-----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, UoSEzhdCxXCdA/Ta+SMDg/O3rb37qEsP9/Orr7TfBd0Gp1sskHq5QGu/MjYhawn9 WuO1tDqwuthF1hGj3nzNOA== 0001012870-01-000343.txt : 20010205 0001012870-01-000343.hdr.sgml : 20010205 ACCESSION NUMBER: 0001012870-01-000343 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010201 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREATER BAY BANCORP CENTRAL INDEX KEY: 0000775473 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 770387041 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-25034 FILM NUMBER: 1521720 BUSINESS ADDRESS: STREET 1: 2860 WEST BAYSHORE ROAD CITY: PALO ALTO STATE: CA ZIP: 94303 BUSINESS PHONE: 4153751555 MAIL ADDRESS: STREET 1: 2860 BAYSHORE ROAD 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 10-K 1 0001.txt FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark one) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required) For the fiscal year ended December 31, 2000 [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required) For the transition period from to . Commission File No. 0-25034 GREATER BAY BANCORP (Exact name of registrant as specified in its charter) California 77-0387041 (State or other jurisdiction of (I.R.S. Employer Identification No.) Incorporation or organization)
2860 West Bayshore Road, Palo Alto, California 94303 (Address of principal executive offices)(Zip Code) Registrant's telephone number, including area code: (650) 813-8200 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par value 9.75% Cumulative Trust Preferred Securities of GBB Capital I Guarantee of Greater Bay Bancorp with respect to the 9.75% Cumulative Trust Preferred Securities of GBB Capital I Preferred Share Purchase Rights (Title of classes) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] The aggregate market value of the Common Stock held by non-affiliates, based upon the closing sale price of the Common Stock on January 23, 2001, as reported on the Nasdaq National Market System, was approximately $1,500,550,000. Shares of Common Stock held by each officer, director and holder of 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. Such determination of affiliate status is not necessarily a conclusive determination for other purposes. As of January 23, 2001, 42,204,295 shares of the Registrant's Common Stock were outstanding.
Document Incorporated By Reference: Part of Form 10K Into Which Incorporated: ----------------------------------- ----------------------------------------- Definitive Proxy Statement for Annual Meeting Part III of Shareholders to be filed within 120 days of the fiscal year ended December 31, 2000
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ANNUAL REPORT ON FORM 10-K PART I Discussions of certain matters contained in this Annual Report on Form 10-K may constitute forward-looking statements within the meaning of the Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and as such, may involve risks and uncertainties. These forward-looking statements relate to, among other things, expectations of the business environment in which Greater Bay Bancorp (referred to as the "Company" or "we" when such reference includes Greater Bay Bancorp and its subsidiaries, collectively, "Greater Bay" when referring only to the parent company and "the Banks" when referring only to Greater Bay's banking subsidiaries, Bay Area Bank, Bank of Petaluma, Bank of Santa Clara, Bay Bank of Commerce, Coast Commercial Bank, Cupertino National Bank, Golden Gate Bank, Mid-Peninsula Bank, Mt. Diablo National Bank and Peninsula Bank of Commerce) operates, projections of future performance, perceived opportunities in the market and statements regarding the Company's mission and vision. The Company's actual results, performance and achievements may differ materially from the results, performance and achievements expressed or implied in such forward-looking statements. For a discussion of some of the factors that might cause such a difference, see "Item 1. Business--Factors That May Affect Future Results of Operations". ITEM 1. BUSINESS. Greater Bay Bancorp Greater Bay is a bank holding company with 10 bank subsidiaries: Bank of Petaluma, Bank of Santa Clara, Bay Area Bank, Bay Bank of Commerce, Coast Commercial Bank, Cupertino National Bank, Golden Gate Bank, Mid-Peninsula Bank, Mt. Diablo National Bank and Peninsula Bank of Commerce. GBB Capital I, GBB Capital II, GBB Capital III and GBB Capital IV, which are Delaware statutory business trusts formed for the exclusive purpose of issuing and selling trust preferred securities, are also subsidiaries of the Company. The Company also owns Matsco Lease Finance, Inc. II and Matsco Lease Finance, Inc. III, which are special purpose corporations formed for the exclusive purpose of securitizing leases and issuing lease-backed notes. The Company also operates through the following divisions: Greater Bay Bank Contra Costa Region, Greater Bay Bank Fremont Region, Greater Bay Bank Santa Clara Valley Commercial Banking Group, Greater Bay Bank SBA Lending Group, Greater Bay Corporate Finance Group, Greater Bay International Banking Division, Greater Bay Trust Company, Matsco, Pacific Business Funding and the Venture Banking Group. The Company provides a wide range of commercial banking services to small and medium-sized businesses, real estate developers, property managers, business executives, professionals and other individuals. The Company operates throughout the San Francisco Bay Area including Silicon Valley, San Francisco and the San Francisco Peninsula, the East Bay, Santa Cruz and Sonoma County, with 37 full service banking offices located in Aptos, Blackhawk, Capitola, Cupertino, Danville, Fremont, Hayward, Lafayette, Millbrae, Milpitas, Palo Alto, Petaluma, Pleasanton, Point Reyes Station, Redwood City, San Francisco, San Jose, San Leandro, San Mateo, San Ramon, Santa Clara, Santa Cruz, Scotts Valley, Sunnyvale, Valley Ford, Walnut Creek and Watsonville. At December 31, 2000, the Company had total assets of $5.1 billion, total loans, net, of $3.5 billion and total deposits of $4.2 billion. 1 History Greater Bay became a multi-bank holding company as the result of the November 1996 merger of Cupertino National Bancorp and Mid-Peninsula Bancorp. Mid-Peninsula Bancorp was incorporated in 1984 under the name San Mateo County Bancorp as the bank holding company of WestCal National Bank. In 1994, WestCal National Bank was merged with Mid-Peninsula Bank, which commenced operations in October 1987. Concurrently San Mateo County Bancorp changed its name to Mid-Peninsula Bancorp. The name was then changed to Greater Bay Bancorp as a result of the 1996 merger. On consummation of the November 1996 merger between Cupertino National Bancorp and Mid-Peninsula Bancorp, we changed our name to Greater Bay Bancorp and Cupertino National Bank became a wholly-owned subsidiary. Cupertino National Bank commenced operations in May 1985. Greater Bay has continued to expand its presence within its market area by affiliating with other quality banking organizations, and select niche financial services companies. In addition the Company has been successful in opening key regional bank locations to respond to market and client demands, while also selectively opening key new businesses that expand the Company's product offerings. The following provides a chronological listing of mergers that the Company has completed since November 27, 1996:
Year Former bank holding commenced Date of merger Entity company operations -------------- ------ ------------------- ---------- December 23, 1997 Peninsula Bank of Commerce none 1981 May 8, 1998 Golden Gate Bank Pacific Rim Bancorporation 1976 August 31, 1998 Pacific Business Funding Corporation(1) n/a 1995 May 21, 1999 Bay Area Bank Bay Area Bancshares 1979 October 15, 1999 Bay Bank of Commerce Bay Commercial Services 1981 January 31, 2000 Mt. Diablo National Bank Mt. Diablo Bancshares 1993 May 18, 2000 Coast Commercial Bank Coast Bancorp 1982 July 21, 2000 Bank of Santa Clara none 1973 October 13, 2000 Bank of Petaluma none 1987 November 30, 2000 The Matsco Companies, Inc.(2) n/a 1983
- -------- (1) Operates as a division of Cupertino National Bank and conducts business under the name Pacific Business Funding. (2) Operates as a division of Cupertino National Bank and conducts business under the name Matsco. With the exception of the merger with The Matsco Companies, Inc., all of these mergers were accounted for as a pooling-of-interests and, accordingly, all of the financial information of the Company for the periods prior to the mergers has been restated as if the mergers had occurred at the beginning of the earliest reporting period presented. The merger with The Matsco Companies, Inc. was accounted for using the purchase accounting method and accordingly The Matsco Companies, Inc.'s results of operations have been included in the consolidated financial statements since the date of acquisition. Company Goals The Company strives to achieve seven primary goals. These goals include: . Developing a greater banking presence throughout the San Francisco Bay Area and other selected markets, primarily in Northern California, by increasing the number of banking offices available to clients; . Reaching a critical mass in the Company's market areas to meet the competitive challenges of the banking and financial services industries; . Maximizing the utilization of capital by increasing the float and marketability of its common stock and, by virtue of its larger size, obtaining access to lower cost capital; 2 . Realizing operating efficiencies through the acquisition of banking and financial services companies under a holding company umbrella; . Generating increased loan and fee income as a result of the higher lending limits available to the combined entity; . Leveraging marketing expense to improve the return on the combined entity's marketing investment; and . Enabling banking and financial services subsidiaries to cross-sell services. Super Community Banking Philosophy In order to meet the demands of the increasingly competitive banking and financial services industries, we have adopted a business philosophy referred to as the "Super Community Banking Philosophy". Our Super Community Banking Philosophy is based on our belief that banking clients value doing business with locally managed institutions that can provide a full service commercial banking relationship through an understanding of the clients' financial needs and the flexibility to deliver customized solutions through our menu of products and services. We also believe that banks who affiliate with Greater Bay and implement our Super Community Banking Philosophy are better able to build successful client relationships as the holding company provides cost effective administrative support services while promoting bank autonomy and flexibility in serving client needs. To implement this philosophy, we operate each of our banking subsidiaries by retaining their independent names and separate Boards of Directors. Our banking subsidiaries have established strong reputations and client followings in their 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 currently intends to continue to market its services under each Bank's name, primarily through each Bank's relationship managers. The primary focus for the Banks' relationship managers is to cultivate and nurture their client relationships. Relationship managers are assigned to each borrowing client to provide continuity in the relationship. This emphasis on personalized relationships requires that all of the relationship managers maintain close ties to the communities in which they serve, so they are able to capitalize on their efforts through expanded business opportunities for the Banks. While client service decisions and day-to-day operations are maintained at the Banks, Greater Bay offers the advantages of affiliation with a multi-bank holding company by providing expanded client support services, such as increased client lending capacity, business cash management and international trade finance services. In addition, Greater Bay provides centralized administrative functions, including support in credit policy formulation and review, investment management, data processing, accounting, loan servicing and other specialized support functions. All of these centralized services are designed to enhance the ability of the relationship manager to expand their client relationship base. Corporate Growth Strategy The Company's primary goal is to become the preeminent independent financial services company in Northern California. The Company's primary business strategy is to focus on increasing its market share within the communities it serves through continued internal growth. The Company also pursues opportunities to expand its market share through select acquisitions that management believes complement the Company's businesses. Management pursues acquisition opportunities in contiguous and infill market areas. Consistent with the Company's operating philosophy and growth strategy, Greater Bay regularly evaluates opportunities to acquire banks and other financial services companies that complement the Company's existing business, expand its market coverage and share and enhance its client product offerings. 3 Greater Bay Bancorp's Family of Companies The following provides a summary of all of the affiliated banks and operating divisions of the Company. Banks Bank of Petaluma Bank of Petaluma presently has four full service regional offices. At December 31, 2000, Bank of Petaluma had total assets of $214.9 million, total net loans of $122.7 million and total deposits of $180.2 million. Bank of Santa Clara Bank of Santa Clara presently has eight full service regional offices. At December 31, 2000, Bank of Santa Clara had total assets of $416.9 million, total net loans of $258.2 million and total deposits of $376.8 million. Bay Area Bank Bay Area Bank presently has one full service regional office. At December 31, 2000, Bay Area Bank had total assets of $207.4 million, total net loans of $154.0 million and total deposits of $166.8 million. Bay Bank of Commerce Bay Bank of Commerce presently has three full service regional offices. At December 31, 2000, Bay Bank of Commerce had total assets of $163.8 million, total net loans of $123.2 million and total deposits of $133.7 million. Coast Commercial Bank Coast Commercial Bank presently has six full service regional offices. At December 31, 2000, Coast Commercial Bank had total assets of $440.3 million, total net loans of $217.2 million and total deposits of $315.9 million. Cupertino National Bank Cupertino National Bank presently has seven locations, including five full service regional offices. At December 31, 2000, Cupertino National Bank had total assets of $1.7 billion, total net loans of $1.3 billion and total deposits of $1.3 billion. Golden Gate Bank Golden Gate Bank presently has one full service regional office. On December 31, 2000, Golden Gate Bank had total assets of $272.6 million, total net loans of $173.4 million and total deposits of $225.4 million. Mid-Peninsula Bank Mid-Peninsula Bank presently has four full service regional offices. On December 31, 2000, Mid-Peninsula Bank had total assets of $1.1 billion, total net loans of $748.1 million and total deposits of $914.5 million. Mt. Diablo National Bank Mt. Diablo National Bank presently has four full service regional offices. At December 31, 2000, Mt. Diablo National Bank had total assets of $333.4 million, total net loans of $182.1 million and total deposits of $273.0 million. 4 Peninsula Bank of Commerce Peninsula Bank of Commerce presently has one full service regional office. On December 31, 2000, Peninsula Bank of Commerce had total assets of $296.3 million, total net loans of $210.3 million and total deposits of $259.8 million. Operating Divisions Greater Bay Bank Contra Costa Region and Greater Bay Bank Fremont Region The Company believes that the East Bay has a tremendous potential for growth. In order to establish a presence in the East Bay market, the Company formed the Contra Costa and Fremont regional offices. Each of these offices offers a full line of business banking services. Greater Bay Bank Santa Clara Valley Commercial Banking Group Greater Bay Bank Santa Clara Valley Commercial Banking Group offers a full line of business banking services, catering to the needs of small to medium- sized businesses, professional firms and the executives who own and operate their business. The services include a full range of deposit accounts, cash management and credit facilities custom-tailored to meet the specific needs of its clients. Greater Bay Bank SBA Lending Group The Greater Bay Bank SBA Lending Group provides loans to smaller businesses on which the Small Business Administration ("SBA") generally provides guarantees between 65% to 80% of the principal loan amount. The SBA has named both Coast Commercial Bank and Cupertino National Bank as Preferred Lenders. The SBA awards Preferred Lender status to lenders who have demonstrated superior ability to generate, underwrite and service loans that the SBA guarantees. This status results in more rapid turnaround of loan applications submitted to the SBA for approval. The group is able to utilize this status to provide this same level of service to clients of all of the Banks. Greater Bay Corporate Finance Group Greater Bay Corporate Finance Group primarily focuses on originating loans to companies that have revenues in excess of $20 million and financing requirements in the range of $5 million to $250 million. Greater Bay Corporate Finance Group primarily participates in direct sourced transactions as the lead agent. Greater Bay Corporate Finance Group has also participated in syndicated loan transactions. Greater Bay Trust Company Greater Bay Trust Company provides trust services to support the trust needs of the Banks' business and personal clients. These services include, but are not limited to, custodial, investment management, estate planning resources and employee benefit plan services. International Banking Division International Banking Division provides a wide range of financial services to support the international banking needs of the Banks' clients, including identifying certain risks of conducting business abroad and providing international letters of credit, documentary collections and other trade finance services. In 2000, the Export-Import Bank of the United States increased International Banking Division's delegated authority status from the "Medium" level to the "High" level to provide foreign receivable financing to local exporters. The Export-Import Bank allows "High" level delegated authority lenders to approve working capital loans up to $5.0 million per exporter, and to approve an aggregate total of up to $75 million in loans. 5 Matsco Matsco is engaged in providing financial services, primarily loans and leases, to the dental and veterinary health professions. At December 31, 2000 approximately 87% of Matsco's outstanding loans and leases was to dental businesses, while the remaining was to veterinarians. Pacific Business Funding Pacific Business Funding is an asset-based lending and factoring division that provides alternative funding and support programs designed to enhance the Company's small business banking services. Venture Banking Group Venture Banking Group serves the needs of companies in their start-up and development phase, 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 their shareholders. Banking Services The Company provides a wide range of commercial banking and financial services to small and medium-sized businesses, real estate developers and property managers, business executives, professionals and other individuals. The Banks offer a wide range of deposit products, including 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 clients and include cash management and international trade finance services for business clients, traveler's checks, safe deposit and MasterCard and Visa merchant deposit 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 $100.0 million with a primary focus on business clients with borrowing needs between $2.0 million and $10.0 million. The Banks' commercial clients are drawn from a wide variety of manufacturing, technology, real estate, wholesale and service businesses. The Banks provide interim real estate construction loans primarily in the Banks' service areas for single- family residences, which typically range between approximately $500,000 and $1.0 million, multi-unit projects, which typically range between approximately $1.5 million and $4.0 million and commercial real estate, primarily owner- occupied, which typically range between $1.5 million to $7.5 million. The Banks also provide medium term commercial real estate loans or credits, typically ranging between $1.0 million and $10.0 million for the financing of commercial or industrial buildings where the owners either use the properties for business purposes or derive income from tenants. Market Area The Banks concentrate on marketing their services to small and medium-sized businesses, professionals and individuals in Alameda, Contra Costa, Santa Clara, San Francisco, San Mateo, Santa Cruz, and Sonoma Counties. . Bank of Petaluma's primary base of operations is in Petaluma, California and extends through Sonoma County. Sonoma Country has a population of approximately 450,000. . Bank of Santa Clara's primary base of operations is in Santa Clara, California, which is located in the geographic area referred to as "Silicon Valley". Bank of Santa Clara's operation extends throughout Santa Clara County. Santa Clara County has a population of approximately 1,737,000. 6 . Bay Area Bank's primary base of operations is in Redwood City, California and includes central San Mateo County. San Mateo county has a population of approximately 730,000. . Bay Bank of Commerce's primary base of operations is San Leandro, California and extends through Alameda and Southern Contra Costa counties. Alameda County and Contra Costa County have populations of approximately 1,454,000 and 930,000, respectively. . Coast Commercial Bank's primary base of operations is in Santa Cruz, California and extends through Santa Cruz County. Santa Cruz County has a population of approximately 255,000. . Cupertino National Bank's primary base of operations is in Cupertino, California, which is in the center of the geographic area referred to as "Silicon Valley". Cupertino National Bank's operations extend throughout Santa Clara County. . Golden Gate Bank's primary base of operations is centered in the City and County of San Francisco. San Francisco County has a population of approximately 801,000. . Mt. Diablo National Bank's primary base of operations is Danville, California and extends through Contra Costa and northern Alameda Counties. . Mid-Peninsula Bank's primary base of operations is centered in Palo Alto, California and extends north through San Mateo County. Mid- Peninsula Bank has formed operating divisions located in Alameda and Contra Costa Counties. . Peninsula Bank of Commerce's primary base of operations is centered in Millbrae, California, and includes northern San Mateo County and extends into San Francisco County. The commercial base of Alameda, Contra Costa, Santa Cruz, Santa Clara, Santa Cruz, San Francisco, San Mateo and Sonoma Counties is diverse and includes computer and semiconductor manufacturing, professional services, biotechnology, printing and publishing, aerospace, defense and real estate construction, as well as wholesale and retail trade. As a result of its geographic concentration, the Company's results depend largely upon economic conditions in these areas. While the economy in the Company's market areas has exhibited positive economic and employment trends, there is no assurance that such trends will continue. A deterioration in economic conditions could have a material adverse impact on the quality of the Company's loan portfolio and the demand for its products and services, and accordingly its results of operations. See "Item 1. Business--Factors That May Affect Future Results of Operations." Matsco markets its dental and veterinarian financing services nationally through its main office in Emeryville, California and marketing representatives located in ten states. At December 31, 2000, approximately $180 million in outstanding loans and leases originated by Matsco are with borrowers located outside of the State of California. Those loans and leases are distributed throughout the United States, with the largest volume having been originated in Florida, where Matsco has outstanding balances totaling approximately $14 million. Similarly, the Greater Bay Corporate Finance Group participates in loan transactions which are originated nationally. At December 31, 2000, approximately $70 million in outstanding loans in which Greater Bay Corporate Finance Group has participated are with borrowers located outside of the State of California. Our other operating divisions primarily conduct business in the San Francisco Bay Area. 7 Lending Activities Underwriting and Credit Administration The lending activities of each of the Banks is guided by the basic lending policies established by its Board of Directors. Each loan must meet minimum underwriting criteria established in the Bank's lending policy. Lending authority is granted to officers of each Bank on a limited basis. Loan requests which exceed individual officer approval limits are approved on a pooled-authority basis up to a maximum limit for each Bank. Loan requests exceeding these limits are submitted to the Company's 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 Mid-Peninsula Bank and the Senior Vice President and Chief Credit Officer of Greater Bay. All members of the Officers' Loan Committee are also officers of the individual Banks. Loan requests which exceed the limits of the Company's Officers' Loan Committee are submitted to the Directors' Loan Committee. The Directors' Loan Committee consists of at least one outside director of each of the Banks. Each of these committees meets 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 Company's Officers' Loan Committee, Chief Administrative Officer/Chief Financial Officer and Controller review information at least once a month related to delinquencies, nonperforming assets, classified assets and other pertinent information to evaluate credit risk within each Bank's loan portfolio and to review the Company's allowance for loan losses. Loan Portfolio The composition of the Company's gross loan portfolio at December 31, 2000 was as follows: . approximately 43.2% were commercial loans, including 26.8% which were commercial real estate term loans; . approximately 19.1% were in real estate construction and land loans, which are split evenly between commercial properties and residential projects; . approximately 4.9% were other real estate term loans, primarily secured by residential real estate; and . the balance of the portfolio consists of leases and consumer loans. The interest rates the Banks charge vary with the degree of risk, size and maturity of the loans. In addition, competition from other financial services companies and analyses of the client's deposit relationship with the Bank and the Bank's cost of funds impact the interest rate charged on loans. Commercial Loans. In their commercial loan portfolios, the Banks provide personalized financial services to the diverse commercial and professional businesses in their market areas. Commercial loans, including those made by the Venture Banking Group, consist primarily of short-term loans (normally with a maturity of under one year) to support business operations. The Banks focus on businesses with annual revenues generally between $1.0 million and $100.0 million with borrowing needs generally between $2.0 million and $10.0 million. The Banks' commercial clients are drawn from a wide variety of manufacturing, technology, real estate, wholesale and service businesses. Commercial loans also include those loans made by the Greater Bay Corporate Finance Group. 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. 8 The Venture Banking Group provides innovative lending products and other financial services, tailored to the needs of start-up and development-stage companies. The Venture Banking Group's typical clients include technology companies, ranging from multimedia, software and telecommunications providers to bio-technology and medical device firms. Borrowings are generally secured by minimum cash balances, accounts receivable, intellectual property rights, inventory and equipment of the companies. Because these companies are in the start-up or development phase, many of them will not generate any revenues for several years. The Company often receives warrants from these companies as part of the compensation for its services. As of December 31, 2000, the Venture Banking Group had loans outstanding to start-up and development phase companies of approximately $95.5 million. The Greater Bay Corporate Finance Group specializes in providing commercial loans to small and medium sized, non-investment grade middle market companies. Credit facilities are designed to supplement the borrower's ongoing working capital needs, assist with the purchase of fixed assets or aid in the financing of strategic acquisitions. Loan facilities are typically collateralized by a first priority security interest in all of the borrower's assets and are generally structured based on the value of the borrower's assets or the company's historical cash flow. The Greater Bay Corporate Finance Group primarily sources its own relationships and to a lesser extend participates in syndicated loan transaction lead by other financial institutions serving the Greater Bay Corporate Finance Group's identified market niche. The Company participates in many SBA programs and, through the Greater Bay Bank SBA Lending Group, 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 to the customer. The Company utilizes both the 504 program, which is focused toward longer-term financing of buildings, and other long-term assets, and the 7A program which is primarily used for financing of the equipment, inventory and working capital needs of eligible businesses generally over a three- to seven-year term. 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 focuses on providing short-term (generally less than one year maturity) loans to individuals and developers with whom the Banks have established relationships for the construction primarily of single family residences in the Banks' market areas. Real estate construction loans for single family residences typically range between approximately $500,000 and $1.0 million, and for multi-unit projects typically range between approximately $1.5 million and $5.0 million. 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 borrowers who intend to construct a single family residence on the lot generally within twelve months. In addition, the Banks also 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. 9 Real Estate Term Loans. The Banks provide medium-term commercial real estate loans secured by commercial or industrial buildings where the owner either uses the property for business purposes or derives income from tenants. The Company's loan policies require the principal balance of the loan, generally between $400,000 and $15.0 million, to be no more than 70% of the stabilized appraised value of the underlying real estate collateral. The loans, which are typically secured by first deeds of trust only, generally have terms of no more than seven to ten years and are amortized over 20-25 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 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 obtain deposits 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 that commercial banks provide to customers. The Banks' deposits are not received from a single depositor or group of affiliated depositors, the loss of any one of which would have a material adverse effect on the business of the Company or any of the Banks. Rates paid on deposits vary among the categories of deposits due to different terms, the size of the individual deposit, and rates paid by competitors on similar deposits. Cupertino National Bank has two business units that provide significant support to its deposit base. The Greater Bay Trust Company has approximately 7.2% of its trust assets under management in liquid funds that are retained in Cupertino National Bank money market demand accounts. At December 31, 2000, these funds totaled $55.5 million. The Venture Banking Group is another source of deposits as most of the start-up phase companies have significant liquidity that is deposited in Cupertino National Bank as part of the banking relationship. At December 31, 2000, clients of the Venture Banking Group had $482.3 million in deposits at Cupertino National Bank. See "Item 1. Business-- Factors That May Affect Future Results of Operations" for additional discussion regarding business risks related to the Company's deposits. Trust Services The Greater Bay Trust Company, which is a division of Cupertino National Bank, 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 $773.8 million at December 31, 2000, compared to $697.4 million at December 31, 1999 and $649.3 million at December 31, 1998. 10 Competition The banking and financial services industry 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 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 range of financial services than the Banks. In addition, recent federal legislation may have the effect of further increasing the pace of consolidation within the financial services industry. See "Item 1. Business--Supervision and Regulation--Financial Services Modernization Legislation." 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 their customers, and specialized services tailored to meet the needs of the communities served. 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 their correspondents. The Banks have 37 offices located in Alameda, Contra Costa, San Francisco, San Mateo, Santa Clara, Santa Cruz and Sonoma counties in California. As of June 30, 1999, the latest date for which the FDIC branch data is available, the deposits of the Banks represented 4.4% of the deposits for all financial service companies in San Mateo County, 4.8% of all deposits in Santa Clara County, 11.0% of all deposits in Santa Cruz County and 2.2% of all deposits in Sonoma County. The deposits of the Banks represent less than 1% of the deposits for all financial service companies in Alameda, Contra Costa and San Francisco Counties. The total deposits of the Banks represents 2.0% of the deposits for all financial service companies in the San Francisco Bay Area, which includes Marin, Napa and Solano Counties in addition to the above seven counties. Economic Conditions, Government Policies, Legislation, and Regulation The Company's profitability, like most financial institutions, is primarily dependent on interest rate differentials. In general, the difference between the interest rates paid by the Banks on interest-bearing liabilities, such as deposits and other borrowings, and the interest rates received by the Banks on their interest-earning assets, such as loans extended to their clients and securities held in their investment portfolios, comprise the major portion of the Company's earnings. These rates are highly sensitive to many factors that are beyond the control of Greater Bay and the Banks, such as inflation, recession and unemployment, and the impact which future changes in domestic and foreign economic conditions might have on Greater Bay and the Banks cannot be predicted. The Company's business is also influenced by the monetary and fiscal policies of the federal government and the policies of regulatory agencies, particularly the Board of Governors of the Federal Reserve System (the "Federal Reserve"). The Federal Reserve implements national monetary policies (with objectives such as curbing inflation and combating recession) through its open-market operations in U.S. Government securities by adjusting the required level of reserves for depository institutions subject to its reserve requirements, and by varying the target federal funds and 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 earned on interest- earning assets and paid on interest-bearing liabilities. The nature and impact on Greater Bay and the Banks of any future changes in monetary and fiscal policies cannot be fully predicted. From time to time, legislative acts, as well as regulations, are enacted which have 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 institutions and financial services providers are frequently made in the U.S. Congress, in the state legislatures, and before various regulatory agencies. See "Item 1. Business--Supervision and Regulation." 11 Supervision and Regulation General Bank holding companies and banks are extensively regulated under both federal and state law. This regulation is intended primarily for the protection of depositors and the deposit insurance fund and not for the benefit of shareholders of Greater Bay. Set forth below is a summary description of the material laws and regulations which relate to the operations of Greater Bay and the Banks. The description 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 periodic 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." Greater Bay is required to obtain the prior approval of the Federal Reserve for the acquisition of more than 5% of the outstanding shares of any class of voting securities or substantially all of the assets of any bank or bank holding company. Prior approval of the Federal Reserve is also required for the merger or consolidation of Greater Bay and another bank holding company. Greater Bay is prohibited by the BHCA, except in certain statutorily prescribed instances, from acquiring direct or indirect ownership or control of more than 5% of the outstanding voting shares of any company that is not a bank or bank holding company and from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, or furnishing services to its subsidiaries. However, Greater Bay, subject to the prior approval of the Federal Reserve, may engage in any, or acquire shares of companies engaged in, activities that are deemed by the Federal Reserve to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Under Federal Reserve regulations, a bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations in an unsafe or unsound manner. In addition, it is the Federal Reserve's policy that in serving as a source of strength to its subsidiary banks, a bank holding company should stand ready to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks. A bank holding company's failure to meet its obligations to serve as a source of strength to its subsidiary banks will generally be considered by the Federal Reserve to be an unsafe and unsound banking practice or a violation of the Federal Reserve's regulations or both. Greater Bay is also a bank holding company within the meaning of Section 3700 of the California Financial Code. As such, Greater Bay and its subsidiaries are subject to examination by, and may be required to file reports with, the California Department of Financial Institutions. 12 Greater Bay's securities are registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). As such, Greater Bay is subject to the information, proxy solicitation, insider trading, and other requirements and restrictions of the Exchange Act. The Banks The Company has two national banking subsidiaries and eight bank subsidiaries which are California chartered banks and members of the Federal Reserve. The national banks are subject to primary supervision, examination, and regulation by the Office of the Comptroller of the Currency (the "Comptroller") and are also subject to regulations of the Federal Deposit Insurance Corporation ("FDIC") and the Federal Reserve. The state chartered banks are subject to primary supervision, periodic examination, and regulation by the California Commissioner of Financial Institutions (the "Commissioner") and the Federal Reserve and are also subject to regulations of the FDIC. If, as a result of an examination of a bank, the Comptroller or the Federal Reserve 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 these 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 the bank's deposit insurance, which for a California chartered bank would result in a revocation of the bank's charter. The Commissioner has many of the same remedial powers. Various requirements and restrictions under the laws 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 reserves against deposits, ownership of deposit accounts, interest rates payable on deposits, loans, investments, mergers and acquisitions, borrowings, dividends, locations of branch offices, capital requirements, and disclosure of obligations to depositors and borrows. Further, the Banks are required to maintain certain levels of capital. See "--Capital Standards." Financial Services Modernization Legislation General. On November 12, 1999, President Clinton signed into law the Gramm- Leach-Bliley Act of 1999 (the "Financial Services Modernization Act"). The Financial Services Modernization Act repeals the two affiliation provisions of the Glass-Steagall Act: Section 20, which restricted the affiliation of Federal Reserve Member Banks with firms "engaged principally" in specified securities activities; and Section 32, which restricts officer, director, or employee interlocks between a member bank and any company or person "primarily engaged" in specified securities activities. In addition, the Financial Services Modernization Act also contains provisions that expressly preempt any state law restricting the establishment of financial affiliations, primarily related to insurance. The general effect of the law is to establish a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms, and other financial service providers by revising and expanding the BHCA framework to permit a holding company system to engage in a full range of financial activities through a new entity known as a Financial Holding Company The law also: . broadens the activities that may be conducted by national banks, banking subsidiaries of bank holding companies, and their financial subsidiaries; . provides an enhanced framework for protecting the privacy of consumer information; . adopts a number of provisions related to the capitalization, membership, corporate governance, and other measures designed to modernize the Federal Home Loan Bank system; 13 . modifies the laws governing the implementation of the Community Reinvestment Act; and . addresses a variety of other legal and regulatory issues affecting both day-to-day operations and long-term activities of financial institutions. Greater Bay and the Banks do not believe that the Financial Services Modernization Act will have a material adverse effect on our operations in the near-term. However, to the extent that it permits banks, securities firms, and insurance companies to affiliate, the financial services industry may experience further consolidation. The Financial Services Modernization Act is intended to grant to community banks certain powers as a matter of right that larger institutions have accumulated on an ad hoc basis. Nevertheless, this act may have the result of increasing the amount of competition that Greater Bay and the Banks face from larger institutions and other types of companies offering financial products, many of which may have substantially more financial resources than Greater Bay and the Banks. Financial Holding Companies. Bank holding companies that elect to become a financial holding company may affiliate with securities firms and insurance companies and engage in other activities that are financial in nature or are incidental or complementary to activities that are financial in nature. Greater Bay has not yet elected to become a financial holding company. "Financial in nature" activities include: . securities underwriting; . dealing and market making; . sponsoring mutual funds and investment companies; . insurance underwriting and agency; . merchant banking; and . activities that the Federal Reserve, in consultation with the Secretary of the Treasury, determines from time to time to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. A bank holding company must meet three requirements before becoming a financial holding company: . all of the bank holding company's depository institution subsidiaries must be well capitalized, well managed and, except in limited circumstances, in compliance with the Community Reinvestment Act; and . the bank holding company must file with the Federal Reserve a declaration of its election to become a financial holding company, including a certification that its depository institution subsidiaries meet the prior two criteria. Failure to comply with the financial holding company requirements could lead to divestiture of subsidiary banks or require all activities of the company to conform to those permissible for a bank holding company. No Federal Reserve approval is required for a financial holding company to acquire a company (other than a bank holding company, bank or savings association) engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve. In December 2000, the Federal Reserve approved an interim rule defining the three categories of activities financial in nature or incidental to a financial activity: . lending, exchanging, transferring, investing for others, or safeguarding financial assets other than money or securities; . providing any devise or other instrumentality for transferring money or other financial assets; or . arranging, effecting or facilitating financial transactions for the account of third parties. 14 The interim rule also establishes a mechanism through which financial holding companies or other interested parties may request that the Federal Reserve find that a particular activity falls within one of these three categories. For example, the Federal Reserve has recently issued a proposed rule that would grant financial holding companies the right to act as real estate brokers and managers. A bank holding company that is not also a financial holding company is limited to engaging in banking and such other activities as determined by the Federal Reserve to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Privacy. Under the Financial Services Modernization Act, federal banking regulators are required to adopt rules that will limit the ability of banks and other financial institutions to disclose non-public information about consumers to nonaffiliated third parties. These limitations will require disclosure of privacy policies to consumers and, in some circumstances, will allow consumers to prevent disclosure of certain personal information to a nonaffiliated third party. Federal banking regulators issued final rules on May 10, 2000. Pursuant to the rules, financial institutions must provide: . initial notices to customers about their privacy policies, describing the conditions under which they may disclose nonpublic personal information to nonaffiliated third parties and affiliates; . annual notices of their privacy policies to current customers; and . a reasonable method for customers to "opt out" of disclosures to nonaffiliated third parties. The rules were effective November 13, 2000, but compliance is optional until July 1, 2001. These privacy provisions will affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors. It is not possible at this time to assess the impact of the privacy provisions on the Company's financial condition or results of operations. Consumer Protection Rules--Sale of Insurance. In December 2000 pursuant to the requirements of the Financial Services Modernization Act, the federal bank and thrift regulatory agencies adopted consumer protection rules for the sale of insurance products by depository institutions. The rule is effective on April 1, 2001. The final rule applies to any depository institution or any person selling, soliciting, advertising, or offering insurance products or annuities to a consumer at an office of the institution or on behalf of the institution. The regulation requires oral and written disclosure before the completion of the sale of an insurance product or annuity that such product: . is not a deposit or other obligation of, or guaranteed by, the depository institution or its affiliate; . is not insured by the FDIC or any other agency of the United States, the depository institution or its affiliates; and . has certain risks of investment, including the possible loss of value. The depository institution may not condition an extension of credit on the consumer's purchase of an insurance product or annuity from the depository institution or from any of its affiliates, or on the consumer's agreement not to obtain, or a prohibition on the consumer from obtaining, an insurance product or annuity from an unaffiliated entity. Furthermore, to the extent practicable, a depository institution must keep insurance and annuity sales activities physically segregated from the areas where retail deposits are routinely accepted from the general public. Finally, the rule addresses cross marketing and referral fees. 15 Safeguarding Confidential Customer Information. In January 2000, the banking agencies adopted guidelines requiring financial institutions to establish an information security program to: . identify and assess the risks that may threaten customer information; . develop a written plan containing policies and procedures to manage and control these risks; . implement and test the plan; and . adjust the plan on a continuing basis to account for changes in technology, the sensitivity of customer information and internal or external threats to information security. Each institution may implement a security program appropriate to its size and complexity and the nature and scope of its operations. The guidelines are effective July 1, 2001. Dividends and Other Transfers of Funds Dividends from the Banks constitute the principal source of income to Greater Bay. Greater Bay is a legal entity separate and distinct from the Banks. The Banks are subject to various statutory and regulatory restrictions on their ability to pay dividends to Greater Bay. Under such restrictions, the amount available for payment of dividends to Greater Bay by the Banks totaled $96.0 million at December 31, 2000. In addition, the California Department of Financial Institutions and the Federal Reserve have the authority to prohibit the Banks from paying dividends, depending upon the Banks' financial condition, if such payment is deemed to constitute an unsafe or unsound practice. The bank regulatory agencies also have authority to prohibit the Banks from engaging in activities that, in the opinion of the applicable bank regulatory authority, 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 applicable bank regulatory authority could assert that the payment of dividends or other payments might, under some circumstances, be such an unsafe or unsound practice. Further, the FDIC, the Comptroller and the Federal Reserve 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. An insured depository institution is prohibited 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. See "-- Prompt Corrective Regulatory Action and Other Enforcement Mechanisms" and "-- Capital Standards" for a discussion of these additional restrictions on capital distributions. 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 of designated amounts. Further, such secured loans and investments by the Banks to or in Greater Bay or to or in any other affiliate are limited, individually, to 10.0% of the respective bank's capital and surplus (as defined by federal regulations), and such secured loans and investments are limited, in the aggregate, to 20% of the respective bank's capital and surplus (as defined by federal regulations). California law also imposes certain restrictions with respect to transactions involving Greater Bay and other controlling persons of the Banks. Additional restrictions on transactions with affiliates may be imposed on the Banks under the prompt corrective action provisions of federal law. See "--Prompt Corrective Action and Other Enforcement Mechanisms." 16 Capital Standards The federal banking agencies 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 relatively high credit risk, such as commercial loans. The guidelines 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 risk-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%. 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. The federal banking regulators may set capital requirements higher than the minimums described above for holding companies whose circumstances warrant it. For example, a financial institution experiencing or anticipating significant growth may be expected to maintain capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. The Federal Reserve has also indicated that it will consider a "tangible Tier 1 capital leverage ratio" (deducting all intangibles) and other indications of capital strength in evaluating proposals for expansion or new activities. Prompt Corrective Action and Other Enforcement Mechanisms Federal banking agencies possess broad powers to take corrective and other supervisory action to resolve the problems of insured depository institutions, including but not limited to those institutions that fall below one or more prescribed minimum capital ratios. Each federal banking agency has promulgated regulations defining the following five categories in which an insured depository institution will be placed, based on its capital ratios: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. At December 31, 2000, each of the Banks and the Company exceeded the required ratios for classification as well capitalized. An institution that, based upon its capital levels, is classified as well capitalized, adequately capitalized, or undercapitalized may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition or an unsafe or unsound practice warrants such treatment. At each successive lower capital category, an insured depository institution is subject to more restrictions. The federal banking agencies, however, may not treat a significantly undercapitalized institution as critically undercapitalized unless its capital ratio actually warrants such treatment. 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. 17 Safety and Soundness Standards The federal banking agencies have adopted guidelines designed to assist the federal banking agencies in identifying and addressing potential safety and soundness concerns before capital becomes impaired. The guidelines set forth operational and managerial standards relating to: . internal controls, information systems and internal audit systems; . loan documentation; . credit underwriting; . asset growth; . earnings; and . compensation, fees and benefits. In addition, the federal banking agencies have also adopted safety and soundness guidelines with respect to asset quality and earnings standards. These guidelines provide six standards for establishing and maintaining a system to identify problem assets and prevent those assets from deteriorating. Under these standards, an insured depository institution should: . conduct periodic asset quality reviews to identify problem assets; . estimate the inherent losses in problem assets and establish reserves that are sufficient to absorb estimated losses; . compare problem asset totals to capital; . take appropriate corrective action to resolve problem assets; . consider the size and potential risks of material asset concentrations; and . provide periodic asset quality reports with adequate information for management and the board of directors to assess the level of asset risk. These guidelines also set forth standards for evaluating and monitoring earnings and for ensuring that earnings are sufficient for the maintenance of adequate capital and reserves. Premiums for Deposit Insurance Through the Bank Insurance Fund ("BIF"), the FDIC insures the deposits of the Banks up to prescribed limits for each depositor. The amount of FDIC assessments paid by each BIF member institution is based on its relative risk of default as measured by regulatory capital ratios and other factors. Specifically, the assessment rate is based on the institution's capitalization risk category and supervisory subgroup category. An institution's capitalization risk category is based on the FDIC's determination of whether the institution is well capitalized, adequately capitalized or less than adequately capitalized. An institution's supervisory subgroup category is based on the FDIC's assessment of the financial condition of the institution and the probability that FDIC intervention or other corrective action will be required. The assessment rate currently ranges from zero to 27 cents per $100 of domestic deposits. The FDIC may increase or decrease the assessment rate schedule on a semi-annual basis. An increase in the assessment rate could have a material adverse effect on the Company's earnings, depending on the amount of the increase. The FDIC is authorized to terminate a depository institution's deposit insurance upon a finding by the FDIC that the institution's financial condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices or has violated any applicable rule, regulation, order or condition enacted or imposed by the institution's regulatory agency. The termination of deposit insurance for one or more of the Banks could have a material adverse effect on the Company's earnings, depending on the collective size of the particular institutions involved. 18 All FDIC-insured depository institutions must pay an annual assessment to provide funds for the payment of interest on bonds issued by the Financing Corporation, a federal corporation chartered under the authority of the Federal Housing Finance Board. The bonds, commonly referred to as FICO bonds, were issued to capitalize the Federal Savings and Loan Insurance Corporation. The FDIC established the FICO assessment rates effective for the third quarter of 2000 at approximately $.021 per $100 annually for assessable deposits. The FICO assessments are adjusted quarterly to reflect changes in the assessment bases of the FDIC's insurance funds and do not vary depending on a depository institution's capitalization or supervisory evaluations. Interstate Banking and Branching The BHCA permits bank holding companies from any state to acquire banks and bank holding companies located in any other state, subject to certain conditions, including certain nationwide- and state-imposed concentration limits. The Banks have the ability, subject to certain restrictions, to acquire by acquisition or merger branches outside their home state. The establishment of new interstate branches is also possible in those states with laws that expressly permit it. Interstate branches are subject to certain laws of the states in which they are located. Competition may increase further as banks branch across state lines and enter new markets. Community Reinvestment Act and Fair Lending Developments The Banks are subject to certain fair lending requirements and reporting obligations involving home mortgage lending operations and Community Reinvestment Act activities. The Community Reinvestment Act 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. A bank may be subject to substantial penalties and corrective measures for a violation of certain fair lending laws. The federal banking agencies may take compliance with such laws and Community Reinvestment Act obligations into account when regulating and supervising other activities. In December 2000, the federal banking agencies established annual reporting and public disclosure requirements for certain written agreements that are entered into between insured depository institutions or their affiliates and nongovernmental entities or persons that are made pursuant to, or in connection with, the fulfillment of the Community Reinvestment Act. A bank's compliance with its Community Reinvestment Act obligations is based on a performance-based evaluation system which bases Community Reinvestment Act ratings on an institution's lending service and investment performance. When a bank holding company applies for approval to acquire a bank or other bank holding company, the Federal Reserve will review the assessment of each subsidiary bank of the applicant bank holding company, and such records may be the basis for denying the application. In connection with its assessment of Community Reinvestment Act performance, the appropriate bank regulatory agency assigns a rating of "outstanding", "satisfactory", "needs to improve" or "substantial noncompliance. The results of the most recent exam for each of the Banks is as follows.
Date of most recent Bank examination CRA rating ---- -------------- ------------ Bay Area Bank November 1999 Satisfactory Bay Bank of Commerce October 1997 Satisfactory Bank of Petaluma September 1998 Outstanding Bank of Santa Clara December 2000 Satisfactory Coast Commercial Bank May 1999 Outstanding Cupertino National Bank October 1999 Outstanding Golden Gate Bank November 1999 Satisfactory Mt. Diablo National Bank February 1999 Satisfactory Mid-Peninsula Bank November 1999 Outstanding Peninsula Bank of Commerce November 1999 Satisfactory
19 Employees At December 31, 2000, the Company had 1,054 full-time employees. None of the employees are covered by a collective bargaining agreement. The Company considers its employee relations to be satisfactory. Factors That May Affect Future Results of Operations In addition to the other information contained in this report, the following risks may affect the Company. If any of these risks occurs, our business, financial condition or operating results could be adversely affected. Failure to successfully execute our growth strategy or to integrate recently acquired subsidiaries could adversely affect our performance. Our financial performance and profitability will depend on our ability to execute our corporate growth strategy and manage our recent and possible future growth. Although management believes that it has substantially integrated the business and operations of recently acquired subsidiaries, there can be no assurance that unforeseen issues relating to the assimilation of these subsidiaries will not adversely affect us. In addition, any future acquisitions and our continued growth may present operating and other problems that could have an adverse effect on our business, financial condition and results of operations. Our financial performance will also depend on our ability to maintain profitable operations through implementation of our Super Community Banking Philosophy, which is described earlier. Accordingly, there can be no assurance that we will be able to execute our growth strategy or maintain the level of profitability that we have recently experienced. Changes in market interest rates may adversely affect our performance. Our earnings are impacted by changing interest rates. Changes in interest rates impact the demand for new loans, the credit profile of existing loans, the rates received on loans and securities and rates paid on deposits and borrowings. The relationship between the rates received on loans and securities and the rates paid on deposits and borrowings is known as interest rate spread. Given our current volume and mix of interest-bearing liabilities and interest-earning assets, our interest rate spread could be expected to increase during times of rising interest rates and, conversely, to decline during times of falling interest rates. Based on modeling performed as part of out interest rate risk analysis, we believe that the 50 basis point decrease in the target Fed Funds rate by the Federal Reserve announced January 3, 2001 and the additional 50 basis point decrease announced January 31, 2001 will likely result in a 6 to 12 basis point drop in the Company's interest rate spread. With any further declines in interest rates, our ability to proportionately decrease the rates on our deposit sources, particularly MMDA and NOW accounts, may not be possible due to competitive pressures. This may result in a larger decrease in our interest rate spread. Although we believe our current level of interest rate sensitivity is reasonable, significant fluctuations in interest rates may have an adverse effect on our business, financial condition and results of operations. Our Bay Area business focus and economic conditions in the Bay Area could adversely affect our operations. Our Bay Area business focus and economic conditions in the Bay Area could adversely affect our operations. Our operations are located in Northern California and concentrated primarily in Alameda, Contra Costa, San Francisco, San Mateo, Santa Cruz, Santa Clara and Sonoma counties, which includes the area known as the "Silicon Valley." As a result of this geographic concentration, our results depend largely upon economic and business conditions in these areas. A deterioration in economic and business conditions in our 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 our loan portfolio, the demand for our products and services, which in turn may have a material adverse effect on our results of operations. 20 Many publicly and privately held technology firms have experienced a decline in their stock prices and valuations. At the same time, firms in the technology industry have experienced greater difficulty than in the past in obtaining capital and funding. The inability of such firms to obtain necessary capital and funding would not only adversely affect existing business, but it could also result in a significant slowdown in the growth of the technology industry. Furthermore, the financial weakness of California's three primary energy providers, and shortages in electrical generation capacities may further weaken the California economy and business operations in California and in particular the economy of and businesses operating in the Bay Area. A downturn in the national economy might further exacerbate local economic conditions. The extent of the future impact of these events on economic and business conditions cannot be predicted. Our future warrant income can not be predicted. We have historically obtained rights to acquire stock, in the form of warrants, in certain clients as part of negotiated credit facilities. We may not be able to realize gains from these equity instruments in future periods due to fluctuations in the market prices of the underlying common stock of these companies. The timing and amount of income, if any, from the disposition of client warrants typically depend upon factors beyond our control, including the general condition of the public equity markets, levels of mergers and acquisitions activity, and legal and contractual restrictions on our ability to sell the underlying securities. Therefore, future gains cannot be predicted with any degree of accuracy and are likely to vary materially from period to period. In addition, a significant portion of the income we realize from the disposition of client warrants may be offset by expenses related to our efforts to build an infrastructure sufficient to support our present and future business activities, as well as expenses incurred in evaluating and pursuing new business opportunities. We are subject to government regulation that could limit or restrict our activities, which in turn could adversely impact our operations. The financial services industry is regulated extensively. Federal and state regulation is designed primarily to protect the deposit insurance funds and consumers, and not to benefit our shareholders. These regulations can sometimes impose significant limitations on our operations. In addition, these regulations are constantly evolving and may change significantly over time. Significant new laws or changes in existing laws or repeal of existing laws may cause our results to differ materially. Further, federal monetary policy, particularly as implemented through the Federal Reserve System, significantly affects credit conditions for us. Competition may adversely affect our performance. The financial services business in our market areas is highly competitive. It is becoming increasingly competitive due to changes in regulation, technological advances, and the accelerating pace of consolidation among financial services providers. We face competition both in attracting deposits and in making loans. We compete for loans principally through the interest rates and loan fees we charge and the efficiency and quality of services we provide. Increasing levels of competition in the banking and financial services businesses may reduce our market share or cause the prices we charge for our services to fall. Our results may differ in future periods depending upon the nature or level of competition. If a significant number of borrowers, guarantors and related parties fail to perform as required by the terms of their loans, we will sustain losses. A significant source of risk arises from the possibility that losses will be sustained if a significant number of our borrowers, guarantors and related parties fail to perform in accordance with the terms of their loans. We have 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 our credit portfolio. These policies and procedures, however, may not prevent unexpected losses that could materially adversely affect our results of operations. 21 ITEM 2. PROPERTIES. The Company occupies its administrative offices under a lease which, including options to renew, expires in 2007. The Company owns four of its full service banking offices and leases 48 additional offices throughout the San Francisco Bay Area. Those leases expire under various dates, including options to renew, through August 2023. The Company believes its present facilities are adequate for its present needs but anticipates the need for additional facilities as it continues to grow. The Company believes that, if necessary, it could secure suitable alternative facilities on similar terms without adversely affecting operations. ITEM 3. LEGAL PROCEEDINGS. From time to time, the Company is involved in certain legal proceedings arising in the normal course of its business. Management believes that the outcome of these matters will not have a material adverse effect on the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There were no submission of matters to a vote of security holders during the fourth quarter of the year ended December 31, 2000. 22 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's stock is traded on the Nasdaq National Market System ("Nasdaq") under the symbol "GBBK". The table below reflects the high and low closing sales prices for the Company's common stock as reported by Nasdaq and cash dividends declared for each reported period. The following information has been restated to reflect the 2-for-1 stock split which became effective on October 4, 2000.
Cash For the period dividends indicated High Low declared -------------- ------ ------ --------- 2000 Fourth quarter $43.31 $28.12 $0.10 Third quarter 34.72 22.38 0.10 Second quarter 24.75 20.00 0.075 First quarter 21.13 18.03 0.075 1999 Fourth quarter $21.61 $16.91 $0.06 Third quarter 18.00 15.94 0.06 Second quarter 16.63 14.13 0.06 First quarter 15.50 13.88 0.06
The Company estimates that there were approximately 2,475 shareholders of record at December 31, 2000. During the year ended December 31, 2000, the Company was added to the S & P MidCap 400 Index and the Nasdaq Financial--100 Index. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA. Information regarding Selected Consolidated Financial Data appears on pages A-1 through A-2 under the caption "Financial Highlights" and is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Information regarding Management's Discussion and Analysis of Financial Condition and Results of Operations appears on pages A-3 through A-22 under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Information regarding Quantitative and Qualitative Disclosures About Market Risk appears on page A-19 through A-22 under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Quantitative and Qualitative Disclosures About Market Risk" and is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Information regarding Financial Statements and Supplementary Data appears A- 23 through A-63 under the caption "Consolidated Balance Sheets", "Consolidated Statements of Operations", "Consolidated Statements of Comprehensive Income", "Consolidated Statements of Shareholders' Equity", "Consolidated Statements of Cash Flows" and "Notes to Consolidated Financial Statements" and is incorporated herein by reference. 23 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. 24 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The Company intends to file a definitive proxy statement for the 2001 Annual Meeting of Shareholders (the "Proxy Statement") with the Securities and Exchange Commission within 120 days of December 31, 2000. Information regarding directors of Greater Bay will appear under the caption "Discussion of the Proposals Recommended by the Board--Proposal 1: "Election of Directors' " in the Proxy Statement and is incorporated herein by reference. Information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, and executive officers will appear under the captions "INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS--Section 16(a) Beneficial Ownership Reporting Compliance by Directors and Executive Officers" and "-- Executive Officers" in the Proxy Statement and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. Information regarding executive compensation will appear under the captions "INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS--How We Compensate Executive Officers", "--How We Compensate Directors", "--Employment Contracts, Termination of Employment and Change of Control Arrangements", "--Executive Committee's Report on Executive Compensation", "--Compensation Committee Interlocks and Insider Participation" and "--Performance Graph" in the Proxy Statement and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information regarding security ownership of certain beneficial owners and management will appear under the caption "INFORMATION ABOUT GREATER BAY STOCK OWNERSHIP" in the Proxy Statement and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information regarding certain relationships and related transactions will appear under the caption "INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS-- Certain Relationships and Related Transactions" in the Proxy Statement and is incorporated herein by reference. 25 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) 1. Financial Statements The following documents are filed as part of this report: Consolidated Balance Sheets at December 31, 2000 and 1999 A-23 Consolidated Statements of Operations for each of the years in the three-year period ended December 31, 2000 A-24 Consolidated Statements of Comprehensive Income for each of the years in the three-year period ended December 31, 2000 A-25 Consolidated Statements of Changes in Shareholders' Equity for each of years in the three-year period ended December 31, 2000 A-26 Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2000 A-27 Notes to Consolidated Financial Statements A-28 Report of Independent Accountants A-64
2. Financial Statement Schedules All financial statement schedules are omitted because of the absence of the conditions under which they are required to be provided or because the required information is included in the financial statements listed above and/or related notes. 3. Exhibits See Item 14(c) below. (b) Reports on Form 8-K During the fourth quarter of 2000, the Company filed the following Current Reports on Form 8-K: (1) October 12, 2000 (reporting under Item 5 third quarter 2000 financial results); (2) October 16, 2000 (reporting under Item 5 completion of the Company's merger with Bank of Petaluma); (3) October 17, 2000 (reporting under Item 5 supplemental consolidated financial information relating to the Company's merger with Bank of Petaluma); (4) November 28, 2000 (reporting under Items 5 and 9 mid-fourth quarter financial results and 2001 performance goals); (5) December 1, 2000 (reporting under Item 5 completion of the Company's acquisition of The Matsco Companies Inc.); and (6) December 21, 2000 (reporting under Item 5 declaration of the Company's fourth quarter cash dividend). (c) Exhibits Required by Item 601 of Regulation S-K Reference is made to the Exhibit Index on page 29 for exhibits filed as part of this report. (d) Additional Financial Statements Not applicable. 26 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 30th day of January, 2001. Greater Bay Bancorp /s/ David L. Kalkbrenner By: _________________________________ David L. Kalkbrenner President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ David L. Kalkbrenner President, Chief Executive January 30, 2001 ____________________________________ Officer and Director David L. Kalkbrenner (Principal Executive Officer) /s/ Steven C. Smith Executive Vice President, January 30, 2001 ____________________________________ Chief Administrative Steven C. Smith Officer and Chief Financial Officer (Principal Financial and Accounting Officer) /s/ John M. Gatto Director January 30, 2001 ____________________________________ John M. Gatto /s/ John J. Hounslow Director January 30, 2001 ____________________________________ John J. Hounslow /s/ James E. Jackson Director January 30, 2001 ____________________________________ James E. Jackson /s/ Stanley A. Kangas Director January 30, 2001 ____________________________________ Stanley A. Kangas /s/ Daniel G. Libarle Director January 30, 2001 ____________________________________ Daniel G. Libarle /s/ Rex D. Lindsay Director January 30, 2001 ____________________________________ Rex D. Lindsay
27
Signature Title Date --------- ----- ---- /s/ George M. Marcus Director January 30, 2001 ____________________________________ George M. Marcus /s/ Duncan L. Matteson Director January 30, 2001 ____________________________________ Duncan L. Matteson /s/ Glen McLaughlin Director January 30, 2001 ____________________________________ Glen McLaughlin /s/ Rebecca Q. Morgan Director January 30, 2001 ____________________________________ Rebecca Q. Morgan /s/ Dick J. Randall Director January 30, 2001 ____________________________________ Dick J. Randall /s/ Donald H. Seiler Director January 30, 2001 ____________________________________ Donald H. Seiler /s/ Warren R. Thoits Director January 30, 2001 ____________________________________ Warren R. Thoits /s/ James C. Thompson Director January 30, 2001 ____________________________________ James C. Thompson /s/ Thaddeus J. Whalen, Jr. Director January 30, 2001 ____________________________________ Thaddeus J. Whalen, Jr.
