SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
CUPERTINO NATIONAL BANCORP
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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Notes:
CUPERTINO NATIONAL BANCORP
20230 STEVENS CREEK BOULEVARD
CUPERTINO, CA 95014
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 25, 1995
Dear Shareholder:
You are invited to attend the Annual Meeting of the Shareholders of
Cupertino National Bancorp (the "Company"), which will be held on May 25, 1995,
at 7:00 p.m. at the Saratoga Country Club, 21990 Prospect Road, Saratoga,
California, 95070 for the following purposes:
1. To elect thirteen directors to hold office for one-year terms and
until their successors are elected and qualified.
2. To consider and vote upon a proposal to adopt the Company's 1995 Stock
Option Plan.
3. To consider and vote upon a proposal to amend the Company's Employee
Stock Purchase Plan to (i) increase the number of shares of the
Company's Common Stock reserved for issuance thereunder from 40,202 to
65,202 and (ii) permit otherwise eligible directors administering the
plan who are also employees to participate in the plan.
4. To consider and vote upon a proposal to ratify the appointment of
Coopers & Lybrand L.L.P. as the Company's independent accountants for
the fiscal year ending December 31, 1995.
5. To transact such other business as may properly come before the
meeting.
Shareholders of record at the close of business on April 19, 1995 are
entitled to notice of, and to vote at, this meeting and any adjournments
thereof. For ten days prior to the meeting, a complete list of the shareholders
entitled to vote at the meeting will be available for examination by any
shareholder for any purpose relating to the meeting during ordinary business
hours at the Company's offices at 20230 Stevens Creek Boulevard, Cupertino,
California 95014.
By order of the Board of Directors,
C. DONALD ALLEN
Chief Executive Officer
Cupertino, California
April 27, 1995
CUPERTINO NATIONAL BANCORP
20230 STEVENS CREEK BOULEVARD
CUPERTINO, CALIFORNIA 95014
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
The accompanying proxy is solicited by the Board of Directors of Cupertino
National Bancorp, a California corporation (the "Company"), for use at the
Annual Meeting of Shareholders to be held May 25, 1995, or any adjournment
thereof, for the purposes set forth in the accompanying Notice of Annual
Meeting. The date of this Proxy Statement is April 27, 1995, the approximate
date on which this Proxy Statement and the accompanying form of proxy were first
sent or given to shareholders.
GENERAL INFORMATION
Annual Report. An annual report for the fiscal year ended December 31,
1994, is enclosed with this Proxy Statement.
Voting Securities. Only shareholders of record as of the close of business
on April 19, 1995, will be entitled to vote at the meeting and any adjournment
thereof. As of that date, there were 1,589,511 shares of Common Stock of the
Company, no par value, issued and outstanding. Shareholders may vote in person
or in proxy. Each holder of shares of Common Stock is entitled to one (1) vote
for each share of stock held on the proposals presented in this Proxy Statement.
The Company's bylaws provide that a majority of all of the shares of the stock,
whether present in person or represented by proxy, shall constitute a quorum for
the transaction of business at the meeting.
Solicitation of Proxies. The cost of soliciting proxies will be borne by
the Company. In addition, the Company will solicit shareholders by mail through
its regular employees, and will request banks and brokers, and other custodians,
nominees and fiduciaries, to solicit their customers who have stock of the
Company registered in the names of such persons and will reimburse them for
their reasonable, out-of-pocket costs. The Company may use the services of its
officers, directors, and others to solicit proxies, personally or by telephone,
without additional compensation.
Voting of Proxies. All valid proxies received prior to the meeting will be
voted. All shares represented by a proxy will be voted, and where a shareholder
specifies by means of the proxy a choice with respect to any matter to be acted
upon, the shares will be voted in accordance with the specification so made. If
no choice is indicated on the proxy, the shares will be voted in favor of the
proposal. A shareholder giving a proxy has the power to revoke his or her
proxy, at any time prior to the time it is voted, by delivering to the Secretary
of the Company a written instrument revoking the proxy or a duly executed proxy
with a later date, or by attending the meeting and voting in person.
Stock Ownership of Certain Beneficial Owners and Management. The following
table sets forth certain information, as of January 31, 1994, with respect to
the beneficial ownership of the Company's Common Stock by (i) all persons known
by the Company to be the beneficial owners of more than 5% of the outstanding
Common Stock of the Company, (ii) each director and director-nominee of the
Company, (iii) each executive officer of the Company named in the Summary
Compensation Table, and (iv) all executive officers and directors of the Company
as a group.
2
SHARES BENEFICIALLY OWNED (1)
------------------------------
NAME AND ADDRESS OF NUMBER PERCENTAGE
BENEFICIAL OWNERS OF SHARES OF CLASS
------------------- ------------- --------------
Dick J. Randall (1)................................................. 117,287 7.5%
20230 Stevens Creek Boulevard
Cupertino, CA 95014
C. Donald Allen (2)................................................. 68,077 4.2
David K. Chui (3)................................................... 32,447 2.1
Carl E. Cookson (4)................................................. 20,699 1.3
Jerry R. Crowley (5)................................................ 27,928 1.8
Janet M. DeCarli (6)................................................ 22,336 1.4
John M. Gatto (7)................................................... 30,194 1.9
William H. Guengerich (8)........................................... 20,336 1.3
James E. Jackson (9)................................................ 53,079 3.3
Rex D. Lindsay (10)................................................. 51,260 3.3
Glen McLaughlin (11)................................................ 47,590 3.0
Norman Meltzer (12)................................................. 22,114 1.4
Dennis S. Whittaker (13)............................................ 17,217 1.1
Steven C. Smith (14)................................................ 1,910 *
Kenneth D. Brenner (15)............................................. 6,379 *
Scott A. Montgomery (16)............................................ 30,479 1.9
All Directors and Executive Officers as a Group (17 Persons) (17)... 569,332 32.8
- ---------------
* Less than 1%
(1) Includes 102,212 shares held by the Dick J. and Carolyn L. Randall Trust and
14,868 shares issuable upon the exercise of options which are exercisable
within 60 days of January 31, 1995.
(2) Includes 463 shares held by Mr. Allen's wife, 3,991 Shares held in an IRA
for Mr. Allen, 666 shares held in a 401(k) plan for Mr. Allen and 45,273
shares issuable upon the exercise of options which are exercisable within 60
days of January 31, 1995.
(3) Includes 3,364 shares held by Mr. Chui in trust for his minor children and
8,900 shares issuable upon the exercise of options which are exercisable
within 60 days of January 31, 1995.
(4) Includes 16,199 shares held jointly by Carl E. Cookson and his spouse and
4,293 shares issuable upon the exercise of options which are exercisable
within 60 days of January 31, 1995.
(5) Includes 22,690 shares held by the Crowley Family Inter Vivos Trust, 2,130
shares held by Mr. Crowley's spouse's IRA, 2,559 shares held in Mr.
Crowley's IRA, and 549 shares issuable upon the exercise of options which
are exercisable within 60 days of January 31, 1995.
3
(6) Includes 12,579 shares held by Janet M. DeCarli as Trustee of the DeCarli
Living Trust; 2,221 shares held by Ms. DeCarli's pension trust; and 6,577
shares issuable upon the exercise of options which are exercisable within
60 days of January 31, 1995.
(7) Includes 11,578 shares issuable upon the exercise of options which are
exercisable within 60 days of January 31, 1995.
(8) Includes 11,210 shares held in an IRA for William H. Guengerich and his
spouse and 7,123 shares issuable upon the exercise of options which are
exercisable within 60 days of January 31, 1995.
(9) Includes 13,648 shares held jointly by James E. Jackson and his spouse,
1,698 shares held in an IRA-FBO Mr. Jackson's spouse, 7,824 shares held in
an IRA for Mr. Jackson, 1,546 shares held in a 401(k) plan for Mr. Jackson,
633 shares held directly by Mr. Jackson's spouse, and 27,523 shares
issuable upon the exercise of options which are exercisable within 60 days
of January 31, 1995.
(10) Includes 33,730 shares held by the Rex D. and Leanor L. Lindsay Family
Trust, 2,127 shares held by Mr. Lindsay as custodian for his minor
grandchildren, and 15,196 shares issuable upon the exercise of options
which are exercisable within 60 days of January 31, 1995.
(11) Includes 20,630 shares issuable upon the exercise of options which are
exercisable within 60 days of January 31, 1995.
(12) Includes 7,751 shares held in the name of Mr. Meltzer's spouse and 4,450
shares issuable upon the exercise of options which are exercisable within
60 days of January 31, 1995.
(13) Includes 3,426 shares issuable upon the exercise of options which are
exercisable within 60 days of January 31, 1995.
(14) Includes 1,225 shares issuable upon the exercise of options which are
exercisable within 60 days of January 31, 1995.
(15) Represents 6,379 shares issuable upon the exercise of options which are
exercisable within 60 days of January 31, 1995.
(16) Includes 756 shares held jointly by Scott A. Montgomery and his spouse, 339
shares held in a 401(k) plan for Mr. Montgomery, and 14,836 shares issuable
upon the exercise of options which are exercisable within 60 days of
January 31, 1995.
(17) Includes 177,990 shares issuable upon the exercise of options which are
exercisable within 60 days of January 31, 1995; does not include shares
held by Mr. Montgomery, who ceased to be a director and officer of the
Company on October 1, 1994. Number of persons includes two persons who
ceased to be executive officers of the Company after January 31, 1995.
4
ELECTION OF DIRECTORS
The Company's Board of Directors currently consists of thirteen (13)
directors, who will serve until the Annual Meetings of Shareholders to be held
in 1995 and until their respective successors are duly elected and qualified.
Directors are elected for a term of one year.
Management's nominees for election at the Annual Meeting of Shareholders to
the Board of Directors are as follows: C. Donald Allen, David K. Chui, Carl E.
Cookson, Jerry R. Crowley, Janet M. DeCarli, John M. Gatto, William H.
Guengerich, James E. Jackson, Rex D. Lindsay, Glen McLaughlin, Norman Meltzer,
Dick J. Randall and Dennis S. Whittaker. If elected, the nominees will serve as
directors until the Company's Annual Meeting of Shareholders in 1996, and until
their successors are elected and qualified. If a nominee declines to serve or
becomes unavailable for any reason, or if a vacancy occurs before the election
(although Management knows of no reason to anticipate that this will occur), the
proxies may be voted for such substitute nominee as Management may designate. In
the event that additional persons are nominated for election as directors, the
proxy holders intend to vote all proxies received by them in such a manner in
accordance with cumulative voting as will assure the election of as many of the
nominees listed below as possible, and, in such event, the specific nominees to
be voted for will be determined by the proxy holders. Subject to instructions by
the shareholder withholding authority to vote for one or more directors, the
proxy will grant the proxy holders the discretionary authority to cumulate their
votes in this manner.
If a quorum is present and voting, the thirteen nominees for the positions as
directors receiving the highest number of votes will be elected. Abstentions
will have no effect on the vote.
The table below sets forth for the Company's directors, including the
nominees to be elected at this meeting, and its executive officers certain
information with respect to age and background.
