<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
<TABLE>
<S> <C>
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
- - ---
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
- - ---
OF THE SECURITIES EXCHANGE ACT OF 1934
</TABLE>
For the transition period from______to_____
Commission file number 0-17901
BAY VIEW CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-3078031
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1840 Gateway Drive, San Mateo, California 94404
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (650) 573-7300
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 the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Common Stock, Par Value $.01 Outstanding at October 31, 1998
(Title of Class) 19,352,498 shares
1
<PAGE>
FORM 10-Q
INDEX
BAY VIEW CAPITAL CORPORATION
----------------------------
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page(s)
- - ------- --------------------- -------
<S> <C> <C>
Item 1. Financial Statements (Unaudited):
Consolidated Statements of Financial Condition................... 4
Consolidated Statements of Operations............................ 5-6
Consolidated Statements of Stockholders' Equity.................. 7
Consolidated Statements of Cash Flows............................ 8-9
Notes to Consolidated Financial Statements....................... 10-14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................... 15-46
Item 3. Quantitative and Qualitative Disclosures About
Market Risk...................................................... 47-50
PART II. OTHER INFORMATION
- - -------- -----------------
Other Information................................................ 51
Signatures....................................................... 52
</TABLE>
2
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements included in this Form 10-Q or in future filings by Bay
View Capital Corporation (the "Company") with the Securities and Exchange
Commission, in the Company's press releases or shareholder communications or in
oral statements made with the approval of an authorized executive officer,
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and are
subject to a number of risks and uncertainties. Any such forward-looking
statements should not be relied upon as predictions of future events. Certain
such forward-looking statements can be identified by the use of forward-looking
terminology such as "believes," "expects," "may," "are expected to," "will,"
"will allow," "will continue," "will likely result," "should," "would be,"
"seeks," "approximately," "intends," "plans," "projects," "estimates," or
"anticipates," or similar expressions or the negative thereof or other
variations thereof or comparable terminology, or by discussions of strategy,
plans or intentions. In addition, all information included herein or therein
with respect to projected results of operations, financial condition, financial
performance or other financial or statistical matters constitutes such forward-
looking statements. Such forward-looking statements are necessarily dependent on
assumptions, data or methods that may be incorrect or imprecise and that may be
incapable of being realized and in some instances are based on consensus
estimates of analysts not affiliated with the Company. In that regard, the
following factors, among others, could cause actual results and other matters to
differ materially from those in such forward-looking statements: increases in
defaults by borrowers and other loan delinquencies; increases in the provision
for loan losses; failure by the Company to realize expected cost savings or
revenue enhancements from the acquisition of America First Eureka Holdings, Inc.
("AFEH"); deposit attrition, customer loss or revenue loss; costs or
difficulties related to the integration of the businesses of the Company and
AFEH and their respective subsidiaries; the Company's ability to sustain or
improve the performance of its subsidiaries; the ability to identify suitable
future acquisition candidates; changes in interest rates which may, among other
things, adversely affect net interest margins, derivative positions and the
level of prepayments on loans and mortgage-backed securities; competition in the
banking, financial services and related industries; government regulation and
tax matters; the outcome of pending or threatened legal or regulatory disputes
and proceedings; credit and other risks of lending and investment activities;
changes in conditions in the securities markets including the value of the
Company's common stock; changes in regional and national business and economic
conditions and inflation; the inability to utilize net operating loss ("NOL")
carryforwards acquired in conjunction with the Company's acquisition of
EurekaBank; and unanticipated effects of Year 2000 on the Company and the
economy. As a result of the foregoing, no assurance can be given as to future
results of operations or financial condition or as to any other matters covered
by any such forward-looking statements, and the Company wishes to caution
investors not to rely on any such forward-looking statements. The Company does
not undertake, and specifically disclaims any obligation, to update any forward-
looking statements, which speak only as to the date made.
3
<PAGE>
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- - -----------------------------
BAY VIEW CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------------- -------------------
(DOLLARS IN THOUSANDS)
ASSETS
Cash and cash equivalents:
<S> <C> <C>
Cash and due from depository institutions $ 34,330 $ 40,885
Interest-bearing deposits and short-term investments 80,526 190,937
---------- ----------
114,856 231,822
Securities available-for-sale:
Investment securities 6,488 5,639
Mortgage-backed securities 14,715 54,402
Securities held-to-maturity:
Investment securities - 5,000
Mortgage-backed securities 558,043 415,859
Loans, net of allowance for loan losses 4,313,342 2,373,113
Investment in operating leased assets, net 126,341 -
Investment in stock of the FHLB of San Francisco 85,802 61,012
Real estate owned, net 3,740 4,146
Premises and equipment, net 25,716 16,164
Intangible assets 135,774 29,507
Other assets 137,557 49,812
---------- ----------
Total assets $5,522,374 $3,246,476
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Customer deposits:
Transaction accounts $1,438,387 $ 553,820
Certificates of deposit 1,791,557 1,123,315
---------- ----------
3,229,944 1,677,135
Advances from the FHLB of San Francisco 1,664,480 1,110,270
Securities sold under agreements to repurchase 60,381 90,134
Subordinated notes, net 99,420 99,372
Senior debentures 50,000 50,000
Other borrowings 5,259 6,200
Other liabilities 31,859 39,738
---------- ----------
Total liabilities 5,141,343 3,072,849
---------- ----------
Stockholders' equity:
Serial preferred stock: Authorized, 7,000,000 shares; Outstanding, none - -
Common stock ($.01 par value): Authorized, 60,000,000 shares;
Issued, 9/30/98 - 20,369,612 shares; 12/31/97 - 15,125,874 shares;
Outstanding, 9/30/98 - 19,586,498 shares; 12/31/97 - 12,070,474 shares 204 151
Additional paid-in capital 250,870 103,052
Retained earnings (substantially restricted) 150,342 141,065
Treasury stock, at cost, 9/30/98 - 783,114 shares;
12/31/97 - 3,055,400 shares (16,556) (66,352)
Accumulated other comprehensive income:
Unrealized loss on securities available-for-sale, net of tax (70) (72)
Debt of Employee Stock Ownership Plan (3,759) (4,217)
---------- ----------
Total stockholders' equity 381,031 173,627
---------- ----------
Total liabilities and stockholders' equity $5,522,374 $3,246,476
========== ==========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
BAY VIEW CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------------------
1998 1997
--------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
Interest income:
Interest on loans $ 91,531 $50,674
Interest on mortgage-backed securities 10,054 8,374
Interest and dividends on investment securities 2,983 2,689
-------- -------
104,568 61,737
Interest expense:
Interest on customer deposits 36,507 18,599
Interest on senior debentures and notes 3,527 1,978
Interest on borrowings 25,270 18,792
-------- -------
65,304 39,369
Net interest income 39,264 22,368
Provision for loan losses 2,754 651
-------- -------
Net interest income after provision for loan losses 36,510 21,717
Noninterest income:
Loan fees and charges 1,500 1,713
Leasing income 3,637 -
Gain on sale of securities, net 655 -
Other income 3,204 861
-------- -------
8,996 2,574
Noninterest expense:
General and administrative 30,246 18,605
Leasing expenses 2,459 -
Real estate owned operations, net (27) (63)
Net losses on real estate 19 42
Amortization of intangible assets 2,864 1,045
-------- -------
35,561 19,629
Income before income tax expense 9,945 4,662
Income tax expense 4,920 1,598
-------- -------
Net income $ 5,025 $ 3,064
======== =======
Basic earnings per share $ 0.25 $ 0.24
======== =======
Diluted earnings per share $ 0.25 $ 0.23
======== =======
Average basic shares outstanding 20,095 12,868
======== =======
Average diluted shares outstanding 20,335 13,189
======== =======
Net income $ 5,025 $ 3,064
Other comprehensive income, net of tax:
Unrealized gain (loss) on securities available-for-sale, net of tax
expense (benefit) of ($608) and $472 for the three months ended
September 30, 1998 and 1997, respectively (862) 652
-------- -------
Comprehensive income $ 4,163 $ 3,716
======== =======
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
BAY VIEW CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS, CONTINUED
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------------
1998 1997
--------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
Interest income:
Interest on loans $257,447 $145,744
Interest on mortgage-backed securities 38,598 26,453
Interest and dividends on investment securities 7,935 7,122
-------- --------
303,980 179,319
Interest expense:
Interest on customer deposits 115,105 56,723
Interest on senior debentures and notes 10,580 4,206
Interest on borrowings 63,753 53,199
-------- --------
189,438 114,128
Net interest income 114,542 65,191
Provision for loan losses 5,114 1,828
-------- --------
Net interest income after provision for loan losses 109,428 63,363
Noninterest income:
Loan fees and charges 4,938 4,617
Leasing income 4,689 -
Gain on sale of securities, net 1,067 925
Other income 8,633 4,364
-------- --------
19,327 9,906
Noninterest expense:
General and administrative 87,218 49,438
Leasing expenses 3,167 -
Real estate owned operations, net (105) (154)
Net recovery of losses on real estate (89) (484)
Amortization of intangible assets 8,475 2,675
-------- --------
98,666 51,475
Income before income tax expense 30,089 21,794
Income tax expense 14,769 8,964
-------- --------
Net income $ 15,320 $ 12,830
======== ========
Basic earnings per share $ 0.76 $ 0.98
======== ========
Diluted earnings per share $ 0.74 $ 0.96
======== ========
Average basic shares outstanding 20,224 13,039
======== ========
Average diluted shares outstanding 20,570 13,355
======== ========
Net income $ 15,320 $ 12,830
Other comprehensive income, net of tax:
Unrealized gain on securities available-for-sale, net of tax
expense of $1 and $105 for the nine months ended
September 30, 1998 and 1997, respectively 2 145
-------- --------
Comprehensive income $ 15,322 $ 12,975
======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
BAY VIEW CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
ADDITIONAL
NUMBER OF COMMON PAID-IN RETAINED TREASURY
SHARES STOCK CAPITAL EARNINGS* STOCK
-------------------------------------------------------------------------
(AMOUNTS AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 15,005 $150 $100,436 $131,324 $(26,497)
Repurchase of common stock (39,855)
Exercise of stock options, including tax benefits 121 1 2,616
Cash dividends declared ($0.34 per share) (4,280)
Unrealized gain, net of tax
Repayment of debt
Net income 14,021
------- ---- -------- -------- --------
Balance at December 31, 1997 15,126 151 103,052 141,065 (66,352)
Issuance of common stock (AFEH acquisition):
From shares held in treasury 65,258
From authorized but unissued shares 5,087 51 144,691
Repurchase of common stock (15,462)
Exercise of stock options, including tax benefits 157 2 3,127
Cash dividends declared ($0.30 per share) (6,043)
Unrealized gain, net of tax
Repayment of debt
Net income 15,320
------- ---- -------- -------- --------
Balance at September 30, 1998 20,370 $204 $250,870 $150,342 $(16,556)
======= ==== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
ON SECURITIES DEBT OF EMPLOYEE TOTAL
AVAILABLE-FOR-SALE, STOCK OWNERSHIP STOCKHOLDERS'
NET OF TAX PLAN EQUITY
------------------ ---------------- -------------
(AMOUNTS AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Balance at December 31, 1996 $(713) (4,638) $200,062
Repurchase of common stock (39,855)
Exercise of stock options, including tax benefits 2,617
Cash dividends declared ($0.34 per share) (4,280)
Unrealized gain, net of tax 641 641
Repayment of debt 421 421
Net income 14,021
----- ------- --------
Balance at December 31, 1997 (72) (4,217) 173,627
Issuance of common stock (AFEH acquisition):
From shares held in treasury 65,258
From authorized but unissued shares 144,742
Repurchase of common stock (15,462)
Exercise of stock options, including tax benefits 3,129
Cash dividends declared ($0.30 per share) (6,043)
Unrealized gain, net of tax 2 2
Repayment of debt 458 458
Net income 15,320
----- ------- --------
Balance at September 30, 1998 $ (70) $(3,759) $381,031
===== ======= ========
</TABLE>
* Substantially restricted
The accompanying notes are an integral part of
these consolidated financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
BAY VIEW CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------------
1998 1997
--------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 15,320 $ 12,830
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Amortization of intangible assets 8,475 2,675
Proceeds from sale of loans held-for-sale - 265,203
Provision for losses on loans and real estate owned 5,025 1,904
Depreciation and amortization of premises and equipment 4,979 1,706
Amortization of premiums, net of discounts 9,936 3,072
Gain on sale of securities, net (1,067) (875)
Increase in other assets (20,498) (8,536)
Decrease in other liabilities (33,238) (52,712)
Other, net (557) 2,066
--------- ---------
Net cash (used in) provided by operating activities (11,625) 227,333
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash and cash equivalents received (paid) in conjunction with
acquisitions 82,129 (9,930)
Decrease in loans resulting from principal payments,
net of originations 434,764 81,019
Purchases of loans (985,454) (272,076)
Principal payments on mortgage-backed securities 223,411 62,451
Proceeds from sale of mortgage-backed securities available-for-sale 234,080 -
Purchases of mortgage-backed securities held-to-maturity (67,703) -
Proceeds from maturities of investment securities held-to-maturity 5,000 -
Proceeds from sales and maturities of investment securities 2,357 12,792
available-for-sale
Purchases of investment securities (1,956) (5,358)
Proceeds from sale of real estate owned 3,310 7,714
Net additions to premises and equipment (10,356) (8,504)
Increase in stock of FHLB of San Francisco (4,227) (9,036)
--------- ---------
Net cash used in investing activities (84,645) (140,928)
--------- ---------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
BAY VIEW CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------------------
1998 1997
----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposits (459,834) (139,915)
Proceeds from advances from FHLB of San Francisco 4,312,700 4,460,532
Repayment of advances from FHLB of San Francisco (3,814,490) (4,413,502)
Issuance of subordinated notes, net of discount - 99,350
Proceeds from securities sold under agreements to repurchase 352,511 444,629
Repayment of securities sold under agreements to repurchase (382,264) (516,657)
Decrease in other borrowings (10,941) (9,551)
Proceeds from issuance of common stock 3,127 1,164
Repurchase of common stock (15,462) (27,564)
Dividends paid (6,043) (3,073)
----------- -----------
Net cash used in financing activities (20,696) (104,587)
----------- -----------
Net decrease in cash and cash equivalents (116,966) (18,182)
Cash and cash equivalents at beginning of period 231,822 106,828
----------- -----------
Cash and cash equivalents at end of period $ 114,856 $ 88,646
=========== ===========
Supplemental disclosures:
Interest paid $ 195,377 $ 113,976
Income taxes paid $ - $ 7,463
Supplemental non-cash investing and financing activities:
Loans transferred to real estate owned $ 4,203 $ 8,252
Loans transferred from held-for-sale to held-for-investment $ - $ 152,357
The acquisition of subsidiaries involved the following:
Common stock issued $ 210,000 $ -
Fair value of liabilities assumed 2,103,341 13,358
Fair value of assets acquired, excluding cash and cash equivalents (2,128,109) (1,986)
Goodwill (103,103) (21,302)
----------- -----------
Net cash and cash equivalents received (paid) $ 82,129 $ (9,930)
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
9
<PAGE>
BAY VIEW CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements
include the accounts of Bay View Capital Corporation (the "Company"), a Delaware
corporation operating as a diversified financial services company. Its business
activities are concentrated in three principal areas. Bay View Bank ("BVB"), a
California corporation and a federally chartered capital stock savings bank,
comprises the Company's Banking Platform. Bay View Acceptance Corporation
("BVAC"), a Nevada corporation and a subsidiary of BVB, comprises the Company's
Consumer Finance Platform. BVAC operates through its wholly owned subsidiaries,
Bay View Credit ("BVC"), Ultra Funding, Inc. ("Ultra") and LFS-BV, Inc. ("LFS").
Bay View Commercial Finance Group ("BVCFG") (formerly Concord Growth
Corporation), a California corporation and a subsidiary of the Company,
comprises the Company's Commercial Finance Platform. The Company is also the
holding company for Bay View Securitization Corporation ("BVSC"), a Delaware
corporation formed for the purpose of issuing asset-backed securities through a
trust, and Regent Financial Corporation ("Regent"), a California corporation
providing item processing services. All significant intercompany balances and
transactions have been eliminated in consolidation.
The Company completed its acquisition of America First Eureka Holdings,
Inc. ("AFEH") and its wholly owned subsidiary, EurekaBank, a federal savings
bank, on January 2, 1998. The Company's results for the first nine months of
1998 reflect the acquisition of AFEH, which was accounted for under the purchase
method of accounting.
The information provided in these interim financial statements reflects
all adjustments which are, in the opinion of management, necessary for a fair
presentation of the Company's financial condition as of September 30, 1998 and
December 31, 1997, the results of its operations for the three and nine month
periods ended September 30, 1998 and 1997, and its cash flows for the nine month
periods ended September 30, 1998 and 1997. Such adjustments are of a normal,
recurring nature unless otherwise disclosed in this Form 10-Q. As necessary,
reclassifications have been made to prior period amounts to conform to the
current period presentation. These reclassifications had no effect on the
results of operations or stockholders' equity. These interim financial
statements have been prepared in accordance with the instructions to Form 10-Q,
and therefore do not include all of the necessary information and footnotes for
a presentation in conformity with generally accepted accounting principles.
The information included under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" is written with the
presumption that the users of these interim consolidated financial statements
have read or have access to the Company's 1997 Annual Report on Form 10-K, which
contains the latest audited financial statements and notes thereto, together
with Management's Discussion and Analysis of Financial Condition as of December
31, 1997 and 1996 and Results of Operations for the years ended December 31,
1997, 1996 and 1995. Accordingly, only certain changes in financial condition
and results of operations are discussed in this Form 10-Q. Furthermore, the
interim financial results for the three and nine month periods ended September
30, 1998 are not necessarily indicative of the results that may be expected for
the entire fiscal year or any other interim period.
10
<PAGE>
BAY VIEW CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
NOTE 2 - EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share" ("SFAS 128"). SFAS 128 establishes standards for computing and
reporting earnings per share ("EPS") and applies to entities with publicly held
common stock or financial instruments that are potentially convertible into
publicly held common stock. SFAS 128 replaces primary EPS and fully diluted EPS
with basic EPS and diluted EPS and was effective for the Company's December 31,
1997 consolidated financial statements. Basic EPS is calculated by dividing net
earnings available to common stockholders by the weighted-average number of
common shares outstanding for that period. There is no adjustment to the number
of common shares outstanding for dilutive instruments, such as stock options.
Diluted EPS takes into account the dilutive impact of such instruments and uses
the average share price for the period in determining the number of incremental
shares to add to the weighted-average number of common shares outstanding. All
prior period EPS amounts have been restated to reflect the adoption of SFAS 128.
The following table illustrates the calculation of basic and diluted
earnings per share for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------------------- -----------------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
------------------- ------------------- ------------------- -------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net earnings available to common stockholders $ 5,025 $ 3,064 $15,320 $12,830
Weighted-average common shares outstanding 20,095 12,868 20,224 13,039
Add: Dilutive potential common shares 240 321 346 316
------- ------- ------- -------
Diluted weighted average shares
outstanding 20,335 13,189 20,570 13,355
------- ------- ------- -------
Basic earnings per share $ 0.25 $ 0.24 $ 0.76 $ 0.98
======= ======= ======= =======
Diluted earnings per share $ 0.25 $ 0.23 $ 0.74 $ 0.96
======= ======= ======= =======
</TABLE>
The Company declared a 2 for 1 stock split in the form of a 100% stock
dividend on April 14, 1997 to stockholders of record as of the close of business
on May 9, 1997, which was paid on June 2, 1997. All common share and per share
data, including stock option plan information, has been restated to reflect the
stock split.
NOTE 3 - COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" ("SFAS 130"), which requires that all entities report comprehensive
income and its components in their financial statements. SFAS 130 requires that
all items which are required to be recognized under generally accepted
accounting principles as components of comprehensive income be reported in a
financial statement which is displayed with the same prominence as other
financial statements. Comprehensive income is defined as net income plus the
change in "other comprehensive income," as defined by SFAS 130. The only
component of other comprehensive income currently applicable to the Company is
the net unrealized gain or loss on securities available-for-sale. This
statement was implemented during the first quarter of 1998.
11
<PAGE>
BAY VIEW CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
NOTE 4 - STOCK OPTIONS
The Company has five stock option plans: the "Amended and Restated 1986
Stock Option and Incentive Plan," the "1995 Stock Option and Incentive Plan,"
the "1989 Non-Employee Director Stock Option and Incentive Plan," the "1998-2000
Performance Stock Plan," and the "1998 Non-Employee Director Stock Option and
Incentive Plan" which authorize the issuance of up to 1,759,430 shares,
2,000,000 shares, 550,000 shares, 400,000 shares, and 200,000 shares of the
Company's common stock, respectively. At September 30, 1998, there were
1,148,399 shares available for grant under these plans as illustrated in the
following table:
<TABLE>
<CAPTION>
AMENDED AND 1989 NON- 1998
RESTATED 1995 STOCK EMPLOYEE NON-EMPLOYEE
1986 STOCK OPTION AND DIRECTOR STOCK 1998-2000 DIRECTOR STOCK
OPTION AND INCENTIVE OPTION AND PERFORMANCE OPTION AND
INCENTIVE PLAN PLAN INCENTIVE PLAN STOCK PLAN INCENTIVE PLAN
----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Shares reserved for issuance 1,759,430 2,000,000 550,000 400,000 200,000
Granted (2,048,816) (1,604,500) (570,000) - -
Forfeited 290,074 152,899 20,000 - -
Expired (688) - - - -
----------- ----------- --------- -------- --------
Total available for grant - 548,399 - 400,000 200,000
=========== =========== ========= ======== ========
</TABLE>
At September 30, 1998, the Company had outstanding stock options for all
plans, with expiration dates from the years 1998 through 2008, as follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE AVERAGE
OPTION SHARES RANGE EXERCISE PRICE
--------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Outstanding at December 31, 1997 1,758,400 $ 7.88 - $34.41 $19.70
Granted 335,500 $27.69 - $35.20 $31.40
Exercised (156,101) $ 7.88 - $28.44 $12.25
Forfeited (74,399) $25.50 - $35.20 $28.45
---------- --------------- ------
Outstanding at September 30, 1998 1,863,400 $ 7.88 - $35.20 $22.07
========== =============== ======
</TABLE>
NOTE 5 - DIVIDEND DECLARATION
The Company declared a quarterly cash dividend of $0.10 per share on
September 24, 1998, payable on October 23, 1998 to stockholders of record as of
October 9, 1998. The dividend payable, totaling approximately $2.0 million, was
accrued as of September 30, 1998 and is reflected in the accompanying interim
consolidated financial statements.
NOTE 6 - ACQUISITION OF AMERICA FIRST EUREKA HOLDINGS, INC.
The Company completed its acquisition of America First Eureka Holdings,
Inc. and its wholly owned subsidiary, EurekaBank, a federal savings bank, on
January 2, 1998. Pursuant to the Merger Agreement, the Company paid $90 million
in cash and $210 million in stock (8,076,923 shares of the Company's common
stock, a portion of which were issued from the Company's shares in treasury) to
America First Financial Fund 1987-A Limited Partnership, the sole shareholder of
AFEH, for a total purchase price of $300 million. The number of common shares
issued was based on the average value of the Company's
12
<PAGE>
BAY VIEW CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
common stock for the 20 full trading days ending on the fifth business day prior
to the merger closing date. Based on the average value of the Company's common
stock during this period and pursuant to the Merger Agreement, the number of
common shares issued was determined by dividing the $210 million stock portion
of the purchase price by $26.00 per share.
The acquisition of AFEH was accounted for under the purchase method of
accounting effective January 2, 1998. The amount of goodwill recorded as of the
merger date was approximately $103 million, excluding core deposit intangibles
("CDI") of approximately $12 million. This goodwill, representing the excess of
the purchase price over the fair value of net assets acquired, is being
amortized on a straight-line basis over a 20-year period. This goodwill amount
is subject to the finalization of purchase accounting adjustments, and included
approximately $800,000 in net adjustments during the third quarter of 1998.
The following table illustrates the estimated allocation of the purchase
price:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
------------------------
<S> <C>
Cash paid $ 90,000
Value of common stock issued 210,000
Acquisition costs 4,456
----------
Total purchase price 304,456
Fair value of assets acquired, including CDI 2,304,694
Fair value of liabilities assumed 2,103,341
----------
Net assets acquired 201,353
----------
Purchase price in excess of net assets acquired $ 103,103
==========
</TABLE>
The unaudited pro forma financial information in the table below presents
the combined results of operations of the Company and AFEH for the three and
nine month periods ended September 30, 1997 as if the acquisition of AFEH had
occurred as of January 1, 1997. The pro forma financial information is presented
for informational purposes and is not necessarily indicative of the results of
operations which would have occurred had the Company and AFEH constituted a
single entity during the first nine months of 1997. The pro forma financial
information is also not necessarily indicative of the future results of
operations of the combined company. In particular, the Company expects to
achieve certain cost savings as a result of the acquisition which have not been
included in the pro forma financial information.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1997
-------------------------- --------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Net interest income $ 36,132 $104,339
Provision for loan losses (901) (2,580)
Noninterest income 4,986 17,535
Noninterest expense (32,972) (89,400)
Income tax expense (3,485) (14,397)
-------- --------
Net income $ 3,760 $ 15,497
======== ========
Basic earnings per share $ 0.18 $ 0.73
======== ========
Diluted earnings per share $ 0.18 $ 0.72
======== ========
</TABLE>
13
<PAGE>
BAY VIEW CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
The unaudited pro forma combined net income for the third quarter of 1997
of $3.8 million consists of net income for the Company of $3.1 million and net
income for AFEH of $5.3 million, less pro forma adjustments of $4.6 million. The
unaudited pro forma combined net income for the first nine months of 1997 of
$15.5 million consists of net income for the Company of $12.8 million and net
income for AFEH of $18.0 million, less pro forma adjustments of $15.3 million.
Significant pro forma adjustments include interest expense relating to $100
million in subordinated debt issued in August 1997 in anticipation of the
Company's acquisition of AFEH, amortization expense relating to goodwill and
core deposit intangibles created as a result of the acquisition and additional
income tax expense relating to income taxes that would have been recognized
utilizing the Company's effective income tax rates for the first nine months of
1997, net of the tax impact of the pro forma adjustments. The unaudited pro
forma financial information excludes the utilization of net operating loss
("NOL") carryforwards as the tax benefit associated with the NOL carryforwards
was established as a deferred tax asset as of the acquisition date. As of
January 1, 1997, AFEH had approximately $205 million in NOL carryforwards for
federal tax purposes which expire in various years through 2007.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- - --------------------------------------------------------------------------------
OF OPERATIONS
-------------
STRATEGIC OVERVIEW
The Company is a diversified financial services company which operates
from three distinct business platforms:
. A Banking and Depository Platform ("Banking Platform") which is
comprised primarily of first and second mortgage loans and mortgage-
backed securities.
. A Consumer Finance Platform which is comprised of motor vehicle loans
and leases and high loan-to-value ("HLTV") home equity loans.
. A Commercial Finance Platform which is comprised primarily of asset-
based lending, factoring and commercial leasing activities.
THE COMPANY'S MISSION STATEMENT
To build a diversified financial services company by investing in niche
businesses with risk-adjusted returns that enhance shareholder value.
THE COMPANY'S STRATEGIES
The Company's strategies center around the continued transition to
traditional commercial banking activities and the resulting expansion of its net
interest margin. In order to realize this objective, management is pursuing
strategies that include the following:
. Replacing lower-yielding mortgage loans and mortgage-backed
securities with consumer and commercial loans and leases with higher
risk-adjusted returns, shorter maturities and less sensitivity to
interest rate fluctuations.
. Enhancing BVB's deposit base by reducing higher-cost deposits and
expanding lower-cost transaction accounts by emphasizing relationship
banking and capitalizing on cross-sell opportunities with customers.
. De-emphasizing the less profitable elements of the Company's business
activities including ceasing residential mortgage loan originations
and reducing BVB's wholesale activities.
. Maintaining the capital level of BVB at or above the minimum "well
capitalized" (as defined for bank regulatory purposes) level and
returning any excess capital to the Company.
. Redeploying the Company's excess capital in businesses intended to
generate assets with higher risk-adjusted returns than those
typically provided by mortgage loans and mortgage-backed securities.
Banking Platform Strategies
The Banking Platform is largely represented by the operations of BVB
which has 56 branches serving primarily the San Francisco Bay Area and one
branch serving Southern California. The Banking Platform's strategic focus is to
expand the retail deposit franchise through the growth of "transaction accounts"
(e.g., checking, savings and money market accounts), instead of higher-cost
certificates of deposit, as a source of financing for the Company. As a result,
transaction accounts at BVB as a percentage of total retail deposits increased
to 44.5% at September 30, 1998 as compared with 34.6% and 30.3% at December 31,
1997 and 1996, respectively.
15
<PAGE>
The Company recently announced that it had filed applications with the
Office of the Comptroller of the Currency and the Federal Reserve Board to
convert BVB from a federally chartered savings bank regulated by the Office
of Thrift Supervision ("OTS") to a national bank regulated by the Office of the
Comptroller of the Currency. The Company anticipates that the review process
will be completed during the fourth quarter of 1998.
Consumer Finance Platform Strategies
The Consumer Finance Platform is comprised of motor vehicle loans and
leases underwritten and purchased by BVAC through its subsidiaries BVC, Ultra
and LFS. The platform also includes HLTV home equity loans purchased by the
Company.
BVAC underwrites and purchases high quality, fixed-rate loans and leases
secured by new and used motor vehicles. BVAC has successfully carved out niche
strategies in the increasingly competitive motor vehicle finance industry.
One such niche strategy includes motor vehicle loans where the borrower
desires a higher relative loan amount and/or longer term than is offered by many
other motor vehicle financing sources. In return for the flexibility of the
product it offers, BVAC charges interest rates higher than those typically
offered by traditional sources of motor vehicle financing, such as banks and
captive finance companies, while applying its traditional underwriting criteria
on a case-by-case basis to mitigate any potential loan losses. BVAC also
employs niche strategies in its in-line (i.e., conventional) loan and lease
businesses including geographic and product niches.
Securitization and Sale of Motor Vehicle Loan Portfolio
In January 1997, BVAC sold $253 million of its motor vehicle loan
portfolio to BVSC. The motor vehicle loan portfolio was recorded at its fair
value upon acquisition of BVC in June 1996 assuming that such loans would be
securitized and sold. As a result, the only gain recorded on the securitization
and sale of the loans was related to changes in market interest rates between
the acquisition date of BVC and the subsequent securitization and sale of the
loans. The Company ceased its securitization activities during 1997 in
conjunction with the announcement of the EurekaBank acquisition.
Strategic Alliance
The Company has previously announced a strategic alliance with Lendco for
the purchase of motor vehicle leases. The Company began purchasing motor vehicle
leases from Lendco during April 1998. The agreements with Lendco also provide
the Company with an option to acquire Lendco. The Company continues to evaluate
the viability of such an acquisition.
Commercial Finance Platform Strategies
BVCFG comprises the Company's Commercial Finance Platform. Based in San
Mateo, California and Encino, California, BVCFG is engaged primarily in asset-
based lending, factoring and the purchasing of leases from Signature Financial
Group ("Signature").
In December 1997, the Company announced an expansion of the Commercial
Finance Platform including the formation of a new asset-based lending group
known as Bay View Financial Corporation. Specifically, the Company expanded the
asset-based lending segment of the platform by adding personnel with significant
industry experience, relocating the asset-based lending business to Southern
California, one of the top asset-based lending markets in the country, and
adding new and enhanced products to the Commercial Finance Platform's product
array. This expansion represents a significant step in achieving the Company's
goal of establishing a $200-300 million asset-based lending platform.
16
<PAGE>
Strategic Alliance
The Company has previously announced a strategic alliance with Signature,
a Danville, California-based company specializing in small-ticket equipment
leases nationwide. The Company began purchasing leases from Signature during the
second quarter of 1998. The agreement with Signature also provides the Company
with an option to acquire Signature. The Company continues to evaluate the
viability of such an acquisition.
RESULTS OF OPERATIONS
The Company's results for the first nine months of 1998 reflect the
Company's acquisitions of EurekaBank effective January 2, 1998 and Ultra
effective October 1, 1997. The Company's results for the first nine months of
1997 reflect the Company's acquisition of BVCFG effective April 1, 1997.
Net income for the third quarter of 1998 was $5.0 million, or $0.25 per
diluted share, as compared with $3.1 million, or $0.23 per diluted share, for
the third quarter of 1997. Net income for the first nine months of 1998 was
$15.3 million, or $0.74 per diluted share, as compared with $12.8 million, or
$0.96 per diluted share, for the first nine months of 1997.
NET INTEREST INCOME
Net interest income for the third quarter of 1998 was $39.3 million as
compared with $22.4 million for the third quarter of 1997. Net interest income
for the first nine months of 1998 was $114.5 million as compared with $65.2
million for the first nine months of 1997. The Company's net interest margin
for the third quarter of 1998 was 3.05% as compared with 2.94% for the third
quarter of 1997. The Company's net interest margin for the first nine months of
1998 was 3.00% as compared with 2.84% for the first nine months of 1997. The
increases in net interest income, as compared with the respective prior periods,
were principally a result of the Company's acquisition of EurekaBank, effective
January 2, 1998, as well as continued growth in the Consumer Finance Platform
and the Commercial Finance Platform. The increases in net interest margin, as
compared with the respective prior periods, were principally a result of the
continuing shift from traditional mortgage-based assets to consumer and
commercial assets with higher risk-adjusted yields combined with a decrease in
the Company's funding costs, partially offset by the impact of EurekaBank's
lower-yielding portfolio of mortgage loans.
Consistent with the first half of 1998, the Company continued to
experience a significant level of prepayments on loans (primarily mortgage
loans) and mortgage-backed securities during the third quarter of 1998,
reflecting the recent low interest rate environment. Prepayments (including
normal amortization) during the third quarter of 1998 were approximately $430
million, representing an annualized rate of 32.9%. Prepayments during September
1998 were approximately $130 million, representing an annualized rate of 31.2%.
Prepayments on loans and mortgage-backed securities for the first nine months of
1998 were approximately $1.2 billion, representing an annualized rate of 32.9%.
The impact of prepayments during the first nine months of 1998 was offset by
loan and lease originations and purchases during the period of approximately
$1.5 billion. During the third quarter of 1998, however, loan and mortgage-
backed securities prepayments and sales of securities exceeded loan and lease
originations and purchases and purchases of securities by approximately $190
million. While the Company's loan production remained strong, the level of loan
purchases declined during the third quarter of 1998, reflecting the current
economic environment and a difficulty in identifying assets with sufficient
risk-adjusted yields.
17
<PAGE>
The following tables illustrate net interest income and net interest
margin, by platform, for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED (UNAUDITED)
----------------------------------------------------------------------
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
-------------------------------- ---------------------------------
NET NET NET NET
INTEREST INTEREST INTEREST INTEREST
INCOME MARGIN INCOME MARGIN
-------------- -------------- --------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Banking Platform $25,411 2.43% $16,165 2.35%
Consumer Finance Platform (1) 11,406 5.15 3,749 6.60
Commercial Finance Platform (1) 2,447 12.19 2,454 18.74
------- ----- ------- -----
Total $39,264 3.05% $22,368 2.94%
======= ===== ======= =====
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED (UNAUDITED)
----------------------------------------------------------------------
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
-------------------------------- ---------------------------------
NET NET NET NET
INTEREST INTEREST INTEREST INTEREST
INCOME MARGIN INCOME MARGIN
-------------- -------------- --------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Banking Platform $ 81,198 2.49% $52,332 2.45%
Consumer Finance Platform (1) 26,385 5.22 7,853 5.88
Commercial Finance Platform (1) 6,959 14.05 5,006 19.56
-------- ----- ------- -----
Total $114,542 3.00% $65,191 2.84%
======== ===== ======= =====
</TABLE>
(1) The Consumer Finance Platform was created with the acquisitions of BVC in
June 1996 and Ultra in October 1997. The Consumer Finance Platform began
purchasing HLTV home equity loans in August 1997. The Commercial Finance
Platform was created with the acquisition of BVCFG in April 1997.
As each of the above platforms is funded by the deposits and borrowings
of BVB and the debt of the Company, the cost of funds for each platform is
deemed equal to the consolidated Company's cost of funds in the computation of
net interest income and net interest margin by platform.
