<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________ .
Commission file number 0-18015
CUPERTINO NATIONAL BANCORP
(Exact name of registrant as specified in its charter)
CALIFORNIA 33-0060898
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
20230 STEVENS CREEK BOULEVARD, CUPERTINO, CALIFORNIA, 95014
(Address of principal executive offices) (Zip Code)
(408) 996-1144
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X No
--- ---
Outstanding shares of Common Stock, no par value, as of July 31, 1996:
1,901,352.
This report contains a total of 19 pages.
1 of 19
<PAGE>
CUPERTINO NATIONAL BANCORP
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
June 30, 1996 and December 31, 1995........................ 3
Consolidated Statements of Income
for the Three Months and Six Months Ended
June 30, 1996 and 1995..................................... 4
Consolidated Statements of Cash Flows
for the Three Months and Six Months Ended
June 30, 1996 and 1995..................................... 5
Notes to Consolidated Financial Statements................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 7
PART II. OTHER INFORMATION
Items 1-3,
Item 5. Not applicable
Item 4. Submission of Matters to a Vote of Security Holders........ 17
Item 6. Exhibits and Reports on Form 8-K........................... 18
Signatures................................................. 18
Index to Exhibits.......................................... 19
2 of 19
<PAGE>
PART I. FINANCIAL INFORMATION
CUPERTINO NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited....dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 16,419 $ 16,207
Federal funds sold 11,000 12,900
-------- --------
Cash and cash equivalents 27,419 29,107
Investment securities:
Held to maturity (Market value $46,853
at June 30, 1996; 47,322 52,571
$53,001 at December 31, 1995)
Available for sale (Cost $1,003 at June 30, 1996;
$3,504 at December 31, 1995) 1,003 3,509
Other securites 1,002 969
-------- --------
Total investment securities 49,327 57,049
Loans:
Commercial 96,973 88,646
Real estate-construction and land 25,744 23,889
Real estate-term 32,131 23,026
Consumer and other 31,542 28,666
Deferred loan fees and discounts (915) (851)
-------- --------
Loans 185,475 163,376
Allowance for loan losses (3,043) (2,683)
-------- --------
Total loans 182,432 160,693
Premises and equipment, net 3,232 1,917
Accrued interest receivable and other assets 11,986 10,333
-------- --------
Total assets $274,396 $259,099
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand, noninterest-bearing $ 66,263 $ 58,986
NOW 11,514 10,158
Money Market Demand Accounts 124,059 114,021
Savings 8,748 7,995
Other time certificates 13,669 17,830
Time certificates, $100 and over 25,886 27,104
-------- --------
Total deposits 250,139 236,094
Accrued interest payable and other liabilities 1,274 1,333
Subordinated debentures 3,000 3,000
-------- --------
Total liabilities 254,413 240,427
Shareholders' equity:
Preferred stock, no par value: 4,000,000 shares
authorized; none issued -- --
Common stock, no par value: 6,000,000 shares
authorized; shares outstanding; 1,900,342 at
June 30, 1996 and 1,808,828 at December 31, 1995 18,196 17,680
Retained earnings 1,787 992
-------- --------
Total shareholders' equity 19,983 18,672
-------- --------
Total liabilities and shareholders' equity $274,396 $259,099
======== ========
</TABLE>
See notes to consolidated financial statements
3 of 19
<PAGE>
CUPERTINO NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited....dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1996 1995 1996 1995
-------------------- --------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest on loans $4,696 $ 4,021 $ 9,212 $7,820
Interest on investment securities:
Taxable 844 920 1,748 1,837
Non-taxable -- 18 -- 36
------ ------ ------- ------
Total Investment securities 844 938 1,748 1,873
Other interest income 151 108 239 137
------ ------ ------- ------
Total interest income 5,691 5,067 11,199 9,830
INTEREST EXPENSE:
Interest on deposits 1,844 1,625 3,748 2,991
Other interest expense 87 288 191 655
------ ------ ------- ------
Total interest expense 1,931 1,913 3,939 3,646
------ ------ ------- ------
Net interest income 3,760 3,154 7,260 6,184
PROVISION FOR LOAN LOSSES 265 85 465 516
------ ------ ------- ------
Net interest income after provision
for loan losses 3,495 3,069 6,795 5,668
OTHER INCOME:
Gain on sale of mortgage loans -- 51 -- 137
Other loan fees 34 29 49 48
Trust Fees 344 135 653 291
Gain on sale of SBA loans 123 45 253 150
Depositor service fees 121 98 219 138
Other 185 49 262 137
------ ------ ------- ------
Total other income 807 407 1,436 901
OPERATING EXPENSES:
Compensation and benefits 1,998 1,600 3,698 3,236
Occupancy and equipment 489 392 962 788
Legal settlement & costs -- 1,700 -- 1,700
Professional services 248 230 441 435
FDIC insurance and regulatory assessments 21 135 41 260
Client services 95 91 215 179
Other real estate, net 6 (7) 30 34
Other 642 459 1,264 896
------ ------ ------- ------
Total operating expenses 3,499 4,600 6,651 7,528
------ ------ ------- ------
INCOME (LOSS) BEFORE INCOME TAX 803 (1,124) 1,580 (959)
Income tax expense (benefit) 289 (470) 593 (411)
------ ------ ------- ------
Net income (loss) $ 514 $ (654) $ 987 $ (548)
====== ====== ======= ======
Net income (loss) per common and
common equivalent share $ 0.25 $ (0.35) $ 0.49 $(0.30)
====== ====== ======= ======
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
4 of 19
<PAGE>
CUPERTINO NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited....dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS--OPERATING ACTIVITIES:
Net income (loss) $ 987 $ (548)
Reconciliation of net income to net cash from operations:
Provision for loan losses 465 516
Depreciation and amortization 344 293
Accrued interest receivable and other assets (1,468) (894)
Accrued interest payable and other liabilities (60) 1,023
Net change in deferred loan fees and discounts 64 (247)
Proceeds from sales of loans held for sale 3,501 16,364
Origination of loans held for sale (3,501) (10,981)
Other real estate owned, net -- 17
-------- --------
Operating cash flows, net 332 5,543
CASH FLOWS--INVESTING ACTIVITIES:
Maturities of investment securities:
Held-to-maturity 8,293 6,237
Available-for-sale 2,500 --
Purchase of investment securities:
Held-to-maturity (2,994) (2,045)
Available-for-sale -- (2,495)
Net change in loans (22,485) (12,400)
Sale of other real estate owned -- 358
Purchase of life insurance policies -- (2,257)
Purchase of premises and equipment, net (1,703) (397)
Other, net (5) 5
-------- --------
Investing cash flows, net (16,394) (12,994)
CASH FLOWS--FINANCING ACTIVITIES:
Net change in noninterest-bearing deposits 14,045 7,206
Net change in interest-bearing deposits -- 21,223
Net change in short-term borrowings -- (8,603)
Stock purchased by employees and stock options exercised 516 289
Cash dividends (187) (160)
-------- --------
Financing cash flows, net 14,374 19,955
-------- --------
Net increase (decrease) in cash and cash equivalents (1,688) 12,504
Cash and cash equivalents at beginning of period 29,107 19,726
-------- --------
CASH AND CASH EQUIVALNETS AT END OF PERIOD $ 27,419 $ 32,230
======== ========
CASH FLOWS--SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest on deposits and other borrowings $ 4,192 $ 3,459
Income taxes 870 175
Non-cash transactions:
Additions to other real estate owned 217 --
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
5 of 19
<PAGE>
CUPERTINO NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Cupertino National Bancorp ("CUNB" or the "Company") and its
subsidiary, Cupertino National Bank & Trust (the "Bank" or "CNB"). These
financial statements reflect, in management's opinion, all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
of CUNB's financial position and the results of its operations and cash flows
for the periods presented. Certain amounts for prior periods have been
reclassified to conform to current period presentation. The results for the
three months and six months ended June 30, 1996 are not necessarily indicative
of the results expected for any subsequent period or for the entire year ending
December 31, 1996. These financial statements should be read in conjunction
with the financial statements included in the 1995 Annual Report to
Shareholders.
2. SHARE AND PER SHARE AMOUNTS
Earnings per common and common equivalent share are calculated based upon the
weighted average number of shares outstanding during the period, plus equivalent
shares representing the effect of dilutive stock options. The number of shares
used to compute earnings per share were 2,013,481 and 1,855,810 for the three
months ended June 30, 1996 and 1995, respectively and 2,007,922 and 1,841,400
for the six months ended June 30, 1996 and 1995, respectively.
6 of 19
<PAGE>
CUPERTINO NATIONAL BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
CUNB reported net income for the second quarter of 1996 of $514,000, or $.25 per
common and common equivalent share, compared to a net loss of $654,000, or $.35
per common and common equivalent share, reported in the second quarter of last
year. The net loss in the 1995 second quarter was due to the settlement of
litigation that was pending against CUNB. Return on average assets and return
on average common equity annualized for the second quarter of 1996 were 0.77%
and 10.47%, respectively.
The earnings for the second quarter of 1995 were adversely effected by an
accrual of $1,020,000 (net of tax) for the settlement of trust department
litigation and related costs. The Company believes, based on the advice of
counsel, that it is probable that insurance coverage for a significant portion
of the settlement amount is available under its director and officer insurance
policy and its professional liability insurance policy, as well as the errors
and omissions policy of its insurance agent. The Company's insurance company
has denied the Company's claim for coverage under these policies, and the
Company has initiated litigation against the insurance companies who issued the
policies as well as the agent from whom the Company obtained such policies.
Excluding this charge, second quarter 1995 earnings would have been $366,000.
For the six months ended June 30, 1996, the Company posted net income of
$987,000, or $.49 per common and common equivalent share, compared to a net
loss of $548,000, or $.30 per common and common equivalent share, for the
comparable period in 1995. The annualized return on average assets and return
on average equity for the first six months of 1996 were 0.75% and 10.22%,
respectively. Net income for the first quarter of 1995 included approximately
$275,000 in non-recurring expenses (net of tax) related to the closing of the
Bank's mortgage operations, the costs incurred related to canceled merger
discussions, and severance payments to a former executive officer. Excluding
the legal settlement charge and related costs, as well as the non-recurring
charges from the first quarter, the net income for the six months ended June 30,
1995 would have been $747,000.
Non-performing assets (including nonaccruing loans, loans 90 days past due and
other real estate owned ("OREO")) totaled $3.5 million at June 30, 1996,
compared to $3.3 million at December 31, 1995 and $3.6 million at June 30, 1995.
The ratio of non-performing assets to total assets was 1.29% at June 30, 1996,
compared to 1.29% at December 31, 1995 and 1.47% at June 30, 1995. The Bank's
portfolio of classified assets increased to $11.3 million, or 4.29% of total
assets at June 30, 1996, from $7.9 million or 3.06% of total assets at December
31, 1995 and $8.7 million or 3.57% of total assets at June 30, 1995. The
increase during the first half of 1996 was primarily due to the classification
of $2.7 million of commercial and technology loans of three borrowers.
The reserve for loan losses was $3.0 million at June 30, 1996, compared with
$2.7 million at December 31, 1995 and $2.5 million at June 30, 1995. The
provision for loan losses was $265,000 for the second quarter of 1996, compared
to $200,000 recorded in the first quarter of 1996, and $85,000 recorded in the
second quarter of 1995. For the first six months of 1996, the provision for
loan losses was $465,000, a decrease of $51,000 from the first half of 1995.
Net charge-offs were $105,000 for the first six months of 1996, compared to
$980,000 for the first half of 1995. The ratio of the reserve for loan losses
to non-performing assets was 86.1% at June 30, 1996 compared with 80.3% at
December 31, 1995 and 68.3% at June 30, 1995.
Shareholders' equity increased $1.3 million to $20.0 million, or 7.29% of
assets, at June 30, 1996 from $18.7 million, or 7.21% of assets, at December 31,
1995. The increase was due to net earnings, stock purchased by directors and
employees through stock option plans and stock purchased through the Employee
Stock Purchase Plan, and was partially offset by a cash dividend payment of $.10
per common share, totaling $187,000, made to shareholders during the second
quarter of 1996.
7 of 19
<PAGE>
CUNB's Tier 1 and total risk-based capital ratios were 8.62% and 11.17% at June
30, 1996, respectively, compared with 9.18% and 11.91% at December 31, 1995,
respectively. The leverage ratio declined to 7.52% at June 30, 1996 from 7.78%
at December 31, 1995. The decline in capital ratios is due to asset growth
during 1996. At June 30, 1996, CUNB's risk-based capital and leverage ratios,
as well as those of the Bank, exceeded the ratios for a well-capitalized
financial institution as defined in FDICIA under the prompt corrective action
guidelines. The Company will seek to maintain its well capitalized position to
ensure flexibility in its operations.
CUNB's common stock closed at $14.50 per share on June 30, 1996, representing
138% of the $10.52 book value per common share, compared with $13.50 per share
and 129% of the $10.45 book value per common share at March 31, 1996.
MERGER
Cupertino National Bancorp signed an Amended and Restated Agreement and Plan of
Reorganization and Merger dated June 26, 1996 (the "Agreement") whereby
Cupertino National Bancorp will merge, in a merger of equals, with and into Mid-
Peninsula Bancorp and Mid-Peninsula Bancorp will change it's name to Greater Bay
Bancorp ("GBB"). The merger will result in the formation of the largest multi-
bank holding company based in the San Francisco Peninsula/South Bay region, and
the third-largest publicly traded independent bank holding company in the San
Francisco Bay area, with total assets of approximately $500 million and equity
of over $40 million. Mid-Peninsula Bank ("MPB") and Cupertino National Bank &
Trust ("CNB") will operate as wholly-owned subsidiaries of Greater Bay Bancorp
and will focus on serving the greater Bay area, including the Peninsula and
South Bay markets, through their seven office locations.
The terms of the Agreement provide for Cupertino National Bancorp shareholders
to receive 0.81522 of a share of Mid-Peninsula Bancorp stock for each share of
Cupertino National Bancorp in a tax-free exchange to be accounted for as a
"pooling-of-interests." As part of the Agreement, Mid-Peninsula will list its
shares on the Nasdaq National Market, and concurrent with closing, will be
renamed Greater Bay Bancorp. Following the merger, the shareholders of Mid-
Peninsula Bancorp will own approximately 51% of the combined company and the
shareholders of Cupertino National Bancorp will own approximately 49% of the
combined company, giving effect to all outstanding options.
Greater Bay Bancorp's new Board of directors will consist of five directors from
Cupertino National Bancorp and five from Mid-Peninsula Bancorp, with Duncan L.
Matteson (Chairman of Mid-Peninsula Bancorp) and John M. Gatto (Chairman of
Cupertino National Bancorp) serving as co-Chairman. David L. Kalkbrenner, who
will serve as President and Chief Executive Officer of Greater Bay Bancorp, will
continue as President and Chief Executive Officer of MPB and C. Donald Allen
will remain as Chairman and Chief Executive Officer of CNB. Steven C. Smith,
the Chief Operating Officer of CNB, will serve as Chief Operating Officer and
Chief Financial Officer of GBB. David R. Hood, Executive Vice President and
Senior Loan Officer of CNB, will serve as Executive Vice President and Senior
Credit Officer of GBB.
In connection with the Agreement, Cupertino National Bancorp and Mid-Peninsula
Bancorp have granted each other options to purchase up to 19.0% of the
outstanding shares of each other's common stock under certain circumstances in
the event the transaction is terminated. The merger is expected to be completed
in the fourth quarter of 1996, subject to shareholder and regulatory approvals.
8 of 19
<PAGE>
RESULTS OF OPERATIONS
NET INTEREST INCOME
The following table presents the Company's average balance sheet, net interest
income and interest rates for the quarterly periods presented:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended Three Months Ended
June 30, 1996 March 31, 1996 June 30, 1995
-------------------------------------------------------------------------------------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance (1) Interest Rate Balance (1) Interest Rate Balance (1) Interest Rate
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars In thousands)
- ----------------------
Interest-earning assets:
Loans (2) (4) $ 176,030 $ 4,696 10.70% $ 169,650 $ 4,517 10.68% $ 145,249 $ 4,021 11.10%
Investment securities,
short term investments
and cash equivalents 64,660 995 6.17% 62,913 991 6.32% 67,948 1,046 6.17%
---------- ------- ------- --------- ------- ------ -------- ------- -------
Total interest-earning
assets 240,690 5,691 9.48% 232,563 5,508 9.50% 213,197 5,067 9.53%
Noninterest-earning assets 27,079 26,259 17,068
---------- ---------- ---------
Total Assets $ 267,769 $ 258,822 $ 230,265
========== ========== =========
Interest-bearing
liabilities:
Deposits:
NOW and MMDA $ 126,485 1,147 3.64% $ 122,248 1,176 3.86% $ 88,998 903 4.07%
Savings deposits 12,106 115 3.81% 11,720 107 3.66% 4,759 42 3.54%
Time deposits 44,824 582 5.21% 47,122 622 5.29% 49,188 680 5.54%
--------- ------- ------- --------- --------- ------ -------- ------- -------
Total Deposits 183,415 1,844 4.03% 181,090 1,905 4.22% 142,945 1,625 4.56%
Borrowings 3,113 87 11.15% 3,504 103 11.79% 18,414 288 6.27%
--------- ------- ------- --------- --------- ------ -------- ------- -------
Total interest-bearing
liabilities 186,528 1,931 4.15% 184,594 2,008 4.36% 161,359 1,913 4.76%
--------- ------- ------- --------- --------- ------ -------- ------- -------
Noninterest-bearing deposits 60,088 54,092 49,365
Other noninterest-bearing
liabilities 1,456 1,095 1,202
--------- --------- --------
Total noninterest-bearing
liabilities 61,544 55,187 50,567
Shareholders' equity 19,697 19,041 18,339
--------- --------- --------
Total liabilities and
shareholders' equity $ 267,769 $ 258,822 $ 230,265
========= ========= =========
Net interest income; interest
rate spread $ 3,760 5.33% $ 3,500 5.14% $ 3,154 4.78%
======= ======= ========= ====== ======= =======
Net interest-earning assets;
net yield (3) $ 54,162 6.27% $ 47,969 6.04% $ 51,838 5.93%
========= ======= ========= ====== ========= =======
</TABLE>
(1) Average balances are computed using an average of the daily balances during
the period.
