<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15 (d) of the Securities
- --------- 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
Exchange Act of 1934
For the transition period from to
------------ ------------
Commission file number 0-25034
------------------------------------
MID-PENINSULA BANCORP
----------------------------------------------------
Exact name of registrant as specified in its charter
California 77-0387041
- -------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
420 Cowper Street, Palo Alto, CA 94301
--------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 323-5150
-----------------
None
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the registrant's classes
of common stock as of the latest practicable date.
Class Shares Outstanding at July 30, 1996
------------ -----------------------------------
Common Stock 1,635,843
The Index to Exhibits is located at page 22.
Page 1 of 69 Pages
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
MID-PENINSULA BANCORP AND SUBSIDIARY
Consolidated Condensed Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
Assets: June 30, 1996 December 31, 1995
- ------ ------------- -----------------
(unaudited) (audited)
<S> <C> <C>
Cash and due from banks $ 12,024 $ 13,304
Federal funds sold 36,400 15,700
Investment Securities:
Available-for-sale, at fair value 47,855 58,533
Held-to-maturity, at amortized cost 2,397 857
(fair value of $2,412,000 &
$838,000 in 1996 and 1995
respectively)
Federal reserve bank stock 430 430
Loans:
Commercial 107,107 92,971
Real estate - construction 15,117 8,783
Real estate - other 26,197 24,296
Less deferred loan fees (454) (448)
-------- --------
Total loans 147,967 125,602
Less allowance for possible
loan losses (1,933) (1,716)
-------- --------
Net loans 146,034 123,886
Premises and equipment, net 1,026 995
Accrued interest and other assets 5,246 5,030
-------- --------
Total Assets $251,412 $218,735
-------- --------
-------- --------
Liabilities and Shareholders' Equity
- ------------------------------------
Deposits:
Demand, noninterest-bearing $ 41,764 $ 37,077
Demand, interest-bearing 10,214 11,926
Savings and money market 117,090 102,124
Time certificates, $100,000 and over 49,079 36,682
Other time certificates 8,987 7,886
-------- --------
Total deposits 227,134 195,695
Accrued interest and other liabilities 1,480 1,600
-------- --------
Total liabilities 228,614 197,295
Shareholders' equity:
Common stock, no par value -
6,000,000 shares authorized;
1,628,343 and 1,571,757 shares
issued and outstanding in 1996
& 1995, respectively 15,966 15,425
Unrealized loss on securities
available-for-sale, net (897) (626)
Retained earnings 7,729 6,641
-------- --------
Total Shareholders' equity 22,798 21,440
-------- --------
Total Liabilities and Shareholders'
equity $251,412 $218,735
-------- --------
-------- --------
</TABLE>
Page 2 of 69 Pages
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MID-PENINSULA BANCORP AND SUBSIDIARY
Consolidated Condensed Statements of Income
(unaudited)
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30 June 30 June 30
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income:
Loans (including fees) $ 3,622 $ 3,081 $ 7,041 $ 5,981
Investment securities 630 813 1,382 1,359
Federal funds sold 424 351 709 799
---------- ---------- ---------- ----------
Total interest income 4,676 4,245 9,132 8,139
Interest expense:
Demand, interest-bearing 54 56 106 108
Savings and money market 1,048 1,023 2,075 1,999
Time certificates, $100,000 and over 540 460 1,013 819
Other time certificates 114 92 226 178
---------- ---------- ---------- ----------
Total interest expense 1,756 1,631 3,420 3,104
---------- ---------- ---------- ----------
Net interest income 2,920 2,614 5,712 5,035
Provision for possible loan losses 100 80 220 155
---------- ---------- ---------- ----------
Net interest income after provision for
possible loan losses 2,820 2,534 5,492 4,880
Noninterest income 97 147 279 242
Noninterest expenses:
Salaries and employee benefits 978 854 1,932 1,681
Occupancy and equipment 288 241 572 467
Other 307 456 608 826
---------- ---------- ---------- ----------
Total noninterest expense 1,573 1,551 3,112 2,974
---------- ---------- ---------- ----------
Income before income taxes 1,344 1,130 2,659 2,148
Income taxes 550 453 1,088 847
---------- ---------- ---------- ----------
Net income $ 794 $ 677 $ 1,571 $ 1,301
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average common share
Equivalents outstanding 1,620,865 1,540,762 1,629,992 1,537,216
Earnings per weighted average share $0.49 $0.44 $0.96 $0.85
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
Page 3 of 69 Pages
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<TABLE>
<CAPTION>
MID-PENINSULA BANCORP AND SUBSIDIARY
Consolidated Condensed Statements of Cash Flows
(unaudited)
(in thousands)
Six Months Ended
June 30 June 30
1996 1995
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,571 $ 1,301
Adjustments to reconcile net income to net cash
provided by operating activities -
Loss (gain) on sale of securities 97 (3)
Provision for possible loan losses 220 155
Depreciation and amortization 160 142
Increase in interest receivable 93 (114)
Increase in other assets (293) (205)
Increase(decrease) in deferred tax benefit 58 140
Increase(decrease) in deferred loan fees 6 (108)
Decrease in other liabilities (120) (235)
Amortization of Premium - Securities (88) (78)
------- -------
Net cash provided from operating activities 1,704 995
------- -------
Cash flows from investing activities:
Net increase in loans (22,368) (5,897)
Purchases of available-for-sale securities (11,414) 1,447
Purchases of held-to-maturity securities (1,540) (25,482)
Principal payments on available-for-sale securities 25 26
Sales of available-for-sale securities 5,490 -
Maturities/calls of available-for-sale securities 16,045 -
Maturities/calls of held-to-maturity securities - 1,000
Additional investment in other real estate owned - (476)
Purchase of life insurance policy (297) (2,235)
Capital expenditures, net (191) (97)
------- -------
Net cash used by investing activities (14,250) (31,714)
------- -------
Cash Flows from financing activities:
Net increase in deposits 31,526 20,814
Dividends paid (640) (306)
Stock options exercised 1,080 21
------- -------
Net cash provided by (used) by financing activities 31,966 20,529
------- -------
Net increase in cash and equivalents 19,420 (10,190)
Cash and cash equivalents at beginning of period 29,004 35,196
------- -------
Cash and cash equivalents at end of period $48,424 $25,006
------- -------
------- -------
Supplemental disclosures:
Income taxes paid $ 760 $ 1,135
Interest paid $ 3,420 $ 3,130
</TABLE>
Page 4 of 69 Pages
<PAGE>
MID-PENINSULA BANCORP AND SUBSIDIARY
Notes to Consolidated Condensed Financial Statements
June 30, 1996
(unaudited)
Note 1 DESCRIPTION OF BUSINESS
Mid-Peninsula Bancorp is a California corporation organized in 1984
under the name San Mateo County Bancorp ("San Mateo") to act as the
bank holding company of San Mateo County National Bank which
subsequently changed its name to WestCal National Bank ("WestCal")
in 1991. In 1994, WestCal was merged with and into Mid-Peninsula
Bank, a California state licensed bank organized in 1987 (the
"Bank") in a transaction in which the Bank survived and became the
wholly-owned subsidiary of San Mateo, and San Mateo concurrently
changed its name to Mid-Peninsula Bancorp (the "Company").
The headquarters of the Company and the Bank is located in Palo
Alto, California and the Bank conducts its banking business through
its offices in Palo Alto, San Mateo and San Carlos, California.
Other than holding the shares of the Bank, the Company conducts no
significant activities, although it is authorized, with the prior
approval of the Board of Governors of the Federal Reserve System
(the "Board of Governors"), the Company's principal regulator, to
engage in a variety of activities which are deemed closely related
to the business of banking.