The following table illustrates average interest-earning assets, by
platform, for the periods indicated:
<TABLE>
<CAPTION>
(UNAUDITED)
---------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------------------ -----------------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
------------------- ------------------- ------------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Banking Platform $4,228,391 $2,783,617 $4,345,480 $2,835,114
Consumer Finance Platform(1) 886,574 226,115 667,316 176,502
Commercial Finance Platform(1),(2) 79,638 51,957 66,219 34,034
---------- ---------- ---------- ----------
Total average interest-earning assets $5,194,603 $3,061,689 $5,079,015 $3,045,650
========== ========== ========== ==========
</TABLE>
(1) The Consumer Finance Platform was created with the acquisitions of BVC in
June 1996 and Ultra in October 1997. The Consumer Finance Platform began
purchasing HLTV home equity loans in August 1997. The Commercial Finance
Platform was created with the acquisition of BVCFG in April 1997.
(2) The Commercial Finance Platform's average interest-earning asset balance
for the third quarter of 1998 included average asset-based lending
balances of $52.1 million as compared with $36.0 million for the third
quarter of 1997.
18
<PAGE>
Banking Platform
- - ----------------
The Banking Platform's net interest margin for the third quarter of 1998
was 2.43% as compared with 2.35% for the third quarter of 1997. The platform's
net interest margin for the first nine months of 1998 was 2.49% as compared with
2.45% for the first nine months of 1997. The increases in net interest margin,
as compared with the respective prior periods, were primarily due to a decrease
in the Company's funding costs, as discussed elsewhere herein. This improvement
associated with lower funding costs was partially offset, however, by the impact
of EurekaBank's lower-yielding portfolio of mortgage loans which were acquired
by the Company effective January 2, 1998, combined with a $200 million purchase
of lower-yielding mortgage loans in June 1998, primarily to assist BVB in
meeting its Community Reinvestment Act ("CRA") requirements, and the continued
prepayments of higher-yielding mortgage loans and mortgage-backed securities.
Consumer Finance Platform
- - -------------------------
The Consumer Finance Platform's net interest margin for the third quarter
of 1998 was 5.15% as compared with 6.60% for the third quarter of 1997. The
platform's net interest margin for the first nine months of 1998 was 5.22% as
compared with 5.88% for the first nine months of 1997. The decreases in net
interest margin, as compared with the respective prior periods, were due to
lower yields on new auto assets generated, including purchases of lower-yielding
recreational vehicle loans, partially offset by purchases of higher-yielding
HLTV home equity loans and a decrease in the Company's funding costs. While the
Consumer Finance Platform's auto loan yields on new assets originated decreased
during the first six months of 1998, largely due to the impact of the
competitive environment, these loan yields stabilized during the third quarter
of 1998.
During the third quarter of 1998, the Consumer Finance Platform generated
$200 million in motor vehicle loans and leased assets as compared with $91
million during the third quarter of 1997. The totals for the third quarter of
1998 included $117 million in auto loans, with an average Fair Isaac Credit
Bureau ("FICO") score of 702, and $83 million in auto leases, with an average
FICO score of 736. The Company generally considers FICO scores of 680 and higher
as "A-quality" paper.
On June 10, 1998, the Company announced that it had executed a definitive
agreement to acquire PSB Lending Corp. ("PSBL"), an indirect originator of HLTV
home equity loans. On August 27, 1998, the Company announced that it had
cancelled the proposed acquisition of PSBL, due to the Company's federal banking
regulatory agency, the Office of Thrift Supervision, implementing restrictions
on the amount of HLTV home equity loans an insured thrift institution may own.
These restrictions were such that they would prevent the Company from achieving
its original acquisition-related economic assumptions. At September 30, 1998,
the Consumer Finance Platform had approximately $420 million in HLTV home equity
loans as compared with approximately $67 million at December 31, 1997. The
increase in HLTV home equity loans was attributable to $386 million in purchases
during the first nine months of 1998, including approximately $92 million
purchased during the third quarter of 1998, with an average FICO score of 682.
At September 30, 1998, the Company had approximately $60 million in purchase
commitments remaining with PSBL.
Commercial Finance Platform
- - ---------------------------
The Commercial Finance Platform's net interest margin for the third
quarter of 1998 was 12.19% as compared with 18.74% for the third quarter of
1997. The platform's net interest margin for the first nine months of 1998 was
14.05% as compared with 19.56% for the first nine months of 1997. This platform
was created as a result of the Company's acquisition of BVCFG, which was
accounted for under the purchase method of accounting effective April 1, 1997.
The decreases in net interest margin, as compared with the respective prior
periods, were largely the result of growth in the platform's asset-based lending
segment which generates lower risk-adjusted yields relative to the platform's
factoring segment, partially offset by a decrease
19
<PAGE>
in the Company's funding costs. The Commercial Finance Platform's asset-based
lending segment increased from $40 million at December 31, 1997 to over $60
million at September 30, 1998.
AVERAGE BALANCE SHEET
The following tables illustrate certain information relating to the
Company's consolidated statements of financial condition and reflect the average
yields on interest-earning assets and average rates on interest-bearing
liabilities for the periods indicated. Such yields and rates are derived by
dividing interest income or interest expense by the average balances of
interest-earning assets or interest-bearing liabilities, respectively, for the
periods indicated. Average balances of interest-earning assets and interest-
bearing liabilities were calculated by averaging the relevant month-end amounts
for the respective periods.
20
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES, YIELDS AND RATES (UNAUDITED)
----------------------------------------------------------------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
----------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE
----------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
ASSETS
- - ------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $4,373,323 $ 91,531 8.36% $2,377,046 $50,674 8.51%
Mortgage-backed securities (1) 632,638 10,054 6.36 523,049 8,374 6.40
Investment securities (1) 188,642 2,983 6.29 161,594 2,689 6.56
---------- -------- ------ ---------- ------- ------
Total interest-earning assets 5,194,603 $104,568 8.04% 3,061,689 $61,737 8.05%
======== ====== ======= ======
Other assets 398,032 98,376
---------- ----------
Total assets $5,592,635 $3,160,065
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- - ------------------------------------
Interest-bearing liabilities:
Customer deposits $3,287,430 $ 36,507 4.40% $1,591,239 $18,599 4.63%
Borrowings (2) 1,869,790 28,797 6.12 1,320,455 20,770 6.26
---------- -------- ------ ---------- ------- ------
Total interest-bearing liabilities 5,157,220 $ 65,304 5.03% 2,911,694 $39,369 5.37%
======== ====== ======= ======
Other liabilities 46,433 53,058
---------- ----------
Total liabilities 5,203,653 2,964,752
Stockholders' equity 388,982 195,313
---------- ----------
Total liabilities and stockholders' equity $5,592,635 $3,160,065
========== ==========
Net interest income/net interest spread $ 39,264 3.01% $22,368 2.68%
======== ====== ======= ======
Net interest earning assets $ 37,383 $ 149,995
========== ==========
Net interest margin (3) 3.05% 2.94%
====== ======
</TABLE>
(1) Average balances and yields for mortgage-backed securities and investment
securities classified as available-for-sale are based on historical
amortized cost.
(2) Interest expense for borrowings includes interest expense on interest
rate swaps of $407,000 and $533,000 for the three months ended September
30, 1998 and 1997, respectively.
(3) Annualized net interest income divided by average interest-earning
assets.
21
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES, YIELDS AND RATES (UNAUDITED)
------------------------------------------------------------------------------------
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE
-----------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
ASSETS
- - ------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $4,124,300 $257,447 8.33% $2,351,527 $145,744 8.26%
Mortgage-backed securities (1) 787,617 38,598 6.53 545,500 26,453 6.47
Investment securities (1) 167,098 7,935 6.28 148,623 7,122 6.30
---------- -------- ------ ---------- -------- ------
Total interest-earning assets 5,079,015 $303,980 7.98% 3,045,650 $179,319 7.84%
======== ====== ======== ======
Other assets 380,168 65,771
---------- ----------
Total assets $5,459,183 $3,111,421
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- - ------------------------------------
Interest-bearing liabilities:
Customer deposits $3,424,222 $115,105 4.49% $1,638,520 $ 56,723 4.63%
Borrowings (2) 1,577,733 74,333 6.29 1,228,125 57,405 6.23
---------- -------- ------ ---------- -------- ------
Total interest-bearing liabilities 5,001,955 $189,438 5.06% 2,866,645 $114,128 5.32%
======== ====== ======== ======
Other liabilities 68,314 49,411
---------- ----------
Total liabilities 5,070,269 2,916,056
Stockholders' equity 388,914 195,365
---------- ----------
Total liabilities and stockholders' equity $5,459,183 $3,111,421
========== ==========
Net interest income/net interest spread $114,542 2.92% $ 65,191 2.52%
======== ====== ======== ======
Net interest earning assets $ 77,060 $ 179,005
========== ==========
Net interest margin (3) 3.00% 2.84%
====== ======
</TABLE>
(1) Average balances and yields for mortgage-backed securities and investment
securities classified as available-for-sale are based on historical
amortized cost.
(2) Interest expense for borrowings includes interest expense on interest
rate swaps of $1.6 million and $2.1 million for the nine months ended
September 30, 1998 and 1997, respectively.
(3) Annualized net interest income divided by average interest-earning
assets.
22
<PAGE>
INTEREST INCOME
Interest on Loans
Interest on loans was $91.5 million for the third quarter of 1998 as
compared with $50.7 million for the third quarter of 1997. Interest on loans was
$257.4 million for the first nine months of 1998 as compared with $145.7 million
for the first nine months of 1997. The increases in interest on loans, as
compared with the respective prior periods, were largely a result of the
acquisitions of EurekaBank, Ultra and BVCFG, combined with internally generated
platform loan growth.
The following tables illustrate interest on loans, by platform, for the
periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED (UNAUDITED)
------------------------------------------------------------------------------------
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
--------------------------------------- ---------------------------------------
AVERAGE AVERAGE
AMOUNT YIELD AMOUNT YIELD
----------------- ----------------- ----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Banking Platform $65,520 7.69% $41,225 7.83%
Consumer Finance Platform(1) 22,562 10.14 6,326 11.42
Commercial Finance Platform(1) 3,449 17.18 3,123 23.85
------- ----- ------- -----
Total $91,531 8.36% $50,674 8.51%
======= ===== ======= =====
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED (UNAUDITED)
------------------------------------------------------------------------------------
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
--------------------------------------- ---------------------------------------
AVERAGE AVERAGE
AMOUNT YIELD AMOUNT YIELD
----------------- ----------------- ----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Banking Platform $197,035 7.75% $125,644 7.80%
Consumer Finance Platform(1) 50,982 10.20 13,803 10.78
Commercial Finance Platform(1) 9,430 19.04 6,297 24.61
-------- ----- -------- -----
Total $257,447 8.33% $145,744 8.26%
======== ===== ======== =====
</TABLE>
(1) The Consumer Finance Platform was created with the acquisitions of BVC in
June 1996 and Ultra in October 1997. The Consumer Finance Platform began
purchasing HLTV home equity loans in August 1997. The Commercial Finance
Platform was created with the acquisition of BVCFG in April 1997.
Banking Platform
- - ----------------
The Banking Platform's average loan yield for the third quarter of 1998
was 7.69% as compared with 7.83% for the third quarter of 1997. The platform's
average loan yield for the first nine months of 1998 was 7.75% as compared with
7.80% for the first nine months of 1997. The decreases in the platform's average
loan yields, as compared to the respective prior periods, were due to the impact
of EurekaBank's lower-yielding portfolio of mortgage loans which were acquired
effective January 2, 1998, combined with the aforementioned $200 million
purchase of lower-yielding mortgage loans in June 1998 and the continued
prepayments of higher-yielding mortgage loans.
Consumer Finance Platform
- - -------------------------
The Consumer Finance Platform's average loan yield for the third quarter
of 1998 was 10.14% as compared with 11.42% for the third quarter of 1997. The
platform's average loan yield for the first nine months of 1998 was 10.20% as
compared with 10.78% for the first nine months of 1997. The decreases in the
platform's average loan yields, as compared with the respective prior periods,
were due to lower yields on new
23
<PAGE>
auto assets generated, including purchases of lower-yielding recreational
vehicle loans, partially offset by purchases of higher-yielding HLTV home equity
loans. While the Consumer Finance Platform's auto loan yields on new assets
originated decreased during the first six months of 1998, largely due to the
impact of the competitive environment, these loan yields stabilized during the
third quarter of 1998.
Commercial Finance Platform
- - ---------------------------
The Commercial Finance Platform's average loan yield for the third
quarter of 1998 was 17.18% as compared with 23.85% for the third quarter of
1997. The platform's average loan yield for the first nine months of 1998 was
19.04% as compared with 24.61% for the first nine months of 1997. The decreases
in the platform's average loans yields, as compared with the respective prior
periods, were largely the result of growth in the platform's asset-based lending
segment which generates lower risk-adjusted yields relative to the platform's
factoring segment. This platform was created as a result of the Company's
acquisition of BVCFG effective April 1997.
Interest on Mortgage-backed Securities
Interest on the Company's mortgage-backed securities ("MBS") for the
third quarter of 1998 was $10.1 million as compared with $8.4 million for the
third quarter of 1997. Interest on MBS for the first nine months of 1998 was
$38.6 million as compared with $26.5 million for the first nine months of 1997.
The average yield on MBS was 6.36% for the third quarter of 1998 as compared
with 6.40% for the third quarter of 1997. The average yield on MBS was 6.53% for
the first nine months of 1998 as compared with 6.47% for the first nine months
of 1997. The increases in interest on MBS, as compared with the respective prior
periods, were primarily attributable to the acquisition of EurekaBank's MBS
portfolio effective January 2, 1998, partially offset by a high level of MBS
prepayments during the first nine months of 1998. The decrease in the average
yield for the third quarter of 1998, as compared with the third quarter of 1997,
was due to continued prepayments during 1998 of higher-yielding MBS, partially
offset by the benefit associated with the acquisition of EurekaBank's MBS
portfolio, which reflected yields higher than BVB's pre-acquisition MBS
portfolio. The increase in the average yield for the first nine months of 1998,
as compared with the first nine months of 1997, was attributable to EurekaBank's
higher-yielding MBS portfolio.
Interest and Dividends on Investment Securities
Interest and dividends from the Company's investment securities for the
third quarter of 1998 were $3.0 million as compared with $2.7 million for the
third quarter of 1997. Interest and dividends on investment securities for the
first nine months of 1998 were $7.9 million as compared with $7.1 million for
the first nine months of 1997. The average yield on investment securities for
the third quarter of 1998 was 6.29% as compared with 6.56% for the third quarter
of 1997. The average yield on investment securities for the first nine months of
1998 was 6.28% as compared with 6.30% for the first nine months of 1997. The
increases in interest and dividends on investment securities, as compared with
the respective prior periods, were primarily due to the Company's acquisition of
EurekaBank's investment securities portfolio effective January 2, 1998. The
decreases in the average yields, as compared with the respective prior periods,
were primarily due to the impact of the recent interest rate environment.
INTEREST EXPENSE
Interest on Customer Deposits
Interest on the Company's customer deposits was $36.5 million for the
third quarter of 1998 as compared with $18.6 million for the third quarter of
1997. Interest on customer deposits was $115.1 million for the first nine months
of 1998 as compared with $56.7 million for the first nine months of 1997. The
cost of deposits was 4.40% for the third quarter of 1998 as compared with 4.63%
for the third quarter of 1997. The cost of deposits was 4.49% for the first nine
months of 1998 as compared with 4.63% for the first nine months of 1997.
24
<PAGE>
The increases in interest on customer deposits, as compared with the respective
prior periods, were due to the acquisition of EurekaBank's customer deposit
balances effective January 2, 1998, partially offset by a decrease in the
Company's cost of deposits. This decrease in the cost of deposits resulted from
a combination of factors, including an increase in lower-cost transaction
accounts, deposit pricing strategies, the recent interest rate environment, and
the run-off of jumbo and brokered certificates of deposit.
The Company's cost of deposits for September 1998 was 4.38%. This cost
was 52 basis points below the Eleventh District Cost of Funds Index ("COFI") of
4.90% for August 1998, the most recent data available. Transaction account
balances as a percentage of total retail deposits were 44.5% at September 30,
1998 as compared with 34.6% and 30.3% at December 31, 1997 and 1996,
respectively.
The following table summarizes the Company's cost of deposits versus COFI
and the Company's transaction accounts as a percentage of total retail deposits
for the periods indicated:
<TABLE>
<CAPTION>
MONTHS ENDED (UNAUDITED)
------------------------------------------------------------------------------------------
SEPTEMBER 30, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
Cost of deposits 4.38% 4.71% 4.60%
COFI (1) 4.90 4.95 4.84
----- ----- -----
Spread below COFI (0.52%) (0.24%) (0.24%)
===== ===== =====
Transaction accounts as a
percentage of total retail deposits 44.5% 34.6% 30.3%
===== ===== =====
</TABLE>
(1) The COFI numbers represent the cost for the preceding month, the most
recent data available for each reporting period.
While the spread below COFI for the Company's deposits was 52 basis
points for September 1998, the spread for the original Bay View Bank branches,
on a standalone basis, was 78 basis points for September 1998. The cost of
deposits for the original EurekaBank branches, on a standalone basis, was 44
basis points below COFI for September 1998, reflecting EurekaBank's higher
deposit pricing structure. Since the acquisition of EurekaBank effective January
2, 1998, the Company has been successful in reducing the cost of the EurekaBank
deposits, along with the cost of the BVB deposits, consistent with the
Company's overall pricing strategies. The Company expects that the cost of
deposits for the EurekaBank branches should continue to decrease to levels
consistent with the Bay View Bank branches. The following table summarizes the
cost of deposits versus COFI for the Bay View Bank branches and the EurekaBank
branches for the periods indicated:
<TABLE>
<CAPTION>
MONTHS ENDED (UNAUDITED)
------------------------------------------------------------------------------------------
SEPTEMBER 30, 1998 JUNE 30, 1998 MARCH 31, 1998
-------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
Cost of deposits - BVB 4.12% 4.22% 4.41%
Cost of deposits - EurekaBank 4.46% 4.56% 4.66%
COFI (1) 4.90% 4.88% 4.97%
------ ------ ------
Spread below COFI - BVB (0.78%) (0.66%) (0.56%)
====== ====== ======
Spread below COFI - EurekaBank (0.44%) (0.32%) (0.31%)
====== ====== ======
</TABLE>
(1) The COFI numbers represent the cost for the preceding month, the most
recent data available for each reporting period.
Interest on Borrowings
Interest on the Company's borrowings, including senior debentures,
subordinated notes and other borrowings, was $28.8 million for the third quarter
of 1998 as compared with $20.8 million for the third quarter of 1997. Interest
on borrowings was $74.3 million for the first nine months of 1998 as compared
with $57.4 million for the first nine months of 1997. The average cost of
borrowings was 6.12% for the third quarter of
25
<PAGE>
1998 as compared with 6.26% for the third quarter of 1997. The average cost of
borrowings was 6.29% for the first nine months of 1998 as compared with 6.23%
for the first nine months of 1997. The increases in interest on borrowings, as
compared with the respective prior periods, were due to a combination of factors
including a higher level of Federal Home Loan Bank ("FHLB") advances outstanding
during 1998 and the Company's issuance of $100 million in subordinated debt in
August 1997 with an all-in cost of approximately 9.6%. The decrease in the
average cost of borrowings for the third quarter of 1998, as compared with the
third quarter of 1997, was a result of the recent interest rate environment and
the resulting lower rates on FHLB advances, partially offset by the
aforementioned debt issued in August 1997. The average cost of FHLB advances was
5.72% for the third quarter of 1998 as compared with 5.88% for the third quarter
of 1997. The slight increase in the average cost of borrowings for the first
nine months of 1998, as compared with the first nine months of 1997, was largely
the result of the debt issued in August 1997.
Changes in Rate and Volume
The following tables illustrate the changes in net interest income due to
changes in the rate and volume of the Company's interest-earning assets and
interest-bearing liabilities for the three and nine month periods ended
September 30, 1998 as compared with the three and nine month periods ended
September 30, 1997. The variances include the effects of the Company's
acquisitions. Changes in rate and volume which cannot be segregated (e.g.,
changes in average interest rate multiplied by average portfolio balance) have
been allocated proportionately between the change in rate and the change in
volume.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1998 vs 1997
(UNAUDITED)
-----------------------------------------------------------------------
RATE VOLUME TOTAL
VARIANCE VARIANCE VARIANCE
------------------- --------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest income:
Loans $ (876) $41,733 $40,857
Mortgage-backed securities (52) 1,732 1,680
Investment securities (96) 390 294
------- ------- -------
(1,024) 43,855 42,831
------- ------- -------
Interest expense:
Customer deposits (875) 18,783 17,908
Borrowings (456) 8,483 8,027
------- ------- -------
(1,331) 27,266 25,935
------- ------- -------
Net interest income $ 307 $16,589 $16,896
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998 vs 1997
(UNAUDITED)
-----------------------------------------------------------------------
RATE VOLUME TOTAL
VARIANCE VARIANCE VARIANCE
------------------- --------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest income:
Loans $ 1,242 $110,461 $111,703
Mortgage-backed securities 249 11,896 12,145
Investment securities (21) 834 813
------- -------- --------
1,470 123,191 124,661
------- -------- --------
Interest expense:
Customer deposits (1,666) 60,048 58,382
Borrowings 554 16,374 16,928
------- -------- --------
(1,112) 76,422 75,310
------- -------- --------
Net interest income $ 2,582 $ 46,769 $ 49,351
======= ======== ========
</TABLE>
26
<PAGE>
PROVISION FOR LOAN LOSSES
The provision for loan losses was $2.8 million for the third quarter
of 1998 as compared with $651,000 for the third quarter of 1997. The provision
for loan losses was $5.1 million for the first nine months of 1998 as compared
with $1.8 million for the first nine months of 1997. The higher provision
levels were a result of the Company's acquisition of EurekaBank effective
January 2, 1998 combined with the continued growth in consumer and commercial
assets, including HLTV home equity loans. See "Balance Sheet Analysis -
Allowance for Loan Losses" for further discussion of the provision for loan
losses.
NONINTEREST INCOME
Noninterest income for the third quarter of 1998 was $9.0 million as
compared with $2.6 million for the third quarter of 1997. Noninterest income for
the first nine months of 1998 was $19.3 million as compared with $9.9 million
for the first nine months of 1997. The increases in noninterest income, as
compared with the respective prior periods, were due to a combination of factors
including the acquisitions of EurekaBank effective January 1998 and BVCFG
effective April 1997, higher prepayment penalty fees associated with the high
level of loan prepayments during the first nine months of 1998, and leasing
income associated with the Company's auto leasing activities which began in
April 1998.
Noninterest income included approximately $1.6 million and $2.0 million
in gain on sales of securities for the three and nine month periods ended
September 30, 1998, respectively. Included in net gain on sales of securities
was a $940,000 loss recorded during the third quarter of 1998 on the settlement
of forward sale contracts of MBS. The forward sale contracts of MBS were
selected to hedge a portfolio of mortgage loans because of their historical
effectiveness as a hedge. With the recent market and interest rate volatility,
the correlation between the hedge and underlying portfolio of loans was
disrupted, triggering the loss. The forward sale contracts were settled during
the third quarter of 1998. The Company's only remaining derivative contracts in
effect at September 30, 1998 were interest rate exchange agreements. Noninterest
income for the first nine months of 1997 included approximately $925,000 in
gains on the aforementioned securitization and sale of a $253 million motor
vehicle loan portfolio in January 1997.
NONINTEREST EXPENSE
General and Administrative Expenses
General and administrative expenses were $30.2 million for the third
quarter of 1998 as compared with $18.6 million for the third quarter of 1997.
General and administrative expenses were $87.2 million for the first nine months
of 1998 as compared with $49.4 million for the first nine months of 1997. The
increases in general and administrative expenses, as compared with the
respective prior periods, were attributable to various factors including the
acquisitions of EurekaBank effective January 1998, Ultra effective October 1997
and BVCFG effective April 1997, a higher level of special mention items during
1998, as discussed elsewhere herein, the continued growth of the Company, and
inflationary pressures, including the Company's annual salary increases which
were effective for the second quarter of 1998. See "Non-GAAP Performance
Measures - Core General and Administrative Expenses" for a discussion of general
and administrative expenses excluding special mention items.
General and administrative expenses by platform include an allocation of
certain indirect corporate expenses. The Company refined its cost allocation
methodology during 1998 which resulted in additional indirect general and
administrative expenses being allocated to the Consumer Finance Platform and the
Commercial Finance Platform. The Company continues to refine its cost
allocation methodology and anticipates further refinements during future
periods.
27
<PAGE>
The following table illustrates general and administrative expenses, by
platform, for the periods indicated:
<TABLE>
<CAPTION>
(UNAUDITED)
-------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------------------------- ------------------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
------------------- ------------------- ------------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Banking Platform
(includes BVB and the Company) $23,339 $14,360 $66,992 $39,208
Consumer Finance Platform(1) 4,486 2,217 13,710 6,195
Commercial Finance Platform(1) 2,421 2,028 6,516 4,035
------- ------- ------- -------
Total $30,246 $18,605 $87,218 $49,438
======= ======= ======= =======
</TABLE>
(1) The Consumer Finance Platform was created with the acquisitions of BVC in
June 1996 and Ultra in October 1997. The Consumer Finance Platform began
purchasing HLTV home equity loans in August 1997 and auto leases in April
1998. The Commercial Finance Platform was created with the acquisition of
BVCFG in April 1997.
Leasing Expenses
Leasing expenses represent expenses related to the Company's auto leasing
activities which began in April 1998. As the leases are accounted for as
operating leases, the corresponding assets are capitalized and depreciated down
to their estimated residual values over their lease terms. This depreciation
expense is included in leasing expenses, along with the amortization of
capitalized initial direct lease costs and the provision for estimated losses
incurred upon the sale of the leased vehicles. Leasing expenses were $2.5
million and $3.2 million for the three and nine month periods ended September
30, 1998, respectively. The increase in leasing expenses during the third
quarter of 1998 was a result of the operating leased asset portfolio increasing
from $46.6 million at June 30, 1998 to $126.3 million at September 30, 1998.
Real Estate Owned Operations and Net Losses (Recovery of Losses) on Real Estate
Income from real estate owned operations, net of losses on real estate,
for the third quarter of 1998 was $8,000 as compared with $21,000 for the third
quarter of 1997. Income from real estate owned operations and net recovery of
losses on real estate for the first nine months of 1998 was $194,000 as compared
with $638,000 for the first nine months of 1997. The decrease in income for the
first nine months of 1998, as compared with the first nine months of 1997, was
primarily due to a $415,000 recovery received during the first quarter of 1997.
See "Non-GAAP Performance Measures - Special Mention Items" for further
discussion on the recovery received during 1997.
Amortization of Intangible Assets
Amortization expense related to intangible assets was $2.9 million for
the third quarter of 1998 as compared with $1.0 million for the third quarter of
1997. Amortization expense related to intangible assets was $8.5 million for the
first nine months of 1998 as compared with $2.7 million for the first nine
months of 1997. The increases in amortization expense, as compared with the
respective prior periods, were due to the additional goodwill and CDI generated
from the Company's acquisitions accounted for under the purchase method of
accounting, including EurekaBank effective January 1998, Ultra effective October
1997 and BVCFG effective April 1997.
INCOME TAX EXPENSE
Income tax expense was $4.9 million for the third quarter of 1998 as
compared with $1.6 million for the third quarter of 1997. Income tax expense was
$14.8 million for the first nine months of 1998 as compared with $9.0 million
for the first nine months of 1997. The Company's effective tax rate was 49.5%
for the third
28
<PAGE>
quarter of 1998 as compared with 34.3% for the third quarter of 1997. The
Company's effective tax rate was 49.1% for the first nine months of 1998 as
compared with 41.1% for the first nine months of 1997. The increases in the
effective tax rates, as compared with the respective prior periods, were
primarily due to increases in nondeductible goodwill amortization.
NON-GAAP PERFORMANCE MEASURES
The following disclosures of core earnings, tangible cash earnings, net
interest margin, and core general and administrative expenses, along with their
corresponding ratios, are not measures of performance under generally accepted
accounting principles ("GAAP"). These measures should not be considered
alternatives to net income, net interest margin and general and administrative
expenses as an indicator of the Company's operating performance. Such measures
are included herein as management believes they are useful tools for investors
and analysts in assessing the Company's performance and trends. These measures
may not be comparable to similarly titled measures reported by other companies.
CORE EARNINGS
Core earnings exclude special mention items, as discussed elsewhere
herein. Special mention items for the third quarter of 1998 were approximately
$2.8 million and included $1.35 million in expenses related to the cancellation
of the Company's proposed acquisition of PSBL and a $600,000 legal settlement
related to the Company's termination during the second quarter of 1997 of a data
processing contract. Special mention items for the first nine months of 1998
were approximately $10.4 million and included approximately $7.5 million in
EurekaBank acquisition-related expenses.
The following table illustrates the reconciliation of net income to core
earnings for the periods indicated:
<TABLE>
<CAPTION>
(UNAUDITED)
------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------------------------- --------------------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
------------------ -------------------- ------------------ -------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net income $5,025 $3,064 $15,320 $12,830
Special mention items, net of tax 1,663 1,691 6,079 1,539
------ ------ ------- -------
Core earnings $6,688 $4,755 $21,399 $14,369
------ ------ ------- -------
Core earnings per diluted share $ 0.33 $ 0.36 $ 1.04 $ 1.08
====== ====== ======= =======
Core return on average assets 0.48% 0.60% 0.52% 0.62%
====== ====== ======= =======
Core return on average equity 6.88% 9.74% 7.34% 9.81%
====== ====== ======= =======
</TABLE>
29
<PAGE>
TANGIBLE CASH EARNINGS
Tangible cash earnings equal core earnings excluding charges related to
the amortization of intangible assets and charges tied to the Company's common
stock.
The following tables illustrate the reconciliation of core earnings to
tangible cash earnings for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED (UNAUDITED)
---------------------------------------------------------
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
-------------------------- --------------------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Core earnings $6,688 $4,755
Adjustments, net of tax:
Amortization of intangible assets 2,474 865
Charges tied to common stock 67 60
------ ------
Tangible cash earnings $9,229 $5,680
------ ------
Tangible cash earnings per diluted share $ 0.45 $ 0.43
====== ======
Tangible cash return on average assets (1) 0.66% 0.72%
====== ======
Tangible cash return on average equity (1) 9.49% 11.63%
====== ======
Tangible cash return on average tangible assets (2) 0.68% 0.73%
====== ======
Tangible cash return on average tangible equity (2) 14.65% 13.82%
====== ======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED (UNAUDITED)
---------------------------------------------------------
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
-------------------------- --------------------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Core earnings $21,399 $14,369
Adjustments, net of tax:
Amortization of intangible assets 7,351 2,130
Charges tied to common stock 199 181
------- -------
Tangible cash earnings $28,949 $16,680
------- -------
Tangible cash earnings per diluted share $ 1.41 $ 1.25
======= =======
Tangible cash return on average assets (1) 0.71% 0.71%
======= =======
Tangible cash return on average equity (1) 9.92% 11.38%
======= =======
Tangible cash return on average tangible assets (2) 0.73% 0.72%
======= =======
Tangible cash return on average tangible equity (2) 15.43% 12.69%
======= =======
</TABLE>
(1) Tangible cash return on average assets (average equity) is defined as
tangible cash earnings divided by average assets (average equity).
(2) Tangible cash return on average tangible assets (average tangible equity)
is defined as tangible cash earnings divided by average tangible assets
(average tangible equity). Average tangible assets (average tangible
equity) is defined as average assets (average equity) less average
intangible assets.
30
<PAGE>
The following tables illustrate tangible cash earnings, plus the
utilization of NOL carryforwards acquired from AFEH, for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED (UNAUDITED)
---------------------------------------------------------
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
-------------------------- --------------------------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Tangible cash earnings $ 9,229 $5,680
Utilization of NOL carryforwards (1) 2,739 -
------- ------
Tangible cash earnings, plus the utilization of
NOL carryforwards $11,968 $5,680
======= ======
Tangible cash earnings, plus the utilization of
NOL carryforwards, per diluted share $ 0.59 $ 0.43
======= ======
Tangible cash return on average assets, plus the
utilization of NOL carryforwards (2) 0.86% 0.72%
======= ======
Tangible cash return on average equity, plus the
utilization of NOL carryforwards (2) 12.30% 11.63%
======= ======
Tangible cash return on average tangible assets,
plus the utilization of NOL carryforwards (3) 0.88% 0.73%
======= ======
Tangible cash return on average tangible equity,
plus the utilization of NOL carryforwards (3) 19.00% 13.82%
======= ======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED (UNAUDITED)
---------------------------------------------------------
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
-------------------------- --------------------------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Tangible cash earnings $28,949 $16,680
Utilization of NOL carryforwards (1) 8,217 -
------- -------
Tangible cash earnings, plus the utilization of
NOL carryforwards $37,166 $16,680
======= =======
Tangible cash earnings, plus the utilization of
NOL carryforwards, per diluted share $ 1.81 $ 1.25
======= =======
Tangible cash return on average assets, plus the
utilization of NOL carryforwards (2) 0.91% 0.71%
======= =======
Tangible cash return on average equity, plus the
utilization of NOL carryforwards (2) 12.74% 11.38%
======= =======
Tangible cash return on average tangible assets,
plus the utilization of NOL carryforwards (3) 0.93% 0.72%
======= =======
Tangible cash return on average tangible equity,
plus the utilization of NOL carryforwards (3) 19.81% 12.69%
======= =======
</TABLE>
(1) In conjunction with the acquisition of AFEH, the Company acquired $181
million in NOL carryforwards. The Company may utilize these
carryforwards, subject to annual limitations, to reduce its current
liability for federal income taxes. The associated tax benefit of the NOL
carryforwards is approximately $63 million. The Company estimates that,
during 1998, its maximum available tax benefit resulting from the NOL
carryforwards will be approximately $11 million. The amount of the
benefit reflected in the above tables represents the pro rata portion of
the estimated 1998 maximum available tax benefit.
(2) Tangible cash return on average assets (average equity) is defined as
tangible cash earnings divided by average assets (average equity).
31
<PAGE>
(3) Tangible cash return on average tangible assets (average tangible equity)
is defined as tangible cash earnings divided by average tangible assets
(average tangible equity). Average tangible assets (average tangible
equity) is defined as average assets (average equity) less average
intangible assets.
The following tables illustrate tangible cash earnings contributed, by
platform, for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED (UNAUDITED)
------------------------------------------------------------------
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------------------ --------------------------------
TANGIBLE PER TANGIBLE PER
CASH DILUTED CASH DILUTED
EARNINGS SHARE EARNINGS SHARE
------------- ------------- ------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Banking Platform $5,549 $0.27 $4,057 $0.31
Consumer Finance Platform(1) 3,516 0.17 1,188 0.09
Commercial Finance Platform(1) 164 0.01 435 0.03
------ ----- ------ -----
Total $9,229 $0.45 $5,680 $0.43
====== ===== ====== =====
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED (UNAUDITED)
----------------------------------------------------------------
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------------------ ------------------------------
TANGIBLE PER TANGIBLE PER
CASH DILUTED CASH DILUTED
EARNINGS SHARE EARNINGS SHARE
------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Banking Platform $21,531 $1.05 $13,077 $0.98
Consumer Finance Platform(1) 6,824 0.33 2,551 0.19
Commercial Finance Platform(1) 594 0.03 1,052 0.08
------- ----- ------- -----
Total $28,949 $1.41 $16,680 $1.25
======= ===== ======= =====
</TABLE>
(1) The Consumer Finance Platform was created with the acquisitions of BVC in
June 1996 and Ultra in October 1997. The Consumer Finance Platform began
purchasing HLTV home equity loans in August 1997 and auto leases in April
1998. The Commercial Finance Platform was created with the acquisition of
BVCFG in April 1997.
The increases in tangible cash earnings for the Banking Platform, as
compared with the respective prior periods, were primarily attributable to the
Company's acquisition of EurekaBank effective January 2, 1998. The increases in
tangible cash earnings for the Consumer Finance Platform, as compared with the
respective prior periods, were attributable to the continued growth of the
platform, including the Company's auto leasing activities which began in April
1998, as well as a higher level of HLTV home equity loans resulting from
purchases by the Company during the first nine months of 1998. The decreases in
tangible cash earnings for the Commercial Finance Platform, as compared with the
respective prior periods, were a result of a combination of factors including
additional general and administrative expenses incurred in conjunction with the
rapid growth of the platform, including the previously discussed expansion of
the asset-based lending segment, and additional allocations of certain indirect
general and administrative expenses. Recent and anticipated future loan growth
should enable the Commercial Finance Platform to achieve greater economies of
scale in the future and, in return, generate additional tangible cash earnings.