Directors to be elected at the 1995 Annual Meeting of Shareholders:
DIRECTOR
NAME POSITION WITH THE COMPANY AGE SINCE
---- ------------------------- --- --------
C. Donald Allen President and Chief Executive 60 1984
Officer of the Company; Chairman
of the Board and Chief Executive
Officer of the Bank
David K. Chui Director 50 1984
Carl E. Cookson Director 62 1984
Jerry R. Crowley Director 56 1984
Janet M. DeCarli Director 57 1984
John M. Gatto Director 57 1984
William H. Guengerich Director 62 1984
James E. Jackson Director 60 1984
Rex D. Lindsay Vice Chairman of the Board of the 69 1984
Company
Glen McLaughlin Chairman of the Board of the 60 1984
Company
Norman Meltzer Director 65 1984
5
DIRECTOR
NAME POSITION WITH THE COMPANY AGE SINCE
- ------------------------ ------------------------------------- --- --------
Dick J. Randall Director 64 1984
Dennis S. Whittaker Director 48 1984
Executive Officers of the Company as of April 1, 1995:
NAME POSITION WITH THE COMPANY AGE
- ---- ------------------------- ---
C. Donald Allen President and Chief Executive Officer of the 60
Company; Chairman of the Board and Chief
Executive Officer of the Bank
Kenneth D. Brenner Executive Vice President 48
George Bowen Senior Vice President, Manager Commercial Lending 47
Steven C. Smith Executive Vice President, Chief Financial Officer 43
and Acting Chief Operating Officer
C. Donald Allen has served as the President and Chief Executive Officer of
the Company and Chairman of the Board and Chief Executive Officer of the Bank
for the past five years.
David K. Chui has served as the President and Chief Executive Officer of PAN-
CAL Investment Co., a commercial and residential real estate development
company, since September 1977.
Carl E. Cookson has served as the Chairman of the Board of the Santa Clara
Land Title Company, a title insurance company, for the past five years.
Jerry R. Crowley has served as the President and Chief Executive Officer of
Treehouse Ltd., a venture capital firm, since June 1991. From January 1987 to
June 1991, Mr. Crowley served as Chairman, President and Chief Executive Officer
of Gazelle Microcircuits, Inc., a semiconductor manufacturer.
Janet M. DeCarli has been a real estate broker for Cornish and Carey
Realtors, a real estate firm, since June 1993. From September 1989 to June
1993, Ms. DeCarli was a real estate broker for Prudential California Realty, a
real estate firm.
John M. Gatto has been the sole proprietor of Maria Enterprises, a
development consultant company, since December 1993. Prior to that time, from
1984 to 1993 Mr. Gatto was an architect for Cypress Properties, a real estate
development company.
William H. Guengerich has been a private investor since March 1993. From July
1977 until his retirement in March 1993, Mr. Guengerich served as Director of
Employee Relations of Measurex Corporation, an electronics manufacturing
company.
James E. Jackson has been an attorney-at-law at the law firm Jackson, Abdalah
& Rodriguez, a Professional Corporation, since January 1989.
Rex D. Lindsay serves as the Vice Chairman of the Board of Directors of the
Company and the Bank. For the past five years, Mr. Lindsay has been a rancher
and a private investor.
Glen McLaughlin is the Chairman of the Board of Directors of the Company and
Chairman of the Executive Committee of the Company. Mr. McLaughlin has served
as the Chairman of Venture Leasing Associates, an equipment leasing company,
since December 1986.
6
Norman Meltzer has been an independent real estate broker involved in real
estate development since January 1991. Mr. Meltzer was President of Resource
Planning Associates Inc., a child-care facilities development company, from
January 1990 to December 1990. Prior to that time, Mr. Meltzer was a Vice
President for Interland Corporation, a real estate development company, from
1982 until January 1990.
Dick J. Randall has been a private investor and rancher since 1993. From
1962 until his retirement in 1993, Mr. Randall served as the President of The
William Lyon Co., a real estate developer and construction company.
Dennis S. Whittaker has served as the President of Whittaker Insurance Agency
Inc., a personal and commercial insurance sales company, since January 1987.
Kenneth D. Brenner joined the Company in February 1992 as Executive Vice
President. Prior to that time, he served as Senior Vice President, Business
Development of Silicon Valley Bank from September 1985 to February 1992.
George Bowen joined the Company in June 1994 as Senior Vice President,
Manager of Commercial Lending. Prior to that time, he served as Senior Vice
President and Manager of the Direct Lending Division of Seattle First National
Bank from June 1990 to February 1993.
Steven C. Smith has served as Executive Vice President, Chief Financial
Officer and Acting Chief Operating Officer of the Company and the Bank since
December 1993. From July 1993 to December 1993, Mr. Smith served as Executive
Vice President and Chief Financial Officer of Commercial Pacific Bank. Prior to
that time, from December 1991 to July 1993, Mr. Smith served as Executive Vice
President Chief Financial Officer of First Charter Bank. Mr. Smith served as
Senior Vice President of Finance and Treasurer of Fidelity Federal Bank, from
May 1984 to August 1991.
During the fiscal year ended December 31, 1994, the Board held twelve (12)
meetings. Each director serving on the Board in fiscal year 1994 attended at
least 75% of the aggregate of such meetings of the Board and the Committees on
which he or she served.
The Company does not have a standing Nominating Committee, but does have an
Audit Committee and an Executive Committee that serves the function of a
Compensation Committee.
The Audit Committee's function is to review with the Company's independent
accountants and management the annual financial statements and independent
accountants' opinion, review the scope and results of the examination of the
Company's financial statements by the independent accountants, approve all
professional services and related fees performed by the independent accountants,
recommend the retention of the independent accountants to the Board, subject to
ratification by the shareholders, and periodically review the Company's
accounting policies and internal accounting and financial controls. The members
of the Audit Committee during fiscal 1994 were Messrs. Crowley, McLaughlin and
Randall. During the fiscal year ended December 31, 1994, the Audit Committee
held four (4) meetings.
The Executive Committee's function is to review and approve salary and bonus
levels and stock option grants. The members of the Executive Committee during
fiscal 1994 were Messrs. Allen, Gatto, Lindsay, McLaughlin and Randall, as well
as Scott Montgomery, who served until his resignation from the Board of
Directors and all committees thereof on October 1, 1994. During the fiscal year
ended December 31, 1994, the Executive Committee held thirteen (13) meetings.
For additional information concerning the Executive Committee, see "REPORT OF
THE EXECUTIVE COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION" and
"EXECUTIVE COMPENSATION AND OTHER MATTERS - Executive Committee Interlocks and
Insider Participation."
7
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth information concerning the compensation of the
Chief Executive Officer of the Company and the two other executive officers of
the Company as of December 31, 1994 whose total salary and bonus for the year
ended December 31, 1994 exceeded $100,000, as well as one former officer who
would otherwise have been included in the table except for his termination prior
to December 31, 1994. In all cases, payment was for services in all capacities
to the Company and its subsidiaries, during the fiscal years ended December 31,
1994, 1993 and 1992:
SUMMARY COMPENSATION TABLE
Long Term
Compensation
-------------
Annual Compensation Awards
--------------------------- ------------
Securities
Name and Principal Underlying All Other
Position Year Salary Bonus /1/ Options Compensation/2/
- --------------------------- ---- -------- --------- ------------ ---------------
C. Donald Allen 1994 $137,500 $30,000 -- $14,876/3/
President and Chief 1993 150,000 -- -- 6,799/4/
Executive Officer of the 1992 150,000 55,000 -- 13,397/5/
Company; Chairman of
the Board and Chief
Executive Officer of the
Bank
Steven C. Smith/6/ 1994 $103,416 $30,000 10,000 $ 3,574/7/
Executive Vice President, 1993 4,167 -- 3,675 --
Chief Financial Officer 1992 -- -- -- --
and Acting Chief
Operating Officer of the
Company and the Bank
Kenneth D. Brenner 1994 $169,961 $ 5,000 3,190 $ 6,027/8/
Executive Vice President 1993 142,874 -- 3,189 3,428/9/
of the Bank 1992 119,583 -- 3,189 1,013/10/
Former Officer:
Scott A. Montgomery/11/ 1994 $101,250 -- -- $43,906/12/
Former Executive Vice 1993 135,000 -- -- 6,072/13/
President of the Company; 1992 135,000 $44,000 15,194 4,364/14/
Former President and
Chief Operating Officer of
the Bank
8
- ---------------
/1/ Bonuses are paid based on Company performance and individual objectives set
by the Executive Committee.
/2/ Annual salary includes amounts deferred by the executive under the
Company's 401(k) Profit Sharing Plan. The matching contribution by the
Company under this plan is included in All Other Compensation. This plan is
open to all employees of the Company and the Bank after certain service
requirements are met. Additionally this column includes the taxable benefit
of a Company-provided automobile, certain social club dues paid by the
Company for the executive, payments for services as directors of the
Company, and severance pay for one former officer, each in the amounts
indicated below.
/3/ Includes $8,400 in payments for services as a director, $2,244 in club dues
payments, $2,753 in 401(k) matching contributions and $819 in automobile
allowance.
/4/ Includes $4,497 in 401(k) matching contributions.
/5/ Includes $4,364 in 401(k) matching contributions.
/6/ Mr. Smith joined the Company in December 1993.
/7/ Includes $2,244 in club dues payments, $830 in 401(k) matching
contributions and $500 in automobile allowance.
/8/ Includes $3,724 in 401(k) matching contributions and $2,303 in automobile
allowance.
/9/ Represents $3,428 in 401(k) matching contributions.
/10/ Represents $1,013 in 401(k) matching contributions.
/11/ Mr. Montgomery ceased to be a director and executive officer of the
Company and the Bank on October 1, 1994.
/12/ Includes $5,600 in payments for services as a director, $1,711 in club
dues payments, $2,845 in 401(k) matching contributions and $33,750 in
severance payments.
/13/ Includes $4,497 in 401(k) matching contributions.
/14/ Includes $4,364 in 401(k) matching contributions.
9
The following table provides the specified information concerning grants of
options to purchase the Company's Common Stock made during the year ended
December 31, 1994 to the persons named in the Summary Compensation Table:
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants in Fiscal 1994 for Option Term /1/
- ----------------------------------------------------------------------------- ----------------------
% of Total
Number of Options
Securities Granted to
Underlying Employees Exercise
Options in Fiscal or Base Expiration
Name Granted/2/ Year Price/3/ Date 5% 10%
- ----------------------------------------------------------------------------- -------- ---------
C. Donald Allen -- -- -- -- -- --
Steven C. Smith 10,000 13% $9.52 2/1/04 $58,173 $147,421
Kenneth D. Brenner 3,190 4 9.25 12/1/04 19,099 48,400
Scott A. Montgomery -- -- -- -- -- --
/1/ Potential gains are net of exercise price, but before taxes associated with
exercise. These amounts represent certain assumed rates of appreciation
only, based on the Securities and Exchange Commission rules. Actual gains,
if any, on stock option exercises are dependent on the future performance
of the Common Stock, overall market conditions and the optionholders'
continued employment through the vesting period. The amounts reflected in
this table may not necessarily be achieved. One share of stock purchased in
1994 at $9.25 would yield profits of $5.82 per share at 5% appreciation
over ten years, or $14.74 per share at 10% appreciation over the same
period. One share of stock purchased in 1994 at $9.52 would yield profits
of $5.99 per share at 5% appreciation over ten years, or $15.17 per share
at 10% appreciation over the same period.
