<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): JUNE 10, 1998
---------------
BAY VIEW CAPITAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 0-17901 94-3078031
- --------------------------------------------------------------------------------
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification
incorporation) 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
--------------
N/A
--------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
Item 5. Other Events.
------------
On June 10, 1998, Bay View Capital Corporation (the "Company"), a Delaware
corporation, announced the execution of a stock purchase agreement (the
"Agreement") by and among the Company, Bay View Bank, a wholly owned subsidiary
of the Company, Pacific USA Holdings Corp, a Texas corporation ("PUSA"), Pacific
Financial Group, Inc., a Delaware corporation and a wholly owned subsidiary of
PUSA ("Pacific Financial"), PSB Consumer Finance Corp., a Nevada corporation and
a wholly owned subsidiary of Pacific Southwest Bank (a wholly owned subsidiary
of Pacific Financial) ("Consumer") and PSB Lending Corp., a Nevada corporation
and a wholly owned subsidiary of Consumer ("PSB Lending").
Under the terms of the Agreement, Bay View Bank is to acquire all of the
outstanding shares of common stock of PSB Lending (the "PSB Shares"). Prior to
the closing of the acquisition transaction, Consumer may dividend the PSB Shares
to Pacific Financial so that Pacific Financial would be the seller of the PSB
Shares (the holder of the PSB Shares as of the closing date is herein referred
to as the "Seller"). On the closing date, Bay View Bank will pay to the Seller
$50 million in cash and 3,147,128 shares of Company common stock and the
associated rights under the Company's Stockholder Protection Rights Agreement.
In addition, the Seller may be entitled to receive additional consideration
under an earn-out arrangement of up to an indicated value of $150 million in
cash and/or stock (the "Earn Out").
The issuance of Company common stock is subject to regulatory approval of
the Seller's acquisition of such shares. In the event regulatory approval is
not obtained with respect to all or a portion of such shares, Bay View Bank will
either, at the discretion of the Seller (and subject to regulatory approval),
pay in lieu thereof (i) cash; (ii) Company common stock that has restricted
voting rights pursuant to a voting agreement; or (iii) non-voting Company common
stock (subject to approval of such a non-voting class by the Company's
stockholders).
The maximum Earn Out amount of $150 million is to be paid annually, if and
as earned, through December 31, 2005. Seller will be entitled to receive as an
Earn Out amount half of the amount by which the Company investment return
exceeds 15% up to an investment return of 21%, and all of the amount by which
the Company's investment return exceeds 21% (subject in both cases to the
maximum Earn Out amount).
PSB Lending will be held as a separate subsidiary of Bay View Bank. For
Earn Out purposes, (i) PSB Lending income will not include goodwill charges
arising from the acquisition, (ii) expenses that would be charged to a period
prior to the closing date under GAAP will be charged to a calculation year that
has not been completed, (iii) PSB Lending borrowings from Bay View Bank will be
subject to an assumed interest rate of the one-year advance rate of the FHLB of
San Francisco, reset quarterly, (iv) loans sold by PSB Lending to Bay View Bank
prior to the closing date will be treated as assets of PSB Lending and (v) any
new line of business of PSB Lending will not be taken into account.
Earn Out amounts will be in cash or, at Seller's election (and subject to
regulatory approvals), in Company common stock. If regulatory approval is not
obtained with respect to the payment of Company common stock, the Seller may
receive in lieu thereof Company common stock that has restricted voting rights
pursuant to a voting agreement or Company non-voting common stock.
If a "change in control" of the Company occurs, and the successor fails to
execute a written confirmation or guaranty of its obligations under the
Agreement, the Seller will be entitled to the difference between the maximum
Earn Out amount ($150 million) and the amount of the Earn Out amounts previously
paid. The change in control payment shall be paid in cash or a form of Company
common stock as discussed above (or in the form of the consideration paid to the
Company's stockholders in the change of control).
A "change in control" will be deemed to occur upon any one of the following
events: (i) the acquisition by any person or persons acting in concert of more
than 24.9% of the then outstanding shares of Company common stock; (ii) the
consummation of a merger or similar transaction which results in the
stockholders of the Company immediately prior to consummation of the transaction
owning less than 50% of the resulting entity following the consummation of such
transaction; (iii) as a result of a proxy solicitation by a person or persons
other than the Company's Board of Directors, a majority of the members of such
Board are not Continuing Directors; or (iv) the sale of Bay View Bank, in each
case during the Earn Out Period. The term "Continuing Director" is defined as a
person who was a director of the Company as of the date of the Agreement or
becomes a director and whose initial election or initial nomination for election
was approved by a majority of the Continuing Directors then on the Company's
Board of Directors.
If prior to the end of the Earn Out Period, more than 5% of PSB is sold in
a public or private transaction (or is spun off to the Company's stockholders),
the Company shall be obligated to pay to the Seller the difference between the
maximum Earn Out amount ($150 million) and the amount of the Earn Out amounts
previously paid upon such sale of PSB. If the PSB sale occurs within two
calendar years of the closing date, the Company shall also be obligated to pay
to Seller, (i) in the event the sale of PSB is a private transaction with a
third party, a cash payment equal to 20% of the difference between the gross
sale price of PSB to the third party and $300 million or (ii) in the event PSB
is sold in a public offering or a spinoff of PSB, a cash payment equal to 20% of
the difference between the implied market capitalization of PSB and $300 million
within 25 days of the consummation of such public offering or spinoff of PSB.
The "implied market capitalization" is determined by multiplying the average
closing price per share of PSB Lending common stock for the 20 trading day
period commencing on the initial public offering date or spinoff payment date,
by the number of shares issued and outstanding on a fully diluted basis upon
consummation of the public offering or spin off.
The closing of the stock purchase transaction is to occur between
October 1, 1998 and December 31, 1998. The closing is subject to the
satisfaction or waiver of certain conditions, including but not limited to: (i)
adoption of the Agreement by the Company's stockholder's; (ii) approval of the
transactions contemplated by the Agreement by regulatory authorities; (iii)
certification by the parties as to the accuracy of the representations and
warranties contained in the Agreement, the performance of all obligations
required under the Agreement and the absence of any material adverse change in
the condition of the parties; (iv) the receipt of opinions of counsel; (v) PSB
Lending having a minimum tangible net worth of $25,000,000; and (vi) PSB Lending
having either (A) during the period from the date of the Agreement through the
closing date sold at least $600 million in principal amount of Eligible Loan
Production (as defined in the Agreement), or (B) during the two full calendar
months ending prior to the closing date sold at least $160 million in principal
amount of Eligible Loan Production to Bay View Bank.
Pursuant to the Agreement and subject to agreement by the parties on final
documentation, (i) the Company agreed to purchase from PSB Lending for $43
million in cash a senior interest in certain residual interests in a securitized
pool of high cumulative-loan-to-value home equity loans (the "Residual
Interests"), (ii) PUSA agreed to purchase from PSB Lending for $50 million a
subordinate interest in the Residual Interests, and (iii) the Company agreed to
loan PUSA $50 million. If the Company and PUSA do not agree on final
documentation with respect to these transactions by June 30, 1998 (subject to
the right of the Company to extend such deadline to July 7, 1998 if it escrows
the $93 million in cash it is to deliver in connection with such transactions),
either the Company or PUSA may terminate the Agreement.
The foregoing description of the Agreement is qualified in its entirety by
reference to the copy of the Agreement filed as Exhibit 2 to this Report and
incorporated by reference herein.
A copy of the Company's press release announcing the execution of the
Agreement is filed as Exhibit 99.1 to this report and incorporated by reference
herein. Certain additional information is filed as Exhibit 99.2 to this Report
and incorporated by reference herein.
Item 7. Financial Statements and Exhibits
---------------------------------
(c) Exhibits
2 Stock Purchase Agreement
99.1 Press Release
99.2 Additional Information
2
<PAGE>
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 hereunto duly authorized.
BAY VIEW CAPITAL CORPORATION
Date: June 12, 1998 By: DAVID A. HEABERLIN
-----------------------------
David A. Heaberlin
Executive Vice President and
Chief Financial Officer
3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
2 Stock Purchase Agreement
99.1 Press Release
99.2 Additional Information
</TABLE>
4
<PAGE>
Exhibit 2
------------------------
STOCK PURCHASE AGREEMENT
by and among
BAY VIEW CAPITAL CORPORATION,
BAY VIEW BANK,
PACIFIC USA HOLDINGS CORP.,
PACIFIC FINANCIAL GROUP, INC.,
PSB CONSUMER FINANCE CORP
and
PSB LENDING CORP.
------------------------
----------------
June 10,1998
<PAGE>
-----------------
TABLE OF CONTENTS
RECITALS
ARTICLE I
PURCHASE AND SALE OF PSB SHARES
<TABLE>
<S> <C> <C>
1.1 Purchase and Sale of the PSB Shares................................ 1
1.2 Purchase Price..................................................... 2
1.3 The Closing........................................................ 3
1.4 The Earn Out....................................................... 3
1.5 PSB Sale........................................................... 8
1.6 Anti-Dilution Provisions........................................... 9
1.7 Registration of Bay View Common Stock.............................. 9
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF PSB, CONSUMER, PACIFIC FINANCIAL AND PUSA
2.1 Organization and Authority......................................... 16
2.2 Subsidiaries....................................................... 16
2.3 Capitalization..................................................... 16
2.4 Authorization...................................................... 17
2.5 Pacific Financial and Consumer..................................... 18
2.6 PSB Financial Statements........................................... 19
2.7 Business........................................................... 19
2.8 Properties and Leases.............................................. 19
2.9 Taxes.............................................................. 20
2.10 Material Adverse Change............................................ 21
2.11 Material Interests of Certain Persons.............................. 21
2.12 Commitments and Contracts.......................................... 21
2.13 Litigation and Other Proceedings................................... 22
2.14 Insurance.......................................................... 22
2.15 Compliance with Laws............................................... 22
2.16 Proxy Statement and Public Disclosures............................. 23
2.17 Labor.............................................................. 24
2.18 Loans.............................................................. 24
2.19 Employee Benefit Plans............................................. 26
2.20 Registration Obligations........................................... 27
2.21 Undisclosed Liabilities............................................ 28
2.22 Takeover Provisions Not Applicable................................. 28
2.23 Brokers and Finders................................................ 28
2.24 Accuracy of Information............................................ 28
2.25 Year 2000 Compliant................................................ 28
2.26 Compliance with Environmental Laws................................. 28
2.27 Defaults........................................................... 29
2.28 Indemnification.................................................... 29
</TABLE>
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF BAY VIEW AND BAY VIEW BANK
<TABLE>
<S> <C> <C>
3.1 Organization and Authority......................................... 30
3.2 Capitalization..................................................... 30
3.3 Authorization...................................................... 30
3.4 Bay View Financial Statements...................................... 31
3.5 Taxes.............................................................. 32
3.6 Material Adverse Change............................................ 33
3.7 Litigation and Other Proceedings................................... 33
3.8 Compliance with Laws............................................... 33
3.9 Proxy Statement and Public Disclosures............................. 34
3.10 Brokers and Finders................................................ 34
3.11 Accuracy of Information............................................ 34
3.12 Registration Obligations........................................... 34
3.13 Year 2000 Compliant................................................ 34
ARTICLE IV
CONDUCT OF BUSINESSES PRIOR TO THE CLOSING
4.1 Conduct of Businesses Prior to the Closing......................... 34
4.2 Forbearances of PSB................................................ 35
4.3 Forbearances of PUSA............................................... 37
4.4 Forbearances of Bay View........................................... 37
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Access and Information............................................. 38
5.2 Regulatory Filings................................................. 38
5.3 Stockholder Approval............................................... 38
5.4 Current Information................................................ 38
5.5 Expenses........................................................... 39
5.6 Miscellaneous Agreements and Consents.............................. 39
5.7 Employment Agreement and Benefits.................................. 39
5.8 Takeover Provisions................................................ 40
5.9 Third Parties...................................................... 40
5.10 Establishment of Accruals.......................................... 40
5.11 Assistance with Third Parties...................................... 40
5.12 Insurance Policy Claims............................................ 40
5.13 Restricted Shares.................................................. 40
5.14 Publicity.......................................................... 41
5.15 Trade Name Rights.................................................. 41
5.16 Listing of Shares.................................................. 41
5.17 Boards of Directors................................................ 41
5.18 Reporting.......................................................... 42
5.19 PSB................................................................ 42
5.20 Continuing Loan Sales.............................................. 42
5.21 Purchases of I/O Strips............................................ 42
5.22 Noncompetition..................................................... 44
5.23 Data Processing.................................................... 44
5.24 Guarantees......................................................... 44
5.26 Licenses........................................................... 45
5.27 Servicing Rights................................................... 45
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
5.28 Inter-Company Obligations.......................................... 45
5.29 Contribution of Shares............................................. 46
ARTICLE VI
CONDITIONS
6.1 Conditions to Each Party's Obligation Under This Agreement......... 46
6.2 Conditions to Obligations of Seller Under This Agreement........... 47
6.3 Conditions to Obligations of Bay View Under This Agreement......... 47
ARTICLE VII
TERMINATION, SPECIFIC PERFORMANCE, AMENDMENT AND WAIVER
7.1 Termination........................................................ 49
7.2 Effect of Termination.............................................. 50
7.3 Specific Performance............................................... 50
7.4 Amendment.......................................................... 50
7.5 Severability....................................................... 50
7.6 Waiver............................................................. 51
ARTICLE VIII
POST-EFFECTIVE SURVIVAL; INDEMNIFICATION
8.1 General Survival................................................... 51
8.2 Indemnification.................................................... 51
ARTICLE IX
GENERAL PROVISIONS
9.1 Non-Survival of Representations, Warranties and Agreements......... 54
9.2 Arbitration........................................................ 54
9.3 Notices............................................................ 55
9.4 Miscellaneous...................................................... 57
</TABLE>
Appendix A - Form of Opinion of Silver, Freedman & Taff, L.L.P.
Appendix B - Form of Opinion of Hughes & Luce
iii
<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated June 10, 1998, is
by and between BAY VIEW CAPITAL CORPORATION, a Delaware corporation ("Bay
View"), BAY VIEW BANK, a federal savings bank ("Bay View Bank"), and wholly-
owned direct subsidiary of Bay View, PACIFIC USA HOLDINGS CORP, a Texas
corporation ("PUSA"), PACIFIC FINANCIAL GROUP, INC., a Delaware corporation
("Pacific Financial"), and wholly owned direct subsidiary of PUSA, PSB CONSUMER
FINANCE CORP., a Nevada corporation and wholly-owned indirect subsidiary of PUSA
("Consumer") and PSB LENDING CORP., a Nevada corporation ("PSB"), which as of
the date hereof, is a wholly-owned direct subsidiary of Consumer, and which, on
the Closing Date (as defined in Section 1.3(a)) may be a wholly-owned direct
subsidiary of Pacific Financial.
RECITALS
A. PSB has a capital structure consisting of 10,000,000 authorized shares
of common stock, par value $0.01 per share ("PSB Common Stock"). As of the date
hereof, Consumer owns 100,000 shares of PSB Common Stock, representing all of
the issued and outstanding shares of PSB Common Stock (the "PSB Shares").
B. PUSA, directly or indirectly, owns 100% of the issued and outstanding
capital stock of Pacific Financial, Consumer and PSB.
C. Prior to the Closing Date, all of the PSB Shares may be dividended to
Pacific Financial, such that on the Closing Date, PSB may be a wholly-owned
direct subsidiary of Pacific Financial.
D. On the terms and conditions hereinafter set forth, Bay View Bank
desires to purchase and Pacific Financial or Consumer (or such other subsidiary
of PUSA that shall hold the PSB Shares as of the Closing Date) (the seller of
the PSB Shares as of the Closing shall be hereinafter referred to as "Seller")
desires to sell all of the PSB Shares.
E. The parties hereto desire to make certain representations, warranties,
covenants and agreements in connection with the purchase and sale of the PSB
Shares and also to prescribe various conditions to the purchase and sale of the
PSB Shares.
NOW THEREFORE, in consideration of the representations, warranties,
promises, covenants, agreements and conditions herein and hereunder, the parties
hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF PSB SHARES
1.1 Purchase and Sale of the PSB Shares. Subject to and upon the terms
-----------------------------------
and conditions hereof, on the Closing Date (as defined in Section 1.3(a)) Seller
will sell, assign, transfer and deliver to Bay View Bank, and Bay View Bank
shall purchase from Seller, the PSB Shares.
<PAGE>
1.2 Purchase Price.
--------------
(a) In consideration for the PSB Shares, Bay View Bank (A) will pay
to Seller on the Closing Date (i) $50,000,000 in immediately available funds
(the "Cash Consideration") plus (ii) subject to Section 1.2(b) and Section
7.1(f), 3,147,128 shares (the "Bay View Closing Shares") of common stock, par
value $.01 per share of Bay View (the "Bay View Common Stock") (the "Stock
Consideration) and the associated rights under the Stockholder Protection
Rights Agreement (the "Rights Agreement") dated as of July 31, 1990, as amended,
between Bay View and Manufacturers Hanover Trust Company of California, as
Rights Agent and (B) does hereby grant to Seller a contract right to receive
additional consideration (the "Earn Out") in accordance with Section 1.4 hereof.
Seller shall notify Bay View Bank of the bank and the account to which the Cash
Consideration is to be transferred not less than two days prior to the Closing
Date.
(b) The issuance of the Bay View Closing Shares to Seller is subject
in all respects to the prior receipt of all requisite approvals from all
governmental and regulatory authorities in respect of Seller's acquisition of
such shares. To the extent that governmental or regulatory authorities do not
approve the issuance of all or a portion of the Bay View Closing Shares to
Seller, Bay View will pay in lieu of the issuance of such Bay View Closing
Shares at the election of Seller, but subject in all respects to the prior
receipt of all requisite approvals from all governmental and regulatory
authorities in respect of such payment to Seller (i) an amount equal to the
Average Closing Price (as defined in Section 7.1(f)) for each such Bay View
Closing Share not approved for issuance (the "Alternative Cash Consideration"),
or (ii) shares of Bay View Common Stock subject to a Voting Agreement to be
entered into between Bay View and Seller prior to the Closing Date in a form,
subject to regulatory requirements, comparable to the form of voting agreement
previously provided to Bay View by PUSA (the "Voting Agreement") equal to the
number of shares of voting Bay View Common Stock not approved for issuance or
(iii) (if PUSA shall so request in writing at least ten business days prior to
the filing of the Proxy Statement (as defined in Section 2.16), and Bay View
shall thereby submit and recommend to its stockholders at the Meeting (as
defined in Section 5.3) a proposal to approve an amendment to its Certificate of
Incorporation to create a class of non-voting Bay View Common Stock ("Non-Voting
Bay View Common Stock") and if such proposal shall be approved by the
stockholders at the Meeting), a number of shares of Non-Voting Bay View Common
Stock equal to the number of shares of voting Bay View Common Stock not approved
for issuance, and in the case of clauses (ii) and (iii) "Bay View Closing
Shares" shall mean the number of shares of voting Bay View Common Stock or Non-
Voting Bay View Common Stock to be issued at the Closing Date based upon the
governmental and regulatory approvals. The amendment to Bay View's Certificate
of Incorporation shall provide, subject in all respects to applicable Delaware
law and regulatory requirements, that the Non-Voting Bay View Common Stock shall
be convertible into an equal number of shares of Bay View Common Stock (with
appropriate adjustments for stock splits, stock dividends and other similar
events) in the event (i) that Seller is going to enter into sales or transfers
of Bay View Common Stock of the types referred to in paragraphs (a) through (d)
of Section 2 of the Voting Agreement, (ii) of the occurrence of a circumstances
set forth in paragraph (e) of Section 2 of the Voting Agreement or (iii) after
giving effect to such conversion Seller and its affiliates would own 5% or less
of the issued and outstanding Bay View Common Stock.
2
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1.3 The Closing.
-----------
(a) The closing of the purchase and sale contemplated by this
Agreement (the "Closing") shall not take place until after each of the
conditions set forth in Article VI hereof have been satisfied or waived
and shall be at such date, time and location as the parties may agree;
provided, however, that the Closing shall occur no more than five days
after such conditions have been satisfied or waived, but in no event
earlier than October 1, 1998 and no later than December 31, 1998. The date
on which the Closing actually occurs is herein referred to as the "Closing
Date".
(b) At the Closing, Seller will deliver to Bay View Bank (i) stock
certificates representing the PSB Shares, accompanied by stock powers duly
executed in blank or duly executed instruments of transfer, with any
requisite stock transfer tax stamps provided for, and any other documents
that are necessary to transfer to Bay View Bank good and marketable title
to such shares, free and clear of any Lien (as defined in Section 2.2)
(ii) the stock book, stock ledgers, minute books and corporate seals of
PSB and (iii) all other documents, instruments and writings required to be
delivered by PUSA, Pacific Financial, Consumer and PSB at or prior to the
Closing Date pursuant to this Agreement or otherwise required in
connection herewith.
(c) At the Closing, Bay View Bank will deliver to Seller (i) the
Cash Consideration, (ii) a stock certificate representing the Bay View
Closing Shares (and/or pursuant to Section 1.2(b) cash in immediately
available funds in payment of the Alternative Cash Consideration) and
(iii) all other documents, instruments and writings required to be
delivered by Bay View and Bay View Bank at or prior to the Closing Date
pursuant to this Agreement or otherwise required in connection herewith.
1.4 The Earn Out.
------------
(a) Definitions.
-----------
(i) "Payment Date" means March 31 of each year (or such
earlier date, if any, selected by Bay View Bank) from 2000 through
2006.
(ii) "Calculation Year" means the calendar year preceding a
Payment Date, except that the first Calculation Year shall run from
the Closing Date through December 31, 1999.
(iii) "Earn Out Amounts" means the Annual Earn Out Amounts (as
defined in Section 1.4(c)(iii)) and the Deemed Earn Out Amount (as
defined in Section 1.4(e)) but excluding the Appreciation Amount (as
defined in Section 1.5) but not to exceed in the aggregate the
Maximum Earn Out Amount (as defined below).
(iv) "Maximum Earn Out Amount" means $150,000,000.
3
<PAGE>
(v) "Earn Out Period" means the period from the Closing Date
until the earlier to occur of the last Calculation Date or the date on
which the Maximum Earn Out Amount has been earned.
(vi) "Calculation Date" means the close of business on the last
day of each Calculation Year.
(b) Obligation to Pay. On each Payment Date, Bay View Bank shall pay
-----------------
to Seller the Annual Earn Out Amount earned for the preceding Calculation
Year, subject to all Earn Out Amounts paid not exceeding in the aggregate
the Maximum Earn Out Amount.