32
<PAGE>
NET INTEREST MARGIN
The Company's net interest margin, calculated in accordance with GAAP,
excludes the impact of the Company's auto leasing activities which began in
April 1998 and which are principally funded by the Company's deposits and other
borrowings. As the leases are accounted for as operating leases, the rental
income and related expenses, including depreciation expense, are reflected as
noninterest income and noninterest expenses, respectively, in accordance with
GAAP. Accordingly, these amounts are not reflected in the Company's net
interest income or net interest margin. Had the excess of rental income over
depreciation expense, along with the corresponding average balance of leased
assets, been included in the computation of net interest margin, the Company's
net interest margin would have been 3.11% for the third quarter of 1998 and
3.03% for the first nine months of 1998. This compares with the Company's net
interest margin calculated in accordance with GAAP of 3.05% for the third
quarter of 1998 and 3.00% for the first nine months of 1998.
CORE GENERAL AND ADMINISTRATIVE EXPENSES
Core general and administrative expenses exclude special mention items,
as discussed elsewhere herein. Core general and administrative expenses for the
third quarter of 1998 were $27.4 million as compared with $16.6 million for the
third quarter of 1997. Core general and administrative expenses for the first
nine months of 1998 were $76.8 million as compared with $47.3 million for the
first nine months of 1997.
The following table illustrates the reconciliation of general and
administrative expenses to core general and administrative expenses (excluding
special mention items) for the periods indicated:
<TABLE>
<CAPTION>
(UNAUDITED)
----------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------------------ ----------------------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1997 1997
------------------- ------------------- ------------------- ---------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
General and administrative expenses $30,246 $18,605 $ 87,218 $49,438
Special mention items (2,835) (2,013) (10,435) (2,163)
------- ------- -------- -------
Core general and administrative
expenses $27,411 $16,592 $ 76,783 $47,275
======= ======= ======== =======
</TABLE>
The following table illustrates core general and administrative expenses
(excluding special mention items), by platform, for the periods indicated:
<TABLE>
<CAPTION>
(UNAUDITED)
---------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------------------- ---------------------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
------------------- ------------------- ------------------- ---------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Banking Platform (includes BVB
and the Company) $20,662 $12,347 $57,441 $37,045
Consumer Finance Platform(1) 4,328 2,217 12,826 6,195
Commercial Finance Platform(1) 2,421 2,028 6,516 4,035
------- ------- ------- -------
Total $27,411 $16,592 $76,783 $47,275
======= ======= ======= =======
</TABLE>
33
<PAGE>
(1) The Consumer Finance Platform was created with the acquisitions of BVC in
June 1996 and Ultra in October 1997. The Consumer Finance Platform began
purchasing HLTV home equity loans in August 1997 and auto leases in April
1998. The Commercial Finance Platform was created with the acquisition of
BVCFG in April 1997.
The increases in the Banking Platform's core general and administrative
expenses, as compared with the respective prior periods, were attributable to
the acquisition of EurekaBank effective January 2, 1998, continued growth in the
platform and inflationary pressures, including the Company's annual salary
increases which were effective for the second quarter of 1998. The increases in
the Consumer Finance Platform's core general and administrative expenses, as
compared with the respective prior periods, were attributable to the acquisition
of Ultra effective October 1, 1997, continued growth in the platform, and in
particular, the Company's auto leasing activities which began April 1, 1998,
combined with inflationary pressures. The increases in the Commercial Finance
Platform's core general and administrative expenses, as compared with the
respective prior periods, were largely the result of the platform being created
with the Company's acquisition of BVCFG effective April 1997 combined with
continued growth in the platform, including the previously discussed expansion
of the asset-based lending segment, additional allocations of certain indirect
general and administrative expenses and inflationary pressures.
Although the Company originally anticipated that the EurekaBank
integration-related expenses would have been eliminated by the end of the second
quarter, certain of these costs continued during the third quarter of 1998.
These costs were necessary to complete projects not finalized at June 30th and
to ensure the complete and successful integration of EurekaBank into the
Company. The Company has taken all necessary measures to ensure that these costs
have been substantially eliminated by the end of the third quarter of 1998 and
anticipates that the core general and administrative expense run-rate for the
fourth quarter of 1998 will be within a range that will enable the Company to
achieve the EurekaBank acquisition-related cost savings as originally projected.
The following table illustrates the ratio of core general and
administrative expenses (excluding special mention items) to average assets
(including securitized assets), by platform, on an annualized basis for the
periods indicated:
<TABLE>
<CAPTION>
(UNAUDITED)
------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------------------------- ----------------------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
------------------- ------------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
Banking Platform (includes BVB
and the Company) 1.69% 1.74% 1.50% 1.71%
Consumer Finance Platform(1) 1.70% 2.08% 2.04% 2.28%
Commercial Finance Platform(1) 9.65% 11.20% 9.81% 11.74%
----- ------ ----- -----
Expenses to Average Assets 2.03% 1.99% 1.88% 1.91%
===== ====== ===== =====
</TABLE>
(1) The Consumer Finance Platform was created with the acquisitions of BVC in
June 1996 and Ultra in October 1997. The Consumer Finance Platform began
purchasing HLTV home equity loans in August 1997 and auto leases in April
1998. The Commercial Finance Platform was created with the acquisition of
BVCFG in April 1997.
The lower expense ratios for each platform, as compared with the
respective prior periods, were primarily the result of the Company's acquisition
of EurekaBank effective January 2, 1998 and the corresponding increase in the
Company's assets, combined with loan growth within the Consumer Finance Platform
and the Commercial Finance Platform, partially offset by higher levels of core
general and administrative expenses as previously discussed. The higher
consolidated expense ratio for third quarter of 1998 as compared with the third
quarter of 1997 was due to the relative growth of the Consumer Finance Platform
and the Commercial Finance Platform with their higher corresponding expense
ratios.
Another measure that management uses to monitor the Company's level of
core general and administrative expenses is the core efficiency ratio. The core
efficiency ratio is calculated by dividing the amount of core general and
administrative expenses by operating revenues, defined as net interest income,
loan fees and
34
<PAGE>
charges, the excess of the Company's leasing-related rental income over leasing-
related depreciation expense, and other noninterest income, excluding securities
gains and losses. This ratio reflects the level of core general and
administrative expenses required to generate $1 of operating revenue. The
Company's core efficiency ratio for the third quarter of 1998 was 60.3% as
compared with 64.2% for the third quarter of 1997. The Company's core efficiency
ratio for the first nine months of 1998 was 59.0% as compared with 63.0% for the
first nine months of 1997. The improvements in the efficiency ratios, as
compared with the respective prior periods, were largely due to cost
efficiencies resulting from the Company's acquisition of EurekaBank combined
with the net leasing-related rental income beginning in April 1998.
SPECIAL MENTION ITEMS
The Company's net income for the periods indicated below included certain
items which deserve special mention and which are excluded from net income to
arrive at core earnings.
Third Quarter 1998:
- - ------------------
The impact of the following items was a net expense of $2.8 million
($1.7 million after-tax, or $.08 per diluted share).
* $1.35 million ($800,000 after-tax) related to the cancellation of the
Company's proposed acquisition of PSBL. This amount includes investment
banking, legal and accounting fees previously capitalized by the Company,
as well as certain expense reimbursements to PSBL, as provided in the
acquisition agreement.
* $600,000 ($350,000 after-tax) representing a legal settlement related to
the Company's decision in the second quarter of 1997 to terminate a data
processing contract. In 1996, the Company entered into a contract to
convert to a new third-party data processing service provider. During the
second quarter of 1997, however, the Company announced its acquisition of
AFEH and subsequently decided to remain with its existing service
provider, the then current data processing service provider for both BVB
and EurekaBank. Accordingly, the Company terminated this new data
processing contract.
* $840,000 ($500,000 after-tax) in other expenses, primarily Year 2000
compliance-related expenses and certain EurekaBank transitional and
integration-related expenses. See further discussion of Year 2000
elsewhere herein.
Second Quarter 1998:
- - --------------------
The impact of the following items was a net expense of $4.2 million
($2.4 million after-tax, or $0.12 per diluted share).
* $3.9 million ($2.3 million after-tax) primarily related to the
acquisition and integration of EurekaBank and related systems, operations
and reengineering projects.
* $235,000 ($135,000 after-tax) in other expenses including $195,000
relating to the Company's efforts to ensure Year 2000 compliance.
First Quarter 1998:
- - -------------------
The impact of the following item was a net expense of $3.4 million
($2.0 million after-tax, or $0.10 per diluted share).
* $3.4 million related to the acquisition and integration of EurekaBank.
Third Quarter 1997:
- - ------------------
The impact of the following item was a net expense of $2.9 million
($1.7 million after-tax, or $0.13 per diluted share).
* $2.9 million in pre-merger expenses related to the acquisition of
EurekaBank.
35
<PAGE>
Second Quarter 1997:
- - --------------------
The impact of the following items was a net benefit of $300,000 ($173,000
after-tax, or $0.01 per diluted share).
* $400,000 benefit associated with the decision to cease the conversion to
a new third-party data processing service provider as previously
discussed (see "Special Mention Items - Third Quarter 1998" for further
discussion).
* $100,000 expense accrual for long-term incentive plan awards due to an
increase in the Company's stock price.
First Quarter 1997:
- - -------------------
The after-tax impact of the following items essentially offset each
other.
* $700,000 expense accrual for long-term incentive plan awards due to an
increase in the Company's stock price.
* $415,000 recovery related to a real estate joint venture previously
written-off.
* $250,000 benefit relating to the reversal of an accrual for the
termination of BVB's data processing contract (see "Special Mention
Items -Third Quarter 1998" for further discussion).
36
<PAGE>
BALANCE SHEET ANALYSIS
The Company's total assets were $5.5 billion at September 30, 1998 as
compared with $3.2 billion at December 31, 1997. The increase in total assets
was largely due to the Company's acquisition of EurekaBank effective January 2,
1998. The increase was also due to loan and lease originations and purchases of
approximately $1.5 billion during the first nine months of 1998 exceeding
prepayments on loans and mortgage-backed securities of approximately $1.2
billion during this same period.
SECURITIES
The Company maintains a portfolio of MBS, primarily issued by the Federal
Home Loan Mortgage Corporation ("FHLMC"), Federal National Mortgage Association
("FNMA") and Government National Mortgage Association ("GNMA").
The following table illustrates the Company's securities portfolio as of
the dates indicated:
<TABLE>
<CAPTION>
(UNAUDITED)
--------------------------------------------------------------------------------------
SEPTEMBER 30, 1998 DECEMBER 31, 1997
--------------------------------------- -----------------------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------------- ------------------ ------------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
- - ------------------
Investment securities $ 6,488 $ 6,488 $ 5,639 $ 5,639
Mortgage-backed securities:
FHLMC, FNMA and GNMA
and other 14,840 14,715 54,526 54,402
-------- -------- -------- --------
21,328 21,203 60,165 60,041
-------- -------- -------- --------
HELD-TO-MATURITY
- - ----------------
Investment securities - - 5,000 5,015
Mortgage-backed securities:
FHLMC, FNMA, GNMA
and other 558,043 561,390 415,859 413,980
-------- -------- -------- --------
558,043 561,390 420,859 418,995
-------- -------- -------- --------
$579,371 $582,593 $481,024 $479,036
======== ======== ======== ========
</TABLE>
The Company sold $9 million, $23 million and $202 million in MBS
securities from the available-for-sale portfolio during the first, second and
third quarters of 1998, respectively, in connection with the Company's interest
rate risk and balance sheet management activities. A portion of these MBS were
replaced with approximately $68 million in pledgable collateralized mortgage
obligations ("CMOs") purchased during the third quarter of 1998. There were no
sales or purchases of MBS or CMOs during the first nine months of 1997.
37
<PAGE>
LOANS AND LEASES
The following table illustrates the Company's loan and lease portfolio
as of the dates indicated:
<TABLE>
<CAPTION>
(UNAUDITED)
----------------------------------------------------------
SEPTEMBER 30, 1998 DECEMBER 31, 1997
-------------------------- --------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Banking Platform:
Single-family real estate $1,812,875 $ 550,506
Multi-family real estate 1,047,658 1,026,148
Commercial real estate 349,349 348,754
Consumer 83,277 61,478
---------- ----------
3,293,159 1,986,886
Consumer Finance Platform:
Motor vehicle 514,378 298,627
HLTV home equity 421,968 67,092
---------- ----------
936,346 365,719
Commercial Finance Platform:
Commercial loans and leases 91,851 54,120
---------- ----------
Gross loans receivable 4,321,356 2,406,725
Premiums and discounts and deferred fees
and costs 38,118 4,846
Allowance for loan losses (46,132) (38,458)
---------- ----------
Net loans receivable $4,313,342 $2,373,113
========== ==========
</TABLE>
Management's strategy is to supplement its loan production with purchases
of loans and leases with higher risk-adjusted yields. The following tables
illustrate loans and leases originated and purchased for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED (UNAUDITED)
------------------------------------------------------
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
-------------------------- -----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
LOAN AND LEASE ORIGINATIONS:
Real estate (1) $ 42,581 $ 40,593
Motor vehicle 99,698 50,649
Commercial 18,872 9,260
Other 17,925 4,767
-------- --------
Total originations $179,076 $105,269
-------- --------
LOAN AND LEASED ASSET PURCHASES:
Real estate (1) $ 3,477 $ 1,062
HLTV home equity 92,451 69,996
Motor vehicle 100,272 39,870
-------- --------
Total purchases $196,200 $110,928
-------- --------
Total originations and purchases $375,276 $216,197
======== ========
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED (UNAUDITED)
-----------------------------------------------------
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------------- -----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Loan and Lease Originations:
Real estate (1) $ 114,907 $111,177
Motor vehicle 298,729 133,496
Commercial 47,437 13,953
Other 43,666 15,582
---------- --------
Total originations $ 504,739 $274,208
---------- --------
Loan and Leased Asset Purchases:
Real estate (1) $ 413,891 $ 50,544
HLTV home equity 385,884 69,996
Motor vehicle 185,679 85,682
---------- --------
Total purchases $ 985,454 $206,222
---------- --------
Total originations and purchases $1,490,193 $480,430
========== ========
</TABLE>
(1) Includes first and second mortgages.
The Company's loan and lease origination and purchase activity during the
first nine months of 1998, as compared with the first nine months of 1997, is
consistent with the Company's strategy of focusing on generating assets within
the Consumer Finance Platform and the Commercial Finance Platform which provide
higher risk-adjusted yields compared to traditional mortgage-based assets. The
high level of real estate loans purchased during the first nine months of 1998
includes approximately $200 million in real estate loans purchased during the
second quarter of 1998, primarily to assist BVB in meeting its CRA regulatory
requirements. The Company's level of loan purchases declined during the third
quarter of 1998, as compared with the first and second quarters of 1998, due to
a combination of factors including a lower level of HLTV home equity loans
purchased during the third quarter of 1998 due to the cancellation of the
proposed acquisition of PSBL, the aforementioned $200 million portfolio of
mortgage loans purchased during the second quarter of 1998 primarily to assist
BVB in meeting its CRA requirements and the difficulty during the third quarter
of 1998 in identifying assets with sufficient risk-adjusted yields.
CREDIT QUALITY
The Company defines nonperforming assets ("NPAs") as nonaccrual loans,
real estate owned and other repossessed assets. The Company defines nonaccrual
loans as loans 90 days or more delinquent as to principal and interest payments
(unless the principal and interest are well secured and in the process of
collection) and loans less than 90 days delinquent designated as nonperforming
when the Company determines that the full collection of principal and/or
interest is doubtful. NPAs are placed on a nonaccrual status. Troubled debt
restructurings ("TDRs") are real estate loans that have been modified (due to
borrower financial difficulties) to allow a stated interest rate and/or a
monthly payment lower than those prevailing in the market.
Overall credit quality has continued to remain strong as evidenced by the
improving trends in NPAs and delinquencies. The following table illustrates the
Company's NPAs and TDRs as of the dates indicated and reflects the acquisition
of EurekaBank effective January 2, 1998:
<TABLE>
<CAPTION>
(UNAUDITED)
-----------------------------------------------------------------------------
SEPTEMBER 30, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
----------------------- ----------------------- -----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Nonaccrual loans $13,299 $10,991 $16,125
Real estate owned 3,740 4,146 7,387
Other repossessed assets 834 629 798
------- ------- -------
Nonperforming assets 17,873 15,766 24,310
Troubled debt restructurings 779 731 509
------- ------- -------
Total $18,652 $16,497 $24,819
======= ======= =======
</TABLE>
39
<PAGE>
The following table illustrates, by platform, NPAs and NPAs as a
percentage of total assets as of the dates indicated:
<TABLE>
<CAPTION>
NONPERFORMING ASSETS AS A PERCENTAGE
OF TOTAL ASSETS (UNAUDITED)
---------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------------- -------------------------------- --------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Banking Platform $15,130 0.27% $14,345 0.45% $23,323 0.71%
Consumer Finance Platform (1) 2,544 0.05% 748 0.02% 987 0.03%
Commercial Finance Platform (1) 199 - 673 0.02% - -
------- ---- ------- ---- ------- ----
Total $17,873 0.32% $15,766 0.49% $24,310 0.74%
======= ==== ======= ==== ------- ----
</TABLE>
(1) The Consumer Finance Platform was created with the acquisitions of BVC in
June 1996 and Ultra in October 1997. The Consumer Finance Platform began
purchasing HLTV home equity loans in August 1997 and auto leases in April
1998. The Commercial Finance Platform was created with the acquisition of
BVCFG in April 1997.
The following table illustrates, by platform, loans delinquent 60 days or
more as a percentage of gross loans as of the dates indicated:
<TABLE>
<CAPTION>
LOANS DELINQUENT 60 DAYS OR MORE
AS A PERCENTAGE OF GROSS LOANS (UNAUDITED)
---------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------------- -------------------------------- -------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Banking Platform $15,853 0.37% $21,526 0.90% $22,460 0.90%
Consumer Finance Platform (1) 4,305 0.10% 1,045 0.04% 548 0.02%
Commercial Finance Platform (1) 199 - 673 0.03% - -
------- ---- ------- ---- ------- ----
Total $20,357 0.47% $23,244 0.97% $23,008 0.92%
======= ==== ======= ==== ======= ====
</TABLE>
(1) The Consumer Finance Platform was created with the acquisitions of BVC in
June 1996 and Ultra in October 1997. The Consumer Finance Platform began
purchasing HLTV home equity loans in August 1997 and auto leases in April
1998. The Commercial Finance Platform was created with the acquisition of
BVCFG in April 1997.
ALLOWANCE FOR LOAN LOSSES
The Company conducts an ongoing review of its asset categories to assess
the adequacy of the allowance for loan losses, which is maintained at a level
that the Company believes is sufficient to cover estimated possible losses in
the portfolios. In determining the level of the allowance for loan losses, the
Company considers a number of factors, including prevailing and anticipated
economic conditions, historical loss experience, the levels of classified,
nonperforming and delinquent assets, weighting by property type, loan portfolio
trends, and other factors. The allowance for loan losses at September 30, 1998
was $46.1 million as compared with $38.5 million and $29.0 million at December
31, 1997 and 1996, respectively. The increase in the allowance for loan losses
at September 30, 1998, as compared with December 31, 1997 and 1996, was largely
due to the reserves acquired in conjunction with the Company's acquisitions.
40
<PAGE>
The following table illustrates the allowance for loan losses as a
percentage of NPAs, gross loans and total assets, respectively, as of the dates
indicated:
<TABLE>
<CAPTION>
ALLOWANCE FOR LOAN LOSSES
AS A PERCENTAGE OF SPECIFIED ASSETS (UNAUDITED)
----------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
----------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Nonperforming assets $ 17,873 258% $ 15,766 244% $ 24,310 150%
Gross loans $4,321,356 1.07% $2,406,725 1.60% $2,505,656 1.46%
Total assets $5,522,374 0.84% $3,246,476 1.18% $3,300,262 1.10%
</TABLE>
The decrease in the allowance for loan losses as a percentage of gross
loans and total assets as of September 30, 1998, as compared with December 31,
1997 and 1996, was largely a result of the Company's acquisition of EurekaBank
effective January 2, 1998. EurekaBank's $1.5 billion loan portfolio consisted
primarily of single-family and multi-family residential mortgage loans which
have lower credit risk as compared with consumer and commercial assets, and thus
had a corresponding lower allowance for loan losses relative to gross loans and
total assets than that of the Company.
The following table illustrates the changes in the allowance for loan
losses for the periods indicated:
<TABLE>
<CAPTION>
(UNAUDITED)
-----------------------------------------------------------------------------------
THREE NINE
MONTHS ENDED MONTHS ENDED FOR THE YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
------------------- ------------------- -----------------------------------
1998 1998 1997 1996
------------------- ------------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Beginning balance $47,192 $ 38,458 $29,013 $30,014
Reserves related to acquisitions - 11,374 14,162 2,860
Charge-offs:
Real Estate and other (219) (1,850) (2,699) (5,927)
Consumer (4,722) (10,609) (4,057) (474)
Commercial (208) (590) (1,685) -
------- -------- ------- -------
(5,149) (13,049) (8,441) (6,401)
Recoveries:
Real Estate and other 112 1,753 706 522
Consumer 1,141 2,305 955 120
Commercial 82 177 111 -
------- -------- ------- -------
1,335 4,235 1,772 642
Net charge-offs (3,814) (8,814)(1) (6,669) (5,759)
Provision for loan losses 2,754 5,114 1,952 1,898
------- -------- ------- -------
Ending balance $46,132 $ 46,132 $38,458 $29,013
======= ======== ======= =======
Net charge-offs to average loans (annualized) 0.35% 0.28% 0.28% 0.24%
======= ======== ======= =======
</TABLE>
(1) Net charge-offs for the first nine months of 1998 included approximately
$3.7 million in net charge-offs related to the Company's portfolio of
HLTV home equity loans acquired from Emergent Mortgage Corp. ("Emergent")
in August 1997, the reserves for which were provided for upon
acquisition. Net charge-offs for the first nine months of 1998, excluding
the Emergent HLTV home equity loan portfolio, were approximately $5.1
million, which approximates the provision for loan losses for the first
nine months of 1998.
41
<PAGE>
The Company's provision for loan losses for the third quarter of 1998 was
$2.8 million as compared with $651,000 for the third quarter of 1997. The
Company's provision for loan losses for the first nine months of 1998 was $5.1
million as compared with $1.8 million for the first nine months of 1997. The
increases in the provision for loan losses, as compared with the respective
prior periods, were a result of the Company's acquisition of EurekaBank, in
addition to the aforementioned growth in the Company's consumer and commercial
assets, including HLTV home equity loans. This provision level reflects the
composition and quality of the Company's loan portfolio including the continued
transition of its loan portfolio to consumer and commercial assets with higher
risk-adjusted yields relative to traditional mortgage loans, but also higher
corresponding credit losses.
CUSTOMER DEPOSITS
As a primary part of the Company's business, customer deposits are
generated for the purpose of funding loans, leases and securities. The following
table illustrates customer deposits as of the dates indicated:
<TABLE>
<CAPTION>
(UNAUDITED)
----------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1998 DECEMBER 31, 1997
---------------------------------------------- -----------------------------------------------
% OF WEIGHTED % OF WEIGHTED
TOTAL AVERAGE TOTAL AVERAGE
AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE
------------ ----------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Transaction accounts $1,438,387 44.5% 3.20% $ 553,820 33.0% 2.97%
Retail CDs 1,791,557 55.5 5.33 1,045,152 62.3 5.51
Brokered CDs - - - 78,163 4.7 5.82
---------- ----- ---- ---------- ----- ----
Total $3,229,944 100.0% 4.38% $1,677,135 100.0% 4.71%
========== ===== ==== ========== ===== ====
</TABLE>
BORROWINGS
The Company utilizes collateralized advances from the FHLB of San
Francisco and other borrowings, such as senior and subordinated debt and
securities sold under agreements to repurchase, on a collateralized and
noncollateralized basis, for various purposes including the funding of loans,
leases and securities as well as to support the Company in executing its
business strategies.
The following table illustrates outstanding borrowings as of the dates
indicated:
<TABLE>
<CAPTION>
(UNAUDITED)
------------------------------------------------------------
SEPTEMBER 30, 1998 DECEMBER 31, 1997
--------------------------- ---------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Advances from the FHLB of San Francisco $1,664,480 $1,110,270
Securities sold under agreements to repurchase 60,381 90,134
Subordinated notes 99,420 99,372
Senior debentures 50,000 50,000
Other 5,259 6,200
---------- ----------
Total $1,879,540 $1,355,976
========== ==========
</TABLE>
LIQUIDITY
The Company's primary sources of funds include cash flows from
operations, loan and MBS repayments, customer deposits, advances from the FHLB
of San Francisco, and securities sold under agreements to repurchase. The
Company uses its liquidity resources principally to fund the origination and
purchase of loans, leases and securities, to repay maturing borrowings and to
fund maturing time deposits and other deposit withdrawals.
42
<PAGE>
UNIVERSAL SHELF REGISTRATION
During the third quarter of 1998, the Company filed a Universal Shelf
Registration Statement ("Shelf Registration") on Form S-3 with the Securities
and Exchange Commission. The Shelf Registration provides for the issuance of up
to $450 million in debt and equity securities, including but not limited to,
Senior Debt, Subordinated Debt, Trust Preferred Securities, and Common Stock.
The Shelf Registration was filed by the Company to facilitate the timely
issuance of any of the aforementioned securities subject to market conditions
and the needs of the Company.
SHARE REPURCHASES
In August 1998, the Company's Board of Directors authorized a total of
$50 million in share repurchases. During the third quarter of 1998, the Company
repurchased approximately 760,000 shares at an average cost of $21.36 per share.
At September 30, 1998, the Company had approximately $33.8 million in remaining
authorization available for future share repurchases. The Company intends to
continue to repurchase shares prospectively, and to measure any acquisition
opportunities relative to the risk-free returns associated with share
repurchases.
CAPITAL
BVB's regulatory capital at September 30, 1998 exceeded the minimum
requirements of each Office of Thrift Supervision ("OTS") regulatory capital
standard on a fully phased-in basis as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
---------------------------------------------------------------------------------------------------------
MINIMUM
ACTUAL REQUIREMENT EXCESS
------------------------------ -------------------------------- ---------------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------------- ------------ --------------- ------------- ---------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tangible $340,919 6.39% $ 80,006 1.50% $260,913 4.89%
Core 341,879 6.41% 213,311 4.00% 128,568 2.41%
Total Risk-based 386,460 10.50% 294,475 8.00% 91,985 2.50%
</TABLE>
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") requires each Federal banking agency, including the OTS, to implement
prompt corrective actions for "under capitalized" institutions that it
regulates. Under capital guidelines enacted by FDICIA, BVB met the criteria for
a "well capitalized" institution at September 30, 1998 as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
----------------------------------------------------------------------------------------------------------
WELL CAPITALIZED
ACTUAL REQUIREMENT EXCESS
------------------------------ -------------------------------- ---------------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------------- ------------ --------------- ------------- ---------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Leverage $341,879 6.41% $266,638 5.00% $ 75,241 1.41%
Tier 1 Risk-based 341,879 9.29% 220,856 6.00% 121,023 3.29%
Total Risk-based 386,460 10.50% 368,094 10.00% 18,366 0.50%
</TABLE>
YEAR 2000
General
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. As a result,
any of the Company's computer programs that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000 which, in
turn, could result
43
<PAGE>
in system failures or miscalculations causing disruptions in the operations of
the Company and its suppliers and customers.
The potential impact of the Year 2000 compliance issues on the financial
services industry could be material, as virtually every aspect of the industry
and processing of transactions will be affected. Due to the size of the task
facing the financial services industry and the interdependent nature of its
transactions, the Company may be adversely affected by this problem, depending
on whether it and the entities with which it does business address the issue
successfully. The impact of Year 2000 issues on the Company will then depend
not only on corrective actions that the Company takes, but also on the way in
which Year 2000 issues are addressed by governmental agencies, businesses, and
other third-parties that provide services or data to, or receive services and
data from, the Company, or whose financial condition or operational capability
is important to the Company.
Financial institution regulators have recently increased their focus upon
Year 2000 compliance issues and have issued guidance concerning the
responsibilities of an institution's senior management and directors. The
Federal Financial Institutions Examination Council, an oversight authority for
financial institutions, has issued several interagency statements on Year 2000
project management awareness. These statements require financial institutions
to, among other things, examine the Year 2000 implications of their reliance on
vendors and the potential impact of the Year 2000 issue on their customers,
suppliers and borrowers. These statements also require each federally regulated
financial institution to survey its exposure, measure its risk and prepare a
plan to address the Year 2000 issue. In addition, federal banking regulators
have issued safety and soundness guidelines to be followed by insured depository
institutions, such as BVB, to assure resolution of any Year 2000 problems. The
federal banking agencies have asserted that Year 2000 testing and certification
is a key safety and soundness issue in conjunction with regulatory examinations
and thus, that an institution's failure to appropriately address the Year 2000
issue could result in supervisory action, including the reduction of the
institution's supervisory ratings, the denial of applications for approval of
mergers or acquisitions or the imposition of civil monetary penalties.
The Company's State of Readiness
The Company relies upon third-party software vendors and data processing
service providers for the majority of its electronic data processing and does
not operate any proprietary programs which are critical to the Company's
operations. Thus, the focus of the Company is to monitor the progress of its
primary software and data processing service providers toward resolving Year
2000 compliance issues and prepare to test actual data of the Company in
simulated processing of future-sensitive dates.
The Company's Year 2000 compliance program has been divided into phases,
each of them common to all sections of the process: (1) inventorying Year 2000
items; (2) assessing the Year 2000 compliance of items determined to be material
to the Company; (3) upgrading or replacing material items that are determined
not to be Year 2000 compliant and testing material items; (4) designing and
implementing contingency and business continuation plans; and (5) assessing the
status of third-party risks.
In the first phase, the Company conducted a thorough evaluation of
current information technology systems, software and embedded technologies,
resulting in the identification of 14 mission critical systems that could be
affected by Year 2000 issues. Non-information technology systems such as climate
control systems, elevators and vault security equipment, were also surveyed.
This phase of the Year 2000 compliance program is substantially complete.
In the second phase, results from the systems inventory were assessed to
determine the Year 2000 impact and what actions were required to obtain Year
2000 compliance. For the Company's internal systems, actions needed ranged from
third-party vendor application upgrades to PC, server and network equipment
replacement. Further, the Company surveyed information regarding Year 2000
readiness for its material third-party suppliers
44
<PAGE>
of information systems and services. This phase of the Year 2000 compliance
program is substantially complete.
The third phase includes the upgrading, replacement, and/or refinement of
systems, and testing. This phase of the Year 2000 process is ongoing and is
expected to be completed by the first quarter of 1999. The Company estimates
that the software conversion phase of its mission critical systems was more than
90% complete at September 30, 1998, and the remaining conversions are expected
to be completed no later than year-end 1998. Each of the upgrades or
replacements, to the extent economically feasible, is run through a test
environment to see how well it integrates with the Company's overall data
processing environment. Final "future-date" testing of system upgrades and
replacements is expected to be completed by the end of the first quarter of
1999.
The fourth phase relates to contingency plans. While the Company is
reasonably certain that its internal Year 2000 compliance program will be
successfully accomplished on time, there could be other operational issues
regarding the Year 2000 process that may prevent the Company from successfully
implementing its Year 2000 compliance program. If these other operational
issues occur and remain unresolved, the Company could be required to implement a
contingency plan for Year 2000 compliance. While the Company has not completely
finalized its contingency plan, it will select from several alternative plans
including the installation of other third-party vendor software or some
combination of alternatives.
The final phase, assessing third-party risks, includes the process of
identifying and prioritizing critical suppliers and customers at the direct
interface level, as well as other material relationships with third-parties,
including various exchanges, clearing houses, other banks, telecommunication
companies, and public utilities. This evaluation includes communicating with
the third-parties about their plans and progress in addressing Year 2000 issues.
Detailed evaluations of the most critical third-parties are continuing. These
evaluations will be followed with contingency plans, which are ongoing and
expected to be finalized in the second quarter of 1999, with follow up reviews
scheduled through the remainder of 1999.
The Company's total costs associated with required modifications to
become Year 2000 compliant are estimated at approximately $1.0 million. A
significant portion of these costs has been and will continue to be the
reallocation of internal resources and, therefore, does not necessarily
represent incremental expense to the Company. The total amount expended on the
Year 2000 compliance program through September 30, 1998 was approximately
$350,000.
Risks
Failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting primarily from the
uncertainty of the Year 2000 readiness of third-party suppliers and customers,
the Company is unable to determine at this time whether the consequences of Year
2000 failures will have a material impact. The Company's Year 2000 compliance
program will reduce levels of uncertainty about the Year 2000 issues including
the compliance and readiness of its material third-party providers. The Company
believes that, with the implementation of new or upgraded business systems and
completion of the Year 2000 compliance program as scheduled, the possibility of
significant interruptions of normal operations will be reduced.
IMPACT OF NEW ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information" ("SFAS 131"), which establishes annual
and interim reporting standards for a publicly held entity's operating segments
and related disclosures about its products, services, geographic areas, and
major customers. Adoption of this statement will not impact the Company's
consolidated financial condition, results
45
<PAGE>
of operations or cash flows, and any effect will be limited to the form and
content of its disclosures. SFAS 131 will be effective for the Company's
December 31, 1998 financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which establishes accounting
and reporting standards for derivative instruments and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial condition and measure those
instruments at fair value. The accounting for changes in the fair value of
derivatives depends on the intended use of the derivative. The Company
currently utilizes interest rate swap agreements to hedge cash flows associated
with current and anticipated transactions. To the extent these interest rate
swap agreements qualify as a cash flow hedge under SFAS 133, the effective
portion of the derivative's gain or loss would be initially reported as a
component of other comprehensive income (outside of earnings) and subsequently
reclassified into earnings when the forecasted transaction affected earnings.
SFAS 133 will be effective for the Company for the fiscal quarter beginning July
1, 1999.
In October 1998, the FASB issued SFAS No. 134, "Accounting for Mortgage-
Backed Securities Retained after the Securitization of Mortgage Loans Held for
Sale by a Mortgage Banking Enterprise" ("SFAS 134"), which amends the disclosure
requirements of SFAS No. 65, "Accounting for Certain Mortgage Banking
Activities." SFAS 134 conforms the subsequent accounting for securities retained
after the securitization of mortgage loans by a mortgage banking enterprise with
the subsequent accounting for securities retained after the securitization of
other types of assets by a nonmortgage banking enterprise. SFAS 134 will be
effective for the Company for the fiscal quarter beginning January 1, 1999. The
Company does not expect that the adoption of SFAS 134 will have a material
impact on its consolidated financial condition, results of operations or cash
flows.
46
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- - -------------------------------------------------------------------
ASSET AND LIABILITY MANAGEMENT
The objective of the Company's asset/liability management activities is
to improve earnings by adjusting the type and mix of assets and liabilities to
effectively address changing conditions and risks. Through overall management of
its balance sheet and by controlling various risks, the Company seeks to
optimize its financial returns within safe and sound parameters. The Company's
operating strategies for attaining this objective include:
. Managing net interest margin through appropriate risk/return pricing
of assets and liabilities.
. Increasing deposits as a percentage of interest-bearing liabilities
and reducing the Company's cost of funds.
. Utilizing the Company's strong capital position to boost the earnings
power through acquisition of quality assets with higher risk-adjusted
yields.
. Controlling noninterest expense and enhancing noninterest income,
utilizing improved information systems to facilitate analysis of the
profitability of individual business units and products.
. Utilizing interest rate swap agreements and other hedging strategies
to reduce exposure to fluctuations in interest rates.
. Enhancing internal analysis capability for measuring, evaluating and
monitoring risk.
INTEREST RATE RISK
Financial institutions are subject to interest rate risk to the degree
that interest-bearing liabilities reprice or mature on a different basis and at
different times than interest-earning assets. The Company's strategy has been to
reduce the sensitivity of its earnings to interest rate fluctuations by more
closely matching the effective maturities or repricing characteristics of its
assets and liabilities. Certain assets and liabilities, however, may react in
different degrees to changes in market interest rates. Further, interest rates
on certain types of assets and liabilities may fluctuate prior to changes in
market interest rates, while rates on other types may lag behind. Additionally,
certain assets, such as adjustable rate mortgages, have features, including
payment and rate caps, which restrict changes in their interest rates. The
Company considers the anticipated effects of these factors when implementing its
interest rate risk management objectives.
