-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WTW7D1ot3WWTHg1Bhbjp2bzAYB034uYQqMctplFQO5rZizK/hq9a3C+kg6XiILme h62cdikmXc0lQBe9WoS4XQ== 0000898430-97-000826.txt : 19970306 0000898430-97-000826.hdr.sgml : 19970306 ACCESSION NUMBER: 0000898430-97-000826 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 24 FILED AS OF DATE: 19970305 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREATER BAY BANCORP CENTRAL INDEX KEY: 0000775473 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 942952485 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-22783 FILM NUMBER: 97550578 BUSINESS ADDRESS: STREET 1: 420 COWPER STREET CITY: PALO ALTO STATE: CA ZIP: 94306-1504 BUSINESS PHONE: 4153751555 MAIL ADDRESS: STREET 2: 420 COWPER ST CITY: PALO ALTO STATE: CA ZIP: 943011504 FORMER COMPANY: FORMER CONFORMED NAME: MID PENINSULA BANCORP DATE OF NAME CHANGE: 19941031 FORMER COMPANY: FORMER CONFORMED NAME: SAN MATEO COUNTY BANCORP DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GBB CAPITAL I CENTRAL INDEX KEY: 0001034981 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-22783-01 FILM NUMBER: 97550579 BUSINESS ADDRESS: STREET 1: 420 COWPER STREET CITY: PALO ALTO STATE: CA ZIP: 94306-1504 BUSINESS PHONE: 4158138200 MAIL ADDRESS: STREET 2: 420 COWPER ST CITY: PALO ALTO STATE: CA ZIP: 943011504 S-1 1 FORM S-1 REGISTRATION STATEMENT AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 5, 1997 REGISTRATION NO.: 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------- GREATER BAY BANCORP GBB CAPITAL I (EXACT NAME OF REGISTRANT AS SPECIFIED (EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER) IN ITS CHARTER) CALIFORNIA DELAWARE (STATE OR OTHER JURISDICTION OF INCORPORATION (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) OR ORGANIZATION) 6711 6719 (PRIMARY STANDARD INDUSTRIAL CLASSIFICATION (PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER) CODE NUMBER) 77-0387041 [APPLIED FOR] (I.R.S. EMPLOYER IDENTIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NO.) C/O GREATER BAY BANCORP 2860 WEST BAYSHORE ROAD 2860 WEST BAYSHORE ROAD PALO ALTO, CALIFORNIA 94303 PALO ALTO, CALIFORNIA 94303 (415) 813-8200 (415) 813-8200 (ADDRESS INCLUDING ZIP CODE, (ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S INCLUDING AREA CODE, OF CO-REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE) PRINCIPAL EXECUTIVE OFFICE)
-------------- DAVID L. KALKBRENNER CHIEF EXECUTIVE OFFICER GREATER BAY BANCORP 2860 WEST BAYSHORE ROAD PALO ALTO, CALIFORNIA 94303 (415) 813-8200 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) -------------- COPIES TO: WILLIAM T. QUICKSILVER, ESQ. ELIZABETH C. HINCK, ESQ. MANATT, PHELPS & PHILLIPS, LLP DORSEY & WHITNEY LLP 11355 WEST OLYMPIC BOULEVARD 220 SOUTH SIXTH STREET LOS ANGELES, CA 90064-1614 MINNEAPOLIS, MINNESOTA 55402 TELEPHONE: (310) 312-4210 TELEPHONE: (612) 340-2600
-------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] -------------- CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED MAXIMUM MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED PER UNIT (1) OFFERING PRICE(1) REGISTRATION FEE - ------------------------------------------------------------------------------------------------------------ % Cumulative Trust Preferred Securities of GBB Capital I........................ 800,000 shares $25 $20,000,000 $6,061 - ------------------------------------------------------------------------------------------------------------ Junior Subordinated Deferrable Interest Debentures of Greater Bay Bancorp(2).... -- -- -- -- - ------------------------------------------------------------------------------------------------------------ Greater Bay Bancorp Guarantee with respect to % Cumulative Trust Preferred Securities(3)........................... -- -- -- -- - ------------------------------------------------------------------------------------------------------------ Total(4)................................. -- -- -- $6,061 - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------
(1) Estimated solely to calculate the registration fee pursuant to Rule 457(a). (2) The Junior Subordinated Deferrable Interest Debentures will be purchased by GBB Capital I with the proceeds from the sale of the % Cumulative Trust Preferred Securities. Such securities may later be distributed for no additional consideration to the holders of the % Cumulative Trust Preferred Securities of GBB Capital I upon its dissolution and the distribution of its assets. (3) No separate consideration will be received for the Greater Bay Bancorp Guarantee. (4) This Registration Statement is deemed to cover the Junior Subordinated Deferrable Interest Debentures of Greater Bay Bancorp, the rights of holders of Junior Subordinated Deferrable Interest Debentures of Greater Bay Bancorp under the Indenture, the rights of holders of Trust Preferred Securities of GBB Capital I under the Trust Agreement, the rights of holders of the % Cumulative Trust Preferred Securities under the Guarantee and the Expense Agreement entered into by Greater Bay Bancorp and certain backup undertakings as described herein, which taken together, fully, irrevocably and unconditionally guarantee all of the obligations of GBB Capital I under the % Cumulative Trust Preferred Securities. THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION DATED MARCH 5, 1997 PROSPECTUS dated , 1997 800,000 Trust Preferred Securities GBB CAPITAL I % Cumulative Trust Preferred Securities (Liquidation Amount $25 per Trust Preferred Security) Fully and Unconditionally Guaranteed, as Described Herein, by GREATER BAY BANCORP The % Cumulative Trust Preferred Securities (the "Trust Preferred Securities") offered hereby represent undivided beneficial interests in the assets of GBB Capital I, a statutory business trust formed under the laws of the State of Delaware ("GBB Capital"). Greater Bay Bancorp, a California corporation (referred to as the "Company" when such reference includes Greater Bay Bancorp and its subsidiaries, collectively, or "Greater Bay" when referring only to the parent company), will be the owner of all of the beneficial interests represented by common securities of GBB Capital (the "Common Securities" and, collectively with the Trust Preferred Securities, the "Trust Securities"). GBB Capital exists for the sole purpose of issuing the Trust Securities and investing the proceeds thereof in % Junior Subordinated Deferrable Interest Debentures (the "Junior Subordinated Debentures") to be issued by Greater Bay. The Junior Subordinated Debentures will mature on , 2027, which date may be shortened (such date, as it may be shortened, the "Stated Maturity") to a date not earlier than , 2002 if certain conditions are met (including Greater Bay having received prior approval of the Board of Governors of the Federal Reserve System (the "Federal Reserve") to do so if then required under applicable capital guidelines or policies of the Federal Reserve). The Trust Preferred Securities will have a preference under certain circumstances with respect to cash distributions and amounts payable on liquidation, redemption or otherwise over the Common Securities, which will be held by Greater Bay. See "Description of the Trust Preferred Securities-- Subordination of Common Securities of GBB Capital Held by Greater Bay." (Continued on next page) SEE "RISK FACTORS" COMMENCING ON PAGE 11 HEREIN FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. THESE SECURITIES ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, BY ANY OTHER GOVERNMENTAL AGENCY, OR OTHERWISE. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO GBB PUBLIC COMMISSION(1) CAPITAL(2)(3) - --------------------------------------------------------------------------------- Per Trust Preferred Security........ $25.00 (2) $ - --------------------------------------------------------------------------------- Total............................... $ (2) $
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) Greater Bay and GBB Capital have agreed to indemnify the Underwriter against certain liabilities, including liabilities under the Securities Act of 1933, as amended the ("Securities Act"). See "Underwriting." (2) In view of the fact that all of the proceeds of the sale of the Trust Preferred Securities will be used to purchase the Junior Subordinated Debentures, Greater Bay has agreed to pay the Underwriters as compensation for arranging the investment therein of such proceeds, $ per Trust Preferred Security, or $ in the aggregate. See "Underwriting." (3) Before deducting offering expenses payable by Greater Bay estimated at $359,000. The Trust Preferred Securities are being offered by the Underwriter named herein subject to prior sale and when, as and if delivered to and accepted by the Underwriter. It is expected that the Trust Preferred Securities will be ready for delivery in book-entry form only through the facilities of The Depository Trust Company in New York, New York, on or about , 1997, against payment therefor in immediately available funds. Piper Jaffray Inc. (Continued from previous page) Holders of the Trust Preferred Securities will be entitled to receive preferential cumulative cash distributions accruing from the date of original issuance and payable quarterly in arrears on the 15th day of March, June, September and December of each year (subject to possible deferral as described below), commencing June 15, 1997, at the annual rate of % of the Liquidation Amount (as defined herein) of $25 per Trust Preferred Security ("Distributions"). The amount of each Distribution due with respect to the Trust Preferred Securities will include amounts accrued through the date the Distribution payment is due. Greater Bay will have the right to defer payments of interest on the Junior Subordinated Debentures at any time or from time to time for a period not exceeding 20 consecutive quarters with respect to each deferral period (each, an "Extension Period"), provided that no Extension Period may extend beyond the Stated Maturity of the Junior Subordinated Debentures. Upon the termination of any such Extension Period and the payment of all amounts then due, Greater Bay may elect to begin a new Extension Period subject to the requirements set forth herein. If interest payments on the Junior Subordinated Debentures are so deferred, Distributions on the Trust Preferred Securities will also be deferred and Greater Bay will not be permitted, subject to certain exceptions described herein, to declare or pay any cash distributions with respect to its capital stock or to make any payment with respect to its debt securities that rank pari passu with or junior to the Junior Subordinated Debentures. During an Extension Period, interest on the Junior Subordinated Debentures will continue to accrue (and the amount of Distributions to which holders of the Trust Preferred Securities are entitled will accumulate) at the rate of % per annum, compounded quarterly, and holders of the Trust Preferred Securities will be required to accrue income and will be required to pay United States federal income tax on that income. See "Description of Junior Subordinated Debentures--Option to Defer Interest Payment Period" and "Certain Federal Income Tax Consequences-- Interest Income and Original Issue Discount." Greater Bay has, through the Guarantee, the Guarantee Agreement, the Trust Agreement, the Junior Subordinated Debentures, the Indenture and the Expense Agreement (each as defined herein), taken together, fully, irrevocably and unconditionally guaranteed all of GBB Capital's obligations under the Trust Preferred Securities. See "Relationship Among the Trust Preferred Securities, the Junior Subordinated Debentures and the Guarantee--Full and Unconditional Guarantee." Under the Guarantee, Greater Bay guarantees the payment of Distributions by GBB Capital and payments on liquidation of or redemption of the Trust Preferred Securities (subordinate to the right to payment of Senior and Subordinated Debt of Greater Bay, as defined herein) to the extent of funds held by GBB Capital. The Guarantee does not cover payment of Distributions when GBB Capital does not have sufficient funds to pay such Distributions. See "Description of Guarantee." If Greater Bay does not make required payments on the Junior Subordinated Debentures held by GBB Capital, GBB Capital will have insufficient funds to pay Distributions on the Trust Preferred Securities. In such event, a holder of the Trust Preferred Securities may institute a legal proceeding directly against Greater Bay pursuant to terms of the Indenture to enforce payment of such Distributions to such holder. See "Description of Junior Subordinated Debentures--Enforcement of Certain Rights by Holders of the Trust Preferred Securities." The obligations of Greater Bay under the Guarantee and the Junior Subordinated Debentures are subordinate and junior in right of payment to all Senior and Subordinated Debt (as defined in "Description of Junior Subordinated Debentures--Subordination") of Greater Bay. The Trust Preferred Securities are subject to mandatory redemption, in whole or in part, upon repayment of the Junior Subordinated Debentures at the Stated Maturity or their earlier redemption in each case at a redemption price equal to the aggregate liquidation preference of the Trust Preferred Securities plus any accumulated and unpaid Distributions thereon to the date of redemption. The Junior Subordinated Debentures are redeemable prior to maturity at the option of Greater Bay, subject to any required prior approval of the Federal Reserve, (i) on or after , 2002, in whole at any time or in part from time to time, or (ii) at any time, in whole (but not in part), upon the occurrence and continuation of a Tax Event, an Investment Company Event or a Capital Treatment Event (each as defined herein), in each case at a redemption price equal to the accrued and unpaid interest on the Junior Subordinated Debentures to the date fixed for redemption, plus 100% of the principal amount thereof. See "Description of the Trust Preferred Securities--Redemption." (Continued on next page) 2 (Continued from previous page) Greater Bay will have the right at any time to terminate GBB Capital and cause a Like Amount (as defined herein) of the Junior Subordinated Debentures to be distributed to the holders of the Trust Securities in liquidation of GBB Capital, subject to Greater Bay having received prior approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve. See "Description of the Trust Preferred Securities-- Liquidation Distribution upon Termination." The Junior Subordinated Debentures are unsecured and subordinated to all Senior and Subordinated Debt. As of December 31, 1996, Greater Bay had approximately $3.0 million aggregate principal amount of Senior and Subordinated Debt outstanding. The terms of the Junior Subordinated Debentures place no limitation on the amount of Senior and Subordinated Debt that Greater Bay can issue. See "Risk Factors--Ranking of Greater Bay's Obligations Under the Junior Subordinated Debentures and the Guarantee" and "Description of Junior Subordinated Debentures--Subordination." In the event of the termination of GBB Capital, after satisfaction of liabilities to creditors of GBB Capital as required by applicable law, the holders of Trust Preferred Securities will be entitled to receive a liquidation amount of $25 per Trust Preferred Security ("Liquidation Amount"), plus accumulated and unpaid Distributions thereon to the date of payment, which may be in the form of a Distribution of such Like Amount of Junior Subordinated Debentures, subject to certain exceptions. See "Description of the Trust Preferred Securities--Liquidation Distribution Upon Termination." Application has been made to list the Trust Preferred Securities on the Nasdaq National Market. Although the Underwriter has indicated an intention to make a market in the Trust Preferred Securities, the Underwriter is not obligated to make a market in the Trust Preferred Securities, and any market making may be discontinued at any time at the sole discretion of the Underwriter. There can be no assurance that a market will develop for the Trust Preferred Securities. See "Risk Factors--Absence of Existing Public Market; Market Prices" and "Underwriting." The Trust Preferred Securities will be represented by one or more global certificates registered in the name of The Depository Trust Company (the "Depositary") or its nominee. Beneficial interests in the Trust Preferred Securities will be shown on, and transfers thereof will be effected only through, records maintained by participants in the Depositary. Except as described herein, the Trust Preferred Securities in certificate form will not be issued in exchange for global certificates. See "Book-Entry Issuance." As used herein, (i) the "Indenture" means the Junior Subordinated Indenture dated as of , 1997, as amended and supplemented from time to time, between Greater Bay and Wilmington Trust Company, as trustee (the "Indenture Trustee"), under which the Junior Subordinated Debentures will be issued, (ii) the "Trust Agreement" means the Amended and Restated Trust Agreement relating to GBB Capital among Greater Bay, as Depositor, Wilmington Trust Company, as Property Trustee (the "Property Trustee"), Wilmington Trust Company, as Delaware Trustee (the "Delaware Trustee"), and the Administrative Trustees named therein (collectively, with the Property Trustee and Delaware Trustee, the "Issuer Trustees"), (iii) the "Guarantee Agreement" means the Guarantee Agreement relating to the Guarantee between Greater Bay and Wilmington Trust Company, as Guarantee Trustee, and (iv) the "Expense Agreement" means the Expense Agreement between Greater Bay and GBB Capital. 3 [MAP OF GREATER BAY BANCORP BANKING LOCATIONS] IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE TRUST PREFERRED SECURITIES ON THE NASDAQ NATIONAL MARKET OR OTHERWISE, AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 4 - ------------------------------------------------------------------------------- PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and consolidated financial information appearing elsewhere in this Prospectus. Unless the context clearly suggests otherwise, references to the "Company" include Greater Bay Bancorp and its subsidiaries, collectively, and references to "Greater Bay" include the parent company only. In addition to the historical information contained herein, certain statements in this Prospectus constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995 (the "Reform Act") which involve risks and uncertainties. The Company's actual results may differ significantly from those discussed herein. Factors that might cause such a difference include, but are not limited to, those discussed under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" as well as those discussed elsewhere in this Prospectus. See "Risk Factors--Forward-Looking Statements." THE COMPANY Greater Bay is a bank holding company operating Cupertino National Bank & Trust ("CNB") and Mid-Peninsula Bank (separately, "MPB" and together with CNB, the "Banks") with seven regional offices in Cupertino, Palo Alto, San Mateo, San Carlos and San Jose, California. Greater Bay is the result of the merger (the "Merger"), effective November 27, 1996, of Cupertino National Bancorp ("Cupertino") and Mid-Peninsula Bancorp ("Mid-Peninsula"). At December 31, 1996, the Company had total assets of $622.0 million, total net loans of $441.6 million and total deposits of $559.3 million. The Company, through the Banks, provides a wide range of commercial banking services to small and medium-sized businesses, real estate developers and property managers, business executives, professionals and other individuals, primarily in the Santa Clara and San Mateo Counties of California. Services include personal and business checking and savings accounts, time deposits and individual retirement accounts, cash management, international trade services and accounting services and the making of commercial, consumer and real estate loans, which generally do not include long-term residential mortgage loans. Additionally, the Company offers several specialized services including a Small Business Administration ("SBA") Department which makes SBA guaranteed loans to assist smaller businesses, a venture lending division (the "Venture Lending Group") that services companies in their start-up and development phase and a trust department (the "Greater Bay Trust Company") that offers a full range of fee-based trust services directly to its clients. In order to meet the demands of the increasingly competitive banking and financial services industries, management has adopted a business philosophy referred to as the "Super Community Banking Philosophy." The Super Community Banking Philosophy is based on management's belief that banking customers value doing business with locally managed institutions that can provide a full service commercial banking relationship through an understanding of the customer's financial needs and the flexibility to customize products and services to meet those needs. Management further believes that banks are better able to build successful customer relationships by affiliating with a holding company that provides cost effective administrative support services while promoting bank autonomy and flexibility. To implement this philosophy, Greater Bay operates CNB and MPB as separate subsidiaries by retaining their independent names along with their individual Boards of Directors. Both MPB and CNB have established strong reputations and customer followings in their respective market areas through attention to client service and an understanding of client needs. In an effort to capitalize on the identities and reputations of the Banks, the Company will continue to market its services under the CNB and MPB names, primarily through each Bank's relationship managers. The primary focus for the Banks' relationship managers is to cultivate and nurture their client relationships. Relationship managers are assigned to each borrowing client to provide continuity in the relationship. This emphasis on personalized relationships requires that all of the relationship managers maintain close ties to the - ------------------------------------------------------------------------------- 5 - ------------------------------------------------------------------------------- communities in which they serve, so they are able to capitalize on their efforts through expanded business opportunities for the Banks. While client service decisions and day-to-day operations are maintained at the Banks, Greater Bay offers the advantages of affiliation with a multi-bank holding company by providing improved access to the capital markets and expanded client support services, such as business cash management, international trade services and accounting services. In addition, Greater Bay provides centralized administrative functions, including support in credit policy formulation and review, investment management, data processing, accounting and other specialized support functions thereby allowing the Banks to focus on client service. The Company's business strategy is to focus on increasing its market share within the communities it serves through continued internal growth. As a result of the Merger, the Company has the opportunity to market the specialized products and services of the Venture Lending Group, the Greater Bay Trust Company and the SBA Department to a larger customer base. The Company believes that these products and services, available prior to the Merger only to customers of CNB, will be attractive to customers and contacts of MPB in the venture capital community and the high net worth customers of MPB. The Company believes that the infrastructure developed by Cupertino to support the Greater Bay Trust Company, the SBA Department and the Venture Lending Group will allow the Company to offer the products and services of these groups without significant additional overhead costs. The Company also will pursue opportunities to expand its market share through select acquisitions that management believes complement the Company's businesses. While management would prefer to make acquisitions which would expand its presence in its current market areas in Santa Clara and San Mateo Counties, it will also pursue opportunities to expand its market through acquisitions in other parts of the South, East, and North Bay Areas of San Francisco. The Company was incorporated in California in 1984 under the name San Mateo County Bancorp. See "Business--History." The Company's principal offices are located at 2860 West Bayshore Road, Palo Alto, California 94303 and its telephone number is (415) 813-8200. GBB CAPITAL GBB Capital is a statutory business trust formed under Delaware law pursuant to (i) the Trust Agreement and (ii) the filing of a Certificate of Trust with the Delaware Secretary of State on March 3, 1997. GBB Capital's business and affairs are conducted by the Property Trustee, Delaware Trustee and three individual Administrative Trustees who are officers of the Company. GBB Capital exists for the exclusive purposes of (i) issuing and selling the Trust Securities, (ii) using the proceeds from the sale of the Trust Securities to acquire the Junior Subordinated Debentures issued by Greater Bay, and (iii) engaging in only those other activities necessary, advisable or incidental thereto (such as registering the transfer of the Trust Securities). Accordingly, the Junior Subordinated Debentures will be the sole assets of GBB Capital, and payments by Greater Bay under the Junior Subordinated Debentures and the Expense Agreement will be the sole revenues of GBB Capital. All of the Common Securities will be owned by Greater Bay. The Common Securities will rank pari passu, and payments will be made thereon pro rata, with the Trust Preferred Securities, except that upon the occurrence and during the continuance of an event of default under the Trust Agreement resulting from an event of default under the Indenture, the rights of Greater Bay as holder of the Common Securities to payment in respect of Distributions and payments upon liquidation, redemption or otherwise will be subordinated to the rights of the holders of the Trust Preferred Securities. See "Description of the Trust Preferred Securities--Subordination of Common Securities of GBB Capital Held by Greater Bay." Greater Bay will acquire Common Securities in an aggregate liquidation amount equal to 3.0% of the total capital of GBB Capital. GBB Capital has a term of 31 years, but may terminate earlier as provided in the Trust Agreement. GBB Capital's principal offices are located at 2860 West Bayshore Road, Palo Alto, California 94303 and its telephone number is (415) 813-8200. - -------------------------------------------------------------------------------- 6 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE OFFERING Trust Preferred Securities issuer.......................... GBB Capital Securities offered............... 800,000 Trust Preferred Securities. The Trust Preferred Securities represent undivided beneficial interests in GBB Capital's assets, which will consist solely of the Junior Subordinated Debentures and payments thereunder. Distributions.................... The Distributions payable on each Trust Preferred Security will be fixed at a rate per annum of % of the Liquidation Amount of $25 per Trust Preferred Security, will be cumulative, will accrue from the date of issuance of the Trust Preferred Securities, and will be payable quarterly in arrears on the 15th day of March, June, September and December of each year, commencing on June 15, 1997 (subject to possible deferral as described below). The amount of each Distribution due with respect to the Trust Preferred Securities will include amounts accrued through the date the Distribution payment is due. See "Description of the Trust Preferred Securities--Distributions." Extension periods................ So long as no Debenture Event of Default (as defined herein) has occurred and is continuing, Greater Bay will have the right, at any time, to defer payments of interest on the Junior Subordinated Debentures by extending the interest payment period thereon for a period not exceeding 20 consecutive quarters with respect to each deferral period (each an "Extension Period"), provided that no Extension Period may extend beyond the Stated Maturity of the Junior Subordinated Debentures. If interest payments are so deferred, Distributions on the Trust Preferred Securities will also be deferred and Greater Bay will not be permitted, subject to certain exceptions described herein, to declare or pay any cash distributions with respect to Greater Bay's capital stock or debt securities that rank pari passu with or junior to the Junior Subordinated Debentures. During an Extension Period, Distributions will continue to accumulate with income thereon compounded quarterly. Because interest would continue to accrue and compound on the Junior Subordinated Debentures, to the extent permitted by applicable law, holders of the Trust Preferred Securities will be required to accrue income for United States federal income tax purposes. See "Description of Junior Subordinated Debentures--Option to Defer Interest Payment Period" and "Certain Federal Income Tax Consequences--Interest Income and Original Issue Discount." Maturity......................... The Junior Subordinated Debentures will mature on , 2027 which date may be shortened (such date, as it may be shortened, the "Stated Maturity") to a date not earlier than , 2002 if certain conditions are met (including Greater Bay having received prior approval of the Federal Reserve to do so if then required under applicable capital guidelines or policies of the Federal Reserve).
7 - -------------------------------------------------------------------------------- Redemption....................... The Trust Preferred Securities are subject to mandatory redemption upon repayment of the Junior Subordinated Debentures at their stated maturity or their earlier redemption in an amount equal to the amount of Junior Subordinated Debentures maturing on or being redeemed at a redemption price equal to the aggregate Liquidation Amount of the Trust Preferred Securities plus accumulated and unpaid Distributions thereon to the date of redemption. Subject to Federal Reserve approval, if then required under applicable capital guidelines or policies of the Federal Reserve, the Junior Subordinated Debentures are redeemable prior to maturity at the option of Greater Bay (i) on or after , 2002 in whole at any time or in part from time to time, or (ii) at any time, in whole (but not in part), upon the occurrence and during the continuance of a Tax Event, an Investment Company Event or a Capital Treatment Event, in each case at a redemption price equal to 100% of the principal amount of the Junior Subordinated Debentures so redeemed, together with any accrued but unpaid interest to the date fixed for redemption. See "Description of the Trust Preferred Securities--Redemption" and "Description of Junior Subordinated Debentures-- Redemption." Distribution of Junior Subordinated Debentures......... Greater Bay has the right at any time to terminate GBB Capital and cause the Junior Subordinated Debentures to be distributed to holders of Trust Preferred Securities in liquidation of GBB Capital, subject to Greater Bay having received prior approval of the Federal Reserve to do so if then required under applicable capital guidelines or policies of the Federal Reserve. See "Description of the Trust Preferred Securities--Distribution of Junior Subordinated Debentures." Guarantee........................ Taken together, Greater Bay's obligations under various documents described herein, including the Guarantee Agreement, provide a full guarantee of payments by GBB Capital of Distributions and other amounts due on the Trust Preferred Securities. Under the Guarantee Agreement, Greater Bay guarantees the payment of Distributions by GBB Capital and payments on liquidation of or redemption of the Trust Preferred Securities (subordinate to the right to payment of Senior and Subordinated Debt of Greater Bay, as defined herein) to the extent of funds held by GBB Capital. If GBB Capital has insufficient funds to pay Distributions on the Trust Preferred Securities (i.e., if Greater Bay has failed to make required payments under the Junior Subordinated Debentures), a holder of the Trust Preferred Securities would have the right to institute a legal proceeding directly against Greater Bay to enforce payment of such Distributions to such holder. See "Description of Junior Subordinated Debentures--Enforcement of Certain Rights by Holders of the Trust Preferred Securities," "Description of Junior Subordinated Debentures--Debenture Events of Default" and "Description of Guarantee."
- ------------------------------------------------------------------------------- 8 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Ranking.......................... The Trust Preferred Securities will rank pari passu, and payments thereon will be made pro rata, with the Common Securities of GBB Capital held by Greater Bay, except as described under "Description of the Trust Preferred Securities--Subordination of Common Securities of GBB Capital Held by Greater Bay." The obligations of Greater Bay under the Guarantee, the Junior Subordinated Debentures and other documents described herein are unsecured and rank subordinate and junior in right of payment to all current and future Senior and Subordinated Debt, the amount of which is unlimited. At December 31, 1996, the aggregate outstanding Senior and Subordinated Debt of Greater Bay was approximately $3.0 million. In addition, because Greater Bay is a holding company, all obligations of Greater Bay relating to the securities described herein will be effectively subordinated to all existing and future liabilities of Greater Bay's subsidiaries, including the Banks. Greater Bay may cause additional Trust Preferred Securities to be issued by trusts similar to GBB Capital in the future, and there is no limit on the amount of such securities that may be issued. In this event, Greater Bay's obligations under the Junior Subordinated Debentures to be issued to such other trusts and Greater Bay's guarantees of the payments by such trusts will rank pari passu with Greater Bay's obligations under the Junior Subordinated Debentures and the Guarantee, respectively. Voting rights.................... The holders of the Trust Preferred Securities will generally have limited voting rights relating only to the modification of the Trust Preferred Securities, the dissolution, winding-up or termination of GBB Capital and certain other matters described herein. See "Description of the Trust Preferred Securities--Voting Rights; Amendment of the Trust Agreement." Proposed Nasdaq National Market symbol.......................... GBBXL Use of proceeds.................. The proceeds to GBB Capital from the sale of the Trust Preferred Securities offered hereby will be invested by GBB Capital in the Junior Subordinated Debentures of Greater Bay. Greater Bay intends to invest approximately $10.0 million of the net proceeds in the Banks to increase their capital levels to support future growth. Greater Bay intends to use the remaining net proceeds for general corporate purposes, which may include without limitation, funding additional investments in, or extensions of credit to, the Banks, and possible future acquisitions. Greater Bay expects the Trust Preferred Securities to qualify as Tier 1 capital under the capital guidelines of the Federal Reserve. See "Use of Proceeds."
9 - ------------------------------------------------------------------------------- SUMMARY CONSOLIDATED FINANCIAL DATA The following summary consolidated financial data with respect to the Company's consolidated financial position as of December 31, 1996 and 1995, and its results of operations for the fiscal years ended December 31, 1996, 1995 and 1994 have been derived from the audited consolidated financial statements of the Company appearing elsewhere in this Prospectus. This information should be read in conjunction with such consolidated financial statements and the notes thereto. The summary consolidated financial data with respect to the Company's consolidated financial position as of December 31, 1994, 1993 and 1992 and its results of operations for the years ended December 31, 1993 and 1992 have been derived from the audited consolidated financial statements of the Company, which are not presented herein.
YEARS ENDED DECEMBER 31, -------------------------------------------------------- 1996 1995 1994 1993 1992 --------- --------- --------- --------- --------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) OPERATING DATA: Interest income......... $ 45,037 $ 37,233 $ 27,801 $ 23,857 $ 22,736 Interest expense........ 16,213 13,892 8,512 6,497 7,506 --------- --------- --------- --------- --------- Net interest income..... 28,824 23,341 19,289 17,360 15,230 Provision for loan losses................. 2,036 956 1,823 1,945 1,132 --------- --------- --------- --------- --------- Net interest income after provision for loan losses............ 26,788 22,385 17,466 15,415 14,098 Other income............ 3,530 2,306 3,295 3,578 2,127 Other expense........... 23,888 19,686 16,231 15,077 11,255 --------- --------- --------- --------- --------- Income before income taxes.................. 6,430 5,005 4,530 3,833 5,028 Provision for income taxes.................. 2,927 1,971 1,966 1,473 1,825 --------- --------- --------- --------- --------- Net income.............. $ 3,503 $ 3,034 $ 2,564 $ 2,443 $ 3,145 ========= ========= ========= ========= ========= Net income per share ... $ 1.04 $ 0.96 $ 0.85 $ 0.84 $ 1.12 Average common shares outstanding ........... 3,359,700 3,145,550 3,001,211 2,925,284 2,801,963 OPERATING RATIOS AND OTHER DATA: Return on average assets(1).............. 0.65% 0.70 % 0.68 % 0.70 % 1.08 % Return on average common shareholders' equity(1).............. 8.12% 7.98 % 7.31 % 7.56 % 10.50 % Net interest margin..... 5.85% 5.83 % 5.62 % 5.61 % 5.54 % Net (charge-offs) recoveries to average loans.................. 0.02% (0.35)% (0.49)% (0.61)% (0.31)% Ratio of earnings to fixed charges(2)....... Excluding interest on deposits.............. 14.37x 6.93x 12.86x 392.6x 2,486x Including interest on deposits.............. 1.40x 1.36x 1.53x 1.60x 1.66x FINANCIAL CONDITION DATA (AT PERIOD END): Assets.................. $ 622,044 $ 477,834 $ 401,614 $ 358,576 $ 325,168 Loans, net.............. 441,560 284,579 242,750 231,857 226,334 Investment securities(3).......... 105,520 116,869 93,169 74,398 45,414 Deposits................ 559,283 431,789 345,294 323,300 292,110 Long-term debt.......... 3,000 3,000 -- -- -- Common shareholders' equity................. 44,682 40,112 36,040 34,222 31,619 Book value per common share.................. 13.80 13.17 12.90 13.17 13.07 FINANCIAL CONDITION RATIOS: Nonperforming assets to total loans and OREO... 0.74% 1.17 % 2.23 % 1.59 % 2.01 % Allowance for loan losses to total loans.. 1.62% 1.52 % 1.79 % 1.58 % 1.37 % Allowance for loan losses to non- performing loans....... 224.02% 131.59 % 80.24 % 98.84 % 66.93 % REGULATORY CAPITAL RATIOS: Tier 1 capital.......... 8.75% 11.38 % 12.59 % 13.05 % 11.60 % Total capital........... 10.54% 13.43 % 13.82 % 14.45 % 12.80 % Leverage ratio.......... 7.27% 8.69 % 9.34 % 9.69 % 9.43 %
- -------- (1) After excluding merger and other related costs of $2.8 million in 1996, litigation settlement, closing of mortgage banking business unit and expenses related to terminated merger discussions of $2.1 million in 1995 and merger and other related costs of $608,000 in 1994 the ROA would have been 1.02%, 0.99% and 0.78% in 1996, 1995 and 1994, respectively, and the ROE would have been 12.86%, 11.35% and 8.35% in 1996, 1995 and 1994 respectively. (2) For purposes of computing the ratio of earnings to fixed charges, earnings represent income before income taxes, extraordinary items and fixed charges. Fixed charges represent interest expense. (3) Includes available-for-sale securities and held-to-maturity securities. 10 RISK FACTORS Prospective investors should consider, among other things, the following factors in connection with a decision to purchase the Trust Preferred Securities. RANKING OF GREATER BAY'S OBLIGATIONS UNDER THE JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEE All obligations of Greater Bay under the Guarantee, the Junior Subordinated Debentures and other documents described herein are unsecured and rank subordinate and junior in right of payment to all current and future Senior and Subordinated Debt, the amount of which is unlimited. At December 31, 1996, the aggregate outstanding Senior and Subordinated Debt of Greater Bay was approximately $3.0 million. In addition, because Greater Bay is a holding company, all obligations of Greater Bay relating to the securities described herein will be effectively subordinated to all existing and future liabilities of Greater Bay's subsidiaries, including the Banks. As a holding company, the right of Greater Bay to participate in any distribution of assets of any subsidiary upon such subsidiary's liquidation or reorganization or otherwise (and thus the ability of holders of the Trust Preferred Securities to benefit indirectly from such distribution) is subject to the prior claims of creditors of that subsidiary, except to the extent that Greater Bay may itself be recognized as a creditor of that subsidiary. Accordingly, the Junior Subordinated Debentures and all obligations of Greater Bay relating to the Trust Preferred Securities will be effectively subordinated to all existing and future liabilities of the Banks, and holders of the Trust Preferred Securities should look only to the assets of Greater Bay, and not of its subsidiaries, for principal and interest payments on the Junior Subordinated Debentures. None of the Indenture, the Guarantee, the Guarantee Agreement or the Trust Agreement places any limitation on the amount of secured or unsecured debt, including Senior and Subordinated Debt, that may be incurred by Greater Bay or its subsidiaries. Further, there is no limitation on Greater Bay's ability to issue additional Junior Subordinated Debentures in connection with any further offerings of Trust Preferred Securities, and such additional debentures would rank pari passu with the Junior Subordinated Debentures. See "Description of Junior Subordinated Debentures--Subordination" and "Description of Guarantee--Status of the Guarantee." DEPENDENCE ON DIVIDENDS AND INTEREST PAYMENTS FROM THE BANKS The ability of GBB Capital to pay amounts due on the Trust Preferred Securities is solely dependent upon Greater Bay making payments on the Junior Subordinated Debentures as and when required. As a holding company without significant assets other than its equity interest in the Banks, Greater Bay's ability to pay interest on the Junior Subordinated Debentures to GBB Capital (and consequently GBB Capital's ability to pay Distributions on the Trust Preferred Securities and Greater Bay's ability to pay its obligations under the Guarantee) depends primarily upon the cash dividends Greater Bay receives from the Banks. Dividend payments from the Banks are subject to regulatory limitations, generally based on current and retained earnings, imposed by the various regulatory agencies with authority over the respective Banks. Payment of dividends is also subject to regulatory restrictions if such dividends would impair the capital of the Banks. Payment of dividends by the Banks is also subject to the respective Bank's profitability, financial condition and capital expenditures and other cash flow requirements. No assurance can be given that the Banks will be able to pay dividends at past levels, or at all, in the future. See "Supervision and Regulation." OPTION TO DEFER INTEREST PAYMENT PERIOD; TAX CONSEQUENCES OF A DEFERRAL OF INTEREST PAYMENTS So long as no Debenture Event of Default (as defined herein) has occurred and is continuing, Greater Bay has the right under the Indenture to defer payment of interest on the Junior Subordinated Debentures at any time or from time to time for a period not exceeding 20 consecutive quarters with respect to each Extension Period, provided that no Extension Period may extend beyond the Stated Maturity of the Junior Subordinated Debentures. As a consequence of any such deferral, quarterly Distributions on the Trust Preferred Securities by GBB Capital will be deferred (and the amount of Distributions to which holders of the Trust Preferred Securities are entitled will accumulate additional amounts thereon at the rate of % per annum, compounded quarterly, from the relevant payment date for such Distributions, to the extent permitted by applicable law) during any such 11 Extension Period. During any such Extension Period, Greater Bay will be prohibited from making certain payments or distributions with respect to Greater Bay's capital stock (including dividends on or redemptions of common or preferred stock) and from making certain payments with respect to any debt securities of Greater Bay that rank pari passu with or junior in interest to the Junior Subordinated Debentures; however, Greater Bay will not be restricted from (a) paying dividends or distributions in common stock of Greater Bay, (b) redeeming rights or taking certain other actions under a shareholders' rights plan, (c) making payments under the Guarantee or (d) making purchases of common stock related to the issuance of common stock or rights under any of Greater Bay's benefit plans for its directors, officers or employees. Further, during an Extension Period, Greater Bay would have the ability to continue to make payments on Senior and Subordinated Debt. Prior to the termination of any Extension Period, Greater Bay may further extend such Extension Period provided that such extension does not cause such Extension Period to exceed 20 consecutive quarters or to extend beyond the Stated Maturity. Upon the termination of any Extension Period and the payment of all interest then accrued and unpaid (together with interest thereon at the annual rate of %, compounded quarterly, to the extent permitted by applicable law), Greater Bay may elect to begin a new Extension Period subject to the above requirements. There is no limitation on the number of times that Greater Bay may elect to begin an Extension Period. See "Description of the Trust Preferred Securities--Distributions" and "Description of Junior Subordinated Debentures--Option to Defer Interest Payment Period." Because Greater Bay believes the likelihood of it exercising its option to defer payments of interest is remote, the Junior Subordinated Debentures will be treated as issued without "original issue discount" for United States federal income tax purposes. As a result, holders of Trust Preferred Securities will include interest in taxable income under their own methods of accounting (i.e., cash or accrual). If Greater Bay exercises its right to defer payments of interest, the holders of Trust Preferred Securities will be required to include their pro rata share of original issue discount in gross income as it accrues for United States federal income tax (and possibly other) purposes in advance of the receipt of cash. See "Certain Federal Income Tax Consequences-- Interest Income and Original Issue Discount." Greater Bay has no current intention of exercising its right to defer payments of interest by extending the interest payment period on the Junior Subordinated Debentures. However, should Greater Bay elect to exercise its right to defer payments of interest in the future, the market price of the Trust Preferred Securities is likely to be adversely affected. A holder that disposes of such holder's Trust Preferred Securities during an Extension Period, therefore, might not receive the same return on such holder's investment as a holder that continues to hold the Trust Preferred Securities. TAX EVENT REDEMPTION, INVESTMENT COMPANY ACT REDEMPTION OR CAPITAL TREATMENT EVENT REDEMPTION Upon the occurrence and during the continuation of a Tax Event, an Investment Company Event or a Capital Treatment Event (whether occurring before or after , 2002), Greater Bay has the right, if certain conditions are met, to redeem the Junior Subordinated Debentures in whole (but not in part) at 100% of the principal amount together with accrued but unpaid interest to the date fixed for redemption within 90 days following the occurrence of such Tax Event, Investment Company Event or Capital Treatment Event and therefore cause a mandatory redemption of the Trust Securities. The exercise of such right is subject to Greater Bay having received prior approval of the Federal Reserve to do so if then required under applicable guidelines or policies of the Federal Reserve. See "Description of the Trust Preferred Securities--Redemption." A "Tax Event" means the receipt by Greater Bay and GBB Capital of an opinion of counsel experienced in such matters to the effect that, as a result of any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, or as a result of any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or such prospective change, pronouncement or decision is announced on or after the original issuance of the Trust Preferred Securities, there is more than an insubstantial risk that (i) GBB Capital is, or will be within 90 days of the date of such opinion, subject to United States federal income tax with respect to income received or accrued 12 on the Junior Subordinated Debentures, (ii) interest payable by Greater Bay on the Junior Subordinated Debentures is not, or within 90 days of such opinion, will not be, deductible by Greater Bay, in whole or in part, for United States federal income tax purposes, or (iii) GBB Capital is, or will be within 90 days of the date of the opinion, subject to more than a de minimus amount of other taxes, duties or other governmental charges. See "--Possible Tax Law Changes Affecting the Trust Preferred Securities" below for a discussion of certain legislative proposals that, if adopted, could give rise to a Tax Event, which may permit Greater Bay to cause a redemption of the Junior Subordinated Debentures (and therefore the Trust Preferred Securities) prior to , 2002. An "Investment Company Event" means the receipt by Greater Bay and GBB Capital of an opinion of counsel experienced in such matters to the effect that, as a result of any change in law or regulation or a change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority, GBB Capital is or will be considered an "investment company" that is required to be registered under the Investment Company Act, which change becomes effective on or after the original issuance of the Trust Preferred Securities. A "Capital Treatment Event" means the reasonable determination by Greater Bay that, as a result of any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision thereof or therein, or as a result of any official or administrative pronouncement or action or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or such prospective change, pronouncement or decision is announced on or after the date of issuance of the Trust Preferred Securities under the Trust Agreement, there is more than an insubstantial risk of impairment of Greater Bay's ability to treat the Trust Preferred Securities (or any substantial portion thereof) as "Tier 1 Capital" (or the then equivalent thereof) for purposes of the capital adequacy guidelines of the Federal Reserve, as then in effect and applicable to Greater Bay. POSSIBLE TAX LAW CHANGES AFFECTING THE TRUST PREFERRED SECURITIES Recently the Clinton Administration announced its budget proposals for the fiscal year 1998. That announcement included a proposal that could affect the tax characteristics of the Junior Subordinated Debentures. Under the Administration's proposal, no deduction would be allowed for interest or original issue discount on an instrument issued by a corporation that has a maximum term of more than 40 years, or is payable in stock of the issuer or a related party. The budget announcement also states that no such deduction would be allowed for certain indebtedness that is reflected as equity on the issuer's balance sheet. The budget announcement states that the effective date of the first proposal is for instruments issued "after the date of first committee action," which is not a legally precise term. The budget announcement is less clear about the proposed effective date of the second proposal mentioned above. Similar proposals were made by the Administration last year. The Revenue Reconciliation Bill of 1996 (the "1996 Bill") would, among other things, have denied interest deductions for interest on an instrument, issued by a corporation, that had a maximum term of more than 20 years and that was not shown as indebtedness on the separate balance sheet of the issuer or, where the instrument was issued to a related party (other than a corporation), where the holder or some other related party issued a related instrument that is not shown as indebtedness on the issuer's consolidated balance sheet. The 1996 Bill was never enacted, but it is likely that the second proposal in the budget announcement mentioned above will be similar in some respects to the proposal in the 1996 Bill. Enactment of this proposal could affect deduction of interest expenses and original issue discount with respect to the Junior Subordinated Debentures. This, in turn, could create a Tax Event affecting the Trust Preferred Securities. In connection with the 1996 Bill, the Chairmen of the Senate Finance and House Ways and Means Committees issued a joint statement that it was their intention that the effective date of the Administration's legislative proposals, if adopted, would be no earlier than the date of appropriate Congressional action. Senate 13 Finance Committee Chairman William Roth has been quoted in the news media recently as stating that the 1997 tax changes generally should be effective on a prospective basis. It is intended that the Trust Preferred Securities and the Junior Subordinated Debentures will be issued prior to any type of Congressional committee action with respect to the aforementioned budget proposal. However, due to business considerations, the unpredictability of when Congress will begin action with respect to the Administration's proposals, and the imprecision in the public statements concerning the anticipated effective date of the legislative proposals, there can be no guarantee that these instruments will not be affected by the aforementioned legislative proposals, if they are enacted. There also can be no assurance that other future legislative proposals or final legislation will not affect the ability of the Company to deduct interest on the Junior Subordinated Debentures. Such a change could give rise to a Tax Event, which may permit Greater Bay, upon approval of the Federal Reserve, if then required under applicable capital guidelines or policies of the Federal Reserve, to cause a redemption of the Trust Preferred Securities. See "Description of the Trust Preferred Securities--Redemption--Tax Event Redemption" and "Description of Junior Subordinated Debentures--Redemption." See also "Certain Federal Income Tax Consequences--Possible Tax Law Changes Affecting the Trust Preferred Securities." POSSIBLE DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF TRUST PREFERRED SECURITIES Greater Bay will have the right at any time to terminate GBB Capital and, after satisfaction of liabilities to creditors of GBB Capital as required by applicable law, cause the Junior Subordinated Debentures to be distributed to the holders of the Trust Preferred Securities in liquidation of GBB Capital. The exercise of such right is subject to Greater Bay having received prior approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve. Because holders of the Trust Preferred Securities may receive Junior Subordinated Debentures in liquidation of GBB Capital and because Distributions are otherwise limited to payments on the Junior Subordinated Debentures, prospective purchasers of the Trust Preferred Securities are also making an investment decision with regard to the Junior Subordinated Debentures and should carefully review all the information regarding the Junior Subordinated Debentures contained herein. See "Description of the Trust Preferred Securities--Liquidation Distribution Upon Termination" and "Description of Junior Subordinated Debentures." Under current United States federal income tax law and interpretations and assuming, as expected, GBB Capital is classified as a grantor trust for such purposes, a distribution of the Junior Subordinated Debentures upon a liquidation of GBB Capital should not be a taxable event to holders of the Trust Preferred Securities. However, if a Tax Event were to occur which would cause GBB Capital to be subject to United States federal income tax with respect to income received or accrued on the Junior Subordinated Debentures, a distribution of the Junior Subordinated Debentures by GBB Capital could be a taxable event to GBB Capital and the holders of the Trust Preferred Securities. See "Certain Federal Income Tax Consequences--Distribution of Junior Subordinated Debentures to Holders of Trust Preferred Securities." SHORTENING OF STATED MATURITY OF JUNIOR SUBORDINATED DEBENTURES Greater Bay will have the right at any time to shorten the maturity of the Junior Subordinated Debentures to a date not earlier than five years from the date of issuance and thereby cause the Trust Preferred Securities to be redeemed on such earlier date. The exercise of such right is subject to Greater Bay having received prior approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve. See "Description of Junior Subordinated Debentures--Redemption." LIMITATIONS ON DIRECT ACTIONS AGAINST GREATER BAY AND ON RIGHTS UNDER THE GUARANTEE The Guarantee guarantees to the holders of the Trust Preferred Securities the following payments, to the extent not paid by GBB Capital: (i) any accumulated and unpaid Distributions required to be paid on the Trust 14 Preferred Securities, to the extent that GBB Capital has funds on hand available therefor at such time, (ii) the redemption price with respect to any Trust Preferred Securities called for redemption, to the extent that GBB Capital has funds on hand available therefor at such time, and (iii) upon a voluntary or involuntary dissolution, winding-up or liquidation of GBB Capital (unless the Junior Subordinated Debentures are distributed to holders of the Trust Preferred Securities), the lesser of (a) the aggregate of the Liquidation Amount and all accumulated and unpaid Distributions to the date of payment to the extent that GBB Capital has funds on hand available therefor at such time (the "Liquidation Distribution") and (b) the amount of assets of GBB Capital remaining available for distribution to holders of the Trust Preferred Securities after satisfaction of liabilities to creditors of GBB Capital as required by applicable law. The holders of not less than a majority in aggregate liquidation amount of the Trust Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee in respect of the Guarantee or to direct the exercise of any trust power conferred upon the Guarantee Trustee under the Guarantee Agreement. Any holder of the Trust Preferred Securities may institute a legal proceeding directly against Greater Bay to enforce its rights under the Guarantee without first instituting a legal proceeding against GBB Capital, the Guarantee Trustee or any other person or entity. If Greater Bay were to default on its obligation to pay amounts payable under the Junior Subordinated Debentures, GBB Capital would lack funds for the payment of Distributions or amounts payable on redemption of the Trust Preferred Securities or otherwise, and, in such event, holders of the Trust Preferred Securities would not be able to rely upon the Guarantee for payment of such amounts. Instead, in the event a Debenture Event of Default shall have occurred and be continuing and such event is attributable to the failure of Greater Bay to pay interest on or principal of the Junior Subordinated Debentures on the payment date on which such payment is due and payable, then a holder of Trust Preferred Securities may institute a legal proceeding directly against Greater Bay for enforcement of payment to such holder of the principal of or interest on such Junior Subordinated Debentures having a principal amount equal to the aggregate Liquidation Amount of the Trust Preferred Securities of such holder (a "Direct Action"). In connection with such Direct Action, Greater Bay will have a right of set-off under the Indenture to the extent of any payment made by Greater Bay to such holder of Trust Preferred Securities in the Direct Action. Except as described herein, holders of Trust Preferred Securities will not be able to exercise directly any other remedy available to the holders of the Junior Subordinated Debentures or assert directly any other rights in respect of the Junior Subordinated Debentures. See "Description of Junior Subordinated Debentures-- Enforcement of Certain Rights by Holders of Trust Preferred Securities" and "Description of Guarantee." The Trust Agreement provides that each holder of Trust Preferred Securities by acceptance thereof agrees to the provisions of the Guarantee Agreement and the Indenture. UNCERTAINTY OF DEDUCTIBILITY OF INTEREST ON THE JUNIOR SUBORDINATED DEBENTURES The Company's ability to deduct the interest paid on the Junior Subordinated Debentures depends upon whether the Junior Subordinated Debentures are characterized as debt instruments for federal income tax purposes, taking all the relevant facts and circumstances into account. The Company believes that the Junior Subordinated Debentures are debt instruments for federal income tax purposes and that interest on the Junior Subordinated Debentures will, therefore, be deductible by the Company. There is no clear authority on the appropriate characterization for federal income tax purposes of instruments such as the Junior Subordinated Debentures when they are issued in connection with an offering of securities such as the Trust Preferred Securities. If the interest on the Junior Subordinated Debentures is not deductible by the Company, the Company would have significant additional income tax liabilities. Any such tax liability could adversely affect the ability of Greater Bay to pay interest on the Junior Subordinated Debentures to GBB Capital (and consequently GBB Capital's ability to pay Distributions on the Trust Preferred Securities and Greater Bay's ability to pay its obligations under the Guarantee). LIMITED COVENANTS The covenants in the Indenture are limited, and there are no covenants relating to Greater Bay in the Trust Agreement. As a result, neither the Indenture nor the Trust Agreement protects holders of Junior Subordinated 15 Debentures, or Trust Preferred Securities, respectively, in the event of a material adverse change in Greater Bay's or the Company's financial condition or results of operations or limits the ability of Greater Bay or any subsidiary to incur additional indebtedness. Therefore, the provisions of these governing instruments should not be considered a significant factor in evaluating whether Greater Bay will be able to comply with its obligations under the Junior Subordinated Debentures or the Guarantee. LIMITED VOTING RIGHTS Holders of Trust Preferred Securities will generally have limited voting rights relating only to the modification of the Trust Preferred Securities, the dissolution, winding-up or liquidation of GBB Capital, and the exercise of GBB Capital's rights as holder of Junior Subordinated Debentures. Holders of Trust Preferred Securities will not be entitled to vote to appoint, remove or replace the Property Trustee or the Delaware Trustee, and such voting rights are vested exclusively in the holder of the Common Securities except upon the occurrence of certain events described herein. In no event will the holders of the Trust Preferred Securities have the right to vote to appoint, remove or replace the Administrative Trustees; such voting rights are vested exclusively in the holder of the Common Securities. The Property Trustee, the Administrative Trustees and Greater Bay may amend the Trust Agreement without the consent of holders of Trust Preferred Securities to ensure that GBB Capital will be classified for United States federal income tax purposes as a grantor trust or to ensure that GBB Capital will not be required to register as an "investment company," even if such action adversely affects the interests of such holders. See "Description of Trust Preferred Securities--Voting Rights; Amendment of the Trust Agreement" and "--Removal of Trustees." ABSENCE OF EXISTING PUBLIC MARKET; MARKET PRICES There is no existing market for the Trust Preferred Securities. Application has been made to list the Trust Preferred Securities on the Nasdaq National Market. There can be no assurance that an active and liquid trading market for the Trust Preferred Securities will develop or that a continued listing of the Trust Preferred Securities will be available on Nasdaq. Although the Underwriter has informed GBB Capital and the Company that the Underwriter intends to make a market in the Trust Preferred Securities offered hereby, the Underwriter is not obligated to do so and any such market making activity may be terminated at any time without notice to the holders of the Trust Preferred Securities. Future trading prices of the Trust Preferred Securities will depend on many factors including, among other things, prevailing interest rates, the operating results and financial condition of the Company, and the market for similar securities. As a result of the existence of Greater Bay's right to defer interest payments on or, subject to prior approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve, shorten the Stated Maturity of the Junior Subordinated Debentures, the market price of the Trust Preferred Securities may be more volatile than the market prices of debt securities that are not subject to such optional deferrals or reduction in maturity. There can be no assurance as to the market prices for the Trust Preferred Securities or the Junior Subordinated Debentures that may be distributed in exchange for the Trust Preferred Securities if Greater Bay exercises its right to terminate GBB Capital. Accordingly, the Trust Preferred Securities that an investor may purchase, or the Junior Subordinated Debentures that a holder of the Trust Preferred Securities may receive in liquidation of GBB Capital, may trade at a discount from the price that the investor paid to purchase the Trust Preferred Securities offered hereby. ABILITY OF THE COMPANY TO EXECUTE ITS BUSINESS STRATEGY The financial performance of the Company will depend in part, on the Company's ability to successfully integrate the operations and management of Mid-Peninsula and Cupertino and to implement its Super Community Banking Philosophy. The Merger was effected in late November, 1996, and integration of such operations and management are in the early stages. There can be no assurance that the Company will be able to effectively and profitably integrate the operations and management of Mid-Peninsula and Cupertino, or that it will be able to profitably implement its Super Community Banking Philosophy. See "Business--Super Community Banking Philosophy." 16 INTEREST RATE RISK Banking companies' earnings depend largely on the relationship between the cost of funds, primarily deposits, and the yield on earning assets. This relationship, known as the interest rate spread, is subject to fluctuation and is affected by economic and competitive factors which influence interest rates, the volume and mix of interest-earning assets and interest-bearing liabilities, and the level of non-performing assets. Fluctuations in interest rates affect the demand of customers for the Company's products and services. The Company is subject to interest rate risk to the degree that its interest- bearing liabilities reprice or mature more slowly or more rapidly or on a different basis than its interest-earning assets. Given the Company's current volume and mix of interest-bearing liabilities and interest-earning assets, the Company's interest rate spread could be expected to increase during times of rising interest rates and, conversely, to decline during times of falling interest rates. Although the Company believes its current level of interest rate sensitivity is reasonable, significant fluctuations in interest rates may have an adverse effect on the Company's results of operations. ECONOMIC CONDITIONS AND GEOGRAPHIC CONCENTRATION The Company's operations are located in Northern California and concentrated primarily in Santa Clara and San Mateo Counties, which include the area known as the "Silicon Valley." As a result of the geographic concentration, the Company's results depend largely upon economic conditions in these areas. A deterioration in economic conditions in the Company's market areas, particularly in the technology and real estate industries on which these areas depend, could have a material adverse impact on the quality of the Company's loan portfolio and the demand for its products and services, and accordingly, its results of operations. See "Business--Market Area." GOVERNMENT REGULATION AND MONETARY POLICY The banking industry is subject to extensive federal and state supervision and regulation. Such regulation limits the manner in which Greater Bay and the Banks conduct their respective businesses, undertake new investments and activities and obtain financing. This regulation is designed primarily for the protection of the deposit insurance funds and consumers, and not to benefit holders of the Company's securities. Financial institution regulation has been the subject of significant legislation in recent years, and may be the subject of further significant legislation in the future, none of which is in the control of the Company. Significant new laws or changes in, or repeals of, existing laws may cause the Company's results to differ materially. Further, federal monetary policy, particularly as implemented through the Federal Reserve System, significantly affects credit conditions for the Company, primarily through open market operations in United States government securities, the discount rate for bank borrowings and bank reserve requirements, and a material change in these conditions would be likely to have a material impact on the Company's results of operations. See "Supervision and Regulation." COMPETITION The banking and financial services business in California generally, and in the Banks' market areas specifically, is highly competitive. The increasingly competitive environment is a result primarily of changes in regulation, changes in technology and product delivery systems, and the accelerating pace of consolidation among financial services providers. The Banks compete for loans, deposits and customers for financial services with other commercial banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market funds, credit unions, and other nonbank financial service providers. Many of these competitors are much larger in total assets and capitalization, have greater access to capital markets and offer a broader array of financial services than the Banks. There can be no assurance that the Banks will be able to compete effectively in their markets and the results of operations of the Company could be adversely affected if circumstances affecting the nature or level of competition change. See "Business--Competition." 17 DEPENDENCE ON KEY PERSONNEL The Company's success depends substantially on certain members of its senior management, in particular David L. Kalkbrenner, President and Chief Executive Officer of Greater Bay and MPB, C. Donald Allen, President and Chief Executive Officer of CNB, Steven C. Smith, Executive Vice President, Chief Operating Officer and Chief Financial Officer of Greater Bay and Executive Vice President and Chief Operating Officer of CNB, David R. Hood, Executive Vice President and Senior Lending Officer of Greater Bay, Murray B. Dey, Executive Vice President and Chief Credit Officer of MPB, and Hall Palmer, Executive Vice President and Senior Trust Officer of Greater Bay. The Company's business and financial condition could be materially adversely affected by the loss of the services of any such individuals. The Company does not maintain key man life insurance. See "Management--Board of Directors and Executive Officers." CREDIT QUALITY A significant source of risk for the Company arises from the possibility that losses will be sustained because borrowers, guarantors and related parties may fail to perform in accordance with the terms of their loans. The Company has adopted underwriting and credit monitoring procedures and credit policies, including the establishment and review of the allowance for credit losses, that management believes are appropriate to minimize this risk by assessing the likelihood of nonperformance, tracking loan performance and diversifying the Company's credit portfolio. Such policies and procedures, however, may not prevent unexpected losses that could materially adversely affect the Company's results of operations. FORWARD-LOOKING STATEMENTS Certain statements contained in this Prospectus, including, without limitation, statements containing the words "believes," "anticipates," "intends," "expects" and words of similar import, constitute "forward-looking statements" within the meaning of the Reform Act. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economics and business conditions in those areas in which the Company operates; demographic changes; competition; fluctuations in interest rates; changes in business strategy or development plans; changes in governmental regulation; credit quality; the availability of capital to fund the expansion of the Company's business; and other factors referenced in this Prospectus, including, without limitation, under the captions "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and "Supervision and Regulation." Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements. The Company disclaims any obligation to update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements contained herein to reflect future events or developments. 18 USE OF PROCEEDS All of the proceeds from the sale of Trust Preferred Securities will be invested by GBB Capital in the Junior Subordinated Debentures. The net proceeds to Greater Bay from the sale of the Junior Subordinated Debentures are estimated to be $ (net of estimated underwriting commission and other estimated offering expenses). Greater Bay intends to invest approximately $10.0 million of the net proceeds in the Banks to increase their capital levels to support future growth. Greater Bay intends to use the remaining net proceeds for general corporate purposes, which may include, without limitation, funding additional investments in, or extensions of credit to, the Banks and possible future acquisitions. The Company is not currently engaged in negotiations with respect to any acquisitions. Pending their application, the net proceeds may be invested in short-term investment grade financial securities. Greater Bay is required by the Federal Reserve to maintain certain levels of capital for bank regulatory purposes. On October 21, 1996, the Federal Reserve announced that certain qualifying amounts of cumulative preferred securities having the characteristics of the Trust Preferred Securities could be included as Tier 1 capital for bank holding companies. Such Tier 1 capital treatment, together with the Company's ability to deduct, for federal income tax purposes, interest payable on the Junior Subordinated Debentures, will provide Greater Bay with a cost-effective means of obtaining capital for bank regulatory purposes. ACCOUNTING TREATMENT For financial reporting purposes, GBB Capital will be treated as a subsidiary of Greater Bay and, accordingly, the accounts of GBB Capital will be included in the consolidated financial statements of the Company. The Trust Preferred Securities will be presented as a separate line item in the consolidated balance sheet of the Company under the caption "Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Solely Junior Subordinated Debentures," and appropriate disclosures about the Trust Preferred Securities, the Guarantee and the Junior Subordinated Debentures will be included in the notes to consolidated financial statements. For financial reporting purposes, the Company will record Distributions payable on the Trust Preferred Securities as an expense in the consolidated statements of operations. Future reports of Greater Bay filed under the Securities Exchange Act of 1934, as amended ("the Exchange Act"), will include a footnote to the financial statements stating that (i) GBB Capital is wholly-owned, (ii) the sole assets of GBB Capital are the Junior Subordinated Debentures (specifying the principal amount, interest rate and maturity date of such Junior Subordinated Debentures), and (iii) the back-up obligations, in the aggregate, constitute a full and unconditional guarantee by Greater Bay of the obligations of GBB Capital under the Trust Preferred Securities. GBB Capital will not provide separate reports under the Exchange Act. 19 CAPITALIZATION The following table sets forth the capitalization of the Company at December 31, 1996 and as adjusted to give effect to the issuance of the Trust Preferred Securities by GBB Capital offered hereby.
DECEMBER 31, 1996 ------------------------ ACTUAL AS ADJUSTED ----------- ------------ (DOLLARS IN THOUSANDS) Long-term debt: 11.5% Subordinated Notes due 2005..................... $ 3,000 $ 3,000 Company obligated mandatorily redeemable trust preferred securities of subsidiary trust holding solely junior subordinated debentures(1).............. -- 20,000 Shareholders' equity: Preferred stock, no par value: 4,000,000 shares authorized, none issued............................... -- -- Common stock, no par value: 6,000,000 shares authorized, 3,238,887 outstanding..................... 34,884 34,884 Unrealized gain on securities, available for sale, net................................................... 71 71 Retained earnings..................................... 9,727 9,727 ----------- ----------- Total shareholders' equity......................... $ 44,682 $ 44,682 Total capitalization.................................. $ 47,682 $67,682
- -------- (1) The subsidiary trust is GBB Capital, which will hold the Junior Subordinated Debentures as its sole asset. The Trust Preferred Securities are issued by GBB Capital. The sole assets of GBB Capital consist of the Junior Subordinated Debentures issued by Greater Bay to GBB Capital. The Junior Subordinated Debentures will bear interest at the rate of % per annum and will mature on , 2027 which date may be shortened to a date not earlier than , 2002 if certain conditions are met. The Junior Subordinated Debentures are redeemable prior to maturity at the option of Greater Bay, subject to any required prior approval of the Federal Reserve, (i) on or after , 2002, in whole at any time or in part from time to time, or (ii) at any time, in whole (but not in part), upon the occurrence and continuation of a Tax Event, an Investment Company Event or a Capital Treatment Event (each as defined herein). See "Description of Junior Subordinated Debentures--Redemption." Greater Bay owns all of the Common Securities of GBB Capital. REGULATORY CAPITAL RATIOS The following sets forth the consolidated capital ratios of the Company at December 31, 1996 and as adjusted to give effect to the issuance of the Trust Preferred Securities by GBB Capital offered hereby.
DECEMBER 31, 1996 ---------------------- ACTUAL AS ADJUSTED(1) ------ -------------- Tier 1 risk-based capital............................. 8.75% 11.23% Total risk-based capital.............................. 10.54% 13.91% Leverage ratio........................................ 7.27% 9.39%
- -------- (1) Assumes proceeds are invested in 100% risk weighted assets. 20 SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data with respect to the Company's consolidated financial position as of December 31, 1996 and 1995, and its results of operations for the fiscal years ended December 31, 1996, 1995 and 1994 have been derived from the audited consolidated financial statements, and notes thereto, of the Company appearing elsewhere in this Prospectus. This information should be read in conjunction with such consolidated financial statements and the notes thereto. The selected consolidated financial data with respect to the Company's consolidated financial position as of December 31, 1994, 1993 and 1992 and its results of operations for the years ended December 31, 1993, and 1992 have been derived from the audited consolidated financial statements of the Company, which are not presented herein.
YEARS ENDED DECEMBER 31, -------------------------------------------------------- 1996 1995 1994 1993 1992 --------- --------- --------- --------- --------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) OPERATING DATA: Interest income......... $ 45,037 $ 37,233 $ 27,801 $ 23,857 $ 22,736 Interest expense........ 16,213 13,892 8,512 6,497 7,506 --------- --------- --------- --------- --------- Net interest income..... 28,824 23,341 19,289 17,360 15,230 Provision for loan losses................. 2,036 956 1,823 1,945 1,132 --------- --------- --------- --------- --------- Net interest income after provision for loan losses............ 26,788 22,385 17,466 15,415 14,098 Other income............ 3,530 2,306 3,295 3,578 2,127 Other expense........... 23,888 19,686 16,231 15,077 11,255 --------- --------- --------- --------- --------- Income before income taxes.................. 6,430 5,005 4,530 3,833 5,028 Provision for income taxes.................. 2,927 1,971 1,966 1,473 1,825 --------- --------- --------- --------- --------- Net income.............. $ 3,503 $ 3,034 $ 2,564 $ 2,443 $ 3,145 ========= ========= ========= ========= ========= Net income per share.... $ 1.04 $ 0.96 $ 0.85 $ 0.84 $ 1.12 Average common shares outstanding ........... 3,359,700 3,145,550 3,001,211 2,925,284 2,801,963 OPERATING RATIOS AND OTHER DATA: Return on average assets(1).............. 0.65% 0.70 % 0.68 % 0.70 % 1.08 % Return on average common shareholders' equity(1).............. 8.12% 7.98 % 7.31 % 7.56 % 10.50 % Net interest margin..... 5.85% 5.83 % 5.62 % 5.61 % 5.54 % Net (charge-offs) recoveries to average loans.................. 0.02% (0.35)% (0.49)% (0.61)% (0.31)% Ratio of earnings to fixed charges(2)....... Excluding interest on deposits.............. 14.37x 6.93x 12.86x 392.6x 2,486x Including interest on deposits.............. 1.40x 1.36x 1.53x 1.60x 1.66x FINANCIAL CONDITION DATA (AT PERIOD END): Assets.................. $ 622,044 $ 477,834 $ 401,614 $ 358,576 $ 325,168 Loans, net.............. 441,560 284,579 242,750 231,857 226,334 Investment securities(3).......... 105,520 116,869 93,169 74,398 45,414 Deposits................ 559,283 431,789 345,294 323,300 292,110 Long-term debt.......... 3,000 3,000 -- -- -- Common shareholders' equity................. 44,682 40,112 36,040 34,222 31,619 Book value per common share.................. 13.80 13.17 12.90 13.17 13.07 FINANCIAL CONDITION RATIOS: Nonperforming assets to total loans and OREO... 0.74% 1.17 % 2.23 % 1.59 % 2.01 % Allowance for loan losses to total loans.. 1.62% 1.52 % 1.79 % 1.58 % 1.37 % Allowance for loan losses to non- performing loans....... 224.02% 131.59 % 80.24 % 98.84 % 66.93 % REGULATORY CAPITAL RATIOS: Tier 1 capital.......... 8.75% 11.38 % 12.59 % 13.05 % 11.60 % Total capital........... 10.54% 13.43 % 13.82 % 14.45 % 12.80 % Leverage ratio.......... 7.27% 8.69 % 9.34 % 9.69 % 9.43 %
- -------- (1) After excluding merger and other related costs of $2.8 million in 1996, litigation settlement, closing of the mortgage banking unit and expenses related to terminated merger discussions of $2.1 million in 1995 and merger and other related costs of $608,000 in 1994 the ROA would have been 1.02%, 0.99% and 0.78% in 1996, 1995 and 1994, respectively, and the ROE would have been 12.86%, 11.35% and 8.35% in 1996, 1995 and 1994, respectively. (2) For purposes of computing the ratio of earnings to fixed charges, earnings represent income before income taxes, extraordinary items and fixed charges. Fixed charges represent interest expense. (3) Includes available-for-sale securities and held-to-maturity securities. 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Greater Bay Bancorp ("Greater Bay," on a parent-only basis, and the "Company," on a consolidated basis) was formed as the result of the Merger between Cupertino, the holding company for CNB, and Mid-Peninsula, the holding company for MPB. The Merger, which has been accounted for as a pooling of interests, was consummated in late November 1996. All of the financial information for the Company for the periods prior to the Merger have been restated to reflect the pooling of interests as if it occurred at the beginning of the earliest reporting period presented. The following discussion and analysis is intended to provide greater details of the results of operations and financial condition of the Company. The following discussion should be read in conjunction with the information under "Selected Consolidated Financial Data" and the Company's consolidated financial statements and notes thereto and other financial data included elsewhere in this Prospectus. Certain statements under this caption constitute "forward-looking statements" under the Reform Act which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in such forward-looking statements. Factors that might cause such a difference include but are not limited to economic conditions, competition in the geographic and business areas in which the Company conducts its operations, fluctuations in interest rates, credit quality and government regulation. For additional information concerning these and other factors, see "Risk Factors." RESULTS OF OPERATIONS The Company reported net income of $3.5 million in 1996, a 15% increase over 1995 net income of $3.0 million. The net income in 1995 was an 18.3% increase over 1994 net income of $2.6 million. Net income per share was $1.04 in 1996, compared with $0.96 in 1995 and $0.85 in 1994. The return on average assets and return on average shareholders' equity were 0.65% and 8.12% in 1996, compared with 0.70% and 7.98% in 1995 and 0.68% and 7.31% in 1994, respectively. The increase in 1996 net income was the result of significant loan and deposit growth, which resulted in increased net interest income, and increases in trust fees, depositors' service fees and other fee income. Operating expense increases required to service and support the Company's growth partially offset the increase in revenues. The 1996 operating results included $2.8 million ($2.0 million net of tax) in merger and other related charges. Excluding these charges, the Company's net income, net income per share, return on average assets and return on average shareholders' equity would have been $5.5 million, $1.63, 1.02% and 12.86%, respectively. The increase in net income in 1995 over 1994 was due primarily to increased growth in interest-earning assets, which was partially offset by the growth in operating expenses. The operating results in 1995 included $2.1 million ($1.3 million net of taxes) in charges related to the settlement of litigation, the closing of CNB's mortgage banking business unit and expenses related to terminated merger discussions. Excluding these charges, the Company's net income, net income per share, return on average assets and return on average shareholders' equity would have been $4.3 million, $1.37, 1.00% and 11.39%, respectively. NET INTEREST INCOME Net interest income increased 23.8% to $29.2 million in 1996 from $23.6 million in 1995 primarily due to the $95.5 million, or 23.4%, increase in average interest-earning assets coupled with an 8 basis point increase in the Company's interest rate spread. Net interest income increased 21.2% in 1995 from $19.5 million in 1994 primarily due to the combined effects of the $58.0 million, or 16.8%, increase in average interest-earning assets and the 2 basis point increase in the Company's interest rate spread. 22 The following table presents, for the years indicated, condensed average balance sheet information for the Company, together with interest income and yields earned on average interest-earning assets and interest expense and rates paid on average interest-bearing liabilities. Average balances are averaged daily balances.
YEARS ENDED DECEMBER 31, ----------------------------------------------------------------------------------- 1996 1995 1994 --------------------------- --------------------------- --------------------------- AVERAGE AVERAGE AVERAGE YIELD/ AVERAGE AVERAGE AVERAGE YIELD/ BALANCE(1) INTEREST RATE BALANCE(1) INTEREST RATE BALANCE(1) INTEREST RATE ---------- -------- ------- ---------- -------- ------- ---------- -------- ------- (DOLLARS IN THOUSANDS) INTEREST-EARNING ASSETS: Loans(2)............... $350,679 $36,278 10.35% $260,635 $28,397 10.90% $230,126 $22,112 9.61% Investment securities, short term investment and cash equivalents(3)........ 148,118 9,115 6.15% 143,665 9,070 6.31% 116,143 5,852 5.04% -------- ------- -------- ------- -------- ------- Total interest- earning assets(3)... 498,797 45,393 9.10% 404,300 37,467 9.27% 346,269 27,964 8.08% Noninterest-earning 40,013 30,448 30,532 assets................. -------- ------- -------- ------- -------- ------- Total assets......... $538,810 $45,393 $434,748 $37,467 $376,801 $27,964 ======== ======= ======== ======= ======== ======= INTEREST-BEARING LIABILITIES: Deposits: NOW and MMDA........... $246,183 $ 8,656 3.52% $204,521 $ 7,868 3.85% $173,619 $ 4,945 2.85% Savings deposits....... 38,429 1,714 4.46% 9,541 539 5.65% 9,599 466 4.85% Time deposits.......... 99,635 5,362 5.38% 89,539 4,641 5.18% 73,793 2,719 3.68% -------- ------- -------- ------- -------- ------- Total deposits....... 384,247 15,732 4.09% 303,601 13,048 4.30% 257,011 8,130 3.16% Borrowings............. 8,191 481 5.87% 13,334 844 6.33% 7,788 382 4.90% -------- ------- -------- ------- -------- ------- Total interest- bearing liabilities. 392,438 16,213 4.13% 316,935 13,892 4.38% 264,799 8,512 3.21% -------- ------- -------- ------- -------- ------- Noninterest-bearing deposits............... 102,689 77,727 75,244 Other noninterest- bearing liabilities.... 883 2,038 1,684 Shareholders' equity.... 42,800 38,048 35,074 -------- -------- ------- -------- Total liabilities and shareholders' equity.............. $538,810 $16,213 $434,748 $13,892 $376,801 $ 8,512 ======== ======= ======== ======= ======== ======= Net interest income..... $29,180 $23,575 $19,452 Interest rate spread.... 4.97% 4.89% 4.87% Contribution of interest free funds............. 0.88% 0.94% 0.75% Net yield on interest- earnings assets(4)..... 5.85% 5.83% 5.62%
- ------- (1) Non-accrual loans are included in the average balance; however, only collected interest is included in the interest column. (2) Loan fees totaling $2.4 million, $1.5 million and $1.4 million are included in loan interest income for the years 1996, 1995 and 1994, respectively. (3) Interest income includes $356,000, $234,000 and $163,000 in 1996, 1995 and 1994, respectively, to adjust to a fully taxable equivalent basis using the federal statutory rate of 34%. (4) Net yield on interest-earning assets during the period equals (a) the difference between interest income on interest-earning assets and the interest expense on interest-bearing liabilities, divided by (b) average interest-earning assets for the period. 23 The most significant impact on the Company's net interest income between periods is derived from the interaction of changes in the volume of and rates earned or paid on interest-earning assets and interest-bearing liabilities. The volume of earning dollars in loans and investments, compared to the volume of interest-bearing liabilities represented by deposits and borrowings, combined with the spread, produces the changes in the net interest income between periods. The table below sets forth, for the periods indicated, a summary of the changes in interest income and interest expense resulting from changes in average asset and liability balances (volume) and changes in average interest rates (rate). The change in interest attributable to simultaneous volume and rate changes have been reflected as volume variances. Non-accrual loans are included in average loans.
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, 1996 1995 COMPARED WITH DECEMBER COMPARED WITH DECEMBER 31, 1995 FAVORABLE 31, 1994 FAVORABLE (UNFAVORABLE) (UNFAVORABLE) ------------------------- ------------------------- VOLUME RATE NET VOLUME RATE NET ------- ------- ------- ------- ------- ------- (IN THOUSANDS) INTEREST EARNED ON INTER- EST-EARNING ASSETS: Interest income on loans. $ 9,811 $(1,930) $ 7,881 $ 2,932 $ 3,353 $ 6,285 Interest income on in- vestment securities, short-term investments and cash equivalents (1)..................... 281 (236) 45 1,387 1,831 3,218 ------- ------- ------- ------- ------- ------- Total interest income.. 10,092 (2,166) 7,926 4,318 5,185 9,503 ------- ------- ------- ------- ------- ------- INTEREST EXPENSE ON DE- POSITS: NOW and MMDA........... (1,603) 815 (788) (880) (2,043) (2,923) Savings deposits....... (1,632) 457 (1,175) 3 (76) (73) Time deposits.......... (523) (198) (721) (580) (1,342) (1,922) ------- ------- ------- ------- ------- ------- Total interest expense on deposits................ (3,758) 1,074 (2,684) (1,457) (3,461) (4,918) Interest expense on borrowings.............. 326 37 363 (272) (190) (462) ------- ------- ------- ------- ------- ------- Total interest expense. (3,432) 1,111 (2,321) (1,729) (3,651) (5,380) ------- ------- ------- ------- ------- ------- Increase (decrease) in net interest income..... $ 6,660 $(1,055) $ 5,605 $ 2,590 $ 1,533 $ 4,123 ======= ======= ======= ======= ======= =======
- -------- (1) Interest income includes $356,000, $234,000 and $163,000 for 1996, 1995 and 1994, respectively, to adjust to a fully taxable equivalent basis using the federal statutory rate of 34%. Interest income in 1996 increased 21.2% to $45.4 million from $37.5 million in 1995. This was primarily due to the significant increase in loans, the Company's highest yielding asset. Loan volume increases were the result of an improving economy in the Company's market areas, as well as the addition of experienced relationship managers and greater business development efforts by the Company's relationship managers. This increase was partially offset by a decline in the yield earned on average interest-earning assets. While average interest-earning assets increased $94.5, or 23.4% to $498.8 million in 1996, compared to $404.3 million in 1995, average loans increased $90.0 million, or 34.5%, to $350.7 million, or 70.3% of average interest-earning assets, in 1996 from $260.6 million, or 64.4% of average interest-earning assets, in 1995. Conversely, other interest-earning assets, consisting of investment securities, federal funds sold and other short-term investments, increased only 3.1% to $148.1 million, or 29.7% of average interest-earning assets, in 1996 from $143.7 million, or 35.6% of average interest-earning assets, in 1995. The average yield on interest-earning assets declined 17 basis points to 9.10% in 1996 from 9.27% in 1995 primarily due to the decline in yields on loans. Average yields on loans declined 55 basis points to 10.35% in 1996 from 10.90% in 1995 primarily due to competition. The average yield on other interest-earning assets declined 16 basis points to 6.15% in 1996, compared to 6.31% in 1995. Interest expense in 1996 increased 16.7% to $16.2 million from $13.9 million in 1995. This increase was due to greater volumes of interest-bearing liabilities which was partially offset by lower interest rates paid on interest-bearing liabilities. Average interest-bearing liabilities increased 23.8% to $392.4 million in 1996 from 24 $316.9 million in 1995 due to the efforts of the Banks' relationship managers and deposits derived from the activities of the Greater Bay Trust Company and the Venture Lending Group. During 1996, the average rate paid on interest- bearing liabilities declined 25 basis points to 4.13% from 4.38% in 1995 due to the repricing of deposit accounts. During 1996, average non-interest bearing deposits increased to $102.7 million from $77.7 million in 1995. As a result of such increase, non-interest bearing deposits comprised 25.2% of total deposits at year end 1996, compared to 22.2% at year end 1995. As a result of the foregoing, the Company's interest rate spread increased to 4.97% in 1996 from 4.89% in 1995 and the net yield on interest-earning assets increased slightly in 1996 to 5.85% from 5.83% in 1995. Interest income increased 34.0% to $37.7 million in 1995 from $28.0 million in 1994, as a result of the combined effects of increases in average interest- earning assets and the yields earned on such assets. Average interest-earning assets increased 16.8% to $404.3 million in 1995 from $346.3 million in 1994 as a result of almost equivalent increases in both loans and other interest- earning assets. The average yield on the higher volume of average interest- earning assets increased 119 basis points to 9.27% in 1995 from 8.08% in 1994, primarily as a result of increases in market rates of interest. Interest expense in 1995 increased 63.2% to $13.9 million from $8.5 million in 1994, primarily as a result of the combined effect of increases in rates paid on interest-bearing liabilities and the volume of interest-bearing liabilities. As a result of increases in market rates of interest, the average rate paid on average interest-bearing liabilities increased 117 basis points to 4.38% in 1995 from 3.21% in 1994. Corresponding to the growth in average interest-earning assets, average interest-bearing liabilities increased 19.7% to $316.9 million in 1995 from $264.8 million in 1994. As a result of the foregoing, the Company's interest rate spread increased to 4.89% in 1995 from 4.87% in 1994 and the net yield on interest-earning assets increased to 5.83% in 1995 from 5.62% in 1994. The Company has noninterest-bearing liabilities on which it pays for certain client service expenses. These expenses include messenger services, check supplies and other related items and are included in operating expenses. If these costs had been included in interest expense, the impact of these expenses on the Company's net yield on interest-earning assets would have been as follows for each of the years presented.
YEARS ENDED DECEMBER 31, ---------------------------- 1996 1995 1994 -------- ------- ------- (DOLLARS IN THOUSANDS) Average noninterest-bearing demand deposits. $102,689 $77,727 $75,244 Client services expense..................... 411 337 376 Client services expense annualized.......... 0.40 % 0.43 % 0.50 % IMPACT ON NET YIELD ON INTEREST-EARNING ASSETS: Net yield on interest-earning assets........ 5.85 % 5.83 % 5.62 % Impact of client services expense........... (0.08)% (0.08)% (0.11)% -------- ------- ------- Adjusted net yield on interest-earning as- sets....................................... 5.77 % 5.75 % 5.51 % ======== ======= =======
- -------- (1) Noninterest-bearing liabilities are included in cost of funds calculations to determine adjusted net yield on interest-earning assets. The impact on the net yield on interest-earning assets is caused by off- setting net interest income by the cost of client services expenses, which reduces the yield on interest-earning assets. The cost for client services expense is trending down and reflects the Company's efforts to manage its client services expense. 25 PROVISION FOR LOAN LOSSES The provision for loan losses creates an allowance for future loan losses. The loan loss provision for each year is dependent on many factors, including loan growth, net charge-offs, changes in the composition of the loan portfolio, delinquencies, management's assessment of the quality of the loan portfolio, the value of the underlying collateral on problem loans and the general economic conditions in the Company's market area. The Company performs a monthly assessment of the risk inherent in its loan portfolio, as well as a detailed review of each asset determined to have identified weaknesses. Based on this analysis, which includes reviewing historical loss trends, current economic conditions, industry concentrations and specific reviews of assets classified with identified weaknesses, the Company makes provisions for potential loan losses. Specific allocations are made for loans where the probability of a loss can be defined and reasonably determined, while the balance of the provisions for loan losses are based on historical data, delinquency trends, economic conditions in the Company's market area and industry averages. Annual fluctuation in the provision for loan losses result from management's assessment of the adequacy of the allowance for loan losses, and ultimate loan losses may vary from current estimates. The provision for loan losses in 1996 was $2.0 million, compared to $0.9 million in 1995 and $1.8 million in 1994. In addition, in connection with the Merger, the Company made an $800,000 additional provision for loan losses to conform the Banks' reserve allocation methodologies, which is included in operating expenses. The increased provision for loan losses during 1996 reflects the $160.5 million increase in gross loans outstanding at December 31, 1996 from year-end 1995. Notwithstanding the substantial increase in loans outstanding, non-performing loans, comprised of non-accrual loans and accruing loans past due 90 days or more, declined to $3.1 million or 0.69% of loans outstanding at December 31, 1996 from $3.3 million or 1.15% loans outstanding at December 31, 1995. The $1.8 million provision for loan losses during 1994 reflected the higher level of non-performing loans experienced by the Company during 1994. At December 31, 1994, non-performing loans were $5.0 million, or 2.07% of loans outstanding at such date. For further information on non-performing and classified loans and the allowance for loan losses, see "--Financial Condition--Non-Performing and Classified Assets" herein. OTHER INCOME Total other income increased to $3.5 million in 1996, compared to $2.3 million in 1995 and $3.3 million in 1994. The following table sets forth information by category of other income in the years indicated.
YEARS ENDED DECEMBER 31, ---------------------- 1996 1995 1994 ------ ------ ------ (IN THOUSANDS) Trust fees........................................... $1,426 $ 710 $ 593 Depositors' service fees............................. 1,045 671 699 Gain on sale of SBA loans............................ 519 366 685 Gain on sale of mortgage loans....................... -- 137 993 Loan documentation fees, net......................... (42) 103 276 Investment gains/(losses)............................ (263) (113) (266) Other................................................ 845 432 315 ------ ------ ------ Total.............................................. $3,530 $2,306 $3,295 ====== ====== ======
The increase in other income in 1996 is primarily the result of a $716,000 increase in trust fees and a $374,000 increase in depositors' service fees. The trust fee increase is due to significant growth in assets under management in Greater Bay Trust Company. Trust assets increased to $418.0 million at year-end 1996, compared to $270.0 million at December 31, 1995 and $157.0 million at December 31, 1994. Depositors' service fees increased due to growth in deposits. The decrease in other income in 1995 from 1994 is due primarily to the decline in the activities of the mortgage banking business unit. The unit generated $137,000 in gains on the sale of mortgage loans in 1995, compared to $993,000 in 1994. In early 1995, the Company closed the mortgage banking business unit due to the sharp rise in interest rates during 1994 and the impact the rising rates had on originations. 26 The fluctuation in gain on sale of SBA loans is due primarily to the mix of SBA loans originated for sale combined with the effect of market pricing on loans sold. SBA loans with longer maturities command a higher premium than loans with shorter maturity periods. In 1996 compared to 1995, the Company originated and sold fewer long-term real estate loans and the pricing on loans sold declined slightly. During 1995 compared to 1994, the Company generated more long-term commercial real estate loans that were sold in the secondary market, thus causing the increase in gain on sale of SBA loans. In addition, lower market interest rates in 1994 provided higher premiums on SBA loan sales. OPERATING EXPENSES Operating expenses totaled $23.9 million for 1996, compared to $19.7 million for 1995 and $16.2 million for 1994. The ratio of operating expenses to average assets was 4.43% in 1996, 4.53% in 1995, and 4.31% in 1994. Operating expenses in 1996 and 1994 included $2.8 million and $608,000, respectively, in merger and other related costs, while 1995 operating expenses included $2.2 million related to the settlement of litigation, the closing of CNB's mortgage banking unit and expenses related to terminated merger discussions. Excluding these costs, operating expenses to average assets would have been 3.92% in 1996, 4.04% in 1995 and 4.15% in 1994. The efficiency ratio is computed by dividing total operating expenses by net interest income and other income. An increase in the efficiency ratio indicates that more resources are being utilized to generate the same (or greater) volume of income while a decrease would indicate a more efficient allocation of resources. The Company's efficiency ratio for 1996 was 73.83%, compared to 76.76% in 1995 and 71.87% in 1994. Excluding nonrecurring costs, the Company's efficiency ratios were 65.21%, 68.43% and 69.18% in 1996, 1995 and 1994, respectively. The decline in the Company's efficiency ratio was due to the investment in infrastructure in 1994 and early 1995 which allowed the Company to grow its revenue base in 1995 and 1996 without significant increases in operating expenses. The following table represents the major components of operating expenses for the years indicated.
YEARS ENDED DECEMBER 31, ------------------------- 1996 1995 1994 ------- ------- ------- (DOLLARS IN THOUSANDS) Compensation & benefits............................. $11,773 $10,146 $ 8,505 Occupancy & equipment............................... 3,401 2,679 2,226 Merger/Restructuring costs.......................... 2,791 -- 608 Professional services and legal costs............... 1,270 2,968 1,176 FDIC insurance and regulatory assessments........... 102 551 858 Other real estate, net.............................. 35 62 112 Other............................................... 4,105 2,943 2,370 ------- ------- ------- Total operating expenses before client services ex- penses............................................. $23,477 $19,349 $15,855 Client services expenses............................ 411 337 376 ------- ------- ------- Total operating expenses.......................... $23,888 $19,686 $16,231 ======= ======= ======= Nonrecurring costs(1)............................... 2,791 2,135 608 ------- ------- ------- Total operating expenses excluding nonrecurring costs(1)......................................... $21,097 $17,551 $15,623 ======= ======= ======= Efficiency ratio before client services............. 72.56% 75.44% 70.20% Efficiency ratio.................................... 73.83% 76.76% 71.87% Efficiency ratio, excluding nonrecurring costs(1)... 65.21% 68.43% 69.18% Total operating expenses to average assets.......... 4.43% 4.53% 4.31% Total operating expenses to average assets, exclud- ing nonrecurring costs(1).......................... 3.92% 4.04% 4.15%
- -------- (1) Nonrecurring costs include merger and related costs for 1996 and 1994 and costs related to the settlement of litigation, the closing of CNB's mortgage banking operations and terminated merger discussions in 1995. 27 Compensation and benefits expenses increased in 1996 to $11.8 million, compared to $10.1 million in 1995 and $8.5 million in 1994, primarily due to the addition of personnel at Greater Bay Trust Company and an increase in the number of relationship managers at the Banks. The increase in occupancy and equipment expense in 1996 was primarily due to the opening of CNB's new Emerson office and the Greater Bay Trust Company office in downtown Palo Alto, California. The increase in occupancy and equipment expense in 1995 was due to the installation of a larger data processing system, which included a local and wide area network to connect all of the CNB office locations. Expenses for professional services and legal costs, including consulting and audit services, decreased to $1.3 million in 1996, compared to $3.0 million in 1995 and $1.2 million in 1994. The decrease in 1996 is primarily attributable to a one-time charge of $1.8 million in 1995 for a legal settlement related to trust department activities. Client services expenses increased to $411,000 in 1996, compared to $337,000 in 1995 and $376,000 in 1994 as a result of an increase in the volume of noninterest-bearing demand deposits from commercial customers for which the Company provides services. These expenses include messenger services, check supplies and other related items. For information concerning the impact of these expenses on net yield on interest-earning assets, see "--Net Interest Income" herein. Federal Deposit Insurance Corporation ("FDIC") deposit insurance and Office of the Comptroller of the Currency regulatory assessments decreased to $102,000 in 1996, compared to $551,000 in 1995, and $858,000 in 1994. The decline in FDIC insurance expense is a result of the lowering of deposit insurance premiums by the FDIC when the Bank Insurance Fund ("BIF") was fully funded as of March 1995. The increase in other operating expense in 1996 was related to the rapid growth in the Company's loan and deposit portfolios and trust assets. The principal expense increases were $570,000 in marketing expenses, $80,000 in trust data processing charges and $236,000 in supplies and postage expenses. The increase in 1995 over 1994 was also primarily in marketing, trust and supplies and postage expenses. INCOME TAXES The Company's income tax rate for 1996 was 45.5%, compared to 39.4% in 1995 and 36.41% in 1994. The effective rate in 1996 was higher than the statutory rate due to the impact of nondeductible merger expenses. FINANCIAL CONDITION Total assets increased 30.2% to $622.0 million at December 31, 1996, compared to $477.8 million at December 31, 1995. Total assets increased 19.0% in 1995 from $401.6 million at December 31, 1994. The increases in 1996 and 1995 were primarily due to increases in the Company's loan portfolio funded by growth in deposits. LOANS Total gross loans increased 55.3% to $450.8 million at December 31, 1996, compared to $290.3 million at December 31, 1995. Total gross loans increased 19.5% in 1995 from $243.0 million at year-end 1994. The increases in loan volumes in 1996 and 1995 were due to an improving economy in the Company's market areas coupled with the business development efforts by the Company's relationship managers. The Company's loan portfolio is concentrated in commercial (primarily manufacturing, service and technology) and real estate lending, with the balance in consumer loans. While no specific industry concentration is considered significant, the Company's lending operations are located in the Company's market areas that are dependent on the technology and real estate industries and their supporting companies. Thus, the Company's borrowers could be adversely impacted by a downturn in these sectors of the economy which could reduce the demand for loans and adversely impact the borrowers' abilities to repay their loans. 28 The following table presents the composition of the Company's loan portfolio at the dates indicated.
DECEMBER 31, --------------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 --------------- --------------- --------------- --------------- --------------- AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT % -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- (DOLLARS IN THOUSANDS) Commercial.............. $257,042 58.2 % $181,617 63.8 % $158,223 65.2 % $145,673 62.8 % $130,561 57.7 % Real estate construction & land.................. 78,278 17.7 32,672 11.5 22,725 9.4 23,742 10.2 33,315 14.7 Commercial real estate term.................... 72,802 16.5 47,322 16.6 31,666 13.0 12,075 5.2 11,225 5.0 Consumer & other........ 42,702 9.7 28,666 10.1 30,361 12.5 47,768 20.6 50,510 22.3 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Total loans, gross..... 450,824 102.1 290,277 102.0 242,975 100.1 229,258 98.9 225,611 99.7 Deferred fees and (1,952) (0.4) (1,299) (0.5) (1,264) (0.5) (1,369) (0.6) (1,019) (0.5) discounts............... -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Total loans, net of $448,872 101.7 % $288,978 101.5 % $241,711 99.6 % $227,889 98.3 % $224,592 99.2 % deferred fees......... ======== ===== ======== ===== ======== ===== ======== ===== ======== ===== Allowance for loan (7,312) (1.7) (4,399) (1.5) (4,344) (1.8) (3,657) (1.6) (3,099) (1.4) losses.................. -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Net loans.............. $441,560 100.0 % $284,579 100.0 % $237,367 97.8 % $224,232 96.7 % $221,493 97.9 % ======== ===== ======== ===== ======== ===== ======== ===== ======== ===== Loans held for sale..... -- -- -- -- 5,383 2.2 7,625 3.3 4,841 2.1 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Total loans............ $441,560 100.0 % $284,579 100.0 % $242,750 100.0 % $231,857 100.0 % $226,334 100.0 % ======== ===== ======== ===== ======== ===== ======== ===== ======== =====
The following table presents the maturity distribution of the Company's commercial, real estate construction and land and commercial real estate term portfolios and the sensitivity of such loans to changes and interest rates at December 31, 1996.
COMMERCIAL REAL ESTATE REAL CONSTRUCTION ESTATE COMMERCIAL & LAND TERM ---------- ------------ ---------- (IN THOUSANDS) Loan due in: One year or less: Floating rate........................... $186,260 $62,484 $23,257 Fixed rate.............................. 14,918 1,678 2,226 One to five years: Floating rate........................... 36,552 3,904 10,813 Fixed rate.............................. 5,701 4,534 6,335 After five years: Floating rate........................... 21 -- -- Fixed rate.............................. 13,590 5,678 30,171 -------- ------- ------- Total $257,042 $78,278 $72,802 ======== ======= =======
For additional information concerning the Company's loan portfolio and its underwriting and credit administration policies and procedures, see "Business--Lending Activities." NON-PERFORMING AND CLASSIFIED ASSETS Management generally places loans on non-accrual when they become 90 days past due, unless they are well secured and in the process of collection. When a loan is placed on non-accrual status, any interest previously accrued but not collected is reversed from income. Loans are charged off when management determines that collection has become unlikely. Restructured loans are those where the Banks have granted a concession on the interest paid or original repayment terms due to financial difficulties of the borrower. Other real estate owned consists of real property acquired through foreclosure on the related collateral underlying defaulted loans. 29 The following table sets forth information regarding non-performing assets at the dates indicated.
DECEMBER 31, -------------------------------------- 1996 1995 1994 1993 1992 ------ ------ ------ ------ ------ (DOLLARS IN THOUSANDS) Non-performing loans Non-accrual loans.................... $1,875 $2,513 $3,668 $1,179 $ 913 Accruing loans past due 90 days or more................................ 1,237 830 1,371 1,903 -- Restructured loans................... -- -- -- -- -- ------ ------ ------ ------ ------ Total non-performing loans......... 3,112 3,343 5,039 3,082 913 Other real estate owned................ 152 -- 375 618 3,717 ------ ------ ------ ------ ------ Total non-performing assets........ $3,264 $3,343 $5,414 $3,700 $4,630 ====== ====== ====== ====== ====== Ratio of non-performing assets to total loans and other real estate owned..... 0.74% 1.17% 2.23% 1.59% 2.01%
At December 31, 1996, the Company had $1.9 million in non-accrual loans. Non-accrual loans included 11 loans with aggregate principal balances ranging from $3,000 to $962,000. Interest income foregone on non-performing loans outstanding at year end totaled $215,000, $245,000 and $275,000 for the years ended December 31, 1996, 1995 and 1994, respectively. The Company records other real estate at the lower of carrying value or fair value less estimated costs to sell. Estimated losses that result from the ongoing periodic valuation of these properties are charged to earnings with a provision for losses on foreclosed property in the period in which they are identified. At December 31, 1996, other real estate owned consisted of one property acquired through foreclosure with a carrying value of $152,000. The policy of the Company is to review each loan in the portfolio to identify problem credits. There are three classifications for problem loans: "substandard," "doubtful" and "loss." Substandard loans have one or more defined weaknesses and are characterized by the distinct possibility that the Banks will sustain some loss if the deficiencies are not corrected. Doubtful loans have the weaknesses of substandard loans with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. A loan classified loss is considered uncollectible and its continuance as an asset is not warranted. The following table sets forth classified loans at the dates indicated.
DECEMBER 31, ----------------------- 1996 1995 1994 ------ ------ ------- (DOLLARS IN THOUSANDS) Substandard............................................ $7,759 $7,463 $12,676 Doubtful............................................... 1,664 601 1,781 Loss................................................... -- -- -- ------ ------ ------- Total................................................ $9,423 $8,064 $14,457 ====== ====== ======= Classified loans to total loans........................ 2.13% 2.83% 5.96% Allowance for loan losses to classified loans.......... 77.60% 54.55% 30.05%
With the exception of these classified loans, management is not aware of any loans as of December 31, 1996 where the known credit problems of the borrower would cause management to have serious doubts as to the ability of such borrowers to comply with their present loan repayment terms and which would result in such loans being included in the non-performing asset table above at some future date. Management cannot, however, predict the extent to which economic conditions in the Company's market areas may worsen or the full impact such an environment may have on the Company's loan portfolio. Accordingly, there can be no assurance that other loans will not become 90 days or more past due, be placed on non-accrual or become restructured loans, in substance foreclosures or other real estate owned in the future. 30 ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is established through a provision for loan losses based on management's evaluation of risk inherent in its loan portfolio and economic conditions in the Company's market areas. See "--Provision for Loan Losses" herein. The allowance is increased by provisions charged against earnings and reduced by net loan charge-offs. Loans are charged off when they are deemed to be uncollectible; recoveries are generally recorded only when cash payments are received. The following table sets forth information concerning the Company's allowance for loan losses at the dates and for the years indicated.
AT AND FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------------------- 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) Average loans $350,679 $260,635 $230,126 $226,384 $207,978 outstanding:........... ======== ======== ======== ======== ======== Allowance for loan losses: Balance at beginning of period................. $ 4,399 $ 4,344 $ 3,657 $ 3,099 $ 2,605 Charge-offs: Commercial............ (119) (973) (798) (1,264) (539) Real estate construction & land.. (60) (7) (308) 0 (62) Commercial real estate term................. 0 0 0 (50) 0 Consumer & other...... (120) (101) (141) (159) (145) -------- -------- -------- -------- -------- Total charge-offs... (299) (1,081) (1,247) (1,473) (746) -------- -------- -------- -------- -------- Recoveries: Commercial............ 343 178 57 28 9 Real estate construction & land... 15 0 0 0 95 Commercial real estate term.................. 0 0 48 10 0 Consumer & other...... 18 2 6 48 4 -------- -------- -------- -------- -------- Total recoveries.... 376 180 111 86 108 -------- -------- -------- -------- -------- Net (charge-offs) recoveries............ 77 (901) (1,136) (1,387) (638) Provision charged to income.................. 2,836 956 1,823 1,945 1,132 -------- -------- -------- -------- -------- Balance at end of period.................. $ 7,312 $ 4,399 $ 4,344 $ 3,657 $ 3,099 ======== ======== ======== ======== ======== Net (charge-offs) recoveries to average loans outstanding during the period...... 0.02 % (0.35)% (0.49)% (0.61)% (0.31)% Allowance as a percentage of average loans outstanding...... 2.08 % 1.69 % 1.89 % 1.62 % 1.49 % Allowance as a percentage of non- performing loans....... 224.02 % 131.59 % 80.24 % 98.84 % 66.93 %
Management considers changes in the size and character of the loan portfolio, changes in non-performing and past due loans, historical loan loss experience, and the existing and prospective economic conditions when determining the adequacy of the allowance for loan losses. Although management believes that the allowance for loan losses is adequate to provide for both potential losses and estimated inherent losses in the portfolio, future provisions will be subject to continuing evaluations of the inherent risk in the portfolio and if the economy declines or asset quality deteriorates, additional provisions could be required. 31 The following table provides a summary of the allocation of the allowance for loan losses for specific loan categories at the dates indicated. The allocations presented should not be interpreted as an indication that loans charged to the allowance for loan losses will be incurred in these amounts or proportions, or that the portion of the allowance allocated to each loan category represents the total amount available for future losses that may occur within these categories. The unallocated portion of the allowance for loan losses and the total allowance is applicable to the entire loan portfolio.
DECEMBER 31, ------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 --------------- --------------- --------------- --------------- --------------- % OF % OF % OF % OF % OF CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY TO GROSS TO TOTAL TO TOTAL TO TOTAL TO TOTAL AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- (DOLLARS IN THOUSANDS) Commercial.............. $3,134 57.02% $1,797 62.57% $2,835 63.71% $2,093 61.50% $1,668 56.65% Real estate-- construction & land.... 1,045 17.36 223 11.26 224 9.15 349 10.02 344 14.46 Commercial real estate-- term................... 532 16.15 696 16.30 132 12.75 391 5.10 56 4.87 Consumer & other........ 383 9.47 466 9.87 543 12.22 270 20.17 459 21.92 Loans held for sale..... -- -- -- -- 14 2.17 27 3.21 23 2.10 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total allocated......... 5,094 3,182 3,748 3,130 2,550 Unallocated............. 2,218 1,217 596 252 217 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total.................. $7,312 100.00% $4,399 100.00% $4,344 100.00% $3,382 100.00% $2,767 100.00% ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
INVESTMENT SECURITIES The Company's investment portfolio is managed to meet the Company's liquidity needs through proceeds from scheduled maturities and is utilized for pledging requirements for deposits of state and political subdivisions and securities sold under repurchase agreements. The portfolio is comprised of U.S. Treasury securities, U.S. government agency securities, mortgage-backed securities, obligations of states and political subdivisions and a modest amount of equity securities including Federal Reserve Bank stock and Federal Home Loan Bank stock. Federal funds sold are additional investments which are not classified as investment securities. Investment securities classified as available-for-sale are recorded at fair market value, while investment securities classified as held-to-maturity are recorded at cost. Unrealized gains or losses, net of the deferred tax effect, are reported as increases or decreases in shareholders' equity for available-for-sale securities. 32 The amortized cost and estimated market value of investment securities at December 31, 1996 is summarized below:
DECEMBER 31, 1996 ---------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE --------- ---------- ---------- -------- (IN THOUSANDS) Available-for sale securities: U.S. Treasury obligations......... $ 19,841 $ 52 $ (6) $ 19,887 U.S. Agency obligations: Mortgage-backed obligations..... 3,604 5 (53) 3,556 Fixed and variable rate notes... 10,568 34 (13) 10,589 Mutual funds...................... 2,000 -- (52) 1,948 Tax exempt securities............. 7,758 154 (11) 7,901 Corporate securities.............. 3,216 7 -- 3,223 -------- ---- ----- -------- Total securities available- for-sale..................... 46,987 252 (135) 47,104 -------- ---- ----- -------- Held-to-maturity securities: U.S. Treasury obligations......... 1,005 3 -- 1,008 U.S. Agency obligations: Mortgage-backed obligations..... 7,086 87 (9) 7,164 Fixed and variable rate notes... 38,390 78 (100) 38,368 Other mortgage-backed obligations. 3,959 54 -- 4,013 Tax exempt securities............. 6,525 219 (3) 6,741 Federal Reserve Bank stock........ 673 -- -- 673 Federal Home Loan Bank stock...... 778 -- -- 778 -------- ---- ----- -------- Total securities held-to- maturity..................... 58,416 441 (112) 58,745 -------- ---- ----- -------- Total investment securities... $105,403 $693 $(247) $105,849 ======== ==== ===== ========
The tax effected net unrealized gain on available-for-sale securities was $71,000 for the year ended December 31, 1996. 33 The following table shows amortized cost and estimated market value of the Company's investment securities by year of maturity at December 31, 1996.
1998 2002 2007 1997 THROUGH 2001 THROUGH 2007 AND THEREAFTER TOTAL ------- ------------ ------------ -------------- -------- (DOLLARS IN THOUSANDS) AVAILABLE-FOR-SALE SECURITIES: U.S. Treasury obligations............ $15,003 $ 4,838 $ -- $ -- $ 19,841 U.S. Agency obligations: Mortgage-backed obligations(1)....... 599 3,005 -- -- 3,604 Fixed and variable rate notes(2)........ 1,500 9,068 -- -- 10,568 Mutual funds(3)......... 2,000 -- -- -- 2,000 Tax exempt securities... 453 1,567 3,623 2,115 7,758 Corporate securities.... 1,178 2,038 -- -- 3,216 ------- ------- ------- ------- -------- Total securities available-for-sale. 20,733 20,516 3,623 2,115 46,987 Market value............ 20,708 20,524 3,672 2,200 47,104 HELD-TO-MATURITY SECURITIES: U.S. Treasury obligations............ 503 502 -- -- 1,005 U.S. Agency obligations: Mortgage-backed obligations(1)....... -- 69 2,595 4,422 7,086 Fixed and variable rate notes(2)........ 3,000 17,999 15,391 2,000 38,390 Other mortgage-backed obligations(1)......... -- -- -- 3,959 3,959 Tax exempt securities... -- 1,040 256 5,229 6,525 Federal Reserve Bank stock.................. -- -- -- 673 673 Federal Home Loan Bank stock.................. -- -- -- 778 778 ------- ------- ------- ------- -------- Total securities held-to-maturity... 3,503 19,610 18,242 17,061 58,416 Market value............ 3,493 19,549 18,369 17,334 58,745 COMBINED INVESTMENT SECURITIES PORTFOLIO: Total investment securities............. 24,236 40,126 21,865 19,176 105,403 Total market value...... 24,201 40,073 22,041 19,534 105,849 Weighted average yield- total portfolio(4)..... 5.32% 6.19% 7.04% 6.77% 6.29%
- -------- (1) Mortgage-backed securities are shown at contractual maturity; however, the average life of these mortgage-backed securities may differ due to principal prepayments. (2) Certain U.S. Agency fixed and variable rate note obligations may be called, without penalty, at the discretion of the issuer. This may cause the actual maturities to differ significantly from the contractual maturity dates. (3) Mutual funds with no stated maturity total $2.0 million ($1.9 million market value). (4) Yields on tax exempt securities have been computed on a fully tax- equivalent basis. For additional information concerning the investment portfolio, see Note 3 of Notes to Consolidated Financial Statements. DEPOSITS The Company emphasizes developing total client relationships with its customers in order to increase its core deposit base. Deposits reached $559.3 million at December 31, 1996, an increase of 29.5% compared to deposits of $431.8 million at December 31, 1995. In 1995, deposits increased 25.05% from $345.3 million at December 31, 1994. 34 Total average interest-bearing deposits increased 21.0% to $384.2 million for 1996, compared to an average of $303.6 million for 1995. In 1995, average interest-bearing deposits increased 18.1% over average deposits of $257.0 million in 1994. The increase in deposits was due to the continued marketing efforts directed at commercial business clients in the Company's market areas, coupled with an increase in deposits related to the activities of the Greater Bay Trust Company and the Venture Lending Group. Noninterest-bearing deposits were $139.9 million at December 31, 1996, compared to $96.1 million at December 31, 1995 and $81.0 million at December 31, 1994. Average noninterest-bearing deposits in 1996 were $102.7 million, compared to $77.7 million in 1995 and $75.2 million in 1994. As its regional offices expand, the Company anticipates this funding source to increase. Money market and other interest-bearing demand accounts reached $419.3 million at year-end 1996, an increase of 24.9% from the prior year. Money market and other interest-bearing demand deposits of $335.7 million at December 31, 1995 were up 26.5% from $265.3 million at December 31, 1994. Time certificates of deposit of more than $100,000, savings and other time deposits totaled $68.2 million, or 12.2% of total deposits, at December 31, 1996, compared to $63.8 million, or 14.8% of total deposits, at December 31, 1995 and $54.5 million, or 15.7%, of total deposits at December 31, 1994. The following table sets forth the maturing distribution of time certificates of deposit of $100,000 or more at December 31, 1996.
DECEMBER 31, 1996 ----------------- (IN THOUSANDS) Three months or less..................................... $54,233 Three to six months...................................... 9,198 Six to twelve months..................................... 4,252 Over twelve months....................................... 487 ------- Total.................................................. $68,170 =======
As of December 31, 1996, the Company had $20.6 million in brokered deposits outstanding. LIQUIDITY AND CASH FLOW The objective of liquidity management is to maintain each Bank's ability to meet the day-to-day cash flow requirements of its clients who either wish to withdraw funds or require funds to meet their credit needs. The Company must manage its liquidity position to allow the Banks to meet the needs of their clients, while maintaining an appropriate balance between assets and liabilities to meet the return on investment requirements of its shareholders. The Company monitors the sources and uses of funds on a daily basis to maintain an acceptable liquidity position. In addition to liquidity from core deposit growth and repayments and maturities of loans and investments, the Banks utilize brokered deposit lines, sell securities under agreements to repurchase and borrow overnight federal funds. In addition, during 1995 the Company issued $3.0 million of subordinated notes. Greater Bay is a company separate and apart from the Banks. It must provide for its own liquidity. Substantially all of Greater Bay's revenues are obtained from interest received and dividends declared and paid by the Banks. There are statutory and regulatory provisions that could limit the ability of the Banks to pay dividends to Greater Bay. See "Supervision and Regulation." At December 31, 1996, the Banks had approximately $6.3 million in the aggregate available to be paid as dividends to Greater Bay. Management of Greater Bay believes that such restrictions will not have an impact on the ability of Greater Bay to meet its ongoing cash obligations, including those relating to the Junior Subordinated Debentures. As of December 31, 1996, the Company did not have any material commitments for capital expenditures. 35 Net cash provided by operating activities primarily representing net interest income, totaled $6.2 million for 1996, $10.2 million for 1995 and $6.4 million for 1994. Cash used for investing activities totaled $150.3 million in 1996, $78.4 million in 1995 and $31.4 million in 1994. The funds used for investing activities primarily represent increases in loans and investments for each year reported. For the year ended December 31, 1996, net cash provided by financing activities was $139.9 million. Historically, the primary financing activity of the Company has been deposits and short-term borrowings. Deposits increased $127.5 million for the year ended December 31, 1996 and short-term borrowings increased $12.0 million for the same period. For the year ended December 31, 1995, net cash provided by financing activities was $71.4 million. Deposits increased $85.5 million, while short-term borrowings decreased $17.3 million. Net proceeds from subordinated notes issued in the third quarter of 1995 provided $3.0 million. CAPITAL RESOURCES Shareholders' equity at December 31, 1996 increased to $44.7 million from $40.1 million at December 31, 1995 and from $36.0 million at December 31, 1994. During 1996, the Company paid aggregate cash dividends of $0.44 per share. The Company has provided the majority of its capital requirements through the retention of earnings. In the third quarter of 1995, the Company increased its capital base by raising $3.0 million of subordinated notes which qualify as Tier 2 capital. The private offering was subscribed by the Company's directors, officers and other accredited investors. A banking organization's total qualifying capital includes two components, core capital (Tier 1 capital) and supplementary capital (Tier 2 capital). Core capital, which must comprise at least half of total capital, includes common shareholders' equity, qualifying perpetual preferred stock, and minority interests, less goodwill. Supplementary capital includes the allowance for loan losses (subject to certain limitations), other perpetual preferred stock, certain other capital instruments, and term subordinated debt. The Company's major capital components are shareholders' equity in core capital, and the allowance for loan losses and subordinated debt in supplementary capital. At December 31, 1996, the minimum risk-based capital requirements to be considered adequately capitalized are 4.0% for core capital and 8.0% for total capital. Federal banking regulators have also adopted leverage capital guidelines to supplement risk-based measures. The leverage ratio is determined by dividing Tier 1 capital as defined under the risk-based guidelines by average total assets (not risk-adjusted) for the preceding quarter. The minimum leverage ratio is 3.0%, although banking organizations are expected to exceed that amount by 1.0%, 2.0% or more, depending on their circumstances. Pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991, the Federal Reserve, the Comptroller of the Currency and the FDIC have adopted regulations, effective December 19, 1992, setting forth a five-tier scheme for measuring the capital adequacy of the financial institutions they supervise. The capital levels of the Company at December 31, 1996 and the two highest levels recognized under these regulations are set forth below.
TIER 1 RISK-BASED TOTAL RISK BASED LEVERAGE CAPITAL RATIO CAPITAL RATIO RATIO ----------------- ---------------- -------- Company.......................... 8.75% 10.54% 7.27% Well-capitalized................. 6.0% 10.0% 5.0% Adequately capitalized........... 4.0% 8.0% 4.0%
At December 31, 1996, the Company's risk-based capital ratios were 8.75% for Tier 1 risk-based capital and 10.54% for total risk-based capital, compared to 11.38% and 13.43% as of December 31, 1995, respectively. The Company's leverage ratio was 7.27% at December 31, 1996, compared to 8.69% at December 31, 1995. These ratios all exceeded the well-capitalized guidelines shown above. 36 In addition, at December 31, 1996, each of the Banks had levels of capital which exceeded the well-capitalized guidelines. However, in order for CNB to remain well-capitalized during 1997, additional capital will be required. For additional information on the capital levels and capital ratios of the Company and each of the Banks, see Note 14 of Notes to the Consolidated Financial Statements. The Company anticipates that the economic and business conditions in its market areas will continue to expand in 1997, resulting in continued growth in earning assets and deposits. With the proceeds from this offering, the Company believes that it will have adequate capital to support anticipated growth while allowing the Company to remain well-capitalized under applicable regulations. However, should growth exceed expectations or in the event an acquisition opportunity arises to expand market share, it may be necessary for the Company to raise additional capital through the sale of either debt or equity securities. It is anticipated that any such debt securities would constitute Senior and Subordinated Debt. INTEREST RATE RISK MANAGEMENT Interest rate risk management is a function of the repricing characteristics of the Company's portfolio of assets and liabilities. Interest rate risk management focuses on the maturity structure of assets and liabilities and their repricing characteristics during periods of changes in market interest rates. Effective interest rate risk management seeks to ensure that both assets and liabilities respond to changes in interest rates within an acceptable time frame, thereby minimizing the effect of interest rate movements on net interest income. Interest rate sensitivity is measured as the difference between the volumes of assets and liabilities in the Company's current portfolio that are subject to repricing at various time horizons: one day or immediate, two days to six months, seven to twelve months, one to three years, three to five years, over five years and on a cumulative basis. The differences are known as interest sensitivity gaps. The following table shows interest sensitivity gaps for different intervals as of December 31, 1996.
