<PAGE>
As filed with the Securities and Exchange Commission on April 25, 2000
Registration No.: 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
Greater Bay Bancorp
(Exact name of registrant as specified in its charter)
California 6711 77-0487041
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification
incorporation or Classification Code Number) Number)
organization)
2860 West Bayshore Road
Palo Alto, California 94303
(650) 813-8200
(Address including zip code, and telephone number, including area code, of
registrant's principal executive office)
Linda M. Iannone
General Counsel
Greater Bay Bancorp
400 Emerson Street, 3rd Floor
Palo Alto, California 94301
(650) 614-5734
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
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<S> <C>
William T. Quicksilver, Esq. Donald Parachini, Esq.
Manatt, Phelps & Phillips LLP Leland, Parachini, Steinberg,
11355 West Olympic Boulevard Matzger & Melnick LLP
Los Angeles, California 90064 333 Market Street, 27th Floor
Telephone: (310) 312-4210 San Francisco, California 94105
Telephone: (415) 957-1800
</TABLE>
---------------
Approximate date of commencement of proposed sale to public:
As soon as practicable after this Registration Statement becomes effective.
---------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
Proposed maximum Proposed maximum
Title of Each Class of Amount to be offering price aggregate Amount of
Securities to be Registered registered(2) per unit(3) offering price(3) registration fee
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<S> <C> <C> <C> <C>
Common Stock, no par value(1)... 2,505,000 -- $87,057,409 $22,984
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(1) Includes one attached Preferred Share Purchase Right per share.
(2) This amount is based on the maximum number of shares of Greater Bay common
stock to be issued upon consummation of the Merger contemplated in the
Agreement and Plan of Reorganization dated January 26, 2000 by and among
Greater Bay Bancorp, Bank of Santa Clara and GBB Merger Corp. based on an
assumed Conversion Ratio of 0.9485.
(3) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(c) and Rule 457(f)(l) of the
Securities Act of 1933, as amended, based on the product of the estimated
maximum number of shares of common stock of Bank of Santa Clara to be
exchanged for the stock of Greater Bay Bancorp (2,637,775) multiplied by
the average of the high and low last sale prices of Bank of Santa Clara
common stock as reported on The Nasdaq Stock Market on April 20, 2000
($32.63).
---------------
Greater Bay Bancorp hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until Greater Bay
Bancorp shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This Prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated April 25, 2000
PROXY STATEMENT/PROSPECTUS
MERGER PROPOSED
YOUR VOTE IS VERY IMPORTANT
Dear Shareholders:
The Board of Directors of Bank of Santa Clara has unanimously approved and
recommends an agreement to merge with Greater Bay Bancorp. As a result of the
proposed merger, Bank of Santa Clara will become a subsidiary of Greater Bay
Bancorp.
If we complete the merger, shareholders of Bank of Santa Clara will receive
approximately 0.87 shares of Greater Bay Bancorp common stock for each share of
Bank of Santa Clara common stock plus cash for any fractional shares. The
amount of Greater Bay Bancorp common stock to be received by Bank of Santa
Clara shareholders will adjust according to a formula, depending on the average
closing price of Greater Bay Bancorp common stock at the completion of the
merger. We estimate that, upon completion of the merger, current Bank of Santa
Clara shareholders will own approximately 10% of the outstanding Greater Bay
Bancorp common stock, assuming completion by Greater Bay Bancorp of its
previously announced mergers with Coast Bancorp and Bank of Petaluma.
This document gives you detailed information about the merger and includes a
copy of the merger agreement, and you should read it carefully. It is a proxy
statement that Bank of Santa Clara is using to solicit proxies for use at its
special shareholder meeting. It is also a prospectus relating to Greater Bay
Bancorp's issuance of its shares of common stock in connection with the merger.
Before you make a decision on how to vote on the merger, you should consider
the "Risk Factors" on page 19 of the attached proxy statement/prospectus.
We are enthusiastic about the merger and the strength and capabilities we
expect from the combined company. We join all the other members of Board of
Directors in recommending that you vote in favor of the merger.
Donald R. Von Ronald D. Reinartz
Raesfeld
Chairman of the Vice Chairman,
Board President and Chief
Executive Officer
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this document. Any representation to the contrary is a
criminal offense. The securities offered through this document are not savings
accounts, deposits or other obligations of a bank or savings association and
are not insured by the Federal Deposit Insurance Corporation or any other
government agency.
The date of this Proxy Statement/Prospectus is , 2000 and it is
first being mailed to shareholders on or about , 2000.
<PAGE>
Bank of Santa Clara
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held On , 2000 at a.m.
Place:
Purposes:
.To vote on the merger of Bank of Santa Clara with GBB Merger Corp., as a
result of which Bank of Santa Clara will become a wholly owned subsidiary
of Greater Bay Bancorp, and related matters. In the merger, you will
receive approximately 0.87 shares of Greater Bay Bancorp common stock for
each share of Bank of Santa Clara common stock you own before the merger.
The amount of Greater Bay Bancorp common stock to be received by Bank of
Santa Clara shareholders will adjust according to a formula, depending on
the average closing price of Greater Bay Bancorp common stock at the
completion of the merger.
.To conduct other business if properly raised.
Only shareholders of Bank of Santa Clara as of the close of business on
, 2000 may vote at the special meeting.
In connection with the proposed merger, you may exercise dissenters' rights
as provided by the California General Corporation Law. If you meet all the
requirements of this law, and follow all of its required procedures, you may
receive cash in the amount equal to the fair market value, as determined by
Bank of Santa Clara, or, if required, by a court of law, of your shares of Bank
of Santa Clara common stock as of January 26, 2000, the day immediately
preceding the announcement of the merger. For additional details about
dissenters' rights, please refer to "Dissenting Shareholders' Rights" and Annex
C in the accompanying proxy statement/prospectus.
By Order of the Board of Directors
Judith J. Reinartz
Corporate Secretary
Santa Clara, California
, 2000
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, WE URGE YOU
TO DATE, SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY IN THE ACCOMPANYING
ENVELOPE. YOU MAY REVOKE YOUR PROXY PRIOR TO ITS EXERCISE IN THE MANNER
PROVIDED IN THE ACCOMPANYING DOCUMENT.
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: What will I receive in the merger?
A: For each outstanding share of Bank of Santa Clara common stock you own, you
will receive 0.87 shares of Greater Bay common stock if the average closing
price of that stock is between $38.3875 and $44.6125. This is called the
"conversion ratio." If the average closing price of that stock is greater
than $44.6125, the conversion ratio will adjust according to a formula. If
the average closing price is between $36.3600 and $38.3875, the conversion
ratio will adjust according to a formula. If the average closing price of
Greater Bay stock is less than $36.3600, the conversion ratio will be
.9000, unless Bank of Santa Clara decides to terminate the merger
agreement. If Bank of Santa Clara decides to terminate, Greater Bay may
elect a top up option in which the conversion ratio will adjust according
to a formula equivalent to $32.72 per Bank of Santa Clara share.
Average closing price means the average closing sale price on The Nasdaq
Stock Market of Greater Bay common stock for the 20 consecutive trading
days ending at the end of the third trading day immediately before
completion of the merger.
Greater Bay will not issue fractional shares in the merger. Instead, you
will receive a cash payment, without interest, for the value of any
fraction of a share of Greater Bay common stock that you would otherwise
be entitled to receive based upon the market value (as determined in the
merger agreement) of a share of Greater Bay common stock at the time of
the merger.
Each share of Greater Bay common stock held by Greater Bay shareholders
will continue to represent one share of Greater Bay common stock following
the merger. After the merger, Bank of Santa Clara's former shareholders
will own approximately 10.0% of Greater Bay's outstanding shares of common
stock and current Greater Bay shareholders will own approximately 90.0% of
Greater Bay's outstanding shares of common stock, assuming completion of
Greater Bay's pending merger with Coast Bancorp and Bank of Petaluma. See
"Summary--Recent Developments" (pages 5 through 7).
For example:
. If the average closing price of Greater Bay common stock is $40.00 at the
completion of the merger, and you own 100 shares of Bank of Santa Clara
common stock, then after the
merger you will receive 87 shares of Greater Bay common stock, for a value
of approximately $34.80 per Bank of Santa Clara share.
. If the average closing price of Greater Bay common stock is $46.00 at the
completion of the merger and you own 100 shares of Bank of Santa Clara
common stock, then after the merger you will receive 85 shares of Greater
Bay common stock and a check in an amount representing the fractional
share, for an aggregate value of approximately $39.27 per Bank of Santa
Clara share.
. If the average closing price of Greater Bay common stock is $37.00 at the
completion of the merger and you own 100 shares of Bank of Santa Clara
common stock, then after the merger you will receive 89 shares of Greater
Bay common stock and a check in an amount representing the fractional
share, for an aggregate value of approximately $32.93 per Bank of Santa
Clara share.
Q: What happens as the market price of Greater Bay common stock fluctuates?
A: The conversion ratio may adjust, depending on the average closing price of
Greater Bay common stock as described above. Since the market value of
Greater Bay common stock will fluctuate before and after the closing of the
merger, the value of the Greater Bay common stock that you will receive in
the merger will fluctuate as well and could increase or decrease. You are
urged to obtain current market prices for shares of Greater Bay common
stock and Bank of Santa Clara common stock.
Q: What should I do now?
A: Just indicate on your proxy card how you want to vote, and sign and mail it
in the enclosed envelope as soon as possible, so that your shares will be
represented at the meeting.
If you sign and send in your proxy and do not indicate how you want to
vote, your proxy will be voted in favor of the proposal to approve the
(i)
<PAGE>
merger agreement. If you do not sign and send in your proxy or you abstain,
it will have the effect of a vote against the merger.
You may attend the meeting and vote your shares in person, rather than
voting by proxy. In addition, you may revoke your proxy up to and including
the day of the meeting by following the directions on pages 20 through 21.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Your broker will vote your shares on the merger only if you provide
instructions on how to vote. You should instruct your broker how to vote
your shares, following the directions your broker provides. If you do not
provide instructions to your broker, your shares will not be voted and this
will have the effect of voting against the merger.
Q: When is the merger expected to be completed?
A: We are working to complete the merger during the third quarter of 2000.
Q: Should I send in my stock certificates now?
A: No. After the merger is completed we will send you written instructions for
exchanging your Bank of Santa Clara common stock certificates for Greater
Bay common stock certificates.
Q: What risks should I consider?
A: You should review "Risk Factors" on page 19.
You should also review the factors considered by Bank of Santa Clara's
Board of Directors. See "The Merger--Background of and Reasons for the
Merger" (pages 24 through 26).
WHO CAN HELP ANSWER YOUR QUESTIONS
If you want additional copies of this document, or if you want to ask any
questions about the merger, you should contact:
Judith J. Reinartz
Bank of Santa Clara
1995 El Camino Road
Santa Clara, California 95050
Telephone (408) 987-9426
(ii)
<PAGE>
TABLE OF CONTENTS
<TABLE>
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QUESTIONS AND ANSWERS ABOUT THE MERGER..................................... i
SUMMARY.................................................................... 1
The Companies............................................................ 1
Greater Bay Bancorp...................................................... 1
Bank of Santa Clara...................................................... 1
The Special Meeting...................................................... 1
Record Date; Voting Power................................................ 2
Vote Required............................................................ 2
Share Ownership of Bank of Santa Clara Management........................ 2
Recommendation........................................................... 2
Opinion of First Security Van Kasper, Financial Advisor to Bank of Santa
Clara................................................................... 2
Terms of the Merger Agreement............................................ 2
Interests of Certain Persons in the Merger............................... 4
Material Federal Income Tax Consequences................................. 5
Accounting Treatment..................................................... 5
Resales of Greater Bay Common Stock...................................... 5
Regulatory Approvals..................................................... 5
Dissenters' Rights....................................................... 5
Differences in the Rights of Shareholders................................ 5
Recent Developments...................................................... 6
Market Price And Dividend Information...................................... 8
Comparative Market Price Data............................................ 8
Historical Market Prices and Dividends................................... 8
Selected Historical and Pro Forma Financial Data........................... 10
Historical and Pro Forma Per Share Data.................................. 11
Greater Bay Historical Selected Financial Data........................... 13
Bank of Santa Clara Historical Selected Financial Data................... 15
Selected Unaudited Pro Forma Combined Financial Data--Greater Bay and
Bank of Santa Clara..................................................... 16
Selected Unaudited Pro Forma Combined Financial Data--Greater Bay, Bank
of Santa Clara, Coast Bancorp and Bank of Petaluma...................... 17
RISK FACTORS............................................................... 19
Since the market price of Greater Bay common stock will vary, Bank of
Santa Clara shareholders cannot be sure of the number of shares and
value of the Greater Bay common stock to be received in the merger...... 19
We may not successfully integrate our business operations................ 19
THE BANK OF SANTA CLARA SPECIAL MEETING.................................... 20
General.................................................................. 20
Record Date; Voting Power................................................ 20
Vote Required............................................................ 20
Share Ownership of Management............................................ 20
Recommendation of the Bank of Santa Clara Board.......................... 20
Solicitation and Revocation of Proxies................................... 20
Other Matters............................................................ 21
THE MERGER................................................................. 22
Structure of the Merger.................................................. 22
Background of and Reasons for the Merger................................. 24
Opinion of Financial Advisor............................................. 26
Interests of Certain Persons in the Merger............................... 31
Nasdaq Listing........................................................... 32
Material Federal Income Tax Consequences................................. 32
</TABLE>
(iii)
<PAGE>
<TABLE>
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Accounting Treatment of the Merger...................................... 33
Exchange of Bank of Santa Clara Common Stock for Greater Bay Common
Stock.................................................................. 33
THE MERGER AGREEMENT...................................................... 35
Conditions to the Merger................................................ 35
Nonsolicitation......................................................... 36
Expenses................................................................ 37
Treatment of Options.................................................... 37
Termination............................................................. 37
Covenants; Conduct of Business Prior to Effective Time.................. 38
Amendment and Waiver.................................................... 41
Agreements with Certain Shareholders.................................... 41
Resales of Greater Bay Common Stock..................................... 41
Regulatory Approvals.................................................... 41
DISSENTING SHAREHOLDERS' RIGHTS........................................... 44
DESCRIPTION OF GREATER BAY COMMON STOCK AND BANK OF SANTA CLARA COMMON
STOCK.................................................................... 47
Stock Description....................................................... 47
Material Differences Between Holders of Greater Bay Stock and Bank of
Santa Clara Stock...................................................... 48
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION.............. 51
MANAGEMENT OF GREATER BAY AFTER THE MERGER................................ 57
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............ 58
EXPERTS................................................................... 59
LEGAL MATTERS............................................................. 59
WHERE YOU CAN FIND MORE INFORMATION....................................... 60
A WARNING ABOUT FORWARD-LOOKING INFORMATION............................... 62
Annex A: Agreement and Plan of Reorganization by and among Greater Bay
Bancorp, Bank of Santa Clara and GBB Merger Corp. dated January
26, 2000 A-1
Annex B: Fairness Opinion of First Security Van Kasper dated , 2000 B-1
Annex C: Selected Provisions of the California General Corporation Law
Regarding Dissenters' Rights C-1
Annex D: Bank of Santa Clara Annual Report on Form 10-K for the year ended
December 31, 1999 D-1
</TABLE>
(iv)
<PAGE>
SUMMARY
This summary highlights selected information from this document and may not
contain all the information that is important to you. For a more complete
understanding of the merger and for a more complete description of the legal
terms of the merger, you should read this entire document carefully, as well as
the additional documents to which we refer you, including the merger agreement
which we have attached as Annex A. For information about where to obtain these
additional documents read the information under the caption entitled "Where You
Can Find More Information" (page 59).
The Companies
Greater Bay Bancorp
2860 W. Bayshore Road
Palo Alto, California 94303
(650) 813-8200
Greater Bay is a bank holding company operating Bay Area Bank, Bay Bank of
Commerce, Cupertino National Bank, Golden Gate Bank, Mid-Peninsula Bank, Mt.
Diablo National Bank and Peninsula Bank of Commerce. These banks and Greater
Bay have various operating divisions, including Greater Bay Bank Santa Clara
Valley Commercial Banking Group, Greater Bay Corporate Finance Group, Greater
Bay Bank Contra Costa Region, Greater Bay Bank Fremont Region, Greater Bay
International Banking Division, Greater Bay Trust Company, Pacific Business
Funding and Venture Banking Group.
Through its financial services subsidiaries and operating divisions, Greater
Bay serves clients throughout Silicon Valley, the San Francisco Peninsula and
the Contra Costa Tri Valley Region, with offices located in Cupertino,
Danville, Fremont, Hayward, Lafayette, Millbrae, Palo Alto, Pleasanton, Redwood
City, San Francisco, San Leandro, San Mateo, San Ramon and Walnut Creek.
Greater Bay provides a wide range of commercial banking and financial
services to small and medium-sized businesses, real estate developers and
property managers, business executives, professionals and other individuals.
Bank of Santa Clara
1995 El Camino Real
Santa Clara, California 95050
(408) 249-5900
Bank of Santa Clara was organized in 1973 under the laws of the State of
California as an FDIC insured state chartered bank. With eight banking offices
throughout Santa Clara County, California, Bank of Santa Clara offers a wide
range of commercial and retail banking products and services primarily to small
and medium size businesses and consumers. In addition to its eight banking
offices, Bank of Santa Clara also operates an SBA lending department and a
dealer loan department.
The Special Meeting (pages 20-21)
The Bank of Santa Clara special shareholders' meeting will be held at ,
located at , California at .m., local time, on , ,
2000. At the meeting, you will be asked to consider and vote upon a proposal to
approve and adopt the merger agreement.
1
<PAGE>
Record Date; Voting Power (page 20)
You are entitled to vote at the special meeting if you owned Bank of Santa
Clara common stock on , 2000, the record date for the special meeting. As
of that date, there were shares of Bank of Santa Clara common stock
issued and outstanding held by approximately holders of record. Each holder
of Bank of Santa Clara common stock is entitled to one vote per share on any
matter that may properly come before the meeting.
Vote Required (page 20)
Approval by the Bank of Santa Clara shareholders of the proposal to approve
and adopt the merger agreement will require the affirmative vote of a majority
of the outstanding shares of Bank of Santa Clara common stock.
Share Ownership of Bank of Santa Clara Management (pages 58-59)
On the record date for the special meeting, the executive officers and
directors of Bank of Santa Clara, including their affiliates, had voting power
with respect to an aggregate of shares of Bank of Santa Clara common
stock, or approximately % of the shares of the common stock then
outstanding.
The directors of Bank of Santa Clara have signed contracts agreeing to vote
the shares of Bank of Santa Clara common stock owned by them FOR the proposal
to approve and adopt the merger agreement and the transactions contemplated
thereby.
Recommendation (page 20)
The Bank of Santa Clara Board of Directors has unanimously approved and
adopted the merger agreement, and recommends a vote FOR approval of the merger
agreement and the transactions contemplated thereby. You also should refer to
the reasons that the Bank of Santa Clara Board considered in determining
whether to approve and adopt the merger agreement on pages 25-26.
Opinion of First Security Van Kasper, Financial Advisor to Bank of Santa Clara
(pages 26-31)
First Security Van Kasper, financial advisor to Bank of Santa Clara,
rendered an oral fairness opinion on January 25, 2000 to the Bank of Santa
Clara Board that as of such date, the merger consideration to be paid was fair
to the Bank of Santa Clara shareholders from a financial point of view. First
Security Van Kasper subsequently confirmed its January 25, 2000 opinion by
delivery to the Bank of Santa Clara Board of a written fairness opinion dated
as of the date of this document. A copy of the fairness opinion, setting forth
the information reviewed, assumptions made and matters considered by First
Security Van Kasper, is attached to this document as Annex B. Bank of Santa
Clara shareholders should read the fairness opinion in its entirety.
Terms of the Merger Agreement (pages 35-43)
The merger agreement is attached to this document as Annex A. We encourage
you to read the merger agreement in its entirety. It is the legal document that
governs the merger.
General. The merger agreement provides that Bank of Santa Clara will merge
with GBB Merger Corp., as a result of which Bank of Santa Clara will become a
wholly owned subsidiary of Greater Bay.
Conversion Ratio. For each outstanding share of Bank of Santa Clara common
stock, Bank of Santa Clara shareholders will receive 0.87 shares of Greater Bay
common stock if the average closing price of that stock is between $38.3875 and
$44.6125. If the average closing price of that stock is greater than $44.6125,
the conversion ratio will adjust according to a set formula. If the average
closing price is between $36.3600 and
2
<PAGE>
$38.3875, the conversion ratio will adjust according to a set formula. If the
average closing price of Greater Bay stock is less than $36.3600, the
conversion ratio will be .9000, unless Bank of Santa Clara decides to terminate
the merger agreement. If Bank of Santa Clara decides to terminate, Greater Bay
may elect a top up option in which the conversion ratio will adjust according
to a formula. Greater Bay will not issue fractional shares. Instead, Bank of
Santa Clara shareholders will receive a check equal to the amount of any
fractional share they would otherwise receive.
Average closing price means the average closing sale price on The Nasdaq
Stock Market of Greater Bay common stock for the 20 consecutive trading days
ending at the end of the third trading day immediately before completion of the
merger.
Completion of the Merger. The merger will become effective when we file an
agreement of merger with the Secretary of State of California. The merger
agreement provides that we will file the agreement of merger as soon as
practicable following the satisfaction or waiver of the conditions to the
merger.
Conditions to the Merger. The completion of the merger depends upon the
satisfaction of a number of conditions, including:
. approval of the merger agreement by the Bank of Santa Clara shareholders;
. receipt of listing approval from The Nasdaq Stock Market for the Greater
Bay common stock to be issued in the merger;
. receipt of all necessary authorizations, orders and consents of
governmental authorities without imposition of any conditions that
Greater Bay deems to be materially adverse or materially burdensome, and
the expiration of any regulatory waiting periods;
. effectiveness of the registration statement of Greater Bay relating to
the shares of Greater Bay common stock to be issued to Bank of Santa
Clara shareholders in the merger, of which this document forms a part;
. receipt from PricewaterhouseCoopers LLP of a letter confirming that the
merger qualifies for pooling of interests accounting treatment and
receipt from Grant Thornton LLP of a letter confirming that no conditions
exist with respect to Bank of Santa Clara that would preclude pooling of
interests accounting treatment;
. receipt of an opinion of Greater Bay's counsel that the merger will be
treated for U.S. federal income tax purposes as a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended;
. confirmation that the adjusted book value of Bank of Santa Clara common
stock at the close of business on the last day of the month prior to
completion of the merger is not less than $30.7 million if the merger
closes in April 2000, $31.0 million if the merger closes in May 2000,
$31.3 million if the merger closes in June 2000, $31.7 million if the
merger closes in July 2000 and $32.0 million if the merger closes in
August 2000. Adjusted book value means Bank of Santa Clara's total
shareholders' equity adjusted to eliminate all amounts paid for the
exercise of Bank of Santa Clara stock options since September 30, 1999,
to eliminate amounts related to accumulated other comprehensive income
and to include the amount of consolidated accumulated other comprehensive
income as of September 30, 1999, to deduct any dividends paid after the
date of the merger agreement and to eliminate amounts paid or accrued for
merger-related expenses; and
. confirmation that Bank of Santa Clara's allowance for loan losses equals
the greater of 1.07% of Bank of Santa Clara's total gross loans or $2.3
million.
Unless prohibited by law, either Greater Bay or Bank of Santa Clara could
elect to waive any condition.
3
<PAGE>
Termination. Either Bank of Santa Clara or Greater Bay may call off the
merger under a number of circumstances, including if:
. Greater Bay and Bank of Santa Clara consent in writing;
. the merger is not completed before August 31, 2000;
. legal restraints prevent the merger;
. the Bank of Santa Clara shareholders do not approve the merger agreement;
. the other party breaches in a material manner any of the representations
or warranties or any covenant or agreement it has under the merger
agreement; or
. any condition to the party's obligations under the merger agreement has
not been met or waived at a time when the condition could no longer be
satisfied.
In addition, Greater Bay may call off the merger if the Bank of Santa Clara
Board approves, recommends or causes Bank of Santa Clara to enter into any
agreement with a person other than Greater Bay providing for the merger,
consolidation, share exchange, joint venture, business combination or similar
transaction involving Bank of Santa Clara or any subsidiary of Bank of Santa
Clara, or any purchase of all or any material portion of the assets of Bank of
Santa Clara or any subsidiary of Bank of Santa Clara. If that occurs, Bank of
Santa Clara will have to pay Greater Bay $3.5 million.
Similarly, Bank of Santa Clara may call off the merger if Greater Bay
announces a business combination, tender offer or similar transaction which, if
consummated, would result in Greater Bay shareholders owning less than 51% of
the shares of the surviving corporation and the other party requires Greater
Bay to terminate the merger agreement between Greater Bay and Bank of Santa
Clara. If that occurs, Greater Bay will have to pay Bank of Santa Clara $2.5
million. In addition, Bank of Santa Clara may call off the merger if the
average closing price is less than $36.3600, unless Greater Bay elects the top
up option and Greater Bay does not exercise the top up option as described
under the heading "The Merger--Structure of the Merger--Conversion of Shares"
on page 22.
Interests of Certain Persons in the Merger (pages 31-32)
The directors and executive officers of Bank of Santa Clara have interests
in the merger as employees and/or directors that are different from, or in
addition to, the interests of Bank of Santa Clara shareholders. The Bank of
Santa Clara Board recognized these interests and determined that they did not
affect the benefits of the merger to the Bank of Santa Clara shareholders.
Upon completion of the merger, the current members of the Boards of Greater
Bay and Bank of Santa Clara will continue as members of their respective
Boards. Also, , a director of Bank of Santa Clara, will become a director
of Greater Bay and John M. Gatto, Co-Chairman of Greater Bay, will become a
director of Bank of Santa Clara.
If the merger takes place, the following will occur:
. outstanding options to purchase Bank of Santa Clara common stock held by
directors, officers and employees of Bank of Santa Clara will be
automatically converted into options to acquire shares of Greater Bay
common stock adjusted to account for the conversion ratio; and
. certain members of senior management of Bank of Santa Clara will remain
as senior management of Bank of Santa Clara.
Upon the signing of the merger agreement, there were outstanding options to
purchase an aggregate of 308,582 shares of Bank of Santa Clara common stock. Of
the outstanding options, the executive officers
4
<PAGE>
and directors of Bank of Santa Clara held options to purchase 221,523 shares of
Bank of Santa Clara common stock at a per share weighted average exercise price
of $21.73.
Material Federal Income Tax Consequences (pages 32-33)
Greater Bay and Bank of Santa Clara have received a legal opinion stating
that neither Greater Bay nor Bank of Santa Clara will recognize gain or loss
for federal income tax purposes as a result of the merger. The opinion also
concludes that Bank of Santa Clara shareholders will not recognize gain or loss
upon the exchange of their Bank of Santa Clara common stock for Greater Bay
common stock in the merger. If, however, shareholders receive cash instead of
fractional shares or upon exercise of dissenters' rights, that cash would be
taxable.
Accounting Treatment (page 33)
We expect the merger to be accounted for as a pooling of interests, which
means that we will treat Greater Bay and Bank of Santa Clara as if they had
always been combined for accounting and financial reporting purposes.
Resales of Greater Bay Common Stock (page 41)
Shares of Greater Bay common stock that Bank of Santa Clara shareholders
receive in the merger will be freely transferable, except for those shares held
by holders who may be deemed to be affiliates. Affiliates generally include
directors, specific executive officers and holders of 10% or more of
outstanding voting securities of Bank of Santa Clara or Greater Bay. Bank of
Santa Clara has provided to Greater Bay the written agreements of its
affiliates that these persons will not dispose of their shares of Bank of Santa
Clara common stock and Greater Bay common stock, except in compliance with the
Securities Act of 1933 and applicable accounting rules governing pooling of
interests.
Regulatory Approvals (pages 41-43)
Greater Bay is required to make filings with or obtain approval from the
Board of Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation and the California Department of Financial Institutions to complete
the merger. We cannot predict whether or when we will obtain these approvals.
Dissenters' Rights (pages 44-46)
Shareholders of Bank of Santa Clara will have dissenters' rights under
California law. This means that shareholders who vote against the merger may
make a written demand to Bank of Santa Clara for payment in cash of the "fair
market value" of their shares. Bank of Santa Clara must receive the demand no
later than the date of the special shareholders' meeting. The Bank of Santa
Clara Board of Directors has determined that the "fair market value" of one
share of Bank of Santa Clara for this purpose is $34.375. That amount
represents the average of the high and low price for Bank of Santa Clara common
stock on January 26, 2000, the day before the public announcement of the
merger. The procedure for exercising dissenters' rights is summarized under the
heading "Dissenting Shareholders' Rights." The relevant provisions of
California law on dissenters' rights are attached to this document as Annex C.
Differences in the Rights of Shareholders (pages 47-50)
Both Greater Bay and Bank of Santa Clara are incorporated under California
law. Upon completion of the merger, Bank of Santa Clara shareholders will
become Greater Bay shareholders. Their rights will be governed by Greater Bay's
articles of incorporation and bylaws and will continue to be governed by
California law.
5
<PAGE>
Recent Developments
Merger with Coast Bancorp. On December 14, 2000, Greater Bay announced the
signing of a definitive agreement for a merger with Coast Bancorp. Following
the transaction, Coast Commercial Bank, a wholly owned subsidiary of Coast
Bancorp, will operate as a wholly owned subsidiary of Greater Bay.
In the merger, Greater Bay will issue shares of its stock in a tax free
exchange for the shares of stock of Coast Bancorp for an estimated value of
approximately $125 million, depending on the market price of Greater Bay's
stock at the time of the merger closing. The merger, which will be accounted
for as a pooling of interests, is expected to be completed in the second
quarter of 2000, subject to the approval of the shareholders of Coast Bancorp
and Greater Bay and regulatory approval. The Greater Bay and Coast Bancorp
meetings to vote on the merger are scheduled for May 17, 2000 and May 11, 2000,
respectively.
Coast Bancorp, founded in 1982, has banking offices in Aptos, Capitola,
Santa Cruz, Scotts Valley and Watsonville, California serving the small to mid-
sized business community. As of December 31, 1999, Coast Bancorp had total
assets of $370 million and total deposits of $301 million. For the year ended
December 31, 1999, net income was $6.9 million.
The terms of the agreement provide for the shareholders of Coast Bancorp to
receive shares of Greater Bay stock. Coast Bancorp currently has approximately
4,819,000 shares of common stock outstanding. If the average closing price of
Greater Bay common stock is between $32.84 and $38.16, Greater Bay will issue
0.675 shares for each outstanding share of common stock of Coast Bancorp. If
the average closing price of Greater Bay common stock is greater than $38.16,
the conversion ratio will equal the quotient obtained by dividing (a) $25.76
plus the product of 0.333 times the difference between the average closing
price of Greater Bay stock and $38.16, by (b) the average closing price of
Greater Bay stock.
If the average closing price of Greater Bay common stock is less than
$32.84, Greater Bay may elect to exercise a top up option. In that case, the
conversion ratio will equal the quotient obtained by dividing $22.17 by the
average closing price of Greater Bay stock. If Greater Bay does not elect the
top up option, Coast Bancorp may terminate the agreement. If Coast Bancorp does
not terminate the agreement, the conversion ratio will be 0.675.
Merger with Bank of Petaluma. On March 21, 2000, Greater Bay announced the
signing of a definitive merger agreement with Bank of Petaluma. Upon completion
of the merger, Bank of Petaluma will operate as a wholly owned subsidiary of
Greater Bay Bancorp.
In the merger, Greater Bay Bancorp will issue shares of its stock in a tax
free exchange for the shares of stock of Bank of Petaluma for an estimated
value of approximately $41 million, depending on the market price of Greater
Bay Bancorp's stock at the time of the merger closing. The merger, which will
be accounted for as a pooling of interests, is expected to be completed in the
third quarter of 2000, subject to the approval of Bank of Petaluma's
shareholders and regulatory approval.
Bank of Petaluma, founded in 1987, is situated in the growing area of the
San Francisco Bay Area's northern market known as the "Telecom Valley." This
area includes start-up and seasoned companies specializing in the burgeoning
telecommunications industry. Bank of Petaluma maintains four banking offices in
Petaluma, Point Reyes Station and Valley Ford, California and serves the small-
to mid-sized business community and retail banking clients. As of December 31,
1999, Bank of Petaluma had total assets of $194.7 million and deposits of
$162.2 million. For the year ended December 31, 1999, net income was
$2.3 million, a 10% increase over net income of $2.1 million in 1998.
The terms of the agreement provide for the shareholders of Bank of Petaluma
to receive shares of Greater Bay stock. Bank of Petaluma currently has
approximately 1.4 million shares of common stock outstanding. If
6
<PAGE>
the average closing price of Greater Bay common stock is between $37.91 and
$46.34, each share of Bank of Petaluma stock will be exchanged for 0.685 shares
of Greater Bay stock. If the average closing price of Greater Bay common stock
is greater than $46.34, the exchange ratio will decrease by dividing the
average closing price into $31.74 plus one-third of the amount by which the
average closing price exceeds $46.34.
If the average closing price of Greater Bay common stock is less than
$37.91, Greater Bay may elect to exercise a top up option. In that case, the
exchange ratio will equal the quotient obtained by dividing $25.97 by the
average closing price of Greater Bay stock. If Greater Bay does not elect the
top up option, Bank of Petaluma may either terminate the merger agreement or
accept an exchange ratio of 0.685.
Completion of Private Offerings. On March 23, 2000, Greater Bay completed
two private offerings of securities. In one private offering, Greater Bay
issued 324,324 shares of restricted common stock to institutional investors
with gross proceeds of approximately $12,000,000. In a separate private
offering, Greater Bay issued $9,500,000 of trust preferred securities, through
its trust subsidiary GBB Capital III, to a qualified institutional buyer.
With respect to the newly issued common shares, Greater Bay has agreed to
file a registration statement with the SEC within 30 business days to register
the shares for resale; however, the shares may be subject to certain trading
restrictions in the event of material developments relating to Greater Bay.
The trust preferred securities bear a 10 7/8% fixed rate of interest payable
semi-annually. GBB Capital III used the proceeds from the sale of the trust
preferred securities to purchase junior subordinated deferrable interest
debentures of Greater Bay. Greater Bay intends to invest a portion of the net
proceeds in one or more of its subsidiary banks to increase their capital
levels and intends to use the remaining net proceeds for general corporate
purposes. Under applicable regulatory guidelines, Greater Bay expects that the
trust preferred securities will qualify as tier I capital.
The following table details on a historical and pro forma basis Greater
Bay's capital ratios as of December 31, 1999.
<TABLE>
<CAPTION>
Historical Pro Forma
12/31/99 12/31/99(1)(2)
---------- --------------
($s in billions)
<S> <C> <C>
Total Assets....................................... $ 2.85 $ 3.75
Risk Weighted Assets............................... $ 2.45 $ 3.25
Capital Ratios:
Equity to Assets................................. 6.09% 7.06%
Leverage......................................... 7.85% 9.04%
Tier 1 Risk Based Capital........................ 9.14% 10.23%
Total Risk Based Capital......................... 10.55% 11.64%
</TABLE>
- --------
(1) Includes Coast Bancorp, Bank of Santa Clara and Bank of Petaluma.
(2) Includes $12.0 million issuance of common stock and $9.5 million issuance
of trust preferred securities.
7
<PAGE>
Market Price And Dividend Information
Comparative Market Price Data
The following table presents trading information for Greater Bay and Bank of
Santa Clara common stock on The Nasdaq Stock Market on January 26, 2000 and
, 2000. January 26, 2000 was the last full trading day before our
announcement of the signing of the merger agreement. , 2000 was the last
practicable trading day for which information was available before the date of
this document.
<TABLE>
<CAPTION>
GREATER BAY BANCORP BANK OF SANTA CLARA
-------------------- --------------------
HIGH LOW CLOSE HIGH LOW CLOSE
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
January 26, 2000 ..................... $42.19 $41.69 $42.13 $34.63 $34.00 $34.38
, 2000.......................... $ $ $ $ $ $
</TABLE>
We urge you to obtain current market quotations for Greater Bay common stock
and Bank of Santa Clara common stock. We expect that the market price of
Greater Bay common stock will fluctuate between the date of this document and
the date on which the merger is completed and thereafter. Because the market
price of Greater Bay common stock is subject to fluctuation, the value of the
shares of Greater Bay common stock that you will receive in the merger may
increase or decrease before and after the merger. For more information see the
heading "Risk Factors -- Since the market price of Greater Bay common stock
will vary, Bank of Santa Clara shareholders cannot be sure of the number of
shares and value of the Greater Bay common stock to be received in the merger."
In addition, as a result of this fluctuation, the amount of cash you will
receive instead of Greater Bay's fractional shares will also fluctuate.
Historical Market Prices and Dividends
Greater Bay Bancorp. Greater Bay common stock is listed on The Nasdaq Stock
Market under the symbol "GBBK." On the record date for the special meeting,
there were approximately holders of record of Greater Bay common stock. The
following table sets forth for the calendar quarters indicated, the high and
low sales prices per share of Greater Bay common stock as reported on The
Nasdaq Stock Market, and the dividends per share of Greater Bay common stock.
The prices per share of Greater Bay common stock set forth below have been
adjusted to reflect a two-for-one stock split effective as of April 30, 1998.
<TABLE>
<CAPTION>
DIVIDENDS
QUARTER ENDED HIGH LOW DECLARED
- ------------- ------ ------ ---------
<S> <C> <C> <C>
2000:
First quarter........................................... $42.94 $35.19 $0.150
Second quarter (through , 2000)...................
1999:
Fourth quarter ......................................... $43.44 $33.81 $0.120
Third quarter........................................... 36.50 31.13 0.120
Second quarter ......................................... 33.25 28.00 0.120
First quarter........................................... 33.75 27.56 0.120
1998:
Fourth quarter.......................................... $35.00 $24.50 $0.095
Third quarter........................................... 39.00 23.38 0.095
Second quarter.......................................... 36.00 28.88 0.095
First quarter........................................... 31.38 24.13 0.095
</TABLE>
8
<PAGE>
Bank of Santa Clara. Bank of Santa Clara common stock is traded on The
Nasdaq Stock Market under the symbol "BNSC." On the record date for the special
meeting, there were approximately holders of record of Bank of Santa Clara
common stock.
The following table sets forth for the calendar quarters indicated the high
and low sales prices of Bank of Santa Clara common stock as reported on The
Nasdaq Stock Market, and the dividends per share of Bank of Santa Clara.
<TABLE>
<CAPTION>
DIVIDENDS
QUARTER HIGH LOW DECLARED
- ------- ------ ------ ---------
<S> <C> <C> <C>
2000:
First quarter........................................... $35.00 $29.50 $0.60
Second quarter (through , 2000)......................
1999:
Fourth quarter ......................................... $34.75 $28.00 $ --
Third quarter........................................... 37.50 23.50 --
Second quarter.......................................... 25.25 19.50 --
First quarter........................................... 24.50 20.75 0.55
1998:
Fourth quarter.......................................... $22.00 $19.50 $ --
Third quarter........................................... 26.00 17.50 --
Second quarter.......................................... 26.42 23.00 --
First quarter........................................... 35.00 26.00 0.50
</TABLE>
9
<PAGE>
Selected Historical and Pro Forma Financial Data
We are providing the following information to aid you in your analysis of
the financial effects of the merger. The historical selected financial data in
the following tables shows financial results actually achieved by each of
Greater Bay and Bank of Santa Clara for the periods presented. These are the
historical figures. Greater Bay's annual historical figures are derived from
supplemental consolidated financial statements audited by
PricewaterhouseCoopers LLP, independent public accountants of Greater Bay. The
supplemental consolidated financial statements of Greater Bay have been
prepared on a basis that accounts for the merger with Mt. Diablo Bancshares,
the former holding company of Mt. Diablo National Bank, which was completed on
January 31, 2000 using the pooling of interests method of accounting. Upon
publication of Greater Bay's financial information for a post-merger period
which includes January 31, 2000, which occurred on March 31, 2000, these
supplemental consolidated financial statements became the historical financial
statements of Greater Bay. Bank of Santa Clara's annual historical figures are
derived from financial statements as of December 31, 1999 and 1998 and for the
three years then ended audited by Grant Thornton LLP, independent certified
public accountants of Bank of Santa Clara. The annual historical information
presented below should be read together with the supplemental consolidated
audited financial statements of Greater Bay and the audited financial
statements of Bank of Santa Clara, attached or incorporated in this document by
reference. To find this information, see "Where You Can Find More Information"
(pages 59-61).
Pro forma combined figures are simply arithmetical combinations of Greater
Bay's and Bank of Santa Clara's separate financial results. You should not
assume that the combined company of Greater Bay and Bank of Santa Clara would
have achieved the pro forma combined results if they had actually been combined
during the periods presented. These pro forma presentations treat the companies
as if they had always been combined for accounting and financial reporting
purposes, a method known as pooling of interests accounting. When you read this
information, you should also read the information under the heading "Unaudited
Pro Forma Condensed Combined Financial Information" (page 51). For purposes of
illustration, the pro forma combined figures have been calculated using the
conversion ratio of 0.87 for our proposed merger. However the actual conversion
ratio will be determined based on the average closing price of Greater Bay
common stock which is explained further under "The Merger--Structure of the
Merger" (pages 22-24).
The pro forma figures also include information relating to Coast Bancorp and
Bank of Petaluma. On December 14, 1999, Greater Bay signed a definitive
agreement for a merger with Coast Bancorp and on March 21, 2000, Greater Bay
signed a definitive agreement for a merger with Bank of Petaluma. See the
information under "Recent Developments" in this Summary.
We expect to incur merger and other non-recurring expenses as a result of
combining the companies. We also anticipate that the merger will provide the
combined company with financial benefits such as reduced operating expenses and
the opportunity to earn additional revenue. However, none of these anticipated
expenses or benefits has been factored into the pro forma combined income
statement information. For that reason, the pro forma combined information,
while helpful in illustrating the financial attributes of the combined company
under one set of assumptions, does not attempt to predict or suggest future
results.
10
<PAGE>
Historical and Pro Forma Per Share Data
We have summarized below the per share information for our respective
companies on an historical, pro forma combined and pro forma equivalent basis.
We have adjusted Greater Bay's historical per share amounts to reflect a two-
for-one stock split effective April 30, 1998. We have adjusted Coast Bancorp's
historical per share amounts to reflect a two-for-one stock split effective
February 5, 1999.
We have calculated the pro forma Greater Bay and Bank of Santa Clara
combined per share data for net income using the weighted average number of
shares of Greater Bay's common stock outstanding for the periods presented,
increased by the weighted average number of shares of Bank of Santa Clara
common stock outstanding for the period presented multiplied by an assumed
conversion ratio of 0.870 shares of Greater Bay's common stock for each share
of Bank of Santa Clara common stock, as if these shares were outstanding for
each period presented. With respect to the pro forma Greater Bay, Bank of Santa
Clara and Coast Bancorp combined per share data for net income, we have further
increased the weighted average number of shares of Greater Bay's common stock
by the weighted average number of shares of Coast Bancorp common stock
outstanding for the periods presented multiplied by an assumed conversion ratio
of 0.675 shares of Greater Bay's common stock for each share of Coast Bancorp
common stock, as if these shares were outstanding for each period presented,
and by the weighted average number of shares of Bank of Petaluma common stock
outstanding for the periods presented multiplied by an assumed conversion ratio
of 0.685 shares of Greater Bay's common stock for each share of Bank of
Petaluma common stock, as if these shares were outstanding for each period
presented.
The pro forma Greater Bay and Bank of Santa Clara combined per share data
for dividends declared represents the sum of historical dividends for Greater
Bay common stock plus the historical dividends for Bank of Santa Clara common
stock divided by the sum of Greater Bay common stock and Bank of Santa Clara
common stock, adjusted for the assumed conversion ratio of 0.870. With respect
to the pro forma Greater Bay, Bank of Santa Clara and Coast Bancorp combined
per share data for dividends declared, we have further added historical
dividends for Coast Bancorp common stock divided by the sum of Greater Bay
common stock and Coast Bancorp common stock, adjusted for the assumed
conversion ratio of 0.675, and historical dividends for Bank of Petaluma common
stock divided by the sum of Greater Bay common stock and Bank of Petaluma
common stock, adjusted for the assumed conversion ratio of 0.685.
The pro forma Greater Bay and Bank of Santa Clara combined book value per
share has been calculated using the shares of outstanding Greater Bay common
stock increased by the shares of outstanding Bank of Santa Clara common stock
multiplied by an assumed conversion ratio of 0.870 for each share of Bank of
Santa Clara common stock as if these shares were outstanding as of the date
presented. With respect to the Greater Bay, Bank of Santa Clara and Coast
Bancorp combined book value per share, we have further increased the
outstanding shares of Greater Bay common stock by the shares of outstanding
Coast Bancorp common stock multiplied by an assumed conversion ratio of 0.675
for each share of Coast Bancorp common stock as if these shares were
outstanding as of the date presented, and by the shares of outstanding Bank of
Petaluma common stock multiplied by an assumed conversion ratio of 0.685 for
each shares of Bank of Petaluma common stock as if these shares were
outstanding as of the date presented.
11
<PAGE>
The equivalent pro forma Bank of Santa Clara share information shown in the
fourth column in the table below has been calculated by multiplying the pro
forma Greater Bay and Bank of Santa Clara combined per share net income,
dividends and book value by an assumed conversion ratio of 0.870. The
equivalent pro forma Bank of Santa Clara share information shown in the last
column in the table below has been calculated by multiplying the pro forma
Greater Bay, Bank of Santa Clara, Coast Bancorp and Bank of Petaluma combined
per share net income, dividends and book value by an assumed conversion ratio
of 0.870.
<TABLE>
<CAPTION>
Pro Forma
Greater Bay,
Pro Forma Coast Bancorp,
Pro Forma Equivalent Bank of Pro Forma
Greater Bay of One Bank Santa Clara & Equivalent of
Historical & Bank of of Historical Bank of One Bank of
Historical Bank of Santa Clara Santa Clara Historical Bank of Petaluma Santa Clara
Per Common Share Greater Bay Santa Clara Combined Share Coast Bancorp Petaluma Combined Share
- ---------------- ----------- ----------- ----------- ----------- ------------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Income:
Year ended
December 31, 1999
Basic............ $2.29 $1.91 $2.28 $1.98 $1.45 $1.61 $2.26 $1.97
Diluted.......... 2.15 1.86 2.15 1.87 1.41 1.55 2.15 1.87
Year ended
December 31, 1998
Basic............ 1.65 1.73 1.69 1.47 1.28 1.54 1.75 1.53
Diluted.......... 1.53 1.69 1.59 1.38 1.25 1.45 1.66 1.44
Year ended
December 31, 1997
Basic............ 1.24 1.48 1.30 1.13 1.06 1.14 1.37 1.19
Diluted.......... 1.17 1.45 1.23 1.07 1.05 1.06 1.30 1.13
Cash Dividends
Declared:
Year ended
December 31,
1999............. 0.43 0.55 0.46 0.40 0.32 0.12 0.45 0.39
Year ended
December 31,
1998............. 0.34 0.49 0.37 0.32 0.28 0.11 0.37 0.32
Year ended
December 31,
1997............. 0.39 0.47 0.41 0.36 0.23 0.09 0.38 0.33
Book Value:
December 31,
1999............. 12.43 13.53 12.83 11.16 6.85 10.31 12.50 10.88
December 31,
1998............. 9.99 12.15 10.52 9.15 6.33 9.90 10.52 9.16
</TABLE>
12
<PAGE>
Greater Bay Historical Selected Financial Data
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data
Interest income......... $ 190,298 $ 145,906 $ 113,458 $ 83,179 $ 71,253
Interest expense........ 76,557 58,818 42,525 29,047 24,946
---------- ---------- ---------- ---------- ----------
Net interest income.... 113,741 87,088 70,933 54,132 46,307
Provision for loan
losses................. 13,064 7,159 7,541 3,210 1,396
---------- ---------- ---------- ---------- ----------
Net interest income
after provision for
loan losses........... 100,677 79,929 63,392 50,922 44,911
---------- ---------- ---------- ---------- ----------
Other income............ 18,798 10,425 9,215 8,577 6,369
Nonrecurring--warrant
income................. 14,508 945 1,162 92 --
---------- ---------- ---------- ---------- ----------
Total other income..... 33,306 11,370 10,377 8,669 6,369
---------- ---------- ---------- ---------- ----------
Operating expenses...... 67,052 55,064 46,490 41,973 39,729
Other expenses--
nonrecurring........... 12,160 1,341 -- -- --
---------- ---------- ---------- ---------- ----------
Total operating
expenses.............. 79,212 56,405 46,490 41,973 39,729
---------- ---------- ---------- ---------- ----------
Income before income tax
expense & merger and
other related
nonrecurring costs..... 54,771 34,894 27,279 17,618 11,551
Income tax expense...... 17,659 11,666 9,798 6,278 4,259
---------- ---------- ---------- ---------- ----------
Income before merger and
other related
nonrecurring costs..... 37,112 23,228 17,481 11,340 7,292
Merger and other related
nonrecurring costs, net
of tax................. (6,486) (1,674) (2,282) (1,991) --
---------- ---------- ---------- ---------- ----------
Income before
extraordinary items.... 30,626 21,554 15,199 9,349 7,292
Extraordinary items..... (88) -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income............. $ 30,538 $ 21,554 $ 15,199 $ 9,349 $ 7,292
========== ========== ========== ========== ==========
Per Share Data
Income per share (before
merger, nonrecurring
and extraordinary
items)
Basic.................. $ 2.45 $ 1.75 $ 1.30 $ 0.96 $ 0.77
Diluted................ 2.30 1.63 1.23 0.92 0.74
Net income per share
Basic.................. $ 2.29 $ 1.65 $ 1.24 $ 0.79 $ 0.65
Diluted................ 2.15 1.53 1.17 0.76 0.62
Shares outstanding at
year end............... 13,964,065 12,900,934 12,554,799 11,779,759 11,379,000
Average common shares
outstanding............ 13,310,000 13,091,000 12,252,000 11,761,000 11,239,000
Average common and
common equivalent
shares outstanding..... 14,189,000 14,047,000 13,028,000 12,348,000 11,718,000
Performance Ratios
Return on average assets
(before merger,
nonrecurring and
extraordinary items)... 1.32% 1.26% 1.19% 1.16% 1.18%
Return on average common
shareholders' equity
(before merger,
nonrecurring and
extraordinary items)... 22.81% 19.51% 15.81% 12.97% 12.95%
Net interest margin..... 4.98% 5.17% 5.69% 6.05% 6.98%
Balance Sheet Data--At
Period End
Assets.................. $2,846,088 $2,049,217 $1,560,254 $1,176,087 $ 889,952
Loans, net.............. 1,880,756 1,299,423 961,179 741,238 531,965
Investment securities... 495,169 422,565 271,498 171,890 180,393
Deposits................ 2,506,386 1,758,307 1,374,647 1,047,815 787,173
Subordinated debt....... -- 3,000 3,000 3,000 3,000
Trust Preferred
Securities............. 50,000 50,000 20,000 -- --
Common shareholders'
equity................. 173,595 128,826 107,606 91,074 82,393
Regulatory Capital
Ratios
Leverage Ratio.......... 7.85% 7.93% 8.68% 8.40% 9.89%
Tier 1 Capital.......... 9.14% 9.85% 10.78% 10.32% 12.62%
Total Capital........... 10.55% 11.99% 12.21% 11.84% 14.22%
</TABLE>
13
<PAGE>
Significant events affecting Greater Bay's historical earnings trends
include the following:
. Amounts indicated have been restated on an historical basis to reflect
the mergers with Cupertino National Bancorp, Peninsula Bank of Commerce,
Pacific Rim Bancorporation, Pacific Business Funding Corporation, Bay
Area Bancshares, Bay Commercial Services and Mt. Diablo Bancshares, each
of which was accounted for on a pooling of interests basis.
. Per share amounts have been adjusted to reflect a two-for-one stock split
effective on April 30, 1998.
. If the performance ratios included merger and other related nonrecurring
costs (net of tax) of $6.5 million in 1999, $1.7 million in 1998, $2.3
million in 1997 and $2.0 million in 1996, return on average assets would
have been 1.08% for 1999, 1.17% for 1998, 1.04% for 1997 and 0.96% for
1996, and return on average common shareholders' equity would have been
18.78% for 1999, 18.10% for 1998, 13.75% for 1997 and 10.69% for 1996.
. Net interest margin for 1999, 1998 and 1997 includes the lower spread
earned on a special deposit described in Note 7 of Greater Bay's
Supplemental Consolidated Financial Statements. Excluding this special
deposit, net interest margin would have been 5.06% for 1999, 5.34% for
1998 and 5.95% for 1997.