The Bank engages in general commercial banking emphasizing small
and medium-sized businesses, and professionals located in its
market area in and adjacent to the San Francisco Peninsula from Los
Altos and Mountain View on the South to Daly City on the North and
offers a full range of commercial banking services, including the
acceptance of demand, savings and time deposits, and the making of
commercial loans, including short-term loans for businesses and
professionals, personal loans, and real estate secured loans, which
generally do not include long-term mortgage loans. The Bank offers
traveler's checks, safe deposit boxes, notary public, customer
courier and other customary bank services. The Bank is a member of
the STAR System ATM network and, through this system, offers ATM
access at numerous locations.
Note 2 BASIS OF PRESENTATION
In the opinion of the Company, the unaudited condensed consolidated
financial statements, prepared on the accrual basis of accounting,
contain all adjustments (consisting of only normal recurring
adjustments) which are necessary to present fairly the financial
position of the Company and subsidiary at June 30, 1996 and
December 31, 1995, and the results of its operations for the
quarter and year-to-date periods ended June 30, 1996 and 1995.
Page 5 of 69 Pages
<PAGE>
Certain information and footnote disclosures normally presented in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. The results of operations
for the quarter and year-to-date periods ended June 30, 1996 are
not necessarily indicative of the operating results for the full
year ending December 31, 1996.
Note 3 CONSOLIDATION
The accompanying consolidated condensed financial statements
include the accounts of the Company and its wholly owned
subsidiary, Mid-Peninsula Bank. All material intercompany accounts
and transactions have been eliminated in consolidation.
Note 4 PER SHARE DATA
Earnings per common share are calculated by dividing net income by
the weighted average shares of common stock outstanding during the
year plus the effect, when dilutive, of stock options. The weighted
average shares outstanding for the quarters ended June 30, 1996 and
1995 were 1,620,865 and 1,524,806 respectively.
Note 5 RECLASSIFICATIONS
Certain amounts in the accompanying 1995 consolidated condensed
financial statements have been reclassified to conform with the
1996 consolidated condensed financial statements presentation.
Note 6 CASH DIVIDEND
The company paid a quarterly cash dividend of $0.15 per share on
July 12, 1996 to shareholders of record on June 28, 1996.
Page 6 of 69 Pages
<PAGE>
ITEM 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
MID-PENINSULA BANCORP AND SUBSIDIARY
OVERVIEW OF CHANGES IN THE FINANCIAL STATEMENTS
Total assets were $251,412,000 at June 30, 1996, an increase of $32,677,000
or 15% over total assets of $218,735,000 at December 31, 1995. From December
31, 1995 to June 30, 1996, total loans increased $22,365,000 (18%),
held-to-maturity securities increased $1,540,000 (180%), available-for-sale
securities decreased $10,678,000 (18%), federal funds sold increased
$20,700,000 (132%), while cash, premises and other assets had a net decrease
of $1,033,000 (5%). The substantial decrease in investment securities was
due in part to the increase in total loans and the increase of federal funds
sold. The increase in asset size was funded primarily from a $31,439,000
(16%) increase in deposits, a $1,358,000 (6%) increase in shareholders'
equity, offset by a $120,000 (8%) decrease in other liabilities. The Bank's
loan to deposit ratio increased from 64.18% at December 31, 1995 to 65.15% at
June 30, 1996.
LOANS
Total outstanding commercial loans were $107,107,000 at June 30, 1996
compared to $92,971,000 at December 31, 1995, an increase of $14,136,000
(15%). Real estate construction loans increased $6,334,000 (72%) to
$15,117,000 at June 30, 1996 compared to $8,783,000 at December 31, 1995,
while other real estate loans increased $1,901,000 (8%) to $26,197,000 at
June 30, 1996 compared to $24,296,000 at December 31, 1995. The Company lends
primarily to small and medium-sized businesses within its market area which
is the San Francisco Peninsula limited by Mountain View to the south and Daly
City to the north. The majority of the Company's loan portfolio consists of
unsecured loans and real estate loans to small to medium sized businesses.
The Company follows the policy of discontinuing the accrual of interest
income and reversing any accrued and unpaid interest when the payment of
principal or interest is 90 days past due, unless the loan is both
well-secured and in the process of collection.
Management generally places loans on nonaccrual status when they become 90
days past due, unless the loan is well secured and in the process of
collection. Loans are charged off when, in the opinion of management,
collection appears unlikely. At June 30, 1996, the Company had no
non-accrual loans, the same as at December 31, 1995. The Company had no
loans that were 90 or more days past due at the close of either period. The
ratio of non-performing loans to total loans was 0.00% at June 30, 1996, the
same as at December 31, 1995. The Company had no troubled debt or
restructured loans, potential problem loans or loan concentrations at June
30, 1996 and December 31, 1995.
Inherent in the lending function is the fact that loan losses will be
experienced and that the risk of loss will vary with the type of loan
extended and the creditworthiness of the borrower. To reflect the estimated
risks of loss associated with its loan portfolio, additions were made to the
Company's allowance for possible loan losses. As an integral part of this
process, the allowance for possible loan losses is subject to review and
possible adjustment as a result of regulatory examinations conducted by
governmental agencies and through management assessments of risk. The
Company's
Page 7 of 69 Pages
<PAGE>
entire allowance is a valuation allocation; that is, it has been created by
direct charges against operations through the provision for possible loan
losses, modified by loan charge-offs and loan recoveries.
The provision for possible loan losses charged against operations is based
upon the actual net loan losses incurred plus an amount for other factors,
which in management's judgment deserve recognition in estimating possible
loan losses. The Company evaluates the adequacy of its allowance for
possible loan losses on an ongoing basis. Periodically, the Company has
contracted with outsiders to perform an independent loan review. Both
internal and external evaluations take into account the following: specific
loan conditions as determined by management, the historical relationship
between charge-offs and the level of the allowance, the estimated future loss
in all significant loans, known deterioration in concentrations of credit,
certain classes of loans or pledged collateral, historical loss experience
based on volume and types of loans, the results of any independent review or
evaluation of the loan portfolio quality conducted by or at the direction of
Company management or by the bank regulatory agencies, trends in
delinquencies and non-accruals, lending policies and procedures including
those for charge-off, collection and recovery, national and local economic
conditions and their effect on specific local industries, and the experience,
ability and depth of lending management and staff. These factors are
essentially judgmental and may not be reduced to a mathematical formula.
The ratio of the allowance for possible loan losses to total loans was 1.31%
at June 30, 1996 compared to 1.37% at December 31, 1995. The Company provided
an additional $220,000 during the first half of 1996 as an additional hedge
against possible loan losses in a larger loan portfolio. There were $3,000
in charge-offs during the period. The Company evaluates the allowance for
possible loan losses based upon an analysis of specific categories of loans.
The adequacy of the allowance is determinable only on an approximate basis
since estimates as to the magnitude and timing of loan losses are not
predictable because of the impact of external events. Management then
considers the adequacy of the allowance for possible loan losses in relation
to the total loan portfolio. Management believes that the allowance for
credit losses at June 30, 1996 is adequate, based on information currently
available. However, no prediction of the ultimate level of loan charge-offs
in future periods can be made with any certainty.
LIQUIDITY MANAGEMENT
Liquidity represents the ability of the Company to meet the requirements of
customer borrowing needs as well as fluctuations in deposit flows. Core
deposits, which include demand, interest-bearing demand, savings, money
market, and time certificates of deposit under $100,000, provide a relatively
stable funding base. Core deposits represented 78% of total deposits at June
30, 1996 compared to 81% of total deposits at year-end 1995. The Company's
principal sources of asset liquidity are cash and due from banks, federal
funds sold, and unpledged available-for-sale investment securities. At June
30, 1996, these sources totaled $90,279,000 or 39.75% of total deposits
compared to $80,032,000 or 40.90% at year-end 1995. In the opinion of
management, there are sufficient resources to meet the liquidity needs of the
Company at present and foreseeable future levels.