(c) Calculation of Annual Earn Out Amount.
-------------------------------------
(i) "Capitalized Value."
-----------------
(A) "Pre-Tax PSB Income" means PSB's pre-tax income for the
relevant Calculation Year computed in accordance with generally
accepted accounting principles ("GAAP") but increased by the
amount of the PSB Amortization Adjustment (as defined in Section
1.4(c)(i)(C)) and decreased by the amount of the PSB Loss
Adjustment (as defined in Section 1.4(c)(i)(D)), and subject to
the following:
(1) in the event that a charge or expense would in
accordance with GAAP be charged to a period prior to the
Closing Date or a Calculation Year that has already been
completed, it will be charged to the next Calculation Year
that has not been completed;
(2) subject to subpart (1) immediately above, Pre-Tax
PSB Income shall take into account all items of income,
expense, gain or loss relating to the PSB Loans (as defined
in clause 4 below) recognized by Bay View on a consolidated
basis for financial reporting in accordance with GAAP;
(3) each PSB Loan held by Bay View or any Bay View
Subsidiary (including PSB) during the Earn Out Period shall
bear a cost of funds expense in calculating Pre-Tax PSB
Income calculated monthly at the Advance Rate (as defined in
clause 5 below) in the case of PSB for amounts actually
advanced by Bay View or another Bay View Subsidiary, or in
the case where Bay View or another Bay View Subsidiary holds
the PSB Loan the deemed advance shall be equal to the
principal balance of the PSB Loan or the adjusted cost of
the PSB Loan, whichever is applicable;
(4) "PSB Loans" means (x) all loans purchased from PSB
by Bay View or a Bay View Subsidiary (as defined in Section
3.4), prior to the Closing Date that are held by Bay View or
a Bay View
4
<PAGE>
Subsidiary on the Closing Date, (y) all loans owned by PSB
on the Closing Date and (z) all loans acquired or originated
by PSB during the Earn Out Period; and
(5) "Advance Rate" means the one year advance rate of
the Federal Home Loan Bank of San Francisco, reset each
calendar quarter as of the first day of every calendar
quarter.
(B) "After-Tax PSB Income" means 60% of Pre-Tax PSB Income.
(C) "PSB Amortization Adjustment" means the annual goodwill
amortization arising from the acquisition (including amortization
of any identifiable intangible asset created by the acquisition)
by Bay View Bank of the PSB Shares and the annual loan loss
provision charged as an expense to income, in each case for the
relevant Calculation Year.
(D) "PSB Loss Adjustment" means actual loan loss charge
offs (net of recoveries) for the relevant Calculation Year made
in accordance with the practices of Bay View Bank and applicable
Office of Thrift Supervision (the "OTS") regulations.
(E) "Capitalized Value" for a Calculation Year means After-
Tax PSB Income divided by .15.
(ii) "Baseline Capitalized Value".
----------------------------
(A) "Initial Bay View Investment" means $150,000,000.
(B) "Additional Bay View Investment" means the aggregate of
(i) all additional cash investments in PSB by means of purchases
of PSB Common Stock or investments of additional funds for
existing shares of PSB Common Stock held by Bay View Bank or its
affiliates approved by the PSB Board and made on and after the
Closing Date through the relevant Calculation Date, (ii) all Earn
Out Amounts paid from the Closing Date through the relevant
Calculation Date, and (iii) all Rate of Return Amounts from the
Closing Date through the relevant Calculation Date. No
additional cash equity investment shall be included under clause
(B)(i) above if it would cause the tangible net worth of PSB to
exceed 10% of PSB's "total adjusted tangible assets" all as
determined in accordance with GAAP(but excluding any PSB Loans
held by Bay View or another Bay View Subsidiary) unless such
additional investment is approved by two-thirds of PSB's Board of
Directors.
(C) "PSB Dividends" means all cash dividends and
distributions paid by PSB on PSB Shares to Bay View Bank or its
affiliates between the Closing Date and the relevant Calculation
Date.
5
<PAGE>
(D) "Invested Capital" means on any date the sum of items
(A) and (B) above less item (C).
(E) "Rate of Return Amount" means an amount equal to 15%
per annum on Invested Capital calculated as of the last day of
each calendar quarter during the Earn Out Period based upon the
amount of such Invested Capital on such date.
(F) "Baseline Capitalized Value" means the amount of the
Invested Capital on each Calculation Date.
(G) "Maximum Capitalized Value" means the amount of the
Invested Capital on any relevant Calculation Date calculated
utilizing a Rate of Return Amount of 21% per annum instead of 15%
per annum between the Closing Date and such Calculation Date.
(iii) "Annual Earn Out Amount"
----------------------
(A) If the Capitalized Value as of the Calculation Date is
equal to or less than the Baseline Capitalized Value, the Annual
Earn Out Amount for such Calculation Year shall be zero.
(B) If the Capitalized Value as of the Calculation Date is
greater than the Baseline Capitalized Value, but not greater than
the Maximum Capitalized Value, the Annual Earn Out Amount for
such Calculation Year shall be 50% of the amount by which
Capitalized Value exceeds Baseline Capitalized Value, less the
amount by which PSB's cash compensation expense (including
deferred amounts, if any) for PSB's chief executive officer for
the relevant Calculation Year exceeds $1,000,000 (the
"Compensation Adjustment"), which shall not be deducted from Pre-
Tax PSB Income; provided that the Compensation Adjustment shall
have no effect after Robert Emerling shall execute a New
Employment Agreement (as defined in Section 5.7) on terms
acceptable to Bay View (the "Emerling Contract Execution").
(C) If the Capitalized Value as of the Calculation Date is
greater than the Maximum Capitalized Value, the Annual Earn Out
Amount for such Calculation Year shall be the sum of the
following two amounts (less the amount by which PSB's cash
compensation expense (including deferred amounts, if any) for
PSB's chief executive officer for the relevant Calculation Year
exceeds $1,000,000, which shall not be deducted from Pre-Tax PSB
Income; provided that the Compensation Adjustment shall have no
effect after the Emerling Contract Execution):
(1) The amount by which Capitalized Value exceeds
Maximum Capitalized Value, and
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<PAGE>
(2) One half the amount by which Maximum Capitalized
Value exceeds Baseline Capitalized Value.
The foregoing provisions of Section 1.4(c)(iii) are subject to adjustment
as provided in Section 1.4(e).
(d) Form of Payment. Payment of the Annual Earn Out Amount shall be
---------------
in cash. However, subject to the prior receipt of all requisite approvals
from all governmental and regulatory authorities (and subject in all
respects to the proviso that Bay View Bank shall not be obligated to issue
to Seller any shares of Bay View Common Stock such that after such issuance
Seller and any other PUSA subsidiary in the aggregate would beneficially
own more than 25% of the issued and outstanding shares of Bay View Common
Stock), Seller may elect to receive all or a part of Annual Earn Out
Amounts in shares of voting Bay View Common Stock or, subject to Section
1.2(b), Non-Voting Bay View Common Stock (the "Bay View Earn Out Shares,"
together with the Bay View Closing Shares, the "Shares"). Bay View Earn Out
Shares shall be valued (for purposes of calculating the value of such
Annual Earn Out Amount) at the average closing price for Bay View Common
Stock for the 20 trading-day period ending two trading days before the
Payment Date (with respect to each relevant Payment Date, an "Earn Out
Average Closing Price").
(e) Change in Control. If (i) any person or persons acting in
-----------------
concert shall acquire more than 24.9% of the then outstanding Bay View
Common Stock, (ii) Bay View consummates a merger or similar transaction
which results in the shareholders of Bay View immediately prior to the
consummation of such transaction owning less than 50% of the resulting
entity immediately following the consummation of such transaction (an
"Exchange Transaction"), (iii) as a result of a proxy solicitation by a
person or persons other than the Bay View Board of Directors or otherwise,
a majority of the Board of Directors of Bay View are not Continuing
Directors, or (iv) Bay View Bank shall have been sold, in each case during
the Earn Out Period, then any such event shall constitute a "Change in
Control." The term "Continuing Director" shall mean a person who is a
director of Bay View on the date hereof or becomes a director and whose
initial election or initial nomination for election was approved by a
majority of the Continuing Directors then on the Bay View Board of
Directors. If Bay View and Bay View Bank or their successors in interest
fail to execute a written confirmation of their obligations under this
Agreement following a Change in Control referred to in subpart (i) or (iii)
hereof (a "Written Confirmation") or if the resulting entity fails to
execute a written instrument guaranteeing performance of Bay View Bank's or
its successor in interest's obligations under this Agreement following a
Change in Control referred to in subpart (ii) hereof (a "Guaranty
Agreement"), or Bay View Bank fails to execute a Written Agreement
following a Change in Control referred to in subpart (iv), in either case
within ten business days after receipt of a written request from Seller to
do so, the Deemed Earn Out Amount (as defined herein) shall be payable to
Seller by Bay View Bank, its successor in interest or the resulting entity
upon demand. The Deemed Earn Out Amount shall be the Maximum Earn Out
Amount less all Earn Out Amounts previously paid to Seller. The Deemed Earn
Out Amount shall be paid in the same manner set forth in (d) above,
provided that if the Deemed Earn Out Amount becomes payable as a result of
an
7
<PAGE>
Exchange Transaction in which Bay View shareholders receive the common
stock or other securities of another corporation, cash or assets or any
combination of the foregoing (the "Exchange Consideration"), in exchange
for their Bay View Common Stock, Seller may elect to receive all or part of
the Deemed Earn Out Amount in the form of the Exchange Consideration Seller
would have been entitled to receive had the Deemed Earn Out Amount (or part
thereof) been paid in Bay View Common Stock, based on the average closing
price for Bay View Common Stock for the 20 trading-day period ending four
days prior to the Exchange Transaction Announcement Date (as defined
herein) and the Bay View Common Stock so received had been converted into
the Exchange Consideration in the Exchange Transaction. The "Exchange
Transaction Announcement Date" means the first date upon which the Exchange
Transaction is publicly announced by any of the parties to such Exchange
Transaction. If Bay View and Bay View Bank or their successors in interest
execute a Written Confirmation or a resulting entity executes a Guaranty
Agreement, in either case within ten business days after receipt of a
written request from Seller to do so, for each Calculation Year thereafter,
the Annual Earn Out Amount shall be equal to the amount by which the
Capitalized Value on each subsequent Calculation Date is greater than the
Baseline Capitalized Value on such date.
(g) New Line of Business. Any new line of business of PSB commenced
--------------------
after the Closing Date shall not be taken into account for Earn Out
purposes unless the line of business has been approved by at least two-
thirds of the members of the PSB Board of Directors.
(h) GAAP Expenses. Nothing contained in this Agreement, including
-------------
the representations and warranties, shall limit the inclusion of a PSB
expense for purposes in calculating Pre-Tax PSB Income, so long as such
inclusion is consistent with GAAP under the standard set forth in Section
1.4(c)(i)(A), and, in respect of PSB's cash compensation expense for PSB's
Chief Executive Officer, consistent with Section 1.4(c)(iii)(B) and (C).
(i) Earn Out Example. An example of the Earn Out Amount calculations
----------------
is set forth on Schedule 1.4(c)(iii).
1.5 PSB Sale. If at any time prior to the end of the Earn Out Period more
--------
than 5% of PSB is directly sold in a private or public transaction (or is spun-
off to the Bay View shareholders (collectively, the "PSB Sale"), Bay View shall
pay to Seller the Deemed Earn Out Amount upon the closing of the PSB Sale. In
the event the PSB Sale occurs within two calendar years of the Closing Date, Bay
View shall also pay to Seller (a) in the event the PSB Sale is a private
transaction with a third party, a cash payment equal to 20% of the difference
between the gross selling price of PSB to the third party and $300 million
within five days of the closing of such PSB Sale, or (b) in the event the PSB
Sale is a public offering or spin-off of PSB, a cash payment equal to 20% of the
difference between the implied market capitalization of PSB (the "Implied Market
Capitalization") and $300 million (the "Appreciation Amount") within 25 days of
the consummation of such public offering or spin-off of PSB. The Implied Market
Capitalization shall be determined by multiplying the average closing price per
share of PSB Common Stock for the 20 trading-day period commencing on the
initial public offering date or spin-off payment date, respectively, times the
8
<PAGE>
number of shares issued and outstanding on a fully diluted basis upon
consummation of the public offering.
1.6 Anti-Dilution Provisions. In the event Bay View changes (or
------------------------
establishes a record date for changing) the number of shares of Bay View Common
Stock issued and outstanding prior to the Closing Date as a result of a stock
split, stock dividend, recapitalization or similar transaction with respect to
the outstanding Bay View Common Stock and the record date therefor shall be
prior to the Closing Date, or exchanges Bay View Common Stock for a different
number or kind of shares or securities or is involved in any transaction
resulting in any of the foregoing, the number of Bay View Closing Shares shall
be proportionately adjusted.
1.7 Registration of Bay View Common Stock.
-------------------------------------
(a) Registration Provisions in General.
----------------------------------
(i) Required Actions of Bay View. During the Earn-Out Period,
----------------------------
Seller shall have the right on three occasions to request Bay View in writing to
register under the Securities Act a minimum of 750,000 Shares (but in no event
any shares of Non-Voting Bay View Common Stock) issued to Seller prior thereto
for resale on a delayed or continuous basis (the term "Shares", for purposes of
this Section 1.7, shall include any Bay View Common Stock issued in connection
with any dividends or stock splits of the Shares). As soon as reasonably
practicable following Bay View's receipt of a written Seller request and the
information referred to in Section 1.7(c), Bay View shall use its best efforts
to prepare and cause to be filed with the Securities and Exchange Commission
(the "SEC") a registration statement (each such registration statement, a
"Registration Statement") on Form S-3 (or any successor form or, if Form S-3 or
a successor form is not available, on any other appropriate form as may then be
available to Bay View under the Securities Act of 1933, as amended (the
"Securities Act")) relating to the resale of all or a portion of the Registrable
Shares (as defined herein), but in any event all of such Shares covered by the
Seller request, (y) Bay View shall use its best efforts to cause such
Registration Statement to be declared effective by the SEC as soon as reasonably
practicable after the filing of such Registration Statement, and (z) Bay View
shall use its best efforts to maintain the effectiveness of such Registration
Statement (and maintain the current status of the prospectus or prospectuses
contained therein) for the duration of the applicable Registration Period (as
defined herein). Bay View shall not be prohibited from adding shares of Bay View
Common Stock of Bay View or other Bay View shareholders to such Registration
Statement so long as the addition of such shares does not significantly delay
the preparation, filing or effectiveness of the Registration Statement. Bay View
will pay all registration, qualification and filing fees, all fees and expenses
of Bay View legal counsel, Bay View accountants and other persons retained by
Bay View, and all other expenses incurred by Bay View in connection with Bay
View's performance of or compliance with the provisions of this Section 1.7
(excluding, underwriting discounts, selling commissions and transfer taxes
applicable to the sale of Registrable Shares and excluding the cost of any
separate legal counsel or other advisors retained by Seller or any Seller
affiliate).
(ii) Piggyback Rights. If shares of Bay View Common Stock are
----------------
proposed to be registered under the Securities Act during the Registration
Period (except with respect to
9
<PAGE>
registration statements on Forms S-4 or S-8 or another form not available for
registering the Registrable Shares for sale to the public or in connection with
mergers, acquisitions, exchange efforts, an offering of rights, warrants or
securities convertible into Equity Securities (as defined in Section 2.3),
dividend reinvestment plans or stock option or other employee benefit plans of
Bay View), Bay View will give written notice to Seller of such proposed
registration. Upon the written request of Seller given within ten business days
after receipt of any such notice (stating the number of Registrable Shares to be
registered), Bay View will use its best efforts to cause promptly all such
Registrable Shares for which Seller shall have so requested registration, to be
included in such proposed registration. If Bay View gives such above notice for
the purpose of permitting a disposition (either underwritten or otherwise) by
Bay View of Bay View Common Stock, Bay View shall have the right to exclude all
or a portion of shares of Bay View Common Stock to be sold on behalf of Seller
if Bay View's underwriters or financial advisors determine such exclusion is
necessary or advisable to insure a successful offering of Bay View Common Stock.
If Bay View limits the number of (but does not exclude) shares sold by any
selling shareholder, the number of shares to be registered on behalf of any
holder of Registrable Shares shall be determined by multiplying the number of
Registrable Shares such holder has requested be registered by a fraction, the
numerator of which is the number of shares of selling shareholders to which the
registration is limited, and the denominator of which is the number of shares of
Bay View Common Stock validly requested to be included in such registration by
all holders of Bay View Common Stock having registration rights.
(iii) Defined Terms. The term "Registrable Shares" shall mean
-------------
the Shares; provided, that the term "Registrable Shares" shall not include any
--------
Shares which (i) have been sold or otherwise transferred by Seller other than to
an affiliate of Seller or (ii) have been issued and shall have ceased to be
outstanding. The term "Registration Period" with respect to a Registration
Statement shall mean a period which shall run from the date on which such
Registration Statement has been declared effective by the SEC and shall expire
on the earlier of (x) the first date on which all holders of Shares are
permitted to resell all the Registrable Shares it holds covered by such
Registration Statement within any 90-day period, pursuant to the provisions of
Rule 144 promulgated under the Securities Act, or (y) the date upon which there
shall cease to be any Registrable Shares covered by such Registration Statement.
(b) Registration Procedure. Upon the terms and subject to the
----------------------
conditions of this Section 1.7, Bay View shall, in effecting any registration of
Registrable Shares pursuant to this Section 1.7:
(i) Pre-Filing Draft of Registration Statement. Prior to the
------------------------------------------
initial filing of a Registration Statement with the SEC, furnish to one law firm
selected by Seller copies of all such documents proposed to be filed (other than
the exhibits to the Registration Statement), and such counsel shall be given the
reasonable opportunity to communicate any comments it may have on such documents
(which comments will be limited to information concerning Seller and its plans
of distribution and other issues reasonably related to Seller as a selling
shareholder);
(ii) Filing of Amendments. Use its best efforts to prepare and
--------------------
file with the SEC such amendments and supplements to the Registration Statement,
and the prospectus used in
10
<PAGE>
connection with the Registration Statement, as may be reasonably necessary to
keep the Registration Statement effective for the applicable Registration
Period;
(iii) Furnishing Copies of Filings. Furnish to Seller such
----------------------------
copies of the Registration Statement, each amendment and supplement thereto and
the prospectus included in the Registration Statement (including each
preliminary prospectus) as Seller shall reasonably request;
(iv) Blue Sky Filings. Register or qualify the Registrable
----------------
Shares under such other securities or blue sky laws of such U.S. jurisdictions
as shall be reasonably requested by Seller and do any and all other acts and
things which may be reasonably necessary and advisable to enable Seller to
consummate the disposition in such jurisdictions of the Registrable Shares owned
by Seller; provided that Bay View shall not be required in connection therewith
--------
or as a condition thereto to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 1.7(b)(iv), (ii) subject itself to taxation in any such jurisdiction, or
(iii) file a general consent to service of process in any such jurisdiction;
(v) Transfer Agent. Provide a transfer agent and registrar for
--------------
all of the Registrable Shares covered by the Registration Statement not later
than the effective date of the Registration Statement;
(vi) Changes to Registration Statement, Etc. Notify Seller,
--------------------------------------
at any time when a prospectus relating to the Registration Statement is required
to be delivered under the Securities Act, as soon as reasonably practicable
after such time as Bay View discovers any facts or circumstances which cause the
prospectus included in the Registration Statement to contain an untrue statement
of a material fact or to omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
circumstances then existing; after the date of such notification to Seller, Bay
View will use its best efforts (subject to the provisions of Section 1.7(c)(iii)
below) to prepare and furnish to Seller, within ten business days, a supplement
or amendment to such prospectus so that, as thereafter delivered to the
purchasers of such Registrable Shares, such prospectus will not contain an
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of circumstances then existing;
(vii) Inspection of Documents. Subject to such confidentiality
-----------------------
requirements as Bay View may reasonably impose, make available for inspection by
Seller and any attorney, accountant or other agent retained by Seller
(collectively, the "Inspectors"), during the normal business hours of Bay View,
all financial and business records of Bay View as shall be reasonably necessary
to enable them to exercise any due diligence responsibility, and cause Bay
View's officers, directors and employees to supply all financial and business
information reasonably requested by any such Inspector in connection with such
Registration Statement;
(viii) Underwriting Agreement. In connection with any
----------------------
underwritten offering, enter into an appropriate underwriting agreement
containing terms and provisions (including provisions as to opinions of counsel,
comfort letters, indemnification and contribution) customary for such an
agreement; and
11
<PAGE>
(ix) Stop Orders. Notify Seller of any stop order issued or
-----------
threatened by the SEC and take all reasonable actions required to prevent the
entry of such stop order or to remove it if entered.
(c) Certain Additional Covenants of Bay View, PUSA and Seller.
---------------------------------------------------------
(i) Furnishing Information of Bay View. PUSA and Seller shall
----------------------------------
furnish to Bay View such information regarding Seller, the distribution by
Seller of the Registrable Shares and such other matters as Bay View may from
time to time reasonably request. PUSA and Seller and their representatives
shall cooperate with Bay View and Bay View Bank and their representatives to the
extent reasonably required, and shall take such other actions as may be
reasonably necessary or appropriate or as may be reasonably requested by Bay
View, in connection with the performance by Bay View and Bay View Bank of their
obligations under this Agreement. PUSA and/or Seller shall notify Bay View, as
soon as reasonably practicable after such time as PUSA or Seller has actual
knowledge of any facts or circumstances which cause the prospectus included in a
Registration Statement to contain an untrue statement of a material fact or to
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading in light of circumstances then
existing; as soon as reasonably practicable after the date of such notification
to Bay View, Bay View will prepare and furnish to Seller a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Registrable Shares, such prospectus will not contain an untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
circumstances then existing.
(ii) Discontinuing Sales Until Prospectus is Corrected. Seller
-------------------------------------------------
agrees that, upon receipt of any notice from Bay View of the happening of any
event of the kind described in Section 1.7(b)(vi) above or upon the delivery of
a similar notice to Bay View by PUSA or Seller pursuant to Section 1.7(c)(i)
above, Seller will forthwith discontinue disposition of Registrable Shares
pursuant to the Registration Statement covering such Registrable Shares until
receipt by Seller of the copies of the supplemented or amended prospectus
contemplated by such Sections 1.7(b)(vi) and 1.7(c)(i) above, and, if so
directed by Bay View, Seller will deliver to Bay View all copies, other than
permanent file copies then in Seller's possession, of the prospectus covering
such Registrable Shares current at the time of receipt of such notice.
(iii) Discontinuing Sales Due to Disadvantageous Condition.