The Company pursues balance sheet management strategies that should, in
the long run, mitigate its exposure to fluctuations in interest rates. The
Company also considers other strategies to minimize the variability of net
interest margin including off-balance sheet activities. The Company has
initiated numerous actions over the past three years which significantly reduced
the Company's exposure to fluctuations in interest rates since December 31,
1994.
Interest Rate Swaps
- - -------------------
The Company uses interest rate swap agreements to hedge cash flows
associated with the Company's borrowings. Interest rate swaps involve the
exchange of fixed-rate and floating-rate interest payment obligations without
the exchange of the underlying notional amounts. At September 30, 1998 and
December 31, 1997, the Company was a party to interest rate swap agreements with
notional principal amounts of $366 million and $449 million, respectively, which
involve the receipt of floating interest rates (based on 3-month LIBOR) and
payment of fixed interest rates on the underlying notional amounts.
47
<PAGE>
INTEREST RATE SENSITIVITY
The Company's interest rate risk management policies are established and
monitored by its Asset/Liability Committee ("ALCO"). The ALCO reviews the
sensitivity of the Company's net interest income and market value of equity to
interest rate changes. The objective of the Company's ALCO activities is to
improve earnings by adjusting the types of assets and liabilities to effectively
address changing conditions and risks. Management believes that its
asset/liability activities have improved earnings within safe and sound
parameters.
In measuring interest rate sensitivity, the Company uses simulation
modeling to estimate the potential effects of movements in interest rates.
Interest rate sensitivity analysis measures the Company's interest rate risk by
computing the estimated change in base forecasted net interest income ("NII") in
the event of a range of assumed changes in market interest rates. The base
forecast is for the twelve month period beginning September 30, 1998 and ending
September 30, 1999, and utilizes current market rate assumptions. This analysis
assesses the effect on NII in the event of a sudden and sustained 100 or 200
basis point increase or decrease in market interest rates.
The following table presents the Company's projected NII with and without
interest rate swaps, and the corresponding percentage change from the base
forecast, for the various basis point ("bp") rate shock levels at September 30,
1998.
<TABLE>
<CAPTION>
PROJECTED EFFECT (UNAUDITED)
--------------------------------------------------------------------------------------------
-200 bp -100 bp +100 bp +200 bp
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
NII without swaps $194,816 $186,630 $171,132 $161,367
NII with swaps $186,658 $180,912 $170,296 $162,971
Impact of swaps $ (8,158) $ (5,718) $ (836) $ 1,604
% Increase (decrease) from base NII,
with swaps 6.22% 2.95% (3.09%) (7.26%)
</TABLE>
The computation of prospective effects of hypothetical interest rate
changes are based on numerous assumptions, including relative levels of market
interest rates, loan and mortgage-backed securities prepayments and
deposit decay, and should not be relied upon as indicative of actual results.
Further, the computations do not contemplate any actions the Company may
undertake in response to changes in interest rates. Actual amounts may differ
from those projections set forth in the table should market conditions vary from
assumptions used in the preparation of the table.
To measure the Company's interest rate sensitivity, a cumulative gap
measure can also be used to assess the impact of potential changes in interest
rates on net interest income. The repricing gap represents the net position of
assets and liabilities subject to repricing in specified time periods. Assets
and liabilities are categorized according to the expected repricing time frames
based on management's judgment. A cumulative gap measure alone cannot be used to
evaluate interest rate sensitivity because interest rate changes do not affect
all categories of assets and liabilities equally or simultaneously.
48
<PAGE>
The following table illustrates the combined asset and liability
repricing of the Company as of September 30, 1998:
<TABLE>
<CAPTION>
REPRICING PERIOD (UNAUDITED)
---------------------------------------------------------------------------------------
UNDER BETWEEN BETWEEN THREE OVER
ONE ONE AND THREE AND FIVE
YEAR YEARS FIVE YEARS YEARS TOTAL
---------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
ASSETS:
- - -------
<S> <C> <C> <C> <C> <C>
Cash and investments $ 172,816 $ - $ - $ - $ 172,816
Loans and mortgage-backed
securities (1) 3,111,211 989,237 568,369 389,756 5,058,573
---------- --------- -------- --------- ----------
Total interest rate
sensitive assets $3,284,027 $ 989,237 $568,369 $ 389,756 $5,231,389
========== ========= ======== ========= ==========
LIABILITIES
- - -----------
Deposits:
Transaction accounts $1,438,387 $ - $ - $ - $1,438,387
Certificates of deposit 1,528,558 224,252 37,559 1,188 1,791,557
Borrowings 990,308 514,296 270,962 103,974 1,879,540
---------- --------- -------- --------- ----------
Total interest rate sensitive
liabilities $3,957,253 $ 738,548 $308,521 $ 105,162 $5,109,484
========== ========= ======== ========= ==========
Repricing gap-positive
(negative) before impact
of interest rate swaps $ (673,226) $ 250,689 $259,848 $ 284,594 $ 121,905
==========
Impact of interest rate swaps 281,500 (154,000) (25,000) (102,500)
---------- --------- -------- ---------
$ (391,726) 96,689 234,848 182,094
========== ========= ======== =========
Cumulative repricing
gap-positive (negative) $ (391,726) $(295,037) $(60,189) $ 121,905
========== ========= ======== =========
Cumulative repricing gap as a
percentage of interest rate
sensitive assets at
September 30, 1998 (7.49)% (5.64)% (1.15)% 2.33%
========== ========= ======== =========
</TABLE>
(1) Based on assumed annual prepayment and amortization rates which
approximate the Company's historical experience.
49
<PAGE>
The following table illustrates the combined asset and liability
repricing of the Company as of December 31, 1997:
<TABLE>
<CAPTION>
REPRICING PERIOD (UNAUDITED)
--------------------------------------------------------------------------------------
UNDER BETWEEN BETWEEN OVER
ONE ONE AND THREE THREE AND FIVE FIVE
YEAR YEARS YEARS YEARS TOTAL
---------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
ASSETS
- - ------
<S> <C> <C> <C> <C> <C>
Cash and investments $ 257,588 $ 5,000 $ - $ - $ 262,588
Loans and mortgage-backed
securities (1) 1,950,582 371,275 201,178 320,339 2,843,374
---------- --------- --------- -------- ----------
Total interest rate
sensitive assets $2,208,170 $ 376,275 $ 201,178 $320,339 $3,105,962
========== ========= ========= ======== ==========
LIABILITIES
- - -----------
Deposits:
Transaction accounts $ 553,820 $ - $ - $ - $ 553,820
Certificates of deposit 1,007,420 110,987 4,908 - 1,123,315
Borrowings 1,101,604 135,000 20,000 99,372 1,355,976
---------- --------- --------- -------- ----------
Total interest rate
sensitive liabilities $2,662,844 $ 245,987 $ 24,908 $ 99,372 $3,033,111
---------- --------- --------- -------- ----------
Repricing gap-positive
(negative) before impact of
interest rate swaps $ (454,674) $ 130,288 $ 176,270 $220,967 $ 72,851
==========
Impact of interest rate swaps 389,250 (111,750) (100,000) (177,500)
---------- --------- --------- --------
(65,424) 18,538 76,270 43,467
---------- --------- --------- --------
Cumulative repricing
gap-positive (negative) $ (65,424) $ (46,886) $ 29,384 $ 72,851
========== ========= ========= ========
Cumulative repricing gap as a
percentage of interest rate
sensitive assets at
December 31, 1997 (2.11)% (1.51)% 0.95% 2.35%
========== ========= ========= ========
</TABLE>
(1) Based on assumed annual prepayment and amortization rates which
approximate the Company's historical experience.
50
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
None
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other Information
-----------------
The Indenture relating to the Company's 9 1/8% Subordinated Notes due
2007 has not permitted the Company to pay cash dividends or make common
stock repurchases unless it was "well-capitalized" for bank holding
company regulatory purposes. The Company's October 1998 stock
repurchases were made at a time when the Company was not well-
capitalized. On October 30, 1998 the Company and the Indenture Trustee
entered into a First Supplemental Indenture, revising the "well
capitalized" standard to "adequately capitalized." The Company is
currently in compliance with the Indenture, as amended by the First
Supplemental Indenture.
In addition, the First Supplemental Indenture amended the Indenture to
exclude from the definition of "restricted payments" under the
Indenture dividends on preferred securities issued by a special purpose
subsidiary whose primary purpose is to invest in debt securities of the
Company and any distribution of these debt securities to the preferred
security holders.
See also the First Supplemental Indenture attached hereto as Exhibit
10.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a(i). First Supplemental Indenture dated October 30, 1998 (Exhibit 10)
Employment Agreement with Richard Arnold (Exhibit 10.1)
Employment Agreement with John N. Buckley (Exhibit 10.2)
Employment Agreement with Robert J. Flax (Exhibit 10.3)
Employment Agreement with David A. Heaberlin (Exhibit 10.4)
Employment Agreement with Scott H. Ray (Exhibit 10.5)
Employment Agreement with Ronald L. Reed (Exhibit 10.6)
Employment Agreement with Edward H. Sondker (Exhibit 10.7)
Employment Agreement with Carolyn Williams-Goldman (Exhibit 10.8)
a(ii). Computation of Ratios of Earnings to Fixed Charges (Exhibit 12)
a(iii). Financial Data Schedule (Exhibit 27)
b(i). The Registrant filed the following report on Form 8-K dated August
27, 1998 during the three months ended September 30, 1998:
51
<PAGE>
The Registrant cancelled the proposed acquisition of PSB Lending
Corporation, increased its share repurchase program to up to $50
million in shares of the Company's common stock, and announced the
filing of an application to convert Bay View Bank from a federally
chartered savings bank regulated by the Office of Thrift Supervision to
a national bank regulated by the Office of the Comptroller of the
Currency.
b(ii). The Registrant filed the following report on Form 8-K dated
September 30, 1998 during the three months ended September 30, 1998:
The Registrant provided consolidated financial statements of AFEH and
pro forma financial information regarding the merger of the Company and
AFEH prepared in accordance with Regulation S-X of the Securities and
Exchange Commission.
SIGNATURES
Pursuant to the requirements 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.
BAY VIEW CAPITAL CORPORATION
----------------------------
Registrant
DATE: November 16, 1998 BY: /s/ David A. Heaberlin
-------------------------
David A. Heaberlin
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
52
<PAGE>
EXHIBIT 10
BAY VIEW CAPITAL CORPORATION
AND
SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION
FIRST SUPPLEMENTAL INDENTURE
Dated as of October 30, 1998
SUPPLEMENTING AND AMENDING
THE
INDENTURE
Dated as of August 28, 1997
SUBORDINATED DEBT SECURITIES
<PAGE>
FIRST SUPPLEMENTAL INDENTURE, dated as of October 30, 1998 (the "First
Supplemental Indenture"), between Bay View Capital Corporation, a Delaware
corporation, (the "Issuer" which term as used herein includes any successor
thereto), and SunTrust Bank, Central Florida, National Association, a national
banking association, as trustee (the "Trustee").
RECITALS OF THE ISSUER
WHEREAS, the Issuer and the Trustee have duly authorized, executed and
delivered a certain indenture dated as of August 28, 1997 (the "Indenture")
and an Officers Certificate pursuant to Section 201 and 301 of the Indenture
(the "Officer's Certificate") to secure and to provide for the authentication
and delivery of the Issuer's Subordinated Debt Securities (the "Notes"),
including an initial series of Notes known as the Issuer's "9 1/8%
Subordinated Notes due 2007"; and
WHEREAS, the Issuer and the Trustee desire to amend the Indenture as
hereinafter provided;
NOW, THEREFORE, in consideration of the premises and of the covenants
herein contained and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Issuer and the Trustee
hereby agree as follows:
Section 1. For all purposes of this First Supplemental Indenture,
---------
unless the context otherwise requires, the capitalized terms used herein shall
have the meanings assigned to them in the Indenture.
Section 2. Clause (b)(11)(a)(A) of the Officer's Certificate is
---------
hereby amended in its entirety as follows:
declare, pay or set apart any funds for the payment of any dividend
on, or make any distribution to holders of, any Capital Stock of the
Company or any Capital Stock of any Subsidiary of the Company (other
than (i) payments to the Company or a Subsidiary of the Company, (ii)
dividends or distributions to the extent payable in Qualified Capital
Stock of the Company and (iii) dividends on preferred securities
issued by a Subsidiary whose purpose is primarily to invest all the
proceeds from the issuance of such preferred securities in debt
securities of the Company and any distributions of such debt securities
to the holders of the preferred securities).
Section 3. The definition of Regulatory Capital Requirement contained
---------
in Clause (b)(12) of the Officer's Certificate is hereby amended in its
entirety as follows:
"Regulatory Capital Requirements" means (i) with respect to the
Company, the minimum amount of capital required for the Company
(assuming for such purpose that the Company is subject to regulation
as a bank holding company under federal law, whether or not the
Company is in fact so subject) to be deemed to be
2
<PAGE>
"adequately capitalized" (or the then equivalent category) under
federal banking laws and regulations as then in effect and applicable
to the Company (assuming it is subject to regulation as a bank holding
company as aforesaid) at such time; (ii) with respect to any Principal
Bank Subsidiary of the Company at any time, the minimum amount of
capital required for such Principal Bank Subsidiary to be deemed to be
"well capitalized" (or the then equivalent category) or, solely for
purposes of clause (c) of the first paragraph under (b)(11)(d) hereof
(Limitation on Consolidation, Merger and Sale of Assets), "adequately
capitalized" (or the then equivalent category) under federal banking
laws and regulations as then in effect and applicable to such Principal
Bank Subsidiary; (iii) with respect to any Successor Person, the
minimum amount of capital required for such Successor Person (assuming
for such purpose that such Successor Person is subject to regulation
as a bank holding company under federal law, whether or not it is in
fact so subject) to be deemed to be "adequately capitalized" (or the
then equivalent category) under federal banking laws and regulations
as then in effect and applicable to such Successor Person (assuming it
is subject to regulation as a bank holding company as aforesaid) at
such time; and (iv) with respect to any Principal Bank Subsidiary of
such Successor Person at any time, the minimum amount of capital
required for such Principal Bank Subsidiary to be deemed to be "well
capitalized" (or the then equivalent category) or, solely for purposes
of clause (c) of the first paragraph under (b)(11)(d) hereof
(Limitation on Consolidation, Merger and Sale of Assets), "adequately
capitalized" (or the then equivalent category) under federal banking
laws and regulations as then in effect and applicable to such
Principal Bank Subsidiary, at such time.
Section 4. Except as specifically amended or supplemented by this
---------
First Supplemental Indenture, all provisions of the Indenture shall remain
applicable for all purposes, and the Indenture is hereby ratified, confirmed
and approved. The Indenture and this First Supplemental Indenture shall
together be construed as one and the same instrument.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this First Supplemental
Indenture to be duly executed as of the day and year first above written.
BAYVIEW CAPITAL CORPORATION,
a Delaware Corporation
By: /s/ EDWARD H. SONDKER
----------------------------------------
Name: Edward H. Sondker
--------------------------------------
Title: President and Chief Executive Officer
-------------------------------------
[SEAL]
Attest:
/s/ ROBERT J. FLAX
- - -------------------------------------
Name: Robert J. Flax
Title: Executive Vice President,
General Counsel and Secretary
SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATION, as Trustee
By: /s/ LISA DERRYBERRY
------------------------
Name: Lisa Derryberry
----------------------
Title: Vice President
---------------------
[SEAL]
Attest:
/s/ PATRICIA SMITH
- - ------------------------------
Name: Patricia Smith
Title: Corporate Trust Officer
4
<PAGE>
OFFICER'S CERTIFICATE
---------------------
Each of the undersigned hereby certify that they are duly elected and
incumbent officers of Bay View Capital Corporation ("BVCC"), a Delaware
corporation. In order for Silver Freedman & Taff, LLP to render certain opinions
in connection with the proposed First Supplemental Indenture, to be dated the
date of this certificate (the "Supplemental Indenture"), between BVCC and
SunTrust Bank, Central Florida, National Association, as trustee (the "Trustee")
the undersigned hereby certifies the accuracy of the facts contained herein, and
to the best of our knowledge make the representations provided herein. The First
Supplemental Indenture would amend the Indenture (the "Indenture") and an
Officers' Certificate Pursuant to Sections 201 and 301 of the Indenture (the
"Officers' Certificate"), each dated August 28, 1997, between BVCC and the
Trustee, which govern the terms and conditions of BVCC's 9 1/8% Subordinated
Notes Due August 15, 2007 in the aggregate principal amount of $100,000,000 (the
"Notes"). Capitalized terms used but not defined herein shall have the meanings
assigned to such terms in the Indenture. Each of the undersigned further
certifies to the Trustee and Silver Freedman & Taff, LLP for reliance in issuing
the legal opinion as follows:
1. BVCC will only issue additional debt securities in reliance on amended
Clause (b)(11)(a)(A) of the Officer's Certificate to a Subsidiary whose sole
purpose is to invest all the net proceeds from the Subsidiary's issuance of
preferred securities in debt securities of the BVCC and engaging only in
activities necessary and advisable or incidental thereto.
2. BVCC will record on its books and records and report on its financial
statements the preferred securities issued by the Subsidiary as a liability of
BVCC for financial accounting purposes in accordance with generally accepted
accounting principles and as debt of BVCC for all tax purposes.
3. Neither the sale of the debt securities to the Subsidiary by BVCC will occur
at a time when the insolvency of BVCC is contemplated nor a trustee in
bankruptcy has been appointed for BVCC. BVCC will not be rendered insolvent by
the sale of the debt securities to the Subsidiary. After giving effect to the
sale of the debt securities, BVCC will have sufficient capital to support its
business and BVCC at the time of issuance of the debt securities has available
funds and anticipated earnings that are reasonably anticipated to be sufficient
to meet its ongoing expenses. BVCC has no intent to issue debt securities beyond
its ability to pay its debts and expenses on a timely basis as they come due.
4. The amendments do not adversely affect the interests of the Holders of the
Notes in any material respect.
BAY VIEW CAPITAL CORPORATION
<TABLE>
<CAPTION>
Officer Name Signature
------- ---- ---------
<S> <C> <C>
President and Chief Edward H. Sondker /s/ EDWARD H. SONDKER
Executive Officer ------------------------
Executive Vice David A. Heaberlin /s/ DAVID A. HEABERLIN
President, Chief ------------------------
Financial Officer
and Treasurer
</TABLE>
5
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into this 1st day of April 1998 by and between Bay View Capital Corporation (the
"Corporation"), a Delaware Corporation, and Richard Arnold (the "Executive").
R E C I T A L S:
A. The parties desire to enter into this Agreement setting forth the
terms and conditions of the employment relationship between the Corporation and
the Executive.
B. The Board of Directors of the Corporation (or "Board") believes it
is in the best interests of the Corporation to enter into this Agreement with
the Executive in order to assure continuity of management of its wholly-owned
subsidiary, Bay View Bank ("Bank"), and has approved and authorized the
execution by the Corporation of this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and
the mutual promises herein contained, the parties hereto agree as follows:
1. Executive's Title, Duty, Authority and Time Commitment.
-------------------------------------------------------
a. Title. The Executive's position and title with the
------
Bank shall be that of Executive Vice President, Director of Sales.
b. Duties and Authority. The Executive's duties and
---------------------
authority shall be consistent with those of an Executive Vice President,
Director of Sales. The Executive shall render such administrative and management
services to the Bank as are customarily performed by persons employed in the
banking and financial services industry in a similar executive capacity. In
addition, the Executive shall perform such other duties as the Board, or its
authorized representative, may from time to time require. All duties performed
by the Executive hereunder shall be in accordance with such reasonable standards
as are established from time to time by the Board, or its authorized
representative, and performance evaluations shall be conducted by or under the
direction of the Board and reviewed with the Executive annually.
c. Time Commitment. During the "Term of this
----------------
Agreement", as defined in Section 5 of this Agreement, unless the Executive has
obtained the prior written consent of the Board, or its authorized
representative,
<PAGE>
(1) The Executive shall render his full
productive time and services to the Bank, keeping normal business hours, but is
authorized to engage in such banking trade association and related activities
during normal business hours which, in his judgment, with the concurrence of his
immediate supervisor, are in the business interests of the Bank; and
(2) The Executive shall not render personal
services to any other person or entity for compensation, either as an Executive,
consultant, director or officer, if such services would conflict with the
Executive's duty to the Corporation or adversely affect the Executive's judgment
in the performance of his responsibilities. Executive shall remain free to
engage in community, charitable, political and personal pursuits which do not
interfere with his performance under this Agreement.
2. Compensation. The Corporation agrees that the Bank shall
-------------
pay the Executive during the Term of this Agreement a base salary as follows:
$160,000 per annum, with the salary to be reviewed on July 1, 1998, and annually
on each July 1st thereafter during the Term of this Agreement. Salary increases
are not guaranteed or automatic. The salary provided for in this Agreement shall
be payable semi-monthly in accordance with the practices of the Corporation.
3. Discretionary Bonuses. The Executive shall be entitled to
----------------------
participate in discretionary bonuses and incentive payments which are now or
become authorized and declared by the Board or its authorized representative.
Executive shall be entitled to an annual performance bonus of up to forty
percent (40%) of base salary depending upon the achievement of specific goals
set by the Bank's Board of Directors.
4. Additional Benefits.
--------------------
a. Participation in Executive Benefit Plans. The
-----------------------------------------
Executive shall be entitled to participate in any plan of the Corporation, as
such plan may from time to time provide, relating to pension, thrift, deferred
profit sharing, group insurance coverage, education or retirement or other
supplemental Executive benefits that the Corporation has adopted or adopts for
the benefit of its Executives.
b. Fringe Benefits. The Executive shall be entitled to
----------------
participate in any other program which is or becomes applicable to the
Corporation's executives, as such program may from time to time provide
including a reasonable expense account, the payment of reasonable expenses for
attending educational seminars and annual and periodic meetings of trade
associations, and other benefits which are commensurate with the
responsibilities and functions to be performed by the Executive under this
Agreement.
2.
<PAGE>
5. Term.
-----
a. Initial Term and Automatic Extension. The initial
-------------------------------------
term of employment under this Agreement shall be for a period commencing on
January 1, 1998 and ending on December 31, 1998. On January 1, 1999 and on each
January 1st thereafter, the Term of this Agreement shall be extended
automatically by one additional year beyond the then current expiration date,
unless either the Corporation or the Executive gives contrary written notice to
the other not less than 45 days in advance of the date on which this Agreement
would otherwise be extended. Reference herein to the "Term of this Agreement"
shall refer to the term as so extended. Section 9, entitled "Change in Control,"
shall survive the expiration of this Agreement for a period of one (1) year so
long as Executive is employed by the Bank. If Executive is terminated by the
Bank without cause pursuant to Section 7a(2), said Section 9 shall survive this
Agreement for a period of one (1) year from the date of termination of
employment.
b. Consequences of Non-Extension. If this Agreement is
------------------------------
not extended, on the expiration of the Term of this Agreement, the Executive
shall be deemed to be employed by the Bank for no specific term and the
Executive's rights as an Executive of the Corporation shall be no less than
those provided by the laws of the State of California and the laws of the United
States; provided, however, that such post expiration employment may be
terminated at any time by the Executive or by the Board, or its authorized
representative, with or without cause by delivery to the Executive of a written
notice (the "Termination Notice") of such termination.
6. Voluntary Absences. At such reasonable times as the
-------------------
Board, or its authorized representative, shall in its discretion permit, the
Executive shall be entitled, without loss of pay, to absent himself voluntarily
from the performance of his employment under this Agreement. All such voluntary
absences shall count as holidays, vacation time, floating holidays, sick leave,
compensatory time or other paid time off as specified in Corporation policy,
provided that:
a. Vacation Entitlement. The Executive shall be
---------------------
entitled to an annual paid vacation of 20 days per year.
b. Timing of Vacation. Vacations shall be scheduled in
-------------------
a reasonable manner by the Executive and subject to the Bank's needs, except
that the Executive shall take not less than ten (10) days vacation consecutively
in each calendar year.
3.
<PAGE>
7. Termination of Employment.
--------------------------
a. Termination by Corporation. The Executive's
---------------------------
employment under this Agreement may be terminated, with or without cause, at any
time by the Board, or its authorized representative, by delivery to the
Executive of a written notice (the "Termination Notice") of such termination.
The Termination Notice shall state the effective date of such termination and
whether such termination is for "cause," as defined in Section 7a(1), or without
cause pursuant to Section 7a(2). Unless the Termination Notice states that the
termination is for cause and states with reasonable particularity the cause, the
termination shall be deemed to be without cause pursuant to Section 7a(2). In
the event an arbitrator appointed pursuant to Section 13 of this Agreement
determines that a purported termination for cause was in fact without proper
cause, the termination shall nonetheless be effective, but the Executive shall
be entitled to the severance payment pursuant to Section 7a(2) hereof.
(1) Termination by Corporation for Cause. The
-------------------------------------
Executive's employment under this Agreement may be terminated at any time by the
Board, or its authorized representative, for "cause," which shall include, but
not be limited to the following:
(a) The commission by the Executive of
an act of misconduct (including, but not limited to, the violation of any law,
rule, regulation or cease and desist order applicable to the Executive or the
Corporation or its insured subsidiaries), or an act which constitutes a breach
of a fiduciary duty owed by the Executive involving personal profit;
(b) The Executive's material breach of
this Agreement, dishonesty, incompetence, willful misconduct, habitual unexcused
absence from work, intentional failure to perform duties, or gross negligence in
the performance of stated duties;
(c) The Executive's becoming physically
or mentally incapable of performing the essential functions of his employment
position, with or without reasonable accommodation, for a period in excess of
the applicable leave entitlement mandated by Federal or State law; or
(d) Any criminal conviction of the
Executive (other than for a minor traffic violation or similar offense), whether
or not in the line of duty.
In the event of termination for cause under this Section 7a(1), the Executive
shall have no right to receive compensation or other benefits under this
Agreement for any period after such termination.
4.
<PAGE>
(2) Termination by Corporation Without
----------------------------------
Cause. The Executive's employment under this Agreement may be terminated at any
- - -----
time by the Board, or its authorized representative, without cause; provided,
however, that unless the termination of this Agreement is for "cause," as set
forth in Section 7a(1), or pursuant to Sections 7b, 7c, or 9, then, upon such
termination, in addition to any benefits that had accrued to the date of
termination but in lieu of any rights or benefits that would have accrued
following such termination, the Executive shall be entitled, upon execution of a
Severance Agreement and Release as provided in Exhibit A, to a lump sum
severance payment of eighteen (18) months salary.
b. Termination by the Executive. This Agreement may be
-----------------------------
terminated by the Executive at any time upon 30 days written notice to the
Corporation or upon such shorter period as may be agreed upon between the
Executive and the Board.
c. Termination by Death. In the event of the death of
---------------------
the Executive during the Term of this Agreement, the Executive's estate, or such
person as the Executive may have previously designated in writing for group
insurance purposes, shall be entitled to receive the salary due the Executive
through the last day of the calendar month in which his death shall have
occurred.
8. Disability. If the Executive shall become disabled or
-----------
incapacitated to the extent that he is unable to perform the essential functions
of his employment position, with or without reasonable accommodation, he shall
be entitled to receive disability benefits of the type provided for other
employees of the Corporation. In such event, 90 days after the last day the
Executive worked, any rights of the Executive to receive the salary provided in
Section 2 of this Agreement shall be suspended until the Executive is able to
resume performance of his duties.
9. Change in Control. If during the Term of this Agreement,
------------------
or within one (1) year following the expiration of this Agreement and if
Executive is employed by the Corporation, there is a "change in control," of the
Corporation, as hereinafter defined, the Executive shall be entitled, upon
execution of a Severance Agreement and Release as provided in Exhibit A, to a
severance payment in the event the Executive's employment is terminated, other
than for "cause" as set forth in Section 7a(1) or pursuant to Sections 7b
(except as provided below), or 7c, within twenty-four (24) months after the
change in control. The amount of this payment shall equal two hundred
percent(200%) of the Executive's annual salary as of the date of termination and
shall be in lieu of any severance payment that would be due Executive under
Section 7a(2). Except as provided above, such termination or severance payment
shall be in addition to all other
5.
<PAGE>
amounts payable to the Executive pursuant to this Agreement. This termination or
severance payment shall also be made in the case of a termination of employment
by the Executive pursuant to Section 7b of this Agreement within twenty-four
(24) months after a change in control because during such twenty-four (24) month
period there has been a material diminution of or interference with the
Executive's duties, responsibilities and benefits as, Executive Vice President,
Director of Sales of the Bank. By way of example and not by way of limitation,
any of the following actions, if unreasonable or materially adverse to the
Executive, shall constitute such diminution or interference unless consented to
in writing by the Executive: (i) a change in the principal workplace of the
Executive to a location more than 25 highway miles from the Executive's current
office location; (ii) a reduction or adverse change in the salary or benefits
which had theretofore been provided to the Executive, other than as part of an
overall program applied uniformly and with equitable effect to all members of
senior management of the Corporation; or (iii) a change in Executive's title.
Any payments made to the Executive pursuant to this Agreement,
or otherwise, are subject to and conditioned upon their compliance with 12
U.S.C. Section 1828(k) and any regulations promulgated thereunder.
The term "change in control" as applied to the Corporation is
defined solely as any acquisition of control of the Corporation (other than
pursuant to the acquisition by a trustee or other fiduciary holding securities
under an Executive benefit plan of the Corporation), as defined in 12 C.F.R.
Section 574.4, or any successor regulation, which would require the filing of an
application for acquisition of control or notice of change in control as set
forth in 12 C.F.R. Section 574.3, or any successor regulation.
10. Successors and Assigns. The terms, provisions, covenants,
-----------------------
and conditions of this Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns; provided,
however, that the Executive may not sell, assign, pledge, hypothecate or
otherwise transfer this Agreement or any part thereof without the prior written
consent of the Corporation, which consent may be withheld by the Corporation for
any reason it deems appropriate. "Successors and assigns" shall mean, in the
case of the Corporation, any successor pursuant to a merger, consolidation or
sale or transfer of all or substantially all of the assets of the Corporation.
6.
<PAGE>
11. Indemnification. The Corporation hereby agrees that the
----------------
Corporation shall indemnify the Executive to the fullest extent permitted by the
Corporation's Bylaws and by Delaware corporate law.
12. Excise Taxes. In the event it shall be determined that
-------------
any payment or distribution by the Corporation or its affiliates to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of the Agreement or otherwise, but
determined without regard to any additional payments required under this Section
12) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code (the "Code") or any interest or penalties are incurred
by the Executive with respect to such excise (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitations, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payment.
13. Confidential Information
------------------------
a. Non-Disclosure. Employee hereby agrees that, during
--------------
the Term of this Agreement and thereafter, he will not disclose to any person,
or otherwise use or exploit any of the proprietary or confidential information
or knowledge, including without limitation, trade secrets, processes, records of
research, proposals, reports, methods, techniques, customer lists and customers,
computer software or programming, budgets or financial information, or other
confidential information and/or trade secrets, regarding the Corporation, its
businesses, properties or affairs obtained by him at any time prior to or
subsequent to the execution of this Agreement, except to the extent required by
his performance or assigned duties for the Corporation. Executive understands
that proprietary or confidential information does not include any of the
foregoing items which (i) have become publicly known or made generally available
through no wrongful act of Executive or of others who were under confidentiality
obligations as to the item or items involved, or (ii) are independently
developed by the Executive without the use of proprietary or confidential
information. In addition, Employee agrees not to divulge, publish or otherwise
reveal, during the Term of this Agreement or thereafter, either directly or
indirectly, or through another, to any person, firm or corporation, for
competitive purposes, any knowledge or information or any facts concerning the
methods and techniques used by the Corporation to conduct business, the names of
customers and others who have relationships
7.
<PAGE>
with the Company, or other confidential information and/or trade secrets used by
the Corporation in the operation of its business. During the Term of this
Agreement: (i) Employee agrees to disclose to the Corporation the identity and
nature of any contacts with any person or entity soliciting from Employee
disclosure of any such information or soliciting Employee's involvement in any
business venture competitive with the Corporation; and (ii) Employee shall not
conceal from or fail to disclose to the Corporation, or divert or exploit for
his own personal profit or that of others, any business opportunity or other
opportunity to acquire an interest in or a contractual relationship with any
person or entity where such person or entity is in the Corporation's line of
business or where such contractual relationship would be considered a feasible
and advantageous opportunity for the Corporation.
b. Return of Materials. Upon termination of
--------------------
employment, Employee will deliver to the Corporation all tangible displays and
repositories of process, records of research, proposals, reports, memoranda,
computer software and programming, budgets and other financial information, and
other materials or records or writings of any type (including any copies
thereof) made, used or obtained by Employee in connection with his employment by
the Corporation; provided, however, that documents relating to Employee's
employment arrangements with the Corporation or his personal affairs shall be
excluded from the provisions herein. Notwithstanding the foregoing, Employee
will be entitled to have reasonable access to such property as is necessary for
and in order to prosecute or defend any legal action or proceeding or to respond
to a court or arbitration order.
c. The Employee acknowledges that the restrictions
contained in the foregoing paragraphs of this Section 13, in view of the nature
of the businesses in which the Corporation is engaged, are reasonable and
necessary in order to protect the legitimate interests of the Corporation, and
that any violation thereof would result in irreparable and substantial harm to
the Corporation for which the Corporation does not have an adequate remedy at
law, and the Employee therefore acknowledges that, in the event of his actual or
threatened violations of any of these restrictions, the Corporation shall be
entitled to obtain from any court of competent jurisdiction temporary,
preliminary and permanent injunctive relief as well as damages and equitable
accounting of all earnings, profits and other benefits arising from such
violation, which rights shall be cumulative and in addition to any other rights
or remedies to which the Corporation may be entitled.
d. In the event that the Corporation believes that it
is entitled to relief under this Section 13, the Corporation will provide
written notice to Employee specifying the nature of any alleged breach of this
section. The Corporation
8.
<PAGE>
shall be obligated to discuss with Employee in good faith whether such breach
has occurred and, if so, whether such breach can be cured. If Employee cures
such breach within fifteen (15) days from the date of such notice, Employee
shall not be deemed to be in breach of this Section 13.
14. Arbitration. The parties hereby agree that any
------------
controversy or dispute arising out of or relating to this Agreement shall be
resolved pursuant to this Section 14.
a. Agreement to Negotiate. Prior to submitting any
-----------------------
controversy, dispute or claim arising out of, or relating to, this Agreement to
arbitration, the parties hereto agree to observe the following procedures:
(1) The party desiring to submit any such
controversy, dispute or claim to arbitration (the "claimant") first shall give
written notice thereof to the other party (the "recipient") setting forth in
detail the pertinent facts and circumstances relating to such controversy,
dispute or claim;
(2) The recipient shall have a period of
fifteen (15) days after receipt of written notice in which to consider the
controversy, dispute or claim which is the subject of the notice and to furnish
in writing to the claimant a written statement of the recipient's position;
(3) Within seven (7) days of claimant's receipt
of recipient's written statement, the parties shall meet in an effort to resolve
amicably any differences which may exist and, failing such resolution, either or
both of the parties shall have the right to submit the matter to arbitration.
b. Procedure for Arbitration.
-------------------------
(1) The parties hereby agree that any
controversy, dispute or claim arising out of, or relating to, this Agreement, or
breach of this Agreement, including disputes concerning termination of this
Agreement, shall be settled by arbitration in San Mateo, California. This
agreement to arbitrate shall be specifically enforceable. Judgment upon any
award rendered by an arbitrator may be entered in any court having jurisdiction.
(2) Any demand for arbitration must be served
on the other party within forty-five (45) days of the act or omission giving
rise to the controversy, dispute or claim.
(3) There shall be one impartial arbitrator
chosen by the parties from a list procured from the California Mediation and
Conciliation Service.
9.
<PAGE>
(4) The arbitrator shall not extend, modify or
suspend any of the terms of this Agreement.
(5) The decision of the Arbitrator within the
scope of the submission shall be final and binding on all parties, and any right
to judicial action on any matter subject to arbitration hereunder is hereby
waived (unless otherwise provided by applicable law), except suit to enforce
this arbitration award.
(6) Executive agrees that such arbitration
shall be the exclusive forum for any controversy, dispute or claim arising out
of or relating to this Agreement, or breach or termination of this Agreement.