14
<PAGE>
Bank of Santa Clara Historical Selected Financial Data
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data
Interest income......... $ 24,175 $ 22,437 $ 20,722 $ 18,796 $ 16,965
Interest expense........ 6,213 6,247 5,909 5,585 5,016
--------- --------- --------- --------- ---------
Net interest income.. 17,962 16,190 14,813 13,211 11,949
Provision for loan
losses................. 675 600 800 650 475
--------- --------- --------- --------- ---------
Net interest income
after provision for
loan losses......... 17,287 15,590 14,013 12,561 11,474
Other income............ 3,808 3,398 2,988 2,522 2,474
Nonrecurring--warrant
income................. -- -- -- -- --
--------- --------- --------- --------- ---------
Total other income... 3,808 3,398 2,988 2,522 2,474
Operating expenses...... 14,294 13,014 12,019 10,567 9,878
Other expenses--
nonrecurring........... -- -- -- -- --
--------- --------- --------- --------- ---------
Total operating
expenses............ 14,294 13,014 12,019 10,567 9,878
--------- --------- --------- --------- ---------
Income before income tax
expense & merger and
other related
nonrecurring costs..... 6,801 5,974 4,982 4,516 4,070
Income tax expense...... 2,398 2,018 1,618 1,485 1,334
--------- --------- --------- --------- ---------
Income before merger and
other related
nonrecurring costs..... 4,403 3,956 3,364 3,031 2,736
Merger and other related
nonrecurring costs, net
of tax................. -- -- -- -- --
--------- --------- --------- --------- ---------
Income before
extraordinary items.... 4,403 3,956 3,364 3,031 2,736
Extraordinary items..... -- -- -- -- --
--------- --------- --------- --------- ---------
Net income........... $ 4,403 $ 3,956 $ 3,364 $ 3,031 $ 2,736
========= ========= ========= ========= =========
Per Share Data(1)
Income per share (before
merger, nonrecurring
and extraordinary
items)
Basic................. $ 1.91 $ 1.73 $ 1.48 $ 1.55 $ 1.52
Diluted............... $ 1.86 $ 1.69 $ 1.45 $ 1.35 $ 1.29
Net income per share
Basic................. $ 1.91 $ 1.73 $ 1.48 $ 1.55 $ 1.52
Diluted............... $ 1.86 $ 1.69 $ 1.45 $ 1.35 $ 1.29
Shares outstanding at
year end............... 2,317,963 2,292,808 2,152,213 1,956,061 1,854,562
Average common shares
outstanding............ 2,310,000 2,284,000 2,276,000 1,956,000 1,805,030
Average common and
common equivalent
shares outstanding..... 2,369,000 2,336,000 2,321,000 2,241,000 2,121,000
Performance Ratios
Return on average assets
(before merger,
nonrecurring and
extraordinary
items)(3).............. 1.38% 1.39% 1.30% 1.28% 1.32%
Return on average common
shareholders' equity
(before merger,
nonrecurring and
extraordinary
items)(3).............. 15.13% 15.11% 14.22% 14.65% 15.32%
Net interest margin..... 6.19% 6.34% 6.38% 6.14% 6.33%
Balance Sheet Data--At
Period End
Assets.................. 326,934 297,721 262,458 249,311 226,606
Loans, net.............. 212,770 187,055 171,259 153,130 134,418
Investment securities... 88,017 71,653 64,008 65,565 65,565
Deposits................ 293,698 268,465 236,214 226,482 206,331
Subordinated debt....... -- -- -- -- --
Trust Preferred
Securities............. -- -- -- -- --
Common shareholders'
equity................. 31,369 27,860 24,881 22,079 19,361
Regulatory Capital
Ratios
Leverage Ratio.......... 9.82% 9.82% 9.59% 9.33% 9.37%
Tier 1 Capital.......... 11.09% 11.21% 11.28% 11.25% 11.34%
Total Capital........... 11.91% 11.95% 12.07% 11.87% 11.95%
</TABLE>
15
<PAGE>
Selected Unaudited Pro Forma Combined Financial Data
Greater Bay and Bank of Santa Clara
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Statement of Operations Data
Interest income............................ $ 214,473 $ 168,343 $ 134,180
Interest expense........................... 82,770 65,065 48,434
---------- ---------- ----------
Net interest income..................... 131,703 103,278 85,746
Provision for loan losses.................. 13,739 7,759 8,341
---------- ---------- ----------
Net interest income after provision for
loan losses............................ 117,964 95,519 77,405
Other income............................... 22,606 13,823 12,203
Nonrecurring--warrant income............... 14,508 945 1,162
---------- ---------- ----------
Total other income...................... 37,114 14,768 13,365
Operating expenses......................... 81,346 68,078 58,509
Other expenses--nonrecurring............... 12,160 1,341 --
---------- ---------- ----------
Total operating expenses................ 93,506 69,419 58,509
---------- ---------- ----------
Income before income tax expense & merger
and other related nonrecurring costs...... 61,572 40,868 32,261
Income tax expense......................... 20,057 13,684 11,416
---------- ---------- ----------
Income before merger and other related
nonrecurring costs........................ 41,515 27,184 20,845
Merger and other related nonrecurring
costs, net of tax......................... (6,486) (1,674) (2,282)
---------- ---------- ----------
Income before extraordinary items.......... 35,029 25,510 18,563
Extraordinary items........................ (88) -- --
---------- ---------- ----------
Net income.............................. $ 34,941 $ 25,510 $ 18,563
========== ========== ==========
Per Share Data
Income per share (before merger,
nonrecurring and extraordinary items)
Basic..................................... $ 2.41 $ 1.78 $ 1.36
Diluted................................... $ 2.27 $ 1.67 $ 1.29
Net income per share
Basic..................................... $ 2.28 $ 1.69 $ 1.30
Diluted................................... $ 2.15 $ 1.59 $ 1.23
Shares outstanding at year end............. 15,980,693 14,895,677 14,427,224
Average common shares outstanding.......... 15,319,000 15,078,080 14,232,120
Average common and common equivalent shares
outstanding............................... 16,250,000 16,079,320 15,047,270
Performance Ratios
Return on average assets (before merger,
nonrecurring and extraordinary items)(3).. 1.32% 1.27% 1.21%
Return on average common shareholders'
equity (before merger, nonrecurring and
extraordinary items)(3)................... 21.66% 18.72% 15.53%
Net interest margin....................... 5.11% 5.33% 5.80%
Balance Sheet Data--At Period End
Assets..................................... 3,174,022 2,346,938 1,822,712
Loans, net................................. 2,093,526 1,486,478 1,132,438
Investment securities...................... 583,186 494,218 335,506
Deposits................................... 2,800,084 2,026,772 1,610,861
Subordinated debt.......................... -- 3,000 3,000
Trust Preferred Securities................. 50,000 50,000 20,000
Common shareholders' equity................ 201,564 156,686 132,487
Regulatory Capital Ratios
Leverage Ratio............................. 8.05% 8.16% 8.82%
Tier 1 Capital............................. 9.34% 10.03% 10.86%
Total Capital.............................. 10.69% 11.99% 12.23%
</TABLE>
16
<PAGE>
Selected Unaudited Pro Forma Combined Financial Data
Greater Bay, Bank of Santa Clara, Coast Bancorp and Bank of Petaluma
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
(Dollars in thousands, except
per share amounts)
<S> <C> <C> <C>
Statement of Operations Data
Interest income........................... $ 255,447 $ 205,214 $ 165,782
Interest expense.......................... 95,088 76,765 58,309
---------- ---------- ----------
Net interest income.................... 160,359 128,449 107,473
Provision for loan losses................. 14,039 8,279 9,131
---------- ---------- ----------
Net interest income after provision for
loan losses........................... 146,320 120,170 98,342
Other income.............................. 28,471 20,996 18,179
Nonrecurring--warrant income.............. 14,508 945 1,162
---------- ---------- ----------
Total other income..................... 42,979 21,941 19,341
Operating expenses........................ 100,914 86,205 74,564
Other expenses--nonrecurring.............. 12,160 1,341 --
---------- ---------- ----------
Total operating expenses............... 113,074 87,546 74,564
---------- ---------- ----------
Income before income tax expense & merger
and other related nonrecurring costs..... 76,225 54,565 43,119
Income tax expense........................ 25,467 19,104 15,643
---------- ---------- ----------
Income before merger and other related
nonrecurring costs....................... 50,758 35,461 27,476
Merger and other related nonrecurring
costs, net of tax........................ (6,486) (1,674) (2,282)
---------- ---------- ----------
Income before extraordinary items......... 44,272 33,787 25,194
Extraordinary items....................... (88) -- --
---------- ---------- ----------
Net income............................. $ 44,184 $ 33,787 $ 25,194
========== ========== ==========
Per Share Data
Income per share (before merger,
nonrecurring and extraordinary items)
Basic.................................... $ 2.37 $ 1.82 $ 1.41
Diluted.................................. $ 2.24 $ 1.72 $ 1.34
Net income per share
Basic.................................... $ 2.26 $ 1.75 $ 1.37
Diluted.................................. $ 2.15 $ 1.66 $ 1.30
Shares outstanding at year end............ 20,224,404 19,070,134 18,614,933
Average common shares outstanding......... 19,532,000 19,258,000 18,396,000
Average common and common equivalent
shares outstanding....................... 20,585,000 20,414,000 19,330,000
Performance Ratios
Return on average assets (before merger,
nonrecurring and extraordinary items).... 1.39 1.37 1.30
Return on average common shareholders'
equity (before merger, nonrecurring and
extraordinary items)..................... 21.23 19.02 16.22
Net interest margin....................... 5.26 5.46 5.88
Balance Sheet Data--At Period End
Assets.................................... $3,739,629 $2,858,245 $2,235,907
Loans, net................................ 2,416,424 1,744,029 1,360,623
Investment securities..................... 751,515 668,915 465,091
Deposits.................................. 3,262,887 2,463,483 1,935,405
Subordinated debt......................... -- 3,000 3,000
Trust Preferred Securities................ 50,000 50,000 20,000
Common shareholders' equity............... 243,296 200,697 171,464
Regulatory Capital Ratios
Leverage Ratio............................ 8.24% 8.26% 8.90%
Tier 1 Capital............................ 9.74 10.45 11.31
Total Capital............................. 11.07 12.30 12.67
</TABLE>
17
<PAGE>
Significant events affecting the selected unaudited pro forma combined
financial data include the following:
. Per share amounts have been adjusted to reflect Greater Bay's two-for-one
stock split effective on April 30, 1998 and Coast Bancorp's two-for-one
stock split effective February 5, 1999.
. If the pro forma performance ratios for Greater Bay and Bank of Santa
Clara included merger and other related nonrecurring costs (net of tax)
of $6.5 million in 1999, $1.7 million in 1998 and $2.3 million in 1997,
return on average assets would have been 1.11% for 1999, 1.20% for 1998
and 1.08% for 1997, and return on average common shareholders' equity
would have been 18.23% for 1999, 17.56% for 1998 and 13.83% for 1997.
. If the pro forma performance ratios for Greater Bay, Bank of Santa Clara,
Coast Bancorp and Bank of Petaluma included merger and other related
nonrecurring costs (net of tax) of $6.5 million in 1999, $1.7 million in
1998 and $2.3 million in 1997, return on average assets would have been
1.21% for 1999, 1.30% for 1998 and 1.19% for 1997, and return on average
common shareholders' equity would have been 18.48% for 1999, 18.13% for
1998 and 14.87% for 1997.
18
<PAGE>
RISK FACTORS
In addition to the other information included in this document including the
matters addressed in "A Warning about Forward-looking Information", you should
consider the matters described below carefully in determining whether to
approve the merger agreement and the transactions contemplated by the merger
agreement.
Since the market price of Greater Bay common stock will vary, Bank of Santa
Clara shareholders cannot be sure of the number of shares and value of the
Greater Bay common stock to be received in the merger.
The conversion ratio is based on the Greater Bay common stock average
closing sale price for the 20 consecutive trading days prior to the third
trading day before the day the merger is completed. This means that at the time
of the special meeting, Bank of Santa Clara shareholders will not know the
exact value of the Greater Bay common stock that they will receive when the
merger is completed. The market prices of Bank of Santa Clara common stock and
Greater Bay common stock when the merger takes place may vary from their prices
at the date of this document and at the date of the shareholder meeting. Such
variations in the market prices of Greater Bay common stock and Bank of Santa
Clara common stock may result from changes in the business, operations or
prospects of Bank of Santa Clara, Greater Bay or the combined company, market
assessments of the likelihood that the merger will be consummated and the
timing thereof, regulatory considerations, general market and economic
conditions and other factors.
We urge you to obtain current market quotations for Greater Bay common stock
and Bank of Santa Clara common stock.
We may not successfully integrate our business operations.
Integrating our business operations after the merger may be difficult and
time consuming. If we are unable to integrate our businesses successfully, this
could hurt our business and operating results. Successful integration of Bank
of Santa Clara's operations, as well as those of Coast Commercial Bank and Bank
of Petaluma, will depend primarily on Greater Bay's ability to consolidate
operations, systems and procedures and to eliminate redundancies and costs.
Greater Bay may encounter difficulties in the integration process, such as the
loss of key employees and customers, the disruption of ongoing businesses or
possible inconsistencies in standards, controls, procedures and policies.
19
<PAGE>
THE BANK OF SANTA CLARA SPECIAL MEETING
General
Bank of Santa Clara will hold its special meeting on , , 2000 at
p.m., local time, at the , located at , Santa Clara, California.
At the special meeting, Bank of Santa Clara shareholders will be asked to
consider and vote upon a proposal to approve the merger agreement. Bank of
Santa Clara shareholders may also be asked to vote upon a proposal to adjourn
or postpone the meeting for the purpose of, among other things, allowing
additional time for the solicitation of proxies from the shareholders to
approve the merger agreement.
Record Date; Voting Power
If you were a Bank of Santa Clara shareholder at the close of business on
, 2000, you may vote at the special meeting. As of , 2000, there
were issued and outstanding shares of Bank of Santa Clara common stock
held by approximately holders of record. These shareholders have one vote
per share on any matter that may properly come before the special meeting.
Brokers who hold shares of Bank of Santa Clara common stock as nominees will
not have discretionary authority to vote such shares in the absence of
instructions from the beneficial owners. Any shares of Bank of Santa Clara
common stock for which a broker has submitted an executed proxy but for which
the beneficial owner has not given instructions on voting to such broker are
referred to as "broker non-votes."
Vote Required
The presence in person or by proxy of the holders of a majority of the
shares of Bank of Santa Clara common stock outstanding on the record date will
constitute a quorum for the transaction of business at the special meeting.
Bank of Santa Clara will count abstentions and broker non-votes for purposes of
establishing the presence of a quorum at the meeting. The proposal to approve
the merger agreement requires the affirmative vote of holders of a majority of
the shares of Bank of Santa Clara common stock outstanding on the record date.
Because broker non-votes and abstentions are not affirmative votes, they will
have the effect of a vote against the proposal to approve the merger agreement.
Share Ownership of Management
On the record date, the executive officers and directors of Bank of Santa
Clara, including their affiliates, had voting power with respect to an
aggregate of shares of Bank of Santa Clara common stock or approximately
% of the shares of Bank of Santa Clara common stock then outstanding. We
currently expect that the directors will vote all of their shares in favor of
the proposal to approve the merger agreement. On the record date, the directors
of Greater Bay did not beneficially own any shares of Bank of Santa Clara
common stock.
Recommendation of the Bank of Santa Clara Board
The Bank of Santa Clara Board of Directors has unanimously approved and
adopted the merger agreement and the transactions contemplated by the merger
agreement. The Bank of Santa Clara Board believes that the merger is fair to
and in the best interests of Bank of Santa Clara and its shareholders and
unanimously recommends a vote "FOR" approval of the merger agreement and the
transactions contemplated thereby. For more information about the factors the
Bank of Santa Clara Board considered, read the information under the heading
entitled "The Merger -- Background of and Reasons for the Merger."
Solicitation and Revocation of Proxies
A form of proxy is enclosed with this document. Shares of Bank of Santa
Clara common stock represented by a properly executed proxy will, unless the
proxy has been previously revoked, be voted at the special
20
<PAGE>
meeting as specified in the proxy. If no instructions are indicated, these
shares will be voted FOR approval of the merger agreement and in the discretion
of the proxy holder as to any other matter which may properly come before the
meeting.
Bank of Santa Clara shareholders are requested to vote by completing, dating
and signing the accompanying proxy card and returning it promptly to Bank of
Santa Clara in the enclosed, postage-paid envelope. Bank of Santa Clara
shareholders should not send their stock certificates with their proxy card.
If you have previously delivered a properly executed proxy, you may revoke
it at any time before its exercise. You may revoke a proxy either by
. filing with the Secretary of Bank of Santa Clara prior to the special
meeting, at Bank of Santa Clara's principal executive offices, either a
written revocation of the proxy or a duly executed proxy bearing a later
date or
. attending the meeting and voting in person. Your presence at the meeting
will not revoke your proxy unless you vote in person.
Bank of Santa Clara is soliciting proxies for use at its special meeting.
Bank of Santa Clara will bear the cost of solicitation of proxies from its
shareholders. Bank of Santa Clara and Greater Bay will share equally the cost
of printing and mailing this document. In addition to solicitation by mail,
Bank of Santa Clara directors, officers and employees may solicit proxies from
shareholders by telephone, in person or through other means. These persons will
not receive additional compensation, but they will be reimbursed for the
reasonable out-of-pocket expenses they incur in connection with this
solicitation. Bank of Santa Clara will also make arrangements with brokerage
firms, fiduciaries and other custodians who hold shares of record to forward
solicitation materials to the beneficial owner of these shares. Bank of Santa
Clara will reimburse these brokerage firms, fiduciaries and other custodians
for their reasonable out-of-pocket expenses in connection with this
solicitation.
Other Matters
Bank of Santa Clara is unaware of any matter to be presented at the special
meeting other than the proposal to approve the merger agreement. If other
matters are properly presented at the special meeting, the persons named in the
enclosed form of proxy will have authority to vote all properly executed
proxies in accordance with their judgment on any other matters, including,
without limitation, any proposal to adjourn or postpone the meeting. Proxies
that are voted against approval of the merger agreement will not be voted in
favor of any proposal to adjourn or postpone the meeting for the purpose of
soliciting additional proxies to approve the merger agreement.
21
<PAGE>
THE MERGER
The detailed terms of the merger are contained in the merger agreement
attached as Annex A to this document. The following discussion and the
discussion under "The Merger Agreement" describe the more important aspects of
the merger and all of the material terms of the merger agreement. These
descriptions are qualified in their entirety by reference to the merger
agreement, which is incorporated by reference in this document. We encourage
you to read the merger agreement carefully.
Structure of the Merger
General. The merger agreement provides for GBB Merger Corp., a wholly owned
subsidiary of Greater Bay, to merge with and into Bank of Santa Clara. After
the merger, Bank of Santa Clara will become a wholly owned subsidiary of
Greater Bay. The articles of incorporation and bylaws of Greater Bay, as in
effect immediately before the merger, will be the articles of incorporation and
bylaws of Greater Bay after the merger. The directors and officers of Greater
Bay immediately before the merger, along with , a director of Bank of
Santa Clara, will be the directors and officers of Greater Bay after the
merger.
Conversion of Shares. At the completion of the merger, each issued and
outstanding share of Bank of Santa Clara common stock, other than shares as to
which statutory dissenters' rights are perfected, will be converted into the
right to receive:
. if the average closing price is from $38.3875 to $44.6125, 0.87 shares of
Greater Bay common stock;
. if the average closing price is greater than $44.6125, a number of shares
of Greater Bay common stock equal to the quotient obtained by dividing (1)
$38.8129 plus the product of 0.3333 times the difference between the average
closing price and $44.6125, by (2) the average closing price;
. if the average closing price is from $36.3600 to $38.3875, a number of
shares of Greater Bay common stock equal to the quotient obtained by dividing
(1) $33.3971 less the product of 0.3333 times the difference between $38.3875
and the average closing price, by (2) the average closing price.
. if the average closing price is less than $36.3600, 0.90 shares of Greater
Bay common stock, unless Bank of Santa Clara decides to terminate the merger
agreement. If Bank of Santa Clara decides to terminate, Greater Bay may elect
to exercise a top up option in which case the conversion ratio will equal that
number of shares of Greater Bay common stock equal to the quotient obtained by
dividing $32.7240 by the average closing price;
. if, before the completion of the merger, Greater Bay publicly announces a
transaction which if consummated would result in Greater Bay's shareholders
owning less than 51% of the outstanding shares of the surviving corporation,
which we refer to as a "Greater Bay acquisition transaction," the price to be
paid to Greater Bay shareholders in the transaction would exceed $44.6125 per
share, and the transaction is not terminated before the completion of the Bank
of Santa Clara merger, then the conversion ratio will be 0.87 shares of Greater
Bay common stock. If any Greater Bay acquisition transaction is terminated
during the period for determining the average closing price, Greater Bay can
elect either to set the conversion ratio at 0.87 or delay the completion of the
Bank of Santa Clara merger to a date which is 25 trading days after the public
announcement of the termination of the Greater Bay acquisition transaction.
The term "average closing price" means the average closing sale price on The
Nasdaq Stock Market of Greater Bay common stock for the 20 consecutive trading
days ending at the end of the third trading day immediately prior to the
completion of the merger. If Greater Bay changes the number of its outstanding
shares through any reclassification, recapitalization, split-up, combination or
exchange of shares, or if Greater Bay declares a stock dividend on the shares
of Greater Bay common stock, then the conversion ratio also will be adjusted
appropriately.
As described above, the conversion ratio and the resulting value of the
Greater Bay common stock to be received by shareholders of Bank of Santa Clara
upon conversion depends upon the average closing price of
22
<PAGE>
Greater Bay common stock. The following table shows the effective conversion
ratio and the value of the Greater Bay common stock into which one share of
Bank of Santa Clara common stock will be converted as a function of the average
closing price of Greater Bay common stock.
<TABLE>
<CAPTION>
Value to be
Assuming a Each Bank of Santa Clara received per
Greater Bay share will be converted Bank of Santa Clara
Average Closing into this Number of share (payable in
Price of: Greater Bay Shares Greater Bay Stock)
--------------- ------------------------ -------------------
<S> <C> <C>
$36.50 0.8978 $32.7697
37.00 0.8901 32.9337
37.50 0.8827 33.1013
38.00 0.8755 33.2690
38.50 0.8700 33.4950
39.00 0.8700 33.9300
39.50 0.8700 34.3650
40.00 0.8700 34.8000
40.50 0.8700 35.2350
41.00 0.8700 35.6700
41.50 0.8700 36.1050
42.00 0.8700 36.5400
42.50 0.8700 36.9750
43.00 0.8700 37.4100
43.50 0.8700 37.8450
44.00 0.8700 38.2800
44.50 0.8700 38.7150
45.00 0.8654 38.9430
45.50 0.8595 39.1073
46.00 0.8538 39.2748
46.50 0.8482 39.4413
47.00 0.8427 39.6069
47.50 0.8374 39.7765
48.00 0.8321 39.9408
</TABLE>
For average closing prices of less than $36.36, the following tables show
the conversion ratio and approximate value to be received by Bank of Santa
Clara shareholders (1) if Greater Bay elects the top up option, and (2) if
Greater Bay does not elect the top up option and Bank of Santa Clara accepts a
fixed ratio of 0.90.
<TABLE>
<CAPTION>
With Top-Up Election Without Top-Up Election
---------------------------------------- ---------------------------------------
Each Bank of Santa Value to be received Each Bank of Value to be received
Assuming a Clara share will be per Bank of Santa Santa Clara share per Bank of Santa
Greater Bay converted Clara share (payable will be converted Clara share (payable
Average Closing into this number of in Greater to this number of in Greater
Price of: Greater Bay shares Bay stock) Greater Bay shares Bay stock)
- --------------- ------------------- -------------------- ------------------ --------------------
<S> <C> <C> <C> <C>
$34.50 0.9485 $32.7233 0.9000 $31.0500
35.00 0.9350 32.7250 0.9000 31.5000
35.50 0.9218 32.7239 0.9000 31.9500
36.00 0.9090 32.7240 0.9000 32.4000
</TABLE>
No assurance can be given as to what will be the average closing price. No
assurance can be given that the market price of Greater Bay common stock on or
after consummation of the merger will approximate the average closing price.
You are urged to obtain current market quotations for Greater Bay common
stock and Bank of Santa Clara common stock. It is expected that the market
price of Greater Bay common stock will fluctuate between the date of this
document and the date on which the merger is completed and thereafter. Because
the number of
23
<PAGE>
shares of Greater Bay common stock to be received by you in the merger will be
determined based on the average closing price and the market price of Greater
Bay common stock is subject to fluctuation, the value of the shares of Greater
Bay common stock that you will receive in the merger may increase or decrease
before and after the merger. This risk is further explained under "Risk
Factors--Since the market price of Greater Bay common stock will vary, Bank of
Santa Clara shareholders cannot be sure of the number of shares and value of
the Greater Bay common stock to be received in the merger."
Fractional Shares. No fractional shares of Greater Bay common stock will be
issued in the merger. Instead, if you would otherwise be entitled to receive a
fractional share, Greater Bay will pay you an amount in cash equal to the
product obtained by multiplying (1) the closing sale price of Greater Bay
common stock as reported on The Nasdaq Stock Market on the day immediately
preceding the merger closing date times (2) the fraction of the share of
Greater Bay common stock to which you would otherwise be entitled. You will not
be entitled to dividends or other rights in respect of any fractional share.
Background of and Reasons for the Merger
Background of the Merger. While Bank of Santa Clara has had relatively
strong earnings in recent years, the Board of Directors of Bank of Santa Clara
continued to consider the best way to maintain and improve its competitive
position. The Board concluded that this would require substantial investment of
resources in new technology and personnel to develop new strategies, services
and markets to keep up with growing competition from larger banks which have
more resources to devote to competing with Bank of Santa Clara in its service
area.
As part of the Board's desire to maximize shareholder value, Bank of Santa
Clara's Chief Executive Officer has from time to time been authorized to hold
informal discussions with senior management and board members of other banking
institutions regarding the possibility of a business combination. In May 1999,
the Board of Directors of Bank of Santa Clara reviewed Bank of Santa Clara's
business and the possible strategic alternatives available to it, particularly
in light of the current banking environment and the trend toward strategic
consolidation in the banking industry.
As part of this review, Bank of Santa Clara's Board determined that, if it
were to pursue a business combination, a substantially larger institution would
best be able to maximize value for the Bank of Santa Clara shareholders. In the
Board's view, a larger institution would offer greater opportunity for a more
liquid stock; increased lending limits; access to a broader array of products,
services, experience and expertise that would match the needs of many of Bank
of Santa Clara's customers and potential customers; the financial capacity to
invest in innovative technology and customer delivery systems; competitive and
marketing strength; and improved geographic diversification to reduce the
dependence on the local economy.
Following these internal discussions, Bank of Santa Clara's representatives
engaged in preliminary discussions with representatives of Greater Bay and
several other institutions and gathered information necessary to evaluate these
institutions.
In September 1999, the Board of Bank of Santa Clara engaged First Security
Van Kasper to provide it with advice and assistance with respect to evaluating,
negotiating and implementing possible combination transactions.
Additional informal meetings were held with senior officers of Greater Bay.
Subsequently, First Security Van Kasper engaged in additional exploratory
discussions regarding a possible combination involving Bank of Santa Clara and
Greater Bay. Throughout this time, discussions remained preliminary and
specific details were not discussed. However, Bank of Santa Clara and Greater
Bay exchanged information about each other to enable them to evaluate each
other in a possible combination.
At Bank of Santa Clara Board of Director meetings in November and early
December of 1999, a representative of First Security Van Kasper described the
various strategic alternatives available to Bank of
24
<PAGE>
Santa Clara. After deliberations on the matter, the Board directed Bank of
Santa Clara's Chief Executive Officer and First Security Van Kasper to explore
further details of a possible business combination with Greater Bay. The Board
concluded that a proposed combination with Greater Bay under the preliminary
terms under discussion appeared in all respects to be superior to what had been
discussed with other possible candidates. Factors that were noted in particular
were Greater Bay's past and prospective profitability, its apparent competitive
strength in its market, the geographic proximity of Greater Bay's market area
to Bank of Santa Clara's market area, the liquidity of Greater Bay's common
stock, its success in completing past mergers, its internal growth in addition
to its growth by acquisitions, the availability of pooling accounting, the tax-
free nature of the proposed form of transaction and the proposed continued
existence of Bank of Santa Clara as a community bank under Greater Bay as a
multi-bank holding company.
After December 3, 1999, the parties began negotiation of a definitive
agreement. Bank of Santa Clara's Board of Directors met to consider a draft
agreement on December 21, 1999. Representatives of First Security Van Kasper
gave the Board a summary of the results of the due diligence investigation
undertaken by the parties and of its view of the proposed transaction in light
of its previous experience in bank mergers. Bank of Santa Clara's counsel
reviewed the specific terms of the merger agreement with the Board. Bank of
Santa Clara's counsel also summarized the legal due diligence which he had
conducted. At the conclusion of the meeting, the Board directed management to
continue negotiations of final terms of the merger agreement, including final
pricing terms. Negotiations with Greater Bay continued into January 2000.
The Board met with First Security Van Kasper and Bank of Santa Clara's
counsel again on January 25, 2000 to review the results of negotiations and the
final terms of a proposed merger agreement. In that meeting, representatives of
First Security Van Kasper presented an analysis of the proposed merger
consideration in relation to other bank merger transactions and in relation to
the potential value of Bank of Santa Clara as an independent entity and
verbally advised the Board that in First Security Van Kasper's opinion the
merger consideration offered by Greater Bay was fair from a financial point of
view to the shareholders of Bank of Santa Clara. The Board authorized execution
of the merger agreement which was signed by Greater Bay and Bank of Santa Clara
on January 26, 2000.
Reasons for the Merger. The Bank of Santa Clara Board believes the merger is
fair from a financial point of view to its shareholders and is also in the best
interests of its shareholders. Therefore, the Board unanimously approved the
merger and unanimously recommends that its shareholders approve the merger. In
reaching its decision, the Board considered the following factors:
. the business, operations, condition and earnings of Greater Bay on an
historical and prospective basis and of the combined company on a pro
forma basis;
. the potential cost savings, operating efficiencies and opportunities for
revenue enhancement available to the combined company following the
merger;
. the historical and prospective stock price performance of Greater Bay
common stock;
. the compatibility of the respective businesses, operating philosophies
and strategic objectives of Bank of Santa Clara and Greater Bay,
including their decentralized management structures, the growth of their
respective fee-based businesses and the superior credit quality of their
respective loan portfolios;
. the terms of the merger agreement, including the conversion ratio as a
function of Bank of Santa Clara's earnings and book value per share;
. the current and prospective economic and competitive environment facing
the financial services industry generally and Bank of Santa Clara in
particular, and the probable importance of economies of scale in
enhancing efficiency and profitability;
. Greater Bay's apparent success in completing and implementing previous
mergers of community banks;
. the presentations of First Security Van Kasper to the Board on December
21, 1999 and January 25, 2000 and its opinion that the merger
consideration is fair from a financial point of view to the shareholders
of Bank of Santa Clara.
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<PAGE>
. the expectation that the merger will be tax-free (except as to cash paid
in lieu of fractional interests and for dissenting shares) for federal
income tax purposes to Bank of Santa Clara shareholders and will qualify
as a pooling of interests for accounting and financial reporting
purposes;
. the generally favorable impact that the Board expects the merger to have
on Bank of Santa Clara's customers, employees and the communities in its
service area.
. The comparative benefit of other potential candidates for a combination
transaction and the cost and benefits of continuing as an independent
bank.
The Board did not assign relative weight to any of the foregoing factors,
and different directors may have assigned weights to different factors. The
foregoing discussion of the information and factors considered by the Bank of
Santa Clara Board of Directors is not intended to be exhaustive but is believed
to include all material factors considered by the Board.
The Bank of Santa Clara Board believes that the merger, including the
conversion ratio, is fair to and in the best interests of Bank of Santa Clara
and you as the Bank of Santa Clara shareholders and has unanimously approved
and adopted the merger agreement and recommends that you vote for approval of
the merger agreement.
Opinion of Financial Advisor
General. Bank of Santa Clara engaged First Security Van Kasper on September
24, 1999 to act as financial advisor to Bank of Santa Clara in connection with
a possible sale to Greater Bay. As part of its engagement, First Security Van
Kasper agreed to render to Bank of Santa Clara's Board an opinion with respect
to the fairness from a financial point of view of the consideration to be
received by Bank of Santa Clara shareholders in a potential sale of Bank of
Santa Clara. First Security Van Kasper is a nationally recognized investment
banking firm and, as part of its investment banking activities, is regularly
engaged in the valuation of businesses and their securities in connection with
merger transactions and other types of acquisitions, negotiated underwritings,
private placements and valuations for corporate and other purposes. Bank of
Santa Clara selected First Security Van Kasper to render the opinion on the
basis of its experience and expertise and its reputation in the banking and
investment communities.
At a meeting of Bank of Santa Clara's Board on January 25, 2000, First
Security Van Kasper delivered its oral opinion that the consideration to be
received by the holders of Bank of Santa Clara's common stock in the merger was
fair to those shareholders from a financial point of view, as of the date of
that opinion. First Security Van Kasper's oral opinion was subsequently
confirmed in writing as of the date of this document.
The full text of First Security Van Kasper's written opinion to Bank of
Santa Clara's Board, dated the date of this document, which sets forth the
assumptions made, matters considered, and limitations of the review by First
Security Van Kasper is attached as Annex B to this document. You should read
the First Security Van Kasper opinion carefully and in its entirety. The
summary of First Security Van Kasper's opinion included in this document is
qualified in its entirety by reference to the full text of First Security Van
Kasper's opinion. In furnishing its opinion, First Security Van Kasper does not
admit that it is an expert with respect to the registration statement of which
this document is a part within the meaning of the term "expert" as used in the
Securities Act of 1933 and the rules and regulations of the SEC, nor does it
admit that its opinion constitutes a report or valuation within the meaning of
Section 11 of the Securities Act of 1933. First Security Van Kasper's opinion
is directed to Bank of Santa Clara's
Board, covers only the fairness from a financial point of view of the
consideration to be received by you as of the date of the opinion and does not
constitute a recommendation to you as to how you should vote at the special
meeting.
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<PAGE>
In connection with its opinion, First Security Van Kasper, among other
things:
. reviewed certain publicly available financial and other data with
respect to Bank of Santa Clara and Greater Bay, including the
consolidated financial statements for recent years and interim periods
to September 30, 1999, and certain other relevant financial and
operating data relating to Bank of Santa Clara and Greater Bay made
available to First Security Van Kasper from published sources and from
the internal records of Bank of Santa Clara and Greater Bay,
. reviewed the proposed merger agreement,
. reviewed certain publicly available information concerning the trading
of, and market for, Bank of Santa Clara common stock and Greater Bay
common stock,
. compared certain financial data of Bank of Santa Clara and Greater Bay
with those of certain other companies in the banking industry which
First Security Van Kasper deemed to be relevant,
. considered the financial terms, to the extent publicly available, of
selected recent business combinations of companies in the banking
industry which First Security Van Kasper deemed to be comparable, in
whole or in part, to the merger,
. conducted discussions with representatives of the senior management of
Bank of Santa Clara and Greater Bay concerning their respective
businesses and prospects,
. reviewed certain information, including financial forecasts and related
assumptions furnished to First Security Van Kasper by Bank of Santa
Clara and Greater Bay, respectively, and
. performed such other analyses and examinations as First Security Van
Kasper deemed appropriate.
In connection with First Security Van Kasper's review, First Security Van
Kasper did not assume any obligation independently to verify the information
listed above and relied on its accuracy and completeness in all material
respects. With respect to the financial forecasts for Bank of Santa Clara and
Greater Bay provided to First Security Van Kasper by their respective
managements, upon their advice and with Bank of Santa Clara's consent, First
Security Van Kasper assumed for purposes of its opinion that the forecasts were
reasonably prepared on bases reflecting the best available estimates and
judgments of their respective managements at the time of preparation as to the
future financial performance of Bank of Santa Clara and Greater Bay and that
they provided a reasonable basis upon which First Security Van Kasper could
form its opinion. First Security Van Kasper assumed that there were no material
changes in Bank of Santa Clara's or Greater Bay's assets, financial condition,
results of operations, business or prospects since the respective dates of
their last financial statements made available to First Security Van Kasper.
First Security Van Kasper relied on advice of counsel to Bank of Santa Clara as
to all legal matters with respect to Bank of Santa Clara, the merger and the
merger agreement. First Security Van Kasper assumed that the merger will be
completed in a manner that complies in all respects with the applicable
provisions of the Securities Act of 1933, the Securities Exchange Act of 1934
and all other applicable federal and state statutes, rules and regulations.
In addition, First Security Van Kasper did not assume responsibility for
reviewing any individual credit files, or making an independent evaluation,
appraisal or physical inspections of any of the assets or liabilities
(contingent or otherwise) of Bank of Santa Clara or Greater Bay, nor was First
Security Van Kasper furnished with any such appraisals. First Security Van
Kasper is not an expert in the evaluation of loan portfolios for purposes of
assessing the adequacy of the allowances for losses with respect thereto and
assumed, with Bank of Santa Clara's consent, that such allowances for each of
Bank of Santa Clara and Greater Bay were in the aggregate adequate to cover
such losses. Bank of Santa Clara informed First Security Van Kasper, and First
Security Van Kasper assumed, that the merger will be recorded as a pooling of
interests under generally accepted accounting principles. Finally, First
Security Van Kasper's opinion was based on economic, monetary and market and
other conditions as in effect on, and the information made available to First
Security Van Kasper as of, the date of the opinion.
Set forth below is a brief summary of the information presented by First
Security Van Kasper to Bank of Santa Clara's Board on January 25, 2000, in
connection with its opinion.
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<PAGE>
Transaction Summary. First Security Van Kasper calculated the merger
consideration to be paid pursuant to the exchange ratio as a multiple of Bank
of Santa Clara's book value, and 1999 estimated earnings. This computation was
based on Bank of Santa Clara's estimated earnings per share of $1.86 in 1999,
Bank of Santa Clara's estimated earnings per share of $1.93 in 2000, a
conversion ratio of 0.87 Greater Bay shares for each Bank of Santa Clara share
and the closing price of Greater Bay's common stock on January 24, 2000 of
$41.8125. Based on those assumptions, this analysis indicated that Bank of
Santa Clara shareholders would receive shares of Greater Bay common stock worth
$36.38 for each share of Bank of Santa Clara common stock held and that this
amount would represent a multiple of 2.69 times tangible book value per share,
and 19.56 times estimated 1999 earnings per share and 18.85 times estimated
2000 earnings per share.
Discounted Analysis. First Security Van Kasper estimated the present value
of future cash flows that would accrue to a holder of a share of Bank of Santa
Clara common stock assuming that the shareholder held the stock for five years
and then sold it. The analysis was based on earnings forecasts prepared by
management on a stand-alone, independent basis for the year 2000 and annual net
income growth rates from 12.0% to 16.0% for the years 2001 through 2004. A 26%
dividend payout ratio was assumed for Bank of Santa Clara through the year
2004. An estimated year 2004 year end stock price was estimated by multiplying
the projected annual earnings by earnings multiples ranging from 12 to 20
times. The estimated stock price for each year and the estimated dividends were
discounted at rates from 12% to 16%. These rates were selected because, in
First Security Van Kasper's experience, they represent the risk-adjusted rates
of return that investors in securities such as the common stock of Bank of
Santa Clara would require. On the basis of these assumptions, First Security
Van Kasper calculated a range of present values ranging from $21.08 to $45.77.
These values were compared to the $36.38 offer from Greater Bay.
The discounted cash flow present value analysis is a widely used valuation
methodology that relies on numerous assumptions, including asset and earnings
growth rates, terminal values and discount rates. The analysis did not purport
to be indicative of the actual values or expected values of Bank of Santa Clara
common stock.
Selected Transaction Analysis. Using publicly available information, First
Security Van Kasper reviewed certain terms and financial characteristics,
including historical price-to-earnings ratio, the price-to-tangible book ratio,
and the tangible book value premium to core deposits paid in prior commercial
banking institution merger or acquisition transactions. The first comparable
group, or Comparable Group One, included nationwide transactions announced
since January 1, 1999 with sellers with assets between $300 million and $500
million that earned greater than 0.75% on total assets. Comparable Group One
included 56 transactions. The average price-to-last twelve month earnings for
Comparable Group One was 21.51x, and ranged from 13.39x to 41.40x. The average
price-to-tangible book value for Comparable Group One was 2.65x, and ranged
from 1.00x to 4.51x.
The second comparable group, or Comparable Group Two, included transactions
announced since January 1, 1999 with sellers located in California with assets
between $300 million and $500 million that earned greater than 0.75% on total
assets. Comparable Group Two included 10 transactions. The average price-to-
last twelve month earnings for Comparable Group Two was 21.16x, and ranged from
14.10x to 27.08x. The average price-to-tangible book value for Comparable Group
Two was 3.03x, and ranged from 1.59x to 4.09x.
No company or transaction used as a comparison in the above analysis is
identical to Greater Bay, Bank of Santa Clara or the Merger. Accordingly, an
analysis of these results is not mathematical. Rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading value of the companies to which they are being compared.
Selected Peer Group Analysis. First Security Van Kasper compared the
financial performance and market performance of Greater Bay with selected
banking institutions with assets between $2 billion and
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<PAGE>
$4 billion earning over 0.75% return on assets, or the Comparable Bank Group,
deemed relevant by First Security Van Kasper.
The comparisons were based on:
. various financial measures
. earnings performance,
. operating efficiency,
. capital adequacy,
. asset quality and
. various measures of market performance,
. including market/book values,
. price to earnings and
. dividend yields.
To perform this analysis, First Security Van Kasper used the financial
information as of and for the latest available twelve months and market price
information as of January 24, 2000.
First Security Van Kasper's analysis showed the following concerning
Greater Bay's financial performance:
<TABLE>
<CAPTION>
Comparable
Bank Group
Performance Measure Greater Bay Average
------------------- ----------- ----------
<S> <C> <C>
Return on Average Common Equity....................... 21.09% 15.33%
Return on Assets...................................... 1.22% 1.27%
Net Interest Margin................................... 4.91% 4.36%
Efficiency Ratio...................................... 50.23% 54.96%
Leverage Ratio........................................ 7.93% 8.38%
Non-Performing Assets to Total Assets................. 0.21% 0.37%
Loan Loss Reserve to Nonperforming Assets............. 702.42% 312.89%
</TABLE>
First Security Van Kasper's analysis showed the following concerning
Greater Bay's market performance:
<TABLE>
<CAPTION>
Comparable
Bank Group
Performance Measure Greater Bay Average
------------------- ----------- ----------
<S> <C> <C>
Price to Earnings Multiple, based on 1999 estimated
earnings.......................................... 19.27x 13.52x
Price to Earnings Multiple, based on 2000 estimated
earnings.......................................... 14.67x 11.98x
Price to Tangible Book Multiples................... 3.53x 2.14%
Dividend Yield..................................... 1.22% 2.69%
</TABLE>
For purposes of the above calculations, all earnings estimates are based
upon the consensus estimates for Greater Bay. Because of the inherent
differences in the businesses, operations, financial conditions and prospects
of Greater Bay and the companies included in the Comparable Bank Group, First
Security Van Kasper believed that a purely quantitative comparable company
analysis would not be particularly meaningful in the context of the merger.
First Security Van Kasper believed that the appropriate use of a comparable
company analysis in this instance would involve qualitative judgments
concerning the differences between Greater Bay and the companies included in
the Comparable Bank Group which would affect the trading values of the
comparable companies.
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<PAGE>
Contribution Analysis. First Security Van Kasper analyzed the relative
contribution of each of Greater Bay and Bank of Santa Clara to certain pro
forma balance sheet and income statement items of the combined entity. The
contribution analysis showed:
<TABLE>
<S> <C>
Bank of Santa Clara Contribution To:
Combined Common Equity.............................................. 20.50%
Combined 2000 Estimated Net Income without Cost Savings............. 11.16%
Combined Total Assets............................................... 11.37%
Bank of Santa Clara Estimated Pro Forma Ownership................... 14.40%
</TABLE>
First Security Van Kasper compared the relative contribution of the balance
sheet and income statement items with the estimated pro forma ownership for
Bank of Santa Clara shareholders based on a conversion ratio of 0.87.
Other Analyses. First Security Van Kasper reviewed the relative financial
and market performance of Bank of Santa Clara and Greater Bay to a variety of
relevant industry peer groups and indices. First Security Van Kasper also
reviewed earnings estimates, balance sheet composition, historical stock
performance and other financial data for Greater Bay.
In connection with its opinion dated as of the date of this document, First
Security Van Kasper performed procedures to update, as necessary, certain of
the analyses described above. First Security Van Kasper reviewed the
assumptions on which the analyses described above were based and the factors
considered in connection therewith. First Security Van Kasper did not perform
any analyses in addition to those described above in updating its January 25,
2000 oral opinion.
The summary set forth above is not a complete description of the
presentation by First Security Van Kasper to Santa Clara's Board or of the
analysis performed by First Security Van Kasper. The preparation of a fairness
opinion is not necessarily susceptible to partial analysis or summary
description. First Security Van Kasper believes that its analyses and the
summary set forth above must be considered as a whole. In addition, First
Security Van Kasper may have given various analyses more or less weight than
other analyses, and may have deemed various assumptions more or less probable
than other assumptions, so that the ranges of valuations resulting from any
particular analysis described above should not be taken to be First Security
Van Kasper's view of the actual value of the Bank of Santa Clara or the
combined company. The fact that any specific analysis has been referred to in
the summary above is not meant to indicate that such analysis was given greater
weight than any other analysis.
In performing its analyses, First Security Van Kasper made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of the Bank
of Santa Clara and Greater Bay. The analyses performed by First Security Van
Kasper are not necessarily indicative of actual values or actual future
results, which may be significantly more or less favorable than suggested by
such analyses. Such analyses were prepared solely as part of First Security
Van Kasper's analysis of the fairness of the consideration to be received by
you in the merger and were provided to the Bank of Santa Clara's Board in
connection with the delivery of First Security Van Kasper's opinion. The
analyses do not purport to be appraisals or to reflect the prices at which a
company might actually be sold or the prices at which any securities may trade
at the present time or at any time in the future. The forecasts used by First
Security in certain of its analyses are based upon numerous variables and
assumptions, which are inherently unpredictable and must be considered not
certain of occurrence as projected. Accordingly, actual results could vary
significantly from those contemplated in such forecasts.
As described under "The Merger--Background of and Reasons for the Merger,"
First Security Van Kasper's opinion and presentation to the Board were among
the many factors taken into consideration by Bank of Santa Clara's Board in
making its determination to approve the merger agreement.
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<PAGE>
First Security Van Kasper. The Bank of Santa Clara Board of Directors has
retained First Security Van Kasper as an independent contractor to act as
financial adviser to Bank of Santa Clara regarding the Merger. In the ordinary
course of its business as a broker-dealer, First Security Van Kasper may, from
time to time, purchase securities from, and sell securities to, Bank of Santa
Clara and Greater Bay. As a market maker in securities First Security Van
Kasper may from time to time have a long or short position in, and buy or sell,
debt or equity securities of Bank of Santa Clara and Greater Bay for First
Security Van Kasper's own account and for the accounts of its customers. First
Security Van Kasper has previously provided investment banking services to Bank
of Santa Clara. First Security Van Kasper has previously provided investment
banking services to Greater Bay.
Bank of Santa Clara and First Security Van Kasper have entered into an
agreement relating to the services to be provided by First Security Van Kasper
in connection with the Merger. Bank of Santa Clara has agreed to pay First
Security Van Kasper, at the time of closing, a cash fee equal to 0.85% of the
market value of the aggregate consideration offered in exchange for the
outstanding shares of common stock of Bank of Santa Clara in the Merger.
Pursuant to the First Security Van Kasper engagement agreement, Bank of
Santa Clara also agreed to reimburse First Security Van Kasper for reasonable
out-of-pocket expenses and disbursements incurred in connection with its
retention and to indemnify First Security Van Kasper against certain
liabilities, including liabilities under the federal securities laws.
Interests of Certain Persons in the Merger
After completion of the merger, the Greater Bay Board of Directors will
consist of the current members of that Board and , a director of Bank of
Santa Clara. In addition, the Bank of Santa Clara Board of Directors will be
comprised of 13 directors, consisting of the current members of the Board and
John M. Gatto, the Co-Chairman of the Board of Directors of Greater Bay. Ronald
D. Reinartz, President and Chief Executive Officer of Bank of Santa Clara, will
continue to serve in those capacities.
The former officers and employees of Bank of Santa Clara who become officers
or employees of Greater Bay or who continue as officers or employees of Bank of
Santa Clara will be entitled to participate in all employee benefits and
benefit programs of Greater Bay, as the case may be, in accordance with the
terms of those plans or programs.
To the extent Greater Bay is not able to add the directors of Bank of Santa
Clara to Greater Bay's directors and officers liability insurance policy, Bank
of Santa Clara anticipates purchasing continued coverage under its directors'
and officers' liability insurance policy, which insurance will cover persons
serving as directors and officers of Bank of Santa Clara before the merger for
a period of three years from the completion of the merger.
As of the record date of the special meeting, the directors and executive
officers of Bank of Santa Clara beneficially owned shares of Bank of Santa
Clara common stock, not including shares such persons could acquire through the
exercise of options, constituting approximately % of the outstanding shares
of Bank of Santa Clara common stock as of the record date. The affirmative vote
of an additional % of the outstanding shares of Bank of Santa Clara common
stock entitled to vote at the meeting will be required in order to approve the
merger agreement.
If the merger takes place, outstanding options to purchase Bank of Santa
Clara common stock held by directors, officers and employees of Bank of Santa
Clara will be automatically converted into options to acquire shares of Greater
Bay common stock adjusted to account for the conversion ratio. Upon the signing
of the merger agreement, there were outstanding options to purchase an
aggregate of 308,582 shares of Bank of Santa Clara common stock.
Upon the signing of the merger agreement, the executive officers and
directors of Bank of Santa Clara held options to purchase 221,523 shares of
Bank of Santa Clara common stock at a per share weighted
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<PAGE>
average exercise price of $21.73. Upon consummation of the merger, these
options will be assumed by and deemed to be options granted by Greater Bay.
The options will be adjusted appropriately to reflect the conversion ratio. If
exercised before the merger, the shares of Bank of Santa Clara common stock
acquired will be converted into the right to receive Greater Bay common stock
upon completion of the merger in the same manner as will the shares of Bank of
Santa Clara common stock held by all other Bank of Santa Clara shareholders.
Nasdaq Listing
Greater Bay submitted an application on April 25, 2000 to list the shares
of Greater Bay common stock to be issued in the merger on The Nasdaq Stock
Market. The stock must be authorized for listing on Nasdaq for the merger to
proceed.
Material Federal Income Tax Consequences
Greater Bay and Bank of Santa Clara have obtained an opinion of counsel
from Manatt, Phelps & Phillips, LLP, to the effect that, for federal income
tax purposes, the merger is a tax-deferred reorganization within the meaning
of Section 368(a)(1)(A) of the Internal Revenue Code and shall not result in
gain or loss for federal income tax purposes to Greater Bay, GBB Merger Corp.
or Bank of Santa Clara. In addition, the opinion states that the issuance of
Greater Bay common stock in the merger will not result in the recognition of
gain or loss by the holders of Bank of Santa Clara common stock who receive
Greater Bay common stock in connection with the merger, nor shall the
substitution of options result in any income or gain to the option holder or
disqualify any substituted options as incentive stock options in connection
with the merger.
Based upon this opinion, the ancillary federal income tax consequences to
the merger include the following:
. Greater Bay, GBB Merger Corp. and Bank of Santa Clara will each be a
"party to a reorganization" within the meaning of Section 368(b) of the
Internal Revenue Code;
. no gain or loss will be recognized by GBB Merger Corp. on the transfer of
its assets to Bank of Santa Clara in the merger;
. no gain or loss will be recognized by Bank of Santa Clara upon receipt of
the assets of GBB Merger Corp. in the merger;
. the basis of Bank of Santa Clara's assets in the hands of Bank of Santa
Clara immediately after the merger will be the same as the basis of such
assets in the hands of Bank of Santa Clara immediately before the merger;
. no gain or loss will be recognized by the shareholders of Bank of Santa
Clara upon the transfer of their Bank of Santa Clara common stock solely
in exchange for Greater Bay common stock;
. Bank of Santa Clara dissenters, if any, will recognize gain or loss in
connection with the merger;
. holders of Bank of Santa Clara common stock who receive cash instead of
fractional shares will recognize gain or loss as a result of receipt of
the cash;
. the basis of Greater Bay common stock to be received by the shareholders
of Bank of Santa Clara in the merger will be the same as the basis of
their Bank of Santa Clara common stock surrendered in exchange for the
Greater Bay common stock;
. the holding period of the Greater Bay common stock to be received by the
Bank of Santa Clara shareholders in the merger will include the holding
period of the Bank of Santa Clara common stock surrendered in exchange
therefor, provided that the Bank of Santa Clara common stock is held as a
capital asset;
. the holding period of the assets of Bank of Santa Clara immediately after
the merger will include the period during which the assets were held by
Bank of Santa Clara prior to the merger;
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<PAGE>
. provided that any stock options to purchase Bank of Santa Clara common
stock and options to purchase Greater Bay common stock into which they
will be converted do not have a readily ascertainable fair market value,
the conversion of the Bank of Santa Clara options into Greater Bay
options will not result in income, gain or loss to the holders of stock
options; and
. no gain or loss will be recognized by Bank of Santa Clara or Greater Bay
upon the issuance of Greater Bay common stock to an optionee pursuant to
the optionee's exercise of a stock option issued by Bank of Santa Clara
and converted into an option to acquire Greater Bay common stock.
The foregoing discussion is based upon current law and is intended for
general information only. In addition, you are urged to consult with your own
own tax advisor concerning the specific tax consequences of the merger to you,
including the applicability and effect of foreign, state, local or other tax
laws and of any future changes in the Internal Revenue Code, the Treasury
Regulations, tax rulings or court decisions or other laws concerning taxes.
Accounting Treatment of the Merger
The merger is expected to qualify as a pooling of interests for accounting
and financial reporting purposes. Accordingly, after the merger, the assets,
liabilities and shareholders' equity of Bank of Santa Clara will be added to
the corresponding balance sheet categories of Greater Bay at their recorded
book values, subject to any adjustments required to conform the accounting
policies and financial statement classifications of the two companies. In
future financial statements, the results of operations of Greater Bay will
include the results of both Bank of Santa Clara and Greater Bay for the entire
fiscal year in which the merger occurs and all preceding fiscal periods
presented therein. Greater Bay must treat various expenses incurred to effect
the merger as current charges against income rather than as adjustments to its
balance sheet.
The unaudited pro forma combined financial information contained in this
document has been prepared using the pooling of interests accounting method to
account for the merger, which is described under the headings entitled "Summary
- -- Selected Historical and Pro Forma Financial Data" and "Unaudited Pro Forma
Condensed Combined Financial Information."
Exchange of Bank of Santa Clara Common Stock for Greater Bay Common Stock
Promptly after the completion of the merger, Greater Bay will cause Norwest
Bank Minnesota, N.A., to send to each holder of record of Bank of Santa Clara
common stock transmittal materials for use in exchanging certificates
representing shares of Bank of Santa Clara common stock for a certificate or
certificates representing shares of Greater Bay common stock and a check for
any fractional share interest. The transmittal materials will contain
information and instructions with respect to the surrender of certificates
representing shares of Bank of Santa Clara common stock in exchange for
certificates representing shares of Greater Bay common stock.
You should not send in your share certificates until you receive the letter
of transmittal form and instructions.
Following the completion of the merger and upon surrender of all of the
certificates representing shares of Bank of Santa Clara common stock registered
in the name of a holder of Bank of Santa Clara common stock, or a satisfactory
indemnity bond if any of the certificates are lost, stolen or destroyed,
together with a properly completed letter of transmittal, Norwest Bank
Minnesota, N.A. will mail to you a certificate or certificates representing the
number of shares of Greater Bay common stock to which you are entitled,
together with all undelivered dividends or distributions, less the amount of
any withholding taxes which may be required, in respect of such shares and a
check in the amount of any cash to be paid instead of fractional shares.
Declaration of dividends by Greater Bay after the completion of the merger
will include dividends on all Greater Bay common stock issued in the merger.
However, no dividend or other distribution payable to the
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<PAGE>
holders of record of Greater Bay common stock at or as of any time after the
completion of the merger will be paid to the holders of Bank of Santa Clara
common stock until they physically surrender all certificates as described
above. Promptly after surrender, all undelivered dividends and other
distributions, less the amount of any withholding taxes which may be required
and a check for the amount representing any fractional share interest, will be
delivered to the holder, in each case, without interest. After the completion
of the merger, the stock transfer books of Bank of Santa Clara will be closed
and there will be no transfers on the transfer books of Bank of Santa Clara.
34
<PAGE>
THE MERGER AGREEMENT
Conditions to the Merger
The obligation of Greater Bay and Bank of Santa Clara to consummate the
merger is subject to the satisfaction or waiver on or before the completion of
the merger of many conditions, including the following:
. the merger agreement and the transactions contemplated by the merger
agreement must receive all requisite approvals of the shareholders of
Bank of Santa Clara;
. no judgment, decree, injunction, order or proceeding will be outstanding
or threatened by any governmental entity which prohibits or restricts the
effectuation of, or threatens to invalidate or set aside the merger
substantially in the form contemplated by the merger agreement;
. all approvals or consents of any applicable governmental agency will have
been obtained or granted for the merger and the transactions contemplated
by the merger agreement and the applicable waiting periods under all laws
will have expired;
. the registration statement shall have been declared effective by the SEC
and shall not be the subject of any stop order or proceedings seeking or
threatening a stop order;
. Greater Bay shall have received all state securities permits and other
authorizations necessary to issue the Greater Bay common stock to
consummate the merger;
. the Greater Bay common stock issuable in the merger shall have been
included for listing on The Nasdaq Stock Market;
. Greater Bay and Bank of Santa Clara will have received an opinion
reasonably satisfactory to Greater Bay and Bank of Santa Clara from
Manatt, Phelps & Phillips, LLP to the effect that the merger will not
result in the recognition of gain or loss for federal income tax purposes
to Greater Bay or Bank of Santa Clara, nor will the issuance of Greater
Bay common stock result in the recognition of gain or loss by holders of
Bank of Santa Clara common stock who receive Greater Bay common stock in
the merger, nor will the substitution of options result in any income or
gain to the option holder or disqualify any such options as incentive
stock options in connection with the merger; and
. PricewaterhouseCoopers LLP will have confirmed in writing to Greater Bay
and Bank of Santa Clara that the merger will qualify for pooling of
interests accounting treatment. In addition, Grant Thornton LLP will have
delivered a letter to Bank of Santa Clara that no conditions exist with
respect to Bank of Santa Clara that would preclude accounting for the
merger as a pooling of interests.
The obligation of Greater Bay to consummate the merger is also subject to
fulfillment of various other conditions, including the following:
. there will not have occurred, between January 26, 2000 and the completion
of the merger, any materially adverse change in the business, financial
condition, results of operations or prospects of Bank of Santa Clara on a
consolidated basis;
. the number of dissenting shares will not exceed an amount which would
disqualify the merger from pooling of interests accounting treatment;
. all remediation of environmental contamination or conditions on any Bank
of Santa Clara property will have been completed to the satisfaction of
Greater Bay;
. at the close of business on the last day of the month prior to the
completion of the merger, the Bank of Santa Clara adjusted book value
will not be less than $30.7 million if the merger closes in April 2000,
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$31.0 million if the merger closes in May 2000, $31.3 million if the
merger closes in June 2000, $31.7 million if the merger closes in July
2000 and $32.0 million if the merger closes in August 2000. Adjusted book
value means Bank of Santa Clara's total shareholders' equity adjusted to
eliminate all amounts paid for the exercise of Bank of Santa Clara stock
options since September 30, 1999, to eliminate amounts related to
accumulated other comprehensive income and to include the amount of
consolidated accumulated other comprehensive income as of September 30,
1999, to deduct any dividends paid after the date of the merger agreement
and to eliminate amounts paid or accrued for merger-related expenses;
. receipt of a fairness opinion from Hoefer & Arnett Incorporated,
financial advisor to Greater Bay;
. at the close of business on the last day of the month prior to completion
of the merger, Bank of Santa Clara's allowance for loan and lease losses
will equal the greater of 1.07% of Bank of Santa Clara's total gross
loans (less deferred loan fees) or $2.3 million; and
. the regulatory approvals for the merger will not impose any conditions
which Greater Bay, in its reasonable opinion, deems materially adverse or
materially burdensome.
The obligation of Bank of Santa Clara to consummate the merger is also
subject to the fulfillment of other conditions, including the following:
. there will not have occurred, between January 26, 2000 and the completion
of the merger, any material adverse change in the business, financial
condition, results of operations or prospects of Greater Bay on a
consolidated basis; and
. receipt of the First Security Van Kasper fairness opinion.
Additionally, the consummation of the merger is subject to the performance
of covenants, the execution and delivery of ancillary documents, the accuracy
of representations and warranties and the receipt of various legal opinions,
third-party consents, officers' certificates and other documents.
If these and other conditions are not satisfied or waived, the merger
agreement may be terminated. The merger agreement may also be terminated upon
the occurrence of certain other events which are more fully described under the
heading entitled "--Termination."
Nonsolicitation
Under the terms of the merger agreement, Bank of Santa Clara has agreed not
to solicit, initiate or encourage any competing transaction (as defined below).