----------------------------------------------------
With respect to any Registration Statement filed or to be filed pursuant to this
Agreement, if Bay View determines that, in its good faith judgment, it would
(because of the existence of, or in anticipation of, (A) any acquisition or
disposition transaction which is proposed or entered into involving Bay View or
any subsidiary of Bay View, (B) any financing activity involving Bay View or any
Subsidiary of Bay View, (C) the unavailability for reasons substantially beyond
Bay View's control of any required financial statements, (D) the filing by Bay
View of any registration statement with respect to any securities of Bay View,
or (E) any other event or condition of similar significance to Bay View or any
subsidiary of Bay View) be significantly disadvantageous (any of the events
described in clauses (A) through (E) above, hereinafter referred to as a
"Disadvantageous Condition") to Bay View or any of its Subsidiaries or
stockholders for such Registration Statement to become effective or to be
12
<PAGE>
maintained effective or for sales of Registrable Shares to continue pursuant to
such Registration Statement, Bay View shall, notwithstanding any other
provisions of this Agreement, be entitled, upon the giving of a written notice
(a "Delay Notice") to such effect to PUSA or Seller, (x) to cause offers and
sales of Registrable Shares by Seller pursuant to such Registration Statement to
cease, or (y) in the event no such Registration Statement has yet been filed, to
delay filing any such Registration Statement, until, in the good faith judgment
of Bay View, such Disadvantageous Condition no longer exists, but in no event
shall any such Delay Notice be effective for a period of more than 75 days. Bay
View may not give more than two Delay Notices in any 12-month period.
(d) Indemnification.
---------------
(i) Indemnification by Bay View. In connection with the
---------------------------
registration of the Registrable Shares under the Securities Act pursuant to this
Agreement, Bay View will, and it hereby does, indemnify and hold harmless, to
the fullest extent permitted by law, Seller, any person who controls Seller
within the meaning of the Federal securities laws and each other person who acts
on behalf of or assists Seller in the offering or sale of such securities
(collectively, the "Seller Indemnitees"), against any and all losses, claims,
damages or liability, joint or several, and expenses (including any amounts paid
in any settlement effected with Bay View's prior consent (which may not be
unreasonably withheld) and reasonable attorneys fees and disbursements) to which
such Seller Indemnitees may become subject under the Securities Act, common law
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) or expenses arise out of or are based upon
(A) any untrue statement or alleged untrue statement of any material fact
contained in any Registration Statement, any preliminary, final or summary
prospectus contained therein, or any amendment or supplement thereto, or (B) any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
Bay View will promptly reimburse such Seller Indemnitees for any legal or any
other expense reasonably incurred by them in connection with investigating or
defending such loss, claim, liability, action or proceeding; provided that Bay
--------
View shall not be liable in any such case to any Seller Indemnitee or group of
Seller Indemnitees to the extent that any such loss, claim, damage, liability
(or action or proceeding in respect thereof) or expenses arose out of or was
based upon any untrue statement or alleged untrue statement or omission or
alleged omission which was made or done in such Registration Statement or
amendment or supplement thereto or in any such preliminary, final or summary
prospectus, in reliance upon and conformity with information furnished to Bay
View or its representatives in writing specifically for use therein by or on
behalf of any Seller Indemnitee or group of Seller Indemnitees or by any of
their respective representatives; provided further that Bay View will not be
-------- -------
liable to any such Seller Indemnitees with respect to any preliminary prospectus
as then amended or supplemented, as the case may be, to the extent that any such
loss, claim, damage or liability of such Seller Indemnitees results from the
fact that such Seller Indemnitees sold Registrable Shares to a person to whom
there was not sent or given, at or prior to the written confirmation of such
sale, a copy of the final prospectus (including any documents incorporated by
reference therein), whichever is most recent, if Bay View has previously
furnished copies thereof to such Seller Indemnitees and such final prospectus,
as then amended and supplemented, has corrected any such misstatement or
omission. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of any Seller Indemnitee and shall
survive the transfer of the Registrable Shares by Seller.
13
<PAGE>
(ii) Indemnification by PUSA and Seller. In connection with the
----------------------------------
registration of the Registrable Shares under the Securities Act pursuant to this
Agreement, PUSA and Seller hereby agree that they will, jointly and severally,
indemnify and hold harmless, to the fullest extent permitted by law, Bay View,
any person who controls Bay View within the meaning of the Federal Securities
laws, each affiliate of Bay View and each other person who acts on Bay View's
behalf or assists Bay View in the offering or sale of such securities
(collectively, the "Bay View Indemnitees"), against any and all losses, claims,
damages or liabilities, joint or several, and expenses (including any amounts
paid in any settlement effected with PUSA's prior consent (which may not be
unreasonably withheld) and reasonable attorneys fees and disbursements) to which
Bay View or any Bay View Indemnitee may become subject under the Securities Act,
common law or otherwise, insofar as such losses, claims, damages or liabilities
(or actions or proceedings in respect thereof) or expenses arise out of or are
based upon (A) any untrue statement or alleged untrue statement of any material
fact contained in any Registration Statement, any preliminary, final or summary
prospectus contained therein, or any amendment or supplement thereto, or (B) any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading (but
only to the extent that such misstatements or omissions referred to in clauses
(A) and (B) above were done or omitted, etc. in reliance upon and in conformity
with information furnished to Bay View or its representatives writing
specifically for use therein by or on behalf of PUSA or Seller or by any of
their affiliates or representatives). Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of Bay View or
any Bay View Indemnitee and shall survive the transfer of the Registrable Shares
by Seller.
(iii) Notices of Claims, Etc. Promptly after receipt by an
----------------------
indemnified party hereunder of written notice of the commencement of any action
or proceeding with respect to which a claim for indemnification may be made
pursuant to this Agreement, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party, promptly give written
notice to the latter of the commencement of such action; provided that the
--------
failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under the preceding
subsections of this Agreement, except to the extent that the indemnifying party
is materially prejudiced by such failure to give notice. In case any action is
brought against an indemnified party, the indemnifying party will be entitled to
participate in and to assume the defense thereof, jointly with any other
indemnifying parties similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party. After notice from
the indemnifying party to such indemnified party of its election so to assume
the defense of any such action, the indemnifying party will not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof (unless in such indemnified
party's reasonable judgment any meaningful conflict of interest between such
indemnified and indemnifying parties arises in respect of such claim after the
assumption of the defense thereof, in which event the indemnifying party shall
be liable for the reasonable legal fees and expenses of only one (1) legal firm
representing the indemnified parties plus one firm of local counsel) and the
indemnifying party will not be subject to any liability for any settlement made
without its consent (which consent shall not be unreasonably withheld). No
indemnifying party will consent to entry of judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
14
<PAGE>
liability in respect to such claim or litigation. An indemnifying party who
elects not to assume the defense of a claim will not be obligated to pay the
fees and expenses of more than one counsel plus one firm of local counsel for
all parties indemnified by such indemnifying party with respect to such claim,
unless in the reasonable judgment of any indemnified party a meaningful conflict
of interest may exist between such indemnified party and any other of such
indemnified parties with respect to such claim, in which event the indemnifying
party shall be obligated to pay the fees and expenses of only one additional
counsel plus one firm of local counsel.
(iv) Other Indemnification. Indemnification similar to that
---------------------
specified in the preceding subsections of this Agreement (with appropriate
modifications) shall be given by Bay View and PUSA and Seller, jointly and
severally, with respect to any required registration or other qualification of
Registrable Shares under any federal or state law or regulation of governmental
authority other than the Securities Act.
(v) Contribution. If the indemnification provided for in this
------------
Section 1.7(d) from the indemnifying party is unavailable to an indemnified
party for any loss, claim, damage, liability or expense covered thereby, then
the indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage, liability or expense. The contribution of such
indemnifying party shall be limited to the proportionate share of the amount
paid or payable that reflects the relative fault of the indemnifying party with
respect to such loss, claim, damage, liability or expense. The relative fault
shall be determined by reference to, among other things, whether any untrue or
alleged untrue statement of material fact or any omission or alleged omission of
a material fact was made by or relates to information supplied by the
indemnifying party and the intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission of the indemnifying
party. The parties to this Agreement agree that it would not be just and
equitable to determine contribution under this Section by pro rata allocation or
by any other method which does not take into account the equitable
considerations referred to above.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF PSB, CONSUMER, PACIFIC FINANCIAL AND PUSA
PSB, Consumer, Pacific Financial and PUSA jointly and severally represent
and warrant to and covenant with Bay View as follows:
2.1 Organization and Authority. PSB is a corporation duly organized,
--------------------------
validly existing and in good standing under the laws of the State of Nevada, and
has the corporate power and authority to own its properties and assets and to
carry on its business as it is now being conducted. Consumer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Nevada, and has the corporate power and authority to own its properties
and assets and to carry on its business as it is now being conducted. Pacific
Financial is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware, and has the corporate power and
authority to own its properties and assets and to carry on its business as it is
now being conducted. PUSA is a corporation duly organized, validly existing and
in good
15
<PAGE>
standing under the laws of the State of Texas, and has the corporate power and
authority to own its properties and assets and to carry on its business as it is
now being conducted. PSB is duly qualified to do business and is in good
standing in each jurisdiction where the character of the assets or properties
owned or leased by it or the nature of the business transacted by it requires
that it be so qualified, except where the failure to be so qualified would not
impair the ability of PSB to operate in the ordinary course of business. True
and complete copies of the Articles of Incorporation and Bylaws of PSB, as in
effect on the date of this Agreement, have previously been furnished to Bay View
or its counsel.
2.2 Subsidiaries. The term "subsidiary" when used with respect to any
------------
party means any entity (including without limitation any corporation,
partnership, joint venture or other organization, whether incorporated or
unincorporated) which is consolidated with such party for financial reporting
purposes. Other than the subsidiaries listed on Schedule 2.2 (the "PSB
Subsidiaries"), there are no entities in which PSB has a direct or indirect
equity or ownership interest. All outstanding Equity Securities (as defined in
Section 2.3) of the PSB Subsidiaries are owned directly or indirectly by PSB.
All of the outstanding shares of capital stock of the PSB Subsidiaries are
validly issued, fully paid and nonassessable and are owned directly by PSB free
and clear of any lien, claim, charge, option, encumbrance, agreement, mortgage,
pledge, security interest, restriction or interest of a third party (each a
"Lien") with respect thereto. The PSB Subsidiaries are corporations, validly
existing, and in good standing under the laws of their state of incorporation,
and have the corporate power and authority to own or lease their properties and
assets and to carry on their businesses as they are now being conducted. The PSB
Subsidiaries are duly qualified to do business in each jurisdiction where the
character of the assets or properties owned or leased by them or the nature of
the business transacted by them requires that they be so qualified, except where
the failure to so qualify would not have a material adverse effect on the
business, assets, liabilities, financial or other condition, results of
operation, loan production (in the case of PSB and the PSB Subsidiaries only) or
prospects (collectively, the "Condition") of PSB and the PSB Subsidiaries, taken
as a whole. The complete and correct list of all jurisdictions where PSB and the
PSB Subsidiaries are qualified or licensed to do business is included on
Schedule 2.2. Except as set forth on Schedule 2.2, apart from PSB's ownership
of the PSB Subsidiaries, neither PSB nor the PSB Subsidiaries owns beneficially,
directly or indirectly, any shares of any class of Equity Securities or similar
interests of any corporation, bank, business trust, association or similar
organization. Neither PSB nor the PSB Subsidiaries holds any interest in a
partnership or joint venture of any kind.
2.3 Capitalization. The authorized capital stock of PSB consists solely
--------------
of 10,000,000 shares of PSB Common Stock, of which only the PSB Shares were
issued and outstanding as of the date hereof. The PSB Shares are owned by
Consumer, and Consumer has good and marketable title to the PSB Shares, and if
the PSB Shares are not dividended from Consumer prior to the Closing Date, will
have good and marketable title to the PSB Shares as of the Closing Date. Prior
to the Closing Date, all of the PSB Shares may be dividended, free and clear of
any Lien to Pacific Financial and Pacific Financial will have upon any such
transfer and at all times prior to the Closing Date, good and marketable title
to the PSB Shares. Consumer has the absolute right, power and authority and
legal capacity to execute and perform this Agreement and, if it shall own PSB
Shares as of the Closing Date, to sell and transfer the PSB Shares to Bay View
Bank and to deliver certificates representing the PSB Shares. Pacific Financial
has the absolute right, power and
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authority and legal capacity to execute and perform this Agreement and, if it
shall own PSB Shares as of the Closing Date, to sell and transfer the PSB Shares
to Bay View Bank and to deliver certificates representing the PSB Shares. Upon
such delivery Bay View Bank will have good and valid title thereto free and
clear of any and all Liens and will hold 100% of the ownership of PSB. Except as
set forth in Schedule 2.3, there are no other Equity Securities of PSB
outstanding. "Equity Securities" of an issuer means capital stock or other
equity securities of such issuer, options, warrants, scrip, rights to subscribe
to, calls or commitments of any character whatsoever relating to, or securities
or rights convertible into, shares of any capital stock or other equity
securities of such issuer, or contracts, commitments, understandings or
arrangements by which such issuer is or may become bound to issue additional
shares of its capital stock or other equity securities of such issuer, or
options, warrants, scrip or rights to purchase, acquire, subscribe to, calls on
or commitments for any shares of its capital stock or other equity securities.
The PSB Shares are validly issued, fully paid, and nonassessable, and have not
been issued in violation of any right of any person or entity.
2.4 Authorization.
-------------
(a) PSB, Consumer, Pacific Financial and PUSA have the corporate
power and authority to enter into this Agreement and to carry out its
obligations hereunder. The execution, delivery and performance of this
Agreement by PSB, Consumer, Pacific Financial and PUSA and the consummation
by PSB, Consumer, Pacific Financial and PUSA of the transactions
contemplated hereby have been duly authorized by all requisite corporate
action of PSB, Consumer, Pacific Financial and PUSA and no other corporate
or shareholder approval is required on the part of any of them for the
consummation of the transactions contemplated hereby. PUSA has caused the
sole stockholder of each of Consumer and Pacific Financial to approve and
ratify this Agreement and the transactions contemplated hereby and such
approvals and ratifications shall not have been withdrawn. This Agreement
constitutes the valid and binding obligations of PSB, Consumer, Pacific
Financial and PUSA enforceable against PSB, Consumer, Pacific Financial and
PUSA in accordance with its terms, except as the enforceability thereof may
be limited by bankruptcy, insolvency, moratorium, reorganization,
receivership, conservatorship or similar laws relating to or affecting the
enforcement of creditors' rights generally, and by general principles of
equity, whether applied by a court of law or equity.
(b) Except as set forth in Schedule 2.4, neither the execution,
delivery or performance by PSB, Consumer, Pacific Financial or PUSA of this
Agreement, nor the consummation by PSB, Consumer, Pacific Financial or PUSA
of the transactions contemplated hereby, nor compliance by PSB, Consumer,
Pacific Financial or PUSA with any of the provisions hereof, will (i)
violate or conflict with any term, condition or provision of the articles
of incorporation, charter or bylaws of PSB, Consumer, Pacific Financial or
PUSA or any PSB Subsidiary, (ii) violate, conflict with or result in a
breach of any provisions of, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under, or
result in the termination of, or accelerate the performance required by, or
result in a right of termination of acceleration of, or result in the
creation of any Lien upon any of the properties or assets of PSB or any PSB
Subsidiary under, any of the terms, conditions or provisions of any
material note, bond, mortgage,
17
<PAGE>
indenture, deed of trust, license, lease, agreement or other instrument or
obligation to which PSB or any PSB Subsidiary is a party or by which it may
be bound, or to which PSB or any PSB Subsidiary or any of their properties
or assets may be subject, or (iii) subject to compliance with the statutes
and regulations referred to in paragraph (c) of this Section 2.4 violate
any judgment, ruling, order, writ, injunction, decree, statute, rule or
regulation applicable to PSB, Consumer, Pacific Financial or PUSA or any
PSB Subsidiary or any of their respective properties or assets.
(c) Other than filings, consents, reviews, authorizations, approvals
or exemptions required under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "HSR Act") and filings with the OTS and the Federal
Deposit Insurance Corporation (the "FDIC"), and a copy of such filings
provided to the Federal Trade Commission and the United States Department
of Justice no notice to, filing with, exemption or review by, or
authorization, consent or approval of, any public body or authority is
necessary for the consummation by PSB, Consumer, Pacific Financial or PUSA
of the transactions contemplated by this Agreement.
2.5 Pacific Financial and Consumer.
------------------------------
(a) Pacific Financial and Consumer have received and reviewed the Bay
View SEC Reports (as defined in Section 3.4(b)).
(b) Pacific Financial and Consumer have had the opportunity to ask
questions of, and receive answers from, officers of Bay View concerning
this Agreement and Bay View's business and financial condition.
(c) Pacific Financial and Consumer are "accredited investors" within
the meaning of Rule 501(a) of Regulation D under the Securities Act.
Pacific Financial and Consumer agree to furnish any additional information
requested to assure compliance with applicable federal and state securities
laws in connection with the issuance of the Shares.
(e) Pacific Financial and/or Consumer are acquiring the Shares solely
for its or their own account, for investment only, and not with a view
toward the distribution or resale thereof.
(f) Neither Bay View nor any person acting on behalf of Bay View has
offered or sold the Shares to Pacific Financial or Consumer by means of any
form of general solicitation or advertising, and Pacific Financial and
Consumer have not received, paid or given, directly or indirectly, any
commission or remuneration for or on account of any sale, or the
solicitation of any sale, of the Shares.
(g) Pacific Financial's and Consumer's authorized representatives
have read this Agreement and have discussed its requirements and other
applicable limitations on Pacific Financial's and Consumer's ability to
offer to sell, transfer or otherwise dispose of the Shares to the extent
Pacific Financial or Consumer believe necessary with their counsel.
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<PAGE>
2.6 PSB Financial Statements. The consolidated balance sheets of PSB and
------------------------
the PSB Subsidiaries and the related consolidated statements of income, cash
flows and changes in stockholders' equity for each of the two calendar years in
the two-year period ending December 31, 1997, together with the notes thereto,
audited by KPMG Peat Marwick LLP (the "PSB Audited Financial Statements"), and
the unaudited consolidated condensed balance sheets of PSB and the PSB
Subsidiaries for March 31, 1998, and the related unaudited consolidated
condensed statements of income and cash flows for such quarter (the "PSB Interim
Financial Statements, together with the PSB Audited Financial Statements, the
"PSB Financial Statements"), have been prepared in accordance with GAAP applied
on a consistent basis (subject in the case of the PSB Interim Financial
Statements to the absence of year-end audit adjustments and financial statement
footnotes), present fairly in all material respects the consolidated financial
position of PSB and the PSB Subsidiaries at such dates and the consolidated
results of operations, cash flows and changes in stockholders' equity of PSB and
the PSB Subsidiaries for the periods stated therein, and are derived from the
books and records of PSB and the PSB Subsidiaries, which are complete and
accurate in all material respects and have been maintained in accordance with
GAAP applied on a consistent basis and prudent and sound business practices.
Except as set forth on Schedule 2.6, neither PSB nor the PSB Subsidiaries has
any contingent liabilities that do not appear on the most recent PSB Audited
Financial Statements including the footnotes thereto. In the event that
additional quarterly consolidated financial statements are available prior to
the Closing, they shall be furnished to Bay View promptly and the term "PSB
Financial Statements" shall be deemed to include such financial statements. The
allowance for loan losses contained in the PSB Financial Statements was
established in accordance with the past practices and experiences of PSB and the
PSB Subsidiaries, and the allowance for loan losses reflected in the PSB
Financial Statements for all periods up to and including the Closing Date shall
be adequate in the opinion of management and shall comply with the requirements
of GAAP.
2.7 Business. The criteria for acting as a PSB correspondent are set
--------
forth on Schedule 2.7 ("Eligible Correspondents"). Except as set forth on
Schedule 2.7, PSB and the PSB Subsidiaries have purchased loans only from
Eligible Correspondents. The sub-servicers for PSB and the PSB Subsidiaries
have performed and are performing all of their obligations under their material
contracts with PSB and/or the PSB Subsidiaries.
2.8 Properties and Leases. Except (i) as may be reflected in the PSB's
---------------------
most recent consolidated balance sheet, (ii) any Lien for current taxes not yet
delinquent, and (iii) any easements or other non-monetary restrictions of record
on real property that do not adversely affect use or value, PSB and the PSB
Subsidiaries have good and marketable title free and clear of any Lien to all
the real and personal property reflected in PSB's most recent consolidated
balance sheet, except for such real and personal property as has since been
disposed of in the ordinary course of business for fair value since such date.
All leases pursuant to which PSB or the PSB Subsidiaries is a lessee or lessor
of real or personal property, are valid and effective in accordance with their
respective terms, and there is not, under any of such leases, any material
existing default by any party thereunder or any event which, with notice or
lapse of time or both, would constitute a material default by any party
thereunder. All of PSB's and the PSB Subsidiaries's buildings, structures and
equipment in regular use have been well maintained and are in good and
serviceable condition,
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<PAGE>
normal wear and tear excepted. None of the buildings, structures and equipment
of PSB or the PSB Subsidiaries violates or fails to comply in any material
respect with any applicable health, fire, environmental, safety, zoning or
building laws or ordinances or any restrictive covenant pertaining thereto.