(2) Non-accrual loans are included in the average balance column; however, only
collected interest is included in the column.
(3) The net yield on interest-earning assets during the period equals
annualized net interest income divided by average interest-earning assets
for the period.
(4) Loan fees totaling $338, $316 and $209 are included in loan interest income
for the periods ended June 30, 1996, March 31, 1996 and June 30, 1995,
respectively.
9 of 19
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The following table presents the dollar amount of certain changes in interest
income and expense for each major component of interest-earning assets and
interest-bearing liabilities and the difference attributable to changes in
average rates and volumes for the quarterly periods indicated:
<TABLE>
<CAPTION>
Three months ended June 30, 1996 Three months ended June 30, 1996
compared with March 31, 1996 compared with June 30, 1995
favorable (unfavorable) favorable (unfavorable)
----------------------- -----------------------
(Dollars in thousands) Volume Rate Total Volume Rate Total
- ---------------------- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Interest income on loans $170 $ 9 $179 $ 826 $(151) $ 675
Interest on investment securities, short-term
investments and cash equivalents 27 (23) 4 (51) -- (51)
---- ---- ---- ----- ----- -----
Change in total interest income 197 (14) 183 775 (151) 624
Interest expense on deposits
NOW and MMDA (39) 68 29 (348) 104 (244)
Savings deposits (4) (4) (8) (70) (3) (73)
Time deposits 30 10 40 58 40 98
---- ---- ---- ----- ----- -----
(13) 74 61 (360) 141 (219)
Interest expense on borrowings 11 5 16 336 (135) 201
---- ---- ---- ----- ----- -----
Change in total interest expense (2) 79 77 (24) 6 (18)
---- ---- ---- ----- ----- -----
Increase (decrease) in net interest income $195 $ 65 $260 $ 751 $(145) $ 606
==== ==== ==== ===== ===== =====
</TABLE>
(1) In the analysis, the change due to both rate and volume has been allocated
proportionately.
CUNBs net interest income for the second quarter of 1996 was $3.8 million, a
$260,000 increase over the first quarter of 1996, and a $606,000 increase over
the second quarter of 1995. When compared to the first quarter of 1996, average
earning assets increased by $8.1 million, and the net yield on earning assets
increased from 6.04% in the first quarter of 1996 to 6.27% in the second quarter
of 1996. This was primarily due to the combined impacts of an increase in the
volume of interest-earning assets and a decrease in the average rates paid on
interest-bearing liabilities. In addition, a portion of the asset growth during
the second quarter was funded by noninterest-bearing deposits which resulted in
a more favorable effective yield.
Compared to the second quarter of 1995, average earning assets during the second
quarter of 1996 increased by $27.5 million. This was due to increased loan
demand since the previous years second quarter. Average loans in the second
quarter of 1996 increased by $30.8 million, or 21.2%, over the second quarter of
1995. As the Companys average interest-bearing deposits grew $40.5 million and
noninterest-bearing deposits grew by $10.7 million since the 1995 second
quarter, the mix of funding sources shifted away from higher cost short-term
borrowings in the latter half of 1995. This reduced the cost of funds by 61
basis points from the second quarter of 1995.
10 of 19
<PAGE>
The following tables present the Company's average balance sheet, net interest
income and interest rates for the six-month periods presented, as well as the
analysis of variances due to rate and volume:
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1996 June 30, 1995
--------------------------------------- -----------------------------------------
Average Average
Average Yield/ Average Yield/
(Dollars in thousands) Balance (1) Interest Rate Balance (1) Interest Rate
- ---------------------- --------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans (2) (4) $174,219 $ 9,212 10.60% $143,414 $7,820 10.94%
Investment securities, short term
investments and cash equivalents 63,786 1,987 6.25% 65,533 2,010 6.15%
-------- ------- ------ -------- ------ ------
Total interest-earning assets 238,005 11,199 9.44% 208,947 9,830 9.43%
Noninterest-earning assets 24,919 15,270
-------- --------
Total Assets $262,924 $224,217
======== ========
Interest-bearing liabilities:
Deposits:
NOW and MMDA $124,366 2,314 3.73% $ 84,665 1,678 3.97%
Savings deposits 11,914 222 3.73% 5,247 90 3.44%
Time deposits 45,973 1,212 5.29% 45,731 1,223 5.36%
-------- ------- ------ -------- ------ ------
Total Deposits 182,253 3,748 4.12% 135,643 2,991 4.42%
Borrowings 3,309 191 11.59% 21,433 655 6.13%
-------- ------- ------ -------- ------ ------
Total interest-bearing
liabilities 185,562 3,939 4.26% 157,076 3,646 4.66%
-------- ------- ------ -------- ------ ------
Noninterest-bearing deposits 57,090 47,722
Other noninterest-bearing liabilities 903 1,082
-------- --------
Total noninterest-bearing liabilities 57,993 48,804
Shareholders' equity 19,369 18,339
-------- --------
Total liabilities and shareholders'
equity $262,924 $224,219
======== ========
Net interest income; Interest rate spread $ 7,260 5.18% $6,184 4.78%
======= ====== ====== ======
Net interest-earning assets; net yield (3) $ 52,443 6.12% $ 51,871 5.94%
======== ====== ======== ======
</TABLE>
(1) Average balances are computed using an average of the daily balances during
the period.
(2) Non-accrual loans are included in the average balance column; however, only
collected interest is included in the interest column.
(3) The net yield on interest-earning assets during the period equals annualized
net interest income divided by average interest-earning assets for the
period.
(4) Loan fees totaling $704 and $395 are included in loan interest income for
the periods ended June 30, 1996 and June 30, 1995, respectively.
<TABLE>
<CAPTION>
Six months ended June 30, 1996
compared with June 30, 1995
favorable (unfavorable)
-----------------------------------------------
(Dollars in thousands) Volume Rate Total
- ---------------------- -------------- --------- ---------
<S> <C> <C> <C>
Interest income on loans $ 1,635 $ (243) $ 1,392
Interest on investment securities,
short-term investments and
cash equivalents (55) 32 (23)
-------------- -------- -------
Change in total interest income 1,580 (211) 1,369
Interest expense on deposits
NOW and MMDA (745) 109 (636)
Savings deposits (124) (8) (132)
Time deposits (6) 17 11
-------------- -------- -------
(875) 118 (757)
Interest expense on borrowings 795 (331) 464
-------------- -------- -------
Change in total interest expense (80) (213) (293)
-------------- -------- -------
Increase (decrease) in net interest income $ 1,500 $ (424) $ 1,076
============== ======== =======
</TABLE>
11 of 19
<PAGE>
For the six month period ended June 30, 1996, the Company experienced an
increase in net interest income of $1.1 million when compared to the first half
of 1995. This increase was mainly due to the increased volume in the loan
portfolio, the decreased volume in short-term borrowings, and the decreased
average rate paid on deposits, partially offset by reduced yields on loans, the
increased average rate paid on other borrowings, and the increased volume of
interest-bearing deposits. For the first half of 1996, average other borrowings
primarily consisted of $3.0 million of subordinated debt which was issued at
11.5% in the Fall of 1995 and qualifies as Tier 2 regulatory capital. For the
six months ended June 30, 1996, the Companys net interest spread of 5.18%
reflected an increase from 4.78% for the same period in 1995. This was primarily
due to the reduction in the Companys cost of deposits.
The trend of interest rates in the economy has remained flat during 1996;
however, there are indications that inflation may be increasing slightly. An
increase in inflation will put pressure on the Federal Reserve to increase
interest rates. If interest rates rise, CNBs interest rate margin is likely to
increase, thereby increasing net interest income.
The Company provides client services to several of its noninterest-bearing
demand deposit customers. The amount of credit available to clients is based on
a calculation of their average noninterest-bearing deposit balance, adjusted for
float and reserves, multiplied by an earnings credit rate, generally the 90-day
Treasury Bill rate. The credit can be utilized to pay for services including
messenger service, account reconciliation and other similar services. If the
cost of the services provided exceeds the available credit, the customer is
charged for the difference.
The impact of this expense on the Companys net interest spread and net yield on
interest earning assets was as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1996 1995 1996 1995
--------------------------- -------------------------
<S> <C> <C> <C> <C>
Average noninterest-bearing demand deposits $ 60,088 $49,365 $ 57,090 $ 47,722
Client Service expense 95 91 215 161
Client Service cost annualized 0.63% 0.74% 1.51% 1.35%
Impact on Net Yield
- -------------------
Net yield on interest earning assets 6.27% 5.93% 6.12% 5.94%
Impact of client services (0.15)% (0.17)% (0.17)% (0.16)%
-------- ------- -------- --------
Adjusted net yield 6.12% 5.76% 5.95% 5.78%
======== ======= ======== ========
</TABLE>
The negative impact on the net yield on interest-earning assets is caused by the
reduction of net interest income by the cost of client service expenses, which
reduces the yield on interest-earning assets. The cost for client service
expense has been relatively stable, and reflects the Companys efforts in the
management of client service expense.
INTEREST RATE SENSITIVITY
Interest rate sensitivity is measured as the difference between the volumes of
assets and liabilities in the Bank's current portfolio that are subject to
repricing at intervals of (a) one day or immediate, (b) two days to six months,
(c) seven to twelve months, (d) one to three years, (e) three to five years,
(f) over five years and (g) on a cumulative basis. Allocations of assets and
liabilities, including noninterest-bearing sources of funds, to specific periods
are based upon management's assessment of contractual or anticipated repricing
characteristics. The differences between the volumes of assets and liabilities
in these intervals are known as sensitivity gaps. The following table shows
interest sensitivity gaps for different intervals at June 30, 1996:
12 of 19
<PAGE>
<TABLE>
<CAPTION>
INTEREST SENSITIVITY ANALYSIS
Repricing Periods
Total
Immediate 2 Days To 7-12 >1 Year >3 Yrs Total Rate Non-rate
(Dollars in thousands) One Day 6 Months Months to 3 Yrs to 5 Yrs >5 Yrs Sensitive Sensitive Total
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Cash and due from banks $ - $ - $ - $ - $ - $ - $ - $ 16,419 $ 16,419
Short term investments 11,000 - - - - - 11,000 - 11,000
Investment securities - 9,004 - 11,263 8,022 20,036 48,325 1,002 49,327
Loans 139,769 2,800 2,089 8,471 4,524 25,516 183,169 3,221 186,390
Loan loss reserve/unearned
fees - - - - - - - (3,958) (3,958)
Other assets - - - - - - - 15,218 15,218
-------- --------- --------- -------- ------- ------- -------- --------- --------
Total assets $150,769 $ 11,804 $ 2,089 $ 19,734 $12,546 $45,552 $242,494 $ 31,902 $274,396
======== ========= ========= ======== ======= ======= ======== ========= ========
Liabilities and Equity:
Deposits
Demand $ - $ - $ - $ - $ - $ - $ - $ 66,263 $ 66,263
NOW, MMDA, and savings 144,321 - - - - - 144,321 - 144,321
Time deposits - 29,310 9,844 380 11 10 39,555 - 39,555
Subordinated debt 3,000 - - - - - 3,000 - 3,000
Other liabilities - - - - - - - 1,274 1,274
Shareholders' equity - - - - - - - 19,983 19,983
-------- --------- --------- -------- ------- ------- -------- --------- --------
Total liabilities and
equity $147,321 $ 29,310 $ 9,844 $ 380 $ 11 $ 10 $186,876 $ 87,520 $274,396
======== ========= ========= ======== ======= ======= ======== ========= ========
Gap $ 3,448 $(17,506) $ (7,755) $ 19,354 $12,535 $45,542 $ 55,618 $(55,618) $ -
Cumulative Gap $ 3,448 $(14,058) $(21,813) $(2,459) $10,076 $55,618 $ 55,618 $ - -
Cumulative Gap/total assets 1.27% (5.16)% (8.01)% (0.90)% 3.70% 20.42% 20.42% 0% -
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The management of interest rate sensitivity, or interest rate risk management,
is a function of the repricing characteristics of the Bank's portfolio of assets
and liabilities. These repricing characteristics are subject to changes in
interest rates either at replacement, repricing or maturity during the life of
the instruments. Interest rate risk management focuses on the maturity
structure of assets and liabilities and their repricing characteristics during
periods of changes in market interest rates. Effective interest rate risk
management seeks to ensure that both assets and liabilities respond to changes
in interest rates within an acceptable time frame, thereby reducing the effect
of interest rate movements on net interest income.
Changes in the mix of earning assets or supporting liabilities can either
increase or decrease the net interest margin without affecting interest rate
sensitivity. In addition, the interest rate spread between an asset and its
supporting liability can vary significantly while the timing of repricing of
both the asset and its supporting liability can remain the same, thus impacting
net interest income. This characteristic is referred to as "basis risk" and,
generally, relates to the repricing characteristics of short-term funding
sources such as certificates of deposit.
Varying interest rate environments can create unexpected changes in prepayment
levels of assets and liabilities which are not reflected in the interest
sensitivity table above. These prepayments may have significant effects on the
Bank's net interest margin. Because of these factors, the interest sensitivity
gap report may not provide a complete assessment of the Bank's exposure to
changes in interest rates.
13 of 19
<PAGE>
NON-INTEREST INCOME
The following table provides details of non-interest income for the previous
five quarters.
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------------------------
June 30, March 31, December 31, September 30, June 30,
(Dollars in thousands) 1996 1996 1995 1995 1995
------------ ----------- -------------- --------------- --------
<S> <C> <C> <C> <C> <C>
Loan fees $ 34 $ 15 $ 11 $ 51 $ 29
Trust fees 344 309 241 178 135
Gain on sale of SBA loans 123 130 153 63 45
Depositor service fees 121 98 92 92 98
Gain on sale of mortgage loans - - - - 51
Other 185 77 54 67 49
----- ----- ----- ----- -----
Total other income $ 807 $ 629 $ 551 $ 451 $ 407
===== ===== ===== ===== =====
</TABLE>
Non-interest income was $807,000 for the second quarter of 1996, an increase of
$178,000 from the first quarter of 1996, and of $400,000 from the second
quarter of 1995. The increase in the 1996 second quarter from the first quarter
of 1996 and from the second quarter of 1995 was primarily due to an increase in
trust fee income and to $95,000 in gains realized on warrants received in
connection with CNBs Venture Lending group. In the past year, the Company has
increased its focus on these two business lines.
The increase of $535,000 in total noninterest income from the first half of 1995
to the first half of 1996 was also due to increased trust fee income and warrant
income.
NON-INTEREST EXPENSE
The following table provides details of non-interest expense for the previous
five quarters:
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------------------
June 30, March 31, December 31, September 30, June 30,
(Dollars in thousands) 1996 1996 1995 1995 1995
-------------- ----------- ------------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Compensation and benefits $1,998 $1,700 $1,774 $1,694 $1,600
Occupancy and equipment 489 473 470 430 392
Professional services 248 193 269 277 230
Legal settlement and costs - - - - 1,700
FDIC insurance and assessments 21 20 62 22 135
Supplies, telephone and postage 160 130 117 109 108
Data processing 38 50 42 39 30
Client services 95 120 81 95 91
Other real estate, net 6 24 - 1 (7)
Other 444 442 366 315 321
------ ------ ------ ------ ------
Total operating expenses $3,499 $3,152 $3,181 $2,982 $4,600
====== ====== ====== ====== ======
</TABLE>
Total non-interest expenses were $3.5 million for the second quarter of 1996, an
increase of $347,000 from the first quarter of 1996, and a decrease of $1.1
million from the second quarter of 1995. The significant decline from the
previous years second quarter, as well as from the first half of 1995, is due to
the $1.7 million legal settlement expense recorded in the second quarter of
1995.