In addition, Bank of Santa Clara has agreed, unless it determines, with advice
of counsel, that its fiduciary duty requires otherwise, not to participate in
any negotiations or discussions regarding, or furnish any information with
respect to, or otherwise cooperate in any way in connection with, any effort or
attempts to effect any competing transaction with or involving any person other
than Greater Bay. This restriction does not apply, however, if Bank of Santa
Clara receives a bona fide offer from a person other than Greater Bay and the
Bank of Santa Clara Board responds in accordance with applicable fiduciary
obligations. Bank of Santa Clara has agreed to promptly notify Greater Bay of
the terms of any proposal which it may receive in respect of any competing
transaction.
The term "competing transaction" means any of the following involving Bank
of Santa Clara: a merger, consolidation, share exchange or other business
combination; a sale, lease, exchange, mortgage, pledge, transfer or other
disposition of assets representing 10% or more of Bank of Santa Clara's assets;
a sale of shares of capital stock representing 10% or more of the voting power
of Bank of Santa Clara; a tender offer or exchange offer for at least 10% of
the outstanding shares of Bank of Santa Clara; a solicitation of proxies in
opposition to approval of the merger by Bank of Santa Clara's shareholders; or
a public announcement of an unsolicited bona fide proposal, plan or intention
to do any of the foregoing.
In the event Greater Bay terminates the merger agreement as the result of
Bank of Santa Clara entering into a competing transaction, Bank of Santa Clara
will pay Greater Bay $3.5 million.
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Similarly, Bank of Santa Clara may call off the merger if Greater Bay
announces a Greater Bay acquisition transaction, and the other party requests
Greater Bay to terminate the merger agreement between Greater Bay and Bank of
Santa Clara. If that occurs, Greater Bay will have to pay Bank of Santa Clara
$2.5 million. Greater Bay would also be required to pay this amount to Bank of
Santa Clara if Greater Bay terminates the merger agreement for a reason not
permitted by the merger agreement and then consummates an acquisition
transaction within 12 months following termination.
Expenses
If Bank of Santa Clara terminates the merger agreement because Greater Bay
fails to satisfy its obligations under the merger agreement, Greater Bay will
be obligated to pay all of Bank of Santa Clara's expenses incurred in
connection with the merger transaction, not to exceed $175,000.
If Greater Bay terminates the merger agreement because Bank of Santa Clara's
shareholders fail to approve the merger, or because Bank of Santa Clara fails
to satisfy its obligations under the merger agreement, Bank of Santa Clara will
be obligated to pay all of Greater Bay's expenses incurred in connection with
the merger transaction, not to exceed $250,000.
Treatment of Options
Each and every option to purchase shares of Bank of Santa Clara common stock
issued and outstanding immediately before the completion of the merger and all
obligations of Bank of Santa Clara under the Bank of Santa Clara stock option
plan will, on and after the completion of the merger, be assumed by and be
deemed to be options granted by Greater Bay to purchase that number of shares
of Greater Bay common stock equal to the conversion ratio times the number of
shares of Bank of Santa Clara common stock subject to the option rounded down
to the nearest whole number of shares of Greater Bay common stock. The per
share exercise price for the shares of Greater Bay common stock issuable upon
exercise of such Bank of Santa Clara option will be determined by dividing the
exercise price immediately before the completion of the merger by the
conversion ratio.
Termination
The merger agreement may be terminated at any time before the completion of
the merger:
. by mutual consent of Greater Bay and Bank of Santa Clara in writing;
. by Bank of Santa Clara or Greater Bay immediately on the failure of the
shareholders of Bank of Santa Clara to approve the merger agreement;
. by Greater Bay or Bank of Santa Clara if any material breach or default
by the other party is not cured within 20 days after notice;
. by Greater Bay or Bank of Santa Clara if any governmental or regulatory
authority denies or refuses to grant any approval, consent or
authorization required to be obtained to consummate the transactions
contemplated by the merger agreement unless, within 30 days after the
denial or refusal, all parties agree to resubmit the application to the
regulatory authority that has denied or refused to grant the approval,
consent or qualification requested;
. by Bank of Santa Clara or Greater Bay if any conditions set forth in
Article 9 of the merger agreement shall not have been met by August 31,
2000;
. by Bank of Santa Clara if any of the conditions of Article 10 of the
merger agreement shall not have been met, or by Greater Bay if any of the
conditions of Article 11 of the merger agreement shall not have been met,
by August 31, 2000, or an earlier time as it becomes apparent that these
conditions shall not be met;
. by Greater Bay if Bank of Santa Clara shall have failed to comply with
its agreements with respect to any competing transaction;
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. by Greater Bay if Bank of Santa Clara shall have failed to comply with
its agreements with respect to any competing transaction;
. by Greater Bay if it is determined that the estimated cost of any
environmental remediation on any Bank of Santa Clara property is in
excess of $100,000 or is not reasonably determinable;
. by Bank of Santa Clara if Greater Bay enters into a Greater Bay
acquisition transaction and the third party requires the termination of
the merger agreement; or
. by Bank of Santa Clara if the average closing price of Greater Bay common
stock is less than $36.36, subject to Greater Bay's right to exercise the
top up option as explained under "The Merger--Structure of the Merger--
Conversion of Shares."
Covenants; Conduct of Business Prior to Effective Time
The merger agreement provides that, during the period from the date of the
merger agreement to the completion of the merger, Bank of Santa Clara will
conduct its business only in the normal and customary manner and in accordance
with sound banking practices and will not, without the prior written consent of
Greater Bay, which will not be unreasonably withheld, take any of the following
actions:
. issue any security except pursuant to the exercise of options outstanding
as of the date of the merger agreement;
. declare, set aside or pay any dividend, other than its regular cash
dividend, or make any other distribution upon, or purchase or redeem any
shares of its stock;
. amend its articles of incorporation or its bylaws;
. grant any general or uniform increase in the rate of pay of employees or
employee benefits;
. 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, except that Bank of Santa Clara may make a pro
rata contribution to its Profit Sharing and Salary Deferral 401(k) Plan
if Greater Bay decides to terminate that plan prior to completion of the
merger;
. make any capital expenditure in excess of $50,000, except for ordinary
repairs, renewals and replacements;
. compromise, settle or adjust any assertion or claim of a deficiency in
taxes, extend the statute of limitations with any tax authority or file
any pleading in court on 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;
. grant, renew or commit to grant or renew any extension of credit or amend
the terms of any credit outstanding on the date hereof to any person that
would exceed $500,000 on an unsecured basis or $1,000,000 if secured by
real estate;
. change its tax or accounting policies and procedures or any method or
period of accounting unless required by generally accepted accounting
principles or by law or regulation;
. grant or commit to grant any extension of credit or amend the terms of
any credit outstanding as of the date of the merger agreement to any
executive officer, director or holder of 10% or more of the outstanding
Bank of Santa Clara common stock, or any affiliate of such person, if the
credit would exceed $50,000;
. close any offices at which business is conducted or open any new office;
. adopt or amend any employment agreement or other employee benefit plan or
arrangement except amendments as are required by law;
. change any policies and practices with respect to liquidity management
and cash flow planning, lending, personnel practices, accounting or any
other material aspect of its business or operations, except those changes
as may be required in the opinion of management to respond to economic or
market conditions
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or as may be required by generally accepted accounting principles or by
applicable governmental authorities;
. grant any person a power of attorney or similar authority;
. make any investment by purchase of stock or securities, contributions to
capital, property transfers or otherwise in any other person, except for
investments made in the ordinary course of business consistent with past
practice;
. amend, modify or terminate, except in accordance with its terms, any
material contract or enter into any material agreement or contract;
. sell, transfer, mortgage, encumber or otherwise dispose of any assets or
release any claims, except in the ordinary course of business consistent
with past practice;
. take any action which would or is reasonably likely to
--adversely affect the ability of Greater Bay or Bank of Santa Clara to
obtain any necessary regulatory approval of the merger;
--adversely affect Bank of Santa Clara's ability to perform its
covenants and agreements under the merger agreement; or
--result in any of the conditions relating to the performance of
Greater Bay's or Bank of Santa Clara's obligations under the merger
agreement not being satisfied;
. make any special or extraordinary payments;
. reclassify any investment security from held-to-maturity or available for
sale to trading;
. sell any security other than in the ordinary course of business, or
engage in gains trading;
. take title to any real property without conducting an environmental
investigation, which shall disclose the absence of any suspected
environmental contamination;
. take or cause to be taken any action which would prevent the transactions
contemplated by the merger agreement from qualifying as a tax free
reorganization or prevent Greater Bay from accounting for the business
combination to be effected by the merger as a pooling of interests;
. settle any claim involving any material liability for monetary damages or
enter into any settlement agreement containing material obligations;
. make, acquire, or reacquire any loan that is not in compliance with its
normal credit underwriting standards, policies and procedures as in
effect on December 31, 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
. borrow money or become responsible for the obligations of any other
person, except
--in connection with banking transactions with banking customers in the
ordinary course of business or
--short-term borrowings made at prevailing market rates and terms.
The merger agreement also provides that Bank of Santa Clara will:
. use its commercially reasonable efforts to preserve its present business
organization and its relationships and goodwill with account holders,
borrowers, employees and others having business relationships with Bank
of Santa Clara;
. use its commercially reasonable efforts to keep in full force and effect
all material licenses and permits;
. use its commercially reasonable efforts to maintain insurance coverage
substantially the same as in effect as of the date of the merger
agreement;
. perform its material contractual obligations;
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. duly observe and conform in all material respects to all lawful
requirements applicable to its business;
. maintain its assets and properties in good condition and repair, normal
wear and tear excepted;
. periodically furnish to Greater Bay information, loan reports and updates
of information previously provided;
. promptly notify Greater Bay upon learning that a person or related group
of persons has acquired 5% or more of Bank of Santa Clara's outstanding
common stock;
. promptly notify Greater Bay of communications from tax authorities,
material litigation and any event which has had or may reasonably be
expected to have a materially adverse effect on the financial condition,
operations, business or prospects on a consolidated basis;
. provide Greater Bay with access to information about Bank of Santa Clara;
. maintain an allowance for loan and lease losses consistent with past
practices; and
. use its reasonable efforts between the date of the merger agreement and
the completion of the merger to take all actions necessary or desirable
to complete the merger, including the filing of any regulatory
applications.
The merger agreement also provides that Greater Bay will not, without the
prior written consent of Bank of Santa Clara:
. take any action which would or is reasonably likely to adversely affect
the ability of Greater Bay to obtain any necessary regulatory approvals
for the merger, adversely affect Greater Bay's ability to perform its
covenants under the merger agreement or result in any of the conditions
to the performance of its obligations under the merger agreement not
being satisfied;
. take any action which would disqualify the merger as a "reorganization"
within the meaning of Section 368 of the Internal Revenue Code;
. amend its articles of incorporation in any respect which would materially
adversely affect the rights and privileges attendant to Greater Bay
common stock; or
. enter into a Greater Bay acquisition transaction that requires the
termination of the merger agreement, subject to the fiduciary duties of
the Board of Directors of Greater Bay.
The merger agreement also provides that Greater Bay will:
. duly observe and conform in all material respects to all lawful
requirements applicable to its business;
. use its commercially reasonable efforts to have the directors and
officers of Bank of Santa Clara and Bank of Santa Clara added to Greater
Bay's directors' and officers' liability insurance policy;
. provide Bank of Santa Clara with access to information about Greater Bay;
. file all necessary regulatory applications; and
. reserve for issuance sufficient shares of Greater Bay common stock to
issue in connection with the merger.
The merger agreement also provides that each of Greater Bay and Bank of
Santa Clara 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 the merger agreement as promptly as practical;
. obtain the consent of the other before it issues any press release or
makes any public statement with respect to the merger agreement or the
transactions contemplated by the merger agreement; and
. cause to be prepared, at Greater Bay's discretion, one or more
environmental investigations with respect to real property owned or
leased by Bank of Santa Clara.
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Amendment and Waiver
Subject to applicable law, the merger agreement may be amended at any time
by the action of the Boards of Directors of Greater Bay or Bank of Santa Clara
without action by their shareholders if Greater Bay and Bank of Santa Clara
mutually agree in writing to the amendment. In addition, either Greater Bay or
Bank of Santa Clara by action of their respective Boards of Directors, may, at
any time before completion of the merger, extend the performance of any
obligation or action required by the merger agreement, waive inaccuracies in
representations and warranties and waive compliance with any agreements or
conditions for their respective benefit contained in the merger agreement.
Agreements with Certain Shareholders
Greater Bay has entered into shareholder's agreements with various
shareholders of Bank of Santa Clara, each of whom is also a director of Bank of
Santa Clara, pursuant to which these directors have agreed to vote all shares
of Bank of Santa Clara common stock which they own or hold in trust in favor of
the approval of the merger agreement, thereby increasing the likelihood that
the merger agreement will be approved by the shareholders of Bank of Santa
Clara.
Greater Bay has entered into noncompetition agreements with each of the Bank
of Santa Clara directors, pursuant to which these directors have agreed, among
other things and with limited exceptions, not to participate or engage in any
business which is competitive with Greater Bay or Bank of Santa Clara for a
period of two years after the completion of the merger.
Resales of Greater Bay Common Stock
The shares of Greater Bay common stock to be issued to Bank of Santa Clara
shareholders in the merger have been registered under the Securities Act. These
shares may be traded freely and without restriction by those shareholders not
deemed to be "affiliates" of Bank of Santa Clara. An affiliate of a
corporation, as defined by the Securities Act, is a person who directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, that corporation. Any subsequent transfer by an
affiliate of Bank of Santa Clara must be made in compliance with the resale
provisions of Rule 145 promulgated under the Securities Act or as otherwise
permitted under the Securities Act.
SEC guidelines regarding qualifying for the pooling of interests method of
accounting also limit sales of shares of the acquiring company and acquired
company by affiliates of either company in a business combination such as the
merger. These guidelines indicate that the pooling of interests method of
accounting will generally not be challenged on the basis of sales by affiliates
if these persons do not dispose of any of the shares of the corporation they
own or any shares of the corporation they receive in connection with a merger
during the period beginning 30 days before the merger and ending when financial
results covering at least 30 days of post-merger operations of the combined
entity have been published.
Bank of Santa Clara has delivered to Greater Bay an agreement for each
affiliate of Bank of Santa Clara that such person will not dispose of:
. any Greater Bay common stock in violation of the Securities Act; or
. any Bank of Santa Clara common stock or Greater Bay common stock during
the pooling restricted period.
Regulatory Approvals
Under the merger agreement, Greater Bay and Bank of Santa Clara have agreed
to use their commercially reasonable efforts to obtain all necessary actions or
nonactions, extensions, waivers, consents and approvals from any governmental
authority necessary, proper or advisable to consummate the transactions
contemplated by the merger agreement. The approvals of the Federal Reserve
Board under the Bank Holding Company Act of 1956, the Federal Deposit Insurance
Corporation under the Federal Deposit Insurance Act and the California
Department of Financial Institutions are required.
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Federal Reserve Bank. The closing of the merger is conditioned on the
receipt of approval from the Federal Reserve Board. If the Federal Reserve
Board imposes any conditions that Greater Bay, in its reasonable opinion, deems
will materially and adversely affect Greater Bay or will materially burden
Greater Bay, then Greater Bay will use commercially reasonable efforts to
obtain the removal of the condition. If the condition is not removed, Greater
Bay is not required to complete the merger.
Section 3 of the Bank Holding Company Act requires the Federal Reserve
Board, when considering a transaction such as the merger, to take into
consideration the financial and managerial resources, including the competence,
experience and integrity of the officers, directors and principal stockholders,
and the future prospects of the existing and proposed institutions and the
effect of the transaction on the convenience and needs of the communities to be
served. In considering financial resources and future prospects, the Federal
Reserve Board will, among other things, evaluate the adequacy of the capital
levels of the parties to a proposed transaction and of the resulting
institutions.
The Bank Holding Company Act prohibits the Federal Reserve Board from
approving a merger if it would result in a monopoly or be in furtherance of any
combination or conspiracy to monopolize or to attempt to monopolize the
business of banking in any part of the United States or its effect in any
section of the country would be substantially to lessen competition or to tend
to create a monopoly, or if it would in any other respect result in a restraint
of trade, unless the Federal Reserve Board finds that the anti-competitive
effects of the merger are clearly outweighed by the probable effect of the
transaction in meeting the convenience and needs of the communities to be
served.
In addition, under the Community Reinvestment Act of 1977, as amended, the
Federal Reserve Board must take into account the record of performance of the
depository institution subsidiaries of Greater Bay and Bank of Santa Clara in
meeting the credit needs of the communities served by such institutions,
including low- and moderate-income neighborhoods.
The merger may not be completed until the 30th day, or, with the consent of
the relevant agencies, the 15th day, following the date of the Federal Reserve
Board approval, during which period the United States Department of Justice may
comment adversely on the merger or challenge the merger on antitrust grounds.
The commencement of an antitrust action would stay the effectiveness of the
Federal Reserve Board approval unless a court specifically orders otherwise.
Greater Bay submitted a notice of proposed acquisition with the Federal
Reserve Board on , 2000.
Federal Deposit Insurance Corporation. The merger is subject to prior
approval by the Federal Deposit Insurance Corporation under Section 18(c) of
the Federal Deposit Insurance Act. Section 18(c) requires the Federal Deposit
Insurance Corporation, when considering a transaction such as the merger, to
take into consideration the financial and managerial resources, including the
competence, experience and integrity of the officers, directors and principal
shareholders, and the future prospects of the existing and proposed
institutions and the effect of the transaction on the convenience and needs of
the communities to be served. In considering financial resources and future
prospects, the Federal Deposit Insurance Corporation will, among other things,
evaluate the adequacy of the capital levels of the parties to a proposed
transaction and of the resulting institutions.
The Federal Deposit Insurance Act prohibits the Federal Deposit Insurance
Corporation from approving a merger if it would result in a monopoly or be in
furtherance from any combination or conspiracy to monopolize or to attempt to
monopolize the business of banking in any part of the United States or if its
effect in any section of the country would in any other respect result in a
restraint of trade, unless the Federal Deposit Insurance Corporation finds that
the anti-competitive effects of the merger are clearly outweighed by the
probable effect of the transaction in meeting the convenience and needs of the
communities to be served.
Greater Bay filed an application for approval of the merger with the Federal
Deposit Insurance Corporation on , 2000.
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California Department of Financial Institutions. In determining whether to
approve the merger, the California Department of Financial Institutions will
consider factors such as:
. the effects of the merger on competition;
. the effects of the merger on the convenience and needs of the
communities to be served;
. the financial condition of Greater Bay;
. the competence, experience and integrity of Greater Bay's management; and
. whether the merger is fair, just and equitable to Bank of Santa Clara.
Greater Bay submitted an application for approval of the merger with the
California Department of Financial Institutions on , 2000.
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DISSENTING SHAREHOLDERS' RIGHTS
You are entitled to dissenters' rights in connection with the merger. The
procedures for you to obtain dissenters' rights are set forth in Chapter 13 of
the California General Corporation Law. The information set forth below is a
general summary of Chapter 13 dissenters' rights as they apply to you. This
summary is not a complete discussion of Chapter 13 and is qualified in its
entirety by reference to Chapter 13, which is attached as Annex C. If you wish
to exercise dissenters' rights or wish to preserve the right to do so you
should carefully read Annex C. You must follow exactly the required procedures
set forth in Chapter 13 of the California General Corporation Law or any
dissenters' rights may be lost.
If the merger is consummated, if you elect to exercise your dissenters'
rights and you comply with the procedures set forth in Chapter 13, you will be
entitled to receive an amount equal to the fair market value of your shares.
Chapter 13 provides the fair market value shall be determined as of January 26,
2000, the day before the public announcement of the merger. Bank of Santa Clara
believes the fair market value of its stock is equal to $34.375 as of January
26, 2000, which is the average of the high and low prices of its stock as of
such date.
You must satisfy each of the following requirements for your shares to be
considered dissenting shares under Chapter 13. Shares of Bank of Santa Clara
common stock must be purchased by Bank of Santa Clara from a dissenting
shareholder if all applicable requirements are complied with, but only if
demands are made for payment with respect to 5% or more of the outstanding
shares of Bank of Santa Clara common stock.
This 5% limitation does not apply to shares which are subject to a
restriction on transfer imposed by Bank of Santa Clara or by any law or
regulation. Bank of Santa Clara is not aware of any restriction on transfer of
any of its shares of common stock except restrictions which may be imposed upon
shareholders who are deemed to be "affiliates" of Bank of Santa Clara as that
term is used in the Securities Act. Those shareholders who believe there is
some restriction affecting their shares should consult with their own counsel
as to the nature and extent of any dissenters' rights they may have. In
addition, Bank of Santa Clara is required to purchase dissenting shares only
if:
. You must have shares of Bank of Santa Clara common stock outstanding as
of the record date of the shareholders' meeting at which you may vote the
shares;
. You must vote the shares against the merger. It is not sufficient to
abstain from voting. However, you may abstain as to part of your shares
or vote part of those shares for the merger without losing the right to
have purchased those shares which were voted against the merger; and
. If you voted against the merger and you wish to have purchased shares
that were voted against the merger, you must make a written demand to
have Bank of Santa Clara purchase those shares of Bank of Santa Clara for
cash at their fair market value. The demand must include the information
specified below and must be received by Bank of Santa Clara or its
transfer agent no later than the date of the shareholders' meeting at
which the shareholder may vote the shares.
If you return a proxy without voting instructions or with instructions to
vote FOR the proposal to approve the principal terms of the merger agreement,
your shares will automatically be voted in favor of the merger and you will
lose your dissenters' rights.
If the merger is approved by the Bank of Santa Clara shareholders, Bank of
Santa Clara will have 10 days after the approval to mail those shareholders who
did not vote in favor of the merger and made a timely demand for purchase,
assuming more than 5% of the Bank of Santa Clara shareholders made such demand,
written notice of the approval along with a copy of Sections 1300 through 1304
of Chapter 13. In the notice of approval, Bank of Santa Clara must state the
price it determines represents the fair market value of the dissenting shares.
This price constitutes an offer by Bank of Santa Clara to purchase the
dissenting shares at the price stated. Additionally, Bank of Santa Clara must
set forth in the approval notice a brief description of the procedures a
shareholder must follow if he or she desires to exercise dissenters' rights.
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A written demand is essential for dissenters' rights. In the written demand,
Chapter 13 requires you to specify the number shares you hold of record which
you are demanding Bank of Santa Clara to purchase. In the written demand, you
must also include a statement of the figure you claim to be the fair market
value of those shares as of the day before the terms of the merger were first
announced, excluding any appreciation or depreciation because of the proposed
merger. It is Bank of Santa Clara's position that this day is January 26, 2000.
You may take the position in the written demand that a different date is
applicable. This price constitutes an offer by you to sell the dissenting
shares at the price stated.
In addition, it is recommended that you comply with the following conditions
to ensure that the demand is properly executed and delivered:
. The demand should be sent by registered or certified mail, return receipt
requested;
. The demand should be signed by the shareholder of record, or his or her
duly authorized representative, exactly as his or her name appears on the
stock certificates evidencing the shares.
. A demand for the purchase of the shares jointly owned by more than one
person should identify and be signed by all such holders.
. Any person signing a demand for purchase in any representative capacity,
such as attorney-in-fact, executor, administrator, trustee or guardian,
should indicate his or her title, and, if Bank of Santa Clara so
requests, furnish written proof of his or her capacity and authority to
sign the demand.
. A shareholder may not withdraw a demand for payment without the consent
of Bank of Santa Clara.
Under California law, a demand by a shareholder is not effective for any
purpose unless it is received by Bank of Santa Clara, or its transfer agent, no
later than the date of the shareholders' meeting at which such shares are
entitled to be voted.
Within 30 days after the date on which Bank of Santa Clara mails the notice
of the approval of the merger, dissenting shareholders must also submit the
certificates representing the dissenting shares to Bank of Santa Clara at the
office it designates in the notice of approval. Bank of Santa Clara will stamp
or endorse the certificates with a statement that the shares are dissenting
shares or Bank of Santa Clara will exchange the certificates with certificates
of appropriate denomination that are so stamped or endorsed. If a shareholder
transfers any shares of Bank of Santa Clara common stock before submitting the
shares for endorsement, then such shares will lose their status as dissenting
shares.
If Bank of Santa Clara and you agree that the surrendered shares are
dissenting shares and agree upon the price of the shares, you are entitled to
receive the agreed price together with interest thereon at the legal rate on
judgments from the date of the agreement between Bank of Santa Clara and the
dissenting shareholder. Bank of Santa Clara will pay the fair value of the
dissenting shares within 30 days after Bank of Santa Clara and you agree upon
the price of the shares or within 30 days after any statutory or contractual
conditions to the merger have been satisfied, whichever is later. Bank of Santa
Clara's duty to pay is subject to you surrendering the certificates and is also
subject to the restrictions imposed under California law on the ability of Bank
of Santa Clara to purchase its outstanding shares.
If Bank of Santa Clara denies that the shares surrendered are dissenting
shares or Bank of Santa Clara and you fail to agree upon the fair market value
of such shares, then you may, within six months after the notice of approval is
mailed, file a complaint in the Superior Court of the proper county requesting
the court to make such determinations. In the alternative, you may intervene in
any pending action brought by any other dissenting shareholder. If you fail to
file such a complaint or fail to intervene in a pending action within the
specified six-month period, your dissenting rights are lost. If the fair market
value of the dissenting shares is at issue, the court will determine, or will
appoint one or more impartial appraisers to determine, such fair market value.
The costs of the action will be assessed or apportioned as the court considers
equitable, but if the fair market value is determined to exceed 125% of the
price offered to the shareholder, Bank of Santa Clara will be required to pay
such costs.
45
<PAGE>
This summary has already described certain situations where shareholders of
Bank of Santa Clara will cease to have dissenters' appraisal rights. In
addition to the situations described above, you will cease to have dissenters'
appraisal rights if:
. Greater Bay or Bank of Santa Clara abandons the merger, in which case
Bank of Santa Clara will pay any dissenting shareholder who has filed a
complaint, as described above, all necessary expenses and reasonable
attorneys' fees incurred in such proceedings;
. you surrender your shares for conversion into shares of another class; or
. you withdraw your demand for the purchase of the dissenting shares with
the consent of Bank of Santa Clara, as the case may be.
In addition, one condition to Greater Bay and Bank of Santa Clara completing
the merger is that the total cash payable to Bank of Santa Clara dissenting
shareholders, when combined with all other cash payable in the merger, should
not disqualify the merger from pooling of interests accounting treatment.
Any demands, notices, certificates or other documents required to be
delivered to Bank of Santa Clara may be sent to:
Corporate Secretary
Bank of Santa Clara
1995 El Camino Real
Santa Clara, California 95050
46
<PAGE>
DESCRIPTION OF GREATER BAY COMMON STOCK AND BANK OF SANTA CLARA COMMON STOCK
In the merger, you will exchange your shares of Bank of Santa Clara common
stock for shares of Greater Bay common stock. Both Greater Bay and Bank of
Santa Clara are California corporations subject to the provisions of the
California General Corporation Law. On consummation of the merger, you will
become Greater Bay shareholders. The articles of incorporation and bylaws of
Greater Bay, in addition to the California General Corporation Law, will govern
your rights as Greater Bay shareholders.
Set forth below is a summary of the material features of the Greater Bay
common stock and the Bank of Santa Clara common stock. Also set forth below is
a summary of the material differences between the rights of a holder of Greater
Bay common stock and a holder of Bank of Santa Clara common stock.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Greater Bay
and Bank of Santa Clara, Greater Bay and Bank of Santa Clara have been advised
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
Stock Description
Greater Bay. Greater Bay has authority to issue 24,000,000 shares of Greater
Bay common stock and 4,000,000 shares of serial preferred stock, without par
value.
At its 2000 annual meeting of shareholders to be held on May 17, 2000,
Greater Bay will be seeking approval to increase the authorized number of
shares of common stock to 40,000,000 shares.
On the record date, there were shares of Greater Bay common stock
outstanding. There are no shares of preferred stock outstanding. On any matter
submitted to a vote of the shareholders, holders of Greater Bay common stock
are entitled to one vote, in person or by proxy, for each share of Greater Bay
common stock held of record in the shareholder's name on the Greater Bay books
as of the record date. Holders of any class of Greater Bay common stock lack
the right to cumulate votes at any election of directors. Each share of Greater
Bay common stock has the same rights, privileges and preferences as every other
share and will share equally in Greater Bay's net assets upon liquidation or
dissolution. Greater Bay common stock has no preemptive, conversion or
redemption rights, or sinking fund provisions.
The Greater Bay Board of Directors, without shareholder approval, may
authorize one or more classes of serial preferred stock with preferences or
voting rights that may adversely affect the rights of holders of Greater Bay
common stock. Although it is not possible to state the actual effect any
issuance of serial preferred stock might have upon the rights of holders of the
Greater Bay common stock, the issuance of serial preferred stock might
. restrict dividends on Greater Bay common stock if preferred stock
dividends have not been paid;
. dilute the voting power and equity interest of holders of Greater Bay
common stock to the extent that any preferred stock series has voting
rights or is convertible into Greater Bay common stock; or
. prevent current holders of Greater Bay common stock from participating in
Greater Bay's assets upon liquidation until any liquidation preferences
granted to the holders of the serial preferred stock are satisfied.
In addition, Greater Bay's issuance of serial preferred stock, may, under
certain circumstances, have the effect of discouraging an attempt to change
control of Greater Bay. The Greater Bay Board of Directors has adopted a
shareholder rights plan and distributed preferred share purchase rights to
protect Greater Bay from improper takeover tactics and unfair takeover bids. A
detailed description of the shareholder rights plan is set forth below.
Greater Bay's articles of incorporation provide that the liability of
Greater Bay directors for monetary damages shall be eliminated to the fullest
extent permissible under California law. Additionally, Greater Bay
47
<PAGE>
has authority to provide for the indemnification of Greater Bay agents, as
defined in Section 317 of the California General Corporation Law, in excess of
that expressly permitted by Section 317 for breach of duty to the corporation
and its shareholders. Greater Bay is allowed to provide this indemnification to
the extent not prohibited by applicable sections of California law.
Shareholders are entitled to dividends when declared by the Greater Bay
Board of Directors, after satisfaction of the prior rights of holders of
outstanding preferred stock, if any, subject to certain restrictions on payment
of dividends imposed by California law. The transfer agent and registrar for
Greater Bay common stock is Norwest Bank Minnesota, N.A.
Bank of Santa Clara. Bank of Santa Clara is authorized to issue 20,000,000
shares of common stock, no par value, of which shares are issued and
outstanding as of the record date. In addition, shares of Bank of Santa
Clara common stock are reserved for issuance pursuant to the Bank of Santa
Clara 1997 Stock Option Plan, of which options to purchase a total of
shares had been granted and were outstanding and options to purchase
shares remained available for grant thereunder as of the record date. Subject
to the terms of the merger agreement, Bank of Santa Clara's Board of Directors
may issue additional shares of common stock without shareholder approval.
Issuance of these additional shares could cause a dilution of the book value of
the stock and the voting power of present shareholders. The holders are
entitled to one vote per share on all matters presented to them except that, on
prior notice, they have the right to cumulate votes in the election of
directors.
The common stock of Bank of Santa Clara has no preemptive, subscription or
conversion rights, or redemption or repurchase provisions. These shares are
non-assessable and require no sinking fund. Each shareholder is entitled to
receive dividends that may be declared by the Board of Directors and to share
pro rata in the event of dissolution or liquidation.
Shareholders of Bank of Santa Clara are entitled to dividends when declared
by the Bank of Santa Clara Board of Directors, subject to certain restrictions
on payment of dividends imposed by California law. Registrar and Transfer
Company is the transfer agent for Bank of Santa Clara's common stock.
Material Differences Between Holders of Greater Bay Stock and Bank of Santa
Clara Stock
Cumulative Voting
Greater Bay. Greater Bay shareholders do not have cumulative voting in the
election of directors.
Bank of Santa Clara. Shareholders of Bank of Santa Clara are entitled to
cumulate their votes for the election of directors. Cumulative voting allows a
shareholder to cast a number of votes equal to the number of directors to be
elected multiplied by the number of shares held in the shareholder's name on
the record date. This total number of votes may be cast for one nominee or may
be distributed among as many candidates as the shareholder desires. The
candidates, up to the number of directors to be elected, receiving the highest
number of votes are elected.
Classified Board of Directors
Greater Bay. Greater Bay's Board of Directors is divided into three classes
of directors, with each class of directors serving for staggered three-year
terms. Greater Bay's bylaws provide for the election of directors by class for
a term of three years and until his or her successor is elected and qualified.
Bank of Santa Clara. The Bank of Santa Clara bylaws provide that directors
will be elected at each annual meeting of shareholders. Bank of Santa Clara's
bylaws provide that each director will hold office until the next annual
meeting and until a successor has been elected and qualified.
48
<PAGE>
Shareholder Rights Plan
Greater Bay. On November 17, 1998, the Greater Bay Board of Directors
declared a dividend distribution of one share purchase right for each
outstanding share of Greater Bay common stock to shareholders of record at the
close of business on November 30, 1998. Each Greater Bay right entitles the
registered holder to purchase from Greater Bay one one-hundredth of a share of
Series A Preferred Stock. The initial purchase price of each right is $145,
subject to adjustment.
These rights will also attach to all shares of Greater Bay common stock
issued after November 30, 1998, but before the distribution date, as discussed
below. The description and terms of the rights are set forth in a rights
agreement.
The rights are attached to all Greater Bay common stock certificates
representing shares currently outstanding and no separate certificates
evidencing these rights have been distributed. Greater Bay has sent a copy of a
Summary of Rights to Purchase Common Shares to its shareholders. The right will
separate from the Greater Bay common stock (this is referred to as the
distribution date) upon the earlier of
. 10 days following a public announcement that a person or group of
affiliated or associated persons, called an Acquiring Person, has
acquired, or obtained the right to acquire, beneficial ownership or
record ownership of 10% or more of the outstanding shares of Greater Bay
common stock,
. 10 business days following the commencement of, or the public
announcement of an intent to make, a tender offer or exchange offer that
would result in a person or group beneficially owning 10% or more of the
outstanding shares of Greater Bay common stock; or
. the date a person or group becomes the beneficial or record owner of 10%
or more of the outstanding shares of Greater Bay common stock, and the
actions that person proposes to take are likely to have a material
adverse impact on the business or prospects of Greater Bay; that person
intends to cause Greater Bay to repurchase the common stock owned by that
person; that person exercises or attempts to exercise a controlling
influence over Greater Bay; or that person transfers all or a portion of
Greater Bay common stock in a manner that results in a person owning 9.9%
or more of the Greater Bay common stock, called an Adverse Person.
Until the distribution date, the rights will be evidenced by the Greater Bay
common stock certificates together with a copy of the Summary of Rights to
Purchase Common Shares attached to the certificate and will be transferred only
with the Greater Bay common stock certificates. Also, new Greater Bay common
stock certificates issued after November 30, 1998 will contain a notation
incorporating the rights agreement by reference. The surrender or transfer of
any certificates for common stock outstanding even without the notation or a
copy of the Summary of Rights to Purchase Common Shares will also constitute
the transfer of the rights represented by the certificates.
The rights are not exercisable until the distribution date and will expire
on November 17, 2008, unless Greater Bay extends this date or the rights are
earlier redeemed by Greater Bay as described below.
While each right initially will provide for the acquisition of one one-
hundredth of a share of Series A Preferred Stock at the purchase price, the
rights agreement provides that the purchase price is subject to adjustment from
time to time to prevent dilution
. in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the preferred stock;
. upon the grant to holders of the preferred stock of rights or warrants to
subscribe for or purchase preferred stock at a price, or securities
convertible into preferred stock with a conversion price, less than the
then current market price of the preferred stock; or
. upon the distribution to holders of the preferred stock of evidences of
indebtedness or assets, excluding regular periodic cash dividends paid
out of earnings or retained earnings or dividends payable in preferred
stock, or of subscription rights or warrants, other than those referred
to above.
49
<PAGE>
If Greater Bay is acquired in a merger or other business combination, or 50%
or more of Greater Bay's consolidated assets or earnings power is sold, each
holder of a right will have the right to receive, upon exercise and payment of
the purchase price, common stock of the acquiring company having a value equal
to twice the purchase price.
If any person becomes an Acquiring Person or an Adverse Person, each holder
of a right, other than rights beneficially owned by the Acquiring Person or
Adverse Person (which will become void), will then have the right to receive,
upon exercise and payment of the purchase price, fractions of shares of
preferred stock having a value equal to twice the purchase price.
At any time after an Acquiring Person obtains 10% or more of Greater Bay
common stock and before the Acquiring Person obtains 50% of Greater Bay common
stock, Greater Bay may exchange all or part of the rights for shares of Greater
Bay common stock at an exchange ratio of one share per right, subject to
adjustment.
With limited exceptions, the rights agreement does not require adjustment to
the purchase price until cumulative adjustments require an adjustment of at
least 1% in the purchase price. The rights agreement also disallows the
issuance of fractional shares of preferred stock, other than fractions that are
integral multiples of one one-hundredths, and instead of issuing fractional
shares, a cash adjustment will be made based on the market price of the
preferred stock on the last trading day before the date of exercise.
At any time before a person becomes an Acquiring Person or an Adverse
Person, Greater Bay may redeem the rights in whole, but not in part, at a price
of $.001 per right. Immediately upon any redemption of the rights, the right to
exercise the rights will terminate and the only right of the holders will be to
receive the redemption price.
Greater Bay may amend the terms of the rights without the consent of the
holders of the rights, including an amendment to extend the expiration date
and, provided there is no Acquiring Person or Adverse Person, to extend the
period during which the rights may be redeemed, except that from and after the
time that any person becomes an Acquiring Person or an Adverse Person no
amendment may adversely affect the interests of the holders of the rights.
Until a right is exercised, the holder of a right will have no rights as a
shareholder of Greater Bay, including, without limitation, the right to vote or
to receive dividends.
The rights may have certain anti-takeover effects. The rights agreement is
designed to maximize the long-term value of Greater Bay and protect Greater
Bay's shareholders from improper takeover tactics or from takeover bids that
are not fair to all Greater Bay shareholders.
Bank of Santa Clara. Bank of Santa Clara does not have a shareholder rights
plan.
Super-majority Voting for Certain Transactions
Greater Bay. The Greater Bay articles of incorporation provide that the vote
of not less than two-thirds of all members of the Greater Bay Board of
Directors is required to approve the following types of transactions:
. any merger, sale of control or sale of material assets of Greater Bay;
. the creation of any new business unit of Greater Bay or any subsidiary;
. any operating budget, or any material change therein of Greater Bay or
any subsidiary; or
. any material change in the business organization or organizational
structure of Greater Bay or any subsidiary.
Bank of Santa Clara. Bank of Santa Clara's articles of incorporation and
bylaws do not require super-majority voting by its directors for these types of
transactions.
50
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed Combined Balance Sheet as of
December 31, 1999, combines the historical consolidated balance sheets of
Greater Bay, Bank of Santa Clara, Coast Bancorp and Bank of Petaluma as if the
mergers between these entities had been effective on December 31, 1999, after
giving effect to certain adjustments. These adjustments are based on estimates.
The Unaudited Pro Forma Condensed Combined Statements of Operations for the
years ended December 31, 1999, 1998 and 1997 present the combined results of
operations of Greater Bay, Bank of Santa Clara, Coast Bancorp and Bank of
Petaluma as if the mergers had been effective at the earliest period presented.
The Unaudited Pro Forma Condensed Combined Financial Information has been
prepared from, and should be read in conjunction with, the historical
consolidated financial statements and notes thereto of Greater Bay and Bank of
Santa Clara.
The Unaudited Pro Forma Condensed Combined Financial Information and
accompanying notes reflect the application of the pooling of interests method
of accounting for the mergers. Under this method of accounting, the recorded
assets, liabilities, shareholders' equity, income and expenses of Greater Bay,
Bank of Santa Clara, Coast Bancorp and Bank of Petaluma are combined and
reflected at their historical amounts.
The pro forma combined figures shown in the Unaudited Pro Forma Condensed
Combined Financial Information are simply arithmetical combinations of Greater
Bay's, Bank of Santa Clara's, Coast Bancorp's and Bank of Petaluma's separate
financial results; you should not assume that Greater Bay, Bank of Santa Clara,
Coast Bancorp or Bank of Petaluma would have achieved the pro forma combined
results if they had actually been combined during the periods presented.
Information about the proposed Coast Bancorp and Bank of Petaluma mergers
with Greater Bay is set forth in the Summary under "Recent Developments."
The combined company expects to achieve merger benefits in the form of
operating cost savings. The pro forma earnings, which do not reflect any direct
costs or potential savings which are expected to result from the consolidation
of the operations of Greater Bay, Bank of Santa Clara, Coast Bancorp and Bank
of Petaluma, are not indicative of the results of future operations. No
assurances can be given with respect to the ultimate level of expense savings.
For further explanation about these risks, read the information under "A
Warning About Forward-Looking Information" and "Risk Factors--We may not
successfully integrate our business operations."
51
<PAGE>
Unaudited Pro Forma Condensed Combined Balance Sheet
As of December 31, 1999
(In thousands, except per share and share amounts)
<TABLE>
<CAPTION>
Greater Bay &
Bank of Bank of
Greater Santa Santa Clara Coast Bank of
Bay Clara Adjustments(1) Combined Bancorp Adjustments(2) Petaluma Adjustments(3)
---------- -------- -------------- ------------- -------- -------------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Cash and due from
banks............. $ 107,591 $ 11,244 $ -- $ 118,835 $ 18,295 $ -- $ 9,795 $ --
Federal funds
sold.............. 200,550 -- -- 200,550 15,000 -- 3,300 --
Other short-term
securities........ 30,257 -- -- 30,257 -- -- 297 --
Securities
available-for-
sale.............. 332,133 -- -- 332,133 112,764 -- 48,840 --
Securities held-
to-maturity and
other............. 163,036 88,017 -- 251,053 -- -- 6,725 --
Total loans,
net............... 1,880,756 212,770 -- 2,093,526 204,586 -- 118,312 --
Property,
premises and
equipment......... 23,878 10,086 -- 33,964 1,994 -- 1,640 --
Interest
receivable and
other assets...... 107,887 4,817 1,000 113,704 17,369 400 5,790 500
---------- -------- ------- ---------- -------- ------- -------- -------
Total assets.... $2,846,088 $326,934 $ 1,000 $3,174,022 $370,008 $ 400 $194,699 $ 500
========== ======== ======= ========== ======== ======= ======== =======
Liabilities
Total deposits.... $2,506,386 $293,698 $ -- $2,800,084 $300,613 $ -- $162,190 --
Other
borrowings........ 69,100 -- -- 69,100 31,500 -- 16,452 --
Subordinated
debt.............. -- -- -- -- -- -- -- --
Other
liabilities....... 47,007 1,867 4,400 53,274 4,856 3,800 1,164 3,300
Trust Preferred
Securities........ 50,000 -- -- 50,000 -- -- -- --
---------- -------- ------- ---------- -------- ------- -------- -------
Total liabilities.. 2,672,493 295,565 4,400 2,972,458 336,969 3,800 179,806 3,300
---------- -------- ------- ---------- -------- ------- -------- -------
Shareholders'
equity............. 173,595 31,369 (3,400) 201,564 33,039 (3,400) 14,893 (2,800)
---------- -------- ------- ---------- -------- ------- -------- -------
Total
liabilities and
shareholders'
equity.......... $2,846,088 $326,934 $ 1,000 $3,174,022 $370,008 $ 400 $194,699 $ 500
========== ======== ======= ========== ======== ======= ======== =======
<CAPTION>
Greater Bay,
Bank of
Santa Clara,
Coast Bancorp
& Bank of
Petaluma
Combined
-------------
<S> <C>
Assets
Cash and due from
banks............. $ 146,925
Federal funds
sold.............. 218,850
Other short-term
securities........ 30,554
Securities
available-for-
sale.............. 493,737
Securities held-
to-maturity and
other............. 257,778
Total loans,
net............... 2,416,424
Property,
premises and
equipment......... 37,598
Interest
receivable and
other assets...... 137,763
-------------
Total assets.... $3,739,629
=============
Liabilities
Total deposits.... $3,262,887
Other
borrowings........ 117,052
Subordinated
debt.............. --
Other
liabilities....... 66,394
Trust Preferred
Securities........ 50,000
-------------
Total liabilities.. 3,496,333
-------------
Shareholders'
equity............. 243,296
-------------
Total
liabilities and
shareholders'
equity.......... $3,739,629
=============
</TABLE>
<TABLE>
<CAPTION>
Merger Costs
----------------------------
Greater Bank of
Bay Santa Clara Combined
------- ----------- --------
<S> <C> <C> <C>
Financial advisory.............................. $ 50 $ 500 $ 550
Professional fees............................... 200 250 450
Printing........................................ 50 100 150
Other........................................... 850 3,450 4,300
------ ------ ------
Total......................................... $1,150 $4,300 $5,450
====== ====== ======
</TABLE>
- ----
(1) The table above reflects all nonrecurring Greater Bay and Bank of Santa
Clara estimated merger-related costs as of December 31, 1999. The
nonrecurring Greater Bay and Bank of Santa Clara estimated merger-related
costs are not included on the unaudited pro forma condensed combined
statement of operations but are included on the unaudited pro forma
condensed combined balance sheet as a reduction to shareholders' equity,
net of a $2.1 million tax benefit. These costs will be charged to expense
immediately following the consummation of the merger. These estimated
merger-related costs are summarized below, in thousands:
52
<PAGE>
(2) The table above reflects all nonrecurring Greater Bay and Coast Bancorp
estimated merger-related costs as of December 31, 1999. The nonrecurring
Greater Bay and Coast Bancorp estimated merger-related costs are not
included on the unaudited pro forma condensed combined statement of
operations but are included on the unaudited pro forma condensed combined
balance sheet as a reduction to shareholders' equity, net of a $2.0 million
tax benefit. These costs will be charged to expense immediately following
the consummation of the merger. These estimated merger-related costs are
summarized below, in thousands:
<TABLE>
<CAPTION>
Merger Costs
------------------------
Greater Coast
Bay Bancorp Combined
------- ------- --------
<S> <C> <C> <C>
Financial advisory.................................. $ 50 $1,750 $1,800
Professional fees................................... 200 200 400
Printing............................................ 50 100 150
Other............................................... 850 2,200 3,050
------ ------ ------
Total............................................. $1,150 $4,250 $5,400
====== ====== ======
</TABLE>
(3) The table above reflects all nonrecurring Greater Bay and Bank of Petaluma
estimated merger-related costs as of December 31, 1999. The nonrecurring
Greater Bay and Bank of Petaluma estimated merger-related costs are not
included on the unaudited pro forma condensed combined statement of
operations but are included on the unaudited pro forma condensed combined
balance sheet as a reduction to shareholders' equity, net of a $1.7 million
tax benefit. These costs will be changed to expense immediately following
the consummation of the merger. These estimated merger-related costs are
summarized below, in thousands:
<TABLE>
<CAPTION>
Merger Costs
-------------------------
Greater Bank of
Bay Petaluma Combined
------- -------- --------
<S> <C> <C> <C>
Financial advisory................................. $ 50 $ 500 $ 550
Professional fees.................................. 200 250 450
Printing........................................... 50 100 150
Other.............................................. 850 2,500 3,350
------ ------ ------
Total............................................ $1,150 $3,350 $4,500
====== ====== ======
</TABLE>
53
<PAGE>
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 1999
(In thousands, except per share and share amounts)
<TABLE>
<CAPTION>
Greater Bay
& Bank of
Greater Bank of Santa Clara Coast Bank of
Bay Santa Clara Adjustments(2) Combined Bancorp Adjustments(3) Petaluma Adjustments(4)
----------- ----------- -------------- ----------- ---------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest on
loans............ $ 149,883 $ 18,384 $ 168,267 $ 19,403 $ 9,810
Interest on
investment
securities....... 27,675 5,200 32,875 7,013 3,746
Other interest
income........... 12,740 591 13,331 885 117
----------- ---------- -------- ----------- ---------- ---------- --------- --------
Total interest
income.......... 190,298 24,175 214,473 27,301 13,673
Interest on
deposits......... 68,049 6,213 74,262 6,179 4,404
Other interest
expense.......... 8,508 -- 8,508 1,094 641
----------- ---------- -------- ----------- ---------- ---------- --------- --------
Net interest
income........... 113,741 17,962 131,703 20,028 8,628
Provision for
loan losses...... 13,064 675 13,739 -- 300
----------- ---------- -------- ----------- ---------- ---------- --------- --------
Net interest
income after
provision for
loan losses...... 100,677 17,287 117,964 20,028 8,328
Other income..... 33,306 3,808 37,114 4,670 1,195
Operating
expenses......... 79,212 14,294 93,506 13,372 6,196
----------- ---------- -------- ----------- ---------- ---------- --------- --------
Income before
provision for
income taxes and
merger and other
related
nonrecurring
costs and
extraordinary
items............ 54,771 6,801 61,572 11,326 3,327
Provision for
income taxes..... 17,659 2,398 20,057 4,387 1,023
----------- ---------- -------- ----------- ---------- ---------- --------- --------
Income before
merger and other
related
nonrecurring
costs, net of
tax.............. 37,112 4,403 41,515 6,939 2,304
Merger and other
related
nonrecurring
costs, net of
tax.............. (6,486) -- (6,486) -- --
----------- ---------- -------- ----------- ---------- ---------- --------- --------
Income before
extraordinary
items............ 30,626 4,403 35,029 6,939 2,304
Extraordinary
item............. (88) -- (88) --
----------- ---------- -------- ----------- ---------- ---------- --------- --------
Net income...... $ 30,538 $ 4,403 $ 34,941 $ 6,939 $ 2,304
=========== ========== ======== =========== ========== ========== ========= ========
Net income per
share--
basic(1)......... $ 2.45 $ 1.91 $ 2.41 $ 1.45 $ 1.61
=========== ========== ======== =========== ========== ========== ========= ========
Average common
shares
outstanding...... 13,310,000 2,310,000 (301,000) 15,319,000 4,792,000 (1,557,000) 1,428,000 (450,000)
=========== ========== ======== =========== ========== ========== ========= ========
Net income per
share--
diluted(1)....... $ 2.30 $ 1.86 $ 2.27 $ 1.41 $ 1.55
=========== ========== ======== =========== ========== ========== ========= ========
Average common
and common
equivalent shares
outstanding...... 14,189,000 2,369,000 (308,000) 16,250,000 4,910,000 (1,596,000) 1,491,000 (470,000)
=========== ========== ======== =========== ========== ========== ========= ========
<CAPTION>
Greater Bay,
Bank of Santa
Clara, Coast
Bancorp &
Bank of Petaluma
Combined
----------------
<S> <C>
Interest on
loans............ $ 197,480
Interest on
investment
securities....... 43,634
Other interest
income........... 14,333
----------------
Total interest
income.......... 255,447
Interest on
deposits......... 84,845
Other interest
expense.......... 10,243
----------------
Net interest
income........... 160,359
Provision for
loan losses...... 14,039
----------------
Net interest
income after
provision for
loan losses...... 146,320
Other income..... 42,979
Operating
expenses......... 113,074
----------------
Income before
provision for
income taxes and
merger and other
related
nonrecurring
costs and
extraordinary
items............ 76,225
Provision for
income taxes..... 25,467
----------------
Income before
merger and other
related
nonrecurring
costs, net of
tax.............. 50,758
Merger and other
related
nonrecurring
costs, net of
tax.............. (6,486)
----------------
Income before
extraordinary
items............ 44,272
Extraordinary
item............. (88)
----------------
Net income...... $ 44,184
================
Net income per
share--
basic(1)......... $ 2.37
================
Average common
shares
outstanding...... 19,532,000
================
Net income per
share--
diluted(1)....... $ 2.24
================
Average common
and common
equivalent shares
outstanding...... 20,585,000
================
</TABLE>
- ----
(1) Before merger and other related nonrecurring costs and extraordinary
items.
(2) Calculated as the historical Greater Bay weighted average shares plus the
historical Bank of Santa Clara weighted average shares adjusted for the
assumed conversion ratio of 0.870.
(3) Calculated as the historical Greater Bay weighted average shares plus the
historical Coast Bancorp weighted average shares adjusted for the assumed
conversion ratio of 0.675.
(4) Calculated as the historical Greater Bay weighted average shares plus the
historical Bank of Petaluma weighted average shares adjusted for the
assumed conversion ratio of 0.685.
54
<PAGE>
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 1998
(In thousands, except per share and share amounts)
<TABLE>
<CAPTION>
Greater Bay
& Bank of
Bank of Santa Clara Coast Bank of
Greater Bay Santa Clara Adjustments(2) Combined Bancorp Adjustments(3) Petaluma Adjustments(4)
----------- ----------- -------------- ----------- ---------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest on
loans............ $ 111,361 $ 18,145 $ 129,506 $ 16,891 $ 9,145
Interest on
investment
securities....... 22,740 3,836 26,576 5,848 3,426
Other interest
income........... 11,805 456 12,261 1,388 173
----------- ---------- -------- ----------- ---------- ---------- ---------- --------
Total interest
income.......... 145,906 22,437 168,343 24,127 12,744
Interest on
deposits......... 50,563 6,247 56,810 5,589 4,373
Other interest
expense.......... 8,255 -- 8,255 1,174 564
----------- ---------- -------- ----------- ---------- ---------- ---------- --------
Net interest
income........... 87,088 16,190 103,278 17,364 7,807
Provision for
loan losses...... 7,159 600 7,759 300 220
----------- ---------- -------- ----------- ---------- ---------- ---------- --------
Net interest
income after
provision for
loan losses...... 79,929 15,590 95,519 17,064 7,587
Other income..... 11,370 3,398 14,768 5,987 1,186
Operating
expenses......... 56,405 13,014 69,419 12,482 5,645
----------- ---------- -------- ----------- ---------- ---------- ---------- --------
Income before
provision for
income taxes and
merger and other
related
nonrecurring
costs and
extraordinary
items............ 34,894 5,974 40,868 10,569 3,128
Provision for
income taxes..... 11,666 2,018 13,684 4,408 1,012
----------- ---------- -------- ----------- ---------- ---------- ---------- --------
Income before
merger and other
related
nonrecurring
costs, net of
tax.............. 23,228 3,956 27,184 6,161 2,116
Merger and other
related
nonrecurring
costs, net of
tax.............. (1,674) -- (1,674) -- --
----------- ---------- -------- ----------- ---------- ---------- ---------- --------
Net income...... $ 21,554 $ 3,956 $ 25,510 $ 6,161 $ 2,116
=========== ========== ======== =========== ========== ========== ========== ========
Net income per
share--basic(1).. $ 1.75 $ 1.73 $ 1.78 $ 1.28 $ 1.54
=========== ========== ======== =========== ========== ========== ========== ========
Average common
shares
outstanding...... 13,091,000 2,284,000 (297,000) 15,078,000 4,803,000 (1,561,000) 1,370,000 (432,000)
=========== ========== ======== =========== ========== ========== ========== ========
Net income per
share--
diluted(1)....... $ 1.63 $ 1.69 $ 1.67 $ 1.25 $ 1.45
=========== ========== ======== =========== ========== ========== ========== ========
Average common
and common
equivalent shares
outstanding...... 14,047,000 2,336,000 (304,000) 16,079,000 4,936,000 (1,604,000) 1,464,000 (461,000)
=========== ========== ======== =========== ========== ========== ========== ========
<CAPTION>
Greater Bay,
Bank of
Santa Clara,
Coast Bancorp &
Bank of Petaluma
Combined
----------------
<S> <C>
Interest on
loans............ $ 155,542
Interest on
investment
securities....... 35,850
Other interest
income........... 13,822
----------------
Total interest
income.......... 205,214
Interest on
deposits......... 66,772
Other interest
expense.......... 9,993
----------------
Net interest
income........... 128,449
Provision for
loan losses...... 8,279
----------------
Net interest
income after
provision for
loan losses...... 120,170
Other income..... 21,941
Operating
expenses......... 87,546
----------------
Income before
provision for
income taxes and
merger and other
related
nonrecurring
costs and
extraordinary
items............ 54,565
Provision for
income taxes..... 19,104
----------------
Income before
merger and other
related
nonrecurring
costs, net of
tax.............. 35,461
Merger and other
related
nonrecurring
costs, net of
tax.............. (1,674)
----------------
Net income...... $ 33,787
================
Net income per
share--basic(1).. $ 1.82
================
Average common
shares
outstanding...... 19,258,000
================
Net income per
share--
diluted(1)....... $ 1.72
================
Average common
and common
equivalent shares
outstanding...... 20,414,000
================
</TABLE>
- ----
(1) Before merger and other related nonrecurring costs and extraordinary items
(2) Calculated as the historical Greater Bay weighted average shares plus the
historical Bank of Santa Clara weighted average shares adjusted for the
assumed conversion ratio of 0.870.
(3) Calculated as the historical Greater Bay weighted average shares plus the
historical Coast Bancorp weighted average shares adjusted for the assumed
conversion ratio of 0.675.
(4) Calculated as the historical Greater Bay weighted average shares plus the
historical Bank of Petaluma weighted average shares adjusted for the
assumed conversion ratio of 0.685.