2.9 Taxes. PSB and the PSB Subsidiaries have timely filed and will timely
-----
file (including extensions) all tax returns and reports required to be filed at
or prior to the Closing Date (the "PSB Returns"). Each of PSB and the PSB
Subsidiaries has paid, or set up adequate reserves on the PSB Interim Financial
Statements for the payment of, all taxes required to be paid or accrued in
respect of all periods through March 31, 1998 and will pay all taxes required to
be paid on or prior to the Closing Date and establish adequate reserves on its
financial statements up to the Closing Date relating to accruals or reserves for
taxes in accordance with GAAP applied on a consistent basis. PSB and the PSB
Subsidiaries have filed, or will file when due, for the payment of all taxes
anticipated to be payable in respect of all periods up to and including the
latest period covered by such financial statements. Neither PSB nor the PSB
Subsidiaries will have in the case of PSB any material liability or in the case
of the PSB Subsidiaries any liability for any such taxes in excess of the
amounts so paid or reserves so established and no deficiencies for any tax,
assessment or governmental charge have been proposed, asserted or assessed
(tentatively or definitely) against PSB or the PSB Subsidiaries which would not
be covered by reserves established prior to the Closing Date. Neither PSB nor
the PSB Subsidiaries is delinquent in the payment of any tax, assessment or
governmental charge, nor has it requested any extension of time within which to
file any tax return in respect of any fiscal year which has not since been filed
and no requests for waivers of the time to assess any tax are pending. The
federal, state and local income tax returns of PSB and the PSB Subsidiaries have
not been audited by the Internal Revenue Service (the "IRS") or other
appropriate tax authorities. There is no tax deficiency or tax refund
litigation or other tax matter in controversy with respect to PSB, the PSB
Subsidiaries or the PSB Returns. Neither PSB nor the PSB Subsidiaries (i) has
extended or waived any statute of limitations on the assessment of any tax due;
(ii) is a party to any agreement providing for the allocation or sharing of
taxes (other than the allocation of federal income taxes as provided by
regulation 1.1552-1(a)(1) under the Internal Revenue Code of 1986, as amended
(the "Code")); (iii) is required to include in income any adjustment pursuant to
Section 481(a) of the Code, by reason of a voluntary change in accounting method
(nor has the IRS has proposed any such adjustment or change of accounting
method), (iv) will have an excess loss account for tax reporting purposes upon
consummation of the transactions contemplated herein, (v) will have any tax
liability resulting from deconsolidation or the tax election to be made pursuant
to Section 5.25 for tax reporting purposes as a result of the consummation of
the transactions contemplated herein or (vi) will have any tax allocation or tax
sharing liability or obligations.
2.10 Material Adverse Change. Except as set forth in the PSB Interim
-----------------------
Financial Statements, since December 31, 1997, there has been no material
adverse change in the Condition of PSB and the PSB Subsidiaries, taken as a
whole.
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2.11 Material Interests of Certain Persons.
-------------------------------------
(a) Except as set forth on Schedule 2.11(a), prior to the Closing, no
officer or director of PSB or the PSB Subsidiaries, or any "associate" (as
such term is defined in Rule 14a-1 under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) of any such officer or director, has
any material interest in any material contract or property (real or
personal, tangible or intangible), used in or pertaining to the business of
PSB or the PSB Subsidiaries, which in the case of PSB or the PSB
Subsidiaries would be required to be disclosed by Item 404 of Regulation S-
K promulgated by the SEC if PSB or the PSB Subsidiaries had a class of
securities registered under Section 12 of the Exchange Act.
(b) There are no extensions of credit from PSB or the PSB Subsidiaries
to any present or past officer, director, employee or any associate or
related interest of any such person ("Insider Loans"). Except as set forth
on Schedule 2.11(b), neither PSB nor the PSB Subsidiaries owes any amount
to, or has any contract or lease with, or commitment to, any of the present
officers, directors or employees of PSB or the PSB Subsidiaries, or any
associate or related interest of any such person (other than for
compensation for current services not yet due and payable, or for
reimbursement of expenses arising in the ordinary course of business).
(c) The benefits to officers and directors of PSB and the PSB
Subsidiaries are set forth on Schedule 2.11(c).
2.12 Commitments and Contracts. Except as set forth on Schedule 2.12(a).
-------------------------
(a) Neither PSB nor the PSB Subsidiaries is a party or subject to any
of the following (whether written or oral, express or implied):
(i) any agreement, arrangement or commitment (A) not made in
the ordinary course of business or (B) pursuant to which PSB or the
PSB Subsidiaries is or may become obligated to invest in or contribute
capital to the PSB Subsidiaries or any other entity;
(ii) any agreement, indenture or other instrument not disclosed
in the PSB Financial Statements relating to the borrowing of money by
PSB or the PSB Subsidiaries or the guarantee by PSB or the PSB
Subsidiaries of any such obligation (other than instruments related to
transactions entered into in the ordinary course of business by any
PSB Subsidiary that can be prepaid at anytime without penalty or
premium);
(iii) any contract, agreement or understanding with any labor
union or collective bargaining organization;
(iv) any contract containing covenants which limit the ability
of PSB or the PSB Subsidiaries to compete in any line of business or
with any person or
21
<PAGE>
containing any restriction of the geographical area in which, or
method by which, PSB or the PSB Subsidiaries may carry on its business
(other than as may be required by law or any applicable regulatory
authority);
(v) any contract representing a monetary obligation on the part
of PSB or the PSB Subsidiaries in excess of $50,000 or that has a term
in excess of one year (except any contract that can be terminated on
30 days or less written notice by PSB or the PSB Subsidiaries without
penalty or premium); or
(vi) any other contract or agreement which is a "material
contract" within the meaning of Item 601 Instruction 10 of Regulation
S-K promulgated under the Securities Act.
(b) Neither PSB nor the PSB Subsidiaries is in violation of its
articles of incorporation or organizational documents or bylaws.
2.13 Litigation and Other Proceedings. Except as set forth on
--------------------------------
Schedule 2.13, neither PSB nor any of the PSB Subsidiaries is a party to any
pending or, to the best knowledge of PSB, Consumer, Pacific Financial and PUSA,
threatened claim, action, suit, investigation or proceeding involving a monetary
claim for more than $25,000, or is subject to any order, judgment or decree, a
request for non-monetary relief, or a request to enjoin or restrain the
transactions contemplated by this Agreement.
2.14 Insurance. Each of PSB and the PSB Subsidiaries has taken all
---------
requisite action (including without limitation the making of claims and the
giving of notices) pursuant to its directors' and officers' liability insurance
policy or policies in order to preserve all rights thereunder with respect to
all matters (other than matters arising in connection with this Agreement and
the transactions contemplated hereby) occurring prior to the Closing that are
known to PSB. Schedule 2.14 contains a list of all insurance policies maintained
by or for the benefit of PSB or the PSB Subsidiaries or their respective
directors, officers, employees or agents. To the best of PSB's knowledge (i)
none of PSB or any of PSB Subsidiaries has received any notice of termination or
non-renewal with respect to any such policies and (ii) no coverage with respect
to any material claim under existing policies is being disputed.
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<PAGE>
2.15 Compliance with Laws.
--------------------
(a) Except as set forth on Schedule 2.15(a), PSB and the PSB
Subsidiaries have all permits, licenses, authorizations, orders and
approvals, and have made all filings, applications and registrations that
are required or necessary in order to permit them to own or lease their
properties and assets and to carry on their business as presently conducted
in all material respects; all such permits, licenses, authorizations,
orders and approvals are in full force and effect, will not be affected by
the transactions contemplated hereby and will continue to be in full force
and effect upon the Closing, and to the best knowledge of PSB, no
suspension or cancellation of any of them is threatened; and all such
filings, applications and registrations are current. PSB is not required
to have a commercial lender's license.
(b) PSB and the PSB Subsidiaries have complied in all material
respects with all laws, regulations and orders (including without
limitation securities, tax, environmental, civil rights, and occupational
health and safety laws and regulations, zoning ordinances, building codes,
the Employee Retirement Income Security Act of 1974 ("ERISA"), wage and
hour laws and other laws and regulations relating to their businesses and
all statutes, rules, regulations, orders and policy statements pertaining
to the conduct of their businesses and governing instruments applicable to
an entity engaged in such type of business). Neither PSB nor the PSB
Subsidiaries is in default under, and no event has occurred which, with the
lapse of time or notice or both, could result in a default under, the terms
of any judgment, order, writ, decree, permit, or license of any court,
whether federal, state, municipal, or local and whether at law or in
equity. Neither PSB nor the PSB Subsidiaries is subject to or reasonably
likely to incur in the case of PSB any material liability and in the case
of a PSB Subsidiary any liability as a result of its past or present
ownership, operation, or use of any Property (as defined herein) whether
directly or as a consequence of such Property securing a loan originated or
purchased by PSB or the PSB Subsidiaries or being part of the investment
portfolio of PSB or the PSB Subsidiaries (A) that is contaminated by or
contains any hazardous waste, toxic substance, or related materials,
including without limitation asbestos, PCBs, pesticides, herbicides, and
any other substance or waste that is hazardous to human health or the
environment (collectively, a "Toxic Substance"), or (B) on which any Toxic
Substance has been stored, disposed of, placed, or used in the construction
thereof. "Property" of a person shall include all property (real or
personal, tangible or intangible) owned, leased or controlled by such
person, including without limitation property held by such person or any
Subsidiary of such person in its capacity as a trustee and property in
which any venture capital or similar unit of such person or any Subsidiary
of such person has an interest. No claim, action, suit, or proceeding is
pending against PSB or the PSB Subsidiaries relating to Property of PSB or
the PSB Subsidiaries before any court or arbitration tribunal relating to
Toxic Substances, pollution, or the environment, and there is no
outstanding judgment, order, writ, injunction, decree, or award against or
affecting PSB or the PSB Subsidiaries with respect to the same.
2.16 Proxy Statement and Public Disclosures. None of the information
--------------------------------------
regarding PUSA, Pacific Financial, Consumer or PSB or any other PUSA Subsidiary
supplied or to be supplied by PUSA, Pacific Financial, Consumer or PSB for
inclusion or included in (i) the proxy statement and
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<PAGE>
any amendments thereto (collectively, the "Proxy Statement") in connection with
the meeting of Bay View shareholders to be held for the purpose of voting on
this Agreement or (ii) any other documents to be filed with any regulatory
authority in connection with the transactions contemplated hereby will, at the
respective time such documents are filed with any regulatory authority and with
respect to the Proxy Statement when mailed and as of the date of the related
shareholder meeting, be false or misleading in respect to any material fact, or
omit to state a material fact necessary in order to make the statements therein
not misleading.
2.17 Labor. No work stoppage involving PSB or the PSB Subsidiaries is
-----
pending or to the best knowledge of PSB threatened. Neither PSB nor the PSB
Subsidiaries is involved in, or to the best knowledge of PSB, threatened with or
affected by, any labor dispute, arbitration, lawsuit or administrative
proceeding which could be reasonably expected to have a material adverse effect
on PSB and the PSB Subsidiaries. No employees of PSB or the PSB Subsidiaries
are represented by any labor union or any collective bargaining organization.
2.18 Loans. (a) The following terms shall have the meaning ascribed
-----
to them below:
(i) "Investor" means any person or entity who has acquired or
hereinafter acquires a Loan from PSB or any PSB Subsidiary.
(ii) "Investor Requirements" means any contractual, legal and
regulatory obligation of PSB or any PSB Subsidiary to any Investor,
including but not limited to, the representations, warranties and
covenants made by PSB or any PSB Subsidiary to any Investor.
(iii) "Loan" means any loan at any time held, serviced or
sold by PSB or any PSB Subsidiary.
(iv) "Loans Held for Sale" means all Loans currently held and
hereinafter acquired or originated by PSB or any PSB Subsidiary where
beneficial ownership has not been transferred to an Investor.
(v) "Loan Documents" means the note, mortgage, deed of trust
or other instrument securing the note and the related documents for
each Loan.
(vi) "Portfolio Loan" means all Loans currently owned or
hereinafter owned for investment by PSB or any PSB Subsidiary.
(vii) "Serviced Loans" means all Loans currently and
hereinafter serviced by PSB for its own account or for others.
(viii) "Servicing Requirements" means prudent practice and
industry standards together with any contractual, legal or regulatory
obligation of PSB or any PSB Subsidiary relating to the Serviced Loans
or any Loan previously serviced by PSB or any PSB Subsidiary.
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<PAGE>
(b) Neither PSB nor any PSB Subsidiary has any Portfolio Loan. All
Loans owned by PSB or any PSB Subsidiary are Loans Held for Sale.
(c) Except as set forth on Schedule 2.18(c), except for matters
arising in the ordinary course of business, none of which is material, the
Loan Documents evidencing each Loan that is currently outstanding
constitute the legal, valid and binding obligations of the parties thereto
and are enforceable against such parties in accordance with their terms,
except as the enforceability thereof may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting the rights of
lending institutions or creditors generally and by general equitable
principles; and (ii) no Loan is subject to any legally enforceable right of
rescission, set-off, counterclaim or defense, including the defense of
usury or lack of legal capacity of any borrower or guarantor, nor will the
operation of any of the terms of any Loan, or the exercise of any legally
enforceable right thereunder, render any Loan or any of the Loan Documents
unenforceable, in whole or in part, or subject to any right of rescission,
set-off, counterclaim or defense, including the defense of usury or lack of
legal capacity of any borrower or guarantor, and no such right of
rescission, set-off, counterclaim or defense has been asserted with respect
to any Loan Held for Sale or any Loan for which there is any recourse
against, or responsibility or exposure of, PSB or any PSB Subsidiary.
(d) Except as set forth on Schedule 2.18(d), the Loan Documents for
each Loan have been duly executed and recorded, and are in due and proper
form, and the information contained therein is true, accurate and complete
in all material respects. PSB has at all times maintained the Loan
Documents in all material respects in accordance with Investor
Requirements, Servicing Requirements and otherwise in accordance with all
legal and regulatory requirements and contractual obligations.
(e) Except as set forth on Schedule 2.6, all outstanding Loans sold by
PSB or any PSB Subsidiary comply in all material respects with Investor
Requirements.
(f) PSB and the PSB Subsidiaries have at all times been and are in
compliance in all material respects with the Servicing Requirements
relating to the Serviced Loans and Loans previously serviced by any of
them.
(g) To the best knowledge of PSB, neither PSB nor any PSB Subsidiary
has any advances outstanding with respect to any Loan, except for advances
made under the Servicing Requirements, the aggregate amount of which is not
material.
(h) Neither PSB nor any PSB Subsidiary is in material default with
respect to any of its obligations under any Loan.
(i) Neither PSB nor any PSB Subsidiary is in violation in any material
respect of any applicable federal, state, or local law, statute, ordinance,
rule, regulation, order or guideline pertaining to the Loans, its
origination or production practices, or otherwise relating to its purchase
or sale of Loans or its lending business, including but not limited to,
real estate settlement procedures, fair credit reporting, and every other
prohibition against unlawful discrimination or governing consumer credit,
and also including, without limitation,
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the Consumer Credit Reporting Act, Equal Credit Opportunity Act of 1975 and
Regulation B, Fair Credit Reporting Act, Truth in Lending Law, in
particular, Regulation Z as amended, the Flood Disaster Protection Act of
1973, and state consumer credit codes and laws.
(j) Except as set forth on Schedule 2.6, the best knowledge of PUSA,
Pacific Financial, Consumer and PSB, all Loans securitized in a pool, at
the time of inclusion in the pool, met all applicable guidelines for such
pool. All pools relating to the Loans have been initially certified,
finally certified and/or recertified in accordance with applicable
guidelines. The principal balance outstanding and owing on the Serviced
Loans in each pool equals or exceeds the amount owing to the corresponding
security holder of such pool.
2.19 Employee Benefit Plans.
----------------------
(a) PSB has provided Bay View with lists of all pension, retirement,
supplemental retirement, stock option, stock purchase, stock ownership,
savings, stock appreciation right, profit sharing, employment, deferred
compensation, consulting, bonus, medical, disability, workers'
compensation, vacation, group insurance, severance and other material
employee benefit, incentive and welfare policies, contracts, plans and
arrangements, and all trust or insurance agreements or arrangements related
thereto, maintained, sponsored or contributed to by PSB or the PSB
Subsidiaries in respect of any of the present or former directors,
officers, or other employees of and/or consultants to PSB or the PSB
Subsidiaries (individually (a) "PSB Employee Plan" and collectively the
"PSB Employee Plans"). The following documents with respect to each PSB
Employee Plan have previously been furnished to Bay View or its counsel:
(i) a true and complete copy of all written documents comprising such PSB
Employee Plan (including amendments and individual agreements relating
thereto) or, if there is no such written document, an accurate and complete
description of PSB Employee Plan; (ii) the most recent Form 5500 or Form
5500-C (including all schedules thereto), if applicable; (iii) the most
recent financial statements and actuarial reports, if any; (iv) the summary
plan description currently in effect and all material modifications
thereof, if any; and (v) the most recent IRS determination letter, if any.
(b) All PSB Employee Plans have been maintained and operated
materially in accordance with their terms and with the material
requirements of all applicable statutes, orders, rules and final
regulations, including without limitation ERISA and the Code. All
contributions required to be made to PSB Employee Plans have been made.
(c) With respect to each of PSB Employee Plans which is a pension plan
(as defined in Section 3(2) of ERISA) (the "Pension Plans"): (i) each
Pension Plan which is intended to be "qualified" within the meaning of
Section 401(a) of the Code is so qualified and, to the extent a
determination letter has been received from the IRS with respect to any
such Pension Plan, such determination letter may still be relied upon, and
each related trust is exempt from taxation under Section 501(a) of the
Code; (ii) the present value of all benefits vested and all benefits
accrued under each Pension Plan which is subject to Title IV of ERISA,
valued using the assumptions in the most recent actuarial report, did not,
in each case, as of the last applicable annual valuation date (as indicated
on Schedule 2.19(c)),
26
<PAGE>
exceed the value of the assets of the Pension Plan allocable to benefits on
a plan termination basis; (iii) there has been no "prohibited transaction,"
as such term is defined in Section 4975 of the Code or Section 406 of
ERISA, which could subject any Pension Plan or associated trust, or, to the
knowledge of PSB or any fiduciary or ERISA affiliate, to any material tax
or penalty; (iv) no Pension Plan or any trust created thereunder has been
terminated, nor have there been any "reportable events" with respect to any
Pension Plan, as that term is defined in Section 4043 of ERISA since
January 1, 1986; and (v) no Pension Plan or any trust created thereunder
has incurred any "accumulated funding deficiency", as such term is defined
in Section 302 of ERISA (whether or not waived). No Pension Plan is a
"multiemployer plan" as that term is defined in Section 3(37) of ERISA.
With respect to each Pension Plan that is described in Section 4063(a) of
ERISA (a "Multiple Employer Pension Plan"): (i) neither PSB nor the PSB
Subsidiaries would have any liability or obligation to post a bond under
Section 4063 of ERISA if PSB and the PSB Subsidiaries were to withdraw from
such Multiple Employer Pension Plan; and (ii) neither PSB nor the PSB
Subsidiaries would have any liability under Section 4064 of ERISA if such
Multiple Employer Pension Plan were to terminate.
(d) Neither PSB nor the PSB Subsidiaries has any liability for any
post-retirement health, medical or similar benefit of any kind whatsoever,
except as required by statute or regulation.
(e) Neither PSB nor the PSB Subsidiaries has any liability under Title
IV of ERISA or Section 412(c)(ii) of the Code as a result of its being a
member of a group described in Sections 414(b), (c), (m) or (o) of the
Code.
(f) PSB and the PSB Subsidiaries have complied in all material
respects with the continuation of health care provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1985 or any comparable
state law.
(g) Except as set forth on Schedule 2.19(g), and except for
distribution of qualified plan, benefits neither the execution nor delivery
of this Agreement, nor the consummation of any of the transactions
contemplated hereby, will (i) result in any payment (including without
limitation severance, unemployment compensation or golden parachute
payment) becoming due to any director or employee of PSB or the PSB
Subsidiaries from any of such entities, (ii) increase any benefit otherwise
payable under any of PSB Employee Plans or (iii) result in the acceleration
of the time of payment of any such benefit. PSB shall insure that no
amounts paid or payable by PSB, the PSB Subsidiaries to or with respect to
any employee or former employee of PSB or the PSB Subsidiaries will fail to
be deductible for federal income tax purposes by reason of Section 280G or
Section 162(m) of the Code or otherwise.
2.20 Registration Obligations. Neither PSB nor the PSB Subsidiaries
------------------------
is under any obligation, contingent or otherwise, which will survive the Closing
by reason of any agreement to register any of its securities under the
Securities Act, or other Federal or State securities laws or regulations.
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2.21 Undisclosed Liabilities. Except (i) to the extent reflected,
-----------------------
disclosed or reserved against in the most recent PSB Audited Financial
Statements, (ii) liabilities incurred by PSB and the PSB Subsidiaries since the
most recent PSB Audited Financial Statements in the ordinary course of business
and consistent with past practices, or (iii) contractual obligations under
contracts previously disclosed in writing to Bay View, or disclosed on Schedule
2.21, neither PSB nor the PSB Subsidiaries has any liabilities, whether
absolute, accrued, contingent, or otherwise, or due or to become due, including
without limitation any liabilities as guarantor under any guaranty.
2.22 Takeover Provisions Not Applicable. The transactions
----------------------------------
contemplated by this Agreement are exempt from any applicable state takeover
law, and PSB, Pacific Financial and Consumer have taken or will take all steps
necessary so that any takeover provisions in the articles of incorporation or
bylaws of PSB, Pacific Financial, Consumer or the PSB Subsidiaries will not
apply to this Agreement or any of the transactions contemplated hereby.
2.23 Brokers and Finders. Neither PSB nor the PSB Subsidiaries nor
-------------------
any of their respective officers, directors or employees has employed any broker
or finder or incurred any liability for any financial advisory fees, brokerage
fees, commissions or finder's fees, and no broker or finder has acted directly
or indirectly for PSB or the PSB Subsidiaries, in connection with this Agreement
or the transactions contemplated hereby. Neither PSB nor any PSB Subsidiary will
incur any legal or financial advisory fees relating to this Agreement and the
consummation of the transactions contemplated herein.
2.24 Accuracy of Information. The statements of PSB, Pacific
-----------------------
Financial, Consumer and PUSA contained in this Agreement and the Schedules
hereto are true and correct in all material respects, and such documents do not
omit any material fact necessary to make the statements contained herein or
therein not misleading.
2.25 Year 2000 Compliant. Except as set forth on Schedule 2.25, all
-------------------
hardware, firmware, software and computer systems of PSB are Year 2000 Compliant
and shall continue to function in accordance with their intended purpose without
material error or material interruption during and after the year 2000;
provided, however, that no representation is made with respect to systems of
Fiserv (Pittsburgh) DataLink. For purposes of this Agreement, "Year 2000
Compliant" means that the hardware, firmware, software and computer systems of
PSB (a) will completely and accurately address, produce, store and calculate
data involving dates beginning with January 1, 2000 and will not produce
abnormally ending or incorrect results involving such dates as used in any
forward or regression dated based functions; and (b) will provide that all
"date"-related functionalities and data fields include the indication of century
and millennium, and will perform calculations which involve a four-digit year.
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2.26 Compliance with Environmental Laws.
----------------------------------
(a) The operations of PSB and the PSB Subsidiaries comply in all
material respects with all applicable past and present Environmental Laws.