Executive further expressly agrees that in arbitration his exclusive remedy
shall be a money award not to exceed the amount of wages he would have earned
under this Agreement but for the alleged violation and the Executive shall not
be entitled to any other remedy, at law or in equity, including but not limited
to reinstatement, other money damages, punitive damages and/or injunctive
relief.
(7) Each party shall pay such party's own
attorney or other representative, and the expenses of such party's witnesses and
all other expenses connected with his case. Other costs of the arbitration,
including the cost of any record or transcript of the arbitration,
administrative fees, arbitrator's fees, and all other fees and costs, shall be
borne by the Corporation; provided, however, that at the discretion of the
Arbitrator, and upon a preponderance of the evidence that one of the parties has
engaged in malice, fraud or oppression relating to the termination of the
Executive's employment, reasonable attorney's fees and costs may be awarded to
the other party.
15. General Provisions.
-------------------
a. Notices. Any notice, request, demand or other
--------
communication required or permitted hereunder shall be deemed to be properly
given when personally served in writing and when deposited in the United States
mail, registered or certified, postage prepaid, addressed to the party at the
last address supplied to the sending party by the addressed party.
b. Waiver. The waiver by any party of a breach of any
-------
provision of this Agreement by the other shall not operate or be construed as a
waiver of any subsequent breach of the same provision or any other provision of
this Agreement.
c. Entire Agreement. Except as provided herein, this
-----------------
Agreement contains the entire agreement of the parties. It supersedes any and
all other agreements, either oral or in writing, between the parties hereto with
respect to the employment of the Executive by the Corporation. Each party to
this Agreement acknowledges that no representations, inducements, promises or
10.
<PAGE>
agreements, oral or otherwise, have been made by any party, or anyone acting on
behalf of any party, which are not embodied herein, and that no other agreement,
statement or promise not contained in this Agreement shall be valid and binding.
d. Amendments. No amendments or additions to this
-----------
Agreement shall be binding unless in writing and signed by both parties, except
as herein otherwise provided.
e. Paragraph Headings. The paragraph headings used in
-------------------
this Agreement are included solely for convenience and shall not affect, or be
used in connection with, the interpretation of this Agreement.
f. Severability. The provisions of this Agreement
-------------
shall be deemed severable and the invalidity or unenforceability of any
provision shall not affect the validity or enforceability of the other
provisions hereof.
g. Governing Law. Except where federal law governs,
--------------
this Agreement is to be governed by and construed under the internal substantive
laws of the State of California (and not under conflict of law principles) as
such laws apply to contracts made and to be performed entirely in the State of
California.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the day and year first hereinabove written.
BAY VIEW CAPITAL CORPORATION
/s/ EDWARD H. SONDKER
------------------------------------
Edward H. Sondker
President and Chief Executive Officer
THE EXECUTIVE
/s/ RICHARD ARNOLD
------------------------------------
Richard Arnold
Executive Vice President,
Director of Sales
11.
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into this
1st day of April 1998 by and between Bay View Capital Corporation (the
"Corporation"), a Delaware Corporation, and John N. Buckley (the "Executive").
R E C I T A L S:
A. The parties desire to enter into this Agreement setting forth the
terms and conditions of the employment relationship between the Corporation and
the Executive.
B. The Board of Directors of the Corporation (or "Board") believes it
is in the best interests of the Corporation to enter into this Agreement with
the Executive in order to assure continuity of management of the Corporation,
and has approved and authorized the execution by the Corporation of this
Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises herein contained, the parties hereto agree as follows:
1. Executive's Title, Duty, Authority and Time Commitment.
------------------------------------------------------
a. Title. The Executive's position and title with the
-----
Corporation shall be that of Executive Vice President, Chief Credit
Administrator.
b. Duties and Authority. The Executive's duties and authority
--------------------
shall be consistent with those of an Executive Vice President, Chief Credit
Administrator. The Executive shall render such administrative and management
services to the Corporation as are customarily performed by persons employed in
the banking and financial services industry in a similar executive capacity. In
addition, the Executive shall perform such other duties as the Board, or its
authorized representative, may from time to time require. All duties performed
by the Executive hereunder shall be in accordance with such reasonable standards
as are established from time to time by the Board, or its authorized
representative, and performance evaluations shall be conducted by or under the
direction of the Board and reviewed with the Executive annually.
c. Time Commitment. During the "Term of this Agreement", as
---------------
defined in Section 5 of this Agreement, unless the Executive has obtained the
prior written consent of the Board, or its authorized representative,
<PAGE>
(1) The Executive shall render his full productive time and
services to the Corporation, keeping normal business hours, but is authorized to
engage in such banking trade association and related activities during normal
business hours which, in his judgment, with the concurrence of his immediate
supervisor, are in the business interests of the Corporation; and
(2) The Executive shall not render personal services to any
other person or entity for compensation, either as an Executive, consultant,
director or officer, if such services would conflict with the Executive's duty
to the Corporation or adversely affect the Executive's judgment in the
performance of his responsibilities. Executive shall remain free to engage in
community, charitable, political and personal pursuits which do not interfere
with his performance under this Agreement.
2. Compensation. The Corporation agrees to pay the Executive during
------------
the Term of this Agreement a base salary as follows: $160,000 per annum, with
the salary to be reviewed on July 1, 1998, and annually on each July 1st
thereafter during the Term of this Agreement. Salary increases are not
guaranteed or automatic. The salary provided for in this Agreement shall be
payable semi-monthly in accordance with the practices of the Corporation.
3. Discretionary Bonuses. The Executive shall be entitled to
---------------------
participate in discretionary bonuses and incentive payments which are now or
become authorized and declared by the Board or its authorized representative.
Executive shall be entitled to an annual performance bonus of up to forty
percent (40%) of base salary depending upon the achievement of specific goals
set by the Company's Board of Directors.
4. Additional Benefits.
-------------------
a. Participation in Executive Benefit Plans. The Executive
----------------------------------------
shall be entitled to participate in any plan of the Corporation, as such plan
may from time to time provide, relating to pension, thrift, deferred profit
sharing, group insurance coverage, education or retirement or other supplemental
Executive benefits that the Corporation has adopted or adopts for the benefit of
its Executives.
b. Fringe Benefits. The Executive shall be entitled to
---------------
participate in any other program which is or becomes applicable to the
Corporation's executives, as such program may from time to time provide
including a reasonable expense account, the payment of reasonable expenses for
attending educational seminars and annual and periodic meetings of trade
associations, and other benefits which are commensurate with the
responsibilities and functions to be performed by the Executive under this
Agreement.
2.
<PAGE>
5. Term.
----
a. Initial Term and Automatic Extension. The initial term of
------------------------------------
employment under this Agreement shall be for a period commencing on January 1,
1998 and ending on December 31, 1998. On January 1, 1999 and on each January 1st
thereafter, the Term of this Agreement shall be extended automatically by one
additional year beyond the then current expiration date, unless either the
Corporation or the Executive gives contrary written notice to the other not less
than 45 days in advance of the date on which this Agreement would otherwise be
extended. Reference herein to the "Term of this Agreement" shall refer to the
term as so extended. Section 9, entitled "Change in Control," shall survive the
expiration of this Agreement for a period of one (1) year so long as Executive
is employed by the Corporation. If Executive is terminated by the Corporation
without cause pursuant to Section 7a(2), said Section 9 shall survive this
Agreement for a period of one (1) year from the date of termination of
employment.
b. Consequences of Non-Extension. If this Agreement is not
-----------------------------
extended, on the expiration of the Term of this Agreement, the Executive shall
be deemed to be employed by the Corporation for no specific term and the
Executive's rights as an Executive of the Corporation shall be no less than
those provided by the laws of the State of California and the laws of the United
States; provided, however, that such post expiration employment may be
terminated at any time by the Executive or by the Board, or its authorized
representative, with or without cause by delivery to the Executive of a written
notice (the "Termination Notice") of such termination.
6. Voluntary Absences. At such reasonable times as the Board, or
------------------
its authorized representative, shall in its discretion permit, the Executive
shall be entitled, without loss of pay, to absent himself voluntarily from the
performance of his employment under this Agreement. All such voluntary absences
shall count as holidays, vacation time, floating holidays, sick leave,
compensatory time or other paid time off as specified in Corporation policy,
provided that:
a. Vacation Entitlement. The Executive shall be entitled to an
--------------------
annual paid vacation of 20 days per year.
b. Timing of Vacation. Vacations shall be scheduled in a
------------------
reasonable manner by the Executive and subject to the Corporation's needs,
except that the Executive shall take not less than ten (10) days vacation
consecutively in each calendar year.
3.
<PAGE>
7. Termination of Employment.
-------------------------
a. Termination by Corporation. The Executive's employment under
--------------------------
this Agreement may be terminated, with or without cause, at any time by the
Board, or its authorized representative, by delivery to the Executive of a
written notice (the "Termination Notice") of such termination. The Termination
Notice shall state the effective date of such termination and whether such
termination is for "cause," as defined in Section 7a(1), or without cause
pursuant to Section 7a(2). Unless the Termination Notice states that the
termination is for cause and states with reasonable particularity the cause, the
termination shall be deemed to be without cause pursuant to Section 7a(2). In
the event an arbitrator appointed pursuant to Section 13 of this Agreement
determines that a purported termination for cause was in fact without proper
cause, the termination shall nonetheless be effective, but the Executive shall
be entitled to the severance payment pursuant to Section 7a(2) hereof.
(1) Termination by Corporation for Cause. The Executive's
------------------------------------
employment under this Agreement may be terminated at any time by the Board, or
its authorized representative, for "cause," which shall include, but not be
limited to the following:
(a) The commission by the Executive of an act of
misconduct (including, but not limited to, the violation of any law, rule,
regulation or cease and desist order applicable to the Executive or the
Corporation or its insured subsidiaries), or an act which constitutes a breach
of a fiduciary duty owed by the Executive involving personal profit;
(b) The Executive's material breach of this Agreement,
dishonesty, incompetence, willful misconduct, habitual unexcused absence from
work, intentional failure to perform duties, or gross negligence in the
performance of stated duties;
(c) The Executive's becoming physically or mentally
incapable of performing the essential functions of his employment position, with
or without reasonable accommodation, for a period in excess of the applicable
leave entitlement mandated by Federal or State law; or
(d) Any criminal conviction of the Executive (other
than for a minor traffic violation or similar offense), whether or not in the
line of duty.
In the event of termination for cause under this Section 7a(1), the Executive
shall have no right to receive compensation or other benefits under this
Agreement for any period after such termination.
4.
<PAGE>
(2) Termination by Corporation Without Cause. The
----------------------------------------
Executive's employment under this Agreement may be terminated at any time by the
Board, or its authorized representative, without cause; provided, however, that
unless the termination of this Agreement is for "cause," as set forth in Section
7a(1), or pursuant to Sections 7b, 7c, or 9, then, upon such termination, in
addition to any benefits that had accrued to the date of termination but in lieu
of any rights or benefits that would have accrued following such termination,
the Executive shall be entitled, upon execution of a Severance Agreement and
Release as provided in Exhibit A, to a lump sum severance payment of eighteen
(18) months salary.
b. Termination by the Executive. This Agreement may be
----------------------------
terminated by the Executive at any time upon 30 days written notice to the
Corporation or upon such shorter period as may be agreed upon between the
Executive and the Board.
c. Termination by Death. In the event of the death of the
--------------------
Executive during the Term of this Agreement, the Executive's estate, or such
person as the Executive may have previously designated in writing for group
insurance purposes, shall be entitled to receive the salary due the Executive
through the last day of the calendar month in which his death shall have
occurred.
8. Disability. If the Executive shall become disabled or
----------
incapacitated to the extent that he is unable to perform the essential functions
of his employment position, with or without reasonable accommodation, he shall
be entitled to receive disability benefits of the type provided for other
employees of the Corporation. In such event, 90 days after the last day the
Executive worked, any rights of the Executive to receive the salary provided in
Section 2 of this Agreement shall be suspended until the Executive is able to
resume performance of his duties.
9. Change in Control. If during the Term of this Agreement, or
-----------------
within one (1) year following the expiration of this Agreement and if Executive
is employed by the Corporation, there is a "change in control," of the
Corporation, as hereinafter defined, the Executive shall be entitled, upon
execution of a Severance Agreement and Release as provided in Exhibit A, to a
severance payment in the event the Executive's employment is terminated, other
than for "cause" as set forth in Section 7a(1) or pursuant to Sections 7b
(except as provided below), or 7c, within twenty-four (24) months after the
change in control. The amount of this payment shall equal two hundred
percent(200%) of the Executive's annual salary as of the date of termination and
shall be in lieu of any severance payment that would be due Executive under
Section 7a(2). Except as provided above, such termination or severance payment
shall be in addition to all other
5.
<PAGE>
amounts payable to the Executive pursuant to this Agreement. This termination or
severance payment shall also be made in the case of a termination of employment
by the Executive pursuant to Section 7b of this Agreement within twenty-four
(24) months after a change in control because during such twenty-four (24) month
period there has been a material diminution of or interference with the
Executive's duties, responsibilities and benefits as Executive Vice President,
Chief Credit Administrator of the Corporation. By way of example and not by way
of limitation, any of the following actions, if unreasonable or materially
adverse to the Executive, shall constitute such diminution or interference
unless consented to in writing by the Executive: (i) a change in the principal
workplace of the Executive to a location more than 25 highway miles from the
Executive's current office location; (ii) a reduction or adverse change in the
salary or benefits which had theretofore been provided to the Executive, other
than as part of an overall program applied uniformly and with equitable effect
to all members of senior management of the Corporation; or (iii) a change in
Executive's title.
Any payments made to the Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.
The term "change in control" as applied to the Corporation is defined
solely as any acquisition of control of the Corporation (other than pursuant to
the acquisition by a trustee or other fiduciary holding securities under an
Executive benefit plan of the Corporation), as defined in 12 C.F.R. Section
574.4, or any successor regulation, which would require the filing of an
application for acquisition of control or notice of change in control as set
forth in 12 C.F.R. Section 574.3, or any successor regulation.
10. Successors and Assigns. The terms, provisions, covenants,
----------------------
and conditions of this Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns; provided,
however, that the Executive may not sell, assign, pledge, hypothecate or
otherwise transfer this Agreement or any part thereof without the prior written
consent of the Corporation, which consent may be withheld by the Corporation for
any reason it deems appropriate. "Successors and assigns" shall mean, in the
case of the Corporation, any successor pursuant to a merger, consolidation or
sale or transfer of all or substantially all of the assets of the Corporation.
6.
<PAGE>
11. Indemnification. The Corporation hereby agrees that the
---------------
Corporation shall indemnify the Executive to the fullest extent permitted by the
Corporation's Bylaws and by Delaware corporate law.
12. Excise Taxes. In the event it shall be determined that any
------------
payment or distribution by the Corporation or its affiliates to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of the Agreement or otherwise, but
determined without regard to any additional payments required under this Section
12) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code (the "Code") or any interest or penalties are incurred
by the Executive with respect to such excise (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitations, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payment.
13. Confidential Information
------------------------
a. Non-Disclosure. Employee hereby agrees that, during the Term
of this Agreement and thereafter, he will not disclose to any person, or
otherwise use or exploit any of the proprietary or confidential information or
knowledge, including without limitation, trade secrets, processes, records of
research, proposals, reports, methods, techniques, customer lists and customers,
computer software or programming, budgets or financial information, or other
confidential information and/or trade secrets, regarding the Corporation, its
businesses, properties or affairs obtained by him at any time prior to or
subsequent to the execution of this Agreement, except to the extent required by
his performance or assigned duties for the Corporation. Executive understands
that proprietary or confidential information does not include any of the
foregoing items which (i) have become publicly known or made generally available
through no wrongful act of Executive or of others who were under confidentiality
obligations as to the item or items involved, or (ii) are independently
developed by the Executive without the use of proprietary or confidential
information. In addition, Employee agrees not to divulge, publish or otherwise
reveal, during the Term of this Agreement or thereafter, either directly or
indirectly, or through another, to any person, firm or corporation, for
competitive purposes, any knowledge or information or any facts concerning the
methods and techniques used by the Corporation to conduct business, the names of
customers and others who have relationships
7.
<PAGE>
with the Company, or other confidential information and/or trade secrets used by
the Corporation in the operation of its business. During the Term of this
Agreement: (i) Employee agrees to disclose to the Corporation the identity and
nature of any contacts with any person or entity soliciting from Employee
disclosure of any such information or soliciting Employee's involvement in any
business venture competitive with the Corporation; and (ii) Employee shall not
conceal from or fail to disclose to the Corporation, or divert or exploit for
his own personal profit or that of others, any business opportunity or other
opportunity to acquire an interest in or a contractual relationship with any
person or entity where such person or entity is in the Corporation's line of
business or where such contractual relationship would be considered a feasible
and advantageous opportunity for the Corporation.
b. Return of Materials. Upon termination of employment,
-------------------
Employee will deliver to the Corporation all tangible displays and repositories
of process, records of research, proposals, reports, memoranda, computer
software and programming, budgets and other financial information, and other
materials or records or writings of any type (including any copies thereof)
made, used or obtained by Employee in connection with his employment by the
Corporation; provided, however, that documents relating to Employee's employment
arrangements with the Corporation or his personal affairs shall be excluded from
the provisions herein. Notwithstanding the foregoing, Employee will be entitled
to have reasonable access to such property as is necessary for and in order to
prosecute or defend any legal action or proceeding or to respond to a court or
arbitration order.
c. The Employee acknowledges that the restrictions contained in
the foregoing paragraphs of this Section 13, in view of the nature of the
businesses in which the Corporation is engaged, are reasonable and necessary in
order to protect the legitimate interests of the Corporation, and that any
violation thereof would result in irreparable and substantial harm to the
Corporation for which the Corporation does not have an adequate remedy at law,
and the Employee therefore acknowledges that, in the event of his actual or
threatened violations of any of these restrictions, the Corporation shall be
entitled to obtain from any court of competent jurisdiction temporary,
preliminary and permanent injunctive relief as well as damages and equitable
accounting of all earnings, profits and other benefits arising from such
violation, which rights shall be cumulative and in addition to any other rights
or remedies to which the Corporation may be entitled.
d. In the event that the Corporation believes that it is
entitled to relief under this Section 13, the Corporation will provide written
notice to Employee specifying the nature of any alleged breach of this section.
The Corporation
8.
<PAGE>
shall be obligated to discuss with Employee in good faith whether such breach
has occurred and, if so, whether such breach can be cured. If Employee cures
such breach within fifteen (15) days from the date of such notice, Employee
shall not be deemed to be in breach of this Section 13.
14. Arbitration. The parties hereby agree that any controversy or
-----------
dispute arising out of or relating to this Agreement shall be resolved pursuant
to this Section 14.
a. Agreement to Negotiate. Prior to submitting any controversy,
----------------------
dispute or claim arising out of, or relating to, this Agreement to arbitration,
the parties hereto agree to observe the following procedures:
(1) The party desiring to submit any such controversy,
dispute or claim to arbitration (the "claimant") first shall give written notice
thereof to the other party (the "recipient") setting forth in detail the
pertinent facts and circumstances relating to such controversy, dispute or
claim;
(2) The recipient shall have a period of fifteen (15) days
after receipt of written notice in which to consider the controversy, dispute or
claim which is the subject of the notice and to furnish in writing to the
claimant a written statement of the recipient's position;
(3) Within seven (7) days of claimant's receipt of
recipient's written statement, the parties shall meet in an effort to resolve
amicably any differences which may exist and, failing such resolution, either or
both of the parties shall have the right to submit the matter to arbitration.
b. Procedure for Arbitration.
-------------------------
(1) The parties hereby agree that any controversy, dispute
or claim arising out of, or relating to, this Agreement, or breach of this
Agreement, including disputes concerning termination of this Agreement, shall be
settled by arbitration in San Mateo, California. This agreement to arbitrate
shall be specifically enforceable. Judgment upon any award rendered by an
arbitrator may be entered in any court having jurisdiction.
(2) Any demand for arbitration must be served on the other
party within forty-five (45) days of the act or omission giving rise to the
controversy, dispute or claim.
(3) There shall be one impartial arbitrator chosen by the
parties from a list procured from the California Mediation and Conciliation
Service.
9.
<PAGE>
(4) The arbitrator shall not extend, modify or suspend any
of the terms of this Agreement.
(5) The decision of the Arbitrator within the scope of the
submission shall be final and binding on all parties, and any right to judicial
action on any matter subject to arbitration hereunder is hereby waived (unless
otherwise provided by applicable law), except suit to enforce this arbitration
award.
(6) Executive agrees that such arbitration shall be the
exclusive forum for any controversy, dispute or claim arising out of or relating
to this Agreement, or breach or termination of this Agreement. Executive further
expressly agrees that in arbitration his exclusive remedy shall be a money award
not to exceed the amount of wages he would have earned under this Agreement but
for the alleged violation and the Executive shall not be entitled to any other
remedy, at law or in equity, including but not limited to reinstatement, other
money damages, punitive damages and/or injunctive relief.
(7) Each party shall pay such party's own attorney or other
representative, and the expenses of such party's witnesses and all other
expenses connected with his case. Other costs of the arbitration, including the
cost of any record or transcript of the arbitration, administrative fees,
arbitrator's fees, and all other fees and costs, shall be borne by the
Corporation; provided, however, that at the discretion of the Arbitrator, and
upon a preponderance of the evidence that one of the parties has engaged in
malice, fraud or oppression relating to the termination of the Executive's
employment, reasonable attorney's fees and costs may be awarded to the other
party.
15. General Provisions.
------------------
a. Notices. Any notice, request, demand or other communication
-------
required or permitted hereunder shall be deemed to be properly given when
personally served in writing and when deposited in the United States mail,
registered or certified, postage prepaid, addressed to the party at the last
address supplied to the sending party by the addressed party.
b. Waiver. The waiver by any party of a breach of any provision
------
of this Agreement by the other shall not operate or be construed as a waiver of
any subsequent breach of the same provision or any other provision of this
Agreement.
c. Entire Agreement. Except as provided herein, this Agreement
----------------
contains the entire agreement of the parties. It supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the employment of the Executive by the Corporation. Each party to this
Agreement acknowledges that no representations, inducements, promises or
10.
<PAGE>
agreements, oral or otherwise, have been made by any party, or anyone acting on
behalf of any party, which are not embodied herein, and that no other agreement,
statement or promise not contained in this Agreement shall be valid and binding.
d. Amendments. No amendments or additions to this Agreement
----------
shall be binding unless in writing and signed by both parties, except as herein
otherwise provided.
e. Paragraph Headings. The paragraph headings used in this
------------------
Agreement are included solely for convenience and shall not affect, or be used
in connection with, the interpretation of this Agreement.
f. Severability. The provisions of this Agreement shall be
------------
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof.
g. Governing Law. Except where federal law governs, this
-------------
Agreement is to be governed by and construed under the internal substantive laws
of the State of California (and not under conflict of law principles) as such
laws apply to contracts made and to be performed entirely in the State of
California.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first hereinabove written.
BAY VIEW CAPITAL CORPORATION
/s/ EDWARD H. SONDKER
_______________________________________________
Edward H. Sondker
President and Chief Executive Officer
THE EXECUTIVE
/s/ JOHN N. BUCKLEY
_______________________________________________
John N. Buckley
Executive Vice President,
Chief Credit Administrator
11.
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into this
1st day of April 1998 by and between Bay View Capital Corporation (the
"Corporation"), a Delaware Corporation, and Robert J. Flax (the "Executive").
R E C I T A L S:
A. The parties desire to enter into this Agreement setting forth the
terms and conditions of the employment relationship between the Corporation and
the Executive.
B. The Board of Directors of the Corporation (or "Board") believes it
is in the best interests of the Corporation to enter into this Agreement with
the Executive in order to assure continuity of management of the Corporation,
and has approved and authorized the execution by the Corporation of this
Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises herein contained, the parties hereto agree as follows:
1. Executive's Title, Duty, Authority and Time Commitment.
------------------------------------------------------
a. Title. The Executive's position and title with the
-----
Corporation shall be that of Executive Vice President, General Counsel &
Secretary.
b. Duties and Authority. The Executive's duties and authority
--------------------
shall be consistent with those of an Executive Vice President, General Counsel &
Secretary. The Executive shall render such administrative and management
services to the Corporation as are customarily performed by persons employed in
the banking and financial services industry in a similar executive capacity. In
addition, the Executive shall perform such other duties as the Board, or its
authorized representative, may from time to time require. All duties performed
by the Executive hereunder shall be in accordance with such reasonable standards
as are established from time to time by the Board, or its authorized
representative, and performance evaluations shall be conducted by or under the
direction of the Board and reviewed with the Executive annually.
c. Time Commitment. During the "Term of this Agreement", as
---------------
defined in Section 5 of this Agreement, unless the Executive has obtained the
prior written consent of the Board, or its authorized representative,
<PAGE>
(1) The Executive shall render his full productive time and
services to the Corporation, keeping normal business hours, but is authorized to
engage in such banking trade association and related activities during normal
business hours which, in his judgment, with the concurrence of his immediate
supervisor, are in the business interests of the Corporation; and
(2) The Executive shall not render personal services to any
other person or entity for compensation, either as an Executive, consultant,
director or officer, if such services would conflict with the Executive's duty
to the Corporation or adversely affect the Executive's judgment in the
performance of his responsibilities. Executive shall remain free to engage in
community, charitable, political and personal pursuits which do not interfere
with his performance under this Agreement.
2. Compensation. The Corporation agrees to pay the Executive during
------------
the Term of this Agreement a base salary as follows: $170,004 per annum, with
the salary to be reviewed on July 1, 1998, and annually on each July 1st
thereafter during the Term of this Agreement. Salary increases are not
guaranteed or automatic. The salary provided for in this Agreement shall be
payable semi-monthly in accordance with the practices of the Corporation.
3. Discretionary Bonuses. The Executive shall be entitled to
---------------------
participate in discretionary bonuses and incentive payments which are now or
become authorized and declared by the Board or its authorized representative.
Executive shall be entitled to an annual performance bonus of up to forty
percent (40%) of base salary depending upon the achievement of specific goals
set by the Company's Board of Directors.
4. Additional Benefits.
-------------------
a. Participation in Executive Benefit Plans. The Executive
----------------------------------------
shall be entitled to participate in any plan of the Corporation, as such plan
may from time to time provide, relating to pension, thrift, deferred profit
sharing, group insurance coverage, education or retirement or other supplemental
Executive benefits that the Corporation has adopted or adopts for the benefit of
its Executives.
b. Fringe Benefits. The Executive shall be entitled to
---------------
participate in any other program which is or becomes applicable to the
Corporation's executives, as such program may from time to time provide
including a reasonable expense account, the payment of reasonable expenses for
attending educational seminars and annual and periodic meetings of trade
associations, and other benefits which are commensurate with the
responsibilities and functions to be performed by the Executive under this
Agreement.
2.
<PAGE>
5. Term.
----
a. Initial Term and Automatic Extension. The initial term of
------------------------------------
employment under this Agreement shall be for a period commencing on January 1,
1998 and ending on December 31, 1998. On January 1, 1999 and on each January 1st
thereafter, the Term of this Agreement shall be extended automatically by one
additional year beyond the then current expiration date, unless either the
Corporation or the Executive gives contrary written notice to the other not less
than 45 days in advance of the date on which this Agreement would otherwise be
extended. Reference herein to the "Term of this Agreement" shall refer to the
term as so extended. Section 9, entitled "Change in Control," shall survive the
expiration of this Agreement for a period of one (1) year so long as Executive
is employed by the Corporation. If Executive is terminated by the Corporation
without cause pursuant to Section 7a(2), said Section 9 shall survive this
Agreement for a period of one (1) year from the date of termination of
employment.
b. Consequences of Non-Extension. If this Agreement is not
-----------------------------
extended, on the expiration of the Term of this Agreement, the Executive shall
be deemed to be employed by the Corporation for no specific term and the
Executive's rights as an Executive of the Corporation shall be no less than
those provided by the laws of the State of California and the laws of the United
States; provided, however, that such post expiration employment may be
terminated at any time by the Executive or by the Board, or its authorized
representative, with or without cause by delivery to the Executive of a written
notice (the "Termination Notice") of such termination.
6. Voluntary Absences. At such reasonable times as the Board,
------------------
or its authorized representative, shall in its discretion permit, the Executive
shall be entitled, without loss of pay, to absent himself voluntarily from the
performance of his employment under this Agreement. All such voluntary absences
shall count as holidays, vacation time, floating holidays, sick leave,
compensatory time or other paid time off as specified in Corporation policy,
provided that:
a. Vacation Entitlement. The Executive shall be entitled to an
--------------------
annual paid vacation of 20 days per year.
b. Timing of Vacation. Vacations shall be scheduled in a
------------------
reasonable manner by the Executive and subject to the Corporation's needs,
except that the Executive shall take not less than ten (10) days vacation
consecutively in each calendar year.
3.
<PAGE>
7. Termination of Employment.
-------------------------
a. Termination by Corporation. The Executive's employment under
--------------------------
this Agreement may be terminated, with or without cause, at any time by the
Board, or its authorized representative, by delivery to the Executive of a
written notice (the "Termination Notice") of such termination. The Termination
Notice shall state the effective date of such termination and whether such
termination is for "cause," as defined in Section 7a(1), or without cause
pursuant to Section 7a(2). Unless the Termination Notice states that the
termination is for cause and states with reasonable particularity the cause, the
termination shall be deemed to be without cause pursuant to Section 7a(2). In
the event an arbitrator appointed pursuant to Section 13 of this Agreement
determines that a purported termination for cause was in fact without proper
cause, the termination shall nonetheless be effective, but the Executive shall
be entitled to the severance payment pursuant to Section 7a(2) hereof.
(1) Termination by Corporation for Cause. The Executive's
------------------------------------
employment under this Agreement may be terminated at any time by the Board, or
its authorized representative, for "cause," which shall include, but not be
limited to the following:
(a) The commission by the Executive of an act of misconduct
(including, but not limited to, the violation of any law, rule, regulation or
cease and desist order applicable to the Executive or the Corporation or its
insured subsidiaries), or an act which constitutes a breach of a fiduciary duty
owed by the Executive involving personal profit;
(b) The Executive's material breach of this Agreement,
dishonesty, incompetence, willful misconduct, habitual unexcused absence from
work, intentional failure to perform duties, or gross negligence in the
performance of stated duties;
(c) The Executive's becoming physically or mentally incapable of
performing the essential functions of his employment position, with or without
reasonable accommodation, for a period in excess of the applicable leave
entitlement mandated by Federal or State law; or
(d) Any criminal conviction of the Executive (other than for a
minor traffic violation or similar offense), whether or not in the line of duty.
In the event of termination for cause under this Section 7a(1), the Executive
shall have no right to receive compensation or other benefits under this
Agreement for any period after such termination.
4.
<PAGE>
(2) Termination by Corporation Without Cause. The
----------------------------------------
Executive's employment under this Agreement may be terminated at any time by the
Board, or its authorized representative, without cause; provided, however, that
unless the termination of this Agreement is for "cause," as set forth in Section
7a(1), or pursuant to Sections 7b, 7c, or 9, then, upon such termination, in
addition to any benefits that had accrued to the date of termination but in lieu
of any rights or benefits that would have accrued following such termination,
the Executive shall be entitled, upon execution of a Severance Agreement and
Release as provided in Exhibit A, to a lump sum severance payment of eighteen
(18) months salary.
b. Termination by the Executive. This Agreement may be
----------------------------
terminated by the Executive at any time upon 30 days written notice to the
Corporation or upon such shorter period as may be agreed upon between the
Executive and the Board.
c. Termination by Death. In the event of the death of the
--------------------
Executive during the Term of this Agreement, the Executive's estate, or such
person as the Executive may have previously designated in writing for group
insurance purposes, shall be entitled to receive the salary due the Executive
through the last day of the calendar month in which his death shall have
occurred.
8. Disability. If the Executive shall become disabled or
----------
incapacitated to the extent that he is unable to perform the essential functions
of his employment position, with or without reasonable accommodation, he shall
be entitled to receive disability benefits of the type provided for other
employees of the Corporation. In such event, 90 days after the last day the
Executive worked, any rights of the Executive to receive the salary provided in
Section 2 of this Agreement shall be suspended until the Executive is able to
resume performance of his duties.
9. Change in Control. If during the Term of this Agreement, or
-----------------
within one (1) year following the expiration of this Agreement and if Executive
is employed by the Corporation, there is a "change in control," of the
Corporation, as hereinafter defined, the Executive shall be entitled, upon
execution of a Severance Agreement and Release as provided in Exhibit A, to a
severance payment in the event the Executive's employment is terminated, other
than for "cause" as set forth in Section 7a(1) or pursuant to Sections 7b
(except as provided below), or 7c, within twenty-four (24) months after the
change in control. The amount of this payment shall equal two hundred
percent(200%) of the Executive's annual salary as of the date of termination and
shall be in lieu of any severance payment that would be due Executive under
Section 7a(2). Except as provided above, such termination or severance payment
shall be in addition to all other
5.
<PAGE>
amounts payable to the Executive pursuant to this Agreement. This termination or
severance payment shall also be made in the case of a termination of employment
by the Executive pursuant to Section 7b of this Agreement within twenty-four
(24) months after a change in control because during such twenty-four (24) month
period there has been a material diminution of or interference with the
Executive's duties, responsibilities and benefits as Executive Vice President,
General Counsel & Secretary of the Corporation. By way of example and not by way
of limitation, any of the following actions, if unreasonable or materially
adverse to the Executive, shall constitute such diminution or interference
unless consented to in writing by the Executive: (i) a change in the principal
workplace of the Executive to a location more than 25 highway miles from the
Executive's current office location; (ii) a reduction or adverse change in the
salary or benefits which had theretofore been provided to the Executive, other
than as part of an overall program applied uniformly and with equitable effect
to all members of senior management of the Corporation; or (iii) a change in
Executive's title.
Any payments made to the Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.
The term "change in control" as applied to the Corporation is defined
solely as any acquisition of control of the Corporation (other than pursuant to
the acquisition by a trustee or other fiduciary holding securities under an
Executive benefit plan of the Corporation), as defined in 12 C.F.R. Section
574.4, or any successor regulation, which would require the filing of an
application for acquisition of control or notice of change in control as set
forth in 12 C.F.R. Section 574.3, or any successor regulation.
10. Successors and Assigns. The terms, provisions, covenants,
----------------------
and conditions of this Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns; provided,
however, that the Executive may not sell, assign, pledge, hypothecate or
otherwise transfer this Agreement or any part thereof without the prior written
consent of the Corporation, which consent may be withheld by the Corporation for
any reason it deems appropriate. "Successors and assigns" shall mean, in the
case of the Corporation, any successor pursuant to a merger, consolidation or
sale or transfer of all or substantially all of the assets of the Corporation.
6.
<PAGE>
11. Indemnification. The Corporation hereby agrees that the
---------------
Corporation shall indemnify the Executive to the fullest extent permitted by the
Corporation's Bylaws and by Delaware corporate law.
12. Excise Taxes. In the event it shall be determined that any
------------
payment or distribution by the Corporation or its affiliates to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of the Agreement or otherwise, but
determined without regard to any additional payments required under this Section
12) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code (the "Code") or any interest or penalties are incurred
by the Executive with respect to such excise (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitations, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payment.
13. Confidential Information
------------------------
a. Non-Disclosure. Employee hereby agrees that, during the Term
--------------
of this Agreement and thereafter, he will not disclose to any person, or
otherwise use or exploit any of the proprietary or confidential information or
knowledge, including without limitation, trade secrets, processes, records of
research, proposals, reports, methods, techniques, customer lists and customers,
computer software or programming, budgets or financial information, or other
confidential information and/or trade secrets, regarding the Corporation, its
businesses, properties or affairs obtained by him at any time prior to or
subsequent to the execution of this Agreement, except to the extent required by
his performance or assigned duties for the Corporation. Executive understands
that proprietary or confidential information does not include any of the
foregoing items which (i) have become publicly known or made generally available
through no wrongful act of Executive or of others who were under confidentiality
obligations as to the item or items involved, or (ii) are independently
developed by the Executive without the use of proprietary or confidential
information. In addition, Employee agrees not to divulge, publish or otherwise
reveal, during the Term of this Agreement or thereafter, either directly or
indirectly, or through another, to any person, firm or corporation, for
competitive purposes, any knowledge or information or any facts concerning the
methods and techniques used by the Corporation to conduct business, the names of
customers and others who have relationships
7.