28 EXHIBIT INDEX
Exhibit No. Exhibit ----------- ------- 3.1 Articles of Incorporation of Greater Bay Bancorp, as amended and restated 3.2 Bylaws of Greater Bay Bancorp, as amended and restated 4.1 Rights Agreement (1) 4.2 Junior Subordinated Indenture dated as of March 31, 1997 between Greater Bay Bancorp and Wilmington Trust Company, as Trustee (2) 4.3 Officers' Certificate and Company Order, dated March 31, 1997 (2) 4.4 Certificate of Trust of GBB Capital I (3) 4.5 Trust Agreement of GBB Capital I dated as of February 28, 1997 (3) 4.6.1 Amended and Restated Trust Agreement of GBB Capital I, among Greater Bay Bancorp, Wilmington Trust Company and the Administrative Trustees named therein dated as of March 31, 1997 (2) 4.6.2 Successor Administrative Trustee and First Amendment to Amended and Restated Trust Agreement (4) 4.7 Trust Preferred Certificate of GBB Capital I (2) 4.8 Common Securities Certificate of GBB Capital I (2) 4.9 Guarantee Agreement between Greater Bay Bancorp and Wilmington Trust Company, dated as of March 31, 1997 (2) 4.10 Agreement as to Expenses and Liabilities, dated as of March 31, 1997 (2) 4.11 Indenture between Greater Bay Bancorp and Wilmington Trust Company, as Debenture Trustee, dated as of August 12, 1998 (5) 4.12 Form of Exchange Junior Subordinated Debentures (filed as Exhibit A to Exhibit 4.11 hereto) 4.13 Certificate of Trust of GBB Capital II, dated as of May 18, 1998 (5) 4.14 Amended and Restated Trust Agreement of GBB Capital II, among Greater Bay Bancorp, Wilmington Trust Company and the Administrative Trustees named therein dated as of August 12, 1998 (5) 4.15 Form of Exchange Capital Security Certificate (filed as Exhibit A- 1 to Exhibit 4.11 hereto) 4.16 Common Securities Guarantee Agreement of Greater Bay Bancorp, dated as of August 12, 1998 (5) 4.17 Series B Capital Securities Guarantee Agreement of Greater Bay Bancorp and Wilmington Trust Company dated as of November 27, 1998 (4) 4.18 Securities Purchase Agreement, dated as of December 21, 1999, between Greater Bay Bancorp and the investors identified therein (6) 4.19 Registration Rights Agreement, dated as of December 22, 1999, between Greater Bay Bancorp and the investors identified therein (6) 4.20 Securities Purchase Agreement, dated as of March 22, 2000, by and between Greater Bay Bancorp and the investors identified therein (7) 4.21 Registration Rights Agreement, dated as of March 23, 2000, by and between Greater Bay Bancorp and the investors identified therein (7) 4.22 Amended and Restated Declaration of Trust of GBB Capital III, dated as of March 23, 2000 (8) 4.23 Indenture, dated as of March 23, 2000, between Greater Bay Bancorp and The Bank of New York, as Trustee (8) 4.24 Guarantee Agreement, dated as of March 23, 2000, by and between Greater Bay Bancorp and The Bank of New York, as Trustee (8)
29
Exhibit No. Exhibit ----------- ------- 4.25 Amended and Restated Declaration of Trust of GBB Capital IV, dated as of May 19, 2000 (9) 4.26 Indenture, dated as of May 19, 2000, between Greater Bay Bancorp and Wilmington Trust Company, as Trustee (9) 4.27 Common Securities Guarantee Agreement, dated as of May 19, 2000 between Greater Bay Bancorp and Wilmington Trust Company, as Trustee (9) 4.28 Capital Securities Guarantee Agreement, dated as of November 20, 2000, between Greater Bay Bancorp and Wilmington Trust Company, as Trustee 4.29 Junior Subordinated Debenture Certificate, dated November 20, 2000 4.30 Capital Security Certificate, Series B, dated November 20, 2000 10.1.1 Employment Agreement with David L. Kalkbrenner, dated as of January 1, 1999 (10)(11) 10.1.2 Amendment No. 1 to Employment Agreement with David L. Kalkbrenner, dated as of December 11, 2000 (10) 10.2 Employee Supplemental Compensation Benefits Agreement, dated as of January 1, 1998, between Greater Bay Bancorp and David L. Kalkbrenner (10)(11) 10.3 Employee Supplemental Compensation Benefits Agreement, dated as of January 1, 1998, between Mid-Peninsula Bank and Susan K. Black (10)(11) 10.4 Employee Supplemental Compensation Benefits Agreement, dated as of January 1, 1998, between Cupertino National Bank and David R. Hood (10)(11) 10.5 Employee Supplemental Compensation Benefits Agreement, dated as of April 6, 1998, between Greater Bay Bancorp and Gregg A. Johnson (10)(11) 10.6 Employee Supplemental Compensation Benefits Agreement, dated as of January 1, 1998, between Greater Bay Bancorp and Steven C. Smith (10)(11) 10.7 Greater Bay Bancorp 401(k) Profit Sharing Plan (10) (12) 10.8 Greater Bay Bancorp Employee Stock Purchase Plan, as amended (10) 10.9 Greater Bay Bancorp Change in Control Pay Plan I (10)(12) 10.10.1 Greater Bay Bancorp Change in Control Pay Plan II (10)(12) 10.10.2 Amendment No. 1 to Greater Bay Bancorp Change in Control Pay Plan II (10)(13) 10.11 Greater Bay Bancorp Termination and Layoff Pay Plan I (10)(12) 10.12.1 Greater Bay Bancorp Termination and Layoff Pay Plan II (10)(12) 10.12.2 Amendment No. 1 to Greater Bay Bancorp Termination and Layoff Pay Plan II (10)(13) 10.13 Greater Bay Bancorp 1997 Elective Deferred Compensation Plan, as amended (10) 10.14 Greater Bay Bancorp 1996 Stock Option Plan, as amended (10) 10.15 Form of Indemnification Agreement between Greater Bay Bancorp and with directors and certain executive officers (2) 10.16.1 Agreement, dated November 4, 1999, between Greater Bay Bancorp and Wells Fargo Bank, National Association (13) 10.16.2 Letter Amendment and Revolving Line of Credit Note, effective October 19, 2000, between Greater Bay Bancorp and Wells Fargo Bank, National Association 10.17 Line of Credit Agreement and Note, dated as of November 1, 2000, by and between Greater Bay Bancorp and Union Bank of California, N.A. 12.1 Statement re Computation of Ratios of Earnings to Fixed Charges 21 Subsidiaries of the Registrant 23.1 Consent of PricewaterhouseCoopers LLP
30 - -------- (1) Incorporated by reference from Greater Bay Bancorp's Form 8-A12G filed with the SEC on November 25, 1998. (2) Incorporated by reference from Greater Bay Bancorp's Current Report on Form 8-K dated June 5, 1997. (3) Incorporated by reference from Greater Bay Bancorp's Registration Statement on Form S-1 (File No. 333-22783) filed with the SEC on March 5, 1997. (4) Incorporated by reference from Greater Bay Bancorp's 1998 Annual Report on Form 10-K filed with the SEC on February 17, 1999. (5) Incorporated by reference from Greater Bay Bancorp's Current Report on Form 8-K filed with the SEC on August 28, 1998. (6) Incorporated by reference from Greater Bay Bancorp's Current Report on Form 8-K filed with the SEC on December 28, 1999. (7) Incorporated herein by reference from Greater Bay Bancorp's Current Report on Form 8-K filed with the SEC on March 24, 2000. (8) Incorporated herein by reference from Greater Bay Bancorp's Quarterly Report on Form 10-Q filed with the SEC on May 12, 2000. (9) Incorporated by reference from Greater Bay Bancorp's Quarterly Report on Form 10-Q filed with the SEC on August 1, 2000. (10) Represents executive compensation plans and arrangements of Greater Bay Bancorp. (11) Incorporated by reference from Greater Bay Bancorp's Annual Report on Form 10-K filed with the SEC on January 31, 2000. (12) Incorporated by reference from Greater Bay Bancorp's Annual Report on Form 10-K filed with the SEC on March 31, 1998. (13) Incorporated by reference from Greater Bay Bancorp's Quarterly Report on Form 10-Q filed with the SEC on May 4, 1999. 31 SELECTED CONSOLIDATED FINANCIAL INFORMATION The following table represents the selected consolidated financial information at and for the five years ended December 31, 2000:
2000 1999* 1998* 1997* 1996* ---------- ---------- ---------- ---------- ---------- (Dollars in thousands, except per share amounts) Statement of Operations Data Interest income $ 368,363 $ 255,377 $ 205,189 $ 165,783 $ 129,559 Interest expense 136,400 90,817 73,918 56,847 43,044 ---------- ---------- ---------- ---------- ---------- Net interest income 231,963 164,560 131,271 108,936 86,515 Provision for loan losses 28,096 14,039 8,279 9,131 5,095 ---------- ---------- ---------- ---------- ---------- Net interest income after provision for loan losses 203,867 150,521 122,992 99,805 81,420 Other income 32,539 28,471 20,996 18,179 16,972 Nonrecurring--warrant income 12,986 14,508 945 1,162 92 ---------- ---------- ---------- ---------- ---------- Total other income 45,525 42,979 21,941 19,341 17,064 Operating expenses 122,612 105,114 89,029 77,727 67,948 Other expenses-- nonrecurring -- 12,160 1,341 (1,700) -- ---------- ---------- ---------- ---------- ---------- Total operating expenses 122,612 117,274 90,370 76,027 67,948 ---------- ---------- ---------- ---------- ---------- Income before income tax expense & merger and other related nonrecurring costs 126,780 76,226 54,563 43,119 30,536 Income tax expense 48,537 25,468 19,105 15,643 10,963 ---------- ---------- ---------- ---------- ---------- Income before merger and other related nonrecurring costs and extraordinary items 78,243 50,758 35,458 27,476 19,573 Merger and other related nonrecurring costs, net of tax (19,703) (6,486) (1,674) (2,282) (1,991) ---------- ---------- ---------- ---------- ---------- Net income before extraordinary items 58,540 44,272 33,784 25,194 17,582 Extraordinary items -- (88) -- -- -- ---------- ---------- ---------- ---------- ---------- Net income $ 58,540 $ 44,184 $ 33,784 $ 25,194 $ 17,582 ========== ========== ========== ========== ========== Per Share Data(1) Income per share (before merger, nonrecurring and extraordinary items) Basic $ 1.71 $ 1.21 $ 0.95 $ 0.73 $ 0.57 Diluted 1.62 1.15 0.89 0.68 0.53 Net income per share Basic $ 1.42 $ 1.16 $ 0.91 $ 0.70 $ 0.51 Diluted 1.35 1.10 0.85 0.66 0.48 Cash dividends per share(2) $ 0.35 $ 0.24 $ 0.19 $ 0.15 $ 0.11 Book value per common share 7.69 6.38 5.37 4.78 4.30 Shares outstanding at year end 41,929,173 39,635,048 37,342,950 35,886,162 33,865,656 Average common shares outstanding 41,229,000 38,245,000 37,049,000 35,835,000 34,634,000 Average common and common equivalent shares outstanding 43,505,000 40,304,000 39,639,000 38,198,000 36,599,000
- -------- * Restated on a historical basis to reflect the mergers described in Notes 1 and 2 of Notes to Consolidated Financial Statements on a pooling-of- interest basis. (1) Restated to reflect 2-for-1 stock splits effective on April 30, 1998 and October 4, 2000. (2) Includes only those dividends declared by Greater Bay, and excludes those dividends paid by Greater Bay's subsidiaries prior to the completion of their mergers with Greater Bay. A-1
2000 1999* 1998* 1997* 1996* ---------- ---------- ---------- ---------- ---------- (Dollars in thousands, except per share amounts) Performance Ratios Return on average assets (before merger, nonrecurring and extraordinary items) 1.61% 1.39% 1.37% 1.33% 1.26% Return on average common shareholders' equity (before merger nonrecurring and extraordinary items) 24.08% 21.08% 19.02% 16.24% 14.13% Return on average assets 1.34% 1.33% 1.32% 1.29% 1.13% Return on average common shareholders' equity 19.95% 20.16% 18.29% 15.75% 12.69% Net interest margin 5.72% 5.39% 5.56% 5.96% 6.11% Balance Sheet Data--At Period End Assets $5,130,378 $3,736,729 $2,857,246 $2,235,907 $1,791,754 Loans, net 3,517,408 2,416,423 1,740,158 1,358,514 1,089,477 Investment securities 962,277 750,516 667,531 464,703 345,107 Deposits 4,165,061 3,262,888 2,463,484 1,935,405 1,570,087 Subordinated debt -- -- 3,000 3,000 3,000 Trust Preferred Securities 99,500 49,000 49,000 20,000 -- Common shareholders' equity 322,365 252,895 200,697 171,465 145,722 Asset Quality Ratios Nonperforming assets** to total loans and other real estate owned 0.35% 0.28% 0.33% 0.54% 1.01% Nonperforming assets** to total assets 0.25% 0.18% 0.20% 0.34% 0.63% Allowance for loan losses to total loans 2.32% 1.94% 1.85% 1.91% 1.66% Allowance for loan losses to non- performing assets 493.59% 690.23% 550.02% 341.80% 133.91% Net charge-offs to average loans 0.38% 0.09% 0.13% 0.20% 0.14% Regulatory Capital Ratios Leverage Ratio 8.77% 8.24% 8.13% 8.82% 8.42% Tier 1 Capital 9.40% 9.75% 10.70% 11.31% 10.89% Total Capital 10.70% 11.07% 12.59% 12.67% 12.24%
- -------- * Restated on a historical basis to reflect the mergers described in Notes 1 and 2 of Notes to Consolidated Financial Statements on a pooling-of- interest basis. ** Excludes accruing loans past due 90 days or more. A-2 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" or "we", on a consolidated basis) is a bank holding company with 10 bank subsidiaries (the "Banks"): Bank of Petaluma, Bank of Santa Clara, Bay Area Bank, Bay Bank of Commerce, Coast Commercial Bank, Cupertino National Bank, Golden Gate Bank, Mid-Peninsula Bank, Mt. Diablo National Bank and Peninsula Bank of Commerce. GBB Capital I, GBB Capital II, GBB Capital III and GBB Capital IV, which are Delaware statutory business trusts formed for the exclusive purpose of issuing and selling trust preferred securities, are also subsidiaries of the Company. The Company also owns Matsco Lease Finance, Inc. II and Matsco Lease Finance, Inc. III, which are special purpose corporations formed for the exclusive purpose of securitizing leases and issuing lease-backed notes. The Company also operates through the following divisions: Greater Bay Bank Contra Costa Region, Greater Bay Bank Fremont Region, Greater Bay Bank Santa Clara Valley Commercial Banking Group, Greater Bay Bank SBA Lending Group, Greater Bay Corporate Finance Group, Greater Bay International Banking Division, Greater Bay Trust Company, Matsco, Pacific Business Funding and the Venture Banking Group. The Company provides a wide range of commercial banking services to small and medium-sized businesses, real estate developers, property managers, business executives, professionals and other individuals. The Company operates throughout the San Francisco Bay Area including Silicon Valley, San Francisco and the San Francisco Peninsula, the East Bay, Santa Cruz and Sonoma County, with 37 full service banking offices located in Aptos, Blackhawk, Capitola, Cupertino, Danville, Fremont, Hayward, Lafayette, Millbrae, Milpitas, Palo Alto, Petaluma, Pleasanton, Point Reyes Station, Redwood City, San Francisco, San Jose, San Leandro, San Mateo, San Ramon, Santa Clara, Santa Cruz, Scotts Valley, Sunnyvale, Valley Ford, Walnut Creek and Watsonville. At December 31, 2000, the Company had total assets of $5.1 billion, total loans, net, of $3.5 billion and total deposits of $4.2 billion. The Company has participated in nine mergers during the three-year period ended December 31, 2000, as described in Note 2 of Notes to Consolidated Financial Statements. With the exception of the merger with The Matsco Companies, Inc., all of these mergers were accounted for as a pooling-of- interests and, accordingly, all of the financial information of the Company for the periods prior to the mergers has been restated as if the mergers had occurred at the beginning of the earliest period presented. The merger with The Matsco Companies, Inc. was accounted for using the purchase accounting method and accordingly The Matsco Companies, Inc.'s results of operations have been included in the consolidated financial statements since the date of acquisition. All outstanding and weighted average share amounts presented in this report have been restated to reflect the 2-for-1 stock splits effective on April 30, 1998 and October 4, 2000. 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 Financial Information" and the Company's consolidated financial data included elsewhere in this document. Certain statements under this caption constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in such forward-looking statements. Factors that might cause such a difference include but are not limited to economic conditions, competition in the geographic and business areas in which the Company conducts its operations, fluctuation in interest rates, credit quality and government regulation and other factors discussed in the Annual Report on Form 10-K for the year ended December 31, 2000 under "Item 1. Business--Factors That May Affect Future Results of Operations." A-3 Results of Operations The following table summarizes income, income per share and key financial ratios for the periods indicated using three different measurements:
Core earnings (income before nonrecurring warrant income, merger and other related nonrecurring costs, other nonrecurring expenses and extraordinary items) -------------------------------------- Year ended Year ended Year ended December 31, December 31, December 31, 2000 1999 1998 ------------ ------------ ------------ (Dollars in thousands, except per share amounts) Income $70,667 $46,195 $35,141 Income per share: Basic $ 1.71 $ 1.21 $ 0.95 Diluted $ 1.62 $ 1.15 $ 0.89 Return on average assets 1.61% 1.39% 1.37% Return on average shareholders' equity 24.08% 21.08% 19.02%
Income (including nonrecurring warrant income) before merger and other related nonrecurring costs and extraordinary items -------------------------------------- Year ended Year ended Year ended December 31, December 31, December 31, 2000 1999 1998 ------------ ------------ ------------ (Dollars in thousands, except per share amounts) Income $78,243 $50,758 $35,458 Income per share: Basic $ 1.90 $ 1.33 $ 0.96 Diluted $ 1.80 $ 1.26 $ 0.89 Return on average assets 1.79% 1.53% 1.38% Return on average shareholders' equity 26.66% 23.16% 19.19%
Net income (including non-recurring warrant income, merger and other nonrecurring costs, other nonrecurring expenses and extraordinary items) -------------------------------------- Year ended Year ended Year ended December 31, December 31, December 31, 2000 1999 1998 ------------ ------------ ------------ (Dollars in thousands, except per share amounts) Income $58,540 $44,184 $33,784 Income per share: Basic $ 1.42 $ 1.16 $ 0.91 Diluted $ 1.35 $ 1.10 $ 0.85 Return on average assets 1.34% 1.33% 1.32% Return on average shareholders' equity 19.95% 20.16% 18.29%
Net income for 2000 increased 32.5% to $58.5 million, or $1.35 per diluted share, compared to net income of $44.2 million, or $1.10 per diluted share, for 1999. 2000 results included nonrecurring warrant income of $13.0 million ($7.6 million, net of taxes) compared to $14.5 million during 1999. In addition, 2000 results included merger and other related nonrecurring costs of $30.1 million ($19.7 million, net of taxes) compared to $10.3 million ($6.5 million, net of taxes) in 1999. Income, including nonrecurring warrant income and before merger and other related nonrecurring costs and extraordinary items, increased 54.1% to $78.2 million, or $1.80 per diluted share, in 2000, compared to $50.8 million, or $1.26 per diluted share, in 1999. A-4 The Company's core earnings (income before nonrecurring warrant income, merger and other related nonrecurring costs, other nonrecurring expenses and extraordinary items) for 2000 increased 53.0% to $70.7 million, or $1.62 per diluted share, compared to $46.2 million, or $1.15 per diluted share for 1999. Based on its core earnings for 2000, the Company's return on average shareholders' equity was 24.08% and its return on average assets was 1.61%. During 1999, the Company's core earnings resulted in a return on average shareholders' equity of 21.08% and a return on average assets of 1.39%. The 53.0% increase in core earnings during 2000 as compared to 1999 was the result of significant growth in loans and investments. For 2000, net interest income increased 41.0% as compared to 1999. This increase was primarily due to a 32.7% increase in average interest-earning assets for 2000 as compared to 1999. The increases in loans, trust assets and deposits also contributed to the 33.0% increase in loan and international banking fees, service charges and other fees, and trust fees. Increases in operating expenses were required to service and support the Company's growth. As a result, increases in revenue were partially offset for 2000 by a 16.6% increase in recurring operating expenses, as compared to 1999. Net income for 1999 increased 30.8% to $44.2 million, or $1.10 per diluted share, compared to net income of $33.8 million, or $0.85 per diluted share, for 1998. 1999 results included nonrecurring warrant income of $14.5 million ($8.4 million, net of taxes) compared to $945,000 during 1998. In addition, 1999 results included merger and other related nonrecurring costs of $10.3 million ($6.5 million, net of taxes) compared to $2.7 million ($1.7 million, net of taxes) in 1998. Income, including nonrecurring warrant income and before merger and other related nonrecurring costs and extraordinary items, increased 43.1% to $50.8 million, or $1.26 per diluted share, in 1999, compared to $35.5 million, or $0.89 per diluted share, in 1998. The Company's core earnings for 1999 increased 31.5% to $46.2 million, or $1.15 per diluted share, compared to $35.1 million, or $0.89 per diluted share for 1998. Based on its core earnings for 1999, the Company's return on average shareholders' equity was 21.08% and its return on average assets was 1.39%. During 1998, the Company's core earnings resulted in a return on average shareholders' equity of 19.02% and a return on average assets of 1.37%. The 31.5% increase in core earnings during 1999 as compared to 1998 was the result of significant growth in loans and investments. For 1999, net interest income increased 25.3% as compared to 1998. This increase was primarily due to a 29.3% increase in average interest-earning assets for 1999 as compared to 1998. The increases in loans, trust assets and deposits also contributed to the 25.3% increase in loan and international banking fees, service charges and other fees, and trust fees. Increases in operating expenses were required to service and support the Company's growth. As a result, increases in revenue were partially offset for 1999 by a 18.0% increase in recurring operating expenses, as compared to 1998. Net Interest Income Net interest income increased 41.0% to $232.0 million in 2000 from $164.6 million in 1999. This increase was primarily due to the $1.0 billion, or 32.7%, increase in average interest-earning assets and a 33 basis point increase in the Company's net yield on interest-earning assets. Net interest income increased 25.3% in 1999 from $131.3 million in 1998. This increase was primarily due to the $692.9 million, or 29.3%, increase in average interest- earning assets, which was partially offset by the 17 basis point decrease in the Company's net yield on interest-earning assets. A-5 The following table presents, for the years indicated, condensed average balance sheet information for the Company, together with interest income and yields earned on average interest-earning assets and interest expense and rates paid on average interest-bearing liabilities. Average balances are average daily balances.
Years ended December 31, ------------------------------------------------------------------------------------ 2000 1999 1998 ---------------------------- --------------------------- --------------------------- Average Average Average Average yield/ Average yield/ Average yield/ balance(1) Interest rate balance(1) Interest rate balance(1) Interest rate ---------- -------- ------- ---------- -------- ------- ---------- -------- ------- (Dollars in thousands) INTEREST-EARNING ASSETS: Fed funds sold $ 196,073 $ 11,954 6.10% $ 203,554 $ 10,518 5.17% $ 156,649 $ 8,367 5.34% Other short term securities 24,817 1,663 6.70% 70,847 3,830 5.41% 97,229 5,480 5.64% Investment securities: Taxable 765,324 55,235 7.22% 559,077 37,000 6.62% 494,019 30,709 6.22% Tax-exempt(2) 167,884 8,754 5.21% 129,971 6,549 5.04% 98,728 5,090 5.16% Loans(3) 2,901,647 290,757 10.02% 2,092,024 197,480 9.44% 1,515,965 155,543 10.26% ---------- -------- ---------- -------- ---------- -------- Total interest-earning assets 4,055,745 368,363 9.08% 3,055,473 255,377 8.36% 2,362,590 205,189 8.68% Noninterest-earning assets 320,950 258,584 203,022 ---------- -------- ---------- -------- ---------- -------- Total assets $4,376,695 368,363 $3,314,057 255,377 $2,565,612 205,189 ========== -------- ========== -------- ========== -------- INTEREST-BEARING LIABILITIES: Deposits: MMDA, NOW and Savings $2,112,564 82,918 3.92% $1,650,227 55,292 3.35% $1,223,414 41,980 3.43% Time deposits, over $100,000 649,667 35,611 5.48% 461,085 21,677 4.70% 326,242 16,436 5.04% Other time deposits 158,896 8,288 5.22% 166,446 7,873 4.73% 168,606 8,342 4.95% ---------- -------- ---------- -------- ---------- -------- Total interest-bearing deposits 2,921,127 126,817 4.34% 2,277,758 84,842 3.72% 1,718,262 66,758 3.89% Other borrowings 159,696 9,583 6.00% 109,872 5,907 5.38% 114,063 6,815 5.97% Subordinated debt -- -- 0.00% 607 68 11.20% 3,000 345 11.50% ---------- -------- ---------- -------- ---------- -------- Total interest-bearing liabilities 3,080,823 136,400 4.43% 2,388,237 90,817 3.80% 1,835,325 73,918 4.03% Noninterest-bearing deposits 848,897 620,555 489,520 Other noninterest-bearing liabilities 71,618 37,090 24,729 Trust Preferred Securities 81,913 49,000 31,293 ---------- ---------- ---------- Shareholders' equity 293,444 219,175 184,745 ---------- -------- ---------- ---------- -------- Total shareholders' equity and liabilities $4,376,695 136,400 $3,314,057 90,817 $2,565,612 73,918 ========== -------- ========== -------- ========== -------- Net interest income $231,963 $164,560 $131,271 ======== ======== ======== Interest rate spread 4.66% 4.56% 4.66% Contribution of interest free funds 1.06% 0.83% 0.90% ----- ----- ----- Net yield on interest- earnings assets(4) 5.72% 5.39% 5.56%
- ------- (1) Nonaccrual loans are excluded from the average balance and only collected interest on nonaccrual loans is included in the interest column. (2) Tax equivalent yields earned on the tax exempt securities are 7.55%, 7.42% and 7.58% for the years ended December 31, 2000, 1999 and 1998, respectively, using the federal statutory rate of 34%. (3) Loan fees totaling $8.1 million, $7.5 million and $6.8 million are included in loan interest income for 2000, 1999 and 1998, respectively. (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. A-6 The most significant impact on the Company's net interest income between periods is derived from the interaction of changes in the volume of and rate earned or paid on interest-earning assets and interest-bearing liabilities. The volume of interest-earning asset dollars in loans and investments, compared to the volume of interest-bearing liabilities represented by deposits and borrowings, combined with the spread, produces the changes in the net interest income between periods. The table below sets forth, for the years indicated, a summary of the changes in net interest income due to changes in average asset and liability balances (volume) and changes in average interest rates (rate). Changes in interest income and expense which are not attributable specifically to either volume or rate are allocated proportionately between both variances. Nonaccrual loans are excluded in average loans.
Year ended December 31, Year ended December 31, 2000 compared with 1999 compared with December 31, 1999 December 31, 1998 favorable / (unfavorable) favorable / (unfavorable) ---------------------------- ---------------------------- Volume Rate Net Volume Rate Net -------- -------- -------- -------- -------- -------- (Dollars in thousands) INTEREST EARNED ON INTEREST-EARNING ASSETS Federal funds sold $ (398) $ 1,834 $ 1,436 $ 2,432 $ (281) $ 2,151 Other short term investments (2,924) 757 (2,167) (1,434) (216) (1,650) Investment securities: Taxable 14,642 3,593 18,235 4,219 2,072 6,291 Tax-exempt 1,970 235 2,205 1,577 (118) 1,459 Loans 80,483 12,794 93,277 55,200 (13,263) 41,937 -------- -------- -------- -------- -------- -------- Total interest income 93,772 19,214 112,986 61,995 (11,807) 50,188 -------- -------- -------- -------- -------- -------- INTEREST EXPENSE ON INTEREST-BEARING LIABILITIES Deposits: MMDA, NOW and savings (17,138) (10,488) (27,626) (14,322) 1,010 (13,312) Time deposits over $100,000 (9,912) (4,022) (13,934) (6,403) 1,162 (5,241) Other time deposits 368 (783) (415) 106 363 469 -------- -------- -------- -------- -------- -------- Total interest- bearing deposits (26,683) (15,292) (41,975) (20,619) 2,535 (18,084) Other borrowings (2,926) (750) (3,676) 244 664 908 Subordinated debt 34 34 68 268 9 277 -------- -------- -------- -------- -------- -------- Total interest expense (29,575) (16,008) (45,583) (20,107) 3,208 (16,899) -------- -------- -------- -------- -------- -------- Net increase (decrease) in net interest income $ 64,198 $ 3,205 $ 67,403 $ 41,888 $ (8,599) $ 33,289 ======== ======== ======== ======== ======== ========
Interest income in 2000 increased 44.2% to $368.4 million from $255.4 million in 1999. This was primarily due to the significant increase in loans, the Company's highest yielding interest-earning asset, and investment securities. Loan volume increases were the result of the continuing economic improvement in the Company's market areas, as well as the addition of experienced relationship managers and significant business development efforts by the Company's relationship managers. The increase was enhanced by an increase in the yield earned on average interest-earning assets. Average interest-earning assets increased $1.0 billion, or 32.7%, to $4.1 billion in 2000, compared to $3.1 billion in 1999. Average loans increased $809.6 million, or 38.7%, to $2.9 billion in 2000 from $2.1 billion in 1999. Average investment securities, Federal funds sold and other short-term securities, increased 19.8% to $1.2 billion in 2000 from $963.4 million in 1999. The average yield on interest-earning assets increased 72 basis points to 9.08% in 2000 from 8.36% in 1999 primarily due to an increase in the average yield on loans. Loans represented approximately 71.5% of total interest- earning assets in 2000 compared to 68.5% in 1999. The average yield on loans increased 58 basis points to 10.02% in 2000 from 9.44% in 1999. A-7 Interest expense in 2000 increased 50.2% to $136.4 million from $90.8 million in 1999. This increase was due to greater volumes of interest-bearing liabilities and higher interest rates paid on interest-bearing liabilities. Average interest-bearing liabilities increased 29.0% to $3.1 billion in 2000 from $2.4 billion in 1999. The increase in volume was due primarily to the efforts of the Banks' relationship managers in generating core deposits from their client relationships and the deposits derived from the activities of the Greater Bay Trust Company and the Venture Banking Group. Interest rates increased primarily as a result of increases in market interest rates and as a result of competitive pressures. During 2000, average noninterest-bearing deposits increased to $848.9 million from $620.6 million in 1999. As a result of the foregoing, the Company's interest rate spread increased to 4.66% in 2000 from 4.56% in 1999, and the net yield on interest-earning assets increased in 2000 to 5.72% from 5.39% in 1999. Interest income increased 24.4% to $255.4 million in 1999 from $205.2 million in 1998, as a result of the increase in average interest-earning assets offset by a decline in the yields earned. Average interest-earning assets increased 29.3% to $3.1 billion in 1999 from $2.4 billion in 1998 principally as a result of increase in loans. The yield on the higher volume of average interest-earning assets declined 32 basis points to 8.36% in 1999 from 8.68% in 1998, primarily as a result of increased competition for loans. Interest expense in 1999 increased 22.9% to $90.8 million from $73.9 million in 1998 primarily as a result of the increase in the volume of interest- bearing liabilities offset in part by a decline in the rates paid on interest- bearing liabilities. Corresponding to the growth in average interest-earning assets, average interest-bearing liabilities increased 30.1% to $2.4 billion in 1999 from $1.8 billion in 1998. As a result of the foregoing, the Company's interest rate spread declined to 4.56% in 1999 from 4.66% in 1998 and the net yield on interest-earning assets declined to 5.39% in 1999 from 5.56% in 1998. Based on modeling performed as part of out interest rate risk analysis, we believe that the 50 basis point decrease in the target Fed Funds rate by the Federal Reserve announced January 3, 2001 and the additional 50 basis point decrease announced January 31, 2001 will likely result in a 6 to 12 basis point drop in the Company's interest rate spread. With any further declines in interest rates, our ability to proportionately decrease the rates on our deposit sources, particularly MMDA and NOW accounts, may not be possible due to competitive pressures. This may result in a larger decrease in our interest rate spread. Although we believe our current level of interest rate sensitivity is reasonable, significant fluctuations in interest rates may have an adverse effect on our business, financial condition and results of operations. The Company incurred certain client service expenses with respect to its noninterest-bearing liabilities. These expenses include courier and armored car services, check supplies and other related items that are included in operating expenses. If these expenses had been included in interest expense, the Company's net yield on interest-earning assets would have been as follows for each of the years presented.
Years ended December 31, ------------------------------ 2000 1999 1998 -------- -------- -------- (Dollars in thousands) Average noninterest bearing demand deposits $848,897 $620,555 $489,520 Client service expenses 2,081 3,226 2,520 Client service expenses, as a percentage of average noninterest bearing demand deposits 0.25 % 0.52 % 0.51 % Impact on net yield of interest-earning assets: Net yield on interest-earning assets 5.72 % 5.39 % 5.56 % Impact of client service expense (0.05)% (0.11)% (0.11)% -------- -------- -------- Adjusted net yield on interest-earning assets 5.67 % 5.28 % 5.45 % ======== ======== ========
The impact on the net yield on interest-earning assets is determined by offsetting net interest income by the cost of client service expense, which reduces the yield on interest-earning assets. The cost for client service expense reflects the Company's efforts to manage its interest expense. A-8 Provision for Loan Losses The provision for loan losses represents the current period credit cost associated with maintaining an appropriate allowance for credit losses. The loan loss provision for each period is dependent upon 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. Periodic fluctuations in the provision for loan losses result from management's assessment of the adequacy of the allowance for loan losses; however, actual loan losses may vary from current estimates. Refer to the section "Financial Condition--Allowance for Loan Losses" for a description of the systematic methodology employed by the Company in determining an adequate allowance for loan losses. The provision for loan losses in 2000 was $28.1 million, compared to $14.0 million in 1999 and $8.3 million in 1998. In addition, in connection with the mergers described in Note 2 of Notes to Consolidated Financial Statements, the Company made an additional provision for loan losses of $8.1 million, $2.7 million and $183,000 in 2000, 1999 and 1998, respectively, to conform to the Company's allowance methodology. For further information on nonperforming and classified loans and the allowance for loan losses, see "Financial Condition--Nonperforming and Classified Assets." Other Income Total other income increased to $45.5 million in 2000, compared to $43.0 million in 1999 and $21.9 million in 1998. The following table sets forth information by category of other income for the years indicated.
Years ended December 31, ----------------------- 2000 1999 1998 ------- ------- ------- (Dollars in thousands) Service charges and other fees $ 8,594 $ 7,931 $ 6,906 Loan and international banking fees 8,162 4,275 2,752 Trust fees 3,450 2,990 2,473 ATM network revenue 2,891 2,682 2,440 Gain on sale of SBA loans 2,190 2,058 3,490 Gain on investments, net 81 87 473 Other income 7,171 8,448 2,462 ------- ------- ------- Total, recurring 32,539 28,471 20,996 Warrant income 12,986 14,508 945 ------- ------- ------- Total $45,525 $42,979 $21,941 ======= ======= =======
The increase in other income in 2000 as compared to 1999 was a result of $3.9 million increase in loan and international banking fees, a $663,000 increase in service charges and other fees, and a $460,000 increase in trust fees. These increases were a result of significant growth in total loans, total deposits and trust assets. Other income in 2000 and 1999 includes $2.1 million and $4.0 million, respectively, in appreciation recognized on the conversion of equity securities received in the settlement of a loan into a publicly traded equity security. As discussed further below, the warrant income resulted from the sale of stock acquired from clients in connection with financing activities. The increase in other income in 1999 as compared to 1998 was a result of $1.5 million increase in loan and international banking fees, a $1.0 million increase in service charges and other fees, and a $517,000 increase in trust fees. These increases were a result of significant growth in total loans, total deposits and trust assets. A-9 Other income in 2000, 1999 and 1998 included warrant income of $13.0 million, $14.5 million and $945,000 net of related employee incentives of $4.5 million, $7.3 million and $396,000, respectively. At December 31, 2000, the Company held approximately 145 warrant positions. The Company occasionally receives warrants to acquire common stock from companies that are in the start-up or development phase. The timing and amount of income derived from the exercise and sale of client warrants typically depend upon factors beyond the control of the Company, and cannot be predicted with any degree of accuracy and are likely to vary materially from period to period. Operating Expenses The following table sets forth the major components of operating expenses for the years indicated.
Years ended December 31, --------------------------- 2000 1999 1998 -------- -------- ------- (Dollars in thousands) Compensation and benefits $ 64,324 $ 56,488 $47,617 Occupancy and equipment 21,688 17,545 13,386 Dividends paid on TPS 7,842 4,201 2,824 Client service expenses 2,081 3,226 2,520 Legal and other professional fees 4,704 3,371 3,416 FDIC insurance and regulatory assessments 1,236 622 553 Expenses on other real estate owned 56 13 157 Other 20,681 19,648 18,556 -------- -------- ------- Total operating expenses excluding nonrecurring costs 122,612 105,114 89,029 Contribution to the Greater Bay Bancorp Foundation and related expenses -- 12,160 1,341 Mergers and other related nonrecurring costs 30,102 10,331 2,661 -------- -------- ------- Total operating expenses $152,714 $127,605 $93,031 ======== ======== ======= Efficiency ratio 55.03% 61.48% 60.72% Efficiency ratio (before merger, nonrecurring and extraordinary items) 46.36% 54.45% 58.47% Total operating expenses to average assets 3.49% 3.85% 3.63% Total operating expenses to average assets (before merger, nonrecurring and extraordinary items) 2.80% 3.17% 3.47%
Operating expenses totaled $152.7 million for 2000, compared to $127.6 million for 1999 and $93.0 million for 1998. The ratio of operating expenses to average assets was 3.49% in 2000, 3.85% in 1999, and 3.63% in 1998. Total operating expenses include merger and other related nonrecurring costs and contributions to the Foundation and related expenses. 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 before merger, nonrecurring and extraordinary items for 2000 was 46.36%, compared to 54.45% in 1999 and 58.47% in 1998. During 1998, Greater Bay established the Greater Bay Bancorp Foundation ("the Foundation"). The Foundation was formed to provide a vehicle through which the Company, its officers and directors can provide support to the communities in which the Company does business. The Foundation focuses its support on initiatives related to education, health and economic growth. To support the Foundation, the Company contributed appreciated securities which had an unrealized gain of $7.8 million in 1999 and $1.3 million in 1998. In 1999, the Company incurred $4.4 million in compensation and other expenses in connection with these appreciated securities. The Company recorded expenses of $12.2 million in 1999 and $1.3 million in 1998 in connection with its Foundation donations which is included in operating expenses. A-10 As indicated by the improvements in the efficiency ratio, the Company has been able to achieve increasing economies of scale. In 2000, average assets increased 32.1% from 1999, while operating expenses, excluding merger, and other nonrecurring items, increased only 16.6%. From 1998 to 1999, average assets increased 29.2%, while operating expenses, excluding merger and nonrecurring costs increased only 18.1%. Compensation and benefits expenses increased in 2000 to $64.3 million, compared to $56.5 million in 1999 and $47.6 million in 1998. The increase in compensation and benefits is due primarily to the additions in personnel made in 2000 and 1999 to accommodate the growth of the Company. The increase in occupancy and equipment, legal and other professional fees, Federal Deposit Insurance Corporation ("FDIC") insurance and regulatory assessments and other operating expenses was related to the growth in the Company's loans, deposits and trust assets. The increase in the dividends paid on Trust Preferred Securities was a result of the $50.5 million in Trust Preferred Securities issued in 2000. Income Taxes The Company's effective income tax rate for 2000 was 39.4%, compared to 32.8% in 1999 and 34.9% in 1998. The effective rates were lower than the statutory rate of 42% due to the donation of appreciated securities to the Foundation, state enterprise zone tax credits and tax-exempt income on municipal securities. The reductions were partially offset by the impact of nondeductible merger and other related nonrecurring costs. In 1998, the Company was able to further reduce its effective tax rate through the recognition of certain net operating losses acquired in its merger with Pacific Rim Bancorporation. Financial Condition Total assets increased 37.3% to $5.1 billion at December 31, 2000, compared to $3.7 billion at December 31, 1999. Total assets increased 30.8% in 1999 from $2.9 billion at December 31, 1998. The increases in 2000 and 1999 were primarily due to increases in the Company's loan portfolio funded by growth in deposits. Loans Total gross loans increased 45.9% to $3.6 billion at December 31, 2000, compared to $2.5 billion at December 31, 1999. Total gross loans increased 38.8% in 1999 from $1.8 billion at year-end 1998. The increases in loan volumes in 2000 and 1999 were primarily due to a strong 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 leases and consumer loans. While no specific industry concentration is considered significant, the Company's lending operations are located in a market area that is dependent on the technology and real estate industries and supporting service companies. Thus, a downturn in these sectors of the economy could adversely impact the Company's borrowers. This could, in turn, reduce the demand for loans and adversely impact the borrowers' abilities to repay their loans, while also decreasing the Company's net interest margin. A-11 The following table presents the composition of the Company's loan portfolio at the dates indicated.
As of December 31, ------------------------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 ----------------- ----------------- ----------------- ----------------- ----------------- Amount % Amount % Amount % Amount % Amount % ---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- ----- (Dollars in thousands) Commercial $1,562,712 44.4 % $ 926,075 38.3 % $ 657,300 37.8 % $ 547,083 40.3 % $ 462,894 42.5 % Term Real Estate-- Commercial 967,428 27.5 764,034 31.6 562,388 32.3 412,412 30.4 313,203 28.7 ---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- ----- Total Commercial 2,530,140 71.9 1,690,109 69.9 1,219,688 70.1 959,495 70.7 776,097 71.2 Real estate construction and land 691,912 19.7 479,163 19.8 301,641 17.3 206,448 15.2 152,607 14.0 Real estate other 176,568 5.0 140,852 5.8 114,553 6.6 83,404 6.1 68,434 6.3 Consumer and other 216,459 6.2 167,257 6.9 149,287 8.6 146,930 10.8 121,478 11.2 ---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- ----- Total loans, gross 3,615,079 102.8 2,477,381 102.4 1,785,169 102.6 1,396,277 102.8 1,118,616 102.7 Deferred fees and discounts, net (13,657) (0.4) (12,911) (0.5) (11,916) (0.7) (11,157) (0.8) (10,567) (1.0) ---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- ----- Total loans, net of deferred fees 3,601,422 102.4 2,464,470 101.9 1,773,253 101.9 1,385,120 102.0 1,108,049 101.7 Allowance for loan losses (84,014) (2.4) (48,047) (1.9) (33,095) (1.9) (26,606) (2.0) (18,572) (1.7) ---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- ----- Total loans, net $3,517,408 100.0 % $2,416,423 100.0 % $1,740,158 100.0 % $1,358,514 100.0 % $1,089,477 100.0 % ========== ===== ========== ===== ========== ===== ========== ===== ========== =====
The following table presents the maturity distribution of the Company's commercial, real estate construction and land, term real estate--commercial and real estate other portfolios and the sensitivity of such loans to changes in interest rates at December 31, 2000.
Term real Real estate Real estate-- construction estate Commercial commercial and land other ---------- ---------- ------------ -------- (Dollars in thousands) Loans maturing in: One year or less: Fixed rate $ 271,756 $ 23,859 $ 48,155 $ 1,547 Variable rate 525,118 57,944 584,196 26,686 One to five years: Fixed rate 133,063 117,496 1,929 6,257 Variable rate 259,718 113,348 38,170 28,163 After five years: Fixed rate 237,592 356,687 3,639 11,767 Variable rate 135,465 298,094 15,823 102,148 ---------- -------- -------- -------- Total $1,562,712 $967,428 $691,912 $176,568 ========== ======== ======== ========
Nonperforming and Classified Assets Management generally places loans on nonaccrual status when they become 90 days past due, unless they are well secured and in the process of collection. When a loan is placed on nonaccrual status, any interest previously accrued and not collected is generally reversed from income. Loans are charged off when management determines that collection has become unlikely. Restructured loans are those where the Banks have granted a concession on the interest paid or original repayment terms due to financial difficulties of the borrower. Other real estate owned ("OREO") consists of real property acquired through foreclosure on the related collateral underlying defaulted loans. A-12 The following table sets forth information regarding nonperforming assets at the dates indicated.
As of December 31, ---------------------------------------- 2000 1999 1998 1997 1996 ------- ------ ------ ------ ------- (Dollars in thousands) Nonperforming loans: Nonaccrual loans $12,593 $5,744 $4,011 $4,437 $ 7,186 Restructured loans -- 807 796 1,533 1,828 ------- ------ ------ ------ ------- Total nonperforming loans 12,593 6,551 4,807 5,970 9,014 OREO -- 271 966 1,541 2,224 ------- ------ ------ ------ ------- Total nonperforming assets $12,593 $6,822 $5,773 $7,511 $11,238 ======= ====== ====== ====== ======= Accruing loans past due 90 days or more $ 4,428 $ 139 $ 244 $ 273 $ 2,651 ======= ====== ====== ====== ======= Nonperforming assets to total loans and OREO 0.35% 0.28% 0.33% 0.54% 1.01% Nonperforming assets to total assets 0.25% 0.18% 0.20% 0.34% 0.63% Nonperforming assets and accruing loans past due 90 days or more to total loans and OREO 0.47% 0.28% 0.34% 0.56% 1.25% Nonperforming assets and accruing loans past due 90 days or more to total assets 0.33% 0.19% 0.21% 0.35% 0.78%
At December 31, 2000 and 1999, the Company had $12.6 million and $5.7 million in nonaccrual loans, respectively. At December 31, 2000, accruing loans past due 90 days or more included three loans totaling $3.7 million which were brought current or paid in full in the first two weeks of 2001. All three of these loans had matured in 2000 and were awaiting either payoff or renewal. Excluding these three loans, the Company's ratio of nonperforming assets and accruing loans past due 90 days or more to total loans and OREO was 0.37%. The Company has three classifications for problem loans: "substandard", "doubtful" and "loss". Substandard loans have one or more defined weakness and are characterized by the distinct possibility that the Banks will sustain some loss if the deficiencies are not corrected. Doubtful loans have the weaknesses of substandard loans with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable; and there is a high possibility of loss of some portion of the principal balance. A loan classified as "loss" is considered uncollectable and its continuance as an asset is not warranted. Of the $46 million in classified loans at December 31, 2000, approximately $13 million in loans are secured by real estate, $29 million in loans are secured by accounts receivable, inventory and equipment and $4 million in other loans are secured by personal guarantees and related assets. The classified loans include a variety of borrower types and are not concentrated in any particular industry or niche business. Based on recent appraisals, the average loan to value ratio of the real estate secured loans is 60% and management does not believe that any material losses will be recognized in these classified loans. With respect to the secured commercial loans and the other secured loans, management believes that the related commercial business assets, personal assets securing these loans and the personal guarantees, combined with the allowance for loan losses are adequate to absorb any possible loan losses. A-13 The following table sets forth the classified loans and other real estate owned at the dates indicated.
As of December 31, ---------------------------- 2000 1999 1998 -------- -------- -------- (Dollars in thousands) Substandard $ 44,194 $ 30,725 $ 18,834 Doubtful 1,759 1,850 1,376 Loss -- 2 -- OREO -- 271 966 -------- -------- -------- Classified loans and OREO $ 45,953 $ 32,848 $ 21,176 ======== ======== ======== Classified to total loans and OREO 1.28% 1.33% 1.19% Allowance for loan losses to total classified loans and OREO 182.83% 146.27% 156.29%
With the exception of these classified loans, management was not aware of any loans outstanding as of December 31, 2000 where the known credit problems of the borrower would cause management to have doubts as to the ability of such borrowers to comply with their present loan repayment terms and which would result in such loans being included in nonperforming or classified asset tables at some future date. Management cannot, however, predict the extent to which economic conditions in the Company's market areas may worsen or the full impact that 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 nonaccrual, become restructured loans, or other real estate owned in the future. Allowance For Loan Losses The allowance for loan losses is established through a provision for loan losses based on management's evaluation of risk inherent in the Company's loan portfolio. The allowance is increased by provisions charged against current earnings and reduced by net charge-offs. Loans are charged off when they are deemed to be uncollectible; recoveries are generally recorded only when cash payments are received. The Company employs a systematic methodology for determining its allowance for loan losses, which includes a monthly review process and monthly adjustment of the allowance. The Company's process includes a periodic loan by loan review for loans that are individually evaluated for impairment as well as detailed reviews of other loans (either individually or in pools). This includes an assessment of known problem loans, potential problem loans, and other loans that exhibit indicators of deterioration. The Company's methodology incorporates a variety of risk considerations, both quantitative and qualitative, in establishing an allowance for loan losses that management believes is appropriate at each reporting date. Quantitative factors include the Company's historical loss experience, delinquency and charge-off trends, collateral values, changes in non-performing loans, and other factors. Quantitative factors also incorporate known information about individual loans including borrowers' sensitivity to interest rate movements and borrowers' sensitivity to quantifiable external factors including commodity and finished goods prices as well as acts of nature (earthquakes, fires, etc.) that occur in a particular period. Qualitative factors include the general economic environment in the Company's marketplace, and in particular, the state of the technology industries based in the Silicon Valley and other key industries in the San Francisco Bay Area. Size and complexity of individual credits in relation to lending officers' background and experience levels, loan structure, extent and nature of waivers of existing loan policies and pace of portfolio growth are other qualitative factors that are considered in the Company's methodology. The Company's methodology is, and has been, consistently followed. However, as the Company adds new products, increases in complexity, and expands its geographic coverage, the Company will enhance its methodology to keep pace with the size and complexity of the loan portfolio. In this regard, the Company has periodically engaged outside firms to independently assess the Company's methodology, and on an ongoing basis the Company engages outside firms to perform independent credit reviews of its loan portfolio. Management believes that the Company's systematic methodology continues to be appropriate given the Company's size and level of complexity. A-14 While this methodology utilizes historical and other objective information, the establishment of the allowance for loan losses and the classification of loans, is to some extent, based on the judgment and experience of management. In general, management feels that the allowance for loan losses is adequate as of December 31, 2000. However, future changes in circumstances, economic conditions or other factors could cause management to increase or decrease the allowance for loan losses as necessary. The following table sets forth information concerning the Company's allowance for loan losses at the dates and for the years indicated.
2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- (Dollars in thousands) Period end loans outstanding $3,615,079 $2,477,381 $1,785,169 $1,396,277 $1,118,616 Average loans outstanding 2,909,204 2,097,090 1,519,643 1,237,733 886,275 Allowance for loan losses: Balance at beginning of period 48,047 33,095 26,606 18,599 13,905 Allowance of entities acquired through mergers accounted for under purchase accounting method 10,927 -- -- -- -- Charge-offs: Commercial (11,729) (2,880) (2,155) (2,136) (1,483) Term real estate-- commercial -- (12) (51) (59) (85) ---------- ---------- ---------- ---------- ---------- Total commercial (11,729) (2,892) (2,206) (2,195) (1,568) Real estate construction and land -- -- (7) (243) (127) Real estate other -- -- -- -- -- Consumer and other (354) (501) (397) (428) (540) ---------- ---------- ---------- ---------- ---------- Total charge-offs (12,083) (3,393) (2,610) (2,866) (2,235) ---------- ---------- ---------- ---------- ---------- Recoveries: Commercial 798 1,182 540 278 523 Term real estate-- commercial -- 1 11 6 27 ---------- ---------- ---------- ---------- ---------- Total commercial 798 1,183 551 284 550 Real estate construction and land -- 7 -- 6 328 Real estate other -- 7 -- -- -- Consumer and other 151 364 86 101 156 ---------- ---------- ---------- ---------- ---------- Total recoveries 949 1,561 637 391 1,034 ---------- ---------- ---------- ---------- ---------- Net charge-offs (11,134) (1,832) (1,973) (2,475) (1,201) Provision charged to income(1) 36,174 16,784 8,462 10,482 5,895 ---------- ---------- ---------- ---------- ---------- Balance at end of period $ 84,014 $ 48,047 $ 33,095 $ 26,606 $ 18,599 ========== ========== ========== ========== ========== Net charge-offs to average loans outstanding during the period 0.38% 0.09% 0.13% 0.20% 0.14% Allowance as a percentage of average loans outstanding 2.89% 2.29% 2.18% 2.15% 2.10% Allowance as a percentage of period end loans outstanding 2.32% 1.94% 1.85% 1.91% 1.66% Allowance as a percentage of non-performing loans 493.59% 718.19% 655.22% 426.17% 159.44%
- -------- (1) Includes $8.1 million, $2.7 million, $183,000, $1.4 million and $800,000 in 2000, 1999, 1998, 1997 and 1996, respectively, to conform to the Company's allowance methodologies which are included in mergers and other related nonrecurring costs. A-15 The following table provides a summary of the allocation of the allowance for loan losses for specific loan categories at the dates indicated. The allocation presented should not be interpreted as an indication that charges to the allowance for loan losses will be incurred in these amounts or proportions, or that the portion of the allowance allocated to each loan category represents the total amounts available for charge-offs 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.