Compensation and benefits expense for the second quarter increased by $298,000
when compared to the first quarter of 1996, and by $398,000 from the comparable
quarter of 1995. The increase in compensation, occupancy and supplies expense
during the second quarter of 1996 and the first half of 1996, from the 1995
second quarter and the 1995 first half, respectively, is primarily due to the
opening of the new downtown Palo Alto branch office in June 1996. The decline
in FDIC assessment expense of $114,000 from the second quarter of 1995 to the
comparable quarter in 1996 reflects the change in assessment rates for banks
insured by the Bank Insurance Fund of the FDIC. Total FDIC insurance and
assessments declined by $219,000 from the first half of 1995 to the first half
of 1996 for the same reason.
14 of 19
<PAGE>
INCOME TAX
The provision for income taxes for the second quarter of 1996 of $289,000
reflects an effective tax rate for the quarter of approximately 36%, compared to
a tax benefit recorded for the second quarter of 1995 of $470,000 with an
effective tax rate of 42%. The difference was primarily due to the operating
loss experienced by the Company in the second quarter of 1995 due to the
litigation settlement. CUNB did not require a valuation allowance related to
its deferred tax asset.
FINANCIAL CONDITION
CAPITAL RATIOS
The Company's and the Bank's leverage ratio (Tier 1 capital to average quarterly
assets) and total risk-based capital ratios were as follows:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------------------------------------------------------------------------------------
Tier 1 Capital to Total Capital to Tier 1 Capital to Total Capital to
Average Risk-weighted Average Risk-Weighted
Quarterly Assets Assets Quarterly Assets Assets
------------------------------------------------------------------------------------------
BALANCE % BALANCE % BALANCE % BALANCE %
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollar in thousands)
- ---------------------
CNB $18,483 6.98% $24,341 10.66% $17,650 7.36% $23,180 11.41%
Well capitalized requirement 13,234 5.00% 22,838 10.00% 11,989 5.00% 20,318 10.00%
------------------------------------------------------------------------------------------
Excess capital $ 5,249 1.98% $ 1,503 0.66% $ 5,661 2.36% $ 2,862 1.41%
==========================================================================================
Cupertino National Bancorp $19,923 7.52% $25,814 11.17% $18,672 7.78% $24,213 11.91%
Well capitalized requirement 13,243 5.00% 23,115 10.00% 12,000 5.00% 20,331 10.00%
------------------------------------------------------------------------------------------
Excess capital $ 6,680 2.52% $ 2,699 1.17% $ 6,672 2.78% $ 3,882 1.91%
==========================================================================================
</TABLE>
In addition, the Company's and the Bank's Tier 1 risk-based capital ratios were
8.62% and 8.09% at June 30, 1996, respectively, compared with 9.18% and 8.69%,
respectively, at December 31, 1995, and 9.63% and 9.13%, respectively, at
June 30, 1995.
To be considered well capitalized, as defined under the regulatory framework for
prompt corrective action, an institution must have a Tier 1 risk-based capital
ratio of 6% or greater, a total risk-based capital ratio of 10% or greater and a
leverage ratio of 5% or greater. To be considered adequately capitalized, as
defined under the regulatory framework for prompt corrective action, an
institution must have a Tier 1 risk-based capital ratio of 4% or greater, a
total risk-based capital ratio of 8% or greater and a leverage ratio of 3% or
greater. All of the Company's and the Bank's risk-based capital and leverage
ratios exceed the ratios for a well capitalized financial institution for all
periods presented above.
LIQUIDITY
Liquidity is defined as the ability of a company to convert assets into cash or
cash equivalents without significant loss, and to raise additional funds by
increasing liabilities. Liquidity management involves maintaining the Bank's
ability to meet the day-to-day cash flow requirements of the Bank's clients who
either want to withdraw funds or require funds to meet their credit needs.
Through an Asset/Liability Management Committee, the Bank actively monitors its
commitments to fund loans, as well as the composition and maturity schedule of
its loan and deposit portfolios. To manage its liquidity, the Bank maintains
$20 million in inter-bank Fed Fund purchase lines, as well as $100 million in
institutional deposit or brokered deposit lines, and $35 million in reverse
repurchase lines.
15 of 19
<PAGE>
PROVISION AND RESERVE FOR LOAN LOSSES
The following schedule details the activity in the Bank's reserve for loan
losses and related ratios for each of the last five quarters:
<TABLE>
<CAPTION>
Quarter ended
--------------------------------------------------------------------------
June 30, March 31, December 31, September 30, June 30,
(Dollars in thousands) 1996 1996 1995 1995 1995
- ----------------------
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reserve for loan losses at
beginning of period $2,907 $2,683 $2,522 $2,454 $2,359
Provision charged to operations 265 200 90 75 85
Loans charged off (165) - (54) (15) (4)
Loan recoveries 36 24 125 8 14
------ ------ ------ ------ ------
Reserve for loan losses at
end of period $3,043 $2,907 $2,683 $2,522 $2,454
====== ====== ====== ====== ======
Ratio of:
Reserve for loan losses to loans 1.63% 1.67% 1.64% 1.69% 1.70%
Reserve for loan losses to
nonperforming assets 86.08% 84.95% 80.26% 85.67% 68.32%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The provision for loan losses was $265,000 in the second quarter of 1996,
compared to $200,000 in the first quarter of 1996, and to $85,000 in the second
quarter of 1995. The provision for loan losses for the first half of 1996 was
$465,000 compared to $516,000 in the comparable period in 1995.
Management considers changes in the size and character of the loan portfolio,
changes in non-performing and past due loans, historical loan loss experience,
and the existing and prospective economic conditions when determining the
adequacy of the loan loss reserve. The reserve for loan losses was $3.04 million
at June 30, 1996, compared with $2.91 million at March 31, 1996, and $2.68
million at December 31, 1995.
The ratio of the reserve for loan losses to total loans was 1.63% at June 30,
1996, compared with 1.64% at December 31, 1995, and 1.70% at June 30, 1995.
The ratio of the reserve for loan losses to total nonperforming assets,
including foreclosed real estate, was 86.08% at June 30, 1996, compared to
80.26% at December 31, 1995 and 68.32% at June 30, 1995.
NON-ACCRUING LOANS, RESTRUCTURED LOANS, ACCRUING LOANS PAST DUE 90 DAYS OR MORE
AND FORECLOSED PROPERTIES
<TABLE>
<CAPTION>
Quarter ended
--------------------------------------------------------------------------
June 30, March 31, December 31, September 30, June 30,
(Dollars in thousands) 1996 1996 1995 1995 1995
- ----------------------
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accruing loans $2,214 $2,325 $2,513 $2,539 $2,426
Restructured loans - - - - -
Accruing loans past due 90 days or more 1,104 880 830 405 1,166
----------------- ----------- ------------- -------------- ---------
Total nonperforming loans 3,318 3,205 3,343 2,944 3,592
OREO 217 217 - - -
----------------- ----------- ------------- -------------- ---------
Total nonperforming assets $3,535 $3,422 $3,343 $2,944 $3,592
================= =========== ============= ============== =========
Total nonperforming assets to total
assets 1.29% 1.34% 1.29% 1.23% 1.47%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Over the past year, total nonperforming assets have remained relatively stable
with totals of $3.5 million at June 30, 1996, compared with $3.3 million at
December 31, 1995, and $3.6 million at June 30, 1995. Nonperforming loans,
which include non-accruing loans, restructured loans, and accruing loans which
are past due 90 days or more, were
16 of 19
<PAGE>
$3.3 million at June 30, 1996, compared with $3.3 million at December 31, 1995,
and $3.6 million at June 30, 1995.
It is the Bank's policy to discontinue the accrual of interest when the ability
of a borrower to repay principal or interest is in doubt, or when a loan is past
due 90 days or more, except when, in management's judgment, the loan is well
secured and in the process of collection.
The Bank has an active credit administration function which includes, in
addition to internal reviews, the regular use of an outside loan review firm to
review the quality of the loan portfolio. Senior management, and an internal
asset review committee review problem loans on a regular basis.
EFFECTS OF INFLATION
The impact of inflation on a financial institution differs significantly from
that exerted on industrial concerns, primarily because its assets and
liabilities consist largely of monetary items. The most direct effect of
inflation on a financial institution is fluctuation in interest rates. However,
net interest income is affected by the spread between interest rates received on
assets and those paid on interest bearing liabilities, rather than the absolute
level of interest rates. Additionally, there may be some upward pressure on the
Companys operating expenses, such as increases in occupancy expenses based on
consumer price indices. In the opinion of management, inflation has not had
material effect on the operating results of the Company.
PART II. OTHER INFORMATION
ITEM 1 - ITEM 3, ITEM 5
Not applicable
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Shareholders of the Company was held on May 16, 1996
and 1,174,865 shares were represented at the meeting in person or by proxy.
(b) The following 13 persons nominated by management were elected as directors
at the meeting:
<TABLE>
<CAPTION>
For Withheld
--- --------
<S> <C> <C>
C. Donald Allen 1,153,260 21,605
David K. Chui 1,153,260 21,605
Carl E. Cookson 1,153,260 21,605
Jerry R. Crowley 1,153,260 21,605
Janet M. DeCarli 1,148,923 25,942
John M. Gatto 1,153,260 21,605
William H. Guengerich 1,153,260 21,605
James E. Jackson 1,153,260 21,605
Rex D. Lindsay 1,153,260 21,605
Glen McLaughlin 1,153,260 21,605
Norman Meltzer 1,153,260 21,605
Dick J. Randall 1,153,260 21,605
Dennis Whittaker 1,153,260 21,605
</TABLE>
(c) A proposal to approve an amendment to the Company's 1989 Non-Qualified
Stock Option Plan to increase the number of shares of the Company's Common
Stock reserved for issuance thereunder by
17 of 19
<PAGE>
35,000 shares, was approved by a vote of 896,616 shares in favor, 270,984
shares opposed and 7,265 shares abstaining or subject to broker non-votes.
(d) A proposal to approve an amendment to the Company's Employee Stock Purchase
Plan to increase the number of shares of the Company's Common Stock
reserved for issuance thereunder by 60,000 shares, was approved by a vote
of 937,401 shares in favor, 37,976 shares opposed and 199,488 shares
abstaining or subject to broker non-votes.
(e) A proposal to ratify the appointment of Coopers & Lybrand L.L.P. as the
Company's independent accountants for the current fiscal year was approved
by a vote of 1,171,260 shares in favor, 2,554 shares opposed and 691
shares abstaining or subject to broker non-votes.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
The Exhibits listed in the accompanying Index to Exhibits are filed or
incorporated by reference as part of this Report.
(a) Exhibits - Listed on Index to Exhibits
(b) Reports on Form 8-K for the quarter covered by this report
The Company filed a Report on Form 8-K on July 12, 1996 reporting, on Item 5.
Other Events, the signing of a definitive agreement for a merger of equals of
Registrant with and into Mid-Peninsula Bancorp and that Mid-Peninsula Bancorp
will change its name to Greater Bay Bancorp concurrent with closing of the
merger. The Amended and Restated Agreement and Plan of Reorganization and
Merger dated June 26, 1996 was filed as an exhibit to the Form 8-K and is
incorporated herein by reference.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
CUPERTINO NATIONAL BANCORP
(REGISTRANT)
BY:
/s/ Steven C. Smith
- -------------------------
STEVEN C. SMITH
EXECUTIVE VICE PRESIDENT,
CHIEF OPERATING OFFICER
/s/ Heidi R. Wulfe
- -------------------------
HEIDI R. WULFE
SENIOR VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
DATE: AUGUST 9, 1996
18 of 19
<PAGE>
INDEX TO EXHIBITS
NUMBER EXHIBIT
------ -------
2.1 Amended and Restated Agreement and Plan of Reorganization and
Merger dated June 26, 1996 (filed as Exhibit 2.1 of
Registrant's report on Form 8-K dated July 12, 1996 and
incorporated herein by reference).
10.1 Cupertino Shareholder Agreement and Mid Peninsula Shareholder
Agreement, each dated as of June 26, 1996, pursuant to
Amended and Restated Agreement and Plan of Reorganization and
Merger dated June 26, 1996.
10.2 Form of Cupertino Affiliate Agreement and Mid-Peninsula
Affiliate Agreement with directors and certain officers,
pursuant to Amended and Restated Agreement and Plan of
Reorganization and Merger dated June 26, 1996.
10.3 Stock Option Agreement pursuant to Amended and Restated
Agreement and Plan of Reorganization and Merger dated
June 26, 1996.
10.4 Letter agreement, dated as of May 10, 1996, regarding the
rendering of a fairness opinion and Indemnity Agreement, dated
as of May 10, 1996, pursuant to Amended and Restated Agreement
and Plan of Reorganization and Merger dated June 26, 1996,
between Cupertino and Sutro & Co. Incorporated.
10.5 Letter agreement, dated as of June 5, 1996, regarding the
providing of financial advisory services pursuant to Amended
and Restated Agreement and Plan of Reorganization and Merger
dated June 26, 1996, between Cupertino and Hovde Financial,
Inc.
27 Financial Data Schedule
_____
19 of 19
<PAGE>
EXHIBIT 10.1
CUPERTINO SHAREHOLDER AGREEMENT
This Shareholder Agreement ("Agreement") is made and entered into on June
26, 1996, by and between Mid-Peninsula Bancorp ("Mid-Peninsula") and each of
the other persons executing this Agreement (each such person is referred to
individually as a "Cupertino Shareholder" and collectively referred to as the
"Cupertino Shareholders"), with reference to the following facts:
A. Mid-Peninsula and Cupertino National Bancorp ("Cupertino") have
entered into that certain Agreement and plan of Reorganization and Merger
("Reorganization Agreement"), dated as of June 5, 1996, pursuant to which
Cupertino will merge with and into Mid-Peninsula (the "Merger"), Mid-Peninsula
will change its name to Greater Bay Bancorp ("Bancorp") and Mid-Peninsula will
pay consideration to Cupertino shareholders in the form of Bancorp common stock.
B. Each of the Cupertion Shareholders is also a director or executive
officer of Cupertino.
C. In order to induce Mid-Peninsula to enter into the Reorganization
Agreement, the Cupertino Shareholders desire to enter into this Agreement
solely in their capacity as Shareholders.
NOW, THEREFORE, in consideration of the promises and of the respective
representations, warranties and covenants, agreements and conditions contained
herein and in the Reorganization Agreement, the parties hereto agree as follows:
1. Agreements of Cupertino Shareholders.
------------------------------------
1.1 Agreement to Vote. At any meeting of shareholders of Cupertino or
-----------------
in connection with any solicitation of the written consent of the Cupertino
Shareholders to approve the Reorganization Agreement and the transactions
contemplated thereby, each of the Cupertino Shareholders shall vote or cause to
be voted all shares of common stock of Cupertino ("Cupertino Share" or
"Cupertino Shares") owned by each such Cupertino Shareholder, and any other
Cupertino Shares hereafter acquired by each such Cupertino Shareholder, in favor
of, and to approve, the principal terms of the Merger and any other matter
contemplated by the Reorganization Agreement which requires the approval of the
Cupertino Shareholders.
1.2 Agreement to Recommend. Unless the Board of Directors of Cupertino
----------------------
shall have determined that they have a fiduciary duty to the Cupertino
Shareholders to recommend that the Cupertino Shareholders not vote in favor of
approval of the transactions contemplated by the Reorganization Agreement, each
Cupertino Shareholder shall recommend to the Cupertino Shareholders to vote in
favor of, and to approve, the principal terms of the Merger and any other matter
contemplated by the
<PAGE>
Reorganization Agreement.
1.3 Restrictions on Dispositions. Each Cupertino Shareholder agrees
----------------------------
that he will not pledge or otherwise encumber, nor sell, assign or otherwise
dispose of, any Cupertino Shares currently owned or acquired by such Cupertino
Shareholder after the date of this Agreement, except (i) with the prior written
consent of Mid-Peninsula (which shall not be unreasonably withheld); (ii)
pursuant to the Reorganization Agreement; or (iii) by a bona fide pledge to
secure a loan made on a full-recourse basis.
1.4 Negotiations with Other Parties. Each Cupertino Shareholder agrees
-------------------------------
that he will not, directly or indirectly, solicit or encourage any inquiries,
discussions or proposals from, or enter into, or continue any discussions,
negotiations or agreements relating to, or vote in favor of any proposal or
transactions for disposition of all or part of the business or assets of
Cupertino or any subsidiary thereof, or the acquisition of all or part of
Cupertino's or any subsidiary of Cupertino's voting securities or any business
combination with any person other than Mid-Peninsula or any wholly-owned
subsidiary of Mid-Peninsula, unless, upon advice of counsel, the Board of
Directors of Cupertino shall have determined that any duty to refrain from any
act pursuant to this Section 1.4 is inconsistent with the continuing fiduciary
duty of the Board of Directors to the Cupertino Shareholders.
2. Representations and Warranties of Cupertino Shareholders.
--------------------------------------------------------
Each of the Cupertino Shareholders severally and not jointly, represents
and warrants to and agrees with Mid-Peninsula solely with respect to himself or
herself, as follows:
2.1 Capacity. Each such Cupertino Shareholder has all the requisite
--------
capacity and authority to enter into and perform such Cupertino Shareholder's
obligations under this Agreement.