<PAGE>
with the Company, or other confidential information and/or trade secrets used by
the Corporation in the operation of its business. During the Term of this
Agreement: (i) Employee agrees to disclose to the Corporation the identity and
nature of any contacts with any person or entity soliciting from Employee
disclosure of any such information or soliciting Employee's involvement in any
business venture competitive with the Corporation; and (ii) Employee shall not
conceal from or fail to disclose to the Corporation, or divert or exploit for
his own personal profit or that of others, any business opportunity or other
opportunity to acquire an interest in or a contractual relationship with any
person or entity where such person or entity is in the Corporation's line of
business or where such contractual relationship would be considered a feasible
and advantageous opportunity for the Corporation.
b. Return of Materials. Upon termination of employment,
-------------------
Employee will deliver to the Corporation all tangible displays and repositories
of process, records of research, proposals, reports, memoranda, computer
software and programming, budgets and other financial information, and other
materials or records or writings of any type (including any copies thereof)
made, used or obtained by Employee in connection with his employment by the
Corporation; provided, however, that documents relating to Employee's employment
arrangements with the Corporation or his personal affairs shall be excluded from
the provisions herein. Notwithstanding the foregoing, Employee will be entitled
to have reasonable access to such property as is necessary for and in order to
prosecute or defend any legal action or proceeding or to respond to a court or
arbitration order.
c. The Employee acknowledges that the restrictions contained in
the foregoing paragraphs of this Section 13, in view of the nature of the
businesses in which the Corporation is engaged, are reasonable and necessary in
order to protect the legitimate interests of the Corporation, and that any
violation thereof would result in irreparable and substantial harm to the
Corporation for which the Corporation does not have an adequate remedy at law,
and the Employee therefore acknowledges that, in the event of his actual or
threatened violations of any of these restrictions, the Corporation shall be
entitled to obtain from any court of competent jurisdiction temporary,
preliminary and permanent injunctive relief as well as damages and equitable
accounting of all earnings, profits and other benefits arising from such
violation, which rights shall be cumulative and in addition to any other rights
or remedies to which the Corporation may be entitled.
d. In the event that the Corporation believes that it is
entitled to relief under this Section 13, the Corporation will provide written
notice to Employee specifying the nature of any alleged breach of this section.
The Corporation
8.
<PAGE>
shall be obligated to discuss with Employee in good faith whether such breach
has occurred and, if so, whether such breach can be cured. If Employee cures
such breach within fifteen (15) days from the date of such notice, Employee
shall not be deemed to be in breach of this Section 13.
14. Arbitration. The parties hereby agree that any controversy or
-----------
dispute arising out of or relating to this Agreement shall be resolved pursuant
to this Section 14.
a. Agreement to Negotiate. Prior to submitting any controversy,
----------------------
dispute or claim arising out of, or relating to, this Agreement to arbitration,
the parties hereto agree to observe the following procedures:
(1) The party desiring to submit any such controversy,
dispute or claim to arbitration (the "claimant") first shall give written notice
thereof to the other party (the "recipient") setting forth in detail the
pertinent facts and circumstances relating to such controversy, dispute or
claim;
(2) The recipient shall have a period of fifteen (15) days
after receipt of written notice in which to consider the controversy, dispute or
claim which is the subject of the notice and to furnish in writing to the
claimant a written statement of the recipient's position;
(3) Within seven (7) days of claimant's receipt of
recipient's written statement, the parties shall meet in an effort to resolve
amicably any differences which may exist and, failing such resolution, either or
both of the parties shall have the right to submit the matter to arbitration.
b. Procedure for Arbitration.
-------------------------
(1) The parties hereby agree that any controversy, dispute
or claim arising out of, or relating to, this Agreement, or breach of this
Agreement, including disputes concerning termination of this Agreement, shall be
settled by arbitration in San Mateo, California. This agreement to arbitrate
shall be specifically enforceable. Judgment upon any award rendered by an
arbitrator may be entered in any court having jurisdiction.
(2) Any demand for arbitration must be served on the other
party within forty-five (45) days of the act or omission giving rise to the
controversy, dispute or claim.
(3) There shall be one impartial arbitrator chosen by the
parties from a list procured from the California Mediation and Conciliation
Service.
9.
<PAGE>
(4) The arbitrator shall not extend, modify or suspend any
of the terms of this Agreement.
(5) The decision of the Arbitrator within the scope of the
submission shall be final and binding on all parties, and any right to judicial
action on any matter subject to arbitration hereunder is hereby waived (unless
otherwise provided by applicable law), except suit to enforce this arbitration
award.
(6) Executive agrees that such arbitration shall be the
exclusive forum for any controversy, dispute or claim arising out of or relating
to this Agreement, or breach or termination of this Agreement. Executive further
expressly agrees that in arbitration his exclusive remedy shall be a money award
not to exceed the amount of wages he would have earned under this Agreement but
for the alleged violation and the Executive shall not be entitled to any other
remedy, at law or in equity, including but not limited to reinstatement, other
money damages, punitive damages and/or injunctive relief.
(7) Each party shall pay such party's own attorney or other
representative, and the expenses of such party's witnesses and all other
expenses connected with his case. Other costs of the arbitration, including the
cost of any record or transcript of the arbitration, administrative fees,
arbitrator's fees, and all other fees and costs, shall be borne by the
Corporation; provided, however, that at the discretion of the Arbitrator, and
upon a preponderance of the evidence that one of the parties has engaged in
malice, fraud or oppression relating to the termination of the Executive's
employment, reasonable attorney's fees and costs may be awarded to the other
party.
15. General Provisions.
------------------
a. Notices. Any notice, request, demand or other communication
-------
required or permitted hereunder shall be deemed to be properly given when
personally served in writing and when deposited in the United States mail,
registered or certified, postage prepaid, addressed to the party at the last
address supplied to the sending party by the addressed party.
b. Waiver. The waiver by any party of a breach of any provision
------
of this Agreement by the other shall not operate or be construed as a waiver of
any subsequent breach of the same provision or any other provision of this
Agreement.
c. Entire Agreement. Except as provided herein, this Agreement
----------------
contains the entire agreement of the parties. It supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the employment of the Executive by the Corporation. Each party to this
Agreement acknowledges that no representations, inducements, promises or
10.
<PAGE>
agreements, oral or otherwise, have been made by any party, or anyone acting on
behalf of any party, which are not embodied herein, and that no other agreement,
statement or promise not contained in this Agreement shall be valid and binding.
d. Amendments. No amendments or additions to this Agreement
----------
shall be binding unless in writing and signed by both parties, except as herein
otherwise provided.
e. Paragraph Headings. The paragraph headings used in this
------------------
Agreement are included solely for convenience and shall not affect, or be used
in connection with, the interpretation of this Agreement.
f. Severability. The provisions of this Agreement shall be
------------
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof.
g. Governing Law. Except where federal law governs, this
-------------
Agreement is to be governed by and construed under the internal substantive laws
of the State of California (and not under conflict of law principles) as such
laws apply to contracts made and to be performed entirely in the State of
California.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first hereinabove written.
BAY VIEW CAPITAL CORPORATION
/s/ EDWARD H. SONDKER
______________________________________
Edward H. Sondker
President and Chief Executive Officer
THE EXECUTIVE
/s/ ROBERT J. FLAX
_______________________________________
Robert J. Flax
Executive Vice President,
General Counsel & Secretary
11.
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into this
1st day of April 1998 by and between Bay View Capital Corporation (the
"Corporation"), a Delaware Corporation, and David A. Heaberlin (the
"Executive").
R E C I T A L S:
A. The parties desire to enter into this Agreement setting forth the
terms and conditions of the employment relationship between the Corporation and
the Executive.
B. The Board of Directors of the Corporation (or "Board") believes it
is in the best interests of the Corporation to enter into this Agreement with
the Executive in order to assure continuity of management of the Corporation,
and has approved and authorized the execution by the Corporation of this
Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises herein contained, the parties hereto agree as follows:
1. Executive's Title, Duty, Authority and Time Commitment.
------------------------------------------------------
a. Title. The Executive's position and title with the
-----
Corporation shall be that of Executive Vice President and Chief Financial
Officer.
b. Duties and Authority. The Executive's duties and authority
--------------------
shall be consistent with those of a Executive Vice President and Chief Financial
Officer. The Executive shall render such administrative and management services
to the Corporation as are customarily performed by persons employed in the
banking and financial services industry in a similar executive capacity. In
addition, the Executive shall perform such other duties as the Board, or its
authorized representative, may from time to time require. All duties performed
by the Executive hereunder shall be in accordance with such reasonable standards
as are established from time to time by the Board, or its authorized
representative, and performance evaluations shall be conducted by or under the
direction of the Board and reviewed with the Executive annually.
c. Time Commitment. During the "Term of this Agreement", as
---------------
defined in Section 5 of this Agreement, unless the Executive has obtained the
prior written consent of the Board, or its authorized representative,
<PAGE>
(1) The Executive shall render his full productive time and
services to the Corporation, keeping normal business hours, but is authorized to
engage in such banking trade association and related activities during normal
business hours which, in his judgment, with the concurrence of his immediate
supervisor, are in the business interests of the Corporation; and
(2) The Executive shall not render personal services to any
other person or entity for compensation, either as an Executive, consultant,
director or officer, if such services would conflict with the Executive's duty
to the Corporation or adversely affect the Executive's judgment in the
performance of his responsibilities. Executive shall remain free to engage in
community, charitable, political and personal pursuits which do not interfere
with his performance under this Agreement.
2. Compensation. The Corporation agrees to pay the Executive during
------------
the Term of this Agreement a base salary as follows: $275,000 per annum, with
the salary to be reviewed on July 1, 1998, and annually on each July 1st
thereafter during the Term of this Agreement. Salary increases are not
guaranteed or automatic. The salary provided for in this Agreement shall be
payable semi-monthly in accordance with the practices of the Corporation.
3. Discretionary Bonuses. The Executive shall be entitled to
---------------------
participate in discretionary bonuses and incentive payments which are now or
become authorized and declared by the Board or its authorized representative.
Executive shall be entitled to an annual performance bonus of up to fifty
percent (50%) of base salary depending upon the achievement of specific goals
set by the Company's Board of Directors.
4. Additional Benefits.
-------------------
a. Participation in Executive Benefit Plans. The Executive
----------------------------------------
shall be entitled to participate in any plan of the Corporation, as such plan
may from time to time provide, relating to pension, thrift, deferred profit
sharing, group insurance coverage, education or retirement or other supplemental
Executive benefits that the Corporation has adopted or adopts for the benefit of
its Executives.
b. Fringe Benefits. The Executive shall be entitled to
---------------
participate in any other program which is or becomes applicable to the
Corporation's executives, as such program may from time to time provide
including a reasonable expense account, the payment of reasonable expenses for
attending educational seminars and annual and periodic meetings of trade
associations, and other benefits which are commensurate with the
responsibilities and functions to be performed by the Executive under this
Agreement.
2.
<PAGE>
5. Term.
----
a. Initial Term and Automatic Extension. The initial term of
------------------------------------
employment under this Agreement shall be for a period commencing on January 1,
1998 and ending on December 31, 1998. On January 1, 1999 and on each January 1st
thereafter, the Term of this Agreement shall be extended automatically by one
additional year beyond the then current expiration date, unless either the
Corporation or the Executive gives contrary written notice to the other not less
than 45 days in advance of the date on which this Agreement would otherwise be
extended. Reference herein to the "Term of this Agreement" shall refer to the
term as so extended. Section 9, entitled "Change in Control," shall survive the
expiration of this Agreement for a period of one (1) year so long as Executive
is employed by the Corporation. If Executive is terminated by the Corporation
without cause pursuant to Section 7a(2), said Section 9 shall survive this
Agreement for a period of one (1) year from the date of termination of
employment.
b. Consequences of Non-Extension. If this Agreement is not
-----------------------------
extended, on the expiration of the Term of this Agreement, the Executive shall
be deemed to be employed by the Corporation for no specific term and the
Executive's rights as an Executive of the Corporation shall be no less than
those provided by the laws of the State of California and the laws of the United
States; provided, however, that such post expiration employment may be
terminated at any time by the Executive or by the Board, or its authorized
representative, with or without cause by delivery to the Executive of a written
notice (the "Termination Notice") of such termination.
6. Voluntary Absences. At such reasonable times as the Board, or
------------------
its authorized representative, shall in its discretion permit, the Executive
shall be entitled, without loss of pay, to absent himself voluntarily from the
performance of his employment under this Agreement. All such voluntary absences
shall count as holidays, vacation time, floating holidays, sick leave,
compensatory time or other paid time off as specified in Corporation policy,
provided that:
a. Vacation Entitlement. The Executive shall be entitled to an
--------------------
annual paid vacation of 20 days per year.
b. Timing of Vacation. Vacations shall be scheduled in a
------------------
reasonable manner by the Executive and subject to the Corporation's needs,
except that the Executive shall take not less than ten (10) days vacation
consecutively in each calendar year.
3.
<PAGE>
7. Termination of Employment.
-------------------------
a. Termination by Corporation. The Executive's employment under
--------------------------
this Agreement may be terminated, with or without cause, at any time by the
Board, or its authorized representative, by delivery to the Executive of a
written notice (the "Termination Notice") of such termination. The Termination
Notice shall state the effective date of such termination and whether such
termination is for "cause," as defined in Section 7a(1), or without cause
pursuant to Section 7a(2). Unless the Termination Notice states that the
termination is for cause and states with reasonable particularity the cause, the
termination shall be deemed to be without cause pursuant to Section 7a(2). In
the event an arbitrator appointed pursuant to Section 13 of this Agreement
determines that a purported termination for cause was in fact without proper
cause, the termination shall nonetheless be effective, but the Executive shall
be entitled to the severance payment pursuant to Section 7a(2) hereof.
(1) Termination by Corporation for Cause. The Executive's
------------------------------------
employment under this Agreement may be terminated at any time by the Board, or
its authorized representative, for "cause," which shall include, but not be
limited to the following:
(a) The commission by the Executive of an act of
misconduct (including, but not limited to, the violation of any law, rule,
regulation or cease and desist order applicable to the Executive or the
Corporation or its insured subsidiaries), or an act which constitutes a breach
of a fiduciary duty owed by the Executive involving personal profit;
(b) The Executive's material breach of this Agreement,
dishonesty, incompetence, willful misconduct, habitual unexcused absence from
work, intentional failure to perform duties, or gross negligence in the
performance of stated duties;
(c) The Executive's becoming physically or mentally
incapable of performing the essential functions of his employment position, with
or without reasonable accommodation, for a period in excess of the applicable
leave entitlement mandated by Federal or State law; or
(d) Any criminal conviction of the Executive (other
than for a minor traffic violation or similar offense), whether or not in the
line of duty.
In the event of termination for cause under this Section 7a(1), the Executive
shall have no right to receive compensation or other benefits under this
Agreement for any period after such termination.
4.
<PAGE>
(2) Termination by Corporation Without Cause. The
----------------------------------------
Executive's employment under this Agreement may be terminated at any time by the
Board, or its authorized representative, without cause; provided, however, that
unless the termination of this Agreement is for "cause," as set forth in Section
7a(1), or pursuant to Sections 7b, 7c, or 9, then, upon such termination, in
addition to any benefits that had accrued to the date of termination but in lieu
of any rights or benefits that would have accrued following such termination,
the Executive shall be entitled, upon execution of a Severance Agreement and
Release as provided in Exhibit A, to a lump sum severance payment of eighteen
(18) months salary.
b. Termination by the Executive. This Agreement may be
----------------------------
terminated by the Executive at any time upon 30 days written notice to the
Corporation or upon such shorter period as may be agreed upon between the
Executive and the Board.
c. Termination by Death. In the event of the death of the
--------------------
Executive during the Term of this Agreement, the Executive's estate, or such
person as the Executive may have previously designated in writing for group
insurance purposes, shall be entitled to receive the salary due the Executive
through the last day of the calendar month in which his death shall have
occurred.
8. Disability. If the Executive shall become disabled or
----------
incapacitated to the extent that he is unable to perform the essential functions
of his employment position, with or without reasonable accommodation, he shall
be entitled to receive disability benefits of the type provided for other
employees of the Corporation. In such event, 90 days after the last day the
Executive worked, any rights of the Executive to receive the salary provided in
Section 2 of this Agreement shall be suspended until the Executive is able to
resume performance of his duties.
9. Change in Control. If during the Term of this Agreement, or
-----------------
within one (1) year following the expiration of this Agreement and if Executive
is employed by the Corporation, there is a "change in control," of the
Corporation, as hereinafter defined, the Executive shall be entitled, upon
execution of a Severance Agreement and Release as provided in Exhibit A, to a
severance payment in the event the Executive's employment is terminated, other
than for "cause" as set forth in Section 7a(1) or pursuant to Sections 7b
(except as provided below), or 7c, within twenty-four (24) months after the
change in control. The amount of this payment shall equal two hundred
percent(200%) of the Executive's annual salary as of the date of termination and
shall be in lieu of any severance payment that would be due Executive under
Section 7a(2). Except as provided above, such termination or severance payment
shall be in addition to all other
5.
<PAGE>
amounts payable to the Executive pursuant to this Agreement. This termination or
severance payment shall also be made in the case of a termination of employment
by the Executive pursuant to Section 7b of this Agreement within twenty-four
(24) months after a change in control because during such twenty-four (24) month
period there has been a material diminution of or interference with the
Executive's duties, responsibilities and benefits as Executive Vice President
and Chief Financial Officer of the Corporation and Executive Vice President and
Chief Operating Officer of Bay View Bank. By way of example and not by way of
limitation, any of the following actions, if unreasonable or materially adverse
to the Executive, shall constitute such diminution or interference unless
consented to in writing by the Executive: (i) a change in the principal
workplace of the Executive to a location more than 25 highway miles from the
Executive's current office location; (ii) a reduction or adverse change in the
salary or benefits which had theretofore been provided to the Executive, other
than as part of an overall program applied uniformly and with equitable effect
to all members of senior management of the Corporation; or (iii) a change in
Executive's title.
Any payments made to the Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.
The term "change in control" as applied to the Corporation is defined
solely as any acquisition of control of the Corporation (other than pursuant to
the acquisition by a trustee or other fiduciary holding securities under an
Executive benefit plan of the Corporation), as defined in 12 C.F.R. Section
574.4, or any successor regulation, which would require the filing of an
application for acquisition of control or notice of change in control as set
forth in 12 C.F.R. Section 574.3, or any successor regulation.
10. Successors and Assigns. The terms, provisions, covenants, and
----------------------
conditions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns; provided,
however, that the Executive may not sell, assign, pledge, hypothecate or
otherwise transfer this Agreement or any part thereof without the prior written
consent of the Corporation, which consent may be withheld by the Corporation for
any reason it deems appropriate. "Successors and assigns" shall mean, in the
case of the Corporation, any successor pursuant to a merger, consolidation or
sale or transfer of all or substantially all of the assets of the Corporation.
6.
<PAGE>
11. Indemnification. The Corporation hereby agrees that the
---------------
Corporation shall indemnify the Executive to the fullest extent permitted by the
Corporation's Bylaws and by Delaware corporate law.
12. Excise Taxes. In the event it shall be determined that any
------------
payment or distribution by the Corporation or its affiliates to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of the Agreement or otherwise, but
determined without regard to any additional payments required under this Section
12) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code (the "Code") or any interest or penalties are incurred
by the Executive with respect to such excise (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitations, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payment.
13. Confidential Information
------------------------
a. Non-Disclosure. Employee hereby agrees that, during the Term
of this Agreement and thereafter, he will not disclose to any person, or
otherwise use or exploit any of the proprietary or confidential information or
knowledge, including without limitation, trade secrets, processes, records of
research, proposals, reports, methods, techniques, customer lists and customers,
computer software or programming, budgets or financial information, or other
confidential information and/or trade secrets, regarding the Corporation, its
businesses, properties or affairs obtained by him at any time prior to or
subsequent to the execution of this Agreement, except to the extent required by
his performance or assigned duties for the Corporation. Executive understands
that proprietary or confidential information does not include any of the
foregoing items which (i) have become publicly known or made generally available
through no wrongful act of Executive or of others who were under confidentiality
obligations as to the item or items involved, or (ii) are independently
developed by the Executive without the use of proprietary or confidential
information. In addition, Employee agrees not to divulge, publish or otherwise
reveal, during the Term of this Agreement or thereafter, either directly or
indirectly, or through another, to any person, firm or corporation, for
competitive purposes, any knowledge or information or any facts concerning the
methods and techniques used by the Corporation to conduct
7.
<PAGE>
business, the names of customers and others who have relationships with the
Company, or other confidential information and/or trade secrets used by the
Corporation in the operation of its business. During the Term of this Agreement:
(i) Employee agrees to disclose to the Corporation the identity and nature of
any contacts with any person or entity soliciting from Employee disclosure of
any such information or soliciting Employee's involvement in any business
venture competitive with the Corporation; and (ii) Employee shall not conceal
from or fail to disclose to the Corporation, or divert or exploit for his own
personal profit or that of others, any business opportunity or other opportunity
to acquire an interest in or a contractual relationship with any person or
entity where such person or entity is in the Corporation's line of business or
where such contractual relationship would be considered a feasible and
advantageous opportunity for the Corporation.
b. Return of Materials. Upon termination of employment,
-------------------
Employee will deliver to the Corporation all tangible displays and repositories
of process, records of research, proposals, reports, memoranda, computer
software and programming, budgets and other financial information, and other
materials or records or writings of any type (including any copies thereof)
made, used or obtained by Employee in connection with his employment by the
Corporation; provided, however, that documents relating to Employee's employment
arrangements with the Corporation or his personal affairs shall be excluded from
the provisions herein. Notwithstanding the foregoing, Employee will be entitled
to have reasonable access to such property as is necessary for and in order to
prosecute or defend any legal action or proceeding or to respond to a court or
arbitration order.
c. The Employee acknowledges that the restrictions contained in
the foregoing paragraphs of this Section 13, in view of the nature of the
businesses in which the Corporation is engaged, are reasonable and necessary in
order to protect the legitimate interests of the Corporation, and that any
violation thereof would result in irreparable and substantial harm to the
Corporation for which the Corporation does not have an adequate remedy at law,
and the Employee therefore acknowledges that, in the event of his actual or
threatened violations of any of these restrictions, the Corporation shall be
entitled to obtain from any court of competent jurisdiction temporary,
preliminary and permanent injunctive relief as well as damages and equitable
accounting of all earnings, profits and other benefits arising from such
violation, which rights shall be cumulative and in addition to any other rights
or remedies to which the Corporation may be entitled.
d. In the event that the Corporation believes that it is
entitled to relief under this Section 13, the Corporation will provide written
notice to Employee specifying the
8.
<PAGE>
nature of any alleged breach of this section. The Corporation shall be obligated
to discuss with Employee in good faith whether such breach has occurred and, if
so, whether such breach can be cured. If Employee cures such breach within
fifteen (15) days from the date of such notice, Employee shall not be deemed to
be in breach of this Section 13.
14. Arbitration. The parties hereby agree that any controversy or
-----------
dispute arising out of or relating to this Agreement shall be resolved pursuant
to this Section 14.
a. Agreement to Negotiate. Prior to submitting any controversy,
----------------------
dispute or claim arising out of, or relating to, this Agreement to arbitration,
the parties hereto agree to observe the following procedures:
(1) The party desiring to submit any such controversy,
dispute or claim to arbitration (the "claimant") first shall give written notice
thereof to the other party (the "recipient") setting forth in detail the
pertinent facts and circumstances relating to such controversy, dispute or
claim;
(2) The recipient shall have a period of fifteen (15) days
after receipt of written notice in which to consider the controversy, dispute or
claim which is the subject of the notice and to furnish in writing to the
claimant a written statement of the recipient's position;
(3) Within seven (7) days of claimant's receipt of
recipient's written statement, the parties shall meet in an effort to resolve
amicably any differences which may exist and, failing such resolution, either or
both of the parties shall have the right to submit the matter to arbitration.
b. Procedure for Arbitration.
-------------------------
(1) The parties hereby agree that any controversy, dispute
or claim arising out of, or relating to, this Agreement, or breach of this
Agreement, including disputes concerning termination of this Agreement, shall be
settled by arbitration in San Mateo, California. This agreement to arbitrate
shall be specifically enforceable. Judgment upon any award rendered by an
arbitrator may be entered in any court having jurisdiction.
(2) Any demand for arbitration must be served on the other
party within forty-five (45) days of the act or omission giving rise to the
controversy, dispute or claim.
(3) There shall be one impartial arbitrator chosen by the
parties from a list procured from the California Mediation and Conciliation
Service.
9.
<PAGE>
(4) The arbitrator shall not extend, modify or suspend any
of the terms of this Agreement.
(5) The decision of the Arbitrator within the scope of the
submission shall be final and binding on all parties, and any right to judicial
action on any matter subject to arbitration hereunder is hereby waived (unless
otherwise provided by applicable law), except suit to enforce this arbitration
award.
(6) Executive agrees that such arbitration shall be the
exclusive forum for any controversy, dispute or claim arising out of or relating
to this Agreement, or breach or termination of this Agreement. Executive further
expressly agrees that in arbitration his exclusive remedy shall be a money award
not to exceed the amount of wages he would have earned under this Agreement but
for the alleged violation and the Executive shall not be entitled to any other
remedy, at law or in equity, including but not limited to reinstatement, other
money damages, punitive damages and/or injunctive relief.
(7) Each party shall pay such party's own attorney or other
representative, and the expenses of such party's witnesses and all other
expenses connected with his case. Other costs of the arbitration, including the
cost of any record or transcript of the arbitration, administrative fees,
arbitrator's fees, and all other fees and costs, shall be borne by the
Corporation; provided, however, that at the discretion of the Arbitrator, and
upon a preponderance of the evidence that one of the parties has engaged in
malice, fraud or oppression relating to the termination of the Executive's
employment, reasonable attorney's fees and costs may be awarded to the other
party.
15. General Provisions.
------------------
a. Notices. Any notice, request, demand or other communication
-------
required or permitted hereunder shall be deemed to be properly given when
personally served in writing and when deposited in the United States mail,
registered or certified, postage prepaid, addressed to the party at the last
address supplied to the sending party by the addressed party.
b. Waiver. The waiver by any party of a breach of any provision
------
of this Agreement by the other shall not operate or be construed as a waiver of
any subsequent breach of the same provision or any other provision of this
Agreement.
c. Entire Agreement. Except as provided herein, this Agreement
----------------
contains the entire agreement of the parties. It supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the employment of the Executive by the Corporation. Each party to this
Agreement
10.
<PAGE>
acknowledges that no representations, inducements, promises or agreements, oral
or otherwise, have been made by any party, or anyone acting on behalf of any
party, which are not embodied herein, and that no other agreement, statement or
promise not contained in this Agreement shall be valid and binding.
d. Amendments. No amendments or additions to this Agreement
----------
shall be binding unless in writing and signed by both parties, except as herein
otherwise provided.
e. Paragraph Headings. The paragraph headings used in this
------------------
Agreement are included solely for convenience and shall not affect, or be used
in connection with, the interpretation of this Agreement.
f. Severability. The provisions of this Agreement shall be
------------
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof.
g. Governing Law. Except where federal law governs, this
-------------
Agreement is to be governed by and construed under the internal substantive laws
of the State of California (and not under conflict of law principles) as such
laws apply to contracts made and to be performed entirely in the State of
California.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first hereinabove written.
BAY VIEW CAPITAL CORPORATION
/s/ EDWARD H. SONDKER
________________________________________
Edward H. Sondker
President and Chief Executive Officer
THE EXECUTIVE
/s/ DAVID A. HEABERLIN
________________________________________
David A. Heaberlin
Executive Vice President
and Chief Financial Officer
11.
<PAGE>
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into this
16th day of March 1998 by and between Bay View Capital Corporation (the
"Corporation"), a Delaware Corporation, and Scott H. Ray (the "Executive").
R E C I T A L S:
A. The parties desire to enter into this Agreement setting forth the
terms and conditions of the employment relationship between the Corporation and
the Executive.
B. The Board of Directors of the Corporation (or "Board") believes it
is in the best interests of the Corporation to enter into this Agreement with
the Executive in order to assure continuity of management of the Corporation,
and has approved and authorized the execution by the Corporation of this
Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises herein contained, the parties hereto agree as follows:
1. Executive's Title, Duty, Authority and Time Commitment.
------------------------------------------------------
a. Title. The Executive's position and title shall be that of
-----
Senior Vice President and Chief Financial Officer of the Corporation's wholly-
owned subsidiary, Bay View Bank (the "Bank").
b. Duties and Authority. The Executive's duties and authority
--------------------
shall be consistent with those of a Senior Vice President and Chief Financial
Officer of Bay View Bank. The Executive shall render such administrative and
management services to the Corporation and to the Bank as are customarily
performed by persons employed in the banking and financial services industry in
a similar executive capacity. In addition, the Executive shall perform such
other duties as the Board, or its authorized representative, may from time to
time require. All duties performed by the Executive hereunder shall be in
accordance with such reasonable standards as are established from time to time
by the Board, or its authorized representative, and performance evaluations
shall be conducted by or under the direction of the Board and reviewed with the
Executive annually.
c. Time Commitment. During the "Term of this Agreement", as
---------------
defined in Section 5 of this Agreement, unless the Executive has obtained the
prior written consent of the Board, or its authorized representative,
(1) The Executive shall render his full productive time and
services to the Corporation and the Bank, keeping normal business hours, but is
authorized to engage in such banking trade association and related activities
during normal business hours which, in his judgment, with the concurrence of his
immediate supervisor, are in the business interests of the Corporation or the
Bank; and
(2) The Executive shall not render personal services to any
other person or entity for compensation, either as an Executive, consultant,
director or officer, if such services would conflict with the Executive's duty
to the Corporation or the Bank or adversely affect the Executive's judgment in
the performance of his responsibilities. Executive shall remain free to engage
in community, charitable, political and personal pursuits which do not interfere
with his performance under this Agreement.
<PAGE>
2. Compensation. The Corporation and the Bank agrees to pay the
------------
Executive during the Term of this Agreement a base salary as follows:
$180,000.00 per annum, with the salary to be reviewed on July 1, 1998, and
annually on each July 1st thereafter during the Term of this Agreement. Salary
increases are not guaranteed or automatic. The salary provided for in this
Agreement shall be payable semi-monthly in accordance with the practices of the
Corporation.
3. Discretionary Bonuses. The Executive shall be entitled to
---------------------
participate in discretionary bonuses and incentive payments which are now or
become authorized and declared by the Board or its authorized representative.
Executive shall be entitled to an annual performance bonus of up to forty
percent (40.00%) of base salary depending upon the achievement of specific goals
set by the Board of Directors.
4. Additional Benefits.
-------------------
a. Participation in Executive Benefit Plans. The Executive
----------------------------------------
shall be entitled to participate in any plan of the Corporation, as such plan
may from time to time provide, relating to stock options, stock purchases,
pension, thrift, deferred profit sharing, group insurance coverage, education or
retirement or other supplemental Executive benefits that the Corporation has
adopted or adopts for the benefit of its Executives as a group.
b. Fringe Benefits. The Executive shall be entitled to
---------------
participate in any other program which is or becomes applicable to the
Corporation's executives as a group, as such program may from time to time
provide including a reasonable expense account, the payment of reasonable
expenses for attending educational seminars and annual and periodic meetings of
trade associations, and other benefits which are commensurate with the
responsibilities and functions to be performed by the Executive under this
Agreement.
5. Term.
----
a. Initial Term and Automatic Extension. The initial term of
------------------------------------
employment under this Agreement shall be for a period commencing on March 16,
1998 and ending on December 31, 1998. On January 1, 1999 and on each January 1st
thereafter, the Term of this Agreement shall be extended automatically by one
additional year beyond the then current expiration date, unless either the
Corporation or the Executive gives contrary written notice to the other not less
than 45 days in advance of the date on which this Agreement would otherwise be
extended. Reference herein to the "Term of this Agreement" shall refer to the
term as so extended. Section 9, entitled "Change in Control," shall survive the
expiration of this Agreement for a period of one (1) year so long as Executive
is employed by the Corporation and the Bank. If Executive is terminated by the
Corporation without cause pursuant to Section 7a(2), said Section 9 shall
survive this Agreement for a period of one (1) year from the date of termination
of employment.
b. Consequences of Non-Extension. If this Agreement is not
-----------------------------
extended on the expiration of the Term of this Agreement, the Executive shall be
deemed to be employed by the Corporation for no specific term and the
Executive's rights as an Executive of the Corporation shall be no less than
those provided by the laws of the State of California and the laws of the United
States; provided, however, that such post expiration employment may be
terminated at any time by the Executive or by the Board, or its authorized
representative, with or without cause by delivery to the Executive of a written
notice (the "Termination Notice") of such termination.
2.
<PAGE>
6. Voluntary Absences. At such reasonable times as the Board, or
------------------
its authorized representative, shall in its discretion permit, the Executive
shall be entitled, without loss of pay, to absent himself voluntarily from the
performance of his employment under this Agreement. All such voluntary absences
shall count as holidays, vacation time, floating holidays, sick leave,
compensatory time or other paid time off as specified in Corporation policy,
provided that:
a. Vacation Entitlement. The Executive shall be entitled to an
--------------------
annual paid vacation of 20 days per year.
b. Timing of Vacation. Vacations shall be scheduled in a
------------------
reasonable manner by the Executive and subject to the Corporation's needs,
except that the Executive shall take not less than ten (10) days vacation
consecutively in each calendar year.
7. Termination of Employment.
-------------------------
a. Termination by Corporation. The Executive's employment under
--------------------------
this Agreement may be terminated, with or without cause, at any time by the
Board, or its authorized representative, by delivery to the Executive of a
written notice (the "Termination Notice") of such termination. The Termination
Notice shall state the effective date of such termination and whether such
termination is for "cause," as defined in Section 7a(1), or without cause
pursuant to Section 7a(2). Unless the Termination Notice states that the
termination is for cause and states with reasonable particularity the cause, the
termination shall be deemed to be without cause pursuant to Section 7a(2). In
the event an arbitrator appointed pursuant to Section 13 of this Agreement
determines that a purported termination for cause was in fact without proper
cause, the termination shall nonetheless be effective, but the Executive shall
be entitled to the severance payment pursuant to Section 7a(2) hereof.
(1) Termination by Corporation for Cause. The Executive's
------------------------------------
employment under this Agreement may be terminated at any time by the Board, or
its authorized representative, for "cause," which shall include, but not be
limited to the following:
(a) The commission by the Executive of an act of
misconduct (including, but not limited to, the violation of any law, rule,
regulation or cease and desist order applicable to the Executive or the
Corporation or its insured subsidiaries), or an act which constitutes a breach
of a fiduciary duty owed by the Executive involving personal profit;
(b) The Executive's material breach of this Agreement,
dishonesty, incompetence, willful misconduct, habitual unexcused absence from
work, intentional failure to perform duties, or gross negligence in the
performance of stated duties;
(c) The Executive's becoming physically or mentally
incapable of performing the essential functions of his employment position, with
or without reasonable accommodation, for a period in excess of the applicable
leave entitlement mandated by Federal or State law; or
(d) Any criminal conviction of the Executive (other
than for a minor traffic violation or similar offense), whether or not in the
line of duty.
3.
<PAGE>
In the event of termination for cause under this Section 7a(1), the Executive
shall have no right to receive compensation or other benefits under this
Agreement for any period after such termination.
(2) Termination by Corporation Without Cause. The
----------------------------------------
Executive's employment under this Agreement may be terminated at any time by the
Board, or its authorized representative, without cause; provided, however, that
unless the termination of this Agreement is for "cause," as set forth in Section
7a(1), or pursuant to Sections 7b, 7c, or 9, then, upon such termination, in
addition to any benefits that had accrued to the date of termination but in lieu
of any rights or benefits that would have accrued following such termination,
the Executive shall be entitled, upon execution of a release acceptable to the
Board, or its authorized representative, to a lump sum severance payment of
twelve (12) months salary.
b. Termination by the Executive. This Agreement may be
----------------------------
terminated by the Executive at any time upon 30 days written notice to the
Corporation or upon such shorter period as may be agreed upon between the
Executive and the Board.
c. Termination by Death. In the event of the death of the
--------------------
Executive during the Term of this Agreement, the Executive's estate, or such
person as the Executive may have previously designated in writing for group
insurance purposes, shall be entitled to receive the salary due the Executive
through the last day of the calendar month in which his death shall have
occurred.