As of December 31, ------------------------------------------------------------------------------------ 2000 1999 1998 1997 1996 ---------------- ---------------- ---------------- ---------------- ---------------- % of % of % of % of % of Category Category Category Category Category to Gross to Gross to Gross to Gross to Gross Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans ------- -------- ------- -------- ------- -------- ------- -------- ------- -------- (Dollars in thousands) Commercial $32,812 43.23% $16,419 37.38% $12,341 36.82% $ 9,422 39.18% $ 7,927 41.38% Term real estate-- commercial 14,511 26.76% 7,850 30.84% 3,763 31.50% 2,939 29.54% 2,178 28.00% ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ Total commercial 47,323 69.99% 24,269 68.22% 16,104 68.32% 12,361 68.72% 10,105 69.38% Real estate construction and land 10,379 19.14% 4,620 19.34% 3,477 16.90% 2,239 14.79% 2,346 13.64% Real estate term 1,766 4.88% 2,166 5.69% 1,574 6.42% 1,284 5.97% 706 6.12% Consumer and other 5,412 5.99% 3,969 6.75% 2,817 8.36% 2,006 10.52% 2,067 10.86% ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ Total allocated 64,880 35,024 23,972 17,890 15,224 Unallocated 19,134 13,023 9,123 8,716 3,375 ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ Total $84,014 100.00% $48,047 100.00% $33,095 100.00% $26,606 100.00% $18,599 100.00% ======= ====== ======= ====== ======= ====== ======= ====== ======= ======
At December 31, 2000, the allowance for loan losses was $84.0 million, consisting of a $64.9 million allocated allowance and a $19.1 million unallocated allowance. The unallocated allowance recognizes the model and estimation risk associated with the allocated allowances, and management's evaluation of various conditions, the effects of which are not directly measured in determining the allocated allowance. The evaluation of the inherent loss regarding these conditions involves a higher degree of uncertainty because they are not identified with specific problem credits or portfolio segments. The conditions evaluated in connection with the unallocated allowance include the following at the balance sheet date: . the strength and duration of the current business cycle and existing general economic and business conditions affecting our key lending areas; economic and business conditions affecting our key lending portfolios; . seasoning of the loan portfolio, growth in loan volumes and changes in loan terms; and . the results of bank regulatory examinations. 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 local subdivisions, securities sold under repurchase agreements, and Federal Home Loan Bank ("FHLB") advances. The portfolio is comprised of U.S. Treasury securities, U.S. government agency securities, mortgage-backed securities, obligations of states and political subdivisions, corporate debt instruments and a modest amount of equity securities, including Federal Reserve Bank stock and FHLB stock. The Company does not include Federal Funds sold and certain other short-term securities as investment securities. These other investments are included in cash and cash equivalents. Investment securities classified as available for sale are recorded at fair value, while investment securities classified as held to maturity are recorded at cost. Unrealized gains or losses on available for sale securities, net of the deferred tax effect, are reported as increases or decreases in shareholders' equity. For the amortized cost and estimated fair value of the investment securities, the maturity of investment securities by security type and additional information concerning the investments portfolio, see Note 3 of Notes to Consolidated Financial Statements. A-16 Deposits The Company emphasizes developing total client relationships with its customers in order to increase its core deposit base. Deposits reached $4.2 billion at December 31, 2000, an increase of 27.6% compared to deposits of $3.3 billion at December 31, 1999. In 1999, deposits increased 32.5% from $2.5 billion at December 31, 1998. The increase in deposits was primarily due to the continued marketing efforts directed at commercial business clients in the Company's market areas. The Company's noninterest-bearing demand deposit accounts increased 38.0% to $1.0 billion at December 31, 2000, compared to $727.6 million a year earlier. Money market deposit accounts ("MMDA"), negotiable order of withdrawal accounts ("NOW") and savings accounts reached $2.1 billion at year-end 2000, an increase of 13.3% from $1.8 billion at December 31, 1999. MMDA, NOW and savings accounts were 50.0% of total deposits at December 31, 2000, as compared to 56.4% at December 31, 1999. Time certificates of deposit totaled $1.1 billion, or 25.9% of total deposits, at December 31, 2000, compared to $696.4 million, or 21.3% of total deposits, at December 31, 1999. As of December 31, 2000 and 1999, the Company had $136.8 million and $19.3 million, respectively in brokered deposits outstanding. Other Borrowings At December 31, 2000 other borrowings consisted of securities sold under agreements to repurchase, FHLB advances, advances under credit lines, and other notes payable. Note 10 of Notes to Consolidated Financial Statements provides the amounts outstanding, the short and long term classification, other borrowings outstanding during the year and the general terms of these borrowings. Liquidity and Cash Flow The objective of the Company's liquidity management is to maintain each Bank's ability to meet the day-to-day cash flow requirements of its clients who either wish to withdraw funds or require funds to meet their credit needs. The Company must manage its liquidity position to allow the Banks to meet the needs of their clients while maintaining an appropriate balance between assets and liabilities to meet the return on investment expectations of its shareholders. The Company monitors the sources and uses of funds on a daily basis to maintain an acceptable liquidity position. In addition to liquidity from core deposits and repayments and maturities of loans and investments, the Banks can utilize brokered deposit lines, sell securities under agreements to repurchase, FHLB advances or purchase overnight Federal Funds. Greater Bay is a company separate and apart from the Banks. It must provide for its own liquidity. Substantially all of Greater Bay's revenues are obtained from management fees, interest received on its investments 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. At December 31, 2000, the Banks had approximately $96.0 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. As of December 31, 2000, Greater Bay did not have any material commitments for capital expenditures. Net cash provided by operating activities, consisting primarily of net income, totaled $115.2 million for 2000, $58.7 million for 1999 and $38.8 million for 1998. Cash used for investing activities totaled $1.4 billion in 2000, $812.6 million in 1999 and $626.9 million in 1998. The funds used for investing activities primarily represent increases in loans and investment securities for each year reported. A-17 For the year ended December 31, 2000, net cash provided by financing activities was $1.3 billion, compared to $821.8 million in 1999 and $579.5 million in 1998. Historically, the primary financing activity of the Company has been through deposits. In 2000, 1999 and 1998, deposit gathering activities generated cash of $902.2 million, $799.4 million and $528.1 million, respectively. This represents a total of 70.7%, 97.3% and 91.1% of the financing cash flows for 2000, 1999 and 1998, respectively. The 2000 increase in financing activities other than deposits are a result of proceeds from issuance of Trust Preferred Securities of $50.5 million and the proceeds from the sale of stock of $30.4 million, as compared to $26.8 million in 1999. In 1998 the Company entering into $70.0 million in long-term low cost repurchase agreements and issued Trust Preferred Securities of $30.0 million which were issued principally to provide capital to the Company (see "-- Capital Resources", below). Capital Resources Shareholders' equity at December 31, 2000 increased to $322.4 million from $252.9 million at December 31, 1999 and from $200.7 million at December 31, 1998. Greater Bay paid dividends of $0.35, $0.24 and $0.19 per share for the year December 31, 2000, 1999 and 1998, respectively, excluding dividends paid by subsidiaries prior to the completion of their mergers. On March 23, 2000, Greater Bay completed a private offering of 648,648 shares of restricted common stock to institutional investors. Proceeds from the offering were $12,000,000 less placement agent's fees of $514,000. On December 22, 1999, Greater Bay completed a private offering of 1,070,000 shares of restricted common stock to institutional investors. Proceeds from the offering were $19,795,000 less placement agent's fees of $834,000. Greater Bay intends to use the net proceeds from both offerings for general corporate purposes. In 2000, the Company completed two offerings of Trust Preferred Securities in an aggregate amount of $50.5 million to enhance its regulatory capital base, while also providing added liquidity. In 1998, the Company issued $30.0 million in additional Trust Preferred Securities. Under applicable regulatory guidelines, the Trust Preferred Securities qualifies as Tier I capital up to a maximum of 25% of Tier I capital. Any additional portion of Trust Preferred Securities would qualify as Tier 2 capital. As of December 31, 2000, all outstanding Trust Preferred Securities qualified as Tier I capital. As the Company's shareholders' equity increases, the amount of Tier I capital that can be comprised of Trust Preferred Securities will increase. A banking organization's total qualifying capital includes two components: core capital (Tier 1 capital) and supplementary capital (Tier 2 capital). Core capital, which must comprise at least half of total capital, includes common shareholders' equity, qualifying perpetual preferred stock, trust preferred securities and minority interests, less goodwill. Supplementary capital includes the allowance for loan losses (subject to certain limitations), other perpetual preferred stock, trust preferred securities, certain other capital instruments and term subordinated debt. The Company's major capital components are shareholders' equity and Trust Preferred Securities in core capital, and the allowance for loan losses in supplementary capital. At December 31, 2000, the minimum risk-based capital requirements to be considered adequately capitalized were 4.0% for core capital and 8.0% for total capital. Federal banking regulators have also adopted leverage capital guidelines to supplement risk-based measures. The leverage ratio is determined by dividing Tier 1 capital as defined under the risk-based guidelines by average total assets (not risk-adjusted) for the preceding quarter. The minimum leverage ratio is 3.0%, although certain banking organizations are expected to exceed that amount by 1.0% or more, depending on their circumstances. A-18 Pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991, the Federal Reserve, the Office of the Comptroller of the Currency and the FDIC have adopted regulations setting forth a five-tier system for measuring the capital adequacy of the financial institutions they supervise. The capital levels of the Company at December 31, 2000 and the two highest levels recognized under these regulations are as follows:
Tier 1 Total Leverage risk- based risk- based ratio capital ratio capital ratio -------- ------------- ------------- Company 8.77% 9.40% 10.70% Well-capitalized 5.00% 6.00% 10.00% Adequately capitalized 4.00% 4.00% 8.00%
The Company's leverage ratio was 8.77% at December 31, 2000, compared to 8.24% at December 31, 1999. At December 31, 2000, the Company's risk-based capital ratios were 9.40% for Tier 1 risk-based capital and 10.70% for total risk-based capital, compared to 9.75% and 11.07%, respectively, as of December 31, 1999. In addition, at December 31, 2000, each of the Banks, had levels of capital that exceeded the well-capitalized guidelines. For additional information on the capital levels and capital ratios of the Company and each of the Banks, see Note 18 of Notes to Consolidated Financial Statements. Quantitative and Qualitative Disclosures about Market Risk The Company's financial performance is impacted by, among other factors, interest rate risk and credit risk. The Company utilizes no derivatives to mitigate its credit risk, relying instead on an extensive loan review process and its allowance for loan losses. See "--Allowance for Loan Losses" herein. Interest rate risk is the change in value due to changes in interest rates. This risk is addressed by the Company's Asset & Liability Management Committee "ALCO", which includes senior management representatives. The ALCO monitors interest rate risk by analyzing the potential impact to the net portfolio of equity value and net interest income from potential changes to interest rates and considers the impact of alternative strategies or changes in balance sheet structure. The ALCO manages the Company's balance sheet in part to maintain the potential impact on net portfolio value and net interest income within acceptable ranges despite changes in interest rates. The Company's exposure to interest rate risk is reviewed on at least a quarterly basis by the Board of Directors and the ALCO. Interest rate risk exposure is measured using interest rate sensitivity analysis to determine the Company's change in net portfolio value in the event of hypothetical changes in interest rates. If potential changes to net portfolio value and net interest income resulting from hypothetical interest rate changes are not within the limits established by the Board, the Board may direct management to adjust its asset and liability mix to bring interest rate risk within Board- approved limits. In order to reduce the exposure to interest rate fluctuations, the Company has implemented strategies to more closely match its balance sheet. The Company has generally focused its investment activities on securities with terms or average lives between five and eight years to lengthen the average duration of its assets. The Company has utilized short-term borrowings and deposit marketing programs to shorten the effective duration of its liabilities. In addition, the Company has utilized an interest rate swap to manage the interest rate risk of the Floating Rate Trust Preferred Securities, Series B issued August 12, 1998. This interest rate swap is not an "ineffective hedge" and is accounted for under Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" as amended by SFAS No. 138, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133 and 138"). A-19 Market Value of Portfolio Equity Interest rate sensitivity is computed by estimating the changes in net portfolio of equity value, or market value over a range of potential changes in interest rates. The market value of equity is the market value of the Company's assets minus the market value of its liabilities plus the market value of any off-balance sheet items. The market value of each asset, liability, and off-balance sheet item is its net present value of expected cash flows discounted at market rates after adjustment for rate changes. The Company measures the impact on market value for an immediate and sustained 100 basis point increase and decrease (shock) in interest rates. The following table shows the Company's projected change in net portfolio value for this set of rate shocks as of December 31, 2000.
Projected change Net portfolio ------------------- Change in interest rates value Dollars Percentage ------------------------ ------------- ------- ---------- (Dollars in thousands) 100 basis point increase $896,779 $(7,025) -0.78% Base scenario 903,804 -- -- 100 basis point decrease 899,801 (4,003) -0.44%
The preceding table indicates that as of December 31, 2000 an immediate and sustained 100 basis point increase or decrease in interest rates would decrease the Company's net portfolio value by less than 1%. The foregoing analysis attributes significant value to the Company's non-interest-bearing deposit balances. The market value of portfolio equity is based on the net present values of each product in the portfolio, which in turn is based on cash flows factoring in recent market prepayment estimates from public sources. The discount rates are based on recently observed spread relationships and adjusted for the assumed interest rate changes. Some valuations are provided directly from independent broker quotations. Net Interest Income Simulation The impact of interest rate changes on net interest income and net income are measured using income simulation. The various products in the Company's balance sheet are modeled to simulate their income (and cash flow) behavior in relation to interest rates. Income for the next 12 months is calculated for current interest rates and for immediate and sustained rate shocks. The income simulation model includes various assumptions regarding the repricing relationships for each product. Many of the Company's assets are floating rate loans, which are assumed to reprice immediately, and to the same extent as the change in market rates according to their contracted index. The Company's non-term deposit products reprice more slowly, usually changing less than the change in market rates and at the discretion of the Company. As of December 31, 2000, the analysis indicates that the Company's net interest income for the next 12 months would increase 6.14% if rates increased 200 basis points, and decrease by 5.39% if rates decreased 200 basis points. This analysis indicates the impact of change in net interest income for the given set of rate changes and assumptions. It assumes the balance sheet grows modestly, but that its structure is to remain similar to the structure at year-end. It does not account for all the factors that impact this analysis including changes by management to mitigate the impact of interest rate changes or secondary impacts such as changes to the Company's credit risk profile as interest rates change. Furthermore loan prepayment rate estimates and spread relationships change regularly. Interest rate changes create changes in actual loan prepayment rates that will differ from the market estimates incorporated in the analysis. In addition, the proportion of adjustable-rate loans in the Company's portfolio could decrease in future periods if market interest rates remain at or decrease below current levels. Changes that vary significantly from the assumptions may have significant effects on the Company's net interest income. The results of this sensitivity analysis should not be relied upon as indicative of actual future results. A-20 Gap Analysis In addition to the above analysis, the Company also performs a Gap analysis as part of the overall interest rate risk management process. This analysis is focused on the maturity structure of assets and liabilities and their repricing characteristics over future periods. An effective interest rate risk management strategy seeks to match the volume of assets and liabilities maturing or repricing during each period. Gap sensitivity is measured as the difference between the volume of assets and liabilities in the Company's current portfolio that is subject to repricing at various time horizons. The main focus is usually for the one-year cumulative gap. The difference is known as interest sensitivity gaps. The following table shows interest sensitivity gaps for different intervals as of December 31, 2000:
Total Immediate 2 days to 7 months to 1 year to 4 years to More than Total rate non-rate or one day 6 months 12 months 3 years 5 years 5 years sensitive sensitive Total ---------- ---------- ----------- --------- ---------- ---------- ---------- ----------- ---------- (Dollars in thousands) Assets: Cash and due from banks $ 3,296 $ -- $ -- $ -- $ -- $ -- $ 3,296 $ 267,478 $ 270,774 Short term investments 138,000 -- -- -- -- -- 138,000 -- 138,000 Investment securities 22,588 25,395 25,859 163,775 117,957 615,585 971,158 (8,825) 962,333 Loans 1,994,600 671,065 129,676 346,934 291,118 179,910 3,613,303 1,776 3,615,079 Loan losses/unearned fees -- -- -- -- -- -- -- (97,671) (97,671) Other assets -- -- -- -- -- -- -- 241,863 241,863 ---------- ---------- --------- -------- -------- ---------- ---------- ----------- ---------- Total assets $2,158,484 $ 696,460 $ 155,536 $510,708 $409,075 $ 795,495 $4,725,757 $ 404,621 $5,130,378 ========== ========== ========= ======== ======== ========== ========== =========== ========== Liabilities and Equity: Deposits $2,081,230 $ 890,739 $ 143,818 $ 40,718 $ 3,402 $ 1,325 $3,161,233 $ 1,003,828 $4,165,061 Other borrowings -- 429,228 -- 2,000 -- -- 431,228 -- 431,228 Trust preferred securities -- -- -- -- -- 99,500 99,500 -- 99,500 Other liabilities -- -- -- -- -- -- -- 112,224 112,224 Shareholders' equity -- -- -- -- -- -- -- 322,365 322,365 ---------- ---------- --------- -------- -------- ---------- ---------- ----------- ---------- Total liabilities and equity $2,081,230 $1,319,967 $ 143,818 $ 42,718 $ 3,402 $ 100,825 $3,691,961 $ 1,438,417 $5,130,378 ========== ========== ========= ======== ======== ========== ========== =========== ========== Gap $ 77,253 $ (623,507) $ 11,717 $467,991 $405,673 $ 694,669 $1,033,796 $(1,033,796) $ -- Cumulative Gap $ 77,253 $ (546,253) $(534,536) $(66,545) $339,127 $1,033,796 $1,033,796 $ -- $ -- Cumulative Gap/total assets 1.51% -10.65% -10.42% -1.30% 6.61% 20.15% 20.15% 0.00% 0.00%
The foregoing table indicates that the Company had a one year negative gap of $(534.5) million, or (10.4)% of total assets, at December 31, 2000. In theory, this would indicate that at December 31, 2000, $534.5 million more in liabilities than assets would reprice if there were a change in interest rates over the next 365 days. Thus, if interest rates were to increase, the 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. Gap analysis has certain limitations. Measuring the volume of repricing or maturing assets and liabilities does not always measure the full impact on the portfolio value of equity or net interest income. Gap analysis does not account for rate caps on products; dynamic changes such as increasing prepay speeds as interest rates decrease, basis risk, or the benefit of non-rate funding sources. The relation between product rate repricing and market rate changes (basis risk) is not the same for all products. The majority of the Company's loan portfolio reprices quickly and completely following changes in market rates, while non-term deposit rates in general move more slowly and usually incorporate only a fraction of the change in rates. Products categorized as non-rate sensitive, such as its noninterest-bearing demand deposits, in the Gap analysis behave like long term fixed rate funding sources. Both of these factors tend to make the Company's actual behavior more asset sensitive than is indicated in the Gap analysis. In fact the Company experiences higher net interest income when rates rise, opposite what is indicated by the Gap analysis. Therefore management uses income simulation, net interest income rate shocks and market value of portfolio equity as its primary interest rate risk management tools. A-21 Recent Accounting Developments New Accounting Pronouncement In September 2000, the Financial Accounting Standards Board ("FASB") issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No. 140"). SFAS No. 140 replaces SFAS No. 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No. 125"), issued in June 1996. It revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but it carries over most of SFAS No. 125's provisions without reconsideration. SFAS No. 140 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. SFAS No. 140 is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. Disclosures about securitizations and collateral accepted need not be reported for periods ending on or before December 15, 2000, for which financial statements are presented for comparative purposes. SFAS No. 140 is to be applied prospectively with certain exceptions. Implementation of SFAS No. 140 is not expected to have a material effect on the Company's financial position or results of operations. Business Combinations In September 1999, the FASB issued an Exposure Draft of a proposed SFAS, "Business Combinations and Intangible Assets". In December 2000, the Board tentatively concluded that upon the effective date of the final statement on business combinations and intangible assets, goodwill would no longer be amortized. This conclusion includes existing goodwill as well as goodwill arising subsequent to the effective date of the final statement. Goodwill must be reviewed for impairment upon the occurrence of certain triggering events. The FASB has also reached tentative conclusions on the future of the pooling- of-interest method of accounting for business combinations. These tentative decisions include the decision that the pooling-of-interests method of accounting will no longer be an acceptable method to account for business combinations between independent parties and that there should be a single method of accounting for all business combinations, and that method is the purchase method. The FASB agreed that the purchase method should be applied prospectively to business combination transactions that are initiated after the final standard is issued. The FASB is currently redeliberating its position as to retaining the pooling method. The FASB is currently anticipating issuing a final statement during the second quarter of 2001. A portion of the Company's business strategy is to pursue acquisition opportunities so as to expand its market presence and maintain growth levels. A change in accounting for business combinations could have a negative impact on the Company's ability to realize those business strategies. A-22 GREATER BAY BANCORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
As of December 31, ---------------------- 2000 1999* ---------- ---------- (Dollars in thousands) ASSETS Cash and due from banks $ 270,774 $ 147,222 Federal funds sold 138,000 219,600 Other short term securities 56 29,507 ---------- ---------- Cash and cash equivalents 408,830 396,329 Investment securities: Available for sale, at fair value 578,172 489,448 Held to maturity, at amortized cost (fair value 2000: $364,787 1999: $228,754) 354,454 236,468 Other securities 29,651 24,600 ---------- ---------- Investment securities 962,277 750,516 Total loans: Commercial 1,562,712 926,075 Term real estate--commercial 967,428 764,034 ---------- ---------- Total commercial 2,530,140 1,690,109 Real estate construction and land 691,912 479,163 Real estate other 176,568 140,852 Consumer and other 216,459 167,257 Deferred loan fees and discounts (13,657) (12,911) ---------- ---------- Total loans, net of deferred fees 3,601,422 2,464,470 Allowance for loan losses (84,014) (48,047) ---------- ---------- Total loans, net 3,517,408 2,416,423 Property, premises and equipment, net 33,860 37,597 Interest receivable and other assets 208,003 135,864 ---------- ---------- Total assets $5,130,378 $3,736,729 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Total deposits $4,165,061 $3,262,888 Other borrowings 431,228 117,052 Other liabilities 112,224 54,894 ---------- ---------- Total liabilities 4,708,513 3,434,834 ---------- ---------- Company obligated mandatorily redeemable cumulative trust preferred securities of subsidiary trusts holding solely junior subordinated debentures 99,500 49,000 Commitments and contingencies Shareholders' Equity: Preferred stock, no par value: 4,000,000 shares authorized; none issued -- -- Common stock, no par value **: 80,000,000 shares authorized; 41,929,173 and 39,635,048 shares issued and outstanding as of December 31, 2000 and 1999, respectively 173,276 148,611 Accumulated other comprehensive loss (6,552) (9,158) Retained earnings 155,641 113,442 ---------- ---------- Total shareholders' equity 322,365 252,895 ---------- ---------- Total liabilities and shareholders' equity $5,130,378 $3,736,729 ========== ==========
- -------- *Restated on a historical basis to reflect the mergers described in notes 1 and 2 on a pooling of interests basis. **Restated to reflect 2-for-1 stock split effective on October 4, 2000. See notes to consolidated financial statements. A-23 GREATER BAY BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, --------------------------- 2000 1999* 1998* -------- -------- -------- (Dollars in thousands, except per share amounts) Interest Income Interest on loans $290,757 $197,480 $155,543 Interest on investment securities: Taxable 55,235 37,000 30,709 Tax--exempt 8,754 6,549 5,090 -------- -------- -------- Total interest on investment securities 63,989 43,549 35,799 Other interest income 13,617 14,348 13,847 -------- -------- -------- Total interest income 368,363 255,377 205,189 -------- -------- -------- Interest Expense Interest on deposits 126,817 84,842 66,758 Interest on long term borrowings 1,203 4,463 3,902 Interest on other borrowings 8,380 1,512 3,258 -------- -------- -------- Total interest expense 136,400 90,817 73,918 -------- -------- -------- Net interest income 231,963 164,560 131,271 Provision for loan losses 28,096 14,039 8,279 -------- -------- -------- Net interest income after provision for loan losses 203,867 150,521 122,992 -------- -------- -------- Other Income Service charges and other fees 8,594 7,931 6,906 Loan and international banking fees 8,162 4,275 2,752 Trust fees 3,450 2,990 2,473 ATM network revenue 2,891 2,682 2,440 Gain on sale of SBA loans 2,190 2,058 3,490 Gain on sale of investments, net 81 87 473 Warrant income, net 12,986 14,508 945 Other income 7,171 8,448 2,462 -------- -------- -------- Total 45,525 42,979 21,941 -------- -------- -------- Operating Expenses Compensation and benefits 64,324 56,488 47,617 Occupancy and equipment 21,688 17,545 13,386 Dividends paid on Trust Preferred Securities 7,842 4,201 2,824 Merger and other related nonrecurring costs 30,102 10,331 2,661 Contribution to the Foundation and related expenses, net -- 12,160 1,341 Other expenses 28,758 26,880 25,202 -------- -------- -------- Total operating expenses 152,714 127,605 93,031 -------- -------- -------- Net income before provision for income taxes and extraordinary items 96,678 65,895 51,902 Provision for income taxes 38,138 21,623 18,118 -------- -------- -------- Net income before extraordinary items 58,540 44,272 33,784 Extraordinary item--debt redemption premiums -- (88) -- -------- -------- -------- Net income $ 58,540 $ 44,184 $ 33,784 ======== ======== ======== Net income per share--basic** $ 1.42 $ 1.16 $ 0.91 ======== ======== ======== Net income per share--diluted** $ 1.35 $ 1.10 $ 0.85 ======== ======== ========
- -------- *Restated on a historical basis to reflect the mergers described in notes 1 and 2 on a pooling of interests basis. ** Restated to reflect 2-for-1 stock splits effective on April 30, 1998 and October 4, 2000. See notes to consolidated financial statements. A-24 GREATER BAY BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended December 31, -------------------------- 2000 1999* 1998* ------- -------- ------- (Dollars in thousands) Net income $58,540 $ 44,184 $33,784 ------- -------- ------- Other comprehensive income: Unrealized gains on securities: Unrealized holding gains (losses) arising during period (net of taxes of $2,864, $(8,364) and $282 for the years ended December 31, 2000, 1999 and 1998, respectively) 3,915 (12,064) (152) Less: reclassification adjustment for gains (losses) included in net income (net of taxes of $34, $36 and $195 for the years ended December 31, 2000, 1999 and 1998, respectively) 47 51 278 ------- -------- ------- Net change 3,962 (12,013) 126 Cash flow hedge: Cumulative transition effect of adopting SFAS No. 133 (net of taxes of $(744)) as of October 1, 1998 -- -- (1,063) Change in market value of hedge during the period (net of taxes of $1,034, $1,092 and $294 for the years ended December 31, 2000, 1999 and 1998, respectively) (1,413) 2,325 418 Less: reclassification adjustment for swap settlements in net income (net of taxes of $41, $(60) and $(23) for the years ended December 31, 2000, 1999 and 1998, respectively) 57 (144) (32) ------- -------- ------- Net change (1,356) 2,181 (677) Other comprehensive income (loss) 2,606 (9,832) (551) ------- -------- ------- Comprehensive income $61,146 $ 34,352 $33,233 ======= ======== =======
- -------- * Restated on a historical basis to reflect the mergers described in notes 1 and 2 on a pooling of interests basis. See notes to consolidated financial statements. A-25 GREATER BAY BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the years ended December 31, 2000, 1999 and 1998
Accumulated Common stock other Total -------------------- comprehensive Retained shareholders' Shares** Amount income/(loss) earnings equity ---------- -------- ------------- -------- ------------- (Dollars in thousands, except per share amounts) Greater Bay Bancorp, prior to pooling 16,112,364 $ 44,218 $ 338 $ 22,040 $ 66,596 Shares issued to, and retained earnings of, acquired entities: Pacific Rim Bancorporation 1,901,496 8,000 (115) 1,776 9,661 Pacific Business Funding Corporation 596,000 51 -- 232 283 Bay Area Bancorp 2,709,943 5,376 (2) 6,614 11,988 Bay Commercial Services 1,474,179 3,671 (7) 6,509 10,173 Mt. Diablo Bancshares 2,315,633 8,592 3 311 8,906 Coast Bancorp 5,586,699 11,011 693 16,060 27,764 Bank of Santa Clara 3,658,332 13,697 -- 11,184 24,881 Bank of Petaluma 1,531,516 7,854 315 3,044 11,213 ---------- -------- ------- -------- -------- Balance, December 31, 1997, restated to reflect pooling 35,886,162 102,470 1,225 67,770 171,465 Net income -- -- -- 33,787 33,787 Other comprehensive loss, net of taxes -- -- (551) -- (551) Stock options exercised, including related tax benefit 715,153 5,169 -- (32) 5,137 Stock issued in Employee Stock Purchase Plan 59,340 656 -- -- 656 401(k) employee stock purchase 72,966 1,060 -- -- 1,060 Stock repurchase by Bay Area Bancshares, Bay Commercial Services and Coast Bancorp (169,968) (604) -- (2,190) (2,794) Pacific Business Funding Corporation distribution -- -- -- (1,163) (1,163) Stock dividend by Coast Bancorp and Bank of Santa Clara 773,975 12,822 -- (12,822) -- Stock issued in Dividend Reinvestment Plan 5,322 73 -- -- 73 Cash dividend $0.19 per share*** -- -- -- (6,973) (6,973) ---------- -------- ------- -------- -------- Balance, December 31, 1998* 37,342,950 121,646 674 78,377 200,697 Net income -- -- -- 44,184 44,184 Other comprehensive loss, net of taxes -- -- (9,832) -- (9,832) Stock options exercised, including related tax benefit 1,036,118 5,385 -- (59) 5,326 Stock issued in Employee Stock Purchase Plan 83,302 1,031 -- -- 1,031 401(k) employee stock purchase 76,010 1,205 -- -- 1,205 Stock issued in Dividend Reinvestment Plan 26,668 383 -- -- 383 Pacific Business Funding Corporation distribution -- -- -- (40) (40) Stock issued through private placement 1,070,000 18,961 -- -- 18,961 Cash dividend $0.24 per share*** -- -- -- (9,020) (9,020) ---------- -------- ------- -------- -------- Balance, December 31, 1999* 39,635,048 148,611 (9,158) 113,442 252,895 Net income -- -- -- 58,540 58,540 Other comprehensive loss, net of taxes -- -- 2,606 -- 2,606 Stock options exercised, including related tax benefit 1,451,314 9,233 -- -- 9,233 Stock issued in Employee Stock Purchase Plan 93,356 1,538 -- -- 1,538 401(k) employee stock purchase 82,015 1,982 -- -- 1,982 Stock issued in Dividend Reinvestment Plan 18,792 465 -- -- 465 Stock issued through private placement 648,648 11,476 -- -- 11,476 Cash paid in lieu of fractional shares -- (29) -- -- (29) Cash dividend $0.40 per share*** -- -- -- (16,341) (16,341) ---------- -------- ------- -------- -------- Balance, December 31, 2000 41,929,173 $173,276 $(6,552) $155,641 $322,365 ========== ======== ======= ======== ========
- -------- * Restated on a historical basis to reflect the mergers described in notes 1 and 2 on a pooling of interests basis. ** Restated to reflect 2-for-1 stock splits effective on April 30, 1998 and October 4, 2000. *** Excluding dividends paid by Greater Bay's subsidiaries prior to the completion of their mergers with Greater Bay, Greater Bay paid dividends of $0.35, $0.24 and $0.19 per share for the years ended December 31, 2000, 1999 and 1998, respectively. See notes to consolidated financial statements. A-26 GREATER BAY BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, -------------------------------- 2000 1999* 1998* ---------- --------- --------- (Dollars in thousands) Cash flows--operating activities Net income $ 58,540 $ 44,184 $ 33,785 Reconcilement of net income to net cash from operations: Provision for loan losses 47,101 16,784 8,462 Depreciation and amortization 13,442 6,726 4,286 Deferred income taxes (14,800) (7,022) (2,993) Gain on sale of investments, net (81) (87) (473) Gain on sale of bank premises -- (535) -- Changes in: Accrued interest receivable and other assets (49,424) (31,297) (15,257) Accrued interest payable and other liabilities 59,634 25,452 8,378 Deferred loan fees and discounts, net 746 4,505 2,551 ---------- --------- --------- Operating cash flows, provided by 115,158 58,710 38,739 ---------- --------- --------- Cash flows--investing activities Maturities and partial paydowns on investment securities: Held to maturity 121,676 96,842 43,260 Available for sale 49,246 96,753 107,855 Purchase of investment securities: Held to maturity (246,076) (126,506) (37,232) Available for sale (184,248) (201,272) (277,145) Other securities (5,051) (13,664) (207) Proceeds from sale of available for sale securities 49,730 53,471 261,812 Loans, net (874,540) (702,985) (714,748) Loans acquired from business acquisition (274,292) -- -- Payment for business acquisition, net of cash acquired 3,998 -- -- Purchase of property, premises and equipment (11,250) (8,687) (10,000) Sale of banking premises 5,502 2,637 -- Investment in other real estate owned -- -- (500) Sale of other real estate owned 224 -- -- Purchase of insurance policies (12,749) (9,206) -- ---------- --------- --------- Investing cash flows, used in (1,377,830) (812,617) (626,905) ---------- --------- --------- Cash flows--financing activities Net increase in deposits 902,173 799,403 528,078 Net change in other borrowings-short term 197,867 6,389 (41,951) Proceeds from other borrowings-long term 126,309 2,015 70,000 Principal repayment-long term borrowings (10,000) (3,775) (2,265) Proceeds from company obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely junior subordinated debentures 50,500 -- 30,000 Proceeds from sale of common stock 24,665 26,759 5,305 Repurchase of common stock -- -- (2,651) Cash dividends (16,341) (9,019) (6,973) ---------- --------- --------- Financing cash flows, provided by 1,275,173 821,772 579,543 ---------- --------- --------- Net change in cash and cash equivalents 12,501 67,865 (8,623) Cash and cash equivalents at beginning of period 396,329 328,464 337,087 ---------- --------- --------- Cash and cash equivalents at end of period $ 408,830 $ 396,329 $ 328,464 ========== ========= ========= Cash flows--supplemental disclosures Cash paid during the period for: Interest $ 141,325 $ 100,944 $ 69,174 ========== ========= ========= Income taxes $ 20,552 $ 19,146 $ 20,194 ========== ========= ========= Non-cash transactions: Additions to other real estate owned $ -- $ -- $ 450 ========== ========= ========= Transfer of appreciated securities to the Greater Bay Bancorp Foundation $ 7,200 $ 560 $ 1,341 ========== ========= =========
- -------- * Restated on a historical basis to reflect the mergers described in notes 1 and 2 on a pooling of interests basis. See notes to consolidated financial statements. A-27 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2000, 1999 and 1998 NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Nature of Operations Greater Bay Bancorp ("Greater Bay", on a parent-only basis, and the "Company" or "we", on a consolidated basis) is a bank holding company with 10 bank subsidiaries (the "Banks"): Bank of Petaluma, Bank of Santa Clara, Bay Area Bank, Bay Bank of Commerce, Coast Commercial Bank, Cupertino National Bank, Golden Gate Bank, Mid-Peninsula Bank, Mt. Diablo National Bank and Peninsula Bank of Commerce. GBB Capital I, GBB Capital II, GBB Capital III and GBB Capital IV, which are Delaware statutory business trusts formed for the exclusive purpose of issuing and selling trust preferred securities, are also subsidiaries of the Company. The Company also owns Matsco Lease Finance, Inc. II and Matsco Lease Finance, Inc. III, which are special purpose corporations formed for the exclusive purpose of securitizing leases and issuing lease-backed notes. The Company also operates through the following divisions: Greater Bay Bank Contra Costa Region, Greater Bay Bank Fremont Region, Greater Bay Bank Santa Clara Valley Commercial Banking Group, Greater Bay Bank SBA Lending Group, Greater Bay Corporate Finance Group, Greater Bay International Banking Division, Greater Bay Trust Company, Matsco, Pacific Business Funding and the Venture Banking Group. The Company provides a wide range of commercial banking services to small and medium-sized businesses, real estate developers, property managers, business executives, professionals and other individuals. The Company operates throughout the San Francisco Bay Area including Silicon Valley, San Francisco and the San Francisco Peninsula, the East Bay, Santa Cruz and Sonoma County, with 37 full service banking offices located in Aptos, Blackhawk, Capitola, Cupertino, Danville, Fremont, Hayward, Lafayette, Millbrae, Milpitas, Palo Alto, Petaluma, Pleasanton, Point Reyes Station, Redwood City, San Francisco, San Jose, San Leandro, San Mateo, San Ramon, Santa Clara, Santa Cruz, Scotts Valley, Sunnyvale, Valley Ford, Walnut Creek and Watsonville. At December 31, 2000, the Company had total assets of $5.1 billion, total loans, net, of $3.5 billion and total deposits of $4.2 billion. The Company has participated in nine mergers during the three-year period ended December 31, 2000, as described in Note 2. With the exception of the merger with The Matsco Companies, Inc., all of these mergers were accounted for as a pooling-of-interests and, accordingly, all of the financial information of the Company for the periods prior to the mergers has been restated as if the mergers had occurred at the beginning of the earliest period presented. The merger with The Matsco Companies, Inc. was accounted for using the purchase accounting method and accordingly The Matsco Companies, Inc.'s results of operations have been included in the consolidated financial statements since the date of acquisition. Consolidation and Basis of Presentation The consolidated financial statements include the accounts of Greater Bay, its subsidiaries and operating divisions. All significant intercompany transactions and balances have been eliminated. Certain reclassifications have been made to prior years' consolidated financial statements to conform to the 2000 presentation. The accounting and reporting policies of the Company conform to generally accepted accounting principles and the prevailing practices within the banking industry. A-28 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) 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, Federal Funds sold and agency securities with original maturities of less than ninety days. Generally, Federal Funds are sold for one-day periods. The Banks are required by the Federal Reserve System to maintain noninterest-earning cash reserves against certain of their deposit accounts. At December 31, 2000, the required combined reserves totaled approximately $18.0 million. Investment Securities The Company classifies its investment securities in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Investment securities classified as held to maturity are reported at amortized cost; available for sale securities are reported at fair value with net unrealized gains and losses reported, net of taxes, as a component of shareholders' equity. The Company does not have any trading securities. A decline in the fair 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 is recognized when earned. Realized gains and losses for securities classified as available for sale and held to maturity are included in earnings and are derived using the specific identification method for determining the cost of securities sold. Required investments in Federal Reserve Bank and FHLB stocks for the Banks and investments in venture funds are classified as other securities and are recorded at market value. 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 or 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 generally reversed and amortization of deferred loan fees is discontinued. 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. A-29 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) When a loan is sold, unamortized fees and capitalized direct costs are recognized in the consolidated statements of operations. Other loan fees and charges representing service costs for the repayment of loans, for delinquent payments or for miscellaneous loan services are recognized when earned. Sale and Servicing of Small Business Administration Loans The Company originates loans to customers under Small Business Administration ("SBA") programs that generally provide for SBA guarantees of 70% to 90% of each loan. The Company generally sells the guaranteed portion of the majority of the loans to an investor and retains the unguaranteed portion and servicing rights in its own portfolio. Funding for the SBA programs depend on annual appropriations by the U.S. Congress. Gains on these sales are earned through the sale of the guaranteed portion of the loan for an amount in excess of the adjusted carrying value of the portion of the loan sold. The Company allocates the carrying value of such loans between the portion sold, the portion retained and a value assigned to the right to service the loan. The difference between the adjusted carrying value of the portion retained and the face amount of the portion retained is amortized to interest income over the life of the related loan using a method which approximates the interest method. Accounting for Direct Financing Leases Lease contracts are categorized as direct financing leases for financial reporting purposes if they conform to the definition of direct financing leases set out in statement of SFAS No. 13 "Accounting for Leases". At the time a leasing transaction is executed, the Company records on their balance sheet the gross lease receivable, estimated residual value of leased equipment, and unearned lease income. Unearned lease income represents the excess of the gross lease receivable plus the estimated residual value over the cost of the equipment leased. Unearned lease income is recognized as leasing income over the term of the lease so as to reflect an approximate constant periodic rate of return on the net investment in the lease. Allowance for Loan Losses In accordance with SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS No. 118 ("SFAS No. 114 and No. 118"), a loan is considered impaired, based on current information and events, if it is probable that the Company will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. Under these standards, any allowance on impaired loans is generally based on one of three methods. It requires that impaired loans be measured at either, 1) the present value of expected cash flows at the loan's effective interest rate, 2) the loan's observable market price, or 3) the fair 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, consumer installment loans and certain small business loans. 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 losses in the loan portfolio. The allowance is based upon a number of factors, including prevailing and anticipated economic trends, industry experience, 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-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. A-30 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) Other Real Estate Owned OREO consists of properties acquired through foreclosure and is stated at the lower of carrying value or fair value less estimated costs to sell. Development and improvement costs relating to the OREO are capitalized. Estimated losses that result from the ongoing periodic valuation of these properties are charged to current earnings with a provision for losses on foreclosed property in the period in which they are identified. The resulting allowance for OREO losses is decreased when the property is sold. Operating expenses of such properties, net of related income, are included in other expenses. Gains and losses on the disposition of OREO are included in other income. Property, Premises and Equipment Property, premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets, which is determined by asset classification, as follows: Buildings 40 years Building improvements 10 years Furniture and fixtures 7 years Automobiles 5 years Computer equipment 2-5 years Other equipment 2-7 years
Amortization of leasehold improvements is computed on a straight-line basis over the shorter of the lease term or the estimated useful lives of the asset, which is generally 10 years. Income Taxes Deferred incomes taxes reflect the estimated future tax effects of temporary differences between the amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations. Derivatives and Hedging Activities The Company adopted SFAS No. 133 and 138, effective October 1, 1998. In accordance with the transition provisions of SFAS No. 133 and 138, the Company recorded a net-of-tax cumulative-effect-type adjustment of $1.1 million in accumulated other comprehensive income to recognize at fair value all derivatives that are designated as cash-flow hedging instruments. There were no net gains or losses on derivatives that had been previously deferred or gains and losses on derivatives that were previously deferred as adjustments to the carrying amount of hedged items. Derivatives are recognized on the balance sheet at their fair value. On the date the derivative contract is entered into, the Company designates the derivative as a hedge of a forecasted transaction or a hedge of the variability of cash flows to be received or paid related to a recognized asset or liability ("cash flow" hedge). Changes in the fair value of a derivative that is highly effective as, and that is designated and qualifies as, a cash- flow hedge are recorded in other comprehensive income, until earnings are affected by the variability of cash flows (e.g., when periodic settlements on a variable-rate asset or liability are recorded in earnings). A-31 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as cash-flow hedges to specific liabilities on the balance sheet. The Company also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the Company discontinues hedge accounting prospectively when (1) it is determined that the derivative is no longer effective in offsetting changes in the cash flows of a hedged item; (2) the derivative expires or is sold, terminated, or exercised; or (3) management determines that designation of the derivative as a hedge instrument is no longer appropriate. In these situations where hedge accounting is discontinued, the derivative will be carried at its fair value on the balance sheet, with changes in its fair value recognized in current-period earnings. All gains or losses that were accumulated in other comprehensive income will be recognized immediately in earnings upon the discontinuance of hedge accounting. Earnings Per Share and Share Amounts Basic net earnings per common share is computed by dividing net earnings applicable to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net earnings per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be issued upon exercise of common stock options. All outstanding and weighted average share amounts presented in this report have been restated to reflect the 2-for-1 stock splits effective on April 30, 1998 and October 4, 2000. Comprehensive Income In accordance with SFAS No. 130, "Reporting Comprehensive Income", the Company classifies items of other comprehensive income by their nature in the financial statements and display the accumulated other comprehensive income separately from retained earnings in the equity section of the balance sheet. The changes to the balances of accumulated other comprehensive income are as follows:
Accumulated Unrealized other gains/(losses) Cash flow comprehensive on securities hedges income (loss) -------------- --------- ------------- (Dollars in thousands) Balance--December 31, 1998 $ 1,351 $ (677) $ 674 Other comprehensive income 1999 (12,013) 2,181 (9,832) -------- ------- ------- Balance--December 31, 1999 (10,662) 1,504 (9,158) Other comprehensive income 2000 3,962 (1,356) 2,606 -------- ------- ------- Balance--December 31, 2000 $ (6,700) $ 148 $(6,552) ======== ======= =======
Segment Information In accordance with SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131") the Company uses the "management approach" for reporting business segment information. The management approach designates the internal organization that is used by management for making operating decisions and assessing performance as the source of the Company's reportable segments. SFAS No. 131 also requires disclosures about products and services, geographic areas, and major customers. A-32 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) NOTE 2--BUSINESS COMBINATIONS Pooling-of-Interests Accounting Transactions On October 13, 2000, Bank of Petaluma merged with and into DKSS Corp., as a result of which, Bank of Petaluma became a wholly owned subsidiary of Greater Bay. Upon consummation of the merger, the outstanding shares of Bank of Petaluma were converted into an aggregate of approximately 1,667,000 shares of Greater Bay's stock. The transaction was accounted for as a pooling-of- interests. The financial information presented herein has been restated to reflect the merger with Bank of Petaluma on a pooling-of-interests basis. On July 21, 2000, Bank of Santa Clara merged with and into GBB Merger Corp., as a result of which, Bank of Santa Clara became a wholly owned subsidiary of Greater Bay. Upon consummation of the merger, the outstanding shares of Bank of Santa Clara were converted into an aggregate of 4,002,000 shares of Greater Bay's stock. The transaction was accounted for as a pooling-of-interests. The financial information presented herein has been restated to reflect the merger with Bank of Santa Clara on a pooling-of-interests basis. On May 18, 2000, Coast Bancorp, the former holding company of Coast Commercial Bank, was merged with and into Greater Bay. Upon consummation of the merger, the outstanding shares of Coast Bancorp were converted into an aggregate of approximately 6,140,000 shares of Greater Bay's stock. The transaction was accounted for as a pooling-of-interests. The financial information presented herein has been restated to reflect the merger with Coast Bancorp on a pooling-of-interests basis. On January 31, 2000, Mt. Diablo Bancshares, the former holding company of Mt. Diablo National Bank, merged with and into Greater Bay. Upon consummation of the merger, the outstanding shares of Mt. Diablo Bancshares were converted into an aggregate of 2,790,998 shares of Greater Bay's stock. The transaction was accounted for as a pooling-of-interests. The financial information presented herein has been restated to reflect the merger with Mt. Diablo Bancshares on a pooling-of-interests basis. On October 15, 1999, Bay Commercial Services, the former holding company of Bay Bank of Commerce, merged with and into Greater Bay. Upon consummation of the merger, the outstanding shares of Bay Commercial Services were converted into an aggregate of 1,814,480 shares of Greater Bay's stock. The stock was issued to former Bay Commercial Services shareholders, in a tax-free exchange accounted for as a pooling-of-interests. On May 21, 1999, Bay Area Bancshares, the former holding company of Bay Area Bank, merged with and into Greater Bay. Upon consummation of the merger, the outstanding shares of Bay Area Bank were converted into an aggregate of 2,798,642 shares of Greater Bay's stock. The stock was issued to former Bay Area Bancshares shareholders, in a tax-free exchange accounted for as a pooling-of-interests. On August 31, 1998, Pacific Business Funding Corporation, an asset-based specialty finance company, merged with a subsidiary of Greater Bay. Upon consummation of the merger, the outstanding shares of Pacific Business Funding Corporation were converted into an aggregate of 596,000 shares of Greater Bay's stock. The stock was issued to former Pacific Business Funding Corporation shareholders, in a tax-free exchange accounted for as a pooling- of-interests. On May 8, 1998, Pacific Rim Bancorporation, the former holding company of Golden Gate Bank, merged with and into a subsidiary of Greater Bay. Upon consummation of the merger, the outstanding shares of Pacific Rim Bancorporation were converted into an aggregate of 1,901,496 shares of Greater Bay's stock. The stock was issued to former Pacific Rim Bancorporation's sole shareholder in a tax-free exchange accounted for as a pooling-of-interests. A-33 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) In all mergers, certain reclassifications were made to conform to the Company's financial presentation. The results of operations previously reported by the separate enterprises for the periods before the merger was consummated and that are included in the current combined amounts presented in the accompanying consolidated financial statements are summarized below.
Bank of Petaluma Bank of Santa Clara Coast Bancorp nine months ended six months ended three months ended September 30, 2000 June 30, 2000 March 31, 2000 --------------------- ----------------------- ------------------- (Dollars in thousands) Net interest income: Greater Bay Bancorp $154,013 $89,047 $36,378 Acquired entity 7,101 10,195 5,538 -------- ------- ------- Combined $161,114 $99,242 $41,916 ======== ======= ======= Net income: Greater Bay Bancorp $ 38,608 $23,850 $13,473 Acquired entity 1,982 2,613 2,035 -------- ------- ------- Combined $ 40,590 $26,463 $15,508 ======== ======= ======= Mt. Diablo Bancshares Bay Commercial Services Bay Area Bancshares twelve months ended nine months ended three months ended December 31, 1999 September 30, 1999 March 31, 1999 --------------------- ----------------------- ------------------- (Dollars in thousands) Net interest income: Greater Bay Bancorp $103,732 $68,498 $18,360 Acquired entity 10,009 2,007 2,180 -------- ------- ------- Combined $113,741 $70,505 $20,540 ======== ======= ======= Net income: Greater Bay Bancorp $ 27,711 $17,033 $ 5,058 Acquired entity 2,827 486 644 -------- ------- ------- Combined $ 30,538 $17,519 $ 5,702 ======== ======= =======
Pacific Business Funding Corp Pacific Rim Bancorporation six months ended three months ended June 30, 1998 March 31, 1998 ----------------------------- -------------------------- (Dollars in thousands) Net interest income: Greater Bay Bancorp $30,077 $13,366 Acquired entity 1,154 1,285 ------- ------- Combined $31,231 $14,651 ======= ======= Net income: Greater Bay Bancorp $ 6,628 $ 3,646 Acquired entity 344 60 ------- ------- Combined $ 6,972 $ 3,706 ======= =======
A-34 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) The following table sets forth the separate results of operations for Greater Bay, Bay Area Bancshares, Bay Commercial Services, Mt. Diablo Bancshares, Coast Bancorp, Bank of Santa Clara and Bank of Petaluma for the periods indicated:
Net interest income Net income ------------ ---------- (Dollars in thousands) Year ended December 31, 1999: Greater Bay $103,732 $27,711 Mt. Diablo Bancshares 10,009 2,827 Coast Bancorp 20,028 6,939 Bank of Santa Clara 17,962 4,403 Bank of Petaluma 8,628 2,304 -------- ------- Combined $160,359 $44,184 ======== ======= Year ended December 31, 1998: Greater Bay $ 65,448 $16,578 Bay Area Bancshares 8,170 2,365 Bay Commercial Sevices 6,107 1,215 -------- ------- Subtotal 79,725 20,158 Mt. Diablo Bancshares 7,363 1,396 Coast Bancorp 17,363 6,161 Bank of Santa Clara 16,189 3,954 Bank of Petaluma 7,807 2,115 -------- ------- Combined $128,447 $33,784 ======== =======
There were no significant transactions between the Company and any of the acquired entities prior to the mergers. All intercompany transactions have been eliminated. Purchase Accounting Transaction On November 30, 2000, the Company acquired The Matsco Companies, Inc. for a purchase price of $6.5 million in cash. As a result of post-closing mergers, the business of The Matsco Companies, Inc. now operates as a division of Cupertino National Bank, under the name Matsco. The Company may also be required to pay contingent cash payments over a 5 year period of up to $6.0 million based on the performance of Matsco subsequent to the acquisition. The acquisition was accounted for using the purchase method of accounting and, accordingly, Matsco's results of operations have been included in the consolidated financial statements since the date of acquisition. The source of funds for the acquisition was the Company's available cash. The purchase price has been allocated to the assets acquired and liabilities assumed based on the estimated fair values at the date of acquisition. The excess of purchase price, totaling $15.9 million, over the estimated fair values of the net assets acquired has been recorded as goodwill and will be amortized on the straight-line method over twenty years. A-35 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) NOTE 3--INVESTMENT SECURITIES The amortized cost and estimated fair value of investment securities is summarized below:
Gross Gross Amortized unrealized unrealized Fair As of December 31, 2000 cost gains losses value - ----------------------- --------- ---------- ---------- -------- (Dollars in thousands) Available For Sale Securities: U.S. Treasury obligations $ 11,063 $ 140 $ (2) $ 11,201 U.S. agency notes 101,804 148 (422) 101,530 Mortgage-backed securities 245,334 2,734 (943) 247,125 Tax-exempt securities 83,522 1,034 (259) 84,297 Taxable municipal securities 5,980 18 (42) 5,956 Corporate securities 146,416 62 (18,415) 128,063 -------- ------- -------- -------- Total securities available for sale 594,119 4,136 (20,083) 578,172 -------- ------- -------- -------- Held To Maturity Securities: U.S. agency notes 25,987 13 (100) 25,900 Mortgage-backed securities 237,234 7,251 (356) 244,129 Tax-exempt securities 88,387 3,496 (160) 91,723 Taxable municipal securities 2,846 189 -- 3,035 -------- ------- -------- -------- Total securities held to maturity 354,454 10,949 (616) 364,787 -------- ------- -------- -------- Other securities 24,977 4,935 (261) 29,651 -------- ------- -------- -------- Total investment securities $973,550 $20,020 $(20,960) $972,610 ======== ======= ======== ======== Gross Gross Amortized unrealized unrealized Fair As of December 31, 1999 cost gains losses value - ----------------------- --------- ---------- ---------- -------- (Dollars in thousands) Available For Sale Securities: U.S. Treasury obligations $ 19,240 $ -- $ (253) $ 18,987 U.S. agency notes 58,540 10 (1,808) 56,742 Mortgage-backed securities 249,038 95 (8,130) 241,003 Tax-exempt securities 65,646 85 (3,947) 61,784 Taxable municipal securities 3,754 1 (122) 3,633 Corporate securities 119,481 -- (12,182) 107,299 -------- ------- -------- -------- Total securities available for sale 515,699 191 (26,442) 489,448 -------- ------- -------- -------- Held To Maturity Securities: U.S. Treasury obligations 1,498 -- -- 1,498 U.S. agency notes 58,489 9 (1,750) 56,748 Mortgage-backed securities 61,004 28 (2,048) 58,984 Tax-exempt securities 77,869 438 (3,173) 75,134 Corporate securities 37,608 15 (1,233) 36,390 -------- ------- -------- -------- Total securities held to maturity 236,468 490 (8,204) 228,754 -------- ------- -------- -------- Other securities 16,457 8,143 -- 24,600 -------- ------- -------- -------- Total investment securities $768,624 $ 8,824 $(34,646) $742,802 ======== ======= ======== ========
A-36 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) The following table shows amortized cost and estimated fair value of the Company's investment securities by year of maturity as of December 31, 2000.
2002 2006 through through 2011 and 2001 2005 2010 thereafter Total ------- -------- ------- ---------- -------- (Dollars in thousands) Available For Sale Securities: U.S. Treasury obligations $ 2,475 $ 8,588 $ -- $ -- $ 11,063 U.S. agency notes(1) 14,123 55,077 32,604 -- 101,804 Mortgage-backed securities(2) 11 6,162 2,663 236,498 245,334 Tax-exempt securities 3,788 13,285 15,211 51,238 83,522 Taxable municipal securities 251 4,713 1,016 -- 5,980 Corporate securities 7,712 18,729 6,150 113,825 146,416 ------- -------- ------- -------- -------- Total securities available for sale 28,360 106,554 57,644 401,561 594,119 ------- -------- ------- -------- -------- Fair value $28,378 $106,418 $57,316 $386,060 $578,172 ------- -------- ------- -------- -------- Held To Maturity Securities: U.S. agency notes $ 6,998 $ 16,998 $ 1,991 $ -- $ 25,987 Mortgage-backed securities -- 1,809 10,470 224,954 237,233 Tax-exempt securities 1,041 2,390 19,795 65,161 88,387 Taxable municipal securities -- -- 2,847 -- 2,847 ------- -------- ------- -------- -------- Total securities held to maturity 8,039 21,197 35,103 290,115 354,454 ------- -------- ------- -------- -------- Fair value 8,015 21,141 35,977 299,654 364,787 ------- -------- ------- -------- -------- Combined Investment Securities Portfolio: Total investment securities $36,399 $127,751 $92,747 $691,676 $948,573 ======= ======== ======= ======== ======== Total fair value $36,393 $127,559 $93,293 $685,714 $942,959 ======= ======== ======= ======== ======== Weighted average yield-total portfolio 6.25% 6.36% 7.26% 7.32% 7.15%
- -------- (1) Certain notes issued by U.S. agencies may be called, without penalty, at the discretion of the issuer. This may cause the actual maturities to differ significantly from the contractual maturity dates. (2) Mortgage-backed securities are shown at contractual maturity; however, the average life of these mortgage-backed securities may differ due to principal prepayments. Investment securities with a carrying value of $564.2 million and $339.4 million were pledged to secure deposits, borrowings and for other purposes as required by law or contract at December 31, 2000 and 1999, respectively. Other securities includes unsold shares received through the exercise of warrants received from clients, equity securities received in settlement of loans, investments in funds managed by outside venture capital funds and investments in the Federal Reserve Bank and the FHLB as required to maintain membership and support activity levels. A-37 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) Proceeds and realized losses and gains on sales of investment securities for the years ended December 31, 2000, 1999 and 1998 are presented below:
2000 1999 1998 ------- ------- -------- (Dollars in thousands) Proceeds from sale of available for sale securities(1) $49,730 $53,471 $261,812 Available for sale securities-gains(2) $ 503 $ 87 $ 473 Available for sale securities-losses $ (422) $ -- $ --
- -------- (1) 1999 proceeds from the sale of available for sale securities excludes $15.3 million related to the sale of equity securities classified as available for sale which were acquired through the execution of a warrant received from clients. (2) 1999 warrant income includes additional gains of $21.2 million related to equity securities classified as available for sale which were acquired through the execution of warrants received from clients. NOTE 4--LOANS AND ALLOWANCE FOR LOAN LOSSES The following summarizes the activity in the allowance for loan losses for the years ended December 31, 2000, 1999 and 1998:
2000 1999 1998 -------- ------- ------- (Dollars in thousands) Balance, January 1 $ 48,047 $33,095 $26,606 Allowance of entities acquired through mergers accounted for under purchase accounting method 10,927 -- -- Provision for loan losses(1) 36,174 16,784 8,462 Loan charge-offs (12,083) (3,393) (2,610) Recoveries 949 1,561 637 -------- ------- ------- Balance, December 31 $ 84,014 $48,047 $33,095 ======== ======= =======
- -------- (1) Includes $8.1 million, $2.7 million and $183,000 of charges in 2000, 1999 and 1998 respectively, to conform the practices of acquired entities to the Company's allowance methodologies, which are included in mergers and other related nonrecurring costs. The following table sets forth nonperforming loans as of December 31, 2000, 1999, and 1998. Nonperforming loans are defined as loans which are on nonaccrual status and loans which have been restructured. Interest income foregone on nonperforming loans totaled $1.2 million, $535,000 and $254,000 for the years ended December 31, 2000, 1999 and 1998, respectively. Interest income recognized on the nonperforming loans approximated $0, $537,000 and $407,000 for the years ended December 31, 2000, 1999 and 1998, respectively.
2000 1999 1998 ------- ------ ------ (Dollars in thousands) Nonaccrual loans $12,593 $5,744 $4,011 Restructured loans -- 807 796 ------- ------ ------ Total nonperforming loans $12,593 $6,551 $4,807 ======= ====== ====== Accruing loans past due 90 days or more $ 4,428 $ 139 $ 244 ======= ====== ======
A-38 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) At December 31, 2000, 1999 and 1998, the recorded investment in loans, for which impairment has been recognized in accordance with SFAS No. 114 and No. 118, was approximately $13.3 million, $8.0 million and $5.1 million, respectively, with corresponding valuation allowances of $3.7 million, $1.2 million and $1.0 million, respectively. For the years ended December 31, 2000, 1999 and 1998, the average recorded investment in impaired loans was approximately $9.9 million, $2.3 million and 4.2 million, respectively. The Company did not recognize interest income on impaired loans during the twelve months ended December 31, 2000, 1999 and 1998. The Company had $0 and $807,000 of restructured loans as of December 31, 2000 and 1999, respectively. There were no principal reduction concessions allowed on restructured loans during 1999 and 1998. Interest income from restructured loans totaled $0, $45,000 and $16,000 for the year's ended December 31, 2000, 1999 and 1998. Foregone interest income, which totaled $0, $0 and $11,000 for the years ended December 31, 2000, 1999 and 1998 would have been recorded as interest income if the loans had accrued interest in accordance with their original terms prior to the restructurings. NOTE 5--OTHER REAL ESTATE OWNED At December 31, 2000 and 1999, OREO consisted of properties acquired through foreclosure with a carrying value of $0 and $271,000, respectively. These balances are included in interest receivable and other assets in the accompanying consolidated balance sheets. There was no allowance for estimated losses. The following summarizes OREO operations, which are included in operating expenses, for the years ended December 31, 2000, 1999 and 1998.
2000 1999 1998 ------- ------- ------- (Dollars in thousands) Real estate operations, net $ 51 $ 50 $ 24 (Gain) loss on sale of OREO 5 (37) 133 Provision for estimated losses -- -- -- ------ ------- ------- Net loss from other real estate operations $ 56 $ 13 $ 157 ====== ======= =======
NOTE 6--PROPERTY, PREMISES AND EQUIPMENT Property, premises and equipment at December 31, 2000 and 1999 are composed of the following:
2000 1999 -------- -------- (Dollars in thousands) Land $ 2,523 $ 3,508 Buildings and premises 8,734 12,047 Furniture and equipment 34,616 33,353 Leasehold improvements 16,584 15,751 Automobiles 853 740 -------- -------- Total 63,310 65,399 Accumulated depreciation and amortization (29,450) (27,802) -------- -------- Premises and equipment, net $ 33,860 $ 37,597 ======== ========
Depreciation and amortization amounted to $7.7 million, $6.1 million and $4.4 million for the years ended December 31, 2000, 1999 and 1998 respectively, and have been included in occupancy and equipment expense in the accompanying consolidated statements of operations. A-39 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) During 2000, the Company sold bank premises with a carrying value of $4.8 million for $5.4 million in a sale-lease back transaction. No gain was recognized on the transaction. Gains of $535,000 have been deferred and will be recognized over the term of the Company's lease. During 1999, the Company sold bank premises with a carrying value of $2,637,000 for $4,978,000 in a sale-lease back transaction. The Company recognized a pre-tax gain of $535,000 on the transaction. Gains of $1,806,000 have been deferred and will be recognized over the 10 year and 5 year terms of the Company's leases. During 2000 the company recognized $303,000 of the deferred gain. NOTE 7--DEPOSITS Deposits as of December 31, 2000 and 1999 are as follows:
2000 1999 ---------- ---------- (Dollars in thousands) Demand, noninterest-bearing $1,003,828 $ 727,613 MMDA, NOW and Savings 2,082,708 1,838,868 Time certificates, $100,000 and over 784,118 534,662 Other time certificates 294,407 161,745 ---------- ---------- Total deposits $4,165,061 $3,262,888 ========== ==========
The following table sets forth the maturity distribution of time certificates of deposit at December 31, 2000.