2.2 Binding Agreement. This Agreement constitutes the valid and legally
-----------------
binding obligation of each such Cupertino Shareholder.
2.3 Non-Contravention. The execution and delivery of this Agreement by
-----------------
each such Cupertino Shareholder does not, and the performance by such Cupertino
Shareholder's obligations hereunder and the consummation by such Cupertino
Shareholder of the transactions contemplated hereby will not, violate or
conflict with or constitute a default under any agreement, instrument, contract
or other obligation or any order, arbitration award, judgment or decree to which
such Cupertino Shareholder is a party or by which such Cupertino Shareholder is
bound, or any statute, rule or regulation to which such Cupertino Shareholder or
any of
2
<PAGE>
such Cupertino Shareholder's property is subject.
2.4 Ownership of Shares. Schedule 1 hereto correctly sets forth the
-------------------
number of Cupertino Shares owned by each Cupertino Shareholder, or with respect
to which each Cupertino Shareholder has good title to all of the Cupertino
Shares indicated as owned by such Cupertino Shareholder in the capacity set
forth on Schedule 1 as of the date indicated on such Schedule 1, and such
Cupertino Shares are so owned free and clear of any liens, security interest,
charges or other encumbrances, except as set forth in such Schedule 1.
3. Termination.
-----------
3.1 Termination Date. This Agreement shall terminate and be of no further
----------------
force and effect immediately upon the earlier of: (a) consummation of the
Merger; or (b) termination of the Reorganization Agreement in accordance with
the terms thereof.
3.2 Effect of Termination. Upon the termination of this Agreement in
---------------------
accordance with Section 3.1 hereof, the respective obligations of the parties
hereto shall immediately become void and have no further force or effect.
4. Specific Performance. The parties hereto recognize and agree that monetary
--------------------
damages will not compensate adequately the parties hereto for nonperformance.
Accordingly, each party agrees that his obligations shall be enforceable by
court order requiring specific performance.
5. Miscellaneous.
-------------
5.1 Expenses. Each party hereto shall pay its own costs and expenses,
--------
including, but not limited to, those of its attorneys and accountants, in
connection with this Agreement and transactions covered and contemplated hereby.
5.2 Notices. All notices, demands or other communications hereunder shall
-------
be in writing and shall be deemed to have been duly given if delivered in
person, by telex, telecopy, facsimile transmission, or by United States mail,
certified or registered, with return receipt requested, or otherwise actually
delivered as follows:
3
<PAGE>
(a) If to a Cupertino Shareholder:
Cupertino National Bancorp
20230 Stevens Creek Boulevard
Cupertino, CA 95014
Attention: C. Donald Allen, President
Telephone: (408) 996-1144
Telecopier: (408) 996-0657
With copies to:
Manatt, Phelps & Phillips
11355 W. Olympic Boulevard
Los Angeles, CA 90064
Attention: Paul H. Irving
William T. Quicksilver
Telephone: (310) 312-4000
Telecopier: (310) 312-4224
(b) If to Mid-Peninsula Bancorp:
Mid-Peninsula Bancorp
420 Cowper Street
Palo Alto, CA 94301-1504
Attention: David L. Kalkbrenner, President
Telephone: (408) 323-5150
Telecopier: (408) 323-7421
With copies to:
Bronson, Bronson & McKinnon
10 Almaden Blvd., Suite 600
San Jose, CA 95113-2237
Attention: Glenn T. Dodd
Telephone: (408) 293-0599
Telecopier: (408) 999-6553
Attention: John W. Carr
Telephone: (415) 986-4200
Telecopier: (415) 982-1394
The persons or address to which mailings or deliveries shall be made may change
from time to time by notice given pursuant to the provisions of this Section
5.2. Any notice, demand or other communication given pursuant to the provisions
of this Section 5.2 shall be deemed to have been given on the date delivered or
three days following the date mailed, as the case may be.
5.3 Successors and Assigns. All terms and provisions of this Agreement
----------------------
shall be binding upon and inure to the benefit of the parties hereto and their
respective transferees, successors and assigns; provided, however, that, except
as otherwise contemplated herein, this Agreement and all rights, privileges,
4
<PAGE>
duties and obligations of the parties hereto may not be assigned or delegated by
any party hereto without the prior written consent of the other parties to this
Agreement and any purported assignment in violation of this Section 5.3 shall be
null and void.
5.4 Third Party Beneficiaries. Each party hereto intends that this
-------------------------
Agreement shall not benefit, or create any right or cause of action in or on
behalf of, any person other than the parties hereto. As used in this Agreement,
the term party or parties shall refer only to Mid-Peninsula and the Cupertino
Shareholders, or any of them.
5.5 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which taken together shall constitute one instrument.
5.6 Governing Law. This Agreement is made and entered into in the State
-------------
of California and the laws of that state shall govern the validity and
interpretation hereof and the performance of the parties hereto of their
respective duties and obligations hereunder.
5.7 Captions. The captions contained in this Agreement are for
--------
convenience of reference only and do not form a part of this Agreement.
5.8 Waiver and Modification. No waiver of any term, provision or
-----------------------
condition of this Agreement, whether by conduct or otherwise, in any one or more
instances, shall be deemed to be or construed as a further or continuing waiver
of any such term, provision or condition of this Agreement. This Agreement may
be modified or amended only by an instrument of equal formality signed by the
parties or their duly authorized agents.
5.9 Attorneys' Fees. In the event any of the parties to this Agreement
---------------
brings an action or suit against any other party by reason of any breach of any
covenant, agreement, representation, warranty or other provision hereof, or any
breach of any duty or obligation created hereunder by such other party, the
prevailing party in whose favor final judgment is entered shall be entitled to
have and recover of and from the losing party all reasonable costs and expenses
incurred or sustained by such prevailing party in connection with such suit or
action, including without limitation, legal fees and court costs (whether or not
taxable as such).
5.10 Entire Agreement. The making, execution and delivery of this
----------------
Agreement by the parties hereto have been encouraged by no representations,
statements, warranties or agreements other than those herein expressed. This
Agreement embodies the entire understanding of the parties and there are no
further or other
5
<PAGE>
agreements or understandings, written or oral, in effect between the parties
relating to the subject matter hereof, unless expressly referred to by reference
herein.
5.11 Severability. Whenever possible, each provision of this Agreement and
------------
every related document shall be interpreted in such manner as to be valid under
applicable law. However, if any provision of any of the foregoing shall be
invalid or prohibited under said applicable law, it shall be construed,
interpreted and limited to effectuate its purposes to the maximum legally
permissible extent. If it cannot be so construed and interpreted so as to be
valid under such law, such provision shall be ineffective to the extent of such
invalidity or prohibition without invalidating the remainder of such provision
or the remaining provisions of this Agreement, and this Agreement shall be
construed to the maximum extent possible to carry out its terms without such
invalid or unenforceable provision or portion thereof.
5.12 Several Obligations. All duties and obligations of each party to this
-------------------
Agreement shall be several and not joint.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
MID-PENINSULA BANCORP
By: /s/ David L. Kalbrenner
--------------------------------
David L. Kalbrenner, President
CUPERTINO SHAREHOLDERS:
/s/ Dennis S. Whittaker /s/ C. Donald Allen
- ----------------------------- -----------------------------
Dennis S. Whittaker C. Donald Allen
/s/ Steven C. Smith /s/ Heidi R. Wulfe
- ----------------------------- -----------------------------
Steven C. Smith Heidi R. Wulfe
/s/ David K. Chui /s/ Carl F. Cookson
- ----------------------------- -----------------------------
David K. Chui Carl F. Cookson
/s/ Jerry R. Crowley /s/ Janet M. DeCarli
- ----------------------------- -----------------------------
Jerry R. Crowley Janet M. DeCarli
/s/ John M. Gatto /s/ William H. Guengerich
- ----------------------------- -----------------------------
John M. Gatto William H. Guengerich
/s/ James E. Jackson /s/ Rex D. Lindsay
- ----------------------------- -----------------------------
James E. Jackson Rex D. Lindsay
6
<PAGE>
/s/ Glen McLaughlin /s/ Norman Meltzer
- ----------------------------- -----------------------------
Glen McLaughlin Norman Meltzer
/s/ Dick J. Randall
- -----------------------------
Dick J. Randall
7
<PAGE>
Stock Ownership for Directors
& Executive Officers
- --------------------------------------------------------------------------------
Name and Address of Number
Beneficial Owners of Shares
----------------- ---------
Dick J. Randall (1)............................................ 131,491
20230 Stevens Creek Boulevard
Cupertino, CA 95014
C. Donald Allen (2)............................................ 68,058
David K. Chui (3).............................................. 26,931
Carl E. Cookson (4)............................................ 26,682
Jerry R. Crowley (5)........................................... 33,862
Janet M. DeCarli (6)........................................... 26,218
John M. Gatto (7).............................................. 36,009
William H. Guengerich (8)...................................... 25,460
James E. Jackson (9)........................................... 58,777
Rex D. Lindsay (10)............................................ 64,296
Glen McLaughlin (11)........................................... 55,649
Norman Meltzer (12)............................................ 21,424
Dennis S. Whittaker (13)....................................... 20,333
Steven C. Smith (14)........................................... 36,993
Kenneth D. Brenner (15)........................................ 22,495
David Hood (16)................................................ 24,413
Hall Palmer (17)............................................... 27,206
Heidi Wulfe (18)............................................... 5,300
All Directors and Executive Officers as a Group
(18 persons) (19)............................................ 708,597
The numbers reported include immediate vesting upon change of control as well as
ESPP purchase for 6/30/96. These calculations do not include 401(k) purchase/
company match for 6/30/96 as this information is not yet available.
8
<PAGE>
MID-PENINSULA SHAREHOLDER AGREEMENT
This Shareholder Agreement ("Agreement") is made and entered into on June
26, 1996, by and between Cupertino National Bancorp ("Cupertino") and each of
the other persons executing this Agreement (each such person is referred to
individually as a "Cupertino Shareholder" and collectively referred to as the
"Cupertino Shareholders"), with reference to the following facts:
A. Mid-Peninsula Bancorp ("Mid-Peninsula") and Cupertino have entered
into that certain agreement and plan of Reorganization and Merger
("Reorganization Agreement"), dated as of June 5, 1996, pursuant to which
Cupertino will merge with and into Mid-Peninsula (the "Merger"), Mid-Peninsula
will change its name to Greater Bay Bancorp ("Bancorp") and Mid-Peninsula will
pay consideration to Cupertino shareholders in the form of Bancorp common stock.
B. Each of the Mid-Penisula Shareholders is also a director or executive
officer of Mid-Peninsula.
C. In order to induce Cupertino to enter into the Reorganization
Agreement, the Mid-Peninsula Shareholders desire to enter into this Agreement
solely in their capacity as Mid-Penisula Shareholders.
NOW, THEREFORE, in consideration of the promises and of the respective
representations, warranties and covenants, agreements and conditions contained
herein and in the Reorganization Agreement, the parties hereto agree as follows:
1. Agreements of Mid-Peninsula Shareholders.
----------------------------------------
1.1 Agreement to Vote. At any meeting of shareholders of Mid-Peninsula or
-----------------
in connection with any solicitation of the written consent of the Mid-Peninsula
Shareholders to approve the Reorganization Agreement and the transactions
contemplated thereby, each of the Mid-Peninsula Shareholders shall vote or cause
to be voted all shares of common stock of a Mid-Peninsula ("Mid-Peninsula Share"
or "Mid-Peninsula Shares") owned by each such Mid-Peninsula Shareholder, and any
other Mid-Peninsula Shares hereafter acquired by each such Mid-Peninsula
Shareholder, in favor of, and to approve, the principal terms of the Merger and
any other matter contemplated by the Reorganization Agreement which requires the
approval of the Mid-Peninsula Shareholders.
1.2 Agreement to Recommend. Unless the Board of Directors of Mid-Peninsula
shall have determined that they have a fiduciary duty to the Mid-Peninsula
Shareholders to recommend that the Mid-Peninsula Shareholders not vote in favor
of approval of the transactions contemplated by the Reorganization Agreement,
each Mid-Peninsula Shareholder shall recommend to the Mid-Peninsula Shareholders
to vote in favor of, and to approve, the principal terms of the Merger and any
other matter contemplated by the
9
<PAGE>
Reorganization Agreement.
1.3 Restrictions on Dispositions. Each Mid-Peninsula Shareholder agrees
----------------------------
that he will not pledge or otherwise encumber, nor sell, assign or otherwise
dispose of, any Mid-Peninsula Shares currently owned or acquired by such Mid-
Peninsula Shareholder after the date of this Agreement, except (i) with the
prior written consent of Cupertino (which shall not be unreasonably withheld);
(ii) pursuant to the Reorganization Agreement; or (iii) by a bona fide pledge to
secure a loan made on a full-recourse basis.
1.4 Negotiations with Other Parties. Each Mid-Peninsula Shareholder agrees
-------------------------------
that he will not, directly or indirectly, solicit or encourage any inquiries,
discussions or proposals from, or enter into, or continue any discussions,
negotiations or agreements relating to, or vote in favor of any proposal or
transactions for disposition of all or part of the business or assets of Mid-
Peninsula or any subsidiary thereof, or the acquisition of all or part of Mid-
Peninsula's or any subsidiary of Mid-Peninsula's voting securities or any
business combination with any person other than Cupertino or any wholly-owned
subsidiary of Cupertino, unless, upon advice of counsel, the Board of Directors
of Mid-Peninsula shall have determined that any duty to refrain from any act
pursuant to this Section 1.4 is inconsistent with the continuing fiduciary duty
of the Board of Directors to the Mid-Peninsula Shareholders.
2. Representations and Warranties of Mid-Peninsula Shareholders.
------------------------------------------------------------
Each of the Mid-Peninsula Shareholders severally and not jointly,
represents and warrants to and agrees with Cupertino solely with respect to
himself or herself, as follows:
2.1 Capacity. Each such Mid-Peninsula Shareholder has all the requisite
--------
capacity and authority to enter into and perform such Mid-Peninsula
Shareholder's obligations under this Agreement.
2.2 Binding Agreement. This Agreement constitutes the valid and legally
-----------------
binding obligation of each such Mid-Peninsula Shareholder.
2.3 Non-Contravention. The execution and delivery of this Agreement by
-----------------
each such Mid-Peninsula Shareholder does not, and the performance by such Mid-
Peninsula Shareholder's obligations hereunder and the consummation by such Mid-
Peninsula Shareholder of the transactions contemplated hereby will not, violate
or conflict with or constitute a default under any agreement, instrument,
contract or other obligation or any order, arbitration award, judgment or decree
to which such Mid-Peninsula Shareholder is a party or by which such Mid-
Peninsula Shareholder is bound, or any statute, rule or regulation to which such
Mid-Peninsula Shareholder or any of
10
<PAGE>
such Mid-Peninsula Shareholder's property is subject.
2.4 Ownership of Shares. Schedule 1 hereto correctly sets forth the
-------------------
number of Mid-Peninsula Shares owned by each Mid-Peninsula Shareholder, or with
respect to which each Mid-Peninsula Shareholder has good title to all of the
Mid-Peninsula Shares indicated as owned by such Mid-Peninsula Shareholder in the
capacity set forth on Schedule 1 as of the date indicated on such Schedule 1,
and such Mid-Peninsula Shares are so owned free and clear of any liens, security
interest, charges or other encumbrances, except as set forth in such Schedule 1.
3. Termination.
-----------
3.1 Termination Date. This Agreement shall terminate and be of no further
----------------
force and effect immediately upon the earlier of: (a) consummation of the
Merger; or (b) termination of the Reorganization Agreement in accordance with
the terms thereof.
3.2 Effect of Termination. Upon the termination of this Agreement in
---------------------
accordance with Section 3.1 hereof, the respective obligations of the parties
hereto shall immediately become void and have no further force or effect.
4. Specific Performance. The parties hereto recognize and agree that monetary
--------------------
damages will not compensate adequately the parties hereto for nonperformance.
Accordingly, each party agrees that his obligations shall be enforceable by
court order requiring specific performance.
5. Miscellaneous.
-------------
5.1 Expenses. Each party hereto shall pay its own costs and expenses,
--------
including, but not limited to, those of its attorneys and accountants, in
connection with this Agreement and transactions covered and contemplated hereby.
5.2 Notices. All notices, demands or other communications hereunder shall
-------
be in writing and shall be deemed to have been duly given if delivered in
person, by telex, telecopy, facsimile transmission, or by United States mail,
certified or registered, with return receipt requested, or otherwise actually
delivered as follows:
11
<PAGE>
(a) If to Mid-Peninsula Bancorp:
Mid-Peninsula Bancorp
420 Cowper Street
Palo Alto, CA 94301-1504
Attention: David L. Kalkbrenner, President
Telephone: (408) 323-5150
Telecopier: (408) 323-7421
With copies to:
Bronson, Bronson & McKinnon
10 Almaden Blvd., Suite 600
San Jose, CA 95113-2237
Attention: Glenn T. Dodd
Telephone: (408) 293-0599
Telecopier: (408) 999-6553
Attention: John W. Carr
Telephone: (415) 986-4200
Telecopier: (415) 982-1394
(b) If to a Cupertino Shareholder:
Cupertino National Bancorp
20230 Stevens Creek Boulevard
Cupertino, CA 95014
Attention: C. Donald Allen, President
Telephone: (408) 996-1144
Telecopier: (408) 996-0657
With copies to:
Manatt, Phelps & Phillips
11355 W. Olympic Boulevard
Los Angeles, CA 90064
Attention: Paul H. Irving
William T. Quicksilver
Telephone: (310) 312-4000
Telecopier: (310) 312-4224
The persons or address to which mailings or deliveries shall be made may change
from time to time by notice given pursuant to the provisions of this Section
5.2. Any notice, demand or other communication given pursuant to the provisions
of this Section 5.2 shall be deemed to have been given on the date delivered or
three days following the date mailed, as the case may be.