2 DAYS >1 YEAR >3 YRS TOTAL TOTAL IMMEDIATE TO 6 MONTHS TO 3 TO 5 RATE NON-RATE ONE DAY MONTHS 7-12 YRS YRS >5 YRS SENSITIVE SENSITIVE TOTAL --------- -------- -------- ------- ------- -------- --------- --------- -------- (DOLLARS IN THOUSANDS) ASSETS: Cash and due from banks. -- -- -- -- -- -- -- $ 39,896 $ 39,896 Short term investments.. $ 14,000 -- -- -- -- -- $ 14,000 -- 14,000 Investment securities... 1,948 $ 14,012 $ 8,016 $23,021 $17,620 $ 39,452 104,069 $ 1,451 $105,520 Loans................... 347,800 10,798 8,385 15,048 10,636 54,326 446,993 3,831 450,824 Loan loss/unearned fees. -- -- -- -- -- -- -- (9,264) (9,264) Other assets............ -- -- -- -- -- -- -- 21,068 21,068 -------- -------- -------- ------- ------- -------- -------- --------- -------- Total assets........... $363,748 $ 24,810 $ 16,401 $38,069 $28,256 $ 93,778 $565,082 $ 56,982 $622,044 ======== ======== ======== ======= ======= ======== ======== ========= ======== LIABILITIES AND EQUITY: Deposits Demand................. -- -- -- -- -- -- -- $ 139,940 $139,940 NOW, MMDA, and savings. $312,284 -- -- -- -- -- $312,284 -- 312,284 Time deposits.......... -- $ 99,081 $ 6,938 $ 791 $ 176 $ 73 107,059 -- 107,059 Other borrowings and subordinated debt...... 15,000 -- -- -- -- -- 15,000 -- 15,000 Other liabilities....... -- -- -- -- -- -- -- 3,079 3,079 Shareholders' equity.... -- -- -- -- -- -- -- 44,682 44,682 -------- -------- -------- ------- ------- -------- -------- --------- -------- Total liabilities and equity................ $327,284 $ 99,081 $ 6,938 $ 791 $ 176 $ 73 $434,343 $ 187,701 $622,044 ======== ======== ======== ======= ======= ======== ======== ========= ======== Gap..................... $ 36,464 $(74,271) $ 9,463 $37,278 $28,080 $ 93,705 $130,719 $(130,719) $ -- Cumulative Gap.......... $ 36,464 $(37,807) $(28,344) $ 8,934 $37,014 $130,719 $130,719 $ -- $ -- Cumulative Gap/total assets................. 5.86% (6.08)% (4.56)% 1.44% 5.95% 21.01% 21.01% -- --
The foregoing table demonstrates that the Company had a negative cumulative one year gap of $28.3 million, or 4.56% of total assets, at December 31, 1996. In theory, this would indicate that at December 31, 1996, $28.3 million more in liabilities than assets would reprice if there was a change in interest rates over the 37 next 360 days. If interest rates were to increase, the negative gap would tend to result in a lower net interest margin. However, changes in the mix of earning assets or supporting liabilities can either increase or decrease the net interest margin without affecting interest rate sensitivity. In addition, the interest rate spread between an asset and its supporting liability can vary significantly while the timing of repricing of both the asset and its supporting liability can remain the same, thus impacting net interest income. This characteristic is referred to as a basis risk and, generally, relates to the repricing characteristics of short-term funding sources such as certificates of deposit. The impact of fluctuations in interest rates on the Company's projected next twelve month net interest income and net income has been evaluated through an interest rate shock simulation modeling analysis that includes various assumptions regarding the repricing relationship of assets and liabilities, as well as the anticipated changes in loan and deposit volumes over differing rate environments. As of December 31, 1996 the analysis indicates that the Company's net interest income would increase a maximum of 8.0% if rates rose 200 basis points immediately and would decrease a maximum of 8.0% if rates declined 200 basis points immediately. In addition, the results indicate that notwithstanding the Company's negative gap position, which would indicate that the net interest margin declines when rates rise, the Company's net interest margin increases during rising rate periods due to the basis risk imbedded in the Company's interest-bearing liabilities. Varying interest rate environments can create unexpected changes in prepayment levels of assets and liabilities which are not reflected in the interest sensitivity analysis table. These prepayments may have significant effects on the Company's net interest margin. Because of these factors, an interest sensitivity gap report may not provide a complete assessment of the Company's exposure to changes in interest rates. RECENT ACCOUNTING PRONOUNCEMENTS In October 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." This statement establishes a new fair value based accounting method for stock-based compensation plans and encourages (but does not require) employers to adopt the new method in place of the provisions of Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees." Under the fair value based method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period. Companies may continue to apply the accounting provisions of APB 25 in determining net income; however, they must apply the disclosure requirements of SFAS 123. The recognition provisions and disclosure requirements of SFAS No. 123 were effective January 1, 1996. The Company has not adopted the recognition provisions of SFAS No. 123 but has adopted the disclosure requirements. For further information on SFAS No. 123, see Note 11 of the Notes to Consolidated Financial Statements. In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities." This statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishment of liabilities. This statement provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. A transfer of financial assets in which the transferor surrenders control over those assets is accounted for as a sale to the extent that consideration other than beneficial interests in the transferred assets is received in exchange. This statement also requires that liabilities and derivatives incurred or obtained by transferors as part of a transfer of financial assets be initially measured at fair value, if practicable. It also requires that servicing assets and other retained interests in the transferred assets be measured by allocating the previous carrying amount between the assets sold, if any, and retained interests, if any, based on their relative fair value at the date of the transfer. Furthermore, this statement requires that debtors reclassify financial assets pledged as collateral, and that secured parties recognize those assets and their obligation to return them in certain circumstances in which the secured party has taken control of those assets. In addition, the statement requires that a liability be derecognized if and only if either (a) the debtor pays the creditor and is relieved of its obligation for the liability or (b) the debtor is legally released from being the primary obligor under the liability either judicially or by the creditor. Accordingly, a liability is not considered extinguished by an in-substance defeasance. SFAS 125 is effective for 38 transfers and servicing of financial assets and extinguishment of liabilities occurring after December 31, 1996, and is to be applied prospectively. Management does not believe that the application of this statement will have a material impact on the Company's financial statements. In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage Servicing Rights." SFAS 122 amends certain provisions of SFAS No. 65, "Accounting for Certain Mortgage Banking Activities," to require that a mortgage banking enterprise recognize as separate assets rights to service mortgage loans for others, however those servicing rights are acquired. A mortgage banking enterprise that acquires mortgage servicing rights through either the purchase or origination of mortgage loans and sells or securitizes those loans with servicing rights retained should allocate the total cost of the mortgage loans to the mortgage servicing rights and the loans (without the mortgage servicing rights) based on their relative fair value, if it is practicable to estimate those fair values. If it is not practicable to estimate those fair values, the entire cost of the acquisition should be allocated to the mortgage loans only. SFAS 122 is effective for years occurring after December 31, 1995. Adoption of this pronouncement did not have a material impact on the Company's financial statements. In March 1995, the FASB issued SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This statement establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. An impairment loss is measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. After an impairment is recognized, the reduced carrying amount of the asset shall be accounted for as its new cost. SFAS No. 121 is effective for years occurring after December 31, 1995. Adoption of this pronouncement did not have a material impact on the Company's financial statements. CHANGE IN ACCOUNTANT Prior to the Merger, Cupertino's independent accountants were Coopers & Lybrand, L.L.P. ("Coopers & Lybrand") and Mid-Peninsula's independent accountants were KPMG Peat Marwick, LLP ("Peat Marwick"). On consummation of the Merger, Mid-Peninsula changed its name to Greater Bay Bancorp, and on December 17, 1996, Greater Bay changed its independent accountant by terminating its engagement of Peat Marwick and selecting Coopers & Lybrand as its independent accountant to audit its financial statements for the year ended December 31, 1996. The decision to terminate Greater Bay's engagement of Peat Marwick and select Coopers & Lybrand was unanimously recommended by Greater Bay's Audit Committee and approved by Greater Bay's Board of Directors. During the two most recent fiscal years of the Company and any subsequent interim period preceding the aforesaid change, there were no disagreements between the Company and Peat Marwick on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure which if not resolved to the satisfaction of Peat Marwick would have caused them to make reference to the subject matter of the disagreement in their report. All descriptions contained herein of communications between the Company and third parties and reports of third parties are qualified in their entirety by the text of the communications and reports referred to herein. Peat Marwick's report on the financial statements for 1994 and 1995 contained no adverse opinion or disclaimer of opinion nor was it qualified or modified as to uncertainty, audit scope, or accounting principles, except their report dated January 22, 1996, relating to the consolidated balance sheets of Mid-Peninsula Bancorp and subsidiary as of December 31, 1995 and 1994, and the related consolidated statements of operations, changes in shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1995, referenced other auditors. On October 7, 1994, the Company acquired San Mateo County Bancorp on a pooling-of-interests basis. Peat Marwick did not audit the consolidated financial statements of San Mateo County Bancorp as of and for the year ended December 31, 1993. These statements, which were included in the 1993 restated consolidated financial statements, were audited by other auditors, whose report contained an explanatory paragraph regarding the adoption SFAS No. 109, "Accounting for Income Taxes," and SFAS No. 115, "Accounting for Certain Investments, Debt and Equity Securities." Peat Marwick's report, insofar as it relates to the amounts included for San Mateo County Bancorp, is based solely on the report of other auditors. 39 BUSINESS In addition to the historical information contained herein, certain statements under this caption constitute "forward-looking statements" under the Reform Act which involve risks and uncertainties. The Company's actual results may differ significantly from those discussed herein. Factors that might cause such a difference include, but are not limited to, those discussed under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" as well as those discussed elsewhere in this Prospectus. GREATER BAY Greater Bay is a bank holding company operating CNB and MPB with seven regional offices in Cupertino, Palo Alto, San Mateo, San Carlos and San Jose, California. At December 31, 1996, the Company had total assets of $622.0 million, total net loans of $441.6 million and total deposits of $559.3 million. HISTORY Greater Bay is the result of the Merger of Cupertino and Mid-Peninsula. Cupertino was formed in 1984 as the holding company for CNB, a national banking association which began operating in 1985. Mid-Peninsula was formed in 1984 under the name San Mateo County Bancorp ("San Mateo") as the bank holding company of San Mateo County National Bank, which subsequently changed its name to WestCal National Bank ("WestCal") in 1991. In 1994, WestCal was merged into Mid-Peninsula Bank, a California state chartered bank organized in 1987, and San Mateo concurrently changed its name to Mid-Peninsula Bancorp. Cupertino and Mid-Peninsula undertook the Merger with the intention of achieving five primary goals. These goals included (i) developing a greater banking presence throughout Santa Clara and San Mateo Counties by increasing the number of banking offices to seven; (ii) reaching a critical mass in the Company's market areas in order to better meet competitive challenges inherent in the banking and financial services industries; (iii) enabling the resulting Company to maximize the utilization of capital by increasing the float and marketability of its common stock and, by virtue of its larger size, obtaining access to a lower cost of capital; (iv) providing an opportunity to realize operating efficiencies made available by the combination of Cupertino and Mid- Peninsula; and (v) enabling CNB and MPB to cross-sell products. SUPER COMMUNITY BANKING PHILOSOPHY In order to meet the demands of the increasingly competitive banking and financial services industries, management has adopted a business philosophy referred to as the "Super Community Banking Philosophy." The Super Community Banking Philosophy is based on management's belief that banking customers value doing business with locally managed institutions that can provide a full service commercial banking relationship through an understanding of the customer's financial needs and the flexibility to customize products and services to meet those needs. Management further believes that banks are better able to build successful customer relationships by affiliating with a holding company that provides cost effective administrative support services while promoting bank autonomy and flexibility. To implement this philosophy, Greater Bay operates CNB and MPB as separate subsidiaries by retaining their independent names along with their individual Boards of Directors. Both MPB and CNB have established strong reputations and customer followings in their respective market areas through attention to client service and an understanding of client needs. In an effort to capitalize on the identities and reputations of the Banks, the Company will continue to market its services under the CNB and MPB names, primarily through each Bank's relationship managers. The primary focus for the Banks' relationship managers is to cultivate and nurture their client relationships. Relationship managers are assigned to each borrowing client to provide continuity in the relationship. This emphasis on personalized relationships requires that all of the relationship managers maintain close ties to the communities in which they serve, so they are able to capitalize on their efforts through expanded business opportunities for the Banks. 40 While client service decisions and day-to-day operations are maintained at the Banks, Greater Bay offers the advantages of affiliation with a multi-bank holding company by providing improved access to the capital markets and expanded client support services, such as business cash management, international trade services and accounting services. In addition, Greater Bay provides centralized administrative functions, including support in credit policy formulation and review, investment management, data processing, accounting and other specialized support functions thereby allowing the Banks to focus on client service. CORPORATE GROWTH STRATEGY The Company's business strategy is to focus on increasing its market share within the communities it serves through continued internal growth. As a result of the Merger, the Company has the opportunity to market the specialized products and services of the Venture Lending Group, the Greater Bay Trust Company and the SBA Department to a larger customer base. The Company believes that these products and services, available prior to the Merger only to customers of CNB, will be attractive to customers and contacts of MPB in the venture capital community and the high net worth customers of MPB. The Company believes that the infrastructure developed by Cupertino to support the Greater Bay Trust Company, the SBA Department and the Venture Lending Group will allow the Company to offer the products and services of these groups without significant additional overhead costs. The Company also will pursue opportunities to expand its market share through select acquisitions that management believes complement the Company's businesses. While management would prefer to make acquisitions which would expand its presence in its current market areas of Santa Clara and San Mateo Counties, it will also pursue opportunities to expand its market through acquisitions in other parts of the South, East, and North Bay Areas of San Francisco. THE BANKS CNB CNB presently has four banking offices. CNB's main office is in Cupertino, and it has one regional office in San Jose and two regional offices in Palo Alto. At December 31, 1996, CNB had total assets of $339.7 million, total net loans of $248.4 million and total deposits of $302.3 million. MPB MPB presently has three banking offices. MPB's main office is in Palo Alto. MPB also has regional offices in San Mateo and in San Carlos. On December 31, 1996, MPB had total assets of $282.3 million, total net loans of $193.1 million and total deposits of $257.5 million. BANKING SERVICES Through their networks of regional offices, the Banks provide a wide range of commercial banking services to small and medium-sized businesses, real estate developers and property managers, business executives, professionals and other individuals. In addition, the Greater Bay Trust Company provides trust services to support the trust needs of the Banks' clients. The Banks offer a wide range of deposit products. These include the normal range of personal and business checking and savings accounts, time deposits and individual retirement accounts. The Banks also offer a wide range of specialized services designed to attract and service the needs of customers and include cash management and international trade services for business clients, traveler's checks, safe deposit and MasterCard and Visa merchant deposits services. The Banks also engage in the full complement of lending activities, including commercial, real estate and consumer loans. The Banks provide commercial loans for working capital and business expansion to small and medium-sized businesses with annual revenues generally in the range of $1.0 million to $50.0 million. The 41 Banks' commercial customers are drawn from a wide variety of manufacturing, wholesale and service businesses. The Banks provide interim real estate loans primarily for construction in the Banks' primary service areas of single- family residences, which typically range between approximately $500,000 and $1.0 million, and multi-unit projects, which typically range between approximately $1.5 million and $4.0 million. The Banks provide medium term commercial real estate loans or credits for the financing of commercial or industrial buildings where the properties are either used by the owner for business purposes or have income derived from tenants, which typically range between approximately $750,000 and $3.0 million. Loans to professionals and other individual clients cover a full range of consumer services, such as automobile, aircraft, home improvement and home equity loans, and other secured and unsecured lines of credit, including credit cards. Through the SBA Department, loans are made to smaller businesses and are generally 65% to 80% guaranteed by the SBA. In 1994, CNB was named a Preferred Lender by the SBA. Preferred Lender status is awarded by the SBA to lenders who have demonstrated superior ability to generate, underwrite and service loans guaranteed by the SBA, and results in more rapid turnaround of loan applications submitted to the SBA for approval. In May 1994, the Company organized the Venture Lending Group to serve the needs of companies in their start-up and development phase. This unit was developed to meet the needs of such clients in the Company's service area by allowing them to access a banking relationship early in their development. The loans to this target group of clients are generally secured by the accounts receivable, inventory and equipment of the companies. The financial strength of these companies also tends to be bolstered by the presence of venture capital investors among the shareholders. MARKET AREA The Banks concentrate on marketing their services to small and medium-sized businesses, professionals and individuals in the Santa Clara and San Mateo Counties. Santa Clara County, CNB's primary base of operations, encompasses the geographic area between San Jose to the south and Palo Alto to the north. Santa Clara County ranks third in California median household income. CNB is headquartered in Cupertino, California, which is in the center of the geographical area referred to as the "Silicon Valley." The city of Cupertino has a population of approximately 51,300, and its average annual household income exceeds $97,200. MPB's primary market area ranges from Palo Alto to the south to South San Francisco to the north. MPB is headquartered in Palo Alto, California. The city of Palo Alto has a population of approximately 60,000, and its mean annual household income exceeds $75,000. The commercial base of Santa Clara and San Mateo Counties is diverse and includes computer and semiconductor manufacturing, professional services, printing and publishing, aerospace, defense, real estate construction, as well as wholesale and retail trade. As a result of its geographic concentration, the Company's results depend largely upon economic conditions in these areas. While the economy in the Company's market areas have exhibited positive economic and employment trends, there is no assurance that such trends will continue. A deterioration in economic conditions could have material adverse impact on the quality of the Company's loan portfolio and the demand for its product and services, and accordingly its results of operations. See "Risk Factors--Economic Conditions and Geographic Concentration." LENDING ACTIVITIES UNDERWRITING AND CREDIT ADMINISTRATION As of the date hereof, the lending activities of each of the Banks is guided by the basic lending policies established by its Board of Directors. The Company is currently preparing a new loan policy to govern the lending activities of both Banks. The new policy is expected to be fully implemented during the second quarter of 1997. Once implemented, the credit policy will be approved each year by the Boards of Directors of Greater Bay and each of the Banks and will be managed through periodic reviews. 42 Each loan must meet minimum underwriting criteria established in the Bank's lending policy. Lending authority is granted to officers of each Bank on a limited basis. Loan requests exceeding individual officer approval limits are approved by the Officers Loan Committees of the respective Banks. Loan requests exceeding these limits are submitted to the Greater Bay Officers Loan Committee, which consists of the President and Chief Executive Officer of Greater Bay, the Executive Vice President and Chief Lending Officer of Greater Bay, the Executive Vice President and Chief Credit Officer of MPB and the Senior Vice President and Chief Credit Officer of Greater Bay. Loans requests which exceed the limits of the Greater Bay Officers Loan Committee are submitted to the Directors Loan Committee for final approval. The Directors Loan Committee consists of four outside directors. Each of these committees meet on a regular basis in order to provide timely responses to the Banks' clients. The Company's credit administration function includes an internal review and the regular use of an outside loan review firm. In addition, the Greater Bay Officers Loan Committee and Chief Financial Officer meet at a minimum of at least once a month and review delinquencies, non-performing assets, classified assets and other pertinent information to evaluate credit risk within each Bank's loan portfolio and to recommend general reserve percentages and specific reserve allocations. The information reviewed by this committee is submitted to the Boards of Directors of the Company on a monthly basis. LOAN PORTFOLIO Approximately 57.0% of the Company's gross loan portfolio was in commercial loans at December 31, 1996, and real estate construction and land loans represented approximately 17.4% of total loans, primarily for residential projects. In addition, 16.1% of the Company's loans were real estate term loans, which are primarily secured by commercial properties. The balance of the portfolio consists of consumer loans. The interest rates charged for the loans made by the Banks vary with the degree of risk, size and maturity of the loans. Rates are generally affected by competition, associated factors stemming from the client's deposit relationship with the Bank and the Banks' cost of funds. Commercial Loans. In their commercial loan portfolio, the Banks provide personalized financial services to the diverse commercial and professional businesses in their market areas. Commercial loans, including those made by the Venture Lending Group, consist primarily of short-term loans (normally with a maturity of under one year) for working capital and business expansion. Commercial loans typically include revolving lines of credit collateralized by inventory, accounts receivable and equipment. Emphasis is placed on the borrower's earnings history, capitalization, secondary sources of repayment, and in some instances, third party guarantees or highly liquid collateral (such as time deposits and investment securities). Commercial loan pricing is generally at a rate tied to the prime rate (as quoted in the Wall Street Journal) or the Banks' reference rates. The Venture Lending Group serves the needs of companies in their start-up and development phase. Typical clients include technology companies, ranging from multimedia, software and telecommunications providers to bio-technology and medical device firms. The Venture Lending Group provides innovative lending products and other financial services, tailored to the needs of start- up and growth-stage companies. Borrowings are generally secured by minimum cash balances, accounts receivable, intellectual property rights, inventory and equipment of the companies. Many of these companies are in the start-up or development phase and will not generate any revenues for several years. The Company will often receive warrants from these companies as part of the compensation for its services. The Company participates in many SBA programs and, through CNB, is a "preferred lender." Preferred lender status is granted to a lender which has made a certain number of SBA loans and which, in the opinion of the SBA has staff who are qualified and experienced in this area. As a preferred lender, the Company has the authority to authorize, on behalf of the SBA, the SBA guaranty on loans under the 7A program. This can represent a substantial savings in serving a customer's needs. The Company utilizes both the 504 program, which is focused toward longer-term financing of buildings, and other long-term assets, and the 7A program which is 43 primarily used for financing of the equipment, inventory and working capital needs of eligible businesses generally over a three- to seven-year term. The Company's collateral position in the SBA loans is enhanced by the SBA guaranty in the case of 7A loans, and by lower loan-to-value ratios under the 504 program. The Company generally sells the guaranteed portion of its SBA loans in the secondary market. Real Estate Construction and Land Loans. The Banks' real estate construction loan activity has focused on providing short-term (less than one year maturity) loans to individuals and developers with whom the Banks have established relationships for the construction primarily of single family residences in the Banks' market areas. During 1992 and 1993, the Banks concentrated their construction loan activity on owner-occupied custom residences. During 1994, as real estate values began to stabilize, the Banks also entered the construction loan market for multi-unit single family residential projects. During 1995 and 1996, the Banks continued to expand their real estate construction portfolio with the help of the improving real estate market in Northern California. Residential real estate construction loans are typically secured by first deeds of trust and require guarantees of the borrower. The economic viability of the project and the borrower's credit-worthiness are primary considerations in the loan underwriting decision. Generally, these loans provide an attractive yield, but may carry a higher than normal risk of loss or delinquency, particularly if general real estate values decline. The Banks utilize approved independent local appraisers and loan-to-value ratios which generally do not exceed 65% to 75% of the appraised value of the property. The Banks monitor projects during the construction phase through regular construction inspections and a disbursement program tied to the percentage of completion of each project. The Banks also occasionally make land loans to person who intend to construct a single family residence on the lot generally within twelve months. In addition, the Banks have occasionally in the past, and may to a greater extent in the future, make commercial real estate construction loans to high net worth clients with adequate liquidity for construction of office and warehouse properties. Such loans are typically secured by first deeds of trust and require guarantees of the borrower. Commercial Real Estate Term Loans. The Banks provide medium term commercial real estate loans secured by commercial or industrial buildings where the properties are either used by the owner for business purposes ("owner-user properties") or have income derived from tenants ("investment properties"). The Company's loan policies require the principal balance of the loan, generally between $750,000 and $1.5 million, to be no more than 70% of the stabilized appraised value of the underlying real estate collateral. The loans, which are typically secured by first deeds of trust only, generally have terms of no more than seven to ten years and are amortized over 20 years. Most of these loans have rates tied to the prime rate, with many adjusting whenever the prime rate changes; the remaining loans adjust every two or three years depending on the term of the loan. Consumer and Other Loans. The Banks' consumer and other loan portfolio is divided between installment loans secured by automobiles and aircraft, and home improvement loans and equity lines of credit which are often secured by residential real estate. Installment loans tend to be fixed rate and longer- term (one-to-five year maturity), while the equity lines of credit and home improvement loans are generally floating rate and are reviewed for renewal on an annual basis. The Banks also have a minimal portfolio of credit card loans, issued as an additional service to its clients. DEPOSITS The Banks' deposits are obtained primarily from small and medium-sized businesses, business executives, professionals and other individuals. Each of the Banks offers the usual and customary range of depository products provided by commercial banks. The Banks' deposits are not received from a single depositor or group of affiliated depositors, the loss of any one of which would have a material adverse effect on the business of the Company or either of the Banks. Rates paid on deposits vary among the categories of deposits due to different terms, the size of the individual deposit, and rates paid by competitors on similar deposits. CNB has two business units that provide significant support to its deposit base. The Greater Bay Trust Company has approximately 10% of its trust assets under management in liquid funds that are retained in CNB 44 money market demand accounts. At December 31, 1996, these funds totaled $41.7 million. The Venture Lending Group, which finances companies in their development stage, is another source of deposits as most of the start-up phase companies have significant liquidity that is deposited in the bank as part of the banking relationship. At December 31, 1996, customers of the Venture Lending Group had $38.1 million in deposits at CNB. TRUST DEPARTMENT The Greater Bay Trust Company commenced operations in July 1988. The Greater Bay Trust Company offers a full range of fee-based trust services directly to its clients and administers several types of retirement plans, including corporate pension plans, 401(k) plans and individual retirement plans, with an emphasis on the investment management, custodianship and trusteeship of such plans. In addition, the Greater Bay Trust Company acts as executor, administrator, guardian and/or trustee in the administration of the estates of individuals. Investment and custodial services are provided for corporations, individuals and nonprofit organizations. Total assets under management by the Greater Bay Trust Company were approximately $418.0 million at December 31, 1996, compared to $270.0 million at December 31, 1995 and $157.0 million at December 31, 1994. COMPETITION The banking and financial services business in California generally, and in the Banks' market areas specifically, is highly competitive. The increasingly competitive environment is a result primarily of changes in regulation, changes in technology and product delivery systems, and the accelerating pace of consolidation among financial services providers. The Banks compete for loans, deposits and customers for financial services with other commercial banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market funds, credit unions, and other nonbank financial service providers. Many of these competitors are much larger in total assets and capitalization, have greater access to capital markets and offer a broader array of financial services than the Banks. In order to compete with the other financial services providers, the Banks principally rely upon local promotional activities, personal relationships established by officers, directors and employees with its customers, and specialized services tailored to meet its customers' needs. In those instances where the Banks are unable to accommodate a customer's needs, the Banks may arrange for those services to be provided by its correspondents. The Bank have seven offices located in the Santa Clara and San Mateo Counties. Neither the deposits nor loans of the offices of the respective Banks exceed 1% of all financial services companies located in such counties. EMPLOYEES At December 31, 1996, the Company had 177 full-time employees. None of the employees are covered by a collective bargaining agreement. The Company considers its employee relations to be satisfactory. PROPERTIES The Company occupies its administrative office under a lease which expires 2002. MPB occupies its offices under leases expiring at various dates (including options to renew) through 2009. CNB occupies its offices under leases expiring at various dates (including options to renew) through 2018. The Company believes its present facilities are adequate for its present needs and anticipated future growth. The Company believes that, if necessary, it could secure suitable alternative facilities on similar terms without adversely affecting operations. LEGAL PROCEEDINGS There are no material legal proceedings pending other than ordinary routine litigation incidental to the business of the Company to which Greater Bay or the Banks is a party or of which any of their property is a subject. 45 SUPERVISION AND REGULATION Bank holding companies and banks are extensively regulated under both federal and state law. Set forth below is a summary description of certain laws which relate to the regulation of Greater Bay and the Banks. The description does not purport to be complete and is qualified in its entirety by reference to the applicable laws and regulations. GREATER BAY Greater Bay, as a registered bank holding company, is subject to regulation under the Bank Holding Company Act of 1956, as amended (the "BHCA"). Greater Bay is required to file with the Federal Reserve quarterly and annual reports and such additional information as the Federal Reserve may require pursuant to the BHCA. The Federal Reserve may conduct examinations of Greater Bay and its subsidiaries. The Federal Reserve may require that Greater Bay terminate an activity or terminate control of or liquidate or divest certain subsidiaries or affiliates when the Federal Reserve believes the activity or the control of the subsidiary or affiliate constitutes a significant risk to the financial safety, soundness or stability of any of its banking subsidiaries. The Federal Reserve also has the authority to regulate provisions of certain bank holding company debt, including authority to impose interest ceilings and reserve requirements on such debt. Under certain circumstances, Greater Bay must file written notice and obtain approval from the Federal Reserve prior to purchasing or redeeming its equity securities. Further, Greater Bay is required by the Federal Reserve to maintain certain levels of capital. See "-- Capital Standards" herein. Greater Bay is required to obtain the prior approval of the Federal Reserve for the acquisition of more than 5% of the outstanding shares of any class of voting securities or substantially all of the assets of any bank or bank holding company. Prior approval of the Federal Reserve is also required for the merger or consolidation of Greater Bay and another bank holding company. Greater Bay is prohibited by the BHCA, except in certain statutorily prescribed instances, from acquiring direct or indirect ownership or control of more than 5% of the outstanding voting shares of any company that is not a bank or bank holding company and from engaging directly or indirectly in activities other than those of banking, managing or controlling banks or furnishing services to its subsidiaries. However, Greater Bay, subject to the prior approval of the Federal Reserve, may engage in any, or acquire shares of companies engaged in, activities that are deemed by the Federal Reserve to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In making any such determination, the Federal Reserve is required to consider whether the performance of such activities by Greater Bay or an affiliate can reasonably be expected to produce benefits to the public, such as greater convenience, increased competition or gains in efficiency, that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest or unsound banking practices. The Federal Reserve is also empowered to differentiate between activities commenced de novo and activities commenced by acquisition, in whole or in part, of a going concern. In 1996, the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (the "Budget Act") eliminated the requirement that bank holding companies seek Federal Reserve approval before engaging de novo in permissible nonbanking activities listed in Regulation Y, which governs bank holding companies, if the holding company and its lead depository institution are well-managed and well-capitalized and certain other criteria specified in the statute are met. For purposes of determining the capital levels at which a bank holding company shall be considered "well-capitalized" under this section of the Budget Act and Regulation Y, the Federal Reserve adopted, as a rule, risk-based capital ratios (on a consolidated basis) that are the same as the levels set for determining that a state member bank is well capitalized under the provisions established under the prompt corrective action provisions of federal law. See "--Prompt Corrective Action and Other Enforcement Mechanisms" herein. Under Federal Reserve regulations, a bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations in an unsafe or unsound 46 manner. In addition, it is the Federal Reserve's policy that in serving as a source of strength to its subsidiary banks, a bank holding company should stand ready to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks. A bank holding company's failure to meet its obligations to serve as a source of strength to its subsidiary banks will generally be considered by the Federal Reserve to be an unsafe and unsound banking practice or a violation of the Federal Reserve's regulations or both. Greater Bay is also a bank holding company within the meaning of Section 3700 of the California Financial Code. As such, Greater Bay and its subsidiaries are subject to examination by, and may be required to file reports with, the California State Banking Department. Finally, Greater Bay is subject to the periodic reporting requirements of the Exchange Act, including, but not limited to, filing annual, quarterly and other current reports with the Commission. THE BANKS CNB, as a national banking association, is subject to primary supervision, examination and regulation by the Comptroller. MPB, as a California state chartered bank and member of the Federal Reserve System, is subject to primary supervision, periodic examination and regulation by the California Superintendent of Banks ("Superintendent") and the Federal Reserve. If, as a result of an examination of a bank, the bank regulatory agencies should determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of the bank's operations are unsatisfactory or that the bank or its management is violating or has violated any law or regulation, various remedies are available to the bank regulatory agencies. Such remedies include the power to enjoin "unsafe or unsound" practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in capital, to restrict the growth of the bank, to assess civil monetary penalties, to remove officers and directors and ultimately to terminate a bank's deposit insurance, which would result in a revocation of the bank's charter. Neither CNB nor MPB has been the subject of any such actions by their respective regulatory agencies. The deposits of the Banks are insured by the FDIC in the manner and to the extent provided by law. For this protection, the Banks pay a semiannual statutory assessment. See "--Premiums for Deposit Insurance" herein. Various requirements and restrictions under the laws of the State of California and the United States affect the operations of the Banks. State and federal statutes and regulations relate to many aspects of the Banks' operations, including levels of capital, reserves against deposits, interest rates payable on deposits, loans, investments, mergers and acquisitions, borrowings, dividends, locations of branch offices and capital requirements. RESTRICTIONS ON TRANSFERS OF FUNDS TO GREATER BAY BY THE BANKS Greater Bay is a legal entity separate and distinct from the Banks. Greater Bay's ability to pay cash dividends is limited by state law. There are statutory and regulatory limitations on the amount of dividends which may be paid to Greater Bay by the Banks. California law restricts the amount available for cash dividends by state chartered banks, such as MPB, to the lesser of retained earnings or the bank's net income for its last three fiscal years (less any distributions made to shareholders by the bank or by any majority-owned subsidiary of the bank during such period). Notwithstanding this restriction, a bank may, with the prior approval of the Superintendent, make a distribution to its shareholders in an amount not exceeding the greater of the retained earnings of the bank, net income for such bank's last fiscal year or the net income of the bank for its current year. The prior approval of 47 the Comptroller is required if the total of all dividends declared by a national bank, such as CNB, in any calendar year exceeds the bank's net profits (as defined) for that year combined with its retained net profits (as defined) for the preceding two years, less any required transfers to surplus or a fund for the retirement of any preferred stock. The bank regulatory agencies also have authority to prohibit banks from engaging in activities that, in their respective opinions, constitute unsafe or unsound practices in conducting its business. It is possible, depending upon the financial condition of the bank in question and other factors, that the bank regulatory agencies could assert that the payment of dividends or other payments might, under some circumstances, be such an unsafe or unsound practice. Further, the bank regulatory agencies have established guidelines with respect to the maintenance of appropriate levels of capital by banks or bank holding companies under their jurisdiction. Compliance with the standards set forth in such guidelines and the restrictions that are or may be imposed under the prompt corrective action provisions of federal law could limit the amount of dividends which the Banks or Greater Bay may pay. See "--Prompt Corrective Regulatory Action and Other Enforcement Mechanisms" herein and "-- Capital Standards" herein for a discussion of these additional restrictions on capital distributions. Substantially all of Greater Bay's revenues, including funds available for the payment of dividends and other operating expenses, are, and will continue to be, dividends paid by the Banks. At December 31, 1996, the Banks had $6.3 million in the aggregate available for the payment of cash dividends. The Banks are subject to certain restrictions imposed by federal law on any extensions of credit to, or the issuance of a guarantee or letter of credit on behalf of, Greater Bay or other affiliates, the purchase of or investments in stock or other securities thereof, the taking of such securities as collateral for loans and the purchase of assets of Greater Bay or other affiliates. Such restrictions prevent Greater Bay and such other affiliates from borrowing from the Banks unless the loans are secured by marketable obligations or other acceptable collateral of designated amounts. Further, such secured loans and investments by the Banks to or in Greater Bay or to or in any other affiliate is limited to 10% of the respective bank's capital stock and surplus (as defined by federal regulations) and such secured loans and investments are limited, in the aggregate, to 20% of the respective banks' capital stock and surplus (as defined by federal regulations). California law also imposes certain restrictions with respect to transactions involving Greater Bay and other controlling persons of the Banks. Additional restrictions on transactions with affiliates may be imposed on the Banks under the prompt corrective action provisions of federal law. See "--Prompt Corrective Regulatory Action and Other Enforcement Mechanisms." COMMON LIABILITY Under federal law, a depository institution insured by the FDIC can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with the default of a commonly controlled FDIC-insured depository institution or any assistance provided by the FDIC to a commonly controlled FDIC-insured institution in danger of default. These provisions can have the effect of making one subsidiary bank of Greater Bay responsible for FDIC-insured losses at another subsidiary bank. EFFECT OF GOVERNMENTAL POLICIES AND LEGISLATION Banking is a business that depends on rate differentials. In general, the difference between the interest rate paid by the Banks on their deposits and their other borrowings and the interest rate received by the Banks on loans extended to their customers and securities held in the Banks' portfolios comprises the major portion of the Banks' earnings. These rates are highly sensitive to many factors that are beyond the control of the Banks. Accordingly, the earnings and growth of the Banks are subject to the influence of domestic and foreign economic conditions, including inflation, recession and unemployment. The commercial banking business is not only affected by general economic conditions but is also influenced by the monetary and fiscal policies of the federal government and the policies of regulatory agencies, particularly 48 the Federal Reserve. The Federal Reserve implements national monetary policies (with objectives such as curbing inflation and combating recession) by its open-market operations in United States Government securities, by adjusting the required level of reserves for financial institutions subject to its reserve requirements and by varying the discount rates applicable to borrowings by depository institutions. The actions of the Federal Reserve in these areas influence the growth of bank loans, investments and deposits and also affect interest rates charged on loans and paid on deposits. The nature and impact of any future changes in monetary policies cannot be predicted. From time to time, legislation is enacted which has the effect of increasing the cost of doing business, limiting or expanding permissible activities or affecting the competitive balance between banks and other financial services providers. Proposals to change the laws and regulations governing the operations and taxation of banks, bank holding companies and other financial services provider are frequently made in Congress, in the California legislature and before various bank regulatory and other professional agencies. The likelihood of any major legislative changes and the impact such changes might have on Greater Bay or the Banks are impossible to predict. CAPITAL STANDARDS The Federal Reserve, the Comptroller and the FDIC have adopted risk-based minimum capital guidelines intended to provide a measure of capital that reflects the degree of risk associated with a banking organization's operations for both transactions reported on the balance sheet as assets and transactions, such as letters of credit and recourse arrangements, which are recorded as off balance sheet items. Under these guidelines, nominal dollar amounts of assets and credit equivalent amounts of off balance sheet items are multiplied by one of several risk adjustment percentages, which range from 0% for assets with low credit risk, such as certain U.S. Treasury securities, to 100% for assets with high credit risk, such as commercial loans. A banking organization's risk-based capital ratios are obtained by dividing its qualifying capital by its total risk adjusted assets. The regulators measure risk-adjusted assets, which includes off balance sheet items, against both total qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2 capital) and Tier 1 capital. Tier 1 capital consists of, among other things, (i) common shareholders' equity capital (includes common stock and related surplus, and undivided profits); (ii) noncumulative perpetual preferred stock (cumulative perpetual preferred stock for bank holding companies), including any related surplus; and (iii) minority interests in certain subsidiaries, less most intangible assets. Tier 2 capital may consist of: (i) a limited amount of the allowance for loan and lease losses ("ALLL"); (ii) cumulative perpetual preferred stock; (iii) perpetual preferred stock (and any related surplus); (iv) term subordinated debt and certain other instruments with some characteristics of equity. The inclusion of elements of Tier 2 capital is subject to certain other requirements and limitations of the federal banking agencies. The federal banking agencies require a minimum ratio of qualifying total capital to risk-adjusted assets of 8% and a minimum ratio of Tier 1 capital to risk-adjusted assets of 4%. In addition to the risked-based guidelines, federal banking regulators require banking organizations to maintain a minimum amount of Tier 1 capital to total assets, referred to as the leverage ratio. For a banking organization rated in the highest of the five categories used by regulators to rate banking organizations, the minimum leverage ratio of Tier 1 capital to total assets must be 3%. For all banking organizations not rated in the highest category, the minimum leverage ratio must be at least 100 to 200 basis points above the 3% minimum, or 4% to 5%. In addition to these uniform risk-based capital guidelines and leverage ratios that apply across the industry, the regulators have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios. In June 1996, the federal banking agencies adopted a joint agency policy statement to provide guidance on managing interest rate risk. These agencies indicated that the adequacy and effectiveness of a bank's interest rate risk management process and the level of its interest rate exposures are critical factors in the agencies' evaluation of the bank's capital adequacy. A bank with material weaknesses in its risk management process or high levels of exposure relative to its capital will be directed by the agencies to take corrective action. Such actions will 49 include recommendations or directions to raise additional capital, strengthen management expertise, improve management information and measurement systems, reduce levels of exposure, or some combination thereof depending upon the individual institution's circumstances. This policy statement augments the August 1995 regulations adopted by the federal banking agencies which addressed risk-based capital standards for interest rate risk. In December 1993, the federal banking agencies issued an interagency policy statement on the ALLL which, among other things, establishes certain benchmark ratios of loan loss reserves to classified assets. The benchmark set forth by such policy statement is the sum of (a) assets classified loss; (b) 50 percent of assets classified doubtful; (c) 15 percent of assets classified substandard; and (d) estimated credit losses on other assets over the upcoming 12 months. This amount is neither a "floor" nor a "safe harbor" level for an institution's ALLL. Federally supervised banks and savings associations are currently required to report deferred tax assets in accordance with SFAS No. 109. The federal banking agencies issued final rules governing banks and bank holding companies, which became effective April 1, 1995 and limit the amount of deferred tax assets that are allowable in computing an institution's regulatory capital. Deferred tax assets that can be realized for taxes paid in prior carryback years and from future reversals of existing taxable temporary differences are generally not limited. Deferred tax assets that can only be realized through future taxable earnings are limited for regulatory capital purposes to the lesser of (i) the amount that can be realized within one year of the quarter-end report date, based on projected taxable income for that year or (ii) 10% of Tier 1 Capital. The amount of any deferred tax in excess of this limit would be excluded from Tier 1 Capital and total assets and regulatory capital calculations. Future changes in regulations or practices could further reduce the amount of capital recognized for purposes of capital adequacy. Such a change could affect the ability of the Banks to grow and could restrict the amount of profits, if any, available for the payment of dividends. For information concerning the capital ratios of Greater Bay and the Banks, see "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Capital Resources." PROMPT CORRECTIVE ACTION AND OTHER ENFORCEMENT MECHANISMS Federal law requires each federal banking agency to take prompt corrective action to resolve the problems of insured depository institutions, including but not limited to those that fall below one or more prescribed minimum capital ratios. In accordance with federal law, each federal banking agency has promulgated regulations defining the following five categories in which an insured depository institution will be placed, based on the level of its capital ratios: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. An insured depository institution will be classified in the following categories based, in part, on the capital measures indicated below: "Well capitalized" "Adequately capitalized" Total risk-based capital of at least 10%; Total risk-based capital of at least 8%; Tier 1 risk-based capital of 6%; and Tier 1 risk-based capital of 4%; and Leverage ratio of 5%. Leverage ratio of 4%. "Undercapitalized" "Significantly undercapitalized" Total risk-based capital less than 8%; Total risk-based capital less than 6%; Tier 1 risk-based capital less than 4%; or Tier 1 risk-based capital less than 3%; or Leverage ratio less than 4%. Leverage ratio less than 3%. "Critically undercapitalized" Tangible equity to total assets less than 2%.
50 An institution that, based upon its capital levels, is classified as "well capitalized," "adequately capitalized" or "undercapitalized" may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition or an unsafe or unsound practice warrants such treatment. At each successive lower capital category, an insured depository institution is subject to more restrictions. The federal banking agencies, however, may not treat a significantly undercapitalized institution as "critically undercapitalized" unless its capital ratio actually warrants such treatment. The law prohibits insured depository institutions from paying management fees to any controlling persons or, with certain limited exceptions, making capital distributions if after such transaction the institution would be undercapitalized. If an insured depository institution is undercapitalized, it will be closely monitored by the appropriate federal banking agency, subject to asset growth restrictions and required to obtain prior regulatory approval for acquisitions, branching and engaging in new lines of business. Any undercapitalized depository institution must submit an acceptable capital restoration plan to the appropriate federal banking agency 45 days after receiving notice, or is deemed to have notice, that the institution is undercapitalized. The appropriate federal banking agency cannot accept a capital plan unless, among other things, it determines that the plan: (i) specifies: (a) the steps the institution will take to become adequately capitalized; (b) the levels of capital to be attained during each year in which the plan will be in effect; (c) how the institution will comply with the applicable restrictions or requirements then in effect of the Federal Deposit Insurance Act; and (d) the types and levels of activities in which the institution will engage; (ii) is based on realistic assumptions and is likely to succeed in restoring the depository institution's capital; and (iii) would not appreciably increase the risk (including credit risk, interest-rate risk, and other types of risk) to which the institution is exposed. In addition, each company controlling an undercapitalized depository institution must guarantee that the institution will comply with the capital plan until the depository institution has been adequately capitalized on average during each of four consecutive calendar quarters and must otherwise provide appropriate assurances of performance. The aggregate liability of such guarantee is limited to the lesser of (a) an amount equal to 5% of the depository institution's total assets at the time the institution became undercapitalized or (b) the amount which is necessary to bring the institution into compliance with all capital standards applicable to such institution as of the time the institution fails to comply with its capital restoration plan. Finally, the appropriate federal banking agency may impose any of the additional restrictions or sanctions that it may impose on significantly undercapitalized institutions if it determines that such action will further the purpose of the prompt correction action provisions. An insured depository institution that is significantly undercapitalized, or is undercapitalized and fails to submit, or in a material respect to implement, an acceptable capital restoration plan, is subject to additional restrictions and sanctions. These include, among other things: (i) a forced sale of voting shares to raise capital or, if grounds exist for appointment of a receiver or conservator, a forced merger; (ii) restrictions on transactions with affiliates; (iii) further limitations on interest rates paid on deposits; (iv) further restrictions on growth or required shrinkage; (v) modification or termination of specified activities; (vi) replacement of directors or senior executive officers; (vii) prohibitions on the receipt of deposits from correspondent institutions; (viii) restrictions on capital distributions by the holding companies of such institutions; (ix) required divestiture of subsidiaries by the institution; or (x) other restrictions as determined by the appropriate federal banking agency. Although the appropriate federal banking agency has discretion to determine which of the foregoing restrictions or sanctions it will seek to impose, it is required to: (i) force a sale of shares or obligations of the bank, or require the bank to be acquired by or combine with another institution; (ii) impose restrictions on affiliate transactions and (iii) impose restrictions on rates paid on deposits, unless it determines that such actions would not further the purpose of the prompt corrective action provisions. In addition, without the prior written approval of the appropriate federal banking agency, a significantly undercapitalized institution may not pay any bonus to its senior executive officers or provide compensation to any of them at a rate that exceeds such officer's average rate of base compensation during the 12 calendar months preceding the month in which the institution became undercapitalized. Further restrictions and sanctions are required to be imposed on insured depository institutions that are critically undercapitalized. For example, a critically undercapitalized institution generally would be prohibited 51 from engaging in any material transaction other than in the ordinary course of business without prior regulatory approval and could not, with certain exceptions, make any payment of principal or interest on its subordinated debt beginning 60 days after becoming critically undercapitalized. Most importantly, however, except under limited circumstances, the appropriate federal banking agency, not later than 90 days after an insured depository institution becomes critically undercapitalized, is required to appoint a conservator or receiver for the institution. The board of directors of an insured depository institution would not be liable to the institution's shareholders or creditors for consenting in good faith to the appointment of a receiver or conservator or to an acquisition or merger as required by the regulator. In addition to measures taken under the prompt corrective action provisions, commercial banking organizations may be subject to potential enforcement actions by the federal regulators for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation or any condition imposed in writing by the agency or any written agreement with the agency. See "--Potential Enforcement Actions" herein. SAFETY AND SOUNDNESS STANDARDS Effective July 1995, the federal banking agencies adopted final guidelines establishing standards for safety and soundness, as required by Federal Deposit Insurance Corporation Improvement Act. These standards are designed to identify potential safety and soundness concerns and ensure that action is taken to address those concerns before they pose a risk to the deposit insurance funds. The standards relate to (i) internal controls, information systems and internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) asset growth; (v) earnings; and (vi) compensation, fee and benefits. If a federal banking agency determines that an institution fails to meet any of these standards, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. In the event the institution fails to submit an acceptable plan within the time allowed by the agency or fails in any material respect to implement an accepted plan, the agency must, by order, require the institution to correct the deficiency. Effective October 1, 1996, the federal banking agencies promulgated safety and soundness regulations and accompanying interagency compliance guidelines on asset quality and earnings standards. These new guidelines provide six standards for establishing and maintaining a system to identify problem assets and prevent those assets from deteriorating. The institution should: (i) conduct periodic asset quality reviews to identify problem assets; (ii) estimate the inherent losses in those assets and establish reserves that are sufficient to absorb estimated losses; (iii) compare problem asset totals to capital; (iv) take appropriate corrective action to resolve problem assets; (v) consider the size and potential risks of material asset concentrations; and (vi) provide periodic asset reports with adequate information for management and the board of directors to assess the level of asset risk. These new guidelines also set forth standards for evaluating and monitoring earnings and for ensuring that earnings are sufficient for the maintenance of adequate capital and reserves. If an institution fails to comply with a safety and soundness standard, the appropriate federal banking agency may require the institution to submit a compliance plan. Failure to submit a compliance plan or to implement an accepted plan may result in enforcement action. PREMIUMS FOR DEPOSIT INSURANCE The FDIC has adopted final regulations implementing a risk-based premium system required by federal law, which establishes an assessment rate schedule ranging from 0 cents per $100 of deposits to 27 cents per $100 of deposits applicable to members of BIF. To determine the risk-based assessment for each institution, the FDIC will categorize an institution as well capitalized, adequately capitalized or undercapitalized based on its capital ratios using the same standards used by the FDIC for its prompt corrective action regulations. A well-capitalized institution is generally one that has at least a 10% total risk-based capital ratio, a 6% Tier 1 risk-based capital ratio and a 5% Tier 1 leverage capital ratio. An adequately capitalized institution will generally have at least an 8% total risk-based capital ratio, a 4% Tier 1 risk-based capital ratio and a 4% Tier 1 leverage capital ratio. An undercapitalized institution will generally be one that does not meet either of the above definitions. The FDIC will also assign each institution to one of three subgroups based upon reviews by the institution's primary federal or state regulator, statistical analyses of financial statements and other information relevant to evaluating the risk 52 posed by the institution. The three supervisory categories are: financially sound with only a few minor weaknesses (Group A), demonstrates weaknesses that could result in significant deterioration (Group B), and poses a substantial probability of loss (Group C). The BIF assessment rates are set forth below for institutions based on their risk-based assessment categorization. ASSESSMENT RATES EFFECTIVE JANUARY 1, 1996*
GROUP A GROUP B GROUP C ------- ------- ------- Well Capitalized.................................. 0 3 17 Adequately Capitalized............................ 3 10 24 Undercapitalized.................................. 10 24 27
- -------- *Assessment figures are expressed in terms of cents per $100 per deposits. On September 30, 1996, Congress passed the Budget Act which capitalized the Savings Association Insurance Fund ("SAIF") through a special assessment on SAIF-insured deposits and required banks to share in part of the interest payments on the Financing Corporation ("FICO") bonds which were issued to help fund the federal government costs associated with the savings and loan crisis of the late 1980's. The special thrift SAIF assessment has been set at 65.7 cents per $100 of deposits insured by SAIF as of March 31, 1995. Effective January 1, 1997, for the FICO payments, SAIF-insured institutions will pay 3.2 cents per $100 in domestic deposits and BIF-insured institutions, like the Banks, will pay 0.64 cents per $100 in domestic deposits. Full pro rata sharing of the FICO interest payments takes effect on January 1, 2000. The federal banking regulators are also authorized to prohibit depository institutions and their holding companies from facilitating or encouraging the shifting of deposits from SAIF to BIF for the purpose of evading thrift assessment rates. The Budget Act also prohibits the FDIC from setting premiums under the risk-based schedule above the amount needed to meet the designated reserve ratio (currently 1.25%). INTERSTATE BANKING AND BRANCHING On September 29, 1994, the President signed into law the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Act"). Under the Interstate Act, beginning one year after the date of enactment, a bank holding company that is adequately capitalized and managed may obtain approval under the BHCA to acquire an existing bank located in another state without regard to state law. A bank holding company is not permitted to make such an acquisition if, upon consummation, it would control (a) more than 10% of the total amount of deposits of insured depository institutions in the United States or (b) 30% or more of the deposits in the state in which the bank is located. A state may limit the percentage of total deposits that may be held in that state by any one bank or bank holding company if application of such limitation does not discriminate against out- of-state banks or bank holding companies. An out-of-state bank holding company may not acquire a state bank in existence for less than a minimum length of time that may be prescribed by state law, except that a state may not impose more than a five-year age requirement. The Interstate Act also permits, beginning June 1, 1997, mergers of insured banks located in different states and conversion of the branches of the acquired bank into branches of the resulting bank. Each state may permit such combinations earlier than June 1, 1997, and may adopt legislation to prohibit interstate mergers after that date in that state or in other states by that state's banks. The same concentration limits discussed in the preceding paragraph apply. The Interstate Act also permits a national or state bank to establish branches in a state other than its home state if permitted by the laws of that state, subject to the same requirements and conditions as for a merger transaction. 53 The Interstate Act is likely to increase competition in the Company's market areas especially from larger financial institutions and their holding companies. It is difficult to assess the impact such likely increased competition will have on the Company's operations. Under the Interstate Act, the extent of a commercial bank's ability to branch into a new state will depend on the law of the state. In October 1995, California adopted an early "opt in" statute under the Interstate Act that permits out-of-state banks to acquire California banks that satisfy a five- year minimum age requirement (subject to exceptions for supervisory transactions) by means of merger or purchases of assets, although entry through acquisition of individual branches of California institutions and de novo branching into California are not permitted. The Interstate Act and the California branching statute will likely increase competition from out-of- state banks in the markets in which the Company operates, although it is difficult to assess the impact that such increased competition may have on the Company's operations. COMMUNITY REINVESTMENT ACT AND FAIR LENDING DEVELOPMENTS The Banks are subject to certain fair lending requirements and reporting obligations involving home mortgage lending operations and Community Reinvestment Act ("CRA") activities. The CRA generally requires the federal banking agencies to evaluate the record of a financial institution in meeting the credit needs of its local communities, including low and moderate income neighborhoods. In addition to substantial penalties and corrective measures that may be required for a violation of certain fair lending laws, the federal banking agencies may take compliance with such laws and CRA into account when regulating and supervising other activities. In May 1995, the federal banking agencies issued final regulations which change the manner in which they measure a bank's compliance with its CRA obligations. The final regulations adopt a performance-based evaluation system which bases CRA ratings on an institution's actual lending, service and investment performance, rather than the extent to which the institution conducts needs assessments, documents community outreach activities or complies with other procedural requirements. In March 1994, the federal Interagency Task Force on Fair Lending issued a policy statement on discrimination in lending. The policy statement describes the three methods that federal agencies will use to prove discrimination: overt evidence of discrimination, evidence of disparate treatment and evidence of disparate impact. In connection with its assessment of CRA performance, the appropriate bank regulatory agency assigns a rating of "outstanding," "satisfactory," "needs to improve" or "substantial noncompliance." Based on an examination conducted during the first quarter of 1996, MPB was rated outstanding. CNB, which was rated satisfactory in 1995, is currently undergoing a CRA exam. POTENTIAL ENFORCEMENT ACTIONS Commercial banking organizations, such as the Banks, and their institution- affiliated parties, which include Greater Bay, may be subject to potential enforcement actions by the Federal Reserve, the FDIC, the Superintendent and/or the Comptroller for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation or any condition imposed in writing by the agency or any written agreement with the agency. Enforcement actions may include the imposition of a conservator or receiver, the issuance of a cease-and-desist order that can be judicially enforced, the termination of insurance of deposits (in the case of the Banks), the imposition of civil money penalties, the issuance of directives to increase capital, the issuance of formal and informal agreements, the issuance of removal and prohibition orders against institution affiliated parties and the imposition of restrictions and sanctions under the prompt corrective action provisions of the FDIC Improvement Act. Additionally, a holding company's inability to serve as a source of strength to its subsidiary banking organizations could serve as an additional basis for a regulatory action against the holding company. Neither Greater Bay nor the Banks has been subject to any such enforcement actions. 54 MANAGEMENT BOARD OF DIRECTORS AND EXECUTIVE OFFICERS The table below sets forth certain information for the directors and certain executive officers of Greater Bay and where indicated, CNB or MPB, as of December 31, 1996.
NAME POSITION(S) AGE ---- ----------- --- DIRECTORS: John M. Gatto Co-Chairman of the Board 59 Duncan L. Matteson Co-Chairman of the Board of Greater Bay; Chairman of the Board of MPB 62 Rex D. Lindsay Vice-Chairman of the Board 71 Edwin E. van Bronkhorst Vice-Chairman of the Board 73 David L. Kalkbrenner Director; Chief Executive Officer and President of Greater Bay and MPB 57 James E. Jackson Director 62 Glen McLaughlin Director 62 Dick J. Randall Director 65 Donald H. Seiler Director 68 Warren R. Thoits Director 74 EXECUTIVE OFFICERS: C. Donald Allen Director, Chairman of the Board and Chief Executive Officer of CNB 62 Murray B. Dey Director, Executive Vice President and Chief Credit Officer of MPB 54 David R. Hood Executive Vice President; Senior Lending Officer of Greater Bay and CNB 52 Hall Palmer Executive Vice President and Senior Trust Officer of Greater Bay Trust Company and CNB 56 Steven C. Smith Executive Vice President; Chief Operating Officer and Chief Financial Officer of Greater Bay; Executive Vice President and Chief Operating Officer of CNB 45
JOHN M. GATTO, Co-Chairman of Greater Bay since November 1996. He was a director of Cupertino from 1984 to the date of the Merger and has served as Chairman of the Board of CNB since 1984. Mr. Gatto has been the sole proprietor of Maria Enterprises, a development consultant company, since December 1993. From 1984 to 1993, Mr. Gatto was an architect for Cypress Properties, a real estate development company. DUNCAN L. MATTESON, Co-Chairman of the Board of Directors of Greater Bay since November 1996. He served as Chairman of the Board of Mid-Peninsula from 1994 until the date of the Merger and has served as Chairman of the Board of MPB since 1987. He is President of the Matteson Companies, a diversified group of real estate investment and property management corporations located in Menlo Park. He has been actively involved in the real estate investment and securities industries in the Palo Alto/Menlo Park Area since 1959. He is a member of the Executive Committee of the Stanford Heart Council, and serves as a trustee of the Palo Alto Medical Foundation. As an appointee of the Governor, Mr. Matteson is Vice President of the board of directors 55 of the Cow Palace. He is the Immediate Past-Chairman of the National Multi- Housing Council, a group of the leading apartment owners and managers throughout the United States. REX D. LINDSAY, Vice-Chairman of the Board of Directors of Greater Bay since November 1996. He served as a director of Cupertino from 1984 to the date of the Merger and has served as a director of CNB since 1984. For approximately the past five years, Mr. Lindsay has been a rancher and a private investor. EDWIN E. VAN BRONKHORST, Vice-Chairman of the Board of Directors of Greater Bay (formerly Mid-Peninsula) since 1994 and a director of MPB since 1987. Mr. van Bronkhurst retired from the Hewlett-Packard Company in 1984 and was, prior to his retirement, Senior Vice President, Chief Financial Officer and Treasurer of that company and served on its board of directors from 1962 to 1984. He currently serves as a member of the board of directors of the California Water Service Company and Nellcor Puritan Bennett, a manufacturer of medical equipment, and is a Trustee and Treasurer of the David & Lucille Packard Foundation. DAVID L. KALKBRENNER, President, Chief Executive Officer and a director of Greater Bay and MPB. He has held such positions with Greater Bay (formerly Mid- Peninsula) since 1994 and with MPB since 1987. He was employed by Crocker National Bank from 1963 to 1986. From 1981 to 1986, he served as First Vice President and Regional Manager of the Mid-Peninsula region, with administrative offices located in Palo Alto. He was responsible for the administration of 14 full-service branches from San Carlos to Sunnyvale, a business banking center in Palo Alto and the private banking office, also located in Palo Alto. From 1977 to 1981, he was Vice President and Manager of the main office of Crocker National Bank in Palo Alto. He is a member of the board of directors of the College of Notre Dame and is a former director of the Palo Alto Chamber of Commerce and the Community Association for the Retarded. JAMES E. JACKSON, director of Greater Bay since November 1996. He served as a director of Cupertino from 1984 to the date of the Merger and has served as a director of CNB since 1984. Mr. Jackson has been an attorney-at-law at the law firm Jackson, Abdalah & Rodriguez, a Professional Corporation, since January 1989. GLEN MCLAUGHLIN, director of Greater Bay since November 1996. He served as a director of Cupertino from 1984 to the date of the Merger and has served as a director of CNB since 1984. Mr. McLaughlin has also served as the Chairman of Venture Leasing Associates, an equipment leasing company, since December 1986. DICK J. RANDALL, director of Greater Bay since November 1996. He served as a director of Cupertino from 1984 to the date of the Merger and has served as a director of CNB since 1984. Mr. Randall has been a private investor and rancher since 1993. From 1962 until his retirement in 1993, Mr. Randall served as the President of The William Lyon Co., a real estate developer and construction company. DONALD H. SEILER, director of Greater Bay (formerly Mid-Peninsula) since 1994 and of MPB since 1987. He is the founder and managing partner of Seiler & Company, Certified Public Accountants, in Redwood City and San Francisco. He has been a certified public accountant in San Francisco and the Peninsula area since 1952. He is presently a director of Ross Stores, Inc., serves on the audit committee of Stanford Health Services, is a past-president of the Jewish Community Federation of San Francisco, the Peninsula and Marin and Sonoma Counties. He is on the board of directors of the Peninsula Community Foundation. WARREN R. THOITS, director of Greater Bay (formerly Mid-Peninsula) since 1994 and of MPB since 1987. He is a partner with the Palo Alto law firm of Thoits, Love, Hershberger & McLean. He is a native of Palo Alto and a graduate of Stanford University and its School of Law. Mr. Thoits has been very active in community and charitable organizations, having served as President of the Palo Alto Chamber of Commerce, the Palo Alto Rotary Club and as Chairman of the Palo Alto Area Chapter of the American Red Cross. He was formerly a member of the board of directors of Northern California Savings and Loan Association (now Great Western Bank). 56 C. DONALD ALLEN, Chairman of the Board and Chief Executive Officer of CNB since 1990. He served as President and Chief Executive Officer of Cupertino from 1985 to the date of the Merger. Mr. Allen was a founding Director and President of CNB. MURRAY B. DEY, Executive Vice President and Chief Credit Officer of MPB since 1987. From 1964 to 1986 he worked for Crocker National Bank. From 1975 to 1982, he was the Vice President and Assistant Manager of the main office of Crocker National Bank in Palo Alto. He became the Manager of that office in 1982 and held that position until 1984. From 1984 to 1986 he was the Area Market Manager in the Palo Alto/Menlo Park area. He currently serves as a member of the board of directors of Senior Coordinating Council of Palo Alto, Inc., is President and Treasurer of the Home Equity Loan Program for Seniors, Inc., and is a member of the Community Cabinet of the Lucille Packard Children's Hospital at Stanford. DAVID R. HOOD, Executive Vice President and Senior Lending Officer of Greater Bay since November 1996. Since April 1995, he has served as Executive Vice President and Senior Lending Officer of CNB. From April 1985 to March 1995, he held positions of Vice President, Senior Vice President and Senior Loan Officer, Executive Vice President and Senior Lending Officer, and President of University Bank & Trust. From 1967 to 1985 Mr. Hood held various positions, the most recent of which was Vice President and Manager of the San Mateo Business Loan Center for Wells Fargo Bank, N.A. HALL PALMER, Executive Vice President and Senior Trust Officer of the Greater Bay Trust Company since November 1996. Mr. Palmer joined CNB in May 1995 as Executive Vice President and Senior Trust Officer. Prior to that time, from May 1987 to May 1995, Mr. Palmer served as Executive Vice President and Senior Trust Officer for University Bank & Trust. From 1984 to 1987, Mr. Palmer was Senior Vice President and Executive Trust Officer for Key Bank of Oregon. From 1968 to 1984, Mr. Palmer was Manager and Trust Officer for Wells Fargo Bank, N.A. STEVEN C. SMITH, Executive Vice President, Chief Operating Officer and Chief Financial Officer of Greater Bay since November 1996 and Executive Vice President and Chief Operating Officer of CNB since 1995. He is a certified public accountant who joined Cupertino and CNB in December 1993 as Senior Vice President and Chief Financial Officer, and in 1995 was named Executive Vice President and Chief Operating Officer of Cupertino and CNB. From July 1993 to December 1993, Mr. Smith served as Executive Vice President and Chief Financial Officer of Commercial Pacific Bank. From 1992 to July 1993, Mr. Smith served as Executive Vice President and Chief Financial Officer of First Charter Bank. From 1984 to 1991, Mr. Smith served as Senior Vice President of Finance and Treasurer of Fidelity Federal Bank, a federal savings bank. 57 EXECUTIVE COMPENSATION AND OTHER MATTERS The following table sets forth information concerning the compensation of the Chief Executive Officer of the Company and five other executive officers of Greater Bay or the Banks as of December 31, 1996 whose total salary and bonus for the year ended December 31, 1996 exceeded $100,000. In all cases, payment was for services in all capacities to Greater Bay (and its predecessors, Mid-Peninsula and Cupertino) and the Banks during the fiscal years ended December 31, 1996, 1995 and 1994: SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM AWARDS ----------------------- -------------------------- SECURITIES OTHER UNDERLYING ANNUAL OPTIONS ALL OTHER NAME AND PRINCIPAL SALARY(1) BONUS(2) COMPENSATION(3) SARS(4) COMPENSATION(5) POSITION YEAR ($) ($) ($) (#) ($) - ------------------ ---- --------- -------- --------------- ---------- --------------- David L. Kalkbrenner.... 1996 182,083 124,000 8,400 20,000 71,054 President and CEO of 1995 150,000 97,000 8,400 15,000 45,033 Greater Bay and MPB 1994 142,110 74,000 8,400 1,062 13,142 C. Donald Allen......... 1996 185,858 7,500 -- 3,816 69,129 Chairman and CEO 1995 161,177 7,500 -- -- 14,730 of CNB 1994 150,000 -- -- -- 13,020 Steven C. Smith......... 1996 139,020 70,860 6,000 9,131 28,501 Executive Vice 1995 127,250 48,000 6,000 8,968 7,133 President 1994 103,416 30,000 6,000 8,968 830 COO and CFO of Greater Bay; EVP and COO of CNB David Hood.............. 1996 124,120 62,490 6,000 7,131 40,222 Executive Vice 1995 85,462 48,000 6,000 13,453 2,153 President 1994 -- -- -- -- -- Chief Senior Lending Officer of Greater Bay and CNB Murray B. Dey........... 1996 124,425 80,000 6,000 6,000 34,959 Executive Vice 1995 120,000 67,000 6,000 -- 23,891 President and 1994 115,000 42,000 6,000 1,062 10,089 Chief Credit Officer of MPB Hall Palmer............. 1996 122,600 62,490 6,000 4,631 33,343 Executive Vice 1995 80,000 48,000 6,000 13,453 2,580 President and 1994 -- -- -- -- -- Senior Trust Officer
- -------- (1) Annual salary includes cash compensation earned and received by executive officers as well as amounts earned but deferred at the election of those officers under the 401(k) Plan. (2) Amounts indicated as bonus payments were earned for performance during 1996, 1995, and 1994 but paid in the first quarters of 1997, 1996, and 1995, respectively. (3) No executive officer received perquisites or other personal benefits in excess of the lesser of $50,000 or 10% of each such officer's total annual salary and bonus during 1996, 1995, or 1994. (4) Under the Greater Bay Bancorp 1996 Stock Option Plan (the "1996 Option Plan"), options may be granted to directors and key, full-time salaried officers and employees of Greater Bay, MPB and CNB. Options granted under the 1996 Option Plan are either incentive options or non-statutory options. Options granted under the 1996 Option Plan become exercisable in accordance with a vesting schedule established at the time of grant. Vesting may not extend beyond ten years from the date of grant. Options granted under the 1996 Option Plan are adjusted to protect against dilution in the event of certain changes in Greater Bay's 58 capitalization, including stock splits and stock dividends. All options granted to the named executive officers were incentive stock options and have an exercise price equal to the fair market value of Greater Bay's Common Stock on the date of grant. For David L. Kalkbrenner and Murray B. Dey, the amounts shown have been adjusted to give effect to a five percent stock dividend in December 1993, and the conversion ratio pertaining to the merger transaction whereby WestCal merged with and into MPB and MPB became a wholly owned subsidiary of the Company, which transaction was consummated on October 7, 1994. For C. Donald Allen, Steven C. Smith, David R. Hood and Hall Palmer, the amounts shown give effect to the conversion ratio pertaining to the Merger between Greater Bay and Cupertino which became effective on November 27, 1996. (5) Amounts shown for David L. Kalkbrenner include $2,600 in director fees, $3,612 in term life insurance premiums and $6,930 in 401(k) plan matching contributions in 1994; $2,400 in director fees, $3,903 in term life insurance premiums, $31,800 accrued under his Salary Continuation Agreement and $6,930 in 401(k) plan matching contributions in 1995; and $2,400 in director fees, $11,000 in term life insurance premiums, $50,529 accrued under his Salary Continuation Agreement and $7,125 in 401(k) plan matching contributions in 1996. Amounts shown for C. Donald Allen include $8,400 in directors' fees and $4,620 in 401(k) plan matching contributions in 1994; $8,150 in directors' fees, $4,650 in 401(k) plan matching contributions and $1,930 to fund retirement benefits in 1995; and $9,734 in directors fees, $4,750 in 401(k) plan matching contributions and $54,639 to fund retirement benefits in 1996. Amounts shown for Steven C. Smith include $830 in 401(k) plan matching contributions in 1994; $4,620 in 401(k) plan matching contributions and $2,513 to fund retirement benefits in 1995; and $4,750 in 401(k) plan matching contributions and $23,751 to fund retirement benefits in 1996. Amounts shown for David C. Hood, who joined the Company in April 1995, include $2,153 in payments to fund his retirement benefits in 1995; $4,750 in 401(k) plan matching contributions and $33,472 to fund his retirement benefits in 1996. Amounts shown for Murray B. Dey include $3,159 in term life insurance premiums and $6,930 in 401(k) plan matching contributions in 1994; $2,060 in term life insurance premiums, $14,901 accrued under his Salary Continuation Agreement and $6,930 in 401(k) plan matching contributions in 1995; and $4,155 in term life insurance premiums, $23,679 accrued under his Salary Continuation Agreement and $7,125 in 401(k) plan matching contributions in 1996. Amounts shown for Hall Palmer, who joined the Company in May 1995, include $2,580 to fund his retirement benefits in 1995; $4,750 in 401(k) plan matching contributions and $28,593 to fund his retirement benefits in 1996. 59 OPTION/SAR GRANTS TABLE The following table provides the specified information concerning grants of options to purchase Greater Bay's Common Stock made during the year ended December 31, 1996 to the persons named in the Summary Compensation Table: OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION INDIVIDUAL GRANTS IN FISCAL 1996 FOR OPTION TERM(1) - -------------------------------------------------------------------- ----------------------------- NUMBER OF % OF TOTAL SECURITIES OPTIONS EXERCISE UNDERLYING GRANTED TO OR BASE OPTIONS EMPLOYEES IN PRICE(3) EXPIRATION 5% 10% NAME GRANTED(2) FISCAL YEAR ($/SH) DATE ($) ($) - ---- ---------- ------------ -------- ---------- -------------- -------------- David L. Kalkbrenner.... 10,000 16.75 01/11/06 105,340 266,952 10,000 21.75 12/17/06 136,785 346,639 ------ 20,000 16.12 C. Donald Allen......... 816 15.94 05/16/02 8,180 20,730 3,000 21.75 12/17/06 41,035 103,992 ------ 3,816 3.08 Steven C. Smith......... 1,631 15.94 05/16/02 16,350 41,434 7,500 21.75 12/17/06 102,588 259,979 ------ 9,131 7.36 David Hood.............. 1,631 15.94 05/16/02 16,350 41,434 5,500 21.75 12/17/06 75,232 190,651 ------ 7,131 5.75 Murray B. Dey........... 3,000 16.75 01/17/06 31,602 80,086 3,000 21.75 12/17/06 41,035 103,992 ------ 6,000 4.84 Hall Palmer............. 1,631 15.94 05/16/02 16,350 41,434 3,000 21.25 12/17/06 41,036 103,992 ------ 4,631 3.74
- -------- (1) Potential gains are net of exercise price, but before taxes associated with exercise. These amounts represent certain assumed rates of appreciation only, based on Securities and Exchange Commission (the "Commission") rules. Actual gains, if any, on stock option exercises are dependent on the future performance of the Common Stock, overall market conditions and the optionholders' continued employment through the vesting period. The amounts reflected in this table may not necessarily be achieved. One share of stock purchased in 1996 at $15.94 would yield profits of $10.02 per share at 5% appreciation over ten years, or $25.40 per share at 10% appreciation over the same period. One share of stock purchased in 1996 at $21.75 would yield profits of $13.68 per share at 5% appreciation over ten years, or $34.66 per share at 10% appreciation over the same period. One share of stock purchased in 1996 at $16.75 would yield profits of $10.53 per share at 5% appreciation over ten years, or $26.70 per share at 10% appreciation over the same period. (2) Generally, options granted under the 1996 Option Plan vest at the rate of 25% of the options granted for each full year of the optionee's continuous employment with the Company and are exercisable to the extent vested. See also "--Employment Contracts and Termination of Employment and Change in Control Arrangements" herein. (3) All options listed were granted at the estimated fair market value on the date of grant. 60 The following table provides the specified information concerning exercises of options to purchase Greater Bay's Common Stock in the fiscal year ended December 31, 1996, and unexercised options held as of December 31, 1996, by the persons named in the Summary Compensation Table: AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END VALUE
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT SHARES OPTIONS AT 12/31/96(#) 12/31/96($)(1) ACQUIRED ON VALUE ------------------------- ------------------------- NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- ----------- ----------- ----------- ------------- ----------- ------------- David L. Kalkbrenner.... 4,917 27,068 12,307 32,894 161,550 255,302 C. Donald Allen......... -- -- 22,291 3,000 375,135 7,875 Steven C. Smith......... -- -- 20,282 10,489 274,109 61,728 David R. Hood........... -- -- 15,083 5,500 210,358 14,438 Murray B. Dey........... 1,203 6,514 6,550 7,366 89,916 47,554 Hall Palmer............. -- -- 15,083 3,000 210,358 7,875
- -------- (1) Based on the closing price of Greater Bay's Common Stock on December 31, 1996, the last trading day in 1996, which was $24.375. EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS Effective March 3, 1992, the Company entered into a two-year employment agreement with David L. Kalkbrenner which provides for automatic one-year extensions until the agreement is terminated as described below. The agreement, as amended, provides for, among other things: (a) a base salary of $135,000 per year, as adjusted at the discretion of the board of directors; (b) a discretionary annual bonus based upon the pre-tax net profits of the Company, (c) payment to Mr. Kalkbrenner of his base salary (reduced by the amount received by him from state disability insurance or workers' compensation or other similar insurance through policies provided by the Company) for a period of six months if he becomes disabled so that he is unable to perform his duties; (d) four weeks annual vacation leave; (e) a $500,000 life insurance policy; (f) an automobile allowance; and (g) reimbursement for ordinary and necessary expenses incurred by Mr. Kalkbrenner in connection with his employment. The agreement may be terminated with or without cause, but if the agreement is terminated due to the occurrence of circumstances that make it impossible or impractical for the Company to conduct or continue its business, the loss by the Company of its legal capacity to contract, the Company's breach of the terms of the agreement, or in the Company's discretion by giving not less than 30 days' prior written notice of termination, Mr. Kalkbrenner will be entitled to receive severance compensation equal to 24 months of Mr. Kalkbrenner's then existing base salary. The agreement further provides that in the event of a "change in control" as defined therein and within a period of two years following consummation of such change in control: (a) Mr. Kalkbrenner's employment is terminated; or (b) any adverse change occurs in the nature and scope of Mr. Kalkbrenner's position, responsibilities, duties, salary, benefits or location of employment; or (c) any event occurs which reasonably constitutes a demotion, significant diminution or constructive termination of Mr. Kalkbrenner's employment, Mr. Kalkbrenner will be entitled to receive severance compensation in an amount equal to two and one-half times his average annual compensation for the five years immediately preceding the change in control (or for such shorter time as Mr. Kalkbrenner was employed by the Company). The Company has entered into an Executive Salary Continuation Agreement with C. Donald Allen effective as of August 1, 1993. The agreement provides for an annual benefit of up to $100,000 to be paid to Mr. Allen or his designated beneficiary over a period of one hundred and eighty (180) months. The benefit is effective upon: (i) Mr. Allen's attainment of sixty-five (65) years of age or his death or disability prior to such time if he were 61 actively employed by the Company at the time; (ii) termination of his employment by the Company without "cause" (as defined in the agreement); (iii) termination or constructive termination of his employment by the Company after the occurrence of a "change of control" in the Company or the Bank as defined in the agreement. Although this agreement is intended to provide Mr. Allen with an additional incentive to remain in the employ of the Company the agreement states it shall not be deemed to constitute a contract of employment between Mr. Allen and the Bank nor shall any provision of this agreement restrict the right of Mr. Allen to terminate his employment. The agreement shall have no impact or effect upon any separate written employment agreement which Mr. Allen may have with the Company. The Company has entered into an Employment Severance and Retirement Benefits Agreements with Steven C. Smith effective as of September 1, 1994, David R. Hood, effective as of April 14, 1994 and Hall Palmer effective as of May 1, 1995. Each employment agreement sets the officer's beginning annual salary, subject to annual cost of living adjustments, with the initial salary payable to Mr. Smith being set at $135,000 and the initial salary payable to Mr. Hood and Mr. Palmer being set at $120,000. Each of these employment agreements entitles the officer to severance benefits equal to 12 months' salary in the event that such officer's employment is terminated for any reasons other than death, disability, retirement or certain acts of misconduct, or in the event that such officer resigns within one year after a change in control of the Company upon a reduction in responsibilities or compensation or certain other events deemed to be unfavorable to the officer. In addition, the agreements entitle each officer to certain retirement benefits. See "--Retirement Benefits" herein. 1996 STOCK OPTION PLAN Greater Bay's Board of Directors has adopted the 1996 Option Plan for the purpose of offering selected employees, directors and consultants an opportunity to acquire a proprietary interest in the success of Greater Bay, or to increase such interest, by purchasing shares of Common Stock. The 1996 Option Plan provides both for the grant of nonstatutory options as well as incentive stock options intended to qualify under Section 422 of the Code. Options granted under the 1996 Option Plan contain provision pursuant to which, in the event of a Change in Control (as defined herein) of Greater Bay, all unexercised options will become exercisable in full prior to such event, unless the surviving corporation substitutes a substantially equivalent option. The 1996 Option Plan provides that a "Change of Control" will occur in the event of (i) a change in the composition of the Board of Directors, as a result of which fewer than half of the incumbent directors are directors who either (a) had been directors of Greater Bay (including prior service as a director of either CNB or MPB) 24 months prior to such change or (b) were elected, or nominated for election, to the Board of Directors with the affirmative votes of at least a majority of the directors who had been directors of Greater Bay at the effective time of the Merger or 24 months prior to such change (whichever is later) and who were still in office at the time of the election or nomination or (ii) any "person" (as such term is defined in Sections 13(d) and 14(d) of the Exchange Act) who is or become the beneficial owner, directly or indirectly, of securities of Greater Bay representing 50% or more of the combined voting power of Greater Bay's then outstanding securities. RETIREMENT BENEFITS Pursuant to the employment agreements between the Company and Messrs. Smith, Hood and Palmer, each such officer or his spouse (should she survive him) is entitled to retirement benefits based upon the proceeds of a split-dollar life insurance policy maintained by the Company for each officer's benefit. Each officer may begin receiving benefits upon reaching "retirement age" (as defined in each agreement) or upon termination of employment, whichever occurs later. Benefits are payable in the form of draws against the annual increase in the cash surrender value of the officer's insurance policy from the time benefits commence, up to a maximum annual draw of $55,000 for Mr. Hood, $44,000 for Mr. Palmer and $60,000 for Mr. Smith (or such lesser amount as shall have vested, as described below) with the increase in value in excess of such amount becoming the property of the Company. The right to make such draws continues during the lifetime of the officer and his surviving spouse, but in no case longer than 40 years. The right to this retirement benefit vests at 1/84 of such amount 62 monthly following the effective date of such employment agreement, provided that vesting is subject to acceleration upon the occurrence of certain events following a Change in Control, as such term is defined in each employment agreement. See "--Employment Contracts and Termination of Employment and Change in Control Arrangements" herein. COMPENSATION OF DIRECTORS Directors of MPB received $200 for each board meeting attended during 1996. Non-employee directors of MPB received $150 for each committee meeting attended in 1996. Non-employee directors of MPB's Loan Committee received $500 per month retainer as well as $150 for each meeting attended during 1996. Total compensation for MPB directors in 1996 was $63,590. For 1996, the Chairman and Vice Chairman of the Board of CNB received annual retainers of $15,000 and $12,500, respectively. All other directors received an annual retainer of $10,000. In addition, the Chairman and Vice Chairman of the Directors' Loan Committee received annual retainers of $4,500, and other members received annual retainers of $4,000. The Chairman of the Audit Committee received an annual retainer of $2,000, and Audit Committee members each received an annual retainer of $1,500. The Trust Committee Chairman received an annual retainer of $2,000 and Trust Committee members each received $1,500. The Compensation Committee members each received an annual retainer of $1,000. Total compensation for CNB directors in 1996 was $158,374. For 1997, the Co-Chairmen of the Board will receive annual retainers of $14,000. All other non-officer directors will receive annual retainers of $9,000. Loan committee members will receive retainers of $6,000, Trust Oversight Committee members will receive retainers of $3,000, and Audit Committee and Investment / ALCO Committee members will receive retainers of $1,000. Members of the Boards of Directors of CNB and MPB will receive retainers of $1,800 each. The estimated total compensation for the Boards of Directors in 1997 is $189,500. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Executive Committee acts as the Executive Compensation Committee of Greater Bay. The members of the Executive Committee are Messrs. Gatto, Matteson, Lindsay and van Bronkhorst. None of these persons serves or has served as an officer or employee of the Company or the Banks. Mr. Matteson has an interest in a building leased by MPB. See "--Certain Relationships and Related Transactions" herein. During 1996, the Executive Committee of Mid-Peninsula served as the Compensation Committee for Mid-Peninsula and MNB. The members of the Committee are Messrs. Kalkbrenner, Matteson, Seiler, Thoits and van Bronkhorst. No person who served as a member of the Executive Committee during 1996 has ever been an officer or employee of Mid-Peninsula or MPB, except Mr. Kalkbrenner. During 1996, the Executive Committee of Cupertino served as the Compensation Committee of Cupertino and CNB. The members of the Committee were Messrs. Gatto, Lindsay, McLaughlin and Randall. No person who served as a member of the Executive Committee of Cupertino during 1996 has ever been an officer or employee of Cupertino or CNB. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Exchange Act requires the Company's executive officers and directors, and persons who own more than ten percent of a request class of the Company's equity securities, to file reports of ownership and changes in ownership with the Commission. Executive offices, directors and greater than ten-percent shareholders are required by Commission regulation to furnish to the Company with copies of all Section 16(a) forms they file. 63 Based solely on review of the copies of such forms furnished to the Company, or written representation that no Form 5 was required, the Company believes that during the fiscal year ended December 31, 1996 all executive officers, directors and greater than ten-percent beneficial owners complied with all Section 16(a) filing requirements applicable to them, except as follows: Following the consummation of the Merger, a Form 4 reporting the change in ownership as a result of the consummation of the Merger was filed late for each of the former directors of Cupertino and executive officers of Cupertino who became directors and executive officers of Greater Bay after the Merger. These individuals included Messrs. Allen, Gatto, Hood, Jackson, Lindsay, McLaughlin, Palmer, Randall and Smith. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company, through the Banks, has had, and expects in the future to have, banking transactions in the ordinary course of its business with the Company's directors and officers and their associates, including transactions with corporations of which such persons are directors, officers or controlling shareholders, on substantially the same terms (including interest rates and collateral) as those prevailing for comparable transactions with others. Management believes that such transactions comprising loans did not involve more than the normal risk of collectibility or present other unfavorable features. Loans to executive officers of the Company are subject to limitations as to amount and purposes prescribed in part by the Federal Reserve Act, as amended. MPB leases its offices at 420 Cowper Street, Palo Alto, California 94301 from MPB Associates, a tenant-in-common arrangement in which three directors of Greater Bay, Messrs. Matteson, Seiler and Thoits, and four other directors of MPB hold an approximate 51% interest. The acquisition of MPB's leased premises by MPB Associates in 1990 did not result in a change in the terms of MPB's lease. The lease, which originally expired in May 1993, has been extended through January 2000. MPB pays an annual rental of $560,000 for the entire leased space. Additionally, MPB pays real property taxes, utilities, and building insurance, to the extent they exceed, on an annual basis, $1.40 per rentable square foot, $1.60 per rentable square foot, and $0.17 per rentable square foot, respectively. The rent will be adjusted every twelve months beginning June 1, 1997 in accordance with the change in the immediately preceding year over 1992 in the Consumer Price Index for All Urban Consumers, San Francisco/Oakland metropolitan Area, All-Items (1967 = 100) as published by the U.S. Department of Labor, Bureau of Labor Statistics. The lease also contains a provision granting MPB a right of first refusal to purchase the building during the term of the lease upon the same terms and conditions that the landlord is willing to accept from a third party. 64 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information as of December 31, 1996 concerning beneficial ownership of Greater Bay common stock for the directors and the executive officers named in the Summary Compensation Table and as a group. Unless otherwise indicated, each director and executive officer listed below possesses sole voting power and sole investment power. All of the shares shown in the following table are owned both of record and beneficially except as indicated in the notes to the table. Greater Bay has only one class of stock outstanding, Greater Bay Common Stock. There are no current arrangements known to Greater Bay that may result in a change in control of Greater Bay. As of December 31, 1996, no person known to Greater Bay owned more than five percent (5%) of the outstanding shares.
SHARES BENEFICIALLY OWNED(2) --------------------- NAME AND ADDRESS OF NUMBER OF PERCENTAGE BENEFICIAL OWNER(1) SHARES OF CLASS ------------------- ---------- ---------- C. Donald Allen(3)........................................ 55,482 1.70 Murray B. Dey(4).......................................... 21,575 0.67 John M. Gatto(5).......................................... 29,354 0.90 David Hood(6)............................................. 21,272 0.65 James E. Jackson(7)....................................... 49,162 1.51 David L. Kalkbrenner(8)................................... 34,264 1.05 Rex D. Lindsay(9)......................................... 51,141 1.57 Duncan L. Matteson(10).................................... 41,750 1.28 Glen McLaughlin(11)....................................... 45,365 1.39 Hall Palmer(12)........................................... 19,630 0.60 Dick J. Randall(13)....................................... 107,194 3.30 Donald H. Seiler(14)...................................... 26,580 0.82 Steven C. Smith(15)....................................... 30,886 0.95 Warren R. Thoits(16)...................................... 29,065 0.90 Edwin E. van Bronkhorst(17)............................... 25,330 0.78 All Directors and Executive Officers as a Group (15 Persons)(18)......................................... 588,050 17.30
- -------- (1) The address for beneficial owners, all of whom are directors or executive officers of Greater Bay, is the address of Greater Bay, 2860 West Bayshore Road, Palo Alto, California 94303. (2) Includes shares subject to stock options exercisable within 60 days of December 31, 1996. (3) Includes 414 shares held by Mr. Allen's wife, 3,579 shares held in an IRA for Mr. Allen, 598 shares held in a 401(k) plan for Mr. Allen and 22,291 shares issuable upon the exercise of options which are exercisable within 60 days of December 31, 1996. (4) Includes 14,563 shares held jointly with Mr. Dey's spouse as trustees of the Murray B. Dey and Wendy H. Dey Trust dated April 23, 1982 and 4,889 shares subject to stock options exercisable within 60 days of December 31, 1996. (5) Includes 12,662 shares issuable upon the exercise of options which are exercisable within 60 days of December 31, 1996. (6) Includes 5,526 shares held in Mr. Hood's IRA, 276 shares held jointly by Mr. Hood and his spouse, 387 shares in his 401(k) plan and 15,083 shares issuable upon the exercise of options which are exercisable within 60 days of December 31, 1996. (7) Includes 31,357 shares held jointly by James E. Jackson and his spouse, 1,522 shares held in an IRA for the benefit of Mr. Jackson's spouse, 7,015 shares held in an IRA for Mr. Jackson, 1,385 shares held in a 401(k) plan for Mr. Jackson, 567 shares held by Mr. Jackson's spouse and 7,131 shares issuable upon the exercise of options which are exercisable within 60 days of December 31, 1996. 65 (8) Includes 9,047 shares held in Mr. Kalkbrenner's IRA account and 15,254 shares subject to stock options exercisable within 60 days of December 31, 1996. (9) Includes 36,927 shares held by the Rex D. and Leanor L. Lindsay Family Trust, 1,906 shares held by Mr. Lindsay as custodian for his minor grandchildren and 12,123 shares issuable upon the exercise of options which are exercisable within 60 days of December 31, 1996. (10) Includes 30,000 shares jointly with Mr. Matteson's spouse as trustees of the Matteson Family Trust, 9,000 shares held by the Matteson Realty Services, Inc. Defined Benefit Employees' Retirement Trust and 2,750 shares subject to stock options exercisable within 60 days of December 31, 1996. (11) Includes 4,861 shares in Mr. McLaughlin's Keogh account, and 16,418 shares issuable upon the exercise of options which are exercisable within 60 days of December 31, 1996. (12) Includes 1,548 shares held in Mr. Palmer's IRA, 797 shares in his 401(k) plan and 15,083 shares subject to stock options exercisable within 60 days of December 31, 1996. (13) Includes 98,334 shares held by the Dick J. and Carolyn L. Randall Trust and 8,675 shares issuable upon the exercise of options which are exercisable within 60 days of December 31, 1996. (14) Includes 24,580 shares held jointly with Mr. Seiler's spouse as trustees of the Seiler Family Trust and 2,000 shares subject to stock options exercisable within 60 days of December 31, 1996. (15) Includes 2,121 shares held in Mr. Smith's 401(k) plan, 8,743 shares held jointly by Mr. Smith and his spouse and 20,022 shares issuable upon the exercise of options which are exercisable within 60 days of December 31, 1996. (16) Includes 9,832 shares held by Mr. Thoits as Trustee of the Warren R. Thoits Trust dated December 30, 1983, 5,836 shares held by Thoits Brothers, Inc., 10,647 shares for which Mr. Thoits is the record holding trustee and 2,750 shares subject to stock options exercisable within 60 days of December 31, 1996. (17) Includes 22,580 shares held jointly with Mr. van Bronkhorst's spouse as Trustees of the E. E. van Bronkhorst Trust dated July 12, 1977 and 2,750 shares subject to stock options exercisable within 60 days of December 31, 1996. (18) Includes 159,881 options exercisable within 60 days of December 31, 1996. DESCRIPTION OF THE TRUST PREFERRED SECURITIES The Trust Preferred Securities and the Common Securities will be issued pursuant to the terms of the Trust Agreement. The Trust Agreement will be qualified as an indenture under the Trust Indenture Act. Initially, Wilmington Trust Company will be the Delaware Trustee and the Property Trustee and will act as trustee for the purpose of complying with the Trust Indenture Act. The terms of the Trust Preferred Securities will include those stated in the Trust Agreement and those made part of the Trust Agreement by the Trust Indenture Act. This summary of certain terms and provisions of the Trust Preferred Securities and the Trust Agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Trust Agreement, including the definitions therein of certain terms, and the Trust Indenture Act. Wherever particular defined terms of the Trust Agreement (as amended or supplemented from time to time) are referred to herein, such defined terms are incorporated herein. The form of the Trust Agreement has been filed as an exhibit to the Registration Statement of which this Prospectus forms a part. GENERAL Pursuant to the terms of the Trust Agreement, the Administrative Trustees on behalf of GBB Capital will issue the Trust Preferred Securities and the Common Securities (collectively, the "Trust Securities"). The Trust Preferred Securities will represent preferred undivided beneficial interests in the assets of GBB Capital and the holders thereof will be entitled to a preference in certain circumstances with respect to Distributions and amounts payable on redemption or liquidation over the Common Securities of GBB Capital (which will be held by Greater Bay), as well as other benefits as described in the Trust Agreement. 66 The Trust Preferred Securities will represent undivided beneficial ownership interests in GBB Capital and the holders thereof will be entitled to a preference in certain circumstances with respect to Distributions and amounts payable on redemption or liquidation over Common Securities, as well as other benefits enumerated in the Guarantee Agreement. The Trust Preferred Securities will rank pari passu, and payments will be made thereon pro rata, with the Common Securities of GBB Capital except as described under "Subordination of Common Securities of GBB Capital Held by Greater Bay" below. Legal title to the Junior Subordinated Debentures will be held by the Property Trustee in trust for the benefit of the holders of the Trust Securities. The Guarantee executed by Greater Bay for the benefit of the holders of the Trust Preferred Securities (the "Guarantee") will be a guarantee on a subordinated basis and will not guarantee payment of Distributions or amounts payable on redemption of the Trust Preferred Securities or on liquidation of the Trust Preferred Securities if GBB Capital does not have funds on hand available to make such payments. See "Description of Guarantee." DISTRIBUTIONS Payment of Distributions. Distributions on the Trust Preferred Securities will be payable at the annual rate of % of the stated Liquidation Amount of $25, payable quarterly in arrears on the 15th day of March, June, September and December in each year, commencing June 15, 1997 to the holders of the Trust Preferred Securities on the relevant record dates (each date on which Distributions are payable in accordance with the foregoing, a "Distribution Date"). The amount of each Distribution due with respect to the Trust Preferred Securities will include amounts accrued through the date the Distribution payment is due. Distributions on the Trust Preferred Securities will be payable to the holders thereof as they appear on the register of GBB Capital on the relevant record date which, for so long as the Trust Preferred Securities remain in book-entry form, will be one Business Day (as defined below) prior to the relevant Distribution Date and, in the event the Trust Preferred Securities are not in book-entry form, will be the first day of the month in which the relevant Distribution Date occurs. Distributions will accumulate from the date of original issuance. The first Distribution Date for the Trust Preferred Securities will be June 15, 1997. The amount of Distributions payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. In the event that any date on which Distributions are payable on the Trust Preferred Securities is not a Business Day, payment of the Distribution payable on such date will be made on the next Business Day (and without any interest or other payment in respect to any such delay) except that, if such Business Day is in the next succeeding calendar year, payment of such Distribution shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on the date such payment was originally payable. As used in this Prospectus, a "Business Day" shall mean any day other than a Saturday or a Sunday, or a day on which banking institutions in the State of California are authorized or required by law or executive order to remain closed or a day on which the corporate trust office of the Property Trustee or the Indenture Trustee is closed for business. The funds of GBB Capital available for distribution to holders of its Trust Preferred Securities will be limited to payments by Greater Bay under the Junior Subordinated Debentures in which GBB Capital will invest the proceeds from the issuance and sale of its Trust Preferred Securities. See "Description of Junior Subordinated Debentures." If Greater Bay does not make interest payments on the Junior Subordinated Debentures, the Property Trustee will not have funds available to pay Distributions on the Trust Preferred Securities. The payment of Distributions (if and to the extent GBB Capital has funds legally available for the payment of such Distributions and cash sufficient to make such payments) is guaranteed by Greater Bay. See "Description of Guarantee." Extension Period. So long as no Debenture Event of Default has occurred and is continuing, Greater Bay has the right under the Indenture to defer the payment of interest on the Junior Subordinated Debentures at any time or from time to time for a period not exceeding 20 consecutive quarters with respect to each such period (each, an "Extension Period"), provided that no Extension Period may extend beyond the Stated Maturity of the 67 Junior Subordinated Debentures. As a consequence of any such election, quarterly Distributions on the Trust Preferred Securities will be deferred by GBB Capital during any such Extension Period. Distributions to which holders of Trust Preferred Securities are entitled will accumulate additional amounts thereon at the rate per annum of % thereof, compounded quarterly from the relevant Distribution Date, to the extent permitted under applicable law. The term "Distributions" as used herein shall include any such additional accumulated amounts. During any such Extension Period, Greater Bay may not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of Greater Bay's capital stock (which includes common and preferred stock) or (ii) make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities of Greater Bay that rank pari passu with or junior in interest to the Junior Subordinated Debentures or make any guarantee payments with respect to any guarantee by Greater Bay of the debt securities of any subsidiary of Greater Bay if such guarantee ranks pari passu with or junior in interest to the Junior Subordinated Debentures (other than (a) dividends or distributions in common stock of Greater Bay, (b) any declaration of a dividend in connection with the implementation of a stockholders' rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, (c) payments under the Guarantee and (d) purchases of common stock for issuance of common stock or rights under any of Greater Bay's benefit plans for its directors, officers or employees) as consideration in an acquisition transaction. Prior to the termination of any such Extension Period, Greater Bay may further extend such Extension Period, provided that such extension does not cause such Extension Period to exceed 20 consecutive quarters or extend beyond the Stated Maturity. Upon the termination of any such Extension Period and the payment of all amounts then due, and subject to the foregoing limitations, Greater Bay may elect to begin a new Extension Period. Subject to the foregoing, there is no limitation on the number of times that Greater Bay may elect to begin an Extension Period. Greater Bay has no current intention of exercising its right to defer payments of interest by extending the interest payment period on the Junior Subordinated Debentures. REDEMPTION Mandatory Redemption. Upon the repayment or redemption at any time, in whole or in part, of any Junior Subordinated Debentures, the proceeds from such repayment or redemption shall be applied by the Property Trustee to redeem a Like Amount (as defined below) of the Trust Securities, upon not less than 30 nor more than 60 days' notice of a date of redemption (the "Redemption Date"), at the Redemption Price (as defined below). See "Description of Junior Subordinated Debentures--Redemption." If less than all of the Junior Subordinated Debentures are to be repaid or redeemed on a Redemption Date, then the proceeds from such repayment or redemption shall be allocated to the redemption of the Trust Securities pro rata. The amount of premium, if any, paid by Greater Bay upon the redemption of all or any part of the Junior Subordinated Debentures to be repaid or redeemed on a Redemption Date shall be allocated to the redemption pro rata of the Trust Securities. Optional Redemption. Greater Bay will have the right to redeem the Junior Subordinated Debentures (i) on or after , 2002, in whole at any time or in part from time to time at a redemption price equal to the accrued and unpaid interest on the Junior Subordinated Debentures so redeemed to the date fixed for redemption, plus 100% of the principal amount thereof, or (ii) at any time, in whole (but not in part), upon the occurrence of a Tax Event, an Investment Company Event or a Capital Treatment Event at a redemption price equal to the accrued and unpaid interest on the Junior Subordinated Debentures so redeemed to the date fixed for redemption, plus 100% of the principal amount thereof, in each case subject to receipt of prior approval by the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve. See "Description of Junior Subordinated Debentures--Redemption." Tax Event Redemption, Investment Company Event Redemption, Capital Treatment Event Redemption or Distribution of Junior Subordinated Debentures. If a Tax Event, an Investment Company Event or a Capital Treatment Event shall occur and be continuing, Greater Bay has the right to redeem the Junior Subordinated Debentures in whole (but not in part) and thereby cause a mandatory redemption of the Trust Securities in whole 68 (but not in part) at the Redemption Price (as defined below) within 90 days following the occurrence of such Tax Event, Investment Company Event or Capital Treatment Event, in each case subject to receipt of prior approval by the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve. In the event a Tax Event, an Investment Company Event or Capital Treatment Event has occurred and is continuing and Greater Bay does not elect to redeem the Junior Subordinated Debentures and thereby cause a mandatory redemption of the Trust Securities or to liquidate GBB Capital and cause the Junior Subordinated Debentures to be distributed to holders of the Trust Securities in liquidation of GBB Capital as described below, such Trust Securities will remain outstanding and Additional Sums (as defined below) may be payable on the Junior Subordinated Debentures. DEFINITIONS "Additional Sums" means the additional amounts as may be necessary to be paid by Greater Bay with respect to the Junior Subordinated Debentures in order that the amount of Distributions then due and payable by GBB Capital on the outstanding Trust Securities of GBB Capital shall not be reduced as a result of any additional taxes, duties and other governmental charges to which GBB Capital has become subject as a result of a Tax Event. "Like Amount" means (i) with respect to a redemption of Trust Securities, Trust Securities having a Liquidation Amount (as defined below) equal to that portion of the principal amount of Junior Subordinated Debentures to be contemporaneously redeemed in accordance with the Indenture, allocated to the Common Securities and to the Trust Preferred Securities based upon the relative Liquidation Amounts of such classes and the proceeds of which will be used to pay the Redemption Price of such Trust Securities, and (ii) with respect to a distribution of Junior Subordinated Debentures to holders of Trust Securities in connection with a dissolution or liquidation of GBB Capital, Junior Subordinated Debentures having a principal amount equal to the Liquidation Amount of the Trust Securities of the holder to whom such Junior Subordinated Debentures are distributed. "Liquidation Amount" means the stated amount of $25 per Trust Security. "Redemption Price" means, with respect to any Trust Security, the Liquidation Amount of such Trust Security, plus accumulated and unpaid Distributions to the Redemption Date, allocated on a pro rata basis (based on Liquidation Amounts) among the Trust Securities. DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES Subject to Greater Bay and GBB Capital having received an opinion of counsel to the effect that such distribution will not be a taxable event to the holders of the Trust Preferred Securities and prior approval of the Federal Reserve if so required under applicable capital guidelines or policies of the Federal Reserve, Greater Bay will have the right at any time to liquidate GBB Capital and, after satisfaction of the liabilities of creditors of GBB Capital as provided by applicable law, cause the Junior Subordinated Debentures to be distributed to the holders of Trust Securities in liquidation of GBB Capital. After the liquidation date fixed for any distribution of Junior Subordinated Debentures for Trust Preferred Securities (i) such Trust Preferred Securities will no longer be deemed to be outstanding, (ii) the Depositary or its nominee, as the record holder of the Trust Preferred Securities, will receive a registered global certificate or certificates representing the Junior Subordinated Debentures to be delivered upon such distribution and (iii) any certificates representing Trust Preferred Securities not held by the Depositary or its nominee will be deemed to represent the Junior Subordinated Debentures having a principal amount equal to the Liquidation Amount of such Trust Preferred Securities, and bearing accrued and unpaid interest in an amount equal to the accrued and unpaid Distributions on the Trust Preferred Securities until such certificates are presented to the Administrative Trustees or their agent for transfer or reissuance. There can be no assurance as to the market prices for the Trust Preferred Securities or the Junior Subordinated Debentures that may be distributed in exchange for the Trust Preferred Securities if a dissolution 69 and liquidation of GBB Capital were to occur. Accordingly, the Trust Preferred Securities that an investor may purchase, or the Junior Subordinated Debentures that the investor may receive on dissolution and liquidation of GBB Capital, may trade at a discount to the price that the investor paid to purchase the Trust Preferred Securities offered hereby. REDEMPTION PROCEDURES Trust Preferred Securities redeemed on each Redemption Date shall be redeemed at the Redemption Price with the applicable proceeds from the contemporaneous redemption of the Junior Subordinated Debentures. Redemptions of the Trust Preferred Securities shall be made and the Redemption Price shall be payable on each Redemption Date only to the extent that GBB Capital has funds on hand available for the payment of such Redemption Price. See "-- Subordination of Common Securities of GBB Capital Held by Greater Bay" herein and "Description of Guarantee." If GBB Capital gives a notice of redemption in respect of the Trust Preferred Securities, then, by 12:00 noon, California time on the Redemption Date, to the extent funds are available, the Property Trustee will deposit with the Depositary funds sufficient to pay the aggregate Redemption Price and will give the Depositary irrevocable instructions and authority to pay the Redemption Price to the holders of such Trust Preferred Securities. See "Book- Entry Issuance." If such Trust Preferred Securities are no longer in book- entry form, the Property Trustee, to the extent funds are available, will deposit with the paying agent for such Trust Preferred Securities funds sufficient to pay the aggregate Redemption Price and will give such paying agent irrevocable instructions and authority to pay the Redemption Price to the holders thereof upon surrender of their certificates evidencing such Trust Preferred Securities. Notwithstanding the foregoing, Distributions payable on or prior to the Redemption Date shall be payable to the holders of such Trust Preferred Securities on the relevant record dates for the related Distribution Dates. If notice of redemption shall have been given and funds deposited as required, then upon the date of such deposit, all rights of the holders of the Trust Preferred Securities will cease, except the right of the holders of the Trust Preferred Securities to receive the applicable Redemption Price, but without interest on such Redemption Price, and such Trust Preferred Securities will cease to be outstanding. In the event that any date fixed for redemption of such Trust Preferred Securities is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day. In the event that payment of the Redemption Price in respect of Trust Preferred Securities called for redemption is improperly withheld or refused and not paid either by GBB Capital or by Greater Bay pursuant to the Guarantee, Distributions on such Trust Preferred Securities will continue to accrue at the then applicable rate, from the Redemption Date originally established by GBB Capital for such Trust Preferred Securities to the date such Redemption Price is actually paid, in which case the actual payment date will be the date fixed for redemption for purposes of calculating the Redemption Price. See "Description of Guarantee." Subject to applicable law (including, without limitation, United States federal securities law), Greater Bay may at any time and from time to time purchase outstanding Trust Preferred Securities by tender, in the open market or by private agreement. Payment of the Redemption Price on the Trust Preferred Securities and any distribution of Junior Subordinated Debentures to holders of Trust Preferred Securities shall be made to the applicable recordholders thereof as they appear on the register of such Trust Preferred Securities on the relevant record date, which date shall be one Business Day prior to the relevant Redemption Date or Liquidation Date, as applicable; provided, however, that in the event that any Trust Preferred Securities are not in book-entry form, the relevant record date for such Trust Preferred Securities shall be a date at least 15 days prior to the Redemption Date or Liquidation Date, as applicable. In the case of a liquidation, the record date shall be no more than 45 days before the Liquidation Date. If less than all of the Trust Securities issued by GBB Capital are to be redeemed on a Redemption Date, then the aggregate Redemption Price for such Trust Securities to be redeemed shall be allocated pro rata to the 70 Trust Preferred Securities and Common Securities based upon the relative Liquidation Amounts of such classes. The particular Trust Preferred Securities to be redeemed shall be selected by the Property Trustee from the outstanding Trust Preferred Securities not previously called for redemption, by such method as the Property Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to $25 or an integral multiple thereof) of the Liquidation Amount of Trust Preferred Securities. The Property Trustee shall promptly notify the Security registrar in writing of the Trust Preferred Securities selected for redemption and, in the case of any Trust Preferred Securities selected for partial redemption, the Liquidation Amount thereof to be redeemed. For all purposes of the Trust Agreement, unless the context otherwise requires, all provisions relating to the redemption of Trust Preferred Securities shall relate to the portion of the aggregate Liquidation Amount of Trust Preferred Securities which has been or is to be redeemed. Notice of any redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each holder of Trust Securities at such holder's registered address. Unless GBB Capital defaults in payment of the applicable Redemption Price, on and after the Redemption Date, Distributions will cease to accrue on such Trust Preferred Securities called for redemption. SUBORDINATION OF COMMON SECURITIES OF GBB CAPITAL HELD BY GREATER BAY Payment of Distributions on, and the Redemption Price of, the Trust Preferred Securities and Common Securities, as applicable, shall be made pro rata based on the Liquidation Amounts of the Trust Preferred Securities and Common Securities; provided, however, that if on any Distribution Date or Redemption Date a Debenture Event of Default shall have occurred and be continuing, no payment of any Distribution on, or applicable Redemption Price of, any of the Common Securities, and no other payment on account of the redemption, liquidation or other acquisition of the Common Securities, shall be made unless payment in full in cash of all accumulated and unpaid Distributions on all of the outstanding Trust Preferred Securities for all Distribution periods terminating on or prior thereto, or in the case of payment of the applicable Redemption Price the full amount of such Redemption Price on all of the outstanding Trust Preferred Securities then called for redemption, shall have been made or provided for, and all funds available to the Property Trustee shall first be applied to the payment in full in cash of all Distributions on, or Redemption Price of, the Trust Preferred Securities then due and payable. In the case of any Event of Default under the Trust Agreement resulting from a Debenture Event of Default, Greater Bay as holder of the Common Securities will be deemed to have waived any right to act with respect to any such Event of Default until the effect of all such Events of Default have been cured, waived or otherwise eliminated. Until any such Events of Default have been so cured, waived or otherwise eliminated, the Property Trustee shall act solely on behalf of the holders of the Trust Preferred Securities and not on behalf of Greater Bay as holder of the Common Securities, and only the holders of the Trust Preferred Securities will have the right to direct the Property Trustee to act on their behalf. LIQUIDATION DISTRIBUTION UPON TERMINATION Greater Bay will have the right at any time to terminate GBB Capital and cause the Junior Subordinated Debentures to be distributed to the holders of the Trust Preferred Securities. Such right is subject to Greater Bay having received prior approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve. See "-- Distribution of Junior Subordinated Debentures" below. In addition, pursuant to the Trust Agreement, GBB Capital shall automatically terminate upon expiration of its term and shall earlier terminate on the first to occur of: (i) certain events of bankruptcy, dissolution or liquidation of Greater Bay; (ii) the distribution of a Like Amount of the Junior Subordinated Debentures to the holder of its Trust Securities, if Greater Bay, as Depositor, has delivered written direction to the Property Trustee to terminate GBB Capital (which direction is optional and, except as described above, wholly within the discretion of Greater Bay, as Depositor); (iii) redemption of all of the Trust Preferred Securities as described under "-- Redemption--Mandatory Redemption;" (iv) expiration of the term of GBB Capital; and (v) the entry of an order for the dissolution of GBB Capital by a court of competent jurisdiction. 71 If an early termination occurs as described in clause (i), (ii), (iv) or (v) above, GBB Capital shall be liquidated by the Trustees as expeditiously as the Trustees determine to be possible by distributing, after satisfaction of liabilities to creditors of GBB Capital as provided by applicable law, to the holders of such Trust Securities a Like Amount of the Junior Subordinated Debentures, unless such distribution is determined by the Property Trustee not to be practical, in which event such holders will be entitled to receive out of the assets of GBB Capital available for distribution to holders, after satisfaction of liabilities to creditors of GBB Capital as provided by applicable law, an amount equal to, in the case of holders of Trust Preferred Securities, the aggregate of the Liquidation Amount plus accrued and unpaid Distributions thereon to the date of payment (such amount being the "Liquidation Distribution"). If such Liquidation Distribution can be paid only in part because GBB Capital has insufficient assets available to pay in full the aggregate Liquidation Distribution, then the amounts payable directly by GBB Capital on the Trust Preferred Securities shall be paid on a pro rata basis. The holder(s) of the Common Securities will be entitled to receive distributions upon any such liquidation pro rata with the holders of the Trust Preferred Securities, except that if a Debenture Event of Default has occurred and is continuing, the Trust Preferred Securities shall have a priority over the Common Securities. Under current United States federal income tax law and interpretations and assuming, as expected, GBB Capital is treated as a grantor trust, a distribution of the Junior Subordinated Debentures should not be a taxable event to holders of the Trust Preferred Securities. Should there be a change in law, a change in legal interpretation, a Tax Event or other circumstances, however, the distribution could be a taxable event to holders of the Trust Preferred Securities. See "Certain Federal Income Tax Consequences." If Greater Bay elects neither to redeem the Junior Subordinated Debentures prior to maturity nor to liquidate GBB Capital and distribute the Junior Subordinated Debentures to holders of the Trust Preferred Securities, the Trust Preferred Securities will remain outstanding until the repayment of the Junior Subordinated Debentures. If Greater Bay elects to liquidate GBB Capital and thereby causes the Junior Subordinated Debentures to be distributed to holders of the Trust Preferred Securities in liquidation of GBB Capital, Greater Bay shall continue to have the right to shorten the maturity of such Junior Subordinated Debentures, subject to certain conditions. See "Description of Junior Subordinated Debentures--General." EVENTS OF DEFAULT; NOTICE Any one of the following events that has occurred and is continuing constitutes an "Event of Default" under the Trust Agreement (an "Event of Default") with respect to the Trust Preferred Securities (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (i) the occurrence of a Debenture Event of Default (see "Description of Junior Subordinated Debentures--Debenture Events of Default"); or (ii) default by the Property Trustee in the payment of any Distribution when it becomes due and payable, and continuation of such default for a period of 30 days; or (iii) default by the Property Trustee in the payment of any Redemption Price of any Trust Security when it becomes due and payable; or (iv) default in the performance, or breach, in any material respect, of any covenant or warranty of the Trustees in the Trust Agreement (other than a default or breach in the performance of a covenant or warranty which is addressed in clause (ii) or (iii) above), and continuation of such default or breach, for a period of 60 days after there has been given, by registered or certified mail, to the defaulting Issuer Trustee or Trustees by the holders of at least 25% in aggregate Liquidation Amount of the outstanding Trust Preferred Securities, a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" under the Trust Agreement; or (v) the occurrence of certain events of bankruptcy or insolvency with respect to the Property Trustee and the failure by Greater Bay to appoint a successor Property Trustee within 60 days thereof. 72 Within five Business Days after the occurrence of any Event of Default actually known to the Property Trustee, the Property Trustee shall transmit notice of such Event of Default to the holders of the Trust Preferred Securities, the Administrative Trustees and Greater Bay, as Depositor, unless such Event of Default shall have been cured or waived. Greater Bay as Depositor, and the Administrative Trustees are required to file annually with the Property Trustee a certificate as to whether or not they are in compliance with all the conditions and covenants applicable to them under the Trust Agreement. If a Debenture Event of Default has occurred and is continuing, the Trust Preferred Securities shall have a preference over the Common Securities upon termination of GBB Capital as described above. See "--Liquidation Distribution upon Termination" herein. Upon a Debenture Event of Default, unless the principal of all the Junior Subordinated Debentures has already become due and payable, either the Property Trustee or the holders of not less than 25% in aggregate principal amount of the Junior Subordinated Debentures then outstanding may declare all of the Junior Subordinated Debentures to be due and payable immediately by giving notice in writing to Greater Bay (and to the Property Trustee, if notice is given by holders of the Junior Subordinated Debentures). If the Property Trustee or the holders of the Junior Subordinated Debentures fail to declare the principal of all of the Junior Subordinated Debentures due and payable upon a Debenture Event of Default, the holders of at least 25% in Liquidation Amount of the Trust Preferred Securities then outstanding shall have the right to declare the Junior Subordinated Debentures immediately due and payable. In either event, payment of principal and interest on the Junior Subordinated Debentures shall remain subordinated to the extent provided in the Indenture. In addition, holders of the Trust Preferred Securities have the right in certain circumstances to bring a Direct Action (as hereinafter defined). See "Description of Junior Subordinated Debentures--Enforcement of Certain Rights by Holders of Trust Preferred Securities." REMOVAL OF TRUSTEES Unless a Debenture Event of Default shall have occurred and be continuing, any of the Property Trustee, the Depositary Trustee or the Administrative Trustees may be removed at any time by the holder of the Common Securities. If a Debenture Event of Default has occurred and is continuing, the Property Trustee and the Delaware Trustee may be removed at such time by the holders of a majority in Liquidation Amount of the outstanding Trust Preferred Securities. In no event will the holders of the Trust Preferred Securities have the right to vote to appoint, remove or replace the Administrative Trustees, which voting rights are vested exclusively in Greater Bay as the holder of the Common Securities. No resignation or removal of a Trustee and no appointment of a successor trustee shall be effective until the acceptance of appointment by the successor trustee in accordance with the provisions of the Trust Agreement. CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE Unless an Event of Default shall have occurred and be continuing, at any time or times, for the purpose of meeting the legal requirements of the Trust Indenture Act or of any jurisdiction in which any part of Trust Property may at the time be located, Greater Bay, as the holder of the Common Securities, and the Administrative Trustees shall have power to appoint one or more persons either to act as a co-trustee, jointly with the Property Trustee, of all or any part of such Trust Property, or to act as separate trustee of any such property, in either case with such powers as may be provided in the instrument of appointment, and to vest in such person or persons in such capacity any property, title, right or power deemed necessary or desirable, subject to the provisions of the Trust Agreement. In case a Debenture Event of Default has occurred and is continuing, the Property Trustee alone shall have power to make such appointment. MERGER OR CONSOLIDATION OF TRUSTEES Any Person (as defined in the Trust Agreement) into which the Property Trustee, the Delaware Trustee or any Administrative Trustee that is not a natural person may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which such Issuer Trustee shall be a party, or any person succeeding to all or substantially all the corporate trust business of such Issuer Trustee, shall be the successor of such Issuer Trustee under the Trust Agreement, provided such corporation shall be otherwise qualified and eligible. 73 MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF GBB CAPITAL GBB Capital may not merge with or into, consolidate, amalgamate, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any corporation or other Person, except as described below. GBB Capital may, at the request of Greater Bay, with the consent of the Administrative Trustees and without the consent of the holders of the Trust Preferred Securities, merge with or into, consolidate, amalgamate, or be replaced by or convey, transfer or lease its properties and assets substantially as an entirety to a trust organized as such under the laws of any State; provided, that (i) such successor entity either (a) expressly assumes all of the obligations of GBB Capital with respect to the Trust Preferred Securities or (b) substitutes for the Trust Preferred Securities other securities having substantially the same terms as the Trust Preferred Securities (the "Successor Securities") so long as the Successor Securities rank the same as the Trust Preferred Securities rank in priority with respect to distributions and payments upon liquidation, redemption and otherwise, (ii) Greater Bay expressly appoints a trustee of such successor entity possessing the same powers and duties as the Property Trustee as the holder of the Junior Subordinated Debentures, (iii) the Successor Securities are listed, or any Successor Securities will be listed upon notification of issuance, on any national securities exchange or other organization on which the Trust Preferred Securities are then listed, if any, (iv) such merger, consolidation, amalgamation, conveyance, transfer or lease does not cause the Trust Preferred Securities to be downgraded by any nationally recognized statistical rating organization which gives ratings to the Trust Preferred Securities; (v) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the holders of the Trust Preferred Securities (including any Successor Securities) in any material respect, (vi) such successor entity has a purpose identical to that of GBB Capital, (vii) the Successor Securities will be listed or traded on any national securities exchange or other organization on which the Trust Preferred Securities may then be listed, (viii) prior to such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, Greater Bay has received an opinion from independent counsel to GBB Capital experienced in such matters to the effect that (a) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the holders of the Trust Preferred Securities (including any Successor Securities) in any material respect, and (b) following such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, neither GBB Capital nor such successor entity will be required to register as an investment company under the Investment Company Act and (ix) Greater Bay or any permitted successor or designee owns all of the common securities of such successor entity and guarantees the obligations of such successor entity under the Successor Securities at least to the extent provided by the Guarantee. Notwithstanding the foregoing, GBB Capital shall not, except with the consent of holders of 100% in Liquidation Amount of the Trust Preferred Securities, consolidate, amalgamate, merge with or into, or be replaced by or convey, transfer or lease its properties and assets substantially as an entirety to any other entity or permit any other entity to consolidate, amalgamate, merge with or into, or replace it if such consolidation, amalgamation, merger, replacement, conveyance, transfer or lease would cause GBB Capital or the successor entity to be classified as other than a grantor trust for United States federal income tax purposes. VOTING RIGHTS; AMENDMENT OF THE TRUST AGREEMENT Except as provided below and under "Description of Guarantee--Amendments and Assignment" and as otherwise required by law and the Trust Agreement, the holders of the Trust Preferred Securities will have no voting rights. The Trust Agreement may be amended from time to time by Greater Bay, the Property Trustee and the Administrative Trustees, without the consent of the holders of the Trust Securities, (i) to cure any ambiguity, correct or supplement any provisions in the Trust Agreement that may be inconsistent with any other provision, or to make any other provisions with respect to matters or questions arising under the Trust Agreement, which shall not be inconsistent with the other provisions of the Trust Agreement, or (ii) to modify, eliminate or add to any provisions of the Trust Agreement to such extent as shall be necessary to ensure that GBB Capital will be classified for United States federal income tax purposes as a grantor trust at all times that any Trust Securities are outstanding or to ensure that GBB Capital will not be required to register as an "investment company" under 74 the Investment Company Act; provided, however, that in the case of clause (i), such action shall not adversely affect in any material respect the interests of any holder of Trust Securities, and any amendments of the Trust Agreement shall become effective when notice thereof is given to the holders of the Trust Securities. The Trust Agreement may be amended by the Issuer Trustees and the Company with (i) the consent of holders representing not less than a majority of the aggregate Liquidation Amount of the outstanding Trust Securities, and (ii) receipt by the Issuer Trustees of an opinion of counsel to the effect that such amendment or the exercise of any power granted to the Issuer Trustees in accordance with such amendment will not affect GBB Capital's status as a grantor trust for United States federal income tax purposes or GBB Capital's exemption from status as an "investment company" under the Investment Company Act, provided that without the consent of each holder of Trust Securities, the Trust Agreement may not be amended to (i) change the amount or timing of any Distribution on the Trust Securities or otherwise adversely affect the amount of any Distribution required to be made in respect of the Trust Securities as of a specified date or (ii) restrict the right of a holder of Trust Securities to institute suit for the enforcement of any such payment on or after such date. So long as any Junior Subordinated Debentures are held by the Property Trustee, the Issuer Trustees shall not (i) direct the time, method and place of conducting any proceeding for any remedy available to the Indenture Trustee, or executing any trust or power conferred on the Property Trustee with respect to the Junior Subordinated Debentures, (ii) waive any past default that is waivable under the Indenture, (iii) exercise any right to rescind or annul a declaration that the principal of all the Junior Subordinated Debentures shall be due and payable or (iv) consent to any amendment, modification or termination of the Indenture or the Junior Subordinated Debentures, where such consent shall be required, without, in each case, obtaining the prior approval of the holders of a majority in aggregate Liquidation Amount of all outstanding the Trust Preferred Securities; provided, however, that where a consent under the Indenture would require the consent of each holder of Junior Subordinated Debentures affected thereby, no such consent shall be given by the Property Trustee without the prior consent of each holder of the Trust Preferred Securities. The Issuer Trustees shall not revoke any action previously authorized or approved by a vote of the holders of the Trust Preferred Securities except by subsequent vote of the holders of the Trust Preferred Securities. The Property Trustee shall notify each holder of the Trust Preferred Securities of any notice of default with respect to the Junior Subordinated Debentures. In addition to obtaining the foregoing approvals of such holders of the Trust Preferred Securities, prior to taking any of the foregoing actions, the Issuer Trustees shall obtain an opinion of counsel experienced in such matters to the effect that GBB Capital will not be classified as other than a grantor trust for United States federal income tax purposes. Any required approval of holders of the Trust Preferred Securities may be given at a meeting of holders of Trust Preferred Securities convened for such purpose or pursuant to written consent. The Property Trustee will cause a notice of any meeting at which holders of the Trust Preferred Securities are entitled to vote, or of any matter upon which action by written consent of such holders is to be taken, to be given to each holder of record of the Trust Preferred Securities in the manner set forth in the Trust Agreement. No vote or consent of the holders of the Trust Preferred Securities will be required for GBB Capital to redeem and cancel the Trust Preferred Securities in accordance with the Trust Agreement. Notwithstanding that holders of the Trust Preferred Securities are entitled to vote or consent under any of the circumstances described above, any of the Trust Preferred Securities that are owned by Greater Bay, the Trustees or any affiliate of Greater Bay or any Trustees, shall, for purposes of such vote or consent, be treated as if they were not outstanding. GLOBAL TRUST PREFERRED SECURITIES The Trust Preferred Securities will be represented by one or more global certificates registered in the name of the Depositary or its nominee ("Global Trust Preferred Security"). Beneficial interests in the Trust Preferred Securities will be shown on, and transfers thereof will be effected only through, records maintained by 75 participants in the Depositary. Except as described below, Trust Preferred Securities in certificated form will not be issued in exchange for the global certificates. See "Book-Entry Issuance." A global security shall be exchangeable for Trust Preferred Securities registered in the names of persons other than the Depositary or its nominee only if (i) the Depositary notifies Greater Bay that it is unwilling or unable to continue as a depositary for such global security and no successor depositary shall have been appointed, or if at any time the Depositary ceases to be a clearing agency registered under the Exchange Act, at a time when the Depositary is required to be so registered to act as such depositary, (ii) Greater Bay in its sole discretion determines that such global security shall be so exchangeable, or (iii) there shall have occurred and be continuing an Event of Default under the Indenture. Any global security that is exchangeable pursuant to the preceding sentence shall be exchangeable for definitive certificates registered in such names as the Depositary shall direct. It is expected that such instructions will be based upon directions received by the Depositary with respect to ownership of beneficial interests in such global security. In the event that Trust Preferred Securities are issued in definitive form, such Trust Preferred Securities will be in denominations of $25 and integral multiples thereof and may be transferred or exchanged at the offices described below. Unless and until it is exchanged in whole or in part for the individual Trust Preferred Securities represented thereby, a Global Trust Preferred Security may not be transferred except as a whole by the Depositary to a nominee of such the Depositary or by a nominee of such the Depositary to such Depositary or another nominee of such Depositary or by the Depositary or any nominee to a successor Depositary or any nominee of such successor. Payments on Trust Preferred Securities represented by a global security will be made to the Depositary, as the depositary for the Trust Preferred Securities. In the event the Trust Preferred Securities are issued in definitive form, Distributions will be payable, the transfer of the Trust Preferred Securities will be registrable, and Trust Preferred Securities will be exchangeable for Trust Preferred Securities of other denominations of a like aggregate Liquidation Amount, at the corporate office of the Property Trustee, or at the offices of any paying agent or transfer agent appointed by the Administrative Trustees, provided that payment of any Distribution may be made at the option of the Administrative Trustees by check mailed to the address of the persons entitled thereto or by wire transfer. In addition, if the Trust Preferred Securities are issued in certificated form, the record dates for payment of Distributions will be the first day of the month in which the relevant Distribution Date occurs. For a description of the terms of the depositary arrangements relating to payments, transfers, voting rights, redemptions and other notices and other matters, see "Book-Entry Issuance." Upon the issuance of a Global Trust Preferred Security, and the deposit of such Global Trust Preferred Security with or on behalf of the Depositary, the Depositary for such Global Trust Preferred Security or its nominee will credit, on its book-entry registration and transfer system, the respective aggregate Liquidation Amounts of the individual Trust Preferred Securities represented by such Global Trust Preferred Securities to the accounts of Participants. Such accounts shall be designated by the dealers, underwriters or agents with respect to such Trust Preferred Securities. Ownership of beneficial interests in a Global Trust Preferred Security will be limited to Participants or persons that may hold interests through Participants. Ownership of beneficial interests in such Global Trust Preferred Security will be shown on, and the transfer of that ownership will be effected only through, records maintained by the applicable Depositary or its nominee (with respect to interests of Participants) and the records of Participants (with respect to interests of persons who hold through Participants). The laws of some states require that certain purchasers of securities take physical delivery of such securities in definitive form. Such limits and such laws may impair the ability to transfer beneficial interests in a Global Trust Preferred Security. So long as the Depositary for a Global Trust Preferred Security, or its nominee, is the registered owners of such Global Trust Preferred Security, such Depositary or such nominee, as the case may be, will be considered the sole owner or holder of the Trust Preferred Securities represented by such Global Trust Preferred Security for all purposes under the Trust Agreement governing such Trust Preferred Securities. Except as provided below, owners of beneficial interests in a Global Trust Preferred Security will not be entitled to have any of the 76 individual Trust Preferred Securities represented by such Global Trust Preferred Security registered in their names, will not receive or be entitled to receive physical delivery of any such Trust Preferred Securities in definitive form and will not be considered the owners or holders thereof under the Trust Agreement. None of Greater Bay, the Property Trustee, any Paying Agent, or the Securities Registrar (defined below) for such Trust Preferred Securities will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of the Global Trust Preferred Security representing such Trust Preferred Securities or for maintaining supervising or reviewing any records relating to such beneficial ownership interests. Greater Bay expects that the Depositary for Trust Preferred Securities or its nominee, upon receipt of any payment of the Liquidation Amount or Distributions in respect of a permanent Global Trust Preferred Security immediately will credit Participants' accounts with payments in amounts proportionate to their respective beneficial interest in the aggregate Liquidation Amount of such Global Trust Preferred Security as shown on the records of such Depositary or its nominee. Greater Bay also expects that payments by Participants to owners of beneficial interests in such Global Trust Preferred Security held through such Participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in "street name." Such payments will be the responsibility of such Participants. If the Depositary for the Trust Preferred Securities is at any time unwilling, unable or ineligible to continue as depositary and a successor depositary is not appointed by Greater Bay within 90 days, GBB Capital will issue individual Trust Preferred Securities in exchange for the Global Trust Preferred Security. In addition, GBB Capital may at any time and in its sole discretion, subject to any limitations described herein relating to such Trust Preferred Securities, determine not to have any Trust Preferred Securities represented by one or more Global Trust Preferred Securities and, in such event, will issue individual Trust Preferred Securities in exchange for the Global Trust Preferred Security or Securities representing the Trust Preferred Securities. Further, if GBB Capital so specifies with respect to the Trust Preferred Securities, an owner of a beneficial interest in a Global Trust Preferred Security representing Trust Preferred Securities may, on terms acceptable to Greater Bay, the Property Trustee and the Depositary for such Global Trust Preferred Security, receive individual Trust Preferred Securities in exchange for such beneficial interests, subject to any limitations described herein. In any such instance, an owner of a beneficial interest in a Global Trust Preferred Security will be entitled to physical delivery of individual Trust Preferred Securities represented by such Global Trust Preferred Security equal in Liquidation Amount to such beneficial interest and to have such Trust Preferred Securities registered in its name. Individual Trust Preferred Securities so issued will be issued in denominations, unless otherwise specified by GBB Capital, of $25 and integral multiples thereof. PAYMENT AND PAYING AGENCY Payments in respect of the Trust Preferred Securities shall be made to the Depositary, which shall credit the relevant accounts at the Depositary on the applicable Distribution Dates or, if any of the Trust Preferred Securities are not held by the Depositary, such payments shall be made by check mailed to the address of the holder entitled thereto as such address shall appear on the Register. The paying agent (the "Paying Agent") shall initially be the Property Trustee and any co-paying agent chosen by the Property Trustee and acceptable to the Administrative Trustees and Greater Bay. The Paying Agent shall be permitted to resign as Paying Agent upon 30 days' written notice to the Property Trustee and Trust Preferred. In the event that the Property Trustee shall no longer be the Paying Agent, the Administrative Trustees shall appoint a successor (which shall be a bank or trust company acceptable to the Administrative Trustees and Greater Bay) to act as Paying Agent. REGISTRAR AND TRANSFER AGENT The Property Trustee will act as registrar and transfer agent for the Trust Preferred Securities. Registration of transfers of the Trust Preferred Securities will be effected without charge by or on behalf of GBB Capital, but 77 upon payment of any tax or other governmental charges that may be imposed in connection with any transfer or exchange. GBB Capital will not be required to register or cause to be registered the transfer of the Trust Preferred Securities after such Trust Preferred Securities have been called for redemption. INFORMATION CONCERNING THE PROPERTY TRUSTEE The Property Trustee, other than upon the occurrence and during the continuance of an Event of Default, undertakes to perform only such duties as are specifically set forth in the Trust Agreement and, after such Event of Default, must exercise the same degree of care and skill as a prudent person would exercise or use in the conduct of his or her own affairs. Subject to this provision, the Property Trustee is under no obligation to exercise any of the powers vested in it by the Trust Agreement at the request of any holder of Trust Preferred Securities unless it is offered reasonable indemnity against the costs, expenses and liabilities that might be incurred thereby. If no Event of Default has occurred and is continuing and the Property Trustee is required to decide between alternative causes of action, construe ambiguous provisions in the Trust Agreement or is unsure of the application of any provision of the Trust Agreement, and the matter is not one on which holders of the Trust Preferred Securities are entitled under the Trust Agreement to vote, then the Property Trustee shall take such action as is directed by Greater Bay and if not so directed, shall take such action as it deems advisable and in the best interests of the holders of the Trust Securities and will have no liability except for its own bad faith, negligence or willful misconduct. MISCELLANEOUS The Administrative Trustees are authorized and directed to conduct the affairs of and to operate GBB Capital in such a way that GBB Capital will not be deemed to be an "investment company" required to be registered under the Investment Company Act or classified as an association taxable as a corporation for United States federal income tax purposes and so that the Junior Subordinated Debentures will be treated as indebtedness of Greater Bay for United States federal income tax purposes. In this connection, Greater Bay and the Administrative Trustees are authorized to take any action, not inconsistent with applicable law, the certificate of trust of GBB Capital or the Trust Agreement, that Greater Bay and the Administrative Trustees determine in their discretion to be necessary or desirable for such purposes, as long as such action does not materially adversely affect the interests of the holders of the Trust Preferred Securities. Holders of the Trust Preferred Securities have no preemptive or similar rights. GBB Capital may not borrow money or issue debt or mortgage or pledge any of its assets. DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES The Junior Subordinated Debentures will be issued under the Junior Subordinated Indenture, dated as of , 1997 (the "Indenture"), between Greater Bay and the Indenture Trustee. The following summary of the terms and provisions of the Junior Subordinated Debentures and the Indenture does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the Indenture, which has been filed as an exhibit to the Registration Statement of which this Prospectus forms a part, and to the Trust Indenture Act. The Indenture is qualified under the Trust Indenture Act. Whenever particular defined terms of the Indenture are referred to herein, such defined terms are incorporated herein or therein by reference. Concurrently with the issuance of the Trust Preferred Securities, GBB Capital will invest the proceeds thereof, together with the consideration paid by Greater Bay for the Common Securities, in Junior Subordinated Debentures issued by Greater Bay. The Junior Subordinated Debentures will be issued as unsecured debt under the Indenture. 78 GENERAL The Junior Subordinated Debentures will bear interest at the annual rate of % of the principal amount thereof, payable quarterly in arrears on the 15th day of March, June, September and December of each year (each, an "Interest Payment Date"), commencing June 15, 1997, to the person in whose name each Junior Subordinated Debenture is registered, subject to certain exceptions, at the close of business on the Business Day next preceding such Interest Payment Date. Notwithstanding the above, in the event that either the (i) Junior Subordinated Debentures are held by the Property Trustee and the Trust Preferred Securities are no longer in book-entry only form or (ii) the Junior Subordinated Debentures are not represented by a Global Subordinated Debenture (as defined herein), the record date for such payment shall be the first day of the month in which such payment is made. The amount of each interest payment due with respect to the Junior Subordinated Debentures will include amounts accrued through the date the interest payment is due. It is anticipated that, until the liquidation, if any, of GBB Capital, each Junior Subordinated Debenture will be held in the name of the Property Trustee in trust for the benefit of the holders of the Trust Preferred Securities. The amount of interest payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. In the event that any date on which interest is payable on the Junior Subordinated Debentures is not a Business Day, then payment of the interest payable on such date will be made on the next Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on the date such payment was originally payable. Accrued interest that is not paid on the applicable Interest Payment Date will bear additional interest on the amount thereof (to the extent permitted by law) at the rate per annum of % thereof, compounded quarterly. The term "interest" as used herein shall include quarterly interest payments, interest on quarterly interest payments not paid on the applicable Interest Payment Date and Additional Sums (as defined below), as applicable. The Junior Subordinated Debentures will mature on , 2026 (such date, as it may be shortened as hereinafter described, the "Stated Maturity"). Such date may be shortened once at any time by Greater Bay to any date not earlier than , 2002 subject to Greater Bay having received prior approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve. In the event that Greater Bay elects to shorten the Stated Maturity of the Junior Subordinated Debentures, it shall give notice to the Indenture Trustee, and the Indenture Trustee shall give notice of such shortening to the holders of the Junior Subordinated Debentures no less than 90 days prior to the effectiveness thereof. The Junior Subordinated Debentures will be unsecured and will rank junior and be subordinate in right of payment to all Senior and Subordinated Debt of Greater Bay. Because Greater Bay is a holding company, the right of Greater Bay to participate in any distribution of assets of any subsidiaries, including Greater Bay's Banks, upon any such subsidiaries' liquidation or reorganization or otherwise (and thus the ability of holders of the Trust Preferred Securities to benefit indirectly from such distribution), is subject to the prior claims of creditors of that subsidiary, except to the extent that Greater Bay may itself be recognized as a creditor of that subsidiary. Accordingly, the Junior Subordinated Debentures will be effectively subordinated to all existing and future liabilities of the Banks, and holders of Junior Subordinated Debentures should look only to the assets of Greater Bay for payments on the Junior Subordinated Debentures. The Indenture does not limit the incurrence or issuance of other secured or unsecured debt of Greater Bay, including Senior and Subordinated Debt, whether under the Indenture or any existing or other indenture that Greater Bay may enter into in the future or otherwise. See "--Subordination" below. OPTION TO DEFER INTEREST PAYMENT PERIOD So long as no Debenture Event of Default has occurred and is continuing, Greater Bay has the right under the Indenture at any time during the term of the Junior Subordinated Debentures to defer the payment of interest at any time or from time to time for a period not exceeding 20 consecutive quarters (each such period an "Extension Period"), provided that no Extension Period may extend beyond the Stated Maturity. At the end of such Extension Period, Greater Bay must pay all interest then accrued and unpaid (together with interest thereon 79 at the annual rate of %, compounded quarterly, to the extent permitted by applicable law). During an Extension Period, interest will continue to accrue and holders of Junior Subordinated Debentures will be required to accrue interest income for United States federal income tax purposes. See "Certain Federal Income Tax Consequences--Interest Income and Original Issue Discount." During any such Extension Period, Greater Bay may not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of Greater Bay's capital stock or (ii) make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities of Greater Bay (including other Junior Subordinated Debentures) that rank pari passu with or junior in interest to the Junior Subordinated Debentures or (iii) make any guarantee payments with respect to any guarantee by Greater Bay of the debt securities of any subsidiary of Greater Bay if such guarantee ranks pari passu with or junior in interest to the Junior Subordinated Debentures (other than (a) dividends or distributions in common stock of Greater Bay, (b) any declaration of a dividend in connection with the implementation of a stockholders' rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, (c) payments under the Guarantee, and (d) purchases of common stock related to the issuance of common stock or rights under any of Greater Bay's benefit plans for its directors, officers or employees). Prior to the termination of any such Extension Period, Greater Bay may further extend such Extension Period, provided that such extension does not cause such Extension Period to exceed 20 consecutive quarters or extend beyond the Stated Maturity. Upon the termination of any such Extension Period and the payment of all amounts then due on any Interest Payment Date, Greater Bay may elect to begin a new Extension Period subject to the above requirements. No interest shall be due and payable during an Extension Period, except at the end thereof. Greater Bay must give the Property Trustee, the Administrative Trustees and the Indenture Trustee notice of its election of any Extension Period at least one Business Day prior to the earlier of (i) the date the Distributions on the Trust Preferred Securities would have been payable except for the election to begin or extend such Extension Period or (ii) the date the Administrative Trustees are required to give notice to the New York Exchange, the Nasdaq National Market or any applicable stock exchange or automated quotation system on which the Trust Preferred Securities are then listed or quoted or to the holders of the Trust Preferred Securities of the record date or the date such Distributions are payable, but in any event not less than one Business Day prior to such record date. The Indenture Trustee shall give notice of Greater Bay's election to begin or extend a new Extension Period the holders of the Trust Preferred Securities. There is no limitation on the number of times that Greater Bay may elect to begin an Extension Period. Distributions on the Trust Preferred Securities will be deferred by GBB Capital during any such Extension Period. See "Description of the Trust Preferred Securities--Distributions." For a description of certain federal income tax consequences and special considerations applicable to any such Junior Subordinated Debentures, see "Certain Federal Income Tax Consequences." ADDITIONAL SUMS If GBB Capital is required to pay any additional taxes, duties or other governmental charges as a result of a Tax Event, Greater Bay will pay as additional amounts on the Junior Subordinated Debentures such amounts ("Additional Sums") as shall be required so that the Distributions payable by GBB Capital shall not be reduced as a result of any such additional taxes, duties or other governmental charges. REDEMPTION Subject to Greater Bay having received prior approval of the Federal Reserve, if then required under applicable capital guidelines or policies of the Federal Reserve, the Junior Subordinated Debentures are redeemable prior to maturity at the option of Greater Bay (i) on or after , 2002, in whole at any time or in part from time to time, or (ii) at any time in whole (but not in part), upon the occurrence and during the continuance of a Tax Event, an Investment Company Event or a Capital Treatment Event, in each case at a 80 redemption price equal to the accrued and unpaid interest on the Junior Subordinated Debentures so redeemed to the date fixed for redemption, plus 100% of the principal amount thereof. Notice of any redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each holder of Junior Subordinated Debentures to be redeemed at such holder's registered address. Unless Greater Bay defaults in payment of the redemption price, on and after the redemption date interest ceases to accrue on such Junior Subordinated Debentures or portions thereof called for redemption. If GBB Capital is required to pay additional taxes, duties or other governmental charges as a result of a Tax Event, Greater Bay will pay as additional amounts on the Junior Subordinated Debentures the Additional Sums (as defined herein). The Junior Subordinated Debentures will not be subject to any sinking fund. DISTRIBUTION UPON LIQUIDATION As described under "Description of the Trust Preferred Securities-- Liquidation Distribution Upon Termination," under certain circumstances involving the termination of GBB Capital, the Junior Subordinated Debentures may be distributed to the holders of the Trust Preferred Securities in liquidation of GBB Capital after satisfaction of liabilities to creditors of GBB Capital as provided by applicable law. If distributed to holders of the Trust Preferred Securities in liquidation, the Junior Subordinated Debentures will initially be issued in the form of one or more global securities and the Depositary, or any successor depositary for the Trust Preferred Securities, will act as depositary for the Junior Subordinated Debentures. It is anticipated that the depositary arrangements for the Junior Subordinated Debentures would be substantially identical to those in effect for the Trust Preferred Securities. If the Junior Subordinated Debentures are distributed to the holders of Trust Preferred Securities upon the liquidation of GBB Capital. Greater Bay will use its best efforts to list the Junior Subordinated Debentures on the Nasdaq National Market or such other stock exchanges or automated quotation system, if any, on which the Trust Preferred Securities are then listed or quoted. There can be no assurance as to the market price of any Junior Subordinated Debentures that may be distributed to the holders of Trust Preferred Securities. RESTRICTIONS ON CERTAIN PAYMENTS If at any time (i) there shall have occurred any event of which Greater Bay has actual knowledge that (a) with the giving of notice or the lapse of time, or both, would constitute a Debenture Event of Default and (b) in respect of which Greater Bay shall not have taken reasonable steps to cure, or (ii) Greater Bay shall have given notice of its election of an Extension Period as provided in the Indenture with respect to the Junior Subordinated Debentures and shall not have rescinded such notice, or such Extension Period, or any extension thereof, shall be continuing, or (iii) while the Junior Subordinated Debentures are held by GBB Capital, Greater Bay shall be in default with respect to its payment of any obligation under the Guarantee, then Greater Bay will not (1) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of Greater Bay's capital stock or (2) make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities of Greater Bay (including other Junior Subordinated Debt) that rank pari passu with or junior in interest to the Junior Subordinated Debentures or make any guarantee payments with respect to any guarantee by Greater Bay of the debt securities of any subsidiary of Greater Bay if such guarantee ranks pari passu with or junior in interest to the Junior Subordinated Debentures (other than (a) dividends or distributions in Common Stock, (b) any declaration of a dividend in connection with the implementation of a stockholders' rights plan, or the issuance of stock under any such plan in the future or the redemption or repurchase of any such rights pursuant thereto, (c) payments under the Guarantee and (d) purchases of Common Stock related to issuance of common stock or rights under any of Greater Bay's benefit plans for its directors, officers or employees) or related to the issuance of common stock (or securities convertible into or exchangeable for common stock) as consideration in an acquisition transaction. 