Filed Pursuant to Rule 424(b)(4)
Registration Nos. 333-65772
and 333-65772-01
PROSPECTUS
3,600,000 Capital Securities
GBB CAPITAL V
9.0% Cumulative Trust Preferred Securities
Guaranteed as described in this prospectus by
[LOGO OF GREATER BAY BANCORP]
GBB Capital V is offering trust preferred securities, which we refer to in this
prospectus as the capital securities. Greater Bay Bancorp will fully and
unconditionally guarantee the capital securities to the extent described in
this prospectus, based on its obligations under a guarantee, a trust agreement
and an indenture.
The capital securities have been approved for listing on the Nasdaq National
Market under the symbol "GBBKO."
These securities and the junior subordinated debentures are not deposits or
other obligations of a bank and are not insured by the Federal Deposit
Insurance Corporation or any other government agency.
---------------------
See "Risk Factors" beginning on page 13 to read about the risks that you should
consider before buying these securities.
---------------------
Neither the Securities and Exchange Commission nor any state securities
commission or regulator has approved or disapproved of these securities or
determined that this prospectus is accurate or complete. Any representation to
the contrary is a criminal offense.
Per Capital
Security Total
----------- -----------
Public Offering Price............................ $25.00 $90,000,000
Underwriting commission.......................... $ 0.8125 $ 2,925,000
Proceeds, before expenses, to Greater Bay
Bancorp......................................... $24.1875 $87,075,000
The underwriters have been granted an option to purchase up to an additional
540,000 capital securities to cover over-allotments, if any.
Any accrued distributions on the capital securities from August 20, 2001 should
be added to the public offering price.
The underwriters expect the capital securities to be ready for delivery in
book-entry form only through the Depository Trust Company on or about August
20, 2001.
---------------------
Dain Rauscher Wessels Legg Mason Wood Walker
Incorporated
Stifel, Nicolaus & Company
Incorporated
---------------------
August 14, 2001
TABLE OF CONTENTS
Page
----
Summary.................................................................... 3
Summary Selected Consolidated Financial Information........................ 10
Recent Events.............................................................. 12
Risk Factors............................................................... 13
Use of Proceeds............................................................ 20
Regulatory Capital Ratios.................................................. 20
Accounting Treatment....................................................... 20
Capitalization............................................................. 21
GBB Capital V.............................................................. 22
Description of the Capital Securities...................................... 23
Description of the Junior Subordinated Debentures.......................... 33
Description of the Guarantee............................................... 44
Page
----
Relationship Among the Capital Securities, the Junior Subordinated
Debentures and the Guarantee............................................ 47
Book-Entry Issuance...................................................... 48
Material Federal Income Tax Consequences................................. 52
ERISA Considerations..................................................... 56
Underwriting............................................................. 59
Legal Matters............................................................ 60
Experts.................................................................. 60
Where You Can Find Additional Information................................ 60
A Warning about Forward-Looking Information.............................. 62
You should rely only on the information contained in or incorporated by
reference in this prospectus. This prospectus may be used only for the purpose
for which it has been prepared. No one is authorized to give information other
than that contained in this prospectus and in the documents referred to in this
prospectus and which are made available to the public. We have not, and the
underwriters have not, authorized any other person to provide you with
different information. If anyone provides you with different or inconsistent
information, you should not rely on it.
We are not, and the underwriters are not, making an offer to sell these
securities in any jurisdiction where the offer or sale is not permitted. You
should not assume that the information appearing in this prospectus or any
document incorporated by reference is accurate as of any date other than the
date of the applicable document. Our business, financial condition, results of
operations and prospects may have changed since that date. This prospectus does
not constitute an offer, or an invitation on our behalf or on behalf of the
underwriters, to subscribe for and purchase, any of the capital securities, and
may not be used for or in connection with an offer or solicitation by anyone,
in any jurisdiction in which such an offer or solicitation is not authorized or
to any person to whom it is unlawful to make such an offer or solicitation.
SUMMARY
You should carefully read this prospectus in its entirety to understand
fully the terms of the capital securities and the related guarantees and junior
subordinated debentures, as well as the tax and other considerations that are
important to you before making a decision about whether to invest in the
capital securities. You should pay special attention to the "Risk Factors"
section beginning on page 13 of this prospectus to determine whether an
investment in the capital securities is appropriate for you. Unless otherwise
indicated the information in this prospectus assumes that the underwriters will
not exercise their option to purchase additional capital securities to cover
over-allotments.
As used in this prospectus, "we" and "us" and "our" refer to Greater Bay
Bancorp and its consolidated subsidiaries, depending on the context. As used in
this prospectus, "Trust" refers to GBB Capital V.
Greater Bay Bancorp
We are a bank holding company organized under the laws of the State of
California with total assets of $6.2 billion, total net loans of $3.7 billion
and total deposits of $4.3 billion as of June 30, 2001. We provide a wide range
of commercial banking services to small and medium-sized businesses, real
estate developers, property managers, business executives, professionals and
other individuals. We operate throughout the San Francisco Bay area including
Silicon Valley, San Francisco and the San Francisco Peninsula, the East Bay,
Santa Cruz, Marin and Sonoma Counties.
We operate through 10 bank subsidiaries:
. Bank of Petaluma
. Cupertino National Bank
. Bank of Santa Clara
. Golden Gate Bank
. Bay Area Bank
. Mid-Peninsula Bank
. Bay Bank of Commerce
. Mt. Diablo National Bank
. Coast Commercial Bank . Peninsula Bank of Commerce
We also have the following operating divisions:
. CAPCO
. Greater Bay Corporate Finance
Group
. Greater Bay Bank Contra Costa
Region . Greater Bay International
Banking Division
. Greater Bay Bank Fremont Region
. Greater Bay Trust Company
. Greater Bay Bank Marin
. Matsco
. Greater Bay Bank Santa Clara Valley
. Pacific Business Funding
Commercial Banking Group
. Greater Bay Bank SBA Lending Group . Venture Banking Group
We have 38 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, San Rafael, Santa
Clara, Santa Cruz, Scotts Valley, Sunnyvale, Valley Ford, Walnut Creek and
Watsonville.
3
History
Greater Bay Bancorp became a multi-bank holding company as the result of the
merger in November 1996 of Cupertino National Bancorp and Mid-Peninsula
Bancorp. Following the merger, we operated two banks:
. Cupertino National Bank, which commenced operations in May 1985; and
. Mid-Peninsula Bank, which commenced operations in October 1987.
We have continued to expand our presence within our market areas by
affiliating with other quality banking organizations and select niche financial
services companies. In addition, we have successfully operated key regional
bank locations to respond to market and client demands and key new businesses
that expand our product offerings.
The following provides a chronological list of the acquisitions that we have
completed since 1996:
Year
Date of Merger or Commenced
Acquisition Entity Operations
----------------- ------ ----------
December 23, 1997 Peninsula Bank of Commerce 1981
May 8, 1998 Golden Gate Bank 1976
August 31, 1998 Pacific Business Funding Corporation 1995
May 21, 1999 Bay Area Bank 1979
October 15, 1999 Bay Bank of Commerce 1981
January 31, 2000 Mt. Diablo National Bank 1993
May 18, 2000 Coast Commercial Bank 1982
July 21, 2000 Bank of Santa Clara 1973
October 13, 2000 Bank of Petaluma 1987
November 30, 2000 The Matsco Companies, Inc. 1983
March 30, 2001 CAPCO Financial Company, Inc. 1990
With the exception of the acquisitions of The Matsco Companies, Inc.
("Matsco") and CAPCO Financial Companies, Inc. ("CAPCO"), all of these
acquisitions were accounted for under the pooling-of-interests method of
accounting and, accordingly, all of our financial information for the periods
prior to the acquisitions has been restated as if the acquisitions had occurred
at the beginning of the earliest reporting period presented. The acquisitions
of Matsco and CAPCO were accounted for using the purchase accounting method
and, accordingly, Matsco's and CAPCO's results of operations have been included
in the consolidated financial statements since their acquisition dates.
Our Goals
We strive to achieve the following seven primary goals:
. 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 and banking services available
to our clients;
. Reaching a critical mass in our market areas to meet the competitive
challenges of the banking and financial services industries;
. Maximizing our utilization of capital by increasing the float and
marketability of our common stock and, by virtue of our larger size,
obtaining access to lower cost capital;
4
. 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 as opposed to the
individual banks;
. Leveraging our marketing resources to improve the return on our marketing
investments; and
. Enabling our banking and financial services subsidiaries to bundle and
cross-sell our services.
Our 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 we refer
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. We believe we attract and retain clients by combining our
understanding of our clients' financial needs with the flexibility to deliver
customized solutions through our menu of products and services. We also believe
that banks who affiliate with us and implement our Super Community Banking
Philosophy are better able to build successful client relationships because our
holding company structure provides cost-effective administrative support
services while promoting bank autonomy and flexibility in serving client needs.
To implement our philosophy, we retain the names of each of our banks and
each bank maintains a separate board of directors. We believe the banks have
established reputations and client loyalty 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,
we currently intend to continue to market our services under each bank's name,
primarily through their own relationship managers. The primary focus for the
relationship managers is to cultivate and nurture their client relationships.
Relationship managers are assigned to each borrowing client to provide
continuity in the banking relationship. This emphasis on personalized
relationships requires that all of our relationship managers maintain close
ties to the communities in which they serve, so that 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, we offer the advantages of affiliation with a multi-bank holding
company. We provide the banks with expanded client support services, such as
increased client lending capacity, business cash management and international
trade finance services. In addition, we provide centralized administrative
functions, including support in credit policy formulation and review,
investment management, data processing, accounting, and loan servicing. All of
these centralized services are designed to enhance the ability of the
relationship managers to expand their client relationship base.
Our Strategy
We strive to be the preeminent independent financial services company in
Northern California. Our business strategy is to focus on increasing market
share within the communities we serve through continued internal growth. We
also pursue opportunities to expand our market share through select
acquisitions that we believe complement our business. Consistent with our
operating philosophy and growth strategy, we regularly evaluate opportunities
to acquire banks and other financial services companies that complement our
existing business, expand our market coverage and enhance our client product
offerings.
5
GBB Capital V
GBB Capital V is a statutory business trust created under Delaware law. The
Trust's business and affairs are conducted by the property trustee, the
Delaware trustee and the three individual administrative trustees, who are
officers of Greater Bay Bancorp. The Trust exists for the exclusive purposes
of:
. issuing the capital securities, which represent undivided beneficial
ownership interests on GBB Capital V's assets, in exchange for our junior
subordinated debentures;
. issuing the common securities to us in a total liquidation amount equal
to at least 3% of GBB Capital V's total capital in exchange for our
junior subordinated debentures;
. maintaining GBB Capital V's status as a grantor trust for federal income
tax purposes; and
. engaging in only those other activities necessary, advisable or
incidental to the above, such as registering the transfer of capital
securities.
Accordingly, the junior subordinated debentures will be the sole assets of
the Trust, and payments under the junior subordinated debentures will be the
sole revenues of the Trust.
Greater Bay Bancorp will own all of the common securities of the Trust.
The Offering
Title............... GBB Capital V 9.0% Trust Preferred Securities, which we
refer to in this prospectus as the "capital securities."
Securities The capital securities of the Trust represent undivided
Offered............. beneficial interests in the assets of the Trust. Each
capital security will entitle the holder to receive
cumulative quarterly cash distributions as described
below. The underwriters are offering 3,600,000 capital
securities having a liquidation amount of $25 per capital
security. The capital securities are being offered at $25
per capital security plus accumulated distributions, if
any, from August 20, 2001.
Distributions....... Purchasers will be entitled to receive cumulative cash
distributions at the annual rate of 9.0% of the
liquidation amount of $25 per capital security.
Distributions will accumulate from the date the Trust
issues the capital securities and will be paid quarterly
in arrears on March 15th, June 15th, September 15th and
December 15th of each year, beginning on September 15,
2001. The amount of each distribution will include
amounts accumulated up to the date the distribution is
due.
Deferral Periods.... So long as no event of default under the junior
subordinated debentures has occurred and is continuing,
we have the right, at one or more times, to defer
interest payments on the junior subordinated debentures
for up to 20 consecutive quarterly periods. We cannot
begin a new interest deferral period until we have paid
all accrued interest on the junior subordinated
debentures for the previous interest deferral period.
During an interest deferral period we will be prohibited
from declaring or paying cash dividends on our capital
stock and making payments on certain of our debt
securities. All deferrals will end on an interest payment
date and will not extend beyond August 31, 2031, the
stated maturity date of the junior subordinated
debentures.
6
If we defer interest payments on the junior subordinated
debentures, the Trust will also defer distributions on
the capital securities. During this deferral period, the
junior subordinated debentures will continue to accrue
interest and the capital securities will continue to
accumulate distributions. During a deferral period, you
will also accumulate additional distributions at the
annual rate of 9.0% compounded quarterly on any
accumulated and unpaid distributions, to the extent
permitted by law. If the Trust defers your distributions,
you will still be required to accrue interest income and
include it in your gross income for federal income tax
purposes, even if you are a cash basis taxpayer.
Ranking............. The capital securities generally will rank on parity, and
payments thereon will be made pro rata, with the common
securities of the Trust. The junior subordinated
debentures will rank on parity with our:
. 9.75% Junior Subordinated Deferrable Interest
Debentures, maturing on March 31, 2027, referred to as
the 1997 Junior Subordinated Debentures;
. Floating Rate Junior Subordinated Deferrable Interest
Debentures, maturing on September 15, 2028, referred to
as the 1998 Junior Subordinated Debentures;
. 10.875% Junior Subordinated Deferrable Interest
Debentures maturing on March 8, 2030, referred to as
the March 2000 Junior Subordinated Debentures;
. 10.75% Junior Subordinated Deferrable Interest
Debentures, maturing on June 1, 2030, referred to as
the June 2000 Junior Subordinated Debentures;
. Floating Rate Junior Subordinated Deferrable Interest
Debentures, maturing on July 25, 2031, referred to as
the 2001 Junior Subordinated Debentures; and
. all other junior subordinated debentures issued and
sold to other trusts established by us that are similar
to the Trust.
The junior subordinated debentures will be our unsecured
obligations and will rank subordinate and junior in right
of payment to all senior indebtedness, to the extent and
in the manner set forth in the Indenture. The guarantee
will rank on parity with our guarantees issued pursuant
to the offering of capital securities of GBB Capital I,
GBB Capital II, GBB Capital III, GBB Capital IV, GBB
Capital VI and all other guarantees, if any, issued by us
with respect to capital securities issued by other
trusts. The guarantee will constitute our unsecured
obligation and will rank subordinate and junior in right
of payment to all senior indebtedness, to the extent and
in the manner set forth in the guarantee agreement, and
will rank on parity with our preferred stock. In
addition, because Greater Bay Bancorp is a bank holding
company, the junior subordinated debentures and the
guarantee will be effectively subordinated to all
existing and future liabilities of our subsidiaries,
including the banks' deposit liabilities.
7
Guarantee........... We will, on a subordinated basis, fully, irrevocably and
unconditionally guarantee:
. payment of distributions on the capital securities;
. payments on liquidation of the Trust; and
. payments on maturity or earlier redemption of the
capital securities.
If we do not make a payment on the junior subordinated
debentures, the Trust will not have sufficient funds to
make payments on the capital securities. Our guarantee
does not assure the payment of distributions when the
Trust does not have sufficient funds to pay the
distributions. Our obligations under the guarantee are
unsecured and subordinated to senior indebtedness and on
parity with our preferred stock and will be effectively
subordinated to all of the existing and future
liabilities and obligations of our subsidiaries,
including the banks' deposit liabilities.
Distribution of
Junior
Subordinated
Debentures..........
In the future, we may liquidate the Trust and cause the
junior subordinated debentures to be distributed to
holders of capital securities and common securities. We
may have to obtain regulatory approval, including the
approval of the Federal Reserve, before we liquidate the
Trust. The junior subordinated debentures will have
identical terms and conditions as the capital securities.
We will, for instance, have the same rights, subject to
the receipt of any required regulatory approval, to
redeem the junior subordinated debentures after they have
been distributed to the holders of capital securities and
common securities.
In the event of the involuntary or voluntary liquidation,
dissolution, winding up or termination of the Trust in
which the junior subordinated debentures are not
distributed to you, then you will be entitled to receive
for each capital security you hold, after satisfaction of
creditors of the Trust, a liquidation amount of $25 plus
accumulated and unpaid distributions thereon (including
interest thereon) to the date of payment. The Trust will
be able to make this distribution in cash only if we
redeem the junior subordinated debentures.
Maturity and
Redemption.........
The junior subordinated debentures will mature on August
31, 2031, unless redeemed prior to that date if certain
conditions are met. The Trust will redeem the capital
securities when we pay the junior subordinated debentures
at maturity or upon any earlier redemption of the junior
subordinated debentures.
We may redeem the junior subordinated debentures at our
option, in whole but not in part, at any time prior to
August 31, 2006:
. if the Trust would be subject to tax or if specified
other tax events occur;
. if there is a change in the way the junior subordinated
debentures would be treated for regulatory capital
purposes; or
. if there is a change in the Investment Company Act of
1940 that requires the Trust to register under that
law.
8
In addition, we may redeem some or all of the junior
subordinated debentures on or after August 31, 2006
subject to specified conditions. We may have to obtain
regulatory approvals, including the approval of the
Federal Reserve, before we redeem any junior subordinated
debentures prior to maturity. If we redeem the junior
subordinated debentures, you will receive the liquidation
amount of $25 per capital security, plus any accrued and
unpaid distributions to the date of redemption.
Use of Proceeds..... We intend to use the net proceeds from the sale by us of
the capital securities received from the Trust in
exchange for our junior subordinated debentures to make
investments in our bank subsidiaries and for other
general corporate purposes. Pending use of the proceeds
for the foregoing purposes, we intend to repay
approximately $20 million of the $48 million of
outstanding advances under our two revolving lines of
credit from unaffiliated lenders.
Global
Certificates....... The capital securities will be represented by one or more
global certificates registered in the name of The
Depository Trust Company, which we refer to as DTC, or
its nominee. This means that holders will not receive a
certificate for their capital securities and the capital
securities will not be registered in their names.
Ownership interests in the capital securities will be
shown on, and transfers of the capital securities will
effected only through, records maintained by participants
in DTC. DTC and the paying agent for the capital
securities will be responsible for dividend payments to
you.
ERISA For a discussion of certain plan asset, prohibited
Considerations..... transaction and fiduciary duty issues pertaining to
purchases by or on behalf of an employee benefit plan,
please see "ERISA Considerations."
Lock-Up Agreement... We and the Trust have agreed, subject to specified
exceptions, for a period of 60 days from the date of this
prospectus, not to issue, sell, offer or agree to sell,
grant any option for the sale of, or otherwise dispose
of, any capital securities, junior subordinated
debentures or any securities similar to such securities
without the prior written consent of Dain Rauscher
Incorporated.
Voting Rights....... As a holder of the capital securities, you will have no
voting rights, except in limited circumstances.
Listing............. The capital securities have been approved for listing on
the Nasdaq National Market and will trade under the
symbol GBBKO. We will make a commercially reasonable
effort to maintain the listing of the capital securities
on the Nasdaq National Market or a national securities
exchange. However, you should be aware that the listing
of the capital securities will not necessarily ensure
that an active trading market will be available for the
capital securities or that you will be able to sell your
capital securities at the price you originally paid for
them.
If GBB Capital V distributes the junior subordinated
debentures, we will use our best efforts to list them on
a market or exchange.