None of the operations of PSB or the PSB Subsidiaries and no assets
presently or formerly owned or leased by PSB or the PSB Subsidiaries are
subject to any judicial or administrative proceedings alleging the
violation of any past or present Environmental Law, nor are they the
subject of any claims alleging damages to health or property, pursuant to
which PSB, or the PSB Subsidiaries would be liable in law or equity; (iii)
none of the operations of PSB or the PSB Subsidiaries, and no assets
presently owned or formerly owned by PSB or the PSB Subsidiaries are the
subject of any federal, state or local investigation evaluating whether any
remedial action is needed to respond to a release or threatened release of
any Hazardous Substance, or any other substance into the environment, nor
has PSB or the PSB Subsidiaries been directed to conduct such
investigation, formally or informally, by any governmental agency, nor have
any of them agreed with any governmental agency or private person to
conduct any such investigation; and (iv) neither PSB nor the PSB
Subsidiaries has filed any notice under any Environmental Law indicating
past or present treatment, storage or disposal of a Hazardous Substance or
reporting a spill or release of a Hazardous Substance, or any other
substance into the environment.
(b) With respect to the real property currently owned or formerly
owned or, to the knowledge of PUSA, Pacific Financial, Consumer and PSB,
currently leased by PSB or the PSB Subsidiaries ("PSB Premises"): (x) no
part of the PSB Premises has been used for the generation, manufacture,
handling, storage, or disposal of Hazardous Substances; (y), the PSB
Premises do not contain, and have never contained, an underground storage
tank; and (z) the PSB Premises do not contain and are not contaminated by
any quantity of a hazardous Substance from any source.
2.27 Defaults. There has not been any default in any material
--------
obligation to be performed by PSB or any PSB Subsidiary under any material
contract or commitment, and neither PSB nor any PSB Subsidiary has waived any
material right under any material contract or commitment, and there has not
occurred any event that, with the lapse of time or giving of notice or both,
would constitute such a default. To the best knowledge of PSB, no other party
to any material contract or commitment is in default in any material obligation
to be performed by such party, and there has not occurred any event that, with
the lapse of time or giving of notice or both, would constitute such a default.
2.28 Indemnification. To the best knowledge of PSB, except as set
---------------
forth on Schedule 2.28, no action or failure to take action by any director,
officer, employee or agent of PSB or any PSB Subsidiary has occurred which would
give rise to a claim by any such person for indemnification from PSB or any PSB
Subsidiary under the corporate indemnification provisions of such entity in
effect on the date of this Agreement.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF BAY VIEW AND BAY VIEW BANK
Bay View and Bay View Bank represent and warrant to and covenant with PUSA,
Pacific Financial, Consumer and PSB as follows:
3.1 Organization and Authority. Bay View is a corporation duly organized,
--------------------------
validly existing and in good standing under the laws of the State of Delaware,
and has the corporate power and authority to own its properties and assets and
to carry on its business as it is now being conducted. Bay View Bank is a
federal savings bank duly organized and validly existing, and has the corporate
power and authority to own its properties and assets and to carry on its
business as it is now being conducted. Bay View and Bay View Bank are duly
qualified to do business and are in good standing in each jurisdiction where the
character of the assets or properties owned or leased by them or the nature of
their business transacted by them requires that they be so qualified, except
where the failure to be so qualified would not impair the ability of Bay View or
Bay View Bank to operate in the ordinary course of business. Bay View is
registered as a savings and loan holding company with the OTS under the Home
Owners' Loan Act of 1933, as amended. Bay View Bank is chartered by the OTS.
The deposits of Bay View Bank are insured by the Savings Association Insurance
Fund or the Bank Insurance Fund.
3.2 Capitalization. The authorized capital stock of Bay View consists
--------------
solely of 60,000,000 shares of Bay View Common Stock, of which as of May 31,
1998 (i) 20,333,137 shares were issued and outstanding and (ii) 3,051,199 shares
of Bay View Common Stock were reserved for future issuance pursuant to various
employee stock option and incentive and benefit plans. The Board of Directors
of Bay View has duly reserved for issuance 10,000,000 shares of Bay View Common
Stock for issuance hereunder (provided that such reservation is subject to the
restriction in Section 1.4(d) that Bay View Bank shall not be obligated to issue
to Seller any shares of Bay View Common Stock such that upon such issuance
Seller and any other PUSA affiliate would beneficially own in the aggregate more
than 25% of the issued and outstanding shares of Bay View Common Stock). All of
the issued and outstanding shares of Bay View Common Stock are validly issued,
fully paid, and nonassessable, and have not been issued in violation of any
right of any person or entity. As of the date hereof, other than pursuant to
stock option and incentive and benefit plans, and other than as contemplated by
this Agreement, no subscriptions, options, warrants or other rights to purchase
shares of Bay View Common Stock or other securities of Bay View and no
securities or obligations convertible into or exchangeable for shares of Bay
View, Common Stock or other securities of Bay View, have been authorized or
agreed to be issued or are outstanding. All of the issued and outstanding
shares of common stock of Bay View Bank are validly issued, fully paid, and
nonassessable, and have not been issued in violation of any right of any person
or entity.
3.3 Authorization.
-------------
(a) Bay View and Bay View Bank have the corporate power and authority to
enter into this Agreement and to carry out their obligations hereunder. The
execution, delivery and performance of this Agreement by Bay View and Bay View
Bank and the consummation by Bay View
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<PAGE>
of the transactions contemplated hereby have been duly authorized by all
requisite corporate action of Bay View and Bay View Bank, other than the
requirement that this Agreement be adopted by the stockholders of Bay View and
the stockholder of Bay View Bank, and no other corporate or shareholder approval
is required on the part of Bay View or Bay View Bank for the consummation of the
transactions contemplated hereby. The acquisition of the Closing Shares and the
Earn Out Shares and additional shares of Bay View Common Stock up to 25% of the
issued and outstanding shares of Bay View Common Stock after taking into account
the issuance of the Closing Shares and Earn Out Shares have been approved by a
majority of Bay View's Board of Directors for purposes of the Rights Agreement.
This Agreement constitutes the valid and binding obligations of Bay View and Bay
View Bank enforceable against Bay View and Bay View Bank in accordance with its
terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency, moratorium, reorganization, receivership, conservatorship or similar
laws relating to or affecting the enforcement of creditors' rights generally,
and by general principles of equity, whether applied by a court of law or
equity.
(b) Neither the execution, delivery or performance by Bay View or Bay View
Bank of this Agreement, nor the consummation by Bay View or Bay View Bank of the
transactions contemplated hereby, nor compliance by Bay View or Bay View Bank
with any of the provisions hereof, will (i) violate or conflict with any term,
condition or provision of the articles or certificate of incorporation or bylaws
of Bay View or any Bay View Subsidiary, (ii) violate, conflict with or result in
a breach of any provisions of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination of or accelerate the performance required by, or result in a
right of termination or acceleration of, or result in the creation of any Lien
upon any of the properties or assets of Bay View or any Bay View Subsidiary
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument or
obligation to which Bay View or any Bay View Subsidiary is a party or by which
it may be bound, or to which Bay View or any Bay View Subsidiary or any of their
properties or assets may be subject, or (iii) violate any judgment, ruling,
order, writ, injunction, decree, statute, rule or regulation applicable to Bay
View or any Bay View Subsidiary or any of their respective properties or assets.
3.4 Bay View Financial Statements. The consolidated balance sheets of Bay
-----------------------------
View and the subsidiaries of Bay View (each a "Bay View Subsidiary" and
collectively the "Bay View Subsidiaries") and the related consolidated
statements of income, cash flows and changes in stockholders' equity for each of
the three fiscal years in the three-year period ending December 31, 1997,
together with the notes thereto, audited by Deloitte & Touche LLP and included
in Bay View's Annual Report on Form 10-K for the fiscal year most recently ended
as filed with the SEC, (the "Bay View Audited Financial Statements") and the
unaudited consolidated condensed balance sheets of Bay View and the Bay View
Subsidiaries for March 31, 1998, and the related unaudited consolidated
condensed statements of income and cash flows for such quarter included in Bay
View's quarterly reports on Form 10-Q as filed with the SEC (the "Bay View
Interim Financial Statements, together with the Bay View Audited Financial
Statements, the "Bay View Financial Statements"), have been prepared in
accordance with GAAP applied on a consistent basis (subject in the case of the
Bay View Interim Financial Statements to the absence of year-end audit
adjustments and financial statement footnotes), present fairly in all material
respects, the consolidated financial position of Bay View
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<PAGE>
and the Bay View Subsidiaries at such dates, and the consolidated results of
operations, cash flows and changes in stockholders' equity of Bay View and the
Bay View Subsidiaries for the periods stated therein and are derived from the
books and records of Bay View and the Bay View Subsidiaries, which are complete
and accurate in all material respects and have been maintained in accordance
with GAAP applied on a consistent basis and prudent and sound business
practices. Neither Bay View nor any Bay View Subsidiary has any material
contingent liabilities that do not appear on the most recent Bay View Audited
Financial Statements including the footnotes thereto. In the event that
additional quarterly consolidated financial statements are available prior to
Closing, they shall be furnished to PSB or PUSA promptly and the term "Bay View
Financial Statements" shall be deemed to include such financial statements.
(b) Since December 31, 1995, Bay View and the Bay View Subsidiaries have
filed all forms, reports, statements and other documents required to be filed
with the SEC, including, without limitation, (1) all Annual Reports on Form 10-
K, (2) all Quarterly Reports on Form 10-Q, (3) all proxy statements relating to
meetings of stockholders (whether annual or special), (4) all Current Reports on
Form 8-K and (5) all other reports, schedules, registration statements or other
documents (collectively, the "Bay View SEC Reports"). The Bay View SEC Reports
(i) were prepared in all material respects in accordance with the requirements
as to form of the Securities Act, Exchange Act and the rules and regulations
thereunder and (ii) did not at the time they were filed contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
3.5 Taxes. Bay View and the Bay View Subsidiaries have timely filed and
-----
will timely file (including extensions) all tax returns and reports required to
be filed at or prior to the Closing Date (the "Bay View Returns"). Each of Bay
View and the Bay View Subsidiaries has paid, or set up adequate reserves on the
Bay View Interim Financial Statements for the payment of, all taxes required to
be paid or accrued in respect of all periods through March 31, 1998 and will pay
all taxes required to be paid on or prior to the Closing Date and establish
adequate reserves on its financial statements up to the Closing Date relating to
accruals or reserves for taxes in accordance with GAAP applied on a consistent
basis. Bay View and the Bay View Subsidiaries have filed, or will file when
due, for the payment of all taxes anticipated to be payable in respect of all
periods up to and including the latest period covered by such financial
statements. Neither Bay View nor the Bay View Subsidiaries will have in the
case of Bay View any material liability or in the case of the Bay View
Subsidiaries any liability for any such taxes in excess of the amounts so paid
or reserves so established and no deficiencies for any tax, assessment or
governmental charge have been proposed, asserted or assessed (tentatively or
definitely) against Bay View or the Bay View Subsidiaries which would not be
covered by reserves established prior to the Closing Date. Neither Bay View nor
the Bay View Subsidiaries is delinquent in the payment of any tax, assessment or
governmental charge, nor has it requested any extension of time within which to
file any tax return in respect of any fiscal year which has not since been filed
and no requests for waivers of the time to assess any tax are pending. Neither
Bay View nor the Bay View Subsidiaries (i) has extended or waived any statute of
limitations on the assessment of any tax due; (ii) is a party to any agreement
providing for the allocation or sharing of taxes (other than the allocation of
federal income taxes as provided by regulation 1.1552-1(a)(1) under the Code);
(iii) is required to include in income any adjustment
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pursuant to Section 481(a) of the Code, by reason of a voluntary change in
accounting method (nor has the IRS has proposed any such adjustment or change of
accounting method) or (iv) has filed a consent pursuant to Section 341(f) of the
Code or agreed to have Section 341(f)(2) of the Code apply.
3.6 Material Adverse Change. Other than changes reflected in the Bay View
-----------------------
Financial Statements and, except as may have resulted or may result from changes
to laws and regulations or changes in economic conditions applicable to
depositary institutions generally, since December 31, 1997, there has been no
material adverse change in the Condition of Bay View and the Bay View
Subsidiaries, taken as a whole.
3.7 Litigation and Other Proceedings. Neither Bay View nor the Bay View
--------------------------------
Subsidiaries is a party to any pending or, to the best knowledge of Bay View,
threatened, claim, action, suit, investigation or proceeding, which if adversely
determined, would have a material adverse effect on the Condition of Bay View or
would affect the ability of Bay View or Bay View Bank to consummate the
transactions contemplated by this Agreement, nor is there any order, judgment or
decree, or request for non-monetary relief, which, insofar as reasonably can be
foreseen in the future, would have any such effect.
3.8 Compliance with Laws.
--------------------
(a) Bay View and the Bay View Subsidiaries have all material permits,
licenses, authorizations, orders and approvals of, and have made all
material filings, applications and registrations that are required or
necessary in order to permit them to own or lease their properties and
assets and to carry on their business as presently conducted in all
material respects; all such permits, licenses, authorizations, orders and
approvals are in full force and effect and to the best knowledge of Bay
View, no suspension or cancellation of any of them is threatened; and all
such filings, applications and registrations are current.
(b) (i) Bay View and the Bay View Subsidiaries have complied in all
material respects with all laws, regulations and orders (including without
limitation securities, tax, environmental, civil rights, and occupational
health and safety laws and regulations, zoning ordinances, building codes,
ERISA, wage and hour laws and other laws and regulations relating to their
businesses and all statutes, rules, regulations, orders and policy
statements pertaining to the conduct of their businesses and governing
instruments applicable to an entity engaged in such type of business), and
(ii) neither Bay View nor the Bay View Subsidiaries is in default under,
and no event has occurred which, with the lapse of time or notice or both,
could result in a default under, the terms of any judgment, order, writ,
decree, permit, or license of any court, whether federal, state, municipal,
or local and whether at law or in equity. Neither Bay View nor the Bay View
Subsidiaries is subject to or reasonably likely to incur in the case of Bay
View any material liability and in the case of a Bay View Subsidiary any
liability as a result of its past or present ownership, operation, or use
of any Property whether directly or as a consequence of such Property
securing a loan originated or purchased by Bay View or the Bay View
Subsidiaries or being part of the investment portfolio of Bay View or the
Bay View Subsidiaries (A) that is contaminated by or contains
33
<PAGE>
any Toxic Substance, or (B) on which any Toxic Substance has been stored,
disposed of, placed, or used in the construction thereof. No claim, action,
suit, or proceeding is pending against Bay View or the Bay View
Subsidiaries relating to Property of Bay View or the Bay View Subsidiaries
before any court or arbitration tribunal relating to Toxic Substances,
pollution, or the environment, and there is no outstanding judgment, order,
writ, injunction, decree, or award against or affecting Bay View or the Bay
View Subsidiaries with respect to the same.
3.9 Proxy Statement and Public Disclosures. None of the information
--------------------------------------
regarding Bay View or any Bay View Subsidiary supplied or to be supplied by Bay
View for inclusion or included in (i) the Proxy Statement or (ii) any other
documents to be filed with any regulatory authority in connection with the
transactions contemplated hereby will, at the respective time such documents are
filed with any regulatory authority and with respect to the Proxy Statement when
mailed and as of the date of the related shareholder meeting, be false or
misleading in respect to any material fact, or omit to state a material fact
necessary in order to make the statements therein not misleading.
3.10 Brokers and Finders. Other than its engagement of PaineWebber
-------------------
Incorporated and Piper Jaffrey neither Bay View nor any Bay View Subsidiary nor
any of their respective officers, directors or employees has employed any broker
or finder or incurred any liability for any financial advisory fees, brokerage
fees, commissions or finder's fees, and no broker or finder has acted directly
or indirectly for Bay View or the Bay View Subsidiaries, in connection with this
Agreement or the transactions contemplated hereby.
3.11 Accuracy of Information. The statements of Bay View and Bay View
-----------------------
Bank contained in this Agreement and the Schedules hereto are true and correct
in all material respects, and such statements and documents do not omit any
material fact necessary to make the statements contained herein or therein not
misleading.
3.12 Registration Obligations. Bay View is not under any obligation,
------------------------
contingent or otherwise, to register any shares of Bay View Common Stock, any
securities convertible into Bay View Common Stock, or any other securities under
the Securities Act.
3.13 Year 2000 Compliant. To the best knowledge of Bay View and Bay
-------------------
View Bank, all hardware, firmware, software and computer systems of Bay View and
Bay View Bank will be Year 2000 Compliant and will function in accordance with
their intended purpose without material error or material interruption during
and after the year 2000.
ARTICLE IV
CONDUCT OF BUSINESSES PRIOR TO THE CLOSING
4.1 Conduct of Businesses Prior to the Closing. During the period prior
------------------------------------------
to the Closing, unless it receives prior written consent from Bay View, PSB
shall and shall cause the PSB Subsidiaries to:
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<PAGE>
(a) conduct its business according to their ordinary and usual course
consistent with past business practices and not enter into any new lines of
business;
(b) use its best efforts to maintain and preserve its business
organization, employees and advantageous business relationships and retain
the services of its officers and key employees;
(c) use commercially reasonable efforts to keep its properties (i) in
good repair and condition except for obsolete properties and for
deterioration due to ordinary wear and tear, and damage due to casualty,
and (ii) free of Liens, except as permitted by Section 2.8;
(d) use best efforts to maintain in full force and effect insurance
comparable in amount and in scope of coverage to that now maintained by it;
(e) use best efforts to perform all of its obligations under
contracts, leases and documents relating to and affecting its assets,
properties and business;
(f) charge off all assets, or portions thereof, deemed uncollectible
in accordance with GAAP applied on a consistent basis;
(g) use best efforts to comply with and perform in all material
respects all obligations and duties imposed upon it by all material federal
and state laws, and all material rules, regulations and orders imposed by
federal, state and local governmental authorities;
(h) subject to compliance with applicable law, take no action which
would adversely affect or delay the ability of Bay View, Bay View Bank,
Pacific Financial, Consumer or PSB to obtain any necessary approvals,
consents or waivers of any governmental authority required for the
transactions contemplated hereby or to perform its covenants and agreements
on a timely basis under this Agreement;
(i) file all PSB Returns and pay all taxes when due;
(j) not deviate, in any material respect, from current policies and
practices; and
(k) notify Bay View of all written claims, other than claims in the
ordinary course of business relating to Loans and none of which are
material, against PSB, and any repurchases of Loans (other than any
repurchases of Loans from Bay View Bank).
4.2 Forbearances of PSB. Except as set forth on Schedule 4.2, during the
-------------------
period from the date hereof to the Closing, PSB shall not, and shall not permit
the PSB Subsidiaries to, without the prior written consent of Bay View:
(a) declare, set aside or pay any dividends or other distributions,
directly or indirectly, in respect of its capital stock (other than
ordinary, normal dividends from a wholly owned Subsidiary of PSB to PSB or
another wholly owned Subsidiary of PSB), or incur any
35
<PAGE>
obligation or liability to Consumer, Pacific Financial, PUSA or any of
their affiliates (other than among PSB and the PSB Subsidiaries) except for
tax sharing payments and inter-company charges set forth on Schedule 4.2(a)
that do not result in violation of Section 2.10 and borrowed funds in the
ordinary course of business and consistent with past practices that can be
prepaid at any time without penalty or premium.
(b) enter into or amend any material contract, including any data
processing or computer contract, and including any contract of employment,
severance or similar agreement or arrangement with any director or officer
or employee, or modify any of PSB Employee Plans or any loans relating
thereto (or prepay in whole or in part any such loans) or grant any salary
or wage increase or increase any employee benefit (including incentive or
bonus payments), except (i) normal individual increases in compensation to
employees consistent with past practice, or as required by law or contract,
and (ii) such increases of which PSB notifies Bay View in writing and which
Bay View does not disapprove within three business days of the receipt of
such notice, or materially change its commission or salary structure;
(c) authorize, recommend, propose or announce an intention to
authorize, so recommend or propose, or enter into an agreement in principle
with respect to, any merger, consolidation or business combination (other
than that contemplated hereby), any acquisition of a material amount of
assets (other than the acquisition of Loans) or securities, any disposition
of a material amount of assets (other than the sale of Loans) or securities
or any release or relinquishment of any material contract rights;
(d) propose or adopt any amendments to its articles or certificate of
incorporation or other charter document or bylaws;
(e) issue, sell, grant, confer or award any of its Equity Securities
or effect any stock split or adjust, combine, reclassify or otherwise
change its capitalization as it exists on the date of this Agreement;
(f) purchase, redeem, retire, repurchase, or exchange, or otherwise
acquire or dispose of, directly or indirectly, any of its Equity
Securities, whether pursuant to the terms of such Equity Securities or
otherwise;
(g) directly or indirectly (including through its officers, directors,
employees or other representatives) initiate, solicit or encourage any
discussions, inquiries or proposals with any third party relating to the
disposition of any significant portion of the business or assets of PSB or
the PSB Subsidiaries or the acquisition of Equity Securities of PSB or the
PSB Subsidiaries or the merger of PSB or the PSB Subsidiaries with any
person or any similar transaction (each such transaction being referred to
herein as an "Acquisition Transaction"), or provide any such person with
information or assistance or negotiate with any such person with respect to
an Acquisition Transaction, and PSB shall immediately notify Bay View
orally of all the relevant details relating to all written proposals which
it
36
<PAGE>
may receive with respect to any Acquisition Transaction and promptly
confirm the same to Bay View in writing;
(h) take any action that would materially impede or delay the
consummation of the transactions contemplated by this Agreement;
(i) except in the ordinary course of business consistent with prudent
business and past practices, incur any indebtedness for borrowed money,
assume, guarantee, endorse or otherwise as an accommodation become
responsible or liable for the obligations of any other individual,
corporation or other entity, or incur any indebtedness for borrowed funds
that cannot be prepaid at any time without penalty or premium;
(j) enter into any capitalized leases or obligations;
(k) change its current underwriting practices, including, without
limitation, changing its credit quality and credit scoring practices; or
(l) incur any capital expenses in excess of $10,000 for any item or
$200,000 in the aggregate or as set forth on Schedule 4.2;
(m) agree in writing or otherwise to take any of the foregoing actions
or engage in any activity, enter into any transaction or take or omit to
take any other act which would make any of the representations and
warranties in Article II of this Agreement untrue or incorrect in any
material respect if made anew after engaging in such activity, entering
into such transaction, or taking or omitting such other act.
4.3 Forbearances of PUSA. During the period hereof to the Closing, PUSA
--------------------
shall not permit Consumer or Pacific Financial or any other subsidiary of PUSA
to sell, transfer, grant any option for the sale of or otherwise dispose of any
shares of PSB Common Stock (or any securities convertible into, exercisable for,
or exchangeable for, directly or indirectly, any shares of PSB Common Stock);
provided, however, that the foregoing shall not prohibit and shall in no way be
construed to prohibit the dividending of the PSB Shares to Pacific Financial
prior to the Closing Date.