81 SUBORDINATION In the Indenture, Greater Bay has covenanted and agreed that any Junior Subordinated Debentures issued thereunder will be subordinate and junior in right of payment to all Senior and Subordinated Debt to the extent provided in the Indenture. Upon any payment or distribution of assets to creditors upon any liquidation, dissolution, winding up, reorganization, assignment for the benefit of creditors, marshaling of assets or any bankruptcy, insolvency, debt restructuring or similar proceedings in connection with any insolvency or bankruptcy proceeding of Greater Bay, the holders of Senior and Subordinated Debt will first be entitled to receive payment in full of principal of all Allocable Amounts (as defined below) on such Senior and Subordinated Debt before the holders of Junior Subordinated Debentures will be entitled to receive or retain any payment in respect thereof. In the event of the acceleration of the maturity of any Junior Subordinated Debentures, the holders of all Senior and Subordinated Debt outstanding at the time of such acceleration will first be entitled to receive payment in full of all amounts due thereon (including any amounts due upon acceleration) before the holders of Junior Subordinated Debentures will be entitled to receive or retain any payment in respect of the Junior Subordinated Debentures. No payments on account of principal or interest, if any, in respect of the Junior Subordinated Debentures may be made if there shall have occurred and be continuing a default in any payment with respect to Senior and Subordinated Debt or an event of default with respect to any Senior and Subordinated Debt resulting in the acceleration of the maturity thereof, or if any judicial proceeding shall be pending with respect to any such default. "Allocable Amounts," when used with respect to any Senior and Subordinated Debt, means all amounts due or to become due on such Senior and Subordinated Debt less, if applicable, any amount which would have been paid to, and retained by, the holders of such Senior and Subordinated Debt (whether as a result of the receipt of payments by the holders of such Senior and Subordinated Debt from Greater Bay or any other obligor thereon or from any holders of, or trustee in respect of, other indebtedness that is subordinate and junior in right of payment to such Senior and Subordinated Debt pursuant to any provision of such indebtedness for the payment over of amounts received on account of such indebtedness to the holders of such Senior and Subordinated Debt or otherwise) but for the fact that such Senior and Subordinated Debt is subordinated or junior in right of payment to (or subject to a requirement that amounts received on such Senior and Subordinated Debt be paid over to obligees on) trade accounts payable or accrued liabilities arising in the ordinary course of business. "Debt" means with respect to any person, whether recourse is to all or a portion of the assets of such person and whether or not contingent: (i) every obligation of such person for money borrowed; (ii) every obligation of such person evidenced by bonds, debentures, notes or other similar instruments, including obligations incurred in connection with the acquisition of property, assets or businesses; (iii) every reimbursement obligation of such person with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of such person; (iv) every obligation of such person issued or assumed as the deferred purchase price of property or services (but excluding trade accounts payable or accrued liabilities arising in the ordinary course of business); (v) every capital lease obligation of such person; (vi) all indebtedness of such person whether incurred on or prior to the date of the Indenture or thereafter incurred, for claims in respect of derivative products including interest rate, foreign exchange rate and commodity forward contracts, options and swaps and similar arrangements; and (vii) every obligation of the type referred to in clauses (i) through (vi) of another person and all dividends of another person the payment of which, in either case, such person has guaranteed or is responsible or liable, directly or indirectly, as obligor or otherwise. "Senior and Subordinated Debt" means the principal of (and premium, if any) and interest, if any (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to Greater Bay whether or not such claim for post-petition interest is allowed in such proceeding), on Debt of Greater Bay whether incurred on or prior to the date of the Indenture or thereafter incurred, unless, in the 82 instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such obligations are not superior in right of payment to the Junior Subordinated Debentures or to other Debt which is pari passu with, or subordinated to, the Junior Subordinated Debentures; provided, however, that Senior and Subordinated Debt shall not be deemed to include (i) any Debt of Greater Bay which when incurred and without respect to any election under section 1111(b) of the United States Bankruptcy Code of 1978, as amended, was without recourse to Greater Bay, (ii) any Debt of Greater Bay to any of its subsidiaries, (iii) Debt to any employee of Greater Bay, and (iv) any other debt securities issued pursuant to the Indenture. The Indenture places no limitation on the amount of additional Senior and Subordinated Debt that may be incurred by Greater Bay. Greater Bay expects from time to time to incur additional indebtedness constituting Senior and Subordinated Debt. DENOMINATIONS, REGISTRATION AND TRANSFER The Junior Subordinated Debentures will be represented by global certificates registered in the name of the Depositary or its nominee ("Global Subordinated Debenture"). Beneficial interests in the Junior Subordinated Debentures will be shown on, and transfers thereof will be effected only through, records maintained by the Depositary. Except as described below, Junior Subordinated Debentures in certificated form will not be issued in exchange for the global certificates. See "Book-Entry Issuance." Unless and until a Global Subordinated Debenture is exchanged in whole or in part for the individual Junior Subordinated Debentures represented thereby, it may not be transferred except as a whole by the Depositary for such Global Subordinated Debenture to a nominee of such Depositary or by a nominee of such Depositary to such Depositary or another nominee of such Depositary or by the Depositary or any nominee to a successor Depositary or any nominee of such successor. A global security shall be exchangeable for Junior Subordinated Debentures registered in the names of persons other than the Depositary or its nominee only if (i) the Depositary notifies Greater Bay that it is unwilling or unable to continue as a depositary for such global security and no successor depositary shall have been appointed, or if at any time the Depositary ceases to be a clearing agency registered under the Securities Exchange Act, at a time when the Depositary is required to be so registered to act as such depositary, (ii) Greater Bay in its sole discretion determines that such global security shall be so exchangeable or (iii) there shall have occurred and be continuing a Debenture Event of Default with respect to such global security. Any global security that is exchangeable pursuant to the preceding sentence shall be exchangeable for definitive certificates registered in such names as the Depositary shall direct. It is expected that such instructions will be based upon directions received by the Depositary from its Participants with respect to ownership of beneficial interests in such global security. In the event that Junior Subordinated Debentures are issued in definitive form, such Junior Subordinated Debentures will be in denominations of $25 and integral multiples thereof and may be transferred or exchanged at the offices described below. Payments on Junior Subordinated Debentures represented by a global security will be made to the Depositary, as the depositary for the Junior Subordinated Debentures. In the event Junior Subordinated Debentures are issued in definitive form, principal and interest will be payable, the transfer of the Junior Subordinated Debentures will be registrable, and Junior Subordinated Debentures will be exchangeable for Junior Subordinated Debentures of other denominations of a like aggregate principal amount, at the corporate office of the Indenture Trustee, or at the offices of any paying agent or transfer agent appointed by Greater Bay, provided that payment of interest may be made at the option of Greater Bay by check mailed to the address of the persons entitled thereto or by wire transfer. In addition, if the Junior Subordinated Debentures are issued in certificated form, the record dates for payment of interest will be the first day of the month in which such payment is to be made. For a description of the Depositary and the terms of the depositary arrangements relating to payments, transfers, voting rights, redemptions and other notices and other matters, see "Book-Entry Issuance." 83 Greater Bay will appoint the Indenture Trustee as securities registrar under the Indenture (the "Securities Registrar"). Junior Subordinated Debentures may be presented for exchange as provided above, and may be presented for registration of transfer (with the form of transfer endorsed thereon, or a satisfactory written instrument of transfer, duly executed), at the office of the Securities Registrar. Greater Bay may at any time rescind the designation of any such transfer agent or approve a change in the location through which any such transfer agent acts, provided that Greater Bay maintains a transfer agent in the place of payment. Greater Bay may at any time designate additional transfer agents with respect to the Junior Subordinated Debentures. In the event of any redemption, neither Greater Bay nor the Indenture Trustee shall be required to (i) issue, register the transfer of or exchange Junior Subordinated Debentures during a period beginning at the opening of business 15 days before the day of selection for redemption of Junior Subordinated Debentures and ending at the close of business on the day of mailing of the relevant notice of redemption or (ii) transfer or exchange any Junior Subordinated Debentures so selected for redemption, except, in the case of any Junior Subordinated Debentures being redeemed in part, any portion thereof not to be redeemed. GLOBAL SUBORDINATED DEBENTURES Upon the issuance of the Global Subordinated Debenture, and the deposit of such Global Subordinated Debenture with or on behalf of the Depositary, the Depositary for such Global Subordinated Debenture or its nominee will credit, on its book-entry registration and transfer system, the respective principal amounts of the individual Junior Subordinated Debentures represented by such Global Subordinated Debenture to the accounts of persons that have accounts with such Depositary ("Participants"). Ownership of beneficial interests in a Global Subordinated Debenture will be limited to Participants or persons that may hold interests through Participants. Ownership of beneficial interests in such Global Subordinated Debenture will be shown on, and the transfer of that ownership will be effected only through, records maintained by the applicable Depositary or its nominee (with respect to interests of Participants) and the records of Participants (with respect to interests of persons who hold through Participants). The laws of some states require that certain purchasers of securities take physical delivery of such securities in definitive form. Such limits and such laws may impair the ability to transfer beneficial interests in a Global Subordinated Debenture. So long as the Depositary for a Global Subordinated Debenture, or its nominee, is the registered owner of such Global Subordinated Debenture, such Depositary or such nominee, as the case may be, will be considered the sole owner or holder of the Junior Subordinated Debentures represented by such Global Subordinated Debenture for all purposes under the Indenture governing such Junior Subordinated Debentures. Except as provided below, owners of beneficial interests in a Global Subordinated Debenture will not be entitled to have any of the individual Junior Subordinated Debentures represented by such Global Subordinated Debenture registered in their names, will not receive or be entitled to receive physical delivery of any such Junior Subordinated Debentures in definitive form and will not be considered the owners or holders thereof under the Indenture. Payments of principal of and interest on individual Junior Subordinated Debentures represented by a Global Subordinated Debenture registered in the name of the Depositary or its nominee will be made to the Depositary or its nominee, as the case may be, as the registered owner of the Global Subordinated Debenture representing such Junior Subordinated Debentures. None of Greater Bay, the Indenture Trustee, any Paying Agent, or the Securities Registrar for such Junior Subordinated Debentures will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of the Global Subordinated Debenture representing such Junior Subordinated Debentures or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. Greater Bay expects that the Depositary or its nominee, upon receipt of any payment of principal or interest in respect of a permanent Global Subordinated Debenture representing the Junior Subordinated Debentures, immediately will credit Participants' accounts with payments in amounts proportionate to their respective beneficial interest in the principal amount of the Global Subordinated Debenture as shown on the records of such 84 Depositary or its nominee. Greater Bay also expects that payments by Participants to owners of beneficial interests in such Global Subordinated Debenture held through such Participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in "street name." Such payments will be the responsibility of such Participants. If the Depositary is at any time unwilling, unable or ineligible to continue as depositary and a successor depositary is not appointed by Greater Bay within 90 days, Greater Bay will issue individual Junior Subordinated Debentures in exchange for the Global Subordinated Debenture. In addition, Greater Bay may at any time and in its sole discretion, determine not to have the Junior Subordinated Debentures represented by one or more Global Junior Subordinated Debentures and, in such event, will issue individual Junior Subordinated Debentures in exchange for the Global Subordinated Debenture. Further, if Greater Bay so specifies with respect to the Junior Subordinated Debentures, an owner of a beneficial interest in a Global Subordinated Debenture representing Junior Subordinated Debentures may, on terms acceptable to Greater Bay, the Indenture Trustee and the Depositary for such Global Subordinated Debenture, receive individual Junior Subordinated Debentures in exchange for such beneficial interests. In any such instance, an owner of a beneficial interest in a Global Subordinated Debenture will be entitled to physical delivery of individual Junior Subordinated Debentures equal in principal amount to such beneficial interest and to have such Junior Subordinated Debentures registered in its name. Individual Junior Subordinated Debentures so issued will be issued in denominations, unless otherwise specified by Greater Bay, of $25 and integral multiples thereof. PAYMENT AND PAYING AGENTS Payment of principal of and any interest on the Junior Subordinated Debentures will be made at the office of the Indenture Trustee, except that at the option of Greater Bay payment of any interest may be made (i) except in the case of Global Junior Subordinated Debentures, by check mailed to the address of the person entitled thereto as such address shall appear in the securities register or (ii) by transfer to an account maintained by the person entitled thereto as specified in the securities register, provided that proper transfer instructions have been received by the regular record date. Payment of any interest on Junior Subordinated Debentures will be made to the person in whose name such Junior Subordinated Debenture is registered at the close of business on the regular record date for such interest. Greater Bay may at any time designate additional Paying Agents or rescind the designation of any Paying Agent; however Greater Bay will at all times be required to maintain a Paying Agent in each place of payment for the Junior Subordinated Debentures. Any moneys deposited with the Indenture Trustee or any Paying Agent, or then held by Greater Bay in trust, for the payment of the principal of or interest on the Junior Subordinated Debentures and remaining unclaimed for two years after such principal or interest has become due and payable shall, at the request of Greater Bay, be repaid to Greater Bay and the holder of such Junior Subordinated Debenture shall thereafter look, as a general unsecured creditor, only to Greater Bay for payment thereof. MODIFICATION OF INDENTURE From time to time Greater Bay and the Indenture Trustee may, without the consent of the holders of the Junior Subordinated Debentures, amend, waive or supplement the Indenture for specified purposes, including, among other things, curing ambiguities, defects or inconsistencies (provided that any such action does not materially adversely affect the interests of the holders of the Junior Subordinated Debentures or the Trust Preferred Securities so long as they remain outstanding) and qualifying, or maintaining the qualification of, the Indenture under the Trust Indenture Act. The Indenture contains provisions permitting Greater Bay and the Indenture Trustee, with the consent of the holders of not less than a majority in principal amount of the outstanding Junior Subordinated Debentures, to modify the Indenture in a manner affecting the rights of the holders of the Junior Subordinated Debentures; provided, that no such modification may, without the consent of the holder of each outstanding Subordinated Debenture, (i) change the Stated Maturity of the Junior Subordinated Debentures, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon or (ii) reduce the percentage of principal amount of Junior Subordinated Debentures, the holders of which 85 are required to consent to any such modification of the Indenture, provided that so long as any of the Trust Preferred Securities remain outstanding, no such modification may be made that adversely affects the holders of such Trust Preferred Securities in any material respect, and no termination of the Indenture may occur, and no waiver of any Debenture Event of Default or compliance with any covenant under the Indenture may be effective, without the prior consent of the holders of at least a majority of the aggregate Liquidation Amount of the Trust Preferred Securities unless and until the principal of the Junior Subordinated Debentures and all accrued and unpaid interest thereon have been paid in full and certain other conditions are satisfied. Where a consent under the Indenture would require the consent of each holder of Junior Subordinated Debentures, no such consent shall be given by the Property Trustee without the prior consent of each holder of Trust Preferred Securities. In addition, Greater Bay and the Indenture Trustee may execute, without the consent of any holder of Junior Subordinated Debentures, any supplemental Indenture for the purpose of creating any new series of Junior Subordinated Debentures. DEBENTURE EVENTS OF DEFAULT The Indenture provides that any one or more of the following described events with respect to the Junior Subordinated Debentures that has occurred and is continuing constitutes a "Debenture Event of Default" with respect to the Junior Subordinated Debentures: (i) failure for 30 days to pay any interest on the Junior Subordinated Debentures, when due (subject to the deferral of any due date in the case of an Extension Period); or (ii) failure to pay any principal on the Junior Subordinated Debentures when due whether at maturity, upon redemption by declaration or otherwise; or (iii) failure to observe or perform in any material respect certain other covenants contained in the Indenture for 90 days after written notice to Greater Bay from the Indenture Trustee or to Greater Bay and the Indenture Trustee by the holders of at least 25% in aggregate outstanding principal amount of the Junior Subordinated Debentures; or (iv) certain events in bankruptcy, insolvency or reorganization of Greater Bay. The holders of a majority in aggregate outstanding principal amount of the Junior Subordinated Debentures have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Indenture Trustee. The Indenture Trustee or the holders of not less than 25% in aggregate outstanding principal amount of the Junior Subordinated Debentures may declare the principal due and payable immediately upon a Debenture Event of Default. If the Indenture Trustee or such holders of such Junior Subordinated Debentures fail to make such declaration, the holders of at least 25% in aggregate Liquidation Amount of the Trust Preferred Securities shall have such right. The holders of a majority in aggregate outstanding principal amount of the Junior Subordinated Debentures may annul such declaration and waive the default if the default (other than the non-payment of the principal of the Junior Subordinated Debentures which has become due solely by such acceleration) has been cured and a sum sufficient to pay all matured installments of interest and principal due otherwise than by acceleration has been deposited with the Indenture Trustee. Should the holders of the Junior Subordinated Debentures fail to annul such declaration and waive such default, the holders of a majority in aggregate Liquidation Amount of the Trust Preferred Securities shall have such right. The holders of a majority in aggregate outstanding principal amount of Junior Subordinated Debentures affected thereby may, on behalf of the holders of all the Junior Subordinated Debentures, waive any past default, except a default in the payment of principal or interest (unless such default has been cured and a sum sufficient to pay all matured installments of interest and principal due otherwise than by acceleration has been deposited with the Indenture Trustee) or a default in respect of a covenant or provision which under the Indenture cannot be modified or amended without the consent of the holder of each outstanding Junior Subordinated Debenture. In case a Debenture Event of Default shall occur and be continuing as to the Junior Subordinated Debentures, the Property Trustee will have the right to declare the principal of and the interest on such Junior 86 Subordinated Debentures, and any other amounts payable under the Indenture, to be forthwith due and payable and to enforce its other rights as a creditor with respect to such Junior Subordinated Debentures. Greater Bay is required to file annually with the Indenture Trustee a certificate as to whether or not Greater Bay is in compliance with all the conditions and covenants applicable to it under the Indenture. ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF TRUST PREFERRED SECURITIES If a Debenture Event of Default has occurred and is continuing and such event is attributable to the failure of Greater Bay to pay interest or principal on the Junior Subordinated Debentures on the date such interest or principal is otherwise payable, a holder of Trust Preferred Securities may institute a legal proceeding directly against Greater Bay for enforcement of payment to such holder of the principal of or interest on such Junior Subordinated Debentures having a principal amount equal to the aggregate Liquidation Amount of the Trust Preferred Securities of such holder ("Direct Action"). Greater Bay may not amend the Indenture to remove the foregoing right to bring a Direct Action without the prior written consent of the holders of all of the Trust Preferred Securities outstanding. If the right to bring a Direct Action is removed, GBB Capital may become subject to the reporting obligations under the Exchange Act. Greater Bay shall have the right under the Indenture to set-off any payment made to such holder of Trust Preferred Securities by Greater Bay in connection with a Direct Action. The holders of the Trust Preferred Securities would not be able to exercise directly any remedies other than those set forth in the preceding paragraph available to the holders of the Junior Subordinated Debentures unless there shall have been an Event of Default under the Trust Agreement. See "Description of the Trust Preferred Securities--Events of Default; Notice." CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS The Indenture provides that Greater Bay shall not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, and no Person shall consolidate with or merge into Greater Bay or convey, transfer or lease its properties and assets substantially as an entirety to Greater Bay, unless (i) in case Greater Bay consolidates with or merges into another Person or conveys or transfers its properties and assets substantially as an entirety to any Person, the successor Person is organized under the laws of the United States or any state or the District of Columbia, and such successor Person expressly assumes Greater Bay's obligations on the Junior Subordinated Debentures issued under the Indenture; (ii) immediately after giving effect thereto, no Debenture Event of Default, and no event which, after notice or lapse of time or both, would become a Debenture Event of Default, shall have occurred and be continuing; (iii) such transaction is permitted under the Trust Agreement and the Guarantee Agreement; and does not give rise to any breach or violation of the Trust Agreement or Guarantee Agreement; and (iv) certain other conditions as prescribed in the Indenture are met. The general provisions of the Indenture do not afford holders of the Junior Subordinated Debentures protection in the event of a highly leveraged or other transaction involving Greater Bay that may adversely affect holders of the Junior Subordinated Debentures. SATISFACTION AND DISCHARGE The Indenture provides that when, among other things, all Junior Subordinated Debentures not previously delivered to the Indenture Trustee for cancellation (i) have become due and payable or (ii) will become due and payable at their Stated Maturity within one year, and Greater Bay deposits or causes to be deposited with the Indenture Trustee trust funds, in trust, for the purpose and in an amount in the currency or currencies in which the Junior Subordinated Debentures are payable sufficient to pay and discharge the entire indebtedness on the Junior Subordinated Debentures not previously delivered to the Indenture Trustee for cancellation, for the principal and interest to the date of the deposit or to the Stated Maturity, as the case may be, then the Indenture will cease to be of further effect (except as to Greater Bay's obligations to pay all other sums due pursuant to the Indenture and to provide the officers' certificates and opinions of counsel described therein), and Greater Bay will be deemed to have satisfied and discharged the Indenture. 87 COVENANTS OF GREATER BAY Greater Bay will covenant in the Indenture, as to the Junior Subordinated Debentures, that if and so long as (i) GBB Capital is the holder of all such Junior Subordinated Debentures, (ii) a Tax Event in respect of GBB Capital has occurred and is continuing and (iii) Greater Bay has elected, and has not revoked such election, to pay Additional Sums (as defined under "Description of the Trust Preferred Securities--Redemption") in respect of the Trust Preferred Securities, Greater Bay will pay to GBB Capital such Additional Sums. Greater Bay will also covenant, as to the Junior Subordinated Debentures, (i) to maintain directly or indirectly 100% ownership of the Common Securities of GBB Capital to which Junior Subordinated Debentures have been issued, provided that certain successors which are permitted pursuant to the Indenture may succeed to Greater Bay's ownership of the Common Securities, (ii) not to voluntarily terminate, wind up or liquidate GBB Capital, except upon prior approval of the Federal Reserve if then so required under applicable capital guidelines or policies of the Federal Reserve, and except (a) in connection with a distribution of Junior Subordinated Debentures to the holders of the Trust Preferred Securities in liquidation of GBB Capital or (b) in connection with certain mergers, consolidations, or amalgamations permitted by the Trust Agreement and (iii) to use its reasonable efforts, consistent with the terms and provisions of the Trust Agreement, to cause GBB Capital to remain classified as a grantor trust and not as an association taxable as a corporation for United States federal income tax purposes. GOVERNING LAW The Indenture and the Junior Subordinated Debentures will be governed by and construed in accordance with the laws of the State of California. INFORMATION CONCERNING THE INDENTURE TRUSTEE The Indenture Trustee shall have and be subject to all the duties and responsibilities specified with respect to an indenture trustee under the Trust Indenture Act. Subject to such provisions, the Indenture Trustee is under no obligation to exercise any of the powers vested in it by the Indenture at the request of any holder of Junior Subordinated Debentures, unless offered reasonable indemnity by such holder against the costs, expenses and liabilities which might be incurred thereby. The Indenture Trustee is not required to expend or risk its own funds or otherwise incur personal financial liability in the performance of its duties if the Indenture Trustee reasonably believes that repayment or adequate indemnity is not reasonably assured to it. BOOK-ENTRY ISSUANCE The Depositary will act as securities depositary for all of the Trust Preferred Securities and the Junior Subordinated Debentures. The Trust Preferred Securities and the Junior Subordinated Debentures will be issued only as fully-registered securities registered in the name of Cede & Co. (the Depositary's nominee). One or more fully-registered global certificates will be issued for the Trust Preferred Securities and the Junior Subordinated Debentures and will be deposited with the Depositary. The Depositary is a limited purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. The Depositary holds securities that its Participants deposit with the Depositary. The Depositary also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Participants' accounts, thereby eliminating the need for physical movement of securities certificates. "Direct Participants" include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. The Depositary is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the 88 National Association of Securities Dealers, Inc. Access to the Depositary system is also available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain custodial relationships with Direct Participants, either directly or indirectly ("Indirect Participants"). The rules applicable to the Depositary and its Participants are on file with the Commission. Purchases of Trust Preferred Securities or Junior Subordinated Debentures within the Depositary system must be made by or through Direct Participants, which will receive a credit for the Trust Preferred Securities or Junior Subordinated Debentures on the Depositary's records. The ownership interest of each actual purchaser of each Trust Preferred Securities and each Subordinated Debenture ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from the Depositary of their purchases, but Beneficial Owners are expected to receive written confirmations providing details of the transactions, as well as periodic statements of their holdings, from the Direct or Indirect Participants through which the Beneficial Owners purchased Trust Preferred Securities or Junior Subordinated Debentures. Transfers of ownership interests in the Trust Preferred Securities or Junior Subordinated Debentures are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Trust Preferred Securities or Junior Subordinated Debentures, except in the event that use of the book-entry system for the or Junior Subordinated Debentures is discontinued. The Depositary has no knowledge of the actual Beneficial Owners of the Trust Preferred Securities or Junior Subordinated Debentures; the Depositary's records reflect only the identity of the Direct Participants to whose accounts such Trust Preferred Securities or Junior Subordinated Debentures are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by the Depositary to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners and the voting rights of Direct Participants, Indirect Participants and Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices will be sent to Cede & Co. as the registered holder of the Trust Preferred Securities or Junior Subordinated Debentures. If less than all of the Trust Preferred Securities or the Junior Subordinated Debentures are being redeemed, the Depositary will determine by lot or pro rata the amount of the Trust Preferred Securities of each Direct Participant to be redeemed. Although voting with respect to the Trust Preferred Securities or the Junior Subordinated Debentures is limited to the holders of record of the Trust Preferred Securities or Junior Subordinated Debentures, as applicable, in those instances in which a vote is required, neither the Depositary nor Cede & Co. will itself consent or vote with respect to Trust Preferred Securities or Junior Subordinated Debentures. Under its usual procedures, the Depositary would mail an omnibus proxy (the "Omnibus Proxy") to the relevant Trustee as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts such Trust Preferred Securities or Junior Subordinated Debentures are credited on the record date (identified in a listing attached to the Omnibus Proxy). Distribution payments on the Trust Preferred Securities or the Junior Subordinated Debentures will be made by the relevant Trustee to the Depositary. The Depositary's practice is to credit Direct Participants' accounts on the relevant payment date in accordance with their respective holdings shown on the Depositary's records unless the Depositary has reason to believe that it will not receive payments on such payment date. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices and will be the responsibility of such Participant and not of the Depositary, the relevant Trustee, GBB Capital or Greater Bay, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of Distributions to the Depositary is the responsibility of the relevant Trustee, disbursement of such payments to 89 Direct Participants is the responsibility of the Depositary, and disbursements of such payments to the Beneficial Owners is the responsibility of Direct and Indirect Participants. The Depositary may discontinue providing its services as securities depositary with respect to any of the Trust Preferred Securities or the Junior Subordinated Debentures at any time by giving reasonable notice to the relevant Trustee and Greater Bay. In the event that a successor securities depositary is not obtained, definitive Trust Preferred Securities or Subordinated Debenture certificates representing such Trust Preferred Securities or Junior Subordinated Debentures are required to be printed and delivered. Greater Bay, at its option, may decide to discontinue use of the system of book-entry transfers through the Depositary (or a successor depositary). After a Debenture Event of Default, the holders of a majority in liquidation preference of Trust Preferred Securities or aggregate principal amount of Junior Subordinated Debentures may determine to discontinue the system of book-entry transfers through the Depositary. In any such event, definitive certificates for such Trust Preferred Securities or Junior Subordinated Debentures will be printed and delivered. The information in this section concerning the Depositary and the Depositary's book-entry system has been obtained from sources that GBB Capital and Greater Bay believe to be accurate, but GBB Capital and Greater Bay assume no responsibility for the accuracy thereof. Neither GBB Capital nor Greater Bay has any responsibility for the performance by the Depositary or its Participants of their respective obligations as described herein or under the rules and procedures governing their respective operations. DESCRIPTION OF GUARANTEE The Guarantee Agreement will be executed and delivered by Greater Bay concurrently with the issuance of the Trust Preferred Securities for the benefit of the holders of the Trust Preferred Securities. Wilmington Trust Company will act as Guarantee Trustee under the Guarantee Agreement for the purposes of compliance with the Trust Indenture Act, and the Guarantee will be qualified as an Indenture under the Trust Indenture Act. The following summary of certain provisions of the Guarantee does not purport to be complete and is subject to, and qualified in its entirety by reference to, all of the provisions of the Guarantee Agreement, including the definitions therein of certain terms, and the Trust Indenture Act. The form of the Guarantee has been filed as an exhibit to the Registration Statement of which this Prospectus forms a part. The Guarantee Trustee will hold the Guarantee for the benefit of the holders of the Trust Preferred Securities. GENERAL The Guarantee will be an irrevocable guarantee on a subordinated basis of GBB Capital's obligations under the Trust Preferred Securities, but will apply only to the extent that GBB Capital has funds sufficient to make such payments, and is not a guarantee of collection. Greater Bay will irrevocably agree to pay in full on a subordinated basis, to the extent set forth herein, the Guarantee Payments (as defined below) to the holders of the Trust Preferred Securities, as and when due, regardless of any defense, right of set-off or counterclaim that GBB Capital may have or assert other than the defense of payment. The following payments with respect to the Trust Preferred Securities, to the extent not paid by or on behalf of GBB Capital (the "Guarantee Payments"), will be subject to the Guarantee: (i) any accumulated and unpaid Distributions required to be paid on the Trust Preferred Securities, to the extent that GBB Capital has funds on hand available therefor at such time, (ii) the redemption price with respect to any Trust Preferred Securities called for redemption, to the extent that GBB Capital has funds on hand available therefor at such time, and (iii) upon a voluntary or involuntary dissolution, winding up or liquidation of GBB Capital (unless the Junior Subordinated Debentures are distributed to holders of the Trust Preferred Securities), the lesser of (a) the Liquidation Distribution and (b) the amount of assets of GBB Capital remaining available for distribution to holders of Trust Preferred Securities after satisfaction of liabilities to creditors of GBB Capital as required by law. Greater Bay's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by Greater Bay to the holders of the Trust Preferred Securities or by causing GBB Capital to pay such amounts to such holders. 90 If Greater Bay does not make interest payments on the Junior Subordinated Debentures held by GBB Capital, GBB Capital will not be able to pay Distributions on the Trust Preferred Securities and will not have funds legally available therefor. The Guarantee will rank subordinate and junior in right of payment to all Senior and Subordinated Debt of Greater Bay. See "Status of the Guarantee" below. Because Greater Bay is a holding company, the right of Greater Bay to participate in any distribution of assets of any subsidiary upon such subsidiary's liquidation or reorganization or otherwise, is subject to the prior claims of creditors of that subsidiary, except to the extent Greater Bay may itself be recognized as a creditor of that subsidiary. Accordingly, Greater Bay's obligations under the Guarantee will be effectively subordinated to all existing and future liabilities of Greater Bay's subsidiaries, and claimants should look only to the assets of Greater Bay for payments thereunder. Except as otherwise described herein, the Guarantee does not limit the incurrence or issuance of other secured or unsecured debt of Greater Bay, including Senior and Subordinated Debt whether under the Indenture, any other indenture that Greater Bay may enter into in the future, or otherwise. Greater Bay has, through the Guarantee, the Guarantee Agreement, the Trust Agreement, the Junior Subordinated Debentures, the Indenture and the Expense Agreement, taken together, fully, irrevocably and unconditionally guaranteed all of GBB Capital's obligations under the Trust Preferred Securities. No single document standing alone or operating in conjunction with fewer than all of the other documents constitutes such guarantee. It is only the combined operation of these documents that has the effect of providing a full, irrevocable and unconditional guarantee of GBB Capital's obligations under the Trust Preferred Securities. See "Relationship Among the Trust Preferred Securities, the Junior Subordinated Debentures and the Guarantee." STATUS OF THE GUARANTEE The Guarantee will constitute an unsecured obligation of Greater Bay and will rank subordinate and junior in right of payment to all Senior and Subordinated Debt in the same manner as the Junior Subordinated Debentures. The Guarantee will constitute a guarantee of payment and not of collection. For example, the guaranteed party may institute a legal proceeding directly against Greater Bay to enforce its rights under the Guarantee without first instituting a legal proceeding against any other person or entity. The Guarantee will be held for the benefit of the holders of the Trust Preferred Securities. The Guarantee will not be discharged except by payment of the Guarantee Payments in full to the extent not paid by GBB Capital or upon distribution to the holders of the Trust Preferred Securities of the Junior Subordinated Debentures to the holders of the Trust Preferred Securities. The Guarantee does not place a limitation on the amount of additional Senior and Subordinated Debt that may be incurred by Greater Bay. Greater Bay expects from time to time to incur additional indebtedness constituting Senior and Subordinated Debt. AMENDMENTS AND ASSIGNMENT Except with respect to any changes which do not materially adversely affect the rights of holders of the Trust Preferred Securities (in which case no vote will be required), the Guarantee Agreement may not be amended without the prior approval of the holders of not less than a majority of the aggregate Liquidation Amount of such outstanding Trust Preferred Securities. See "Description of the Trust Preferred Securities--Voting Rights; Amendment of the Trust Agreement." All guarantees and agreements contained in the Guarantee Agreement shall bind the successors, assigns, receivers, trustees and representatives of Greater Bay and shall inure to the benefit of the holders of the Trust Preferred Securities then outstanding. EVENTS OF DEFAULT An event of default under the Guarantee Agreement will occur upon the failure of Greater Bay to perform any of its payment or other obligations thereunder. The holders of not less than a majority in aggregate Liquidation Amount of the Trust Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee in respect of the Guarantee or to 91 direct the exercise of any trust or power conferred upon the Guarantee Trustee under the Guarantee Agreement. Any holder of the Trust Preferred Securities may institute a legal proceeding directly against Greater Bay to enforce its rights under the Guarantee without first instituting a legal proceeding against GBB Capital, the Guarantee Trustee or any other person or entity. Greater Bay, as guarantor, is required to file annually with the Guarantee Trustee a certificate as to whether or not Greater Bay is in compliance with all the conditions and covenants applicable to it under the Guarantee Agreement. INFORMATION CONCERNING THE GUARANTEE TRUSTEE The Guarantee Trustee, other than during the occurrence and continuance of a default by Greater Bay in performance of the Guarantee, undertakes to perform only such duties as are specifically set forth in the Guarantee Agreement and, after default with respect to the Guarantee, must exercise the same degree of care and skill as a prudent person would exercise or use in the conduct of his or her own affairs. Subject to this provision, the Guarantee Trustee is under no obligation to exercise any of the powers vested in it by the Guarantee Agreement at the request of any holder of the Trust Preferred Securities unless it is offered reasonable indemnity against the costs, expenses and liabilities that might be incurred thereby. TERMINATION OF THE GUARANTEE The Guarantee will terminate and be of no further force and effect upon full payment of the Redemption Price of the Trust Preferred Securities, upon full payment of the amounts payable upon liquidation of GBB Capital or upon distribution of Junior Subordinated Debentures to the holders of the Trust Preferred Securities. The Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any holder of the Trust Preferred Securities must restore payment of any sums paid under the Trust Preferred Securities or the Guarantee. GOVERNING LAW The Guarantee Agreement will be governed by and construed in accordance with the laws of the State of California. THE EXPENSE AGREEMENT Pursuant to the Expense Agreement entered into by Greater Bay under the Trust Agreement, Greater Bay will irrevocably and unconditionally guarantee to each person or entity to whom GBB Capital becomes indebted or liable, the full payment of any costs, expenses or liabilities of GBB Capital, other than obligations of GBB Capital to pay to the holders of the Trust Preferred Securities or other similar interests in GBB Capital of the amounts due such holders pursuant to the terms of the Trust Preferred Securities or such other similar interests, as the case may be. RELATIONSHIP AMONG THE TRUST PREFERRED SECURITIES, THE JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEE FULL AND UNCONDITIONAL GUARANTEE Payments of Distributions and other amounts due on the Trust Preferred Securities (to the extent GBB Capital has funds available for the payment of such Distributions) are irrevocably guaranteed by Greater Bay as and to the extent set forth under "Description of Guarantee." Taken together, Greater Bay's obligations under the Junior Subordinated Debentures, the Indenture, the Trust Agreement, the Expense Agreement, the Guarantee Agreement and the Guarantee provide, in the aggregate, a full, irrevocable and unconditional guarantee of payments of distributions and other amounts due on the Trust Preferred Securities. No single document standing alone or operating in conjunction with fewer than all of the other documents constitutes such guarantee. It is 92 only the combined operation of those documents that has the effect of providing a full, irrevocable and unconditional guarantee of GBB Capital's obligations under the Trust Preferred Securities. If and to the extent that Greater Bay does not make payments on the Junior Subordinated Debentures, GBB Capital will not pay Distributions or other amounts due on the Trust Preferred Securities. The Guarantee does not cover payment of Distributions when GBB Capital does not have sufficient funds to pay such Distributions. In such event, the remedy of a holder of the Trust Preferred Securities is to institute a legal proceeding directly against Greater Bay for enforcement of payment of such Distributions to such holder. The obligations of Greater Bay under the Guarantee are subordinate and junior in right of payment to all Senior and Subordinated Debt. SUFFICIENCY OF PAYMENTS As long as payments of interest and other payments are made when due on the Junior Subordinated Debentures, such payments will be sufficient to cover Distributions and other payments due on the Trust Preferred Securities, primarily because: (i) the aggregate principal amount of the Junior Subordinated Debentures will be equal to the sum of the aggregate Liquidation Amount of the Trust Preferred Securities and Common Securities; (ii) the interest rate and interest and other payment dates on the Junior Subordinated Debentures will match the Distribution rate and Distribution and other payment dates for the Trust Preferred Securities; (iii) Greater Bay shall pay for all and any costs, expenses and liabilities of GBB Capital except GBB Capital's obligations to holders of Trust Preferred Securities; and (iv) the Trust Agreement further provides that GBB Capital will not engage in any activity that is not consistent with its limited purposes. Notwithstanding anything to the contrary in the Indenture, Greater Bay has the right to set-off any payment it is otherwise required to make thereunder with and to the extent Greater Bay has theretofore made, or is concurrently on the date of such payment making, a payment under the Guarantee. ENFORCEMENT RIGHTS OF HOLDERS OF THE TRUST PREFERRED SECURITIES UNDER THE GUARANTEE A holder of any the Trust Preferred Securities may institute a legal proceeding directly against Greater Bay to enforce its rights under the Guarantee without first instituting a legal proceeding against the Guarantee Trustee, GBB Capital or any other person or entity. A default or event of default under any Senior and Subordinated Debt would not constitute a default or Event of Default. However, in the event of payment defaults under, or acceleration of, Senior and Subordinated Debt, the subordination provisions of the Indenture provide that no payments may be made in respect of the Junior Subordinated Debentures until such Senior and Subordinated Debt has been paid in full or any payment default thereunder has been cured or waived. Failure to make required payments on Junior Subordinated Debentures would constitute an Event of Default. LIMITED PURPOSE OF GBB CAPITAL The Trust Preferred Securities evidence a beneficial interest in GBB Capital, and GBB Capital exists for the sole purpose of issuing the Trust Securities and investing the proceeds thereof in Junior Subordinated Debentures. A principal difference between the rights of a holder of the Trust Preferred Securities and a holder of a Junior Subordinated Debenture is that a holder of a Junior Subordinated Debenture is entitled to receive from Greater Bay the principal amount of and interest accrued on Junior Subordinated Debentures held, while a holder of the Trust Preferred Securities is entitled to receive Distributions from GBB Capital (or from Greater Bay under the Guarantee) if and to the extent GBB Capital has funds available for the payment of such Distributions. RIGHTS UPON TERMINATION Upon any voluntary or involuntary termination, winding-up or liquidation of GBB Capital involving the liquidation of the Junior Subordinated Debentures, the holders of Trust Preferred Securities will be entitled to receive, out of assets held by GBB Capital, the Liquidation Distribution in cash. See "Description of the Trust Preferred Securities--Liquidation Distribution Upon Termination." Upon any voluntary or involuntary 93 liquidation or bankruptcy of Greater Bay, the Property Trustee, as holder of the Junior Subordinated Debentures, would be a subordinated creditor of Greater Bay, subordinated in right of payment to all Senior and Subordinated Debt as set forth in the Indenture, but entitled to receive payment in full of principal and interest, before any stockholders of Greater Bay receive payments or distributions. Since Greater Bay is the guarantor under the Guarantee and has agreed to pay for all costs, expenses and liabilities of GBB Capital (other than GBB Capital's obligations to the holders of its Trust Preferred Securities), the positions of a holder of the Trust Preferred Securities and a holder of Junior Subordinated Debentures relative to other creditors and to stockholders of Greater Bay in the event of liquidation or bankruptcy of Greater Bay are expected to be substantially the same. CERTAIN FEDERAL INCOME TAX CONSEQUENCES In the opinion of Manatt, Phelps & Phillips, LLP, counsel to the Company ("Counsel"), the following summary accurately describes the material United States federal income tax consequences that may be relevant to the purchase, ownership and disposition of Trust Preferred Securities. Unless otherwise stated, this summary deals only with Trust Preferred Securities held as capital assets by United States Persons (defined below) who purchase the Trust Preferred Securities upon original issuance at their original offering price. As used herein, a "United States Person" means a person that is (i) a citizen or resident of the United States, (ii) a corporation, partnership or other entity created or organized in or under the laws of the United States or any political subdivision thereof, (iii) an estate the income of which is subject to United States federal income taxation regardless of its source, or (iv) a trust the income of which is subject to United States federal income taxation regardless of its source; provided, however, that for taxable years beginning after December 31, 1996 (or, if a trustee so elects, for taxable years ending after August 20, 1996), a "United States Person" shall include any trust if a court is able to exercise primary supervision over the administration of such trust and one or more United States fiduciaries have the authority to control all substantial decisions of such trust. The tax treatment of holders may vary depending on their particular situation. This summary does not address all the tax consequences that may be relevant to a particular holder or to holders who may be subject to special tax treatment, such as banks, real estate investment trusts, regulated investment companies, insurance companies, dealers in securities or currencies, tax-exempt investors, or foreign investors. In addition, this summary does not include any description of any alternative minimum tax consequences or the tax laws of any state, local or foreign government that may be applicable to a holder of Trust Preferred Securities. This summary is based on the Internal Revenue Code of 1986, as amended (the "Code"), the Treasury regulations promulgated thereunder and administrative and judicial interpretations thereof, as of the date hereof, all of which are subject to change, possibly on a retroactive basis. The following discussion does not discuss the tax consequences that might be relevant to persons that are not United States Persons ("non-United States Persons"). Non-United States Persons should consult their own tax advisors as to the specific United States federal income tax consequences of the purchase, ownership and disposition of Trust Preferred Securities. The authorities on which this summary is based are subject to various interpretations and the opinions of Counsel are not binding on the Internal Revenue Service ("Service") or the courts, either of which could take a contrary position. Moreover, no rulings have been or will be sought from the Service with respect to the transactions described herein. Accordingly, there can be no assurance that the Service will not challenge the opinions expressed herein or that a court would not sustain such a challenge. Nevertheless, Counsel has advised that it is of the view that, if challenged, the opinions expressed herein would be sustained by a court with jurisdiction in a properly presented case. Holders should consult their own tax advisors with respect to the tax consequences to them of the purchase, ownership and disposition of the Trust Preferred Securities, including the tax consequences under state, local, foreign, and other tax laws and the possible effects of changes in united states federal or other tax laws. For a discussion of the possible redemption of the Trust Preferred Securities upon the occurrence of certain tax events, see "Description of the Trust Preferred Securities--Redemption." 94 CLASSIFICATION OF GBB CAPITAL In connection with the issuance of the Trust Preferred Securities, Counsel is of the opinion that, under current law and assuming compliance with the terms of the Trust Agreement, and based on certain facts and assumptions contained in such opinion, GBB Capital will be classified as a grantor trust and not as an association taxable as a corporation for United States federal income tax purposes. As a result, each beneficial owner of the Trust Preferred Securities (a "Securityholder") will be treated as owning an undivided beneficial interest in the Junior Subordinated Debentures. Accordingly, each Securityholder will be required to include in its gross income its pro rata share of the interest income or original issue discount that is paid or accrued on the Junior Subordinated Debentures. See "--Interest Income and Original Issue Discount" herein. No amount included in income with respect to the Trust Preferred Securities will be eligible for the dividends received deduction. CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES The Company intends to take the position that the Junior Subordinated Debentures will be classified for United States federal income tax purposes as indebtedness of the Company under current law, and, by acceptance of a Trust Preferred Security, each holder covenants to treat the Junior Subordinated Debentures as indebtedness and the Trust Preferred Securities as evidence of an indirect beneficial ownership interest in the Junior Subordinated Debentures. No assurance can be given, however, that such position of the Company will not be challenged by the Internal Revenue Service or, if challenged, that such a challenge will not be successful. The remainder of this discussion assumes that the Junior Subordinated Debentures will be classified for United States federal income tax purposes as indebtedness of the Company. See "Risk Factors--Uncertainty of Deductibility of Interest on the Junior Subordinated Debentures." INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT Except as set forth below, stated interest on the Junior Subordinated Debentures generally will be included in income by a Securityholder at the time such interest income is paid or accrued in accordance with such Securityholder's regular method of tax accounting. Greater Bay believes that, under the applicable Treasury regulations, the Junior Subordinated Debentures will not be considered to have been issued with "original issue discount" ("OID") within the meaning of Section 1273(a) of the Code. If, however, Greater Bay exercises its right to defer Payments of interest on the Junior Subordinated Debentures, the Junior Subordinated Debentures will become OID instruments at such time and all Securityholders will be required to accrue the stated interest on the Junior Subordinated Debentures on a daily basis during the Extension Period, even though Greater Bay will not pay such interest until the end of the Extension Period, and even though some Securityholders may use the cash method of tax accounting. Moreover, thereafter the Junior Subordinated Debentures will be taxed as OID instruments for as long as they remain outstanding. Thus, even after the end of the Extension Period, all Securityholders would be required to continue to include the stated interest on the Junior Subordinated Debentures in income on a daily economic accrual basis, regardless of their method of tax accounting and in advance of receipt of the cash attributable to such interest income. Under the OID economic accrual rules, a Securityholder would accrue an amount of interest income each year that approximates the stated interest payments called for under the Junior Subordinated Debentures, and actual cash payments of interest on the Junior Subordinated Debentures would not be reported separately as taxable income. The Treasury regulations described above have not yet been addressed in any rulings or other interpretations by the Service, and it is possible that the Service could take a contrary position. If the Service were to assert successfully that the stated interest on the Junior Subordinated Debentures was OID regardless of whether Greater Bay exercises its right to defer payments of interest on such debentures, all Securityholders would be required to include such stated interest in income on a daily economic accrual basis as described above. 95 DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF TRUST PREFERRED SECURITIES Under current law, a distribution by GBB Capital of the Junior Subordinated Debentures as described under the caption "Description of the Trust Preferred Securities--Liquidation Distribution Upon Termination" will be non-taxable and will result in the Securityholder receiving directly its pro rata share of the Junior Subordinated Debentures previously held indirectly through GBB Capital, with a holding period and aggregate tax basis equal to the holding period and aggregate tax basis such Securityholder had in its Trust Preferred Securities before such distribution. If, however, the liquidation of GBB Capital were to occur because GBB Capital is subject to United States federal income tax with respect to income accrued or received on the Junior Subordinated Debentures as a result of a Tax Event or otherwise, the distribution of Junior Subordinated Debentures to Securityholders by GBB Capital could be a taxable event to GBB Capital and each Securityholder, and a Securityholder would recognize gain or loss as if the Securityholder had exchanged its Trust Preferred Securities for the Junior Subordinated Debentures it received upon the liquidation of GBB Capital. A Securityholder would recognize interest income in respect of Junior Subordinated Debentures received from GBB Capital in the manner described above under "--Interest Income and Original Issue Discount" herein. SALES OR REDEMPTION OF TRUST PREFERRED SECURITIES Gain or loss will be recognized by a Securityholder on a sale of Trust Preferred Securities (including a redemption for cash) in an amount equal to the difference between the amount realized (which for this purpose, will exclude amounts attributable to accrued interest or OID not previously included in income) and the Securityholder's adjusted tax basis in the Trust Preferred Securities sold or so redeemed. Gain or loss recognized by a Securityholder on Trust Preferred Securities held for more than one year will generally be taxable as long-term capital gain or loss. Amounts attributable to accrued interest with respect to a Securityholder's pro rata share of the Junior Subordinated Debentures not previously included in income will be taxable as ordinary income. BACKUP WITHHOLDING TAX AND INFORMATION REPORTING The amount of OID accrued on the Trust Preferred Securities held of record by United States Persons (other than corporations and other exempt Securityholders), if any, will be reported to the Service. "Backup" withholding at a rate of 31% will apply to payments of interest to non-exempt United States Persons unless the Securityholder furnishes its taxpayer identification number in the manner prescribed in applicable Treasury Regulations, certifies that such number is correct, certifies as to no loss of exemption from backup withholding and meets certain other conditions. Any amounts withheld from a Securityholder under the backup withholding rules will be allowed as a refund or a credit against such Securityholder's United States federal income tax liability, provided the required information is furnished to the Service. POSSIBLE TAX LAW CHANGES AFFECTING THE TRUST PREFERRED SECURITIES Recently the Clinton Administration announced its budget proposals for the fiscal year 1998. That announcement included a proposal that could affect the tax characteristics of the Junior Subordinated Debentures. Under the Administration's proposal, no deduction would be allowed for interest or original issue discount on an instrument issued by a corporation that has a maximum term of more than 40 years, or is payable in stock of the issuer or a related party. The budget announcement also states that no such deduction would be allowed for certain indebtedness that is reflected as equity on the issuer's balance sheet. The budget announcement states that the effective date of the first proposal is for instruments issued "after the date of first committee action," which is not a legally precise term. The budget announcement is less clear about the proposed effective date of the second proposal mentioned above. Similar proposals were made by the Administration last year. The Revenue Reconciliation Bill of 1996 (the "1996 Bill") would, among other things, have denied interest deductions for interest on an instrument, issued by a corporation, that had a maximum term of more than 20 years and that was not shown as indebtedness on the separate balance sheet of the issuer or, where the instrument was issued to a related party (other than a 96 corporation), where the holder or some other related party issued a related instrument that is not shown as indebtedness on the issuer's consolidated balance sheet. The 1996 Bill was never enacted, but it is likely that the second proposal in the budget announcement mentioned above will be similar in some respects to the proposal in the 1996 Bill. Enactment of this proposal could affect deduction of interest expenses and original issue discount with respect to the Junior Subordinated Debentures. This, in turn, could create a Tax Event affecting the Trust Preferred Securities. In connection with the 1996 Bill, the Chairmen of the Senate Finance and House Ways and Means Committees issued a joint statement that it was their intention that the effective date of the Administration's legislative proposals, if adopted, would be no earlier than the date of appropriate Congressional action. Senate Finance Committee Chairman William Roth has been quoted in the news media recently as stating that the 1997 tax changes generally should be effective on a prospective basis. It is intended that the Trust Preferred Securities and the Junior Subordinated Debentures will be issued prior to any type of Congressional committee action with respect to the aforementioned budget proposal. However, due to business considerations, the unpredictability of when Congress will begin action with respect to the Administration's proposals, and the imprecision in the public statements concerning the anticipated effective date of the legislative proposals, there can be no guarantee that these instruments will not be affected by the aforementioned legislative proposals, if they are enacted. There also can be no assurance that other future legislative proposals or final legislation will not affect the ability of the Company to deduct interest on the Junior Subordinated Debentures. Such a change could give rise to a Tax Event, which may permit Greater Bay, upon approval of the Federal Reserve, if then required under applicable capital guidelines or policies of the Federal Reserve, to cause a redemption of the Trust Preferred Securities. See "Description of the Trust Preferred Securities--Redemption--Tax Event Redemption" and "Description of Junior Subordinated Debentures--Redemption." DESCRIPTION OF GREATER BAY BANCORP CAPITAL STOCK The authorized capital stock of Greater Bay consists of 6,000,000 shares of common stock, no par value ("Common Stock"), and 4,000,000 shares of preferred stock, no par value ("Preferred Stock"). As of December 31, 1996, 3,238,887 shares of Common Stock were outstanding. No shares of Preferred Stock are outstanding. COMMON STOCK Each share of Common Stock is entitled to participate pro rata in distributions upon liquidation. Holders of Common Stock may receive dividends as declared by the Board of Directors out of funds legally available therefor. Holders of Common Stock have no preemptive, subscription, conversion, redemption or similar rights. All outstanding shares of Common Stock have voting power to approve mergers, sales of substantially all of Greater Bay's assets and similar material corporate transactions. Holders of Common Stock are entitled to one vote for each share of Common Stock they hold on all matters submitted to a vote of shareholders, except that for the election of directors each shareholder has cumulative voting rights and is entitled to as many votes as shall equal the number of shares held by such shareholder multiplied by the number of directors to be elected, and such shareholder may cast all his or her votes for a single candidate or distribute such votes among any or all of the candidates (that is, to cast for any candidate a number of votes greater than the number of shares of stock held by such shareholder) unless such candidate's name has been placed in nomination prior to the voting and the shareholder has given notice at the meeting prior to the voting of the shareholder's intention to cumulate votes. The rights, privileges and preferences of the holders of Common Stock are subject to the rights of the holders of any Preferred Stock that may be designated and issued by Greater Bay in the future. 97 PREFERRED STOCK The Greater Bay Board of Directors has the authority, without further shareholder action, to issue from time to time a maximum of 4,000,000 shares of Preferred Stock in one or more series and with such terms and at such times and for such consideration as the Board of Directors may determine. The authority of the Board of Directors includes the determination or fixing of the following with respect to shares of such class or any series thereof: (i) the number of shares and designation or title thereof; (ii) rights as to dividends; (iii) whether and upon what terms, including sinking funds, the shares are to be redeemable; (iv) whether and upon what terms, the shares are convertible; (v) the voting rights, if any, which shall apply; provided, however, that in no event shall any holder of any series of the Preferred Stock be entitled to more than one vote for each share of Preferred Stock held by such holder; and (vi) the rights of the holders upon the dissolution, or upon the distribution of assets, of Greater Bay. Any shares of Preferred Stock which may be issued may rank prior to the Common Stock as to payment of dividends and upon liquidation. No Preferred Stock is currently outstanding. 98 UNDERWRITING Piper Jaffray Inc. (the "Underwriter"), has agreed, subject to the terms and conditions of a Purchase Agreement to be entered into by the Underwriter, Greater Bay and GBB Capital to purchase from GBB Capital 800,000 Trust Preferred Securities. The Underwriter is committed to purchase and pay for all such Trust Preferred Securities if any are purchased. The Underwriter has advised Greater Bay and GBB Capital that it proposes to offer the Trust Preferred Securities directly to the public initially at the public offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of $ per Trust Preferred Security. The Underwriters may allow and such dealers may reallow a concession not in excess of $ per Trust Preferred Security to certain other brokers and dealers. After the public offering, the public offering price, concession and reallowance, and other selling terms may be changed by the Underwriter. In view of the fact that the proceeds from the sale of the Trust Preferred Securities will be used to purchase the Junior Subordinated Debentures issued by Greater Bay, the Purchase Agreement provides that Greater Bay will pay as compensation for the Underwriter's arranging the investment therein of such proceeds an amount of $ per Trust Preferred Security. Each of Greater Bay and GBB Capital has agreed to indemnify the Underwriter and its controlling persons against certain liabilities, including liabilities under the Securities Act of 1933, as amended, or to contribute to payments the Underwriter may be required to make in respect thereof. The Underwriters have advised GBB that they do not intend to confirm sales to any account over which it exercises discretionary authority in excess of 5% of the number of Trust Preferred Securities offered hereby. LEGAL MATTERS Certain matters of Delaware law relating to the validity of the Trust Preferred Securities, the enforceability of the Trust Agreement and the formation of GBB Capital will be passed upon by Richards, Layton & Finger, P.A., Wilmington, Delaware, special counsel to Greater Bay and GBB Capital. The validity of the Guarantee and the Junior Subordinated Debentures will be passed upon for the Company by Manatt, Phelps & Phillips, LLP, Los Angeles, California, counsel to the Company. Certain legal matters in connection with this Offering will be passed upon for the Underwriters by Dorsey & Whitney LLP, Minneapolis, Minnesota. Manatt, Phelps & Phillips, LLP and Dorsey & Whitney LLP will rely on the opinions of Richards, Layton & Finger, P.A. as to matters of Delaware law. Certain matters relating to United States federal income tax considerations will be passed upon for the Company by Manatt, Phelps & Phillips, LLP. EXPERTS The consolidated balance sheets as of December 31, 1996 and 1995 and the consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996, included in this Prospectus and Registration Statement have been included herein in reliance on the report of Coopers & Lybrand L.L.P., independent accountants, given on the authority of that firm as experts in accounting and auditing. AVAILABLE INFORMATION Greater Bay and GBB Capital have jointly filed with the Commission a Registration Statement on Form S-1 (together with all amendments and exhibits thereto the "Registration Statement") under the Securities Act, with respect to the offering of the securities offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and 99 regulations of the Commission. For further information with respect to the Company, GBB Capital and the securities offered hereby, reference is made to the Registration Statement and the exhibits and the financial statements, notes and schedules filed as a part thereof or incorporated by reference therein, which may be inspected at the public reference facilities of the Commission, at the addresses set forth below. Statements made in this Prospectus concerning the contents of any documents referred to herein are not necessarily complete, and in each instance are qualified in all respects by reference to the copy of such document filed as an exhibit to the Registration Statement. Greater Bay is subject to the informational requirements of the Exchange Act, and in accordance therewith files reports, proxy statements and other information with the Commission. Reports, proxy statements and other information filed by Greater Bay (and its predecessors, Mid-Peninsula Bancorp and Cupertino National Bancorp) can be inspected and copies of such material can be obtained at prescribed rates from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024, Judiciary Plaza, Washington, D.C. 20549, and at the following Regional Offices of the Commission: Chicago Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and New York Regional Office, 7 World Trade Center, Suite 1300, New York, New York 10048. The Commission also maintains a Web site (http://www.sec.gov) at which reports, proxy and information statements and other information regarding Greater Bay (and its predecessors, Mid-Peninsula Bancorp and Cupertino National Bancorp) may be accessed. In addition, such reports, proxy statements and other information can also be inspected at the offices of The Nasdaq Stock Market, 1735 K Street, N.W., Washington, D.C. 20006. No separate financial statements of GBB Capital have been included herein. Greater Bay and GBB Capital do not consider that such financial statements would be material to holders of the Trust Preferred Securities because GBB Capital is a newly formed special purpose entity, has no operating history or independent operations and is not engaged in and does not propose to engage in any activity other than holding as trust assets the Junior Subordinated Debentures of Greater Bay and issuing the Trust Securities. See "Prospectus Summary--GBB Capital," "Description of the Trust Preferred Securities," "Description of Junior Subordinated Debentures" and "Description of Guarantee." 100 GREATER BAY BANCORP AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- REPORT OF INDEPENDENT ACCOUNTANTS......................................... F-2 CONSOLIDATED FINANCIAL STATEMENTS: Consolidated Balance Sheets at December 31, 1995 and 1996............... F-3 Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994.................................................... F-4 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1996, 1995 and 1994....................................... F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994.................................................... F-6 Notes to Consolidated Financial Statements.............................. F-7
F-1 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors and Shareholders Greater Bay Bancorp: We have audited the accompanying consolidated balance sheets of Greater Bay Bancorp (formerly Mid-Peninsula Bancorp) and subsidiaries (the Company) as of December 31, 1996 and 1995, and the related consolidated statements of operations, changes in shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P San Francisco, California February 27, 1997 F-2 GREATER BAY BANCORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ----------------- 1996 1995* -------- -------- (DOLLARS IN THOUSANDS) ASSETS Cash and due from banks.................................... $ 39,896 $ 29,511 Federal funds sold......................................... 14,000 28,600 -------- -------- Cash and cash equivalents................................ 53,896 58,111 Investment securities...................................... 105,520 116,869 Total loans, net........................................... 441,560 284,579 Premises and equipment, net................................ 4,688 2,912 Interest receivable and other assets....................... 16,380 15,363 -------- -------- Total assets........................................... $622,044 $477,834 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Total deposits............................................. $559,283 $431,789 Other borrowings........................................... 12,000 -- Subordinated debt.......................................... 3,000 3,000 Other liabilities.......................................... 3,079 2,933 -------- -------- Total liabilities...................................... 577,362 437,722 Commitments (Note 13) SHAREHOLDERS' EQUITY Preferred stock, no par value: 4,000,000 shares authorized; none issued Common stock, no par value: 6,000,000 shares authorized; shares outstanding: 3,238,887 in 1996 and 3,046,320 in 1995...................................................... 34,884 33,105 Unrealized gain (loss) on available-for-sale securities, net of taxes.............................................. 71 (621) Retained earnings.......................................... 9,727 7,628 -------- -------- Total shareholders' equity............................. 44,682 40,112 -------- -------- Total liabilities and shareholders' equity............. $622,044 $477,834 ======== ========
- -------- * Restated on an historical basis to reflect the merger with Cupertino National Bancorp on a pooling of interests basis. See notes to consolidated financial statements. F-3 GREATER BAY BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, ------------------------- 1996 1995* 1994* ------- ------- ------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) INTEREST INCOME: Interest on loans........... $36,278 $28,397 $22,112 Interest on investment securities: Taxable................... 6,433 6,204 4,248 Tax-exempt................ 690 497 411 ------- ------- ------- Total interest on investment securities.. 7,123 6,701 4,659 Other interest income....... 1,636 2,135 1,030 ------- ------- ------- Total interest income..... 45,037 37,233 27,801 ------- ------- ------- INTEREST EXPENSE: Interest on deposits........ 15,732 13,048 8,130 Interest on short-term borrowings................. 126 769 382 Interest on subordinated debt....................... 355 75 -- ------- ------- ------- Total interest expense.... 16,213 13,892 8,512 ------- ------- ------- Net interest income..... 28,824 23,341 19,289 Provision for loan losses... 2,036 956 1,823 ------- ------- ------- Net interest income after provision for loan losses.. 26,788 22,385 17,466 ------- ------- ------- OTHER INCOME: Service charges and other fees....................... 1,848 1,206 1,290 Trust fees.................. 1,426 710 593 Gain on sale of SBA loans... 519 366 685 Gain on sale of mortgage loans...................... -- 137 993 Gains (losses) on investments, net........... (263) (113) (266) ------- ------- ------- Total other income........ 3,530 2,306 3,295 ------- ------- ------- OPERATING EXPENSES: Compensation and benefits... 11,773 10,146 8,505 Occupancy and equipment..... 3,401 2,679 2,266 Merger and related non- recurring costs............ 2,791 -- 608 Other....................... 5,923 6,861 4,852 ------- ------- ------- Total operating expenses.. 23,888 19,686 16,231 ------- ------- ------- Income before income tax expense................ 6,430 5,005 4,530 Income tax expense........ 2,927 1,971 1,966 ------- ------- ------- Net Income.................. $ 3,503 $ 3,034 $ 2,564 ======= ======= ======= Net income per common and common equivalent share.... $ 1.04 $ 0.96 $ 0.85 ======= ======= =======
- -------- * Restated on an historical basis to reflect the merger with Cupertino National Bancorp on a pooling of interests basis. See notes to consolidated financial statements. F-4 GREATER BAY BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 ---------------------------------------------------- COMMON STOCK EARNINGS TOTAL ----------------- ------------------- SHAREHOLDERS' SHARES AMOUNT UNREALIZED RETAINED EQUITY --------- ------- ---------- -------- ------------- (DOLLARS IN THOUSANDS EXCEPT SHARE DATA) Balances as of December 31, 1993: Mid-Peninsula Bancorp prior to pooling........ 1,455,665 $14,216 $ (48) $ 3,672 $17,840 Shares issued to Cupertino National Bancorp shareholders.... 1,142,797 13,582 -- -- 13,582 Cupertino National Bancorp retained earnings prior to pooling.............. -- -- -- 2,637 2,637 --------- ------- ------- ------- ------- Balance, December 31, 1993, as restated to reflect pooling....... 2,598,462 27,798 (48) 6,309 34,059 Stock options exercised.. 128,614 1,114 -- -- 1,114 Stock issued in Employee Stock Purchase Plan..... 6,716 69 -- -- 69 Adoption of SFAS No. 115--unrealized loss on available-for-sale securities.............. -- -- (1,272) -- (1,272) Two 5% stock dividends-- fractional shares paid in cash................. 58,914 705 -- (708) (3) Cash dividend $0.18 per share................... -- -- (491) (491) Net Income............... -- -- -- 2,564 2,564 --------- ------- ------- ------- ------- Balance, December 31, 1994*................. 2,792,706 29,686 (1,320) 7,674 36,040 Stock options exercised, including related tax benefit................. 104,454 1,109 -- -- 1,109 Stock issued in Employee Stock Purchase Plan..... 8,537 80 -- -- 80 401K Employee Stock Purchase................ 6,731 95 -- -- 95 Cash dividends of $0.30 per share............... -- -- -- (942) (942) 10% stock dividend-- fractional shares paid in cash................. 133,892 2,135 -- (2,138) (3) SFAS No. 115 change in unrealized loss on available-for-sale securities.............. -- 699 -- 699 Net Income............... -- -- -- 3,034 3,034 --------- ------- ------- ------- ------- Balance, December 31, 1995*................. 3,046,320 33,105 (621) 7,628 $40,112 Stock options exercised, including related tax benefit................. 176,657 1,555 -- -- 1,555 Stock issued in Employee Stock Purchase Plan..... 10,632 137 -- -- 137 401K Employee Stock Purchase................ 5,278 87 -- -- 87 Cash dividends of $0.44 per share............... -- -- -- (1,404) (1,404) SFAS No. 115--change in unrealized loss on available-for-sale securities.............. -- 692 -- 692 Net Income............... -- -- -- 3,503 3,503 --------- ------- ------- ------- ------- Balance, December 31, 1996.................. 3,238,887 $34,884 $ 71 $ 9,727 $44,682 ========= ======= ======= ======= =======
- -------- * Restated on an historical basis to reflect the merger with Cupertino National Bancorp on a pooling of interests basis. See notes to consolidated financial statements. F-5 GREATER BAY BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------------ 1996 1995* 1994* --------- -------- --------- (DOLLARS IN THOUSANDS) Cash Flows--Operating Activities: Net Income................................... $ 3,503 $ 3,034 $ 2,564 Reconciliation of net income to net cash from operations: Provision for loan losses.................. 2,036 956 1,823 Depreciation and leasehold amortization.... 1,125 899 777 Deferred income taxes...................... (1,145) 181 75 Accrued interest receivables and other assets.................................... (128) (1,234) (1,828) Accrued interest payable and other liabilities............................... 146 909 807 Deferred loan fees and discounts, net...... 653 27 (105) Proceeds from sale of loans held for sale.. -- 16,364 125,342 Origination of loans for resale............ -- (10,981) (123,100) --------- -------- --------- Operating cash flows, net...................... 6,190 10,155 6,355 --------- -------- --------- Cash Flows--Investing Activities: Maturities of investment securities and other short-term investments: Held-to-maturity........................... 24,956 29,130 13,048 Available-for-sale......................... 28,737 10,441 1,510 Purchase of investment securities and other short-term investments Held-to-maturity........................... (26,439) (54,561) (36,504) Available-for-sale......................... (39,389) (8,388) (2,000) Proceeds from sale of available-for-sale securities.................................. 26,635 -- 6,734 Loans, net................................... (161,845) (48,195) (14,556) Investment in other real estate owned........ -- (476) (485) Sale of other real estate owned.............. 217 1,054 1,733 Premises and equipment....................... (2,906) (1,388) (1,000) Purchase of insurance policies............... (240) (6,004) -- Other, net................................... -- -- 84 --------- -------- --------- Cash flows, net................................ (150,274) (78,387) (31,436) --------- -------- --------- Cash Flows--Financing Activities: Net change in deposits....................... 127,494 85,495 22,994 Net change in short-term borrowings.......... 12,000 (17,256) 17,256 Subordinated debt issued..................... -- 3,000 -- Proceeds from the sale of stock.............. 1,779 1,127 1,028 Fractional shares paid in cash............... -- (3) (3) Cash dividends............................... (1,404) (942) (491) --------- -------- --------- Financing cash flows, net...................... 139,869 71,421 40,784 --------- -------- --------- Net increase in cash and cash equivalents...... (4,215) 3,189 15,703 Cash and cash equivalents at beginning of year. 58,111 54,922 39,219 --------- -------- --------- Cash and cash equivalents at end of year....... $ 53,896 $ 58,111 $ 54,922 --------- -------- --------- Cash flows--supplemental disclosures: Cash paid during the period for: Interest on deposits and other borrowings.. $ 16,228 $ 13,827 $ 8,278 --------- -------- --------- Income taxes............................... $ 3,970 $ 2,105 $ 1,878 --------- -------- --------- Non-cash transactions: Additions to other real estate owned......... $ 152 $ 130 $ 1,047 --------- -------- ---------
- -------- * Restated on an historical basis to reflect the merger with Cupertino National Bancorp on a pooling of interests basis. See notes to consolidated financial statements. F-6 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994 NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND NATURE OF OPERATIONS Greater Bay Bancorp ("GBB" or the "Company") is a California corporation and bank holding company that was incorporated on November 14, 1984 as San Mateo County Bancorp. The name was changed to Mid-Peninsula Bancorp on October 7, 1994 as a result of the merger between Mid-Peninsula Bank and San Mateo County Bancorp and its wholly owned subsidiary, WestCal National Bank. The name was further changed to Greater Bay Bancorp on November 27, 1996 as a result of the merger between Mid-Peninsula Bancorp and Cupertino National Bancorp (see Note 2). Upon consummation of the merger with Cupertino National Bancorp, GBB became a multi-bank holding company of two wholly owned bank subsidiaries, Mid-Peninsula Bank ("MPB") and Cupertino National Bank & Trust ("CNB"), collectively the "Banks". MPB commenced operations in October 1987 and is a state chartered bank regulated by the Federal Reserve Bank (FRB) and the California State Banking Department. CNB commenced operations in May 1985 and is a national banking association regulated by the Office of the Comptroller of Currency (OCC). The Company provides a wide range of commercial banking services to small and medium-sized businesses, real estate developers and property managers, business executives, professionals and other individuals. The Company operates through seven regional offices in Cupertino, Palo Alto, San Mateo, San Carlos and San Jose, California. CONSOLIDATION AND BASIS OF PRESENTATION The consolidated financial statements include the accounts of GBB and its wholly-owned subsidiaries, CNB and MPB. All significant intercompany transactions and balances have been eliminated. Certain reclassifications have been made to prior years' consolidated financial statements to conform to the 1996 presentation. The accounting and reporting policies of the Company conform to generally accepted accounting principles and to prevailing practices within the banking industry. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of certain revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks and federal funds sold. Generally, federal funds are sold for one-day periods. CNB and MPB are required by the Federal Reserve System to maintain non-interest earning cash reserves against certain of their deposit accounts. At December 31, 1996, the required combined reserves totaled approximately $2.9 million. INVESTMENT SECURITIES Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities", which was adopted by the Company in 1994, requires that investment securities be classified into three portfolios, and be accounted for as follows: 1) debt and equity securities for which the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity and reported at F-7 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) amortized cost; 2) debt and equity securities that are bought and held principally for the purpose of selling in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings; and 3) debt and equity securities not classified as either held-to-maturity or trading securities are classified as available- for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of shareholders' equity. A decline in the market value of any available-for-sale or held-to-maturity security below cost that is deemed other than temporary, results in a charge to earnings and the corresponding establishment of a new cost basis for the security. Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield using the effective interest method. Dividend and interest income are recognized when earned. Realized gains and losses for securities classified as available-for-sale and held-to- maturity are included in earnings and are derived using the specific identification method for determining the cost of securities sold. The required investment of 3% of capital stock and surplus in Federal Reserve Bank stock, for both MPB and CNB, is recorded at cost. LOANS Loans held for investment are carried at amortized cost. The Company's loan portfolio consists primarily of commercial and real estate loans generally collateralized by first and second deeds of trust on real estate as well as business assets and personal property. Interest income is accrued on the outstanding loan balances using the simple interest method. Loans are generally placed on nonaccrual status when the borrowers are past due 90 days and when full payment of principal or interest is not expected. At the time a loan is placed on nonaccrual status, any interest income previously accrued but not collected is reversed. Interest accruals are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to both principal and interest. The Company charges loan origination and commitment fees. Net loan origination fees and costs are deferred and amortized to interest income over the life of the loan, using the effective interest method. Loan commitment fees are amortized to interest income over the commitment period. SALES AND SERVICING OF SMALL BUSINESS ADMINISTRATION ("SBA") LOANS The Company originates loans to customers under SBA programs that generally provide for SBA guarantees of 70% to 90% of each loan. The Company generally sells the guaranteed portion of each loan to an investor and retains the unguaranteed portion and servicing rights in its own portfolio. Funding for the SBA programs depend on annual appropriations by the U.S. Congress. Gains on these sales are earned through the sale of the guaranteed portion of the loan for an amount in excess of the adjusted carrying value of the portion of the loan sold. The Company allocates the carrying value of such loans between the portion sold, the portion retained and a value assigned to the right to service the loan. The difference between the adjusted carrying value of the portion retained and the face amount of the portion retained is amortized to interest income over the life of the related loan using a method which approximates the interest method. The value assigned to the right to service is also amortized over the estimated life of the loan. ALLOWANCE FOR LOAN LOSSES The Company adopted SFAS No. 114, Accounting by Creditors for Impairment of a Loan, as amended by SFAS No. 118, on January 1, 1995. Under these standards, a loan is considered impaired, based on current F-8 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) information and events, if it is probable that the Company will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. Under these standards, any allowance on impaired loans is generally based on one of three methods. It requires that impaired loans be measured at either, (1) the present value of expected cash flows at the loan's effective interest rate, (2) the loan's observable market price, or (3) the fair market value of the collateral of the loan. In general, these statements are not applicable to large groups of smaller-balance loans that are collectively evaluated for impairment such as credit cards, residential mortgage and/or consumer installment loans. Adoption of SFAS No. 114 and No. 118 did not have a material effect on the financial statements of the Company in 1995. Income recognition on impaired loans conforms to the method the Company uses for income recognition on nonaccrual loans. The allowance for loan losses is maintained at a level deemed appropriate by management to adequately provide for known and unidentified losses in the loan portfolio. The allowance is based upon a number of factors, including prevailing and anticipated economic trends, industry experience, industry and geographic concentrations, estimated collateral values, management's assessment of credit risk inherent in the portfolio, delinquency trends, historical loss experience, specific problem loans and other relevant factors. Additions to the allowance, in the form of provisions, are reflected in current operating results, while charge-offs to the allowance are made when a loss is determined to have occurred. Because the allowance for loan losses is based on estimates, ultimate losses may vary from the current estimates. When a loan is sold, unamortized fees and capitalized direct costs are recognized in the consolidated statements of operations. Other loan fees and charges representing service costs for the repayment of loans, for delinquent payments or for miscellaneous loan services are recognized when earned. OTHER REAL ESTATE OWNED Other real estate owned (OREO) consists of properties acquired through foreclosure and is stated at the lower of cost or fair value less estimated costs to sell. Development and improvement costs relating to the property are capitalized. Estimated losses that result from the ongoing periodic valuation of these properties are charged to current earnings with a provision for losses on foreclosed property in the period in which they are identified. The resulting allowance for OREO losses is decreased when the property is sold. Operating expenses of such properties, net of related income, are included in other expenses. Gains and losses on disposition of OREO are included in other income. PREMISES AND EQUIPMENT Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed on a straight-line basis over the shorter of the lease terms or estimated useful lives of the assets, which are generally 3 to 10 years. INCOME TAXES Deferred income taxes reflect the estimated future tax effects of temporary differences between the amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations. PER SHARE DATA Net income per common and common equivalent share is based on the weighted average number of shares of common stock outstanding during the year plus the effect of dilutive stock options. All years presented include the effect of stock dividends declared in 1995 and 1994. The weighted average common and common equivalent shares outstanding for 1996, 1995 and 1994 were 3,359,700; 3,144,550 and 3,001,211, respectively. F-9 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Fully diluted earnings per share were approximately equal to primary earnings per share in each of the years in the three-year period ended December 31, 1996. Weighted average shares outstanding and all per share amounts included in the consolidated financial statements and notes thereto are based upon the increased number of shares giving retroactive effect to the 1994 merger with San Mateo County Bancorp at a 1.0617 conversion ratio, and the 1996 merger with Cupertino National Bancorp at a 0.81522 conversion ratio. NOTE 2--MERGERS On November 27, 1996, the Company consummated a merger between Mid-Peninsula Bancorp and Cupertino National Bancorp. As discussed in Note 1, concurrently with the merger the name of the holding company was changed to Greater Bay Bancorp. Following the terms of the merger agreement, the Company issued approximately 1,586,000 shares of its common stock in exchange for the outstanding common stock of Cupertino National Bancorp at an exchange ratio of 0.81522 of the Company's common stock for each share of Cupertino National Bancorp's common stock. The merger has been accounted for as a pooling of interests business combination and, accordingly, the consolidated financial statements and the financial data for the periods prior to the merger have been restated to include the accounts and results of operations of Cupertino National Bancorp. On October 7, 1994, San Mateo County Bancorp's wholly owned subsidiary, WestCal National Bank, was merged with and into Mid-Peninsula Bank, and San Mateo County Bancorp concurrently changed its name to Mid-Peninsula Bancorp. The merger was accounted for as a pooling of interests. All periods have been restated to reflect the results of the combination. The accompanying consolidated financial statements reflect the issuance of the Company's common stock in exchange for all of MPB's common stock outstanding as of October 7, 1994, based upon the exchange ratio of 1.0617 shares of the Company's common stock for each share of MPB's common stock. In both mergers, certain reclassifications have been made to conform to the Company's presentation. The results of operations previously reported by the separate enterprises for the period before the merger was consummated and that are included in the current combined amounts presented in the accompanying consolidated financial statements are summarized below:
NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) 1995 1994 ----------------- ------- ------- (DOLLARS IN THOUSANDS) Net Interest Income: Mid-Peninsula Bancorp................... $ 8,878 $10,402 $ 8,207 Cupertino National Bancorp.............. 11,487 12,939 11,082 ------- ------- ------- Combined.............................. $20,365 $23,341 $19,289 ------- ------- ------- Provision for Loan Losses: Mid-Peninsula Bancorp................... $ 427 $ 275 $ 203 Cupertino National Bancorp.............. 864 681 1,620 ------- ------- ------- Combined.............................. $ 1,291 $ 956 $ 1,823 ------- ------- ------- Net Income: Mid-Peninsula Bancorp................... $ 2,373 $ 2,721 $ 1,201 Cupertino National Bancorp.............. 1,548 313 1,363 ------- ------- ------- Combined.............................. $ 3,921 $ 3,034 $ 2,564 ------- ------- -------
F-10 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following table sets forth the composition of the combined operations of San Mateo County Bancorp and its wholly-owned subsidiary, WestCal National Bank, and MPB for the nine months ended September 30, 1994 prior to the consummation of the merger on October 7, 1994.
NET INTEREST PROVISION FOR NET INCOME LOAN LOSSES INCOME ------------ ------------- ------ (DOLLARS IN THOUSANDS) UNAUDITED Mid-Peninsula Bank........................ $4,657 $235 $ 867 San Mateo County Bancorp.................. 1,293 (32) 217 ------ ---- ------ $5,950 $203 $1,084 ------ ---- ------
There were no significant transactions between Mid-Peninsula Bancorp and Cupertino National Bancorp, and between San Mateo County Bancorp and Mid- Peninsula Bank prior to the mergers. All intercompany transactions have been eliminated. NOTE 3--INVESTMENT SECURITIES The amortized cost and estimated market value of investment securities is summarized below:
DECEMBER 31, 1996 ---------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE --------- ---------- ---------- -------- (DOLLARS IN THOUSANDS) Available-for-sale securities: U.S. Treasury obligations............. $ 19,841 $ 52 $ (6) $ 19,887 U.S. Agency obligations: Mortgage-backed obligations......... 3,604 5 (53) 3,556 Fixed and variable rate notes....... 10,568 34 (13) 10,589 Mutual funds.......................... 2,000 (52) 1,948 Tax exempt securities................. 7,758 154 (11) 7,901 Corporate securities.................. 3,216 7 -- 3,223 -------- ---- ----- -------- Total securities available-for-sale. 46,987 252 (135) 47,104 -------- ---- ----- -------- Held-to-maturity securities: U.S. Treasury obligations............. 1,005 3 1,008 U.S. Agency obligations: Mortgage-backed obligations......... 7,086 87 (9) 7,164 Fixed and variable rate notes....... 38,390 78 (100) 38,368 Other mortgage-backed obligations..... 3,959 54 -- 4,013 Tax exempt securities................. 6,525 219 (3) 6,741 Federal Reserve Bank stock............ 673 -- -- 673 Federal Home Loan Bank stock.......... 778 -- -- 778 -------- ---- ----- -------- Total securities held-to-maturity... 58,416 441 (112) 58,745 -------- ---- ----- -------- Total investment securities......... $105,403 $693 $(247) $105,849 ======== ==== ===== ========
The tax effected net unrealized gain on available-for-sale securities was $71,000 for the year ended December 31, 1996. F-11 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 ---------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE --------- ---------- ---------- -------- (DOLLARS IN THOUSANDS) Available-for-sale securities: U.S. Treasury obligations............. $ 7,778 $ 62 $ (3) $ 7,837 U.S. Agency obligations: Mortgage-backed obligations......... 4,131 22 (58) 4,095 Fixed and variable rate notes....... 19,431 54 (18) 19,467 Mutual funds.......................... 16,458 (929) 15,529 Tax exempt securities................. 11,662 462 (20) 12,104 Corporate securities.................. 2,990 20 3,010 -------- ------ ------- -------- Total securities available-for-sale. 62,450 620 (1,028) 62,042 -------- ------ ------- -------- Held-to-maturity securities: U.S. Treasury obligations............. 5,987 24 -- 6,011 U.S. Agency obligations: Mortgage-backed obligations......... 8,190 159 -- 8,349 Fixed and variable rate notes....... 35,056 145 (19) 35,182 Other mortgage-backed obligations..... 4,195 102 -- 4,297 Federal Reserve Bank stock............ 660 -- -- 660 Federal Home Loan Bank stock.......... 739 -- -- 739 -------- ------ ------- -------- Total securities held-to-maturity... 54,827 430 (19) 55,238 -------- ------ ------- -------- Total investment securities......... $117,277 $1,050 $(1,047) $117,280 ======== ====== ======= ========
In November 1995, the FASB issued a special report, "A Guide to Implementation of Statement No. 115, on Accounting for Certain Investments in Debt and Equity Securities--Questions and Answers" (the "Special Report"). The Special Report allowed companies to reassess the appropriateness of the classifications of all securities held and account for any resulting reclassifications at fair value. Reclassifications from this one-time reassessment will not call into question the intent of an enterprise to hold other debt securities to maturity in the future, provided that reclassification was performed by December 31, 1995. The Company adopted the reclassification provision of the Special Report prior to December 31, 1995 and transferred $36.4 million of held-to-maturity securities into the available-for-sale category. The unrealized pretax gain upon transfer was $512,000 as of December 31, 1995. F-12 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following table shows amortized cost and estimated market value of the Company's investment securities by year of maturity at December 31, 1996.
1998 2002 THROUGH THROUGH 2007 AND 1997 2001 2007 THEREAFTER TOTAL ------- ------- ------- ---------- -------- (DOLLARS IN THOUSANDS) Available-for-sale securities: U.S. Treasury obligations....... $15,003 $ 4,838 -- -- $ 19,841 U.S. Agency obligations: Mortgage-backed obligations(1)............... 599 3,005 -- -- 3,604 Fixed and variable rate notes(2)..................... 1,500 9,068 -- -- 10,568 Mutual Funds(3)................. 2,000 -- -- -- 2,000 Tax exempt securities........... 453 1,567 3,623 2,115 7,758 Corporate securities............ 1,178 2,038 -- -- 3,216 ------- ------- ------ ------ -------- Total securities available- for-sale..................... 20,733 20,516 3,623 2,115 46,987 ------- ------- ------ ------ -------- Market value.................... 20,708 20,524 3,672 2,200 47,104 ------- ------- ------ ------ -------- Held-to-maturity securities: U.S. Treasury obligations....... 503 502 -- -- 1,005 U.S. Agency obligations: Mortgage-backed obligations(1)............... -- 69 2,595 4,422 7,086 Fixed and variable rate notes(2)..................... 3,000 17,999 15,391 2,000 38,390 Other mortgage-backed obligations(1)................. -- -- -- 3,959 3,959 Tax exempt securities........... -- 1,040 256 5,229 6,525 Federal Reserve Bank stock...... -- -- -- 673 673 Federal Home Loan Bank stock.... -- -- -- 778 778 ------- ------- ------ ------ -------- Total securities held-to- maturity..................... 3,503 19,610 18,242 17,061 58,416 ------- ------- ------ ------ -------- Market value.................... 3,493 19,549 18,369 17,334 58,745 ------- ------- ------ ------ -------- Total investment securities..... 24,236 40,126 21,865 19,176 105,403 ------- ------- ------ ------ -------- Total market value.............. 24,201 40,073 22,041 19,534 105,849 ------- ------- ------ ------ -------- Weighted average yield-total portfolio(4)................... 5.32% 6.19% 7.04% 6.77% 6.29% ------- ------- ------ ------ --------
- -------- (1) Mortgage-backed securities are shown at contractual maturity; however, the average life of these mortgage-backed securities may differ due to principal prepayments. (2) Certain U.S. Agency fixed and variable rate note obligations may be called, without penalty, at the discretion of the issuer. This may cause the actual maturities to differ significantly from the contractual maturity dates. (3) Mutual funds with no stated maturity total $2.0 million ($1.9 million market value). (4) Yields on tax exempt securities have been computed on a fully tax- equivalent basis. Investment securities with a carrying value of $23.5 million and $16.5 million as of December 31, 1996 and 1995, respectively, were pledged to secure deposits and for other purposes as required by law or contract. The Company does not hold any investments of any one issuer where the aggregate with that issuer exceeds 10% of stockholders' equity. Investments in the Federal Reserve Bank and the Federal Home Loan Bank are required in order to maintain membership and support activity levels. F-13 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Proceeds and realized losses and gains on sales of investment securities for the years ended December 31, 1996, 1995, and 1994 are presented below:
1996 1995 1994 ------- ----- ------ (DOLLARS IN THOUSANDS) Proceeds from sale of available-for-sale securities........................................ $26,635 -- $6,734 Available-for-sale securities--losses(1)........... $ (729) $(113) $ (266)
- -------- (1) Includes $466,000 of charges in 1996 to conform accounting practices, which is included in merger and related non-recurring costs. NOTE 4--LOANS The following is a summary of loans by category as of December 31, 1996 and 1995:
1996 1995 -------- -------- (DOLLARS IN THOUSANDS) Commercial............................................... $257,042 $181,617 Real estate construction and land........................ 78,278 32,672 Commercial real estate term and other.................... 72,802 47,322 Consumer and other....................................... 42,702 28,666 -------- -------- Total loans, gross....................................... 450,824 290,277 Deferred loan fees and discounts....................... (1,952) (1,299) -------- -------- Total loans, net of deferred fees........................ 448,872 288,978 Allowance for loan losses.............................. (7,312) (4,399) -------- -------- Total loans, net....................................... $441,560 $284,579 ======== ========
The following summarizes the activity in the allowance for loan losses for the years ended December 31:
1996 1995 1994 ------ ------- ------- (DOLLARS IN THOUSANDS) Balance, January 1................................ $4,399 $ 4,344 $ 3,657 Provision for loan losses(1).................... 2,836 956 1,823 Loans charged off............................... (299) (1,081) (1,247) Recoveries...................................... 376 180 111 ------ ------- ------- Balance, December 31.............................. $7,312 $ 4,399 $ 4,344 ====== ======= =======
- -------- (1) Includes $800,000 of charges in 1996 to conform accounting practices for the Banks' reserve methodologies which is included in merger and related costs. F-14 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following table sets forth non-performing loans as of December 31, 1996, 1995 and 1994. Non-performing loans are defined as loans which are on non- accrual status, loans which have been restructured, and loans which are 90 days past due but are still accruing interest. Interest income foregone on non-performing loans outstanding at year-end totaled $215,000, $245,000 and $275,000 for the years ended December 31, 1996, 1995 and 1994, respectively. Interest income recognized on the non-performing loans approximated $95,000, $63,000 and $50,000 for the years ended December 31, 1996, 1995 and 1994, respectively. There were no restructured loans at December 31, 1996, 1995 and 1994.
1996 1995 1994 ------ ------ ------ (DOLLARS IN THOUSANDS) Non-accrual loans...................................... $1,875 $2,513 $3,668 Accruing loans past due 90 days or more................ 1,237 830 1,371 ------ ------ ------ Total non-performing loans............................. $3,112 $3,343 $5,039 ====== ====== ======
At December 31, 1996 and 1995, the recorded investment in loans, for which impairment has been recognized in accordance with SFAS No. 114 and No. 118, was approximately $1.9 million and $2.5 million, respectively with corresponding valuation allowances of $1.0 million and $0.5 million, respectively. For the years ended December 31, 1996 and 1995, the average recorded investment in impaired loans was approximately $2.2 million and $2.6 million, respectively. The Company did not recognize interest income on impaired loans during the twelve months ended December 31, 1996 and 1995. NOTE 5--OTHER REAL ESTATE OWNED At December 31, 1996, other real estate owned consisted of one property acquired through foreclosure with a carrying value of $152,000 and is included in interest receivable and other assets in the accompanying consolidated balance sheets. There was no allowance for estimated losses. The Company had no other real estate owned at December 31, 1995. The following summarizes other real estate operations, which are included in operating expenses, for the years ended December 31, 1996, 1995 and 1994.
1996 1995 1994 ---- ---- ----- (DOLLARS IN THOUSANDS) Income (loss) from: Real estate operations, net.............................. $(35) $(45) $ (70) Provision for estimated losses........................... -- (17) (42) ---- ---- ----- Net loss from other real estate operations............... $(35) $(62) $(112) ==== ==== =====
NOTE 6--PREMISES AND EQUIPMENT Premises and equipment at December 31, 1996 and 1995 are comprised of the following:
1996 1995 ------- ------- (DOLLARS IN THOUSANDS) Leasehold improvements..................................... $ 2,774 $ 1,613 Furniture and equipment.................................... 6,510 4,988 Automobiles................................................ 134 157 ------- ------- Total.................................................... 9,418 6,758 ------- ------- Accumulated depreciation and amortization.................. (4,730) (3,846) ------- ------- Premises and equipment, net.............................. $ 4,688 $ 2,912 ======= =======
F-15 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Depreciation and amortization amounted to $1,125,000, $899,000 and $777,000 for the years ended December 31, 1996, 1995 and 1994, respectively, and have been included in occupancy and equipment expense in the accompanying consolidated statements of operations. NOTE 7--DEPOSITS Deposits as of December 31, 1996 and 1995 are as follows:
1996 1995 -------- -------- (DOLLARS IN THOUSANDS) Demand, noninterest-bearing............................... $139,940 $ 96,063 NOW....................................................... 26,936 22,084 Money Market Demand Accounts.............................. 271,749 211,654 Savings................................................... 13,599 12,486 Other time certificates................................... 38,889 25,716 Time certificates, $100 and over.......................... 68,170 63,786 -------- -------- Total Deposits.......................................... $559,283 $431,789 ======== ========
NOTE 8--OTHER BORROWINGS Short-term borrowings are detailed as follows:
1996 1995 1994 ------- ------- ------- (DOLLARS IN THOUSANDS) Federal funds purchased Balance at December 31.......................... $12,000 $ -- $ 7,000 Average Balance................................. 669 1,120 1,800 Maximum amount outstanding at any month-end..... 12,000 5,600 12,000 Average interest rate: During the year............................... 5.42% 5.96% 4.18% At December 31................................ 6.63% -- 6.50% Securities sold under agreements to repurchase Balance at December 31.......................... $ -- $ -- $10,256 Average Balance................................. 1,556 11,486 5,908 Maximum amount outstanding at any month-end..... 14,994 26,994 24,153 Average interest rate: During the year............................... 5.74% 6.12% 5.13% At December 31................................ -- -- 6.29%
Federal funds purchased generally mature the following day after the purchase while securities sold under agreements to repurchase generally mature within 30 days from the various dates of sale. In 1995, the Company consummated a private offering of $3.0 million of 11.5% subordinated notes. The notes, which will mature on September 15, 2005, were offered to members of the Board of Directors, bank officers and other accredited investors within the definition of Rule 501 under the Securities Act of 1933, as amended. The debentures are redeemable by the Company any time after September 30, 1998 at a premium ranging from 0% to 5%. The notes qualify as Tier 2 capital of the Company. F-16 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 9--INCOME TAXES Income tax expense was comprised of the following for the years ended December 31, 1996, 1995 and 1994:
1996 1995 1994 ------- ------ ------ (DOLLARS IN THOUSANDS) Current: Federal........................................... $ 3,308 $1,227 $1,425 State............................................. 764 563 466 ------- ------ ------ Total current expense (benefit)................... 4,072 1,790 1,891 ------- ------ ------ Deferred: Federal........................................... (966) 221 71 State............................................. (179) (40) 4 ------- ------ ------ Total deferred expense (benefit).................. (1,145) 181 75 ------- ------ ------ Total expense....................................... $ 2,927 $1,971 $1,966 ------- ------ ------
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. Significant components of the Company's deferred income tax assets (liabilities) are as follows:
YEARS ENDED DECEMBER 31, -------------- 1996 1995 ------ ------ (DOLLARS IN THOUSANDS) Loan loss reserves........................................... $2,145 $1,278 Deferred compensation........................................ 102 92 State income taxes........................................... 653 339 Unrealized gains............................................. (35) (214) Other........................................................ (118) (72) ------ ------ Net deferred tax asset....................................... $2,747 $1,423 ------ ------
A reconciliation from the statutory income tax rate to the consolidated effective income tax rate follows, for the years ended December 31:
YEARS ENDED DECEMBER 31, ---------------- 1996 1995 1994 ---- ---- ---- (DOLLARS IN THOUSANDS) Statutory federal tax rate................................ 35.0% 35.0% 35.0% California franchise tax expense, net of federal income tax benefit.............................................. 7.6 6.9 5.7 Tax exempt income......................................... (4.9) (3.2) (3.3) Non-deductible merger and restructuring costs............. 3.9 0.0 3.8 Other, net................................................ 3.9 0.7 (4.8) ---- ---- ---- Effective income tax rate................................. 45.5% 39.4% 36.4% ---- ---- ----
F-17 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 10--OPERATING EXPENSES Other operating expenses were comprised of the following:
YEARS ENDED DECEMBER 31, -------------------- 1996 1995 1994 ------ ------ ------ (DOLLARS IN THOUSANDS) Professional and legal fees............................ $1,270 $2,968 $1,176 FDIC insurance and regulatory assessments.............. 102 551 858 Other real estate, net................................. 35 62 112 Supplies and postage................................... 592 356 269 Telephone.............................................. 232 213 198 Director fees.......................................... 227 207 236 Insurance.............................................. 105 205 194 Correspondent bank charges............................. 43 158 118 Marketing.............................................. 859 289 118 Client services........................................ 411 337 376 Other.................................................. 2,047 1,515 1,197 ------ ------ ------ Total.................................................. $5,923 $6,861 $4,852 ====== ====== ======
Merger and other related non-recurring costs incurred in connection with the merger consummated in November 1996 (see Note 2) totaling $2.8 million include $1.1 million of professional fees related to the transaction, $1.2 million of charges to conform accounting practices of the two merged entities, with the balance related to severance and compensation costs. NOTE 11--EMPLOYEE BENEFIT PLANS STOCK OPTIONS PLANS Effective November 27, 1996, the Company's shareholders approved the Greater Bay Bancorp 1996 Stock Option Plan ("the Bancorp Plan") and authorized an increase in the number of shares available for issuance from 457,037 to 967,890 shares. Under the terms of the merger, all stock option plans of Cupertino National Bancorp and Mid-Peninsula Bancorp were terminated at the time of the merger and all outstanding options from these plans were assumed by the Bancorp Plan. Outstanding options from the Mid-Peninsula Bancorp plan of 216,326 and outstanding options from the Cupertino National Bancorp plan of 251,073 (converted at a ratio of 0.81522) were assumed by the Bancorp Plan. Options issued under the Bancorp Plan may be granted to employees and nonemployee directors and may be either incentive stock options or nonqualified stock options as defined under current tax laws. The exercise price of each option must equal the market price of the Company's stock on the date of grant. The term of an option may not exceed 10 years. STOCK-BASED COMPENSATION In October 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123 "Accounting for Stock-Based Compensation". Under the provisions of SFAS No. 123, the Company is encouraged, but not required, to measure compensation costs related to its employee stock compensation plans under the fair market value method. If the Company elects not to recognize compensation expense under this method, it is required to disclose the pro forma net income and earnings per share effects based on the SFAS No. 123 fair value methodology. The Company implemented the requirements of SFAS No. 123 in 1996 and has elected to adopt the disclosure provisions of this statement. F-18 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) At December 31, 1996, the Company had one stock option plan, which is described above. The Company applies Accounting Pronouncements Bulletin (APB) Opinion No. 25 and related interpretations in accounting for its Plan. Accordingly, no compensation cost has been recognized for its stock option plan. Had compensation for the Company's stock option plan been determined consistent with SFAS No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
DECEMBER 31, ----------------------- 1996 1995 ----------- ----------- (DOLLARS IN THOUSANDS) Net Income: As reported....................................... $3,503 $3,034 Pro Forma......................................... $3,351 $2,979 Primary earnings per share As reported....................................... $1.04 $0.96 Pro Forma......................................... $1.00 $0.94
The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions for grants in 1996 and 1995, respectively; dividend yield of 2.0% for all years; expected volatility of 19.3% for both years; risk free rates of 6.0% and 6.9%. No adjustments have been made for forfeitures. The actual value, if any, that the option holder will realize from these options will depend solely on the increase in the stock price over the option price when the options are exercised. A summary of the Company's fixed stock option plan as of December 31, 1996, 1995, and 1994 and changes during the years ended on those dates is presented below:
1996 1995 1994 --------------------- --------------------- --------------------- WEIGHTED- WEIGHTED- WEIGHTED- SHARES AVERAGE SHARES AVERAGE SHARES AVERAGE (000) EXERCISE PRICE (000) EXERCISE PRICE (000) EXERCISE PRICE ------ -------------- ------ -------------- ------ -------------- Outstanding at beginning of year................ 558 $10.78 542 $ 9.55 463 $ 8.04 Granted................. 183 19.27 175 12.65 252 13.03 Exercised............... (184) 7.78 (124) 8.49 (133) 8.14 Forfeited............... (8) 8.58 (35) 10.30 (40) 8.98 ---- ------ ---- ------ ---- ------ Outstanding at end of year................... 549 $13.14 558 $10.78 542 $ 9.55 ---- ------ ---- ------ ---- ------ Options exercisable at year-end............... 284 $12.90 365 $ 9.30 378 $ 9.94 ---- ------ ---- ------ ---- ------ Weighted average fair value of options granted during the year................... $ 4.20 $ 2.48 NA ------ ------ ------
All stock option information has been adjusted for stock dividends in 1995 and 1994. 401(K) SAVINGS PLAN The Company has a 401(k) tax deferred savings plan under which eligible employees may elect to defer a portion of their salary (up to 15%) as a contribution to the plan. The Company matches the employee contributions at a rate set by the Board of Directors (currently 62.5% of the first 8% of deferral of an individual's total compensation). The matching contribution vests ratably over the first four years of employment. The Company contributed $282,000 to the plan in 1996, $212,000 in 1995, and $153,200 in 1994. F-19 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) EMPLOYEE STOCK PURCHASE PLAN The Company has established an Employee Stock Purchase Plan, as amended, under section 423(b) of the Internal Revenue Code which allows eligible employees to set aside up to 15% of their compensation toward the purchase of the Company's stock for an aggregate total of 133,934 shares. Under the plan, the purchase price is 85% of the lower of the fair market value at the beginning or end of each three month offering period. During 1996, employees purchased 10,633 shares of common stock for an aggregate purchase price of $136,500 compared to the purchase of 8,536 shares of common stock for an aggregate purchase price of $80,400 in 1995. There are 82,318 shares remaining in the plan available for purchase by employees at December 31, 1996. SALARY COMPENSATION PLAN During 1993 and 1995, the Company entered into salary continuation agreements with certain executive officers. Under these agreements, the Company is generally obligated to provide for each such employee or their beneficiaries, during a period of up to 40 years after the employee's death, disability or retirement, annual benefits ranging from $36,000 to $85,000. The estimated present value of future benefits to be paid is being accrued over the vesting period of the participants. Expenses accrued for this plan for the years ended December 31, 1996, 1995 and 1994 totaled $310,000, $173,000, and $72,000, respectively. Depending on the agreement, the Company and the employees are the beneficiaries of life insurance policies that have been purchased as a method of financing the benefits under the agreements. At December 31, 1996 and 1995, the Company's cash surrender value of these policies was $8.9 million and $8.3 million, respectively, and is included in other assets. NOTE 12--RELATED PARTY TRANSACTIONS Loans made to executive officers, directors and their affiliates, are made subject to approval by the Directors' Loan Committee and the Board of Directors. An analysis of total loans to related parties for the years ended December 31, 1996 and 1995 is shown as follows:
1996 1995 ------- ------- (DOLLARS IN THOUSANDS) Balance, January 1......................................... $ 9,873 $ 7,788 Additions.................................................. 1,346 4,694 Repayments................................................. (3,671) (2,609) ------- ------- Balance, December 31....................................... $ 7,548 $ 9,873 ======= ======= Undisbursed commitments, at year end....................... $ 1,866 $ 432 ======= =======
NOTE 13--COMMITMENTS AND CONTINGENT LIABILITIES LEASE COMMITMENTS The Company leases the facilities from which it operates all of its activities. The main headquarters of MPB in Palo Alto is leased from a group of investors, which includes three of the Company's directors. Future minimum lease commitments under all non-cancelable operating leases as of December 31, 1996 are below:
YEAR ENDING DECEMBER 31, ------------------------ (DOLLARS IN THOUSANDS) 1997................................................ $ 2,146 1998................................................ 2,154 1999................................................ 2,068 2000................................................ 1,482 2001................................................ 1,457 Thereafter.......................................... 2,505 ------- Total............................................... $11,812 -------
F-20 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company subleases that portion of the available space that is not utilized. Sublease rental income for the years ended December 31, 1996, 1995, and 1994 was $309,000, $398,000, and $447,000 respectively. Gross rental expense for the years ended December 31, 1996, 1995, and 1994 was $1.69 million, $1.43 million, and $1.26 million respectively. OTHER COMMITMENTS AND CONTINGENT LIABILITIES In the normal course of business, various commitments and contingent liabilities are outstanding, such as guarantees and commitments to extend credit, that are not reflected in the accompanying consolidated financial statements. At December 31, 1996, commitments to fund loans and outstanding standby letters of credit were approximately $202.8 million and $16.9 million, respectively. The Company's exposure to credit loss is limited to amounts funded or drawn; however, at December 31, 1996, no losses are anticipated as a result of these commitments. Loan commitments which have fixed expiration dates and require the payment of a fee are typically contingent upon the borrower meeting certain financial and other covenants. Approximately $60.0 million of these commitments relate to real estate construction and land loans and are expected to fund within the next 12 months. However, the remainder relate primarily to revolving lines of credit or other commercial loans, and many of these commitments are expected to expire without being drawn upon, therefore the total commitments do not necessarily represent future cash requirements. Cupertino National Bank and Mid-Peninsula Bank evaluate each potential borrower and the necessary collateral on an individual basis. Collateral varies, but may include real property, bank deposits, debt or equity securities, or business assets. Stand-by letters of credit are conditional commitments written by the Banks to guarantee the performance of a client to a third party. These guarantees are issued primarily relating to purchases of inventory by the Banks' commercial clients, and are typically short-term in nature. Credit risk is similar to that involved in extending loan commitments to clients, and the Banks accordingly use evaluation and collateral requirements similar to those for loan commitments. Virtually all such commitments are collateralized. In the ordinary course of business there are various assertions, claims and legal proceedings pending against the Company. Management is of the opinion that the ultimate resolution of these proceedings will not have a material adverse effect on the consolidated financial position or results of operations of the Company. In July 1995, the Company settled a lawsuit for $1.1 million (net of tax) which alleged that the Company did not perform its fiduciary duties and, as a result, the plaintiff incurred losses on real estate investments that were purchased. The Company believes that insurance coverage for this settlement is available to the Company under various insurance policies and the Company is currently in the process of pursuing recovery under these policies. However, due to the uncertainty associated with the recovery, the Company reflected the settlement expense in 1995 earnings. NOTE 14--REGULATORY MATTERS The Company and the Banks are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's consolidated financial statements. Under capital adequacy guidelines and regulatory framework for prompt corrective action, the Banks must meet specific capital guidelines that involve quantitative measures of the Banks' assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Banks' capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. F-21 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum capital amounts and ratios (as defined in the regulations) and are set forth in the table below. At December 31, 1996, the Bank meets all capital adequacy requirements to which it is subject. As of December 31, 1996, the most recent notification from all of the Company's and the Banks' regulators, categorized the Company and the Banks as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Company and the Banks must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following table. There are no conditions or events since that determination that management believes have changed the institution's category. The Company and the Banks' actual 1996 and 1995 capital amounts and ratios are as follows:
AS OF DECEMBER 31, 1996 ----------------------------------------------------------------------------------------------- TO BE WELL CAPITALIZED UNDER PROMPT FOR CAPITAL CORRECTIVE ADEQUACY ACTION ACTUAL PURPOSES PROVISIONS ------------- -------------------- ------------------ -------------------- ------------------ AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO ------- ----- -------------------- ------------------ -------------------- ------------------ (DOLLARS IN THOUSANDS) Total Capital (To Risk Weighted Assets): GREATER BAY BANCORP.......... $53,638 10.54% greater than greater than N/A or equal to $40,720 or equal to 8.00% Mid-Peninsula Bank........... 25,415 11.07 greater than greater than greater than greater than or equal to 18,359 or equal to 8.00 or equal to $22,949 or equal to 10.00% Cupertino National Bank and Trust....................... 28,022 10.03 greater than greater than greater than greater than or equal to 22,346 or equal to 8.00 or equal to 27,932 or equal to 10.00 Tier 1 Capital (To Risk Weighted Assets): GREATER BAY BANCORP.......... $44,530 8.75% greater than greater than N/A or equal to $20,360 or equal to 4.00% Mid-Peninsula Bank........... 22,810 9.94 greater than greater than greater than greater than or equal to 9,179 or equal to 4.00 or equal to $13,769 or equal to 6.00% Cupertino National Bank and Trust....................... 21,515 7.70 greater than greater than greater than greater than or equal to 11,173 or equal to 4.00 or equal to 16,759 or equal to 6.00 Tier 1 Capital (To Average Assets): GREATER BAY BANCORP.......... $44,530 7.27% greater than greater than N/A or equal to $24,496 or equal to 4.00% Mid-Peninsula Bank........... 22,810 8.23 greater than greater than greater than greater than or equal to 8,312 or equal to 3.00 or equal to $13,853 or equal to 5.00% Cupertino National Bank and Trust....................... 21,515 6.42 greater than greater than greater than greater than or equal to 13,412 or equal to 4.00 or equal to 16,765 or equal to 5.00
AS OF DECEMBER 31, 1996 ----------------------------------------------------------------------------------------------- TO BE WELL CAPITALIZED UNDER PROMPT FOR CAPITAL CORRECTIVE ADEQUACY ACTION ACTUAL PURPOSES PROVISIONS ------------- -------------------- ------------------ -------------------- ------------------ AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO ------- ----- -------------------- ------------------ -------------------- ------------------ (DOLLARS IN THOUSANDS) Total Capital (To Risk Weighted Assets): GREATER BAY BANCORP.......... $47,369 13.43% greater than greater than N/A or equal to $28,208 or equal to 8.00% Mid-Peninsula Bank........... 22,280 14.90 greater than greater than greater than greater than or equal to 11,959 or equal to 8.00 or equal to $14,949 or equal to 10.00% Cupertino National Bank and Trust....................... 23,088 11.35 greater than greater than greater than greater than or equal to 16,267 or equal to 8.00 or equal to 20,334 or equal to 10.00 Tier 1 Capital (To Risk Weighted Assets): GREATER BAY BANCORP.......... $40,112 11.38% greater than greater than N/A or equal to $14,104 or equal to 4.00% Mid-Peninsula Bank........... 20,564 13.76 greater than greater than greater than greater than or equal to 5,979 or equal to 4.00 or equal to $ 8,969 or equal to 6.00% Cupertino National Bank and Trust....................... 17,546 8.62 greater than greater than greater than greater than or equal to 8,134 or equal to 4.00 or equal to 12,201 or equal to 6.00 Tier 1 Capital (To Average Assets): GREATER BAY BANCORP.......... $40,112 8.69% greater than greater than N/A or equal to $18,464 or equal to 4.00% Mid-Peninsula Bank........... 20,564 9.31 greater than greater than greater than greater than or equal to 6,628 or equal to 3.00 or equal to $11,046 or equal to 5.00% Cupertino National Bank and Trust....................... 17,546 7.32 greater than greater than greater than greater than or equal to 9,591 or equal to 4.00 or equal to 11,989 or equal to 5.00
F-22 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 15--RESTRICTIONS ON SUBSIDIARY TRANSACTIONS One of the principal sources of cash for the Company is dividends from its subsidiary Banks. Total dividends which may be declared by the Banks without receiving prior approval from regulatory authorities are limited to the lesser of the Banks' retained earnings or the net income of the Banks for the latest three fiscal years, less dividends previously declared during that period. Under these restrictions and considering minimum regulatory capital requirements, the Banks are able to declare combined dividends of up to approximately $6.3 million as of December 31, 1996. The Banks are subject to certain restrictions under the Federal Reserve Act, including restrictions on the extension of credit to affiliates. In particular, the Banks are prohibited from lending to the Company unless the loans are secured by specified types of collateral. Such secured loans and other advances from the Banks are limited to 10% of the Banks' shareholders' equity, or a maximum of $4.4 million at December 31, 1996. No such advances were made during 1996 or exist as of December 31, 1996. NOTE 16--PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS The financial statements of Greater Bay Bancorp (parent company only) follow: PARENT COMPANY ONLY--BALANCE SHEETS
YEAR ENDED DECEMBER 31, --------------- 1996 1995 ------- ------- (DOLLARS IN THOUSANDS) Assets: Cash and cash equivalents.................................. $ 567 $ 1,848 Investment in subsidiaries................................. 44,475 38,214 Subordinated debentures purchased by subsidiary............ 3,000 3,000 Other assets............................................... 69 209 ------- ------- Total....................................................... $48,111 $43,271 ======= ======= Liabilities and shareholders' equity: Subordinated debt.......................................... 3,000 3,000 Other liabilities.......................................... 429 159 ------- ------- Total liabilities........................................... 3,429 3,159 Shareholders' equity Common stock............................................... 34,884 33,105 Unrealized gain (loss)..................................... 71 (621) Retained earnings.......................................... 9,727 7,628 ------- ------- Total shareholders' equity.................................. 44,682 40,112 ------- ------- Total liabilities and shareholders' equity.................. $48,111 $43,271 ======= =======
F-23 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) PARENT COMPANY ONLY--STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, ---------------------- 1996 1995 1994 ------ ------ ------ (DOLLARS IN THOUSANDS) Income: Interest income.................................... $ 531 $ 61 $ 24 Other income....................................... 142 631 949 ------ ------ ------ Total............................................... 673 692 973 ------ ------ ------ Expenses: Occupancy and equipment............................ 460 441 410 Less rentals received from the Banks............... (460) (441) (409) Other expenses...................................... 1,436 75 689 ------ ------ ------ Total............................................... 1,436 75 690 ------ ------ ------ Income before taxes and equity in undistributed net income of subsidiaries............................. (763) 617 283 Income tax expense.................................. 20 -- -- ------ ------ ------ Income (loss) before equity in undistributed net income of subsidiaries............................. (783) 617 283 Equity in undistributed net income of subsidiaries.. 4,286 2,417 2,281 ------ ------ ------ Net income.......................................... $3,503 $3,034 $2,564 ====== ====== ======
F-24 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) PARENT COMPANY ONLY--STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------- 1996 1995 1994 ------- ------- ------- (DOLLARS IN THOUSANDS) Cash flows--operating activities: Net income........................................ $ 3,503 $ 3,034 $ 2,564 Reconciliation of net income to net cash from operations: Equity in undistributed net income of subsidiaries................................... (4,286) (2,417) (2,281) Net change in other assets...................... (140) 28 (205) Net change in other liabilities................. 270 25 91 ------- ------- ------- Operating cash flows, net........................... (653) 670 169 ------- ------- ------- Cash flows--investing activities: Principal repayment of loans receivable........... -- 150 -- Purchase of subordinated debentures from CNB...... -- (3,000) -- Capital contribution to the subsidiaries.......... (1,003) (402) (415) ------- ------- ------- Investing cash flows, net........................... (1,003) (3,252) (415) ------- ------- ------- Cash flows--financing activities: Proceeds from issuance of subordinated debt....... -- 3,000 -- Proceeds from exercise of stock options and employee stock purchases......................... 1,779 1,127 1,028 Cash paid in lieu of fractional shares on stock dividends........................................ -- (3) (4) Payment of cash dividends........................... (1,404) (942) (491) ------- ------- ------- Financing cash flows, net........................... 375 3,182 533 ------- ------- ------- Net increase in cash and cash equivalents........... (1,281) 600 287 Cash and cash equivalents at the beginning of the year............................................... 1,848 1,248 961 ------- ------- ------- Cash and cash equivalents at the end of the year.... $ 567 $ 1,848 $ 1,248 ======= ======= =======
F-25 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 17--FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value estimates, methods and assumptions are set forth below for the Company's financial instruments. The estimated fair value of financial instruments of the Company as of December 31, 1996 and 1995 are as follows:
1996 1995 ----------------- ----------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- -------- -------- -------- (DOLLARS IN THOUSANDS) Financial assets: Cash and cash equivalents................. $ 53,896 $ 53,896 $ 58,111 $ 58,111 Investment securities..................... 105,520 105,849 116,869 117,280 Loans, net................................ 441,560 445,718 284,579 286,090 Financial liabilities: Deposits: Demand, noninterest-bearing............. $139,940 $139,940 $ 96,063 $ 96,063 NOW..................................... 26,936 26,936 22,084 22,084 Money Market Demand Accounts............ 271,749 271,749 211,654 211,654 Savings................................. 13,599 13,599 12,486 12,486 Other time certificates................. 38,889 39,104 25,716 25,789 Time certificates, $100 and over........ 68,170 68,227 63,786 64,032 -------- -------- -------- -------- Total deposits.......................... $559,283 $559,555 $431,789 $432,108 -------- -------- -------- -------- Subordinated debt......................... $ 3,000 $ 3,000 $ 3,000 $ 3,000 Short term borrowings..................... $ 12,000 $ 12,000 -- --
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. CASH AND CASH EQUIVALENTS The carrying value reported in the balance sheet for cash and cash equivalents approximates fair value. INVESTMENT SECURITIES The carrying amounts for short-term investments approximate fair value because they mature in 90 days or less and do not present unanticipated credit concerns. The fair value of longer term investments, except certain state and municipal securities, is estimated based on bid prices published in financial newspapers or bid quotations received from securities dealers. The fair value of certain state and municipal securities is not readily available through market sources other than dealer quotations, as such fair value estimates are based on quoted market prices of similar instruments, adjusted for differences between the quoted instruments and the instruments being valued. LOANS Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, commercial real estate, residential mortgage and consumer. Each loan category is further segmented into fixed and adjustable rate interest terms. The fair value of performing fixed rate loans is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan. The estimate of maturity is based on the Company's historical experience with repayments for each F-26 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) loan classifications, modified, as required, by an estimate of the effect of current economic and lending conditions. The fair value of performing variable rate loans is judged to approximate book value for those loans whose rates reprice in less than 90 days. Rate floors and rate ceilings are not considered for fair value purposes as the number of loans with such limitations is not significant. Fair value for significant nonperforming loans is based on recent external appraisals. If appraisals are not available, estimated cash flows are discounted using a rate commensurate with the risk associated with the estimated cash flows. Assumptions regarding credit risk, cash flows, and discount rates are judgmentally determined using available market information and specific borrower information. DEPOSIT LIABILITIES AND BORROWINGS The fair value for all deposits without fixed maturities and short term borrowings is considered to be equal to the carrying value. The fair value for fixed rate time deposits and subordinated debt are estimated by discounting future cash flows using interest rates currently offered on time deposits or subordinated debt with similar remaining maturities. COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTER OF CREDIT The majority of the Company's commitments to extend credit carry current market interest rates if converted to loans. Because these commitments are generally unassignable by either the Company or the borrower, they only have value to the Company and the borrower. The estimated fair value approximates the recorded deferred fee amounts and is excluded from the table. LIMITATIONS Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale, at one time, the Company's entire holdings of a particular financial instrument. Fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in many of the estimates. NOTE 18--QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, ------------- -------------- -------------- --------------- 1996 1995 1996 1995 1996 1995 1996 1995 ------ ------ ------- ------ ------- ------ ------- ------ (IN THOUSANDS EXCEPT PER SHARE DATA) Interest income......... $9,964 $8,657 $10,367 $9,312 $11,577 $9,448 $13,129 $9,816 Net interest income..... 6,292 5,452 6,680 5,768 7,393 5,926 8,459 6,195 Provision for loan losses................. 320 506 365 165 606 145 745 140 Non-interest income..... 811 587 904 554 872 602 943 563 Non-interest expense.... 4,691 4,349 5,072 6,151 5,328 4,544 8,797 4,642 Income before taxes..... 2,092 1,184 2,147 6 2,331 1,839 (140) 1,976 Net income.............. 1,250 730 1,308 23 1,363 1,098 (418) 1,183 Net income per share.... $ 0.35 $ 0.22 $ 0.36 $ 0.01 $ 0.37 $ 0.32 $ (0.13) $ 0.37
F-27 NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. -------------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary........................................................ 5 Risk Factors.............................................................. 11 Use of Proceeds........................................................... 19 Accounting Treatment...................................................... 19 Capitalization............................................................ 20 Regulatory Capital Ratios................................................. 20 Selected Consolidated Financial Data...................................... 21 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 22 Business.................................................................. 40 Supervision and Regulation................................................ 46 Management................................................................ 55 Certain Relationships and Related Transactions............................ 64 Security Ownership of Certain Beneficial Owners and Management............ 65 Description of the Trust Preferred Securities............................. 66 Description of Junior Subordinated Debentures............................. 78 Book-Entry Issuance....................................................... 88 Description of Guarantee.................................................. 90 Relationship among the Trust Preferred Securities, the Junior Subordinated Debentures and the Guarantee............................................. 92 Certain Federal Income Tax Consequences................................... 94 Description of Greater Bay Bancorp Capital Stock.......................... 97 Underwriting.............................................................. 99 Legal Matters............................................................. 99 Experts................................................................... 99 Available Information..................................................... 99 Index to Consolidated Financial Statements................................ F-1
-------------------- Until , 1997 (25 days after the date of this Prospectus), all dealers effecting transactions in the registered securities, whether or not participating in this distribution, may be required to deliver a Prospectus. This is in addition to the obligation of dealers to deliver a Prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. 800,000 TRUST PREFERRED SECURITIES GBB Capital I % Cumulative Trust Preferred Securities (Liquidation Amount $25 per Trust Preferred Security) Fully and Unconditionally Guaranteed, as Described Herein, by GREATER BAY BANCORP ----------------- P R O S P E C T U S ----------------- Piper Jaffray Inc. , 1997 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION Securities and Exchange Commission registration fee.............. $ 6,061 NASD fee......................................................... 2,500 Nasdaq fees...................................................... 4,000 Trustees' fees and expenses...................................... 11,000 Legal fees and expenses.......................................... 135,000* Blue Sky fees and expenses....................................... 10,000* Accounting fees and expenses..................................... 75,000* Printing expenses................................................ 90,000* Miscellaneous expenses........................................... 25,439* -------- Total........................................................ 359,000* ========
- -------- * Estimated ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Greater Bay's Articles of Incorporation provide that the liability of the directors of Greater Bay for monetary damages shall be eliminated to the fullest extent permissible under California law and that Greater Bay is authorized to provide for the indemnification of agents (as defined in Section 317 of the California General Corporation Law) of the corporation in excess of that expressly permitted by such Section 317 for breach of duty to the corporation and its shareholders to the fullest extent permissible under California law. Section 317 sets forth the provisions pertaining to the indemnification of corporate "agents." For purposes of this law, an agent is any person who is or was a director, officer, employee or other agent of a corporation, or is or was serving at the request of the corporation in such capacity with respect to any other corporation, partnership, joint venture, trust or other enterprise. Indemnification for expenses, including amounts paid on settling or otherwise disposing of a threatened or pending action or defending against the same can be made in certain circumstances by action of Greater Bay through: (1) a majority vote of a quorum of Greater Bay's Board of Directors consisting of directors who are not party to the proceedings; (2) approval of the shareholders, with the shares owned by the person to be indemnified not being entitled to vote thereon; or (3) such court in which the proceeding is or was pending upon application by designated parties. Under certain circumstances, an agent can be indemnified, even when found liable. Indemnification is mandatory where the agent's defense is successful on the merits. The law allows Greater Bay to make advances of expenses for certain actions upon the receipt of an undertaking that the agent will reimburse the corporation if the agent is found liable. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling Greater Bay, pursuant to the foregoing provisions or otherwise, Greater Bay understands that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Greater Bay of expenses incurred or paid by a director, officer or controlling person of Greater Bay in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, Greater Bay will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against a public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. Provisions regarding indemnification of officers and directors of Greater Bay are contained in Greater Bay's Bylaws (Exhibit 3.2 to this Registration Statement). II-1 Under the Trust Agreement, Greater Bay will agree to indemnify each of the Trustees of GBB Capital I or any predecessor Trustee for GBB Capital I, and to hold each Trustee harmless against any loss, damage, claims, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the Trust Agreement, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties under the Trust Agreement. Greater Bay and GBB Capital I have agreed to indemnify the Underwriter, and the Underwriter has agreed to indemnify GBB Capital I and Greater Bay against certain civil liabilities, including liabilities under the Securities Act of 1933, as amended. Reference is made to the Purchase Agreement filed as Exhibit 1.1 herewith. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES In September 1995, Cupertino National Bancorp, which merged into Greater Bay effective November 27, 1996, issued $3.0 million of Subordinated Debt in reliance on Section 4(2) of the Securities Act. ITEM 16. EXHIBITS (a) Exhibits 1.1 Form of Purchase Agreement. 3.1 Articles of Incorporation of Greater Bay Bancorp. 3.2 Bylaws of Greater Bay Bancorp, as amended; incorporated herein by reference from Exhibit 3.2 to Registration Statement on Form S-4 (Registration No. 33-79798), filed with the Commission on June 6, 1994. 4.1 Form of Subordinated Indenture dated , 1997 to be entered into between Greater Bay Bancorp and Wilmington Trust Company, as Indenture Trustee. 4.2 Form of Officers' Certificate and Company Order, dated March , 1997. 4.3 (Reserved.) 4.4 Certificate of Trust of GBB Capital I. 4.5 Trust Agreement of GBB Capital I dated as of February 28, 1997. 4.6 Form of Amended and Restated Trust Agreement of GBB Capital I, dated , 1997. 4.7 Form of Trust Preferred Certificate of GBB Capital I (included as an exhibit to Exhibit 4.6). 4.8 Form of Common Securities Certificate of GBB Capital I (included as an exhibit to Exhibit 4.6). 4.9 Form of Trust Preferred Securities Guarantee Agreement. 4.10 Form of Agreement as to Expenses and Liabilities (included as an exhibit to Exhibit 4.6). 4.11 Form of Subordinated Debentures; incorporated herein by reference from Exhibit 1 of Cupertino National Bancorp's Form 8-K (File No. 0- 18015), filed with the Commission on October 25, 1995. 4.12 Supplemental Debenture Agreement of Cupertino National Bancorp dated as of November 22, 1996. 4.13 Supplemental Debenture Agreement dated November 27, 1996 between Cupertino National Bancorp and Mid-Peninsula Bancorp. 5.1 Opinion of Manatt, Phelps & Phillips, LLP.* 5.2 Opinion and Consent of Richards, Layton & Finger, P.A.* 8.1 Opinion and Consent of Manatt, Phelps & Phillips, LLP, counsel to Greater Bay Bancorp, as to certain federal income tax matters.*
II-2 10.1 WestCal Agreement of Lease dated April 24, 1989 related to premises located at 100 South Ellsworth Avenue, San Mateo, California; incorporated herein by reference from Exhibit 10.6 to Registration Statement on Form S-4 (Registration No. 33-79798), filed with the Commission on July 15, 1994. 10.2 WestCal Commercial Lease and Deposit Receipt dated November 26, 1993 related to premises located at 1313 Laurel Street, San Carlos, California; incorporated herein by reference from Exhibit 10.7 to Registration Statement on Form S-4 (Registration No. 33-79798), filed with the Commission on July 15, 1994. 10.3 Mid-Peninsula Bank Lease Agreement dated March 11, 1987 and associated documents relating to premises located at 420 Cowper Street, Palo Alto, California; incorporated herein by reference from Exhibit 10.13 to Mid-Peninsula Bancorp's Annual Report on Form 10-K for the year ended December 31, 1994 (File No. 0-25034), filed with the Commission on March 30, 1995. 10.4 David L. Kalkbrenner Employment Agreement, dated March 3, 1992; incorporated herein by reference from Exhibit 10.15 to Mid- Peninsula Bancorp's Annual Report on Form 10-K for the year ended December 31, 1994 (File No. 0-25034), filed with the Commission on March 30, 1995. 10.5 Form of Mid-Peninsula Bank Indemnification Agreement for directors and executive officers; incorporated herein by reference from Exhibit 10.16 to Mid-Peninsula Bancorp's Annual Report on Form 10-K for the year ended December 31, 1994 (File No. 0-25034), filed with the Commission on March 30, 1995. 10.6 Addendum to Lease Agreement dated March 11, 1987 for premises located at 420 Cowper Street, Palo Alto, California; incorporated herein by reference from Exhibit 10.18 to Mid-Peninsula Bancorp's Annual Report on Form 10-K for the year ended December 31, 1995, filed with the Commission on March 29, 1996. 10.7 Addendum to Lease Agreement dated November 26, 1993 for premises located at 1313 Laurel Street, San Carlos, California; incorporated herein by reference from Exhibit 10.19 to Mid-Peninsula Bancorp's Annual Report on Form 10-K for the year ended December 31, 1995, filed with the Commission on March 29, 1996. 10.8 Salary Continuation Agreement entered into with David L. Kalkbrenner dated April 26, 1995; incorporated herein by reference from Exhibit 10.20 to Mid-Peninsula Bancorp's Annual Report on Form 10-K for the year ended December 31, 1995, filed with the Commission on March 29, 1996.** 10.9 Salary Continuation Agreement entered into with Murray B. Dey dated April 26, 1995; incorporated herein by reference from Exhibit 10.21 to Mid-Peninsula Bancorp's Annual Report on Form 10-K for the year ended December 31, 1995, filed with the Commission on March 29, 1996.** 10.10 Salary Continuation Agreement entered into with Carol H. Rowland dated April 26, 1995; incorporated herein by reference from Exhibit 10.22 of Mid-Peninsula Bancorp's Annual Report on Form 10-K for the year ended December 31, 1995, filed with the Commission on March 29, 1996.** 10.11 Non-management Officer Salary Continuation Agreement entered into with Susan K. Black dated April 26, 1995; incorporated herein by reference from Exhibit 10.23 to Mid-Peninsula Bancorp's Annual Report on Form 10-K for the year ended December 31, 1995, filed with the Commission on March 29, 1996.** 10.12 Non-management Officer Salary Continuation Agreement entered into with Kimberly S. Burgess dated April 26, 1995; incorporated herein by reference from Exhibit 10.24 to Mid-Peninsula Bancorp's Annual Report on Form 10-K for the year ended December 31, 1995, filed with the Commission on March 29, 1996.**
II-3 10.13 Non-management Officer Salary Continuation Agreement entered into with Jonas H. Stafford dated April 26, 1995; incorporated herein by reference from Exhibit 10.25 to Mid-Peninsula Bancorp's Annual Report on Form 10-K for the year ended December 31, 1995, filed with the Commission on March 29, 1996.** 10.14 Non-management Officer Salary Continuation Agreement entered into with Charles P. Banavac dated March 21, 1996; incorporated herein by reference from Exhibit 10.26 of Mid-Peninsula Bancorp's Annual Report on Form 10-K for the year ended December 31, 1995, filed with the Commission on March 29, 1996.** 10.15 Greater Bay Bancorp 1996 Stock Option Plan; incorporated herein by reference from Exhibit 10.24 to Registration Statement No. 333- 10781 on Form S-4, filed with the Commission on August 23, 1996.** 10.16 Lease--Banking Facility; incorporated herein by reference from Exhibit 10.1 to Cupertino National Bancorp's Amendment No. 1 to Form S-18 Registration Statement (No. 2-94390), filed with the Commission on December 11, 1984. 10.17 Employment Agreement with C. Donald Allen dated July 1, 1990; incorporated herein by reference from Exhibit 10.9 to Cupertino National Bancorp's Annual Report on Form 10-K for the year ended December 31, 1990 (File No. 0-18015), filed with the Commission on March 30, 1991.** 10.18 Salary Continuation Agreement with C. Donald Allen dated August 1, 1993; incorporated herein by reference from Exhibit 10.10 to Cupertino National Bancorp's Annual Report on Form 10-K for the year ended December 31, 1993 (File No. 0-18015), filed with the Commission on March 25, 1994.** 10.19 Litigation Settlement; incorporated herein by reference from Exhibit 10.12 to Cupertino National Bancorp's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995 (File No. 0- 18015). 10.20 Emerson Lease; incorporated herein by reference from Exhibit 10.13 to Cupertino National Bancorp's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995 (File No. 0-18015). 10.21 Cupertino National Bancorp 401(k) Profit Sharing Plan; incorporated herein by reference from Exhibit 10.15 to Cupertino National Bancorp's Registration Statement on Form S-8 (Registration No. 33- 62429), filed with the Commission on September 8, 1995.** 10.22 Amendment to the Cupertino National Bancorp 401(k) Profit Sharing Plan.** 10.23 Amendment Number 2 to the Cupertino National Bancorp 401(k) Profit Sharing Plan.** 10.24 Cupertino National Bancorp Employee Stock Purchase Plan; incorporated herein by reference from Exhibit 10.16 to Cupertino National Bancorp's Registration Statement on Form S-8 (Registration No. 33-62429), filed with the Commission on September 8, 1995.** 10.25 Salary Continuation Agreement with Ken Brenner dated July 31, 1995.** 10.26 Salary Continuation Agreement with David Hood dated July 31, 1995.** 10.27 Salary Continuation Agreement with Hall Palmer dated July 31, 1995.** 10.28 Salary Continuation Agreement with Steven C. Smith dated July 31, 1995.** 10.29 Form of Indemnification Agreement between Greater Bay Bancorp and with directors and certain executive officers. 12.1 Statement re Computation of Ratios. 21.1 Subsidiaries of the registrants. 23.1 Consent of Coopers & Lybrand, LLP.
II-4 23.6 Consent of Manatt, Phelps & Phillips, LLP (included in Exhibit 5.1 above).* 23.7 Consent of Richards, Layton & Finger, P.A. (included in Exhibit 5.2 above).* 24.1 A power of attorney is set forth on the signature page of the Registration Statement. 25.1 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as trustee under the Subordinated Indenture. 25.2 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as trustee under the Amended and Restated Trust Agreement. 25.3 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as trustee under the Trust Preferred Securities Guarantee Agreement.
- -------- * To be filed by amendment. ** Represents executive compensation plans and arrangements of the Company. ITEM 17. UNDERTAKINGS (h) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrants pursuant to the foregoing provisions, or otherwise, the Registrants have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrants of expenses incurred or paid by a director, officer or controlling person of the Registrants in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrants will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (i) The Registrants hereby undertake that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrants pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of the registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PALO ALTO, STATE OF CALIFORNIA, ON MARCH 4, 1997. GREATER BAY BANCORP By: /s/ David L. Kalkbrenner ---------------------------------- David L. Kalkbrenner CHIEF EXECUTIVE OFFICER POWER OF ATTORNEY WE, THE UNDERSIGNED DIRECTORS AND OFFICERS OF GREATER BAY BANCORP, DO HEREBY SEVERALLY CONSTITUTE AND APPOINT DAVID L. KALKBRENNER AND STEVEN C. SMITH, AND EACH OF THEM SINGLY, OUR TRUE AND LAWFUL ATTORNEYS AND AGENTS, TO DO ANY AND ALL THINGS AND ACTS IN OUR NAMES IN THE CAPACITIES INDICATED BELOW AND TO EXECUTE ANY ALL INSTRUMENTS FOR US AND IN OUR NAMES IN THE CAPACITIES INDICATED BELOW WHICH SAID DAVID L. KALKBRENNER AND STEVEN C. SMITH, OR EITHER OF THEM, MAY DEEM NECESSARY OR ADVISABLE TO ENABLE GREATER BAY BANCORP TO COMPLY WITH THE SECURITIES ACT OF 1993, AS AMENDED, AND ANY RULES, REGULATIONS AND REQUIREMENTS OF THE SECURITIES AND EXCHANGE COMMISSION, IN CONNECTION WITH THE OFFERING CONTEMPLATED BY THIS REGISTRATION STATEMENT ON FORM S-1, INCLUDING SPECIFICALLY, BUT NOT LIMITED TO, POWER AND AUTHORITY TO SIGN FOR US OR ANY OF US IN OUR NAMES IN THE CAPACITIES INDICATED BELOW THE REGISTRATION STATEMENT AND ANY AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) THERETO; AND WE HEREBY RATIFY AND CONFIRM ALL THAT SAID DAVID L. KALKBRENNER AND STEVEN C. SMITH, OR EITHER OF THEM, SHALL DO OR CAUSE TO BE DONE BY VIRTUE HEREOF. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW ON THE 4TH DAY OF MARCH, 1997, BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED.
SIGNATURE TITLE --------- ----- /s/ David L. Kalkbrenner President and Chief Executive - ------------------------------------ Officer and Director David L. Kalkbrenner (Principal Executive Officer) /s/ Steven C. Smith Executive Vice President, Chief - ------------------------------------ Operating Officer and Chief Steven C. Smith Financial Officer (Principal Financial and Accounting Officer) /s/ John M. Gatto - ------------------------------------ John M. Gatto Director - ------------------------------------ James E. Jackson Director
II-6
SIGNATURE TITLE --------- ----- /s/ Rex D. Lindsay - ------------------------------------ Rex D. Lindsay Director /s/ Duncan L. Matteson - ------------------------------------ Duncan L. Matteson Director /s/ Glen McLaughlin - ------------------------------------ Glen McLaughlin Director - ------------------------------------ Dick J. Randall Director /s/ Donald H. Seiler - ------------------------------------ Donald H. Seiler Director /s/ Warren R. Thoits - ------------------------------------ Warren R. Thoits Director /s/ Edwin E. van Bronkhorst - ------------------------------------ Edwin E. van Bronkhorst Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PALO ALTO, STATE OF CALIFORNIA, ON MARCH 4, 1997. GBB CAPITAL I By: /s/ David L. Kalkbrenner ---------------------------------- David L. Kalkbrenner, TRUSTEE By: /s/ Steven C. Smith ---------------------------------- Steven C. Smith TRUSTEE By: /s/ James R. Ramsey ---------------------------------- James R. Ramsey, TRUSTEE II-7 EXHIBIT INDEX
EXHIBIT DESCRIPTION SEQUENTIALLY NO. ----------- NUMBERED PAGE ------- ------------- 1.1 Form of Purchase Agreement. 3.1 Articles of Incorporation of Greater Bay Bancorp. 3.2 Bylaws of Greater Bay Bancorp, as amended; incorporated herein by reference from Exhibit 3.2 to Registration Statement on Form S-4 (Registration No. 33-79798), filed with the Commission on June 6, 1994. 4.1 Form of Subordinated Indenture dated , 1997 to be entered into between Greater Bay Bancorp and Wilmington Trust Company, as Indenture Trustee. 4.2 Form of Officers' Certificate and Company Order, dated March , 1997. 4.3 (Reserved.) 4.4 Certificate of Trust of GBB Capital I. 4.5 Trust Agreement of GBB Capital I dated as of February 28, 1997. 4.6 Form of Amended and Restated Trust Agreement of GBB Capital I, dated , 1997. 4.7 Form of Trust Preferred Certificate of GBB Capital I (included as an exhibit to Exhibit 4.6). 4.8 Form of Common Securities Certificate of GBB Capital I (included as an exhibit to Exhibit 4.6). 4.9 Form of Trust Preferred Securities Guarantee Agreement. 4.10 Form of Agreement as to Expenses and Liabilities (included as an exhibit to Exhibit 4.6). 4.11 Form of Subordinated Debentures; incorporated herein by reference from Exhibit 1 of Cupertino National Bancorp's Form 8-K (File No. 0-18015), filed with the Commission on October 25, 1995. 4.12 Supplemental Debenture Agreement of Cupertino National Bancorp dated as of November 22, 1996. 4.13 Supplemental Debenture Agreement dated November 27, 1996 between Cupertino National Bancorp and Mid-Peninsula Bancorp. 5.1 Opinion of Manatt, Phelps & Phillips, LLP.* 5.2 Opinion and Consent of Richards, Layton & Finger, P.A.* 8.1 Opinion and Consent of Manatt, Phelps & Phillips, LLP, counsel to Greater Bay Bancorp, as to certain federal income tax matters.* 10.1 WestCal Agreement of Lease dated April 24, 1989 related to premises located at 100 South Ellsworth Avenue, San Mateo, California; incorporated herein by reference from Exhibit 10.6 to Registration Statement on Form S- 4 (Registration No. 33-79798), filed with the Commission on July 15, 1994. 10.2 WestCal Commercial Lease and Deposit Receipt dated November 26, 1993 related to premises located at 1313 Laurel Street, San Carlos, California; incorporated herein by reference from Exhibit 10.7 to Registration Statement on Form S-4 (Registration No. 33-79798), filed with the Commission on July 15, 1994. 10.3 Mid-Peninsula Bank Lease Agreement dated March 11, 1987 and associated documents relating to premises located at 420 Cowper Street, Palo Alto, California; incorporated herein by reference from Exhibit 10.13 to Mid- Peninsula Bancorp's Annual Report on Form 10-K for the year ended December 31, 1994 (File No. 0-25034), filed with the Commission on March 30, 1995.
EXHIBIT INDEX--(CONTINUED)
EXHIBIT DESCRIPTION SEQUENTIALLY NO. ----------- NUMBERED PAGE ------- ------------- 10.4 David L. Kalkbrenner Employment Agreement, dated March 3, 1992; incorporated herein by reference from Exhibit 10.15 to Mid-Peninsula Bancorp's Annual Report on Form 10-K for the year ended December 31, 1994 (File No. 0-25034), filed with the Commission on March 30, 1995. 10.5 Form of Mid-Peninsula Bank Indemnification Agreement for directors and executive officers; incorporated herein by reference from Exhibit 10.16 to Mid-Peninsula Bancorp's Annual Report on Form 10-K for the year ended December 31, 1994 (File No. 0-25034), filed with the Commission on March 30, 1995. 10.6 Addendum to Lease Agreement dated March 11, 1987 for premises located at 420 Cowper Street, Palo Alto, California; incorporated herein by reference from Exhibit 10.18 to Mid-Peninsula Bancorp's Annual Report on Form 10-K for the year ended December 31, 1995, filed with the Commission on March 29, 1996. 10.7 Addendum to Lease Agreement dated November 26, 1993 for premises located at 1313 Laurel Street, San Carlos, California; incorporated herein by reference from Exhibit 10.19 to Mid-Peninsula Bancorp's Annual Report on Form 10-K for the year ended December 31, 1995, filed with the Commission on March 29, 1996. 10.8 Salary Continuation Agreement entered into with David L. Kalkbrenner dated April 26, 1995; incorporated herein by reference from Exhibit 10.20 to Mid-Peninsula Bancorp's Annual Report on Form 10-K for the year ended December 31, 1995, filed with the Commission on March 29, 1996.** 10.9 Salary Continuation Agreement entered into with Murray B. Dey dated April 26, 1995; incorporated herein by reference from Exhibit 10.21 to Mid- Peninsula Bancorp's Annual Report on Form 10-K for the year ended December 31, 1995, filed with the Commission on March 29, 1996.** 10.10 Salary Continuation Agreement entered into with Carol H. Rowland dated April 26, 1995; incorporated herein by reference from Exhibit 10.22 of Mid-Peninsula Bancorp's Annual Report on Form 10-K for the year ended December 31, 1995, filed with the Commission on March 29, 1996.** 10.11 Non-management Officer Salary Continuation Agreement entered into with Susan K. Black dated April 26, 1995; incorporated herein by reference from Exhibit 10.23 to Mid-Peninsula Bancorp's Annual Report on Form 10-K for the year ended December 31, 1995, filed with the Commission on March 29, 1996.** 10.12 Non-management Officer Salary Continuation Agreement entered into with Kimberly S. Burgess dated April 26, 1995; incorporated herein by reference from Exhibit 10.24 to Mid-Peninsula Bancorp's Annual Report on Form 10-K for the year ended December 31, 1995, filed with the Commission on March 29, 1996.** 10.13 Non-management Officer Salary Continuation Agreement entered into with Jonas H. Stafford dated April 26, 1995; incorporated herein by reference from Exhibit 10.25 to Mid-Peninsula Bancorp's Annual Report on Form 10-K for the year ended December 31, 1995, filed with the Commission on March 29, 1996.** 10.14 Non-management Officer Salary Continuation Agreement entered into with Charles P. Banavac dated March 21, 1996; incorporated herein by reference from Exhibit 10.26 of Mid-Peninsula Bancorp's Annual Report on Form 10-K for the year ended December 31, 1995, filed with the Commission on March 29, 1996.** 10.15 Greater Bay Bancorp 1996 Stock Option Plan; incorporated herein by reference from Exhibit 10.24 to Registration Statement No. 333-10781 on Form S-4, filed with the Commission on August 23, 1996.**
EXHIBIT INDEX--(CONTINUED)
EXHIBIT DESCRIPTION SEQUENTIALLY NO. ----------- NUMBERED PAGE ------- ------------- 10.16 Lease--Banking Facility; incorporated herein by reference from Exhibit 10.1 to Cupertino National Bancorp's Amendment No. 1 to Form S-18 Registration Statement (No. 2-94390), filed with the Commission on December 11, 1984. 10.17 Employment Agreement with C. Donald Allen dated July 1, 1990; incorporated herein by reference from Exhibit 10.9 to Cupertino National Bancorp's Annual Report on Form 10-K for the year ended December 31, 1990 (File No. 0-18015), filed with the Commission on March 30, 1991.** 10.18 Salary Continuation Agreement with C. Donald Allen dated August 1, 1993; incorporated herein by reference from Exhibit 10.10 to Cupertino National Bancorp's Annual Report on Form 10-K for the year ended December 31, 1993 (File No. 0-18015), filed with the Commission on March 25, 1994.** 10.19 Litigation Settlement; incorporated herein by reference from Exhibit 10.12 to Cupertino National Bancorp's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995 (File No. 0-18015). 10.20 Emerson Lease; incorporated herein by reference from Exhibit 10.13 to Cupertino National Bancorp's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995 (File No. 0-18015). 10.21 Cupertino National Bancorp 401(k) Profit Sharing Plan; incorporated herein by reference from Exhibit 10.15 to Cupertino National Bancorp's Registration Statement on Form S-8 (Registration No. 33-62429), filed with the Commission on September 8, 1995.** 10.22 Amendment to the Cupertino National Bancorp 401(k) Profit Sharing Plan.** 10.23 Amendment Number 2 to the Cupertino National Bancorp 401(k) Profit Sharing Plan.** 10.24 Cupertino National Bancorp Employee Stock Purchase Plan; incorporated herein by reference from Exhibit 10.16 to Cupertino National Bancorp's Registration Statement on Form S-8 (Registration No. 33-62429), filed with the Commission on September 8, 1995.** 10.25 Salary Continuation Agreement with Ken Brenner dated July 31, 1995.** 10.26 Salary Continuation Agreement with David Hood dated July 31, 1995.** 10.27 Salary Continuation Agreement with Hall Palmer dated July 31, 1995.** 10.28 Salary Continuation Agreement with Steven C. Smith dated July 31, 1995.** 10.29 Form of Indemnification Agreement between Greater Bay Bancorp and with directors and certain executive officers. 12.1 Statement re Computation of Ratios. 21.1 Subsidiaries of the registrants. 23.1 Consent of Coopers & Lybrand, LLP. 23.6 Consent of Manatt, Phelps & Phillips, LLP (included in Exhibit 5.1 above).* 23.7 Consent of Richards, Layton & Finger, P.A. (included in Exhibit 5.2 above).* 24.1 A power of attorney is set forth on the signature page of the Registration Statement. 25.1 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as trustee under the Subordinated Indenture. 25.2 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as trustee under the Amended and Restated Trust Agreement. 25.3 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as trustee under the Trust Preferred Securities Guarantee Agreement.