9
SUMMARY SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following summary presents our selected consolidated financial data as
follows:
. the financial data as of and for the six months ended June 30, 2001 and
2000 have been derived from our unaudited consolidated quarterly
financial statements which, in the opinion of management, include all
adjustments, consisting of only normal, recurring adjustments, considered
necessary for a fair presentation; and
. the financial data as of, and for the years ended, December 31, 2000,
1999, 1998, 1997 and 1996 have been derived from our audited consolidated
financial statements.
You should read the summary selected consolidated financial data in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," included in our Annual Report on Form 10-K for the
year ended December 31, 2000 and our consolidated financial statements and
related notes incorporated in this prospectus by reference. The summary
selected consolidated financial data for the six months ended June 30, 2001 is
not necessarily indicative of our operating results or financial condition to
be expected for any future period.
The consolidated financial information for all of the periods presented,
except for the six months ended June 30, 2001, has been restated on a
historical basis, as appropriate, to reflect the acquisitions of all the banks
on a pooling-of-interest basis.
Six Months Ended
June 30, Year Ended December 31,
----------------- ------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- -------- -------- -------- -------- -------- --------
(Dollars in thousands, except per share amounts)
Statement of Operations
Data
Interest income......... $218,501 $167,375 $368,363 $255,377 $205,189 $165,783 $129,559
Interest expense........ 83,514 60,650 136,400 90,817 73,918 56,847 43,044
-------- -------- -------- -------- -------- -------- --------
Net interest income
before provisions for
loan losses........... 134,987 106,725 231,963 164,560 131,271 108,936 86,515
Provision for loan
losses................. 16,777 13,936 28,096 14,039 8,279 9,131 5,095
-------- -------- -------- -------- -------- -------- --------
Net interest income
after provision for
loan losses........... 118,210 92,789 203,867 150,521 122,992 99,805 81,420
Other income............ 22,558 16,544 32,539 28,471 20,996 18,179 16,972
Nonrecurring--warrant
income................. 504 9,349 12,986 14,508 945 1,162 92
-------- -------- -------- -------- -------- -------- --------
Total other income..... 23,062 25,893 45,525 42,979 21,941 19,341 17,064
Operating expenses...... 72,962 58,689 122,612 105,114 89,029 77,727 67,948
Other expenses--
nonrecurring........... -- -- -- 12,160 1,341 (1,700) --
-------- -------- -------- -------- -------- -------- --------
Total operating
expenses.............. 72,962 58,689 122,612 117,274 90,370 76,027 67,948
-------- -------- -------- -------- -------- -------- --------
Income before income tax
expense and merger and
other related
nonrecurring costs..... 68,310 59,993 126,780 76,226 54,563 43,119 30,536
Income tax expense...... 25,631 23,139 48,537 25,468 19,105 15,643 10,963
-------- -------- -------- -------- -------- -------- --------
Income before merger and
other related
nonrecurring costs and
extraordinary items.... 42,679 36,854 78,243 50,758 35,458 27,476 19,573
Merger and other related
nonrecurring costs, net
of tax................. -- (9,133) (19,703) (6,486) (1,674) (2,282) (1,991)
-------- -------- -------- -------- -------- -------- --------
Net income before
extraordinary items... 42,679 27,721 58,540 44,272 33,784 25,194 17,582
Extraordinary items..... -- -- -- (88) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income............. $ 42,679 $ 27,721 $ 58,540 $ 44,184 $ 33,784 $ 25,194 $ 17,582
======== ======== ======== ======== ======== ======== ========
Per Share Data (1)
Income per share (before
merger, nonrecurring
and extraordinary
items)
Basic.................. $ 1.00 $ 0.77 $ 1.71 $ 1.21 $ 0.95 $ 0.73 $ 0.57
Diluted................ 0.96 0.74 1.62 1.15 0.89 0.68 0.53
Net income per share
Basic.................. 1.01 0.68 1.42 1.16 0.91 0.70 0.51
Diluted................ 0.97 0.65 1.35 1.10 0.85 0.66 0.48
10
Six Months
Ended June 30, Year Ended December 31,
------------------------ ---------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
Cash dividends per share
(2).................... $ 0.20 $ 0.15 $ 0.35 $ 0.24 $ 0.19 $ 0.15 $ 0.11
Book value per common
share.................. 8.72 6.94 7.69 6.38 5.37 4.78 4.30
Shares outstanding at
period-end............. 42,625,248 41,284,372 41,929,173 39,635,048 37,342,950 35,886,162 33,865,656
Average common shares
outstanding............ 42,445,000 40,752,000 41,229,000 38,245,000 37,049,000 35,835,000 34,634,000
Average common and
common equivalent
shares outstanding..... 44,091,000 42,557,000 43,505,000 40,304,000 39,639,000 38,198,000 36,599,000
Performance Ratios
Return on average assets
(before merger,
nonrecurring and
extraordinary items)... 1.57% 1.54% 1.61% 1.39% 1.37% 1.33% 1.26%
Return on average common
shareholders' equity
(before merger,
nonrecurring and
extraordinary items)... 24.27% 22.78% 24.08% 21.08% 19.02% 16.24% 14.13%
Return on average
assets................. 1.58% 1.36% 1.34% 1.33% 1.32% 1.29% 1.13%
Return on average common
shareholders' equity... 24.43% 20.12% 19.95% 20.16% 18.29% 15.75% 12.69%
Net interest margin..... 5.39% 5.65% 5.72% 5.39% 5.56% 5.96% 6.11%
Balance Sheet Data--At
Period End
Assets.................. $ 6,224,977 $ 4,319,085 $ 5,130,378 $ 3,736,729 $ 2,857,246 $ 2,235,907 $ 1,791,754
Loans, net.............. 3,725,382 2,780,729 3,517,408 2,416,423 1,740,158 1,358,514 1,089,477
Investment securities... 2,038,824 1,110,239 962,277 750,516 667,531 464,703 345,107
Deposits................ 4,316,752 3,716,535 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 99,500 99,500 49,000 49,000 20,000 --
Common shareholders'
equity................. 371,642 286,645 322,365 252,895 200,697 171,465 145,722
Asset Quality Ratios
Nonperforming assets to
total loans and OREO
(3).................... 0.19% 0.33% 0.35% 0.28% 0.33% 0.54% 1.01%
Nonperforming assets to
total assets (3)....... 0.12% 0.22% 0.25% 0.18% 0.20% 0.34% 0.63%
Allowance for loan
losses to total loans.. 2.30% 2.05% 2.32% 1.94% 1.85% 1.91% 1.66%
Allowance for loan
losses to nonperforming
assets (3)............. 1,221.30% 621.32% 667.15% 704.29% 573.27% 354.23% 165.26%
Net charge-offs to
average loans.......... 0.69% 0.44% 0.38% 0.09% 0.13% 0.20% 0.14%
Regulatory Capital
Ratios
Leverage Ratio.......... 7.76% 9.16% 8.77% 8.24% 8.13% 8.82% 8.42%
Tier 1 Capital.......... 9.19% 10.87% 9.40% 9.75% 10.70% 11.31% 10.89%
Total Capital........... 10.46% 12.61% 10.70% 11.07% 12.59% 12.67% 12.24%
Ratio of Earnings to
Fixed Charges
Excluding interest on
deposits, to net fixed
charges (4)............ 4.54x 13.52x 11.39x 10.21x 7.10x 8.36x 7.49x
Including interest on
deposits, to fixed
charges (5)............ 1.80x 1.97x 1.91x 1.82x 1.72x 1.74x 1.69x
-------
(1) Restated to reflect a 2-for-1 stock split effective as of April 30, 1998
and October 4, 2000.
(2) Includes only those dividends declared by Greater Bay Bancorp, and excludes
those dividends paid by Greater Bay Bancorp's subsidiaries prior to the
completion of their mergers with Greater Bay Bancorp.
(3) Non-performing assets excludes accruing loans past due 90 days or more.
(4) For the purpose of computing the ratio of earnings, excluding interest on
deposits, to net fixed charges, earnings represent income before income
taxes plus net fixed income. 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.
(5) For 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.
11
RECENT EVENTS
Recent Acquisition
On June 25, 2001, we signed a definitive agreement of merger with SJNB
Financial Corp., the holding company of San Jose National Bank. The agreement
provides that we will issue shares of our common stock in a tax-free exchange
for the shares of stock of SJNB Financial Corp. for an estimated value of
approximately $173 million, subject to certain adjustments based on movements
in our stock price at the time of the merger closing. The merger, which will be
accounted for as a pooling of interests, is expected to be completed late in
the fourth quarter of 2001, subject to regulatory and shareholder approvals. As
of June 30, 2001, SJNB Financial Corp. had total assets of $660.5 million and
deposits of $562.8 million. San Jose National Bank maintains four full-service
banking offices in San Jose, Saratoga, Los Gatos and Danville, California.
Assuming the acquisition of San Jose National Bank had been completed as of
June 30, 2001, we would have had on a pro forma basis $6.9 billion in assets,
$4.9 billion in deposits and 42 banking offices covering the entire San
Francisco Bay Area.
Capital Market Transaction
On July 16, 2001, we completed a $15 million trust preferred securities
private offering. We issued the trust preferred securities through a newly
formed trust subsidiary, GBB Capital VI, to a qualified institutional buyer.
The floating rate trust preferred securities bear an interest rate of 6-month
London InterBank Offering Rate (LIBOR) plus 3.75% payable semi-annually. We
intend to invest a portion of the net proceeds in our subsidiary banks to
increase their capital levels and to use the remaining net proceeds for general
corporate purposes.
12
RISK FACTORS
Before purchasing any capital securities, you should read carefully this
prospectus and pay special attention to the following risk factors.
Because GBB Capital V will rely on the payments it receives on the junior
subordinated debentures to fund all payments on the capital securities, and
because GBB Capital V may distribute the junior subordinated debentures in
exchange for the capital securities, you are making an investment regarding the
junior subordinated debentures as well as the capital securities. You should
carefully review the information in this prospectus about the capital
securities, the guarantee and the junior subordinated debentures.
Risks Related to Your Investment in the Capital Securities
We cannot make payments under the guarantee or the junior subordinated
debentures if we default on our obligations that are more senior, and you may
lose all or part of your investment in the capital securities.
Our obligations under the guarantee and the junior subordinated debentures
are unsecured and rank:
. junior to all of our senior indebtedness;
. junior to all of our subsidiaries' liabilities, including the banks'
deposit accounts;
. senior to our common stock; and
. senior to our preferred stock as to the debentures, and equal to our
preferred stock as to the guarantee.
This means that we cannot make any payments under the guarantee or the
junior subordinated debentures if we default on payments of any of our senior
indebtedness. In addition, if the maturity of the junior subordinated
debentures is accelerated, we cannot make any payments under the guarantee or
the junior subordinated debentures until all of our senior indebtedness is paid
in full. Finally, if we liquidate, go bankrupt or dissolve, we would be able to
pay under the guarantee and the junior subordinated debentures only after we
have paid all of our liabilities that are senior to the guarantee. At June 30,
2001 we had $48.0 million in senior indebtedness.
If we default on our obligations to pay principal or interest on the junior
subordinated debentures, the Trust will not have sufficient funds to make
distributions, redemptions or liquidation payments on the capital securities.
This means you will not be able to rely upon our guarantee for payment of
distributions, redemptions or liquidation payments. Instead, you may seek legal
redress against us directly to collect payments owed to you or rely on the
property trustee to enforce the rights of the Trust under the junior
subordinated debentures against us.
The capital securities, the guarantee, the junior subordinated debentures
and the indenture do not limit our ability to incur additional debt, including
debt that is senior to the junior subordinated debentures in priority of
payment.
The ability of the Trust to make payments due on the capital securities is
solely dependent on us making payments on the junior subordinated debentures as
and when required. If the Trust cannot make payments on the capital securities,
your investment in the capital securities may become worthless.
If our banking subsidiaries are unable to pay dividends to us and if we are
not allowed to borrow from them, we may not be able to make payments under the
junior subordinated debentures and the guarantee, which would prevent the
Trust from making any payments on the capital securities.
We are a bank holding company regulated by the Federal Reserve, and almost
all of our operating assets are owned by our subsidiaries. We rely on dividends
from our bank subsidiaries to meet our obligations for payment of principal and
interest on our outstanding debt obligations and corporate expenses. Dividend
13
payments from the banks are subject to regulatory limitations, generally based
on current and retained earnings, imposed by the various regulatory agencies
with authority over each of the banks. Payment of dividends by the banks is
also subject to each of the bank's profitability, financial condition and
capital expenditures and other cash flow requirements. Bank regulatory
agencies have authority to prohibit the banks or Greater Bay Bancorp from
engaging in an unsafe or unsound practice in conducting their business. The
payment of dividends, depending upon the financial condition of the banks or
Greater Bay Bancorp, could be deemed to constitute an unsafe or unsound
practice.
Under the prompt corrective action provisions of the Federal Deposit
Insurance Act, the banks are prohibited from making capital distributions,
including the payment of dividends, if, after making any capital distribution,
the institution would become undercapitalized as defined under the Federal
Deposit Insurance Act. Payment of dividends by the banks also may be
restricted at any time at the discretion of the appropriate regulator if it
deems the payment to constitute unsafe or unsound banking practice. As of June
30, 2001, approximately $119.7 million is available for the payment of
dividends to us without further approval from the bank regulating authorities.
In addition to regulatory restrictions on the payment of dividends, the
banks are subject to certain restrictions imposed by federal law on any
extensions of credit they makes to their affiliates and on investments in
stock or other securities of its affiliates. We are considered an affiliate of
the banks. These restrictions prevent affiliates of the banks, including us,
from borrowing from the banks, unless various types of collateral secure the
loans. Federal law limits the aggregate amount of loans to and investments in
any single affiliate to 10% of each bank's capital stock and surplus and also
limits the aggregate amount of loans to and investments in all affiliates to
20% of each bank's capital stock and surplus.
If we do not receive sufficient cash dividends or borrowings from the
banks, then it is unlikely that we will have sufficient funds to make payments
on the junior subordinated debentures and the guarantee, thereby leaving
insufficient funds for the Trust to make payments to you on the capital
securities.
Also, as a holding company, our right to receive any distribution of assets
of any subsidiary, upon that subsidiary's liquidation or reorganization or
otherwise (and thus your right to benefit indirectly from such distribution),
is subject to the prior claims of creditors of that subsidiary, except to the
extent we are also recognized as a creditor of that subsidiary. For example,
if any bank is liquidated or reorganized, depositors of such bank would have
the right to receive distributions from that bank before us unless we were
considered a creditor of that bank. At June 30, 2001, the banks had total
liabilities, including deposits, of $5.7 billion.
We can defer interest payments on the junior subordinated debentures, causing
your payments under the capital securities to stop, which will have adverse
tax consequences to you and may affect the market price of the capital
securities.
We have the right to defer interest payments on the junior subordinated
debentures for up to 20 consecutive quarterly periods, but not beyond August
31, 2031. If we defer interest payments, the Trust will defer paying
distributions to you on your capital securities during the deferral period. In
addition, if we pay all interest then accrued and unpaid on the junior
subordinated debentures, we may elect to begin a new deferral period. There is
no limitation on the number of times that we may elect to begin a deferral
period.
If we exercise our right to defer payments of interest on the junior
subordinated debentures, you will be required to accrue income (as original
issue discount) in respect of the deferred stated interest allocable to your
capital securities for federal income tax purposes. As a result, you will be
required to recognize income for federal income tax purposes before you
receive any cash. Furthermore, if you sell of your capital securities prior to
the record date for the distribution payment, you will not receive the cash
related to this interest income.
14
As a result of our right to defer interest payments, the market price of
the capital securities may be more volatile than the market prices of other
securities that are not subject to such deferral options. We do not currently
intend to exercise our right to defer interest payments on the junior
subordinated debentures. However, if we exercise this right in the future, the
market price of the capital securities will probably decline and the capital
securities may trade at a price that does not fully reflect the value of
accrued but unpaid interest on the junior subordinated debentures. If you sell
your capital securities during a deferral period, you may not receive the same
return on your investment as someone who continues to hold the capital
securities until the end of the deferral period.
The capital securities guarantee agreement covers payments only if the Trust
has cash available to make payments to holders of capital securities, which
the Trust may not have.
The ability of the Trust to pay scheduled distributions on the capital
securities, the redemption price of the capital securities and the liquidation
amount of the capital securities is solely dependent upon us making the
related payments on the junior subordinated debentures to the Trust when due.
If we default, the Trust will not have sufficient funds to pay distributions,
the redemption price or the liquidation amount of each capital security. In
those circumstances, holders of capital securities will not be able to rely
upon the capital securities guarantee agreement for payment of these amounts.
Instead, holders of capital securities must rely solely on the property
trustee to enforce the Trust's rights under the junior subordinated debentures
or may directly sue us to collect their pro rata share of payments owed. In
this situation, holders of capital securities may not be able to collect any
or all of the payments owed to them by the Trust.
Distribution of junior subordinated debentures may be taxable and may depress
trading prices to a price below the price that you paid for the capital
securities.
We have the right to dissolve the Trust at any time if such dissolution and
any distribution of the junior subordinated debentures would not be taxable to
the holders of the capital securities. If we dissolve the Trust, the Trust
will be liquidated by distribution of the junior subordinated debentures to
holders of the capital securities and the common securities.
Under current federal income tax laws, that distribution would not be
taxable to you unless the Trust is classified for federal income tax purposes
as an association taxable as a corporation at the time it is dissolved. In
addition, if there is a change in law, a distribution of junior subordinated
debentures to you on the dissolution of the Trust could also be a taxable
event.
Your investment in the capital securities may decrease in value if the
junior subordinated debentures are distributed to you upon a liquidation of
the Trust. We cannot predict the liquidity of the market price or market
prices, if any, for the junior subordinated debentures that may be
distributed. Accordingly, the junior subordinated debentures that you receive
upon a distribution, or the capital securities you hold pending such
distribution, may trade at a discount to the price that you paid to purchase
the capital securities.
We may not be able to deduct the payments we make on the junior subordinated
debentures for federal income tax purposes, which could significantly
increase our income tax liability and could impair our ability to make
payments on the capital securities.
Our ability to deduct interest paid on the junior subordinated debentures
will depend on whether the junior subordinated debentures are characterized as
debt instruments for United States federal income tax purposes, taking all the
relevant facts and circumstances into account. Our counsel has rendered an
opinion to us that the junior subordinated debentures are debt instruments for
United States federal income tax purposes. Accordingly, we intend to deduct
interest on the junior subordinated debentures for United States federal
income tax purposes. However, a legal opinion is not binding on the tax
authorities or the courts. If the tax authorities or the courts determine that
we are not able to deduct interest on the junior subordinated debentures, we
would have significant additional income tax liability. This tax liability may
have a material adverse effect
15
on our results of operations, financial condition and ability to make payments
on the junior subordinated debentures and, consequently, the Trust's ability
to make payments on the capital securities. This tax liability would also give
us the right to redeem the junior subordinated, debentures in whole prior to
August 31, 2006, which would require the Trust to redeem the corresponding
amount of the capital securities.
We will control the Trust and you will have limited voting rights, and our
interests may not be aligned with yours.
As a holder of capital securities, you will have limited voting rights. You
can vote only to modify specified terms of the capital securities or on the
removal of the property and Delaware trustees of the Trust upon a limited
number of events. We, along with the property trustee and the administrative
trustees, may amend the trust agreement without your consent even if those
actions adversely affect your interests, to ensure that the Trust:
. will continue to be classified as a grantor trust for federal income tax
purposes; and
. will not be required to register as an "investment company" under the
Investment Company Act of 1940.