Page 8 of 69 Pages
<PAGE>
INTEREST RATE SENSITIVITY
The Company defines interest rate sensitivity as the measure of the
relationship between market interest rates and net interest income due to
repricing characteristics of assets, liabilities and off-balance sheet
instruments. Generally, if assets and liabilities do not reprice at the same
time and in equal volumes, the potential for exposure to interest rate
fluctuations exists. In order to maximize the net yield on earning assets
and maintain the interest rate spread during periods of fluctuating interest
rates, management monitors the repricing period of interest earning assets as
compared with interest bearing liabilities. The difference between the
amount of assets and liabilities that reprice in any given time period is
referred to as the interest rate sensitivity gap. While the Company attempts
to manage its exposure to interest rate sensitivity, due to its size and
direct competition from the major banks, it must offer products which are
competitive in the market place, even if they are less than optimum with
respect to the Bank's interest rate exposure.
The following table sets forth the distribution of repricing opportunities of
the Bank's earning assets and interest bearing liabilities as of June 30,
1996, the interest rate sensitivity gap (i.e., interest rate sensitive assets
less interest rate sensitive liabilities), the cumulative interest rate gap,
the interest rate gap (i.e., interest rate sensitive assets divided by
interest rate sensitive liabilities) and the cumulative interest rate gap
ratio. The table sets forth the time periods during which earning assets and
interest-bearing liabilities will mature or may reprice in accordance with
their contractual terms. However, the table does not necessarily indicate the
impact of general interest rate movement on the net interest margin since the
repricing of various categories of assets and liabilities indicated as
repricing within the same period may in fact reprice at different times
within such periods and at different rates.
REPRICING PERIODS
<TABLE>
<CAPTION>
ONE 2-180 181-365 > 1 YEAR OVER NON-RATE
(Dollars in thousands) DAY DAYS DAYS TO 5 YEARS 5 YEARS SENSITIVE TOTAL
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
RATE SENSITIVE ASSETS:
FEDERAL FUNDS SOLD $ 36,400 - - - - 36,400
AVAILABLE-FOR-SALE INV. 12,118 2,043 5,837 19,213 8,644 - 47,855
HELD-TO-MATURITY INV. - - 853 541 1,003 - 2,397
OTHER INVESTMENTS - - - - 430 - 430
LOANS 130,092 6,310 2,731 8,137 184 967 148,421
LOAN LOSS/UNEARNED FEES - - - - - (2,387) (2,387)
CASH AND DUE FROM BANKS - - - - - 12,024 12,024
OTHER ASSETS - - - - - 6,272 6,272
- -----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $178,610 8,353 9,421 27,891 10,261 16,876 251,412
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
RATE SENSITIVE LIABILITIES AND
EQUITY:
DEPOSITS
DEMAND $ - - - - - 41,764 41,764
INTEREST CHECKING 10,214 - - - - - 10,214
MMDA AND SAVINGS 117,090 - - - - - 117,090
TIME DEPOSITS
> $100 MILLION - 42,290 6,689 100 - - 49,079
< $100 MILLION - 6,438 2,302 247 - - 8,987
OTHER LIABILITIES - - - - - 1,480 1,480
SHAREHOLDERS' EQUITY - - - - - 22,798 22,798
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY $127,304 48,728 8,991 347 - 66,042 251,412
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
GAP $ 51,306 (40,375) 430 27,544 10,261 (49,166) -
CUMULATIVE GAP 51,306 10,931 11,361 38,905 49,166 - -
CUMULATIVE GAP/TOTAL ASSETS 20.41% 4.35% 4.52% 15.47% 19.56% - -
</TABLE>
Page 9 of 69 Pages
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CAPITAL RESOURCES
Capital management is a continuous process of providing adequate capital for
current needs and anticipated future growth. Capital serves as a source of
funds for the acquisition of fixed and other assets and protects depositors
against potential losses. As the Company's assets increase, so do its capital
requirements.
The Board of Governors and the FDIC have adopted risk-based capital
guidelines for evaluating the capital adequacy of bank holding companies and
banks. The guidelines are designed to make capital requirements sensitive to
differences in risk profiles among banking organizations, to take into
account off-balance sheet exposures and to aid in making the definition of
bank capital uniform internationally. Under the guidelines, the Company and
the Bank are required to maintain capital equal to at least 8.00% of assets
and commitments to extend credit weighted by risk, of which at least 4.00%
must consist primarily of common equity (including retained earnings) and the
remainder may consist of subordinated debt, cumulative preferred stock or a
limited amount of loan loss reserves.
The Board of Governors also adopted a 3.00% minimum leverage ratio for
banking organizations as a supplement to the risk-weighted capital
guidelines. The leverage ratio is generally calculated using Tier 1 capital
(as defined under risk-based capital guidelines) divided by quarterly average
net total assets (excluding intangible assets and certain other adjustments).
The leverage ratio establishes a limit on the ability of banking
organizations, including the Company and the Bank, to increase assets and
liabilities without increasing capital proportionately.
The Board of Governors emphasized that the leverage ratio constitutes a
minimum requirement for well-run banking organizations having diversified
risk, including no undue interest rate risk exposure, excellent asset
quality, high liquidity, good earnings and a composite rating of 1 under the
regulatory rating system for banks and 1 under the regulatory rating system
for bank holding companies. Banking organizations experiencing or
anticipating significant growth, as well as those organizations which do not
exhibit the characteristics of a strong well-run banking organization
described above, will be required to maintain minimum capital ranging
generally from 100 to 200 basis points in excess of the leverage ratio. The
FDIC adopted a substantially similar leverage ratio for state non-member
banks.
On December 19, 1991, the President signed the Federal Deposit Insurance
Corporation Improvement Act of 1991 (FDICIA). The FDICIA, among other
matters, substantially revises banking regulations and establishes a
framework for determination of capital adequacy of financial institutions.
Under the FDlCIA, financial institutions are placed into one of five capital
adequacy categories as follows: (1) Well Capitalized, consisting of
institutions with a total risk-based capital ratio of 10.00% or greater, a
Tier 1 risk-based capital ratio of 6.00% or greater and a leverage ratio of
5.00% or greater, and the institution is not subject to an order, written
agreement, capital directive or prompt corrective action directive; (2)
Adequately Capitalized, consisting of institutions with a total risk-based
capital ratio of 8.00% or greater, a Tier 1 risk-based capital ratio of 4.00%
or greater and a leverage ratio of 4.00% or greater, and the institution does
not meet the definition of a well capitalized institution; (3)
Undercapitalized, consisting of institutions with a total risk-based capital
ratio of less than 8.00%, a Tier 1 risk-based capital ratio of less that
4.00% or a leverage ratio of less than 4.00%; (4) Significantly
Undercapitalized, consisting of institutions with a total risk-based capital
ratio of less than 6.00%, a Tier 1 risk-based capital ratio of less than
3.00% or a
Page 10 of 69 Pages
<PAGE>
leverage ratio of less than 3.00%; (5) Critically Undercapitalized,
consisting of an institution with a ratio off tangible equity to total assets
that is equal to or less than 2.00%.
Financial institutions classified as undercapitalized or below are subject to
various limitations including, among other matters, certain supervisory
actions by bank regulatory authorities and restrictions related to (i) growth
of assets, (ii) payment of interest on subordinated indebtedness, (iii)
payment of dividends or other capital distribution, and (iv) payment of
management fees to a parent holding company. The FDICIA requires the bank
regulatory authorities to initiate corrective action regarding financial
institutions which fail to meet minimum capital requirements. Such action may
result in orders to, among other matters, augment capital and reduce total
assets. Critically undercapitalized financial institutions may also be
subject to appointment of a receiver or conservator unless the financial
institution submits an adequate capitalization plan.
The following table sets forth the Company's risk-weighted and leverage
capital ratios as of June 30, 1996 and December 31, 1995. As indicated in
the table, the Company's capital ratios significantly exceeded the minimum
capital levels required by current federal regulations.