December 31, 2000 ------------------------------------------------------------- Three Four to Seven to months six twelve One to More than or less months months three years three years Total -------- -------- -------- ----------- ----------- ---------- (Dollars in thousands) Time deposits, $100,000 and over $406,963 $280,768 $ 80,982 $12,068 $3,337 $ 784,118 Other time deposits 205,985 38,945 36,001 12,015 1,461 294,407 -------- -------- -------- ------- ------ ---------- Total $612,948 $319,713 $116,983 $24,083 $4,798 $1,078,525 ======== ======== ======== ======= ====== ==========
NOTE 8--COMPANY OBLIGATED MANDATORILY REDEEMABLE CUMULATIVE TRUST PREFERRED SECURITIES OF SUBSIDIARY TRUSTS HOLDING SOLELY JUNIOR SUBORDINATED DEBENTURES GBB Capital I, GBB Capital II, GBB Capital III and GBB Capital IV (the "Trusts") are Delaware business trusts which were formed for the purpose of issuing Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts Holding Solely Junior Subordinated Debentures ("Trust Preferred Securities"). The Trust Preferred Securities are individually described below. Interest on the Trust Preferred Securities is payable quarterly and is deferrable, at the option of the Company, for up to five years. Following the issuance of each Trust Preferred Securities, the Trusts used the proceeds from the Trust Preferred Securities offerings to purchase a like amount of Junior Subordinated Deferrable Interest Debentures (the "Debentures") of Greater Bay. The Debentures bear the same terms and interest rates as the related Trust Preferred Securities. The Debentures are the sole assets of the Trusts and are eliminated, along with the related income statement effects, in the consolidated financial statements. Greater Bay has fully and unconditionally guaranteed all of the obligations of the Trusts. Under applicable regulatory guidelines, a portion of the Trust Preferred Securities will qualify as Tier I capital, and the remaining portion will qualify as Tier II capital. A-40 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) The following Trust Preferred Securities were outstanding at December 31, 2000.
Optional Amount Date of Stated redemption Security title Issuer outstanding original issue maturity date -------------- --------------- ----------- --------------- -------------- -------------- 9.75% Cumulative Trust Preferred Securities GBB Capital I $20,000,000 March 30, 1997 April 1, 2027 April 1, 2002 Floating Rate Trust Preferred Securities, Series B GBB Capital II 29,000,000 August 12, 1998 Sept. 15, 2028 Sept. 15, 2008 10 7/8% Fixed Rate Capital Trust Pass- Through Securities GBB Capital III 9,500,000 March 23, 2000 March 8, 2030 March 8, 2010 10.75% Capital Securities, Series B GBB Capital IV 41,000,000 May 18, 2001 June 1, 2010 June 1, 2030 ----------- Total TPS outstanding $99,500,000 ===========
The Trust Preferred Securities are mandatorily redeemable, in whole or in part, upon repayment of their underlying Debentures at their respective stated maturities or their earlier redemption. The Debentures are redeemable prior to maturity at the option of the Company on or after their respective optional redemption dates. The Trust Preferred Securities issued by GBB Capital I, GBB Capital III and GBB Capital IV accrue interest at an annual rate of 9.75%, 10 7/8% and 10.75%, receptively. The Floating Rate Trust Preferred Securities, Series B ("TPS II") accrue interest at a variable rate of interest, initially at 7.1875%, on the outstanding securities. The interest rate resets quarterly and is equal to 3- month LIBOR plus 150 basis points. As part of this transaction, the Company concurrently entered into an interest rate swap to fix the cost of the offering at 7.55% for 10 years (see note 11 for additional disclosures regarding the interest rate swap). On the date of original issue, GBB Capital II and GBB Capital IV completed issuance of series A securities. The series A securities issued in the offering were sold in private transactions pursuant to an applicable exemption from registration under the Securities Act. The Company, through GBB Capital II and GBB Capital IV, completed an offer to exchange the series A securities for a like amount of its registered series B securities. The exchange offerings were completed in November 1998 and November 2000, respectively. The exchange offerings were conducted in accordance with the terms of the initial issuance of the series A securities. GBB Capital II originally issued $30,000,000 in TPS II. In 1998, Coast Commercial Bank purchased $1,000,000 of TPS II. The TPS II were included in Coast Commercial Bank's investment securities at the time of its merger with Greater Bay and subsequently transferred to Greater Bay. The $1,000,000 in TPS II issued by the Company and Coast Commercial Bank's corresponding investment have been eliminated in consolidation. The total amount of Trust Preferred Securities outstanding at December 31, 2000 and 1999 was $99.5 million and $49.0 million, respectively. The dividends paid on Trust Preferred Securities were $7.8 million, $4.2 million and $2.8 million in 2000, 1999 and 1998, respectively. The expense for these dividends is included in operating expenses. A-41 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) NOTE 9--LEASE SECURITIZATIONS During 1997, Matsco Lease Finance III a special purpose corporation wholly- owned by The Matsco Companies, Inc. issued the following lease and loan backed certificates; $55 million Series 1997-1 Class A certificates, $45 million Series 1997-2 Class A certificates, $1.6 million Series 1997-1 Class B certificates and $4.5 million 1997-2 Class B certificates. All Class B certificates, which were subordinate to the Class A certificates, were paid- off as of December 31, 2000. As of December 31, 2000, the outstanding balances on the Series 1997-1 and Series 1997-2 Class A certificates were approximately $28 million and $30 million, respectively. As of December 31, 1999, the outstanding balances for Series 1997-1 and Series 1997-2 were approximately $35 million and $38 million, respectively. All of the lease and loan contracts placed in the 1997-2 Series were treated as a sale in accordance with SFAS No. 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities". The weighted average rate on the combined series of 1997 certificates was 5.92% at December 31, 2000. The underlying lease and loan contracts have a carrying value of $28 million and $30 million for Series 1997-1 and Series 1997-2, respectively, at December 31, 2000. At December 31, 2000, 0.35% of those leases and loans were 90 days or more past due. The Class A certificates are rated "AAA" by Standards and Poor's Rating Services and "Aaa" by Moody's Investors Service and are fully insured by MBIA Insurance Corporation pursuant to the terms of a certificate guarantee policy. During 1996, Matsco Lease Finance II, a special purpose corporation wholly- owned by The Matsco Companies, Inc., issued $40 million in lease-backed notes, Series 1996-A. As of December 31, 2000 and 1999, the note balance was $5.4 million and $23.5 million, respectively, with a weighted average interest rate of 6.7% at December 31, 2000. The underlying leases have a carrying value of $7.1 million at December 31, 2000. At December 31, 2000, 1.11% of those leases were 90 days or more past due. The notes are unconditionally guaranteed by MBIA Insurance Corporation pursuant to the terms of a note guarantee policy. The note is rated "AAA" by Standard and Poors and "Aaa" by Moody's. Cupertino National Bank, as servicer of the underlying leases, remits funds collected on behalf of Matsco Lease Finance II and Matsco Lease Finance III to the trustee on a weekly basis. The servicer receives a flat servicing fee. If a lease or loan is delinquent or the terms are adversely modified, the servicer has the option to repurchase the transaction or to substitute with a similar account up to an aggregate limit of 10%. If a lease or loan contract is found to have violated the eligibility criteria, the Company has the obligation to repurchase it. As a result of the Company's acquisition of The Matsco Companies, Inc., Matsco Lease Finance II and Matsco Lease Finance III became wholly-owned subsidiaries of Greater Bay. The lease and loan contracts were transferred to Matsco Lease Finance II and Matsco Lease Finance III in transactions intended to qualify as true sales for bankruptcy purposes and are not available to pay creditors of the Company. A-42 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) NOTE 10--BORROWINGS Other borrowings are detailed as follows:
2000 1999 -------- -------- (Dollars in thousands) Other borrowings: Short term borrowings: Securities sold under agreements to repurchase $ 63,000 $ 68,552 Other short term notes payable 15,419 -- FHLB advances 183,000 3,000 Advances under credit lines 15,000 7,000 -------- -------- Total short term borrowings 276,419 78,552 -------- -------- Long term borrowings: Securities sold under agreements to repurchase -- 10,000 Other long term notes payable 51,809 1,500 FHLB advances 103,000 27,000 -------- -------- Total other long term borrowings 154,809 38,500 -------- -------- Total other borrowings $431,228 $117,052 ======== ========
During the years ended December 31, 2000 and 1999, the average balance of securities sold under short term agreements to repurchase was $76.8 million and $32.8 million, respectively, and the average interest rates during those periods were 6.05% and 4.73%, respectively. Securities sold under short term agreements to repurchase generally mature within 90 days of dates of purchase. During the years ended December 31, 2000 and 1999, the average balance of federal funds purchased was $105.3 million and $1.5 million, respectively, and the average interest rates during those periods were 6.49% and 5.25%, respectively. There was no such balance outstanding at December 31, 2000 and 1999. The highest month end balance for short term borrowings during 2000 was $305.3 million. At December 31, 2000, the weighted average interest rate on short term borrowings was 6.50%. The FHLB advances are collateralized by loans and securities pledged to the FHLB. The following is a breakdown of rates and maturities at December 31, 2000:
Short Term Long Term --------- ----------- (Dollars in thousands) Amount $183,000 $103,000 Maturity 2001 2002-2003 Average Rates 6.4%-6.5% 5.08%-6.03%
The Company as of December 31, 2000 had short-term, unsecured credit facilities from two financial institutions totaling $65.0 million. At December 31, 2000 and 1999 the Company had advances outstanding of $15.0 million and $7.0 million under these facilities. The average rate paid on these advances was approximately LIBOR + 0.50%. In addition, the Company was in compliance with all related financial covenants for these credit facilities. On March 15, 1999 the Company redeemed the $3.0 million in subordinated debt issued in 1995. The Company paid a premium of $150,000 ($88,000 net of tax) on the pay off of the debt. The premium was recorded, net of taxes, as an extraordinary item in March 1999. A-43 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) NOTE 11--DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES The Company currently uses a single interest-rate swap to convert its floating-rate debt (the TPS II) to fixed rates. This swap was entered into concurrently with the issuance of the debt being hedged. This swap is accounted for as a cash flow hedge under SFAS No. 133 and 138. This swap possesses a term equal to the non-callable term of the debt, with a fixed pay rate and a receive rate indexed to rates paid on the debt and a notional amount equal to the amount of the debt being hedged. As the specific terms and notional amount of the swap exactly match those of the debt being hedged the Company meets the "no ineffectiveness" criteria of SFAS No. 133 and 138. As such the swap is assumed to be 100% effective and all changes in the fair value of the hedge are recorded in other comprehensive income with no impact on the income statement for any ineffective portion. As of December 31, 2000, the unrealized gain on the cash flow hedge was $148,000, net of income taxes, which was included in the balance of accumulated other comprehensive income. The floating rate TPS II combined with the cash flow hedge created a synthetic fixed rate debt instrument. The unrealized gain on the cash flow hedge approximated the unrealized gain the Company would have incurred if it had issued a fixed rate debt instrument. Under current accounting practices, as required by SFAS No. 133 and 138, the Company was required to record the unrealized gain on the synthetic fixed rate debt instrument, but it would not have been required to record an unrealized gain if it had issued fixed rate debt. The notional amount of the swap is $30.0 million with a term of 10 years expiring on September 15, 2008. The Company intends to use the swap as a hedge of the related debt for 10 years. The periodic settlement date of the swap results in the reclassifying as earnings the gains or losses that are reported in accumulated comprehensive income The Company minimizes the credit (or repayment) risk in derivative instruments by entering into transactions with high-quality counterparties that are reviewed periodically by the Company's credit committee. NOTE 12--INCOME TAXES Income tax expense was comprised of the following for the years ended December 31, 2000, 1999 and 1998:
2000 1999 1998 -------- ------- ------- (Dollars in thousands) Current: Federal $ 40,677 $22,399 $15,571 State 14,391 7,513 5,606 -------- ------- ------- Total current 55,068 29,912 21,177 -------- ------- ------- Deferred: Federal (12,566) (6,515) (2,346) State (4,364) (1,774) (713) -------- ------- ------- Total deferred (16,930) (8,289) (3,059) -------- ------- ------- Total expense $ 38,138 $21,623 $18,118 ======== ======= =======
A-44 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) 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. The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities at December 31, 2000 and 1999 are as follows:
Years ended December 31, ----------------------- 2000 1999 ----------- ----------- (Dollars in thousands) Allowance for loan losses $ 23,658 $ 15,804 State income taxes 9,615 4,458 Deferred compensation 4,341 2,438 Unrealized (gains) losses on securities 10,732 10,128 Accumulated depreciation 1,252 576 Net operating losses 14 14 Purchase allocation adjustments 351 8 Other 1,996 322 ----------- ----------- Net deferred tax asset $ 51,959 $ 33,748 =========== ===========
Management believes that the Company will fully realize its total deferred income tax assets as of December 31, 2000 based upon the Company's recoverable taxes from prior carryback years, and its current level of operating income. At December 31, 2000, the Company had a federal tax net operating loss carryforward of approximately $40,000 expiring in the beginning of the year 2010. Under provisions of the United States income tax laws these loss carryovers are subject to limitation due to the acquisition of Pacific Rim Bancorporation in 1998. Management does not believe that these limitations will prevent the realization of the benefit of the loss carryovers during the carryover periods. A reconciliation from the statutory income tax rate to the consolidated effective income tax rate follows, for the years ended December 31, 2000, 1999 and 1998:
Years ended December 31, ---------------------------- 2000 1999 1998 -------- -------- -------- (Dollars in thousands) Statutory federal tax rate 35.0% 35.0% 35.0% California franchise tax expense, net of federal income tax benefit 6.7% 5.6% 6.2% -------- -------- -------- 41.7% 40.6% 41.2% Tax exempt income -2.8% -2.8% -3.0% Contribution of appreciated securities -- -4.3% -1.0% Nondeductible merger costs 1.5% 0.2% 0.6% Other, net -1.0% -0.9% -2.9% -------- -------- -------- Effective income tax rate 39.4% 32.8% 34.9% ======== ======== ========
A-45 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) NOTE 13--OTHER INCOME AND OPERATING EXPENSES Other income in 2000, 1999 and 1998 included warrant income of $13.0 million, $14.5 million and $945,000 net of related employee incentives of $4.5 million, $7.3 million and $396,000, respectively. The Company occasionally receives warrants to acquire common stock from companies that are in the start-up or development phase. The timing and amount of income derived from the exercise and sale of client warrants typically depend upon factors beyond the control of the Company, and cannot be predicted with any degree of accuracy and are likely to vary materially from period to period. To support the Foundation, the Company contributed appreciated securities, which had an unrealized gain of $7.8 million in 1999 and $1.3 million in 1998. In 1999, the Company incurred $4.4 million in compensation and other expenses in connection with these appreciated securities. The Company recorded $12.2 million in 1999 and $1.3 million in 1998 of expense for the contribution to the Foundation, which is included in operating expenses. Merger and other related nonrecurring costs for the years ended December 31, 2000, 1999 and 1998 were comprised of the following:
2000 1999 1998 ------- ------- ------ (Dollars in thousands) Financial advisory and professional fees $ 7,375 $ 1,627 $1,101 Charges to conform accounting practices 8,078 2,745 183 Other costs 14,649 5,959 1,377 ------- ------- ------ Total $30,102 $10,331 $2,661 ======= ======= ======
Other costs include severance and other compensation expenses, charges for the write-off of assets retired as a result of the merger, and other expenses including printing costs and filing fees. Other expenses for the years ended December 31, 2000, 1999 and 1998 were comprised of the following:
2000 1999 1998 ------- ------- ------- (Dollars in thousands) Legal and other professional fees $ 4,704 $ 3,371 $ 3,416 Telephone, postage and supplies 4,657 4,500 3,992 Marketing and promotion 4,185 3,492 3,279 Data processing 2,132 2,665 1,959 Client services 2,081 3,226 2,520 FDIC insurance and regulatory assessments 1,236 622 553 Directors fees 1,098 1,226 1,432 Insurance 462 952 889 Other real estate owned 56 13 157 Other 8,147 6,813 7,005 ------- ------- ------- $28,758 $26,880 $25,202 ======= ======= =======
Occupancy costs for the years ended December 31, 2000, 1999 and 1998 were $12.7 million, $10.7 million and $9.0 million, respectively. A-46 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) NOTE 14--EMPLOYEE BENEFIT PLANS Stock Option Plans At December 31, 2000, the total authorized shares issuable under the Greater Bay Bancorp 1996 Stock Option Plan, as amended (the "Bancorp Plan") was approximately 9,831,560 shares and the number of shares available for future grants was approximately 2,750,000 shares. Options issued under the Bancorp Plan may be granted to employees and nonemployee directors and may be either incentive or nonqualified stock options as defined under current tax laws. The exercise price of each 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 and generally vests over a five-year period. On November 19, 1997, the Company's shareholders approved an amendment of the Bancorp Plan to increase by 1,825,304 the number of shares of Greater Bay stock issuable under the Bancorp Plan. On May 17, 2000, the Company's shareholders approved an additional amendment of the Bancorp Plan to increase by 5,000,000 the number of shares issuable under the Bancorp Plan. These amendments were done to accommodate the increased number of eligible employees as a result of the mergers. Under the terms of the respective merger agreements, the stock option plans of Bank of Petaluma, Coast Bancorp, Bank of Santa Clara, Bay Area Bancshares and Bay Commercial Services were terminated at the time of merger and substitute options were issued under the Bancorp Plan. Option holders under the Bank of Petaluma, Coast Bancorp, Bank of Santa Clara, Bay Area Bancshares and Bay Commercial Services plans received substitute options to purchase 239,880 shares, 379,596 shares, 471,840 shares, 59,668 shares and 216,636 shares of Greater Bay stock, respectively. During 2000, the Company assumed the Mt. Diablo Bancshares 1992 Stock Option Plan, as amended. Options outstanding under that plan were converted to options to purchase 145,428 shares of Greater Bay stock. At December 31, 2000 the total number of authorized shares issuable under that plan was 686,304 shares, and the number of shares available for future grant was 51,695 shares. A summary of the Company's stock options as of December 31, 2000, 1999, and 1998 and changes during the years ended on those dates is presented below:
2000 1999 1998 ----------------- ---------------- ---------------- Weighted Weighted Weighted average average average Shares exercise Shares exercise Shares exercise (000's) price (000's) price (000's) price ------- -------- ------ -------- ------ -------- Outstanding at beginning of year 6,122 $11.65 5,360 $ 9.04 4,379 $ 5.71 Granted 1,433 35.00 1,582 17.81 1,697 15.65 Exercised (1,446) 6.28 (667) 5.06 (648) 3.85 Forfeited (220) 13.51 (153) 12.59 (67) 8.41 ------ ------ ----- ------ ----- ------ Outstanding at end of year 5,889 18.58 6,122 11.65 5,361 9.04 ====== ====== ===== ====== ===== ====== Options exercisable at year-end 2,518 10.63 2,671 7.12 2,534 4.71 ====== ====== ===== ====== ===== ====== Weighted average fair value of options granted during the year $15.34 $ 5.94 $ 5.42 ====== ====== ======
A-47 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) The following table summarizes information about stock options outstanding at December 31, 2000.
Options outstanding Options exercisable ------------------------------ -------------------- Weighted average Weighted Weighted Number remaining average Number average Exercise outstanding life exercise exercisable exercise price range (000's) (years) price (000's) price ----------- ----------- --------- -------- ----------- -------- $0.77-$9.87 1,330 4.76 $ 5.17 1,242 $ 5.15 $10.56-$19.25 3,025 7.79 16.49 1,156 15.35 $20.56-$29.50 270 8.47 21.86 121 21.83 $30.25-$37.13 1,263 9.96 36.94 -- --
Stock-Based Compensation In October 1995, the Financial Accounting Standards Board issued SFAS No. 123 "Accounting for Stock-Based Compensation" ("SFAS No. 123"). Under the provisions of SFAS No. 123, the Company is encouraged, but not required, to measure compensation costs related to its employee stock compensation plans under the fair 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 net income per share effects based on the SFAS No. 123 fair value methodology. The Company implemented the requirements of SFAS No. 123 in 1997 and has elected to adopt the disclosure provisions of this statement. The Company applies Accounting Principles Board ("APB") Opinion No. 25 and related interpretations in its accounting for stock options. Accordingly, no compensation cost has been recognized for its stock option plan. Had compensation for the Company's stock option plan been determined consistent with SFAS No. 123, the Company's net income per share would have been reduced to the pro forma amounts indicated below:
December 31, ----------------------- 2000 1999 1998 ------- ------- ------- (Dollars in thousands, except per share amounts) Net income: As reported $58,540 $44,184 $33,784 Pro forma $56,346 $40,835 $31,316 Basic net income per share: As reported $ 1.42 $ 1.16 $ 0.91 Pro forma $ 1.37 $ 1.07 $ 0.85 Diluted net income per share: As reported $ 1.35 $ 1.10 $ 0.85 Pro forma $ 1.30 $ 1.01 $ 0.79
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 2000, 1999, and 1998, respectively; dividend yield of 1.5%, 1.5% and 1.75%, expected volatility of 48.96%, 29.69% and 39.84%; risk free rates of 4.89%, 6.29% and 4.54%. The weighted average expected life is 5 years. 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-48 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) 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 employees' contributions at a rate set by the Board of Directors (currently 62.5% of the first 8% of deferral of an individual's total compensation). The matching contribution vests ratably over the first four years of employment. For the years ended December 31, 2000, 1999 and 1998, the Company contributed $1.5 million, $1.3 million and $1.1 million, respectively to the 401(k) plan. 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 729,272 shares. Under the plan the purchase price is 85% of the lower of the fair value at the beginning or end of each three month offering period. During 2000, 1999 and 1998, employees purchased 93,356, 83,302 and 59,340 shares of common stock, respectively. There were 456,190 shares remaining in the plan available for purchase by employees at December 31, 2000. Supplemental Employee Compensation Benefits Agreements The Company has entered into supplemental employee compensation benefits agreements with certain executive and senior officers. Under these agreements, the Company is generally obligated to provide for each such employee or their beneficiaries, during their life for a period of up to 15 to 20 years after the employee's disability or retirement, benefits as defined in each specific agreement. The agreement also provides for a death benefit for the employee. The estimated present value of future benefits to be paid is being accrued over the vesting period of the participants. The related accumulated accrued liability at December 31, 2000 and 1999 is approximately $5.4 million and $3.5 million, respectively. The actuarial assumptions used for determining the present value of the projected benefit obligation include a 7% discount rate. Expenses accrued for this plan for the years December 31, 2000, 1999 and 1998 totaled $1.5 million, $896,000 and $602,000, respectively. Depending on the agreement, the Company and the employees are beneficiaries of life insurance policies that have been purchased as a method of financing the benefits under the agreements. At December 31, 2000 and 1999, the Company's cash surrender value of these policies was approximately $64.9 million and $45.4 million, respectively and is included in other assets. The income recognized on these polices was $2.2 million, $1.5 million and $953,000 in 2000, 1999 and 1998, respectively, and is included in other income. A portion of the invested assets have been placed into secular trusts established in 1999 in behalf of the executive officers of the Company. Deferred Compensation Plan Effective November 19, 1997, the Company adopted the Greater Bay Bancorp 1997 Elective Deferral Compensation Plan (the "Deferred Plan") that allows eligible officers and directors of the Company to defer a portion of their bonuses, director fees and other compensation. The deferred compensation will earn interest calculated annually based on a short-term interest reference rate. All participants are fully vested at all times in their contributions to the Deferred Plan. At December 31, 2000 and 1999, $3.1 million and $1.9 million, respectively, of deferred compensation under this plan is included in other liabilities in the accompanying consolidated balance sheets. Additionally, under deferred compensation agreements that were established at Bank of Petaluma, Coast Commercial Bank and Peninsula Bank of Commerce prior to their mergers with the Company, there was approximately $2.1 million and $1.1 million of deferred compensation which is included in other liabilities at December 31, 2000 and 1999, respectively. A-49 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) Change in Control In the event of a change in control, the supplemental employee compensation benefits agreements with certain executive and senior officers may require the Company to make certain payments under those agreements. The Company also has plans in place, which would require certain payments be made to any employee whose employment is terminated pursuant to a change in control. These potential liabilities are currently not recognized in the accompanying consolidated financial statements. NOTE 15--RELATED PARTY TRANSACTIONS The Company has, and expects to have in the future, banking transactions in the ordinary course of business with directors, executive officers and their affiliates. These transactions are entered into under terms and conditions equal to those entered into in arms length transactions and are made subject to approval by the Directors' Loan Committee and the Board of Directors of the Bank extending the credit. An analysis of total loans to related parties for the years ended December 31, 2000, 1999 and 1998 is shown below:
2000 1999 1998 -------- -------- ------- (Dollars in thousands) Balance, January 1 $ 26,110 $ 46,866 $21,432 Additions 51,818 27,883 45,019 Repayments (27,178) (48,639) (19,585) -------- -------- ------- Balance, December 31 $ 50,750 $ 26,110 $46,866 ======== ======== ======= Undisbursed commitments, at year end $ 39,544 $ 11,113 $ 8,430 ======== ======== =======
NOTE 16--COMMITMENTS AND CONTINGENCIES Lease Commitments The Company leases certain facilities at which it conducts its operations. Future minimum lease commitments under all non-cancelable operating leases as of December 31, 2000 are below:
(Dollars in thousands) Years ended December 31, 2001 $ 7,474 2002 6,191 2003 5,579 2004 4,943 2005 4,739 Thereafter 34,012 ------- Total $62,938 =======
The Company subleases that portion of the available space that is not utilized. Sublease rental income for the years ended December 31, 2000, 1999, and 1998 was $1.3 million, $1.3 million and $1.2 million, respectively. Gross rental expense for the years ended December 31, 2000, 1999, and 1998 was $7.9 million, $6.9 million, and $5.4 million, respectively. A-50 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) Other Commitments and Contingencies In the normal course of business, various commitments and contingent liabilities are outstanding, such as guarantees and commitments to extend credit, that are not reflected in the accompanying consolidated financial statements. Commitments to fund loans were $1.2 billion and $948.8 million and letters of credit were $116.4 million and $58.4 million, at December 31, 2000 and 1999, respectively. The Company's exposure to credit loss is limited to amounts funded or drawn; however, at December 31, 2000, 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 $498.3 million of these commitments relate to real estate construction and land loans and are expected to fund within the next 12 months. However, the remainder relates primarily to revolving lines of credit or other commercial loans, and many of these commitments are expected to expire without being drawn upon, therefore the total commitments do not necessarily represent future cash requirements. The Banks evaluate each potential borrower and the necessary collateral on an individual basis. Collateral varies, but may include real property, bank deposits, debt or equity securities, or business assets. Stand-by letters of credit are conditional commitments written by the Banks to guarantee the performance of a client to a third party. These guarantees are issued primarily related to purchases of inventory by the Banks' commercial clients, and are typically short-term in nature. Credit risk is similar to that involved in extending loan commitments to clients, and the Banks accordingly use evaluation and collateral requirements similar to those for loan commitments. In the ordinary course of business there are various assertions, claims and legal proceedings pending against the Company. Management is of the opinion that the ultimate resolution of these proceedings will not have a material adverse effect on the consolidated financial position or results of operations of the Company. NOTE 17--SHAREHOLDERS' RIGHTS PLAN In 1998 Greater Bay adopted a shareholder rights plan designed to maximize the long-term value of the Company and to protect the Company's shareholders from improper takeover tactics and takeover bids that are not fair to all shareholders. In accordance with the plan, preferred share purchase rights were distributed as a dividend at the rate of one right for each common share held of record as of the close of business on November 28, 1998. The rights, which are not immediately exercisable, entitle the holders to purchase one one- hundredth of a share of Series A Preferred Stock at a price of $145.00, subject to adjustment, upon the occurrence of certain triggering events. In the event of an acquisition not approved by the Board, each right enables its holder (other than the acquirer) to purchase the Preferred Stock at 50% of the market price. Further, in the event the Company is acquired in an unwanted merger or business combination, each right enables the holder to purchase shares of the acquiring entity at a similar discount. Under certain circumstances, the rights may be exchanged for common shares of the Company. The Board may, in its sole discretion, redeem the rights at any time prior to any of the triggering events. The rights can be exercised and separate rights certificates distributed only if any of the following events occur: acquisition by a person of 10% or more of the Company's common share; a tender offer for 10% or more of the Company's common shares; or ownership of 10% or more of the Company's common shares by a shareholder whose actions are likely to have a material adverse impact on the Company or shareholder interests. The rights will initially trade automatically with the common shares. The rights are not deemed by the Board of Directors to be presently exercisable. A-51 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) NOTE 18--REGULATORY MATTERS The Company and the Banks are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's consolidated financial statements. Under capital adequacy guidelines and regulatory framework for prompt corrective action, the Banks must meet specific capital guidelines that involve quantitative measures of the Banks' assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Banks' capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Banks to maintain minimum capital amounts and ratios (as defined in the regulations). At December 31, 2000 and 1999 the Company and the Banks met all capital adequacy requirements to which they are subject. Under the FDICIA prompt corrective action provisions applicable to banks, the most recent notification from the FDIC or OCC categorized each of the Banks as well-capitalized. To be categorized as well-capitalized, the institution must maintain a total risk-based capital ratio as set forth in the following table and not be subject to a capital directive order. There are no conditions or events since that notification that management believes have changed the risk- based capital category of any of the Banks. A-52 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) The Company and the Banks' actual 2000 and 1999 capital amounts and ratios are as follows:
To be well capitalized under prompt For capital corrective adequacy action Actual purposes provisions -------------- -------------- -------------- As of December 31, 2000 Amount Ratio Amount Ratio Amount Ratio - ----------------------- -------- ----- -------- ----- -------- ----- (Dollars in thousands) Total Capital (To Risk Weighted Assets): Greater Bay Bancorp $475,891 10.70% $355,806 8.00% $444,609 N/A Bank of Petaluma 19,054 12.05 12,650 8.00 15,811 10.00% Bank of Santa Clara 36,956 11.13 26,563 8.00 33,203 10.00 Bay Area Bank 18,664 10.49 14,234 8.00 17,790 10.00 Bay Bank of Commerce 14,111 10.55 10,700 8.00 13,380 10.00 Coast Commercial Bank 42,724 15.16 22,546 8.00 28,176 10.00 Cupertino National Bank 150,395 10.14 118,655 8.00 148,276 10.00 Golden Gate Bank 20,541 10.13 16,222 8.00 20,280 10.00 Mid-Peninsula Bank 91,401 10.19 71,757 8.00 89,670 10.00 Mt. Diablo National Bank 26,493 11.30 18,756 8.00 23,449 10.00 Peninsula Bank of Commerce 27,228 10.89 20,002 8.00 25,003 10.00 Tier 1 Capital (To Risk Weighted Assets): Greater Bay Bancorp $417,847 9.40% $177,807 4.00% $266,765 N/A Bank of Petaluma 17,058 10.79 6,324 4.00 9,487 6.00% Bank of Santa Clara 32,779 9.87 13,284 4.00 19,922 6.00 Bay Area Bank 16,419 9.23 7,115 4.00 10,674 6.00 Bay Bank of Commerce 12,422 9.28 5,354 4.00 8,028 6.00 Coast Commercial Bank 39,181 13.91 11,267 4.00 16,905 6.00 Cupertino National Bank 131,684 8.88 59,317 4.00 88,966 6.00 Golden Gate Bank 17,993 8.87 8,114 4.00 12,168 6.00 Mid-Peninsula Bank 80,155 8.94 35,864 4.00 53,802 6.00 Mt. Diablo National Bank 23,539 10.04 9,378 4.00 14,070 6.00 Peninsula Bank of Commerce 24,081 9.63 10,002 4.00 15,002 6.00 Tier 1 Capital Leverage (To Average Assets): Greater Bay Bancorp $417,847 8.77% $190,580 4.00% $238,331 N/A Bank of Petaluma 17,058 8.23 8,291 4.00 10,363 5.00% Bank of Santa Clara 32,779 8.18 16,029 4.00 20,035 5.00 Bay Area Bank 16,419 8.18 8,029 4.00 10,041 5.00 Bay Bank of Commerce 12,422 7.55 6,581 4.00 8,230 5.00 Coast Commercial Bank 39,181 9.12 17,185 4.00 21,488 5.00 Cupertino National Bank 131,684 9.06 58,139 4.00 72,693 5.00 Golden Gate Bank 17,993 6.34 11,352 4.00 14,188 5.00 Mid-Peninsula Bank 80,155 7.66 31,392 3.00 52,295 5.00 Mt. Diablo National Bank 23,539 8.15 11,553 4.00 14,443 5.00 Peninsula Bank of Commerce 24,081 7.99 12,056 4.00 15,067 5.00
A-53 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued)
To be well capitalized under prompt For capital corrective adequacy action Actual purposes provisions -------------- -------------- ------------- As of December 31, 1999 Amount Ratio Amount Ratio Amount Ratio - ----------------------- -------- ----- -------- ----- ------- ----- (Dollars in thousands) Total Capital (To Risk Weighted Assets): Greater Bay Bancorp $343,091 11.07% $247,943 8.00% N/A Bank of Petaluma 17,537 11.70 11,991 8.00 $17,537 10.00% Bank of Santa Clara 33,672 11.91 22,618 8.00 28,272 10.00 Bay Area Bank 15,104 10.50 11,511 8.00 14,398 10.00 Bay Bank of Commerce 12,004 10.12 9,484 8.00 11,856 10.00 Coast Commercial Bank 37,426 13.80 21,771 8.00 27,213 10.00 Cupertino National Bank 97,081 11.03 70,398 8.00 87,997 10.00 Golden Gate Bank 14,645 10.19 11,494 8.00 14,368 10.00 Mid-Peninsula Bank 65,923 10.02 52,656 8.00 65,820 10.00 Mt. Diablo National Bank 15,192 8.20 14,823 8.00 18,529 10.00 Peninsula Bank of Commerce 22,458 10.86 16,544 8.00 20,680 10.00 Tier 1 Capital (To Risk Weighted Assets): Greater Bay Bancorp $302,073 9.75% $123,927 4.00% N/A Bank of Petaluma 15,941 10.64 5,993 4.00 $15,941 6.00% Bank of Santa Clara 31,368 11.09 11,314 4.00 16,971 6.00 Bay Area Bank 13,285 9.23 5,756 4.00 8,634 6.00 Bay Bank of Commerce 10,507 8.86 4,742 4.00 7,113 6.00 Coast Commercial Bank 34,020 12.50 10,885 4.00 16,328 6.00 Cupertino National Bank 82,337 9.36 35,199 4.00 52,798 6.00 Golden Gate Bank 12,846 8.94 5,747 4.00 8,621 6.00 Mid-Peninsula Bank 57,692 8.77 26,328 4.00 39,492 6.00 Mt. Diablo National Bank 12,875 6.95 7,411 4.00 11,117 6.00 Peninsula Bank of Commerce 19,859 9.60 8,272 4.00 12,408 6.00 Tier 1 Capital Leverage (To Average Assets): Greater Bay Bancorp $302,073 8.24% $146,637 4.00% N/A Bank of Petaluma 15,941 8.29 7,692 4.00 $15,941 5.00% Bank of Santa Clara 31,368 9.29 12,782 4.00 15,977 5.00 Bay Area Bank 13,285 7.80 6,815 4.00 8,519 5.00 Bay Bank of Commerce 10,507 7.12 5,900 4.00 7,375 5.00 Coast Commercial Bank 34,020 9.40 14,538 4.00 18,172 5.00 Cupertino National Bank 82,337 8.05 40,896 4.00 51,120 5.00 Golden Gate Bank 12,846 6.55 7,844 4.00 9,805 5.00 Mid-Peninsula Bank 57,692 7.47 30,883 3.00 38,604 5.00 Mt. Diablo National Bank 12,875 7.76 7,828 4.00 9,785 5.00 Peninsula Bank of Commerce 19,859 7.32 10,847 4.00 13,559 5.00
A-54 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) NOTE 19--EARNINGS PER SHARE Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding during the year. Diluted net income per share is computed by dividing net income by the weighted average number of common shares plus common equivalent shares outstanding including dilutive stock options. The following table provides a reconciliation of the numerators and denominators of the basic and diluted net income per share computations for the years ended December 31, 2000, 1999 and 1998.
For the year ended December 31, 2000 ----------------------------------- Income Shares Per share (numerator) (denominator) amount ----------- ------------- --------- (Dollars in thousands, except per share amounts) Net income $58,540 Basic net income per share: Income available to common shareholders 58,540 41,229,000 $1.42 Effect of dilutive securities: Stock options -- 2,276,000 ------- ---------- ----- Diluted net income per share: Income available to common shareholders and assumed conversions $58,540 43,505,000 $1.35 ======= ========== ===== For the year ended December 31, 1999 ----------------------------------- Income Shares Per share (numerator) (denominator) amount ----------- ------------- --------- (Dollars in thousands, except per share amounts) Net income $44,184 Basic net income per share: Income available to common shareholders 44,184 38,245,000 $1.16 Effect of dilutive securities: Stock options -- 2,059,000 ------- ---------- ----- Diluted net income per share: Income available to common shareholders and assumed conversions $44,184 40,304,000 $1.10 ======= ========== ===== For the year ended December 31, 1998 ----------------------------------- Income Shares Per share (numerator) (denominator) amount ----------- ------------- --------- (Dollars in thousands, except per share amounts) Net income $33,784 Basic net income per share: Income available to common shareholders 33,784 37,049,000 $0.91 Effect of dilutive securities: Stock options -- 2,590,000 ------- ---------- ----- Diluted net income per share: Income available to common shareholders and assumed conversions $33,784 39,639,000 $0.85 ======= ========== =====
A-55 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) There were options to purchase 66,000, 1,037,000 shares and 304,000 shares that were considered anti-dilutive whereby the options' exercise price was greater than the average market price of the common shares, during the years ended December 31, 2000, 1999 and 1998, respectively. All years presented have been restated to reflect the 2-for-1 stock splits effective on April 30, 1998 and October 4, 2000. 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 2000 mergers with Bank of Petaluma at a 0.5731 conversion ratio, Bank of Santa Clara at a 0.8499 conversion ratio, Coast Bancorp at a 0.6338 conversion ratio and Mt. Diablo Bancshares at a 0.9532 conversion ratio, 1999 mergers with Bay Commercial Services at a 0.6833 conversion ratio and Bay Area Bancshares at a 1.38682 conversion ratio, the 1998 mergers with Pacific Rim Bancorporation and Pacific Business Funding Corporation at a total of 1,901,496 and 596,000 shares, respectively, and the 1997 merger with PBC at a 0.96550 conversion ratio. A-56 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) NOTE 20--PARENT COMPANY ONLY--CONDENSED FINANCIAL STATEMENTS The financial statements of Greater Bay Bancorp (parent company only) are presented below: PARENT COMPANY ONLY--BALANCE SHEETS
December 31, ------------------ 2000 1999 -------- -------- (Dollars in thousands) ASSETS ------ Cash and cash equivalents $ 19,067 $ 2,837 Investment in subsidiaries 412,566 282,079 Other investments 25,634 16,143 Other assets 25,172 18,773 -------- -------- Total assets $482,439 $319,832 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Subordinated debt $103,609 $ 58,547 Other borrowings 15,000 7,000 Other liabilities 41,465 1,390 -------- -------- Total liabilities 160,074 66,937 Shareholders' equity: Common stock 173,276 148,611 Accumulated other comprehensive income (6,552) (9,158) Retained earnings 155,641 113,442 -------- -------- Total shareholders' equity 322,365 252,895 -------- -------- Total liabilities and shareholders' equity $482,439 $319,832 ======== ========
A-57 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) PARENT COMPANY ONLY--STATEMENTS OF OPERATIONS
Years ended December 31, ---------------------------- 2000 1999 1998 -------- -------- -------- (Dollars in thousands) Income: Interest income $ 3,634 $ 521 $ 1,073 Cash dividend from subsidiaries 10,560 1,580 3,015 Other income 1,379 -- 71 -------- -------- -------- Total 15,573 2,101 4,159 -------- -------- -------- Expenses: Interest expense 8,536 4,382 3,195 Salaries 22,280 17,138 8,952 Occupancy and equipment 6,416 3,821 2,031 Merger expenses 12,479 3,283 1,877 Other expenses 7,470 5,804 3,596 Less: rentals and fees received from Banks (41,480) (27,653) (15,866) -------- -------- -------- Total 15,701 6,775 3,785 -------- -------- -------- Income (loss) before taxes and equity in undistributed net income of subsidiaries (128) (4,674) 374 Income tax benefit (3,447) (2,685) (1,668) -------- -------- -------- Income (loss) before equity in undistributed net income of subsidiaries 3,319 (1,989) 2,042 -------- -------- -------- Equity in undistributed net income of subsidiaries 55,221 46,173 31,742 -------- -------- -------- Net income $ 58,540 $ 44,184 $ 33,784 ======== ======== ========
A-58 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) PARENT COMPANY ONLY--STATEMENTS OF CASH FLOWS
Years ended December 31, ---------------------------- 2000 1999 1998 -------- -------- -------- (Dollars in thousands) Cash flows-operating activities Net income $ 58,540 $ 44,184 $ 33,784 Reconciliation of net income to net cash from operations: Equity in undistributed net income of subsidiaries (55,221) (46,173) (31,716) Net change in other assets (7,495) (9,791) (4,598) Net change in other liabilities 42,379 4,420 2,140 -------- -------- -------- Operating cash flow, net 38,203 (7,360) (390) -------- -------- -------- Cash flows-investing activities Purchases of available for sale securities (51,517) (20,825) (84,130) Proceeds from sale and maturities of available for sale securities 3,000 20,980 71,939 Proceeds from sale of OREO 224 -- 407 Dividends from subsidiaries 10,560 4,166 3,449 Capital contribution to the subsidiaries (46,800) (27,218) (17,500) -------- -------- -------- Investing cash flows, net (84,533) (22,897) (25,835) -------- -------- -------- Cash flows-financing activities Net change in other borrowings 2,562 7,000 -- Repurchase of common stock -- -- (2,651) Proceeds from issuance of subordinated debt 50,500 -- 30,000 Proceeds from sale of common stock 23,704 26,013 5,661 Payment of cash dividends (14,206) (7,622) (7,193) -------- -------- -------- Financing cash flows, net 62,560 25,391 25,817 -------- -------- -------- Net increase in cash and cash equivalents 16,230 (4,866) (408) Cash and cash equivalents at the beginning of the year 2,837 7,703 8,111 -------- -------- -------- Cash and cash equivalents at end of the year $ 19,067 $ 2,837 $ 7,703 ======== ======== ========
NOTE 21--RESTRICTIONS ON SUBSIDIARY TRANSACTIONS Total dividends which may be declared by the Banks without receiving prior approval from regulatory authorities are limited to the lesser of the Banks' retained earnings or the net income of the Banks for the latest three fiscal years, less dividends previously declared during that period. The Banks are subject to certain restrictions under the Federal Reserve Act, including restrictions on the extension of credit to affiliates. In particular, the Banks are prohibited from lending to Greater Bay unless the loans are secured by specified types of collateral. Such secured loans and other advances from the Banks are limited to 10% of the Banks' shareholders' equity, or a maximum of $40.1 million at December 31, 2000. No such advances were made during 2000 or exist as of December 31, 2000. A-59 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) NOTE 22--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, 2000 and 1999 are as follows:
2000 1999 ------------------- ------------------- Carrying Fair Carrying Fair Amount Value Amount Value --------- --------- --------- --------- (Dollars in thousands) Financial assets: Cash and due from banks $ 270,774 $ 270,774 $ 147,222 $ 147,222 Short term investments and Fed Funds Sold 138,056 $ 138,056 249,107 249,107 Investment securities 962,277 972,610 750,516 722,262 Loans, net 3,517,408 3,545,022 2,416,423 2,396,640 Financial liabilities: Deposits: Demand, noninterest-bearing 1,003,828 1,003,828 727,613 756,604 MMDA, NOW and Savings 2,082,708 2,082,708 1,838,868 1,809,877 Time certificates, $100,000 and over 784,118 784,334 534,662 528,735 Other time certificates 294,407 294,201 161,745 162,963 Other borrowings 431,228 431,572 117,052 116,242 Subordinated debt -- -- -- -- Company obligated mandatory redeemable preferred securities of subsidiary trust holding solely junior subordinated debentures 99,500 92,365 49,000 48,468
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 quoted market prices or bid quotations from securities dealers. Loans Fair values are estimated for portfolios of loans with similar financial characteristics. 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 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. A-60 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) 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 are estimated by discounting future cash flows using interest rates currently offered on time deposits with similar remaining maturities. The fair value of core deposits does not reflect the market core deposits premium of approximately 10%--12%. Additionally, the fair value of deposits does not include the benefit that results from the low cost of funding provided by the Company's deposits as compared to the cost of borrowing funds in the market. Commitments to Extend Credit and Standby Letters 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 above table. Limitations These fair value disclosures represent management's best estimates, based on relevant market information and information about the financial instruments. Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale, at one time, the Company's entire holdings of a particular financial instrument. Fair value estimates are based on judgments regarding future expected loss experience, current economic condition, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have significant effect on fair value estimates and have been considered in many of the estimates. NOTE 23--ACTIVITY OF BUSINESS SEGMENTS The accounting policies of the segments are described in the "Summary of Significant Accounting Policies." Segment data includes intersegment revenue, as well as charges allocating all corporate-headquarters costs to each of its operating segments. Intersegment revenue is recorded at prevailing market terms and rates and is not significant to the results of the segments. This revenue is eliminated in consolidation. The Company evaluates the performances of its segments and allocates resources to them based on net interest income, other income, net income before income taxes, total assets and deposits. The Company is organized primarily along community banking and trust divisions. Ten of the divisions have been aggregated into the "community banking" segment. Community banking provides a range of commercial banking services to small and medium-sized businesses, real estate developers, property managers, business executives, professional and other individuals. The GBB Trust division has been shown as the "trust operations" segment. The Company's business is conducted principally in the U.S.; foreign operations are not material. A-61 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) The following table shows each segments key operating results and financial position for the years ended or as of December 31, 2000, 1999 and 1998:
2000 1999 1998 --------------------- --------------------- --------------------- Community Trust Community Trust Community Trust banking operations banking operations banking operations ---------- ---------- ---------- ---------- ---------- ---------- (Dollars in thousands) Net interest income $ 236,315 $ 551 $ 156,097 $ 369 $ 128,945 $ 859 Other income 28,283 3,753 39,972 3,007 19,453 2,488 Operating expenses 83,737 2,703 149,042 2,863 104,085 2,429 Net income before income taxes(1) 152,765 1,601 98,167 121 68,648 918 Total assets 4,647,939 -- 3,702,369 -- 3,820,326 -- Deposits 4,107,898 57,163 3,205,057 57,831 2,395,945 67,539 Assets under management -- 773,791 -- 697,435 -- 649,336
- -------- (1) Includes intercompany earnings allocation charge which is eliminated in consolidation. A reconciliation of total segment net interest income and other income combined, net income before income taxes, and total assets to the consolidated numbers in each of these categories for the years ended December 31, 2000, 1999 and 1998 is presented below.