You will not have any voting rights regarding Greater Bay Bancorp or the
administrative trustees or with respect to any matters submitted to a vote of
our common shareholders. Because we will control the Trust, our interests may
not be aligned with your interests.
The capital securities may be redeemed prior to their maturity date, which
will result in a taxable event to you, and you may not be able to reinvest
the proceeds from the redemption at the same or a higher rate of return.
Generally, the junior subordinated debentures (and therefore the capital
securities) may not be redeemed prior to August 31, 2006. However, if
specified events occur relating to changes in tax law, the Investment Company
Act of 1940 or the treatment of the securities for bank regulatory capital
purposes, then we will be able, subject to receipt of any necessary Federal
Reserve approval, to redeem all of the junior subordinated debentures at a
price equal to 100% of their principal amount plus any accrued and unpaid
interest before August 31, 2006. If such a redemption happens, the Trust must
use the redemption price it receives to redeem all of the capital securities.
In addition, after August 31, 2006 we have the right to redeem the junior
subordinated debentures in whole or in part.
Any redemption of the capital securities would be a taxable event to you
for United States income tax purposes. In addition, you may not be able to
reinvest the proceeds of the redemption at a rate that is equal to or higher
than the rate of return on the capital securities.
The limited covenants relating to the capital securities and the junior
subordinated debentures do not protect you.
The covenants in the governing documents relating to the capital securities
and the junior subordinated debentures are extremely limited. As a result, the
governing documents do not protect you in the event of an adverse change in
our financial condition or results of operations. You should not consider the
terms of the governing documents to be a significant factor in evaluating
whether we will be able to comply with our obligations under the junior
subordinated debentures or the guarantee.
Trading characteristics of the capital securities may create adverse tax
consequences for you.
The capital securities may trade at a price that does not reflect the value
of the accrued but unpaid interest on the underlying junior subordinated
debentures. If you dispose of your capital securities between the record date
for payments on the capital securities, you may have adverse tax consequences.
Under these
16
circumstances, you will be required to include in your income accrued but
unpaid interest on the junior subordinated debentures allocable to the capital
securities through the date of disposition. If interest on the junior
subordinated debentures is included in income under the original issue discount
provisions, you would add this amount to your adjusted tax basis in your share
of the underlying junior subordinated debentures deemed disposed. If your
selling price is less than your adjusted tax basis, which will include all
accrued but unpaid original issue discount interest included in your income,
you could recognize a capital loss which can only be applied to a limited
extent to offset ordinary income for federal income tax purposes.
There is no existing market for the capital securities, and even if a market
develops, it may be subject to extreme price fluctuations.
Although the capital securities have been approved for listing on the Nasdaq
National Market, there is no existing market for the capital securities. We
cannot assure you that the capital securities will continue to be listed on the
Nasdaq National Market. In addition, a listing does not guarantee that a
trading market for the capital securities will develop or, if a trading market
does develop, the depth of that market or the ability of the holders to sell
their capital securities easily.
The trading price of the capital securities could widely fluctuate in
response to variations in operating results, general market prices movements,
interest rates, developments specifically related to the banking industry, and
other events or factors. In addition, the stock market has experienced extreme
price and volume fluctuations in recent years.
As discussed above, we will have the right to dissolve the Trust and to
distribute the junior subordinated debentures to holders of capital securities.
Under those circumstances, we will use our best efforts to list the junior
subordinated debentures on a market or an exchange. However, there is no
existing market for the junior subordinated debentures and, if distributed to
holders of capital securities, the junior subordinated debentures will be
subject to risks similar to those described in the two preceding paragraphs.
Risks Relating to Greater Bay Bancorp and its Subsidiaries
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, we cannot assure you
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.
Accordingly, we cannot assure you 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.
17
Since January 1, 2001, the Federal Funds Rate has decreased by 2.75% and we
believe additional reductions will occur before the end of the year. The
decreases to date have impacted our net interest income by reducing our net
interest margin from 5.89% for the three months ended December 31, 2000 to
5.10% for the three months ended June 30, 2001. Further reductions in interest
rates may adversely affect our ability to proportionately decrease the rates on
our deposit sources, particularly MMDA and NOW accounts, due to competitive
pressures. This may result in a larger decrease in our interest rate spread if
loan volume does not increase sufficiently to offset the impact of stabilizing
deposit pricing. 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.
Economic conditions in the Bay Area could adversely affect the demand for our
services and our results of operations.
Our operations are located in Northern California and concentrated primarily
in Alameda, Contra Costa, Marin, 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 conditions in these areas. A deterioration in economic
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 and could reduce the demand for our products
and services, which in turn may have a material adverse effect on our results
of operations.
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 some 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, we cannot predict future gains from
these warrants with any degree of accuracy and such gains, if any, 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.
Government regulations could limit or restrict the activities we are allowed
to conduct, 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
18
existing laws may cause our results to differ materially. Further, federal
monetary policy, particularly as implemented through the Federal Reserve,
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.
19
USE OF PROCEEDS
The Trust will issue the capital securities and common securities to us in
exchange for our junior subordinated debentures. The net proceeds we will
receive from the sale of the capital securities, net of estimated underwriting
discounts, commissions and other estimated offering expenses, are estimated to
be approximately $86.6 million if the underwriters do not exercise their over-
allotment option, and $99.7 million if the underwriters fully exercise their
over-allotment option. We currently intend to use the net proceeds from the
sale of the capital securities to make investments in our bank subsidiaries
when necessary to fund growth and for other general corporate purposes. Pending
use of the proceeds for the foregoing purposes, we intend to invest the net
proceeds in short-term investment securities and to repay approximately $20
million of the $48 million of outstanding advances under our two revolving
lines of credit from unaffiliated lenders. The outstanding advances bear
interest as follows: (a) $15 million at 5.488%; (b) $10 million at 5.275%; (c)
$15 million at 5.274% and (d) $8 million at 5.626%. In addition to working
capital, we used $5.6 million of the loan proceeds to acquire The Matsco
Companies, Inc. and $6.9 million of the loan proceeds to acquire CAPCO
Financial Companies, Inc. Both revolving lines of credit mature on October 30,
2001.
REGULATORY CAPITAL RATIOS
The following table sets forth our consolidated capital ratios at June 30,
2001:
. on an actual basis;
. as adjusted to give effect to the issuance of $15 million of capital
securities privately issued after June 30, 2001; and
. as further adjusted to account for the $15 million privately issued
capital securities and to give effect to the sale of the capital
securities in this offering.
June 30, 2001
-------------------------------------
As Adjusted As Adjusted
for Private for Private
Offering Offering and
Actual (1) this Offering (1)
------ ----------- -----------------
Tier 1 risk-based capital.............. 9.19% 9.47% 9.49%
Total risk-based capital............... 10.46% 10.73% 12.41%
Leverage............................... 7.76% 8.03% 8.17%
--------
(1) Assumes the net proceeds are invested in 100% risk-weighted assets.
ACCOUNTING TREATMENT
For financial reporting purposes, the Trust will be treated as our
subsidiary, and, accordingly, the accounts of the Trust will be included in our
consolidated financial statements. The capital securities will be presented as
a separate line item in our consolidated balance sheet and appropriate
disclosures about the capital securities, the guarantee and the junior
subordinated debentures will be included in the notes to our consolidated
financial statements.
Future reports we file under the Securities Exchange Act of 1934, as
amended, referred to as the Exchange Act, will include a footnote to the
consolidated financial statements stating that:
. the Trust is wholly-owned;
. the sole assets of the Trust are the junior subordinated debentures
(specifying the principal amount, interest rate and maturity date of such
junior subordinated debentures); and
. our obligations under the trust agreement, the junior subordinated
debentures and related indenture and the guarantee, in the aggregate,
constitute a full and unconditional guarantee by us of the obligations of
the Trust under the capital securities.
We expect that the Trust will not be required to provide separate reports
under the Exchange Act.
20
CAPITALIZATION
The following table sets forth our consolidated capitalization at June 30,
2001:
. on an actual basis;
. as adjusted to give effect to the issuance of $15 million of capital
securities offered by our subsidiary trust after June 30, 2001, and the
receipt and application by us of the net proceeds from the sale of the
2001 Junior Subordinated Debentures to our subsidiary trust; and
. as further adjusted to account for the foregoing receipt and application
by us of the net proceeds from the sale of the 2001 Junior Subordinated
Debentures to our subsidiary trust and to give effect to the receipt and
application by us of the net proceeds we expect to receive from the sale
of the capital securities in this offering.
June 30, 2001
------------------------------
As
As Adjusted
Adjusted for Private
for Offering and
Private this
Actual Offering Offering
-------- -------- ------------
(In thousands)
Long-term debt.................................. $130,276 $130,276 $130,276
Company obligated mandatorily redeemable trust
preferred securities of subsidiary trusts
holding solely junior subordinated debentures.. 99,500 114,500 204,500
Preferred stock, no par value: 4,000,000 shares
authorized, none outstanding................... -- -- --
Common stock, no par value: 80,000,000 shares
authorized, 42,546,142 shares outstanding...... 178,598 178,598 178,598
Accumulated other comprehensive income.......... 3,227 3,227 3,227
Retained earnings............................... 189,817 189,817 189,817
-------- -------- --------
Total shareholders' equity.................... 371,642 371,642 371,642
-------- -------- --------
Total capitalization.......................... $601,418 $616,418 $706,418
======== ======== ========
The subsidiary trusts are:
. GBB Capital I, which issued trust preferred securities on March 31, 1997
and holds $20.6 million in 9.75% Junior Subordinated Deferrable Interest
Debentures;
. GBB Capital II, which issued trust preferred securities on August 12,
1998 and holds $30.9 million in Floating Rate Junior Subordinated
Deferrable Interest Debentures;
. GBB Capital III, which issued trust preferred securities on March 23,
2000 and holds $9.8 million in 10.875% Junior Subordinated Deferrable
Interest Debentures;
. GBB Capital IV, which issued trust preferred securities on May 19, 2001
and holds $42.3 million in 10.75% Junior Subordinated Deferrable Interest
Debentures;
. GBB Capital V, which will hold the junior subordinated debentures
referred to in this prospectus as its sole asset; and
. GBB Capital VI, which issued trust preferred securities on July 16, 2001
and holds $15.5 million in Floating Rate Junior Subordinated Deferrable
Interest Debentures.
In the foregoing table, the "Actual" column refers to all of the subsidiary
trusts except for GBB Capital VI and GBB Capital V, the "As Adjusted for
Private Offering" column refers to all of the subsidiary trusts except for GBB
Capital V, and the "As Adjusted for Private Offering and this Offering" column
refers to all of the subsidiary trusts.
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GBB CAPITAL V
The Trust is a statutory business trust created under Delaware law upon the
filing of a certificate of trust with the Delaware Secretary of State. The
Trust exists for the exclusive purposes of:
. issuing the capital securities, which represent undivided beneficial
ownership interests on GBB Capital V's assets, in exchange for our junior
subordinated debentures;
. issuing the common securities to us in a total liquidation amount equal
to at least 3% of GBB Capital V's total capital in exchange for our
junior subordinated debentures;
. to maintain GBB Capital V's status as a grantor trust for federal income
tax purposes; and
. engaging in only those other activities necessary, advisable or
incidental to the above, such as registering the transfer of capital
securities.
The junior subordinated debentures will be the sole assets of the Trust,
and, accordingly, payments under the junior subordinated debentures will be the
sole revenues of the Trust. We will acquire and own all of the common
securities of the Trust, which will have an aggregate liquidation amount equal
to at least 3% of the total capital of the Trust. The common securities will
rank on a parity with, and payments will be made on the common securities pro
rata, with the capital securities, except that upon an event of default under
the Amended and Restated Declaration of Trust, or the trust agreement,
resulting from an event of default under the debentures, our rights as holder
of the common securities to distributions and payments upon liquidation or
redemption will be subordinated to the rights of the holders of the capital
securities.
The Trust has a term of approximately 35 years, but may dissolve earlier as
provided in the trust agreement. The Trust's business and affairs are conducted
by the trustees. The trustees for the Trust will be Wilmington Trust Company,
as the property trustee and as the Delaware trustee, and three administrative
trustees who are our officers. Wilmington Trust Company, as property trustee,
will act as sole indenture trustee under the trust agreement. Wilmington Trust
Company will also act as guarantee trustee under the guarantee and as debenture
trustee under the indenture. The holder of the common securities of the Trust
will be entitled generally to appoint, remove or replace the property trustee
and/or the Delaware trustee. In the event of a default of the trust agreement,
the holders of a majority in liquidation amount of the capital securities may
appoint, remove or replace the properly trustee and/or the Delaware trustees,
instead. In no event will the holders of the capital securities have the right
to vote to appoint, remove or replace the administrative trustees; such voting
rights will be vested exclusively in the holder of the common securities.
The duties and obligations of each trustee are governed by the trust
agreement. As issuer of the junior subordinated debentures, we will pay all
fees, expenses, debts and obligations (other than the payment of distributions
and other payments on, the capital securities) related to the Trust and the
offering of the capital securities and will pay, directly or indirectly, all
ongoing costs, expenses and liabilities of the Trust. The principal executive
office of the Trust is c/o Greater Bay Bancorp, 2860 West Bayshore Road, Palo
Alto, California 94303 and its telephone number is (650) 813-8200.
22
DESCRIPTION OF THE CAPITAL SECURITIES
We have summarized below the material terms of the capital securities. This
summary is not a complete description of all of the terms and provisions of the
capital securities. For more information, we refer you to the form of the
amended and restated declaration of trust, which we filed as exhibits to the
registration statement of which the prospectus is a part.
General
The capital securities will represent undivided beneficial ownership
interests in the assets of the Trust.
The capital securities will be limited to $103,500,000 aggregate liquidation
amount at any one time outstanding. The capital securities will rank equally
with the common securities, except as described under "Subordination of Common
Securities." The property trustee will have legal title to the junior
subordinated debentures and will hold them in trust for the benefit of you and
the other holders of the capital securities. Our guarantee for the benefit of
the holders of the capital securities will be a guarantee on a subordinated
basis with respect to the capital securities, but will not guarantee payment of
distributions or amounts payable on redemption of the capital securities or
liquidation of the Trust when the Trust does not have funds legally available
for such payments.
Distributions
Distributions on the capital securities will be cumulative, and will
accumulate from the date that the capital securities are first issued.
Distributions will be payable at the annual rate of 9.0% of the liquidation
amount, payable quarterly in arrears on the distribution dates, which are March
15th, June 15th, September 15th and December 15th of each year, commencing
September 15, 2001 to the holders of the capital securities on the relevant
record dates. The record dates will be the 1st day of the month in which the
relevant distribution date occurs. Distributions payable on any capital
securities that are not paid on the scheduled distribution date will cease to
be payable to the person in whose name such capital securities are registered
on the relevant record date, and such distribution will instead be payable to
the person in whose name such capital securities are registered on a special
record date set for this purpose. The amount of distributions payable for any
distribution period will be based on a 360-day year of twelve 30-day months.
The amount of distributions payable for any period shorter than a full
quarterly period will be computed on the basis of a 30-day month and, for
periods of less than a month, the actual number of days elapsed per 30-day
month.
Distributions not paid when due will accumulate additional distributions at
the annual rate of 9.0% on the amount of unpaid distributions, compounded
quarterly.
If any distribution date would otherwise fall on a day that is not a
business day, the required payment will be made on the next business day
without any additional payments for the delay. A business day means any day
other than a Saturday or a Sunday, or a day on which banking institutions in
New York, New York, San Francisco, California or Wilmington, Delaware are
authorized or required by law or executive order to remain closed.
The Trust's revenue available for distribution to holders of the capital
securities will be limited to our payments to the Trust under our junior
subordinated debentures. If we do not make interest payments on the junior
subordinated debentures, the property trustee will not have funds available to
pay distributions on the capital securities. Our guarantee only covers the
payment of distributions if and to the extent that the Trust has funds legally
available to pay the distributions.
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Deferral of Distributions
As long as no debenture event of default exists, we have the right under the
indenture to elect to defer the payment of interest on the junior subordinated
debentures. We may exercise this right at any time or from time to time before
the end of any deferral period, for no more than 20 consecutive quarterly
periods. No deferral period will end on a date other than an interest payment
date or extend beyond August 31, 2031, the stated maturity date of the junior
subordinated debentures. If we defer payments, the Trust will defer quarterly
distributions on the capital securities during the deferral period. During any
deferral period, distributions will continue to accumulate on the capital
securities and on any accumulated and unpaid distributions, compounded
quarterly at the annual rate of 9.0%, to the extent permitted by law from the
relevant distribution date. The term distributions includes any accumulated
additional distributions.
At the end of any deferral period and upon the payment of all amounts then
due on any interest payment date, we may elect to begin a new deferral period,
subject to the above requirements. No interest shall be due and payable during
a deferral period until the deferral period ends. We must give the property
trustee, the administrative trustees and the debenture trustee notice of our
election to defer interest payments or to extend a deferral period at least
five business days before the earlier of:
. the date the distributions on the capital securities would have been
payable, except for the election to begin a deferral period; and
. the date the property trustee is required to give notice to any
securities exchange or automated quotation system or to holders of the
capital securities of the record date or the date such distributions are
payable, but in any event at least five business days before such record
date.
There is no limitation on the number of times that we may elect to begin a
deferral period.
During any deferral period, we may not and we may not permit any subsidiary
to:
. declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of our
capital stock;
. make any payment of principal of, or interest or premium, if any, on, or
repay, repurchase or redeem any debt securities (including any other
debentures) that rank equal or junior to the junior subordinated
debentures; or
. make any guarantee payments with respect to any guarantee of the debt
securities of any of our subsidiaries (including other guarantees) if
such guarantee ranks equal or junior to the junior subordinated
debentures.
Notwithstanding the foregoing, during a deferral period the following is
permitted:
. a payment of dividends or distributions in shares of, or options,
warrants or rights to subscribe for or purchase shares of, our common
stock;
. a 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;
. a payment under the guarantee;
. a reclassification of our capital stock or the exchange or conversion of
one class or series of our capital stock for another class or series of
our capital stock;
. the purchase of fractional interests in shares of our capital stock
pursuant to the conversion or exchange provisions of such capital stock
or the security being converted or exchanged; and
. the purchase of common stock related to the issuance of common stock or
rights under any of our benefit plans for our directors, officers or
employees or any of our dividend reinvestment plans.
24
We do not currently intend to exercise our right to defer payments of
interest on the junior subordinated debentures.
Redemption
We will have the right to prepay the junior subordinated debentures:
. in whole or in part, on or after August 31, 2006; and
. in whole but not in part, prior to August 31, 2006 if there are specified
changes in the bank regulatory, investment company or tax laws that would
adversely affect the status of the Trust, the capital securities or the
junior subordinated debentures.
Upon repayment at maturity on August 31, 2031 or prepayment, in whole or in
part after August 31, 2006, or prepayment in whole, but not in part, prior to
August 31, 2006 of the junior subordinated debentures (other than following the
distribution of the junior subordinated debentures to you as a holder of the
capital securities and us, as the holder of the common securities), the
property trustee will apply the proceeds from the repayment or prepayment of
the junior subordinated debentures (as long as the property trustee has
received written notice no later than 45 days before the repayment) to redeem
capital securities and common securities having an aggregate liquidation amount
equal to the principal amount of the junior subordinated debentures paid to the
Trust. The redemption price for any capital security or common security will be
equal to the $25 liquidation amount of such security plus accumulated and
unpaid distributions to the redemption date. The Trust will give notice of any
redemption of capital securities between 30 to 60 days prior to the redemption
date.