- ------- * To be filed by amendment. ** Represents executive compensation plans and arrangements of the Company. EX-1.1 2 FORM OF PURCHASE AGREEMENT EXHIBIT 1.1 Capital Securities GBB Capital I [ ]% Cumulative Capital Securities (Liquidation Preference of $25 per Capital Security) PURCHASE AGREEMENT ------------------ , 1997 PIPER JAFFRAY INC. Piper Jaffray Tower 222 South Ninth Street Minneapolis, Minnesota 55402 Ladies and Gentlemen: Greater Bay Bancorp., a California corporation (the "Company"), and its fiduciary subsidiary, GBB Capital I, a statutory business trust organized under the Delaware Business Trust Act (the "Delaware Act") (the "Trust" and together with the Company, the "Offerors"), propose that the Trust issue and sell to Piper Jaffray Inc. (the "Underwriter") an aggregate of __________ of the Trust's ___% Cumulative Capital Securities, with a liquidation preference of $25.00 per capital security (the "Capital Securities"), the terms of which are more fully described in the Prospectus (as hereinafter defined). The Offerors propose that the Trust issue the Capital Securities pursuant to an Amended and Restated Trust Agreement among Wilmington Trust Company, as Property Trustee and Indenture Trustee, the administrative trustees named therein (the "Administrative Trustees") and the Company (the "Trust Agreement"). The Capital Securities will be guaranteed by the Company with respect to distributions and payments upon liquidation, redemption and otherwise (the "Guarantee") pursuant to a Guarantee Agreement (the "Guarantee Agreement"), to be dated ________, 1997, between the Company and Wilmington Trust Company, as trustee (the "Guarantee Trustee"), and entitled to the benefits of certain backup undertakings described in the Prospectus (as defined herein) with respect to the Company's agreement pursuant to the Expense Agreement (as defined herein) to pay all expenses relating to administration of the Trust. The proceeds of the sale of the Capital Securities will be used to purchase junior subordinated deferrable interest debentures (the "Junior Subordinated Debentures") issued by the Company pursuant to an Indenture, to be dated _______, -1- 1997, between the Company and Wilmington Trust Company as trustee (the "Indenture"). The Offerors hereby confirm their agreement with respect to the sale of the Capital Securities to the Underwriter. 1. Registration Statement and Prospectus. A registration ------------------------------------- statement on Form S-1 (File No. 333-____) with respect to the Capital Securities, the Guarantee and the Junior Subordinated Debentures, including a preliminary form of prospectus, has been prepared by the Offerors in conformity with the requirements of the Securities Act of 1933, as amended (the "Act"), and the rules and regulations ("Rules and Regulations") of the Securities and Exchange Commission (the "Commission") thereunder and the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act") and the rules and regulations thereunder and has been filed with the Commission; and, if the Offerors have elected to rely upon Rule 462(b) of the Rules and Regulations to increase the size of the offering registered under the Act, the Offerors will prepare and file with the Commission a registration statement with respect to such increase pursuant to Rule 462(b). Copies of such registration statement(s) and amendments and each related preliminary prospectus have been delivered to the Underwriter. If the Offerors have elected not to rely upon Rule 430A of the Rules and Regulations, the Offerors have prepared and will promptly file an amendment to the registration statement and an amended prospectus (including a term sheet meeting the requirements of Rule 434 of the Rules and Regulations) if necessary to complete the Prospectus. If the Offerors have elected to rely upon Rule 430A of the Rules and Regulations, they will prepare and file a prospectus (or a term sheet meeting the requirements of Rule 434) pursuant to Rule 424(b) that discloses the information previously omitted from the prospectus in reliance upon Rule 430A. Such registration statement, as amended at the time it is or was declared effective by the Commission, and, in the event of any amendment thereto after the effective date and prior to the Closing Date (as hereinafter defined), such registration statement as so amended (but only from and after the effectiveness of such amendment), including a registration statement (if any) filed pursuant to Rule 462(b) of the Rules and Regulations increasing the size of the offering registered under the Act and information (if any) deemed to be part of the registration statement at the time of effectiveness pursuant to Rules 430A(b) and 434(d) of the Rules and Regulations, is hereinafter called the "Registration Statement". The prospectus included in the Registration Statement at the time it is or was declared effective by the Commission is hereinafter called the "Prospectus", except that if any prospectus (including any term sheet meeting the requirements of Rule 434 of the Rules and Regulations provided by the Offerors for use with a prospectus subject to completion within the meaning of Rule 434 in order to meet the requirements of Section 10(a) of the Rules and Regulations) filed by the Offerors with the Commission pursuant to Rule 424(b) (and Rule 434, if applicable) of the Rules and Regulations or any -2- other such prospectus provided to the Underwriter by the Offeror for use in connection with the offering of the Capital Securities (whether or not required to be filed by the Offeror with the Commission pursuant to Rule 424(b) of the Rules and Regulations) differs from the prospectus on file at the time the Registration Statement is or was declared effective by the Commission, the term "Prospectus" shall refer to such differing prospectus (including any term sheet within the meaning of Rule 434 of the Rules and Regulations) from and after the time such prospectus is filed with the Commission or transmitted to the Commission for filing pursuant to such Rule 424(b) (and Rule 434, if applicable) or from and after the time it is first provided to the Underwriter by the Offeror for such use. The term "Preliminary Prospectus" as used herein means the preliminary prospectus included in any Registration Statement prior to the time it becomes or became effective under the Act and any prospectus subject to completion as described in Rule 430A or 434 of the Rules and Regulations. In connection with the offer and sale of the Capital Securities, the Underwriter will comply with Rule 2810 under the NASD Conduct Rules. 2. Representations and Warranties of the Company. --------------------------------------------- (a) The Offerors represent and warrant to, and agree with, the Underwriter as follows: (i) No order preventing or suspending the use of any Preliminary Prospectus has been issued by the Commission, and the Preliminary Prospectus, at the time of filing thereof, did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; except that the foregoing shall not apply to statements in or omissions from the Preliminary Prospectus in reliance upon, and in conformity with, written information furnished to the Company by or on behalf of the Underwriter for use in the preparation thereof. (ii) As of the time the Registration Statement (or any post-effective amendment thereto, including a registration statement (if any) filed pursuant to Rule 462(b) of the Rules and Regulations increasing the size of the offering registered under the Act) is or was declared effective by the Commission, upon the filing or first delivery to the Underwriter of the Prospectus (or any supplement to the Prospectus (including any term sheet meeting the requirements of Rule 434 of the Rules and Regulations)) and at the Closing Date (as hereinafter defined), (A) the Registration Statement and Prospectus (in each case, as so amended and/or supplemented) conformed or will conform in all material respects to the requirements of the Act and the Rules and Regulations and the Registration Statement and Prospectus (in each case as so amended -3- and/or supplemented) conformed or will conform in all material respects to the requirements of the Trust Indenture Act and the rules and regulations thereunder, (B) the Registration Statement (as so amended) did not or will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (C) the Prospectus (as so supplemented) did not or will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they are or were made, not misleading; except that the foregoing shall not apply to (i) statements in or omissions from any such document in reliance upon, and in conformity with, written information furnished to the Offerors by or on behalf of the Underwriter specifically for use in the preparation thereof and (ii) that part of the Registration Statement which constitutes the Statement of Eligibility and Qualification ("Form T-1") under the Trust Indenture Act. If the Registration Statement has been declared effective by the Commission, no stop order suspending the effectiveness of the Registration Statement has been issued, and no proceeding for that purpose has been initiated or, to the Offeror's knowledge, threatened by the Commission. (iii) The documents of the Company incorporated by reference in the Registration Statement and the Prospectus, when they were filed with the Commission conformed in all material respects to the requirements of the Exchange Act and the rules and regulations of the Commission thereunder, and none of such documents contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and any further documents so filed and incorporated by reference in the Registration Statement and the Prospectus or any further amendment or supplement thereto, when such documents are filed with the Commission will conform in all material respects to the requirements of the Exchange Act and the rules and regulations of the Commission thereunder, and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. (iv) The consolidated financial statements of the Company, together with the notes thereto, contained in or incorporated by reference in the Registration Statement, Preliminary Prospectus and Prospectus comply in all material respects with the requirements of the Act and the Exchange Act and fairly present the consolidated financial condition of the Company and its consolidated subsidiaries as of the dates indicated and the results of operations and changes in cash flows for the periods therein specified in conformity with generally accepted accounting principles consistently applied throughout the periods involved (except as otherwise stated in the Registration Statement and -4- Prospectus) and the independent public accountants whose reports are contained therein are independent public accountants as required by the Act and the Rules and Regulations. The summary financial information included in the Preliminary Prospectus and Prospectus under the caption "Summary Consolidated Financial Data" present fairly the information required to be stated therein. (v) The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of California and is duly registered as a bank holding company under the Bank Holding Company Act of 1956, as amended (the "BHC Act"), supervised by the Board of Governors of the Federal Reserve System (the "FRB"). Other than the Trust, Mid-Peninsula Bank, a state bank chartered under the banking laws of the State of California, and Cupertino National Bank and Trust, a national banking association chartered under the federal laws of the United States (each a "Subsidiary" and collectively the "Subsidiaries"), constitute the only subsidiaries of the Company. Each Subsidiary has been duly organized and is validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, as the case may be. Each of the Company and its Subsidiaries has full corporate power and authority to own its properties and conduct its business as currently being carried on and as described in the Registration Statement and Prospectus, and is duly qualified to do business as a foreign corporation in good standing under the corporation and financial services laws of each jurisdiction in which the conduct of its business or ownership or lease of its properties requires such qualification and where the failure to be so qualified would, individually or in the aggregate, have a material adverse effect on the condition (financial or otherwise), earnings, business, prospects, assets, results of operations or properties of the Company and its Subsidiaries, taken as a whole. Other than the foregoing Subsidiaries and the Trust, the Company owns no capital stock or other equity, ownership or proprietary interest in any company, partnership, association, trust or other entity. The accounts of each Subsidiary are insured by the Bank Insurance Fund of the Federal Deposit Insurance Corporation (the "FDIC") up to the maximum applicable amount in accordance with the rules and regulations of the FDIC, and no proceedings for the termination or revocation of such membership or insurance are pending, or, to the knowledge of the Company, threatened. (vi) The Trust has been duly created and is validly existing in good standing as a business trust under the Delaware Act with full trust power and authority to own property and to conduct its business as described in the Registration Statement and Prospectus and to enter into and perform its obligations under this Agreement, the Capital Securities, the Common Securities and the Trust Agreement and is authorized to do business in each jurisdiction in which such qualification is required, except where the failure to so qualify would -5- not have a material adverse effect on the Company's condition (financial or otherwise), earnings, business, prospects, assets, results of operations or properties taken as a whole; the Trust has conducted and will conduct no business other than the transactions contemplated by the Trust Agreement and described in the Prospectus; the Trust is not a party to or otherwise bound by any agreement other than those described in the Prospectus; the Trust is and will be classified for United States federal income tax purposes as a grantor trust and not as an association taxable as a corporation; and the Trust is and will be treated as a consolidated subsidiary of the Company pursuant to generally accepted accounting principles. (vii) Except as contemplated in the Prospectus, subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, none of the Trust, the Company or the Subsidiaries has incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions, or declared or paid any dividends or made any distribution of any kind with respect to its capital stock (other than dividends paid in the ordinary course with respect to shares of the Company's Common Stock, no par value (the "Common Stock") or the common stock of the Subsidiaries as described in the Registration Statement or the Prospectus); and there has not been any change in the capital stock (other than a change in the number of outstanding shares of Common Stock due to the issuance of shares upon the exercise of options, warrants or rights under an employee stock purchase plan disclosed in the Registration Statement or the Prospectus), or any material change in the short-term or long-term debt, or any issuance of options, warrants, convertible securities or other rights to purchase the capital stock, of the Trust, the Company or any Subsidiary, or any material adverse change, or any development involving a prospective material adverse change, in the general affairs, condition (financial or otherwise), business, key personnel, property, prospects, net worth or results of operations of the Trust or the Company and its Subsidiaries, taken as a whole. (viii) Except as set forth in the Registration Statement and the Prospectus or in the documents incorporated therein by reference, there is not pending or, to the knowledge of the Trust or the Company, threatened or contemplated, any action, suit or proceeding to which the Trust, the Company or any Subsidiary is a party or to which either of their assets may be subject, before or by any court or governmental agency, authority or body, or any arbitrator, which might result in any material adverse change in the condition (financial or otherwise), business, prospects, net worth or results of operations of the Trust or the Company and its Subsidiaries, taken as a whole. -6- (ix) There are no contracts or documents of the Trust, the Company or any Subsidiary that are required to be filed or incorporated by reference as exhibits to the Registration Statement by the Act or by the Rules and Regulations which contracts or documents have not been so filed or incorporated by reference as required. (x) Each of this Agreement, the Indenture, the Trust Agreement, the Guarantee and the Agreement as to Expenses and Liabilities (the "Expense Agreement") has been duly authorized, executed and delivered by the Company and/or the Trust, as the case may be, and constitutes a valid, legal and binding obligation of the Company and/or the Trust, as the case may be, enforceable in accordance with its terms, except as rights to indemnity hereunder may be limited by federal or state securities laws and except as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting the rights of creditors generally and subject to general principles of equity. The execution, delivery and performance of this Agreement, the Indenture, the Trust Agreement, the Guarantee Agreement and the Expense Agreement and the consummation of the transactions herein or therein contemplated will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any statute, any agreement or instrument to which the Company or the Trust is a party or by which it is bound or to which any of its property is subject, the Company's charter or bylaws, the Trust's Trust Agreement or its certificate of trust filed with the State of Delaware on ________, 1997 (the "Certificate of Trust") or any order, rule, regulation or decree of any court or governmental agency or body having jurisdiction over the Company or the Trust or any of the properties of either the Company or the Trust; no consent, approval, authorization or order of, or filing with, any court or governmental agency or body is required for the execution, delivery and performance of this Agreement, the Indenture, the Trust Agreement, the Guarantee and the Expense Agreement or for the consummation of the transactions contemplated hereby or thereby, including the issuance or sale of the Junior Subordinated Debentures by the Company and the Capital Securities by the Trust, except such as may be required under the Act or state securities or blue sky laws; each of the Company and the Trust has full power and authority to enter into this Agreement, the Indenture, the Trust Agreement, the Guarantee and the Expense Agreement, and to authorize, issue and sell the Capital Securities as contemplated by this Agreement; and each of the Indenture, the Trust Agreement and the Guarantee Agreement has been duly qualified under the Trust Indenture Act and will conform in all material respects to the statements relating thereto in the Registration Statement and the Prospectus. (xi) All of the issued and outstanding shares of capital stock of the Company are duly authorized and are validly issued, fully paid and -7- nonassessable, have been issued, in compliance with all federal and state securities laws, were not issued in violation of or subject to any preemptive rights or other rights to subscribe for or purchase securities, and the holders thereof are not subject to personal liability by reason of being such holders; and the capital stock of the Company conforms to the description thereof in the Registration Statement and Prospectus. Except as otherwise stated in the Registration Statement and Prospectus, there are no preemptive rights or other rights to subscribe for or to purchase, or any restriction upon the voting or transfer of, any shares of Common Stock pursuant to the Company's charter, bylaws or any agreement or other instrument to which the Company is a party or by which the Company is bound. Neither the filing of the Registration Statement nor the offering or sale of the Junior Subordinated Debentures or Capital Securities as contemplated by this Agreement gives rise to any rights for or relating to the registration of any shares of Common Stock or other capital stock of the Company. All of the issued and outstanding shares of capital stock of each Subsidiary have been duly and validly authorized and issued and are fully paid and nonassessable, and, except for any directors' qualifying shares, the Company owns of record and beneficially, free and clear of any security interests, claims, liens, proxies, equities or other encumbrances, all of the issued and outstanding shares of such stock. Except as described in the Registration Statement and the Prospectus, there are no options, warrants, agreements, contracts or other rights in existence to purchase or acquire from the Company or any Subsidiary of the Company any shares of the capital stock of the Company or any Subsidiary. The Company has an authorized and outstanding capitalization as set forth in the Registration Statement and the Prospectus under the caption "Capitalization". (xii) The Junior Subordinated Debentures have been duly authorized by the Company and at the Closing Date will have been duly executed by the Company and, when authenticated in the manner provided for in the Indenture and delivered against payment therefor as described in the Prospectus, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms except to the extent that enforcement thereof may be limited by bankruptcy, insolvency, reorganization or similar laws affecting the rights of creditors generally and subject to general principles of equity, will be in the form contemplated by, and entitled to the benefits of, the Indenture and will conform in all material respects to the statements relating thereto in the Prospectus. (xiii) The Common Securities have been duly authorized by the Trust Agreement and, when issued and delivered by the Trust to the Company against payment therefor as described in the Registration Statement and Prospectus, will be validly issued and (subject to the terms of the Trust Agreement) fully paid and -8- nonassessable undivided beneficial interests in the assets of the Trust and will conform to all statements relating thereto contained in the Prospectus; the issuance of the Common Securities is not subject to preemptive or other similar rights; and at the Closing Date all of the issued and outstanding Common Securities of the Trust will be directly owned by the Company free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity. (xiv) The Capital Securities have been duly authorized by the Trust Agreement and, when issued and delivered pursuant to this Agreement against payment of the consideration set forth herein, will be validly issued and fully paid and non-assessable undivided beneficial interests in the Trust, will be entitled to the benefits of the Trust Agreement and will in all material respects conform to the statements relating thereto contained in the Prospectus; the issuance of the Capital Securities is not subject to preemptive or other similar rights; and holders of Capital Securities will be entitled to the same limitation of personal liability under Delaware law as extended to stockholders of private corporations for profit. (xv) The Indenture, the Trust Agreement, the Guarantee Agreement and the Expense Agreement are in substantially the respective forms filed as exhibits to the Registration Statement. (xvi) The Company's obligations under the Guarantee are subordinated and junior in right of payment to all "Senior and Subordinated Debt" (as defined in the Indenture) of the Company. (xvii) The Junior Subordinated Debentures are subordinate and junior in right of payment to all "Senior and Subordinated Debt" of the Company. (xviii) Each of the Administrative Trustees of the Trust is an employee of the Company and has been duly authorized by the Company to execute and deliver the Trust Agreement. (xix) The Trust, the Company and each Subsidiary holds, and is operating in compliance in all material respects with, all franchises, grants, authorizations, licenses, permits, easements, consents, certificates and orders of any governmental or self-regulatory body required for the conduct of its business and all such franchises, grants, authorizations, licenses, permits, easements, consents, certifications and orders are valid and in full force and effect, and the Trust, the Company and each Subsidiary is and has been in compliance in all material respects with all applicable federal, state, local and foreign laws, regulations, orders and decrees, except to the extent that the failure to comply would not have a material adverse effect on the condition (financial or -9- otherwise), earnings, business, prospects, assets, results of operations or properties of the Company and its Subsidiaries, taken as a whole. (xx) Each of the Company and its Subsidiaries has good title to all property (and good and marketable title to all real property) described in the Registration Statement and Prospectus as being owned by them, in each case free and clear of all liens, claims, security interests or other encumbrances except such as are described in the Registration Statement and the Prospectus or which do not interfere in any material respect with the use of the property on the conduct of the business of the Company and its Subsidiaries; the property held under lease by the Company and its Subsidiaries is held by them under valid, subsisting and enforceable leases with only such exceptions with respect to any particular lease as do not interfere in any material respect with the conduct of the business of the Company or any Subsidiary; each of Company and its Subsidiaries owns or possesses all patents, patent applications, trademarks, service marks, tradenames, trademark registrations, service mark registrations, copyrights, licenses, inventions, trade secrets and rights necessary for the conduct of the business of the Company and its Subsidiaries as currently carried on and as described in the Registration Statement and Prospectus; except as stated in the Registration Statement and Prospectus, to the best of the Company's knowledge, no name which the Company or any Subsidiary uses and no other aspect of the business of the Company or any Subsidiary will involve or give rise to any infringement of, or license or similar fees for, any patents, patent applications, trademarks, service marks, tradenames, trademark registrations, service mark registrations, copyrights, licenses, inventions, trade secrets or other similar rights of others material to the business or prospects of the Company and its Subsidiaries, taken as a whole, and neither the Company nor any Subsidiary has received any notice alleging any such infringement or fee. (xxi) Neither the Company nor any Subsidiary is in violation of its respective charter or bylaws; the Trust is not in violation of the Trust Agreement or its Certificate of Trust; none of the Trust, the Company or any Subsidiary is in breach of or otherwise in default in the performance of any material obligation, agreement or condition contained in any bond, debenture, note, indenture, loan agreement or any other material contract, lease or other instrument to which it is subject or by which any of them may be bound, or to which any of the material property or assets of the Trust, the Company or any Subsidiary is subject. (xxii) Each of the Trust, the Company and each Subsidiary has filed all federal, state, local and foreign income and franchise tax returns required to be filed and are not in default in the payment of any taxes which were payable pursuant to said returns or any assessments with respect thereto, other than any which the Company or any Subsidiary is contesting in good faith. -10- (xxiii) The Offerors have not distributed and will not distribute any prospectus or other offering material in connection with the offering and sale of the Capital Securities and the Common Stock other than any Preliminary Prospectus or the Prospectus or other materials permitted by the Act to be distributed by the Company. (xxiv) Each of the Company and its Subsidiaries maintains a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (xxv) Other than as contemplated by this Agreement or described in the Registration Statement, the Company has not incurred any liability for any finder's or broker's fee or agent's commission in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. (xxvi) None of the Trust, the Company or any Subsidiary is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or an "investment adviser" within the meaning of the Investment Advisers Act of 1940, as amended. (xxvii) No report or application filed by the Company or any Subsidiary with the FRB, the OCC, the California Superintendent of State Banks (the "Superintendent"), the FDIC or other regulatory authority having jurisdiction over it (each such report of application, together with all exhibits thereto, a "Regulatory Report"), as of the date it was filed, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading when made or failed to comply with the applicable requirements of the FRB, the OCC, the Superintendent, the FDIC or such other regulatory authority (the "Banking Regulators"), as the case may be. The Company and each Subsidiary has filed each Regulatory Report that it was required to file with any Banking Regulator. (xxviii) The proceeds from the sale of the Capital Securities will constitute "tier 1" capital (as defined in 12 C.F.R. Part 325). -11- (xxix) Neither of the Offerors nor any of their affiliates is presently doing business with the government of Cuba or with any person or affiliate located in Cuba. (xxx) Each of the Subsidiaries has properly administered, in all respects material and which could reasonably be expected to be material to the business, operations or financial condition of the Company and its Subsidiaries, taken as a whole, all accounts for which it acts as a fiduciary, including but not limited to accounts for which it serves as a trustee, agent, custodian, personal representative, guardian, conservator or investment advisor, in accordance with the terms of the governing documents and applicable state and federal law and regulation and common law. Neither of the Subsidiaries nor any director, officer or employee of either Subsidiary has committed any breach of trust with respect to any such fiduciary account which is material to or could reasonably be expected to be material to the general affairs, condition (financial or otherwise), business, key personnel, property, prospects, net worth or results of operations of the Company and its Subsidiaries, taken as a whole, and the accountings for each such fiduciary account are true and correct in all material respects and accurately reflect the assets of such fiduciary account in all material respects. (xxxi) The conditions for use of Form S-1, as set forth in the General Instructions thereto, have been satisfied. (xxxii) Each of the Company and its Subsidiaries is in compliance in all material respects with all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) which could have a material adverse effect on the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its Subsidiaries for which the Company or any Subsidiary would have any liability; neither the Company nor any Subsidiary has incurred or expects to incur liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended, including the regulations and published interpretations thereunder (the "Code"), in each case which could have a material adverse effect on the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its Subsidiaries, taken as a whole; and each "pension plan" for which the Company or any Subsidiary would have any liability that is intended to be qualified under Section 501(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which would -12- cause the loss of such qualification, except for such loss as would not have a material adverse effect on the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its Subsidiaries, taken as a whole. (xxxiii) No hazardous substances, hazardous wastes, pollutants or contaminants have been deposited or disposed of in, on or under the properties of the Company or any Subsidiary (including properties owned, managed or controlled by a Subsidiary in connection with its lending operations) during the period in which the Company or any Subsidiary has owned, occupied, managed, controlled or operated such properties in violation of any applicable law, ordinance, rule, regulation, order, judgment, decree or permit or which would require remedial action under any applicable law, ordinance, rule, regulation, order, judgment, decree or permit, except for any violation or remedial action which would not have, or could not be reasonably likely to have, singularly or in the aggregate with all such violations or remedial actions, a material adverse effect on the general affairs, condition (financial or otherwise), business, key personnel, property, prospects, net worth or results of operations of the Company and its Subsidiaries, taken as a whole. (b) Any certificate signed by any officer of the Company or a trustee of the Trust and delivered to the Underwriter or to counsel for the Underwriter shall be deemed a representation and warranty by the Company to the Underwriter as to the matters covered thereby. 3. Purchase, Sale and Delivery of Capital Securities; Advisory Fee. --------------------------------------------------------------- On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Trust agrees to issue and sell ________ Capital Securities to the Underwriter, and the Underwriter agrees to purchase the Capital Securities from the Trust at a purchase price per Capital Security of $25.00 per share. As compensation to the Underwriter for its commitments hereunder and in view of the fact that the proceeds of the sale of the Capital Securities (together with the entire proceeds from the sale by the Trust to the Company of the Common Securities) will be used to purchase the Junior Subordinated Debentures, the Company hereby agrees to pay at the Closing Date to the Underwriter, a commission per Capital Security equal in amount to _________ percent (___%) of the gross proceeds from the sale of the Capital Securities to be delivered by the Trust hereunder at the Closing Date. The Capital Securities will be delivered by the Company to the Underwriter against payment of the purchase price therefor by certified or official bank check or wire transfer of same day funds payable to the Company at the offices of Piper -13- Jaffray Inc., Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota, or such other location as may be mutually acceptable, at 9:00 a.m. Central time on the third (or if the Capital Securities are priced, as contemplated by Rule 15c6-1(c) under the Exchange Act, after 4:30 p.m. Eastern time, on the fourth) full business day following the date hereof, or at such other time and date as the Underwriter and the Company determine pursuant to Rule 15c6-1(a) under the Exchange Act, such time and date of delivery being herein referred to as the "Closing Date." Delivery of the Capital Securities may be made by credit through full fast transfer to the accounts at The Depository Trust Company designated by the Underwriter. Certificates representing the Capital Securities, in definitive form and in such denominations and registered in such names as the Underwriter may request upon at least two business days' prior notice to the Company shall be prepared and will be made available for checking and packaging, not later than 10:30 a.m., Central time, on the business day next preceding the Closing Date at the offices of Piper Jaffray Inc., Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota, or such other location as may be mutually acceptable. Nothing herein contained shall constitute the Underwriter an unincorporated association or partner with either or both Offerors. 4. Covenants. --------- (a) The Offerors jointly and severally covenant and agree with the Underwriter as follows: (i) If the Registration Statement has not already been declared effective by the Commission, the Company will use its best efforts to cause the Registration Statement and any post-effective amendments thereto to become effective as promptly as possible; the Company will notify the Underwriter promptly of the time when the Registration Statement or any post-effective amendment to the Registration Statement has become effective or any supplement to the Prospectus (including any term sheet within the meaning of Rule 434 of the Rules and Regulations) has been filed and of any request by the Commission for any amendment or supplement to the Registration Statement or Prospectus or additional information; if the Company has elected to rely on Rule 430A of the Rules and Regulations, the Company will prepare and file a Prospectus (or term sheet within the meaning of Rule 434 of the Rules and Regulations) containing the information omitted therefrom pursuant to Rule 430A of the Rules and Regulations with the Commission within the time period required by, and otherwise in accordance with the provisions of, Rules 424(b), 430A and 434, if applicable, of the Rules and Regulations; if the Company has elected to rely upon Rule 462(b) of the Rules and Regulations to increase the size of the offering registered under the Act, the Company will prepare and file a registration statement with respect to such increase with the Commission within -14- the time period required by, and otherwise in accordance with the provisions of, Rule 462(b); the Offerors will prepare and file with the Commission, promptly upon the Underwriter's request, any amendments or supplements to the Registration Statement or Prospectus (including any term sheet within the meaning of Rule 434 of the Rules and Regulations) that, in the Underwriter's opinion, may be necessary or advisable in connection with the Underwriter's distribution of the Capital Securities; and the Offerors will not file any amendment or supplement to the Registration Statement or Prospectus (including any term sheet within the meaning of Rule 434 of the Rules and Regulations) to which the Underwriter shall reasonably object by notice to the Company after having been furnished a copy a reasonable time prior to the filing. (ii) The Offerors will advise the Underwriter, promptly after they shall receive notice or obtain knowledge thereof, of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement, of the suspension of the qualification of the Capital Securities for offering or sale in any jurisdiction, or of the initiation or threatening of any proceeding for any such purpose; and the Offerors will promptly use their best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such a stop order should be issued. (iii) Within the time during which a prospectus (including any term sheet within the meaning of Rule 434 of the Rules and Regulations) relating to the Capital Securities is required to be delivered under the Act, the Offerors will comply as far as it is able with all requirements imposed upon it by the Act, as now and hereafter amended, and by the Rules and Regulations, as from time to time in force, so far as necessary to permit the continuance of sales of or dealings in the Capital Securities as contemplated by the provisions hereof and the Prospectus. If during such period any event occurs as a result of which the Prospectus would include an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances then existing, not misleading, or if during such period it is necessary to amend the Registration Statement or supplement the Prospectus to comply with the Act, the Offerors will promptly notify the Underwriter and will amend the Registration Statement or supplement the Prospectus (at the expense of the Company) so as to correct such statement or omission or effect such compliance. (iv) The Offerors will use their best efforts to qualify the Capital Securities, the Junior Subordinated Debentures and the Guarantee for sale under the securities laws of such jurisdictions as the Underwriter may reasonably designate and to continue such qualifications in effect so long as required for the -15- distribution of the Capital Securities, except that the Offerors shall not be required in connection therewith to qualify as a foreign corporation or to execute a general consent to service of process in any state. (v) The Offerors will furnish to the Underwriter copies of the Registration Statement (three of which will be signed and will include all exhibits), each of the Preliminary Prospectuses, the Prospectus, and all amendments and supplements (including any term sheet within the meaning of Rule 434 of the Rules and Regulations) to such documents, in each case as soon as available and in such quantities as the Underwriter may from time to time reasonably request. (vi) During a period of five years commencing with the date hereof the Company will furnish to the Underwriter copies of all periodic and special reports furnished to the stockholders of the Company and all information, documents and reports filed with the Commission. (vii) The Company will make generally available to its security holders and holders of the Capital Securities as soon as practicable, but in any event not later than 15 months after the end of the Company's current fiscal quarter, an earnings statement (which need not be audited) covering a 12- month period beginning after the effective date of the Registration Statement that shall satisfy the provisions of Section 11(a) of the Act and Rule 158 of the Rules and Regulations. (viii) The Company, whether or not the transactions contemplated hereunder are consummated or this Agreement is prevented from becoming effective under the provisions of Section 8(a) hereof or is terminated, will pay or cause to be paid (A) all expenses (including transfer taxes allocated to the respective transferees) incident to the performance of the obligations of each Offeror under this agreement, (B) all expenses and fees (including, without limitation, fees and expenses of each Offeror's accountants and counsel but, except as otherwise provided below, not including fees of the Underwriter's counsel) in connection with the preparation printing, filing, delivery, and shipping of the Registration Statement (including the financial statements therein and all amendments, schedules, and exhibits thereto), the Capital Securities, each Preliminary Prospectus, the Prospectus, and any amendment thereof or supplement thereto, and the printing, delivery, and shipping of this Agreement and other underwriting documents, including Blue Sky Memoranda, (C) all filing fees and fees and disbursements of the Underwriter's counsel incurred in connection with the qualification of the Capital Securities for offering and sale by the Underwriter or by dealers under the securities or blue sky laws of the states and other jurisdictions which the Underwriter shall designate, (D) the fees and -16- expenses of any transfer agent or registrar, (E) the filing fees incident to any required review by the National Association of Capital Securities Dealers, Inc. ("NASD") of the terms of the sale of the Capital Securities, (E) listing fees, if any, (G) the fees and expenses of the Indenture Trustee, including the fees and disbursements of counsel for the Indenture Trustee in connection with the Indenture and Junior Subordinated Debentures, (H) the fees and expenses of the Property Trustee, including the fees and disbursements of counsel for the Property Trustee in connection with the Trust Agreement and the Certificate of Trust, and (I) all other costs and expenses incident to the performance of the Offerors' obligations hereunder that are not otherwise specifically provided for herein. If the sale of the Capital Securities provided for herein is not consummated by reason of action by either Offeror pursuant to Section 8(a) hereof which prevents this Agreement from becoming effective, or by reason of any failure, refusal or inability on the part of either Offeror to perform any agreement on its part to be performed, or because any other condition of the Underwriter's obligations hereunder required to be fulfilled by either Offeror is not fulfilled, the Company will reimburse the Underwriter for all out-of- pocket disbursements (including fees and disbursements of counsel) incurred by the Underwriter in connection with its investigation, preparing to market and marketing the Capital Securities or in contemplation of performing their obligations hereunder. Neither Offeror shall in any event be liable to the Underwriter for loss of anticipated profits from the transactions covered by this Agreement. (ix) The Offerors will apply the net proceeds from the sale of the Capital Securities to be sold by the Trust hereunder for the purposes set forth in the Prospectus and will file such reports with the Commission with respect to the sale of the Capital Securities and the application of the proceeds therefrom as may be required in accordance with Rule 463 of the Rules and Regulations. (x) The Offerors have not taken and will not take, directly or indirectly, any action designed to or which might reasonably be expected to cause or result in, or which has constituted, the stabilization or manipulation of the price of any security of either Offeror to facilitate the sale or resale of the Capital Securities, and has not effected any sales of Common Stock which are required to be disclosed in response to Item 701 of Regulation S-K under the Act which have not been so disclosed in the Registration Statement. (xi) Neither Offeror will incur any liability for any finder's or broker's fee or agent's commission in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. -17- (xii) The Offerors will inform the Florida Department of Banking and Finance at any time prior to the consummation of the distribution of the Capital Securities by the Underwriter if it commences engaging in business with the government of Cuba or with any person or affiliate located in Cuba. Such information will be provided within 90 days after the commencement thereof or after a change occurs with respect to previously reported information. 5. Conditions of Underwriter's Obligations. The obligations of the --------------------------------------- Underwriter hereunder are subject to the accuracy, as of the date hereof and at the Closing Date (as if made at the Closing Date), of and compliance with all representations, warranties and agreements of the Offerors contained herein, to the performance by each Offeror of its obligations hereunder and to the following additional conditions: (a) The Registration Statement shall have become effective not later than 5:00 p.m., Central time, on the date of this Agreement, or such later time and date as the Underwriter shall approve and all filings required by Rules 424, 430A and 434 of the Rules and Regulations shall have been timely made; no stop order suspending the effectiveness of the Registration Statement or any amendment thereof shall have been issued and no proceedings for the issuance of such an order shall have been initiated or threatened; and any request of the Commission for additional information (to be included in the Registration Statement or the Prospectus or otherwise) shall have been complied with to the Underwriter's satisfaction. (b) The Underwriter shall not have advised the Company or the Trust that the Registration Statement or the Prospectus, or any amendment thereof or supplement thereto (including any term sheet within the meaning of Rule 434 of the Rules and Regulations), contains an untrue statement of fact which, in the Underwriter's opinion, is material, or omits to state a fact which, in the Underwriter's opinion, is material and is required to be stated therein or necessary to make the statements therein not misleading. (c) Except as contemplated in the Prospectus, subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, none of the Trust, the Company nor any Subsidiary shall have incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions, or declared or paid any dividends or made any distribution of any kind with respect to its capital stock; and there shall not have been any change in the capital stock (other than a change in the number of outstanding shares of Common Stock due to the issuance of shares upon the exercise of options, warrants or rights under any employee stock purchase plan disclosed in the Registration Statement or the Prospectus), or any material change in the short-term or long-term debt of the Company, or any issuance of options, warrants, convertible securities or other rights to -18- purchase the capital stock of the Company or any of its subsidiaries, or any material adverse change or any development involving a prospective material adverse change (whether or not arising in the ordinary course of business), in the general affairs, condition (financial or otherwise), business, key personnel, property, prospects, net worth or results of operations of the Trust or the Company and its Subsidiaries, taken as a whole, that, in the Underwriter's judgment, makes it impractical or inadvisable to offer or deliver the Capital Securities on the terms and in the manner contemplated in the Prospectus. (d) On the Closing Date, there shall have been furnished to the Underwriter the opinion of Manatt, Phelps & Phillips, LLP, counsel for the Company, dated the Closing Date and addressed to the Underwriter, to the effect that: (i) Each of the Company and its Subsidiaries has been duly organized and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation or organization. The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of California and is duly registered as a bank holding company under the BHC Act. Mid-Peninsula Bank has been duly organized and is validly existing as a state bank in good standing under the banking laws of the State of California. Cupertino National Bank and Trust has been duly organized and is validly existing as a national banking association in good standing under the federal laws of the United States. Each of the Company and its Subsidiaries has the corporate power and authority to own its properties and conduct its business as currently being carried on and as described in the Registration Statement and Prospectus, and is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which its ownership or lease of real property or the conduct of its business makes such qualification necessary and in which the failure to so qualify would have a material adverse effect upon the business, condition (financial or otherwise) or properties of the Company and its Subsidiaries, taken as a whole. (ii) The statements in the Prospectus under the caption "Description of the Trust Preferred", "Description of Junior Subordinated Debentures", "Description of Guarantee", and "Relationship among the Trust Preferred Securities, the Junior Subordinated Debentures and the Guarantee", insofar as such statements constitute matters of law applicable to the Offerors or summaries of documents, fairly present the information required to be included therein in all material respects. All of the issued and outstanding shares of the capital stock of the Company have been duly authorized and validly issued and are fully paid and nonassessable, and the holders thereof are not subject to personal liability by reason of being such holders. Except as otherwise stated in the Registration Statement and Prospectus, there are no preemptive or other similar rights or -19- options, warrants, agreements, contracts or other rights in existence to purchase or acquire from the Company any shares of the capital stock of the Company pursuant to the Company's charter, bylaws or any agreement or other instrument known to such counsel to which the Company is a party or by which the Company is bound. To the best of such counsel's knowledge, neither the filing of the Registration Statement nor the offering or sale of the Junior Subordinated Debentures or Capital Securities as contemplated by this Agreement gives rise to any rights for or relating to the registration of any shares of Common Stock or other securities of the Company. (iii) All of the issued and outstanding shares of capital stock of each Subsidiary have been duly and validly authorized and issued and are fully paid and nonassessable, and, to the best of such counsel's knowledge, except as otherwise described in the Registration Statement and Prospectus and except for directors' qualifying shares, the Company owns of record and beneficially, free and clear of any security interests, claims, liens, proxies, equities or other encumbrances all of the issued and outstanding shares of capital stock of each Subsidiary. To the best of such counsel's knowledge, except as described in the Registration Statement and Prospectus, there are no options, warrants, agreements, contracts or other rights in existence to purchase or acquire from the Company or any Subsidiary any shares of the capital stock of any Subsidiary. (iv) All of the issued and outstanding Common Securities of the Trust are owned by the Company, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equitable right. (v) The Trust Agreement has been duly qualified under the Trust Indenture Act. (vi) The Junior Subordinated Debentures are in the form contemplated by the Indenture, have been duly authorized, executed and delivered by the Company and, when authenticated by the Indenture Trustee in the manner provided for in the Indenture and delivered against payment therefor, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except to the extent that enforcement thereof may be limited by bankruptcy, insolvency, reorganization or similar laws affecting the rights of creditors generally and subject to general principles of equity. (vii) The Junior Subordinated Debentures are subordinate and junior in right of payment to all Senior and Subordinated Debts (as defined in the Indenture) of the Company. -20- (viii) Neither the Company nor the Trust is an "investment company" or a company "controlled" by an "investment company" within the meaning of the 1940 Act. (ix) The statements set forth in the Prospectus under the caption "Certain Federal Income Tax Consequences" constitute a fair and accurate summary of the matters addressed therein, based upon current law and the assumptions stated or referred to therein. (x) Under current law, the Trust will be classified for United States federal income tax purposes as a grantor trust and not as an association taxable as a corporation; accordingly, for United States federal income tax purposes each beneficial owner of Capital Securities will be treated as owning an undivided beneficial interest in the Junior Subordinated Debentures, and stated interest on the Junior Subordinated Debentures generally will be included in income by a holder of Capital Securities at the time such interest income is paid or accrued in accordance with such holder's regular method of tax accounting. (xi) For federal income tax purposes, (a) the Junior Subordinated Debentures will constitute indebtedness of the Company and (b) the interest on the Junior Subordinated Debentures will be deductible by the Company on an economic accrual basis in accordance with Section 163(e) of the Internal Revenue Code of 1986, as amended, and Treasury Regulation Section 1.163-7. (xii) To the best of such counsel's knowledge and information after due inquiry, the Trust is not required to be authorized to do business in any other jurisdiction and the Trust is not a party to or otherwise bound by any agreement other than those described in the Prospectus. (xiii) The Trust Agreement has been duly authorized, executed and delivered by the Company and the Administrative Trustees. (xiv) The Registration Statement has become effective under the Act and, to the best of such counsel's knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceeding for that purpose has been instituted or, to the knowledge of such counsel, threatened by the Commission. (xv) The descriptions in the Registration Statement and Prospectus of statutes, legal and governmental proceedings or rulings, contracts and other documents are accurate in all material respects and fairly present the information required to be shown; and such counsel does not know of any statutes or legal or governmental proceedings required to be described in the Prospectuses that are -21- not described as required, or of any contracts or documents of a character required to be described in the Registration Statement or Prospectus or included as exhibits to the Registration Statement that are not described or included as required. (xvi) The reports of the Company incorporated by reference in the Registration Statement and the Prospectus or any further amendment or supplement thereto made by the Company (other than the financial statements, other financial data and related schedules therein, as to which such counsel need express no opinion), when they were filed with the Commission, complied as to form in all material respects with the requirements of the Exchange Act and the rules and regulations of the Commission thereunder. (xvii) The Company has full corporate power and authority and the Trust has full trust power and authority to enter into this Agreement, the Indenture, the Trust Agreement, the Guarantee Agreement and the Expense Agreement to which it is a party and to issue the Junior Subordinated Debentures and Capital Securities, as the case may be, and to effect the transactions contemplated by this Agreement, the Indenture, the Trust Agreement, the Guarantee Agreement and the Expense Agreement to which it is a party. This Agreement has been duly authorized, executed and delivered by the Company, and each of the Indenture, the Trust Agreement, the Guarantee Agreement and the Expense Agreement has been duly authorized, executed and delivered by the Company and constitutes a valid, legal and binding obligation of the Company enforceable in accordance with its terms (except as rights to indemnity hereunder may be limited by federal or state securities laws and except as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting the rights of creditors generally and subject to general principles of equity). The execution, delivery and performance of this Agreement, the Indenture, the Trust Agreement, the Guarantee Agreement, the Capital Securities, the Common Securities, the Junior Subordinated Debentures and the Guarantee and the consummation of the transactions herein or therein contemplated will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, (A) any statute, rule or regulation of the United States or the State of California, or any rule or regulation of any Banking Regulator, or (B) any agreement or instrument know to such counsel to which the Company or the Trust is a party or by which either is bound or to which any of their property is subject which agreement or instrument is material to the Company and its Subsidiaries, taken as a whole, or (C) the charter or bylaws of the Company or any Subsidiary, or the Trust's Certificate, or (D) any order or decree known to such counsel of any court, governmental agency or body or Banking Regulator having jurisdiction over the Company, any Subsidiary or the Trust or any of its respective properties, except for any breach, violation or default which would -22- not have a material adverse effect on the Company and its Subsidiaries, taken as a whole, or the ability of the Company or the Trust to perform its obligations hereunder; and no consent, approval, authorization or order of, or filing with, any court or governmental agency or body is required for the execution, delivery and performance of this Agreement, the Indenture, the Trust Agreement, the Guarantee Agreement, the Expense Agreement, the Capital Securities, the Junior Subordinated Debentures, or the Guarantee or for the consummation of the transactions contemplated hereby or thereby, including the issuance or sale of the Junior Subordinated Debentures by the Company and the Common Securities and Capital Securities by the Trust, except (a) such as may be required under the Act, which has been obtained, or under state securities or blue sky laws, and (b) the qualification of the Trust Agreement, the Guarantee Agreement and the Indenture under the Trust Indenture Act and the rules and regulations thereunder. (xviii) The Registration Statement and the Prospectus, and any amendment thereof or supplement thereto (including any term sheet within the meaning of Rule 434 of the Rules and Regulations), comply as to form in all material respects with the requirements of the Act and the Rules and Regulations; and on the basis of conferences with officers of the Company, examination of documents referred to in the Registration Statement and Prospectus and such other procedures as such counsel deemed appropriate, nothing has come to the attention of such counsel that causes such counsel to believe that the Registration Statement or any amendment thereof, at the time such Registration Statement became effective and as of the Closing Date (including any Registration Statement filed under Rule 462(b) of the Rules and Regulations), contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus (as of their respective dates and as of the Closing Date), as amended or supplemented, includes any untrue statement of material fact or omits to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; it being understood that such counsel need express no opinion as to the financial statements or other financial data included in any of the documents mentioned in this clause. In rendering such opinion such counsel may rely (i) as to matters of law other than California and federal law, upon the opinion or opinions of local counsel provided that the extent of such reliance is specified in such opinion and that such counsel shall state that such opinion or opinions of local counsel are satisfactory to them and that they believe they and the Underwriter are justified in relying thereon and (ii) as to matters of fact, to the extent such counsel deems reasonable upon certificates of -23- officers of the Company and its subsidiaries and of public officials provided that the extent of such reliance is specified in such opinion. (e) The favorable opinion, dated as of Closing Date, of Richards, Layton & Finger, counsel to Wilmington Trust Company, as Property Trustee under the Trust Agreement, Indenture Trustee under the Indenture, and Guarantee Trustee under the Guarantee Agreement, in form and substance satisfactory to counsel for the Underwriter, to the effect that: (i) Wilmington Trust Company is duly incorporated and is validly existing in good standing as a banking corporation under the laws of the State of Delaware. (ii) Wilmington Trust Company has the power and authority to execute, deliver and perform its obligations under the Trust Agreement, the Indenture and the Guarantee Agreement. (iii) Each of the Trust Agreement, the Indenture and the Guarantee Agreement have been duly authorized, executed and delivered by Wilmington Trust Company and constitutes a legal, valid and binding obligation of Wilmington Trust Company, enforceable against Wilmington Trust Company, in accordance with its terms. (iv) The execution, delivery and performance by Wilmington Trust Company of the Trust Agreement, the Indenture and the Guarantee Agreement do not conflict with or constitute a breach of the charter or by-laws of Wilmington Trust Company. (v) No consent, approval or authorization of, or registration with or notice to, any governmental authority or agency of the State of Delaware or the United States of America governing the banking or trust powers of Wilmington Trust Company is required for the execution, delivery or performance by the Wilmington Trust Company of the Trust Agreement, the Indenture and the Guarantee Agreement. (f) The favorable opinion, dated as of Closing Date, of Richards, Layton & Finger, P.A. as special Delaware counsel for the Offerors, in form and substance satisfactory to counsel for the Underwriter, to the effect that: (i) The Trust has been duly created and is validly existing in good standing as a business trust under the Delaware Act, and all filings required as of the date hereof under the Delaware Act with respect to the creation and valid existence of the Trust as a business trust have been made. -24- (ii) Under the Trust Agreement and the Delaware Act, the Trust has the trust power and authority to own property and to conduct its business, all as described in the Prospectus. (iii) The Trust Agreement constitutes a valid and binding obligation of the Company and each of the Property Trustee and the Administrative Trustees, and is enforceable against the Company and each of the Property Trustee and the Administrative Trustees, in accordance with its terms. (iv) Under the Trust Agreement and the Delaware Act, the Trust has the trust power and authority (i) to execute and deliver, and to perform its obligations under, this Agreement, and (ii) to issue, and to perform its obligations under, the Capital Securities and the Common Securities. (v) Under the Trust Agreement and the Delaware Act, the execution and delivery by the Trust of this Agreement, and the performance by the Trust of its obligations under this Agreement, have been duly authorized by all necessary trust action on the part of the Trust. (vi) Under the Delaware Act, the certificate attached to the Trust Agreement as Exhibit E is an appropriate form of certificate to evidence ownership of the Capital Securities. The Capital Securities and the Common Securities have been duly authorized by the Trust Agreement and are duly and validly issued and, subject to the qualifications hereinafter expressed in this paragraph (vi), fully paid and non-assessable undivided beneficial interests in the assets of the Trust. The respective holders of the Capital Securities and the Common Securities, as beneficial owners of the Trust, will be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware. We note that the respective holders of the Capital Securities and the Common Securities may be obligated, pursuant to the Trust Agreement, to make certain payments under the Trust Agreement. (vii) Under the Trust Agreement and the Delaware Act, the issuance of the Capital Securities and the Common Securities is not subject to preemptive or similar rights. (viii) The issuance and sale by the Trust of the Capital Securities and the Common Securities, the purchase by the Trust of the Junior Subordinated Debentures, the execution, delivery and performance by the Trust of this Agreement and the Guarantee Agreement, the consummation by the Trust of the transactions contemplated by this Agreement and compliance by the Trust with -25- its obligations under this Agreement do not violate (a) any of the provisions of the Certificate of Trust or the Trust Agreement, or (b) any applicable Delaware law or Delaware administrative regulation. (g) On the Closing Date, there shall have been furnished such opinion or opinions from Dorsey & Whitney LLP, counsel for the Underwriter, dated the Closing Date and addressed to the Underwriter, with respect to the formation of the Company, the validity of the Capital Securities, the Indenture, the Guarantee Agreement, this Agreement, the Registration Statement, the Prospectus and other related matters as the Underwriter reasonably may request, and such counsel shall have received such papers and information as they request to enable them to pass upon such matters. (h) On the Closing Date the Underwriter shall have received a letter from Coopers & Lybrand L.L.P., dated the Closing Date and addressed to the Underwriter, confirming that they are independent public accountants within the meaning of the Act and are in compliance with the applicable requirements relating to the qualifications of accountants under Rule 241 of Regulation S-X of the Commission, that the Trust is and will be treated as a consolidated Subsidiary of the Company pursuant to generally accepted accounting principles, and stating, as of the date of such letter (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the Prospectus, as of a date not more than five days prior to the date of such letter), the conclusions and findings of each said firm with respect to the financial information and other matters covered by its letter delivered to the Underwriter concurrently with the execution of this Agreement, and the effect of the letter so to be delivered on the Closing Date shall be to confirm the conclusions and findings set forth in such prior letter. (i) On the Closing Date, there shall have been furnished to the Underwriter, a certificate, dated the Closing Date and addressed to the Underwriter, signed by the chief executive officer and by the chief financial officer of the Company, to the effect that: (i) The representations and warranties of the Company in this Agreement are true and correct, in all material respects, as if made at and as of the Closing Date, and the Offerors have complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing Date; (ii) No stop order or other order suspending the effectiveness of the Registration Statement or any amendment thereof or the qualification of the Capital Securities for offering or sale has been issued, and no proceeding for that -26- purpose has been instituted or, to the best of their knowledge, is contemplated by the Commission or any state or regulatory body; and (iii) The signers of said certificate have carefully examined the Registration Statement and the Prospectus, and any amendments thereof or supplements thereto (including any term sheet within the meaning of Rule 434 of the Rules and Regulations), and (A) such documents contain all statements and information required to be included therein, the Registration Statement, or any amendment thereof, does not contain any 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, and the Prospectus, as amended or supplemented, does not include any untrue statement of material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, (B) since the effective date of the Registration Statement, there has occurred no event required to be set forth in an amended or supplemented prospectus which has not been so set forth, (C) subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, neither the Trust, the Company nor any of its Subsidiaries has incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions, not in the ordinary course of business, or declared or paid any dividends or made any distribution of any kind with respect to its capital stock (other than dividends paid in the ordinary course as disclosed in the Registration Statement or the Prospectus with respect to shares of the Company's Common Stock or any of its Subsidiaries' common stock), and except as disclosed in the Prospectus, there has not been any change in the capital stock (other than a change in the number of outstanding shares of Common Stock due to the issuance of shares upon the exercise of outstanding options, warrants or rights under any employee stock purchase plan disclosed in the Registration Statement or the Prospectus), or any material change in the short-term or long-term debt, or any issuance of options, warrants, convertible securities or other rights to purchase the capital stock, of the Company, or any of its Subsidiaries, or any material adverse change or any development involving a prospective material adverse change (whether or not arising in the ordinary course of business), in the general affairs, condition (financial or otherwise), business, key personnel, property, prospects, net worth or results of operations of the Trust or the Company and its Subsidiaries, taken as a whole, and (D) except as stated in the Registration Statement and the Prospectus, there is not pending, or, to the knowledge of the Company or the Trust, threatened or contemplated, any action, suit or proceeding to which the Trust, the Company or any of its Subsidiaries is a party before or by any court or governmental agency, authority or body, or any arbitrator, which might result in any material adverse change in the condition (financial or otherwise), business, -27- prospects or results of operations of the Company and its subsidiaries, taken as a whole. (j) On the Closing Date, there shall have been furnished to the Underwriter, a certificate, dated the Closing Date and addressed to the Underwriter, signed by the Administrative Trustees, to the effect that: (i) The representations and warranties of the Trust in this Agreement are true and correct, in all material respects, as if made at and as of the Closing Date, and the Trust has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing Date; (ii) No stop order or other order suspending the effectiveness of the Registration Statement or any amendment thereof or the qualification of the Capital Securities for offering or sale has been issued, and no proceeding for that purpose has been instituted or, to the best of their knowledge, is contemplated by the Commission or any state or regulatory body; and (iii) The signers of said certificate have carefully examined the Registration Statement and the Prospectus, and any amendments thereof or supplements thereto (including any term sheet within the meaning of Rule 434 of the Rules and Regulations), and (a) such documents contain all statements and information required to be included therein, the Registration Statement, or any amendment thereof, does not contain any 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, and the Prospectus, as amended or supplemented, does not include any untrue statement of material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, (B) since the effective date of the Registration Statement, there has occurred no event required to be set forth in an amended or supplemented prospectus which has not been so set forth, (C) subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, the Trust has not incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions, not in the ordinary course of business, or declared or paid any dividends or made any distribution of any kind with respect to its capital securities, and except as disclosed in the Prospectus, there has not been any change in the capital securities, or any material change in the short-term or long-term debt, or any issuance of options, warrants, convertible securities or other rights to purchase the capital securities, of the Trust or any material adverse change or any development involving a prospective material adverse change (whether or not arising in the ordinary course of business), in the general affairs, condition (financial or otherwise), business, key personnel, property, prospects, -28- net worth or results of operations of the Trust, and (D) except as stated in the Registration Statement and the Prospectus, there is not pending, or, to the knowledge of the Trust, threatened or contemplated, any action, suit or proceeding to which the Trust is a party before or by any court or governmental agency, authority or body, or any arbitrator, which might result in any material adverse change in the condition (financial or otherwise), business, prospects or results of operations of the Trust. (k) The Company shall have furnished to the Underwriter and to the Underwriter's counsel such additional documents, certificates and evidence as the Underwriter or they may have reasonably requested. All such opinions, certificates, letters and other documents will be in compliance with the provisions hereof only if they are satisfactory in form and substance to the Underwriter and the Underwriter's counsel. 6. Indemnification and Contribution. -------------------------------- (a) The Offerors agree to indemnify and hold harmless the Underwriter against any losses, claims, damages or liabilities to which the Underwriter may become subject, under the Act or otherwise (including in settlement of any litigation if such settlement is effected with the written consent of the Company), insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, including the information deemed to be a part of the Registration Statement at the time of effectiveness pursuant to Rules 430A and 434(d) of the Rules and Regulations, if applicable, any Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto (including any term sheet within the meaning of Rule 434 of the Rules and Regulations), or arise out of or are based upon the 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 will reimburse the Underwriter for any legal or other expenses reasonably incurred by it in connection with investigating or defending against such loss, claim, damage, liability or action; provided, however, that the Offerors shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, any Preliminary Prospectus, the Prospectus, or any such amendment or supplement, in reliance upon and in conformity with written information furnished to the Offerors by or on behalf of the Underwriter specifically for use in the preparation thereof. In addition to its other obligations under this Section 6(a), each of the Company and the Trust agree that, as an intern measure during the pendency of any -29- claim, action, investigation, inquiry or other proceeding arising out of or based upon any statement or omission, or any alleged statement or omission, described in this Section 6(a), it will reimburse the Underwriter on a monthly basis for all reasonable legal tees or other expenses incurred in connection with investigating or defending any such claim, action, investigation, inquiry or other proceeding, notwithstanding the absence of a judicial determination as to the propriety and enforceability of the Offerors' obligation to reimburse the Underwriter for such expenses and the possibility that such payments might later be held to have been improper by a court of competent jurisdiction. To the extent that any such interim reimbursement payment is so held to have been improper, the Underwriter shall promptly return it to the party or parties that made such payment, together with interest, compounded daily, determined on the basis of the prime rate (or other commercial lending rate for borrowers of the highest credit standing) announced from time to time by Norwest Bank Minnesota, N.A. (the "Prime Rate"). Any such interim reimbursement payments which are not made to the Underwriter within 30 days of a request for reimbursement shall bear interest at the Prime Rate from the date of such request. This indemnity agreement shall be in addition to any liabilities which the Company may otherwise have. (b) The Underwriter will indemnify and hold harmless the Company and the Trust against any losses, claims, damages or liabilities to which the Company and the Trust may become subject, under the Act or otherwise (including in settlement of any litigation, if such settlement is effected with the Underwriter's written consent), insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto (including any term sheet within the meaning of Rule 434 of the Rules and Regulations), or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, any Preliminary Prospectus, the Prospectus, or any such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by or on behalf of the Underwriter for use in the preparation thereof, and will reimburse the Company and the Trust for any legal or other expenses reasonably incurred by the Company and the Trust in connection with investigating or defending against any such loss, claim, damage, liability or action. (c) The Company agrees to indemnify the Trust against all loss, liability, claim damage and expense whatsoever, which may become due from the Trust under subsection (a). -30- (d) Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve the indemnifying party from any liability that it may have to any indemnified party. In case any such action shall be brought against any indemnified party, and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in, and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of the indemnifying party's election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that if, in the sole judgment of the Underwriter, it is advisable for it to be represented by separate counsel, the Underwriter shall have the right to employ a single counsel to represent all persons who may be subject to a liability arising from any claim in respect of which indemnity may be sought by the Underwriter under this Section 6, in which event the reasonable fees and expenses of such separate counsel shall be borne by the indemnifying party or parties and remitted to the Underwriter for payment to such counsel as such fees and expenses are incurred (in accordance with the provisions of the second paragraph in subsection (a) above). An indemnifying party shall not be obligated under any settlement agreement relating to any action under this Section 6 to which it has not agreed in writing. (e) If the indemnification provided for in this Section 6 is unavailable or insufficient to hold harmless an indemnified party under subsection (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in subsection (a) or (b) above, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company or the Trust on the one hand and the Underwriter on the other from the offering of the Capital Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Trust on the one hand and the Underwriter on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Trust on the one hand and the Underwriter on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriter, in each case as set forth in the table on the cover page of the Prospectus. The relative fault -31- shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, the Trust or the Underwriter and the parties' relevant intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The Company and the Trust and the Underwriter agree that it would not be just and equitable if contributions pursuant to this subsection (e) were to be determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the first sentence of this subsection (e). The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (e) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending against any action or claim which is the subject of this subsection (e). Notwithstanding the provisions of this subsection (e), the Underwriter shall not be required to contribute any amount in excess of the amount by which the total price at which the Capital Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11 (f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (f) The obligations of the Company under this Section 6 shall be in addition to any liability which the Company and the Trust may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls the Underwriter within the meaning of the Act; and the obligations of the Underwriter under this Section 6 shall be in addition to any liability that the Underwriter may otherwise have and shall extend, upon the same terms and conditions, to each director of the Company (including any person who, with his or her consent, is named in the Registration Statement as about to become a director of the Company), to each officer of the Company who has signed the Registration Statement and to each person, if any, who controls the Company or the Trust within the meaning of the Act. 7. Representations and Agreements to Survive Delivery. All -------------------------------------------------- representations, warranties, and agreements of the Offerors herein or in certificates delivered pursuant hereto, and the agreements of the Offerors and the Underwriter contained in Section 6 hereof shall remain operative and in full force and effect regardless of any investigation made by the Underwriter or on the Underwriter's behalf or any controlling person thereof, or the Company or any of its officers, directors, or controlling persons or the Trust or any if its trustees, or controlling persons and shall survive delivery of, and payment for, the Capital Securities to and by the Underwriter hereunder. -32- 8. Effective Date of this Agreement and Termination. ------------------------------------------------ (a) This Agreement shall become effective at 10:00 a.m., Central time, on the first full business day following the effective date of the Registration Statement, or at such earlier time after the effective time of the Registration Statement as the Underwriter in its discretion shall first release the Capital Securities for sale to the public; provided, that if the Registration Statement is effective at the time this Agreement is executed, this Agreement shall become effective at such time as the Underwriter in its discretion shall first release the Capital Securities for sale to the public. For the purpose of this Section, the Capital Securities shall be deemed to have been released for sale to the public upon release by the Underwriter of the publication of a newspaper advertisement relating thereto or upon release by the Underwriter of telexes offering the Capital Securities for sale to securities dealers, whichever shall first occur. By giving notice as hereinafter specified before the time this Agreement becomes effective, the Underwriter, the Trust or the Company may prevent this Agreement from becoming effective without liability of any party to any other party, except that the provisions of Section 4(a)(viii) and Section 6 hereof shall at all times be effective. (b) The Underwriter shall have the right to terminate this Agreement by giving notice as hereinafter specified at any time at or prior to the Closing Date, if (i) either Offeror shall have failed, refused or been unable, at or prior to the Closing Date, to perform any agreement on its part to be performed hereunder, (ii) any other condition of the Underwriter's obligations hereunder is not fulfilled, (iii) trading in securities on the New York Stock Exchange or the Nasdaq Stock Market shall have been suspended or limited or minimum prices shall have been established on such Exchange or System, (iv) a banking moratorium shall have been declared by Federal, California, Minnesota or New York authorities, or (v) there has occurred any material adverse change in the financial markets in the United States or an outbreak of major hostilities (or an escalation thereof) in which the United States is involved, a declaration of war by Congress, any other substantial national or international calamity or any other event or occurrence of a similar character shall have occurred since the execution of this Agreement that, in the Underwriter's judgment, makes it impractical or inadvisable to proceed with the completion of the sale of and payment for the Capital Securities. Any such termination shall be without liability of any party to any other party except that the provisions of Section 4(a)(viii) and Section 6 hereof shall at all times be effective. (c) If the Underwriter elect to prevent this Agreement from becoming effective or to terminate this Agreement as provided in this Section, the Company shall be notified promptly by the Underwriter by telephone or telegram, confirmed by letter. If the Trust or the Company elects to prevent this Agreement from becoming effective, the Underwriter shall be notified by the Trust or the Company by telephone or telegram, confirmed by letter. -33- 9. Default by the Company. If the Trust shall fail at the Closing Date to ---------------------- sell and deliver the number of Capital Securities which it is obligated to sell hereunder or the Company fails to deliver the number of Junior Subordinated Debentures required to be delivered pursuant to the Trust Agreement, then this Agreement shall terminate without any liability on the part of any non- defaulting party. No action taken pursuant to this Section shall relieve the Trust or the Company so defaulting from liability, if any, in respect of such default. 10. Information Furnished by Underwriter. The statements set forth in the ------------------------------------ last paragraph of the cover page and in the [list relevant paragraphs] under the caption "Underwriting" in any Preliminary Prospectus and in the Prospectus constitute the written information furnished by the Underwriter or on its behalf referred to in Section 2 and Section 6 hereof. 11. Notices. Except as otherwise provided herein, all communications ------- hereunder shall be in writing or by telegraph and, if to the Underwriter, shall be mailed, telegraphed or delivered to Piper Jaffray Inc., Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota 55402; if to the Company, shall be mailed, telegraphed or delivered to it at, 2860 West Bayshore Road, Palo Alto, California 94303, Attention: Steven C. Smith; if to the Trust, shall be mailed, telegraphed or delivered to it at Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890 0001, Attention: Corporate Trust Administration. All notices given by telegram shall be promptly confirmed by letter. Any notice to the Trust shall also be copied to the Company at the address previously stated, Attention: Steven C. Smith. Any party to this Agreement may change such address for notices by sending to the parties to this Agreement written notice of a new address for such purpose. 12. Persons Entitled to Benefit of Agreement. This Agreement shall inure ---------------------------------------- to the benefit of and be binding upon the parties hereto and their respective successors and assigns and the controlling persons, officers and directors referred to in Section 6. Nothing in this Agreement is intended or shall be construed to give to any other person, firm or corporation any legal or equitable remedy or claim under or in respect of this Agreement or any provision herein contained. The term "successors and assigns" as herein used shall not include any purchaser, as such purchaser, of any of the Capital Securities from the Underwriter. 13. Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the laws of the State of Minnesota. [Signature Page Follows] -34- Please sign and return to the Company the enclosed duplicates of this letter whereupon this letter will become a binding agreement between the Company and the Underwriter in accordance with its terms. Very truly yours, GREATER BAY BANCORP. By____________________________ Its_________________________ GBB CAPITAL I By____________________________ Its_________________________ Confirmed as of the date first above mentioned. PIPER JAFFRAY INC. By____________________________ Managing Director -35- EX-3.1 3 ARTICLES OF INCORPORATION OF GREATER BAY BANCORP Exhibit 3.1 ARTICLE OF INCORPORATION OF SAN MATEO COUNTY BANCORP ONE: NAME. - --- The name of the corporation is San Mateo County Bancorp. TWO: PURPOSE. - --- The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business, or the practice of a profession permitted to be incorporated by the California Corporation Code. THREE: AGENT FOR SERVICE OF PROCESS. - ----- The name and address of the corporation's initial agent for service of process is: Fred R. Brinkop, 500 Allerton Street, Redwood City, CA 94063. FOUR: AUTHORIZED STOCK. - ---- (a) The corporation is authorized to issue two classes of shares designated "Preferred Stock" and "Common Stock", respectively. The number of shares of Preferred Stock authorized to be issued is 4,000,000 and the number of shares of Common Stock authorized to be issued is 6,000,000. (b) The Preferred Stock may be divided into such number of series as the board of directors may determine. The board of directors is authorized to determine and alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, and to fix the number of shares of any series of Preferred Stock and the designation of any such series of Preferred Stock. The board of directors, within the limits and restrictions stated in any resolution or resolutions of the board of directors originally fixing the number of shares constituting any series, may increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series subsequent to the issue of shares of that series. IN WITNESS WHEREOF, for the purpose of forming this corporation under the laws of the State of California, the undersigned, constituting the sole incorporator of this corporation, has executed these Articles of Incorporation. /s/ Fred R. Brinkop -------------------------- Fred R. Brinkop Sole Incorporator The undersigned declares under penalty or perjury that h is the person who executed these Articles of Incorporation and that this instrument is the act and dead of the undersigned. Executed this 7 day of Nov, 1984, at San Francisco, California. /s/ Fred R. Brinkop -------------------------- Fred R. Brinkop CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF SAN MATEO COUNTY BANCORP Leo D. Taylor and Douglas S. McGlashan hereby certify that: 1. They are the President and Secretary, respectively, of SAN MATEO COUNTY BANCORP, a California corporation. 2. The Articles of Incorporation of this corporation are amended to add the following Article Five: "FIVE: INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS. ---- (a) Limitation of Directors' Liability. The liability of the directors ---------------------------------- of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. (b) Indemnification of Corporate Agents. The corporation is authorized ----------------------------------- to provide indemnification of its agents (as defined in Section 317 of the California General Corporation Law) for breach of their duty to the corporation and its shareholders through bylaw provisions or through agreements with the agents, or both, in excess of the indemnification otherwise permitted by such Section 317, subject to the limits on such excess indemnification set forth in Section 204 of the California General Corporation Law. (c) Repeal or Modification. Any repeal or modification of the ---------------------- foregoing provisions of this Article V shall not adversely affect any right of indemnification or limitation of liability of an agent of the corporation relating to acts or omissions occurring prior to such repeal or modification." 1. 3. The foregoing Certificate of Amendment of Articles of Incorporation has been duly approved by the Board of Directors. 4. The foregoing Certificate of Amendment of Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Section 902 of the California General Corporation Law. The total number of outstanding shares of capital stock of the corporation is 347,675 shares of Common Stock. The number of shares voting in favor of the Certificate of Amendment of Articles of Incorporation equaled or exceeded the vote required. The percentage vote required was more than 50% of the outstanding Common Stock. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this Certificate of Amendment of Articles of Incorporation are true of our own knowledge. Executed at San Mateo, California this 21st day of June, 1988. ---- ---- /s/ Leo D. Taylor ------------------------------- Leo D. Taylor, President /s/ Douglas S. McGlashan ------------------------------- Douglas S. McGlashan, Secretary 2. CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION Owen D. Conley and Robert M. Lubin certify that: 1. They are the Chairman of the Board and Secretary, respectively, of San Mateo County Bancorp, a California corporation. 2. Article One of the articles of incorporation of this corporation is amended to read as follows: "The name of this corporation shall be Mid-Peninsula Bancorp." 3. The foregoing amendment of articles of incorporation has been duly approved by the board of directors. 4. The foregoing amendment of articles of incorporation has been duly approved by the required vote of shareholders in accordance with Section 902 of the Corporations Code. The total number of outstanding shares of common stock of the corporation is 465,369. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than 50%. There are no shares of preferred stock outstanding. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge. DATE: October 3, 1994 /s/ OWEN D. CONLEY --------------------------- Owen D. Conley Chairman of the Board /s/ ROBERT M. LUBIN --------------------------- Robert M. Lubin Secretary MERGER AGREEMENT THIS MERGER AGREEMENT (the "Merger Agreement") is made and entered into as of November 15, 1996, by and between MID-PENINSULA BANCORP, a California corporation ("Mid-Peninsula"), and CUPERTINO NATIONAL BANCORP, a California corporation ("Cupertino"). RECITALS A. Mid-Peninsula is a corporation duly organized, validly existing and doing business in good standing under the laws of the State of California with authorized capital stock of six million (6,000,000) shares of no par value common stock of which, on the date hereof, there are One Million, Six Hundred Thirty-Seven Thousand, Five Hundred Ninety-Three (1,637,593) shares issued and outstanding (individually, a "Mid-Peninsula Share" and together the "Mid- Peninsula Shares") and four million (4,000,000) shares of preferred stock of which, on the date hereof, there are no shares issued and outstanding. B. Cupertino is a corporation duly organized, validly existing and doing business in good standing under the laws of the State of California with authorized capital stock of six million (6,000,000) shares of no par value common stock of which, on the date hereof, there are One Million Nine Hundred Five Thousand, Nine Hundred Fifty-Eight (1,905,958) shares issued and outstanding (individually a "Cupertino Share" and together the "Cupertino Shares") and 4,000,000 shares of preferred stock of which, on the date hereof, there are no shares issued and outstanding. C. Mid-Peninsula and Cupertino have entered into a Second Amended Agreement and Plan of Reorganization and Merger, dated August 20, 1996 (the "Agreement"), which contemplates the merger of Cupertino with and into Mid- Peninsula (the "Merger") upon and in accordance with the terms and conditions set forth in the Agreement and this Merger Agreement. D. The respective Boards of Directors of Mid-Peninsula and Cupertino deem it desirable and in the best interests of Mid-Peninsula and Cupertino and their respective shareholders that Cupertino be merged with and into Mid-Peninsula as provided in the Agreement and this Merger Agreement pursuant to the laws of the State of California and that Mid-Peninsula change its name to Greater Bay Bancorp ("Bancorp") which shall be the surviving corporation ("Surviving Corporation"). E. The respective Boards of Directors of Mid-Peninsula and Cupertino have adopted resolutions approving this Merger Agreement and the Agreement and have recommended that the Merger be approved by the shareholders of their respective corporations. F. The respective shareholders of each of Mid-Peninsula and Cupertino, at meetings duly held, have duly approved and adopted this Merger Agreement, the Agreement and approved the Merger. AGREEMENT NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein set forth and for the purpose of prescribing the terms and conditions of the Merger, the parties hereto agree as follows: ARTICLE I THE MERGER ---------- 1.1 Effect of Merger. At the Effective Time of the Merger (as defined in ---------------- Article VII hereof), Cupertino shall be merged with and into Mid-Peninsula, Mid-Peninsula shall change its name to Greater Bay Bancorp, which shall thereupon be the Surviving Corporation, and the separate corporate existence of Cupertino shall cease. 1.2 Rights and Duties of Surviving Corporation. At and after the Effective ------------------------------------------ Time of the Merger, all rights, privileges, powers and franchises and all property and assets of every kind and description of Cupertino shall be vested in and be held and enjoyed by Bancorp as the Surviving Corporation, without further act or deed; all the estates and interests of every kind of Cupertino, including all debts due to it, shall be as effectively the property of Bancorp as the Surviving Corporation as they were of Cupertino; the title to any real estate vested by deed or otherwise in Cupertino shall not revert or be in any way impaired by reason of the Merger; and Bancorp shall be deemed to be the same entity as each of Cupertino and Mid-Peninsula and shall be subject to all of their duties and liabilities of every kind and description. All rights of creditors and liens upon any property of Mid-Peninsula or Cupertino shall be preserved unimpaired and all debts, liabilities and duties of Mid-Peninsula or Cupertino shall be the debts, liabilities and duties of Bancorp as the Surviving Corporation and may be enforced against it to the same extent as if such debts, liabilities and duties had been incurred or contracted by it. ARTICLE II CONVERSION OF SHARES -------------------- 2.1 Conversion of Shares. In and by virtue of the Merger and at the -------------------- Effective Time of the Merger, pursuant to this Merger Agreement, each Mid-Peninsula Share and each Cupertino Share issued and outstanding immediately prior to the Effective time of the Merger shall, at the Effective Time of the Merger, be converted. a. Effect on Mid-Peninsula Shares. At the Effective Time of the ------------------------------ Merger, each Mid-Peninsula Share issued and outstanding immediately prior to the Effective Time of the Merger shall, on and after the Effective Time of the Merger, remain issued and outstanding and shall automatically and for all purposes be deemed to represent one share of the common stock, without par value, of Bancorp as the Surviving Corporation ("Bancorp Shares"). b. Conversion of Cupertino Shares. At the Effective Time of the ------------------------------ Merger, each Cupertino Share outstanding immediately prior to the Effective Time of the Merger shall, by virtue of the Merger and without any action on the part of the holder thereof, be exchanged for 2 and converted into .81522 (the "Conversion Ratio") of a Bancorp Share. From and after the Effective Time of the Merger, each holder of Cupertino Shares immediately prior to the Effective Time of the Merger (other than holders of Dissenting Shares, as defined below) shall have the right to receive, upon surrender of the certificates theretofore representing such Cupertino Shares, one or more certificates representing shares of Bancorp Shares equal to the number of Cupertino Shares represented by each surrendered certificate multiplied by the Conversion Ratio. 2.2 Fractional Shares. No fractional Bancorp Shares shall be issued in the ----------------- Merger. In lieu thereof, each record holder of Cupertino Shares who would otherwise be entitled to receive a fractional Bancorp Share shall receive, subject to prior surrender of certificates representing Cupertino Shares, an amount in cash equal to the product (calculated to the nearest hundredth) obtained by multiplying the average of the bid and asked prices quoted by each brokerage firm acting as a market maker of Mid-Peninsula Shares for a Mid- Peninsula Share for each of the twenty (20) consecutive trading days up to and including the last business day of the calendar month end immediately prior to the Closing Date (as defined in the Agreement), by the fraction of a Bancorp Share to which such holder would otherwise be entitled. No such holder shall be entitled to dividends, voting rights, interest, or any other rights in respect of any such fractional share. 2.3 Exchange Procedures. ------------------- a. At and after the Effective Time of the Merger, Mid-Peninsula will deliver or cause to be delivered to U.S. Stock Transfer Corporation, which shall serve as exchange agent (the "Exchange Agent"), such number of blank certificates representing Bancorp Shares sufficient to issue the number of Bancorp Shares issuable in the Merger and an amount of cash sufficient for payment of any fractional shares. b. As soon as practicable after the Effective Time of the Merger, the Exchange Agent will send written notice of exchange procedures to each record holder of certificates representing Cupertino Shares converted pursuant to Section 2.1(b) of this Merger Agreement. c. Upon surrender for cancellation to the Exchange Agent of one or more certificates evidencing Cupertino Shares ("Cupertino Certificates"), accompanied by a duly executed letter of transmittal in proper form, the Exchange Agent shall promptly deliver to each holder of such surrendered Cupertino Certificates one or more new certificates representing the appropriate number of Bancorp Shares ("Bancorp Certificates") to which such holder is entitled, together with one or more checks for payment of cash in lieu of fractional interests to be issued in respect of the Cupertino Shares so surrendered. d. Until Cupertino Certificates have been surrendered and exchanged for Bancorp Certificates as herein provided, each outstanding Cupertino Certificate shall represent, on and after the Effective Time of the Merger, the right to receive the number of Bancorp Shares into which the number of Cupertino Shares shown thereon have been converted. No dividends or other distributions of any kind which are declared payable to holders of record of the Bancorp 3 Shares after the Effective Time of the Merger will be paid to persons otherwise entitled to receive the same until such persons have surrendered their Cupertino Certificates in exchange for Bancorp Certificates in the Manner herein provided, but upon such surrender, such dividends or other distributions, from and after the Effective Time of the Merger, will be paid to such persons in accordance with the terms of such Bancorp Shares. In no event shall the persons entitled to receive such dividends or other distributions be entitled to receive interest on such dividends or other distributions. e. No. transfer taxes shall be payable by any holder of Cupertino Shares in respect of the issuance of Bancorp Certificates for Bancorp Shares, except that if any Bancorp Certificate for Bancorp Shares is to be issued in a name other than that in which the Cupertino Certificate surrendered shall be been registered, it shall be a condition of such issuance that the person requesting such issuance shall properly endorse the certificate or certificates and shall pay to Bancorp any transfer taxes payable by reason thereof, or of any prior transfer of such surrendered certificate, or establish to the satisfaction of Bancorp that such taxes have been paid or are not payable. f. Any Bancorp Shares delivered to the Exchange Agent and not issued pursuant hereto at the end of one (1) year from the Effective Time of the Merger shall be returned to Bancorp, in which event the persons, if any, entitled thereto shall look only to Bancorp for payment thereof. g. Notwithstanding anything to the contrary set forth herein, if any holder of Cupertino Shares shall be unable to surrender his or her Cupertino Certificates because such certificates have been lost or destroyed, such holder may deliver in lieu thereof an indemnity bond in form and substance and with surety satisfactory to Bancorp. h. The Exchange Agent shall not be entitled to vote or exercise any rights of ownership with respect to the Bancorp Shares held by it from time to time hereunder, except that it shall receive and hold all dividends or other distributions paid or distributed with respect to such Bancorp Shares for the account of the persons entitled thereto. All dividends or distributions, and any cash to be paid in lieu of fractional shares, if held by the Exchange Agent for payment or delivery to the holders of unsurrendered certificates representing Cupertino Shares and unclaimed at the end of one (1) year from the Effective Time of the Merger, shall (together with any interest earned thereon) at such time be paid or redelivered by the Exchange Agent to Bancorp, and after such time any holder of certificate representing Cupertino Shares who has not surrendered such certificate to the Exchange Agent shall, subject to applicable law, look as a general creditor only to Bancorp for payment or delivery of such dividends or distributions or cash, as the case may be. 2.4 Dissenting Shareholders. Notwithstanding the provisions of this ----------------------- Article II to the contrary, any Cupertino Shares held by persons who have satisfied the requirements of Chapter 13 of the California General Corporation Law (the "GCL") and who have not effectively withdrawn or lost their dissenters' rights under Chapter 13 (such shares being referred to as "Dissenting Shares"), shall not be converted pursuant to this Merger Agreement, but the holders 4 thereof shall be entitled only to such rights as are afforded them by Chapter 13 of the GCL. Each dissenting shareholder who is entitled to payment for his or her Cupertino Shares pursuant to Chapter 13 of the GCL shall receive payment in an amount determined pursuant to Chapter 13 of the GCL. ARTICLE III ARTICLES OF INCORPORATION ------------------------- At the Effective Time of the Merger, the Articles of Incorporation of Mid-Peninsula, as in effect immediately prior to the Effective Time of the Merger, shall be amended (a) to change its name to Greater Bay Bancorp, (b) to establish a super-majority vote requirement of the Board of Directors equal to a two-thirds vote on certain matters, and (c) to limit the liability of the directors and provide expanded indemnification rights of agents of the Surviving Corporation to the maximum extent permitted by law, as set forth in Exhibit I attached hereto and incorporated herein by this reference, and, as so - --------- amended, shall hereto and incorporated herein by this reference, and, as amended, shall be the Articles of Incorporation of Bancorp as the Surviving Corporation from and after the Effective Time of the Merger until amended in accordance with its provisions and as provided by law. ARTICLE IV BYLAWS ------ At the Effective Time of the Merger, the Bylaws of Mid-Peninsula as in effect immediately prior to the Effective time of the Merger shall be amended (a) to provide for a range in the number of authorized directors of not less than seven (7) and not more than thirteen (13), with the exact number of directors fixed at ten (10); and (b) to require a two-thirds (2/3rds vote of the Board of Directors of Bancorp to approve certain matters affecting Bancorp, including (i) a merger, sale of control or sale of material assets of Bancorp, (ii) acquisitions by Bancorp, (iii) creation of new business units of Bancorp or its subsidiaries, (iv) material changes in operating budgets of Bancorp or its subsidiaries, (v) material changes in the business organization or organizational structure of Bancorp or its subsidiaries, (vi) termination of any executive officer or senior officer appointed to the Executive Management Committee of Bancorp, and (vii) any change in the authorized range of directors; and, as so amended, the Bylaws of Mid-Peninsula shall, at and after the Effective Time of the Merger, be the Bylaws of Bancorp as the Surviving Corporation until further amended as provided by law. ARTICLE V DIRECTORS --------- At the Effective Time of the Merger, the Board of Directors of Bancorp as the Surviving Corporation shall consist of five (5) members appointed by the Board of Directors of Mid-Peninsula and five (5) members appointed by the Board of Directors of Cupertino, in each case as designated in the Agreement. Such persons shall serve as the Directors of the Surviving Corporation until such time as their successors have been duly elected and qualified. 5 ARTICLE VI FURTHER ACTION -------------- The parties shall deliver, or cause to be delivered, such documents or certificates as may be necessary, in the reasonable opinion of counsel for any of the parties, to effectuate the transactions set forth in this Merger Agreement. If, at any time after the Effective Time of the Merger, Bancorp as the Surviving Corporation or its successors or assigns shall determine that any further conveyance, assignment or other documents or any further action is necessary or desirable to further effectuate the transactions set forth herein or contemplated hereby, the officers and directors of the parties hereto shall execute and deliver, or cause to be executed and delivered, all such documents as may be reasonably required to effectuate such transactions. ARTICLE VII EFFECTIVE TIME OF THE MERGER ---------------------------- The Merger will become effective upon the filing, in accordance with Section 1103 of the GCL, of an executed copy of this Merger Agreement and all other requisite accompanying certificates in the office of the California Secretary of State. The date and time of such filing with the California Secretary of State is referred to herein as the "Effective Time of the Merger." ARTICLE VIII CONDITIONS TO MERGER -------------------- The filing of this Merger Agreement with the California Secretary of State as provided in Article VII above is conditioned upon the fulfillment, prior to such filing, of all the conditions to the Merger set forth in the Agreement. ARTICLE IX TERMINATION ----------- This Merger Agreement may, by the mutual consent and action of the Boards of Directors of Mid-Peninsula and Cupertino, be abandoned at any time before or after approval thereof by the shareholders of Mid-Peninsula and Cupertino, but not later than the filing of this Merger Agreement with the California Secretary of State pursuant to Section 1103 of the GCI. This Merger Agreement shall automatically be terminated and of no further force and effect if, prior to the filing of an executed copy hereof with the California Secretary of State as provided in Article VII hereof, the Agreement is terminated in accordance with the terms thereof. ARTICLE X GENERAL PROVISIONS ------------------ 10.1 Successors and Assigns. This Merger Agreement shall be binding upon and enforceable by the parties hereto and their respective successors, assigns and transferees, but this Merger Agreement may not be assigned by any party without the written consent of the other parties. 6 10.2 Governing Law. This Merger Agreement has been executed in the State ------------- of California, and the laws of the State of California shall govern the validity and interpretation hereof and the performance by the parties hereto. 10.3 Amendments. This Agreement, when duly executed and delivered, may ---------- be modified or amended by action of the Board of Directors of Mid-Peninsula and Cupertino to the extent permitted by law without action by their respective shareholders. This Merger Agreement may be modified or amended only by an instrument of equal formality signed by the parties or their duly authorized agents. 10.4 Entire Agreement. This Merger Agreement and the Agreement, ---------------- together with all exhibits hereto and thereto and all documents referenced herein and therein, constitute the entire agreement of Mid-Peninsula and Cupertino, and supersede any prior written or oral negotiations, discussions, understandings and agreements between them, concerning the subject matter contained herein and therein. 10.5 Counterparts. This Merger Agreement may be executed in any number of ------------ counterparts, each of which shall be deemed to be an original instrument, but all of which together shall constitute but one and the same agreement. IN WITNESS WHEREOF, Mid-Peninsula and Cupertino, pursuant to the approval and authority duly given by resolution of their respective Boards of Directors, have caused this Merger Agreement to be signed by their respective Presidents and Secretaries on the day and year first above written. CUPERTINO NATIONAL BANCORP, MID-PENINSULA BANCORP, a California corporation a California corporation By /s/ C. Donald Alien By /s/ David L. Kalkbrenner ---------------------------- ----------------------------- C. Donald Alien, President David L. Kalkbrenner, President and Chief Executive Officer and Chief Executive Officer By /s/ Steven C. Smith By /s/ Warren R. Thoits ---------------------------- ----------------------------- Steven C. Smith, Secretary Warren R. Thoits, Secretary 7 EXHIBIT 1 --------- AMENDMENT TO ARTICLES OF INCORPORATION OF MID-PENINSULA BANCORP 1. Article One of the Articles of Incorporation is amended to read as follows: "ONE: NAME. --- The name of the corporation is Greater Bay Bancorp." 2. Article Five of the Articles of Incorporation is amended to read as follows: "FIVE DIRECTOR LIABILITY; INDEMNIFICATION OF AGENTS. ---- (a) The liability of the directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. (b) The indemnification of an agent [as defined in California Corporations Code section 317(a)] of this corporation, whether by bylaws, agreement or otherwise, for breach of duty to this corporation and its stockholders, may, to the extent not prohibited under California Corporations Code sections 317 and 204(a) , exceed the indemnification otherwise permitted by section 317 of the Corporations Code." 3. The following Article Six is added to the Articles of Incorporation: "SIX: SUPER-MAJORITY VOTING BY DIRECTORS. --- The vote of not less than two-thirds of all members of the board of directors shall be required to approve any of the following types of matters affecting the corporation. (a) Any merger, sale of control or sale of material assets of the corporation. (b) Any material acquisition by the corporation. (c) The creation of any new business unit of the corporation or any subsidiary of the corporation. (d) Any operating budget, or any material change therein, of the corporation or any subsidiary of the corporation. (e) Any material change in the business organization or organizational structure of the corporation or any subsidiary of the corporation. (f) Termination of the employment of any executive or senior officer appointed to the Executive Management Committee of the corporation. (g) Any change in the authorized range of the number of directors of the corporation." Certificate of Officers Pursuant to Section 1103 of the California Corporations Code Mid-Peninsula Bancorp David L. Kalkbrenner and Carol H. Rowland certify that: 1. They are the duly elected and acting Chief Executive Officer and Chief Financial Officer, respectively, of Mid-Peninsula Bancorp. 2. This certificate is attached to the Merger Agreement dated as of November 15, 1996, providing for the merger of Mid-Peninsula Bancorp and Cupertino National Bancorp, with Mid-Peninsula Bancorp being the surviving corporation of the merger and changing its name to Greater Bay Bancorp. 3. The Merger Agreement in the form attached has been approved by the Board of Directors of the Corporation. 4. The principal terms of the Merger Agreement in the form attached were approved by the corporation by the vote of a number of shares of each class entitled to vote on the merger which equaled or exceeded the vote required, such classes, the total number of outstanding shares of each class entitled to vote on the merger and the percentage vote required of each class being as follows:
Name of Class Shares Outstanding Vote Required - ------------- ------------------ ------------- Common Stock 1,637,593 Majority of shares outstanding
IN WITNESS WHEREOF, the undersigned have executed this certificate on November 15, 1996. /s/ DAVID L. KALKBRENNER /s/ CAROL H. ROWLAND -------------------------- -------------------------- David L. Kalkbrenner Carol H. Rowland Chief Executive Officer Chief Financial Officer The undersigned, Chief Executive Officer and Chief Financial Officer, respectively, of Mid-Peninsula Bancorp, a California corporation, each declares under penalty of perjury that the matters set out in the foregoing Certificate are true of his or her own knowledge. Executed at Palo Alto, California on November 15, 1996. /s/ DAVID L. KALKBRENNER /s/ CAROL H. ROWLAND -------------------------- -------------------------- David L. Kalkbrenner Carol H. Rowland Chief Executive Officer Chief Financial Officer Certificate of Officers Pursuant to Section 1103 of the California Corporations Code Cupertino National Bancorp C. Donald Allen and Heidi R. Wulfe certify that: 1. They are the duly elected and acting Chief Executive Officer and Chief Financial Officer, respectively, of Cupertino National Bancorp. 2. This certificate is attached to the Merger Agreement dated as of November 15, 1996, providing for the merger of Cupertino National Bancorp with and into Mid-Peninsula Bancorp, with Mid-Peninsula Bancorp being the surviving corporation of the merger and changing its name to Greater Bay Bancorp. 3. The Merger Agreement in the form attached has been approved by the Board of Directors of the corporation. 4. The principal terms of the Merger Agreement in the form attached were approved by the corporation by the vote of a number of shares of each class entitled to vote on the merger which equaled or exceeded the vote required, such classes, the total number of outstanding shares of each class entitled to vote on the merger and the percentage vote required of each class being as follows:
Name of class Shares Outstanding Vote Required - ------------- ------------------ ------------- Common Stock 1,905,958 Majority of shares outstanding
IN WITNESS WHEREOF, the undersigned have executed this certificate on November 15, 1996. /s/ C. Donald Allen /s/ Heidi R. Wulfe -------------------------- -------------------------- C. Donald Allen Heidi R. Wulfe Chief Executive Officer Chief Executive Officer The undersigned, Chief Executive Officer and Chief Executive Officer, respectively, of Cupertino National Bancorp, a California corporation, each declares under penalty of perjury that the matters set out in the foregoing Certificate are true of his or her own knowledge. Executed at Cupertino, California on November 15, 1996. /s/ C. Donald Allen /s/ Heidi R. Wulfe -------------------------- -------------------------- C. Donald Allen Heidi R. Wulfe Chief Executive Officer Chief Executive Officer EX-4.1 4 FORM OF SUBORDINATED INDENTURE EXHIBIT 4.1 D&W DRAFT 2/21/97 ------------------------------------------------------------------------- GREATER BAY BANCORP TO [WILMINGTON TRUST COMPANY] TRUSTEE ____________________________ JUNIOR SUBORDINATED INDENTURE DATED AS OF _________, 1997 - ------------------------------------------------------------------------- GREATER BAY BANCORP Reconciliation and tie between the Trust Indenture Act of 1939 (including cross-references to provisions of Sections 310 to and including 317 which, pursuant to Section 318(c) of the Trust Indenture Act of 1939, as amended by the Trust Reform Act of 1990, are a part of and govern the Indenture whether or not physically contained therein) and the Junior Subordinated Indenture, dated as of , 1997. - ---------
TRUST INDENTURE INDENTURE ACT SECTION SECTION ----------- ------- (S) 310(a) (1), (2) and (5).......... Not Applicable (a) (3) ...................... Not Applicable (a) (4) ...................... Not Applicable (b) .......................... 6.8 ............................. 6.10 (c) .......................... Not Applicable (S) 311(a) .......................... 6.13(a) (b) .......................... 6.13(b b)(2) 7.3(a)(2) .............................. 7.3(a)(2) (S) 312(a) .......................... 7.1 .............................. 7.2(a) (b) .......................... 7.2(b) .............................. (c) 7.2(c) (S) 313(a) .......................... 7.3(a) (b) .......................... 7.3(b) (c) .......................... 7.3(a), 7.3(b) (d) .......................... 7.3(c) (S) 314(a) (1), (2) and (3).......... 7.4 (a) (4) ...................... 10.5 (b) .......................... Not Applicable (c) (1) ...................... 1.2 (c) (2) ...................... 1.2 (c) (3) ...................... Not Applicable (d) .......................... Not Applicable (e) .......................... 1.2 (f) .......................... Not Applicable (S) 315(a) .......................... 6.1(a) (b) .......................... 6.2 .............................. 7.3(a)(6) (c) .......................... 6.1(b)
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TRUST INDENTURE INDENTURE ACT SECTION SECTION ----------- ------- (d) ..................... 6.1 (c) (d) (1) ................. 6.1(a) (1) (d) (2) ................. 6.1(c) (2) (d) (3) ................. 6.1(c) (3) (e) ..................... 5.14 (S) 316(a) ..................... 1.1 (a) (1) (A).............. 5.12 (a) (1) (B).............. 5.13 (a) (2) ................. Not Applicable (b) ..................... 5.8 (c) ..................... 1.4(f) (S) 317(a) (1).................. 5.3 (a) (2) ................. 5.4 (b) ..................... 10.3 (S)318 (a) ..................... 1.7 - --------------
NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Junior Subordinated Indenture. -ii- TABLE OF CONTENTS ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION...... 1 Section 1.1 Definitions.............................. 1 Section 1.2 Compliance Certificate and Opinions...... 10 Section 1.3 Forms of Documents Delivered to Trustee.. 11 Section 1.4 Acts of Holders.......................... 12 Section 1.5 Notices, Etc. to Trustee and Company..... 14 Section 1.6 Notice to Holders; Waiver................ 14 Section 1.7 Conflict with Trust Indenture Act........ 15 Section 1.8 Effect of Headings and Table of Contents. 15 Section 1.9 Successors and Assigns................... 15 Section 1.10 Separability Clause...................... 15 Section 1.11 Benefits of Indenture.................... 15 Section 1.12 Governing Law............................ 16 Section 1.13 Non-Business Days........................ 16 ARTICLE II SECURITY FORMS............................................... 16 Section 2.1. Forms Generally.......................... 16 Section 2.2. Form of Face of Security................. 17 Section 2.3. Form of Reverse of Security.............. 20 Section 2.4. Additional Provisions Required in Global Security................................. 24 Section 2.5. Form of Trustee's Certificate of Authentication........................... 24 ARTICLE III THE SECURITIES............................................... 24 Section 3.1. Title and Terms.......................... 24 Section 3.2. Denominations............................ 27 Section 3.3. Execution, Authentication, Delivery and Dating................................... 27 Section 3.4. Temporary Securities..................... 29 Section 3.5. Registration, Transfer and Exchange...... 30 Section 3.6. Mutilated, Destroyed, Lost and Stolen Securities............................... 32 Section 3.7. Payment of Interest; Interest Rights Preserved................................ 32 Section 3.8. Persons Deemed Owners.................... 34 Section 3.9. Cancellation............................. 34 Section 3.10. Computation of Interest.................. 34 Section 3.11. Deferrals of Interest Payment Dates...... 35 Section 3.12. Right of Set-Off......................... 36 Section 3.13. Agreed Tax Treatment..................... 36
-i- Section 3.14. Shortening of Stated Maturity......... 36 Section 3.15. CUSIP Numbers......................... 37 ARTICLE IV SATISFACTION AND DISCHARGE................................. 37 Section 4.1. Satisfaction and Discharge of Indenture 37 Section 4.2. Application of Trust Money............. 38 ARTICLE V REMEDIES................................................... 38 Section 5.1 Events of Default...................... 38 Section 5.2. Acceleration of Maturity; Rescission and Annulment.......................... 40 Section 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee............. 41 Section 5.4. Trustee May File Proofs of Claim....... 42 Section 5.5. Trustee May Enforce Claim Without Possession of Securities............... 43 Section 5.6. Application of Money Collected......... 43 Section 5.7. Limitation on Suits.................... 44 Section 5.8. Unconditional Right of Holders to Receive Principal, Premium and Interest; Direct Action by Holders of Preferred Securities................... 44 Section 5.9. Restoration of Rights and Remedies..... 45 Section 5.10. Rights and Remedies Cumulative......... 45 Section 5.11. Delay or Omission Not Waiver........... 45 Section 5.12. Control by Holders..................... 46 Section 5.13. Waiver of Past Defaults................ 46 Section 5.14. Undertaking for Costs.................. 47 Section 5.15. Waiver of Usury, Stay or Extension Laws 47 ARTICLE VI THE TRUSTEE................................................ 47 Section 6.1. Certain Duties and Responsibilities.... 47 Section 6.2. Notice of Defaults..................... 49 Section 6.3. Certain Rights of Trustee.............. 49 Section 6.4. Not Responsible for Recitals or Issuance of Securities.......................... 50 Section 6.5. May Hold Securities.................... 50 Section 6.6. Money Held in Trust.................... 50 Section 6.7. Compensation and Reimbursement......... 51 Section 6.8. Disqualification; Conflicting Interests 51 Section 6.9. Corporate Trustee Required; Eligibility 51
-ii- Section 6.10. Resignation and Removal; Appointment of Successor........................ 52 Section 6.11. Acceptance of Appointment by Successor 54 Section 6.12. Merger, Conversion, Consolidation or Succession to Business................ 55 Section 6.13. Preferential Collection of Claims Against Company....................... 55 Section 6.14. Appointment of Authenticating Agent... 55 ARTICLE VII HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY......... 57 Section 7.1. Company to Furnish Trustee Names and Addresses of Holders.................. 57 Section 7.2. Preservation of Information, Communications to Holders............. 58 Section 7.3. Reports by Trustee.................... 58 Section 7.4. Reports by Company.................... 58 ARTICLE VIII CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE...... 59 Section 8.1. Company May Consolidate, Etc., Only on Certain Terms................. 59 Section 8.2. Successor Corporation Substituted..... 60 ARTICLE IX SUPPLEMENTAL INDENTURES.................................... 60 Section 9.1. Supplemental Indentures without Consent of Holders..................... 60 Section 9.2. Supplemental Indentures with Consent of Holders............................. 62 Section 9.3. Execution of Supplemental Indentures... 63 Section 9.4. Effect of Supplemental Indentures...... 64 Section 9.5. Conformity with Trust Indenture Act.... 64 Section 9.6. Reference in Securities to Supplemental Indentures............................. 64 ARTICLE X COVENANTS................................................... 64 Section 10.1. Payment of Principal, Premium and Interest................................ 64 Section 10.2. Maintenance of Office or Agency......... 65 Section 10.3. Money for Security Payments to be Held in Trust........................... 65 Section 10.4. Statement as to Compliance.............. 67 Section 10.5. Waiver of Certain Covenants............. 67 Section 10.6. Additional Sums......................... 67 Section 10.7. Additional Covenants.................... 68
-iii- ARTICLE XI REDEMPTION OF SECURITIES......................................... 69 Section 11.1 Applicability of This Article............... 69 Section 11.2. Election to Redeem; Notice to Trustee....... 69 Section 11.3. Selection of Securities to be Redeemed...... 70 Section 11.4. Notice of Redemption........................ 70 Section 11.5. Deposit of Redemption Price................. 71 Section 11.6. Payment of Securities Called for Redemption.................................. 71 Section 11.7. Right of Redemption of Securities Initially Issued to a GBB Trust................................... 72 ARTICLE XII SINKING FUNDS.................................................... 72 Section 12.1. Applicability of Article.................... 72 Section 12.2. Satisfaction of Sinking Fund Payments with Securities............................. 73 Section 12.3. Redemption of Securities for Sinking Fund... 73 ARTICLE XIII SUBORDINATION OF SECURITIES...................................... 75 Section 13.1. Securities Subordinate to Senior and Subordinated Debt........................... 75 Section 13.2. Payment Over of Proceeds Upon Dissolution, Etc......................................... 75 Section 13.3. Prior Payment to Senior and Subordinated Debt Upon Acceleration of Securities........ 76 Section 13.4. No Payment When Senior and Subordinated Debt in Default............................. 77 Section 13.5. Payment Permitted If No Default............. 78 Section 13.6. Subrogation to Rights of Holders of Senior and Subordinated Debt....................... 78 Section 13.7. Provisions Solely to Define Relative Rights. 79 Section 13.8. Trustee to Effectuate Subordination......... 79 Section 13.9. No Waiver of Subordination Provisions....... 79 Section 13.10. Notice to Trustee........................... 80 Section 13.11. Reliance on Judicial Order or Certificate of Liquidating Agent........................ 81 Section 13.12. Trustee Not Fiduciary for Holders of Senior and Subordinated Debt....................... 81 Section 13.13. Rights of Trustee as Holder of Senior and Subordinated Debt; Preservation of Trustee's Rights...................................... 81 Section 13.14. Article Applicable to Paying Agents......... 81 Section 13.15. Certain Conversions or Exchanges Deemed Payment..................................... 82
-iv- JUNIOR SUBORDINATED INDENTURE, dated as of ________, 1997, between GREATER BAY BANCORP, a California corporation (hereinafter called the "Company") having its principal office at 2860 West Bayshore Road, Palo Alto, California 94303, and [WILMINGTON TRUST COMPANY],, a Delaware banking corporation, as Trustee (hereinafter called the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its unsecured junior subordinated debt securities in series (hereinafter called the "Securities") of substantially the tenor hereinafter provided, including, without limitation, Securities issued to evidence loans made to the Company of the proceeds from the issuance from time to time by one or more business trusts (each a "GBB Trust," and, collectively, the "GBB Trusts") of preferred trust interests in such Trusts (the Preferred Securities") and common interests in such Trusts (the "Common Securities" and, collectively with the Preferred Securities, the Trust Securities), and to provide the terms and conditions upon which the Securities are to be authenticated, issued and delivered. All things necessary to make the Securities, when executed by the Company and authenticated and delivered hereunder and duly issued by the Company the valid obligations of the Company, and to make this Indenture a valid agreement of the Company, in accordance with their and its terms, have been done. NOW THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities or of any series thereof, as follows: ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION Section 1.1. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) The terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular; (2) All other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (3) All accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles, and the term "generally accepted accounting principles" with respect to any computation required or permitted hereunder shall mean such accounting principles which are generally accepted at the date or time of such computation; provided, that when two or more principles are so generally accepted, it shall mean that set of principles consistent with those in use by the Company; and (4) The words "herein," "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "1940 Act" means the Investment Company Act of 1940, as amended. "Act" when used with respect to any Holder has the meaning specified in Section 1.4. "Additional Interest" means the interest, if any, that shall accrue on any interest on the Securities of any series the payment of which has not been made on the applicable Interest Payment Date and which shall accrue at the rate per annum specified or determined as specified in such Security. "Additional Sums" has the meaning specified in Section 10.6. "Additional Taxes" means the sum of any additional taxes, duties and other governmental charges to which a GBB Trust has become subject from time to time as a result of a Tax Event. "Administrative Trustee" means, in respect of any GBB Trust, each Person identified as an "Administrative Trustee" or an "Administrative Agent" in the related Trust Agreement, solely in such Person's capacity as Administrative Trustee or an Administrative Agent, as the case may be, of such GBB Trust under such Trust Agreement and not in such Person's individual capacity, or any successor administrative trustee or successor administrative agent, as the case may be, appointed as therein provided. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person; provided, however, no GBB Trust to which Securities have been issued shall be deemed to be an Affiliate of the Company. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or -2- otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Allocable Amounts," when used with respect to any Senior and Subordinated Debt, means all amounts due or to become due on such Senior and Subordinated Debt less, if applicable, any amount which would have been paid to, and retained by, the holders of such Senior and Subordinated Debt (whether as a result of the receipt of payments by the holders of such Senior and Subordinated Debt from the Company or any other obligor thereon or from any holders of, or trustee in respect of, other indebtedness that is subordinate and junior in right of payment to such Senior and Subordinated Debt pursuant to any provision of such indebtedness for the payment over of amounts received on account of such indebtedness to the holders of such Senior and Subordinated Debt or otherwise) but for the fact that such Senior and Subordinated Debt is subordinate or junior in right of payment to (or subject to a requirement that amounts received on such Senior and Subordinated Debt be paid over to obligees on) trade accounts payable or accrued liabilities arising in the ordinary course of business. "Authenticating Agent" means any Person authorized by the Trustee pursuant to Section 6.14 to act on behalf of the Trustee to authenticate Securities of one or more series. "Board of Directors" means either the board of directors of the Company or any committee of that board duly authorized to act hereunder. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors, or such committee of the Board of Directors or officers of the Company to which authority to act on behalf of the Board of Directors has been delegated, and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means any day other than (i) a Saturday or Sunday, (ii) a day on which banking institutions in the State of California are authorized or required by law or executive order to remain closed or (iii) a day on which the Corporate Trust Office of the Trustee, or, with respect to the Securities of a series initially issued to a GBB Trust, the principal office of the Property Trustee under the related Trust Agreement, is closed for business. "Capital Treatment Event" means the reasonable determination by the Company that, as a result of any amendment to, or change (including any prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision thereof or therein, or as a result of any official or administrative pronouncement or action or judicial decision interpreting or -3- applying such laws or regulations, which amendment or change is effective or such prospective change, pronouncement or decision is announced on or after the date of issuance of the Preferred Securities of such GBB Trust, there is more than an insubstantial risk of impairment of the Company's ability to treat the Preferred Securities (or any substantial portion thereof) as "Tier I Capital" (or the then equivalent thereof) for purposes of the capital adequacy guidelines of the Federal Reserve, as then in effect and applicable to the Company. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties on such date. "Common Securities" has the meaning specified in the first recital of this Indenture. "Common Stock" means the common stock, par value $_______ per share, of the Company. "Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor corporation shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor corporation. "Company Request" and "Company Order" mean, respectively, the written request or order signed in the name of the Company by the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, its President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. "Corporate Trust Office" means the principal office of the Trustee at which at any particular time its corporate trust business shall be administered. "Corporation" includes a corporation, association, company, joint- stock company or business trust. "Debt" means, with respect to any Person, whether recourse is to all or a portion of the assets of such Person and whether or not contingent, (i) every obligation of such Person for money borrowed; (ii) every obligation of such Person evidenced by bonds, debentures, notes or other similar instruments, including obligations incurred in connection with the acquisition of property, assets or businesses; (iii) every reimbursement obligation of such Person with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of -4- such Person; (iv) every obligation of such Person issued or assumed as the deferred purchase price of property or services (but excluding trade accounts payable or accrued liabilities arising in the ordinary course of business); (v) every capital lease obligation of such Person; (vi) all indebtedness of such Person whether incurred on or prior to the date of this Indenture or thereafter incurred, for claims in respect of derivative products, including interest rate, foreign exchange rate and commodity forward contracts, options and swaps and similar arrangements; and (vii) every obligation of the type referred to in clauses (i) through (vi) of another Person and all dividends of another Person the payment of which, in either case, such Person has guaranteed or is responsible or liable for, directly or indirectly, as obligor or otherwise. "Defaulted Interest" has the meaning specified in Section 3.7. "Depositary" means, with respect to the Securities of any series issuable or issued in whole or in part in the form of one or more Global Securities, the Person designated as Depositary by the Company pursuant to Section 3.1 with respect to such series (or any successor thereto). "Discount Security" means any security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 5.2. "Distributions," with respect to the Trust Securities issued by a GBB Trust, means amounts payable in respect of such Trust Securities as provided in the related Trust Agreement and referred to therein as "Distributions." "Dollar" or "U.S. $" means the currency of the United States of America that, as at the time of payment, is legal tender for the payment of public and private debts. "Event of Default" has the meaning specified in Article V unless otherwise specified in the supplemental indenture or the Officers' Certificate delivered pursuant to Section 3.1 hereof creating a series of Securities. "Exchange Act" means the Securities Exchange Act of 1934 and any statute successor thereto, in each case as amended from time to time. "Extension Period" has the meaning specified in Section 3.11. "Global Security" means a Security in the form prescribed in Section 2.4 evidencing all or part of a series of Securities, issued to the Depositary or its nominee for such series, and registered in the name of such Depositary or its nominee. -5- "GBB Guarantee" means the guarantee by the Company of distributions on the Preferred Securities of a GBB Trust to the extent provided in the related Guarantee Agreement. "GBB Trust" has the meaning specified in the first recital of this Indenture. "Guarantee Agreement" means the Guarantee Agreement substantially in the form attached hereto as Annex C, or substantially in such form as may be specified as contemplated by Section 3.1 with respect to the Securities of any series, in each case as amended from time to time. "Holder" means a Person in whose name a Security is registered in the Securities Register. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof or one or more Officers' Certificates delivered pursuant to Section 3.1 and shall include the terms of each particular series of Securities established as contemplated by Section 3.1. "Interest Payment Date" means as to each series of Securities the Stated Maturity of an installment of interest on such Securities. "Investment Company Event" means, in respect of a GBB Trust, the receipt by a GBB Trust of an Opinion of Counsel, rendered by a law firm experienced in such matters, to the effect that, as a result of change in law or regulation or a change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority, such GBB Trust is or will be considered an "investment company" that is required to be registered under the 1940 Act, which change becomes effective on or after the date of original issuance of the Preferred Securities of such GBB Trust. "Junior Subordinated Payment" has the meaning specified in Section 13.2. "Maturity" when used with respect to any Security means the date on which the principal of such Security becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. "Notice of Default" means a written notice of the kind specified in Section 5.1(3). -6- "Officers' Certificate" means a certificate signed by the Chairman of the Board of Directors, a Vice Chairman of the Board of Directors, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company, and who shall be acceptable to the Trustee. "Original Issue Date" means the date of issuance specified as such in each Security. "Outstanding" means, when used in reference to any Securities, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (i) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities for whose payment money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent in trust for the Holders of such Securities; and (iii) Securities in substitution for or in lieu of which other Securities have been authenticated and delivered or which have been paid pursuant to Section 3.6, unless proof satisfactory to the Trustee is presented that any such Securities are held by Holders in whose hands such Securities are valid, binding and legal obligations of the Company; provided, however, that in determining whether the Holders of the requisite principal amount of Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor. Upon the written request of the Trustee, the Company shall furnish to the Trustee promptly an Officers' Certificate listing and identifying all Securities, if any, known by the Company to be owned or held by or for the account of the Company, or any other obligor on the Securities or any -7- Affiliate of the Company or such obligor, and, subject to the provisions of Section 6.1, the Trustee shall be entitled to accept such Officers' Certificate as conclusive evidence of the facts therein set forth and of the fact that all Securities not listed therein are Outstanding for the purpose of any such determination. "Paying Agent" means the Trustee or any Person authorized by the Company to pay) the principal of or interest on any Securities on behalf of the Company. "Person" means any individual, corporation, partnership, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof. "Place of Payment" means, with respect to the Securities of any series, the place or places where the principal of (and premium, if any) and interest on the Securities of such series are payable pursuant to Sections 3.1 and 3.11. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any security authenticated and delivered under Section 3.6 in lieu of a lost, destroyed or stolen Security shall be deemed to evidence the same debt as the lost, destroyed or stolen Security. "Preferred Securities" has the meaning specified in the first recital of this Indenture. "Proceeding" has the meaning specified in Section 13.2. "Property Trustee" means, in respect of any GBB Trust, the commercial bank or trust company identified as the "Property Trustee" in the related Trust Agreement, solely in its capacity as Property Trustee of such GBB Trust under such Trust Agreement and not in its individual capacity, or its successor in interest in such capacity, or any successor property trustee appointed as therein provided. "Redemption Date," when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price," when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Regular Record Date" for the interest payable on any Interest Payment Date with respect to the Securities of a series means, unless otherwise provided pursuant to Section 3.1 with respect to Securities of a series, (i) in the case of Securities of a series represented by one or more Global Securities, the Business Day next preceding -8- such Interest Payment Date and (ii) in the case of Securities of a series not represented by one or more Global Securities, the date which is fifteen days next preceding such Interest Payment Date (whether or not a Business Day). "Responsible Officer" when used with respect to the Trustee means any officer of the Trustee assigned by the Trustee from time to time to administer its corporate trust matters. "Securities" or "Security" means any debt securities or debt security, as the case may be, authenticated and delivered under this Indenture. "Securities Register" and "Securities Registrar" have the respective meanings specified in Section 3.5. "Senior and Subordinated Debt" means the principal of (and premium, if any) and interest, if any (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company whether or not such claim for post-petition interest is allowed in such proceeding), on Debt of the Company, whether incurred on or prior to the date of this Indenture or thereafter incurred, unless, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such obligations are not superior in right of payment to the Securities, provided, however, that Senior and Subordinated Debt shall not be deemed to include (a) any Debt of the Company which, when incurred and without respect to any election under Section 1111(b) of the Bankruptcy Reform Act of 1978, as amended, was without recourse to the Company, (b) any Debt of the Company to any of its Subsidiaries, (c) Debt to any employee of the Company, and (d) any Securities. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 3.7. "Stated Maturity" when used with respect to any Security or any installment of principal thereof or interest thereon means the date specified pursuant to the terms of such Security as the date on which the principal of such Security or such installment of interest is due and payable, in the case of such principal, as such date may be shortened or extended as provided pursuant to the terms of such Security and this Indenture. "Subsidiary" means a corporation more than 50% of the outstanding voting stock of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries. For purposes of this definition, "voting stock" means stock which ordinarily has voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency. -9- "Tax Event" means the receipt by the Company and the GBB Trust of an Opinion of Counsel (as defined in the relevant GBB Trust Agreement) experienced in such matters to the effect that, as a result of any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, or as a result of any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or such prospective change, pronouncement or decision is announced on or after the date of issuance of the Preferred Securities of such GBB Trust, there is more than an insubstantial risk that (i) such GBB Trust is, or will be within 90 days of the date of such Opinion of Counsel, subject to United States Federal income tax with respect to income received or accrued on the corresponding series of Securities, (ii) interest payable by the Company on such corresponding series of Securities is not, or within 90 days of the date of such Opinion of Counsel, will not be, deductible by the Company, in whole or in part, for United States Federal income tax purposes or (iii) such GBB Trust is, or will be within 90 days of the date of such Opinion of Counsel, subject to more than a de minimis amount of other taxes, duties or other governmental charges. "Trust" has the meaning specified in the first recital of this Indenture. "Trust Agreement" means the Trust Agreement substantially in the form attached hereto as Annex A, as amended by the form of Amended and Restated Trust Agreement substantially in the form attached hereto as Annex B, or substantially in such form as may be specified as contemplated by Section 3.1 with respect to the Securities of any series, in each case as amended from time to time. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean or include each Person who is then a Trustee hereunder and, if at any time there is more than one such Person, "Trustee" as used with respect to the Securities of any series shall mean the Trustee with respect to Securities of that series. "Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-77bbb), as amended and as in effect on the date as of this Indenture, except as provided in Section 9.5. "Trust Securities" has the meaning specified in the first recital of this Indenture. "Vice President" when used with respect to the Company, means any duly appointed vice president, whether or not designated by a number or a word or words added before or after the title "vice president." -10- Section 1.2. Compliance Certificate and Opinions. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent (including covenants, compliance with which constitutes a condition precedent), if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent (including covenants compliance with which constitute a condition precedent), if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than the certificates provided pursuant to Section 10.5) shall include: (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. Section 1.3. Forms of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. -11- Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions, or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. Section 1.4. Acts of Holders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given to or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent or proxy duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments is or are delivered to the Trustee, and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 6.1) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by the certificate of any notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a Person acting in other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. (c) The fact and date of the execution by any Person of any such instrument or writing, or the authority of the Person executing the same, may also -12- be proved in any other manner which the Trustee deems sufficient and in accordance with such reasonable rules as the Trustee may determine. (d) The ownership of Securities shall be proved by the Securities Register. (e) Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the transfer thereof or in exchange therefor or in lieu thereof in respect of anything done or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. (f) The Company may set any day as a record date for the purpose of determining the Holders of Outstanding Securities of any series entitled to give, make or take any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given, made or taken by Holders of Securities of such series, provided that the Company may not set a record date for, and the provisions of this paragraph shall not apply with respect to, the giving or making of any notice, declaration, request or direction referred to in the next paragraph. If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities of the relevant series on such record date, and no other Holders, shall be entitled to take the relevant action, whether or not such Holders remain Holders after such record date, provided that no such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date by Holders of the requisite principal amount of Outstanding Securities of such series on such record date. Nothing in this paragraph shall be construed to prevent the Company from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be canceled and of no effect), and nothing in this paragraph shall be construed to render ineffective any action taken by Holders of the requisite principal amount of Outstanding Securities of the relevant series on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Company, at its own expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Trustee in writing and to each Holder of Securities of the relevant series in the manner set forth in Section 1.6. The Trustee may set any day as a record date for the purpose of determining the Holders of Outstanding Securities of any series entitled to join in the giving or making of (i) any Notice of Default, (ii) any declaration of acceleration referred to in Section 5.2, (iii) any request to institute proceedings referred to in Section 5.7(2) or (iv) any direction referred to in Section 5.12, in each case with respect to Securities of such series. If any record date is set pursuant to this paragraph, the Holders of -13- Outstanding Securities of such series on such record date, and no other Holders, shall be entitled to join in such notice, declaration, request or direction, whether or not such Holders remain Holders after such record date, provided that no such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date by Holders of the requisite principal amount of Outstanding Securities of such series on such record date. Nothing in this paragraph shall be construed to prevent the Trustee from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be canceled and of no effect), and nothing in this paragraph shall be construed to render ineffective any action taken by Holders of the requisite principal amount of Outstanding Securities of the relevant series on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Trustee, at the Company's expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Company in writing and to each Holder of Securities of the relevant series in the manner set forth in Section 1.6. With respect to any record date set pursuant to this Section, the party hereto which sets such record dates may designate any day as the "Expiration Date" and from time to time may change the Expiration Date to any earlier or later day, provided that no such change shall be effective unless notice of the proposed new Expiration Date is given to the other party hereto in writing, and to each Holder of Securities of the relevant series in the manner set forth in Section 10.6, on or prior to the existing Expiration Date. If an Expiration Date is not designated with respect to any record date set pursuant to this Section, the party hereto which set such record date shall be deemed to have initially designated the 180th day after such record date as the Expiration Date with respect thereto, subject to its right to change the Expiration Date as provided in this paragraph. Notwithstanding the foregoing, no Expiration Date shall be later than the 180th day after the applicable record date. (g) Without limiting the foregoing, a Holder entitled hereunder to take any action hereunder with regard to any particular Security may do so with regard to all or any part of the principal amount of such Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of such principal amount. Section 1.5. Notices, Etc. to Trustee and Company. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, -14- (1) the Trustee by any Holder, any holder of Preferred Securities or the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust office, or (2) the Company by the Trustee, any Holder or any holder of Preferred Securities shall be sufficient for every purpose (except as otherwise provided in Section 5.1) hereunder if in writing and mailed, first class, postage prepaid, to the Company, addressed to it at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company. Section 1.6. Notice to Holders; Waiver. Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first class postage prepaid, to each Holder affected by such event, at the address of such Holder as it appears in the Securities Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. Section 1.7. Conflict with Trust Indenture Act. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by any of Sections 310 to 317, inclusive, of the Trust Indenture Act through operation of Section 318(c) thereof, such imposed duties shall control. Section 1.8. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. Section 1.9. Successors and Assigns. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. -15- Section 1.10. Separability Clause. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 1.11 Benefits of Indenture. Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors and assigns, the Holders of Senior and Subordinated Debt, the Holders of the Securities and, to the extent expressly provided in Sections 5.2, 5.8, 5.9, 5.11, 5.13, 9.1 and 9.2, the holders of Preferred Securities, any benefit or any legal or equitable right, remedy or claim under this Indenture. Section 1.12. Governing Law. This Indenture and the Securities shall be governed by and construed in accordance with the laws of the State of California. Section 1.13. Non-Business Days. In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security shall not be a Business Day, then (notwithstanding any other provision of this Indenture or the Securities) payment of interest or principal (and premium, if any) need not be made on such date, but may be made on the next succeeding Business Day (and no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be, until such next succeeding Business Day except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day (in each case with the same force and effect as if made on the Interest Payment Date or Redemption Date or at the Stated Maturity)). ARTICLE II SECURITY FORMS Section 2.1. Forms Generally. The Securities of each series shall be in substantially the forms set forth in this Article, or in such other form or forms as shall be established by or pursuant to a Board Resolution or in one or more indentures supplemental hereto, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture and may have such letters, numbers or -16- other marks of identification and such legends or endorsements placed thereon as may be required to comply with applicable tax laws or the rules of any securities exchange or as may, consistently herewith, be determined by the officers executing such securities, as evidenced by their execution of the Securities. If the form of Securities of any series is established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Company Order contemplated by Section 3.3 with respect to the authentication and delivery of such Securities. The Trustee's certificates of authentication shall be substantially in the form set forth in this Article. The definitive Securities shall be printed, lithographed or engraved or produced by any combination of these methods, if required by any securities exchange on which the Securities may be listed, on a steel engraved border or steel engraved borders or may be produced in any other manner permitted by the rules of any securities exchange on which the Securities may be listed, all as determined by the officers executing such Securities, as evidenced by their execution of such securities. Section 2.2. Form of Face of Security. GREATER BAY BANCORP __% JUNIOR SUBORDINATED DEBENTURE DUE Registered Principal Amount: No. CUSIP No.: Greater Bay Bancorp, a corporation organized and existing under the laws of California (hereinafter called the "Company", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to __________, or registered assigns, the principal sum of $_______ Dollars on _____________; provided that the Company may shorten the Stated Maturity of the principal of this Security to a date not earlier than _____________. The Company further promises to pay interest on said principal sum from _______________ or from the most recent interest payment date (each such date, an "Interest Payment Date") on which interest has been paid or duly provided for, quarterly (subject to deferral as set forth herein) in arrears on the last day of_____ and_____ of each year commencing __________________ at the rate of ____% per annum, until the -17- principal hereof shall have become due and payable, plus Additional Interest, if any, until the principal hereof is paid or duly provided for or made available for payment and on any overdue principal and (without duplication and to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the rate of ____% per annum, compounded quarterly. The amount of interest payable for any period shall be computed on the basis of twelve 30-day months and a 360-day year. The amount of interest payable for any partial period shall be computed on the basis of the number of days elapsed in a 360-day year of twelve 30-day months. In the event that any date on which interest is payable on this Security is not a Business Day, then a payment of the interest payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on the date the payment was originally payable. A "Business Day" shall mean any day other than a Saturday or Sunday a day on which banking institutions in the State of California are authorized or required by law or executive order to remain closed or on a day on which the Corporate Trust Office of the Trustee, or the principal office of the Property Trustee under the Trust Agreement (hereinafter referred to) for [NAME OF TRUST] is closed for business. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest installment, which shall be[insert Record Date] next preceding such Interest Payment Date. Any such interest installment not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than _____ days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. [If applicable insert--So long as no Event of Default has occurred and is continuing, the Company shall have the right at any time during the term of this Security to defer payment of interest on this Security, at any time or from time to time, for up to 20 consecutive quarterly interest payment periods with respect to each deferral period (each an "Extension Period"), (during which Extension Periods the Company shall have the right to make partial payments of interest on any Interest Payment Date, and at the end of which the Company shall pay all interest then accrued and unpaid (together with Additional Interest thereon to the extent permitted by applicable law)); provided, however, that no Extension Period shall -18- extend beyond the Stated Maturity of the principal of this Security; provided, further, that during any such Extension Period, the Company shall not, and shall not permit any Subsidiary of the Company to, (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of the Company's capital stock (which includes common and preferred stock), or (ii) make any payment of principal of or interest or premium, if any, on or repay, repurchase or redeem any debt security of the Company (including Securities issued by the Company pursuant to the Indenture other than the Securities represented by this certificate) that ranks pari passu with or junior in interest to this Security, or (iii) make any guarantee payments with respect to any guarantee by the Company of the debt securities of any Subsidiaries of the Company (if such guarantee ranks pari passu in all respects with or junior in interest to this Security (other than (a) dividends or distributions in capital stock of the Company (which includes common and preferred stock), (b) any declaration of a dividend in connection with the implementation of a stockholders' rights plan, or the issuance of stock under any such plan in the future or the redemption or repurchase of any such rights pursuant thereto, (c) payments under the GBB Guarantee related to the Preferred Securities issued by [NAME OF TRUST], and (d) purchases of Common Stock related to the issuance of Common Stock or rights under any of the Company's benefit plans for its directors, officers or employees or related to the issuance of common stock (or securities convertible into or exchangeable for common stock) as consideration in an acquisition transaction. Prior to the termination of any such Extension Period, the Company may further extend such Extension Period, provided that such extension does not cause such Extension Period to exceed _______ consecutive interest payment periods or to extend beyond the Stated Maturity. Upon the termination of any such Extension Period and upon the payment of all amounts then due on any Interest Payment Date, and subject to the foregoing limitation, the Company may elect to begin a new Extension Period. No interest shall be due and payable during an Extension Period except at the end thereof. The Company shall give the Trustee, the Property Trustee and the Administrative Trustees of [NAME OF TRUST] notice of its election to begin any Extension Period at least ___ Business Days prior to the earlier of (i) the date on which Distributions on the Preferred Securities would be payable except for the election to begin such Extension Period, or (ii) the date the Administrative Trustees are required to give notice to the New York Stock Exchange, the Nasdaq National Market or other applicable stock exchange or automated quotation system on which the Preferred Securities are then listed or quoted or to holders of such Preferred Securities of the record date or (iii) the date such Distributions are payable, but in any event not less than _____ Business Days prior to such record date. The Trustee shall give notice of the Company's election to begin a new Extension Period to the holders of the Preferred Securities. There is no limitation on the number of times that the Company may elect to begin an Extension Period.] -19- Payment of the principal of (and premium, if any) and interest on this Security will be made at the office or agency of the Trustee or at the office of such paying agent or paying agents as the Company may designate from time to time, maintained for that purpose in the United States, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made (i) by check mailed to the address of the Person entitled thereto as such address shall appear in the Securities Register or (ii) by transfer to an account maintained by the person entitled thereto, in immediately available funds, at such place and to such account as may be designated by the Person entitled thereto as specified in the Securities Register. The indebtedness evidenced by this Security is, to the extent provided in the Indenture, unsecured and will rank junior and subordinate and subject in right of payments to the prior payment in full of all Senior and Subordinated Debt, and this Security is issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Security, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his behalf to take such actions as may be necessary or appropriate to effectuate the subordination so provided and (c) appoints the Trustee his attorney-in-fact for any and all such purposes. Each Holder hereof, by his acceptance hereof, waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior and Subordinated Debt, whether now outstanding or hereafter incurred, and waives reliance by each such holder upon said provisions. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. -20- IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. GREATER BAY BANCORP By: ------------------------------ [President or Vice President] Attest: - ------------------------------------ [Secretary or Assistant Secretary] Section 2.3. Form of Reverse of Security. This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under a Junior Subordinated Indenture, dated as of ________, 1997 (herein called the "Indenture"), between the Company and __________ as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Trustee, the Company and the Holders of the Securities, and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof, limited in aggregate principal amount to $_________. All terms used in this Security that are defined in the Indenture and in the Trust Agreement, dated as of _____________, ____, as amended (the "Trust Agreement"), for [insert name of trust] among Greater Bay Bancorp, as Depositor, and the Trustees named therein, shall have the meanings assigned to them in the Indenture or the Trust Agreement, as the case may be. [If applicable, insert--The Company may at any time, at its option, on or after ________, and subject to the terms and conditions of Article XI of the Indenture], [if applicable insert--and subject to the Company having received prior approval of the Board of Governors of the Federal Reserve System (the "Federal Reserve") if then required under applicable capital guidelines or policies of the Federal Reserve] redeem this Security [in whole at any time] [or in part from time to time], without premium or penalty, at a redemption price equal to [insert redemption price] to the Redemption Date.] [If applicable, insert--Upon the occurrence and during the continuation of a Tax Event, Investment Company Event or Capital Treatment Event in respect of a -21- GBB Trust, the Company may, at its option, at any time within 90udays of the occurrence of such Tax Event, Investment Company Event or Capital Treatment Event redeem this Security, [if applicable, insert--in whole but not in part], subject to the provisions of Section 11.7 and the other provisions of Article XI of the Indenture, at a redemption price equal to [insert redemption price] to the Redemption Date. [If applicable, insert--In the event of redemption of this Security in part only, a new Security or Securities of this series for the portion hereof not redeemed will be issued in the name of the Holder hereof upon the cancellation hereof. The Indenture contains provisions for satisfaction and discharge of the entire indebtedness of this Security upon compliance by the Company with certain conditions set forth in the Indenture. The Indenture permits, with certain exceptions as therein provided, the Company and the Trustee at any time to enter into a supplemental indenture or indentures for the purpose of modifying in any manner the rights and obligations of the Company and of the Holders of the Securities, with the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series to be affected by such supplemental indenture. The Indenture also contains provisions permitting Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. [If the Security is not a Discount Security,--As provided in and subject to the provisions of the Indenture, if an Event of Default with respect to the Securities of this series at the time Outstanding occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of this series may declare the principal amount of all the Securities of this series to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), provided that, in the case of the Securities of this series issued to a GBB Trust, if upon an Event of Default, the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of this series fails to declare the principal of all the Securities of this series to be immediately due and payable, the holders of at least 25% in aggregate Liquidation Amount of the Preferred Securities then outstanding shall have such right by a notice in writing to the Company and the Trustee; and upon any such -22- declaration the principal amount of and the accrued interest (including any Additional Interest) on all the Securities of this series shall become immediately due and payable, provided that the payment of principal and interest (including any Additional Interest) on such Securities shall remain subordinated to the extent provided in Article XIII of the Indenture.] [If the Security is a Discount Security,--As provided in and subject to the provisions of the Indenture, if an Event of Default with respect to the Securities of this series at the time Outstanding occurs and is continuing, then and in every such case the Trustee or the Holders of not less than such portion of the principal amount as may be specified in the terms of this series may declare an amount of principal of the Securities of this series to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), provided that, in the case of the Securities of this series issued to a GBB Trust, if upon an Event of Default, the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of this series fails to declare the principal of all the Securities of this series to be immediately due and payable, the holders of at least 25% in aggregate Liquidation Amount of the Preferred Securities then outstanding shall have such right by a notice in writing to the Company and the Trustee. Such amount shall be equal to [insert formula for determining the amount]. Upon any such declaration, such amount of the principal of and the accrued interest (including any Additional Interest) on all the Securities of this series shall become immediately due and payable, provided that the payment of principal and interest (including any Additional Interest) on such Securities shall remain subordinated to the extent provided in Article XIII of the Indenture. Upon payment (i) of the amount of principal so declared due and payable and (ii) of interest on any overdue principal and overdue interest (in each case to the extent that the payment of such interest shall be legally enforceable), all of the Company's obligations in respect of the payment of the principal of and interest, if any, on this Security shall terminate.] No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Securities Register, upon surrender of this Security for registration of transfer at the office or agency of the Company maintained under Section 10.2 of the Indenture duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Securities Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. No service charge -23- shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. The Securities of this series are issuable only in registered form without coupons in denominations of minimum denominations of $[25] and any integral multiples of $[25] in excess thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of such series of a different authorized denomination, as requested by the Holder surrendering the same. The Company and, by its acceptance of this Security or a beneficial interest therein, the Holder of, and any Person that acquires a beneficial interest in, this Security agree that for United States Federal, state and local tax purposes it is intended that this Security constitute indebtedness. THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF. Section 2.4. Additional Provisions Required in Global Security. Any Global Security issued hereunder shall, in addition to the provisions contained in Sections 2.2 and 2.3, bear a legend in substantially the following form: "THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY." -24- Section 2.5. Form of Trustee's Certificate of Authentication. This is one of the Securities referred to in the within mentioned Indenture. Dated: [WILMINGTON TRUST COMPANY] as Trustee By: ------------------------------ Authorized Officer ARTICLE III THE SECURITIES Section 3.1. Title and Terms. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued in one or more series. There shall be established in or pursuant to a Board Resolution, and set forth in an Officers' Certificate (such Officers' Certificate shall have the effect of a supplemental indenture for all purposes hereunder), or established in one or more indentures supplemental hereto, prior to the issuance of Securities of a series: (a) the title of the securities of such series, which shall distinguish the Securities of the series from all other Securities; (b) the limit, if any, upon the aggregate principal amount of the Securities of such series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Section 3.4, 3.5, 3.6, 9.6 or 11.6 and except for any Securities which, pursuant to Section 3.3, are deemed never to have been authenticated and delivered hereunder); provided, however, that the authorized aggregate principal amount of such series may be increased above such amount by a Board Resolution to such effect; (c) the Stated Maturity or Maturities on which the principal of the Securities of such series is payable or the method of determination thereof; -25- (d) the rate or rates, if any, at which the Securities of such series shall bear interest, if any, the rate or rates and extent to which Additional Interest, if any, shall be payable in respect of any Securities of such series, the Interest Payment Dates on which such interest shall be payable, the right, pursuant to Section 3.11 or as otherwise set forth therein, of the Company to defer or extend an Interest Payment Date, and the Regular Record Date for the interest payable on any Interest Payment Date or the method by which any of the foregoing shall be determined; (e) the place or places where the principal of (and premium, if any) and interest on the Securities of such series shall be payable, the place or places where the Securities of such series may be presented for registration of transfer or exchange, and the place or places where notices and demands to or upon the Company in respect of the Securities of such series may be made; (f) the period or periods within or the date or dates on which, if any, the price or prices at which and the terms and conditions upon which the Securities of such series may be redeemed, in whole or in part, at the option of the Company; (g) the obligation or the right, if any, of the Company to prepay, repay or purchase the Securities of such series pursuant to any sinking fund, amortization or analogous provisions, or at the option of a Holder thereof, and the period or periods within which, the price or prices at which, the currency or currencies (including currency unit or units) in which and the other terms and conditions upon which Securities of the series shall be redeemed, repaid or purchased, in whole or in part, pursuant to such obligation; (h) the denominations in which any Securities of such series shall be issuable, if other than denominations of $25 and any integral multiples of $25 in excess thereof; (i) if other than Dollars, the currency or currencies (including currency unit or units) in which the principal of (and premium, if any) and interest, if any, on the Securities of the series shall be payable, or in which the Securities of the series shall be denominated; (j) the additions, modifications or deletions, if any, in the Events of Default or covenants of the Company set forth herein with respect to the Securities of such series; (k) if other than the principal amount thereof, the portion of the principal amount of Securities of such series that shall be payable upon declaration of acceleration of the Maturity thereof; -26- (l) the additions or changes, if any, to this Indenture with respect to the Securities of such series as shall be necessary to permit or facilitate the issuance of the Securities of such series in bearer form, registrable or not registrable as to principal, and with or without interest coupons; (m) any index or indices used to determine the amount of payments of principal of and premium, if any, on the Securities of such series or the manner in which such amounts will be determined; (n) whether the Securities of the series, or any portion thereof, shall initially be issuable in the form of a temporary Global Security representing all or such portion of the Securities of such series and provisions for the exchange of such temporary Global Security for definitive Securities of such series; (o) if applicable, that any Securities of the series shall be issuable in whole or in part in the form of one or more Global Securities and, in such case, the respective Depositaries for such Global Securities, the form of any legend or legends which shall be borne by any such Global Security in addition to or in lieu of that set forth in Section 2.4 and any circumstances in addition to or in lieu of those set forth in Section 3.5 in which any such Global Security may be exchanged in whole or in part for Securities registered, and any transfer of such Global Security in whole or in part may be registered, in the name or names of Persons other than the Depositary for such Global Security or a nominee thereof; (p) the appointment of any Paying Agent or Agents for the Securities of such series; (q) the terms of any right to convert or exchange Securities of such series into any other securities or property of the Company, and the additions or changes, if any, to this Indenture with respect to the Securities of such series to permit or facilitate such conversion or exchange; (r) the form or forms of the Trust Agreement, Amended and Restated Trust Agreement and Guarantee Agreement, if different from the forms attached hereto as Annexes A, B and C, respectively; (s) the relative degree, if any, to which the Securities of the series shall be senior to or be subordinated to other series of Securities in right of payment, whether such other series of Securities are Outstanding or not; and (t) any other terms of the Securities of such series (which terms shall not be inconsistent with the provisions of this Indenture). -27- All Securities of any one series shall be substantially identical except as to denomination and except as may otherwise be provided herein or in or pursuant to such Board Resolution and set forth in such Officers' Certificate or in any such indenture supplemental hereto. If any of the terms of the series are established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officers' Certificate setting forth the terms of the series. The Securities shall be subordinated in right of payment to Senior and Subordinated Debt as provided in Article XIII. Section 3.2. Denominations. The Securities of each series shall be in registered form without coupons and shall be issuable in minimum denominations of $25 and integral multiples of $25 in excess thereof, unless otherwise specified as contemplated by Section 3.1. Section 3.3. Execution, Authentication, Delivery and Dating. The Securities shall be executed on behalf of the Company by its President or one of its Vice Presidents under its corporate seal reproduced or impressed thereon and attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with the Company Order shall authenticate and deliver such Securities. If the form or terms of the Securities of the series have been established by or pursuant to one or more Board Resolutions as permitted by Sections 2.1 and 3.1, in authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee shall be entitled to receive, and (subject to Section 6.1) shall be fully protected in relying upon, an Opinion of Counsel stating, -28- (1) if the form of such Securities has been established by or pursuant to Board Resolution as permitted by Section 2.1, that such form has been established in conformity with the provisions of this Indenture; (2) if the terms of such Securities have been established by or pursuant to Board Resolution as permitted by Section 3.1, that such terms have been established in conformity with the provisions of this Indenture; and (3) that such Securities, when authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of the Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. If such form or terms have been so established, the Trustee shall not be required to authenticate such Securities if the issue of such Securities pursuant to this Indenture will affect the Trustee's own rights, duties or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee. Notwithstanding the provisions of Section 3.1 and of the preceding paragraph, if all Securities of a series are not to be originally issued at one time, it shall not be necessary to deliver the Officers' Certificate otherwise required pursuant to Section 3.1 or the Company Order and Opinion of Counsel otherwise required pursuant to such preceding paragraph at or prior to the authentication of each Security of such series if such documents are delivered at or prior to the authentication upon original issuance of the first Security of such series to be issued. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose, unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by the manual signature of one of its authorized officers, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. Notwithstanding the foregoing, if any Security shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Security to the Trustee for cancellation as provided in Section 3.9, for all purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture. -29- Section 3.4. Temporary Securities. Pending the preparation of definitive Securities of any series, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any denomination, substantially of the tenor of the definitive Securities of such series in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities. If temporary Securities of any series are issued, the Company will cause definitive Securities of such series to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at the office or agency of the Company designated for that purpose without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor one or more definitive Securities of the same series of authorized denominations having the same Original Issue Date and Stated Maturity and having the same terms as such temporary Securities. Until so exchanged, the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series. Section 3.5. Registration, Transfer and Exchange. The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. Such register is herein sometimes referred to as the "Securities Register." The Trustee is hereby appointed "Securities Registrar" for the purpose of registering Securities and transfers of Securities as herein provided. Upon surrender for registration of transfer of any Security at the office or agency of the Company designated for that purpose the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of the same series of any authorized denominations, of a like aggregate principal amount, of the same Original Issue Date and Stated Maturity and having the same terms. At the option of the Holder, Securities may be exchanged for other Securities of the same series of any authorized denominations, of a like aggregate principal amount, of the same Original Issue Date and Stated Maturity and having the same terms, upon surrender of the Securities to be exchanged at such office or agency. -30- Whenever any securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. All Securities issued upon any transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such transfer or exchange. Every Security presented or surrendered for transfer or exchange shall (if so required by the Company or the Securities Registrar) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Securities Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made to a Holder for any transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Securities. No service charge shall be made to a Holder for any transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Securities. The provisions of Clauses (1), (2), (3) and (4) below shall apply only to Global Securities: (1) Each Global Security authenticated under this Indenture shall be registered in the name of the Depositary designated for such Global Security or a nominee thereof and delivered to such Depositary or a nominee thereof or custodian therefor, and each such Global Security shall constitute a single Security for all purposes of this Indenture. (2) Notwithstanding any other provision in this Indenture, no Global Security may be exchanged in whole or in part for Securities registered, and no transfer of a Global Security in whole or in part may be registered, in the name of any Person other than the Depositary for such Global Security or a nominee thereof unless (A) such Depositary (i) has notified the Company that it is unwilling or unable to continue as Depositary for such Global Security or (ii) has ceased to be a clearing agency registered under the Exchange Act at a time when the Depositary is required to be so registered to act as depositary, in each case unless the Company has approved a successor Depositary within 90 days, (B) there shall have occurred and be continuing an Event of Default with respect to such -31- Global Security, (C) the Company in its sole discretion determines that such Global Security will be so exchangeable or transferable or (D) there shall exist such circumstances, if any, in addition to or in lieu of the foregoing as have been specified for this purpose as contemplated by Section 3.1. (3) Subject to Clause (2) above, any exchange of a Global Security for other Securities may be made in whole or in part, and all Securities issued in exchange for a Global Security or any portion thereof shall be registered in such names as the Depositary for such Global Security shall direct. (4) Every Security authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, a Global Security or any portion thereof, whether pursuant to this Section, Section 3.4, 3.6, 9.6 or 11.6 or otherwise, shall be authenticated and delivered in the form of, and shall be, a Global Security, unless such Security is registered in the name of a Person other than the Depositary for such Global Security or a nominee thereof. Neither the Company nor the Trustee shall be required, pursuant to the provisions of this Section, (a) to issue, transfer or exchange any Security of any series during a period beginning at the opening of business 15 days before the day of selection for redemption of Securities pursuant to Article XI and ending at the close of business on the day of mailing of notice of redemption or (b) to transfer or exchange any Security so selected for redemption in whole or in part, except, in the case of any Security to be redeemed in part, any portion thereof not to be redeemed. Section 3.6. Mutilated, Destroyed, Lost and Stolen Securities. If any mutilated Security is surrendered to the Trustee together with such security or indemnity as may be required by the Company or the Trustee to save each of them harmless, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same issue and series of like tenor and principal amount, having the same Original Issue Date and Stated Maturity, and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company and to the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security, and (ii) such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of the same issue and series of like tenor and principal amount, having the same Original Issue Date and Stated Maturity as such destroyed, lost or stolen Security, and bearing a number not contemporaneously outstanding. -32- In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section 3.6 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. Section 3.7. Payment of Interest; Interest Rights Preserved. Interest on any Security of any series which is payable, and is punctually paid or duly provided for, on any Interest Payment Date, shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest in respect of Securities of such series, except that, unless otherwise provided in the Securities of such series, interest payable on the Stated Maturity of the principal of a Security shall be paid to the Person to whom principal is paid. The initial payment of interest on any Security of any series which is issued between a Regular Record Date and the related Interest Payment Date shall be payable as provided in such Security or in the Board Resolution pursuant to Section 3.1 with respect to the related series of Securities. Any interest on any Security which is payable, but is not timely paid or duly provided for, on any Interest Payment Date for Securities of such series (herein called "Defaulted Interest"), shall forthwith cease to be payable to the registered Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities of such series in respect of which interest is in default (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in -33- writing of the amount of Defaulted Interest proposed to be paid on each Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon, the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first class, postage prepaid, to each Holder of a Security of such series at the address of such Holder as it appears in the Securities Register not less than 10 days prior to such Special Record Date. The Trustee may, in its discretion, in the name and at the expense of the Company, cause a similar notice to be published at least once in a newspaper, customarily published in the English language on each Business Day and of general circulation in the [BOROUGH OF ______, THE CITY OF ______], but such publication shall not be a condition precedent to the establishment of such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered on such Special Record Date and shall no longer be payable pursuant to the following Clause (2). (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of the series in respect of which interest is in default may be listed and, upon such notice as may be required by such exchange (or by the Trustee if the Securities are not listed), if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section 3.7, each Security delivered under this Indenture upon transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. Section 3.8. Persons Deemed Owners. The Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name any Security is registered as the owner of such -34- Security for the purpose of receiving payment of principal of and (subject to Section 3.7) any interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. Section 3.9. Cancellation. All Securities surrendered for payment, redemption, transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee, and any such Securities and Securities surrendered directly to the Trustee for any such purpose shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly canceled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Securities shall be destroyed by the Trustee and the Trustee shall deliver to the Company a certificate of such destruction. Section 3.10. Computation of Interest. Except as otherwise specified as contemplated by Section 3.1 for Securities of any series, interest on the Securities of each series for any period shall be computed on the basis of a 360-day year of twelve 30-day months and interest on the Securities of each series for any partial period shall be computed on the basis of the number of days elapsed in a 360-day year of twelve 30-day months. Section 3.11. Deferrals of Interest Payment Dates. If specified as contemplated by Section 2.1 or Section 3.1 with respect to the Securities of a particular series, so long as no Event of Default has occurred and is continuing, the Company shall have the right, at any time during the term of such series, from time to time to defer the payment of interest on such Securities for such period or periods as may be specified as contemplated by Section 3.1 (each, an "Extension Period") during which Extension Periods the Company shall have the right to make partial payments of interest on any Interest Payment Date. No Extension Period shall end on a date other than an Interest Payment Date. At the end of any such Extension Period the Company shall pay all interest then accrued and unpaid on the Securities (together with Additional Interest thereon, if any, at the rate specified for the Securities of such series to the extent permitted by applicable law); provided, however, that no Extension Period shall extend beyond the Stated Maturity of the principal of the Securities of such series; provided, further, that during any such Extension Period, the Company shall not, and shall not permit any Subsidiary to, (i) declare or pay any dividends or distributions on, or -35- redeem, purchase, acquire or make a liquidation payment with respect to, any of the Company's capital stock (which includes common and preferred stock), or (ii) make any payment of principal of or interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Company (including Securities other than the Securities of such series) that ranks pari passu in all respects with or junior in interest to the Securities of such series or make any guarantee payments with respect to any guarantee by the Company of the debt securities of any Subsidiary of the Company if such guarantee rank pari passu in all respects with or junior in interest to the securities of such series (other than (a) dividends or distributions in capital stock of the Company (which includes common and preferred stock), (b) any declaration of a dividend in connection with the implementation of a stockholders' rights plan, or the redemption or repurchase of any such rights pursuant thereto, (c) payments under the GBB Guarantee related to the Preferred Securities issued by the GBB Trust holding Securities of such series, and (d) purchases of Common Stock related to the issuance of Common Stock or rights under any of the Company's benefit plans for its directors, officers or employees). Prior to the termination of any such Extension Period, the Company may further extend such Extension Period, provided that such extension does not cause such Extension Period to extend beyond the Stated Maturity of the principal of such Securities. Upon termination of any Extension Period and upon the payment of all accrued and unpaid interest and any Additional Interest then due on any Interest Payment Date, the Company may elect to begin a new Extension Period, subject to the above requirements. No interest shall be due and payable during an Extension Period, except at the end thereof. The Company shall give the Trustee, the Property Trustee and the Administrative Trustees of the GBB Trust holding Securities of such series notice of its election of any Extension Period (or an extension thereof) at least one Business Day prior to the earlier of (i) the next succeeding date on which Distributions on the Preferred Securities of such GBB Trust would be payable except for the election to begin or extend such Extension Period or (ii) the date the Administrative Trustees are required to give notice to the New York Stock Exchange, the Nasdaq National Market or other applicable stock exchange or automated quotation system on which the Preferred Securities are then listed or quoted or to holders of such Preferred Securities of the record date or (iii) the date such Distributions are payable, but in any event not less than one Business Day prior to such record date. The Trustee shall give notice of the Company's election to begin a new Extension Period to the holders of the Junior Subordinated Debentures. There is no limitation on the number of times that the Company may elect to begin an Extension Period. The Trustee shall promptly give notice of the Company's election to begin any such Extension Period to the Holders of the Outstanding Securities of such series. -36- Section 3.12. Right of Set-Off. With respect to the Securities of a series issued to a GBB Trust, notwithstanding anything to the contrary in the Indenture, the Company shall have the right to set-off any payment it is otherwise required to make thereunder in respect of any such Security to the extent the Company has theretofore made, or is concurrently on the date of such payment making, a payment under the Guarantee Agreement relating to such Security or under Section 5.8 of the Indenture. Section 3.13. Agreed Tax Treatment. Each Security issued hereunder shall provide that the Company and, by its acceptance of a Security or a beneficial interest therein, the Holder of, and any Person that acquires a beneficial interest in, such Security agree that for United States Federal, state and local tax purposes it is intended that such Security constitute indebtedness. Section 3.14. Shortening of Stated Maturity. If specified as contemplated by Section 2.1 or Section 3.1 with respect to the Securities of a particular series, the Company shall have the right to shorten the Stated Maturity of the principal of the Securities of such series at any time to any date not earlier than the first date on which the Company has the right to redeem the Securities of such series. Section 3.15. CUSIP Numbers. The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. -37- ARTICLE IV SATISFACTION AND DISCHARGE Section 4.1. Satisfaction and Discharge of Indenture. This Indenture shall, upon Company Request, cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Securities herein expressly provided for and as otherwise provided in this Section 4.1) and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (1) either (A) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.6 and (ii) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 10.3) have been delivered to the Trustee for cancellation; or (B) all such Securities not theretofore delivered to the Trustee for cancellation (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one year of the date of deposit, or (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of Clause (B) (i), (ii) or (iii) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for such purpose an amount in the currency or currencies in which the Securities of such series are payable sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest (including any Additional Interest) to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and -38- (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 6.7, the obligations of the Trustee to any Authenticating Agent under Section 6.14 and, if money shall have been deposited with the Trustee pursuant to subclause (B) of clause (1) of this Section, the obligations of the Trustee under Section 4.2 and the last paragraph of Section 10.3 shall survive. Section 4.2. Application of Trust Money. Subject to the provisions of the last paragraph of Section 10.3, all money deposited with the Trustee pursuant to Section 4.1 shall be held in trust and applied by the Trustee, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for the payment of which such money or obligations have been deposited with or received by the Trustee. ARTICLE V REMEDIES Section 5.1 Events of Default. "Event of Default", wherever used herein with respect to the Securities of any series, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the payment of any interest upon any Security of that series, including any Additional Interest in respect thereof, when it becomes due and payable, and continuance of such default for a period of 30 days (subject to the deferral of any due date in the case of an Extension Period); or (2) default in the payment of the principal of (or premium, if any, on) any Security of that series at its Maturity; or -39- (3) default in the performance, or breach, in any material respect, of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty a default in the performance of which or the breach of which is elsewhere in this Section 5.1 specifically dealt with), and continuance of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities of that series a written notice specifying such default or breach and requiring it to be remedied; or (4) the entry of a decree or order by a court having jurisdiction in the premises adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law, or appointing a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or of any substantial part of its property or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; or (5) the institution by the Company of proceedings to be adjudicated a bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law, or the consent by it to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit for creditors, or the admission by it in writing of its inability to pay its debts generally as they become due and its willingness to be adjudicated a bankrupt, or the taking of corporate action by the Company in furtherance of any such action; or (6) any other Event of Default provided with respect to Securities of that series. Section 5.2. Acceleration of Maturity; Rescission and Annulment. If an Event of Default (other than an Event of Default specified in Section 5.1(4) or 5.1(5)) with respect to Securities of any series at the time Outstanding occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of that series may declare the principal amount (or, if the Securities of that series are Discount Securities, such portion of the principal amount as may be specified in the terms of that series) of all the Securities of that series to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by -40- Holders), provided that, in the case of the Securities of a series issued to a GBB Trust, if, upon an Event of Default, the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of that series fail to declare the principal of all the Securities of that series to be immediately due and payable, the holders of at least 25% in aggregate liquidation amount of the corresponding series of Preferred Securities then outstanding shall have such right by a notice in writing to the Company and the Trustee; and upon any such declaration such principal amount (or specified portion thereof) of and the accrued interest (including any Additional Interest) on all the Securities of such series shall become immediately due and payable. Payment of principal and interest (including any Additional Interest) on such Securities shall remain subordinated to the extent provided in Article XIII notwithstanding that such amount shall become immediately due and payable as herein provided. If an Event of Default specified in Section 5.1(4) or 5.1(5) with respect to Securities of any series at the time Outstanding occurs, the principal amount of all the Securities of that series (or, if the Securities of that series are Discount Securities, such portion of the principal amount of such Securities as may be specified by the terms of that series) shall automatically, and without any declaration or other action on the part of the Trustee or any Holder, become immediately due and payable. At any time after such a declaration of acceleration with respect to Securities of any series has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the Outstanding Securities of that series, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if: (1) the Company has paid or deposited with the Trustee a sum sufficient to pay: (A) all overdue installments of interest (including any Additional Interest) on all Securities of that series, (B) the principal of (and premium, if any, on) any Securities of that series which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Securities, and (C) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (2) all Events of Default with respect to Securities of that series, other than the non-payment of the principal of Securities of that series which has become -41- due solely by such acceleration, have been cured or waived as provided in Section 5.13. In the case of Securities of a series issued to a GBB Trust, the holders of a majority in aggregate Liquidation Amount (as defined in the Trust Agreement under which such GBB Trust is formed) of the related series of Preferred Securities issued by such GBB Trust shall also have the right to rescind and annul such declaration and its consequences by written notice to the Company and the Trustee subject to the satisfaction of the conditions set forth in Clauses (1) and (2) above of this Section 5.2. No such rescission shall affect any subsequent default or impair any right consequent thereon. Section 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if: (1) default is made in the payment of any installment of interest (including any Additional Interest) on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or (2) default is made in the payment of the principal of (and premium, if any, on) any Security at the Maturity thereof, the Company will, upon demand of the Trustee, pay to the Trustee, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal, including any sinking fund payment or analogous obligations (and premium, if any) and interest (including any Additional Interest); and, in addition thereto, all amounts owing the Trustee under Section 6.7. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Company or any other obligor upon the Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon the Securities, wherever situated. If an Event of Default with respect to Securities of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this -42- Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. Section 5.4. Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, (a) the Trustee (irrespective of whether the principal of the Securities of any series shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal (and premium, if any) or interest (including any Additional Interest)) shall be entitled and empowered, by intervention in such proceeding or otherwise, (i) to file and prove a claim for the whole amount of principal (and premium, if any) and interest (including any Additional Interest) owing and unpaid in respect to the Securities and to file such other papers or documents as may be necessary or advisable and to take any and all actions as are authorized under the Trust Indenture Act in order to have the claims of the Holders and any predecessor to the Trustee under Section 6.7 allowed in any such judicial proceedings; and (ii) in particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same in accordance with Section 5.6; and (b) any custodian, receiver, assignee, trustee, liquidator, sequestrator (or other similar official) in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee for distribution in accordance with Section 5.6, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it and any predecessor Trustee under Section 6.7. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding; provided, however, that the Trustee may, on behalf of the Holders, vote for the election of a trustee in bankruptcy or similar official and be a member of a creditors' or other similar committee. -43- Section 5.5. Trustee May Enforce Claim Without Possession of Securities. All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of all the amounts owing the Trustee and any predecessor Trustee under Section 6.7, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. Section 5.6. Application of Money Collected. Any money or property collected or to be applied by the Trustee with respect to a series of Securities pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money or property on account of principal (or premium, if any) or interest (including any Additional Interest), upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee and any predecessor Trustee under Section 6.7; SECOND: Subject to Article XIII, to the payment of the amounts then due and unpaid upon such series of Securities for principal (and premium, if any) and interest (including any Additional Interest), in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such series of Securities for principal (and premium, if any) and interest (including any Additional Interest), respectively; and THIRD: The balance, if any, to the Person or Persons entitled thereto. Section 5.7. Limitation on Suits. No Holder of any Securities of any series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture or for the appointment of a receiver, assignee, trustee, liquidator, sequestrator (or other similar official) or for any other remedy hereunder, unless: (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities of that series; -44- (2) the Holders of not less than 25% in principal amount of the Outstanding Securities of that series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request: (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of that series; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing itself of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders of Securities, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all such Holders. Section 5.8. Unconditional Right of Holders to Receive Principal, Premium and Interest; Direct Action by Holders of Preferred Securities. Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right which is absolute and unconditional to receive payment of the principal of (and premium, if any) and (subject to Section 3.7) interest (including any Additional Interest) on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of such Holder. In the case of Securities of a series issued to a GBB Trust, any holder of the corresponding series of Preferred Securities issued by such GBB Trust shall have the right, upon the occurrence of an Event of Default described in Section 5.1(1) or 5.1(2), to institute a suit directly against the Company for enforcement of payment to such holder of principal of (premium, if any) and (subject to Section 3.7) interest (including any Additional Interest) on the Securities having a principal amount equal to the aggregate Liquidation Amount (as defined in the Trust Agreement under which such GBB Trust is formed) of such Preferred Securities of the corresponding series held by such holder. -45- Section 5.9. Restoration of Rights and Remedies. If the Trustee, any Holder or any holder of Preferred Securities has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee, such Holder or such holder of Preferred Securities, then and in every such case the Company, the Trustee, the Holders and such holder of Preferred Securities shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Trustee, the Holders and the holders of Preferred Securities shall continue as though no such proceeding had been instituted. Section 5.10. Rights and Remedies Cumulative. Except as otherwise provided in the last paragraph of Section 3.6, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Section 5.11. Delay or Omission Not Waiver. No delay or omission of the Trustee, any Holder of any Security or any holder of any Preferred Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders and the right and remedy given to the holders of Preferred Securities by Section 5.8 may be exercised from time to time, and as often as may be deemed expedient, by the Trustee, the Holders or the holders of Preferred Securities, as the case may be. Section 5.12. Control by Holders. The Holders of a majority in principal amount of the Outstanding Securities of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee, with respect to the Securities of such series, provided that: -46- (1) such direction shall not be in conflict with any rule of law or with this Indenture, (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and (3) subject to the provisions of Section 6.1, the Trustee shall have the right to decline to follow such direction if a Responsible Officer or Officers of the Trustee shall, in good faith, determine that the proceeding so directed would be unjustly prejudicial to the Holders not joining in any such direction or would involve the Trustee in personal liability. Section 5.13. Waiver of Past Defaults. The Holders of not less than a majority in principal amount of the Outstanding Securities of any series and, in the case of any Securities of a series issued to a GBB Trust, the holders of Preferred Securities issued by such GBB Trust may waive any past default hereunder and its consequences with respect to such series except a default: (1) in the payment of the principal of (or premium, if any) or interest (including any Additional Interest) on any Security of such series, or (2) in respect of a covenant or provision hereof which under ArticleuIX cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series affected. Any such waiver shall be deemed to be on behalf of the Holders of all the Securities of such series or, in the case of a waiver by holders of Preferred Securities issued by such GBB Trust, by all holders of Preferred Securities issued by such GBB Trust. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. Section 5.14. Undertaking for Costs. All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs -47- of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the Outstanding Securities of any series, or to any suit instituted by any Holder for the enforcement of the payment of the principal of (or premium, if any) or interest (including any Additional Interest) on any Security on or after the respective Stated Maturities expressed in such Security. Section 5.15. Waiver of Usury, Stay or Extension Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any usury, stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE VI THE TRUSTEE Section 6.1. Certain Duties and Responsibilities. (a) Except during the continuance of an Event of Default; (1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provisions hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture. -48- (b) In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. (c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct except that (1) this Subsection shall not be construed to limit the effect of Subsection (a) of this Section; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of Holders pursuant to Section 5.12 relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture with respect to the Securities of such series. (d) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if there shall be reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (e) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section 6.1. Section 6.2. Notice of Defaults. Within 90 days after actual knowledge by a Responsible Officer of the Trustee of the occurrence of any default hereunder with respect to the Securities of any series, the Trustee shall transmit by mail to all Holders of Securities of such series, as their names and addresses appear in the Securities Register, notice of such default, unless such default shall have been cured or waived; provided, however, that, except in the case of a default in the payment of the principal of (or premium, if any) or interest (including any Additional Interest) on any Security of such series, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or -49- Responsible Officers of the Trustee in good faith determines that the withholding of such notice is in the interests of the Holders of Securities of such series; and provided, further, that, in the case of any default of the character specified in Section 5.1(3), no such notice to Holders of Securities of such series shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to Securities of such series. Section 6.3. Certain Rights of Trustee. Subject to the provisions of Section 6.1: (a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, Security or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (d) the Trustee may consult with counsel and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, indenture, Security or other paper or document, but the Trustee in its discretion may make such inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall -50- determine to make such inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; and (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. Section 6.4. Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and neither the Trustee nor any Authenticating Agent assumes any responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. Neither the Trustee nor any Authenticating Agent shall be accountable for the use or application by the Company of the Securities or the proceeds thereof. Section 6.5. May Hold Securities. The Trustee, any Authenticating Agent, any Paying Agent, any Securities Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 6.8 and 6.13, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Securities Registrar or such other agent. Section 6.6. Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company. Section 6.7. Compensation and Reimbursement. The Company agrees (1) to pay to the Trustee from time to time compensation for all services rendered by it hereunder in such amounts as the Company and the Trustee shall agree from time to time (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); -51- (2) to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense (including the reasonable compensation and the expenses and disbursements of its agents and counsel) incurred without negligence or bad faith, arising out of or in connection with the acceptance or administration of this trust or the performance of its duties hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. This indemnification shall survive the termination of this Agreement. To secure the Company's payment obligations in this Section 6.7, the Company and the Holders agree that the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee. Such lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 5.1(4) or (5) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under the Bankruptcy Reform Act of 1978 or any successor statute. Section 6.8. Disqualification; Conflicting Interests. The Trustee for the Securities of any series issued hereunder shall be subject to the provisions of Section 310(b) of the Trust Indenture Act. Nothing herein shall prevent the Trustee from filing with the Commission the application referred to in the second to last paragraph of said Section 301(b). Section 6.9. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be (a) a corporation organized and doing business under the laws of the United States of America or of any State or Territory or the District of Columbia, authorized under such laws to exercise corporate trust powers and subject to supervision or examination by Federal, State, Territorial or District of Columbia authority, or (b) a corporation or other Person organized and doing business under the laws of a foreign government that is permitted to act as Trustee pursuant to a -52- rule, regulation or order of the Commission, authorized under such laws to exercise corporate trust powers, and subject to supervision or examination by authority of such foreign government or a political subdivision thereof substantially equivalent to supervision or examination applicable to United States institutional trustees, in either case having a combined capital and surplus of at least $50,000,000, subject to supervision or examination by Federal or State authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then, for the purposes of this Section 6.9, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 6.9, it shall resign immediately in the manner and with the effect hereinafter specified in this Article VI. Neither the Company nor any Person directly or indirectly controlling, controlled by or under common control with the Company shall serve as Trustee for the Securities of any series issued hereunder. Section 6.10. Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article VI shall become effective until the acceptance of appointment by the successor Trustee under Section 6.11. (b) The Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. (c) The Trustee may be removed at any time with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series, delivered to the Trustee and to the Company. (d) If at any time: (1) the Trustee shall fail to comply with Section 6.8 after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (2) the Trustee shall cease to be eligible under Section 6.9 and shall fail to resign after written request therefor by the Company or by any such Holder, or -53- (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company, acting pursuant to the authority of a Board Resolution, may remove the Trustee with respect to all Securities, or (ii) subject to Section 5.14, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to all Securities and the appointment of a successor Trustee or Trustees. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause with respect to the Securities of one or more series, the Company, by a Board Resolution, shall promptly appoint a successor Trustee with respect to the Securities of that or those series. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of any series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee with respect to the Securities of such series and supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Securities of any series shall have been so appointed by the Company or the Holders and accepted appointment in the manner hereinafter provided, any Holder who has been a bona fide Holder of a Security for at least six months may, subject to Section 5.14, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. (f) The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series by mailing written notice of such event by first-class mail, postage prepaid, to the Holders of Securities of such series as their names and addresses appear in the Securities Register. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office. Section 6.11. Acceptance of Appointment by Successor. (a) In case of the appointment hereunder of a successor Trustee with respect to all Securities, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the -54- retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. (b) In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Securities of one or more series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts, and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates. (c) Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all rights, powers and trusts referred to in paragraph (a) or (b) of this Section 6.11, as the case may be. -55- (d) No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article VI. Section 6.12. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article VI, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated, and in case any Securities shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor Trustee or in the name of such successor Trustee, and in all cases the certificate of authentication shall have the full force which it is provided anywhere in the Securities or in this Indenture that the certificate of the Trustee shall have. Section 6.13. Preferential Collection of Claims Against Company. If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). Section 6.14. Appointment of Authenticating Agent. The Trustee may appoint an Authenticating Agent or Agents with respect to one or more series of Securities which shall be authorized to act on behalf of the Trustee to authenticate Securities of such series issued upon original issue and upon exchange, registration of transfer or partial redemption thereof or pursuant to Section 3.6, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, or of any State or Territory or the District of Columbia, authorized under such laws to act -56- as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by Federal or State authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section 6.14 the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section 6.14, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section 6.14. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of an Authenticating Agent shall be the successor Authenticating Agent hereunder, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section 6.14, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall give notice of such appointment in the manner provided in Section 1.6 to all Holders of Securities of the series with respect to which such Authenticating Agent will serve. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provision of this Section 6.14. The Trustee agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section 6.14, and the Trustee shall be entitled to be reimbursed for such payments, subject to the provisions of Section 6.7. If an appointment with respect to one or more series is made pursuant to this Section 6.14, the Securities of such series may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternative certificate of authentication in the following form: -57- This is one of the Securities referred to in the within mentioned Indenture. Dated: [WILMINGTON RUST COMPANY] As Trustee By: --------------------------------- As Authenticating Agent By: --------------------------------- Authorized Officer ARTICLE VII HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY Section 7.1. Company to Furnish Trustee Names and Addresses of Holders. The Company will furnish or cause to be furnished to the Trustee: (a) semi-annually, not more than 15 days after _____ and _____ in each year, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of _____ and _____ of such year, and (b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished, excluding from any such list names and addresses received by the Trustee in its capacity as Securities Registrar. Section 7.2. Preservation of Information, Communications to Holders. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 7.1 and the names and addresses of Holders received by the Trustee in its capacity as Securities Registrar. The Trustee may destroy any list furnished to it as provided in Section 7.1 upon receipt of a new list so furnished. -58- (b) The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities, and the corresponding rights and privileges of the Trustee, shall be as provided in the Trust Indenture Act. (c) Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of the disclosure of information as to the names and addresses of the Holders made pursuant to the Trust Indenture Act. Section 7.3. Reports by Trustee. (a) The Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act, at the times and in the manner provided pursuant thereto. (b) Reports so required to be transmitted at stated intervals of not more than 12 months shall be transmitted no later than July 15 in each calendar year, commencing with the first July 15 after the first issuance of Securities under this Indenture. (c) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which any Securities are listed and also with the Commission. The Company will notify the Trustee when any Securities are listed on any stock exchange. Section 7.4. Reports by Company. The Company shall file with the Trustee and with the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided in the Trust Indenture Act; provided that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act shall be filed with the Trustee within 15 days after the same is required to be filed with the Commission. Notwithstanding that the Company may not be required to remain subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company shall continue to file with the Commission and provide the Trustee with the annual reports and the information, documents and other reports which are specified in Sections 13 and 15(d) of the Exchange Act. The Company also shall comply with the other provisions of Trust Indenture Act Section 314(a). -59- ARTICLE VIII CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE Section 8.1. Company May Consolidate, Etc., Only on Certain Terms. The Company shall not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, and no Person shall consolidate with or merge into the Company or convey, transfer or lease its properties and assets substantially as an entirety to the Company, unless: (1) in case the Company shall consolidate with or merge into another Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the corporation formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Company substantially as an entirety shall be a corporation, partnership or trust organized and existing under the laws of the United States of America or any State or the District of Columbia, and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of (and premium, if any) and interest (including any Additional Interest) on all the Securities and the performance of every covenant of this Indenture on the part of the Company to be performed or observed; (2) immediately after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time, or both, would become an Event of Default, shall have happened and be continuing; (3) in the case of the Securities of a series issued to a GBB Trust, such consolidation, merger, conveyance, transfer or lease is permitted under the related Trust Agreement and related GBB Guarantee and does not give rise to any breach or violation of the related Trust Agreement or related GBB Guarantee; and (4) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and any such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with; and the Trustee, subject to Section 6.1, may rely upon such Officers' Certificate and Opinion of Counsel as conclusive evidence that such transaction complies with this Section 8.1. -60- Section 8.2. Successor Corporation Substituted. Upon any consolidation or merger by the Company with or into any other Person, or any conveyance, transfer or lease by the Company of its properties and assets substantially as an entirety to any Person in accordance with Section 8.1, the successor corporation formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; and in the event of any such conveyance, transfer or lease the Company shall be discharged from all obligations and covenants under the Indenture and the Securities and may be dissolved and liquidated. Such successor Person may cause to be signed, and may issue either in its own name or in the name of the Company, any or all of the Securities issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of such successor Person instead of the Company and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver any Securities which previously shall have been signed and delivered by the officers of the Company to the Trustee for authentication pursuant to such provisions and any Securities which such successor Person thereafter shall cause to be signed and delivered to the Trustee on its behalf for the purpose pursuant to such provisions. All the Securities so issued shall in all respects have the same legal rank and benefit under this Indenture as the Securities theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Securities had been issued at the date of the execution hereof. In case of any such consolidation, merger, sale, conveyance or lease, such changes in phraseology and form may be made in the Securities thereafter to be issued as may be appropriate. ARTICLE IX SUPPLEMENTAL INDENTURES Section 9.1. Supplemental Indentures without Consent of Holders. Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, provided, however, that the form and terms of Securities of any series may be established by a Board Resolution, as set forth in the Officers' Certificate delivered -61- to the Trustee pursuant to Section 3.1, without entering into a supplemental indenture for all purposes hereunder, for any of the following purposes: (1) to evidence the succession of another Person to the Company, and the assumption by any such successor of the covenants of the Company herein and in the Securities contained; or (2) to convey, transfer, assign, mortgage or pledge any property to or with the Trustee or to surrender any right or power herein conferred upon the Company; or (3) to establish the form or terms of Securities of any series as permitted by Sections 2.1 or 3.1; or (4) to add to the covenants of the Company for the benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon the Company; or (5) to add any additional Events of Default for the benefit of the Holders of all or any series of Securities (and if such additional Events of Default are to be for the benefit of less than all series of Securities, stating that such additional Events of Default are expressly being included solely for the benefit of such series); or (6) to change or eliminate any of the provisions of this Indenture, provided that any such change or elimination shall become effective only when there is no Security Outstanding of any series created prior to the execution of such supplemental indenture which is entitled to the benefit of such provision; or (7) to cure any ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture, provided that such action pursuant to this clause (7) shall not adversely affect the interest of the Holders of Securities of any series in any material respect or, in the case of the Securities of a series issued to a GBB Trust and for so long as any of the corresponding series of Preferred Securities issued by such GBB Trust shall remain outstanding, the holders of such Preferred Securities; or (8) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 6.11(b); or -62- (9) to comply with the requirements of the Commission in order to effect or maintain the qualification of this Indenture under the Trust Indenture Act. Section 9.2. Supplemental Indentures with Consent of Holders. With the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series affected by such supplemental indenture, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities of such series under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby, (1) except to the extent permitted by Sections 3.11 or 3.14 or as otherwise specified as contemplated by Section 2.1 or Section 3.1 with respect to the deferral of the payment of interest on the Securities of any series or the shortening of the Stated Maturity of the Securities of any series, change the Stated Maturity of the principal of, or any installment of interest (including any Additional Interest) on, any Security, or reduce the principal amount thereof or the rate of interest thereon or reduce any premium payable upon the redemption thereof, or reduce the amount of principal of a Discount Security that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 5.2, or change the place of payment where, or the coin or currency in which, any Security or interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date), or (2) reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or (3) modify any of the provisions of this Section, Section 5.13 or Section 10.5, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Security affected thereby; or (4) modify the provisions in Article XIII of this Indenture with respect to the subordination of Outstanding Securities of any series in a manner adverse to the Holders thereof; -63- provided, further, that, in the case of the Securities of a series issued to a GBB Trust, so long as any of the corresponding series of Preferred Securities issued by such GBB Trust remains outstanding, (i) no such amendment shall be made that adversely affects the holders of such Preferred Securities in any material respect, and no termination of this Indenture shall occur, and no waiver of any Event of Default or compliance with any covenant under this Indenture shall be effective, without the prior consent of the holders of at least a majority of the aggregate liquidation preference of such Preferred Securities then outstanding unless and until the principal (and premium, if any) of the Securities of such series and all accrued and, subject to Section 3.7, unpaid interest (including any Additional Interest) thereon have been paid in full and (ii) no amendment shall be made to Section 5.8 of this Indenture that would impair the rights of the holders of Preferred Securities provided therein without the prior consent of the holders of each Preferred Security then outstanding unless and until the principal (and premium, if any) of the Securities of such series and all accrued and (subject to Section 3.7) unpaid interest (including any Additional Interest) thereon have been paid in full. A supplemental indenture that changes or eliminates any covenant or other provision of this Indenture that has expressly been included solely for the benefit of one or more particular series of Securities or Preferred Securities, or which modifies the rights of the Holders of Securities or holders of Preferred Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities or holders of Preferred Securities of any other series. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. Section 9.3. Execution of Supplemental Indentures. In executing or accepting the additional series of Securities created by any supplemental indenture permitted by this Article or the modifications thereby of any series of Securities previously created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 6.1) shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture, and that all conditions precedent have been complied with. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. -64- Section 9.4. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article IX or delivery to the Trustee of the Officers' Certificate pursuant to Section 3.1 hereof (which Officers' Certificate shall have the effect of a supplemental indenture for all purposes hereunder), this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. Section 9.5. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article IX and every Officers' Certificate delivered to the trustee pursuant to Section 3.1 hereof shall conform to the requirements of the Trust Indenture Act as then in effect. Section 9.6. Reference in Securities to Supplemental Indentures. Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article IX or delivery to the Trustee of the Officers' Certificate pursuant to Section 3.1 hereof (which Officers' Certificate shall have the effect of a supplemental indenture for all purposes hereunder) may, and shall if required by the Company, bear a notation in form approved by the Company as to any matter provided for in such supplemental indenture or such Officers' Certificate. If the Company shall so determine, new Securities of any series so modified as to conform, in the opinion of the Company, to any such supplemental indenture or such Officers's Certificate may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities of such series. ARTICLE X COVENANTS Section 10.1. Payment of Principal, Premium and Interest. The Company covenants and agrees for the benefit of each series of securities that it will duly and punctually pay the principal of (and premium, if any) and interest on the Securities of that series in accordance with the terms of such Securities and this Indenture. -65- Section 10.2. Maintenance of Office or Agency. The Company will maintain in each Place of Payment for any series of Securities, an office or agency where Securities of that series may be presented or surrendered for payment and an office or agency where Securities of that series may be surrendered for transfer or exchange and where notices and demands to or upon the Company in respect of the Securities of that series and this Indenture may be served. The Company initially appoints the Trustee, acting through its Corporate Trust Office, as its agent for said purposes. The Company will give prompt written notice to the Trustee of any change in the location of any such office or agency. If at any time the Company shall fail to maintain such office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all of such purposes, and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in each Place of Payment for Securities of any series for such purposes. The Company will give prompt written notice to the Trustee of any such designation and any change in the location of any such office or agency. Section 10.3. Money for Security Payments to be Held in Trust. If the Company shall at any time act as its own Paying Agent with respect to any series of Securities, it will, on or before each due date of the principal of (and premium, if any) or interest on any of the Securities of such series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal (and premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided, and will promptly notify the Trustee of its failure so to act. Whenever the Company shall have one or more Paying Agents, it will, prior to 10:00 a.m. [______ CITY] time on each due date of the principal of or interest on any Securities, deposit with a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal and premium (if any) or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its failure so to act. -66- The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section 10.3, that such Paying Agent will: (1) hold all sums held by it for the payment of the principal of (and premium, if any) or interest on Securities in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give the Trustee notice of any default by the Company (or any other obligor upon the Securities) in the making of any payment of principal (and premium, if any) or interest: (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent; and (4) comply with the provisions of the Trust Indenture Act applicable to it as a Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest on any Security and remaining unclaimed for two years after such principal (and premium, if any) or interest has become due and payable shall (unless otherwise required by mandatory provision of applicable escheat or abandoned or unclaimed property law) be paid on Company Request to the Company, or (if then held by the Company) shall (unless otherwise required by mandatory provision of applicable escheat or abandoned or unclaimed property law) be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and -67- of general circulation in the [BOROUGH OF ________, THE CITY OF __________], notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. Section 10.4. Statement as to Compliance. The Company shall deliver to the Trustee, within 120 days after the end of each calendar year of the Company ending after the date hereof, an Officers' Certificate covering the preceding calendar year, stating whether or not to the best knowledge of the signers thereof the Company is in default in the performance, observance or fulfillment of or compliance with any of the terms, provisions, covenants and conditions of this Indenture, and if the Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge. For the purpose of this Section 10.4, compliance shall be determined without regard to any grace period or requirement of notice provided pursuant to the terms of this Indenture. Section 10.5. Waiver of Certain Covenants. The Company may omit in any particular instance to comply with any covenant or condition provided pursuant to Sections 3.1, 9.1(3), or 9.1(4) with respect to the Securities of any series, if before or after the time for such compliance the Holders of at least a majority in principal amount of the Outstanding Securities of such series shall, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company in respect of any such covenant or condition shall remain in full force and effect. Section 10.6. Additional Sums. In the case of the Securities of a series issued to a GBB Trust, so long as no Event of Default has occurred and is continuing and except as otherwise specified as contemplated by Section 2.1 or Section 3.1, in the event that (i) such GBB Trust is the Holder of all of the Outstanding Securities of such series, (ii) a Tax Event in respect of such GBB Trust shall have occurred and be continuing and (iii) the Company shall not have (A) redeemed the Securities of such series pursuant to Section 11.7(b) or (B) terminated such GBB Trust pursuant to Section 9.2(b) of the related Trust Agreement, the Company shall pay to such GBB Trust (and its permitted successors or assigns under the related Trust Agreement) for so long as such GBB Trust (or its permitted successor or assignee) is the registered holder of any Securities of such series, such additional amounts as may be necessary in order that the amount of -68- Distributions (including any Additional Amounts (as defined in such Trust Agreement)) then due and payable by such GBB Trust on the related Preferred Securities and Common Securities that at any time remain outstanding in accordance with the terms thereof shall not be reduced as a result of any Additional Taxes (the "Additional Sums"). Whenever in this Indenture or the Securities there is a reference in any context to the payment of principal of or interest on the Securities, such mention shall be deemed to include mention of the payments of the Additional Sums provided for in this paragraph to the extent that, in such context, Additional Sums are, were or would be payable in respect thereof pursuant to the provisions of this paragraph and express mention of the payment of Additional Sums (if applicable) in any provisions hereof shall not be construed as excluding Additional Sums in those provisions hereof where such express mention is not made; provided, however, that the deferral of the payment of interest pursuant to Section 3.11 or the Securities shall not defer the payment of any Additional Sums that may be due and payable. Section 10.7. Additional Covenants. The Company covenants and agrees with each Holder of Securities of any series that it shall not, and it shall not permit any Subsidiary of the Company to, (a) declare or pay any dividends or distributions on, or redeem purchase, acquire or make a liquidation payment with respect to, any shares of the Company's capital stock (which includes common and preferred stock), or (b) make any payment of principal of or interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Company (including Securities other than the Securities of such series) that rank pari passu in all respects with or junior in interest to the Securities of such series or make any guarantee payments with respect to any guarantee by the Company of debt securities of any subsidiary of the Company if such guarantee ranks pari passu in all respects with or junior in interest to the Securities (other than (a) dividends or distributions in capital stock of the Company (which includes common and preferred stock), (b) any declaration of a dividend in connection with the implementation of a rights plan or the redemption or repurchase of any such rights pursuant thereto, (c) payments under the GBB Guarantee related to the Preferred Securities issued by the GBB Trust holding Securities of such series, and (d) purchases of Common Stock related to the issuance of Common Stock or rights under any of the Company's benefit plans for its directors, officers or employees or related to the issuance of Common Stock (or securities convertible into or exchangeable for common stock) as consideration in an acquisition transaction) if at such time (i) there shall have occurred any event of which the Company has actual knowledge that (A) with the giving of notice or the lapse of time or both, would constitute an Event of Default with respect to the Securities of such series and (B) in respect of which the Company shall not have taken reasonable steps to cure, (ii) if the Securities of such series are held by a GBB Trust, the Company shall be in default with respect to its payment of any obligations -69- under the GBB Guarantee relating to the Preferred Securities issued by such GBB Trust or (iii) the Company shall have given notice of its election to begin an Extension Period with respect to the Securities of such series as provided herein and shall not have rescinded such notice, or such Extension Period, or any extension thereof, shall be continuing. The Company also covenants with each Holder of Securities of a series issued to a GBB Trust (i) to maintain directly or indirectly 100% ownership of the Common Securities of such GBB Trust; provided, however, that any permitted successor of the Company hereunder may succeed to the Company's ownership of such Common Securities, (ii) not to voluntarily terminate, wind-up or liquidate such GBB Trust, except (a) in connection with a distribution of the Securities of such series to the holders of Trust Securities in liquidation of such GBB Trust or (b) in connection with certain mergers, consolidations or amalgamations permitted by the related Trust Agreement and (iii) to use its reasonable efforts, consistent with the terms and provisions of such Trust Agreement, to cause such GBB Trust to remain classified as a grantor trust and not an association taxable as a corporation for United States federal income tax purposes. ARTICLE XI REDEMPTION OF SECURITIES Section 11.1 Applicability of This Article. Redemption of Securities of any series (whether by operation of a sinking fund or otherwise) as permitted or required by any form of Security issued pursuant to this Indenture shall be made in accordance with such form of Security and this Article; provided, however, that if any provision of any such form of Security shall conflict with any provision of this Article, the provision of such form of Security shall govern. Except as otherwise set forth in the form of Security for such series, each Security of such series shall be subject to partial redemption only in the amount of $25 or, in the case of the Securities of a series issued to a GBB Trust, $25, or integral multiples of $25 in excess thereof. Section 11.2. Election to Redeem; Notice to Trustee. The election of the Company to redeem any Securities shall be evidenced by or pursuant to a Board Resolution. In case of any redemption at the election of the Company of less than all of the Securities of any particular series and having the same terms, the Company shall, not less than 30 nor more than 60 days prior to the Redemption Date (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such date and of the principal amount of Securities of that series to be redeemed. In the case of any redemption of Securities prior to the expiration of any -70- restriction on such redemption provided in the terms of such Securities, the Company shall furnish the Trustee with an Officers' Certificate and an Opinion of Counsel evidencing compliance with such restriction. Section 11.3. Selection of Securities to be Redeemed. If less than all the Securities of any series are to be redeemed (unless all the Securities of such series and of a specified tenor are to be redeemed or unless such redemption affects only a single Security), the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of a portion of the principal amount of any Security of such series, provided that the portion of the principal amount of any Security not redeemed shall be in an authorized denomination (which shall not be less than the minimum authorized denomination) for such Security. If less than all the Securities of such series and of a specified tenor are to be redeemed (unless such redemption affects only a single Security), the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series and specified tenor not previously called for redemption in accordance with the preceding sentence. The Trustee shall promptly notify the Company in writing of the Securities selected for partial redemption and the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Security redeemed or to be redeemed only in part, to the portion of the principal amount of such Security which has been or is to be redeemed. If the Company shall so direct, Securities registered in the name of the Company, any Affiliate or any Subsidiary thereof shall not be included in the Securities selected for redemption. Section 11.4. Notice of Redemption. Notice of redemption shall be given by first-class mail, postage prepaid, mailed not later than the thirtieth day, and not earlier than the sixtieth day, prior to the Redemption Date, to each Holder of Securities to be redeemed, at the address of such Holder as it appears in the Securities Register. With respect to Securities of each series to be redeemed, each notice of redemption shall state: (a) the Redemption Date; (b) the Redemption Price; -71- (c) if less than all Outstanding Securities of such particular series and having the same terms are to be redeemed, the identification (and, in the case of partial redemption, the respective principal amounts) of the particular Securities to be redeemed; (d) that on the Redemption Date, the Redemption Price will become due and payable upon each such Security or portion thereof, and that interest thereon, if any, shall cease to accrue on and after said date; (e) the place or places where such Securities are to be surrendered for payment of the Redemption Price; and (f) that the redemption is for a sinking fund, if such is the case. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company and shall not be irrevocable. The notice if mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the Holder receives such notice. In any case, a failure to give such notice by mail or any defect in the notice to the Holder of any Security designated for redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of any other Security. Section 11.5. Deposit of Redemption Price. Prior to 10:00 a.m. [______ CITY] time on the Redemption Date specified in the notice of redemption given as provided in Section 11.4, the Company will deposit with the Trustee or with one or more Paying Agents (or if the Company is acting as its own Paying Agent, the Company will segregate and hold in trust as provided in Section 10.3) an amount of money sufficient to pay the Redemption Price of, and any accrued interest (including Additional Interest) on, all the Securities which are to be redeemed on that date. Section 11.6. Payment of Securities Called for Redemption. If any notice of redemption has been given as provided in Section 11.4, the Securities or portion of Securities with respect to which such notice has been given shall become due and payable on the date and at the place or places stated in such notice at the applicable Redemption Price. On presentation and surrender of such Securities at a Place of Payment in said notice specified, the said securities or the specified portions thereof shall be paid and redeemed by the Company at the applicable Redemption Price, together with accrued interest (including any Additional Interest) to the Redemption Date; provided, however, that, unless -72- otherwise specified as contemplated by Section 3.1, installments of interest whose Stated Maturity is on or prior to the Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 3.7. Upon presentation of any Security redeemed in part only, the Company shall execute and the Trustee shall authenticate and deliver to the Holder thereof, at the expense of the Company, a new Security or Securities of the same series, of authorized denominations, in aggregate principal amount equal to the portion of the Security not redeemed so presented and having the same Original Issue Date, Stated Maturity and terms. If a Global Security is so surrendered, such new Security will also be a new Global Security. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal of and premium, if any, on such Security shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Security. Section 11.7. Right of Redemption of Securities Initially Issued to a GBB Trust. In the case of the Securities of a series initially issued to a GBB Trust, except as otherwise specified as contemplated by Section 3.1, the Company, at its option, may redeem such Securities (i) on or after the date five years after the Original Issue Date of such Securities, in whole at any time or in part from time to time, or (ii) upon the occurrence and during the continuation of a Tax Event, Investment Company Event, or Capital Treatment Event, at any time within 90udays following the occurrence of such Tax Event, Investment Company Event or Capital Treatment Event in respect of such GBB Trust, in whole (but not in part), in each case at a Redemption Price equal to 100% of the principal amount thereof. ARTICLE XII SINKING FUNDS Section 12.1. Applicability of Article. The provisions of this Article shall be applicable to any sinking fund for the retirement of Securities of any series except as otherwise specified as contemplated by Section 3.1 for such Securities. The minimum amount of any sinking fund payment provided for by the terms of any Securities of any series is herein referred to as a "mandatory sinking fund payment", and any sinking fund payment in excess of such minimum amount -73- which is permitted to be made by the terms of such Securities of any series is herein referred to as an "optional sinking fund payment". If provided for by the terms of any Securities of any series, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 12.2. Each sinking fund payment shall be applied to the redemption of Securities of any series as provided for by the terms of such Securities. Section 12.2. Satisfaction of Sinking Fund Payments with Securities. In lieu of making all or any part of a mandatory sinking fund payment with respect to any Securities of a series in cash, the Company may at its option, at any time no more than 16 months and no less than 30 days prior to the date on which such sinking fund payment is due, deliver to the Trustee Securities of such series (together with the unmatured coupons, if any, appertaining thereto) theretofore purchased or otherwise acquired by the Company, except Securities of such series that have been redeemed through the application of mandatory or optional sinking fund payments pursuant to the terms of the Securities of such series, accompanied by a Company Order instructing the Trustee to credit such obligations and stating that the Securities of such series were originally issued by the Company by way of bona fide sale or other negotiation for value; provided that the Securities to be so credited have not been previously so credited. The Securities to be so credited shall be received and credited for such purpose by the Trustee at the redemption price for such Securities, as specified in the Securities so to be redeemed, for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly. Section 12.3. Redemption of Securities for Sinking Fund. Not less than 60 days prior to each sinking fund payment date for any series of Securities, the Company will deliver to the Trustee an Officers' Certificate specifying the amount of the next ensuing sinking fund payment for such Securities pursuant to the terms of such Securities, the portion thereof, if any, which is to be satisfied by payment of cash in the currency in which the Securities of such series are payable (except as provided pursuant to Section 3.1) and the portion thereof, if any, which is to be satisfied by delivering and crediting Securities pursuant to Section 12.2 and will also deliver to the Trustee any Securities to be so delivered. Such Officers' Certificate shall be irrevocable and upon its delivery the Company shall be obligated to make the cash payment or payments therein referred to, if any, on or before the succeeding sinking fund payment date. In the case of the failure of the Company to deliver such Officers' Certificate (or, as required by this Indenture, the Securities and coupons, if any, specified in such Officers' Certificate), the sinking fund payment due on the succeeding sinking fund payment date for such series shall be paid entirely in cash and shall be sufficient to redeem the principal amount of the Securities of such series subject to a mandatory sinking fund payment without the right to deliver or -74- credit securities as provided in Section 12.2 and without the right to make the optional sinking fund payment with respect to such series at such time. Any sinking fund payment or payments (mandatory or optional) made in cash plus any unused balance of any preceding sinking fund payments made with respect to the Securities of any particular series shall be applied by the Trustee (or by the Company if the Company is acting as its own Paying Agent) on the sinking fund payment date on which such payment is made (or, if such payment is made before a sinking fund payment date, on the sinking fund payment date immediately following the date of such payment) to the redemption of Securities of such series at the Redemption Price specified in such Securities with respect to the sinking fund. Any sinking fund moneys not so applied or allocated by the Trustee (or, if the Company is acting as its own Paying Agent, segregated and held in trust by the Company as provided in Section 10.3) for such series and together with such payment (or such amount so segregated) shall be applied in accordance with the provisions of this Section 12.3. Any and all sinking fund moneys with respect to the Securities of any particular series held by the Trustee (or if the Company is acting as its own Paying Agent, segregated and held in trust as provided in Section 10.3) on the last sinking fund payment date with respect to Securities of such series and not held for the payment or redemption of particular Securities of such series shall be applied by the Trustee (or by the Company if the Company is acting as its own Paying Agent), together with other moneys, if necessary, to be deposited (or segregated) sufficient for the purpose, to the payment of the principal of the Securities of such series at Maturity. The Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 11.3 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 11.4. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Section 11.6. On or before each sinking fund payment date, the Company shall pay to the Trustee (or, if the Company is acting as its own Paying Agent, the Company shall segregate and hold in trust as provided in Section 10.3) in cash a sum in the currency in which Securities of such series are payable (except as provided pursuant to Section 3.1) equal to the principal and any interest accrued to the Redemption Date for Securities or portions thereof to be redeemed on such sinking fund payment date pursuant to this Section 12.3. Neither the Trustee nor the Company shall redeem any Securities of a series with sinking fund moneys or mail any notice of redemption of Securities of such series by operation of the sinking fund for such series during the continuance of a default in payment of interest, if any, on any Securities of such series or of any Event of Default (other than an Event of Default occurring as a consequence of this paragraph) with respect to the Securities of such series, except that if the notice of redemption shall have been provided in accordance with the provisions hereof, the Trustee (or the Company, if the Company is then acting as its own Paying Agent) -75- shall redeem such Securities if cash sufficient for that purpose shall be deposited with the Trustee (or segregated by the Company) for that purpose in accordance with the terms of this Article XII. Except as aforesaid, any moneys in the sinking fund for such series at the time when any such default or Event of Default shall occur and any moneys thereafter paid into such sinking fund shall, during the continuance of such default or Event of Default, be held as security for the payment of the Securities and coupons, if any, of such series; provided, however, that in case such default or Event of Default shall have been cured or waived herein, such moneys shall thereafter be applied on the next sinking fund payment date for the Securities of such series on which such moneys may be applied pursuant to the provisions of this Section 12.3. ARTICLE XIII SUBORDINATION OF SECURITIES Section 13.1. Securities Subordinate to Senior and Subordinated Debt. The Company covenants and agrees, and each Holder of a Security, by its acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Article XIII, the payment of the principal of (and premium, if any) and interest (including any Additional Interest) on each and all of the Securities are hereby expressly made subordinate and subject in right of payment to the prior payment in full of all amounts then due and payable in respect of all Senior and Subordinated Debt. Section 13.2. Payment Over of Proceeds Upon Dissolution, Etc. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company (each such event, if any, herein sometimes referred to as a "Proceeding"), then the holders of Senior and Subordinated Debt shall be entitled to receive payment in full of Allocable Amounts of such Senior and Subordinated Debt, or provision shall be made for such payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior and Subordinated Debt, before the Holders of the Securities are entitled to receive or retain any payment or distribution of any kind or character, whether in cash, property or securities (including any payment or distribution which may be payable or deliverable by reason of the payment of any other Debt of the Company subordinated to the payment of the Securities, such payment or distribution being hereinafter referred to as a "Junior Subordinated Payment"), on account of principal of (or premium, if any) or interest (including any Additional Interest) on the Securities or on account of the purchase or other acquisition of Securities by the Company or any Subsidiary and to that end the holders of Senior and Subordinated -76- Debt shall be entitled to receive, for application to the payment thereof, any payment or distribution of any kind or character, whether in cash, property or securities, including any Junior Subordinated Payment, which may be payable or deliverable in respect of the Securities in any such Proceeding. In the event that, notwithstanding the foregoing provisions of this Section 13.2, the Trustee or the Holder of any Security shall have received any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, including any Junior Subordinated Payment, before all Allocable Amounts of all Senior and Subordinated Debt are paid in full or payment thereof is provided for in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior and Subordinated Debt, and if such fact shall, at or prior to the time of such payment or distribution, have been made known to the Trustee or, as the case may be, such Holder, then and in such event such payment or distribution shall be paid over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other Person making payment or distribution of assets of the Company for application to the payment of all Allocable Amounts of all Senior and Subordinated Debt remaining unpaid, to the extent necessary to pay all Allocable Amounts of all Senior and Subordinated Debt in full, after giving effect to any concurrent payment or distribution to or for the holders of Senior and Subordinated Debt. For purposes of this Article XIII only, the words "any payment or distribution of any kind or character, whether in cash, property or securities" shall not be deemed to include shares of stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment which securities are subordinated in right of payment to all then outstanding Senior and Subordinated Debt to substantially the same extent as the Securities are so subordinated as provided in this Article XIII. The consolidation of the Company with, or the merger of the Company into, another Person or the liquidation or dissolution of the Company following the sale of all or substantially all of its properties and assets as an entirety to another Person upon the terms and conditions set forth in Article VIII shall not be deemed a Proceeding for the purposes of this Section 13.2 if the Person formed by such consolidation or into which the Company is merged or the Person which acquires by sale such properties and assets as an entirety, as the case may be, shall, as a part of such consolidation, merger, or sale comply with the conditions set forth in Article VIII. Section 13.3. Prior Payment to Senior and Subordinated Debt Upon Acceleration of Securities. In the event that any Securities are declared due and payable before their Stated Maturity, then and in such event the holders of the Senior and Subordinated -77- Debt outstanding at the time such Securities so become due and payable shall be entitled to receive payment in full of all Allocable Amounts due on or in respect of such Senior and Subordinated Debt (including any amounts due upon acceleration), or provision shall be made for such payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior and Subordinated Debt, before the Holders of the Securities are entitled to receive any payment or distribution of any kind or character, whether in cash, properties or securities (including any Junior Subordinated Payment) by the Company on account of the principal of (or premium, if any) or interest (including any Additional Interest) on the Securities or on account of the purchase or other acquisition of Securities by the Company or any Subsidiary; provided, however, that nothing in this Section 13.3 shall prevent the satisfaction of any sinking fund payment in accordance with this Indenture or as otherwise specified as contemplated by Section 3.1 for the Securities of any series by delivering and crediting pursuant to Section 12.2 or as otherwise specified as contemplated by Section 3.1 for the Securities of any series Securities which have been acquired (upon redemption or otherwise) prior to such declaration of acceleration. In the event that, notwithstanding the foregoing, the Company shall make any payment to the Trustee or the Holder of any Security prohibited by the foregoing provisions of this Section 13.3, and if such fact shall, at or prior to the time of such payment, have been made known to the Trustee or, as the case may be, such Holder, then and in such event such payment shall be paid over and delivered forthwith to the Company. The provisions of this Section 13.3 shall not apply to any payment with respect to which Section 13.2 would be applicable. Section 13.4. No Payment When Senior and Subordinated Debt in Default. (a) In the event and during the continuation of any default in the payment of principal of (or premium, if any) or interest on any Senior and Subordinated Debt, or in the event that any event of default with respect to any Senior and Subordinated Debt shall have occurred and be continuing and shall have resulted in such Senior and Subordinated Debt becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable, unless and until such event of default shall have been cured or waived or shall have ceased to exist and such acceleration shall have been rescinded or annulled, or (b) in the event any judicial proceeding shall be pending with respect to any such default in payment or such event or default, then no payment or distribution of any kind or character, whether in cash, properties or securities (including any Junior Subordinated Payment) shall be made by the Company on account of principal of (or premium, if any) or interest (including any Additional Interest), if any, on the Securities or on account of the purchase or other acquisition of Securities by the -78- Company or any Subsidiary, in each case unless and until all Allocable Amounts of such Senior and Subordinated Debt are paid in full; provided, however, that nothing in this Section 13.4 shall prevent the satisfaction of any sinking fund payment in accordance with this Indenture or as otherwise specified as contemplated by Section 3.1 for the Securities of any series by delivering and crediting pursuant to Section 12.2 or as otherwise specified as contemplated by Section 3.1 for the Securities of any series Securities which have been acquired (upon redemption or otherwise) prior to such default in payment or event of default. In the event that, notwithstanding the foregoing, the Company shall make any payment to the Trustee or the Holder of any Security prohibited by the foregoing provisions of this Section 13.4, and if such fact shall, at or prior to the time of such payment, have been made known to the Trustee or, as the case may be, such Holder, then and in such event such payment shall be paid over and delivered forthwith to the Company. The provisions of this Section 13.4 shall not apply to any payment with respect to which Section 13.2 would be applicable. Section 13.5. Payment Permitted If No Default. Nothing contained in this Article XIII or elsewhere in this Indenture or in any of the Securities shall prevent (a) the Company, at any time except during the pendency of any Proceeding referred to in Section 13.2 or under the conditions described in Sections 13.3 and 13.4, from making payments at any time of principal of (and premium, if any) or interest (including Additional Interest) on the Securities, or (b) the application by the Trustee of any money deposited with it hereunder to the payment of or on account of the principal of (and premium, if any) or interest (including any Additional Interest) on the Securities or the retention of such payment by the Holders, if, at the time of such application by the Trustee, it did not have knowledge that such payment would have been prohibited by the provisions of this Article XIII. Section 13.6. Subrogation to Rights of Holders of Senior and Subordinated Debt. Subject to the payment in full of all amounts due or to become due on all Senior and Subordinated Debt, or the provision for such payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior and Subordinated Debt, the Holders of the Securities shall be subrogated to the extent of the payments or distributions made to the holders of such Senior and Subordinated Debt pursuant to the provisions of this Article XIII (equally and ratably with the holders of all indebtedness of the Company which by its express terms is subordinated to Senior and Subordinated Debt of the Company to substantially the -79- same extent as the Securities are subordinated to the Senior and Subordinated Debt and is entitled to like rights of subrogation by reason of any payments or distributions made to holders of such Senior and Subordinated Debt) to the rights of the holders of such Senior and Subordinated Debt to receive payments and distributions of cash, property and securities applicable to the Senior and Subordinated Debt until the principal of (and premium, if any) and interest on the Securities shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of the Senior and Subordinated Debt of any cash, property or securities to which the Holders of the Securities or the Trustee would be entitled except for the provisions of this Article, and no payments over pursuant to the provisions of this Article XIII to the holders of Senior and Subordinated Debt by Holders of the Securities or the Trustee, shall, as among the Company, its creditors other than holders of Senior and Subordinated Debt, and the Holders of the Securities, be deemed to be a payment or distribution by the Company to or on account of the Senior and Subordinated Debt. Section 13.7. Provisions Solely to Define Relative Rights. The provisions of this Article XIII are and are intended solely for the purpose of defining the relative rights of the Holders of the Securities on the one hand and the holders of Senior and Subordinated Debt on the other hand. Nothing contained in this Article XIII or elsewhere in this Indenture or in the Securities is intended to or shall (a) impair, as between the Company and the Holders of the Securities, the obligations of the Company, which are absolute and unconditional, to pay to the Holders of the Securities the principal of (and premium, if any) and interest (including any Additional Interest) on the Securities as and when the same shall become due and payable in accordance with their terms; or (b) affect the relative rights against the Company of the Holders of the Securities and creditors of the Company other than their rights in relation to the holders of Senior and Subordinated Debt; or (c) prevent the Trustee or the Holder of any Security from exercising all remedies otherwise permitted by applicable law upon default under this Indenture including, without limitation, filing and voting claims in any Proceeding, subject to the rights, if any, under this Article XIII of the holders of Senior and Subordinated Debt to receive cash, property and securities otherwise payable or deliverable to the Trustee or such Holder. Section 13.8. Trustee to Effectuate Subordination. Each Holder of a Security by his or her acceptance thereof authorizes and directs the Trustee on his or her behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination provided in this Article XIII and appoints the Trustee his or her attorney-in-fact for any and all such purposes. -80- Section 13.9. No Waiver of Subordination Provisions. No right of any present or future holder of any Senior and Subordinated Debt to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof that any such holder may have or be otherwise charged with. Without in any way limiting the generality of the immediately preceding paragraph, the holders of Senior and Subordinated Debt may, at any time and from to time, without the consent of or notice to the Trustee or the Holders of the Securities, without incurring responsibility to the Holders of the Securities and without impairing or releasing the subordination provided in this Article or the obligations hereunder of the Holders of the Securities to the holders of Senior and Subordinated Debt, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior and Subordinated Debt, or otherwise amend or supplement in any manner Senior and Subordinated Debt or any instrument evidencing the same or any agreement under which Senior and Subordinated Debt is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior and Subordinated Debt; (iii) release any Person liable in any manner for the collection of Senior and Subordinated Debt; and (iv) exercise or refrain from exercising any rights against the Company and any other Person. Section 13.10. Notice to Trustee. The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Securities. Notwithstanding the provisions of this Article XIII or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Securities, unless and until the Trustee shall have received written notice thereof from the Company or a holder of Senior and Subordinated Debt or from any trustee, agent or representative therefor; provided, however, that if the Trustee shall not have received the notice provided for in this Section 13.10 at least two Business Days prior to the date upon which by the terms hereof any monies may become payable for any purpose (including, without limitation, the payment of the principal of (and premium, if any) or interest (including any Additional Interest) on any Security), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such monies and to apply the same to the purpose for -81- which they were received and shall not be affected by any notice to the contrary which may be received by it within two Business Days prior to such date. Subject to the provisions of Section 6.1, the Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior and Subordinated Debt (or a trustee therefor) to establish that such notice has been given by a holder of Senior and Subordinated Debt (or a trustee therefor). In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior and Subordinated Debt to participate in any payment or distribution pursuant to this Article, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior and Subordinated Debt held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. Section 13.11. Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets of the Company referred to in this Article XIII, the Trustee, subject to the provisions of Section 6.1, and the Holders of the Securities shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such Proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of Securities, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior and Subordinated Debt and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article XIII. Section 13.12. Trustee Not Fiduciary for Holders of Senior and Subordinated Debt. The Trustee, in its capacity as trustee under this Indenture, shall not be deemed to owe any fiduciary duty to the holders of Senior and Subordinated Debt and shall not be liable to any such holders if it shall in good faith mistakenly pay over or distribute to Holders of Securities or to the Company or to any other Person cash, property or securities to which any holders of Senior and Subordinated Debt shall be entitled by virtue of this Article or otherwise. -82- Section 13.13. Rights of Trustee as Holder of Senior and Subordinated Debt; Preservation of Trustee's Rights. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article XIII with respect to any Senior and Subordinated Debt which may at any time be held by it, to the same extent as any other holder of Senior and Subordinated Debt, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Section 13.14. Article Applicable to Paying Agents. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article XIII shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article XIII in addition to or in place of the Trustee. Section 13.15. Certain Conversions or Exchanges Deemed Payment. For the purposes of this Article XIII only, (a) the issuance and delivery of junior securities upon conversion or exchange of Securities shall not be deemed to constitute a payment or distribution on account of the principal of (or premium, if any) or interest (including any Additional Interest) on Securities or on account of the purchase or other acquisition of Securities, and (b) the payment, issuance or delivery of cash, property or securities (other than junior securities) upon conversion or exchange of a Security shall be deemed to constitute payment on account of the principal of such security. For the purposes of this Section 13.15, the term "junior securities" means (i) shares of any stock of any class of the Company and (ii) securities of the Company which are subordinated in right of payment to all Senior and Subordinated Debt which may be outstanding at the time of issuance or delivery of such securities to substantially the same extent as, or to a greater extent than, the Securities are so subordinated as provided in this Article XIII. * * * * This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. -83- IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. GREATER BAY BANCORP By: ---------------------------- Its: --------------------------- Attest: By --------------------------- Its ------------------------ [WILMINGTON TRUST COMPANY] as Trustee By: --------------------------- Its: --------------------------- Attest: By --------------------------- Its ------------------------ -84- STATE OF CALIFORNIA ) ) SS. COUNTY OF ) On the _______ day of _________, 1997 before me personally came ______________ to me known, who, being by me duly sworn, did depose and say that he is ____________ of Greater Bay Bancorp, one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; and that he signed his name thereto by authority of the Board of Directors of said corporation. [SEAL] ------------------------------ Notary Public STATE OF DELAWARE ) ) SS. COUNTY OF _______ ) On the _______ day of _________, 1997 before me personally came ______________ to me known, who, being by me duly sworn, did depose and say that he is ____________ of [WILMINGTON TRUST COMPANY], one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; and that he signed his name thereto by authority of the Board of Directors of said corporation. [SEAL] ------------------------------ Notary Public -85- EX-4.2 5 FORM OF OFFICERS' CERTIFICATE AND COMPANY ORDER EXHIBIT 4.2 GREATER BAY BANCORP _____% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES DUE ________ OFFICERS' CERTIFICATE AND COMPANY ORDER --------------------------------------- Pursuant to the Indenture dated as of March _____, 1997 (the "Indenture"), between Greater Bay Bancorp, a California corporation (the "Company") and Wilmington Trust Company, as Debenture Trustee (the "Debenture Trustee") and resolutions adopted by the Company's Board of Directors on ________________; this Officers' Certificate is being delivered to the Debenture Trustee to establish the terms of a series of Securities in accordance with Section 3.1 of the Indenture, to establish the form of the Securities of such series in accordance with Section 2.1 of the Indenture, to request the authentication and delivery of the Securities of such series pursuant to Section 3.3 of the Indenture and to comply with the provisions of Section 1.2 of the Indenture. This Officers' Certificate shall be treated for all purposes under the Indenture as a supplemental indenture thereto. All conditions precedent provided for in the Indenture relating to the establishment of (i) a series of Securities and (ii) the form of Securities of such series have been complied with. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to them in the Indenture. A. Establishment of a Series of Securities pursuant to Section 3.1 of the ---------------------------------------------------------------------- Indenture. - --------- There are hereby established pursuant to Section 3.1 of the Indenture a series of Securities which shall have the following terms: (1) The Securities of such series shall bear the title "_________% Junior Subordinated Deferrable Interest Debentures Due _________________." (2) The aggregate principal amount of such series of Securities to be issued pursuant to this Officers' Certificate and Company Order shall be limited to $_______ (except for Securities authenticated and delivered upon registration of, transfer of, or in exchange for, or in lieu of, other Securities of such series pursuant to Sections 3.4, 3.5, 3.6, 9.6 or 11.7 of the Indenture and except for any Securities which, pursuant to Section 3.3 of the Indenture, are deemed never to have been authenticated and delivered thereunder). -1- (3) The date on which the principal of the Securities is due and payable shall be __________________. (4) The Securities shall bear interest at the rate of _________% per annum (based upon a 360-day year of twelve 30-day months), from and including ___________ or from and including the most recent Interest Payment Date to which interest has been paid or duly provided for, as the case may be, payable quarterly in arrears on ________________, _________________,______________ and _______________ in each year, commencing _____________, until the principal thereof is paid or made available for payment. Each such ______________, _______________,_________________ or _________________ shall be an "Interest Payment Date" for the Securities of such series, and the Business Day next preceding an Interest Payment Date shall be the "Regular Record Date" for the interest payable on such Interest Payment Date. Accrued interest that is not paid on such applicable Interest Payment Date will bear additional interest on the amount thereof (to the extent permitted by law) at a rate per annum of _________% thereof compounded quarterly. In addition, so long as no Event of Default with respect to the Securities has occurred or is continuing, the Company has the right under the Indenture at any time during the term of such Securities to defer the payment of interest at any time or from time to time for a period not exceeding 20 consecutive quarterly periods (each such period an "Extension Period"), provided that no Extension Period may extend beyond the Stated Maturity. At the end of such Extension Period, the Company must pay all interest then accrued and unpaid (together with interest thereon at the annual rate of ___________%, compounded quarterly, to the extent permitted by applicable law). (5) Principal of (and premium, if any) and interest on the Securities will be payable, and, except as provided in Section 3.5 of the Indenture with respect to a Global Security (as defined below), the transfer of the Securities will be registrable and Securities will be exchangeable for Securities bearing identical terms and provisions at the corporate trust office of Wilmington Trust Company, in the City of New York, New York. (6) The Securities will be redeemable in whole at any time and in part from time to time, at the option of the Company at any time on or after ___________, subject to the Company having received prior approval of the Board of Governors of the Federal Reserve System (the "Federal Reserve"), at a redemption price equal to the accrued and unpaid interest on the Securities so redeemed to the date fixed for redemption, plus 100% of the principal amount thereof. In addition, upon the occurrence of a Capital Treatment Event, an Investment Company Event or a Tax Event (as defined below) the Company may, at its option and subject to receipt of prior approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve, redeem the Securities in whole (but not in part) at any time within 90 days of the occurrence of such Capital Treatment Event, -2- Investment Company Event or Tax Event, at a redemption price equal to the accrued and unpaid interest on the Securities so redeemed to the date fixed for redemption, plus 100% of the principal amount thereof. "Capital Treatment Event" means the reasonable determination by the Company that, as a result of any amendment to, or change (including any prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision thereof or therein, or as a result of any official or administrative pronouncement or action or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or such prospective change, pronouncement or decision is announced on or after the date of issuance of the ________ % Cumulative Trust Preferred Securities (Liquidation Amount $25 per Trust Preferred Security) (the "Preferred Securities") of GBB Capital I, a statutory business trust formed under the laws of the State of Delaware ("GBB Capital"), there is more than an insubstantial risk of impairment of the Company's ability to treat the Preferred Securities (or any substantial portion thereof) as "Tier I Capital" (or the then equivalent thereof) for purposes of the capital adequacy guidelines of the Federal Reserve, as then in effect and applicable to the Company. "Investment Company Event" "means the receipt by the Company and GBB Capital of an opinion of counsel, rendered by a law firm experienced in such matters, to the effect that, as a result of any change in law or regulation or a change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority, GBB Capital is or will be considered an "investment company" that is required to be registered under the Investment Company Act of 1940, as amended, which change becomes effective on or after the date of original issuance of the Preferred Securities of GBB Capital. "Tax Event" means the receipt by the Company and GBB Capital of an opinion of counsel experienced in such matters to the effect that, as a result of any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, or as a result of any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or such prospective change, pronouncement or decision is announced on or after the date of issuance of the Preferred Securities of GBB Capital, there is more than an insubstantial risk that (i) GBB Capital is, or will be within 90 days of the date of such opinion of counsel, subject to United States Federal income tax with respect to income received or accrued on the Securities, (ii) interest payable by the Company on the Securities is not, or within 90 days of the date of such opinion of counsel, will not be, deductible by the Company, in whole or in part, for United States Federal income tax purposes or (iii) GBB Capital is, or will be within 90 days of the date of such opinion of counsel, subject to more than a de minimis amount of other taxes, duties or other governmental charges. -3- (7) The Company shall not be obligated to prepay, repay or purchase any Securities pursuant to any sinking fund, amortization or analogous provisions or at the option of the Holder. (8) The Securities will be issued only in fully registered form and the authorized minimum denomination of the Securities shall be $25 and any integral multiple of $25 in excess thereof. (9) The Securities shall be denominated, and payments of principal of (and premium, if any) and interest on the Securities of such series will be payable, in United States dollars. (10) The Securities shall be subject to the Events of Default specified in Section 5.1, paragraphs (1) through (7), of the Indenture. (11) The portion of the principal amount of the Securities which shall be payable upon declaration of acceleration of maturity thereof shall not be other than the principal amount thereof, provided, that, if such acceleration is declared by the Holders of at least 25% in aggregate liquidation amount of the Preferred Securities of GBB Capital then outstanding, then, upon such declaration of acceleration, the Securities which shall be payable shall be the principal amount thereof plus accrued interest (including any Additional Interest). (12) The Securities will be issued in fully registered form, without coupons. The Securities will not be issued in bearer form. (13) The amount of payments of principal of and any premium or interest on the Securities will not be determined with reference to an index. (14) The Securities shall not be issued in the form of a temporary Global Security (as defined below). (15) The Securities will initially be in certificated form registered in the name of the name of Wilmington Trust Company, as Property Trustee (the "Certificated Securities"). The Securities may, in the sole discretion of the Company, be deposited with, and on behalf of, The Depository Trust Company, New York, New York, as Depositary, and will be represented by a global security (a "Global Security") registered in the name of a nominee of the Depositary. If, and so long as the Depositary or its nominee is the registered holder of any Global Security, the Depositary or its nominee, as the case may be, will be considered the sole Holder of the Securities of such series represented by such Global Security for all purposes under the Indenture and the Securities. The Certificated Securities or the Global Securities, as the case may be, shall bear no legends. -4- (16) The Trustee shall be Paying Agent. (17) The Securities will not be convertible into any other securities or property of the Company. The Securities of any series may not be exchanged for Securities of any other series. (18) The Trust Agreement, the Amended and Restated Trust Agreement and the Guarantee Agreement are in the forms attached hereto as Exhibits A, B and C respectively. (19) The Securities are subordinate and subject in right of payment to the prior payment in full of all amounts then due and payable in respect of all Senior and Subordinated Debt, as provided in the Indenture. (20) The Securities of such series shall have such other terms and provisions as are provided in the form set forth in Exhibit D hereto. B. Establishment of Forms of Securities Pursuant to Section 2.1 of --------------------------------------------------------------- Indenture. - --------- It is hereby established pursuant to Section 2.1 of the Indenture that the Global Security representing the Securities shall be substantially in the form attached as Exhibit D hereto. C. Order for the Authentication and Delivery of Securities Pursuant to ------------------------------------------------------------------- Section 3.3 of the Indenture. - ---------------------------- It is hereby ordered pursuant to Section 3.3 of the Indenture that the Trustee authenticate, in the manner provided by the Indenture, Securities in the aggregate principal amount of $_____________ registered in the name of Wilmington Trust Company, as Property Trustee, which Securities have been heretofore duly executed by the proper officers of the Company and delivered to you as provided in the Indenture, and to deliver said authenticated Securities to Wilmington Trust Company or its custodian on or before 9:30 a.m. on _____________. D. Other Matters. ------------- Attached as Exhibit E hereto are true and correct copies of resolutions adopted by the Board of Directors of the Company at a meeting on ______________; such resolutions have not been further amended, modified or rescinded and remain in full force and effect; and such resolutions (together with this Officer's Certificate) are the only resolution or other action adopted by the Company's Board of Directors or any committee thereof or by any Authorized Officers relating to the offering and sale of the Securities. -5- The undersigned have read the pertinent sections of the Indenture including the related definitions contained therein. The undersigned have examined the resolutions adopted by the Board of Directors of the Company. In the opinion of the undersigned, the undersigned have made such examination or investigation as is necessary to enable the undersigned to express an informed opinion as to whether or not the conditions precedent to the establishment of (i) a series of Securities, (ii) the forms of such Securities and (iii) authentication of such series of Securities, contained in the Indenture have been complied with. In the opinion of the undersigned, such conditions have been complied with. -6- IN WITNESS WHEREOF, the undersigned have executed this Certificate this ______th day of March, 1997. GREATER BAY BANCORP By____________________________ -7- EX-4.4 6 CERTIFICATE OF TRUST Exhibit 4.4 CERTIFICATE OF TRUST OF GBB CAPITAL I This Certificate of Trust of GBB Capital I (the "Trust"), dated February __, 1997, is being duly executed and filed by the undersigned, as trustees, to form a business trust under the Delaware Business Trust Act (12 Del. C. ((S)) 3801 et seq.). 1. Name. The name of the business trust being formed hereby is GBB Capital I. 2. Delaware Trustee. The name and business address of the trustee of the Trust in the State of Delaware are Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890, Attention: Corporate Trust Administrator. 3. Effective Date. This Certificate of Trust shall be effective upon its filing. In Witness Whereof, the undersigned, being the trustees of the Trust, have executed this Certificate of Trust as of the date first above written. Wilmington Trust Company, as Trustee By: /s/ Emmett R. Harmon ------------------------- Name: Emmett R. Harmon Title: Vice President /s/ David L. Kalkbrenner ----------------------------- David L. Kalkbrenner, Administrative Trustee /s/ Steven C. Smith ----------------------------- Steven C. Smith, Administrative Trustee /s/ James R. Ramsey ----------------------------- James R. Ramsey, Administrative Trustee EX-4.5 7 TRUST AGREEMENT EXHIBIT 4.5 TRUST AGREEMENT This TRUST AGREEMENT, dated as of February __, 1997 (this "Trust Agreement"), among (i) Greater Bay Bancorp, a California corporation (the "Depositor"), (ii) Wilmington Trust Company, a Delaware banking corporation, as trustee, and (iii) David L. Kalkbrenner, Steven C. Smith and James R. Ramsey, each an individual, as trustees (each of such trustees in (ii) and (iii) a "Trustee" and collectively, the "Trustees"). The depositor and the Trustees hereby agree as follows: 1. The trust created hereby (the "Trust") shall be known as "GBB Capital I" in which name the Trustees, or the Depositor to the extent provided herein, may engage in the transactions contemplated hereby, make and execute contracts, and sue and be sued. 2. The Depositor hereby assigns, transfers, conveys and sets over to the Trustees the sum of Ten Dollars ($10.00). The Trustees hereby acknowledge receipt of such amount in trust from the Depositor, which amount shall constitute the initial trust estate. The Trustees hereby declare that they will hold the trust estate in trust for the Depositor. It is the intention of the parties hereto that the Trust created hereby constitute a business trust under Chapter 38 of Title 12 of the Delaware Code, 12 Del. C. Section 3801, et seq. (the "Business Trust Act"), and that this document constitutes the governing instrument of the Trust. The Trustees are hereby authorized and directed to execute and file a certificate of trust with the Delaware Secretary of State in accordance with the provisions of the Business Trust Act. 3. The Depositor and the Trustees will enter into an amended and restated Trust Agreement, satisfactory to each such party and substantially in the form included as an exhibit to the 1933 Act Registration Statement (as defined below), to provide for the contemplated operation of the Trust created hereby and the issuance of the Trust Preferred Securities and Common Securities referred to therein. Prior to the execution and delivery of such amended and restated Trust Agreement, the Trustees shall not have any duty or obligation hereunder or with respect to the trust estate, except as otherwise required by applicable law or as may be necessary to obtain prior to such execution and delivery any licenses, consents or approvals required by applicable law or otherwise. 4. The Depositor and the Trustees hereby authorize and direct the Depositor, as the sponsor of the Trust, (i) to file with the Securities and Exchange Commission (the "Commission") and execute, in each case on behalf of the Trust, (a) the Registration Statement on Form S-1 (the "1933 Act Registration Statement"), including any pre-effective or post-effective amendments to the 1933 Act Registration Statement, relating to the registration under the Securities Act of 1933, as amended, of the Trust Preferred Securities of the Trust and possibly certain other securities and (b) if required, a Registration Statement on Form 8-A (the "1934 Act Registration Statement") (including all pre-effective and post-effective amendments thereto) 1 relating to the registration of the Trust Preferred Securities of the Trust under the Securities Exchange Act of 1934, as amended; (ii) to file with the Nasdaq National Market or a national stock exchange (each, an "Exchange") and execute on behalf of the Trust one or more listing applications and all other applications, statements, certificates, agreements and other instruments as shall be necessary or desirable to cause the Trust Preferred Securities to be listed on any of the Exchanges; (iii) to file and execute on behalf of the Trust such applications, reports, surety bonds, irrevocable consents, appointments of attorney for service of process and other papers and documents as shall be necessary or desirable to register the Capital Securities under the securities or blue sky laws of such jurisdictions as the Depositor, on behalf of the Trust, may deem necessary or desirable; and (iv) to execute on behalf of the Trust that certain Underwriting Agreement relating to the Trust Preferred Securities, among the Trust, the Depositor and the Underwriter named therein, substantially in the form included as an exhibit to the 1933 Act Registration Statement. In the event that any filing referred to in clauses (i), (ii) and (iii) above is required by the rules and regulations of the Commission, an Exchange or state securities or blue sky laws to be executed on behalf of the Trust by one or more of the Trustees, each of the Trustees in such Trustee's capacity as a Trustee of the Trust, is hereby authorized and, to the extent so required, directed to join in any such filing and to execute on behalf of the Trust any and all of the foregoing, it being understood that Wilmington Trust Company in its capacity as a Trustee of the Trust shall not be required to join in any such filing or execute on behalf of the Trust any such document unless required by the rules and regulations of the Commission, the Exchange or state securities or blue sky laws. In connection with the filings referred to above, the Depositor and David L. Kalkbrenner, Steven C. Smith and James R. Ramsey, each as Trustees and not in their individual capacities, hereby constitutes and appoints David L. Kalkbrenner, Steven C. Smith and James R. Ramsey, and each of them, as the Depositor's or such Trustee's true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for the Depositor or such Trustee or in the Depositor's or such Trustee's name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to the 1933 Act Registration Statement and the 1934 Act Registration Statement (if required) and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Commission, the Exchange and administrators of the state securities or blue sky laws, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully and to all intents and purposes as the Depositor or such Trustee might or could do in person, hereby ratifying and confirming all that said attorneys- in-fact and agents or any of them, or their respective substitute or substitutes, shall do or cause to be done by virtue hereof. 5. This Trust Agreement may be executed in one or more counterparts. 6. The number of Trustees initially shall be four (4) and thereafter the number of Trustees shall be such number as shall be fixed from time to time by a written instrument signed by the Depositor which may increase or decrease the number of Trustees; provided, however, that to the extent required by the Business Trust Act, one Trustee shall either be a natural person who is a resident of the State of Delaware or, if not a natural person, an entity which has its principal 2 place of business in the State of Delaware and otherwise meets the requirements of applicable Delaware law. Subject to the foregoing, the Depositor is entitled to appoint or remove without cause any Trustee at any time. The Trustees may resign upon thirty (30) days' prior notice to the Depositor. 7. This Trust Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware (without regard to conflict of laws of principles). IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement to be duly executed as of the day and year first above written. GREATER BAY BANCORP as Depositor By: /s/ David L. Kalkbrenner ------------------------ Name: David L. Kalkbrenner Title: Chief Executive Officer WILMINGTON TRUST COMPANY, as Trustee By: /s/ Emmett R. Harmon -------------------- Name: Emmett R. Harmon Title: Vice President By: /s/ David L. Kalkbrenner ------------------------ David L. Kalkbrenner, as Trustee By: /s/ Steven C. Smith ------------------- Steven C. Smith, as Trustee By: /s/ James R. Ramsey ------------------- James R. Ramsey, as Trustee 3 EX-4.6 8 AMENDED AND RESTATED TRUST AGREEMENT Exhibit 4.6 AMENDED AND RESTATED TRUST AGREEMENT among Greater Bay Bancorp, as Depositor, Wilmington Trust Company, as Property Trustee, Wilmington Trust Company, as Delaware Trustee, and THE ADMINISTRATIVE TRUSTEES NAMED HEREIN Dated as of ___________, 1997 GBB CAPITAL I
TABLE OF CONTENTS ----------------- PAGE ---- AMENDED AND RESTATED TRUST AGREEMENT (this "Trust Agreement") ..................................... 2 ARTICLE I. Defined Terms ..................................... 2 Section 1.1. Definitions .................................. 2 ARTICLE II. Establishment of the Trust ........................ 11 Section 2.1. Name ......................................... 11 Section 2.2. Office of the Delaware Trustee; Principal Place of Business ................................. 11 Section 2.3. Initial Contribution of Trust Property; Organizational Expenses ........................... 11 Section 2.4. Issuance of the Preferred Securities ......... 12 Section 2.5. Issuance of the Common Securities; Subscription and Purchase of Debentures............ 12 Section 2.6. Declaration of Trust ......................... 12 Section 2.7. Authorization to Enter into Certain Transactions ...................................... 13 Section 2.8. Assets of Trust .............................. 16 Section 2.9. Title to Trust Property ...................... 16 ARTICLE III. Payment Account .................................. 16 Section 3.1. Payment Account .............................. 16 ARTICLE IV. Distributions; Redemption ......................... 17 Section 4.1. Distributions ............................... 17 Section 4.2. Redemption .................................. 18 Section 4.3. Subordination of Common Securities .......... 20 Section 4.4. Payment Procedures .......................... 20 Section 4.5. Tax Returns and Reports ..................... 20 Section 4.6. Payment of Taxes, Duties, Etc. of the Trust . 21 Section 4.7. Payments under Indenture or Pursuant to Direct Actions ................................... 21 ARTICLE V. Trust Preferred Securities Certificates ........... 21 Section 5.1. Initial Ownership ........................... 21 Section 5.2. The Trust Preferred Securities Certificates . 21 Section 5.3. Execution and Delivery of Trust Preferred Securities Certificates .......................... 22 Section 5.4. Registration of Transfer and Exchange of Preferred Securities Certificates................. 22
i PAGE ---- Section 5.5. Mutilated, Destroyed, Lost or Stolen Trust Preferred Securities Certificates .. 23 Section 5.6. Persons Deemed Securityholders ............. 23 Section 5.7. Access to List of Securityholders' Names and Addresses ................................... 23 Section 5.8. Maintenance of Office or Agency ............ 24 Section 5.9. Appointment of Paying Agent ................ 24 Section 5.10. Ownership of Common Securities by Depositor 25 Section 5.11. Book-Entry Preferred Securities Certificates; Common Securities Certificate...... 25 Section 5.12. Notices to Clearing Agency ................ 26 Section 5.13. Definitive Preferred Securities Certificates 26 Section 5.14. Rights of Securityholders ................. 26 ARTICLE VI. Acts of Securityholders; Meetings; Voting .......... 28 Section 6.1. Limitations on Voting Rights ............... 28 Section 6.2. Notice of Meetings ......................... 29 Section 6.3. Meetings of Preferred Security holders ..... 30 Section 6.4. Voting Rights .............................. 30 Section 6.5. Proxies, etc ............................... 30 Section 6.6. Securityholder Action by Written Consent ... 30 Section 6.7. Record Date for Voting and Other Purposes .. 31 Section 6.8. Acts of Securityholders .................... 31 Section 6.9. Inspection of Records ...................... 32 ARTICLE VII. Representations and Warranties .................... 32 Section 7.1. Representations and Warranties of the Property Trustee and the Delaware Trustee ....... 32 Section 7.2. Representations and Warranties of Depositor 33 ARTICLE VIII. The Trustees ..................................... 34 Section 8.1. Certain Duties and Responsibilities ........ 34 Section 8.2. Certain Notices ............................ 35 Section 8.3. Certain Rights of Property Trustee ......................................... 36 Section 8.4. Not Responsible for Recitals or Issuance of Securities .............. 38 Section 8.5. May Hold Securities ........................ 38 Section 8.6. Compensation; Indemnity; Fees ............................................ 38 Section 8.7. Corporate Property Trustee Required; Eligibility of Trustees ............... 39 Section 8.8. Conflicting Interests ...................... 39 Section 8.9. Co-Trustees and Separate Trustee ........... 40 Section 8.10. Resignation and Removal Appointment of Successor ....................................... 41
ii
PAGE ---- Section 8.11. Acceptance of Appointment by Successor ............................... 42 Section 8.12. Merger, Conversion, Consolidation or Succession to Business................... 43 Section 8.13. Preferential Collection of Claims Against Depositor or Trust ................. 43 Section 8.14. Reports by Property Trustee........... 44 Section 8.15. Reports to the Property Trustee ...... 45 Section 8.16. Evidence of Compliance with Conditions Precedent ................................... 45 Section 8.17. Number of Trustees .................... 45 Section 8.18. Delegation of Power ................... 45 Section 8.19. Voting ................................ 46 ARTICLE IX. Termination, Liquidation and Merger ........... 46 Section 9.1. Termination Upon Expiration Date ....... 46 Section 9.2. Early Termination ...................... 46 Section 9.3. Termination ............................ 46 Section 9.4. Liquidation ............................ 47 Section 9.5. Mergers, Consolidations, Amalgamations or Replacements of the Trust ................ 48 ARTICLE X. Miscellaneous Provisions ....................... 49 Section 10.1. Limitation of Rights of Security holders ..................................... 49 Section 10.2. Amendment ............................. 49 Section 10.3. Separability .......................... 50 Section 10.4. Governing Law ......................... 51 Section 10.5. Payments Due on Non-Business Day ...... 51 Section 10.6. Successors ............................ 51 Section 10.7. Headings .............................. 51 Section 10.8. Reports, Notices and Demands .......... 51 Section 10.9. Agreement Not to Petition ............. 52 Section 10.10. Trust Indenture Act; Conflict with Trust Indenture Act ......................... 52 Section 10.11. Acceptance of Terms of Trust Agreement, Guarantee and Indenture ..................... 53 EXHIBIT A .................................................. 55 EXHIBIT B .................................................. 56 EXHIBIT C .................................................. 61 EXHIBIT D .................................................. 62 EXHIBIT E .................................................. 66
iii GBB CAPITAL I Certain Sections of this Trust Agreement relating to Sections 310 through 318 of the Trust Indenture Act of 1939:
Trust Indenture Trust Agreement Act Section Section ----------- -------- (S) 310 (a) (1) 8.7 (a) (2) 8.7 (a) (3) 8.7 (a) (4) 2.7 (a) (ii) (b) (S) 311 (a) 8.13 (b) 8.13 (S) 312 (a) 5.7 (b) 5.7 (c) 5.7 (S) 313 (a) 8.14 (a) (a) (4) 8.14 (b) (b) 8.14 (b) (c) 10.8 (d) 8.14 (c) (S) 314 (a) 8.15 (b) Not Applicable (c) (1) 8.16 (c) (2) 8.16 (c) (3) Not Applicable (d) Not Applicable (e) 1.1, 8.16 (S) 315 (a) 8.1 (a), 8.3 (a) (b) 8.2, 10.8 (c) 8.1 (a) (d) 8.1, 8.3 (e) Not Applicable (S) 316 (a) Not Applicable (a) (1) (A) Not Applicable (a) (1) (B) Not Applicable (a) (2) Not Applicable (b) 5.14 (c) 6.7 (S) 317 (a) (1) Not Applicable (a) (2) Not Applicable (b) 5.9 (S) 318 (a) 10.10 - ------------
Note: This reconciliation and tie sheet shall not, for any purpose, be deemed to be a part of the Trust Agreement. AMENDED AND RESTATED TRUST AGREEMENT (this "Trust Agreement"), dated as of ______________, 1997, among (i) Greater Bay Bancorp, a California corporation (including any successors or assigns, the "Depositor"), (ii) Wilmington Trust Company, a Delaware banking corporation duly organized and existing under the laws of the State of Delaware, as property trustee, (in such capacity, the "Property Trustee" and, in its separate corporate capacity and not in its capacity as Property Trustee, the "Bank"), (iii) Wilmington Trust Company, a Delaware banking corporation organized under the laws of the State of Delaware, as Delaware trustee (the "Delaware Trustee"), (iv) David L. Kalkbrenner, an individual, Steven C. Smith, an individual, and James R. Ramsey, an individual, each of whose address is c/o Greater Bay Bancorp, 2860 West Bayshore Road, Palo Alto, California 94303 (each an "Administrative Trustee" and collectively the "Administrative Trustees") (the Property Trustee, the Delaware Trustee and the Administrative Trustees are referred to collectively herein as the "Trustees") and (v) the several Holders, as hereinafter defined. Witnesseth Whereas, the Depositor, the Delaware Trustee and David L. Kalkbrenner and Steven C. Smith and James R. Ramsey, each as an Administrative Trustee, have heretofore duly declared and established a business trust pursuant to the Delaware Business Trust Act by the entering into that certain Trust Agreement, dated as of __________, 1997 (the "Original Trust Agreement"), and by the execution and filing by the Delaware Trustee with the Secretary of State of the State of Delaware of the Certificate of Trust, filed on _________, 1997, attached as Exhibit A; and Whereas, the Depositor and the Trustees desire to amend and restate the Original Trust Agreement in its entirety as set forth herein to provide for, among other things, (i) the issuance of the Common Securities by the Trust to the Depositor, (ii) the issuance and sale of the Preferred Securities by the Trust pursuant to the Underwriting Agreement, (iii) the acquisition by the Trust from the Depositor of all of the right, title and interest in the Debentures and (iv) the appointment of the Administrative Trustees; Now Therefore, in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, each party, for the benefit of the other parties and for the benefit of the Securityholders, hereby amends and restates the Original Trust Agreement in its entirety and agrees as follows: ARTICLE I Defined Terms Section 1.1. Definitions. For all purposes of this Trust Agreement, except as otherwise expressly provided or unless the context otherwise requires: 2 (a) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (b) all other terms used herein that are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (c) unless the context otherwise requires, any reference to an "Article" or a "Section" refers to an Article or a Section, as the case may be, of this Trust Agreement; and (d) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Trust Agreement as a whole and not to any particular Article, Section or other subdivision. "Act" has the meaning specified in Section 6.8. "Additional Amount" means, with respect to Trust Preferred Securities of a given Liquidation Amount and/or a given period, the amount of Additional Interest (as defined in the Indenture) paid by the Depositor on a Like Amount of Debentures for such period. "Additional Sums" has the meaning specified in Section 10.6 of the Indenture. "Administrative Trustee" means each of the Persons identified as an "Administrative Trustee" in the preamble to this Trust Agreement solely in such Person's capacity as Administrative Trustee of the Trust formed and continued hereunder and not in such Person's individual capacity, or such Administrative Trustee's successor in interest in such capacity, or any successor trustee appointed as herein provided. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Bank" has the meaning specified in the preamble to this Trust Agreement. "Bankruptcy Event" means, with respect to any Person: (a) the entry of a decree or order by a court having jurisdiction in the premises judging such Person a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjudication or composition of or in respect of such Person under any applicable Bankruptcy Law, or appointing a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of such Person or of any substantial part of its property or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 90 consecutive days; or 3 (b) the institution by such Person of proceedings to be adjudicated a bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable Bankruptcy Law, or the consent by it to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or similar official) of such Person or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due and its willingness to be adjudicated a bankrupt, or the taking of corporate action by such Person in furtherance of any such action. "Bankruptcy Law" means any Federal or state bankruptcy, insolvency, reorganization or similar law. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Depositor to have been duly adopted by the Depositor's Board of Directors, or such committee of the Board of Directors or officers of the Depositor to which authority to act on behalf of the Board of Directors has been delegated, and to be in full force and effect on the date of such certification, and delivered to the appropriate Trustees. "Book-Entry Preferred Securities Certificates" means a beneficial interest in the Preferred Securities Certificates, ownership and transfers of which shall be made through book entries by a Clearing Agency as described in Section 5.11. "Business Day" means a day other than (a) a Saturday or Sunday, (b) a day on which banking institutions in the State of California are authorized or required by law or executive order to remain closed, or (c) a day on which the Property Trustee's Corporate Trust Office or the Corporate Trust Office of the Debenture Trustee is closed for business. "Certificate Depository Agreement" means the agreement among the Trust, the Depositor and The Depository Trust Company, as the initial Clearing Agency, dated as of the Closing Date, relating to the Trust Preferred Securities Certificates, substantially in the form attached as Exhibit B, as the same may be amended and supplemented from time to time. "Certificate of Trust" means the certificate of trust filed with the Secretary of State of the State of Delaware with Respect to the Trust, as amended or restated from time to time. "Clearing Agency" means an organization registered as a "clearing agency" pursuant to Section 17A of the Exchange Act. The Depository Trust Company will be the initial Clearing Agency. "Clearing Agency Participant" means a broker, dealer, bank, other financial institution or other Person for whom from time to time a Clearing Agency effects book-entry transfers and pledges of securities deposited with the Clearing Agency. "Closing Date" means the date of execution and delivery of this Trust Agreement. 4 "Code" means the Internal Revenue Code of 1986, as amended. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, as amended, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Security" means an undivided beneficial interest in the assets of the Trust, having a Liquidation Amount of $25 and having the rights provided therefor in this Trust Agreement, including the right to receive Distributions and a Liquidation Distribution as provided herein. "Common Securities Certificate" means a certificate evidencing ownership of Common Securities, substantially in the form attached as Exhibit C. "Corporate Trust Office" means (i) when used with respect to the Property Trustee, the principal office of the Property Trustee located at Rodney Square North, 1100 North Market Street, Wilmington, Delaware, 19890, Attention: Corporate Trust Administration, and (ii) when used with respect to the Debenture Trustee, the principal office of the Debenture Trustee located at Rodney Square North, 1100 North Market Street, Wilmington, Delaware, 19890, Attention: _______________. "Debenture Event of Default" means an "Event of Default" as defined in the Indenture. "Debenture Redemption Date" means, with respect to any Debentures to be redeemed under the Indenture, the date fixed for redemption under the Indenture. "Debenture Tax Event" means a "Tax Event" as defined in the Indenture. "Debenture Trustee" means Wilmington Trust Company, a Delaware banking corporation organized under the laws of the State of Delaware and any successor thereto, as trustee under the Indenture. "Debentures" means the aggregate principal amount of the Depositor's _____% Junior Subordinated Deferrable Interest Debentures, issued pursuant to the Indenture. "Definitive Preferred Securities Certificates" means either or both (as the context requires) of (a) Preferred Securities Certificates issued as Book-Entry Preferred Securities Certificate as provided in Section 5.11(a) and (b) Preferred Securities Certificates issued in certificated, fully registered form as provided in Section 5.13. "Delaware Business Trust Act" means Chapter 38 of Title 12 of the Delaware Code, 12 Del. C. ((S)) 3801, et seq., as it may be amended from time to time. "Delaware Trustee" means the Person identified as the "Delaware Trustee" in the preamble to this Trust Agreement solely in its capacity as Delaware Trustee of the Trust formed and continued 5 hereunder and not in its individual capacity, or its successor in interest in such capacity, or any successor trustee appointed as herein provided. "Depositor" has the meaning specified in the preamble to this Trust Agreement. "Distribution Date" has the meaning specified in Section 4.1(a). "Distributions" means amounts payable in respect of the Trust Preferred Securities as provided in Section 4.1. "Early Termination Event" has the meaning specified in Section 9.2. "Event of Default" means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) the occurrence of a Debenture Event of Default; or (b) default by the Trust in the payment of any Distribution when it becomes due and payable, and continuation of such default for a period of 30 days; or (c) default by the Trust in the payment of any Redemption Price of any Trust Security when it becomes due and payable; or (d) default in the performance, or breach, in any material respect, of any covenant or warranty of the Property Trustee in this Trust Agreement (other than a covenant or warranty a default in the performance or breach of which is dealt with in clause (b) or (c) above) and continuation of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the defaulting Property Trustee by the Holders of at least 25% in aggregate liquidation preference of the Outstanding Preferred Securities a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (e) the occurrence of a Bankruptcy Event with respect to the Property Trustee and the failure by the Depositor to appoint a successor Property Trustee within 60 days thereof. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Expense Agreement" means the Agreement as to Expenses and Liabilities between the Depositor and the Trust, substantially in the form attached as Exhibit D, as amended from time to time. "Expiration Date" has the meaning specified in Section 9.1. 6 "Guarantee" means the Guarantee Agreement executed and delivered by the Depositor and Wilmington Trust Company, as trustee, contemporaneously with the execution and delivery of this Trust Agreement, for the benefit of the holders of the Preferred Securities, as amended from time to time. "Holder" means a Securityholder. "Indenture" means the Junior Subordinated Indenture, dated as of ___________, 1997, between the Depositor and the Debenture Trustee, as trustee, as amended or supplemented from time to time. "Investment Company Event" means the receipt by the Depositor and the Trust of an Opinion of Counsel experienced in such matters to the effect that, as a result of the occurrence of a change in law or regulation or a change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority (a "Change in Investment Company Act Law"), the Trust is or will be considered an "investment company" that is required to be registered under the Investment Company Act, which Change in Investment Company Act Law becomes effective on or after the date or original issuance of the Preferred Securities under this Trust Agreement. "Lien" means any lien, pledge, charge, encumbrance, mortgage, deed of trust, adverse ownership interest, adverse claim, hypothecation, assignment, security interest or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever. "Like Amount" means (a) with respect to a redemption of Trust Preferred Securities, Trust Preferred Securities having a Liquidation Amount equal to the principal amount of Debentures to be contemporaneously redeemed in accordance with the Indenture the proceeds of which will be used to pay the Redemption Price of such Trust Preferred Securities, and (b) with respect to a distribution of Debentures to Holders of Trust Preferred Securities in connection with a dissolution or liquidation of the Trust, Debentures having a principal amount equal to the Liquidation Amount of the Trust Preferred Securities of the Holder to whom such Debentures are distributed. "Liquidation Amount" means the stated amount of $25 per Trust Security. "Liquidation Date" means the date on which Debentures are to be distributed to Holders of Trust Preferred Securities in connection with a termination and liquidation of the Trust pursuant to Section 9.4(a). "Liquidation Distribution" has the meaning specified in Section 9.4(d). "1940 Act" means the Investment Company Act of 1940, as amended. "Officers' Certificate" means a certificate signed by the Chairman and Chief Executive Officer, President or a Vice President, and by the Treasurer, an Associate Treasurer, an Assistant Treasurer, the Controller, the Secretary or an Assistant Secretary, of the Depositor, and delivered to 7 the appropriate Trustee. One of the officers signing an Officers' Certificate given pursuant to Section 8.16 shall be the principal executive, financial or accounting officer of the Depositor. Any Officers' Certificate delivered with respect to compliance with a condition or covenant provided for in this Trust Agreement shall include: (a) a statement that each officer signing the Officers' Certificate has read the covenant or condition and the definitions relating thereto; (b) a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Officers' Certificate; (c) a statement that each such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Trust, the Property Trustee, the Delaware Trustee or the Depositor, but not an employee of any thereof, and who shall be reasonably acceptable to the Property Trustee. "Original Trust Agreement" has the meaning specified in the recitals to this Trust Agreement. "Outstanding", when used with respect to Trust Preferred Securities, means, as of the date of determination, all Trust Preferred Securities theretofore executed and delivered under this Trust Agreement, except: (a) Trust Preferred Securities theretofore canceled by the Property Trustee or delivered to the Property Trustee for cancellation; (b) Trust Preferred Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Property Trustee or any Paying Agent for the Holders of such Trust Preferred Securities; provided that, if such Trust Preferred Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Trust Agreement; and (c) Trust Preferred Securities which have been paid or in exchange for or in lieu of which other Preferred Securities have been executed and delivered pursuant to Sections 5.4, 5.5, 5.11 and 5.13; provided, however, that in determining whether the Holders of the requisite Liquidation Amount of the Outstanding Preferred Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Preferred Securities owned by the Depositor, any Trustee or any Affiliate of the Depositor or any Trustee shall be disregarded and deemed not to be Outstanding, except that (a) in determining whether any Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Preferred Securities that such Trustee knows to be so owned shall be so disregarded and (b) the foregoing shall not apply at 8 any time when all of the outstanding Preferred Securities are owned by the Depositor, one or more of the Trustees and/or any such Affiliate. Preferred Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Administrative Trustees the pledgee's right so to act with respect to such Preferred Securities and that the pledgee is not the Depositor or any Affiliate of the Depositor. "Owner" means each Person who is the beneficial owner of a Book-Entry Preferred Securities Certificate as reflected in the records of the Clearing Agency or, if a Clearing Agency Participant is not the Owner, then as reflected in the records of a Person maintaining an account with such Clearing Agency (directly or indirectly, in accordance with the rules of such Clearing Agency). "Paying Agent" means any paying agent or co-paying agent appointed pursuant to Section 5.9 and shall initially be the Bank. "Payment Account" means a segregated non-interest-bearing corporate trust account maintained by the Property Trustee with the Bank in its trust department for the benefit of the Securityholders in which all amounts paid in respect of the Debentures will be held and from which the Property Trustee, through the Paying Agent, shall make payments to the Securityholders in accordance with Sections 4.1 and 4.2. "Person" means any individual, corporation, partnership, joint venture, trust, limited liability company or corporation, unincorporated organization or government or any agency or political subdivision thereof. "Preferred Security" means an undivided beneficial interest in the assets of the Trust, having a Liquidation Amount of $25 and having the rights provided therefor in this Trust Agreement, including the right to receive Distributions and a Liquidation Distribution as provided herein. "Preferred Securities Certificate" means a certificate evidencing ownership of Preferred Securities, substantially in the form attached as Exhibit E. "Property Trustee" means the Person identified as the "Property Trustee" in the preamble to this Trust Agreement solely in its capacity as Property Trustee of the Trust heretofore formed and continued hereunder and not in its individual capacity, or its successor in interest in such capacity, or any successor property trustee appointed as herein provided. "Redemption Date" means, with respect to any Trust Security to be redeemed, the date fixed for such redemption by or pursuant to this Trust Agreement; provided that each Debenture Redemption Date and the stated maturity of the Debentures shall be a Redemption Date for a Like Amount of Trust Preferred Securities. "Redemption Price" means, with respect to any Trust Security, the Liquidation Amount of such Trust Security, plus accumulated and unpaid Distributions to the Redemption Date, plus the related amount of the premium, if any, paid by the Depositor upon the concurrent redemption of a 9 Like Amount of Debentures, allocated on a pro rata basis (based on Liquidation Amounts) among the Trust Preferred Securities. "Relevant Trustee" shall have the meaning specified in Section 8.10. "Securities Register" and "Securities Registrar" have the respective meanings specified in Section 5.4. "Securityholder" means a Person in whose name a Trust Security or Trust Preferred Securities is registered in the Securities Register; any such Person shall be deemed to be a beneficial owner within the meaning of the Delaware Business Trust Act; provided, however, that in determining whether the Holders of the requisite amount of Preferred Securities have voted on any matter provided for in this Trust Agreement, then for the purpose of any such determination, so long as Definitive Preferred Securities Certificates have not been issued, the term Securityholders or Holders as used herein shall refer to the Owners. "Tax Event" means the receipt by the Trust of an Opinion of Counsel experienced in such matters to the effect that, as a result of any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, or as a result of any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or which pronouncement or decision is announced on or after the date of issuance of the Preferred Securities under this Trust Agreement, there is more than an insubstantial risk that (i) the Trust is, or will be within 90 days after the date of such Opinion of Counsel, subject to United States Federal income tax with respect to income received or accrued on the Debentures, (ii) interest payable by the Depositor on the Debentures is not, or within 90 days after the date of such Opinion of Counsel, will not be, deductible by the Depositor, in whole or in part, for United States Federal income tax purposes or (iii) the Trust is, or will be within 90 days after the date of such Opinion of Counsel, subject to more than a de minimis amount of other taxes, duties, assessments or other governmental charges. "Trust" means the Delaware business trust created and continued hereby and identified on the cover page to this Trust Agreement. "Trust Agreement" means this Amended and Restated Trust Agreement, as the same may be modified, amended or supplemented in accordance with the applicable provisions hereof, including (i) all exhibits hereto and (ii) for all purposes of this Trust Agreement and any such modification, amendment or supplement, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this Trust Agreement and any such modification, amendment or supplement, respectively. "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. 10 "Trust Property" means (a) the Debentures, (b) the rights of the Property Trustee under the Guarantee, (c) any cash on deposit in, or owing to, the Payment Account and (d) all proceeds and rights in respect of the foregoing and any other property and assets for the time being held or deemed to be held by the Property Trustee pursuant to the trusts of this Trust Agreement. "Trust Security" means any one of the Common Securities or the Preferred Securities. "Trust Preferred Securities Certificate" means any one of the Common Securities Certificates or the Preferred Securities Certificates. "Trustees" means, collectively, the Property Trustee, the Delaware Trustee and the Administrative Trustees. "Underwriting Agreement" means the Agreement, dated as of ______________, 1997, among the Trust, the Depositor and the underwriters named therein. ARTICLE II. Establishment of the Trust Section 2.1. Name. The Trust continued hereby shall be known as "GBB Capital I," as such name may be modified from time to time by the Administrative Trustees following written notice to the Holders of Trust Preferred Securities and the other Trustees, in which name the Trustees may conduct the business of the Trust, make and execute contracts and other instruments on behalf of the Trust and sue and be sued. Section 2.2. Office of the Delaware Trustee; Principal Place of Business. The address of the Delaware Trustee in the State of Delaware is c/o Wilmington Trust Company, 1100 North Market Street, Wilmington, Delaware 19890, Attention: Corporate Trust Administrator, or such other address in the State of Delaware as the Delaware Trustee may designate by written notice to the Securityholders and the Depositor. The principal executive office of the Trust is c/o Greater Bay Bancorp, 2860 West Bayshore Road, Palo Alto, California, 94303. Section 2.3. Initial Contribution of Trust Property; Organizational Expenses. The Trustees acknowledges receipt in trust from the Depositor in connection with the Original Trust Agreement of the sum of $10, which constituted the initial Trust Property. The Depositor shall pay organizational expenses of the Trust as they arise or shall, upon request of any Trustee, promptly reimburse such Trustee for any such expenses paid by such Trustee. The Depositor shall make no claim upon the Trust Property for the payment of such expenses. 11 Section 2.4. Issuance of the Preferred Securities. On ___________, 1997 the Depositor and an Administrative Trustee, on behalf of the Trust and pursuant to the Original Trust Agreement, executed and delivered the Underwriting Agreement. Contemporaneously with the execution and delivery of this Trust Agreement, an Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 5.2 and deliver to the Underwriters named in the Underwriting Agreement Preferred Securities Certificates, registered in the name of the nominee of the initial Clearing Agency, in an aggregate amount of ___________ Preferred Securities having an aggregate Liquidation Amount of $___________, against receipt of such aggregate purchase price of such Preferred Securities of $___________, which amount the Administrative Trustee shall promptly deliver to the Property Trustee. Section 2.5. Issuance of the Common Securities; Subscription and Purchase of Debentures. Contemporaneously with the execution and delivery of this Trust Agreement, an Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 5.2 and deliver to the Depositor Common Securities Certificates, registered in the name of the Depositor, in an aggregate amount of _______ Common Securities having an aggregate Liquidation Amount of $____________ against payment by the Depositor of such amount, which amount such Administrative Trustee shall promptly deliver to the Property Trustee. Contemporaneously therewith, an Administrative Trustee, on behalf of the Trust, shall subscribe to and purchase from the Depositor Debentures, registered in the name of the Trust and having an aggregate principal amount equal to $_________, and, in satisfaction of the purchase price for such Debentures, the Property Trustee, on behalf of the Trust, shall deliver to the Depositor the sum of $_________ (being the sum of the amounts delivered to the Property Trustee pursuant to (i) the second sentence of Section 2.4 and (ii) the first sentence of this Section 2.5). Section 2.6. Declaration of Trust. The exclusive purposes and functions of the Trust are (a) to issue and sell Trust Preferred Securities and use the proceeds from such sale to acquire the Debentures, and (b) to engage in those activities necessary, advisable or incidental thereto. The Depositor hereby appoints the Trustees as trustees of the Trust, to have all the rights, powers and duties to the extent set forth herein, and the Trustees hereby accept such appointment. The Property Trustee hereby declares that it will hold the Trust Property in trust upon and subject to the conditions set forth herein for the benefit of the Trust and the Securityholders. The Administrative Trustees shall have all rights, powers and duties set forth herein and in accordance with applicable law with respect to accomplishing the purposes of the Trust. The Delaware Trustee shall not be entitled to exercise any powers, nor shall the Delaware Trustee have any of the duties and responsibilities, of the Property Trustee or the Administrative Trustees set forth herein. The Delaware Trustee shall be one of the Trustees of the Trust for the sole and limited purpose of fulfilling the requirements of Section 3807 of the Delaware Business Trust Act. 12 Section 2.7. Authorization to Enter into Certain Transactions. (a) The Trustees shall conduct the affairs of the Trust in accordance with the terms of this Trust Agreement. Subject to the limitations set forth in paragraph (b) of this Section and Section 2.6, and in accordance with the following provisions (i) and (ii), the Trustees shall have the authority to enter into all transactions and agreements determined by the Trustees to be appropriate in exercising the authority, express or implied, otherwise granted to the Trustees under this Trust Agreement, and to perform all acts in furtherance thereof, including without limitation, the following: (i) As among the Trustees, each Administrative Trustee shall have the power and authority to act on behalf of the Trust with respect to the following matters: (A) the issuance and sale of the Trust Preferred Securities; (B) to cause the Trust to enter into, and to execute, deliver and perform on behalf of the Trust, the Expense Agreement and the Certificate Depository Agreement and such other agreements as may be necessary or desirable in connection with the purposes and function of the Trust; (C) assisting in the registration of the Preferred Securities under the Securities Act of 1933, as amended, and under state securities or blue sky laws, and the qualification of this Trust Agreement as a trust indenture under the Trust Indenture Act; (D) assisting in the listing of the Preferred Securities upon such securities exchange or exchanges as shall be determined by the Depositor and the registration of the Preferred Securities under the Securities Exchange Act of 1934, as amended, and the preparation and filing of all periodic and other reports and other documents pursuant to the foregoing; (E) the sending of notices (other than notices of default) and other information regarding the Trust Preferred Securities and the Debentures to the Securityholders in accordance with this Trust Agreement; (F) the appointment of a Paying Agent, authenticating agent and Securities Registrar in accordance with this Trust Agreement; (G) registering transfer of the Trust Preferred Securities in accordance with this Trust Agreement; (H) to the extent provided in this Trust Agreement, the winding up of the affairs of and liquidation of the Trust and the preparation, execution and filing of the certificate of cancellation with the Secretary of State of the State of Delaware; 13 (I) unless otherwise determined by the Depositor, the Property Trustee or the Administrative Trustees, or as otherwise required by the Delaware Business Trust Act or the Trust Indenture Act, to execute on behalf of the Trust (either acting alone or together with any or all of the Administrative Trustees) any documents that the Administrative Trustees have the power to execute pursuant to this Trust Agreement; and (J) the taking of any action incidental to the foregoing as the Trustees may from time to time determine is necessary or advisable to give effect to the terms of this Trust Agreement for the benefit of the Securityholders (without consideration of the effect of any such action on any particular Securityholder). (ii) As among the Trustees, the Property Trustee shall have the power, duty and authority to act on behalf of the Trust with respect to the following matters: (A) the establishment of the Payment Account; (B) the receipt of the Debentures; (C) the collection of interest, principal and any other payments made in respect of the Debentures in the Payment Account; (D) the distribution through the Paying Agent of amounts owed to the Securityholders in respect of the Trust Preferred Securities; (E) the exercise of all of the rights, powers and privileges of a holder of the Debentures; (F) the sending of notices of default and other information regarding the Trust Preferred Securities and the Debentures to the Securityholders in accordance with this Trust Agreement; (G) the distribution of the Trust Property in accordance with the terms of this Trust Agreement; (H) to the extent provided in this Trust Agreement, the winding up of the affairs of and liquidation of the Trust and the preparation, execution and filing of the certificate of cancellation with the Secretary of State of the State of Delaware; (I) after an Event of Default (other than under paragraph (b), (c), (d) or (e) of the definition of such term if such Event of Default is by or with respect to the Property Trustee) the taking of any action incidental to the foregoing as the Property Trustee may from time to time determine is necessary or advisable to give effect to the terms of this Trust Agreement and protect and conserve the Trust Property for the 14 benefit of the Securityholders (without consideration of the effect of any such action on any particular Securityholder); and (J) so long as the Property Trustee is the Securities Registrar, registering transfers of the Trust Preferred Securities in accordance with this Trust Agreement; and (K) except as otherwise provided in this Section 2.7(a)(ii), the Property Trustee shall have none of the duties, liabilities, powers or the authority of the Administrative Trustees set forth in Section 2.7(a)(i). (b) So long as this Trust Agreement remains in effect, the Trust (or the Trustees acting on behalf of the Trust) shall not undertake any business, activities or transaction except as expressly provided herein or contemplated hereby. In particular, the Trustees shall not (i) acquire any investments or engage in any activities not authorized by this Trust Agreement, (ii) sell, assign, transfer, exchange, mortgage, pledge, set-off or otherwise dispose of any of the Trust Property or interests therein, including to Securityholders, except as expressly provided herein, (iii) take any action that would cause the Trust to fail or cease to qualify as a "grantor trust" for United States Federal income tax purposes, (iv) incur any indebtedness for borrowed money or issue any other debt or (v) take or consent to any action that would result in the placement of a Lien on any of the Trust Property. The Administrative Trustees shall defend all claims and demands of all Persons at any time claiming any Lien on any of the Trust Property adverse to the interest of the Trust or the Securityholders in their capacity as Securityholders. (c) In connection with the issue and sale of the Preferred Securities, the Depositor shall have the right and responsibility to assist the Trust with respect to, or effect on behalf of the Trust, the following (and any actions taken by the Depositor in furtherance of the following prior to the date of this Trust Agreement are hereby ratified and confirmed in all respects): (i) the preparation and filing by the Trust with the Commission and the execution on behalf of the Trust of a registration statement on the appropriate form in relation to the Preferred Securities, including any amendments thereto; (ii) the determination of the States in which to take appropriate action to qualify or register for sale all or part of the Preferred Securities and the determination of any and all such acts, other than actions which must be taken by or on behalf of the Trust, and the advice to the Trustees of actions they must take on behalf of the Trust, and the preparation for execution and filing of any documents to be executed and filed by the Trust or on behalf of the Trust, as the Depositor deems necessary or advisable in order to comply with the applicable laws of any such States; (iii) the preparation for filing by the Trust and execution on behalf of the Trust of an application to [the New York Stock Exchange or any other national stock exchange or the Nasdaq National Market] for listing upon notice of issuance of any Preferred Securities; 15 (iv) the preparation for filing by the Trust with the Commission and the execution on behalf of the Trust of a registration statement on Form 8-A relating to the registration of the Preferred Securities under Section 12(b) or 12(g) of the Exchange Act, including any amendments thereto; (v) the negotiation of the terms of, and the execution and delivery of, the Underwriting Agreement providing for the sale of the Preferred Securities; and (vi) the taking of any other actions necessary or desirable to carry out any of the foregoing activities. (d) Notwithstanding anything herein to the contrary, the Administrative Trustees are authorized and directed to conduct the affairs of the Trust and to operate the Trust so that the Trust will not be deemed to be an "investment company" required to be registered under the 1940 Act, or fail to be classified as a grantor trust for United States Federal income tax purposes and so that the Debentures will be treated as indebtedness of the Depositor for United States Federal income tax purposes. In this connection, the Depositor and the Administrative Trustees are authorized to take any action, not inconsistent with applicable law, the Certificate of Trust or this Trust Agreement, that each of the Depositor and any Administrative Trustee determines in its discretion to be necessary or desirable for such purposes, as long as such action does not adversely affect in any material respect the interests of the holders of the Preferred Securities. Section 2.8. Assets of Trust. The assets of the Trust shall consist of the Trust Property. Section 2.9. Title to Trust Property. Legal title to all Trust Property shall be vested at all times in the Property Trustee (in its capacity as such) and shall be held and administered by the Property Trustee for the benefit of the Trust and the Securityholders in accordance with this Trust Agreement. ARTICLE III. Payment Account Section 3.1. Payment Account. (a) On or prior to the Closing Date, the Property Trustee shall establish the Payment Account. The Property Trustee and any agent of the Property Trustee shall have exclusive control and sole right of withdrawal with respect to the Payment Account for the purpose of making deposits in and withdrawals from the Payment Account in accordance with this Trust Agreement. All monies and other property deposited or held from time to time in the Payment Account shall be held by the Property Trustee in the Payment Account for the exclusive benefit of the Securityholders and for 16 distribution as herein provided, including (and subject to) any priority of payments provided for herein. (b) The Property Trustee shall deposit in the Payment Account, promptly upon receipt, all payments of principal of or interest on, and any other payments or proceeds with respect to, the Debentures. Amounts held in the Payment Account shall not be invested by the Property Trustee pending distribution thereof. ARTICLE IV. Distributions; Redemption Section 4.1. Distributions. (a) The Trust Preferred Securities represent undivided beneficial interests in the Trust Property, and Distributions (including of Additional Amounts) will be made on the Trust Preferred Securities at the rate and on the dates that payments of interest (including of Additional Interest, as defined in the Indenture) are made on the Debentures. Accordingly: (i) Distributions on the Trust Preferred Securities shall be cumulative, and will accumulate whether or not there are funds of the Trust available for the payment of Distributions. Distributions shall accrue from ___________, 1997, and, except in the event (and to the extent) that the Depositor exercises its right to defer the payment of interest on the Debentures pursuant to the Indenture, shall be payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year, commencing on ____________, 1997. If any date on which a Distribution is otherwise payable on the Trust Preferred Securities is not a Business Day, then the payment of such Distribution shall be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day is in the next succeeding calendar year, payment of such Distribution shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date (each date on which distributions are payable in accordance with this Section 4.1(a), a "Distribution Date"). (ii) Assuming payments of interest on the Debentures are made when due (and before giving effect to Additional Amounts, if applicable), Distributions on the Trust Preferred Securities shall be payable at a rate of ____% per annum of the Liquidation Amount of the Trust Preferred Securities. The amount of Distributions payable for any full period shall be computed on the basis of a 360-day year of twelve 30-day months. The amount of Distributions for any partial period shall be computed on the basis of the number of days elapsed in a 360-day year of twelve 30-day months. The amount of Distributions payable for any period shall include the Additional Amounts, if any. (iii) Distributions on the Trust Preferred Securities shall be made by the Property Trustee from the Payment Account and shall be payable on each Distribution Date only to the 17 extent that the Trust has funds then on hand and available in the Payment Account for the payment of such Distributions. (b) Distributions on the Trust Preferred Securities with respect to a Distribution Date shall be payable to the Holders thereof as they appear on the Securities Register for the Trust Preferred Securities on the relevant record date, which shall be one Business Day prior to such Distribution Date; provided, however, that in the event that the Preferred Securities do not remain in book- entry-only form, the relevant record date shall be the date 15 days prior to the relevant Distribution Date. Section 4.2. Redemption. (a) On each Debenture Redemption Date and on the stated maturity of the Debentures, the Trust will be required to redeem, subject to Section 4.3, a Like Amount of Trust Preferred Securities at the Redemption Price. (b) Notice of redemption shall be given by the Property Trustee by first- class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date to each Holder of Trust Preferred Securities to be redeemed, at such Holder's address appearing in the Security Register. All notices of redemption shall state: (i) the Redemption Date; (ii) the Redemption Price; (iii) the CUSIP number; (iv) if less than all the Outstanding Trust Preferred Securities are to be redeemed, the identification and the total Liquidation Amount of the particular Trust Preferred Securities to be redeemed; and (v) that on the Redemption Date the Redemption Price will become due and payable upon each such Trust Security to be redeemed and that Distributions thereon will cease to accrue on and after said date. (c) The Trust Preferred Securities redeemed on each Redemption Date shall be redeemed at the Redemption Price with the proceeds from the contemporaneous redemption of Debentures. Redemptions of the Trust Preferred Securities shall be made and the Redemption Price shall be payable on each Redemption Date only to the extent that the Trust has funds then on hand and available in the Payment Account for the payment of such Redemption Price. (d) If the Property Trustee gives a notice of redemption in respect of any Preferred Securities, then, by 12:00 noon, New York City time, on the Redemption Date, subject to Section 4.2(c), with respect to Preferred Securities held in book-entry form, the Property Trustee will irrevocably deposit with the Clearing Agency for the Preferred Securities funds sufficient to pay the applicable 18 Redemption Price and will give such Clearing Agency irrevocable instructions and authority to pay the Redemption Price to the holders thereof. With respect to Preferred Securities held in certificated form, the Property Trustee, subject to Section 4.2(c), will irrevocably deposit with the Paying Agent funds sufficient to pay the applicable Redemption Price and will give the Paying Agent irrevocable instructions and authority to pay the Redemption Price to the Holders thereof upon surrender of their Preferred Securities Certificates. Notwithstanding the foregoing, Distributions payable on or prior to the Redemption Date for any Trust Preferred Securities called for redemption shall be payable to the Holders of such Trust Preferred Securities as they appear on the Register for the Trust Preferred Securities on the relevant record dates for the related Distribution Dates. If notice of redemption shall have been given and funds deposited as required, then upon the date of such deposit, all rights of Securityholders holding Trust Preferred Securities so called for redemption will cease, except the right of such Securityholders to receive the Redemption Price and any Distribution payable on or prior to the Redemption Date, but without interest, and such Securities will cease to be outstanding. In the event that any date on which any Redemption Price is payable is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day falls in the next calendar year, such payment will be made on he immediately preceding Business Day, in each case, with the same force and effect as if made on such date. In the event that payment of the Redemption Price in respect of any Trust Preferred Securities called for redemption is improperly withheld or refused and not paid either by the Trust or by the Depositor pursuant to the Guarantee, Distributions on such Trust Preferred Securities will continue to accrue, at the then applicable rate, from the Redemption Date originally established by the Trust for such Trust Preferred Securities to the date such Redemption Price is actually paid, in which case the actual payment date will be the date fixed for redemption for purposes of calculating the Redemption Price. (e) Payment of the Redemption Price on the Trust Preferred Securities shall be made to the recordholders thereof as they appear on the Securities Register for the Trust Preferred Securities on the relevant record date, which shall be one Business Day prior to the relevant Redemption Date; provided, however, that in the event that the Preferred Securities do not remain in book-entry-only form, the relevant record date shall be the date fifteen days prior to the relevant Redemption Date. (f) Subject to Section 4.3(a), if less than all the Outstanding Trust Preferred Securities are to be redeemed on a Redemption Date, then the aggregate Liquidation Amount of Trust Preferred Securities to be redeemed shall be allocated on a pro rata basis (based on Liquidation Amounts) among the Common Securities and the Preferred Securities. The particular Preferred Securities to be redeemed shall be selected on a pro rata basis (based upon Liquidation Amounts) not more than 60 days prior to the Redemption Date by the Property Trustee from the Outstanding Preferred Securities not previously called for redemption, by such method (including, without limitation, by lot) as the Property Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to $25 or an integral multiple of $25 in excess thereof) of the Liquidation Amount of Preferred Securities of a denomination larger than $25. The Property Trustee shall promptly notify the Security Registrar in writing of the Preferred Securities selected for redemption and, in the case of any Preferred Securities selected for partial redemption, the Liquidation Amount thereof to be redeemed. For all purposes of this Trust Agreement, unless the 19 context otherwise requires, all provisions relating to the redemption of Preferred Securities shall relate, in the case of any Preferred Securities redeemed or to be redeemed only in part, to the portion of the Liquidation Amount of Preferred Securities that has been or is to be redeemed. Section 4.3. Subordination of Common Securities. (a) Payment of Distributions (including Additional Amounts, if applicable) on, and the Redemption Price of, the Trust Preferred Securities, as applicable, shall be made, subject to Section 4.2(f), pro rata among the Common Securities and the Preferred Securities based on the Liquidation Amount of the Trust Preferred Securities; provided, however, that if on any Distribution Date or Redemption Date any Event of Default resulting from a Debenture Event of Default shall have occurred and be continuing, no payment of any Distribution (including Additional Amounts, if applicable) on, or Redemption Price of, any Common Security, and no other payment on account of the redemption, liquidation or other acquisition of Common Securities, shall be made unless payment in full in cash of all accumulated and unpaid Distributions (including Additional Amounts, if applicable) on all Outstanding Preferred Securities for all Distribution periods terminating on or prior thereto, or in the case of payment of the Redemption Price the full amount of such Redemption Price on all Outstanding Preferred Securities, shall have been made or provided for, and all funds immediately available to the Property Trustee shall first be applied to the payment in full in cash of all Distributions (including Additional Amounts, if applicable) on, or the Redemption Price of, Preferred Securities then due and payable. (b) In the case of the occurrence of any Event of Default resulting from any Debenture Event of Default, the Holder of Common Securities will be deemed to have waived any right to act with respect to any such Event of Default under this Trust Agreement until the effect of all such Events of Default with respect to the Preferred Securities have been cured, waived or otherwise eliminated. Until any such Event of Default under this Trust Agreement with respect to the Preferred Securities has been so cured, waived or otherwise eliminated, the Property Trustee shall act solely on behalf of the Holders of the Preferred Securities and not the Holder of the Common Securities, and only the Holders of the Preferred Securities will have the right to direct the Property Trustee to act on their behalf. Section 4.4. Payment Procedures. Payments of Distributions (including Additional Amounts, if applicable) in respect of the Preferred Securities shall be made by check mailed to the address of the Person entitled thereto as such address shall appear on the Securities Register or, if the Preferred Securities are held by a Clearing Agency, such Distributions shall be made to the Clearing Agency in immediately available funds, which shall credit the relevant Persons' accounts at such Clearing Agency on the applicable Distribution Dates. Payments in respect of the Common Securities shall be made in such manner as shall be mutually agreed between the Property Trustee and the Common Securityholder. Section 4.5. Tax Returns and Reports. 