/2/ Generally, options granted under the Company's 1985 Stock Option Plan (the
"1985 Option Plan") vest at the rate of one-third or one-fifth for each
full year of the optionee's continuous employment with the Company and are
exercisable to the extent vested. Under the 1985 Option Plan, the Board
retains discretion to modify the terms of outstanding options. See also
"Employment, Severance and Change of Control Arrangements" and "PROPOSAL TO
ADOPT THE CUPERTINO NATIONAL BANCORP 1995 STOCK OPTION PLAN."
/3/ All options listed were granted at the estimated fair market value on the
date of grant.
10
The following table provides the specified information concerning exercises of
options to purchase the Company's Common Stock in the fiscal year ended December
31, 1994, and unexercised options held as of December 31, 1994, by the persons
named in the Summary Compensation Table:
AGGREGATED OPTION EXERCISES
AND FISCAL YEAR-END VALUE
- ----------------------------------------------------------------------------------------------------------
Number of Securities
Underlying Unexercised Value of Unexercised In-the-
Options at 12/31/94 Money Options at 12/31/94/1/
--------------------------- ------------------------------
Shares
Acquired on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------------------------------------------------------------------------------------
C. Donald Allen 10,658 $48,814 45,273 -- $183,808 --
Steven C. Smith -- -- 1,225 12,450 --/2/ --/2/
Kenneth Brenner -- -- 4,252 5,316 8,303 $1,806
Scott A. Montgomery -- -- 27,562 5,064 59,451 6,279
- ----------------
/1/ Based on the closing price of the Company's Common Stock on December 30,
1994, the last trading day in 1994, which was $9.25.
/2/ The December 30, 1994 closing price of $9.25 did not exceed the exercise
price for Mr. Smith's options.
EMPLOYMENT, SEVERANCE AND CHANGE OF CONTROL ARRANGEMENTS
The Company entered into an employment agreement with C. Donald Allen on July
1, 1990 (the "Employment Agreement"). The agreement has an initial term of two
years, and thereafter renews annually for twelve months each July 1, unless
sixty days prior written notice of nonrenewal is given by either Mr. Allen or
the Company. The agreement provides for a base salary, subject to annual
increase by the board of directors, payment of an annual cash bonus solely at
the discretion of the board of directors, use of a Bank-owned automobile,
customary group medical and dental coverage, and reimbursement of expenses
incurred on behalf of the Bank and the Company. The agreement specifies the
payment of twelve months' base salary upon termination of Mr. Allen's employment
due to a "change in control" of the Company (as defined in the agreement), and
for the payment of salary for six months or until the agreement expires,
whichever period is less, upon termination of Mr. Allen's employment by the
Company without "cause" (as defined in the agreement). In April 1994, the
Employment Agreement was modified to memorialize the termination of the
agreement effective as of July 1, 1994. The amendment also provided that Mr.
Allen would become an at-will employee on July 1, 1994 on the same terms and
conditions as were set forth in the Employment Agreement, except without a term
of employment.
The Bank entered into an Executive Salary Continuation Agreement with C.
Donald Allen on August 1, 1993. The agreement provides for annual benefit of up
to $100,000 to be paid to Mr. Allen or his designated beneficiary over a period
of one hundred and eighty (180) months. The benefit is effective upon: (i) Mr.
Allen's attainment of sixty-five (65) years of age or his death or disability
prior to such time if he were actively employed by the Company at the time; (ii)
termination of his
11
employment by the Company without "cause" ( as defined in the agreement); (iii)
termination or constructive termination of his employment by the Company after
the occurrence of a "change of control" in the Company or the Bank as defined in
the agreement. Although this agreement is intended to provide Mr. Allen with an
additional incentive to remain in the employ of the Bank, the Agreement shall
not be deemed to constitute a contract of employment between Mr. Allen and the
Bank nor shall any provision of this agreement restrict the right of Mr. Allen
to terminate his employment. The agreement shall have no impact or effect upon
any separate written Employment Agreement which Mr. Allen may have with the
Bank.
The Bank entered into an Executive Salary Continuation Agreement with Scott A.
Montgomery on August 1, 1993. The agreement provides for an annual benefit of
up to $90,000 to be paid to Mr. Montgomery or his designated beneficiary over a
period of one hundred and eighty (180) months. The benefit would have become
effective upon: (i) Mr. Montgomery's attainment of sixty-five (65) years of age
or his death or disability prior to such time if he were actively employed by
the Company at the time; (ii) termination of his employment by the Company
without "cause" (as defined in the agreement); or (iii) termination or
constructive termination of his employment by the Company after the occurrence
of a "change in control" in the Company or the Bank as defined in the agreement.
Although this agreement was intended to provide Mr. Montgomery with an
additional incentive to remain in the employ of the Bank, the agreement did not
constitute a contract of employment between Mr. Montgomery and the Bank nor did
any provision of the agreement restrict the right of Mr. Montgomery to terminate
his employment. Pursuant to the terms of the agreement, it was terminated upon
the termination of Mr. Montgomery's employment on October 1, 1994 and Mr.
Montgomery is not entitled to an annual benefit under the agreement.
In September 1994, the Company entered into a Severance Agreement with Scott
Montgomery that provided that he would receive payments of $11,250 per month
over a six (6) month period, whether or not he obtained employment elsewhere.
The agreement also provided that Mr. Montgomery would receive continuing
insurance coverage until the earlier of March 31, 1995 or the date he became
eligible for such coverage at subsequent employment. Additionally, the Company
agreed to accept a promissory note from Mr. Montgomery bearing interest at the
rate of 7% per annum as payment for the purchase of outstanding options. Such a
note would be due at the earlier of one (1) year or the sale of the stock. Mr.
Montgomery did not utilize such a note to fund the exercise of his stock
options. The Severance Agreement further provided that Mr. Montgomery would
keep Bank information confidential, that he would not solicit any Bank employees
until October 1, 1995 and that, if Mr. Montgomery became employed by another
bank, he would not solicit any clients of the Bank until October 1, 1995 (or
April 1, 1995 if his subsequent employment were outside Santa Clara County). In
March 1995 the Company agreed to extend the Severance Agreement for one
additional month.
Options granted under the Company's 1985 Stock Option Plan and the Company's
1989 Non-Qualified Stock Option Plan contain provisions pursuant to which, in
the event of a dissolution or reorganization of the Company or any
reorganization, merger or consolidation in which the Company does not survive,
all unexercised options will become exercisable in full until five (5) days
prior to such event, unless the surviving corporation substitutes substantially
equivalent options to purchase such corporation's stock.
The Company's 1995 Stock Option Plan provides that a "Transfer of Control" of
the Company will occur in the event of (i) a sale or exchange by the
shareholders of all or substantially all of the Company's voting stock or (ii)
certain mergers or consolidations to which the Company is a party, in which, in
either case, the shareholders of the Company immediately before such sale,
exchange, merger or consolidation do not retain beneficial ownership of at least
a majority of the voting stock of the Company or its successor. A Transfer of
Control will also occur in the event of a sale of all or substantially all of
the assets of the Company (unless the shareholders of the Company immediately
before such event retain beneficial ownership of at least a majority of the
voting stock of the corporation to which the assets were transferred) or a
liquidation or dissolution of the Company. At
12
the discretion of the Board of Directors, options granted under the 1995 Stock
Option Plan may provide that, in the event of a Transfer of Control, such
outstanding option will become exercisable in full either automatically or at
the discretion of the Board of Directors unless the option is assumed or the
successor corporation substitutes a substantially equivalent option to purchase
stock of the successor corporation. Alternatively, the Board may provide in the
grant of an option that such option will become exercisable in full
automatically upon a Transfer of Control and, in addition, the successor
corporation may assume or substitute a substantially equivalent option to
purchase stock of the successor corporation for the outstanding option. See
"PROPOSAL TO ADOPT THE CUPERTINO NATIONAL BANCORP 1995 STOCK OPTION PLAN."
COMPENSATION OF DIRECTORS
Each director of the Company is paid a retainer of $6,600 per year (payable at
the rate of $550 per month) and, in addition, a fee of $150 for attendance at
each meeting of the Board of Directors of the Company. Each non-employee
director is also paid a fee of $50 for attendance at each committee meeting ($75
for each meeting of the Loan & Audit Committee, with the chairman receiving an
additional $25 per meeting) of the Board of Directors of the Company and the
Bank.
Each director of the Company is eligible to participate in stock option plans
of the Company as follows:
The Company's 1986 Non-Qualified Stock Option Plan (the "1986 Option Plan")
was adopted by the Company's Board of Directors in September 1986 and approved
by its shareholders in April 1987. Under the 1986 Option Plan, nonstatutory
options to purchase shares of common stock were granted to each director based
upon committee service or other offices held. Each option vested over a period
of three years, subject to certain attendance requirements. Directors who were
full-time employees of the Bank were not eligible to receive options under the
1986 Option Plan. No additional options will be granted under the 1986 Option
Plan. The Company's 1989 Non-Qualified Stock Option Plan (the "1989 Option
Plan") was adopted by the Company's Board of Directors in January 1989 and
approved by its shareholders in April 1989. The 1989 Option Plan provides for
the grant of nonstatutory options to Directors of the Company and its
subsidiaries. Options granted under the 1989 Plan generally vest over a period
of three years. At March 31, 1995, under both the 1986 Option Plan and the 1989
Option Plan, options for an aggregate of 130,889 shares were outstanding at a
weighted average per share exercise price of $5.19, an aggregate of 48,290
shares had been exercised and purchased at a weighted average price of $6.35 per
share, and an aggregate of 25,695 shares remained available for grant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Executive Committee acts as the Executive Compensation Committee of the
Company. The Committee's members during fiscal 1994 were C. Donald Allen,
President and Chief Executive Officer, Glen McLaughlin, Chairman of the Board,
Rex Lindsay, Vice Chairman of the Board, John Gatto and Dick Randall, as well as
Scott A. Montgomery, Executive Vice President, who served until his resignation
from the Company and the Bank on October 1, 1994. Additionally, the Executive
Committee's actions are ratified by the Board of Directors. Mr. Allen does not
and Mr. Montgomery did not act as voting members of the committee or the Board
of Directors or participate in deliberations of the committee or the Board of
Directors concerning executive compensation or the granting of options.
The directors and officers of the Company, and certain of the business and
professional organizations with which they are associated, have had, but are not
obligated to have, banking transactions with the Bank in the ordinary course of
business. Loans and commitments to loan in such transactions have been and will
continue to be made in accordance with applicable laws and on substantially the
same terms, including interest rates and collateral requirements, as those
prevailing at the time for comparable transactions with other persons of similar
credit worthiness and will not
13
involve more than the normal risk of collectability or present other unfavorable
features. At December 31, 1994, the aggregate amount of loans and commitments
to loan outstanding to directors, officers and such organizations was
$2,987,000.