Risk Based Capital Ratio
(unaudited)
June 30, 1996 December 31, 1995
--------------- -----------------
Ratios (dollars in thousands) Amount Ratio Amount Ratio
- -----------------------------------------------------------------------------
Tier 1 capital $ 22,784 12.15% $ 21,440 14.36%
Tier 1 capital minimum requirement $ 7,499 4.00% $ 5,971 4.00%
Total capital $ 24,717 13.18% $ 23,156 15.51%
Total capital minimum requirement $ 14,999 8.00% $ 11,944 8.00%
Total risk based assets $187,492 $149,296
Leverage Capital Ratio
(unaudited)
June 30, 1996 December 31, 1995
--------------- -----------------
Ratios (dollars in thousands) Amount Ratio Amount Ratio
- -----------------------------------------------------------------------------
Tier 1 capital to adjusted total assets $ 22,784 9.97% $ 21,440 9.76%
Quarterly average total assets $228,568 $219,783
Page 11 of 69 Pages
<PAGE>
INFLATION
The impact of inflation on a financial institution differs significantly from
that exerted on manufacturing, or other commercial concerns, primarily
because its assets and liabilities are largely monetary. In general,
inflation primarily affects the Company indirectly through its effect on
market rates of interest, and thus the ability of the Bank to attract loan
customers. Inflation affects the growth of total assets by increasing the
level of loan demand, and potentially adversely affects the Company's capital
adequacy because loan growth in inflationary periods can increase at rates
higher than the rate that capital grows through retention of earnings which
the Company may generate in the future. In addition to its effects on
interest rates, inflation directly affects the Company by increasing the
Company's operating expenses. The effect of inflation upon the Company's
results of operations was not material for the periods covered by this report.
MERGER
Mid-Peninsula Bancorp and 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 with and
into Mid-Peninsula Bancorp and Mid-Peninsula Bancorp will change its name to
Greater Bay Bancorp. Mid-Peninsula Bank and Cupertino National Bank & Trust
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 .81522 of a share of Mid-Peninsula Bancorp common
stock for each share of Cupertino National Bancorp common stock 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 Mid-Peninsula Bancorp and five from Cupertino National Bancorp, with
Duncan L. Matteson (Chairman of Mid-Peninsula Bancorp) and John M. Gatto
(Chairman of Cupertino National Bancorp) serving as co-Chairmen. 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 Mid-Peninsula Bank, and C. Donald Allen will remain as Chairman and Chief
Executive Officer of Cupertino National Bank & Trust. Steven C. Smith, the
Chief Operating Officer of Cupertino National Bancorp, will serve as Chief
Operating Officer and Chief Financial Officer of Greater Bay Bancorp.
In connection with the Agreement, Mid-Peninsula Bancorp and Cupertino
National 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.
Page 12 of 69 Pages
<PAGE>
RESULTS OF OPERATIONS
Three months Ended June 30, 1996
Compared with the
Three months Ended June 30, 1995
Net income of $794,000 for the three months ended June 30, 1996 increased
$117,000 or 17% as compared to the $677,000 earned for the same period ended
June 30, 1995. The increase in net income for the period was primarily due to
an increase in net interest income that was higher than the increases noted
in the provision for possible loan losses and operating expenses aided by an
increase in non-interest income.
Net interest income for June 30, 1996 was $2,920,000, compared to $2,614,000
for the same period ended June 30, 1995, an increase of $306,000 or 12%. Net
interest income depends primarily on the volume of interest-earning assets
and interest-bearing liabilities in relation to the net interest spread (the
difference between the yield earned on the Company's interest-earning assets
and the interest rate paid on the Company's interest-bearing liabilities) as
well as the relative balances of interest-earning assets and interest-bearing
liabilities. The smaller the level of interest-earning assets when compared
to the level of interest-bearing liabilities, the greater the interest rate
spread must be in order to achieve positive net interest income. For the
three months ended June 30, 1996, the Company had $221,874,000 of average
interest-earning assets compared to $189,217,000 for the same period ended
June 30, 1995, an increase of $32,657,000 or 17%. The Company's yield on
interest-earning assets for the three months ended June 30, 1996 decreased to
8.56% compared to 8.97% during the comparable period in 1995. The decrease in
earnings yield reflects the highly competitive nature of the Bank's market as
well as declines in interest rates in the Federal funds and securities
markets. Interest income increased $431,000 or 10% for the three months ended
June 30, 1996 compared to the same 1995 period due to the increase in average
interest-earning assets offset by the decline in earning asset yields.
Average deposits for the Company for the three months ended June 30, 1996
were $211,649,000, a $31,404,000 or 17% increase compared to the quarter
ended June 30, 1995. The Company's average cost of funds for the period ended
June 30, 1996 was 3.32% which yielded a net spread of 4.51%. This compares to
an average cost of funds of 3.62% and a net spread of 4.74% for the
comparable 1995 period. Interest expense of $1,756,000 for the three months
ended June 30, 1996 was $125,000 or 8% more than the comparable 1995 period.
Net interest income for the period ended June 30, 1996 increased $306,000 or
12% to $2,920,000 and resulted from increased levels of earning assets at
higher earning asset yields and deposits at moderately increased levels of
interest-bearing expense rates.
Page 13 of 69 Pages
<PAGE>
The following table presents, for the periods indicated, the Company's total
dollar amount of interest income, on a tax equivalent basis, from average
interest-earning assets and the resultant yields, as well as the interest
expense of average interest-bearing liabilities and the resultant costs,
expressed both in dollars and rates. The table also sets forth the net
interest income and the net average earning balances for the periods
indicated.
AVERAGE BALANCE SHEET
MID-PENINSULA BANCORP AND SUBSIDIARY
Average Balance Sheet
Three Months ended June 30
(unaudited)
<TABLE>
<CAPTION>
(in thousands, except percentages) 1996 1995
- -----------------------------------------------------------------------------------------
Average Average Average Average
Balance Interest Rate(1) Balance Interest Rate (1)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Loans $143,125 $3,622(2) 10.12% $112,767 $3,081(2) 10.93%
Taxable investments 34,105 493 5.78% 45,405 709 6.25%
Non-taxable investments 11,915 208 6.98% 7,589 104 5.48%
Fed funds sold and other 32,729 424 5.18% 23,456 351 5.99%
-------- ------- ------ --------- ------- ------
Total earning assets 221,874 $4,747 8.56% 189,217 $4,245 8.97%
Cash and due from banks 10,103 7,412
Premises and equipment, net 899 931
Other assets (3) 3,254 2,455
-------- --------
Total assets $236,130 $200,015
-------- --------
-------- --------
Liabilities and Shareholders'
Equity:
Deposits:
Demand with interest $ 11,711 $ 54 1.84% $ 11,588 $ 56 1.93%
Savings and money market 111,093 1,048 3.77% 97,835 1,023 4.18%
Time deposits GREATER THAN
$100,000 41,717 540 5.18% 37,241 460 4.94%
Other time deposits 8,922 114 5.11% 7,270 92 5.06%
-------- ------- ------ --------- ------- ------
Total interest-bearing deposits 173,443 1,756 3.32% 153,934 1,631 3.62%
------- -------
Non-interest deposits 38,206 26,311
Other liabilities 2,031 1,145
-------- --------
Total liabilities 213,680 181,390
Shareholders' equity 22,450 18,625
-------- --------
Total liabilities and equity $236,130 $200,015
-------- --------
-------- --------
Net interest spread 4.51% 4.73%
Net interest income
and margin $2,991 5.39% $2,614 5.53%
- -----------------------------------------------------------------------------------------
</TABLE>
(1) Annualized
(2) Loan interest income includes fee income of $187,000 and $156,000 for
the quarters ended June 30, 1996 and 1995, respectively
(3) Includes the average allowances for loan losses of $1,875,000 and
$1,536,000 and average deferred loan fees of $428,000 and $341,000
for the quarters ended June 30, 1996 and 1995, respectively
The Company provided $100,000 to the allowance for possible loan losses for
the three months ended June 30, 1996 compared to $80,000 for the comparable
period in 1995. This modest addition to the allowance recognizes the
improvement of the local economy, resulting in a lower level of classified
loans and charge-offs.