As of and for year ended December 31, ---------------------------------- 2000 1999 1998 ---------- ---------- ---------- (Dollars in thousands) Net interest income and other income Total segment net interest income and other income $ 268,902 $ 207,231 $ 151,745 Parent company net interest income and other income (4,400) (3,893) (1,357) ---------- ---------- ---------- Consolidated net interest income and other income $ 264,502 $ 203,338 $ 150,388 ========== ========== ========== Net income before taxes Total segment net income before income taxes $ 154,366 $ 98,288 $ 69,566 Parent company net income before income taxes (40,572) (32,393) (17,664) ---------- ---------- ---------- Consolidated net income before income taxes $ 113,794 $ 65,895 $ 51,902 ========== ========== ========== Total assets Total segment assets $4,647,939 $3,702,369 $2,820,326 Parent company segment assets 482,439 34,360 36,920 ---------- ---------- ---------- Consolidated total assets $5,130,378 $3,736,729 $2,857,246 ========== ========== ==========
A-62 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(Continued) NOTE 24--QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following table presents the summary results for the stated eight quarters:
For the quarter ended -------------------------------------------- June December 31, September 30, 30, March 31, 2000 2000 2000 2000 ------------ ------------- ------- --------- (Dollars in thousands, except per share data) Interest income $104,376 $96,612 $87,538 $79,837 Net interest income 65,478 59,760 56,521 50,204 Provision for loan losses 6,316 7,844 8,312 5,624 Other income 8,790 10,842 8,657 17,236 Other expenses 33,408 30,515 29,454 29,235 Income before taxes 31,011 25,206 20,668 30,192 Net income 17,950 12,869 10,425 17,296 Net income per share: Basic $ 0.43 $ 0.31 $ 0.25 $ 0.43 Diluted $ 0.41 $ 0.29 $ 0.24 $ 0.42 For the quarter ended -------------------------------------------- June December 31, September 30, 30, March 31, 1999 1999 1999 1999 ------------ ------------- ------- --------- (Dollars in thousands, except per share data) Interest income $ 73,124 $66,160 $60,934 $55,159 Net interest income 46,546 42,713 39,306 35,997 Provision for loan losses 6,383 3,977 2,216 1,463 Other income 23,725 7,705 5,780 5,769 Other expenses 46,326 26,744 29,833 24,705 Income before taxes 17,563 19,697 13,037 15,598 Net income 14,240 12,337 8,124 9,483 Net income per share: Basic $ 0.36 $ 0.32 $ 0.21 $ 0.25 Diluted $ 0.34 $ 0.31 $ 0.20 $ 0.24
A-63 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Greater Bay Bancorp: In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) on page 26 present fairly, in all material respects, the financial position of Greater Bay Bancorp and its subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP San Francisco, California January 30, 2001 A-64 EX-3.1 2 0002.txt ARTICLES OF INCORPORATION OF GREATER BAY BANCORP Exhibit 3.1 RESTATED ARTICLES OF INCORPORATION OF GREATER BAY BANCORP David L. Kalkbrenner and Linda M. Iannone hereby certify that: 1. They are the duly elected and acting President and Secretary, respectively, of GREATER BAY BANCORP, a California corporation (the "Corporation" or the "Company"). 2. The Articles of Incorporation, as amended, of this corporation are hereby restated to read as follows: I. NAME The name of the Corporation is GREATER BAY BANCORP (the "Corporation" or the "Company"). II. 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 Corporations Code. III. AUTHORIZED STOCK (a) This corporation is authorized to issue only 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 80,000,000. (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. 1 ARTICLE IV. SERIES A PREFERRED STOCK The rights, preferences, privileges, and restrictions, designation and number of shares of the Series A Preferred Stock are as follows: Section 1. Designation and Amount. The shares of such series ---------------------- shall be designated as "Series A Preferred Stock" (the "Series A Preferred Stock") and the number of shares constituting the Series A Preferred Stock shall be 1,200,000 shares. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series A Preferred Stock. Section 2. Dividends and Distributions. --------------------------- (A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock, in preference to the holders of Common Stock, no par value (the "Common Stock"), of the Corporation, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the last day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $.095 or (b) subject to the provision for adjustment hereinafter set forth, the aggregate per share amount of all cash dividends, and the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared 2 on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $.095 per share on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not less than 10 nor more than 60 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series A ------------- Preferred Stock shall have the following voting rights: (A) Each share of Series A Preferred Stock shall entitle the holder thereof to one vote on all matters submitted to a vote of the shareholders of the Corporation. (B) Except as otherwise provided herein, in any other Certificate of Determination creating a series of Preferred Stock or any similar stock, or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of shareholders of the Corporation. Section 4. Certain Restrictions. -------------------- (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; (ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation dissolution or winding up) with the Series A Preferred Stock, except dividends 3 paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking Junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or (iv) redeem or purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series A Preferred ----------------- Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Articles of Incorporation, or in any other Certificate of Determination creating a series of Preferred Stock or any similar stock or as otherwise required by law. Section 6. Liquidation, Dissolution or Winding Up. Upon any -------------------------------------- liquidation, dissolution or winding up of the Corporation, no distribution shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received an amount per share equal to $100.00, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Series A Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to the aggregate amount to be distributed per share to holders of shares of Common Stock, or (2) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or 4 winding up. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso in clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction of the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. In case the Corporation --------------------------- shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 8. Redemption. The shares of Series A Preferred Stock ---------- shall not be redeemable. Section 9. Rank. The Series A Preferred Stock shall rank, with ---- respect to the payment of dividends and the distribution of assets, junior to all other series of the Corporation's Preferred Stock, unless the terms of any such series shall provide otherwise. Section 10. Amendment. The Articles of Incorporation (including --------- any Certificate of Determination issued under the authority of said Articles) of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Preferred Stock, voting together as a single series. V. 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: 5 (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. VI. DIRECTOR LIABILITY; INDEMNIFICATION OF 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 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. VII. ELIMINATION OF CUMULATIVE VOTING No holder of any class of stock of the corporation shall be entitled to cumulate votes at any election of directors of the corporation. 6 3. The foregoing restatement of the Articles of Incorporation (the "Restatement") has been duly approved by the Board of Directors of the Corporation. 4. Shareholder approval of the Restatement is not required pursuant to Section 910(b) of the California General Corporation Law. 5. The Corporation is a listed company as defined in Section 301.5(d) of the California General Corporation Law because its securities are listed on the Nasdaq National Market System. 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. Executed at Palo Alto, California this 30th day of January, 2001. /s/ David L. Kalkbrenner ------------------------ David L. Kalkbrenner, President /s/ Linda M. Iannone -------------------- Linda M. Iannone, Secretary 7 EX-3.2 3 0003.txt BYLAWS OF GREATER BAY BANCORP Exhibit 3.2 BYLAWS OF GREATER BAY BANCORP Amended and Restated As Of January 23, 2001 TABLE OF CONTENTS
PAGE ---- ARTICLE I. Applicability 1 Section 1. Applicability of Bylaws 1 ARTICLE II. Offices 1 Section 1. Principal Executive Office 1 Section 2. Other Offices 1 Section 3. Change in Location or Number of Offices 1 ARTICLE III. Meetings of Shareholders 1 Section 1. Place of Meetings 1 Section 2. Annual Meetings 1 Section 3. Special Meetings 1 Section 4. Notice of Annual, Special or Adjourned Meetings 2 Section 5. Record Date 2 Section 6. Quorum; Action at Meetings 3 Section 7. Adjournment 3 Section 8. Validation of Defectively Called, Noticed or Held Meetings 3 Section 9. Voting for Election of Directors 4 Section 10. Proxies 4 Section 11. Inspectors of Election 4 Section 12. Action by Written Consent 5 ARTICLE IV. Directors 5 Section 1. Number of Directors 5 Section 2. Classification, Election ad Term of Office 6 Section 3. Term of Office 7 Section 4. Vacancies 7 Section 5. Removal 7 Section 6. Resignation 8
PAGE ---- Section 7. Fees and Compensation 8 ARTICLE V. Committees of the Board of Directors 8 Section 1. Designation of Committees 8 Section 2. Powers of Committees 8 ARTICLE VI. Meetings of the Board of Directors and Committees Thereof 8 Section 1. Place of Meetings 8 Section 2. Organization Meeting 9 Section 3. Other Regular Meetings 9 Section 4. Special Meetings 9 Section 5. Notice of Special Meetings 9 Section 6. Validation of Defectively Held Meetings 9 Section 7. Quorum; Action at Meetings; Telephone Meetings 9 Section 8. Adjournment 10 Section 9. Action Without a Meeting 10 Section 10. Meetings of and Action by Committees 10 ARTICLE VII. Officers 10 Section 1. Officers 10 Section 2. Election of Officers 10 Section 3. Subordinate Officers, Etc. 10 Section 4. Removal and Resignation 10 Section 5. Vacancies 10 Section 6. Chairman of the Board 11 Section 7. President 11 Section 8. Vice President 11 Section 9. Secretary 11 Section 10. Treasurer 11
PAGE ---- ARTICLE VIII. Records and Reports 11 Section 1. Minute Book - Maintenance and Inspection 12 Section 2. Share Resister - Maintenance and Inspection 12 Section 3. Books and Records of Account - Maintenance and Inspection 12 Section 4. Bylaws - Maintenance and Inspection 12 Section 5. Annual Report to Shareholders 12 ARTICLE IX. Miscellaneous 12 Section 1. Checks, Drafts, Etc. 12 Section 2. Contracts, Etc. - How Executed 12 Section 3. Certificates of Stock 12 Section 4. Lost Certificates 12 Section 5. Representation of Shares of Other Corporations 13 Section 6. Construction and Definitions 13 Section 7. Indemnification of Corporate Agents; Purchase of Liability Insurance 13 ARTICLE X. Amendments 13 Section 1. Amendments 13
BYLAWS OF GREATER BAY BANCORP ARTICLE I. APPLICABILITY ------------- Section 1. Applicability of Bylaws. These Bylaws govern, except as ----------------------- otherwise provided by statute or its Articles of Incorporation, the management of the business and the conduct of the affairs of the Corporation. ARTICLE II OFFICES ------- Section 1. Principal Executive Office. The location of the principal -------------------------- executive office of the Corporation is 420 Cowper Street, Palo Alto, California 94301-1504. Section 2. Other Offices. The Board of Directors may establish other ------------- offices at any place or places within or without the State of California. Section 3. Change in Location or Number of Offices. The Board of --------------------------------------- Directors may change any office from one location to another or eliminate any office or offices. ARTICLE III MEETINGS OF SHAREHOLDERS ------------------------ Section 1. Place of Meetings. Meetings of the shareholders shall be ----------------- held at any place within or without the State of California designated by the Board of Directors, or, in the absence of such designation, at the principal executive office of the Corporation. Section 2. Annual Meetings. An annual meeting of the shareholders shall --------------- be held within 180 days following the end of the fiscal year of the Corporation at a date and time designated by the Board of Directors. Directors shall be elected at each annual meeting and any other proper business may be transacted thereat. Section 3. Special Meetings. ---------------- (a) Special meetings of the shareholders may be called by a majority of the Board of Directors, the Chairman of the Board, the President or the holders of shares entitled to cast not less than 10 percent of the votes at such meeting. (b) Any request for the calling of a special meeting of the shareholders shall (1) be in writing, (2) specify the date and time thereof which date shall be not less than 35 nor more than 60 days after receipt of the request, (3) specify the general nature of the business to be transacted thereat and (4) be given either personally or by first-class mail, postage prepaid, or other means of written communication to the Chairman of the Board, President, any Vice President or Secretary of the Corporation. The officer 1 receiving a proper request to call a special meeting of the shareholders shall cause notice to be given pursuant to the provisions of Section 4 of this article to the shareholders entitled to vote thereat that a meeting will be held at the date and time specified by the person or persons calling the meeting. (c) No business may be transacted at a special meeting unless the general nature thereof was stated in the notice of such meeting. Section 4. Notice of Annual, Special or Adjourned Meetings. ----------------------------------------------- (a) Whenever any meeting of the shareholders is to be held, a written notice of such meeting shall be given in the manner described in subdivision (d) of this section not less than 10 nor more than 60 days before the date thereof to each shareholder entitled to vote thereat. The notice shall state the place, date and hour of the meeting and (1) in the case of a special meeting, the general nature of the business to be transacted or (2) in the case of the annual meeting, those matters which the Board of Directors, at the time of the giving of the notice, intend to present for action by the shareholders including, whenever directors are to be elected at a meeting, the names of nominees intended at the time of giving of the notice to be presented by management for election. (b) Any proper matter may be presented at an annual meeting for action, except as is provided in subdivision (f) of Section 601 of the Corporations Code of the State of California. (c) Notice need not be given of an adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken, except that if the adjournment is for more than 45 days or if after the adjournment a new record date is provided for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote thereat. (d) Notice of any meeting of the shareholders or any report shall be given either personally or by first class mail, postage prepaid, or other means of written communication, addressed to the shareholder at his address appearing on the books of the Corporation or given by him to the Corporation for the purpose of notice; or if no such address appears or is given, at the place where the principal executive office of the Corporation is located or by publication at least once in a newspaper of general circulation in the county in which the principal executive office is located. The notice or report shall be deemed to have been given at the time when delivered personally to the recipient or deposited in the mail or sent by other means of written communication. An affidavit of mailing of any notice or report in accordance with the provisions of these Bylaws or the General Corporation Law of the State of California, executed by the Secretary, assistant secretary or any transfer agent of the Corporation, shall be prima facie evidence of ----- ----- the notice or report. (e) If any notice or report addressed to the shareholder at his address appearing on the books of the Corporation is returned to the Corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice or report to the shareholder at such address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available for the shareholder upon his written demand at the principal executive office of the Corporation for a period of one year from the date of the giving of the notice or report to all other shareholders. Section 5. Record Date. ----------- (a) The Board of Directors may fix a time in the future as a record date for the determination of the shareholders (1) entitled to notice of any meeting or to vote thereat, (2) 2 entitled to receive payment of any dividend or other distribution or allotment of any rights or (3) entitled to exercise any rights in respect of any other lawful action. The record date so fixed shall be not more than 60 nor less than 10 days prior to the date of any meeting of the shareholders nor more than 60 days prior to any other action. (b) In the event no record date is fixed: a. The record date for determining the shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. b. The record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board of Directors has been taken, shall be the day on which the first written consent is given. c. The record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto, or the 60th day prior to the date of such other action, whichever is later. (c) Only shareholders of record at the close of business on the record date are entitled to notice and to vote or to receive a dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the Corporation after the record date. (d) A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting, but the Board shall fix a new record date if the meeting is adjourned for more than 45 days from the date set for the original meeting. Section 6. Quorum: Action at Meetings. --------------------------- (a) A majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of the shareholders. (b) Except as provided in subdivision (c) of this section, the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum) shall be the act of the shareholders, unless the vote of a greater number is required by Law or the Articles of Incorporation. (c) The shareholders present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. Section 7. Adjournment. Any meeting of the shareholders may be ----------- adjourned from time to time whether or not a quorum is present by the vote of a majority of the shares represented thereat either in person or by proxy. At the adjourned meeting the Corporation may transact any business, which might have been transacted at the original meeting. Section 8. Validation of Defectively Called, Noticed or Held Meetings. ---------------------------------------------------------- (a) The transactions of any meeting of the shareholders, however called and noticed, and wherever held, are as valid as though had at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote thereat, not present in person or by proxy, signs 3 a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. (b) Attendance of a person at a meeting shall constitute a waiver of notice of, and presence at, such meeting, except (1) when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and (2) that attendance at a meeting is not a waiver of any right to object to the consideration of any matter required by the General Corporation Law of the State of California to be included in the notice but not so included, if such objection is expressly made at the meeting. (c) Any written waiver of notice shall comply with subdivision (f) of Section 601 of the Corporations Code of the State of California. Section 9. Voting for Election of Directors. -------------------------------- (a) Shareholders shall not be permitted to cumulate their votes for the election of directors. (b) Elections for directors may be by voice vote or by ballot unless any shareholder entitled to vote demands election by ballot at the meeting prior to the voting, in which case the vote shall be by ballot. (c) In any election of directors, the candidates receiving the highest number of votes of the shares entitled to be voted for them up to the number of directors of each class to be elected by such shares are elected as directors. If, at any meeting of shareholders, due to a vacancy or vacancies or otherwise, directors of more than one class of the Board of Directors are to be elected, each class of directors to be elected at the meeting shall be elected in a separate election. Section 10. Proxies. ------- (a) Every person entitled to vote shares may authorize another person or persons to act with respect to such shares by a written proxy signed by him or his attorney-in-fact and filed with the Secretary of the Corporation. A proxy shall be deemed signed if the shareholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by him or his attorney-in-fact. (b) Any duly executed proxy shall continue in full force and effect until the expiration of the term specified therein or upon its earlier revocation by the person executing it prior to the vote pursuant thereto (1) by a writing delivered to the Corporation stating that it is revoked, (2) by a subsequent proxy executed by the person executing the proxy or (3) by the attendance at the meeting and voting in person by the person executing the proxy. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. The date contained on the form of proxy shall be deemed to be the date of its execution. (c) A proxy which states that it is irrevocable for the period specified therein shall be subject to the provisions of subdivisions (e) and (f) of Section 705 of the Corporations Code of the State of California. Section 11. Inspectors of Election. ---------------------- (a) In advance of any meeting of the shareholders, the Board of Directors may appoint either one or three persons (other than nominees for the office of director) as inspectors of 4 election to act at such meeting or any adjournments thereof. If inspectors of election are not so appointed, or if any person so appointed fails to appear or refuses to act, the chairman of any such meeting may, and on the request of any shareholder or his proxy shall, appoint inspectors of election (or persons to replace those who so fail or refuse to act) at the meeting. If appointed at a meeting on the request of one or more shareholders or the proxies thereof, the majority of shares represented in person or by proxy shall determine whether one or three inspectors are to be appointed. (b) The duties of inspectors of election and the manner of performance thereof shall be as prescribed in Section 707 of the Corporations Code of the State of California. Section 12. Action by Written Consent. ------------------------- (a) Subject to subdivisions (b) and (c) of this section, any action which may be taken at any annual or special meeting of the shareholders may be taken without a meeting, without a vote and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes which would be necessary to authorize or take such action at a meeting in which all shares entitled to vote thereon were present and voted. All such consents shall be filed with the Secretary of the Corporation and maintained with the corporate records. (b) Except for the election of a director by written consent to fill a vacancy (other than a vacancy created by removal), directors may be elected by written consent only by the unanimous written consent of all shares entitled to vote for the election of directors. In the case of an election of a director by written consent to fill a vacancy (other than a vacancy created by removal), any such election requires the consent of a majority of the outstanding shares entitled to vote. (c) Unless the consents of all shareholders entitled to vote have been solicited in writing, notice of any shareholder approval without a meeting by less than unanimous written consent shall be given as provided in subdivision (b) of Section 603 of the Corporations Code of the state of California. (d) Any shareholder giving a written consent, or his proxy holders, or a personal representative of the shareholder or their respective proxy holders, may revoke the consent by a writing received by the Corporation prior to the time that written consents of the number of shares required to authorized the proposed action have been filed with the Secretary of the Corporation, but may not do so thereafter. Such revocation is effective upon its receipt by the Secretary of the Corporation. ARTICLE IV DIRECTORS --------- Section 1. Number of Directors. ------------------- (a) The authorized number of directors shall be no less than nine (9) nor more than seventeen (17). The exact number of directors shall be fixed and may be changed from time to time by a resolution adopted by the Board of Directors. (b) The exact number of directors shall be seventeen (17) until changed as provided in subdivision (a) of this section. 5 (c) The maximum or minimum authorized number of directors may only be changed by an amendment of this section approved by the vote or written consent of a majority of the outstanding shares entitled to vote; provided, however, that an amendment reducing the minimum number to a number less than 5 shall not be adopted if the votes cast against its adoption at a meeting (or the shares not consenting in the case of action by written consent) exceed 16-2/3% of such outstanding shares; and provided, further, that in no case shall the stated maximum authorized number of directors exceed two times the stated minimum number of authorized directors minus one. Section 2. Classification, Election and Term of Office. ------------------------------------------- (a) Nomination for election of directors may be made by the Board of Directors or by any holder of any outstanding class of capital stock of the Corporation entitled to vote for the election of directors. Notice of intention to make any nominations shall be made in writing and shall be delivered or mailed to the President of the Corporation not less than twenty-one (21) days nor more than sixty (60) days prior to any meeting of shareholders called for the election of directors; provided, however, that if less than twenty- one (21) days' notice is given to shareholders, such notice of intention to nominate shall be mailed or delivered to the President of the Corporation not later than the close of business on the tenth (10th) day following the day on which the notice of meeting was mailed; provided, further, that if notice of such meeting is sent by third class mail (if permitted by law), no notice of intention to make nominations shall be required. Such notification shall contain the following information to the extent known to the notifying shareholder. (1) the name and address of each proposed nominee; (2) the principal occupation of each proposed nominee; (3) the number of shares of capital stock of the Corporation owned by each proposed nominee; (4) the name and residence address of the notifying shareholder; and (5) the number of shares of capital stock of the Corporation owned by the notifying shareholder. Nominations not made in accordance herewith may, in the discretion of the Chairman of the meeting, be disregarded and upon the Chairman's instructions, the inspectors of election can disregard all votes cast for each such nominee. A copy of this paragraph shall be set forth in a notice to shareholders of any meeting at which directors are to be elected. (b) In the event that the authorized number of directors shall be fixed at nine (9) or more, the Board of Directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist of one-third of the directors or as close an approximation as possible. The initial term of office of the directors of Class I shall expire at the annual meeting to be held during fiscal year 1998, the initial term of office of the directors of Class II shall expire at the annual meeting to be held during fiscal 1999 and the initial term of office of the directors of Class III shall expire at the annual meeting to be held during fiscal year 2000. At each annual meeting, commencing with the annual meeting to be held during fiscal year 1998, each of the successors to the directors of the class whose term shall have expired at such annual meeting shall be elected for a term running until the third annual meeting next succeeding his or her election and until his or her successor shall have been duly elected and qualified. In the event that the authorized number of directors shall be fixed with at least six (6) but less than nine (9), the Board of Directors shall be divided into two classes, designated Class I and 6 Class II. Each class shall consist of one-half of the directors or as close an approximation as possible. At each annual meeting, each of the successors to the directors of the class whose term shall have expired at such annual meeting shall be elected for a term running until the second annual meeting next succeeding his or her election and until his or her successor shall have been duly elected and qualified. Notwithstanding the rule that the classes shall be as nearly equal in number of directors as possible, in the event of any change in the authorized number of directors, each director then continuing to serve as such shall nevertheless continue as a director of the class of which he or she is a member until the expiration of his or her current term, or his or her prior death, resignation or removal. At each annual election, the directors chosen to succeed those whose terms then expire shall be of the same class as the directors they succeed, unless, by reason of any intervening changes in the authorized number of directors, the Board of Directors shall designate one or more directorships whose term then expires as directorships of another class in order more nearly to achieve equality of number of directors among the classes. This section may only be amended or repealed by approval of the Board of Directors and the outstanding shares (as defined in Section 152 of the California General Corporation Law) voting as a single class, notwithstanding Section 903 of the California General Corporation Law. Section 3. Term of Office. Each director, including a director elected -------------- to fill a vacancy, shall hold office until the expiration of the term for which he is elected and until a successor has been elected. Section 4. Vacancies. --------- (a) A vacancy in the Board of Directors exists whenever any authorized position of director is not then filled by a duly elected director, whether caused by death, resignation, removal, change in the authorized number of directors or otherwise. (b) Except for a vacancy created by the removal al a director, vacancies on the Board of Directors may be filled by a majority of the directors then in office, whether or not less than a quorum, or by a sole remaining director. A vacancy created by the removal of a director shall be filled only by shareholders. (c) The shareholders may elect a director at any time to fill any vacancy not filled by the directors. Section 5. Removal. ------- (a) The Board of Directors may declare vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony. (b) Any or all of the directors may be removed without cause if such removal is approved by a majority of the outstanding shares entitled to vote; provided, however, that no director may be removed (unless the entire Board of Directors is removed) if whenever the votes cast against removal, or not consenting in writing to such removal, would be sufficient to elect such director if voted cumulatively at an election at which the same total number of votes were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of his most recent election were then being elected. (c) Any reduction of the authorized number of directors does not remove any director prior to the expiration of his term of office. 7 Section 6. Resignation. Any director may resign effective upon giving ----------- written notice to the Chairman of the Board, the President, the Secretary or the Board of Directors of the Corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective. Section 7. Fees and Compensation. Directors may be paid for their --------------------- services in such capacity a sum in such amounts, at such times and upon such conditions as may be determined from time to time by resolution of the Board of Directors, and may be reimbursed for their expenses, if any, incurred in such capacity, including (without limitation) expenses of attendance at any meeting of the Board. No such payments shall preclude any director from serving the Corporation in any other capacity and receiving compensation in any manner therefor. ARTICLE V COMMITTEES OF THE BOARD OF DIRECTORS ------------------------------------ Section 1. Designation of Committees. The Board of Directors may, by ------------------------- resolution adopted by a majority of the authorized number of directors, designate (1) one or more committees, each consisting of two or more directors and (2) one or more directors as alternate members of any committee, who may replace any absent member at any meeting thereof. Any member or alternate member of a committee shall serve at the pleasure of the Board. Section 2. Powers of Committees. Any committee, to the extent provided -------------------- in the resolution of the Board of Directors designating such committee, shall have all the authority of the Board, except with respect to: (a) The approval of any action for which the General Corporation Law of the State of California also requires any action by the shareholders; (b) The filling of vacancies on the Board or in any committee thereof; (c) The fixing of compensation of the directors for serving on the Board or on any committee thereof; (d) The amendment or repeal of these Bylaws or the adoption of new bylaws; (e) The amendment or repeal of any resolution of the Board which by its express terms is not so amenable or resealable; (f) A distribution to the shareholders of the Corporation, except at a rate or in a periodic amount or within a price range determined by the Board of Directors; or (g) The designation of other committees of the Board or the appointment of members or alternate members thereof. ARTICLE VI MEETINGS OF THE BOARD OF DIRECTORS ---------------------------------- AND COMMITTEES THEREOF ---------------------- Section 1. Place of Meetings. Regular meetings of the Board of ----------------- Directors shall be held at any place within or without the State of California, which has been designated from time to time by the Board 8 or, in the absence of such designation, at the principal executive office of the Corporation. Special meetings of the Board shall be held either at any place within or without the State of California which has been designated in the notice of the meeting or, if not stated in the notice or if there is no notice, at the principal executive office of the Corporation. Section 2. Organization Meeting. Immediately following each annual -------------------- meeting of the shareholders the Board of Directors shall hold a regular meeting for the purpose of organization and the transaction of other business. Notice of any such meeting is not required. Section 3. Other Regular Meetings. Other regular meetings of the Board ---------------------- of Directors shall be held without call at such time as shall be designated from time to time by the Board. Notice of any such meeting is not required. Section 4. Special Meetings. Special meetings of the Board of Directors ---------------- may be called at any time for any purpose or purposes by the Chairman of the Board or the President or any vice president or the Secretary or any two directors. Notice shall be given of any special meeting of the Board. Section 5. Notice of Special Meetings. -------------------------- (a) Notice of the time and place of special meetings of the Board of Directors shall be delivered personally or by telephone to each director or sent to each director by first-class mail or telegraph, charges prepaid. Such notice shall be given four days prior to the holding of the special meeting if sent by mail or 48 hours prior to the holding thereof if delivered personally or given by telephone or telegraph. The notice or report shall be deemed to have been given at the time when delivered personally to the recipient or deposited in the mail or sent by other means of written communication. (b) Notice of any special meeting of the Board of Directors need not specify the purpose thereof and need not be given to any director who signs a waiver of notice, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to him. Section 6. Validation of Defectively Held Meetings. The transactions of --------------------------------------- any meeting of the Board of Directors, however called and noticed or wherever held, are as valid as though had at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, a consent to holding the meeting or an approval of the minutes thereof. Such waivers, consents and approvals (1) need not specify the purpose of any meeting of the Board of Directors and (2) shall be filed with the corporate records or made a part of the minutes of the meeting. Section 7. Quorum; Action at Meetings; Telephone Meetings. ---------------------------------------------- (a) A majority of the authorized number of directors shall constitute a quorum for the transaction of business. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present is the act of the Board of Directors, unless action by a greater proportion of the directors is required by law or the Articles of Incorporation. (b) A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for such meeting. (c) Members of the Board of Directors may participate in a meeting through use of conference telephone or similar communications equipment so long as all members participating in such meeting can hear one another. 9 Section 8. Adjournment. A majority of the directors present, whether ----------- or not a quorum is present, may adjourn any meeting to another time and place. If the meeting is adjourned for more than 24 hours, notice of any adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors who were not present at the time of the adjournment. Section 9. Action Without a Meeting. Any action required or permitted ------------------------ to be taken by the Board of Directors may be taken without a meeting, if all members of the Board individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board. Such action by written consent shall have the same force and effort as a unanimous vote of such directors. Section 10. Meetings of and Action by Committees. The provisions of ------------------------------------ this Article apply to committees of the Board of Directors and action by such committees with such changes in the language of those provisions as are necessary to substitute the committee and its members for the Board and its members. ARTICLE VII OFFICERS -------- Section 1. Officers. The Corporation shall have as officers, a -------- President, a Secretary and a Treasurer. The Treasurer is the chief financial officer of the Corporation unless the Board of Directors has by resolution designated a vice president or other officer to be the chief financial officer. The Corporation may also have at the discretion of the Board, a Chairman of the Board, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article. One person may hold two or more offices. Section 2. Election of Officers. The officers of the Corporation, -------------------- except such officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article, shall be chosen by the Board of Directors. Section 3. Subordinate Officers, Etc. The Board of Directors may ------------------------- appoint by resolution, and may empower the Chairman of the Board, if there be such an officer, or the President, to appoint such other officers as the business of the Corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are determined from time to time by resolution of the Board or, in the absence of any such determination, as are provided in these Bylaws. Any appointment of an officer shall be evidence by a written instrument filed with the Secretary of the Corporation and maintained with the corporate records. Section 4. Removal and Resignation. ----------------------- (a) Any officer may be removed, either with or without cause, by the Board of Directors or, except in case of any officer chosen by the Board, by any officer upon whom such power of removal may be conferred by resolution of the Board. (b) Any officer may resign at any time effective upon giving written notice to the Chairman of the Board, President, any vice president or Secretary of the Corporation, unless the notice specifies a later time for the effectiveness of such resignation. Section 5. Vacancies. A vacancy in any office because of death, --------- resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these Bylaws for regular appointments to such office. 10 Section 6. Chairman of the Board. If there is a Chairman of the Board, --------------------- he shall, if present, preside at all meetings of the Board of Directors, exercise and perform such other powers and duties as may be from time to time assigned to him by resolution of the Board and, if there is no President, the Chairman of the Board shall be the chief executive officer of the Corporation and have the power and duties set forth in Section 7 of this Article. Section 7. President. Subject to such supervisory powers, if any, as --------- may be given by the Board of Directors to the Chairman of the Board, if there be such an officer, the President shall be the chief executive officer and general manager of the Corporation and shall, subject to the control of the Board, have general supervision, direction and control of the business and affairs of the Corporation. He shall preside at all meetings of the shareholders and, in the absence of the Chairman of the Board, or if there be none, at all meetings of the Board. He shall have the general powers and duties of management usually vested in the office of president of a corporation, and shall have such other powers and duties as may be prescribed from time to time by resolution of the Board. Section 8. Vice President. In the absence or disability of the -------------- President, the vice presidents in order of their rank as fixed by the Board of Directors or, if not ranked, the Vice President designated by the Board, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board or as the President may from time to time delegate. Section 9. Secretary. --------- (a) The Secretary shall keep or cause to be kept (1) the minute book, (2) the share register and (3) the seal, if any, of the Corporation. (b) The Secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the Board of Directors required by these Bylaws or by law to be given, and shall have such other powers and perform such other duties as may be prescribed from time to time by the Board. Section 10. Treasurer. --------- (a) The Treasurer shall keep, or cause to be kept, the books and records of account of the Corporation. (b) The Treasurer shall deposit all monies and other valuables in the name and to the credit of the Corporation with such depositories as may be designated from time to time by resolution of the Board of Directors. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, shall render to the President and the Board, whenever they request it, an account of all of his transactions as Treasurer and of the financial condition of the Corporation, and shall have such other powers and perform such other duties as may be prescribed from time to time by the Board or as the President may from time to time delegate. ARTICLE VIII RECORDS AND REPORTS ------------------- Section 1. Minute Book - Maintenance and Inspection. The Corporation ---------------------------------------- shall keep or cause to be kept in written form at its principal executive office or such other place as the Board of Directors may order, a minute book which shall contain a record of all actions by its shareholders, Board or committees 11 of the Board including the time, date and place of each meeting; whether a meeting is regular or special and, if special, how called; the manner of giving notice of each meeting and a copy thereof; the names of those present at each meeting of the Board or committees thereof; the number of shares present or represented at each meeting of the shareholders; the proceedings of all meetings; any written waivers of notice, consents to the holding of a meeting or approvals of the minutes thereof; and written consents for action without a meeting. Section 2. Share Resister - Maintenance and Inspection. The Corporation ------------------------------------------- shall keep or cause to be kept at its principal executive office or, if so provided by resolution of the Board of Directors, at the Corporation's transfer agent or registrar, a share register, or a duplicate share register, which shall contain the names of the shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same and the number and date of cancellation of every certificate surrendered for cancellation. Section 3. Books and Records of Account - Maintenance and Inspection. --------------------------------------------------------- The Corporation shall keep or cause to be kept at its principal executive office or such other place as the Board of Directors may order, adequate and correct books and records of account. Section 4. Bylaws - Maintenance and Inspection. The Corporation shall ----------------------------------- keep at its principal executive office or, in the absence of such office in the State of California, at its principal business office in that state, the original or a copy of the Bylaws as amended to date. Section 5. Annual Report to Shareholders. The annual report to the ----------------------------- shareholders described in Section 1501 of the Corporations Code of the State of California is expressly dispensed with, but nothing herein shall be interpreted as prohibiting the Board of Directors from issuing annual or other periodic reports to the shareholders of the Corporation as they see fit. ARTICLE IX MISCELLANEOUS Section 1. Checks, Drafts, Etc. All checks, drafts or other orders for ------------------- payment of money, notes or other evidences of indebtedness, and any assignment or endorsement thereof, issued in the name of or payable to the Corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board of Directors. Section 2. Contracts, Etc. - How Executed. The Board of Directors, --------------- except as otherwise provided in these Bylaws, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances; and, unless so authorized or ratified by the Board, no officer, employee or other agent shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or to any amount. Section 3. Certificates of Stock. All certificates shall be signed in --------------------- the name of the Corporation by the Chairman of the Board or the President or a vice president and by the Treasurer or an assistant treasurer or the Secretary or an assistant secretary, certifying the number of shares and the class or series thereof owned by the shareholder. Any or all of the signatures on a certificate may be by facsimile signature. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. Section 4. Lost Certificates. Except as provided in this section, no ----------------- new certificate for shares shall be issued in lieu of an old certificate unless the latter is surrendered to the Corporation and canceled 12 at the same time. The Board of Directors may in case any share certificate or certificate for any other security is lost, stolen or destroyed, authorize the issuance of a new certificate in lieu thereof, upon such terms and conditions as the Board may require, including provision for indemnification of the Corporation secured by a bond or other adequate security sufficient to protect the Corporation against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of such certificate or the issuance of such new certificate. Section 5. Representation of Shares of Other Corporations. Any person ---------------------------------------------- designated by resolution of the Board of Directors or, in the absence of such designation, the Chairman of the Board, the President or any vice president or the Secretary, or any other person authorized by any of the foregoing, is authorized to vote on behalf of the Corporation any and all shares of any other corporation or corporations, foreign or domestic, owned by the Corporation. Section 6. Construction and Definitions. Unless the context otherwise ---------------------------- requires, the general provisions, rules of construction and definitions contained in the Corporations Code of the State of California shall govern the construction of these Bylaws. Section 7. Indemnification of Corporate Agents; Purchase of Liability ---------------------------------------------------------- Insurance. - --------- (a) The Corporation shall, to the maximum extent permitted by the General Corporation Law of the State of California, and as the same may from time to time be amended, indemnify each of its agents against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding to which such person was or is a party or is threatened to be made a party arising by reason of the fact that such person is or was an agent of the Corporation. For purposes of this Section 7, an "agent" of the Corporation includes any person who is or was a director, officer, employee or other agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or was a director, officer, employee or agent of a foreign or domestic corporation which was a predecessor corporation of the Corporation or of another enterprise at the request of such predecessor corporation; "proceeding" means any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative, and includes an action or proceeding by or in the right of the Corporation to procure a judgment in its favor; and "expenses" includes attorneys' fees and any expenses of establishing a right to indemnification under this subdivision (a). (b) The Corporation shall, if and to the extent the Board of Directors so determines by resolution, purchase and maintain insurance in an amount and on behalf of such agents of the Corporation as the Board may specify in such resolution against any liability asserted against or incurred by the agent in such capacity or arising out of the agent's status as such whether or not the Corporation would have the capacity to indemnify the agent against such liability under the provisions of this Section. ARTICLE X AMENDMENTS ---------- Section 1. Amendments. New bylaws may be adopted or these Bylaws may be amended or repealed by the affirmative vote of a majority of the outstanding shares entitled to vote. Subject to the next preceding sentence, bylaws (other than a bylaw or amendment thereof specifying or changing a fixed number of directors or the maximum or minimum number, or changing from a fixed to a variable board or vice versa) may be adopted, amended or repealed by the Board of Directors. 13 GREATER BAY BANCORP CERTIFICATION The undersigned hereby certifies that she is the duly elected and acting Secretary of Greater Bay Bancorp, a California Corporation, that the foregoing is a true, correct and complete copy of Restated Bylaws of Greater Bay Bancorp duly adopted at the regular meeting of the Board of Directors of Greater Bay Bancorp, duly called and held January 23, 2001, at which a quorum was present and acting throughout, which Bylaws are in full force and effect on and as of the date hereof, not having been amended, altered or repealed. IN WITNESS WHEREOF, the undersigned has executed this Certificate this 23/rd/ day of January 2001. /s/ Linda M. Iannone --------------------------- Secretary EX-4.28 4 0004.txt CAPITAL SECURITIES GUARANTEE AGREEMENT Exhibit 4.28 =============================================== SERIES B CAPITAL SECURITIES GUARANTEE AGREEMENT GREATER BAY BANCORP Dated as of November 20,2000 =============================================== TABLE OF CONTENTS -----------------
Page ---- Article I DEFINITIONS AND INTERPRETATION................................................................. 2 SECTION 1.1 Definitions and Interpretation................................................................. 2 Article II TRUST INDENTURE ACT............................................................................ 6 SECTION 2.1 Trust Indenture Act; Application............................................................... 6 SECTION 2.2 Lists of Holders of Securities................................................................. 6 SECTION 2.3 Reports by the Capital Securities Guarantee Trustee............................................ 6 SECTION 2.4 Periodic Reports............................................................................... 6 SECTION 2.5 Evidence of Compliance with Conditions Precedent............................................... 7 SECTION 2.6 Waiver of Events of Default.................................................................... 7 SECTION 2.7 Notice of Events of Default.................................................................... 7 SECTION 2.8 Conflicting Interests.......................................................................... 8 Article III POWERS, DUTIES AND RIGHTS OF CAPITAL SECURITIES GUARANTEE TRUSTEE.............................. 8 SECTION 3.1 Powers and Duties of the Capital Securities Guarantee Trustee.................................. 8 SECTION 3.2 Certain Rights of Capital Securities Guarantee Trustee......................................... 10 SECTION 3.3 Not Responsible for Recitals or Issuance of Series B Capital Securities Guarantee.............. 12 Article IV CAPITAL SECURITIES GUARANTEE TRUSTEE........................................................... 12 SECTION 4.1 Capital Securities Guarantee Trustee; Eligibility.............................................. 12 SECTION 4.2 Appointment, Removal and Resignation of Capital Securities Guarantee Trustee................... 12 Article V GUARANTEE...................................................................................... 13 SECTION 5.1 Guarantee...................................................................................... 13 SECTION 5.2 Waiver of Notice and Demand.................................................................... 14 SECTION 5.3 Obligations Not Affected....................................................................... 14 SECTION 5.4 Rights of Holders.............................................................................. 15 SECTION 5.5 Guarantee of Payment........................................................................... 15 SECTION 5.6 Subrogation.................................................................................... 15 SECTION 5.7 Independent Obligations........................................................................ 15 Article VI LIMITATION OF TRANSACTIONS; SUBORDINATION...................................................... 16 SECTION 6.1 Limitation of Transactions..................................................................... 16
i TABLE OF CONTENTS (continued) -----------------
Page ---- SECTION 6.2 Ranking....................................................................................... 16 Article VII TERMINATION................................................................................... 17 SECTION 7.1 Termination................................................................................... 17 Article VIII INDEMNIFICATION............................................................................... 17 SECTION 8.1 Exculpation................................................................................... 17 SECTION 8.2 Compensation and Indemnification.............................................................. 17 Article IX MISCELLANEOUS................................................................................. 18 SECTION 9.1 Successors and Assigns........................................................................ 18 SECTION 9.2 Amendments.................................................................................... 18 SECTION 9.3 Notices....................................................................................... 18 SECTION 9.4 Benefit....................................................................................... 20 SECTION 9.5 Governing Law................................................................................. 20
ii CROSS REFERENCE TABLE
Section of Trust Section of Guarantee Indenture Act of Agreement 1939, as amended --------- ---------------- 310(a) ............................................................. 4.1(a) 310(b) ............................................................. 2.8, 4.1(c) 310(c) ............................................................. N/A 311(a) ............................................................. 2.2(b) 311(b) ............................................................. 2.2(b) 311(c) ............................................................. N/A 312(a) ............................................................. 2.2(a) 312(b) ............................................................. 2.2(b) 312(c) ............................................................. N/A 313 ............................................................. 2.3 314(a) ............................................................. 2.4 314(b) ............................................................. N/A 314(c) ............................................................. 2.5 314(d) ............................................................. N/A 314(e) ............................................................. 1.1, 2.5, 3.2 314(f) ............................................................. 2.1, 3.2 315(a) ............................................................. 3.1(d), 3.2(a) 315(b) ............................................................. 2.7 315(c) ............................................................. 3.1(c) 315(d) ............................................................. 3.1(d), 3.2(a), 8.1 315(e) ............................................................. N/A 316(a) ............................................................. 1.1, 2.6, 5.4 316(b) ............................................................. 5.3, 5.4 316(c) ............................................................. 9.2 317(a) ............................................................. N/A 317(b) ............................................................. N/A 318(a) ............................................................. 2.1(a) 318(b) ............................................................. 2.1(b) 318(c) ............................................................. 2.1(b)
_________________________ * This Cross-Reference Table does not constitute part of this Guarantee Agreement and shall not affect the interpretation of any of its terms or provisions. iii SERIES B CAPITAL SECURITIES GUARANTEE AGREEMENT This SERIES B CAPITAL SECURITIES GUARANTEE AGREEMENT (the "Series B Capital Securities Guarantee"), dated as of November 20, 2000 is executed and delivered by GREATER BAY BANCORP, a California corporation (the "Guarantor"), and WILMINGTON TRUST COMPANY, a Delaware banking corporation, as trustee (the "Capital Securities Guarantee Trustee" or "Trustee"), for the benefit of the Holders (as defined herein) from time to time of the Series B Capital Securities (as defined herein) of GBB CAPITAL IV, a Delaware statutory business trust (the "Issuer"). WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the "Declaration"), dated as of May 19, 2000, by and among the trustees of the Issuer named therein, the Guarantor, as sponsor, and the Holders from time to time of undivided beneficial interests in the assets of the Issuer, the Issuer (i) issued on May 19, 2000 41,000 capital securities, having an aggregate liquidation amount of $41,000,000, such capital securities being designated the 10.75% Capital Securities, Series A (collectively the "Series A Capital Securities") and (ii) in connection with an Exchange Offer (as defined in the Declaration), hereby executes and delivers the Series B Capital Securities Guarantee (as defined in the Declaration) for the benefit of Holders of the Series B Capital Securities (as defined in the Declaration). WHEREAS, the Series A Capital Securities issued by the Issuer and proceeds thereof, together with proceeds from the issuance of the Issuers Common Securities (as defined herein) were used to purchase the Junior Subordinated Debentures due June 1, 2030 (the "Series A Junior Subordinated Debentures") of the Guarantor which were deposited with the Trustee as Property Trustee under the Declaration, as trust assets; WHEREAS, as incentive for the Holders to purchase the Series A Capital Securities, the Guarantor irrevocably and unconditionally agreed, to the extent set forth in the Series A Capital Securities Guarantee dated as of May 19, 2000, to pay the Holders of the Series A Capital Securities the Guarantee Payments (as defined therein) and to make certain other payments on the terms and conditions set forth therein. WHEREAS, in connection with the offer of the Series A Capital Securities, the Guarantor, the Issuer and Sandler O'Neill & Partners, L.P., as representative of the initial purchasers named therein, executed the Registration Rights Agreement dated May 16, 2000 (the "Registration Rights Agreement"); WHEREAS, the Issuer, in order to satisfy its obligations under the Registration Rights Agreement, has offered up to $41,000,000 aggregate Liquidation Amount of its 10.75% Capital Securities, Series B, which have been registered under the Securities Act of 1933, as amended, pursuant to a registration statement in exchange for a like Liquidation Amount of Series A Capital Securities; WHEREAS, pursuant to the Exchange Offer, the Guarantor is also exchanging up to $41,000,000 aggregate principal amount of the Series A Junior Subordinated Debentures for up to $41,000,000 aggregate principal of the Series B Junior Subordinated Debentures due June 1, 2030 (the "Series B Junior Subordinated Debentures") of the Guarantor; 1 WHEREAS, pursuant to the Exchange Offer, the Guarantor is required to execute this Series B Capital Securities Guarantee and exchange the Series A Capital Securities Guarantee for this Series B Capital Securities Guarantee Agreement; and WHEREAS, the Guarantor also executed and delivered the Common Securities Guarantee Agreement, dated as of May 19, 2000 (the "Common Securities Guarantee"), for the benefit of the holders of the Common Securities (as defined herein), the terms of which provide that if an Event of Default (as defined in the Declaration) has occurred and is continuing, the rights of holders of the Common Securities to receive Guarantee Payments under the Common Securities Guarantee are subordinated, to the extent and in the manner set forth in the Common Securities Guarantee, to the rights of Holders of Series A Capital Securities and the Series B Capital Securities to receive Guarantee Payments under the Series A Capital Securities Guarantee and this Series B Capital Securities Guarantee, as the case may be. NOW, THEREFORE, in consideration of the exchange by each Holder of the Series A Capital Securities for the Series B Capital Securities, which exchange the Guarantor hereby acknowledges shall benefit the Guarantor, (or in the event certain Holders do not exchange their Series A Capital Securities, in order to fulfill its obligations to such Holders under the Series A Capital Securities Guarantee) and intending to be legally bound hereby, the Guarantor executes and delivers this Series B Capital Securities Guarantee Agreement for the benefit of the Holders from time to time of the Trust Securities (as defined herein). ARTICLE I DEFINITIONS AND INTERPRETATION SECTION 1.1 Definitions and Interpretation ------------------------------ In this Series B Capital Securities Guarantee, unless the context otherwise requires: (a) capitalized terms used in this Series B Capital Securities Guarantee but not defined in the preamble above have the respective meanings assigned to them in this Section 1.1; (b) terms defined in the Declaration as in effect at the date of execution of this Series B Capital Securities Guarantee have the same meaning when used in this Series B Capital Securities Guarantee unless otherwise defined in this Series B Capital Securities Guarantee; (c) a term defined anywhere in this Series B Capital Securities Guarantee has the same meaning throughout; (d) all references to "the Series B Capital Securities Guarantee" or "this Series B Capital Securities Guarantee" are references to this Series B Capital Securities Guarantee as modified, supplemented or amended from time to time; (e) all references in this Series B Capital Securities Guarantee to Articles and Sections are references to Articles and Sections of this Series B Capital Securities Guarantee, unless otherwise specified; 2 (f) a term defined in the Trust Indenture Act has the same meaning when used in this Series B Capital Securities Guarantee, unless otherwise defined in this Series B Capital Securities Guarantee or unless the context otherwise requires; and (g) a reference to the singular includes the plural and vice versa. "Affiliate" has the same meaning as given to that term in Rule 405 under --------- the Securities Act of 1933, as amended, or any successor rule thereunder. "Business Day" shall mean any day other than a Saturday, a Sunday, or a day ------------ on which banking institutions in Wilmington, Delaware, San Francisco, California or New York, New York are authorized or required by law or executive order to remain closed. "Capital Securities Guarantee Trustee" shall mean Wilmington Trust Company, ------------------------------------ as Trustee under the Series B Capital Securities Guarantee, until a Successor Capital Securities Guarantee Trustee has been appointed and has accepted such appointment pursuant to the terms of this Series B Capital Securities Guarantee and thereafter means each such Successor Capital Securities Guarantee Trustee. "Common Securities" shall mean the securities representing common undivided ----------------- beneficial interests in the assets of the Issuer. "Corporate Trust Office" shall mean the office of the Capital Securities ---------------------- Guarantee Trustee at which the corporate trust business of the Capital Securities Guarantee Trustee shall, at any particular time, be principally administered, which office at the date of execution of this Agreement is located at Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890- 0001, Attention: Corporate Trust Administration. "Covered Person" shall mean any Holder or beneficial owner of Series B -------------- Capital Securities. "Debentures" shall mean the series of subordinated debt securities of the ---------- Guarantor designated the 10.75% Junior Subordinated Deferrable Interest Debentures due June 1, 2030, Series B, held by the Property Trustee (as defined in the Declaration) of the Issuer. "Event of Default" shall mean a default by the Guarantor on any of its ---------------- payment or other obligations under this Series B Capital Securities Guarantee; provided, however, that, except with respect to default in respect of any - -------- ------- Guarantee Payment, no default by the Guarantor hereunder shall constitute an Event of Default unless the Guarantor shall have received written notice of the default and shall not have cured such default within 60 days after receipt thereof. "Guarantee Payments" shall mean the following payments or distributions, ------------------ without duplication, with respect to the Series B Capital Securities, to the extent not paid or made by or on behalf of the Issuer: (i) any accumulated and unpaid Distributions (as defined in the Declaration) that are required to be paid on such Series B Capital Securities, to the extent the Issuer has funds legally available therefor at such time, (ii) the redemption price, including all accumulated and unpaid Distributions to the date of redemption (the "Redemption Price"), to the extent the Issuer has funds legally available therefor at such time, with respect to any Series B 3 Capital Securities called for redemption, and (iii) upon a voluntary or involuntary dissolution, winding up or liquidation of the Issuer (other than in connection with the distribution of Debentures to the Holders in exchange for Series B Capital Securities or in connection with the redemption of the Series B Capital Securities, in each case as provided in the Declaration), the lesser of (a) the aggregate of the liquidation amount and all accumulated and unpaid Distributions on the Series B Capital Securities to the date of payment, to the extent the Issuer has funds legally available therefor at such time, and (b) the amount of assets of the Issuer remaining available for distribution to Holders after satisfaction of liabilities to creditors of the Issuer as required by applicable law (in either case, the "Liquidation Distribution"). If an Event of Default has occurred and is continuing, no Guarantee Payments under the Common Securities Guarantee with respect to the Common Securities or any guarantee payment under the Common Securities Guarantee or any Other Common Securities Guarantee shall be made until the Holders of the Series B Capital Securities shall be paid in full the Guarantee Payments to which they are entitled under this Series B Capital Securities Guarantee. "Holder" shall mean any holder, as registered on the books and records of ------ the Issuer, of any Series B Capital Securities; provided, however, that, in -------- ------- determining whether the holders of the requisite percentage of Series B Capital Securities have given any request, notice, consent or waiver hereunder, "Holder" shall not include the Guarantor or any Person actually known to a Responsible Officer of the Capital Securities Guarantee Trustee to be an Affiliate of the Guarantor. "Indemnified Person" shall mean the Capital Securities Guarantee Trustee ------------------ (including in its individual capacity), any Affiliate of the Capital Securities Guarantee Trustee, or any officers, directors, shareholders, members, partners, employees, representatives, nominees, custodians or agents of the Capital Securities Guarantee Trustee. "Indenture" shall mean the Indenture, dated as of May 19, 2000, between --------- Greater Bay Bancorp, as issuer of Debentures (the "Debenture Issuer"), and Wilmington Trust Company, as trustee, pursuant to which the Debentures are to be issued to the Property Trustee of the Issuer. "Majority in Liquidation Amount of the Series B Capital Securities" shall ----------------------------------------------------------------- mean, except as provided by the Trust Indenture Act, a vote by Holder(s) of the Series B Capital Securities, voting separately as a class, of more than 50% of the aggregate liquidation amount (including the amount that would be paid on redemption, liquidation or otherwise, plus accumulated and unpaid Distributions to but excluding the date upon which the voting percentages are determined) of all outstanding Series B Capital Securities, excluding Series B Capital Securities held by the Guarantor, the Issuer or any Affiliate thereof. "Officers' Certificate" shall mean, with respect to any Person, a --------------------- certificate signed by the Chairman, the Chief Executive Officer, the President, an Executive or Senior Vice President, a Vice President, the Chief Financial Officer and the Secretary or an Assistant Secretary. Any Officers' Certificate delivered with respect to compliance with a condition or covenant provided for in this Series B Capital Securities Guarantee shall include: (a) a statement that each officer signing the Officers' Certificate has read the covenants or conditions and the definitions relating thereto; 4 (b) 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 (c) a statement as to whether or not, in the opinion of each such officer, such condition or covenant has been complied with. "Other Common Securities Guarantees" shall have the same meaning as "Other ---------------------------------- Guarantees" in the Common Securities Guarantee. "Other Debentures" shall mean all junior subordinated debentures, other ---------------- than the Debentures and the Series B Debentures (as defined in the Indenture), issued by the Guarantor, from time to time and sold to trusts other than the Issuer to be established by the Guarantor (if any), in each case similar to the Issuer. "Other Guarantees" shall mean all guarantees, other than this Series B ---------------- Capital Securities Guarantee and the Series B Capital Securities Guarantee, to be issued by the Guarantor with respect to capital securities (if any) similar to the Series B Capital Securities, issued by trusts other than the Issuer to be established by the Guarantor (if any), in each case similar to the Issuer. "Person" shall mean 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. "Registration Rights Agreement" shall mean the Registration Rights ----------------------------- Agreement, dated as of May 16, 2000, by and among the Guarantor, the Issuer and the Initial Purchasers named therein, as such agreement may be amended, modified or supplemented from time to time. "Responsible Officer" shall mean, with respect to a Person, any officer ------------------- with direct responsibility for the administration of any matters relating to this Series B Capital Securities Guarantee. "Successor Capital Securities Guarantee Trustee" shall mean a successor ---------------------------------------------- Capital Securities Guarantee Trustee possessing the qualifications to act as Capital Securities Guarantee Trustee under Section 4.1. "Trust Indenture Act" shall mean the Trust Indenture Act of 1939, as ------------------- amended. "Trust Securities" shall mean the Common Securities and the Series A ---------------- Capital Securities and Series B Capital Securities, collectively. 5 ARTICLE II TRUST INDENTURE ACT SECTION 2.1 Trust Indenture Act; Application -------------------------------- (a) This Series B Capital Securities Guarantee is subject to the provisions of the Trust Indenture Act that are required to be part of this Series B Capital Securities Guarantee and shall, to the extent applicable, be governed by such provisions. (b) If and to the extent that any provision of this Series B Capital Securities Guarantee limits, qualifies or conflicts with the duties imposed by Section 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control. If any provision of this Series B Capital Securities Guarantee modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the modified or excluded provision of the Trust Indenture Act shall be deemed to apply to this Series B Capital Securities Guarantee as so modified or excluded, as the case may be. SECTION 2.2 Lists of Holders of Securities ------------------------------ (a) The Guarantor shall provide the Capital Securities Guarantee Trustee (unless the Capital Securities Guarantee Trustee is otherwise the registrar of the Series B Capital Securities) with a list, in such form as the Capital Securities Guarantee Trustee may reasonably require, of the names and addresses of the Holders of the Series B Capital Securities ("List of Holders") as of such date, (i) within fourteen (14) days after each record date for payment of Distributions (as defined in the Declaration), and (ii) at any other time within 30 days of receipt by the Guarantor of a written request for a List of Holders as of a date no more than 14 days before such List of Holders is given to the Capital Securities Guarantee Trustee; provided, however, that the Guarantor -------- ------- shall not be obligated to provide such List of Holders at any time the List of Holders does not differ from the most recent List of Holders given to the Capital Securities Guarantee Trustee by the Guarantor. The Capital Securities Guarantee Trustee may destroy any List of Holders previously given to it upon receipt of a new List of Holders. (b) The Capital Securities Guarantee Trustee shall comply with its obligations under Sections 31l(a), 31l(b) and Section 312(b) of the Trust Indenture Act. SECTION 2.3 Reports by the Capital Securities Guarantee Trustee --------------------------------------------------- By July 31 of each year, commencing July 31, 2001, the Capital Securities Guarantee Trustee shall provide to the Holders of the Series B Capital Securities 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 Capital Securities Guarantee Trustee shall also comply with the requirements of Section 313(d) of the Trust Indenture Act. SECTION 2.4 Periodic Reports ---------------- The Guarantor shall provide to the Capital Securities Guarantee Trustee such documents, reports and information as are required by Section 314 (if any) and the compliance certificate 6 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. Delivery of such reports, information and documents to the Capital Securities Guarantee Trustee is for informational purposes only and the Capital Securities Guarantee Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Guarantor's compliance with any of its covenants hereunder (as to which the Capital Securities Guarantee Trustee is entitled to rely exclusively on Officers' Certificates). SECTION 2.5 Evidence of Compliance with Conditions Precedent ------------------------------------------------ The Guarantor shall provide to the Capital Securities Guarantee Trustee such evidence of compliance with the conditions precedent, if any, provided for in this Series B Capital Securities Guarantee 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 Waiver of Events of Default --------------------------- The Holders of a Majority in Liquidation Amount of the Series B Capital Securities may, by vote, on behalf of the Holders of all of the Series B Capital Securities, 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 Series B Capital Securities Guarantee, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. SECTION 2.7 Notice of Events of Default --------------------------- (a) The Capital Securities Guarantee Trustee shall, within 10 Business Days after the occurrence of an Event of Default with respect to this Series B Capital Securities Guarantee actually known to a Responsible Officer of the Capital Securities Guarantee Trustee, transmit by mail, first class postage prepaid, to all Holders of the Series B Capital Securities, notices of all such Events of Default, unless such Events of Default have been cured before the giving of such notice; provided, however, that, except in the case of an Event -------- ------- of Default arising from the non-payment of any Guarantee Payment, the Capital Securities Guarantee Trustee shall be protected in withholding such notice if and so long as a Responsible Officer of the Capital Securities Guarantee Trustee in good faith determines that the withholding of such notice is in the interests of the Holders of the Series B Capital Securities. (b) The Capital Securities Guarantee Trustee shall not be deemed to have knowledge of any Event of Default unless the Capital Securities Guarantee Trustee shall have received written notice, or a Responsible Officer of the Capital Securities Guarantee Trustee charged with the administration of the Declaration shall have obtained actual knowledge, of such Event of Default. 