The Bank has a significant deposit relationship with Santa Clara Land Title
Company, of which Carl E. Cookson is Chairman and majority shareholder, and for
which Rex D. Lindsay and Dick J. Randall serve as directors and shareholders.
Average monthly deposits in the Bank by Santa Clara Land Title Company ranged
between $3.9 million and $12.6 million during 1994, and amounted to $4.6 million
at December 31, 1994. The deposit arrangements with this customer have been and
will continue to be on substantially the same terms as those prevailing at the
time for comparable deposits from other customers.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and persons who beneficially own more than 10% of
the Company's Common Stock to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission ("SEC"). Such
persons are required by SEC regulations to furnish the Company with copies of
all Section 16(a) forms filed by such persons.
Based solely on the Company's review of such forms furnished to the Company
and written representations from certain reporting persons, the Company believes
that all filing requirements applicable to the Company's executive officers,
directors and more than 10% shareholders were complied with, except that an
initial statement of beneficial ownership for each of Harry Kellogg and Kenneth
Brenner was not timely filed.
CHANGES TO BENEFIT PLANS
On March 16, 1995, the Board adopted the Cupertino National Bancorp 1995 Stock
Option Plan (the "Option Plan") to provide for the granting of options to
purchase common stock to employees and consultants and prospective employees and
consultants of the Company, subject to approval of the Company's shareholders.
Grants under the Option Plan are made at the discretion of the Executive
Committee. The Option Plan will not be implemented prior to shareholder
approval. THEREFORE, FUTURE GRANTS UNDER THE OPTION PLAN ARE NOT YET
DETERMINABLE. See "PROPOSAL TO ADOPT THE CUPERTINO NATIONAL BANCORP 1995 STOCK
OPTION PLAN." The numbers of shares specified in this section and elsewhere in
this Proxy Statement have been adjusted to reflect stock dividends effected from
time to time prior to the date of this Proxy Statement.
The Company has also proposed amendment of its Employee Stock Purchase Plan
(the "Purchase Plan") to increase the number of shares reserved for issuance
thereunder from 40,202 to 65,202 and to make certain other amendments thereof.
See "PROPOSAL TO AMEND THE CUPERTINO NATIONAL BANCORP EMPLOYEE STOCK PURCHASE
PLAN." On March 1, 1995, 10,543 shares remained available for grant under the
Purchase Plan. From the inception of the Purchase Plan through March 3, 1995,
Messrs. Allen, Smith, Brenner and Montgomery have purchased a total of 6,026,
685, 526 and 1,222 shares, respectively; all current executive officers as a
group (4 persons) have purchased a total of 8,459 shares and all employees other
than current officers purchased a total of 21,200 shares of stock. Non-employee
directors are not eligible to purchase stock under the Purchase Plan.
The following table sets forth share acquired under the Purchase Plan during
the year ended December 31, 1994 by (i) each executive officer named in the
Summary Compensation Table, (ii) all current executive officers as a group,
(iii) all current directors who are not executive offers as a group; and (iv)
all employees, including all officers who are not executive officers, as a
group. Participation under the Purchase Plan is at the election of each
employee. ACCORDINGLY, FUTURE PURCHASES AND PRICING INFORMATION UNDER THE
PURCHASE PLAN ARE NOT YET DETERMINABLE.
14
NEW PLAN BENEFITS
CUPERTINO NATIONAL BANCORP
EMPLOYEE STOCK PURCHASE PLAN/1/
--------------------------------
PURCHASE PRICE NUMBER OF
NAME AND POSITION (PER SHARE) SHARES
- --------------------------------- ---------------- -------------
C. Donald Allen $8.71 345
President and Chief 8.13 369
Executive Officer of the 7.97 376
Company; Chairman of the 7.54 398
Board and Chief Executive
Officer of the Bank
Steven C. Smith $8.13 221
Executive Vice President, 7.97 226
Chief Financial Officer and 7.54 238
Acting Chief Operating
Officer of the Company and
the Bank
Kenneth Brenner $8.71 69
Executive Vice President 8.13 86
7.97 76
7.54 79
Scott A. Montgomery/2/ $8.71 69
Former Executive Vice 8.13 148
President of the Company; 7.97 150
Former President and Chief
Operating Officer of the
Bank
Executive Group (6 persons)/3/ $7.54-8.71 2,850
Non-Executive Director -- --
Group (12 persons)
Non-Executive Officer $7.54-8.71 5,075
Employee Group
- ---------------
/1/ Non-employee directors are not eligible to participate in the Purchase
Plan.
/2/ Mr. Montgomery ceased to be an executive officer and director of the
Company and the Bank on October 1, 1994.
/3/ Includes three persons who are no longer executive officers of the Company;
does not include one person who became an executive officer after
December 31, 1995.
15
REPORT OF THE EXECUTIVE COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The compensation of the executive officers of the Company and the Bank is
reviewed and approved annually by the Executive Committee of the Board of
Directors. The Company's executive officers are also executive officers of
Cupertino National Bank. During 1994, Messrs. C. Donald Allen, Glen McLaughlin,
Rex D. Lindsay, John M. Gatto and Dick J. Randall were members of the Executive
Committee. Scott Montgomery also served on the Executive Committee until his
resignation from the Board of Directors and all committees thereof in October
1994.
The Executive Committee's philosophy is that compensation should be
designed to reflect the value created for shareholders while supporting the
Company's strategic goals. The committee reviews the compensation of top
executives to insure that the Company's compensation programs are linked to its
financial performance and shareholders' interests and total compensation
opportunities are aimed at the 75th percentile of those offered by employers of
comparable size in our industry. Annual compensation for the Company's
executive officers consists of three elements:
1) Salary which is based on factors such as the individual officer's
level of responsibility and comparison to similar positions in the Company and
comparable companies in the industry. Salaries are reviewed by the Executive
Committee on an annual basis.
2) Annual cash incentive bonuses which are based on individual
performance and the performance of the Company measured primarily in terms of
increases in the Company's return on shareholders equity, return on average
assets, earnings per share, asset growth, net interest margin, credit losses and
expense controls. The annual incentive compensation plan is funded from the
Company's pre-tax income. Individual awards for executive officers are based
upon percentages of the total bonus pool based on the individual's position and
the Executive Committee's assessment of such individual's contribution in such
position, determined by the performance of the Company and the Bank based upon
measurable goals, adjusted annually. While many of the factors considered in
determining whether to award an incentive bonus are objective, the Executive
Committee may exercise its subjective judgment in determining actual bonus
amounts. During 1994 the Committee awarded incentive bonuses to certain
executive officers, including the Chief Executive Officer, based on a number of
criteria, including the performance of the Company and the participant and the
individual's achievement of goals specified by the Board of Directors. See
"SUMMARY COMPENSATION TABLE."
3) Stock option grants are intended to increase the executive's interests
in the Company's long-term success and to link the interests of the executives
with those of the shareholders as measured by the Company's share price. Stock
options are granted at the prevailing market value of the Company's common stock
and will only have value if the Company's stock price increases. Generally,
options vest in equal amounts over three or five years.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Company has reviewed recent amendments to the Internal Revenue Code of
1986, as amended (the "Code"), and related regulations of the Internal Revenue
Service that restrict deductibility of executive compensation paid to the five
most highly compensated executive officers if such compensation exceeds
$1,000,000 for any such individual during any fiscal year and does not qualify
for an exception under the statute or proposed regulations. The Compensation
Committee concluded in March 1995 that it would be advisable to establish
certain restrictions on the granting of options under the Option Plan in order
to qualify compensation recognized in connection with the options for an
exemption from the $1,000,000 limit. See "PROPOSAL TO ADOPT THE CUPERTINO
NATIONAL BANCORP 1995 STOCK OPTION PLAN." The Committee does not believe that
other components of the Company's compensation will be likely to exceed
$1,000,000 annually for any
16
executive officer in the foreseeable future and, therefore, concluded that no
further action with respect to qualifying such compensation for deductibility
was necessary at this time. In the future, the Committee will continue to
evaluate the advisability of qualifying its executive compensation for
exemptions from the limit on the deductibility of such compensation. The
Committee's policy is to qualify its executive compensation for deductibility
under applicable tax laws as practicable.
EXECUTIVE COMMITTEE
C. Donald Allen
Glen McLaughlin
Rex D. Lindsay
John M. Gatto
Dick J. Randall
Scott Montgomery (resigned October 1, 1995)
17
COMPARISON OF SHAREHOLDER RETURN
Set forth below is a line graph comparing the annual percentage change in
the cumulative total return on the Company's Common Stock with the cumulative
total return of the Total Return Index for Nasdaq U.S. Stocks ("Nasdaq US") and
the Nasdaq Bank Stock Index ("Nasdaq Banks") for the period commencing on
December 29, 1989 and ending on December 30, 1994./1/
COMPARISON OF CUMULATIVE TOTAL RETURN FROM DECEMBER 29, 1989
THROUGH DECEMBER 30, 1994/2/
AMONG CNB, NASDAQ US AND NASDAQ BANKS
[PERFORMANCE GRAPH APPEARS HERE]
Measurement Period NASDAQ
(Fiscal Year Covered) CNB NASDAQ US BANKS
- --------------------- ---------- --------- ----------
Measurement Pt- 12/29/1989 $100.00 $100.00 $100.00
FYE 12/31/1990 $ 61.55 $ 84.81 $ 73.49
FYE 12/31/1991 $ 66.89 $136.11 $120.58
FYE 12/31/1992 $ 75.94 $158.38 $175.47
FYE 12/31/1993 $ 98.55 $180.71 $200.02
FYE 12/30/1994 $ 95.74 $176.68 $199.38
- --------------
/1/ The last trading day in 1989 was December 29, 1989 and the last trading day
in 1994 was December 30, 1994.
/2/ Assumes that $100.00 was invested on December 29, 1989 (the last trading
day in 1989) in the Company's Common Stock and each index, and that all
dividends were reinvested; returns have been adjusted for stock dividends
declared by the Company. Shareholder returns over the indicated period
should not be considered indicative of future shareholder returns.
18
PROPOSAL TO ADOPT THE 1995 STOCK OPTION PLAN
The Company's 1985 Stock Option Plan will terminate on August 6, 1995. To
be able to continue granting stock options to provide a long-term incentive to
the Bank's employees to contribute to its growth and profitability, the Board of
Directors approved the adoption of the Cupertino National Bancorp 1995 Stock
Option Plan (the "Option Plan") in March 1995, subject to shareholder approval.
The Board of Directors believes that approval of the adoption of the Option
Plan is in the best interests of the Company and its shareholders because the
ability to grant stock options is an important factor in attracting, motivating
and retaining qualified personnel essential to the success of the Company.
SUMMARY OF THE PROVISIONS OF THE OPTION PLAN
The following summary of the Option Plan is qualified in its entirety by
the specific language of the Option Plan, a copy of which is available to any
shareholder upon request.