5.3 Successors and Assigns. All terms and provisions of this Agreement
----------------------
shall be binding upon and inure to the benefit of the parties hereto and their
respective transferees, successors and assigns; provided, however, that, except
as otherwise contemplated herein, this Agreement and all rights, privileges,
12
<PAGE>
duties and obligations of the parties hereto may not be assigned or delegated by
any party hereto without the prior written consent of the other parties to this
Agreement and any purported assignment in violation of this Section 5.3 shall be
null and void.
5.4 Third Party Beneficiaries. Each party hereto intends that this
-------------------------
Agreement shall not benefit, or create any right or cause of action in or on
behalf of, any person other than the parties hereto. As used in this Agreement,
the term party or parties shall refer only to Mid-Peninsula and the Cupertino
Shareholders, or any of them.
5.5 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which taken together shall constitute one instrument.
5.6 Governing Law. This Agreement is made and entered into in the State
-------------
of California and the laws of that state shall govern the validity and
interpretation hereof and the performance of the parties hereto of their
respective duties and obligations hereunder.
5.7 Captions. The captions contained in this Agreement are for
--------
convenience of reference only and do not form a part of this Agreement.
5.8 Waiver and Modification. No waiver of any term, provision or
-----------------------
condition of this Agreement, whether by conduct or otherwise, in any one or more
instances, shall be deemed to be or construed as a further or continuing waiver
of any such term, provision or condition of this Agreement. This Agreement may
be modified or amended only by an instrument of equal formality signed by the
parties or their duly authorized agents.
5.9 Attorneys' Fees. In the event any of the parties to this Agreement
---------------
brings an action or suit against any other party by reason of any breach of any
covenant, agreement, representation, warranty or other provision hereof, or any
breach of any duty or obligation created hereunder by such other party, the
prevailing party in whose favor final judgment is entered shall be entitled to
have and recover of and from the losing party all reasonable costs and expenses
incurred or sustained by such prevailing party in connection with such suit or
action, including without limitation, legal fees and court costs (whether or not
taxable as such).
5.10 Entire Agreement. The making, execution and delivery of this
----------------
Agreement by the parties hereto have been encouraged by no representations,
statements, warranties or agreements other than those herein expressed. This
Agreement embodies the entire understanding of the parties and there are no
further or other
13
<PAGE>
agreements or understandings, written or oral, in effect between the parties
relating to the subject matter hereof, unless expressly referred to by reference
herein.
5.11 Severability. Whenever possible, each provision of this Agreement and
------------
every related document shall be interpreted in such manner as to be valid under
applicable law. However, if any provision of any of the foregoing shall be
invalid or prohibited under said applicable law, it shall be construed,
interpreted and limited to effectuate its purposes to the maximum legally
permissible extent. If it cannot be so construed and interpreted so as to be
valid under such law, such provision shall be ineffective to the extent of such
invalidity or prohibition without invalidating the remainder of such provision
or the remaining provisions of this Agreement, and this Agreement shall be
construed to the maximum extent possible to carry out its terms without such
invalid or unenforceable provision or portion thereof.
5.12 Several Obligations. All duties and obligations of each party to this
-------------------
Agreement shall be several and not joint.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
CUPERTINO BANCORP
By: /s/ C. Donald Allen
--------------------------------
C. Donald Allen, President
MID-PENINSULA SHAREHOLDERS:
/s/ Duncan L. Matteson /s/ Owen D. Conley
- ----------------------------- -----------------------------
Duncan L. Matteson Owen D. Conley
/s/ Edwin E. van Bronkhorst /s/ Donald L. Hammond
- ----------------------------- -----------------------------
Edwin E. van Bronkhorst Donald L. Hammond
/s/ Warren R. Thoits /s/ R. Hewlett Lee, M.D.
- ----------------------------- -----------------------------
Warren R. Thoits R. Hewlett Lee, M.D.
/s/ David L. Kalkbrenner /s/ Helen C. Leong
- ----------------------------- -----------------------------
David L. Kalkbrenner Helen C. Leong
/s/ Murray B. Dey /s/ George M. Marcus
- ----------------------------- -----------------------------
Murray B. Dey George M. Marcus
/s/ Lawrence A. Aufmuth /s/ Donald H. Seiler
- ----------------------------- -----------------------------
Lawrence A. Aufmuth Donald H. Seiler
/s/ John F. Blokker /s/ Bruce E. Van Alstyne
- ----------------------------- -----------------------------
John F. Blokker Bruce E. Van Alstyne
/s/ Allan F. Brown /s/ Carol H. Rowland
- ----------------------------- -----------------------------
Allan F. Brown Carol H. Rowland
14
<PAGE>
SCHEDULE 1
- --------------------------------------------------------------------------------
<TABLE>
Mid-Peninsula Number
Shareholders of Shares Encumbrances
----------------- --------- ------------
<S> <C> <C>
- ----------------------------------------------------------------
Lawrence A. Aufmuth.............................................. 8,134 None
John F. Blokker.................................................. 26,580 None
Allan F. Brown................................................... 26,580 None
Owen D. Conley................................................... 25,780 None
Murray B. Dey.................................................... 29,983 None
Donald L. Hammond................................................ 26,580 None
David L. Kalkbrenner............................................. 38,946 None
R. Hewlett Lee, M.D.............................................. 8,178 None
Helen C. Leong................................................... 26,580 None
George M. Marcus................................................. 32,724 None
Duncan L. Matteson............................................... 41,750 None
Carol H. Rowland................................................. 30,173 None
Donald H. Seiler................................................. 26,580 None
Warren R. Thoits................................................. 29,065 None
Bruce E. Van Alstyne............................................. 22,000 None
Edwin E. van Bronkhorst.......................................... 27,330 None
</TABLE>
15
<PAGE>
EXHIBIT 10.2
CUPERTINO AFFILIATE AGREEMENT
I, the undersigned, have been advised that as of the date hereof I may be
deemed to be (but I do not hereby admit to being) an affiliate of Cupertino
National Bancorp ("Cupertino") for purposes of Rule 145 promulgated by the SEC
under the Securities Act ("Rule 145"). The following undertaking is given
pursuant to and in compliance with that certain Agreement and Plan of
Reorganization and Merger between Mid-Peninsula Bancorp ("Mid-Peninsula") and
Cupertino, dated as of June 5, 1996 (the "Reorganization Agreement"), which
provides for the merger of Cupertino with and into Mid-Peninsula (the "Merger")
and Mid-Peninsula will change its name to Greater Bay Bancorp ("Bancorp").
Capitalized terms used herein and not defined herein shall have the meanings
given to them in the Reorganization Agreement.
I understand that Mid-Peninsula is relying on the performance of the
covenants contained herein to insure that they obtain the desired pooling-of-
interests accounting treatment as a result of the Merger and to avoid any
appearance of improper manipulation of Mid-Peninsula's stock price or insider
trading in the period prior to the Merger.
I hereby agree that during the period beginning on October 15, 1996 (or
such later date as Mid-Peninsula may notify me in writing), and ending on the
date on which the Effective Time of the Merger occurs, which in either event
shall not exceed thirty (30) days prior to the Effective Time of the Merger, I
will not offer to sell or purchase, sell, transfer, purchase or acquire,
publicly or privately, any shares of Mid-Peninsula common stock ("Mid-Peninsula
Share" or "Mid-Peninsula Shares") or Cupertino common stock ("Cupertino Share"
or "Cupertino Shares"), or cause any other person to do any of the above, except
as a result of the conversion in the Merger of any Cupertino Shares or options
to purchase Cupertino Shares held by me.
I hereby also agree that during the period beginning on the date on which
the Effective Time of the Merger occurs and ending on the date of release and
publication to the general public of financial results covering at least thirty
(30) days of post-merger combined operations of Mid-Peninsula and Cupertino, I
will not offer, sell or transfer, publicly or privately, any Mid-Peninsula
Shares or Bancorp Shares, and that I will not during such period commit or agree
to sell or transfer any of such Mid-Peninsula Shares or Bancorp Shares after
such period.
I hereby also agree that at no time will I offer, sell or transfer,
publicly or privately, any Bancorp Shares acquired by me in the Merger, whether
in exchange for Cupertino Shares or for or upon exercise of options to purchase
such Cupertino Shares, except:
(i) Pursuant to a then current effective registration under the
Securities Act of 1933, as amended (the "1933 Act"); or
<PAGE>
(ii) Pursuant to the provisions of Rule 145(d) under the 1933 Act;
or
(iii) If counsel representing me, satisfactory to Mid-Peninsula,
shall have advised Mid-Peninsula in a written opinion letter in form and
substance satisfactory to Mid-Peninsula and its counsel and upon which Mid-
Peninsula and its counsel may rely, that no registration under the 1933 Act
would be required in connection with the proposed sale, transfer or other
disposition.
I agree and confirm that:
(i) the Bancorp Shares to be acquired by me upon consummation of
the Merger (such Bancorp Shares being sometimes referred to for purposes of this
Agreement as "Acquired Shares") will not be acquired with a view to the sale or
distribution thereof except as permitted by Rule 145;
(ii) the certificate representing the Acquired Shares or any
substitutions therefor, may be subject to stop transfer instructions which
confirm that such securities representing Bancorp Shares have been issued or
transferred to the registered holder as a result of a transaction to which Rule
145 under the Securities Act of 1933, as amended (the "Act") applies and that
such securities may not be sold, hypothecated, transferred or assigned, and the
issuer or its transfer agent shall not be required to give effect to any
attempted sale, hypothecation, transfer or assignment, except (i) pursuant to a
then current effective registration statement under the Act, (ii) in a
transaction permitted by Rule 145 as to which the issuer has, in the opinion of
its counsel, received reasonably satisfactory evidence of compliance with the
provisions of Rule 145, or (iii) in a transaction which, in the opinion of
counsel satisfactory to the issuer or as described in a "no action" or
interpretive letter from the staff of the Securities and Exchange Commission is
not required to be registered under the Act.
It is understood and agreed that any stop transfer instructions shall be
removed if the undersigned shall have delivered to Mid-Peninsula a written
opinion letter in form and substance satisfactory to Mid-Peninsula and its
counsel and upon which Mid-Peninsula and its counsel may rely, from counsel
satisfactory to Mid-Peninsula, that no registration under the 1933 Act would be
required in connection with the proposed sale, transfer or other disposition.
Date: Signed: /s/
------------------------------ ------------------------------
<PAGE>
MID-PENINSULA AFFILIATE AGREEMENT
I, the undersigned, have been advised that as of the date hereof I may be
deemed to be (but I do not hereby admit to being) an affiliate of Mid-Peninsula
Bancorp ("Mid-Peninsula") for purposes of Rule 145 promulgated by the SEC under
the Securities Act ("Rule 145"). The following undertaking is given pursuant to
and in compliance with that certain Agreement and Plan of Reorganization and
Merger between Mid-Peninsula and Cupertino National Bancorp ("Cupertino") dated
as of June 5, 1996 (the "Reorganization Agreement"), which provides for the
merger of Cupertino with and into Mid-Peninsula (the "Merger") and Mid-Peninsula
will change its name to Greater Bay Bancorp ("Bancorp"). Capitalized terms used
herein and not defined herein shall have the meanings given to them in the
Reorganization Agreement.
I understand that Mid-Peninsula is relying on the performance of the
covenants contained herein to insure that they obtain the desired pooling-of-
interests accounting treatment as a result of the Merger and to avoid any
appearance of improper manipulation of Mid-Peninsula's stock price or insider
trading in the period prior to the Merger.
I hereby agree that during the period beginning on October 15, 1996, (or
such later date as Mid-Peninsula may notify me in writing), and ending on the
date on which the Effective Time of the Merger occurs, which in either event
shall not exceed thirty (30) days prior to the Effective Time of the Merger, I
will not offer to sell or purchase, sell, transfer, purchase or acquire,
publicly or privately, any Mid-Peninsula common stock ("Mid-Peninsula Share" or
"Mid-Peninsula Shares"), or cause any other person to do any of the above,
except my exercise of any stock option pursuant to Mid-Peninsula's stock option
plans.
I hereby also agree that during the period beginning on the date on which
the Effective Time of the Merger occurs and ending on the date of release and
publication to the general public of financial results covering at least thirty
(30) days of post-merger combined operations of Mid-Peninsula and Cupertino, I
will not offer, sell or transfer, publicly or privately, any Mid-Peninsula
Shares or Bancorp Shares, and that I will not during such period commit or agree
to sell any of such Mid-Peninsula Shares or Bancorp Shares after such period.
Date: /s/
------------------------- -------------------------
<PAGE>
EXHIBIT 10.3
THE TRANSFER OF THIS AGREEMENT
SUBJECT TO CERTAIN PROVISIONS CONTAINED
HEREIN AND TO RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND
APPLICABLE STATE SECURITIES LAWS
STOCK OPTION AGREEMENT
This Stock Option Agreement, dated as of June 25, 1996 (the "Agreement"),
is made by and between Cupertino National Bancorp, a California corporation
("Issuer"), and Mid-Peninsula Bancorp, a California corporation ("Grantee").
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Reorganization and Merger dated June 5, 1996 (the "Reorganization Agreement"),
providing for, among other things, the merger of Issuer with and into Grantee
(the "Merger"), with Grantee concurrently changing its name to Greater Bay
Bancorp and being the surviving corporation; and
WHEREAS, as a condition and inducement to Grantee's execution of the
Reorganization Agreement, and in consideration of the grant of the option
granted pursuant to the Stock Option Agreement, dated the date hereof, between
Issuer as grantee and Grantee as issuer (the "Reciprocal Option"), Issuer has
agreed to grant to Grantee the Option (as defined below).
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Reorganization Agreement, and intending to be legally bound hereby, Issuer
and Grantee agree as follows:
1. Defined Terms. Capitalized terms which are used but not defined
-------------
herein shall have the meanings ascribed to such terms in the Reorganization
Agreement. As used in this Agreement, the following terms shall have the
meanings indicated:
(a) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(b) "Federal Reserve Board" means the Board of Governors of the
Federal Reserve System.
<PAGE>
(c) "Holder" means Grantee and, to the extent Grantee has assigned its
rights and obligations under this Agreement as permitted herein, any subsidiary
of Grantee, but only to the extent such entity is the holder of rights afforded
by this Agreement at the time such rights are exercised or otherwise asserted.
(d) "Person" shall have the meaning specified in Sections 3(a)(9) and
13(d)(3) of the Exchange Act and the rules and regulations thereunder.
(e) "Securities Act" means the Securities Act of 1933, as amended.
2. Grant of Option. Subject to the terms and conditions set forth
---------------
herein, Issuer hereby grants to Grantee an irrevocable option (the "Option") to
purchase up to 361,065 shares (the "Option Shares") of Common Stock, no par
value ("Issuer Common Stock"), of Issuer at a purchase price per Option Share of
Fourteen and 80/100 Dollars ($14.80) (the "Purchase Price"). The Purchase Price
and the number of Option Shares that may be received upon the exercise of the
Option are subject to adjustment as set forth below.
3. Exercise of Option.
------------------
(a) The Holder may exercise the Option, in whole or in part, at any
time and from time to time following the occurrence of a Purchase Event (as
defined below); provided that the Option shall terminate and be of no further
force and effect upon the earliest to occur of:
(i) the Effective Time of the Merger; or
(ii) 12 months after the first occurrence of a Purchase Event;
or
(iii) 18 months after the termination of the Reorganization
Agreement on or following the occurrence of a Preliminary Purchase Event (as
defined below); or
(iv) termination of the Reorganization Agreement in accordance
with the terms thereof prior to the occurrence of a Purchase Event or a
Preliminary Purchase Event; or
(v) the date on which the Reciprocal Option shall have become
exercisable, in whole or in part, in accordance with its terms.
Notwithstanding anything to the contrary contained herein, (A) the Option may
not be exercised at any time when Grantee shall be in breach of any of its
covenants or agreements contained in the Reorganization Agreement such that
Issuer shall be entitled (without regard to any grace period provided therein)
to terminate the Reorganization Agreement pursuant to Section 12b(xi) thereof,
whether or not Issuer shall have so terminated the Reorganization Agreement; (B)
this Agreement and the Option shall terminate automatically upon the termination
of the Reorganization Agreement by Issuer pursuant to Section 12b(xi) thereof;
and (C) any purchase of shares upon exercise of the Option shall be subject to
compliance with applicable law, including, without limitation, the Bank Holding
Company Act of 1956, as amended.