7 SECTION 2.8 Conflicting Interests --------------------- The Declaration shall be deemed to be specifically described in this Series B Capital Securities Guarantee 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 CAPITAL SECURITIES GUARANTEE TRUSTEE SECTION 3.1 Powers and Duties of the Capital Securities Guarantee ----------------------------------------------------- Trustee - ------- (a) This Series B Capital Securities Guarantee shall be held by the Capital Securities Guarantee Trustee for the benefit of the Holders of the Series B Capital Securities, and the Capital Securities Guarantee Trustee shall not transfer this Series B Capital Securities Guarantee to any Person except a Holder of the Series B Capital Securities exercising his or her rights pursuant to Section 5.4(b) or to a Successor Capital Securities Guarantee Trustee on acceptance by such Successor Capital Securities Guarantee Trustee of its appointment to act as Successor Capital Securities Guarantee Trustee. The right, title and interest of the Capital Securities Guarantee Trustee shall automatically vest in any Successor Capital Securities Guarantee Trustee, and such vesting and succession of title shall be effective whether or not conveyancing documents have been executed and delivered pursuant to the appointment of such Successor Capital Securities Guarantee Trustee. (b) If an Event of Default actually known to a Responsible Officer of the Capital Securities Guarantee Trustee has occurred and is continuing, the Capital Securities Guarantee Trustee shall enforce this Series B Capital Securities Guarantee for the benefit of the Holders of the Series B Capital Securities. (c) The Capital Securities Guarantee Trustee, before the occurrence of any Event of Default (of which, other than a default in respect of any Guarantee Payment, a Responsible Officer of the Property Trustee has actual knowledge) and after the curing of all such Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Series B Capital Securities Guarantee, and no implied covenants or obligations shall be read into this Series B Capital Securities Guarantee against the Capital Securities Guarantee Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.6) and is actually known to a Responsible Officer of the Capital Securities Guarantee Trustee, the Capital Securities Guarantee Trustee shall exercise such of the rights and powers vested in it by this Series B Capital Securities Guarantee, 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 Series B Capital Securities Guarantee shall be construed to relieve the Capital Securities Guarantee Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: 8 (i) prior to the occurrence of any Event of Default (of which, other than a default in respect of any Guarantee Payment, a Responsible Officer of the Property Trustee has actual knowledge) and after the curing or waiving of all such Events of Default that may have occurred: (A) the duties and obligations of the Capital Securities Guarantee Trustee shall be determined solely by the express provisions of this Series b Capital Securities Guarantee, and the Capital Securities Guarantee Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Series b Capital Securities Guarantee, and no implied covenants or obligations shall be read into this Series b Capital Securities Guarantee against the Capital Securities Guarantee Trustee; and (B) in the absence of bad faith on the part of the Capital Securities Guarantee Trustee, the Capital Securities 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 Capital Securities Guarantee Trustee and conforming to the requirements of this Series b Capital Securities Guarantee; provided, -------- however, that in the case of any such certificates or opinions that by any ------- provision hereof are specifically required to be furnished to the Capital Securities Guarantee Trustee, the Capital Securities Guarantee Trustee shall be under a duty to examine the same to determine whether or not on their face they conform to the requirements of this Series B Capital Securities Guarantee; (ii) the Capital Securities Guarantee Trustee shall not be liable for any errors of judgment made in good faith by a Responsible Officer of the Capital Securities Guarantee Trustee, unless it shall be proved that the Capital Securities Guarantee Trustee or such Responsible Officer was negligent in ascertaining the pertinent facts upon which such judgment was made; (iii) the Capital Securities Guarantee Trustee shall not be liable with respect to any actions taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of a Majority in Liquidation Amount of the Series B Capital Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Capital Securities Guarantee Trustee, or exercising any trust or power conferred upon the Capital Securities Guarantee Trustee under this Series B Capital Securities Guarantee; and (iv) no provision of this Series B Capital Securities Guarantee shall require the Capital Securities 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 Capital Securities 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 Series B Capital Securities Guarantee or indemnity, reasonably satisfactory to the Capital Securities Guarantee Trustee, against such risk or liability is not reasonably assured to it. 9 SECTION 3.2 Certain Rights of Capital Securities Guarantee Trustee ------------------------------------------------------ (a) Subject to the provisions of Section 3.1: (i) the Capital Securities Guarantee Trustee may conclusively 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 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 Series B Capital Securities Guarantee may be sufficiently evidenced by an Officers' Certificate; (iii) whenever, in the administration of this Series B Capital Securities Guarantee, the Capital Securities Guarantee Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Capital Securities Guarantee Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and conclusively rely upon an Officers' Certificate, which, upon receipt of such request, shall be promptly delivered by the Guarantor; (iv) the Capital Securities Guarantee Trustee shall have no duty to see to any recording, filing or registration of any instrument or other document (or any rerecording, refiling or registration thereof); (v) the Capital Securities Guarantee Trustee may consult with counsel of its selection, and the advice or opinion of such counsel with respect to legal matters 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 accordance with such advice or opinion; and such counsel may be counsel to the Guarantor or any of its Affiliates and may include any of its employees; and the Capital Securities Guarantee Trustee shall have the right at any time to seek instructions concerning the administration of this Series B Capital Securities Guarantee from any court of competent jurisdiction; (vi) the Capital Securities Guarantee Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Series B Capital Securities Guarantee at the request or direction of any Holder, unless such Holder shall have provided to the Capital Securities Guarantee Trustee such security and indemnity, reasonably satisfactory to the Capital Securities Guarantee Trustee, against the costs, expenses (including attorneys' fees and expenses and the expenses of the Capital Securities Guarantee Trustee's agents, nominees or custodians) 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 Capital Securities Guarantee Trustee, provided, however, that nothing -------- ------- contained in this Section 3.2(a)(vi) shall be taken to relieve the Capital Securities Guarantee Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Series B Capital Securities Guarantee; 10 (vii) the Capital Securities Guarantee Trustee shall have no obligation 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 Capital Securities Guarantee Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit; (viii) the Capital Securities Guarantee Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, nominees, custodians or attorneys, and the Capital Securities Guarantee Trustee shall not be responsible for any misconduct or negligence on the part of any such person appointed with due care by it hereunder; (ix) any action taken by the Capital Securities Guarantee Trustee or its agents hereunder shall bind the Holders of the Series B Capital Securities, and the signature of the Capital Securities Guarantee Trustee or its agents alone shall be sufficient and effective to perform any such action; and no third party shall be required to inquire as to the authority of the Capital Securities Guarantee Trustee to so act or as to its compliance with any of the terms and provisions of this Series B Capital Securities Guarantee, both of which shall be conclusively evidenced by the Capital Securities Guarantee Trustee's or its agent's taking such action; (x) whenever in the administration of this Series B Capital Securities Guarantee the Capital Securities Guarantee Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Capital Securities Guarantee Trustee (i) may request instructions from the Holders of a Majority in Liquidation Amount of the Series B Capital Securities, (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 conclusively relying on or acting in accordance with such instructions; and (xi) the Capital Securities Guarantee Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith, without negligence, and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Series B Capital Securities Guarantee. (b) No provision of this Series B Capital Securities Guarantee shall be deemed to impose any duty or obligation on the Capital Securities 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 Capital Securities 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 Capital Securities Guarantee Trustee shall be construed to be a duty. 11 SECTION 3.3 Not Responsible for Recitals or Issuance of Series B Capital ------------------------------------------------------------ Securities Guarantee -------------------- The recitals contained in this Series B Capital Securities Guarantee shall be taken as the statements of the Guarantor, and the Capital Securities Guarantee Trustee does not assume any responsibility for their correctness. The Capital Securities Guarantee Trustee makes no representation as to the validity or sufficiency of this Series B Capital Securities Guarantee. ARTICLE IV CAPITAL SECURITIES GUARANTEE TRUSTEE SECTION 4.1 Capital Securities Guarantee Trustee; Eligibility ------------------------------------------------- (a) There shall at all times be a Capital Securities Guarantee Trustee that shall (i) not be an Affiliate of the Guarantor; and (ii) be a corporation or other Person organized and doing business under the laws of the United States of America or any state or territory thereof or of the District of Columbia, or a corporation or other Person permitted by the Securities and Exchange Commission to act as an indenture trustee under the Trust Indenture Act, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least fifty million U.S. dollars ($50,000,000), and subject to supervision or examination by federal, state, territorial or District of Columbia authority; it being understood that if such corporation or other Person publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, 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 Capital Securities Guarantee Trustee shall cease to be eligible to so act under Section 4.1(a), the Capital Securities Guarantee Trustee shall immediately resign in the manner and with the effect set out in Section 4.2(c). (c) If the Capital Securities Guarantee Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Capital Securities 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 Capital Securities ---------------------------------------------------------- Guarantee Trustee ----------------- (a) Subject to Section 4.2(b), the Capital Securities Guarantee Trustee may be appointed or removed without cause at any time by the Guarantor except during an Event of Default. 12 (b) The Capital Securities Guarantee Trustee shall not be removed in accordance with Section 4.2(a) until a Successor Capital Securities Guarantee Trustee has been appointed and has accepted such appointment by written instrument executed by such Successor Capital Securities Guarantee Trustee and delivered to the Guarantor. (c) The Capital Securities Guarantee Trustee shall hold office until a Successor Capital Securities Guarantee Trustee shall have been appointed, subject to Section 4.1, or until its removal or resignation. The Capital Securities Guarantee Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing executed by the Capital Securities Guarantee Trustee and delivered to the Guarantor, which resignation shall not take effect until a Successor Capital Securities Guarantee Trustee has been appointed, subject to Section 4.1, and has accepted such appointment by instrument in writing executed by such Successor Capital Securities Guarantee Trustee and delivered to the Guarantor and the resigning Capital Securities Guarantee Trustee. (d) If no Successor Capital Securities Guarantee Trustee shall have been appointed and accepted appointment as provided in this Section 4.2 within 60 days after delivery of an instrument of removal or resignation, the Capital Securities Guarantee Trustee resigning or being removed may petition any court of competent jurisdiction for appointment of a Successor Capital Securities Guarantee Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Successor Capital Securities Guarantee Trustee. (e) No Capital Securities Guarantee Trustee shall be liable for the acts or omissions to act of any Successor Capital Securities Guarantee Trustee. (f) Upon termination of this Series B Capital Securities Guarantee or removal or resignation of the Capital Securities Guarantee Trustee pursuant to this Section 4.2, the Guarantor shall pay to the Capital Securities Guarantee Trustee all amounts due to the Capital Securities Guarantee Trustee accrued to the date of such termination, removal or resignation. ARTICLE V GUARANTEE --------- SECTION 5.1 Guarantee --------- The Guarantor irrevocably and unconditionally agrees to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by the Issuer), as and when due, regardless of any defense, right of set-off or counterclaim that the Issuer may have or assert. The Guarantor fully, knowingly and unconditionally waives any right the Guarantor may have to revoke this Guarantee under Section 2815 of the California Civil Code or otherwise. 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 Issuer to pay such amounts to the Holders. 13 SECTION 5.2 Waiver of Notice and Demand --------------------------- The Guarantor hereby waives notice of acceptance of this Series B Capital Securities 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 Issuer 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 Series B Capital Securities Guarantee 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 Issuer of any express or implied agreement, covenant, term or condition relating to the Series B Capital Securities to be performed or observed by the Issuer; (b) the extension of time for the payment by the Issuer of all or any portion of the Distributions, Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Series B Capital Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Series B Capital 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 Series B Capital Securities, or any action on the part of the Issuer 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 Issuer or any of the assets of the Issuer; (e) any invalidity of, or defect or deficiency in, the Series B Capital 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 with respect to the Guarantee Payments shall be absolute and unconditional under any and all circumstances. There shall be no obligation of the Holders to give notice to, or obtain consent of, the Guarantor with respect to the happening of any of the foregoing. 14 SECTION 5.4 Rights of Holders ----------------- (a) The Holders of a Majority in Liquidation Amount of the Series B Capital Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Capital Securities Guarantee Trustee in respect of this Series B Capital Securities Guarantee or exercising any trust or power conferred upon the Capital Securities Guarantee Trustee under this Series B Capital Securities Guarantee. (b) If the Capital Securities Guarantee Trustee fails to enforce this Series B Capital Securities Guarantee, any Holder of the Series B Capital Securities may institute a legal proceeding directly against the Guarantor to enforce the Capital Securities Guarantee Trustee's rights under this Series B Capital Securities Guarantee, without first instituting a legal proceeding against the Issuer, the Capital Securities Guarantee Trustee or any other person or entity. The Guarantor waives any right or remedy to require that any action be brought first against the Issuer or any other person or entity before proceeding directly against the Guarantor. SECTION 5.5 Guarantee of Payment -------------------- This Series B Capital Securities Guarantee creates a guarantee of payment and not of collection. SECTION 5.6 Subrogation ----------- The Guarantor shall be subrogated to all (if any) rights of the Holders of Series B Capital Securities against the Issuer in respect of any amounts paid to such Holders by the Guarantor under this Series B Capital Securities Guarantee; provided, however, that the Guarantor shall not (except to the extent required - -------- ------- by mandatory provisions of law) be entitled to enforce or exercise any right that it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Series B Capital Securities Guarantee, if, at the time of any such payment, any amounts are due and unpaid under this Series B Capital Securities 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 Issuer with respect to the Series b Capital Securities, and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Series B Capital Securities Guarantee notwithstanding the occurrence of any event referred to in subsections (a) through (h), inclusive, of Section 5.3 hereof. 15 ARTICLE VI LIMITATION OF TRANSACTIONS; SUBORDINATION SECTION 6.1 Limitation of Transactions -------------------------- So long as any Capital Securities remain outstanding, the Guarantor shall not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Guarantor's capital stock, (ii) make any payment of principal of, or interest, if any, on or repay, repurchase or redeem any debt securities of the Guarantor (including Other Debentures) that rank pari passu with or junior in right of payment to the Debentures or (iii) make any guarantee payments with respect to any guarantee by the Guarantor of the debt securities of any subsidiary of the Guarantor (including Other Guarantees) if such guarantee ranks pari passu with or junior in right of payment to the Debentures (other than (a) dividends or distributions in shares of, or options, warrants, rights to subscribe for or purchase shares of, common stock of the Guarantor, (b) any declaration of a dividend in connection with the implementation of a shareholders' 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 this Series B Capital Securities Guarantee and the Series A Capital Securities Guarantee, (d) as a result of a reclassification of the Guarantor's capital stock or the exchange or the conversion of one class or series of the Guarantor's capital stock for another class or series of the Guarantor's capital stock, (e) the purchase of fractional interests in shares of the Guarantor's capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged, and (f) purchases of common stock related to the issuance of common stock or rights under any of the Guarantor's benefit or compensation plans for its directors, officers or employees or any of the Guarantor's dividend reinvestment plans) if at such time (l) there shall have occurred any event of which the Guarantor has actual knowledge that (A) is a Default or Event of Default (each as defined in the Indenture) and (B) in respect of which the Guarantor shall not have taken reasonable steps to cure, (2) if the Debentures are held by the Property Trustee, the Guarantor shall be in default with respect to its payment of any obligations under this Series B Capital Securities Guarantee or (3) the Guarantor shall have given notice of its election of the exercise of its right to commence an Extended Interest Payment Period as provided in the Indenture and shall not have rescinded such notice, and such Extended Interest Payment Period, or an extension thereof, shall have commenced and be continuing. SECTION 6.2 Ranking ------- This Series B Capital Securities Guarantee will constitute an unsecured obligation of the Guarantor and will rank (i) subordinate and junior in right of payment to all Allocable Amounts (as defined in the Indenture) in respect of Senior Indebtedness (as defined in the Indenture), to the same extent and in the same manner that the Debentures are subordinated to Senior Indebtedness pursuant to the Indenture, it being understood that the terms of Article XV of the Indenture shall apply to the obligations of the Guarantor under this Series B Capital Securities Guarantee as if such Article XV were set forth herein in full, (ii) pari passu with the most senior preferred or preference stock now or hereafter issued by the Guarantor and with the Series B Capital Securities Guarantee, any Other Guarantee and, except to the extent set forth therein, the Common Securities Guarantee, any Other Common Securities Guarantee, and any guarantee 16 now or hereafter entered into by the Guarantor in respect of any preferred or preference stock of any Affiliate of the Guarantor, and (iii) senior to the Guarantor's common stock. ARTICLE VII TERMINATION SECTION 7.1 Termination ----------- This Series B Capital Securities Guarantee shall terminate and be of no further force and effect upon (i) full payment of the Redemption Price of all Series B Capital Securities, (ii) dissolution, winding up or liquidation of the Issuer, immediately following the full payment of the amounts payable in accordance with the Declaration, or (iii) the distribution of all of the Debentures to the Holders of the Trust Securities. Notwithstanding the foregoing, this Series B Capital Securities Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any Holder of the Series B Capital Securities must restore payment of any sums paid under the Series B Capital Securities or under this Series B Capital Securities Guarantee. ARTICLE VIII INDEMNIFICATION SECTION 8.1 Exculpation ----------- (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Guarantor or any Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith in accordance with this Series B Capital Securities Guarantee and in a manner that such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Series B Capital Securities Guarantee or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's negligence or willful misconduct with respect to such acts or omissions. (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Guarantor and upon such information, opinions, reports or statements presented to the Guarantor by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Guarantor, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Series B Capital Securities might properly be paid. SECTION 8.2 Compensation and Indemnification -------------------------------- The Guarantor agrees to pay to the Capital Securities Guarantee Trustee such compensation for its services as shall be mutually agreed upon by the Guarantor and the Capital Securities Guarantee Trustee. The Guarantor shall reimburse the Capital Securities Guarantee 17 Trustee upon request for all reasonable out-of-pocket expenses incurred by it, including the reasonable compensation and expenses of the Capital Securities Guarantee Trustee's agents and counsel, except any expense as may be attributable to the negligence or bad faith of the Capital Securities Guarantee Trustee. The Guarantor agrees to indemnify each Indemnified Person for, and to hold each Indemnified Person harmless against, any and all loss, liability, damage, action, suit, claim 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 or trusts hereunder, including the costs and expenses (including reasonable legal fees and expenses) of defending itself against, or investigating, any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The provisions of this Section 8.2 shall survive the termination of this Series B Capital Securities Guarantee and shall survive the resignation or removal of the Capital Securities Guarantee Trustee. ARTICLE IX MISCELLANEOUS SECTION 9.1 Successors and Assigns ---------------------- All guarantees and agreements contained in this Series B Capital Securities Guarantee shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the Series B Capital Securities then outstanding. Except in connection with any merger or consolidation of the Guarantor with or into another entity permitted by Section 10.01 of the Indenture or any sale, transfer, conveyance or other disposition of the property of the Guarantor permitted by Section 10.01 of the Indenture, the Guarantor may not assign its rights or delegate its obligations under this Capital Securities Guarantee. SECTION 9.2 Amendments ---------- Except with respect to any changes that do not materially adversely affect the rights of Holders of the Series B Capital Securities (in which case no consent of such Holders will be required), this Series B Capital Securities Guarantee may only be amended with the prior approval of the Holders of a Majority in Liquidation Amount of the Series B Capital Securities. The provisions of Section 12.2 of the Declaration with respect to meetings of Holders of the Trust Securities apply to the giving of such approval. This Series B Capital Securities Guarantee may not be amended, and no amendment hereof that affects the Capital Securities Guarantee Trustee's rights, duties or immunities hereunder or otherwise, shall be effective, unless such amendment is executed by the Capital Securities Guarantee Trustee (which shall have no obligation to execute any such amendment, but may do so in its sole discretion). SECTION 9.3 Notices ------- All notices provided for in this Series B Capital Securities Guarantee shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by first class mail, as follows: 18 (a) If given to the Issuer, in care of the Administrative Trustee at the Issuer's mailing address set forth below (or such other address as the Issuer may give notice of to the Capital Securities Guarantee Trustee and the Holders of the Series B Capital Securities): GBB CAPITAL IV 2860 West Bayshore Road Palo Alto, California 94303 Attention: Steven C. Smith Telephone: (650) 813-8200 Telecopier: (650) 494-9193 (b) If given to the Capital Securities Guarantee Trustee, at the Capital Securities Guarantee Trustee's mailing address set forth below (or such other address as the Capital Securities Guarantee Trustee may give notice of to the Holders of the Series B Capital Securities): WILMINGTON TRUST COMPANY Rodney Square North 1100 North Market Street Wilmington, Delaware 19890-0001 Attention: Corporate Trust Administration Telephone: (302) 651-1000 Telecopier: (302) 651-8882 (c) If given to the Guarantor, at the Guarantor's mailing address set forth below (or such other address as the Guarantor may give notice of to the Capital Securities Guarantee Trustee and the Holders of the Series B Capital Securities): GREATER BAY BANCORP 2860 West Bayshore Road Palo Alto, California 94303 Attention: Steven C. Smith Telephone: (650) 813-8200 Telecopier: (650) 494-9193 (d) If given to any Holder of the Series B Capital Securities, at the address set forth on the books and records of the Issuer. All such notices 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. 19 SECTION 9.4 Benefit ------- This Series B Capital Securities Guarantee is solely for the benefit of the Holders of the Series B Capital Securities and, subject to Section 3.1(a), is not separately transferable from the Series B Capital Securities. SECTION 9.5 Governing Law ------------- THIS SERIES B CAPITAL SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES THEREOF. 20 This Series B Capital Securities Guarantee is executed as of the day and year first above written. GREATER BAY BANCORP as Guarantor By: /s/ Shawn E. Saunders --------------------- Name: Shawn E. Saunders Title: Senior Vice President, Finance and Accounting WILMINGTON TRUST COMPANY, as Capital Securities Guarantee Trustee By: /s/ Bruce L. Bisson -------------------- Name: Bruce L. Bisson Title: Vice President 21 EX-4.29 5 0005.txt JUNIOR SUBORDINATED DEBENTURE CERTIFICATE Exhibit 4.29 JUNIOR SUBORDINATED DEBENTURE CERTIFICATE THE SECURITIES WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN BLOCKS HAVING AN AGGREGATE PRINCIPAL AMOUNT OF NOT LESS THAN $100,000. ANY ATTEMPTED TRANSFER OF SECURITIES IN A BLOCK HAVING AN AGGREGATE PRINCIPAL AMOUNT OF LESS THAN $100,000 AND MULTIPLES OF $1,000 IN EXCESS THEREOF SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER. ANY SUCH PURPORTED TRANSFEREE SHALL BE DEEMED NOT TO BE THE HOLDER OF SUCH SECURITIES FOR ANY PURPOSE, INCLUDING, BUT NOT LIMITED TO, THE RECEIPT OF PRINCIPAL OF OR INTEREST ON SUCH SECURITIES, AND SUCH PURPORTED TRANSFEREE SHALL BE DEEMED TO HAVE NO INTEREST WHATSOEVER IN SUCH SECURITIES. GREATER BAY BANCORP CUSIP No.: 391648-AF9 $41,000,000 10.75% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURE DUE June 1, 2030 Series B Greater Bay Bancorp, a California corporation (the "Corporation," which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to GBB Capital IV or registered assigns, the principal sum of Forty-One Million Dollars ($41,000,000) on June 1, 2030 (the "Maturity Date"), unless previously prepaid, and to pay interest on the outstanding principal amount hereof from May 19, 2000, or from the most recent interest payment date (each such date, an "Interest Payment Date") to which interest has been paid or duly provided for, semi-annually (subject to deferral as set forth herein) in arrears on June 1st and December 1st of each year, commencing December 1, 2000 at the rate of 10.75% per annum, until the principal hereof shall have become due and payable, and on any overdue principal and premium, if any, 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 same rate per annum compounded semi-annually ("Compounded Interest"). The amount of interest payable hereon shall be computed on the basis of a 360-day year of twelve 30-day months. In the event that any date on which the principal of (or premium, if any) or interest on this Security is payable is not a Business Day (as defined in the Indenture), then the payment 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), with the same force and effect as if made on such date. Pursuant to the Indenture, in certain circumstances the Corporation will be required to pay Additional Sums (as defined in the Indenture) with respect to this Security. Pursuant to the Registration Rights Agreement and the Liquidated Damages Agreement, in certain limited circumstances the Corporation will be required to pay Liquidated Damages (as defined in the Registration Rights Agreement and the Liquidated Damages Agreement) with respect to this Security. 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, as defined in said Indenture) is registered at the close of business on the regular record date for such interest installment, which shall be at the close of business on the 15th day of the month immediately preceding the month in which the relevant Interest Payment Date falls. Any such interest installment not punctually paid or duly provided for shall forthwith cease to be payable to the holders on such regular record date and may 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 to be fixed by the Debenture Trustee for the payment of such defaulted interest, notice whereof shall be given to the holders of Securities not less than 10 days prior to such special record date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. The principal of and interest (including Compounded Interest and Additional Sums, if any) and Liquidated Damages, if any, on this Security shall be payable at the office or agency of the Debenture Trustee maintained for that purpose in any coin or currency of the United States of America that at the time of payment is legal tender for payment of public and private debts; provided, however, that -------- ------- payment of interest may be made at the option of the Corporation by (i) check mailed to the holder at such address as shall appear in the Security Register or (ii) transfer to an account maintained by the Person entitled thereto, provided that proper written transfer instructions have been received by the relevant record date. Notwithstanding the foregoing, so long as the holder of this Security is the Property Trustee of GBB Capital IV, the payment of the principal of and interest (including Compounded Interest and Additional Sums, if any) and Liquidated Damages, if any, on this Security will be made at such place and to such account as may be designated by such Property Trustee. The indebtedness evidenced by this Security is, to the extent provided in the Indenture, subordinate and junior in right of payment to the prior payment in full of all Senior Indebtedness, 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 Debenture Trustee on his or her behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination so provided and (c) appoints the Debenture Trustee his or her attorney-in-fact for any and all such purposes. Each holder hereof, by his or her acceptance hereof, hereby waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Indebtedness, whether now outstanding or hereafter incurred, and waives reliance by each such holder upon said provisions. This Security shall not be entitled to any benefit under the Indenture or be valid or become obligatory for any purpose until the Certificate of Authentication hereon shall have been signed by or on behalf of the Debenture Trustee. The provisions of this Security are continued on the reverse side hereof and such provisions shall for all purposes have the same effect as though fully set forth at this place. 3 IN WITNESS WHEREOF, the Corporation has caused this instrument to be duly executed and sealed this 20/th/ day of November, 2000. GREATER BAY BANCORP By: /s/ Shawn E. Saunders --------------------- Shawn E. Saunders Senior Vice President, Finance and Accounting Attest: By: /s/ Linda M. Iannone -------------------- Linda M. Iannone Senior Vice President, General Counsel and Secretary 4 CERTIFICATE OF AUTHENTICATION This is one of the 10.75% Junior Subordinated Deferrable Interest Debentures, Series B, of GREATER BAY BANCORP referred to in the within-mentioned Indenture. WILMINGTON TRUST COMPANY, not in its individual capacity but solely as Debenture Trustee Dated: November 20, 2000 By: /s/ Bruce L. Bisson ------------------- Authorized Signatory 5 This Security is one of the Securities of the Corporation (herein sometimes referred to as the "Securities"), specified in the Indenture, all issued or to be issued under and pursuant to an Indenture, dated as of May 19, 2000 (the "Indenture"), duly executed and delivered between the Corporation and Wilmington Trust Company, as Debenture Trustee (the "Debenture Trustee"), to which Indenture reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Debenture Trustee, the Corporation and the holders of the Securities. The Securities are limited in aggregate principal amount as specified in the Indenture. Upon the occurrence and continuation of a Special Event (as defined in the Indenture) prior to June 1, 2010 (the "Initial Optional Redemption Date"), the Corporation shall have the right, at any time within 90 days following the occurrence of such Special Event, to prepay this Security in whole (but not in part) at the Special Event Prepayment Price. "Special Event Prepayment Price" shall mean, with respect to any prepayment of the Securities following a Special Event, an amount in cash equal to 100% of the principal amount of the Securities to be prepaid, plus any accrued and unpaid interest (including Compounded Interest and Additional Sums, if any) and Liquidated Damages, if any, thereon to the date of such prepayment. In addition, the Corporation shall have the right to prepay this Security, in whole or in part, at any time on or after the Initial Optional Redemption Date (an "Optional Prepayment"), at 100% of the principal amount of this Security plus, in each case, accrued and unpaid interest thereon (including Compounded Interest and Additional Sums, if any) and Liquidated Damages, if any, thereon to the applicable date of prepayment (the "Optional Prepayment Price"). The Prepayment Price shall be paid prior to 12:00 noon, New York City time, on the date of such prepayment or at such earlier time as the Corporation determines, provided that the Corporation shall deposit with the Debenture -------- Trustee an amount sufficient to pay the Prepayment Price by 10:00 a.m., New York City time, on the date such Prepayment Price is to be paid. Any prepayment pursuant to this paragraph will be made upon not less than 30 days nor more than 60 days' prior written notice. If the Securities are only partially prepaid by the Corporation pursuant to an Optional Prepayment, the particular Securities to be prepaid shall be selected on a pro rata basis from the outstanding Securities not previously called for prepayment; provided, however, that with respect to Securityholders -------- ------- that would be required to hold Securities with an aggregate principal amount of less than $100,000 but more than an aggregate principal amount of zero as a result of such pro rata prepayment, the Corporation shall prepay Securities of each such Securityholder so that after such prepayment such Securityholder shall hold Securities either with an aggregate principal amount of at least $100,000 or such Securityholder no longer holds any Securities and shall use such method (including, without limitation, by lot) as the Corporation shall deem fair and appropriate; provided, further, that any such proration may be made on the basis -------- ------- of the aggregate principal amount of Securities held by each Securityholder thereof and may be made by making such adjustments as the Corporation deems fair and appropriate in order that only Securities in denominations of $1,000 or integral multiples thereof shall be prepaid. In the event of prepayment of this Security in part only, a new Security or Securities for the portion hereof that has not been prepaid will be issued in the name of the holder hereof upon the cancellation hereof. 6 Notwithstanding the foregoing, any prepayment of Securities by the Corporation shall be subject to the receipt of any and all required regulatory approvals. In case an Event of Default (as defined in the Indenture) shall have occurred and be continuing, the principal of all of the Securities may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions permitting the Corporation and the Debenture Trustee, with the consent of the holders of a majority in aggregate principal amount of the Securities at the time outstanding (as defined in the Indenture), to execute supplemental indentures for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of modifying in any manner the rights of the holders of the Securities; provided, however, that no such supplemental indenture shall, -------- ------- without the consent of each holder of Securities then outstanding and affected thereby, (i) change the Maturity Date of any Security, or reduce the rate or extend the time of payment of interest thereon (subject to Article XVI of the Indenture), or reduce the principal amount thereof, or change any of the prepayment provisions or make the principal thereof or any interest or premium thereon payable in any coin or currency other than U.S. dollars, or impair or affect the right of any holder of Securities to institute suit for payment thereof, or (ii) reduce the aforesaid percentage of Securities the holders of which are required to consent to any such supplemental indenture. The Indenture also contains provisions permitting the holders of a majority in aggregate principal amount of the Securities at the time outstanding affected thereby, on behalf of all of the holders of the Securities, to waive any past default in the performance of any of the covenants contained in the Indenture, or established pursuant to the Indenture, and its consequences, except a default in the payment of the principal of or premium, if any, or interest on any of the Securities or a default in respect of any covenant or provision under which the Indenture cannot be modified or amended without the consent of each holder of Securities then outstanding. Any such consent or waiver by the holder of this Security (unless revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders and owners of this Security and of any Security issued in exchange herefor or in place hereof (whether by registration of transfer or otherwise), irrespective of whether or not any notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Corporation, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest (including Compounded Interest and Additional Sums, if any) and Liquidated Damages, if any, on this Security at the time and place and at the rate and in the money herein prescribed. So long as no Event of Default shall have occurred and be continuing, the Corporation shall have the right, at any time and from time to time during the term of the Securities, to defer payments of interest by extending the interest payment period (an "Extended Interest Payment Period") of such Securities for a period not (i) exceeding 10 consecutive semi-annual periods, including the first such semi-annual period during such extension period, (ii) extending beyond the Maturity Date of the Securities or (iii) ending on a date other than an Interest Payment Date, at the end of which period the Corporation shall pay all interest then accrued and unpaid 7 (together with interest thereon at the rate specified for the Securities to the extent that payment of such interest is enforceable under applicable law). Before the termination of any such Extended Interest Payment Period, the Corporation may further defer payments of interest by further extending such Extended Interest Payment Period, provided that such Extended Interest Payment Period, together with all such previous and further extensions within such Extended Interest Payment Period, (i) shall not exceed 10 consecutive semi- annual periods including the first semi-annual period during such Extended Interest Payment Period, (ii) shall not end on any date other than an Interest Payment Date, and (iii) shall not extend beyond the Maturity Date of the Securities. Upon the termination of any such Extended Interest Payment Period and the payment of all accrued and unpaid interest and any additional amounts then due, the Corporation may commence a new Extended Interest Payment Period, subject to the foregoing requirements. No interest shall be due and payable during an Extended Interest Payment Period, except at the end thereof, but the Corporation may prepay at any time all or any portion of the interest accrued during an Extended Interest Payment Period. The Corporation has agreed that it will not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Corporation's capital stock, (ii) make any payment of principal of or premium, if any, or interest on or repay, repurchase or redeem any debt securities of the Corporation (including Other Debentures) that rank pari passu with or junior in right of payment to the Securities or (iii) make any guarantee payments with respect to any guarantee by the Corporation of the debt securities of any Subsidiary of the Corporation (including Other Guarantees) if such guarantee ranks pari passu with or junior in right of payment to the Securities (other than (a) dividends or distributions in shares of, or options, warrants or rights to subscribe for or purchase shares of, 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 Capital Securities Guarantee, as defined in the Indenture, (d) as a result of a reclassification of the Corporation's capital stock or the exchange or conversion of one class or series of the Corporation's capital stock for another class or series of the Corporation's capital stock, (e) the purchase of fractional interests in shares of the Corporation's capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged and (f) purchases of Common Stock related to the issuance of Common Stock or rights under any of the Corporation's benefit or compensation plans for its directors, officers or employees or any of the Corporation's dividend reinvestment plans), if at such time (1) there shall have occurred any event of which the Corporation has actual knowledge that (a) is a Default or an Event of Default and (b) in respect of which the Corporation shall not have taken reasonable steps to cure, (2) such Securities are held by the Property Trustee of GBB Capital IV and the Corporation shall be in default with respect to its payment of any obligations under the Capital Securities Guarantee or (3) the Corporation shall have given notice of its election to exercise its right to commence an Extended Interest Payment Period and shall not have rescinded such notice, and such Extended Interest Payment Period or any extension thereof shall have commenced and be continuing. Subject to (i) the Corporation having received any required regulatory approvals and (ii) the Administrative Trustees of GBB Capital IV having received an opinion of counsel to the effect that such distribution will not cause the holders of Capital Securities to recognize gain or 8 loss for federal income tax purposes, the Corporation will have the right at any time to liquidate the Trust and, after satisfaction of liabilities of creditors of the Trust as required by applicable law, to cause the Securities to be distributed to the holders of the Trust Securities in liquidation of the Trust. The Securities are issuable only in registered form without coupons in minimum denominations of $100,000 and multiples of $1,000 in excess thereof. As provided in the Indenture and subject to the transfer restrictions limitations as may be contained herein and therein from time to time, this Security is transferable by the holder hereof on the Security Register of the Corporation, upon surrender of this Security for registration of transfer at the office or agency of the Corporation in Wilmington, Delaware accompanied by a written instrument or instruments of transfer in form satisfactory to the Corporation or the Debenture Trustee duly executed by the holder hereof or his or her attorney duly authorized in writing, and thereupon one or more new Securities of authorized denominations and for the same aggregate principal amount will be issued to the designated transferee or transferees. No service charge will be made for any such registration of transfer, but the Corporation may require payment of a sum sufficient to cover any tax or other governmental charge payable in relation thereto. Prior to due presentment for registration of transfer of this Security, the Corporation, the Debenture Trustee, any authenticating agent, any paying agent, any transfer agent and the security registrar may deem and treat the holder hereof as the absolute owner hereof (whether or not this Security shall be overdue and notwithstanding any notice of ownership or writing hereon made by anyone other than the security registrar for the Securities) for the purpose of receiving payment of or on account of the principal hereof and premium, if any, and (subject to the Indenture) interest due hereon and for all other purposes, and neither the Corporation nor the Debenture Trustee nor any authenticating agent nor any paying agent nor any transfer agent nor any security registrar shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of or premium, if any, or interest (including Compounded Interest and Additional Sums, if any) or Liquidated Damages, if any, on this Security, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture, against any incorporator, stockholder, employee, officer or director, past, present or future, as such, of the Corporation or of any predecessor or successor Person, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issuance hereof, expressly waived and released. All terms used in this Security that are defined in the Indenture shall have the meanings assigned to them in the Indenture. THE INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES THEREOF. 9 EX-4.30 6 0006.txt CAPITAL SECURITY CERTIFICATE Exhibit 4.30 CAPITAL SECURITY CERTIFICATE THIS CAPITAL SECURITY IS A GLOBAL CAPITAL SECURITY WITHIN THE MEANING OF THE DECLARATION HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY (THE "CLEARING AGENCY") OR A NOMINEE OF THE CLEARING AGENCY. THIS CAPITAL SECURITY IS EXCHANGEABLE FOR CAPITAL SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE CLEARING AGENCY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE DECLARATION AND NO TRANSFER OF THIS CAPITAL SECURITY (OTHER THAN A TRANSFER OF THIS CAPITAL SECURITY AS A WHOLE BY THE CLEARING AGENCY TO A NOMINEE OF THE CLEARING AGENCY OR BY A NOMINEE OF THE CLEARING AGENCY TO THE CLEARING AGENCY OR ANOTHER NOMINEE OF THE CLEARING AGENCY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES. UNLESS THIS CAPITAL SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE CLEARING AGENCY TO THE TRUST OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CAPITAL SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE CLEARING AGENCY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THE CAPITAL SECURITIES WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN BLOCKS HAVING A LIQUIDATION AMOUNT OF NOT LESS THAN $100,000 (100 CAPITAL SECURITIES) AND MULTIPLES OF $1,000 IN EXCESS THEREOF. ANY ATTEMPTED TRANSFER OF CAPITAL SECURITIES IN A BLOCK HAVING A LIQUIDATION AMOUNT OF LESS THAN $100,000 (100 CAPITAL SECURITIES) SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER. ANY SUCH PURPORTED TRANSFEREE SHALL BE DEEMED NOT TO BE THE HOLDER OF SUCH CAPITAL SECURITIES FOR ANY PURPOSE, INCLUDING, BUT NOT LIMITED TO, THE RECEIPT OF DISTRIBUTIONS ON SUCH CAPITAL SECURITIES, AND SUCH PURPORTED TRANSFEREE SHALL BE DEEMED TO HAVE NO INTEREST WHATSOEVER IN SUCH CAPITAL SECURITIES. Certificate Number: S-001 Aggregate Liquidation Amount: CUSIP Number: 361467-AC7 $41,000,000 Certificate Evidencing Capital Securities of GBB Capital IV 10.75% Capital Securities, Series B (liquidation amount $1,000 per Capital Security) GBB Capital IV, a statutory business trust created under the laws of the State of Delaware (the "Trust"), hereby certifies that Cede & Co. (the "Holder") is the registered owner of $41,000,000 in aggregate liquidation amount of Capital Securities of the Trust representing undivided preferred beneficial interests in the assets of the Trust designated the 10.75% Capital Securities, Series A (liquidation amount $1,000 per Capital Security) (the "Capital Securities"). The Capital 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. The designation, rights, privileges, restrictions, preferences and other terms and provisions of the Capital Securities represented hereby are issued and shall in all respects be subject to the provisions of the Amended and Restated Declaration of Trust, dated as of May 19, 2000, as the same may be amended from time to time (the "Declaration"), including the designation of the terms of the Capital Securities as set forth in Annex I to the Declaration. Capitalized terms used but not defined herein shall have the meaning given them in the Declaration. The Sponsor will provide a copy of the Declaration, the Capital Securities Guarantee and the Indenture (including any supplemental indenture) to a Holder without charge upon written request to the Trust at its principal place of business. Upon receipt of this Certificate, the Holder is bound by the Declaration and is entitled to the benefits thereunder and to the benefits of the Capital Securities Guarantee to the extent provided therein. By acceptance hereof, the Holder agrees, for United States federal income tax purposes, to treat the Debentures as indebtedness and the Capital Securities as evidence of indirect beneficial ownership in the Debentures. IN WITNESS WHEREOF, the Trust has executed this certificate this 20th day of November, 2000. GBB CAPITAL IV By: /s/ Shawn E. Saunders --------------------- Shawn E. Saunders Administrative Trustee 3 PROPERTY TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the 10.75% Capital Securities, Series B of GBB Capital IV referred to in the within-mentioned Declaration. Dated: November 20, 2000 WILMINGTON TRUST COMPANY, not in its individual capacity but solely as Property Trustee By: /s/ Bruce L. Bisson ------------------- Authorized Signatory 4 Distributions on each Capital Security will be payable at a fixed rate per annum of 10.75% (the "Coupon Rate") of the liquidation amount of $1,000 per Capital Security, such rate being the rate of interest payable on the Debentures to be held by the Property Trustee. Distributions in arrears for more than one semi-annual period will bear interest thereon compounded semi-annually at the Coupon Rate (to the extent permitted by applicable law). Pursuant to the Registration Rights Agreement and the Liquidated Damages Agreement, in certain limited circumstances the Debenture Issuer will be required to pay Liquidated Damages (as defined in the Registration Rights Agreement and the Liquidated Damages Agreement) with respect to the Debentures. The term "Distributions," as used herein, includes such cash distributions and any and all such interest and Liquidated Damages, if any, payable unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the Property Trustee and to the extent the Property Trustee has funds legally available therefor. Distributions on the Capital Securities will be cumulative, will accumulate from the most recent date to which Distributions have been paid or, if no Distributions have been paid, from May 19, 2000 and will be payable semi- annually in arrears, on June 1st and December 1st of each year, commencing December 1, 2000, except as otherwise described below. Distributions will be computed on the basis of a 360-day year of twelve 30-day months. As long as no Event of Default has occurred and is continuing under the Indenture, the Debenture Issuer has the right under the Indenture to defer payments of interest by extending the interest payment period at any time and from time to time on the Debentures for a period not exceeding ten consecutive semi-annual calendar periods, including the first such semi-annual period during such extension period (each an "Extension Period"), provided that no Extension Period shall end -------- ---- on a date other than an Interest Payment Date for the Debentures or extend beyond the Maturity Date of the Debentures. As a consequence of such deferral, Distributions (other than Liquidated Damages, if any) will also be deferred. Notwithstanding such deferral, semi-annual Distributions will continue to accumulate with interest thereon (to the extent permitted by applicable law, but not at a rate exceeding the rate of interest then accruing on the Debentures) at the Coupon Rate compounded semi-annually during any such Extension Period. Prior to the termination of any Extension Period, the Debenture Issuer may further defer payments of interest by further extending such Extension Period; provided that such Extension Period, together with all such previous and further - -------- ---- extensions within such Extension Period, may not (i) exceed ten consecutive semi-annual periods, including the first semi-annual period during such Extension Period, (ii) end on a date other than an Interest Payment Date for the Debentures or (iii) extend beyond the Maturity Date of the Debentures. Payments of accumulated Distributions will be payable to Holders as they appear on the books and records of the Trust on the record date immediately preceding the end of the Extension Period. Upon the termination of any Extension Period and the payment of all amounts then due, the Debenture Issuer may commence a new Extension Period, subject to the above requirements. Subject to receipt by the Sponsor of any and all required regulatory approvals and to certain other conditions set forth in the Declaration and the Indenture, the Property Trustee may, at the direction of the Sponsor, at any time dissolve the Trust and after satisfaction of liabilities to creditors of the Trust as provided by applicable law, cause the Debentures to be distributed to the Holders of the Securities in liquidation of the Trust or, simultaneously with any redemption of the Debentures, cause a Like Amount of the Securities to be redeemed by the Trust. The Capital Securities shall be redeemable as provided in the Declaration. 5 The following abbreviations, when used in the inscription on the face of this Certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN CON - as tenants in common TEN ENT - as tenants in the entireties JT TEN - as joint tenants with right of survival UNIF GIFT MIN ACT - under Uniform Gift to Minors Act and not as tenants Additional abbreviations may also be used though not in the above list. _______________ ASSIGNMENT _______________ FOR VALUE RECEIVED, the undersigned hereby assigns and transfers this Capital Security Certificate to: ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Assignee's social security or tax identification number) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Address and zip code of assignee) and irrevocably appoints ________________________________________________________________________________ ________________________________________________________________________________ __________________________________________________________________________ agent to transfer this Capital 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 Capital Security Certificate) Signature Guarantee:______________________________________________ ___________________________ Signature must be guaranteed by an "eligible guarantor institution" that is a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. 6 In connection with any transfer of any of the Capital Securities evidenced by this Certificate, the undersigned confirms that such Capital Securities are being: CHECK ONE BOX BELOW (1) [_] exchanged for the undersigned's own account without transfer; or (2) [_] transferred pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended; or (3) [_] transferred to an institutional "accredited investor" within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Securities Act of 1933 that is acquiring the Capital Securities for its own account, or for the account of such an institutional "accredited investor," for investment purposes and not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act of 1933, as amended; or (4) [_] transferred pursuant to another available exemption from the registration requirements of the Securities Act of 1933, as amended; or (5) [_] transferred pursuant to an effective registration statement. Unless one of the boxes is checked, the Registrar will refuse to register any of the Capital Securities evidenced by this Certificate in the name of any Person other than the Holder hereof; provided, however, that if box (3) or (4) is -------- ------- checked, the Registrar may require, prior to registering any such transfer of the Capital Securities, such legal opinions, certifications and other information as the Trust has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, as amended, such as the exemption provided by Rule 144 under such Act; provided, further, that (i) -------- ------- if box (2) is checked, by acceptance of this Certificate, the transferee shall be deemed to have certified that it is a "qualified institutional buyer" (as defined in Rule 144A) ("QIB") acquiring the Capital Securities for its own account or for the account of another QIB over which it exercises sole investment discretion and that it is aware that the Holder is relying upon the exemption from registration afforded by Rule 144A in respect of the Holder's transfer of Capital Securities to it or (ii) if box (3) is checked, the transferee must also provide to the Registrar a Transferee Letter of Representation in the form attached to the Offering Memorandum of the Trust dated May 16, 2000; provided, further, that after the date that a registration -------- ------- statement has been filed and so long as such Registration Statement continues to be effective, only then may the Registrar permit transfers for which box (5) has been checked. _________________________________ Signature 7 EX-10.1.2 7 0007.txt AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT Exhibit 10.1.2 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT This Amendment No. 1, dated as of December 11, 2000, is made to the Employment Agreement (the "Agreement"), dated as of January 1, 1999, by and between GREATER BAY BANCORP ("Employer"), a California corporation, and DAVID L. KALKBRENNER ("Employee"). RECITALS: --------- WHEREAS, the Employer entered into the Agreement for the purpose of engaging the services of the Employee by reason of his experience, training and ability in the commercial banking industry; WHEREAS, the Employee's service as President and Chief Executive Officer of Employer has been a significant factor in Employer's growth and success, and the Employer and the Employee desire to amend the Agreement on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the foregoing and the mutual covenants, terms and conditions contained in this Amendment No. 1, the Employer and the Employee agree as follows: 1. Section 13 ("Other Benefits") is hereby amended by adding a new -------------- subsection (e) to read in its entirety as follows: (e) Health and Medical Benefits. In the event of (i) Employee's --------------------------- retirement from the Employer on or after age 61; (ii) termination of the Agreement under Section 16(a)(1), (4) or (7) (to the extent of Employer's breach) or Section 16(b); or (iii) the occurrence of any of the events set forth in Section 16(e) in connection with a change in control (except for the events set forth in the last paragraph of Section 16(e)), then Employee shall be entitled to participate, on the same basis as other employees of Employer, in Employer's group health and medical insurance plans, for the duration of his life. Employee's spouse may participate in such plans for the duration of her life at the Employee's (or his estate's) expense. 2. Except as expressly amended hereby, the remaining terms and conditions of the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 as of the date first above written. GREATER BAY BANCORP By: /s/ Duncan L. Matteson ---------------------- Duncan L. Matteson Chairman of the Board /s/ David L. Kalkbrenner ------------------------ David L. Kalkbrenner EX-10.8 8 0008.txt GREATER BAY BANCORP EMPLOYEE STOCK PURCHASE PLAN Exhibit 10.8 [LOGO] Greater Bay BANCORP EMPLOYEE STOCK PURCHASE PLAN Amended and Restated as of September 19, 2000 A. PURPOSE, HISTORY AND DESCRIPTION -------------------------------- The Employee Stock Purchase Plan (the "Purchase Plan") of Greater Bay Bancorp (the "Company") provides eligible employees of the Company and its Designated Subsidiaries with an opportunity to purchase shares of the Company's Common Stock through payroll deductions. The Purchase Plan, under which shares of the Company's Common Stock are reserved for issuance to all employees of the Company and its Designated Subsidiaries who meet certain minimum employment criteria, was adopted by the Board of Directors and shareholders of Greater Bay Bancorp and assumed by the Company in connection with the merger of Cupertino National Bancorp with and into the Company, which was consummated on November 27, 1996. The Plan was subsequently amended by the Board of Directors on March 27, 1997, and by the shareholders of the Company on June 18, 1997. The following terms shall have the meanings defined below: (a) "Code" means the Internal Revenue Code of 1986, as amended. "Continuous Status as an Employee" shall mean the absence of any interruption or termination of service as an Employee. Continuous Status as an Employee shall not be considered interrupted in the case of a leave of absence agreed to in writing by the Company, provided that such leave is for a period of not more than 90 days or reemployment upon the expiration of such leave is guaranteed by contract or statute. (b) "Designated Subsidiaries" means the Subsidiaries which have been designated by the Board from time to time in its sole discretion as eligible to participate in the Purchase Plan. 1 (c) "Employee" means any person, including an officer, who is customarily employed for at least twenty (20) hours per week and more than five (5) months in a calendar year by the Company or one of its Designated Subsidiaries. (d) "Parent" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if at the time of the granting of the option, each of the corporations other than the Company owns stock possessing 50 percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. (e) "Subsidiary" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of the granting of the option, each of the corporations other than the last corporation in the unbroken chain owns stock possessing at least 50 percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. B. SHARE RESERVE ------------- The maximum number of shares which may be issued under the Purchase Plan is 183,318/1/shares of the Company's authorized but unissued Common Stock (the "Shares") subject to adjustment upon changes in capitalization of the Company as provided in paragraph N below. In the event that any option granted under the Purchase Plan (a "Plan Option") for any reason expires or is terminated, the Shares allocable to the unexercised portion of such Plan Option may again be made subject to a Plan Option. The Shares to be sold to participants in the Purchase Plan may be, at the election of the Company, either treasury shares or shares authorized but unissued. If the total number of Shares which would otherwise be subject to Plan Options granted pursuant to paragraph G hereof on the Offering Date of an Offering Period exceeds the number of Shares then available under the Purchase Plan (after deduction of all Shares for which options have been exercised or are then outstanding), the Company shall make a pro rata allocation of the Shares remaining available for option grant in as uniform and equitable a manner as is practicable. In such event, the Company shall give written notice of such reduction of the number of Shares subject to a Plan Option to each Participant affected thereby and shall return any excess funds accumulated in each Participant's account as soon as practicable after the termination of such Offering Period. C. ADMINISTRATION -------------- The Purchase Plan may be administered by the Board or by a duly appointed committee of the Board. Any subsequent references to the Board shall also mean the committee if it has been appointed. All questions of interpretation of the Purchase Plan or of any Plan Options shall be determined by the Board, and such determinations shall be final, binding and conclusive upon all persons having an interest in the Purchase Plan and/or any Plan Option. Subject to the provisions of the Purchase Plan, the Board shall determine all of the relevant terms and conditions of Plan Options granted pursuant to the Purchase Plan; provided, however, that all Participants granted ______________________________ /1/ The number of shares is adjusted for stock dividends subsequent to the date of the original approval of the Purchase Plan. 2 Plan Options pursuant to the Purchase Plan shall have the same rights and privileges within the meaning of section 423(b)(5) of the Code. All expenses incurred in connection with the administration of the Purchase Plan shall be paid by the Company. D. ELIGIBILITY ----------- Any Employee is eligible to participate in the Purchase Plan and any Offering under the Purchase Plan except an Employee who (a) owns or (b) holds options to purchase, or who, as a result of participation in the Purchase Plan, would (a) own or (b) hold options to purchase, stock of the Company possessing five percent or more of the total combined voting power or value of all classes of the Company within the meaning of section 423(b)(3) of the Code. E. OFFERING DATES -------------- (i) Offering Periods. The Purchase Plan shall be implemented by four ----------------- annual offering periods of three months' duration (each of which referred to herein as an "Offering Period"), commencing on the first day of each calendar quarter (January 1, April 1, July 1, and October 1) and ending on the last day of each calendar quarter (March 31, June 30, September 30, and December 31). The first Offering Period shall commence on July 1, 1991. The Board may, however, establish a different term for one or more future Offerings and/or different commencing and/or ending dates for such Offerings without Shareholder approval, if such change is announced at least fifteen (15) days prior to the scheduled beginning of the first Offering Period to be affected. An employee who becomes eligible to participate in the Purchase Plan after an Offering Period has commenced shall not be eligible to participate during such Offering Period. The first day of an Offering Period shall be the "Offering Date" for such Offering Period. (ii) Government Approval; Shareholder Approval. Notwithstanding any ------------------------------------------ other provisions of the Purchase Plan to the contrary, any Plan Option granted pursuant to the Purchase Plan shall be subject to (a) obtaining all necessary governmental approvals and/or qualifications of the sale and/or issuance of the Plan Options and/or the Shares, and (b) in the case of Plan Options with an Offering date after an amendment to the Purchase Plan, obtaining any necessary approval of the shareholders of the Company required by paragraph R below. F. PARTICIPATION IN THE PURCHASE PLAN ---------------------------------- (i) Initial Participation. An eligible Employee may elect to become a ---------------------- Participant effective on the first Offering Date after satisfying the eligibility requirements set forth in paragraph D above by delivering a subscription agreement authorizing payroll deductions (a "Subscription Agreement") to the Company's payroll office at such time at least seven (7) days prior to an Offering Date as may be established by the Company (the "Enrollment Date"). An eligible Employee who does not deliver a Subscription Agreement to the Company's payroll office prior to the Enrollment Date for the first Offering Date after becoming eligible to participate in the Purchase Plan shall not participate in the Purchase Plan for that Offering Period or for any subsequent Offering Period unless such Employee subsequently enrolls in the 3 Purchase Plan by filing a Subscription Agreement with the Company prior to the applicable Enrollment Date for such subsequent Offering Date. (ii) Automatic Participation in Subsequent Offerings. A participant ------------------------------------------------ shall automatically participate in each succeeding Offering Period until such time as such Participant withdraws from the Purchase Plan pursuant to paragraph K below or terminates employment with the Company. A Participant is not required to file an additional Subscription Agreement for such Offering Periods in order to automatically participate therein. G. RIGHT TO PURCHASE SHARES ------------------------ Subject to the limitations set forth in paragraphs B, I(iii), I(v), and J(ii), on each Offering Date, each Participant shall be granted a Plan Option to purchase (at the purchase price determined under paragraph H) a number of whole Shares arrived at by dividing (a) an amount equal to 15% of the Participant's Compensation for the Offering Period beginning on such Offering Date determined at the rate of such Participant's Compensation in effect as of such Offering Date by (b) 85% of the fair market value of a share of the Company's Common Stock on the Offering Date. "Compensation" includes all amounts paid in cash and includable as "wages" subject to tax under section 3l01(a) of the Code without applying the dollar limitation of section 3121(a) of the Code. Accordingly, "Compensation" includes salaries, commissions, bonuses and contributions made at the direction of the Participant pursuant to certain qualified cash or deferred arrangements. "Compensation" does not include reimbursements of expenses, allowances, or any amount deemed received by a Participant without the actual transfer of cash or any amounts directly paid pursuant to the Purchase Plan or any other stock purchase or stock option plan. The fair market value of a share of the Company's Common Stock shall be determined in accordance with paragraph H. H. PURCHASE PRICE -------------- The purchase price at which Shares may be acquired in any Offering under the Purchase Plan shall be set by the Board. Unless otherwise provided by the Board before the commencement of an Offering Period, the purchase price for the Offering Period shall be 85% of the lesser of (i) the fair market value of the Company's Common Stock, as determined by the Board, on the Offering Date of such Offering Period or (ii) the fair market value of the Company's Common Stock, as determined by the Board, on the last day of the Offering Period. In no event may the purchase price be lower than the price specified in the previous sentence. The fair market value of the Company's Common Stock at any point in time has been determined to be the average of the high and low sales prices of the Company's Common Stock on such date as reported on the National Association of Securities Dealers Automated Quotation ("NASDAQ") National Market System. 4 I. PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS --------------------------------------------- (i) Accumulation of Payroll Deductions. The purchase price of Shares ----------------------------------- to be acquired in an Offering Period shall be accumulated by payroll deductions over the Offering Period. Except as set forth below, the amount of Compensation to be withheld from a Participant's Compensation during each pay period shall be determined by the Participant's subscription agreement. (ii) Decrease of Payroll Deductions. During an Offering Period, a ------------------------------- Participant may elect to decrease the rate of payroll deductions from his or her Compensation by filing an amended Subscription Agreement with the Company on or before the "Change Notice Date". The "Change Notice Date" shall initially be the seventh day prior to the end of the first pay period for which such election is to be effective; however, the Company may change such Change Notice Date from time to time. (iii) Maximum Deductions. The amount of payroll deductions with respect ------------------- to the Purchase Plan for any Participant during any pay period shall not exceed 15%, or such other rate as may be determined from time to time by the Board, of the Participant's Compensation (as hereinabove defined) for such pay period; provided, however, that in the event the Offering Period is shorter than 13 weeks, the maximum withholding percentage shall be adjusted to equal 15%, or such other rate as may be determined from time to time by the Board, multiplied by 13 and divided by the number of weeks in the Offering Period. (iv) Commencement of Payroll Deductions. Payroll deductions shall ----------------------------------- commence on the first payday following the Offering Date of an Offering Period and shall continue to the end of such Offering Period unless sooner altered or terminated as provided in the Purchase Plan. (v) Certain Rules to be Established by Company. The Company may, from ------------------------------------------- time to time, establish (i) a minimum required amount of payroll deductions for participation in any Offering, (ii) limitations on the frequency and/or number of changes in the amount of payroll deductions during an Offering, (iii) such other limitations or procedures as deemed advisable by the Company in the Company's sole discretion which are consistent with the Purchase Plan. (vi) No Interest on Payroll Deduction. Interest shall not be accrued --------------------------------- or paid on payroll deductions from a Participant's Compensation. (Vii) Participant Accounts. Individual accounts shall be maintained for --------------------- each Participant. All payroll deductions from a Participant's compensation shall be credited to the Participant's account under the Purchase Plan and shall be deposited with the general funds of the Company. All payroll deductions received or held by the Company may be used by the Company for any corporate purpose. 