20 The Administrative Trustees shall prepare (or cause to be prepared), at the Depositor's expense, and file all United States Federal, state and local tax and information returns and reports required to be filed by or in respect of the Trust. In this regard, the Administrative Trustees shall (a) prepare and file (or cause to be prepared and filed) the appropriate Internal Revenue Service Form required to be filed in respect of the Trust in each taxable year of the Trust and (b) prepare and furnish (or cause to be prepared and furnished) to each Securityholder the appropriate Internal Revenue Service form required to be provided on such form. The Administrative Trustees shall provide the Depositor and the Property Trustee with a copy of all such returns and reports promptly after such filing or furnishing. The Trustees shall comply with United States Federal withholding and backup withholding tax laws and information reporting requirements with respect to any payments to Securityholders under the Trust Preferred Securities. Section 4.6. Payment of Taxes, Duties, Etc. of the Trust. Upon receipt under the Debentures of Additional Sums, the Property Trustee shall promptly pay any taxes, duties or governmental charges of whatsoever nature (other than withholding taxes) imposed on the Trust by the United States or any other taxing authority. Section 4.7. Payments under Indenture or Pursuant to Direct Actions. Any amount payable hereunder to any Holder of Preferred Securities (and any Owner with respect thereto) shall be reduced by the amount of any corresponding payment such Holder (and Owner) has directly received pursuant to Section 5.8 of the Indenture or Section 5.14 of this Trust Agreement. ARTICLE V. Trust Preferred Securities Certificates Section 5.1. Initial Ownership. Upon the formation of the Trust and the contribution by the Depositor pursuant to Section 2.3 and until the issuance of the Trust Preferred Securities, and at any time during which no Trust Preferred Securities are outstanding, the Depositor shall be the sole beneficial owner of the Trust. Section 5.2. The Trust Preferred Securities Certificates. The Preferred Securities Certificates shall be issued in minimum denominations of $25 Liquidation Amount and integral multiples of $25 in excess thereof, and the Common Securities Certificates shall be issued in denominations of $25 Liquidation Amount and integral multiples thereof. The Trust Preferred Securities Certificates shall be executed on behalf of the Trust by manual signature of at least one Administrative Trustee. Trust Preferred Securities Certificates bearing the manual signatures of individuals who were, at the time when such signatures shall have been affixed, authorized to sign on behalf of the Trust, shall be validly issued and entitled to the benefits of this Trust Agreement, notwithstanding that such individuals or any of them shall have 21 ceased to be so authorized prior to the delivery of such Trust Preferred Securities Certificates or did not hold such offices at the date of delivery of such Trust Preferred Securities Certificates. A transferee of a Trust Preferred Securities Certificate shall become a Securityholder, and shall be entitled to the rights and subject to the obligations of a Securityholder hereunder, upon due registration of such Trust Preferred Securities Certificate in such transferee's name pursuant to Sections 5.4, 5.11 and 5.13. Section 5.3. Execution and Delivery of Trust Preferred Securities Certificates. At the Closing Date, the Administrative Trustees shall cause Trust Preferred Securities Certificates, in an aggregate Liquidation Amount as provided in Section 2.4, to be executed on behalf of the Trust and delivered to or upon the written order of the Depositor, signed by its chairman of the board, its president, any executive vice president or any vice president, treasurer or assistant treasurer or controller without further corporate action by the Depositor, in authorized denominations. Section 5.4. Registration of Transfer and Exchange of Preferred Securities Certificates. The Depositor shall keep or cause to be kept, at the office or agency maintained pursuant to Section 5.8, a register or registers for the purpose of registering Trust Preferred Securities Certificates and transfers and exchanges of Preferred Securities Certificates (the "Securities Register") in which, the registrar designated by the Depositor (the "Securities Registrar"), subject to such reasonable regulations as it may prescribe, shall provide for the registration of Preferred Securities Certificates and Common Securities Certificates (subject to Section 5.10 in the case of the Common Securities Certificates) and registration of transfers and exchanges of Preferred Securities Certificates as herein provided. The Bank shall be the initial Securities Registrar. Upon surrender for registration of transfer of any Preferred Securities Certificate at the office or agency maintained pursuant to Section 5.8, the Administrative Trustees or any one of them shall execute and deliver, in the name of the designated transferee or transferees, one or more new Preferred Securities Certificates in authorized denominations of a like aggregate Liquidation Amount dated the date of execution by such Administrative Trustee or Trustees. The Securities Registrar shall not be required to register the transfer of any Preferred Securities that have been called for redemption. At the option of a Holder, Preferred Securities Certificates may be exchanged for other Preferred Securities Certificates in authorized denominations of the same class and of a like aggregate Liquidation Amount upon surrender of the Preferred Securities Certificates to be exchanged at the office or agency maintained pursuant to Section 5.8. Every Preferred Securities Certificate presented or surrendered for registration of transfer or exchange shall be accompanied by a written instrument of transfer in form satisfactory to an Administrative Trustee and the Securities Registrar duly executed by the Holder or his attorney duly authorized in writing. Each Preferred Securities Certificate surrendered for registration of transfer or exchange shall be canceled and subsequently disposed of by an Administrative Trustee in accordance with such Person's customary practice. The Trust shall not be required to (i) issue, 22 register the transfer of, or exchange any Preferred Securities during a period beginning at the opening of business 15 calendar days before the date of mailing of a notice of redemption of any Preferred Securities called for redemption and ending at the close business on the day of such mailing or (ii) register the transfer of or exchange any Preferred Securities so selected for redemption, in whole or in part, except the unredeemed portion of any such Preferred Securities being redeemed in part. No service charge shall be made for any registration of transfer or exchange of Preferred Securities Certificates, but the Securities Registrar may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer or exchange of Preferred Securities Certificates. Section 5.5. Mutilated, Destroyed, Lost or Stolen Trust Preferred Securities Certificates. If (a) any mutilated Trust Preferred Securities Certificate shall be surrendered to the Securities Registrar, or if the Securities Registrar shall receive evidence to its satisfaction of the destruction, loss or theft of any Trust Preferred Securities Certificate and (b) there shall be delivered to the Securities Registrar and the Administrative Trustees such security or indemnity as may be required by them to save each of them harmless, then in the absence of notice that such Trust Preferred Securities Certificate shall have been acquired by a bona fide purchaser, the Administrative Trustees, or any one of them, on behalf of the Trust shall execute and make available for delivery, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Trust Preferred Securities Certificate, a new Trust Preferred Securities Certificate of like class, tenor and denomination. In connection with the issuance of any new Trust Preferred Securities Certificate under this Section, the Administrative Trustees or the Securities Registrar may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Any duplicate Trust Preferred Securities Certificate issued pursuant to this Section shall constitute conclusive evidence of an undivided beneficial interest in the assets of the Trust, as if originally issued, whether or not the lost, stolen or destroyed Trust Preferred Securities Certificate shall be found at any time. Section 5.6. Persons Deemed Securityholders. The Trustees or the Securities Registrar shall treat the Person in whose name any Trust Preferred Securities Certificate shall be registered in the Securities Register as the owner of such Trust Preferred Securities Certificate for the purpose of receiving Distributions and for all other purposes whatsoever, and neither the Trustees nor the Securities Registrar shall be bound by any notice to the contrary. Section 5.7. Access to List of Securityholders' Names and Addresses. At any time when the Property Trustee is not also acting as the Securities Registrar, the Administrative Trustees or the Depositor shall furnish or cause to be furnished to the Property Trustee (a) semi-annually on or before January 1 and July 1 in each year, a list, in such form as the Property Trustee may reasonably require, of the names and addresses of the Security holders as of the most recent Record Date and (b) promptly after receipt by any Administrative Trustee or the Depositor of a request therefor from the Property Trustee, such other information as the Property 23 Trustee may reasonably require in order to enable the Property Trustee to discharge its obligations under this Trust Agreement, in each case to the extent such information is in the possession or control of the Administrative Trustees or the Depositor and is not identical to a previously supplied list or has not otherwise been received by the Property Trustee in its capacity as Securities Registrar. The rights of Security holders to communicate with other Security holders with respect to their rights under this Trust Agreement or under the Trust Preferred Securities, and the corresponding rights of the Trustee shall be as provided in the Trust Indenture Act. Each Holder, by receiving and holding a Trust Preferred Securities Certificate, and each Owner shall be deemed to have agreed not to hold the Depositor, the Property Trustee or the Administrative Trustees accountable by reason of the disclosure of its name and address, regardless of the source from which such information was derived. Section 5.8. Maintenance of Office or Agency. The Administrative Trustees shall maintain an office or offices or agency or agencies where Preferred Securities Certificates may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Trustees in respect of the Trust Preferred Securities Certificates may be served. The Administrative Trustees initially designate the principal corporate trust office of the Property Trustee, Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890, Attention: Corporate Trust Administrator, as the principal corporate trust office for such purposes. The Administrative Trustees shall give prompt written notice to the Depositor and to the Securityholders of any change in the location of the Securities Register or any such office or agency. Section 5.9. Appointment of Paying Agent. The Paying Agent shall make Distributions to Securityholders from the Payment Account and shall report the amounts of such Distributions to the Property Trustee and the Administrative Trustees. Any Paying Agent shall have the revocable power to withdraw funds from the Payment Account for the purpose of making the Distributions referred to above. The Administrative Trustees may revoke such power and remove the Paying Agent if such Trustees determine in their sole discretion that the Paying Agent shall have failed to perform its obligations under this Trust Agreement in any material respect. The Paying Agent shall initially be the Property Trustee, and any co-paying agent chosen by the Property Trustee, and acceptable to the Administrative Trustees and the Depositor. Any Person acting as Paying Agent shall be permitted to resign as Paying Agent upon 30 days' written notice to the Administrative Trustees, the Property Trustee and the Depositor. In the event that the Property Trustee shall no longer be the Paying Agent or a successor Paying Agent shall resign or its authority to act be revoked, the Administrative Trustees shall appoint a successor that is acceptable to the Property Trustee and the Depositor to act as Paying Agent (which shall be a bank or trust company). The Administrative Trustees shall cause such successor Paying Agent or any additional Paying Agent appointed by the Administrative Trustees to execute and deliver to the Trustees an instrument in which such successor Paying Agent or additional Paying Agent shall agree with the Trustees that as Paying Agent, such successor Paying Agent or additional Paying Agent will hold all sums, if any, held by it for payment to the Securityholders in trust for the benefit of the Securityholders entitled thereto until such sums shall be paid to such Securityholders. The Paying Agent shall return all unclaimed funds to the Property Trustee and upon removal of a Paying Agent 24 such Paying Agent shall also return all funds in its possession to the Property Trustee. The provisions of Sections 8.1, 8.3 and .6 herein shall apply to the Bank also in its role as Paying Agent, for so long as the Bank shall act as Paying Agent and, to the extent applicable, to any other paying agent appointed hereunder. Any reference in this Agreement to the Paying Agent shall include any co-paying agent unless the context requires otherwise. Section 5.10. Ownership of Common Securities by Depositor. At the Closing Date, the Depositor shall acquire and retain beneficial and record ownership of the Common Securities. To the fullest extent permitted by law, other than a transfer in connection with a consolidation or merger of the Depositor into another corporation, or any conveyance, transfer or lease by the Depositor of its properties and assets substantially as an entirety to any Person, pursuant to Section 8.1 of the Indenture, any attempted transfer of the Common Securities shall be void. The Administrative Trustees shall cause each Common Securities Certificate issued to the Depositor to contain a legend stating "THIS CERTIFICATE IS NOT TRANSFERABLE". Section 5.11. Book-Entry Preferred Securities Certificates; Common Securities Certificate. (a) The Preferred Securities Certificates, upon original issuance, will be issued in the form of a typewritten Preferred Securities Certificate or Certificates representing Book-Entry Preferred Securities Certificates, to be delivered to The Depository Trust Company, the initial Clearing Agency, by, or on behalf of, the Trust. Such Preferred Securities Certificate or Certificates shall initially be registered on the Securities Register in the name of Cede & Co., the nominee of the initial Clearing Agency, and no Owner will receive a Definitive Preferred Securities Certificate representing such Owner's interest in such Preferred Securities, except as provided in Section 5.13. Unless and until Definitive Preferred Securities Certificates have been issued to Owners pursuant to Section 5.13: (i) the provisions of this Section 5.11(a) shall be in full force and effect; (ii) the Securities Registrar, the Paying Agent and the Trustees shall be entitled to deal with the Clearing Agency for all purposes of this Trust Agreement relating to the Book-Entry Preferred Securities Certificates (including the payment of the Liquidation Amount of and Distributions on the Preferred Securities evidenced by Book-Entry Preferred Securities Certificates) the Book-Entry Preferred Securities Certificates and shall have no obligations to the Owners thereof; (iii) to the extent that the provisions of this Section 5.11 conflict with any other provisions of this Trust Agreement, the provisions of this Section 5.11 shall control; and (iv) the rights of the Owners of the Book-Entry Preferred Securities Certificates shall be exercised only through the Clearing Agency and shall be limited to those established by law and agreements between such Owners and the Clearing Agency and/or the Clearing Agency Participants. Pursuant to the Certificate Depository Agreement, unless and until Definitive Preferred Securities Certificates are issued pursuant to Section 5.13, the initial Clearing Agency will make book-entry transfers among the Clearing Agency Participants and receive 25 and transmit payments on the Preferred Securities to such Clearing Agency Participants. Any Clearing Agency designated pursuant here to will not be deemed an agent of the Trustee for any purpose. (b) A single Common Securities Certificate representing the Common Securities shall be issued to the Depositor in the form of a definitive Common Securities Certificate. Section 5.12. Notices to Clearing Agency. To the extent that a notice or other communication to the Owners is required under this Trust Agreement, unless and until Definitive Preferred Securities Certificates shall have been issued to Owners pursuant to Section 5.13, the Trustees shall give all such notices and communications specified herein to be given to Owners to the Clearing Agency, and shall have no obligations to the Owners. Section 5.13. Definitive Preferred Securities Certificates. If (a) the Depositor advises the Trustees in writing that the Clearing Agency is no longer willing or able to properly discharge its responsibilities with respect to the Preferred Securities Certificates, and the Depositor is unable to locate a qualified successor, (b) the Depositor at its option advises the Trustees in writing that it elects to terminate the book-entry system through the Clearing Agency or (c) after the occurrence of a Debenture Event of Default, Owners of Preferred Securities Certificates representing beneficial interests aggregating at least a majority of the Liquidation Amount advise the Property Trustee in writing that the continuation of a book-entry system through the Clearing Agency is no longer in the best interest of the Owners of Preferred Securities Certificates, then the Property Trustee shall notify the Clearing Agency and the Clearing Agency shall notify all Owners of Preferred Securities Certificates and the other Trustees of the occurrence of any such event and of the availability of the Definitive Preferred Securities Certificates to Owners of such class or classes, as applicable, requesting the same. Upon surrender to the Property Trustee of the typewritten Preferred Securities Certificate or Certificates representing the Book Entry Preferred Securities Certificates by the Clearing Agency, accompanied by registration instructions, the Administrative Trustees, or any one of them, shall execute the Definitive Preferred Securities Certificates in accordance with the instructions of the Clearing Agency. Neither the Securities Registrar nor the Trustees shall be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be protected in relying on, such instructions. Upon the issuance of Definitive Preferred Securities Certificates, the Trustees shall recognize the Holders of the Definitive Preferred Securities Certificates as Securityholders. The Definitive Preferred Securities Certificates shall be printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Administrative Trustees, as evidenced by the execution thereof by the Administrative Trustees or any one of them. Section 5.14. Rights of Securityholders. (a) The legal title to the Trust Property is vested exclusively in the Property Trustee (in its capacity as such) in accordance with Section 2.9, and the Securityholders shall not have any right or 26 title therein other than the undivided beneficial interest in the assets of the Trust conferred by their Trust Preferred Securities and they shall have no right to call for any partition or division of property, profits or rights of the Trust except as described below. The Trust Preferred Securities shall be personal property giving only the rights specifically set forth therein and in this Trust Agreement. The Trust Preferred Securities shall have no preemptive or similar rights and when issued and delivered to Securityholders against payment of the purchase price therefor will be fully paid and nonassessable by the Trust. The Holders of the Trust Preferred Securities, in their capacities as such, shall be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware. (b) For so long as any Preferred Securities remain Outstanding, if, upon a Debenture Event of Default, the Debenture Trustee fails or the holders of not less than 25% in principal amount of the outstanding Debentures fail to declare the principal of all of the Debentures to be immediately due and payable, the Holders of at least 25% in Liquidation Amount of the Preferred Securities then Outstanding shall have such right by a notice in writing to the Depositor and the Debenture Trustee; and upon any such declaration such principal amount of and the accrued interest on all of the Debentures shall become immediately due and payable, provided that the payment of principal and interest on such Debentures shall remain subordinated to the extent provided in the Indenture. At any time after such a declaration of acceleration with respect to the Debentures has been made and before a judgment or decree for payment of the money due has been obtained by the Debenture Trustee as in the Indenture provided, the Holders of a majority in Liquidation Amount of the Preferred Securities, by written notice to the Property Trustee, the Depositor and the Debenture Trustee, may rescind and annul such declaration and its consequences if: (i) the Depositor has paid or deposited with the Debenture Trustee a sum sufficient to pay (A) all overdue installments of interest (including any Additional Interest (as defined in the Indenture)) on all of the Debentures, (B) the principal of (and premium, if any, on) any Debentures which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Debentures, and (C) all sums paid or advanced by the Debenture Trustee under the Indenture and the reasonable compensation, expenses, disbursements and advances of the Debenture Trustee and the Property Trustee, their agents and counsel; and (ii) all Events of Default with respect to the Debentures, other than the non-payment of the principal of the Debentures which has become due solely by such acceleration, have been cured or waived as provided in Section 5.13 of the Indenture. The holders of a majority in aggregate Liquidation Amount of the Preferred Securities may, on behalf of the Holders of all the Preferred Securities, waive any past default under the Indenture, 27 except a default in the payment of principal or interest (unless such default has been cured and a sum sufficient to pay all matured installments of interest and principal due otherwise than by acceleration has been deposited with the Debenture Trustee) or a default in respect of a covenant or provision which under the Indenture cannot be modified or amended without the consent of the holder of each outstanding Debenture. No such rescission shall affect any subsequent default or impair any right consequent thereon. Upon receipt by the Property Trustee of written notice declaring such an acceleration, or rescission and annulment thereof, by Holders of the Preferred Securities all or part of which is represented by Book-Entry Preferred Securities Certificates, a record date shall be established for determining Holders of Outstanding Preferred Securities entitled to join in such notice, which record date shall be at the close of business on the day the Property Trustee receives such notice. The Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to join in such notice, whether or not such Holders remain Holders after such record date; provided, that, unless such declaration of acceleration, or rescission and annulment, as the case may be, shall have become effective by virtue of the requisite percentage having joined in such notice prior to the day which is 90 days after such record date, such notice of declaration of acceleration, or rescission and annulment, as the case may be, shall automatically and without further action by any Holder be canceled and of no further effect. Nothing in this paragraph shall prevent a Holder, or a proxy of a Holder, from giving, after expiration of such 90-day period, a new written notice of declaration of acceleration, or rescission and annulment thereof, as the case may be, that is identical to a written notice which has been canceled pursuant to the proviso to the preceding sentence, in which event a new record date shall be established pursuant to the provisions of this Section 5.14(b). (c) For so long as any Preferred Securities remain Outstanding, to the fullest extent permitted by law and subject to the terms of this Trust Agreement and the Indenture, upon a Debenture Event of Default specified in Section 5.1(1) or 5.1(2) of the Indenture, any Holder of Preferred Securities shall have the right to institute a proceeding directly against the Depositor, pursuant to Section 5.8 of the Indenture, for enforcement of payment to such Holder of the principal amount of or interest on Debentures having a principal amount equal to the Liquidation Amount of the Preferred Securities of such Holder (a "Direct Action"). Except as set forth in Section 5.14(b) and this Section 5.14(c), the Holders of Preferred Securities shall have no right to exercise directly any right or remedy available to the holders of, or in respect of, the Debentures. ARTICLE VI. Acts of Securityholders; Meetings; Voting Section 6.1. Limitations on Voting Rights. (a) Except as provided in this Section, in Sections 5.14, 8.10 and 10.2 and in the Indenture and as otherwise required by law, no Holder of Preferred Securities shall have any right to vote or in any manner otherwise control the administration, operation and management of the Trust or the obligations of the parties hereto, nor shall anything herein set forth, or contained in the terms of the 28 Trust Preferred Securities Certificates, be construed so as to constitute the Securityholders from time to time as partners or members of an association. (b) So long as any Debentures are held by the Property Trustee, the Trustees shall not (i) direct the time, method and place of conducting any proceeding for any remedy available to the Debenture Trustee, or executing any trust or power conferred on the Debenture Trustee with respect to such Debentures, (ii) waive any past default which is waivable under Section 5.13 of the Indenture, (iii) exercise any right to rescind or annul a declaration that the principal of all the Debentures shall be due and payable or (iv) consent to any amendment, modification or termination of the Indenture or the Debentures, where such consent shall be required, without, in each case, obtaining the prior approval of the Holders of at least a majority in Liquidation Amount of all Outstanding Preferred Securities, provided, however, that where a consent under the Indenture would require the consent of each Holder of Debentures affected thereby, no such consent shall be given by the Property Trustee without the prior written consent of each Holder of Preferred Securities. The Trustees shall not revoke any action previously authorized or approved by a vote of the Holders of Preferred Securities, except by a subsequent vote of the Holders of Preferred Securities. The Property Trustee shall notify all Holders of the Preferred Securities of any notice of default received from the Debenture Trustee with respect to the Debentures. In addition to obtaining the foregoing approvals of the Holders of the Preferred Securities, prior to taking any of the foregoing actions, the Trustees shall, at the expense of the Depositor, obtain an Opinion of Counsel experienced in such matters to the effect that such action shall not cause the Trust to fail to be classified as a grantor trust for United States Federal income tax purposes. (c) If any proposed amendment to the Trust Agreement provides for, or the Trustees otherwise propose to effect, (i) any action that would adversely affect in any material respect the powers, preferences or special rights of the Preferred Securities, whether by way of amendment to the Trust Agreement or otherwise, or (ii) the dissolution, winding-up or termination of the Trust, other than pursuant to the terms of this Trust Agreement, then the Holders of Outstanding Preferred Securities as a class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of the Holders of at least a majority in Liquidation Amount of the Outstanding Preferred Securities. Notwithstanding any other provision of this Trust Agreement, no amendment to this Trust Agreement may be made if, as a result of such amendment, it would cause the Trust to fail to be classified as a grantor trust for United States Federal income tax purposes. Section 6.2. Notice of Meetings. Notice of all meetings of the Preferred Securityholders, stating the time, place and purpose of the meeting, shall be given by the Property Trustee pursuant to Section 10.8 to each Preferred Securityholder of record, at his registered address, at least 15 days and not more than 90 days before the meeting. At any such meeting, any business properly before the meeting may be so considered whether or not stated in the notice of the meeting. Any adjourned meeting may be held as adjourned without further notice. 29 Section 6.3. Meetings of Preferred Securityholders. No annual meeting of Securityholders is required to be held. The Administrative Trustees, however, shall call a meeting of Preferred Securityholders to vote on any matter upon the written request of Holders of record of 25% of the Outstanding Preferred Securities (based upon their Liquidation Amount) and the Administrative Trustees or the Property Trustee may, at any time in their discretion, call a meeting of Preferred Securityholders to vote on any matters as to which Preferred Securityholders are entitled to vote. Holders of record of 50% of the Outstanding Preferred Securities (based upon their Liquidation Amount), present in person or by proxy, shall constitute a quorum at any meeting of Securityholders. If a quorum is present at a meeting, an affirmative vote by the Preferred Securityholders of record present, in person or by proxy, holding more than a majority of the Preferred Securities (based upon their Liquidation Amount) held by the Preferred Securityholders of record present, either in person or by proxy, at such meeting shall constitute the action of the Preferred Securityholders, unless this Trust Agreement requires a greater number of affirmative votes. Section 6.4. Voting Rights. Securityholders shall be entitled to one vote for each $25 of Liquidation Amount represented by their Trust Preferred Securities in respect of any matter as to which such Securityholders are entitled to vote. Section 6.5. Proxies, etc. At any meeting of Securityholders, any Securityholder entitled to vote thereat may vote by proxy, provided that no proxy shall be voted at any meeting unless it shall have been placed on file with the Administrative Trustees, or with such other officer or agent of the Trust as the Administrative Trustees may direct, for verification prior to the time at which such vote shall be taken. Pursuant to a resolution of the Property Trustee, proxies may be solicited in the name of the Property Trustee or one or more officers of the Property Trustee. Only Securityholders of record shall be entitled to vote. When Trust Preferred Securities are held jointly by several persons, any one of them may vote at any meeting in person or by proxy in respect of such Trust Preferred Securities, but if more than one of them shall be present at such meeting in person or by proxy, and such joint owners or their proxies so present disagree as to any vote to be cast, such vote shall not be received in respect of such Trust Preferred Securities. A proxy purporting to be executed by or on behalf of a Securityholder shall be deemed valid unless challenged at or prior to its exercise, and the burden of proving invalidity shall rest on the challenger. No proxy shall be valid more than three years after its date of execution. Section 6.6. Securityholder Action by Written Consent. 30 Any action which may be taken by Securityholders at a meeting may be taken without a meeting if Securityholders holding more than a majority of all Outstanding Trust Preferred Securities (based upon their aggregate Liquidation Amount) entitled to vote in respect of such action (or such larger proportion thereof as shall be required by any express provision of this Trust Agreement) shall consent to the action in writing (based upon their aggregate Liquidation Amount). Section 6.7. Record Date for Voting and Other Purposes. For the purposes of determining the Securityholders who are entitled to notice of and to vote at any meeting or by written consent, or to participate in any Distribution on the Trust Preferred Securities in respect of which a record date is not otherwise provided for in this Trust Agreement, or for the purpose of any other action, the Administrative Trustees may from time to time fix a date, not more than 90 days prior to the date of any meeting of Securityholders or the payment of a Distribution or other action, as the case may be, as a record date for the determination of the identity of the Securityholders of record for such purposes. Section 6.8. Acts of Securityholders. Any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Trust Agreement to be given, made or taken by Securityholders or Owners may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Securityholders or Owners in person or by an agent duly appointed in writing; and, except as otherwise expressly provided herein, such action shall become effective when such instrument or instruments are delivered to an Administrative Trustee. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Securityholders or Owners signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Trust Agreement and (subject to Section 8.1) conclusive in favor of the Trustees, if made in the manner provided in this Section. The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which any Trustee receiving the same deems sufficient. The ownership of Preferred Securities shall be proved by the Securities Register. Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Securityholder of any Trust Security shall bind every future Securityholder of the same Trust Security and the Securityholder of every Trust Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by 31 the Trustees or the Trust in reliance thereon, whether or not notation of such action is made upon such Trust Security. Without limiting the foregoing, a Securityholder entitled hereunder to take any action hereunder with regard to any particular Trust Security may do so with regard to all or any part of the Liquidation Amount of such Trust Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of such liquidation amount. If any dispute shall arise between the Securityholders and the Administrative Trustees or among such Securityholders or Trustees with respect to the authenticity, validity or binding nature of any request, demand, authorization, direction, consent, waiver or other Act of such Securityholder or Trustee under this Article VI, then the determination of such matter by the Property Trustee shall be conclusive with respect to such matter. A Securityholder may institute a legal proceeding directly against the Depositor under the Guarantee to enforce its rights under the Guarantee without first instituting a legal proceeding against the Guarantee Trustee (as defined in the Guarantee), the Trust or any Person. Section 6.9. Inspection of Records. Upon reasonable notice to the Administrative Trustees and the Property Trustee, the records of the Trust shall be open to inspection by Securityholders during normal business hours for any purpose reasonably related to such Securityholder's interest as a Securityholder. ARTICLE VII. Representations and Warranties Section 7.1. Representations and Warranties of the Property Trustee and the Delaware Trustee. The Property Trustee and the Delaware Trustee, each severally on behalf of and as to itself, hereby represents and warrants for the benefit of the Depositor and the Securityholders that: (a) the Property Trustee is a Delaware banking corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; (b) the Property Trustee has full corporate power, authority and legal right to execute, deliver and perform its obligations under this Trust Agreement and has taken all necessary action to authorize the execution, delivery and performance by it of this Trust Agreement; (c) the Delaware Trustee is a Delaware corporation duly organized, validly existing and in good standing in the State of Delaware; 32 (d) the Delaware Trustee has full corporate power, authority and legal right to execute, deliver and perform its obligations under this Trust Agreement and has taken all necessary action to authorize the execution, delivery and performance by it of this Trust Agreement; (e) this Trust Agreement has been duly authorized, executed and delivered by the Property Trustee and the Delaware Trustee and constitutes the valid and legally binding agreement of each of the Property Trustee and the Delaware Trustee enforceable against each of them in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles; (f) the execution, delivery and performance of this Trust Agreement has been duly authorized by all necessary corporate or other action on the part of the Property Trustee and the Delaware Trustee and does not require any approval of stockholders of the Property Trustee and the Delaware Trustee and such execution, delivery and performance will not (i) violate the Charter or By-laws of the Property Trustee or the Delaware Trustee, (ii) violate any provision of, or constitute, with or without notice or lapse of time, a default under, or result in the creation or imposition of, any Lien on any properties included in the Trust Property pursuant to the provisions of, any indenture, mortgage, credit agreement, license or other agreement or instrument to which the Property Trustee or the Delaware Trustee is a party or by which it is bound, or (iii) violate any law, governmental rule or regulation of the United States or the State of Delaware, as the case may be, governing the banking, trust or general powers of the Property Trustee or the Delaware Trustee (as appropriate in context) or any order, judgment or decree applicable to the Property Trustee or the Delaware Trustee; (g) neither the authorization, execution or delivery by the Property Trustee or the Delaware Trustee of this Trust Agreement nor the consummation of any of the transactions by the Property Trustee or the Delaware Trustee (as appropriate in context) contemplated herein or therein requires the consent or approval of, the giving of notice to, the registration with or the taking of any other action with respect to any governmental authority or agency under any existing Federal law governing the banking, trust or general powers of the Property Trustee or the Delaware Trustee, as the case may be, under the laws of the United States or the State of Delaware; (h) there are no proceedings pending or, to the best of each of the Property Trustee's and the Delaware Trustee's knowledge, threatened against or affecting the Property Trustee or the Delaware Trustee in any court or before any governmental authority, agency or arbitration board or tribunal which, individually or in the aggregate, would materially and adversely affect the Trust or would question the right, power and authority of the Property Trustee or the Delaware Trustee, as the case may be, to enter into or perform its obligations as one of the Trustees under this Trust Agreement. Section 7.2. Representations and Warranties of Depositor. The Depositor hereby represents and warrants for the benefit of the Securityholders that: 33 (a) the Trust Preferred Securities Certificates issued at the Closing Date on behalf of the Trust have been duly authorized and will have been, duly and validly executed, issued and delivered by the Trustees pursuant to the terms and provisions of, and in accordance with the requirements of, this Trust Agreement and the Securityholders will be, as of each such date, entitled to the benefits of this Trust Agreement; and (b) there are no taxes, fees or other governmental charges payable by the Trust (or the Trustees on behalf of the Trust) under the laws of the State of Delaware or any political subdivision thereof in connection with the execution, delivery and performance by the Bank, the Property Trustee or the Delaware Trustee, as the case may be, of Bank, this Trust Agreement. ARTICLE VIII. The Trustees Section 8.1. Certain Duties and Responsibilities. (a) The duties and responsibilities of the Trustees shall be as provided by this Trust Agreement and, in the case of the Property Trustee, by the Trust Indenture Act. Notwithstanding the foregoing, no provision of this Trust Agreement shall require the Trustees to expend or risk their own funds or otherwise incur any financial liability in the performance of any of their duties hereunder, or in the exercise of any of their rights or powers, if they shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Whether or not therein expressly so provided, every provision of this Trust Agreement relating to the conduct or affecting the liability of or affording protection to the Trustees shall be subject to the provisions of this Section. Nothing in this Trust Agreement shall be construed to release an Administrative Trustee from liability for its own gross negligent action, its own gross negligent failure to act, or its own willful misconduct. To the extent that, at law or in equity, an Administrative Trustee has duties (including fiduciary duties) and liabilities relating thereto to the Trust or to the Securityholders, such Administrative Trustee shall not be liable to the Trust or to any Securityholder for such Trustee's good faith reliance on the provisions of this Trust Agreement. The provisions of this Trust Agreement, to the extent that they restrict the duties and liabilities of the Administrative Trustees otherwise existing at law or in equity, are agreed by the Depositor and the Securityholders to replace such other duties and liabilities of the Administrative Trustees. (b) All payments made by the Property Trustee or a Paying Agent in respect of the Trust Preferred Securities shall be made only from the revenue and proceeds from the Trust Property and only to the extent that there shall be sufficient revenue or proceeds from the Trust Property to enable the Property Trustee or a Paying Agent to make payments in accordance with the terms hereof. Each Securityholder, by its acceptance of a Trust Security, agrees that it will look solely to the revenue and proceeds from the Trust Property to the extent legally available for distribution to it as herein provided and that the Trustees are not personally liable to it for any amount distributable in respect of any Trust Security or for any other liability in respect of any Trust Security. This Section 8.1(b) 34 does not limit the liability of the Trustees expressly set forth elsewhere in this Trust Agreement or, in the case of the Property Trustee, in the Trust Indenture Act. (c) No provision of this Trust Agreement shall be construed to relieve the Property Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) the Property Trustee shall not be liable for any error of judgment made in good faith by an authorized officer of the Property Trustee, unless it shall be proved that the Property Trustee was negligent in ascertaining the pertinent facts; (ii) the Property Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a majority in Liquidation Amount of the Trust Preferred Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Property Trustee, or exercising any trust or power conferred upon the Property Trustee under this Trust Agreement; (iii) the Property Trustee's sole duty with respect to the custody, safe keeping and physical preservation of the Debentures and the Payment Account shall be to deal with such Property in a similar manner as the Property Trustee deals with similar property for its own account, subject to the protections and limitations on liability afforded to the Property Trustee under this Trust Agreement and the Trust Indenture Act; (iv) the Property Trustee shall not be liable for any interest on any money received by it except as it may otherwise agree with the Depositor; and money held by the Property Trustee need not be segregated from other funds held by it except in relation to the Payment Account maintained by the Property Trustee pursuant to Section 3.1 and except to the extent otherwise required by law; and (v) the Property Trustee shall not be responsible for monitoring the compliance by the Administrative Trustees or the Depositor with their respective duties under this Trust Agreement, nor shall the Property Trustee be liable for the default or misconduct of the Administrative Trustees or the Depositor. Section 8.2. Certain Notices. (a) Within 5 Business Days after the occurrence of any Event of Default actually known to the Property Trustee, the Property Trustee shall transmit, in the manner and to the extent provided in Section 10.8, notice of such Event of Default to the Securityholders, the Administrative Trustees and the Depositor, unless the Event of Default shall have been cured or waived. For purposes of this Section the term "Event of Default" means any event that is, or after notice or lapse of time or both would become, and Event of Default. 35 (b) The Administrative Trustees shall transmit, to the Securityholders in the manner and to the extent provided in Section 10.8, notice of the Depositor's election to begin or further extend an Extension Period on the Debentures (unless such election shall have been revoked) within the time specified for transmitting such notice to the holders of the Debentures pursuant to the Indenture as originally executed. Section 8.3. Certain Rights of Property Trustee. Subject to the provisions of Section 8.1: (a) the Property Trustee may rely and shall be protected in acting or refraining from acting in good faith upon any resolution, Opinion of Counsel, certificate, written representation of a Holder or transferee, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) if (i) in performing its duties under this Trust Agreement the Property Trustee is required to decide between alternative courses of action or (ii) in construing any of the provisions of this Trust Agreement the Property Trustee finds the same ambiguous or inconsistent with any other provisions contained herein or (iii) the Property Trustee is unsure of the application of any provision of this Trust Agreement, then, except as to any matter as to which the Preferred Securityholders are entitled to vote under the terms of this Trust Agreement, the Property Trustee shall deliver a notice to the Depositor requesting written instructions of the Depositor as to the course of action to be taken and the Property Trustee shall take such action, or refrain from taking such action, as the Property Trustee shall be instructed in writing to take, or to refrain from taking, by the Depositor; provided, however, that if the Property Trustee does not receive such instructions of the Depositor within ten Business Days after it has delivered such notice, or such reasonably shorter period of time set forth in such notice (which to the extent practicable shall not be less than two Business Days), it may, but shall be under no duty to, take or refrain from taking such action not inconsistent with this Trust Agreement as it shall deem advisable and in the best interests of the Securityholders, in which event the Property Trustee shall have no liability except for its own bad faith, negligence or willful misconduct; (c) any direction or act of the Depositor or the Administrative Trustees contemplated by this Trust Agreement shall be sufficiently evidenced by an Officers' Certificate; (d) whenever in the administration of this Trust Agreement, the Property Trustee shall deem it desirable that a matter be established before undertaking, suffering or omitting any action hereunder, the Property Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and rely upon an Officers' Certificate which, upon receipt of such request, shall be promptly delivered by the Depositor or the Administrative Trustees; 36 (e) the Property Trustee shall have no duty to see to any recording, filing or registration of any instrument (including any financing or continuation statement or any filing under tax or securities laws) or any rerecording, refiling or registration thereof; (f) the Property Trustee may consult with counsel (which counsel may be counsel to the Depositor or any of its Affiliates, and may include any of its employees) and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon and in accordance with such advice, such counsel may be counsel to the Depositor or any of its Affiliates, and may include any of its employees; the Property Trustee shall have the right at any time to seek instructions concerning the administration of this Trust Agreement from any court of competent jurisdiction; (g) the Property Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Trust Agreement at the request or direction of any of the Securityholders pursuant to this Trust Agreement, unless such Securityholders shall have offered to the Property Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (h) the Property Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, debenture, note or other evidence of indebtedness or other paper or document, unless requested in writing to do so by one or more Securityholders, but the Property Trustee may make such further inquiry or investigation into such facts or matters as it may see fit; (i) the Property Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through its agents or attorneys, provided that the Property Trustee shall be responsible for its own negligence or recklessness with respect to selection of any agent or attorney appointed by it hereunder; (j) whenever in the administration of this Trust Agreement the Property Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder the Property Trustee (i) may request instructions from the Holders of the Trust Preferred Securities which instructions may only be given by the Holders of the same proportion in Liquidation Amount of the Trust Preferred Securities as would be entitled to direct the Property Trustee under the terms of the Trust Preferred Securities in respect of such remedy, right or action, (ii) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (iii) shall be protected in acting in accordance with such instructions; and (k) except as otherwise expressly provided by this Trust Agreement, the Property Trustee shall not be under any obligation to take any action that is discretionary under the provisions of this Trust Agreement. No provision of this Trust Agreement shall be deemed to impose any duty or obligation on the Property Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it, in any jurisdiction in which it shall be illegal, or in which the Property 37 Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts, or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Property Trustee shall be construed to be a duty. Section 8.4. Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Trust Preferred Securities Certificates shall be taken as the statements of the Trust, and the Trustees do not assume any responsibility for their correctness. The Trustees shall not be accountable for the use or application by the Depositor of the proceeds of the Debentures. Section 8.5. May Hold Securities. Except as provided in the definition of the term "Outstanding" in Article I, any Trustee or any other agent of any Trustee or the Trust, in its individual or any other capacity, may become the owner or pledgee of Trust Preferred Securities and, subject to Sections 8.8 and 8.13, may otherwise deal with the Trust with the same rights it would have if it were not a Trustee or such other agent. Section 8.6. Compensation; Indemnity; Fees. The Depositor agrees: (a) to pay to the Trustees from time to time reasonable compensation for all services rendered by them hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) as specified in a separate agreement between any of the Trustees and the Depositor; (b) except as otherwise expressly provided herein, to reimburse the Trustees upon request for all reasonable expenses, disbursements and advances incurred or made by the Trustees in accordance with any provision of this Trust Agreement (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence, bad faith or willfulness; and (c) to the fullest extent permitted by applicable law, to indemnify and hold harmless (i) each Trustee, (ii) any Affiliate of any Trustee, (iii) any officer, director, shareholder, employee, representative or agent of any Trustee, and (iv) any employee or agent of the Trust or its Affiliates, (referred to herein as an "Indemnified Person") from and against any loss, damage, liability, tax, penalty, expense or claim of any kind or nature whatsoever incurred by such Indemnified Person by reason of the creation, operation or termination of the Trust or any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of authority conferred on such Indemnified Person by this Trust Agreement, except that no Indemnified Person shall be entitled to be indemnified in respect of any loss, damage or claim incurred by such Indemnified Person by reason of negligence, bad faith or willful misconduct with respect to such acts or omissions. 38 The provisions of this Section 8.6 shall survive the termination of this Trust Agreement. No Trustee may claim any lien or charge on any Trust Property as a result of any amount due pursuant to this Section 8.6. The Depositor and any Trustee may engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Trust, and the Trust and the Holders of Trust Preferred Securities shall have no rights by virtue of this Trust Agreement in and to such independent ventures or the income or profits derived therefrom, and the pursuit of any such venture, even if competitive with the business of the Trust, shall not be deemed wrongful or improper. Neither the Depositor, nor any Trustee, shall be obligated to present any particular investment or other opportunity to the Trust even if such opportunity is of a character that, if presented to the Trust, could be taken by the Trust, and the Depositor or any Trustee shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment or other opportunity. Any Trustee may engage or be interested in any financial or other transaction with the Depositor or any Affiliate of the Depositor, or may act as depository for, trustee or agent for, or act on any committee or body of holders of, securities or other obligations of the Depositor or its Affiliates. Section 8.7. Corporate Property Trustee Required; Eligibility of Trustees. (a) There shall at all times be a Property Trustee hereunder with respect to the Trust Preferred Securities. The Property Trustee shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $50,000,000. If any such Person publishes reports of condition at least annually, pursuant to law or to the requirements of its supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Property Trustee with respect to the Trust Preferred Securities shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. (b) There shall at all times be one or more Administrative Trustees hereunder with respect to the Trust Preferred Securities. Each Administrative Trustee shall be either a natural person who is at least 21 years of age or a legal entity that shall act through one or more persons authorized to bind that entity. (c) There shall at all times be a Delaware Trustee with respect to the Trust Preferred Securities. The Delaware Trustee shall either be (i) a natural person who is at least 21 years of age and a resident of the State of Delaware or (ii) a legal entity with its principal place of business in the State of Delaware and that otherwise meets the requirements of applicable Delaware law that shall act through one or more persons authorized to bind such entity. Section 8.8. Conflicting Interests. 39 If the Property Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Property Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Trust Agreement. Section 8.9. Co-Trustees and Separate Trustee. Unless an Event of Default shall have occurred and be continuing, at any time or times, for the purpose of meeting the legal requirements of the Trust Indenture Act or of any jurisdiction in which any part of the Trust Property may at the time be located, the Depositor and the Administrative Trustees, by agreed action of the majority of such Trustees, shall have power to appoint, and upon the written request of the Administrative Trustees, the Depositor shall for such purpose join with the Administrative Trustees in the execution, delivery, and performance of all instruments and agreements necessary or proper to appoint, one or more Persons approved by the Property Trustee either to act as co- trustee, jointly with the Property Trustee, of all or any part of such Trust Property, or to the extent required by law to act as separate trustee of any such property, in either case with such powers as may be provided in the instrument of appointment, and to vest in such Person or Persons in the capacity aforesaid, any property, title, right or power deemed necessary or desirable, subject to the other provisions of this Section. If the Depositor does not join in such appointment within 15 days after the receipt by it of a request so to do, or in case a Debenture Event of Default has occurred and is continuing, the Property Trustee alone shall have power to make such appointment. Any co- trustee or separate trustee appointed pursuant to this Section shall either be (i) a natural person who is at least 21 years of age and a resident of the United States or (ii) a legal entity with its principal place of business in the United States that shall act through one or more persons authorized to bind such entity. Should any written instrument from the Depositor be required by any co- trustee or separate trustee so appointed for more fully confirming to such co- trustee or separate trustee such property, title, right, or power, any and all such instruments shall, on request, be executed, acknowledged and delivered by the Depositor. Every co-trustee or separate trustee shall, to the extent permitted by law, but to such extent only, be appointed subject to the following terms, namely: (a) The Trust Preferred Securities shall be executed and delivered and all rights, powers, duties, and obligations hereunder in respect of the custody of securities, cash and other personal property held by, or required to be deposited or pledged with, the Trustees specified hereunder shall be exercised solely by such Trustees and not by such co-trustee or separate trustee. (b) The rights, powers, duties, and obligations hereby conferred or imposed upon the Property Trustee in respect of any property covered by such appointment shall be conferred or imposed upon and exercised or performed by the Property Trustee or by the Property Trustee and such co-trustee or separate trustee jointly, as shall be provided in the instrument appointing such co-trustee or separate trustee, except to the extent that under any law of any jurisdiction in which any particular act is to be performed, the Property Trustee shall be incompetent or unqualified to perform such act, 40 in which event such rights, powers, duties and obligations shall be exercised and performed by such co-trustee or separate trustee. (c) The Property Trustee at any time, by an instrument in writing executed by it, with the written concurrence of the Depositor, may accept the resignation of or remove any co-trustee or separate trustee appointed under this Section, and, in case a Debenture Event of Default has occurred and is continuing, the Property Trustee shall have power to accept the resignation of, or remove, any such co-trustee or separate trustee without the concurrence of the Depositor. Upon the written request of the Property Trustee, the Depositor shall join with the Property Trustee in the execution, delivery and performance of all instruments and agreements necessary or proper to effectuate such resignation or removal. A successor to any co-trustee or separate trustee so resigned or removed may be appointed in the manner provided in this Section. (d) No co-trustee or separate trustee hereunder shall be personally liable by reason of any act or omission of the Property Trustee or any other trustee hereunder. (e) The Property Trustee shall not be liable by reason of any act of a co- trustee or separate trustee. (f) Any Act of Holders delivered to the Property Trustee shall be deemed to have been delivered to each such co-trustee and separate trustee. Section 8.10. Resignation and Removal; Appointment of Successor. No resignation or removal of any Trustee (the "Relevant Trustee") and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 8.11. Subject to the immediately preceding paragraph, the Relevant Trustee may resign at any time by giving written notice thereof to the Securityholders. If the instrument of acceptance by the successor Trustee required by Section 8.11 shall not have been delivered to the Relevant Trustee within 30 days after the giving of such notice of resignation, the Relevant Trustee may petition, at the expense of the Trust, any court of competent jurisdiction for the appointment of a successor Relevant Trustee. Unless a Debenture Event of Default shall have occurred and be continuing, any Trustee may be removed at any time by Act of the Common Securityholder. If a Debenture Event of Default shall have occurred and be continuing, the Property Trustee or the Delaware Trustee, or both of them, may be removed at such time by Act of the Holders of a majority in Liquidation Amount of the Preferred Securities, delivered to the Relevant Trustee (in its individual capacity and on behalf of the Trust). In no event will the Holders of the Preferred Securities have the right to vote to appoint, remove or replace the Administrative Trustee. An Administrative Trustee may be removed by the Common Securityholder at any time. 41 If any Trustee shall resign, be removed or become incapable of acting as Trustee, or if a vacancy shall occur in the office of any Trustee for any cause, at a time when no Debenture Event of Default shall have occurred and be continuing, the Common Securityholder, by Act of the Common Securityholder delivered to the retiring Trustee, shall promptly appoint a successor Trustee or Trustees, and the retiring Trustee shall comply with the applicable requirements of Section 8.11. If the Property Trustee or the Delaware Trustee shall resign, be removed or become incapable of continuing to act as the Property Trustee or the Delaware Trustee, as the case may be, at a time when a Debenture Event of Default shall have occurred and be continuing, the Preferred Securityholders, by Act of the Securityholders of a majority in Liquidation Amount of the Preferred Securities then Outstanding delivered to the retiring Relevant Trustee, shall promptly appoint a successor Relevant Trustee or Trustees, and such successor Trustee shall comply with the applicable requirements of Section 8.11. If an Administrative Trustee shall resign, be removed or become incapable of acting as Administrative Trustee, at a time when a Debenture Event of Default shall have occurred and be continuing, the Common Securityholder by Act of the Common Securityholder delivered to the Administrative Trustee shall promptly appoint a successor Administrative Trustee or Administrative Trustees and such successor Administrative Trustee or Trustees shall comply with the applicable requirements of Section 8.11. If no successor Relevant Trustee shall have been so appointed by the Common Securityholder or the Preferred Securityholders and accepted appointment in the manner required by Section 8.11, any Securityholder who has been a Securityholder of Trust Preferred Securities for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Relevant Trustee. The Property Trustee shall give notice of each resignation and each removal of a Trustee and each appointment of a successor Trustee to all Securityholders in the manner provided in Section 10.8 and shall give notice to the Depositor. Each notice shall include the name of the successor Relevant Trustee and the address of its Corporate Trust Office if it is the Property Trustee. Notwithstanding the foregoing or any other provision of this Trust Agreement, in the event any Administrative Trustee or a Delaware Trustee who is a natural person dies or becomes, in the opinion of the Depositor, incompetent or incapacitated, the vacancy created by such death, incompetence or incapacity may be filled by (a) the unanimous act of the remaining Administrative Trustees if there are at least two of them or (b) otherwise by the Depositor (with the successor in each case being a Person who satisfies the eligibility requirement for Administrative Trustees or Delaware Trustee, as the case may be, set forth in Section 8.7). Section 8.11. Acceptance of Appointment by Successor. In case of the appointment hereunder of a successor Trustee such successor Trustee so appointed shall execute, acknowledge and deliver to the Trust and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Depositor or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and if the Property Trustee is the resigning 42 Trustee shall duly assign, transfer and deliver to the successor Trustee all property and money held by such retiring Property Trustee hereunder. In case of the appointment hereunder of a successor Relevant Trustee, the retiring Relevant Trustee and each successor Relevant Trustee with respect to the Trust Preferred Securities shall execute and deliver an amendment hereto wherein each successor Relevant Trustee shall accept such appointment and which (a) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Relevant Trustee all the rights, powers, trusts and duties of the retiring Relevant Trustee with respect to the Trust Preferred Securities and the Trust and (b) shall add to or change any of the provisions of this Trust Agreement as shall be necessary to provide for or facilitate the administration of the Trust by more than one Relevant Trustee, it being understood that nothing herein or in such amendment shall constitute such Relevant Trustees co-trustees and upon the execution and delivery of such amendment the resignation or removal of the retiring Relevant Trustee shall become effective to the extent provided therein and each such successor Relevant Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Relevant Trustee; but, on request of the Trust or any successor Relevant Trustee such retiring Relevant Trustee shall duly assign, transfer and deliver to such successor Relevant Trustee all Trust Property, all proceeds thereof and money held by such retiring Relevant Trustee hereunder with respect to the Trust Preferred Securities and the Trust. Upon request of any such successor Relevant Trustee, the Trust shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Relevant Trustee all such rights, powers and trusts referred to in the first or second preceding paragraph, as the case may be. No successor Relevant Trustee shall accept its appointment unless at the time of such acceptance such successor Relevant Trustee shall be qualified and eligible under this Article. Section 8.12. Merger, Conversion, Consolidation or Succession to Business. Any Person into which the Property Trustee or the Delaware Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Relevant Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of such Relevant Trustee, shall be the successor of such Relevant Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. Section 8.13. Preferential Collection of Claims Against Depositor or Trust. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other similar judicial proceeding relative to the Trust or any other obligor upon the Trust Preferred Securities or the property of the Trust or of such other obligor or their creditors, the Property Trustee (irrespective of whether any Distributions 43 on the Trust Preferred Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Property Trustee shall have made any demand on the Trust for the payment of any past due Distributions) shall be entitled and empowered, to the fullest extent permitted by law, by intervention in such proceeding or otherwise: (a) to file and prove a claim for the whole amount of any Distributions owing and unpaid in respect of the Trust Preferred Securities and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Property Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Property Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and (b) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Property Trustee and, in the event the Property Trustee shall consent to the making of such payments directly to the Holders, to pay to the Property Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Property Trustee, its agents and counsel, and any other amounts due the Property Trustee. Nothing herein contained shall be deemed to authorize the Property Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement adjustment or compensation affecting the Trust Preferred Securities or the rights of any Holder thereof or to authorize the Property Trustee to vote in respect of the claim of any Holder in any such proceeding. Section 8.14. Reports by Property Trustee. (a) Not later than ___________ of each year commencing with ___________, 1997, the Property Trustee shall transmit to all Securityholders in accordance with Section 10.8, and to the Depositor, a brief report dated as of the immediately preceding December 31 with respect to: (i) its eligibility under Section 8.7 or, in lieu thereof, if to the best of its knowledge it has continued to be eligible under said Section, a written statement to such effect; (ii) a statement that the Property Trustee has complied with all of its obligations under this Trust Agreement during the twelve-month period (or, in the case of the initial report, the period since the Closing Date) ending with such December 31 or, if the Property Trustee has not complied in any material respect with such obligations, a description of such noncompliance; and (iii) any change in the property and funds in its possession as Property Trustee since the date of its last report and any action taken by the Property Trustee in the performance of its duties hereunder which it has not previously reported and which in its opinion materially affects the Trust Preferred Securities. 44 (b) In addition the Property Trustee shall transmit to Securityholders such reports concerning the Property Trustee and its actions under this Trust Agreement as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. (c) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Property Trustee with each national stock exchange, the Nasdaq National Market or such other interdealer quotation system or self- regulatory organization upon which the Trust Preferred Securities are listed or traded, with the Commission and with the Depositor. Section 8.15. Reports to the Property Trustee. The Depositor and the Administrative Trustees on behalf of the Trust shall provide to the Property Trustee such documents, reports and information as required by Section 314 of the Trust Indenture Act (if any) and the compliance certificate required by Section 314(a) of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. Section 8.16. Evidence of Compliance with Conditions Precedent. Each of the Depositor and the Administrative Trustees on behalf of the Trust shall provide to the Property Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Trust Agreement that relate to any of the matters set forth in Section 314 (c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) of the Trust Indenture Act shall be given in the form of an Officers' Certificate. Section 8.17. Number of Trustees. (a) The number of Trustees shall be five (5) provided that the Holder of all of the Common Securities by written instrument may increase or decrease the number of Administrative Trustees. The Property Trustee and the Delaware Trustee may be the same Person. (b) If a Trustee ceases to hold office for any reason and the number of Administrative Trustees is not reduced pursuant to Section 8.17(a), or if the number of Trustees is increased pursuant to Section 8.17(a), a vacancy shall occur. The vacancy shall be filled with a Trustee appointed in accordance with Section 8.10. (c) The death, resignation, retirement, removal, bankruptcy, incompetence or incapacity to perform the duties of a Trustee shall not operate to annul the Trust. Whenever a vacancy in the number of Administrative Trustees shall occur, until such vacancy is filled by the appointment of an Administrative Trustee in accordance with Section 8.10, the Administrative Trustees in office, regardless of their number (and notwithstanding any other provision of this Agreement), shall have all the powers granted to the Administrative Trustees and shall discharge all the duties imposed upon the Administrative Trustees by this Trust Agreement. Section 8.18. Delegation of Power. 45 (a) Any Administrative Trustee may, by power of attorney consistent with applicable law, delegate to any other natural person over the age of 21 his or her power for the purpose of executing any documents contemplated in Section 2.7(a), including any registration statement or amendment thereto filed with the Commission, or making any other governmental filing; and (b) The Administrative Trustees shall have power to delegate from time to time to such of their number or to the Depositor the doing of such things and the execution of such instruments either in the name of the Trust or the names of the Administrative Trustees or otherwise as the Administrative Trustees may deem expedient, to the extent such delegation is not prohibited by applicable law or contrary to the provisions of this Trust Agreement, as set forth herein. Section 8.19. Voting. Except as otherwise provided in this Trust Agreement, the consent or approval of the Administrative Trustees shall require consent or approval by not less than a majority of the Administrative Trustees, unless there are only two, in which case both must consent. ARTICLE IX. Termination, Liquidation and Merger Section 9.1. Termination Upon Expiration Date. Unless terminated earlier, the Trust shall automatically terminate on December 31, 2___ (the "Expiration Date"), following the distribution of the Trust Property in accordance with Section 9.4. Section 9.2. Early Termination. The first to occur of any of the following events is an "Early Termination Event": (a) the occurrence of a Bankruptcy Event in respect of, or the dissolution or liquidation of, the Depositor; (b) the written direction to the Property Trustee from the Depositor at any time to terminate the Trust and distribute Debentures to Securityholders in exchange for a Like Amount of the Preferred Securities (which direction is optional and wholly within the discretion of the Depositor); (c) the redemption of all of the Preferred Securities in connection with the redemption of all the Debentures; and (d) the entry of an order for dissolution of the Trust by a court of competent jurisdiction. Section 9.3. Termination. 46 The respective obligations and responsibilities of the Trustees and the Trust created and continued hereby shall terminate upon the latest to occur of the following: (a) the distribution by the Property Trustee to Securityholders upon the liquidation of the Trust pursuant to Section 9.4, or upon the redemption of all of the Trust Preferred Securities pursuant to Section 4.2, of all amounts required to be distributed hereunder upon the final payment of the Trust Preferred Securities; (b) the payment of any expenses owed by the Trust; and (c) the discharge of all administrative duties of the Administrative Trustees, including the performance of any tax reporting obligations with respect to the Trust or the Securityholders, and (d) the filing of a Certificate of Cancellation by the Administrative Trustee under the Business Trust Act. Section 9.4. Liquidation. (a) If an Early Termination Event specified in clause (a), (b) or (d) of Section 9.2 occurs or upon the Expiration Date, the Trust shall be liquidated by the Trustees as expeditiously as the Trustees determine to be possible by distributing, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, to each Securityholder a Like Amount of Debentures, subject to Section 9.4(d). Notice of liquidation shall be given by the Property Trustee by first-class mail, postage prepaid mailed not later than 30 nor more than 60 days prior to the Liquidation Date to each Holder of Trust Preferred Securities at such Holder's address appearing in the Securities Register. All notices of liquidation shall: (i) state the Liquidation Date; (ii) state that from and after the Liquidation Date, the Trust Preferred Securities will no longer be deemed to be Outstanding and any Trust Preferred Securities Certificates not surrendered for exchange will be deemed to represent a Like Amount of Debentures; and (iii) provide such information with respect to the mechanics by which Holders may exchange Trust Preferred Securities Certificates for certificates representing the Like Amount of the Debentures, or if Section 9.4(d) applies receive a Liquidation Distribution, as the Administrative Trustees or the Property Trustee shall deem appropriate. (b) Except where Section 9.2(c) or 9.4(d) applies, in order to effect the liquidation of the Trust and distribution of the Debentures to Securityholders, the Administrative Trustees shall establish a record date for such distribution (which shall be not more than 45 days prior to the Liquidation Date) and, either itself acting as exchange agent or through the appointment of a separate exchange agent, shall establish such procedures as it shall deem appropriate to effect the distribution of Debentures in exchange for the Outstanding Trust Preferred Securities Certificates. (c) Except where Section 9.2(c) or 9.4(d) applies, after the Liquidation Date, (i) the Trust Preferred Securities will no longer be deemed to be Outstanding, (ii) certificates representing a Like Amount of Debentures will be issued to holders of Trust Preferred Securities Certificates, upon surrender of such certificates to the Administrative Trustees or their agent for exchange, (iii) the Depositor shall use its best efforts to have the Debentures listed on the New York Stock Exchange or on such other exchange, interdealer quotation system or self-regulatory organization as the 47 Preferred Securities are then listed, (iv) any Trust Preferred Securities Certificates not so surrendered for exchange will be deemed to represent a Like Amount of Debentures, accruing interest at the rate provided for in the Debentures from the last Distribution Date on which a Distribution was made on such Trust Preferred Securities Certificates until such certificates are so surrendered (and until such certificates are so surrendered, no payments of interest or principal will be made to Holders of Debentures represented by such certificates) and (v) all rights of Securityholders holding Trust Preferred Securities will cease, except the right of such Securityholders to receive a Like Amount of Debentures upon surrender of Trust Preferred Securities Certificates. (d) In the event that, notwithstanding the other provisions of this Section 9.4, whether because of an order for dissolution entered by a court of competent jurisdiction or otherwise, distribution of the Debentures in the manner provided herein is determined by the Property Trustee not to be practical, the Trust Property shall be liquidated, and the Trust shall be dissolved, wound-up or terminated, by the Property Trustee in such manner as the Property Trustee determines. In such event, on the date of the dissolution, winding-up or other termination of the Trust, Securityholders will be entitled to receive out of the assets of the Trust available for distribution to Securityholders, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, an amount equal to the Liquidation Amount per Trust Security plus accumulated and unpaid Distributions thereon to the date of payment (such amount being the "Liquidation Distribution"). If, upon any such dissolution, winding up or termination, the Liquidation Distribution can be paid only in part because the Trust has insufficient assets available to pay in full the aggregate Liquidation Distribution, then, subject to the next succeeding sentence, the amounts payable by the Trust on the Trust Preferred Securities shall be paid on a pro rata basis (based upon Liquidation Amounts). The holder of the Common Securities will be entitled to receive Liquidation Distributions upon any such dissolution, winding-up or termination pro rata (determined as aforesaid) with Holders of Preferred Securities, except that, if a Debenture Event of Default has occurred and is continuing, Holders of the Preferred Securities shall have a priority over the Holders of Common Securities. Section 9.5. Mergers, Consolidations, Amalgamations or Replacements of the Trust. The Trust may not merge with or into, consolidate, amalgamate, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any corporation or other body, except pursuant to this Section 9.5. At the request of the Depositor, with the consent of the Administrative Trustees and without the consent of the Holders of the Preferred Securities, the Property Trustee or the Delaware Trustee, the Trust may merge with or into, consolidate, amalgamate, or be replaced by or convey, transfer or lease its properties and assets substantially as an entirety to a trust organized as such under the laws of any State; provided, that (i) such successor entity either (a) expressly assumes all of the obligations of the Trust with respect to the Preferred Securities or (b) substitutes for the Preferred Securities other securities having substantially the same terms as the Preferred Securities (the "Successor Securities") so long as the Successor Securities rank the same as the Preferred Securities rank in priority with respect to distributions and payments upon liquidation, redemption and otherwise, (ii) the Depositor expressly appoints a trustee of such successor entity possessing the same powers and duties as the Property Trustee as the holder of the Debentures, (iii) the Successor Securities are listed or traded, or any Successor Securities will be listed upon notification of issuance, on any national securities exchange or other organization on 48 which the Preferred Securities are then listed or traded, if any, (iv) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not cause the Preferred Securities (including any Successor Securities) to be downgraded by any nationally recognized statistical rating organization, (v) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the holders of the Preferred Securities (including any Successor Securities) in any material respect, (vi) such successor entity has a purpose identical to that of the Trust, (vii) prior to such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, the Depositor has received an Opinion of Counsel to the effect that (a) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the holders of the Preferred Securities (including any Successor Securities) in any material respect, and (b) following such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, neither the Trust nor such successor entity will be required to register as an investment company under the 1940 Act and (viii) the Depositor owns all of the Common Securities of such successor entity and guarantees the obligations of such successor entity under the Successor Securities at least to the extent provided by the Guarantee. Notwithstanding the foregoing, the Trust shall not, except with the consent of holders of 100% in Liquidation Amount of the Preferred Securities, consolidate, amalgamate, merge with or into, or be replaced by or convey, transfer or lease its properties and assets substantially as an entirety to any other entity or permit any other entity to consolidate, amalgamate, merge with or into, or replace it if such consolidation, amalgamation, merger, replacement, conveyance, transfer or lease would cause the Trust or the successor entity to be classified as other than a grantor trust for United States Federal income tax purposes. [See Prospectus description.] ARTICLE X. Miscellaneous Provisions Section 10.1. Limitation of Rights of Securityholders. The death or incapacity of any person having an interest, beneficial or otherwise, in Trust Preferred Securities shall not operate to terminate this Trust Agreement, nor entitle the legal representatives or heirs of such person or any Securityholder for such person, to claim an accounting, take any action or bring any proceeding in any court for a partition or winding up of the arrangements contemplated hereby, nor otherwise affect the rights, obligations and liabilities of the parties hereto or any of them. Section 10.2. Amendment. (a) This Trust Agreement may be amended from time to time by the Property Trustee, the Administrative Trustees and the Depositor, without the consent of any Securityholders, (i) to cure any ambiguity, correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Trust Agreement, which shall not be inconsistent with the other provisions of this Trust Agreement, or (ii) to modify, eliminate or add to any provisions of this Trust Agreement to such 49 extent as shall be necessary to ensure that the Trust will be classified for United States Federal income tax purposes as a grantor trust at all times that any Trust Preferred Securities are outstanding or to ensure that the Trust will not be required to register as an investment company under the 1940 Act; provided, however, that in the case of clause (i), such action shall not adversely affect in any material respect the interests of any Securityholder, and any amendments of this Trust Agreement shall become effective when notice thereof is given to the Securityholders. (b) Except as provided in Section 10.2(c) hereof, any provision of this Trust Agreement may be amended by the Trustees and the Depositor with (i) the consent of Trust Securityholders representing not less than a majority (based upon Liquidation Amounts) of the Trust Preferred Securities then Outstanding and (ii) receipt by the Trustees of an Opinion of Counsel to the effect that such amendment or the exercise of any power granted to the Trustees in accordance with such amendment will not affect the Trust's status as a grantor trust for United States Federal income tax purposes or the Trust's exemption from status of an investment company under the 1940 Act. (c) In addition to and notwithstanding any other provision in this Trust Agreement, without the consent of each affected Securityholder (such consent being obtained in accordance with Section 6.3 or 6.6 hereof), this Trust Agreement may not be amended to (i) change the amount or timing of any Distribution on the Trust Preferred Securities or otherwise adversely affect the amount of any Distribution required to be made in respect of the Trust Preferred Securities as of a specified date or (ii) restrict the right of a Securityholder to institute suit for the enforcement of any such payment on or after such date; notwithstanding any other provision herein, without the unanimous consent of the Securityholders (such consent being obtained in accordance with Section 6.3 or 6.6 hereof), this paragraph (c) of this Section 10.2 may not be amended. (d) Notwithstanding any other provisions of this Trust Agreement, no Trustee shall enter into or consent to any amendment to this Trust Agreement which would cause the Trust to fail or cease to qualify for the exemption from status of an investment company under the 1940 Act or fail or cease to be classified as a grantor trust for United States Federal income tax purposes. (e) Notwithstanding anything in this Trust Agreement to the contrary, without the consent of the Depositor, this Trust Agreement may not be amended in a manner which imposes any additional obligation on the Depositor. (f) In the event that any amendment to this Trust Agreement is made, the Administrative Trustees shall promptly provide to the Depositor a copy of such amendment. (g) Neither the Property Trustee nor the Delaware Trustee shall be required to enter into any amendment to this Trust Agreement which affects its own rights, duties or immunities under this Trust Agreement. The Property Trustee shall be entitled to receive an Opinion of Counsel and an Officers' Certificate stating that any amendment to this Trust Agreement is in compliance with this Trust Agreement. Section 10.3. Separability. 50 In case any provision in this Trust Agreement or in the Trust Preferred Securities Certificates shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 10.4. Governing Law. THIS TRUST AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE SECURITYHOLDERS, THE TRUST AND THE TRUSTEES WITH RESPECT TO THIS TRUST AGREEMENT AND THE TRUST PREFERRED SECURITIES SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE (WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES). Section 10.5. Payments Due on Non-Business Day. If the date fixed for any payment on any Trust Security shall be a day that is not a Business Day, then such payment need not be made on such date but may be made on the next succeeding day that is a Business Day (except as otherwise provided in Sections 4.1(a) and 4.2(d)), with the same force and effect as though made on the date fixed for such payment, and no interest shall accrue thereon for the period after such date. Section 10.6. Successors. This Trust Agreement shall be binding upon and shall inure to the benefit of any successor to the Depositor, the Trust or the Relevant Trustee, including any successor by operation of law. Except in connection with a consolidation, merger or sale involving the Depositor that is permitted under Article Eight of the Indenture and pursuant to which the assignee agrees in writing to perform the Depositor's obligations hereunder, the Depositor shall not assign its obligations hereunder. Section 10.7. Headings. The Article and Section headings are for convenience only and shall not affect the construction of this Trust Agreement. Section 10.8. Reports, Notices and Demands. Any report, notice, demand or other communication which by any provision of this Trust Agreement is required or permitted to be given or served to or upon any Securityholder or the Depositor may be given or served in writing by deposit thereof, first-class postage prepaid, in the United States mail, hand delivery or facsimile transmission, in each case, addressed, (a) in the case of a Preferred Securityholder, to such Preferred Securityholder as such Securityholder's name and address may appear on the Securities Register; and (b) in the case of the Common Securityholder or the Depositor, to Greater Bay Bancorp, 2860 West Bayshore Road, Palo Alto, California, 94303, Attention:__________, facsimile number: (415) 494-9193. Any notice to Preferred Securityholders shall also be given to such owners as have, within two years preceding the giving of such notice, filed their names and addresses with the Property Trustee for that purpose. Such notice, demand or other 51 communication to or upon a Securityholder shall be deemed to have been sufficiently given or made, for all purposes, upon hand delivery, mailing or transmission. Any notice, demand or other communication which by any provision of this Trust Agreement is required or permitted to be given or served to or upon the Trust, the Property Trustee, the Delaware Trustee or the Administrative Trustees shall be given in writing addressed (until another address is published by the Trust) as follows: (a) with respect to the Property Trustee to Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington , Delaware 19890, Attention: Corporate Trust Administration; (b) with respect to the Delaware Trustee, to Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890; and (c) with respect to the Administrative Trustees, to them at the address above for notices to the Depositor, marked "Attention Administrative Trustees of GBB Capital I." Such notice, demand or other communication to or upon the Trust or the Property Trustee shall be deemed to have been sufficiently given or made only upon actual receipt of the writing by the Trust or the Property Trustee. Section 10.9. Agreement Not to Petition. Each of the Trustees and the Depositor agree for the benefit of the Securityholders that, until at least one year and one day after the Trust has been terminated in accordance with Article IX, they shall not file, or join in the filing of, a petition against the Trust under any Bankruptcy Laws or otherwise join in the commencement of any proceeding against the Trust under any Bankruptcy Law. In the event the Depositor takes action in violation of this Section 10.9, the Property Trustee agrees, for the benefit of Securityholders, that at the expense of the Depositor, it shall file an answer with the bankruptcy court or otherwise properly contest the filing of such petition by the Depositor against the Trust or the commencement of such action and raise the defense that the Depositor has agreed in writing not to take such action and should be stopped and precluded therefrom and such other defenses, if any, as counsel for the Trustee or the Trust may assert. The provisions of this Section 10.9 shall survive the termination of this Trust Agreement. Section 10.10. Trust Indenture Act; Conflict with Trust Indenture Act. (a) This Trust Agreement is subject to the provisions of the Trust Indenture Act that are required to be part of this Trust Agreement and shall, to the extent applicable, be governed by such provisions. (b) The Property Trustee shall be the only Trustee which is a trustee for the purposes of the Trust Indenture Act. (c) If any provision hereof limits, qualifies or conflicts with another provision hereof which is required to be included in this Trust Agreement by any of the provisions of the Trust Indenture Act, such required provision shall control. If any provision of this Trust Agreement modifies or excludes any provision of the Trust Indenture Act which may be so modified or excluded, the latter provision shall be deemed to apply to this Trust Agreement as so modified or excluded, as the case may be. 52 (d) The application of the Trust Indenture Act to this Trust Agreement shall not affect the nature of the Securities as equity securities representing undivided beneficial interests in the assets of the Trust. Section 10.11. Acceptance of Terms of Trust Agreement, Guarantee and Indenture. THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST THEREIN BY OR ON BEHALF OF A SECURITYHOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY SIGNATURE OR FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE UNCONDITIONAL ACCEPTANCE BY THE SECURITYHOLDER AND ALL OTHERS HAVING A BENEFICIAL INTEREST IN SUCH TRUST SECURITY OF ALL THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT AND AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER TERMS OF THE GUARANTEE AND THE INDENTURE, AND SHALL CONSTITUTE THE AGREEMENT OF THE TRUST, SUCH SECURITYHOLDER AND SUCH OTHERS THAT THE TERMS AND PROVISIONS OF THIS 53 TRUST AGREEMENT SHALL BE BINDING, OPERATIVE AND EFFECTIVE AS BETWEEN THE TRUST AND SUCH SECURITYHOLDER AND SUCH OTHERS. Greater Bay Bancorp By: _____________________________________ Name: Title: Wilmington Trust Company, as Property Trustee By: ____________________________________ Name: Title: Wilmington Trust Company, as Delaware Trustee By: _____________________________________ Name: Title: /s/ David L. Kalkbrenner ---------------------------------------- David L. Kalkbrenner, as Administrative Trustee /s/ Steven C. Smith ---------------------------------------- Steven C. Smith, as Administrative Trustee /s/ James R. Ramsey ---------------------------------------- James R. Ramsey, as Administrative Trustee 54 EXHIBIT A CERTIFICATE OF TRUST OF GBB CAPITAL I This Certificate of Trust of GBB Capital I (the "Trust"), dated __________, 1997, is being duly executed and filed by the undersigned, as trustees, to form a business trust under the Delaware Business Trust Act (12 Del. C. ((S)) 3801 et seq.). 1. Name. The name of the business trust being formed hereby is GBB Capital I. 2. Delaware Trustee. The name and business address of the trustee of the Trust in the State of Delaware are Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890, Attention: Corporate Trust Administrator. 3. Effective Date. This Certificate of Trust shall be effective upon its filing. In Witness Whereof, the undersigned, being the trustees of the Trust, have executed this Certificate of Trust as of the date first above written. Wilmington Trust Company, as Trustee By: ____________________________________ Name: Title: /s/ David L. Kalkbrenner ---------------------------------------- David L. Kalkbrenner, Administrative Trustee /s/ Steven C. Smith ---------------------------------------- Steven C. Smith, Administrative Trustee /s/ James R. Ramsey ---------------------------------------- James R. Ramsey, Administrative Trustee 55 EXHIBIT B The Depository Trust Company, 55 Water Street, 49th Floor, New York, New York 10041-0099 __________, 1997 Attention: _______________ General Counsel's Office Re: GBB Capital I ____% Cumulative Trust Preferred Securities Ladies and Gentlemen: The purpose of this letter is to set forth certain matters relating to the issuance and deposit with The Depository Trust Company ("DTC") of the GBB Capital I ____% Cumulative Trust Preferred Securities, (the "Trust Preferred Securities"), of GBB Capital I, a Delaware business trust (the "Issuer"), formed pursuant to a Trust Agreement between Greater Bay Bancorp ("Greater Bay Bancorp") and Wilmington Trust Company, as Property Trustee, Wilmington Trust Company, as Delaware Trustee, and the Administrative Trustees named therein. The payment of distributions on the Trust Preferred Securities, and payments due upon liquidation of the Issuer or redemption of the Trust Preferred Securities, to the extent the Issuer has funds available for the payment thereof are guaranteed by Greater Bay Bancorp to the extent set forth in a Guarantee Agreement dated ____________, 1997 by Greater Bay Bancorp with respect to the Trust Preferred Securities. Greater Bay Bancorp and the Issuer propose to sell the Trust Preferred Securities to certain Underwriters (the "Underwriters") pursuant to an Underwriting Agreement dated ____________, 1997 by and among the Underwriters, the Issuer and Greater Bay Bancorp dated ____________, 1997, and the Underwriters wish to take delivery of the Trust Preferred Securities through DTC. Wilmington Trust Company is acting as transfer agent and registrar with respect to the Trust Preferred Securities (the "Transfer Agent and Registrar"). To induce DTC to accept the Trust Preferred Securities as eligible for deposit at DTC, and to act in accordance with DTC's rules with respect to the Trust Preferred Securities, the Issuer, the Transfer Agent and Registrar and DTC agree among each other as follows: 56 1. Prior to the closing of the sale of the Trust Preferred Securities to the Underwriters, which is expected to occur on or about ____________, 1997, there shall be deposited with DTC one or more global certificates (individually and collectively, the "Global Certificate") registered in the name of DTC's Trust Preferred Securities nominee, Cede & Co., representing an aggregate of ____________ Trust Preferred Securities and bearing the following legend: Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the Issuer or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. 2. The Amended and Restated Trust Agreement of the Issuer provides for the voting by holders of the Trust Preferred Securities under certain limited circumstances. The Issuer shall establish a record date for such purposes and shall, to the extent possible, give DTC notice of such record date not less than 15 calendar days in advance of such record date. 3. In the event of a stock split, conversion, recapitalization, reorganization or any other similar transaction resulting in the cancellation of all or any part of the Trust Preferred Securities outstanding, the Issuer or the Transfer Agent and Registrar shall send DTC a notice of such event at least 5 business days prior to the effective date of such event. 4. In the event of distribution on, or an offering or issuance of rights with respect to, the Trust Preferred Securities outstanding, the Issuer or the Transfer Agent and Registrar shall send DTC a notice specifying: (a) the amount of and conditions, if any, applicable to the payment of any such distribution or any such offering or issuance of rights; (b) any applicable expiration or deadline date, or any date by which any action on the part of the holders of Trust Preferred Securities is required; and (c) the date any required notice is to be mailed by or on behalf of the Issuer to holders of Trust Preferred Securities or published by or on behalf of the Issuer (whether by mail or publication, the "Publication Date"). Such notice shall be sent to DTC by a secure means (e.g., legible telecopy, registered or certified mail, overnight delivery) in a timely manner designed to assure that such notice is in DTC's possession no later than the close of business on the business day before the Publication Date. The Issuer or the Transfer Agent and Registrar will forward such notice either in a separate secure transmission for each CUSIP number or in a secure transmission of multiple CUSIP numbers (if applicable) that includes a manifest or list of each CUSIP number submitted in that transmission. (The party sending such notice shall have a method to verify subsequently the use of such means and the timeliness of such notice.) The Publication Date shall be not less than 30 calendar days nor more than 60 calendar days prior to the payment of any such distribution or any such offering or issuance of rights with respect to the Trust Preferred Securities. After establishing the amount of payment to be made on the Trust Preferred Securities, the Issuer or the Transfer Agent and Registrar will notify DTC's Dividend Department of such payment 5 business days prior to payment date. Notices to 57 DTC's Dividend Department by telecopy shall be sent to (212) 709-1723. Such notices by mail or by any other means shall be sent to: Manager, Announcements Dividend Department The Depository Trust Company 7 Hanover Square, 23rd Floor New York, New York 10004-2695 The Issuer or the Transfer Agent and Registrar shall confirm DTC's receipt of such telecopy by telephoning the Dividend Department at (212) 709-1270. 5. In the event of a redemption by the Issuer of the Trust Preferred Securities, notice specifying the terms of the redemption and the Publication Date of such notice shall be sent by the Issuer or the Transfer Agent and Registrar to DTC not less than 30 calendar days prior to such event by a secure means in the manner set forth in paragraph 4. Such redemption notice shall be sent to DTC's Call Notification Department at (516) 227-4164 or (516) 227-4190, and receipt of such notice shall be confirmed by telephoning (516) 227-4070. Notice by mail or by any other means shall be sent to: Call Notification Department The Depository Trust Company 711 Stewart Avenue Garden City, New York 11530-4719 6. In the event of any invitation to tender the Trust Preferred Securities, notice specifying the terms of the tender and the Publication Date of such notice shall be sent by the Issuer or the Transfer Agent and Registrar to DTC by a secure means and in a timely manner as described in paragraph 4. Notices to DTC pursuant to this paragraph and notices of other corporate actions (including mandatory tenders, exchanges and capital changes) shall be sent, unless notification to another department is expressly provided for herein, by telecopy to DTC's Reorganization Department at (212) 709-1093 or (212) 709-1094 and receipt of such notice shall be confirmed by telephoning (212) 709-6884, or by mail or any other means to: Manager, Reorganization Department Reorganization Window The Depository Trust Company 7 Hanover Square, 23rd Floor New York, New York 10004-2695 7. All notices and payment advices sent to DTC shall contain the CUSIP number or numbers of the Trust Preferred Securities and the accompanying designation of the Trust Preferred Securities, which, as of the date of this letter, is "GBB Capital I ____% Cumulative Trust Preferred Securities. 58 8. Distribution payments or other cash payments with respect to the Trust Preferred Securities evidenced by the Global Certificate shall be received by Cede & Co., as nominee of DTC, or its registered assigns in next day funds on each payment date (or in accordance with existing arrangements between the Issuer or the Transfer Agent and Registrar and DTC). Such payments shall be made payable to the order of Cede & Co., and shall be addressed as follows: NDFS Redemption Department The Depository Trust Company 7 Hanover Square, 23rd Floor New York, New York 10004-2695 9. DTC may by prior written notice direct the Issuer and the Transfer Agent and Registrar to use any other telecopy number or address of DTC as the number or address to which notices or payments may be sent. 10. In the event of a conversion, redemption, or any other similar transaction (e.g., tender made and accepted in response to the Issuer's or the Transfer Agent and Registrar's invitation) necessitating a reduction in the aggregate number of Trust Preferred Securities outstanding evidenced by Global Certificates, DTC, in its discretion: (a) may request the Issuer or the Transfer Agent and Registrar to issue and countersign a new Global Certificate; or (b) may make an appropriate notation on the Global Certificate indicating the date and amount of such reduction. 11. DTC may discontinue its services as a securities depositary with respect to the Trust Preferred Securities at any time by giving at least 90 days' prior written notice to the Issuer and the Transfer Agent and Registrar (at which time DTC will confirm with the Issuer or the Transfer Agent and Registrar the aggregate number of Trust Preferred Securities deposited with it) and discharging its responsibilities with respect thereto under applicable law. Under such circumstances, the Issuer may determine to make alternative arrangements for book-entry settlement for the Trust Preferred Securities, make available one or more separate global certificates evidencing Trust Preferred Securities to any Participant having Trust Preferred Securities credited to its DTC account, or issue definitive Trust Preferred Securities to the beneficial holders thereof, and in any such case, DTC agrees to cooperate fully with the Issuer and the Transfer Agent and Registrar, and to return the Global Certificate, duly endorsed for transfer as directed by the Issuer or the Transfer Agent and Registrar, together with any other documents of transfer reasonably requested by the Issuer or the Transfer Agent and Registrar. 12. In the event that the Issuer determines that beneficial owners of Trust Preferred Securities shall be able to obtain definitive Trust Preferred Securities, the Issuer or the Transfer Agent and Registrar shall notify DTC of the availability of certificates. In such event, the Issuer or the Transfer Agent and Registrar shall issue, transfer and exchange certificates in appropriate amounts, as required by DTC and others, and DTC agrees to cooperate fully with the Issuer and the Transfer Agent and Registrar and to return the Global Certificate, duly endorsed for transfer as directed by the Issuer or the Transfer Agent and Registrar, together with any other documents of transfer reasonably requested by the Issuer or the Transfer Agent and Registrar. 59 13. This letter may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. Nothing herein shall be deemed to require the Transfer Agent and Registrar to advance funds on behalf of GBB Capital I. Very truly yours, GBB Capital I (as Issuer) Wilmington Trust Company, as Trustee By: ____________________________________ Name: Title: (As Transfer Agent and Registrar) Wilmington Trust Company, as Trustee By: ____________________________________ Name: Title: Received and Accepted: The Depository Trust Company By: ______________________________________ Authorized Officer 60 EXHIBIT C THIS CERTIFICATE IS NOT TRANSFERABLE CERTIFICATE NUMBER C-1 NUMBER OF COMMON SECURITIES ____ CERTIFICATE EVIDENCING COMMON SECURITIES OF GBB CAPITAL I ____% COMMON SECURITIES (LIQUIDATION AMOUNT $25 PER COMMON SECURITY) GBB Capital I, a statutory business trust formed under the laws of the State of Delaware (the "Trust"), hereby certifies that Greater Bay Bancorp (the "Holder") is the registered owner of ( ) common securities of the Trust representing beneficial interests of the Trust and designated the ____% Common Securities (liquidation amount $25 per Common Security) (the "Common Securities"). In accordance with Section 5.10 of the Trust Agreement (as defined below) the Common Securities are not transferable and any attempted transfer hereof shall be void. The designations, rights, privileges, restrictions, preferences and other terms and provisions of the Common Securities are set forth in, and this certificate and the Common Securities represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Amended and Restated Trust Agreement of the Trust dated as of ___________,1997, as the same may be amended from time to time (the "Trust Agreement") including the designation of the terms of the Common Securities as set forth therein. The Trust will furnish a copy of the Trust Agreement to the Holder without charge upon written request to the Trust at its principal place of business or registered office. Upon receipt of this certificate, the Holder is bound by the Trust Agreement and is entitled to the benefits thereunder. In Witness Whereof, one of the Administrative Trustees of the Trust has executed this certificate this ____ day of ______________,1997. GBB Capital I By: ______________________ Name: Administrative Trustee 61 EXHIBIT D AGREEMENT AS TO EXPENSES AND LIABILITIES Agreement As To Expenses And Liabilities (this "Agreement"), dated as of ____________, 1997, between Greater Bay Bancorp, a California corporation ("GBB), and GBB Capital I, a Delaware business trust (the "Trust"). Whereas, the Trust intends to issue its Common Securities (the "Common Securities") to and receive Debentures from GBB and to issue and sell ____% Cumulative Trust Preferred Securities (the "Trust Preferred Securities") with such powers, preferences and special rights and restrictions as are set forth in the Amended and Restated Trust Agreement of the Trust dated as of _________, 1997 as the same may be amended from time to time (the "Trust Agreement"); Whereas, GBB will directly or indirectly own all of the Common Securities of the Trust and will issue the Debentures; Now, Therefore, in consideration of the purchase by each holder of the Trust Preferred Securities, which purchase GBB hereby agrees shall benefit GBB and which purchase GBB acknowledges will be made in reliance upon the execution and delivery of this Agreement, GBB and Trust hereby agree as follows: ARTICLE I Section 1.1. Guarantee by GBB. Subject to the terms and conditions hereof, GBB hereby irrevocably and unconditionally guarantees to each person or entity to whom the Trust is now or hereafter becomes indebted or liable (the "Beneficiaries") the full payment, when and as due, of any and all Obligations (as hereinafter defined) to such Beneficiaries. As used herein, "Obligations" means any costs, expenses or liabilities of the Trust, other than obligations of the Trust to pay to holders of any Trust Preferred Securities or other similar interests in the Trust the amounts due such holders pursuant to the terms of the Trust Preferred Securities or such other similar interests, as the case may be. This Agreement is intended to be for the benefit of, and to be enforceable by, all such Beneficiaries, whether or not such Beneficiaries have received notice hereof. Section 1.2. Term of Agreement. This Agreement shall terminate and be of no further force and effect upon the later of (a) the date on which full payment has been made of all amounts payable to all holders of all the Trust Preferred Securities (whether upon redemption, liquidation, exchange or otherwise) and (b) the date on which there are no Beneficiaries remaining; provided, however, that this Agreement shall continue to be effective or shall be reinstated, as the case may be, if at any time any holder of Trust Preferred 62 Securities or any Beneficiary must restore payment of any sums paid under the Trust Preferred Securities, under any Obligation, under the Guarantee Agreement dated the date hereof by GBB and Wilmington Trust Company, a Delaware banking corporation, as guarantee trustee or under this Agreement for any reason whatsoever. This Agreement is continuing, irrevocable, unconditional and absolute. Section 1.3. Waiver of Notice. GBB hereby waives notice of acceptance of this Agreement and of any Obligation to which it applies or may apply, and GBB hereby waives presentment, demand for payment, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands. Section 1.4. No Impairment. The obligations, covenants, agreements and duties of GBB under this Agreement shall in no way be affected or impaired by reason of the happening from time to time of any of the following: (a) the extension of time for the payment by the Trust of all or any portion of the Obligations or for the performance of any other obligation under, arising out of, or in connection with, the obligations; (b) any failure, omission, delay or lack of diligence on the part of the Beneficiaries to enforce, assert or exercise any right, privilege, power or remedy conferred on the Beneficiaries with respect to the Obligations or any action on the part of the Trust granting indulgence or extension of any kind; or (c) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Trust or any of the assets of the Trust. There shall be no obligation of the Beneficiaries to give notice to, or obtain the consent of, GBB with respect to the happening of any of the foregoing. Section 1.5. Enforcement. A Beneficiary may enforce this Agreement directly against GBB and GBB waives any right or remedy to require that any action be brought against the Trust or any other person or entity before proceeding against GBB. Section 1.6. Subrogation. GBB shall be subrogated to all (if any) rights of the Trust in respect of any amounts paid to the Beneficiaries by GBB under this Agreement; provided, however, that GBB shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any rights 63 which it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Agreement, if, at the time of any such payment, any amounts are due and unpaid under this Agreement. ARTICLE II Section 2.1. Binding Effect. All guarantees and agreements contained in this Agreement shall bind the successors, assigns, receivers, trustees and representatives of GBB and shall inure to the benefit of the Beneficiaries. Section 2.2. Amendment. So long as there remains any Beneficiary or any Trust Preferred Securities of any series are outstanding, this Agreement shall not be modified or amended in any manner adverse to such Beneficiary or to the holders of the Trust Preferred Securities. Section 2.3. Notices. Any notice, request or other communication required or permitted to be given hereunder shall be given in writing by delivering the same against receipt therefor by facsimile transmission (confirmed by mail), telex or by registered or certified mail, addressed as follows (and if so given, shall be deemed given when mailed or upon receipt of an answer-back, if sent by telex): GBB Capital I c/o Greater Bay Bancorp 2860 West Bayshore Road Palo Alto, California 94303 Facsimile No.: (415) 813-8211 Attention: _________________ Greater Bay Bancorp 2860 West Bayshore Road Palo Alto, California 94303 Facsimile No.: (415) 813-8211 Attention: _________________ Section 2.4. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA (WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES). 64 This Agreement is executed as of the day and year first above written. GREATER BAY BANCORP By: _____________________________ Name: Title: GBB Capital I By: ____________________________ Name: Administrative Trustee 65 EXHIBIT E This Preferred Security is a Global Certificate within the meaning of the Trust Agreement hereinafter referred to and is registered in the name of The Depository Trust Company (the "Depository") or a nominee of the Depository. This Preferred Security is exchangeable for Trust Preferred Securities registered in the name of a person other than the Depository or its nominee only in the limited circumstances described in the Trust Agreement and no transfer of this Preferred Security (other than a transfer of this Preferred Security as a whole by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository) may be registered except in limited circumstances. Unless this Preferred Security is presented by an authorized representative of The Depository Trust Company (55 Water Street, New York) to GBB Capital I or its agent for registration of transfer, exchange or payment, and any Preferred Security issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company and any payment hereon is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. CERTIFICATE NUMBER P- NUMBER OF TRUST PREFERRED SECURITIES _____ CUSIP NO. CERTIFICATE EVIDENCING TRUST PREFERRED SECURITIES OF GBB CAPITAL I ____% CUMULATIVE TRUST PREFERRED SECURITIES, SERIES (LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY) GBB Capital I, a statutory business trust formed under the laws of the State of Delaware (the "Trust"), hereby certifies that ________________ (the "Holder") is the registered owner of ________ ( ) Trust Preferred Securities of the Trust representing an undivided beneficial interest in the assets of the Trust and designated the GBB Capital I ____% Cumulative Trust Preferred Securities, (liquidation amount $25 per Preferred Security) (the "Trust Preferred Securities"). The Trust Preferred Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer as provided in Section 5.4 of the Trust Agreement (as defined below). The designations, rights, privileges, restrictions, preferences and other terms and provisions of the Trust Preferred 66 Securities are set forth in, and this certificate and the Trust Preferred Securities represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Amended and Restated Trust Agreement of the Trust dated as of __________, 1997, as the same may be amended from time to time (the "Trust Agreement") including the designation of the terms of Trust Preferred Securities as set forth therein. The Holder is entitled to the benefits of the Guarantee Agreement entered into by Greater Bay Bancorp, a California corporation, and [insert name of Guarantee Trustee], as guarantee trustee, dated as of ___________, 1997, (the "Guarantee"), to the extent provided therein. The Trust will furnish a copy of the Trust Agreement and the Guarantee to the Holder without charge upon written request to the Trust at its principal place of business or registered office. Upon receipt of this certificate, the Holder is bound by the Trust Agreement and is entitled to the benefits thereunder. In Witness Whereof, one of the Administrative Trustees of the Trust has executed this certificate this ___ day of ___________, 1997. GBB Capital I By: ____________________________________ Name: Administrative Trustee 67 ASSIGNMENT For Value Received, the undersigned assigns and transfers this Preferred Security to: (Insert assignee's social security or tax identification number) (Insert address and zip code of assignee) and irrevocably appoints agent to transfer this Preferred Security Certificate on the books of the Trust. The agent may substitute another to act for him or her. Date: ________________ Signature: ___________________________________________________________________ (Sign exactly as your name appears on the other side of this Preferred Security Certificate) The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to SEC Rule 17Ad-15. 68 EX-4.9 9 GUARANTEE AGREEMENT EXHIBIT 4.9 D&W DRAFT 2/21/97 __________________________________________________________ GUARANTEE AGREEMENT BETWEEN GREATER BAY BANCORP (AS GUARANTOR) AND [WILMINGTON TRUST COMPANY] (AS TRUSTEE) DATED AS OF _________________________________ , 1997 __________________________________________________________ CROSS-REFERENCE TABLE*
Section of Trust Section of Indenture Act of 1939, as amended Guarantee Agreement --------------------------------- ------------------- 310(a). 4.1(a) 310(b). 4.1(c), 2.8 310(c). Inapplicable 311(a). 2.2(b) 311(b). 2.2(b) 311(c). Inapplicable 312(a). 2.2(a) 312(b). 2.2(b) 313. 2.3 314(a). 2.4 314(b). Inapplicable 314(c). 2.5 314(d). Inapplicable 314(e). 1.1, 2.5, 3.2 314(f). 2.1, 3.2 315(a). 3.1(d) 315(b). 2.7 315(c). 3.1 315(d). 3.1(d) 316(a). 1.1, 2.6, 5.4 316(b). 5.3 316(c). 9.2 317(a). Inapplicable 317(b). Inapplicable 318(a). 2.1(b) 318(b). 2.1 318(c). 2.1(a)
- --------------- * This Cross-Reference Table does not constitute part of the Guarantee Agreement and shall not affect the interpretation of any of its terms or provisions. TABLE OF CONTENTS
Page ---- ARTICLE I. DEFINITIONS Section 1.1. Definitions 1 ARTICLE II. TRUST INDENTURE ACT 1 Section 2.1. Trust Indenture Act; Application 3 Section 2.2. List of Holders 3 Section 2.3. Reports by the Guarantee Trustee 4 Section 2.4. Periodic Reports to Guarantee Trustee 4 Section 2.5. Evidence of Compliance with Conditions Precedent 4 Section 2.6. Events of Default; Waiver 4 Section 2.7. Event of Default; Notice 4 Section 2.8. Conflicting Interests 4 ARTICLE III. POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE 5 Section 3.1. Powers and Duties of the Guarantee Trustee 5 Section 3.2. Certain Rights of Guarantee Trustee 5 Section 3.3. Indemnity 6 ARTICLE IV. GUARANTEE TRUSTEE 8 Section 4.1. Guarantee Trustee; Eligibility 8 Section 4.2. Appointment, Removal and Resignation of the Guarantee Trustee 8 ARTICLE V. GUARANTEE 8 Section 5.1. Guarantee 8 Section 5.2. Waiver of Notice and Demand 8 Section 5.3. Obligations Not Affected 9 Section 5.4. Rights of Holders 9 Section 5.5. Guarantee of Payment 10 Section 5.6. Subrogation 10 Section 5.7. Independent Obligations 10 ARTICLE VI. COVENANTS AND SUBORDINATION 10 Section 6.1. Subordination 11 Section 6.2. Pari Passu Guarantees 11 ARTICLE VII. CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS 11 Section 7.1. Guarantor May Consolidate, Etc., Only on Certain Terms 11 Section 7.2. Successor Guarantor Substituted 12 ARTICLE VIII. TERMINATION Section 8.1. Termination 12
ARTICLE IX. MISCELLANEOUS 12 Section 9.1. Successors and Assigns 12 Section 9.2. Amendments 12 Section 9.3. Notices 12 Section 9.4. Benefit 13 Section 9.5. Interpretation 13 Section 9.6. Governing Law 14
GUARANTEE AGREEMENT This GUARANTEE AGREEMENT, dated as of ____________, 1997, is executed and delivered by GREATER BAY BANCORP, a California corporation (the "Guarantor") having its principal office at 2860 West Bayshore Road, Palo Alto, California 94303, and [WILMINGTON TRUST COMPANY], a Delaware banking corporation, as trustee (the "Guarantee Trustee"), for the benefit of the Holders from time to time of the Preferred Securities (as defined herein) of GBB CAPITAL I, a Delaware statutory business trust (the "Trust"). WHEREAS, pursuant to an Amended and Restated Trust Agreement, dated as of ____________, 1997 (the "Trust Agreement") among the Guarantor, as Depositor, [WILMINGTON TRUST COMPANY], as Property Trustee, [WILMINGTON TRUST COMPANY], as Delaware Trustee and the Administrative Trustees named therein and the Holders from time to time of undivided beneficial interests in the assets of the Trust, the Trust issued $__________ aggregate Liquidation Amount (as defined in the Trust Agreement) of its _____% Cumulative Trust Preferred Securities, Liquidation Amount $25 per Trust Preferred Security (the "Preferred Securities") representing preferred undivided beneficial interests in the assets of the Trust and having the terms set forth in the Trust Agreement; WHEREAS, the Preferred Securities will be issued by the Trust and the proceeds thereof, together with the proceeds from the issuance of the Trust's Common Securities (as defined below), will be used to purchase the Debentures (as defined in the Trust Agreement) of the Guarantor which was deposited with Wilmington Trust Company, as Property Trustee under the Trust Agreement, as trust assets; WHEREAS, as an incentive for the Holders to purchase the Preferred Securities, the Guarantor desires irrevocably and unconditionlly to agree, to the extent set forth herein, to pay to the Holders of the Preferred Securities the Guarantee Payments (as defined herein) and to make certain other payments on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the purchase by each Holder of Preferred Securities, which purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers this Guarantee Agreement and pursuant to Section 5.1 hereof extends the Guarantee for the benefit of the Holders from time to time of the Preferred Securities. ARTICLE 1. DEFINITIONS SECTION 1.1. Definitions. As used in this Guarantee Agreement, the terms set forth below shall, unless the context otherwise requires, have the following meanings. Capitalized or otherwise defined terms used but not otherwise defined herein shall have the meanings assigned to such terms in the Trust Agreement and the Indenture (as defined herein), each as in effect on the date hereof. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person; provided, however, that an Affiliate of the Guarantor shall not be deemed to be an Affiliate of the Trust. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Board of Directors" means either the board of directors of the Guarantor or any committee of that board duly authorized to act hereunder. "Common Securities" means the securities representing common undivided beneficial interests in the assets of the Trust. "Event of Default" means a default by the Guarantor on any of its payment or other obligations under this Guarantee Agreement; provided, however, that, except with respect to a default in payment of any Guarantee Payments, the Guarantor shall have received notice of default and shall not have cured such default within 60 days after receipt of such notice. "Guarantee" has the meaning set forth in Section 5.1. "Guarantee Payments" means the following payments or distributions, without duplication, with respect to the Preferred Securities, to the extent not paid or made by or on behalf of the Trust: (i) any accrued and unpaid Distributions (as defined in the Trust Agreement) required to be paid on the Preferred Securities, to the extent the Trust shall have funds on hand available therefor at such time, (ii) the applicable Redemption Price (as defined in the Trust Agreement), to the extent the Trust shall have funds on hand available therefor at such time, and (iii) upon a voluntary or involuntary termination, winding up or liquidation of the Trust, unless Debentures are distributed to the Holders, the lesser of (a) the aggregate of the Liquidation Distribution (as defined in the Trust Agreement) and (b) the amount of assets of the Trust remaining available for distribution to Holders of Preferred Securities after satisfaction of liabilities to creditors of the Trust as required by applicable law. "Guarantee Trustee" means [WILMINGTON TRUST COMPANY], until a Successor Guarantee Trustee has been appointed and has accepted such appointment pursuant to the terms of this Guarantee Agreement, and thereafter means each such Successor Guarantee Trustee. "Holder" means any holder, as registered on the books and records of the Trust, of any Preferred Securities; provided, however, that in determining whether the holders of the requisite percentage of Preferred Securities have given any request, notice, consent or waiver hereunder, "Holder" shall not include the Guarantor, the Guarantee Trustee, or any Affiliate of the Guarantor or the Guarantee Trustee. "Indenture" means the Junior Subordinated Indenture dated as of _____________, 1997, as supplemented and amended between the Guarantor and [WILMINGTON TRUST COMPANY], as trustee. "List of Holders" has the meaning specified in Section 2.2(a). "Majority in Liquidation Amount of the Preferred Securities" means, except as provided by the Trust Indenture Act, a vote by the Holder(s), voting separately as a class, of more than 50% of the Liquidation Amount of all then outstanding Preferred Securities issued by the Trust. "Officers' Certificate" means, with respect to any Person, a certificate signed by the Chairman or a Vice Chairman of the Board of Directors of such Person or the President or a Vice President of such Person, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of such Person, and delivered to the Guarantee Trustee. Any Officers' Certificate delivered with respect to compliance with a condition or covenant provided for in this Guarantee Agreement shall include: (a) a statement that each officer signing the Officers' Certificate has read the covenant or condition and the definitions relating thereto; (b) a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Officers' Certificate; -2- (c) a statement that each officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each officer, such condition or covenant has been complied with. "Other Guarantees" means any guarantees similar to the Guarantee issued, from time to time, by the Guarantor on behalf of holders of one or more series of Preferred Securities issued by one or more GBB Trusts (as defined in the Indenture) other than the Trust. "Person" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature. "Responsible Officer" means, with respect to the Guarantee Trustee, any officer of the Corporate Trust Department of the Guarantee Trustee and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer's knowledge of and familiarity with the particular subject. "Securities Act" means the Securities Act of 1933, as amended. "Successor Guarantee Trustee" means a successor Guarantee Trustee possessing the qualifications to act as Guarantee Trustee under Section 4.1. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended. ARTICLE II. TRUST INDENTURE ACT SECTION 2.1. Trust Indenture Act; Application. (a) This Guarantee Agreement is subject to the provisions of the Trust Indenture Act that are required to be part of this Guarantee Agreement and shall, to the extent applicable, be governed by such provisions. (b) If and to the extent that any provision of this Guarantee Agreement limits, qualifies or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control. SECTION 2.2. List of Holders. (a) The Guarantor shall furnish or cause to be furnished to the Guarantee Trustee (a) semiannually, on or before January 15 and July 15 of each year, a list, in such form as the Guarantee Trustee may reasonably require, of the names and addresses of the Holders ("List of Holders") as of a date not more than 15 days prior to the delivery thereof, and (b) at such other times as the Guarantee Trustee may request in writing, within 30 days after the receipt by the Guarantor of any such request, a List of Holders as of a date not more than 15 days prior to the time such list is furnished, in each case to the extent such information is in the possession or control of the Guarantor and is not identical to a previously supplied list of Holders or has not otherwise been received by the Guarantee Trustee in its capacity as such. The Guarantee Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders. -3- (b) The Guarantee Trustee shall comply with its obligations under Section 311(a), Section 311(b) and Section 312(b) of the Trust Indenture Act. SECTION 2.3. Reports by the Guarantee Trustee. Not later than July 15 of each year, commencing July 15, 1997, the Guarantee Trustee shall provide to the Holders such reports as are required by Section 313 of the Trust Indenture Act, if any, in the form and in the manner provided by Section 313 of the Trust Indenture Act. The Guarantee Trustee shall also comply with the requirements of Section 313(d) of the Trust Indenture Act. SECTION 2.4. Periodic Reports to the Guarantee Trustee. The Guarantor shall provide to the Guarantee Trustee, the Securities and Exchange Commission and the Holders such documents, reports and information, if any, as required by Section 314 of the Trust Indenture Act and the compliance certificate required by Section 314 of the Trust Indenture Act, in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. SECTION 2.5. Evidence of Compliance with Conditions Precedent. The Guarantor shall provide to the Guarantee Trustee, on an annual basis, such evidence of compliance with such conditions precedent, if any, provided for in this Guarantee Agreement that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) may be given in the form of an Officers' Certificate. SECTION 2.6. Events of Default; Waiver. The Holders of a Majority in Liquidation Amount of the Preferred Securities may, by vote, on behalf of the Holders, waive any past Event of Default and its consequences. Upon such waiver, any such Event of Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Guarantee Agreement, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent therefrom. SECTION 2.7. Event of Default; Notice. (a) The Guarantee Trustee shall, within 90 days after the occurrence of an Event of Default, transmit by mail, first class postage prepaid, to the Holders, notices of all Events of Default known to the Guarantee Trustee, unless such defaults have been cured before the giving of such notice, provided, that, except in the case of a default in the payment of a Guarantee Payment, the Guarantee Trustee shall be protected in withholding such notice if and so long as the Board of Directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Guarantee Trustee in good faith determines that the withholding of such notice is in the interests of the Holders. (b) The Guarantee Trustee shall not be deemed to have knowledge of any Event of Default unless the Guarantee Trustee shall have received written notice, or a Responsible Officer charged with the administration of this Guarantee Agreement shall have obtained written notice, of such Event of Default. -4- SECTION 2.8. Conflicting Interests. The Trust Agreement shall be deemed to be specifically described in this Guarantee Agreement for the purposes of clause (i) of the first proviso contained in Section 310(b) of the Trust Indenture Act. ARTICLE III. POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE SECTION 3.1. Powers and Duties of the Guarantee Trustee. (a) This Guarantee shall be held by the Guarantee Trustee for the benefit of the Holders, and the Guarantee Trustee shall not transfer this Guarantee to any Person except to a Holder exercising his or her rights pursuant to Section 5.4(iv) or to a Successor Guarantee Trustee on acceptance by such Successor Guarantee Trustee of its appointment to act as Successor Guarantee Trustee. The right, title and interest of the Guarantee Trustee shall automatically vest in any Successor Guarantee Trustee, upon acceptance by such Successor Guarantee Trustee of its appointment hereunder, and such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered pursuant to the appointment of such Successor Guarantee Trustee. (b) If an Event of Default has occurred and is continuing, the Guarantee Trustee shall enforce this Guarantee for the benefit of the Holders. (c) The Guarantee Trustee, before the occurrence of any Event of Default and after the curing of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Guarantee Agreement, and no implied covenants shall be read into this Guarantee Agreement against the Guarantee Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.6), the Guarantee Trustee shall exercise such of the rights and powers vested in it by this Guarantee Agreement, and use the same degree of care and skill in its exercise thereof, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (d) No provision of this Guarantee Agreement shall be construed to relieve the Guarantee Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (i) prior to the occurrence of any Event of Default and after the curing or waiving of all such Events of Default that may have occurred: (A) the duties and obligations of the Guarantee Trustee shall be determined solely by the express provisions of this Guarantee Agreement, and the Guarantee Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Guarantee Agreement; and (B) in the absence of bad faith on the part of the Guarantee Trustee, the Guarantee Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Guarantee Trustee and conforming to the requirements of this Guarantee Agreement; but in the case of any such certificates or opinions that by any provision hereof or of the Trust Indenture Act are specifically required to be furnished to the Guarantee Trustee, the Guarantee Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Guarantee Agreement; -5- (ii) the Guarantee Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Guarantee Trustee, unless it shall be proved that the Guarantee Trustee was negligent in ascertaining the pertinent facts upon which such judgment was made; (iii) the Guarantee Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a Majority in Liquidation Amount of the Preferred Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee, or exercising any trust or power conferred upon the Guarantee Trustee under this Guarantee Agreement; and (iv) no provision of this Guarantee Agreement shall require the Guarantee Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if the Guarantee Trustee shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Guarantee Agreement or adequate indemnity against such risk or liability is not reasonably assured to it. SECTION 3.2. Certain Rights of Guarantee Trustee. (a) Subject to the provisions of Section 3.1: (i) The Guarantee Trustee may rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document reasonably believed by it to be genuine and to have been signed, sent or presented by the proper party or parties. (ii) Any direction or act of the Guarantor contemplated by this Guarantee Agreement shall be sufficiently evidenced by an Officers' Certificate unless otherwise prescribed herein. (iii) Whenever, in the administration of this Guarantee Agreement, the Guarantee Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting to take any action hereunder, the Guarantee Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and rely upon an Officers' Certificate which, upon receipt of such request from the Guarantee Trustee, shall be promptly delivered by the Guarantor. (iv) The Guarantee Trustee may consult with legal counsel, and the written advice or opinion of such legal counsel with respect to legal matters shall be full and complete authorization and protection in respect of any action taken, suffered or omitted to be taken by it hereunder in good faith and in accordance with such advice or opinion. Such legal counsel may be legal counsel to the Guarantor or any of its Affiliates and may be one of its employees. The Guarantee Trustee shall have the right at any time to seek instructions concerning the administration of this Guarantee Agreement from any court of competent jurisdiction. (v) The Guarantee Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Guarantee Agreement at the request or direction of any Holder, unless such Holder shall have provided to the Guarantee Trustee such adequate security and -6- indemnity as would satisfy a reasonable person in the position of the Guarantee Trustee, against the costs, expenses (including attorneys' fees and expenses) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Guarantee Trustee; provided that, nothing contained in this Section 3.2(a)(v) shall be taken to relieve the Guarantee Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Guarantee Agreement. (vi) The Guarantee Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Guarantee Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit. (vii) The Guarantee Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through its agents or attorneys, and the Guarantee Trustee shall not be responsible for any misconduct or negligence on the part of any such agent or attorney appointed with due care by it hereunder. (viii) Whenever in the administration of this Guarantee Agreement the Guarantee Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Guarantee Trustee (A) may request instructions from the Holders, (B) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (C) shall be protected in acting in accordance with such instructions. (b) No provision of this Guarantee Agreement shall be deemed to impose any duty or obligation on the Guarantee Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it in any jurisdiction in which it shall be illegal, or in which the Guarantee Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Guarantee Trustee shall be construed to be a duty to act in accordance with such power and authority. SECTION 3.3. Indemnity. The Guarantor agrees to indemnify the Guarantee Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on the part of the Guarantee Trustee, arising out of or in connection with the acceptance or administration of this Guarantee Agreement, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. ARTICLE IV. GUARANTEE TRUSTEE SECTION 4.1. Guarantee Trustee: Eligibility. (a) There shall at all times be a Guarantee Trustee which shall: (i) not be an Affiliate of the Guarantor; and -7- (ii) be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $50,000,000, and shall be a corporation meeting the requirements of Section 310(a) of the Trust Indenture Act. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority, then, for the purposes of this Section 4.1(a)(ii) and to the extent permitted by the Trust Indenture Act, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. (b) If at any time the Guarantee Trustee shall cease to be eligible to so act under Section 4.1(a), the Guarantee Trustee shall immediately resign in the manner and with the effect set out in Section 4.2(c). (c) If the Guarantee Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Guarantee Trustee and Guarantor shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act. SECTION 4.2. Appointment, Removal and Resignation of the Guarantee Trustee. (a) Subject to Section 4.2(b), the Guarantee Trustee may be appointed or removed without cause at any time by the Guarantor. (b) The Guarantee Trustee shall not be removed until a Successor Guarantee Trustee has been appointed and has accepted such appointment by written instrument executed by such Successor Guarantee Trustee and delivered to the Guarantor. (c) The Guarantee Trustee appointed hereunder shall hold office until a Successor Guarantee Trustee shall have been appointed or until its removal or resignation. The Guarantee Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing executed by the Guarantee Trustee and delivered to the Guarantor, which resignation shall not take effect until a Successor Guarantee Trustee has been appointed and has accepted such appointment by instrument in writing executed by such Successor Guarantee Trustee and delivered to the Guarantor and the resigning Guarantee Trustee. (d) If no Successor Guarantee Trustee shall have been appointed and accepted appointment as provided in this Section 4.2 within 60 days after delivery to the Guarantor of an instrument of resignation, the resigning Guarantee Trustee may petition, at the expense of the Guarantor, any court of competent jurisdiction for appointment of a Successor Guarantee Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Successor Guarantee Trustee. ARTICLE V. GUARANTEE SECTION 5.1. Guarantee. The Guarantor irrevocably and unconditionally agrees to pay in full on a subordinated basis to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by or on behalf of the Trust), as and when due, regardless of any defense, right of set-off or counterclaim which the Trust may have or assert other than the defense of payment (the "Guarantee"). The Guarantor's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Trust to pay such amounts to the Holders. -8- SECTION 5.2. Waiver of Notice and Demand. The Guarantor hereby waives notice of acceptance of the Guarantee and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Guarantee Trustee, Trust or any other Person before proceeding against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands. SECTION 5.3. Obligations Not Affected. The obligations, covenants, agreements and duties of the Guarantor under this Guarantee Agreement shall in no way be affected or impaired by reason of the happening from time to time of any of the following: (a) the release or waiver, by operation of law or otherwise, of the performance or observance by the Trust of any express or implied agreement, covenant, term or condition relating to the Preferred Securities to be performed or observed by the Trust; (b) the extension of time for the payment by the Trust of all or any portion of the Distributions (other than an extension of time for payment of Distributions that results from the extension of any interest payment period on the Debentures as provided in the Indenture), Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Preferred Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Preferred Securities; (c) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Preferred Securities, or any action on the part of the Trust granting indulgence or extension of any kind; (d) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Trust or any of the assets of the Trust; (e) any invalidity of, or defect or deficiency in, the Preferred Securities; (f) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or (g) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor, it being the intent of this Section 5.3 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances. There shall be no obligation of the Holders to give notice to, or obtain the consent of, the Guarantor with respect to the happening of any of the foregoing. SECTION 5.4. Rights of Holders. The Guarantor expressly acknowledges that: (i) this Guarantee will be deposited with the Guarantee Trustee to be held for the benefit of the Holders; (ii) the Guarantee Trustee has the right to enforce this Guarantee on behalf of the Holders; (iii) the Holders of a Majority in Liquidation Amount -9- of the Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee in respect of this Guarantee Agreement or exercising any trust or power conferred upon the Guarantee Trustee under this Guarantee Agreement; and (iv) any Holder may institute a legal proceeding directly against the Guarantor to enforce its rights under this Guarantee Agreement, without first instituting a legal proceeding against the Guarantee Trustee, the Trust or any other Person. SECTION 5.5. Guarantee of Payment. This Guarantee creates a guarantee of payment and not of collection. This Guarantee will not be discharged except by payment of the Guarantee Payments in full (without duplication of amounts theretofore paid by the Trust) or upon distribution of Debentures to Holders as provided in the Trust Agreement. SECTION 5.6. Subrogation. The Guarantor shall be subrogated to all (if any) rights of the Holders against the Trust in respect of any amounts paid to the Holders by the Guarantor under this Guarantee Agreement and shall have the right to waive payment by the Trust pursuant to Section 5.1; provided, however, that the Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any rights which it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Guarantee, if, at the time of any such payment, any amounts are due and unpaid under this Guarantee. If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders. SECTION 5.7. Independent Obligations. The Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Trust with respect to the Preferred Securities and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Guarantee Agreement notwithstanding the occurrence of any event referred to in subsections (a) through (g), inclusive, of Section 5.3 hereof. ARTICLE VI. COVENANTS AND SUBORDINATION SECTION 6.1. Subordination. The obligations of the Guarantor under this Guarantee will constitute unsecured obligations of the Guarantor and will rank subordinate and junior in right of payment to all Senior and Subordinated Debt (as defined in the Indenture) in the same manner as Debentures (as defined in the Trust Agreement). SECTION 6.2. Pari Passu Guarantees. The obligations of the Guarantor under this Guarantee shall rank pari passu with the obligations of the Guarantor under all Other Guarantees. -10- ARTICLE VII. CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 7.1. Guarantor May Consolidate, Etc., Only on Certain Terms. The Guarantor shall not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, and no Person shall consolidate with or merge into the Guarantor or convey, transfer or lease its properties and assets substantially as an entirety to the Guarantor, unless: (1) in case the Guarantor shall consolidate with or merge into another Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the Person formed by such consolidation or into which the Guarantor is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Guarantor substantially as an entirety shall be a corporation, partnership or trust organized and existing under the laws of the United States of America or any State or the District of Columbia, and shall expressly assume the Guarantor's obligations under this Guarantee; (2) immediately after giving effect thereto, no Event of Default, and no event which, after notice or lapse of time, or both, would become an Event of Default, shall have happened and be continuing; (3) such consolidation, merger, conveyance, transfer or lease is permitted under the Trust Agreement and the Indenture and does not give rise to any breach or violation of the Trust Agreement or the Indenture; and (4) the Guarantor has delivered to the Guarantee Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and assumption of the Guarantor's obligations under this Guarantee Agreement comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with; and the Guarantee Trustee, subject to Section 3.1 hereof, may rely upon such Officers' Certificate and Opinion of Counsel as conclusive evidence that such transaction complies with this Section 7.1. SECTION 7.2. Successor Guarantor Substituted. Upon any consolidation or merger by the Guarantor with or into any other Person, or any conveyance, transfer or lease by the Guarantor of its properties and assets substantially as an entirety to any Person in accordance with Section 7.1, the successor Person formed by such consolidation or into which the Guarantor is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Guarantor under this Guarantee Agreement with the same effect as if such successor Person had been named as the Guarantor herein; and in the event of any such conveyance, transfer or lease the Guarantor shall be discharged from all obligations and covenants under this Guarantee Agreement. ARTICLE VIII. TERMINATION SECTION 8.1. Termination. This Guarantee Agreement shall terminate and be of no further force and effect upon the earliest of (i) full payment of the applicable Redemption Price of all Preferred Securities, (ii) the distribution of Debentures to the Holders in exchange for all of the Preferred Securities or (iii) full payment of the amounts payable in accordance with the Trust Agreement upon liquidation of the Trust. Notwithstanding the foregoing clauses (i) through (iii), this Guarantee Agreement will continue to be effective or will be reinstated if it has been terminated pursuant to one of such clauses (i) through (iii), as the case may be, if at any time any Holder must restore payment of any sums paid with respect to Preferred Securities or this Guarantee Agreement. ARTICLE IX. MISCELLANEOUS SECTION 9.1. Successors and Assigns. All guarantees and agreements contained in this Guarantee Agreement shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the Preferred Securities then outstanding. Except in connection with a consolidation, merger or sale involving the Guarantor that is permitted under Article VII hereof and Article VIII of the Indenture, the Guarantor shall not assign its obligations hereunder. SECTION 9.2. Amendments. Except with respect to any changes which do not adversely affect the rights of the Holders in any material respect (in which case no vote will be required), this Guarantee Agreement may not be amended without the prior approval of the Holders of not less than a Majority in Liquidation Amount of the Preferred Securities. The provisions of Article VI of the Trust Agreement concerning meetings of the Holders shall apply to the giving of such approval. SECTION 9.3. Notices. Any notice, request or other communication required or permitted to be given hereunder shall be in writing, duly signed by the party giving such notice, and delivered, telecopied or mailed by first class mail as follows: (a) if given to the Guarantor, to the address set forth below or such other address, facsimile number or to the attention of such other Person as the Guarantor may give notice to the Holders: Greater Bay Bancorp 2860 West Bayshore Road Palo Alto, California 94303 Facsimile No.: (415) ___________________ Attention: (b) if given to the Trust, in care of the Guarantee Trustee, at the Trust's (and the Guarantee Trustee's) address set forth below or such other address as the Guarantee Trustee on behalf of the Trust may give notice to the Holders: GBB Capital I c/o Greater Bay Bancorp 2860 West Bayshore Road Palo Alto, California 94303 Facsimile No.: (415) __________________ Attention: -12- with a copy to: [WILMINGTON TRUST COMPANY 1100 NORTH MARKET WILMINGTON, DELAWARE 19890 FACSIMILE NO.: (302) 651-1000 ATTENTION: CORPORATE TRUST ADMINISTRATION] (c) if given to any Holder, at the address set forth on the books and records of the Trust. All notices hereunder shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid, except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. SECTION 9.4. Benefit. This Guarantee is solely for the benefit of the Holders and is not separately transferable from the Preferred Securities. SECTION 9.5. Interpretation. In this Guarantee Agreement, unless the context otherwise requires: (a) capitalized terms used in this Guarantee Agreement but not defined in the preamble hereto have the respective meanings assigned to them in Section 1.1; (b) a term defined anywhere in this Guarantee Agreement has the same meaning throughout; (c) all references to "the Guarantee Agreement" or "this Guarantee Agreement" are to this Guarantee Agreement as modified, supplemented or amended from time to time; (d) all references in this Guarantee Agreement to Articles and Sections are to Articles and Sections of this Guarantee Agreement unless otherwise specified; (e) a term defined in the Trust Indenture Act has the same meaning when used in this Guarantee Agreement unless otherwise defined in this Guarantee Agreement or unless the context otherwise requires; (f) a reference to the singular includes the plural and vice versa; and (g) the masculine, feminine or neuter genders used herein shall include the masculine, feminine and neuter genders. -13- SECTION 9.6. Governing Law. THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF. -14- This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. THIS GUARANTEE AGREEMENT is executed as of the day and year first above written. GREATER BAY BANCORP By: ---------------------------- Name: Title: [WILMINGTON TRUST COMPANY] as Guarantee Trustee By: ---------------------------- Name: Title: EX-4.12 10 SUPPLEMENTAL DEBENTURE AGREEMENT EXHIBIT 4.12 SUPPLEMENTAL DEBENTURE AGREEMENT -------------------------------- THIS SUPPLEMENTAL DEBENTURE AGREEMENT, dated as of November 22, 1996, is made pursuant to Article VIII.2 of the Debenture Agreement dated as of September 27, 1995 (the "Debenture Agreement") pursuant to which Cupertino National Bancorp, a California corporation ("Cupertino"), has issued 11.5% Senior Subordinated Debentures due 2005 (the "Debentures"). All capitalized terms used herein and not otherwise defined shall have the meaning given to them in the Debenture Agreement. RECITALS WHEREAS, Article III of the Debenture Agreement provides that the aggregate principal amount of Debentures which may be delivered under the Debenture Agreement is limited to $2,500,000, except for Debentures delivered upon registration or transfer of, or in exchange for, or in lieu of, other Debentures, as provided therein. WHEREAS, Article VIII.2 of the Debenture Agreement provides that Cupertino may, when authorized by a Board Resolution and with the consent of the Holders of the Outstanding Debentures, enter into a Supplemental Debenture Agreement for the purpose of changing in any manner or eliminating any of the provisions of the Debenture Agreement. WHEREAS, on September 21, 1995, the Board of Directors of Cupertino authorized and approved an increase in the aggregate amount of Debentures to be offered by Cupertino pursuant to the Debenture Agreement to $3,000,000. WHEREAS, Cupertino obtained the consent of the Holders of the Outstanding Debentures, each of whom is listed on Exhibit A-1 hereto, that any limitation imposed by the Debenture Agreement, Debenture, Private Placement Offering Memorandum, Subscription Agreement or any other documents concerning the Debentures which provides that the aggregate principal amount of Debentures is limited to $2,500,000, be amended to reflect that the aggregate amount of Debentures to be offered by Cupertino pursuant to the Debenture Agreement shall be $3,000,000. WHEREAS, Cupertino desires to amend the Debenture Agreement to reflect that the aggregate amount of Debentures to be issued under and pursuant to the Debenture Agreement by Cupertino shall be $3,000,000. AMENDMENT NOW, THEREFORE, Cupertino hereby amends the Debenture Agreement to reflect that the aggregate amount of Debentures to be issued under and pursuant to the Debenture Agreement by Cupertino shall be $3,000,000 by substituting "$3,000,000", wherever "$2,500,000" appears in the Debenture Agreement. GENERAL PROVISIONS As amended by this Supplemental Debenture Agreement, the Debenture Agreement is in all respects ratified and confirmed and, as amended by this Supplemental Debenture Agreement, shall be read, taken and construed as one and the same instrument. This Supplemental Debenture Agreement shall become a legally effective and binding instrument as of the date hereof. This Supplemental Debenture Agreement may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all of such counterparts shall together constitute one and the same instrument. IN WITNESS WHEREOF, Cupertino has caused this Supplemental Debenture Agreement to be duly signed and acknowledged by its officers all as of the day and year first above written. CUPERTINO NATIONAL CORPORATION By: /s/ Steven C. Smith ------------------- Steven C. Smith, Executive Vice President and Chief Operating Officer Attest: - -------------------------- Secretary See Exhibit A-1 hereto, which supersedes Exhibit A, for the list of Debentureholders who duly executed Subscription Agreements that were accepted by Cupertino and pursuant to which they agreed to be bound by the terms of the Debenture Agreement and are deemed to have executed and delivered the Debenture Agreement by virtue of their execution and delivery of such Subscription Agreements. EX-4.13 11 SUPPLEMENTAL DEBENTURE AGREEMENT DATED 11/27/96 EXHIBIT 4.13 SUPPLEMENTAL DEBENTURE AGREEMENT This Supplemental Debenture Agreement, dated November 27, 1996 (the "Supplemental Debenture Agreement"), is made by and between Cupertino National Bancorp, a California corporation ("Cupertino"), and Mid-Peninsula Bancorp, a California corporation ("Mid-Peninsula"). RECITALS A. Cupertino is the issuer of those certain 11.5% Subordinated Debentures Due 2005 (the "Debentures") pursuant to the terms and conditions set forth in that certain Debenture Agreement, dated as of September 27, 1995, as amended by that certain Supplemental Debenture Agreement dated as of November 22, 1996 (the "Debenture Agreement"), and that certain Private Placement Offering Memorandum, dated August 22, 1995 to the Debenture holders. B. Cupertino and Mid-Peninsula have entered into a Second Amended and Restated Agreement and Plan of Reorganization and Merger, dated as of August 20, 1996 (the "Reorganization Agreement") and a Merger Agreement, dated November 15, 1996, pursuant to which Cupertino shall, by operation of law, be merged with and into Mid-Peninsula (the "Merger"), the name of Mid-Peninsula shall be changed to Greater Bay Bancorp ("GB Bancorp"), and GB Bancorp shall be the surviving entity. C. Section 9.1 of the Debenture Agreement prohibits Cupertino from, inter alia, merging with any other corporation unless (i) the corporation into which Cupertino is merged shall be a corporation organized and existing under the laws of the United States of America or any State or the District of Columbia; (ii) the corporation into which Cupertino is merged shall expressly assume, by a supplemental debenture agreement in form reasonably satisfactory to Cupertino, the obligations of Cupertino under the Debenture Agreement; (iii) immediately after giving effect to the merger, no event of default shall have occurred or be continuing; (iv) immediately after giving effect to the merger, Cupertino National Bank & Trust ("CNB"), a wholly-owned subsidiary of Cupertino, shall be in compliance with all applicable minimum capital requirements; and (iv) Cupertino shall have obtained an opinion of counsel stating that such merger and such supplemental debenture agreement complies with the requirements of Section 9.1 of the Debenture Agreement and that all conditions precedent therein have been complied with. D. Cupertino and Mid-Peninsula desire, by this Supplemental Debenture Agreement, to evidence the assumption, by Mid-Peninsula, of the obligations of Cupertino under the Debenture Agreement and Debentures, as required by Section 9.1 of the Debenture Agreement, effective upon the Effective Time of the Merger (as such term is defined in the Reorganization Agreement). AGREEMENT NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is acknowledged, Cupertino and Mid-Peninsula, intending to be legally bound, agree as follows: 1. Assumption. At and after the Effective Time of the Merger, ---------- Mid-Peninsula assumes and agrees to perform, satisfy, discharge and observe each and every obligation, liability, duty and covenant on the part to be performed or observed by Cupertino under the Debenture Agreement and the Debentures, including, without limitation, the due and punctual payment of the principal of and any interest on the Debentures as and when due. 2. Representations and Warranties. (a) By Cupertino. Cupertino hereby represents and warrants to ------------ Mid-Peninsula as follows: (i) Cupertino is a corporation duly organized, validly existing and in good standing under the laws of California; (ii) the copy of the Debenture Agreement attached as Exhibit A --------- hereto is a complete and accurate copy of the Debenture Agreement as currently in effect; (iii) At the date hereof, Cupertino is not in default under the Debenture Agreement, no event has occurred and is continuing which, after notice or lapse of time or both, would constitute a default under the Debenture Agreement and, immediately after giving effect to the Merger, Cupertino shall not be in default under the Debenture Agreement and no event shall have occurred and be continuing which, after notice or lapse of time or both would constitute a default under the Debenture Agreement. (iv) At the date hereof, CNB is and, immediately after giving effect to the Merger, CNB shall be, in compliance with all applicable minimum capital requirements. (b) By Mid-Peninsula. Mid-Peninsula hereby represents and warrants to ---------------- Cupertino that Mid-Peninsula is a corporation duly organized, validly existing and in good standing under the laws of California. 3. Effect of Assumption. From and after the Effective Time of the Merger, -------------------- GB Bancorp shall succeed to, and be substituted for, and may exercise every right and power of, Cupertino under the Debenture Agreement with the same effect as if GB Bancorp had been originally named in the place and stead of Cupertino in the Debenture Agreement, and the Debenture holders shall look solely and exclusively to GB Bancorp for the performance and discharge of the obligations of Cupertino under the Debenture Agreement and the Debentures. 4. No Other Amendments. The Debenture Agreement, as expressly modified by ------------------- the terms of this Supplemental Debenture Agreement, shall remain in full force and effect in accordance with its terms. 