4.4 Forbearances of Bay View. During the period from the date hereof to
------------------------
the Closing, Bay View shall not, and shall not permit any of the Bay View
Subsidiaries to without the prior written consent of PUSA, Pacific Financial,
Consumer or PSB, subject to compliance with applicable law, (i) take any action
that would materially impede or delay the consummation of the transactions
contemplated by this Agreement or the ability of PUSA, Pacific Financial,
Consumer, Bay View or Bay View Bank to obtain any approval of any regulatory
authority required for the transactions contemplated by this Agreement or to
perform its covenants and agreements under this Agreement, (ii) materially
increase its regular quarterly cash dividend on the Bay View Common Stock or
(iii) declare or pay any extraordinary cash dividend on the Bay View Common
Stock.
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<PAGE>
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Access and Information. PSB shall cause the PSB Subsidiaries to afford
----------------------
to Bay View, and each of PSB and Bay View shall afford to the other, and to
their respective accountants, counsel and other representatives, full access
during normal business hours, during the period from the date hereof to the
Closing Date, to all their respective properties, books, contracts, commitments
and records and, during such period, shall furnish promptly to the other (i) a
copy of each report, schedule and other document filed or received during such
period pursuant to the requirements of governmental authorities (subject to
confidentiality requirements of such governmental authorities) and permitted to
be disclosed under applicable law and (ii) all other information concerning
business, properties and personnel as the other may reasonably request. Any
information secured or obtained by Bay View or PSB pursuant to the preceding
sentence shall be treated in accordance with and shall be subject to the terms
of the Confidentiality Agreements, dated May 11, 1998, and November 3, 1997,
respectively, between Bay View, PSB and their respective representatives.
5.2 Regulatory Filings. PSB, Bay View and Bay View Bank shall, and PSB
------------------
shall cause the PSB Subsidiaries to cooperate and use their respective best
efforts to, prepare all documentation to effect the notices pursuant to the HSR
Act and all other filings and to obtain all permits, consents, approvals and
authorizations of all third parties and governmental and regulatory authorities
necessary or deemed appropriate by Bay View to consummate the transactions
contemplated by this Agreement. In the event the transactions contemplated
hereby are challenged or opposed by any administrative or legal proceeding
whether by the United States Department of Justice or otherwise, the
determination of whether and to what extent to seek appeal or review,
administrative or otherwise, or other appropriate remedies shall be made by Bay
View with the consent of PUSA or PSB, which consent shall not be unreasonably
denied.
5.3 Stockholder Approval. Bay View agrees to take, in accordance with
--------------------
applicable law or rules of The National Stock Market, Inc. National Market
System and its certificate of incorporation and by-laws, all action necessary to
convene an appropriate meeting of its stockholders (the "Meeting") to consider
and vote upon the approval and adoption of this Agreement and any other matters
required to be approved by Bay View's stockholders for consummation of the
transactions contemplated hereby. The Bay View Board shall recommend such
approval, and Bay View shall use its best efforts to solicit such approval by
its stockholders.
5.4 Current Information. During the period from the date hereof to the
-------------------
Closing, PSB shall promptly furnish, and shall cause the PSB Subsidiaries to
promptly furnish, Bay View with copies of all monthly and other interim
financial statements as the same become available and shall cause one or more of
its designated representatives to confer on a regular and frequent basis with
representatives of Bay View. PSB shall promptly notify Bay View of any material
change in the business or operations of PSB or the PSB Subsidiaries and of any
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), or the institution or the threat
of any litigation involving PSB or the PSB Subsidiaries involving a claim for
more than $25,000 or equitable or non-monetary relief.
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5.5 Expenses. Subject to the provisions of Section 2.22, each party
--------
hereto shall bear its own expenses incident to preparing and entering into this
Agreement and to consummating the transactions contemplated hereby.
Notwithstanding the foregoing, if the Agreement is terminated by PUSA pursuant
to Section 7.1(c), Bay View shall (i) continue to be obligated to purchase PSB's
Eligible Loan Production (as defined in Section 5.20) on the terms set forth in
Section 5.21 for 150 days after such termination and (ii) reimburse PUSA for up
to a maximum of $500,000 of its reasonable and verifiable out-of-pocket fees and
expenses incurred in connection with the transactions contemplated hereby.
5.6 Miscellaneous Agreements and Consents. Subject to the terms and
-------------------------------------
conditions herein provided, each of the parties hereto agrees to use its
respective best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement as expeditiously as possible, including without
limitation using its respective best efforts to lift or rescind any injunction
or restraining order adversely affecting the ability of the parties to
consummate the transactions contemplated hereby. Each party shall, and shall
cause each of its respective subsidiaries to, use its best efforts to obtain
consents of all third parties and governmental authorities necessary or, in the
reasonable opinion of Bay View, desirable for the consummation of the
transactions contemplated by this Agreement.
5.7 Employment Agreement and Benefits.
---------------------------------
(a) At the Closing, Robert Emerling shall enter into an employment
agreement with PSB (the "New Employment Agreement"). Pursuant to the New
Employment Agreement, at the Closing, all employment contracts or similar
agreements theretofore existing between PSB or the PSB Subsidiaries and
Robert Emerling shall terminate without any payment or penalty obligation.
Neither PSB or the PSB Subsidiaries nor Bay View or any Bay View Subsidiary
shall make, and shall not be in any manner obligated to make, any payment
whatsoever to any director or employee of PSB or the PSB Subsidiaries under
any circumstance in which such payment is not or will not be deductible
under Section 162(m) or Section 280G of the Code.
(b) Prior to the Closing, PSB shall terminate all employee benefit
plans of PSB and the PSB Subsidiaries, except for any plan to whose
continuation Bay View requests or consents to in writing. Bay View shall
take such steps as are necessary or required to integrate the employees of
PSB and the PSB Subsidiaries into Bay View's employee benefit plans
generally available to other employees of Bay View and Bay View
Subsidiaries as soon as practicable after the Closing, (i) with full credit
for prior service with PSB or the PSB Subsidiaries for all purposes other
than determining the amount of benefit accruals under any defined benefit
plan, (ii) without any waiting periods, evidence of insurability, or
application of any pre-existing condition limitations, and (iii) with full
credit for claims arising prior to the Closing for purposes of deductibles,
out of pocket maximums, benefit maximums, and all other similar limitations
for the applicable plan year during which the Closing occurs.
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<PAGE>
(c) Bay View hereby agrees to pay or cause PSB to pay within 90 days
after the Closing Date retention payments to certain employees of PSB as of
the Closing Date pursuant to the retention arrangements set forth on
Schedule 2.18(g). Such amounts shall be reserved on the balance sheet of
PSB immediately before Closing and shall be taken into account in
determining compliance with the net worth standards set forth in Section
6.3(g).
5.8 Takeover Provisions. PSB, Pacific Financial, Consumer and Bay
-------------------
View will take all steps necessary to exempt the transactions contemplated by
this Agreement from, and if necessary challenge the validity of, any applicable
state takeover or similar law.
5.9 Third Parties. PSB shall immediately terminate all negotiations
-------------
or discussions concerning any Acquisition Transaction with parties other than
Bay View Bank.
5.10 Establishment of Accruals. Subject to applicable laws,
-------------------------
regulations and requirements of any regulatory authority, if requested by Bay
View, immediately prior to the Closing, PSB shall, consistent with GAAP,
establish such additional accruals and reserves as may be necessary to conform
its accounting and credit loss reserve practices and methods to those of Bay
View (as such practices and methods are to be applied to PSB from and after the
Closing) and reflect Bay View's plans with respect to the conduct of PSB's
business following the Closing; provided, however, that any such establishment
of accruals and reserves at the request of Bay View pursuant to this Section
5.10 shall not be taken into account for purposes of the net worth standard in
Section 6.3(g).
5.11 Assistance with Third Parties. PSB shall and shall cause the PSB
-----------------------------
Subsidiaries to cooperate with, and use all reasonable efforts to assist Bay
View in (i) gaining access to all of PSB's and the PSB Subsidiaries' third-party
vendors, and the landlords of each property leased by them, promptly after the
date of this Agreement, and (b) obtaining the cooperation of such third-parties
in a smooth transition in accordance with Bay View's timetable at or after the
Closing. PSB and the PSB Subsidiaries shall also, at Bay View's reasonable
request, give notice of termination of third-party contracts to be effective at
or after the Closing, and take such reasonable additional action as may be
necessary or reasonably appropriate to ensure that such contracts are terminated
at the date requested.
5.12 Insurance Policy Claims. PSB shall inform Bay View no later than
-----------------------
the Closing of any material unfiled insurance claims of PSB or the PSB
Subsidiaries of which it has knowledge and for which it believes coverage
exists.
5.13 Restricted Shares.
-----------------
(a) Pacific Financial and Consumer understand that upon their issuance the
Shares will not have been registered under the Securities Act or the securities
laws of any state (collectively referred to as "State Securities Laws") by
reason of specific exemptions under the provisions thereof which depend in part
upon the intent of Pacific Financial or Consumer and of certain other
representations made by Pacific Financial and Consumer in this Agreement.
Pacific Financial and Consumer understand that Bay View is relying upon the
representations and agreements contained in this Agreement for the purpose of
determining whether this transaction meets the requirements
40
<PAGE>
for such exemptions. Pacific Financial and Consumer further understand that the
Shares are "restricted securities" under applicable federal securities laws and
that the Securities Act and the rules of the SEC provide in substance that
Seller may dispose of the Shares only pursuant to an effective registration
statement under the Securities Act or an exemption therefrom. Accordingly,
Pacific Financial and Consumer agree not to sell, pledge, transfer or otherwise
dispose of any Shares except (i) in compliance with the applicable provisions of
Rule 144 under the Securities Act; (ii) in a transaction otherwise exempt (in
the written opinion of counsel for Pacific Financial or Consumer satisfactory to
Bay View, which requirement may be waived by Bay View) from the registration
requirements of the Securities Act and all applicable State Securities Laws; or
(iii) pursuant to a registration of the Shares under the Securities Act and all
applicable State Securities Laws.
(b) Pacific Financial and Consumer consent to the endorsement of the
Shares with a restrictive legend to read substantially as follows:
The shares represented by this certificate were issued pursuant to an
exemption from registration under the Securities Act of 1933, as amended
(the "Securities Act") and may be sold or otherwise transferred only in
compliance with the limitations of Rule 144 under the Securities Act,
pursuant to an exemption from registration under the Securities Act or
pursuant to a registration statement under the Securities Act.
(c) Pacific Financial and Consumer agree that Bay View (and its transfer
agent) shall not be required to register any attempted transfer of the Shares
unless the transfer has been effected in compliance with the terms of this
Section 5.13.
5.14 Publicity. Except as required by law, Bay View and PUSA shall
---------
consult with each other and provide a written copy to each other prior to
issuing any press releases, or otherwise making public statements, with respect
to the transactions contemplated hereby.
5.15 Trade Name Rights. From and after the Closing, Bay View shall
-----------------
possess all rights with respect to any and all trade names used by PSB or any
PSB Subsidiary including, "PSB Lending Corp." and "PSB Lending"; provided,
however, that PUSA and its affiliates shall retain all rights in respect of the
trade name "PSB."
5.16 Listing of Shares. Bay View shall use its best efforts to cause
-----------------
the Bay View Closing Shares, to be approved, prior to the Closing, for listing
on The Nasdaq Stock Market subject to official notice of issuance; and Bay View
shall use all reasonable efforts to cause the Bay View Earn Out Shares to be
approved prior to any such issuance for listing on The Nasdaq Stock Market
subject to official notice of issuance.
5.17 Boards of Directors. Bay View agrees to take all action
-------------------
necessary to appoint, effective as of the Closing, one nominee of Pacific
Financial or PUSA as a director of Bay View (for the term expiring in 2001) and
Bay View Bank. Bay View further agrees to take all action necessary to appoint
to the Bay View and Bay View Bank Boards an additional nominee of Pacific
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<PAGE>
Financial or PUSA, and reasonably acceptable to Bay View, promptly after Bay
View Bank has paid to Seller a minimum of $50 million of Bay View Earn Out
Shares. Bay View will nominate to the Strategic Planning Committee of the Bay
View Board, at such time as nominations are made to Bay View Board committees,
any PUSA or Pacific Financial nominated director. Any PUSA or Pacific Financial
nominated director serving on the Bay View Board or the Bay View Bank Board
shall be treated, for benefits purposes, as a non-employee director of, as
applicable, Bay View or Bay View Bank. During the Earn Out Period, the members
of the Board of Directors of PSB shall be four individuals selected by Bay View
and three individuals selected by PUSA. Each member of the Board of Directors
of PSB who is not selected to continue as a member of such Board subsequent to
the Closing shall resign from such Board as of the Closing. During the Earn Out
Period, the Board of Directors of PSB shall meet at least quarterly.
5.18 Reporting. During the Earn Out Period, Bay View shall report
---------
the results of operations of PSB to PUSA at least monthly on a GAAP and Earn Out
basis.
5.19 PSB. During the Earn Out Period, Bay View shall maintain PSB
---
as a separate subsidiary and shall deal, and shall cause its Subsidiaries to
deal, with PSB on terms no less favorable than it makes available to unrelated
third parties; provided, however, that Bay View may cause PSB's operations to be
conducted in other entities so long as Bay View maintains Earn Out books and
records covering all of PSB's operations. Bay View shall maintain Earn Out
books that shall be examined annually by Bay View's independent accountants, and
subject to review by PUSA's independent accountants. Bay View shall during
regular business hours make the books and records of PSB and, upon reasonable
request, Bay View and its other subsidiaries, available to PUSA's independent
accountants.
5.20 Continuing Loan Sales. From the date hereof until the Closing
---------------------
Date, PSB shall make available, and Bay View Bank shall purchase at a price of
107% of the unpaid principal balance, under the terms of the Loan Purchase
Agreement and the Subservicing Agreement, each dated February 27, 1998, between
Bay View Bank and PSB, all of PSB's Eligible Loan Production (as defined
herein). Such purchases shall be made on a weekly basis. PSB shall use all
commercially reasonable efforts to sell to Bay View Bank during the period
between the date of this Agreement and the Closing Date at least $600 million
principal amount of Eligible Loan Production. "Eligible Loan Production" means
loans with (i) a weighted average FICO (as defined herein) of 675 or higher;
(ii) a weighted average coupon of 13.50%; (iii) no more than 10% of which shall
have a FICO score at or between 620 and 639; (iv) a FICO score of no less than
620; (v) a maximum loan size of $75,000; (vi) an average loan size of not more
than $37,500; (vii) a maximum CLTV (as defined below) of 125%; (viii) an
average CLTV of not more than 115%; and (ix) an average DTI (as defined herein)
of 42% or less; and (x) a DTI of no greater than 50%. "FICO" means Fair Issac
Corporation Score. "CLTV" means cumulative loan-to- value. "DTI" means debt-
to-income. Bay View Bank and PSB agree to jointly develop appropriate loan
loss reserve procedures for such purchased loans.
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<PAGE>
5.21 Purchases of I/O Strips.
-----------------------
(a) I/O Strips
----------
(i) "I/O Strips" means all of PSB's interest only strips and
related securitization assets other than excess servicing rights.
(ii) Bay View agrees to purchase (the "Bay View Purchase") from
PSB a senior interest in the I/O Strips for a cash price equal to
$43,000,000 (the "Reference Value") subject to the agreement by Bay
View and PUSA with respect to (i) documentation of the Bay View
Purchase (if the Bay View Purchase shall involve a trust, PUSA shall
pay all costs and fees whatsoever related to the establishment,
operation and termination of such trust), PUSA Purchase (as defined
herein), Purchase Loan (as defined herein) and (ii) the Servicing
Assignment Agreement (as defined in Section 5.27) (provided that if
Bay View and PUSA shall not so agree by June 30, 1998, the Board of
Directors of Bay View or PUSA may terminate its obligation to enter
into any of such transactions and may terminate this Agreement;
provided, however, that such conditional rights of termination shall
not be available until July 7, 1998 in the event that Bay View shall
prior to June 30, 1998 escrow with a qualified financial institution
satisfactory to PUSA the amount of the Reference Value and the amount
of the Purchase Loan) (the "Agreement on Documentation").
(iii) PUSA or Pacific Financial agrees to purchase (the "PUSA
Purchase") from PSB a subordinate interest in the I/O Strips for a
cash price equal to $50,000,000, subject to the Agreement on
Documentation.
(iv) "I/O Strip Senior Interest Value" means the Reference Value
increased by all Monthly I/O Accruals (as defined herein) and
decreased by any payments received by Bay View with respect to its
senior interest in the I/O Strips.
(v) "Monthly I/O Accruals" means interest on the I/O Strip
Senior Interest Value accrued monthly at an annual rate of 12.5%.
(vi) The Bay View Purchase and the PUSA Purchase are without
recourse.
(vii) Bay View's senior interest in the I/O Strips shall be
entitled to all payments with respect to the I/O Strips until the I/O
Strip Senior Interest Value has been reduced to zero. Thereafter all
payments shall be made to the subordinate interest in the I/O Strips
.
(b) Loan. Bay View and Bay View Bank agree to loan (the "Purchase
----
Loan") $50,000,000 to PUSA to fund the PUSA Purchase, subject to the
Agreement on Documentation. The Purchase Loan shall (i) have a rate of
interest, paid initially on the Closing Date, equal to the Prime Rate
published in The Wall Street Journal, (ii) be secured
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<PAGE>
by the common stock, par value $.01 per share, of Pacific Realty Group,
Inc. (the "Pacific Realty Common Stock") and the common stock, par value
$.01 per share, of Pacific Southwest Bank (the "Pacific Bank Common Stock")
in an amount acceptable to Bay View and after the Closing by the Closing
Shares and the Earn Out Shares of Bay View Common Stock (and, if Seller
shall not hold sufficient Closing or Earn Out Shares to satisfy the
collateral requirements because of the failure to receive regulatory
approval for the receipt of such Shares, the Loan shall be further
collateralized by a sufficient amount of additional assets of PUSA
acceptable in all respects to Bay View Bank; and provided further that if
PUSA shall not pledge such additional sufficient and acceptable collateral
the Loan shall become due immediately), (iii) be due May 31, 1999 (the "Due
Date"), and (iv) require principal prepayments of $15,000,000 on the Due
Date, all as provided in loan and pledge agreements acceptable to Bay View
and PUSA, which shall provide further that PUSA shall not, and shall cause
its Subsidiaries not to, pledge, sell, transfer or otherwise dispose of any
shares of capital stock of Newmark Homes Corp.. After the Closing Date and
prior to the Due Date, Bay View and PUSA shall use their reasonable efforts
to agree on the terms of an extension or refinancing of the Purchase Loan.
(c) Use of Proceeds. PSB shall use the proceeds of the sales of the
---------------
I/O Strips to repay its working capital loan from PUSA Bank.
5.22 Noncompetition. During the Earn Out Period, neither PUSA,
--------------
Pacific Financial, Consumer nor any other PUSA subsidiary or affiliate thereof
(so long as it is a subsidiary or affiliate of PUSA) shall directly or
indirectly engage in any business currently conducted by PSB, including without
limitation the business of originating, purchasing, selling or securitizing
loans with CLTVs above 100% ("High CLTV Loans"); provided, however, that Pacific
Southwest Bank ("Pacific Bank") may engage in any such business provided that,
at any time during the Earn Out Period, the aggregate amount of High CLTV Loans
(i) held in Pacific Bank's portfolio or (ii) sold by Pacific Bank and included
in securitization pools, may not exceed $100 million; and provided, further,
that all such High CLTV Loans shall have been originated in the State of Texas
through Pacific Bank's retail operations or purchased.
5.23 Data Processing. PSB shall immediately commence, in cooperation
---------------
with Bay View, converting its data processing systems to Fiserv (Pittsburgh)
DataLink. In the event this Agreement is terminated pursuant to any of Sections
7.1(a)-(c), 7.1(e) and (f) and PSB has materially complied with this Section
5.23, (i) Bay View agrees to provide to PSB, at Bay View's cost, data processing
services for 180 days after such termination and (ii) should PSB elect to
convert its data processing systems from Fiserv to another data processing
system within 120 days after such termination, Bay View agrees to reimburse PSB
for its costs for conversion to Fiserv and its deconversion costs up to an
aggregate maximum amount of $250,000 (subject in all respects to the delivery to
Bay View of documentation of such costs).
5.24 Guarantees. Bay View hereby agrees to guarantee any lease
----------
obligations of PSB guaranteed by PUSA or Pacific Bank on the Closing Date if
requested to do so by the lessor or lessors thereunder. In the event that any
such Bay View guarantees do not result in the release of PUSA and/or Pacific
Bank from their lease obligations, Bay View shall indemnify PUSA and or
44
<PAGE>
Pacific Bank for obligations relating to the period occurring after the Closing
Date relating to such lease obligations.
5.25 Section 338(h)(10) Election. Bay View Bank shall make a timely
---------------------------
election under Section 338(g) of the Code and Seller and Bay View Bank shall
join in making an election under Section 338(h)(10) of the Code (and any
equivalent election under state or local tax law which Seller and Bay View Bank
are entitled to make) (collectively, the "Section 338(h)(10) Election") with
respect to the sale of the PSB Shares. Seller and Bay View Bank shall cooperate
fully with each other in making the Section 338(h)(10) Election. In particular,
and not by way of limitation, in order to effect the Section 338(h)(10)
Election, on or prior to the Closing Date, Seller and Bay View Bank shall
jointly execute necessary copies of Internal Revenue Service Form 8023 and
prepare all attachments required to be filed therewith pursuant to applicable
United States Treasury Regulations. At the request of Bay View Bank, the Seller
shall, from time to time after the Closing Date, execute such additional forms,
returns, elections, schedules and other documents necessary to preserve the
Section 338(h)(10) Election or to amend or supplement the Section 338(h)(10)
Election, including but not limited to, any subsequent filing or election
relating to the increase in the consideration actually paid for the PSB Shares
(each a "Subsequent Filing"). Seller and Bay View Bank shall report the sale
and purchase of the PSB Shares pursuant to this Agreement consistent with the
338(h)(10) Election and each Subsequent Filing and shall take no position
contrary thereto or inconsistent therewith in any tax return, any discussion
with or proceeding before any taxing authority or otherwise. Seller will timely
report the gain arising from the Section 338(h)(10) Election and any Subsequent
Filing for tax purposes and pay any and all taxes arising or resulting
therefrom. PUSA, Pacific, Pacific Financial and Consumer do hereby, jointly and
severally, indemnify and hold Bay View Bank harmless from and against any and
all losses, damages, cost and expenses arising from the failure of Seller to
comply with its obligations under this Section 5.25.