5 J. PURCHASE OF SHARES ------------------ (i) Purchase. On the last day of an Offering Period, each Participant --------- who has not withdrawn from the Offering or whose employment has not terminated on or before such last day shall automatically purchase that number of whole Shares arrived at by dividing the total amount credited to Participant's account pursuant to paragraph I(vii) above by the Purchase Price established pursuant to paragraph H above (subject to the limitation in paragraph J(ii) below). All additional cash remaining in the Participant's account for such completed Offering shall be refunded to the Participant as soon as practicable after the last day of the Offering Period. In the event the cash to be returned to a Participant pursuant to the preceding sentence is an amount less than the amount necessary to purchase a whole Share, the Company shall maintain such cash in the Participant's account to be applied toward the purchase of Shares in the next subsequent Offering. (ii) Fair Market Value Limitation. No participant shall be granted a ----------------------------- Plan Option which would permit the Participant to purchase Shares under the Purchase Plan (and all similar plans of the Company and any Subsidiary) at a rate which exceeds $25,000 of the fair market value of such Shares (determined at the time of grant) for each calendar year in which such Plan Option is outstanding. (iii) Rights as a Shareholder and Employee. A Participant shall have no ------------------------------------- rights as a shareholder by virtue of the Participant's participation in the Purchase Plan until the date of issuance of a certificate or certificates for the Shares being purchased pursuant to the exercise of the Participant's Plan Option. No adjustment shall be made for dividends or distributions or other rights for which the record date is prior to the date such certificate or certificates is issued. Nothing in the Purchase Plan shall confer upon a Participant any right to continue in the employ of the Company or interfere in any way with any right of the Company to terminate the Participant's employment at any time. (iv) Withholding Tax. At the time the Shares are purchased for a ---------------- Participant, the Company shall withhold from the Participant's Compensation the amount necessary to make adequate provision for federal and state withholding obligations of the Company, if any, which arise upon such purchase. K. WITHDRAWAL ---------- (i) Notice of Withdrawal. A participant may withdraw all, but not --------------------- less than all, of the payroll deductions credited to his account under the Purchase Plan by signing and delivering to the Company's payroll office a written notice of withdrawal on a form provided by the Company for such purpose. Such withdrawal may be elected at any time prior to the end of the Offering Period. Unless otherwise indicated, withdrawal from an Offering does not result in a withdrawal from the Purchase Plan or any succeeding Offering pursuant to the Purchase Plan. A Participant is prohibited from again participating in the current Offering upon withdrawal from such Offering at any time. 6 (ii) Return of Payroll Deductions. Upon withdrawal from an Offering ----------------------------- the Participant's interest in that Offering shall terminate, and, as soon as practical after the withdrawal, the withdrawn Participant's accumulated payroll deductions shall be returned to the Participant. (iii) Withdrawal from the Purchase Plan; Subsequent Participation. A ------------------------------------------------------------ Participant may withdraw from the Purchase Plan by signing and delivering to the Company's payroll office a written notice of withdrawal on a form provided by the Company for such purpose. In the event a Participant voluntarily elects to withdraw from the Purchase Plan, the Participant may not resume participation in the Purchase Plan during the same Offering Period, but may participate in any succeeding Offering under the Purchase Plan by filing a new authorization for payroll deductions in the same manner as set forth above for initial participation in the Purchase Plan. L. TERMINATION OF EMPLOYMENT ------------------------- Termination of a Participant's Continuous Status as an Employee for any reason, including retirement or death or the failure of a Participant to remain an Employee eligible to participate in the Purchase Plan, shall terminate the Participant's participation in the Purchase Plan immediately. Upon such termination, the payroll deductions credited to the Participant's account shall be returned to the Participant (or in the case of the Participant's death, to the Participant's legal representative) and all rights under the Purchase Plan shall terminate. A Participant whose participation has been so terminated may again become eligible to participate in the Purchase Plan by again satisfying the requirements of paragraph D above. M. DESIGNATION OF BENEFICIARY -------------------------- A Participant may file a written designation of a beneficiary who is to receive Shares and/or cash, if any, from such Participant's account under the Purchase Plan in the event of such Participant's death at a time when cash or Shares are held for his account. Such designation of beneficiary may be changed by the Participant at any time by written notice. In the event of the death of a Participant in the absence of a valid designation of a beneficiary who is living at the time of such Participant's death, the Company shall deliver such Shares and/or cash to the executor or administrator of the estate of the Participant; or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such Shares and/or cash to the spouse or to any one or more dependents or relatives of the Participant; or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may reasonably designate. N. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION ------------------------------------------ Subject to any required action by the shareholders of the Company, the number of Shares covered by each Plan Option under the Purchase Plan which has not been exercised and the number of shares of Common Stock which have been authorized for issuance under the Purchase Plan but have not yet been placed under option (collectively, the "Reserves"), as well as the price per share of Common Stock covered by each Plan Option under the Purchase Plan which has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number 7 of issued shares of Common Stock resulting from a stock split, stock dividend, combination or reclassification of the Common Stock or any other increase or decrease in the number of shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to a Plan Option. In the event of a proposed dissolution or liquidation of the Company, the Offering Period will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each outstanding Plan Option under the Purchase Plan shall be assumed or an equivalent option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation (the "Acquiring Corporation"). If the Acquiring Corporation elects not to assume or substitute for the outstanding Plan Options, the Board may, in its sole discretion and notwithstanding any other provision herein to the contrary, adjust the ending date of the then current Offering Period to a date on or before the effective date of such proposed transaction. If the Board makes such an adjustment to the ending date of the Offering Period, the Board shall notify the Participants of such new ending at least ten days in advance thereof. The board may, if it so determines in the exercise of its sole discretion, also make provision for adjusting the Reserves, as well as the price per share of Common Stock covered by each outstanding Plan Option, in the event that the Company effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of shares of its outstanding Common Stock, and in the event of the Company being consolidated with or merged into any other corporation. O. TRANSFERABILITY --------------- Neither payroll deductions credited to a Participant's account nor any rights with regard to the exercise of a Plan Option or to receive Shares under the Purchase Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution, or as provided in paragraph M hereof) by the Participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds in accordance with paragraph K. 8 P. REPORTS ------- Each Participant who purchases Shares in an Offering Period shall receive as soon as practical after the last day of each Offering Period a report of such Participant's account setting forth the total payroll deductions accumulated, the number of Shares purchased and the remaining cash balance to be refunded or retained in the Participant's account pursuant to paragraph J(i) above, if any. Q. TERM OF THE PURCHASE PLAN ------------------------- The Purchase Plan shall become effective upon the earlier to occur of its adoption by the Board or its approval by the shareholders of the Company. The Purchase Plan shall continue until terminated by the Board or until all of the Shares reserved for issuance under the Purchase Plan have been issued, whichever shall come first. R. AMENDMENT OR TERMINATION OF THE PURCHASE PLAN --------------------------------------------- The Board may at any time amend or terminate the Purchase Plan, except that such termination cannot affect Plan Options previously granted under the Purchase Plan, nor may any amendment make any change in a Plan Option previously granted under the Purchase Plan which would adversely affect the right of any Participant (except as may be necessary to qualify the Purchase Plan pursuant to section 423 of the Code), nor may any amendment be made without obtaining the approval of the shareholders of the Company within 12 months of the adoption of such amendment if such amendment would authorize the sale of more shares than are authorized for issuance under the Purchase Plan, or change the designation of the employees (or class of employees) eligible for participation in the Purchase Plan. S. NOTICES ------- All notices or other communications by a Participant to the Company in connection with the Purchase Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. T. SHAREHOLDER APPROVAL -------------------- The Purchase Plan and any increase in the number of Shares reserved under the Purchase Plan must be approved by a majority of the votes cast at a duly held shareholders' meeting at which a quorum representing a majority of all outstanding voting stock of the Company is, either in person or by proxy, present and voting on the Purchase Plan, within twelve months before or after the date the Purchase Plan has been adopted or the increase in the number of Shares reserved under the Purchase Plan has been approved by the Board. 9 U. CONDITIONS UPON ISSUANCE OF SHARES ---------------------------------- Shares shall not be issued with respect to a Plan Option unless the exercise of such Plan Option and the issuance and delivery of such Shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of a Plan Option and if required by applicable securities laws, the Company may require the Participant for whose account the Plan Option is being exercised to represent and warrant at the time of such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law. V. ERISA AND INTERNAL REVENUE CODE SECTION 401 ------------------------------------------- The Purchase Plan is not subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended and is not qualified under section 401(a) of the Code. 10 EX-10.13 9 0009.txt GREATER BAY BANCORP 1997 ELECTIVE DEFERRED Exhibit 10.13 GREATER BAY BANCORP 1997 ELECTIVE DEFERRED COMPENSATION PLAN Amended as of December 16, 1999 1 GREATER BAY BANCORP 1997 ELECTIVE DEFERRED COMPENSATION PLAN Amended as of December 16, 1999 This Greater Bay Bancorp 1997 Elective Deferred Compensation Plan (the "Plan") is adopted by Greater Bay Bancorp, a California corporation (the "Company"), and its Subsidiaries to provide specified deferred compensation benefits to a select group of management or highly compensated employees and Directors who contribute materially to the continued growth, development, and future business success of the Company and its Subsidiaries. The Plan shall be unfunded for tax purposes and for purposes of Title I of ERISA. ARTICLE I --------- DEFINITIONS ----------- Section 1.01 Definitions. Whenever used in the Plan, the following words ----------- and phrases shall have the meanings set forth below unless a different meaning is expressly provided or plainly required by the context in which the words or phrases are used: (A) "Account" or "Deferred Compensation Contribution Account" ------------------------------------------------------- means the account maintained for each Participant which represents his or her total interest in the Plan as of any date and which consists of the Participant's account to which (i) Deferred Compensation Contributions have been credited under the Plan, plus (ii) Additions have been credited in accordance with Section 4.03 of this Plan, and (iii) all distributions have been subtracted. This Account shall be a bookkeeping entry only and shall be utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant pursuant to this Plan. Each Participant's Account shall be maintained on a Plan Year-by-Plan Year basis so that the Deferred Compensation Contribution for a Participant for each Plan Year shall be tracked separately, as well as any Additions thereto and any distributions with respect to the deferred amounts attributable to that particular Plan Year. (B) "Additions" means deemed earnings on Deferred --------- Compensation Contributions with respect to the Interest Reference Rate applicable to the Deferred Compensation Contributions for a particular Plan Year for a Participant. (C) "Beneficiary" means one or more persons, trusts, estates ----------- or other entities designated in accordance with Section 5.02(C) of the Plan that are entitled to receive benefits under the Plan upon the death of a Participant. (D) "Board" means the Board of Directors of the Company or a ----- Subsidiary, as the context requires. (E) "Committee" means the Deferred Compensation Committee --------- created by the Company Board or, if none, the Company Board itself. The 2 Committee shall consist of at least two (2) members, who may themselves also be Participants. (F) "Compensation" means, with respect to any Employee, the ------------ annual base salary paid to such Employee by the Company or a Subsidiary that is includable in the Employee's gross income for each calendar year (determined without regard to community property laws), annual bonuses, special awards, commissions and deferred compensation contributions to this Plan, but excluding (1) any other amounts contributed by the Company or a Subsidiary to any pension plan or plan of deferred compensation, (2) any amount paid by the Company or a Subsidiary for non-taxable fringe benefits, such as health and welfare, hospitalization and group life insurance benefits, or perquisites, and (3), unless the Committee determines otherwise for a particular Plan Year, any amounts paid by the Company under the Venture Banking Group Warrant Incentive Compensation Plan (as it may be amended from time to time). In the case of Directors, Compensation means the annual fees paid by the Company or a Subsidiary, including retainer fees and meeting fees, as compensation for serving on the Board of the Company or a Subsidiary. (G) "Deferred Compensation Contributions" means the amount of ----------------------------------- Compensation a Participant elects to have the Company or a Subsidiary defer on his or her behalf under the Plan on a pretax basis in accordance with Section 3.01. (H) "Director" means a member of a Board. -------- (I) "Disabled" or "Disability" means permanent and total -------- ---------- disability as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended. (J) "Election Form" means that form to be provided to a ------------- Participant by the Company or a Subsidiary by which the recipient may elect to participate in the Plan for a particular Plan Year. A copy of the initial form of Election Form is attached hereto as Exhibit A. The Committee may modify such form from time to time. (K) "Employee" means any person who is either (1) a Director, -------- or (2) a common law employee of the Company or a Subsidiary who is a member of a select group of management or highly compensated employees. (L) "Interest Reference Rate" means, for each Plan Year, the ----------------------- published average Moody's corporate bond yield for AAA-rated corporate bonds published for the month of January of each Plan Year, plus 200 basis points. It is acknowledged that Moody's publishes such bond yields weekly during each month and that the Interest Reference Rate will be an average of such weekly bond yields as published from time to time for January of a Plan Year. Notwithstanding such average, the Interest Reference Rate for a Plan Year shall 3 not be less than a 7% floor nor greater than a 10% ceiling, except that the Committee (in its sole and absolute discretion) may increase the Interest Reference Rate above said 10% ceiling for any Plan Year. The Interest Reference Rate as so computed shall float from year to year. If Moody's ceases publication of such bond yields, the Committee may select any comparable published rate as a replacement. (M) "Participant" means an Employee who has been selected to ----------- participate in the Plan by the Committee for a particular Plan Year in accordance with the rules of eligibility established by the Committee and shall include, where the context requires, a former Participant entitled to benefits under the Plan. (N) "Plan Year" means, for the initial year of the Plan, --------- December 1, 1997 through December 31, 1997, and thereafter a 12-month period ending each December 31. (O) "Subsidiary" means any corporation that has adopted the ---------- Plan and in which the Company owns, directly or indirectly, fifty percent (50%) or more of the total combined voting power of such corporation. Every corporation satisfying the foregoing ownership test as of the date of the adoption of the Plan by the Company has adopted the Plan simultaneously. Additional corporations may become Subsidiaries in the future if the foregoing ownership test is met and their Boards adopt the Plan. ARTICLE II ---------- PARTICIPATION ------------- Section 2.01 Eligibility and Participation. As set forth in the ----------------------------- definitions of "Employee" and "Participant," only certain Directors and a select group of management or highly compensated common law employees of the Company or a Subsidiary are eligible to participate in the Plan in accordance with such eligibility rules as the Committee may establish. Each Employee selected by the Committee for participation in the Plan with respect to a particular Plan Year shall become eligible to participate in the Plan upon notice by the Committee of his or her eligibility for participation for that Plan Year. Section 2.02 Enrollment of Participants. Each Employee eligible to -------------------------- participate in the Plan and selected by the Committee for possible participation for a particular Plan Year as provided in Section 2.01 shall complete an Election Form pursuant to Section 3.02 with regard to that Plan Year. At the time of his or her initial enrollment, each such Employee shall also designate a Beneficiary to receive benefits under the Plan in the event such Employee dies prior to the time all benefits held in his or her Account under the Plan have been distributed to him or her. Section 2.03 Duration of Participation. From Plan Year to Plan Year, the ------------------------- Committee may select potential Participants for that particular Plan Year from among the Employees in its sole and absolute discretion. Selection of an Employee as a potential Participant with respect to 4 one Plan Year does not guarantee selection of that Employee as a potential Participant with respect to any subsequent Plan Year by the Committee. ARTICLE III ----------- CONTRIBUTIONS ------------- Section 3.01 Deferred Compensation Contributions. Each Plan Year, a ----------------------------------- Participant may designate on an Election Form a percentage of his or her Compensation to have allocated to the Plan as a Deferred Compensation Contribution in accordance with the provisions of Section 3.02, subject to the limits set forth herein. A Participant may elect to have such contributions made from bonuses or Director fees at a lower or higher rate than from other Compensation. The minimum annual deferral is $2,000 in the aggregate, and the maximums are: 100% of Director's fees; 100% of bonuses; and 50% of other Compensation. Section 3.02 Election Procedure. The Committee shall provide an Election ------------------ Form to each Employee who is selected by the Committee to participate in the Plan and to become a Participant. Each such selected eligible Employee who elects to make a Deferred Compensation Contribution for the applicable Plan Year shall so specify on the Election Form and shall agree to a corresponding reduction in his or her cash Compensation. A Participant must complete his or her annual Election Form and return it to the Committee on or before such date as the Committee shall specify. In the case of a Participant making an election for the next Plan Year, such date shall be no later than the last day of the calendar month prior to commencement of the Plan Year for which the Participant's election shall be effective. For the initial Plan Year or for an eligible Employee selected for participation during the course of a Plan Year, an eligible selected Employee shall elect to participate during the Plan Year in which he or she first becomes eligible for participation by returning to the Committee his or her properly completed Election Form on the deferral of Compensation for services rendered by such Employee after his or her deferral election. If such eligible Employee does not make an election during the Plan Year in which he or she first becomes eligible, a subsequent election may only be made at the commencement of any succeeding Plan Year. An election made by an eligible selected Employee shall apply only for one Plan Year, and each eligible Employee selected for participation for a subsequent Plan Year must make a separate election for that Plan Year. Section 3.03 Failure to Elect. An eligible Employee selected for ---------------- participation but failing to return a completed Election Form to the Committee on or before the specified due date for a Plan Year shall be deemed to have elected to receive his or her full Compensation in cash for that Plan Year. Section 3.04 Irrevocability of Election by the Participant. Except as --------------------------------------------- provided in Section 5.03 and Section 5.04, a Deferred Compensation Contribution election made under the Plan shall remain irrevocable for the entire Plan Year for which the election is made. Section 3.05 Company or Subsidiary Contributions. Currently the Plan does ----------------------------------- not provide for Company or Subsidiary contributions. 5 Section 3.06 FICA and Other Taxes. For each Plan Year in which a Deferred -------------------- Compensation Contribution is being withheld, the Company or Subsidiary shall ratably withhold from the Participant's Compensation the Participant's share of FICA and other employment taxes imposed on such Compensation; first, from Compensation not deferred under the Plan, and (if necessary) second, from Compensation which otherwise would be deferred under the Plan. ARTICLE IV ---------- PARTICIPANT ACCOUNTS AND INVESTMENT OPTIONS ------------------------------------------- Section 4.01 Participant Accounts. The Company or Subsidiary shall -------------------- establish a Deferred Compensation Contribution Account on behalf of each Participant which shall be credited Plan Year-by-Plan Year with Deferred Compensation Contributions on behalf of such Participant. Deferred Compensation Contributions with respect to regular Compensation shall be credited at least monthly and Deferred Compensation Contributions with respect to Compensation paid less frequently than monthly shall be credited promptly after such Compensation otherwise would have been paid. The Committee shall maintain records relative to each Participant's Deferred Compensation Contribution Account so that its value may be determined as of any business day as provided in Sections 4.03 and 5.02(B) below. Each Participant shall be advised from time to time, at least once each Plan Year, as to the status and value of his or her Deferred Compensation Contribution Account. Section 4.02 Investment Options. A Participant shall be deemed to have ------------------ his or her Deferred Compensation Contribution for each Plan Year treated as if such Contribution were invested and reinvested at the Interest Reference Rate. Participants have no other investment options with respect to Deferred Compensation Contributions. Section 4.03 Crediting of Additions. The Deferred Compensation ---------------------- Contributions that a Participant makes to the Plan each Plan Year shall be deemed to have been invested and reinvested from time to time at the Interest Reference Rate. The Committee shall credit the Participant's Account with Additions on the Deferred Compensation Contributions credited to the Participant's Account. Additions to the Participant's Account shall accrue beginning on the date the Account first has a positive balance and shall continue until the Participant has received his or her Account in full as provided under Section 5.02. Deemed interest shall be credited quarterly and compounded quarterly on a Participant's Account, as if each Deferred Compensation Contribution were allocated to such Account on the last day of the quarter in which it would otherwise be paid as Compensation. In the case of any event resulting in a distribution to a Participant or Beneficiary prior to the end of a Plan Year, the basis for that Plan Year's interest crediting will be a fraction of the full year's interest, based on the number of full calendar quarters during the Plan Year prior to the calendar quarter in which the distribution occurred. Section 4.04 Minimum Benefit. Notwithstanding any provision of the Plan --------------- to the contrary, in no event shall the amount of benefits payable to a Participant be less than the total 6 amount of Deferred Compensation Contributions that the Participant has made to the Plan during his or her years of participation in the Plan, less all distributions. ARTICLE V --------- BENEFITS -------- Section 5.01 Vesting. Each Participant shall be fully vested in his or ------- her Deferred Compensation Contribution Account at all times. Section 5.02 Payments of Benefits. Except as provided in the remaining -------------------- provisions of this Article V, a Participant's benefits hereunder shall be paid to the Participant (or to his or her Beneficiary following the Participant's death), as follows: (A) That portion of the Participant's Account with respect to a Deferred Compensation Contribution for a Plan Year which the Participant has elected to have payable in the form of installments based upon the Participant's designation on his or her Election Form for that Plan Year shall be payable to him or her in the form of installments, and that portion of the Participant's Account with respect to a Deferred Compensation Contribution for a Plan Year which the Participant has elected to have payable in the form of a lump sum based upon the Participant's designation on his or her Election Form for that Plan Year shall be payable to him or her in the form of a lump sum, at such time as provided below. (B) Payment of a Participant's benefit in the form of installments and/or a lump sum shall commence or shall be payable, as applicable, within 60 days following the Participant's death or payout commencement date specified in the applicable Election Form. Notwithstanding the foregoing, the Committee may in its sole and absolute discretion disregard an installment election by the Participant and direct the payment of the Participant's benefit in a single lump sum, if the total amount of the benefit does not exceed $25,000. If the Participant dies before all installment benefits have been paid, the remaining installments shall be paid (over the remaining period) to his or her Beneficiary; provided, that the Committee in its sole and absolute discretion may determine to pay the value of the Account to the Beneficiary in a lump sum. (C) A Participant may designate or change at any time the Beneficiary to receive the Participant's benefits hereunder in the event of his or her death. Any such designation shall be made on a form provided by the Committee for that purpose, and shall not be effective until the form is filed with the Committee. A form of beneficiary designation is attached hereto as Exhibit B, which form the Committee may modify from time to time. Spousal consent is required if a married Participant wishes to name a primary Beneficiary other than his or her spouse. If no Beneficiary is designated, or if a designated Beneficiary shall not survive to receive all payments due hereunder, all or such part of the Participant's 7 Account as have not been distributed shall be payable to the Participant's spouse, and, if no spouse survives, to the Participant's children, with equal shares among living children and with the living descendants of a deceased child receiving equal portions of the deceased child's share, and in the absence of spouse or descendant, to the Participant's estate. For purposes of this paragraph, "descendant" means all persons who are descended from the person referred to, either by legitimate birth to or legal adoption by such person, or any of such person's legitimately born or legally adopted descendants except descendants adopted by other persons. The Participant may designate a Beneficiary's estate or other conditional Beneficiaries in the event the first designated Beneficiary does not survive to receive full payment. Section 5.03 Hardship Withdrawals for Disability or Unforeseeable ---------------------------------------------------- Emergencies. ----------- (A) Amount. Upon Committee approval, in the case of ------ Disability of a Participant or an unforeseeable emergency with respect to a Participant, a Participant shall be permitted to (1) make a cash withdrawal, in any whole percentage increment or dollar amount, of up to one hundred percent (100%) of the amount in his or her Account, and/or (2) suspend any deferrals required to be made by him or her, for such period as the Committee may approve. However, the amount of any distribution under this section in the case of an unforeseeable emergency or Disability shall be limited to the amount necessary to defray the hardship expense which is not reasonably available from other sources outside the Plan and which constitutes an unforeseeable emergency. For this purpose, the Bank may accept the written statement of the Participant stating the nature of his or her immediate and heavy financial need, his or her financial resources, and the fact that the amount of withdrawal requested is not reasonably available from other sources. (B) Withdrawal Procedure. A Participant wishing to withdraw -------------------- any amount hereunder shall do so by making application therefor which demonstrates to the satisfaction of the Committee (in its sole and absolute discretion) that the Participant is confronted by Disability or by a financial hardship due to an unforeseeable emergency. Application for withdrawals shall be made on such forms as the Committee prescribes and may be made at any time, effective as of the first day of the month following at least fifteen (15) days' notice to the Committee. Distribution of withdrawals shall be made in a lump sum as soon as is administratively possible following such date. Withdrawal distributions shall be based on the value of the Participant's Account as of the last day of the month prior to the date of the withdrawal, subject to quarterly interest accrual. (C) Definition of Unforeseeable Emergency. For purposes of ------------------------------------- this section, "unforeseeable emergency" includes severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant (not resulting in Disability, however) or of a dependent (as defined in section 152(a) of the Internal Revenue Code of 1986, as amended) of the 8 Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The circumstances that will constitute an unforeseeable emergency will depend upon the facts of each case, but, in any case, no withdrawal shall be permitted to the extent that such hardship is or may be relieved: (1) Through reimbursement or compensation by insurance or otherwise; (2) By liquidation of the Participant's assets (not including qualified retirement plan benefits), to the extent the liquidation of such assets would not itself cause severe financial hardship; or (3) By cessation of deferrals under the Plan. Section 5.04 Non-Emergency Withdrawal. A Participant may elect (on a form ------------------------ provided by the Committee), at any time, to withdraw all of his or her Deferred Compensation Contribution Account, less a 10% withdrawal penalty which shall be forfeited upon such withdrawal. No partial withdrawals are allowed. Upon such a withdrawal, the Participant's participation in the Plan shall cease, and the Participant may not participate in the Plan for two (2) Plan Years following the Plan Year in which the withdrawal occurs. Section 5.05 Regulatory Accelerated Payout. If at any time any Subsidiary ----------------------------- that is a bank is determined to be "significantly undercapitalized" pursuant to the prompt corrective action provisions of federal banking law, then, notwithstanding the general provisions of this Article V above, the Subsidiary shall immediately distribute to such Subsidiary's Participants or Beneficiaries a lump sum cash amount equal to the Account balances of such distributees. In the event bank Subsidiaries of the Company constituting more than two-thirds (2/3) of the net assets of the Company have been determined to be "significantly undercapitalized" as defined above, the Company shall make a similar immediate payout to the Company's Participants and Beneficiaries. All determinations for purposes of this Section 5.05 shall be made by the Committee in its sole and absolute discretion. ARTICLE VI ---------- CREDITOR RIGHTS; NO TRUST ------------------------- By participating in the Plan, a Participant shall become a mere unsecured creditor of the Company or a Subsidiary. No assets of the Company or a Subsidiary shall be placed in trust or otherwise set aside from the claims of general creditors of the Company or a Subsidiary for the benefit of any Participant. A Participant shall have the mere promise of the Company or a Subsidiary to pay deferred compensation in the future. A Participant's right to benefit payments under the Plan are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by creditors of the Participant or his Beneficiary. 9 The foregoing not withstanding, upon the occurrence of a Change in Control as the term is defined below, the Company shall create an irrevocable trust, the assets of which are subject to the claims of general creditors of the Company or a Subsidiary (the "Rabbi Trust"), and transfer all amounts credited to the Deferred Compensation Contribution Account of each Participant to such Rabbi Trust. For purposes of the Plan, the term "Change in Control" shall mean the first to occur of any of the following events: (A) Any "person" (as that term is used in Section 13 and 14(d)(2) of the Securities Exchange Act of 1934 ("Exchange Act")) becomes the beneficial owner (as that term is used in Section 13(d) of the Exchange Act), directly or indirectly, of 25% or more of the Company's capital stock entitled to vote in the election of Directors; (B) During any period of not more than two consecutive years, not including any period prior to the adoption of this Trust, individuals who, at the beginning of such period constitute the Board of Directors of the Company, and any new Director (other than a Director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (A), (C), (D) and (E) of this Article) whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least three-fourths (3/4ths) of the Directors then still in office, either were Directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (C) The shareholders of the Company approve any consolidation or merger of the Company, other than a consolidation or merger of the Company in which the holders of the common stock of the Company immediately prior to the consolidation or merger hold more than 50% of the common stock of the surviving corporation immediately after the consolidation or merger; (D) The shareholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company; or (E) The shareholders of the Company approve the sale or transfer of substantially all of the Company's assets to parties that are not within a "controlled group of corporations" (as defined in Code Section 1563) in which the Company is a member. ARTICLE VII ----------- ADMINISTRATION OF PLAN ---------------------- Section 7.01 Plan Administration. The administration of the Plan shall be ------------------- under the supervision of the Committee, which shall see that the Plan is carried out, in accordance with its terms, for the exclusive benefit of persons entitled to participate in the Plan without discrimination among them. Committee members must recuse themselves with respect to any 10 decisions of the Committee relating to that particular member individually. The Committee's powers will include, but will not be limited to, the following authority, in addition to all other powers provided by this Plan: (A) To make and enforce such rules and regulations as it deems necessary or proper for the efficient administration of the Plan; (B) To interpret the Plan, its interpretation thereof in good faith to be final and conclusive on all persons claiming benefits under the Plan; (C) To decide all questions concerning the Plan and the eligibility of any person to participate in the Plan; (D) To appoint such agents, counsel, accountants, consultants and other persons as may be required to assist in administering the Plan; and (E) To allocate and delegate its responsibilities under the Plan and to designate other persons to carry out any of its responsibilities under the Plan, any such allocation, delegation or designation to be in writing. Section 7.02 Examination of Records. The Committee will make available to ---------------------- each Participant such of his or her records under the Plan as pertain to the Participant, for examination at reasonable times during normal business hours. Section 7.03 Nondiscriminatory Exercise of Authority. Whenever, in the --------------------------------------- administration of the Plan, any discretionary action by the Committee is required, the Committee shall exercise its authority in a nondiscriminatory manner so that all persons similarly situated will receive substantially the same treatment. The Committee is given broad discretion to interpret and construe the Plan and to carry out its responsibilities hereunder. Subject to the rights of appeal set forth in Section 7.04, decisions and interpretations of the Committee shall be final, conclusive, and binding once made and shall be entitled to judicial deference, and shall be upheld unless found to be arbitrary or capricious. Section 7.04 Claim For Benefits and Review of Denial. --------------------------------------- (A) Submission of Claim. A Participant or Beneficiary (the ------------------- "Claimant") may file a claim for benefits under the Plan by writing a letter to the Committee which requests the determination of the Claimant's entitlement to benefits and which states the basis for the claim. The claim must be dated and signed by the Claimant, and must contain the Claimant's address and telephone number. (B) Denial of Claim. If a claim is wholly or partially denied, the --------------- Committee shall, within ninety (90) days after receipt of the claim, provide written notice to the Claimant setting forth the following in a manner calculated to be understood by the Claimant: (1) The specific reason or reasons for the denial; 11 (2) Specific reference to pertinent Plan provisions on which the denial is based; (3) A description of any additional material or information necessary for the Claimant to perfect the claim and an explanation of why such material or information is necessary; and (4) Appropriate information as to the steps to be taken if the Claimant wishes to submit his or her claim for review. If special circumstances require an extension of time for processing the claim, the Committee may extend the period for an additional ninety (90) days by furnishing written notice of the extension to the Claimant prior to the termination of the initial ninety 90-day period. If notice of denial of the claim is not furnished to a Claimant within these periods, and the claim has not been granted within these periods, the claim shall be deemed denied for the purposes of review. (C) Appeal From Denial of Claim. A Claimant may appeal the denial of --------------------------- a claim to the Committee by delivering to the Committee a written application for review within sixty (60) days after receipt by the Claimant of written notification of denial of the claim, or such longer period as the Committee may, in its reasonable discretion, permit. The written application shall be dated and signed by the Claimant or his or her authorized representative and shall request a review of the prior denial of the claim. The Claimant shall be entitled to a full and fair review of the denial of his or her claim, including the opportunity for the Claimant or his or her authorized representative to review pertinent documents and to submit issues and comments in writing. (D) Review of Appeal. The Committee shall make its decision on the ---------------- appeal within sixty (60) days after receipt of the request for review, unless special circumstances (such as the need to hold a hearing if, in the Committee's determination, a hearing is necessary or advisable) require an extension of time, in which case a decision shall be rendered as soon as possible, but not later than one hundred twenty (120) days after receipt of the request for review. If such an extension of time for review is required because of special circumstances, written notice of the extension shall be furnished to the Claimant prior to the commencement of the extension. If the decision on review is not furnished within these time limits, the claim shall be deemed denied on review. The decision on review shall be in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by the Claimant, and specific references to the pertinent Plan provisions on which the decision is based. (E) Legal Action. Compliance with the administrative appeal ------------ provisions of this Section 7.04 is a mandatory prerequisite to a Claimant's right to commence any legal action with respect to any claim for benefits under this Plan. 12 Section 7.05 Correction of Administrative Errors. If an error is made in ----------------------------------- the administration of the Plan, the Committee shall promptly correct the error upon its discovery. For this purpose, "administration" shall encompass the entire operation of the Plan, including, but not limited to, eligibility, participation and benefit calculation and distribution. If a Claimant (as defined in Section 7.04) has been denied a benefit payment due to such administrative oversight, the Committee shall determine the correct interest of the Claimant and the Company or Subsidiary shall pay an amount on behalf of the Claimant as is necessary to rectify the error. If an excessive payment has been made for a Participant or Beneficiary, the Committee shall advise the Participant or Beneficiary of the error and shall take such actions on the Plan's behalf as are necessary to retrieve the excessive payment. Section 7.06 Participant Applications and Notices. Any Participant or ------------------------------------ Beneficiary applications or notices required to be made to the Committee hereunder shall be made to the Committee at the Company's principal office address, and shall be deemed made upon personal delivery, two (2) days following posting by express mail (postage prepaid), Federal Express or similar overnight carrier, or five (5) days after sending by ordinary mail, postage prepaid. ARTICLE VIII ------------ AMENDMENT AND TERMINATION OF PLAN --------------------------------- Section 8.01 Amendment. The Company shall have the right to amend this --------- Plan from time to time, and to amend or cancel any such amendments. Plan amendments shall be stated in an instrument executed by the Company and each Subsidiary adopting such amendment in the same manner as this Plan, and this Plan shall be deemed to have been amended in the manner and at the time therein set forth and all Participants and Beneficiaries shall be bound thereby; provided, however, that no amendments shall be effective which shall attempt to reduce the Account balance of any Participant or Beneficiary. Section 8.02 No Contractual Obligation. It is the expectation of the ------------------------- Company and the Subsidiaries that they will continue the Plan indefinitely, but the continuation thereof is not assumed as a contractual obligation by the Company or any Subsidiary. The Plan may be discontinued or terminated with respect to the Company or any Subsidiary at any time by action of the Company or Subsidiary. Discontinuance or termination of the Plan shall not have the effect of depriving any Participant or Beneficiary of any benefit owed under the Plan as of the date of termination of the Plan. Section 8.03 Procedure Upon Termination. Upon the termination of the Plan -------------------------- by the Company, the Company shall proceed as soon as administratively feasible, but in any event within one (1) year from such effective date, to distribute all of the Participants' Accounts owed under the Plan. ARTICLE IX ---------- MISCELLANEOUS PROVISIONS ------------------------ 13 Section 9.01 Information To Be Furnished. Participants and Beneficiaries --------------------------- shall provide the Committee with such information and evidence, and shall sign such documents, as may reasonably be requested from time to time for the purpose of administration of the Plan. Section 9.02 Limitation on Participants' Rights. Participation in the ---------------------------------- Plan shall not give any person the right to continued employment, or any right or interest in the Plan other than as herein provided. The Company and each Subsidiary reserves the right to dismiss any person without any liability for any claim either against the Plan, except to the extent herein provided, or against the Company or Subsidiary. All benefits provided hereunder shall be provided solely by the Company or Subsidiary from its general assets. Section 9.03 Receipt and Release. Any payment on behalf of any ------------------- Participant or his or her legal representative or Beneficiary in accordance with the provisions of this Plan shall be, to the extent thereof, in full satisfaction of all claims against the Company or Subsidiary and the Company or Subsidiary may require such Participant, legal representative or Beneficiary, as a condition precedent to such payment, to execute a receipt and release to such effect. Section 9.04 Nonassignability. None of the benefits, payments, proceeds ---------------- or claims of any Participant or Beneficiary shall be subject to any claim of any creditor of any Participant or Beneficiary and, in particular, the same shall not be subject to attachment or garnishment or other legal process by any creditor of any Participant or Beneficiary, nor shall any Participant or Beneficiary have any right to alienate, anticipate, commute, pledge, encumber or assign any of the benefits or payments or proceeds which he or she may expect to receive under this Plan. Section 9.05 Incompetency. Every person receiving or claiming benefits ------------ under the Plan shall be conclusively presumed to be mentally competent and of age until the date on which the Committee receives a written notice, in a form and manner acceptable to the Committee, that such person is incompetent or a minor, for whom a guardian or other person legally vested with the care of his or her person or estate has been appointed; provided, however, that if the Committee shall find that any person to or for whom a benefit is payable under the Plan is unable to care for his or her affairs because of incompetency, or is a minor, any payment due (unless a prior claim therefor shall have been made by a duly appointed legal representative) may be paid to the spouse, a child, a parent or a brother or sister, or to any person or institution deemed by the Committee to have incurred expense for such person otherwise entitled to payment. To the extent permitted by law, any such payment so made shall be a complete discharge of liability therefor under the Plan. Section 9.06 No Guarantee of Tax Consequences. The Company and the -------------------------------- Subsidiaries make no commitment or guarantee that any Deferred Compensation Contributions or other benefits hereunder provided or to be provided to or for the benefit of a Participant or Beneficiary will be excludable from the Participant's or Beneficiary's gross income for federal or state income tax purposes, or that any other federal or state tax treatment will apply to or be available to any Participant or Beneficiary. Section 9.07 Indemnification of Company and Subsidiaries by Participants. ----------------------------------------------------------- If a Deferred Compensation Contribution or other amount is allocated to an Account hereunder for any Participant and such allocation is taxable to the Participant, such Participant shall indemnify 14 and reimburse the Company and Subsidiaries for any liability they may incur for failure to withhold federal or state income tax or Social Security tax from such payments. However, such indemnification and reimbursement shall not exceed the amount of additional federal and state income tax and interest that the Participant would have owed if the amount had been paid to the Participant as regular cash Compensation, plus the Participant's share of any Social Security tax that would have been paid on such Compensation, less any such additional income and Social Security tax actually paid by the Participant. Section 9.08 Benefits Solely From General Assets. The benefits provided ----------------------------------- hereunder will be paid solely from the general assets of the Company or Subsidiary, as applicable. This Plan is an unfunded Plan, with no segregated or separate assets required. No Participant or Beneficiary or other person shall have any claim against, right to, or security or other interest in, any fund, account or asset of the Company or Subsidiary from which any payment under the Plan may be made. All amounts of compensation deferred under the Plan, all property and rights purchased with such amounts, and all income attributable to such amounts, property or rights, shall remain (until made available to the Participant or other Beneficiary) solely the property and rights of the Company or Subsidiary (without being restricted to the provision of benefits under the Plan) subject only to the claims of the general creditors of the Company or Subsidiary, as applicable. Section 9.09 Governing Law. This Plan shall be construed, administered ------------- and enforced according to the laws of California. Section 9.10 Distribution in the Event of Taxation or ERISA Coverage. ------------------------------------------------------- If, for any reason, all or any portion of a Participant's Account under this Plan becomes taxable to the Participant prior to receipt, a Participant may petition the Committee for a distribution of that portion of his or her Account that has become taxable. Upon the grant of such a petition, which grant shall not be unreasonably withheld, the Company or Subsidiary shall distribute to the Participant immediately available funds in an amount equal to the taxable portion of his or her Account. If the petition is granted, the tax liability distribution shall be made within 90 days of the date when the Participant's petition is granted. Such a distribution shall reduce the Participant's Account. The Committee shall also distribute a Participant's Account immediately in a lump sum in the event of a judicial or administrative decision, or an opinion of Company's counsel, that such Participant is not a member of a "select group of management or highly compensated employees" within the meaning of Title I of ERISA (determined without regard to any termination of employment or termination of Director status with the Company or a Subsidiary). Section 9.11 Taxes and Withholding. The Company or Subsidiary may --------------------- withhold from any distribution under this Plan any and all employment and income taxes that are required to be withheld under applicable law. Section 9.12 Adoption by Subsidiaries. Any corporation that is now or ------------------------ hereafter becomes a Subsidiary may adopt this Plan by executing a counterpart signature page hereto and furnishing written notice of such adoption to the Committee. 15 EX-10.14 10 0010.txt GREATER BAY BANCORP 1996 STOCK OPTION PLAN Exhibit 10.14 GREATER BAY BANCORP 1996 STOCK OPTION PLAN, AS AMENDED ------------------------------------------------------ As of January 23, 2000 1. PURPOSE. ------- The purpose of the Plan is to offer selected employees, directors and consultants an opportunity to acquire a proprietary interest in the success of the Company, or to increase such interest, by purchasing Shares of the Company's Common Stock. The Plan provides for the grant of Nonstatutory Options, ISOs intended to qualify under Section 422 of the Code, and the grant of Restricted Stock Awards. 2. DEFINITIONS. ----------- (a) "Board of Directors" shall mean the Board of Directors of the Company, ------------------ as constituted from time to time. (b) "Change in Control" shall mean the occurrence of any of the following ----------------- events: (i) A change in the composition of the Board of Directors, as a result of which fewer than one-half of the incumbent directors are directors who either: (A) Had been directors of the Company 24 months prior to such change; or (B) Were elected, or nominated for election, to the Board of Directors 24 months prior to such change and who were still in office at the time of the election or nomination; (ii) Any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) by the acquisition or aggregation of securities is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 50 percent or more of the combined voting power of the Company's then outstanding securities. For purposes of this Paragraph (ii), the term "person" shall not include an employee benefit plan maintained by the Company; (iii) The effective date of any merger, consolidation or other reorganization of the Company, other than a merger, consolidation or other reorganization of the Company in which the holders of the voting capital stock of the Company immediately prior to the merger, consolidation or other reorganization hold more that 50 percent of the voting capital stock of the surviving entity or its parent immediately after the consolidation, merger or other reorganization; (iv) The shareholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company; or (v) The shareholders of the Company approve the sale or transfer of substantially all of the Company's assets to parties that are not within a "controlled group of corporations" (as that term is defined in section 1563 of the Code) in which the Company is a member. (c) "Code" shall mean the Internal Revenue Code of 1986, as amended. ---- (d) "Committee" shall mean a committee of the Board of Directors, as --------- described in Section 3(a), or in the absence of such a committee, the Board of Directors. (e) "Company" shall mean Greater Bay Bancorp, a California corporation, ------- formerly known as Mid-Peninsula Bancorp, a California corporation. (f) "Employee" shall mean: -------- (i) Any individual who is a common-law employee of the Company or of a Subsidiary; (ii) A member of the Board of Directors; and (iii) An independent contractor who performs services for the Company or a Subsidiary and who is not a member of the Board of Directors. Service as an independent contractor or member of the Board of Directors shall be considered employment for all purposes of the Plan, except as provided in Section 4(a). (g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as ------------ amended. (h) "Exercise Price" shall mean the amount for which one Share may be -------------- purchased upon exercise of an Option, as specified by the Committee in the applicable Stock Option Agreement. (i) "Fair Market Value" shall mean the market price of Stock, determined ----------------- by the Committee as follows: (i) If Stock was traded over-the-counter on the date in question but was not traded on the Nasdaq system or the Nasdaq National Market System, then the Fair Market Value shall be equal to the mean between the last reported representative bid and asked prices quoted for such date by the principal automated inter-dealer quotation system on which Stock is quoted or, if Stock is not quoted on any such system, by the "Pink Sheets" published by the National Quotation Bureau, Inc.; (ii) If Stock was traded over-the-counter on the date in question and was traded on the Nasdaq system or the Nasdaq National Market System, then the Fair Market Value shall be equal to the last-transaction price quoted for such date by the Nasdaq system or the Nasdaq National Market System; 2 (iii) If Stock was traded on a stock exchange on the date in question, then the Fair Market Value shall be equal to the closing price reported by the applicable composite transactions report for such date; and (iv) If none of the foregoing provisions is applicable, then the Fair Market Value shall be determined by the Committee in good faith on such basis as it deems appropriate. In all cases, the determination of Fair Market Value by the Committee shall be conclusive and binding on all persons. (j) "Grantee" means an individual who holds a Restricted Stock Award. ------- (k) "ISO" shall mean an employee incentive stock option described in --- Section 422(b) of the Code. (l) "Nonstatutory Option" shall mean a stock option not described in ------------------- Sections 422(b) or 423(b) of the Code. (m) "Option" shall mean an ISO or Nonstatutory Option granted under the ------ Plan and entitling the holder to purchase Shares. (n) "Optionee" shall mean an individual who holds an Option. -------- (o) "Plan" shall mean this Greater Bay Bancorp 1996 Stock Option Plan, as ---- it may be amended from time to time. (p) "Restricted Stock" means shares of Common Stock issued or issuable ---------------- pursuant to a grant of Restricted Stock Award. (q) "Restricted Stock Award" means the right to earn Restricted Stock under ---------------------- the Plan. (r) "Restricted Stock Award Agreement" means a written agreement between -------------------------------- the Company and the Grantee which contains the terms, conditions and restrictions pertaining to his or her Restricted Stock Award. (s) "Restrictions" shall mean (a) the restrictions on sale or other ------------ transfer (b) the exposure to forfeiture set forth in Section 4 of the Restricted Award Agreement and/or (c) the restrictions relating to performance, if any, set forth on Appendix A of the Restricted Stock Award Agreement. (t) "Retirement" shall have the same meaning as "Retirement," as defined in ---------- the Greater Bay Bancorp 401(k) Profit Sharing Plan. (u) "Service" shall mean service as an Employee. ------- (v) "Share" shall mean one share of Stock, as adjusted in accordance with ----- Section 9 (if applicable). 3 (w) "Stock" shall mean the Common Stock of the Company. ----- (x) "Stock Option Agreement" shall mean the agreement between the Company ---------------------- and an Optionee which contains the terms, conditions and restrictions pertaining to his or her Option. (y) "Subsidiary" shall mean any corporation, if the Company and/or one or ---------- more other Subsidiaries own not less than 50 percent of the total combined voting power of all classes of outstanding stock of such corporation. A corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date. (z) "Substitute Option" shall mean an option described in Section 6(j). ----------------- (aa) "Substitute Restricted Stock Award" shall mean a restricted stock --------------------------------- award described in Section 7(m). (bb) "Total and Permanent Disability" shall mean that the Optionee or ------------------------------ Grantee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last, for a continuous period of not less than one year. 3. ADMINISTRATION. -------------- (a) Committee Membership. The Board of Directors shall have the authority -------------------- to administer the Plan but may delegate its administrative powers under the Plan, in whole or in part, to one or more committees of the Board of Directors. With respect to the participation of Employees who are subject to Section 16 of the Exchange Act, the Plan may be administered by a committee composed solely of two or more members of the Board of Directors who qualify as "nonemployee directors" as defined in Securities and Exchange Commission Rule 16b-3 under the Exchange Act. The Plan may be administered by a committee composed solely of two or more members of the Board of Directors who qualify as "outside directors" as defined by the Internal Revenue Service for awards intended to qualify for an exemption under Section 162(m)(4)(C) of the Code. (b) Committee Procedures. The Board of Directors shall designate one of -------------------- the members of any Committee appointed under paragraph (a) as chairman. Any such Committee may hold meetings at such times and places as it shall determine. The acts of a majority of the Committee members present at meetings at which a quorum exists, or acts reduced to or approved in writing by all Committee members, shall be valid acts of the Committee. (c) Committee Responsibilities. Subject to the provisions of the Plan, any -------------------------- such Committee shall have full authority and discretion to take the following actions: (i) To interpret the Plan and to apply its provisions; (ii) To adopt, amend or rescind rules, procedures and forms relating to the Plan; 4 (iii) To authorize any person to execute, on behalf of the Company, any instrument (including, but not limited to, Stock Option Agreements and Restricted Stock Award Agreements) required to carry out the purposes of the Plan; (iv) To determine when Options and Restricted Stock Awards are to be granted under the Plan; (v) To select the Optionees and Grantees; (vi) To determine the number of Shares to be made subject to each Option and Restricted Stock Award; (vii) To prescribe the terms and conditions of each Option, including (without limitation) the Exercise Price, to determine whether such Option is to be classified as an ISO or as a Nonstatutory Option, and to specify the provisions of the Stock Option Agreement relating to such Option; (viii) To prescribe the terms and conditions of each Restricted Stock Award, including (without limitation) Restrictions (if any), and to specify the provisions of the Restricted Stock Award Agreement relating to such Restricted Stock Award; (ix) To amend any outstanding Stock Option Agreement and Restricted Stock Award Agreement, subject to applicable legal restrictions and to the consent of the Optionee or Grantee who entered into such agreement; (x) To prescribe the consideration for the grant of each Option and Restricted Stock Award under the Plan and to determine the sufficiency of such consideration; and (xi) To take any other actions deemed necessary or advisable for the administration of the Plan. All decisions, interpretations and other actions of the Committee shall be final and binding on all Optionees and Grantees, and all persons deriving their rights from an Optionee or Grantee. No member of the Committee shall be liable for any action that he or she has taken or has failed to take in good faith with respect to the Plan or any Option or Restricted Stock Award. 4. ELIGIBILITY. ----------- (a) General Rules. Only Employees shall be eligible for designation as ------------- Optionees or Grantees by the Committee. In addition, only Employees who are common-law employees of the Company or a Subsidiary shall be eligible for the grant of ISOs. (b) Ten-Percent Stockholders. An Employee who owns more than 10 percent of ------------------------ the total combined voting power of all classes of outstanding stock of the Company or any of its Subsidiaries shall not be eligible for the grant of an ISO unless: (i) The Exercise Price is at least 110 percent of the Fair Market Value of a Share on the date of grant; and 5 (ii) Such ISO by its terms is not exercisable after the expiration of five years from the date of grant. (c) Attribution Rules. For purposes of Subsection (b) above, in ----------------- determining stock ownership, the rules of Section 424(d) of the Code shall apply. (d) Outstanding Stock. For purposes of Subsection (b) above, "outstanding ----------------- stock" shall include all stock actually issued and outstanding immediately after the grant. "Outstanding stock" shall not include shares authorized for issuance under outstanding options held by the Employee or by any other person. 5. STOCK SUBJECT TO PLAN. --------------------- (a) Basic Limitation. Shares reserved for issuance pursuant to the ---------------- exercise of Options and Restricted Stock Awards granted under the Plan shall be authorized but unissued Shares. The aggregate number of Shares which may be issued pursuant to the exercise of Options and Restricted Stock Awards granted under the Plan shall be 4,915,780, all of which may be issued pursuant to the exercise of ISOs, Nonstatutory Options or Restricted Stock Awards granted under the Plan. The number of Shares which are subject to Options or Restricted Stock Awards outstanding at any time under the Plan shall not exceed the number of Shares which then remain available for issuance under the Plan. The Company, during the term of the Plan, shall at all times reserve and keep available sufficient Shares to satisfy the requirements of the Plan. (b) Additional Shares. In the event that any outstanding option granted ----------------- under this Plan, including Substitute Options, or the Prior Plan, for any reason expires or is canceled or otherwise terminated, the Shares allocable to the unexercised portion of such option shall become available for the purposes of this Plan. In the event that any outstanding Restricted Stock Award granted under this Plan, including Substitute Restricted Stock Awards, for any reason expires or is canceled, forfeited or otherwise terminated, the Shares allocable to the unearned portion of such Restricted Stock Award shall become available for the purposes of this Plan. 6. TERMS AND CONDITIONS OF OPTIONS. ------------------------------- (a) Stock Option Agreement. Each grant of an Option under the Plan shall ---------------------- be evidenced by a Stock Option Agreement executed by the Optionee and the Company. Such Option shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions which are not inconsistent with the Plan and which the Committee deems appropriate for inclusion in a Stock Option Agreement. The provisions of the various Stock Option Agreements entered into under the Plan need not be identical. (b) Number of Shares. Each Stock Option Agreement shall specify the number ---------------- of Shares that are subject to the Option and shall provide for the adjustment of such number in accordance with Section 9. Options granted to any Optionee in a single calendar year shall in no event cover more than 60,000 Shares, subject to ------ adjustment in accordance with Section 9. The Stock Option Agreement shall also specify whether the Option is an ISO or a Nonstatutory Option. 6 (c) Exercise Price. Each Stock Option Agreement shall specify the Exercise -------------- Price. The Exercise Price of an Option shall not be less than 100 percent of the Fair Market Value of a Share on the date of grant, except as otherwise provided in Section 4(b) with respect to ISO's and Section 6(i) with respect to Substitute Options. The Exercise Price shall be payable in a form described in Section 8. (d) Withholding Taxes. As a condition to the exercise of an Option, the ----------------- Optionee shall make such arrangements as the Committee may require for the satisfaction of any federal, state, local or foreign withholding tax obligations that arise in connection with such exercise. The Optionee shall also make such arrangements as the Committee may require for the satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in connection with the disposition of Shares acquired by exercising an Option. The Committee may permit the Optionee to satisfy all or part of his or her tax obligations related to the Option by having the Company withhold a portion of any Shares that otherwise would be issued to him or her or by surrendering any Shares that previously were acquired by him or her. Such Shares shall be valued at their Fair Market Value on the date when taxes otherwise would be withheld in cash. The payment of taxes by assigning Shares to the Company, if permitted by the Committee, shall be subject to such restrictions as the Committee may impose. (e) Exercisability. Each Stock Option Agreement shall specify the date -------------- when all or any installment of the Option is to become exercisable. The vesting of any Option shall be determined by the Committee at its sole discretion; provided however, that: (i) Each Stock Option Agreement shall provide for immediate exercisability of the entire Option in the event of a Change in Control. In addition, each Stock Option Agreement shall provide that during the 15 day period prior to the effective date of a merger, consolidation or other reorganization which would constitute a Change in Control, each holder of an Option shall have the right, subject to earlier expiration or termination of the Option in accordance with its terms, to exercise the entire Option which exercise shall be deemed effective immediately prior to the effective date of such merger, consolidation or other reorganization and be subject to the occurrence of such effective date. (ii) In the event that an Optionee's Service terminates, the Option shall be exercisable only to the extent the Option was vested as of the date of such termination, unless otherwise specified in the Optionee's Stock Option Agreement. (f) Term. Each Stock Option Agreement shall specify the term of the ---- Option. The term of an ISO shall not exceed 10 years from the date of grant, except as otherwise provided in Section 4(b). Subject to the preceding sentence, the Committee at its sole discretion shall determine when an Option is to expire. In the event that the Optionee's Service terminates: (i) As a result of such Optionee's death or Total and Permanent Disability, the term of the Option shall expire twelve months (or such other period specified in the Optionee's Stock Option Agreement) after such death or Total and Permanent Disability but not later than the original expiration date specified in the Stock Option Agreement. 7 (ii) As a result of termination by the Company for cause, the term of the Option shall expire thirty days after the Company's notice or advice of such termination is dispatched to Employee, but not later than the original expiration date specified in the Stock Option Agreement. For purposes of this Paragraph (ii), "cause" shall mean an act of embezzlement, disclosure of any of the secrets or confidential information of the Company, the inducement of any client or customer of the Company to break any contract with the Company, or the inducement of any principal for whom the Company acts as agent to terminate such agency relationship, the engagement of any conduct which constitutes unfair competition with the Company, the removal of Optionee from office by any court or bank regulatory agency, or such other similar acts which the Committee in its discretion determine to constitute good cause for termination of Optionee's Service. As used in this Paragraph (ii), Company includes Subsidiaries of the Company. (iii) As a result of termination for any reason other than Total and Permanent Disability, death or cause, the term of the Option shall expire three months (or such other period specified in the Optionee's Stock Option Agreement) after such termination, but not later than the original expiration date specified in the Stock Option Agreement. (g) Transferability. During an Optionee's lifetime, such Optionee's ISO(s) --------------- shall be exercisable only by him or her and shall not be transferable. An Optionee's Nonstatutory Options shall also not be transferable during the Optionee's lifetime, except to the extent otherwise permitted in the Optionee's Stock Option Agreement. Subject to prior permitted transfers, in the event of an Optionee's death, such Optionee's Option(s) shall not be transferable other than by will, by written beneficiary designation or by the laws of descent and distribution. (h) No Rights as a Stockholder. An Optionee, or a transferee of an -------------------------- Optionee, shall have no rights as a stockholder with respect to any Shares covered by his or her Option until the date of the issuance of a stock certificate for such Shares. No adjustments shall be made, except as provided in Section 9. (i) Modification, Extension and Renewal of Options. Within the limitations ---------------------------------------------- of the Plan, the Committee may modify, extend or renew outstanding Options or may accept the cancellation of outstanding Options (to the extent not previously exercised) in return for the grant of new Options at the same or a different price. The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, impair such Optionee's rights or increase his or her obligations under such Option. (j) Substitute Options. If the Company at any time should succeed to the ------------------ business of another corporation through merger or consolidation, or through the acquisition of stock or assets of such corporation, Options may be granted under the Plan in substitution of options previously granted by such corporation to purchase shares of its stock which options are outstanding at the date of the succession ("Surrendered Options"). It is specifically intended that this section of the Plan shall authorize the granting and issuance of Substitute Options pursuant to the terms of: (i) the Amended and Restated Agreement and Plan of Reorganization by and between Mid-Peninsula Bancorp and Cupertino National Bancorp dated June 26, 1996 and (ii) the Agreement and Plan of Reorganization by and among the Company, GBB Acquisition Corp., and Peninsula Bank of Commerce dated November 3, 1997. The Committee shall have discretion to determine 8 the extent to which such Substitute Options shall be granted, the persons to receive such Substitute Options, the number of Shares to be subject to such Substitute Options, and the terms and conditions of such Substitute Options which shall, to the extent permissible within the terms and conditions of the Plan, be equivalent to the terms and conditions of the Surrendered Options. The Exercise Price may be determined without regard to Section 6(c); provided however, that the Exercise Price of each Substitute Option shall be an amount such that, in the sole and absolute judgment of the Committee (and if the Substitute Options are to be ISO's, in compliance with Section 424(a) of the Code), the economic benefit provided by such Substitute Option is not greater than the economic benefit represented by the Surrendered Option as of the date of the succession. 7. TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS. ----------------------------------------------- (a) Restricted Stock Award Agreement. Each grant of a Restricted Stock -------------------------------- Award under the Plan shall be evidenced by a Restricted Stock Award Agreement executed by the Grantee and the Company. Such Restricted Stock Award shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions, including any Restrictions, which are not inconsistent with the Plan and which the Committee deems appropriate for inclusion in a Restricted Stock Award Agreement. The Restricted Stock Award Agreement shall specify the purchase price (if any) for the Restricted Stock. The provisions of the various Restricted Stock Award Agreements entered into under the Plan need not be identical. (b) Number of Shares. Each Restricted Stock Award Agreement shall ---------------- specify the number of Shares that are subject to the Restricted Stock Award and shall provide for the adjustment of such number in accordance with Section 9. (c) Withholding Taxes. As a condition to the lapse of any Restrictions ----------------- to the Restricted Stock Award, the Grantee shall make such arrangements as the Committee may require for the satisfaction of any federal, state, local or foreign withholding tax obligations that arise in connection with such lapse. The Committee may permit the Grantee to satisfy all or part of his or her tax obligations related to the Restricted Stock Award by having the Company withhold a portion of any Shares that otherwise would be issued to him or her or by surrendering any Shares that previously were acquired by him or her. Such Shares shall be valued at their Fair Market Value on the date when taxes otherwise would be withheld in cash. The payment of taxes by assigning Shares to the Company, if permitted by the Committee, shall be subject to such restrictions as the Committee may impose. (d) Restrictions. Each Restricted Stock Award Agreement shall specify ------------ any Restrictions on the Restricted Stock Award. Each Restricted Stock Award Agreement shall specify the date(s) when all or any Restrictions to the Restricted Stock Award shall lapse or the Restrictions (if any) relating to performance satisfaction of which shall cause such Restrictions to lapse. The lapse of any Restrictions shall be determined by the Committee in its sole discretion, provided, however, that each Restricted Stock Award Agreement shall provide that all Restrictions shall lapse upon a Change in Control. 9 (e) Escrow of Restricted Stock. Until all Restrictions have expired or -------------------------- been removed, the Secretary or such other escrow holder as the Board of Directors may appoint shall retain custody of the stock certificates representing the Restricted Stock subject to the Award; provided, however, that in no event shall the Grantee retain physical custody of any certificates representing shares of Restricted Stock awarded to him or her. (f) Termination of Service and Forfeiture of Restricted Stock. Each --------------------------------------------------------- Restricted Stock Award Agreement shall specify the term of the Restricted Stock Award. Subject to the preceding sentence, the Committee at its sole discretion shall determine when a Restricted Stock Award is to expire. In the event that the Grantee's Service terminates: (i) As a result of such Grantee's death or Total and Permanent Disability, or in the event of Grantee's Retirement, the term of the Restricted Stock Award shall expire and any Restrictions on the Restricted Stock Awards immediately shall lapse upon such death, Total and Permanent Disability or Retirement but not later than the original expiration date specified in the Restricted Stock Award Agreement. (ii) As a result of termination by the Company for cause, or any other event resulting in the termination of Grantee's Service not specified in Section 7(f)(i) above, the term of the Restricted Stock Award shall expire thirty days after the Company's notice or advice of such termination is dispatched to Employee, but not later than the original expiration date specified in the Restricted Stock Award Agreement. In the event that a Grantee's Service terminates for cause, or any other event resulting in the termination of Grantee's service not specified in Section 7(f)(i) above, the Shares subject to the Restricted Stock Award shall be earned only to the extent the such Shares were earned as of the date of such termination, unless otherwise specified in the Grantee's Restricted Stock Award Agreement. In such event, the Grantee shall forfeit the right to earn any Restricted Stock subject to the Restricted Stock Award as to which vesting has not yet occurred, and the Restricted Stock so forfeited shall be returned to the Company. For purposes of this Paragraph (ii), "cause" shall mean an act of embezzlement, disclosure of any of the secrets or confidential information of the Company, the inducement of any client or customer of the Company to break any contract with the Company, or the inducement of any principal for whom the Company acts as agent to terminate such agency relationship, the engagement of any conduct which constitutes unfair competition with the Company, the removal of Grantee from office by any court or bank regulatory agency, or such other similar acts which the Committee in its discretion determine to constitute good cause for termination of Grantee's Service. As used in this Paragraph (ii), Company includes Subsidiaries of the Company. (g) No Fractional Shares. In determining the number of shares of -------------------- Restricted Stock which are earned, fractional shares shall be rounded down to the nearest whole number, provided that such fractional shares shall be aggregated and earned at such time as all Restrictions lapse or expire. 