8. Disability. If the Executive shall become disabled or
----------
incapacitated to the extent that he is unable to perform the essential functions
of his employment position, with or without reasonable accommodation, he shall
be entitled to receive disability benefits of the type provided for other
employees of the Corporation. In such event, 90 days after the last day the
Executive worked, any rights of the Executive to receive the salary provided in
Section 2 of this Agreement shall be suspended until the Executive is able to
resume performance of his duties.
9. Change in Control. If during the Term of this Agreement, or
-----------------
within one (1) year following the expiration of this Agreement and if Executive
is employed by the Corporation, there is a "change in control," as hereinafter
defined, of the Corporation, the Executive shall be entitled, upon execution of
a release in the form attached hereto as Exhibit A, to a severance payment in
the event the Executive's employment is terminated, other than for "cause" as
set forth in Section 7a(1) or pursuant to Sections 7b (except as provided
below), or 7c, within twenty-four (24) months after the change in control. The
amount of this payment shall equal two hundred percent (200%) of the Executive's
annual salary as of the date of termination and shall be in lieu of any
severance payment that would be due Executive under Section 7a(2). Such
termination or severance payment shall be in addition to all other amounts
payable to the Executive pursuant to this Agreement. This termination or
severance payment shall also be made in the case of a termination of employment
by the Executive pursuant to Section 7b of this Agreement within twenty-four
(24) months after a change in control because during such twenty-four (24) month
period there has been a material diminution of or interference with the
Executive's duties, responsibilities and benefits as Senior Vice President and
Chief Financial Officer of the Bank. By way of example and not by way of
limitation, any of the following actions, if unreasonable or materially adverse
to the Executive, shall constitute such diminution or interference unless
consented to in writing by the Executive: (i) a change in the principal
workplace of the Executive to a location more than 25 highway miles from the
Corporation's main office; (ii) a reduction or adverse change in the salary or
benefits which had theretofore been provided to the Executive, other
4.
<PAGE>
than as part of an overall program applied uniformly and with equitable effect
to all members of senior management of the Corporation; or (iii) a change in
Executive's title.
Any payments made to the Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.
The term "change in control" is defined solely as any acquisition of
control of the Corporation (other than pursuant to the acquisition by a trustee
or other fiduciary holding securities under an Executive benefit plan of the
Corporation), as defined in 12 C.F.R. Section 574.4, or any successor
regulation, which would require the filing of an application for acquisition of
control or notice of change in control as set forth in 12 C.F.R. Section 574.3,
or any successor regulation.
10. Successors and Assigns. The terms, provisions, covenants, and
----------------------
conditions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns; provided,
however, that the Executive may not sell, assign, pledge, hypothecate or
otherwise transfer this Agreement or any part thereof without the prior written
consent of the Corporation, which consent may be withheld by the Corporation for
any reason it deems appropriate. "Successors and assigns" shall mean, in the
case of the Corporation, any successor pursuant to a merger, consolidation or
sale or transfer of all or substantially all of the assets of the Corporation.
11. Indemnification. The Corporation hereby agrees that the
---------------
Corporation shall indemnify the Executive to the fullest extent permitted by the
Corporation's Bylaws and by Delaware corporate law.
12. Excise Taxes. In the event it shall be determined that any
------------
payment or distribution by the Corporation or its affiliates to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of the Agreement or otherwise, but
determined without regard to any additional payments required under this Section
12) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code (the "Code") or any interest or penalties are incurred
by the Executive with respect to such excise (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitations, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payment.
13. Disclosure of Information. Executive recognizes that as an
-------------------------
executive of the Corporation, Executive occupies a position of trust with
respect to much business information of a secret or confidential nature which is
the property of the Corporation and which will be imparted to Executive from
time to time in the course of Executive's duties. Executive therefore agrees
that Executive shall not at any time, whether in the course of his employment or
thereafter, use or disclose directly or indirectly to any person outside the
Corporation any of such information, except as required in the ordinary course
of Executive's duties under this Agreement.
5.
<PAGE>
14. Arbitration. The parties hereby agree that any controversy
-----------
or dispute arising out of or relating to this Agreement shall be resolved
pursuant to this Section 14.
a. Agreement to Negotiate. Prior to submitting any controversy,
----------------------
dispute or claim arising out of, or relating to, this Agreement to arbitration,
the parties hereto agree to observe the following procedures:
(1) The party desiring to submit any such controversy,
dispute or claim to arbitration (the "claimant") first shall give written notice
thereof to the other party (the "recipient") setting forth in detail the
pertinent facts and circumstances relating to such controversy, dispute or
claim;
(2) The recipient shall have a period of fifteen (15) days
after receipt of written notice in which to consider the controversy, dispute or
claim which is the subject of the notice and to furnish in writing to the
claimant a written statement of the recipient's position;
(3) Within seven (7) days of claimant's receipt of
recipient's written statement, the parties shall meet in an effort to resolve
amicably any differences which may exist and, failing such resolution, either or
both of the parties shall have the right to submit the matter to arbitration.
b. Procedure for Arbitration.
-------------------------
(1) The parties hereby agree that any controversy, dispute
or claim arising out of, or relating to, this Agreement, or breach of this
Agreement, including disputes concerning termination of this Agreement, shall be
settled by arbitration in San Mateo, California. This agreement to arbitrate
shall be specifically enforceable. Judgment upon any award rendered by an
arbitrator may be entered in any court having jurisdiction.
(2) Any demand for arbitration must be served on the other
party within forty-five (45) days of the act or omission giving rise to the
controversy, dispute or claim.
(3) There shall be one impartial arbitrator chosen by the
parties from a list procured from the California Mediation and Conciliation
Service.
(4) The arbitrator shall not extend, modify or suspend any
of the terms of this Agreement.
(5) The decision of the Arbitrator within the scope of the
submission shall be final and binding on all parties, and any right to judicial
action on any matter subject to arbitration hereunder is hereby waived (unless
otherwise provided by applicable law), except suit to enforce this arbitration
award.
(6) Executive agrees that such arbitration shall be the
exclusive forum for any controversy, dispute or claim arising out of or relating
to this Agreement, or breach or termination of this Agreement. Executive further
expressly agrees that in arbitration his exclusive remedy shall be a money award
not to exceed the amount of wages he would have earned under this Agreement but
for the alleged violation and the Executive shall not be entitled to any other
remedy, at law or in equity, including but not limited to reinstatement, other
money damages,
6.
<PAGE>
punitive damages and/or injunctive relief.
(7) Each party shall pay such party's own attorney or other
representative, and the expenses of such party's witnesses and all other
expenses connected with his case. Other costs of the arbitration, including the
cost of any record or transcript of the arbitration, administrative fees,
arbitrator's fees, and all other fees and costs, shall be borne by the
Corporation; provided, however, that at the discretion of the Arbitrator, and
upon a preponderance of the evidence that one of the parties has engaged in
malice, fraud or oppression relating to the termination of the Executive's
employment, reasonable attorney's fees and costs may be awarded to the other
party.
15. General Provisions.
------------------
a. Notices. Any notice, request, demand or other communication
-------
required or permitted hereunder shall be deemed to be properly given when
personally served in writing and when deposited in the United States mail,
registered or certified, postage prepaid, addressed to the party at the last
address supplied to the sending party by the addressed party.
b. Waiver. The waiver by any party of a breach of any provision
------
of this Agreement by the other shall not operate or be construed as a waiver of
any subsequent breach of the same provision or any other provision of this
Agreement.
c. Entire Agreement. Except as provided herein, this Agreement
----------------
contains the entire agreement of the parties. It supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the employment of the Executive by the Corporation. Each party to this
Agreement acknowledges that no representations, inducements, promises or
agreements, oral or otherwise, have been made by any party, or anyone acting on
behalf of any party, which are not embodied herein, and that no other agreement,
statement or promise not contained in this Agreement shall be valid and binding.
The Offer and Acceptance Letter ("Offer") of January 26, 1998, shall be attached
to this Agreement and incorporated by this reference. If any conflict arises
between the Offer and this Agreement, the Offer shall control.
d. Amendments. No amendments or additions to this Agreement
----------
shall be binding unless in writing and signed by both parties, except as herein
otherwise provided.
e. Paragraph Headings. The paragraph headings used in this
------------------
Agreement are included solely for convenience and shall not affect, or be used
in connection with, the interpretation of this Agreement.
f. Severability. The provisions of this Agreement shall be
------------
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof.
g. Governing Law. Except where federal law governs, this
-------------
Agreement is to be governed by and construed under the internal substantive laws
of the State of California (and not under conflict of law principles) as such
laws apply to contracts made and to be performed entirely in the State of
California.
7.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first hereinabove written.
BAY VIEW CAPITAL CORPORATION
By: /s/ EDWARD H. SONDKER
--------------------------------------
Edward H. Sondker
President and Chief Executive Officer
THE EXECUTIVE
/s/ SCOTT H. RAY
-----------------------------------------
Scott H. Ray
8.
<PAGE>
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into this 1st day of April 1998 by and between Bay View Capital Corporation (the
"Corporation"), a Delaware Corporation, and Ronald L. Reed (the "Executive").
R E C I T A L S:
A. The parties desire to enter into this Agreement setting forth the
terms and conditions of the employment relationship between the Corporation and
the Executive.
B. The Board of Directors of the Corporation (or "Board") believes it
is in the best interests of the Corporation to enter into this Agreement with
the Executive in order to assure continuity of management of the Corporation,
and has approved and authorized the execution by the Corporation of this
Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and
the mutual promises herein contained, the parties hereto agree as follows:
1. Executive's Title, Duty, Authority and Time Commitment.
------------------------------------------------------
a. Title. The Executive's position and title with the
-----
Corporation shall be that of Executive Vice President, Director of MIS and
Servicing.
b. Duties and Authority. The Executive's duties and authority
--------------------
shall be consistent with those of an Executive Vice President, Director of MIS
and Servicing. The Executive shall render such administrative and management
services to the Corporation as are customarily performed by persons employed in
the banking and financial services industry in a similar executive capacity. In
addition, the Executive shall perform such other duties as the Board, or its
authorized representative, may from time to time require. All duties performed
by the Executive hereunder shall be in accordance with such reasonable standards
as are established from time to time by the Board, or its authorized
representative, and performance evaluations shall be conducted by or under the
direction of the Board and reviewed with the Executive annually.
c. Time Commitment. During the "Term of this Agreement", as
---------------
defined in Section 5 of this Agreement, unless the Executive has obtained the
prior written consent of the Board, or its authorized representative,
<PAGE>
(1) The Executive shall render his full productive time and
services to the Corporation, keeping normal business hours, but is authorized to
engage in such banking trade association and related activities during normal
business hours which, in his judgment, with the concurrence of his immediate
supervisor, are in the business interests of the Corporation; and
(2) The Executive shall not render personal services to any
other person or entity for compensation, either as an Executive, consultant,
director or officer, if such services would conflict with the Executive's duty
to the Corporation or adversely affect the Executive's judgment in the
performance of his responsibilities. Executive shall remain free to engage in
community, charitable, political and personal pursuits which do not interfere
with his performance under this Agreement.
2. Compensation. The Corporation agrees to pay the Executive during
------------
the Term of this Agreement a base salary as follows: $190,000 per annum, with
the salary to be reviewed on July 1, 1998, and annually on each July 1st
thereafter during the Term of this Agreement. Salary increases are not
guaranteed or automatic. The salary provided for in this Agreement shall be
payable semi-monthly in accordance with the practices of the Corporation.
3. Discretionary Bonuses. The Executive shall be entitled to
---------------------
participate in discretionary bonuses and incentive payments which are now or
become authorized and declared by the Board or its authorized representative.
Executive shall be entitled to an annual performance bonus of up to forty
percent (40%) of base salary depending upon the achievement of specific goals
set by the Company's Board of Directors.
4. Additional Benefits.
-------------------
a. Participation in Executive Benefit Plans. The Executive
----------------------------------------
shall be entitled to participate in any plan of the Corporation, as such plan
may from time to time provide, relating to pension, thrift, deferred profit
sharing, group insurance coverage, education or retirement or other supplemental
Executive benefits that the Corporation has adopted or adopts for the benefit of
its Executives.
b. Fringe Benefits. The Executive shall be entitled to
---------------
participate in any other program which is or becomes applicable to the
Corporation's executives, as such program may from time to time provide
including a reasonable expense account, the payment of reasonable expenses for
attending educational seminars and annual and periodic meetings of trade
associations, and other benefits which are commensurate with the
responsibilities and functions to be performed by the Executive under this
Agreement.
2.
<PAGE>
5. Term.
----
a. Initial Term and Automatic Extension. The initial term of
------------------------------------
employment under this Agreement shall be for a period commencing on January 1,
1998 and ending on December 31, 1998. On January 1, 1999 and on each January 1st
thereafter, the Term of this Agreement shall be extended automatically by one
additional year beyond the then current expiration date, unless either the
Corporation or the Executive gives contrary written notice to the other not less
than 45 days in advance of the date on which this Agreement would otherwise be
extended. Reference herein to the "Term of this Agreement" shall refer to the
term as so extended. Section 9, entitled "Change in Control," shall survive the
expiration of this Agreement for a period of one (1) year so long as Executive
is employed by the Corporation. If Executive is terminated by the Corporation
without cause pursuant to Section 7a(2), said Section 9 shall survive this
Agreement for a period of one (1) year from the date of termination of
employment.
b. Consequences of Non-Extension. If this Agreement is not
-----------------------------
extended, on the expiration of the Term of this Agreement, the Executive shall
be deemed to be employed by the Corporation for no specific term and the
Executive's rights as an Executive of the Corporation shall be no less than
those provided by the laws of the State of California and the laws of the United
States; provided, however, that such post expiration employment may be
terminated at any time by the Executive or by the Board, or its authorized
representative, with or without cause by delivery to the Executive of a written
notice (the "Termination Notice") of such termination.
6. Voluntary Absences. At such reasonable times as the Board,
------------------
or its authorized representative, shall in its discretion permit, the Executive
shall be entitled, without loss of pay, to absent himself voluntarily from the
performance of his employment under this Agreement. All such voluntary absences
shall count as holidays, vacation time, floating holidays, sick leave,
compensatory time or other paid time off as specified in Corporation policy,
provided that:
a. Vacation Entitlement. The Executive shall be entitled to an
--------------------
annual paid vacation of 20 days per year.
b. Timing of Vacation. Vacations shall be scheduled in a
------------------
reasonable manner by the Executive and subject to the Corporation's needs,
except that the Executive shall take not less than ten (10) days vacation
consecutively in each calendar year.
3.
<PAGE>
7. Termination of Employment.
-------------------------
a. Termination by Corporation. The Executive's employment under
--------------------------
this Agreement may be terminated, with or without cause, at any time by the
Board, or its authorized representative, by delivery to the Executive of a
written notice (the "Termination Notice") of such termination. The Termination
Notice shall state the effective date of such termination and whether such
termination is for "cause," as defined in Section 7a(1), or without cause
pursuant to Section 7a(2). Unless the Termination Notice states that the
termination is for cause and states with reasonable particularity the cause, the
termination shall be deemed to be without cause pursuant to Section 7a(2). In
the event an arbitrator appointed pursuant to Section 13 of this Agreement
determines that a purported termination for cause was in fact without proper
cause, the termination shall nonetheless be effective, but the Executive shall
be entitled to the severance payment pursuant to Section 7a(2) hereof.
(1) Termination by Corporation for Cause. The Executive's
------------------------------------
employment under this Agreement may be terminated at any time by the Board, or
its authorized representative, for "cause," which shall include, but not be
limited to the following:
(a) The commission by the Executive of an act of misconduct
(including, but not limited to, the violation of any law, rule, regulation or
cease and desist order applicable to the Executive or the Corporation or its
insured subsidiaries), or an act which constitutes a breach of a fiduciary duty
owed by the Executive involving personal profit;
(b) The Executive's material breach of this Agreement,
dishonesty, incompetence, willful misconduct, habitual unexcused absence from
work, intentional failure to perform duties, or gross negligence in the
performance of stated duties;
(c) The Executive's becoming physically or mentally incapable of
performing the essential functions of his employment position, with or without
reasonable accommodation, for a period in excess of the applicable leave
entitlement mandated by Federal or State law; or
(d) Any criminal conviction of the Executive (other than for a
minor traffic violation or similar offense), whether or not in the line of duty.
In the event of termination for cause under this Section 7a(1), the Executive
shall have no right to receive compensation or other benefits under this
Agreement for any period after such termination.
4.
<PAGE>
(2) Termination by Corporation Without Cause. The
----------------------------------------
Executive's employment under this Agreement may be terminated at any time by the
Board, or its authorized representative, without cause; provided, however, that
unless the termination of this Agreement is for "cause," as set forth in Section
7a(1), or pursuant to Sections 7b, 7c, or 9, then, upon such termination, in
addition to any benefits that had accrued to the date of termination but in lieu
of any rights or benefits that would have accrued following such termination,
the Executive shall be entitled, upon execution of a Severance Agreement and
Release as provided in Exhibit A, to a lump sum severance payment of eighteen
(18) months salary.
b. Termination by the Executive. This Agreement may be
----------------------------
terminated by the Executive at any time upon 30 days written notice to the
Corporation or upon such shorter period as may be agreed upon between the
Executive and the Board.
c. Termination by Death. In the event of the death of the
--------------------
Executive during the Term of this Agreement, the Executive's estate, or such
person as the Executive may have previously designated in writing for group
insurance purposes, shall be entitled to receive the salary due the Executive
through the last day of the calendar month in which his death shall have
occurred.
8. Disability. If the Executive shall become disabled or
----------
incapacitated to the extent that he is unable to perform the essential functions
of his employment position, with or without reasonable accommodation, he shall
be entitled to receive disability benefits of the type provided for other
employees of the Corporation. In such event, 90 days after the last day the
Executive worked, any rights of the Executive to receive the salary provided in
Section 2 of this Agreement shall be suspended until the Executive is able to
resume performance of his duties.
9. Change in Control. If during the Term of this Agreement, or
-----------------
within one (1) year following the expiration of this Agreement and if Executive
is employed by the Corporation, there is a "change in control," of the
Corporation, as hereinafter defined, the Executive shall be entitled, upon
execution of a Severance Agreement and Release as provided in Exhibit A, to a
severance payment in the event the Executive's employment is terminated, other
than for "cause" as set forth in Section 7a(1) or pursuant to Sections 7b
(except as provided below), or 7c, within twenty-four (24) months after the
change in control. The amount of this payment shall equal two hundred
percent(200%) of the Executive's annual salary as of the date of termination and
shall be in lieu of any severance payment that would be due Executive under
Section 7a(2). Except as provided above, such termination or severance payment
shall be in addition to all other
5.
<PAGE>
amounts payable to the Executive pursuant to this Agreement. This termination or
severance payment shall also be made in the case of a termination of employment
by the Executive pursuant to Section 7b of this Agreement within twenty-four
(24) months after a change in control because during such twenty-four (24) month
period there has been a material diminution of or interference with the
Executive's duties, responsibilities and benefits as Executive Vice President,
Director of MIS and Servicing of the Corporation. By way of example and not by
way of limitation, any of the following actions, if unreasonable or materially
adverse to the Executive, shall constitute such diminution or interference
unless consented to in writing by the Executive: (i) a change in the principal
workplace of the Executive to a location more than 25 highway miles from the
Executive's current office location; (ii) a reduction or adverse change in the
salary or benefits which had theretofore been provided to the Executive, other
than as part of an overall program applied uniformly and with equitable effect
to all members of senior management of the Corporation; or (iii) a change in
Executive's title.
Any payments made to the Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.
The term "change in control" as applied to the Corporation is defined
solely as any acquisition of control of the Corporation (other than pursuant to
the acquisition by a trustee or other fiduciary holding securities under an
Executive benefit plan of the Corporation), as defined in 12 C.F.R. Section
574.4, or any successor regulation, which would require the filing of an
application for acquisition of control or notice of change in control as set
forth in 12 C.F.R. Section 574.3, or any successor regulation.
10. Successors and Assigns. The terms, provisions, covenants, and
----------------------
conditions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns; provided,
however, that the Executive may not sell, assign, pledge, hypothecate or
otherwise transfer this Agreement or any part thereof without the prior written
consent of the Corporation, which consent may be withheld by the Corporation for
any reason it deems appropriate. "Successors and assigns" shall mean, in the
case of the Corporation, any successor pursuant to a merger, consolidation or
sale or transfer of all or substantially all of the assets of the Corporation.
6.
<PAGE>
11. Indemnification. The Corporation hereby agrees that the
---------------
Corporation shall indemnify the Executive to the fullest extent permitted by the
Corporation's Bylaws and by Delaware corporate law.
12. Excise Taxes. In the event it shall be determined that any
------------
payment or distribution by the Corporation or its affiliates to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of the Agreement or otherwise, but
determined without regard to any additional payments required under this Section
12) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code (the "Code") or any interest or penalties are incurred
by the Executive with respect to such excise (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitations, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payment.
13. Confidential Information
------------------------
a. Non-Disclosure. Employee hereby agrees that, during the Term
--------------
of this Agreement and thereafter, he will not disclose to any person, or
otherwise use or exploit any of the proprietary or confidential information or
knowledge, including without limitation, trade secrets, processes, records of
research, proposals, reports, methods, techniques, customer lists and customers,
computer software or programming, budgets or financial information, or other
confidential information and/or trade secrets, regarding the Corporation, its
businesses, properties or affairs obtained by him at any time prior to or
subsequent to the execution of this Agreement, except to the extent required by
his performance or assigned duties for the Corporation. Executive understands
that proprietary or confidential information does not include any of the
foregoing items which (i) have become publicly known or made generally available
through no wrongful act of Executive or of others who were under confidentiality
obligations as to the item or items involved, or (ii) are independently
developed by the Executive without the use of proprietary or confidential
information. In addition, Employee agrees not to divulge, publish or otherwise
reveal, during the Term of this Agreement or thereafter, either directly or
indirectly, or through another, to any person, firm or corporation, for
competitive purposes, any knowledge or information or any facts concerning the
methods and techniques used by the Corporation to conduct business, the names of
customers and others who have relationships
7.
<PAGE>
with the Company, or other confidential information and/or trade secrets used by
the Corporation in the operation of its business. During the Term of this
Agreement: (i) Employee agrees to disclose to the Corporation the identity and
nature of any contacts with any person or entity soliciting from Employee
disclosure of any such information or soliciting Employee's involvement in any
business venture competitive with the Corporation; and (ii) Employee shall not
conceal from or fail to disclose to the Corporation, or divert or exploit for
his own personal profit or that of others, any business opportunity or other
opportunity to acquire an interest in or a contractual relationship with any
person or entity where such person or entity is in the Corporation's line of
business or where such contractual relationship would be considered a feasible
and advantageous opportunity for the Corporation.
b. Return of Materials. Upon termination of employment,
-------------------
Employee will deliver to the Corporation all tangible displays and repositories
of process, records of research, proposals, reports, memoranda, computer
software and programming, budgets and other financial information, and other
materials or records or writings of any type (including any copies thereof)
made, used or obtained by Employee in connection with his employment by the
Corporation; provided, however, that documents relating to Employee's employment
arrangements with the Corporation or his personal affairs shall be excluded from
the provisions herein. Notwithstanding the foregoing, Employee will be entitled
to have reasonable access to such property as is necessary for and in order to
prosecute or defend any legal action or proceeding or to respond to a court or
arbitration order.
c. The Employee acknowledges that the restrictions contained in
the foregoing paragraphs of this Section 13, in view of the nature of the
businesses in which the Corporation is engaged, are reasonable and necessary in
order to protect the legitimate interests of the Corporation, and that any
violation thereof would result in irreparable and substantial harm to the
Corporation for which the Corporation does not have an adequate remedy at law,
and the Employee therefore acknowledges that, in the event of his actual or
threatened violations of any of these restrictions, the Corporation shall be
entitled to obtain from any court of competent jurisdiction temporary,
preliminary and permanent injunctive relief as well as damages and equitable
accounting of all earnings, profits and other benefits arising from such
violation, which rights shall be cumulative and in addition to any other rights
or remedies to which the Corporation may be entitled.
d. In the event that the Corporation believes that it is
entitled to relief under this Section 13, the Corporation will provide written
notice to Employee specifying the nature of any alleged breach of this section.
The Corporation
8.
<PAGE>
shall be obligated to discuss with Employee in good faith whether such breach
has occurred and, if so, whether such breach can be cured. If Employee cures
such breach within fifteen (15) days from the date of such notice, Employee
shall not be deemed to be in breach of this Section 13.
14. Arbitration. The parties hereby agree that any controversy or
-----------
dispute arising out of or relating to this Agreement shall be resolved pursuant
to this Section 14.
a. Agreement to Negotiate. Prior to submitting any controversy,
----------------------
dispute or claim arising out of, or relating to, this Agreement to arbitration,
the parties hereto agree to observe the following procedures:
(1) The party desiring to submit any such controversy,
dispute or claim to arbitration (the "claimant") first shall give written notice
thereof to the other party (the "recipient") setting forth in detail the
pertinent facts and circumstances relating to such controversy, dispute or
claim;
(2) The recipient shall have a period of fifteen (15) days
after receipt of written notice in which to consider the controversy, dispute or
claim which is the subject of the notice and to furnish in writing to the
claimant a written statement of the recipient's position;
(3) Within seven (7) days of claimant's receipt of
recipient's written statement, the parties shall meet in an effort to resolve
amicably any differences which may exist and, failing such resolution, either or
both of the parties shall have the right to submit the matter to arbitration.
b. Procedure for Arbitration.
-------------------------
(1) The parties hereby agree that any controversy, dispute
or claim arising out of, or relating to, this Agreement, or breach of this
Agreement, including disputes concerning termination of this Agreement, shall be
settled by arbitration in San Mateo, California. This agreement to arbitrate
shall be specifically enforceable. Judgment upon any award rendered by an
arbitrator may be entered in any court having jurisdiction.
(2) Any demand for arbitration must be served on the other
party within forty-five (45) days of the act or omission giving rise to the
controversy, dispute or claim.
(3) There shall be one impartial arbitrator chosen by the
parties from a list procured from the California Mediation and Conciliation
Service.
9.
<PAGE>
(4) The arbitrator shall not extend, modify or suspend any
of the terms of this Agreement.
(5) The decision of the Arbitrator within the scope of the
submission shall be final and binding on all parties, and any right to judicial
action on any matter subject to arbitration hereunder is hereby waived (unless
otherwise provided by applicable law), except suit to enforce this arbitration
award.
(6) Executive agrees that such arbitration shall be the
exclusive forum for any controversy, dispute or claim arising out of or relating
to this Agreement, or breach or termination of this Agreement. Executive further
expressly agrees that in arbitration his exclusive remedy shall be a money award
not to exceed the amount of wages he would have earned under this Agreement but
for the alleged violation and the Executive shall not be entitled to any other
remedy, at law or in equity, including but not limited to reinstatement, other
money damages, punitive damages and/or injunctive relief.
(7) Each party shall pay such party's own attorney or other
representative, and the expenses of such party's witnesses and all other
expenses connected with his case. Other costs of the arbitration, including the
cost of any record or transcript of the arbitration, administrative fees,
arbitrator's fees, and all other fees and costs, shall be borne by the
Corporation; provided, however, that at the discretion of the Arbitrator, and
upon a preponderance of the evidence that one of the parties has engaged in
malice, fraud or oppression relating to the termination of the Executive's
employment, reasonable attorney's fees and costs may be awarded to the other
party.
15. General Provisions.
------------------
a. Notices. Any notice, request, demand or other communication
-------
required or permitted hereunder shall be deemed to be properly given when
personally served in writing and when deposited in the United States mail,
registered or certified, postage prepaid, addressed to the party at the last
address supplied to the sending party by the addressed party.
b. Waiver. The waiver by any party of a breach of any provision
------
of this Agreement by the other shall not operate or be construed as a waiver of
any subsequent breach of the same provision or any other provision of this
Agreement.
c. Entire Agreement. Except as provided herein, this Agreement
----------------
contains the entire agreement of the parties. It supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the employment of the Executive by the Corporation. Each party to this
Agreement acknowledges that no representations, inducements, promises or
10.
<PAGE>
agreements, oral or otherwise, have been made by any party, or anyone acting on
behalf of any party, which are not embodied herein, and that no other agreement,
statement or promise not contained in this Agreement shall be valid and binding.
d. Amendments. No amendments or additions to this Agreement
----------
shall be binding unless in writing and signed by both parties, except as herein
otherwise provided.
e. Paragraph Headings. The paragraph headings used in this
------------------
Agreement are included solely for convenience and shall not affect, or be used
in connection with, the interpretation of this Agreement.
f. Severability. The provisions of this Agreement shall be
------------
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof.
g. Governing Law. Except where federal law governs, this
-------------
Agreement is to be governed by and construed under the internal substantive laws
of the State of California (and not under conflict of law principles) as such
laws apply to contracts made and to be performed entirely in the State of
California.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first hereinabove written.
BAY VIEW CAPITAL CORPORATION
/s/ EDWARD H. SONDKER
_________________________________________
Edward H. Sondker
President and Chief Executive Officer
THE EXECUTIVE
/s/ RONALD L. REED
__________________________________________
Ronald L. Reed
Executive Vice President,
Director of MIS and Servicing
11.
<PAGE>
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into this 1st day of April 1998 by and between Bay View Capital Corporation (the
"Corporation"), a Delaware Corporation, and Edward H. Sondker (the "Executive").
R E C I T A L S:
A. The parties desire to enter into this Agreement setting forth the
terms and conditions of the employment relationship between the Corporation and
the Executive.
B. The Board of Directors of the Corporation (or "Board") believes it
is in the best interests of the Corporation to enter into this Agreement with
the Executive in order to assure continuity of management of the Corporation,
and has approved and authorized the execution by the Corporation of this
Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and
the mutual promises herein contained, the parties hereto agree as follows:
1. Executive's Title, Duty, Authority and Time Commitment.
------------------------------------------------------
a. Title. The Executive's position and title with the
-----
Corporation shall be that of President and Chief Executive Officer.
b. Duties and Authority. The Executive's duties and
--------------------
authority shall be consistent with those of a President and Chief Executive
Officer. The Executive shall render such administrative and management
services to the Corporation as are customarily performed by persons employed
in the banking and financial services industry in a similar executive
capacity. In addition, the Executive shall perform such other duties as the
Board, or its authorized representative, may from time to time require. All
duties performed by the Executive hereunder shall be in accordance with such
reasonable standards as are established from time to time by the Board, or its
authorized representative, and performance evaluations shall be conducted by
or under the direction of the Board and reviewed with the Executive annually.
c. Time Commitment. During the "Term of this
---------------
Agreement", as defined in Section 5 of this Agreement, unless the Executive
has obtained the prior written consent of the Board, or its authorized
representative,
<PAGE>
(1) The Executive shall render his full productive
time and services to the Corporation, keeping normal business hours, but is
authorized to engage in such banking trade association and related activities
during normal business hours which, in his judgment, with the concurrence of
his immediate supervisor, are in the business interests of the Corporation;
and
(2) The Executive shall not render personal
services to any other person or entity for compensation, either as an
Executive, consultant, director or officer, if such services would conflict
with the Executive's duty to the Corporation or adversely affect the
Executive's judgment in the performance of his responsibilities. Executive
shall remain free to engage in community, charitable, political and personal
pursuits which do not interfere with his performance under this Agreement.
2. Compensation. The Corporation agrees to pay the Executive
------------
during the Term of this Agreement a base salary as follows: $350,000 per annum,
with the salary to be reviewed on July 1, 1998, and annually on each July 1st
thereafter during the Term of this Agreement. Salary increases are not
guaranteed or automatic. The salary provided for in this Agreement shall be
payable semi-monthly in accordance with the practices of the Corporation.
3. Discretionary Bonuses. The Executive shall be entitled to
---------------------
participate in discretionary bonuses and incentive payments which are now or
become authorized and declared by the Board or its authorized representative.
Executive shall be entitled to an annual performance bonus of up to fifty
percent (50%) of base salary depending upon the achievement of specific goals
set by the Company's Board of Directors.
4. Additional Benefits.
-------------------
a. Participation in Executive Benefit Plans. The
----------------------------------------
Executive shall be entitled to participate in any plan of the Corporation, as
such plan may from time to time provide, relating to pension, thrift, deferred
profit sharing, group insurance coverage, education or retirement or other
supplemental Executive benefits that the Corporation has adopted or adopts for
the benefit of its Executives.
b. Fringe Benefits. The Executive shall be entitled
---------------
to participate in any other program which is or becomes applicable to the
Corporation's executives, as such program may from time to time provide
including a reasonable expense account, the payment of reasonable expenses for
attending educational seminars and annual and periodic meetings of trade
associations, and other benefits which are commensurate with the
responsibilities and functions to be performed by the Executive under this
Agreement.
2.
<PAGE>
5. Term.
----
a. Initial Term and Automatic Extension. The initial
------------------------------------
term of employment under this Agreement shall be for a period commencing on
January 1, 1998 and ending on December 31, 1998. On January 1, 1999 and on
each January 1st thereafter, the Term of this Agreement shall be extended
automatically by one additional year beyond the then current expiration date,
unless either the Corporation or the Executive gives contrary written notice
to the other not less than 45 days in advance of the date on which this
Agreement would otherwise be extended. Reference herein to the "Term of this
Agreement" shall refer to the term as so extended. Section 9, entitled "Change
in Control," shall survive the expiration of this Agreement for a period of
one (1) year so long as Executive is employed by the Corporation. If Executive
is terminated by the Corporation without cause pursuant to Section 7a(2), said
Section 9 shall survive this Agreement for a period of one (1) year from the
date of termination of employment.
b. Consequences of Non-Extension. If this Agreement is
-----------------------------
not extended, on the expiration of the Term of this Agreement, the Executive
shall be deemed to be employed by the Corporation for no specific term and the
Executive's rights as an Executive of the Corporation shall be no less than
those provided by the laws of the State of California and the laws of the
United States; provided, however, that such post expiration employment may be
terminated at any time by the Executive or by the Board, or its authorized
representative, with or without cause by delivery to the Executive of a
written notice (the "Termination Notice") of such termination.
6. Voluntary Absences. At such reasonable times as the Board,
------------------
or its authorized representative, shall in its discretion permit, the Executive
shall be entitled, without loss of pay, to absent himself voluntarily from the
performance of his employment under this Agreement. All such voluntary absences
shall count as holidays, vacation time, floating holidays, sick leave,
compensatory time or other paid time off as specified in Corporation policy,
provided that:
a. Vacation Entitlement. The Executive shall be entitled
--------------------
to an annual paid vacation of 20 days per year.
b. Timing of Vacation. Vacations shall be scheduled in a
------------------
reasonable manner by the Executive and subject to the Corporation's needs,
except that the Executive shall take not less than ten (10) days vacation
consecutively in each calendar year.
3.
<PAGE>
7. Termination of Employment.
-------------------------
a. Termination by Corporation. The Executive's
--------------------------
employment under this Agreement may be terminated, with or without cause, at
any time by the Board, or its authorized representative, by delivery to the
Executive of a written notice (the "Termination Notice") of such termination.
The Termination Notice shall state the effective date of such termination and
whether such termination is for "cause," as defined in Section 7a(1), or
without cause pursuant to Section 7a(2). Unless the Termination Notice states
that the termination is for cause and states with reasonable particularity the
cause, the termination shall be deemed to be without cause pursuant to Section
7a(2). In the event an arbitrator appointed pursuant to Section 13 of this
Agreement determines that a purported termination for cause was in fact
without proper cause, the termination shall nonetheless be effective, but the
Executive shall be entitled to the severance payment pursuant to Section 7a(2)
hereof.
(1) Termination by Corporation for Cause. The
------------------------------------
Executive's employment under this Agreement may be terminated at any time by
the Board, or its authorized representative, for "cause," which shall include,
but not be limited to the following:
(a) The commission by the Executive of an act
of misconduct (including, but not limited to, the violation of any law, rule,
regulation or cease and desist order applicable to the Executive or the
Corporation or its insured subsidiaries), or an act which constitutes a breach
of a fiduciary duty owed by the Executive involving personal profit;
(b) The Executive's material breach of this
Agreement, dishonesty, incompetence, willful misconduct, habitual unexcused
absence from work, intentional failure to perform duties, or gross negligence
in the performance of stated duties;
(c) The Executive's becoming physically or
mentally incapable of performing the essential functions of his employment
position, with or without reasonable accommodation, for a period in excess of
the applicable leave entitlement mandated by Federal or State law; or
(d) Any criminal conviction of the
Executive (other than for a minor traffic violation or similar offense),
whether or not in the line of duty.