Net charge-offs were $3,000 for the three months ended June 30, 1996 ,
compared to net recoveries of $2,000 in the three month period ending June
30, 1995.
Page 14 of 69 Pages
<PAGE>
Non-interest income was $97,000 during the period ending June 30, 1996
compared to $147,000 during the comparable period in 1995 due primarily to an
investment loss.
Salaries and benefits expense for the three months ended June 30, 1996 was
$978,000, a $124,000 or 15% increase over the comparable period in 1995.
This increase includes normal cost of living increases and selective
additions to staff to take advantage of a larger, more complex market area
and service organization.
Other non-interest expenses including occupancy expense were $595,000 for the
period ended June 30, 1996 compared to $697,000 for the same period in 1995,
a $102,000 or 15% decrease due primarily to decreased FDIC insurance premiums.
Applicable income taxes of $550,000 for the three months ended June 30, 1996
were $97,000 or 21% higher than for the comparable 1995 period. The Company's
effective tax rate for the three months ending June 30, 1996 was 41% compared
to 40% for the comparable period in 1995.
Page 15 of 69 Pages
<PAGE>
RESULTS OF OPERATIONS
Six months Ended June 30, 1996
Compared with the
Six months Ended June 30, 1995
Net income of $1,571,000 for the six months ended June 30, 1996 increased
$270,000 or 21% as compared to the $1,301,000 earned for the same period
ended June 30, 1995. The increase in net income for the period was primarily
due to an increase in net interest income that was higher than the increases
noted in the provision for possible loan losses and operating expenses aided
by an increase in non-interest income.
Net interest income for the six months ended June 30, 1996 was $5,712,000,
compared to $5,035,000 for the same period ended June 30, 1995, an increase
of $677,000 or 13%. Net interest income depends primarily on the volume of
interest-earning assets and interest-bearing liabilities in relation to the
net interest spread (the difference between the yield earned on the Company's
interest-earning assets and the interest rate paid on the Company's
interest-bearing liabilities) as well as the relative balances of
interest-earning assets and interest-bearing liabilities. The smaller the
level of interest-earning assets when compared to the level of
interest-bearing liabilities, the greater the interest rate spread must be in
order to achieve positive net interest income. For the six months ended June
30, 1996, the Company had $214,574,000 of average interest-earning assets
compared to $184,192,000 for the same period ended June 30, 1995, an increase
of $30,382,000 or 16%. The Company's yield on interest-earning assets for
the six months ended June 30, 1996 decreased to 8.65% compared to 8.84%
during the comparable period in 1995. The decrease in earnings yield reflects
the highly competitive nature of the Bank's market as well as declines in
interest rates in the Federal funds and securities markets. Interest income
increased $993,000 or 12% for the six months ended June 30, 1996 compared to
the same 1995 period due to the increase in interest earning assets offset
by the decline in earning asset yields.
Average deposits for the Company for the six months ended June 30, 1996 were
$204,318,000, a $29,649,000 or 17% increase compared to the period ended June
30, 1995. The Company's average cost of funds for the period ended June 30,
1996 was 3.35% which yielded a net spread of 4.59%. This compares to an
average cost of funds of 3.55% and a net spread of 4.63% for the comparable
1995 period. Interest expense of $3,420,000 for the six months ended June 30,
1996 was $316,000 or 10% more than the comparable 1995 period. Net interest
income for the period ended June 30, 1996 increased $677,000 or 13% to
$5,712,000 and resulted from increased levels of earning assets at higher
earning asset yields and deposits at moderately increased levels of
interest-bearing expense rates.
Page 16 of 69 Pages
<PAGE>
The following table presents, for the periods indicated, the Company's total
dollar amount of interest income, on a tax equivalent basis, from average
interest-earning assets and the resultant yields, as well as the interest
expense of average interest-bearing liabilities and the resultant costs,
expressed both in dollars and rates. The table also sets forth the net
interest income and the net average earning balances for the periods
indicated.
AVERAGE BALANCE SHEET
MID-PENINSULA BANCORP AND SUBSIDIARY
Average Balance Sheet
Six Months ended June 30
(unaudited)
<TABLE>
<CAPTION>
(in thousands, except percentages) 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
Average Average Average Average
Balance Interest Rate (1) Balance Interest Rate (1)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Loans $137,555 $7,041(2) 10.24% $111,100 $5,981(2) 10.77%
Taxable investments 36,646 1,088 5.94% 38,868 1,176 6.05%
Non-taxable investments 12,003 445 7.41% 6,578 183 5.56%
Fed funds sold and other 28,370 709 5.00% 27,646 799 5.78%
-------- ------ ------ ------- ----- ------
Total earning assets 214,574 $9,283 8.65% 184,192 $8,139 8.84%
Cash and due from banks 9,830 7,470
Premises and equipment, net 909 924
Other assets(3) 3,255 1,522
-------- -------
Total assets $228,568 $194,108
-------- --------
-------- --------
Liabilities and Shareholders'
Equity:
Deposits:
Demand with interest $11,438 $ 106 1.85% $ 10,814 $ 108 2.00%
Savings and money market 109,397 2,075 3.79% 95,609 1,999 4.18%
Time deposits GREATER THAN
$100,000 38,930 1,013 5.20% 33,755 819 4.85%
Other time deposits 8,753 226 5.16% 7,365 178 4.83%
------- ------- ------ -------- -------
Total interest-bearing deposits 168,518 3,420 4.06% 147,543 3,104 4.21%
------- -------
Non-interest deposits 35,800 27,126
Other liabilities 2,106 1,033
------- --------
Total liabilities 206,424 175,702
Shareholders' equity 22,144 18,406
------- --------
Total liabilities and equity $228,568 $194,108
-------- --------
-------- --------
Net interest spread 4.59% 4.63%
Net interest income
and margin $5,863 5.46% $ 5,035 5.47%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Annualized
(2) Loan interest income includes fee income of $381,000 and $303,000 for six
months ended June 30, 1996 and 1995, respectively
(3) Includes the average allowances for loan losses of $1,819,000 and
$1,484,000 and average deferred loan fees of $466,000 and $365,000 for
the six months ended June 30, 1996 and 1995, respectively
The Company provided $220,000 to the allowance for possible loan losses for
the six months ended June 30, 1996 compared to $155,000 for the comparable
period in 1995. This modest addition to the allowance recognizes the
improvement of the local economy, resulting in a lower level of classified
loans and charge-offs.
Net charge-offs were $3,000 for the six months ended June 30, 1996, compared
to $3,000 net recoveries in the six month period ending June 30, 1995.
Page 17 of 69 Pages
<PAGE>
Non-interest income was $279,000 during the period ending June 30, 1996
compared to $242,000 during the comparable period in 1995 due primarily to an
increase in service charge income.
Salaries and benefits expense for the six months ended June 30, 1996 was
$1,932,000, a $251,000 or 15% increase over the comparable period in 1995.
This increase includes normal cost of living increases and selective
additions to staff to take advantage of a larger, more complex market area
and service organization.
Other non-interest expenses including occupancy expense were $1,180,000 for
the period ended June 30, 1996 compared to $1,293,000 for the same period in
1995 a $113,000 or 9% decrease due primarily to decreased regulatory expense.
Applicable income taxes of $1,088,000 for the six months ended June 30, 1996
were $241,000 or 28% higher than for the comparable 1995 period. The
Company's effective tax rate for the six months ending June 30, 1996 was 41%
compared to 39% for the comparable period in 1995.