10 (h) Timing of Distributions: General Rule. Except as provided in ------------------------------------- Subsection (i) below, certificates representing Restricted Stock shall be distributed to the Grantee as soon as practicable after all Restrictions have lapsed or expired. (i) Conditions to Issuance of Certificates. The Company shall not be -------------------------------------- required to issue or deliver any certificate or certificates for shares of stock pursuant to this Agreement prior to fulfillment of all of the following conditions: (i) The listing of such shares on all stock exchanges on which such class of stock is then listed; (ii) The registration or qualification of such shares under any federal or state securities laws or under rulings or regulations of the Securities and Exchange Commission or of any other governmental regulatory body, which the Board of Directors shall, in its sole and absolute discretion, deem necessary or advisable; (iii) The obtaining of any approval or other clearance from any state or federal governmental agency which the Board of Directors shall, in its sole and absolute discretion, determine to be necessary or advisable; (iv) The lapse of such reasonable period of time as the Board of Directors may from time to time establish for reasons of administrative convenience; (v) The receipt by the Company of full payment for any applicable withholding tax. (j) Transferability. A Grantee's Restricted Stock Award shall not be --------------- transferable during the Grantee's lifetime, except to the extent otherwise permitted in the Grantee's Restricted Stock Award Agreement. Subject to prior permitted transfers, in the event of a Grantee's death, such Grantee's Restricted Stock Award(s) shall not be transferable other than by will, by written beneficiary designation or by the laws of descent and distribution. (k) Rights as Stockholder. Upon the delivery of Restricted Stock to the --------------------- escrow holder pursuant to the Restricted Stock Award Agreement, the Grantee shall have all the rights of a stockholder of the Company with respect to the Restricted Stock, subject to the Restrictions and the Restricted Stock Agreement, including the right to vote the Restricted Stock and the right to receive all dividends or other distributions paid or made with respect to the Restricted Stock; provided, however, that any additional Shares of Restricted Stock to which Grantee shall be entitled as a result of stock dividends, stock splits or any other form of recapitalization in respect of Shares of Restricted Stock subject to Restrictions shall also be subject to the Restrictions until the Restrictions on the underlying shares of Restricted Stock lapse or expire. (l) Modification, Extension and Renewal of Options. Within the ---------------------------------------------- limitations of the Plan, the Committee may modify, extend or renew outstanding Restricted Stock Awards or may accept the cancellation of outstanding Restricted Stock Awards (to the extent not previously earned) in return for the grant of new Restricted Stock Awards at the same or a different price. The foregoing notwithstanding, no modification of a Restricted Stock Award shall, without the 11 consent of the Grantee, impair such Grantee's rights or increase his or her obligations under such Restricted Stock Award. (m) Substitute Restricted Stock Award. If the Company at any time should --------------------------------- succeed to the business of another corporation through merger or consolidation, or through the acquisition of stock or assets of such corporation, Restricted Stock Awards may be granted under the Plan in substitution of restricted stock awards previously granted by such corporation with respect to shares of its stock which restricted stock awards are outstanding at the date of the succession ("Surrendered Restricted Stock Awards"). The Committee shall have discretion to determine the extent to which such Substitute Restricted Stock Awards shall be granted, the persons to receive such Substitute Restricted Stock Awards, the number of Shares to be subject to such Restricted Stock Awards, and the terms, conditions and restrictions of such Substitute Restricted Stock Awards which shall, to the extent permissible within the terms and conditions of the Plan, be equivalent to the terms, conditions and restrictions of the Surrendered Restricted Stock Awards. The Restrictions may be determined in the sole discretion of the Committee; provided however, that the Restrictions of each Substitute Restricted Stock Award shall be equivalent to the Restrictions represented by the Surrendered Restricted Stock Award as of the date of the succession. 8. PAYMENT FOR SHARES. ------------------ (a) General Rule. The entire consideration for Shares issued under the ------------ Plan shall be payable in lawful money of the United States of America at the time when such Shares are purchased, except as follows: (i) ISOs. In the case of an ISO granted under the Plan, payment ---- shall be made only pursuant to the express provisions of the applicable Stock Option Agreement. However, the Committee (at its sole discretion) may specify in the Stock Option Agreement that payment may be made pursuant to Subsections (b), (c) or (d) below. (ii) Nonstatutory Options. In the case of a Nonstatutory Option -------------------- granted under the Plan, the Committee (at its sole discretion) may accept payment pursuant to Subsections (b), (c), or (d) below. (iii) Restricted Stock Awards. In the case of a Restricted Stock ----------------------- Award granted under the Plan, payment (if any) shall be made only pursuant to the express provisions of the applicable Restricted Stock Award Agreement. (b) Surrender of Stock. To the extent that this Subsection (b) is ------------------ applicable, payment may be made all or in part with Shares which have already been owned by the Optionee or Grantee or his or her representative for more than 6 months and which are surrendered to the Company in good form for transfer. Such Shares shall be valued at their Fair Market Value on the date when the new Shares are purchased under the Plan. (c) Exercise/Sale. To the extent that this Subsection (c) is applicable, ------------- payment may be made by the delivery (on a form prescribed by the Company) of an irrevocable direction to a securities broker approved by the Company to sell Shares and to deliver all or part of the sales 12 proceeds to the Company in payment of all or part of the Exercise Price of the Option, or the consideration for the Restricted Stock Award, whichever the case may be, and any withholding taxes. (d) Exercise/Pledge. To the extent that this Subsection (d) is --------------- applicable, payment may be made by the delivery (on a form prescribed by the Company) of an irrevocable direction to pledge Shares to a securities broker or lender approved by the Company, as security for a loan, and to deliver all or part of the loan proceeds to the Company in payment of all or part of the Exercise Price of the Option, or the consideration for the Restricted Stock Award, whichever the case may be, and any withholding taxes. 9. ADJUSTMENT OF SHARES. -------------------- (a) General. In the event of a subdivision of the outstanding Stock, a ------- declaration of a dividend payable in Shares, a declaration of a dividend payable in a form other than Shares in an amount that has a material effect on the value of Shares, a combination or consolidation of the outstanding Stock (by reclassification or otherwise) into a lesser number of Shares, a recapitalization, a spinoff or a similar occurrence, the Committee shall make appropriate adjustments in one or more of: (i) The number of Shares available under Section 5 for future grants; (ii) The limit set forth in Section 6(b) and Section 7(b); (iii) The number of Shares covered by each outstanding Option and consideration for each outstanding Restricted Stock Award; or (iv) The Exercise Price under each outstanding Option and Restricted Stock Award. (b) Reorganizations. In the event that the Company is a party to a --------------- merger, consolidation or other reorganization which would constitute a Change in Control, such agreement may provide, subject to the provisions of Section 6(e)(i) and the proviso of Section 7(d) (which provide for the immediate acceleration of the vesting and exercisability of all shares subject to outstanding Options and the immediate lapse of all restrictions on Restricted Stock Awards), (i) for the assumption of outstanding Options and Restricted Stock Awards by the surviving corporation or its parent, for their continuation by the Company (if the Company is a surviving corporation), or (ii) for cancellation of the Options or Restricted Stock Awards upon payment of a cash settlement per Option or Restricted Stock Award equal to the difference between the amount to be paid for one Share under such agreement and the then-current Fair Market Value of such Share on an unrestricted basis, or (iii) in the event the agreement does not provide for either of the events specified in subparagraphs (i) and (ii) above, the cancellation of Options not exercised prior to the effective date of such merger, consolidation or other reorganization, in all cases without the Optionees' or Grantees' consent. (c) Reservation of Rights. Except as provided in this Section 9, an --------------------- Optionee or Grantee shall have no rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any dividend or any other increase or decrease in the number of shares of stock of 13 any class. Any issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Exercise Price of Shares subject to an Option and the number of or consideration for Shares subject to a Restricted Stock Award. The grant of an Option or Restricted Stock Award pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets. 10. SECURITIES LAWS. --------------- Shares shall not be issued under the Plan unless the issuance and delivery of such Shares complies with (or is exempt from) all applicable requirements of law, including (without limitation) the Securities Act of 1933, as amended, the rules and regulations promulgated thereunder, state securities laws and regulations, and the regulations of any stock exchange on which the Company's securities may then be listed. 11. NO RETENTION RIGHTS. ------------------- Neither the Plan nor any Option or Restricted Stock Award shall be deemed to give any individual a right to remain an employee or consultant of the Company or a Subsidiary. The Company and its Subsidiaries reserve the right to terminate the service of any employee or consultant at any time, with or without cause, subject to applicable laws and a written employment agreement (if any). 12. DURATION AND AMENDMENTS. ----------------------- (a) Term of the Plan. The Plan, as set forth herein, shall become ---------------- effective as of the Effective Date, provided that the Plan has been approved by the shareholders of the Company in the manner required by applicable law or regulation. The Plan, if not extended, shall terminate automatically ten years after the Effective Date, except that any ISO's granted under the Plan must be granted by September 18, 2006, ten years after the Plan was adopted by the Board of Directors. It may be terminated on any earlier date pursuant to Subsection (b) below. (b) Right to Amend or Terminate the Plan. The Board of Directors may ------------------------------------ amend, suspend or terminate the Plan at any time and for any reason. An amendment of the Plan shall be subject to the approval of the Company's shareholders only to the extent required by applicable laws or regulations. (c) Effect of Amendment or Termination. No Shares shall be issued or ---------------------------------- sold under the Plan after the termination thereof, except upon exercise of an Option granted prior to such termination. The termination of the Plan, or any amendment thereof, shall not adversely affect any Share previously issued or any Option or Restricted Stock Award previously granted under the Plan. 14 EX-10.16.2 11 0011.txt LETTER AMENDMENT AND REVOLVING LINE OF CREDIT NOTE Exhibit 10.16.2 September 30, 2000 Greater Bay Bancorp 2860 W. Bayshore Road Palo Alto, CA 94303 Attention: Kamran Husain Dear Mr. Husain: This letter amendment (this "Amendment") is to confirm the changes agreed upon between Wells Fargo Bank, National Association ("Bank") and Greater Bay Bancorp ("Borrower") to the terms and conditions of that certain letter agreement between Bank and Borrower dated as of November 4, 1999, as amended from time to time (the "Agreement"). For valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Bank and Borrower hereby agree that the Agreement shall be amended as follows to reflect said changes. 1. The Agreement is hereby amended (a) by deleting "November 2, 2000" as the last day on which Bank will make advances under the Line of Credit, and by substituting for said date "October 30, 2001," and (b) by deleting "Twenty Five Million Dollars ($25,000,000.00)" as the maximum principal amount available to Borrower under the Line of Credit, and by substituting for said amount "Forty Million Dollars ($40,000,000.00)," with such changes to be effective upon the execution and delivery to Bank of a promissory note substantially in the form of Exhibit A attached hereto (which promissory note shall replace and be deemed the Line of Credit Note defined in and made pursuant to the Agreement) and all other contracts, instruments and documents required by Bank to evidence such change. In no event shall proceeds of the Line of Credit be used to finance acquisitions. 2. Section 1.1(b) is hereby amended to read as follows: "(b) Borrowing and Repayment. Borrower may from time to time ----------------------- during the term of the Line of Credit borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions contained herein or in the Line of Credit Note; provided however, that (i) the total outstanding borrowings under the Line of Credit shall not at any time exceed the maximum principal amount available thereunder, as set forth above, and that (ii) Borrower shall maintain a zero balance on the Line of Credit for a period of 30 consecutive calendar days during the term of the Line of Credit." 3. Section V.3(a) is hereby amended to read as follows: "(a) not later than 95 days after and as of the end of each fiscal year, an audited consolidated financial statement of Borrower, prepared by independent certified public accountants acceptable to Bank, and an unconsolidated financial statement of Borrower, prepared by Borrower, in all cases to include balance sheet, income statement, and statement of cash flows, together with, for the audited statements, an unqualified opinion;" 4. The introductory paragraph of Section V.9 is hereby amended to read as follows: 9. Financial Condition. Maintain Borrower's financial condition ------------------- (and, with respect to paragraphs (c) and (d) below, cause all of Borrower's subsidiaries or Bank Subsidiaries (as applicable) to maintain their combined financial condition) as follows using generally accepted accounting principles consistently applied and used consistently with prior practices (except to the extent modified by the definitions herein), with compliance determined commencing with Borrower's financial statements for the period ending September 30, 1999: 5. The following is hereby added to the Agreement as Paragraph V.9(d): (d) Non-Performing Assets not greater than one and fifteen hundredths percent (1.15%) of all Bank Subsidiaries' total loans and OREO, determined as of the end of each fiscal quarter, with Non-Performing Assets defined as the sum of all Bank Subsidiaries' non-performing loans and OREO, and with OREO defined as other real estate owned. 6. Section V.10 (Other Indebtedness) is hereby deleted. 7. Section V.14 (Year 2000 Compliance) is hereby deleted. 8. In consideration of the changes set forth herein and as a condition to the effectiveness hereof, immediately upon signing this Amendment Borrower shall pay to Bank a non-refundable fee of $40,000.00. 9. Except as specifically provided herein, all terms and conditions of the Agreement remain in full force and effect, without waiver or modification. All terms defined in the Agreement shall have the same meaning when used herein. This Amendment and the Agreement shall be read together, as one document. 10. Borrower hereby remakes all representations and warranties contained in the Agreement and reaffirms all covenants set forth therein. Borrower further certifies that as of the date of Borrower's acknowledgment set forth below there exists no default or defined event of default under the Agreement or any promissory note or other contract, instrument or document executed in connection therewith, nor any condition, act or event which with the giving of notice or the passage of time or both would constitute such a default or defined event of default. 11. The effective date of this Amendment shall be October 19, 2000. Your acknowledgment of this Amendment shall constitute acceptance of the foregoing terms and conditions. If not acknowledged on or before October 31, 2000, Bank agreements herein shall be null and void. Sincerely, WELLS FARGO BANK, NATIONAL ASSOCIATION By: /s/ Julius L. Young Jr. Title: Vice President Acknowledged and accepted as of September 30, 2000: GREATER BAY BANCORP By: /s/ Steven C. Smith Title: Executive Vice President, Chief Administrative Officer and Chief Financial Officer By: /s/ Kamrain F. Husain Title: Senior Vice President, Finance & Risk Management REVOLVING LINE OF CREDIT NOTE $40,000,000.00 San Francisco, California October 19, 2000 FOR VALUE RECEIVED, the undersigned GREATER BAY BANCORP ("Borrower") promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") at its office at 420 Montgomery, San Francisco, California, or at such other place as the holder hereof may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of Forty Million Dollars ($40,000,000.00), or so much thereof as may be advanced and be outstanding, with interest thereon, to be computed on each advance from the date of its disbursement as set forth herein. DEFINITIONS: As used herein, the following terms shall have the meanings set forth after each, and any other term defined in this Note shall have the meaning set forth at the place defined: (a) "Business Day" means any day except a Saturday, Sunday or any other day on which commercial banks in California are authorized or required by law to close. (b) "Fixed Rate Term" means, for each advance requested hereunder, a period of three (3) months commencing initially on the Business Day on which such advance is made, and automatically renewing for a period of 3 months at the end of each such 3 month period (or renewed period), during which the outstanding principal amount under this Note related to such advance bears interest determined in relation to LIBOR as in effect on the first Business Day of the applicable 3 month period; provided however, that no Fixed Rate Term shall extend beyond the scheduled maturity date hereof. If any Fixed Rate Term would end on a day that is not a Business Day, then such Fixed Rate Term shall be extended to the next succeeding Business Day. (c) "LIBOR" means the rate per annum (rounded upward, if necessary, to the nearest whole 1/8 of 1%) and determined pursuant to the following formula: LIBOR = Base LIBOR ----------------- 100% - LIBOR Reserve Percentage "Base LIBOR" means the rate per annum for United States dollar deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the understanding that such rate is quoted by Bank for the purpose of calculating effective rates of interest for loans making reference thereto, on the first day of a Fixed Rate Term for delivery of funds on said date for a period of time approximately equal to the number of days in such Fixed Rate Term and in an amount approximately equal to the principal amount to which such Fixed Rate Term applies. Borrower understands and agrees that Bank may base its quotation of the Inter-Bank Market Offered Rate upon such offers or other market indicators of the Inter-Bank Market as Bank in its discretion deems appropriate including, but not limited to, the rate offered for U.S. dollar deposits on the London Inter-Bank Market. (ii) "LIBOR Reserve Percentage" means the reserve percentage prescribed by the Board of Governors of the Federal Reserve System (or any successor) for "Eurocurrency Liabilities" (as defined in Regulation D of the Federal Reserve Board, as amended), adjusted by Bank for expected changes in such reserve percentage during the applicable Fixed Rate Term. (d) "Prime Rate" means at any time the rate of interest most recently announced within Bank at its principal office as its Prime Rate, with the understanding that the Prime Rate is one of Bank's base rates and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto, and is evidenced by the recording thereof after its announcement in such internal publication or publications as Bank may designate. INTEREST: (a) Interest. The outstanding principal balance of this Note shall bear -------- interest (computed on the basis of a 360-day year, actual days elapsed) at a fixed rate per annum determined by Bank to be two fifths percent (0.40%) above LIBOR in effect on the first day of the applicable Fixed Rate Term. Bank is hereby authorized to note the interest rate applicable to this Note during the term hereof and any payments made thereon on Bank's books and records (either manually or by electronic entry) and/or on any schedule attached to this Note, which notations shall be prima facie evidence of the accuracy of the information noted. (b) Additional LIBOR Provisions. --------------------------- (i) If Bank at any time shall determine that for any reason adequate and reasonable means do not exist for ascertaining LIBOR, then Bank shall promptly give notice thereof to Borrower. If such notice is given and until such notice has been withdrawn by Bank, then the outstanding principal balance hereof, subsequent to the end of the Fixed Rate Term applicable thereto, shall bear interest determined in relation to the Prime Rate. (ii) If any law, treaty, rule, regulation or determination of a court or governmental authority or any change therein or in the interpretation or application thereof (each, a "Change in Law") shall make it unlawful for Bank to maintain interest rates based on LIBOR, then any such unlawful LIBOR-based loans then outstanding shall be converted, at Bank's option, so that interest on the portion of the outstanding principal balance subject thereto is determined in relation to the Prime Rate; provided however, that if any such Change in Law shall permit any LIBOR-based loans to remain in effect until the expiration of the Fixed Rate Term applicable thereto, then such permitted LIBOR-based loans shall continue in effect until the expiration of such Fixed Rate Term. Upon the occurrence of any of the foregoing events, Borrower shall pay to Bank immediately upon demand such amounts as may be necessary to compensate Bank for any fines, fees, charges, penalties or other costs incurred or payable by Bank as a result thereof and which are attributable to any LIBOR based interest loans made available to Borrower hereunder, and, absent manifest error, any reasonable allocation made by Bank among its operations shall be conclusive and binding upon Borrower. (iii) If any Change in Law or compliance by Bank with any request or directive (whether or not having the force of law) from any central bank or other governmental authority shall: (A) subject Bank to any tax, duty or other charge with respect to making any LIBOR based loans, or change the basis of taxation of payments to Bank of principal, interest, fees or any other amount payable hereunder (except for changes in the rate of tax on the overall net income of Bank); or (B) impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances or loans by, or any other acquisition of funds by any office of Bank; or (C) impose on Bank any other condition; and the result of any of the foregoing is to increase the cost to Bank of making, renewing or maintaining any LIBOR based loans hereunder and/or to reduce any amount receivable by Bank in connection therewith, then in any such case, Borrower shall pay to Bank immediately upon demand such amounts as may be necessary to compensate Bank for any additional costs incurred by Bank and/or reductions in amounts received by Bank which are attributable to such LIBOR based loans. In determining which costs incurred by Bank and/or reductions in amounts received by Bank are attributable to any LIBOR based loans made available to Borrower hereunder, any reasonable allocation made by Bank among its operations shall be conclusive and binding upon Borrower. (d) Payment of Interest. Interest accrued on this Note shall be payable on ------------------- the last day of each month, commencing November 30, 2000 and on the maturity date of this Note. (e) Default Interest. From and after the maturity date of this Note, or ---------------- such earlier date as all principal owing hereunder becomes due and payable by acceleration or otherwise, the outstanding principal balance of this Note shall bear interest until paid in full at an increased rate per annum (computed on the basis of a 360-day year, actual days elapsed) equal to four percent (4%) above the rate of interest from time to time applicable to this Note. BORROWING AND REPAYMENT: (a) Borrowing and Repayment. Borrower may from time to time during the ----------------------- term of this Note borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions of this Note and of any document executed in connection with or governing this Note; provided however, that the total outstanding borrowings under this Note shall not at any time exceed the principal amount stated above. The unpaid principal balance of this obligation at any time shall be the total amounts advanced hereunder by the holder hereof less the amount of principal payments made hereon by or for Borrower, which balance may be endorsed hereon from time to time by the holder. The outstanding principal balance of this Note shall be due and payable in full on October 30, 2001. (b) Advances. Advances hereunder, to the total amount of the principal sum -------- stated above, may be made by the holder at the oral or written request of (i) Kamran Husain, Steven Smith, Shawn Saunders or Mark Eschen, any one acting alone, who are authorized to request advances and direct the disposition of any advances until written notice of the revocation of such authority is received by the holder at the office designated above, or (ii) any person, with respect to advances deposited to the credit of any account of Borrower with the holder, which advances, when so deposited, shall be conclusively presumed to have been made to or for the benefit of Borrower regardless of the fact that persons other than those authorized to request advances may have authority to draw against such account. The holder shall have no obligation to determine whether any person requesting an advance is or has been authorized by Borrower. (c) Application of Payments. Each payment made on this Note shall be ----------------------- credited first, to any interest then due and second, to the outstanding principal balance hereof, with such payments applied to the oldest Fixed Rate Term first. PREPAYMENT: (a) Borrower may prepay principal on any portion of this Note at any time and in any amount. In consideration of Bank providing this prepayment option to Borrower, or if this Note shall become due and payable at any time prior to the last day of the Fixed Rate Term applicable thereto by acceleration or otherwise, Borrower shall pay to Bank immediately upon demand a fee which is the sum of the discounted monthly differences for each month from the month of prepayment through the month in which such Fixed Rate Term matures, calculated as follows for each such month: (i) Determine the amount of interest which would have accrued each month --------- on the amount prepaid at the interest rate applicable to such amount had it remained outstanding until the last day of the Fixed Rate Term applicable thereto. (ii) Subtract from the amount determined in (i) above the amount of -------- interest which would have accrued for the same month on the amount prepaid for the remaining term of such Fixed Rate Term at LIBOR in effect on the date of prepayment for new loans made for such term and in a principal amount equal to the amount prepaid. (iii) If the result obtained in (ii) for any month is greater than zero, discount that difference by LIBOR used in (ii) above. Borrower acknowledges that prepayment of such amount may result in Bank incurring additional costs, expenses and/or liabilities, and that it is difficult to ascertain the full extent of such costs, expenses and/or liabilities. Borrower, therefore, agrees to pay the above-described prepayment fee and agrees that said amount represents a reasonable estimate of the prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to pay any prepayment fee when due, the amount of such prepayment fee shall thereafter bear interest until paid at a rate per annum two percent (2%) above the Prime Rate in effect from time to time (computed on the basis of a 360-day year, actual days elapsed). Each change in the rate of interest on any such past due prepayment fee shall become effective on the date each Prime Rate change is announced within Bank. EVENTS OF DEFAULT: The occurrence of any of the following shall constitute an "Event of Default" under this Note: (a) The failure to pay, within 5 calendar days after the due date, any principal, interest, fees or other charges hereunder or under any contract, instrument or document executed in connection with this Note; provided however, that with respect to interest, fees or other charges, no Event of Default shall be deemed to have occurred if the same are paid later than the fifth day after the applicable due date but within 30 days after the applicable due date no more than two times during the term of this Note. (b) The filing of a petition by or against Borrower under any provisions of the Bankruptcy Reform Act, Title 11 of the United States Code, as amended or recodified from time to time, or under any similar or other law relating to bankruptcy, insolvency, reorganization or other relief for debtors (and, if --- filed against Borrower, the proceeding in question is not dismissed within 60 days after its filing, provided further, that Bank shall not be required to make advances during such 60 day period); the appointment of a receiver, trustee, custodian or liquidator of or for any part of the assets or property of Borrower; Borrower becomes insolvent, makes a general assignment for the benefit of creditors or is generally not paying its debts as they become due; or any attachment or like levy on any property of Borrower with a book value of $5,000,000.00 or more. (c) The dissolution or liquidation of Borrower. (d) Any default in the payment or performance of any obligation, or any defined event of default, under any provisions of any contract, instrument or document pursuant to which Borrower has incurred (i) any obligation for borrowed money, (ii) any purchase obligation, or (iii) any other liability of any kind to any person or entity, including the holder, and, in the cases of (ii) or (iii) --- the obligation or other liability exceeds $5,000,000.00, and, in the cases of --- (i), (ii) or (iii), the creditor has taken action(s) with respect to such default, which action may consist solely of the sending of a notice of default. (e) Any financial statement provided by Borrower to Bank proves to be incorrect, false or misleading in any material respect. (f) Any violation or breach of any provision of, or any defined event of default under, any addendum to this Note or any loan agreement, guaranty, security agreement, deed of trust, mortgage or other document executed in connection with or securing this Note, and, if such violation or breach is by --- its nature susceptible of being cured, the same is not cured within 30 days after the date Borrower first knew (or, using reasonable due diligence, should have known) thereof. MISCELLANEOUS: (a) Remedies. Upon the occurrence of any Event of Default, the holder -------- of this Note, at the holder's option, may declare all sums of principal and interest outstanding hereunder to be immediately due and payable without presentment, demand, notice of nonperformance, notice of protest, protest or notice of dishonor, all of which are expressly waived by Borrower, and the obligation, if any, of the holder to extend any further credit hereunder shall immediately cease and terminate. Borrower shall pay to the holder immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of the holder's in-house counsel), expended or incurred by the holder in connection with the enforcement of the holder's rights and/or the collection of any amounts which become due to the holder under this Note, and the prosecution or defense of any action in any way related to this Note, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to Borrower or any other person or entity. (b) Governing Law. This Note shall be governed by and construed in ------------- accordance with the laws of the State of California. IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first written above. GREATER BAY BANCORP By: /s/ Steven C. Smith Title: EVP, CFO & CAO By: /s/ Kamran F. Husain Title: SVP, Finance & Risk Management EX-10.17 12 0012.txt LINE OF CREDIT AGREEMENT AND NOTE Exhibit 10.17 LINE OF CREDIT AGREEMENT THIS LINE OF CREDIT AGREEMENT ("Agreement") is made and entered into as of November 1, 2000 by and between GREATER BAY BANCORP, a California corporation ("Borrower") and UNION BANK OF CALIFORNIA, N.A. ("Bank"). ARTICLE 1. THE LOAN 1.1 Revolving Loan. Bank will loan to Borrower an amount not to exceed TWENTY FIVE MILLION AND NO/100 DOLLARS ($25,000,000.00) outstanding in the aggregate at any one time ("Loan"). Borrower may borrow, repay and reborrow all or part of the Loan in amounts of not less than ONE MILLION AND NO/100 DOLLARS ($1,000,000.00) in accordance with the terms of the Note. The Loan shall be evidenced by a promissory note ("Note", together with this Agreement and all documents executed in connection with this Agreement, collectively, "Loan Documents") on the standard form used by Bank for commercial loans. All borrowings under the Loan must be made before October 30, 2001 ("Maturity Date"), at which time all unpaid principal and interest of the Loan shall be due and payable. Bank shall enter each amount borrowed and repaid in Bank's records and such entries shall be deemed to be the amount of the Loan outstanding. Omission of Bank to make any such entries shall not discharge Borrower of its obligation to repay in full with interest all amounts borrowed. 1.2 Purpose of Loan. The proceeds of the Loan shall be used only for general corporate purposes of Borrower and/or its subsidiary banks (each existing or hereafter acquired subsidiary of Borrower which is a bank shall be hereafter referred to as a "Bank Subsidiary"). 1.3 Interest. Interest on the outstanding principal balance of the Loan shall accrue daily from the date of the first advance until the Maturity Date at a per annum rate equal to LIBOR plus seventy five basis points (0.75%). Interest shall be payable on the first day of each calendar quarter, commencing the first such date to occur after the first advance under the Loan and continuing through the Maturity Date, on which date all accrued interest and principal remaining unpaid shall be due and payable in full. The Loan may be prepaid in full or in part only in accordance with the terms of the Note and any such prepayment shall be subject to the prepayment fee provided for therein. 1.4 Fee. Borrower shall pay in advance a non-refundable fee of TWENTY-FIVE THOUSAND AND NO/100 DOLLARS ($25,000.00) on or before the date of execution of this Agreement, receipt of which is acknowledged by Bank. 1.5 Disbursement. Upon any borrowing hereunder, Bank shall disburse the proceeds of the Loan as provided in Bank's standard form authorization executed by Borrower. ARTICLE 2. CONDITIONS PRECEDENT Bank shall not be obligated to disburse all or any portion of the proceeds of the Loan unless at or prior to the time for the making of such disbursement, the following conditions have been fulfilled to Bank's satisfaction: 2.1 Compliance. Borrower shall have performed and complied with all terms and conditions required by this Agreement to be performed or complied with by it prior to or at the date of the making of such disbursement and shall have executed and delivered to Bank the Note and other documents deemed necessary by Bank. Page 1 2.3 Borrowing Resolution. Borrower shall have provided Bank with certified copies of resolutions duly adopted by the Board of Directors of Borrower, authorizing this Agreement and the Loan Documents. Such resolutions shall also designate the persons who are authorized to act on Borrower's behalf in connection with this Agreement and to do the things required of Borrower pursuant to this Agreement. 2.4 Continuing Compliance. At the time any disbursement is to be made, there shall not exist any event, condition or act which constitutes an event of default under Article 6 hereof or any event, condition or act which with notice, lapse of time or both would constitute such event of default; nor shall there be any such event, condition, or act immediately after the disbursement were it to be made. ARTICLE 3. REPRESENTATIONS AND WARRANTIES Borrower represents and warrants that: 3.1 Business Activity. The principal business of Borrower is that of a bank holding company. 3.2 Affiliates and Subsidiaries. Borrower's affiliates and subsidiaries (those entities in which Borrower has either a controlling interest or at least a 25% ownership interest) and their addresses are as provided on a schedule delivered to Bank on or before the date of this Agreement. 3.3 Authority to Borrow. The execution, delivery and performance of this Agreement, the Note and all other agreements and instruments required by Bank in connection with the Loan are not in contravention of any of the terms of any indenture, agreement or undertaking to which Borrower is a party or by which it or any of its property is bound or affected. 3.4 Financial Statements. The financial statements of Borrower, including both a balance sheet at December 31, 1999, together with supporting schedules, and an income statement for the twelve (12) months then ended, have heretofore been furnished to Bank, and are true and complete and fairly represent the financial condition of Borrower during the period covered thereby, and since that date there has been no material adverse change in the financial condition or operations of Borrower. 3.5 Title. Except for assets which may have been disposed of in the ordinary course of business, Borrower has good and marketable title to all of the property reflected in its financial statements delivered to Bank and to all property acquired by Borrower since the date of said financial statements, free and clear of all material liens, encumbrances, security interests and adverse claims except those specifically referred to in said financial statements. 3.6 Litigation. There is no litigation or proceeding pending or, to its knowledge threatened against Borrower or any of its property which is reasonably likely to (a) affect the financial condition, property or business of Borrower in a materially adverse manner or (b) result in liability in excess of Borrower's insurance coverage. 3.7 Default. Borrower is not now in default in the payment of any of its material obligations, and there exists no event, condition or act which constitutes an event of default under Article 6 hereof and no condition, event or act which with notice or lapse of time, or both, would constitute an event of default. Page 2 3.8 Organization. Borrower is duly organized and existing under the laws of the State of California, and has the power and authority to carry on the business in which it is engaged and/or proposes to engage. 3.9 Power. Borrower has the power and authority to enter into this Agreement and to execute and deliver the Note and all of the other Loan Documents. 3.10 Authorization. This Agreement and all things required by this Agreement have been duly authorized by all requisite action of Borrower. 3.11 Qualification. Borrower is duly qualified and in good standing in any jurisdiction where such qualification is required. 3.12 Compliance with Laws. Borrower is not in violation with respect to any applicable laws, rules, ordinances or regulations which materially affect the operations or financial condition of Borrower. 3.13 ERISA. Any defined benefit pension plans as defined in the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), of Borrower meet, as of the date hereof, the minimum funding standards of Section 302 of ERISA, and no Reportable Event or Prohibited Transaction as defined in ERISA has occurred with respect to any such plan. 3.14 Regulation U. No action has been taken or is currently planned by Borrower, or any agent acting on its behalf, which would cause this Agreement or the Note to violate Regulation U or any other regulation of the Board of Governors of the Federal Reserve System or to violate the Securities and Exchange Act of 1934, in each case as in effect now or as the same may hereafter be in effect. Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock as one of its important activities and none of the proceeds of the Loan will be used directly or indirectly for such purpose. 3.15 Wells Fargo Agreement. Borrower hereby confirms that Borrower is in compliance with all terms and conditions of that certain Letter Revolving Line of Credit Agreement dated November 4, 1999, between Wells Fargo Bank, National Association ("Wells Fargo") and Borrower ("Wells Fargo Agreement"); and further certifies that, as of the date of this Agreement, there exists no event of default as defined in the Wells Fargo Agreement, nor any condition, act or event which with the giving of notice or the passage of time or both would constitute an event of default under the Wells Fargo Agreement. 3.16 Continuing Representations. These representations shall be considered to have been made again at and as of the date of each disbursement of the Loan and shall be true and correct as of such date or dates. ARTICLE 4. AFFIRMATIVE COVENANTS Until the Note and all sums payable pursuant to this or any other of the Loan Documents have been paid in full, unless Bank waives compliance in writing, Borrower agrees that Borrower will: 4.1 Use of Proceeds. Use the proceeds of the Loan only as provided in Section 1.2 above. 4.2 Payment of Obligations. Pay and discharge promptly all taxes, assessments and other governmental charges and claims levied or imposed upon it or its property, or any part thereof, provided, however, that Borrower shall have the right in good faith to contest any such taxes, assessments, charges or claims and, pending the outcome of such contest, to delay or refuse Page 3 payment thereof provided that adequately funded reserves are established by it to pay and discharge any such taxes, assessments, charges and claims. 4.3 Maintenance of Existence. Maintain and preserve its existence and assets and all rights, franchises, licenses and other authority necessary for the conduct of its business in all material respects and will maintain and preserve its property, equipment and facilities in good order, condition and repair. Upon reasonable prior written notice to Borrower, Bank may, at reasonable times, visit and inspect any of the properties of Borrower. 4.4 Records. Keep and maintain full and accurate accounts and records of its operations according to regulatory and generally accepted accounting principles and upon reasonable prior written notice will permit Bank to have access thereto, to make examination and photocopies thereof, and to make audits during regular business hours. 4.5 Information Furnished. Furnish to Bank, in form and substance reasonably satisfactory to Bank: (a) Within fifty (50) days after the close of each fiscal quarter of each fiscal year, its unaudited consolidated balance sheet as of the close of such fiscal quarter, its unaudited consolidated income and expense statement with year-to-date totals and supportive schedules, and its consolidated statement of retained earnings and cash flows for that fiscal quarter, all prepared in accordance with generally accepted accounting principles consistently applied and used consistently with prior practices ("GAAP"). (b) Within ninety five (95) days after the close of each fiscal year, a copy of its statement of financial condition including at least its consolidated balance sheet as of the close of such fiscal year and its consolidated income and expense statement, and its consolidated retained earnings and cash flows statement for such fiscal year, examined and prepared on an audited basis by independent certified public accountants selected by Borrower and reasonably satisfactory to Bank, in accordance with GAAP along with any management letter provided by such accountants. (c) As soon as available, copies of such financial statements and reports as Borrower may file with any state or federal agency. (d) Within (i) fifty (50) days after the close of each fiscal quarter; and (ii) ninety five (95) days after the close of each fiscal year, a certification of compliance with all covenants under this Agreement, executed by Borrower's duly authorized officer, in form acceptable to Bank. (e) Prompt written notice to Bank of any Event of Default or breach under any of the terms or provisions of this Agreement or any other Loan Document, any litigation which would have a material adverse effect on Borrower's financial condition, and any other matter which has resulted in, or is likely to result in, a material adverse change in Borrower's financial condition or operations. (f) Within fifteen (15) days after Borrower knows or has reason to know that any Reportable Event or Prohibited Transaction (as defined in ERISA) has occurred with respect to any defined benefit pension plan of Borrower, a statement of an authorized officer of Borrower describing such event or condition and the action, if any, which Borrower proposes to take with respect thereto. (g) Such other financial statements and information as Bank may reasonably request from time to time. Page 4 4.6 Financial Condition. Maintain Borrower's financial condition (or with respect to subparagraph (c) below, cause all of Borrower's subsidiaries or Bank Subsidiaries (as applicable) to maintain their combined financial condition) as follows using GAAP (except to the extent modified by the definitions herein), with compliance determined commencing with Borrower's financial statements for the period ending June 30, 2000: (a) Double Leverage Ratio not at any time greater than 1.50 to 1.0 determined as of the end of each fiscal quarter. "Double Leverage Ratio" means the ratio of (i) Borrower's equity investment in all its subsidiaries, to (ii) Borrower's equity. (b) On a consolidated basis (and cause each Bank Subsidiary to maintain) a capital ratio sufficient to be rated "well capitalized" by the Federal Reserve Board, Federal Deposit Insurance Corporation and each other federal or state regulatory entity or agency which has jurisdiction over Borrower or any Bank Subsidiary which maintains such a rating system; provided, however, that in the event Borrower acquires a Bank Subsidiary after the date of this Agreement which is not "well capitalized" at the time of such acquisition, Borrower shall cause such Bank Subsidiary to become "well capitalized" within six (6) months following such acquisition. (c) Consolidated net income after taxes of not less than $1.00, determined as of each fiscal quarter end on a rolling four (4) quarter basis. Consolidated herein refers to Borrower and all of its subsidiaries. 4.7 Notices to Bank. Promptly give written notice to Bank of: (a) Any litigation or administrative or regulatory proceeding in which Borrower is named as a party where the amount claimed against Borrower is $1,000,000.00 or more, or where the granting of the relief requested would have a material adverse effect on Borrower's financial condition. (b) Any formal enforcement action taken by a governmental or regulatory agency or, to the knowledge of Borrower, proposed to be taken against Borrower and any of its subsidiaries. (c) Any event of default by Borrower under any of the terms or provisions of this Agreement or of any other agreement, contract, document or instrument entered, or to be entered into with Bank. (d) Any material event of default under any terms of the Wells Fargo Agreement. (e) Any material amendment, modification, extension, restatement or termination of the Wells Fargo Agreement. (f) Any other matter which has resulted in, or is likely to result in, a material adverse change in its financial condition or operations. 4.8 Reports Under Pension Plans. Furnish to Bank, as soon as possible and in any event within 15 days after Borrower knows or has reason to know of: (a) Occurrence of any reportable event under Section 4043(b) of ERISA for with the PBGC requires 30 days' notice. "PBGC" means the Pension Benefit Guaranty Corporation or any successor thereto established under ERISA. Page 5 (b) Any action by Borrower to terminate or withdraw from a Plan or the filing of any notice of intent to terminate under Section 4041 of ERISA. "Plan" means any employee benefit plan of the Borrower subject to ERISA. (c) Any notice of noncompliance made with respect to a Plan under Section 4041(b) of ERISA. (d) The commencement of any proceeding with respect to a Plan under Section 4041(b) of ERISA. 4.9 Insurance. Keep all of its insurable property, real, personal or mixed, insured by good and responsible companies against fire and such other risks as are customarily insured against by companies conducting similar business with respect to like properties. Borrower will maintain adequate worker's compensation insurance and adequate insurance against liability for damages to persons and property. Promptly upon request of Bank, deliver to Bank a copy of each insurance policy, or, if permitted by Bank, a certificate of insurance listing all insurance in force. 4.10 Additional Requirements. Promptly, upon demand by Bank, take such further action and execute all such additional documents and instruments in connection with this Agreement as Bank in its reasonable discretion deems necessary, and promptly supply Bank with such other information concerning its affairs as Bank may request from time to time. 4.11 Litigation and Attorneys' Fees. Pay promptly to Bank upon demand, reasonable attorneys' fees (including but not limited to the reasonable estimate of the allocated costs and expenses of in-house legal counsel and legal staff) and all costs and other expenses paid or incurred by Bank in collecting, modifying or compromising the Loan or in enforcing or exercising its rights or remedies created by, connected with or provided for in this Agreement or any of the Loan Documents, whether or not an arbitration, judicial action or other proceeding is commenced. If such proceeding is commenced, only the prevailing party shall be entitled to attorneys' fees and court costs. ARTICLE 5. NEGATIVE COVENANTS Until the Note and all other sums payable pursuant to this Agreement or any other of the Loan Documents have been paid in full, unless Bank waives compliance in writing, Borrower agrees that Borrower will not: 5.1 Encumbrances and Liens. Create, assume or suffer to exist any mortgage, pledge, security interest, encumbrance, or lien (other than for taxes not delinquent and for taxes and other items being contested in good faith) on property of any kind, whether real, personal or mixed, now owned or hereafter acquired, or upon the income or profits thereof ("Liens"), except: (a) Deeds of Trust and security agreements in favor of Bank. (b) Liens for taxes not yet due. (c) Liens outstanding on the date of this Agreement disclosed in writing to Bank. (d) Liens on any securities of the U. S. government (including any agency thereof). (e) Liens in connection with indebtedness permitted pursuant to Section 5.2(e). Page 6 (f) Liens which are not material or do not materially interfere with the conduct of Borrower's business. 5.2 Other Debts. Create, incur, assume or permit to exist any indebtedness or liabilities resulting from borrowings, loans or advances, whether secured or unsecured, matured or unmatured, liquidated or unliquidated, joint or several, except (a) the liabilities of Borrower to Bank, (b) any other liabilities of Borrower and any subsidiaries existing as of, and disclosed to Bank prior to, the date hereof, (c) unsecured and uncommitted operating lines of credit, such as daylight overdraft facilities and Fed Funds lines and the like, (d) other debts, lines of credit and leases such as the Wells Fargo Agreement (expected to be increased to $40,000,000) and a similar facility with First Union National Bank, (e) other unsecured loans and lines of credit in an aggregate amount not to exceed, on a consolidated basis, 50% of Borrower's consolidated equity preceding the incurring of such indebtedness, and (f) additional unsecured liabilities which are subordinated to the obligations of Borrower to Bank pursuant to agreements in form and content acceptable to Bank; provided that the indebtedness described in clauses (b), (c), (d) and (e) shall not be prior or senior in right of payment to the obligations of Borrower to Bank. 5.3 Sale of Assets, Liquidation or Merger. Merge into or consolidate with any other entity unless Borrower is the surviving entity; nor make any substantial change in the nature of Borrower's business as conducted as of the date hereof or as is permitted for a bank holding company or financial holding company by the applicable regulations and interpretations of the Board of Governors of the Federal Reserve system; nor sell, lease, transfer or otherwise dispose of all or a substantial or material portion of Borrower's assets except in the ordinary course of business. 5.4 Other Business. Engage in any business activities other than that permitted for a financial holding company or a bank holding company under the applicable regulations and interpretations of the Board of Governors of the Federal Reserve Board. ARTICLE 6. EVENTS OF DEFAULT The occurrence of any of the following events ("Events of Default") shall terminate any obligation on the part of Bank to make or continue the Loan and automatically, unless otherwise provided under the Note, shall make all sums of interest and principal and any other amounts owing under the Loan immediately due and payable, without notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor, or any other notices or demands: (a) Borrower shall default in the due and punctual payment of the principal of or the interest on the Note or any of the other Loan Documents, and a period of five (5) calendar days shall have elapsed thereafter; provided, however, with respect to interest, no Event of Default shall be deemed to have occurred if same is paid later than the fifth day after the applicable due date but within thirty (30) days after the applicable due date no more than two times during the term of the Loan. (b) Any representation or warranty made, or financial statement, certificate or other document provided, by Borrower shall prove to have been materially false or misleading when made. (c) Borrower shall default in the due performance or observance of any covenant or condition of the Loan Documents, and the same is not cured within 30 days after the Page 7 date Borrower knew or through the use of reasonable diligence should have known thereof; or Borrower shall fail to pay its debts generally as they become due or shall file any petition or action for relief under any bankruptcy, insolvency, reorganization, moratorium, creditor composition law, or any other law for the relief of or relating to debtors; an involuntary petition shall be filed under any bankruptcy law against Borrower, and the same is not dismissed within 60 days of such filing; or a custodian, receiver, trustee, assignee for the benefit of creditors, or other similar official, shall be appointed to take possession, custody or control of the properties of Borrower; or the dissolution or termination of the business of Borrower. (d) Borrower shall fail to perform in any material respect with respect to payment under any other agreement involving the borrowing of money, the purchase of property, the advance of credit or any other monetary liability of any kind in which the amount involved exceeds $1,000,000.00. (e) A material event of default by Borrower shall occur and be continuing under the Wells Fargo Agreement. (f) Any governmental or regulatory authority shall take any formal enforcement action against Borrower, or any other event shall occur, which would have a material adverse effect on the financial condition or business of Borrower. (g) Any judgment(s) in excess of $1,000,000.00 shall be entered against Borrower, or any involuntary lien(s) of any kind or character shall attach to any assets or property of Borrower having a book value in excess of $1,000,000.00 which has not been bonded or released within 60 days. (h) Any Plan shall be terminated pursuant to ERISA, a trustee shall be appointed by the appropriate United States District Court to administer any Plan, the PBGC shall institute proceedings to terminate any Plan, or any Plan shall fail to satisfy the minimum funding standard for such Plan for a plan year as established by the Internal Revenue Code, as amended from time to time. ARTICLE 7. MISCELLANEOUS PROVISIONS 7.1 Additional Remedies. The rights, powers and remedies given to Bank hereunder shall be cumulative and not alternative and shall be in addition to all rights, powers and remedies given to Bank by law against Borrower or any other person, including but not limited to Bank's rights of setoff or banker's lien. 7.2 Nonwaiver. Any forbearance or failure or delay by Bank in exercising any right, power or remedy hereunder shall not be deemed a waiver thereof and any single or partial exercise of any right, power or remedy shall not preclude the further exercise thereof. No waiver shall be effective unless it is in writing and signed by an officer of Bank. 7.3 Inurement. The benefits of this Agreement shall inure to the successors and assigns of Bank and the permitted successors and assignees of Borrower, and any assignment of Borrower without Bank's consent shall be null and void. 7.4 Severability. Should any one or more provisions of this Agreement be determined to be illegal or unenforceable, all other provisions nevertheless shall be effective. 7.5 Construction. The section and subsection headings herein are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. Page 8 7.6 Amendments. This Agreement may be amended only in writing signed by all parties hereto. 7.7 Counterparts. Borrower and Bank may execute one or more counterparts to this Agreement, each of which shall be deemed an original. 7.8 Notices. Any notices or other communications provided for or allowed hereunder shall be effective only when given by one of the following methods and addressed to the respective party at its address given with the signatures at the end of this Agreement and shall be considered to have been validly given: (a) upon delivery, if delivered personally; (b) upon receipt, if mailed, first class postage prepaid, with the United States Postal Service; (c) on the next business day, if sent by overnight courier service of recognized standing; and (d) upon telephoned confirmation of receipt, if telecopied. The addresses to which notices or demands are to be given may be changed from time to time by notice delivered as provided above. 7.9 Applicable Law. This Agreement and all other agreements and instruments required by Bank in connection therewith shall be governed by and construed according to the laws of the State of California. This Agreement hereby incorporates any alternative dispute resolution agreement concurrently or hereafter executed between Borrower and Bank. 7.10 Integration Clause. Except for documents and instruments specifically referenced herein, this Agreement constitutes the entire agreement between Bank and Borrower regarding the Loan and all prior communications verbal or written between Borrower and Bank shall be of no further effect or evidentiary value. Page 9 THIS AGREEMENT is executed on behalf of the parties by duly authorized officers as of the date first above written. GREATER BAY BANCORP, UNION BANK OF CALIFORNIA, N. A. a California corporation By: /s/ Steven C. Smith By: /s/ Dennis A. Cattell Title: EVP, CFO & CAO Title: Vice President By: Kamran F. Husain Title: SVP, Finance & Risk Management ADDRESS FOR NOTICE: ADDRESS FOR NOTICE: 2860 West Bayshore Road 445 South Figueroa Street, 13th Flr Palo Alto, California 94303 Los Angeles, California 90071-1601 Attn: Kamran F. Husain Attn: William McGill Senior Vice President Senior Vice President Telephone No. (650) 813-8200 Telephone No. (213) 236-5009 FAX No. (650) 494-9193 FAX No. (213) 236-5548 Page 10 NOTE (BASE RATE) ================================================================================ Borrower Name GREATER BAY BANCORP - -------------------------------------------------------------------------------- Borrower Address Office Loan Number 2860 West Bayshore Road Risk Management Dept Palo Alto, California 94303 __________________ _______________ Maturity Date Amount October 30 2001 $25,000,000.00 ================================================================================ $25,000,000.00 November 1, 2000 FOR VALUE RECEIVED, on October 30, 2001("Maturity Date"), the undersigned ("Borrower") promises to pay to the order of UNION BANK OF CALIFORNIA, N.A. ("Bank"), as indicated below, the principal sum of TWENTY FIVE MILLION AND NO/100 DOLLARS ($25,000,000.00), or so much thereof as is disbursed and outstanding from time to time in accordance with the terms and conditions of that certain Loan Agreement between Borrower and Bank dated as of November 1, 2000 (as amended, supplemented, extended, restated, or renewed from time to time, "Agreement"), together with interest on the balance of such principal from time to time outstanding, at the per annum rate or rates and at the times set forth below. All computations of interest under this Note shall be made on the basis of a year of 360 days, for actual days elapsed. At any time prior to the Maturity Date, subject to the provisions of the Agreement, below, of this Note, Borrower may borrow, repay and reborrow hereon so long as the total outstanding at any one time does not exceed the principal amount of this Note. 1. Payment. Borrower shall pay interest on the first day of each calendar quarter, commencing the first such date to occur after the first advance under this Note. Should interest not be paid when due, it shall become part of the principal and bear interest as herein provided. On the Maturity Date, all principal and interest then unpaid shall be due and payable. Borrower shall pay all amounts due under this Note in lawful money of the United States at Bank's Risk Management Department, or such other office as may be designated by Bank, from time to time. 1.1 Base Interest Rate. Amounts outstanding hereunder in increments of at least ONE MILLION AND NO/100 DOLLARS ($1,000,000.00) shall bear interest at a rate, based on an index, which is seventy five (75) basis points per annum in excess of Bank's LIBOR Rate for the Interest Period selected by Borrower, in each case acceptable to Bank. No Base Interest Rate may be changed, altered or otherwise modified until the expiration of the Interest Period selected by Borrower. The exercise of interest rate options by Borrower shall be as recorded in Bank's records, which records shall be prima facie evidence of the amount borrowed under either interest option and the interest rate; provided, however, that failure of Bank to make any such notation in its records shall not discharge Borrower from its obligations to repay in full with interest all amounts borrowed. In no event shall any Interest Period extend beyond the maturity date of this Note. To exercise this option, Borrower may, from time to time with respect to principal outstanding on which a Base Interest Rate is not accruing, and on the expiration of any Interest Period with respect to principal outstanding on which a Base Interest Rate has been accruing, select an Page 1 index offered by Bank for a Base Interest Rate Loan and an Interest Period by telephoning an authorized lending officer of Bank located at the banking office identified below prior to 10:00 a.m., Pacific time, on any Business Day and advising that officer of the selected index, the Interest Period and the Origination Date selected (which Origination Date, for a Base Interest Rate Loan based on the LIBOR Rate, shall follow the date of such selection by no more than two (2) Business Days). Bank will mail a written confirmation of the terms of the selection to Borrower promptly after the election is made. Failure to send such confirmation shall not affect Bank's rights to collect interest at the rate selected. If, on the date of the selection, the index selected is unavailable for any reason, the selection shall be void. Bank reserves the right to fund the principal from any source of funds notwithstanding any Base Interest Rate selected by Borrower but such source shall not affect the applicability of the Base Interest Rate if selected by Borrower. 1.2 Variable Interest Rate. All principal outstanding hereunder which is not bearing interest at a Base Interest Rate shall bear interest at a rate per annum equal to the Reference Rate, which rate shall vary as and when the Reference Rate changes. 2. Interest Rate Following Default. In the event of default, at the option of Bank, and, to the extent permitted by law, interest shall be payable on the outstanding principal under this Note at a per annum rate equal to five percent (5.0%) in excess of the Reference Rate, calculated from the date of default until all amounts payable under this Note are paid in full. 3. Prepayment (a) Amounts outstanding under this Note bearing interest at a rate based on the Reference Rate may be prepaid in whole or in part at any time, without penalty or premium. Borrower may prepay amounts outstanding under this Note bearing interest at a Base Interest Rate in whole or in part at the end of any Interest Period provided Borrower has given Bank not less than five (5) Business Days prior written notice of Borrower's intention to make such prepayment and pays to Bank the liquidated damages due as a result. Liquidated Damages shall also be paid, if Bank, for any other reason, including acceleration or foreclosure, receives all or any portion of principal bearing interest at a Base Interest Rate prior to the end of the applicable Interest Period. Liquidated Damages shall be an amount equal to the present value of the product of: (i) the difference (but not less than zero) between (a) the Base Interest Rate applicable to the principal amount which is being prepaid, and (b) the return which Bank could obtain if it used the amount of such prepayment of principal to purchase at bid price regularly quoted securities issued by the United States having a maturity date most closely coinciding with the relevant Base Rate Maturity Date and such securities were held by Bank until the relevant Base Rate Maturity Date ("Yield Rate"); (ii) a fraction, the numerator of which is the number of days in the period between the date of prepayment and the relevant Base Rate Maturity Date and the denominator of which is 360; and (iii) the amount of the principal so prepaid (except in the event that principal payments are required and have been made as scheduled under the terms of the Base Interest Rate Loan being prepaid, then an amount equal to the lesser of (A) the amount prepaid or (B) 50% of the sum of (1) the amount prepaid and (2) the amount of principal scheduled under the terms of the Base Interest Rate Loan being prepaid to be outstanding at the relevant Base Rate Maturity Date). Present value under this Note is determined by discounting the above product to present value using the Yield Rate as the annual discount factor. (b) In no event shall Bank be obligated to make any payment or refund to Borrower, nor shall Borrower be entitled to any setoff or other claim against Bank, should the return Page 2 which Bank could obtain under this prepayment formula exceed the interest that Bank would have received if no prepayment had occurred. All prepayments shall include payment of accrued interest on the principal amount so prepaid and shall be applied to payment of interest before application to principal. A determination by Bank as to the prepayment fee amount, if any, shall be conclusive absent manifest error. (c) Bank shall provide Borrower a statement of the amount payable on account of prepayment. Borrower acknowledges that (i) Bank establishes a Base Interest Rate upon the understanding that it apply to the Base Interest Rate Loan for the entire Interest Period, and any prepayment prior to the end of an Interest Period may result in Bank incurring additional costs, expenses or liabilities; and Borrower agrees to pay these Liquidated Damages as a reasonable estimate of the costs, expenses and liabilities of Bank associated with such prepayment prior to the end of an Interest Period. 4. Default and Acceleration of Time for Payment. The occurrence of any Event of Default as defined in the Agreement shall (a) terminate any obligation of Bank to make or continue the Loan; and shall (b) at Bank's option, make all sums of interest, principal and any other amounts owing under any Loan Document due and payable (in accordance with the terms of the Agreement) without notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor or any other notices or demands; and (c) give Bank the right to exercise any other right or remedy provided by contract or applicable law. 5. Additional Agreements of Borrower. If any amounts owing under this Note are not paid when due, Borrower promises to pay all costs and expenses, including reasonable attorneys' fees, incurred by Bank in the collection or enforcement of this Note. Borrower and any endorser of this Note, for the maximum period of time and the full extent permitted by law, (a) waive diligence, presentment, demand, notice of nonpayment, protest, notice of protest, and notice of every kind; (b) waive the right to assert the defense of any statute of limitations to any debt or obligation hereunder; and (c) consent to renewals and extensions of time for the payment of any amounts due under this Note. The receipt of any check or other item of payment by Bank, at its option, shall not be considered a payment on account until such check or other item of payment is honored when presented for payment at the drawee bank. Bank may delay the credit of such payment based upon Bank's schedule of funds availability, and interest under this Note shall accrue until the funds are deemed collected. In any action brought under or arising out of this Note, Borrower and any Obligor, including their successors and assigns, hereby consent to the jurisdiction of any competent court within the State of California, as provided in any alternative dispute resolution agreement executed between Borrower and Bank, and consent to service of process by any means authorized by said state's law. The term "Bank" includes, without limitation, any holder of this Note. This Note shall be construed in accordance with and governed by the laws of the State of California. This Note hereby incorporates any alternative dispute resolution agreement concurrently or hereafter executed between Borrower and Bank. 6. Definitions. As used herein, the following terms shall have the meanings respectively set forth below: "Base Interest Rate" means a rate of interest based on the LIBOR Rate. "Base Interest Rate Loan" means amounts outstanding under this Note that bear interest at a Base Interest Rate. "Base Rate Maturity Date" means the last day of the Interest Period with respect to principal outstanding under a Base Interest Rate Loan. "Business Day" means a day on which Bank is open for business for the funding of corporate loans, and, with respect to the rate of interest based on the LIBOR Rate, on which dealings in U.S. dollar deposits outside of the United States may be carried on by Bank. "Interest Period" means with respect to funds bearing interest at a rate based on the LIBOR Rate, any calendar period of one, two or three month period. In determining an Interest Period, a month means a period that starts on one Business Day in a month and ends on and includes the day preceding the numerically Page 3 corresponding day in the next month. For any month in which there is no such numerically corresponding day, then as to that month, such day shall be deemed to be the last calendar day of such month. Any Interest Period which would otherwise end on a non-Business Day shall end on the next succeeding Business Day unless that is the first day of a month, in which event such Interest Period shall end on the next preceding Business Day. "LIBOR Rate" means a per annum rate of interest (rounded upward, if necessary, to the nearest 1/100 of 1%) at which dollar deposits, in immediately available funds and in lawful money of the United States would be offered to Bank, outside of the United States, for a term coinciding with the Interest Period selected by Borrower and for an amount equal to the amount of principal covered by Borrower's interest rate selection, plus Bank's costs, including the cost, if any, of reserve requirements. "Origination Date" means the first day of the Interest Period. "Reference Rate" means the rate announced by Bank from time to time at its corporate headquarters as its "Reference Rate." The Reference Rate is an index rate determined by Bank from time to time as a means of pricing certain extensions of credit and is neither directly tied to any external rate of interest or index nor necessarily the lowest rate of interest charged by Bank at any given time. This Note is the Note defined in the Agreement and is subject to the terms and conditions contained therein. All capitalized terms not otherwise defined in this Note shall have the meaning ascribed to them in the Agreement. GREATER BAY BANCORP, a California corporation By: /s/ Steven C. Smith Title: EVP, CFO & CAO By: /s/ Kamran F. Husain Title: SVP, Finance & Risk Management Page 4 EX-12.1 13 0013.txt STATEMENT RE COMPUTATION OF RATIOS OF EARNINGS Exhibit 12.1 Greater Bay Bancorp Annual Report of Form 10-K Statements re Computation of Ratios of Earnings to Fixed Charges
For the Years Ended December 31, -------------------------------- 2000 1999 1998 1997 1996 ---------------------------------------------------- Income before income taxes $ 126,780 $ 76,226 $ 54,563 $ 43,119 $ 30,536 Fixed charges: Interest expense 136,400 90,817 73,892 56,847 43,044 Interest factor of rental expense 2,623 2,299 1,805 1,667 1,529 ---------------------------------------------------- Fixed charges 139,023 93,116 75,697 58,514 44,573 Less: interest expense on deposits 126,817 84,842 66,757 52,653 39,868 ---------------------------------------------------- Net fixed charges 12,206 8,274 8,940 5,861 4,705 ---------------------------------------------------- Earnings, excluding interest on deposits $ 138,986 $ 84,500 $ 63,503 $ 48,980 $ 35,241 ==================================================== Ratio of earnings, excluding interest on deposits, to net fixed charges/(1)/ 11.39x 10.21x 7.10x 8.36x 7.49x Earnings, including interest on deposits $ 265,803 $ 169,342 $ 130,260 $ 101,633 $ 75,109 ==================================================== Ratio of earnings, including interest on deposits, to fixed charges/(2)/ 1.91x 1.82x 1.72x 1.74x 1.69x
/(1)/For the purposes of computing the ratio of earnings, excluding interest on deposits, to net fixed charges, earnings represent income before income taxes plus net fixed charges. Net fixed charges include interest expense, other than interest on deposits, and that portion of rental expense, generally one third, deemed representative of the interest factor. /(2)/For the purposes of computing the ratio of earnings, including interest on deposits, to fixed charges, earnings represent income before income taxes plus fixed charges. Fixed charges include interest expense and that portion of rental expense, generally one third, deemed representative of the interest factor. EX-21 14 0014.txt SUBSIDIARIES OF THE REGISTRANT Exhibit 21 GREATER BAY BANCORP ANNUAL REPORT ON FORM 10-K SUBISDIARIES OF THE REGISTRANT Greater Bay Bancorp owns 100% of the outstanding voting securities of the following corporations, either directly or indirectly. Name Jurisdiction of Incorporation ---- ----------------------------- Bank of Petaluma California Bank of Santa Clara California Bay Area Bank California Bay Bank of Commerce California BSC Development Corporation California Coast Commercial Bank California Cupertino National Bank United States Golden Gate Bank California Matsco Lease Finance, Inc. II Delaware Matsco Lease Finance, Inc. III Delaware Mid-Peninsula Bank California Mt. Diablo National Bank United States Peninsula Bank of Commerce California Pacific Business Funding Corporation California Peninsula Real Estate Corporation California GBB Capital I Delaware GBB Capital II Delaware GBB Capital III Delaware GBB Capital IV Delaware EX-23.1 15 0015.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-30913, 333-67677, 333-30915, 333-16967, 333-47747, 333-30812 and 333-37722) and Form S-3 (Nos. 333-61679, 333-70025, 333-94343 and 333-35622) of Greater Bay Bancorp of our report dated January 30, 2001 relating to the consolidated financial statements, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP San Francisco, California January 30, 2001 -----END PRIVACY-ENHANCED MESSAGE-----