55
<PAGE>
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 1997
(In thousands, except per share and share amounts)
<TABLE>
<CAPTION>
Greater Bay
& Bank of
Greater Bank of Santa Clara Coast Bank of
Bay Santa Clara Adjustments(2) Combined Bancorp Adjustments(3) Petaluma Adjustments(4)
----------- ----------- -------------- ----------- ---------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest on
loans............ $ 91,138 $ 16,463 $ 107,601 $ 14,514 $ 7,696
Interest on
investment
securities....... 12,028 3,953 15,981 5,052 3,019
Other interest
income........... 10,292 306 10,598 1,244 77
----------- ---------- -------- ----------- ---------- ---------- ---------- --------
Total interest
income.......... 113,458 20,722 134,180 20,810 10,792
Interest on
deposits......... 38,981 5,909 44,890 4,116 3,681
Other interest
expense.......... 3,544 -- 3,544 1,511 567
----------- ---------- -------- ----------- ---------- ---------- ---------- --------
Net interest
income........... 70,933 14,813 85,746 15,183 6,544
Provision for
loan losses...... 7,541 800 8,341 450 340
----------- ---------- -------- ----------- ---------- ---------- ---------- --------
Net interest
income after
provision for
loan losses...... 63,392 14,013 77,405 14,733 6,204
Other income..... 10,377 2,988 13,365 4,929 1,047
Operating
expenses......... 46,490 12,019 56,509 11,006 5,049
----------- ---------- -------- ----------- ---------- ---------- ---------- --------
Income before
provision for
income taxes and
merger and other
related
nonrecurring
costs and
extraordinary
items............ 27,279 4,982 32,261 8,656 2,202
Provision for
income taxes..... 9,798 1,618 11,416 3,501 726
----------- ---------- -------- ----------- ---------- ---------- ---------- --------
Income before
merger and other
related
nonrecurring
costs, net of
tax.............. 17,481 3,364 20,845 5,155 1,476
Merger and other
related
nonrecurring
costs, net of
tax.............. (2,282) -- (2,282) -- --
----------- ---------- -------- ----------- ---------- ---------- ---------- --------
Net income...... $ 15,199 $ 3,364 $ 18,563 $ 5,155 $ 1,476
=========== ========== ======== =========== ========== ========== ========== ========
Net income per
share--
basic(1)......... $ 1.30 $ 1.48 $ 1.36 $ 1.06 $ 1.14
=========== ========== ======== =========== ========== ========== ========== ========
Average common
shares
outstanding...... 12,252,000 2,276,000 (296,000) 14,232,000 4,853,000 (1,577,000) 1,296,000 (408,000)
=========== ========== ======== =========== ========== ========== ========== ========
Net income per
share--
diluted(1)....... $ 1.23 $ 1.45 $ 1.29 $ 1.05 $ 1.06
=========== ========== ======== =========== ========== ========== ========== ========
Average common
and common
equivalent shares
outstanding...... 13,028,000 2,321,000 (301,000) 15,048,000 4,931,000 (1,603,000) 1,393,000 (439,000)
=========== ========== ======== =========== ========== ========== ========== ========
<CAPTION>
Greater Bay,
Bank of Santa
Clara,
Coast Bancorp &
Bank of Petaluma
Combined
-----------------
<S> <C>
Interest on
loans............ $ 129,811
Interest on
investment
securities....... 24,052
Other interest
income........... 11,919
-----------------
Total interest
income.......... 165,782
Interest on
deposits......... 52,687
Other interest
expense.......... 5,622
-----------------
Net interest
income........... 107,473
Provision for
loan losses...... 9,131
-----------------
Net interest
income after
provision for
loan losses...... 98,342
Other income..... 19,341
Operating
expenses......... 74,564
-----------------
Income before
provision for
income taxes and
merger and other
related
nonrecurring
costs and
extraordinary
items............ 43,119
Provision for
income taxes..... 15,643
-----------------
Income before
merger and other
related
nonrecurring
costs, net of
tax.............. 27,476
Merger and other
related
nonrecurring
costs, net of
tax.............. (2,282)
-----------------
Net income...... $ 25,194
=================
Net income per
share--
basic(1)......... $ 1.41
=================
Average common
shares
outstanding...... 18,396,000
=================
Net income per
share--
diluted(1)....... $ 1.34
=================
Average common
and common
equivalent shares
outstanding...... 19,330,000
=================
</TABLE>
- ----
(1) Before merger and other related nonrecurring costs and extraordinary
items.
(2) Calculated as the historical Greater Bay weighted average shares plus the
historical Bank of Santa Clara weighted average shares adjusted for the
assumed conversion ratio of 0.870.
(3) Calculated as the historical Greater Bay weighted average shares plus the
historical Coast Bancorp weighted average shares adjusted for the assumed
conversion ratio of 0.675.
(4) Calculated as the historical Greater Bay weighted average shares plus the
historical Bank of Petaluma weighted average shares adjusted for the
assumed conversion ratio of 0.685.
56
<PAGE>
MANAGEMENT OF GREATER BAY AFTER THE MERGER
After completion of the merger, (age ), a director of Bank of Santa
Clara, will be appointed to the Board of Directors of Greater Bay. Mr. has
served as a director of Bank of Santa Clara since 19 . [5 year biography] As a
director of Bank of Santa Clara, Mr. received $12,000 in director fees for
1999.
Information concerning the directors and executive officers of Greater Bay
is contained in Greater Bay's Annual Report on Form 10-K for the year ended
December 31, 1999, which is incorporated by reference in this document.
57
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Bank of Santa Clara common stock as of March 31, 2000 by: (i) each
person known by Bank of Santa Clara to beneficially own more than 5% of the
outstanding shares of Bank of Santa Clara, (ii) each of its directors, (iii)
each of its executive officers; and (iv) all directors and executive officers
as a group. Unless otherwise indicated, each person or entity named below has
an address c/o Bank of Santa Clara's principal executive offices and has sole
voting and investment power with respect to all shares of Bank of Santa Clara
common stock shown as beneficially owned by such person or entity, except to
the extent authority is shared by spouses under applicable law.
<TABLE>
<CAPTION>
Shares Beneficially Owned(1)
----------------------------------
Number Percent
of Shares of Class
--------------- -------------
<S> <C> <C>
Louis F. Boitano.................... 15,011(2) 0.61%
A. Stanley Chinchen................. 60,142(3) 2.46
Gerald R. Graham.................... 22,878(4) 0.93
Robert K. Gustke.................... 41,882(5) 1.71
Gary L. Hong........................ 21,303(6) 0.87
Louis J. Mariani.................... 9,404(7) 0.38
Ronald D. Reinartz.................. 89,607(8) 3.66
Lawrence S. Santa Maria............. 29,968(9) 1.22
William Scilacci.................... 31,085(10) 1.27
Donald R. Von Raesfeld.............. 38,077(11) 1.56
Thaddeus J. Whalen, Jr.............. 29,417(12) 1.20
Lester B. Workman................... 74,707(13) 3.05
James C. Audibert................... 21,398(14) 0.87
Eugene Maxwell...................... 21,276(15) 0.87
Judith J. Reinartz.................. 89,607(8) 0.34
--------------- -------------
All directors and executive officers
of Bank of Santa Clara
as a group (15 persons)............ 514,423(16) 21.01%
</TABLE>
- --------
(1) This table is based upon information supplied by officers, directors and
principal shareholders. Unless otherwise indicated, each person named in
the table has sole voting and investment power with respect to all shares
of common stock shown as beneficially owned by such person, subject to
community property laws where applicable.
(2) Includes 6,021 shares subject to options exercisable within 60 days of
March 31, 2000.
(3) Includes 8,268 shares subject to options exercisable within 60 days of
March 31, 2000.
(4) Does not include 17,199 shares held by his wife, to which Mr. Graham
disclaims beneficial ownership. Includes 8,268 shares subject to options
exercisable within 60 days of March 31, 2000.
(5) Includes 8,268 shares subject to options exercisable within 60 days of
March 31, 2000.
(6) Includes 8,268 shares subject to options exercisable within 60 days of
March 31, 2000.
(7) Includes 8,268 shares subject to options exercisable within 60 days of
March 31, 2000.
(8) Ronald D. Reinartz and Judith J. Reinartz, husband and wife, jointly own
81,339 shares as co-trustees of their revocable trust and share voting and
investment power over these shares. Includes, for Mr. Reinartz, 8,268
shares subject to options exercisable within 60 days of March 31, 2000,
and, for Mrs. Reinartz, 8,268 shares subject to options exercisable within
60 days of March 31, 2000.
(9) Includes 8,268 shares subject to options exercisable within 60 days of
March 31, 2000.
(10) Includes 8,268 shares subject to options exercisable within 60 days of
March 31, 2000.
(11) Includes 6,302 shares held in the name of DCK Enterprises over which Mr.
Von Raesfeld has sole voting and investment power and 8,268 shares subject
to options exercisable within 60 days of March 31, 2000.
58
<PAGE>
(12) Does not include 6,302 shares held by his wife and 11,358 shares held by
Dr. Whalen as Trustee under the trust established by the will of his
father for the benefit of his mother, both holdings to which Dr. Whalen
disclaims beneficial ownership. Includes 8,268 shares subject to options
exercisable within 60 days of March 31, 2000.
(13) Does not include 32,963 shares held by his wife to which Mr. Workman
disclaims beneficial ownership. Includes 8,268 shares subject to options
exercisable within 60 days of March 31, 2000.
(14) Includes 8,268 shares subject to options exercisable within 60 days of
March 31, 2000.
(15) Includes 8,268 shares subject to options exercisable within 60 days of
March 31, 2000.
(16) Includes 121,773 shares subject to options exercisable within 60 days of
March 31, 2000.
EXPERTS
The consolidated balance sheets as of December 31, 1999 and 1998 of Greater
Bay and the consolidated statements of operations, comprehensive income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1999, included in Greater Bay's Current Report on Form 8-K
filed with the SEC on February 1, 2000, incorporated by reference in this proxy
statement/prospectus, have been incorporated herein in reliance on the report
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of that firm as experts in accounting and auditing.
The balance sheets as of December 31, 1999 and 1998 of Bank of Santa Clara
and the statements of income, stockholders' equity and cash flows for each of
the three years in the period ended December 31, 1999 attached to this document
have been audited by Grant Thornton LLP, independent certified public
accountants, as stated in their report, which is included herein. These
statements have been included in reliance upon the report of Grant Thornton LLP
given upon their authority as experts in accounting and auditing.
Representatives of Grant Thornton LLP are expected to be present at the
special meeting. These representatives will have the opportunity to make a
statement if they desire to do so and are expected to be available to respond
to appropriate questions.
LEGAL MATTERS
The validity of the shares of Greater Bay common stock to be issued pursuant
to the terms of the merger agreement will be passed upon for Greater Bay by
Linda M. Iannone, Senior Vice President and General Counsel of Greater Bay. As
of the date of this document, Ms. Iannone owned 376 shares of Greater Bay
common stock and held options to purchase 23,900 shares of Greater Bay common
stock. Certain legal matters in connection with the federal income tax
consequences of the merger will be passed upon for Greater Bay by Manatt,
Phelps & Phillips, LLP, Los Angeles, California.
59
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Greater Bay files annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange Commission. Bank of
Santa Clara files similar reports with the FDIC.
You may read and copy any reports, statements or other information that
Greater Bay files at the SEC's public reference rooms in Washington, D.C., New
York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. Greater Bay's public
submissions are also available to the public from commercial document retrieval
services and at the Internet World Wide Web site maintained by the Commission
at "http:// www.sec.gov."
You may read and copy any reports, statements or other information that Bank
of Santa Clara files at the FDIC's public reference room in Washington D.C.
Please call the FDIC at (202) 393-8400 for further information on the public
reference room. Bank of Santa Clara public filings are also available by
calling Judith J. Reinartz, Corporate Secretary, at (408) 987-9426.
Greater Bay has filed a registration statement to register with the SEC the
shares of Greater Bay common stock to be issued to Bank of Santa Clara
shareholders in the merger. This document is a part of the registration
statement and constitutes a prospectus of Greater Bay and a proxy statement of
Bank of Santa Clara for its special meeting.
As allowed by SEC rules, this document does not contain all the information
that shareholders can find in the registration statement or the exhibits to the
registration statement.
The SEC allows Greater Bay and Bank of Santa Clara to "incorporate by
reference" information into this document, which means that the companies can
disclose important information to you by referring you to another document
filed separately with the SEC. The information incorporated by reference is
deemed to be a part of this document, except for any information superseded by
information contained directly in this document. This document incorporates by
reference the documents set forth below that Greater Bay and Bank of Santa
Clara previously filed with the SEC or the FDIC, respectively. These documents
contain important business information about Greater Bay and Bank of Santa
Clara and their respective financial condition that is not included or
delivered with this document.
Each of the documents previously filed by Bank of Santa Clara with the FDIC
that is incorporated by reference is included as an Annex to this proxy
statement/prospectus or as an exhibit to the registration statement. This proxy
statement/prospectus is accompanied by a copy of Bank of Santa Clara's Annual
Report on Form 10-K for the year ended December 31, 1999 which is attached
hereto as Annex D.
<TABLE>
<CAPTION>
Period
------
<S> <C>
Greater Bay Commission Filings (File No. 0-
25034)
Annual Report on Form 10-K, except for Part II,
Items 6, 7, 7A and 8 .......................... Year ended December 31, 1999
Current Reports on Form 8-K..................... February 1, 2000, February 3, 2000,
February 4, 2000, March 22, 2000,
March 24, 2000, March 31, 2000,
April 6, 2000 and April 20, 2000
<CAPTION>
Period
------
<S> <C>
Bank of Santa Clara FDIC Filings
Annual Report on Form 10-K...................... Year ended December 31, 1999
Current Report on Form 8-K...................... February 10, 2000
</TABLE>
60
<PAGE>
All documents which Greater Bay files with the SEC between the date of this
proxy statement/prospectus and the date of the special shareholders' meeting
are incorporated into this proxy statement/prospectus by reference and made a
part of this document from the date of the filing of such documents. These
additional documents include periodic reports, such as Quarterly Reports on
Form 10-Q and Current Reports on Form 8-K.
Greater Bay has supplied all information contained or incorporated by
reference in this document relating to Greater Bay, and Bank of Santa Clara has
supplied all such information relating to Bank of Santa Clara.
Shareholders may obtain documents incorporated by reference through Greater
Bay or Bank of Santa Clara or, with respect to Greater Bay, through the SEC or
the SEC's Internet World Wide Web site described above, or with respect to Bank
of Santa Clara, the FDIC. Documents incorporated by reference are available
without charge, excluding all exhibits unless specifically incorporated by
reference as an exhibit to this document. You may obtain documents incorporated
by reference in this document by requesting them in writing or by telephone at
the following:
<TABLE>
<S> <C>
GREATER BAY BANCORP BANK OF SANTA CLARA
2860 W. Bayshore Road 1995 El Camino Real
Palo Alto, California 94303 Santa Clara, California 95050
Telephone: (650) 614-5733 Telephone: (408) 987-9426
Attention: Carleen Maniglia Attention: Judith J. Reinartz
</TABLE>
If you would like to request documents, please do so at least five business
days before the date of the Bank of Santa Clara special meeting (by ,
2000) in order to receive timely delivery of such documents before the meeting.
You should rely only on the information contained or incorporated by
reference in this document to vote your shares at the meeting. Greater Bay and
Bank of Santa Clara have not authorized anyone to provide you with information
that is different from what is contained in this document. This document is
dated , 2000. You should not assume that the information contained in this
document is accurate as of any date other than that date, and neither the
mailing of this document to shareholders nor the issuance of Greater Bay common
stock in the merger creates any implication to the contrary.
61
<PAGE>
A WARNING ABOUT FORWARD-LOOKING INFORMATION
Greater Bay Bancorp and Bank of Santa Clara have each made forward-looking
statements in this document and in certain documents that we refer to in this
document that are subject to risks and uncertainties. These statements are
based on the beliefs and assumptions of the respective company's management,
and on information currently available to such management. Forward-looking
statements include the information concerning possible or assumed future
results of operations of Greater Bay and/or Bank of Santa Clara set forth under
"Questions and Answers About the Merger," "Summary," "The Merger--Background of
and Reasons for the Merger," "The Merger--Opinion of Bank of Santa Clara's
Financial Advisor," and "Unaudited Pro Forma Condensed Combined Financial
Information," and statements preceded by, followed by or that include the words
"believes," "expects," "anticipates," "intends," "plans," "estimates" or
similar expressions.
In particular, we have made statements in this document regarding expected
cost savings from the merger, the anticipated accretive effect of the merger
and Greater Bay's anticipated performance in future periods. With respect to
estimated cost savings, Greater Bay has made assumptions regarding the extent
of operational overlap between Greater Bay and Bank of Santa Clara, the amount
of general and administrative expense consolidation, costs relating to
converting Bank of Santa Clara's bank operations and data processing to Greater
Bay's systems, the size of anticipated reductions in fixed labor costs, the
amount of severance expenses, the extent of the charges that may be necessary
to align the companies' respective accounting policies and the costs related to
the merger. The realization of the expected cost savings are subject to the
risk that the foregoing assumptions are inaccurate.
Moreover, any statements in this document regarding the anticipated
accretive effect of the merger and Greater Bay's anticipated performance in
future periods are subject to risks relating to the following:
. expected cost savings from the merger may not be fully realized or
realized within the expected time-frame;
. revenues following the merger may be lower than expected, or deposit
attrition, operating costs or customer loss and business disruption
following the merger may be greater than expected;
. competitive pressures among depository and other financial institutions
may increase significantly;
. costs of difficulties related to the integration of the businesses of
Greater Bay and Bank of Santa Clara may be greater than expected;
. changes in the interest rate environment may reduce margins;
. general economic or business conditions, either nationally or in
California, may be less favorable than expected, resulting in, among
other things, a deterioration in credit quality or a reduced demand for
credit;
. legislative or regulatory changes, including changes in accounting
standards, may adversely affect the businesses in which Greater Bay and
Bank of Santa Clara are engaged;
. changes may occur in the securities markets; and
. competitors of Greater Bay and Bank of Santa Clara may have greater
financial resources to develop products that enable such competitors to
compete more successfully than Greater Bay and Bank of Santa Clara.
Management of Greater Bay believes these forward-looking statements are
reasonable; however, undue reliance should not be placed on such forward-
looking statements, which are based on current expectations.
Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. The future results and shareholder values
of Greater Bay following completion of the merger may differ materially from
those expressed in these forward-looking statements. Many of the factors that
will determine these results and values are beyond Greater Bay's and Bank of
Santa Clara's ability to control or predict. For those statements, Greater Bay
and Bank of Santa Clara claim the protection of the safe harbor for forward-
looking statements contained in the Private Securities Litigation Reform Act of
1995.
62
<PAGE>
ANNEX A
Agreement and Plan of Reorganization
by and among
Greater Bay Bancorp, GBB Merger Corp. and Bank of Santa Clara
January 26, 2000
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
GREATER BAY BANCORP,
GBB MERGER CORP.
AND
BANK OF SANTA CLARA
January 26, 2000
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
------------------------------------
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is made and entered
into as of the 26th day of January, 2000, by and among GREATER BAY BANCORP, a
California corporation ("GBB"), GBB Merger Corp., a California corporation and
wholly owned subsidiary of GBB ("Newco") and Bank of Santa Clara, a California
corporation ("BSC").
WHEREAS, the Boards of Directors of GBB, Newco and BSC deem advisable and
in the best interests of their respective shareholders the merger of BSC with
and into Newco (the "Merger") upon the terms and conditions set forth herein
and in accordance with the California General Corporation Law (the "CGCL") (BSC,
following the effectiveness of the Merger, being hereinafter sometimes referred
to as the "Surviving Corporation");
WHEREAS, the Boards of Directors of GBB, Newco and BSC have approved the
Merger pursuant to this Agreement and the Agreement of Merger by and between
Newco and BSC (the "Agreement of Merger"), in substantially the form of Exhibit
A attached hereto, pursuant to which Newco will merge with and into BSC and each
outstanding share of BSC common stock, no par value ("BSC Stock"), excluding any
BSC Perfected Dissenting Shares (as defined below), 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; and
WHEREAS, the Merger is intended to qualify as a tax-free reorganization
within the meaning of the provisions of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code").
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
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:
"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.
"Affiliated Group" means, with respect to any entity, a group of entities
required or permitted to file consolidated, combined or unitary Tax Returns (as
defined herein).
"Agreement of Merger" has the meaning set forth in the second recital of
this Agreement.
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"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 20
consecutive trading days ending at the end of the third trading day immediately
preceding the Effective Time of the Merger (as defined herein).
"BAB" means Bay Area Bank, a California state chartered bank and wholly
owned subsidiary of GBB.
"BBC" means Bay Bank of Commerce, a California state chartered bank and
wholly owned subsidiary of GBB.
"Banks" means BAB, BBC, CNB, GGB, 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.
"BSC 401(k) Plan" means the BSC Profit Sharing and Salary Deferral 401(k)
Plan.
"BSC Conflicts and Consents List" has the meaning set forth in Section 4.6.
"BSC Contract List" has the meaning set forth in Section 4.16.
"BSC Derivatives List" has the meaning set forth in Section 4.32.
"BSC Dissenting Shares" means any shares of BSC Stock held by "dissenting
shareholders" within the meaning of Chapter 13 of the CGCL.
"BSC Employee Plan List" has the meaning set forth in Section 4.20.
"BSC Environmental Compliance List" has the meaning set forth in Section
4.12(b).
"BSC Filings" has the meaning set forth in Section 4.5.
"BSC Filings List" has the meaning set forth in Section 4.5.
"BSC Fully Diluted Book Value" means the total stockholders' equity of BSC
as reflected on the consolidated financial statements to be provided by BSC to
GBB pursuant to Section 11.14, as adjusted (a) to eliminate all amounts paid in
connection with the exercise of any BSC Stock Options (as defined herein) since
September 30, 1999, (b) to eliminate any amount related to accumulated other
comprehensive income and including instead on such financial statements the
amount of BSC's consolidated accumulated other comprehensive income as of
September 30, 1999, (c) to deduct any dividends to be paid pursuant to Section
6.1(b) hereof after the date of such financial statements and (d) to eliminate
amounts paid or accrued for Merger-related expenses, including but not limited
to, legal, accounting and financial advisory fees.
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"BSC Indemnification List" has the meaning set forth in Section 4.30.
"BSC Insurance List" has the meaning set forth in Section 4.7.
"BSC Intellectual Property List" has the set forth in Section 4.35.
"BSC Investment Securities List" has the meaning set forth in Section 4.26.
"BSC List" means any list required to be furnished by BSC to GBB herewith.
"BSC Litigation List" has the meaning set forth in Section 4.10.
"BSC Loan List" has the meaning set forth in Section 4.25.
"BSC Offices List" has the meaning set forth in Section 4.23.
"BSC Operating Losses List" has the meaning set forth in Section 4.24.
"BSC Perfected Dissenting Shares" means BSC Dissenting Shares which the
holders thereof have not withdrawn or caused to lose their status as BSC
Dissenting Shares.
"BSC Personal Property List" has the meaning set forth in Section 4.8.
"BSC Real Property List" has the meaning set forth in Section 4.9.
"BSC Shareholders' Meeting" means the meeting of BSC's shareholders
referred to in Section 6.6.
"BSC Stock" has the meaning set forth in the second recital of this
Agreement.
"BSC Stock Option" means any option issued pursuant to the BSC Stock Option
Plan.
"BSC Stock Option Plan" means the BSC 1997 Stock Option Plan.
"BSC Supplied Information" has the meaning set forth in Section 4.34.
"BSC Tax List" has the meaning set forth in Section 4.11.
"BSC Undisclosed Liabilities List" has the meaning set forth in Section
4.19.
"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.
"Certificates" has the meaning set forth in Section 2.5(b).
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"CFC" means the California Financial Code.
"CGCL" has the meaning set forth in the first recital of this Agreement.
"Classified Credits" has the meaning set forth in Section 6.7.
"Closing" means the consummation of the Merger provided for in Article 2 of
this Agreement on the Closing Date (as defined herein) at the offices of Greater
Bay Bancorp, 400 Emerson Street, 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 approval of this Agreement and the transactions
contemplated hereby by the shareholders of BSC, (ii) the receipt of all permits,
authorizations, approvals and consents specified in Section 9.3 hereof, (iii)
the expiration of all applicable waiting periods under the law, (iv) the
expiration of the 30 day period following the mailing by BSC to its shareholders
of a notice of approval of the Merger by the outstanding shares pursuant to
Section 1301 of the CGCL, or such other date as the parties may agree upon.
Notwithstanding the foregoing, if in the good faith judgment of GBB the Closing
would (a) interfere with or affect any financing, acquisition or other
significant transaction being contemplated by GBB, whether or not a final
determination has been made to undertake such transaction, or (b) GBB has a
bona fide business purpose for delaying the Closing, GBB will have the right to
delay the Closing for a period of not more than 90 Business Days from the date
which would otherwise be the Closing Date as determined by the first sentence of
this paragraph, except that in no event shall the Closing Date occur after
August 31, 2000, unless the parties hereto shall otherwise mutually agree.
"CNB" means Cupertino National Bank, a national banking association and
wholly owned subsidiary of GBB.
"Code" has the meaning set forth in the fourth recital of this Agreement.
"Commissioner" means the Commissioner of the Department of Financial
Institutions of the State of California.
"Competing Transaction" has the meaning set forth in Section 6.1(n).
"Conversion Ratio" has the meaning set forth in Section 2.2(a).
"Covered Person" 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).
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"Encumbrance" shall mean 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.
"ERISA Affiliates" has the meaning set forth in Section 4.20(a).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Agent" means Norwest Bank Minnesota, N.A.
"Exchange Fund" has the meaning set forth in Section 2.5(a) hereof.
"FDIC" means the Federal Deposit Insurance Corporation.
"Financial Statements of BSC" means the audited financial statements of BSC
consisting of the consolidated balance sheets as of December 31, 1996, 1997 and
1998, the related statements of income, stockholders' equity and cash flows for
the years then ended and related notes thereto and related opinions thereon for
the years then ended and BSC's unaudited consolidated balance sheet and
consolidated statement of income and cash flows as of and for the nine month
period ended September 30, 1999.
"Financial Statements of GBB" means the audited consolidated financial
statements of GBB consisting of the consolidated balance sheets as of December
31, 1996, 1997 and 1998, the related consolidated statements of operations,
shareholders' equity and cash flows for the years then ended and the related
notes thereto and related opinions thereon for the years then ended and GBB's
unaudited consolidated balance sheets and consolidated statement of operations
and cash flows as of and for the ninth month period ended September 30, 1999.
"FRB" means the Board of Governors of the Federal Reserve System.
"FSVK Agreement" means the letter agreement between BSC and First Security
Van Kasper dated September 24, 1999.
"GBB 401(k) Plan" means the Greater Bay Bancorp 401(k) Profit Sharing Plan.
"GBB Acquisition Transaction" has the meaning set forth in Section
2.2(a)(v).
"GBB Conflicts and Consents List" has the meaning set forth in Section 5.5.
"GBB Filings" has the meaning set forth in Section 5.4.
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"GBB Stock" has the meaning set forth in the second recital of this
Agreement.
"GBB Stock Option Plan" means the Greater Bay Bancorp 1996 Stock Option
Plan, as amended.
"GBB Subsidiaries" means Newco, the Banks, Pacific Business Funding
Corporation and Peninsula Real Estate Corporation.
"GBB Supplied Information" has the meaning set forth in Section 5.14.
"GGB" means Golden Gate Bank, a California state chartered bank and wholly
owned subsidiary of GBB.
"Governmental Entity" shall mean any court or tribunal in any jurisdiction
or any United States federal, state, municipal, domestic, foreign or other
administrative authority or instrumentality.
"Grant Thornton" means Grant Thornton, BSC's independent public
accountants.
"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.
"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.
"MPB" means Mid-Peninsula Bank, a California state chartered bank and
wholly-owned subsidiary of GBB.
"Operating Loss" has the meaning set forth in Section 4.24.
"PBC" means Peninsula Bank of Commerce, a California state chartered bank
and wholly owned subsidiary of GBB.
"Person" means any individual, corporation, association, partnership,
limited liability company, trust, joint venture, other entity, unincorporated
body, government or governmental department or agency.
"Proxy Statement and Prospectus" means the Proxy Statement and Prospectus
that is included as part of the Registration Statement on Form S-4 (as defined
herein) and used to solicit proxies for the BSC Shareholders' Meeting and to
offer and sell the shares of GBB Stock to be issued in connection with the
Merger.
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"PwC" means PricewaterhouseCoopers LLP, GBB's independent public
accountants.
"Related Group of Persons" means Affiliates, members of an Immediate Family
or Persons the obligations of whom would be attributed to another Person
pursuant to the regulations promulgated by the SEC (as defined herein).
"Registration Statement on Form S-4" means the Registration Statement on
Form S-4, and such amendments thereto, that is filed with the SEC to register
the shares of GBB Stock to be issued in the Merger under the Securities Act and
to clear use of the Proxy Statement and Prospectus in connection with the BSC
Shareholders' Meeting pursuant to the regulations promulgated under the Exchange
Act.
"Scheduled Contracts" has the meaning set forth in Section 4.16.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Surviving Corporation" has the meaning set forth in the first recital of
this Agreement.
"Tanks" has the meaning set forth in Section 4.12(b).
"Tax Returns" means all returns, declarations, reports, estimates,
information returns and statements required to be filed in respect of any Taxes.
"Taxes" means (i) all federal, state, local or foreign taxes, charges,
fees, imposts, levies or other assessments, including, without limitation, all
net income, gross receipts, capital, sales, use, ad valorem, value added,
transfer, franchise, profits, inventory, capital stock, license, withholding,
payroll, employment, social security, unemployment, excise, severance, stamp,
occupation, property, corporation and estimated taxes, custom duties, fees,
assessments and charges of any kind whatsoever; (ii) all interest, penalties,
fines, additions to tax or additional amounts imposed by any taxing authority in
connection with any item described in clause (i); and (iii) any transferred
liability in respect of any items described in clauses (i) and/or (ii).
"Top Up Option" means, in the event that the Average Closing Price is less
than $36.3600, the right of GBB to elect to issue that number of shares of GBB
Stock equal to the quotient obtained by dividing $32.7240 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.
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<PAGE>
ARTICLE 2.
TERMS OF MERGER
---------------
2.1. Effect of Merger and Surviving Corporation. At the Effective Time
of the Merger, Newco will be merged with and into BSC 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, all the rights,
privileges, powers and franchises and all property and assets of every kind and
description of Newco and BSC shall be vested in and be held and enjoyed by the
Surviving Corporation, without further act or deed, and all the interests of
every kind of Newco and BSC, including all debts due to either of them on
whatever account, shall be the property of the Surviving Corporation as they
were of Newco and BSC and the title to any interest in real property and any
interest in personal property vested by deed or otherwise in either Newco or BSC
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 Newco and BSC shall be
preserved unimpaired and all debts, liabilities and duties of Newco and BSC
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 BSC. Subject to Section 2.4, each share of BSC Stock
issued and outstanding immediately prior to the Effective Time of the Merger
shall, without any further action on the part of BSC or the holders of such
shares, be treated on the basis set forth herein.
(a) Conversion of BSC Stock. At the Effective Time of the Merger,
pursuant to the Agreement of Merger, each outstanding share of BSC Stock
excluding any BSC Perfected Dissenting Shares shall, without any further action
on the part of BSC or the holders of any such shares, be automatically canceled
and cease to be an issued and outstanding share of BSC Stock and be converted
into shares of GBB Stock (the "Conversion Ratio") as follows:
(i) If the Average Closing Price is greater than or equal to
$38.3875 or less than or equal to $44.6125, 0.8700 shares of GBB Stock;
(ii) If the Average Closing Price is greater than $44.6125, a number
of shares of GBB Stock equal to the quotient obtained by dividing (x) $38.8129
plus the product of .3333 times the difference between the Average Closing Price
and $44.6125, by (y) the Average Closing Price; or
(iii) If the Average Closing Price is less than $38.3875 or greater
than or equal to $36.3600, a number of shares of GBB Stock equal to the quotient
obtained by dividing (x) $33.3971 less the product of .3333 times the difference
between $38.3875 and the Average Closing Price, by (y) the Average Closing
Price; or
(iv) If the Average Closing Price is less than $36.3600, 0.9000
shares of GBB Stock; provided, however, if the Average Closing Price is less
than $36.3600, BSC may give written notice to GBB within one Business Day of the
calculation of the Average Closing Price of its intention to terminate the
Agreement pursuant to Section 13.1(l), unless GBB elects, by
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<PAGE>
written notice to BSC within one Business Day from the date of receipt of
written notice from BSC of its intention to terminate the Agreement, to exercise
the Top Up Option, in which case the Conversion Ratio will equal that number of
shares of GBB Stock equal to the quotient obtained by dividing $32.7240 by the
Average Closing Price.
(v) In the event that, prior to the Closing Date, GBB publicly
announces the signing of a definitive agreement with a third party with respect
to a business combination, tender offer or similar transaction which if
consummated would result in the GBB shareholders as of the date of such
announcement owning less than 51% of the outstanding shares of common stock of
the surviving corporation, the price to be paid to GBB shareholders in such
transaction would exceed $44.6125 and such transaction is not terminated or
abandoned prior to the Closing Date (a "GBB Acquisition Transaction"), the
Conversion Ratio shall be 0.8700 shares of GBB Stock. If such GBB Acquisition
Transaction is terminated or abandoned during the period for determining the
Average Closing Price, GBB can elect to either set the Conversion Ratio at
0.8700 shares of GBB Stock or unilaterally delay the Closing Date to a date
which is 25 trading days after the date of the public announcement of the
termination or abandonment of such GBB Acquisition Transaction. To preserve the
rights of holders of shares of BSC Stock pursuant to this Section 2.2(a)(v), GBB
and BSC agree to coordinate the closing of any GBB Acquisition Transaction with
the Closing and to cooperate with such third party in otherwise accomplishing
the purpose hereof.
(b) BSC Perfected Dissenting Shares. BSC Perfected Dissenting Shares
shall not be converted into shares of GBB Stock, but shall, after the Effective
Time of the Merger, be entitled only to such rights as are granted them by
Chapter 13 of the CGCL. Each dissenting shareholder who is entitled to payment
for his shares of BSC Stock shall receive such payment in an amount as
determined pursuant to Chapter 13 of the CGCL.
(c) Dividends, Etc. 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 a distribution on the GBB Stock in
any security convertible into GBB Stock, with a record date prior to the
Effective Time of the Merger, appropriate adjustment or adjustments will be made
to the Conversion Ratio.
2.3. Effect on GBB Stock. At 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.
2.4. Fractional Shares. No fractional shares of GBB Stock shall be
issued in the Merger. In lieu thereof, each holder of BSC Stock who would
otherwise be entitled to receive a fractional share shall receive an amount in
cash equal to the product (calculated to the nearest cent) obtained by
multiplying (a) the closing price of GBB Stock reported on the Nasdaq National
Market System on the Business Day immediately preceding the Closing Date times
(b) the fraction of the share of GBB Stock to which such holder would otherwise
be entitled. No such holder shall be entitled to dividends or other rights in
respect of any such fraction.
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2.5 Exchange Procedures.
(a) As of the Effective Time of the Merger, GBB shall have deposited
with the Exchange Agent for the benefit of the holders of shares of BSC Stock,
for exchange in accordance with this Section 2.5 through the Exchange Agent,
certificates representing the shares of GBB Stock issuable pursuant to Section
2.2 in exchange for shares of BSC 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
issuable in connection with Section 2.2 hereof but for the operation of Section
2.4 of this Agreement (collectively, the "Exchange Fund").
(b) GBB shall direct the Exchange Agent to mail, promptly after the
Effective Time of the Merger, to each holder of record of a certificate or
certificates which immediately prior to the Effective Time of the Merger
represented outstanding shares of BSC Stock (the "Certificates") whose shares
were converted into the right to receive shares of GBB Stock pursuant to Section
2.2 hereof, (i) a letter of transmittal (which shall specify that delivery shall
be effected, and risk of loss and title to the Certificates shall pass, only
upon delivery of the Certificates to the Exchange Agent and shall be in such
form and have such other provisions as GBB and BSC may reasonably specify), and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of GBB Stock. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by GBB, together with such letter of transmittal,
duly executed, the holder of such Certificate shall be entitled to receive in
exchange therefor a certificate representing that number of whole shares of GBB
Stock and cash in lieu of fractional shares which such holder has the right to
receive pursuant to Sections 2.2 and 2.4 hereof, and the Certificate so
surrendered shall forthwith be canceled. In the event a certificate is
surrendered representing BSC Stock, the transfer of ownership of which is not
registered in the transfer records of BSC, a certificate representing the proper
number of shares of GBB Stock may be issued to a transferee if the Certificate
representing such BSC Stock is presented to the Exchange Agent, accompanied by
all documents required to evidence and effect such transfer and by evidence that
any applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.5, each 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 certificate representing shares of GBB Stock and cash in
lieu of any fractional shares of stock as contemplated by this Section 2.5.
Notwithstanding anything to the contrary set forth herein, if any holder of
shares of BSC should be unable to surrender the Certificates for such shares,
because they have been lost or destroyed, such holder may deliver in lieu
thereof a bond in form and substance and with surety reasonably satisfactory to
GBB and shall be entitled to receive the certificate representing the proper
number of shares of GBB Stock and cash in lieu of fractional shares in
accordance with Sections 2.2 and 2.4 hereof.
(c) No dividends or other distributions declared or made with respect
to GBB Stock with a record date after the Effective Time of the Merger shall be
paid to the holder of any unsurrendered Certificate with respect to the shares
of GBB Stock represented thereby and no cash payment in lieu of fractional
shares shall be paid to any such holder pursuant to Section 2.4 until the holder
of record of such Certificate shall surrender such Certificate. Subject to the
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effect of applicable laws, following surrender of any such Certificate, there
shall be paid to the record holder of the certificates representing whole shares
of GBB Stock issued in exchange thereof, without interest, (i) at the time of
such surrender, the amount of any cash payable in lieu of a fractional share of
GBB Stock to which such holder is entitled pursuant to Section 2.4 and the
amount of dividends or other distributions with a record date after the
Effective Time of the Merger theretofore paid with respect to such whole shares
of GBB Stock, and (ii) at the appropriate payment date, the amount of dividends
or other distributions with a record date after the Effective Time of the Merger
but prior to surrender and a payment date subsequent to surrender payable with
respect to such whole shares of GBB Stock.
(d) All shares of GBB Stock issued upon the surrender for exchange of
BSC Stock in accordance with the terms hereof (including any cash paid pursuant
to Section 2.4) shall be deemed to have been issued in full satisfaction of all
rights pertaining to such shares of BSC Stock, and there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of BSC Stock which were outstanding immediately prior
to the Effective Time of the Merger. If, after the Effective Time of the
Merger, Certificates are presented to GBB for any reason, they shall be canceled
and exchanged as provided in this Agreement.
(e) Any portion of the Exchange Fund which remains undistributed to
the shareholders of BSC following the passage of six months after the Effective
Time of the Merger shall be delivered to GBB, upon demand, and any shareholders
of BSC who have not theretofore complied with this Section 2.5 shall thereafter
look only to GBB for payment of their claim for GBB Stock, any cash in lieu of
fractional shares of GBB Stock and any dividends or distributions with respect
to GBB Stock.
(f) Neither GBB, Newco nor BSC shall be liable to any holder of shares
of BSC Stock for such shares (or dividends or distributions with respect
thereto) or cash from the Exchange Fund delivered to a public official pursuant
to any applicable abandoned property, escheat or similar law.
(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.
(h) Certificates surrendered for exchange by any Person constituting
an "Affiliate" of BSC for purposes of Rule 145(c) under the Securities Act shall
not be exchanged for certificates representing whole shares of GBB Stock until
GBB has received a written agreement from such person as provided in Section
6.9.
2.6. Directors of Surviving Corporation. Immediately after the Effective
Time of the Merger, the Board of Directors of the Surviving Corporation shall be
comprised of the persons serving as directors of BSC immediately prior to the
Effective Time of the Merger and John Gatto, or such other person designated by
GBB and reasonably acceptable to BSC. Immediately after the Effective Time of
the Merger, the Board of Directors of GBB shall be comprised of the
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persons serving as directors of GBB immediately prior to the Effective Time of
the Merger and one member of BSC's Board of Directors designated by BSC and
reasonably acceptable to GBB. Such persons shall serve until the earlier of
their resignation or removal or until their respective successors are duly
elected and qualified. During the six month period following the Effective Time
of the Merger, the BSC Board of Directors shall continue to meet on a monthly
basis and receive its current director fees of $1,000 per month. Commencing with
the first calendar quarter after such six month period, the BSC Board of
Directors will meet on a quarterly basis and the BSC director fees will be
revised to equal the amount of director fees paid to members of the Boards of
Directors of the Banks.
2.7 Executive Officers of Surviving Corporation. Immediately after the
Effective Time of the Merger, the executive officers of the Surviving
Corporation shall be comprised of the persons serving as executive officers of
BSC immediately prior to the Effective Time of the Merger. Such persons shall
serve until the earlier of their resignation or termination.
ARTICLE 3.
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
necessary to consummate the transactions described herein shall be executed by
the parties thereto. 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.
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ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF BSC
-------------------------------------
BSC represents and warrants to GBB as follows:
4.1. Incorporation, Standing and Power.
(a) BSC is a California state chartered bank duly organized, validly
existing and in good standing under the laws of the State of California and is
authorized by the DFI to conduct a general banking business. BSC's deposits are
insured by the FDIC in the manner and to the fullest extent provided by law.
BSC 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.
Neither the scope of the business of BSC nor the location of any of its
properties requires that BSC 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 on the
business, financial condition, results of operations or prospects of BSC on a
consolidated basis. BSC has delivered to GBB true and correct copies of its
Articles of Incorporation and Bylaws, as amended, and in effect as of the date
hereof.
(b) BSC Development Corporation is a California corporation duly
organized, validly existing and in good standing under the laws of the State of
California. BSC Development Corporation has no assets and conducts no
operations. BSC Development Corporation 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. Neither the scope of the business of BSC
Development Corporation nor the location of any of its properties requires that
it be licensed to do business in any jurisdiction other than the State of
California. BSC has delivered to GBB true and correct copies of the Articles of
Incorporation and Bylaws, as amended, and in effect as of the date hereof of BSC
Development Corporation.
4.2. Capitalization.
(a) As of the date of this Agreement, the authorized capital stock of
BSC consists of 20,000,000 shares of BSC Stock, of which 2,326,693 shares are
outstanding as of January 25, 2000. All of the outstanding shares of BSC Stock
are duly authorized, validly issued, fully paid and nonassessable. Except for
BSC Options covering 311,082 shares of BSC Stock granted pursuant to the BSC
Stock Option Plan, there are no outstanding options, warrants or other rights in
or with respect to the unissued shares of BSC Stock nor any securities
convertible into such stock, and BSC is not obligated to issue any additional
shares of its common 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. BSC has furnished GBB a list (the "BSC Option
List") setting forth the name of each holder of a BSC Option, the number of
shares of BSC Stock covered by each such option, the vesting schedule of such
option, the exercise price per share and the expiration date of each such
option.
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(b) As of the date of this Agreement, the authorized capital stock of
BSC Development Corporation consists of 1,000 shares of common stock, none of
which is outstanding. There are no outstanding options, warrants or other
rights in or with respect to the unissued shares of such stock nor any
securities convertible into such stock, and BSC Development Corporation is not
obligated to issue any additional shares of its common 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.
4.3. Subsidiaries. Except for BSC Development Corporation, BSC does not
own, directly or indirectly (except as a pledgee pursuant to loans or upon
acquisition in satisfaction of debt previously contracted), the outstanding
stock or equity or other voting interest in any Person. In addition, BSC
sponsors the Bank of Santa Clara Foundation, a California non-profit public
benefit corporation.
4.4. Financial Statements. BSC has previously furnished to GBB a copy of
the Financial Statements of BSC. The Financial Statements of BSC: (a) present
fairly the consolidated financial condition of BSC 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; (b) have been
prepared in accordance with generally accepted accounting principles
consistently applied (except as otherwise indicated therein); (c) set forth as
of the respective dates indicated adequate reserves for loan losses and other
contingencies and (d) are based upon the books and records of BSC.
4.5. Reports and Filings. Except as set forth in a list (the "BSC
Filings List"), since January 1, 1996, BSC has filed all reports, returns,
registrations and statements (collectively, "BSC Filings"), together with any
amendments required to be made with respect thereto, that were required to be
filed with (a) the FDIC, (b) the DFI, (d) the SEC and (e) 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 on the business, financial
condition, results of operations or prospects of BSC on a consolidated basis.
No administrative actions have been taken or orders issued in connection with
such BSC Filings. As of their respective dates, each of such BSC 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 BSC
Filings fairly presented the financial position of BSC on a consolidated basis,
and was prepared in accordance with generally accepted accounting principles or
banking regulations consistently applied, except as stated therein, during the
periods involved. BSC has furnished or made available to GBB true and correct
copies of all BSC Filings filed by BSC since January 1, 1996.
4.6. Authority of BSC. The execution and delivery by BSC of this
Agreement and the Agreement of Merger and, subject to the requisite approval of
the shareholders of BSC of this
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Agreement and the transactions contemplated hereby, the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of BSC. 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 BSC 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 BSC to GBB (the "BSC Conflicts and Consents List"), neither the
execution and delivery by BSC of this Agreement and the Agreement of Merger, the
consummation of the transactions contemplated herein or therein, nor compliance
by BSC 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
BSC is a party, or by which BSC any of its properties or assets are bound; (c)
result in the creation or imposition of any Encumbrance on any of the properties
or assets of BSC; or (d) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to BSC or any of its properties or assets. Except
as set forth in the BSC 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 BSC, and no consent of, approval of or
notice to any other Person, is required in connection with the execution and
delivery by BSC of this Agreement and the Agreement of Merger or the
consummation by BSC of the Merger or the transactions contemplated hereby or
thereby, except (i) the approval of this Agreement and the Agreement of Merger
and the transactions contemplated hereby and thereby by the shareholders of BSC;
(ii) such approvals as may be required by the FRB, the FDIC and the DFI; (iii)
the filing of the Proxy Statement and Prospectus and Registration Statement on
Form S-4 with the SEC; and (iv) the filing of the Agreement of Merger with the
Secretary of State.
4.7. Insurance. BSC has policies of insurance and bonds 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 and bonds are in
full force and effect. Except as set forth in a list furnished by BSC to GBB
(the "BSC Insurance List"), no insurer under any such policy or bond has
canceled or indicated an intention to cancel or not to renew any such policy or
bond or generally disclaimed liability thereunder. Except as set forth in the
BSC Insurance List, BSC is not in default under any such policy or bond and all
material claims thereunder have been filed in a timely fashion. Set forth in
the BSC Insurance List is a list of all policies of insurance carried and owned
by BSC 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
delivered to GBB a copy of each such policy of insurance.
4.8. Personal Property. BSC has good and marketable title to all its
properties and assets, other than real property, owned or stated to be owned by
BSC, free and clear of all Encumbrances except: (a) as set forth in the
Financial Statements of BSC; (b) for Encumbrances
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for current taxes not yet due; (c) for Encumbrances incurred in the ordinary
course of 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 BSC; or (e) as set forth
in a list furnished by BSC to GBB (the "BSC Personal Property List.")
4.9. Real Estate. BSC has furnished GBB a list of real property,
including leaseholds and all other interests in real property (other than
security interests), owned by BSC (the "BSC Real Property List"). Except as set
forth on the BSC Real Property List, BSC has duly recorded or caused to be
recorded, in the appropriate county, all recordable interests in the real
property described in the BSC Real Property List. BSC has good and marketable
title to the real property, and valid leasehold interests in the leaseholds,
described in the BSC 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 such Encumbrances, if any, as do not materially detract from the value of or
materially interfere with the present use of such property; and (d) as described
in the BSC Real Property List. BSC has furnished GBB with true and correct
copies of all leases included in the BSC Real Property List, all title insurance
policies and all documents evidencing recordation of all recordable interests in
real property included in the BSC Real Property List.
4.10. Litigation. Except as set forth in a list furnished by BSC to GBB
(the "BSC Litigation List"), there is no private or governmental suit, claim,
action or proceeding pending, nor to BSC's knowledge threatened, against BSC or
any of its subsidiaries 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 BSC or any of its subsidiaries which, if
adversely determined, would have, individually or in the aggregate, a material
adverse effect upon the business, financial condition or results of operations
of BSC on a consolidated basis, or the transactions contemplated hereby, or
which may involve a judgment against BSC in excess of $50,000. Also, except as
disclosed in the BSC Litigation List, there are no material judgments, decrees,
stipulations or orders against BSC or any of its subsidiaries 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.
(a) Except as set forth in a list furnished by BSC to GBB (the "BSC
Tax List"), (i) all Tax Returns required to be filed by or on behalf of BSC or
any of its subsidiaries or the Affiliated Group(s) of which any of them is or
was a member, have been duly and timely filed with the appropriate taxing
authorities in all jurisdictions in which such Tax Returns are required to be
filed (after giving effect to any valid extensions of time in which to make such
filings), and all such Tax Returns were true, complete and correct in all
material respects; (ii) all Taxes due and payable by or on behalf of BSC or any
of its subsidiaries, either directly, as part of an Affiliated Group Tax Return,
or otherwise, have been fully and timely paid, except to the extent adequately
reserved therefor in accordance with generally accepted accounting principles
and/or applicable regulatory accounting principles or banking regulations
consistently applied on the BSC balance sheet, and adequate reserves or accruals
for Taxes have been provided in the
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BSC balance sheet with respect to any period through the date thereof for which
Tax Returns have not yet been filed or for which Taxes are not yet due and
owing; and (iii) no agreement, waiver or other document or arrangement extending
or having the effect of extending the period for assessment or collection of
Taxes (including, but not limited to, any applicable statute of limitation) has
been executed or filed with any taxing authority by or on behalf of BSC or any
of its subsidiaries, or any Affiliated Group(s) of which any of them is or was a
member.
(b) BSC and its subsidiaries have complied in all material respects
with all applicable laws, rules and regulations relating to the payment and
withholding of Taxes and have duly and timely withheld from employee salaries,
wages and other compensation and have paid over to the appropriate taxing
authorities all amounts required to be so withheld and paid over for all periods
under all applicable laws.
(c) GBB has received complete copies of (i) all income or franchise
Tax Returns of BSC and any of its subsidiaries relating to the taxable periods
since January 1, 1995 and (ii) any audit report issued within the last three
years relating to any Taxes due from or with respect to BSC or any of its
subsidiaries with respect to their respective income, assets or operations.
(d) Except as set forth in the BSC Tax List, no written claim has been
made by a taxing authority in a jurisdiction where BSC or any of its
subsidiaries do not file an income or franchise Tax Return such that BSC or any
of its subsidiaries are or may be subject to taxation by that jurisdiction.
(e) Except as set forth in the BSC Tax List: (i) all deficiencies
asserted or assessments made as a result of any examinations by any taxing
authority of the Tax Returns of or covering or including BSC or any of its
subsidiaries have been fully paid, and, to the best of BSC's knowledge, there
are no other audits or investigations by any taxing authority in progress, nor
has BSC or any of its subsidiaries received any written notice from any taxing
authority that it intends to conduct such an audit or investigation; (ii) no
requests for a ruling or a determination letter are pending with any taxing
authority; and (iii) no issue has been raised in writing by any taxing authority
in any current or prior examination which, by application of the same or similar
principles, could reasonably be expected to result in a proposed deficiency
against BSC or any of its subsidiaries for any subsequent taxable period that
could be material.
(f) Except as set forth in the BSC Tax List, neither BSC, any of its
subsidiaries nor any other Person on behalf of BSC or any of its subsidiaries
has (i) filed a consent pursuant to Section 341(f) of the Code or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset
(as such term is defined in Section 341(f)(4) of the Code) owned by BSC or any
of its subsidiaries (ii) agreed to or is required to make any adjustments
pursuant to Section 481(a) of the Code or any similar provision of state, local
or foreign law by reason of a change in accounting method initiated by BSC or
any of its subsidiaries or has any knowledge that the Internal Revenue Service
has proposed in writing any such adjustment or change in accounting method, or
has any application pending with any taxing authority requesting permission for
any changes in accounting methods that relate to the business or operations of
BSC or any of its subsidiaries or (iii) executed or entered into a closing
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agreement pursuant to Section 7121 of the Code or any predecessor provision
thereof or any similar provision of state, local or foreign law with respect to
BSC or any of its subsidiaries.
(g) Except as set forth in the BSC Tax List, no property owned by BSC
or any of its subsidiaries is (i) property required to be treated as being owned
by another Person pursuant to provisions of Section 168(f)(8) of the Internal
Revenue Code of 1954, as amended and in effect immediately prior to the
enactment of the Tax Reform Act of 1986, (ii) constitutes "tax exempt use
property" within the meaning of Section 168(h)(1) of the Code or (iii) is "tax-
exempt bond financed property" within the meaning of Section 168(g) of the Code.
(h) BSC is not a party to any tax sharing agreement or similar
agreement or arrangement (whether written or not written) pursuant to which it
will have any obligation to make any payments after the Closing.
(i) Except as set forth in the BSC Tax List, there is no contract,
agreement, plan or arrangement covering any Person that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible by BSC or any of its subsidiaries or their respective affiliates by
reason of Section 280G of the Code, or would constitute compensation in excess
of the limitation set forth in Section 162(m) of the Code.
(j) There are no liens as a result of any due and unpaid Taxes upon
any of the assets of BSC or any of its subsidiaries.
(k) Except as set forth in the BSC Tax List, BSC or any of its
subsidiaries have no elections in effect for federal income tax purposes under
Sections 108, 168, 338, 441, 472, 1017, 1033, or 4977 of the Code.
(l) Except as set forth in the BSC Tax list, none of the members of
BSC's Affiliated Group has any net operating loss carryovers.
(m) BSC agrees, and agrees to cause its subsidiaries, to cooperate
with tax counsel in furnishing reasonable and customary written tax
representations to tax counsel for purposes of supporting tax counsel's opinion
that the Merger qualifies as a tax-deferred reorganization within the meaning of
Section 368(a) of the Code as contemplated in Section 9.6 hereof. BSC
acknowledges that its or any of its subsidiaries' inability or unwillingness to
provide such reasonable and customary written representations could preclude tax
counsel from rendering such opinion, with consequences specified elsewhere
herein.
4.12. Compliance with Laws and Regulations.
(a) BSC is not in default under or in breach or violation of (i) any
provision its Articles of Incorporation, as amended, or Bylaws, as amended, or
(ii) law, ordinance, rule or regulation promulgated by any Governmental Entity,
except, with respect to this clause (ii), for such violations as would not have,
individually or in the aggregate, a material adverse effect on the business,
financial condition, results of operations or prospects of BSC on a consolidated
basis.
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(b) Except as set forth on a list furnished by BSC to GBB (the "BSC
Environmental Compliance List"), to the best of BSC's knowledge, (i) BSC is in
compliance with all Environmental Regulations; (ii) there are no Tanks on or
about BSC Property; (iii) there are no Hazardous Materials on, below or above
the surface of, or migrating to or from BSC Property; (iv) BSC has no 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; and (v) without limiting Section
4.10 or the foregoing representations and warranties contained in clauses (i)
through (iv), as of the date of this Agreement, there is no claim, action, suit,
or proceeding or notice thereof before any Governmental Entity pending against
BSC or concerning property securing BSC loans and there is no outstanding
judgment, order, writ, injunction, decree, or award against or affecting BSC
Property or property securing BSC loans, relating to the foregoing
representations (i) - (iv), in each case the noncompliance with which, or the
presence of which would have a material adverse effect on the business,
financial condition, results of operations or prospects of BSC on a consolidated
basis. For purposes of this Agreement, 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. "BSC Property" shall mean real estate currently owned, leased,
or otherwise used by BSC, or in which BSC 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 BSC 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 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.
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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.
(c) BSC has provided to GBB phase I environmental assessments with
respect to each interest in real property set forth on the BSC Real Property
List as to which such a phase I environmental investigation has been prepared by
or on behalf of BSC. The BSC Real Property List shall disclose each such
property as to which such an assessment has not been prepared on behalf of BSC.
4.13. Performance of Obligations. BSC 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 agreement 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, individually or in the
aggregate, a material adverse effect on the business, financial condition,
results of operations or prospects of BSC on a consolidated basis. Except for
loans and leases made by BSC in the ordinary course of business, to the best of
BSC's knowledge, no party with whom BSC has an agreement that is of material
importance to the business of BSC is in default thereunder.
4.14. Employees. There are no controversies pending or, to the best of
BSC's knowledge, threatened between BSC and any of its employees that are likely
to have a material adverse effect on the business, financial condition, results
of operations or prospects of BSC on a consolidated basis. BSC is not 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 First Security
Van Kasper set forth in the FSVK Agreement, a copy of which has been delivered
to GBB, BSC 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.