5.26 Servicing Rights. Provided that the Bay View Purchase occurs and
----------------
this Agreement is terminated prior to the consummation of the sale and purchase
of the PSB Shares, (i) PSB agrees to transfer to Bay View Bank, at no cost,
within five business days of the termination of this Agreement, all of its
servicing rights with respect to loans sold to Bay View Bank by PSB, all as
provided in a servicing assignment agreement to be agreed to and executed by Bay
View and PUSA prior to consummation of the Bay View Purchase and Purchase Loan
(the "Servicing Assignment Agreement"), and (ii) upon such termination Bay View
shall have the right in its discretion, which shall not be unreasonably applied,
if it shall have evidence that PSB has not conducted its sub-servicing
operations with respect to Loans included in any securitization pools in
material conformity with industry standards, to substitute for PSB a qualified
party as the sub-servicer of such Loans.
5.27 Inter-Company Obligations. Upon the request of Bay View, PSB
-------------------------
shall purchase from Pacific Technology Services, Inc. ("PTSI") certain computer
hardware and software currently being leased from PTSI at its remaining book
value. Prior to the Closing, PSB shall repay all tax-sharing obligations and
inter-company items due to PUSA or its affiliates.
5.28 Contribution of Shares. Bay View shall contribute to Bay View
----------------------
Bank such number of shares of Bay View Common Stock to satisfy Bay View Bank's
obligations hereunder to deliver Closing Shares and Earn Out Shares.
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5.29 Employment Agreements. PSB shall use its best efforts to cause Janet
---------------------
Twombley, Farnum (Edward) Regan, Gary McClary and Donald Curtis to enter into
New Employment Agreements as of the Closing Date.
5.30 Servicing Standards. Bay View shall, after the Closing Date, use
-------------------
its commercially reasonable efforts to cause PSB to service the Loans it is
servicing in accordance with the accepted servicing practices of prudent lending
institutions and servicers of loans of the same type as the Loans.
ARTICLE VI
CONDITIONS
6.1 Conditions to Each Party's Obligation Under This Agreement. The
----------------------------------------------------------
respective obligations of each party to under this Agreement shall be subject to
the fulfillment or waiver at or prior to the Closing of the following
conditions:
(a) Stockholder Approval. This Agreement and the transactions
--------------------
contemplated hereby shall have been approved and adopted by the requisite
vote of the holders of Bay View Common Stock.
(b) Regulatory Approvals. Subject to Section 1.2(b), all requisite
--------------------
approvals of this Agreement and the transactions contemplated hereby shall
have been received from all governmental and regulatory authorities, if
any, having approval authority with respect to this Agreement or any of the
transactions contemplated herein (the parties hereto acknowledge and agree
that the sale and purchase of the PSB Shares is not conditioned in any
respect on the dividending of the PSB Shares from Consumer to any other
entity and that PUSA shall be obligated to cause the sale of the PSB Shares
to Bay View Bank irrespective of which PUSA affiliate may hold the PSB
Shares on the Closing Date), without the imposition of any condition which
differs from conditions customarily imposed by such authorities in orders
approving acquisitions of the type contemplated hereby and in the good
faith opinion of Bay View compliance with which would materially adversely
affect the reasonably anticipated benefits of the acquisition contemplated
herein to Bay View, and all applicable waiting periods shall have expired.
(c) No Injunctions. Neither Bay View, Bay View Bank, PUSA, Pacific
--------------
Financial, Consumer, PSB nor the PSB Subsidiaries shall be subject to any
order, decree or injunction of a court or agency of competent jurisdiction
which enjoins or prohibits the consummation of the transactions
contemplated hereby.
(d) Listing. The Bay View Closing Shares (other than shares of Non-
-------
Voting Common Stock) shall have been approved for listing on The Nasdaq
Stock Market subject to official notice of issuance.
46
<PAGE>
6.2 Conditions to Obligations of Seller Under This Agreement. The
--------------------------------------------------------
obligations of Seller under this Agreement shall be subject to the fulfillment
or waiver at or prior to the Closing of the following additional conditions:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Bay View set forth in Article III of this Agreement shall be
true and correct in all material respects as of the date of this Agreement
and as of the Closing (as though made on and as of the Closing except (i)
to the extent such representations and warranties are by their express
provisions made as of a specified date and (ii) for the effect of
transactions specifically contemplated by this Agreement and (iii)
intervening events or occurrences that are reflected on an updated Schedule
prior to Closing that do not, when taken into account with other matters,
result in or reasonably likely would result in, a material adverse change
in the Condition of Bay View and the Bay View Subsidiaries, taken as a
whole ) and PSB shall have received a certificate of the president and
chief executive officer of Bay View to that effect.
(b) Performance of Obligations. Bay View shall have performed in all
--------------------------
material respects all obligations required to be performed by it under this
Agreement prior to the Closing, and PSB shall have received a certificate
of the president and chief executive officer of Bay View to that effect.
(c) Director. One nominee of PUSA or Pacific Financial shall have
--------
been appointed to the boards of directors of Bay View and Bay View Bank
effective as of the Closing. Three nominees of PUSA or Pacific Financial
shall have been appointed to the Board of Directors of PSB effective as of
the Closing.
(d) Opinion of Counsel. PSB shall have received an opinion from
------------------
Silver, Freedman & Taff, L.L.P., counsel to Bay View, dated the Closing
Date in the form of the attached Appendix A.
(e) No Material Adverse Change. Since the date of this Agreement,
--------------------------
there shall have been no material adverse change in the Condition, or
events or circumstances that are reasonably likely to result in a material
adverse change in the Condition, of Bay View and the Bay View Subsidiaries,
taken as a whole, and PSB shall have received a certificate of the
president and chief executive of Bay View to that effect.
(f) Voting Agreement. Seller and Bay View shall have entered into the
----------------
Voting Agreement.
6.3 Conditions to Obligations of Bay View Under This Agreement. The
----------------------------------------------------------
obligations of Bay View under this Agreement shall be subject to the fulfillment
or waiver at or prior to the Closing of the following additional conditions:
(a) Representations and Warranties. The representations and
------------------------------
warranties of PSB, Consumer, Pacific Financial and PUSA set forth in
Article II of this Agreement shall be true
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<PAGE>
and correct in all material respects as of the date of this Agreement and
as of the Closing (as though made on and as of the Closing except (i) to
the extent such representations and warranties are by their express
provisions made as of a specific date, (ii) for the effect of transactions
specifically contemplated by this Agreement) and (iii) intervening events
or occurrences that are reflected on an updated Schedule prior to Closing
that do not, when taken into account with other matters, result in or
reasonably likely would result in, a material adverse change in the
Condition of PSB and the PSB Subsidiaries, taken as a whole).
(b) Performance of Obligations. PSB, Consumer, Pacific Financial and
--------------------------
PUSA shall have performed in all material respects all obligations required
to be performed by them under this Agreement prior to the Closing, and Bay
View shall have received a certificate of the chief executive officer of
PSB, Pacific Financial, Consumer and PUSA to that effect.
(c) Opinion of Counsel. Bay View shall have received an opinion from
------------------
Hughes & Luce, counsel to PSB, Consumer, Pacific Financial and PUSA dated
the Closing Date, in the form of the attached Appendix B.
(d) Emerling Agreement. Robert Emerling, shall have executed and
------------------
delivered a New Employment Agreement.
(e) No Material Adverse Change. Since the date of this Agreement,
--------------------------
there shall have been no material adverse change in the Condition, or
events or circumstances that are reasonably likely to result in a material
adverse change in the Condition, of PSB and the PSB Subsidiaries, taken as
a whole, or decrease in the net worth of PSB or any PSB Subsidiary and Bay
View shall have received a certificate of the chief executive officer of
PSB to that effect.
(f) Third Party Consents. All consents or approvals of all persons
--------------------
(other than governmental authorities) under all material contracts or
agreements shall have been obtained and shall be in full force and effect.
(g) Minimum Tangible Net Worth. On the Closing Date and after taking
--------------------------
into account the effects of the Section 338(h)(10) Election and any tax
sharing obligations PSB shall have a minimum tangible net worth of
$25,000,000.
(h) Loans Sold to Bay View Bank. PSB shall have either (A) during the
---------------------------
period between the date of this Agreement and the Closing Date sold at
least $600 million in principal amount of Eligible Loan Production to Bay
View Bank, or (B) during the two full calendar months ending prior to the
Closing Date sold at least $160 million in principal amount of Eligible
Loan Production to Bay View Bank.
(i) Ineligible Loans. All loans held by PSB which do not constitute
----------------
Eligible Loan Production or which are delinquent in the payment of
principal or interest for more than 60 days shall have been sold to a PUSA
affiliate for a minium of book value.
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<PAGE>
ARTICLE VII
TERMINATION, SPECIFIC PERFORMANCE, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Closing:
(a) by mutual written consent of the Boards of Directors of Bay View
and PUSA;
(b) by the Board of Directors of Bay View or PUSA at any time after
December 31, 1998 if the sale and purchase of the PSB Shares shall not
theretofore have been consummated (provided, however, that the right to
terminate under this Section 7.1(b) shall not be available to any party
whose failure to perform an obligation hereunder has been the cause of, or
has resulted in, the failure of the sale and purchase of the PSB Shares to
occur on or before such date or to any party who is then in material breach
of any representation, warranty, covenant or other agreement contained
herein, and for purposes hereof Bay View and Bay View Bank shall be
collectively deemed to be a party and PUSA, Pacific Financial, Consumer and
PSB shall be collectively deemed to be a party);
(c) by the Board of Directors of Bay View or PUSA if the Bay View
stockholders shall not have adopted this Agreement at the Meeting or if any
governmental or regulatory authority has denied approval of the sale and
purchase of the PSB Shares and such denial has become final and
nonappealable;
(d) by the Board of Directors of Bay View in the event of a material
breach by PSB, Consumer, Pacific Financial or PUSA of any representation,
warranty, covenant or other agreement contained in this Agreement, which
breach is not cured within 30 days after written notice thereof is given to
PSB, Consumer, Pacific Financial or PUSA by Bay View;
(e) by the Board of Directors of PUSA in the event of a material
breach by Bay View of any representation, warranty, covenant or other
agreement contained in this Agreement, which breach is not cured within 30
days after written notice thereof is given to Bay View by PUSA; or
(f) by the Board of Directors of PUSA (with written notice thereof to
Bay View which notice is final and may not be withdrawn) at any time during
the second trading day immediately prior to the anticipated Closing Date,
if (x) the Average Closing Price (as defined herein) is less than $26.00
(subject to adjustment pursuant to Section 1.6), and (y) Bay View shall not
have given written notice to Pacific Financial prior to the Closing Date to
the effect that Bay View agrees that the number of Bay View Closing Shares
shall be calculated by dividing the Minimum Stock Consideration Value (as
defined herein) by the Average Closing Price. "Average Closing Price"
means the average of the reported daily closing prices of Bay View Common
Stock on The Nasdaq Stock Market during the period of 20 consecutive
trading days ending on the third trading day immediately prior to the
anticipated Closing Date. "Minimum Stock Consideration Value" means the
number of Bay View Closing Shares multiplied by $26.00.
49
<PAGE>
(g) by the Board of Directors of Bay View or PUSA pursuant to Section
5.21(a)(ii).
7.2 Effect of Termination.
---------------------
(a) In the event of termination of this Agreement as provided in
Sections 7.1(a), 7.1(b) and 7.1(c) this Agreement shall forthwith become
void and there shall be no liability under this Agreement on the part of
Bay View, Bay View Bank, PSB, Consumer, Pacific Financial or PUSA or their
respective officers or directors except as set forth in the second sentence
of Section 5.1, in the first sentence of Section 5.5, the second sentence
of 5.23 and Section 5.27, and, with respect to a termination as provided in
Section 7.1(c), the second sentence of Section 5.5.
(b) In the event that this Agreement is terminated by a party (the
"Aggrieved Party") solely by reason of the willful material breach by
another party ("Breaching Party") of any of its representations,
warranties, covenants or agreements contained herein then the Aggrieved
Party shall be entitled to such remedies and relief against the Breaching
Party as are available at law or in equity.
7.3 Specific Performance. As an alternative to terminating this Agreement,
--------------------
an Aggrieved Party shall be entitled to specifically enforce the terms hereof
against a Breaching Party in order to cause the sale and purchase of the PSB
Shares to be consummated. Each party acknowledges that there is not an adequate
remedy at law to compensate the other parties relating to the non-consummation
of the sale and purchase of the PSB Shares. To this end, each party, to the
extent permitted by law, irrevocably waives any defense it might have based on
the adequacy of a remedy at law which might be asserted as a bar to specific
performance, injunctive relief or other equitable relief.
7.4 Amendment. This Agreement may be amended by the parties hereto, by
---------
action taken by or on behalf of their respective Boards of Directors. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of Bay View, Bay View Bank, PSB, Consumer, Pacific Financial and PUSA.
The parties may, without approval of their respective Boards of Directors, make
such technical changes to this Agreement, not inconsistent with the purposes
hereof as may be required to effect or facilitate any regulatory approval or
acceptance of this Agreement or to effect or facilitate any regulatory or
governmental filing or recording required for the consummation of any of the
transactions contemplated hereby.
7.5 Severability. Any term, provision, covenant or restriction contained
------------
in this Agreement held by a court or a governmental authority of competent
jurisdiction to be invalid, void or unenforceable, shall be ineffective to the
extent of such invalidity, voidness or unenforceability, but neither the
remaining terms, provisions, covenants or restrictions contained in this
Agreement nor the validity or enforceability thereof in any other jurisdictions
shall be affected or impaired thereby. Any term, provision, covenant or
restriction contained in this Agreement that is so found to be so broad as to be
unenforceable shall be interpreted to be as broad as is enforceable.
50
<PAGE>
7.6 Waiver. Any term, condition or provision of this Agreement may be
------
waived in writing at any time by the Board of Directors of the party which is
entitled to the benefits thereof. Each and every right granted to any party
hereunder, or under any other document delivered in connection herewith or
therewith, and each and every right allowed it by law or equity, shall be
cumulative and may be exercised from time to time. The failure of a party at
any time or times to require performance of any provision hereof shall in no
manner affect such party's right at a later time to enforce the same. No waiver
by any party of a condition or of the breach of any term, covenant,
representation or warranty contained in this Agreement, whether by conduct or
otherwise, in any one or more instances shall be deemed to be or construed as a
further or continuing waiver of any such condition or breach or a waiver of any
other condition or of the breach of any other term, covenant, representation or
warranty of this Agreement. No investigation, review or audit by a party of
another party prior to or after the date hereof shall stop or prevent such party
from exercising any right hereunder or be deemed to be a waiver of any such
right.
ARTICLE VIII
POST-EFFECTIVE SURVIVAL; INDEMNIFICATION
8.1 General Survival. If the sale and purchase of the PSB Shares is
----------------
consummated, the parties hereto agree that, notwithstanding the provisions of
Section 9.1 and regardless of any investigation made by Bay View or Bay View
Bank, PUSA and Seller shall remain responsible (without any right of
contribution from PSB or the PSB Subsidiary) for the representations,
warranties, covenants and agreements of PUSA, Pacific Financial, Consumer and
PSB contained in this Agreement, which shall survive the Closing through March
31, 2000 (with claims then pending continuing to survive thereafter) (the "Post-
Closing Survival Period") provided that the representations and warranties set
forth in Sections 2.3, 2.9 and 2.18 shall survive until the expiration of the
applicable statute of limitations, the covenants in Section 5.25 shall survive
for a period of three years after the Earn Out Period, Section 8.2 and 9.2 shall
survive relating to the enforcement of rights and remedies and Section 1.7 shall
survive for the Earn Out Period. Nothing contained in this Article VIII shall
alter or diminish the rights of any party under Section 7.2 hereof, it being the
intent of the parties that the provisions of Article VIII shall only apply if
the sale and purchase of the PSB Shares is consummated.
8.2 Indemnification.
---------------
(a) Indemnification Claims. Any and all Post-Closing Losses (as
----------------------
defined herein) resulting from, arising out of, relating to, or imposed upon or
incurred by Bay View, Bay View Bank, PSB, the PSB Subsidiaries, or any other Bay
View Subsidiary by reason of, any inaccuracy and/or breach of any of the
representations, warranties, covenants or agreements of PSB, Consumer, Pacific
Financial or PUSA contained in this Agreement or in any Schedule delivered by
PSB, Consumer, Pacific Financial or PUSA pursuant to this Agreement or arising
out of items listed on Schedules 2.18(c) and (d) shall constitute
indemnification claims (each an "Indemnification Claim"). For purposes of this
Agreement, the term "Post-Closing Losses" means all losses, damages and
liabilities (in each case whether direct or indirect), charges, liens,
--
deficiencies, expenses, costs, assessments, judgments, settlements, demands,
claims, interest, fines, and penalties, in each case of any nature whatsoever
(including, without limitation, reasonable legal, accounting and other costs
51
<PAGE>
and expenses incurred in connection with investigating, defending, settling or
satisfying any and all demands, claims, actions, causes of action, suits,
proceedings, assessments, judgments or appeals) incurred or suffered by Bay View
or any Bay View Subsidiary (including PSB and the PSB Subsidiaries) provided,
however, that the term Post-Closing Losses shall not include any monetary costs
or expenses incurred (i) to the extent covered by insurance or (ii) relating to
any individual claim or set of directly related claims that do not exceed
$10,000.
(b) Disregarding Specific Materiality Exceptions. For purposes of
--------------------------------------------
determining Post-Closing Losses, any inaccuracy in or breach of a representation
or warranty by PSB, Consumer, Pacific Financial or PUSA shall be deemed to
constitute a breach of a representation or warranty notwithstanding any
limitation or qualification as to materiality set forth in such representation
or warranty on the scope, accuracy or completeness thereof, it being the
intention of the parties that any and all Post-Closing Losses shall be
determined based on the failure of any such representation or warranty of PSB,
Consumer, Pacific Financial or PUSA to be true, correct and complete in any
respect.
(c) Method for Satisfying Indemnification Claims. PUSA and Seller
--------------------------------------------
shall be jointly and severally liable to Bay View Bank for the amount of each
Indemnification Claim but subject to the limitations set forth in Section
8.2(d), and without limiting the rights of Bay View Bank, Post-Closing Losses
subject to the limitations set forth in Section 8.2(d) may be satisfied, at the
election of Bay View Bank after notice to PUSA and Seller of such election and
the failure by PUSA and Seller to pay such amount in cash within 30 days of such
notice, by offset against and reduction of Earn Out Amounts.
(d) Limitations. The maximum liability for which PUSA and Seller
-----------
shall be liable for indemnification under this Article VIII shall be
$25,000,000. Further, PUSA and Seller shall have no liability for
indemnification under this Article VIII until the total of all Post-Closing
Losses with respect to Indemnification Claims exceeds $5,000,000, and shall be
liable only for the amount by which such Post-Closing Losses exceeds $5,000,000.
There shall be no basket or maximum relating to Indemnification Claims based
upon fraud committed by PUSA, Pacific Financial, Consumer or PSB against Bay
View or Bay View Bank in connection with this Agreement or relating to the title
to PSB Shares or relating to the failure of Seller to perform its obligations
under Section 5.25. Nothing herein shall constitute a limitation or restriction
in allocating expenses against PSB in the calculation of Pre-Tax PSB Income
under Section 1.4(c).
(e) Notice and Resolution of Indemnification Claims.
-----------------------------------------------
(1) Bay View Bank will give written notice (the "Claim Notice") to
PUSA promptly after obtaining knowledge of any Indemnification Claim.
Such notice will set forth in reasonable detail the nature of the
claim, including an amount, if practicable, or estimate, if
practicable, of the Post-Closing Losses related to such claim and the
basis of Bay View Bank's request for indemnification under this
Agreement.
52
<PAGE>
(2) If such Indemnification Claim arises from a claim or action
involving a third party (a "Third Party Claim"), PUSA and Seller shall
have the right, upon written notice (a "Defense Notice") to Bay View
Bank within 15 days of its receipt from Bay View Bank of the Claim
Notice, to conduct at their expense the defense against such Third
Party Claim. When PUSA and Seller conduct the defense, Bay View Bank
shall have the right to approve the defense counsel, which approval
shall not be unreasonably withheld or delayed. In the event that PUSA
and Seller fail to give a Defense Notice within the 15-day period
prescribed above or PUSA and Seller withdraw from the defense of a
Third Party Claim, Bay View Bank shall have the right to conduct such
defense in good faith with counsel reasonably acceptable to PUSA and
Seller, but Bay View Bank shall be prohibited from compromising or
settling the claim without the prior written consent of PUSA or
Seller, which consent shall not be unreasonably withheld or delayed.
In the event that PUSA and Seller do deliver a Defense Notice and
thereby elect to conduct the defense of such Third Party Claim, Bay
View Bank will at its own expense, cooperate with and make available
to PUSA and Seller such assistance, personnel, witnesses and materials
as PUSA and Seller may reasonably request. Regardless of which party
defends such Third Party Claim, the other party shall have the right
at its expense to participate in the defense assisted by counsel of
its own choosing.
(f) Settlements. If a firm offer is made to settle a Third Party
-----------
Claim, and PUSA and Seller desire to accept and agree to such offer, PUSA and
Seller shall give written notice to Bay View Bank to that effect. If Bay View
Bank objects to such firm offer within ten days after its receipt of such
notice, Bay View Bank may continue to contest or defend such Third Party Claim
and, in such event, the maximum liability of PUSA and Seller as to such Third
Party Claim shall not exceed the amount of such settlement offer, plus other
Post-Closing Losses with respect to such Claim paid or incurred by Bay View Bank
or any of its Subsidiaries up to the point such notice had been delivered.
(g) Mitigation. Bay View Bank shall use commercially reasonable
----------
efforts to mitigate Post-Closing Losses and shall reasonably consult and
cooperate with PUSA and Seller with a view towards mitigating Post-Closing
Losses, in connection with Indemnification Claims for which Bay View Bank seeks
indemnification under this Article VIII.
(h) Subrogation. After any indemnification payment is made to Bay
-----------
View Bank pursuant to this Article VIII, PUSA and Seller shall, to the extent of
such payment, be subrogated to all rights (if any) of Bay View Bank against any
third party in connection with the Post-Closing Losses to which such payment
relates. Without limiting the generality of the preceding sentence, Bay View
Bank shall execute, upon the written request of PUSA and Seller, any instrument
reasonably necessary to evidence such subrogation rights.