General. The Option Plan provides for the grant to employees of incentive
stock options within the meaning of section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and the grant to employees and consultants of
nonstatutory stock options. A maximum of 100,000 of the authorized but unissued
shares of the Common Stock of the Company may be issued upon the exercise of
options granted pursuant to the Option Plan. The Option Plan limits the number
of shares for which options may be granted to any employee within any fiscal
year of the Company to 25,000, except that the Company may make an additional
one-time option grant to any newly-hired employee of up to 40,000 shares (the
"Option Limit"). In the event of any stock dividend, stock split, reverse stock
split, recapitalization, combination, reclassification, or like change in the
capital structure of the Company, appropriate adjustments will be made to the
shares subject to the Option Plan, to the Option Limit and to outstanding
options. To the extent any outstanding option under the Option Plan expires or
terminates prior to exercise in full or if shares issued upon exercise of an
option are repurchased by the Company, the shares of Common Stock for which such
option is not exercised or the repurchased shares are returned to the Option
Plan and become available for future grant. The Company intends that
compensation related to options granted under the Option Plan qualify for the
"performance-based compensation" exemption under section 162(m) of the Code.
Section 162(m) generally limits the deductibility by the Company for federal
income tax purposes of compensation paid to certain executive officers.
Administration. The Option Plan is administered by the Board or a duly
appointed committee of the Board. With respect to the participation of
individuals who are subject to Section 16 of the Securities Exchange Act of 1934
(the "Exchange Act"), the Option Plan must be administered in compliance with
the requirements of Rule 16b-3 under the Exchange Act. Subject to the
provisions of the Option Plan, the Board or the committee determines the persons
to whom options are to be granted, the number of shares to be covered by each
option, whether an option is to be an incentive stock option or a nonstatutory
stock option, the terms of vesting and exercisability of each option, including
the effect thereon of termination of employment or a Transfer of Control (as
defined below), the type of consideration to be paid to the Company upon
exercise of an option, the term of each option, and all other terms and
conditions of the options. The Board or committee will interpret the Option
Plan and options granted under the Option Plan, and all determinations of the
Board or committee will be final and binding on all persons having an interest
in the Option Plan or any option.
Eligibility. All employees (including prospective employees and officers
and directors who are also employees) and consultants (including prospective
consultants of the Company or of any present or future parent or subsidiary
corporations of the Company) are eligible to participate in the Option Plan. As
of March 1, 1995, the Company had approximately 107 employees, including four
executive
19
officers, and approximately three consultants. Only persons who are employees
on the date of the option grant may be granted incentive stock options.
Consultants and prospective service providers may only be granted nonstatutory
stock options.
Terms and Conditions of Options. Each option granted under the Option Plan
is evidenced by a written agreement between the Company and the optionee
specifying the number of shares subject to the option and the other terms and
conditions of the option, consistent with the requirements of the Option Plan.
The per share exercise price of an option must equal at least the fair market
value of a share of the Company's Common Stock on the date of grant. However,
the per share exercise price of any incentive stock option granted to a person
who at the time of grant owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any parent or
subsidiary corporation of the Company must be at least 110% of the fair market
value of a share of the Company's Common Stock on the date of grant, and the
term of any such option cannot exceed five years.
Generally, options may be exercised by payment of the exercise price in
cash, by check, or in cash equivalent, by tender of shares of the Company's
Common Stock owned by the optionee having a fair market value not less than the
exercise price, by the assignment of the proceeds of a sale of some or all of
the shares of Common Stock being acquired upon the exercise of the option, or by
any combination of these. However, the Board or committee may restrict the
forms of payment permitted in connection with any option grant or may grant
options permitting payment of the exercise price with a promissory note or such
other consideration as may be permitted by applicable law.
Options granted under the Option Plan will become exercisable and vested at
such times as specified by the Board or committee. Generally, options granted
under the Option Plan become exercisable as the underlying shares vest. Shares
subject to options generally vest in installments subject to the optionee's
continued employment or service. The maximum term of options granted under the
Option Plan is ten years. Options are nontransferable by the optionee other
than by will or by the laws of descent and distribution, and are exercisable
during the optionee's lifetime only by the optionee.
Transfer of Control. In general, a "Transfer of Control" may occur upon
(i) the sale or exchange by the shareholders of the Company of all or
substantially all of the voting stock of the Company or a merger or
consolidation in which the Company is a party, if the shareholders immediately
before such event do not retain, directly or indirectly, at least a majority of
the voting stock of the Company or its successor, (ii) the sale, exchange or
transfer of all or substantially all of the assets of the Company, unless the
shareholders of the Company immediately before such event retain, directly, or
indirectly, at least a majority of the voting stock of the corporation to which
the assets were transferred, or (iii) a liquidation or dissolution of the
Company. If a Transfer of Control occurs, the surviving, continuing, successor,
or purchasing corporation or parent corporation thereof (the "Acquiring
Corporation") may assume outstanding options or substitute substantially
equivalent options for the Acquiring Corporation's stock for the outstanding
options. Any options which are neither assumed or substituted for by the
Acquiring Corporation nor exercised as of the date of the Transfer of Control
will terminate effective as of such date. The Board or committee may, in its
sole discretion, provide in connection with the grant or amendment of any option
that it will automatically become fully exercisable ten days prior to a Transfer
of Control, or that, if the Acquiring Corporation elects not to assume or
substitute a substantially equivalent option for the Acquiring Corporation's
stock for the outstanding option, the option will become fully exercisable as of
the date ten days prior to the Transfer of Control either automatically or at
the Board's or committee's discretion.
Termination or Amendment. Unless sooner terminated, no options may be
granted under the Option Plan after March 16, 2005. However, in the event that
the shareholders during such term approve an increase in the share reserve of
the Option Plan, options may be granted under the Option Plan for ten (10) years
following the earlier of (i) the date on which the Board adopted the amendment
20
to increase the share reserve, or (ii) the date on which the shareholders
approved the share reserve increase.
The Board or committee may terminate or amend the Option Plan at any time,
but, without shareholder approval, the Board may not amend the Option Plan to
increase the total number of shares of Common Stock reserved for issuance
thereunder, change the class of persons eligible to receive incentive stock
options, or expand the class of persons eligible to receive nonstatutory stock
options. No amendment may adversely affect an outstanding option without the
consent of the optionee, unless the amendment is intended to preserve the
option's status as an incentive stock option or is necessary to comply with any
applicable law or regulation.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF THE OPTION PLAN
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law with respect to
participation in the Option Plan and does not attempt to describe all possible
federal or other tax consequences of such participation. Furthermore, the tax
consequences of options are complex and subject to change, and a taxpayer's
particular situation may be such that some variation of the described rules is
applicable. Optionees should consult their own tax advisors prior to the
exercise of any option and prior to the disposition of any shares of Common
Stock acquired upon the exercise of an option.
Incentive Stock Options. Options designated as incentive stock options are
intended to fall within the provisions of section 422 of the Code. An optionee
recognizes no taxable income for regular income tax purposes as the result of
the grant or exercise of such an option.
For optionees who do not dispose of their shares for two years following
the date the option was granted nor within one year following the exercise of
the option, the gain on sale of the shares (which is the difference between the
sale price and the purchase price of the shares) will be taxed as long-term
capital gain. If an optionee satisfies such holding periods upon a sale of the
shares, the Company will not be entitled to any deduction for federal income tax
purposes. Generally, if an optionee disposes of shares within two years after
the date of grant or within one year from the date of exercise (a "disqualifying
disposition"), the difference between the fair market value of the shares on the
determination date (see discussion under "Nonstatutory Stock Options" below) and
the option exercise price (not to exceed the gain realized on the sale) will be
taxed as ordinary income at the time of disposition. Any gain in excess of that
amount will be a capital gain. If a loss is recognized, there will be no
ordinary income, and such loss will be a capital loss. A capital gain or loss
will be long-term if the optionee's holding period is more than 12 months. Any
ordinary income recognized by the optionee upon the disposition of the shares
should be deductible by the Company for federal income tax purposes, except to
the extent such deduction is limited by section 162(m) of the Code.
The difference between the option exercise price and the fair market value
of the shares on the determination date of an incentive stock option (see
discussion under "Nonstatutory Stock Options" below) is an adjustment in
computing the optionee's alternative minimum taxable income and may be subject
to an alternative minimum tax which is paid if such tax exceeds the regular tax
for the year. Special rules may apply with respect to (i) certain subsequent
sales of the shares in a disqualifying disposition, (ii) certain basis
adjustments for purposes of computing the alternative minimum taxable income on
a subsequent sale of the shares and (iii) certain tax credits which may arise
with respect to optionees subject to the alternative minimum tax.
Nonstatutory Stock Options. Options not designated as incentive stock
options will be nonstatutory stock options. Nonstatutory stock options have no
special tax status. An optionee generally recognizes no taxable income as the
result of the grant of such an option.
21
Upon exercise of a nonstatutory stock option, the optionee normally
recognizes ordinary income to the extent that the fair market value of the
shares on the determination date (as defined below) exceeds the option exercise
price. If the optionee is an employee, such ordinary income generally is
subject to withholding of income and employment taxes. The "determination date"
is the date on which the option is exercised unless the shares are not vested
and/or the sale of the shares at a profit would subject the optionee to suit
under Section 16(b) of the Exchange Act, in which case the determination date is
the later of (i) the date on which the shares vest, or (ii) the date the sale of
the shares at a profit would no longer subject the optionee to suit under
Section 16(b) of the Exchange Act. (Section 16(b) of the Exchange Act generally
is applicable only to officers, directors and beneficial owners of more than 10%
of the Common Stock of the Company.) If the determination date is after the
exercise date, the optionee may elect, pursuant to section 83(b) of the Code, to
have the exercise date be the determination date by filing an election with the
Internal Revenue Service not later than 30 days after the date the option is
exercised. Upon the sale of stock acquired by the exercise of a nonstatutory
stock option, any gain or loss, based on the difference between the sale price
and the fair market value on the date of recognition of income, will be taxed as
capital gain or loss. A capital gain or loss will be long-term if the
optionee's holding period is more than 12 months. No tax deduction is available
to the Company with respect to the grant of a nonstatutory option or the sale of
the stock acquired pursuant to such grant. The Company should be entitled to a
deduction equal to the amount of ordinary income recognized by the optionee as a
result of the exercise of a nonstatutory option, except to the extent such
deduction is limited by section 162(m) of the Code, as described above.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the votes present and entitled to
vote at the Annual Meeting of Shareholders, at which a quorum representing a
majority of all outstanding shares of Common Stock of the Company is present and
voting, either in person or by proxy, is required for approval of this proposal.
Abstentions and broker non-votes will each be counted as present for purposes of
determining the presence of a quorum. Abstentions will have the same effect as
a negative vote on this proposal. Broker non-votes will not be counted for or
against this proposal. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
"FOR" THE APPROVAL OF THE ADOPTION OF THE CUPERTINO NATIONAL BANCORP 1995 STOCK
OPTION PLAN.