4.16. Material Contracts. Except as set forth in a list furnished by
BSC to GBB (the "BSC Contract List") hereto (all items listed or required to be
listed in such BSC Contract List being referred to herein as "Scheduled
Contracts"), BSC is not 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
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obligation on the part of BSC and is not terminable by BSC within one year
without penalty or (ii) requires payment by BSC of $50,000 or more per annum;
(b) any advertising, brokerage, licensing, dealership, representative
or agency relationship or contract requiring payment by BSC of $50,000 or more
per annum;
(c) any contract or agreement that restricts BSC (or would restrict
any Affiliate of BSC 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 BSC in excess of $50,000 per annum other than (A) financing
leases entered into in the ordinary course of business in which BSC is lessor
and (B) leases of real property presently used by BSC as banking offices;
(e) any mortgage, pledge, conditional sales contract, security
agreement, option, or any other similar agreement with respect to any interest
of BSC (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 $50,000
or more;
(f) other than as described in the BSC Filings or as set forth in the
BSC 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 BSC;
(g) any agreement to acquire equipment or any commitment to make
capital expenditures of $50,000 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 BSC has an ownership interest or for the
grant of any preferential right to purchase any such property or asset;
(i) any agreement for the borrowing 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 BSC);
(j) any restrictive covenant contained in any deed to or lease of real
property owned or leased by BSC (as lessee) that materially restricts the use,
transferability or value of such property;
(k) any guarantee or indemnification which involves the sum of $50,000
or more, other than letters of credit or loan commitments issued in the normal
course of business;
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(l) any supply, maintenance or landscape contracts not terminable by
BSC without penalty on 30 days' or less notice and which provides for payments
in excess of $50,000 per annum;
(m) any material agreement which would be terminable other than by BSC
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 $50,000 or any sales of assets of BSC with recourse of any kind to BSC
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 BSC; or
(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 $50,000 or more to or by BSC 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.
True copies of all Scheduled Contracts, including all amendments and
supplements thereto, have been delivered to GBB.
4.17. Certain Material Changes. Except as specifically required,
permitted or effected by this Agreement, since December 31, 1998, 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 BSC or any other event or development that has had or may reasonably be
expected to have, individually or in the aggregate, a material adverse effect on
the assets, liabilities, permits, business, financial condition, results of
operations or prospects of BSC on a consolidated basis;
(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 on the assets, liabilities, business, financial
condition, results of operations or prospects of BSC on a consolidated basis or
that may involve a loss of more than $50,000 in excess of applicable insurance
coverage;
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(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 on the assets, liabilities,
business, financial condition, results of operations or prospects of BSC on a
consolidated basis;
(d) any disposition by BSC of an asset the lack of which has had or
may reasonably be expected to have a material adverse effect on the assets,
liabilities, business, financial condition, results of operations or prospects
of BSC on a consolidated basis; or
(e) any direct or indirect redemption, purchase or other acquisition
by BSC of any equity securities or any declaration, setting aside or payment of
any dividend or other distribution on or in respect of BSC Stock whether
consisting of money, other personal property, real property or other things of
value.
4.18. Licenses and Permits. BSC 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
on the business, financial condition, results of operations or prospects of BSC
on a consolidated basis. The properties, assets, operations and businesses of
BSC are and have been maintained and conducted, in all material respects, in
compliance with all applicable (a) licenses and permits; and (b) laws and
regulations.
4.19. Undisclosed Liabilities. BSC does not have any liabilities or
obligations, either accrued or contingent, that are material to BSC and that
have not been: (a) reflected or disclosed in the Financial Statements of BSC;
(b) incurred subsequent to December 31, 1998 in the ordinary course of business
consistent with past practices; or (c) disclosed in a list furnished by BSC to
GBB (the "Undisclosed Liabilities List") or on any other BSC List. BSC does not
know of any 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 change in the business,
financial condition, results of operations or prospects of BSC on a consolidated
basis that is not fairly reflected in the Financial Statements of BSC or
otherwise disclosed in this Agreement.
4.20. Employee Benefit Plans.
(a) BSC has previously made available to GBB copies of each "employee
benefit plan," as defined in Section 3(3) of ERISA, of which BSC or any member
of the same controlled group of corporations, trades or businesses as BSC within
the meaning of Section 4001(a)(14) of ERISA ("ERISA Affiliates") is a sponsor or
participating employer or as to which BSC or any of its ERISA Affiliates makes
contributions or is required to make contributions and which is subject to any
provision of ERISA and covers any employee, whether active or retired, of BSC or
any of its ERISA Affiliates, together with all amendments thereto, all currently
effective and related summary plan descriptions, the determination letter from
the IRS, the annual reports for the most recent three years (Form 5500
including, if applicable, Schedule B thereto) and a summary of material
modifications and all material employee communications prepared in connection
with any such plan. Such plans are hereinafter referred to collectively as
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the "Employee Plans." BSC does not participate in an employee benefit pension
plan that is a "multiemployer plan" within the meaning of Section 3(37) of
ERISA. 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 as
disclosed in a list furnished by BSC to GBB (the "BSC Employee Plan List"), all
Employee Plans were in effect for substantially all of 1999, 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, 1999.
(b) BSC has previously made available to GBB copies or descriptions of
each plan or arrangement maintained or otherwise contributed to by BSC or any of
its ERISA Affiliates 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, stock awards, stock-based compensation or
other forms of incentive compensation or post-termination insurance, profit
sharing, benefit, retirement, group health or insurance, disability, workers'
compensation, welfare or similar plan or arrangement for the benefit of any
employee or class of employees, whether active or retired, of BSC or any of its
ERISA Affiliates (such plans and arrangements being collectively referred to
herein as "Benefit Arrangements"). Except as disclosed in the BSC Employee Plan
List hereto, all Benefit Arrangements which are in effect were in effect for
substantially all of 1999 and to date. Except as disclosed in the BSC Employee
Plan List, 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 BSC Employee Plan List, there has been no material increase in the
compensation of or benefits payable to any senior executive employee of BSC
since December 31, 1998, nor any employment, severance or similar contract
entered into with any such employee, nor any amendment to any such contract,
since December 31, 1998.
(c) With respect to all Employee Plans and Benefit Arrangements, BSC
and its ERISA Affiliates are in 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 Code, applicable
to such plans or arrangements. All 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. BSC and its ERISA Affiliates have performed all of their
obligations under all such Employee Plans and Benefit Arrangements in all
material aspects. There is no pending or, to the best of BSC's knowledge,
threatened legal action, proceeding or investigation against or involving any
Employee Plan or Benefit Arrangement. 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 BSC or any of its ERISA Affiliates which is
covered by Title I of ERISA, which could subject
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any person (other than a person for whom BSC is not directly or indirectly
responsible) to liability under Title I of ERISA or to the imposition of tax
under Section 4975 of the Code. No Employee Plan subject to Part III of Subtitle
B of Title I of ERISA or Section 412 of the Code, or both, has incurred any
"accumulated funding deficiency," as defined in Section 412 of the Code, whether
or not waived, nor has BSC failed to make any contribution or pay any amount due
and owing as required by the terms of any Employee Plan or Benefit Arrangement.
No "reportable event" as defined in ERISA has occurred with respect to any of
the Employee Plans. Neither BSC nor any of its ERISA Affiliates has incurred nor
expects to incur, directly or indirectly, any 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
BSC) at or after the Effective Time of the Merger.
(d) Neither BSC nor any of its ERISA Affiliates has provided or is
required to provide security to any Employee Plan pursuant to Section 401(a)(29)
of the Code. Each of the Employee Plans which is intended to be a qualified
plan under Section 401(a) of the Code has received a favorable determination
letter from the Internal Revenue Service and BSC does not know of any fact which
could adversely affect the qualified status of any such Employee Plan. All
contributions required to be made to each of the Employee Plans under the terms
of the Employee Plan, ERISA, the Code or any other applicable laws have been
timely made. The Financial Statements of BSC properly reflect all amounts
required to be accrued as liabilities to date under each of the Employee Plans.
The fair market value of the assets of each Employee Plan and Benefit
Arrangement that is funded, or required to be funded under the terms of the
Employee Plan or Benefit Arrangement, ERISA, the Code or any other applicable
law, equals or exceeds the liabilities, including the present value of benefit
obligations, of such Employee Plan or Benefit Arrangement.
(e) Except for Scheduled Contracts set forth in the BSC Contract List
or as set forth in the BSC 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 BSC within a
period of 30 days following the Effective Time of the Merger, without payment of
any specified amount as a penalty, bonus, premium, severance pay or other
compensation for such termination.
(f) All group health plans of BSC have been operated in compliance
with the group health plan continuation coverage requirements of Section 4980B
of the Code and with the group health plan portability, access and renewability
requirements of Sections 9801 through 9833 of the Code, and corresponding
provisions of ERISA, in all material respects.
(g) BSC has not used the services of (i) workers who have been
provided by a third party contract labor supplier for more than six months or
who may otherwise be eligible to participate in any of the Employee Plans or to
an extent that would reasonably be expected to result in the disqualification of
any of the Employee Plans or the imposition of penalties or excise taxes with
respect to the IRS, the Department of Labor, the Pension Benefit Guaranty
Corporation or any other Governmental Entity; (ii) temporary employees who have
worked for
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more than six months or who may otherwise be eligible to participate in any of
the Employee Plans or to an extent that would reasonably be expected to result
in the disqualification of any of the Employee Plans or the imposition of
penalties or excise taxes with respect to the IRS, the Department of Labor, the
Pension Benefit Guaranty Corporation or any other Governmental Entity; (iii)
individuals who have provided services to BSC as independent contractors for
more than six months or who may otherwise be eligible to participate in the
Employee Plans or to an extent that would reasonably be expected to result in
the disqualification of any of the Employee Plans or the imposition of penalties
or excise taxes with respect to the IRS, the Department of Labor, the Pension
Benefit Guaranty Corporation or any other Governmental Entity or (iv) leased
employees, as that term is defined in section 414(n) of the Code.
(h) Except as set forth in the BSC Employee Plan List, with respect to
each Employee Plan that is funded wholly or partially through an insurance
policy, there will be no liability of BSC, as of the Closing Date, under any
such insurance policy or ancillary agreement with respect to such insurance
policy in the nature of a retroactive rate adjustment, loss sharing arrangement
or other actual or contingent liability arising wholly or partially out of
events occurring prior to the Closing Date.
4.21. Corporate Records. The minute books of BSC accurately reflect all
material actions taken to this date by the respective shareholders, board of
directors and committees of BSC.
4.22. Accounting Records. BSC maintains accounting records which fairly
and accurately 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 generally
accepted accounting principles. Such records, to the extent they contain
important information pertaining to BSC which is not easily and readily
available elsewhere, have been duplicated, and such duplicates are stored safely
and securely.
4.23. Offices and ATMs. BSC has furnished to GBB a list (the "BSC
Offices List") setting forth the headquarters of BSC (identified as such) and
each of the offices and automated teller machines ("ATMs") maintained and
operated by BSC (including, without limitation, representative and loan
production offices and operations centers) and the location thereof. Except as
set forth on the BSC Offices List, BSC does not maintain any other office or ATM
or conducts business at any other location, and BSC has not applied for or
received permission to open any additional branch or operate at any other
location.
4.24. Operating Losses. BSC has furnished to GBB a list (the "BSC
Operating Losses List") setting forth any Operating Loss (as herein defined)
which has occurred at BSC during the period after December 31, 1998 to the date
of the Agreement. To the best of BSC's knowledge, no action has been taken or
omitted to be taken by any employee of BSC that has resulted in the incurrence
by BSC of an Operating Loss or that 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 $50,000 on an individual basis
or in the aggregate. For purposes
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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. BSC has furnished to GBB a list (the "BSC Loan
List") that sets forth (a) as of December 31, 1999, a description of, by type
and classification, if any, each loan, lease, other extension of credit or
commitment to extend credit by BSC; (b) sets forth as of December 31, 1999, by
type and classification, all loans, leases, other extensions and commitments to
extend credit of BSC 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 BSC as to which any
payment of principal, interest or any other amount is 90 days or more past due.
4.26. Investment Securities. BSC has furnished to GBB a list (the "BSC
Investment Securities List") setting forth a description of each Investment
Security held by BSC on December 31, 1999. The BSC 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 maturity,
if applicable; (iv) the title of issue; and (v) the classification under SFAS
No. 115. BSC has no Investment Security classified as trading.
4.27. Power of Attorney. BSC has not 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
BSC, there is no fact, event or condition applicable to BSC 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 of BSC's knowledge, BSC
has not 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, and the FSVK Agreement, BSC is
not 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 BSC (a "Covered Person"),
and to the best knowledge of BSC, there are no claims for which any Covered
Person would be entitled to indemnification by BSC if such provisions were
deemed in effect, except as set forth in a list furnished by BSC to GBB (the
"BSC Indemnification List").
4.31. Community Reinvestment Act. BSC has received rating of
"satisfactory" in its most recent examination or interim review with respect to
the Community Reinvestment Act.
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BSC has not been advised of any supervisory concerns regarding BSC's compliance
with the Community Reinvestment Act.
4.32. Derivative Transactions. Except as set forth in a list furnished
by BSC to GBB (the "BSC Derivatives List"), BSC is not a party to or has agreed
to enter into an exchange traded or over-the-counter equity, interest rate,
foreign exchange or other swap, forward, future, option, cap, floor or collar or
any other contract that is not included on the balance sheet and is a derivative
contract (including various combinations thereof) or owns securities that are
referred to generically as "structured notes," "high risk mortgage derivatives,"
"capped floating rate notes," or "capped floating rate mortgage derivatives."
4.33. Trust Administration. Except for acting as a custodian or trustee
under individual retirement accounts, BSC does not presently maintain trusts or
exercises trust powers, including, but not limited to, trust administration, and
neither of them nor any predecessor has maintained any trusts or exercised such
trust powers for a period of at least three 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 BSC or
any of its predecessors, 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 BSC or any of its predecessors 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 similar positions where BSC or any of its predecessors 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 BSC or any of its
predecessors 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 BSC ("BSC Supplied Information")
for inclusion in (a) the Registration Statement on Form S-4 and the Proxy
Statement and Prospectus and (b) any other documents to be filed with the SEC,
the FRB, 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, or with respect to the Proxy Statement
and Prospectus when mailed, 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. Intellectual Property. Except as set forth in a list furnished by
BSC to GBB (the "BSC Intellectual Property List"), BSC owns or possesses valid
and binding licenses and other rights to use without payment all material
patents, copyrights, trade secrets, trade names, service marks and trademarks
used in their respective businesses; and BSC has not received any notice with
respect thereto that asserts the rights of others. BSC has in all material
respects performed all the obligations required to be performed by them, and are
not in default in any material
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respect under any license, contract, agreement, arrangement or commitment
relating to any of the foregoing.
4.36. Insider Loans; Other Transactions. BSC has previously provided GBB
or its agent with a listing, current as of December 31, 1999, of all extensions
of credit made by BSC to each of its executive officers and directors and their
related interests (all as defined under Federal Reserve Board Regulation O), all
of which have been made in compliance with Regulation O, and Section 23B under
the Federal Reserve Act which listing is true, correct and complete in all
material respects. BSC does not owe any amount to, or has any contract or lease
with or commitment to, any of the present executive officers or directors of BSC
(other than for compensation for current services not yet due and payable,
reimbursement of expenses arising in the ordinary course of business, options or
awards available under the BSC Stock Option Plans or any amounts due pursuant to
BSC's Employee Plans).
4.37. Registration Obligation. BSC is not under any obligation,
contingent or otherwise, to register any of their respective securities under
the Securities Act.
4.38. Accuracy and Currentness of Information Furnished. The
representations and warranties made by BSC hereby or in the BSC 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 5.
REPRESENTATIONS AND WARRANTIES OF GBB
-------------------------------------
GBB represents and warrants to BSC as follows:
5.1. 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. Newco has been duly organized, is validly existing and in good standing as
corporation under the laws of the State of California. GBB and Newco each 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. Each
of GBB and Newco is duly qualified and in good standing as a foreign
corporation, 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 on the business, financial
condition, results of operations or prospects of GBB on a consolidated basis.
True and correct copies of the Articles of Incorporation and Bylaws of GBB and
Newco have been delivered to BSC. Such Articles of Incorporation and Bylaws are
in full force and effect as of the date hereof.
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5.2. Capitalization.
(a) As of the date of this Agreement, the authorized capital stock of
GBB consists of 24,000,000 shares of common stock, no par value, of which
12,848,812 shares are outstanding as of January 25, 2000, 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 used in the Merger will be duly
authorized, validly issued, fully paid and nonassessable.
(b) As of the date of this Agreement, the authorized capital stock of
Newco consists of 10,000 shares of common stock, no par value of which 1000
shares are outstanding and owned of record and beneficially by GBB. All 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 Newco 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 its common stock or
any other securities convertible into such stock.
5.3. Financial Statements. GBB has previously furnished to BSC a copy of
the Financial Statements of GBB. The Financial Statements of GBB: (a) present
fairly and accurately 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; (b) have been prepared in accordance with
generally accepted accounting principles consistently applied (except as
otherwise indicated therein); (c) set forth as of the respective dates indicated
adequate reserves for loan losses and other contingencies; and (d) are based
upon the books and records of GBB and its subsidiaries.
5.4. Reports and Filings. Since January 1, 1996, GBB has filed all
reports, returns, registrations and statements (collectively, "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, and (c) 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 on the business, financial
condition, results of operations or prospects of GBB on a consolidated basis.
No 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 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 of GBB on a
consolidated basis fairly presented the financial position of GBB on a
consolidated basis and was prepared in accordance with generally accepted
accounting principles or banking regulations consistently applied, except as
stated therein, during the periods involved.
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5.5. Authority. The execution and delivery by GBB of this Agreement and
the Agreement of Merger, and, subject to the approval of the shareholders of GBB
of this Agreement and the transactions contemplated hereby, including the
increase of shares reserved under the GBB Stock Option Plan, the consummation of
the transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of GBB. This Agreement
is, and the Agreement of Merger will be, upon due execution and delivery by the
respective parties hereto, valid and binding obligations 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 BSC (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 GBB Subsidiary is a party, or by which GBB or any GBB Subsidiary or
any of its properties or assets is bound; (c) result in the creation or
imposition of any Encumbrance on any of the respective properties or assets of
GBB or any GBB Subsidiary; or (d) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to GBB or any GBB Subsidiary or any of
its 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 or any of its subsidiaries, 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 FRB, the FDIC and
the DFI; (ii) the filing of the Proxy Statement and Prospectus and Registration
Statement on Form S-4 with the SEC and the issuance by the SEC of an order
declaring the Registration Statement on Form S-4 effective; (iii) the approval
of this Agreement and the transactions contemplated hereby by the shareholders
of GBB; (iv) the filing of the Agreement of Merger with the Secretary of State
of the State of California; and (v) such approvals as may be required to approve
for inclusion on the Nasdaq National Market System of the GBB Stock to be issued
in the Merger.
(b) Of Newco. The execution and delivery by Newco of this Agreement
and the Agreement of Merger and, subject to the requisite approval of the
shareholder of Newco, the consummation of the transactions contemplated hereby
and thereby, have been duly and validly authorized by all necessary corporate
action on the part of Newco, and this Agreement and the Agreement of Merger will
be, upon due execution and delivery by the respective parties, a valid and
binding obligation of Newco enforceable in accordance with its 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.
Neither the consummation of the transactions contemplated by this
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Agreement and the Agreement of Merger, nor compliance by Newco 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 or Bylaws; (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 Newco is a party, or by which Newco or any of its properties
or assets is bound: (c) result in the creation or imposition of any Encumbrance
on any of the properties or assets of Newco; or (d) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Newco or any of
its properties or assets. No consent of, approval of, notice to or filing with
any Governmental Entity having jurisdiction over any aspect of the business or
assets of Newco, and no consent of, approval of or notice to any other Person,
is required in connection with the execution and delivery by Newco of this
Agreement or the Agreement of Merger or the consummation by Newco of the
transactions contemplated hereby or thereby, except (i) the approval of the
Agreement of Merger and the transactions contemplated hereby by the shareholder
of Newco, (ii) such approvals as may be required by the SEC, the FRB, the DFI,
the FDIC or any other Governmental Authority; and (iii) filing of the Agreement
of Merger with the Secretary of State of the State of California.
5.6. Subsidiaries. As of the date of this Agreement, GBB owns, directly
or indirectly, 100% of the outstanding stock of each of the GBB Subsidiaries.
As of the date of this Agreement, and except for its investments in the GBB
Subsidiaries, GBB Capital I and GBB Capital II, GBB does not own, directly or
indirectly (except as a pledgee pursuant to loans or upon acquisition in
satisfaction of debt previously contracted), the outstanding stock or equity or
other voting interest in any other Person. GBB and Mt. Diablo Bancshares
entered into an Agreement and Plan of Reorganization, dated as of September 15,
1999, pursuant to which Mt. Diablo Bancshares will merge with and into GBB and
Mt. Diablo National Bank, a wholly owned subsidiary of Mt. Diablo Bancshares,
will become a wholly owned subsidiary of GBB. GBB and Coast Bancorp entered
into an Agreement and Plan of Reorganization, dated as of December 14, 1999,
pursuant to which Coast Bancorp will merge with and into GBB and Coast
Commercial Bank, a wholly owned subsidiary of Coast Bancorp, will become a
wholly owned subsidiary of GBB.
5.7. Brokers and Finders. Except for the obligation to Hoefer & Arnett
Incorporated, as set forth in a letter agreement dated June 22, 1998, as
supplemented on December 28, 1999, 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.
5.8. Certain Material Changes. Except as specifically required,
permitted or effected by this Agreement or as disclosed in any GBB Filings,
since December 31, 1998, 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 the GBB
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Subsidiaries or any other event or development that has had or may reasonably be
expected to have a material adverse effect on the assets, liabilities, permits,
business, financial condition, results of operations or prospects of GBB on a
consolidated basis;
(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 on the assets, liabilities, permits, business, financial
condition, results of operations or prospects of GBB on a consolidated basis;
(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 on the assets, liabilities,
permits, business, financial condition, results of operations or prospects of
GBB on a consolidated basis; or
(d) any disposition by GBB or any of the GBB Subsidiaries of an asset
the lack of which has had or may reasonably be expected to have a material
adverse effect on the assets, liabilities, permits, business, financial
condition, results of operations or prospects of GBB on a consolidated basis.
5.9. Licenses and Permits. GBB 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
on the business, financial condition, results of operations or prospects of GBB
on a consolidated basis. The properties, assets, operations and businesses 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 are and have been maintained and conducted, in all material
respects, in compliance with all applicable laws and regulations.
5.10 Corporate Records. The minute books of GBB reflect all material
actions taken to this date by its shareholders, boards of directors and
committees.
5.11 Accounting Records. GBB maintains accounting records which fairly
and accurately 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
their management's general or specific authorization, and (ii) recorded as
necessary to permit the preparation of financial statements in conformity with
generally accepted accounting principles. Such records, to the extent they
contain important information pertaining to GBB which is not easily and readily
available elsewhere, have been duplicated, and such duplicates are stored safely
and securely.
5.12. Facts Affecting Regulatory Approvals. To the best knowledge of
GBB, there is no fact, event or condition applicable to GBB or any of the GBB
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 the transactions contemplated by this
Agreement.
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5.13. 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.
5.14. Disclosure Documents and Applications. None of the information
supplied or to be supplied by or on behalf of GBB ("GBB Supplied Information")
for inclusion in (a) the Registration Statement on Form S-4 and the Proxy
Statement and Prospectus to be mailed to the shareholders of BSC in connection
with obtaining the approval of the shareholders of BSC of this Agreement, the
Merger and the other transactions contemplated hereby, and (b) any other
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, or with respect to the Proxy Statement and Prospectus when mailed,
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.
5.15. Nasdaq Listing. As of the date hereof, GBB Stock is listed on the
Nasdaq National Market System.
5.16. 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 6.
COVENANTS OF BSC
-----------------
PENDING EFFECTIVE TIME OF THE MERGER
------------------------------------
BSC covenants and agrees with GBB as follows:
6.1. Limitation on 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, BSC agrees to conduct its business in the ordinary course in
substantially the manner heretofore conducted and in accordance with sound
banking practices, and BSC shall not, without the prior written consent of GBB,
which consent GBB shall not unreasonably withhold or delay:
(a) issue, sell or grant any BSC Stock (except pursuant to the
exercise of BSC Options outstanding as of the date hereof), any other securities
(including long term debt) of BSC, or any rights, stock appreciation rights,
options or securities to acquire any BSC Stock, or any other securities
(including long term debt) of BSC;
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(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 BSC, provided, however, that subject to Section 6.10, BSC
may pay to its shareholders its regular cash dividend in amounts and in a manner
consistent with past practices;
(c) purchase, redeem or otherwise acquire any capital stock or other
securities of BSC or any rights, options, or securities to acquire any capital
stock or other securities of BSC;
(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; provided, however, that, in the event GBB determines to
terminate the BSC 401(k) Plan, BSC may make a matching contribution to the BSC
401(k) Plan immediately prior to such termination in an amount equal to the pro
rata portion of the projected annual matching contribution, which in any case
shall be consistent with past practices;
(g) make any capital expenditure or commitments with respect thereto
in excess of $50,000 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 $500,000 on an
unsecured basis, or $1,000,000 if secured by a lien on real estate or cash
(consent shall be deemed granted if within two Business Days of written notice,
together with all relevant documents, delivered to GBB's Chief Credit Officer,
written notice of objection is not received by BSC);
(j) change its tax or accounting policies and procedures or any method
or period of accounting unless required by generally accepted accounting
principles 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 10% or more of the outstanding BSC Stock, or any
Affiliate of such Person, if such credit would exceed $50,000;
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(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 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 BSC 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 BSC: any merger, consolidation, share
exchange or other business combination; a sale, lease, exchange, mortgage,
pledge, transfer or other disposition of assets of BSC representing 10% or more
of the consolidated assets of BSC; 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 10% or more of the voting power of BSC; a tender offer or exchange
offer for at least 10% of the outstanding shares of BSC; a solicitation of
proxies in opposition to approval of the Merger by BSC's shareholders; or a
public announcement of an unsolicited bona fide proposal, plan, or intention to
do any of the foregoing. BSC will immediately cease and cause to be terminated
any existing activities, discussions or negotiations with any parties (other
than GBB) conducted heretofore with respect to any of the foregoing. BSC shall
take the necessary steps to inform promptly the appropriate individuals or
entities referred to above of the obligations undertaken in this Section. BSC
agrees that it shall notify GBB immediately if any such inquiries, proposals or
offers are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with BSC.
BSC also agrees that it shall promptly request each other person, other than
GBB, that has heretofore executed a confidentiality agreement in connection with
its consideration of acquiring BSC to return all confidential information
heretofore furnished to such person by or on behalf of BSC and enforce any such
confidentiality agreements. Notwithstanding any other provision in this Section
6.1(n), nothing in this Agreement shall prevent BSC from (i) engaging in any
discussions or negotiations with, or providing any information to, any Person in
response to an unsolicited bona fide written proposal concerning a Competing
Transaction by any such Person or (ii) recommending such an unsolicited bona
fide written proposal concerning a Competing Transaction to the holders of BSC
Stock if and only if, prior to participating in any of the foregoing, (A) the
Board of Directors of BSC concludes in good faith that the Competing
Transaction, if consummated, would result in a transaction more favorable to
holders of BSC Stock than the transaction contemplated by this Agreement (any
such more favorable Competing Transaction being referred to in this Agreement as
a "Superior Proposal"); (B) the Board of Directors of BSC determines in good
faith based upon the advice of outside counsel that participating in any such
action is
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necessary for it to act in a manner not inconsistent with its fiduciary duties
under applicable law; and (C) at least forty-eight (48) hours prior to providing
any information or data to any person or entering into discussions or
negotiations with any Person, the Board of Directors of BSC notifies GBB of such
inquiries, proposals or offers received by, any such information requested from,
or any such discussions or negotiations sought to be initiated or continued with
BSC;
(o) change any 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 BSC's business or operations, except such changes as may be required
in the opinion of BSC's 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, 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, bank qualified investment grade municipal bonds, in any
case, in the ordinary course of business consistent with past practices and
which are not designated as trading (consent shall be deemed granted if within
three Business Days of written notice together with all relevant documents
delivered to GBB's Chief Financial Officer or Controller, written notice of
objection is not received by BSC);
(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 BSC to obtain any necessary approval of
any Governmental Entity required for the transactions contemplated hereby; (ii)
adversely affect BSC'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 or BSC's obligations hereunder, as set forth in Articles 9, 10 or 11
herein not being satisfied;
(u) make any special or extraordinary payments to any Person;
(v) reclassify any Investment Security from held-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;
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(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) 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;
(z) settle any claim, action or proceeding involving any material
liability for monetary damages or enter into any settlement agreement containing
material obligations;
(aa) 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 December 31,
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;
(bb) 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;
(cc) make any contributions to the Bank of Santa Clara Foundation;
provided, however, that, between the date of this Agreement and the Closing
Date, the Bank of Santa Clara Foundation may distribute the funds currently
maintained by such Foundation in accordance with its charter; or
(dd) agree or make any commitment to take any actions prohibited by
this Section 6.1.
6.2 Affirmative Conduct Prior to Effective Time of the Merger. Between
the date hereof and the Effective Time of the Merger, BSC shall:
(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 BSC;
(b) use its commercially reasonable efforts to keep in full force and
effect all of the existing material permits and licenses of BSC;
(c) use its commercially reasonable efforts to maintain insurance
coverage at least equal to that now in effect on all properties which it owns or
leases and on its business operations;
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(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 upon learning of such information, advise GBB in writing
of any event or any other transaction whereby any Person or Related Group of
Persons acquires, directly or indirectly, record or beneficial ownership or
control (as defined in Rule 13d-3 promulgated by the SEC under the Exchange Act)
of 5% or more of the outstanding BSC Stock prior to the record date fixed for
the BSC Shareholders' Meeting or any adjourned meeting thereof to approve this
Agreement and the transactions contemplated herein;
(h) 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 BSC, or any actual or threatened
collection enforcement activity by any tax authority with respect to tax
liabilities of BSC;
(i) make available to GBB monthly unaudited balance sheets and income
statements of BSC within 25 days after the close of each calendar month;
(j) not later than the 30th day of each calendar month, amend or
supplement the BSC Lists prepared and delivered pursuant to Article 4 to ensure
that the information set forth in the BSC Lists accurately reflects the then-
current status of BSC in all material respects;
(k) 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 BSC or that is
contemplated in this Agreement as required in connection with the Merger;
(l) 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
(m) furnish to Manatt, Phelps & Phillips, LLP promptly upon its
written request 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 9.6 hereof.
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6.3 Access to Information.
(a) BSC will afford, upon reasonable notice, to GBB and its
representatives, counsel, accountants, agents and employees reasonable access
during normal business hours to all of their 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 BSC and the condition thereof and to update such examination at
such intervals as GBB shall deem appropriate. Such examination shall be
conducted in cooperation with the officers of BSC and in such a manner as to
minimize any disruption of, or interference with, the normal business operations
of BSC. Upon the request of GBB, BSC will request Grant Thornton to provide
reasonable access to representatives of PwC working on behalf of GBB to
auditors' work papers with respect to the business and properties of BSC,
including tax accrual work papers prepared for BSC during the preceding 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 BSC 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 BSC herein; provided, that GBB shall disclose to BSC any
fact or circumstance it may discover which GBB believes renders any
representation or warranty made by BSC 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 BSC so obtained from any of
them (except to the extent that such documents or information are a matter of
public record or require disclosure in the Proxy Statement and Prospectus 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 BSC.
(b) 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 BSC after the date hereof, and all information associated
with such loan, lease or other credit, such review to take place, if possible,
on BSC's premises.
(c) A representative of GBB, selected by GBB in its sole discretion,
shall be permitted by BSC to attend all regular and special Board of Directors'
and committee meetings of BSC 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 sole purpose of
discussing the transactions contemplated by this Agreement or the obligations of
BSC under this Agreement.
6.4 Filings. BSC agrees that through the Effective Time of the Merger,
each of BSC'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
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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 generally accepted
accounting principles or applicable banking regulations consistently applied
during the periods involved.
6.5 Notices; Reports. BSC will promptly notify GBB of any event of
which BSC obtains knowledge which has had or may have a materially adverse
effect on the financial condition, operations, business or prospects of BSC on a
consolidated basis, or in the event that BSC determines that it is unable to
fulfill any of the conditions to the performance of GBB's obligations hereunder,
as set forth in Articles 9 or 11 herein, and BSC will furnish GBB (i) as soon as
available, and in any event within one Business Day after it is mailed or
delivered to the Board of Directors of BSC or committees thereof, any report by
BSC for submission to the Board of Directors of BSC or committees thereof,
provided, however, that BSC need not furnish to GBB communications of BSC's
legal counsel regarding BSC's rights and obligations under this Agreement or the
transactions contemplated hereby, or books, records and documents covered by
confidentiality agreements or the attorney-client privilege, or which are
attorneys' work product, (ii) as soon as available, all proxy statements,
information statements, financial statements, reports, letters and
communications sent by BSC to its shareholders or other security holders, and
all reports filed by BSC with the FDIC or the DFI, and (iii) such other existing
reports as GBB may reasonably request relating to BSC.
6.6 BSC Shareholders' Meeting. Promptly after the execution of this
Agreement, BSC will take action necessary in accordance with applicable law and
its Articles of Incorporation and Bylaws to convene a meeting of its
shareholders to consider and vote upon this Agreement and the transactions
contemplated hereby so as to permit the consummation of the transactions
contemplated hereby. The Board of Directors of BSC shall, subject to its
fiduciary duties, recommend that its shareholders approve this Agreement and the
transactions contemplated hereby, and the Board of Directors of BSC shall,
subject to its fiduciary duties, use its best efforts to obtain the affirmative
vote of the holders of the largest possible percentage of the outstanding BSC
Stock to approve this Agreement and the transactions contemplated hereby.
6.7 Certain Loans and Other Extensions of Credit. BSC 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 BSC or by any other Person as "Criticized," "Specially
Mentioned," "Substandard," "Doubtful," "Loss" or any comparable classification
("Classified Credits"). BSC 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
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or sold and the originating unit; (f) loans or leases (including any
commitments) by BSC to any BSC director, officer at or above the senior vice
president level, or shareholder holding 10% or more of the capital stock of BSC,
including with respect to each such loan or lease the identity and, to the
knowledge of BSC, the relation of the borrower to BSC, 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.
6.8 Applications. Subject to Section 7.5, BSC will promptly prepare or
cause to be prepared the portions of the Proxy Statement and Prospectus as it
pertains to BSC and any other applications necessary, including applications to
the FDIC and the DFI, to consummate the transactions contemplated hereby, and
further agrees to provide any information requested by GBB for the preparation
of any applications necessary to consummate the transactions contemplated
hereby. BSC shall afford GBB a reasonable opportunity to review the portions of
the Proxy Statement and Prospectus pertaining to BSC and all such applications
and all amendments and supplements thereto before the filing thereof. BSC
covenants and agrees that, with respect to the information relating to BSC, the
Proxy Statement and Prospectus will comply in all material respects with the
provisions of applicable law, and will not contain any untrue statement of
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading. BSC will use its
commercially reasonable efforts to obtain all regulatory approvals or consents
necessary to effect the Merger and the transactions contemplated herein.
6.9 Affiliate Agreements. Concurrently with the execution of this
Agreement, (a) BSC shall deliver to GBB a letter identifying all persons who are
then "affiliates" of BSC for purposes of ASR 130 and 135 and Rule 145 under the
Securities Act and (b) BSC shall advise the persons identified in such letter of
the resale restrictions imposed by applicable securities laws and shall use
reasonable efforts to obtain from each person identified in such letter a
written agreement substantially in the form attached hereto as Exhibit B. BSC
shall use reasonable efforts to obtain from any person who becomes an affiliate
of BSC after BSC's delivery of the letter referred to above, and on or prior to
the date of the BSC Shareholders' Meeting to approve this Agreement, a written
agreement substantially in the form attached as Exhibit B hereto as soon as
practicable after obtaining such status.
6.10 Coordination of Dividends. BSC shall coordinate with GBB the
declaration of any dividends that may be allowed pursuant to Section 6.1(b)
hereof, and the record date and the payment dates relating thereto, it being the
intention of the parties that holders of BSC Stock shall not receive two
dividends, or fail to receive one dividend, for any applicable dividend period
with respect to their shares of BSC Stock and any shares of GBB Stock any such
holder will receive in exchange therefor in the Merger.
6.11 D&O Coverage. In the event that GBB is unable to have BSC's
directors and officers added to GBB's directors' and officers' liability
insurance policy pursuant to Section 7.2(d) hereof and upon GBB's request, BSC
shall use commercially reasonable efforts to obtain
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(i) coverage for a period of at least 36 months following the Effective Time of
the Merger for the directors and officers of BSC under a directors' and
officers' liability insurance policy which is no less protective in terms of
coverage or limitations than now possessed by GBB 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 BSC
covering acts or omissions occurring prior to the Effective Time of the Merger
and actions related to this Agreement.
ARTICLE 7.
COVENANTS OF GBB
----------------
PENDING EFFECTIVE TIME OF THE MERGER
------------------------------------
GBB covenants and agrees with BSC as follows:
7.1. Limitation on 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, GBB shall not, without
the prior written consent of BSC, which consent BSC shall not unreasonably
withhold or delay:
(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 9 or 11 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) enter into a GBB Acquisition Transaction that includes as a
condition precedent to such GBB Acquisition Transaction that GBB terminate this
Agreement; provided, however, notwithstanding the foregoing, nothing in this
Agreement shall prevent GBB from entering into such a GBB Acquisition
Transaction if the Board of Directors of GBB determines in good faith based upon
the advice of counsel that taking such action is necessary for it to act in a
manner not inconsistent with its fiduciary duties under applicable law;
provided, however, that nothing herein shall prohibit BSC from terminating this
Agreement pursuant to Section 13.1(l); or
(e) agree or make any commitment to take any actions prohibited by
this Section 7.1.
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7.2. Affirmative Conduct of GBB and Subsidiaries Prior to Effective Time of
the Merger. Between the date hereof and the Effective Time of the Merger, GBB
shall:
(a) duly observe and conform in all material respects to all lawful
requirements applicable to the business of GBB;
(b) 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 and that is contemplated in this Agreement as required in connection with
the Merger;
(c) not later than the 20th day of each calendar month, amend or
supplement the GBB Lists prepared and delivered pursuant to Article 5 to ensure
that the information set forth in the GBB Lists accurately reflects the then-
current status of GBB. 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; and
(d) use its commercially reasonable efforts to have BSC's directors
and officers added to GBB's directors' and officers' liability insurance policy,
providing for coverage for a period of at least 36 months following the
Effective Time of the Merger and covering acts or omissions occurring prior to
the Effective Time of the Merger and actions related to this Agreement.
7.3. Access to Information. Upon reasonable request by BSC, GBB shall
(i) make its Chief Executive Officer, Chief Administrative Officer/Chief
Financial Officer, Chief Credit Officer and Controller available to discuss with
BSC and its representatives GBB's operations; and (ii) shall provide BSC with
written information which is (a) similar to the written information that BSC
reviewed in connection with this Agreement, and (b) related to GBB's business
condition, operations and prospects on a consolidated basis. No examination or
review conducted under this section shall constitute a waiver or relinquishment
on the part of BSC of the right to rely upon the representations and warranties
made by GBB herein; provided, that BSC shall disclose to GBB any fact or
circumstance it may discover which BSC believes renders any representation or
warranty made by GBB hereunder incorrect in any respect. BSC 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 require disclosure in the Proxy
Statement and Prospectus 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 GBB.
7.4. 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
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<PAGE>
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 generally accepted accounting principles or applicable
banking regulations consistently applied during the periods involved.
7.5. Applications. GBB will promptly prepare and file or cause to be
prepared and filed (i) an application for approval of the Merger with the FRB;
(ii) an application for approval of the Merger with the DFI; (iii) in
conjunction with BSC, the Registration Statement on Form S-4 and the Proxy
Statement and Prospectus as it pertains to GBB; and (iv) any other applications
necessary to consummate the transactions contemplated hereby. GBB shall afford
BSC a reasonable opportunity to review the Proxy Statement and Prospectus and
all such applications and all amendments and supplements thereto before the
filing thereof. GBB covenants and agrees that the Registration Statement on
Form S-4 and the Proxy Statement and Prospectus and all applications to the
appropriate regulatory agencies for approval or consent to the Merger, with
respect to information relating to GBB or its subsidiaries, will comply in all
material respects with the provisions of applicable law, and will not contain
any untrue statement of material fact or omit to state any material fact
required to be stated therein or necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading. GBB will use its commercially reasonable efforts to obtain all
regulatory approvals or consents necessary to effect the Merger.
7.6. Blue Sky. GBB agrees to use commercially reasonable efforts to have
the shares of GBB Stock to be issued in connection with the Merger qualified or
registered for offer and sale, to the extent required, under the securities laws
of each jurisdiction in which shareholders of BSC reside.
7.7. Notices; Reports. GBB will promptly notify BSC of any event of
which GBB obtains knowledge which has had or may have a material adverse affect
on the financial condition, operations, business or prospects of GBB on a
consolidated basis or in the event that GBB determines that it is unable to
fulfill any of the conditions to the performance of BSC's obligations hereunder,
as set forth in Articles 9 or 10 herein.
7.8. 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, GBB shall use its commercially
reasonable efforts for purposes of obtaining the removal of such condition.
7.9. Stock Options.
(a) At and as of the Effective Time of the Merger, GBB shall assume
each and every outstanding option to purchase shares of BSC Stock ("BSC Stock
Option") under the BSC Stock Option Plan. Subject to Section 7.9(d), each and
every BSC Stock Option so assumed by
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GBB under this Agreement shall be exchanged for a substitute option under the
GBB Stock Option Plan with the following terms: (i) such BSC Stock Option shall
be exercisable for that number of whole shares of GBB Stock equal to the product
of (A) the number of shares of BSC Stock that were granted under such BSC Stock
Option immediately prior to the Effective Time of the Merger multiplied by (B)
the Conversion Ratio, with such product rounded down to the nearest whole number
of shares of GBB Stock; and (ii) the per share exercise price for the shares of
GBB Stock issuable upon exercise of such BSC Stock Option shall be equal to the
quotient determined by dividing (A) the exercise price per share of BSC Stock at
which such BSC Stock Option was exercisable immediately prior to the Effective
Time of the Merger by (B) the Conversion Ratio. After the Effective Time of the
Merger, GBB shall issue to each holder of an outstanding BSC Stock Option a
document evidencing the substitute option pursuant to this Section 7.9.
(b) The terms of the substitute options shall correspond in all
material respects to the terms of the BSC Stock Options and, subject to the
requirements of law, the BSC Stock Options which qualify as incentive stock
options prior to the Effective Time of the Merger qualify as incentive stock
options of GBB after the Effective Time of the Merger.
(c) At or prior to the Effective Time of the Merger, GBB shall take
all corporate action necessary to reserve for issuance a sufficient number of
shares of GBB Stock for delivery upon exercise of GBB Stock Options assumed by
it in accordance with this Section 7.9. At the Effective Time of the Merger, or
as soon as practicable thereafter, GBB shall, if necessary, file a registration
statement on Form S-8 (or any successor or other appropriate form) with respect
to the shares of GBB Stock subject to such options and shall use all reasonable
efforts to maintain the effectiveness of such registration statement (and
maintain the current status of the prospectus or prospectuses contained therein)
for so long as such options remain outstanding.
(d) In the event the shareholders of GBB fail to approve an increase
in the number of shares reserved for issuance under the GBB Stock Option Plan at
the shareholders' meeting to be held in connection with the merger of GBB and
Coast Bancorp, each BSC Stock Option so assumed by GBB under this Agreement
shall continue to have, and be subject to, the same terms and conditions set
forth in the BSC Stock Option Plan and in the other documents governing such BSC
Stock Option immediately prior to the Effective Time of the Merger, except as
set forth in Section 7.9(a)(i) and (ii). In such event, the BSC Stock Option
Plan will continue in effect for the BSC Stock Options so assumed.
7.10 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 shareholders of BSC in the Merger pursuant to
Article 2 hereof.
7.11 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 National Market System, subject to official notice of
issuance, prior to the Effective Time of the Merger.
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<PAGE>
ARTICLE 8.
ADDITIONAL COVENANTS
--------------------
The parties hereto hereby mutually covenant and agree with each other as
follows:
8.1. Commercially Reasonable Efforts. Subject to the terms and
conditions of this Agreement, each party will use its commercially reasonable
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.
8.2. 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 BSC 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.
8.3. Environmental Assessment and Remediation. GBB may cause to be
prepared at GBB's sole cost and expense within 45 days of the date of this
Agreement one or more phase I environmental investigations with respect to the
Real Property set forth on the BSC Real Property List. In the event any such
phase I environmental investigation report, or any such report which BSC has
already obtained on any of the Real Property set forth on BSC's Real Property
List, discloses facts which, in the sole discretion of GBB, warrant further
investigation, GBB shall provide written notice to BSC, and BSC shall be
required to cause to be completed within 60 days of such written notice, at the
sole cost and expense of GBB, a phase II environmental investigation and report
with respect to such property. The consultant engaged by BSC to conduct such
investigation and provide such report shall be reasonably acceptable to GBB.
GBB shall have 10 days from the receipt of such investigation report to
reasonably object thereto, which objection shall be by written notice. In the
event of any such objection, GBB shall engage an environmental consultant
reasonably satisfactory to BSC who shall provide an estimate of the cost of
taking any remedial action recommended or suggested in such phase II
environmental investigation report, or which is required by law, or which is
determined to be prudent by GBB, in its sole discretion, and, unless the
estimated cost of such remediation is in excess of $100,000 or is not reasonably
determinable by such consultant (and written notice thereof provided by BSC to
GBB) BSC shall immediately commence such remediation, all at the sole cost and
expense of BSC. In the event such environmental consultant determines that the
estimated cost of such remediation is in excess of $100,000 or is not reasonably
determinable, GBB shall have the right to terminate the Agreement pursuant to
Section 13.1(k) hereof before the expiration of 21 days from the date of such
written notice.
GBB agrees to keep confidential and not to disclose any nonpublic
information obtained in the course of such environmental investigation relating
to environmental contamination or suspected contamination of any property on the
BSC Real Property List, except as required by law.
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8.4 Appointment of Director. GBB agrees to take all necessary action,
including, if necessary, increasing the authorized number of it directors, to
appoint as contemplated by Section 2.6 hereof one member of BSC's Board of
Directors to the Board of Directors of GBB effective at Effective Time of the
Merger, or as soon thereafter as practicable.
ARTICLE 9.
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:
9.1. Shareholder Approval. The Agreement and the transactions
contemplated hereby shall have received all requisite approvals of the
shareholders of BSC.
9.2. 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.
9.3. Regulatory Approvals. To the extent required by applicable law or
regulation, all approvals or consents of any Governmental Entity, including,
without limitation, those of the FRB, the FDIC and the DFI shall have been
obtained or granted for the Merger and the transactions contemplated hereby and
the applicable waiting period 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.
9.4. Securities Laws. The Registration Statement on Form S-4 shall have
been declared effective by the SEC and shall not be the subject of any stop
order or proceedings seeking or threatening a stop order. GBB shall have
received all state securities or "Blue Sky" permits and other authorizations
necessary to issue the GBB Stock to consummate the Merger.
9.5. Listing. The GBB Stock issuable in the Merger shall have been
included for listing on the Nasdaq National Market System.
9.6. Tax Opinion. GBB and BSC shall have received from Manatt, Phelps &
Phillips, LLP an opinion reasonably satisfactory to GBB and BSC to the effect
that the Merger shall not result in the recognition of gain or loss for federal
income tax purposes to GBB or BSC, nor shall the issuance of the GBB Stock
result in the recognition of gain or loss by the holders of BSC Stock who
receive such stock, nor shall the substitution of options under Section 7.9
result in any income or gain to the option holder or disqualify any such options
as incentive stock options in connection with the Merger, dated prior to the
date the Proxy Statement and Prospectus is first
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<PAGE>
mailed to the shareholders of BSC and GBB and such opinions shall not have been
withdrawn or modified in any material respect.
9.7. Pooling of Interests. Prior to the Effective Time of the Merger,
GBB shall have received from PwC a written confirmation that the Merger will
qualify for pooling-of-interests accounting treatment. Additionally, prior to
the Effective Time of the Merger, Grant Thornton shall have delivered a letter
to BSC to the effect that, as of the Effective Time of the Merger, no conditions
exist with respect to BSC that would preclude accounting for the Merger as a
pooling-of-interests. In making their determinations that the Merger will
qualify for such treatment, PwC and Grant Thornton shall be entitled to assume
that cash will be paid with respect to all shares held of record by any holder
of GBB Dissenting Shares or BSC Dissenting Shares.
ARTICLE 10.
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BSC
----------------------------------------------
All of the obligations of BSC 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 BSC:
10.1. Legal Opinion. BSC shall have received the opinion of Linda M.
Iannone, General Counsel of GBB, dated as of the Closing Date, and in form and
substance satisfactory to the counsel of BSC, to the effect that: (a) GBB and
Newco are corporations validly existing under the laws of the State of
California with full corporate power and authority to enter into this Agreement
and the Agreement of Merger, as applicable, and to consummate the transactions
contemplated hereby and thereby; (b) all corporate proceedings on the part of
GBB and Newco necessary to be taken in connection with the Merger in order to
make the same effective have been duly and validly taken; (c) this Agreement and
the Agreement of Merger have been duly and validly authorized, executed and
delivered on behalf of GBB and Newco and constitute (subject to standard
exceptions of enforceability arising from the bankruptcy laws and rules of
equity) valid and binding agreements of GBB Newco; and (d) the shares of GBB
Stock to be issued in the Merger will, when issued, be duly authorized, validly
issued, fully paid and nonassessable.
10.2. 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 5 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 7.2(c).
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10.3. Authorization of Merger. All actions necessary to authorize the
execution, delivery and performance of this Agreement and the Agreement of
Merger by GBB and Newco and the consummation of the transactions contemplated
hereby and thereby shall have been duly and validly taken by the Boards of
Directors of GBB and Newco, as required by applicable law, and Newco shall have
full power and right to merge pursuant to the Agreement of Merger.
10.4. 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 the business, financial condition, results of operations or prospects of GBB
on a consolidated basis, whether or not such event, change or effect is
reflected in the GBB Lists as amended or supplemented after the date of this
Agreement.
10.5 Third Party Consents. GBB shall have obtained all consents of other
parties to their respective 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.
10.6 Officers' Certificate. There shall have been delivered to BSC 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 10.2, 10.3, 10.4 and 10.5.
10.7 Fairness Opinion. BSC shall have received a letter from First
Security Van Kasper, dated as of a date within five Business Days of the mailing
of the Proxy Statement and Prospectus to the shareholders of BSC, to the effect
that the transactions contemplated by this Agreement are fair from a financial
point of view to the shareholders of BSC.
ARTICLE 11.
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:
11.1. Legal Opinion. GBB shall have received the opinion of Leland,
Parachini, Steinberg, Matzger & Melnick, LLP, attorneys for BSC, and in form and
substance satisfactory to the counsel of GBB, to the effect that: (a) BSC is a
corporation validly existing under the laws of the State of California with full
corporate power and authority to enter into this Agreement and the Agreement of
Merger and to consummate the transactions contemplated hereby and thereby; (b)
all corporate proceedings on the part of BSC necessary to be taken in connection
with the Merger in order to make the same effective have been duly and validly
taken; and (c) this Agreement and the Agreement of Merger have been duly and
validly authorized, executed
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and delivered on behalf of BSC, and constitute (subject to standard exceptions
of enforceability arising from the bankruptcy laws and rules of equity) valid
and binding agreements of BSC.
11.2. Representations and Warranties; Performance of Covenants. All the
covenants, terms and conditions of this Agreement to be complied with and
performed by BSC at or before the Closing Date shall have been complied with and
performed in all material respects. Each of the representations and warranties
of BSC contained in Article 4 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 BSC Lists in accordance
with Section 6.2(j).
11.3. Authorization of Merger. All actions necessary to authorize the
execution, delivery and performance of this Agreement and the Agreement of
Merger by BSC and the consummation of the transactions contemplated hereby and
thereby shall have been duly and validly taken by the Board of Directors and
shareholders of BSC, and BSC shall have full power and right to merge pursuant
to the Agreement of Merger.
11.4. Third Party Consents. BSC shall have obtained all consents of
other parties to their respective 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.
11.5. 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 the business, financial condition, results of operations or prospects of BSC
on a consolidated basis whether or not such event, change or effect is reflected
in the BSC Lists as amended or supplemented after the date of this Agreement.
11.6. 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 BSC certifying, to the best of their knowledge,
compliance with all of the provisions of Sections 11.2, 11.3, 11.4 and 11.5.
11.7. Fairness Opinion. GBB shall have received a letter from Hoefer &
Arnett Incorporated dated as of a date within five Business Days of the mailing
of the Proxy Statement and Prospectus to the shareholders of GBB, to the effect
that the transactions contemplated by this Agreement are fair from a financial
point of view to the shareholders of GBB.
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11.8. Shareholder's Agreements. Concurrently with the execution of this
Agreement, each director of BSC shall have executed and delivered to GBB
agreements substantially in the form of Exhibit D hereto.
11.9. Agreements Not to Compete. Concurrently with the execution of
this Agreement, the directors of BSC shall have executed and delivered to GBB
agreements substantially in the form of Exhibit C hereto.
11.10. Affiliates Agreements. Concurrently with the execution of this
Agreement, GBB shall have received from each person named in the letter or
otherwise referred to in Section 6.9 an executed copy of an agreement
substantially in the form on Exhibit B hereto.
11.11. Employee Benefit Plans. GBB shall have received satisfactory
evidence that all of BSC's employee benefit plans, programs and arrangements,
including, without limitation, the BSC 401(k) Plan, have been treated as
provided in Article 12 of this Agreement.
11.12. Dissenting Shares. The number of shares of BSC Stock for which
demand is made to be BSC Perfected Dissenting Shares shall not exceed an amount
which, when combined with other amounts payable in connection with the Merger,
would result in the Merger being disqualified from pooling of interest
accounting treatment.
11.13. Remediation. All remediation of environmental contamination or
conditions on any BSC Property shall have been completed to the satisfaction of
GBB.
11.14. BSC Adjusted Book Value. At least five Business Days prior to
the Effective Time of the Merger, BSC shall provide GBB with BSC's consolidated
financial statements as of the close of business on the last day of the month
prior to the Effective Time of the Merger. Such financial statements shall have
been prepared in all material respects in accordance with generally accepted
accounting principles 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 preceding the Effective Time of the
Merger, the BSC Adjusted Book Value, as determined in accordance with such
financial statements, shall be:
(a) not less than $30,727,000 if the Effective Time of the Merger
occurs in April 2000;
(b) not less than $31,013,000 if the Effective Time of the Merger
occurs in May 2000;
(c) not less than $31,341,000 if the Effective Time of the Merger
occurs in June 2000;
(d) not less than $31,651,000 if the Effective Time of the Merger
occurs in July 2000; and
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(e) not less than $31,994,000 if the Effective Time of the Merger
occurs in August 2000.
11.15. Termination of BSC Stock Option Plan. Subject to the provisions
of Section 7.9(d), GBB shall have received satisfactory evidence that the BSC
Stock Option Plan has been terminated prior to the Effective Time of the Merger.
11.16 Allowance for Loan Losses. BSC's allowance for loan and lease
losses, as reflected on the consolidated financial statements referred to in
Section 11.14, shall equal the greater of 1.07% of BSC's total gross loans (less
deferred loan fees) or $2,304,000.
11.17 Regulatory Approvals. Any and all approvals or consents of any
Governmental Entity which are necessary to consummate the Merger and the
transactions contemplated hereby shall have been granted without the imposition
of any conditions which GBB deems, in its sole and absolute opinion, to
materially adversely affect it or be materially burdensome.
ARTICLE 12.
EMPLOYEE BENEFITS
-----------------
12.1 Employee Benefits. GBB in its sole discretion, may elect to
terminate the BSC 401(k) or to discontinue contributions to the BSC 401(k) Plan
following the Effective Time of the Merger, to cause BSC to terminate the BSC
401(k) Plan or to discontinue contributions to the BSC 401(k) Plan prior to the
Effective Time of the Merger, or to merge the BSC 401(k) Plan with and into the
GBB 401(k) Plan after the Effective Time of the Merger. In no event shall the
BSC 401(k) Plan be merged with and into the GBB 401(k) Plan, however, unless GBB
determines, in its sole discretion, that: (i) the BSC 401(k) Plan is a
qualified plan under Section 401(a) of the Code, both as to the form of the BSC
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
BSC 401(k) Plan. If GBB determines in its sole discretion not to merge the BSC
401(k) Plan into the GBB 401(k) Plan and that the BSC 401(k) Plan should be
terminated immediately prior to the Effective Time of the Merger, BSC agrees to
use its best efforts to have the BSC 401(k) Plan terminated prior to the
Effective Time of the Merger and to obtain an IRS determination that the BSC
401(k) Plan continues to be qualified upon termination.
As soon as practicable after the Effective Time of the Merger, all other
Employee Plans will be discontinued or merged into GBB plans, in the discretion
of GBB, and employees of BSC shall become eligible for the 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 and its subsidiaries in comparable
positions with GBB or its subsidiaries. For purposes of determining such
employment eligibility and vesting under the employee benefit plans of GBB, GBB
shall recognize such employees' years of service with BSC beginning on the date
such employees commenced employment with BSC through the Effective Time of the
Merger.
54
<PAGE>
ARTICLE 13.
