualified Matching
Contributions or the earnings on any of these contributions. Withdrawal of
these amounts shall be governed by the terms of Section 6.14. In no event
shall the amount of any withdrawal exceed the amount which he would be
entitled to receive if he were to terminate employment with the Employer at
the time of such withdrawal. No hardship withdrawal shall be made under the
provisions of this Section unless the distribution is necessary in light of
immediate and heavy financial needs of the Participant. A distribution based
on hardship cannot exceed the amount required to meet the immediate
financial needs created by the hardship and the funds must not be reasonably
available from other resources of the Participant. Any amount so distributed
shall be deducted from such Participant's Account. The Employer shall
determine whether the standards for a hardship withdrawal have been met
based on such evidence as the Employer deems appropriate. In the event a
finding of hardship results in a distribution of funds to a Participant who
is a 5%-owner, the Employer shall in no way be responsible for any penalty
tax which may result under Section 72(m)(5) of the Code.
13.2 Withdrawal of Voluntary Contributions
A Participant may withdraw his voluntary Employee contributions by
notifying the Employer in writing. The Participant may withdraw such
contributions, including the earnings thereon, at such intervals as the
Employer may prescribe. Unless otherwise permitted pursuant to a policy
established by the Employer, written notice of withdrawal must be provided
at least 30 days in advance of any Plan Anniversary. Upon receipt of
appropriate written notice, the Employer shall instruct the Trustee or
Custodian to withdraw the amount requested from the Participant's Employee
Voluntary Contribution Account.
13.3 Loans to Plan Participants
Upon the request of a Participant, if the Employer has so elected in
the Adoption Agreement, the Trustee may make a loan or loans to the
Participant from the Fund. Loans shall not be permitted if the Plan is not
Trusteed. The Plan Administrator shall make all determinations regarding
eligibility and terms regarding loans made to Participants. The Plan
Administrator may delegate this responsibility to the Trustee or to the
Administrative Committee. Any loan permitted by the Plan Administrator shall
meet the following requirements unless the Employer designates otherwise in
writing. Any changes to the terms of this loan program shall be in writing
and shall become a part of this Plan and be included in the Summary Plan
Description:
(a) Loans must be available to all Participants and Beneficiaries who
are parties-in-interest on a reasonably equivalent basis.
(b) Loans shall not be made available to Highly Compensated Employees (as
defined in Section 414(q) of the Code) in an amount greater than the
amount made available to other Employees.
(c) Participant's may contact the Plan Administrator or the Trustee to
obtain the necessary forms to apply for a Plan loan.
(d) Loans shall be approved within the limitations described herein, unless
the Plan Administrator determines that the Participant does not intend
to or will be unable to repay the loan as specified in the loan's terms
and conditions.
(e) Loans will be made without regard to the purpose for which the loan
proceeds will be used.
(f) The interest rate charged on the loan shall be determined based upon the
commercially available rate on similar loans with similar terms.
(g) All loans shall be secured by 50% of the Participant's vested account
balance. No other collateral shall be accepted.
(h) No Participant loan shall exceed 50% of the present value of the
Participant's vested accrued benefit. A minimum loan amount shall apply
if so elected in the Adoption Agreement.
(i) A Participant must obtain the consent of his or her Spouse, if any, for
use of the account balance as security for the loan. Spousal consent
shall be obtained no earlier than the beginning of the 90-day period
that ends on the date on which the loan is to be so secured. The consent
must be in writing, must acknowledge the effect of the loan, and must be
witnessed by a Plan representative or notary public. Such consent shall
thereafter be binding with respect to the consenting Spouse or any
subsequent spouse with respect to that loan. A new consent shall be
required if the account balance is used for renegotiation, extension,
renewal, or other revision of the loan.
(j) In the event of default, foreclosure on the note and attachment of
security will not occur until a distributable event occurs in the Plan.
(k) No loans will be made to any Shareholder-Employee or Owner-Employee. For
purposes of this requirement, a Shareholder-Employee means an Employee
or officer of an electing small business (Subchapter S) corporation who
owns (or is, considered as owning within the meaning of Section
318(a)(1) of the Code), on any day during the taxable year of such
corporation, more than 5% of the outstanding stock of the corporation.
(l) Each Participant granted a loan under this Section shall be furnished
with a clear statement of the charges involved in the transaction,
including the dollar amount and annual interest rate of the finance
charge.
(m) A loan requested by a Participant shall, if granted, be treated as a
participant-directed investment.
If a valid spousal consent has been obtained in accordance with
(i), then, notwithstanding any other provision of this Plan, the portion of
the Participant's vested account balance used as a security interest held by
the Plan by reason of a loan outstanding to the Participant shall be taken
into account for purposes of determining the amount of the account balance
payable at the time of death or distribution, but only if the reduction is
used as repayment of the loan. If less than 100% of the Participant's vested
account balance (determined without regard to the preceding sentence) is
payable to the surviving Spouse, then the account balance shall be adjusted
by first reducing the vested account balance by the amount of the security
used as the repayment of the loan, and then determining the benefit payable
to the surviving spouse.
No loan to any Participant or Beneficiary can be made to the extent
that such loan when added to the outstanding balance of all other loans to
the Participant or Beneficiary would exceed the lesser of (a) $50,000
reduced by the excess (if any) of the highest outstanding balance of loans
during the one
<PAGE>
year period ending on the day before the loan is made, over the
outstanding balance of loans from the Plan on the date the loan is
made, or (b) One-half the present value of the nonforfeitable accrued
benefit of the Participant. For the purpose of the above limitation,
all loans from all plans of the Employer and other members of a group
of employers described in Section 414(b), 414(c) and 414(m) of the
Code are aggregated. Furthermore, any loan shall by its terms require
that repayment (principal and interest) be amortized in level payments,
not less frequently than quarterly, over a period not extending beyond
five years from the date of the loan, unless such loan is used to
acquire a dwelling unit which within a reasonable time (determined at
the time the loan is made) will be used as the principal residence of
the Participant. An assignment or pledge of any portion of the
Participant's interest in the Plan and a loan, pledge or assignment
with respect to any insurance contract purchased under the Plan, will
be treated as a loan under this paragraph.
13.4 Effective Date
If this Plan is a restatement of a previously existing plan,
Sections 13.3(g) and 13.3(h) shall be effective as of the later of the
Restated Date or the first day of the first Plan Year beginning after
December 31, 1989.
ARTICLE XIV Distribution Requirements
14.1 General Rule
14.1.1 Subject to Article X, joint and survivor annuity requirements,
the requirements of the Article shall apply to any distribution or a
Participant's interest and will take precedence over any inconsistent
provisions of this Plan. Unless otherwise specified, the provisions of
this article apply to calendar years beginning after December 31,
1984.
14.1.2 All distributions required under this Article shall be determined
and made in accordance with the Proposed Regulations under Section
401(a)(9), including the minimum distribution incidental benefit
requirements of Section 1.401(a)(9)-2 of the Proposed Regulations.
14.2 Required Beginning Date
The entire interest of a Participant must be distributed or begin
to be distributed not later than the Participant's required beginning
date.
14.3 Limits on Distribution Periods
As of the first distribution calendar year, distributions, if not
made in a single-sum, may only be made over one of the following
periods (or a combination thereof):
(a) The life of the Participant;
(b) The life of the Participant and a designated Beneficiary;
(c) A period certain not extending beyond the life expectancy of the
Participant, or
(d) A period certain not extending beyond the joint and last survivor
expectancy of the Participant and a designated Beneficiary.
14.4 Determination of Amount to be Distributed Each Year
If the Participant's interest is to be distributed in other than
a single sum, the following minimum distribution rules shall apply on
or after the required beginning date:
14.4.1 Individual Account
(a) If a Participant's benefit is to be distributed over (i) a period not
extending beyond the life expectancy of the Participant or the joint
life and last survivor expectancy of the Participant and the
Participant's designated Beneficiary or (ii) a period not extending
beyond the life expectancy of the designated beneficiary, the amount
required to be distributed for each calendar year, beginning with
distributions for the first distribution calendar year, must at least
equal the quotient obtained by dividing the Participant's benefit by
the applicable life expectancy.
(b) For calendar years beginning before January 1, 1989, if the
Participant's Spouse is not the designated Beneficiary, the method of
distribution selected must assure that at least 50% of the present
value of the amount available for distribution is paid within the life
expectancy of the Participant.
(c) For calendar years beginning after December 31, 1986, the amount to be
distributed each year, beginning with distributions for the first
distribution calendar year shall not be less than the quotient
obtained by dividing the Participant's benefit by the lesser of (i)
the applicable life expectancy or (ii) if the Participant's spouse is
not the designated Beneficiary, the applicable divisor determined from
the table set forth in Q&A-4 of Section 1.401(a)(9)-2 of the Proposed
Regulations. Distributions after the death of the participant shall be
distributed using the applicable life expectancy in Section 14.4.1(a)
above as the relevant divisor without regard to Proposed Regulations
Section 1.401(a)(9)-2.
(d) The minimum distribution required for the Participant's first
distribution calendar year must be made on or before the Participant's
required beginning date. The minimum distribution for other calendar
years, including the minimum distribution for the distribution
calendar year in which the Employee's required beginning date occurs,
must be made on or before December 31 of that distribution calendar
year.
14.4.2 Other Forms
If the Participant's benefit is distributed in the form of an
annuity purchased from an insurance company, distributions
thereunder shall be made in accordance with the requirements of
Section 401(a)(9) of the Code and the Proposed Regulations
thereunder.
14.5 Death Distribution Provisions
14.5.1 Distribution Beginning After Death
If the Participant dies after distribution of his or her interest
has begun, the remaining portion of such interest will continue
to be distributed at least as rapidly as under the method of
distribution being used prior to the Participant's death.
14.5.2 Distribution Beginning Before Death
If the Participant dies before distribution of his or her
interest begins, distribution of the Participant's entire
interest shall be completed by December 31 of the calendar year
containing the fifth anniversary of the Participant's death
except to the extent that an election is made to receive
distributions in accordance with (a) or (b) below:
(a) If any portion of the Participant's interest is payable to a
designated Beneficiary, distributions may be made over the
life or over a period certain not greater than the life
expectancy of the designated Beneficiary commencing on or
before December 31 of the calendar year immediately
following the calendar year in which the Participant died;
(b) If the designated Beneficiary is the Participant's surviving
Spouse, the date distributions are required to begin in
accordance with (a) above shall not be earlier than the
later of (i) December 31 of the calendar year immediately
following the calendar year in which the Participant died
and (ii) December 31 of the calendar year in which the
Participant would have attained age 70 1/2.
If the Participant has not made an election pursuant to this
Section 14.5.2 by the time of his or her death, the
Participant's designated Beneficiary must elect the method
of distribution not later than the earlier of (1) December
31 of the calendar year in which distributions would be
required to begin under this Section, or (2) December 31 of
the calendar year which contains the fifth anniversary of
the date of death of the Participant. If the Participant has
no designated Beneficiary, or if the designated Beneficiary
does not elect a method of distribution, distribution of the
Participant's entire interest must be completed by December
31 of the calendar year containing the fifth anniversary of
the Participant's death.
14.5.3 For purposes of Section 14.5.2 above, if the surviving Spouse
dies after the Participant, but before payments to such Spouse begin,
the provisions of Section 14.5.2, with the exception of paragraph (b)
therein, shall be applied as if the surviving Spouse were the
Participant.
14.5.4 For purpose of this Section 14.5, any amount paid to a child of
the Participant will be treated as if it had been paid to the
surviving Spouse if the amount become payable to the surviving Spouse
when the child reaches the age of majority.
14.5.5 For the purposes of this Section 14.5, distribution of a Participant's
interest is considered to begin on the Participant's required beginning
date (or, if Section 14.5.3 above is applicable, the date distribution
is required to begin to the surviving Spouse pursuant to Section 14.5.2
above). If distribution in the form of an annuity irrevocably commences
to the Participant before the required beginning date, the date
distribution is considered to begin is the date distribution actually
commences.
14.6 Definitions
14.6.1 Applicable Life Expectancy
The life expectancy (or joint and last survivor expectancy) is
calculated using the attained age of the Participant (or designated
Beneficiary) as of the Participant's (or designated Beneficiary's)
birthday in the applicable calendar year reduced by one for each
calendar year which has elapsed since the date life expectancy was
first calculated. If life expectancy is being recalculated, the
applicable life expectancy shall be the life expectancy as so
recalculated. The applicable calendar year shall be the first
distribution calendar year, and if life expectancy is being recalculated
each succeeding calendar year.
14.6.2 Designated Beneficiary
The individual who is designated as the Beneficiary under the Plan in
accordance with Section 401(a)(9) of the Code and the regulations
thereunder.
14.6.3 Distribution Calendar Year
A calendar year for which a minimum distribution is required. For
distributions beginning before the Participant's death, the first
distribution calendar year is the calendar year immediately preceding
the calendar year which contains the Participant's required beginning
date. For distributions beginning after the Participant's death, the
first distribution calendar year is the calendar year in which
distributions are required to begin pursuant to Section 14.6 above.
14.6.4 Life Expectancy
Life expectancy and joint and last survivor expectancy are computed by
use of the expected return multiples in Tables V and VI of Section
1.72-9 of the Income Tax Regulations.
Unless otherwise elected by the Participant (or Spouse, in the case of
distributions described in Section 14.5.2 (b) above) by the time
distributions are required to begin, life expectancies shall be
recalculated annually. Such election shall be irrevocable as to the
Participant (or Spouse) and shall apply to all subsequent years. The
life expectancy of a nonspouse Beneficiary may not be recalculated.
14.6.5 Participant's Benefit
(a) The account balance as of the last valuation date in the calendar year
immediately preceding the distribution calendar year (valuation
calendar year) increased by the amount of any contributions or
forfeitures allocated to the account balance as of dates in the
valuation calendar year after the valuation date and decreased by
distributions made in the valuation calendar year after the valuation
date.
(b) Exception for second distribution calendar year. For purposes of
paragraph (a) above, if any portion of the minimum distribution for
the first distribution calendar year is made in the second
distribution calendar year on or before the required beginning date,
the amount of the minimum distribution made in the second distribution
calendar year shall be treated as if it had been made in the
immediately preceding distribution calendar year.
14.6.6 Required Beginning Date
(a) General rule. The required beginning date of a Participant is the
first day of April of the calendar year following the calendar year in
which the Participant attains age 70 1/2.
(b) Transitional rules. The required beginning date of a Participant who
attains age 70 1/2 before January 1, 1998, shall be determined in
accordance with (1) or (2) below:
(1) Non-5-percent owners.
The required beginning date of a Participant who is not a
5-percent owner is
<PAGE>
the first day of April of the calendar year following the calendar
year in which the later of retirement or attainment of age 70 1/2
occurs.
(2) 5-percent owners.
The required beginning date of a Participant who is a 5 percent
owner during any year beginning after December 31, 1979 is the
first day of April following the later of (i) the calendar year in
which the Participant attains age 70 1/2, or (ii) the earlier of
the calendar year with or within which ends the Plan Year in which
the Participant becomes a 5-percent owner, or the calendar year in
which the Participant retires.
The required beginning date of a Participant who is not a 5-
percent owner who attains age 70 1/2 during 1988 and who has not
retired as of January 1, 1989, is April 1, 1990.
(c) 5-percent owner. A Participant is treated as a 5-percent owner for
purposes of this Section if such Participant is a 5-percent owner as
defined in Section 416(i) of the Code (determined in accordance with
Section 416 of the Code but without regard to whether the plan is top-
heavy) at any time during the Plan Year ending with or within the
calendar year in which such owner attains age 66 1/2 or any subsequent
Plan Year.
(d) Once distributions have begun to a 5-percent owner under this Section,
they must continue to be distributed even if the Participant ceases to
be a 5-percent owner in a subsequent year.
14.7 Transitional Rule
14.7.1 Notwithstanding the other requirements of this Article and subject to
the requirements of Article X, Joint and Survivor Annuity Requirements,
distribution on behalf of any Employee, including a 5-percent owner,
may be made in accordance with all of the following requirements
(regardless of when such distribution commences):
(a) The distribution by the trust is one which would not have
disqualified such trust under Section 401(a)(9) of the Internal
Revenue Code as in effect prior to amendment by the Deficit
Reduction Act of 1984.
(b) The distribution is in accordance with a method of distribution
designated by the Employee whose interest in the trust is being
distributed or, if the Employee is deceased, by a Beneficiary of
such Employee.
(c) Such designation was in writing, was signed by the Employee or the
Beneficiary, and was made before January 1, 1984.
(d) The Employee had accrued a benefit under the Plan as of December
31, 1983.
(e) The method of distribution designated by the Employee or the
Beneficiary specifies the time at which distribution will
commence, the period over which distributions will be made, and in
the case of any distribution upon the Employee's death, the
Beneficiaries of the Employee listed in order of priority.
14.7.2 A distribution upon death will not be covered by this transitional
rule unless the information in the designation contains the required
information described above with respect to the distributions to be
made upon the death of the Employee.
14.7.3 For any distribution which commences before January 1, 1984, but
continues after December 31, 1983, the Employee, or the Beneficiary, to
whom such distribution is being made, will be presumed to have
designated the method of distribution under which the distribution is
being made if the method of distribution was specified in writing and
the distribution satisfies the requirements in subsection 14.7.1(a) and
(e).
14.7.4 If a designation is revoked any subsequent distribution must satisfy
the requirements of Section 401(a)(9) of the Code and the Proposed
Regulations thereunder. If a designation is revoked subsequent to the
date distributions are required to begin, the trust must distribute by
the end of the calendar year following the calendar year in which the
revocation occurs the total amount not yet distributed which would have
been required to have been distributed to satisfy Section 401(a)(9) of
the Code and the Proposed Regulations thereunder, but for the Section
242(b)(2) election. For calendar years beginning after December 31,
1988, such distributions must meet the minimum distribution incidental
benefit requirements in Section 1.401(a)(9)-2 of the Proposed
Regulations. Any changes in the designation will be considered to be a
revocation of the designation. However, the mere substitution or
addition of another Beneficiary (one not named in the designation)
under the designation will not be considered to be a revocation of the
designation, so long as such substitution or addition does not alter
the period over which distributions are to be made under the
designation, directly or indirectly (for example, by altering the
relevant measuring life). In the case in which an amount is transferred
or rolled over from one plan to another plan, the rules in Q&A J-2 and
Q&A J-3 of Proposed Regulation Section 1.401(a)(9) shall apply.
ARTICLE XV Administration
15.1 Plan Administrator
The Employer shall be the Plan administrator and shall be the Named
Fiduciary of the Plan, and as administrator shall administer the Plan
in accordance with its terms and shall have all powers necessary to
carry out its terms. The Plan Administrator shall, in its sole
discretion, interpret the provisions of the Plan.
15.2 Delegation
The Employer shall have the power to delegate specific fiduciary
duties and responsibilities, other than those of the Trustee or
Custodian with respect to the custody and control of the assets of the
Fund. Such delegations may be to officers, partners or other Employees
of the Employer or to other individuals or entities provided, however,
that no fiduciary duties or responsibilities may be delegated to the
Financial Institution unless the Financial Institution is serving as
Trustee hereunder. Any delegation by the Employer may, if specifically
stated, allow further delegations by the individual or entity to whom
the delegation has been made. Any delegation may be rescinded by the
Employer at any time.
15.3 Administrative Committee
The Employer, in the exercise of its power to delegate fiduciary
duties, may establish an Administrative Committee and appoint its
members to assist in the administration of the Plan. If so established,
the Administrative Committee shall be a Named Fiduciary and, unless
otherwise provided in a written resolution of the Employer, shall have
the power and responsibility to:
(a) Adopt rules and regulations not inconsistent with the declared
purposes and specific provision of the Plan for its administration:
(b) Interpret and construe the provisions of the Plan;
(c) Determine from time to time the status of all Employees,
Participants and Beneficiaries for the purposes of the Plan;
(d) Determine the rights of Employees, Participants, Beneficiaries to
benefits under the Plan, the amount thereof and the method and time
or times of payment of the same; and
(e) Instruct the Trustee or Custodian as to the disbursement of the
assets of the Fund.
Any member of the Administrative Committee may resign by
delivering a written copy of his resignation to the Employer and may be
removed by written resolution of the Employer. Vacancies shall be
filled by the Employer. If an Administrative Committee is appointed as
provided herein, all references to the Employer in the Plan shall be
deemed to refer to the Administrative Committee to the extent of the
duties delegated.
15.4 Reports and Records
The Employer and those to whom the Employer has delegated
fiduciary duties shall keep records of all their proceedings and
actions, and shall maintain all such books of account, records and
other data as shall be necessary for the proper administration of the
Plan and to comply with applicable law.
15.5 Establishment of Funding Policy
The Employer shall (a) establish a funding policy for the Plan
consistent with the needs of the Plan and in accordance with applicable
law and (b) communicate this policy to the Trustee or Custodian and
direct and supervise the Trustee's or Custodian's actions to see that
this policy is carried out. However, the Employer may delegate this
function in accordance with Section 15.2 to any person or entity,
including the Administrative Committee, if established, or an
Investment Manager. An Investment Manager shall be charged with the
power to direct the Trustee or Custodian as to the management,
acquisition or disposal of any or all assets of the Fund, as designated
in the delegation.
15.6 Payment of Expenses
The Employer may pay all expenses of administering the Plan,
including but not limited to the Trustee's or Custodian's fees,
attorney fees and expenses incurred by persons or entities to whom
fiduciary duties have been delegated. If said expenses are not paid by
the Employer, they shall be a lien against and paid from the Fund,
except for the items the payment of which would constitute a prohibited
transaction.
15.7 Indemnification
To the extent permitted by law, the Employer shall indemnify the
members of the Administrative Committee, if created, individual
Trustees and others to whom the Employer has delegated fiduciary duties
who are either Employees, owners, officers or directors of the
Employer, against any and all claims, losses, damages, expenses and
liability arising from their responsibilities in connection with the
Plan which are not covered by insurance (without recourse) paid for by
the Employer, unless the same is determined to be due to gross
negligence or intentional misconduct.
ARTICLE XVI Fund and Trustee
16.1 Trustee
A Plan which is Trusteed shall be subject to the provisions of
this Article. A Plan which utilizes a Custodian shall not be subject to
the provisions of this Article but, instead, shall be subject to the
provisions of Article XVII. The Plan shall be Trusteed and all of the
assets of the Plan held in trust in the name of the Trustee if one or
more individuals or the Financial Institutions has executed the Plan as
Trustee as provided in the Adoption Agreement.
16.2 Trust Fund
All contributions received by the Trustee pursuant to the Plan,
together with all investments made therewith, the proceeds thereof, and
all earnings and accumulations thereon, and the part thereof from time
to time remaining, shall be held and administered by the Trustee, in a
fund referred to herein as the "Fund," in accordance with the terms and
provisions hereof.
16.3 Responsibility of the Trustee
The general responsibilities of the Trustee shall be as follows:
(a) Except as expressly otherwise provided herein, the Trustee shall
have exclusive authority and discretion to manage and control the
assets of the Plan held in the Fund.
(b) The Trustee shall hold, administer, invest and reinvest, and
disburse the Fund in accordance with the powers stated herein.
(c) The Trustee shall disburse moneys and other properties from the
Fund on direction of the Employer, pursuant to the provision of the
Plan at the time or times, to the payee or payees specified by the
Employer in directions to the Trustee in such form as the Trustee
may reasonably require. The Trustee shall be under no liability for
any distribution made by it pursuant to such directions and shall
be under no duty to make inquiry as to whether any distribution
made by it pursuant to any such direction is made pursuant to the
provisions of the Plan. The receipt of a distribution by the Payee
shall constitute a full acquittance to the Trustee.
(d) The Trustee shall have the responsibilities, if any, expressly
allocated to it by the Plan. Except as responsibilities may be
expressly so allocated, the Trustee in its capacity as such shall
have no responsibility or authority with respect to the operation
and administration of the Plan. However, if the Trustee is notified
that any action on its part is necessary or desirable and the
Employer has failed or is unable to furnish the Trustee with the
necessary instructions or information, the Trustee may take
-16-
<PAGE>
such action as it deems necessary or desirable consistent with the Plan,
including, without limitation action respecting interpretation of the
Plan and payment of benefits.
(e) If the Employer so elects, the Trustees' discretion to manage and
control the assets of the Plan held in the trust Fund or to acquire or
dispose of any such assets shall be subject to the direction of the
Employer. Should the Employer appoint an Investment Manager to Manage
any assets of the trust Fund, the Trustees' power to manage and control
or to acquire or dispose of such assets shall be subject to the
direction of the Investment Manager.
(f) At any time when there is more than one Trustee, the Trustees shall act
by majority vote.
16.4 Compensation and Expenses
The Trustee shall be entitled to receive such reasonable compensation
for its services hereunder as may be agreed upon with the Employer;
provided, however, that no Employee who is a Trustee shall receive
compensation for services rendered as a Trustee. The Trustee shall be
entitled to reimbursement for all reasonable and necessary costs,
expenses, and disbursements incurred by it in the performance of such
services. Such compensation and reimbursements shall be paid from the
Fund if not paid directly by the Employer and shall constitute a lien
upon the Fund until paid.
16.5 Records and Accounting
The Trustee shall maintain such records as may be reasonably necessary
for the proper administration of the Fund. As soon as reasonably
practicable following a Plan Valuation Date of the Fund, and as soon as
reasonably practicable after the resignation or removal of a Trustee has
become effective, the Trustee shall file with the Employer a written
account setting forth all receipts, disbursements, and other
transactions effected by it during the Plan Year, or during the part of
the Plan Year to the date the resignation or removal is effective, as
the case may be, and shall certify the fair market value of the assets
of the Fund. The accounting shall also furnish the Employer such other
information as the Trustee may possess and as may be necessary for the
Employer to comply with the reporting requirements of the Employee
Retirement Income Security Act of 1974. The Trustee shall have no duty
to furnish information about the Fund to any person except that
expressly provided herein or as required by law. Any accounting when
approved by the Employer will be binding and conclusive as to the
Employer, Plan Participants and Beneficiaries, and the Trustee will
thereby be released and discharged from any liability or accountability
to the Employer, Plan Participants or Beneficiaries with respect to
matters set forth therein. Omission by the Employer of any written
objection to any specific item in any such accounting within one hundred
eighty days after its delivery will constitute approval of the Account
by the Employer. If there is a disagreement between the Trustee and
anyone as to any act or transaction reported in an accounting, the
Trustee shall have the right to have its account settled by a court of
competent jurisdiction.
16.6 Record Retention
The Trustee shall retain its records relating to the Fund as long as
necessary for the proper administration thereof and at least for any
period required by the Employee Retirement Income Security Act of 1974
or other applicable law.
16.7 Registration and Removal of Trustee
(a) The Trustee may resign by giving the Employer thirty (30) days' (or such
shorter period as the Employer may approve in writing) written notice of
its resignation, such notice period to commence upon the mailing
thereof. The Employer shall thereupon appoint a successor Trustee to
assume the rights, powers and duties of the Trustee and shall promptly
give the Trustee written notice of the appointment of such successor
Trustee. The Trustee shall forthwith deliver to the successor Trustee
and as soon as possible thereafter account to the successor Trustee for
each and every Fund asset and any and all records of the Fund that are
in its possession or control.
(b) The Employer may remove the Trustee by giving the Trustee thirty (30)
days' (or such shorter period as the Trustee may approve in writing)
written notice of its removal, such notice period to commence upon the
receipt thereof by the Trustee, and which written notice shall identify
the successor Trustee appointed by the Employer to assume the rights,
powers and duties of the Trustee. The Trustee shall forthwith deliver to
the successor Trustee and as soon as possible thereafter account to the
successor Trustee for each and every Fund asset and all records of the
Fund that are in its possession or control.
(c) A Custodian may serve as the successor to the Trustee hereunder if, with
respect to the Plan and the Custodian, the requirements of Article XVII
are satisfied.
16.8 Dealings of Others With Trustee
No person (corporate or individual) dealing with the Trustee shall be
required to see the application of any money paid or property delivered
to the Trustee or to determine whether the Trustee is acting pursuant to
any authority granted to it under the Plan.
16.9 Trustee's Power to Protect Itself on Account of Taxes
The Trustee, as a condition to making a distribution of a
Participant's Account, may require the person or persons entitled to
receive a distribution in such event to furnish the Trustee with proof
of payment of all income, inheritance, estate, transfer, legacy and/or
succession taxes, and all other taxes of any different type or kind that
may be imposed under or by virtue of any state or federal statute or law
upon the payment, transfer, descent, or distribution of the such Account
and for the payment of which the Trustee may, in its judgement, be
directly or indirectly liable. In lieu of the foregoing, the Trustee
unless prevented by law, may deduct, withhold and transmit to the proper
taxing authorities any such tax which it may be permitted or required to
deduct and withhold and the Account to be distributed in such case shall
be correspondingly reduced. In the event any distribution is subject to
Federal or State withholding requirements the Trustee may require
evidence that such withholding requirements have been met or that a
waiver thereof is available and the conditions of the waiver have been
satisfied.
16.10 Other Powers of Trustee
In extension, but not in limitation of the rights, powers and
discretions conferred upon the Trustee herein, the Trustee shall have
and may exercise from time to time in the management and custody of the
assets of the Fund and, for the purpose of distribution after the
termination thereof, and, for the purpose of distribution of
Participant's Accounts, without order or license of any court, any one
or more or all of the following rights, powers and discretions:
(a) To invest and reinvest the assets of the Fund with the care, skill,
prudence and diligence under the circumstances then prevailing that a
prudent man acting in a like capacity and familiar with such matters
would use in the conduct of an enterprise of like character and the like
aims (and to the extent possible consistently with the most recent
funding policy method adopted by the Employer and communicated to the
Trustee) without limitation by any statute, rule or law, or regulation
of any governmental body prescribing or limiting the investment of trust
assets by corporate or individual Trustees, in or to certain kinds,
types, or classes of investments or prescribing the portion of the Fund
which may be invested in any one property or kind, type, or class of
investment. Specifically and without limiting the generality of the
foregoing, the Trustee may invest and reinvest principal and accumulated
income of the Fund in preferred and common stocks of any kind or class
of any corporation, including but not limited to investment and small
business investment companies of all types; voting trust certificates;
interest in investment trusts; shares of mutual funds; interest in a
common trust; variable demand note or other type of pooled or collective
fund operated by the Trustee; bonds, notes and debentures, secured or
unsecured; mortgages on real or personal property; covered call options;
deposits in a commercial or savings bank or a savings and loan
association including savings accounts or time deposits in the Trustee
if the Trustee (or a Co-Trustee) is a bank or other Financial
Institution; conditional sales contracts; real estate and leases. The
Plan may acquire and hold up to 10% (or, in the case of a Nonstandard
Profit Sharing Plan, the percentage chosen by the Employer on the
Adoption Agreement) of the market value of its assets in securities
issued by an Employer. Investment of the entire Fund in common stocks
shall be deemed appropriate at any phase of the economic business cycle,
but is not, however, the purpose hereof to direct that the Fund shall be
invested either entirely or to any extent whatsoever in such common
stocks. The Trustee shall be entitled to commingle the accounts of
Participants and invest, reinvest, control and manage each of the same
in a common Fund, except to the extent the Employer permits Participants
to direct their own investments and such Participants elect to do so.
(b) To sell, exchange or to otherwise dispose of any asset of whatsoever
character at any time held by the Trustee in trust hereunder.
(c) To segregate any part or portion of the Fund for the purpose of
administration or distribution thereof and, in its sole discretion, to
hold the Fund uninvested whenever and for so long as, in the Trustee's
discretion, the same is likely to be required for payment in cash of
Participants' Accounts normally expected to be distributed in the near
future, or whenever, and for as long as market conditions are uncertain,
or for any other reason which, in the Trustee's discretion, requires
such action or makes such action advisable.
(d) To retain and employ such attorneys, agents and servants as may be
necessary or desirable, in the opinion of the Trustee, in the
administration of the Fund, and to pay them such reasonable Compensation
for their services as may be agreed upon as an expense of administration
of the Fund, including power to employ and retain counsel upon any
matter of doubt as to the meaning of or interpretation to be placed upon
this Plan or any provisions thereof with reference to any question
arising in the administration of the Fund or pertaining to the
distribution thereof or pertaining to the rights and liabilities of the
Trustee hereunder or to the rights and claims of Participants and
Beneficiaries, and the Trustee, in any such event, may act in reliance
upon the advice, opinions, records, statements, and computations of any
attorneys and agents and on the records, statements and computations of
any servants so selected by it in good faith and shall be released and
exonerated of and from all liability to anyone in so doing (except to
the extent liability is imposed under the Employee Retirement Income
Security Act of 1974).
(e) To institute, prosecute, and maintain, or to defend, any proceeding at
law or in equity concerning the Plan or Fund or the assets thereof or
any claims thereof or any claims thereto, or the interests of
Participants and Beneficiaries hereunder at the sole costs and expense
of the Fund and/or at the sole cost and expense of the Participant's
Account that may be concerned therein or that may be affected thereby
as, in the Trustee's opinion, shall be fair and equitable in each case,
and to compromise, settle and adjust all claims and liabilities asserted
by or against the Trustee, on such terms as the Trustee, in each such
case, shall deem reasonable and proper, but the Trustee shall be under
no duty or obligation to institute, prosecute, maintain or defend any
suit, action or other legal proceeding unless it shall be indemnified to
its satisfaction against all expenses and liabilities which it may
sustain or anticipate by reason thereof.
(f) To institute, participate, and join in any plan of reorganization,
readjustment, merger or consolidation with respect to the issuer of any
securities held by the Trustee hereunder and to use any other means of
protecting and dealing with any of the assets of the Fund which it
believes reasonably necessary or proper and, in general, to exercise
each and every other power or right with respect to each asset or
investment held by it hereunder as individuals generally
<PAGE>
have and enjoy with respect to their own assets and investments,
including power to vote upon any securities or other assets having
voting power which it may hold from time to time, and to give proxies
with respect thereto, with or without power of substitution or
revocation, and to deposit assets or investments with any protective
committee, or with Trustees or depositories designated by any such
committee or by any such Trustees or any court.
(g) In any matter of doubt affecting the meaning, purpose or intent of any
provision of this Plan, to determine such meaning, purpose or intent;
and the determination of the Trustee in any such respect shall be
binding and conclusive upon all persons interested who may become
interested in the Plan or the Fund.
(h) To require, as a condition to distribution of any Participant's Account,
proof of identity or of authority of the person entitled to receive the
same, including power to require reasonable indemnification on that
account as a condition precedent to its obligation to make distributions
hereunder.
(i) To collect, receive, receipt and give quittance for all payments that
may be or become due and payable on account of any asset in trust
hereunder which has not, by act of the Trustee taken pursuant thereto,
been made payable to others, and payment thereof by the company issuing
the same, or by the party obligated thereon, as the case may be, when
made to the Trustee hereunder or to any person or persons designated by
the Trustee, shall acquit, release and discharge such company or
obligated party from any and all liability on account thereof.
(j) To determine from time to time, as required for the purpose of
distribution or for the purpose of allocating trust income or for any
other purposes of the Plan, the then value of the Fund and of the
Participant's Account of each Participant in the Fund, the Trustee, in
each such case, using and employing for that purpose the fair market
value of each of the assets constituting the Fund. Each such
determination so made by the Trustee in good faith shall be binding and
conclusive upon all persons interested or becoming interested in the
Plan or the Fund.
(k) To carry all investments of the Fund, or any part thereof, in its own
name or in the name of any nominee selected by it, without designation
of the trust capacity in which the same in held, but with the same
liability for any act or default of any such nominee as for its own act
or default; and to commingle and deposit cash of the Fund in its own
commercial department or savings department, or both.
(l) To grant an option or options for the sale or other disposition of a
trust asset, including the issuance of options for the purchase of
common stock held by the trust in return for the receipt of a premium
from the optionee (it being expressly intended that said options may be
in a form and in terms to permit their being freely traded on an option
exchange) and including the repurchase of any such option granted, or in
lieu thereof, the repurchase of an option identical in terms to be the
one issued.
(m) To have and to exercise such other and additional powers as may be
advisable or proper in its opinion for the effective, economical and
equitable administrative of the Fund.
(n) The Trustee may cause all or any part of the Fund, without limitation as
to amount, to be commingled with the money of trusts created by the
Trustee or by others by causing such money to be invested as a part of
any or all of the funds created by said declarations of trust and the
Fund so added to any of said funds shall be subject to all of the
provisions of said declarations of trust as the same may be amended from
time to time so long as the terms of said trust are not inconsistent
with the terms and provisions of this Plan.
In the event the Employer elects to direct the Trustee as to the
acquisition or disposal of the assets of the trust Fund, the Trustee
shall exercise the rights, powers and discretions conferred upon the
Trustee in this Section only as directed by the Employer. In the event
the Employer has appointed an Investment Manager to manage, acquire or
dispose of any assets of the trust Fund, then, notwithstanding the
rights, powers and discretions conferred upon the Trustee in this
Section, the Trustee shall be subject to the direction of the
Investment Manager with respect to the assets under management by the
Investment Manager and shall have no responsibility to determine whether
any such directions are proper, in accordance with the terms of the
Plan or are permitted under applicable law.
16.11 Purchase of Life Insurance
Without limiting the generality of Section 16.10, the Trustee may invest
the assets of the Fund in life insurance purchased from a legal reserve life
insurance company qualified to do business in the state where the trust is
located. Any purchase of life insurance shall be only as directed by the
Participant and shall be treated as a Participant-directed investment
described in Section 16.12. Any initial or additional life insurance
contract purchased on behalf of a Participant shall have a face amount of
not less than $1,000.
In the event ordinary life insurance contracts are purchased, less than
50% of the aggregate contributions by the Employer and Affiliates allocated
to the Participant may be used to pay premiums attributable to such
contracts. No more than 25% of the aggregate Employer and Affiliate
contributions allocated to the Participant may be used to pay premiums on
term life insurance contracts, universal life contracts or any other life
insurance contract, which is not ordinary life. If a combination of ordinary
life and other insurance contracts are purchased on a Participant's life,
the sum of 50% of the ordinary life insurance premiums plus the premiums on
all other life insurance on the Participant's life purchased by the Trustee
shall not exceed 25% of the aggregate Employer and Affiliate contributions
allocated to the Participant's Account. Amounts rolled over to this Plan
from another qualified plan (including a "conduit" Individual Retirement
Account) may be used to purchase life insurance without limitation.
Notwithstanding the above, in profit sharing or 401(k) plans, the
limitations imposed herein with respect to the purchase of life insurance
shall not apply to any Participant who has participated in this Plan for
five (5) or more years or to the portion of a Participant's Account that has
accumulated for at least two (2) Plan years.
For purposes of this Section, an "ordinary life" insurance contract
shall mean a contract with both nondecreasing death benefits and
nonincreasing premiums. Any dividends or credits earned on insurance
contracts will be allocated to the Participant's account derived from
Employer contributions for whose benefit the contract is held.
In the event insurance contracts are purchased by the Trustee pursuant
to this Section, a distribution payable for a reason other than the
Participant's death shall be made by converting the contract to cash by
surrendering it to the issuer or distributing the contract to the
Participant in satisfaction of that portion of the Participant's Account
which represents the value of the insurance contract, as the Participant
shall elect, subject, however, to the provisions of Article X, if
applicable. Any insurance contract so distributed shall be endorsed as
nontransferable. No life insurance contract shall be converted into an
annuity which provides payments measured by an individual life, except as
may be required by Article X.
The Beneficiary designation and the settlement option selected under any
insurance contract shall be subject to the requirements of Articles X and
XII to the extent such provisions are applicable to the Participant. As
owner of the life insurance contract, the Trustee shall name a Beneficiary
and designate a method of distribution only in a manner which meets the
requirements of Articles X and XII to the extent such Sections apply to the
Participant. In the event of any conflict between the terms of this Plan and
the terms of any life insurance contract, the terms of this Plan shall
control.
16.12 Participant Direction of Investment
The Employer may elect in the Adoption Agreement to permit Participants
to direct the investment of their Participant's Accounts. In the event the
Employer elects to permit Participants to choose the investments in which
the assets of their accounts should be invested, the Trustee shall be
subject to the direction of such Participant. No Participant shall thereby
be considered a fiduciary and no person who is otherwise a fiduciary shall
be liable for any loss, which results from such Participant's exercise of
control. Notwithstanding the foregoing, no Participant may direct that the
assets in his account be invested in any collectible, as that term is
defined in Section 408 of the Internal Revenue Code and regulations, so long
as such Section treats an investment in a collectible through a Participant-
directed account as a distribution from the Plan. A Participant shall direct
an investment in writing, which direction must be signed, shall describe the
investment sufficiently so that the Trustee may properly execute the
transaction and conform to such other conditions as the Trustee may
reasonably require. Upon the direction of an investment, the Participant
agrees to have any transaction costs charged to his account. "Transaction
costs" shall mean any fee or charge attributable to the Participant's
directed investment including, but not limited to commissions, custodial
fees or fees for professional services. The purchase of a life insurance
contract shall be treated as a Participant-directed investment.
16.13 Prohibited Transactions
Except as may be expressly permitted by law or allowed in a Prohibited
Transaction Exemption issued by the Department of Labor, no Trustee or other
fiduciary hereunder shall permit the Plan to engage, directly or indirectly,
in any of the following transactions with a disqualified person (as defined
in Section 4975 of the Code):
(a) A sale or exchange, or leasing, of any property between the Plan and a
disqualified person;
(b) The lending of money or other extension of credit between the Plan and a
disqualified person;
(c) The furnishing of goods, services or facilities between the Plan and a
disqualified person;
(d) A transfer to, or use by or for the benefit of, a disqualified person of
the income or assets of the Plan;
(e) An act by a disqualified person who is a fiduciary whereby he deals with
the income or assets of the Plan in his own interest or for his own
account; or
(f) The receipt of any consideration for his own personal account by any
disqualified person who is a fiduciary from any party dealing with the
Plan in connection with a transaction involving the income or assets of
the Plan.
16.14 Indemnity of Trustee
The Trustee shall be indemnified and held harmless by the Employer from
any and all liabilities, costs and expenses (including legal expenses,
arising out of any action taken by it pursuant to its duties hereunder as
fiduciary or in any other capacity with respect to this Plan, whether
imposed under the Employee Retirement Income Security Act of 1974, or
otherwise, unless such liability may arise from the proven gross negligence,
bad faith or criminal misconduct of the Trustee.
ARTICLE XVII Fund and Custodian
17.1 Custodian
A Plan which utilizes a Custodian shall be subject to the provisions of
this Article. A Plan which is Trusteed shall be subject to the provisions of
Article XVI. The Plan assets shall be held by a Custodian if the Financial
Institution has executed the Plan as Custodian as provided in the Adoption
Agreement, except as provided in Section 17.13 with respect to life
insurance. The Plan may not utilize a Custodian if the Employer or any
Affiliate is a corporation.
17.2 Custodian Fund
All contributions received by the Custodian pursuant to the Plan,
together with all investments made therewith, the proceeds thereof and all
earnings and accumulations thereon, and the part thereof from time to time
remaining, shall be held by the Custodian in the name of the Plan and for
the benefit of each Participant and Beneficiary hereunder, except as
provided in Section 17.13. The accounts for all Participants, plus any life
insurance contracts held for any Participants, shall collectively be
referred to herein as the "Fund".
17.3 Responsibilities of the Custodian
The general responsibilities of the Custodian shall be as follows:
<PAGE>
(a) The Custodian shall be the exclusive depositor for the Fund, except as
provided in Section 17.13.