5. General Provisions. (a) This Supplemental Debenture Agreement may be executed in two or more counterparts, each of which shall be deemed an original as against the party whose signature is affixed thereto, and together which shall constitute but one and the same document. (b) This Supplemental Debenture Agreement, being adopted without the consent of the Debenture holders pursuant to Section 8.1 of the Debenture Agreement, shall be binding on and shall inure to the benefit of the parties hereto, their respective successors, assigns and legal representatives, and each and every Debenture holder. (c) This Supplemental Debenture Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to contracts to be performed wholly within such State. (d) The captions and headings used in this Supplemental Debenture Agreement are for covenience of reference only and shall not affect the meaning or interpretation of any provision of this Supplemental Debenture Agreement. IN WITNESS WHEREOF, Cupertino and Mid-Peninsula have caused this Supplemental Debenture Agreement to be executed by their respective duly authorized officers, effective as of the Effective Time of the Merger. CUPERTINO NATIONAL BANCORP MID-PENINSULA BANCORP By /s/ C. Donald Allen By /s/ David L. Kalkbrenner ------------------------ -------------------------- C. Donald Allen David L. Kalkbrenner President President 2 EX-10.22 12 AMENDMENT TO THE CUPERTINO NAT'L BANCORP 401(K) EXHIBIT 10.22 AMENDMENT TO THE CUPERTINO NATIONAL BANCORP 401(k) PROFIT SHARING PLAN The Cupertino National Bancorp 401(k) Profit Sharing Plan (the "Plan") is comprised of the Jordan & Andrews, Consultants and Actuaries Defined Contribution Prototype Plan and Trust Agreement and the Adoption Agreement #006 for Nonstandardized Code 401(k) Profit Sharing Plan (the "Adoption Agreement"). Effective January 1, 1996, the provisions of Section 2.01 of the Adoption Agreement relating to Eligibility Conditions and Plan Entry Date shall be amended as follows: 2.01 ELIGIBILITY ----------- ELIGIBILITY CONDITIONS. To become a Participant in the Plan, an Employee must satisfy the following eligibility conditions: (Choose (a) or (b) or both; (c) is optional as additional election) [X] (b) Service requirement. (Choose one of (1) through (3)) [ ] (1) One Year of Service. [ ] (2) months (not exceeding 12) following the Employee's -- Employment Commencement Date. [X] (3) One Hour of Service. PLAN ENTRY DATE. "Plan Entry Date" means the Effective Date and: (Choose (d), (e) or (f)) [ ] (d) Semi-annual Entry Dates: The first day of the Plan Year and the first day of the seventh month of the Plan Year. [ ] (e) The first day of the Plan Year. [X] (f) Specify entry dates: The first day of each calendar quarter. --------------------------------------- For newly hired Employees, the Plan Entry Date is the first ----------------------------------------------------------- day of the calendar quarter immediately following completion ------------------------------------------------------------ of one hour of service with the Employer. For rehired ----------------------------------------------------- employees, the Plan Entry Date is the date of re- ------------------------------------------------- employment." ---------- This Amendment is executed this 21st day of December 1995. CUPERTINO NATIONAL BANCORP By: /s/ Shelly Binnebose ------------------------------------ Shelly Binnebose, Asst. Secretary EX-10.23 13 AMEND. NO. 2 TO THE CUPERTINO NAT'L BANCORP EXHIBIT 10.23 AMENDMENT NUMBER 2 TO THE CUPERTINO NATIONAL BANK 401(k) PROFIT SHARING PLAN Under the provisions of Article 13 of the Cupertino National Bank 401(k) Profit Sharing Plan, the plan is hereby amended effective December 31, 1996, except as otherwise provided, as follows: 1. Section 5.03(b) of the Adoption Agreement is hereby amended to include the following additional sentence: Any Participant hired by December 31, 1996 will be 100% vested in all accounts. Except as hereby amended, Cupertino National Bank 401(k) Profit Sharing Plan and all provisions thereof not in conflict with this amendment shall remain in full force and effect. IN WITNESS WHEREOF, the Company and the Trustee have caused this amendment to be executed by their respective authorized officers on the ------- day of - ----------------, 19---. GREATER BAY BANCORP, INC. ------------------------ PRESIDENT ------------------------ SECRETARY 1 TRUSTEE: by ----------------------------- by ----------------------------- EX-10.25 14 AGREEMENT - BRENNER EXHIBIT 10.25 CUPERTINO NATIONAL BANK & TRUST EMPLOYMENT, SEVERANCE AND RETIREMENT BENEFITS AGREEMENT THIS EMPLOYMENT, SEVERANCE AND RETIREMENT BENEFITS AGREEMENT (the "Agreement") is made and entered on this 31st day of JUly, 1995 and is effective as of September 1, 1994, by and between CUPERTINO NATIONAL BANCORP (the "Corporation"), its wholly owned subsidiary CUPERTINO NATIONAL BANK & TRUST (the "Bank") and KEN BRENNER (the "Employee"). The Corporation, Bank and Employee agree as follows: 1. DEFINITIONS ----------- 1.1 "Agreement" means only the agreement contained in this document and as modified in writing pursuant to section 10.5 herein. 1.2 "Anniversary Date" means the date one (1) year from the Effective Date. 1.3 "Bank" means Cupertino National Bank & Trust, and any successor to its business or assets which executes and delivers the Agreement as provided by section 10.2 herein or which becomes bound by this Agreement by operation of law. 1.4 "Board" means the Board of Directors of the Bank. 1.5 "Cause" means (1) Employee's acts of personal dishonesty; willful misconduct; breach of fiduciary duty or violation of banking law involving an intent to obtain personal or family profit; willful violation of any law, rule, or regulation which results in action against or restrictions imposed on the Bank by regulatory authorities; habitual abuse of substances (as corroborated by a physician) or extended unexcused absence form work; or (2) Employee's continued failure to substantially perform Employee's duties (which failure may be determined by the Board by reference to the quality of the Company's financial condition or operating performance) with the Bank (other than any failure resulting from Disability) after a written demand for substantial performance is given to Employee by the Board which demand specifically identifies the manner in which the Board believes that Employee has not substantially performed Employee's duties. The definition of "Cause" as set forth in subsection (1) hereof is sometimes referred to separately herein as "Personal Conduct/Cause," and the definition of "Cause" as set forth in subsection (2) is sometimes referred to separately herein as "Performance/Cause." The term "Cause," standing alone, shall mean either Personal Conduct/Cause or Performance/Cause or both. For purposes of the definition of Personal Conduct/Cause, an act, or failure to act, on the Employee's part shall be considered "willful" only if done, or omitted to be done, by him without reasonable belief that such act, or failure to act, is in the best interests of the Employer. 1.6 "Change in Control" means a change in the Board of Directors, or the Corporation or the Bank following: 1.6.1 The acquisition, directly or indirectly, of more than 25% of the outstanding shares of any class of voting securities of the Corporation or the Bank by any Person; or 1.6.2 A merger, consolidated or sale of all or substantially all of the assets of the Corporation or the Bank, such that the individuals constituting the Corporation Board or the Board of the Bank immediately prior to such period shall cease to constitute a majority of such Board, unless the election of each director who was not a director prior thereto was approved by vote of at least two-thirds of the directors then in office who were directors prior to such period. 1.6.3 Notwithstanding the foregoing, any change in the Board of either the Corporation or the Bank which occurs within the twenty-four (24) month period following the Effective Date as a result of a merger with South Valley Bancorporation, shall NOT constitute a Change in Control for purposes of this Agreement. 1.7 "Control" means the possession, direct or indirect, by any Person or "group" (as defined in section 13(d)(3) of the Securities Exchange Act of 1934, as amended) of the power to direct or cause the direction of the management policies of the Corporation or the Bank, whether through ownership of voting securities, by contract, or otherwise, and in any case means the ability to determine the election of a majority of the directors of the Corporation or the Bank. 1.8 "Corporation" means Cupertino National Bancorp and any successor to its business or assets which executes and delivers the agreement as provided by section 10.2 herein, or which becomes bound by this Agreement by operation of law. 1.9 "Corporation Board" means the Board of Directors of Cupertino National Bancorp. 1.10 "Disability" means physical or mental illness resulting in absence on a full-time basis from Employee's duties with Employer for one-hundred eighty (180) consecutive calendar days. Disability shall be deemed to have occurred only after the following procedure has been satisfied: If within thirty (30) days after written notice of proposed Termination for Disability is given to Employee by Employer, Employee has 2 not returned to the full-time performance of Employee's duties, Employer may terminate Employee by giving written notice of Termination for Disability. Such notice may be given by Employer following Employee's absence from Employee's duties by reason of physical or mental disability for one-hundred fifty (150) consecutive calendar days. 1.11 "Effective Date" means September 1, 1994. - Salary Continuation Agreement. 1.12 "Employee" means Ken Brenner. 1.13 "Employer" means the Corporation, the Bank or one of their subsidiaries which is Employee's employer on the date of a Change in Control. If Employee has more than one such employer on the date of a Change in Control, it means the employer who makes payment of Employee's monthly salary, and if two or more employers do so, each shall be deemed to be Employer for the purposes of this Agreement on a pro rata basis as to the amount of Employee's working time devoted to each, as a percentage of Employee's salary. "Employer" shall include any successor to the business or assets of an Employer and which executes the agreement provided by section 10.2 or which becomes bound by this Agreement by operation of law. 1.14 "Person" means an individual, a corporation, a partnership, an association, a joint stock company, a trust, any unincorporated organization or a government or political subdivision thereof. 1.15 "Resignation for Good Reason" or "Resign for Good Reason" means the cessation of Employee's employment upon written notice given by Employee to Employer as provided in section 5.4.1 herein. 1.16 "Retirement" or "Retire" means voluntary termination by Employee of his/her employment with Employer other than for reason of death, Disability or Resignation for Good Reason, as those terms are defined herein. 1.17 "Salary" shall mean regular annual base cash compensation exclusive of incentive or bonus compensation or noncash compensation benefits. 1.18 "Retirement Age" for purposes of this Agreement is sixty (60) years of age. 1.19 "Termination" or "Terminated" means cessation of Employee's employment upon written notice (with or without Cause) given to Employee, by Employer or the Board, or their successors. 3 2. POSITION AND DUTIES ------------------- 2.1 Employee shall be employed by the Bank as its Executive Vice President/Sales and Marketing reporting to the Executive Management Committee, of which Employee will be a member, effective September 1, 1994 ("the Commencement Date"). As Executive Vice President/Sales and Marketing, Employee agrees to devote his full business time, energy and skill to his duties at the Bank. These duties shall include, but not be limited to, any duties consistent with his position which may be assigned to Employee from time to time by the Bank's President. 2.2 CODE OF PERSONAL AND BUSINESS CONDUCT. Employee agrees to abide by ------------------------------------- the terms and conditions of the Bank's standard employee Code of Personal & Business Conduct executed by Employee and attached here as Exhibit A. 3. TERM ---- 3.1 The term of this Agreement shall commence as of the Effective Date and shall continue until the Termination, Retirement, Resignation for Good Reason (as defined in section 5.4.1) or death of Employee, whichever occurs first. This Agreement and all of its terms and conditions may be terminated upon written agreement by the parties. Notwithstanding the foregoing, nothing contained herein shall imply the existence of a contract or assurance of employment between Employee and Employer, nor shall this Agreement alter Employer's personnel policies and practices, including the right to terminate Employee at any time with or without cause. 3.2 Notwithstanding the right of Bank to terminate Employee, any such Termination shall be governed by section 5 below. 4. COMPENSATION ------------ 4.1 SALARY. Employee shall be paid a monthly salary of $10,000.00 ------ ($120,000.00 on an annual basis), subject to applicable withholding, in accordance with the Bank's normal payroll procedures. 4.2 BENEFITS. Employee shall have the right, on the same basis as other -------- members of senior management of the Bank, to participate in and to receive benefits under any of the Bank's employee benefits plans, including medical, dental, life and disability group insurance plans as well as the Bank's 401(k) Plan and Employee Stock Purchase Plan. 4 4.3 VACATION. Employee shall accrue vacation at a rate of 2.083 days per -------- month, the equivalent of five (5) weeks over a one (1) year period. 4.4 STOCK OPTIONS. Stock options will be granted at the discretion of the ------------- Board of Directors. The shares will vest under the provisions of the Bank's 1995 Stock Option Plan. 4.5 PERFORMANCE BONUS. Employee will be eligible for a performance bonus ----------------- up to 75% of base salary based upon goals, which will be set annually by the Board. 4.6 CAR ALLOWANCE. $500.00 per month. ------------- 4.7 DEFERRED COMPENSATION. The Bank will provide Retirement Compensation --------------------- benefits as provided in paragraph 6 set forth below. 4.9 COMPENSATION FREEZE. Subject to the terms and conditions herein, and ------------------- for a period for three (3) years from the Effective Date, Employee's total annual Salary and standard employee benefits from Employer set forth above shall remain the same; provided, however, that Employee's Salary shall be increased annually to allow for a cost of living increase, such increase to be determined based on the U.S. Department of Labor Bureau of Labor Statistics Consumer Price Index for All Urban Consumers in the San Francisco, Oakland and Bay Area. In addition, it is within the complete discretion of the Employer to increase such amount of total compensation at any time and for any reason, including a promotion of Employee to a new position or title; however, other than the cost-of-living increase to Salary as provided for herein, nothing in this Agreement shall suggest or imply that the Board is under any duty or obligation to increase Employee's Salary or other compensation or standard employee benefits at any time during the three (3) year period following the Effective Date. Employee's current salary, his current participation in incentive compensation programs of the Employer and a description of current standard employee benefits are set forth above. 5. TERMINATION OF EMPLOYMENT ------------------------- 5.1 The provisions of this section 5 shall govern the benefits, if any, which Employee shall receive upon Termination of his Employment. 5.2 BENEFITS UPON VOLUNTARY TERMINATION. In the event that Employee ----------------------------------- voluntarily resigns from his employment with the Bank, or in the event that his employment terminates as a result of his death or disability, Employee shall be entitled to 5 no compensation or benefits from the Bank other than those earned under paragraph 4 above through the date of his termination. 5.3 BENEFITS UPON OTHER TERMINATION. Employee agrees that his employment ------------------------------- may be terminated by the Bank at any time, with or without cause. In the event of the termination of Employee's employment by the Bank for the reasons set forth below, he shall be entitled to the following: 5.3.1 TERMINATION FOR PERSONAL CONDUCT/CAUSE. The payments set forth -------------------------------------- in section 5.3.2 hereof shall not apply if at any time Employee is terminated upon a good faith finding of Personal Conduct/Cause by the Board; provided, however, that Employee shall be given written notice of the Board's finding of conduct by Employee amounting to Personal Conduct/Cause for such Termination. Such notice shall be accompanied by a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the members of the Board adopted at a duly-noticed meeting of the Board, and finding in good faith that Employee engaged in conduct amounting to Personal Conduct/Cause and specifying the particulars thereof. 5.3.2 If the Employee is Terminated for Performance/Cause or other than by reason of death, Retirement, Disability or Personal Conduct/Cause, as set forth herein, or if Employee Resigns for Good Reason, as defined in section 5.4.1 below, the Bank shall pay to Employee twelve (12) months' Salary ("Severance Payment") at a rate equivalent to the then-current Salary of Employee. 5.3.3 The Bank shall have the option of paying Severance Payments in a lump-sum payment, or by salary continuation payments made under the Bank's normal employee compensation schedule. If the Bank chooses the lump-sum payment option, such payment shall be made not later than the tenth (10th) day following the date of cessation of employment, Termination or Resignation for Good Reason. 5.3.4 Although a payment triggering such section is not intended hereby, amounts otherwise due under this section will be reduced if, and to the extent that, such reduction will increase the net amount Employee will receive under this Agreement after taking into account the imposition of the excise tax under section 4999 of the Internal Revenue Code, if applicable. 5.4 If a Change in Control occurs during the Term of this Agreement, Employee may thereafter be entitled to a payment set forth in section 5.3.2 in accordance with the terms hereof, subject to the following limitations: 6 5.4.1 RESIGNATION FOR GOOD REASON. The payments set forth in --------------------------- section 5.3.2 hereof shall apply if, after a Change of Control but within one year thereafter, Employee Resigns for Good Reason, upon the happening of one or more of the following events (unless such event or occurrence is applied generally to all officers and employees of Employer and any parent or successor of any of them), any of which will constitute Good Reason for Employee's Resignation: 5.4.1.1. Without Employee's express written consent, Employee's assignment to any duties substantially inconsistent with Employee's position, duties, responsibilities and status with Employer immediately prior to a Change in Control, or any removal of Employee from any such position to a position substantially inferior to such prior position; 5.4.1.2 A reduction by Employer of Employee's Salary or of any bonus compensation formula applicable to Employee as in effect prior to a Change in Control; 5.4.1.3 A failure by Employer to maintain any of the employee benefits to which Employee was entitled prior to a Change in Control at a level substantially similar to or greater than that in effect prior to a Change in Control, through the continuation of the same or substantially similar plans, programs and policies; 5.4.1.4 The failure by Employer to provide Employee with the same number of paid vacation days and leave to which Employee would be entitled as salaried employee of Employer, or any parent or successor of Employer; 5.4.1.5 Employer requiring Employee to travel on employer's business to an extent substantially greater than Employee's present business travel obligations; or the relocation of Employee's office at least sixty (60) miles from its current location, without Employee's consent; and 5.4.1.6 The failure of the Bank to obtain the assumption of this Agreement by any successor of Employer as contemplated in section 10.2 below. 5.4.2 The events described above are the only events which shall constitute Good Reason. 6. CERTAIN RETIREMENT BENEFITS --------------------------- 6.1 Subject to the special terms and conditions contained below, upon cessation of Employee's employment with Employer, if the Employee has reached the Retirement 7 Age, or as soon thereafter as Employee reaches the Retirement Age, the Bank hereby agrees that the Employee and Employee's spouse shall become the joint owners (with right of survival) with the Bank of the annual increase of the cash surrender value of the policy thereafter arising; however, the Employee's (and Employee's spouse's) right to draw against such increase (such draw to reduce eventual death benefits) shall never exceed $55,000 per 12-month period (the "Retirement Draw Benefit"). The shared right to ownership of this increase shall continue for the lifetime of the Employee and the lifetime of the Employee's surviving spouse, but in no event longer than 40 years. 6.1.1 The Retirement Draw Benefit will be made available by means of a split-dollar insurance policy which is to be purchased by the Bank within thirty (30) days of the date of this Agreement, and for which the premium payment split between the Bank and Employee and the payment terms are outlined in Exhibit B to this Agreement. 6.1.2 Subject to the provisions of section 6.1.3 and 6.1.4 herein, Employee's right to the Retirement Draw Benefit shall not fully vest unless he has been employed by Employer for seven (7) years from the Effective Date. If Employee's employment with Employer ends any time before a date one (1) year from the date of this Agreement (the "Anniversary Date"), Employee will not have any right to, or interest in, the Retirement Draw Benefit. If Employee's employment ends at any time after the Anniversary Date, but prior to the seven (7) year date of full vesting, Employee's right to one-seventh (1/7) of the Retirement Draw Benefit-i.e., the right to draw $7,143, or one-seventh of $50,000, per 12-month period-will vest on the Anniversary Date, and Employee's right to the Retirement Draw Benefit will continue to proportionately vest thereafter on a monthly basis, on the first date of each month following the Anniversary Date, until employment ends. 6.1.3 Subject to the provisions of section 6.1.2 herein, if prior to a Change in Control and during the Term hereof, Employee is Terminated for any reason other than Disability, the vesting of Employee's right to the Retirement Draw Benefit will cease as of the date of termination. If prior to a Change of Control and during the Term hereof, Employee is Terminated by reason of Disability, the vesting of Employees's right to the Retirement Draw Benefit will cease as of the date of termination unless the Board in its sole and absolute discretion approves additional vesting. 6.1.4 Notwithstanding the provisions of section 6.1.2 herein, if after a Change in Control and during the Term hereof, Employee is Terminated, or Resigns for Good Reason, as provided in section 5.4.1 herein, Employee's right to the Retirement Draw Benefit shall immediately vest in full, and such benefit shall become available to Employee when Employee reaches Retirement Age. 8 7. FEDERAL INCOME TAX WITHHOLDING ------------------------------ 7.1 The Bank shall withhold from any compensation or benefits payable under this Agreement all federal, state, city or other taxes or deductions as shall be required pursuant to any law, governmental regulation or ruling. 8. ARBITRATION ----------- 8.1 Any controversy between the parties hereto, including the construction, application or breach of any of the terms, covenants or conditions of this Agreement, and all claims relating to or arising from Employee's employment or Termination, including all statutory claims (including but not limited to all statutes dealing with employment discrimination), shall on a timely written request of one party served upon the other, be submitted to arbitration and be governed by the California Arbitration Act as set forth in the California Code of Civil Procedure (presently sections 1280 et seq.). The -- --- parties agree that any written request for arbitration must be made within one year after the initiating party first learned or should have learned in the exercise of reasonable diligence of the essential facts upon which the claim is based, or first suffered any harm, or first learned or should have learned in the exercise of reasonable diligence of the breach of this Agreement, whichever is earlier. Any claim not raised within such time limitation shall be waived and forever barred. The arbitration shall take place in Santa Clara County, California. 8.2 The parties may agree upon one arbitrator, but in the event they cannot agree, there shall be three (3), one named in writing by each of the parties within ten (10) days after demand for arbitration is given, and a third chosen by the two so appointed; provided further that if the two appointed cannot agree on the choice, then application shall be made to a presiding judge of the Santa Clara County Superior Court for the purpose of designating a third arbitrator. The applying party (who may suggest in such application the names of a suitable third arbitrator) shall provide the other party at least 48 hours prior notice of the application so that such other party may have the opportunity to submit one or more names of persons suitable to serve as the designated third arbitrator. The presiding judge shall have discretion to designate the third arbitrator from among the names suggested by either party or from among any other persons such judge deems appropriate. The cost of such arbitration, including reasonable attorneys' fees, shall be borne by the losing party or in such proportions as the arbitrator(s) shall decide. Arbitration shall be the exclusive remedy of the parties and the award of the arbitrator(s) shall be final and binding upon the parties. 9 9. GENERAL PROVISIONS ------------------- 9.1 NONASSIGNABILITY. Neither this Agreement nor any right or interest ---------------- hereunder shall be assignable by Employee, provided, however, that nothing in this section 10 shall preclude (i) Employee from designating a beneficiary to receive any benefits payable hereunder upon Employee's death, or (ii) Employee's executors, administrators, or other legal representatives of Employee's estate from assigning any rights hereunder to the person or persons entitled thereto. 9.2 ASSUMPTION. The Bank shall require any successor in interest (whether ---------- direct or indirect or as a result of purchase, merger, consolidation, Change in Control or otherwise) to all or substantially all of the business and/or assets of the Corporation or the Bank to expressly assume and agree to perform the obligations under this Agreement. 9.3 NO ATTACHMENT. Except as required or permitted by law, no right to ------------- receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or to execution, attachment, levy, or similar process of assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. The payments due Employee under section 5 herein shall not be deemed earned until the conditions set forth in section 5 occur, if ever. 9.4 BINDING AGREEMENT. This Agreement contains the entire understanding ----------------- among the parties regarding Employee's relationship with Bank and Corporation and supersedes any prior employment agreements. This Agreement shall be binding upon, and inure to the benefit of, Employee, the Bank and the Corporation, and respective heirs, successors and assigns. Each party acknowledges that no representations, inducements, promises, or agreements have been made by any party, or anyone acting on behalf of any party, which are not embodied herein and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding on either party except as provided herein. 9.5 AMENDMENT OR AUGMENTATION OF AGREEMENT. This Agreement may not -------------------------------------- be modified or amended except by an instrument in writing signed by the parties hereto. Unless expressly agreed to in writing by the parties hereto, no additional rights or compensation, even if given or accepted, shall be deemed to modify or otherwise affect the express terms and conditions of this Agreement. 9.6 WAIVER. No term or condition of this Agreement shall be deemed to ------ have been waived, nor shall there be any estoppel against the enforcement of any provision of 10 this Agreement except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived. 9.7 CONDITION OF THE BANK AND THE CORPORATION. Notwithstanding anything ----------------------------------------- in this Agreement, no payment shall be made under section 5 without regulatory approval if any of the following events or circumstances exist: (i) the Bank is insolvent or a conservator or receiver has been appointed for it; (ii) the Comptroller of the Currency or other appropriate federal banking agency has made a determination that the Bank or the Corporation is in a "troubled condition" as defined by applicable regulations of such federal banking agency; (iii) the Bank of the Corporation is assigned a composite rating of 4 or 5 by the appropriate federal banking agency or is informed in writing by the OCC that is rated a 4 or 5 under the Uniform Financial Institution's Rating System of the Federal Financial Institution's Examination Council; or (iv the OCC has initiated a proceeding against the Bank to terminate or suspend deposit insurance for the Bank. 9.8 SEVERABILITY. If, for any reason, any provisions of this Agreement is ------------ held invalid, such invalidity shall not affect any other provision of this Agreement not held invalid, and each such other provision shall to the full extent consistent with law continue if full force and effect. If any provision of this Agreement shall be held invalid in part, such invalidity shall in no way affect the rest of such provision not held invalid, and the rest of such provision together with all other provisions of this Agreement shall, to the full extent consistent with law, continue in full force and effect. (If this Agreement is held totally invalid or cannot be enforced, then to the full extent permitted by law any prior employment agreement, whether oral or written, express or implied, between the Bank and/or its affiliates, (or any successor thereof) and Employee shall be deemed reinstated as if this Agreement had not been executed.) 9.9 NOTICES. All notices, requests, demands and other communications ------- hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if mailed by United States certified or registered mail, prepaid, to the parties or their permitted assignees at the following addresses (or at such other address as shall be given in writing by either party to the other): To: Cupertino National Bank & Trust 20230 Stevens Creek Boulevard Cupertino, CA 95014-2244 Attention: Chairman of the Board 11 To: Employee at the last known address contained in the personnel records of the Bank. 9.10 HEADINGS. The headings of paragraphs herein are included solely for -------- convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 9.11 GOVERNING LAW. This Agreement has been executed and delivered in the ------------- State of California, and its validity, interpretation, performance, and enforcement shall be governed by the laws of said State. 9.12 ADVICE OF COUNSEL. Employee has been encouraged to consult with ----------------- legal counsel of Employee's choosing concerning the terms of this Agreement prior to executing this Agreement. Any failure by Employee to consult with competent counsel prior to executing this Agreement shall not be a basis for rescinding or otherwise avoiding the binding effect of this Agreement. The parties acknowledge that they are entering into this Agreement freely and voluntarily, with full understanding of the terms of the Agreement. Interpretation of the terms of this Agreement shall not be construed 12 for or against either party on the basis of the identity of the party who drafted the provision in question. CORPORATION: BANK CUPERTINO NATIONAL BANCORP CUPERTINO NATIONAL BANK & TRUST By: /s/ Alex D. Lindiay By: /s/ Sam C Smith -------------------------- ---------------------------- __________________________ ____________________________ Its: Vice-Chair Its: EVP & CEO -------------------------- ---------------------------- __________________________ ____________________________ EMPLOYEE: /s/ Ken Brenner - ------------------------------ KEN BRENNER 13 EXHIBIT A As of the Effective Date, September 1, 1994, Employee's: 1. Annual Salary was $120,000; 2. Participation in incentive compensation was (described basis/formula): Subjective based on performance of Bank and individual plus business development commissions (or other similar arrangement) as defined in sales commission program on an annual basis; and 3. Standard employee benefits were comprised of: 401(k), ESPP, Medical insurance, life insurance, automobile, stock options, plus any benefits added for EMC members or all employees. EXHIBIT B Policy Premium: $584,679 Employee's Share of Premium: $216,355 The Employee's share of the premium shall be payable pursuant to a promissory note in the form attached hereto as Attachment 1 (the "Premium Payment Note"), which note shall be paid annually by offsetting against Employee's incentive or bonus compensation at the following rates: ================================================================================ IF BONUS COMPENSATION IS PAYMENT/OFFSET IS - -------------------------------------------------------------------------------- 0 to $20,000 0 - -------------------------------------------------------------------------------- $20,001 to $40,000 $5,000 - -------------------------------------------------------------------------------- $40,001 to $60,000 $8,000 - -------------------------------------------------------------------------------- $60,001 to $80,000 $12,000 - -------------------------------------------------------------------------------- greater than $80,000 $16,000 ================================================================================ The balance, if any, of the Premium Payment Note at Employee's death shall be paid out of the policy's death benefit proceeds; provided, that if the death benefit proceeds are less than such balance, the unpaid amount shall be paid by the Bank and shall not be an obligation of Employee or Employee's estate. Employee shall not be required to pay interest on the unpaid balance of the Premium Payment Note until Employee reaches Retirement Age; in consideration therefor, Employee waives all rights to any increases in the cash surrender value of the policy which arise on or before Employee reaches Retirement Age. ATTACHMENT 1 PROMISSORY NOTE $216,355 Cupertino, California April 28, 1995 1. Obligation. Ken Brenner, an individual ("Maker") who is currently ---------- an executive employee of Cupertino National Bank & Trust (the "Bank"), for value received, hereby promises to pay to the Bank at 20230 Stevens Creek Boulevard, Cupertino, California 95014, the principal amount of two hundred sixteen thousand, three hundred fifty-five dollars ($216,355). This Note is delivered by Maker in payment of Marker's share of a life insurance premium for life insurance being purchased by the Bank (the "Life Insurance") pursuant to that certain Severance and Retirement Benefits Agreement between Maker and Bank dated April 28, 1995 (the "Benefits Agreement"). The terms of the Benefits Agreement are incorporated herein by this reference. Caplitalized terms used herein without definition shall have the meanings assigned to them in the Benefits Agreement. 2. Interest Rate. This Note shall bear simple interest from and ------------- after the date Maker reaches Retirement Age at an annual interest rate of eight percent (8%). In the event this Note is not paid pursuant to the terms of Section 3 below, any late payments shall bear interest until fully paid at an annual rate of five (5) points above the Bank's prime rate--which shall be defined as the then prevailing rate charged by the Bank for commercial borrowers of highest credit quality. 3. Payment Schedule. Maker agrees to make payments on this Note ---------------- annually out of incentive or bonus compensation, if any, earned by Maker under any Bank plan for such compensation, and hereby authorizes Bank to obtain such payments from Maker annually by deducting from incentive or bonus compensation (at such time as such compensation would otherwise be paid to Maker) in accordance with the following schedule: ================================================================================ IF BONUS COMPENSATION IS PAYMENT APPLIED TO NOTE IS - -------------------------------------------------------------------------------- 0 to $20,000 0 - -------------------------------------------------------------------------------- $20,001 to $40,000 $5,000 - -------------------------------------------------------------------------------- $40,001 to $60,000 $8,000 - -------------------------------------------------------------------------------- $60,001 to $80,000 $12,000 - -------------------------------------------------------------------------------- greater than $80,000 $16,000 ================================================================================ If Maker ceases to be employed by Bank before Retirement Age, such that incentive or bonus compensation is no longer earned by Maker under any Bank plan, Maker shall have no obligation to make further payments on this Note until the death benefit provision is implemented. Maker further agrees that the balance of this Note, if any, unpaid at Maker's death shall be due and payable upon such death, and Maker hereby authorizes Bank to obtain from Maker the payoff of such unpaid balance by applying the death benefit proceeds under the Life Insurance. To the extent such death benefit proceeds are insufficient to pay in full the unpaid balance of this Note, any remaining balance after application of the entire death benefit proceeds shall be deemed extinguished and no longer an obligation of Maker or Maker's estate. All payments received shall be applied first to interest, if any, then accrued, and then to principal. 4. Prepayments; Application. This Note may be prepaid in whole or in ------------------------ part any time without penalty or premium. 5. Events of Default. There shall be an "Event of Default" under ----------------- this Note if Maker shall fail to make a payment to Bank when due and such default shall continue for thirty (30) days after Bank provides written notice to Maker of such default. 6. Remedies. If an Event of Default shall occur, any indebtedness of -------- Maker under this Note shall, at Bank's option and without notice, become immediately due and payable without presentment, demand, protest or notice of dishonor, all of which are hereby expressly waived by Maker; and Holder shall have all of the rights, powers and remedies available under this Note, all of which rights, powers and remedies may be exercised at any time by Bank and from time to time after the occurrence of an Event of Default. All of the rights, powers and remedies of Bank in connection with this Note are cumulative and not exclusive and shall be in addition to any other rights, powers or remedies provided by law or equity. 7. Costs of Collection. If this Note is not paid when due, whether ------------------- at maturity or by acceleration, Maker promises to pay all costs incurred by the Bank collecting the amounts due hereunder, including reasonable attorney's fees. 8. Waiver. Presentment, demand, protest, notices of protest, ------ dishonor and non-payment of this Note and all notices of every kind are hereby waived, except notices required by this Note. No single or partial exercise of or forbearance from exercising any power hereunder or under any guaranty pertaining to this Note shall preclude other or further exercises thereof or the exercise of any other power. 9. Special Principal/Interest Reduction. Maker and Holder agree that ------------------------------------ if Maker ceases to be employed by Bank on or before November 1, 2001, under circumstances where Maker is not, under the terms of the Benefits Agreement, fully vested with respect to the Retirement Draw Benefit, there shall be at the time of Maker's -2- cessation of employment a one-time reduction of principal and interest (if any) owed by Maker hereunder to reflect the unvested portion of the Retirement Draw Benefit which will be foregone by Maker as a result of ceasing employment before full vesting. By way of example only, if Maker ceases employment when he is vested with respect to one-seventh of the Retirement Draw Benefit and unvested with respect to six-sevenths, there shall be a one-time reduction of sex-sevenths of the principal of this Note; all other terms and conditions shall remain in effect with respect to payment of the balance. 10. Form of Payment; Governing Law. Principal is payable in lawful ------------------------------ money of the United States to the Bank. This Note has been executed and delivered by Maker in the State of California and shall be governed by and construed in accordance with the laws of the State of California. 11. Authority. The undersigned individuals signing this Note --------- represent and warrant that the undersigned individuals are duly authorized and empowered to execute and deliver this Note on behalf of Maker and Bank. 12. Notice. For purposes of giving notices under this Note, all ------ notices shall be in writing and shall be deemed to have been duly given on the date of delivery, if personally delivered to the party to whom notice is to be given, or on the second (2nd) day after mailing, if mailed to the party to whom notice is to be given by first-class mail, postage prepaid and properly addressed as follows: TO MAKER: Ken Brenner ________________________________ ________________________________ TO BANK: Cupertino National Bank & Trust 20230 Stevens Creek Blvd. Cupertino, CA 95014 Attn: Chairman of the Board Any party named above may change its address for purposes of this Section 12 by giving written notice of the new address to the Maker, and Bank, in the manner set forth above. -3- 13. Successors and Assigns. This Note shall be binding upon and ---------------------- inure to the benefit of Maker, Bank and their respective successors and permitted assigns. IN WITNESS WHEREOF, the undersigned have executed this Note as of the date first appearing hereinabove. MAKER: /s/ Ken Brenner ----------------------------------- Ken Brenner BANK: CUPERTINO NATIONAL BANK & TRUST a national banking association By: _______________________________ C. Donald Allen, Chairman & CEO -4- EX-10.26 15 AGREEMENT - HOOD EXHIBIT 10.26 CUPERTINO NATIONAL BANK & TRUST EMPLOYMENT, SEVERANCE AND RETIREMENT BENEFITS AGREEMENT THIS EMPLOYMENT, SEVERANCE AND RETIREMENT BENEFITS AGREEMENT (the "Agreement") is made and entered on this 31st day of July, 1995 and is effective as of April 14, 1995, by and between CUPERTINO NATIONAL BANCORP (the "Corporation"), its wholly owned subsidiary CUPERTINO NATIONAL BANK & TRUST (the "Bank") and DAVID HOOD ("Employee"). The Corporation, Bank and Employee agree as follows: 1. DEFINITIONS ----------- 1.1 "Agreement" means only the agreement contained in this document and as modified in writing pursuant to section 10.5 herein. 1.2 "Anniversary Date" means the date one (1) year from the Effective Date. 1.3 "Bank" means Cupertino National Bank & Trust, and any successor to its business or assets which executes and delivers the Agreement as provided by section 10.2 herein or which becomes bound by this Agreement by operation of law. 1.4 "Board" means the Board of Directors of the Bank. 1.5 "Cause" means (1) Employee's acts of personal dishonesty; willful misconduct; breach of fiduciary duty or violation of banking law involving an intent to obtain personal or family profit; willful violation of any law, rule, or regulation which results in action against or restrictions imposed on the Bank by regulatory authorities; habitual abuse of substances (as corroborated by a physician) or extended unexcused absence from work; or (2) Employee's continued failure to substantially perform Employee's duties (which failure may be determined by the Board by reference to the quality of the Company's financial condition or operating performance) with the Bank (other than any failure resulting from Disability) after a written demand for substantial performance is given to Employee by the Board which demand specifically identifies the manner in which the Board believes that Employee has not substantially performed Employee's duties. The definition of "Cause" as set forth in subsection (1) hereof is sometimes referred to separately herein as "Personal Conduct/Cause," and the definition of "Cause" as set forth in subsection (2) is sometimes referred to separately herein as "Performance/Cause." The term "Cause," standing alone, shall mean either Personal Conduct/Cause or Performance/Cause or both. For purposes of the definition of Personal Conduct/Cause, an act, or failure to act, on the Employee's part shall be considered "willful" only if done, or omitted to be done, by him without reasonable belief that such act, or failure to act, is in the best interests of the Employer. 1.6 "Change in Control" means a change in the Board of Directors, or the Corporation or the Bank following: 1.6.1 The acquisition, directly or indirectly, of more than 25% of the outstanding shares of any class of voting securities of the Corporation or the Bank by any Person; or 1.6.2 A merger, consolidated or sale of all or substantially all of the assets of the Corporation or the Bank, such that the individuals constituting the Corporation Board or the Board of the Bank immediately prior to such period shall cease to constitute a majority of such Board, unless the election of each director who was not a director prior thereto was approved by vote of at least two-thirds of the directors then in office who were directors prior to such period. 1.6.3 Notwithstanding the foregoing, any change in the Board of either the Corporation or the Bank which occurs within the twenty-four (24) month period following the Effective Date as a result of a merger with South Valley Bancorporation, shall NOT constitute a Change in Control for purposes of this Agreement. 1.7 "Control" means the possession, direct or indirect, by any Person or "group" (as defined in section 13(d)(3) of the Securities Exchange Act of 1934, as amended) of the power to direct or cause the direction of the management policies of the Corporation or the Bank, whether through ownership of voting securities, by contract, or otherwise, and in any case means the ability to determine the election of a majority of the directors of the Corporation or the Bank. 1.8 "Corporation" means Cupertino National Bancorp and any successor to its business or assets which executes and delivers the agreement as provided by section 10.2 herein, or which becomes bound by this Agreement by operation of law. 1.9 "Corporation Board" means the Board of Directors of Cupertino National Bancorp. 1.10 "Disability" means physical or mental illness resulting in absence on a full-time basis from Employee's duties with Employer for one-hundred eighty (180) consecutive calendar days. Disability shall be deemed to have occurred only after the following procedure has been satisfied: If within thirty (30) days after written notice of proposed Termination for Disability is given to Employee by Employer, Employee has 2 not returned to the full-time performance of Employee's duties, Employer may terminate Employee by giving written notice of Termination for Disability. Such notice may be given by Employer following Employee's absence from Employee's duties by reason of physical or mental disability for one-hundred fifty (150) consecutive calendar days. 1.11 "Effective Date" means April 14, 1995. 1.12 "Employee" means DAVID HOOD. 1.13 "Employer" means the Corporation, the Bank or one of their subsidiaries which is Employee's employer on the date of a Change in Control. If Employee has more than one such employer on the date of a Change in Control, it means the employer who makes payment of Employee's monthly salary, and if two or more employers do so, each shall be deemed to be Employer for the purposes of this Agreement on a pro rata basis as to the amount of Employee's working time devoted to each, as a percentage of Employee's salary. "Employer" shall include any successor to the business or assets of an Employer and which executes the agreement provided by section 10.2 or which becomes bound by this Agreement by operation of law. 1.14 "Person" means an individual, a corporation, a partnership, an association, a joint stock company, a trust, any unincorporated organization or a government or political subdivision thereof. 1.15 "Resignation for Good Reason" or "Resign for Good Reason" means the cessation of Employee's employment upon written notice given by Employee to Employer as provided in section 5.4.1 herein. 1.16 "Retirement" or "Retire" means voluntary termination by Employee of his/her employment with Employer other than for reason of death, Disability or Resignation for Good Reason, as those terms are defined herein. 1.17 "Salary" shall mean regular annual base cash compensation exclusive of incentive or bonus compensation or noncash compensation benefits. 1.18 "Retirement Age" for purposes of this Agreement is sixty-two (62) years of age. 1.19 "Termination" or "Terminated" means cessation of Employee's employment upon written notice (with or without Cause) given to Employee, by Employer or the Board, or their successors. 3 2. POSITION AND DUTIES ------------------- 2.1 Employee shall be employed by the Bank as its Executive Vice President and Senior Loan Officer reporting to the Executive Management Committee, of which Employee will be a member, effective April 14, 1995 ("the Commencement Date"). As Executive Vice President and Senior Loan Officer, Employee agrees to devote his full business time, energy and skill to his duties at the Bank. These duties shall include, but not be limited to, any duties consistent with his position which may be assigned to Employee from time to time by the Bank's President. 2.2 CODE OF PERSONAL AND BUSINESS CONDUCT. Employee agrees to abide by ------------------------------------- the terms and conditions of the Bank's standard employee Code of Personal & Business Conduct executed by Employee and attached here as Exhibit A. 3. TERM ---- 3.1 The term of this Agreement shall commence as of the Effective Date and shall continue until the Termination, Retirement, Resignation for Good Reason (as defined in section 5.4.1) or death of Employee, whichever occurs first. This Agreement and all of its terms and conditions may be terminated upon written agreement by the parties. Notwithstanding the foregoing, nothing contained herein shall imply the existence of a contract or assurance of employment between Employee and Employer, nor shall this Agreement alter Employer's personnel policies and practices, including the right to terminate Employee at any time with or without cause. 3.2 Notwithstanding the right of Bank to terminate Employee, any such Termination shall be governed by section 5 below. 4. COMPENSATION ------------ 4.1 SALARY. Employee shall be paid a monthly salary of $10,000.00 ------ ($120,000.00 on an annual basis), subject to applicable withholding, in accordance with the Bank's normal payroll procedures. 4.2 BENEFITS. Employee shall have the right, on the same basis as other -------- members of senior management of the Bank, to participate in and to receive benefits under any of the Bank's employee benefits plans, including medical, dental, life and disability group insurance plans as well as the Bank's 401(k) Plan and Employee Stock Purchase Plan. 4 4.3 VACATION. Employee shall accrue vacation at a rate of 2.083 days per -------- month, the equivalent of five (5) weeks over a one (1) year period. 4.4 STOCK OPTIONS. Upon joining the Bank, Employee will receive an ------------- initial grant of options to acquire 15,000 shares of Corporation common stock. The shares will vest under the provisions of the Bank's 1995 Stock Option Plan. 4.5 PERFORMANCE BONUS. Employee will be eligible for a performance bonus ----------------- up to 75% of base salary based upon goals, which will be set annually by the Board. 4.6 CAR ALLOWANCE. $500.00 per month. ------------- 4.7 DEFERRED COMPENSATION. The Bank will provide Retirement compensation --------------------- benefits as provided in paragraph 6 set forth below. 4.8 In the event that Employee's acceptance of employment with the Bank at this time causes Employee to lose stock option rights with University National Bank and Trust ("University") that he would have had if he remained employed by University through the consummation of the "second stage" of University's plan merger into Comerica Bank, then the Bank will reimburse Employee for the fair market value of such stock option rights less the exercise price of the stock calculated as of the closing date of University's "first stage" merger with Interim Comerica on or about April 3, 1995, in a total amount not to exceed $175,000. Such reimbursement for lost stock option rights shall be paid to employee in two equal installments, the first on February 28, 1996 and the second on February 28, 1997, provided that no such payment shall be due or made unless Employee is an officer or employee of the Bank at such time payment is to be made. If Employee receives compensation for the loss of his stock option rights subsequent to the Bank's payment to employee, he will be required to reimburse the Bank the payment amount. 4.9 COMPENSATION FREEZE. Subject to the terms and conditions herein, and ------------------- for a period for three (3) years from the Effective Date, Employee's total annual Salary and standard employee benefits from Employer set forth above shall remain the same; provided, however, that Employee's Salary shall be increased annually to allow for a cost of living increase, such increase to be determined based on the U.S. Department of Labor Bureau of Labor Statistics Consumer Price Index for All Urban Consumers in the San Francisco, Oakland and Bay Area. In addition, it is within the complete discretion of the Employer to increase such amount of total compensation at any time and for any reason, including a promotion of Employee to a new position or title; however, other than the cost- of-living increase to Salary as provided for herein, nothing in this Agreement shall 5 suggest or imply that the Board is under any duty or obligation to increase Employee's Salary or other compensation or standard employee benefits at any time during the three (3) year period following the Effective Date. Employee's current salary, his current participation in incentive compensation programs of the Employer and a description of current standard employee benefits are set forth above. 5. TERMINATION OF EMPLOYMENT ------------------------- 5.1 The provisions of this section 5 shall govern the benefits, if any, which Employee shall receive upon Termination of his Employment. 5.2 BENEFITS UPON VOLUNTARY TERMINATION. In the event that Employee ----------------------------------- voluntarily resigns from his employment with the Bank, or in the event that his employment terminates as a result of his death or disability, Employee shall be entitled to no compensation or benefits from the Bank other than those earned under paragraph 4 above through the date of his termination. 5.3 BENEFITS UPON OTHER TERMINATION. Employee agrees that his ------------------------------- employment may be terminated by the Bank at any time, with or without cause. In the event of the termination of Employee's employment by the Bank for the reasons set forth below, he shall be entitled to the following: 5.3.1 TERMINATION FOR PERSONAL CONDUCT/CAUSE. The payments -------------------------------------- set forth in section 5.3.2 hereof shall not apply if at any time Employee is terminated upon a good faith finding of Personal Conduct/Cause by the Board; provided, however, that Employee shall be given written notice of the Board's finding of conduct by Employee amounting to Personal Conduct/Cause for such Termination. Such notice shall be accompanied by a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the members of the Board adopted at a duly-noticed meeting of the Board, and finding in good faith that Employee engaged in conduct amounting to Personal Conduct/Cause and specifying the particulars thereof. 5.3.2 If the Employee is Terminated for Performance/Cause or other than by reason of death, Retirement, Disability or Personal Conduct/Cause, as set forth herein, or if Employee Resigns for Good Reason, as defined in section 5.4.1 below, the Bank shall pay to Employee twelve (12) months' Salary ("Severance Payment") at a rate equivalent to the then-current Salary of Employee. 5.3.3 The Bank shall have the option of paying Severance Payments in a lump-sum payment, or by salary continuation payments made under the Bank's normal 6 employee compensation schedule. If the Bank chooses the lump-sum payment option, such payment shall be made not later than the tenth (10th) day following the date of cessation of employment, Termination or Resignation for Good Reason. 5.3.4 Although a payment triggering such section is not intended hereby, amounts otherwise due under this section will be reduced if, and to the extent that, such reduction will increase the net amount Employee will receive under this Agreement after taking into account the imposition of the excise tax under section 4999 of the Internal Revenue Code, if applicable. 5.4 If a Change in Control occurs during the Term of this Agreement, Employee may thereafter be entitled to a payment set forth in section 5.3.2 in accordance with the terms hereof, subject to the following limitations: 5.4.1 RESIGNATION FOR GOOD REASON. The payments set forth in --------------------------- section 5.3.2 hereof shall apply if, after a Change of Control but within one year thereafter, Employee Resigns for Good Reason, upon the happening of one or more of the following events (unless such event or occurrence is applied generally to all officers and employees of Employer and any parent or successor of any of them), any of which will constitute Good Reason for Employee's Resignation: 5.4.1.1 Without Employee's express written consent, Employee's assignment to any duties substantially inconsistent with Employee's position, duties, responsibilities and status with Employer immediately prior to a Change in Control, or any removal of Employee from any such position to a position substantially inferior to such prior position; 5.4.1.2 A reduction by Employer of Employee's Salary or of any bonus compensation formula applicable to Employee as in effect prior to a Change in Control; 5.4.1.3 A failure by Employer to maintain any of the employee benefits to which Employee was entitled prior to a Change in Control at a level substantially similar to or greater than that in effect prior to a Change in Control, through the continuation of the same or substantially similar plans, programs and policies; 5.4.1.4 The failure by Employer to provide Employee with the same number of paid vacation days and leave to which Employee would be entitled as salaried employee of Employer, or any parent or successor of Employer; 7 5.4.1.5 Employer requiring Employee to travel on employer's business to an extent substantially greater than Employee's present business travel obligations; or the relocation of Employee's office at least sixty (60) miles from its current location, without Employee's consent; and 5.4.1.6 The failure of the Bank to obtain the assumption of this Agreement by any successor of Employer as contemplated in section 10.2 below. 5.4.2 The events described above are the only events which shall constitute Good Reason. 6. CERTAIN RETIREMENT BENEFITS --------------------------- 6.1 Subject to the special terms and conditions contained below, upon cessation of Employee's employment with Employer, if the Employee has reached the Retirement Age, or as soon thereafter as Employee reaches the Retirement Age, the Bank hereby agrees that the Employee and Employee's spouse shall become the joint owners (with right of survival) with the Bank of the annual increase of the cash surrender value of the policy thereafter arising; however, the Employee's (and Employee's spouse's) right to draw against such increase (such draw to reduce eventual death benefits) shall never exceed $55,000 per 12-month period (the "Retirement Draw Benefit"). The shared right to ownership of this increase shall continue for the lifetime of the Employee and the lifetime of the Employee's surviving spouse, but in no event longer than 40 years. 6.1.1 The Retirement Draw Benefit will be made available by means of a split-dollar insurance policy which is to be purchased by the Bank within thirty (30) days of the date of this Agreement, and for which the premium payment split between the Bank and Employee and the payment terms are outlined in Exhibit B to this Agreement. 6.1.2 Subject to the provisions of sections 6.1.3 and 6.1.4 herein, Employee's right to the Retirement Draw Benefit shall not fully vest unless he has been employed by Employer for seven (7) years from the Effective Date. If Employee's employment with Employer ends any time before a date one (1) year from the date of this Agreement (the "Anniversary Date"), Employee will not have any right to, or interest in, the Retirement Draw Benefit. If Employee's employment ends at any time after the Anniversary Date, but prior to the seven (7) year date of full vesting, Employee's right to one-seventh (1/7) of the Retirement Draw Benefit--i.e., the right to draw $7,857, or one-seventh of $55,000, per 12-month period--will vest on the Anniversary Date, and Employee's right to the Retirement Draw Benefit will continue to proportionately vest thereafter on a monthly basis, on the first date of each month following the Anniversary Date, until employment ends. 8 6.1.3 Subject to the provisions of section 6.1.2 herein, if prior to a Change in Control and during the Term hereof, Employee is Terminated for any reason other than Disability, the vesting of Employee's right to the Retirement Draw Benefit will cease as of the date of termination. If prior to a Change of Control and during the Term hereof, Employee is Terminated by reason of Disability, the vesting of Employee's right to the Retirement Draw Benefit will cease as of the date of termination unless the Board in its sole and absolute discretion approves additional vesting. 6.1.4 Notwithstanding the provisions of section 6.1.2 herein, if after a Change in Control and during the Term hereof, Employee is Terminated, or Resigns for Good Reason, as provided in section 5.4.1 herein, Employee's right to the Retirement Draw Benefit shall immediately vest in full, and such benefit shall become available to Employee when Employee reaches Retirement Age. 7. FEDERAL INCOME TAX WITHHOLDING ------------------------------ 7.1 The Bank shall withhold from any compensation or benefits payable under this Agreement all federal, state, city or other taxes or deductions as shall be required pursuant to any law, governmental regulation or ruling. 8. ARBITRATION ----------- 8.1 Any controversy between the parties hereto, including the construction, application or breach of any of the terms, covenants or conditions of this Agreement, and all claims relating to or arising from Employee's employment or Termination, including all statutory claims (including but not limited to all statutes dealing with employment discrimination), shall on a timely written request of one party served upon the other, be submitted to arbitration and be governed by the California Arbitration Act as set forth in the California Code of Civil Procedure (presently sections 1280 et seq.). The -- --- parties agree that any written request for arbitration must be made within one year after the initiating party first learned or should have learned in the exercise of reasonable diligence of the essential facts upon which the claim is based, or first suffered any harm, or first learned or should have learned in the exercise of reasonable diligence of the breach of this Agreement, whichever is earlier. Any claim not raised within such time limitation shall be waived and forever barred. The arbitration shall take place in Santa Clara County, California. 8.2 The parties may agree upon one arbitrator, but in the event they cannot agree, there shall be three (3), one named in writing by each of the parties within ten (10) days after demand for arbitration is given, and a third chosen by the two so appointed; 9 provided further that if the two appointed cannot agree on the choice, then application shall be made to a presiding judge of the Santa Clara County Superior Court for the purpose of designating a third arbitrator. The applying party (who may suggest in such application the names of a suitable third arbitrator) shall provide the other party at least 48 hours prior notice of the application so that such other party may have the opportunity to submit one or more names of persons suitable to serve as the designated third arbitrator. The presiding judge shall have discretion to designate the third arbitrator from among the names suggested by either party or from among any other persons such judge deems appropriate. The cost of such arbitration, including reasonable attorneys' fees, shall be borne by the losing party or in such proportions as the arbitrator(s) shall decide. Arbitration shall be the exclusive remedy of the parties and the award of the arbitrator(s) shall be final and binding upon the parties. 9. GENERAL PROVISIONS ------------------ 9.1 NONASSIGNABILITY. Neither this Agreement nor any right or interest ---------------- hereunder shall be assignable by Employee, provided, however, that nothing in this section 10 shall preclude (i) Employee from designating a beneficiary to receive any benefits payable hereunder upon Employee's death, or (ii) Employee's executors, administrators, or other legal representatives of Employee's estate from assigning any rights hereunder to the person or persons entitled thereto. 9.2 ASSUMPTION. The Bank shall require any successor in interest (whether ---------- direct or indirect or as a result of purchase, merger, consolidation, Change in Control or otherwise) to all or substantially all of the business and/or assets of the Corporation or the Bank to expressly assume and agree to perform the obligations under this Agreement. 9.3 NO ATTACHMENT. Except as required or permitted by law, no right to ------------- receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or to execution, attachment, levy, or similar process of assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. The payments due Employee under section 5 herein shall not be deemed earned until the conditions set forth in section 5 occur, if ever. 9.4 BINDING AGREEMENT. This Agreement contains the entire understanding ----------------- among the parties regarding Employee's relationship with Bank and Corporation and supersedes any prior employment agreements. This Agreement shall be binding upon, and inure to the benefit of, Employee, the Bank and the Corporation, and their respective heirs, successors and assigns. Each party acknowledges that no representations, inducements, promises, or agreements have been made by any party, or anyone acting on 10 behalf of any party, which are not embodied herein and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding on either party except as provided herein. 9.5 AMENDMENT OR AUGMENTATION OF AGREEMENT. This Agreement may not be -------------------------------------- modified or amended except by an instrument in writing signed by the parties hereto. Unless expressly agreed to in writing by the parties hereto, no additional rights or compensation, even if given or accepted, shall be deemed to modify or otherwise affect the express terms and conditions of this Agreement. 9.6 WAIVER. No term or condition of this Agreement shall be deemed to ------ have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived. 9.7 CONDITION OF THE BANK AND THE CORPORATION. Notwithstanding anything ----------------------------------------- in this Agreement, no payment shall be made under section 5 without regulatory approval if any of the following events or circumstances exist: (i) the Bank is insolvent or a conservator or receiver has been appointed for it; (ii) the Comptroller of the Currency or other appropriate federal banking agency has made a determination that the Bank or the Corporation is in a "troubled condition" as defined by applicable regulations of such federal banking agency; (iii) the Bank or the Corporation is assigned a composite rating of 4 or 5 by the appropriate federal banking agency or is informed in writing by the OCC that it is rated a 4 or 5 under the Uniform Financial Institution's Rating System of the Federal Financial Institution's Examination Council; or (iv) the OCC has initiated a proceeding against the Bank to terminate or suspend deposit insurance for the Bank. 9.8 SEVERABILITY. If, for any reason, any provision of this Agreement is ------------ held invalid, such invalidity shall not affect any other provision of this Agreement not held invalid, and each such other provision shall to the full extent consistent with law continue in full force and effect. If any provision of this Agreement shall be held invalid in part, such invalidity shall in no way affect the rest of such provision not held invalid, and the rest of such provision together with all other provisions of this Agreement shall, to the full extent consistent with law, continue in full force and effect. (If this Agreement is held totally invalid or cannot be enforced, then to the full extent permitted by law any prior employment agreement, whether oral or written, express or implied, between the Bank and/or its affiliates, (or any successor thereof) and Employee shall be deemed reinstated as if this Agreement had not been executed.) 11 9.9 NOTICES. All notices, requests, demands and other communications ------- hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if mailed by United States certified or registered mail, prepaid, to the parties or their permitted assignees at the following addresses (or at such other address as shall be given in writing by either party to the other): To: Cupertino National Bank & Trust 20230 Stevens Creek Boulevard Cupertino, CA 95014-2244 Attention: Chairman of the Board To: Employee at the last known address contained in the personnel records of the Bank 9.10 HEADINGS. The headings of paragraphs herein are included solely for -------- convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 9.11 GOVERNING LAW. This Agreement has been executed and delivered in the ------------- State of California, and its validity, interpretation, performance, and enforcement shall be governed by the laws of said State. 9.12 ADVICE OF COUNSEL. Employee has been encouraged to consult with legal ----------------- counsel of Employee's choosing concerning the terms of this Agreement prior to executing this Agreement. Any failure by Employee to consult with competent counsel prior to executing this Agreement shall not be a basis for rescinding or otherwise avoiding the binding effect of this Agreement. The parties acknowledge that they are entering into this Agreement freely and voluntarily, with full understanding of the terms of the Agreement. Interpretation of the terms of this Agreement shall not be construed 12 for or against either party on the basis of the identity of the party who drafted the provision in question. CORPORATION: BANK: CUPERTINO NATIONAL BANCORP CUPERTINO NATIONAL BANK & TRUST By: /s/ Alex D. Lindiay By: /s/ Sam C. Smith ------------------------------- ---------------------------- _______________________________ ____________________________ Its: Vice Chairman Its: EVP & CEO ------------------------------- ---------------------------- _______________________________ ____________________________ EMPLOYEE: /s/ David R. Hood - --------------------------------------- DAVID R. HOOD 13 EXHIBIT A As of the Effective Date, April 14, 1995, Employee's: 1. Annual Salary was $120,000; 2. Participation in incentive compensation was (describe basis/formula): Subjective based on performance of Bank and individual; and 3. Standard employee benefits were comprised of: 401(K), ESPP, medical insurance, life insurance, automobile allowance, stock options, capital club members, plus any benefits added for EMC members or all employees. EXHIBIT B Policy Premium: $554,911 Employee's Share of Premium: $218,386 The Employee's share of the premium shall be payable pursuant to a promissory note in the form attached hereto as Attachment 1 (the "Premium Payment Note"), which note shall be paid annually by offsetting against Employee's incentive or bonus compensation at the following rates: ================================================================================ IF BONUS COMPENSATION IS PAYMENT/OFFSET IS - -------------------------------------------------------------------------------- 0 to $20,000 0 - -------------------------------------------------------------------------------- $20,001 to $40,000 $5,000 - -------------------------------------------------------------------------------- $40,001 to $60,000 $8,000 - -------------------------------------------------------------------------------- $60,001 to $80,000 $12,000 - -------------------------------------------------------------------------------- greater than $80,000 $16,000 ================================================================================ The balance, if any, of the Premium Payment Note at Employee's death shall be paid out of the policy's death benefit proceeds; provided, that if the death benefit proceeds are less than such balance, the unpaid amount shall be paid by the Bank and shall not be an obligation of Employee or Employee's estate. Employee shall not be required to pay interest on the unpaid balance of the Premium Payment Note until Employee reaches Retirement Age; in consideration therefor, Employee waives all rights to any increases in the cash surrender value of the policy which arise on or before Employee reaches Retirement Age. ATTACHMENT 1 PROMISSORY NOTE $218,386 Cupertino, California April 14, 1995 1. Obligation. David Hood, an individual ("Maker") who is currently ---------- an executive employee of Cupertino National Bank & Trust (the "Bank"), for value received, hereby promises to pay to the Bank at 20230 Stevens Creek Boulevard, Cupertino, California 95014, the principal amount of two hundred eighteen thousand three hundred eight-six dollars ($218,386). This Note is delivered by Maker in payment of Marker's share of a life insurance premium for life insurance being purchased by the Bank (the "Life Insurance") pursuant to that certain Severance and Retirement Benefits Agreement between Maker and Bank dated April 14, 1995 (the "Benefits Agreement"). The terms of the Benefits Agreement are incorporated herein by this reference. Capitalized terms used herein without definition shall have the meanings assigned to them in the Benefits Agreement. 2. Interest Rate. This Note shall bear simple interest from and ------------- after the date Maker reaches Retirement Age at an annual interest rate of eight percent (8%). In the event this Note is not paid pursuant to the terms of Section 3 below, any late payments shall bear interest until fully paid at an annual rate of five (5) points above the Bank's prime rate--which shall be defined as the then prevailing rate charged by the Bank for commercial borrowers of highest credit quality. 3. Payment Schedule. Maker agrees to make payments on this Note ---------------- annually out of incentive or bonus compensation, if any, earned by Maker under any Bank plan for such compensation, and hereby authorizes Bank to obtain such payments from Maker annually by deducting from incentive or bonus compensation (at such time as such compensation would otherwise be paid to Maker) in accordance with the following schedule: ================================================================================ IF BONUS COMPENSATION IS PAYMENT APPLIED TO NOTE IS - -------------------------------------------------------------------------------- 0 to $20,000 0 - -------------------------------------------------------------------------------- $20,001 to $40,000 $5,000 - -------------------------------------------------------------------------------- $40,001 to $60,000 $8,000 - -------------------------------------------------------------------------------- $60,001 to $80,000 $12,000 - -------------------------------------------------------------------------------- greater than $80,000 $16,000 ================================================================================ If Maker ceases to be employed by Bank before Retirement Age, such that incentive or bonus compensation is no longer earned by Maker under any Bank plan, Maker shall have no obligation to make further payments on this Note until the death benefit provision is implemented. Maker further agrees that the balance of this Note, if any, unpaid at Maker's death shall be due and payable upon such death, and Maker hereby authorizes Bank to obtain from Maker the payoff of such unpaid balance by applying the death benefit proceeds from under the Life Insurance. To the extent such death benefit proceeds are insufficient to pay in full the unpaid balance of this Note, any remaining balance after application of the entire death benefit proceeds shall be deemed extinguished and no longer an obligation of Maker or Maker's estate. All payments received shall be applied first to interest, if any, then accrued, and then to principal. 4. Prepayments; Application. This Note may be prepaid in whole or in ------------------------ part any time without penalty or premium. 5. Events of Default. There shall be an "Event of Default" under ----------------- this Note if Maker shall fail to make a payment to Bank when due and such default shall continue for thirty (30) days after Bank provides written notice to Maker of such default. 6. Remedies. If an event of Default shall occur, any indebtedness of -------- Maker under this Note shall, at Bank's option and without notice, become immediately due and payable without presentment, demand, protest or notice of dishonor, all of which are hereby expressly waived by Maker; and Holder shall have all of the rights, powers and remedies available under this Note, all of which rights, powers and remedies may be exercised at any time by Bank and from time to time after the occurrence of an Event of Default. All of the rights, powers and remedies of Bank in connection with this Note are cumulative and not exclusive and shall be in addition to any other rights, powers or remedies provided by law or equity. 7. Costs of Collection. If this Note is not paid when due, whether ------------------- at maturity or by acceleration, Maker promises to pay all costs incurred by the Bank collecting the amounts due hereunder, including reasonable attorneys' fees. 8. Waiver. Presentment, demand, protest, notices of protest, ------ dishonor and non-payment of this Note and all notices of every kind are hereby waived, except notices required by this Note. No single or partial exercise of or forbearance from exercising any power hereunder or under any guaranty pertaining to this Note shall preclude other or further exercises thereof or the exercise of any other power. 9. Special Principal/Interest Reduction. Maker and Holder agree that ------------------------------------ is Maker ceases to be employed by Bank on or before November 1, 2001, under circumstances where Maker is not, under the terms of the Benefits Agreement, fully vested with respect to the Retirement Draw Benefit, there shall be at the time of Maker's -2- cessation of employment a one-time reduction of principal and interest (if any) owed by Maker hereunder to reflect the unvested portion of the Retirement Draw Benefit which will be foregone by Maker as a result of ceasing employment before full vesting. By way of example only, if Maker ceases employment when he is vested with respect to one-seventh of the Retirement Draw Benefit and unvested with respect to six-sevenths, there shall be a one-time reduction of six-sevenths of the principal of this Note; all other terms and conditions shall remain in effect with respect to payment of the balance. 10. Form of Payment; Governing Law. Principal is payable in lawful ------------------------------ money of the United States to the Bank. This Note has been executed and delivered by Maker in the State of California and shall be governed by and construed in accordance with the laws of the State of California. 11. Authority. The undersigned individuals signing this Note --------- represent and warrant that the undersigned individuals are duly authorized and empowered to execute and deliver this Note on behalf of Maker and Bank. 12. Notice. For purposes of giving notices under this Note, all ------ notices shall be in writing and shall be deemed to have been duly given on the date of delivery, if personally delivered to the party to whom notice is to be given, or on the second (2nd) day after mailing, if mailed to the party to whom notice is to be given by first-class mail, postage prepaid and properly addressed as follows: TO MAKER: David R. Hood _____________________________ _____________________________ TO BANK: Cupertino National Bank & Trust 20230 Stevens Creek Blvd. Cupertino, CA 95014 Attn: Chairman of the Board Any party named above may change its address for purposes of this Section 12 by giving written notice of the new address to the Maker, and Bank, in the manner set forth above. -3- 13. Successors and Assigns. This Note shall be binding upon and inure ---------------------- to the benefit of Maker, Bank and their respective successors and permitted assigns. IN WITNESS WHEREOF, the undersigned have executed this Note as of the date first appearing hereinabove. MAKER: ________________________________ David R. Hood BANK CUPERTINO NATIONAL BANK & TRUST a national banking association By: _______________________________ C. Donald Allen, Chairman, CEO -4- EX-10.27 16 AGREEMENT - PALMER EXHIBIT 10.27 CUPERTINO NATIONAL BANK & TRUST EMPLOYMENT, SEVERANCE AND RETIREMENT BENEFITS AGREEMENT THIS EMPLOYMENT, SEVERANCE AND RETIREMENT BENEFITS AGREEMENTS (the "Agreement") is made and entered on this 31st day of July, 1995 and is effective as of May 1, 1995, by and between CUPERTINO NATIONAL BANCORP (the "Corporation"), its wholly owned subsidiary CUPERTINO NATIONAL BANK & TRUST (the "Bank") and HALL PALMER (Employee"). The Corporation, Bank and Employee agree as follows: 1 DEFINITIONS ----------- 1.1 "Agreement" means only the agreement contained in this document and as modified in writing pursuant to section 10.5 herein. 1.2 "Anniversary Date" means the date one (1) year from the Effective Date. 1.3 "Bank" means Cupertino National Bank & Trust, and any successor to its business or assets which executes and delivers the Agreement as provided by section 10.2 herein or which becomes bound by this Agreement by operation of law. 1.4 "Board" means the Board of Directors of the Bank. 1.5 "Cause" means (1) Employee's acts of personal dishonesty; willful misconduct; breach of fiduciary duty or violation of banking law involving an intent to obtain personal or family profit; willful violation of any law, rule, or regulation which results in action against or restrictions imposed on the Bank by regulatory authorities; habitual abuse of substances (as corroborated by a physician) or extended unexcused absence from work; or (2) Employee's continued failure to substantially perform Employee's duties (which failure may be determined by the Board by reference to the quality of the Company's financial condition or operating performance) with the Bank (other than any failure resulting from Disability) after a written demand for substantial performance is given to Employee by the Board which demand specifically identifies the manner in which the Board believes that Employee has not substantially performed Employee's duties. The definition of "Cause" as set forth in subsection (1) hereof is sometimes referred to separately herein as "Personal Conduct/Cause," and the definition of "Cause" as set forth in subsection (2) is sometimes referred to separately herein as "Performance/Cause." The term "Cause," standing alone, shall mean either Personal Conduct/Cause or Performance cause or both. For purposes of the definition of Personal Conduct/Cause, an act, or failure to act, on the Employee's part shall be considered "willful" only if done, or omitted to be done, by him without reasonable belief that such act, or failure to act, is in the best interests of the Employer. 1.6 "Change in Control" means a change in the Board of Directors, or the Corporation or the Bank following: 1.6.1 The acquisition, directly or indirectly, of more than 25% of the outstanding shares of any class of voting securities of the Corporation or the Bank by any Person; or 1.6.2 A merger, consolidated or sale of all or substantially all of the assets of the Corporation or the Bank, such that the individuals constituting the Corporation Board or the Board of the Bank immediately prior to such period shall cease to constitute a majority of such Board, unless the election of each director who was not a director prior thereto was approved by vote of at least two-thirds of the directors then in office who were directors prior to such period. 1.6.3 Notwithstanding the foregoing, any change in the Board of either the Corporation or the Bank which occurs within the twenty-four (24) month period following the Effective Date as a result of a merger with South Valley Bancorporation, shall NOT constitute a Change in Control for purposes of this Agreement. 1.7 "Control" means the possession, direct or indirect, by any Person or "group" (as defined in section 13(d)(3) of the Securities Exchange Act of 1934, as amended) of the power to direct or cause the direction of the management policies of the Corporation or the Bank, whether through ownership of voting securities, by contract, or otherwise, and in any case means the ability to determine the election of a majority of the directors of the Corporation or the Bank. 1.8 "Corporation" means Cupertino National Bancorp and any successor to its business or assets which executes and delivers the agreement as provided by section 10.2 herein, or which becomes bound by this Agreement by operation of law. 1.9 "Corporation Board" means the Board of Directors of Cupertino National Bancorp. 1.10 "Disability" means physical or mental illness resulting in absence on a full-time basis from Employee's duties with Employer for one-hundred eighty (180) consecutive calendar days. Disability shall be deemed to have occurred only after the following procedure has been satisfied: If within thirty (30) days after written notice of proposed Termination for Disability is given to Employee by Employer, Employee has 2 not returned to the full-time performance of Employee's duties, Employer may terminate Employee by giving written notice of Termination for Disability. Such notice may be given by Employer following Employee's absence from Employee's duties by reason of physical or mental disability for one-hundred fifty (150) consecutive calendar days. 1.11 "Effective Date" means May 1, 1995. 1.12 "Employee" means Hall Palmer. 1.13 "Employer" means the Corporation, the Bank or one of their subsidiaries which is Employee's employer on the date of a Change in Control. If Employee has more than one such employer on the date of a Change in Control, it means the employer who makes payment of Employee's monthly salary, and if two or more employers do so, each shall be deemed to be Employer for the purposes of this Agreement on a pro rata basis as to the amount of Employee's working time devoted to each, as a percentage of Employee's salary. "Employer" shall include any successor to the business or assets of an Employer and which executes the agreement provided by section 10.2 or which becomes bound by this Agreement by operation of law. 1.14 "Person" means an individual, a corporation, a partnership, an association, a joint stock company, a trust, any unincorporated organization or a government or political subdivision thereof. 1.15 "Resignation for Good Reason" or "Resign for Good Reason" means the cessation of Employee's employment upon written notice given by Employee to Employer as provided in section 5.4.1 herein. 1.16 "Retirement" or "Retire" means voluntary termination by Employee of his/her employment with Employer other than for reason of death, Disability or Resignation for Good Reason, as those terms are defined herein. 1.17 "Salary" shall mean regular annual base cash compensation exclusive of incentive or bonus compensation or noncash compensation benefits. 1.18 "Retirement Age" for purposes of this Agreement is sixty-two (62) years of age. 1.19 "Termination" or "Terminated" means cessation of Employee's employment upon written notice (with or without Cause) given to Employee, by Employer or the Board, or their successors. 3 2. POSITION AND DUTIES ------------------- 2.1 Employee shall be employed by the Bank as its Executive Vice President & Senior Trust Officer reporting to the Executive Management Committee, of which Employee will be a member, effective May 1, 1995 ("the Commencement Date"). As Executive Vice President & Senior Trust Officer, Employee agrees to devote his full business time, energy and skill to his duties at the Bank. These duties shall include, but not be limited to, any duties consistent with his position which may be assigned to Employee from time to time by the Bank's President. 2.2 CODE OF PERSONAL AND BUSINESS CONDUCT. Employee agrees to abide by the ------------------------------------- terms and conditions of the Bank's standard employee Code of Personal & Business Conduct executed by Employee and attached here as Exhibit A. 3. TERM ---- 3.1 The term of this Agreement shall commence as of the Effective Date and shall continue until the Termination, Retirement, Resignation for Good Reason (as defined in section 5.4.1) or death of Employee, whichever occurs first. This Agreement and all of its terms and conditions may be terminated upon written agreement by the parties. Notwithstanding the foregoing, nothing contained herein shall imply the existence of a contract or assurance of employment between Employee and Employer, nor shall this Agreement alter Employer's personnel policies and practices, including the right to terminate Employee at any time with or without cause. 3.2 Notwithstanding the right of Bank to terminate Employee, any such Termination shall be governed by section 5 below. 4. COMPENSATION ------------ 4.1 Salary. Employee shall be paid a monthly salary of $10,000.00 ----- ($120,000.00 on an annual basis), subject to applicable withholding, in accordance with the Bank's normal payroll procedures. 4.2. BENEFITS. Employee shall have the right, on the same basis as other -------- members of senior management of the Bank, to participate in and to receive benefits under any of the Bank's employee benefits plans, including medical, dental, life and disability group insurance plans as well as the Bank's 401(k) Plan and Employee Stock Purchase Plan. 4 4.3 VACATION. Employee shall accrue vacation at a rate of 2.083 days per -------- month, the equivalent of five (5) weeks over a one (1) year period. 4.4 STOCK OPTIONS. Upon joining the Bank, Employee will receive an initial ------------- grant of options to acquire 15,000 shares of Corporation common stock. The shares will vest under the provisions of the Bank's 1995 Stock Option Plan. 4.5 PERFORMANCE BONUS. Employee will be eligible for a performance bonus ----------------- up to 75% of base salary based upon goals, which will be set annually by the Board. 4.6 CAR ALLOWANCE. $500.00 per month. ------------- 4.7 DEFERRED COMPENSATION. The Bank will provide Retirement compensation --------------------- benefits as provided in paragraph 6 set forth below. 4.8 In the event that Employee's acceptance of employment with the Bank at this time causes Employee to lose stock option rights with University National Bank and Trust ("University") that he would have had if he remained employed by University through the consummation of the "second stage" of University's plan merger into Comerica Bank, then the Bank will reimburse Employee for the fair market value of such stock option rights less the exercise price of the stock calculated as of the closing date of University's "first stage" merger with Interim Comerica on or about April 3, 1995, in a total amount not to exceed $175,000. Such reimbursement for lost stock option rights shall be paid to employee in two equal installments, the first on February 28, 1996 and the second on February 28, 1997, provided that no such payment shall be due or made unless Employee is an officer or employee of the Bank at such time payment is to be made. If Employee receives compensation for the loss of his stock option rights subsequent to the Bank's payment to employee, he will be required to reimburse the Bank the payment amount. 4.9 COMPENSATION FREEZE. Subject to the terms and conditions herein, and ------------------- for a period for three (3) years from the Effective Date, Employee's total annual Salary and standard employee benefits from Employer set forth above shall remain the same; provided, however, that Employee's Salary shall be increased annually to allow for a cost of living increase, such increase to be determined based on the U.S. Department of Labor Bureau of Labor Statistics Consumer Price Index for All Urban Consumers in the San Francisco, Oakland and Bay Area. In addition, it is within the complete discretion of the Employer to increase such amount of total compensation at any time and for any reason, including a promotion of Employee to a new position or title; however, other than the cost-of-living increase to Salary as provided for herein, nothing in this Agreement shall 5 suggest or imply that the Board is under any duty or obligation to increase Employee's Salary or other compensation or standard employee benefits at any time during the three (3) year period following the Effective Date. Employee's current salary, his current participation in incentive compensation programs of the Employer and a description of current standard employee benefits are set forth above. 5. TERMINATION OF EMPLOYMENT ------------------------- 5.1 The provisions of this section 5 shall govern the benefits, if any, which Employee shall receive upon Termination of his Employment. 5.2 BENEFITS UPON VOLUNTARY TERMINATION. In the event that Employee ----------------------------------- voluntarily resigns from his employment with the Bank, or in the event that his employment terminates as a result of his death or disability, Employee shall be entitled to no compensation or benefits from the Bank other than those earned under paragraph 4 above through the date of his termination. 5.3 BENEFITS UPON OTHER TERMINATION. Employee agrees that his employment ------------------------------- may be terminated by the Bank at any time, with or without cause. In the event of the termination of Employee's employment by the Bank for the reasons set forth below, he shall be entitled to the following: 5.3.1 TERMINATION FOR PERSONAL CONDUCT/CAUSE. The payments set -------------------------------------- forth in section 5.3.2 hereof shall not apply if at any time Employee is terminated upon a good faith finding of Personal Conduct/Cause by the Board; provided, however, that Employee shall be given written notice of the Board's finding of conduct by Employee amounting to Personal Conduct/Cause for such Termination. Such notice shall be accompanied by a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the members of the Board adopted at a duly-noticed meeting of the Board, and finding in good faith that Employee engaged in conduct amounting to Personal Conduct/Cause and specifying the particulars thereof. 5.3.2 If the Employee is Terminated for Performance/Class or other than by reason of death, Retirement, Disability or Personal Conduct/Cause as set forth herein, or if Employee Resigns for Good Reason, as defined in section 5.4.1 below, the Bank shall pay to Employee twelve (12) months' Salary ("Severance Payment") at a rate equivalent to the then-current Salary of Employee. 5.3.3 The Bank shall have the option of paying Severance Payments in a lump-sum payment, or by salary continuation payments made under the Bank's normal 6 employee compensation schedule. If the Bank chooses the lump-sum payment option, such payment shall be made not later than the tenth (10th) day following the date of cessation of employment, Termination or Resignation for Good Reason. 5.3.4 Although a payment triggering such section is not intended hereby, amounts otherwise due under this section will be reduced if, and to the extent that, such reduction will increase the net amount Employee will receive under this Agreement after taking into account the imposition of the excise tax under section 4999 of the Internal Revenue Code, if applicable. 5.4 If a Change in Control occurs during the Term of this Agreement, Employee may thereafter be entitled to a payment set forth in section 5.3.2 in accordance with the terms hereof, subject to the following limitations: 5.4.1 RESIGNATION FOR GOOD REASON. The payments set forth in section --------------------------- 5.3.2 hereof shall apply if, after a Change of Control but within one year thereafter, Employee Resigns for Good Reason, upon the happening of one or more of the following events (unless such event or occurrence is applied generally to all officers and employees of Employer and any parent or successor of any of them), any of which will constitute Good Reason for Employee's Resignation: 5.4.1.1 Without Employee's express written consent, Employee's assignment to any duties substantially inconsistent with Employee's position, duties, responsibilities and status with Employer immediately prior to a Change in Control, or any removal of Employee from any such position to a position substantially inferior to such prior position; 5.4.1.2 A reduction by Employer of Employee's Salary or of any bonus compensation formula applicable to Employee as in effect prior to a Change in Control; 5.4.1.3 A failure by Employer to maintain any of the employee benefits to which Employee was entitled prior to a Change in Control at a level substantially similar to or greater than that in effect prior to a Change in Control, through the continuation of the same or substantially similar plans, programs and policies; 5.4.1.4 The failure by Employer to provide Employee with the same number of paid vacation days and leave to which Employee would be entitled as salaried employee of Employer, or any parent or successor of Employer; 7 5.4.1.5 Employer requiring Employee to travel on employer's business to an extent substantially greater than Employee's present business travel obligations; or the relocation of Employee's office at least sixty (60) miles from its current location, without Employee's consent; and 5.4.1.6 The failure of the Bank to obtain the assumption of this Agreement by any successor of Employer as contemplated in section 10.2 below. 5.4.2 The events described above are the only events which shall constitute Good Reason. 6. CERTAIN RETIREMENT BENEFITS --------------------------- 6.1 Subject to the special terms and conditions contained below, upon cessation of Employee's employment with Employer, if the Employee has reached the Retirement Age, or as soon thereafter as Employee reaches the Retirement Age, the Bank hereby agrees that the Employee and Employee's spouse shall become the joint owners (with right of survival) with the Bank of the annual increase of the cash surrender value of the policy thereafter arising; however, the Employee's (and Employee's spouse's) right to draw against such increase (such draw to reduce eventual death benefits) shall never exceed $55,000 per 12-month period (the "Retirement Draw Benefit"). The shared right to ownership of this increase shall continue for the lifetime of the Employee and the lifetime of the Employee's surviving spouse, but in no event longer than 40 years. 6.1.1 The Retirement Draw Benefit will be made available by means of a split-dollar insurance policy which is to be purchased by the Bank within thirty (30) days of the date of this Agreement, and for which the premium payment split between the Bank and Employee and the payment terms are outlined in Exhibit B to this Agreement. 6.1.2 Subject to the provisions of sections 6.1.3 and 6.1.4 herein, Employee's right to the Retirement Draw Benefit shall not fully vest unless he has been employed by Employer for seven (7) years from the Effective Date. If Employee's employment with Employer ends any time before a date one (1) year from the date of this Agreement (the "Anniversary Date"), Employee will not have any right to, or interest in, the Retirement Draw Benefit. If Employee's employment ends at any time after the Anniversary Date, but prior to the seven (7) year date of full vesting, Employee's right to one-seventh (1/7) of the Retirement Draw Benefit--i.e., the right to draw $6,285, or one-seventh of $44,000, per 12-month period--will vest on the Anniversary Date, and Employee's right to the Retirement Draw Benefit will continue to proportionately vest thereafter on a monthly basis, on the first date of each month following the Anniversary Date, until employment ends. 8 6.1.3 Subject to the provisions of section 6.1.2 herein, if prior to a Change in Control and during the Term hereof, Employee is Terminated for any reason other than Disability, the vesting of Employee's right to the Retirement Draw Benefit will cease as of the date of termination. If prior to a change of Control and during the Term hereof, Employee is Terminated by reason of Disability, the vesting of Employee's right to the Retirement Draw Benefit will cease as of the date of termination unless the Board in its sole and absolute discretion approves additional vesting. 6.1.4 Notwithstanding the provisions of Section 6.1.2 herein, if after a Change in Control and during the Term hereof, Employee is Terminated, or Resigns for Good Reason, as provided in section 5.4.1 herein, Employee's right to the Retirement Draw Benefit shall immediately vest in full, and such benefit shall become available to Employee when Employee reaches Retirement Age. 7. FEDERAL INCOME TAX WITHHOLDING ------------------------------ 7.1 The Bank shall withhold from any compensation or benefits payable under this Agreement all federal, state, city or other taxes or deductions as shall be required pursuant to any law, governmental regulation or ruling. 8. ARBITRATION ----------- 8.1 Any controversy between the parties hereto, including the construction, application or breach of any of the terms, covenants or conditions of this Agreement, and all claims relating to or arising from Employee's employment or Termination, including all statutory claims (including but not limited to all statutes dealing with employment discrimination), shall on a timely written request of one party served upon the other, be submitted to arbitration and be governed by the California Arbitration Act as set forth in the California Code of Civil Procedure (presently sections 1280 et seq.). The -- --- parties agree that any written request for arbitration must be made within one year after the initiating party first learned or should have learned in the exercise of reasonable diligence of the essential facts upon which the claim is based, of first suffered any harm, or first learned or should have learned in the exercise of reasonable diligence of the breach of this Agreement, whichever is earlier. Any claim not raised within such time limitation shall be waived and forever barred. The arbitration shall take place in Santa Clara County, California. 8.2 The parties may agree upon one arbitrator, but in the event they cannot agree, there shall be three (3), one named in writing by each of the parties within ten (10) days after demand for arbitration is given, and a third chosen by the two so appointed; provided further that if the two appointed cannot agree on the choice, then application shall be made to a presiding judge of the Santa Clara County Superior Court for the purpose of designating a third arbitrator. The applying party (who may suggest in such application the names of a suitable third arbitrator) shall provide the other party at least 48 hours prior notice of the application so that such other party may have the opportunity to submit one or more names of persons suitable to serve as the designated third arbitrator. The presiding judge shall have discretion to designate the third arbitrator from among the names suggested by either party or from among any other persons such judge deems appropriate. The cost of such arbitration, including reasonable attorneys' fees, shall be borne by the losing party or in such proportions as the arbitrator(s) shall decide. Arbitration shall be the exclusive remedy of the parties and the award of the arbitrator(s) shall be final and binding upon the parties. 9. GENERAL PROVISIONS ------------------ 9.1 NONASSIGNABILITY. Neither this Agreement nor any right or interest ---------------- hereunder shall be assignable by Employee, provided, however, that nothing in this section 10 shall preclude (i) Employee from designating a beneficiary to receive any benefits payable hereunder upon Employee's death, or (ii) Employee's executors, administrators, or other legal representatives of Employee's estate from assigning any rights hereunder to the person or persons entitled thereto. 9.2 ASSUMPTION. The Bank shall require any successor in interest (whether ---------- direct or indirect or as a result of purchase, merger, consolidation, Change in Control or otherwise) to all or substantially all of the business and/or assets of the Corporation or the Bank to expressly assume and agree to perform the obligations under this Agreement. 9.3 NO ATTACHMENT. Except as required or permitted by law, no right to ------------- receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge , pledge, or hypothecation or to execution, attachment, levy, or similar process of assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. The payments due Employee under section 5 herein shall not be deemed earned until the conditions set forth in section 5 occur, if ever. 9.4 BINDING AGREEMENT. This Agreement contains the entire understanding ----------------- among the parties regarding Employee's relationship with Bank and Corporation and supersedes any prior employment agreements. This Agreement shall be binding upon, and inure to the benefit of, Employee, the Bank and the Corporation, and their respective heirs, successors and assigns. Each party acknowledges that no representations, inducements, promises, or agreements have been made by any party, or anyone acting on 10 behalf of any party, which are not embodied herein and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding on either party except as provided herein. 9.5 AMENDMENT OR AUGMENTATION OF AGREEMENT. This Agreement may not be -------------------------------------- modified or amended except by an instrument in writing signed by the parties hereto. Unless expressly agreed to in writing by the parties hereto, no additional rights or compensation, even if given or accepted, shall be deemed to modify or otherwise affect the express terms and conditions of this Agreement. 9.6 WAIVER. No term or condition of this Agreement shall be deemed to ------ have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specially stated therein, and each waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived. 9.7 CONDITION OF THE BANK AND THE CORPORATION. Notwithstanding anything ----------------------------------------- in this Agreement, no payment shall be made under section 5 without regulatory approval if any of the following events or circumstances exist: (i) the Bank is insolvent or a conservator or receiver has been appointed for it; (ii) the Comptroller of the Currency or other appropriate federal banking agency has made a determination that the Bank or the Corporation is in a "troubled condition" as defined by applicable regulations of such federal banking agency; (iii) the Bank or the Corporation is assigned a composite rating of 4 or 5 by the appropriate federal banking agency or is informed in writing by the OCC that it is rated a 4 or 5 under the Uniform Financial Institution's Rating System of the Federal Financial Institution's Examination Council; or (iv) the OCC has initiated a proceeding against the Bank to terminate or suspend deposit insurance for the Bank. 9.8 SEVERABILITY. If, for any reason, any provision of this Agreement is ------------ held invalid, such invalidity shall not affect any other provision of this Agreement not held invalid, and each such other provision shall to the full extent consistent with the law continue in full force and effect. If any provision of this Agreement shall be held invalid in part, such invalidity shall in no way affect the rest of such provision not held invalid, and the rest of such provision together with all other provisions of this Agreement shall, to the full extent consistent with law, continue in full force and effect. (If this Agreement is held totally invalid or cannot be enforced, then to the full extent permitted by law any prior employment agreement, whether oral or written, express or implied, between the Bank and/or its affiliates, (or any successor thereof) and Employee shall be deemed reinstated as if this Agreement had not been executed.) 11 9.9 NOTICES. All notices, requests, demands and other communications ------- hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if mailed by United States certified or registered mail, prepaid, to the parties or their permitted assignees at the following addresses (or at such other address as shall be given in writing by either party to the other): To: Cupertino National Bank & Trust 20230 Stevens Creek Boulevard Cupertino, CA 95014-2244 Attention: Chairman of the Board To: Employee at the last known address contained in the personnel records of the Bank 9.10 HEADINGS. The headings of paragraphs herein are included solely for -------- convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 9.11 GOVERNING LAW. This Agreement has been executed and delivered in the -------------- State of California, and its validity, interpretation, performance, and enforcement shall be governed by the laws of said State. 9.12 ADVICE OF COUNSEL. Employee has been encouraged to consult with legal ----------------- counsel of Employee's choosing concerning the terms of this Agreement prior to executing this Agreement. Any failure by Employee to consult with competent counsel prior to executing this Agreement shall not be a basis for rescinding or otherwise avoiding the binding effect of this Agreement. The parties acknowledge that they are entering into this Agreement freely and voluntarily, with full understanding of the terms of the Agreement. Interpretation of the terms of this Agreement shall not be construed 12 for or against either party on the basis of the identity of the party who drafted the provision in question. CORPORATION: BANK: CUPERTINO NATIONAL BANCORP CUPERTINO NATIONAL BANK & TRUST By: SIGNATURE ILLEGIBLE By: Steven C. Smith ------------------- ------------------- ___________________ ___________________ Its: Vice Chair Its: EVP + CEO ------------------- ------------------- ___________________ ___________________ EMPLOYEE: /s/ HALL PALMER - --------------- HALL PALMER 13 EX-10.28 17 AGREEMENT - SMITH EXHIBIT 10.28 CUPERTINO NATIONAL BANK & TRUST EMPLOYMENT, SEVERANCE AND RETIREMENT BENEFITS AGREEMENT THIS EMPLOYMENT, SEVERANCE AND RETIREMENT BENEFITS AGREEMENT (the "Agreement") is made and entered on this 31st day of July, 1995 and is effective as of September 1, 1994, by and between CUPERTINO NATIONAL BANCORP (the "Corporation"), its wholly owned subsidiary CUPERTINO NATIONAL BANK & TRUST (the "Bank") and STEVEN C. SMITH ("Employee"). The Corporation, Bank and Employee agree as follows: 1. DEFINITIONS ----------- 1.1 "Agreement" means only the agreement contained in this document and as modified in writing pursuant to section 10.5 herein. 1.2 "Anniversary Date" means the date one (1) year from the Effective Date. 1.3 "Bank" means Cupertino National Bank & Trust, and any successor to its business or assets which executes and delivers the Agreement as provided by section 10.2 herein or which becomes bound by this Agreement by operation of law. 1.4 "Board" means the Board of Directors of the Bank. 1.5 "Cause" means (1) Employees acts of personal dishonesty; willful misconduct; breach of fiduciary duty or violation of banking law involving an intent to obtain personal or family profit; willful violation of any law, rule, or regulation which results in action against or restrictions imposed on the Bank by regulatory authorities; habitual abuse of substances (as corroborated by a physician) or extended unexcused absence from work; or (2) Employee's continued failure to substantially perform Employee's duties (which failure may be determined by the Board by reference to the quality of the Company's financial condition or operating performance) with the Bank (other than any failure resulting from Disability) after a written demand for substantial performance is given to Employee by the Board which demand specifically identifies the manner in which the Board believes that Employee has not substantially performed Employee's duties. The definition of "Cause" as set forth in subsection (1) hereof is sometimes referred to separately herein as "Personal Conduct/ Cause," and the definition of "Cause" as set forth in subsection (2) is sometimes referred to separately herein as "Performance/Cause." The term "Cause," standing alone, shall mean either Personal Conduct/Cause or Performance/Cause or both. For purposes of the definition of Personal Conduct/Cause, an act, or failure to act, on the Employee's part shall be considered "willful" only if done, or omitted to be done, by him without reasonable belief that such act, or failure to act, is in the best interests of the Employer. 1.6 "Change in Control" means a change in the Board of Directors, or the Corporation or the Bank following: 1.6.1 The acquisition, directly or indirectly, of more than 25% of the outstanding shares of any class of voting securities of the Corporation of the Bank by any Person; or 1.6.2 A merger, consolidated or sale of all or substantially all of the assets of the Corporation or the Bank, such that the individuals constituting the Corporation Board or the Board of the Bank immediately prior to such period shall cease to constitute a majority of such Board, unless the election of each director who was not a director prior thereto was approved by vote of at least two-thirds of the directors then in office who were directors prior to such period. 1.6.3 Notwithstanding the foregoing, any change in the Board of either the Corporation or the Bank which occurs within the twenty-four (24) month period following the Effective Date as a result of a merger with South Valley Bancorporation, shall NOT constitute a Change in Control for purposes of this Agreement. 1.7 "Control" means the possession, direct or indirect, by any Person or "group" (as defined in section 13(d)(3) of the Securities Exchange Act of 1934, as amended) of the power to direct or cause the direction of the management policies of the Corporation or the Bank, whether through ownership of voting securities, by contract, or otherwise, and in any case means the ability to determine the election of a majority of the directors of the Corporation or the Bank. 1.8 "Corporation" means Cupertino National Bancorp and any successor to its business or assets which executes and delivers the agreement as provided by section 10.2 herein, or which becomes bound by this Agreement by operation of law. 1.9 "Corporation Board" means the Board of Directors of Cupertino National Bancorp. 1.10 "Disability" means physical or mental illness resulting in absence on a full-time basis from Employee's duties with Employer for one-hundred eighty (180) consecutive calendar days. Disability shall be deemed to have occurred only after the following procedure has been satisfied: If within thirty (30) days after written notice of proposed Termination for Disability is given to Employee by Employer, Employees has 2 not returned to the full-time performance of Employee's duties, Employer may terminate Employee by giving written notice of Termination for Disability. Such notice may be given by Employer following Employee's absence from Employee's duties by reason of physical or mental disability for one-hundred fifty (150) consecutive calendar days. 1.11 "Effective Date" means September 1, 1994 - Salary Continuation Agreement. 1.12 "Employee" means STEVEN C. SMITH. 1.13 "Employer" means the Corporation, the Bank or one of their subsidiaries which is Employee's employer on the date of a Change in Control. If Employee has more than one such employer on the date of a Change in Control, it means the employer who makes payment of Employee's monthly salary, and if two or more employers do so, each shall be deemed to be Employer for the purposes of this Agreement on a pro rata basis as to the amount of Employee's working time devoted to each, as a percentage of Employee's salary. "Employer" shall include any successor to the business or assets of an Employer and which executes the agreement provided by section 10.2 or which becomes bound by this Agreement by operation of law. 1.14 "Person" means an individual, a corporation, a partnership, an association, a joint stock company, a trust, any unincorporated organization or a government or political subdivision thereof. 1.15 "Resignation for Good Reason" or "Resign for Good Reason" means the cessation of Employee's employment upon written notice given by Employee to Employer as provided in section 5.4.1 herein. 1.16 "Retirement" or "Retire" means voluntary termination by Employee of his/her employment with Employer other than for reason of death, Disability or Resignation for Good Reason, as those terms are defined herein. 1.17 "Salary" shall mean regular annual base cash compensation exclusive of incentive or bonus compensation or noncash compensation benefits. 1.18 "Retirement Age" for purposes of this Agreement is sixty (60) years of age. 1.19 "Termination" or "Terminated" means cessation of Employee's employment upon written notice (with or without Cause) given to Employee, by Employer or the Board, or their successors. 3 2. POSITION AND DUTIES ------------------- 2.1 Employee shall be employed by the Bank as its Executive Vice President, Chief Financial Officer and Chief Operating Officer reporting to the Executive Management Committee, of which Employee will be a member, effective September 1, 1994 ("the Commencement Date"). As Executive Vice President, Chief Financial Officer and Chief Operating Officer, Employee agrees to devote his full business time, energy and skill to his duties at the Bank. These duties shall include, but not be limited to, any duties consistent with his position which may be assigned to Employee from time to time by the Bank's President. 2.2 CODE OF PERSONAL AND BUSINESS CONDUCT. Employee agrees to abide by the ------------------------------------- terms and conditions of the Bank's standard employee Code of Personal & Business Conduct executed by Employee and attached here as Exhibit A. 3. TERM ---- 3.1 The term of this Agreement shall commence as of the Effective Date and shall continue until the Termination, Retirement, Resignation for Good Reason (as defined in section 5.4.1) or death of Employee, whichever occurs first. This Agreement and all of its terms and conditions may be terminated upon written agreement by the parties. Notwithstanding the foregoing, nothing contained herein shall imply the existence of a contract or assurance of employment between Employee and Employer, nor shall this Agreement alter Employer's personnel policies and practices, including the right to terminate Employee at any time with or without cause. 3.2 Notwithstanding the right of Bank to terminate Employee, any such Termination shall be governed by section 5 below. 4. COMPENSATION ------------ 4.1 SALARY. Employee shall be paid a monthly salary of $11,250.00 ------ ($135,000.00 on an annual basis), subject to applicable withholding, in accordance with the Bank's normal payroll procedures. 4.2 BENEFITS. Employee shall have the right, on the same basis as other -------- members of senior management of the Bank, to participate in and to receive benefits under any of the Bank's employee benefits plans, including medical, dental, life and disability group insurance plans as well as the Bank's 401(k) Plan and Employee Stock Purchase Plan. 4 4.3 VACATION. Employee shall accrue vacation at a rate of 2.083 days per -------- month, the equivalent of five (5) weeks over a one (1) year period. 4.4 STOCK OPTIONS. Stock options will be granted at the discretion of the ------------- Board of Directors. The shares will vest under the provisions of the Bank's 1995 Stock Option Plan. 4.5 PERFORMANCE BONUS. Employee will be eligible for a performance bonus ----------------- up to 75% of base salary based upon goals, which will be set annually by the Board. 4.6 CAR ALLOWANCE. $500.00 per month. ------------- 4.7 DEFERRED COMPENSATION. The Bank will provide Retirement compensation --------------------- benefits as provided in paragraph 6 set forth below. 4.9 COMPENSATION FREEZE. Subject to the terms and conditions herein, ------------------- and for a period for three (3) years from the Effective Date, Employee's total annual Salary and standard employee benefits from Employer set forth above shall remain the same; provided, however, that Employee's Salary shall be increased annually to allow for a cost of living increase, such increase to be determined based on the U.S. Department of Labor Bureau of Labor Statistics Consumer Price Index for All Urban Consumers in the San Francisco, Oakland and Bay Area. In addition, it is within the complete discretion of the Employer to increase such amount of total compensation at any time and for any reason, including a promotion of Employee to a new position or title; however, other than the cost- of-living increase to Salary as provided for herein, nothing in this Agreement shall suggest or imply that the Board is under any duty or obligation to increase Employee's Salary or other compensation or standard employee benefits at any time during the three (3) year period following the Effective Date. Employee's current salary, his current participation in incentive compensation programs of the Employer and a description of current standard employee benefits are set forth above. 5. TERMINATION OF EMPLOYMENT ------------------------- 5.1 The provisions of this section 5 shall govern the benefits, if any, which Employee shall receive upon Termination of his Employment. 5.2 BENEFITS UPON VOLUNTARY TERMINATION. In the event that Employee ----------------------------------- voluntarily resigns from his employment with the Bank, or in the event that his employment terminates as a result of his death or disability, Employee shall be entitled to no compensation or benefits from the Bank other than those earned under paragraph 4 above through the date of his termination. 5 5.3 BENEFITS UPON OTHER TERMINATION. Employee agrees that his employment ------------------------------- may be terminated by the Bank at any time, with or without cause. In the event of the termination of Employee's employment by the Bank for the reasons set forth below, he shall be entitled to the following: 5.3.1 TERMINATION FOR PERSONAL CONDUCT/CAUSE. The payments set -------------------------------------- forth in section 5.3.2 hereof shall not apply if at any time Employee is terminated upon a good faith finding of Personal Conduct/Cause by the Board; provided, however, that Employee shall be given written notice of the Board's finding of conduct by Employee amounting to Personal Conduct/Cause for such Termination. Such notice shall be accompanied by a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the members of the Board adopted at a duly-noticed meeting of the Board, and finding in good faith that Employee engaged in conduct amounting to Personal Conduct/Cause and specifying the particulars thereof. 5.3.2 If the Employee is Terminated for Performance/Cause or other than by reason of death, Retirement, Disability or Personal Conduct/Cause, as set forth herein, or if Employee Resigns for Good Reason, as defined in section 5.4.1 below, the Bank shall pay to Employee twelve (12) months' Salary ("Severance Payment") at a rate equivalent to the then-current Salary of Employee. 5.3.3 The Bank shall have the option of paying Severance Payments in a lump-sum payment, or by salary continuation payments made under the Bank's normal employee compensation schedule. If the Bank chooses the lump-sum payment option, such payment shall be made not later than the tenth (10th) day following the date of cessation of employment, Termination or Resignation for Good Reason. 5.3.4 Although a payment triggering such section is not intended hereby, amounts otherwise due under this section will be reduced if, and to the extent that, such reduction will increase the net amount Employee will receive under this Agreement after taking into account the imposition of the excise tax under section 4999 of the Internal Revenue Code, if applicable. 5.4 If a Change in Control occurs during the Term of this Agreement, Employee may thereafter be entitled to a payment set forth in section 5.3.2 in accordance with the terms hereof, subject to the following limitations: 5.4.1 RESIGNATION FOR GOOD REASON. The payments set forth in section --------------------------- 5.3.2 hereof shall apply if, after a Change of Control but within one year thereafter, 6 Employee Resigns for Good Reason, upon the happening of one or more of the following events (unless such event or occurrence is applied generally to all officers and employees of Employer and any parent or successor of any of them), any of which will constitute Good Reason for Employee's Resignation: 5.4.1.1 Without Employee's express written consent, Employee's assignment to any duties substantially inconsistent with Employee's position, duties, responsibilities and status with Employer immediately prior to a Change in Control, or any removal of Employee from any such position to a position substantially inferior to such prior position; 5.4.1.2 A reduction by Employer of Employee's Salary or of any bonus compensation formula applicable to Employee as in effect prior to a Change in Control; 5.4.1.3 A failure by Employer to maintain any of the employee benefits to which Employee was entitled prior to a Change in Control at a level substantially similar to or greater than that in effect prior to a Change in Control, through the continuation of the same or substantially similar plans, programs and policies; 5.4.1.4 The failure by Employer to provide Employee with the same number of paid vacation days and leave to which Employee would be entitled as salaried employee of Employer, or any parent or successor of Employer; 5.4.1.5 Employer requiring Employee to travel on employer's business to an extent substantially greater than Employee's present business travel obligations; or the relocation of Employee's office at least sixty (60) miles from its current location, without Employee's consent; and 5.4.1.6 The failure of the Bank to obtain the assumption of this Agreement by any successor of Employer as contemplated in section 10.2 below. 5.4.2 The events described above are the only events which shall constitute Good Reason. 6. CERTAIN RETIREMENT BENEFITS --------------------------- 6.1 Subject to the special terms and conditions contained below, upon cessation of Employee's employment with Employer, if the Employee has reached the Retirement Age, or as soon thereafter as Employee reaches the Retirement Age, the Bank hereby agrees that the Employee and Employee's spouse shall become the joint owners (with 7 right of survival) with the Bank of the annual increase of the cash surrender value of the policy thereafter arising; however, the Employee's (and Employee's spouse's) right to draw against such increase (such draw to reduce eventual death benefits) shall never exceed $60,000 per 12-month period (the "Retirement Draw Benefit"). The shared right to ownership of this increase shall continue for the lifetime of the Employee and the lifetime of the Employee's surviving spouse, but in no event longer than 40 years. 6.1.1 The Retirement Draw Benefit will be made available by means of a split-dollar insurance policy which is to be purchased by the Bank within thirty (30) days of the date of this Agreement, and for which the premium payment split between the Bank and Employee and the payment terms are outlined in Exhibit B to this Agreement. 6.1.2 Subject to the provisions of sections 6.1.3 and 6.1.4 herein, Employee's right to the Retirement Draw Benefit shall not fully vest unless he has been employed by Employer for seven (7) years from the Effective Date. If Employee's employment with Employer ends any time before a date one (1) year from the date of this Agreement (the "Anniversary Date"), Employee will not have any right to, or interest in, the Retirement Draw Benefit. If Employee's employment ends at any time after the Anniversary Date, but prior to the seven (7) year date of full vesting, Employee's right to one-seventh (1/7) of the Retirement Draw Benefit--i.e., the right to draw $8,572, or one-seventh of $60,000, per 12-month period--will vest on the Anniversary Date, and Employee's right to the Retirement Draw Benefit will continue to proportionately vest thereafter on a monthly basis, on the first date of each month following the Anniversary Date, until employment ends. 6.1.3 Subject to the provisions of section 6.1.2 herein, if prior to a Change in Control and during the Term hereof, Employee is Terminated for any reason other than Disability, the vesting of Employee's right to the Retirement Draw Benefit will cease as of the date of termination. If prior to a Change of Control and during the Term hereof, Employee is Terminated by reason of Disability, the vesting of Employee's right to the Retirement Draw Benefit will cease as of the date of termination unless the Board in its sole and absolute discretion approves additional vesting. 6.1.4 Notwithstanding the provisions of section 6.1.2 herein, if after a Change in Control and during the Term hereof, Employee is Terminated, or Resigns for Good Reason, as provided in section 5.4.1 herein, Employee's right to the Retirement Draw Benefit shall immediately vest in full, and such benefit shall become available to Employee when Employee reaches Retirement Age. 8 7. FEDERAL INCOME TAX WITHHOLDING ------------------------------ 7.1 The Bank shall withhold from any compensation or benefits payable under this Agreement all federal, state, city or other taxes or deductions as shall be required pursuant to any law, governmental regulation or ruling. 8. ARBITRATION ----------- 8.1 Any controversy between the parties hereto, including the construction, application or breach of any of the terms, covenants or conditions of this Agreement, and all claims relating to or arising from Employee's employment or Termination, including all statutory claims (including but not limited to all statutes dealing with employment discrimination), shall on a timely written request of one party served upon the other, be submitted to arbitration and be governed by the California Arbitration Act as set forth in the California Code of Civil Procedure (presently sections 1280 et seq.). The -- --- parties agree that any written request for arbitration must be made within one year after the initiating party first learned or should have learned in the exercise of reasonable diligence of the essential facts upon which the claim is based, or first suffered any harm, or first learned or should have learned in the exercise of reasonable diligence of the breach of this Agreement, whichever is earlier. Any claim not raised within such time limitation shall be waived and forever barred. The arbitration shall take place in Santa Clara County, California. 8.2 The parties may agree upon one arbitrator, but in the event they cannot agree, there shall be three (3), one named in writing by each of the parties within ten (10) days after demand for arbitration is given, and a third chosen by the two so appointed; provided further that if the two appointed cannot agree on the choice, then application shall be made to a presiding judge of the Santa Clara County Superior Court for the purpose of designating a third arbitrator. The applying party (who may suggest in such application the names of a suitable third arbitrator) shall provide the other party at least 48 hours prior notice of the application so that such other party may have the opportunity to submit one or more names of persons suitable to serve as the designated third arbitrator. The presiding judge shall have discretion to designate the third arbitrator from among the names suggested by either party or from among any other persons such judge deems appropriate. The cost of such arbitration, including reasonable attorneys' fees, shall be borne by the losing party or in such proportions as the arbitrator(s) shall decide. Arbitration shall be the exclusive remedy of the parties and the award of the arbitrator(s) shall be final and binding upon the parties. 9 9. GENERAL PROVISIONS ------------------ 9.1 NONASSIGNABILITY. Neither this Agreement nor any right or ---------------- interest hereunder shall be assignable by Employee, provided, however, that nothing in this section 10 shall preclude (i) Employee from designating a beneficiary to receive any benefits payable hereunder upon Employee's death, or (ii) Employee's executors, administrators, or other legal representatives of Employee's estate from assigning any rights hereunder to the person or persons entitled thereto. 9.2 ASSUMPTION. The Bank shall require any successor in interest ---------- (whether direct or indirect or as a result of purchase, merger, consolidation, Change in Control or otherwise) to all or substantially all of the business and/or assets of the Corporation or the Bank to expressly assume and agree to perform the obligations under this Agreement. 9.3 NO ATTACHMENT. Except as required or permitted by law, no right ------------- to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or to execution, attachment, levy, or similar process of assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. The payments due Employee under section 5 herein shall not be deemed earned until the conditions set forth in section 5 occur, if ever. 9.4 BINDING AGREEMENT. This Agreement contains the entire ----------------- understanding among the parties regarding Employee's relationship with Bank and Corporation and supersedes any prior employment agreements. This Agreement shall be binding upon, and inure to the benefit of, Employee, the Bank and the Corporation, and their respective heirs, successors and assigns. Each party acknowledges that no representations, inducements, promises, or agreements have been made by any party, or anyone acting on behalf of any party, which are not embodied herein and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding on either party except as provided herein. 9.5 AMENDMENT OR AUGMENTATION OF AGREEMENT. This Agreement may not be -------------------------------------- modified or amended except by an instrument in writing signed by the parties hereto. Unless expressly agreed to in writing by the parties hereto, no additional rights or compensation, even if given or accepted, shall be deemed to modify or otherwise affect the express terms and conditions of this Agreement. 9.6 WAIVER. No term or condition of this Agreement shall be deemed to ------ have been waived, nor shall there be any estoppel against the enforcement of any provision of 10 this Agreement except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived. 9.7 CONDITION OF THE BANK AND THE CORPORATION. Notwithstanding ----------------------------------------- anything in this Agreement, no payment shall be made under section 5 without regulatory approval if any of the following events or circumstances exist: (i) the Bank is insolvent or a conservator or receiver has been appointed for it; (ii) the Comptroller of the Currency or other appropriate federal banking agency has made a determination that the Bank or the Corporation is in a "troubled condition" as defined by applicable regulations of such federal banking agency; (iii) the Bank or the Corporation is assigned a composite rating of 4 or 5 by the appropriate federal banking agency or is informed in writing by the OCC that it is rated a 4 or 5 under the Uniform Financial Institution's Rating System of the Federal Financial Institution's Examination Council; or (iv) the OCC has initiated a proceeding against the Bank to terminate or suspend deposit insurance for the Bank. 9.8 SEVERABILITY. If, for any reason, any provision of this Agreement ------------ is held invalid, such invalidity shall not affect any other provision of this Agreement not held invalid, and each such other provision shall to the full extent consistent with law continue in full force and effect. If any provision of this Agreement shall be held invalid in part, such invalidity shall in no way affect the rest of such provision not held invalid, and the rest of such provision together with all other provisions of this Agreement shall, to the full extent consistent with law, continue in full force and effect. (If this Agreement is held totally invalid or cannot be enforced, then to the full extent permitted by law any prior employment agreement, whether oral or written, express or implied, between the Bank and/or its affiliates, (or any successor thereof) and Employee shall be deemed reinstated as if this Agreement had not been executed.) 9.9 NOTICES. All notices, requests, demands and other communications ------- hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if mailed by United States certified or registered mail, prepaid, to the parties or their permitted assignees at the following addresses (or at such other address as shall be given in writing by either party to the other): To: Cupertino National Bank & Trust 20230 Stevens Creek Boulevard Cupertino, CA 95014-2244 Attention: Chairman of the Board 11 To: Employee at the last known address contained in the personnel records of the Bank 9.10 HEADINGS. The headings of paragraphs herein are included solely for -------- convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 9.11 GOVERNING LAW. This Agreement has been executed and delivered in the ------------- State of California, and its validity, interpretation, performance, and enforcement shall be governed by the laws of said State. 9.12 ADVICE OF COUNSEL. Employee has been encouraged to consult with legal ----------------- counsel of Employee's choosing concerning the terms of this Agreement prior to executing this Agreement. Any failure by Employee to consult with competent counsel prior to executing this Agreement shall not be a basis for rescinding or otherwise avoiding the binding effect of this Agreement. The parties acknowledge that they are entering into this Agreement freely and voluntarily, with full understanding of the terms of the Agreement. Interpretation of the terms of this Agreement shall not be construed 12 for or against either party on the basis of the identity of the party who drafted the provision in question. CORPORATION: BANK: CUPERTINO NATIONAL BANCORP CUPERTINO NATIONAL BANK & TRUST By: /s/ Rex D. Linsey By: /s/ Donald Allen ------------------------- ---------------------------- _________________________ ____________________________ Its: Vice-Chair Its: Chairman/CEO ------------------------- ---------------------------- _________________________ ____________________________ EMPLOYEE: /s/ Steven C. Smith - ---------------------------- STEVEN C. SMITH 13 EXHIBIT A As of the Effective Date, September 1, 1994, Employee's: 1. Annual Salary was $120,000; 2. Participation in incentive compensation was (describe basis/formula): Subjective based on performance of Bank and individual; and 3. Standard employee benefits were comprised of: 401(K), ESPP, medical insurance, life insurance, vacation, disability, automobile allowance, stock options, Saratoga Country Club membership, plus any benefits added for EMC members or all employees. EXHIBIT B Policy Premium: $557,221 Employee's Share of Premium: $190,186 The Employee's share of the premium shall be payable pursuant to a promissory note in the form attached hereto as Attachment 1 (the "Premium Payment Note"), which note shall be paid annually by offsetting against Employee's incentive or bonus compensation at the following rates: ============================================================================== IF BONUS COMPENSATION IS PAYMENT/OFFSET IS - ------------------------------------------------------------------------------ 0 to $20,000 0 - ------------------------------------------------------------------------------ $20,001 to $40,000 $5,000 - ------------------------------------------------------------------------------ $40,001 to $60,000 $8,000 - ------------------------------------------------------------------------------ $60,001 to $80,000 $12,000 - ------------------------------------------------------------------------------ greater than $80,000 $16,000 ============================================================================== The balance, if any, of the Premium Payment Note at Employee's death shall be paid out of the policy's death benefit proceeds; provided, that if the death benefit proceeds are less than such balance, the unpaid amount shall be paid by the Bank and shall not be an obligation of Employee or Employee's estate. Employee shall not be required to pay interest on the unpaid balance of the Premium Payment Note until Employee reaches Retirement Age; in consideration therefor, Employee waives all rights to any increases in the cash surrender value of the policy which arise on or before Employee reaches Retirement Age. ATTACHMENT 1 PROMISSORY NOTE $190,186 Cupertino, California April 28, 1995 1. Obligation. Steven C. Smith, an individual ("Maker") who is ---------- currently an executive employee of Cupertino National Bank & Trust (the "Bank"), for value received, hereby promises to pay to the Bank at 20230 Stevens Creek Boulevard, Cupertino, California 95014, the principal amount of one hundred ninty thousand, one hundred eighty-six dollars ($190,186). This Note is delivered by Maker in payment of Maker's share of a life insurance premium for life insurance being purchased by the Bank (the "Life Insurance") pursuant to that certain Severance and Retirement Benefits Agreement between Maker and Bank dated April 28, 1995 (the "Benefits Agreements"). The terms of the Benefits Agreement are incorporated herein by this reference. Caplitalized terms used herein without definition shall have the meanings assigned to them in the Benefits Agreement. 2. Interest Rate. This Note shall bear simple interest from and ------------- after the date Maker reaches Retirement Age at an annual interest rate of eight percent (8%). In the event this Note is not paid pursuant to the terms of Section 3 below, any late payments shall bear interest until fully paid at an annual rate of five (5) points above the Bank's prime rate--which shall be defined as the then prevailing rate charged by the Bank for commercial borrowers of highest credit quality. 3. Payment Schedule. Maker agrees to make payments on this Note ---------------- annually out of incentive or bonus compensation, if any, earned by Maker under any Bank plan for such compensation, and hereby authorizes Bank to obtain such payments from Maker annually by deducting from incentive or bonus compensation (at such time as such compensation would otherwise be paid to Maker) in accordance with the following schedule: ================================================================================ IF BONUS COMPENSATION IS PAYMENT APPLIED TO NOTE IS - -------------------------------------------------------------------------------- 0 to $20,000 0 - -------------------------------------------------------------------------------- $20,001 to $40,000 $5,000 - -------------------------------------------------------------------------------- $40,001 to $60,000 $8,000 - -------------------------------------------------------------------------------- $60,001 to $80,000 $12,000 - -------------------------------------------------------------------------------- greater than $80,000 $16,000 ================================================================================ If Maker ceases to be employed by Bank before Retirement Age, such that incentive or bonus compensation is no longer earned by Maker under any Bank plan, Maker shall have no obligation to make further payments on this Note until the death benefit provision is implemented. Maker further agrees that the balance of this Note, if any, unpaid at Maker's death shall be due and payable upon such death, and Maker hereby authorizes Bank to obtain from Maker the payoff of such unpaid balance by applying the death benefit proceeds under the Life Insurance. To the extent such death benefit proceeds are insufficient to pay in full the unpaid balance of this Note, any remaining balance after application of the entire death benefit proceeds shall be deemed extinguished and no longer an obligation of Maker or Maker's estate. All payments received shall be applied first to interest, if any, then accrued, and then to principal. 4. Prepayments; Application. This Note may be prepaid in whole or ----------------------- in part any time without penalty or premium. 5. Events of Default. There shall be an "Event of Default" under ----------------- this Note if Maker shall fail to make a payment to Bank when due and such default shall continue for thirty (30) days after Bank provides written notice to Maker of such default. 6. Remedies. If an Event of Default shall occur, any indebtedness of -------- Maker under this Note shall, at Bank's option and without notice, become immediately due and payable without presentment, demand, protest or notice of dishonor, all of which are hereby expressly waived by Maker; and Holder shall have all of the rights, powers and remedies available under this Note, all of which rights, powers and remedies may be exercised at any time by Bank and from time to time after the occurrence of an Event of Default. All of the rights, powers and remedies of Bank in connection with this Note are cumulative and not exclusive and shall be in addition to any other rights, powers or remedies provided by law or equity. 7. Costs of Collection. If this Note is not paid when due, whether ------------------- at maturity or by acceleration, Maker promises to pay all costs incurred by the Bank collecting the amounts due hereunder, including reasonable attorneys' fees. 8. Waiver. Presentment, demand, protest, notices of protest, ------ dishonor and non-payment of this Note and all notices of every kind are hereby waived, except notices required by this Note. No single or partial exercise of or forbearance from exercising any power hereunder or under any guaranty pertaining to this Note shall preclude other or further exercises thereof or the exercise of any other power. 9. Special Principal/Interest Reduction. Maker and Holder agree that ------------------------------------ if Maker ceases to be employed by Bank on or before November 1, 2001, under circumstances where Maker is not, under the terms of the Benefits Agreement, fully vested with respect to the Retirement Draw Benefit, there shall be at the time of Maker's -2- cessation of employment a one-time reduction of principal and interest (if any) owned by Maker hereunder to reflect the unvested portion of the Retirement Draw Benefit which will be foregone by Maker as a result of ceasing employment before full vesting. By way of example only, if Maker ceases employment when he is vested with respect to one-seventh of the Retirement Draw Benefit and unvested with respect to six-sevenths, there shall be a one-time reduction of six-sevenths of the principal of this Note; all other terms and conditions shall remain in effect with respect to payment of the balance. 10. Form of Payment; Governing Law. Principal is payable in lawful ------------------------------ money of the United States to the Bank. This Note has been executed and delivered by Maker in the State of California and shall be governed by and constructed in accordance with the laws of the State of California. 11. Authority. The undersigned individuals signing this Note --------- represent and warrant that the undersigned individuals are duly authorized and empowered to execute and deliver this Note on behalf of Maker and Bank. 12. Notice. For purposes of giving notices under this Note, all ------ notices shall be in writing and shall be deemed to have been duly given on the date of delivery, if personally delivered to the party to whom notice is to be given, or on the second (2nd) day after mailing, if mailed to the party to whom notice is to be given by first-class mail, postage prepaid and properly addressed as follows: TO MAKER: Steven C. Smith ____________________________ ____________________________ TO BANK: Cupertino National Bank & Trust 20230 Stevens Creek Blvd. Cupertino, CA 95014 Attn: Chairman of the Board Any party named above may change its address for purpose of this Section 12 by given written notice of the new address to the Maker, and Bank, in the manner set forth above. -3- 13. Successors and Assigns. This Note shall be binding upon and inure ---------------------- to the benefit of Maker, Bank and their respective successors and permitted assigns. IN WITNESS WHEREOF, the undersigned have executed this Note as of the date first appearing hereinabove. MAKER: /s/ Steven C. Smith ------------------------------------ Steven C. Smith BANK CUPERTINO NATIONAL BANK & TRUST a national banking association By: _________________________________ C. Donald Allen, Chairman & CEO -4- EX-10.29 18 FORM OF INDEMNIFICATION AGREEMENT EXHIBIT 10.29 APPENDIX J FORM OF INDEMNIFICATION AGREEMENT THIS AGREEMENT dated 199 , for reference purposes, is entered into between Greater Bay Bancorp, a California corporation ("Bancorp"), and ("Indemnitee"), with reference to the following facts. RECITALS A. Bancorp believes that it is essential to its best interests to attract and retain highly capable persons to serve as directors, and officers of Bancorp. B. Indemnitee is or has been selected to be a director and/or officer of Bancorp. C. Bancorp and Indemnitee recognize the increased risk of litigation and other claims being asserted against directors of corporations. D. In recognition of Indemnitee's need for substantial protection against personal liability, in order to enhance Indemnitee's continued service to Bancorp, and in order to induce Indemnitee to continue to provide services to Bancorp as a director and/or officer, Bancorp wishes to provide in this Agreement for the indemnification of and the advancement of expenses to Indemnitee to the fullest extent permitted by law as set forth in this Agreement, and to the extent applicable insurance is maintained, for the coverage of Indemnitee under Bancorp's policies of directors' and officers' liability insurance. IN CONSIDERATION of the foregoing and of Indemnitee's continuing to provide services to Bancorp directly or, at its request, with another enterprise, the parties agree as follows: Section 1. DEFINITIONS (a) Board: the Board of Directors of Bancorp (b) Change in Control: a state of affairs that shall be deemed to have occurred if: (i) any person is or becomes the "beneficial owner" (as that term is defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), directly or indirectly, of securities representing 20 percent or more of the total voting power of Bancorp's then-outstanding voting securities; or (ii) during any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board together with any new director whose election by the Board or nomination for election by Bancorp's shareholders was approved by a vote of at least two thirds of the directors then in office who either were directors at the beginning of the two-year period, or whose election or nomination was previously so approved, cease for any reason to constitute a majority of the Board, provided that, prior service as a director of Mid-Peninsula Bancorp or Cupertino National Bancorp, California corporations, shall be counted in the calculation of such two-year period; or (iii) the shareholders of Bancorp approve a merger or consolidation of Bancorp with any other corporation, other than a merger or consolidation that would result in the voting securities of Bancorp outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80 percent of the total voting power represented by the voting securities of Bancorp or such surviving entity outstanding immediately after such merger or consolidation; or (iv) the shareholders of Bancorp approve a plan of complete liquidation of Bancorp, or an agreement for the sale or disposition by Bancorp (whether in one transaction or a series of transactions) of all or substantially all of Bancorp's assets. J-1 (c) Expenses: (i) Any expense, liability, or loss, including attorneys' fees, judgments, fines, ERISA excise taxes and penalties, amounts paid or to be paid in settlement; (ii) any interest, assessments, or other charges imposed on any of the items in part (i) of this subsection (c); and (iii) any federal, state, local, or foreign taxes imposed as a result of the actual or deemed receipt of any payment sunder this Agreement paid or incurred in connection with investigating, defending, being a witness in, or participating in (including on appeal), or preparing for any of the foregoing in, any Proceeding relating to any Indemnifiable Event. (d) Indemnifiable Event: any event or occurrence that takes place either before or after the execution of this Agreement and that is related to (i) the fact that Indemnitee is or was a director or an officer of Bancorp, or while a director or officer is or was serving at the request of Bancorp as a director, officer, employee, trustee, agent, or fiduciary of another foreign or domestic corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, or was a director, officer, employee or agent of a foreign or domestic corporation that was a predecessor corporation of Bancorp or another enterprise at the request of such predecessor corporation, or (ii) anything done or not done by Indemnitee in any such capacity, whether or not the basis of the Proceeding is an alleged action in an official capacity as a director, officer, employee, or agent, or in any other capacity while serving as a director, officer, employee, or agent of Bancorp, as described in this subsection(d). (e) Independent Counsel: the person or body appointed in connection with section 3. (f) Person: "person" (as that term is used in sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of Bancorp acting in such capacity, or a corporation owned directly or indirectly by the shareholders of Bancorp in substantially the same proportions as their ownership of shares of Bancorp at the date of this Agreement. (g) Participant: a person who is a party to, or witness or other participant (including on appeal) in, a Proceeding. (h) Potential Change in Control: a state of affairs that shall be deemed to exist if: (i) Bancorp enters into an agreement or arrangement, the consummation of which would result in the occurrence of a Change in Control; or (ii) any Person (including Bancorp) announces publicly an intention to take or to consider taking actions that, if consummated, would constitute a Change in Control; or (iii) any Person who is or becomes the beneficial owner, directly or indirectly, of securities of Bancorp representing 10 percent or more of the combined voting power of Bancorp's then-outstanding voting securities , increases his or her beneficial ownership of such securities by 5 percent or more over the percentage owned by such Person on the date of this Agreement; or (iv) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. (i) Proceeding: any threatened, pending, or completed action, suit, or proceeding, or any inquiry, hearing, or investigation, whether conducted by Bancorp or any other party, that Indemnitee in good faith believes might lead to the institution or any such action, suit, or proceeding, whether civil, criminal, administrative, investigative,or other. (j) Reviewing Party: the person or body appointed in accordance with section 3. J-2 (k) Voting Securities: any securities of Bancorp that have the right to vote generally in the election of directors. Section 2. AGREEMENT TO INDEMNIFY (a) General Agreement. In the meantime Indemnitee was, is, or becomes a Participant in, or is threatened to be made a Participant in, a Proceeding by reason of (or arising in part out of) an Indemnifiable Event, Bancorp shall indemnify Indemnitee from and against any and all Expenses to the fullest extent permitted by law, as the same exists or may hereafter be amended or interpreted (but in the case of any such amendment or interpretation, only to the extent that such amendment or interpretation permits Bancorp to provide broader indemnification rights than were permitted prior to that amendment or interpretation). The parties to this Agreement intend that this Agreement shall provide for indemnification in excess of that expressly permitted by the California Corporations Code, including, without limitation, any indemnification provided by Bancorp's articles of incorporation, its bylaws, a vote of its shareholders or disinterested directors, or applicable law. Without limiting the generality of the foregoing, in a Proceeding initiated by a third party, or by or in the right of Bancorp, the Indemnitee shall be entitled to indemnification if the Indemnitee acted in a manner he or she did not believe to be contrary to the best interests of Bancorp. In addition, in any proceeding initiated by or in the right of Bancorp which is settled with respect to the Indemnitee, Bancorp shall indemnify the Indemnitee against any and all Expenses if the Indemnitee met the standards of conduct set forth in the sentence immediately above, and court approval of such indemnification will not be required. (b) Initiation of Proceeding. Notwithstanding anything in this Agreement to the contrary, Indemnitee shall not be entitled to Indemnification under this Agreement in connection with any Proceeding initiated by Indemnitee against Bancorp or any director or officer of Bancorp unless: (i) Bancorp has joined in or the Board has consented to the initiation of such Proceeding; (ii) the Proceeding is one to enforce indemnification rights under section 5; or (iii) the Proceeding is instituted after a Change in Control and Independent Counsel has approved its initiation. (c) Expense Advances. If so requested by Indemnitee, Bancorp shall, within ten business days of such request, advance all Expenses to Indemnitee (an "Expense Advance"). Notwithstanding the foregoing, to the extent that the Reviewing Party determines that Indemnitee would not be permitted to be so indemnified under applicable law, Bancorp shall be entitled to be reimbursed by Indemnitee for all such amounts, and Indemnitee hereby agrees to reimburse Bancorp promptly for the same. If Indemnitee has commenced legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, as provided in section 4, any determination made by the Reviewing Party that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding, and Indemnitee shall not be required to reimburse Bancorp for any Expense Advance until a final judicial determination is made with respect thereto and all rights of appeal therefrom have been exhausted or have lapsed. Indemnitee's obligations to reimburse Bancorp for Expense Advances shall be unsecured and no interest shall be charged thereon. (d) Mandatory Indemnification. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the merits in defense of any Proceeding relating in whole or in part to an Indemnifiable Event or in defense of any issue or matter in such Proceeding, Indemnitee shall be indemnified against all Expenses incurred in connection with that Proceeding. (e) Partial Indemnification. The Indemnitee also shall be entitled to indemnification by Bancorp for a portion of Expenses of Indemnitee is not entitled to full indemnification under any applicable law. (f) Prohibited Indemnification. No indemnification under this Agreement shall be paid by Bancorp on account of any Proceeding (i) in which judgment is rendered against Indemnitee for an accounting of profits made from the purchase or sale by Indemnitee or securities of Bancorp under the J-3 provisions of section 16(b) of the Exchange Act, or similar provisions of any federal, state or local laws, or (ii) if Bancorp is expressly prohibited from making payments under this Agreement pursuant to any applicable federal or state statutes, or any rules or regulations adopted by the FDIC or any other federal or state governmental agency which as the power to regulate Bancorp's business. Section 3. REVIEWING PARTY Before any Change in Control, the Reviewing Party shall be any appropriate person or body consisting of a member or members of the Board or any other person or body appointed by the Board who is not a party to the Proceeding for which Indemnitee is seeking indemnification; after a Change in Control, the Reviewing Party shall be the Independent Counsel. On all matters arising after a Change in Control (other than a Change in Control approved by a majority of the directors of the Board who were directors immediately before such a Change in Control) concerning the rights of Indemnitee to indemnity payments and Expense Advances under this Agreement, any other agreement, applicable law, or Bancorp's articles of incorporation or bylaws now or hereafter in effect relating to indemnification for Indemnifiable Events, Bancorp shall seek legal advice only from Independent Counsel selected by Indemnitee and approved by Bancorp (which approval shall not be unreasonably withheld), and who has not otherwise performed services for Bancorp or the Indemnitee (other than in connection with indemnification matters) within the previous five years. The Independent Counsel shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either Bancorp or Indemnitee in an action to determine Indemnitee's rights under this Agreement. Such counsel, among other things, shall render a written opinion to Bancorp and Indemnitee on whether and to what extent the Indemnitee should be permitted to be indemnified under applicable law. Bancorp agrees to pay the reasonable fees of the Independent Counsel and to indemnify fully such counsel against any and all Expenses, including attorneys' fees, claims, liabilities, loss, and damages arising out of or relating to this Agreement or the engagement of Independent Counsel under this Agreement. Section 4. INDEMNIFICATION PROCESS AND APPEAL (a) INDEMNIFICATION PAYMENT. Indemnitee shall receive indemnification of Expenses from Bancorp in accordance with this Agreement as soon as practicable after Indemnitee has made written demand on Bancorp for indemnification, unless the Reviewing Party has given a written opinion to Bancorp that Indemnitee is not entitled to indemnification under this Agreement or applicable law. (b) SUIT TO ENFORCE RIGHTS. Regardless of any action by the Reviewing Party, if Indemnitee has not received full indemnification within 30 days after making a demand in accordance with section 4(a), Indemnitee shall have the right to enforce its indemnification rights under this Agreement by commencing litigation in any court in the State of California seeking an initial determination by the court or challenging any determination by the Reviewing Party or any aspect thereof. Bancorp hereby consents to service of process and to appear in any such Proceeding. Any determination by the Reviewing Party not challenged by the Indemnitee shall be binding on Bancorp and Indemnitee. The remedy provided for in this section 4 shall be in addition to any other remedies available to Indemnitee in law or equity. (c) DEFENSE TO INDEMNIFICATION, BURDEN OF PROOF AND PRESUMPTIONS. It shall be a defense to any action brought by Indemnitee against Bancorp to enforce this Agreement (other than an action brought to enforce a claim for Expenses incurred in defending a Proceeding in advance of its final disposition) that it is not permissible, under this Agreement or applicable law, for Bancorp to indemnify Indemnitee for the amount claimed. In connection with any such action or any determination by the Reviewing Party or otherwise on whether Indemnitee is entitled to be indemnified under this Agreement, the burden of proving such a defense or determination shall be on Bancorp. Neither the failure of the Reviewing Party or Bancorp (including its Board, independent legal counsel, or its shareholders) to have made a determination before the commencement of such action by Indemnitee that indemnification is proper under the circumstances because the Indemnitee has met the standard of conduct set forth in this Agreement or under applicable law, as the case may be, nor an actual J-4 determination by the Reviewing Party or Bank (including its Board, independent legal counsel, or its shareholders) that the Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the Indemnitee has not met the applicable standard of conduct. For purposes of this Agreement, the termination of any claim, action, suite, or proceeding, by judgment, order settlement (whether with or without court approval), conviction, or on a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. Section 5. INDEMNIFICATION FOR EXPENSES INCURRED IN ENFORCING RIGHTS. Bancorp shall indemnify Indemnitee against any and all Expenses incurred by the Indemnitee in enforcing his or her rights under this Agreement. If requested by Indemnitee, Bancorp shall, within ten business days of such request, advance to Indemnitee such Expenses as are incurred by Indemnitee in connection with any claim asserted against or action brought by Indemnitee for: (a) Indemnification of Indemnitee by Bancorp under this Agreement, or any other agreement, or under applicable law, or Bancorp's articles of incorporation or bylaws now or hereafter in effect relating to indemnification for Indemnifiable Events, and/or (b) recovery under directors' and officers' liability insurance policies maintained by Bancorp, for amounts paid in settlement if the Independent Counsel has approved the settlement. Bancorp shall not settle any Proceeding in any manner that would impose any penalty or limitation on Indemnitee without Indemnitee's written consent. Neither Bancorp nor the Indemnitee will unreasonably withhold its consent to any proposed settlement. Bancorp shall not be liable to indemnify the Indemnitee under this Agreement with regard to any judicial award if Bancorp was not given a reasonable and timely opportunity, at its expense, to participate in the defense of such action; however, Bancorp's liability under this Agreement shall not be excused if participation in the Proceeding by Bancorp was barred by this Agreement. Section 6. ESTABLISHMENT OF TRUST In the event of a Change in Control or a Potential Change in Control, Bancorp shall, on written request by Indemnitee, create a trust for the benefit of the Indemnitee ("the Trust") and from time to time on written request of Indemnitee shall fund the Trust in an amount sufficient to satisfy any and all Expenses reasonably anticipated at the time of each such request to be incurred in connection with investigating, preparing for, participating in, and/or defending any Proceeding relating to an Indemnifiable Event. The amount or amounts to be deposited in the Trust under the foregoing funding obligation shall be determined by the Reviewing Party. The terms of the Trust shall provide that on a Change in Control: (a) The Trust shall not be revoked or the principal invaded without the written consent of the Indemnitee. (b) The Trustee shall advance, within ten business days of a request by Indemnitee, all Expenses to the Indemnitee (provided that the Indemnitee hereby agrees to reimburse the Trust under the same circumstances for which the Indemnitee would be required to reimburse Bancorp under section 2(c) of this Agreement). (c) The Trust shall continue to be funded by Bancorp in accordance with the funding obligation set forth in this section 6. (d) The Trustee shall promptly pay to the Indemnitee all amounts for which the Indemnitee shall be entitled to indemnification under this Agreement or otherwise. (e) All unexpended funds in the Trust shall revert to Bancorp on a final determination by the Reviewing Party or a court of competent jurisdiction that the Indemnitee has been fully indemnified under the terms of this Agreement. J-5 The Trustee shall be chosen by the Indemnitee subject to the approval of the Reviewing Party. Nothing in this section 6 shall relieve Bancorp of any of its obligations under this Agreement. All income earned on the assets held in the Trust shall be reported as income by Bancorp for federal, state, local and foreign tax purposes. Bancorp shall pay all costs of establishing and maintaining the Trust and shall indemnify the Trustee against any and all Expenses, including attorneys' fees, claims, liabilities, loss, and damages arising out of or relating to this Agreement or the establishment and maintenance of the Trust. Section 7. NOTIFICATION AND DEFENSE OF CLAIM Promptly after receipt by Indemnitee of notice of the commencement of any Proceeding against Indemnitee for which Indemnitee will seek indemnification under this Agreement, Indemnitee will notify Bancorp of the commencement thereof; but the omission to so notify Bancorp will not relieve it from any liability which it may have to Indemnitee otherwise than under this Agreement. With respect to any Proceeding as to which Indemnitee so notifies Bancorp: (a) Bancorp will be entitled to participate in the Proceeding at its own expense. (b) Except as otherwise provided below, to the extent that it may wish, Bancorp jointly with any other indemnifying party similarly notified, will be entitled, provided it is advancing to Indemnitee all of the costs and expenses required under this Agreement, to assume the defense of the Proceeding with counsel satisfactory to Indemnitee. After notice from Bancorp to Indemnitee of its election to assume the defense of the Proceeding, Bancorp will not be liable to Indemnitee under this Agreement for any legal or other expenses subsequently incurred by Indemnitee in connection such defense other than reasonable costs of investigation or as otherwise provided below. Indemnitee shall have the right to employ his or her counsel in such Proceeding, but the fees and expenses of such counsel incurred after notice from Bancorp of its assumption of such defense shall be at the expense of Indemnitee unless (i) the employment of counsel by Indemnitee has been authorized by Bancorp, (ii) Indemnitee shall have reasonably concluded that there may be a conflict of interest between Bancorp and Indemnitee in the conduct of the defense of the proceeding or (iii) Bancorp shall not, in fact, have employed counsel to assume the defense of the Proceeding, in each of which cases the fees and expenses of counsel shall be at the expense of Bancorp. Bancorp shall not be entitled to assume the defense of any Proceeding brought by or on behalf of Bancorp or as to which Indemnitee shall have made the conclusion provided for in (ii) above. (c) Bancorp shall not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any Proceeding without Bancorp's written consent. Bancorp shall not settle any action or claim in any manner which would impose any obligation or limitation on Indemnitee without Indemnitee's written consent. Neither Bancorp nor Indemnitee will unreasonably withhold its/his/her consent to any proposed settlement. Section 8. NONEXCLUSIVITY The rights of Indemnitee under this Agreement shall be in addition to any other rights Indemnitee may have under Bancorp's articles of incorporation, bylaws, applicable law, or otherwise. To the extent that a change in applicable law (whether by statute or judicial decision) permits greater indemnification by agreement than would be afforded currently under Bancorp's articles of incorporation, bylaws, applicable law, or this Agreement, it is the intent of the parties that Indemnitee enjoy by this Agreement the greater benefits afforded by such change. Section 9. LIABILITY INSURANCE To the extent Bancorp maintains an insurance policy or policies providing directors' and officers' liability insurance, Indemnitee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any Bank director or officer. J-6 Section 10. PERIOD OF LIMITATIONS No legal action shall be brought, and no cause of action shall be asserted, by or on behalf of Bancorp or any affiliate of Bancorp against Indemnitee, Indemnitee's spouse, heirs, executors, or personal or legal representatives, after the expiration of two years from the date of accrual of such cause of action, or such longer period as may be required by state law under the circumstances. Any claim or cause of action of Bancorp or its affiliate shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such period; provided, that if any shorter period of limitations is otherwise applicable to any such cause of action, this shorter period shall govern. Section 11. AMENDMENT OF THIS AGREEMENT No supplement, modification, or amendment of this Agreement shall be binding unless executed in writing by both of the parties to it. No waiver of any of the provisions of this Agreement shall operate was a waiver of any other provisions of this Agreement (whether or not similar), nor shall such waiver constitute a continuing waiver. Except as specifically provided in this Agreement, no failure to exercise or delay in exercising any right or remedy under it shall constitute a waiver of the right or remedy. Section 12. SUBROGATION In the event of payment under this Agreement, Bancorp shall be subordinated to the extent that payment to all of the rights or recovery of Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of any documents necessary to enable Bancorp effectively to bring suit to enforce such rights. Section 13. NO DUPLICATION OF PAYMENTS Bancorp shall not be liable under this Agreement to make any payment in connection with any claim made against Indemnitee to the extent Indemnitee has otherwise received payment (under any insurance policy, bylaw, or otherwise) of the amounts otherwise indemnifiable under this Agreement. Section 14. BINDING EFFECT This Agreement shall be binding on and inure to the benefit of and be enforceable by the parties to it and their respective successors (including any direct or indirect successor by purchase, merger, consolidation, or otherwise to all or substantially all of Bancorp's business or assets or both), assigns, spouses, heirs, and personal and legal representatives. Bancorp shall require and cause any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all, substantially all, or a substantial part, of Bancorp's business or assets or both, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that Bancorp would be required to perform if no such succession had taken place. The indemnification provided under this Agreement shall continue for Indemnitee for any action taken or not taken while serving in an indemnified capacity pertaining to an Indemnifiable Event even though Indemnitee may have ceased to serve in such capacity at the time of any proceeding. Section 15. SEVERABILITY If any portion of this Agreement shall be held by a court of competent jurisdiction to be invalid, void, or otherwise unenforceable, the remaining provisions shall remain enforceable to the fullest extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of this Agreement containing any provision held to be invalid, void, or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, void, or unenforceable. J-7 SECTION 16. GOVERNING LAW This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California applicable to contracts made and to be performed in such State without giving effect to the principles of conflicts of laws. SECTION 17. NOTICES All notices, demands, and other communications required or permitted under this Agreement shall be made in writing and shall be deemed to have been duly given if delivered by hand against receipt, or mailed, first class postage prepaid, certified or registered mail; return receipt requested and addressed to Bancorp at: 420 Cowper Street Palo Alto, California 94301-1504 Attn: Chairman of the Board and to Indemnitee at: - --------------------------------- , California 9 - --------------- ---- Notice of change of address shall be effective only when given in accordance with this section. All notices complying with this section shall be deemed to have been received on the date of delivery or on the third business day after mailing. IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the day specified above. GREATER BAY BANCORP INDEMNITEE By: ------------------------------- -------------------------------- Its: EX-12.1 19 COMPUTATION OF RATIOS EXHIBIT 12.1 Greater Bay Bancorp and Subsidiaries Statement Regarding Computation of Ratios
Information for Ratio Calculation 1996 1995 1994 1993 1992 - ---------------------------------------------- ---------- ---------- ---------- --------- --------- Interest on deposits $15,732 $13,048 $ 8,130 $ 6,487 $ 7,504 Interest on borrowings A 481 844 382 10 2 --------- ---------- ---------- --------- --------- Total interest expense B $16,213 $13,892 $ 8,512 $ 6,497 $ 7,506 Pretax income before nonrecurring costs 9,221 7,140 5,138 3,916 4,970 Nonrecurring costs 2,791 2,135 608 0 0 --------- ---------- ---------- --------- --------- Pretax income $ 6,430 $ 5,005 $ 4,530 $ 3,916 $ 4,970 ========= ========== ========== ========= ========= Pretax income + total interest expense C $22,643 $18,897 $13,042 $10,413 $12,476 ========= ========== ========== ========= ========= Pretax income + total interest expense less interest on deposits D $ 6,911 $ 5,849 $ 4,912 $ 3,926 $ 4,972 ========= ========== ========= ========= ========= Ratios 1996 1995 1994 1993 1992 - ---------------------------------------------- ---------- ---------- ---------- --------- --------- Ratio of earnings to fixed charges: - ---------------------------------- Excluding interest on deposit (D/A) 14.37 x 6.93 x 12.86 x 392.60 x 2,486.00 x Including interest on deposits (C/B) 1.40 x 1.36 x 1.53 x 1.60 x 1.66 x