TERMINATION
-----------
13.1 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;
(b) By BSC (unless BSC's Board of Directors shall have withdrawn or
modified in a manner adverse to GBB in any respect its recommendation of the
Merger to the holders of BSC Stock) or GBB upon the failure of the shareholders
of BSC to give the requisite approval of this Agreement;
(c) By BSC promptly following the expiration of 20 days from delivery
of written notice by BSC 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 BSC from the performance or
satisfaction of such covenant or agreement (provided that such breach has not
been waived by BSC or cured by GBB prior to expiration of such 20 day period);
(d) By GBB promptly following the expiration of 20 days from delivery
of written notice by GBB to BSC of BSC'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 BSC prior to expiration of such 20 day period);
(e) By BSC or GBB upon the expiration of 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 30 day period after such
denial or refusal, all parties hereto agree to resubmit the application or
appeal the decision to the regulatory authority that has denied, or refused to
grant the approval, consent or qualification requested;
(f) By BSC or GBB if any conditions set forth in Article 9 shall not
have been met by August 31, 2000; provided, however, that this Agreement shall
not be terminated pursuant to this Section 13.1(f) if the relevant condition
shall have failed to occur as a result of any act or omission of the party
seeking to terminate;
(g) By BSC if any of the conditions set forth in Article 10 shall not
have been met by August 31, 2000, or such earlier time as it becomes apparent
that such condition shall not be met, provided, however, that this Agreement
shall not be terminated pursuant to this Section 13.1(g) if the relevant
condition shall have failed to occur as a result of any act or omission of BSC;
55
<PAGE>
(h) By GBB if any of the conditions set forth in Article 11 shall not
have been met by August 31, 2000, or such earlier time as it becomes apparent
that such condition shall not be met, provided, however, that this Agreement
shall not be terminated pursuant to this Section 13.1(h) if the relevant
condition shall have failed to occur as a result of any act or omission of GBB;
(i) By GBB if BSC shall have breached any of the obligations contained
in Section 6.1(n);
(j) By GBB if (i) BSC shall have exercised a right specified in the
last sentence of Section 6.1(n) with respect to any Superior Proposal and shall,
directly or through agents or representatives, continue any discussions with any
third party concerning such Superior Proposal for more than ten (10) Business
Days after the date of receipt of such Superior Proposal; or (ii) a Superior
Proposal that is publicly disclosed shall have been commenced, publicly proposed
or communicated to BSC which contains a proposal as to price (without regard to
the specificity of such price proposal) and BSC shall not have rejected such
proposal within ten (10) Business Days of receipt of such Superior Proposal or
the date its existence first becomes publicly disclosed, if earlier;
(k) By GBB under the circumstances set forth in Section 8.3;
(l) By BSC if GBB shall have entered into a GBB Acquisition
Transaction that includes as a condition precedent to such GBB Acquisition
Transaction that GBB terminate this Agreement; or
(m) By BSC if the Average Closing Price is less than $36.3600, subject
to GBB's right to elect to exercise the Top Up Option as provided in Section
2.2(a)(iv).
13.2. Effect of Termination. In the event of termination of this
Agreement by either BSC or GBB as provided in Section 13.1, neither BSC nor GBB
shall have any further obligation or liability to the other party except (a)
with respect to the last sentences of each of Section 6.3(a), Section 7.3 and
Section 8.3, (b) with respect to Section 14.1; and (c) to the extent such
termination results from a party's willful and material breach of the warranties
and representations made by it, or willful and material failure in performance
of any of its covenants, agreements or obligations hereunder.
13.3. Force Majeure. BSC and GBB agree that, notwithstanding anything
to the contrary in this Agreement, in the event this Agreement is terminated as
a result of a failure of a condition, which failure is due to a natural disaster
or other act of God, 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.
56
<PAGE>
ARTICLE 14.
MISCELLANEOUS
-------------
14.1. Expenses.
(a) GBB hereby agrees that if this Agreement is terminated by BSC
pursuant to Section 13.1(c), GBB shall promptly and in any event within 10 days
after such termination pay BSC all Expenses (as defined in Section 14.1(d)
below) of BSC, but not to exceed $175,000.
(b) BSC hereby agrees that if the Agreement is terminated by GBB or
BSC pursuant to Section 13.1(b) with respect to the failure of BSC shareholders
to approve the Agreement and the transactions contemplated hereby, or by GBB
pursuant to Section 13.1(d), 13.1(i) 13.1(j), BSC shall promptly and in any
event within 10 days after such termination pay GBB all Expenses of GBB, but not
to exceed $250,000.
(c) Except as otherwise provided herein, all Expenses incurred by GBB
and BSC in connection with or related to the authorization, preparation and
execution of this Agreement, the solicitation of shareholder approvals and all
other matters related to the closing of the transactions contemplated hereby,
including, without limitation of the generality of the foregoing, all fees and
expenses of agents, representatives, counsel and accountants employed by either
such party or its affiliates, shall be borne solely and entirely by the party
which has incurred the same. Notwithstanding the foregoing, GBB and BSC shall
share equally the cost of printing the Proxy Statement and Prospectus.
(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.
14.2 Competing Transaction Fee. As an inducement to GBB to enter into
this Agreement, (a) in the event this Agreement is terminated by GBB pursuant to
Sections 13.1(i) or 13.1(j), or (b) if BSC otherwise consummates a Competing
Transaction during the 12-month period following termination of this Agreement
pursuant to Sections 13.1(a) (if GBB shall at the time have been entitled to
terminate the Agreement pursuant to Section 13.1(d)); 13.1(b), 13.1(d); 13.1(f)
(if the relevant condition shall have failed to occur as a result of any act or
omission by BSC or its shareholders); or 13.1(h) (other than a termination
related to the satisfaction of the conditions set forth in the second sentence
of Section 11.2 and in Sections 11.5, 11.7, 11.12, 11.13, 11.14 and 11.16), BSC
shall wire to GBB within three Business Days of the date of termination in the
case of clause (a) and concurrent with the consummation of the Competing
Transaction in the case of clause (b), the amount of $3,500,000, which amount
the parties acknowledge as representing (i) GBB's direct costs and expenses
(including, but not limited to, fees and expenses of financial or other
consultants, printing costs, accountants, and counsel) incurred in negotiating
and undertaking to carry out the transactions contemplated by this Agreement,
including GBB's management time devoted
57
<PAGE>
to negotiation and preparation for the transactions contemplated by this
Agreement; (ii) GBB's indirect costs and expenses incurred in connection with
the transactions contemplated by this Agreement; and (iii) GBB's loss as a
result of the transactions contemplated by this Agreement not being consummated.
Any payment previously made by BSC pursuant to Section 14.1(b) hereof shall be
credited against any amount due under this Section.
14.3 GBB Acquisition Transaction Fee. As an inducement to BSC to enter
into this Agreement, (i) in the event this Agreement is terminated by BSC
pursuant to Section 13.1(l) or (ii) if GBB consummates a GBB Acquisition
Transaction within 12 months following termination by BSC of this Agreement
pursuant to Section 13.1(c), (g) or (m), GBB shall wire to BSC within three
Business Days of the date of termination in the case of clause (i) and
concurrent with the consummation of the GBB Acquisition Transaction in the case
of clause (ii), the amount of $2,500,000, which amount the parties acknowledge
as representing (x) BSC's Expenses incurred in negotiating and undertaking to
carry out the transactions contemplated by this Agreement, including BSC's
management time devoted to negotiation and preparation for the transactions
contemplated by this Agreement; (y) BSC's indirect expenses incurred in
connection with the transactions contemplated by this Agreement; and (z) BSC's
loss as a result of the transactions contemplated by this Agreement not being
consummated. Any payment previously made by GBB pursuant to Section 14.1(a)
hereof shall be credited against any amount due under this Section 14.3. Any
payment previously made by GBB pursuant to Section 14.1(a) hereof shall be
credited against any amount due under this Section.
14.4 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:
To GBB: Greater Bay Bancorp
2860 West Bayshore Road
Palo Alto, California 94303
Attention: Steven C. Smith
Facsimile Number: (415) 494-9220
With a copy to: Greater Bay Bancorp
400 Emerson Street, 3rd Floor
Palo Alto, California 94301
Attention: Linda M. Iannone, Esq.
Facsimile Number: (650) 473-9419
To BSC: Bank of Santa Clara
1995 El Camino Real
Santa Clara, California 95050
Attention: Ronald D. Reinartz
Facsimile Number: (408) 296-1540
58
<PAGE>
With a copy to: Leland, Parachini, Steinberg, Matzger & Melnick, LLP
333 Market Street, 27th Floor
San Francisco, California 94105
Attention: Donald G. Parachini, Esq.
Facsimile Number: (415) 974-1520
Any such notice, request, instruction or other document shall be deemed
received (i) on the date delivered personally or delivered by confirmed
facsimile transmission, (ii) on the next Business Day after it was sent by
overnight courier, postage prepaid; or (iii) 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.
14.5. 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.
14.6. 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.
14.7. Effect of Representations and Warranties. The representations and
warranties contained in this Agreement or in any List shall terminate
immediately after the Effective Time of the Merger.
14.8. 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 and BSC as the context may require.
14.9. 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, 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.
14.10. 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.
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14.11 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.
14.12. 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.
14.13. 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.
14.14. 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 and BSC without action by their respective shareholders.
This Agreement may be modified or amended only by an instrument of equal
formality signed by the parties or their duly authorized agents.
14.15 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.
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IN WITNESS WHEREOF, the parties to this Agreement have duly executed this
Agreement as of the day and year first above written.
ATTEST: GREATER BAY BANCORP
/s/ Linda M. Iannone By: /s/ David L. Kalkbrenner
- -------------------- ------------------------
Secretary David L. Kalkbrenner
President and Chief Executive Officer
ATTEST: BANK OF SANTA CLARA
/s/ Judith J. Reinartz By: /s/ Ronald D. Reinartz
- ---------------------- ----------------------
Secretary Ronald D. Reinartz
President and Chief Executive Officer
61
<PAGE>
ANNEX B
Fairness Opinion of First Security Van Kasper
Dated , 2000
<PAGE>
__________, 2000
Members of the Board of Directors
Bank of Santa Clara
1995 El Camino Real
Santa Clara, CA 95050
Members of the Board:
You have requested our opinion as investment bankers as to the fairness, from a
financial point of view, to the shareholders of Bank of Santa Clara ("Santa
Clara") of the Conversion Ratio as defined in Section 2.2(a) of the Agreement
and Plan of Reorganization dated as of January 26, 2000 (the "Agreement"), in
the proposed merger (the "Merger") of Greater Bay Bancorp ("Greater Bay") and
Santa Clara. On the Effective Date (as such term is defined in the Agreement),
each share of Santa Clara Common Stock will be converted into the right to
receive 0.87 shares of Greater Bay Common Stock subject to adjustment as defined
in the Agreement.
In arriving at our opinion, we have reviewed and analyzed, among other things,
the following: (i) the Agreement; (ii) certain publicly available financial and
other data with respect to Greater Bay and Santa Clara, including consolidated
financial statements for recent years and interim periods to December 31, 2000;
(iii) certain other publicly available financial and other information
concerning Greater Bay and Santa Clara and the trading markets for the publicly
traded securities of Greater Bay and Santa Clara; (iv) publicly available
information concerning other banks and bank holding companies, the trading
markets for their securities and the nature and terms of certain other merger
transactions we believed relevant to our inquiry; and (v) evaluations and
analyses prepared and presented to the Board of Directors of Santa Clara or a
committee thereof in connection with the Merger. We have held discussions with
senior management of Greater Bay and Santa Clara concerning the companies' past
and current operations, financial condition and prospects.
We have reviewed with the senior management of Santa Clara earnings projections
for Santa Clara as a stand-alone entity, assuming the Merger does not occur. We
have also reviewed earnings projections for Greater Bay as a stand-alone entity,
assuming the Merger does not occur as well as securities industry consensus
estimates of projected earnings per share from published sources for Greater Bay
as a stand-alone entity.
In conducting our review and in arriving at our opinion, we have relied upon and
assumed the accuracy and completeness of the financial and other information
provided to us or publicly available, and we have not assumed any responsibility
for independent verification of the same. We have relied on advice of counsel
and independent accountants as to all legal and financial reporting matters with
respect to Greater Bay, Santa Clara, the Merger and the Agreement. We have
relied upon the managements of Santa Clara and Greater Bay as to the
reasonableness of the financial and operating forecasts, projections and
projected operating cost savings (and the assumptions and bases therefor)
provided to us, and we have assumed that such forecasts,
<PAGE>
Santa Clara
___________, 2000
Page 2
projections and projected operating cost savings reflect the best currently
available estimates and judgments of the applicable managements. We have also
assumed, without assuming any responsibility for the independent verification of
same, that the aggregate allowances for loan losses for Santa Clara and Greater
Bay are adequate to cover such losses. We have not made or obtained any
evaluations or appraisals of the property of Santa Clara or Greater Bay, nor
have we examined any individual loan credit files. For purposes of this opinion,
we have assumed that the Merger will have the tax, accounting and legal effects
(including, without limitation, that the Merger will be accounted for as a
pooling of interests) described in the Merger Agreement. Our opinion as
expressed herein is limited to the fairness, from a financial point of view, to
the holders of the Common Stock of Santa Clara of the Conversion Ratio in the
Merger and does not address Santa Clara's underlying business decision to
proceed with the Merger.
We have considered such financial and other factors as we have deemed
appropriate under the circumstances, including among others the following: (i)
the historical and current financial position and results of operations of Santa
Clara and Greater Bay, including interest income, interest expense, net interest
income, net interest margin, provision for loan losses, non-interest income,
non-interest expense, earnings, dividends, internal capital generation, book
value, intangible assets, return on assets, return on shareholders' equity,
capitalization, the amount and type of non-performing assets, loan losses and
the reserve for loan losses, all as set forth in the financial statements for
Santa Clara and for Greater Bay; (ii) the assets and liabilities of Santa Clara
and Greater Bay, including the loan, investment and mortgage portfolios,
deposits, other liabilities, historical and current liability sources and costs
and liquidity; and (iii) the nature and terms of certain other merger
transactions involving banks and bank holding companies. We have also taken
into account our assessment of general economic, market and financial conditions
and our experience in other transactions, as well as our experience in
securities valuation and our knowledge of the banking industry generally. Our
opinion is necessarily based upon conditions as they exist and can be evaluated
on the date hereof and the information made available to us through the date
hereof.
It is understood that this letter is for the information of the Board of
Directors of Santa Clara. This letter does not constitute a recommendation to
the Board of Directors or to any shareholder of Santa Clara with respect to any
approval of the Merger.
Based upon and subject to the foregoing, we are of the opinion as investment
bankers that, as of the date hereof, the Conversion Ratio in the Merger is fair,
from a financial point of view, to the holders of the Common Stock of Santa
Clara.
Very truly yours,
First Security Van Kasper
<PAGE>
ANNEX C
Selected Provisions of the California General Corporation Law
Regarding Dissenters' Rights
<PAGE>
CALIFORNIA CORPORATIONS CODE, SECTIONS 1300--1304
Section 1300. Right to Require Purchase--"Dissenting Shares" and "Dissenting
Shareholder" Defined.
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are
dissenting shares as defined in subdivision (b). The fair market value shall be
determined as of the day before the first announcement of the terms of the
proposed reorganization or short-form merger, excluding any appreciation or
depreciation in consequence of the proposed action, but adjusted for any stock
split, reverse stock split, or share dividend which becomes effective
thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-
form merger either (A) listed on any national securities exchange certified
by the Commissioner of Corporations under subdivision (o) of Section 25100
or (B) listed on the list of OTC margin stocks issued by the Board of
Governors of the Federal Reserve System, and the notice of meeting of
shareholders to act upon the reorganization summarizes this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this provision
does not apply to any shares with respect to which there exists any
restriction on transfer imposed by the corporation or by any law or
regulation; and provided, further, that this provision does not apply to
any class of shares described in subparagraph (A) or (B) if demands for
payment are filed with respect to 5 percent or more of the outstanding
shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case
where the approval required by Section 1201 is sought by written consent
rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
Section 1301. Demand for Purchase.
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such
sections. The statement of price constitutes an offer by the corporation to
purchase at the price stated any dissenting shares as defined in subdivision
(b) of Section 1300, unless they lose their status as dissenting shares under
Section 1309.
C-1
<PAGE>
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance
with paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be
the fair market value of those shares as of the day before the announcement of
the proposed reorganization or short-form merger. The statement of fair market
value constitutes an offer by the shareholder to sell the shares at such price.
Section 1302. Endorsement of Shares.
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110
was mailed to the shareholder, the shareholder shall submit to the corporation
at its principal office or at the office of any transfer agent thereof, (a) if
the shares are certificated securities, the shareholder's certificates
representing any shares which the shareholder demands that the corporation
purchase, to be stamped or endorsed with a statement that the shares are
dissenting shares or to be exchanged for certificates of appropriate
denomination so stamped or endorsed or (b) if the shares are uncertificated
securities, written notice of the number of shares which the shareholder
demands that the corporation purchase. Upon subsequent transfers of the
dissenting shares on the books of the corporation, the new certificates,
initial transaction statement, and other written statements issued therefor
shall bear a like statement, together with the name of the original dissenting
holder of the shares.
Section 1303. Agreed Price--Time for Payment.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the
fair market value of any dissenting shares as between the corporation and the
holders thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificated securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement.
Section 1304. Dissenter's Action to Enforce Payment.
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
C-2
<PAGE>
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If
the status of the shares as dissenting shares is in issue, the court shall
first determine that issue. If the fair market value of the dissenting shares
is in issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
C-3
<PAGE>
ANNEX D
Bank of Santa Clara
Annual Report on Form 10-K
For the Year Ended December 31, 1999
<PAGE>
F E D E R A L D E P O S I T I N S U R A N C E C O R P O R A T I O N
Washington, D.C. 20429
F 0 R M 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT of 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___________ to ___________.
BANK OF SANTA CLARA
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FDIC Certificate No. 21230
CALIFORNIA 94-2223431
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
1995 EL CAMINO REAL 95050
SANTA CLARA, CALIFORNIA (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 249-5900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange on which registered
Common Stock (no par value) Nasdaq National Market(R)
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 (section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendments to this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based on the closing price of its common stock on January 31, 2000
on the Nasdaq National Market, was $78,525,889.
As of January 31, 2000, 2,326,693 shares of the registrant's common stock (no
par value) were outstanding.
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
PARTS OF FORM 10-K INTO
DOCUMENTS INCORPORATED WHICH INCORPORATED
- ---------------------- -----------------------
None N/A
TABLE OF CONTENTS
<S> <C>
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
SIGNATURES
</TABLE>
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
P A R T I
Item 1. Business.
General
Bank of Santa Clara (the "Bank") was organized in 1973 under the laws of the
State of California. The Bank is an insured bank under the Federal Deposit
Insurance Act and is not a member of the Federal Reserve Bank. The Bank offers
a wide range of retail and commercial banking products and services primarily to
consumers and small-to-medium size businesses in the Santa Clara County market.
As of December 31, 1999, the Bank had approximately 597 known holders of record
of its common stock, plus an unknown number held in street name.
On January 26, 2000 the Bank entered into a definitive merger agreement (the
"Agreement") with Greater Bay Bancorp of Palo Alto, California. Pursuant to the
Agreement, the Bank would become a wholly-owned subsidiary of Greater Bay
Bancorp. In the merger, Greater Bay Bancorp will issue shares of its stock with
an estimated value of approximately $90.8 million, depending on an average
closing price of Greater Bay Bancorp's stock prior to the closing. In a tax-
free exchange for the shares of stock of the Bank, closing of the transaction is
subject to approval by the shareholders of the Bank, receipt of approvals from
the appropriate Regulatory Agencies and satisfaction of the conditions set forth
in the Agreement, a copy of which has previously been filed with the Bank's Form
8-K dated February 10, 2000 and filed that same date with the Federal Deposit
Insurance Corporation.
The Bank currently operates eight branch offices, all located in Santa Clara
County. Each of the Bank's eight branch offices offers full-service banking
including consumer and business loans as well as deposit accounts. Over the
years, the Bank has retained its retail-oriented philosophy as evidenced by the
many services and products it makes available to its customers and by locating
five of its eight branch offices in or near shopping centers. In addition to
its eight branch banking facilities the Bank also operates a "Preferred Lender"
SBA Lending Department and an active Dealer Loan Department.
The Bank is an organizing member of Lenders for Community Development, a
community development corporation having both a micro-loan program and a housing
program. Commitments to Lenders for Community Development are pro-rated to all
its members on the basis of asset size. The Bank's commitment to the micro-loan
program for 1999 and 1998 was $64,000 and $41,000, respectively. The affordable
housing commitment was $286,000 and $182,000 for the same respective periods. A
portion of the increase in affordable housing for 1999 was attributed to the
establishment of a second pool whereby the bank committed $57,000. The micro-
loan program is aimed at very small businesses needing loans of $5,000 to
$50,000 which businesses are often unable to procure such small loans through
normal banking channels. The housing program provides funds for pre-development
expenses and gap financing to organizations specializing in low-income housing.
Each loan, whether a micro-loan
3
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
or a housing loan, is designed with the expectation of a return to the
participating bank. The Bank believes that visibility and involvement in the
community are effective marketing tools in promoting the services offered by the
Bank. One way in which the Bank has increased its involvement and visibility in
the community is its establishment of the Bank of Santa Clara Foundation.
Established in 1992, the Bank of Santa Clara Foundation supports local charities
with cash contributions. The Foundation's only revenue is an annual donation
from the Bank, the amount of which is determined each December by the Board of
Directors. Five of the Bank's Directors serve as the Foundation's Board of
Trustees and the Senior Vice President-Administration serves as the Executive
Director. None of these individuals receives compensation for this service from
either the Foundation or the Bank. The Bank funded the Foundation with $66,000
for the year ended December 31, 1999 and $60,000 for the year ended December 31,
1998. Over the years the Bank has obtained new business both directly from
beneficiary organizations and indirectly as a result of the Foundation's
funding.
Retail Banking. Bank of Santa Clara offers a variety of retail deposit services
- --------------
including checking and savings accounts, super NOW accounts, money market
accounts, certificates of deposit, and Individual Retirement Accounts (IRAs) and
Roth IRAs. Through an arrangement with Bisys Brokerage Services, Inc., the Bank
offers its customers annuities and mutual funds (non-insured, non-deposit
products). In addition, the Bank offers a number of unique products and
services such as:
. A Budget Account designed for low-income individuals with no ATM or
truncation requirements;
. A Youth Controlled Savings Account specifically designed to enable minors
to learn financial responsibility;
. No-cost cashing of government checks available to customers as well as non-
customers; and,
. Service-charge-free accounts for non-profit organizations.
The Bank also offers other services for both individuals and businesses
including note collection, transfers of funds (wires), sale and redemption of
savings bonds, merchant processing of credit cards, credit card issuance through
a "third party", and automated teller machines through national networks.
As a retail bank, Bank of Santa Clara specializes in loans to consumers and
small-to-medium size businesses. To satisfy the lending needs of consumers in
its service area, the Bank offers home equity financing as well as consumer,
automobile, and home improvement loans. Although residential purchase-money
loans represented less than 5.00% of the Bank's loan portfolio at December 31,
1999, the Bank makes such loans available to its customers through various
mortgage brokers. The Bank does not offer appraisal or escrow services; rather
it has chosen to rely upon outside specialists to provide these services for its
customers.
In responding to market demand, the Bank introduced an ATM/debit card in 1999.
4
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
Commercial Banking. For its business customers, the Bank offers a complement of
- ------------------
business checking and savings accounts. The Bank offers business loans, both
secured and unsecured, for a wide variety of business needs such as working
capital, inventory financing, acquisitions and expansion, as well as plant and
equipment purchases. The Bank also provides lending services to non-profit
organizations for general operating needs as well as plant and equipment
acquisitions.
Lending Activities
The Bank offers a wide variety of loans both secured and unsecured to its
individual and business customers. Because risk is inherent in each credit a
bank extends to its customers, the Bank manages its risk by imposing stringent
underwriting standards and procedures in its lending practices. Depending upon
the size and type of credit, loans may be approved at the branch level, through
Loan Administration, or the Board of Directors' Loan and Discount Committee.
Loans to insiders and to non-profit organizations require approval by the Bank's
entire Board of Directors.
The Board members take an active role in approving loan policies, portfolio mix,
loss reserves, and other such items. The Board of Directors reviews, on a
monthly basis, the delinquent loan report and watch-list, and discuss actions to
be taken with respect to substandard or doubtful loans as well as seriously
delinquent loans or those which may require restructuring.
The following table sets forth the composition of the Bank's loan portfolio as
of December 31, 1999:
Composition of Loan Portfolio
(December 31, 1999)
<TABLE>
<CAPTION>
Amount Percent of
Type of Loan ($000) Portfolio
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Installment (all types) and all other loans $ 9,110 4.2%
Real Estate - Residential 9,169 4.3%
Commercial and industrial loans 41,007 19.1%
Real Estate-construction and land development 6,944 3.2%
Real estate - Non-residential 101,493 47.2%
Indirect automobile loans 37,402 17.4%
Small Business Administration (SBA) loans 9,948 4.6%
--------
$215,073
========
</TABLE>
The Bank has not sold loans in the secondary market, and intends to retain SBA
loans unless total loans exceed our loan-to-deposit maximum of 80% or as
liquidity needs dictate. While the Bank recognizes that significant revenue can
be obtained through selling and servicing loans, it is the Bank's strategy to
retain its loans in order to strengthen its relationships with its
5
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
customers.
A significant competitive advantage of Bank of Santa Clara is its ability to
process loans in a relatively short period of time. Each branch of the Bank has
at least one officer with individual loan-approval authority so as to avoid
delays often caused by centralized or committee-structured lending.
Each officer's lending limit is established by the Senior Credit Officer and
such limit is based on the individual's education, experience and ability. A
well-seasoned loan officer may have limits up to $200,000 for unsecured credit
and $300,000 secured, while a new lender may have authority only to approve a
loan of $25,000.
Loan requests beyond an individual's limit must have at least one more level of
approval, depending upon amount and type of request. The Vice President Credit
Administrator, Senior Credit Officer, Branch Administrator, and Chief Executive
Officer each has loan authority set by the Board. Loan requests beyond the
authorities of these officers require approval of the Board's Loan Committee,
which committee is authorized to approve loans up to 75% of the Bank's legal
lending limit.
Traditionally, the Bank has not chosen to compete for loans to businesses in the
high technology sector, since a number of banks in the Bank's market area have
developed a specialized knowledge of lending in this sector. Also, it has been
the Bank's strategy not to pursue residential mortgage loans but refers these
loans to a mortgage company. Mortgage brokers in Santa Clara County have loan
programs against which the Bank has chosen not to compete, particularly fixed
low-rate 30-year loans. The Bank does actively solicit home improvement and
rehabilitation loans, and provides several home equity loan programs.
Construction loans are available for single family homes, housing developments
and commercial buildings, and the Bank also provides financing for purchase of
commercial real estate.
Indirect automobile lending comprised approximately 17% of the loan portfolio
with loans outstanding to approximately 3,100 borrowers at December 31, 1999.
Although this may be considered a concentration of credit, the Bank believes the
risk of loss is minimized because the loans are spread among 3,100 borrowers who
have various vocations and live throughout the county. The Bank has no
intention of eliminating this lending service, but from time to time has
experienced a downturn resulting from offers of below-market rate financing from
automobile manufacturers. However, even in such times, the Bank has not
experienced any material effect on its earnings.
Over the past five years, the Bank's average loan-to-deposit ratio has
consistently ranged between 66% and 73%.
Competition
The Bank considers its primary service area to be composed of the communities
located in
6
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
Santa Clara County. The banking business in California generally, and in the
Bank's primary service area, specifically, is highly competitive with respect to
both loans and deposits and is dominated by a relatively small number of major
banks which have many offices operating over wide geographic areas. The Bank
competes for deposits and loans principally with these banks, as well as with
savings and loan associations, thrift and loan associations, mortgage companies,
insurance companies, offers of money market accounts, and other lending
institutions. Among the advantages certain of these institutions have over the
Bank are their ability to finance extensive advertising campaigns and to
allocate their investment assets to regions of highest yield and demand; their
ability to offer certain services, such as international banking and trust
services which are not offered directly by the Bank; and the ability by virtue
of their greater total capitalization, to have substantially higher lending
limits than the Bank./1/ While credit unions have not provided significant
competition in the past, the Bank is observing a trend toward greater
competition from credit unions in the areas of consumer automobile financing. In
addition, credit unions are tax-exempt and, therefore, able to pay higher rates
on their deposit accounts. These financial institutions are increasing their
deposit bases throughout California but less noticeably in Santa Clara County
than in other areas. As a result of increased consolidation and the passage of
interstate banking legislation, there is and will continue to be increased
competition among banks, savings and loan associations and credit unions for the
deposit and loan business of individuals and businesses.
In addition to competing with savings institutions, commercial banks compete
with other financial markets for funds. For instance, yields on corporate and
government debt securities and other commercial paper affect the ability of
commercial banks to attract and hold deposits. Commercial banks also compete for
available funds with money market funds.
As in the past, Bank of America and Wells Fargo Bank continue to dominate the
market and remain the Bank's major competitors. However, mergers creating
extremely large banks and savings associations, continue to have a positive
effect on the Bank rather than creating any new competition. New accounts
activity at the Bank continued at a high level in 1999, due in part to the
impact of these mergers.
Major competition continued from local credit unions in 1999 through aggressive
marketing and advertising campaigns in the Santa Clara Valley, and perhaps most
significantly, through national legislation liberalizing solicitation of
membership. Credit union's non-profit, tax-exempt status permits them to pay
higher rates on deposits and charge lower rates on loans than the Bank is able
to offer. In the past, local credit unions did not advertise in the mass media
since their membership had to be restricted. While the Bank has not lost any
significant number of accounts to these credit unions, it might not have
received new business that went to a credit union instead of a commercial bank.
A new competition from major banks is their ability to send salespersons with
laptop
- -----------------
/1/ Legal lending limits to each customer are limited to a percentage of a
Bank's shareholders' equity, the exact percentage being 15% or 25% depending on
the nature of the loan transaction.
7
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
computers to local small businesses; these computers contain all the parameters
necessary for approving credit, and the salespersons can grant a loan virtually
immediately. These banks are undercutting rates to levels against which the Bank
cannot compete. The amount of business lost by the Bank has not been
significant, but has caused additional efforts to be made by the Bank's lenders.
The Bank has a systematic approach to meeting this competition. In the past,
the Bank utilized a program of testimonial advertisements which all targeted
small businesses. This has been supplemented with an aggressive radio and
television campaign. In addition, there is an active personal calling program
for managers with financial incentives for new business deposit accounts and
loans. Further, as customers are solicited by other financial institutions,
Bank officers have the ability to renegotiate existing loans. As an independent
bank, Bank of Santa Clara has the ability to be extremely flexible and it uses
that flexibility to retain customers.
A major competitive strength is the Bank's visibility in the community. Bank
officers are active in Chambers of Commerce and their related business
activities. They participate in conferences on small businesses, and provide
speeches and written articles on small business borrowing. In addition to
business presentations, Bank officers and employees are visible through their
community activities, such as serving on boards of associations and charities,
sitting on municipal commissions, and participating in charitable fundraisers.
If customers require services not offered by the Bank, the Bank will assist
those customers through arrangements with correspondent banks or other
providers. The Bank believes its ability to offer services not generally
available in other institutions (see "Retail Banking") and the Bank's ability to
develop products or services in a timely manner in response to customers' needs
also gives the Bank a unique competitive strength. However, there can be no
assurances that the Bank's efforts to compete with other financial institutions
will be successful.
Year 2000 Readiness and Results
As a result of what now appears to be a simple oversight, many earlier versions
of software applications throughout numerous industries contained coding that
originally established logic and year "fields" with only two digits rather than
four digits; for example, 98 verses 1998. The problem being that come the first
day of the year 2000, the systems would not know if it were 2000, 1900 or any
other year having double zeros at the end. Without correcting these built-in
flaws prior to January 1, 2000, systems could yield extremely erroneous data or
simply lock up and fail. It is particularly critical that the applications of
financial institutions, which are date, interest and transaction oriented, be
fully functional through the end of 1999 and into the next century without any
effect on the institution's ability to maintain accurate transaction, financial
and analytical information. This issue has been commonly referred to as Year
2000, or Y2K, compliance. The FDIC began reviewing all banks in 1998 on their
Year 2000 compliance progress.
On October 15, 1998 the FDIC, in coordination with the other federal bank
regulatory agencies, adopted and published new "Interagency Guidelines
Establishing Year 2000
8
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
Standards for Safety and Soundness" for insured depository institutions,
including State Nonmember banks. The Guidelines became effective as October 15,
1998. Bank of Santa Clara has complied with the Guidelines and all other
regulatory requirements for Y2K compliance. The Bank experienced no difficulty
in successfully accomplishing the transition to the year 2000 and does not
anticipate any future problems. The Bank's total budget for Y2K compliance was
$21,545, of which $3,800 and $8,683 was expended in 1998 and 1999, respectively,
and $9,062 to be expended in 2000.
Supervision and Regulation
General. To the extent that the following information describes statutory and
- -------
regulatory provisions, it is qualified in its entirety by reference to the
statutory and regulatory provisions described. No assurance can be given that
such statutes and regulations will not be changed in the future.
Effective July 1, 1997, the office of the California Superintendent of Banks and
the California State Banking Department was abolished. All powers, duties,
responsibilities, and functions of the Superintendent of Banks and the State
Banking Department were transferred to the Commissioner of Financial
Institutions and the Department of Financial Institutions, respectively. The
Commissioner of Financial Institutions and the Department of Financial
Institutions succeeded to all the rights and property of the Superintendent of
Banks and the State Banking Department, respectively. The Department of
Financial Institutions regulates, supervises, and periodically examines the
Bank.
As a state chartered non-member bank, the Bank is also subject to the Federal
Deposit Insurance Act and regulations issued pursuant thereto, including the
obligation to pay FDIC Bank Insurance Fund Assessments and to be examined by the
FDIC. Most aspects of the Bank's business are governed by the regulations of
these two agencies, which require periodic reports by the Bank and regulate the
Bank's activities in areas such as investments, loans, check clearing,
branching, reserves against deposits, and capital adequacy.
In addition to the challenges presented by the great breadth of the regulatory
subject matter which affects the Bank, it should also be noted that the
regulatory agencies which have jurisdiction over the Bank have broad discretion
in exercising their supervisory powers. For example, under federal law, the
FDIC has authority to prohibit a state non-member bank from engaging in banking
practices which it considers unsafe and unsound. The Federal Financial
Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") expanded
and increased civil and criminal penalties available for use by the federal
regulatory agencies against depository institutions and certain "institution-
affiliated parties" (primarily including management, employees and agents of a
financial institution, independent contractors such as attorneys and
accountants, and others who participate in the conduct of a financial
institution's affairs). These practices can include the failure of an
institution to timely file required reports, the filing of false or misleading
information, or the submission of inaccurate reports. Civil penalties may be as
high as $1 million a day for such violations. Criminal penalties for some
9
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
financial institution crimes have been increased to 20 years. In addition,
federal regulators are provided with great flexibility to commence enforcement
actions against institutions and institution-affiliated parties. Possible
enforcement actions include the termination of deposit insurance. Furthermore,
FIRREA expanded the appropriate banking agencies' power to issue cease and
desist orders that may, among other things, require affirmative action to
correct any harm resulting from a violation or practice, including restitution,
reimbursement, indemnification, or guarantees against loss. A financial
institution may also be ordered to restrict its growth, dispose of certain
assets, rescind agreements or contracts, or take other actions as determined by
the ordering federal agency to be appropriate.
Besides having to deal with the effects of the regulations and supervision
outlined herein, the courts are increasing their scrutiny of banks, particularly
with regard to their lending and collection practices. For example, some banks
have been found liable for exercising remedies which their loan documents
authorized upon the borrower's default. This has occurred in cases where the
exercise of those remedies has been determined to be inconsistent with the
previous course of dealing between the bank and the borrower. As a result,
banks have had to exercise greater caution, incur greater expense, and endure
greater exposure to liability when dealing with bad loans.
Impact of Monetary Policies. Banking has traditionally been a business that
- ---------------------------
depends on rate differentials but, due to deregulation of the industry, the
business of banking is becoming increasingly dependent upon the generation of
fees and service charges as well. In general, the difference between the
interest rate paid by the Bank on its deposits and its other borrowings and the
interest rate received by the Bank on loans extended to its customers and
securities held in its investment portfolio represent a major portion of the
Bank's earnings.
The earnings and growth of the Bank are affected not only by general economic
conditions, both domestic and foreign, but also by the monetary and fiscal
policies of the United States Government and its agencies, particularly the
Federal Reserve Board (Fed). These agencies can and do implement national
monetary policy. The Fed seeks to curb inflation and combat recession by their
open market operations in United States Government securities. The Fed also
adjusts the amount of interest-free reserves that banks and other financial
institutions are required to maintain, and makes adjustments to the discount
rates applicable to borrowings by banks that are members of the Federal Reserve
System. The monetary policies of the Federal Reserve Board have had a
significant effect on the operating results of commercial banks in the past and
are expected to continue to do so in the future. Regulations affecting
commercial banks continue to change. The Federal Government, its monetary and
fiscal authorities, including proposed changes in the structure of banking in
the United States, allow the Bank no ability to predict future changes in
interest rates, credit availability, deposit levels, or the overall performance
of banks generally or of the Bank in particular.
Recent and Potential Legislation and Other Matters. The banking industry in the
- --------------------------------------------------
United States is affected by the extensive regulation of commercial banking
activities and, on an on-going basis, by the enactment of federal and state
legislation. Such legislation may have the effect of
10
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
increasing or decreasing the cost of doing business, may modify permissible
activities, and could enhance the competitive position of non-bank financial
institutions. Any change in applicable laws or regulations may have a material
adverse effect on the business and prospects of the Bank.
The Federal Deposit Insurance Corporation Improvement Act ("FDICIA") was enacted
in 1991 in response to failures of savings and loan associations and banks.
FDICIA substantially revised the bank regulatory and funding provisions of the
Federal Deposit Insurance Act and made revisions to several other federal
banking statutes; it mandated the adoption of regulations to establish safety
and soundness standards that apply to banks and bank holding companies. These
standards, which apply to the Bank, address bank operations, management, asset
quality, earnings, stock valuation, and employee compensation. A bank failing
to meet established standards will face mandatory regulatory enforcement action.
Among other things, FDICIA provides increased funding for the Bank Insurance
Fund (the "BIF") of the FDIC, primarily by increasing the authority of the FDIC
to borrow from the United States Treasury Department. It also provides for
expanded regulation of depository institutions and their affiliates. A
significant portion of the FDIC's obligations are funded by insurance premiums
assessed to BIF members. In addition, FDICIA generally mandated that the FDIC
achieve a ratio of reserves to insured deposits of 1.25% within the next 15
years, also to be financed by insurance premiums assessed to BIF members. This
level was reached in 1995. The current assessment rates have decreased
substantially and appear to be adequate to maintain the mandated ratio.
However, there can be no assurance that the current rates will continue to be
adequate, and as a result, the assessment rate on BIF members may be increased
from time to time as necessary to achieve or maintain the mandated ratio.
FDICIA also requires an insured institution which does not meet any one of the
statutory or regulatory capital requirements applicable to it to submit a
capital restoration plan for improving its capital. In addition, FDICIA
prohibits an insured institution from making a capital distribution, including
the payment of a dividend, if after making that distribution, the institution
would fail to meet any capital requirements. In addition, if the FDIC
determined that the making of any capital distribution constituted an unsafe and
unsound banking practice, the FDIC could order the Bank to refrain from making
such a distribution.
FDICIA also restricts the acceptance of brokered deposits by insured depository
institutions and contains a number of consumer-oriented banking provisions,
including disclosure requirements and substantive contractual limitations with
respect to deposit accounts. FDICIA contains numerous other provisions,
including reporting, examination and auditing requirements, limitations on the
FDIC's payment of deposits at foreign branches, and revised regulatory standards
for, among other things, real estate lending and capital adequacy.
The legislation also requires, with some exceptions, that each bank have an
annual examination performed by its primary federal regulatory agency, and that
each bank with $500 million or more in assets have an annual outside independent
audit. The outside audit must consider bank
11
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
regulatory compliance in addition to financial statement reporting. Although the
independent audit requirements only apply to banks with assets of $500 million
or more, the FDIC encourages all banks, regardless of size or charter, to have
an annual independent audit of their financial statements. The Bank does have an
annual audit conducted by the Bank's independent public accountants.
On December 31, 1992, the Federal Reserve Board, the FDIC, the Office of the
Comptroller of the Currency, and the Office of Thrift Supervision published
uniform standards for real estate lending which became effective March 19, 1993.
These regulations require institutions to establish and maintain written
internal real estate lending policies. Each institution's lending policies must
be consistent with safe and sound banking practices and appropriate to the size
of the institution and the nature and scope of its operations. The policies
must establish loan portfolio diversification standards; establish prudent
underwriting standards, including loan to value limits, that are clear and
measurable; establish loan administration procedures for the institution's real
estate portfolio; and establish documentation, approval, and reporting
requirements to monitor compliance with the institution's real estate lending
policies.
The institution's written real estate lending policies must be reviewed and
approved by the institution's board of directors at least annually. Further,
each institution is expected to monitor conditions in its real estate market to
ensure that its lending policies continue to be appropriate for current market
conditions. Finally the rule provides that the lending policies established by
the institution should reflect consideration of the Interagency Guidelines for
Real Estate Lending Policies adopted by the agencies in connection with the
final rule.
On September 23, 1994, the President signed into law the Riegle Community
Development and Regulatory Improvement Act of 1994. This Law reflects the
tendency of Congress to regulate all phases of banking. The Law amended the
Truth in Lending Act to require special disclosures for "high-cost home
mortgages", authorized the establishment of a network of federally funded
"community development banks", set up comprehensive rules concerning loans
secured by real estate in flood-prone areas, and commissioned eight studies on
various issues affecting banks, such as check clearing, reserve requirements
imposed by the Federal Reserve, risk-based capital standards, the availability
of consumer credit, advertisement of consumer credit, and monitoring state laws
on money laundering. On the other hand, this Law also purports to reduce
previously imposed regulatory burdens on banks by reducing certain reporting,
examination, and application procedures for banks in strong financial condition.
On September 29, 1994, the President also signed the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 which permits bank holding
companies to apply to the Federal Reserve Board for permission to acquire banks
in other states. This portion of the law did not become effective until
September 29, 1995. Under this part of the law, states may require that a bank
have been in existence for five years before it may be acquired by an out-of-
state bank holding company. The law also permits banks, subject to specified
conditions including the consent of the applicable state regulators, to acquire
branches in other states by merger or establishment of new branches. Individual
states had until June 1, 1997, to elect not
12
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
to participate in this part of the law. California fully implemented nationwide
interstate banking and branching with the passage of the Caldera, Weggeland and
Killea California Interstate Banking and Branching Act of 1995. Effective
September 29, 1995, out-of-state institutions that do not already own a
California bank must acquire an existing whole five-year old bank before
establishing a California branch. De novo branching is not permitted. The
present trend toward increased competition and reduction in the total number of
banks both in California and nationwide should continue.
On July 10, 1995, the Federal Reserve Board, the FDIC, the Office of the
Comptroller of the Currency, and the Office of Thrift Supervision published the
Interagency Guidelines Establishing Standards for Safety and Soundness, which
became effective August 9, 1995. The Interagency Guidelines established
deadlines for submission and review of safety and soundness compliance plans
required by the Federal Deposit Insurance Act. The Interagency Guidelines set
out the safety and soundness standards that each federal regulator will use to
identify and address problems at financial institutions before capital becomes
impaired. Areas addressed include loan documentation standards, credit
underwriting standards, interest rate exposure, and asset growth. The
Interagency Guidelines state a financial institution should have internal
controls, information systems, and audit systems that are appropriate to the
size of the financial institution and the nature, scope, and risk of its
activities.
The Federal Financial Institution Regulatory Agencies published final guidelines
effective on October 1, 1996, amending the Interagency Guidelines to include
asset quality and earnings standards. The asset quality standards require an
institution to identify problem assets and estimate inherent losses. The
complexity and sophistication of an institution's monitoring, reporting systems,
and corrective actions should be commensurate with the size, nature and scope of
the institution's operations. The earnings standards require monitoring and
reporting systems similar to those reported in the standards for asset quality.
The earnings standards are intended to enhance early identification and
resolution of problems. The earnings standards also require an institution to
compare its earnings trends relative to equity, assets, and other common
benchmarks, with its historical experience and with the earnings trends of its
peers.
Another banking bill enacted in California in 1995 was Senate Bill 855 (known as
the State Bank Parity Act and is referred to herein as the "SBPA"). SBPA went
into effect on January 1, 1996, and its purpose is to allow a California state
bank to be on a level playing field with a national bank by the elimination of
certain disparities. In addition, SBPA allows the California Commissioner of
Financial Institutions authority to implement certain changes in California
banking law which are parallel to changes in national banking laws such as, for
example, closer conformance of California's version of Regulation O to the FRB's
version of Regulation O and allowing the repurchase of stock with the prior
written consent of the Commissioner.
On February 14, 1997 the FDIC published a final rule revising its securities
regulations, and detailing registration and reporting requirements for insured
state non-member banks with securities required to be registered under Section
12 of the Securities Exchange Act of 1934. The final rule incorporates through
cross-reference the corresponding regulations of the
13
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
Securities and Exchange Commission (SEC) into the provisions of the FDIC's
securities regulations. The FDIC believes incorporation through cross-reference
will assure that the FDIC's regulations remain substantially similar to the
SEC's Regulations, as required by law.
On August 7, 1998, the Credit Union Membership Act was enacted to amend the
Federal Credit Union Act to clarify existing law with regard to the field of
membership in Federal credit unions, to preserve the integrity and purpose of
Federal credit unions, to enhance supervisory oversight of insured credit
unions, and for other purposes. The Act allows existing credit union members to
maintain their membership. In addition, the Act permits Federal credit unions
to include groups with multiple common bonds as long as each group has fewer
than 3,000 people, as well as larger groups that the National Credit Union
Administration ("NCUA") determines would be unable to maintain an independent
credit union. In connection with the Act, on December 17, 1998, the NCUA
approved a new rule that substantially expands credit union eligibility and
size. The NCUA expanded the list of people who can join a credit union by
virtue of their relationship to an existing or potential member. Effective
January 1, 1999, unmarried gay and straight couples, roommates, live-in nurses
and maids, and other unrelated people who live together can join one another's
credit unions, provided they share rent or otherwise act as an economic unit.
In addition, the new rule gives credit unions the ability to add new groups to
their membership for the first time since October 23, 1996, when a Federal judge
in a credit union case temporarily prohibited such growth. The NCUA also set a
soft floor of at least 3,000 potential members for new credit unions. As a
result, the new rule from the NCUA makes it harder for a company with fewer than
3,000 employees to form a new credit union rather than joining an existing
credit union.
On July 29, 1998, the Homeowners Protection Act of 1998 was enacted which
requires the automatic cancellation and notice of cancellation rights for
private mortgage insurance that is required as a condition for entering into a
residential mortgage transaction. The Act became effective July 29, 1999.
On December 1, 1998 the FDIC published a final rule revising the agency's rules
and regulations governing the activities and investments of insured state
nonmember banks, and consolidating those rules and regulations into a single
section, Part 362, of the FDIC's Rules and Regulations. The FDIC also approved
updating and incorporating into Part 362 portions of the FDIC's rules and
regulations governing the securities activities of subsidiaries and affiliates
of insured state nonmember banks. The revised rule provides the framework for
which certain state chartered banks or their majority owned subsidiaries may
engage in activities that are not permissible for national banks or their
subsidiaries. All contemplated activities must, however, be permitted by the
institution's chartering authority. In addition, if an activity or equity
investment is permissible under state law, the revised rule will allow the FDIC
to move more expeditiously on requests. The final rule's notice procedure will
expedite the processing of requests from banks meeting various eligibility
requirements. Activities to which notice processing has been extended includes
securities underwriting and real estate investment activities.
14
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
On November 12, 1999, the President signed the Gramm-Leach-Bliley Act, which
comprehensively restructures important aspects of the statutory framework that
governs the financial services industry. The new law removes Depression era
barriers that had separated banks and securities firms. Enactment of the
legislation makes it easier for affiliations between banks, securities firms and
insurance companies. Among other matters, the Act also covers consumer privacy,
disclosure of ATM charges to non-customers and disclosures of agreements between
banks and community groups.
Other legislation that has been or may be proposed to the United States Congress
and the California legislature may also affect the business of the Bank. It
cannot be predicted whether or when any pending or proposed legislation will be
adopted or the effect such legislation may have upon the business of the Bank.
Capital Adequacy Requirements. Federal regulators have established minimum
- -----------------------------
risk-based capital standards for commercial banks. These guidelines provide a
measure of capital levels and are intended to reflect the degree of risk
associated with both on- and off-balance sheet items. The risk-based capital
rules establish minimum standards; they do not evaluate all factors affecting an
organization's financial condition. Overall capital assessments by federal
regulators include analysis of such additional factors as (i) overall interest
rate exposure; (ii) liquidity, funding, and market risks; (iii) quality and
level of earnings; (iv) investment or loan portfolio concentration; (v) quality
of loans and investments; (vi) the effectiveness of loan and investment
policies; and (vii) management's overall ability to monitor and control other
financial and operating risks.
A financial institution's risk-based capital ratio is calculated by dividing its
qualifying capital by its period-end risk-weighted assets. Financial
institutions, including the Bank, generally are expected to meet a minimum ratio
of qualifying total capital to risk-weighted assets of 8%, at least one-half of
which capital must be in the form of core capital (Tier 1), consisting of common
stock, noncumulative perpetual preferred stock, minority interests in equity
capital accounts of consolidated subsidiaries, and limited amounts of qualifying
mortgage servicing rights, less most other intangible assets other than
qualifying supervisory goodwill. Supplementary capital (Tier 2) consists of,
among other things, the allowance for loan losses up to 1.25% of risk-weighted
assets, cumulative, perpetual and term preferred stock, certain hybrid capital
instruments, and term subordinated debt. The maximum amount of Tier 2 capital
that may be recognized for risk-based capital purposes is limited to 100% of
Tier 1 capital (after any deductions for disallowed intangibles and other
items). The aggregate amount of term subordinated debt and intermediate term
preferred stock that may be classified as Tier 2 capital is limited to 50% of
Tier 1 capital. Certain other limitations and restrictions apply as well.
The risk-based capital requirements did not replace or eliminate minimum
leverage ratios of capital to total assets that banks are required to maintain.
The federal regulatory agencies have adopted a 3% minimum leverage ratio that is
intended to supplement risk-based capital
15
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
requirements and to ensure that all financial institutions, even those that
invest predominantly in low-risk assets, continue to maintain a minimum level of
core capital. These regulations provide that a financial institution's minimum
leverage ratio is determined by dividing its Tier 1 capital by its quarterly
total assets, less "intangibles" not included in Tier 1 capital. Period-end
assets may be used in place of quarterly average total assets on a case-by-case
basis.
Under these rules, a minimum leverage ratio of 3% is required for institutions
which have been determined to be in the highest of five categories used by
regulators to rate financial institutions. All other organizations are required
to maintain leverage ratios of at least 100 to 200 basis points above the 3%
minimum. It is improbable, however, that an institution with a 3% leverage
ratio would be rated in the highest category, since a strong capital position is
so closely tied to the rating system. Therefore, the "minimum" leverage ratio
is, for all practicable purposes, significantly above 3%.
The leverage ratio establishes a minimum standard affecting the ability of
financial institutions, including the Bank, to increase assets and liabilities
without increasing capital proportionately. A state non-member bank which fails
to maintain sufficient capital to meet both capital requirements is required to
submit a plan to the FDIC describing means and a schedule by which the bank will
achieve its minimum capital ratios. Failure to submit a plan, or failure to
comply with an approved plan, may subject a bank to restrictions on its
operations and activities, and to other regulatory actions, including
assessments of its shareholders. Pursuant to federal law, continued failure to
achieve minimum capital requirements may result in placement of the bank under a
conservatorship or receivership and, ultimately, in liquidation by the federal
regulator. Pursuant to California law, the Commissioner, Department of Financial
Institutions, has authority, under certain circumstances (e.g., if the bank's
capital is impaired or the bank is conducting its business in an unsafe or
unsound manner) to take possession of the property and business of the bank and
tender it to the appropriate federal regulator for liquidation. In addition, if
the Commissioner believes that a bank's capital is impaired, the Commissioner is
required to order the bank to correct the impairment. In such a case, the bank
must levy and collect an assessment on the shares of the bank's common stock.
Prompt Corrective Action. FDICIA requires federal regulators to take "prompt
- ------------------------
corrective action" with respect to institutions that do not meet minimum capital
requirements. In response to this requirement, federal regulators adopted rules
based upon FDICIA's five capital tiers. These rules, which apply to the Bank,
provide that an institution is "well capitalized" if its risk-based capital
ratio is 10% or greater, its Tier 1 risk-based capital ratio is 6% or greater,
its leverage ratio is 5% or greater, and the institution is not subject to a
capital directive or other enforceable order by federal regulators. An
institution is "adequately capitalized" if its risk-based capital ratio is 8% or
greater, its Tier 1 risk-based capital ratio is 4% or greater, and its leverage
ratio is 4% or greater (3% or greater for the most highly-rated institutions, as
rated by federal regulators). An institution is considered "undercapitalized"
if its risk-based capital ratio is less than 8%, its Tier 1 risk-based capital
ratio is less than 4%, or its leverage ratio is less than 4%. An institution is
"significantly undercapitalized" if its risk-based capital ratio is less than
6%, its Tier 1 risk-based capital ratio is less than 3%, or its leverage ratio
is less than 3%.
16
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
An institution is deemed to be "critically undercapitalized" if its ratio of
tangible equity (Tier 1 capital) to total assets is equal to or less than 2%. An
institution may be deemed to be in a capitalization category that is lower than
is indicated by its actual capital position if the FDIC determines that the
institution is in an unsafe and unsound condition or if the FDIC deems the bank
to be engaged in an unsafe or unsound banking practice.
No sanctions apply to institutions that are "well-capitalized." "Adequately
capitalized" institutions are prohibited from accepting brokered deposits
without the consent of their primary federal regulator. "Undercapitalized"
institutions are required to submit a capital restoration plan for improving
capital and are prohibited from taking capital distributions or paying
management fees to controlling persons if such distributions or fees would
result in the institution being undercapitalized; may be subject to growth
limitations; and acquisitions, branching, and entering into new lines of
business would be subject to prior regulatory approval. Finally, the
institution's regulatory agency has discretion to impose certain of the
restrictions generally applicable to "significantly undercapitalized"
institutions.
In the event an institution is deemed to be "significantly undercapitalized", it
may be required to sell additional shares of stock, merge or be acquired,
restrict transactions with affiliates, restrict interest rates paid, restrict
asset growth or reduce total assets, divest a subsidiary, or dismiss specified
directors or officers. A "critically undercapitalized" institution is generally
prohibited from making payments on subordinated debt and among other things may
not, without the prior approval of the FDIC, enter into a material transaction
other than in the ordinary course of business, engage in certain transactions
with affiliates, or pay excessive compensation or bonuses. "Critically
undercapitalized" institutions are subject to appointment of a receiver or
conservator by the institution's federal regulator.
Community Reinvestment Act. On May 4, 1995 the federal regulatory agencies for
- --------------------------
financial institutions published a joint final rule and related regulations
under the Community Reinvestment Act of 1977 ("CRA"). The final rule sets forth
guidelines to financial institutions on the nature and extent of their
obligation under CRA to help meet the credit needs of their communities
including low- and moderate-income neighborhoods. The final regulations also
set forth the methods by which the obligation will be assessed and enforced.
The final joint rule and regulations were effective July 1, 1995. The final
rule emphasizes performance rather than process, consistency in evaluations, and
the elimination of unnecessary burden. As compared to the rules and regulations
proposed in 1993 and 1994, the final rule reduces record keeping and reporting
requirements. However, it is certain that banks will continue to incur
significant costs in attempting to comply with CRA and the complicated
regulations which have evolved from it.
The FDIC conducts periodic examinations of banks' compliance with the Community
Reinvestment Act. The four examinations previously conducted at the Bank have
each resulted in an Outstanding rating. The examination conducted in 1998 under
the new rules also resulted in an Outstanding rating.
17
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
Certain Financial Ratios
The following table sets forth certain financial data and ratios with respect to
the Bank for the years ended December 31, 1999, 1998, and 1997. This
information should be read in conjunction with, and is qualified in its entirety
by reference to, the more detailed audited financial statements and notes
thereto which accompany this Annual Report.
Year Ended December 31,
-----------------------
(000's except ratios)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income $ 4,403 $ 3,956 $ 3,365
Average equity capital accounts $ 29,106 $ 26,174 $ 23,662
Ratio of net income to average equity capital accounts 15.13% 15.11% 14.22%
Average daily total deposits $288,930 $255,683 $233,254
Ratio of net income to average daily total deposits 1.52% 1.55% 1.44%
Average daily loans $193,011 $183,820 $161,546
Ratio of average daily loans to average daily total 66.80% 71.89% 69.26%
deposits
</TABLE>
Employees
At December 31, 1999, the Bank had 164 full-time equivalent employees. No
employees have union representation. The Bank considers relations with its
employees to be good.
Item 2. Properties
The Bank's Main Office and Administrative Headquarters are located at 1995 El
Camino Real, Santa Clara, California 95050. The Bank occupies approximately 63%
of the new facility and is leasing approximately 11,000 square feet of the
facility to two professional corporations.