Page 18 of 69 Pages
<PAGE>
PART II-OTHER INFORMATION
Item 4 - Submission of Matters to a vote of Security Holders
The annual meeting of the Shareholders of Mid-Peninsula Bancorp was held
on May 22, 1996 at 5:00 p.m. in the lobby of Mid-Peninsula Bank.
There were 1,258,538 shares equaling 79% of the outstanding shares
represented at the meeting.
The following 15 incumbent Directors were reelected as Directors, in
each case by vote of a majority of the votes cast in the election of
directors and there were no nominees in opposition:
Lawrence A. Aufmuth Helen C. Leong
John F Blokker George M. Marcus
Allan F. Brown Duncan L. Matteson
Owen D. Conley Donald H. Seiler
Murray B. Dey Warren R. Thoits
Donald L Hammond Bruce E. Van Alstyne
David L. Kalkbrenner Edwin E. van Bronkhorst
R. Hewlett Lee
Page 19 of 69 Pages
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
(a) (2.1) Amended and Restated Agreement and Plan of
Reorganization andMerger dated June 26, 1996,
incorporated by reference from Exhibit 2.1 of
Registrant's report on Form 8-K filed with the
Commission on July 12, 1996.
(3.1) Articles of Incorporation, as amended, incorporated by
reference from Exhibit 3.1 of Registrant's annual
Report on Form 10-K for the year ended December 31,
1994, filed with the Commission on March 30, 1995.
(3.2) Bylaws, as amended, incorporated by reference from
Exhibit 3.2 to Registration Statement No. 33-79798
on Form S-4, filed with the Commission on June 6, 1994.
(10.1) Shareholder Agreement pursuant to Amended and Restated
Agreement and Plan of Reorganization and Merger dated
June 26, 1996.
(10.2) Form of Affiliate Agreement pursuant to Amended and
Restated Agreement and Plan of Reorganization and
Merger dated June 26, 1996.
(10.3) Stock Option Agreements pursuant to Amended and
Restated Agreement and Plan of Reorganization and
Merger dated June 26, 1996.
(10.4) Alex Brown & Sons, Inc. Agreement dated May 28, 1996.
(27.1) Financial Data Schedule
(99.1) Press Release dated June 19, 1996, incorporated by
reference from Exhibit 99.1 of Registrant's report on
Form 8-K, filed with the Commission on July 12, 1996.
(b) Form 8-K dated May 22, 1996, filed with the Commission on
June 3, 1996.
Page 20 of 69 Pages
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto authorized.
MID-PENINSULA BANCORP
July 31, 1996 By: /s/ DAVID L. KALKBRENNER
-----------------------------
President and
Chief Executive Officer
(Principal Executive Officer)
July 31, 1996
By: /s/ CAROL H. ROWLAND
-----------------------------
Carol H. Rowland
First Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Page 21 of 69 Pages
<PAGE>
EXHIBIT INDEX
SEQUENTIAL
PAGE
EXHIBIT NO: DESCRIPTION NUMBER
- ----------- ----------- ----------
10.1 Shareholder Agreement dated pursuant
to Amended and Restated Agreement and
Plan of Reorganization and Merger dated
June 26, 1996. 23 - 28
10.2 Form of Affiliate Agreement pursuant to
Amended and Restated Agreement and
Plan of Reorganization and Merger
dated June 26, 1996. Agreement
and Plan of Reorganization and Merger
dated June 26, 1996. 29
10.3 Stock Option Agreements pursuant to
Amended and Restated Agreement and
Plan of Reorganization and Merger
dated June 26, 1996. 30 - 59
10.4 Alex Brown and Sons, Inc Agreement dated
May 28, 1996. 60 - 68
27.1 Financial Data Schedule 69
Page 22 of 69 Pages
<PAGE>
EXHIBIT 10.1
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 "Mid-Peninsula Shareholder" and collectively
referred to as the "Mid-Peninsula 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-Peninsula 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-Peninsula 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
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 Mid-Peninsula common stock
("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
Page 23 of 69 Pages
<PAGE>
terms of the Merger and any other matter contemplated by the
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,
2
Page 24 of 69 Pages
<PAGE>
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
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:
3
Page 25 of 69 Pages
<PAGE>
(a) If to Mid-Peninsula Bancorporation:
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, duties and obligations of the parties hereto may not be assigned
or delegated by any party hereto without the prior written
4
Page 26 of 69 Pages
<PAGE>
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 Cupertino and the
Mid-Peninsula 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 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
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<PAGE>
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:___________________________
C. Donald Allen, President
MID-PENINSULA SHAREHOLDERS
/s/ Duncan L. Matteson
________________________________ __________________________________
Duncan L. Matteson Owen D. Conley
/s/ Donald L. Hammond
________________________________ __________________________________
Edwin E. van Bronkhorst Donald L. Hammond
/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
________________________________ __________________________________
Murray B. Dey George M. Marcus
/s/ Lawrence A. Aufmuth
________________________________ __________________________________
Lawrence A. Aufmuth Donald H. Seiler
________________________________ __________________________________
John F. Blokker Bruce E. Van Alstyne
/s/ Allan F. Brown /s/ Carol H. Rowland
________________________________ __________________________________
Allan F. Brown Carol H. Rowland
6
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<PAGE>
EXHIBIT 10.2
FORM OF 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 Cupertino common stock ("Cupertino Share" or
"Cupertino 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: ____________________ _________________________________
Page 29 of 69 Pages
<PAGE>
EXHIBIT 10.3
THE TRANSFER OF THIS AGREEMENT IS
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 Mid-Peninsula Bancorp, a California
corporation ("Issuer"), and Cupertino National 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 Grantee with
and into Issuer (the "Merger"), with Issuer 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.
(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.
Page 30 of 69 Pages
<PAGE>
(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 307,504 shares (the "Option Shares") of Common Stock, no
par value ("Issuer Common Stock"), of Issuer at a purchase price per Option
Share of Twenty and 45/100ths Dollars ($20.45) (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(vii) 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(vii) 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.
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<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
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<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
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<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
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<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
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<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
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<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 bid price per share
of Issuer Common Stock as quoted by the brokerage firms acting as market
makers for Issuer's Common Stock prior to the listing of Issuer's Common
Stock on the NASDAQ National Market System and thereafter, on the NASDAQ
Stock Market or other principal trading market or securities exchange on
which such shares are traded as reported by a
8
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<PAGE>
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, 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
determined as described above prior to and following the listing of Issuer's
common stock on the NASDAQ National Market System 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
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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 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
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10
<PAGE>
(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 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
11
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<PAGE>
terminate concurrently with the termination of Holder's right to exercise the
Option, pursuant to Section 3(a).
(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 bid price per share of Issuer Common Stock as quoted by the brokerage
firms acting as market makers for Issuer's Common Stock prior to the listing
of Issuer's Common Stock on the NASDAQ National Market System and thereafter
on the NASDAQ Stock Market or other 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 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
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<PAGE>
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 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
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<PAGE>
to repurchase the maximum number of shares as may be legally permissible
without any amendment or modification hereof.
(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.
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<PAGE>
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.
(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-------------------- By-------------------------------
C. Donald Allen David L. Kalkbrenner
President President
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<PAGE>
THE TRANSFER OF THIS AGREEMENT IS
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.
(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.
Page 45 of 69 Pages
<PAGE>
(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.
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<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
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<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
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<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
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<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
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<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
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<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,
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<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
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<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 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
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<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
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(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
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<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
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<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.