2
<PAGE>
(b) As used herein, a "Purchase Event" means any of the following
events:
(i) The Board of Directors of Issuer shall have approved, or
recommended to the Issuer's shareholders that they approve, a proposal received
by Issuer from a person (other than Grantee or any subsidiary of Grantee) to
effect an Acquisition Transaction (as defined below), Tender Offer (as defined
below) or Exchange Offer (as defined below); or
(ii) Issuer, without having received Grantee's prior written
consent, shall have entered into an agreement with any person (other than
Grantee or any subsidiary of Grantee) to effect an Acquisition Transaction; or
(iii) any person (other than Grantee or any subsidiary of
Grantee) shall have acquired beneficial ownership (as such term is defined in
Rule 13d-3 promulgated under the Exchange Act) of or the right to acquire
beneficial ownership of, or any "group" (as such term is defined under the
Exchange Act and the rules and regulations promulgated thereunder) shall have
been formed which beneficially owns or has the right to acquire beneficial
ownership of fifteen percent (15%) or more of the then outstanding shares of
Issuer Common Stock.
As used herein, the term "Acquisition Transaction" shall mean (A) a merger,
consolidation or similar transaction involving Issuer or any of its subsidiaries
(other than internal mergers, reorganizations, consolidations or dissolutions
involving only Issuer and/or existing subsidiaries and other than a merger,
consolidation or similar transaction in which the common shareholders of Issuer
immediately prior thereto in the aggregate own at least seventy-five percent
(75%) of the common stock of the surviving or successor corporation immediately
after the consummation thereof), (B) the disposition, by sale, lease, exchange
or otherwise, of fifteen (15%) or more of the consolidated assets or deposit
liabilities of Issuer and its subsidiaries, or (C) a purchase or other
acquisition (including by way of merger, consolidation, share exchange or any
similar transaction), other than by Issuer or its subsidiaries, of securities
representing fifteen percent (15%) or more of the voting power of Issuer or any
of its subsidiaries.
(c) As used herein, a "Preliminary Purchase Event" means any of the
following events:
(i) any person (other than Grantee or any subsidiary of
Grantee) shall have acquired beneficial ownership of, or the right to acquire
beneficial ownership of, or any "group" (as defined under the Exchange Act and
the rules and regulations thereunder) shall have been formed which beneficially
owns or has the right to acquire beneficial ownership of, ten percent (10%) or
more of the then outstanding shares of Issuer Common Stock; or
3
<PAGE>
(ii) any person (other than Grantee or any subsidiary of
Grantee) shall have commenced (as such term is defined in Rule 14d-2 under the
Exchange Act), or shall have filed a registration statement under the Securities
Act with respect to, a tender offer or exchange offer to purchase any shares of
Issuer Common Stock such that, upon consummation of such offer, such person
would own or control ten percent (10%) or more of the then outstanding shares of
Issuer Common Stock (such an offer being referred to herein as a "Tender Offer"
or an "Exchange Offer", respectively); or
(iii) Issuer, without having received Grantee's prior written
consent, shall have entered into an agreement with any person (other than
Grantee or any subsidiary of Grantee) with respect to, or the Board of Directors
of Issuer shall have recommended that the shareholders of Issuer approve or
accept, a purchase or other acquisition (including by way of merger,
consolidation, share exchange or any similar transaction), other than by Issuer
or its subsidiaries, representing ten percent (10%) or more of the voting power
of Issuer or any of its subsidiaries; or
(iv) any person (other than Grantee or any subsidiary of
Grantee) shall have filed an application or notice with the Federal Reserve
Board or other federal or state regulatory authority, which application or
notice has been accepted for processing, for approval to engage in an
Acquisition Transaction; or
(v) the holders of Issuer Common Stock shall not have approved
the Reorganization Agreement at the meeting of such shareholders held for the
purpose of voting on the Reorganization Agreement, such meeting shall not have
been held or shall have been canceled prior to termination of the Reorganization
Agreement, or Issuer's Board of Directors shall have withdrawn or modified in a
manner adverse to Grantee the recommendation of Issuer's Board of Directors with
respect to the Reorganization Agreement, in each case after it shall have been
publicly announced that any person (other than Grantee or any subsidiary of
Grantee) shall have (A) made or disclosed an intention to make a proposal to
engage in an Acquisition Transaction or (B) commenced a Tender Offer or filed a
registration statement under the Securities Act with respect to an Exchange
Offer.
(d) Issuer shall notify Grantee promptly in writing of the occurrence
of any Purchase Event or Preliminary Purchase Event; provided, however, such
notice shall not be a condition to the right of the Holder to exercise the
Option.
(e) In the event Holder wishes to exercise the Option, it shall send
to Issuer a written notice (dated the date on which it is sent to Issuer, which
date is referred to as the "Notice Date") specifying (i) the total number of
Option Shares it intends to purchase pursuant to such exercise and (ii) a date
not earlier than three (3) business days nor later than fifteen (15) business
days from the Notice Date for the closing (the "Closing") of such purchase (the
"Closing Date"). The Closing shall be held at the Issuer's principal office or
at such other place as Issuer and Holder may agree. If prior notification to or
approval of the Federal Reserve Board or any other regulatory authority is
required as a condition precedent
4
<PAGE>
to such purchase, then (A) Holder shall promptly file and process the required
notice or application for approval; (B) Issuer shall cooperate with Holder in
the filing of the required notice or application for approval and the obtaining
of any such approval; and (C) the Closing Date shall be subject to extension for
such period of time, not to exceed six (6) months, as may be necessary to permit
the Holder to submit such filing to, and, if necessary, to obtain such approval
from, the Federal Reserve Board or other applicable regulatory authority;
provided, however, that the notice of Option exercise and such governmental
filing must be made, and the Notice Date must be, no later than the date on
which the Option would otherwise terminate. Any exercise of the Option shall be
deemed to have occurred on the Notice Date.
4. Payment and Delivery of Certificates.
------------------------------------
(a) On each Closing Date, Holder shall (i) pay to Issuer, in
immediately available funds by wire transfer to a bank account designated by
Issuer, an amount equal to the Purchase Price multiplied by the number of Option
Shares to be purchased on such Closing Date and (ii) present and surrender this
Agreement to the Issuer at the address of the Issuer specified in Section 11(g)
hereof.
(b) At each Closing, simultaneously with the delivery of immediately
available funds and surrender of this Agreement as provided in Section 4(a), (i)
Issuer shall deliver to Holder (A) a certificate or certificates representing
the Option Shares to be purchased at such Closing, which Option Shares shall be
free and clear of all liens, claims, charges and encumbrances of any kind
whatsoever, and (B) if the Option is exercised in part only, an executed new
agreement with the same terms as this Agreement evidencing the right to purchase
the balance of the shares of Issuer Common Stock purchasable hereunder; and (ii)
Holder shall deliver to Issuer a letter agreeing that Holder shall not offer to
sell or otherwise dispose of such Option Shares in violation of the provisions
of this Agreement or applicable state and federal securities laws.
(c) Certificates for the Option Shares delivered at each Closing shall
be endorsed with a restrictive legend which shall read substantially as follows:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR QUALIFIED OR
REGISTERED UNDER THE SECURITIES LAWS OF ANY STATE. THEY MAY NOT BE SOLD OR
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT AND UNTIL THEY HAVE BEEN QUALIFIED OR REGISTERED UNDER APPLICABLE
STATE SECURITIES LAWS, UNLESS THE ISSUER RECEIVES AN OPINION OF COUNSEL FOR
THE HOLDER OF THESE SECURITIES, REASONABLY SATISFACTORY TO THE ISSUER,
STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS. THE TRANSFER OF THE
5
<PAGE>
SECURITIES REPRESENTED BY THIS CERTIFICATE IS ALSO SUBJECT TO RESALE
RESTRICTIONS ARISING UNDER THE TERMS OF A STOCK OPTION AGREEMENT DATED AS
OF JUNE 5, 1996, A COPY OF WHICH IS AVAILABLE FOR INSPECTION AT THE OFFICE
OF THE SECRETARY OF THE ISSUER.
It is understood and agreed that the above legend shall be removed by delivery
of substitute certificate(s) without such legend if Holder shall have delivered
to Issuer a copy of a letter from the staff of the SEC, or an opinion of counsel
in form and substance reasonably satisfactory to Issuer and its counsel, to the
effect that such legend is not required for purposes of the Securities Act or
applicable state securities laws.
5. Representations and Warranties of Issuer. Issuer hereby represents
----------------------------------------
and warrants to Grantee as follows:
(a) Due Authorization. Issuer has all requisite corporate power and
-----------------
authority to enter into this Agreement and, subject to any approvals referred to
herein, to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Issuer. This Agreement has been duly executed and delivered by Issuer.
(b) Authorized Stock. Issuer has taken all necessary corporate action
----------------
to authorize and reserve and to permit it to issue, and, at all times from the
date hereof until the obligation to deliver Issuer Common Stock upon the
exercise of the Option terminates, will have reserved for issuance, upon
exercise of the Option, shares of Issuer Common Stock necessary for Holder to
exercise the Option, and Issuer will take all necessary corporate action to
authorize and reserve for issuance all additional shares of Issuer Common Stock
or other securities which may be issued pursuant to Section 7 upon exercise of
the Option. The shares of Issuer Common Stock to be issued upon due exercise of
the Option, including all additional shares of Issuer Common Stock or other
securities which may be issuable pursuant to Section 7, upon issuance pursuant
hereto, shall be duly and validly issued, fully paid and nonassessable, and
shall be delivered free and clear of all liens, claims, charges and encumbrances
of any kind or nature whatsoever, including any preemptive rights of any
stockholder of Issuer.
6. Representations and Warranties of Grantee. Grantee hereby
-----------------------------------------
represents and warrants to Issuer that:
(a) Due Authorization. Grantee has all requisite corporate power and
-----------------
authority to enter into this Agreement and, subject to any approvals or consents
referred to herein, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly
6
<PAGE>
authorized by all necessary corporate action on the part of Grantee. This
Agreement has been duly executed and delivered by Grantee.
(b) Purchase Not for Distribution. This Option is not being, and any
-----------------------------
Option Shares or other securities acquired by Grantee upon exercise of the
Option will not be, acquired with a view to the public distribution thereof and
will not be transferred or otherwise disposed of except in a transaction
registered or exempt from registration under the Securities Act and applicable
state securities laws.
7. Adjustment Upon Changes in Capitalization, etc.
-----------------------------------------------
(a) In the event of any change in Issuer Common Stock by reason of a
stock dividend, stock split, split-up, recapitalization, combination, exchange
of shares or similar transaction, the type and number of shares or securities
subject to the Option, and the Purchase Price therefor, shall be adjusted
appropriately, and proper provision shall be made in the documentation
pertaining to such transaction so that Holder shall receive, upon exercise of
the Option, the number and class of shares or other securities or property that
Holder would have received in respect of Issuer Common Stock if the Option had
been exercised immediately prior to such event, or the record date therefor, as
applicable. If any additional shares of Issuer Common Stock are issued after
the date of this Agreement (whether upon exercise of stock options or otherwise
but excluding any issuance pursuant to an event described in the first sentence
of this Section 7(a)), the number of shares of Issuer Common Stock subject to
the Option shall be adjusted so that, after such issuance, such number of
shares, together with any shares of Issuer Common Stock previously issued
pursuant hereto, equals nineteen percent (19%) of the number of shares of Issuer
Common Stock then issued and outstanding, without giving effect to any shares
subject to or issued pursuant to the Option (with any fractional share being
rounded up to the next full share). Issuer agrees that in no event shall the
number of shares of Issuer Common Stock issued after the date of this Agreement
pursuant to the preceding sentence, together with the number of shares of Issuer
Common Stock subject to the Option, adjusted as aforesaid, exceed the number of
available authorized but unissued and unreserved shares of Issuer Common Stock.
(b) In the event that Issuer shall, prior to the occurrence of an
event set forth in Section 3(a) terminating the Holder's right to exercise the
Option, enter into an agreement (i) to consolidate with or merge into any
person, other than Grantee or one of its subsidiaries, and shall not be the
continuing or surviving corporation of such consolidation or merger, (ii) to
permit any person, other than Grantee or one of its subsidiaries, to merge into
Issuer and Issuer shall be the continuing or surviving corporation, but, in
connection with such merger, the then outstanding shares of Issuer Common Stock
shall be changed into or exchanged for stock or other securities of Issuer or
any other person or cash or any other property or the outstanding shares of
Issuer Common Stock immediately prior to such merger shall after such merger
represent less than fifty percent (50%) of the outstanding shares and share
equivalents of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its consolidated assets or deposit liabilities to any
person other than
7
<PAGE>
Grantee or one of its subsidiaries, then, and in each such case, the agreement
governing such transaction shall make proper provisions so that the Option
shall, upon the consummation of any such transaction and upon the terms and
conditions set forth herein, be converted into, or exchanged for, an option (the
"Substitute Option"), at the election of Grantee, of either (A) the Acquiring
Corporation (as defined below), or (B) any person that controls the Acquiring
Corporation, (such person being referred to as the "Substitute Option Issuer").
(c) The Substitute Option shall have the same terms as the Option,
provided that if the terms of the Substitute Option cannot, for legal reasons,
be the same as the Option, such terms shall be as similar as possible and in no
event less advantageous to Grantee. The Substitute Option Issuer shall also
enter into an agreement with the then holder or holders of the Substitute Option
in substantially the same form as this Agreement (after giving effect for such
purposes to the provisions of this Agreement), which shall be applicable to the
Substitute Option.
(d) The Substitute Option shall be exercisable for such number of
shares of the Substitute Common Stock (as is hereinafter defined) as is equal to
the Assigned Value (as is hereinafter defined) multiplied by the number of
shares of the Issuer Common Stock for which the Option was theretofore
exercisable, divided by the Average Price (as is hereinafter defined). The
exercise price of the Substitute Option per share of the Substitute Common Stock
(the "Substitute Purchase Price") shall then be equal to the Purchase Price
multiplied by a fraction in which the numerator is the number of shares of the
Issuer Common Stock for which the Option was theretofore exercisable and the
denominator is the number of shares of the Substitute Common Stock for which the
Substitute Option is exercisable.
(e) As used herein, the following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (A) the continuing or
surviving corporation of a consolidation or merger with Issuer (if other than
Issuer), (B) Issuer in a merger in which Issuer is the continuing or surviving
person, and (C) the transferee of all or any substantial part of the Issuer's
assets (or the assets of its subsidiaries).
(ii) "Substitute Common Stock" shall mean the common stock
issued by the Substitute Option Issuer upon exercise of the Substitute Option.
(iii) "Assigned Value" shall mean the highest of (A) the price
per share of the Issuer Common Stock at which a Tender Offer or Exchange Offer
therefor has been made by any person (other than Grantee or a subsidiary of
Grantee), (B) the price per share of the Issuer Common Stock to be paid by any
person (other than Grantee or a subsidiary of Grantee) pursuant to an agreement
with Issuer, and (C) the highest closing price per share of Issuer Common Stock
as quoted on the principal trading market or securities exchange on which such
shares are traded as reported by a recognized source within the six-month period
immediately preceding the effective date of the agreement governing the
transaction described in Section 7(b) which gave rise to the Substitute Option;
provided,
- --------
8
<PAGE>
however, that in the event of a sale of less than all of Issuer's consolidated
- -------
assets or deposit liabilities, the Assigned Value shall be the sum of the price
paid in such sale for such assets or deposit liabilities and the current market
value of the remaining consolidated net assets of Issuer as determined by a
nationally recognized investment banking firm selected by the Holder (or by a
majority in interest of the Holders if there shall be more than one Holder (a
"Holder Majority")) and reasonably acceptable to Issuer, divided by the number
of shares of the Issuer Common Stock outstanding at the time of such sale. In
the event that an exchange offer is made for the Issuer Common Stock or an
agreement is entered into for a merger or consolidation involving consideration
other than cash, the value of the securities or other property issuable or
deliverable in exchange for the Issuer Common Stock shall be determined by a
nationally recognized investment banking firm by Holder (or a Holder Majority)
and reasonably acceptable to Issuer.
(iv) "Average Price" shall mean the average closing price of a
share of the Substitute Common Stock for the one year immediately preceding the
effective date of the consolidation, merger or sale in question, but in no event
higher than the closing price of the shares of the Substitute Common Stock on
the day preceding such consolidation, merger or sale; provided that if Issuer is
the issuer of the Substitute Option, the Average Price shall be computed with
respect to a share of common stock issued by Issuer, the person merging into
Issuer or by any company which controls or is controlled by such merging person,
as Holder may elect.
(f) In no event, pursuant to any of the foregoing paragraphs, shall
the Substitute Option be exercisable for more than nineteen percent (19%) of the
aggregate of the shares of the Substitute Common Stock outstanding prior to
exercise of the Substitute Option (with any fractional share being rounded up to
the next full share).