If we prepay less than all of the junior subordinated debentures on the
stated maturity date or a redemption date, then the property trustee will
allocate the proceeds of the prepayment on a pro rata basis among the capital
securities and the common securities unless an event of default has occurred
under the junior subordinated debentures, in which case no proceeds will be
allocated to the common securities until the capital securities are paid in
full.
We may have to obtain regulatory approval, including the approval of the
Federal Reserve, before we redeem any junior subordinated debentures.
The redemption price of the capital securities will correspond to the
maturity and prepayment prices of to the junior subordinated debentures.
Redemption Procedures
Whenever we redeem or repay the junior subordinated debentures, the Trust
will redeem capital securities at the redemption price with the proceeds that
it receives from our redemption or repayment of the junior subordinated
debentures. Any redemption of capital securities will be made and the
redemption price will be payable on the redemption date only to the extent that
the Trust has funds legally available to pay the redemption price.
If the Trust gives a notice of redemption for the capital securities, then,
by 12:00 noon, New York City time, on the redemption date, to the extent funds
legally are available, with respect to:
. the capital securities held by DTC or its nominees, the property trustee
will deposit, or cause the paying agent to deposit, irrevocably with DTC
funds sufficient to pay the redemption price; and
. the capital securities held in certificated form, if any, the property
trustee will irrevocably deposit with the paying agent funds sufficient
to pay the redemption price and will give the paying agent irrevocable
instructions and authority to pay the redemption price to the holders
upon surrender of their certificates evidencing the capital securities.
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The paying agent will initially be the property trustee and any co-paying
agent chosen by the property trustee and acceptable to the administrative
trustees and us.
Notwithstanding the foregoing, distributions payable on or before the
redemption date will be payable to the holders of the capital securities on the
relevant record dates for the related distribution dates. If the Trust gives a
notice of redemption and funds are deposited as required, then upon the date of
the deposit, all rights of the holders of the capital securities called for
redemption will cease, except the right of the holders of the capital
securities to receive the redemption price, without interest, and the capital
securities called to be redeemed will cease to be outstanding.
If any redemption date for the capital securities is not a business day,
then the redemption price, without interest or any other payment in respect of
the delay, will be paid on the next business day.
If payment of the redemption price is improperly withheld or refused and not
paid either by the Trust or by us pursuant to the guarantee:
. distributions on the capital securities will continue to accumulate from
the redemption date originally established by the Trust to the date such
redemption price is actually paid; and
. the actual payment date will be the redemption date for purposes of
calculating the redemption price.
Notice of any redemption will be mailed between 30 and 60 days before the
redemption date to each holder of capital securities at its registered address.
Unless we default in payment of the redemption price on, or in the repayment
of, the junior subordinated debentures, on and after the redemption date,
distributions will cease to accrue on the capital securities called for
redemption.
Subject to applicable law, including, without limitation, federal securities
laws, we or our subsidiaries may at any time, and from time to time, purchase
outstanding capital securities in the open market or by private agreement.
Liquidation of the Trust and Distribution of Junior Subordinated Debentures
We will have the right at any time to dissolve the Trust and, after
satisfying the liabilities owed to the Trust's creditors, we will have the
right to distribute the junior subordinated debentures to the holders of the
capital securities and to us as holder of the common securities. Our right to
dissolve the Trust is subject to our receiving:
. an opinion of counsel to the effect that if we distribute the junior
subordinated debentures, the holders of the capital securities will not
experience a taxable event; and
. all required regulatory approvals.
The Trust will automatically dissolve if:
. specified bankruptcy events occur, or we dissolve or liquidate;
. we distribute junior subordinated debentures having a principal amount
equal to the liquidation amount of the capital securities and the common
securities to holders of such securities and we, as sponsor, have given
written directions to the property trustee to dissolve the Trust (which
direction is at our option and, except as described above, wholly within
our discretion, as sponsor);
. the Trust redeems all of the capital securities and common securities in
accordance with their terms;
. the junior subordinated debentures are redeemed or repaid or there are no
junior subordinated debentures outstanding;
. the Trust's term expires; or
. a court of competent jurisdiction enters an order for the dissolution of
the Trust.
26
If the Trust is dissolved for any of the above reasons, except for a
redemption of all capital securities and the common securities, the
administrative trustees will liquidate the Trust as quickly as they determine
to be possible by distributing to holders of the capital securities and the
common securities, after satisfying the liabilities owed to the Trust's
creditors, junior subordinated debentures having a principal amount equal to
the liquidation amount of the capital securities and the common securities,
unless the property trustee determines that this distribution is not
practicable. If the property trustee determines that this distribution is not
practicable, the holders of the capital securities will be entitled to receive
an amount equal to the aggregate of the liquidation amount, plus accumulated
and unpaid distributions on the capital securities to the date of payment out
of the assets of the Trust legally available for distribution to holders, after
satisfying the liabilities owed to the Trust's creditors as provided by
applicable law. If such a distribution can be paid only in part because the
Trust has insufficient assets legally available to pay the full amount of that
distribution, then the amounts payable shall be paid pro rata on the capital
securities and the common securities, except that if an event of default exists
under the indenture, the capital securities will have a priority over the
common securities.
After the liquidation date is fixed for any distribution of junior
subordinated debentures to holders of the capital securities:
. the capital securities will no longer be deemed to be outstanding;
. DTC or its nominee will receive in respect of each registered global
certificate representing capital securities a registered global
certificate representing the junior subordinated debentures to be
delivered upon this distribution; and
. certificates representing capital securities not held by DTC or its
nominee, if any, will be deemed to represent junior subordinated
debentures having a principal amount equal to the liquidation amount of
those capital securities, and bearing accrued and unpaid interest in an
amount equal to the accumulated and unpaid distributions on those capital
securities until such certificates are presented to the administrative
trustees or their agent for cancellation, in which case we will issue to
those holders, and the debenture trustee will authenticate, a certificate
representing the junior subordinated debentures.
We cannot assure you of the market prices for the capital securities or the
junior subordinated debentures that may be distributed to you in exchange for
the capital securities if a dissolution and liquidation of the Trust were to
occur. Accordingly, the capital securities that you purchase, or the junior
subordinated debentures that you may receive upon a dissolution and liquidation
of the Trust, may trade at a discount to the price that you paid to purchase
the capital securities.
If we elect not to prepay the junior subordinated debentures prior to
maturity and either elect not to or we are unable to liquidate the Trust and
distribute the junior subordinated debentures to holders of the capital
securities, the capital securities will remain outstanding until the repayment
of the junior subordinated debentures on August 31, 2031.
Subordination of Common Securities
Payment of distributions on, the redemption price of, and the liquidation
distribution for, the capital securities and the common securities, as
applicable, will generally be made on a pro rata basis. However, if an event of
default under the junior subordinated debentures exists on any distribution,
redemption or liquidation date, no payment of any distribution on, or
redemption price of, or liquidation distribution for, any of the common
securities, and no other payment on account of the redemption, liquidation or
other acquisition of the common securities, will be made unless payment in full
in cash of all accumulated and unpaid distributions on all of the outstanding
capital securities for all distribution periods terminating on or before the
distribution, redemption or liquidation date, or payment of the redemption
price or liquidation distribution, is made in full. All funds available to the
property trustee will first be applied to the payment in full in cash of all
distributions on, or redemption price of, or liquidation distribution for, the
capital securities then due and payable.
27
In the case of any event of default under the trust agreement, we, as holder
of all of the common securities, will be deemed to have waived any right to act
with respect to the event of default until the effect of the event of default
has been cured or waived. Until any event of default has been cured or waived,
the property trustee will act solely on behalf of the holders of the capital
securities and not on our behalf, and only the holders of the capital
securities will have the right to direct the property trustee to act on their
behalf.
Events of Default; Notice
An event of default under the junior subordinated debentures constitutes an
event of default under the trust agreement.
The trust agreement provides that within ten (10) business days after the
property trustee has actual knowledge that any event of default has occurred,
the property trustee will give notice of the event of default to the holders of
the capital securities, the administrative trustees and, to us, as sponsor,
unless the event of default has been cured or waived. We, as sponsor, and the
administrative trustees are required to file annually with the property trustee
a certificate as to whether we and the administrative trustees have complied
with the applicable conditions and covenants of the trust agreement.
If an event of default under the junior subordinated debentures exists that
is attributable to our failure to pay the principal or interest (including
compounded interest and additional sums, if any) on the junior subordinated
debentures on the due date, a holder of capital securities may institute a
direct action against us for enforcement of payment to that holder of the
principal of or interest on the junior subordinated debentures having a
principal amount equal to the total liquidation amount of that holder's capital
securities.
If an event of default exists under the debentures, the capital securities
will have a preference over the common securities. An event of default does not
entitle the holders of capital securities to require the redemption of the
capital securities.
Removal of Issuer Trustees
Unless an event of default exists under the debentures, we may remove the
property trustee and the Delaware trustee at any time. If an event of default
exists, the property trustee and the Delaware trustee may be removed only by
the holders of a majority in liquidation amount of the outstanding capital
securities. In no event will the holders of the capital securities have the
right to vote to appoint, remove or replace the administrative trustees,
because these voting rights are vested exclusively in us as the holder of all
of the common securities. No resignation or removal of the property trustee or
the Delaware trustee and no appointment of a successor trustee shall be
effective until the acceptance of appointment by the successor trustee in
accordance with the trust agreement.
Merger or Consolidation of Issuer Trustees
If the property trustee, the Delaware trustee or any administrative trustee
that is not a natural person is merged, converted or consolidated into another
entity, or the property trustee or the Delaware trustee is a party to a merger,
conversion or consolidation which results in a new entity, or an entity
succeeds to all or substantially all of the corporate trust business of the
property trustee or the Delaware trustee, the new entity shall be the successor
of the respective trustee under the trust agreement, provided that the entity
is otherwise qualified and eligible.
Mergers, Consolidations, Amalgamations or Replacements of the Trust
The Trust may not merge with or into, consolidate, amalgamate or be replaced
by, or convey, transfer or lease all or substantially all of its properties and
assets to any corporation or other entity, except as described below. The Trust
may, at our request, as sponsor, and with the consent of the administrative
trustees but without
28
the consent of the holders of the capital securities, merge with or into,
consolidate, amalgamate or be replaced by or convey, transfer or lease all or
substantially all of its properties and assets to a trust organized as such
under the laws of any state; provided, that:
. the successor trust either:
. expressly assumes all of the obligations of the Trust with respect to
the capital securities; or
. substitutes securities for the capital securities that have
substantially the same terms as the capital securities so long as the
substitute securities rank equal to the capital securities in priority
with respect to distributions and payments upon liquidation, redemption
and otherwise;
. we appoint a trustee of the successor trust possessing the same powers
and duties as the property trustee with respect to the junior
subordinated debentures;
. the substitute securities are listed, or any substitute securities will
be listed upon notification of issuance, on any national securities
exchange or other organization on which the capital securities are then
listed or quoted, if any;
. if the capital securities, substitute securities or junior subordinated
debentures are rated by any nationally recognized statistical rating
organization prior to such transaction, the transaction does not cause
any of those securities to be downgraded by any such organization;
. the transaction does not adversely affect the rights, preferences and
privileges of the holders of the capital securities (including any
successor securities) in any material respect;
. the successor has a purpose substantially identical to that of the Trust;
. prior to the transaction, we received an opinion from independent counsel
to the Trust experienced in such matters to the effect that:
. the transaction does not adversely affect the rights, preferences and
privileges of the holders of the capital securities (including any
successor securities) in any material respect (other than any dilution
of such holders' interests in the new entity);
. following the transaction, neither the Trust nor the successor will be
required to register as an investment company under the Investment
Company Act; and
. the Trust continues to be, and any successor will be, classified as a
grantor trust for federal income tax purposes; and
. we, or any permitted successor or assignee, own all of the common
securities of the successor and guarantee the obligations of the
successor under the substitute securities at least to the extent provided
by our guarantee and the common securities guarantee.
Notwithstanding the foregoing, the Trust may not, except with the consent of
holders of 100% in liquidation amount of the capital securities, consolidate,
amalgamate, merge with or into, or be replaced by or convey, transfer or lease
all or substantially all of its properties and assets to, any other entity or
permit any other entity to consolidate, amalgamate, merge with or into, or
replace it if the transaction would cause the Trust or the successor not to be
classified as a grantor trust for federal income tax purposes.
Voting Rights; Amendment of the Trust Agreement
Except under limited circumstances and as otherwise required by law and the
trust agreement, the holders of the capital securities will have no voting
rights.
29
We, together with the property trustee and the administrative trustees, may
amend the trust agreement from time to time, without the consent of the holders
of the capital securities, to:
. cure any ambiguity, correct or supplement any provisions in the trust
agreement that may be inconsistent with any other provision, or to make
any other provisions with respect to matters or questions arising under
the trust agreement, which are not inconsistent with the other provisions
of the trust agreement; or
. modify, eliminate or add to any provisions of the trust agreement as is
necessary to ensure that at all times that any capital securities are
outstanding, the Trust will be classified as a grantor trust for federal
income tax purposes, or to ensure that the Trust will not be required to
register as an investment company under the Investment Company Act;
provided, however, that the amendment would not adversely affect in any
material respect the interests of the holders of the capital securities.
We, together with the trustees, may amend the trust agreement:
. with the consent of holders of a majority in liquidation amount of the
outstanding capital securities; and
. upon receipt by the trustees of an opinion of counsel experienced in such
matters to the effect that the amendment or the exercise of any power
granted to the trustees in accordance with the amendment will not affect
the Trust's status as being a grantor trust for federal income tax
purposes or the Trust's exemption from status as an investment company
under the Investment Company Act;
provided, that, without the consent of each holder of capital securities and
common securities, no amendment may change the amount or timing of any
distribution on the capital securities and common securities or otherwise
adversely affect the amount of any distribution required to be made in respect
of the capital securities and common securities as of a specified date, change
any of the prepayment provisions, or restrict the right of a holder of capital
securities and common securities to sue for the enforcement of any payment on
or after the specified date.
So long as the property trustee holds any junior subordinated debentures,
the trustees may not:
. direct the time, method and place of conducting any proceeding for any
remedy available to the debenture trustee, or execute any trust or power
conferred on the debenture trustee with respect to the junior
subordinated debentures;
. waive certain past defaults under the indenture;
. exercise any right to rescind or annul a declaration accelerating the
maturity of the principal of the junior subordinated debentures; or
. consent to any amendment, modification or termination of the indenture or
the junior subordinated debentures, where such consent shall be required,
without, in each case, obtaining the prior consent of the holders of a majority
in liquidation amount of all outstanding capital securities; provided, however,
that where a consent under the indenture would require the consent of each
holder of junior subordinated debentures affected by the amendment,
modification or termination, the property trustee will not give its consent
without the prior approval of each holder of the capital securities; provided
further, where a consent under the indenture would require the consent of
holders of more than or less than a majority of the aggregate principal amount
of junior subordinated debentures affected thereby, only the holders of the
percentage of aggregate stated liquidation amount of the capital securities
which is at least equal to the percentage required under the Indenture may
direct the property trustee to give such consent; provided further, that if an
event of default under the debentures has occurred and is continuing, then
holders of 25% of the aggregate liquidation amount of the capital securities
may direct the property trustee to declare the principal of and interest or
other required payments on the junior subordinated debentures due and payable.
30
The trustees shall not revoke any action previously authorized or approved
by a vote of the holders of the capital securities, except by subsequent vote
of such holders. The property trustee shall notify each holder of capital
securities of any notice of default with respect to the junior subordinated
debentures. In addition to obtaining the approvals of the holders of the
capital securities, prior to taking any of the foregoing actions, the trustees
shall obtain an opinion of counsel experienced in such matters to the effect
that the Trust will continue to be classified as a grantor trust for federal
income tax purposes after taking the action into account.
Any required approval of holders of capital securities may be given at a
meeting of the holders convened for the purpose of approving the matter or
pursuant to written consent. The property trustee will cause a notice to be
given of any meeting at which holders of capital securities are entitled to
vote or of any matter upon which action by written consent of such holders is
to be taken, to be given to each holder of capital securities in accordance
with the trust agreement.
No vote or consent of the holders of capital securities will be required for
the Trust to redeem and cancel the capital securities in accordance with the
trust agreement.
Notwithstanding that holders of the capital securities are entitled to vote
or consent under any of the circumstances described above, any of the capital
securities that are owned by us, the Trust, the trustees or any affiliates
thereof shall, for purposes of such vote or consent, be treated as if they were
not outstanding.
Form, Registration and Transfer
The capital securities will be represented by one or more capital securities
in registered, global form. The global capital securities will be deposited
upon issuance with the property trustee as custodian for DTC, in Wilmington,
Delaware and registered in the name of DTC or its nominee, in each case for
credit to an account of a direct or indirect participant in DTC.
Miscellaneous
The administrative trustees are authorized and directed to conduct the
affairs of and to operate the Trust so that:
. the Trust will not be deemed to be an investment company required to be
registered under the Investment Company Act;
. the Trust will be classified as a grantor trust for federal income tax
purposes; and
. the junior subordinated debentures will be treated as our indebtedness
for federal income tax purposes.
We, together with the administrative trustees, are authorized to take any
action, not inconsistent with applicable law, the certificate of trust of the
Trust or the trust agreement, that we and the administrative trustees determine
in our discretion is necessary or desirable, as long as it does not materially
adversely affect the interests of the holders of the capital securities.
The trust agreement provides that holders of the capital securities have no
preemptive or similar rights to subscribe for any additional capital securities
and the issuance of capital securities is not subject to preemptive or similar
rights.
We will make a commercially reasonable effort to maintain the listing of the
capital securities on the Nasdaq National Market or a national securities
exchange, but this listing requirement will not prevent us from redeeming all
or a portion of the capital securities in accordance with the trust agreement.
The Trust may not borrow money, issue debt, execute mortgages or pledge any
of its assets.
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Governing Law
The trust agreement and capital securities will be governed by and construed
in accordance with the laws of the State of Delaware, without regard to
conflict of law principles.
Information Concerning the Property Trustee
Except if an event of default exists under the trust agreement, the property
trustee will undertake to perform only the duties specifically set forth in the
trust agreement. While such an event of default exists, the property trustee
must exercise the same degree of care and skill as a prudent person would
exercise or use in the conduct of his or her own affairs. Subject to this
provision, the property trustee is not obligated to exercise any of the powers
vested in it by the trust agreement at the request of any holder of capital
securities, unless it is offered reasonable indemnity against the costs,
expenses and liabilities that it might incur. If no event of default exists and
the property trustee is required to decide between alternative courses of
action or to construe ambiguous provisions in the trust agreement or is unsure
of the application of any provision of the trust agreement, and the matter is
not one on which holders of the capital securities or the common securities are
entitled under the trust agreement to vote, then the property trustee shall
take such action as directed by us and, if not directed, shall take such action
as it deems advisable and in the best interests of the holders of the capital
securities and will have no liability, except for its own bad faith, negligence
or willful misconduct.
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DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
We have summarized below the material terms of the junior subordinated
debentures. This summary is not a complete description of all of the terms and
provisions of the junior subordinated debentures. For more information, we
refer you to the indenture and the form of the junior subordinated debentures,
which we filed as exhibits to the registration statement of which this
prospectus is a part. Wilmington Trust Company will act as debenture trustee
under the indenture.