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<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-------------------- By-----------------------------
C. Donald Allen David L. Kalkbrenner
President President
15
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<PAGE>
EXHIBIT 10.4
[LETTERHEAD]
PERSONAL AND CONFIDENTIAL
May 28, 1996
Mid-Peninsula Bancorp
420 Cowper Street
Palo Alto, CA 94301
Attention: Mr. David L. Kalkbrenner
President & Chief Executive Officer
Dear David:
1. This letter is to confirm our understanding that Mid-Peninsula Bancorp
("Mid-Peninsula" or the "Company") or any successor corporation has
retained Alex. Brown & Sons Incorporated ("Alex. Brown") to act as
Mid-Peninsula's financial advisor and to assist Mid-Peninsula in
assessing the impact of, and the opportunities created by, the changing
environment among financial institutions. In this capacity, Alex. Brown
will provide financial advice to you as you deem necessary and analyze
alternative strategies, including acquisitions, mergers or other forms
of business combinations involving Mid-Peninsula. Specifically, Alex.
Brown will render the following general advisory services to the
Company:
- Evaluation and complete financial analysis of acquisition
opportunities including, but not limited to, acquisitions of commercial
banks, thrift institutions, individual branches and non-depository
institutions.
- Development of an acquisition strategy for Mid-Peninsula, including
assistance on such matters as the development of approach tactics to
each target institution, valuation, pro forma financial modeling and
analysis, negotiations, reviewing the financing alternatives for each
transaction and assistance in the handling of investor relations.
- A full review of Mid-Peninsula's takeover defense posture, including
an analysis of the Company's existing defensive measures and
recommendation of additional actions if required. A detailed review
of the overall merger and acquisition
Page 60 of 69 Pages
<PAGE>
Mid-Peninsula Bancorp
May 28, 1996
Page 2
environment would also be presented with a particular emphasis
on (i) the strategies of the active acquirers within Mid-Peninsula's
trade area (ii) unsolicited offers for control; and (iii) the
actions undertaken unilaterally by shareholders to disrupt the
implementation of corporate strategy.
- Active takeover defense assistance and strategic advice to Mid-
Peninsula in the event of an unsolicited offer for control or
accumulation of stock by an individual shareholder or shareholders
acting as a group.
- A detailed review of Mid-Peninsula. This would cover the
following:
- Historical financial performance evaluated against a relevant
peer group of independent bank institutions;
- Analysis of Mid-Peninsula's projections and their impact on
shareholder value;
- Identification and analysis of the Company's shareholders; and
- Review and analysis of the historical trading patterns of the
common stock.
- Any additional financial analyses or advice as requested from time to
time by Mid-Peninsula.
- Presentations to the Board of Directors of the Company on any of the
topics listed above as requested by management.
2. For serving in the above capacity, Alex. Brown would receive a $25,000
retainer and be reimbursed for its out-of-pocket expenses applicable to
the undertaking, including reasonable legal fees if appropriate.
3. When requested by Mid-Peninsula, Alex. Brown would provide financial and
strategic analysis of and advice with respect to specific transactions
which, if consummated, would result in Mid-Peninsula acquiring, being
acquired by or otherwise combining with another entity. Specifically, with
respect to any particular transaction, Alex. Brown would as requested:
(a) Render financial and strategic advice as it bears upon the
valuation of any potential transaction;
(b) Advise you as to the most appropriate form, consistent with law,
accounting and business practice, for a proposed transaction;
Page 61 of 69 Pages
<PAGE>
Mid-Peninsula Bancorp
May 28, 1996
Page 3
(c) Act as your agent and financial advisor in the negotiating process,
working with you and your legal counsel and accountants. As your
agent, Alex. Brown will engage in discussions on your behalf with
other entities or their representatives only when authorized by
you to do so; and
(d) Render our opinion as to the fairness, from a financial point of
view, of the terms of a transaction to Mid-Peninsula shareholders.
4. Our fee for assisting you in connection with specific transactions would
be agreed between us in the context of a particular transaction. Among
the factors to be considered would be:
(a) The scope and nature of our involvement;
(b) The complexity of the transaction;
(c) Whether we are requested to render a fairness opinion; and
(d) Customary investment banking fees for transactions of comparable
size.
In addition, we understand that we may be asked to provide our opinions
and advice on smaller transactions that Mid-Peninsula may from time to
time consider; such advice will be provided at no additional fee.
5. INDEMNIFICATION AND CONTRIBUTION. In consideration of our services as
the Company's financial advisor hereunder, the Company agrees to
indemnify and hold harmless Alex. Brown and each of its directors,
officers, agents, employees and controlling persons (within the meaning
of the Securities Act of 1933, as amended) to the extent and as provided
in Addendum A attached hereto and incorporated herein by reference. The
provisions of this paragraph and Addendum A incorporated herein by
reference shall be effective as of the date hereof, and shall continue
in full force and effect until the termination of this agreement and,
thereafter, shall survive the termination of Alex. Brown's engagement
under this agreement and shall be binding upon any successors or assigns
of the Company.
6. This agreement shall have an initial term extending until December
31, 1997, unless terminated prior thereto by the Company. Thereafter,
this agreement shall renew automatically from year-to-year upon the same
terms and conditions set forth herein until terminated in writing by
either Alex. Brown or Mid-Peninsula.
Page 62 of 69 Pages
<PAGE>
Mid-Peninsula Bancorp
May 28, 1996
Page 4
If the foregoing letter correctly sets forth the terms of Alex. Brown's
engagement, please sign and return to us the enclosed duplicate hereof.
Very Truly Yours,
ALEX. BROWN & SONS INCORPORATED
By: /s/ Jean-Luc Servat
----------------------------------
Jean-Luc Servat
Managing Director
Accepted and Agreed:
MID-PENINSULA BANCORP
By: /s/ David L. Kalkbrenner
-----------------------------------
David L. Kalkbrenner
President & Chief Executive Officer
Page 63 of 69 Pages
<PAGE>
ADDENDUM A
In connection with our engagement described in the foregoing letter
dated May 28, 1996, (the "Letter") to which this Addendum A is attached, the
Company (as defined in the Letter) agrees to indemnify and hold harmless
Alex. Brown & Sons Incorporated ("Alex. Brown") and each of its directors,
officers, agents, employees and controlling persons (within the meaning of
the Securities Act of 1933, as amended) from and against any losses, claims,
damages or liabilities (or actions or proceedings in respect thereof)
(collectively "Liabilities") related to or arising out of this engagement,
and will reimburse Alex. Brown and each other person indemnified hereunder
for all reasonable legal and other expenses as incurred in connection with
defending any such Liabilities, whether or not Alex. Brown or any of its
directors, officers, agents, employees and controlling persons is a named
party thereto; provided, however, that the Company will not be liable in any
such case (except cases arising out of the use of information provided by the
Company with knowledge of its falsity) for Liabilities that a court of
competent jurisdiction shall have found in a final judgment to have arisen
primarily from the gross negligence, willful misconduct or bad faith of Alex.
Brown or the party claiming a right to indemnification.
In case any proceeding shall be instituted involving any person in
respect of whom indemnity may be sought, such person (the "indemnified
party") shall promptly notify the Company and the Company, upon request of
the indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
Company may designate in such proceeding and shall pay, as they are incurred,
the fees and expenses of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel at its own expense, except that the Company shall pay as incurred the
reasonable fees and expenses of counsel retained by the indemnified party in
the event that (i) the Company and the indemnified party shall have mutually
agreed to the retention of such counsel or, (ii) the named parties to any
such proceeding (including any impleaded parties) include both the Company
and the indemnified party and representation of both parties by the same
counsel would be inappropriate, in the reasonable opinion of the indemnified
party, due to actual or potential differing interests between them.
The Company shall not be liable for any settlement of any action or
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the Company agrees
to indemnify the indemnified parties to the extent set forth in this Addendum
A. In addition, the Company will not, without the prior written consent of
Alex. Brown, which shall not be unreasonably withheld, settle or compromise
or consent to the entry of any judgment in any pending or threatened claim,
action, suit or proceeding in respect of which indemnification may be sought
hereunder (whether or not Alex. Brown or any indemnified party is an actual
or potential party to such claim, action, suit or proceeding) unless such
settlement, compromise or consent includes an unconditional release of Alex.