(g) Issuer shall not enter into any transaction described in
subsection (b) of this Section 7 unless the Acquiring Corporation and any person
that controls the Acquiring Corporation assume in writing all the obligations of
Issuer hereunder and take all other actions that may be necessary so that the
provisions of this Section 7 are given full force and effect (including, without
limitation, any action that may be necessary so that the shares of Substitute
Common Stock are in no way distinguishable from or have lesser economic value
than other shares of common stock issued by the Substitute Option Issuer).
(h) At the written request of Holder delivered to the Substitute
Option Issuer prior to the occurrence of an event set forth in Section 3(a)
above terminating the Substitute Option, the Substitute Option Issuer shall
repurchase from Holder (i) the Substitute Option and/or (ii) all Substitute
Common Stock theretofore purchased by Holder pursuant hereto with respect to
which Holder then has beneficial ownership. The date on which Holder exercises
its rights under this Section 7(h) is referred to as the "Substitute Option
Request Date." Such repurchase shall be at an aggregate price (the "Substitute
Option Repurchase Consideration") equal to the sum of (A) the excess, if any, of
(1) the Highest Closing Price (as defined below) for each share of Substitute
Common Stock over (2) the Substitute
9
<PAGE>
Purchase Price per share of Substitute Common Stock, multiplied by the number of
shares of Substitute Common Stock for which the Substitute Option may then be
exercised and as to which Holder has exercised its repurchase right hereunder,
plus (B) the Highest Closing Price for each share of Substitute Common Stock
multiplied by the number of shares of Substitute Common Stock acquired by Holder
upon exercise of the Option or Substitute Option and as to which Holder has
exercised its repurchase right hereunder. The term "Highest Closing Price" shall
mean the highest bid price per share of Substitute Common Stock as quoted by the
brokerage firms acting as market makers for the Substitute Common Stock prior to
the listing of the Substitute Common Stock on any national securities exchange
and thereafter as reported by the principal trading market or securities
exchange on which such shares are traded, during the sixty (60) business days
preceding the Substitute Option Request Date.
(i) The provisions of Sections 8(b), 8(c), 9 and 10 shall apply, with
appropriate adjustments, to any securities for which the Option becomes
exercisable pursuant to this Section 7 and as applicable, references in such
sections to "Issuer", "Option", "Purchase Price", "Issuer Common Stock",
"Repurchase Consideration", and "Request Date" shall be deemed to be references
to "Substitute Option Issuer", "Substitute Option", "Substitute Purchase Price",
"Substitute Common Stock", "Substitute Option Repurchase Consideration", and
"Substitute Option Request Date", respectively.
8. Repurchase at the Option of Grantee.
-----------------------------------
(a) At any time after the first occurrence of a Repurchase Event (as
defined in Section 8(e) below), at the written request of Holder delivered to
Issuer prior to the occurrence of an event set forth in Section 3(a) above
terminating the Option, Issuer shall repurchase from Holder (i) the Option and
(ii) all Option Shares theretofore purchased by Holder pursuant hereto with
respect to which Holder then has beneficial ownership. The date on which Holder
exercises its rights under this Section 8 is referred to as the "Request Date."
Such repurchase shall be at an aggregate price (the "Repurchase Consideration")
equal to the sum of:
(i) the aggregate Purchase Price paid by Holder for any Option
Shares acquired pursuant to the Option with respect to which Holder then has
beneficial ownership;
(ii) the excess, if any, of (A) the Applicable Price (as defined
below) for each Option Share over (B) the Purchase Price per Option Share
(subject to adjustment pursuant to Section 7(a)), multiplied by the number of
Option Shares with respect to which the Option has not been exercised; and
(iii) the excess, if any, of the Applicable Price over the
Purchase Price (subject to adjustment pursuant to Section 7(a)) paid (or, in the
case of Option Shares with respect to which the Option has been exercised but
the Closing Date has not occurred, payable) by Holder for each Option Share with
respect to which the Option has been
10
<PAGE>
exercised and with respect to which Holder then has beneficial ownership,
multiplied by the number of such shares.
(b) If Holder exercises its rights under this Section 8, Issuer shall,
within ten (10) business days after the Request Date, pay the Repurchase
Consideration to Holder in immediately available funds, and Holder shall
surrender to Issuer the Option and the certificates evidencing the Option Shares
purchased thereunder with respect to which Holder then has beneficial ownership
and has designated to be repurchased, and Holder shall warrant that it has sole
record and beneficial ownership of such shares and that the same are then free
and clear of all liens, claims, charges and encumbrances of any kind whatsoever.
(c) Notwithstanding the provisions hereof to the contrary, to the
extent that Issuer is prohibited under applicable law, regulation or
administrative policy from repurchasing all or any portion of the Option or
Option Shares, then (i) Issuer shall promptly give notice of such fact to
Holder; (ii) Issuer shall, from time to time subject to the last sentence of
this Section 8(c), deliver to Holder that portion of the Repurchase
Consideration that it is not then so prohibited from paying; (iii) at Holder's
request, Issuer shall promptly file any required notice or application for
approval and expeditiously process the same. After Holder's receipt of such
notice from Issuer, Issuer shall not be in breach of its repurchase obligation
hereunder to the extent it is or remains, despite reasonable efforts to obtain
any required approvals, legally prohibited from repurchasing the Option or
Option Shares. Holder shall have the right (A) to revoke its request for
repurchase with respect to the portion of the Option or Option Shares that
Issuer is prohibited from repurchasing, (B) to require Issuer to deliver to
Holder the Option and/or Option Shares Issuer is prohibited from repurchasing,
and (C) to exercise the Option as to the number of Option Shares for which the
Option was exercisable at the Request Date less the number of such Option Shares
in respect of which the Repurchase Consideration has been lawfully paid.
Notwithstanding anything herein to the contrary, Issuer shall not be obligated
to repurchase all or any part of the Option or Option Shares pursuant to more
than one written request from Holder, except that Issuer shall be obligated to
repurchase, pursuant to more than one written request, any Option or Option
Shares in the event that Holder (1) has revoked its request for repurchase in
accordance with the provisions of this Section 8 prior to the occurrence of an
event set forth in Section 3(a) terminating the Holder's right to exercise the
Option and (2) has delivered, prior to such event, a new written notice
requesting a repurchase. If an event set forth in Section 3(a) terminating the
Holder's right to exercise the Option occurs prior to, or is scheduled to occur
within, sixty (60) days after the date of the notice by Issuer described in
clause 8(c)(i) above, then, notwithstanding the occurrence of such terminating
event, Holder shall have the right to receive the Repurchase Consideration to
the extent Issuer is or becomes, within a sixty (60) day period from the date of
such notice by Issuer, legally permitted to repurchase. Except as set forth in
the preceding sentence, Holder's repurchase rights under this Agreement shall
terminate concurrently with the termination of Holder's right to exercise the
Option, pursuant to Section 3(a).
11
<PAGE>
(d) For purposes of this Agreement, the "Applicable Price" means the
highest of (i) the highest price per share of Issuer Common Stock paid for any
such share by the person or groups described in Section 8(e)(i), (ii) the price
per share of Issuer Common Stock received by holders of Issuer Common Stock in
connection with any merger or other business combination transaction described
in Section 7(b)(i), 7(b)(ii) or 7(b)(iii), or (iii) the highest closing price
per share of Issuer Common Stock as quoted on the principal trading market or
securities exchange on which such shares are traded as reported by a recognized
source during the sixty (60) business days preceding the Request Date; provided,
however, that in the event of a sale of less than all of Issuer's assets, the
Applicable Price shall be the sum of the price paid in such sale for such assets
or deposit liabilities and the current market value of the remaining
consolidated net assets of Issuer as determined by a nationally recognized
investment banking firm selected by Holder (or the Holder Majority) and
reasonably acceptable to Issuer, divided by the number of shares of the Issuer
Common Stock outstanding at the time of such sale. If the consideration to be
offered, paid or received pursuant to either of the foregoing clauses (i) or
(ii) shall be other than in cash, the value of such consideration shall be
determined in good faith by an independent nationally recognized investment
banking firm selected by Holder (or the Holder Majority) and reasonably
acceptable to Issuer, which determination shall be conclusive for all purposes
of this Agreement.
(e) As used herein, a "Repurchase Event" shall occur if (i) any person
(other than Grantee or any subsidiary of Grantee) shall have acquired beneficial
ownership of (as such term is defined in Rule 13d-3 promulgated under the
Exchange Act) or the right to acquire beneficial ownership of, or any "group"
(as such term is defined under the Exchange Act and the rules and regulations
promulgated thereunder) shall have been formed which beneficially owns, or has
the right to acquire beneficial ownership of, fifty percent (50%) or more of the
then outstanding shares of Issuer Common Stock or (ii) any of the transactions
described in Section 7(b)(i), 7(b)(ii) or 7(b)(iii) shall be consummated.
9. Listing. If Issuer Common Stock or any other securities to be
-------
acquired upon exercise of the Option are not then authorized for quotation on
the NASDAQ Stock Market National Market System or any securities exchange,
Issuer, upon the request of Holder, will promptly file an application to
authorize for quotation the shares of Issuer Common Stock or other securities to
be acquired upon exercise of the Option on the NASDAQ Stock Market National
Market System or such other securities exchange and will use its best efforts to
obtain approval of such listing as soon as practicable.
10. Division of Option. This Agreement (and the Option granted hereby)
------------------
are exchangeable, without expense, at the option of Holder, upon presentation
and surrender of this Agreement at the principal office of Issuer for other
agreements providing for other options of different denominations entitling the
holder thereof to purchase in the aggregate the same number of shares of Issuer
Common Stock purchasable hereunder. The terms "other agreements" and "other
options" as used in the preceding sentence mean any other agreements and related
options for which this Agreement (and the Option granted hereby) may be
12
<PAGE>
exchanged. Upon receipt by Issuer of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Agreement, and (in the case
of loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Agreement, if mutilated, Issuer will
execute and deliver a new Agreement of like tenor and date. Any such new
Agreement executed and delivered shall constitute an additional contractual
obligation on the part of Issuer, whether or not the Agreement so lost, stolen,
destroyed or mutilated shall at any time be enforceable by anyone.
11. Miscellaneous.
-------------
(a) Expenses. Except as otherwise provided in Section 9, each of the
--------
parties hereto and any Holder shall bear and pay all costs and expenses incurred
by it or on its behalf in connection with the transactions contemplated
hereunder, including, without limitation, fees and expenses of its own financial
consultants, investment bankers, accountants and counsel.
(b) Waiver and Amendment. Any provision of this Agreement may be
--------------------
waived at any time by the party that is entitled to the benefits of such
provision. This Agreement may not be modified, amended, altered or supplemented
except upon the execution and delivery of a written agreement executed by the
parties hereto.
(c) Entire Agreement; No Third-Party Beneficiary. This Agreement,
--------------------------------------------
together with the Reorganization Agreement and the other documents and
instruments referred to herein and therein (i) constitutes the entire agreement
and supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof and (ii) is not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder.
(d) Severability. If any term, provision, covenant or restriction of
------------
this Agreement is held by a court or a federal or state regulatory authority of
competent jurisdiction to be invalid, void or unenforceable, such invalid, void
or unenforceable term, provision, covenant or restriction shall, if it is so
susceptible, be deemed modified to the minimum extent necessary to render the
same valid and enforceable and, in all events, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated.
Without limiting the foregoing, if for any reason such court or regulatory
authority determines that Holder may not legally acquire, or Issuer may not
legally repurchase, the full number of shares of Issuer Common Stock as provided
in Sections 3 and 8 (as adjusted pursuant to Section 7), it is the express
intention of Issuer to allow Holder to acquire or to require Issuer to
repurchase the maximum number of shares as may be legally permissible without
any amendment or modification hereof.
13
<PAGE>
(e) Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the laws of the State of California without regard to any
applicable conflicts of law rules.
(f) Descriptive Headings. The descriptive headings contained herein
--------------------
are for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.
(g) Notices. All notices, requests, claims, demands and other
-------
communications under this Agreement shall be in writing and shall be given (and
shall be deemed to have been duly received if so given) by personal delivery, by
telecopy (provided that copy is concurrently sent by first class U.S. mail,
postage prepaid), or by mail (registered or certified mail, postage prepaid,
return receipt requested) to the parties as follows:
If to Issuer: Cupertino National Bancorp
20230 Stevens Creek Boulevard
Cupertino, CA 95014
Attn: C. Donald Allen, President
Fax No.: 408-996-2465
If to Grantee: Mid-Peninsula Bancorp
420 Cowper Street
Palo Alto, CA 94301-1504
Attn: David L. Kalkbrenner, President
Fax No.: 415-323-7421
or to such other address as a party may have furnished to the others in writing
in accordance with this paragraph, except that notices of change of address
shall only be effective upon receipt. Any notice, demand or other communication
given pursuant to the provisions of this Section 11(g) shall be deemed to have
been given on the date actually delivered or on the third day following the date
mailed, whichever first occurs.
(h) Counterparts. This Agreement and any amendments hereto may be
------------
executed in two counterparts, each of which shall be considered one and the same
agreement and shall become effective when both counterparts have been signed, it
being understood that both parties need not sign the same counterpart.
(i) Assignment. Neither this Agreement nor any of the rights,
----------
interests or obligations hereunder or under the Option shall be assigned by any
of the parties hereto without the prior written consent of the other party,
except that Grantee may assign this Agreement to a wholly-owned subsidiary of
Grantee upon compliance with applicable laws. Subject to the preceding
sentence, this Agreement shall be binding upon, inure to the benefit of, and be
enforceable by the parties and their respective successors and permitted
assigns.
14
<PAGE>
(j) Further Assurances. In the event of any exercise of the Option by
------------------
Holder, Issuer and Holder shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
(k) Specific Performance. The parties hereto agree that this
--------------------
Agreement may be enforced by either party through specific performance,
injunctive relief and other equitable relief. Both parties further agree to
waive any requirement for the securing or posting of any bond in connection with
the obtaining of any such equitable relief and that this provision is without
prejudice to any other rights that the parties hereto may have for any failure
to perform this Agreement.
IN WITNESS WHEREOF, Issuer and Grantee have caused this Stock Option
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the day and year first written above.
CUPERTINO NATIONAL BANCORP MID-PENINSULA BANCORP
By /s/ C. Donald Allen By /s/ David L. Kalkbrenner
-------------------------------- --------------------------------
C. Donald Allen David L. Kalkbrenner
President President
15
<PAGE>
EXHIBIT 10.4
------------
CONFIDENTIAL
------------
[LETTERHEAD OF SUTRO & CO.]
Investment Professionals Since 1858
May 10, 1996
The Board of Directors
Cupertino National Bancorp
20230 Stevens Creek Boulevard
Cupertino, California 95104
Gentlemen:
1. This letter is to confirm our understanding that Cupertino National Bancorp
("Cupertino" or the "Company"), through its Board of Directors, has engaged
Sutro & Co. Incorporated ("Sutro") to render an opinion (the "Opinion") to
the Company and its Board of Directors as to the fairness, from a financial
point of view, of the consideration to be received by the Company and its
shareholders in connection with the proposed merger (the "Transaction")
between Cupertino and Mid-Peninsula Bancorp ("Mid-Peninsula"). The nature
and scope of our assignment as well as the scope, form and substance of our
Opinion shall be such as we consider appropriate and shall include the
following:
(i) review and analyze certain financial statements and other financial
information relating to Cupertino and Mid-Peninsula;
(ii) review and analyze certain operating data concerning Cupertino and
Mid-Peninsula prepared by the management of each bank;
(iii) review and analyze certain financial forecasts and projections for
Cupertino and Mid-Peninsula prepared by management of each bank;
(iv) discuss the past and current operations and financial condition and
the prospects of Cupertino and Mid-Peninsula with management;
(v) compare certain financial data of Cupertino and Mid-Peninsula with
that of various other comparable companies whose securities are
publicly traded; and
(vi) review the financial terms, to the extent publicly available, of
certain comparable transactions.
2. The management of the Company will furnish Sutro with such data, material and
information regarding the business and financial condition of the Company and
Mid-Peninsula (the "Information") as Sutro reasonably believes necessary to
complete the Opinion. The Company recognizes and confirms that in rendering
the Opinion described herein, Sutro (i) will be relying primarily on the
Information and on information available from generally recognized public
sources, without independent verification; and, (ii) does not assume
responsibility for the accuracy or completeness of the Information and such
other information.
3. Sutro agrees to keep any non-public Information confidential so long as it
remains non-public, unless disclosure, in the written opinion of Sutro's
counsel to be delivered to the Company prior to such disclosure, is required
by law and Sutro will not use such information, except in connection with the
assignment herein contemplated.
1
<PAGE>
4. The Opinion rendered by Sutro pursuant to this letter may be included in any
communication by Cupertino to its respective shareholders, provided that
Sutro has a prior opportunity to review and approve any disclosure relating
to the Opinion. In addition, Sutro may not be otherwise publicly referred
to in connection with the proposed Transaction or the Opinion without Sutro's
prior written approval, which will not be unreasonably withheld. Other than
as aforesaid, any advice rendered by us in connection with this engagement
and any material furnished by Sutro to Cupertino and/or the Board of
Directors may not be disclosed publicly in any manner without Sutro's written
approval and will be treated by Cupertino and Sutro as confidential.