EX-21.1 20 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT Greater Bay Bancorp, a California Corporation Cupertino National Bank & Trust, a national banking association Mid-Peninsula Bank, a California state chartered bank GBB Capital I, a Delaware statuatory business trust EX-23.1 21 CONSENT OF INDEPENDENT ACCOUNTANTS [LETTERHEAD OF COOPERS & LYBRAND] EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-1 of our report dated February 27, 1997, on our audits of the consolidated financial statements of Greater Bay Bancorp and Subsidiaries. We also consent to the reference to our firm under the caption "Experts." /s/ Coopers & Lybrand L.L.P. San Francisco, California March 3, 1997 EX-25.1 22 FORM T-1 EXHIBIT 25.1 Registration No. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) ___ WILMINGTON TRUST COMPANY (Exact name of trustee as specified in its charter) Delaware 51-0055023 (State of incorporation) (I.R.S. employer identification no.) Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 (Address of principal executive offices) Cynthia L. Corliss Vice President and Trust Counsel Wilmington Trust Company Rodney Square North Wilmington, Delaware 19890 (302) 651-8516 (Name, address and telephone number of agent for service) GREATER BAY BANCORP (Exact name of obligor as specified in its charter) California 77-0387041 (State of incorporation) (I.R.S. employer identification no.) 2860 West Bayshore Road Palo Alto, California 94303 (Address of principal executive offices) (Zip Code) Junior Subordinated Deferrable Interest Debentures of Greater Bay Bancorp (Title of the indenture securities) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ITEM 1. GENERAL INFORMATION. - -------- -------------------- Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. Federal Deposit Insurance Co. State Bank Commissioner Five Penn Center Dover, Delaware Suite #2901 Philadelphia, PA (b) Whether it is authorized to exercise corporate trust powers. The trustee is authorized to exercise corporate trust powers. ITEM 2. AFFILIATIONS WITH THE OBLIGOR. If the obligor is an affiliate of the trustee, describe each affiliation: Based upon an examination of the books and records of the trustee and upon information furnished by the obligor, the obligor is not an affiliate of the trustee. ITEM 3. LIST OF EXHIBITS. List below all exhibits filed as part of this Statement of Eligibility and Qualification. A. Copy of the Charter of Wilmington Trust Company, which includes the certificate of authority of Wilmington Trust Company to commence business and the authorization of Wilmington Trust Company to exercise corporate trust powers. B. Copy of By-Laws of Wilmington Trust Company. C. Consent of Wilmington Trust Company required by Section 321(b) of Trust Indenture Act. D. Copy of most recent Report of Condition of Wilmington Trust Company. Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, Wilmington Trust Company, a corporation organized and existing under the laws of Delaware, has duly caused this Statement of Eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Wilmington and State of Delaware on the 21st day of February, 1997. WILMINGTON TRUST COMPANY [SEAL] Attest:/s/ Donald G. MacKelcan By:/s/ Emmett R. Harmon ----------------------------- ----------------------- Assistant Secretary Name: Emmett R. Harmon Title: Vice President 2 EXHIBIT A AMENDED CHARTER WILMINGTON TRUST COMPANY WILMINGTON, DELAWARE AS EXISTING ON MAY 9, 1987 AMENDED CHARTER OR ACT OF INCORPORATION OF WILMINGTON TRUST COMPANY WILMINGTON TRUST COMPANY, originally incorporated by an Act of the General Assembly of the State of Delaware, entitled "An Act to Incorporate the Delaware Guarantee and Trust Company", approved March 2, A.D. 1901, and the name of which company was changed to "WILMINGTON TRUST COMPANY" by an amendment filed in the Office of the Secretary of State on March 18, A.D. 1903, and the Charter or Act of Incorporation of which company has been from time to time amended and changed by merger agreements pursuant to the corporation law for state banks and trust companies of the State of Delaware, does hereby alter and amend its Charter or Act of Incorporation so that the same as so altered and amended shall in its entirety read as follows: FIRST: - The name of this corporation is WILMINGTON TRUST COMPANY. SECOND: - The location of its principal office in the State of Delaware is at Rodney Square North, in the City of Wilmington, County of New Castle; the name of its resident agent is WILMINGTON TRUST COMPANY whose address is Rodney Square North, in said City. In addition to such principal office, the said corporation maintains and operates branch offices in the City of Newark, New Castle County, Delaware, the Town of Newport, New Castle County, Delaware, at Claymont, New Castle County, Delaware, at Greenville, New Castle County Delaware, and at Milford Cross Roads, New Castle County, Delaware, and shall be empowered to open, maintain and operate branch offices at Ninth and Shipley Streets, 418 Delaware Avenue, 2120 Market Street, and 3605 Market Street, all in the City of Wilmington, New Castle County, Delaware, and such other branch offices or places of business as may be authorized from time to time by the agency or agencies of the government of the State of Delaware empowered to confer such authority. THIRD: - (a) The nature of the business and the objects and purposes proposed to be transacted, promoted or carried on by this Corporation are to do any or all of the things herein mentioned as fully and to the same extent as natural persons might or could do and in any part of the world, viz.: (1) To sue and be sued, complain and defend in any Court of law or equity and to make and use a common seal, and alter the seal at pleasure, to hold, purchase, convey, mortgage or otherwise deal in real and personal estate and property, and to appoint such officers and agents as the business of the Corporation shall require, to make by-laws not inconsistent with the Constitution or laws of the United States or of this State, to discount bills, notes or other evidences of debt, to receive deposits of money, or securities for money, to buy gold and silver bullion and foreign coins, to buy and sell bills of exchange, and generally to use, exercise and enjoy all the powers, rights, privileges and franchises incident to a corporation which are proper or necessary for the transaction of the business of the Corporation hereby created. (2) To insure titles to real and personal property, or any estate or interests therein, and to guarantee the holder of such property, real or personal, against any claim or claims, adverse to his interest therein, and to prepare and give certificates of title for any lands or premises in the State of Delaware, or elsewhere. (3) To act as factor, agent, broker or attorney in the receipt, collection, custody, investment and management of funds, and the purchase, sale, management and disposal of property of all descriptions, and to prepare and execute all papers which may be necessary or proper in such business. (4) To prepare and draw agreements, contracts, deeds, leases, conveyances, mortgages, bonds and legal papers of every description, and to carry on the business of conveyancing in all its branches. (5) To receive upon deposit for safekeeping money, jewelry, plate, deeds, bonds and any and all other personal property of every sort and kind, from executors, administrators, guardians, public officers, courts, receivers, assignees, trustees, and from all fiduciaries, and from all other persons and individuals, and from all corporations whether state, municipal, corporate or private, and to rent boxes, safes, vaults and other receptacles for such property. (6) To act as agent or otherwise for the purpose of registering, issuing, certificating, countersigning, transferring or underwriting the stock, bonds or other obligations of any corporation, association, state or municipality, and may receive and manage any sinking fund therefor on such terms as may be agreed upon between the two parties, and in like manner may act as Treasurer of any corporation or municipality. (7) To act as Trustee under any deed of trust, mortgage, bond or other instrument issued by any state, municipality, body politic, corporation, association or person, either alone or in conjunction with any other person or persons, corporation or corporations. 2 (8) To guarantee the validity, performance or effect of any contract or agreement, and the fidelity of persons holding places of responsibility or trust; to become surety for any person, or persons, for the faithful performance of any trust, office, duty, contract or agreement, either by itself or in conjunction with any other person, or persons, corporation, or corporations, or in like manner become surety upon any bond, recognizance, obligation, judgment, suit, order, or decree to be entered in any court of record within the State of Delaware or elsewhere, or which may now or hereafter be required by any law, judge, officer or court in the State of Delaware or elsewhere. (9) To act by any and every method of appointment as trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian, bailee, or in any other trust capacity in the receiving, holding, managing, and disposing of any and all estates and property, real, personal or mixed, and to be appointed as such trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian or bailee by any persons, corporations, court, officer, or authority, in the State of Delaware or elsewhere; and whenever this Corporation is so appointed by any person, corporation, court, officer or authority such trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian, bailee, or in any other trust capacity, it shall not be required to give bond with surety, but its capital stock shall be taken and held as security for the performance of the duties devolving upon it by such appointment. (10) And for its care, management and trouble, and the exercise of any of its powers hereby given, or for the performance of any of the duties which it may undertake or be called upon to perform, or for the assumption of any responsibility the said Corporation may be entitled to receive a proper compensation. (11) To purchase, receive, hold and own bonds, mortgages, debentures, shares of capital stock, and other securities, obligations, contracts and evidences of indebtedness, of any private, public or municipal corporation within and without the State of Delaware, or of the Government of the United States, or of any state, territory, colony, or possession thereof, or of any foreign government or country; to receive, collect, receipt for, and dispose of interest, dividends and income upon and from any of the bonds, mortgages, debentures, notes, shares of capital stock, securities, obligations, contracts, evidences of indebtedness and other property held and owned by it, and to exercise in respect of all such bonds, mortgages, debentures, notes, shares of capital stock, securities, obligations, contracts, evidences of indebtedness and other property, any and all the rights, powers and privileges of individual 3 owners thereof, including the right to vote thereon; to invest and deal in and with any of the moneys of the Corporation upon such securities and in such manner as it may think fit and proper, and from time to time to vary or realize such investments; to issue bonds and secure the same by pledges or deeds of trust or mortgages of or upon the whole or any part of the property held or owned by the Corporation, and to sell and pledge such bonds, as and when the Board of Directors shall determine, and in the promotion of its said corporate business of investment and to the extent authorized by law, to lease, purchase, hold, sell, assign, transfer, pledge, mortgage and convey real and personal property of any name and nature and any estate or interest therein. (b) In furtherance of, and not in limitation, of the powers conferred by the laws of the State of Delaware, it is hereby expressly provided that the said Corporation shall also have the following powers: (1) To do any or all of the things herein set forth, to the same extent as natural persons might or could do, and in any part of the world. (2) To acquire the good will, rights, property and franchises and to undertake the whole or any part of the assets and liabilities of any person, firm, association or corporation, and to pay for the same in cash, stock of this Corporation, bonds or otherwise; to hold or in any manner to dispose of the whole or any part of the property so purchased; to conduct in any lawful manner the whole or any part of any business so acquired, and to exercise all the powers necessary or convenient in and about the conduct and management of such business. (3) To take, hold, own, deal in, mortgage or otherwise lien, and to lease, sell, exchange, transfer, or in any manner whatever dispose of property, real, personal or mixed, wherever situated. (4) To enter into, make, perform and carry out contracts of every kind with any person, firm, association or corporation, and, without limit as to amount, to draw, make, accept, endorse, discount, execute and issue promissory notes, drafts, bills of exchange, warrants, bonds, debentures, and other negotiable or transferable instruments. (5) To have one or more offices, to carry on all or any of its operations and businesses, without restriction to the same extent as natural persons might or could do, to purchase or otherwise acquire, to hold, own, to mortgage, sell, convey or otherwise dispose of, real and personal property, of every class and description, in any State, District, Territory or Colony of the United States, and in any foreign country or place. 4 (6) It is the intention that the objects, purposes and powers specified and clauses contained in this paragraph shall (except where otherwise expressed in said paragraph) be nowise limited or restricted by reference to or inference from the terms of any other clause of this or any other paragraph in this charter, but that the objects, purposes and powers specified in each of the clauses of this paragraph shall be regarded as independent objects, purposes and powers. FOURTH: - (a) The total number of shares of all classes of stock which the Corporation shall have authority to issue is forty-one million (41,000,000) shares, consisting of: (1) One million (1,000,000) shares of Preferred stock, par value $10.00 per share (hereinafter referred to as "Preferred Stock"); and (2) Forty million (40,000,000) shares of Common Stock, par value $1.00 per share (hereinafter referred to as "Common Stock"). (b) Shares of Preferred Stock may be issued from time to time in one or more series as may from time to time be determined by the Board of Directors each of said series to be distinctly designated. All shares of any one series of Preferred Stock shall be alike in every particular, except that there may be different dates from which dividends, if any, thereon shall be cumulative, if made cumulative. The voting powers and the preferences and relative, participating, optional and other special rights of each such series, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding; and, subject to the provisions of subparagraph 1 of Paragraph (c) of this Article FOURTH, the Board of Directors of the Corporation is hereby expressly granted authority to fix by resolution or resolutions adopted prior to the issuance of any shares of a particular series of Preferred Stock, the voting powers and the designations, preferences and relative, optional and other special rights, and the qualifications, limitations and restrictions of such series, including, but without limiting the generality of the foregoing, the following: (1) The distinctive designation of, and the number of shares of Preferred Stock which shall constitute such series, which number may be increased (except where otherwise provided by the Board of Directors) or decreased (but not below the number of shares thereof then outstanding) from time to time by like action of the Board of Directors; (2) The rate and times at which, and the terms and conditions on which, dividends, if any, on Preferred Stock of such series shall be paid, the extent of the preference or relation, if any, of such dividends to the dividends payable on any other class or classes, or series of the same or other class of 5 stock and whether such dividends shall be cumulative or non- cumulative; (3) The right, if any, of the holders of Preferred Stock of such series to convert the same into or exchange the same for, shares of any other class or classes or of any series of the same or any other class or classes of stock of the Corporation and the terms and conditions of such conversion or exchange; (4) Whether or not Preferred Stock of such series shall be subject to redemption, and the redemption price or prices and the time or times at which, and the terms and conditions on which, Preferred Stock of such series may be redeemed. (5) The rights, if any, of the holders of Preferred Stock of such series upon the voluntary or involuntary liquidation, merger, consolidation, distribution or sale of assets, dissolution or winding-up, of the Corporation. (6) The terms of the sinking fund or redemption or purchase account, if any, to be provided for the Preferred Stock of such series; and (7) The voting powers, if any, of the holders of such series of Preferred Stock which may, without limiting the generality of the foregoing include the right, voting as a series or by itself or together with other series of Preferred Stock or all series of Preferred Stock as a class, to elect one or more directors of the Corporation if there shall have been a default in the payment of dividends on any one or more series of Preferred Stock or under such circumstances and on such conditions as the Board of Directors may determine. (c) (1) After the requirements with respect to preferential dividends on the Preferred Stock (fixed in accordance with the provisions of section (b) of this Article FOURTH), if any, shall have been met and after the Corporation shall have complied with all the requirements, if any, with respect to the setting aside of sums as sinking funds or redemption or purchase accounts (fixed in accordance with the provisions of section (b) of this Article FOURTH), and subject further to any conditions which may be fixed in accordance with the provisions of section (b) of this Article FOURTH, then and not otherwise the holders of Common Stock shall be entitled to receive such dividends as may be declared from time to time by the Board of Directors. (2) After distribution in full of the preferential amount, if any, (fixed in accordance with the provisions of section (b) of this Article FOURTH), to be distributed to the holders of Preferred Stock in the event of voluntary or involuntary liquidation, distribution or sale of assets, dissolution or winding-up, of the Corporation, the holders of the Common Stock shall be entitled to 6 receive all of the remaining assets of the Corporation, tangible and intangible, of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them respectively. (3) Except as may otherwise be required by law or by the provisions of such resolution or resolutions as may be adopted by the Board of Directors pursuant to section (b) of this Article FOURTH, each holder of Common Stock shall have one vote in respect of each share of Common Stock held on all matters voted upon by the stockholders. (d) No holder of any of the shares of any class or series of stock or of options, warrants or other rights to purchase shares of any class or series of stock or of other securities of the Corporation shall have any preemptive right to purchase or subscribe for any unissued stock of any class or series or any additional shares of any class or series to be issued by reason of any increase of the authorized capital stock of the Corporation of any class or series, or bonds, certificates of indebtedness, debentures or other securities convertible into or exchangeable for stock of the Corporation of any class or series, or carrying any right to purchase stock of any class or series, but any such unissued stock, additional authorized issue of shares of any class or series of stock or securities convertible into or exchangeable for stock, or carrying any right to purchase stock, may be issued and disposed of pursuant to resolution of the Board of Directors to such persons, firms, corporations or associations, whether such holders or others, and upon such terms as may be deemed advisable by the Board of Directors in the exercise of its sole discretion. (e) The relative powers, preferences and rights of each series of Preferred Stock in relation to the relative powers, preferences and rights of each other series of Preferred Stock shall, in each case, be as fixed from time to time by the Board of Directors in the resolution or resolutions adopted pursuant to authority granted in section (b) of this Article FOURTH and the consent, by class or series vote or otherwise, of the holders of such of the series of Preferred Stock as are from time to time outstanding shall not be required for the issuance by the Board of Directors of any other series of Preferred Stock whether or not the powers, preferences and rights of such other series shall be fixed by the Board of Directors as senior to, or on a parity with, the powers, preferences and rights of such outstanding series, or any of them; provided, however, that the Board of Directors may provide in the resolution or resolutions as to any series of Preferred Stock adopted pursuant to section (b) of this Article FOURTH that the consent of the holders of a majority (or such greater proportion as shall be therein fixed) of the outstanding shares of such series voting thereon shall be required for the issuance of any or all other series of Preferred Stock. 7 (f) Subject to the provisions of section (e), shares of any series of Preferred Stock may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors. (g) Shares of Common Stock may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors. (h) The authorized amount of shares of Common Stock and of Preferred Stock may, without a class or series vote, be increased or decreased from time to time by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote thereon. FIFTH: - (a) The business and affairs of the Corporation shall be conducted and managed by a Board of Directors. The number of directors constituting the entire Board shall be not less than five nor more than twenty-five as fixed from time to time by vote of a majority of the whole Board, provided, however, that the number of directors shall not be reduced so as to shorten the term of any director at the time in office, and provided further, that the number of directors constituting the whole Board shall be twenty-four until otherwise fixed by a majority of the whole Board. (b) The Board of Directors shall be divided into three classes, as nearly equal in number as the then total number of directors constituting the whole Board permits, with the term of office of one class expiring each year. At the annual meeting of stockholders in 1982, directors of the first class shall be elected to hold office for a term expiring at the next succeeding annual meeting, directors of the second class shall be elected to hold office for a term expiring at the second succeeding annual meeting and directors of the third class shall be elected to hold office for a term expiring at the third succeeding annual meeting. Any vacancies in the Board of Directors for any reason, and any newly created directorships resulting from any increase in the directors, may be filled by the Board of Directors, acting by a majority of the directors then in office, although less than a quorum, and any directors so chosen shall hold office until the next annual election of directors. At such election, the stockholders shall elect a successor to such director to hold office until the next election of the class for which such director shall have been chosen and until his successor shall be elected and qualified. No decrease in the number of directors shall shorten the term of any incumbent director. (c) Notwithstanding any other provisions of this Charter or Act of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law, this Charter or Act of Incorporation or the By-Laws of the Corporation), any director or the entire Board of Directors of the 8 Corporation may be removed at any time without cause, but only by the affirmative vote of the holders of two-thirds or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose. (d) Nominations for the election of directors may be made by the Board of Directors or by any stockholder entitled to vote for the election of directors. Such nominations shall be made by notice in writing, delivered or mailed by first class United States mail, postage prepaid, to the Secretary of the Corporation not less than 14 days nor more than 50 days prior to any meeting of the stockholders called for the election of directors; provided, however, that if less than 21 days' notice of the meeting is given to stockholders, such written notice shall be delivered or mailed, as prescribed, to the Secretary of the Corporation not later than the close of the seventh day following the day on which notice of the meeting was mailed to stockholders. Notice of nominations which are proposed by the Board of Directors shall be given by the Chairman on behalf of the Board. (e) Each notice under subsection (d) shall set forth (i) the name, age, business address and, if known, residence address of each nominee proposed in such notice, (ii) the principal occupation or employment of such nominee and (iii) the number of shares of stock of the Corporation which are beneficially owned by each such nominee. (f) The Chairman of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. (g) No action required to be taken or which may be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, and the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied. SIXTH: - The Directors shall choose such officers, agent and servants as may be provided in the By-Laws as they may from time to time find necessary or proper. SEVENTH: - The Corporation hereby created is hereby given the same powers, rights and privileges as may be conferred upon corporations organized under the Act entitled "An Act Providing a General Corporation Law", approved March 10, 1899, as from time to time amended. EIGHTH: - This Act shall be deemed and taken to be a private Act. 9 NINTH: - This Corporation is to have perpetual existence. TENTH: - The Board of Directors, by resolution passed by a majority of the whole Board, may designate any of their number to constitute an Executive Committee, which Committee, to the extent provided in said resolution, or in the By-Laws of the Company, shall have and may exercise all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, and shall have power to authorize the seal of the Corporation to be affixed to all papers which may require it. ELEVENTH: - The private property of the stockholders shall not be liable for the payment of corporate debts to any extent whatever. TWELFTH: - The Corporation may transact business in any part of the world. THIRTEENTH: - The Board of Directors of the Corporation is expressly authorized to make, alter or repeal the By-Laws of the Corporation by a vote of the majority of the entire Board. The stockholders may make, alter or repeal any By-Law whether or not adopted by them, provided however, that any such additional By-Laws, alterations or repeal may be adopted only by the affirmative vote of the holders of two-thirds or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class). FOURTEENTH: - Meetings of the Directors may be held outside of the State of Delaware at such places as may be from time to time designated by the Board, and the Directors may keep the books of the Company outside of the State of Delaware at such places as may be from time to time designated by them. FIFTEENTH: - (a) In addition to any affirmative vote required by law, and except as otherwise expressly provided in sections (b) and (c) of this Article FIFTEENTH: (A) any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with or into (i) any Interested Stockholder (as hereinafter defined) or (ii) any other corporation (whether or not itself an Interested Stockholder), which, after such merger or consolidation, would be an Affiliate (as hereinafter defined) of an Interested Stockholder, or (B) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of related transactions) to or with any Interested Stockholder or any Affiliate of any Interested Stockholder of any assets of the Corporation or any Subsidiary having an aggregate fair market value of $1,000,000 or more, or 10 (C) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of related transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate fair market value of $1,000,000 or more, or (D) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation, or (E) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any similar transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Stockholder, or any Affiliate of any Interested Stockholder, shall require the affirmative vote of the holders of at least two-thirds of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, considered for the purpose of this Article FIFTEENTH as one class ("Voting Shares"). Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that some lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise. (2) The term "business combination" as used in this Article FIFTEENTH shall mean any transaction which is referred to any one or more of clauses (A) through (E) of paragraph 1 of the section (a). (b) The provisions of section (a) of this Article FIFTEENTH shall not be applicable to any particular business combination and such business combination shall require only such affirmative vote as is required by law and any other provisions of the Charter or Act of Incorporation of By-Laws if such business combination has been approved by a majority of the whole Board. (c) For the purposes of this Article FIFTEENTH: (1) A "person" shall mean any individual firm, corporation or other entity. (2) "Interested Stockholder" shall mean, in respect of any business combination, any person (other than the Corporation or any Subsidiary) who or which as of the record date for the determination of stockholders entitled to notice of and to vote on 11 such business combination, or immediately prior to the consummation of any such transaction: (A) is the beneficial owner, directly or indirectly, of more than 10% of the Voting Shares, or (B) is an Affiliate of the Corporation and at any time within two years prior thereto was the beneficial owner, directly or indirectly, of not less than 10% of the then outstanding voting Shares, or (C) is an assignee of or has otherwise succeeded in any share of capital stock of the Corporation which were at any time within two years prior thereto beneficially owned by any Interested Stockholder, and such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. (3) A person shall be the "beneficial owner" of any Voting Shares: (A) which such person or any of its Affiliates and Associates (as hereafter defined) beneficially own, directly or indirectly, or (B) which such person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding, or (C) which are beneficially owned, directly or indirectly, by any other person with which such first mentioned person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of the Corporation. (4) The outstanding Voting Shares shall include shares deemed owned through application of paragraph (3) above but shall not include any other Voting Shares which may be issuable pursuant to any agreement, or upon exercise of conversion rights, warrants or options or otherwise. (5) "Affiliate" and "Associate" shall have the respective meanings given those terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on December 31, 1981. 12 (6) "Subsidiary" shall mean any corporation of which a majority of any class of equity security (as defined in Rule 3a11-1 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect in December 31, 1981) is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Investment Stockholder set forth in paragraph (2) of this section (c), the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation. (d) majority of the directors shall have the power and duty to determine for the purposes of this Article FIFTEENTH on the basis of information known to them, (1) the number of Voting Shares beneficially owned by any person (2) whether a person is an Affiliate or Associate of another, (3) whether a person has an agreement, arrangement or understanding with another as to the matters referred to in paragraph (3) of section (c), or (4) whether the assets subject to any business combination or the consideration received for the issuance or transfer of securities by the Corporation, or any Subsidiary has an aggregate fair market value of $1,00,000 or more. (e) Nothing contained in this Article FIFTEENTH shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. SIXTEENTH: Notwithstanding any other provision of this Charter or Act of Incorporation or the By-Laws of the Corporation (and in addition to any other vote that may be required by law, this Charter or Act of Incorporation by the By-Laws), the affirmative vote of the holders of at least two-thirds of the outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) shall be required to amend, alter or repeal any provision of Articles FIFTH, THIRTEENTH, FIFTEENTH or SIXTEENTH of this Charter or Act of Incorporation. SEVENTEENTH: (a) a Director of this Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, except to the extent such exemption from liability or limitation thereof is not permitted under the Delaware General Corporation Laws as the same exists or may hereafter be amended. (b) Any repeal or modification of the foregoing paragraph shall not adversely affect any right or protection of a Director of the Corporation existing hereunder with respect to any act or omission occurring prior to the time of such repeal or modification." 13 EXHIBIT B BY-LAWS WILMINGTON TRUST COMPANY WILMINGTON, DELAWARE AS EXISTING ON JANUARY 16, 1997 BY-LAWS OF WILMINGTON TRUST COMPANY ARTICLE I STOCKHOLDERS' MEETINGS Section 1. The Annual Meeting of Stockholders shall be held on the third Thursday in April each year at the principal office at the Company or at such other date, time, or place as may be designated by resolution by the Board of Directors. Section 2. Special meetings of all stockholders may be called at any time by the Board of Directors, the Chairman of the Board or the President. Section 3. Notice of all meetings of the stockholders shall be given by mailing to each stockholder at least ten (10 days before said meeting, at his last known address, a written or printed notice fixing the time and place of such meeting. Section 4. A majority in the amount of the capital stock of the Company issued and outstanding on the record date, as herein determined, shall constitute a quorum at all meetings of stockholders for the transaction of any business, but the holders of a small number of shares may adjourn, from time to time, without further notice, until a quorum is secured. At each annual or special meeting of stockholders, each stockholder shall be entitled to one vote, either in person or by proxy, for each shares of stock registered in the stockholder's name on the books of the Company on the record date for any such meeting as determined herein. ARTICLE II DIRECTORS Section 1. The number and classification of the Board of Directors shall be as set forth in the Charter of the Bank. Section 2. No person who has attained the age of seventy-two (72) years shall be nominated for election to the Board of Directors of the Company, provided, however, that this limitation shall not apply to any person who was serving as director of the Company on September 16, 1971. Section 3. The class of Directors so elected shall hold office for three years or until their successors are elected and qualified. Section 4. The affairs and business of the Company shall be managed and conducted by the Board of Directors. Section 5. The Board of Directors shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members, or at the call of the Chairman of the Board of Directors or the President. Section 6. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board of Directors or by the President, and shall be called upon the written request of a majority of the directors. Section 7. A majority of the directors elected and qualified shall be necessary to constitute a quorum for the transaction of business at any meeting of the Board of Directors. Section 8. Written notice shall be sent by mail to each director of any special meeting of the Board of Directors, and of any change in the time or place of any regular meeting, stating the time and place of such meeting, which shall be mailed not less than two days before the time of holding such meeting. Section 9. In the event of the death, resignation, removal, inability to act, or disqualification of any director, the Board of Directors, although less than a quorum, shall have the right to elect the successor who shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred, and until such director's successor shall have been duly elected and qualified. Section 10. The Board of Directors at its first meeting after its election by the stockholders shall appoint an Executive Committee, a Trust Committee, an Audit Committee and a Compensation Committee, and shall elect from its own members a Chairman of the Board of Directors and a President who may be the same person. The Board of Directors shall also elect at such meeting a Secretary and a Treasurer, who may be the same person, may appoint at any time such other committees and elect or appoint such other officers as it may deem advisable. The Board of Directors may also elect at such meeting one or more Associate Directors. Section 11. The Board of Directors may at any time remove, with or without cause, any member of any Committee appointed by it or any associate director or officer elected by it and may appoint or elect his successor. Section 12. The Board of Directors may designate an officer to be in charge of such of the departments or division of the Company as it may deem advisable. ARTICLE III COMMITTEES Section I. Executive Committee (A) The Executive Committee shall be composed of not more than nine members who shall be selected by the Board of Directors from its own members and who 2 shall hold office during the pleasure of the Board. (B) The Executive Committee shall have all the powers of the Board of Directors when it is not in session to transact all business for and in behalf of the Company that may be brought before it. (C) The Executive Committee shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members, or at the call of the Chairman of the Executive Committee or at the call of the Chairman of the Board of Directors. The majority of its members shall be necessary to constitute a quorum for the transaction of business. Special meetings of the Executive Committee may be held at any time when a quorum is present. (D) Minutes of each meeting of the Executive Committee shall be kept and submitted to the Board of Directors at its next meeting. (E) The Executive Committee shall advise and superintend all investments that may be made of the funds of the Company, and shall direct the disposal of the same, in accordance with such rules and regulations as the Board of Directors from time to time make. (F) In the event of a state of disaster of sufficient severity to prevent the conduct and management of the affairs and business of the Company by its directors and officers as contemplated by these By-Laws any two available members of the Executive Committee as constituted immediately prior to such disaster shall constitute a quorum of that Committee for the full conduct and management of the affairs and business of the Company in accordance with the provisions of Article III of these By-Laws; and if less than three members of the Trust Committee is constituted immediately prior to such disaster shall be available for the transaction of its business, such Executive Committee shall also be empowered to exercise all of the powers reserved to the Trust Committee under Article III Section 2 hereof. In the event of the unavailability, at such time, of a minimum of two members of such Executive Committee, any three available directors shall constitute the Executive Committee for the full conduct and management of the affairs and business of the Company in accordance with the foregoing provisions of this Section. This By-Law shall be subject to implementation by Resolutions of the Board of Directors presently existing or hereafter passed from time to time for that purpose, and any provisions of these By-Laws (other than this Section) and any resolutions which are contrary to the provisions of this Section or to the provisions of any such implementary Resolutions shall be suspended during such a disaster period until it shall be determined by any interim Executive Committee acting under this section that it shall be to the advantage of the Company to resume the conduct and management of its affairs and business under all of the other provisions of these By-Laws. 3 Section 2. Trust Committee (A) The Trust Committee shall be composed of not more than thirteen members who shall be selected by the Board of Directors, a majority of whom shall be members of the Board of Directors and who shall hold office during the pleasure of the Board. (B) The Trust Committee shall have general supervision over the Trust Department and the investment of trust funds, in all matters, however, being subject to the approval of the Board of Directors. (C) The Trust Committee shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members or at the call of its chairman. A majority of its members shall be necessary to constitute a quorum for the transaction of business. (D) Minutes of each meeting of the Trust Committee shall be kept and promptly submitted to the Board of Directors. (E) The Trust Committee shall have the power to appoint Committees and/or designate officers or employees of the Company to whom supervision over the investment of trust funds may be delegated when the Trust Committee is not in session. Section 3. Audit Committee (A) The Audit Committee shall be composed of five members who shall be selected by the Board of Directors from its own members, none of whom shall be an officer of the Company, and shall hold office at the pleasure of the Board. (B) The Audit Committee shall have general supervision over the Audit Division in all matters however subject to the approval of the Board of Directors; it shall consider all matters brought to its attention by the officer in charge of the Audit Division, review all reports of examination of the Company made by any governmental agency or such independent auditor employed for that purpose, and make such recommendations to the Board of Directors with respect thereto or with respect to any other matters pertaining to auditing the Company as it shall deem desirable. (C) The Audit Committee shall meet whenever and wherever the majority of its members shall deem it to be proper for the transaction of its business, and a majority of its Committee shall constitute a quorum. 4 Section 4. Compensation Committee (A) The Compensation Committee shall be composed of not more than five (5) members who shall be selected by the Board of Directors from its own members who are not officers of the Company and who shall hold office during the pleasure of the Board. (B) The Compensation Committee shall in general advise upon all matters of policy concerning the Company brought to its attention by the management and from time to time review the management of the Company, major organizational matters, including salaries and employee benefits and specifically shall administer the Executive Incentive Compensation Plan. (C) Meetings of the Compensation Committee may be called at any time by the Chairman of the Compensation Committee, the Chairman of the Board of Directors, or the President of the Company. Section 5. Associate Directors (A) Any person who has served as a director may be elected by the Board of Directors as an associate director, to serve during the pleasure of the Board. (B) An associate director shall be entitled to attend all directors meetings and participate in the discussion of all matters brought to the Board, with the exception that he would have no right to vote. An associate director will be eligible for appointment to Committees of the Company, with the exception of the Executive Committee, Audit Committee and Compensation Committee, which must be comprised solely of active directors. Section 6. Absence or Disqualification of Any Member of a Committee (A) In the absence or disqualification of any member of any Committee created under Article III of the By-Laws of this Company, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absence or disqualified member. ARTICLE IV OFFICERS Section 1. The Chairman of the Board of Directors shall preside at all meetings of the Board and shall have such further authority and powers and shall perform such duties as the Board of Directors may from time to time confer and direct. He shall also exercise such 5 powers and perform such duties as may from time to time be agreed upon between himself and the President of the Company. Section 2. The Vice Chairman of the Board. The Vice Chairman of the ------------------------------- Board of Directors shall preside at all meetings of the Board of Directors at which the Chairman of the Board shall not be present and shall have such further authority and powers and shall perform such duties as the Board of Directors or the Chairman of the Board may from time to time confer and direct. Section 3. The President shall have the powers and duties pertaining to the office of the President conferred or imposed upon him by statute or assigned to him by the Board of Directors in the absence of the Chairman of the Board the President shall have the powers and duties of the Chairman of the Board. Section 4. The Chairman of the Board of Directors or the President as designated by the Board of Directors, shall carry into effect all legal directions of the Executive Committee and of the Board of Directors, and shall at all times exercise general supervision over the interest, affairs and operations of the Company and perform all duties incident to his office. Section 5. There may be one or more Vice Presidents, however denominated by the Board of Directors, who may at any time perform all the duties of the Chairman of the Board of Directors and/or the President and such other powers and duties as may from time to time be assigned to them by the Board of Directors, the Executive Committee, the Chairman of the Board or the President and by the officer in charge of the department or division to which they are assigned. Section 6. The Secretary shall attend to the giving of notice of meetings of the stockholders and the Board of Directors, as well as the Committees thereof, to the keeping of accurate minutes of all such meetings and to recording the same in the minute books of the Company. In addition to the other notice requirements of these By-Laws and as may be practicable under the circumstances, all such notices shall be in writing and mailed well in advance of the scheduled date of any other meeting. He shall have custody of the corporate seal and shall affix the same to any documents requiring such corporate seal and to attest the same. Section 7. The Treasurer shall have general supervision over all assets and liabilities of the Company. He shall be custodian of and responsible for all monies, funds and valuables of the Company and for the keeping of proper records of the evidence of property or indebtedness and of all the transactions of the Company. He shall have general supervision of the expenditures of the Company and shall report to the Board of Directors at each regular meeting of the condition of the Company, and perform such other duties as may be assigned to him from time to time by the Board of Directors of the Executive Committee. 6 Section 8. There may be a Controller who shall exercise general supervision over the internal operations of the Company, including accounting, and shall render to the Board of Directors at appropriate times a report relating to the general condition and internal operations of the Company. There may be one or more subordinate accounting or controller officers however denominated, who may perform the duties of the Controller and such duties as may be prescribed by the Controller. Section 9. The officer designated by the Board of Directors to be in charge of the Audit Division of the Company with such title as the Board of Directors shall prescribe, shall report to and be directly responsible only to the Board of Directors. There shall be an Auditor and there may be one or more Audit Officers, however denominated, who may perform all the duties of the Auditor and such duties as may be prescribed by the officer in charge of the Audit Division. Section 10. There may be one or more officers, subordinate in rank to all Vice Presidents with such functional titles as shall be determined from time to time by the Board of Directors, who shall ex officio hold the office Assistant Secretary of this Company and who may perform such duties as may be prescribed by the officer in charge of the department or division to whom they are assigned. Section 11. The powers and duties of all other officers of the Company shall be those usually pertaining to their respective offices, subject to the direction of the Board of Directors, the Executive Committee, Chairman of the Board of Directors or the President and the officer in charge of the department or division to which they are assigned. ARTICLE V STOCK AND STOCK CERTIFICATES Section 1. Shares of stock shall be transferrable on the books of the Company and a transfer book shall be kept in which all transfers of stock shall be recorded. Section 2. Certificate of stock shall bear the signature of the President or any Vice President, however denominated by the Board of Directors and countersigned by the Secretary or Treasurer or an Assistant Secretary, and the seal of the corporation shall be engraved thereon. Each certificate shall recite that the stock represented thereby is transferrable only upon the books of the Company by the holder thereof or his attorney, upon surrender of the certificate properly endorsed. Any certificate of stock surrendered to the Company shall be cancelled at the time of transfer, and before a new certificate or certificates shall be issued in lieu thereof. Duplicate certificates of stock shall be issued only upon giving such security as may be satisfactory to the Board of Directors or the Executive 7 Committee. Section 3. The Board of Directors of the Company is authorized to fix in advance a record date for the determination of the stockholders entitled to notice of, and to vote at, any meeting of stockholders and any adjournment thereof, or entitled to receive payment of any dividend, or to any allotment or rights, or to exercise any rights in respect of any change, conversion or exchange of capital stock, or in connection with obtaining the consent of stockholders for any purpose, which record date shall not be more than 60 nor less than 10 days proceeding the date of any meeting of stockholders or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining such consent. ARTICLE VI SEAL Section 1. The corporate seal of the Company shall be in the following form: Between two concentric circles the words "Wilmington Trust Company" within the inner circle the words "Wilmington, Delaware." ARTICLE VII FISCAL YEAR Section 1. The fiscal year of the Company shall be the calendar year. ARTICLE VIII EXECUTION OF INSTRUMENTS OF THE COMPANY Section 1. The Chairman of the Board, the President or any Vice President, however denominated by the Board of Directors, shall have full power and authority to enter into, make, sign, execute, acknowledge and/or deliver and the Secretary or any Assistant Secretary shall have full power and authority to attest and affix the corporate seal of the Company to any and all deeds, conveyances, assignments, releases, contracts, agreements, bonds, notes, mortgages and all other instruments incident to the business of this Company or in acting as executor, administrator, guardian, trustee, agent or in any other fiduciary or representative capacity by any and every method of appointment or by whatever person, corporation, court officer or authority in the State of Delaware, or elsewhere, without any specific authority, ratification, approval or confirmation by the Board of Directors or the Executive Committee, and any and all such instruments shall have the same force and 8 validity as although expressly authorized by the Board of Directors and/or the Executive Committee. ARTICLE IX COMPENSATION OF DIRECTORS AND MEMBERS OF COMMITTEES Section 1. Directors and associate directors of the Company, other than salaried officers of the Company, shall be paid such reasonable honoraria or fees for attending meetings of the Board of Directors as the Board of Directors may from time to time determine. Directors and associate directors who serve as members of committees, other than salaried employees of the Company, shall be paid such reasonable honoraria or fees for services as members of committees as the Board of Directors shall from time to time determine and directors and associate directors may be employed by the Company for such special services as the Board of Directors may from time to time determine and shall be paid for such special services so performed reasonable compensation as may be determined by the Board of Directors. ARTICLE X INDEMNIFICATION Section 1. (A) The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding") by reason of the fact that he, or a person for whom he is the legal representative, is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, fiduciary or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person. The Corporation shall indemnify a person in connection with a proceeding initiated by such person only if the proceeding was authorized by the Board of Directors of the Corporation. (B) The Corporation shall pay the expenses incurred in defending any proceeding in advance of its final disposition, provided, however, that the -------- ------- payment of expenses incurred by a Director officer in his capacity as a Director or officer in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Director or officer to repay all amounts advanced if it should be ultimately determined that the Director or officer is not entitled to be indemnified under this Article or otherwise. (C) If a claim for indemnification or payment of expenses, under this Article X is not paid in full within ninety days after a written claim therefor has been 9 received by the Corporation the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification of payment of expenses under applicable law. (D) The rights conferred on any person by this Article X shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the Charter or Act of Incorporation, these By- Laws, agreement, vote of stockholders or disinterested Directors or otherwise. (E) Any repeal or modification of the foregoing provisions of this Article X shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. ARTICLE XI AMENDMENTS TO THE BY-LAWS Section 1. These By-Laws may be altered, amended or repealed, in whole or in part, and any new By-Law or By-Laws adopted at any regular or special meeting of the Board of Directors by a vote of the majority of all the members of the Board of Directors then in office. 10 EXHIBIT C SECTION 321(b) CONSENT Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as amended, Wilmington Trust Company hereby consents that reports of examinations by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon requests therefor. WILMINGTON TRUST COMPANY Dated: February 21, 1997 By: /s/ Emmett R. Harmon -------------------- Name: Emmett R. Harmon Title: Vice President EXHIBIT D NOTICE This form is intended to assist state nonmember banks and savings banks with state publication requirements. It has not been approved by any state banking authorities. Refer to your appropriate state banking authorities for your state publication requirements. REPORT OF CONDITION Consolidating domestic subsidiaries of the WILMINGTON TRUST COMPANY of WILMINGTON - --------------------------------------------- -------------- Name of Bank City in the State of DELAWARE, at the close of business on December 31, 1996. --------
Thousands of dollars ASSETS Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coins................ 213,895 Interest-bearing balances.......................................... 0 Held-to-maturity securities.............................................. 465,818 Available-for-sale securities............................................ 752,297 Federal funds sold....................................................... 95,000 Securities purchased under agreements to resell.......................... 39,190 Loans and lease financing receivables: Loans and leases, net of unearned income....... 3,634,003 LESS: Allowance for loan and lease losses..... 51,847 LESS: Allocated transfer risk reserve......... 0 Loans and leases, net of unearned income, allowance, and reserve... 3,582,156 Assets held in trading accounts.......................................... 0 Premises and fixed assets (including capitalized leases)................. 89,129 Other real estate owned.................................................. 3,520 Investments in unconsolidated subsidiaries and associated companies...... .52 Customers' liability to this bank on acceptances outstanding............. 0 Intangible assets........................................................ 4,593 Other assets............................................................. 114,300 Total assets............................................................. 5,359,950
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LIABILITIES Deposits: In domestic offices...................................................... 3,749,697 Noninterest-bearing............... 852,790 Interest-bearing.................. 2,896,907 Federal funds purchased.................................................. 77,825 Securities sold under agreements to repurchase........................... 192,295 Demand notes issued to the U.S. Treasury................................. 53,526 Trading liabilities...................................................... 0 Other borrowed money:.................................................... /////// With original maturity of one year or less......................... 714,000 With original maturity of more than one year....................... 43,000 Mortgage indebtedness and obligations under capitalized leases........... 0 Bank's liability on acceptances executed and outstanding................. 0 Subordinated notes and debentures........................................ 0 Other liabilities........................................................ 98,756 Total liabilities........................................................ 4,929,099 Limited-life preferred stock and related surplus......................... 0
EQUITY CAPITAL Perpetual preferred stock and related surplus............................ 0 Common Stock............................................................. 500 Surplus.................................................................. 62,118 Undivided profits and capital reserves................................... 367,371 Net unrealized holding gains (losses) on available-for-sale securities... 862 Total equity capital..................................................... 430,851 Total liabilities, limited-life preferred stock, and equity capital...... 5,359,950
EX-25.2 23 FORM T-1 EXHIBIT 25.2 Registration No. ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) ___ WILMINGTON TRUST COMPANY (Exact name of trustee as specified in its charter) Delaware 51-0055023 (State of incorporation) (I.R.S. employer identification no.) Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 (Address of principal executive offices) Cynthia L. Corliss Vice President and Trust Counsel Wilmington Trust Company Rodney Square North Wilmington, Delaware 19890 (302) 651-8516 (Name, address and telephone number of agent for service) GREATER BAY BANCORP GBB CAPITAL I (Exact name of obligor as specified in its charter) California 77-0387041 Delaware Applied For (State of incorporation) (I.R.S. employer identification no.) 2860 West Bayshore Road Palo Alto, California 94303 (Address of principal executive offices) (Zip Code) ___% Cumulative Trust Preferred Securities of GBB Capital I (Title of the indenture securities) ================================================================================ ITEM 1. GENERAL INFORMATION. Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. Federal Deposit Insurance Co. State Bank Commissioner Five Penn Center Dover, Delaware Suite #2901 Philadelphia, PA (b) Whether it is authorized to exercise corporate trust powers. The trustee is authorized to exercise corporate trust powers. ITEM 2. AFFILIATIONS WITH THE OBLIGOR. If the obligor is an affiliate of the trustee, describe each affiliation: Based upon an examination of the books and records of the trustee and upon information furnished by the obligor, the obligor is not an affiliate of the trustee. ITEM 3. LIST OF EXHIBITS. List below all exhibits filed as part of this Statement of Eligibility and Qualification. A. Copy of the Charter of Wilmington Trust Company, which includes the certificate of authority of Wilmington Trust Company to commence business and the authorization of Wilmington Trust Company to exercise corporate trust powers. B. Copy of By-Laws of Wilmington Trust Company. C. Consent of Wilmington Trust Company required by Section 321(b) of Trust Indenture Act. D. Copy of most recent Report of Condition of Wilmington Trust Company. Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, Wilmington Trust Company, a corporation organized and existing under the laws of Delaware, has duly caused this Statement of Eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Wilmington and State of Delaware on the 21st day of February, 1997. WILMINGTON TRUST COMPANY [SEAL] Attest:/s/ Donald G. MacKelcan By:/s/ Emmett R. Harmon ----------------------------- ----------------------- Assistant Secretary Name: Emmett R. Harmon Title: Vice President 2 EXHIBIT A AMENDED CHARTER WILMINGTON TRUST COMPANY WILMINGTON, DELAWARE AS EXISTING ON MAY 9, 1987 AMENDED CHARTER OR ACT OF INCORPORATION OF WILMINGTON TRUST COMPANY WILMINGTON TRUST COMPANY, originally incorporated by an Act of the General Assembly of the State of Delaware, entitled "An Act to Incorporate the Delaware Guarantee and Trust Company", approved March 2, A.D. 1901, and the name of which company was changed to "WILMINGTON TRUST COMPANY" by an amendment filed in the Office of the Secretary of State on March 18, A.D. 1903, and the Charter or Act of Incorporation of which company has been from time to time amended and changed by merger agreements pursuant to the corporation law for state banks and trust companies of the State of Delaware, does hereby alter and amend its Charter or Act of Incorporation so that the same as so altered and amended shall in its entirety read as follows: FIRST: - The name of this corporation is WILMINGTON TRUST COMPANY. SECOND: - The location of its principal office in the State of Delaware is at Rodney Square North, in the City of Wilmington, County of New Castle; the name of its resident agent is WILMINGTON TRUST COMPANY whose address is Rodney Square North, in said City. In addition to such principal office, the said corporation maintains and operates branch offices in the City of Newark, New Castle County, Delaware, the Town of Newport, New Castle County, Delaware, at Claymont, New Castle County, Delaware, at Greenville, New Castle County Delaware, and at Milford Cross Roads, New Castle County, Delaware, and shall be empowered to open, maintain and operate branch offices at Ninth and Shipley Streets, 418 Delaware Avenue, 2120 Market Street, and 3605 Market Street, all in the City of Wilmington, New Castle County, Delaware, and such other branch offices or places of business as may be authorized from time to time by the agency or agencies of the government of the State of Delaware empowered to confer such authority. THIRD: - (a) The nature of the business and the objects and purposes proposed to be transacted, promoted or carried on by this Corporation are to do any or all of the things herein mentioned as fully and to the same extent as natural persons might or could do and in any part of the world, viz.: (1) To sue and be sued, complain and defend in any Court of law or equity and to make and use a common seal, and alter the seal at pleasure, to hold, purchase, convey, mortgage or otherwise deal in real and personal estate and property, and to appoint such officers and agents as the business of the Corporation shall require, to make by-laws not inconsistent with the Constitution or laws of the United States or of this State, to discount bills, notes or other evidences of debt, to receive deposits of money, or securities for money, to buy gold and silver bullion and foreign coins, to buy and sell bills of exchange, and generally to use, exercise and enjoy all the powers, rights, privileges and franchises incident to a corporation which are proper or necessary for the transaction of the business of the Corporation hereby created. (2) To insure titles to real and personal property, or any estate or interests therein, and to guarantee the holder of such property, real or personal, against any claim or claims, adverse to his interest therein, and to prepare and give certificates of title for any lands or premises in the State of Delaware, or elsewhere. (3) To act as factor, agent, broker or attorney in the receipt, collection, custody, investment and management of funds, and the purchase, sale, management and disposal of property of all descriptions, and to prepare and execute all papers which may be necessary or proper in such business. (4) To prepare and draw agreements, contracts, deeds, leases, conveyances, mortgages, bonds and legal papers of every description, and to carry on the business of conveyancing in all its branches. (5) To receive upon deposit for safekeeping money, jewelry, plate, deeds, bonds and any and all other personal property of every sort and kind, from executors, administrators, guardians, public officers, courts, receivers, assignees, trustees, and from all fiduciaries, and from all other persons and individuals, and from all corporations whether state, municipal, corporate or private, and to rent boxes, safes, vaults and other receptacles for such property. (6) To act as agent or otherwise for the purpose of registering, issuing, certificating, countersigning, transferring or underwriting the stock, bonds or other obligations of any corporation, association, state or municipality, and may receive and manage any sinking fund therefor on such terms as may be agreed upon between the two parties, and in like manner may act as Treasurer of any corporation or municipality. (7) To act as Trustee under any deed of trust, mortgage, bond or other instrument issued by any state, municipality, body politic, corporation, association or person, either alone or in conjunction with any other person or persons, corporation or corporations. 2 (8) To guarantee the validity, performance or effect of any contract or agreement, and the fidelity of persons holding places of responsibility or trust; to become surety for any person, or persons, for the faithful performance of any trust, office, duty, contract or agreement, either by itself or in conjunction with any other person, or persons, corporation, or corporations, or in like manner become surety upon any bond, recognizance, obligation, judgment, suit, order, or decree to be entered in any court of record within the State of Delaware or elsewhere, or which may now or hereafter be required by any law, judge, officer or court in the State of Delaware or elsewhere. (9) To act by any and every method of appointment as trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian, bailee, or in any other trust capacity in the receiving, holding, managing, and disposing of any and all estates and property, real, personal or mixed, and to be appointed as such trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian or bailee by any persons, corporations, court, officer, or authority, in the State of Delaware or elsewhere; and whenever this Corporation is so appointed by any person, corporation, court, officer or authority such trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian, bailee, or in any other trust capacity, it shall not be required to give bond with surety, but its capital stock shall be taken and held as security for the performance of the duties devolving upon it by such appointment. (10) And for its care, management and trouble, and the exercise of any of its powers hereby given, or for the performance of any of the duties which it may undertake or be called upon to perform, or for the assumption of any responsibility the said Corporation may be entitled to receive a proper compensation. (11) To purchase, receive, hold and own bonds, mortgages, debentures, shares of capital stock, and other securities, obligations, contracts and evidences of indebtedness, of any private, public or municipal corporation within and without the State of Delaware, or of the Government of the United States, or of any state, territory, colony, or possession thereof, or of any foreign government or country; to receive, collect, receipt for, and dispose of interest, dividends and income upon and from any of the bonds, mortgages, debentures, notes, shares of capital stock, securities, obligations, contracts, evidences of indebtedness and other property held and owned by it, and to exercise in respect of all such bonds, mortgages, debentures, notes, shares of capital stock, securities, obligations, contracts, evidences of indebtedness and other property, any and all the rights, powers and privileges of individual 3 owners thereof, including the right to vote thereon; to invest and deal in and with any of the moneys of the Corporation upon such securities and in such manner as it may think fit and proper, and from time to time to vary or realize such investments; to issue bonds and secure the same by pledges or deeds of trust or mortgages of or upon the whole or any part of the property held or owned by the Corporation, and to sell and pledge such bonds, as and when the Board of Directors shall determine, and in the promotion of its said corporate business of investment and to the extent authorized by law, to lease, purchase, hold, sell, assign, transfer, pledge, mortgage and convey real and personal property of any name and nature and any estate or interest therein. (b) In furtherance of, and not in limitation, of the powers conferred by the laws of the State of Delaware, it is hereby expressly provided that the said Corporation shall also have the following powers: (1) To do any or all of the things herein set forth, to the same extent as natural persons might or could do, and in any part of the world. (2) To acquire the good will, rights, property and franchises and to undertake the whole or any part of the assets and liabilities of any person, firm, association or corporation, and to pay for the same in cash, stock of this Corporation, bonds or otherwise; to hold or in any manner to dispose of the whole or any part of the property so purchased; to conduct in any lawful manner the whole or any part of any business so acquired, and to exercise all the powers necessary or convenient in and about the conduct and management of such business. (3) To take, hold, own, deal in, mortgage or otherwise lien, and to lease, sell, exchange, transfer, or in any manner whatever dispose of property, real, personal or mixed, wherever situated. (4) To enter into, make, perform and carry out contracts of every kind with any person, firm, association or corporation, and, without limit as to amount, to draw, make, accept, endorse, discount, execute and issue promissory notes, drafts, bills of exchange, warrants, bonds, debentures, and other negotiable or transferable instruments. (5) To have one or more offices, to carry on all or any of its operations and businesses, without restriction to the same extent as natural persons might or could do, to purchase or otherwise acquire, to hold, own, to mortgage, sell, convey or otherwise dispose of, real and personal property, of every class and description, in any State, District, Territory or Colony of the United States, and in any foreign country or place. 4 (6) It is the intention that the objects, purposes and powers specified and clauses contained in this paragraph shall (except where otherwise expressed in said paragraph) be nowise limited or restricted by reference to or inference from the terms of any other clause of this or any other paragraph in this charter, but that the objects, purposes and powers specified in each of the clauses of this paragraph shall be regarded as independent objects, purposes and powers. FOURTH: - (a) The total number of shares of all classes of stock which the Corporation shall have authority to issue is forty-one million (41,000,000) shares, consisting of: (1) One million (1,000,000) shares of Preferred stock, par value $10.00 per share (hereinafter referred to as "Preferred Stock"); and (2) Forty million (40,000,000) shares of Common Stock, par value $1.00 per share (hereinafter referred to as "Common Stock"). (b) Shares of Preferred Stock may be issued from time to time in one or more series as may from time to time be determined by the Board of Directors each of said series to be distinctly designated. All shares of any one series of Preferred Stock shall be alike in every particular, except that there may be different dates from which dividends, if any, thereon shall be cumulative, if made cumulative. The voting powers and the preferences and relative, participating, optional and other special rights of each such series, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding; and, subject to the provisions of subparagraph 1 of Paragraph (c) of this Article FOURTH, the Board of Directors of the Corporation is hereby expressly granted authority to fix by resolution or resolutions adopted prior to the issuance of any shares of a particular series of Preferred Stock, the voting powers and the designations, preferences and relative, optional and other special rights, and the qualifications, limitations and restrictions of such series, including, but without limiting the generality of the foregoing, the following: (1) The distinctive designation of, and the number of shares of Preferred Stock which shall constitute such series, which number may be increased (except where otherwise provided by the Board of Directors) or decreased (but not below the number of shares thereof then outstanding) from time to time by like action of the Board of Directors; (2) The rate and times at which, and the terms and conditions on which, dividends, if any, on Preferred Stock of such series shall be paid, the extent of the preference or relation, if any, of such dividends to the dividends payable on any other class or classes, or series of the same or other class of 5 stock and whether such dividends shall be cumulative or non- cumulative; (3) The right, if any, of the holders of Preferred Stock of such series to convert the same into or exchange the same for, shares of any other class or classes or of any series of the same or any other class or classes of stock of the Corporation and the terms and conditions of such conversion or exchange; (4) Whether or not Preferred Stock of such series shall be subject to redemption, and the redemption price or prices and the time or times at which, and the terms and conditions on which, Preferred Stock of such series may be redeemed. (5) The rights, if any, of the holders of Preferred Stock of such series upon the voluntary or involuntary liquidation, merger, consolidation, distribution or sale of assets, dissolution or winding-up, of the Corporation. (6) The terms of the sinking fund or redemption or purchase account, if any, to be provided for the Preferred Stock of such series; and (7) The voting powers, if any, of the holders of such series of Preferred Stock which may, without limiting the generality of the foregoing include the right, voting as a series or by itself or together with other series of Preferred Stock or all series of Preferred Stock as a class, to elect one or more directors of the Corporation if there shall have been a default in the payment of dividends on any one or more series of Preferred Stock or under such circumstances and on such conditions as the Board of Directors may determine. (c) (1) After the requirements with respect to preferential dividends on the Preferred Stock (fixed in accordance with the provisions of section (b) of this Article FOURTH), if any, shall have been met and after the Corporation shall have complied with all the requirements, if any, with respect to the setting aside of sums as sinking funds or redemption or purchase accounts (fixed in accordance with the provisions of section (b) of this Article FOURTH), and subject further to any conditions which may be fixed in accordance with the provisions of section (b) of this Article FOURTH, then and not otherwise the holders of Common Stock shall be entitled to receive such dividends as may be declared from time to time by the Board of Directors. (2) After distribution in full of the preferential amount, if any, (fixed in accordance with the provisions of section (b) of this Article FOURTH), to be distributed to the holders of Preferred Stock in the event of voluntary or involuntary liquidation, distribution or sale of assets, dissolution or winding-up, of the Corporation, the holders of the Common Stock shall be entitled to 6 receive all of the remaining assets of the Corporation, tangible and intangible, of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them respectively. (3) Except as may otherwise be required by law or by the provisions of such resolution or resolutions as may be adopted by the Board of Directors pursuant to section (b) of this Article FOURTH, each holder of Common Stock shall have one vote in respect of each share of Common Stock held on all matters voted upon by the stockholders. (d) No holder of any of the shares of any class or series of stock or of options, warrants or other rights to purchase shares of any class or series of stock or of other securities of the Corporation shall have any preemptive right to purchase or subscribe for any unissued stock of any class or series or any additional shares of any class or series to be issued by reason of any increase of the authorized capital stock of the Corporation of any class or series, or bonds, certificates of indebtedness, debentures or other securities convertible into or exchangeable for stock of the Corporation of any class or series, or carrying any right to purchase stock of any class or series, but any such unissued stock, additional authorized issue of shares of any class or series of stock or securities convertible into or exchangeable for stock, or carrying any right to purchase stock, may be issued and disposed of pursuant to resolution of the Board of Directors to such persons, firms, corporations or associations, whether such holders or others, and upon such terms as may be deemed advisable by the Board of Directors in the exercise of its sole discretion. (e) The relative powers, preferences and rights of each series of Preferred Stock in relation to the relative powers, preferences and rights of each other series of Preferred Stock shall, in each case, be as fixed from time to time by the Board of Directors in the resolution or resolutions adopted pursuant to authority granted in section (b) of this Article FOURTH and the consent, by class or series vote or otherwise, of the holders of such of the series of Preferred Stock as are from time to time outstanding shall not be required for the issuance by the Board of Directors of any other series of Preferred Stock whether or not the powers, preferences and rights of such other series shall be fixed by the Board of Directors as senior to, or on a parity with, the powers, preferences and rights of such outstanding series, or any of them; provided, however, that the Board of Directors may provide in the resolution or resolutions as to any series of Preferred Stock adopted pursuant to section (b) of this Article FOURTH that the consent of the holders of a majority (or such greater proportion as shall be therein fixed) of the outstanding shares of such series voting thereon shall be required for the issuance of any or all other series of Preferred Stock. 7 (f) Subject to the provisions of section (e), shares of any series of Preferred Stock may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors. (g) Shares of Common Stock may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors. (h) The authorized amount of shares of Common Stock and of Preferred Stock may, without a class or series vote, be increased or decreased from time to time by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote thereon. FIFTH: - (a) The business and affairs of the Corporation shall be conducted and managed by a Board of Directors. The number of directors constituting the entire Board shall be not less than five nor more than twenty-five as fixed from time to time by vote of a majority of the whole Board, provided, however, that the number of directors shall not be reduced so as to shorten the term of any director at the time in office, and provided further, that the number of directors constituting the whole Board shall be twenty-four until otherwise fixed by a majority of the whole Board. (b) The Board of Directors shall be divided into three classes, as nearly equal in number as the then total number of directors constituting the whole Board permits, with the term of office of one class expiring each year. At the annual meeting of stockholders in 1982, directors of the first class shall be elected to hold office for a term expiring at the next succeeding annual meeting, directors of the second class shall be elected to hold office for a term expiring at the second succeeding annual meeting and directors of the third class shall be elected to hold office for a term expiring at the third succeeding annual meeting. Any vacancies in the Board of Directors for any reason, and any newly created directorships resulting from any increase in the directors, may be filled by the Board of Directors, acting by a majority of the directors then in office, although less than a quorum, and any directors so chosen shall hold office until the next annual election of directors. At such election, the stockholders shall elect a successor to such director to hold office until the next election of the class for which such director shall have been chosen and until his successor shall be elected and qualified. No decrease in the number of directors shall shorten the term of any incumbent director. (c) Notwithstanding any other provisions of this Charter or Act of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law, this Charter or Act of Incorporation or the By-Laws of the Corporation), any director or the entire Board of Directors of the 8 Corporation may be removed at any time without cause, but only by the affirmative vote of the holders of two-thirds or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose. (d) Nominations for the election of directors may be made by the Board of Directors or by any stockholder entitled to vote for the election of directors. Such nominations shall be made by notice in writing, delivered or mailed by first class United States mail, postage prepaid, to the Secretary of the Corporation not less than 14 days nor more than 50 days prior to any meeting of the stockholders called for the election of directors; provided, however, that if less than 21 days' notice of the meeting is given to stockholders, such written notice shall be delivered or mailed, as prescribed, to the Secretary of the Corporation not later than the close of the seventh day following the day on which notice of the meeting was mailed to stockholders. Notice of nominations which are proposed by the Board of Directors shall be given by the Chairman on behalf of the Board. (e) Each notice under subsection (d) shall set forth (i) the name, age, business address and, if known, residence address of each nominee proposed in such notice, (ii) the principal occupation or employment of such nominee and (iii) the number of shares of stock of the Corporation which are beneficially owned by each such nominee. (f) The Chairman of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. (g) No action required to be taken or which may be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, and the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied. SIXTH: - The Directors shall choose such officers, agent and servants as may be provided in the By-Laws as they may from time to time find necessary or proper. SEVENTH: - The Corporation hereby created is hereby given the same powers, rights and privileges as may be conferred upon corporations organized under the Act entitled "An Act Providing a General Corporation Law", approved March 10, 1899, as from time to time amended. EIGHTH: - This Act shall be deemed and taken to be a private Act. 9 NINTH: - This Corporation is to have perpetual existence. TENTH: - The Board of Directors, by resolution passed by a majority of the whole Board, may designate any of their number to constitute an Executive Committee, which Committee, to the extent provided in said resolution, or in the By-Laws of the Company, shall have and may exercise all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, and shall have power to authorize the seal of the Corporation to be affixed to all papers which may require it. ELEVENTH: - The private property of the stockholders shall not be liable for the payment of corporate debts to any extent whatever. TWELFTH: - The Corporation may transact business in any part of the world. THIRTEENTH: - The Board of Directors of the Corporation is expressly authorized to make, alter or repeal the By-Laws of the Corporation by a vote of the majority of the entire Board. The stockholders may make, alter or repeal any By-Law whether or not adopted by them, provided however, that any such additional By-Laws, alterations or repeal may be adopted only by the affirmative vote of the holders of two-thirds or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class). FOURTEENTH: - Meetings of the Directors may be held outside of the State of Delaware at such places as may be from time to time designated by the Board, and the Directors may keep the books of the Company outside of the State of Delaware at such places as may be from time to time designated by them. FIFTEENTH: - (a) In addition to any affirmative vote required by law, and except as otherwise expressly provided in sections (b) and (c) of this Article FIFTEENTH: (A) any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with or into (i) any Interested Stockholder (as hereinafter defined) or (ii) any other corporation (whether or not itself an Interested Stockholder), which, after such merger or consolidation, would be an Affiliate (as hereinafter defined) of an Interested Stockholder, or (B) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of related transactions) to or with any Interested Stockholder or any Affiliate of any Interested Stockholder of any assets of the Corporation or any Subsidiary having an aggregate fair market value of $1,000,000 or more, or 10 (C) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of related transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate fair market value of $1,000,000 or more, or (D) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation, or (E) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any similar transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Stockholder, or any Affiliate of any Interested Stockholder, shall require the affirmative vote of the holders of at least two-thirds of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, considered for the purpose of this Article FIFTEENTH as one class ("Voting Shares"). Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that some lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise. (2) The term "business combination" as used in this Article FIFTEENTH shall mean any transaction which is referred to any one or more of clauses (A) through (E) of paragraph 1 of the section (a). (b) The provisions of section (a) of this Article FIFTEENTH shall not be applicable to any particular business combination and such business combination shall require only such affirmative vote as is required by law and any other provisions of the Charter or Act of Incorporation of By-Laws if such business combination has been approved by a majority of the whole Board. (c) For the purposes of this Article FIFTEENTH: (1) A "person" shall mean any individual firm, corporation or other entity. (2) "Interested Stockholder" shall mean, in respect of any business combination, any person (other than the Corporation or any Subsidiary) who or which as of the record date for the determination of stockholders entitled to notice of and to vote on 11 such business combination, or immediately prior to the consummation of any such transaction: (A) is the beneficial owner, directly or indirectly, of more than 10% of the Voting Shares, or (B) is an Affiliate of the Corporation and at any time within two years prior thereto was the beneficial owner, directly or indirectly, of not less than 10% of the then outstanding voting Shares, or (C) is an assignee of or has otherwise succeeded in any share of capital stock of the Corporation which were at any time within two years prior thereto beneficially owned by any Interested Stockholder, and such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. (3) A person shall be the "beneficial owner" of any Voting Shares: (A) which such person or any of its Affiliates and Associates (as hereafter defined) beneficially own, directly or indirectly, or (B) which such person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding, or (C) which are beneficially owned, directly or indirectly, by any other person with which such first mentioned person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of the Corporation. (4) The outstanding Voting Shares shall include shares deemed owned through application of paragraph (3) above but shall not include any other Voting Shares which may be issuable pursuant to any agreement, or upon exercise of conversion rights, warrants or options or otherwise. (5) "Affiliate" and "Associate" shall have the respective meanings given those terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on December 31, 1981. 12 (6) "Subsidiary" shall mean any corporation of which a majority of any class of equity security (as defined in Rule 3a11-1 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect in December 31, 1981) is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Investment Stockholder set forth in paragraph (2) of this section (c), the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation. (d) majority of the directors shall have the power and duty to determine for the purposes of this Article FIFTEENTH on the basis of information known to them, (1) the number of Voting Shares beneficially owned by any person (2) whether a person is an Affiliate or Associate of another, (3) whether a person has an agreement, arrangement or understanding with another as to the matters referred to in paragraph (3) of section (c), or (4) whether the assets subject to any business combination or the consideration received for the issuance or transfer of securities by the Corporation, or any Subsidiary has an aggregate fair market value of $1,00,000 or more. (e) Nothing contained in this Article FIFTEENTH shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. SIXTEENTH: Notwithstanding any other provision of this Charter or Act of Incorporation or the By-Laws of the Corporation (and in addition to any other vote that may be required by law, this Charter or Act of Incorporation by the By-Laws), the affirmative vote of the holders of at least two-thirds of the outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) shall be required to amend, alter or repeal any provision of Articles FIFTH, THIRTEENTH, FIFTEENTH or SIXTEENTH of this Charter or Act of Incorporation. SEVENTEENTH: (a) a Director of this Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, except to the extent such exemption from liability or limitation thereof is not permitted under the Delaware General Corporation Laws as the same exists or may hereafter be amended. (b) Any repeal or modification of the foregoing paragraph shall not adversely affect any right or protection of a Director of the Corporation existing hereunder with respect to any act or omission occurring prior to the time of such repeal or modification." 13 EXHIBIT B BY-LAWS WILMINGTON TRUST COMPANY WILMINGTON, DELAWARE AS EXISTING ON JANUARY 16, 1997 BY-LAWS OF WILMINGTON TRUST COMPANY ARTICLE I STOCKHOLDERS' MEETINGS Section 1. The Annual Meeting of Stockholders shall be held on the third Thursday in April each year at the principal office at the Company or at such other date, time, or place as may be designated by resolution by the Board of Directors. Section 2. Special meetings of all stockholders may be called at any time by the Board of Directors, the Chairman of the Board or the President. Section 3. Notice of all meetings of the stockholders shall be given by mailing to each stockholder at least ten (10 days before said meeting, at his last known address, a written or printed notice fixing the time and place of such meeting. Section 4. A majority in the amount of the capital stock of the Company issued and outstanding on the record date, as herein determined, shall constitute a quorum at all meetings of stockholders for the transaction of any business, but the holders of a small number of shares may adjourn, from time to time, without further notice, until a quorum is secured. At each annual or special meeting of stockholders, each stockholder shall be entitled to one vote, either in person or by proxy, for each shares of stock registered in the stockholder's name on the books of the Company on the record date for any such meeting as determined herein. ARTICLE II DIRECTORS Section 1. The number and classification of the Board of Directors shall be as set forth in the Charter of the Bank. Section 2. No person who has attained the age of seventy-two (72) years shall be nominated for election to the Board of Directors of the Company, provided, however, that this limitation shall not apply to any person who was serving as director of the Company on September 16, 1971. Section 3. The class of Directors so elected shall hold office for three years or until their successors are elected and qualified. Section 4. The affairs and business of the Company shall be managed and conducted by the Board of Directors. Section 5. The Board of Directors shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members, or at the call of the Chairman of the Board of Directors or the President. Section 6. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board of Directors or by the President, and shall be called upon the written request of a majority of the directors. Section 7. A majority of the directors elected and qualified shall be necessary to constitute a quorum for the transaction of business at any meeting of the Board of Directors. Section 8. Written notice shall be sent by mail to each director of any special meeting of the Board of Directors, and of any change in the time or place of any regular meeting, stating the time and place of such meeting, which shall be mailed not less than two days before the time of holding such meeting. Section 9. In the event of the death, resignation, removal, inability to act, or disqualification of any director, the Board of Directors, although less than a quorum, shall have the right to elect the successor who shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred, and until such director's successor shall have been duly elected and qualified. Section 10. The Board of Directors at its first meeting after its election by the stockholders shall appoint an Executive Committee, a Trust Committee, an Audit Committee and a Compensation Committee, and shall elect from its own members a Chairman of the Board of Directors and a President who may be the same person. The Board of Directors shall also elect at such meeting a Secretary and a Treasurer, who may be the same person, may appoint at any time such other committees and elect or appoint such other officers as it may deem advisable. The Board of Directors may also elect at such meeting one or more Associate Directors. Section 11. The Board of Directors may at any time remove, with or without cause, any member of any Committee appointed by it or any associate director or officer elected by it and may appoint or elect his successor. Section 12. The Board of Directors may designate an officer to be in charge of such of the departments or division of the Company as it may deem advisable. ARTICLE III COMMITTEES Section I. Executive Committee (A) The Executive Committee shall be composed of not more than nine members who shall be selected by the Board of Directors from its own members and who 2 shall hold office during the pleasure of the Board. (B) The Executive Committee shall have all the powers of the Board of Directors when it is not in session to transact all business for and in behalf of the Company that may be brought before it. (C) The Executive Committee shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members, or at the call of the Chairman of the Executive Committee or at the call of the Chairman of the Board of Directors. The majority of its members shall be necessary to constitute a quorum for the transaction of business. Special meetings of the Executive Committee may be held at any time when a quorum is present. (D) Minutes of each meeting of the Executive Committee shall be kept and submitted to the Board of Directors at its next meeting. (E) The Executive Committee shall advise and superintend all investments that may be made of the funds of the Company, and shall direct the disposal of the same, in accordance with such rules and regulations as the Board of Directors from time to time make. (F) In the event of a state of disaster of sufficient severity to prevent the conduct and management of the affairs and business of the Company by its directors and officers as contemplated by these By-Laws any two available members of the Executive Committee as constituted immediately prior to such disaster shall constitute a quorum of that Committee for the full conduct and management of the affairs and business of the Company in accordance with the provisions of Article III of these By-Laws; and if less than three members of the Trust Committee is constituted immediately prior to such disaster shall be available for the transaction of its business, such Executive Committee shall also be empowered to exercise all of the powers reserved to the Trust Committee under Article III Section 2 hereof. In the event of the unavailability, at such time, of a minimum of two members of such Executive Committee, any three available directors shall constitute the Executive Committee for the full conduct and management of the affairs and business of the Company in accordance with the foregoing provisions of this Section. This By-Law shall be subject to implementation by Resolutions of the Board of Directors presently existing or hereafter passed from time to time for that purpose, and any provisions of these By-Laws (other than this Section) and any resolutions which are contrary to the provisions of this Section or to the provisions of any such implementary Resolutions shall be suspended during such a disaster period until it shall be determined by any interim Executive Committee acting under this section that it shall be to the advantage of the Company to resume the conduct and management of its affairs and business under all of the other provisions of these By-Laws. 3 Section 2. Trust Committee (A) The Trust Committee shall be composed of not more than thirteen members who shall be selected by the Board of Directors, a majority of whom shall be members of the Board of Directors and who shall hold office during the pleasure of the Board. (B) The Trust Committee shall have general supervision over the Trust Department and the investment of trust funds, in all matters, however, being subject to the approval of the Board of Directors. (C) The Trust Committee shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members or at the call of its chairman. A majority of its members shall be necessary to constitute a quorum for the transaction of business. (D) Minutes of each meeting of the Trust Committee shall be kept and promptly submitted to the Board of Directors. (E) The Trust Committee shall have the power to appoint Committees and/or designate officers or employees of the Company to whom supervision over the investment of trust funds may be delegated when the Trust Committee is not in session. Section 3. Audit Committee (A) The Audit Committee shall be composed of five members who shall be selected by the Board of Directors from its own members, none of whom shall be an officer of the Company, and shall hold office at the pleasure of the Board. (B) The Audit Committee shall have general supervision over the Audit Division in all matters however subject to the approval of the Board of Directors; it shall consider all matters brought to its attention by the officer in charge of the Audit Division, review all reports of examination of the Company made by any governmental agency or such independent auditor employed for that purpose, and make such recommendations to the Board of Directors with respect thereto or with respect to any other matters pertaining to auditing the Company as it shall deem desirable. (C) The Audit Committee shall meet whenever and wherever the majority of its members shall deem it to be proper for the transaction of its business, and a majority of its Committee shall constitute a quorum. 4 Section 4. Compensation Committee (A) The Compensation Committee shall be composed of not more than five (5) members who shall be selected by the Board of Directors from its own members who are not officers of the Company and who shall hold office during the pleasure of the Board. (B) The Compensation Committee shall in general advise upon all matters of policy concerning the Company brought to its attention by the management and from time to time review the management of the Company, major organizational matters, including salaries and employee benefits and specifically shall administer the Executive Incentive Compensation Plan. (C) Meetings of the Compensation Committee may be called at any time by the Chairman of the Compensation Committee, the Chairman of the Board of Directors, or the President of the Company. Section 5. Associate Directors (A) Any person who has served as a director may be elected by the Board of Directors as an associate director, to serve during the pleasure of the Board. (B) An associate director shall be entitled to attend all directors meetings and participate in the discussion of all matters brought to the Board, with the exception that he would have no right to vote. An associate director will be eligible for appointment to Committees of the Company, with the exception of the Executive Committee, Audit Committee and Compensation Committee, which must be comprised solely of active directors. Section 6. Absence or Disqualification of Any Member of a Committee (A) In the absence or disqualification of any member of any Committee created under Article III of the By-Laws of this Company, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absence or disqualified member. ARTICLE IV OFFICERS Section 1. The Chairman of the Board of Directors shall preside at all meetings of the Board and shall have such further authority and powers and shall perform such duties as the Board of Directors may from time to time confer and direct. He shall also exercise such 5 powers and perform such duties as may from time to time be agreed upon between himself and the President of the Company. Section 2. The Vice Chairman of the Board. The Vice Chairman of the ------------------------------- Board of Directors shall preside at all meetings of the Board of Directors at which the Chairman of the Board shall not be present and shall have such further authority and powers and shall perform such duties as the Board of Directors or the Chairman of the Board may from time to time confer and direct. Section 3. The President shall have the powers and duties pertaining to the office of the President conferred or imposed upon him by statute or assigned to him by the Board of Directors in the absence of the Chairman of the Board the President shall have the powers and duties of the Chairman of the Board. Section 4. The Chairman of the Board of Directors or the President as designated by the Board of Directors, shall carry into effect all legal directions of the Executive Committee and of the Board of Directors, and shall at all times exercise general supervision over the interest, affairs and operations of the Company and perform all duties incident to his office. Section 5. There may be one or more Vice Presidents, however denominated by the Board of Directors, who may at any time perform all the duties of the Chairman of the Board of Directors and/or the President and such other powers and duties as may from time to time be assigned to them by the Board of Directors, the Executive Committee, the Chairman of the Board or the President and by the officer in charge of the department or division to which they are assigned. Section 6. The Secretary shall attend to the giving of notice of meetings of the stockholders and the Board of Directors, as well as the Committees thereof, to the keeping of accurate minutes of all such meetings and to recording the same in the minute books of the Company. In addition to the other notice requirements of these By-Laws and as may be practicable under the circumstances, all such notices shall be in writing and mailed well in advance of the scheduled date of any other meeting. He shall have custody of the corporate seal and shall affix the same to any documents requiring such corporate seal and to attest the same. Section 7. The Treasurer shall have general supervision over all assets and liabilities of the Company. He shall be custodian of and responsible for all monies, funds and valuables of the Company and for the keeping of proper records of the evidence of property or indebtedness and of all the transactions of the Company. He shall have general supervision of the expenditures of the Company and shall report to the Board of Directors at each regular meeting of the condition of the Company, and perform such other duties as may be assigned to him from time to time by the Board of Directors of the Executive Committee. 6 Section 8. There may be a Controller who shall exercise general supervision over the internal operations of the Company, including accounting, and shall render to the Board of Directors at appropriate times a report relating to the general condition and internal operations of the Company. There may be one or more subordinate accounting or controller officers however denominated, who may perform the duties of the Controller and such duties as may be prescribed by the Controller. Section 9. The officer designated by the Board of Directors to be in charge of the Audit Division of the Company with such title as the Board of Directors shall prescribe, shall report to and be directly responsible only to the Board of Directors. There shall be an Auditor and there may be one or more Audit Officers, however denominated, who may perform all the duties of the Auditor and such duties as may be prescribed by the officer in charge of the Audit Division. Section 10. There may be one or more officers, subordinate in rank to all Vice Presidents with such functional titles as shall be determined from time to time by the Board of Directors, who shall ex officio hold the office Assistant Secretary of this Company and who may perform such duties as may be prescribed by the officer in charge of the department or division to whom they are assigned. Section 11. The powers and duties of all other officers of the Company shall be those usually pertaining to their respective offices, subject to the direction of the Board of Directors, the Executive Committee, Chairman of the Board of Directors or the President and the officer in charge of the department or division to which they are assigned. ARTICLE V STOCK AND STOCK CERTIFICATES Section 1. Shares of stock shall be transferrable on the books of the Company and a transfer book shall be kept in which all transfers of stock shall be recorded. Section 2. Certificate of stock shall bear the signature of the President or any Vice President, however denominated by the Board of Directors and countersigned by the Secretary or Treasurer or an Assistant Secretary, and the seal of the corporation shall be engraved thereon. Each certificate shall recite that the stock represented thereby is transferrable only upon the books of the Company by the holder thereof or his attorney, upon surrender of the certificate properly endorsed. Any certificate of stock surrendered to the Company shall be cancelled at the time of transfer, and before a new certificate or certificates shall be issued in lieu thereof. Duplicate certificates of stock shall be issued only upon giving such security as may be satisfactory to the Board of Directors or the Executive 7 Committee. Section 3. The Board of Directors of the Company is authorized to fix in advance a record date for the determination of the stockholders entitled to notice of, and to vote at, any meeting of stockholders and any adjournment thereof, or entitled to receive payment of any dividend, or to any allotment or rights, or to exercise any rights in respect of any change, conversion or exchange of capital stock, or in connection with obtaining the consent of stockholders for any purpose, which record date shall not be more than 60 nor less than 10 days proceeding the date of any meeting of stockholders or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining such consent. ARTICLE VI SEAL Section 1. The corporate seal of the Company shall be in the following form: Between two concentric circles the words "Wilmington Trust Company" within the inner circle the words "Wilmington, Delaware." ARTICLE VII FISCAL YEAR Section 1. The fiscal year of the Company shall be the calendar year. ARTICLE VIII EXECUTION OF INSTRUMENTS OF THE COMPANY Section 1. The Chairman of the Board, the President or any Vice President, however denominated by the Board of Directors, shall have full power and authority to enter into, make, sign, execute, acknowledge and/or deliver and the Secretary or any Assistant Secretary shall have full power and authority to attest and affix the corporate seal of the Company to any and all deeds, conveyances, assignments, releases, contracts, agreements, bonds, notes, mortgages and all other instruments incident to the business of this Company or in acting as executor, administrator, guardian, trustee, agent or in any other fiduciary or representative capacity by any and every method of appointment or by whatever person, corporation, court officer or authority in the State of Delaware, or elsewhere, without any specific authority, ratification, approval or confirmation by the Board of Directors or the Executive Committee, and any and all such instruments shall have the same force and 8 validity as although expressly authorized by the Board of Directors and/or the Executive Committee. ARTICLE IX COMPENSATION OF DIRECTORS AND MEMBERS OF COMMITTEES Section 1. Directors and associate directors of the Company, other than salaried officers of the Company, shall be paid such reasonable honoraria or fees for attending meetings of the Board of Directors as the Board of Directors may from time to time determine. Directors and associate directors who serve as members of committees, other than salaried employees of the Company, shall be paid such reasonable honoraria or fees for services as members of committees as the Board of Directors shall from time to time determine and directors and associate directors may be employed by the Company for such special services as the Board of Directors may from time to time determine and shall be paid for such special services so performed reasonable compensation as may be determined by the Board of Directors. ARTICLE X INDEMNIFICATION Section 1. (A) The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding") by reason of the fact that he, or a person for whom he is the legal representative, is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, fiduciary or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person. The Corporation shall indemnify a person in connection with a proceeding initiated by such person only if the proceeding was authorized by the Board of Directors of the Corporation. (B) The Corporation shall pay the expenses incurred in defending any proceeding in advance of its final disposition, provided, however, that the -------- ------- payment of expenses incurred by a Director officer in his capacity as a Director or officer in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Director or officer to repay all amounts advanced if it should be ultimately determined that the Director or officer is not entitled to be indemnified under this Article or otherwise. (C) If a claim for indemnification or payment of expenses, under this Article X is not paid in full within ninety days after a written claim therefor has been 9 received by the Corporation the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification of payment of expenses under applicable law. (D) The rights conferred on any person by this Article X shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the Charter or Act of Incorporation, these By- Laws, agreement, vote of stockholders or disinterested Directors or otherwise. (E) Any repeal or modification of the foregoing provisions of this Article X shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. ARTICLE XI AMENDMENTS TO THE BY-LAWS Section 1. These By-Laws may be altered, amended or repealed, in whole or in part, and any new By-Law or By-Laws adopted at any regular or special meeting of the Board of Directors by a vote of the majority of all the members of the Board of Directors then in office. 10 EXHIBIT C SECTION 321(B) CONSENT Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as amended, Wilmington Trust Company hereby consents that reports of examinations by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon requests therefor. WILMINGTON TRUST COMPANY Dated: February 21, 1997 By: /s/ Emmett R. Harmon -------------------- Name: Emmett R. Harmon Title: Vice President EXHIBIT D NOTICE This form is intended to assist state nonmember banks and savings banks with state publication requirements. It has not been approved by any state banking authorities. Refer to your appropriate state banking authorities for your state publication requirements. R E P O R T O F C O N D I T I O N Consolidating domestic subsidiaries of the WILMINGTON TRUST COMPANY of WILMINGTON - --------------------------------------------- ---------------------- Name of Bank City in the State of DELAWARE , at the close of business on December 31, 1996. ------------
ASSETS Thousands of dollars Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coins................ 213,895 Interest-bearing balances.......................................... 0 Held-to-maturity securities.............................................. 465,818 Available-for-sale securities............................................ 752,297 Federal funds sold....................................................... 95,000 Securities purchased under agreements to resell.......................... 39,190 Loans and lease financing receivables: Loans and leases, net of unearned income......... 3,634,003 LESS: Allowance for loan and lease losses....... 51,847 LESS: Allocated transfer risk reserve........... 0 Loans and leases, net of unearned income, allowance, and reserve... 3,582,156 Assets held in trading accounts.......................................... 0 Premises and fixed assets (including capitalized leases)................. 89,129 Other real estate owned.................................................. 3,520 Investments in unconsolidated subsidiaries and associated companies...... 52 Customers' liability to this bank on acceptances outstanding............. 0 Intangible assets........................................................ 4,593 Other assets............................................................. 114,300 Total assets............................................................. 5,359,950
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LIABILITIES Deposits: In domestic offices...................................................... 3,749,697 Noninterest-bearing................................................ 852,790 Interest-bearing................................................... 2,896,907 Federal funds purchased.................................................. 77,825 Securities sold under agreements to repurchase........................... 192,295 Demand notes issued to the U.S. Treasury................................. 53,526 Trading liabilities...................................................... 0 Other borrowed money:.................................................... /////// With original maturity of one year or less......................... 714,000 With original maturity of more than one year....................... 43,000 Mortgage indebtedness and obligations under capitalized leases........... 0 Bank's liability on acceptances executed and outstanding................. 0 Subordinated notes and debentures........................................ 0 Other liabilities........................................................ 98,756 Total liabilities........................................................ 4,929,099 Limited-life preferred stock and related surplus......................... 0 EQUITY CAPITAL Perpetual preferred stock and related surplus............................ 0 Common Stock............................................................. 500 Surplus.................................................................. 62,118 Undivided profits and capital reserves................................... 367,371 Net unrealized holding gains (losses) on available-for-sale securities... 862 Total equity capital..................................................... 430,851 Total liabilities, limited-life preferred stock, and equity capital...... 5,359,950
2 EX-25.3 24 FORM T-1 EXHIBIT 25.3 Registration No. ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) ___ WILMINGTON TRUST COMPANY (Exact name of trustee as specified in its charter) Delaware 51-0055023 (State of incorporation) (I.R.S. employer identification no.) Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 (Address of principal executive offices) Cynthia L. Corliss Vice President and Trust Counsel Wilmington Trust Company Rodney Square North Wilmington, Delaware 19890 (302) 651-8516 (Name, address and telephone number of agent for service) GREATER BAY BANCORP (Exact name of obligor as specified in its charter) California 77-0387041 (State of incorporation) (I.R.S. employer identification no.) 2860 West Bayshore Road Palo Alto, California 94303 (Address of principal executive offices) (Zip Code) Greater Bay Bancorp Guarantee With Respect to the ___% Cumulative Trust Preferred Securities (Title of the indenture securities) ================================================================================ ITEM 1. GENERAL INFORMATION. Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. Federal Deposit Insurance Co. State Bank Commissioner Five Penn Center Dover, Delaware Suite #2901 Philadelphia, PA (b) Whether it is authorized to exercise corporate trust powers. The trustee is authorized to exercise corporate trust powers. ITEM 2. AFFILIATIONS WITH THE OBLIGOR. If the obligor is an affiliate of the trustee, describe each affiliation: Based upon an examination of the books and records of the trustee and upon information furnished by the obligor, the obligor is not an affiliate of the trustee. ITEM 3. LIST OF EXHIBITS. List below all exhibits filed as part of this Statement of Eligibility and Qualification. A. Copy of the Charter of Wilmington Trust Company, which includes the certificate of authority of Wilmington Trust Company to commence business and the authorization of Wilmington Trust Company to exercise corporate trust powers. B. Copy of By-Laws of Wilmington Trust Company. C. Consent of Wilmington Trust Company required by Section 321(b) of Trust Indenture Act. D. Copy of most recent Report of Condition of Wilmington Trust Company. Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, Wilmington Trust Company, a corporation organized and existing under the laws of Delaware, has duly caused this Statement of Eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Wilmington and State of Delaware on the 21st day of February, 1997. WILMINGTON TRUST COMPANY [SEAL] Attest:/s/ Donald G. MacKelcan By:/s/ Emmett R. Harmon ----------------------------- ----------------------- Assistant Secretary Name: Emmett R. Harmon Title: Vice President 2 EXHIBIT A AMENDED CHARTER WILMINGTON TRUST COMPANY WILMINGTON, DELAWARE AS EXISTING ON MAY 9, 1987 AMENDED CHARTER OR ACT OF INCORPORATION OF WILMINGTON TRUST COMPANY WILMINGTON TRUST COMPANY, originally incorporated by an Act of the General Assembly of the State of Delaware, entitled "An Act to Incorporate the Delaware Guarantee and Trust Company", approved March 2, A.D. 1901, and the name of which company was changed to "WILMINGTON TRUST COMPANY" by an amendment filed in the Office of the Secretary of State on March 18, A.D. 1903, and the Charter or Act of Incorporation of which company has been from time to time amended and changed by merger agreements pursuant to the corporation law for state banks and trust companies of the State of Delaware, does hereby alter and amend its Charter or Act of Incorporation so that the same as so altered and amended shall in its entirety read as follows: FIRST: - The name of this corporation is WILMINGTON TRUST COMPANY. SECOND: - The location of its principal office in the State of Delaware is at Rodney Square North, in the City of Wilmington, County of New Castle; the name of its resident agent is WILMINGTON TRUST COMPANY whose address is Rodney Square North, in said City. In addition to such principal office, the said corporation maintains and operates branch offices in the City of Newark, New Castle County, Delaware, the Town of Newport, New Castle County, Delaware, at Claymont, New Castle County, Delaware, at Greenville, New Castle County Delaware, and at Milford Cross Roads, New Castle County, Delaware, and shall be empowered to open, maintain and operate branch offices at Ninth and Shipley Streets, 418 Delaware Avenue, 2120 Market Street, and 3605 Market Street, all in the City of Wilmington, New Castle County, Delaware, and such other branch offices or places of business as may be authorized from time to time by the agency or agencies of the government of the State of Delaware empowered to confer such authority. THIRD: - (a) The nature of the business and the objects and purposes proposed to be transacted, promoted or carried on by this Corporation are to do any or all of the things herein mentioned as fully and to the same extent as natural persons might or could do and in any part of the world, viz.: (1) To sue and be sued, complain and defend in any Court of law or equity and to make and use a common seal, and alter the seal at pleasure, to hold, purchase, convey, mortgage or otherwise deal in real and personal estate and property, and to appoint such officers and agents as the business of the Corporation shall require, to make by-laws not inconsistent with the Constitution or laws of the United States or of this State, to discount bills, notes or other evidences of debt, to receive deposits of money, or securities for money, to buy gold and silver bullion and foreign coins, to buy and sell bills of exchange, and generally to use, exercise and enjoy all the powers, rights, privileges and franchises incident to a corporation which are proper or necessary for the transaction of the business of the Corporation hereby created. (2) To insure titles to real and personal property, or any estate or interests therein, and to guarantee the holder of such property, real or personal, against any claim or claims, adverse to his interest therein, and to prepare and give certificates of title for any lands or premises in the State of Delaware, or elsewhere. (3) To act as factor, agent, broker or attorney in the receipt, collection, custody, investment and management of funds, and the purchase, sale, management and disposal of property of all descriptions, and to prepare and execute all papers which may be necessary or proper in such business. (4) To prepare and draw agreements, contracts, deeds, leases, conveyances, mortgages, bonds and legal papers of every description, and to carry on the business of conveyancing in all its branches. (5) To receive upon deposit for safekeeping money, jewelry, plate, deeds, bonds and any and all other personal property of every sort and kind, from executors, administrators, guardians, public officers, courts, receivers, assignees, trustees, and from all fiduciaries, and from all other persons and individuals, and from all corporations whether state, municipal, corporate or private, and to rent boxes, safes, vaults and other receptacles for such property. (6) To act as agent or otherwise for the purpose of registering, issuing, certificating, countersigning, transferring or underwriting the stock, bonds or other obligations of any corporation, association, state or municipality, and may receive and manage any sinking fund therefor on such terms as may be agreed upon between the two parties, and in like manner may act as Treasurer of any corporation or municipality. (7) To act as Trustee under any deed of trust, mortgage, bond or other instrument issued by any state, municipality, body politic, corporation, association or person, either alone or in conjunction with any other person or persons, corporation or corporations. 2 (8) To guarantee the validity, performance or effect of any contract or agreement, and the fidelity of persons holding places of responsibility or trust; to become surety for any person, or persons, for the faithful performance of any trust, office, duty, contract or agreement, either by itself or in conjunction with any other person, or persons, corporation, or corporations, or in like manner become surety upon any bond, recognizance, obligation, judgment, suit, order, or decree to be entered in any court of record within the State of Delaware or elsewhere, or which may now or hereafter be required by any law, judge, officer or court in the State of Delaware or elsewhere. (9) To act by any and every method of appointment as trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian, bailee, or in any other trust capacity in the receiving, holding, managing, and disposing of any and all estates and property, real, personal or mixed, and to be appointed as such trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian or bailee by any persons, corporations, court, officer, or authority, in the State of Delaware or elsewhere; and whenever this Corporation is so appointed by any person, corporation, court, officer or authority such trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian, bailee, or in any other trust capacity, it shall not be required to give bond with surety, but its capital stock shall be taken and held as security for the performance of the duties devolving upon it by such appointment. (10) And for its care, management and trouble, and the exercise of any of its powers hereby given, or for the performance of any of the duties which it may undertake or be called upon to perform, or for the assumption of any responsibility the said Corporation may be entitled to receive a proper compensation. (11) To purchase, receive, hold and own bonds, mortgages, debentures, shares of capital stock, and other securities, obligations, contracts and evidences of indebtedness, of any private, public or municipal corporation within and without the State of Delaware, or of the Government of the United States, or of any state, territory, colony, or possession thereof, or of any foreign government or country; to receive, collect, receipt for, and dispose of interest, dividends and income upon and from any of the bonds, mortgages, debentures, notes, shares of capital stock, securities, obligations, contracts, evidences of indebtedness and other property held and owned by it, and to exercise in respect of all such bonds, mortgages, debentures, notes, shares of capital stock, securities, obligations, contracts, evidences of indebtedness and other property, any and all the rights, powers and privileges of individual 3 owners thereof, including the right to vote thereon; to invest and deal in and with any of the moneys of the Corporation upon such securities and in such manner as it may think fit and proper, and from time to time to vary or realize such investments; to issue bonds and secure the same by pledges or deeds of trust or mortgages of or upon the whole or any part of the property held or owned by the Corporation, and to sell and pledge such bonds, as and when the Board of Directors shall determine, and in the promotion of its said corporate business of investment and to the extent authorized by law, to lease, purchase, hold, sell, assign, transfer, pledge, mortgage and convey real and personal property of any name and nature and any estate or interest therein. (b) In furtherance of, and not in limitation, of the powers conferred by the laws of the State of Delaware, it is hereby expressly provided that the said Corporation shall also have the following powers: (1) To do any or all of the things herein set forth, to the same extent as natural persons might or could do, and in any part of the world. (2) To acquire the good will, rights, property and franchises and to undertake the whole or any part of the assets and liabilities of any person, firm, association or corporation, and to pay for the same in cash, stock of this Corporation, bonds or otherwise; to hold or in any manner to dispose of the whole or any part of the property so purchased; to conduct in any lawful manner the whole or any part of any business so acquired, and to exercise all the powers necessary or convenient in and about the conduct and management of such business. (3) To take, hold, own, deal in, mortgage or otherwise lien, and to lease, sell, exchange, transfer, or in any manner whatever dispose of property, real, personal or mixed, wherever situated. (4) To enter into, make, perform and carry out contracts of every kind with any person, firm, association or corporation, and, without limit as to amount, to draw, make, accept, endorse, discount, execute and issue promissory notes, drafts, bills of exchange, warrants, bonds, debentures, and other negotiable or transferable instruments. (5) To have one or more offices, to carry on all or any of its operations and businesses, without restriction to the same extent as natural persons might or could do, to purchase or otherwise acquire, to hold, own, to mortgage, sell, convey or otherwise dispose of, real and personal property, of every class and description, in any State, District, Territory or Colony of the United States, and in any foreign country or place. 4 (6) It is the intention that the objects, purposes and powers specified and clauses contained in this paragraph shall (except where otherwise expressed in said paragraph) be nowise limited or restricted by reference to or inference from the terms of any other clause of this or any other paragraph in this charter, but that the objects, purposes and powers specified in each of the clauses of this paragraph shall be regarded as independent objects, purposes and powers. FOURTH: - (a) The total number of shares of all classes of stock which the Corporation shall have authority to issue is forty-one million (41,000,000) shares, consisting of: (1) One million (1,000,000) shares of Preferred stock, par value $10.00 per share (hereinafter referred to as "Preferred Stock"); and (2) Forty million (40,000,000) shares of Common Stock, par value $1.00 per share (hereinafter referred to as "Common Stock"). (b) Shares of Preferred Stock may be issued from time to time in one or more series as may from time to time be determined by the Board of Directors each of said series to be distinctly designated. All shares of any one series of Preferred Stock shall be alike in every particular, except that there may be different dates from which dividends, if any, thereon shall be cumulative, if made cumulative. The voting powers and the preferences and relative, participating, optional and other special rights of each such series, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding; and, subject to the provisions of subparagraph 1 of Paragraph (c) of this Article FOURTH, the Board of Directors of the Corporation is hereby expressly granted authority to fix by resolution or resolutions adopted prior to the issuance of any shares of a particular series of Preferred Stock, the voting powers and the designations, preferences and relative, optional and other special rights, and the qualifications, limitations and restrictions of such series, including, but without limiting the generality of the foregoing, the following: (1) The distinctive designation of, and the number of shares of Preferred Stock which shall constitute such series, which number may be increased (except where otherwise provided by the Board of Directors) or decreased (but not below the number of shares thereof then outstanding) from time to time by like action of the Board of Directors; (2) The rate and times at which, and the terms and conditions on which, dividends, if any, on Preferred Stock of such series shall be paid, the extent of the preference or relation, if any, of such dividends to the dividends payable on any other class or classes, or series of the same or other class of 5 stock and whether such dividends shall be cumulative or non- cumulative; (3) The right, if any, of the holders of Preferred Stock of such series to convert the same into or exchange the same for, shares of any other class or classes or of any series of the same or any other class or classes of stock of the Corporation and the terms and conditions of such conversion or exchange; (4) Whether or not Preferred Stock of such series shall be subject to redemption, and the redemption price or prices and the time or times at which, and the terms and conditions on which, Preferred Stock of such series may be redeemed. (5) The rights, if any, of the holders of Preferred Stock of such series upon the voluntary or involuntary liquidation, merger, consolidation, distribution or sale of assets, dissolution or winding-up, of the Corporation. (6) The terms of the sinking fund or redemption or purchase account, if any, to be provided for the Preferred Stock of such series; and (7) The voting powers, if any, of the holders of such series of Preferred Stock which may, without limiting the generality of the foregoing include the right, voting as a series or by itself or together with other series of Preferred Stock or all series of Preferred Stock as a class, to elect one or more directors of the Corporation if there shall have been a default in the payment of dividends on any one or more series of Preferred Stock or under such circumstances and on such conditions as the Board of Directors may determine. (c) (1) After the requirements with respect to preferential dividends on the Preferred Stock (fixed in accordance with the provisions of section (b) of this Article FOURTH), if any, shall have been met and after the Corporation shall have complied with all the requirements, if any, with respect to the setting aside of sums as sinking funds or redemption or purchase accounts (fixed in accordance with the provisions of section (b) of this Article FOURTH), and subject further to any conditions which may be fixed in accordance with the provisions of section (b) of this Article FOURTH, then and not otherwise the holders of Common Stock shall be entitled to receive such dividends as may be declared from time to time by the Board of Directors. (2) After distribution in full of the preferential amount, if any, (fixed in accordance with the provisions of section (b) of this Article FOURTH), to be distributed to the holders of Preferred Stock in the event of voluntary or involuntary liquidation, distribution or sale of assets, dissolution or winding-up, of the Corporation, the holders of the Common Stock shall be entitled to 6 receive all of the remaining assets of the Corporation, tangible and intangible, of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them respectively. (3) Except as may otherwise be required by law or by the provisions of such resolution or resolutions as may be adopted by the Board of Directors pursuant to section (b) of this Article FOURTH, each holder of Common Stock shall have one vote in respect of each share of Common Stock held on all matters voted upon by the stockholders. (d) No holder of any of the shares of any class or series of stock or of options, warrants or other rights to purchase shares of any class or series of stock or of other securities of the Corporation shall have any preemptive right to purchase or subscribe for any unissued stock of any class or series or any additional shares of any class or series to be issued by reason of any increase of the authorized capital stock of the Corporation of any class or series, or bonds, certificates of indebtedness, debentures or other securities convertible into or exchangeable for stock of the Corporation of any class or series, or carrying any right to purchase stock of any class or series, but any such unissued stock, additional authorized issue of shares of any class or series of stock or securities convertible into or exchangeable for stock, or carrying any right to purchase stock, may be issued and disposed of pursuant to resolution of the Board of Directors to such persons, firms, corporations or associations, whether such holders or others, and upon such terms as may be deemed advisable by the Board of Directors in the exercise of its sole discretion. (e) The relative powers, preferences and rights of each series of Preferred Stock in relation to the relative powers, preferences and rights of each other series of Preferred Stock shall, in each case, be as fixed from time to time by the Board of Directors in the resolution or resolutions adopted pursuant to authority granted in section (b) of this Article FOURTH and the consent, by class or series vote or otherwise, of the holders of such of the series of Preferred Stock as are from time to time outstanding shall not be required for the issuance by the Board of Directors of any other series of Preferred Stock whether or not the powers, preferences and rights of such other series shall be fixed by the Board of Directors as senior to, or on a parity with, the powers, preferences and rights of such outstanding series, or any of them; provided, however, that the Board of Directors may provide in the resolution or resolutions as to any series of Preferred Stock adopted pursuant to section (b) of this Article FOURTH that the consent of the holders of a majority (or such greater proportion as shall be therein fixed) of the outstanding shares of such series voting thereon shall be required for the issuance of any or all other series of Preferred Stock. 7 (f) Subject to the provisions of section (e), shares of any series of Preferred Stock may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors. (g) Shares of Common Stock may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors. (h) The authorized amount of shares of Common Stock and of Preferred Stock may, without a class or series vote, be increased or decreased from time to time by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote thereon. FIFTH: - (a) The business and affairs of the Corporation shall be conducted and managed by a Board of Directors. The number of directors constituting the entire Board shall be not less than five nor more than twenty-five as fixed from time to time by vote of a majority of the whole Board, provided, however, that the number of directors shall not be reduced so as to shorten the term of any director at the time in office, and provided further, that the number of directors constituting the whole Board shall be twenty-four until otherwise fixed by a majority of the whole Board. (b) The Board of Directors shall be divided into three classes, as nearly equal in number as the then total number of directors constituting the whole Board permits, with the term of office of one class expiring each year. At the annual meeting of stockholders in 1982, directors of the first class shall be elected to hold office for a term expiring at the next succeeding annual meeting, directors of the second class shall be elected to hold office for a term expiring at the second succeeding annual meeting and directors of the third class shall be elected to hold office for a term expiring at the third succeeding annual meeting. Any vacancies in the Board of Directors for any reason, and any newly created directorships resulting from any increase in the directors, may be filled by the Board of Directors, acting by a majority of the directors then in office, although less than a quorum, and any directors so chosen shall hold office until the next annual election of directors. At such election, the stockholders shall elect a successor to such director to hold office until the next election of the class for which such director shall have been chosen and until his successor shall be elected and qualified. No decrease in the number of directors shall shorten the term of any incumbent director. (c) Notwithstanding any other provisions of this Charter or Act of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law, this Charter or Act of Incorporation or the By-Laws of the Corporation), any director or the entire Board of Directors of the 8 Corporation may be removed at any time without cause, but only by the affirmative vote of the holders of two-thirds or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose. (d) Nominations for the election of directors may be made by the Board of Directors or by any stockholder entitled to vote for the election of directors. Such nominations shall be made by notice in writing, delivered or mailed by first class United States mail, postage prepaid, to the Secretary of the Corporation not less than 14 days nor more than 50 days prior to any meeting of the stockholders called for the election of directors; provided, however, that if less than 21 days' notice of the meeting is given to stockholders, such written notice shall be delivered or mailed, as prescribed, to the Secretary of the Corporation not later than the close of the seventh day following the day on which notice of the meeting was mailed to stockholders. Notice of nominations which are proposed by the Board of Directors shall be given by the Chairman on behalf of the Board. (e) Each notice under subsection (d) shall set forth (i) the name, age, business address and, if known, residence address of each nominee proposed in such notice, (ii) the principal occupation or employment of such nominee and (iii) the number of shares of stock of the Corporation which are beneficially owned by each such nominee. (f) The Chairman of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. (g) No action required to be taken or which may be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, and the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied. SIXTH: - The Directors shall choose such officers, agent and servants as may be provided in the By-Laws as they may from time to time find necessary or proper. SEVENTH: - The Corporation hereby created is hereby given the same powers, rights and privileges as may be conferred upon corporations organized under the Act entitled "An Act Providing a General Corporation Law", approved March 10, 1899, as from time to time amended. EIGHTH: - This Act shall be deemed and taken to be a private Act. 9 NINTH: - This Corporation is to have perpetual existence. TENTH: - The Board of Directors, by resolution passed by a majority of the whole Board, may designate any of their number to constitute an Executive Committee, which Committee, to the extent provided in said resolution, or in the By-Laws of the Company, shall have and may exercise all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, and shall have power to authorize the seal of the Corporation to be affixed to all papers which may require it. ELEVENTH: - The private property of the stockholders shall not be liable for the payment of corporate debts to any extent whatever. TWELFTH: - The Corporation may transact business in any part of the world. THIRTEENTH: - The Board of Directors of the Corporation is expressly authorized to make, alter or repeal the By-Laws of the Corporation by a vote of the majority of the entire Board. The stockholders may make, alter or repeal any By-Law whether or not adopted by them, provided however, that any such additional By-Laws, alterations or repeal may be adopted only by the affirmative vote of the holders of two-thirds or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class). FOURTEENTH: - Meetings of the Directors may be held outside of the State of Delaware at such places as may be from time to time designated by the Board, and the Directors may keep the books of the Company outside of the State of Delaware at such places as may be from time to time designated by them. FIFTEENTH: - (a) In addition to any affirmative vote required by law, and except as otherwise expressly provided in sections (b) and (c) of this Article FIFTEENTH: (A) any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with or into (i) any Interested Stockholder (as hereinafter defined) or (ii) any other corporation (whether or not itself an Interested Stockholder), which, after such merger or consolidation, would be an Affiliate (as hereinafter defined) of an Interested Stockholder, or (B) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of related transactions) to or with any Interested Stockholder or any Affiliate of any Interested Stockholder of any assets of the Corporation or any Subsidiary having an aggregate fair market value of $1,000,000 or more, or 10 (C) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of related transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate fair market value of $1,000,000 or more, or (D) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation, or (E) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any similar transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Stockholder, or any Affiliate of any Interested Stockholder, shall require the affirmative vote of the holders of at least two-thirds of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, considered for the purpose of this Article FIFTEENTH as one class ("Voting Shares"). Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that some lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise. (2) The term "business combination" as used in this Article FIFTEENTH shall mean any transaction which is referred to any one or more of clauses (A) through (E) of paragraph 1 of the section (a). (b) The provisions of section (a) of this Article FIFTEENTH shall not be applicable to any particular business combination and such business combination shall require only such affirmative vote as is required by law and any other provisions of the Charter or Act of Incorporation of By-Laws if such business combination has been approved by a majority of the whole Board. (c) For the purposes of this Article FIFTEENTH: (1) A "person" shall mean any individual firm, corporation or other entity. (2) "Interested Stockholder" shall mean, in respect of any business combination, any person (other than the Corporation or any Subsidiary) who or which as of the record date for the determination of stockholders entitled to notice of and to vote on 11 such business combination, or immediately prior to the consummation of any such transaction: (A) is the beneficial owner, directly or indirectly, of more than 10% of the Voting Shares, or (B) is an Affiliate of the Corporation and at any time within two years prior thereto was the beneficial owner, directly or indirectly, of not less than 10% of the then outstanding voting Shares, or (C) is an assignee of or has otherwise succeeded in any share of capital stock of the Corporation which were at any time within two years prior thereto beneficially owned by any Interested Stockholder, and such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. (3) A person shall be the "beneficial owner" of any Voting Shares: (A) which such person or any of its Affiliates and Associates (as hereafter defined) beneficially own, directly or indirectly, or (B) which such person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding, or (C) which are beneficially owned, directly or indirectly, by any other person with which such first mentioned person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of the Corporation. (4) The outstanding Voting Shares shall include shares deemed owned through application of paragraph (3) above but shall not include any other Voting Shares which may be issuable pursuant to any agreement, or upon exercise of conversion rights, warrants or options or otherwise. (5) "Affiliate" and "Associate" shall have the respective meanings given those terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on December 31, 1981. 12 (6) "Subsidiary" shall mean any corporation of which a majority of any class of equity security (as defined in Rule 3a11-1 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect in December 31, 1981) is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Investment Stockholder set forth in paragraph (2) of this section (c), the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation. (d) majority of the directors shall have the power and duty to determine for the purposes of this Article FIFTEENTH on the basis of information known to them, (1) the number of Voting Shares beneficially owned by any person (2) whether a person is an Affiliate or Associate of another, (3) whether a person has an agreement, arrangement or understanding with another as to the matters referred to in paragraph (3) of section (c), or (4) whether the assets subject to any business combination or the consideration received for the issuance or transfer of securities by the Corporation, or any Subsidiary has an aggregate fair market value of $1,00,000 or more. (e) Nothing contained in this Article FIFTEENTH shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. SIXTEENTH: Notwithstanding any other provision of this Charter or Act of Incorporation or the By-Laws of the Corporation (and in addition to any other vote that may be required by law, this Charter or Act of Incorporation by the By-Laws), the affirmative vote of the holders of at least two-thirds of the outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) shall be required to amend, alter or repeal any provision of Articles FIFTH, THIRTEENTH, FIFTEENTH or SIXTEENTH of this Charter or Act of Incorporation. SEVENTEENTH: (a) a Director of this Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, except to the extent such exemption from liability or limitation thereof is not permitted under the Delaware General Corporation Laws as the same exists or may hereafter be amended. (b) Any repeal or modification of the foregoing paragraph shall not adversely affect any right or protection of a Director of the Corporation existing hereunder with respect to any act or omission occurring prior to the time of such repeal or modification." 13 EXHIBIT B BY-LAWS WILMINGTON TRUST COMPANY WILMINGTON, DELAWARE AS EXISTING ON JANUARY 16, 1997 BY-LAWS OF WILMINGTON TRUST COMPANY ARTICLE I STOCKHOLDERS' MEETINGS Section 1. The Annual Meeting of Stockholders shall be held on the third Thursday in April each year at the principal office at the Company or at such other date, time, or place as may be designated by resolution by the Board of Directors. Section 2. Special meetings of all stockholders may be called at any time by the Board of Directors, the Chairman of the Board or the President. Section 3. Notice of all meetings of the stockholders shall be given by mailing to each stockholder at least ten (10 days before said meeting, at his last known address, a written or printed notice fixing the time and place of such meeting. Section 4. A majority in the amount of the capital stock of the Company issued and outstanding on the record date, as herein determined, shall constitute a quorum at all meetings of stockholders for the transaction of any business, but the holders of a small number of shares may adjourn, from time to time, without further notice, until a quorum is secured. At each annual or special meeting of stockholders, each stockholder shall be entitled to one vote, either in person or by proxy, for each shares of stock registered in the stockholder's name on the books of the Company on the record date for any such meeting as determined herein. ARTICLE II DIRECTORS Section 1. The number and classification of the Board of Directors shall be as set forth in the Charter of the Bank. Section 2. No person who has attained the age of seventy-two (72) years shall be nominated for election to the Board of Directors of the Company, provided, however, that this limitation shall not apply to any person who was serving as director of the Company on September 16, 1971. Section 3. The class of Directors so elected shall hold office for three years or until their successors are elected and qualified. Section 4. The affairs and business of the Company shall be managed and conducted by the Board of Directors. Section 5. The Board of Directors shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members, or at the call of the Chairman of the Board of Directors or the President. Section 6. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board of Directors or by the President, and shall be called upon the written request of a majority of the directors. Section 7. A majority of the directors elected and qualified shall be necessary to constitute a quorum for the transaction of business at any meeting of the Board of Directors. Section 8. Written notice shall be sent by mail to each director of any special meeting of the Board of Directors, and of any change in the time or place of any regular meeting, stating the time and place of such meeting, which shall be mailed not less than two days before the time of holding such meeting. Section 9. In the event of the death, resignation, removal, inability to act, or disqualification of any director, the Board of Directors, although less than a quorum, shall have the right to elect the successor who shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred, and until such director's successor shall have been duly elected and qualified. Section 10. The Board of Directors at its first meeting after its election by the stockholders shall appoint an Executive Committee, a Trust Committee, an Audit Committee and a Compensation Committee, and shall elect from its own members a Chairman of the Board of Directors and a President who may be the same person. The Board of Directors shall also elect at such meeting a Secretary and a Treasurer, who may be the same person, may appoint at any time such other committees and elect or appoint such other officers as it may deem advisable. The Board of Directors may also elect at such meeting one or more Associate Directors. Section 11. The Board of Directors may at any time remove, with or without cause, any member of any Committee appointed by it or any associate director or officer elected by it and may appoint or elect his successor. Section 12. The Board of Directors may designate an officer to be in charge of such of the departments or division of the Company as it may deem advisable. ARTICLE III COMMITTEES Section I. Executive Committee (A) The Executive Committee shall be composed of not more than nine members who shall be selected by the Board of Directors from its own members and who 2 shall hold office during the pleasure of the Board. (B) The Executive Committee shall have all the powers of the Board of Directors when it is not in session to transact all business for and in behalf of the Company that may be brought before it. (C) The Executive Committee shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members, or at the call of the Chairman of the Executive Committee or at the call of the Chairman of the Board of Directors. The majority of its members shall be necessary to constitute a quorum for the transaction of business. Special meetings of the Executive Committee may be held at any time when a quorum is present. (D) Minutes of each meeting of the Executive Committee shall be kept and submitted to the Board of Directors at its next meeting. (E) The Executive Committee shall advise and superintend all investments that may be made of the funds of the Company, and shall direct the disposal of the same, in accordance with such rules and regulations as the Board of Directors from time to time make. (F) In the event of a state of disaster of sufficient severity to prevent the conduct and management of the affairs and business of the Company by its directors and officers as contemplated by these By-Laws any two available members of the Executive Committee as constituted immediately prior to such disaster shall constitute a quorum of that Committee for the full conduct and management of the affairs and business of the Company in accordance with the provisions of Article III of these By-Laws; and if less than three members of the Trust Committee is constituted immediately prior to such disaster shall be available for the transaction of its business, such Executive Committee shall also be empowered to exercise all of the powers reserved to the Trust Committee under Article III Section 2 hereof. In the event of the unavailability, at such time, of a minimum of two members of such Executive Committee, any three available directors shall constitute the Executive Committee for the full conduct and management of the affairs and business of the Company in accordance with the foregoing provisions of this Section. This By-Law shall be subject to implementation by Resolutions of the Board of Directors presently existing or hereafter passed from time to time for that purpose, and any provisions of these By-Laws (other than this Section) and any resolutions which are contrary to the provisions of this Section or to the provisions of any such implementary Resolutions shall be suspended during such a disaster period until it shall be determined by any interim Executive Committee acting under this section that it shall be to the advantage of the Company to resume the conduct and management of its affairs and business under all of the other provisions of these By-Laws. 3 Section 2. Trust Committee (A) The Trust Committee shall be composed of not more than thirteen members who shall be selected by the Board of Directors, a majority of whom shall be members of the Board of Directors and who shall hold office during the pleasure of the Board. (B) The Trust Committee shall have general supervision over the Trust Department and the investment of trust funds, in all matters, however, being subject to the approval of the Board of Directors. (C) The Trust Committee shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members or at the call of its chairman. A majority of its members shall be necessary to constitute a quorum for the transaction of business. (D) Minutes of each meeting of the Trust Committee shall be kept and promptly submitted to the Board of Directors. (E) The Trust Committee shall have the power to appoint Committees and/or designate officers or employees of the Company to whom supervision over the investment of trust funds may be delegated when the Trust Committee is not in session. Section 3. Audit Committee (A) The Audit Committee shall be composed of five members who shall be selected by the Board of Directors from its own members, none of whom shall be an officer of the Company, and shall hold office at the pleasure of the Board. (B) The Audit Committee shall have general supervision over the Audit Division in all matters however subject to the approval of the Board of Directors; it shall consider all matters brought to its attention by the officer in charge of the Audit Division, review all reports of examination of the Company made by any governmental agency or such independent auditor employed for that purpose, and make such recommendations to the Board of Directors with respect thereto or with respect to any other matters pertaining to auditing the Company as it shall deem desirable. (C) The Audit Committee shall meet whenever and wherever the majority of its members shall deem it to be proper for the transaction of its business, and a majority of its Committee shall constitute a quorum. 4 Section 4. Compensation Committee (A) The Compensation Committee shall be composed of not more than five (5) members who shall be selected by the Board of Directors from its own members who are not officers of the Company and who shall hold office during the pleasure of the Board. (B) The Compensation Committee shall in general advise upon all matters of policy concerning the Company brought to its attention by the management and from time to time review the management of the Company, major organizational matters, including salaries and employee benefits and specifically shall administer the Executive Incentive Compensation Plan. (C) Meetings of the Compensation Committee may be called at any time by the Chairman of the Compensation Committee, the Chairman of the Board of Directors, or the President of the Company. Section 5. Associate Directors (A) Any person who has served as a director may be elected by the Board of Directors as an associate director, to serve during the pleasure of the Board. (B) An associate director shall be entitled to attend all directors meetings and participate in the discussion of all matters brought to the Board, with the exception that he would have no right to vote. An associate director will be eligible for appointment to Committees of the Company, with the exception of the Executive Committee, Audit Committee and Compensation Committee, which must be comprised solely of active directors. Section 6. Absence or Disqualification of Any Member of a Committee (A) In the absence or disqualification of any member of any Committee created under Article III of the By-Laws of this Company, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absence or disqualified member. ARTICLE IV OFFICERS Section 1. The Chairman of the Board of Directors shall preside at all meetings of the Board and shall have such further authority and powers and shall perform such duties as the Board of Directors may from time to time confer and direct. He shall also exercise such 5 powers and perform such duties as may from time to time be agreed upon between himself and the President of the Company. Section 2. The Vice Chairman of the Board. The Vice Chairman of the ------------------------------- Board of Directors shall preside at all meetings of the Board of Directors at which the Chairman of the Board shall not be present and shall have such further authority and powers and shall perform such duties as the Board of Directors or the Chairman of the Board may from time to time confer and direct. Section 3. The President shall have the powers and duties pertaining to the office of the President conferred or imposed upon him by statute or assigned to him by the Board of Directors in the absence of the Chairman of the Board the President shall have the powers and duties of the Chairman of the Board. Section 4. The Chairman of the Board of Directors or the President as designated by the Board of Directors, shall carry into effect all legal directions of the Executive Committee and of the Board of Directors, and shall at all times exercise general supervision over the interest, affairs and operations of the Company and perform all duties incident to his office. Section 5. There may be one or more Vice Presidents, however denominated by the Board of Directors, who may at any time perform all the duties of the Chairman of the Board of Directors and/or the President and such other powers and duties as may from time to time be assigned to them by the Board of Directors, the Executive Committee, the Chairman of the Board or the President and by the officer in charge of the department or division to which they are assigned. Section 6. The Secretary shall attend to the giving of notice of meetings of the stockholders and the Board of Directors, as well as the Committees thereof, to the keeping of accurate minutes of all such meetings and to recording the same in the minute books of the Company. In addition to the other notice requirements of these By-Laws and as may be practicable under the circumstances, all such notices shall be in writing and mailed well in advance of the scheduled date of any other meeting. He shall have custody of the corporate seal and shall affix the same to any documents requiring such corporate seal and to attest the same. Section 7. The Treasurer shall have general supervision over all assets and liabilities of the Company. He shall be custodian of and responsible for all monies, funds and valuables of the Company and for the keeping of proper records of the evidence of property or indebtedness and of all the transactions of the Company. He shall have general supervision of the expenditures of the Company and shall report to the Board of Directors at each regular meeting of the condition of the Company, and perform such other duties as may be assigned to him from time to time by the Board of Directors of the Executive Committee. 6 Section 8. There may be a Controller who shall exercise general supervision over the internal operations of the Company, including accounting, and shall render to the Board of Directors at appropriate times a report relating to the general condition and internal operations of the Company. There may be one or more subordinate accounting or controller officers however denominated, who may perform the duties of the Controller and such duties as may be prescribed by the Controller. Section 9. The officer designated by the Board of Directors to be in charge of the Audit Division of the Company with such title as the Board of Directors shall prescribe, shall report to and be directly responsible only to the Board of Directors. There shall be an Auditor and there may be one or more Audit Officers, however denominated, who may perform all the duties of the Auditor and such duties as may be prescribed by the officer in charge of the Audit Division. Section 10. There may be one or more officers, subordinate in rank to all Vice Presidents with such functional titles as shall be determined from time to time by the Board of Directors, who shall ex officio hold the office Assistant Secretary of this Company and who may perform such duties as may be prescribed by the officer in charge of the department or division to whom they are assigned. Section 11. The powers and duties of all other officers of the Company shall be those usually pertaining to their respective offices, subject to the direction of the Board of Directors, the Executive Committee, Chairman of the Board of Directors or the President and the officer in charge of the department or division to which they are assigned. ARTICLE V STOCK AND STOCK CERTIFICATES Section 1. Shares of stock shall be transferrable on the books of the Company and a transfer book shall be kept in which all transfers of stock shall be recorded. Section 2. Certificate of stock shall bear the signature of the President or any Vice President, however denominated by the Board of Directors and countersigned by the Secretary or Treasurer or an Assistant Secretary, and the seal of the corporation shall be engraved thereon. Each certificate shall recite that the stock represented thereby is transferrable only upon the books of the Company by the holder thereof or his attorney, upon surrender of the certificate properly endorsed. Any certificate of stock surrendered to the Company shall be cancelled at the time of transfer, and before a new certificate or certificates shall be issued in lieu thereof. Duplicate certificates of stock shall be issued only upon giving such security as may be satisfactory to the Board of Directors or the Executive 7 Committee. Section 3. The Board of Directors of the Company is authorized to fix in advance a record date for the determination of the stockholders entitled to notice of, and to vote at, any meeting of stockholders and any adjournment thereof, or entitled to receive payment of any dividend, or to any allotment or rights, or to exercise any rights in respect of any change, conversion or exchange of capital stock, or in connection with obtaining the consent of stockholders for any purpose, which record date shall not be more than 60 nor less than 10 days proceeding the date of any meeting of stockholders or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining such consent. ARTICLE VI SEAL Section 1. The corporate seal of the Company shall be in the following form: Between two concentric circles the words "Wilmington Trust Company" within the inner circle the words "Wilmington, Delaware." ARTICLE VII FISCAL YEAR Section 1. The fiscal year of the Company shall be the calendar year. ARTICLE VIII EXECUTION OF INSTRUMENTS OF THE COMPANY Section 1. The Chairman of the Board, the President or any Vice President, however denominated by the Board of Directors, shall have full power and authority to enter into, make, sign, execute, acknowledge and/or deliver and the Secretary or any Assistant Secretary shall have full power and authority to attest and affix the corporate seal of the Company to any and all deeds, conveyances, assignments, releases, contracts, agreements, bonds, notes, mortgages and all other instruments incident to the business of this Company or in acting as executor, administrator, guardian, trustee, agent or in any other fiduciary or representative capacity by any and every method of appointment or by whatever person, corporation, court officer or authority in the State of Delaware, or elsewhere, without any specific authority, ratification, approval or confirmation by the Board of Directors or the Executive Committee, and any and all such instruments shall have the same force and 8 validity as although expressly authorized by the Board of Directors and/or the Executive Committee. ARTICLE IX COMPENSATION OF DIRECTORS AND MEMBERS OF COMMITTEES Section 1. Directors and associate directors of the Company, other than salaried officers of the Company, shall be paid such reasonable honoraria or fees for attending meetings of the Board of Directors as the Board of Directors may from time to time determine. Directors and associate directors who serve as members of committees, other than salaried employees of the Company, shall be paid such reasonable honoraria or fees for services as members of committees as the Board of Directors shall from time to time determine and directors and associate directors may be employed by the Company for such special services as the Board of Directors may from time to time determine and shall be paid for such special services so performed reasonable compensation as may be determined by the Board of Directors. ARTICLE X INDEMNIFICATION Section 1. (A) The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding") by reason of the fact that he, or a person for whom he is the legal representative, is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, fiduciary or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person. The Corporation shall indemnify a person in connection with a proceeding initiated by such person only if the proceeding was authorized by the Board of Directors of the Corporation. (B) The Corporation shall pay the expenses incurred in defending any proceeding in advance of its final disposition, provided, however, that the -------- ------- payment of expenses incurred by a Director officer in his capacity as a Director or officer in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Director or officer to repay all amounts advanced if it should be ultimately determined that the Director or officer is not entitled to be indemnified under this Article or otherwise. (C) If a claim for indemnification or payment of expenses, under this Article X is not paid in full within ninety days after a written claim therefor has been 9 received by the Corporation the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification of payment of expenses under applicable law. (D) The rights conferred on any person by this Article X shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the Charter or Act of Incorporation, these By- Laws, agreement, vote of stockholders or disinterested Directors or otherwise. (E) Any repeal or modification of the foregoing provisions of this Article X shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. ARTICLE XI AMENDMENTS TO THE BY-LAWS Section 1. These By-Laws may be altered, amended or repealed, in whole or in part, and any new By-Law or By-Laws adopted at any regular or special meeting of the Board of Directors by a vote of the majority of all the members of the Board of Directors then in office. 10 EXHIBIT C SECTION 321(b) CONSENT Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as amended, Wilmington Trust Company hereby consents that reports of examinations by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon requests therefor. WILMINGTON TRUST COMPANY Dated: February 21, 1997 By: /s/ Emmett R. Harmon -------------------- Name: Emmett R. Harmon Title: Vice President EXHIBIT D NOTICE This form is intended to assist state nonmember banks and savings banks with state publication requirements. It has not been approved by any state banking authorities. Refer to your appropriate state banking authorities for your state publication requirements. R E P O R T O F C O N D I T I O N Consolidating domestic subsidiaries of the WILMINGTON TRUST COMPANY of WILMINGTON - --------------------------------------------- --------------- Name of Bank City in the State of DELAWARE , at the close of business on December 31, 1996. ---------------
ASSETS Thousands of dollars Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coins................ 213,895 Interest-bearing balances.......................................... 0 Held-to-maturity securities.............................................. 465,818 Available-for-sale securities............................................ 752,297 Federal funds sold....................................................... 95,000 Securities purchased under agreements to resell.......................... 39,190 Loans and lease financing receivables: Loans and leases, net of unearned income............. 3,634,003 LESS: Allowance for loan and lease losses........... 51,847 LESS: Allocated transfer risk reserve............... 0 Loans and leases, net of unearned income, allowance, and reserve... 3,582,156 Assets held in trading accounts.......................................... 0 Premises and fixed assets (including capitalized leases)................. 89,129 Other real estate owned.................................................. 3,520 Investments in unconsolidated subsidiaries and associated companies...... 52 Customers' liability to this bank on acceptances outstanding............. 0 Intangible assets........................................................ 4,593 Other assets............................................................. 114,300 Total assets............................................................. 5,359,950
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LIABILITIES Deposits: In domestic offices...................................................... 3,749,697 Noninterest-bearing................ 852,790 Interest-bearing................... 2,896,907 Federal funds purchased.................................................. 77,825 Securities sold under agreements to repurchase........................... 192,295 Demand notes issued to the U.S. Treasury................................. 53,526 Trading liabilities...................................................... 0 Other borrowed money:.................................................... /////// With original maturity of one year or less......................... 714,000 With original maturity of more than one year....................... 43,000 Mortgage indebtedness and obligations under capitalized leases........... 0 Bank's liability on acceptances executed and outstanding................. 0 Subordinated notes and debentures........................................ 0 Other liabilities........................................................ 98,756 Total liabilities........................................................ 4,929,099 Limited-life preferred stock and related surplus......................... 0 EQUITY CAPITAL Perpetual preferred stock and related surplus............................ 0 Common Stock............................................................. 500 Surplus.................................................................. 62,118 Undivided profits and capital reserves................................... 367,371 Net unrealized holding gains (losses) on available-for-sale securities... 862 Total equity capital..................................................... 430,851 Total liabilities, limited-life preferred stock, and equity capital...... 5,359,950
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