(b) The Custodian shall maintain an account in the name of each Participant
and Beneficiary, as directed by the Employer.
(c) The Custodian shall make disbursements from the Fund, as directed by the
Employer.
(d) The Custodian may prescribe the manner and method by which the Employer
gives it directions. The Custodian shall be under no liability for any
action taken at the direction of the Employer and shall be under no duty
to make inquiry as to whether any action taken by it pursuant to such
Employer if direction is pursuant to the provisions of the Plan. The
receipt of a payee who has received a distribution shall constitute full
acquittance of the Custodian.
(e) The Custodian shall only have those duties, responsibilities and powers
expressly allocated to it by the Plan. Except as responsibilities
may be expressly so allocated, the Custodian in its capacity as such
shall have no responsibility or authority with respect to the operation
and administration of the Plan.
17.4 Compensation and Expenses
The Custodian shall be entitled to receive such reasonable
compensation for its services hereunder as may be agreed upon with the
Employer. The Custodian shall be entitled to reimbursement for all
reasonable and necessary costs, expenses and disbursements incurred by
it in the performance of such services. Such compensation and
reimbursements shall be paid from the Fund if not paid directly by the
Employer and shall constitute a lien upon the Fund until paid.
17.5 Records and Accountings
The Custodian shall maintain such records as may be reasonably
necessary for the proper administration of the Fund as soon as
reasonably practicable following a Plan Valuation Date of the Fund, and
as soon as reasonably practicable after the resignation or removal of a
Trustee or Custodian has become effective, the Custodian shall file with
the Employer a written account setting forth all receipts,
disbursements, and other transactions effected by it during the Plan
Year, or during the part of the Plan Year to the date the resignation or
removal is effective, as the case may be. The accounting shall also
furnish the Employer such other information as the Custodian may possess
and as may be necessary for the Employer to comply with reporting
requirements of the Employee Retirement Income Security Act of 1974. The
Custodian shall have no duty to furnish information about the Fund to
any person except as expressly provided herein or as required by law.
Any accounting when approved by the Employer will be binding and
conclusive as to the Employer, and the Custodian will thereby be
released and discharged from any liability or accountability to the
Employer with respect to matters set forth therin. Omission by the
Employer or any written objection to any specific item in any such
accounting within one hundred eighty days after its delivery will
constitute approval of the account by the Employer. If there is a
disagreement between the Custodian and anyone as to any act or
transaction reported in an accounting, the Custodian shall have the
right to have its account settled by a court of competent jurisdiction.
17.6 Record Retention
The Custodian shall retain its records relating to the Fund as long as
necessary for the proper administration thereof and at least for any
period required by the Employee Retirement Income Security Act of 1974
or other applicable law.
17.7 Resignation and Removal of Custodian
(a) The Custodian must at all times be either a bank (as that term is
defined in Section 401(d)(1) of the Code) or a person who has
demonstrated to the satisfaction of the Secretary of the Treasury that
the manner in which he will administer the Fund will be consistent with
the requirements of Section 401 of the Code.
(b) The Custodian may resign by giving the Employer thirty (30) days (or
such shorter period as the Employer may approve in writing) written
notice of its resignation by registered mail, such notice period to
commence upon the mailing thereof. The Employer shall thereupon appoint
a successor Custodian or Trustee to assume the rights, powers and duties
of the Custodian and shall promptly give the Custodian written notice by
registered mail of the appointment of such successor Custodian or
Trustee and as soon as possible thereafter account to the successor for
each and every Fund asset and any and all records of the Fund that are
in its possession or control.
(c) The Employer may remove the Custodian by giving the Custodian thirty
(30) days (or such shorter period as the Custodian may approve in
writing) written notice of its removal by registered mail, such notice
period to commence upon the receipt thereof by the Custodian, and which
written notice shall identify the successor Custodian or Trustee
appointed by the Employer to assume the rights, powers and duties of the
Custodian. The Custodian shall forthwith deliver to the successor
Custodian or Trustee and as soon as possible thereafter account to the
successor for each and every Fund asset and all records of the Fund that
are in its possession or control.
17.8 Changes in Organization of Custodian
If any corporation or association serving as Custodian hereunder is
merged with another corporation or association or is succeeded by
another corporation or association, through consolidation or otherwise,
the acquiring corporation or association shall thereupon become
Custodian hereunder. If any corporate Custodian acting hereunder sells
or transfers substantially all of its assets and business to another
corporation or association, the acquiring corporation or association
shall thereupon become Custodian hereunder. When authorized by statute
or court order, any corporation or association serving as Custodian
hereunder may permit itself to be succeeded by another corporation or
association as Custodian hereunder. In each case the acquiring
corporation or association shall be Custodian of the Funds though
specifically so named herein. Notwithstanding the foregoing provisions
of this Section, an acquiring corporation or association shall become
Custodian hereunder only if it could be appointed as successor Custodian
or funding medium pursuant to Section 17.7.
17.9 Dealings of Others with Custodian
No person (corporate or individual) dealing with the Custodian shall
be required to see to the application of any money paid to the Custodian
or to determine whether the Custodian is acting pursuant to any
authority granted to it under the Plan.
17.10 Funding Policy
The Employer shall adopt a procedure and revise it from
time to time as it shall consider advisable, for establishing and
carrying out a funding policy and method consistent with the
objectives of the Plan and the requirements of the Employee Retirement
Income Security Act of 1974. It shall advise the Custodian of the
funding policy in effect from time to time.
17.11 Custodian's Power to Protect itself on Account of Taxes
The Custodian, as a condition to the making of distribution of a
Participant's Account, may require the person or persons entitled to
receive a distribution to furnish the Custodian with proof of payment of
all income, inheritance, estate, transfer, legacy and/or succession
taxes and all other taxes of any different type or kind that may be
imposed under or by virtue of any state or federal stature of law upon
the payment, transfer, descent, or distribution of the such Account and
for the payment of which the Custodian may, in its judgment, be
directly or indirectly liable. In lieu of the foregoing, unless
prevented by law, the Custodian may deduct, withhold and transmit to the
proper taxing authorities any such tax which it may be permitted or
required to deduct and withhold and the account to be distributed in
such case shall be correspondingly reduced. In the event any
distribution is subject to Federal or State withholding requirements,
the Custodian may require evidence that such withholding requirements
have been met or that a waiver thereof is available and the conditions
of the waiver have been satisfied.
17.12 Investment of the Fund
The Custodian, as directed by the Employer, or in the event Section
17.14 applies, as directed by a Participant, shall invest the assets of
each Participant's Account in the Fund only in one or a combination of
the following, except as provided in Section 17.13:
(a) A savings account in the Custodian;
(b) A time deposit in the Custodian.
Except for accounts having a specified date of maturity, the Custodian
shall have the sole right to amend prospectively the governing terms and
interest rates applicable to accounts, including accounts theretofore
selected by Participants and Beneficiaries, at any time. As to accounts
with fixed maturities, the Custodian may make amendments to or
discontinue such accounts as of any maturity date, provided that
amendments to conform with applicable law and governmental rulings can
be made at any time.
17.13 Purchase of Insurance
Assets of the Plan may be invested in life insurance purchased from a
legal reserve life insurance company qualified to do business in the
state where the Plan is located. Any purchase of life insurance shall be
only as directed by the Participant and shall be treated as a
Participant-directed investment described in Section 17.14. Any
initial or additional life insurance contract purchased on behalf of a
Participant shall have a face amount of not less than $1000.
In the event ordinary life insurance contracts are purchased, less
than 50% of the aggregate contributions by the Employer and Affiliates
allocated to the Participant may be used to pay premiums attributable to
such contracts. No more than 25% of the aggregate Employer and Affiliate
contributions allocated to the Participant may be used to pay premiums
on term life insurance contracts, universal life contracts or any other
life insurance contract which is not ordinary life. If a combination of
ordinary life and other insurance contracts are purchased on a
Participant's life, the sum of 50% of the ordinary life insurance
premiums plus the premiums on all other life insurance on the
Participant's life purchased by the Plan shall not exceed 25% of the
aggregate Employer and Affiliate contributions allocated to the
Participant's Account. Amounts rolled over to this Plan from another
qualified plan (including a "conduit" Individual Retirement Account) may
be used to purchase life insurance without limitation.
Notwithstanding the above, in profit sharing or 401(k) plans, the
limitations imposed herein with respect to the purchase of life
insurance shall not apply to any Participant who has participated in
this Plan for five (5) or more years or to the portion of a
Participant's Account that has accumulated for at least two (2) Plan
years.
For purposes of this Section, an "ordinary life" insurance contract
shall mean a contract with both nondecreasing death benefits and
nonincreasing premiums. Any dividends or credits earned on insurance
contracts will be allocated to the Participant's Account derived from
Employer contributions for whose benefit the contract is held.
Insurance contracts purchased hereunder shall be owned by the Employer
for the benefit of the Plan and the Participant for whom the insurance
is purchased. In the event a distribution becomes payable to the
Participant under the terms of the Plan other than by reason of the
Participant's death, the insurance contract shall be distributed to the
Participant in satisfaction of that portion of the Participant's Account
which represents the value of the insurance contract, as the Participant
shall elect, subject, however, to the provisions of Article IX if
applicable. Any insurance contract so distributed shall be endorsed as
nontransferable.
The Beneficiary designation and the settlement option selected under
any insurance contract shall be subject to the requirements of Articles
X and XII to the extent such Sections are applicable to the Participant.
As owner of the life insurance contract, the Employer shall name a
Beneficiary and designate a method of distribution only in a manner
which meets the requirements of Articles X and XII to the extent such
Sections apply to the Participant. In the event of any conflict between
the terms of this Plan and the terms of any life insurance contract,
the terms of this Plan shall control.
17.14 Investment Direction by Participants
In the event the Employer elects, in the Adoption Agreement, to permit
Participants to choose the investments in which the assets of their
Account should be invested, no Participant shall thereby be considered a
fiduciary and no person who is a fiduciary shall be liable for any loss,
or by reason of any breach, which results from such Participant's
exercise of control. The Participant's investment direction shall be
limited to the types of accounts and deposits described in Section 17.12
<PAGE>
and the selection of interest rates and dates of maturity to the extent
made available by the Custodian, except as provided in Section 17.13.
The purchase of a life insurance contract shall be treated as a
Participant-directed investment.
17.15 Prohibited Transactions
Except as may be expressly permitted by law, no Custodian or
fiduciary hereunder shall permit the Plan to engage, directly and
indirectly, in any of the following transactions with a disqualified
person (as defined in Section 4975 of the Code):
(a) A sale or exchange, or leasing, of any property between the Plan and
a disqualified person;
(b) The lending of money or other extension of credit between the Plan
and a disqualified person;
(c) The furnishing of goods, services or facilities between the Plan and
a disqualified person;
(d) A transfer to, or use by or for the benefit of, a disqualified
person of the income or assets of the Plan and in his own interest
or for his own account;
(e) An act by a disqualified person who is a fiduciary whereby he deals
with the income or assets of the Plan in his own interest or for his
own account; or
(f) The receipt of any consideration for his own personal account by any
disqualified person who is a fiduciary from any party dealing with
the Plan in connection with a transaction involving the income or
assets of the Plan.
17.16 Indemnity
The Custodian shall be indemnified and held harmless by the
Employer from any and all liabilities, costs and expenses (including
legal expenses) arising out of any action taken by it pursuant to its
duties hereunder or in any other capacity with respect to this Plan,
whether imposed under the Employee Retirement Income Security Act of
1974, or otherwise, unless such liability may arise from the proven
gross negligence, bad faith or criminal misconduct of the Custodian.
ARTICLE XVIII Amendment, Termination and Merger
18.1 Amendment by Employer
The Employer may (a) change the choice of options in the Adoption
Agreement, (b) add overriding language in the Adoption Agreement when
such language is necessary to satisfy Section 415 or Section 416 of the
Code because of the required aggregation of multiple plans, and (c) add
certain model amendments published by the Internal Revenue Service which
specifically provide that their adoption will not cause the plan to be
treated as individually-designed. An Employer that amends the plan for
any other reason, including a waiver of the minimum funding requirement
under Section 412(d) of the Code, will no longer participate in this
Regional Prototype plan and will be considered to have an individually-
designed plan.
18.2 Amendment by Sponsor
The Regional Prototype sponsor may amend any part of the Plan.
18.3 Limitation on Amendments
Notwithstanding Section 18.1 and 18.2 no amendment by the Employer or
Sponsor nor any automatic change to or from a top heavy vesting schedule
shall:
(a) Either directly or indirectly have the effect of giving the Employer
any interest in any part of the corpus or income of the Trust or
cause any part of the Trust to be used for or diverted to purposes
other than for the exclusive benefit of Participants and their
Beneficiaries;
(b) Either directly or indirectly have the effect of changing the
computation of a Participant's Vested Interest, unless each
Participant having three or more Years of Service elects, after
being notified by the Employer in writing, to have his Vested
Interest computed under the Plan as amended. For Participants who do
not have at least one Hour of Service in any Plan Year beginning
after December 31, 1988, the preceding sentence shall be applied by
substituting "5 Years of Service" for "3 Years of Service" where
such language appears. Such election must be made within a time
period beginning no later than the date the amendment is adopted and
ending no earlier than the latest of the following dates: (i) 60
days after the amendment is adopted; (ii) 60 days after amendment
becomes effective; or (iii) 60 days after the Participant is given
written notice of the amendment by the Employer. A Participant who
fails to make an election within the period provided shall be deemed
to have assented to the amendment.
(c) Either directly or indirectly reduce the balance of any
Participant's Account except to the extent permitted under Section
412(c)(8) of the Code.
(d) Eliminate an optional form of distribution under the Plan described
in the regulations under Section 411 of the Code; provided, however,
that an amendment may eliminate an optional form of distribution if
the amendment relates only to the portion of a Participant's Account
which accrues after the date of the amendment.
If the vesting schedule of a Plan is amended, in the case of an
Employee who is a Participant as of the later of the date such
amendment is adopted or the date it becomes effective, the
nonforfeitable percentage (determined as of such dates of such
Employee's Employer-derived accrued benefit will not be less than
the percentage determined under the Plan without regard to such
amendment.
18.4 Termination of Plan
The Employer has established the Plan with a bona fide intention and
expectation that it will be able to make its contributions indefinitely,
but the Employer is not and shall not be under any obligation or
liability whatsoever to continue its contributions or to maintain the
Plan for any given length of time and may, in its sole and absolute
discretion, discontinue such contributions or terminate the Plan at any
time without any liability whatsoever for such discontinuance or
termination. Upon termination, partial termination or a complete
discontinuance of contributions to the Plan, all affected Participants
shall have a 100% Vested Interest in their respective Participant's
Accounts.
18.5 Merger
The Plan shall not be merged or consolidated with any other plan, and
no assets or liabilities of the Plan shall be transferred to any other
plan, unless each person having an interest in the Fund would (if the
Plan were then terminated)receive a benefit immediately after the
merger, consolidation or transfer which is equal to or greater than the
benefit he would have been entitled to receive immediately before the
merger, consolidation or transfer (if the Plan had then terminated).
18.6 Withdrawal by Sponsor or Failure to Qualify Under Code
The withdrawal of this Plan by the sponsor shall cause the
establishment of an individually-designed plan as provided in Section
18.1. If the Employer fails to obtain or retain qualified status of the
Plan and trust under Section 401(a) and 501(a) of the Code, such
Employer shall immediately be considered to have withdrawn from this
Regional Prototype plan and established an individually-designed plan as
provided in Section 18.1.
ARTICLE XIX Miscellaneous
19.1 No Guaranty of Employment
The adoption and maintenance of the Plan shall not be deemed to be a
contract between the Employer and any Employee. Nothing herein contained
shall be deemed to give any Employee the right to be retained in the
employ of the Employer or to interfere with the right of the Employer to
discharge any Employee at any time, nor shall it be deemed to give the
Employer the right to require any Employee to remain in its employ, nor
shall it interfere with the Employee's right to terminate his employment
at any time.
19.2 Spendthrift Provisions
Except as otherwise provided by law, benefits payable hereunder and
any interest of a Participant of Beneficiary in the trust shall not be
subject to assignment, transfer or anticipation or otherwise alienable
either by voluntary or involuntary act or by operation of law, nor
subject to attachment, execution, garnishment, levy, sequestration or
other seizure under any legal or equitable process. The foregoing shall
also apply to the creation, assignment or recognition of a right to any
benefit payable with respect to a Participant pursuant to a domestic
relations order unless such order is determined by the Employer to be a
qualified domestic relations order, as defined in Section 414(p) of the
Code, or any domestic relations order entered before January 1, 1985.
This Section shall not prohibit an assignment of a Participant's Account
as security for a loan from the Plan.
19.3 Conflict of Interest
If the Employer or any other person to whom fiduciary or
administrative authority has been delegated or redelegated hereunder
shall also be a Participant in this Plan, he shall have no authority as
such with respect to any matter specifically affecting his individual
interest hereunder, all such authority being reserved exclusively to
others empowered to act, to the exclusion of such Participant, and such
Participant shall act only in his individual capacity in connection with
any such matter, except to the extent no other person or entity is
empowered to act.
19.4 Disclaimers
Neither the Employer nor its owners, officers or directors in any way
guaranty the Fund against loss or depreciation, nor do they guaranty the
payment of any benefit or amount which may become due and payable
hereunder to any Participant or to any Beneficiary or to any creditor of
a Participant or a Beneficiary except to the extent required by law.
Each Participant, Beneficiary, or other person entitled at any time to
payments hereunder shall look solely to the assets of the Fund for such
payments or to the Participant's Account distributed to any Participant
or Beneficiary, as the case may be, for such payments. In each case
where a Participant's Account shall have been distributed to a
Participant or a Beneficiary or to the persons entitled jointly to the
receipt thereof and which propose to cover in full the benefit
hereunder, such Participant, or Beneficiary, or such person or persons,
as the case may be, shall have no further right or interest in the other
assets of the Fund.
19.5 Role of Sponsor
The Sponsor which makes this Plan available to the Employer shall not
be considered a party to the Plan, except to the extent that a Sponsor
which is a Financial Institution with trust powers under the laws of its
domicile or under federal law serves in the capacity of a Trustee or a
Financial Institution empowered to act as a Custodian under the law of
its domicile or under federal law serves in the capacity of a Custodian
and then only to the extent of its duties and responsibilities as
Trustee or Custodian, as the case may be, as specifically set forth in
this Plan. The Sponsor shall not be responsible for the validity of this
Plan under any law, the availability of any tax benefits of adopting
this Plan or any other responsibilities not expressly assumed or
allocated to it herein.
19.6 Exclusive Benefit
In no event shall any part of the trust assets be paid to or become
vested in the Employer, or be used for any purpose whatsoever other than
for the exclusive benefit of Participants and their Beneficiaries,
except that contributions of the Employer may be returned if:
(a) The Commissioner of Internal Revenue determines that the Plan is not
initially qualified under the Internal Revenue Code any contribution
made incident to that initial qualification by the Employer must be
returned to the Employer within one year after the date the initial
qualification is denied, but only if the application for the
qualification is made by the time prescribed by law for filing the
Employer's return for the taxable year in which the Plan is adopted,
or such later date as the Secretary of the Treasury may prescribe;
(b) The contribution was made due to a mistake of fact, the contribution
is returned within one year of the mistaken payment of the
contribution and the return satisfies the requirements of the last
paragraph of this Section; or
(c) The contribution was conditioned on its deductibility under Section
404 of the Code, the deduction was disallowed under such Section,
the contribution is returned within one year of the disallowance of
the deduction and the return satisfies the last paragraph of this
Section.
The return of a contribution (or a portion of a contribution) to
the Employer satisfies the requirements of this paragraph if the amount
so returned (i) does not exceed the excess of the contribution over the
amount which would have been contributed if the Plan had not been
disqualified or the requalification denied or if there had been no
mistake of fact or error in determining the deduction, as the case may
be, (ii) does not include the net earnings attributable to such excess
contributions, (iii) is reduced by any net losses attributable to the
excess contribution, and (iv) does not reduce the account of any
Participant to less than such account would have been had the returned
contribution never been made.
<PAGE>
Exhibit 10.6.1
AMENDMENT TO
GREATER BAY BANCORP
EMPLOYEE STOCK PURCHASE PLAN
(EFFECTIVE JANUARY 1, 1998)
<PAGE>
AMENDMENT TO
GREATER BAY BANCORP
EMPLOYEE STOCK PURCHASE PLAN
(EFFECTIVE JANUARY 1, 1998)
Greater Bay Bancorp (the "Company") maintains the Greater Bay Bancorp
Employee Stock Purchase Plan (the "Plan") for the benefit of its eligible
employees and the eligible employees of its Designated Subsidiaries as the term
is defined in the Plan. In accordance with the resolutions of the Board of
Directors of the Company approving an amendment to the Plan, the Company hereby
amends the Plan as follows, effective January 1, 1998.
1. G. RIGHT TO PURCHASE SHARES.
The first sentence of Section G of the Plan is hereby amended by
deleting the references to "base" used in connection with the term
"Compensation" to read as follows:
"Subject to the limitations set forth in paragraphs B, I(iii),
I(v), and J(ii), on each Offering Date, each Participant shall be
granted a Plan Option to purchase (at the purchase price determined
under paragraph H) a number of whole Shares arrived at by dividing (a)
an amount equal to 15% of the Participant's Compensation for the
Offering Period beginning on such Offering Date determined at the rate
of such Participant's Compensation in effect as of such Offering Date by
(b) 85% of the fair-market value of a Share of the Company's common
stock on the Offering Date."
Section G of the Plan shall also be amended by adding a new sentence to
the end of this Section G to read as follows:
"Notwithstanding any provisions in the Plan to the contrary, the
'Compensation' of a Participant who elects not to have any payroll
deductions taken from any bonuses paid to him during an Offering Period
as provided in paragraph J(i) shall not include bonuses."
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<PAGE>
2. I. PAYMENT OF PURCHASE PRICE: PAYROLL DEDUCTIONS.
Section I(i) is hereby amended in its entirety to read as follows:
"(i) ACCUMULATION OF PAYROLL DEDUCTIONS. The purchase price
----------------------------------
of Shares to be acquired in an Offering Period shall be accumulated by
payroll deductions over the Offering Period. Except as set forth below,
the amount of Compensation to be withheld from a Participant's
Compensation during each pay period shall be determined by the
Participant's Subscription Agreement. Notwithstanding any other
provisions in the Plan to the contrary, a Participant may elect in his
Subscription Agreement to accumulate the purchase price of Shares by
payroll deductions only with regard to his regular paychecks, and not
with regard to any bonuses that the Company or Designated Subsidiary may
pay him during an Offering Period. The Compensation of a Participant
making this election in his Subscription Agreement shall not include any
bonuses that he may receive from the Company or a Designated Subsidiary
during an Offering Period."
The Employer has caused this Amendment to be executed on this 12th day
of December, 1997.
COMPANY: GREATER BAY BANCORP
By: /s/ David L. Kalkbrenner
-------------------------------
David L. Kalkbrenner
President and Chief Executive
Officer
By: /s/ Steven C. Smith
-------------------------------
Steven C. Smith
Executive Vice President and Chief
Operating Officer
2
<PAGE>
EXHIBIT 10.7
GREATER BAY
______________
B A N C O R P
CHANGE IN CONTROL PAY PLAN I
(EFFECTIVE JANUARY 1, 1998)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE/SECTION SUBJECT PAGE
- --------------- ------- ----
<S> <C>
ARTICLE I
PURPOSE............................................................... 1
ARTICLE II
EFFECTIVE DATE........................................................ 1
ARTICLE III
DEFINITIONS........................................................... 1
Section 3.1 Added Benefit.......................................... 1
Section 3.2 Affiliated Company..................................... 1
Section 3.3 Base Benefit........................................... 2
Section 3.4 Board of Directors..................................... 2
Section 3.5 Change in Control...................................... 2
Section 3.6 Code................................................... 3
Section 3.7 Committee.............................................. 3
Section 3.8 Company................................................ 3
Section 3.9 Effective Date......................................... 3
Section 3.10 Employee............................................... 3
Section 3.11 ERISA.................................................. 3
Section 3.12 Leave of Absence....................................... 3
Section 3.13 Member Company......................................... 3
Section 3.14 Participant............................................ 3
Section 3.15 Pay.................................................... 3
Section 3.16 Plan................................................... 4
Section 3.17 Plan Year.............................................. 4
Section 3.18 Year of Service........................................ 4
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
ARTICLE/SECTION SUBJECT PAGE
- --------------- ------- ----
<S> <C>
ARTICLE IV
ELIGIBILITY FOR BENEFITS.............................................. 4
Section 4.1 Employees Eligible for Severance Benefits.............. 4
Section 4.2 Employees Not Eligible For Severance Benefits.......... 4
ARTICLE V
SEVERANCE BENEFITS.................................................... 6
Section 5.1 Calculation of Severance Benefit....................... 6
Section 5.2 Golden Parachute Restriction........................... 7
Section 5.3 Payment of Benefits.................................... 8
Section 5.4 Payment Offset......................................... 8
Section 5.5 Unfunded Plan.......................................... 8
Section 5.6 Prohibition Against Golden Parachute Payments.......... 8
ARTICLE VI
ADMINISTRATION........................................................ 8
Section 6.1 Plan Administration.................................... 8
Section 6.2 Plan Committee......................................... 8
Section 6.3 Named Fiduciary........................................ 9
Section 6.4 Indemnification of Committee........................... 10
Section 6.5 Claims Procedure....................................... 10
ARTICLE VII
AMENDMENT AND TERMINATION............................................. 11
Section 7.1 Before Change in Control............................... 11
Section 7.2 After Change in Control................................ 11
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
ARTICLE/SECTION SUBJECT PAGE
- --------------- ------- ----
<S> <C>
ARTICLE VIII
GENERAL............................................................... 11
Section 8.1 Payment Out of General Assets.......................... 11
Section 8.2 Welfare Benefit Plan................................... 11
Section 8.3 Gender................................................. 11
Section 8.4 Limitation on Participant's Rights..................... 11
Section 8.5 Severability........................................... 12
</TABLE>
iii
<PAGE>
GREATER BAY BANCORP CHANGE IN CONTROL PAY PLAN I
------------------------------------------------
ARTICLE I
---------
PURPOSE
-------
GREATER BAY BANCORP (hereinafter referred to as the "Company") hereby
establishes a change in control pay plan to provide severance benefits to
eligible Employees whose employment terminates in connection with a Change in
Control, effective as of January 1, 1998, in accordance with the terms set forth
hereunder. The intent of the plan is to ensure all eligible Employees have
reasonable protection related to any event as specified in this plan.
ARTICLE II
----------
EFFECTIVE DATE
--------------
All of the policies and practices of each Member Company regarding
severance, or similar payments upon employment termination on account of a
Change in Control are hereby superseded by this plan which shall be known as the
GREATER BAY BANCORP Change in Control Pay Plan I (the "Plan"), effective January
1, 1998.
ARTICLE III
-----------
DEFINITIONS
-----------
Section 3.1 Added Benefit means the severance benefit payable to a
-------------
Participant in accordance with Articles IV and V of the Plan which is in
addition to the Base Benefit payable to the Participant.
Section 3.2 Affiliated Company means:
------------------
(a) Any corporation (other than the Company) that is included in
a controlled group of corporations, within the meaning of
Code Section 414(b), that includes the Company, and
(b) Any trade or business (other than the Company) that is under
common control with the Company within the meaning of Code
Section 414(c), and
(c) Any member (other than the Company) of an affiliated service
group, within the meaning of Code Section 414(m), that
includes the Company, and
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(d) Any other entity required to be aggregated with the Company
pursuant to regulations under Code Section 414(o).
Section 3.3 Base Benefit means the severance benefit payable to a
------------
Participant in accordance with Articles IV and V of the Plan, the amount of
which is based upon such Participant's Pay and his or her title or position in a
Member Company as of the date he terminates employment with the Member Company
on account of a Change in Control.
Section 3.4 Board of Directors means the board of directors of the
------------------
Company.
Section 3.5 Change in Control means the first to occur of any of the
-----------------
following events:
(A) Any "person" (as that term is used in Section 13 and
14(d)(2) of the Securities Exchange Act of 1934 ("Exchange Act")
becomes the beneficial owner (as that term is used in Section 13(d) of
the Exchange Act), directly or indirectly, of 25% or more of the
Company's capital stock entitled to vote in the election of directors;
(B) During any period of not more than two consecutive
years, not including any period prior to the adopting of this Plan,
individuals who, at the beginning of such period constitute the Board
of Directors of the Company, and any new director (other than a
director designated by a person who has entered into an agreement with
the Company to effect a transaction described in clause (A), (C), (D)
and (E) of this Article) whose appointment to the Board of Directors
or nomination for election to the Board of Directors was approved by a
vote of at least three-fourths (3/4ths) of the directors then still in
office, either were directors at the beginning of the period or whose
appointment or nomination for election was previously so approved,
cease for any reason to constitute at least a majority thereof;
(C) The shareholders of the Company approve any
consolidation or merger of the Company, other than a consolidation or
merger of the Company on which the holders of the common stock of the
Company immediately prior to the consolidation or merger hold more
than 50% of the common stock of the surviving corporation immediately
after the consolidation or merger;
(D) The shareholders of the Company approve any plan or
proposal for the liquidation or dissolution of the Company; or
2
<PAGE>
(E) The shareholders of the Company approve the sale or
transfer of substantially all of the Company's assets to parties that
are not within a "controlled group of corporations" (as defined in
Code Section 1563) in which the Company is a member.
Section 3.6 Code means the Internal Revenue Code of 1986, as amended.
----
Section 3.7 Committee means the administrative committee appointed by
---------
the Chief Executive Officer and Chief Operating Officer of the Company pursuant
to Section 6.1 hereof.
Section 3.8 Company means GREATER BAY BANCORP.
-------
Section 3.9 Effective Date means January 1, 1998.
--------------
Section 3.10 Employee means (1) any full-time employee of a Member
--------
Company or (2) any regular part-time employee of a Member Company. For purposes
of this Section 3.10, "full-time employee" shall mean an employee of a Member
Company who is regularly scheduled to work at least forty (40) hours per week
for twelve (12) months each year. Notwithstanding the foregoing, with respect to
employees of a Member Company which requires fewer than forty (40) hours per
week for classification as a full-time employee, "full-time employee" shall be
defined according to such Member Company's administrative policy and practice.
"Regular part-time" employee shall mean any employee of a Member Company who is
regularly scheduled to work at least twenty-four (24) hours per week for twelve
(12) months each year, but fewer hours than necessary to classify him as a full-
time employee.
Section 3.11 ERISA means the Employee Retirement Income Security Act of
-----
1974, as amended.
Section 3.12 Leave of Absence means a period of absence from regular
----------------
employment which is approved by the Board of Directors or the Committee in a
non-discriminatory manner for reasons such as, but not limited to, sickness,
disability, education, jury duty, convenience to a Member Company, maternity or
paternity leave, family leave, or for periods of military duty during which the
Employee's reemployment rights are protected by law.
Section 3.13 Member Company means the Company or an Affiliated Company,
--------------
provided that the Company consents to the participation of any such Affiliated
Company in the Plan with respect to eligible Employees of such Affiliated
Company.
Section 3.14 Participant means an Employee who satisfies the requirements
-----------
under Section 4.1 of the Plan.
Section 3.15 Pay means a Employee's current annual rate of regular salary
---
or wages on his/her date of termination of employment with a Member Company and
the average of the annual and/or incentive bonuses paid to the Employee over the
three years immediately preceding the date of his termination of employment on
account of a Change in Control, excluding all other extra pay
3
<PAGE>
such as overtime, commissions, premiums, and living or other allowances.
Section 3.16 Plan means the Greater Bay Bancorp Change in Control Pay
----
Plan I.
Section 3.17 Plan Year means each twelve (12) consecutive month period
---------
from January 1 through December 31.
Section 3.18 Year of Service means a twelve (12)-continuous month period
---------------
beginning on an Employee's most recent date of hire (or rehire), and each twelve
(12)-continuous month period beginning on the anniversary of such hire (or
rehire) date, during which the Employee remains continuously employed by a
Member Company.
ARTICLE IV
----------
ELIGIBILITY FOR BENEFITS
------------------------
Section 4.1 Employees Eligible for Severance Benefits. Except as
-----------------------------------------
provided in this Section 4.1 and in Section 4.2 and subject to Section 5.6, an
Employee whose employment is terminated by a Member Company on or after the
Effective Date shall be eligible for a Base Benefit and an Added Benefit if:
(a) Subject to Section 4.2, the Employee's employment is
terminated as a result of a Change in Control within two
years of the effective time of the Change in Control (the
"effective time" of the Change in Control will have the same
meaning provided in Section 7.2); and
(b) The Employee's employment is not terminated for cause for
personal conduct; and
(c) The Employee executes a waiver and release agreement in such
form as determined by the Committee (the "Waiver and Release
Agreement") and returns the Waiver and Release Agreement to
the Member Company within the time period specified in the
Waiver and Release Agreement.
Section 4.2 Employees Not Eligible For Severance Benefits. An Employee
---------------------------------------------
shall not be entitled to a Base Benefit or an Added Benefit set forth in Article
V if:
4
<PAGE>
(a) The Employee has in force an employment contract or executive
severance agreement with a Member Company which includes
provision for the payment of severance benefits upon the
termination of his or her employment with the Member Company
upon a Change in Control, unless such severance benefits are
less than the Base Benefit and Added Benefit provided for in
the Plan; or
(b) The Employee is offered employment by the successor employer
in the same position or in another position of comparable pay
and status to the position he held immediately prior to the
effective date of the Change in Control, or the Employee is
offered employment by a Member Company in another position of
comparable pay and status to the position held immediately
prior to the Change in Control, regardless of whether he
accepts the offer; or
(c) The Employee's employment is involuntarily terminated for
cause for personal conduct (an Employee whose employment is
terminated for cause which is related to his/her work
performance may be eligible to receive severance benefits
under the Plan as the Committee in its sole discretion may
determine; or
(d) The Employee fails to perform his/her regular assigned job
duties through the date specified by a Member Company as
his/her termination date; or
(e) The Employee fails to return a properly executed Waiver and
Release Agreement on a timely basis.
For purposes of this Section 4.2, a "position of comparable pay and status"
shall mean a position with not less than one hundred percent (100%) of the Pay,
bonus opportunity and benefits of the position held by the Employee prior to
his/her termination of employment and with a similar scope of duties and
responsibilities to such prior position. In addition, a position will not be
considered a position of comparable pay and status if (i) an Employee is
required to increase his/her normal commuting miles to reach a new worksite, and
(ii) the normal commuting from his/her home to the new worksite exceeds 30 miles
each way. Notwithstanding the foregoing, the Committee reserves the right to
make decisions based on the facts and circumstances of individual cases as to
whether a position is of comparable pay and status to that held by an Employee
prior to his/her employment termination, provided that an Employee may appeal
any such decision pursuant to the provisions of Section 6.5.
5
<PAGE>
ARTICLE V
---------
SEVERANCE BENEFITS
------------------
Section 5.1 Calculation of Severance Benefit. Subject to the provisions
--------------------------------
of Sections 4.1, 4.2 and 5.6, a Participant whose employment is terminated as a
result of a Change in Control shall be entitled to receive a Base Benefit and an
Added Benefit under this Plan as follows:
(a) Executive Management Committee. A Participant who is a member
------------------------------
of the Executive Management Committee of a Member Company
(other than the Chief Executive Officer, Chief Operating
Officer, Chief Financial Officer and Chief Lending Officer)
shall be entitled to receive a Base Benefit equal to twelve
(12) months of Pay and an Added Benefit of two (2) weeks of
Pay for each full Year of Service, provided, however, that
the total Base Benefit and Added Benefit payable to the
Participant shall not exceed eighteen (18) months of Pay.
(b) Senior Vice Presidents, Vice Presidents and Assistant Vice
----------------------------------------------------------
Presidents. A Participant who is an officer of a Member
----------
Company and whose title is Senior Vice President shall be
entitled to receive a Base Benefit equal to six (6) months of
Pay and an Added Benefit of two (2) weeks of Pay for each
full Year of Service, provided, however, that the total Base
Benefit and Added Benefit payable to such Participant shall
not exceed nine (9) months of Pay. A Participant who is an
officer of a Member Company and whose title is Vice President
shall be entitled to receive a Base Benefit equal to four (4)
months of Pay and an Added Benefit of two (2) weeks of Pay
for each full Year of Service, provided, however, that the
total Base Benefit and Added Benefit payable to such
Participant shall not exceed six (6) months of Pay. A
Participant who is an officer of a Member Company and whose
title is Assistant Vice President shall be entitled to
receive a Base Benefit equal to two (2) months of Pay and an
Added Benefit of two (2) weeks of Pay for each full Year of
Service, provided, however, that the total Base Benefit and
Added Benefit payable to such Participant shall not exceed
four (4) months of Pay.
(c) Staff - Exempt and Non-Exempt. A Participant who is an exempt
-----------------------------
or a non-exempt Employee shall be entitled to receive a Base
Benefit equal to one (1) month of Pay and an Added Benefit of
two (2) weeks of Pay for each full Year of Service, provided,
however, that the total Base Benefit and Added Benefit
payable to such Participant shall not exceed three (3) months
of Pay.
6
<PAGE>
For purposes of calculating a Participant's severance benefits under this
Section 5.1, the Plan shall take into account only consecutive Years of Service
beginning with the Participant's most recent date of hire or rehire and it shall
not take into account partial Years of Service, nor shall a Participant receive
severance benefits for Years of Service for which he/she previously received
severance benefits under the Plan.
Section 5.2 Golden Parachute Restriction.
----------------------------
(a) Reduction for "Parachute Payment." Notwithstanding anything
---------------------------------
above in this Article V, if a Participant is a "disqualified
individual" (as defined in Section 280G(c) of the Code), and
the severance benefit provided for in Section 5.1, together
with any other payments which the Participant has the right
to receive from a Member Company would constitute a
"parachute payment" (as defined in Section 280G(b)(2) of the
Code), the severance benefit shall be reduced. The reduction
shall be in an amount so that the present value of the total
amount received by the Participant from a Member Company
will be One Dollar ($1.00) less than three (3) times the
Participant's base amount (as defined in Section 280G of the
Code) and so that no portion of the amounts received by the
Participant shall be subject to the excise tax imposed by
Section 4999 of the Code.
(b) Deferred Compensation and Reimbursements Exception. In no
--------------------------------------------------
circumstances will a Member Company reduce the severance
benefits payable to a Participant on account of the
restrictions of this Section 5.2 by the amounts the
Participant has the right to receive under an executive
deferred compensation plan of the Member Company (Deferred
Compensation Plan), amounts paid or payable to the
Participant to reimburse him/her either fully or partially
for excise tax and/or income tax on the reimbursement (gross
up amounts), or amounts paid or payable to the Participant
as indemnification for attorney's fees and legal expenses.
(c) Determination of Reduction. The determination as to whether
--------------------------
any reduction in the severance benefit is necessary shall be
made by a Participant's Member Company in good faith, and
the determination shall be conclusive and binding on the
Participant.
(d) Repayment of Excess Amount. If through error or otherwise
--------------------------
the Participant should receive payments under this Plan,
together with other payments the Participant has the right
to receive from a Member Company, excluding Deferred
Compensation Plan payments in excess of one dollar ($1.00)
less than three times his/her base amount, the Participant
shall immediately repay the excess to the Member Company
upon notification that an overpayment has been made.
7
<PAGE>
Section 5.3 Payment of Benefits. The Plan shall pay severance benefits
-------------------
to a Participant whose employment is terminated on account of a Change in
Control in the form of a lump sum or equal installments payable over a period
not to exceed twenty-four (24) months, as the Committee in its sole discretion
may determine. The Plan shall make lump sum distributions as soon as
administratively practicable and in no event later than thirty (30) days
following the receipt by the Committee of a timely and properly executed Waiver
and Release Agreement. Subject to the Committee's receipt of a properly executed
Waiver and Release Agreement on a timely basis, the Plan shall make payments of
severance benefits in equal installments as of the first payday following the
Participant's termination of employment.
Section 5.4 Payment Offset. A Member Company reserves the right to
--------------
offset the benefits payable under Sections 5.1 by any advance, loan or other
monies a Participant owes the Member Company. Employment taxes shall be
withheld from all severance payments.
Section 5.5 Unfunded Plan. The obligations of a Member Company under
-------------
this Plan may be funded through contributions to a trust or otherwise, but the
obligations of the Member Company are not required to be funded under this Plan
unless required by law. Nothing contained in this Plan shall give a Participant
any right, title or interest in any property of the Member Company.
Section 5.6 Prohibition Against Golden Parachute Payments.
---------------------------------------------
Notwithstanding any provision of the Plan to the contrary, no Participant who is
an institution affiliated party as the term is defined in Section 359.1(h) of
the Federal Deposit Insurance Corporation Rules and Regulations ("FDIC Rules and
Regs") shall be entitled to the payment of any severance benefit under the Plan
to the extent that such payment shall be deemed a "golden parachute payment" as
the term is defined in FDIC Rules and Regs. Section 359.1(f)(i)(ii) or (iii).
ARTICLE VI
----------
ADMINISTRATION
--------------
Section 6.1 Plan Administration. The Company shall be the administrator
-------------------
of the Plan for purposes of Section 3(16) of ERISA and shall have responsibility
for complying with any ERISA reporting and disclosure rules applicable to the
Plan for any Plan Year.
Section 6.2 Plan Committee. In all respects other than as provided in
--------------
Section 6.1, the Plan shall be administered and operated by the Committee which
shall consist of one or more individuals appointed by the Chief Executive
Officer and Chief Operating Officer of the Company who may also revoke any such
appointment and subsequently appoint other individuals. The Committee shall
have all powers necessary to supervise the administration of the Plan and
control its operations. In addition to any powers and authority conferred to
the
8
<PAGE>
Committee elsewhere in the Plan or by law, the Committee shall have, by way of
illustration but not by way of limitation, the following discretionary powers
and authority:
(a) To allocate fiduciary responsibilities among the named
fiduciaries and to designate one or more other persons to
carry out fiduciary responsibilities. However, no allocation
or delegation under this Section 6.2(a) shall be effective
until the person or persons to whom the responsibilities
have been allocated or delegated agree to assume the
responsibilities;
(b) To designate agents to carry out responsibilities relating
to the Plan, other than fiduciary responsibilities;
(c) To employ such legal, accounting, clerical, and other
assistance as it may deem appropriate in carrying out the
provisions of this Plan, including one or more persons to
render advice with regard to any responsibility any
fiduciary may have under the Plan;
(d) To establish rules and procedures from time to time for the
conduct of the Committee's business and the administration
and effectuation of this Plan;
(e) To administer, interpret, construe and apply this Plan. To
decide all questions which may arise or which may be raised
under this Plan by any Employee, Participant, former
Participant or other person whatsoever, including but not
limited to all questions relating to eligibility to
participate in the Plan, the amount of service of any
Participant, and the amount of benefits to which any
Participant may be entitled;
(f) To determine the manner in which the severance benefits of
this Plan, or any part thereof, shall be administered; and
(g) To perform or cause to be performed such further acts as it
may deem to be necessary, appropriate or convenient in the
efficient administration of the Plan.
Any action taken in good faith by the Committee in the exercise of discretionary
authority conferred upon it by this Plan shall be conclusive and binding upon
the Participants. All discretionary powers conferred upon the Committee shall
be absolute. However, all discretionary powers shall be exercised in a uniform
and nondiscriminatory manner.