The Bank's Homestead branch, originally leased by the Bank in 1975, is located
at 3595 Homestead Road, Santa Clara. The lease expires on July 31, 2000;
however, the Bank will be exercising an option to extend the term to July 31,
2005, and it has two additional options of five years each to extend the term up
to July 31, 2015. The Homestead Office's approximately 1,950 square foot free-
standing building is located on the corner parcel of a shopping center.
The Bank's Milpitas branch is located at 1785 Landess Avenue, Milpitas. This
property was purchased by the Bank in 1978 and will be fully depreciated in
2003.
The Bank's Sunnyvale branch is located at 107 East El Camino Real, Sunnyvale.
The lease term for this facility expires May 29, 2003. The Bank has two
consecutive ten-year options to extend the term until May 29, 2023.
18
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
The Bank's Evergreen branch is located in a 3,000 square foot free-standing
building located at 2779 Aborn Road, San Jose. The lease term for this facility
expires August 31, 2004, and the Bank has options to extend the term of the
lease for an additional ten years.
The Bank's Camden branch is located at 2061 Camden Avenue, San Jose. The term
of the lease for this facility expires on July 31, 2005, and the Bank has
options to extend the lease term an additional ten years.
The Bank's McKee branch is located at 2150 McKee Road, San Jose. The lease term
for this land lease expires on December 31, 2017.
The Bank's First & Taylor branch, located at 695 North First Street, San Jose,
occupies a 4,300 square foot, free-standing building. The lease for this
facility expires on September 30, 2008 and the Bank has options to extend the
term of the lease to September 30, 2018.
In addition to branch offices, the Bank leases a 15,130 square foot facility in
Santa Clara, California in which it performs its data processing and central
operations functions. The lease expires on September 30, 2002, and the Bank has
options to extend the term for an additional 15 years.
Lease obligations (net) for 1999 were $284,254 excluding depreciation of the
Milpitas and El Camino Real buildings. The Bank owns all of its furniture,
fixtures, and banking equipment as well as its data processing and computer
systems hardware.
In July 1997, the Bank successfully upgraded its in-house item and data
processing equipment and its banking and other business applications, including
the installation of local area networks (LANs) in each building location and a
wide area network (WAN) linking all Bank locations.
Item 3. Legal Proceedings.
There were no legal proceedings requiring disclosure pursuant to this item
pending at December 31, 1999, or at the date of this report.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote by the shareholders of the Company's common
stock during the fourth quarter of 1999.
The Bank's Annual Meeting of Stockholders was held in the second fiscal quarter
of 1999 on April 8, 1999. Matters submitted to, voted upon and approved by
shareholders were the election of directors, the ratification of independent
public accountants, an amendment to the Bank's by-laws providing that the number
of directors shall not be less than seven nor more than thirteen (rather than a
fixed number) and, an amendment to the bank's articles of incorporation
increasing the number of authorized shares to twenty million.
19
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
P A R T II
Item 5. Market for the Bank's Common Stock and Related Security Holder Matters.
Based upon information supplied to the Bank by The Nasdaq Stock Market, Inc.,
the reported ranges of sales prices and trading volume for each quarterly period
during the last three years are:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
First Quarter:
High $ 24.50 $ 35.00 $ 19.00
Low $ 20.75 $ 26.00 $ 15.75
Volume 24,430 61,614 43,100
Second Quarter:
High $ 25.25 $26.415 $ 21.25
Low $ 19.50 $ 23.00 $ 17.75
Volume 64,443 93,926 53,870
Third Quarter:
High $ 37.50 $ 26.00 $ 24.75
Low $ 23.50 $ 17.50 $ 21.00
Volume 81,484 54,335 33,170
Fourth Quarter:
High $ 34.75 $ 22.00 $ 31.75
Low $ 28.00 $ 19.50 $ 23.50
Volume 78,286 88,176 42,127
</TABLE>
The Bank has not conducted any investigation as to the accuracy of this
information. The price of the last Common Stock sale for 1999, on December
30th, was $33.125 per share.
Shareholders. As of December 31, 1999, the Bank had approximately 597 known
- ------------
holders of record of its common stock, plus an unknown number held in street
name.
Dividends. The Bank declared and paid annual cash dividends of $0.55 per share,
- ---------
$0.50 per share, and $0.50 per share in 1999, 1998 and 1997, respectively. On
January 18, 2000, the Bank declared a cash dividend of $0.60 per share, payable
February 21, 2000 to shareholders of record as of February 7, 2000.
20
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
Item 6. Selected Financial Data.
The following table sets forth a summary of selected financial data for the Bank
for each of the last five fiscal years ended December 31, 1999:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
(in thousands, except per share data and ratios)
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Statement of Earnings Data:
- ---------------------------
<S> <C> <C> <C> <C> <C>
Total interest and fee income $ 24,175 $ 22,437 $ 20,722 $ 18,796 $ 16,965
Total interest expense (6,213) (6,247) (5,909) (5,585) (5,016)
---------- ---------- ---------- ---------- ----------
Net interest income 17,962 16,190 14,813 13,211 11,949
Provision for loan losses (675) (600) (800) (650) (475)
---------- ---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 17,287 15,590 14,013 12,561 11,474
Security gains 16 - 5 5 7
Other non-interest income 3,792 3,398 2,984 2,517 2,467
Other non-interest expenses (14,294) (13,014) (12,019) (10,567) (9,878)
---------- ---------- ---------- ---------- ----------
Income before taxes 6,801 5,974 4,983 4,516 4,070
Income taxes (2,398) (2,018) (1,618) (1,485) (1,334)
---------- ---------- ---------- ---------- ----------
Net income $ 4,403 $ 3,956 $ 3,365 $ 3,031 $ 2,736
========== ========== ========== ========== ==========
Per Share Data:
- ---------------
Net income per share - assuming dilution $ 1.86 $ 1.69 $ 1.45 $ 1.35 $ 1.29
Book value per share $ 13.53 $ 12.15 $ 11.56 $ 11.29 $ 10.44
Weighted average shares
Outstanding - assuming dilution 2,368,708 2,336,090 2,320,929 2,240,786 2,120,646
Cash dividends per share $ 0.55 $ 0.50 $ 0.50 $ 0.46 $ 0.45
Year-end Balance Sheet Summary:
- -------------------------------
Total Assets $ 326,934 $ 297,721 $ 262,458 $ 249,311 $ 226,606
Net Loans 212,769 187,055 171,259 153,130 134,418
Total Deposits 293,698 268,465 236,214 226,482 206,331
Shareholders' Equity 31,368 27,860 24,881 22,079 19,361
Average Balance Sheet Summary:
- ------------------------------
Total Assets $ 319,545 $ 283,613 $ 259,332 $ 236,746 $ 206,681
Total Loans 193,011 183,820 161,546 141,385 130,443
Total Deposits 288,930 255,683 233,254 214,703 187,153
Shareholders' Equity 29,106 26,174 23,662 20,686 17,856
Capital Ratios:
- ---------------
Average shareholders' equity to average
total assets 9.1% 9.2% 9.1% 8.7% 8.6%
Total (Tier 1 & Tier 2) risk-based capital 11.9% 12.0% 12.1% 11.9% 12.0%
ratio
Tier 1 risk-based capital ratio 11.1% 11.2% 11.3% 11.2% 11.3%
Tier 1 leverage ratio 9.8% 9.8% 9.6% 9.3% 9.4%
Selected Financial Ratios:
- --------------------------
Net interest margin (excluding loan fees) 5.9% 6.0% 6.0% 5.8% 6.1%
Efficiency ratio 65.7% 66.4% 67.5% 67.2% 68.5%
Return on average assets 1.4% 1.4% 1.3% 1.3% 1.3%
Return on average shareholder's equity 15.1% 15.1% 14.2% 14.7% 15.3%
</TABLE>
21
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the Company's financial statements
and supplementary data as presented in Item 8 of this report. In addition to
historical information, this discussion and analysis includes certain forward-
looking statements regarding events and trends which may affect the Company's
future results. Such statements are subject to risks and uncertainties that
could cause the Company's actual results to differ materially. These risks and
uncertainties include, but are not limited to, those described in Item 1 of this
report.
Balance Sheet Analysis
Total assets at December 31, 1999, were $326,933,786 representing a $29,213,148,
or 9.8%, increase from December 31, 1998. Total assets averaged $319.5 million
in 1999 as compared to $283.6 million in 1998 and $259.3 million in 1997.
Average total earning assets increased from $232.0 million in 1997 to $255.3
million in 1998 and $290.1 million in 1999. Average earning assets were 90.8%,
90.0% and 89.5% of average total assets in 1999, 1998 and 1997, respectively.
Total interest bearing liabilities averaged $198.5 million in 1999, $176.4
million in 1998, and $162.9 million in 1997, representing an increase of 12.5%
from 1998 to 1999, and an 8.3% from 1997 to 1998. The components of the Bank's
average earning assets and interest bearing liabilities are presented in the
table on page 30.
Earnings Analysis
Net earnings in 1999 were $4,402,559, an increase of $446,912, or 11.3%, over
1998 earnings of $3,955,647. The Bank's earnings for the year ended December
31, 1998, increased 17.6% over earnings of $3,364,756 in 1997. On a per share
basis, assuming dilution, net earnings were $1.86 in 1999 compared to $1.69 in
1998 and $1.45 in 1997.
Net interest income (excluding loan fees) for 1999 increased $1.84 million, or
12.0%, from 1998. By far, the most significant impact on the change in net
interest income came from a $22.8 million, or 36.8%, increase in average total
investments, while at the same time average investment yields decreased by only
three basis points. Portfolio yields were maintained by extending investment
maturities somewhat and by acquiring more callable instruments. Average total
loans also increased in 1999 but impacted earnings at slightly over half that of
the increase due to increased investment balances. The reason for the
significantly higher investment balances was that loan demand was virtually flat
during the first six months of the year, a period in which deposits grew by $22
million. Loan demand did pick up, however, in the third and fourth quarter of
1999 and by year-end the average of total loans grew by $9.2 million, or 5%,
over 1998. But, lower market rates pushed loan yields down by an average of 29
basis points, offsetting the effect of increased loan balances on earnings by
over 64%.
22
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
Lower market rates also significantly affected the cost of deposits by more than
fully offsetting the cost impact of a $22.4 million, or 12.7%, increase in
interest-bearing deposits.
Net interest income (excluding loan fees) for 1998 increased $1.43 million, or
10.3%, from 1997. Practically all of this increase resulted from a $22.3
million, or 13.8%, increase in average total loans from 1997 to 1998. During
the same analyzed period, a $13.5 million, or 8.3%, increase in average
interest-bearing liabilities resulted in a $338,000, or 5.7%, increase in the
Bank's total interest expense. During the analyzed period the Bank's cost of
funds decreased slightly by 9 basis points, or 2.4%, while the yield on earning
assets also decreased by 9 basis points, or 1.0%, to 8.45%.
The other elements of the changes in net earnings for 1997 through 1999, namely,
provision for loan losses, non-interest income and non-interest expense, are
discussed below in this section.
The following table sets forth the major items of earnings per share for 1999,
1998, and 1997:
Components of Earnings Per Share/2/
Year Ended December 31,
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net interest income $ 7.58 $ 6.93 $ 6.40
Provision for loan losses ($0.28) ($0.26) ($0.35)
Other income $ 1.61 $ 1.45 $ 1.29
Other expense ($6.03) ($5.57) ($5.19)
Applicable income tax ($1.01) ($0.86) ($0.70)
Net earnings (assuming dilution) $ 1.86 $ 1.69 $ 1.45
</TABLE>
Net Interest Income
Net interest income is the difference between interest yield generated by
earning assets and the interest expense associated with the funding of those
assets. Net interest income is affected by the interest rate earned or paid and
by volume changes in loans, investment securities, deposits, and borrowed funds.
- -----------------
/2/ Based on the weighted number of shares outstanding.
23
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
In 1999, net interest income (including loan fees) represented 82.5% of net
revenues (net interest income plus non-interest income), compared to 82.7% in
1998 and 83.2% in 1997. Net interest margin (net interest income, excluding
loan fees, divided by average interest-earning assets) was 5.92% in 1999
compared to 6.00% in 1998 and 5.99% in 1997. The average yield on interest-
earning assets was 8.06% in 1999, compared to an average yield of 8.45% in 1998
and 8.54% in 1997. The average cost for interest-bearing liabilities was 3.13%
in 1999, 3.54% in 1998, and 3.63% in 1997.
Provision For Loan Losses
The Bank's loan loss provision in 1999 was $675,000, compared to $600,000 in
1998, representing an increase of $75,000, or 12.5%. The 1998 loan loss
provision decreased by $200,000, or 25.0%, from the 1997 provision of $800,000.
The amount charged annually to the loan loss provision is generally dependent
upon management's assessment of the adequacy of the allowance for loan losses
(see below, IV. Summary of Loan Loss Experience, Provision and Allowance for
Loan Losses), the beginning period balance of the allowance and the charge-offs
and recoveries for each period. At period ended December 31, 1999, the
allowance for loan losses was 1.07% of outstanding loans as compared to 0.97% in
1998 and 1.00% in 1997.
Non Interest Income
Total non-interest income, including securities gains, increased $410,000, or
13.7%, from 1998 to 1999. The majority of this growth resulted from increased
merchant discount activity, up $265,000, or 24.3%, due to a revamping of the
Bank's pricing structure and from increased service charges on deposit accounts
up $124,000, or 7.4%, due to an overall increase in the number of deposit
accounts serviced. Total non-interest income, including securities gains,
increased $410,000, or 13.7%, from 1997 to 1998. The majority of this growth
was from increased merchant discount activity, up $167,000, or 18.0%, and from
ATM interchange fees increasing $142,000, or 75.6%, as a result of the
introduction of charging a fee for foreign ATM transactions. During this
analyzed period, service charges on deposit accounts increased $101,000, or
6.5%.
Non Interest Expense
Non-interest expense increased $1,280,000, or 9.8%, from 1998 to 1999. The
majority of this increase was in salaries and benefits, net occupancy expense
and merchant processing expenses which items increased $705,000, or 9.9%,
$275,000, or 16.3%, and $167,000, or 15.9%, respectively. Increases in officer
and employee salaries resulted primarily from hikes in merit and incentive
compensation and from an increase in non-officer full-time equivalent staff.
Higher group insurance and payroll taxes, which increased, however at lower
rates of growth than those experienced from 1997 to 1998, accounted for most of
the approximately $117,000, or 7.5%, increase in employee benefits expense.
Occupancy expense grew from 1998 to 1999 directly because of increased rent and
amortization expense associated with the newly relocated
24
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
Sunnyvale Branch Office. Merchant processing charges grew primarily due to
increased third party processor pass through charges. Note that the $95,000, or
47.3%, increase in professional services resulted from accruals for legal and
accounting services pertaining to the definitive agreement signed with Greater
Bay Bancorp on January 26, 2000 (see Audited Financial Statements, Note S -
Subsequent Events). Offsetting these increases were actual decreases in
advertising and marketing, insurance and data processing expenses. Here, lower
expenditures occurred in bond, business development, other marketing, and data
processing conversion expenses.
Non-interest expense increased $995,000, or 8.3%, from 1997 to 1998. The
majority of this increase was in salaries and benefits, merchant processing
charges and data processing expenses which items increased $648,000, or 10.0%,
$262,000, or 33.3%, and $142,000, or 42.4%, respectively. Data processing
expenses increased due to the full year of hardware and software depreciation in
1998 versus slightly over one-half year's expense in 1997 due to the systems
upgrades in 1997, and due to increased hardware maintenance in 1998. Increases
in both officer and employee salaries, due primarily to merit and incentive
compensation increases, coupled with a significant increase in group insurance
costs and somewhat higher payroll taxes, accounted for most of the salary and
benefits expense. These increases were offset somewhat by reduced property
insurance costs, reduced television advertising and ad agency fees, and lower
net occupancy costs. Net occupancy costs declined due to the entire second
floor of the Bank's El Camino Real Administrative Headquarters being fully
leased throughout 1998 compared to only being partially leased in 1997.
Liquidity
Liquidity is a measure of the Bank's ability to convert assets into cash with
minimum loss. Liquidity consists of cash and due from time account deposits
with other banks, investments, and Fed Funds sold. The Bank's policy is to
maintain a liquidity ratio of 20% or greater of total assets. As of December
31, 1999, the Bank's primary liquidity ratio was 29.2% compared to 31.1% and
24.8%, respectively, for the same periods ended 1998 and 1997. The objective of
liquidity management is to ensure that the Bank has available funds to meet all
present and future financial obligations and to take advantage of business
opportunities as they arise. Financial obligations arise from withdrawals of
deposits, repayment on maturity of purchased funds, extension of loans or other
forms of credit, payment of operating expenses, and payment of dividends.
Core deposits, which consist of all deposits other than time deposits, have
provided the Bank with a sizable source of relatively stable and low-cost funds.
The Bank's average core deposits funded 63% of average total assets of $319.5
million for 1999, 61% of average total assets of $283.6 million for 1998 and 64%
of average total assets of $259.3 million for 1997. This continued growth in
average core deposits is due to ongoing marketing efforts to attract and retain
small business accounts.
Liquidity may also be provided from a variety of other sources including
interest-earning
25
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
deposits in banks and federal funds sold. The aggregate of these assets averaged
$12.2 million in 1999, $9.3 million during 1998 and $6.0 million during 1997. In
addition, liquidity may also be provided by marketable investment securities,
particularly those maturing within one year. At December 31, 1999, securities
maturing within one year totaled $9.6 million, or 11.0% of the Bank's investment
portfolio. Securities callable, or maturing within one year, at December 31,
1999, totaled $51.2 million, or 58.2% of the investment portfolio. The Bank
purchases investment securities with the intent of holding them until maturity.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
Asset and Liability Management
The largest component of the Bank's earnings is net interest income, which can
fluctuate widely when significant interest rate movements occur. The Bank's
management is responsible for minimizing the Bank's exposure to interest rate
risk and assuring an adequate level of liquidity. This is accomplished by
developing objectives, goals, and strategies designed to enhance profitability
and performance.
Ongoing management of the Bank's interest rate sensitivity limits interest rate
risk by controlling the mix and maturity of assets and liabilities. Management
regularly reviews the Bank's position and evaluates alternative sources and uses
of funds as well as changes in external factors. Various methods are used to
achieve and maintain the desired rate sensitivity position including the sale or
purchase of assets and product pricing.
In order to ensure that sufficient funds are available for loan growth and
deposit withdrawals, as well as to provide for general needs, the Bank must
maintain an adequate level of liquidity. Both assets and liabilities provide
sources of liquidity. Asset liquidity comes from the Bank's ability to convert
short-term investments into cash and from the maturity and repayment of loans
and investment securities. Liability liquidity is provided by the Bank's
ability to attract deposits. The primary source of liability liquidity is the
Bank's customer base which provides core deposit growth. The overall liquidity
position of the Bank is closely monitored and evaluated regularly. Management
believes the Bank's liquidity sources at December 31, 1999, were adequate to
meet its operating needs in 1999 and going forward into the foreseeable future.
26
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
The following table sets forth the Bank's rate sensitivity position, that is the
interest repricing opportunity schedule of its assets and liabilities.
Rate Sensitive Assets/Liabilities
as of December 31, 1999
-----------------------
(in thousands except ratios)
<TABLE>
<CAPTION>
3 mos. Over 3 mo. over 1 yr. Over
Immediate or less Thru 12 mos. thru 5 yrs. 5 yrs. Total
--------- ------- ------------ ----------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Assets
Loans/3/ $ 49,494 $ 6,529 $ 3,472 $ 78,336 $ 77,076 $ 214,907
Federal Funds - - - - - -
Securities/4/ - 7,921 43,325 29,237 7,534 88,017
Certificates of Deposit - - - - - -
--------- --------- --------- ---------- ---------- ----------
Total 49,494 7,713 11,932 129,690 104,095 302,924
========= ========= ========= ========== ========== ==========
Liabilities
Money Market 30,137 - - - - 30,137
Super NOW 28,991 - - - - 28,991
Savings - 49,747 - - - 49,747
Certificates of Deposit
Of less than $100,000 - 12,845 21,773 4,891 - 39,509
Certificates of Deposit
Of more than $100,000 - 32,225 17,286 3,371 - 52,882
--------- --------- --------- ---------- ---------- ----------
Total $ 59,128 $ 94,817 $ 39,059 $ 8,262 $ - $ 201,266
========= ========= ========= ========== ========== ==========
Rate Sensitivity Gap $ (9,634) $ (87,104) $ (27,127) $ 121,428 $ 104,095
Cumulative Gap $ (9,634) $ (96,738) $(123,865) $ (2,437) $ 101,658
Rate Sensitivity Ratio 0.84% 0.37% 0.36% 0.99% 1.51%
Risk at 1% Change /5/ $ (0.3) $ (119.3) $ (610.8) $ (24.4) $ -
</TABLE>
Effect of Changing Prices
The results of operations and financial conditions presented in this report are
based on historical cost information and are unadjusted for the effects of
inflation.
Since the assets and liabilities of banks are primarily monetary in nature
(payable in fixed, determinable amounts), the performance of the Bank is
affected more by changes in interest rates than by inflation. Interest rates
generally increase as the rate of inflation increases, but the magnitude of the
change in rates may not be the same.
The effect of inflation on banks is normally not as significant as its influence
on those businesses that have large investments in plants and inventories.
During periods of high
- -----------------
/3/ Excludes non-accruing loans.
/4/ Callable securities listed by the earlier of the call date or maturity
date.
/5/ Reflects estimated effect on earnings assuming a 1% change in market
interest rate; shown in thousands of dollars.
27
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
inflation, there are normally corresponding increases in the money supply, and
banks will generally experience above average growth in assets, loans, and
deposits. Also, increases in the price of goods and services will result in
increased operating expenses.
Capital
Total shareholders' equity at December 31, 1999, was $31,368,376, an increase of
$3.51 million, or 12.6%, from the same period ended 1998. At December 31, 1998,
shareholders' equity was $27,860,340, representing an increase of $2.98 million,
or 12.0%, over 1997. Increases in shareholders' equity were primarily
attributable to the retention of net income after payment of cash dividends of
$1,264,451 in 1999, $1,114,620 in 1998 and $1,018,492 in 1997.
In 1989, the FDIC established risk-based capital guidelines requiring banks to
maintain certain ratios of "qualifying capital" to "risk-weighted assets".
Under the guidelines, qualifying capital is classified into two tiers, referred
to as Tier 1 (core) and Tier 2 (supplementary) capital. See "Item 1. Business
- - Supervision and Regulation." Currently, the Bank's Tier 1 capital consists of
common shareholders' equity. Tier 2 capital consists of eligible allowance for
loan losses. Total capital is the sum of Tier 1 plus Tier 2 capital. Risk-
weighted assets are calculated by applying risk percentages specified by the
FDIC to categories of both balance sheet assets and off-balance sheet
obligations.
At year-end 1990, the FDIC also adopted a leverage ratio requirement. This
ratio supplements the risk-based capital ratios and is defined as Tier 1 capital
divided by quarterly average assets during the reporting period. The
requirement established a minimum leverage ratio of 3.0% for the highest rated
banks and ratios 100 to 200 basis points higher for most banks.
Furthermore, as mandated by the FDIC Improvement Act of 1991, in 1993 the FDIC
began assessing risk-based deposit insurance assessments based upon financial
institutions' capital resources and "management strength". To qualify for the
lowest insurance premiums as indicated in the following table, "well-
capitalized" financial institutions must maintain risk-based Tier 1 and total
capital ratios of at least 6.0% and 10.0% respectively. "Well-capitalized"
financial institutions must also maintain a leverage ratio equal to or exceeding
5.0%.
28
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
The following table shows the Bank's risk-based capital ratios and the leverage
ratios at December 31, 1999, 1998, and 1997 as well as the regulatory
requirements for a "well-capitalized" bank.
<TABLE>
<CAPTION>
Minimum
Capital Ratios "Well
December 31, Capitalized"
-----------------
Risk-Based Capital Ratios 1999 1998 1997 Requirements
------------------------- ---- ---- ---- ------------
<S> <C> <C> <C> <C>
Total Capital (Tier 1 & Tier 2) 11.9% 12.0% 12.1% 10.0%
Tier 1 Capital 11.1% 11.2% 11.3% 6.0%
Leverage Ratios 9.8% 9.8% 9.6% 5.0%
</TABLE>
Subsequent Event
On January 26, 2000 the Bank entered into a definitive merger agreement (the
"Agreement") with Greater Bay Bancorp of Palo Alto, California. Pursuant to the
Agreement, the Bank would become a wholly-owned subsidiary of Greater Bay
Bancorp. In the merger, Greater Bay Bancorp will issue shares of its stock with
an estimated value of approximately $90.8 million, depending on an average
closing price of Greater Bay Bancorp's stock prior to the closing. In a tax-
free exchange for the shares of stock of the Bank, closing of the transaction is
subject to approval by the shareholders of the Bank, receipt of approvals from
the appropriate Regulatory Agencies and satisfaction of the conditions set forth
in the Agreement, a copy of which has previously been filed with the Bank's Form
8-K dated February 10, 2000 and filed that same date with the Federal Deposit
Insurance Corporation and referenced herein under Exhibit Number 2.1.
29
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
I. Distribution of Assets, Liabilities, and Stockholders' Equity; Interest
- ---------------------------------------------------------------------------
Rates and Interest Differentials
- --------------------------------
The following tables reflect an analysis of net interest income and related
changes in 1999 compared to 1998 and 1997.
Net Interest Income and Average Balances
Year Ended December 31,
<TABLE>
<CAPTION>
1999 1998
---------------------------------------------------------------------------------
Interest Interest
Average Income Average Average Income Average
Balance (Expense) Yield Balance (Expense) Yield
(000's) (000's) (Cost) (000's) (000's) (Cost)
------------- ------------ -------- ------------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets
Taxable investment securities $ 63,025 $ 3,984 6.32% $ 37,412 $ 2,438 6.52%
Non taxable investment securities 21,915 1,200 5.48% 24,694 1,373 5.56%
Time deposits with other financial institutions 315 16 5.08% 464 26 5.60%
Federal funds sold 11,879 590 4.97% 8,884 456 5.13%
Loans /1/ 193,011 18,385 9.53% 183,820 18,144 9.87%
-------- ------- ---------- ---------
Total interest earning assets 290,145 24,175 8.33% 255,274 22,437 8.79%
Non-interest Earning Assets
Cash and due from banks 16,461 16,815
Premises and equipment 10,519 10,047
Interest receivable and other 2,420 1,477
assets -------- ----------
Total non-interest-earning assets 29,400 28,339
-------- ----------
Total assets $319,545 $283,613
======== ==========
Interest-Bearing Liabilities
Demand (Money Market & Super NOW) $ 60,926 $ (973) -1.60% $ 55,957 $ (1,087) -1.94%
Savings deposits 50,368 (1,250) -2.48% 45,135 (1,326) -2.94%
Time deposits 87,191 (3,988) -4.57% 74,997 (3,817) -5.09%
Federal funds purchased 34 (2) -5.88% 291 (17) -5.84%
-------- ------- ---------- ---------
Total interest-bearing liabilities 198,519 (6,213) -3.13% 176,380 (6,247) -3.54%
------- ---------
Non-interest-Bearing Liabilities
Demand deposits 90,445 79,593
Interest payable and other liabilities 1,475 1,466
-------- ----------
Total non-interest-bearing liabilities 91,920 81,059
-------- ----------
Total liabilities 290,439 257,439
Stockholders' equity 29,106 26,174
-------- ----------
Total liabilities & stockholders' equity $319,545 $283,613
======== ==========
Net interest income $17,962 $16,190
======= =======
Net interest margin /2/ 6.19% 6.34%
</TABLE>
Net Interest Income and Average Balances
Year Ended December 31,
<TABLE>
<CAPTION>
1997
----------------------------------------
Interest
Average Income Average
Balance (Expense) Yield
(000's) (000's) (Cost)
------------- ------------- --------
<S> <C> <C> <C>
Interest Earning Assets
Taxable investment securities $ 39,843 $ 2,547 6.39%
Non taxable investment securities 24,615 1,385 5.63%
Time deposits with other financial institutions 369 21 5.69%
Federal funds sold 5,654 306 5.41%
Loans /1/ 161,546 16,463 10.19%
---------- ---------
Total interest earning assets 232,027 20,722 8.93%
Non-interest Earning Assets
Cash and due from banks 15,189
Premises and equipment 9,011
Interest receivable and other assets 3,105
----------
Total non-interest-earning assets 27,305
----------
Total assets $ 259,332
==========
Interest-Bearing Liabilities
Demand (Money Market & Super NOW) $ 52,156 $ (1,082) -2.07%
Savings deposits 44,050 (1,312) -2.98%
Time deposits 66,100 (3,482) -5.27%
Federal funds purchased 578 (33) -5.71%
---------- ---------
Total interest-bearing liabilities 162,884 (5,909) -3.63%
---------
Non-interest-Bearing Liabilities
Demand deposits 70,949
Interest payable and other liabilities 1,837
----------
Total non-interest-bearing 72,786
liabilities ----------
Total liabilities 235,670
Stockholders' equity 23,662
----------
Total liabilities & stockholders' equity $ 259,332
==========
Net interest income $ 14,813
=========
Net interest margin /2/ 6.38%
</TABLE>
(1) For purposes of calculating loan yield, average loan balances include
nonaccrual loans.
30
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
Rate/Volume Analysis
--------------------
(in thousands)
<TABLE>
<CAPTION>
1999 Compared to 1998 1998 Compared to 1997
----------------------------------------- -----------------------------------------
Interest Variance Interest Variance
Income & Attributable To Income & Attributable To
Expense ----------------------------- Expense ----------------------------
Interest Earning Assets Variance Rate Volume Variance Rate Volume
- ----------------------------------- ----------- ------------- ---------- ------------ ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Taxable investment securities $ 1,546 ($123) $ 1,669 ($109) $ 46 ($155)
Non taxable investment securities (173) (18) (155) (12) (16) 4
Time deposits with other financial
Institutions (10) (2) (8) 5 0 5
Federal funds sold 134 (20) 154 150 (25) 175
Loans (1) 306 (558) 864 1,731 (413) 2,144
-------- ----- -------- ------- -------- -------
Total 1,803 (721) 2,524 1,765 (408) 2,173
-------- ----- -------- ------- -------- -------
Interest-Bearing Liabilities
- -----------------------------------
Demand deposits (114) (211) 97 5 (74) 79
Savings deposits (76) (230) 154 14 (18) 32
Time deposits 171 (450) 621 335 (134) 469
Federal Funds Purchased (15) 0 (15) (16) 0 (16)
-------- ----- -------- ------- -------- -------
Total (34) (891) 857 338 (226) 564
-------- ----- -------- ------- -------- -------
Net interest income (1) $1,837 $170 $1,667 $ 1,427 ($182) $ 1,609
======== ===== ======== ======= ======== =======
- ----------------------------------------
(1) Excludes loan fees.
</TABLE>
II. Investment Portfolio
Total investment securities at December 31, 1999 totaled $88.0 million, an
increase of $16.7 million, or 23.5%, from the same period-ended 1998. The
source of investment portfolio growth was primarily from overnight, short-term
fed funds, since loan growth kept up at an even pace with deposit growth. The
portfolio mix underwent changes in 1999 and by year-end, U.S. Treasury
Securities and other U.S. Government securities comprised 34.1% versus 28.1% of
the portfolio at year-end 1998. At the same analyzed year-end periods,
municipal securities decreased from 33.2% in 1998 to 23.2% in 1999 and other
securities, that is, bank investment grade corporate bonds, increased from 38.7%
to 42.7% of the portfolio. The change of mix in 1999 to a greater percentage of
holdings in corporate bonds and government agency securities was made within
investment policy guidelines and was done to preserve overall portfolio yields.
The Bank continues to hold only securities characterized as "straight bullets"
or callable securities, and all are classified as held-to-maturity. The Bank
continues to hold no mortgage-backed securities, no collateralized mortgage
obligations, no structured notes or other securities of a more risky nature.
Total investment securities at December 31, 1998 totaled $71.3 million, an
increase of $7.6
31
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
million, or 12.0% from the same period ended 1997. Investment portfolio growth
resulted from funds available after the $32.3 million, or 13.7%, increase in
total deposits funded the $15.9 million, or 9.2%, increase in total loans. The
portfolio mix shifted somewhat by year-end 1998, compared to the same period
ended 1997, with U.S. Treasury Securities comprising 2.8% in 1998 versus 8.6% in
1997, and other securities, that is, bank investment grade corporate bonds,
comprising 27.0% in 1997 versus 38.7% in 1998. This movement reflected the
particular flattening of the treasury yield curve in 1998. This movement in 1998
to a greater percentage of holdings in corporate bonds was made within
investment policy guidelines.
The following table sets forth a detailed analysis of the investment portfolio.
Dollar figures listed in the five columns under the "book value" heading of the
table indicate the sum of securities maturing or callable, whichever comes
first, within the time period specified.
Investment Securities
---------------------
(in thousands)
<TABLE>
<CAPTION>
Due in After One After Five Due Weighted
One Year Years After Average Weighted
Year Through Through Ten Market Life Average
Or Less Five Years Ten Years Years Total Value (Years) Yield/6/
----------- ------------ ----------- --------- ------------ ------------ -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1999
U.S. Treasury $ 998 $ - $ - $ - $ 998 $ 998 0.84 6.00%
U.S. Government
agencies 29,006 - - - 29,006 27,933 4.87 6.10%
States and
political
subdivisions 8,210 8,782 3,413 - 20,405 20,592 4.81 7.97%
Corporate Notes 13,032 20,455 4,121 - 37,608 36,390 4.32 6.49%
------- --------- -------- --------- --------- ---------
Total $51,246 $29,237 $7,534 $ - $88,017 $85,913 4.58 6.70%
======= ========= ======== ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Book Market
Value Value
--------------- ----------------
<S> <C> <C>
December 31, 1998
U.S. Treasury $ 1,998 $ 2,024
U.S. Government agencies 18,031 18,127
States and political subdivisions 23,692 24,549
Corporate Notes 27,548 27,773
--------- ---------
Total $ 71,269 $ 72,473
========= =========
December 31, 1997
U.S. Treasury $ 5,488 $ 5,496
U.S. Government agencies 16,067 16,122
States and political subdivisions 24,896 25,824
Corporate Notes 17,169 17,329
--------- ---------
Total $ 63,620 $ 64,771
========= =========
</TABLE>
III. Loan Portfolio
- -----------------
/6/ December 31, 1999, book-value-weighted, tax-equivalent yield.
32
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
Loan demand was virtually flat through mid-year 1999, modest in the third
quarter 1999, and very strong in the final three months. As was the case in
1998, by far the most significant loan increases were those loans secured by
commercial real estate, increasing $21.2 million, or 26.4%, for the year ended
December 31, 1999. Construction and land development loans, which grew $3.0
million, or 76.4%, also experienced its most significant growth in the fourth
quarter. The continued strong economy of Santa Clara County and the Bank's
renewed marketing focus on small-to-medium sized businesses, fueled most of the
growth in loans. Total loans outstanding at December 31, 1999, were $215.1
million, an increase of $26.2 million, or 13.9%, from the same period ended
1998. While most growth for the year was realized in commercial real estate,
construction loans and, to a much less extent, dealer loans, there was nearly no
growth in other loan categories. Loan mix, with the exception of commercial
real estate loans and commercial loans, remained relatively unchanged. Yet, the
mix of commercial loans at year end 1999 compared to 1998 decreased from 29.2%
to 25.8%, while commercial real estate loans grew from 42.5% to 47.2%.
Throughout 1999 the Bank continued to employ stringent credit underwriting
standards and maintained prudent credit policy guidelines pertaining to loan-to-
value ratios of loans secured by real estate.
Total loans outstanding at December 31, 1998, were $188.9 million, an increase
of $15.9 million, or 9.2%, from the same period ended 1997. Significant loan
increases during 1998 as compared to 1997 were in loans to individuals for
household, family and other personal expenditures (primarily dealer automobile
loans) up $2.8 million, or 7.2%. Offsetting this growth was a $2.7 million, or
40.9%, decrease in construction and land development loans and a $1.6 million,
or 20.7%, decrease in revolving, open lines secured by 1-4 family residential
properties as demand decreased for these types of financing. Construction loans
declined due to a general market decline in demand, while the significant
decreases in mortgage rates prompted the Bank to refer residential loans to
brokers rather than meeting the market and boarding long-term, fixed, low-rate
loans.
The average yield on loans decreased 34 basis points to 9.53% from 1998 to 1999.
Loan yields decreased from 1998 to 1999 even though, interestingly, the Bank's
average prime rate actually increased 7 basis points to 8.21% and its average
lending base interest rate increased 3 basis points to 8.40%. Typical of the
industry as a whole, the Bank's net interest margins, with the most significant
earnings component being that of loan interest, continues to be challenged by
competitive pressures. One significant factor for the decreased yields was due
to the dealer loan business where highly competitive pressures drove average
yields down 45 basis points. Additionally, commercial and commercial real
estate loans refinanced at lower rates, due to competition in the later part of
1998, fully impacted yields throughout 1999.
The average yield on loans decreased 32 basis points to 9.87% from 1997 to 1998
as three market rate decreases occurred in 1998. The prime rate decreased from
8.50% to 8.25% to 8.00% to 7.75% on October 7, 1998, October 21, 1998, and
November 25, 1998, particularly affecting commercial and commercial real estate
loan yields.
33
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
The Bank strives to maintain a diverse loan portfolio in which there are no
industry concentrations. The majority of the Bank's customers are individuals
and small-to-medium sized businesses headquartered within Santa Clara County.
The following table presents a detailed analysis of loans outstanding at
December 31, 1999, 1998, 1997, 1996 and 1995.
Loan Portfolio
<TABLE>
<CAPTION>
December 31,
------------
(in thousands)
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loans secured by real estate:
Construction and land development $ 6,944 $ 3,937 $ 6,657 $ 8,993 $ 1,718
Revolving, open lines
Secured by 1-4 family residential properties 6,104 6,129 7,729 7,462 8,300
Other 1-4 family residential properties
Secured by first liens 1,728 2,698 2,392 3,286 4,174
Other 1-4 family residential properties
Secured by junior liens 741 1,081 1,479 1,747 1,844
Secured by multifamily (5 or more)
Residential properties 1,336 1,508 1,619 1,725 2,882
Secured by non-farm nonresidential properties 101,493 80,298 64,904 52,055 49,961
Commercial and industrial loans 55,519 55,181 53,741 45,283 36,172
Credit card and related plans 267 281 322 398 435
Loans to individuals for household, family and
Other personal expenditures 42,842 41,182 38,403 38,115 34,200
Overdrafts 95 234 176 44 95
---------- ---------- ---------- ---------- ----------
217,069 192,529 177,422 159,108 139,781
Less deferred loan fees 260 51 0 0 0
Less unearned discount 1,736 3,585 4,429 4,755 4,322
---------- ---------- ---------- ---------- ----------
Total $215,073 $188,893 $172,993 $154,353 $135,459
========== ========== ========== ========== ==========
</TABLE>
The following table shows the Bank's loan maturities/7/ as of December 31, 1999.
- -----------------
/7/ Excluding non-accrual loans.
34
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
<TABLE>
<CAPTION>
Maturing
Maturing After One Maturing
Within One But Within After Five
Year Five Years Years Total
----------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Commercial $ 25,731 $ 8,346 $ 16,775 $ 50,852
Real estate 7,507 31,674 78,362 117,543
Installment loans 1,495 41,155 3,501 46,151
Other 361 - - 361
--------- --------- --------- ----------
35,094 81,175 98,638 214,907
========= ========= ========= ==========
With predetermined interest rates 4,249 76,239 79,069 159,557
With floating interest rates 30,845 4,936 19,569 55,350
--------- --------- --------- ----------
$ 35,094 $ 81,175 $ 98,638 $ 214,907
========= ========= ========= ==========
</TABLE>
The strongest trends, from a lending perspective, over the past three to four
years have been with regard to increased small business and commercial real
estate borrowings. The local and national economies have been strong. Interest
rates have been relatively stable and are well below prior periods despite
recent increases. The booming economy has also increased residential
construction loans and term take-outs.
From the three years beginning in 1997 through the end of 1999, Bank of Santa
Clara has seen a $49.4 million, or 95.0%, increase in commercial real estate
loans, a $10.2 million, or 22.6%, increase in commercial loans and a $4.7
million, or 12.4%, increase in consumer loans. The aforementioned growth
patterns have had some impact on the Bank's loan mix but percentages by type of
loans are still within the Bank's guidelines. The Bank's policies allow for a
10% variance up or down in any one category.
IV. Summary of Loan Loss Experience
Provision and Allowance for Loan Losses
The Bank has the responsibility of assessing the overall risks in its loan
portfolio, assessing the specific loss expectancy, and testing the adequacy of
the loan loss reserve. The level of reserves is determined by internally
generating credit quality ratings, reviewing economic conditions in the Bank's
market area, and by considering the Bank's historical loan loss experience. The
Bank is committed to maintaining adequate reserves, identifying credit
weaknesses by consistent review of loans, and maintaining the ratings and
changing those ratings in a timely manner as circumstances change.
The allowance for loan losses totaled $2,303,713, $1,837,813 and $1,733,695 at
December 31, 1999, 1998, and 1997, respectively. This represented 1.07%, 0.97%
and 1.00% of outstanding loans on those respective dates. The balances in the
allowance reflected amounts,
35
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
which in management's judgement, were adequate to provide for potential loan
losses based on the considerations listed above. During 1999, the provision for
loan losses was $675,000 while net write-offs totaled $209,000 compared to a
provision for loan losses of $600,000 and net write-offs of $496,000 in 1998,
and a provision for loan losses of $800,000 and net write-offs of $289,000 in
1997.
The following table presents the relationship of the reserve to the loan
portfolio for the periods ended December 31, 1999, 1998, 1997, 1996 and 1995.
Allocation of the Allowance for Loan Losses
(in thousands, except percentages)
<TABLE>
<CAPTION>
Period Ended December 31,
--------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------------------- --------------------- --------------------- ----------------------------------
Percent Percent Percent Percent Percent
of loans of loans of loans of loans of loans
in each in each in each in each in each
category category category category category
to total to total to total to total to total
Amount loans Amount loans Amount loans Amount loans Amount loans
--------- ------------ --------- ----------- --------- ----------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 546 25.5% $ 479 28.6% $ 479 30.2% $ 847 28.4% $ 235 25.8%
Real estate-
construction 90 3.1% 38 2.0% 69 3.7% 18 5.6% 14 1.2%
Real estate-mortgage 1,104 51.5% 823 47.8% 690 44.2% 114 41.8% 439 48.2%
Loans to individuals 564 19.9% 498 21.6% 496 21.9% 244 24.2% 354 24.8%
--------- ------------ --------- ----------- --------- --------------------- ----------- --------- ----------
Total $2,304 100.0% $1,838 100.0% $1,734 100.0% $1,223 100.0% $1,042 100.0%
========= ============ ========= =========== ========= =========== ========= =========== ========= ==========
</TABLE>
36
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
The following table summarizes transactions in the allowance for loan losses and
details the charge-offs, recoveries, and net loan losses by loan category for
the last five fiscal years.
<TABLE>
<CAPTION>
Allowance for Loan and Lease Losses
Historical Analysis
Year Ended December 31,
-----------------------
(in thousands)
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Account Activity
Balance at beginning of period $ 1,838 $ 1,734 $ 1,223 $ 1,042 $ 1,175
Provision for loan losses 675 600 800 650 475
Charge-offs:
Real Estate 0 0 0 0 0
Commercial (136) (410) (257) (378) (563)
Consumer (197) (146) (113) (183) (131)
-------- -------- -------- -------- --------
Total Charge-offs (333) (556) (370) (561) (694)
Recoveries:
Real Estate 0 0 5 0 0
Commercial 108 40 49 44 34
Consumer 16 20 27 48 52
-------- -------- -------- -------- --------
Total Recoveries 124 60 81 92 86
-------- -------- -------- -------- --------
Balance at end of period $2,304 $1,838 $1,734 $1,223 $1,042
======== ======== ======== ======== ========
Percentages
Allowance for loan losses / total loans 1.07% 0.97% 1.00% 0.79% 0.77%
Net charge-offs / Avg. real estate loans 0.00% 0.00% 0.01% 0.00% 0.00%
Net charge-offs / Avg. commercial loans -0.06% -0.80% -0.52% -1.05% -1.93%
Net charge-offs / Avg. consumer loans -0.35% -0.25% -0.17% -0.28% -0.18%
</TABLE>
Non-performing Assets
Non-performing assets consist of nonaccrual loans, foreclosed assets and loans
which are 90 days or more past due but are still accruing interest. Loans are
placed on nonaccrual status when, in the judgement of the management of the
Bank, serious doubt exists as to the ability to collect additional interest
within a reasonable period of time.
37
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
The following table provides a summary of nonperforming assets and contractually
past due loans for the most recent five fiscal years. Nonperforming loans
equaled 0.12% of total loans and foreclosed properties at the end of 1999. Non-
performing loans were 0.44% of outstanding loans and foreclosed properties at
the end of 1998 and 0.05% at the end of 1997. Management believes the current
list of past due loans are collectable and does not anticipate any material
losses.
Analysis of Non-performing Assets
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------
(in thousands)
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Accruing loans past due 90 days or $ 88 $244 $93 $ 903 $1,438
more
Non-accrual loans 166 593 0 590 64
Other real estate owned 0 0 0 0 705
---- ---- --- ------ ------
Total $254 $837 $93 $1,493 $2,207
==== ==== === ====== ======
</TABLE>
V. Deposits
In 1999, average total interest-bearing deposits increased by $22.4 million, or
12.7%, over 1998. During this period, average savings balances increased by $5.2
million, or 11.6%. In addition, Money Market account balances increased an
average of $4.0 million, or 13.5%, time certificates of deposit equal to or
greater than $100,000 increased by $7.9 million, or 19.8%, and, non-interest-
bearing deposits increased a healthy $10.9 million, or 13.6%. The broad range
of deposit increases from 1998 through 1999 reflects the Bank's continued focus
on core deposit generation, its competitive savings rates, the effects of
customers seeking higher yielding instruments given relatively lower yields in
other deposit accounts and the effect of a relatively stable deposit interest
rate environment.
In 1998, average total interest-bearing deposits increased by $13.8 million, or
8.5%, over 1997. During this period, average savings balances increased modestly
by $1.1 million, or 2.5%. In addition, Money Market and Super NOW account
balances increased an average of $3.8 million, or 7.3%, time certificates of
deposit equal to or greater than $100,000 increased by $7.5 million, or 22.9%,
and, non-interest-bearing deposits increased $8.6 million, or 12.2%. The broad
range of deposit increases from 1997 through 1998 reflected the Bank's focus on
core deposit generation, its attractive savings rates and the effects of
customers seeking higher yielding instruments given relatively lower yields in
other deposit accounts and the effect of the stable interest rate environment.
Increases in earning assets continue to be funded by growth in the deposit base
which grew, on the average, $33.2 million, or 13.0%, from 1998 to 1999, and
increased $22.4 million, or 9.6%, from 1997 to 1998. The Bank's ongoing
marketing efforts continue to attract small business accounts which are
primarily demand non-interest-bearing accounts. These efforts are evidenced by
average demand deposits increasing $10.9 million, or 13.6%, from 1998 to 1999,
38
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
and in increasing $8.6 million, or 12.2%, from 1997 to 1998.
The Bank's total average cost of total interest-bearing deposits decreased 41
basis points, or 11.6%, to 3.13% from 1998 to 1999 with all classes of deposits
experiencing decreases. Savings, interest-bearing demand and time certificates
of deposit less than $100,000 decreased 46 basis points, or 15.1%, 39 basis
points, or 25.6%, and 47 basis points, or 9.4%, respectively. Money Market and
time certificates of deposit greater than or equal to $100,000 decreased 35
basis points, or 14.9% and 55 basis points, or 10.8%, respectively.
The Bank's total average cost of interest-bearing deposits decreased eight basis
points, or 2.2%, to 3.54% from 1997 to 1998, with individual classes of
deposits, that is, savings, interest-bearing demand and time certificates of
deposit, as well, all showing modest variances in interest cost.
The following table provides deposit average balances and interest rate
information for the periods ending December 31, 1999, 1998 and 1997.
Average Deposits and Average Rates paid for the periods ending December 31,
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------------------------------------------------------------------------------------
Average % of Average % of Average % of
Balance Average Total Balance Average Total Balance Average Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
($000) Rate Deposits ($000) Rate Deposits ($000) Rate Deposits
-------- ------- -------- -------- ------- -------- -------- ------- --------
Super NOW $ 27,312 1.12% 9.5% $ 26,340 1.51% 10.3% $ 22,679 1.54% 9.7%
accounts
Money market 33,614 1.98% 11.6% 29,617 2.33% 11.6% 29,477 2.49% 12.6%
accounts
Time deposits
of
$100,000 or 48,080 4.59% 16.6% 40,150 5.15% 15.7% 32,662 5.29% 14.0%
more
Time deposits
less than 39,111 4.55% 13.5% 34,847 5.02% 13.6% 33,438 5.24% 14.3%
$100,000
Savings 50,368 2.48% 17.4% 45,135 2.94% 17.7% 44,050 2.98% 18.9%
deposits -------- ---- ----- -------- ---- ----- -------- ---- -----
Total interest-
bearing 198,485 3.13% 68.7% 176,089 3.54% 68.9% 162,306 3.62% 69.6%
deposits
Demand deposits 90,445 0.00% 31.3% 79,593 0.00% 31.1% 70,949 0.00% 30.4%
-------- ---- ----- -------- ---- ----- -------- ---- -----
Total Deposits $288,930 2.15% 100.0% $255,682 2.44% 100.0% $233,255 2.52% 100.0%
======== ==== ===== ======== ==== ===== ======== ==== =====
</TABLE>
The following table provides maturity distribution of time certificates of
deposit of $100,000 and over.
39
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
Large Time Deposit Maturities
Analysis of Time Deposits of $100,000 or more at December 31, 1999
------------------------------------------------------------------
<TABLE>
<CAPTION>
Over Six to Twelve
Three Months Over Three Twelve Months or
Total Deposits or Less to Six Months Months Greater
-------------- -------- ------------- ------ ------
<S> <C> <C> <C> <C>
$52,882,189 $32,224,556 $6,474,813 $10,811,309 $3,371,511
</TABLE>
VI. Return on Equity and Assets
The following table shows, for the three year periods ended December 31, 1999,
1998 and 1997, certain key financial operating ratios.
Return on Equity and Assets
Key Financial Ratios (ratios are computed on average balances)
<TABLE>
<CAPTION>
Year Ended December 31,
- -----------------------------------------------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Return on average assets 1.38% 1.39% 1.30%
Return on average equity 15.13% 15.11% 14.22%
Dividend payout ratio 29.59% 29.53% 34.40%
Average equity to average assets ratio 9.23% 9.23% 9.12%
</TABLE>
VII. Short-Term Borrowings
The Bank's short-term borrowings averaged $34,000 for all of 1999. Short-term
borrowings averaged $291,000 in 1998, and $578,000 in 1997. Borrowings in 1997
through 1999 were on the Bank's fed funds lines with its correspondent banks.
Borrowings during the three annual periods of 1999, 1998 and 1997 occurred
during relatively short periods and were primarily due to seasonal patterns
where increased loan demand exceeded deposit growth. Borrowings were incurred
given the short-term nature of the deposit trends during those times and given
that the Bank's investment portfolio is entirely in the held-to-maturity
classification. The Bank continues to maintain fed funds borrowing lines, now
with four correspondent banks.
40
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
Item 8. Financial Statements and Supplementary Data.
The following Financial Statements of the Registrant are included herein, and
are numbered 42 through 66.
A. Report of Independent Certified Public Accountants;
B. Balance Sheets as of December 31, 1999 and 1998;
C. Statements of Earnings for the years ended December 31, 1999, 1998 and 1997;
D. Statement of Shareholders' Equity for the three years ended December 31,
1999;
E. Statements of Cash Flows for the years ended December 31, 1999, 1998 and
1997; and,
F. Notes to Financial Statements - December 31, 1999, 1998 and 1997.
41
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
P A R T III
Item 10. Directors and Principal Officers of the Registrant
The following table sets forth information with respect to the directors and
executive officers of the Bank.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Louis F. Boitano, CPA 77 Director
A. Stanley Chinchen 72 Director
Gerald R. Graham 79 Director
Robert K. Gustke 74 Director
Gary L. Hong 57 Director
Louis J. Mariani 81 Director
Ronald D. Reinartz 61 President and Chief Executive Officer,
Vice Chairman of the Board of Directors
Lawrence S. Santa Maria 63 Senior Vice President and Chief Operating
Officer, and Director
William J. Scilacci 76 Director
Donald R. Von Raesfeld 73 Chairman of the Board of Directors
Thaddeus J. Whalen, Jr. 63 Director
Lester B. Workman 70 Director
James C. Audibert 55 Senior Vice President, Branch Administrator
Eugene Maxwell 58 Senior Vice President, Senior Credit Officer
Judith J. Reinartz 57 Senior Vice President, Administration,
Corporate Secretary
</TABLE>
Louis F. Boitano has been a Director of the Bank since 1973. Mr. Boitano is a
graduate of Santa Clara University where he served as an assistant professor of
accounting for 24 years. He is a member of the Board of Fellows of Santa Clara
University. Mr. Boitano is Managing Partner of Boitano, Sargent & Lawrence, a
certified public accounting firm he established in 1947. He is Chairman of the
Board's Audit/Compliance Committee, and a member of the
42
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
Executive, Investment, Planning, and Personnel Practices Committees. Mr. Boitano
serves on the boards of several non-profit organizations.
A. Stanley Chinchen has been a Director of the Bank since 1973. He is a
graduate of San Jose State University. In 1980 Mr. Chinchen retired from his
management position at Sweetbriar Orchards, a family-owned farming business.
Between 1980 and 1987, Mr. Chinchen was a partner in an auto air conditioning
company. Since 1987 Mr. Chinchen has been managing his personal investments and
has remained active in numerous charitable organizations, especially in
fundraising efforts of such organizations. Mr. Chinchen is Chairman of the
Board's Loan and Discount Committee, and a member of the Executive, Marketing,
Nominating, and Sites Committees. He also serves as a Trustee of the Bank of
Santa Clara Foundation.
Gerald R. Graham has been a Director of the Bank since 1973 and served as Vice
Chairman of the Bank's Board of Directors from 1973 to 1978. He is a graduate
of Santa Clara University with a commercial science degree in accounting. Mr.
Graham has worked in the asphalt contracting business since 1946. In 1955 Reed
& Graham, an asphalt contracting company, was incorporated and he served as
Chairman, President, and Chief Executive Officer from 1972 to May 1996. Mr.
Graham continues to serve as the Chairman of the Board of Reed & Graham, Inc.
Mr. Graham is a member of the Audit/Compliance, Loan and Discount, and Personnel
Practices Committees. He also serves as Trustee of the Bank of Santa Clara
Foundation.
Robert K. Gustke has been a Director of the Bank since 1973 and was the Bank's
organizing Treasurer. He is a graduate of the University of Michigan with a
degree in mechanical engineering. From 1958 to 1972, Mr. Gustke owned and
operated the local Dr. Pepper Bottling Company. Mr. Gustke retired from Palo
Alto Datsun, an automobile dealership, in 1981 which he had owned and operated
since 1974. He has spent the past 16 years managing his family investments and
serving his church and Rotary Club. Mr. Gustke is Chairman of the Board's
Marketing Committee, and a member of the Loan and Discount, Nominating,
Planning, and Audit/Compliance Committees.
Gary L. Hong has been a Director of the Bank since 1993. A graduate of San
Francisco State University, Mr. Hong received his degree in accounting and
served as a staff accountant and management consultant for Tiret and Company,
Certified Public Accountants, from 1964 to 1967. Since 1967, he has served as
Managing Principal of Guesthouse Inn & Suites in Santa Clara. Mr. Hong is
active in many local and statewide travel and tourism boards as well as
charitable and educational organizations. He serves on the Board's Loan and
Discount, Marketing and Audit Committees, and is a Trustee of Bank of Santa
Clara Foundation.
Louis J. Mariani is a Founder of the Bank and has been a Director of the Bank
since 1980. Mr. Mariani has been the owner of Mariani's Inn and Restaurant
since 1953. Now semi-retired, he continues his participation in management of
the Inn, family orchards, and agricultural related interests, including Jack
Mariani Farms. He is a founder and trustee of the Cupertino Educational
Endowment Foundation, and a member of the Board of Fellows of Santa Clara
University. Mr. Mariani serves on the Board's Loan and Discount, Sites, and
Personnel
43
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
Practices Committees. He is Chairman of the Bank of Santa Clara Foundation Board
of Trustees.
Ronald D. Reinartz is the Bank's Vice Chairman, President, and Chief Executive
Officer. He joined the Bank in 1973 as Vice President/Cashier, was promoted to
Executive Vice President in 1981, Chief Executive Officer in 1982, Vice Chairman
in 1985, and President in 1994. Prior to joining the Bank, he worked as Cashier
of Fremont Bank and Redwood Bank. Before moving to California Mr. Reinartz
spent many years as a bank examiner for Norwest Bancorp. He is a member of all
Board Committees except the Audit Committee, and he is Chairman of the Director
Search Committee.