Brown and each other indemnified party hereunder from all liability arising
out of such claim, action, suit or proceeding.
Page 64 of 69 Pages
<PAGE>
In the event that a party is not entitled to indemnification hereunder
because a court of competent jurisdiction has found the relevant Liability
has arisen primarily from the gross negligence, willful misconduct or bad
faith of Alex. Brown or such party, then Alex. Brown or such party shall
reimburse to the Company all sums previously advanced hereunder.
In the event a claim for indemnification under this Addendum A is
determined to be unenforceable by a final judgment of a court of competent
jurisdiction, then the Company shall contribute to the aggregate losses,
claims, damages or liabilities to which Alex. Brown or its officers,
directors, agents, employees or controlling persons may be subject in such
amount as is appropriate to reflect the relative benefits received by each of
the Company and the parties seeking contribution on the one hand, and the
relative faults of the Company and the party seeking contribution on the
other, as well as any other relevant equitable considerations.
This indemnification shall apply to the original engagement as set forth
in the Letter and any modification of the original engagement and the
indemnification provided herein shall survive termination of our engagement
and shall be binding upon any successors or assigns of the Company.
Acknowledged and Agreed:
MID-PENINSULA BANCORP
By: /s/ David L. Kalkbrenner
-------------------------------
Date: May 28, 1996
--------------------------------
JLS:cd
Page 65 of 69 Pages
<PAGE>
[LETTERHEAD]
May 28, 1996
ADDENDUM B
This Addendum B reflects qualifications relating to Sections 3(d) and 4 of
the engagement agreement between Alex. Brown & Sons Incorporated ("Alex.
Brown") and Mid-Peninsula Bancorp ("Mid-Peninsula" or the "Company") dated
May 28, 1996.
This Addendum B is to confirm our understanding of the basis upon which Alex.
Brown is being engaged to provide investment banking advice and services to
Mid-Peninsula in connection with the proposed merger of equals (the
"Transaction") by and between the Company and Cupertino National Bancorp
("Cupertino").
1. Alex. Brown will be engaged, as your sole and exclusive financial
advisor, to perform the following functions:
(a) Analyze, with the Company's management and Board of Directors,
the terms of any definitive acquisition agreement (the "Agreement")
entered into by and between the Company and Cupertino.
(b) Render our opinion (the "Opinion") as to the fairness, from a
financial point of view to the Company's shareholders, of the
Conversion Ratio (as defined in the Agreement) on the date of the
execution of the Agreement, update such opinion as required at or near
the time of distribution of proxy materials by the Company and
bring-down such opinion as required at or near the time of closing of
the Transaction. The nature and scope of the investigation which we
would conduct in order to be able to render our opinion will be
such as we would consider appropriate, and such opinion will be
subject to customary assumptions and qualifications. Our opinion will
be in written form. Such opinion shall be solely for the use of the
Board of Directors in considering the Agreement and for inclusion in
the Company's proxy materials relating to the proposed Transaction. We
understand and expect that the Company will use such Opinion in
connection with the proxy statement to be mailed to the Company's
shareholders seeking approval for the Transaction. The Company may not
Page 66 of 69 Pages
<PAGE>
Mid-Peninsula Bancorp
May 22, 1996
Page 2
otherwise publish or refer to such opinion (either in its
entirety or through excerpts or summaries) or disclose the existence
of our engagement hereunder or describe or characterize the advice
provided by us to the Company without the prior written approval of
Alex. Brown, which approval shall not be unreasonably withheld, or
except as aforesaid or as otherwise required by applicable law.
2. In consideration of our services as your financial advisor as described
in Section 1 of this Addendum B, the Company agrees to compensate Alex.
Brown as follows:
(a) Upon delivery the Opinion, Alex. Brown will be paid a non-refundable
fee of $200,000, against which will be credited the $25,000 retainer
fee previously paid in accordance with Section 2 of the Engagement
Agreement. Payment of this $175,000 shall be made in two installments:
$75,000 upon the rendering of the Opinion to the Board of Directors of
the Company and $100,000 upon inclusion of the Opinion in the Proxy
Statement to shareholders of the Company.
(b) In addition to the fee described above, the Company agrees to
reimburse Alex. Brown for all reasonable out-of-pocket expenses,
including fees and reimbursements of legal counsel, incurred by Alex.
Brown in carrying out its duties under this Addendum B. Fees and
reimbursements of legal counsel shall not exceed $2,000 without prior
approval of the Company.
3. In consideration of our services as the Company's financial advisor under
this Addendum B and under the Engagement Agreement, the Company agrees
to indemnify and hold harmless Alex. Brown and each of its directors,
officers, agents, employees and controlling persons (within the meaning
of the Securities Act of 1933, as amended) to the extent and as provided
in Addendum A attached to the Engagement Agreement and incorporated
herein by reference. In addition, neither Alex. Brown nor any
indemnified person shall have any liability to the Company related to or
arising from the engagement described in this Addendum B, except for
liability for losses, claims, damages or expenses incurred by the Company
which are determined by a court of competent jurisdiction in a final
judgment to have arisen primarily from Alex. Brown's gross negligence,
willful misconduct or bad faith. The provisions of this Section 3 and
Addendum A incorporated herein by reference shall survive the
termination of Alex. Brown's engagement under this Addendum B and shall
be binding upon any successors or assigns of the Company.
Page 67 of 69 Pages
<PAGE>
Mid-Peninsula Bancorp
May 22, 1996
Page 3
4. In the event of consummation of the Transaction, Alex. Brown shall
have the right to disclose its participation in such Transaction,
including, without limitation, the placement of "tombstone"
advertisements in financial and other newspapers and journals, provided
that Alex. Brown will submit a copy of any such advertisements to the
Company for its approval, which approval shall not be unreasonably
withheld or delayed.
If the foregoing letter is in accordance with your understanding of the terms
of our engagement, please sign and return to us the enclosed duplicate hereof.
Very truly yours,
ALEX. BROWN & SONS INCORPORATED
By: /s/ Jean-Luc Servat
----------------------------------
Jean-Luc Servat
Managing Director
Accepted and Agreed:
MID-PENINSULA BANCORP
By: /s/ David L. Kalkbrenner
-----------------------------------
David L. Kalkbrenner
President & Chief Executive Officer
Date: May 28, 1996
----------------------------------
Page 68 of 69 Pages
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 12,024
<INT-BEARING-DEPOSITS> 185,370
<FED-FUNDS-SOLD> 36,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 47,855
<INVESTMENTS-CARRYING> 2,397
<INVESTMENTS-MARKET> 2,397
<LOANS> 147,967
<ALLOWANCE> 1,933
<TOTAL-ASSETS> 251,412
<DEPOSITS> 227,134
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,480
<LONG-TERM> 0
0
0
<COMMON> 15,966
<OTHER-SE> 6,832
<TOTAL-LIABILITIES-AND-EQUITY> 22,798
<INTEREST-LOAN> 7,041
<INTEREST-INVEST> 1,382
<INTEREST-OTHER> 709
<INTEREST-TOTAL> 9,132
<INTEREST-DEPOSIT> 3,420
<INTEREST-EXPENSE> 3,420
<INTEREST-INCOME-NET> 5,712
<LOAN-LOSSES> 220
<SECURITIES-GAINS> (97)
<EXPENSE-OTHER> 3,112
<INCOME-PRETAX> 2,659
<INCOME-PRE-EXTRAORDINARY> 2,659
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,571
<EPS-PRIMARY> .99
<EPS-DILUTED> .49
<YIELD-ACTUAL> 8.65
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,716
<CHARGE-OFFS> 3
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,933
<ALLOWANCE-DOMESTIC> 1,933
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