Section 6.3 Named Fiduciary. The members of the Committee shall be
---------------
named fiduciaries with respect to this Plan for purposes of Section 402 of
ERISA.
9
<PAGE>
Section 6.4 Indemnification of Committee. The Company shall, to the
----------------------------
extent permitted by law, by the purchase of insurance or otherwise, indemnify
and hold harmless each member of the Committee and each other fiduciary with
respect to this Plan for liabilities or expenses they and each of them incur in
carrying out their respective duties under the Plan, other than for any
liabilities or expenses arising out of such fiduciary's gross negligence or
willful misconduct. A fiduciary shall not be responsible for any breach of
responsibility of any other fiduciary except to the extent provided in Section
405 of ERISA.
Section 6.5 Claims Procedure. If any request for benefits under this
----------------
Plan is denied, in whole or in part, the claimant shall be so notified by the
Committee within five (5) calendar days of the date such person's claim is
delivered to the person designated in writing by the Chief Executive Officer and
Chief Operating Officer of the Company. At the same time, the Committee shall
notify the claimant of his/her right to a review by the Committee and shall set
forth, in a manner calculated to be understood by the claimant, specific reasons
for such decision, specific references to pertinent information necessary for
the claimant to perfect his/her request for review, an explanation of why such
material or information is necessary, and an explanation of the Plan's review
procedure.
Any person or a duly authorized representative may appeal from such
decision by submitting to the Committee within sixty (60) calendar days after
receiving a notice of the Committee' decision a written statement:
(a) Requesting a review of the claim for a termination allowance
by the Committee;
(b) Setting forth all of the grounds upon which the request for
review is based and any facts in support thereof; and
(c) Setting forth any issues or comments which the claimant
deems relevant to the claim.
The Committee shall act upon such appeal within sixty (60) calendar days
after the later of receipt of the claimant's request for review by the Committee
or receipt of all additional materials reasonably requested by the Committee
from such claimant.
The Committee shall make a full and fair review of an appeal and all
written materials submitted by the claimant in connection therewith and may
require the claimant to submit, within ten (10) calendar days' written notice by
the Committee therefor, such additional facts, documents or other evidence as
the Committee, in its sole discretion, deems necessary or advisable in making
such a review. On the basis of its review, the Committee shall make an
independent determination of the claimant's eligibility for an allowance and the
amount of such allowance, if any, under this Plan. The decision of the
Committee on any appeal shall be final and conclusive upon all persons if
supported by substantial evidence in the record.
10
<PAGE>
If the Committee denies a claim in whole or in part, the Committee shall
give written notice of its decision to the claimant setting forth, in a manner
calculated to be understood by the claimant, the specific reasons for such
denial and specific references to the pertinent Plan provisions on which the
Committee's decision was based.
ARTICLE VII
-----------
AMENDMENT AND TERMINATION
-------------------------
Section 7.1 Before Change in Control. This Plan may be amended from
------------------------
time to time, or terminated at any time at the discretion of the Board of
Directors by a written resolution adopted by a majority of the Board of
Directors, provided, however, that no amendment or termination shall adversely
affect the right of a Participant to receive a severance benefit that the
Participant has accrued on account of his or her termination of employment as a
result of a Change in Control.
Section 7.2 After Change in Control. Notwithstanding the foregoing, the
-----------------------
Plan may not be amended or participation discontinued after the effective time
of a Change in Control. For purposes of this Plan, the "effective time" of a
Change in Control shall have the same meaning provided in the agreement
governing the transaction(s) which give rise to the Change in Control.
ARTICLE VIII
------------
GENERAL
-------
Section 8.1 Payment Out of General Assets. The benefits and costs of
-----------------------------
this Plan shall be paid by the Company and each Member Company out of their
general assets.
Section 8.2 Welfare Benefit Plan. This Plan is intended to be an
--------------------
employee welfare benefit plan, as defined in Section 3(1), Subtitle A of Title 1
of ERISA. The Plan will be interpreted to effectuate this intent.
Notwithstanding any other provision of this Plan, no Participant shall receive
hereunder any payment exceeding twice that Participant's annual compensation
during the year immediately preceding the termination of his or her service,
within the meaning of 29 C.F.R. (S) 2510.3-2 as the same was in effect on the
effective date of this Plan.
Section 8.3 Gender. The masculine pronoun shall include the feminine
------
pronoun and the feminine pronoun shall include the masculine pronoun and the
singular pronoun shall include the plural pronoun and the plural pronoun shall
include the singular pronoun, unless the context clearly indicates otherwise.
Section 8.4 Limitation on Participant's Rights. Nothing in this Plan
----------------------------------
shall be construed to guarantee terminated Employees any right to be recalled or
rehired by a Member Company.
11
<PAGE>
Section 8.5 Severability. If any provision of this Plan shall be held
------------
illegal or invalid, the illegality or invalidity shall not affect the remaining
parts, which shall be enforced as if the illegal or invalid provision had not
been included in this Plan.
IN WITNESS WHEREOF, GREATER BAY BANCORP has caused this instrument to be
executed by its duly authorized officers, on this 27th day of March, 1998.
EMPLOYER: GREATER BAY BANCORP
By /s/ David L. Kalkbrenner
------------------------
David L. Kalkbrenner
President and Chief Executive Officer
By /s/ Warren R. Thoits
--------------------
Warren R. Thoits
Secretary
MEMBER
COMPANIES: CUPERTINO NATIONAL BANK
By /s/ C. Donald Allen
-------------------
C. Donald Allen
President and Chief Executive Officer
By /s/ Steven C. Smith
-------------------
Steven C. Smith
Secretary
MID-PENINSULA BANK
By /s/ Susan K. Black
------------------
Susan K. Black
President and Chief Executive Officer
By /s/ Warren R. Thoits
--------------------
Warren R. Thoits
Secretary
PENINSULA BANK OF COMMERCE
By /s/ Mark F. Doiron
------------------
Mark F. Doiron
President and Chief Executive Officer
By /s/ Michael E. Vano
-------------------
Michael E. Vano
Secretary
12
<PAGE>
EXHIBIT 10.8
GREATER BAY
_____________
B A N C O R P
CHANGE IN CONTROL PAY PLAN II
(EFFECTIVE JANUARY 1, 1998)
<PAGE>
TABLE OF CONTENTS
ARTICLE/SECTION SUBJECT PAGE
- --------------- ------- ----
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I
PURPOSE........................................................... 1
ARTICLE II
EFFECTIVE DATE.................................................... 1
ARTICLE III
DEFINITIONS....................................................... 1
Section 3.1 Added Benefit...................................... 1
Section 3.2 Affiliated Company................................. 1
Section 3.3 Base Benefit....................................... 2
Section 3.4 Board of Directors................................. 2
Section 3.5 Change in Control.................................. 2
Section 3.6 Code............................................... 3
Section 3.7 Committee.......................................... 3
Section 3.8 Company............................................ 3
Section 3.9 Effective Date..................................... 3
Section 3.10 Employee........................................... 3
Section 3.11 ERISA.............................................. 3
Section 3.12 Leave of Absence................................... 3
Section 3.13 Participant........................................ 4
Section 3.14 Pay................................................ 4
Section 3.15 Plan............................................... 4
Section 3.16 Plan Year.......................................... 4
Section 3.17 Year of Service.................................... 4
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
ARTICLE/SECTION SUBJECT PAGE
- --------------- ------- ----
<S> <C>
ARTICLE IV
ELIGIBILITY FOR BENEFITS.......................................... 4
Section 4.1 Employees Eligible for Severance Benefits.......... 4
Section 4.2 Employees Not Eligible For Severance Benefits...... 5
ARTICLE V
SEVERANCE BENEFITS................................................ 6
Section 5.1 Calculation of Severance Benefit................... 6
Section 5.2 Golden Parachute Restriction....................... 6
Section 5.3 Payment of Benefits................................ 7
Section 5.4 Payment Offset..................................... 8
Section 5.5 Unfunded Plan...................................... 8
Section 5.6 Prohibition Against Golden Parachute Payments...... 8
ARTICLE VI
ADMINSTRATION..................................................... 8
Section 6.1 Plan Administration................................ 8
Section 6.2 Plan Committee..................................... 8
Section 6.3 Named Fiduciary.................................... 9
Section 6.4 Indemnification of Committee....................... 9
Section 6.5 Claims Procedure................................... 9
ARTICLE VII
AMENDMENT AND TERMINATION......................................... 10
Section 7.1 Before Change in Control........................... 10
Section 7.2 After Change in Control............................ 11
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
ARTICLE/SECTION SUBJECT PAGE
- --------------- ------- ----
<S> <C>
ARTICLE VIII
GENERAL........................................................... 11
Section 8.1 Payment Out of General Assets...................... 11
Section 8.2 Welfare Benefit Plan............................... 11
Section 8.3 Gender............................................. 11
Section 8.4 Limitation on Participant's Rights................. 11
Section 8.5 Severability....................................... 11
</TABLE>
iii
<PAGE>
GREATER BAY BANCORP
----------- -------
CHANGE IN CONTROL PAY PLAN II
-----------------------------
ARTICLE I
---------
PURPOSE
-------
GREATER BAY BANCORP (hereinafter referred to as the "Company") hereby
establishes a change in control pay plan to provide severance benefits to
selected executives who are deemed Eligible Employees and whose employment
terminates in connection with a Change in Control, effective as of January 1,
1998, in accordance with the terms set forth hereunder. The intent of the plan
is to ensure all Eligible Employees (as the term is defined herein) have
reasonable protection related to any event as specified in this plan.
ARTICLE II
----------
EFFECTIVE DATE
--------------
All of the policies and practices of the Member Company regarding
severance, or similar payments to Eligible Employees upon their employment
termination on account of a Change in Control are hereby superseded by this plan
which shall be known as the GREATER BAY BANCORP Change in Control Pay Plan II
(the "Plan"), effective January 1, 1998.
ARTICLE III
-----------
DEFINITIONS
-----------
Section 3.1 Added Benefit means the severance benefit payable to a
-------------
Participant in accordance with Articles IV and V of the Plan which is in
addition to the Base Benefit payable to the Participant.
Section 3.2 Affiliated Company means:
------------------
(a) Any corporation (other than the Company) that is included in a
controlled group of corporations, within the meaning of Code
Section 414(b), that includes the Company, and
(b) Any trade or business (other than the Company) that is under
common control with the Company within the meaning of Code
Section 414(c), and
1
<PAGE>
(c) Any member (other than the Company) of an affiliated service
group, within the meaning of Code Section 414(m), that includes
the Company, and
(d) Any other entity required to be aggregated with the Company
pursuant to regulations under Code Section 414(o).
Section 3.3 Base Benefit means the severance benefit payable to a
------------
Participant in accordance with Articles IV and V of the Plan, the amount of
which is based upon such Participant's Pay and his or her title or position in
the Company as of the date he terminates employment with the Company on account
of a Change in Control.
Section 3.4 Board of Directors means the board of directors of the
------------------
Company.
Section 3.5 Change in Control means the first to occur of any of the
-----------------
following events:
(A) Any "person" (as that term is used in Section 13 and 14(d)(2)
of the Securities Exchange Act of 1934 ("Exchange Act") becomes the
beneficial owner (as that term is used in Section 13(d) of the
Exchange Act), directly or indirectly, of 25% or more of the Company's
capital stock entitled to vote in the election of directors;
(B) During any period of not more than two consecutive years, not
including any period prior to the adopting of this Plan, individuals
who, at the beginning of such period constitute the Board of Directors
of the Company, and any new director (other than a director designated
by a person who has entered into an agreement with the Company to
effect a transaction described in clause (A), (C), (D) and (E) of this
Article) whose appointment to the Board of Directors or nomination for
election to the Board of Directors was approved by a vote of at least
three-fourths (3/4ths) of the directors then still in office, either
were directors at the beginning of the period or whose appointment or
nomination for election was previously so approved, cease for any
reason to constitute at least a majority thereof;
(C) The shareholders of the Company approve any consolidation or
merger of the Company, other than a consolidation or merger of the
Company on which the holders of the common stock of the Company
immediately prior to the consolidation or merger hold more than 50% of
the common stock of the surviving corporation immediately after the
consolidation or merger;
2
<PAGE>
(D) The shareholders of the Company approve any plan or proposal
for the liquidation or dissolution of the Company; or
(E) The shareholders of the Company approve the sale or transfer
of substantially all of the Company's assets to parties that are not
within a "controlled group of corporations" (as defined in Code
Section 1563) in which the Company is a member.
Section 3.6 Code means the Internal Revenue Code of 1986, as amended.
----
Section 3.7 Committee means the administrative committee appointed by
---------
the Chief Executive Officer and Chief Operating Officer of the Company pursuant
to Section 6.1 hereof.
Section 3.8 Company means GREATER BAY BANCORP.
-------
Section 3.9 Effective Date means January 1, 1998.
--------------
Section 3.10 Employee means (1) any full-time employee of the Company or
--------
(2) any regular part-time employee of the Company. For purposes of this Section
3.10, "full-time employee" shall mean an employee of the Company who is
regularly scheduled to work at least forty (40) hours per week for twelve (12)
months each year. Notwithstanding the foregoing, with respect to employees of
the Company which requires fewer than forty (40) hours per week for
classification as a full-time employee, "full-time employee" shall be defined
according to the Company's administrative policy and practice. "Regular part-
time" employee shall mean any employee of the Company who is regularly scheduled
to work at least twenty-four (24) hours per week for twelve (12) months each
year, but fewer hours than necessary to classify him as a full-time employee.
Section 3.11 Eligible Employee means an Employee who is a key executive
-----------------
of the Company and who is eligible to participate in the Plan. As of the
Effective Date of the Plan, the only Employees who are deemed "Eligible
Employees" for purposes of the Plan are the Chief Executive Officer ("CEO"),
Chief Operating Officer ("COO"), Chief Financial Officer ("CFO") and Chief
Lending Officer ("CLO") of the Company.
Section 3.12 ERISA means the Employee Retirement Income Security Act of
-----
1974, as amended.
Section 3.13 Leave of Absence means a period of absence from regular
----------------
employment which is approved by the Board of Directors or the Committee in a
non-discriminatory manner for reasons such as, but not limited to, sickness,
disability, education, jury duty, convenience to the Company, maternity or
paternity leave, family leave, or for periods of military duty during which the
Employee's reemployment rights are protected by law.
3
<PAGE>
Section 3.14 Participant means an Employee who satisfies the requirements
-----------
under Section 4.1 of the Plan.
Section 3.15 Pay means a Employee's current annual rate of regular salary
---
or wages on his/her date of termination of employment with the Company and the
average of the annual and/or incentive bonuses paid to an Eligible Employee over
the three years immediately preceding the date of his termination of employment
on account of a Change in Control, excluding all other extra pay such as
overtime, commissions, premiums, and living or other allowances.
Section 3.16 Plan means the Greater Bay Bancorp Change in Control Pay
----
Plan II.
Section 3.17 Plan Year means each twelve (12) consecutive month period
---------
from January 1 through December 31.
Section 3.18 Year of Service means a twelve (12)-continuous month period
---------------
beginning on an Employee's most recent date of hire (or rehire), and each twelve
(12)-continuous month period beginning on the anniversary of such hire (or
rehire) date, during which the Employee remains continuously employed by the
Company.
ARTICLE IV
----------
ELIGIBILITY FOR BENEFITS
------------------------
Section 4.1 Employees Eligible for Severance Benefits. Except as
-----------------------------------------
provided in this Section 4.1 and in Section 4.2 and subject to Section 5.6, an
Eligible Employee whose employment is terminated by the Company on or after the
Effective Date shall be eligible for a Base Benefit and an Added Benefit if:
(a) Subject to Section 4.2, the Eligible Employee's employment is
terminated as a result of a Change in Control within three (3)
years of the effective time of the Change in Control (the
"effective time" of the Change in Control will have the same
meaning provided under Section 7.2); and
(b) The Eligible Employee's employment is not terminated for cause
for personal conduct; and
(c) The Eligible Employee executes a waiver and release agreement in
such form as determined by the Committee (the "Waiver and Release
Agreement") and returns the Waiver and Release Agreement to the
4
<PAGE>
Company within the time period specified in the Waiver and
Release Agreement.
Section 4.2 Employees Not Eligible For Severance Benefits. An Eligible
---------------------------------------------
Employee shall not be entitled to a Base Benefit or an Added Benefit set forth
in Article V if:
(a) The Eligible Employee has in force an employment contract or
executive severance agreement with the Company which includes
provision for the payment of severance benefits upon the
termination of his or her employment with the Company upon a
Change in Control, unless such severance benefits are less than
the Base Benefit and Added Benefit provided for in the Plan; or
(b) The Eligible Employee is offered employment by the successor
employer in the same position or in another position of
comparable pay and status to the position he held immediately
prior to the effective date of the Change in Control, or the
Eligible Employee is offered employment by the Company in another
position of comparable pay and status to the position held
immediately prior to the Change in Control, regardless of whether
he accepts the offer; or
(c) The Eligible Employee's employment is involuntarily terminated
for cause for personal conduct (an Eligible Employee whose
employment is terminated for cause which is related to his/her
work performance may be eligible to receive severance benefits as
the Committee in its sole discretion may determine); or
(d) The Eligible Employee fails to perform his/her regular assigned
job duties through the date specified by the Company as his/her
termination date; or
(e) The Eligible Employee fails to return a properly executed Waiver
and Release Agreement on a timely basis.
For purposes of this Section 4.2, a "position of comparable pay and status"
shall mean a position with not less than one hundred percent (100%) of the Pay,
bonus opportunity and benefits of the position held by the Eligible Employee
prior to his/her termination of employment and with a similar scope of duties
and responsibilities to such prior position. In addition, a position will not be
considered a position of comparable pay and status if (i) an Eligible Employee
is required to increase his/her normal commuting miles to reach a new worksite,
and (ii) the normal commuting from his/her home to the new worksite exceeds 30
miles each way. Notwithstanding the foregoing, the Committee reserves the right
to make decisions based on the facts and circumstances of individual cases as to
whether a position is of comparable pay and status to that held by an Eligible
Employee prior to his/her employment termination, provided that the Eligible
Employee may appeal any such decision pursuant to the provisions of Section 6.5.
5
<PAGE>
ARTICLE V
---------
SEVERANCE BENEFITS
------------------
Section 5.1 Calculation of Severance Benefit. Subject to the provisions
--------------------------------
of Sections 4.1, 4.2 and 5.6, a Participant whose employment is terminated as a
result of a Change in Control shall be entitled to receive a Base Benefit and an
Added Benefit under this Plan as follows:
(a) CEO. A Participant who is the CEO shall be entitled to receive a
----
Base Benefit equal to twenty-five (25) months of Pay and an Added
Benefit of two (2) weeks of Pay for each full Year of Service,
provided, however, that the total Base Benefit and Added Benefit
payable to such Participant shall not exceed three (3) years of
Pay.
(b) COO and CFO. A Participant who is the COO or CFO shall be
-----------
entitled to receive a Base Benefit equal to twenty (20) months of
Pay for each full Year of Service and an Added Benefit of two (2)
weeks of Pay for each full Year of Service, provided, however,
that the total Base Benefit and Added Benefit payable to such
Participant shall not exceed two and one-half (2 1/2) years of
Pay.
(c) CLO. A Participant who is the CLO shall be entitled to receive a
---
Base Benefit equal to eighteen (18) months of Pay and an Added
Benefit of two (2) weeks of Pay for each full Year of Service,
provided, however, that the total Base Benefit and Added Benefit
payable to such Participant shall not exceed two (2) years of
Pay.
For purposes of calculating a Participant's severance benefits under this
Section 5.1, the Plan shall take into account only consecutive Years of Service
beginning with the Participant's most recent date of hire or rehire and it shall
not take into account partial Years of Service, nor shall a Participant receive
severance benefits for Years of Service for which he/she previously received
severance benefits under the Plan.
Section 5.2 Golden Parachute Restriction.
----------------------------
(a) Reduction for "Parachute Payment." Notwithstanding anything above
--------------------------------
in this Article V, if a Participant is a "disqualified
individual" (as defined in Section 280G(c) of the Code), and the
severance benefit provided for in Section 5.1, together with any
other payments which the Participant has the right to receive
from the Company would constitute a "parachute
6
<PAGE>
payment" (as defined in Section 280G(b)(2) of the Code), the
severance benefit shall be reduced. The reduction shall be in an
amount so that the present value of the total amount received by
the Participant from the Company will be One Dollar ($1.00) less
than three (3) times the Participant's base amount (as defined in
Section 280G of the Code) and so that no portion of the amounts
received by the Participant shall be subject to the excise tax
imposed by Section 4999 of the Code.
(b) Deferred Compensation and Reimbursements Exception. In no
--------------------------------------------------
circumstances will the Company reduce the severance benefits
payable to a Participant on account of the restrictions of this
Section 5.2 by the amounts the Participant has the right to
receive under an executive deferred compensation plan of the
Company (Deferred Compensation Plan), amounts paid or payable to
the Participant to reimburse him/her either fully or partially
for excise tax and/or income tax on the reimbursement (gross up
amounts), or amounts paid or payable to the Participant as
indemnification for attorney's fees and legal expenses.
(c) Determination of Reduction. The determination as to whether any
--------------------------
reduction in the severance benefit is necessary shall be made by
the Company in good faith, and the determination shall be
conclusive and binding on the Participant.
(d) Repayment of Excess Amount. If through error or otherwise the
--------------------------
Participant should receive payments under this Plan, together
with other payments the Participant has the right to receive from
the Company, excluding Deferred Compensation Plan payments in
excess of one dollar ($1.00) less than three times his/her base
amount, the Participant shall immediately repay the excess to the
Company upon notification that an overpayment has been made.
Section 5.3 Payment of Benefits. The Plan shall pay severance benefits
-------------------
to a Participant whose employment is terminated on account of a Change in
Control in the form of a lump sum or equal installments payable over a period
not to exceed twenty-four (24) months, as the Committee in its sole discretion
may determine. The Plan shall make lump sum distributions as soon as
administratively practicable and in no event later than thirty (30) days
following the receipt by the Committee of a timely and properly executed Waiver
and Release Agreement. Subject to the Committee's receipt of a properly executed
Waiver and Release Agreement on a timely basis, the Plan shall make payments of
severance benefits in equal installments as of the first payday following the
Participant's termination of employment.
7
<PAGE>
Section 5.4 Payment Offset. The Company reserves the right to offset
--------------
the benefits payable under Sections 5.1 by any advance, loan or other monies a
Participant owes the Company. Employment taxes shall be withheld from all
severance payments.
Section 5.5 Unfunded Plan. The obligations of the Company under this
-------------
Plan may be funded through contributions to a trust or otherwise, but the
obligations of the Company are not required to be funded under this Plan unless
required by law. Nothing contained in this Plan shall give a Participant any
right, title or interest in any property of the Company.
Section 5.6 Prohibition Against Golden Parachute Payments.
---------------------------------------------
Notwithstanding any provision of the Plan to the contrary, no Participant who is
an institution affiliated party as the term is defined in Section 359.1(h) of
the Federal Deposit Insurance Corporation Rules and Regulations ("FDIC Rules and
Regs") shall be entitled to the payment of any severance benefit under the Plan
to the extent that such payment shall be deemed a "golden parachute payment" as
the term is defined in FDIC Rules and Regs. Section 359.1(f)(i)(ii) or (iii).
ARTICLE VI
----------
ADMINISTRATION
--------------
Section 6.1 Plan Administration. The Company shall be the administrator
-------------------
of the Plan for purposes of Section 3(16) of ERISA and shall have responsibility
for complying with any ERISA reporting and disclosure rules applicable to the
Plan for any Plan Year.
Section 6.2 Plan Committee. In all respects other than as provided in
--------------
Section 6.1, the Plan shall be administered and operated by the Committee which
shall consist of one or more individuals appointed by the Chief Executive
Officer and Chief Operating Officer of the Company who may also revoke any such
appointment and subsequently appoint other individuals. The Committee shall
have all powers necessary to supervise the administration of the Plan and
control its operations. In addition to any powers and authority conferred to
the Committee elsewhere in the Plan or by law, the Committee shall have, by way
of illustration but not by way of limitation, the following discretionary powers
and authority:
(a) To allocate fiduciary responsibilities among the named
fiduciaries and to designate one or more other persons to carry
out fiduciary responsibilities. However, no allocation or
delegation under this Section 6.2(a) shall be effective until the
person or persons to whom the responsibilities have been
allocated or delegated agree to assume the responsibilities;
(b) To designate agents to carry out responsibilities relating to the
Plan, other than fiduciary responsibilities;
8
<PAGE>
(c) To employ such legal, accounting, clerical, and other assistance
as it may deem appropriate in carrying out the provisions of this
Plan, including one or more persons to render advice with regard
to any responsibility any fiduciary may have under the Plan;
(d) To establish rules and procedures from time to time for the
conduct of the Committee's business and the administration and
effectuation of this Plan;
(e) To administer, interpret, construe and apply this Plan. To decide
all questions which may arise or which may be raised under this
Plan by any Employee, Participant, former Participant or other
person whatsoever, including but not limited to all questions
relating to eligibility to participate in the Plan, the amount of
service of any Participant, and the amount of benefits to which
any Participant may be entitled;
(f) To determine the manner in which the severance benefits of this
Plan, or any part thereof, shall be administered; and
(g) To perform or cause to be performed such further acts as it may
deem to be necessary, appropriate or convenient in the efficient
administration of the Plan.
Any action taken in good faith by the Committee in the exercise of discretionary
authority conferred upon it by this Plan shall be conclusive and binding upon
the Participants. All discretionary powers conferred upon the Committee shall
be absolute. However, all discretionary powers shall be exercised in a uniform
and nondiscriminatory manner.
Section 6.3 Named Fiduciary. The members of the Committee shall be
---------------
named fiduciaries with respect to this Plan for purposes of Section 402 of
ERISA.
Section 6.4 Indemnification of Committee. The Company shall, to the
----------------------------
extent permitted by law, by the purchase of insurance or otherwise, indemnify
and hold harmless each member of the Committee and each other fiduciary with
respect to this Plan for liabilities or expenses they and each of them incur in
carrying out their respective duties under the Plan, other than for any
liabilities or expenses arising out of such fiduciary's gross negligence or
willful misconduct. A fiduciary shall not be responsible for any breach of
responsibility of any other fiduciary except to the extent provided in Section
405 of ERISA.
Section 6.5 Claims Procedure. If any request for benefits under this
----------------
Plan is denied, in whole or in part, the claimant shall be so notified by the
Committee within five (5) calendar days of the date such person's claim is
delivered to the person designated in writing by the Chief Executive Officer and
Chief Operating Officer of the Company. At the same time, the Committee shall
notify the claimant of his/her right to a review by the Committee and shall set
9
<PAGE>
forth, in a manner calculated to be understood by the claimant, specific reasons
for such decision, specific references to pertinent information necessary for
the claimant to perfect his/her request for review, an explanation of why such
material or information is necessary, and an explanation of the Plan's review
procedure.
Any person or a duly authorized representative may appeal from such
decision by submitting to the Committee within sixty (60) calendar days after
receiving a notice of the Committee' decision a written statement:
(a) Requesting a review of the claim for a termination allowance by
the Committee;
(b) Setting forth all of the grounds upon which the request for
review is based and any facts in support thereof; and
(c) Setting forth any issues or comments which the claimant deems
relevant to the claim.
The Committee shall act upon such appeal within sixty (60) calendar days
after the later of receipt of the claimant's request for review by the Committee
or receipt of all additional materials reasonably requested by the Committee
from such claimant.
The Committee shall make a full and fair review of an appeal and all
written materials submitted by the claimant in connection therewith and may
require the claimant to submit, within ten (10) calendar days' written notice by
the Committee therefor, such additional facts, documents or other evidence as
the Committee, in its sole discretion, deems necessary or advisable in making
such a review. On the basis of its review, the Committee shall make an
independent determination of the claimant's eligibility for an allowance and the
amount of such allowance, if any, under this Plan. The decision of the
Committee on any appeal shall be final and conclusive upon all persons if
supported by substantial evidence in the record.
If the Committee denies a claim in whole or in part, the Committee shall
give written notice of its decision to the claimant setting forth, in a manner
calculated to be understood by the claimant, the specific reasons for such
denial and specific references to the pertinent Plan provisions on which the
Committee's decision was based.
ARTICLE VII
------------
AMENDMENT AND TERMINATION
-------------------------
Section 7.1 Before Change in Control. This Plan may be amended from
------------------------
time to time, or terminated at any time at the discretion of the Board of
Directors by a written resolution adopted by a majority of the Board of
Directors, provided, however, that no amendment or
10
<PAGE>
termination shall adversely affect the right of a Participant to receive a
severance benefit that the Participant has accrued on account of his or her
termination of employment as a result of a Change in Control.
Section 7.2 After Change in Control. Notwithstanding the foregoing, the
-----------------------
Plan may not be amended or participation discontinued after the effective time
of a Change in Control. For purposes of this Plan, the "effective time" of a
Change in Control shall have the same meaning provided in the agreement
governing the transaction(s) which give rise to the Change in Control.
ARTICLE VII
-----------
GENERAL
-------
Section 8.1 Payment Out of General Assets. The benefits and costs of
-----------------------------
this Plan shall be paid by the Company out of their general assets.
Section 8.2 Welfare Benefit Plan. This Plan is intended to be an
--------------------
employee welfare benefit plan, as defined in Section 3(1), Subtitle A of Title 1
of ERISA. The Plan will be interpreted to effectuate this intent.
Notwithstanding any other provision of this Plan, no Participant shall receive
hereunder any payment exceeding twice that Participant's annual compensation
during the year immediately preceding the termination of his or her service,
within the meaning of 29 C.F.R. (S) 2510.3-2 as the same was in effect on the
effective date of this Plan.
Section 8.3 Gender. The masculine pronoun shall include the feminine
------
pronoun and the feminine pronoun shall include the masculine pronoun and the
singular pronoun shall include the plural pronoun and the plural pronoun shall
include the singular pronoun, unless the context clearly indicates otherwise.
Section 8.4 Limitation on Participant's Rights. Nothing in this Plan
----------------------------------
shall be construed to guarantee terminated Eligible Employees any right to be
recalled or rehired by the Company.
Section 8.5 Severability. If any provision of this Plan shall be held
------------
illegal or invalid, the illegality or invalidity shall not affect the remaining
parts, which shall be enforced as if the illegal or invalid provision had not
been included in this Plan.
11
<PAGE>
IN WITNESS WHEREOF, GREATER BAY BANCORP has caused this instrument to be
executed by its duly authorized officers, on this 27th day of March, 1998.
EMPLOYER: GREATER BAY BANCORP
By /s/ David L. Kalkbrenner
------------------------
David L. Kalkbrenner
President and Chief Executive Officer
By /s/ Warren R. Thoits
--------------------
Warren R. Thoits
Secretary
12
<PAGE>
EXHIBIT 10.9
GREATER BAY
B A N C O R P
TERMINATION & LAYOFF PAY PLAN I
(EFFECTIVE JANUARY 1, 1998)
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Article/Section/Subject Page
- ----------------------- ----
<S> <C>
ARTICLE I
PURPOSE................................................................. 1
ARTICLE II
EFFECTIVE DATE.......................................................... 1
ARTICLE III
DEFINITIONS............................................................. 1
Section 3.1 Affiliated Company....................................... 1
Section 3.2 Base Benefit............................................. 2
Section 3.3 Board of Directors....................................... 2
Section 3.4 Code..................................................... 2
Section 3.5 Committee................................................ 2
Section 3.6 Company.................................................. 2
Section 3.7 Effective Date........................................... 2
Section 3.8 Employee................................................. 2
Section 3.9 ERISA.................................................... 2
Section 3.10 Layoff................................................... 2
Section 3.11 Leave of Absence......................................... 3
Section 3.12 Member Company........................................... 3
Section 3.13 Participant.............................................. 3
Section 3.14 Pay...................................................... 3
Section 3.15 Plan..................................................... 3
Section 3.16 Plan Year................................................ 3
Section 3.17 Termination.............................................. 3
Section 3.18 Year of Service.......................................... 3
ARTICLE IV
ELIGIBILITY FOR BENEFITS................................................ 3
Section 4.1 Employees Eligible for Benefits.......................... 3
Section 4.2 Employees Not Eligible for Benefits...................... 4
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE V
SEVERANCE BENEFITS...................................................... 5
Section 5.1 Calculation of Severance Benefit......................... 5
Section 5.2 Golden Parachute Restriction............................. 6
Section 5.3 Payment of Benefits...................................... 7
Section 5.4 Payment Offset........................................... 7
Section 5.5 Unfunded Plan............................................ 7
Section 5.6 Prohibition Against Golden Parachute Payments............ 7
ARTICLE VI
ADMINISTRATION.......................................................... 7
Section 6.1 Plan Administration...................................... 7
Section 6.2 Plan Committee........................................... 8
Section 6.3 Named Fiduciary.......................................... 9
Section 6.4 Indemnification of Committee............................. 9
Section 6.5 Claims Procedure......................................... 9
ARTICLE VII
AMENDMENT AND TERMINATION...............................................10
ARTICLE VIII
GENERAL.................................................................10
Section 8.1 Payment Out of General Assets............................10
Section 8.2 Welfare Benefit Plan.....................................10
Section 8.3 Gender...................................................10
Section 8.4 Limitation on Participant's Rights.......................10
Section 8.5 Severability.............................................11
</TABLE>
ii
<PAGE>
GREATER BAY BANCORP TERMINATION & LAYOFF PAY PLAN I
---------------------------------------------------
ARTICLE I
---------
PURPOSE
-------
GREATER BAY BANCORP (hereinafter referred to as the "Company") hereby
establishes a Termination & Layoff Pay Plan to provide severance benefits to
eligible Employees whose employment terminates in connection with a Layoff or
Termination, effective as of January 1, 1998, in accordance with the terms set
forth hereunder. The intent of the plan is to ensure all employees have
reasonable protection related to any event as specified in this plan.
ARTICLE II
----------
EFFECTIVE DATE
--------------
All of the policies and practices of each Member Company regarding
severance, or similar payments upon employment Termination or Layoff are hereby
superseded by this plan which shall be known as the GREATER BAY BANCORP
Termination & Layoff Pay Plan I (the "Plan"), effective January 1, 1998.
ARTICLE III
-----------
DEFINITIONS
-----------
Participant in accordance with Articles IV and V of the Plan which is in
addition to the Base Benefit payable to the Participant.
Section 3.1 Affiliated Company means:
-------------------------
(a) Any corporation (other than the Company) that is included in
a controlled group of corporations, within the meaning of
Code Section 414(b), that includes the Company, and
(b) Any trade or business (other than the Company) that is under
common control with the Company within the meaning of Code
Section 414(c), and
(c) Any member (other than the Company) of an affiliated service
group, within the meaning of Code Section 414(m), that
includes the Company, and
1
<PAGE>
(d) Any other entity required to be aggregated with the Company
pursuant to regulations under Code Section 414(o).
Section 3.2 Base Benefit means the severance benefit payable to a
------------
Participant in accordance with Articles IV and V of the Plan, the amount of
which is based upon such Participant's Pay and his/her title or position in a
Member Company as of the date he terminates employment with the Member Company
on account of a Termination or Layoff.
Section 3.3 Board of Directors means the board of directors of the
------------------
Company.
Section 3.4 Code means the Internal Revenue Code of 1986, as amended.
----
Section 3.5 Committee means the administrative committee appointed by
---------
the Chief Executive Officer and Chief Operating Officer pursuant to Section 6.1
hereof.
Section 3.6 Company means GREATER BAY BANCORP.
-------
Section 3.7 Effective Date means January 1, 1998.
--------------
Section 3.8 Employee means (1) any full-time employee of a Member
--------
Company or (2) any regular part-time employee of a Member Company. For purposes
of this Section 3.8, "full-time employee" shall mean an employee of a Member
Company who is regularly scheduled to work at least forty (40) hours per week
for twelve (12) months each year. Notwithstanding the foregoing, with respect
to employees of a Member Company which requires fewer than forty (40) hours per
week for classification as a full-time employee, "full-time employee" shall be
defined according to such Member Company's administrative policy and practice.
"Regular part-time" employee shall mean any employee of a Member Company who is
regularly scheduled to work at least twenty-four (24) hours per week for twelve
(12) months each year, but fewer hours than necessary to classify him as a full-
time employee.
Section 3.9 ERISA means the Employee Retirement Income Security Act of
-----
1974, as amended.
Section 3.10 Layoff means the termination of employment due to lack of
------
work, reduction in force, elimination of position, or departmental
reorganization (where such termination of employment is other than termination
for cause, including but not limited to performance, attendance or conduct which
is unsatisfactory to the supervisors of the Employee or in violation of rules of
a Member Company).
2
<PAGE>
Section 3.11 Leave of Absence means a period of absence from regular
----------------
employment which is approved by the Board of Directors or the Committee in a
non-discriminatory manner for reasons such as, but not limited to, sickness,
disability, education, jury duty, convenience to a Member Company, maternity or
paternity leave, family leave, or for periods of military duty during which the
Employee's reemployment rights are protected by law.
Section 3.12 Member Company means the Company or an Affiliated Company,
--------------
provided that the Company consents to the participation of any such Affiliated
Company in the Plan with respect to eligible Employees of such Affiliated
Company.
Section 3.13 Participant means an Employee who satisfies the requirements
-----------
under Section 4.1 of the Plan.
Section 3.14 Pay means the Employee's current annual rate of regular
---
salary or wages on his/her date of termination of employment with a Member
Company and the average of the annual and/or incentive bonuses paid to the
Employee over the three years immediately preceding the date of his termination
of employment on account of a Layoff or Termination, excluding all other extra
pay such as overtime, commissions, premiums, and living or other allowances.
Section 3.15 Plan means the Greater Bay Bancorp Termination & Layoff Pay
----
Plan I.
Section 3.16 Plan Year means each twelve (12) consecutive month period
---------
from January 1 through December 31.
Section 3.17 Termination means the involuntary termination of employment
-----------
of an Employee by a Member Company for reasons other than Layoff or Change in
Control as the term is defined in the Greater Bay Bancorp Change in Control Pay
Plan, including, on a case by case basis as determined by the Committee, the
involuntary termination of employment for cause related to work performance.
"Termination" shall not include the involuntary termination of employment for
cause related to personal conduct, including, but not limited to, an Employee's
willful, intentional and material breach of duty in the course of his/her
employment, the Employee's willful and intentional violation of any state or
federal banking laws or any of the Bylaws, rules or policies of the Member
Company, or the Employee's conviction of a felony or crime involving moral
turpitude, fraud or dishonest act. Whether an involuntary termination of
employment constitutes a "Termination" for purposes of severance benefits
under the Plan shall be within the sole discretion of the Committee.
Section 3.18 Year of Service means a twelve (12)-continuous month period
---------------
beginning on an Employee's most recent date of hire (or rehire), and each twelve
(12)-continuous month period beginning on the anniversary of such hire (or
rehire) date, during which the Employee remains continuously employed by a
Member Company.
ARTICLE IV
-----------
ELIGIBILITY FOR BENEFITS
------------------------
Section 4.1 Employees Eligible for Benefits. Except as provided in this
-------------------------------
Section 4.1 and in Section 4.2, and subject to Section 5.7, an Employee whose
employment is terminated by a Member Company on or after the Effective Date
shall be eligible for a Base Benefit if:
3
<PAGE>
(a) Subject to Section 4.2, the Employee's employment is
terminated as a result of a Layoff, or
(b) Subject to Section 4.2, the Employee's employment is
terminated on account of a Termination; and
(c) With regard to an Employee whose employment is terminated as
a result of a Layoff, such Employee's employment is not
terminated also for cause, personal conduct as provided under
the definition of "Termination"; and
(d) The Employee executes a waiver and release agreement in such
form as determined by the Committee (the "Waiver and Release
Agreement") and returns the Waiver and Release Agreement to
the Member Company within the time period specified in the
Waiver and Release Agreement.
Section 4.2 Employees Not Eligible for Benefits. An Employee shall not
-----------------------------------
be entitled to a Base Benefit set forth in Article V if:
(a) The Employee's employment is terminated for cause for
personal conduct as provided under the definition of
"Termination"; or
(b) The Employee has in force an employment contract or executive
severance agreement with a Member Company which includes
provision for the payment of severance benefits upon the
termination of his/her employment with the Member Company as
a result of a Layoff or Termination, unless such severance
benefits are less than the Base Benefit provided for in the
Plan; or
(c) With respect to termination of employment resulting from a
Layoff, the Employee is offered employment by a Member
Company in another position of comparable pay and status to
the position held immediately prior to the Layoff or
Termination, regardless of whether he accepts the offer; or
(d) The Employee fails to perform his/her regular assigned job
duties through the date specified by a Member Company as
his/her termination date; or
(e) The Employee fails to return a properly executed Waiver and
Release Agreement on a timely basis.
For purposes of this Section 4.2, a "position of comparable pay and status"
shall mean a position with not less than one hundred percent (100%) of the Pay,
bonus opportunity and benefits of the position held by the Employee prior to
his/her termination of employment and with a similar scope of duties and
responsibilities to such prior position. In addition, a position will not be
considered a
4
<PAGE>
position of comparable pay and status if (i) an Employee is required to increase
his/her normal commuting to reach a new worksite, and (ii) the normal commuting
time from his/her home to the new work site exceeds 60 minutes each way.
Notwithstanding the foregoing, the Committee reserves the right to make
decisions based on the facts and circumstances of individual cases as to whether
a position is of comparable pay and status to that held by an Employee prior to
his/her employment termination, provided that an Employee may appeal any such
decision pursuant to the provision of Section 6.5.
ARTICLE V
----------
SEVERANCE BENEFITS
------------------
Section 5.1 Calculation of Severance Benefit. Subject to the provisions
--------------------------------
of Section 4.1, 4.2, and 5.6, a Participant whose employment is terminated as a
result of a Layoff or Termination shall be entitled to receive Base Benefit
under this Plan as follows:
(a) Executive Management Committee. A Participant who is a
------------------------------
member of the Executive Management Committee of a Member
Company (other than the Chief Executive Officer, Chief
Operating Officer, Chief Financial Officer and Chief Lending
Officer) shall be entitled to receive a Base Benefit equal to
twelve (12) months of Pay.
(b) Senior Vice Presidents, Vice Presidents and Assistant Vice
----------------------------------------------------------
Presidents. A Participant who is an officer of a Member
----------
Company and whose title is Senior Vice President shall be
entitled to receive a Base Benefit equal to four (4) months
of Pay. A Participant who is an officer of a Member Company
and whose title is Vice President shall be entitled to
receive a Base Benefit equal to two (2) months of Pay. A
Participant who is an officer of a Member Company and whose
title is Assistant Vice President shall be entitled to
receive a Base Benefit equal to one (1) months of Pay.
5
<PAGE>
(c) Staff - Exempt and Non-exempt. A Participant who is an
-----------------------------
exempt or non-exempt Employee shall be entitled to receive a
Base Benefit equal to one (1) month of Pay.
Section 5.2 Golden Parachute Restriction.
----------------------------
(a) Notwithstanding anything above in this Article V, if a
Participant is a "disqualified individual" (as defined in
Section 280G(c) of the Code), and the severance benefit
provided for in Sections 5.1, together with any other
payments which the Participant has the right to receive from
a Member Company would constitute a "parachute payment" (as
defined in Section 280G(b)(2) of the Code), the severance
benefit shall be reduced. The reduction shall be in an amount
so that the present value of the total amount received by the
Participant from the Participant from a Member Company will
be One Dollar ($1.00) less than three (3) times the
Participant's base amount (as defined in Section 280G of the
Code) and so that no portion of the amounts received by the
Participant shall be subject to the excise tax imposed by
Section 4999 of the Code.