General
The Trust will issue the capital securities and the common securities in
exchange for junior subordinated debentures issued by Greater Bay Bancorp. The
junior subordinated debentures will bear interest at the annual rate of 9.0% of
the principal amount of the junior subordinated debentures, payable quarterly
in arrears on interest payment dates of March 15th, June 15th, September 15th
and December 15th of each year to the person in whose name each junior
subordinated debenture is registered at the close of business on the relevant
record date, except that interest payable on the maturity date of the junior
subordinated debentures shall be paid to the person to whom principal is paid.
The record dates will be the 1st day of the month in which the relevant
interest payment occurs. The first interest payment date for the junior
subordinated debentures will be September 15, 2001. The period beginning on and
including the date the junior subordinated debentures are first issued and
ending on but excluding September 15, 2001 and each period beginning on and
including an interest payment date and ending on but excluding the next
interest payment date is an interest period.
We anticipate that, until the liquidation, if any, of the Trust, each junior
subordinated debenture will be held by the property trustee in trust for the
benefit of the holders of the capital securities and common securities. The
amount of interest payable for any interest period will be computed on the
basis of a 360-day year of twelve 30-day months. The amount of interest payable
for any period shorter than a full quarterly period will be computed on the
basis of a 30-day month and, for periods of less than a month, the actual
number of days elapsed per 30-day month. In the event that any interest payment
date would otherwise fall on a day that is not a business day, the required
payment will be made on the next business day (without any interest or other
payment due to the delay).
The distribution provisions of the capital securities correspond to the
interest payment provisions of the junior subordinated debentures because the
capital securities represent undivided beneficial ownership interests in the
junior subordinated debentures.
Accrued interest that is not paid on the applicable interest payment date
will bear additional interest (to the extent permitted by law) at the rate of
9.0% per year, compounded quarterly, from the last interest payment date for
which interest was paid. The term "interest" as used in this prospectus
includes quarterly interest payments and interest on quarterly interest
payments not paid on the applicable interest payment date.
Notwithstanding anything to the contrary above, if the stated maturity date
or date of earlier redemption falls on a day that is not a business day, the
payment of principal, premium, if any, and interest will be paid on the next
business day, with the same force and effect as if made on such date, and no
interest on such payments will accrue from and after such date.
The junior subordinated debentures will be issued as a series of junior
subordinated deferrable interest debentures under the indenture.
The junior subordinated debentures will mature on August 31, 2031 unless
redeemed prior thereto in accordance with the terms discussed below.
The junior subordinated debentures will rank equal to all of our other
junior subordinated debentures and will be unsecured and rank subordinate and
junior to all of our senior indebtedness to the extent and in the manner set
forth in the indenture.
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We are a bank holding company regulated by the Federal Reserve and our
subsidiaries own almost all of our operating assets. We are a legal entity
separate and distinct from our subsidiaries. Holders of junior subordinated
debentures should look only to Greater Bay Bancorp for payments on the junior
subordinated debentures. Our principal sources of income are dividends,
interest and fees from the banks. We rely primarily on dividends from the banks
to meet our obligations for payment of principal and interest on its
outstanding debt obligations and corporate expenses. Dividend payments from the
banks are subject to regulatory limitations, generally based on current and
retained earnings, imposed by the various regulatory agencies with authority
over the respective banks.
Under the Federal Deposit Insurance Act, insured depositary institutions
such as the banks are prohibited from making capital distributions, including
the payment of dividends, if, after making such distribution, the institution
would become "undercapitalized" (as such term is used in the statute). Based on
each of the bank's current financial condition, we do not expect that this
provision will have any impact on our ability to obtain dividends from the
banks. During the first quarter of 2001, the banks paid $4.3 million in
dividends to us, which reflected 4.0% of the total amount of dividends the
banks were permitted to pay as of December 31, 2000 under existing supervisory
practices. Payment of dividends by the banks is also subject to the respective
bank's profitability, financial condition and capital expenditures and other
cash flow requirements. The Federal Reserve has stated that, as a matter of
prudent banking, a bank or bank holding company should not maintain its
existing rate of cash dividends on common stock unless:
. the organization's net income available to common shareholders over the
past year has been sufficient to fund fully the dividends; and
. the prospective rate of earnings retention appears consistent with the
organization's capital needs, asset quality, and overall financial
condition.
We cannot assure you that the banks will be able to pay dividends at past
levels, or at all, in the future.
In addition to restrictions on the payment of dividends, the banks are
subject to certain restrictions imposed by federal law on any extensions of
credit to, and certain other transactions with, us and certain other
affiliates, and on investments in stock or other securities thereof. Such
restrictions prevent us and such other affiliates from borrowing from the banks
unless the loans are secured by various types of collateral. Furthermore, such
secured loans, other transactions and investments by the banks are generally
limited in amount as to us and as to each of such other affiliates to 10% of
each bank's capital and surplus and as to us and all of such other affiliates
to an aggregate of 20% of each bank's capital and surplus. As of June 30, 2001,
approximately $74.0 million of credit was available to us under this
limitation.
Because we are a holding company, our right to participate in any
distribution of assets of any subsidiary upon such subsidiary's liquidation or
reorganization or otherwise (and thus the ability of holders of the capital
securities to benefit indirectly from such distribution), is subject to the
prior claims of creditors of that subsidiary (including depositors, in the case
of the banks), except to the extent that we may be recognized as a creditor of
that subsidiary. At June 30, 2001, our subsidiaries had total liabilities,
including deposits, of $5.7 billion. Accordingly, the junior subordinated
debentures will be effectively subordinated to all existing and future
liabilities of our subsidiaries (including the banks' deposit liabilities) and
all liabilities of any of our future subsidiaries. At June 30, 2001, we had
$48.0 million in senior indebtedness. The indenture does not limit us or any of
our subsidiaries from incurring or issuing other secured or unsecured debt,
including senior indebtedness.
Form, Registration and Transfer
If the junior subordinated debentures are distributed to the holders of the
capital securities, the junior subordinated debentures may be represented by
one or more global certificates registered in the name of Cede & Co., as the
nominee of DTC. The depositary arrangements for such junior subordinated
debentures are expected to be substantially similar to those in effect for the
capital securities.
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Payment and Paying Agents
Payment of principal of (and premium, if any) and interest on the junior
subordinated debentures will be made at the office of the debenture trustee in
Wilmington, Delaware or at the office of such paying agent or paying agents as
we may designate from time to time, except that, at our option, payment of any
interest may be made, except in the case of junior subordinated debentures in
global form:
. by check mailed to the address of the person or entity entitled to the
interest payment as such address shall appear in the register for the
junior subordinated debentures; or
. by transfer to an account maintained by the person or entity entitled to
the interest payment as specified in the register, provided that proper
transfer instructions have been received by the relevant record date.
Payment of any interest on any junior subordinated debenture will be made to
the person or entity in whose name the junior subordinated debenture is
registered at the close of business on the record date for the interest payment
date, except in the case of defaulted interest.
We may at any time designate additional paying agents or rescind the
designation of any paying agent; however we will always be required to maintain
a paying agent in each place of payment for the junior subordinated debentures.
Any moneys deposited with the debenture trustee or any paying agent, or then
held by us, in trust for the payment of the principal of (or premium, if any)
or interest on any junior subordinated debenture and remaining unclaimed for
two years after such principal (or premium, if any) or interest has become due
and payable shall, at our request, be repaid to us and the holder of the junior
subordinated debenture shall thereafter look, as a general unsecured creditor,
only to us for payment.
Option to Extend Interest Payment Date
So long as no event of default exists under the indenture, which we refer to
as a debenture event of default, we will have the right under the indenture to
defer the payment of interest on the junior subordinated debentures, at any
time and from time to time, for no more than 20 consecutive quarterly periods,
provided that no deferral period shall end on a date other than an interest
payment date or extend beyond August 31, 2031. At the end of a deferral period,
we must pay all interest then accrued and unpaid (together with interest
thereon at the rate of 9.0% per year, compounded quarterly from the last
interest payment date to which interest was paid, to the extent permitted by
applicable law). During a deferral period, interest will continue to accrue,
and holders of the capital securities or, if the junior subordinated debentures
have been distributed to holders of the capital securities, holders of junior
subordinated debentures, will be required to include that deferred interest in
gross income for federal income tax purposes on an accrual method of accounting
prescribed by the Code and Treasury regulation provisions on original issue
discount prior to the receipt of cash attributable to that income.
During any deferral period, we may not or permit any of our subsidiaries to:
. declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of our
capital stock;
. make any payment of principal of, or interest or premium, if any, on, or
repay, repurchase or redeem any of our debt securities (including any
other debentures) that rank equal to or junior to the junior subordinated
debentures; or
. make any guarantee payments with respect to any guarantee by us of the
debt securities of any of our subsidiaries (including our guarantee of
the capital securities of the Trust and any other guarantees) if such
guarantee ranks equal or junior to the junior subordinated debentures.
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Notwithstanding the foregoing, during a deferral period the following is
permitted:
. dividends or distributions in shares of, or options, warrants or rights
to subscribe for or purchase shares of, our capital stock;
. 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 rights pursuant
thereto;
. payments under the guarantee;
. a reclassification of our capital stock or the exchange or conversion of
one class or series of our capital stock for another class or series of
our capital stock;
. the purchase of fractional interests in shares of our capital stock
pursuant to the conversion or exchange provisions of such capital stock
or the security being converted or exchanged; and
. purchases of our common stock related to the issuance of common stock or
rights under any of our benefit plans for our directors, officers or
employees or any of our dividend reinvestment plans.
Before the end of any deferral period, we may extend the deferral period, as
long as no event of default exists and the extension does not cause the
deferral period to exceed 20 consecutive quarterly periods, to end on a date
other than an interest payment date or to extend beyond August 31, 2031. At the
end of any deferral period and upon the payment of all then accrued and unpaid
interest (together with interest thereon at the rate of 9.0% per year,
compounded quarterly, to the extent permitted by applicable law), we may elect
to begin a new deferral period, subject to the requirements set forth in this
prospectus. No interest will be due and payable during a deferral period until
the deferral period ends.
We must give the property trustee, the administrative trustees and the
debenture trustee notice of our deferral election at least five business days
before the earlier of:
. the date the distributions on the capital securities would have been
payable, except for the election to begin or extend such deferral period;
. the date the property trustee is required to give notice to any
securities exchange or automated quotation system on which the capital
securities are listed or quoted or to holders of capital securities of
the record date for such distributions; or
. the date such distributions are payable, but in any event not less than
five business days prior to such record date.
The debenture trustee will notify holders of the capital securities of our
election to begin or extend a new deferral period.
There is no limit on the number of times that we may elect to begin a
deferral period.
We do not currently intend to exercise our right to defer payments of
interest on the junior subordinated debentures, but we cannot assure you that
we will not elect to exercise our deferral right in the future.
Optional Prepayment
The junior subordinated debentures will be prepayable, in whole or in part,
at our option on or after August 31, 2006, subject to our receipt of any
required regulatory approval, at an optional prepayment price equal to 100% of
the principal amount plus accrued and unpaid interest on the junior
subordinated debentures, if any, to the date of prepayment.
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Special Event Prepayment
If, prior to August 31, 2006, there are changes in the bank regulatory,
investment company or tax laws that adversely affect the status of the Trust,
the capital securities or the junior subordinated debentures, we may, at our
option, subject to our receipt of any required regulatory approval, prepay the
junior subordinated debentures, in whole but not in part, at any time within 90
days of the change in the law, at the special event prepayment price. The
special event prepayment price will be an amount equal to 100% of the principal
amount of the junior subordinated debentures plus accrued and unpaid interest
to the date of prepayment.
A change in the bank regulatory law means our receipt of an opinion of
independent bank regulatory counsel experienced in such matters to the effect
that, as a result of:
. any amendment to, or change (including any announced prospective change)
in, any laws or regulations of the United States or any rules, guidelines
or policies of an applicable regulatory agency or authority; or
. any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations,
which amendment or change is effective or which pronouncement or decision is
announced on or after the date the capital securities are first issued, the
capital securities do not constitute, or within 90 days of the opinion will not
constitute, Tier 1 capital (or its then equivalent if we were subject to such
capital requirement).
A change in the investment company law means the receipt by us and the Trust
of an opinion of independent securities counsel experienced in such matters to
the effect that, as a result of:
. any amendment to, or change (including any announced prospective change)
in, any laws or regulations of the United States or any rules, guidelines
or policies of any applicable regulatory agency or authority; or
. any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations,
which amendment or change is effective or which pronouncement or decision is
announced on or after the date the capital securities are first issued, the
Trust is, or within 90 days of the date of the opinion will be, considered an
investment company that is required to be registered under the Investment
Company Act.
A change in tax law means the receipt by us and the Trust of an opinion of
independent tax counsel experienced in such matters to the effect that, as a
result of:
. any amendment to, or change (including any announced prospective change)
in, any laws or regulations of the United States or any political
subdivision or taxing authority thereof or therein; or
. any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations,
which amendment or change is effective or which pronouncement or decision is
announced on or after the date the capital securities are first issued, there
is more than an insubstantial risk that:
. the Trust is, or will be within 90 days of the date of such opinion,
subject to federal income tax with respect to any income received or
accrued on the junior subordinated debentures;
. interest payable by us on the junior subordinated debentures is not, or
within 90 days of the date of such opinion will not be, deductible by us,
in whole or in part, for federal income tax purposes; or
. the Trust is, or will be within 90 days of the date of such opinion,
subject to more than a de minimis amount of other taxes, duties or other
governmental charges.
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We will mail any notice of prepayment between 30 and 60 days before the
prepayment date to each holder of junior subordinated debentures to be prepaid
at its registered address. Unless we default in payment of the prepayment
price, on the prepayment date interest shall cease to accrue on the junior
subordinated debentures called for prepayment.
If the Trust is required to pay any additional taxes, duties or other
governmental charges as a result of a change in the tax law, we will pay as
additional amounts on the junior subordinated debentures any amounts as may be
necessary in order that the amount of distributions then due and payable by the
Trust on the outstanding capital securities shall not be reduced as a result of
any additional sums, including taxes, duties or other governmental charges to
which the Trust has become subject as a result of a change in the tax law.
Certain Covenants of Greater Bay Bancorp
We will covenant that we will not or permit any of our subsidiaries to:
. declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of our capital
stock; or
. make any payment of principal of, or interest or premium, if any, on, or
repay, repurchase or redeem any of our debt securities (including any
other junior subordinated debentures) that rank equal or junior to the
junior subordinated debentures; or
. make any guarantee payments with respect to any of our guarantees of the
debt securities of any of our subsidiaries (including any other
guarantees) if such guarantee ranks equal or junior to the junior
subordinated debentures;
if at such time:
. we have actual knowledge that there is any event that is, or with the
giving of notice or the lapse of time, or both, would be, a debenture
event of default and that we have not taken reasonable steps to cure;
. we are in default with respect to our payment obligations under the
guarantee; or
. we have given notice of our election to exercise our right to defer
interest payments on the junior subordinated debentures as provided in
the indenture and the deferral period, or any extension of the deferral
period, is continuing.
Notwithstanding the foregoing, the following is permitted:
. dividends or distributions in shares of, or options, warrants or rights
to subscribe for or purchase shares of, our common stock;
. 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;
. payments under the guarantee;
. a reclassification of our capital stock or the exchange or conversion of
one class or series of our capital stock for another class or series of
our capital stock;
. the purchase of fractional interests in shares of our capital stock
pursuant to the conversion or exchange provisions of such capital stock
or the security being converted or exchanged; and
. purchases of our common stock related to the issuance of common stock or
rights under any of our benefit plans for our directors, officers or
employees or any of our dividend reinvestment plans.
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So long as the capital securities remain outstanding, we also will covenant:
. to directly or indirectly maintain 100% direct or indirect ownership of
the common securities; provided, however, that any of our permitted
successors under the indenture may succeed to our ownership of the common
securities;
. to use our best efforts to cause the Trust to remain a business trust,
except in connection with the distribution of junior subordinated
debentures to the holders of capital securities and common securities in
liquidation of the Trust, the redemption of all of the capital securities
and common securities, or certain mergers, consolidations or
amalgamations, each as permitted by the trust agreement;
. to use our best efforts to cause the Trust to otherwise continue to be
classified as a grantor trust for federal income tax purposes;
. to use our best efforts to cause each holder of capital securities to be
treated as owning an undivided beneficial interest in the junior
subordinated debentures; and
. to not cause, as sponsor of the Trust, or permit, as holder of the common
securities, the dissolution, winding-up or liquidation of the Trust,
except as provided in the trust agreement.
Modification of Indenture
From time to time, we, together with the debenture trustee, may, without the
consent of the holders of junior subordinated debentures, amend the indenture
for specified purposes, including, among other things, curing ambiguities,
defects or inconsistencies, provided that any amendment to the indenture does
not materially adversely affect the interest of the holders of junior
subordinated debentures. We, together with the debenture trustee, may amend the
indenture, regardless of the effect on the interest of the holders of the
junior subordinated debentures, for specific purposes including, among other
things, to qualify, and qualifying, or maintaining the qualification of, the
indenture under the Trust Indenture Act.
The indenture permits us and the debenture trustee, with the consent of the
holders of a majority in aggregate principal amount of junior subordinated
debentures, to modify the indenture in a manner affecting the rights of the
holders of the junior subordinated debentures; provided that no modification
may, without the consent of the holders of each outstanding subordinated
debenture affected:
. change the stated maturity date, or reduce the principal amount, of the
junior subordinated debentures;
. reduce the amount payable on prepayment or reduce the rate or extend the
time of payment of interest except pursuant to our right under the
indenture to defer the payment of interest;
. change any of the prepayment provisions;
. make the principal of, or interest on, the junior subordinated debentures
payable in any coin or currency other than that provided in the junior
subordinated debentures;
. impair or affect the right of any holder of junior subordinated
debentures to institute suit for the payment thereof; or
. reduce the percentage of the principal amount of the junior subordinated
debentures, the holders of which are required to consent to any such
modification.
Debenture Events of Default
A "debenture event of default" is:
. our failure for 30 days to pay any interest, including compounded
interest and additional sums, if any, on the junior subordinated
debentures or any other debentures when due (subject to the deferral of
any interest due date in the case of a deferral period with respect to
the junior subordinated debentures or other debentures, as the case may
be);
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. our failure to pay any principal or premium, if any, on the junior
subordinated debentures or any other debentures when due, whether at
maturity, upon prepayment, by accelerating the maturity or otherwise;
. our failure to observe or perform any other covenant contained in the
indenture for 90 days after written notice to us from the debenture
trustee or to us and the debenture trustee from the holders of at least
25% in aggregate outstanding principal amount of junior subordinated
debentures; or
. certain events related to our bankruptcy, insolvency or reorganization.
The holders of a majority in aggregate outstanding principal amount of the
junior subordinated debentures have, subject to certain exceptions, the right
to direct the time, method and place of conducting any proceeding for any
remedy available to the debenture trustee. The debenture trustee or the holders
of not less than 25% in aggregate outstanding principal amount of the junior
subordinated debentures may declare the principal due and payable immediately
upon a debenture event of default and should the debenture trustee or such
holders fail to make such declaration, the holders of at least 25% in the
aggregate liquidation amount of capital securities will have such right. The
holders of a majority in aggregate outstanding principal amount of the junior
subordinated debentures may annul this declaration and waive the default if the
default (other than the non-payment of the principal of the junior subordinated
debentures which has become due solely by such acceleration) has been cured and
a sum sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the debenture trustee
and should the holders of such junior subordinated debentures fail to annul
such declaration and waive such default, the holders of a majority in aggregate
liquidation amount of the capital securities shall have such right.