(i) Exclusivity of Remedies. Notwithstanding anything to the
-----------------------
contrary in this Agreement, Bay View Bank acknowledges that the indemnification
provisions set forth in this Article VIII constitute the sole and exclusive
recourse and remedy of Bay View Bank
53
<PAGE>
(or any successor entity) against PUSA or Seller with respect to the breach
of any representation, warranty, covenant or agreement of PUSA, Pacific
Financial, Consumer or PSB contained in this Agreement or in any closing
certificate executed and delivered by any of PUSA, Pacific Financial,
Consumer or PSB in connection herewith or otherwise in connection with the
transactions contemplated hereby, except to the extent that any such breach
is the result of fraud by any of PUSA, Pacific Financial, Consumer or PSB.
Nothing herein is intended to impact or adjust the calculation of Pre-Tax
PSB Income under Section 1.4(c)(i)(A), it being understood that any expense
charged against income in such calculation is not a remedy.
ARTICLE IX
GENERAL PROVISIONS
9.1 Non-Survival of Representations, Warranties and Agreements. No
----------------------------------------------------------
investigation by the parties hereto made heretofore or hereafter shall affect
the representations and warranties of the parties which are contained herein and
each such representation and warranty shall survive such investigation. Except
as set forth above in Section 8.1, and this Section 9.1, all representations,
warranties and agreements in this Agreement of the parties or in any instrument
delivered by a party pursuant to or in connection with this Agreement shall not
survive the Closing or the termination of this Agreement in accordance with its
terms. In the event of consummation of the sale and purchase of the PSB Shares,
the agreements of Bay View and Bay View Bank contained in or referred to in
Sections 1.4, 1.5, 1.7, 5.7, 5.17, 5.18, 5.19, 5.23 and 5.24, and the covenants
and agreements of PUSA and Seller as provided in Sections 5.25 and 8.1, shall
survive the Closing. In the event of termination of this Agreement in
accordance with its terms, the Agreements specified in Section 7.2 shall
survive.
9.2 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 9.2.
(a) Agreement to Negotiate. Prior to submitting any controversy,
----------------------
dispute or claim arising out of, or relating to, this Agreement to
arbitration, Bay View and PUSA (each of which shall be deemed a "party")
hereto agree to observe the following procedures:
(1)(i) 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)(ii) The recipient shall have a period of 15 days in which to
consider the controversy, dispute or claim which is the subject to the
notice and to furnish in writing to the claimant a written statement
of the recipient's position;
(3)(iii) Within seven days of claimant's receipt of recipient's
written statement, the parties shall meet in an effort to resolve
amicably any differences
54
<PAGE>
which may exist and, failing such resolution, either or both of the
parties shall have the right to submit the matter to arbitration.
(b) Bay View and PUSA each 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 Chicago, Illinois. This agreement to arbitrate shall be
specifically enforceable. Judgment upon any award rendered by an arbitrator may
be entered in any court having jurisdiction.
(c) Any demand for arbitration must be served on the other party within six
months of the date when the party has actual knowledge of the act or omission
giving rise to the controversy, dispute or claim. In no event may the demand
for arbitration be made after the date when the institution of a legal or
equitable proceeding based on such controversy dispute or claim would be barred
by the applicable statute of limitations or the provisions of Sections 8.1 or
9.1.
(d) The arbitration will be conducted before a panel of three independent
and impartial arbitrators. Each of Bay View and PUSA will be entitled to
select one arbitrator, and the two arbitrators so selected will select the third
arbitrator. Except as otherwise specifically provided herein, the arbitration
and any discovery conducted in connection therewith will be conducted in
accordance with the Commercial Rules of arbitration and procedures established
by the American Arbitration Association in effect at the time of the
arbitration, including without limitation the expedited procedures set forth
therein.
(e) The decision of the arbitration panel 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 the arbitration award.
(f) Bay View and PUSA each agree 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; and further agree
that in arbitration their remedy at law shall not include punitive damages.
(g) Each of Bay View and PUSA shall pay its own attorney or other
representative, and the expenses of its witnesses and all other expenses
connected with its 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 parties to the
arbitration equally. Notwithstanding the foregoing, the arbitration panel may
in its discretion order the losing party to pay to the prevailing party all
costs and fees, including the prevailing party's legal fees.
9.3 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed to be duly received (i) on the date given if
delivered personally or (ii) upon confirmation of receipt, if by facsimile
transmission or (iii) on the date received if mailed by
55
<PAGE>
registered or certified mail (return receipt requested), to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(i) if to Bay View:
Bay View Capital Corporation
1840 Gateway Drive
San Mateo, California 94404
Attention: Robert J. Flax
Executive Vice President
and General Counsel
Telecopy: (650) 573-7300
Copies to:
Silver, Freedman & Taff, L.L.P.
1100 New York Avenue, N.W.
Washington, D.C. 20005-3934
Attention: Barry P. Taff, P.C.
Christopher R. Kelly, P.C.
Telecopy: (202) 682-0354
(ii) if to PUSA, Pacific Financial, Consumer OR PSB:
Pacific USA Holdings Corp.
Pacific Financial Group, Inc.
PSB Consumer Finance Corp.
PSB Lending Corp.
___________________________
___________________________
Attention:_________________
President
Telecopy: (___) ___-____
Copy to:
Pacific USA Holdings, Inc.
3200 South West Freeway
Suite 1220
Houston, Texas ______
Attention: Cathryn L. Porter
Telecopy: (713) 871-1516
and
56
<PAGE>
Hughes & Luce, L.L.P.
1717 Main Street, Suite 2800
Dallas, Texas 75201
Attention: Alan J. Bogdanow
Telecopy: (214) 939-6100
9.4 Miscellaneous. This Agreement (including the Schedules referred to
-------------
herein) (i) constitutes the entire agreement and supersedes all other prior
agreements and understandings, both written and oral, among the parties, or any
of them, with respect to the subject matter hereof, (ii) is not intended to
confer upon any person not a party hereto any rights or remedies hereunder,
(iii) shall not be assigned by operation of law or otherwise (iv) subject to the
preceding clause, shall be binding upon and inure to the benefit of the
respective successors and assigns of the parties and (v) shall be governed in
all respects by the laws of the State of Delaware, except as otherwise
specifically provided herein or required by federal law or regulation. This
Agreement may be executed in counterparts which together shall constitute a
single agreement.
57
<PAGE>
Bay View, Bay View Bank, PSB, Consumer, Pacific Financial, and PUSA have
caused this Agreement to be duly executed by their authorized representatives on
the date first above written.
BAY VIEW CAPITAL CORPORATION BAY VIEW BANK
By:___________________________ By:________________________________
Name:_________________________ Name:______________________________
Title:________________________ Title:_____________________________
PACIFIC USA HOLDINGS CORP. PACIFIC FINANCIAL GROUP, INC.
By:___________________________ By:________________________________
Name:_________________________ Name:______________________________
Title:________________________ Title:_____________________________
PSB CONSUMER FINANCE CORP. PSB LENDING CORP.
By:___________________________ By:________________________________
Name:_________________________ Name:______________________________
Title:________________________ Title:_____________________________
58
<PAGE>
Exhibit 99.1
BAY VIEW
CAPITAL CORPORATION
News Release
------------
NASDAQ SYMBOL: BVCC
Web Site: http://www.bayviewcapital.com
Contact: David A. Heaberlin
(650) 312-7272
Contact: PSB Lending Corp.
Robert Emerling
(888) 211-6100
FOR IMMEDIATE RELEASE
June 10, 1998
BVCC ANNOUNCES DEFINITIVE AGREEMENT TO ACQUIRE
PSB LENDING CORP.
SAN MATEO, CALIFORNIA - Bay View Capital Corporation ("the Company") today
announced that it has executed a definitive agreement to acquire PSB Lending
Corp. ("PSBL"), an indirect originator of high loan-to-value ("HLTV") home
equity loans. Based in Carlsbad, California, PSBL is a wholly owned subsidiary
of Pacific Southwest Bank ("PSB") based in Dallas, Texas. Following the
acquisition, PSBL will operate under the name Bay View Consumer Finance
Corporation ("BVCFC") and will become a subsidiary of Bay View Bank ("BVB"), the
Company's banking / depository subsidiary.
Edward H. Sondker, the Company's President and Chief Executive Officer
commented, "This acquisition is consistent with the Company's mission of
creating a diversified financial services company by investing in niche
businesses with risk-adjusted yields that enhance shareholder value. HLTV home
equity loans are a natural extension of our Consumer Finance Platform with many
characteristics similar to those products currently offered by Bay View Credit
("BVC"), one of our auto finance subsidiaries, including advances above the
collateral value. Most importantly, we believe that our ability to portfolio
the majority of the assets originated, and thereby avoid the financial
uncertainties associated with securitization and gain-on-sale accounting,
provides us with a distinct competitive advantage compared to most other
originators in this market."
1
<PAGE>
TRANSACTION STRUCTURE
In accordance with the terms of the definitive agreement, BVB will acquire all
of the common stock of PSBL for approximately $153 million at the closing of the
transaction. This consideration will be comprised of approximately $53 million
in cash and $100 million in shares of the Company's common stock, subject to
approval by PSB's regulators of the issuance of such shares to PSBL's owner. In
addition, PSBL's owner may be entitled to receive additional consideration under
an earn-out arrangement of up to approximately $147 million. The transaction is
expected to close during the fourth quarter of 1998, subject to approval by the
Company's shareholders and regulators.
Under the earn-out provisions of the definitive agreement, PSBL's owner may
receive additional consideration in each year of the seven-year earn-out period
to the extent the Company's return on its investment ("ROI") in PSBL exceeds
defined target levels. The Company must earn a 15% ROI before any earn-out is
triggered. The earn-out is based on an annual calculation and is payable
annually in cash or Company common stock, at the election of PSBL's owner.
In accordance with the definitive agreement, BVB will purchase PSBL HLTV home
equity originations on a flow basis through the closing date of the transaction.
This arrangement is expected to mitigate BVB's exposure to loan prepayments
during the second half of 1998.
David A. Heaberlin, the Company's Executive Vice President and Chief Financial
Officer commented, "This acquisition enables us to enter the HLTV home equity
lending market at a time when there is significant market demand and growth
potential. We have been purchasing this product since the third quarter of 1997
and have purchased approximately $300 million to date, $200 million of which was
from PSBL. This experience, combined with BVC's 30 years of historical
experience with similar type products, has provided us with invaluable insight
and a unique opportunity to carefully evaluate the risks and opportunities
associated with this product. The acquisition also accelerates our ability to
change-out BVB's assets and allows us to pursue future depository franchise
acquisitions."
PROFILE OF PSBL
PSBL commenced business in July 1996 as a subsidiary of PSB and has quickly
become a major competitor in the origination, servicing and securitization of
HLTV home equity loans. With an expanding nationwide network of over 225
carefully selected correspondents, PSBL originated over $750 million in loans
during 1997. During 1997, PSBL ranked third in the HLTV home equity loan market
with an 8% market share based on securitization statistics.
2
<PAGE>
At December 31, 1997, PSBL's servicing portfolio consisted of approximately
23,000 loans totaling $716 million. Approximately $673 million of the servicing
portfolio, or 94%, represented retained servicing on loans sold through asset-
backed securitizations. The ability to securitize the majority of its
originations validates the consistency of PSBL's underwriting process and the
inherent credit quality of the loans originated. PSBL has significant excess
servicing capacity to support continued originations.
PSBL senior management has extensive experience in consumer and mortgage
lending led by Robert Emerling, President, who has over 25 years experience with
an emphasis in consumer and mortgage lending. Donald Curtis, National Sales
Manager, has over 7 years experience in consumer lending. Gary McClary, Credit
Manager, has over 15 years of direct consumer lending experience. Edward
Regan, Loan Servicing, has over 30 years of banking and loan servicing
experience. Janet Twombly, Operations, has over 13 years of financial
institution experience.
Robert Emerling, PSBL President, commented, "We are excited about the
opportunity to join Bay View. We believe that we are well positioned to expand
our origination capabilities. Bay View Bank's low-cost deposit base and ability
to portfolio the majority of our originations provides us with a real
competitive advantage in the marketplace."
PROFILE OF THE HLTV INDUSTRY
The HLTV home equity lending market is one of the fastest growing segments of
the lending arena. Approximately $10 billion in HLTV home equity loans were
originated in 1997 as compared with $4 billion in 1996 and $1 billion in 1995.
Industry analysts estimate the segment will grow 30% annually to $200 billion in
outstandings.
The primary driver behind this growth is debt consolidation and a
corresponding lower monthly payment for the consumer. For example, a typical
consumer with $20,000 in credit card debt may be making minimum payments of $400
to $600 per month. By consolidating this credit card debt with a HLTV home
equity loan at 14% interest and a 15-year amortization period, this monthly
payment is reduced to approximately $266 per month, a portion of which may be
tax deductible. This represents a significant benefit to the consumer in terms
of enhanced cash flow.
Risk Considerations
Although HLTV home equity lending involves a higher level of credit risk than
other forms of mortgage lending, the higher yields on the product provide a net
risk-adjusted yield higher than more traditional mortgage lending products. As
the segment grows and competition increases, however, the yields associated with
this product could decrease and erode the risk-adjusted yields.
3
<PAGE>
PSBL mitigates this credit risk through its underwriting process. PSBL re-
underwrites each loan to ensure it adheres to its underwriting criteria before
the loan is approved for purchase from the correspondent. Unlike many
traditional HLTV home equity lenders who rely predominantly on FICO scores to
determine whether a loan should be approved, PSBL utilizes FICO scores only as a
factor, and not the sole factor in underwriting the loan. PSBL utilizes an
established underwriting system supported by a review and analysis of important
credit criteria including credit depth, high credit, past due credits, mortgage
history and payment patterns, job type and stability, and sources and
consistency of income. In addition, the HLTV home equity loan is secured by the
borrower's property which provides an incentive for avoiding default.
The Company's credit risk will be further mitigated by a lending program which
emphasizes underwriting loans to borrowers with excellent credit histories and
the following risk profiles:
. Minimum FICO score of 650 with an average FICO score of 680-685 (the
Company considers a FICO score of 680 and above as "A-quality" paper);
. Maximum loan-to-value ratio of 125% with an average ratio of 110%;
. Maximum debt-to-income ratio of 45% with an average ratio of 40%; and
. Maximum loan size of $50,000 with an average loan size of $37,500.
Given the increased level of risk associated with HLTV home equity loans, the
Company anticipates conservatively establishing reserves for loan losses at 10%
of the original loan balance over the average life of the loan which is
currently estimated at approximately 5 years.
FINANCIAL ANALYSIS
The acquisition of PSBL will be accounted for under the purchase method of
accounting and will generate goodwill currently estimated at $120 million, based
on the initial consideration, which will be amortized over 15 years. The
transaction is structured such that the acquisition will be taxable to PSBL's
owner and as a result, the goodwill generated will be deductible by the Company
for tax purposes. Additional consideration paid through the earn-out
arrangement will increase the amount of goodwill accordingly.
The price/earnings ("P/E") multiple for this acquisition represents 10x PSBL's
trailing 12-month earnings of $24.5 million. This is based on the present value
of the consideration being paid, assuming the full earn-out being paid over the
earn-out period. This compares to an average P/E multiple of 22x prior year
earnings paid for recent acquisitions of consumer credit companies (based on
Piper Jaffray's analysis of consumer credit acquisitions). Industry comparables
for this transaction are difficult, however, given that the Company will not be
securitizing the loans.
4
<PAGE>
The acquisition is expected to be accretive in the years 1999 and 2000 on an
accounting earnings per share ("EPS") basis and a tangible cash EPS basis as
follows:
<TABLE>
<CAPTION>
---------------------------------------
1999 DILUTED EPS
---------------------------------------
ACCOUNTING TANGIBLE CASH
---------------- -------------------
<S> <C> <C>
First call consensus estimate $1.95 $1.95
Cash basis adjustments:
Intangible amortization (including stock-
based compensation) - 0.48
NOL utilization - 0.53
---------------- -------------------
Forecasted before PSBL 1.95 2.96
Accretive impact of acquisition 0.01 0.05
Forecasted after PSBL $1.96 $3.01
================ ===================
<CAPTION>
---------------------------------------
2000 DILUTED EPS
---------------------------------------
ACCOUNTING TANGIBLE CASH
---------------- -------------------
<S> <C> <C>
Forecasted 2000 EPS (1) $2.15 $2.15
Cash basis adjustments:
Intangible amortization (including stock-
based compensation) - 0.48
NOL utilization - 0.53
---------------- -------------------
Forecasted before PSBL 2.15 3.16
Accretive impact of acquisition 0.45 0.54
Forecasted after PSBL $2.60 $3.70
================ ===================
</TABLE>
(1) Assumes a 10% earnings growth from 1999 consensus.
OTHER CONSIDERATIONS
The Company expects, in accordance with the definitive agreement, to
immediately acquire a senior interest in PSBL's securitization assets,
conservatively valued at $43 million. These assets are expected to yield 12.5%
annually and, because of their senior interest, will receive all cash flows from
the PSBL securitization until completely repaid.
5
<PAGE>
BVCC CORPORATE PROFILE
Bay View Capital Corporation, headquartered in San Mateo, California, is a
diversified financial services holding company with $5.3 billion in assets. It
operates three principal business platforms: a Banking Platform comprised of
Bay View Bank with 56 full service branches throughout northern California; a
Commercial Finance Platform comprised of Concord Growth Corporation ("CGC") and
its asset-based lending division, Bay View Financial Corporation; and a Consumer
Finance Platform comprised of Bay View Acceptance Corporation and its wholly
owned subsidiaries Bay View Credit and Ultra Funding, Inc ("Ultra").
FORWARD-LOOKING STATEMENTS
When used in this or future press releases, in the Company's filings with the
Securities and Exchange Commission or other public or shareholder
communications, or in oral statements made with the approval of an authorized
executive officer, the words or phrases "may", "estimates", "anticipates",
"would like", "will be", "will enable", "will enhance", "should be able",
"should allow", "to be able", "to ensure", "we expect", "we believe", or similar
expressions are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. The Company
wishes to caution readers not to place undue reliance on any such forward-
looking statements, which speak only as of the date made, and to advise readers
that various factors, including but not limited to regional and national
economic conditions; changes in the levels of market interest rates; credit
risks of real estate, consumer, commercial, and other lending activities;
competitive and regulatory factors; changes in accounting principles; changes
in the market value of the Company's common stock; the Company's ability to
achieve synergies in the PSBL, EurekaBank, Ultra, CGC, and BVC acquisitions and
to sustain or improve the performance of PSBL, EurekaBank, Ultra, CGC, and BVC;
the ability to identify suitable future acquisition candidates; and changes in
the Company's strategic plan, could cause actual results to differ materially
from those projected. The Company does not undertake, and specifically
disclaims any obligations, to update any forward-looking statements to reflect
occurrences or unanticipated events or circumstances after the date of such
statements.
NON-GAAP PERFORMANCE MEASURES
Non-GAAP performance measures contained in this presentation, including core
earnings and tangible cash earnings, are calculated excluding special mention
items. These amounts and ratios are not a measure of performance under
generally accepted accounting principles ("GAAP") and should not be considered
an alternative to net income as an indicator of the Company's operating
performance. Such amounts are included herein as management believes they are
useful tools for investors and analysts in assessing the Company's performance
and trends excluding the impact of such items. These measures may not be
comparable to similarly titled measures reported by other companies.
6
<PAGE>
EXHIBIT 99.2
ADDITIONAL INFORMATION
<PAGE>
FINANCIAL PROJECTIONS
BAY VIEW CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------- -------------
DEC. 31, 1999 DEC. 31, 2000
------------- -------------
(Dollars in Thousands)
<S> <C> <C>
ASSETS
Cash and Cash Equivalents $ 103,200 $ 103,200
Securities 601,652 484,170
Loans Receivable, Net 5,203,293 5,980,094
Intangible Assets 238,493 221,769
Other Assets 273,027 276,685
------------- -------------
Total Assets $ 6,419,665 $ 7,065,918
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits and Borrowings $ 5,836,202 $ 6,419,443
Other Liabilities 41,677 45,735
------------- -------------
Total Liabilities $ 5,877,879 $ 6,465,178
Stockholders' Equity 541,787 600,741
------------- -------------
Total Liabilities and Stockholders' Equity $ 6,419,666 $ 7,065,919
============= =============
</TABLE>
<PAGE>
FINANCIAL PROJECTIONS
INCOME STATEMENT FORECAST 1999
PRELIMINARY ESTIMATED IMPACT OF PSBL ACQUISITION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-----------------------------
1999 DILUTED EPS
-----------------------------
ACCOUNTING TANGIBLE CASH
---------- -------------
<S> <C> <C>
First Call Consensus $ 1.95 $ 1.95
Cash Basis Adjustments
Intangible Amortization (Includes Stock-Based Compensation) - 0.48
NOL Utilization - 0.53
---------- -------------
Forecasted Before PSBL 1.95 2.96
Estimated PSBL EPS Impact 0.01 0.05
---------- -------------
Forecasted After PSBL $ 1.96 $ 3.01
========== =============
</TABLE>
<PAGE>
FINANCIAL PROJECTIONS
INCOME STATEMENT FORECAST 2000
PRELIMINARY ESTIMATED IMPACT OF PSBL ACQUISITION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-----------------------------
2000 DILUTED EPS
-----------------------------
ACCOUNTING TANGIBLE CASH
---------- -------------
<S> <C> <C>
Forecasted 2000 Accounting EPS* $ 2.15 $ 2.15
Cash Basis Adjustments
Intangible Amortization (Includes Stock-Based Compensation) - 0.48
NOL Utilization - 0.53
---------- -------------
Forecasted Before PSBL 2.15 3.16
Estimated PSBL EPS Impact 0.45 0.54
---------- -------------
Forecasted After PSBL $ 2.60 $ 3.70
========== =============
</TABLE>
* ASSUMES 10% EARNINGS GROWTH FROM 1999 CONSENSUS
<PAGE>
FINANCIAL PROJECTIONS
KEY ASSUMPTIONS
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS
- -------------------------------------------------------------------------------
---------- ----------
1999 2000
---------- ----------
<S> <C> <C>
Origination Volume $ 1,200 $ 1,500
Asset Yield 13.25% 12.50%
Loan Loss Provision(1) $ 30 $ 60
Repayments $ 150 $ 315
</TABLE>
(1) LOAN LOSSES ARE EXPECTED TO BE PROVIDED AS FOLLOWS:
INITIAL 12 MONTHS FOLLOWING ORIGINATION = 3.00%
NEXT 12 MONTHS FOLLOWING ORIGINATION = 2.50%
NEXT 12 MONTHS FOLLOWING ORIGINATION = 2.00%
NEXT 12 MONTHS FOLLOWING ORIGINATION = 1.50%
NEXT 12 MONTHS FOLLOWING ORIGINATION = 1.00%
------------
TOTAL = 10.00%
============