(b) Deferred Compensation and Reimbursements Exception. In no
--------------------------------------------------
circumstances will a Member Company reduce the severance
benefits payable to a Participant on account of the
restrictions of this Section 5.2 by the amounts the
Participant has the right to receive under an executive
deferred compensation plan of the Member Company (Deferred
Compensation Plan), amounts paid or payable to the
Participant to reimburse him/her either fully or partially
for excise tax and/or income tax on the reimbursement (gross
up amounts), or amounts paid or payable on the Participant as
indemnification for attorney's fees and legal expenses.
(c) Determination of Reduction. The determination as to whether
--------------------------
any reduction in the severance benefit is necessary shall be
made by the Participant's Member Company in good faith, and
the determination shall be conclusive and binding on the
Participant.
6
<PAGE>
(d) Repayment of Excess Amount. If through error or otherwise
--------------------------
the Participant should receive payments under this Plan,
together with other payments the Participant has the right to
receive from a Member Company, excluding Deferred
Compensation Plan payments in excess of one dollar ($1.00)
less than three times his/her base amount, the Participant
shall immediately repay the excess to the Member Company upon
notification that an overpayment has been made.
Section 5.3 Payment of Benefits. The Plan shall pay severance benefits
-------------------
to a Participant whose employment is terminated on account of a Termination or
Layoff in the form of a lump sum or equal installments payable over a period not
to exceed twenty-four (24) months, as the Committee in its sole discretion may
determine. The Plan shall make lump sum distributions as soon as
administratively practicable and in no event later than thirty (30) days
following the receipt by the Committee of a timely and properly executed Waiver
and Release Agreement. Subject to the Committee's receipt of a properly
executed Waiver and Release Agreement on a timely basis, the Plan shall make
payments of severance benefits in equal installments as of the first payday
following the Participant's termination of employment.
Section 5.4 Payment Offset. A Member Company reserves the right to
--------------
offset the benefits payable under Section 5.1 by any advance, loan or other
monies the Participant owes the Member Company. Employment taxes shall be
withheld from all severance payments.
Section 5.5 Unfunded Plan. The obligations of a Member Company under
-------------
this Plan may be funded through contributions to a trust or otherwise, but the
obligations of the Member Company are not required to be funded under this Plan
unless required by law. Nothing contained in this Plan shall give a Participant
any right, title or interest in any property of the Member Company.
Section 5.6 Prohibition Against Golden Parachute Payments.
---------------------------------------------
Notwithstanding any provision of the Plan to the contrary, no Participant who is
an institution affiliated party as the term is defined in Section 359.1(h) of
the Federal Deposit Insurance Corporation Rules and Regulations ("FDIC Rules and
Regs") shall be entitled to the payment of any severance benefit under the Plan
to the extent that such payment shall be deemed a "golden parachute payment" as
the term is defined in FDIC Rules and Reg. Section 359.1(f)(i)(ii) or (iii).
ARTICLE VI
----------
ADMINISTRATION
--------------
Section 6.1 Plan Administration. The Company shall be the administrator
-------------------
of the Plan for purposes of Section 3(16) of ERISA and shall have responsibility
for complying with any ERISA reporting and disclosure rules applicable to the
Plan for any Plan Year.
7
<PAGE>
Section 6.2 Plan Committee. In all respects other than as provided in
--------------
Section 6.1, the Plan shall be administered and operated by the Committee which
shall consist of one or more individuals appointed by the Chief Executive
Officer and Chief Operating Officer of the Company who may also revoke any such
appointment and subsequently appoint another individual. The Committee shall
have all powers necessary to supervise the administration of the Plan and
control its operations. In addition to any powers and authority conferred to
the Committee elsewhere in the Plan or by law, the Committee shall have, by way
of illustration but not by way of limitation, the following discretionary powers
and authority:
(a) To allocate fiduciary responsibilities among the named
fiduciaries and to designate one or more other persons to
carry out fiduciary responsibilities. However, no allocation
or delegation under this Section 6.2(a) shall be effective
until the person or persons to whom the responsibilities have
been allocated or delegated agree to assume the
responsibilities.
(b) To designate agents to carry out responsibilities relating to
the Plan, other than fiduciary responsibilities.
(c) To employ such legal, accounting, clerical, and other
assistance as it may deem appropriate in carrying out the
provisions of this Plan, including one or more persons to
render advice with regard to any responsibility any fiduciary
may have under the Plan.
(d) To establish rules and procedures from time to time for the
conduct of the Committee's business and the administration
and effectuation of this Plan.
(e) To administer, interpret, construe and apply this Plan. To
decide all questions which may arise or which may be raised
under this Plan by any Employee, Participant, former
Participant or other person whatsoever, including but not
limited to all questions relating to eligibility to
participate in the Plan, the amount of service of any
Participant, and the amount of benefits to which any
Participant may be entitled.
(f) To determine the manner in which the severance benefits of
this Plan, or any part thereof, shall be administered.
(g) To perform or cause to be performed such further acts as it
may deem to be necessary, appropriate or convenient in the
efficient administration of the Plan.
Any action taken in good faith by the Committee in the exercise of discretionary
authority conferred upon it by this Plan shall be conclusive and binding upon
the Participants. All
8
<PAGE>
discretionary powers conferred upon the Committee shall be absolute. However,
all discretionary powers shall be exercised in a uniform and nondiscriminatory
manner.
Section 6.3 Named Fiduciary. The members of the Committee shall be
---------------
named fiduciaries with respect to this Plan for purposes of Section 402 of
ERISA.
Section 6.4 Indemnification of Committee. The Company shall, to the
----------------------------
extent permitted by law, by the purchase of insurance or otherwise, indemnify
and hold harmless each member of the Committee and each other fiduciary with
respect to this Plan for liabilities or expenses they and each of them incur in
carrying out their respective duties under the Plan, other than for any
liabilities or expenses arising out of such fiduciary's gross negligence or
willful misconduct. A fiduciary shall not be responsible for any breach of
responsibility of any other fiduciary except to the extent provided in Section
405 of ERISA.
Section 6.5 Claims Procedure. If any request for benefits under this
----------------
Plan is denied, in whole or in part, the claimant shall be so notified by the
Committee within five (5) calendar days of the date such person's claim is
delivered to the person designated in writing by the Chief Executive Officer and
Chief Operating Officer. At the same time, the Committee shall notify the
claimant of his/her right to a review by the Committee and shall set forth, in a
manner calculated to be understood by the claimant, specific reasons for such
decision, specific references to pertinent information necessary for the
claimant to perfect his/her request for review, an explanation of why such
material or information is necessary, and an explanation of the Plan's review
procedure.
Any person or a duly authorized representative may appeal from such
decision by submitting to the Committee within sixty (60) calendar days after
receiving a notice of the Committee's decision a written statement:
(a) Requesting a review of the claim for a termination allowance
by the Committee;
(b) Setting forth all of the grounds upon which the request for
review is based and any facts in support thereof; and
(c) Setting forth any issues or comments which the claimant deems
relevant to the claim.
The Committee shall act upon such appeal within sixty (60) calendar days
after the later of receipt of the claimant's request for review by the Committee
or receipt of all additional materials reasonably requested by the Committee
from such claimant.
The Committee shall make a full and fair review of an appeal and all
written materials submitted by the claimant in connection therewith and may
require the claimant to submit, within
9
<PAGE>
ten (10) calendar days, written notice by the Committee therefor, such
additional facts, documents or other evidence as the Committee, in its sole
discretion, deems necessary or advisable in making such a review. On the basis
of its review, the Committee shall make an independent determination of the
claimant's eligibility for an allowance and the amount of such allowance, if
any, under this Plan. The decision of the Committee on any appeal shall be final
and conclusive upon all persons if supported by substantial evidence in the
record.
If the Committee denies a claim in whole or in part, the Committee shall
give written notice of its decision to the claimant setting forth, in a manner
calculated to be understood by the claimant, the specific reasons for such
denial and specific references to the pertinent Plan provisions on which the
Committee's decision was based.
ARTICLE VII
-----------
AMENDMENT AND TERMINATION
-------------------------
This Plan may be amended from time to time, or terminated at the discretion of
the Board of Directors by a written resolution adopted by a majority of the
Board of Directors, provided, however, that no amendment or termination shall
adversely affect the right of a Participant to receive a severance benefit that
the Participant has accrued on account of his or her termination of employment
as a result of a Termination or Layoff, as applicable.
ARTICLE VII
-----------
GENERAL
-------
Section 8.1 Payment Out of General Assets. The benefits and costs of
-----------------------------
this Plan shall be paid by the Company and each Member Company out of its
general assets.
Section 8.2 Welfare Benefit Plan. This Plan is intended to be an
--------------------
employee welfare benefit plan, as defined in Section 3(l), Subtitle A of Title 1
of ERISA. The Plan will be interpreted to effectuate this intent.
Notwithstanding any other provision of this Plan, no Participant shall receive
hereunder any payment exceeding twice that Participant's compensation during the
year immediately preceding the termination of his/her service, within the
meaning of 29 C.F.R. (S)2510.3-2 as the same was in effect on the effective date
of this Plan.
Section 8.3 Gender. The masculine pronoun shall include the feminine
------
pronoun and the feminine pronoun shall include the masculine pronoun and the
singular pronoun shall include the plural pronoun and the plural pronoun shall
include the singular pronoun, unless the context clearly indicates otherwise.
Section 8.4 Limitation on Participant's Rights. Nothing in this Plan
----------------------------------
shall be construed to guarantee terminated Employees any right to be recalled or
rehired by a Member Company.
10
<PAGE>
Section 8.5 Severability. If any provision of the Plan shall be held
------------
illegal or invalid, the illegality or invalidity shall not affect the remaining
parts, which shall be enforced as if the illegal or invalid provision had not
been included in this Plan.
IN WITNESS WHEREOF, GREATER BAY BANCORP has caused this instrument to
be executed by its duly authorized officers, on this 27th day of March,
1998.
EMPLOYER: GREATER BAY BANCORP
By /s/ David L. Kalkbrenner
------------------------
David L. Kalkbrenner
President and Chief Executive Officer
By /s/ Warren R. Thoits
--------------------
Warren R. Thoits
Secretary
MEMBER
COMPANIES: CUPERTINO NATIONAL BANK
By /s/ C. Donald Allen
-------------------
C. Donald Allen
President and Chief Executive Officer
By /s/ Steven C. Smith
-------------------
Steven C. Smith
Secretary
MID-PENINSULA BANK
By /s/ Susan K. Black
------------------
Susan K. Black
President and Chief Executive Officer
By /s/ Warren R. Thoits
--------------------
Warren R. Thoits
Secretary
PENINSULA BANK OF COMMERCE
By /s/ Mark F. Doiron
------------------
Mark F. Doiron
President and Chief Executive Officer
By /s/ Michael E. Vano
-------------------
Michael E. Vano
Secretary
11
<PAGE>
EXHIBIT 10.10
GREATER BAY
B A N C O R P
TERMINATION & LAYOFF PAY PLAN II
(EFFECTIVE JANUARY 1, 1998)
<PAGE>
TABLE OF CONTENTS
-----------------
Article/Section/Subject Page
- ----------------------- ----
ARTICLE I
PURPOSE.............................................................. 1
ARTICLE II
EFFECTIVE DATE....................................................... 1
ARTICLE III
DEFINITIONS.......................................................... 1
Section 3.1 Affiliated Company................................. 1
Section 3.2 Base Benefit....................................... 2
Section 3.4 Code............................................... 2
Section 3.5 Committee.......................................... 2
Section 3.6 Company............................................ 2
Section 3.7 Effective Date..................................... 2
Section 3.8 Employee........................................... 2
Section 3.9 Eligible Employee.................................. 2
Section 3.10 ERISA.............................................. 2
Section 3.11 Layoff............................................. 2
Section 3.12 Leave of Absence................................... 3
Section 3.13 Participant........................................ 3
Section 3.14 Pay................................................ 3
Section 3.15 Plan............................................... 3
Section 3.16 Plan Year.......................................... 3
Section 3.17 Termination........................................ 3
Section 3.18 Year of Service.................................... 3
ARTICLE IV
ELIGIBILITY FOR BENEFITS............................................. 3
Section 4.1 Employees Eligible for Benefits.................... 3
Section 4.2 Employees Not Eligible for Benefits................ 4
i
<PAGE>
ARTICLE V
SEVERANCE BENEFITS................................................... 5
Section 5.1 Calculation of Severance Benefit................... 5
Section 5.2 Golden Parachute Restriction....................... 5
Section 5.3 Payment of Benefits................................ 6
Section 5.4 Payment Offset..................................... 6
Section 5.5 Unfunded Plan...................................... 6
Section 5.6 Prohibition Against Golden Parachute Payments...... 6
ARTICLE VI
ADMINISTRATION....................................................... 7
Section 6.1 Plan Administration................................ 7
Section 6.2 Plan Committee..................................... 7
Section 6.3 Named Fiduciary.................................... 8
Section 6.4 Indemnification of Committee....................... 8
Section 6.5 Claims Procedure................................... 8
ARTICLE VII
AMENDMENT AND TERMINATION............................................ 9
ARTICLE VIII
GENERAL.............................................................. 9
Section 8.1 Payment Out of General Assets...................... 9
Section 8.2 Welfare Benefit Plan............................... 9
Section 8.3 Gender............................................. 10
Section 8.4 Limitation on Participant's Rights................. 10
Section 8.5 Severability....................................... 10
ii
<PAGE>
GREATER BAY BANCORP TERMINATION & LAYOFF PAY PLAN II
----------------------------------------------------
ARTICLE I
---------
PURPOSE
-------
GREATER BAY BANCORP (hereinafter referred to as the "Company") hereby
establishes a Termination & Layoff Pay Plan to provide severance benefits to
selected executives who are deemed Eligible Employees and whose employment
terminates in connection with a Layoff or Termination, effective as of January
1, 1998, in accordance with the terms set forth hereunder. The intent of the
plan is to ensure all Eligible Employees have reasonable protection related to
any event as specified in this plan.
ARTICLE II
----------
EFFECTIVE DATE
--------------
All of the policies and practices of the Company regarding severance, or
similar payments to Eligible Employees upon employment Termination or Layoff are
hereby superseded by this plan which shall be known as the GREATER BAY BANCORP
Termination & Layoff Pay Plan II (the "Plan"), effective January 1, 1998.
ARTICLE III
-----------
DEFINITIONS
-----------
Section 3.1 Affiliated Company means:
-------------------------
(a) Any corporation (other than the Company) that is included in a
controlled group of corporations, within the meaning of Code
Section 414(b), that includes the Company, and
(b) Any trade or business (other than the Company) that is under
common control with the Company within the meaning of Code
Section 414(c), and
(c) Any member (other than the Company) of an affiliated service
group, within the meaning of Code Section 414(m), that includes
the Company, and
(d) Any other entity required to be aggregated with the Company
pursuant to regulations under Code Section 414(o).
1
<PAGE>
Section 3.2 Base Benefit means the severance benefit payable to a Participant
------------
in accordance with Articles IV and V of the Plan, the amount of which is based
upon such Participant's Pay and his/her title or position in the Company as of
the date he terminates employment with the Company on account of a Layoff or
Termination.
Section 3.3 Board of Directors means the board of directors of the Company.
------------------
Section 3.4 Code means the Internal Revenue Code of 1986, as amended.
----
Section 3.5 Committee means the administrative committee appointed by the
---------
Chief Executive Officer and Chief Operating Officer pursuant to Section 6.1
hereof.
Section 3.6 Company means GREATER BAY BANCORP.
-------
Section 3.7 Effective Date means January 1, 1998.
--------------
Section 3.8 Employee means (1) any full-time employee of the Company or (2)
--------
any regular part-time employee of the Company. For purposes of this Section
3.8, "full-time employee" shall mean an employee of the Company who is regularly
scheduled to work at least forty (40) hours per week for twelve (12) months each
year. Notwithstanding the foregoing, with respect to employees of the Company
which requires fewer than forty (40) hours per week for classification as a
full-time employee, "full-time employee" shall be defined according to the
Company's administrative policy and practice. "Regular part-time" employee
shall mean any employee of the Company who is regularly scheduled to work at
least twenty-four (24) hours per week for twelve (12) months each year, but
fewer hours than necessary to classify him as a full-time employee.
Section 3.9 Eligible Employee means an Employee who is a key executive of the
-----------------
Company and who is eligible to participate in the Plan. As of the Effective
Date of the Plan, the only Employees who are deemed "Eligible Employees" for
purposes of the Plan are the Chief Executive Officer ("CEO"), Chief Operating
Officer ("COO"), Chief Financial Officer ("CFO") and Chief Lending Officer
("CLO") of the Company.
Section 3.10 ERISA means the Employee Retirement Income Security Act of 1974,
-----
as amended.
Section 3.11 Layoff means the termination of employment due to lack of work,
------
reduction in force, elimination of position, or departmental reorganization
(where such termination of employment is other than termination for cause,
including but not limited to performance, attendance or conduct which is
unsatisfactory to the supervisors of the Eligible Employee or in violation of
rules of the Company).
2
<PAGE>
Section 3.12 Leave of Absence means a period of absence from regular
----------------
employment which is approved by the Board of Directors or the Committee in a
non-discriminatory manner for reasons such as, but not limited to, sickness,
disability, education, jury duty, convenience to the Company, maternity or
paternity leave, family leave, or for periods of military duty during which the
Employee's reemployment rights are protected by law.
Section 3.13 Participant means an Employee who satisfies the requirements
-----------
under Section 4.1 of the Plan.
Section 3.14 Pay means the Employee's current annual rate of regular salary
---
or wages on his/her date of termination of employment with the Company and the
average of the annual and/or incentive bonuses paid to the Employee over the
three years immediately preceding the date of his termination of employment on
account of a Layoff or Termination, excluding all other extra pay such as
overtime, commissions, premiums, and living or other allowances.
Section 3.15 Plan means the Greater Bay Bancorp Termination & Layoff Pay Plan
----
II.
Section 3.16 Plan Year means each twelve (12) consecutive month period from
---------
January 1 through December 31.
Section 3.17 Termination means the involuntary termination of employment of
-----------
an Eligible Employee by the Company for reasons other than Layoff or Change in
Control as the term is defined in the Greater Bay Bancorp Change in Control Pay
Plan, including, on a case-by-case basis as determined by the Committee, the
involuntary termination of employment for cause related to work performance.
"Termination" shall not include the involuntary termination of employment for
cause related to personal conduct, including, but not limited to, an Eligible
Employee's willful, intentional and material breach of duty in the course of
his/her employment, the Eligible Employee's willful and intentional violation of
any state or federal banking laws or any of the Bylaws, rules or policies of the
Company, or the Eligible Employee's conviction of a felony or crime involving
moral turpitude, fraud or dishonest act. Whether an involuntary termination of
employment constitutes a "Termination" for purposes of severance benefits under
the Plan shall be within the sole discretion of the Committee.
Section 3.18 Year of Service means a twelve (12)-continuous month period
---------------
beginning on an Employee's most recent date of hire (or rehire), and each twelve
(12)-continuous month period beginning on the anniversary of such hire (or
rehire) date, during which the Employee remains continuously employed by the
Company.
ARTICLE IV
----------
ELIGIBILITY FOR BENEFITS
------------------------
Section 4.1 Employees Eligible for Benefits. Except as provided in this
-------------------------------
Section 4.1 and in Section 4.2, and subject to Section 5.6, an Eligible Employee
whose employment is terminated by the Company on or after the Effective Date
shall be eligible for a Base Benefit if:
(a) Subject to Section 4.2, the Eligible Employee's employment is
terminated as a result of a Layoff, or
3
<PAGE>
(b) Subject to Section 4.2, the Eligible Employee's employment is
terminated on account of a Termination; and
(c) With regard to an Eligible Employee whose employment is
terminated as a result of a Layoff, such Eligible Employee's
employment is not terminated also for cause for personal conduct
as provided in the definition of "Termination;" and, including
job performance, attendance or conduct which is unsatisfactory to
the supervisor(s) of the Eligible Employee or in violation of the
rules of the Company; and
(d) The Eligible Employee executes a waiver and release agreement in
such form as determined by the Committee (the "Waiver and Release
Agreement") and returns the Waiver and Release Agreement to the
Company within the time period specified in the Waiver and
Release Agreement.
Section 4.2 Employees Not Eligible for Benefits. An Eligible Employee shall
-----------------------------------
not be entitled to a Base Benefit set forth in Article V if:
(a) The Eligible Employee's employment is terminated for cause for
personal conduct as provided under the definition of
"Termination"; or
(b) The Eligible Employee has in force an employment contract or
executive severance agreement with the Company which includes
provision for the payment of severance benefits upon the
termination of his/her employment with the Company as a result of
a Layoff or Termination, unless such severance benefits are less
than the Base Benefit provided for in the Plan; or
(c) With respect to termination of employment resulting from a
Layoff, the Eligible Employee is offered employment by the
Company in another position of comparable pay and status to the
position held immediately prior to the Layoff or Termination,
regardless of whether he accepts the offer; or
(d) The Eligible Employee fails to perform his/her regular assigned
job duties through the date specified by the Company as his/her
termination date; or
(e) The Eligible Employee fails to return a properly executed Waiver
and Release Agreement on a timely basis.
For purposes of this Section 4.2, a "position of comparable pay and status"
shall mean a position with not less than one hundred percent (100%) of the Pay,
bonus opportunity and benefits of the position held by the Eligible Employee
prior to his/her termination of employment and with a similar scope of duties
and responsibilities to such prior position. In addition, a position will not be
considered a position of comparable pay and status if (i) an Eligible Employee
is required to increase his/her normal commuting to reach a new worksite, and
(ii) the normal commuting time
4
<PAGE>
from his/her home to the new work site exceeds 60 minutes each way.
Notwithstanding the foregoing, the Committee reserves the right to make
decisions based on the facts and circumstances of individual cases as to whether
a position is of comparable pay and status to that held by an Eligible Employee
prior to his/her employment termination, provided that the Eligible Employee may
appeal any such decision pursuant to the provision of Section 6.5.
ARTICLE V
---------
SEVERANCE BENEFITS
------------------
Section 5.1 Calculation of Severance Benefit. Subject to the provisions of
--------------------------------
Section 4.1, 4.2, and 5.6, a Participant whose employment is terminated as a
result of a Layoff or Termination shall be entitled to receive Base Benefit
under this Plan as follows:
(a) CEO. A Participant who is the CEO shall be entitled to receive a
----
Base Benefit equal to twenty-five (25) months of Pay.
(b) COO and CFO. A Participant who is the COO or CFO shall be
------------
entitled to receive a Base Benefit equal to twenty (20) months of
Pay.
(c) CLO. A Participant who is the CLO shall be entitled to receive a
----
Base Benefit equal to eighteen (18) months of Pay.
Section 5.2 Golden Parachute Restriction.
----------------------------
(a) Notwithstanding anything above in this Article V, if a
Participant is a "disqualified individual" (as defined in Section
280G(c) of the Code), and the severance benefit provided for in
Sections 5.1, together with any other payments which the
Participant has the right to receive from the Company would
constitute a "parachute payment" (as defined in Section
280G(b)(2) of the Code), the severance benefit shall be reduced.
The reduction shall be in an amount so that the present value of
the total amount received by the Participant from the Participant
from the Company will be One Dollar ($1.00) less than three (3)
times the Participant's base amount (as defined in Section 280G
of the Code) and so that no portion of the amounts received by
the Participant shall be subject to the excise tax imposed by
Section 4999 of the Code.
(b) Deferred Compensation and Reimbursements Exception. In no
--------------------------------------------------
circumstances will the Company reduce the severance benefits
payable to a Participant on account of the restrictions of this
Section 5.2 by the amounts the Participant has the right to
receive under an executive deferred compensation plan of the
Company (Deferred Compensation
5
<PAGE>
Plan), amounts paid or payable to the Participant to reimburse
him/her either fully or partially for excise tax and/or income
tax on the reimbursement (gross up amounts), or amounts paid or
payable on the Participant as indemnification for attorney's fees
and legal expenses.
(c) Determination of Reduction. The determination as to whether any
--------------------------
reduction in the severance benefit is necessary shall be made by
the Company in good faith, and the determination shall be
conclusive and binding on the Participant.
(d) Repayment of Excess Amount. If through error or otherwise the
--------------------------
Participant should receive payments under this Plan, together
with other payments the Participant has the right to receive from
the Company, excluding Deferred Compensation Plan payments in
excess of one dollar ($1.00) less than three times his/her base
amount, the Participant shall immediately repay the excess to the
Company upon notification that an overpayment has been made.
Section 5.3 Payment of Benefits. The Plan shall pay severance benefits to a
-------------------
Participant whose employment is terminated on account of a Termination or Layoff
in the form of a lump sum or equal installments payable over a period not to
exceed twenty-four (24) months, as the Committee in its sole discretion may
determine. The Plan shall make lump sum distributions as soon as
administratively practicable and in no event later than thirty (30) days
following the receipt by the Committee of a timely and properly executed Waiver
and Release Agreement. Subject to the Committee's receipt of a properly
executed Waiver and Release Agreement on a timely basis, the Plan shall make
payments of severance benefits in equal installments as of the first payday
following the Participant's termination of employment.
Section 5.4 Payment Offset. The Company reserves the right to offset the
--------------
benefits payable under Section 5.1 by any advance, loan or other monies the
Participant owes the Company. Employment taxes shall be withheld from all
severance payments.
Section 5.5 Unfunded Plan. The obligations of the Company under this Plan
-------------
may be funded through contributions to a trust or otherwise, but the obligations
of the Company are not required to be funded under this Plan unless required by
law. Nothing contained in this Plan shall give a Participant any right, title
or interest in any property of the Company.
Section 5.6 Prohibition Against Golden Parachute Payments. Notwithstanding
---------------------------------------------
any provision of the Plan to the contrary, no Participant who is an institution
affiliated party as the term is defined in Section 359.1(h) of the Federal
Deposit Insurance Corporation Rules and Regulations ("FDIC Rules and Regs")
shall be entitled to the payment of any severance benefit under the Plan to the
extent that such payment shall be deemed a "golden parachute payment" as the
term is defined in FDIC Rules and Reg. Section 359.1(f)(i)(ii) or (iii).
6
<PAGE>
ARTICLE VI
----------
ADMINISTRATION
--------------
Section 6.1 Plan Administration. The Company shall be the administrator of
-------------------
the Plan for purposes of Section 3(16) of ERISA and shall have responsibility
for complying with any ERISA reporting and disclosure rules applicable to the
Plan for any Plan Year.
Section 6.2 Plan Committee. In all respects other than as provided in
--------------
Section 6.1, the Plan shall be administered and operated by the Committee which
shall consist of one or more individuals appointed by the Chief Executive
Officer and Chief Operating Officer of the Company who may also revoke any such
appointment and subsequently appoint another individual. The Committee shall
have all powers necessary to supervise the administration of the Plan and
control its operations. In addition to any powers and authority conferred to
the Committee elsewhere in the Plan or by law, the Committee shall have, by way
of illustration but not by way of limitation, the following discretionary powers
and authority:
(a) To allocate fiduciary responsibilities among the named
fiduciaries and to designate one or more other persons to carry
out fiduciary responsibilities. However, no allocation or
delegation under this Section 6.2(a) shall be effective until the
person or persons to whom the responsibilities have been
allocated or delegated agree to assume the responsibilities.
(b) To designate agents to carry out responsibilities relating to the
Plan, other than fiduciary responsibilities.
(c) To employ such legal, accounting, clerical, and other assistance
as it may deem appropriate in carrying out the provisions of this
Plan, including one or more persons to render advice with regard
to any responsibility any fiduciary may have under the Plan.
(d) To establish rules and procedures from time to time for the
conduct of the Committee's business and the administration and
effectuation of this Plan.
(e) To administer, interpret, construe and apply this Plan. To
decide all questions which may arise or which may be raised under
this Plan by any Employee, Participant, former Participant or
other person whatsoever, including but not limited to all
questions relating to eligibility to participate in the Plan, the
amount of service of any Participant, and the amount of benefits
to which any Participant may be entitled.
(f) To determine the manner in which the severance benefits of this
Plan, or any part thereof, shall be administered.
7
<PAGE>
(g) To perform or cause to be performed such further acts as it may
deem to be necessary, appropriate or convenient in the efficient
administration of the Plan.
Any action taken in good faith by the Committee in the exercise of discretionary
authority conferred upon it by this Plan shall be conclusive and binding upon
the Participants. All discretionary powers conferred upon the Committee shall
be absolute. However, all discretionary powers shall be exercised in a uniform
and nondiscriminatory manner.
Section 6.3 Named Fiduciary. The members of the Committee shall be named
---------------
fiduciaries with respect to this Plan for purposes of Section 402 of ERISA.
Section 6.4 Indemnification of Committee. The Company shall, to the extent
----------------------------
permitted by law, by the purchase of insurance or otherwise, indemnify and hold
harmless each member of the Committee and each other fiduciary with respect to
this Plan for liabilities or expenses they and each of them incur in carrying
out their respective duties under the Plan, other than for any liabilities or
expenses arising out of such fiduciary's gross negligence or willful misconduct.
A fiduciary shall not be responsible for any breach of responsibility of any
other fiduciary except to the extent provided in Section 405 of ERISA.
Section 6.5 Claims Procedure. If any request for benefits under this Plan is
----------------
denied, in whole or in part, the claimant shall be so notified by the Committee
within five (5) calendar days of the date such person's claim is delivered to
the person designated in writing by the Chief Executive Officer and Chief
Operating Officer. At the same time, the Committee shall notify the claimant of
his/her right to a review by the Committee and shall set forth, in a manner
calculated to be understood by the claimant, specific reasons for such decision,
specific references to pertinent information necessary for the claimant to
perfect his/her request for review, an explanation of why such material or
information is necessary, and an explanation of the Plan's review procedure.
Any person or a duly authorized representative may appeal from such
decision by submitting to the Committee within sixty (60) calendar days after
receiving a notice of the Committee's decision a written statement:
(a) Requesting a review of the claim for a termination allowance by
the Committee;
(b) Setting forth all of the grounds upon which the request for
review is based and any facts in support thereof; and
(c) Setting forth any issues or comments which the claimant deems
relevant to the claim.
8
<PAGE>
The Committee shall act upon such appeal within sixty (60) calendar days
after the later of receipt of the claimant's request for review by the Committee
or receipt of all additional materials reasonably requested by the Committee
from such claimant.
The Committee shall make a full and fair review of an appeal and all
written materials submitted by the claimant in connection therewith and may
require the claimant to submit, within ten (10) calendar days, written notice by
the Committee therefor, such additional facts, documents or other evidence as
the Committee, in its sole discretion, deems necessary or advisable in making
such a review. On the basis of its review, the Committee shall make an
independent determination of the claimant's eligibility for an allowance and the
amount of such allowance, if any, under this Plan. The decision of the
Committee on any appeal shall be final and conclusive upon all persons if
supported by substantial evidence in the record.
If the Committee denies a claim in whole or in part, the Committee shall
give written notice of its decision to the claimant setting forth, in a manner
calculated to be understood by the claimant, the specific reasons for such
denial and specific references to the pertinent Plan provisions on which the
Committee's decision was based.
ARTICLE VII
-----------
AMENDMENT AND TERMINATION
-------------------------
This Plan may be amended from time to time, or terminated at the discretion of
the Board of Directors by a written resolution adopted by a majority of the
Board of Directors, provided, however, that no amendment or termination shall
adversely affect the right of a Participant to receive a severance benefit that
the Participant has accrued on account of his or her termination of employment
as a result of a Termination or Layoff, as applicable.
ARTICLE VIII
------------
GENERAL
-------
Section 8.1 Payment Out of General Assets. The benefits and costs of this
-----------------------------
Plan shall be paid by the Company out of its general assets.
Section 8.2 Welfare Benefit Plan. This Plan is intended to be an employee
--------------------
welfare benefit plan, as defined in Section 3(l), Subtitle A of Title 1 of
ERISA. The Plan will be interpreted to effectuate this intent. Notwithstanding
any other provision of this Plan, no Participant shall receive hereunder any
payment exceeding twice that Participant's compensation during the year
immediately preceding the termination of his/her service, within the meaning of
29 C.F.R. (S)2510.3-2 as the same was in effect on the effective date of this
Plan.
9
<PAGE>
Section 8.3 Gender. The masculine pronoun shall include the feminine pronoun
------
and the feminine pronoun shall include the masculine pronoun and the singular
pronoun shall include the plural pronoun and the plural pronoun shall include
the singular pronoun, unless the context clearly indicates otherwise.
Section 8.4 Limitation on Participant's Rights. Nothing in this Plan shall
----------------------------------
be construed to guarantee terminated Employees any right to be recalled or
rehired by the Company.
Section 8.5 Severability. If any provision of the Plan shall be held illegal
------------
or invalid, the illegality or invalidity shall not affect the remaining parts,
which shall be enforced as if the illegal or invalid provision had not been
included in this Plan.
IN WITNESS WHEREOF, GREATER BAY BANCORP has caused this instrument to
be executed by its duly authorized officers, on this 27th day of March, 1998.
EMPLOYER: GREATER BAY BANCORP
By /s/ David L. Kalkbrenner
------------------------
David L. Kalkbrenner
President and Chief Executive Officer
By /s/ Warren R. Thoits
--------------------
Warren R. Thoits
Secretary
10
<PAGE>
EXHIBIT 10.11
GREATER BAY BANCORP
1997 ELECTIVE
DEFERRED COMPENSATION PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
DOCUMENT PAGE NO.
================================================================================================
<S> <C>
ARTICLE I DEFINITIONS.......................................................................1
Section 1.01 Definitions..........................................................1
"Account" or "Deferred Compensation Contribution Account".........................1
"Beneficiary".....................................................................1
"Board"...........................................................................2
"Committee".......................................................................2
"Compensation"....................................................................2
"Deferred Compensation Contributions".............................................2
"Director"........................................................................2
"Disabled" or "Disability"........................................................2
"Election Form"...................................................................2
"Employee"........................................................................2
"Interest Reference Rate".........................................................2
"Participant".....................................................................3
"Plan Year".......................................................................3
"Subsidiary"......................................................................3
ARTICLE II PARTICIPATION.....................................................................3
Section 2.01 Eligibility and Participation........................................3
Section 2.02 Enrollment of Participants...........................................3
Section 2.03 Duration of Participation............................................4
ARTICLE III CONTRIBUTIONS.....................................................................4
Section 3.01 Deferred Compensation Contributions..................................4
Section 3.02 Election Procedure...................................................4
Section 3.03 Failure to Elect.....................................................4
Section 3.04 Irrevocability of Election by the Participant........................5
Section 3.05 Company or Subsidiary Contributions..................................5
Section 3.06 FICA and Other Taxes.................................................5
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
DOCUMENT PAGE NO.
================================================================================================
<S> <C>
ARTICLE IV PARTICIPANT ACCOUNTS AND INVESTMENT OPTIONS.......................................5
Section 4.01 Participant Accounts.................................................5
Section 4.02 Investment Options...................................................5
Section 4.03 Crediting of Additions...............................................5
Section 4.04 Minimum Benefit......................................................6
ARTICLE V BENEFITS..........................................................................6
Section 5.01 Vesting..............................................................6
Section 5.02 Payments of Benefits.................................................6
Section 5.03 Hardship Withdrawals for Disability or Unforeseeable Emergencies.....7
Section 5.04 Non-Emergency Withdrawal.............................................8
Section 5.05 Regulatory Accelerated Payout........................................8
ARTICLE VI CREDITOR RIGHTS; NO TRUST.........................................................9
ARTICLE VII ADMINISTRATION OF PLAN...........................................................10
Section 7.01 Plan Administration.................................................10
Section 7.02 Examination of Records..............................................10
Section 7.03 Nondiscriminatory Exercise of Authority.............................10
Section 7.04 Claim For Benefits and Review of Denial.............................11
(A) Submission of Claim.................................................11
(B) Denial of Claim.....................................................11
(C) Appeal From Denial of Claim.........................................11
(D) Review of Appeal....................................................12
(E) Legal Action........................................................12
Section 7.05 Correction of Administrative Errors.................................12
Section 7.06 Participant Applications and Notices................................12
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
DOCUMENT PAGE NO.
================================================================================================
<S> <C>
ARTICLE VIII AMENDMENT AND TERMINATION OF PLAN................................................13
Section 8.01 Amendment...........................................................13
Section 8.02 No Contractual Obligation...........................................13
Section 8.03 Procedure Upon Termination..........................................13
ARTICLE IX MISCELLANEOUS PROVISIONS.........................................................13
Section 9.01 Information To Be Furnished.........................................13
Section 9.02 Limitation on Participants' Rights..................................13
Section 9.03 Receipt and Release.................................................13
Section 9.04 Nonassignability....................................................14
Section 9.05 Incompetency........................................................14
Section 9.06 No Guarantee of Tax Consequences....................................14
Section 9.07 Indemnification of Company and Subsidiaries by Participants.........14
Section 9.08 Benefits Solely From General Assets.................................14
Section 9.09 Governing Law.......................................................15
Section 9.10 Distribution in the Event of Taxation or ERISA Coverage.............15
Section 9.11 Taxes and Withholding...............................................15
Section 9.12 Adoption by Subsidiaries............................................15
</TABLE>
iii
<PAGE>
GREATER BAY BANCORP
1997 ELECTIVE
DEFERRED COMPENSATION PLAN
This Greater Bay Bancorp 1997 Elective Deferred Compensation Plan (the
"Plan") is adopted by Greater Bay Bancorp, a California corporation (the
"Company"), and its Subsidiaries to provide specified deferred compensation
benefits to a select group of management or highly compensated employees and
Directors who contribute materially to the continued growth, development, and
future business success of the Company and its Subsidiaries. The Plan shall be
unfunded for tax purposes and for purposes of Title I of ERISA.
ARTICLE
-------
I
- -
DEFINITIONS
-----------
Section 1.1 Definitions. Whenever used in the Plan, the following
-----------
words and phrases shall have the meanings set forth below unless a different
meaning is expressly provided or plainly required by the context in which the
words or phrases are used:
(A) "Account" or "Deferred Compensation Contribution Account"
-------------------------------------------------------
means the account maintained for each Participant which represents his or
her total interest in the Plan as of any date and which consists of the
Participant's account to which (i) Deferred Compensation Contributions have
been credited under the Plan, plus (ii) Additions have been credited in
accordance with Section 4.03 of this Plan, and (iii) all distributions have
been subtracted. This Account shall be a bookkeeping entry only and shall
be utilized solely as a device for the measurement and determination of the
amounts to be paid to a Participant pursuant to this Plan. Each
Participant's Account shall be maintained on a Plan Year-by-Plan Year basis
so that the Deferred Compensation Contribution for a Participant for each
Plan Year shall be tracked separately, as well as any Additions thereto and
any distributions with respect to the deferred amounts attributable to that
particular Plan Year.
(B) "Additions" means deemed earnings on Deferred Compensation
---------
Contributions with respect to the Interest Reference Rate applicable to the
Deferred Compensation Contributions for a particular Plan Year for a
Participant.
(C) "Beneficiary" means one or more persons, trusts, estates or
-----------
other entities designated in accordance with Section 5.02(C) of the Plan
that are entitled to receive benefits under the Plan upon the death of a
Participant.
1
<PAGE>
(D) "Board" means the Board of Directors of the Company or a
-----
Subsidiary, as the context requires.
(E) "Committee" means the Deferred Compensation Committee created
---------
by the Company Board or, if none, the Company Board itself. The Committee
shall consist of at least two (2) members, who may themselves also be
Participants.
(F) "Compensation" means, with respect to any Employee, the gross
------------
salary or wages paid to such Employee by the Company or a Subsidiary that
is includable in the Employee's gross income for each calendar year
(determined without regard to community property laws), including bonuses,
overtime, commissions and automobile allowances and including pretax
deferrals to any Company or Subsidiary Section 401(k) retirement savings
plan, salary reduction contributions to any Section 125 cafeteria plan
maintained by the Company or a Subsidiary, and deferred compensation
contributions to this Plan, but excluding (1) any other amounts contributed
by the Company or a Subsidiary to any pension plan or plan of deferred
compensation and (2) any amount paid by the Company or a Subsidiary for
non-taxable fringe benefits, such as health and welfare, hospitalization
and group life insurance benefits, or perquisites. In the case of
Directors, Compensation means the annual fees paid by the Company or a
Subsidiary, including retainer fees and meetings fees, as compensation for
serving on the Board of the Company or a Subsidiary.
(G) "Deferred Compensation Contributions" means the amount of
-----------------------------------
Compensation a Participant elects to have the Company or a Subsidiary defer
on his or her behalf under the Plan on a pretax basis in accordance with
Section 3.01.
(H) "Director" means a member of a Board.
--------
(I) "Disabled" or "Disability" means permanent and total
-------- ----------
disability as defined in Section 22(e)(3) of the Internal Revenue Code of
1986, as amended.
(J) "Election Form" means that form to be provided to a
-------------
Participant by the Company or a Subsidiary by which the recipient may elect
to participate in the Plan for a particular Plan Year. A copy of the
initial form of Election Form is attached hereto as Exhibit A. The
Committee may modify such form from time to time.
(K) "Employee" means any person who is either (1) a Director, or
--------
(2) a common law employee of the Company or a Subsidiary who is a member of
a select group of management or highly compensated employees.
(L) "Interest Reference Rate" means, for each Plan Year, the
-----------------------
published average Moody's corporate bond yield for AAA-rated corporate
bonds published for the month of January of each Plan Year, plus 200 basis
points. It is acknowledged
2
<PAGE>
that Moody's publishes such bond yields weekly during each month and that
the Interest Reference Rate will be an average of such weekly bond yields
as published from time to time for January of a Plan Year. Notwithstanding
such average, the Interest Reference Rate for a Plan Year shall not be less
than a 7% floor nor greater than a 10% ceiling, except that the Committee
(in its sole and absolute discretion) may increase the Interest Reference
Rate above said 10% ceiling for any Plan Year. The Interest Reference Rate
as so computed shall float from year to year. If Moody's ceases publication
of such bond yields, the Committee may select any comparable published rate
as a replacement.
(M) "Participant" means an Employee who has been selected to
-----------
participate in the Plan by the Committee for a particular Plan Year in
accordance with the rules of eligibility established by the Committee and
shall include, where the context requires, a former Participant entitled to
benefits under the Plan.
(N) "Plan Year" means, for the initial year of the Plan, December
---------
1, 1997 through December 31, 1997, and thereafter a 12-month period ending
each December 31.
(O) "Subsidiary" means any corporation that has adopted the Plan
----------
and in which the Company owns, directly or indirectly, fifty percent (50%)
or more of the total combined voting power of such corporation. Every
corporation satisfying the foregoing ownership test as of the date of the
adoption of the Plan by the Company has adopted the Plan simultaneously.
Additional corporations may become Subsidiaries in the future if the
foregoing ownership test is met and their Boards adopt the Plan.
ARTICLE II
----------
PARTICIPATION
-------------
Section 2.1 Eligibility and Participation. As set forth in the
-----------------------------
definitions of "Employee" and "Participant," only certain Directors and a select
group of management or highly compensated common law employees of the Company or
a Subsidiary are eligible to participate in the Plan in accordance with such
eligibility rules as the Committee may establish. Each Employee selected by the
Committee for participation in the Plan with respect to a particular Plan Year
shall become eligible to participate in the Plan upon notice by the Committee of
his or her eligibility for participation for that Plan Year.