Prior to any declaration accelerating the maturity of the junior
subordinated debentures, the holders of a majority in aggregate outstanding
principal amount of the junior subordinated debentures affected may, on behalf
of the holders of all the junior subordinated debentures, waive any past
default, except a default in the payment of principal (or premium, if any) or
interest (including compounded interest and additional sums, if any), unless
such default has been cured and a sum sufficient to pay all matured
installments of interest and principal (and premium, if any) due otherwise than
by acceleration has been deposited with the debenture trustee, or a default in
respect of a covenant or provision which under the indenture cannot be modified
or amended without the consent of the holder of each outstanding junior
subordinated debenture and should the holders of such junior subordinated
debentures fail to waive such default, the holders of a majority in aggregate
liquidation amount of the capital securities shall have such right.
The indenture requires that we file with the debenture trustee a certificate
annually as to the absence of defaults specified under the indenture.
The indenture provides that the debenture trustee may withhold notice of a
debenture event of default from the holders of the junior subordinated
debentures if the debenture trustee considers it in the interest of the holders
to do so.
Enforcement of Certain Rights by Holders of Capital Securities
If the property trustee fails to enforce its rights under the junior
subordinated debentures, any holder of capital securities may institute a legal
proceeding against us to enforce the property trustee's rights under the junior
subordinated debentures and the indenture without first instituting legal
proceedings against the property trustee or any other person. If a debenture
event of default exists that is attributable to our failure to pay the
principal of, or interest (including compounded interest and additional sums,
if any) on the junior subordinated debentures on the due date, a holder of
capital securities may institute a direct action against us for enforcement of
payment to that holder of the principal of or interest on the junior
subordinated debentures having a principal amount equal to the total
liquidation amount of that holder's capital securities. We may not amend the
indenture to remove this right to bring a direct action without the prior
written consent of the holders of all of the capital securities.
Notwithstanding any payments that we make to a holder of capital securities in
connection with a direct action, we shall remain obligated to pay the principal
of (and premium, if any) and
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interest on the junior subordinated debentures, and we shall be subrogated to
the rights of the holder of the capital securities with respect to payments on
the capital securities to the extent that we make any payments to a holder in
any direct action.
The holders of the capital securities will not be able to exercise directly
any remedies, other than those described in the above paragraph, available to
the holders of the junior subordinated debentures, unless an event of default
exists under the trust agreement.
Consolidation, Merger, Sale of Assets and Other Transactions
The indenture provides that we will not consolidate with or merge into any
other person or convey, transfer or lease all or substantially all of our
properties to any person, and no person shall consolidate with or merge into us
or convey, transfer or lease all or substantially all of its properties to us,
unless:
. in case we consolidate with or merge into another person or convey or
transfer all or substantially all of our properties to any person, the
successor is organized under the laws of the United States or any state
or the District of Columbia, and the successor expressly assumes our
obligations under the indenture with respect to the junior subordinated
debentures;
. immediately after giving effect to the transaction, no debenture event of
default, and no event which, after notice or lapse of time or both, would
become a debenture event of default, exists; and
. certain other conditions as prescribed in the indenture are met.
The general provisions of the indenture do not afford holders of the junior
subordinated debentures protection in the event of a highly leveraged or other
transaction that we may become involved in that may adversely affect holders of
the junior subordinated debentures.
Satisfaction and Discharge
The indenture provides that when, among other things,
. all junior subordinated debentures not previously delivered to the
debenture trustee for cancellation have become due and payable or will
become due and payable at maturity or called for prepayment within one
year; and
. we deposit or cause to be deposited with the debenture trustee funds, in
trust, for the purpose and in an amount sufficient to pay and discharge
the entire indebtedness on the junior subordinated debentures not
previously delivered to the debenture trustee for cancellation, for the
principal and interest (including compounded interest and additional
sums, if any) to the date of the deposit or to August 31, 2031, as the
case may be,
then the indenture will cease to be of further effect (except as to our
obligations to pay all other sums due pursuant to the indenture and to provide
the officers' certificates and opinions of counsel), and we will be deemed to
have satisfied and discharged the indenture.
Subordination
We have promised that any of our junior subordinated debentures issued under
the indenture will rank junior to all of our senior indebtedness to the extent
provided in the indenture. Upon any payment or distribution of our assets to
creditors upon our liquidation, dissolution, winding up, reorganization,
assignment for the benefit of our creditors, marshaling of our assets or any
bankruptcy, insolvency, debt restructuring or similar proceedings in connection
with any insolvency or bankruptcy proceeding involving us, the allocable
amounts in respect of the senior indebtedness must be paid in full before the
holders of the junior subordinated debentures will be entitled to receive or
retain any payment in respect thereof.
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If the maturity of junior subordinated debentures is accelerated, the
holders of all senior indebtedness outstanding at such time will first be
entitled to receive payment in full of the allocable amounts in respect of such
senior indebtedness before the holders of junior subordinated debentures will
be entitled to receive or retain any payment in respect of the principal of (or
premium, if any) or interest, if any, on the junior subordinated debentures.
No payments on account of principal (or premium, if any) or interest, if
any, in respect of the junior subordinated debentures may be made if there is a
default in any payment with respect to senior indebtedness, or an event of
default exists with respect to any senior indebtedness that accelerates the
maturity of the senior indebtedness, or if any judicial proceeding shall be
pending with respect to the default.
Allocable amounts, when used with respect to any senior indebtedness, means
all amounts due or to become due on such senior indebtedness less, if
applicable, any amount that would have been paid to, and retained by, the
holders of such senior indebtedness (whether as a result of the receipt of
payments by the holders of such senior indebtedness from us or any other
obligor thereon or from any holders of, or trustee in respect of, other
indebtedness that is subordinate and junior in right of payment to such senior
indebtedness pursuant to any provision of such indebtedness for the payment
over of amounts received on account of such indebtedness to the holders of such
senior indebtedness or otherwise) but for the fact that such senior
indebtedness is subordinate or junior in right of payment to (or subject to a
requirement that amounts received on such senior indebtedness be paid over to
obligees on) trade accounts payable or accrued liabilities arising in the
ordinary course of business.
Indebtedness for money borrowed means any of our obligations, or any
obligation guaranteed by us, to repay borrowed money, whether or not evidenced
by bonds, debentures, notes or other written instruments, except that
indebtedness for money borrowed does not include trade accounts payable or
accrued liabilities arising in the ordinary course of business.
Indebtedness ranking on a parity with the junior subordinated debentures
means:
. indebtedness for money borrowed, whether outstanding on the date the
indenture is executed or created, assumed or incurred after the date that
the indenture is executed, to the extent the indebtedness for money
borrowed by its terms ranks equal to and not prior or senior to the
junior subordinated debentures in the right of payment upon the happening
of our dissolution, winding-up, liquidation or reorganization, including
without limitation the 1997 Junior Subordinated Debentures, the 1998
Junior Subordinated Debentures, the March 2000 Junior Subordinated
Debentures the June 2000 Junior Subordinated Debentures and the 2001
Junior Subordinated Debentures;
. all other debt securities issued to any trust other than the Trust, or a
trustee of such trust, partnership or other entity affiliated with us,
that is our financing vehicle, in connection with the issuance by such
vehicle of equity securities or other securities that are similar to the
capital securities; and
. the securing of any indebtedness otherwise constituting indebtedness
ranking on a parity with the junior subordinated debentures shall not be
deemed to prevent such indebtedness from constituting indebtedness
ranking on a parity with the junior subordinated debentures.
Indebtedness ranking junior to the junior subordinated debentures means any
indebtedness for money borrowed, whether outstanding on the date the indenture
is executed or created, assumed or incurred after the date the indenture is
executed, to the extent the indebtedness for money borrowed by its terms ranks
junior to and not equal with or prior to the junior subordinated debentures
(and any other indebtedness ranking on a parity with the junior subordinated
debentures) in right of payment upon the happening of our dissolution or
winding-up or liquidation or reorganization. The securing of any indebtedness
otherwise constituting indebtedness ranking junior to the junior subordinated
debentures shall not be deemed to prevent such indebtedness for money borrowed
from constituting indebtedness ranking junior to the junior subordinated
debentures.
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Senior indebtedness means all indebtedness for money borrowed, whether
outstanding on the date the indenture is executed or created, assumed or
incurred after the date the indenture is executed, except indebtedness ranking
on a parity with the junior subordinated debentures or indebtedness ranking
junior to the junior subordinated debentures, and any deferrals, renewals or
extensions of the senior indebtedness.
We are a bank holding company and our subsidiaries own almost all of our
operating assets. We rely primarily on dividends from the banks to meet our
obligations for payment of principal and interest on our outstanding debt
obligations and corporate expenses. We are a legal entity separate and distinct
from our subsidiaries. Holders of junior subordinated debentures should look
only to Greater Bay Bancorp for payments on the junior subordinated debentures.
There are regulatory limitations on the payment of dividends directly or
indirectly to us from the banks. In addition, the banks are subject to certain
restrictions imposed by federal law on any extensions of credit to, and certain
other transactions with us and certain other affiliates, and on investments in
stock or other securities thereof. Such restrictions prevent us and such other
affiliates from borrowing from the banks unless the loans are secured by
various types of collateral. Further, such secured loans, other transactions
and investments by the banks are generally limited in amount as to us and as to
each of such other affiliates to 10% of each bank's capital and surplus and as
to us and all of such other affiliates to an aggregate of 20% of each bank's
capital and surplus. Accordingly, the junior subordinated debentures will be
effectively subordinated to all existing and future liabilities of our
subsidiaries.
Because we are a bank holding company, our right to participate in any
distribution of assets of any subsidiary upon such subsidiary's liquidation or
reorganization or otherwise (and thus the ability of holders of the capital
securities to benefit indirectly from such distribution), is subject to the
prior claims of creditors of that subsidiary (including depositors, in the case
of the banks), except to the extent we may be recognized as a creditor of that
subsidiary. At June 30, 2001, our subsidiaries had total liabilities, including
deposits, of $5.7 billion. Accordingly, the junior subordinated debentures will
be effectively subordinated to all existing and future liabilities of our
subsidiaries (including the banks' deposit liabilities) and all liabilities of
any of our future subsidiaries. At June 30, 2001 we had senior indebtedness of
$48.0 million. The indenture does not limit us or our subsidiaries from
incurring or issuing other secured or unsecured debt, including senior
indebtedness.
Agreement by Purchasers of Specified Tax Treatment
Each junior subordinated debenture will provide that, by acceptance of the
junior subordinated debentures, or a beneficial interest therein, the holder of
the junior subordinated debenture intends that such junior subordinated
debenture constitutes debt and agrees to treat it as debt for United States
federal, state and local tax purposes.
Governing Law
The indenture and the junior subordinated debentures will be governed by and
construed in accordance with the laws of the State of New York.
Information Concerning the Debenture Trustee
The debenture trustee will have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the Trust
Indenture Act. Subject to such provisions, the debenture trustee is not
obligated to exercise any of the powers vested in it by the indenture at the
request of any holder of junior subordinated debentures, unless offered
reasonable indemnity by the holder against the costs, expenses and liabilities
which might be incurred thereby. The debenture trustee is not required to
expend or risk its own funds or otherwise incur personal financial liability in
the performance of its duties under the indenture.
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DESCRIPTION OF THE GUARANTEE
We have summarized below the material terms of the guarantee. This summary
is not a complete description of all of the terms and provisions of the
guarantee. For more information, we refer you to the guarantee, which we filed
as an exhibit to the registration statement of which this prospectus is a part.
Wilmington Trust Company will act as guarantee trustee under the guarantee.
General
We will irrevocably agree to pay in full on a subordinated basis, to the
extent set forth in this prospectus, the following payments with respect to the
capital securities to the extent not paid by the Trust:
. any accumulated and unpaid distributions required to be paid on the
capital securities, to the extent that the Trust has funds legally
available at that time;
. the redemption price with respect to the capital securities called for
redemption, to the extent that the Trust has funds legally available at
that time; and
. upon a voluntary or involuntary dissolution, winding-up or liquidation of
the Trust (other than in connection with the distribution of the junior
subordinated debentures to holders of the capital securities or the
redemption of all capital securities), the lesser of:
. the liquidation distribution, to the extent the Trust has funds legally
available at that time; and
. the amount of assets of the Trust remaining available for distribution
to holders of capital securities after satisfying the liabilities owed
to the Trust's creditors as required by applicable law.
The guarantee will rank subordinate and junior to all senior indebtedness
and rank on parity with our preferred stock to the extent provided in the
guarantee. Our obligation to make a guarantee payment may be satisfied by our
direct payment of the required amounts to the holders of the capital securities
or by causing the Trust to pay these amounts to the holders of the capital
securities.
The guarantee will be an irrevocable guarantee on a subordinated basis of
the Trust's obligations under the capital securities, but will apply only to
the extent that the Trust has funds sufficient to make these payments. If we do
not make payments on the junior subordinated debentures held by the Trust, then
it will not be able to make the related payments to you on the capital
securities and will not have funds legally available.
The guarantee does not limit us from incurring or issuing other secured or
unsecured debt, including senior indebtedness. The holders of at least a
majority in aggregate liquidation amount of the capital securities have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the guarantee trustee in respect of our guarantee or to
direct the exercise of any trust power conferred upon the guarantee trustee
under our guarantee. Any holder of the capital securities may institute a legal
proceeding directly against us to enforce their rights under the guarantee
without first instituting a legal proceeding against the Trust, the guarantee
trustee or any other person or entity.
If we default on our obligation to pay amounts payable under the junior
subordinated debentures, the Trust will lack funds for the payment of
distributions or amounts payable on redemption of the capital securities or
otherwise, and the holders of the capital securities will not be able to rely
upon the guarantee for payment of such amounts. Instead, if a debenture event
of default exists that is attributable to our failure to pay principal of or
interest on the junior subordinated debentures on a payment date, then any
holder of capital securities may institute a direct action against us pursuant
to the terms of the indenture for enforcement of payment to that holder of the
principal of or interest on such junior subordinated debentures having a
principal amount equal to the aggregate liquidation amount of the capital
securities of that holder. In connection with a direct action, we will have a
right of set-off under the indenture to the extent that we made any payment to
the holder of capital securities in the direct action. Except as described in
this prospectus, holders of capital securities will not be able to exercise
directly any other remedy available to the holders of the junior subordinated
debentures or
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assert directly any other rights in respect of the junior subordinated
debentures. The trust agreement provides that each holder of capital securities
by accepting the capital securities agrees to the provisions of the guarantee
and the indenture.
We will, through our guarantee, the trust agreement, the junior subordinated
debentures and the indenture, taken together, fully, irrevocably and
unconditionally guarantee all of the Trust's obligations under the capital
securities. No single document standing alone, or operating in conjunction with
fewer than all of the other documents, constitutes that guarantee. Only the
combined operation of these documents provides a full, irrevocable and
unconditional guarantee of the Trust's obligations under the capital
securities.
Status of the Guarantee
Our guarantee will constitute an unsecured obligation and will rank
subordinate and junior to all senior indebtedness in the same manner as the
junior subordinated debentures. In addition, because we are a holding company,
our right to participate in any distribution of the assets of our subsidiaries,
upon their liquidation or reorganization or otherwise is subject to the prior
claims of their creditors (including their depositors), except to the extent we
may be recognized as their creditor. Accordingly, our obligations under the
guarantee effectively will be subordinated to all existing and future
liabilities of our present and future subsidiaries (including depositors of the
banks). As a result, claimants should look only to our assets for payments
under the guarantee.
Our guarantee will rank equal to all of our other guarantees with respect to
preferred beneficial interests issued by other trusts. Our guarantee of the
Trust's capital securities does not limit the amount of secured or unsecured
debt, including senior indebtedness, that we or any of our subsidiaries may
incur. We expect from time to time that we will incur additional indebtedness
and that our subsidiaries will also incur additional liabilities.
Our guarantee will constitute a guarantee of payment only to the extent that
the Trust has funds legally available and not of collection, enabling the
guaranteed party to institute a legal proceeding directly against us to enforce
their rights under the guarantee without first instituting a legal proceeding
against any other person or entity. Our guarantee will not be discharged,
except by payment of the guarantee payments in full to the extent that the
Trust has not paid, or upon distribution of the junior subordinated debentures
to, the holders of the capital securities.
Events of Default
There will be an event of default under the guarantee if we fail to perform
any of our payment or other obligations under the guarantee; except that with
respect to a default in payment of any guarantee payment, we shall have
received notice of default and shall not have cured the default within 60 days
after receipt of the notice. We, as guarantor, will be required to file
annually with the guarantee trustee a certificate regarding our compliance with
the applicable conditions and covenants under our guarantee.
Amendments and Assignment
Except with respect to any changes that do not materially adversely affect
the rights of holders of the capital securities (in which case no approval will
be required), the guarantee may not be amended without the prior approval of
the holders of a majority of the liquidation amount of such outstanding capital
securities. All guarantees and agreements contained in the guarantee agreement
shall bind our successors, assigns, receivers, trustees and representatives and
shall inure to the benefit of the holders of the capital securities then
outstanding.
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Termination of the Guarantee
Our guarantee will terminate and be of no further force and effect upon:
. full payment of the redemption price of all outstanding capital
securities;
. full payment of the liquidation amount payable upon liquidation of the
Trust; or
. distribution of junior subordinated debentures to the holders of the
capital securities.
Our guarantee will continue to be effective or will be reinstated, as the
case may be, if at any time any holder of the capital securities must restore
payment of any sums paid under the capital securities or the guarantee.
Governing Law
The guarantee will be governed by and construed in accordance with the laws
of the State of New York.
Information Concerning the Guarantee Trustee
The guarantee trustee, except if we default under the guarantee, will
undertake to perform only such duties as are specifically set forth in the
guarantee and, in case a default with respect to the guarantee has occurred,
must exercise the same degree of care and skill as a prudent person would
exercise or use in the conduct of his or her own affairs. Subject to this
provision, the guarantee trustee will not be obligated to exercise any of the
powers vested in it by the guarantee at the request of any holder of the
capital securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that it might incur.
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RELATIONSHIP AMONG THE CAPITAL SECURITIES, THE
JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEE
Full and Unconditional Guarantee
We will irrevocably guarantee payments of distributions and other amounts
due on the capital securities to the extent the Trust has funds legally
available to pay such amounts as and to the extent set forth under "Description
of Guarantee." Taken together, our obligations under the junior subordinated
debentures, the indenture, the trust agreement and the guarantee will provide a
full, irrevocable and unconditional guarantee of the Trust's payments of
distributions and other amounts due on the capital securities. No single
document standing alone or operating in conjunction with fewer than all of the
other documents constitutes this guarantee. Only the combined operation of
these documents effectively provides a full, irrevocable and unconditional
guarantee of the Trust's obligations under the capital securities.
If and to the extent that we do not make the required payments on the junior
subordinated debentures, the Trust will not have sufficient funds to make its
related payments, including distributions on the capital securities. Our
guarantee will not cover any payments when the Trust does not have sufficient
funds legally available to make those payments. Your remedy, as a holder of
capital securities, is to institute a direct action against us. Our obligations
under the guarantee will be subordinate to all senior indebtedness.