PROPOSAL TO AMEND THE CUPERTINO NATIONAL BANCORP
EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors adopted the Cupertino National Bancorp Employee
Stock Purchase Plan (the "Purchase Plan") in February 1991, and the shareholders
approved the Purchase Plan in April 1991. The Purchase Plan provides for the
purchase of the Company's Common Stock by employees of the Company and any
subsidiaries designated by the Board. Management believes that the Purchase
Plan is an important factor in attracting and retaining qualified employees
essential to the success of the Company. On March 16, 1995, the Board of
Directors amended the Purchase Plan, subject to shareholder approval, to (i)
increase the number of shares reserved for issuance under the Purchase Plan to
65,202 and (ii) permit otherwise eligible directors administering the plan who
are also employees to participate in the plan. The amendments will enable
eligible employees of the Company to continue to purchase shares under the terms
and conditions of the Purchase Plan. As of March 31, 1995, a total of 10,543
shares of the Company's Common Stock were available for issuance under the
Purchase Plan as previously approved by the shareholders.
SUMMARY OF THE PROVISIONS OF THE PURCHASE PLAN, AS AMENDED
The following summary of the Purchase Plan is qualified in its entirety by
the specific language of the Purchase Plan, a copy of which is available to any
shareholder upon request. The numbers of shares specified in this section and
elsewhere in this Proxy Statement have been adjusted to reflect stock dividends
effected from time to time prior to the date of this Proxy Statement.
22
General. The Purchase Plan is intended to qualify as an "employee stock
purchase plan" under section 423 of the Code. The Purchase Plan provides for
the grant of a right to each participant at the beginning of each offering
period under the plan to purchase shares of the Common Stock of the Company (a
"Purchase Right"), which Purchase Right will be exercised on each purchase date
under the Purchase Plan unless the participant has withdrawn from participation
in the offering or in the plan prior to such purchase date. As previously
approved by the shareholders, a maximum of 40,202 of the authorized but unissued
shares of the Common Stock of the Company may be issued under the Purchase Plan.
The Board of Directors has amended the Purchase Plan, subject to shareholder
approval, to increase to 65,202 the aggregate maximum number of shares that may
be issued under the plan. In the event of any stock dividend, stock split,
combination or reclassification of the Common Stock or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company, or, at the Board's discretion in the event of any
reorganization, recapitalization, rights offering, consolidation or merger of
the Company, proportional adjustments will be made to the number of shares
subject to the Purchase Plan and outstanding Purchase Rights and to the purchase
price. If any Purchase Right expires or terminates, the shares of Common Stock
subject to such Purchase Right are returned to the plan and may again be
subjected to a Purchase Right.
Administration. The Purchase Plan is administered by the Board of
Directors or by a duly appointed committee of the Board. Subject to shareholder
approval, the Board has amended the Purchase Plan to eliminate a requirement
that no member of a committee administering the plan participate in the plan.
Accordingly, a director serving on such committee who is also an employee and is
otherwise eligible to participate will be eligible to participate in the
Purchase Plan on the same terms as all other participants.
Eligibility. Any employee of the Company or of any subsidiary corporation
of the Company designated by the Board is eligible to participate in the
Purchase Plan so long as the employee is customarily employed for at least 20
hours per week and at least five months in a calendar year and has completed
three months of continuous employment. However, no employee who owns or holds
options to purchase, or as a result of participation in the Purchase Plan would
own or hold options to purchase, 5% or more of the total combined voting power
or value of all classes of stock of the Company is entitled to participate in
the Purchase Plan. As of March 31, 1995, 95 employees were eligible to
participate in the Purchase Plan.
Offerings. Generally, each offering of shares under the Purchase Plan (an
"Offering") is for a period of three months, commencing on the first day of each
calendar quarter. However, the Board may establish a different term for one or
more Offerings or different commencement or ending dates.
Participation and Purchase of Shares. Participation in the Purchase Plan
is limited to eligible employees who authorize payroll deductions, which may not
exceed 10% of compensation for each pay period during an Offering or such other
rate as the Board determines. If an Offering is shorter than 13 weeks, the
maximum withholding percentage will equal 10%, or such other rate determined by
the Board, multiplied by 13 and divided by the number of weeks in the Offering.
Once an employee becomes a participant in the Purchase Plan, the employee will
automatically participate in each successive Offering until such time as the
employee ceases to be an eligible employee, withdraws from the Purchase Plan, or
terminates employment.
Subject to certain limitations, each participant in an Offering has a
Purchase Right equal to 10% of the participant's base compensation for the
Offering (determined at the rate of base compensation in effect on the first day
of the Offering) divided by 85% of the fair market value of a share of Common
Stock on the first day of the Offering. Participants may not purchase shares of
the Company's Common Stock having a fair market value exceeding $25,000 for each
calendar year in which the participant participates in the Purchase Plan
(measured by the fair market value of the Common Stock on the first day of the
Offering in which the shares are purchased).
23
At the end of each Offering, a participant acquires the number of shares of
the Company's Common Stock determined by dividing the total amount of payroll
deductions from the participant's compensation during the Offering by the
purchase price, limited in any case by the number of shares subject to the
participant's Purchase Right for the Offering. The purchase price per share at
which the shares are sold under the Purchase Plan generally equals 85% of the
lesser of the fair market value of a share of Common Stock on the first day of
the Offering or on the last day of the Offering. The fair market value of the
Common Stock on any relevant date generally will be the average of the high and
low sales prices per share of the Company's Common Stock on such date as
reported on the Nasdaq National Market. As of March 31, 1995, the fair market
value of the Company's Common Stock was $8.88 per share, as determined under the
preceding sentence. Any payroll deductions under the Purchase Plan not applied
to the purchase of shares is returned to the participant, except for an amount
insufficient to purchase another whole share, which amount may be applied to the
next Offering.
A participant may withdraw from an Offering at any time without affecting
his or her eligibility to participate in future Offerings. However, once a
participant withdraws from an Offering, that participant may not again
participate in the same Offering.
Change in Capitalization. In the event of a merger of the Company or a
sale of all or substantial all of its assets, the Board may accelerate the last
day of the current Offering to a date on or before the effective date of the
transaction unless the successor corporation or a parent or subsidiary
corporation thereof assumes or substitutes substantially equivalent purchase
rights for those outstanding under the Purchase plan. Unless otherwise provided
by the Board, the current Offering will terminate immediately prior to a
dissolution or liquidation of the Company.
Termination or Amendment. The Purchase Plan will continue until terminated
by the Board of Directors or until all of the shares reserved for issuance under
the Purchase Plan have been issued. The Board may amend or terminate the
Purchase Plan at any time, except that the approval of the Company's
shareholders is required within twelve months of the adoption of any amendment
increasing the number of shares authorized for issuance under the Purchase Plan,
changing the designation of employees eligible to participate in the Purchase
Plan, or materially increasing the benefits which may accrue to participants
under the Purchase Plan.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE PLAN
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law of participation in the
Purchase Plan and does not attempt to describe all potential tax consequences.
Furthermore, the tax consequences are complex and subject to change, and a
taxpayer's particular situation may be such that some variation of the described
rules is applicable. A participant recognizes no taxable income either as a
result of commencing to participate in the Purchase Plan or purchasing shares of
the Company's Common Stock under the terms of the Purchase Plan.
If a participant disposes of shares purchased under the Purchase Plan
within two years from the first day of the applicable Offering or within one
year from the purchase date (a "disqualifying disposition"), the participant
will realize ordinary income in the year of such disposition equal to the amount
by which the fair market value of the shares on the date the shares were
purchased exceeds the purchase price. The amount of the ordinary income will be
added to the participant's basis in the shares, and any additional gain or
resulting loss recognized on the disposition of the shares will be a capital
gain or loss. A capital gain or loss will be long-term if the participant's
holding period is more than twelve months, otherwise it will be short-term.
24
If the participant disposes of shares purchased under the Purchase Plan at
least two years after the first day of the applicable Offering and at least one
year after the date of purchase, the participant will realize ordinary income in
the year of disposition equal to the lesser of (i) the excess of the fair market
value of the shares on the date of disposition over the purchase price or (ii)
15% of the fair market value of the shares on the first day of the applicable
Offering. The amount of any ordinary income will be added to the participant's
basis in the shares, and any additional gain recognized upon the disposition
after such basis adjustment will be a long-term capital gain. If the fair
market value of the shares on the date of disposition is less than the purchase
price, there will be no ordinary income and any loss recognized will be a long-
term capital loss.
If the participant still owns the shares at the time of death, the lesser
of (i) the excess of the fair market value of the shares on the date of death
over the purchase price or (ii) 15% of the fair market value of the shares on
the first day of the Offering in which the shares were purchased will constitute
ordinary income in the year of death.
The Company should be entitled to a tax deduction in the year of a
disqualifying disposition equal to the amount of ordinary income recognized by
the participant as a result of the disposition, except to the extent such
deduction is limited by section 162(m) of the Code, as described above. In all
other cases, no deduction is allowed to the Company.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the votes present or represented by
proxy and entitled to vote at the Annual Meeting of Shareholders, at which a
quorum representing a majority of all outstanding shares of Common Stock of the
Company is present and voting, either in person or by proxy, is required for
approval of this proposal. Abstentions and broker non-votes will each be
counted as present for purposes of determining the presence of a quorum.
Abstentions will have the same effect as a negative vote. Broker non-votes will
not be counted for or against this proposal. THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT OF THE PURCHASE PLAN.
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of the Company has selected Coopers & Lybrand L.L.P.
as independent accountants to audit the financial statements of the Company for
the fiscal year ending December 31, 1995. A representative of Coopers & Lybrand
L.L.P. is expected to be present at the Annual Meeting with the opportunity to
make a statement if the representative desires to do so, and is expected to be
available to respond to appropriate questions.
Deloitte & Touche LLP, the Company's former independent accountants, were
dismissed on October 20, 1994. The decision to change accountants was approved
by the Company's Board of Directors on October 20, 1994 and became effective
upon the signing of an agreement letter with the new independent auditors.
Coopers & Lybrand L.L.P. was engaged on October 20, 1994 as the Company's
independent accountants. Deloitte & Touche LLP's report on the financial
statements for both of the past two years contained no adverse opinion or a
disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope, or accounting principles. During the two most recent fiscal years
and any subsequent interim period preceding the dismissal there were no
disagreements with Deloitte & Touche LLP on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure,
which disagreement, if not resolved to the satisfaction of Deloitte & Touche LLP
would have caused it to make reference to the subject matter of the disagreement
in connection with this report. Furthermore, during the two most recent fiscal
years and any subsequent interim period preceding the dismissal there were no
notifications by Deloitte & Touche LLP that the Company's internal controls were
not reliable, that management's representations could not be relied upon, that
there was no need to significantly increase the scope of
25
their audits, or that information had been noted that materially impacts the
fairness or reliability of the financial statements.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the votes cast at the Annual Meeting
of Shareholders, at which a quorum representing a majority of all outstanding
shares of Common Stock of the Company is present and voting, either in person or
by proxy, is required for approval of this proposal. Abstentions and broker
non-votes will each be counted as present for purposes of determining the
presences of a quorum, but will not be counted as having voted on the proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPOINTMENT OF
COOPERS & LYBRAND L.L.P. AS THE COMPANY'S INDEPENDENT ACCOUNTANTS FOR THE FISCAL
YEAR ENDING DECEMBER 31, 1995.