Section 2.2 Enrollment of Participants. Each Employee eligible to
--------------------------
participate in the Plan and selected by the Committee for possible participation
for a particular Plan Year as provided in Section 2.01 shall complete an
Election Form pursuant to Section 3.02 with regard to that
3
<PAGE>
Plan Year. At the time of his or her initial enrollment, each such Employee
shall also designate a Beneficiary to receive benefits under the Plan in the
event such Employee dies prior to the time all benefits held in his or her
Account under the Plan have been distributed to him or her.
Section 2.3 Duration of Participation. From Plan Year to Plan
-------------------------
Year, the Committee may select potential Participants for that particular Plan
Year from among the Employees in its sole and absolute discretion. Selection of
an Employee as a potential Participant with respect to one Plan Year does not
guarantee selection of that Employee as a potential Participant with respect to
any subsequent Plan Year by the Committee.
ARTICLE III
-----------
CONTRIBUTIONS
-------------
Section 3.1 Deferred Compensation Contributions. Each Plan Year, a
-----------------------------------
Participant may designate on an Election Form a percentage of his or her
Compensation to have allocated to the Plan as a Deferred Compensation
Contribution in accordance with the provisions of Section 3.02, subject to the
limits set forth herein. A Participant may elect to have such contributions
made from bonuses or Director fees at a lower or higher rate than from other
Compensation. The minimum annual deferral is $2,000 in the aggregate, and the
maximums are: 100% of Director's fees; 100% of bonuses; and 50% of other
Compensation.
Section 3.2 Election Procedure. At or about the effective date of
------------------
the Plan, and shortly before each subsequent January 1, the Committee shall
provide an Election Form to each Employee who is selected by the Committee to
participate in the Plan and to become a Participant with respect to the next
Plan Year. Each such selected eligible Employee who elects to make a Deferred
Compensation Contribution for the applicable Plan Year shall so specify on the
Election Form and shall agree to a corresponding reduction in his or her cash
Compensation. A Participant must complete his or her annual Election Form and
return it to the Committee on or before such date as the Committee shall
specify, which date shall be no later than the last day of the calendar month
prior to commencement of the Plan Year for which the Participant's election
shall be effective. For the initial Plan Year only, an eligible Employee
selected for participation shall have thirty (30) days from the date he or she
becomes selected as eligible to participate in the Plan to return to the
Committee his or her properly completed Election Form on the deferral of
Compensation for services rendered by such Employee after his or her deferral
election. An election made by an eligible selected Employee shall apply only
for one Plan Year, and each eligible Employee selected for participation for a
subsequent Plan Year must make a separate election for that Plan Year.
Section 3.3 Failure to Elect. An eligible Employee selected for
----------------
participation but failing to return a completed Election Form to the Committee
on or before the specified due date for a Plan Year shall be deemed to have
elected to receive his or her full Compensation in cash for that Plan Year.
4
<PAGE>
Section 3.4 Irrevocability of Election by the Participant. Except
---------------------------------------------
as provided in Section 5.03 and Section 5.04, a Deferred Compensation
Contribution election made under the Plan shall remain irrevocable for the
entire Plan Year for which the election is made.
Section 3.5 Company or Subsidiary Contributions. Currently the
-----------------------------------
Plan does not provide for Company or Subsidiary contributions.
Section 3.6 FICA and Other Taxes. For each Plan Year in which a
--------------------
Deferred Compensation Contribution is being withheld, the Company or Subsidiary
shall ratably withhold from the Participant's Compensation the Participant's
share of FICA and other employment taxes imposed on such Compensation; first,
from Compensation not deferred under the Plan, and (if necessary) second, from
Compensation which otherwise would be deferred under the Plan.
IV
- --
PARTICIPANT ACCOUNTS AND INVESTMENT OPTIONS
-------------------------------------------
Section 4.1 Participant Accounts. The Company or Subsidiary shall
--------------------
establish a Deferred Compensation Contribution Account on behalf of each
Participant which shall be credited Plan Year-by-Plan Year with Deferred
Compensation Contributions on behalf of such Participant. Deferred Compensation
Contributions with respect to regular Compensation shall be credited at least
monthly and Deferred Compensation Contributions with respect to Compensation
paid less frequently than monthly shall be credited promptly after such
Compensation otherwise would have been paid.
The Committee shall maintain records relative to each Participant's
Deferred Compensation Contribution Account so that its value may be determined
as of any business day as provided in Sections 4.03 and 5.02(B) below. Each
Participant shall be advised from time to time, at least once each Plan Year, as
to the status and value of his or her Deferred Compensation Contribution
Account.
Section 4.2 Investment Options. A Participant shall be deemed to
------------------
have his or her Deferred Compensation Contribution for each Plan Year treated as
if such Contribution were invested and reinvested at the Interest Reference
Rate. Participants have no other investment options with respect to Deferred
Compensation Contributions.
Section 4.3 Crediting of Additions. The Deferred Compensation
----------------------
Contributions that a Participant makes to the Plan each Plan Year shall be
deemed to have been invested and reinvested from time to time at the Interest
Reference Rate. The Committee shall credit the Participant's Account with
Additions on the Deferred Compensation Contributions credited to the
Participant's Account. Additions to the Participant's Account shall accrue
beginning on the date the Account first has a positive balance and shall
continue until the Participant has received his or her Account in full as
provided under Section 5.02. Deemed interest shall be credited quarterly and
compounded quarterly on a Participant's Account, as if each Deferred
Compensation Contribution were allocated to such Account on the last day of the
quarter in which it would otherwise be paid as Compensation. In the case of any
event resulting in a distribution to a Participant or Beneficiary prior to the
end of
5
<PAGE>
a Plan Year, the basis for that Plan Year's interest crediting will be a
fraction of the full year's interest, based on the number of full calendar
quarters during the Plan Year prior to the calendar quarter in which the
distribution occurred.
Section 4.4 Minimum Benefit. Notwithstanding any provision of the
---------------
Plan to the contrary, in no event shall the amount of benefits payable to a
Participant be less than the total amount of Deferred Compensation Contributions
that the Participant has made to the Plan during his or her years of
participation in the Plan, less all distributions.
ARTICLE V
---------
BENEFITS
--------
Section 5.1 Vesting. Each Participant shall be fully vested in his
-------
or her Deferred Compensation Contribution Account at all times.
Section 5.2 Payments of Benefits. Except as provided in the
--------------------
remaining provisions of this Article V, a Participant's benefits hereunder shall
be paid to the Participant (or to his or her Beneficiary following the
Participant's death), as follows:
(A) That portion of the Participant's Account with respect to a
Deferred Compensation Contribution for a Plan Year which the Participant
has elected to have payable in the form of installments based upon the
Participant's designation on his or her Election Form for that Plan Year
shall be payable to him or her in the form of installments, and that
portion of the Participant's Account with respect to a Deferred
Compensation Contribution for a Plan Year which the Participant has elected
to have payable in the form of a lump sum based upon the Participant's
designation on his or her Election Form for that Plan Year shall be payable
to him or her in the form of a lump sum, at such time as provided below.
(B) Payment of a Participant's benefit in the form of
installments and/or a lump sum shall commence or shall be payable, as
applicable, within 60 days following the Participant's death or payout
commencement date specified in the applicable Election Form.
Notwithstanding the foregoing, the Committee may in its sole and
absolute discretion disregard an installment election by the Participant
and direct the payment of the Participant's benefit in a single lump sum,
if the total amount of the benefit does not exceed $25,000. If the
Participant dies before all installment benefits have been paid, the
remaining installments shall be paid (over the remaining period) to his or
her Beneficiary; provided, that the Committee in its sole and absolute
discretion may determine to pay the value of the Account to the Beneficiary
in a lump sum.
6
<PAGE>
(C) A Participant may designate or change at any time the
Beneficiary to receive the Participant's benefits hereunder in the event of
his or her death. Any such designation shall be made on a form provided by
the Committee for that purpose, and shall not be effective until the form
is filed with the Committee. A form of beneficiary designation is attached
hereto as Exhibit B, which form the Committee may modify from time to time.
Spousal consent is required if a married Participant wishes to name a
primary Beneficiary other than his or her spouse. If no Beneficiary is
designated, or if a designated Beneficiary shall not survive to receive all
payments due hereunder, all or such part of the Participant's Account as
have not been distributed shall be payable to the Participant's spouse,
and, if no spouse survives, to the Participant's children, with equal
shares among living children and with the living descendants of a deceased
child receiving equal portions of the deceased child's share, and in the
absence of spouse or descendant, to the Participant's estate. For purposes
of this paragraph, "descendant" means all persons who are descended from
the person referred to, either by legitimate birth to or legal adoption by
such person, or any of such person's legitimately born or legally adopted
descendants except descendants adopted by other persons. The Participant
may designate a Beneficiary's estate or other conditional Beneficiaries in
the event the first designated Beneficiary does not survive to receive full
payment.
Section 5.3 Hardship Withdrawals for Disability or Unforeseeable
----------------------------------------------------
Emergencies.
-----------
(A) Amount. Upon Committee approval, in the case of Disability
------
of a Participant or an unforeseeable emergency with respect to a
Participant, a Participant shall be permitted to (1) make a cash
withdrawal, in any whole percentage increment or dollar amount, of up to
one hundred percent (100%) of the amount in his or her Account, and/or (2)
suspend any deferrals required to be made by him or her, for such period as
the Committee may approve. However, the amount of any distribution under
this section in the case of an unforeseeable emergency or Disability shall
be limited to the amount necessary to defray the hardship expense which is
not reasonably available from other sources outside the Plan and which
constitutes an unforeseeable emergency. For this purpose, the Bank may
accept the written statement of the Participant stating the nature of his
or her immediate and heavy financial need, his or her financial resources,
and the fact that the amount of withdrawal requested is not reasonably
available from other sources.
(B) Withdrawal Procedure. A Participant wishing to withdraw any
--------------------
amount hereunder shall do so by making application therefor which
demonstrates to the satisfaction of the Committee (in its sole and absolute
discretion) that the Participant is confronted by Disability or by a
financial hardship due to an unforeseeable emergency. Application for
withdrawals shall be made on such forms as the Committee prescribes and may
be made at any time, effective as of the first day of the month following
at least fifteen (15) days' notice to the Committee. Distribution of
7
<PAGE>
withdrawals shall be made in a lump sum as soon as is administratively
possible following such date. Withdrawal distributions shall be based on
the value of the Participant's Account as of the last day of the month
prior to the date of the withdrawal.
(C) Definition of Unforeseeable Emergency. For purposes of this
-------------------------------------
section, "unforeseeable emergency" includes severe financial hardship to
the Participant resulting from a sudden and unexpected illness or accident
of the Participant (not resulting in Disability, however) or of a dependent
(as defined in section 152(a) of the Internal Revenue Code of 1986, as
amended) of the Participant, loss of the Participant's property due to
casualty, or other similar extraordinary and unforeseeable circumstances
arising as a result of events beyond the control of the Participant. The
circumstances that will constitute an unforeseeable emergency will depend
upon the facts of each case, but, in any case, no withdrawal shall be
permitted to the extent that such hardship is or may be relieved:
(1) Through reimbursement or compensation by insurance or
otherwise;
(2) By liquidation of the Participant's assets (not including
qualified retirement plan benefits), to the extent the liquidation
of such assets would not itself cause severe financial hardship; or
(3) By cessation of deferrals under the Plan.
Section 5.4 Non-Emergency Withdrawal. A Participant may elect (on
------------------------
a form provided by the Committee), at any time, to withdraw all of his or her
Deferred Compensation Contribution Account, less a 10% withdrawal penalty which
shall be forfeited upon such withdrawal. No partial withdrawals are allowed.
Upon such a withdrawal, the Participant's participation in the Plan shall cease,
and the Participant may not participate in the Plan for two (2) Plan Years
following the Plan Year in which the withdrawal occurs.
Section 5.5 Regulatory Accelerated Payout. If at any time any
-----------------------------
Subsidiary that is a bank is determined to be "significantly undercapitalized"
pursuant to the prompt corrective action provisions of federal banking law,
then, notwithstanding the general provisions of this Article V above, the
Subsidiary shall immediately distribute to such Subsidiary's Participants or
Beneficiaries a lump sum cash amount equal to the Account balances of such
distributees. In the event bank Subsidiaries of the Company constituting more
than two-thirds (2/3) of the net assets of the Company have been determined to
be "significantly undercapitalized" as defined above, the Company shall make a
similar immediate payout to the Company's Participants and Beneficiaries. All
determinations for purposes of this Section 5.05 shall be made by the Committee
in its sole and absolute discretion.
8
<PAGE>
ARTICLE VI
----------
CREDITOR RIGHTS; NO TRUST
-------------------------
By participating in the Plan, a Participant shall become a mere
unsecured creditor of the Company or a Subsidiary. No assets of the Company or
a Subsidiary shall be placed in trust or otherwise set aside from the claims of
general creditors of the Company or a Subsidiary for the benefit of any
Participant. A Participant shall have the mere promise of the Company or a
Subsidiary to pay deferred compensation in the future. A Participant's right to
benefit payments under the Plan are not subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, attachment or
garnishment by creditors of the Participant or his Beneficiary.
The foregoing not withstanding, upon the occurrence of a Change in
Control as the term is defined below, the Company shall create an irrevocable
trust, the assets of which are subject to the claims of general creditors of the
Company or a Subsidiary (the "Rabbi Trust"), and transfer all amounts credited
to the Deferred Compensation Contribution Account of each Participant to such
Rabbi Trust. For purposes of the Plan, the term "Change in Control" shall mean
the first to occur of any of the following events:
(A) Any "person" (as that term is used in Section 13 and 14(d)(2)
of the Securities Exchange Act of 1934 ("Exchange Act")) becomes the
beneficial owner (as that term is used in Section 13(d) of the Exchange
Act), directly or indirectly, of 25% or more of the Company's capital stock
entitled to vote in the election of Directors;
(B) During any period of not more than two consecutive years, not
including any period prior to the adoption of this Trust, individuals who,
at the beginning of such period constitute the Board of Directors of the
Company, and any new Director (other than a Director designated by a person
who has entered into an agreement with the Company to effect a transaction
described in clause (A), (C), (D) and (E) of this Article) whose election
by the Board of Directors or nomination for election by the Company's
stockholders was approved by a vote of at least three-fourths (3/4ths) of
the Directors then still in office, either were Directors at the beginning
of the period or whose election or nomination for election was previously
so approved, cease for any reason to constitute at least a majority
thereof;
(C) The shareholders of the Company approve any consolidation or
merger of the Company, other than a consolidation or merger of the Company
in which the holders of the common stock of the Company immediately prior
to the consolidation or merger hold more than 50% of the common stock of
the surviving corporation immediately after the consolidation or merger;
(D) The shareholders of the Company approve any plan or proposal
for the liquidation or dissolution of the Company; or
9
<PAGE>
(E) The shareholders of the Company approve the sale or transfer
of substantially all of the Company's assets to parties that are not within
a "controlled group of corporations" (as defined in Code Section 1563) in
which the Company is a member.
ARTICLE VII
-----------
ADMINISTRATION OF PLAN
----------------------
Section 7.1 Plan Administration. The administration of the Plan
-------------------
shall be under the supervision of the Committee, which shall see that the Plan
is carried out, in accordance with its terms, for the exclusive benefit of
persons entitled to participate in the Plan without discrimination among them.
Committee members must recuse themselves with respect to any decisions of the
Committee relating to that particular member individually. The Committee's
powers will include, but will not be limited to, the following authority, in
addition to all other powers provided by this Plan:
(A) To make and enforce such rules and regulations as it deems
necessary or proper for the efficient administration of the Plan;
(B) To interpret the Plan, its interpretation thereof in good
faith to be final and conclusive on all persons claiming benefits under the
Plan;
(C) To decide all questions concerning the Plan and the
eligibility of any person to participate in the Plan;
(D) To appoint such agents, counsel, accountants, consultants
and other persons as may be required to assist in administering the Plan;
and
(E) To allocate and delegate its responsibilities under the Plan
and to designate other persons to carry out any of its responsibilities
under the Plan, any such allocation, delegation or designation to be in
writing.
Section 7.2 Examination of Records. The Committee will make
----------------------
available to each Participant such of his or her records under the Plan as
pertain to the Participant, for examination at reasonable times during normal
business hours.
Section 7.3 Nondiscriminatory Exercise of Authority. Whenever, in
---------------------------------------
the administration of the Plan, any discretionary action by the Committee is
required, the Committee shall exercise its authority in a nondiscriminatory
manner so that all persons similarly situated will receive substantially the
same treatment. The Committee is given broad discretion to interpret and
construe the Plan and to carry out its responsibilities hereunder. Subject to
the rights of appeal set forth in Section 7.04, decisions and interpretations of
the Committee shall be final, conclusive, and binding
10
<PAGE>
once made and shall be entitled to judicial deference, and shall be upheld
unless found to be arbitrary or capricious.
Section 7.4 Claim For Benefits and Review of Denial.
---------------------------------------
(A) Submission of Claim. A Participant or Beneficiary (the
-------------------
"Claimant") may file a claim for benefits under the Plan by writing a
letter to the Committee which requests the determination of the Claimant's
entitlement to benefits and which states the basis for the claim. The claim
must be dated and signed by the Claimant, and must contain the Claimant's
address and telephone number.
(B) Denial of Claim. If a claim is wholly or partially denied,
---------------
the Committee shall, within ninety (90) days after receipt of the claim,
provide written notice to the Claimant setting forth the following in a
manner calculated to be understood by the Claimant:
(1) The specific reason or reasons for the denial;
(2) Specific reference to pertinent Plan provisions on which
the denial is based;
(3) A description of any additional material or information
necessary for the Claimant to perfect the claim and an explanation
of why such material or information is necessary; and
(4) Appropriate information as to the steps to be taken if
the Claimant wishes to submit his or her claim for review.
If special circumstances require an extension of time for
processing the claim, the Committee may extend the period for an additional
ninety (90) days by furnishing written notice of the extension to the
Claimant prior to the termination of the initial ninety 90-day period.
If notice of denial of the claim is not furnished to a Claimant
within these periods, and the claim has not been granted within these
periods, the claim shall be deemed denied for the purposes of review.
(C) Appeal From Denial of Claim. A Claimant may appeal the
---------------------------
denial of a claim to the Committee by delivering to the Committee a written
application for review within sixty (60) days after receipt by the Claimant
of written notification of denial of the claim, or such longer period as
the Committee may, in its reasonable discretion, permit. The written
application shall be dated and signed by the Claimant or his or her
authorized representative and shall request a review of the prior denial of
the claim. The Claimant shall be entitled to a full and fair review of the
denial of his or her claim, including the opportunity for the
11
<PAGE>
Claimant or his or her authorized representative to review pertinent
documents and to submit issues and comments in writing.
(D) Review of Appeal. The Committee shall make its decision on
----------------
the appeal within sixty (60) days after receipt of the request for review,
unless special circumstances (such as the need to hold a hearing if, in the
Committee's determination, a hearing is necessary or advisable) require an
extension of time, in which case a decision shall be rendered as soon as
possible, but not later than one hundred twenty (120) days after receipt of
the request for review. If such an extension of time for review is
required because of special circumstances, written notice of the extension
shall be furnished to the Claimant prior to the commencement of the
extension. If the decision on review is not furnished within these time
limits, the claim shall be deemed denied on review.
The decision on review shall be in writing and shall include
specific reasons for the decision, written in a manner calculated to be
understood by the Claimant, and specific references to the pertinent Plan
provisions on which the decision is based.
(E) Legal Action. Compliance with the administrative appeal
------------
provisions of this Section 7.04 is a mandatory prerequisite to a Claimant's
right to commence any legal action with respect to any claim for benefits
under this Plan.
Section 7.5 Correction of Administrative Errors. If an error is
-----------------------------------
made in the administration of the Plan, the Committee shall promptly correct the
error upon its discovery. For this purpose, "administration" shall encompass
the entire operation of the Plan, including, but not limited to, eligibility,
participation and benefit calculation and distribution. If a Claimant (as
defined in Section 7.04) has been denied a benefit payment due to such
administrative oversight, the Committee shall determine the correct interest of
the Claimant and the Company or Subsidiary shall pay an amount on behalf of the
Claimant as is necessary to rectify the error. If an excessive payment has been
made for a Participant or Beneficiary, the Committee shall advise the
Participant or Beneficiary of the error and shall take such actions on the
Plan's behalf as are necessary to retrieve the excessive payment.
Section 7.6 Participant Applications and Notices. Any Participant
------------------------------------
or Beneficiary applications or notices required to be made to the Committee
hereunder shall be made to the Committee at the Company's principal office
address, and shall be deemed made upon personal delivery, two (2) days following
posting by express mail (postage prepaid), Federal Express or similar overnight
carrier, or five (5) days after sending by ordinary mail, postage prepaid.
12
<PAGE>
ARTICLE VIII
------------
AMENDMENT AND TERMINATION OF PLAN
---------------------------------
Section 8.1 Amendment. The Company shall have the right to amend
---------
this Plan from time to time, and to amend or cancel any such amendments. Plan
amendments shall be stated in an instrument executed by the Company and each
Subsidiary adopting such amendment in the same manner as this Plan, and this
Plan shall be deemed to have been amended in the manner and at the time therein
set forth and all Participants and Beneficiaries shall be bound thereby;
provided, however, that no amendments shall be effective which shall attempt to
reduce the Account balance of any Participant or Beneficiary.
Section 8.2 No Contractual Obligation. It is the expectation of
-------------------------
the Company and the Subsidiaries that they will continue the Plan indefinitely,
but the continuation thereof is not assumed as a contractual obligation by the
Company or any Subsidiary. The Plan may be discontinued or terminated with
respect to the Company or any Subsidiary at any time by action of the Company or
Subsidiary. Discontinuance or termination of the Plan shall not have the effect
of depriving any Participant or Beneficiary of any benefit owed under the Plan
as of the date of termination of the Plan.
Section 8.3 Procedure Upon Termination. Upon the termination of
--------------------------
the Plan by the Company, the Company shall proceed as soon as administratively
feasible, but in any event within one (1) year from such effective date, to
distribute all of the Participants' Accounts owed under the Plan.
ARTICLE IX
----------
MISCELLANEOUS PROVISIONS
------------------------
Section 9.1 Information To Be Furnished. Participants and
---------------------------
Beneficiaries shall provide the Committee with such information and evidence,
and shall sign such documents, as may reasonably be requested from time to time
for the purpose of administration of the Plan.
Section 9.2 Limitation on Participants' Rights. Participation in
----------------------------------
the Plan shall not give any person the right to continued employment, or any
right or interest in the Plan other than as herein provided. The Company and
each Subsidiary reserves the right to dismiss any person without any liability
for any claim either against the Plan, except to the extent herein provided, or
against the Company or Subsidiary. All benefits provided hereunder shall be
provided solely by the Company or Subsidiary from its general assets.
Section 9.3 Receipt and Release. Any payment on behalf of any
-------------------
Participant or his or her legal representative or Beneficiary in accordance with
the provisions of this Plan shall be, to the extent thereof, in full
satisfaction of all claims against the Company or Subsidiary and the Company or
Subsidiary may require such Participant, legal representative or Beneficiary, as
a condition precedent to such payment, to execute a receipt and release to such
effect.
13
<PAGE>
Section 9.4 Nonassignability. None of the benefits, payments,
----------------
proceeds or claims of any Participant or Beneficiary shall be subject to any
claim of any creditor of any Participant or Beneficiary and, in particular, the
same shall not be subject to attachment or garnishment or other legal process by
any creditor of any Participant or Beneficiary, nor shall any Participant or
Beneficiary have any right to alienate, anticipate, commute, pledge, encumber or
assign any of the benefits or payments or proceeds which he or she may expect to
receive under this Plan.
Section 9.5 Incompetency. Every person receiving or claiming
------------
benefits under the Plan shall be conclusively presumed to be mentally competent
and of age until the date on which the Committee receives a written notice, in a
form and manner acceptable to the Committee, that such person is incompetent or
a minor, for whom a guardian or other person legally vested with the care of his
or her person or estate has been appointed; provided, however, that if the
Committee shall find that any person to or for whom a benefit is payable under
the Plan is unable to care for his or her affairs because of incompetency, or is
a minor, any payment due (unless a prior claim therefor shall have been made by
a duly appointed legal representative) may be paid to the spouse, a child, a
parent or a brother or sister, or to any person or institution deemed by the
Committee to have incurred expense for such person otherwise entitled to
payment. To the extent permitted by law, any such payment so made shall be a
complete discharge of liability therefor under the Plan.
Section 9.6 No Guarantee of Tax Consequences. The Company and the
--------------------------------
Subsidiaries make no commitment or guarantee that any Deferred Compensation
Contributions or other benefits hereunder provided or to be provided to or for
the benefit of a Participant or Beneficiary will be excludable from the
Participant's or Beneficiary's gross income for federal or state income tax
purposes, or that any other federal or state tax treatment will apply to or be
available to any Participant or Beneficiary.
Section 9.7 Indemnification of Company and Subsidiaries by Participants.
-----------------------------------------------------------
If a Deferred Compensation Contribution or other amount is allocated to an
Account hereunder for any Participant and such allocation is taxable to the
Participant, such Participant shall indemnify and reimburse the Company and
Subsidiaries for any liability they may incur for failure to withhold federal or
state income tax or Social Security tax from such payments. However, such
indemnification and reimbursement shall not exceed the amount of additional
federal and state income tax and interest that the Participant would have owed
if the amount had been paid to the Participant as regular cash Compensation,
plus the Participant's share of any Social Security tax that would have been
paid on such Compensation, less any such additional income and Social Security
tax actually paid by the Participant.
Section 9.8 Benefits Solely From General Assets. The benefits
-----------------------------------
provided hereunder will be paid solely from the general assets of the Company or
Subsidiary, as applicable. This Plan is an unfunded Plan, with no segregated or
separate assets required. No Participant or Beneficiary or other person shall
have any claim against, right to, or security or other interest in, any fund,
account or asset of the Company or Subsidiary from which any payment under the
Plan may be made. All amounts of compensation deferred under the Plan, all
property and rights purchased with such
14
<PAGE>
amounts, and all income attributable to such amounts, property or rights, shall
remain (until made available to the Participant or other Beneficiary) solely the
property and rights of the Company or Subsidiary (without being restricted to
the provision of benefits under the Plan) subject only to the claims of the
general creditors of the Company or Subsidiary, as applicable.
Section 9.9 Governing Law. This Plan shall be construed,
-------------
administered and enforced according to the laws of California.
Section 9.10 Distribution in the Event of Taxation or ERISA Coverage.
-------------------------------------------------------
If, for any reason, all or any portion of a Participant's Account
under this Plan becomes taxable to the Participant prior to receipt, a
Participant may petition the Committee for a distribution of that portion of his
or her Account that has become taxable. Upon the grant of such a petition,
which grant shall not be unreasonably withheld, the Company or Subsidiary shall
distribute to the Participant immediately available funds in an amount equal to
the taxable portion of his or her Account. If the petition is granted, the tax
liability distribution shall be made within 90 days of the date when the
Participant's petition is granted. Such a distribution shall reduce the
Participant's Account. The Committee shall also distribute a Participant's
Account immediately in a lump sum in the event of a judicial or administrative
decision, or an opinion of Company's counsel, that such Participant is not a
member of a "select group of management or highly compensated employees" within
the meaning of Title I of ERISA (determined without regard to any termination of
employment or termination of Director status with the Company or a Subsidiary).
Section 9.11 Taxes and Withholding. The Company or Subsidiary may
---------------------
withhold from any distribution under this Plan any and all employment and income
taxes that are required to be withheld under applicable law.
Section 9.12 Adoption by Subsidiaries. Any corporation that is now
------------------------
or hereafter becomes a Subsidiary may adopt this Plan by executing a counterpart
signature page hereto and furnishing written notice of such adoption to the
Committee.
15
<PAGE>
IN WITNESS WHEREOF, the Company and each Subsidiary has caused this
Plan to be executed in its name and behalf as of the 22nd day of December,
1997, by its officers thereunto duly authorized.
GREATER BAY BANCORP,
a California corporation
/s/ Steven C. Smith
-------------------
By: Steven C. Smith
Title: EVP and Chief Operating Officer
Exhibit A - Greater Bay Bancorp Elective Deferred Compensation Election Form
Exhibit B - Beneficiary Designation
CERTIFICATE OF SECRETARY
------------------------
The undersigned, being the duly appointed Secretary for Greater Bay
Bancorp, a California corporation (the "Company"), hereby certifies that the
foregoing Greater Bay Bancorp 1997 Elective Deferred Compensation Plan was duly
adopted by the Board of Directors of the Company at a Board meeting on
November 19, 1997.
Date: December 22, 1997 /s/ Shawn E. Saunders
---------------------------------------------
Assistant Secretary
16
<PAGE>
EXHIBIT 11
GREATER BAY BANCORP ANNUAL REPORT ON FORM 10-K
EXHIBIT 11--STATEMENTS RE COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS) 1997 1996 1995 1994 1993
- ---------------------------------------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Income available to common shareholders.... $10,013 $5,338 $4,817 $3,930 $3,075
Weighted average common shares outstanding. 3,974 3,804 3,542 3,304 3,116
------- ------ ------ ------ ------
Basic earnings per share................... $ 2.51 $ 1.40 $ 1.36 $ 1.19 $ 0.99
======= ====== ====== ====== ======
DILUTED EARNINGS PER SHARE:
Income available to common shareholders.... $10,013 $5,338 $4,817 $3,930 $3,075
Weighted average common shares outstanding. 3,974 3,804 3,542 3,304 3,116
Effect of dilutive securities.............. 348 293 240 314 419
------- ------ ------ ------ ------
Weighted average common and common
equivalent shares outstanding............. 4,322 4,097 3,782 3,618 3,535
------- ------ ------ ------ ------
Diluted earnings per share................. $ 2.32 $ 1.30 $ 1.27 $ 1.09 $ 0.87
======= ====== ====== ====== ======
</TABLE>
<PAGE>
EXHIBIT 12
GREATER BAY BANCORP ANNUAL REPORT OF FORM 10-K
STATEMENTS RE COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Income before income taxes........ $16,675 $ 9,310 $ 7,834 $ 6,721 $ 4,915
Fixed charges:
Interest expense................ 30,140 19,125 16,339 10,197 8,283
Interest factor of rental
expense........................ 720 579 492 436 388
------- ------- ------- ------- -------
Fixed charges................. 30,860 19,704 16,831 10,633 8,671
Less: interest expense on
deposits......................... 27,907 18,644 15,495 9,815 8,273
------- ------- ------- ------- -------
Net fixed charges............... 2,953 1,060 1,336 818 398
------- ------- ------- ------- -------
Earnings, excluding interest on
deposits......................... $19,628 $10,370 $ 9,170 $ 7,539 $ 5,313
======= ======= ======= ======= =======
Ratio of earnings, excluding
interest on deposits, to net
fixed charges(/1/)............... 6.65x 9.78x 6.86x 9.22x 13.35x
Earnings, including interest on
deposits......................... $47,535 $29,014 $24,665 $17,354 $13,586
======= ======= ======= ======= =======
Ratio of earnings, including
interest on deposits, to fixed
charges(/2/)..................... 1.54x 1.47x 1.47x 1.63x 1.57x
</TABLE>
- --------
(1) For the purposes of computing the ratio of earnings, excluding interest on
deposits, to net fixed charges, earnings represent income before income
taxes plus net fixed charges. Net fixed charges include interest expense,
other than interest on deposits, and that portion of rental expense,
generally one third, deemed representative of the interest factor.
(2) For the purposes of computing the ratio of earnings, including interest on
deposits, to fixed charges, earnings represent income before income taxes
plus fixed charges. Fixed charges include interest expense and that
portion of rental expense, generally one third, deemed representative of
the interest factor.
<PAGE>
EXHIBIT 13
EXHIBIT 13--ANNUAL REPORT TO SHAREHOLDERS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
(DOLLARS IN THOUSANDS, 1997 1996* 1995* 1994* 1993*
EXCEPT PER SHARE AMOUNTS) ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Interest income.......... $ 77,916 $ 54,098 $ 45,838 $ 35,013 $ 30,245
Interest expense......... 30,140 19,125 16,339 10,197 8,283
---------- --------- --------- --------- ---------
Net interest income...... 47,776 34,973 29,499 24,816 21,962
Provision for loan
losses.................. 3,793 2,156 1,160 1,943 2,105
---------- --------- --------- --------- ---------
Net interest income after
provision for loan
losses.................. 43,983 32,817 28,339 22,873 19,857
Other income, recurring.. 5,125 3,950 2,682 3,755 4,034
Operating expenses,
excluding nonrecurring
items................... 29,100 24,666 21,052 19,299 18,976
---------- --------- --------- --------- ---------
Income before income tax
expense and nonrecurring
items................... 20,008 12,101 9,969 7,329 4,915
Income tax expense....... 7,713 4,772 3,817 2,791 1,840
---------- --------- --------- --------- ---------
Income before
nonrecurring items...... 12,295 7,329 6,152 4,538 3,075
Nonrecurring items, net
of tax.................. 2,282 1,991 1,335 608 --
---------- --------- --------- --------- ---------
Net Income............... $ 10,013 $ 5,338 $ 4,817 $ 3,930 $ 3,075
========== ========= ========= ========= =========
Earning per share
Basic.................. $ 2.51 $ 1.40 $ 1.36 $ 1.19 $ 0.99
Diluted................ $ 2.32 $ 1.30 $ 1.27 $ 1.09 $ 0.87
Dividends per share...... $ 1.04 $ 0.60 $ 0.48 $ 0.34 $ 0.22
Average common and common
equivalent shares
outstanding............. 4,321,866 4,097,014 3,782,328 3,618,178 3,535,296
OPERATING RATIOS AND
OTHER DATA
Return on average assets
(1)..................... 1.07% 0.82% 0.90% 0.84% 0.69%
Return on average common
shareholders' equity
(1)..................... 15.52% 9.57% 9.64% 8.55% 7.24%
Net interest margin (2).. 5.45% 5.85% 6.02% 5.80% 5.57%
Net (charge-offs)
recoveries to average
loans................... (0.18)% 0.07% (0.40)% (0.37)% (0.51)%
FINANCIAL CONDITION DATA
(AT PERIOD END)
Assets................... $1,092,422 $ 826,365 $ 576,588 $ 491,362 $ 453,155
Loans, net............... 660,656 505,745 343,384 303,229 290,120
Investment securities
(3)..................... 205,526 127,033 136,609 93,169 74,398
Deposits................. 973,378 747,818 515,854 422,467 406,157
Subordinated debt........ 3,000 3,000 3,000 -- --
Trust Preferred
Securities.............. 20,000 -- -- -- --
Common shareholders'
equity.................. 66,596 57,955 52,383 46,830 44,538
Book value per common
share................... 16.53 14.91 14.23 13.76 13.89
FINANCIAL CONDITION
RATIOS
Nonperforming assets to
total loans and OREO.... 0.47% 0.93% 1.41% 2.27% 2.13%
Allowance for loan losses
to total loans.......... 2.25% 1.69% 1.70% 1.84% 1.65%
Allowance for loan losses
to non-- performing
assets.................. 477.79% 180.10% 110.56% 79.16% 74.79%
REGULATORY CAPITAL RATIOS
Tier 1 Capital........... 10.69% 9.52% 12.34% 13.25% 13.50%
Total Capital............ 12.32% 11.22% 14.27% 14.34% 14.87%
Leverage Ratio........... 8.29% 7.69% 9.32% 9.85% 10.02%
</TABLE>
- -------
* Restated on a historical basis to reflect the mergers with Cupertino
National Bancorp and Peninsula Bank of Commerce on a pooling of interests
basis.
(1) Excluding nonrecurring items net of tax of $2.3 million in 1997, $2.0
million in 1996, $1.3 million in 1995 and $0.6 million in 1994, ROA for
1997, 1996, 1995 and 1994 would have been 1.31%, 1.12%, 1.16% and 0.97%,
respectively, and ROE for 1997, 1996, 1995 and 1994 would have been
19.10%, 13.13%, 12.31% and 9.08%, respectively.
(2) Net interest margin for 1997 and 1996 includes the lower spread earned on
the PBC Special Deposit (see Note 7 to the Financial Statements for
details). Excluding the PBC Special Deposit, net interest margin would
have been 5.83% and 5.90% for 1997 and 1996, respectively.
(3) Includes available for sale securities and held to maturity securities.
1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Greater Bay Bancorp ("Greater Bay," on a parent-only basis, and the
"Company," on a consolidated basis) was formed as the result of the merger in
November 1996 between Cupertino National Bancorp, the holding company for
Cupertino National Bank ("CNB"), and Mid-Peninsula Bancorp, the holding
company for Mid-Peninsula Bank ("MPB"). In December 1997, the Company
completed a merger with Peninsula Bank of Commerce ("PBC"), whereby PBC joined
CNB and MPB as the third wholly owned banking subsidiary of Greater Bay
(collectively, the "Banks"). Both mergers were accounted for as pooling of
interests. All of the financial information for the Company for the periods
prior to the mergers has been restated to reflect the pooling of interests, as
if they occurred at the beginning of the earliest reporting period presented.
The following discussion and analysis is intended to provide greater details
of the results of operations and financial condition of the Company. The
following discussion should be read in conjunction with the information under
"Financial Highlights" and the Company's consolidated financial data included
elsewhere herein. Certain statements under this caption constitute "forward-
looking statements" within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, which involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in such forward-looking
statements. Factors that might cause such a difference include but are not
limited to economic conditions, competition in the geographic and business
areas in which the Company conducts its operations, fluctuation in interest
rates, credit quality and government regulation.
RESULTS OF OPERATIONS
The Company reported net income of $10.0 million in 1997, an 88.0% increase
over 1996 net income of $5.3 million. The net income in 1996 was a 10.0%
increase over 1995 income of $4.8 million. Basic net income per share was
$2.51 for 1997, as compared to $1.40 for 1996 and $1.36 for 1995, while
diluted net income per share was $2.32, $1.30 and $1.27 for 1997, 1996 and
1995, respectively. The return on average assets and return on average
shareholders' equity were 1.07% and 15.52% in 1997, compared with 0.82% and
9.57% in 1996 and 0.90% and 9.64% in 1995, respectively.
The increase in 1997 net income was the result of significant loan and
deposit growth, which resulted in increased net interest income, and increases
in trust fees, depositors' service fees and other fee income. Operating
expense increases required to service and support the Company's growth
partially offset the increase in revenues. The 1997 operating results included
$3.3 million ($2.3 million net of tax) in merger and other related charges.
Excluding these charges, the Company's net income, basic and diluted net
income per share, return on average shareholders' equity and return on average
assets would have been $12.3 million, $3.08, $2.84, 19.08% and 1.31%,
respectively.
Net income for 1997 included $1.2 million in warrant income resulting from
the exercise of warrants and sale of the underlying shares of common stock of
two clients of the Banks. The Company occasionally receives warrants to
acquire common stock from companies that are in the start-up or development
phase. The timing and amount of income derived from the exercise and sale of
client warrants typically depend upon factors beyond the control of the
Company, and cannot be predicted with any degree of accuracy and are likely to
vary materially from period to period. Net income also included approximately
$1.7 million ($1.0 million net of tax) of a recovery through insurance of a
litigation settlement charge incurred in 1995. In addition, during 1997 the
Company increased its loan loss reserve to 2.25% of total loans from 1.69% of
total loan in 1996. The increase in the loan loss reserve as a percentage of
total loans accounted for $3.7 million of the increased loan loss provision in
1997 and was recorded to account for the significant growth in unseasoned
loans.
The increase in net income in 1996 over 1995 was due primarily to increased
growth in interest-earning assets, which was partially offset by the growth in
operating expenses. The operating results in 1996 included
2
<PAGE>
$2.8 million ($2.0 million net of taxes) in merger and other nonrecurring
charges. Excluding these charges, the Company's net income, basic and diluted
net income per share, return on average shareholders' equity and return on
average assets would have been $7.3 million, $1.93, $1.79 13.13% and 1.12%,
respectively.
Net Interest Income
Net interest income increased 36.1% to $48.1 million in 1997 from $35.3
million in 1996 primarily due to the $278.8 million, or 46.2% increase in
average interest-earning assets which was partially offset by a 46 basis point
decrease in the Company's interest rate spread. The decrease in the 1997
interest rate spread was due primarily to the low spread earned on PBC's
Special Deposit (discussed in Note 7 to the Financial Statements). The average
investment and deposit balances related to the Special Deposit during 1997
were $93.4 million and $91.3 million, respectively, on which the Company
earned a spread of 2.25%. Excluding PBC's Special Deposit, the 1997 and 1996
interest rate spread would have been 5.83% and 5.90%, respectively. Net
interest income increased 18.8% in 1996 from $29.7 million in 1995 primarily
due to the combined effects of the $109.8 million, or 22.3% increase in
average interest-earning assets, which was partially offset by the 13 basis
point decrease in the Company's interest rate spread.
3
<PAGE>
The following table presents, for the years indicated, condensed average
balance sheet information for the Company, together with interest income and
yields earned on average interest-earning assets and interest expense and
rates paid on average interest-bearing liabilities. Average balances are
average daily balances.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
1997 1996 1995
--------------------------- --------------------------- ---------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ RATE YIELD/
BALANCE(1) INTEREST RATE BALANCE(1) INTEREST RATE BALANCE(1) INTEREST RATE
(DOLLARS IN THOUSANDS) ---------- -------- ------- ---------- -------- ------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans(2)................ $596,229 $61,331 10.29% $411,611 $42,948 10.43% $323,142 $35,517 10.99%
Investment securities,
short term investments
and Fed funds sold(3).. 285,952 16,875 5.90% 191,800 11,506 6.00% 170,426 10,554 6.19%
-------- -------- --------
Total interest-earning
assets(3)............. 882,181 78,206 8.87% 603,411 54,454 9.02% 493,568 46,071 9.33%
-------- ------- -------- ------- -------- -------
Noninterest-earning
assets................. 54,491 48,580 38,914
-------- ------- -------- ------- -------- -------
Total assets........... $936,672 78,206 $651,991 54,454 $532,482 46,071
======== ------- ======== ------- ======== -------
INTEREST-BEARING
LIABILITIES:
Deposits:
MMDA, NOW and Savings.. $523,486 18,981 3.63% $354,879 11,747 3.31% $271,858 9,436 3.47%
Time deposits.......... 167,430 8,926 5.33% 127,655 6,897 5.40% 115,854 6,059 5.23%
-------- ------- -------- ------- -------- -------
Total deposits......... 690,916 27,907 4.04% 482,534 18,644 3.86% 387,712 15,495 4.00%
Borrowings............. 24,971 2,233 8.94% 8,191 481 5.87% 13,334 844 6.33%
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities........... 715,887 30,140 4.21% 490,725 19,125 3.90% 401,046 16,339 4.07%
-------- ------- -------- ------- -------- -------
Noninterest-bearing
deposits............... 149,161 103,287 78,284
Other noninterest-
bearing liabilities.... 7,128 2,180 3,177
Shareholders' equity.... 64,496 55,799 49,975
-------- ------- -------- ------- -------- -------
Total liabilities and
shareholders' equity.. $936,672 30,140 $651,991 19,125 $532,482 16,339
======== ------- ======== ------- ======== -------
Net interest income..... $48,066 $35,329 $29,732
======= ======= =======
Interest rate spread.... 4.66% 5.12% 5.26%
Contribution of interest
free funds............. 0.79% 0.73% 0.76%
Net yield on interest-
earnings assets(4)..... 5.45% 5.85% 6.02%
</TABLE>
- --------
(1) Nonaccrual loans are included in the average balance; however, only
collected interest is included in the interest column.