Subject to the foregoing, Sutrohereby consents to the use of the Opinion in
a proxy statement in connection with the Transaction or other documents
disseminated to the Company's shareholders in conjunction with the
Transaction.
5. As compensation for the Opinion to be provided pursuant to this letter
agreement, the Company, agrees to pay Sutro the following fees:
a) A non-refundable retainer of $25,000 payable promptly following the
Bank's execution of this letter agreement, plus;
b) A fee of $37,500, payable promptly upon the execution of a definitive
agreement to effect a Transaction, plus;
c) An additional fee of $37,500, payable promptly upon a mailing of a
proxy statement to the Company' shareholders concerning the
Transaction, plus;
d) An additional fee of $75,000, payable promptly upon closing of the
Transaction.
6. In addition to any fees that may be payable to Sutro hereunder and regardless
of whether any transaction contemplated herein is proposed or consummated,
the Company hereby agrees, from time to time upon request to reimburse Sutro
for all reasonable fees and disbursements of Sutro's counsel and all of
Sutro's reasonable travel and other incidental out-of-pocket expenses
incurred prior to any termination of this agreement, in connection with any
actual or proposed transaction or otherwise arising out of Sutro's engagement
hereunder. Such expenses shall not exceed $15,000 for Sutro's counsel and
$25,000 for Sutro's other incidental expenses without prior written approval
of the Company, which approval shall not be unreasonably withheld.
7. Sutro and the Company have entered into a separate letter agreement, dated
the date hereof, providing for the indemnification of Sutro by the Company in
connection with Sutro's engagement hereunder. This letter agreement and the
Indemnification Agreement constitute the entire agreement between us, and it
may not be modified except in writing signed by all parties hereto. This
letter agreement and the Indemnification Agreement constitute the entire
agreement between us and supersede and take precedence over all prior
agreements or understandings whether oral or written, between Sutro and the
Company with respect to the engagement described herein and may only be
modified by written agreement which is signed by both parties. This letter
agreement and the Indemnification Agreement shall be governed by and
construed in accordance with the laws of the State of California. Should
suit be brought to enforce this letter agreement or the Indemnification
Agreement, the prevailing party shall be entitled to recover from the other
reimbursement for reasonable attorney's fees.
8. Sutro's engagement hereunder may be terminated by either the Company or Sutro
at any time, with or without cause, upon 30 days prior written advice to that
effect to the other party; provided, however, that:
--------- -------
(i) if such notice is provided by Sutro, Sutro will be entitled to its
fees earned to the date the notice is provided; and
2
<PAGE>
(ii) if such notice is provided by the Company, Sutro will be entitled to
its fees earned to date and, in the event that at any time prior to
the expiration of one year after such termination a Transaction is
consummated, the remainder of its fees.
The provisions of this Section 8 and Sections 6 and 9 hereof and the letter
agreement referred to in Section 7 hereof shall survive any such termination.
9. The Company expressly acknowledges that, except as otherwise indicated
herein, all opinions and advice (written or oral) given by Sutro to the
Company in connection with Sutro's engagement are intended solely for the
benefit and use of the Company (including management, directors and
attorneys) in considering the transaction to which they relate and the
Company agrees that no such opinion or advice shall be used for any other
purpose or reproduced, disseminated, quoted or referred to at any time, in
any manner or for any purpose. Neither party shall make any public
references to the other, without the prior written consent of such party,
which consent shall not be unreasonably withheld.
10. The Company expressly acknowledge that Sutro has been retained solely as an
advisor to the Company, and not as an advisor to or agent of any other
person, and that the Company's engagement of Sutro is not intended to confer
rights upon any persons not a party hereto (including shareholders,
employees or creditors of the Company) as against Sutro or its affiliates or
their respective directors, officers, agents and employees.
11. Sutro will render such other financial advisory and investment banking
services as may from time to time be agreed upon by Sutro and the Company.
In the event that the Company requests Sutro to provide such services,
Cupertino and Sutro shall enter into a supplemental agreement providing for
such compensation as is reasonable and customary within the industry for
such services, and such supplemental agreement will be subject to the terms
of the Indemnification Agreement.
If this letter accurately sets forth our mutual understanding, please sign this
letter and the attached Indemnification Agreement, date and return the enclosed
copies.
Very truly yours,
SUTRO & CO. INCORPORATED
By: /s/ Scott E. Wendelin
---------------------------
Scott E. Wendelin
Managing Director
Accepted and Agreed to
as of the date written above:
CUPERTINO NATIONAL BANCORP
BOARD OF DIRECTORS
By: /s/ John M. Gatto
---------------------------
John M. Gatto
Chairman of the Board
3
<PAGE>
May 10, 1996
CONFIDENTIAL
------------
Sutro & Co. Incorporated
11150 Santa Monica Boulevard, Suite 1500
Los Angeles, CA 90025
Gentlemen:
In consideration of Sutro's agreement to act on behalf of Cupertino National
Bancorp (the "Company" or "Cupertino"), in connection with the possible
combination, joint venture or other business combination with certain target
Companies or the possible purchase by the Company of all or a significant
portion of the assets or more than 10% of the equity securities of one of the
targets, pursuant to the engagement letter of even date herewith, we hereby
agree to indemnify and hold harmless Sutro, its affiliates, the respective
partners, directors, officers, agents and employees of Sutro and its affiliates
and each person, if any, controlling Sutro or any of its affiliates within the
meaning of either Section 15 of the Securities Act of 1933 or Section 20 of the
Securities Exchange Act of 1934, (Sutro and each such other person are
hereinafter referred to as an "Indemnified Person"), from and against any such
losses, claims, damages, expenses and liabilities (or actions in respect
thereof), joint or several, as they may be incurred (including all legal fees
and other expenses incurred in connection with investigating, preparing,
defending, paying, settling or compromising any claim, action, suit, proceeding,
loss, damage, expense or liability, whether or not in connection with an action
in which any Indemnified Person is a named party) to which any of them may
become subject (including in settlement of any action, suit or proceeding, if
such settlement is effected with the Company's consent, which consent shall not
be unreasonably withheld), and which are related to or arise out of Sutro's
engagement, the transaction contemplated by such engagement or any Indemnified
Person's role in connection therewith, including, but not limited to, any
losses, claims, damages, expenses and liabilities (or actions in respect
thereof) arising out of, based upon or caused by any untrue statement or alleged
untrue statement of a material fact contained in the offering memorandum, or any
amendment or supplement thereto, or in any other document of the Company, or
arising out of, based upon or caused by any omission or alleged omission to
state in any of them a material fact required to be stated therein or necessary
to make the statements in any of them not misleading. The Company will not,
however, be responsible under the foregoing provisions with respect to any loss,
claim, damage, expense or liability to the extent that a court having
jurisdiction shall have determined by a final judgment (not subject to further
appeal) that such loss, claim, damage, expense or liability resulted from
actions taken or omitted to be taken by Sutro due to its gross negligence or
willful misconduct.
If the indemnity referred to above should be, for any reason whatsoever,
unenforceable, unavailable to or otherwise insufficient to hold harmless Sutro
and each Indemnified Person in connection with the transaction, each Indemnified
Person shall be entitled to receive from the Company, and the Company shall pay,
contributions for such losses, claims, damages, liabilities and expenses (or
actions in respect thereof) so that each Indemnified Person ultimately bears
only a portion of such losses, claims, damages, liabilities, expenses and
actions as is appropriate (i) to reflect the relative benefits received by Sutro
on the one hand and the Company on the other hand in connection with the
transaction or (ii) if the allocation on that basis is not permitted by
applicable law, to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of Sutro and the Company in connection
with the actions or omissions to act which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations; provided, however, that in no event shall the aggregate
contribution of all Indemnified Persons to all losses, claims, damages,
liabilities, expenses and actions exceed the amount of the fee actually received
by Sutro pursuant to the engagement letter. The respective relative benefits
received by Sutro and the Company in connection with the transaction shall be
deemed to be in the same proportion as the aggregate fee paid to Sutro in
connection with the transaction bears to the total consideration of the
transaction. The relative fault of Sutro and the Company shall be determined by
reference to, among other
4
<PAGE>
things, whether the actions or omissions to act were
by Sutro or the Company and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action or omission to
act.
The indemnity, contribution and expense payment obligations of the Company
referred to above shall be in addition to any liability which the Company may
otherwise have and shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of any Indemnified
Person and the Company. The Company also agrees that the Indemnified Persons
shall have no liability to the Company or any person asserting claims on behalf
of or in right of the Company for or in connection with any matter referred to
in this letter except to the extent that any such liability results from the
gross negligence or willful misconduct of Sutro in performing the services that
are the subject of this letter and in no event shall such liability exceed the
amount of fees actually received by Sutro hereunder.
Very truly yours,
CUPERTINO NATIONAL BANCORP
By: /s/ John M. Gatto
-------------------------
John M. Gatto
Chairman of the Board
Accepted and Agreed to
as of the date written above:
SUTRO & CO. INCORPORATED
By: /s/ Scott E. Wendelin
-------------------------
Scott E. Wendelin
Managing Director
5
<PAGE>
EXHIBIT 10.5
HOVDE FINANCIAL, INC.
INVESTMENT BANKERS & FINANCIAL ADVISORS
June 5, 1996
Board of Directors
Cupertino National Bancorp
20230 Stevens Creek Boulevard
Cupertino, CA 95014
Gentlemen:
This letter confirms an agreement under which Hovde Financial, Inc.
("Hovde") shall serve as a financial advisor to Cupertino National Bancorp (the
"Company") in connection with the merger of the Company with Mid-Peninsula
Bancorp or a subsidiary thereof ("Mid-Pen"). This confirmation is made pursuant
to the following terms and conditions:
1. Financial Advisory Services. As the Company's financial advisor,
---------------------------
Hovde shall conduct as in-depth review of the contemplated Transaction (as
defined below) with Mid-Pen and advise the Board of Directors of the Company
regarding post-merger cost savings opportunities and revenue enhancements which
can be effected in connection with the contemplated Transaction with Mid-Pen.
Hovde will consult with and advise the Board concerning the content and
presentation of various materials to the shareholders of the Company, including
Mid-Pen's Registration Statement on Form S-4, relating to the Transaction. The
Company agrees that it will make available to Hovde all relevant information,
whether or not publicly available, which Hovde requests, and will make the
Company's management personnel reasonable available to Hovde to discuss the
operations and prospects of the Company. Hovde will treat all non-public
information as confidential. The Company acknowledges that Hovde will rely upon
the accuracy and completeness of all information received from the Company, its
officers, directors, accountants and legal counsel.
2. Fees. Throughout the term of Hovde's engagement by the Company
----
hereunder, the Company agrees to pay Hovde, as compensation for all services to
be performed by Hovde hereunder, the following:
(a) Concurrently with the execution hereof, the Company shall pay
Hovde the sum of $30,000 as a non-refundable retainer (to be applied to any
"Completion Fee"" due to Hovde as provided below).
(b) Upon execution of a definitive agreement under which the Company
is to merge with Mid-Pen (the "Definitive Agreement"), the Company shall pay
Hovde a non-refundable fee (the "Definitive Agreement Fee") equal to twenty five
percent (25%) of the Completion Fee ( as defined in the following paragraph).
The Definitive Agreement will be deemed to be executed upon the execution or
delivery, as the case may be, of all schedules and ancillary agreements called
for in the Definitive Agreement and the satisfaction or waiver thereof of the
conditions related thereto within 20 days from the date of the Definitive
Agreement. The Definitive Agreement Fee will be applied to any Completion Fee
due to Hovde as provided below.
[LETTERHEAD OF HOVDE FINANCIAL, INC.]
<PAGE>
Cupertino National Bancorp
June 5, 1996
Page Two
(c) In the event that a Transaction is consummated, the Company agrees
to pay Hovde a fee (the "Completion Fee") equal to $125,000. The Completion Fee
shall be due and payable upon consummation of the Transaction.
For purposes of this letter agreement, "Transaction" is defined as (i) a
merger, consolidation or reorganization, tax-free or otherwise, involving the
Company and Mid-Pen, (ii) any transaction resulting in the direct or indirect
transfer to Mid-Pen, an affiliate thereof, or a newly-formed entity of all or
substantially all of the assets of and/or securities issued by the Company or an
affiliate thereof, or (iii) any transaction resulting in the direct or indirect
transfer to the Company, an affiliate thereof, or a newly-formed entity of all
or substantially all of the assets of and/or securities issued by Mid-Pen or an
affiliate thereof.
3. Expenses. In addition to any fees that may be payable to Hovde
--------
hereunder, the Company hereby agrees from time to time upon Hovde's written
request, to reimburse Hovde for all reasonable travel, legal and other out-of-
pocket expenses incurred in performing the services hereunder; provided,
however, that such expenses shall not exceed $5,000 in the aggregate without the
Company's prior written consent. Such expenses shall be reimbursed to Hovde
within 30 days of the Company's receipt of a written request therefore.
4. Indemnification and Contribution. The Company agrees to indemnify
--------------------------------
Hovde (including its affiliated entities and its officers, directors, agents,
employees and controlling persons) to the full extent provided by law against
any claims, losses and expenses as incurred (including expenses of investigation
and preparation and reasonable fees and disbursements of Hovde's and such
persons' counsel) arising our of any Transaction or Hovde's engagement
hereunder. However, such indemnification and contribution shall not apply to
any claim, loss or expense which arises from Hovde's negligence or willful
misconduct in performing its services hereunder. If such indemnification were
for any reason not to be available with respect to any matter (other than by
reason of the provision in the immediately preceding sentence), the Company and
Hovde agree to contribute to the settlement, loss, liability or expense for
which indemnification or reimbursement is not available in such proportion so as
to reflect the relative benefits to the Company, on the one hand, and to Hovde,
on the other hand, the relevant fault of each of the Company and Hovde, and any
other relevant equitable considerations. It is agreed that the appropriate
measure of the relative benefits shall be determined on the basis of the
proportion that Hovde's fees payable hereunder bears to the Purchase Price
payable, in each case, in the actual or a proposed Transaction.
Both Hovde and the Company agree that any suit or other action necessary to
enforce the obligations of this letter agreement shall be instituted in the
courts of the State of California, and that the substantially non-prevailing
party, its successors or assigns shall pay to the substantially prevailing
party, its successors or assigns, any counsel or attorneys' fees incurred as a
result of the institution of such suit or action. The indemnity and contribution
provided herein shall remain operative and in full force and effect regardless
of any termination or expiration of this letter agreement or Hovde's engagement
hereunder or the completion of any Transaction.
<PAGE>
Cupertino National Bancorp
June 5, 1996
Page Three
5. Term of Agreement. This letter agreement shall commence upon the
-----------------
Company's execution hereof and will remain in effect for six (6) full calendar
months, and thereafter shall be automatically extended monthly until terminated
by either party, unless earlier terminated upon 30 days' written notice from one
party to the other party. Should a Transaction involving the Company and Mid-Pen
occur within 18 months from the termination date of this letter agreement, the
Company shall pay Hovde the fees set forth in Section 2. Moreover, the
termination of this letter agreement will not relieve the Company of its
obligation to reimburse Hovde for its expenses as set forth in Section 3. In the
event Hovde must file a lawsuit to collect any outstanding fees, out-of-pocket
expenses, or other expenses due from the Company, the Company agrees to pay all
reasonable costs and attorneys' fees for such action. Any and all fees, out-of-
pocket expenses or other expenses due from the Company to Hovde hereunder shall
be paid within 30 days after the Company's receipt of an invoice regarding same;
in the event such payments are not made within such 30-day period, all overdue
amounts outstanding shall accrue interest thereon at a rate of one and one-half
percent (1 1/2%) per month.
6. Entire Agreement. This letter agreement contains the entire agreement
----------------
between the parties hereto with respect to the subject matter hereof, and all
prior negotiations, agreements and understandings are merged herein. This letter
agreement may not be modified or rescinded except pursuant to a written
instrument signed by the party against whom enforcement is sought.
7. Severability. If any provisions of this letter agreement shall be
------------
determined by any court of competent jurisdiction to be invalid and
unenforceable to any extent, the remainder of this letter agreement, other than
those provisions which have been so determined invalid or unenforceable to any
such extent, shall not be affected thereby, and each provision hereof shall be
valid and shall be enforced to the fullest extent permitted by law.
8. Governing Law. The laws of the State of California shall govern the
-------------
validity, performance and enforcement of this letter agreement.
<PAGE>
Cupertino National Bancorp
June 5, 1996
Page Four
If the foregoing correctly sets forth our mutual understanding, please
indicate the Company's acceptance hereof by signing and returning the original
copy of this letter agreement, together with a check in the amount of $30,000
payable to Hovde Financial, Inc. to the undersigned.
Sincerely,
HOVDE FINANCIAL, INC.
By: /s/ Eugene S. Weil
-----------------------------
Eugene S. Weil
Vice President
Accepted and Agreed to this 6th day of
June, 1996
CUPERTINO NATIONAL BANCORP
By: /s/ John Gatto
----------------------
John Gatto
Chairman
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<PAGE>
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