SHAREHOLDER PROPOSALS TO BE PRESENTED
AT NEXT ANNUAL MEETING
Proposals of shareholders intended to be presented at the next Annual
Meeting of the Shareholders of the Company must be received by the Company at
its offices at 20230 Stevens Creek Boulevard, Cupertino, California, 95014, not
later than December 29, 1995 and satisfy the conditions established by the
Securities and Exchange Commission for shareholder proposals to be included in
the Company's proxy statement for that meeting.
TRANSACTION OF OTHER BUSINESS
At the date of this Proxy Statement, the only business which the Board of
Directors intends to present or knows that others will present at the meeting is
as set forth above. If any other matter or matters are properly brought before
the meeting, or any adjournment thereof, it is the intention of the persons
named in the accompanying form of proxy to vote the proxy on such matters in
accordance with their best judgment.
By Order of the Board of Directors
C. DONALD ALLEN,
Chief Executive Officer
April 27, 1995
26
CUPERTINO NATIONAL BANCORP
EMPLOYEE STOCK PURCHASE PLAN
(As Amended Effective March 16, 1995)
A. PURPOSE, HISTORY AND DESCRIPTION
--------------------------------
The Employee Stock Purchase Plan (the "Purchase Plan") of Cupertino
National Bancorp (the "Company") provides eligible employees of the Company and
its Designated Subsidiaries with an opportunity to purchase shares of the
Company's Common Stock through payroll deductions.
The Purchase Plan, under which 65,202/1/ shares of the Company's Common
Stock are reserved for issuance to all employees of the Company and its
Designated Subsidiaries who meet certain minimum employment criteria, was
adopted in its original form by the Board of Directors of Cupertino National
Bancorp (the "Board") on February 21, 1991, and amended from time to time.
The following terms shall have the meanings defined below:
(a) "Code" means the Internal Revenue Code of 1986, as amended.
(b) "Continuous Status as an Employee" shall mean the absence of any
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of a leave of absence
agreed to in writing by the Company, provided that such leave is for a period of
not more than 90 days or reemployment upon the expiration of such leave is
guaranteed by contract or statute.
(c) "Designated Subsidiaries" means the Subsidiaries which have been
designated by the Board from time to time in its sole discretion as eligible to
participate in the Purchase Plan.
(d) "Employee" means any person, including an officer, who is
customarily employed for at least twenty (20) hours per week and more than five
(5) months in a calendar year by the Company or one of its Designated
Subsidiaries.
(e) "Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if at the time of the
granting of the option, each of the corporations other than the Company owns
stock
- ---------------
/1/ The number of shares is 55,000 adjusted for stock dividends subsequent to
the date of the original approval of the Purchase Plan.
1
possessing 50 percent or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
(f) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of the
granting of the option, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing at least 50 percent or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
B. SHARE RESERVE
-------------
The maximum number of shares which may be issued under the Purchase Plan is
65,202/2/ shares of the Company's authorized but unissued Common Stock (the
"Shares") subject to adjustment upon changes in capitalization of the Company as
provided in paragraph N below. In the event that any option granted under the
Purchase Plan (a "Plan Option") for any reason expires or is terminated, the
Shares allocable to the unexercised portion of such Plan Option may again be
made subject to a Plan Option. The Shares to be sold to participants in the
Purchase Plan may be, at the election of the Company, either treasury shares or
shares authorized but unissued. If the total number of Shares which would
otherwise be subject to Plan Options granted pursuant to paragraph G hereof on
the Offering Date of an Offering Period exceeds the number of Shares then
available under the Purchase Plan (after deduction of all Shares for which
options have been exercised or are then outstanding), the Company shall make a
pro rata allocation of the Shares remaining available for option grant in as
uniform and equitable a manner as is practicable. In such event, the Company
shall give written notice of such reduction of the number of Shares subject to a
Plan Option to each Participant affected thereby and shall return any excess
funds accumulated in each Participant's account as soon as practicable after the
termination of such Offering Period.
C. ADMINISTRATION
--------------
The Purchase Plan may be administered by the Board or by a duly appointed
committee of the Board. Any subsequent references to the Board shall also mean
the committee if it has been appointed. All questions of interpretation of the
Purchase Plan or of any Plan Options shall be determined by the Board, and such
determinations shall be final, binding and conclusive upon all persons having an
interest in the Purchase Plan and/or any Plan Option. Subject to the provisions
of the Purchase Plan, the Board shall determine all of the relevant terms and
conditions of Plan Options granted pursuant to the Purchase Plan; provided,
however, that all Participants granted Plan Options pursuant to the Purchase
Plan shall have the same rights and privileges within the meaning of section
423(b)(5) of the Code. All
- ----------------
/2/ The number of shares is 55,000 adjusted for stock dividends subsequent to
the date of the original approval of the Purchase Plan.
2
expenses incurred in connection with the administration of the Purchase Plan
shall be paid by the Company.
D. ELIGIBILITY
-----------
Any Employee is eligible to participate in the Purchase Plan and any
Offering under the Purchase Plan except the following:
(i) an Employee who has not completed three months of continuous employment
with the Company or Designated Subsidiary as of the commencement of the Offering
Period (as hereinafter defined); and
(ii) an Employee who (a) owns or (b) holds options to purchase, or who, as
a result of participation in the Purchase Plan, would (a) own or (b) hold
options to purchase, stock of the Company possessing five percent or more of the
total combined voting power or value of all classes of the Company within the
meaning of section 423(b)(3) of the Code.
E. OFFERING DATES
--------------
(i) OFFERING PERIODS. The Purchase Plan shall be implemented by four
-----------------
annual offering periods of three months' duration (each of which referred to
herein as an "Offering Period"), commencing on the first day of each calendar
quarter (January 1, April 1, July 1, and October 1) and ending on the last day
of each calendar quarter (March 31, June 30, September 30, and December 31).
The first Offering Period shall commence on July 1, 1991. The Board may,
however, establish a different term for one or more future Offerings and/or
different commencing and/or ending dates for such Offerings without Shareholder
approval, if such change is announced at least fifteen (15) days prior to the
scheduled beginning of the first Offering Period to be affected. An employee
who becomes eligible to participate in the Purchase Plan after an Offering
Period has commenced shall not be eligible to participate during such Offering
Period. The first day of an Offering Period shall be the "Offering Date" for
such Offering Period.
(ii) GOVERNMENT APPROVAL; SHAREHOLDER APPROVAL. Notwithstanding any other
------------------------------------------
provisions of the Purchase Plan to the contrary, any Plan Option granted
pursuant to the Purchase Plan shall be subject to (a) obtaining all necessary
governmental approvals and/or qualifications of the sale and/or issuance of the
Plan Options and/or the Shares, and (b) in the case of Plan Options with an
Offering date after an amendment to the Purchase Plan, obtaining any necessary
approval of the shareholders of the Company required by paragraph R below.
F. PARTICIPATION IN THE PURCHASE PLAN
----------------------------------
(i) INITIAL PARTICIPATION. An eligible Employee may elect to become a
---------------------
Participant effective on the first Offering Date after satisfying the
eligibility requirements set forth in paragraph D above by delivering a
subscription agreement
3
authorizing payroll deductions (a "Subscription Agreement") to the Company's
payroll office at such time at least seven (7) days prior to an Offering Date as
may be established by the Company (the "Enrollment Date"). An eligible Employee
who does not deliver a Subscription Agreement to the Company's payroll office
prior to the Enrollment Date for the first Offering Date after becoming eligible
to participate in the Purchase Plan shall not participate in the Purchase Plan
for that Offering Period or for any subsequent Offering Period unless such
Employee subsequently enrolls in the Purchase Plan by filing a Subscription
Agreement with the Company prior to the applicable Enrollment Date for such
subsequent Offering Date.
(ii) AUTOMATIC PARTICIPATION IN SUBSEQUENT OFFERINGS. A participant shall
------------------------------------------------
automatically participate in each succeeding Offering Period until such time as
such Participant withdraws from the Purchase Plan pursuant to paragraph K below
or terminates employment with the Company. A Participant is not required to
file an additional Subscription Agreement for such Offering Periods in order to
automatically participate therein.
G. RIGHT TO PURCHASE SHARES
------------------------
Subject to the limitations set forth in paragraphs B, I(iii), I(v), and
J(ii), on each Offering Date, each Participant shall be granted a Plan Option to
purchase (at the purchase price determined under paragraph H) a number of whole
Shares arrived at by dividing (a) an amount equal to 10% of the Participant's
base Compensation for the Offering Period beginning on such Offering Date
determined at the rate of such Participant's base Compensation in effect as of
such Offering Date by (b) 85% of the fair market value of a share of the
Company's Common Stock on the Offering Date. "Compensation" includes all
amounts paid in cash and includable as "wages" subject to tax under section
3101(a) of the Code without applying the dollar limitation of section 3121(a) of
the Code. Accordingly, "Compensation" includes salaries, commissions, bonuses
and contributions made at the direction of the Participant pursuant to certain
qualified cash or deferred arrangements. "Compensation" does not include
reimbursements of expenses, allowances, or any amount deemed received by a
Participant without the actual transfer of cash or any amounts directly paid
pursuant to the Purchase Plan or any other stock purchase or stock option plan.
The fair market value of a share of the Company's Common Stock shall be
determined in accordance with paragraph H.
H. PURCHASE PRICE
--------------
The purchase price at which Shares may be acquired in any Offering under
the Purchase Plan shall be set by the Board. Unless otherwise provided by the
Board before the commencement of an Offering Period, the purchase price for the
Offering Period shall be 85% of the lesser of (i) the fair market value of the
Company's Common Stock, as determined by the Board, on the Offering Date of such
Offering Period or (ii) the fair market value of the Company's Common Stock, as
determined by the Board, on the last day of the Offering Period. In no event
may the purchase price be lower than the price specified in the previous
sentence. The fair market
4
value of the Company's Common Stock at any point in time has been determined to
be the average of the high and low sales prices of the Company's Common Stock on
such date as reported on the National Association of Securities Dealers
Automated Quotation ("NASDAQ") National Market System.
I. PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
---------------------------------------------
(i) ACCUMULATION OF PAYROLL DEDUCTIONS. The purchase price of Shares to be
-----------------------------------
acquired in an Offering Period shall be accumulated by payroll deductions over
the Offering Period. Except as set forth below, the amount of Compensation to
be withheld from a Participant's Compensation during each pay period shall be
determined by the Participant's subscription agreement.
(ii) DECREASE OF PAYROLL DEDUCTIONS. During an Offering Period, a
-------------------------------
Participant may elect to decrease the rate of payroll deductions from his or her
Compensation by filing an amended Subscription Agreement with the Company on or
before the "Change Notice Date". The "Change Notice Date" shall initially be
the seventh day prior to the end of the first pay period for which such election
is to be effective; however, the Company may change such Change Notice Date from
time to time.
(iii) MAXIMUM DEDUCTIONS. The amount of payroll deductions with respect
-------------------
to the Purchase Plan for any Participant during any pay period shall not exceed
10%, or such other rate as may be determined from time to time by the Board, of
the Participant's Compensation (as hereinabove defined) for such pay period;
provided, however, that in the event the Offering Period is shorter than 13
weeks, the maximum withholding percentage shall be adjusted to equal 10%, or
such other rate as may be determined from time to time by the Board, multiplied
by 13 and divided by the number of weeks in the Offering Period.