(2) Loan fees totaling $3.3 million, $2.4 million and $1.5 million are
included in loan interest income for the years 1997, 1996 and 1995,
respectively.
(3) Interest income includes $290,000, $356,000 and $233,000 in 1997, 1996 and
1995, respectively, to adjust to a fully taxable equivalent basis using
the federal statutory rate of 34%.
(4) Net yield on interest-earning assets during the period equals (a) the
difference between interest income on interest-earning assets and the
interest expense on interest-bearing liabilities, divided by (b) average
interest-earning assets for the period.
4
<PAGE>
The most significant impact on the Company's net interest income between
periods is derived from the interaction of changes in the volume of and rate
earned or paid on interest-earning assets and interest-bearing liabilities.
The volume of interest-earning asset dollars in loans and investments,
compared to the volume of interest-bearing liabilities represented by deposits
and borrowings, combined with the spread, produces the changes in the net
interest income between period. The table below sets forth, for the periods
indicated, a summary of the changes in average asset and liability balances
(volume) and changes in average interest rates (rate).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 YEAR ENDED DECEMBER 31, 1996
COMPARED WITH DECEMBER 31, 1996 COMPARED WITH DECEMBER 31, 1995
FAVORABLE (UNFAVORABLE) FAVORABLE (UNFAVORABLE)
----------------------------------- ----------------------------------
(DOLLARS IN THOUSANDS) (1) VOLUME RATE NET VOLUME RATE NET
(2) ---------------------- ----------- ---------------------- ----------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNED ON
INTEREST-- EARNING
ASSETS:
Interest income on loans.. $ 18,959 $ (576) $ 18,383 $ 9,241 $ (1,810) $ 7,431
Interest income on
investment securities,
short-term investments
and cash equivalents..... 5,561 (192) 5,369 1,276 (324) 952
---------- ---------- ----------- ---------- ---------- ----------
Total interest income... 24,520 (768) 23,752 10,517 (2,134) 8,383
---------- ---------- ----------- ---------- ---------- ----------
INTEREST EXPENSE ON
INTEREST-BEARING
LIABILITIES:
Interest expense on
deposits:
MMDA, NOW and Savings... (6,098) (1,136) (7,234) (2,746) 435 (2,311)
Time deposits........... (2,118) 89 (2,029) (641) (197) (838)
---------- ---------- ----------- ---------- ---------- ----------
Total interest expense on
deposits................. (8,216) (1,047) (9,263) (3,387) 238 (3,149)
Interest expense on
borrowings............... (1,501) (251) (1,752) 302 61 363
---------- ---------- ----------- ---------- ---------- ----------
Total interest expense.. (9,717) (1,298) (11,015) (3,085) 299 (2,786)
---------- ---------- ----------- ---------- ---------- ----------
Increase (decrease) in net
interest income.......... $ 14,803 $ (2,066) $ 12,737 $ 7,432 $ (1,835) $ 5,597
========== ========== =========== ========== ========== ==========
</TABLE>
- --------
(1) Interest income includes $290,000, $356,000 and $233,000 for 1997, 1996
and 1995, respectively, to adjust to a fully taxable equivalent basis
using the federal statutory rate of 34%.
(2) The change in interest income and expense not attributable to specific
volume and rate changes has been reflected as volume variances. Nonaccrual
loans are included in average loans.
Interest income in 1997 increased 43.6% to $78.2 million from $54.5 million
in 1996. This was primarily due to the significant increase in loans, the
Company's highest yielding interest-earning asset. Loan volume increases were
the result of the continuing economic improvement in the Company's market
areas, as well as the addition of experienced relationship managers and
significant business development efforts by the Company's relationship
managers. The increase was partially offset by a decline in the yield earned
on average interest-earning assets. While average interest-earning assets
increased $278.8 million, or 46.2% to $882.2 million in 1997, compared to
$603.4 million in 1996, average loans increased $184.6 million, or 44.8% to
$596.2 million, or 67.6% of average interest-earning assets, in 1997 from
$411.6 million, or 68.2% of average interest-earning assets in 1996.
Investment securities, Federal funds sold and other short-term investments,
the Company's other interest-earning assets, increased 49.1% to $286.0
million, or 32.4% of average interest-earning assets in 1997, from $191.8
million, or 31.8% of average interest-earning assets in 1996.
The average yield on interest-earning assets declined 15 basis points to
8.87% in 1997 from 9.02% in 1996 primarily due to the decline in the yields on
loans which was caused by increased competition for quality borrowers in the
Company's market area. The average yield on loans declined 14 basis points to
10.29% in 1997 from 10.43% in 1996 primarily due to increased competition as
discussed above. The average yield on other interest-earning assets declined
10 basis points to 5.90% in 1997, compared to 6.00% in 1996.
5
<PAGE>
Interest expense in 1997 increased 57.6% to $30.1 million from $19.1 million
in 1996. This increase was due to greater volumes of interest-bearing
liabilities coupled with slightly higher interest rates paid on interest-
bearing liabilities. Average interest-bearing liabilities increased 45.9% to
$715.9 million in 1997 from $490.7 million in 1996 due to the efforts of the
Banks' relationship managers in generating core deposits from their client
relationships and the deposits derived from the activities of the Greater Bay
Trust Company and the Venture Banking Group.
During 1997, average noninterest-bearing deposits increased to $149.2
million from $103.3 million in 1996. Due to that increase, noninterest-bearing
deposits comprised 17.8% of total deposits at year end 1997, compared 17.6% at
year end 1996.
As a result of the foregoing, the Company's interest rate spread declined to
4.66% in 1997 from 5.12% in 1996 and the net yield on interest-earning assets
declined in 1997 to 5.45% from 5.85% in 1996.
Interest income increased 18.2% to $54.5 million in 1996 from $46.1 million
in 1995, as a result of the combined effects of increases in average interest-
earning assets and the yields earned on such assets. Average interest-earning
assets increased 22.3% to $603.4 million in 1996 from $493.6 million in 1995
as a result of almost proportionate increases in both loans and other
interest-earning assets. The yield on the higher volume of average interest-
earning assets declined 31 basis points to 9.02% in 1996 from 9.33% in 1995,
primarily as a result of decreases in market rates of interest.
Interest expense in 1996 increased 17.2% to $19.1 million from $16.3 million
in 1995 primarily as a result of the volume of interest-bearing liabilities
offset by a slight decrease in rates paid on interest-bearing liabilities. As
a result of increases in market rates of interest, the average rate paid on
average interest-bearing liabilities declined 17 basis points to 3.90% in 1996
from 4.07% in 1995. Corresponding to the growth in average interest-earning
assets, average interest-bearing liabilities increased 22.3% to $490.7 million
in 1996 from $401.0 million in 1995.
As a result of the foregoing, the Company's interest rate spread declined to
5.12% in 1996 from 5.26% in 1995 and the net yield on interest-earning assets
declined to 5.85% in 1996 from 6.02% in 1995.
Certain client service expenses were incurred by the Company with respect to
its noninterest-bearing liabilities. These expenses include messenger
services, check supplies and other related items and are included in operating
expenses. Had they been included in interest expense, the impact of these
expenses on the Company's net yield on interest-earning assets would have been
as follows for each of the years presented.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
(DOLLARS IN THOUSANDS) -------- -------- -------
<S> <C> <C> <C>
Average noninterest bearing demand deposits.... $149,161 $103,287 $78,284
Client service expenses........................ 405 431 352
Client service expense, annualized............. 0.27% 0.42% 0.45%
IMPACT ON NET YIELD ON INTEREST-EARNING ASSETS:
Net yield on interest-earning assets........... 5.45% 5.85% 6.02%
Impact of client service expense............... (0.05)% (0.07)% (0.07)%
-------- -------- -------
Adjusted net yield on interest-earning assets
(1)........................................... 5.40% 5.78% 5.95%
======== ======== =======
</TABLE>
- --------
(1) Noninterest-bearing liabilities are included in cost of funds calculations
to determine adjusted net yield of spread.
The impact on the net yield on interest-earning assets is determined by
offsetting net interest income by the cost of client service expense, which
reduces the yield on interest-earning assets. The cost for client service
expense reflects the Company's efforts to manage its client service expenses.
6
<PAGE>
Provision for Loan Losses
The provision for loan losses creates an allowance for future loan losses.
The loan loss provision for each year is dependent on many factors, including
loan growth, net charge-offs, changes in the composition of the loan
portfolio, delinquencies, management's assessment of the quality of the loan
portfolio, the value of the underlying collateral on problem loans and the
general economic conditions in the Company's market area. The Company performs
a monthly assessment of the risk inherent in its loan portfolio, as well as a
detailed review of each asset determined to have identified weaknesses. Based
on this analysis, which includes reviewing historical loss trends, current
economic conditions, industry concentrations and specific reviews of assets
classified with identified weaknesses, the Company makes a provision for
potential loan losses. Specific allocations are made for loans where the
probability of a loss can be defined and reasonably determined, while the
balance of the provisions for loan losses are based on historical data,
delinquency trends, economic conditions in the Company's market area and
industry averages. Annual fluctuations in the provision for loan losses result
from management's assessment of the adequacy of the allowance for loan losses,
and ultimate loan losses may vary from current estimates.
The provision for loan losses in 1997 was $6.2 million, compared to $2.2
million in 1996 and $1.2 million in 1995. In addition, in connection with the
mergers, the Company made $1.35 million and $800,000 in additional provision
for loan losses in 1997 and 1996, respectively, to conform the Banks' reserve
allocation methodologies, which are included in operating expenses. The
increased provision for loan losses during 1997 reflects the impact of the
$161.9 million increase in gross loans outstanding at December 31, 1997 from
year end 1996. Notwithstanding the substantial increase in loans outstanding,
nonperforming loans, comprised of nonaccrual loans and accruing loans past due
90 days or more, declined to $2.8 million or 0.42% of loans outstanding at
December 31, 1997, from $4.7 million or 0.91% of loans outstanding at December
31, 1996. The increased provision for loan losses during 1996 of $2.2 million,
as compared to $1.2 million during 1995, reflected the higher level of
nonperforming loans experienced by the Company. At December 31, 1996,
nonperforming loans were $4.7 million, as compared to $3.9 million at December
31, 1995.
For further information on nonperforming and classified loans and the
allowance for loan losses, see--"Nonperforming and Classified Assets" herein.
Other Income
Total other income increased to $6.3 million in 1997, compared to $4.0
million in 1996 and $2.7 million in 1995. The following table sets forth
information by category of other income for the years indicated.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1997 1996 1995
(DOLLARS IN THOUSANDS) -------- -------- --------
<S> <C> <C> <C>
Trust fees................................... $ 2,049 $ 1,426 $ 710
Depositors' service fees..................... 1,382 1,268 901
Warrant income............................... 1,162 92 --
Gain on sale of SBA loans.................... 883 537 420
Investment losses............................ (39) (263) (113)
Other........................................ 850 890 764
-------- -------- --------
Total...................................... $ 6,287 $ 3,950 $ 2,682
======== ======== ========
</TABLE>
The increase in other income in 1997 was primarily the result of $1.1
million increase in warrant income in 1997, a $623,000 increase in trust fees,
and a $346,000 increase in the gain on sale of Small Business Administration
("SBA") loans. As previously discussed, the warrant income resulted from the
sale of stock acquired from clients in connection with financing activities.
The increase in trust fee was due to significant growth in assets under
management by Greater Bay Trust Company. Trust assets increased to $577.7
million at year end 1997, compared to $418.0 million at December 31, 1996 and
$270.0 million at December 31, 1995.
7
<PAGE>
The increase in the gain on sale of SBA loans was due to an increase in the
origination and subsequent sale of SBA loans.
The increase in other income in 1996 as compared to 1995 was primarily the
result of a $716,000 increase in trust fees and a $367,000 increase in
depositors' service fees. The trust fee increase was due to significant growth
in assets under management by Greater Bay Trust Company as discussed above.
Depositors' service fees increased due to growth in deposits.
Operating Expenses
The following table sets forth the major components of operating expenses
for the years indicated.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1997 1996 1995
(DOLLARS IN THOUSANDS) -------- -------- --------
<S> <C> <C> <C>
Compensation and benefits..................... $ 17,810 $ 14,027 $ 12,326
Occupancy and equipment....................... 4,622 3,875 3,168
Mergers and related nonrecurring costs........ 3,333 2,791 --
Professional services and legal costs......... 1,407 1,390 1,364
Client service expenses....................... 405 431 352
FDIC insurance and regulatory assessments..... 257 123 659
Expenses on other real estate owned........... 72 35 71
Other......................................... 3,240 4,785 5,247
-------- -------- --------
Total operating expenses.................... $ 31,146 $ 27,457 $ 23,187
Nonrecurring costs............................ 2,046 2,791 2,135
-------- -------- --------
Total operating expenses excluding
nonrecurring costs......................... $ 29,100 $ 24,666 $ 21,052
======== ======== ========
Efficiency ratio.............................. 57.61% 70.54% 72.05%
Efficiency ratio, excluding nonrecurring
costs........................................ 53.83% 63.37% 65.42%
Total operating expenses to average assets.... 3.33% 4.21% 4.35%
Total operating expenses to average assets,
excluding nonrecurring costs................. 3.11% 3.78% 3.95%
</TABLE>
Operating expenses totaled $31.1 million for 1997, compared to $27.5 million
for 1996 and $23.2 million for 1995. The ratio of operating expenses to
average assets was 3.33% in 1997, 4.21% in 1996, and 4.35% in 1995.
Nonrecurring costs in 1997 included $3.3 million in merger and related
nonrecurring costs and were offset by $1.7 million legal settlement recovery.
1996 nonrecurring costs included $2.8 million in merger and related
nonrecurring costs. 1995 nonrecurring costs included $1.7 million in legal
settlement costs and $435,000 related to the closing of CNB's mortgage banking
business unit and terminated merger discussions. Excluding these items,
operating expense to average assets would have been 3.11% in 1997, 3.78% in
1996 and 3.93% in 1995.
The efficiency ratio is computed by dividing total operating expenses by net
interest income and other income. An increase in the efficiency ratio
indicates that more resources are being utilized to generate the same (or
greater) volume of income while a decrease would indicate a more efficient
allocation of resources. The Company's efficiency ratio for 1997 was 57.61%,
compared to 70.54% in 1996 and 72.05% in 1995. Excluding nonrecurring costs,
the Company's efficiency ratios were 53.83%, 63.37% and 65.42% in 1997, 1996
and 1995, respectively. The improvement in the Company's efficiency ratio in
1997 and 1996 was due to the investment in infrastructure in 1995 and prior,
which allowed the Company to grow its revenue base in 1996 and 1997 without
comparable increases in operating expenses.
Compensation and benefits expenses increased in 1997 to $17.8 million
compared to $14.0 million in 1996 and $12.3 million in 1995. The increase in
compensation and benefits is due primarily to the additions in personnel made
in 1997 and 1996 to accommodate the growth of the Company.
8
<PAGE>
The increase in occupancy and equipment expense in 1997 was primarily the
result of the opening of the Company's new administrative offices in Palo Alto
and the relocation of one of MPB's branches from San Carlos to Redwood City.
The increase in occupancy and equipment expense in 1996 was primarily due to
the opening of CNB's Emerson office and the Greater Bay Trust Company office
in downtown Palo Alto.
Federal Deposit Insurance Corporation ("FDIC") deposit insurance and Office
of the Comptroller of the Currency ("OCC") regulatory assessments increased to
$257,000 in 1997, compared to $123,000 in 1996, and $659,000 in 1995. Deposit
levels increased 43.3% from 1996 to 1997, resulting in the increase in FDIC
deposit insurance premiums. The decrease from 1995 to 1996 was a result of the
lowering of deposit insurance premiums by the FDIC when the Bank Insurance
Fund was fully funded as of March 1995.
The increase in other operating expenses was related to the growth in the
Company's loans, deposits and trust assets. As indicated by the declining
efficiency ratio and ratio of total operating expenses to average assets from
1996 to 1997, the Company has been able to achieve economies of scale
subsequent to the November 1996 merger between Cupertino National Bancorp and
Mid-Peninsula Bancorp. From 1996 to 1997, average assets increased 43.6%,
while operating expenses excluding nonrecurring costs, increased only 18.3%.
From 1995 to 1996 prior to the merger, average assets increased 22.4% and
operating expenses, excluding nonrecurring costs, increased 17.2%.
Income Taxes
The Company's effective income tax rate for 1997 was 39.7%, compared to
42.9% in 1996 and 38.9% in 1995. The effective rate in 1996 was higher than
the statutory rate due to the impact of nondeductible merger and related costs
which were partially offset by tax-exempt income on municipal securities. The
effective rates in 1997 and 1995 were lower than the statutory rate due to
tax-exempt income on municipal securities.
FINANCIAL CONDITION
Total assets increased 32.2% to $1.1 billion at December 31, 1997, compared
to $826.4 million at December 31, 1996. Total assets increased 43.3% in 1996
from $576.6 million at December 31, 1995. The increases in 1997 and 1996 were
primarily due to increases in the Company's loan portfolio funded by growth in
deposits. As previously discussed, included in total assets at December 31,
1997 and 1996 were the invested proceeds of a Special Deposit of $88.1 million
and $94.4 million, respectively. This deposit was received in late 1996 and
management anticipates that this deposit will be withdrawn at some point in
1998. Without this deposit, total assets would have grown 37.2% and 26.9% in
1997 and 1996, respectively.
Loans
Total gross loans increased 30.8% to $678.5 million at December 31, 1997,
compared to $516.6 million at December 31, 1996. Total gross loans increased
47.5% in 1996 from $350.3 million at year end 1995. The increases in loan
volumes in 1997 and 1996 were primarily due to an improving economy in the
Company's market areas coupled with the business development efforts by the
Company's relationship managers.
The Company's loan portfolio is concentrated in commercial (primarily
manufacturing, service and technology) and real estate lending, with the
balance in consumer loans. While no specific industry concentration is
considered significant, the Company's lending operations are located in a
market area that is dependent on the technology and real estate industries and
supporting service companies. Thus, the Company's borrowers could be adversely
impacted by a downturn in these sectors of the economy which could reduce the
demand for loans and adversely impact the borrowers' abilities to repay their
loans, while also decreasing the Company's net interest margin.
9
<PAGE>
The following table presents the composition of the Company's loan portfolio
at the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------- --------------- --------------- --------------- ---------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
(DOLLARS IN THOUSANDS) -------- ----- -------- ----- -------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial.............. $324,535 49.1% $272,992 54.0% $199,154 58.0% $173,656 57.3% $160,491 55.3%
Real estate construction
and land............... 109,671 16.6 90,010 17.8 41,335 12.0 31,039 10.2 33,690 11.6
Real estate term........ 179,458 27.2 109,693 21.7 79,840 23.3 68,425 22.6 45,977 15.8
Consumer and other...... 64,854 9.8 43,896 8.6 29,954 8.7 31,755 10.4 48,634 16.8
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total loans, gross..... 678,518 102.7 516,591 102.1 350,283 102.0 304,875 100.5 288,792 99.5
Deferred fees and
discounts, net......... (2,654) (0.4) (2,156) (0.4) (1,443) (0.4) (1,440) (0.5) (1,568) (0.5)
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total loans, net of
deferred fees......... 675,864 102.3 514,435 101.7 348,840 101.6 303,435 100.0 287,224 99.0
Allowance for loan
losses................. (15,208) (2.3) (8,690) (1.7) (5,456) (1.6) (5,590) (1.8) (4,729) (1.6)
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Net loans.............. 660,656 100.0 505,745 100.0 343,384 100.0 297,845 98.2 282,495 97.4
Loans held for sale..... -- 0.0 -- 0.0 -- 0.0 5,382 1.8 7,625 2.6
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total loans............ $660,656 100.0% $505,745 100.0% $343,384 100.0% $303,229 100.0% $290,120 100.0%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
The following table presents the maturity distribution of the Company's
commercial, real estate construction and land and real estate term portfolios
and the sensitivity of such loans to changes in interest rates at December 31,
1997.
<TABLE>
<CAPTION>
REAL ESTATE
CONSTRUCTION REAL ESTATE
COMMERCIAL AND LAND TERM
(DOLLARS IN THOUSANDS) ---------- ------------ -----------
<S> <C> <C> <C>
Loan maturing in:
One year or less:
Fixed rate........................... $ 5,515 $ 1,010 $ 1,407
Variable rate........................ 180,794 96,067 21,672
One to five years:
Fixed rate........................... 9,691 2,354 4,538
Variable rate........................ 73,741 6,025 35,521
After five years:
Fixed rate........................... 16,259 -- 61,064
Variable rate........................ 38,535 4,215 55,256
-------- -------- --------
Total.............................. $324,535 $109,671 $179,458
======== ======== ========
</TABLE>
Nonperforming and Classified Assets
Management generally places loans on nonaccrual status when they become 90
days past due, unless they are well secured and in the process of collection.
When a loan is placed on nonaccrual status, any interest previously accrued
but not collected is generally reversed from income. Loans are charged off
when management determines that collection has become unlikely. Restructured
loans are those where the Banks have granted a concession on the interest paid
or original repayment terms due to financial difficulties of the borrower.
Other real estate owned ("OREO") consists of real property acquired through
foreclosure on the related collateral underlying defaulted loans.
10
<PAGE>
The following table sets forth information regarding nonperforming assets at
the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1997 1996 1995 1994 1993
(DOLLARS IN THOUSANDS) ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Nonperforming loans
Nonaccrual loans..................... $2,843 $3,436 $3,105 $5,316 $3,762
Accruing loans past due 90 days or
more -- 1,237 830 1,371 1,903
Restructured loans................... -- -- -- -- --
------ ------ ------ ------ ------
Total nonperforming loans.......... 2,843 4,673 3,935 6,687 5,665
Other real estate owned................ 340 152 1,000 375 658
------ ------ ------ ------ ------
Total nonperforming assets......... $3,183 $4,825 $4,935 $7,062 $6,323
====== ====== ====== ====== ======
Nonperforming assets to total loans
and other real estate owned......... 0.47% 0.93% 1.41% 2.27% 2.13%
</TABLE>
At December 31, 1997, the Company had $2.8 million in nonaccrual loans.
Nonaccrual loans included 14 loans with aggregate principal balances ranging
from $7,000 to $1.3 million. Interest income foregone on nonperforming loans
outstanding at year end totaled $303,000, $400,000 and $282,000 for the years
ended December 31, 1997, 1996 and 1995, respectively.
The Company records OREO at the lower of carrying value or fair value less
estimated costs to sell. Estimated losses that result from the ongoing
periodic valuation of these properties are charged to earnings through a
provision for losses on foreclosed property in the period in which they are
identified. At December 31, 1997, OREO consisted of two properties acquired
through foreclosure with a carrying value of $340,000.
The policy of the Company is to review each loan in the portfolio to
identify problem credits. There are three classifications for problem loans:
"substandard," "doubtful" and "loss." Substandard loans have one or more
defined weakness and are characterized by the distinct possibility that the
Banks will sustain some loss if the deficiencies are not corrected. Doubtful
loans have the weaknesses of substandard loans with the additional
characteristic that the weaknesses make collection or liquidation in full on
the basis of currently existing facts, conditions and values questionable; and
there is a high possibility of loss of some portion of the principal balance.
A loan classified "loss" is considered uncollectible and its continuance as an
asset is not warranted.
The following table sets forth the classified assets at the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996 1995
(DOLLARS IN THOUSANDS) ------- ------ -------
<S> <C> <C> <C>
Substandard..................................... $14,302 $7,759 $ 9,169
Doubtful........................................ 1,377 1,664 789
Loss............................................ -- -- --
Other real estate owned......................... 340 152 1,000
------- ------ -------
Classified assets............................. $16,019 $9,575 $10,958
======= ====== =======
Classified assets to total loans and other real
estate owned................................... 2.37% 1.86% 3.13%
Allowance for loan losses to total classified
assets......................................... 94.94% 90.76% 49.79%
</TABLE>
With the exception of these classified loans, management was not aware of
any loans outstanding as of December 31, 1997 where the known credit problems
of the borrower would cause management to have serious doubts as to the
ability of such borrowers to comply with their present loan repayment terms
and which would result in such loans being included in nonperforming or
classified asset tables at some future date. Management cannot, however,
predict the extent to which economic conditions in the Company's market areas
may worsen or the full impact such an environment may have on the Company's
loan portfolio. Accordingly, there can be no
11
<PAGE>
assurance that other loans will not become 90 days or more past due, be placed
on nonaccrual, become restructured loans, or other real estate owned in the
future.
Allowance For Loan Losses
The allowance for loan losses is established through a provision for loan
losses based on management's evaluation of risk inherent in the Company's loan
portfolio and economic conditions in the Company's market areas. See "--
Provision for Loan Losses" herein. The allowance is increased by provisions
charged against earnings and reduced by net loan charge-offs. Loans are
charged-off when they are deemed to be uncollectible, recoveries are generally
recorded only when cash payments are received.
The following table sets forth information concerning the Company's
allowance for loan losses at the dates and for the years indicated.
<TABLE>
<CAPTION>
AT AND FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------
1997 1996 1995 1994 1993
(DOLLARS IN THOUSANDS) -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Period end loans
outstanding............. $678,518 $516,591 $320,283 $304,875 $288,792
Average loans
outstanding............. $596,229 $411,611 $323,142 $288,665 $285,272
Allowance for loan
losses:
Balance at beginning of
period.................. $ 8,690 $ 5,456 $ 5,590 $ 4,729 $ 4,083
Charge-offs:
Commercial............ (801) (119) (973) (798) (1,357)
Real estate
construction and
land................. (243) (127) (410) (388) (29)
Real estate term...... -- -- -- -- (50)
Consumer and other.... (86) (121) (106) (141) (162)
-------- -------- -------- -------- --------
Total charge-offs.... (1,130) (367) (1,489) (1,327) (1,598)
-------- -------- -------- -------- --------
Recoveries:
Commercial............ 51 343 190 189 34
Real estate
construction and
land................. -- 283 3 1 47
Real estate term...... -- -- -- 48 10
Consumer and other.... 5 19 2 7 48
-------- -------- -------- -------- --------
Total recoveries..... 56 645 195 245 139
-------- -------- -------- -------- --------
Net charge-offs....... (1,074) 278 (1,294) (1,082) (1,459)
Provision charged to
income(1)............... 7,592 2,956 1,160 1,943 2,105
-------- -------- -------- -------- --------
Balance at end of period. $ 15,208 $ 8,690 $ 5,456 $ 5,590 $ 4,729
======== ======== ======== ======== ========
Net recoveries (charge-
offs) to average loans
outstanding during the
period.................. (0.18)% 0.07% (0.40)% (0.37)% (0.51)%
Allowance as a percentage
of average loans
outstanding............. 2.55% 2.11% 1.69% 1.94% 1.66%
Allowance as a percentage
of period end loans
outstanding............. 2.55% 1.68% 1.70% 1.84% 1.65%
Allowance as a percentage
of non-performing loans. 534.92% 185.96% 138.65% 83.60% 83.48%
</TABLE>
- --------
(1) Includes $1,350,000 and $800,000 in 1997 and 1996, respectively, to
conform practices for the Bank's reserve methodologies, which is included
in mergers and related nonrecurring costs.
Management considers changes in the size and character of the loan
portfolio, changes in nonperforming and past due loans, historical loan loss
experience, and the existing and prospective economic conditions when
determining the adequacy of the allowance for loan losses. Although management
believes that the allowance for loan losses is adequate to provide for both
potential losses and estimated inherent losses in the portfolio,
12
<PAGE>
future provisions will be subject to continuing evaluations of the inherent
risk in the portfolio and if the economy declines or asset quality
deteriorates, additional provisions could be required.
The table on the following page provides a summary of the allocation of the
allowance for loan losses for specific loan categories at the dates indicated.
The allocation presented should not be interpreted as an indication that
charges to the allowance for loan losses will be incurred in these amounts or
proportions, or that the portion of the allowance allocated to each loan
category represents the total amounts available for future losses that may
occur within these categories. The unallocated portion of the allowance for
loan losses and the total allowance is applicable to the entire loan
portfolio.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------------- --------------- --------------- --------------- ---------------
% OF % OF % OF % OF % OF
CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY
TO GROSS TO GROSS TO GROSS TO GROSS TO GROSS
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
(DOLLARS IN THOUSANDS) ------- -------- ------ -------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial.............. $ 4,978 47.83% $3,326 52.85% $1,958 56.86% $3,056 55.97% $2,291 54.14%
Real estate construction
and land............... 778 16.16% 1,463 17.42% 572 11.80% 706 10.00% 745 11.37%
Real estate term........ 1,230 26.45% 859 21.23% 894 22.79% 405 22.05% 636 15.51%
Consumer and other...... 440 9.56% 548 8.50% 604 8.55% 564 10.24% 289 16.41%
Loans held for sale..... -- -- -- 14 1.74% 27 2.57%
------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Total allocated......... 7,426 6,196 4,028 4,745 3,988
Unallocated............. 7,782 2,494 1,428 845 741
------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Total.................. $15,208 100.00% $8,690 100.00% $5,456 100.00% $5,590 100.00% $4,729 100.00%
======= ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
Investment Securities
The Company's investment portfolio is managed to meet the Company's
liquidity needs through proceeds from scheduled maturities and is utilized for
pledging requirements for deposits of state and political subdivisions and
securities sold under repurchase agreements. The portfolio is comprised of
U.S. Treasury securities, U.S. government agency securities, mortgage-backed
securities, obligations of states and political subdivisions and a modest
amount of equity securities including Federal Reserve Bank stock and Federal
Home Loan Bank stock. The Company does not include federal funds sold and
certain other short term securities as investment securities. These other
investments are included in cash and cash equivalents. Investment securities
classified as available for sale are recorded at fair market value, while
investment securities classified as held to maturity are recorded at cost.
Unrealized gains or losses, net of the deferred tax effect, are reported as
increases or decreases in shareholders' equity for available for sale
securities.
13
<PAGE>
The amortized cost and estimated market value of investment securities at
December 31, 1997 is summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1997 COST GAINS LOSSES VALUE
(DOLLARS IN THOUSANDS) --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE SECURITIES:
U.S. Treasury obligations............. $ 9,850 $ 52 $ (2) $ 9,900
U.S. agency notes..................... 33,336 52 (57) 33,331
Mortgage-backed securities............ 98,593 357 (76) 98,874
Tax-exempt securities................. 7,018 199 (5) 7,212
Corporate securities.................. 7,568 62 -- 7,630
-------- ------ ----- --------
Total securities available for sale. 156,365 722 (140) 156,947
-------- ------ ----- --------
HELD TO MATURITY SECURITIES:
U.S. Treasury obligations............. 501 1 -- 502
U.S. agency notes..................... 17,798 182 (12) 17,968
Mortgage-backed securities............ 11,324 177 (2) 11,499
Tax-exempt securities................. 14,838 492 (53) 15,277
-------- ------ ----- --------
Total securities held to maturity... 44,461 852 (67) 45,246
-------- ------ ----- --------
Other securities...................... 4,118 -- -- 4,118
-------- ------ ----- --------
Total investment securities......... $204,944 $1,574 $(207) $206,311
======== ====== ===== ========
</TABLE>
The tax effected net unrealized gain on available for sale securities was
$338,000 for the year ended December 31, 1997. The following table shows the
amortized cost and estimated market value of the Company's investment
securities by maturity at December 31, 1997.
<TABLE>
<CAPTION>
1999 2003
THROUGH THROUGH 2008 AND
1998 2002 2007 THEREAFTER TOTAL
(DOLLARS IN THOUSANDS) (1) ------- ------- ------- ---------- --------
<S> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE SECURITIES:
U.S. Treasury obligations........ $ 6,557 $ 3,293 $ -- $ -- $ 9,850
U.S. agency notes (2)............ 8,098 14,492 10,746 -- 33,336
Mortgage-backed securities (3)... 54 3,351 8,680 86,508 98,593
Tax-exempt securities............ 266 1,661 4,711 380 7,018
Corporate securities............. 2,511 5,057 -- -- 7,568
------- ------- ------- -------- --------
Total securities available for
sale.......................... 17,486 27,854 24,137 86,888 156,365
------- ------- ------- -------- --------
Market value..................... $17,507 $27,963 $24,358 $ 87,119 $156,947
======= ======= ======= ======== ========
HELD TO MATURITY SECURITIES:
U.S. Treasury obligations........ 501 -- -- -- 501
U.S. agency notes (2)............ 5,898 5,985 5,915 -- 17,798
Mortgage-backed securities (3)... 52 -- 4,585 6,687 11,324
Tax-exempt securities............ 951 4,617 1,831 7,439 14,838
------- ------- ------- -------- --------
Total securities held to
maturity...................... 7,402 10,602 12,331 14,126 44,461
======= ======= ======= ======== ========
Market value..................... 7,472 10,654 12,640 14,480 45,246
======= ======= ======= ======== ========
COMBINED INVESTMENT SECURITIES
PORTFOLIO
Total investment securities...... $24,888 $38,456 $36,468 $101,014 $200,826
Total market value............... $24,979 $38,617 $36,998 $101,599 $202,193
Weighted average yield-total
portfolio (4)................... 5.83% 6.71% 7.05% 7.27% 6.95%
</TABLE>
- --------
(1) Other securities are comprised of equity investments and have no stated
maturity and therefore are excluded from this table.
(2) Certain notes issued by U.S. agencies may be called, without penalty, at
the discretion of the issuer. This may cause the actual maturities to
differ significantly from the contractual maturity dates.
(3) Mortgage-backed securities are shown at contractual maturity; however, the
average life of these mortgage-backed securities may differ due to
principal prepayments.
(4) Yields on tax-exempt securities have been computed on a fully tax-
equivalent basis.
14
<PAGE>
For additional information concerning the investments portfolio, see Note 3
of Notes to Consolidated Financial Statements.
Deposits
The Company emphasizes developing total client relationships with its
customers in order to increase its core deposit base. Deposits reached $973.4
million at December 31, 1997, an increase of 30.2% compared to deposits of
$747.8 million at December 31, 1996. In 1996, deposits increased 45.0% from
$515.9 million at December 31, 1995.
Total average deposits increased 43.4% to $839.8 million for 1997, compared
to an average of $585.8 million for 1996. In 1996, average deposits increased
25.7% over average deposits of $466.0 million in 1995. The increase in
deposits was primarily due to the continued marketing efforts directed at
commercial business clients in the Company's market areas, coupled with an
increase in deposits related to the new business development activities of the
Greater Bay Trust Company and the Venture Banking Group.
PBC holds $88.1 million in one demand deposit account (the "Special
Deposit"). The deposit account represents the proposed settlement of a class
action lawsuit not involving PBC or the Company. Due to the uncertainty of the
time the Special Deposit will remain with PBC, management has invested the
proceeds from this deposit in agency securities with maturities of less than
90 days. As previously discussed, the interest rate spread on the Special
Deposit was approximately 2.25% in 1997 and 1996, which contributed to the
Company's decrease in overall interest rate spread in 1997 and 1996.
Savings, NOW and money market deposit accounts reached $564.8 million at
year end 1997, an increase of 25.6% from the prior year. Savings, NOW and
money market deposit accounts of $449.7 million at December 31, 1996 were up
58.5% from $283.7 million at December 31, 1995.
Time certificates of deposit of more than $100,000, and other time deposits
totaled $204.4 million or 21.0% of total deposits at December 31, 1997,
compared to $136.6 million, or 18.3% of total deposits at December 31, 1996
and $116.8 million or 22.7% of total deposits at December 31, 1995
As of December 31, 1997 and 1996, the Company had $10.0 and $20.6 million in
brokered deposits outstanding, respectively.
Liquidity and Cash Flow
The objective of liquidity management is to maintain each Bank's ability to
meet the day-to-day cash flow requirements of its clients who either wish to
withdraw funds or require funds to meet their credit needs. The Company must
manage its liquidity position to allow the Banks to meet the needs of their
clients while maintaining an appropriate balance between assets and
liabilities to meet the return on investment expectations of its shareholders.
The Company monitors the sources and uses of funds on a daily basis to
maintain an acceptable liquidity position. In addition to liquidity from core
deposits and repayments and maturities of loans and investments, the Banks
utilize brokered deposit lines, sell securities under agreements to repurchase
and borrow overnight federal funds. In 1997 the Company issued $20.0 million
in Trust Preferred Securities ("TPS") to enhance its regulatory capital base,
while also providing added liquidity. During 1995 the Company issued $3.0
million of subordinated notes for similar purposes.
Greater Bay is a company separate and apart from the Banks. It must provide
for its own liquidity. Substantially all of Greater Bay's revenues are
obtained from management fees, interest received and dividends declared and
paid by the Banks. Management of Greater Bay believes that such restrictions
will not have an impact on the ability of Greater Bay to meet its ongoing cash
obligations. As of December 31, 1997, Greater Bay did not have any material
commitments for capital expenditures. There are statutory and regulatory
provisions that could limit the ability of the Banks to pay dividends to
Greater Bay.
15
<PAGE>
Net cash provided by operating activities, consisting primarily of net
interest income, totaled $11.8 million for 1997, $7.8 million for 1996 and
$12.4 million for 1995. Cash used for investing activities totaled $237.8
million in 1997, $156.2 million in 1996 and $77.6 million in 1995. The funds
used for investing activities primarily represent increases in loans and
investment for each year reported.
For the year ended December 31, 1997, net cash provided by financing
activities was $251.3 million. Historically, the primary financing activity of
the Company has been deposits and short-term borrowings. Deposits increased
$225.6 million for the year ended December 31, 1997 and short-term borrowings
increased $7.5 million for the same period. Proceeds from the issuance of TPS
in the first quarter of 1997 were $20.0 million. For the year ended December
31, 1996, net cash provided by financing activities was $243.6 million.
Deposits increased $232.0 million, while short-term borrowings increased $12.0
million.
Capital Resources
Shareholders' equity at December 31, 1997 increased to $66.6 million from
$58.0 million at December 31, 1996 and from $52.4 million at December 31,
1995. During 1997, the Greater Bay paid aggregate cash dividends of $0.60 per
share. In 1997, prior to the completion of its merger with the Company, PBC
declared a cash dividend of $3.20 per share.
The Company has provided a substantial portion of its capital requirements
through the retention of earnings. In the first quarter of 1997, the Company
increased its capital base by issuing $20.0 million of TPS which, subject to
certain limitations, qualify as Tier 1 capital. Additionally, in the third
quarter of 1995, the Company issued $3.0 million of subordinated notes which
qualify as Tier 2 capital. The private offering was subscribed to by the
Company's directors, officers and other accredited investors.
A banking organization's total qualifying capital includes two components,
core capital (Tier 1 capital) and supplementary capital (Tier 2 capital). Core
capital, which must comprise at least half of total capital, includes common
shareholders' equity, qualifying perpetual preferred stock, trust preferred
securities and minority interests, less goodwill. Supplementary capital
includes the allowance for loan losses (subject to certain limitations), other
perpetual preferred stock, trust preferred securities, certain other capital
instruments and term subordinated debt. The Company's major capital components
are shareholders' equity and trust preferred securities in core capital, and
the allowance for loan losses and subordinated debt in supplementary capital.
At December 31, 1997, the minimum risk-based capital requirements to be
considered adequately capitalized were 4.0% for core capital and 8.0% for
total capital. Federal banking regulators have also adopted leverage capital
guidelines to supplement risk-based measures. The leverage ratio is determined
by dividing Tier 1 capital as defined under the risk-based guidelines by
average total assets (not risk-adjusted) for the preceding quarter. The
minimum leverage ratio is 3.0%, although certain banking organizations are
expected to exceed that amount by 1.0% or more, depending on their
circumstances.
Pursuant to the Federal Deposit Insurance Corporation Improvement Act of
1991, the Federal Reserve, the OCC and the FDIC have adopted regulations
setting forth a five-tier system for measuring the capital adequacy of the
financial institutions they supervise. The capital levels of the Company at
December 31, 1997 and the two highest levels recognized under these
regulations are as follows.
<TABLE>
<CAPTION>
TIER 1 TOTAL
RISK-BASED RISK-BASED LEVERAGE
CAPITAL RATIO CAPITAL RATIO RATIO
------------- ------------- --------
<S> <C> <C> <C>
Company............................... 10.69% 12.32% 8.29%
Well-capitalized...................... 6.00% 10.00% 5.00%
Adequately capitalized................ 4.00% 8.00% 4.00%
</TABLE>
At December 31, 1997, the Company's risk-based capital ratios were 10.69%
for Tier 1 risk-based capital and 12.32% for total risk-based capital,
compared to 9.52% and 11.22%, respectively, as of December 31, 1996.
16
<PAGE>
The Company's leverage ratio was 8.29% at December 31, 1997, compared to 7.59%
at December 31, 1996. These ratios all exceeded the well-capitalized
guidelines shown above.
In addition, at December 31, 1997, each of the Banks had levels of capital
which exceeded the well-capitalized guidelines. For additional information on
the capital levels and capital ratios of the Company and each of the Banks,
see Note 15 of Notes to Consolidated Financial Statements.
The Company anticipates that the economic and business conditions in its
market areas will continue to expand in 1998, resulting in continued growth in
earnings and deposits. To support this continuing growth or future acquisition
opportunities, it may be necessary for the Company to raise additional capital
through the sale of either debt or equity securities in order for the Company
and each of the Banks to remain well-capitalized under applicable regulations.
Quantitative and Qualitative Disclosures About Market Risk
The Company's financial performance is impacted by, among other factors,
interest rate risk and credit risk. The Company utilizes no derivatives to
mitigate its credit risk, relying instead on loan review and an adequate loan
loss reserve see "--Allowance for Loan Losses" herein.
Interest rate risk is the risk of loss in value due to changes in interest
rates. This risk is addressed by the Company's Asset Liability Management
Committee ("ALCO"), which includes senior management representatives. The ALCO
monitors and considers methods of managing interest rate risk by monitoring
changes in net portfolio values ("NPV") and net interest income under various
interest rate scenarios. The ALCO attempts to manage the various components of
the Company's balance sheet to minimize the impact of sudden and sustained
changes in interest rates on NPV and net interest income.
The Company's exposure to interest rate risk is reviewed on at least a
quarterly basis by the Board of Directors and the ALCO. Interest rate risk
exposure is measured using interest rate sensitivity analysis to determine the
Company's change in NPV in the event of hypothetical changes in interest rates
and interest liabilities. If potential changes to NPV and net interest income
resulting from hypothetical interest rate swings are not within the limits
established by the Board, the Board may direct management to adjust its asset
and liability mix to bring interest rate risk within Board-approved limits.
In order to reduce the exposure to interest rate fluctuations, the Company
has developed strategies to manage its liquidity, lengthen the effective
maturities of certain interest-earning assets, and shorten the effective
maturities of certain interest-bearing liabilities. The Company has focused
its investment activities on securities with generally medium-term (5 years to
7 years) maturities or average lives. The Company has utilized short-term
borrowings and deposit marketing programs to adjust the term to repricing of
its liabilities.
Interest rate sensitivity analysis is used to measure the Company's interest
rate risk by computing estimated changes in NPV of its cash flows from assets,
liabilities and off-balance sheet items in the event of a range of assumed
changes in market interest rates. NPV represents the market value of portfolio
equity and is equal to the market value of assets minus the market value of
liabilities, with adjustments made for off-balance sheet items. This analysis
assesses the risk of loss in market rate sensitive instruments in the event of
sudden and sustained increases and decreases in market interest rates of 100
basis points. The following table presents the Company's projected change in
NPV for the these rate shock levels as of December 31. All market rate
sensitive instruments presented in this table are classified as either held to
maturity or available for sale. The Company has no trading securities.