Sufficiency of Payments
As long as we pay the interest and other payments when due on the junior
subordinated debentures, the Trust will have sufficient funds to cover
distributions and other payments due on the capital securities, primarily
because:
. the aggregate principal amount or prepayment price of the junior
subordinated debentures will equal the aggregate liquidation amount of
the capital securities and the common securities;
. the interest rate and interest payment dates and other payment dates on
the junior subordinated debentures will match the distribution rate and
distribution dates and other payment dates for the capital securities and
the common securities;
. as sponsor, we will pay for all and any costs, expenses and liabilities
of the Trust, except for the Trust's obligations to holders of capital
securities and the common securities; and
. the trust agreement also provides that the Trust is not authorized to
engage in any activity that is not consistent with its limited purposes.
Enforcement Rights of Holders of Capital Securities
If a debenture event of default occurs, the holders of capital securities
would rely on the enforcement by the property trustee of its rights as
registered holder of the junior subordinated debentures against us. In
addition, the holders of a majority in liquidation amount of the capital
securities will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the property trustee or
to direct the exercise of any trust or power conferred upon the property
trustee under the trust agreement, including the right to direct the property
trustee to exercise the remedies available to it as the holder of the junior
subordinated debentures.
If the property trustee fails to enforce its rights under the junior
subordinated debentures in respect of an event of default under the indenture
after a holder of capital securities has made a written request, such holder
may, to the extent permitted by applicable law, institute a legal proceeding
against us to enforce the property trustee's rights under the junior
subordinated debentures. In addition, if we fail to pay interest or principal
on the junior subordinated debentures, a holder of capital securities may
institute a proceeding directly against us for enforcement of payment to that
holder of the principal of or interest on junior subordinated debentures
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having a principal amount equal to the total liquidation amount of that
holder's capital securities (which we refer to as a "direct action"). In
connection with such a direct action, we will have the right to set off any
payment made to such holder by us. The holders of capital securities will not
be able to exercise directly any other remedy available to the holders of the
junior subordinated debentures.
Limited Purpose of the Trust
The capital securities will represent undivided beneficial interests in the
Trust, and the Trust exists for the sole purpose of issuing and selling the
capital securities and the common securities in exchange for our junior
subordinated debentures and engaging in only those other activities necessary,
advisable or incidental thereto. A principal difference between the rights of a
holder of a capital security and a holder of a junior subordinated debenture is
that a holder of a junior subordinated debenture will be entitled to receive
from us the principal of (and premium, if any) and interest on junior
subordinated debentures held, while a holder of capital securities is entitled
to receive distributions from the Trust (or, in certain circumstances, from us
under our guarantee) if and to the extent the Trust has funds legally available
to pay the distributions.
Rights Upon Dissolution
Unless the junior subordinated debentures are distributed to holders of the
capital securities, if the Trust is voluntarily or involuntarily dissolved,
wound-up or liquidated, after satisfying the liabilities owed to the Trust's
creditors as required by applicable law, the holders of the capital securities
will be entitled to receive, out of assets held by the Trust, the liquidation
distribution in cash.
If we are voluntarily or involuntarily liquidated or bankrupted, the
property trustee, as holder of the junior subordinated debentures, would be one
of our subordinated creditors, subordinated in right of payment to all senior
indebtedness, but entitled to receive payment in full of principal (and
premium, if any) and interest, before any of our stockholders receive payments
or distributions. Since we will be the guarantor under the guarantee and will
agree to pay all costs, expenses and liabilities of the Trust (other than the
Trust's obligations to the holders of its capital securities), the positions of
a holder of capital securities and a holder of junior subordinated debentures
relative to other creditors and to our stockholders in the event of our
liquidation or bankruptcy are expected to be substantially the same.
BOOK-ENTRY ISSUANCE
The capital securities will be issued in the form of one or more fully
registered securities in book-entry form registered in the name of DTC or its
nominee. So long as the junior subordinated debentures are held by the property
trustee, the junior subordinated debentures will not be issued in book-entry
form, but will be evidenced by one or more certificates held by, and registered
in the name of, the property trustee. However, if the junior subordinated
debentures are distributed to holders of capital securities upon dissolution or
liquidation of the trust, we anticipate that the junior subordinated debentures
will be issued in fully registered book-entry form. The following discussion is
relevant only with respect to capital securities and junior subordinated
debentures in book-entry form which are evidenced by one or more global
certificates registered in the name of the DTC or its nominee.
DTC will act as a securities depository for all capital securities while
they are in book-entry form and, if applicable, junior subordinated debentures
issued in book-entry from. Except as set forth below, the global capital
securities may be transferred only to another nominee of DTC or to a successor
of DTC. Beneficial interests in the global capital securities may not be
exchanged for capital securities in certificated form, except in the limited
circumstances described below. Additionally, transfers of beneficial interests
in the global capital securities will be subject to the applicable rules and
procedures of DTC and its direct or indirect participants, which may change
from time to time.
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Depositary Procedures
DTC has advised the Trust and us that it is a limited-purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its
participating organizations, or participants, and to facilitate the clearance
and settlement of transactions in those securities between participants through
electronic book-entry changes in accounts of its participants, to eliminate the
need for physical movement of certificates. Participants include securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations. Indirect participants in DTC's system include banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly. Persons who are
not participants may beneficially own securities held by or on behalf of DTC
only through participants or indirect participants. The ownership interest and
transfer of ownership interest of each actual purchaser of each security held
by or on behalf of DTC are recorded on the records of participants and indirect
participants.
DTC also has advised the Trust and us that, pursuant to procedures
established by it:
. upon deposit of the global capital securities, DTC will credit the
accounts of participants designated by the underwriters with the
designated liquidation amount of the global capital securities; and
. ownership of beneficial interests in the global capital securities will
be shown on, and the transfer of ownership of the global capital
securities will be effected only through, records maintained by DTC (with
respect to participants) or by participants and indirect participants
(with respect to other owners of beneficial interests in the global
capital securities).
You may hold your interests in the global capital security directly through
DTC if you are a participant, or indirectly through organizations that are
participants. All interests in a global capital security will be subject to the
procedures and requirements of DTC. Because DTC can act only on behalf of
participants, which in turn act on behalf of indirect participants and certain
banks, the ability of a person having beneficial interests in a global capital
security to pledge its interests to persons or entities that do not participate
in the DTC system, or otherwise take actions in respect of its interests, may
be affected by the lack of a physical certificate evidencing its interests.
Except as described below, owners of beneficial interests in the global
capital securities will not have capital securities registered in their name,
will not receive physical delivery of capital securities in certificated form
and will not be considered the registered owners or holders thereof under the
trust agreement for any purpose.
Payments on the global capital security registered in the name of DTC, or
its nominee, will be payable by the property trustee to DTC in its capacity as
the holder under the trust agreement. Under the terms of the trust agreement,
the property trustee will treat the persons in whose names the capital
securities, including the global capital securities, are registered as the
owners thereof for the purpose of receiving such payments and for any and all
other purposes whatsoever. Neither the property trustee nor any agent thereof
has or will have any responsibility or liability for:
. any aspect of DTC's records or any participant's or indirect
participant's records relating to, or payments made on account of,
beneficial ownership interests in the global capital securities, or for
maintaining, supervising or reviewing any of DTC's records or any
participant's or indirect participant's records relating to the
beneficial ownership interests in the global capital securities; or
. any other matter relating to the actions and practices of DTC or any of
its participants or indirect participants.
DTC has advised the Trust and us that its current practice, upon receipt of
any payment on the capital securities, is to credit the accounts of the
relevant participants with the payment on the payment date, in amounts
proportionate to their respective holdings in liquidation amount of the capital
securities as shown on
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the records of DTC unless DTC has reason to believe it will not receive payment
on the payment date. Payments by participants and indirect participants to the
beneficial owners of capital securities will be governed by standing
instructions and customary practices and will be the responsibility of
participants or indirect participants and will not be the responsibility of
DTC, the property trustee, the Trust or us. None of us, the Trust or the
property trustee will be liable for any delay by DTC or any of its participants
or indirect participants in identifying the beneficial owners of the capital
securities, and we, the Trust and the property trustee may conclusively rely
on, and will be protected in relying on, instructions from DTC or its nominee
for all purposes.
Any secondary market trading activity in interests in the global capital
securities will settle in immediately available funds, subject in all cases to
the rules and procedures of DTC and its participants. Transfers between
participants in DTC will be effected in accordance with DTC's procedures, and
will settle in same-day funds.
DTC has advised the Trust and us that it will take any action permitted to
be taken by a holder of capital securities (including, without limitation,
presenting the capital securities for exchange as described below) only at the
direction of one or more participants who have an interest in DTC's global
capital securities in respect of the portion of the liquidation amount of the
capital securities as to which the participant or participants has or have
given direction. However, if an event of default exists under the trust
agreement, DTC reserves the right to exchange the global capital securities for
legended capital securities in certificated form and to distribute the
certificated capital securities to its participants.
We believe that the information in this section concerning DTC and its book-
entry system has been obtained from reliable sources, but we do not take
responsibility for the accuracy of this information.
Although DTC has agreed to the procedures described in this section to
facilitate transfers of interests in the global capital securities among
participants in DTC, DTC is not obligated to perform or to continue to perform
these procedures, and these procedures may be discontinued at any time. None of
us, the Trust, or the property trustee will have any responsibility or
liability for any aspect of the performance by DTC or its participants or
indirect participants of any of their respective obligations under the rules
and procedures governing their operations or for maintaining, supervising or
reviewing any records relating to the global capital securities that are
maintained by DTC or any of its participants or indirect participants.
Exchange of Book-Entry Capital Securities for Certificated Capital Securities
A global capital security will be exchanged for capital securities in
registered certificated form if:
. DTC notifies the Trust that it is unwilling or unable to continue as
depositary for the global capital security and the Trust fails to appoint
a successor depositary within 90 days of receipt of DTC's notice, or DTC
has ceased to be a clearing agency registered under the Exchange Act and
the Trust fails to appoint a successor depositary within 90 days of
becoming aware of this condition;
. the Trust, in its sole discretion, elects to cause the capital securities
to be issued in certificated form; or
. an event of default, or any event which after notice or lapse of time or
both would be an event of default, exists under the trust agreement.
In all cases, certificated capital securities, delivered in exchange for any
global capital security will be registered in the names, and issued in any
approved denominations, requested by or on behalf of DTC, in accordance with
its customary procedures.
Payment and Paying Agency
The Trust will make payments on any global capital security to DTC, which
will credit the relevant accounts at DTC on the applicable distribution dates.
The Trust will make payments on the capital securities that are not held by
DTC, if any, by mailing a check to the address of the holder entitled to the
payment as the
50
holder's address appears on the register or at its option by wire transfer. The
paying agent will initially be the property trustee and any co-paying agent
chosen by the property trustee and acceptable to the administrative trustees
and us. The paying agent will be permitted to resign as paying agent upon 30
days' notice to the property trustee, the administrative trustees and us. In
the event that the property trustee is no longer the paying agent, the
administrative trustees will appoint a successor (which must be a bank or trust
company acceptable to the administrative trustees and us) to act as paying
agent.
Registrar and Transfer Agent
The property trustee will act as registrar and transfer agent for the
capital securities.
The Trust will register transfers of the capital securities without charge,
except for any tax or other governmental charges that may be imposed in
connection with any transfer or exchange. The Trust will not be required to
have the transfer of the capital securities registered after they have been
called for redemption.
51
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
Classification of the Junior Subordinated Debentures
Based upon the opinion of Manatt, Phelps & Phillips, LLP, we intend to take
the position that the junior subordinated debentures will be classified for
federal income tax purposes as our indebtedness. We, together with the Trust
and the holders of the capital securities (by acceptance of a beneficial
interest in a capital security) will agree to treat the junior subordinated
debentures as our indebtedness for all federal income tax purposes. We cannot
be sure that this position will not be challenged by the IRS or, if challenged,
that the challenge will not be successful. The remainder of this discussion
assumes that the junior subordinated debentures will be classified as our
indebtedness for federal income tax purposes.
General
In the opinion of Manatt, Phelps & Phillips, LLP, special federal income tax
counsel to us and the Trust, the following describes the material federal
income tax consequences of the purchase, ownership and disposition of a capital
security.
This summary addresses only the tax consequences to a person that acquires a
capital security on its original issuance at its original price and that holds
the security as a capital asset. This summary does not address all tax
consequences that may be applicable to a beneficial owner of a capital security
and does not address the tax consequences to holders subject to special tax
regimes (like banks, thrifts, real estate investment trusts, regulated
investment companies, insurance companies, dealers in securities or currencies,
tax-exempt investors or persons that will hold a capital security as a position
in a "straddle," as part of a "synthetic security" or "hedge" or as part of a
"conversion transaction" or other integrated investment). This summary does not
include any description of any alternative minimum tax consequences or the tax
laws of any state or local government or of any foreign government that may
apply to a capital security. This discussion is addressed to a U.S. Holder,
which is defined as a beneficial owner of a capital security that, for federal
income tax purposes, is (or is treated as):
. a citizen or individual resident of the United States;
. a corporation or partnership (or entity treated for federal income tax
purposes as a corporation or partnership) created or organized in or
under the laws of the United States or any state (including the District
of Columbia) or other political subdivision thereof;
. an estate the income of which is includible in gross income for federal
income tax purposes without regard to its source; or
. a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more U.S.
persons have the ability to control all substantial decisions of the
trust.
This summary does not address the special consequences to a non U.S. Holder
who acquires a capital security. For purposes of this discussion, a "Non U.S.
Holder" generally is any corporation, individual, partnership, estate or trust
that is not a U.S. Holder for federal income tax purposes.
This summary does not address the tax consequences to any stockholder,
partner or beneficiary of a holder of a capital security. This summary is based
on the Code, Treasury regulations thereunder and the administrative and
judicial interpretations thereof, as of the date hereof, all of which are
subject to change, possibly on a retroactive basis. An opinion of Manatt,
Phelps & Phillips, LLP is not binding on the IRS or the courts. No rulings have
been or are expected to be sought from the IRS with respect to any of the
matters described in this prospectus. We can give no assurance that the
opinions expressed will not be challenged by the IRS or, if challenged, that
the challenge will not be successful.
52
Prospective investors are advised to consult with their own tax advisors
with respect to the tax consequences to them of the purchase, ownership and
disposition of the capital securities, including the tax consequences under
state, local, foreign, and other tax laws and possible effects of changes in
such tax laws.
Classification of the Trust
In connection with the issuance of the capital securities, Manatt, Phelps &
Phillips, LLP will render its opinion that, under then current law and assuming
full compliance with the terms of the trust agreement and the indenture (and
certain other documents), and based on certain facts and assumptions contained
in that opinion, the Trust will be classified for federal income tax purposes
as a grantor trust and not as an association taxable as a corporation.
Accordingly, for federal income tax purposes, the Trust will not be subject to
federal income tax, and each holder of a capital security will be required to
include in its gross income any interest (or accrued original issue discount),
with respect to its allocable share of the junior subordinated debentures.
Interest Income and Original Issue Discount
Under the indenture, we have the right to defer the payment of interest on
the junior subordinated debentures at any time or from time to time for one or
more deferral periods not exceeding 20 consecutive quarterly periods each,
provided that no deferral period shall end on a date other than an interest
payment date or extend beyond August 31, 2031. By reason of that right, the
Treasury regulations will subject the junior subordinated debentures to the
rules in the Code and Treasury regulations on debt instruments issued with
original issue discount, unless the indenture or junior subordinated debentures
contain terms or conditions that make the likelihood of exercise of the
deferral option remote. Under the Treasury regulations, a "remote" contingency
that stated interest will not be timely paid will be ignored in determining
whether a debt instrument is issued with original issue discount. Although the
answer is not clear, we believe that the likelihood that we would exercise our
option to defer payments of interest is remote since exercising that option
would, among other things, prevent us from declaring dividends on any class of
our equity securities. Accordingly, we intend to take the position that the
junior subordinated debentures will not be considered to be issued with
original issue discount and, accordingly, stated interest on the junior
subordinated debentures generally will be taxable to a holder as ordinary
income at the time it is paid or accrued in accordance with such holder's
method of accounting.
Under the Treasury regulations, if we were to exercise our option to defer
payments of interest, the junior subordinated debentures would at that time be
treated as issued with original issue discount, and all stated interest on the
junior subordinated debentures would thereafter be treated as original issue
discount as long as the junior subordinated debentures remain outstanding. If
this occurred, all of a holder's interest income with respect to the junior
subordinated debentures would thereafter be accounted for on an economic
accrual basis regardless of such holder's method of tax accounting, and actual
distributions of stated interest would not be reported as taxable income.
Consequently, a holder of a capital security would be required to include in
gross income original issue discount even though we would not make actual cash
payments during a deferral period. The amount of such includible original issue
discount could be significant. Also, under the Treasury regulations, if the
option to defer the payment of interest were determined not to be remote, the
junior subordinated debentures would be treated as having been originally
issued with original issue discount. In such event, a holder would be required
to include in gross income an amount of original issue discount each taxable
year that approximates the amount of interest that accrues on the junior
subordinated debentures at the stated interest rate, regardless of such
holder's method of tax accounting, and actual cash payments of interest on the
junior subordinated debenture would not be separately includible in gross
income. It is possible that the IRS could take a position contrary to the
interpretation described in this prospectus.
Because income on the capital securities will constitute interest or
original issue discount, corporate holders of the capital securities will not
be entitled to a dividends-received deduction with respect to any income
recognized with respect to the capital securities.
53
Receipt of Junior Subordinated Debenture or Cash upon Liquidation of the Trust
We will have the right at any time to liquidate the Trust and cause the
junior subordinated debentures to be distributed to the holders of the trust
securities. Under current law, the liquidation of the Trust and the
distribution of the junior subordinated debentures to trust security holders,
for federal income tax purposes, would be treated as a nontaxable event to each
holder, and the aggregate tax basis in the junior subordinated debentures
received by such holder would be equal to the holder's aggregate tax basis in
its capital securities surrendered. A holder's holding period in the junior
subordinated debentures received in liquidation of the Trust would be the same
as the holding period that the holder had in the capital securities
surrendered.
The junior subordinated debentures may be prepaid in cash, and the proceeds
of that prepayment would be distributed to holders in redemption of their
capital securities. Under current law, that redemption would constitute, for
federal income tax purposes, a taxable disposition of the redeemed capital
securities, the tax consequences of which are described below under "--Sales or
Redemptions of Capital Securities."
Sales or Redemptions of Capital Securities
On a sale or redemption of a capital security for cash, a holder will
recognize gain or loss equal to the difference between its adjusted tax basis
in the capital security and the amount realized on the sale or redemption of
that capital security. If the rules regarding original issue discount do not
apply, a holder's adjusted basis in a capital security generally will be its
initial purchase price, and if the holder uses an accrual method of accounting,
the holder's basis will be increased by any accrued but unpaid interest. If the
rules regarding original issue discount apply, a holder's adjusted basis in a
capital security generally will be its initial purchase price increased by any
original issue discount previously included in the holder's gross income to the
date of disposition and decreased by any payments received with respect to
original issue discount on the capital security. Gain or loss recognized on a
sale or redemption of a capital security will be capital gain or loss. Capital
gain recognized by an individual in respect of a capital security held for more
than one year as of the date of sale or redemption is subject to a maximum
federal income tax rate of 20 percent.
The capital securities may trade at a price that discounts any accrued but
unpaid interest on the junior subordinated debentures. Therefore, the amount
realized by a holder who disposes of a capital security between distribution
payment dates and whose adjusted basis in the capital security has been
increased by the amount of any accrued but unpaid original issue discount (or
interest) may be less than the holder's adjusted basis in the capital security.