Lawrence S. Santa Maria, a Director since 1994, joined the Bank in 1990 as
Senior Vice President and Chief Financial Officer. Mr. Santa Maria was named
Chief Operating Officer in 1994 and is responsible for the Bank's accounting,
data processing, insurance, investments and security operations. Mr. Santa Maria
began his banking career in 1956 and has held various positions with both major
and independent banks. Prior to his service with the Bank, Mr. Santa Maria held
executive positions with De Anza Bank and Mission Valley Bancorp. Mr. Santa
Maria is a member of the Board's Planning, Investment, Loan and Discount, and
Sites Committees.
William J. Scilacci served as the Bank's Corporate Secretary from 1993 to 1999.
He is a Founder and has served as a Director of the Bank since 1973. Mr.
Scilacci has an engineering degree from Santa Clara University and received an
MBA from Stanford University. From 1982 to 1993, he served as President of the
Bank. Mr. Scilacci is a member of the Board of Regents of Santa Clara
University and is actively involved in a number of community organizations
including Stanford volunteers. He is a member of the Board's Loan and Discount,
Executive, Marketing, Personnel Practices, Nominating and Planning Committees.
Donald R. Von Raesfeld has served as Chairman of the Board of Directors since
January 1994, and has been a Director of the Bank since 1973. Mr. Von Raesfeld
received a degree in engineering from Santa Clara University, and served as City
Manager of Santa Clara for over 25 years. His family had owned a Coast-to-Coast
store for many years, and Mr. Von Raesfeld had taken an active role in
management of the store since retirement from his position as City Manager and
until the business was closed in 1999. Mr. Von Raesfeld is Chairman of the
Board's Executive Committee and is an ex-officio member of all other Committees.
Thaddeus J. Whalen, Jr. has been a Director of the Bank since 1973. Dr. Whalen
is a graduate of Santa Clara University with a Bachelors Degree in Economics and
received his Ph.D. in Economics from the University of California at Berkeley.
He has been a Professor of Economics at Santa Clara University since 1962 and
Associate Dean of the Undergraduate School of Business since 1991. Dr. Whalen
is Chairman of the Personnel Practices and Investment Committees and a member of
the Loan and Discount Committee. He is also a Trustee of the Bank of Santa
Clara Foundation.
44
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
Lester B. Workman was elected to the Board of Directors in 1988. Prior to
moving to California in 1974, he owned and operated a chain of health spas in
Colorado. Since 1974 Mr. Workman has formed and operated limited partnerships
for the purposes of real estate development, and manages his family investments.
Mr. Workman serves as the Chairman of the Bank's Planning and Sites Committees,
and is a member of the Loan and Discount, Marketing, and Investment Committees.
James C. Audibert joined the Bank in 1987 as Vice President and Manager of the
Bank's Main Office. In 1993 he was promoted to Senior Vice President and Branch
Administrator. Mr. Audibert is responsible for the overall supervision of the
Bank's branch offices, and he has oversight responsibilities for the Small
Business Administration loan program and the non-deposit investment (mutual
funds and annuities) program. Mr. Audibert received his degree in Economics
from College of the Holy Cross, and is a graduate of Pacific Coast Banking
School. Prior to joining the Bank, Mr. Audibert spent 12 years at a major
California bank and 3 years at a regional bank.
Eugene Maxwell has served as the Bank's Senior Credit Officer since joining the
Bank in 1985 and as Senior Vice President since 1989. Mr. Maxwell's
responsibilities encompass the entirety of loan administration including
establishing lending policies and procedures, approving lending limits for
subordinate officers, and managing the Bank's allowance for loan loss. Mr.
Maxwell is a graduate of Pacific Coast Banking School and brought 22 years of
banking experience to the Bank. Mr. Maxwell is a member of the Board's Loan and
Discount Committee.
Judith J. Reinartz was hired in 1973 as Assistant Vice President/Assistant
Corporate Secretary, and was an organizing officer of the Bank. She was named
Vice President in 1974, Administrative Vice President in 1980, and Senior Vice
President-Administration in 1989. She was elected Corporate Secretary in 1999.
Among her areas of responsibility are regulatory compliance, including CRA,
consumer and legislative affairs, personnel administration, and shareholder
relations. Prior to joining the Bank, she spent ten years at a major California
bank in personnel training and marketing. Mrs. Reinartz is a graduate of
Pacific Coast Banking School. She is a member of the Board's Personnel
Practices Committee, and Executive Director of the Bank of Santa Clara
Foundation.
Ronald D. Reinartz, President and Chief Executive Officer, and a Director of the
Bank, and Judith J. Reinartz, Senior Vice President/Corporate Secretary, were
married in 1991.
45
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
Item 11. Executive Compensation
Compensation of Directors
All Directors, including Directors who are also employees of the Bank, receive
$1,000 per month as compensation for serving on the Bank's Board of Directors
and committees. Directors do not receive a retainer or any additional fees for
committee membership or attendance at any committee or special Board meetings.
Directors are eligible for grants of non-statutory stock options under the
Bank's Stock Option Plan. See "Stock Option Plan" below.
Compliance with Section 16(a) of the Securities Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the Bank's
executive officers, directors and persons who beneficially own more than 10% of
the Bank's Common Stock to file initial reports of ownership and reports of
changes in ownership with the Federal Deposit Insurance Corporation ("FDIC").
Such persons are required by FDIC regulations to furnish the Bank with copies of
all Section 16(a) forms filed by such persons. To the Bank's knowledge, based
solely on a review of copies of such forms furnished to the Bank and written
representations from certain reporting persons, during the year ended December
31, 1999 all Section 16(a) filing requirements applicable to the Bank's
executive officers, directors and greater than 10% shareholders were complied
with, except for filings of Forms F-8 covering grants of options to executive
officers and directors in 1997 and 1998. Forms F-8 were timely filed upon all
exercises of shares under options.
46
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
Compensation of Executive Officers
The following table shows, for the years ended December 31, 1999, 1998 and 1997,
compensation awarded or paid to, or earned by (i) the Bank's President and Chief
Executive Officer and (ii) its other five most highly compensated executive
officers (the "Named Executive Officers"):
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
---------------
Annual Compensation Securities
------------------- Underlying All Other
Name and Principal Position Year Salary Bonus Other (1) Option(#) Compensation(2)
- ------------------------------ ---- ------ ------------------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ronald D. Reinartz 1999 $188,250 $98,000 $ 8,114 4,000 $35,000 (3)
Vice Chairman, President 1998 $179,167 $85,000 $21,065 5,000 $35,000 (3)
and Chief Executive Officer 1997 $169,333 $75,000 $17,933 5,000 $35,000 (3)
Lawrence S. Santa Maria 1999 $118,625 $33,500 $ 8,364 4,000 $16,133
Senior Vice President, 1998 $112,950 $30,500 $12,927 5,000 $17,828
Chief Operating Officer and 1997 $107,575 $28,000 $ 9,546 5,000 $16,309
Chief Financial Officer
Eugene Maxwell 1999 $111,160 $31,000 $ 4,682 4,000 $14,607
Senior Vice President, 1998 $105,976 $28,500 $12,508 5,000 $14,828
Senior Credit Officer 1997 $101,873 $26,000 $12,408 5,000 $14,046
Judith J. Reinartz 1999 $105,200 $30,000 $ 5,090 4,000 $14,089
Senior Vice President, 1998 $100,400 $28,500 $11,461 5,000 $14,410
Administration 1997 $ 95,644 $26,000 $11,355 5,000 $13,426
James C. Audibert 1999 $ 99,200 $30,000 $ 8,114 4,000 $13,930
Senior Vice President, 1998 $ 94,358 $25,000 $ 9,480 5,000 $14,700
Branch Administrator 1997 $ 89,216 $21,000 $ 6,489 5,000 $13,237
</TABLE>
(1) Consists of non-cash fringe benefits, i.e., depreciation of Bank provided
automobile and value of premiums on group life insurance in excess of
$50,000.
(2) Includes Profit Sharing and 401(k) matching contributions.
(3) Contribution to a non-qualified, deferred compensation program for Mr.
Reinartz's future benefit. Mr. Reinartz did not participate in the Profit
Sharing or 401(k) Plans during the years ended December 31, 1999, 1998 and
1997.
47
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
Stock Option Grants and Exercises
Under the Bank's 1997 Stock Option Plan, options were available for grant to all
officers and employees. In 1999, there were 20,000 options granted to the Named
Executive Officers. None of the options granted in 1999 were available for
exercise in 1999. In 1999, no Named Executive Officers exercised shares. In
1998, options to purchase a total of 25,000 shares were granted to the Named
Executive Officers. In 1998, no Named Executive Officers exercised shares. At
year-ended 1999 and 1998, the Named Executive Officers held outstanding options
(including stock dividends and adjusted for the two-for-one stock split of 1995)
totaling 54,590 shares and 74,590 shares, and exercisable options totaling
14,045 and none, respectively.
The following tables show for the year ended December 31, 1999, certain
information regarding options granted to, exercised by and held at that date by
the Named Executive Officers.
<TABLE>
<CAPTION>
Potential Realizable
Number of % of Total Value at Assumed
Securities Options Individual Grants Annual Rates of
Underlying Granted to --------------------------- Stock Price Appreciation
Granted (2) Employees Exercise Expiration for Option Term (1)
Name (#) During 1999 (%) Price ($) Date 5% 10%
---- --- --------------- --------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Ronald D. Reinartz 4,000 3.73% $19.50 4//20/04 $21,550 $47,620
Lawrence S. Santa Maria 4,000 3.73% $19.50 4//20/04 $21,550 $47,620
Eugene Maxwell 4,000 3.73% $19.50 4//20/04 $21,550 $47,620
Judith J. Reinartz 4,000 3.73% $19.50 4//20/04 $21,550 $47,620
James C. Audibert 4,000 3.73% $19.50 4//20/04 $21,550 $47,620
</TABLE>
(1) Calculated on the assumption that the market value of the underlying
stock increases at the stated values, compounded annually, and that the option
is exercised at the exercise price and sold on the last day of its term at the
appreciated price. These assumptions are based on rules promulgated by the
Securities and Exchange Commission (the "Commission") and do not reflect the
Bank's estimate of future stock price appreciation. Actual gains, if any, on
the stock option exercises and common stock holdings are dependent on the timing
of such exercises and the future performance of the common stock of the Bank.
There can be no assurance that the rates of appreciation assumed in this table
can be achieved or that the amounts reflected will be received by the option
holders. Options granted under the Plan generally have a maximum term of five
years. The total appreciation of the options over their five-year terms at 5%
and 10% is 27.6 and 61.1%, respectively.
(2) Such options vest at the rate of 50% on the second anniversary of the
date of grant and 100% on the third anniversary of the date of grant.
48
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
1999 Year End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Number of Options Held at In-the-Money Options at
Year Shares December 31, 1999 (1) December 31, 1999 (2)
of Acquired on Value ---------------------------- ----------------------------
Name Granting Exercise(1) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ronald D. Reinartz 1999 0 0 0 4,000 $ - $ 54,500
1998 0 0 0 5,000 $ - $ 30,625
1997 0 0 2,500 2,500 $ 37,188 $ 37,188
Lawrence S. Santa Maria 1999 0 0 0 4,000 $ - $ 54,500
1998 0 0 0 5,000 $ - $ 30,625
1997 0 0 2,500 2,500 $ 37,188 $ 37,188
Eugene Maxwell 1999 0 0 0 4,000 $ - $ 54,500
1998 0 0 0 5,000 $ - $ 30,625
1997 0 0 2,500 2,500 $ 37,188 $ 37,188
Judith J. Reinartz 1999 0 0 0 4,000 $ - $ 54,500
1998 0 0 0 5,000 $ - $ 30,625
1997 0 0 2,500 2,500 $ 37,188 $ 37,188
James C. Audibert 1999 0 0 0 4,000 $ - $ 54,500
1998 0 0 0 5,000 $ - $ 30,625
1997 0 0 2,500 2,500 $ 37,188 $ 37,188
</TABLE>
(1) Does not include any accrued stock dividends.
(2) Value is based on the difference between the option exercise price and
the closing price per share of the Bank's Common Stock on the last trade day of
the year ($33.125 per share, the last reported sale price of the Bank's Common
Stock on the Nasdaq Stock Market on December 31, 1999), multiplied by the number
of shares underlying the option.
Stock Option Plan
The Bank's Stock Option Plan (the "Plan") was adopted by the Bank's Board of
Directors and approved by its shareholders in 1997. The Plan is intended to
encourage stock ownership by directors, officers, and key employees. The Plan
expires in February 2007. There are 600,000 shares of common stock reserved for
grants. As of December 31, 1999 there were 319,812 shares reserved for granted,
but unexercised options. Of this total, 74,590 shares are reserved for options
granted to executive officers. The Plan permits the Bank to grant "incentive
stock options" within the meaning of Section 422 of the Internal Revenue Code
and to grant non-statutory stock options. Directors who are not also employees
of the Bank are not eligible for incentive stock options, but may be granted
non-statutory stock options.
49
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
The Plan is administered by a committee of the Board of Directors or a committee
appointed by the Board of Directors which determines the terms of options
granted under the Plan. The exercise price of all options granted under the
Plan must be at least equal to the fair market value of the Bank's Common Stock
on the date of grant. Options expire five years from the date the option is
granted. The Bank cannot grant an incentive stock option if, as a result of the
grant, the optionee would have the right in any calendar year to exercise for
the first time one or more incentive stock options for stock having an aggregate
fair market value (under all plans of the Bank) in excess of $100,000 or any
other maximum aggregate fair market value to be established in the future.
Post-Employment Benefits
In 1976, the Bank purchased insurance policies that provide post-employment
benefits to Mr. Reinartz of $12,000 per year and to Mrs. Reinartz of $8,000 per
year for 10 years after retirement. Should either terminate their employment
with the Bank for reasons other than retirement, he or she will receive a lump-
sum payment based on the cash value of the policy and length of service. The
Bank is the owner and beneficiary of the insurance policies.
401(k) and Profit Sharing Plan
In 1978 , the Board established a Profit Sharing Plan and in 1992 added a 401(k)
component. The Profit Sharing Plan includes all employees meeting certain
eligibility requirements. Pursuant to the 401(k) Plan, eligible employees may
elect to reduce their current compensation by up to the statutorily prescribed
annual limit ($10,000 in 1999) and have the amount of such reduction contributed
to the 401(k) Plan on the participant's behalf. Participation in the 401(k)
Plan is voluntary. The Bank matches contributions by participants to the 401(k)
Plan at the rate of $.25 for each $1.00 contributed, up to a maximum match of 3%
of the employees annual compensation.
Employees are eligible when they have completed one year of service at a minimum
of 500 hours. Employees vest in Bank contributions at the rate of 20% per year
commencing with their third year of employment. Participants are permitted to
withdraw their contributions in the event of death, disability, separation of
employment, or at normal retirement age.
Contributions to the Plan are based on Bank profits, subject to limitations as
established by law. The Board has added the further provision that in no year
may a contribution to the Plan by the Bank exceed the amount paid to
shareholders through cash and/or stock dividends. As of December 31, 1999, the
Bank has made a contribution in the amount of $505,000 to the Profit Sharing and
401(k) Plan for 1999.
The 401(k) Plan is intended to qualify under Section 401 of the Internal Revenue
Code so that contributions by employees or by the Bank to the 401(k) Plan, and
income earned on plan contributions, are not taxable to employees until
withdrawn from the 401(k) Plan, and so that contributions by the Bank, if any,
will be deductible by the Bank when made.
50
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
Bonus Plan
Discretionary bonuses are authorized by the Board of Directors. Bonuses payable
to officers are determined in the sole discretion of the Board of Directors, and
are based on performance of the Bank.
Deferred Compensation Plan
The Bank has entered into a Deferred Compensation Agreement with Ronald D.
Reinartz which calls for payment of deferred compensation in the event of his
termination of employment with the Bank for any reason, including death,
disability, resignation or firing, with or without cause, or upon his attainment
of retirement age.
Employment Agreements
The Bank has no employment agreements with any of its executive officers.
Compensation Committee Interlocks and Insider Participation
The Board's Personnel Practices Committee serves as its Compensation Committee.
The only Executive Officer of the Bank who also served as a member of the
Compensation Committee during 1999 was Judith Reinartz, Senior Vice President/
Administration and Human Resources Administrator, who participated in
discussions but abstained from voting on any compensation issue affecting
Executive Officers. No inside director served on the Compensation Committee.
Item 12. Security Ownership of Certain Beneficial Owners and Management
No individual or group owned, directly or indirectly, 5% or more of any class of
the Bank's voting securities on December 31, 1999 or as of the date of this
report.
51
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
The following table sets forth certain information regarding beneficial
ownership of the Bank's Common Stock as of December 31, 1999, by: (i) each of
the Bank's directors; (ii) each of the executive officers named in the Summary
Compensation Table in Item 10 - Management Compensation and Transactions, below
(the "Named Executive Officers"); and (iii) all of the Bank's directors and
executive officers as a group. Unless otherwise indicated, each person or
entity named below has sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by such person or entity,
subject to community property laws where applicable.
<TABLE>
<CAPTION>
Security Ownership of Directors and Management
Beneficial Ownership
------------------------------------------------------------
Number of Shares
--------------------------------------------
Options Percent
Owned Exercisable of
(1) (2) (3) Total Total
---------- ------------- ---------- --------
<S> <C> <C> <C> <C>
Louis F. Boirano 8,990 6,021 15,011 0.62%
Stanley Chinchen 51,874 8,268 60,142 2.47%
Gerald R. Graham (4) 14,610 8,268 22,878 0.94%
Robert K. Gustke 33,614 8,268 41,882 1.72%
Gary L. Hong 7,136 8,268 15,404 0.63%
Louis J. Mariani 1,136 8,268 9,404 0.39%
Ronald D. Reinartz (5) 81,339 8,268 89,607 3.67%
Lawrence S. Santa Maria 21,700 8,268 29,968 1.23%
William J. Scilacci 22,817 8,268 31,085 1.27%
Donald R. Von Raesfeld (6) 29,809 8,268 38,077 1.56%
Thaddeus J. Whalen, Jr. (7) 21,149 8,268 29,417 1.21%
Lester B. Workman (8) 66,439 8,268 74,707 3.06%
James C. Audibert 13,130 8,268 21,398 0.88%
Eugene Maxwell 13,008 8,268 21,276 0.87%
Judith J. Reinartz (5) - 8,268 8,268 0.34%
------- ------- ------- ------
All Directors and Executive
Officers as a group (15 persons) 386,751 121,773 508,524 20.84%
======= ======= ======= ======
</TABLE>
(1) This table is based upon information supplied by officers, directors and
principal shareholders. Unless otherwise indicated, each person named
below has sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by such person, subject to
community property laws where applicable.
(2) Includes fractional shares, rounded to the nearest whole share, received as
a result of participation in the Bank's Dividend Reinvestment Program.
(3) Option shares exercisable within 60 days of this Form 10-K Report, and
adjusted for 5% stock dividend granted in 1998.
52
<PAGE>
(4) Does not include 17,199 shares held by his wife, to which Mr. Graham
disclaims beneficial ownership.
(5) Ronald D. Reinartz and Judith J. Reinartz, his wife, jointly own shares as
co-trustees of their revocable trust and share voting and investment power
over all 81,339 shares.
(6) Includes 6,302 shares held in the name of DCK Enterprises over which Mr.
Von Raesfeld has sole voting and investment power.
(7) Does not include 3,380 shares held by his wife and 11,358 held by Dr.
Whalen as Trustee under the trust established by the will of his father for
benefit of his mother, both holdings to which Dr. Whalen disclaims
beneficial ownership.
(8) Does not include 32,963 shares held by his wife, to which Mr. Workman
disclaims beneficial ownership.
Item 13. Certain Relationships and Related Transactions
Indebtedness of Directors, Executive Officers, Principal Shareholders and Their
Related Interests
None of the officers or directors of the Bank had or has any material interest
in any transactions to which the Bank was or is a party outside of the ordinary
course of the Bank's business, except as indicated herein.
Some of the Bank's directors, officers and their immediate family, as well as
the companies with which they are associated, are customers of, and have had
banking transactions with the Bank in the ordinary course of the Bank's business
and the Bank expects to have such ordinary banking transactions with such
persons in the future. In the opinion of management of the Bank, all loans and
commitments to lend in such transactions were made in the ordinary course of
business, on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons, and did not involve more than the normal risk of collectability
or present other unfavorable features. Executive officers are prohibited, by
policy, from borrowing from the Bank except on a cash (savings, certificate of
deposit) secured basis. There were no loans outstanding to executive officers
at any time during the last three fiscal years ended December 31, 1999, 1998,
and 1997.
Lester B. Workman, a director of the Bank since 1988, is a real estate developer
and property owner who borrowed from the Bank in 1999 for the purpose of
property improvements and other personal needs. Mr. Workman was indebted to the
Bank during 1999 for two construction loans and three revolving lines of credit.
During 1999, the largest aggregate amount of indebtedness (disbursed and
undisbursed) of Mr. Workman was $985,000, with the largest amount outstanding
being $883,286. As of December 31, 1999, the aggregate amount outstanding was
$709,463.
Reed & Graham, Inc., an asphalt contracting business, and Graham Contracting
were indebted to the Bank during 1999 for various loans. Gerald R. Graham, a
director of the Bank since 1973, holds Board positions with both of these
entities. During 1999, the largest aggregate
53
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
amount of indebtedness (disbursed and undisbursed) of Mr. Graham's businesses
was $4,119,875 (13.13% of the Bank's total equity capital accounts as of
December 31, 1999) with the largest amount outstanding at any time during the
year of $2,379,851. As of December 31, 1999, the aggregate amount outstanding
was $845,783. Interest rates on the loans at the time made were at rates
prevalent in the market for such loans.
At December 31, 1999, the aggregate amount of indebtedness of all extensions of
credit (disbursed and undisbursed) to all directors, principal shareholders and
their related interests was $4,831,783 and at the same period ended 1998 and
1997 was $5,763,607 and $5,481,000, respectively.
Transactions with Management
There were no material transactions during the Bank's last three fiscal
years, nor are there any proposed material transactions between the Bank and any
of the Bank's directors, executive officers, or beneficial owners of five
percent or more of the Common Stock, or the immediate family or associates of
any of the foregoing persons.
P A R T IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. and 2.
The financial statements and supplementary data contained in Item 8 of this
report are filed as part of this report.
All schedules are omitted because of the absence of conditions under which
they are required or because the required information is included in the
financial statements or related notes.
(a) 3.
Exhibits are listed in the Index to Exhibits beginning on page 79 of this
report
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the quarter ended
December 31, 1999.
54
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
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.
Registrant - Bank of Santa Clara
By: /s/ Ronald D. Reinartz Dated: March 21, 2000
- ----------------------------------- --------------
Ronald D. Reinartz
Vice Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated:
By: /s/ Louis F. Boitano Dated: March 21, 2000
- ----------------------------------- --------------
Louis F. Boitano, Director
By: /s/ A. Stanley Chinchen Dated: March 21, 2000
- ----------------------------------- --------------
A. Stanley Chinchen, Director
By: /s/ Gerald R. Graham Dated: March 21, 2000
- ----------------------------------- --------------
Gerald R. Graham, Director
By: /s/ Robert K. Gustke Dated: March 21, 2000
- ----------------------------------- --------------
Robert K. Gustke, Director
By: /s/ Gary L. Hong Dated: March 21, 2000
- ----------------------------------- --------------
Gary L. Hong, Director
By: /s/ Louis J. Mariani Dated: March 21, 2000
- ----------------------------------- --------------
Louis J. Mariani, Director
By: /s/ Donald R. Von Raesfeld Dated: March 21, 2000
- ----------------------------------- --------------
Donald R. Von Raesfeld
Director and Chairman of the Board
55
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
SIGNATURES
----------
By: /s/ Ronald D. Reinartz Dated: March 21, 2000
- ----------------------------------- --------------
Ronald D. Reinartz
Vice Chairman, President and
Chief Executive Officer
By: /s/ Lawrence S. Santa Maria Dated: March 21, 2000
- ----------------------------------- --------------
Lawrence S. Santa Maria
Senior Vice President,
Chief Operating Officer and Director
By: /s/ William J. Scilacci Dated: March 21, 2000
- ----------------------------------- --------------
William J. Scilacci, Director
By: /s/ Donald H. Soman Dated: March 21, 2000
- ----------------------------------- --------------
Donald H. Soman
Vice President and Controller
By: /s/ Thaddeus John Whalen, Jr. Dated: March 21, 2000
- ----------------------------------- --------------
Thaddeus John Whalen, Jr., Director
By: /s/ Lester B. Workman Dated: March 21, 2000
- ----------------------------------- --------------
Lester B. Workman, Director
56
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
1.1 Articles of Incorporation /1/
1.2 Bylaws of the Bank/1/
1.3 Certificate of Amendment of Articles of Incorporation of the Bank dated
March 20, 1979/1/
1.4 Certificate of Amendment of Articles of Incorporation of the Bank dated
July 21, 1982/1/
1.5 Certificate of Amendment of Articles of Incorporation of the Bank Dated
July 15, 1986/1/
1.6 Certificate of Amendment of Articles of Incorporation of the Bank dated
April 17, 1990/1/
1.7 Certificate of Amendment of Articles of Incorporation of the Bank dated
March 14, 1996/1/
2.1 Agreement and Plan of Reorganization by and Among Greater Bay Bancorp, GBB
Merger Corp. and Bank of Santa Clara/4/
3.1 Specimen of Stock Certificate/1/
4.1 Profit Sharing and Salary Deferral 401(k) Plan of the Bank/1/
4.2 Prototype Cash of Deferral-Profit Sharing Plan and Trust/Custodial Account
of the Bank dated February, 1993/1/
4.3 Non-standardized Adoption Agreement Prototype Cash of Deferred Profit-
Sharing Plan and Trust/Custodial Account of the Bank/1/
4.4 Deferred Compensation Agreement dated January 1, 1996 by and between the
Bank and Ronald D. Reinartz/1/
5.1 Stock Option Permit from the State Banking Department of the State of
California to the Bank dated September 24, 1991/1/
- -----------------
/1/ Incorporated by reference to the Company's Registration Statement on Form F-
1, filed with the Federal Deposit Insurance Corporation on August 27, 1996.
/4/ Incorporated by reference to the Company's Form 8-K, filed with the Federal
Deposit Insurance Corporation on February 10, 2000.
57
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
5.2 Bank of Santa Clara 1997 Stock Option Plan/2/
7.1 Construction Management Contract dated December 26, 1995 by and between the
Bank and Nicholson Construction, Inc./1/
7.2 Letter of Intent dated May 14, 1996 between the Bank and Devcon
Construction, Inc./1/
7.3 Standard Form of Agreement between Owner and Architect 1987 Edition dated
December 15, 1995 by and between the Bank and R.J. Huntsberry &
Associates/1/
7.4 Lease for Premises located at 2027, 2029, 2031, 2033 El Camino Real, Santa
Clara California by and between the Bank and Oakland Realty Loan/1/
7.5 Lease for Premises located at 3595 Homestead Road, Santa Clara, California
by and between the Bank and The Estate of Wallace R. Boren, Kenneth S.
Carey, Trustee, Blanche P. Boren, Vernon Davis and Jean Welte dated July
18, 1975/1/
7.6 Lease for Premises located at 854 Old San Francisco Road in the Wolfe-Reed
Shopping Center, Sunnyvale, CA, by and between the Bank and Wolfe-Reed
Shopping Center dated April 6, 1978/1/
7.7 Lease for Premises located at 2779 Aborn Road, San Jose, California by and
between the Bank and SDC-Youngman Properties #2, a general partnership,
dated March 1, 1979. And, Amendment thereto dated October 6, 1981; and
Amendment No. 1 to Declaration of Restrictions and Grants of Easement and
Maintenance of Parking Lot Agreement dated June 5, 1978, by and between
Dillon Real Estate Co., Inc. and Santa Anita Development Corporation dated
April 29, 1980/1/
7.8 Lease for Premises located at 2061 Camden Avenue, San Jose, California by
and between the Bank and Camden Union Partners, a California limited
partnership dated May 14, 1990/1/
7.9 Lease for Premises located at 695 North First Street, San Jose, California
by and between the Bank and Great Western Bank, a Federal Savings Bank,
dated August 4, 1993/1/
7.11 Lease for Premises located at 5010 Old Ironsides Drive, Santa Clara,
California by and between the Bank and TRI/VEST Properties II, a general
partnership dated June 25, 1992/1/
7.12 Lease for land located at 2150 McKee Road, San Jose, California by and
between the
- -----------------
/2/ Incorporated by reference to the Company's Annual Report on Form 10-K, for
fiscal year ended December 31, 1997, dated March 17, 1998, filed with the
Federal Deposit Insurance Corporation on March 26, 1998.
58
<PAGE>
FORM 10-K Bank of Santa Clara December 31, 1999
Bank and Alexian Brothers of San Jose, Inc., a Texas Corporation/2/
7.13 Sublease Agreement (Sunnyvale Sublease) for Premises and Ground Lease for
real property located at 107 East El Camino Real, Sunnyvale, California by
and between the Bank and Washington Mutual Bank, FA, dated July 15,
1998/3/
7.14 Communications Site Lease Agreement, dated March 23, 1999, for roof space,
access, utility easements and interior space between the Bank and Nextel
of California, a Delaware corporation.
- -----------------
/3/ Incorporated by reference to the Company's Annual Report on Form 10-K, for
fiscal year ended December 31, 1998, dated March 16, 1999, filed with the
Federal Deposit Insurance Corporation on March 29, 1999.
59
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Article Five of Greater Bay's articles of incorporation provides that
Greater Bay shall eliminate the liability of its directors for monetary damages
to the fullest extent permissible under California law. Article Five also
provides for the indemnification of agents (as defined in Section 317 of the
California General Corporation Law) of Greater Bay. If agents of Greater Bay
breach a duty to Greater Bay and its shareholders, then Article Five authorizes
Greater Bay, to the extent permissible under California Law, to indemnify such
agents in excess of the indemnification expressly permitted by such Section
317.
Section 317 sets forth the provisions pertaining to the indemnification of
corporate "agents." For purposes of this law, an agent is any person who is or
was a director, officer, employee or other agent of a corporation, or is or was
serving at the request of Greater Bay in such capacity with respect to any
other corporation, partnership, join venture, trust or other enterprise.
Section 317 mandates Greater Bay's indemnification of agents where the agent's
defense is successful on the merits. In other cases, Section 317 allows Greater
Bay to indemnify agents for expenses (including amounts paid to defend, settle
or otherwise dispose of a threatened or pending action) if the indemnification
is authorized by (1) a majority vote of a quorum of Greater Bay's Board of
Directors consisting of directors who are not party to the proceedings; (2)
approval of the shareholders, with the shares owned by the person to be
indemnified not being entitled to vote thereon; or (3) the court in which the
proceeding is or was pending upon application by certain designated parties.
Under certain circumstances, Greater Bay can indemnify an agent even when the
agent is found liable. Section 317 also allows Greater Bay to advance expenses
to its agents for certain actions upon receiving an undertaking by the agent
that he or she will reimburse Greater Bay if the agent is found liable. Greater
Bay has entered into indemnification agreements with its directors and certain
of its officers substantially to the foregoing effect. Greater Bay also
maintains directors and officers liability insurance.
To the extent that indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
Greater Bay, pursuant to the foregoing provisions or otherwise, Greater Bay
understands that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable. If a claim for indemnification against such liabilities (other
than the payment by Greater Bay of expenses incurred or paid by a director,
officer or controlling person of Greater Bay in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, Greater
Bay will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against a public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
Item 21. Exhibits and Financial Statement Schedules
<TABLE>
<CAPTION>
Exhibit No. Exhibit
----------- -------
<C> <S>
2.1 Agreement and Plan of Reorganization by and among Greater Bay
Bancorp, GBB Merger Corp. and Bank of Santa Clara dated January
26, 2000./1/
2.2 Agreement and Plan of Reorganization by and between Greater Bay
Bancorp and Coast Bancorp dated December 14, 1999./2/
2.3 Stock Option Agreement by and between Greater Bay Bancorp and
Coast Bancorp dated December 14, 1999./2/
2.4 Agreement and Plan of Reorganization by and among Greater Bay
Bancorp, DKSS Corp. and Bank of Petaluma dated March 21, 2000./11/
4.1 Rights Agreement./3/
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Exhibit
----------- -------
<C> <S>
4.2 Junior Subordinated Indenture dated as of March 31, 1997 between
Greater Bay Bancorp and Wilmington Trust Company, as Trustee./4/
4.3 Officers' Certificate and Company Order, dated March 31, 1997./4/
4.4 Certificate of Trust of GBB Capital I./5/
4.5 Trust Agreement of GBB Capital I dated as of February 28, 1997./5/
4.6.1 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/
4.6.2 Appointment of Successor Administrative Trustee and First
Amendment to Amended and Restated Agreement./6/
4.7 Trust Preferred Certificate of GBB Capital I./4/
4.8 Common Securities Certificate of GBB Capital I./4/
4.9 Guarantee Agreement between Greater Bay Bancorp and Wilmington
Trust Company, dated as of March 31, 1997./4/
4.10 Agreement as to Expenses and Liabilities, dated as of March 31,
1997./4/
4.11 Form of Subordinated Debentures./7/
4.12 Supplemental Debenture Agreement of Cupertino National Bancorp
dated as of November 22, 1996./5/
4.13 Supplemental Debenture Agreement dated November 27, 1996 between
Cupertino National Bancorp and Mid-Peninsula Bancorp./5/
4.14 Supplemental Debenture Agreement, dated as of March 27, 1997./4/
4.15 Indenture between Greater Bay Bancorp and Wilmington Trust
Company, as Debenture Trustee, dated as of August 12, 1998./8/
4.16 Form of Exchange Junior Subordinated Debentures (filed as Exhibit
A to Exhibit 4.15 hereto).
4.17 Certificate of Trust of GBB Capital II, dated as of May 18,
1998./8/
4.18 Amended and Restated Trust Agreement of GBB Capital II, among
Greater Bay Bancorp, Wilmington Trust Company and the
Administrative Trustees named therein dated as of August 12,
1998./8/
4.19 Form of Exchange Capital Security Certificate (filed as Exhibit A-
1 to Exhibit 4.18 hereto).
4.20 Common Securities Guarantee Agreement of Greater Bay Bancorp,
dated as of August 12, 1998./8/
4.21 Liquidated Damages Agreement among Greater Bay Bancorp, GBB
Capital II, and Sandler O'Neill and Partners, L.P., dated as of
August 7, 1998./8/
4.22 Series B Capital Securities Guarantee Agreement between Greater
Bay Bancorp and Wilmington Trust Company, dated as of November 27,
1998./6/
4.23 Registration Rights Agreement between Greater Bay Bancorp and The
Leo K. W. Lum PRB Revocable Trust dated May 8, 1998./9/
4.24 Securities Purchase Agreement, dated December 21, 1999, between
Greater Bay Bancorp and the investors identified therein./10/
4.25 Registration Rights Agreement, dated December 22, 1999, between
Greater Bay Bancorp and the investors identified therein./10/
4.26 Securities Purchase Agreement, dated March 22, 2000 between
Greater Bay Bancorp and the investors identified therein./12/
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Exhibit
----------- -------
<C> <S>
4.27 Registration Rights Agreement, dated March 23, 2000, between
Greater Bay Bancorp and the investors identified therein./12/
5.1 Opinion of Linda M. Iannone, General Counsel of Greater Bay
Bancorp.
8.1 Opinion of Manatt, Phelps & Phillips, LLP as to certain federal
income tax matters.
23.1 Consent of PricewaterhouseCoopers LLP for Greater Bay Bancorp.
23.2 Consent of Grant Thornton LLP for Bank of Santa Clara.
23.3 Consent of Linda M. Iannone (included in Exhibit 5.1).
23.4 Consent of Manatt, Phelps & Phillips, LLP (included in Exhibit
8.1).
24.1 A power of attorney is set forth on the signature page of the
Registration Statement.
99.1 Form of Bank of Santa Clara Proxy.
</TABLE>
- --------
1. Incorporated by reference from Greater Bay Bancorp's Current Report on Form
8-K filed with the SEC on February 3, 2000.
2. Incorporated by reference from Greater Bay Bancorp's Current Report on Form
8-K filed with the SEC on December 16, 1999.
3. Incorporated by reference from Greater Bay Bancorp's Form 8-A12G filed with
the SEC on November 25, 1998.
4. Incorporated by reference from Greater Bay Bancorp's Current Report on Form
8-K dated June 5, 1997.
5. Incorporated by reference from Greater Bay Bancorp's Registration Statement
on Form S-1 (File No. 333-22783) dated March 5, 1997.
6. Incorporated by reference from Greater Bay Bancorp's Annual Report on Form
10-K filed with the SEC on February 17, 1999.
7. Incorporated herein by reference from Exhibit 1 of Cupertino National
Bancorp's Form 8-K filed with the SEC on October 25, 1995.
8. Incorporated by reference from Greater Bay Bancorp's Current Report on Form
8-K filed with the SEC on August 28, 1998.
9. Incorporated by reference from Greater Bay Bancorp's Current Report on Form
8-K filed with the SEC on May 20, 1998.
10. Incorporated by reference from Greater Bay Bancorp's Current Report on Form
8-K filed with the SEC on December 28, 1999.
11. Incorporated by reference from Greater Bay Bancorp's Current Report on Form
8-K filed with the SEC on March 22, 2000.
12. Incorporated by reference from Greater Bay Bancorp's Current Report on Form
8-K filed with the SEC on March 24, 2000.
Item 22. Undertakings
The undersigned Registrant hereby undertakes as follows:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(a) to include any prospectus required by Section 10(a) (3) of the
Securities Act of 1933, as amended (the "Securities Act");
(b) to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end
II-3
<PAGE>
of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the Calculation
of Registration Fee table in the effective registration statement; and
(c) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(4) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(5) That every prospectus (i) that is filed pursuant to paragraph (4)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a) (3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to this Registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(6) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions of this Item 22, or otherwise,
each of the registrants has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than payment by the registrant
of expenses incurred or paid by a director, officer or controlling person of
such registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, each registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Palo Alto, California,
on April 25, 2000.
Greater Bay Bancorp
/s/ David L. Kalkbrenner
By: _________________________________
David L. Kalkbrenner
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints David L.
Kalkbrenner and Steven C. Smith his or her true and lawful attorneys-in-fact
and agents, each acting alone, with full powers of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any or all Amendments (including Post-Effective
Amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, each acting alone, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ David L. Kalkbrenner President and Chief April 25, 2000
____________________________________ Executive Officer
David L. Kalkbrenner (Principal Executive
Officer)
/s/ Steven C. Smith Executive Vice President, April 25, 2000
____________________________________ Chief Administrative
Steven C. Smith Officer and Chief Financial
Officer (Principal
Financial and Accounting
Officer)
/s/ George R. Corey Director April 25, 2000
____________________________________
George R. Corey
/s/ John M. Gatto Director April 25, 2000
____________________________________
John M. Gatto
/s/ John J. Hounslow Director April 25, 2000
____________________________________
John J. Hounslow
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James E. Jackson Director April 25, 2000
____________________________________
James E. Jackson
/s/ Stanley A. Kangas Director April 25, 2000
____________________________________
Stanley A. Kangas
/s/ Rex D. Lindsay Director April 25, 2000
____________________________________
Rex D. Lindsay
/s/ George M. Marcus Director April 25, 2000
____________________________________
George M. Marcus
/s/ Duncan L. Matteson Director April 25, 2000
____________________________________
Duncan L. Matteson
/s/ Rebecca Q. Morgan Director April 25, 2000
____________________________________
Rebecca Q. Morgan
/s/ Glen McLaughlin Director April 25, 2000
____________________________________
Glen McLaughlin
/s/ Dick J. Randall Director April 25, 2000
____________________________________
Dick J. Randall
/s/ Donald H. Seiler Director April 25, 2000
____________________________________
Donald H. Seiler
/s/ Warren R. Thoits Director April 25, 2000
____________________________________
Warren R. Thoits
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit
----------- -------
<C> <S>
2.1 Agreement and Plan of Reorganization by and among Greater Bay
Bancorp, GBB Merger Corp. and Bank of Santa Clara dated January
26, 2000./1/
2.2 Agreement and Plan of Reorganization by and between Greater Bay
Bancorp and Coast Bancorp dated December 14, 1999./2/
2.3 Stock Option Agreement by and between Greater Bay Bancorp and
Coast Bancorp dated December 14, 1999./2/
2.4 Agreement and Plan of Reorganization by and among Greater Bay
Bancorp, DKSS Corp. and Bank of Petaluma dated March 21, 2000./11/
4.1 Rights Agreement./3/
4.2 Junior Subordinated Indenture dated as of March 31, 1997 between
Greater Bay Bancorp and Wilmington Trust Company, as Trustee./4/
4.3 Officers' Certificate and Company Order, dated March 31, 1997./4/
4.4 Certificate of Trust of GBB Capital I./5/
4.5 Trust Agreement of GBB Capital I dated as of February 28, 1997./5/
4.6.1 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/
4.6.2 Appointment of Successor Administrative Trustee and First
Amendment to Amended and Restated Agreement./6/
4.7 Trust Preferred Certificate of GBB Capital I./4/
4.8 Common Securities Certificate of GBB Capital I./4/
4.9 Guarantee Agreement between Greater Bay Bancorp and Wilmington
Trust Company, dated as of March 31, 1997./4/
4.10 Agreement as to Expenses and Liabilities, dated as of March 31,
1997./4/
4.11 Form of Subordinated Debentures./7/
4.12 Supplemental Debenture Agreement of Cupertino National Bancorp
dated as of November 22, 1996./5/
4.13 Supplemental Debenture Agreement dated November 27, 1996 between
Cupertino National Bancorp and Mid-Peninsula Bancorp./5/
4.14 Supplemental Debenture Agreement, dated as of March 27, 1997./4/
4.15 Indenture between Greater Bay Bancorp and Wilmington Trust
Company, as Debenture Trustee, dated as of August 12, 1998./8/
4.16 Form of Exchange Junior Subordinated Debentures (filed as Exhibit
A to Exhibit 4.15 hereto).
4.17 Certificate of Trust of GBB Capital II, dated as of May 18,
1998./8/
4.18 Amended and Restated Trust Agreement of GBB Capital II, among
Greater Bay Bancorp, Wilmington Trust Company and the
Administrative Trustees named therein dated as of August 12,
1998./8/
4.19 Form of Exchange Capital Security Certificate (filed as Exhibit A-
1 to Exhibit 4.18 hereto).
4.20 Common Securities Guarantee Agreement of Greater Bay Bancorp,
dated as of August 12, 1998./8/
4.21 Liquidated Damages Agreement among Greater Bay Bancorp, GBB
Capital II, and Sandler O'Neill and Partners, L.P., dated as of
August 7, 1998./8/
4.22 Series B Capital Securities Guarantee Agreement between Greater
Bay Bancorp and Wilmington Trust Company, dated as of November 27,
1998./6/
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Exhibit
----------- -------
<C> <S>
4.23 Registration Rights Agreement between Greater Bay Bancorp and The
Leo K. W. Lum PRB Revocable Trust dated May 8, 1998./9/
4.24 Securities Purchase Agreement, dated December 21, 1999, between
Greater Bay Bancorp and the investors identified therein./10/
4.25 Registration Rights Agreement, dated December 22, 1999, between
Greater Bay Bancorp and the investors identified therein./10/
4.26 Securities Purchase Agreement, dated March 22, 2000 between
Greater Bay Bancorp and the investors identified therein./12/
4.27 Registration Rights Agreement, dated March 23, 2000, between
Greater Bay Bancorp and the investors identified therein./12/
5.1 Opinion of Linda M. Iannone, General Counsel of Greater Bay
Bancorp.
8.1 Opinion of Manatt, Phelps & Phillips, LLP as to certain federal
income tax matters.
23.1 Consent of PricewaterhouseCoopers LLP for Greater Bay Bancorp.
23.2 Consent of Grant Thornton LLP for Bank of Santa Clara.
23.3 Consent of Linda M. Iannone (included in Exhibit 5.1).
23.4 Consent of Manatt, Phelps & Phillips, LLP (included in Exhibit
8.1).
24.1 A power of attorney is set forth on the signature page of the
Registration Statement.
99.1 Form of Bank of Santa Clara Proxy.
</TABLE>
- --------
1. Incorporated by reference from Greater Bay Bancorp's Current Report on Form
8-K filed with the SEC on February 3, 2000.
2. Incorporated by reference from Greater Bay Bancorp's Current Report on Form
8-K filed with the SEC on December 16, 1999.
3. Incorporated by reference from Greater Bay Bancorp's Form 8-A12G filed with
the SEC on November 25, 1998.
4. Incorporated by reference from Greater Bay Bancorp's Current Report on Form
8-K dated June 5, 1997.
5. Incorporated by reference from Greater Bay Bancorp's Registration Statement
on Form S-1 (File No. 333-22783) dated March 5, 1997.
6. Incorporated by reference from Greater Bay Bancorp's Annual Report on Form
10-K filed with the SEC on February 17, 1999.
7. Incorporated herein by reference from Exhibit 1 of Cupertino National
Bancorp's Form 8-K filed with the SEC on October 25, 1995.
8. Incorporated by reference from Greater Bay Bancorp's Current Report on Form
8-K filed with the SEC on August 28, 1998.
9. Incorporated by reference from Greater Bay Bancorp's Current Report on Form
8-K filed with the SEC on May 20, 1998.
10. Incorporated by reference from Greater Bay Bancorp's Current Report on Form
8-K filed with the SEC on December 28, 1999.
11. Incorporated by reference from Greater Bay Bancorp's Current Report on Form
8-K filed with the SEC on March 22, 2000.
12. Incorporated by reference from Greater Bay Bancorp's Current Report on Form
8-K filed with the SEC on March 24, 2000.
<PAGE>
Exhibit 5.1
Greater Bay Bancorp
400 Emerson Street, 3rd Floor
Palo Alto, California 94301
April 25, 2000
Greater Bay Bancorp
2860 West Bayshore Road
Palo Alto, CA 94303
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
As General Counsel of Greater Bay Bancorp (the "Company"), at your
request, I have examined the Registration Statement on Form S-4 (the
"Registration Statement") being filed by the Company with the Securities and
Exchange Commission (the "SEC") in connection with the registration under the
Securities Act of 1933, as amended (the "Securities Act"), of up to 2,505,000
shares of common stock, no par value, of the Company (the "Shares") issuable in
connection with the Agreement and Plan of Reorganization, dated as of January
26, 2000, by and among the Company, Bank of Santa Clara and DKSS Corp. (the
"Agreement").
I have examined such instruments, documents and records which I deemed
relevant and necessary for the basis of my opinion hereinafter expressed. In
such examination, I have assumed the genuineness of all signatures and the
authenticity of all documents submitted to me as originals and the conformity to
the originals of all documents submitted to me as copies.
Based upon the foregoing and the other assumptions contained herein, it
is the opinion of the undersigned that the Shares issuable by the Company
pursuant to the Agreement will be, when issued and delivered in accordance with
the Agreement and the Registration Statement, duly authorized, validly issued,
fully paid and non-assessable.
This opinion is further subject to the following assumptions: (i) the
consideration for the Shares to be issued pursuant to the Agreement will be
received prior to the issuance thereof, (ii) the Shares to be issued pursuant to
the Agreement will be issued in accordance with the terms of the Agreement,
(iii) the Registration Statement will become effective under the Securities Act
prior to the issuance of the Shares under the Agreement and no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or be
pending before the SEC, and (iv) the issuance of the Shares pursuant to the
Agreement will comply with the securities laws of each state or jurisdiction
applicable thereto (other than the Securities Act).
This opinion is issued to you solely for use in connection with the
Registration Statement and is not to be quoted or otherwise referred to in any
financial statements of the Company or
<PAGE>
Greater Bay Bancorp
Page 2
related document, nor is it to be filed with or furnished to any government
agency or other person, without my prior written consent.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement which is being filed by the Company in connection with
the registration of the Shares under the Securities Act.
Very truly yours,
/s/ Linda M. Iannone
Linda M. Iannone
Senior Vice President, General Counsel and Secretary
2
<PAGE>
Exhibit 8.1
[LETTERHEAD OF MANATT, PHELPS & PHILLIPS ATTORNEYS AT LAW]
April 25, 2000 File No: 14359-056
Board of Directors
Greater Bay Bancorp
400 Emerson Street, 3/rd/ Floor
Palo Alto, California 94301
Board of Directors
Bank of Santa Clara
1995 El Camino Real
Santa Clara, California 95050
Re: Material Federal and California Income Tax Consequences of the
Merger of GBB Merger Corp. with and into Bank of Santa Clara
Ladies and Gentlemen:
In accordance with your request, we provide the following
analysis and opinions relating to certain federal and California income tax
consequences of the transaction (the "Merger") whereby GBB Merger Corp., a
California corporation and wholly-owned subsidiary of Greater Bay Bancorp, a
California corporation ("GBB"), will merge with and into Bank of Santa Clara, a
California corporation ("BSC"), pursuant to that certain Agreement and Plan of
Reorganization dated as of January 26, 2000 (the "Agreement"). Immediately after
and as a result of the Merger, BSC shall become a wholly-owned subsidiary of
GBB. Terms used herein have the same meaning as in the Agreement.
In the Merger, GBB Merger Corp. shall be merged with and into BSC
in a statutory merger in accordance with the California General Corporation Law
and the separate corporate existence of GBB Merger Corp. shall cease. BSC shall
be the surviving entity. BSC shall succeed, without other transfer, to all the
rights and property of GBB Merger Corp. and shall be subject to all the debts
and liabilities of GBB Merger Corp. in the same manner as if BSC had itself
incurred them.
Each share of GBB Stock issued and outstanding immediately prior
to the Effective Time of the Merger shall remain an issued and outstanding share
of GBB Stock and shall not be converted or otherwise affected by the Merger.
Subject to the provisions of the Agreement, each share of BSC Stock issued and
outstanding immediately prior to the Effective Time of the Merger, other than
BSC Perfected Dissenting Shares (if any), shall, on and after the Effective Time
of the Merger, be automatically canceled and cease to be an issued and
<PAGE>
MANATT, PHELPS & PHILLIPS, LLP
Board of Directors
April 25, 2000
Page 2
outstanding share of BSC Stock and shall be converted into the right to receive
shares of GBB Stock in a ratio specified in the Agreement.
No fractional shares of GBB Stock shall be issued in the Merger.
In lieu thereof, each holder of BSC Stock who would otherwise be entitled to
receive a fractional share shall receive an amount in cash, rounded to the
nearest hundredth, equal to the product obtained by multiplying (a) the closing
price of GBB Stock reported on the Nasdaq National Market System on the Business
Day immediately preceding the Closing Date times (b) the fraction of the share
of GBB Stock to which such holder would otherwise be entitled. No such holder
shall be entitled to dividends or other rights in respect to any such fraction.
Perfected Dissenting Shares of BSC Stock (if any) which have not
effectively withdrawn or lost their rights under the California General
Corporation Law shall not be converted as described in the foregoing paragraphs,
but shall be entitled to receive such consideration as shall be determined
pursuant to the California General Corporation Law.
Our analysis and the opinions set forth below are based upon the
existence of the facts and conclusions of law above and the facts set forth in
that certain Agreement referred to above, including the exhibits thereto. Our
analysis and opinions are also based on certain representations in the Agreement
and certain written representations to us from GBB and BSC in letters of even
date herewith (each a "Representations Letter"). Our analysis and opinions are
further based on that certain Form S-4 Registration Statement filed with the
Securities and Exchange Commission in connection with the Merger (the "Form S-
4"). The facts and representations contained in the above-referenced documents
are incorporated herein by reference as the operative facts underlying the tax
opinions set forth herein. One of our key assumptions for purposes of this
letter is that the facts and representations set forth in those documents are
accurate on the date of this analysis and remain accurate to the date of the
closing of the Merger and are otherwise true, complete, and correct. Any change
or inaccuracy in such facts or representations may adversely affect our
opinions.
We have acted as special counsel to GBB in connection with the
Merger and are rendering these opinions to GBB and BSC at their request. In
rendering these opinions, we have examined such documents, laws, regulations and
other legal matters as we have considered necessary or appropriate for purposes
of the opinions expressed herein. We have not made any independent investigation
in rendering these opinions other than as described herein. Moreover, we have
never represented BSC either in the Merger or otherwise, and consequently the
opinions expressed herein which relate to BSC and its shareholders are based
solely on the Form S-4 and on BSC's representations made in the Agreements and
in BSC's Representations Letter.
Our opinions are based upon the Internal Revenue Code and the
California Revenue and Taxation Code as of the date hereof and currently
applicable regulations promulgated thereunder (including proposed regulations),
published administrative positions of the California Franchise Tax Board and of
the Internal Revenue Service in revenue rulings and
<PAGE>
MANATT, PHELPS & PHILLIPS, LLP
Board of Directors
April 25, 2000
Page 3
revenue procedures, and judicial decisions. Such legal authorities are all
subject to change, either prospectively or retroactively. No assurance can be
provided as to the effect of any such change upon our opinions. We have
undertaken no obligation to update this letter.
The opinions set forth herein have no binding effect on the
Internal Revenue Service, the California Franchise Tax Board, or the courts. No
assurance can be given that, if contested, a court would agree with the opinions
set forth herein. The opinions set forth herein represent rather our best legal
judgment as to the likely outcome of the issues addressed herein if such issues
were litigated and all appeals exhausted.
In the case of transactions as complex as the Merger, many
federal, state and local income and other tax consequences arise. We have been
asked only to address the issues specifically set forth below. No opinion is
expressed regarding any other issues.
This letter is being issued solely for the benefit of GBB and BSC
and for the benefit of the GBB and BSC shareholders as of the date of the
Merger. Those parties may rely on this letter. It may not be relied upon by any
other person without our prior written consent.
Subject to the foregoing, it is our opinion that the Merger is a
reorganization within the meaning of Section 368(a)(1)(A), as provided in
Section 368(a)(2)(E), of the Internal Revenue Code of 1986, as amended, and for
purposes of Section 24451 of the California Revenue and Taxation Code and shall
not result in the recognition of gain or loss for federal or California income
tax purposes to GBB, GBB Merger Corp., or BSC, nor shall the issuance of the GBB
Stock in the Merger result in the recognition of gain or loss by the holders of
BSC Stock who receive such stock in connection with the Merger. The substitution
of GBB Stock Options for BSC Stock Options pursuant to the Agreement shall not
result in the recognition of any income or gain to the option holder and shall
not disqualify any such options that qualified as incentive stock options
immediately prior to the Merger as incentive stock options immediately after the
Merger. The section titled "Material Federal Income Tax Consequences" in the
Form S-4 accurately summarizes the material federal income tax consequences of
the Merger.
We hereby consent to the filing of this opinion with the
applicable California and federal regulatory agencies with whom such opinion is
required to be filed in connection with the Merger.
Very truly yours,
/s/ Manatt, Phelps & Phillips, LLP
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of our report dated January 31, 2000, relating to the
consolidated financial statements, which appears in the Current Report on Form
8-K filed February 1, 2000. We also consent to the references to us under the
headings "Experts" and "Selected Historical and Pro Forma Financial Data" in
this Registration Statement.
/s/ PricewaterhouseCoopers LLP
San Francisco, California
April 25, 2000
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 20, 2000, accompanying the financial
statements of Bank of Santa Clara appearing in the Annual Report on Form 10-K
of Bank of Santa Clara for the year ended December 31, 1999 contained in the
Registration Statement of Greater Bay Bancorp on Form S-4. We consent to the
use of the aforementioned report in the Registration Statement, and to the use
of our name as it appears under the headings "Selected Historical and Pro Forma
Financial Data" and "Experts."
/s/ GRANT THORNTON LLP
San Jose, California
April 25, 2000
<PAGE>
EXHIBIT 99.1
PROXY
BANK OF SANTA CLARA
SOLICITED BY THE BOARD OF DIRECTORS FOR THE
SPECIAL MEETING OF STOCKHOLDERS
The undersigned shareholder of Bank of Santa Clara (the "Bank") hereby
appoints ______________, ______________ and ________________ and each of them,
the attorney, agent and proxy of the undersigned, with full power of
substitution, to vote all stock of the Bank which the undersigned is entitled
to vote at the Special Meeting of Shareholders of the Bank to be held on
________________ ____, 2000 at _____ A.M. and any adjournments thereof, as
fully and with the same force and effect as the undersigned might or could do
if present, as follows:
1. To approve and adopt the Agreement and Plan of Reorganization dated as
of January 26, 2000 by and among Bank of Santa Clara, Greater Bay Bancorp and
GBB Merger Corp., and the transactions contemplated thereby, including the
merger of GBB Merger Corp. with and into Bank of Santa Clara.
[_] FOR [_] AGAINST [_] ABSTAIN
2. To transact such other business as may properly come before the meeting.
(This proxy will be voted as directed by the shareholder or, if no
instructions are given by the shareholder, the proxy holders will vote "FOR"
the above proposal.)
(Continued and to be signed on other side)
<PAGE>
(Continued from other side)
THE PROXY HOLDERS DESIGNATED BY THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
THE LISTED PROPOSAL. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS AND MAY BE REVOKED PRIOR TO ITS EXERCISE.
- -------------------------------- ---------------------------, 2000
Number of Shares Dated
----------------------
Signature of Shareholder
----------------------
Print Name
----------------------
Signature of Shareholder
----------------------
Print Name
When signing as attorney, executor, officer, administrator, trustee
or guardian, please give full title. If more than on trustee, all
should sign. All joint owners must sign.
I/we do [_] do not [_] expect to attend this meeting.