In the event of termination for cause under this Section 7a(1), the Executive
shall have no right to receive compensation or other benefits under this
Agreement for any period after such termination.
4.
<PAGE>
(2) Termination by Corporation
--------------------------
Without Cause. The Executive's employment under this Agreement may be
- - -------------
terminated at any time by the Board, or its authorized representative, without
cause; provided, however, that unless the termination of this Agreement is for
"cause," as set forth in Section 7a(1), or pursuant to Sections 7b, 7c, or 9,
then, upon such termination, in addition to any benefits that had accrued to
the date of termination but in lieu of any rights or benefits that would have
accrued following such termination, the Executive shall be entitled, upon
execution of a Severance Agreement and Release as provided in Exhibit A, to a
lump sum severance payment of eighteen (18) months salary.
b. Termination by the Executive. This Agreement may
----------------------------
be terminated by the Executive at any time upon 30 days written notice to the
Corporation or upon such shorter period as may be agreed upon between the
Executive and the Board.
c. Termination by Death. In the event of the death
--------------------
of the Executive during the Term of this Agreement, the Executive's estate, or
such person as the Executive may have previously designated in writing for
group insurance purposes, shall be entitled to receive the salary due the
Executive through the last day of the calendar month in which his death shall
have occurred.
8. Disability. If the Executive shall become disabled or
----------
incapacitated to the extent that he is unable to perform the essential functions
of his employment position, with or without reasonable accommodation, he shall
be entitled to receive disability benefits of the type provided for other
employees of the Corporation. In such event, 90 days after the last day the
Executive worked, any rights of the Executive to receive the salary provided in
Section 2 of this Agreement shall be suspended until the Executive is able to
resume performance of his duties.
9. Change in Control. If during the Term of this Agreement, or
-----------------
within one (1) year following the expiration of this Agreement and if Executive
is employed by the Corporation, there is a "change in control," of the
Corporation, as hereinafter defined, the Executive shall be entitled, upon
execution of a Severance Agreement and Release as provided in Exhibit A, to a
severance payment in the event the Executive's employment is terminated, other
than for "cause" as set forth in Section 7a(1) or pursuant to Sections 7b
(except as provided below), or 7c, within twenty-four (24) months after the
change in control. The amount of this payment shall equal two hundred
percent(200%) of the Executive's annual salary as of the date of termination and
shall be in lieu of any severance payment that would be due Executive under
Section 7a(2). Except as provided above, such termination or severance payment
shall be in addition to all other
5.
<PAGE>
amounts payable to the Executive pursuant to this Agreement. This termination
or severance payment shall also be made in the case of a termination of
employment by the Executive pursuant to Section 7b of this Agreement within
twenty-four (24) months after a change in control because during such twenty-
four (24) month period there has been a material diminution of or interference
with the Executive's duties, responsibilities and benefits as President and
Chief Executive Officer of the Corporation. By way of example and not by way
of limitation, any of the following actions, if unreasonable or materially
adverse to the Executive, shall constitute such diminution or interference
unless consented to in writing by the Executive: (i) a change in the principal
workplace of the Executive to a location more than 25 highway miles from the
Executive's current office location; (ii) a reduction or adverse change in the
salary or benefits which had theretofore been provided to the Executive, other
than as part of an overall program applied uniformly and with equitable effect
to all members of senior management of the Corporation; or (iii) a change in
Executive's title.
Any payments made to the Executive pursuant to this Agreement,
or otherwise, are subject to and conditioned upon their compliance with 12
U.S.C. ?1828(k) and any regulations promulgated thereunder.
The term "change in control" as applied to the Corporation is
defined solely as any acquisition of control of the Corporation (other than
pursuant to the acquisition by a trustee or other fiduciary holding securities
under an Executive benefit plan of the Corporation), as defined in 12 C.F.R. ?
574.4, or any successor regulation, which would require the filing of an
application for acquisition of control or notice of change in control as set
forth in 12 C.F.R. ? 574.3, or any successor regulation.
10. Successors and Assigns. The terms, provisions, covenants,
----------------------
and conditions of this Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns; provided,
however, that the Executive may not sell, assign, pledge, hypothecate or
otherwise transfer this Agreement or any part thereof without the prior written
consent of the Corporation, which consent may be withheld by the Corporation for
any reason it deems appropriate. "Successors and assigns" shall mean, in the
case of the Corporation, any successor pursuant to a merger, consolidation or
sale or transfer of all or substantially all of the assets of the Corporation.
6.
<PAGE>
11. Indemnification. The Corporation hereby agrees that the
---------------
Corporation shall indemnify the Executive to the fullest extent permitted by the
Corporation's Bylaws and by Delaware corporate law.
12. Excise Taxes. In the event it shall be determined that any
------------
payment or distribution by the Corporation or its affiliates to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of the Agreement or otherwise, but
determined without regard to any additional payments required under this Section
12) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code (the "Code") or any interest or penalties are incurred
by the Executive with respect to such excise (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitations, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payment.
13. Confidential Information
------------------------
a. Non-Disclosure. Employee hereby agrees that,
--------------
during the Term of this Agreement and thereafter, he will not disclose to any
person, or otherwise use or exploit any of the proprietary or confidential
information or knowledge, including without limitation, trade secrets,
processes, records of research, proposals, reports, methods, techniques,
customer lists and customers, computer software or programming, budgets or
financial information, or other confidential information and/or trade secrets,
regarding the Corporation, its businesses, properties or affairs obtained by
him at any time prior to or subsequent to the execution of this Agreement,
except to the extent required by his performance or assigned duties for the
Corporation. Executive understands that proprietary or confidential
information does not include any of the foregoing items which (i) have become
publicly known or made generally available through no wrongful act of
Executive or of others who were under confidentiality obligations as to the
item or items involved, or (ii) are independently developed by the Executive
without the use of proprietary or confidential information. In addition,
Employee agrees not to divulge, publish or otherwise reveal, during the Term
of this Agreement or thereafter, either directly or indirectly, or through
another, to any person, firm or corporation, for competitive purposes, any
knowledge or information or any facts concerning the methods and techniques
used by the Corporation to conduct business, the names of customers and others
who have relationships
7.
<PAGE>
with the Company, or other confidential information and/or trade secrets used
by the Corporation in the operation of its business. During the Term of this
Agreement: (i) Employee agrees to disclose to the Corporation the identity and
nature of any contacts with any person or entity soliciting from Employee
disclosure of any such information or soliciting Employee's involvement in any
business venture competitive with the Corporation; and (ii) Employee shall not
conceal from or fail to disclose to the Corporation, or divert or exploit for
his own personal profit or that of others, any business opportunity or other
opportunity to acquire an interest in or a contractual relationship with any
person or entity where such person or entity is in the Corporation's line of
business or where such contractual relationship would be considered a feasible
and advantageous opportunity for the Corporation.
b. Return of Materials. Upon termination of employment,
-------------------
Employee will deliver to the Corporation all tangible displays and
repositories of process, records of research, proposals, reports, memoranda,
computer software and programming, budgets and other financial information,
and other materials or records or writings of any type (including any copies
thereof) made, used or obtained by Employee in connection with his employment
by the Corporation; provided, however, that documents relating to Employee's
employment arrangements with the Corporation or his personal affairs shall be
excluded from the provisions herein. Notwithstanding the foregoing, Employee
will be entitled to have reasonable access to such property as is necessary
for and in order to prosecute or defend any legal action or proceeding or to
respond to a court or arbitration order.
c. The Employee acknowledges that the restrictions
contained in the foregoing paragraphs of this Section 13, in view of the
nature of the businesses in which the Corporation is engaged, are reasonable
and necessary in order to protect the legitimate interests of the Corporation,
and that any violation thereof would result in irreparable and substantial
harm to the Corporation for which the Corporation does not have an adequate
remedy at law, and the Employee therefore acknowledges that, in the event of
his actual or threatened violations of any of these restrictions, the
Corporation shall be entitled to obtain from any court of competent
jurisdiction temporary, preliminary and permanent injunctive relief as well as
damages and equitable accounting of all earnings, profits and other benefits
arising from such violation, which rights shall be cumulative and in addition
to any other rights or remedies to which the Corporation may be entitled.
d. In the event that the Corporation believes that it
is entitled to relief under this Section 13, the Corporation will provide
written notice to Employee specifying the nature of any alleged breach of this
section. The Corporation
8.
<PAGE>
shall be obligated to discuss with Employee in good faith whether such breach
has occurred and, if so, whether such breach can be cured. If Employee cures
such breach within fifteen (15) days from the date of such notice, Employee
shall not be deemed to be in breach of this Section 13.
14. Arbitration. The parties hereby agree that any controversy
-----------
or dispute arising out of or relating to this Agreement shall be resolved
pursuant to this Section 14.
a. Agreement to Negotiate. Prior to submitting any
----------------------
controversy, dispute or claim arising out of, or relating to, this Agreement
to arbitration, the parties hereto agree to observe the following procedures:
(1) The party desiring to submit any such
controversy, dispute or claim to arbitration (the "claimant") first shall give
written notice thereof to the other party (the "recipient") setting forth in
detail the pertinent facts and circumstances relating to such controversy,
dispute or claim;
(2) The recipient shall have a period of fifteen
(15) days after receipt of written notice in which to consider the
controversy, dispute or claim which is the subject of the notice and to
furnish in writing to the claimant a written statement of the recipient's
position;
(3) Within seven (7) days of claimant's receipt
of recipient's written statement, the parties shall meet in an effort to
resolve amicably any differences which may exist and, failing such resolution,
either or both of the parties shall have the right to submit the matter to
arbitration.
b. Procedure for Arbitration.
-------------------------
(1) The parties hereby agree that any
controversy, dispute or claim arising out of, or relating to, this Agreement,
or breach of this Agreement, including disputes concerning termination of this
Agreement, shall be settled by arbitration in San Mateo, California. This
agreement to arbitrate shall be specifically enforceable. Judgment upon any
award rendered by an arbitrator may be entered in any court having
jurisdiction.
(2) Any demand for arbitration must be served
on the other party within forty-five (45) days of the act or omission giving
rise to the controversy, dispute or claim.
(3) There shall be one impartial arbitrator
chosen by the parties from a list procured from the California Mediation and
Conciliation Service.
9.
<PAGE>
(4) The arbitrator shall not extend, modify or
suspend any of the terms of this Agreement.
(5) The decision of the Arbitrator within the
scope of the submission shall be final and binding on all parties, and any
right to judicial action on any matter subject to arbitration hereunder is
hereby waived (unless otherwise provided by applicable law), except suit to
enforce this arbitration award.
(6) Executive agrees that such arbitration shall
be the exclusive forum for any controversy, dispute or claim arising out of or
relating to this Agreement, or breach or termination of this Agreement.
Executive further expressly agrees that in arbitration his exclusive remedy
shall be a money award not to exceed the amount of wages he would have earned
under this Agreement but for the alleged violation and the Executive shall not
be entitled to any other remedy, at law or in equity, including but not
limited to reinstatement, other money damages, punitive damages and/or
injunctive relief.
(7) Each party shall pay such party's own
attorney or other representative, and the expenses of such party's witnesses
and all other expenses connected with his case. Other costs of the
arbitration, including the cost of any record or transcript of the
arbitration, administrative fees, arbitrator's fees, and all other fees and
costs, shall be borne by the Corporation; provided, however, that at the
discretion of the Arbitrator, and upon a preponderance of the evidence that
one of the parties has engaged in malice, fraud or oppression relating to the
termination of the Executive's employment, reasonable attorney's fees and
costs may be awarded to the other party.
15. General Provisions.
------------------
a. Notices. Any notice, request, demand or other
-------
communication required or permitted hereunder shall be deemed to be properly
given when personally served in writing and when deposited in the United
States mail, registered or certified, postage prepaid, addressed to the party
at the last address supplied to the sending party by the addressed party.
b. Waiver. The waiver by any party of a breach of any
------
provision of this Agreement by the other shall not operate or be construed as
a waiver of any subsequent breach of the same provision or any other provision
of this Agreement.
c. Entire Agreement. Except as provided herein, this
----------------
Agreement contains the entire agreement of the parties. It supersedes any and
all other agreements, either oral or in writing, between the parties hereto
with respect to the employment of the Executive by the Corporation. Each party
to this Agreement acknowledges that no representations, inducements, promises
or
10.
<PAGE>
agreements, oral or otherwise, have been made by any party, or anyone acting
on behalf of any party, which are not embodied herein, and that no other
agreement, statement or promise not contained in this Agreement shall be valid
and binding.
d. Amendments. No amendments or additions to this
----------
Agreement shall be binding unless in writing and signed by both parties,
except as herein otherwise provided.
e. Paragraph Headings. The paragraph headings used in
------------------
this Agreement are included solely for convenience and shall not affect, or be
used in connection with, the interpretation of this Agreement.
f. Severability. The provisions of this Agreement
------------
shall be deemed severable and the invalidity or unenforceability of any
provision shall not affect the validity or enforceability of the other
provisions hereof.
g. Governing Law. Except where federal law governs,
-------------
this Agreement is to be governed by and construed under the internal
substantive laws of the State of California (and not under conflict of law
principles) as such laws apply to contracts made and to be performed entirely
in the State of California.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the day and year first hereinabove written.
BAY VIEW CAPITAL CORPORATION
/s/ JOHN R. McKEAN
------------------------------------
John R. McKean
Chairman of the Board
THE EXECUTIVE
/s/ EDWARD H. SONDKER
------------------------------------
Edward H. Sondker
President and Chief Executive Officer
11.
<PAGE>
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into this
1st day of August 1998 by and between Bay View Capital Corporation (the
"Corporation"), a Delaware Corporation, and Carolyn Williams-Goldman (the
"Executive").
R E C I T A L S:
A. The parties desire to enter into this Agreement setting forth the
terms and conditions of the employment relationship between the Corporation and
the Executive.
B. The Board of Directors of the Corporation (or "Board") believes it is
in the best interests of the Corporation to enter into this Agreement with the
Executive in order to assure continuity of management of the Corporation, and
has approved and authorized the execution by the Corporation of this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises herein contained, the parties hereto agree as follows:
1. Executive's Title, Duty, Authority and Time Commitment.
------------------------------------------------------
a. Title. The Executive's position and title with the
-----
Corporation shall be that of Executive Vice President, Director of
Administration.
b. Duties and Authority. The Executive's duties and authority
--------------------
shall be consistent with those of an Executive Vice President, Director of
Administration. The Executive shall render such administrative and management
services to the Corporation as are customarily performed by persons employed in
the banking and financial services industry in a similar executive capacity. In
addition, the Executive shall perform such other duties as the Board, or its
authorized representative, may from time to time require. All duties performed
by the Executive hereunder shall be in accordance with such reasonable standards
as are established from time to time by the Board, or its authorized
representative, and performance evaluations shall be conducted by or under the
direction of the Board and reviewed with the Executive annually.
c. Time Commitment. During the "Term of this Agreement", as
---------------
defined in Section 5 of this Agreement, unless the Executive has obtained the
prior written consent of the Board, or its authorized representative,
<PAGE>
(1) The Executive shall render her full productive time and
services to the Corporation, keeping normal business hours, but is authorized to
engage in such banking trade association and related activities during normal
business hours which, in her judgment, with the concurrence of her immediate
supervisor, are in the business interests of the Corporation; and
(2) The Executive shall not render personal services to any
other person or entity for compensation, either as an Executive, consultant,
director or officer, if such services would conflict with the Executive's duty
to the Corporation or adversely affect the Executive's judgment in the
performance of her responsibilities. Executive shall remain free to engage in
community, charitable, political and personal pursuits which do not interfere
with her performance under this Agreement.
2. Compensation. The Corporation agrees to pay the Executive during
------------
the Term of this Agreement a base salary as follows: $150,000 per annum, with
the salary to be reviewed on July 1, 1999, and annually on each July 1st
thereafter during the Term of this Agreement. Salary increases are not
guaranteed or automatic. The salary provided for in this Agreement shall be
payable semi-monthly in accordance with the practices of the Corporation.
3. Discretionary Bonuses. The Executive shall be entitled to
---------------------
participate in discretionary bonuses and incentive payments which are now or
become authorized and declared by the Board or its authorized representative.
Executive shall be entitled to an annual performance bonus of up to forty
percent (40%) of base salary depending upon the achievement of specific goals
set by the Company's Board of Directors.
4. Additional Benefits.
-------------------
a. Participation in Executive Benefit Plans. The Executive
----------------------------------------
shall be entitled to participate in any plan of the Corporation, as such plan
may from time to time provide, relating to pension, thrift, deferred profit
sharing, group insurance coverage, education or retirement or other supplemental
Executive benefits that the Corporation has adopted or adopts for the benefit of
its Executives.
b. Fringe Benefits. The Executive shall be entitled to
---------------
participate in any other program which is or becomes applicable to the
Corporation's executives, as such program may from time to time provide
including a reasonable expense account, the payment of reasonable expenses for
attending educational seminars and annual and periodic meetings of trade
associations, and other benefits which are commensurate with the
responsibilities and functions to be performed by the Executive under this
Agreement.
2.
<PAGE>
5. Term.
----
a. Initial Term and Automatic Extension. The initial term of
------------------------------------
employment under this Agreement shall be for a period commencing on August 1,
1998 and ending on December 31, 1998. On January 1, 1999 and on each January 1st
thereafter, the Term of this Agreement shall be extended automatically by one
additional year beyond the then current expiration date, unless either the
Corporation or the Executive gives contrary written notice to the other not less
than 45 days in advance of the date on which this Agreement would otherwise be
extended. Reference herein to the "Term of this Agreement" shall refer to the
term as so extended. Section 9, entitled "Change in Control," shall survive the
expiration of this Agreement for a period of one (1) year so long as Executive
is employed by the Corporation. If Executive is terminated by the Corporation
without cause pursuant to Section 7a(2), said Section 9 shall survive this
Agreement for a period of one (1) year from the date of termination of
employment.
b. Consequences of Non-Extension. If this Agreement is not
-----------------------------
extended, on the expiration of the Term of this Agreement, the Executive shall
be deemed to be employed by the Corporation for no specific term and the
Executive's rights as an Executive of the Corporation shall be no less than
those provided by the laws of the State of California and the laws of the United
States; provided, however, that such post expiration employment may be
terminated at any time by the Executive or by the Board, or its authorized
representative, with or without cause by delivery to the Executive of a written
notice (the "Termination Notice") of such termination.
6. Voluntary Absences. At such reasonable times as the Board, or
------------------
its authorized representative, shall in its discretion permit, the Executive
shall be entitled, without loss of pay, to absent himself voluntarily from the
performance of her employment under this Agreement. All such voluntary absences
shall count as holidays, vacation time, floating holidays, sick leave,
compensatory time or other paid time off as specified in Corporation policy,
provided that:
a. Vacation Entitlement. The Executive shall be entitled to an
--------------------
annual paid vacation of 20 days per year.
b. Timing of Vacation. Vacations shall be scheduled in a
------------------
reasonable manner by the Executive and subject to the Corporation's needs,
except that the Executive shall take not less than ten (10) days vacation
consecutively in each calendar year.
3.
<PAGE>
7. Termination of Employment.
-------------------------
a. Termination by Corporation. The Executive's employment under
--------------------------
this Agreement may be terminated, with or without cause, at any time by the
Board, or its authorized representative, by delivery to the Executive of a
written notice (the "Termination Notice") of such termination. The Termination
Notice shall state the effective date of such termination and whether such
termination is for "cause," as defined in Section 7a(1), or without cause
pursuant to Section 7a(2). Unless the Termination Notice states that the
termination is for cause and states with reasonable particularity the cause, the
termination shall be deemed to be without cause pursuant to Section 7a(2). In
the event an arbitrator appointed pursuant to Section 13 of this Agreement
determines that a purported termination for cause was in fact without proper
cause, the termination shall nonetheless be effective, but the Executive shall
be entitled to the severance payment pursuant to Section 7a(2) hereof.
(1) Termination by Corporation for Cause. The Executive's
------------------------------------
employment under this Agreement may be terminated at any time by the Board, or
its authorized representative, for "cause," which shall include, but not be
limited to the following:
(a) The commission by the Executive of an act of
misconduct (including, but not limited to, the violation of any law, rule,
regulation or cease and desist order applicable to the Executive or the
Corporation or its insured subsidiaries), or an act which constitutes a breach
of a fiduciary duty owed by the Executive involving personal profit;
(b) The Executive's material breach of this Agreement,
dishonesty, incompetence, willful misconduct, habitual unexcused absence from
work, intentional failure to perform duties, or gross negligence in the
performance of stated duties;
(c) The Executive's becoming physically or mentally
incapable of performing the essential functions of her employment position, with
or without reasonable accommodation, for a period in excess of the applicable
leave entitlement mandated by Federal or State law; or
(d) Any criminal conviction of the Executive (other
than for a minor traffic violation or similar offense), whether or not in the
line of duty.
In the event of termination for cause under this Section 7a(1), the Executive
shall have no right to receive compensation or other benefits under this
Agreement for any period after such termination.
4.
<PAGE>
(2) Termination by Corporation Without Cause. The
----------------------------------------
Executive's employment under this Agreement may be terminated at any time by the
Board, or its authorized representative, without cause; provided, however, that
unless the termination of this Agreement is for "cause," as set forth in Section
7a(1), or pursuant to Sections 7b, 7c, or 9, then, upon such termination, in
addition to any benefits that had accrued to the date of termination but in lieu
of any rights or benefits that would have accrued following such termination,
the Executive shall be entitled, upon execution of a Severance Agreement and
Release as provided in Exhibit A, to a lump sum severance payment of eighteen
(18) months salary.
b. Termination by the Executive. This Agreement may be
----------------------------
terminated by the Executive at any time upon 30 days written notice to the
Corporation or upon such shorter period as may be agreed upon between the
Executive and the Board.
c. Termination by Death. In the event of the death of the
--------------------
Executive during the Term of this Agreement, the Executive's estate, or such
person as the Executive may have previously designated in writing for group
insurance purposes, shall be entitled to receive the salary due the Executive
through the last day of the calendar month in which her death shall have
occurred.
8. Disability. If the Executive shall become disabled or
----------
incapacitated to the extent that she is unable to perform the essential
functions of her employment position, with or without reasonable accommodation,
she shall be entitled to receive disability benefits of the type provided for
other employees of the Corporation. In such event, 90 days after the last day
the Executive worked, any rights of the Executive to receive the salary provided
in Section 2 of this Agreement shall be suspended until the Executive is able to
resume performance of her duties.
9. Change in Control. If during the Term of this Agreement, or
-----------------
within one (1) year following the expiration of this Agreement and if Executive
is employed by the Corporation, there is a "change in control," of the
Corporation, as hereinafter defined, the Executive shall be entitled, upon
execution of a Severance Agreement and Release as provided in Exhibit A, to a
severance payment in the event the Executive's employment is terminated, other
than for "cause" as set forth in Section 7a(1) or pursuant to Sections 7b
(except as provided below), or 7c, within twenty-four (24) months after the
change in control. The amount of this payment shall equal two hundred
percent(200%) of the Executive's annual salary as of the date of termination and
shall be in lieu of any severance payment that would be due Executive under
Section 7a(2). Except as provided above, such termination or severance payment
shall be in addition to all other
5.
<PAGE>
amounts payable to the Executive pursuant to this Agreement. This termination or
severance payment shall also be made in the case of a termination of employment
by the Executive pursuant to Section 7b of this Agreement within twenty-four
(24) months after a change in control because during such twenty-four (24) month
period there has been a material diminution of or interference with the
Executive's duties, responsibilities and benefits as Executive Vice President,
Director of Administration of the Corporation. By way of example and not by way
of limitation, any of the following actions, if unreasonable or materially
adverse to the Executive, shall constitute such diminution or interference
unless consented to in writing by the Executive: (i) a change in the principal
workplace of the Executive to a location more than 25 highway miles from the
Executive's current office location; (ii) a reduction or adverse change in the
salary or benefits which had theretofore been provided to the Executive, other
than as part of an overall program applied uniformly and with equitable effect
to all members of senior management of the Corporation; or (iii) a change in
Executive's title.
Any payments made to the Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.
The term "change in control" as applied to the Corporation is defined
solely as any acquisition of control of the Corporation (other than pursuant to
the acquisition by a trustee or other fiduciary holding securities under an
Executive benefit plan of the Corporation), as defined in 12 C.F.R. Section
574.4, or any successor regulation, which would require the filing of an
application for acquisition of control or notice of change in control as set
forth in 12 C.F.R. Section 574.3, or any successor regulation.
10. Successors and Assigns. The terms, provisions, covenants, and
----------------------
conditions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns; provided,
however, that the Executive may not sell, assign, pledge, hypothecate or
otherwise transfer this Agreement or any part thereof without the prior written
consent of the Corporation, which consent may be withheld by the Corporation for
any reason it deems appropriate. "Successors and assigns" shall mean, in the
case of the Corporation, any successor pursuant to a merger, consolidation or
sale or transfer of all or substantially all of the assets of the Corporation.
6.
<PAGE>
11. Indemnification. The Corporation hereby agrees that the
---------------
Corporation shall indemnify the Executive to the fullest extent permitted by the
Corporation's Bylaws and by Delaware corporate law.
12. Excise Taxes. In the event it shall be determined that any
------------
payment or distribution by the Corporation or its affiliates to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of the Agreement or otherwise, but
determined without regard to any additional payments required under this
Section 12) (a "Payment") would be subject to the excise tax imposed by Section
4999 of the Internal Revenue Code (the "Code") or any interest or penalties are
incurred by the Executive with respect to such excise (such excise tax, together
with any such interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), then the Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that after payment
by the Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitations, any income taxes (and
any interest and penalties imposed with respect thereto) and Excise Tax imposed
upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payment.
13. Confidential Information
------------------------
a. Non-Disclosure. Employee hereby agrees that, during the Term
--------------
of this Agreement and thereafter, she will not disclose to any person, or
otherwise use or exploit any of the proprietary or confidential information or
knowledge, including without limitation, trade secrets, processes, records of
research, proposals, reports, methods, techniques, customer lists and customers,
computer software or programming, budgets or financial information, or other
confidential information and/or trade secrets, regarding the Corporation, its
businesses, properties or affairs obtained by him at any time prior to or
subsequent to the execution of this Agreement, except to the extent required by
her performance or assigned duties for the Corporation. Executive understands
that proprietary or confidential information does not include any of the
foregoing items which (i) have become publicly known or made generally available
through no wrongful act of Executive or of others who were under confidentiality
obligations as to the item or items involved, or (ii) are independently
developed by the Executive without the use of proprietary or confidential
information. In addition, Employee agrees not to divulge, publish or otherwise
reveal, during the Term of this Agreement or thereafter, either directly or
indirectly, or through another, to any person, firm or corporation, for
competitive purposes, any knowledge or information or any facts concerning the
methods and techniques used by the Corporation to conduct business, the names of
customers and others who have relationships
7.
<PAGE>
with the Company, or other confidential information and/or trade secrets used by
the Corporation in the operation of its business. During the Term of this
Agreement: (i) Employee agrees to disclose to the Corporation the identity and
nature of any contacts with any person or entity soliciting from Employee
disclosure of any such information or soliciting Employee's involvement in any
business venture competitive with the Corporation; and (ii) Employee shall not
conceal from or fail to disclose to the Corporation, or divert or exploit for
her own personal profit or that of others, any business opportunity or other
opportunity to acquire an interest in or a contractual relationship with any
person or entity where such person or entity is in the Corporation's line of
business or where such contractual relationship would be considered a feasible
and advantageous opportunity for the Corporation.
b. Return of Materials. Upon termination of employment,
-------------------
Employee will deliver to the Corporation all tangible displays and repositories
of process, records of research, proposals, reports, memoranda, computer
software and programming, budgets and other financial information, and other
materials or records or writings of any type (including any copies thereof)
made, used or obtained by Employee in connection with her employment by the
Corporation; provided, however, that documents relating to Employee's employment
arrangements with the Corporation or her personal affairs shall be excluded from
the provisions herein. Notwithstanding the foregoing, Employee will be entitled
to have reasonable access to such property as is necessary for and in order to
prosecute or defend any legal action or proceeding or to respond to a court or
arbitration order.
c. The Employee acknowledges that the restrictions contained in
the foregoing paragraphs of this Section 13, in view of the nature of the
businesses in which the Corporation is engaged, are reasonable and necessary in
order to protect the legitimate interests of the Corporation, and that any
violation thereof would result in irreparable and substantial harm to the
Corporation for which the Corporation does not have an adequate remedy at law,
and the Employee therefore acknowledges that, in the event of her actual or
threatened violations of any of these restrictions, the Corporation shall be
entitled to obtain from any court of competent jurisdiction temporary,
preliminary and permanent injunctive relief as well as damages and equitable
accounting of all earnings, profits and other benefits arising from such
violation, which rights shall be cumulative and in addition to any other rights
or remedies to which the Corporation may be entitled.
d. In the event that the Corporation believes that it is
entitled to relief under this Section 13, the Corporation will provide written
notice to Employee specifying the nature of any alleged breach of this section.
The Corporation
8.
<PAGE>
shall be obligated to discuss with Employee in good faith whether such breach
has occurred and, if so, whether such breach can be cured. If Employee cures
such breach within fifteen (15) days from the date of such notice, Employee
shall not be deemed to be in breach of this Section 13.
14. Arbitration. The parties hereby agree that any controversy or
-----------
dispute arising out of or relating to this Agreement shall be resolved pursuant
to this Section 14.
a. Agreement to Negotiate. Prior to submitting any controversy,
----------------------
dispute or claim arising out of, or relating to, this Agreement to arbitration,
the parties hereto agree to observe the following procedures:
(1) The party desiring to submit any such controversy,
dispute or claim to arbitration (the "claimant") first shall give written notice
thereof to the other party (the "recipient") setting forth in detail the
pertinent facts and circumstances relating to such controversy, dispute or
claim;
(2) The recipient shall have a period of fifteen (15) days
after receipt of written notice in which to consider the controversy, dispute or
claim which is the subject of the notice and to furnish in writing to the
claimant a written statement of the recipient's position;
(3) Within seven (7) days of claimant's receipt of
recipient's written statement, the parties shall meet in an effort to resolve
amicably any differences which may exist and, failing such resolution, either or
both of the parties shall have the right to submit the matter to arbitration.
b. Procedure for Arbitration.
-------------------------
(1) The parties hereby agree that any controversy, dispute
or claim arising out of, or relating to, this Agreement, or breach of this
Agreement, including disputes concerning termination of this Agreement, shall be
settled by arbitration in San Mateo, California. This agreement to arbitrate
shall be specifically enforceable. Judgment upon any award rendered by an
arbitrator may be entered in any court having jurisdiction.
(2) Any demand for arbitration must be served on the other
party within forty-five (45) days of the act or omission giving rise to the
controversy, dispute or claim.
(3) There shall be one impartial arbitrator chosen by the
parties from a list procured from the California Mediation and Conciliation
Service.
9.
<PAGE>
(4) The arbitrator shall not extend, modify or suspend any
of the terms of this Agreement.
(5) The decision of the Arbitrator within the scope of the
submission shall be final and binding on all parties, and any right to judicial
action on any matter subject to arbitration hereunder is hereby waived (unless
otherwise provided by applicable law), except suit to enforce this arbitration
award.
(6) Executive agrees that such arbitration shall be the
exclusive forum for any controversy, dispute or claim arising out of or relating
to this Agreement, or breach or termination of this Agreement. Executive further
expressly agrees that in arbitration her exclusive remedy shall be a money award
not to exceed the amount of wages she would have earned under this Agreement but
for the alleged violation and the Executive shall not be entitled to any other
remedy, at law or in equity, including but not limited to reinstatement, other
money damages, punitive damages and/or injunctive relief.
(7) Each party shall pay such party's own attorney or other
representative, and the expenses of such party's witnesses and all other
expenses connected with her case. Other costs of the arbitration, including the
cost of any record or transcript of the arbitration, administrative fees,
arbitrator's fees, and all other fees and costs, shall be borne by the
Corporation; provided, however, that at the discretion of the Arbitrator, and
upon a preponderance of the evidence that one of the parties has engaged in
malice, fraud or oppression relating to the termination of the Executive's
employment, reasonable attorney's fees and costs may be awarded to the other
party.
15. General Provisions.
------------------
a. Notices. Any notice, request, demand or other communication
-------
required or permitted hereunder shall be deemed to be properly given when
personally served in writing and when deposited in the United States mail,
registered or certified, postage prepaid, addressed to the party at the last
address supplied to the sending party by the addressed party.
b. Waiver. The waiver by any party of a breach of any provision
------
of this Agreement by the other shall not operate or be construed as a waiver of
any subsequent breach of the same provision or any other provision of this
Agreement.
c. Entire Agreement. Except as provided herein, this Agreement
----------------
contains the entire agreement of the parties. It supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the employment of the Executive by the Corporation. Each party to this
Agreement acknowledges that no representations, inducements, promises or
10.
<PAGE>
agreements, oral or otherwise, have been made by any party, or anyone acting on
behalf of any party, which are not embodied herein, and that no other agreement,
statement or promise not contained in this Agreement shall be valid and binding.
d. Amendments. No amendments or additions to this Agreement
----------
shall be binding unless in writing and signed by both parties, except as herein
otherwise provided.
e. Paragraph Headings. The paragraph headings used in this
------------------
Agreement are included solely for convenience and shall not affect, or be used
in connection with, the interpretation of this Agreement.
f. Severability. The provisions of this Agreement shall be
------------
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof.
g. Governing Law. Except where federal law governs, this
-------------
Agreement is to be governed by and construed under the internal substantive laws
of the State of California (and not under conflict of law principles) as such
laws apply to contracts made and to be performed entirely in the State of
California.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first hereinabove written.
BAY VIEW CAPITAL CORPORATION
/s/ EDWARD H. SONDKER
________________________________________
Edward H. Sondker
President and Chief Executive Officer
THE EXECUTIVE
/s/ CAROLYN WILLIAMS-GOLDMAN
________________________________________
Carolyn Williams-Goldman
Executive Vice President,
Director of Administration
11.
<PAGE>
EXHIBIT 12
BAY VIEW CAPITAL CORPORATION
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
9/30/98 9/30/97
<S> <C> <C>
Earnings:
Earnings before income tax expenses 30,089 21,794
Add:
Interest on advances and other borrowings 74,334 57,405
Interest component of rental expense 1,620 815
------- -------
Earnings before fixed charges excluding
interest on customer deposits 106,043 80,014
Interest on customer deposits 115,105 56,723
------- -------
Earnings before fixed charges 221,148 136,737
======= =======
Fixed charges:
Interest on advances and other borrowings 74,334 57,405
Interest component of rental expense 1,620 815
------- -------
Fixed charges excluding interest on
customer deposits 75,954 58,220
Interest on customer deposits 115,105 56,723
------- -------
Total fixed charges 191,059 114,943
======= =======
Ratio of earnings to fixed charges including interest
on customer deposits 1.16 1.19
Ratio of earnings to fixed charges excluding interest
on customer deposits 1.40 1.37
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 34,330
<INT-BEARING-DEPOSITS> 46,271
<FED-FUNDS-SOLD> 34,255
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 88,848
<INVESTMENTS-CARRYING> 490,398
<INVESTMENTS-MARKET> 493,745
<LOANS> 4,313,342
<ALLOWANCE> 46,132
<TOTAL-ASSETS> 5,522,374
<DEPOSITS> 3,229,944
<SHORT-TERM> 990,308
<LIABILITIES-OTHER> 31,859
<LONG-TERM> 889,232
0
0
<COMMON> 204
<OTHER-SE> 380,827
<TOTAL-LIABILITIES-AND-EQUITY> 5,522,374
<INTEREST-LOAN> 257,447
<INTEREST-INVEST> 46,533
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 303,980
<INTEREST-DEPOSIT> 115,105
<INTEREST-EXPENSE> 74,333
<INTEREST-INCOME-NET> 114,542
<LOAN-LOSSES> 5,114
<SECURITIES-GAINS> 1,067
<EXPENSE-OTHER> 98,666
<INCOME-PRETAX> 30,089
<INCOME-PRE-EXTRAORDINARY> 30,089
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,320
<EPS-PRIMARY> 0.76
<EPS-DILUTED> 0.74
<YIELD-ACTUAL> 3.00
<LOANS-NON> 13,299
<LOANS-PAST> 0
<LOANS-TROUBLED> 779
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 49,832
<CHARGE-OFFS> 13,049
<RECOVERIES> 4,235
<ALLOWANCE-CLOSE> 46,132
<ALLOWANCE-DOMESTIC> 46,132
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