A holder's basis in a capital security could be increased either under the
rules regarding original issue discount or, if those rules do not apply, in the
case of a holder that uses an accrual method of accounting, under the accrual
accounting rules (as discussed above). In that case, the holder will recognize
a capital loss. Subject to a limited exception in the case of individual
taxpayers, capital losses cannot be applied to offset ordinary income for
federal income tax purposes.
Backup Withholding Tax and Information Reporting
The amount of interest, including original issue discount, accrued on
capital securities held of record by U.S. persons (other than corporations and
other exempt holders) will be reported to the IRS. "Backup" withholding will
apply to payments of interest to non-exempt U.S. persons unless the holder
furnishes its taxpayer identification number in the manner prescribed in
applicable Treasury regulations, certifies that the number is correct,
certifies as to no loss of exemption from backup withholding and meets certain
other conditions. The backup withholding rate will be the fourth lowest rate of
tax applicable to unmarried individuals under Section 1(c) of the Code, as
determined from time to time.
Payment of the proceeds from the disposition of capital securities to or
through the United States office of a broker is subject to information
reporting and backup withholding unless the holder or beneficial owner
establishes an exemption from information reporting and backup withholding.
54
Any amount withheld from a holder under the backup withholding rules will be
allowed as a refund or credit against such holder's federal income tax
liability, provided the required information is furnished to the IRS.
It is anticipated that income on capital securities will be reported to
holders on Form 1099 (or any successor form) and mailed to holders of capital
securities by January 31 following each calendar year.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR
SITUATION. YOU SHOULD CONSULT YOUR TAX ADVISER WITH RESPECT TO THE TAX
CONSEQUENCES TO YOU OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF A CAPITAL
SECURITY, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
55
ERISA CONSIDERATIONS
General
The following is a summary of certain considerations associated with the
purchase of the capital securities by employee benefit plans that are subject
to Title I of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), a plan described in Section 4975 of the Code, including an
individual retirement arrangement under Section 408 of the Code or a Keogh
plan, a plan (such as a governmental, church and non-U.S. plan) subject to the
provisions under applicable federal, state, local, non-U.S. or other laws or
regulations that are similar to the provisions of Title I of ERISA or Section
4975 of the Code ("Similar Laws"), and any entity whose underlying assets are
considered to include "plan assets" of such plans, accounts and arrangements
(each, a "Plan").
ERISA and the Code impose certain duties on persons who are fiduciaries of a
Plan subject to Title I of ERISA or Section 4975 of the Code (an "ERISA Plan")
and prohibit certain transactions involving the assets of an ERISA Plan and its
fiduciaries or other interested parties. Generally, a person who exercises
discretionary authority or control with respect to the assets of an ERISA Plan
will be considered a fiduciary of the ERISA Plan.
In evaluating the purchase of capital securities with assets of an ERISA
Plan, a fiduciary should consider, among other matters:
. whether the acquisition and holding of capital securities is in
accordance with the documents and instruments governing such Plan;
. whether the acquisition and holding of capital securities is solely in
the interest of Plan participants and beneficiaries and otherwise
consistent with the fiduciary's responsibilities and in compliance with
the requirements of Part 4 of Title I of ERISA, including, in particular,
the diversification, prudence and liquidity requirements of Section 404
of ERISA and the prohibited transaction provisions of Section 406 of
ERISA and Section 4975 of the Code;
. whether the assets of the Trust are treated as assets of the Plan; and
. the need to value the assets of the Plan annually.
Plan Asset Regulation
Under a Department of Labor regulation (29 C.F.R. Sec. 2510.3-101, the "Plan
Assets Regulation") governing what constitutes the assets of a Plan ("Plan
Assets") for purposes of ERISA and the related prohibited transaction
provisions of the Code, when an ERISA Plan acquires an equity interest in an
entity that is neither a "publicly-offered security" nor a security issued by
an investment company registered under the Investment Company Act of 1940, the
ERISA Plan's assets include both the equity interest and an undivided interest
in each of the underlying assets of the entity, unless an exception under the
Plan Asset Regulation applies. Although no assurance can be given, it is
anticipated that the capital securities will qualify for the exception for
"publicly-offered securities." For purposes of the Plan Asset Regulation, a
"publicly-offered security" is a security that is:
. "freely transferable;"
. part of a class of securities that is "widely held;" and
. is either (i) sold to the Plan as part of an offering of securities to
the public pursuant to an effective registration statement under the
Securities Act and the class of securities to which such security is a
part is registered under the Securities Exchange Act within 120 days
after the end of the fiscal year of the issuer during which the offering
of such securities to the public has occurred, or (ii) is part of a class
of securities that is registered under Section 12 of the Securities
Exchange Act.
56
The Plan Asset Regulation provides that a security is "widely held" only if
it is part of a class of securities that is owned by 100 or more investors
independent of the issuer and one another. A security will not fail to be
"widely held" because the number of independent investors falls below 100
subsequent to the initial offering thereof as a result of events beyond the
control of the issuer. The capital securities are expected to be sold in an
offering registered under the Securities Act and to be registered under the
Securities Exchange Act within the period required under the Plan Assets
Regulation; it is expected that they will be held by 100 or more investors at
the conclusion of the offering; and it is expected that the capital securities
will satisfy the conditions necessary to be considered "freely transferable,"
although no assurance can be given in this regard. If the capital securities
qualify for this exception, ownership of the capital securities by an ERISA
Plan would not cause the assets of the Trust to constitute Plan Assets.
If the assets of the Trust were deemed to be Plan Assets under ERISA, this
could result, among other things, in:
. the application of the prudence and other fiduciary responsibility
standards of ERISA to investments made by the Trust; and
. the possibility that certain transactions in which the Trust might seek
to engage could result in a non-exempt "prohibited transaction" under
ERISA and the Code.
Prohibited Transactions
Section 406 of ERISA and Section 4975 of the Code prohibits ERISA Plans from
engaging in specified transactions involving plan assets with persons or
entities who are "parties in interest," within the meaning of ERISA, or
"disqualified persons" within the meaning of Section 4975 of the Code, unless
an exemption is available. A party in interest or disqualified person who
engages in a non-exempt prohibited transaction may be subject to excise taxes
and other penalties and liabilities under ERISA and the Code. In addition, the
fiduciary of the ERISA Plan that engaged in such non-exempt prohibited
transaction may be subject to penalties and liabilities under ERISA and the
Code.
Whether or not the underlying assets of the Trust were deemed to include
Plan Assets as described above, the acquisitions and/or holding of the capital
securities by an ERISA Plan with respect to which the Trust, Greater Bay
Bancorp (the obligor with respect to the junior subordinated debentures held by
the Trust) and their affiliates and the property trustee may be a party in
interest or a disqualified person, may give rise to a prohibited transaction.
Consequently, before investing in the capital securities, any person who is
acquiring such securities for, or on behalf of, an ERISA Plan should determine
that either a statutory or an administrative exemption from the prohibited
transaction rules is applicable to such investment in the capital securities,
or that such acquisition and holding of such securities will not result in a
non-exempt prohibited transaction.
The statutory or administrative exemptions from the prohibited transaction
rules under ERISA and the Code which may be available to an ERISA Plan, which
is investing in the capital securities include the following:
. Prohibited Transaction Class Exemption ("PTCE") 90-1, regarding
investments by insurance company pooled separate accounts;
. PTCE 91-38, regarding investments by bank collective investment funds;
. PTCE 84-14, regarding transactions effected by qualified professional
asset managers;
. PTCE 96-23, regarding transactions effected by in-house asset managers;
and
. PTCE 95-60, regarding investments by insurance company general accounts.
Governmental plans, non-U.S. plans and certain church plans while not
subject to the prohibited transaction provisions of ERISA and Section 4975 of
the Code may nevertheless be subject to Similar Laws,
57
which may affect their investment in the capital securities. Any fiduciary of
such a governmental, non-U.S. or church plan considering an investment in the
capital securities should consult with their counsel before purchasing capital
securities, to consider the applicable fiduciary standards and to determine the
need for, and the availability, if necessary, of any exemptive relief under
such Similar Laws.
Because of the foregoing, the capital securities should not be purchased or
held by any person investing Plan Assets of any Plan unless such purchase and
holding will not constitute a non-exempt prohibited transaction under ERISA and
the Code or a violation under any applicable Similar Laws. Accordingly, by its
acquisition of a capital security, each purchaser and subsequent transferee of
capital securities shall be deemed to be making a representation to the trustee
of the Trust, Greater Bay Bancorp and the underwriter either that:
. it is not a Plan or an entity holding assets deemed to be Plan Assets
under the Plan Asset Regulation, and no part of the assets to be used by
it to acquire and/or hold such capital securities or any interest therein
constitutes Plan Assets of any Plan; or
. such acquisition and holding will not result in a prohibited transaction
under Section 406 of ERISA or Section 4975 of the Code (or a violation
under Similar Laws) for which there is no applicable statutory or
administrative exemption.
In the case of capital securities delivered in certificated form, the
purchaser will be required to make such representation, in writing, to the
trustee of the Trust, Greater Bay Bancorp and the underwriter.
The discussion of ERISA in this prospectus is general in nature and is not
intended to be all inclusive. Any person considering an investment in the
capital securities on behalf of a Plan should consult with its legal advisors
regarding the consequences of such investment and consider whether the Plan can
make the representations noted above.
Further, the sale of investments to Plans is in no respect a representation
by the Trust, Greater Bay Bancorp, the property trustee, the underwriter or any
other person associated with the sale of the capital securities that such
securities meet all relevant legal requirements with respect to investments by
Plans generally or by any particular Plan, or that such securities are
otherwise appropriate for Plans generally or any particular Plan.
58
UNDERWRITING
Based on the terms and conditions of an underwriting agreement, we have
agreed to sell to each of the underwriters named below and each of the
underwriters has severally agreed to purchase from us the number of capital
securities set forth opposite its name below:
Number of
Capital
Name Securities
---- ----------
Dain Rauscher Incorporated...................................... 1,440,000
Legg Mason Wood Walker, Incorporated............................ 1,440,000
Stifel, Nicolaus & Company, Incorporated........................ 720,000
---------
Total......................................................... 3,600,000
=========
The underwriting agreement provides that the obligations of the
underwriters to purchase the capital securities are subject to the
satisfaction of certain conditions, including the approval of certain legal
matters by their counsel. The underwriters are obligated to purchase all of
the capital securities if they purchase any of them.
We and the Trust have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, or to
contribute regarding payments which the underwriters may be required to make.
We have granted to the underwriters an option to purchase up to 540,000
additional capital securities with a liquidation amount of $13,500,000. If the
underwriters purchase any of the additional capital securities under this
option, each underwriter will be committed to purchase the additional shares
in approximately the same proportion allocated to them in the table above. The
underwriters may exercise the option only for the purpose of covering over-
allotments, if any, made in connection with the distribution of the capital
securities being offered.
This offering is being conducted pursuant to Conduct Rule 2810 of the
National Association of Securities Dealers, Inc.
Commissions and Discounts
The underwriters will offer the capital securities directly to the public
at $25 per capital security plus accrued and unpaid distributions, if any. The
underwriters may also offer the capital securities to certain selected
securities dealers at the above-mentioned offering price less a concession of
$0.50 per capital security. The underwriters may allow, and such dealers may
reallow, a discount not in excess of $0.35 per capital security to certain
other dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
We have agreed to pay to the underwriters an underwriting commission of
$0.8125 per capital security.
We will pay certain other fees and expenses, which we expect to be
approximately $448,000, in connection with the offer and sale of the capital
securities.
No Sales of Similar Securities
We and the Trust have agreed that for 60 days after the date of this
prospectus not directly or indirectly to offer, sell, offer to sell, or grant
any option for the sale of any capital securities or junior subordinated
debentures or any securities convertible or exchangeable into, or exercisable
for, capital securities or junior subordinated debentures, or any debt
securities substantially similar to junior subordinated debentures or any
equity securities substantially similar to the capital securities, except for
the capital securities and junior subordinated debentures described in this
prospectus, without the prior written consent of Dain Rauscher Incorporated.
However, during such 60-day period, we may issue, offer and sell our own
equity securities.
59
Confirmation to Discretionary Accounts Not Permitted
The underwriters may not confirm sales to any accounts over which they
exercise discretionary authority without the prior approval of the customer.
Price Stabilization and Short Positions
In connection with the sale of the capital securities, SEC rules permit the
underwriters to engage in transactions that stabilize the price of the capital
securities. These transactions may include purchases for the purpose of fixing
or maintaining the price of the capital securities. The underwriters may create
a short position in the capital securities in connection with the offering.
That means they may sell a larger number of the capital securities than is
shown on the cover page of this prospectus. If they create a short position,
the underwriters may purchase capital securities in the open market to reduce
the short position. If the underwriters purchase the capital securities to
stabilize the price or to reduce their short position, the price of the capital
securities could be higher than it might be if they had not made such
purchases. The underwriters make no representation or prediction about any
effect that these purchases may have on the price of the capital securities.
The underwriters may suspend any of these activities at any time.
The underwriters may also impose a penalty bid on certain dealers and
selling group members. This means that if the representatives of the
underwriters purchase capital securities in the open market to reduce the
underwriters' short position or to stabilize the price of the capital
securities, they may reclaim the amount of the selling concession from the
underwriters or selling group members who sold those securities as part of this
offering.
LEGAL MATTERS
Certain legal matters will be passed upon for us by Linda M. Iannone, Esq.,
our General Counsel, and by Manatt, Phelps & Phillips, LLP. Certain legal
matters will be passed upon for the underwriters by Simpson Thacher & Bartlett.
Certain matters of Delaware law relating to the validity of the capital
securities will be passed upon on behalf of the Trust by Richards, Layton &
Finger, P.A., special Delaware counsel to the Trust and us. Certain matters
relating to United States federal income tax considerations will be passed upon
for us by Manatt, Phelps & Phillips, LLP, special tax counsel to us.
EXPERTS
The financial statements incorporated in this Prospectus by reference to the
Annual Report on Form 10-K for the year ended December 31, 2000 have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Greater Bay Bancorp is subject to the informational requirements of the
Exchange Act and, in accordance therewith, files reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's regional offices at 7 World Trade Center,
13th Floor, Suite 1300, New York, New York 10048 and Suite 1400, Citicorp
Center, 500 West Madison Street, Chicago, Illinois 60661. You may also obtain
copies of such material by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. If available, you may also access such information through the
Commission's electronic data gathering, analysis and retrieval system, commonly
referred to as EDGAR, via electronic means,
60
including the Commission's home page on the Internet (http://www.sec.gov). The
common stock of Greater Bay Bancorp is traded on the Nasdaq National Market
under the symbol "GBBK." You may inspect the reports, proxy statements and
other information concerning us at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington D.C. 20006.
No separate financial statements of the Trust have been included in this
prospectus and no separate financial statements will be prepared in the future.
We do not consider that such financial statements would be material to holders
of the securities offered by this prospectus because:
. the Trust is a newly-formed special purpose entity;
. has no operating history or independent operations; and
. is not engaged in and does not propose to engage in any activity other
than holding as trust assets the junior subordinated debentures of
Greater Bay Bancorp, issuing the capital and common securities and
engaging in incidental activities.
Greater Bay Bancorp does not expect that the Trust will file reports, proxy
statements and other information under the Exchange Act with the Commission.
This prospectus constitutes part of a registration statement on Form S-3
filed by us and the Trust with the Commission under the Securities Act. This
prospectus does not contain all the information set forth in the registration
statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission, and reference is made to the registration
statement and to the exhibits relating to such registration statement for
further information with respect to Greater Bay Bancorp and the capital
securities. Any statements contained in this prospectus concerning the
provisions of any document are not necessarily complete, and, in each instance,
reference is made to the copy of such document filed as an exhibit to the
registration statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference.
The following documents that we have filed with the Commission are
incorporated into this prospectus by reference:
. Greater Bay Bancorp's Annual Report on Form 10-K for the year ended
December 31, 2000;
. Greater Bay Bancorp's Quarterly Report on Form 10-Q for the quarter ended
March 31, 2001;
. Greater Bay Bancorp's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2001;
. Greater Bay Bancorp's Current Reports on Form 8-K filed on January 16,
2001, January 19, 2001, March 6, 2001, March 15, 2001, April 2, 2001,
April 17, 2001, April 30, 2001, June 26, 2001 and July 18, 2001 (except
for the information on the Forms 8-K filed pursuant to Item 9 relating to
Regulation FD Disclosure).
In addition to the documents listed above, we also incorporate by reference
into this prospectus, any other documents we file with the Commission under
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
prospectus and before the completion of the offering of the capital securities
referred to in this prospectus. Any statement contained in this prospectus or
in a document incorporated or deemed incorporated by reference shall be deemed
to be modified or superseded for purposes of this prospectus to the extent that
a statement contained in this prospectus or in any other subsequently filed
document which is or is deemed to be incorporated by reference in this
prospectus modifies or supersedes that statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this prospectus.
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You may obtain a copy of our filings with the Commission at no cost, by
writing or telephoning us at the following address:
Greater Bay Bancorp
Attention: Finance Department
2860 West Bayshore Road
Palo Alto, California 94303
(650) 813-8200
When we refer to this prospectus, we mean not only this prospectus but also
any documents which are incorporated or deemed to be incorporated in this
prospectus by reference. You should rely only on the information incorporated
by reference or provided in this prospectus or any supplement. We have not
authorized anyone else to provide you with additional or different information.
This prospectus is used to offer and sell the capital securities referred to in
this prospectus, and only under circumstances and in jurisdictions where it is
lawful to do so.
A WARNING ABOUT FORWARD-LOOKING INFORMATION
Some of the information presented or incorporated by reference into this
prospectus contains "forward- looking" statements within the meaning of the
Private Securities Litigation Reform Act of 1995, and may be identified by the
use of such words as "believe," "expect," "anticipate," "should," "planned,"
"estimated" and "potential." Examples of forward-looking statements include,
but are not limited to, estimates with respect to our financial condition,
results of operations and business that are subject to various factors which
could cause actual results to differ materially from these estimates. These
factors include, but are not limited to:
. general economic conditions;
. changes in interest rates, deposit flows, loan demand, real estate values
and competition;
. changes in accounting principles, policies, or guidelines;
. material unforeseen changes in the financial condition or results of
operations of our customers;
. unforeseen difficulties in realizing expected cost savings from
acquisitions;
. changes in legislation or regulation; and
. other economic, competitive, governmental, regulatory, and technological
factors affecting our operations, pricing, products and services.
Our actual results could vary materially from the future results covered in
our forward-looking statements. The statements in the "Risk Factors" section of
this prospectus are cautionary statements identifying important factors,
including certain risks and uncertainties, that could cause our results to vary
materially from the future results covered in such forward-looking statements.
Other factors, such as the general state of the United States economy, could
also cause actual results to vary materially from the future results covered in
such forward-looking statements. We disclaim any obligation to announce
publicly future events or developments that affect the forward-looking
statements in this prospectus.
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3,600,000 Capital Securities
GBB CAPITAL V
9.0% Trust Preferred Securities,
Guaranteed as described in this prospectus by
[LOGO OF GREATER BAY BANCORP]
Dain Rauscher Wessels Legg Mason Wood Walker
Incorporated
Stifel, Nicolaus & Company
Incorporated
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PROSPECTUS
August 14, 2001
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