<TABLE>
<CAPTION>
PROJECTED CHANGE
---------------
CHANGE IN INTEREST RATES NPV DOLLARS PERCENTAGE
------------------------ ------- ------- ----------
<S> <C> <C> <C>
100 basis point rise........................... $72,627 $ 8,337 13%
Base scenario.................................. 64,290 -- 0%
100 basis point decline........................ 55,953 (8,337) (13)%
</TABLE>
17
<PAGE>
The preceding table indicates that at December 31, 1997, in the event of a
sudden and sustained increase or decrease in prevailing market interest rates,
the Company's NPV would be expected to decrease. However, the foregoing
analysis does not attribute additional value to the Company's noninterest-
bearing deposit balances, which have a significantly higher market value
during periods of increasing interest rates.
NPV is calculated based on the net present value of estimated cash flows
utilizing market prepayment assumptions and market rates of interest provided
by independent broker quotations and other public sources.
Computation of forecasted effects of hypothetical interest rate changes are
based on numerous assumptions, including relative levels of market interest
rates, loan prepayments and deposits decay, and should be not relied upon as
indicative of actual future results. Further, the computations do not
contemplate any actions the ALCO could undertake in response to changes in
interest rates.
Certain shortcomings are inherent in the method of analysis presented in the
computation of NPV. Actual values may differ from those projections presented
should market conditions vary from assumptions used in the calculation of the
NPV. Certain assets, such as adjustable-rate loans, which represent one of the
Company's loan products, have features which restrict changes in interest rate
on a short-term basis and over the life of the assets. In addition, the
proportion of adjustable-rate loans in the Company's portfolio could decrease
in future periods if market interest rates remain at or decrease below current
levels due to refinancing activity. Further, in the event of a change in
interest rates, prepayment and early withdrawal levels would likely deviate
significantly from those assumed in the NPV. Finally, the ability of many
borrowers to repay their adjustable-rate mortgage loans may decrease in the
event of significant interest rate increases.
Interest Rate Risk Management
Interest rate risk management is a function of the repricing characteristics
of the Company's portfolio of assets and liabilities. Interest rate risk
management focuses on the maturity structure of assets and liabilities and
their repricing characteristics during periods of changes in market interest
rates. Effective interest rate risk management seeks to ensure that both
assets and liabilities respond to changes in interest rates within an
acceptable time frame, thereby minimizing the effect of interest rate
movements on net interest income. Interest rate sensitivity is measured as the
difference between the volumes of assets and liabilities in the Company's
current portfolio that are subject to repricing at various time horizons: one
day or immediate, two days to six months, seven to twelve months, one to three
years, four to five years, over five years and on a cumulative basis. The
differences are known as interest sensitivity gaps.
18
<PAGE>
The following table shows interest sensitivity gaps for different intervals
as of December 31, 1997.
<TABLE>
<CAPTION>
IMMEDIATE 2 DAYS TO 7 MONTHS TO 1 YEAR 4 YEARS MORE THAN TOTAL RATE NON-RATE
OR ONE DAY 6 MONTHS 12 MONTHS TO 3 YEARS TO 5 YEARS 5 YEARS SENSITIVE SENSITIVE TOTAL
(DOLLARS IN THOUSANDS) ---------- --------- ----------- ---------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from
banks............... $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ 44,755 $ 44,755
Short term
investments......... 59,000 90,512 -- -- -- -- 149,512 -- 149,512
Investment
securities.......... 56 24,956 20,822 53,120 33,813 68,641 201,408 -- 201,408
Other securities..... -- -- -- -- -- -- 4,118 4,118
Loans................ 547,678 24,309 17,722 46,993 22,239 19,577 678,518 -- 678,518
Loan losses/unearned
fees................ -- -- -- -- -- -- -- (17,862) (17,862)
Other assets......... -- -- -- -- -- -- -- 31,973 31,973
-------- -------- ------- -------- -------- -------- ---------- --------- ----------
Total assets........ $606,734 $139,777 $38,544 $100,113 $ 56,052 $ 88,218 $1,029,438 $ 62,984 $1,092,422
======== ======== ======= ======== ======== ======== ========== ========= ==========
LIABILITIES AND
EQUITY
Deposits
DDA................. $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ 204,464 $ 204,464
NOW, MMDA, and
savings............ 564,840 -- -- -- -- -- 564,840 -- 564,840
Time deposits....... -- 180,283 17,652 5,413 555 171 204,074 -- 204,074
Other borrowings..... -- 19,480 -- -- -- -- 19,480 -- 19,480
Subordinated debt.... -- -- -- -- -- 3,000 3,000 -- 3,000
Trust preferred
securities.......... -- -- -- -- -- 20,000 20,000 -- 20,000
Other liabilities.... -- -- -- -- -- -- -- 9,968 9,968
Shareholders' equity. -- -- -- -- -- -- -- 66,596 66,596
-------- -------- ------- -------- -------- -------- ---------- --------- ----------
Total liabilities
and equity......... $564,840 $199,763 $17,652 $ 5,413 $ 555 $ 23,171 $ 811,394 $ 281,028 $1,092,422
======== ======== ======= ======== ======== ======== ========== ========= ==========
Gap.................. $ 41,894 $(59,986) $20,892 $ 94,700 $ 55,497 $ 65,047 $ 218,044 $(218,044) --
Cumulative Gap....... $ 41,894 $(18,092) $ 2,800 $ 97,500 $152,997 $218,044 $ 218,044 $ -- --
Cumulative Gap/total
assets.............. 3.83% (1.66)% 0.26% 8.93% 14.01% 19.96% 19.96% -- --
</TABLE>
The foregoing table indicates that the Company had a one year gap of $2.8
million, or 0.26% of total assets, at December 31, 1997. In theory, this would
indicate that at December 31, 1997, $2.8 million more in assets than
liabilities would reprice if there was a change in interest rates over the
next 360 days. Thus, if interest rates were to increase, the gap would tend to
result in a higher net interest margin. However, changes in the mix of earning
assets or supporting liabilities can either increase or decrease the net
interest margin without affecting interest rate sensitivity. In addition, the
interest rate spread between an asset and its supporting liability can vary
significantly while the timing of repricing of both the asset and its
supporting liability can remain the same, thus impacting net interest income.
This characteristic is referred to as a basis risk and, generally, relates to
the repricing characteristics of short-term funding sources such as
certificates of deposit.
The impact of fluctuations in interest rates on the Company's projected next
twelve month net interest income and net income has been evaluated through an
interest rate shock simulation modeling analysis that includes various
assumptions regarding the repricing relationship of assets and liabilities, as
well as the anticipated changes in loan and deposit volumes over differing
rate environments. As of December 31, 1997, the analysis indicates that the
Company's net interest income would increase a maximum of 19.2% if rates rose
200 basis points immediately and would decrease a maximum of 19.2% if rates
declined 200 basis points immediately. In addition, the results indicate that
notwithstanding the Company's gap position, which would indicate that the net
interest margin increases when rates rise, the Company's net interest margin
increases during rising rate periods due to the basis risk imbedded in the
Company's interest-bearing liabilities.
In addition, while this analysis indicates the probable impact of interest
rate movements on the Company's net interest income, it does not take into
consideration other factors that would impact this analysis. These factors
would include but not be limited to management and ALCO's actions to mitigate
the impact to the Company and the impact of the Company's credit risk profile
during periods of significant interest rate movements.
19
<PAGE>
Varying interest rate environments can create unexpected changes in
prepayment levels of assets and liabilities which are not reflected in the
interest sensitivity analysis table. These prepayments may have significant
effects on the Company's net interest margin. Because of these factors and
others, an interest sensitivity gap report may not provide a complete
assessment of the Company's exposure to changes in interest rates.
Year 2000
The Company has an ongoing program designed to ensure that its operational
and financial systems will not be adversely affected by year 2000 software
failures, due to processing errors arising from calculations using the year
2000 date. The Company expects to incur additional costs over the next three
years implementing a program to redevelop, replace, or repair its computer
applications to try to make them "year 2000 compliant". While the Company
believes it is doing everything technologically possible to assure year 2000
compliance, it is to some extent dependent upon vendor cooperation. The
Company is requiring its computer systems and software vendors to represent
that the products provided are, or will be, year 2000 compliant, and has
planned a program of testing for compliance. The Company also recognizes that
compliance with year 2000 issues can impact its clients' abilities to perform
and is taking steps to evaluate the year 2000 risk profile of its current and
future clients. The Company recognizes that any year 2000 compliance failures
could result in additional expense to the Company.
The Company is also evaluating the extent to which it would be prudent to
obtain insurance against year 2000 risk, not only in its own performance, but
also with respect to the performance of its vendors and clients.
Recent Events
On February 24, 1998 the Company and Pacific Rim Bancorporation ("PRB"), the
holding company of Golden Gate Bank ("Golden Gate"), signed a definitive
agreement for a merger between the two companies. The terms of the agreements
provide for PRB shareholders to receive approximately 545,000 shares of
Greater Bay Bancorp stock, subject to certain adjustments, in a tax-free
exchange to be accounted for as a pooling of interests. Following the
transaction, the shareholders of PRB will own approximately 12% of the
combined company. The transaction is expected to be completed late in the
second quarter of 1998 or early in the third quarter of 1998, subject to
regulatory approvals. As of December 31, 1997 Golden Gate had $107.3 million
in assets, $98.4 million in deposits, and $8.6 million in shareholders'
equity. Golden Gate's office is located in the San Francisco financial
district. The combined Company, on a pro-forma basis will have total assets of
approximately $1.2 billion and equity of over $75 million.
The transaction is anticipated to be accretive to Greater Bay's core
earnings in 1998 based on reductions in operating expenses and revenue
enhancements resulting from an expanded product line, increased lending
capacity and increased market awareness that can be utilized by Golden Gate.
Management of the organizations believe that significant opportunities exist
to enhance the spectrum of financial services offered to both existing and
future clients of Golden Gate while also increasing market penetration in the
San Francisco Peninsula market areas.
On March 9, 1998 Greater Bay Bancorp announced that Roger V. Smith had
joined the Company as President of its Venture Banking Group. The Company and
its Board of Directors also announced that Mr. Smith had been appointed to the
Board of Directors of Greater Bay Bancorp. In his capacity as President of the
Venture Banking Group, Mr. Smith brings significant technology industry
experience and venture capital contacts to the Company as it continues to
develop and expand its technology industry practice.
On March 23, 1998 Mid-Peninsula Bank announced the appointment of Susan K.
Black to President and Chief Executive Officer. She was also elected to the
Board of Directors of Mid-Peninsula Bank. Ms. Black has been with the Bank
since its formation in 1987. Former President and Chief Executive Officer,
David L. Kalkbrenner, is relinquishing the post to devote full-time to what
had been his dual responsibility of President and Chief Executive Officer of
Greater Bay Bancorp.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income". This statement requires
20
<PAGE>
companies to classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in the
equity section of a statement of financial position and will become effective
for the Company's 1998 fiscal year, with reclassification of earlier financial
statements for comparative purposes. The Company is evaluating alternative
formats for presenting this information, but does not expect this
pronouncement to materially impact the Company's current reporting and
disclosures.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS 131"). This statement
establishes standards for disclosures about operating segments in annual
financial statements and selected information in interim financial reports. It
also establishes standards for related disclosures about products and
services, geographic areas and major customers. This statement supersedes SFAS
No. 14. "Financial Reporting for Segments of a Business Enterprise." SFAS 131
will become effective for the Company's 1999 fiscal year and requires that
comparative information from earlier years be restated to conform to the
requirements of this standard. The Company is evaluating the requirements of
SFAS 131 and the effects, if any, on the Company's current reporting and
disclosures.
Common Stock Price and Dividend History
The Company's stock is traded on the Nasdaq National Market ("Nasdaq") under
the symbol "GBBK". Prior to September 9, 1996, the Company's common stock was
not listed on any exchange nor was it quoted by Nasdaq. It was, however,
listed with the National Quotation Service and on the Over The Counter
Bulletin Board. Hoefer & Arnett, Incorporated and Van Kasper & Company acted
as the primary market makers and facilitated trades in the Company's common
stock. The Company's common stock was listed on Nasdaq on September 9, 1996.
Based on information provided to the Company from Hoefer & Arnett, the range
of high and low bid quotations for the Common Stock for the first three
quarters of 1996 are set forth below. Such quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not represent
actual transactions. Quotations subsequent to September 30, 1996 reflect the
high and low sales prices for the Company's common stock as reported by
Nasdaq.
<TABLE>
<CAPTION>
CASH DIVIDENDS
FOR THE PERIOD INDICATED HIGH LOW DECLARED (1)
------------------------ ------ ------ --------------
<S> <C> <C> <C>
1997
First Quarter............................... $27.63 $23.75 $0.15
Second Quarter.............................. 31.50 24.88 0.15
Third Quarter............................... 44.50 31.88 0.15
Fourth Quarter.............................. 53.50 42.00 0.15
1996
First Quarter............................... $18.75 $16.50 $0.15
Second Quarter.............................. 22.13 17.75 0.15
Third Quarter............................... 21.00 18.00 0.15
Fourth Quarter.............................. 24.38 21.13 0.15
</TABLE>
- --------
(1) Includes only those dividends declared by Greater Bay, and excludes those
dividends paid by Cupertino National Bancorp prior to the 1996 merger and
by PBC prior to the 1997 merger. In 1996, Cupertino National Bancorp
declared dividends of $3.20 and $1.35 per share, in 1997 and 1996,
respectively, to its shareholders. On a consolidated basis, the Company
has declared dividends of $1.04 and $0.60 per share in 1997 and 1996,
respectively.
The Company estimates there are approximately 2,200 shareholders at December
31, 1997.
21
<PAGE>
GREATER BAY BANCORP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996*
(DOLLARS IN THOUSANDS) ------------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks.............................. $ 44,755 $ 45,448
Federal funds sold................................... 59,000 27,100
Other short term securities.......................... 90,512 96,333
------------- -----------
Cash and cash equivalents.......................... 194,267 168,881
Investment securities:
Available for sale................................. 156,947 62,406
Held to maturity (market value $45,246 and $63,535
at December 31, 1997 and 1996, respectively)...... 44,461 63,176
Other securities................................... 4,118 1,451
------------- -----------
Investment securities............................ 205,526 127,033
Total loans, net..................................... 660,656 505,745
Premises and equipment............................... 7,588 6,489
Interest receivable and other assets................. 24,385 18,217
------------- -----------
Total assets..................................... $ 1,092,422 $ 826,365
============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits....................................... $ 973,378 $ 747,818
Other borrowings..................................... 19,480 12,000
Subordinated debt.................................... 3,000 3,000
Company obligated mandatorily redeemable cumulative
trust preferred securities of subsidiary trust
holding solely junior subordinated debentures....... 20,000 --
Other liabilities.................................... 9,968 5,592
------------- -----------
Total liabilities................................ 1,025,826 768,410
------------- -----------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock, no par value: 4,000,000 shares
authorized; none issued........................... -- --
Common stock, no par value: 12,000,000 shares
authorized; 4,028,091 and 3,886,495 shares issued
and outstanding as of December 31, 1997 and 1996,
respectively...................................... 44,218 42,025
Unrealized gain on available for sale securities,
net of taxes...................................... 338 18
Retained earnings.................................. 22,040 15,912
------------- -----------
Total shareholders' equity....................... 66,596 57,955
------------- -----------
Total liabilities and shareholders' equity..... $ 1,092,422 $ 826,365
============= ===========
</TABLE>
* Restated on a historical basis to reflect the merger with Peninsula Bank of
Commerce on a pooling of interests basis.
See notes to consolidated financial statements.
22
<PAGE>
GREATER BAY BANCORP
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1997 1996* 1995*
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) -------- -------- --------
<S> <C> <C> <C>
INTEREST INCOME
Interest on loans................................. $ 61,331 $ 42,948 $ 35,517
Interest on investment securities:
Taxable......................................... 12,778 7,939 7,038
Tax-exempt...................................... 807 990 729
-------- -------- --------
Total interest on investment securities....... 13,585 8,929 7,767
Other interest income............................. 3,000 2,221 2,554
-------- -------- --------
Total interest income........................... 77,916 54,098 45,838
-------- -------- --------
INTEREST EXPENSE
Interest on deposits.............................. 27,907 18,644 15,495
Interest on long term borrowings.................. 2,137 355 75
Interest on other borrowings...................... 96 126 769
-------- -------- --------
Total interest expense.......................... 30,140 19,125 16,339
-------- -------- --------
Net interest income........................... 47,776 34,973 29,499
Provision for loan losses......................... 6,242 2,156 1,160
-------- -------- --------
Net interest income after provision for loan
losses....................................... 41,534 32,817 28,339
-------- -------- --------
OTHER INCOME
Trust fees........................................ 2,049 1,426 710
Service charges and other fees.................... 1,382 1,268 901
Warrant income.................................... 1,162 92 --
Gain on sale of SBA loans......................... 883 537 420
Loss on investments, net.......................... (39) (263) (113)
Other income...................................... 850 890 764
-------- -------- --------
Total other income.............................. 6,287 3,950 2,682
-------- -------- --------
OPERATING EXPENSES
Compensation and benefits......................... 17,810 14,027 12,326
Occupancy and equipment........................... 4,622 3,875 3,168
Merger and related nonrecurring costs............. 3,333 2,791 --
Legal settlement (recovery)....................... (1,700) -- 1,700
Other expenses.................................... 7,081 6,764 5,993
-------- -------- --------
Total operating expenses........................ 31,146 27,457 23,187
-------- -------- --------
Net income before provision for income taxes.. 16,675 9,310 7,834
Provision for income taxes........................ 6,662 3,972 3,017
-------- -------- --------
Net income.................................... $ 10,013 $ 5,338 $ 4,817
======== ======== ========
Net income per share--basic....................... $ 2.51 $ 1.40 $ 1.36
======== ======== ========
Net income per share--diluted..................... $ 2.32 $ 1.30 $ 1.27
======== ======== ========
</TABLE>
* Restated on a historical basis to reflect the mergers with Cupertino National
Bancorp and Peninsula Bank of Commerce on a pooling of interests basis.
See notes to consolidated financial statements.
23
<PAGE>
GREATER BAY BANCORP
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED COMMON STOCK EARNINGS TOTAL
DECEMBER 31, 1997, 1996 AND ----------------- ------------------- SHAREHOLDERS'
1995 AMOUNT UNREALIZED RETAINED EQUITY
(DOLLARS IN THOUSANDS) SHARES ------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Greater Bay Bancorp, prior
to pooling................ 2,792,706 $29,686 $(1,320) $ 7,674 $36,040
Shares issued to Peninsula
Bank of Commerce
shareholders.............. 609,529 6,710 -- -- 6,710
Peninsula Bank of Commerce
retained earnings prior to
pooling................... -- -- (284) 4,364 4,080
--------- ------- ------- ------- -------
BALANCE, DECEMBER 31,
1994, AS RESTATED TO
REFLECT POOLING......... 3,402,235 36,396 (1,604) 12,038 46,830
Stock options exercised,
including related tax
benefit................... 130,951 1,402 -- -- 1,402
Stock issued in Employee
Stock Purchase Plan....... 8,537 80 -- -- 80
401(k) employee stock
purchase.................. 6,731 95 -- -- 95
10% stock dividend--
fractional shares paid in
cash...................... 133,892 2,135 -- (2,138) (3)
Cash dividend $0.48 per
share..................... -- -- -- (1,832) (1,832)
SFAS No. 115 change in
unrealized loss on
available for sale
securities................ -- -- 995 -- 995
Net income................. -- -- -- 4,817 4,817
--------- ------- ------- ------- -------
BALANCE, DECEMBER 31,
1995*................... 3,682,346 40,108 (609) 12,885 52,384
Stock options exercised,
including related tax
benefit................... 188,239 1,693 -- -- 1,693
Stock issued in Employee
Stock Purchase Plan....... 10,632 137 -- -- 137
401(k) employee stock
purchase.................. 5,278 87 -- -- 87
Cash dividend $0.60 per
share..................... -- -- -- (2,311) (2,311)
SFAS No. 115 change in
unrealized loss on
available for sale
securities................ -- -- 627 -- 627
Net income................. -- -- -- 5,338 5,338
--------- ------- ------- ------- -------
BALANCE, DECEMBER 31,
1996*................... 3,886,495 42,025 18 15,912 57,955
Stock options exercised,
including related tax
benefit................... 108,360 1,315 -- -- 1,315
Stock issued in Employee
Stock Purchase Plan....... 15,160 347 -- -- 347
401(k) employee stock
purchase.................. 18,076 531 -- -- 531
Cash dividend $1.04 per
share..................... -- -- -- (3,885) (3,885)
SFAS No. 115 change in
unrealized gain on
available for sale
securities................ -- -- 320 -- 320
Net income................. -- -- -- 10,013 10,013
--------- ------- ------- ------- -------
BALANCE, DECEMBER 31,
1997.................... 4,028,091 $44,218 $ 338 $22,040 $66,596
========= ======= ======= ======= =======
</TABLE>
* Restated on a historical basis to reflect the mergers with Cupertino National
Bancorp and Peninsula Bank of Commerce on a pooling of interests basis.
See notes to consolidated financial statements.
24
<PAGE>
GREATER BAY BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1996* 1995*
(DOLLARS IN THOUSANDS) --------- --------- --------
<S> <C> <C> <C>
CASH FLOWS--OPERATING ACTIVITIES
Net income..................................... $ 10,013 $ 5,338 $ 4,817
Reconciliation of net income to net cash from
operations:
Provision for loan losses.................... 6,242 2,156 1,160
Depreciation and leasehold amortization...... 1,139 831 1,129
Proceeds from sale of loans held for sale.... -- -- 16,364
Origination of loans for resale.............. -- -- (10,981)
Deferred income taxes........................ (4,000) (1,382) 224
Changes in:
Accrued interest receivables and other
assets.................................... (6,168) (50) (1,441)
Accrued interest payable and other
liabilities............................... 4,376 241 1,084
Deferred loan fees and discounts, net...... 498 653 27
--------- --------- --------
Operating cash flows, net...................... 12,100 7,787 12,383
--------- --------- --------
CASH FLOWS--INVESTING ACTIVITIES
Maturities of investment securities and other
short-term investments:
Held to maturity............................. 25,899 25,976 29,940
Available for sale........................... 37,034 33,237 20,241
Purchase of investment securities and other
short-term investments:
Held to maturity............................. (9,851) (27,254) (57,929)
Available for sale........................... (129,875) (45,423) (15,168)
Proceeds from sale of available for sale
securities.................................... 4,897 26,635 --
Loans, net..................................... (163,740) (167,595) (47,570)
Investment in other real estate owned.......... (500) 1,266 (476)
Sale of other real estate owned................ 312 217 1,054
Premises and equipment, net.................... (2,238) (2,978) (1,577)
Purchase of insurance policies................. -- (240) (6,004)
--------- --------- --------
Investing cash flows, net...................... (238,062) (156,159) (77,489)
--------- --------- --------
CASH FLOWS--FINANCING ACTIVITIES
Net change in deposits......................... 225,560 231,964 92,387
Net change in short-term borrowings............ 7,480 12,000 (17,256)
Subordinated debt issued....................... -- -- 3,000
Company obligated mandatorily redeemable
preferred securities of subsidiary trust
holding solely junior subordinated debentures
issued........................................ 20,000 -- --
Proceeds from the sale of stock................ 2,193 1,917 1,577
Fractional shares paid in cash................. -- -- (3)
Cash dividends................................. (3,885) (2,311) (1,832)
--------- --------- --------
Financing cash flows, net...................... 251,348 243,570 77,873
--------- --------- --------
Net change in cash and cash equivalents........ 25,386 95,198 12,767
Cash and cash equivalents at beginning of year. 168,881 73,683 60,916
--------- --------- --------
Cash and cash equivalents at end of year....... $ 194,267 $ 168,881 $ 73,683
--------- --------- --------
CASH FLOWS--SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest on deposits and other borrowings.... $ 29,894 $ 19,110 $ 16,106
--------- --------- --------
Income taxes................................. $ 11,148 $ 5,187 $ 3,039
--------- --------- --------
Non-cash transactions:
Additions to other real estate owned......... $ 563 $ 152 $ 1,130
========= ========= ========
</TABLE>
* Restated on a historical basis to reflect the mergers with Cupertino National
Bancorp and Peninsula Bank of Commerce on a pooling of interests basis.
See notes to consolidated financial statements.
25
<PAGE>
GREATER BAY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
Greater Bay Bancorp ("Greater Bay," on a parent-only basis, and the
"Company," on a consolidated basis) is a California corporation and bank
holding company that was incorporated on November 14, 1984 as San Mateo County
Bancorp. The name was changed to Mid-Peninsula Bancorp on October 7, 1994 as a
result of the merger between Mid-Peninsula Bank and San Mateo County Bancorp
and its wholly owned subsidiary, WestCal National Bank. The name was further
changed to Greater Bay Bancorp on November 27, 1996 as a result of the merger
between Mid-Peninsula Bancorp and Cupertino National Bancorp (see Note 2).
Upon consummation of the merger with Cupertino National Bancorp, Greater Bay
became a multi-bank holding company for two wholly owned subsidiaries. On
December 23, 1997 the Company merged with Peninsula Bank of Commerce, adding a
third wholly owned banking subsidiary to the group. The three wholly owned
bank subsidiaries are Mid-Peninsula Bank ("MPB"), Cupertino National Bank
("CNB"), and Peninsula Bank of Commerce ("PBC"), collectively the "Banks."
MPB commenced operations in October 1987 and is a state chartered bank
regulated by the Federal Reserve Bank ("FRB") and Department of Financial
Institutions of the State of California ("DFI"). CNB commenced operations in
May 1985 and is a national banking association regulated by the Office of the
Comptroller of Currency ("OCC"). PBC commenced operations in September 1981
and is a state chartered bank regulated by the DFI. On March 3, 1997 GBB
Capital I (the "Trust"), a statutory business trust, was formed for the
exclusive purpose of issuing and selling Cumulative Trust Preferred Securities
("TPS") (see Note 8) and using the proceeds from the sale of the TPS to
acquire Junior Subordinated Debentures issued by Greater Bay.
The Company provides a wide range of commercial banking services to small
and medium-sized businesses, real estate developers, property managers,
business executives, professionals and other individuals. The Company operates
through nine regional California offices located in Cupertino, Milbrae, Palo
Alto, Redwood City, San Bruno, San Jose and San Mateo.
Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Greater Bay
and its wholly owned subsidiaries, MPB, CNB, PBC, and the Trust. All
significant intercompany transactions and balances have been eliminated.
Certain reclassifications have been made to prior years' consolidated
financial statements to conform to the 1997 presentation. The accounting and
reporting policies of the Company conform to generally accepted accounting
principles and the prevailing practices within the banking industry.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of certain assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of certain revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks and federal funds sold and agency securities
with original maturities of less than ninety days. Generally,
26
<PAGE>
GREATER BAY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
federal funds are sold for one-day periods. As discussed in Note 7, PBC holds
$88.1 million in one demand deposit account whose funds are comprised of
proceeds from a lawsuit settlement. Due to the uncertainty of the time this
special deposit (the "Special Deposit") will remain with PBC, management has
invested the proceeds in agency securities with maturities of less than 90
days. Those securities have been classified as cash and equivalents. MPB, CNB,
and PBC are required by the Federal Reserve System to maintain noninterest-
earning cash reserves against certain of their deposit accounts. At December
31, 1997, the required combined reserves totaled approximately $9.0 million.
Investment Securities
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," requires that
investment securities be classified into three portfolios, and be accounted
for as follows: 1) debt securities for which the Company has the positive
intent and ability to hold to maturity are classified as held to maturity and
reported at amortized cost; 2) debt and equity securities that are bought and
held principally for the purpose of selling in the near term are classified as
trading securities and reported at fair value, with unrealized gains and
losses included in earnings; and 3) debt and equity securities not classified
as either held to maturity or trading securities are classified as available
for sale securities and reported at fair value with unrealized gains and
losses excluded from earnings and reported as a separate component of
shareholders' equity.
A decline in the market value of any available for sale or held to maturity
security below cost that is deemed other than temporary, results in a charge
to earnings and the corresponding establishment of a new cost basis for the
security.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to yield using the effective interest
method. Dividend and interest income are recognized when earned. Realized
gains and losses for securities classified as available for sale and held to
maturity are included in earnings and are derived using the specific
identification method for determining the cost of securities sold.
Required investments of Federal Reserve Bank and Federal Home Loan Bank
stocks for MPB, CNB and PBC are recorded at cost.
Loans
Loans held for investment are carried at amortized cost. The Company's loan
portfolio consists primarily of commercial and real estate loans generally
collateralized by first and second deeds of trust on real estate as well as
business assets and personal property.
Interest income is accrued on the outstanding loan balances using the simple
interest method. Loans are generally placed on nonaccrual status when the
borrowers are past due 90 days and when full payment of principal or interest
in not expected. At the time a loan is placed on nonaccrual status, any
interest income previously accrued but not collected is generally reversed.
Interest accruals are resumed on such loans only when they are brought fully
current with respect to interest and principal and when, in the judgment of
management, the loans are estimated to be fully collectible as to both
principal and interest.
The Company charges loan origination and commitment fees. Net loan
origination fees and costs are deferred and amortized to interest income over
the life of the loan, using the effective interest method. Loan commitment
fees are amortized to interest income over the commitment period.
27
<PAGE>
GREATER BAY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
When a loan is sold, unamortized fees and capitalized direct costs are
recognized in the consolidated statements of operations. Other loan fees and
charges representing service costs for the repayment of loans, for delinquent
payments or for miscellaneous loan services are recognized when earned.
Sale and Servicing of Small Business Administration ("SBA") Loans
The Company originates loans to customers under SBA programs that generally
provide for SBA guarantees of 70% to 90% of each loan. The Company generally
sells the guaranteed portion of the majority of the loans to an investor and
retains the unguaranteed portion and servicing rights in its own portfolio.
Funding for the SBA programs depend on annual appropriations by the U.S.
Congress.
Gains on these sales are earned through the sale of the guaranteed portion
of the loan for an amount in excess of the adjusted carrying value of the
portion of the loan sold. The company allocates the carrying value of such
loans between the portion sold, the portion retained and a value assigned to
the right to service the loan. The difference between the adjusted carrying
value of the portion retained and the face amount of the portion retained is
amortized to interest income over the life of the related loan using a method
which approximates the interest method. The value assigned to the right to
service is also amortized over the estimated life of the loan.
Allowance for Loan Losses
The Company adopted SFAS No. 114, "Accounting by Creditors for Impairment of
a Loan," as amended by SFAS No. 118 ("SFAS No. 114 and No. 118"), on January
1, 1995. Under these standards, a loan is considered impaired, based on
current information and events, if it is probable that the Company will be
unable to collect the scheduled payments of principal and interest when due
according to the contractual terms of the loan agreement. Under these
standards, any allowance on impaired loans is generally based on one of three
methods. It requires that impaired loans be measured at either, 1) the present
value of expected cash flows at the loan's effective interest rate, 2) the
loan's observable market price, or 3) the fair market value of the collateral
of the loan. In general, these statements are not applicable to large groups
of smaller-balance loans that are collectively evaluated for impairment such
as credit cards, residential mortgage and/or consumer installment loans.
Adoption of SFAS No. 114 and No. 118 did not have a material effect on the
financial statements of the Company in 1995. Income recognition on impaired
loans conforms to the method the Company uses for income recognition on
nonaccrual loans.
The allowance for loan losses is maintained at a level deemed appropriate by
management to adequately provide for known and unidentified losses in the loan
portfolio. The allowance is based upon a number of factors, including
prevailing and anticipated economic trends, industry experience, industry and
geographic concentrations, estimated collateral values, management's
assessment of credit risk inherent in the portfolio, delinquency trends,
historical loss experience, specific problem loans and other relevant factors.
Additions to the allowance, in the form of provisions, are reflected in
current operating results, while charge-offs to the allowance are made when a
loss is determined to have occurred. Because the allowance for loan losses is
based on estimates, ultimate losses may vary from the current estimates.
Other Real Estate Owned
Other real estate owned ("OREO") consists of properties acquired through
foreclosure and is stated at the lower of carrying value or fair value less
estimated costs to sell. Development and improvement costs relating to the
OREO are capitalized. Estimated losses that result from the ongoing periodic
valuation of these properties are charged to current earnings with a provision
for losses on foreclosed property in the period in which they are
28
<PAGE>
GREATER BAY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
identified. The resulting allowance for OREO losses is decreased when the
property is sold. Operating expenses of such properties, net of related
income, are included in other expenses. Gains and losses on the disposition of
OREO are included in other income.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed on a straight-line
basis over the shorter of the lease terms or estimated useful lives of the
assets, which are generally 3 to 10 years.
Income Taxes
Deferred incomes taxes reflect the estimated future tax effects of temporary
differences between the amount of assets and liabilities for financial
reporting purposes and such amounts as measured by tax laws and regulations.
Per Share Data
Net income per share are stated in accordance with SFAS No. 128 "Earnings
per Share". Basic net income per share is computed by dividing net income
available to common shareholders by the weighted average number of common
shares outstanding during the year. Diluted net income per share is computed
by dividing diluted net income available to common shareholders by the
weighted average number of common shares and common equivalent shares
outstanding including dilutive stock options. The computation of common stock
equivalent shares is based on the weighted average market price of the
Company's common stock throughout the period. All years presented include the
effect of stock dividends declared in 1995 and 1994.
29
<PAGE>
GREATER BAY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
The following table provides a reconciliation of the numerators and
denominators of the basic and diluted net income per share computations for
the years ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
------------------------------------------
INCOME SHARES PER SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER (NUMERATOR) (DENOMINATOR) AMOUNT
SHARE AMOUNTS) ------------ -------------- ----------
<S> <C> <C> <C>
Net income......................... $ 10,013
Basic net income per share:
Income available to common
shareholders.................... 10,013 3,973,673 $ 2.51
Effect of dilutive securities:
Stock options.................... -- 348,193 --
------------ -------------- ----------
Diluted net income per share:
Income available to common
shareholders and assumed
conversions..................... $ 10,013 4,321,866 $ 2.32
============ ============== ==========
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------------
INCOME SHARES PER SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER (NUMERATOR) (DENOMINATOR) AMOUNT
SHARE AMOUNTS) ------------ -------------- ----------
<S> <C> <C> <C>
Net income......................... $ 5,338
Basic net income per share:
Income available to common
shareholders.................... 5,338 3,803,783 $ 1.40
Effect of dilutive securities:
Stock options.................... -- 293,231 --
------------ -------------- ----------
Diluted net income per share:
Income available to common
shareholders and assumed
conversions..................... $ 5,338 4,097,014 $ 1.30
============ ============== ==========
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
------------------------------------------
INCOME SHARES PER SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER (NUMERATOR) (DENOMINATOR) AMOUNT
SHARE AMOUNTS) ------------ -------------- ----------
<S> <C> <C> <C>
Net income......................... $ 4,817
Basic net income per share:
Income available to common
shareholders.................... 4,817 3,542,450 $ 1.36
Effect of dilutive securities:
Stock options.................... -- 239,878 --
------------ -------------- ----------
Diluted net income per share:
Income available to common
shareholders and assumed
conversions..................... $ 4,817 3,782,328 $ 1.27
============ ============== ==========
</TABLE>
There were no options that were considered anti-dilutive whereby the
options' exercise price was greater than the average market price of the
common shares, during the years ended December 31, 1997, 1996 and 1995.
Weighted average shares outstanding and all per share amounts included in
the consolidated financial statements and notes thereto are based upon the
increased number of shares giving retroactive effect to the 1996 merger with
Cupertino National Bancorp at a 0.81522 conversion ratio, and the 1997 merger
with PBC at a 0.96550 conversion ratio.
30
<PAGE>
GREATER BAY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 2--MERGERS
On December 23, 1997, the Company consummated a merger with PBC. Pursuant to
terms of the merger agreement, the Company issued approximately 664,000 shares
of its common stock in exchange for the outstanding common stock of PBC at an
exchange ratio of 0.9655 of the Company's common stock for each share of PBC's
common stock. The merger has been accounted for as a pooling-of-interests
business combination; and accordingly, the consolidated financial statements
and the financial data for the periods prior to the merger have been restated
to include the accounts and results of operations of PBC.
On November 27, 1996, the Company consummated a merger with Cupertino
National Bancorp. As discussed in Note 1, concurrent with the consummation of
the merger, the name of the holding company was changed from Mid-Peninsula
Bancorp to Greater Bay Bancorp. Pursuant to terms of the merger agreement, the
Company issued approximately 1,586,000 shares of its common stock in exchange
for the outstanding common stock of Cupertino National Bancorp at an exchange
ratio of 0.81522 of the Company's common stock for each share of Cupertino
National Bancorp's common stock. The merger has been accounted for as a
pooling of interests business combination; and accordingly, the consolidated
financial statements and the financial data for the periods prior to the
merger have been restated to include the accounts and results of operations of
Cupertino National Bancorp.
In all mergers, certain reclassifications were made to conform to the
Company's financial presentation. The results of operations previously
reported by the separate enterprises for the period before the merger was
consummated and that are included in the current combined amounts presented in
the accompanying consolidated financial statements are summarized below.
The following table sets forth the composition of the combined operations of
the Company and PBC for the nine months ended September 30, 1997, prior to the
consummation of the merger on December 23, 1997.
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS
ENDED SEPTEMBER 30,
(DOLLARS IN THOUSANDS) 1997
---------------------- -------------------
<S> <C>
Net Interest Income:
Greater Bay Bancorp................................. $27,922
Peninsula Bank of Commerce.......................... 6,851
-------
Combined.......................................... $34,773
-------
Provision for loan losses:
Greater Bay Bancorp................................. $ 5,287
Peninsula Bank of Commerce.......................... 105
-------
Combined.......................................... $ 5,392
-------
Net Income:
Greater Bay Bancorp................................. $ 6,097
Peninsula Bank of Commerce.......................... 2,573
-------
Combined.......................................... $ 8,670
-------
</TABLE>
31
<PAGE>
GREATER BAY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
The following table sets forth the composition of the combined operations of
Mid-Peninsula Bancorp and Cupertino National Bancorp for the nine months ended
September 30, 1996 prior to the consummation of the merger on November 27,
1996.
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS
ENDED SEPTEMBER 30,
(DOLLARS IN THOUSANDS) 1996
---------------------- -------------------
<S> <C>
Net Interest Income:
Mid-Peninsula Bancorp............................... $ 8,878
Cupertino National Bancorp.......................... 11,487
-------
Combined.......................................... $20,365
-------
Provision for loan losses:
Mid-Peninsula Bancorp............................... $ 427
Cupertino National Bancorp.......................... 864
-------
Combined.......................................... $ 1,291
-------
Net Income:
Mid-Peninsula Bancorp............................... $ 2,373
Cupertino National Bancorp.......................... 1,548
-------
Combined.......................................... $ 3,921
-------
</TABLE>
There were no significant transactions between the Company and PBC or between
Mid-Peninsula Bancorp and Cupertino National Bancorp prior to the mergers. All
intercompany transactions have been eliminated.
NOTE 3--INVESTMENT SECURITIES
The amortized cost and estimated market value of investment securities is
summarized below:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 GROSS GROSS
(DOLLARS IN AMORTIZED UNREALIZED UNREALIZED MARKET
THOUSANDS) COST GAINS LOSSES VALUE
------------ --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE SECURITIES:
U.S. Treasury obligations........... $ 9,850 $ 52 $ (2) $ 9,900
U.S. agency notes................... 33,336 52 (57) 33,331
Mortgage-backed securities.......... 98,593 357 (76) 98,874
Tax-exempt securities............... 7,018 199 (5) 7,212
Corporate securities................ 7,568 62 -- 7,630
-------- ------ ----- --------
Total securities available for
sale............................. 156,365 722 (140) 156,947
-------- ------ ----- --------
HELD TO MATURITY SECURITIES:
U.S. Treasury obligations........... 501 1 -- 502
U.S. agency notes................... 17,798 182 (12) 17,968
Mortgage-backed securities.......... 11,324 177 (2) 11,499
Tax-exempt securities............... 14,838 492 (53) 15,277
-------- ------ ----- --------
Total securities held to maturity. 44,461 852 (67) 45,246
-------- ------ ----- --------
Other securities...................... 4,118 -- -- 4,118
-------- ------ ----- --------
Total investment securities....... $204,944 $1,574 $(207) $206,311
======== ====== ===== ========
</TABLE>
32
<PAGE>
GREATER BAY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
DECEMBER 31,
1996 GROSS GROSS
(DOLLARS IN AMORTIZED UNREALIZED UNREALIZED MARKET
THOUSANDS) COST GAINS LOSSES VALUE
------------ --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE SECURITIES:
U.S. Treasury obligations........... $ 22,821 $ 75 $ (6) $ 22,890
U.S. agency notes................... 22,973 39 (124) 22,888
Mortgage-backed securities.......... 3,604 5 (53) 3,556
Mutual funds........................ 2,000 -- (52) 1,948
Tax-exempt securities............... 7,758 154 (11) 7,901
Corporate securities................ 3,216 7 -- 3,223
-------- ---- ----- --------
Total securities available for
sale............................. 62,372 280 (246) 62,406
-------- ---- ----- --------
HELD TO MATURITY SECURITIES:
U.S. Treasury obligations........... 1,005 3 -- 1,008
U.S. agency notes................... 38,390 78 (100) 38,368
Mortgage-backed securities.......... 11,045 141 (9) 11,177
Tax-exempt securities............... 12,736 260 (14) 12,982
-------- ---- ----- --------
Total securities held to maturity. 63,176 482 (123) 63,535
-------- ---- ----- --------
Other securities...................... 1,451 -- -- 1,451
-------- ---- ----- --------
Total investment securities....... $126,999 $762 $(369) $127,392
======== ==== ===== ========
</TABLE>
The following table shows amortized cost and estimated market value of the
Company's investment securities by year of maturity as of December 31, 1997.
<TABLE>
<CAPTION>
1999 2003
THROUGH THROUGH 2008 AND
(DOLLARS IN THOUSANDS)(1) 1998 2002 2007 THEREAFTER TOTAL
- ------------------------- ------- ------- ------- ---------- --------
<S> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE SECURITIES:
U.S. Treasury obligations..... $ 6,557 $ 3,293 $ -- $ -- $ 9,850
U.S. agency notes (2)......... 8,098 14,492 10,746 -- 33,336
Mortgage-backed securities
(3).......................... 54 3,351 8,680 86,508 98,593
Tax-exempt securities......... 266 1,661 4,711 380 7,018
Corporate securities.......... 2,511 5,057 -- -- 7,568
------- ------- ------- -------- --------
Total securities available
for sale................... 17,486 27,854 24,137 86,888 156,365
------- ------- ------- -------- --------
Market value.................. $17,507 $27,963 $24,358 $ 87,119 $156,947
------- ------- ------- -------- --------
HELD TO MATURITY SECURITIES:
U.S. Treasury obligations..... 501 -- -- -- 501
U.S. agency notes (2)......... 5,898 5,985 5,915 -- 17,798
Mortgage-backed securities
(3).......................... 52 -- 4,585 6,687 11,324
Tax-exempt securities......... 951 4,617 1,831 7,439 14,838
------- ------- ------- -------- --------
Total securities held to
maturity................... 7,402 10,602 12,331 14,126 44,461
------- ------- ------- -------- --------
Market value.................. 7,472 10,654 12,640 14,480 45,246
------- ------- ------- -------- --------
COMBINED INVESTMENT SECURITIES
PORTFOLIO:
Total investment securities... $24,888 $38,456 $36,468 $101,014 $200,826
------- ------- ------- -------- --------
Total market value............ $24,979 $38,617 $36,998 $101,599 $202,193
------- ------- ------- -------- --------
Weighted average yield-total
portfolio (4)................ 5.83% 6.71% 7.05% 7.27% 6.95%
</TABLE>
33
<PAGE>
GREATER BAY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- --------
(1) Other securities are comprised of equity investments and have no stated
maturity and therefore are excluded from this table.
(2) Certain notes issued by U.S. agencies may be called, without penalty, at
the discretion of the issuer. This may cause the actual maturities to
differ significantly from the contractual maturity dates.
(3) Mortgage-backed securities are shown at contractual maturity; however, the
average life of these mortgage-backed securities may differ due to
principal prepayments.
(4) Yields on tax-exempt securities have been computed on a fully tax-
equivalent basis.
Investment securities with a carrying value of $25.5 million and $25.5
million were pledged to secure deposits, borrowings and for other purposes as
required by law or contract at December 31, 1997 and 1996, respectively.
Investments in the FRB are required in order to maintain membership and
support activity levels.
Proceeds and realized losses and gains on sales of investment securities for
the years ended December 31, 1997, 1996 and 1995 are presented below:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1997 1996 1995
- ---------------------- ------ ------- -----
<S> <C> <C> <C>
Proceeds from sale of available for sale securities..... $4,897 $26,635 $ --
Available for sale securities--losses(1)................ $ (39) $ (263) $(113)
</TABLE>
- --------
(1) Includes $466,000 of charges in 1996 to conform accounting practices,
which is included in merger and related nonrecurring costs.
NOTE 4--LOANS
The following is a summary of loans by category as of December 31, 1997 and
1996:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1997 1996
- ---------------------- -------- -------
<S> <C> <C>
Commercial................................................... $324,535 272,992
Real estate construction and land............................ 109,671 90,010
Real estate term............................................. 179,458 109,693
Consumer and other........................................... 64,854 43,896
-------- -------
Total loans, gross........................................... 678,518 516,591
Deferred loan fees and discounts........................... (2,654) (2,156)
-------- -------
Total loans, net of deferred fees............................ 675,864 514,435
Allowance for loan losses.................................. (15,208) (8,690)
-------- -------
Total loans, net........................................... 660,656 505,745
======== =======
</TABLE>
34
<PAGE>
GREATER BAY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
The following summarizes the activity in the allowance for loan losses for
the years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1997 1996 1995
- ---------------------- ------- ------ ------
<S> <C> <C> <C>
Balance, January 1..................................... $ 8,690 $5,456 $5,590
Provision for loan losses(1)......................... 7,592 2,956 1,160
Loan charge-off...................................... (1,130) (367) (1,489)
Recoveries........................................... 56 645 195
------- ------ ------
Balance, December 31................................... $15,208 $8,690 $5,456
======= ====== ======
</TABLE>
- --------
(1) Includes $1.4 million and $800,000 of charges in 1997 and 1996 to conform
accounting practices for the banks' reserve methodologies and is included
in merger and related nonrecurring costs in the statements of operations.
The following table sets forth nonperforming loans as of December 31, 1997,
1996 and 1995. Nonperforming loans are defined as loans which are on
nonaccrual status, loans which have been restructured, and loans which are 90
days past due but are still accruing interest. Interest income foregone on
nonperforming loans outstanding at year end totaled $303,000, $400,000, and
$282,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
Interest income recognized on the nonperforming loans approximated $124,000,
$191,000, and $79,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. There were no restructured loans at December 31, 1997, 1996 and
1995.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1997 1996 1995
- ---------------------- ------ ------ ------
<S> <C> <C> <C>
Nonaccrual loans.......................................... $2,843 $3,436 $3,105
Accruing loans past due 90 days or more................... -- 1,237 830
------ ------ ------
Total nonperforming loans................................. $2,843 $4,673 $3,935
====== ====== ======
</TABLE>
At December 31, 1997 and 1996, the recorded investment in loans, for which
impairment has been recognized in accordance with SFAS No. 114 and No. 118,
was approximately $2.7 million and $3.5 million, respectively, with
corresponding valuation allowances of $555,000 and $1.3 million, respectively.
For the years ended December 31, 1997 and 1996, the average recorded
investment in impaired loans was approximately $3.1 million and $3.4 million,
respectively. The Company did not recognize interest income on impaired loans
during the twelve months ended December 31, 1997 and 1996.
NOTE 5--OTHER REAL ESTATE OWNED
At December 31, 1997 and 1996, other real estate owned consisted of two
properties acquired through foreclosure with a carrying value of $340,000 and
one property with a carrying value of $152,000, respectively. These balances
are included in interest receivable and other assets in the accompanying
consolidated balance sheets. There was no allowance for estimated losses.
The following summarizes other real estate operations, which are included in
operating expenses, for the years ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1997 1996 1995
- ---------------------- ---- ---- ----
<S> <C> <C> <C>
Income (loss) from:
Real estate operations, net.................................. $(72) $(35) $(54)
Provision for estimated losses............................... -- -- (17)
---- ---- ----
Net loss from other real estate operations................... $(72) $(35) $(71)
==== ==== ====
</TABLE>
35
<PAGE>
GREATER BAY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 6--PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1997 and 1996 are composed of the
following:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1997 1996
- ---------------------- ------ ------
<S> <C> <C>
Land............................................................ $ 417 $ 417
Building and premises........................................... 1,377 1,377
Leasehold improvements.......................................... 4,030 3,316
Furniture and equipment......................................... 7,124 8,005
Automobiles..................................................... 123 134
------ ------
Total......................................................... 13,071 13,249
Accumulated depreciation and amortization....................... (5,483) (6,760)
------ ------
Premises and equipment, net................................... $7,588 $6,489
====== ======
</TABLE>
Depreciation and amortization amounted to $1.1 million, $1.3 million and
$1.1 million for the years ended December 31, 1997, 1996 and 1995,
respectively, and have been included in occupancy and equipment expense in the
accompanying consolidated statements of operations.
NOTE 7--DEPOSITS
Deposits as of December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1997 1996
- ---------------------- -------- --------
<S> <C> <C>
Demand, noninterest-bearing.................................. $204,464 $161,483
MMDA, NOW and Savings........................................ 564,840 449,715
Time certificates, $100,000 and over......................... 171,642 81,504
Other time certificates...................................... 32,432 55,116
-------- --------
Total deposits............................................... $973,378 $747,818
======== ========
</TABLE>
The following table sets forth the maturity distribution of time
certificates of deposit at December 31, 1997.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------------
SEVEN TO ONE TO MORE THAN
THREE MONTHS FOUR TO TWELVE THREE THREE
(DOLLARS IN THOUSANDS) OR LESS SIX MONTHS MONTHS YEARS YEARS TOTAL
- ---------------------- ------------ ---------- -------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
Time deposits, $100,000
and over............... $146,570 $13,871 $ 8,844 $2,256 $101 $171,642
Other time deposits..... 10,871 8,971 8,808 3,157 625 32,432
-------- ------- ------- ------ ---- --------
Total................. $157,441 $22,842 $17,652 $5,413 $726 $204,074
======== ======= ======= ====== ==== ========
</TABLE>
At December 31, 1997 and 1996, the balance of the PBC Special Deposit was
$88.1 million and $94.4 million, respectively. Management anticipates that
these funds will be withdrawn in 1998.
36
<PAGE>
GREATER BAY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 8--COMPANY OBLIGATED MANDATORY REDEEMABLE CUMULATIVE TRUST PREFERRED
SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY JUNIOR SUBORDINATED
DEBENTURES
On March 30, 1997, the Trust, a Delaware business trust wholly-owned by
Greater Bay completed a public offering of 800,000 shares of 9.75% TPS. The
Trust used the proceeds from the offering to purchase a like amount of 9.75%
Junior Subordinated Deferrable Interest Debentures (the "Debentures") of
Greater Bay. The Debentures are the sole assets of the Trust and are
eliminated, along with the related income statement effects, in the
consolidated financial statements.
The TPS accrue and pay distributions quarterly at an annual rate of 9.75% of
the liquidation amount of $25 per TPS share. The expense for those
distributions is included in interest on long term borrowings. Greater Bay has
fully and unconditionally guaranteed all of the obligations of the Trust.
The TPS are mandatorily redeemable, in whole or in part, upon repayment of
the Debentures at their stated maturity of April 1, 2027 or their earlier
redemption. The Debentures are redeemable prior to maturity at the option of
the Company, on or after April 1, 2002, in whole at any time or in part from
time to time.
NOTE 9--BORROWINGS
Short-term borrowings are detailed as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1997 1996 1995
- ---------------------- ------- ------- ------
<S> <C> <C> <C>
Federal funds purchased:
Balance at December 31.............................. $ -- $12,000 $ --
Average balance..................................... 1,523 669 1,120
Maximum amount outstanding at any month-end......... 9,161 12,000 5,600
Average interest rate:
During the year................................... 5.32% 5.42% 5.69%
At December 31.................................... -- 6.63% --
Securities sold under agreements to repurchase:
Balance at December 31.............................. $19,480 $ -- $ --
Average balance..................................... 5,278 1,556 11,486
Maximum amount outstanding at any month-end......... 19,480 14,994 26,994
Average interest rate:
During the year................................... 5.71% 5.74% 6.12%
At December 31.................................... 6.15% -- --
</TABLE>
Federal funds purchased generally mature the following day after the
purchase while securities sold under agreements to repurchase generally mature
within 30 days from the various dates of purchase.
In 1995, the Company consummated a private offering of $3.0 million of 11.5%
subordinated notes. The notes, which will mature on September 15, 2005, were
offered to members of the Board of Directors, bank officers and other
accredited investors within the definition of Rule 501 under the Securities
Act of 1933, as amended. The notes are redeemable by the Company any time
after September 30, 1998 at a premium ranging from 0% to 5%. The notes qualify
as Tier 2 capital of the Company.
37
<PAGE>
GREATER BAY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 10--INCOME TAXES
Income tax expense was comprised of the following for the years ended
December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1997 1996 1995
- ---------------------- ------ ------ ------
<S> <C> <C> <C>
Current:
Federal............................................... $8,248 $4,276 $2,029
State................................................. 2,414 1,078 764
------ ------ ------
Total current......................................... 10,662 5,354 2,793
Deferred:
Federal............................................... (2,945) (1,168) 252
State................................................. (1,055) (214) (28)
------ ------ ------
Total deferred........................................ (4,000) (1,382) 224
------ ------ ------
Total expense........................................... $6,662 $3,972 $3,017
====== ====== ======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. Significant components
of the Company's deferred income tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------
(DOLLARS IN THOUSANDS) 1997 1996
- ---------------------- ------ ------
<S> <C> <C>
Loan loss reserves.............................................. $4,905 $2,509
Deferred compensation........................................... 997 260
State income taxes.............................................. 1,943 888
Unrealized gains................................................ (247) (65)
Other........................................................... (170) (164)
------ ------
Net deferred tax asset.......................................... $7,428 $3,428
====== ======
</TABLE>
A reconciliation from the statutory income tax rate to the consolidated
effective income tax rate follows, for the years ended December 31 ,1997, 1996
and 1995:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------
(DOLLARS IN THOUSANDS) 1997 1996 1995
- ---------------------- ---- ---- ----
<S> <C> <C> <C>
Statutory federal tax rate................................ 35.0 % 35.0 % 35.0 %
California franchise tax expense, net of federal income
tax benefit.............................................. 6.1 % 7.0 % 6.5 %
Tax exempt income......................................... (2.1)% (4.4)% (3.0)%
Nondeductible merger costs................................ 1.4 % 2.7 % 0.0 %
Other, net................................................ (0.7)% 2.6 % 0.4 %
---- ---- ----
Effective income tax rate................................. 39.7 % 42.9 % 38.9 %
==== ==== ====
</TABLE>
38
<PAGE>
GREATER BAY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 11--OPERATING EXPENSES
Other operating expenses were comprised of the following:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
(DOLLARS IN THOUSANDS) 1997 1996 1995
- ---------------------- ------ ------ ------
<S> <C> <C> <C>
Legal and other professional fees......................... $1,407 $1,390 $1,364
Telephone, postage and supplies........................... 1,230 1,025 759
Marketing and promotion................................... 1,129 888 368
Directors fees............................................ 458 345 325
Client services........................................... 405 431 352
FDIC insurance and regulatory assessments................. 257 123 659
Insurance................................................. 242 162 264
Other real estate owned................................... 72 35 71
Other..................................................... 1,881 2,365 1,831
------ ------ ------
Total................................................... $7,081 $6,764 $5,993
====== ====== ======
</TABLE>
Merger and other related nonrecurring costs incurred in connection with the
merger consummated in December 1997 (see Note 2) totaling $3.3 million include
$1.1 million of professional fees related to the transaction, $1.4 million of
charges to conform accounting practices of the two merged entities, with the
balance related to severance and compensation costs.
Merger and other related nonrecurring costs incurred in connection with the
merger consummated in November 1996 (see Note 2) totaling $2.8 million include
$1.1 million of professional fees related to the transaction, $1.2 million of
charges to conform accounting practices of the two merged entities, with the
balance related to severance and compensation costs.
NOTE 12--EMPLOYEE BENEFIT PLANS
Stock Option Plan
On November 19, 1997, the Company's shareholders approved an amendment of
the Greater Bay Bancorp 1996 Stock Option Plan (the "Bancorp Plan"), to
increase by 456,326 the number of shares of Greater Bay stock issuable under
the Bancorp Plan. This was done to accommodate the increased number of
eligible employees as a result of the merger with PBC.
Effective November 27, 1996, the Company's shareholders approved the
original Bancorp Plan and authorized an increase in the number of shares
previously available for issuance under the Mid-Peninsula Bancorp Plan from
457,037 to 751,564 shares to accommodate the merger of Mid-Peninsula Bancorp
and Cupertino National Bancorp. Under the terms of the merger, all stock
option plans of Cupertino National Bancorp and Mid-Peninsula Bancorp were
terminated at the time of the merger and all outstanding options from these
plans were assumed by the Bancorp Plan. Outstanding options from the Mid-
Peninsula Bancorp plan of 216,326 and outstanding options from the Cupertino
National Bancorp plan of 251,073 (converted at a ratio of 0.81522) were
assumed by the Bancorp Plan.
Options issued under the Bancorp Plan may be granted to employees and
nonemployee directors and may be either incentive or nonqualified stock
options as defined under current tax laws. The exercise price of each
39
<PAGE>
GREATER BAY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
option must equal the market price of the Company's stock on the date of
grant. The term of an option may not exceed 10 years.
At December 31, 1997 the total authorized shares issuable under the Bancorp
Plan was approximately 1,207,890 shares and the number of shares available for
future grants was 700,000 shares.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123 "Accounting for Stock-Based Compensation" ("SFAS No. 123"). Under
the provisions of SFAS No. 123, the Company is encouraged, but not required,
to measure compensation costs related to its employee stock compensation plans
under the fair market value method. If the Company elects not to recognized
compensation expense under this method, it is required to disclose the pro
forma net income and earnings per share effects based on the SFAS No. 123 fair
value methodology. The Company implemented the requirements of SFAS No. 123 in
1996 and has elected to adopt the disclosure provisions of this statement.
At December 31, 1996, the Company had one stock option plan, which is
described above. The Company applies Accounting Principles Board (APB) Opinion
No. 25 and related interpretations in accounting for its Plan. Accordingly, no
compensation cost has been recognized for its stock option plan. Had
compensation for the Company's stock option plan been determined consistent
with SFAS No. 123, the Company's net income per share would have been reduced
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1997 1996 1995
- ------------------------------------------------ ------- ------ ------
<S> <C> <C> <C>
Net Income:
As reported............................................. $10,013 $5,338 $4,817
Pro forma............................................... $ 9,604 $5,097 $4,747
Basic net income per share
As reported............................................. $ 2.51 $ 1.40 $ 1.36
Pro forma............................................... $ 2.41 $ 1.34 $ 1.26
Diluted net income per share
As reported............................................. $ 2.32 $ 1.30 $ 1.27
Pro forma............................................... $ 2.23 $ 1.24 $ 1.25
</TABLE>
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions for grants in 1997, 1996 and 1995, respectively; dividend
yield of 1.8%, 2.0% and 2.0%; expected volatility of 22.9%, 19.3% and 19.3%;
risk free rates of 6.3%, 6.0% and 6.9%. No adjustments have been made for
forfeitures. The actual value, if any, that the option holder will realize
from these options will depend solely on the increase in the stock price over
the option price when the options are exercised.
40
<PAGE>
GREATER BAY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
A summary of the Company's fixed stock option plan as of December 31, 1997,
1996, and 1995 and changes during the years ended on those dates is presented
below:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- ----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
(000'S) PRICE (000'S) PRICE (000'S) PRICE
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year....................... 658 $15.24 621 $10.91 645 $9.85
Granted..................... 156 48.22 241 20.23 179 12.80
Exercised................... (99) 9.84 (192) 7.89 (145) 8.76
Forfeited................... (20) 10.53 (12) 12.05 (58) 10.32
--- ------ ---- ------ ---- -----
Outstanding at end of year.. 695 22.54 658 15.24 621 10.91
--- ------ ---- ------ ---- -----
Options exercisable at year-
end........................ 375 13.94 312 12.64 386 9.34
--- ------ ---- ------ ---- -----
Weighted average fair value
of options granted during
the year................... $12.61 $ 5.73 3.18
------ ------ -----
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1997.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING EXERCISE REMAINING LIFE OUTSTANDING EXERCISE
PRICE RANGE (000'S) PRICE (YEARS) (000'S) PRICE
----------- ----------- -------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 5.00--$11.25........ 157 $9.07 3.1 157 $9.07
$11.50--$17.25........ 217 14.08 6.1 137 8.84
$18.50--$21.75........ 107 21.08 8.8 23 20.90
$24.00--$35.00........ 69 25.27 8.5 58 24.08
$49.00--$50.00........ 145 49.00 10.0 -- --
</TABLE>
401(K) Savings Plan
As a result of the merger with PBC, the Company will be merging the PBC
401(k) Plan with and into the Company's 401(k) Plan. A description of the
Company's 401(k) plan is presented below:
The Company has a 401(k) tax deferred savings plan under which eligible
employees may elect to defer a portion of their salary (up to 15%) as a
contribution to the plan. The Company matches the employees contributions at a
rate set by the Board of Directors (currently 62.5% of the first 8% of
deferral of an individual's total compensation). The matching contribution
vests ratably over the first four years of employment.
For the years ended December 31, 1997, 1996 and 1995, the Company
contributed $672,000, $379,000 and $284,000, respectively to the 401(k) plans.
Employee Stock Purchase Plan
The Company has established an Employee Stock Purchase Plan, as amended,
under section 423(b) of the Internal Revenue Code which allows eligible
employees to set aside up to 15% of their compensation toward the purchase of
the Company's stock for an aggregate total of 133,934 shares. Under the plan,
the purchase price
41
<PAGE>
GREATER BAY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
is 85% of the lower of the fair market value at the beginning or end of each
three month offering period. During 1997, employees purchased 15,160 shares of
common stock for an aggregate purchase price of $347,000 compared to the
purchase of 10,632 shares of common stock for an aggregate purchase price of
$137,000 in 1996 and 8,537 shares of common stock for an aggregate purchase
price of $80,000 in 1995. There were 67,158 shares remaining in the plan
available for purchase by employees at December 31, 1997.
Salary Compensation Plan
During 1993 and 1995, the Company entered into salary continuation
agreements with certain executive officers. Under these agreements, the
Company is generally obligated to provide for each such employee or their
beneficiaries, during a period of up to 40 years after the employee's death,
disability or retirement, annual benefits ranging from $36,000 to $85,000. The
estimated presented value of future benefits to be paid is being accrued over
the vesting period of the participants. Expenses accrued for this plan for the
years ended December 31, 1997, 1996 and 1995 totaled $503,000, $310,000, and
$173,000, respectively. Depending on the agreement, the Company and the
employees are beneficiaries of life insurance policies that have been
purchased as a method of financing the benefits under the agreements. At
December 31, 1997 and 1996, the Company's cash surrender value of these
policies was approximately $9.4 million and $8.9 million, respectively, and is
included in other assets.
Deferred Compensation Plan
Effective November 19, 1997, the Company adopted the Greater Bay Bancorp
1997 Elective Deferral Compensation Plan (the "Deferred Plan") that allows
eligible officers and directors of the Company to defer a portion of their
bonuses, director fees and other compensation. The deferred compensation will
earn interest calculated annually based on a short-term interest reference
rate. All participants are fully vested at all times in their contributions to
the Deferred Plan. At December 31, 1997, $628,000 of deferred compensation
under this plan is included in other liabilities.
Additionally, under a deferred compensation plan that was established at PBC
prior to its merger with the Company, there was approximately $1.1 million of
deferral compensation which is included in other liabilities.
NOTE 13--RELATED PARTY TRANSACTIONS
Loans made to executive officers, directors and their affiliates, are made
subject to approval by the Directors' Loan Committee and the Board of
Directors. An analysis of total loans to related parties for the years ended
December 31, 1997 and 1996 is shown below:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1997 1996
- ---------------------- ------- -------
<S> <C> <C>
Balance, January 1............................................ $10,374 $13,172
Additions..................................................... 15,658 1,543
Repayments.................................................... (9,723) (4,341)
------- -------
Balance, December 31.......................................... $16,309 $10,374
======= =======
Undisbursed commitments, at year end.......................... $ 8,296 $ 6,866
======= =======
</TABLE>
42
<PAGE>
GREATER BAY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 14--COMMITMENTS AND CONTINGENT LIABILITIES
Lease Commitments
The Company leases certain facilities at which it conducts its operations.
Future minimum lease commitments under all noncancelable operating leases as
of December 31, 1997 are below:
<TABLE>
<CAPTION>
(DOLLARS
IN
YEARS ENDED DECEMBER 31, THOUSANDS)
------------------------ ----------
<S> <C>
1998......................................................... $ 2,227
1999......................................................... 2,209
2000......................................................... 2,178
2001......................................................... 1,581
2002......................................................... 1,373
Thereafter................................................... 1,460
-------
Total........................................................ $11,028
=======
</TABLE>
The Company subleases that portion of the available space that is not
utilized. Sublease rental income for the years ended December 31, 1997, 1996,
and 1995 was $882,000, $309,000, and $398,000, respectively. Gross rental
expense for the years ended December 31, 1997, 1996, and 1995 was $2.5
million, $1.7 million, and $1.5 million, respectively.
Other Commitments and Contingent Liabilities
In the normal course of business, various commitments and contingent
liabilities are outstanding, such as guarantees and commitments to extend
credit, that are not reflected in the accompanying consolidated financial
statements. Commitments to fund loans were $309.6 million and $205.8 million
and standby letters of credit were $13.9 million and $16.9 million, at
December 31, 1997 and 1996, respectively. The Company's exposure to credit
loss is limited to amounts funded or drawn; however, at December 31, 1997, no
losses are anticipated as a result of these commitments.
Loan commitments which have fixed expiration dates and require the payment
of a fee are typically contingent upon the borrower meeting certain financial
and other covenants. Approximately $60.0 million of these commitments relate
to real estate construction and land loans and are expected to fund within the
next 12 months. However, the remainder relates primarily to revolving lines of
credit or other commercial loans, and many of these commitments are expected
to expire without being drawn upon, therefore the total commitments do not
necessarily represent future cash requirements. The Banks evaluate each
potential borrower and the necessary collateral on an individual basis.
Collateral varies, but may include real property, bank deposits, debt or
equity securities, or business assets.
Stand-by letters of credit are conditional commitments written by the Banks
to guarantee the performance of a client to a third party. These guarantees
are issued primarily related to purchases of inventory by the Banks'
commercial clients, and are typically short-term in nature. Credit risk is
similar to that involved in extending loan commitments to clients, and the
Banks accordingly use evaluation and collateral requirements similar to those
for loan commitments.
In the ordinary course of business there are various assertions, claims and
legal proceedings pending against the Company. Management is of the opinion
that the ultimate resolution of these proceedings will not have a material
adverse effect on the consolidated financial position or results of operations
of the Company.
43
<PAGE>
GREATER BAY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
In July 1995, the Company settled a lawsuit of $1.1 million (net of tax)
which alleged that the Company did not perform its fiduciary duties and, as a
result, the plaintiff incurred losses on real estate investments that were
purchased. The Company recovered those losses through insurance coverage for
this settlement in 1997. However, due to the uncertainty associated with the
recovery, the Company reflected the settlement expense as a charge to 1995
earnings, and the associated recovery in 1997 as a recovery to earnings.
NOTE 15--REGULATORY MATTERS
The Company and the Banks are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have
a direct material effect on the Company's consolidated financial statements.
Under capital adequacy guidelines and regulatory framework for prompt
corrective action, the Banks must meet specific capital guidelines that
involve quantitative measures of the Banks' assets, liabilities and certain
off-balance sheet items as calculated under regulatory accounting practices.
The Banks' capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Banks to maintain minimum capital amounts and ratios (as defined
in the regulations) and are set forth in the table below. At December 31, 1997
and 1996 the Company and the Banks met all capital adequacy requirements to
which they are subject.
As of December 31, 1997, the most recent notification from the regulators
categorized the Company and the Banks as well-capitalized under the regulatory
framework for prompt corrective action. To be categorized as well-capitalized,
the Company and the Banks must maintain minimum total risk-based, Tier 1 risk-
based and Tier 1 leverage ratios as set forth in the following table. There
are no conditions or events since that determination that management believes
have changed the institution's category. The Company and the Bank's actual
1997 and 1996 capital amounts and ratios are as follows:
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
AS OF DECEMBER 31, 1997 ------------- ------------------- ------------------
(DOLLARS IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------------------- ------- ----- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (To Risk
Weighted Assets):
GREATER BAY BANCORP... $99,434 12.32% $ 64,671 8.00% N/A
Mid-Peninsula Bank.... 34,727 11.88 23,416 8.00 $ 29,269 10.00%
Cupertino National
Bank................. 40,201 10.03 32,118 8.00 40,147 10.00
Peninsula Bank of
Commerce............. 15,252 14.33 8,525 8.00 10,657 10.00
Tier 1 Capital (To Risk
Weighted Assets):
GREATER BAY BANCORP... $86,258 10.69% $ 32,335 4.00% N/A
Mid-Peninsula Bank.... 31,064 10.63 11,708 4.00 $ 17,562 6.00%
Cupertino National
Bank................. 32,126 8.02 16,059 4.00 24,088 6.00
Peninsula Bank of
Commerce............. 13,917 13.08 4,263 4.00 6,394 6.00
Tier 1 Capital (To
Average Assets):
GREATER BAY BANCORP... $86,258 8.29% $ 41,756 4.00% N/A
Mid-Peninsula Bank.... 31,064 8.54 10,935 3.00 $ 18,225 5.00%
Cupertino National
Bank................. 32,126 7.08 18,189 4.00 22,737 5.00
Peninsula Bank of
Commerce............. 13,917 6.65 8,401 4.00 10,501 5.00
</TABLE>
44
<PAGE>
GREATER BAY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
AS OF DECEMBER 31, 1996 ------------- ------------------- ------------------
(DOLLARS IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------------------- ------- ----- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (To Risk
Weighted Assets):
GREATER BAY BANCORP... $68,197 11.22% $ 48,605 8.00% N/A
Mid-Peninsula Bank.... 25,415 11.07 18,359 8.00 $ 22,949 10.00%
Cupertino National
Bank................. 28,022 10.03 22,364 8.00 27,932 10.00
Peninsula Bank of
Commerce............. 14,559 14.80 7,884 8.00 9,855 10.00
Tier 1 Capital (To Risk
Weighted Assets):
GREATER BAY BANCORP... $57,937 9.52% $ 24,302 4.00% N/A
Mid-Peninsula Bank.... 22,810 9.94 9,179 4.00 $ 13,769 6.00%
Cupertino National
Bank................. 21,515 7.70 11,173 4.00 16,759 6.00
Peninsula Bank of
Commerce............. 13,325 13.50 3,942 4.00 5,913 6.00
Tier 1 Capital (To
Average Assets):
GREATER BAY BANCORP... $57,937 7.59% $ 30,488 4.00% N/A
Mid-Peninsula Bank.... 22,810 8.23 8,312 3.00 $ 13,853 5.00%
Cupertino National
Bank................. 21,515 6.42 13,412 4.00 16,765 5.00
Peninsula Bank of
Commerce............. 13,325 8.90 5,992 4.00 7,490 5.00
</TABLE>
NOTE 16--RESTRICTIONS ON SUBSIDIARY TRANSACTIONS
One of the principal sources of cash for Greater Bay is dividends from its
subsidiary Banks. Total dividends which may be declared by the Banks without
receiving prior approval from regulatory authorities are limited to the lesser
of the Banks' retained earnings or the net income of the Banks for the latest
three fiscal years, less dividends previously declared during that period.
The Banks are subject to certain restrictions under the Federal Reserve Act,
including restrictions on the extension of credit to affiliates. In
particular, the Banks are prohibited from lending to Greater Bay unless the
loans are secured by specified types of collateral. Such secured loans and
other advances from the Banks are limited to 10% of the Bank's shareholders'
equity, or a maximum of $6.7 million at December 31, 1997. No such advances
were made during 1997 or exist as of December 31, 1997.
45
<PAGE>
GREATER BAY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 17--PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS
The financial statements of Greater Bay Bancorp (parent company only)
follow:
PARENT COMPANY ONLY--BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
(DOLLARS IN THOUSANDS) 1997 1996*
- ---------------------- ------- -------
<S> <C> <C>
Assets:
Cash and cash equivalents...................................... $ 4,165 $ 567
Investment in subsidiaries..................................... 77,903 57,748
Other investments.............................................. 5,717 --
Subordinated debentures issued by subsidiary................... 3,000 3,000
Other assets................................................... 2,450 69
------- -------
Total assets................................................... $93,235 $61,384
======= =======
Liabilities and shareholders' equity:
Subordinated debt............................................ 23,618 3,000
Other liabilities............................................ 3,021 429
------- -------
Total liabilities.............................................. 26,639 3,429
Shareholders' equity
Common stock................................................. 44,218 42,025
Unrealized gain (loss)....................................... 338 18
Retained earnings............................................ 22,040 15,912
------- -------
Total shareholders' equity..................................... 66,596 57,955
------- -------
Total liabilities and shareholders' equity..................... $93,235 $61,384
======= =======
</TABLE>
PARENT COMPANY ONLY--INCOME STATEMENTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
-----------------------
(DOLLARS IN THOUSANDS) 1997 1996* 1995*
- ---------------------- ------- ------ ------
<S> <C> <C> <C>
Income:
Interest income..................................... $ 378 $ 531 $ 61
Other income........................................ 27 142 631
------- ------ ------
Total................................................. 405 673 692
------- ------ ------
Expenses:
Interest expense.................................... 1,458 -- --
Salaries............................................ 5,754 -- --
Occupancy and equipment............................. 1,153 460 441
Other expenses...................................... 2,241 1,436 75
Less rentals and fees received from Banks........... (10,201) (460) (441)
------- ------ ------
Total................................................. 405 1,436 75
------- ------ ------
Income before taxes and equity in undistributed net
income of subsidiaries............................... -- (763) 617
Income tax expense.................................... -- 20 --
------- ------ ------
Income (loss) before equity in undistributed net
income of subsidiaries............................... -- (783) 617
------- ------ ------
Equity in undistributed net income of subsidiaries.... 10,013 6,121 4,200
------- ------ ------
Net income............................................ $10,013 $5,338 $4,817
======= ====== ======
</TABLE>
* Restated on a historical basis to reflect the mergers with Cupertino
National Bancorp and Peninsula Bank of Commerce on a pooling of interest
basis.
46
<PAGE>
GREATER BAY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
PARENT COMPANY ONLY--STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
-----------------------
(DOLLARS IN THOUSANDS) 1997 1996* 1995*
---------------------- ------- ------ ------
<S> <C> <C> <C>
Cash flows--operating activities:
Net income.......................................... $10,013 $5,338 $4,817
Reconciliation of net income to net cash from
operations:
Equity in undistributed net income of
subsidiaries..................................... (10,013) (6,121) (4,200)
Net change in other assets........................ (2,381) (140) 28
Net change in other liabilities................... 2,592 270 25
------- ------ ------
Operating cash flow, net.............................. 211 (653) 670
------- ------ ------
Cash flows--investing activities:
Purchases of available for sale securities.......... (8,293) -- --
Proceeds from sale of available for sale securities. 2,955 -- --
Principal repayment of loans receivable............. -- -- 150
Purchase of subordinated debentures from CNB........ -- -- (3,000)
Dividends from subsidiaries......................... 3,617 769 440
Capital contribution to the subsidiaries............ (13,818) (1,003) (402)
------- ------ ------
Investing cash flows, net............................. (15,539) (234) (2,812)
------- ------ ------
Cash flows--financing activities:
Proceeds from issuance of subordinated debt......... 20,618 -- 3,000
Proceeds from exercise of stock options and
employees stock purchases.......................... 2,193 1,917 1,577
Cash paid in lieu of fractional shares on stock
dividends.......................................... -- -- (3)
Payment of cash dividends........................... (3,885) (2,311) (1,832)
------- ------ ------
Financing cash flows, net............................. 18,926 (394) 2,742
------- ------ ------
Net increase in cash and cash equivalents............. 3,598 (1,281) 600
Cash and cash equivalents at the beginning of the
year................................................. 567 1,848 1,248
------- ------ ------
Cash and cash equivalents at end of the year.......... $ 4,165 $ 567 $1,848
======= ====== ======
</TABLE>
* Restated on a historical basis to reflect the mergers with Cupertino
National Bancorp and Peninsula Bank of Commerce on a pooling of interest
basis.
NOTE 18--SUBSEQUENT EVENTS
On February 24, 1998 the Company and Pacific Rim Bancorporation ("PRB"), the
holding company of Golden Gate Bank ("Golden Gate"), signed a definitive
agreement for a merger between the two companies. The terms of the agreement
provide for PRB shareholders to receive approximately 545,000 shares of
Greater Bay Bancorp stock "subject to certain adjustments," in a tax-free
exchange to be accounted for as a "pooling-of-interests." Following the
transaction, the shareholders of PRB will own approximately 12% of the
combined company. The transaction is expected to be completed late in the
second quarter of 1998 or early in the third quarter of 1998, subject to
regulatory approvals. Golden Gate's office is located in the San Francisco
financial district.
47
<PAGE>
GREATER BAY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
On March 24, 1998 the Company announced a 2-for-1 stock split of its common
stock. This split will be effective for shareholders of record as of April 30,
1998 with a payment date of May 15, 1998. The impact on reported net income
per share of this stock split will be as follows:
<TABLE>
<CAPTION>
AS ADJUSTED
FOR A
2-FOR-1
AS REPORTED STOCK SPLIT
----------- -----------
<S> <C> <C>
1997:
Basic............................................. $2.51 $1.26
Diluted........................................... $2.32 $1.16
1996:
Basic............................................. $1.40 $0.70
Diluted........................................... $1.30 $0.65
1995:
Basic............................................. $1.36 $0.68
Diluted........................................... $1.27 $0.64
</TABLE>
NOTE 19--FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates, methods and assumptions are set forth below for the
Company's financial instruments. The estimated fair value of financial
instruments of the Company as of December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
------------------- -------------------
CARRYING CARRYING
(DOLLARS IN THOUSANDS) AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------------------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks.............. $44,755 $44,755 $45,448 45,448
Short term investments............... 149,512 149,512 123,433 123,433
Investment securities................ 205,526 206,311 127,033 127,392
Loans, net........................... 660,656 661,713 505,745 509,512
Financial liabilities:
Deposits:
Demand, noninterest-bearing........ 204,464 204,464 161,483 161,483
MMDA, NOW and Savings.............. 564,840 564,840 449,715 449,715
Time certificates, $100,000 and
over.............................. 171,642 171,584 81,504 81,593
Other time certificates............ 32,432 32,408 55,116 55,375
Other borrowings..................... 19,480 19,480 12,000 12,000
Subordinated debt.................... 3,000 3,337 3,000 3,000
Company obligated mandatory
redeemable preferred securities of
subsidiary trust holding solely
junior subordinated debentures...... 20,000 21,210 -- --
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value.
Cash and Cash Equivalents
The carrying value reported in the balance sheet for cash and cash
equivalents approximates fair value.
48
<PAGE>
GREATER BAY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Investment Securities
The carrying amounts for short-term investments approximate fair value
because they mature in 90 days or less and do not present unanticipated credit
concerns. The fair value of longer term investments, except certain state and
municipal securities, is estimated based on bid prices published in financial
newspapers or bid quotations received from securities dealers. The fair value
of certain state and municipal securities is not readily available through
market sources other than dealer quotations, as such, fair value estimates are
based on quoted market prices of similar instruments, adjusted for differences
between the quoted instruments and the instruments being valued.
Loans
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial, commercial
real estate, residential mortgage and consumer. Each loan category is further
segmented into fixed and adjustable rate interest terms.
The fair value of performing fixed rate loans is calculated by discounting
scheduled cash flows through the estimated maturity using estimated market
discount rates that reflect the credit and interest rate risk inherent in the
loan. The estimate of maturity is based on the Company's historical experience
with repayments for each loan classification, modified, as required, by an
estimate of the effect of current economic and lending conditions. The fair
value of performing variable rate loans is judged to approximate book value
for those loans whose rates reprice in less than 90 days. Rate floors and rate
ceilings are not considered for fair value purposes as the number of loans
with such limitations is not significant.
Fair value for significant nonperforming loans is based on recent external
appraisals. If appraisals are not available, estimated cash flows are
discounted using a rate commensurate with the risk associated with the
estimated cash flows. Assumptions regarding credit risk, cash flows, and
discount rates are judgmentally determined using available market information
and specific borrower information.
Deposit Liabilities and Borrowings
The fair value for all deposits without fixed maturities and short term
borrowings is considered to be equal to the carrying value. The fair value for
fixed rate time deposits and subordinated debt are estimated by discounting
future cash flows using interest rates currently offered on time deposits or
subordinated debt with similar remaining maturities.
Commitments to Extend Credit and Standby Letters of Credit
The majority of the Company's commitments to extend credit carry current
market interest rate if converted to loans. Because these commitments are
generally unassignable by either the Company or the borrower, they only have
value to the Company and the borrower. The estimated fair value approximates
the recorded deferred fee amounts and is excluded from the table.
Limitations
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from
offering for sale, at one time, the Company's entire holdings of a particular
financial instrument. Fair value estimates are based on judgments regarding
future expected loss experience, current economic condition, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
49
<PAGE>
GREATER BAY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not
considered financial instruments. In addition, the tax ramifications related
to the realization of the unrealized gains and losses can have significant
effect on fair value estimates and have been considered in many of the
estimates.
NOTE 20--QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
--------------- --------------- --------------- ---------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
(1) 1997 1996 1997 1996 1997 1996 1997 1996
---------------------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income......... $22,009 $16,271 $20,058 $13,420 $19,318 $12,518 $16,531 $11,889
Net interest income..... 13,462 10,606 12,233 8,600 11,750 8,204 10,331 7,563
Provision for loan
losses................. 850 730 1,224 651 2,175 410 1,993 365
Other income............ 987 676 1,915 1,356 2,193 891 1,192 1,027
Other expenses.......... 11,042 9,713 7,466 6,236 7,242 5,963 5,396 5,545
Income before taxes..... 2,557 839 5,458 3,069 4,526 2,722 4,134 2,680
Net income.............. 1,343 191 3,292 1,851 2,832 1,661 2,546 1,635
Earnings per share:
Basic.................. $ 0.33 $ 0.05 $ 0.83 $ 0.48 $ 0.71 $ 0.44 $ 0.65 $ 0.44
Diluted................ $ 0.30 $ 0.05 $ 0.76 $ 0.46 $ 0.66 $ 0.42 $ 0.61 $ 0.42
</TABLE>
- --------
(1) Quarterly amounts have been restated on a historical basis to reflect the
mergers with Cupertino National Bancorp and Peninsula Bank of Commerce on
a pooling of interests basis.
50
<PAGE>
GREATER BAY BANCORP
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Greater Bay Bancorp
We have audited the accompanying consolidated balance sheets of Greater Bay
Bancorp and subsidiaries (the Company) as of December 31, 1997 and 1996, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company
as of December 31, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand l.l.p.
San Francisco, California
February 20, 1998, except as to
the information provided in
Note 18, for which the date is
March 24, 1998
51
<PAGE>
EXHIBIT 21
GREATER BAY BANCORP
ANNUAL REPORT ON FORM 10-K
EXHIBIT 21--SUBSIDIARIES OF THE REGISTRANT
Greater Bay Bancorp owns 100.0% of the outstanding voting securities of the
following entities, all of which are included in Greater Bay Bancorp's
consolidated financial statements:
<TABLE>
<S> <C>
Name Jurisdiction of Incorporation
Mid-Peninsula Bank California
Cupertino National Bank California
Peninsula Bank of Commerce California
GBB Capital 1 Delaware
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Form S-8 (Nos. 333-47747, 333-30915, 333-30913 and 333-16967) of our report
dated February 20, 1998, on our audits of the consolidated financial
statements of Greater Bay Bancorp and Subsidiaries as of December 31, 1997 and
1996, and for the years ended December 31, 1997, 1996 and 1995, which report
is included in this Annual Report on Form 10-K. We also consent to the
reference to our firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
San Francisco, California
March 25, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 44,755 45,448
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 59,000 27,100
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 156,947 62,406
<INVESTMENTS-CARRYING> 44,461 63,176
<INVESTMENTS-MARKET> 45,246 63,535
<LOANS> 660,656 505,745
<ALLOWANCE> (15,208) (8,690)
<TOTAL-ASSETS> 1,092,422 826,365
<DEPOSITS> 973,378 747,818
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 9,968 5,592
<LONG-TERM> 23,000 3,000
0 0
0 0
<COMMON> 44,218 42,025
<OTHER-SE> 22,040 15,912
<TOTAL-LIABILITIES-AND-EQUITY> 1,092,422 826,365
<INTEREST-LOAN> 61,331 42,948
<INTEREST-INVEST> 13,585 8,929
<INTEREST-OTHER> 3,000 2,221
<INTEREST-TOTAL> 77,916 54,098
<INTEREST-DEPOSIT> 27,907 18,644
<INTEREST-EXPENSE> 30,140 19,125
<INTEREST-INCOME-NET> 47,776 34,973
<LOAN-LOSSES> 6,242 2,156
<SECURITIES-GAINS> (39) (263)
<EXPENSE-OTHER> 31,146 27,457
<INCOME-PRETAX> 16,675 9,310
<INCOME-PRE-EXTRAORDINARY> 16,675 9,310
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 10,013 5,338
<EPS-PRIMARY> 2.51 1.40
<EPS-DILUTED> 2.32 1.30
<YIELD-ACTUAL> 8.87 9.02
<LOANS-NON> 2,843 3,436
<LOANS-PAST> 0 1,237
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 8,690 5,456
<CHARGE-OFFS> (1,130) (367)
<RECOVERIES> 56 645
<ALLOWANCE-CLOSE> 15,208 8,690
<ALLOWANCE-DOMESTIC> 15,208 8,690
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
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0
0
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</TABLE>