(iv) COMMENCEMENT OF PAYROLL DEDUCTIONS. Payroll deductions shall commence
-----------------------------------
on the first payday following the Offering Date of an Offering Period and shall
continue to the end of such Offering Period unless sooner altered or terminated
as provided in the Purchase Plan.
(v) CERTAIN RULES TO BE ESTABLISHED BY COMPANY. The Company may, from time
-------------------------------------------
to time, establish (i) a minimum required amount of payroll deductions for
participation in any Offering, (ii) limitations on the frequency and/or number
of changes in the amount of payroll deductions during an Offering, (iii) such
other limitations or procedures as deemed advisable by the Company in the
Company's sole discretion which are consistent with the Purchase Plan.
(vi) NO INTEREST ON PAYROLL DEDUCTION. Interest shall not be accrued or
---------------------------------
paid on payroll deductions from a Participant's Compensation.
(vii) PARTICIPANT ACCOUNTS. Individual accounts shall be maintained for
---------------------
each Participant. All payroll deductions from a Participant's compensation
shall be
5
credited to the Participant's account under the Purchase Plan and shall be
deposited with the general funds of the Company. All payroll deductions
received or held by the Company may be used by the Company for any corporate
purpose.
J. PURCHASE OF SHARES
------------------
(i) PURCHASE. On the last day of an Offering Period, each Participant who
--------
has not withdrawn from the Offering or whose employment has not terminated on or
before such last day shall automatically purchase that number of whole Shares
arrived at by dividing the total amount credited to Participant's account
pursuant to paragraph I(vii) above by the Purchase Price established pursuant to
paragraph H above (subject to the limitation in paragraph J(ii) below). All
additional cash remaining in the Participant's account for such completed
Offering shall be refunded to the Participant as soon as practicable after the
last day of the Offering Period. In the event the cash to be returned to a
Participant pursuant to the preceding sentence is an amount less than the amount
necessary to purchase a whole Share, the Company shall maintain such cash in the
Participant's account to be applied toward the purchase of Shares in the next
subsequent Offering.
(ii) FAIR MARKET VALUE LIMITATION. No participant shall be granted a Plan
-----------------------------
Option which would permit the Participant to purchase Shares under the Purchase
Plan (and all similar plans of the Company and any Subsidiary) at a rate which
exceeds $25,000 of the fair market value of such Shares (determined at the time
of grant) for each calendar year in which such Plan Option is outstanding.
(iii) RIGHTS AS A SHAREHOLDER AND EMPLOYEE. A Participant shall have no
-------------------------------------
rights as a shareholder by virtue of the Participant's participation in the
Purchase Plan until the date of issuance of a certificate or certificates for
the Shares being purchased pursuant to the exercise of the Participant's Plan
Option. No adjustment shall be made for dividends or distributions or other
rights for which the record date is prior to the date such certificate or
certificates is issued. Nothing in the Purchase Plan shall confer upon a
Participant any right to continue in the employ of the Company or interfere in
any way with any right of the Company to terminate the Participant's employment
at any time.
(iv) WITHHOLDING TAX. At the time the Shares are purchased for a
----------------
Participant, the Company shall withhold from the Participant's Compensation the
amount necessary to make adequate provision for federal and state withholding
obligations of the Company, if any, which arise upon such purchase.
K. WITHDRAWAL
----------
(i) NOTICE OF WITHDRAWAL. A participant may withdraw all, but not less
---------------------
than all, of the payroll deductions credited to his account under the Purchase
Plan by signing and delivering to the Company's payroll office a written notice
of withdrawal on a form provided by the Company for such purpose. Such
withdrawal may be elected at any time prior to the end of the Offering Period.
Unless otherwise
6
indicated, withdrawal from an Offering does not result in a withdrawal from the
Purchase Plan or any succeeding Offering pursuant to the Purchase Plan. A
Participant is prohibited from again participating in the current Offering upon
withdrawal from such Offering at any time.
(ii) RETURN OF PAYROLL DEDUCTIONS. Upon withdrawal from an Offering the
-----------------------------
Participant's interest in that Offering shall terminate, and, as soon as
practical after the withdrawal, the withdrawn Participant's accumulated payroll
deductions shall be returned to the Participant.
(iii) WITHDRAWAL FROM THE PURCHASE PLAN; SUBSEQUENT PARTICIPATION. A
-----------------------------------------------------------
Participant may withdraw from the Purchase Plan by signing and delivering to the
Company's payroll office a written notice of withdrawal on a form provided by
the Company for such purpose. In the event a Participant voluntarily elects to
withdraw from the Purchase Plan, the Participant may not resume participation in
the Purchase Plan during the same Offering Period, but may participate in any
succeeding Offering under the Purchase Plan by filing a new authorization for
payroll deductions in the same manner as set forth above for initial
participation in the Purchase Plan.
L. TERMINATION OF EMPLOYMENT
-------------------------
Termination of a Participant's Continuous Status as an Employee for any
reason, including retirement or death, or the failure of a Participant to remain
an Employee eligible to participate in the Purchase Plan, shall terminate the
Participant's participation in the Purchase Plan immediately. Upon such
termination, the payroll deductions credited to the Participant's account shall
be returned to the Participant (or in the case of the Participant's death, to
the Participant's legal representative) and all rights under the Purchase Plan
shall terminate. A Participant whose participation has been so terminated may
again become eligible to participate in the Purchase Plan by again satisfying
the requirements of paragraph D above.
M. DESIGNATION OF BENEFICIARY
--------------------------
A Participant may file a written designation of a beneficiary who is to
receive Shares and/or cash, if any, from such Participant's account under the
Purchase Plan in the event of such Participant's death at a time when cash or
Shares are held for his account. Such designation of beneficiary may be changed
by the Participant at any time by written notice. In the event of the death of
a Participant in the absence of a valid designation of a beneficiary who is
living at the time of such Participant's death, the Company shall deliver such
Shares and/or cash to the executor or administrator of the estate of the
Participant; or if no such executor or administrator has been appointed (to the
knowledge of the Company), the Company, in its discretion, may deliver such
Shares and/or cash to the spouse or to any one or more dependents or relatives
of the Participant; or if no spouse, dependent or relative is known to the
Company, the to such other person as the Company may reasonably designate.
7
N. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
------------------------------------------
Subject to any required action by the shareholders of the Company, the
number of Shares covered by each Plan Option under the Purchase Plan which has
not been exercised and the number of shares of Common Stock which have been
authorized for issuance under the Purchase Plan but have not yet been placed
under option (collectively, the "Reserves"), as well as the price per share of
Common Stock covered by each Plan Option under the Purchase Plan which has not
yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, stock dividend, combination or reclassification of the Common Stock or
any other increase or decrease in the number of shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to a Plan
Option.
In the event of a proposed dissolution or liquidation of the Company, the
Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. In the event of a
proposed sale of all or substantially all of the assets of the Company, or the
merger of the Company with or into another corporation, each outstanding Plan
Option under the Purchase Plan shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation (the "Acquiring Corporation"). If the Acquiring
Corporation elects not to assume or substitute for the outstanding Plan Options,
the Board may, in its sole discretion and notwithstanding any other provision
herein to the contrary, adjust the ending date of the then current Offering
Period to a date on or before the effective date of such proposed transaction.
If the Board makes such an adjustment to the ending date of the Offering Period,
the Board shall notify the Participants of such new ending at least ten days in
advance thereof.
The board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per share
of Common Stock covered by each outstanding Plan Option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of shares of its outstanding Common Stock, and
in the event of the Company being consolidated with or merged into any other
corporation.
O. TRANSFERABILITY
---------------
Neither payroll deductions credited to a Participant's account nor any
rights with regard to the exercise of a Plan Option or to receive Shares under
the Purchase
8
Plan may be assigned, transferred, pledged or otherwise disposed of in any way
(other than by will, the laws of descent and distribution, or as provided in
paragraph M hereof) by the Participant. Any such attempt at assignment,
transfer, pledge or other disposition shall be without effect, except that the
Company may treat such act as an election to withdraw funds in accordance with
paragraph K.
P. REPORTS
-------
Each Participant who purchases Shares in an Offering period shall receive
as soon as practical after the last day of each Offering Period a report of such
Participant's account setting forth the total payroll deductions accumulated,
the number of Shares purchased and the remaining cash balance to be refunded or
retained in the Participant's account pursuant to paragraph J(i) above, if any.
Q. TERM OF THE PURCHASE PLAN
-------------------------
The Purchase Plan shall become effective upon the earlier to occur of its
adoption by the Board or its approval by the shareholders of the Company. The
Purchase Plan shall continue until terminated by the Board or until all of the
Shares reserved for issuance under the Purchase Plan have been issued, whichever
shall come first.
R. AMENDMENT OR TERMINATION OF THE PURCHASE PLAN
---------------------------------------------
The Board may at any time amend or terminate the Purchase Plan, except that
such termination cannot affect Plan Options previously granted under the
Purchase Plan, nor may any amendment make any change in a Plan Option previously
granted under the Purchase Plan which would adversely affect the right of any
Participant (except as may be necessary to qualify the Purchase Plan pursuant to
section 423 of the Code), nor may any amendment be made without obtaining the
approval of the shareholders of the Company within 12 months of the adoption of
such amendment if such amendment would authorize the sale of more shares than
are authorized for issuance under the Purchase Plan, or change the designation
of the employees (or class of employees) eligible for participation in the
Purchase Plan, or materially increase the benefits which may accrue to
Participants under the Purchase Plan.
S. NOTICES
-------
All notices or other communications by a Participant to the Company in
connection with the Purchase Plan shall be deemed to have been duly given when
received in the form specified by the Company at the location, or by the person,
designated by the Company for the receipt thereof.
T. SHAREHOLDER APPROVAL
--------------------
The Purchase Plan and any increase in the number of shares reserved under
the Purchase Plan must be approved by the holders of a majority of the
outstanding
9
shares of voting stock of the Company within twelve months before or after the
date the Purchase Plan has been adopted or the increase in the number of Shares
reserved under the Purchase Plan has been approved by the Board.
U. CONDITIONS UPON ISSUANCE OF SHARES
----------------------------------
Shares shall not be issued with respect to a Plan Option unless the
exercise of such Plan Option and the issuance and delivery of such Shares
pursuant thereto shall comply with all applicable provisions of law, domestic or
foreign, including, without limitation, the Securities Act of 1933, as amended,
the Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
As a condition to the exercise of a Plan Option and if required by
applicable securities laws, the Company may require the Participant for whose
account the Plan Option is being exercised to represent and warrant at the time
of such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
V. ERISA AND INTERNAL REVENUE CODE SECTION 401
-------------------------------------------
The Purchase Plan is not subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended and is not qualified under
section 401(a) of the Code.
10
CUPERTINO NATIONAL BANCORP
1995 STOCK OPTION PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
---------------------------------------
1.1 ESTABLISHMENT. The Cupertino National Bancorp 1995 Stock Option
Plan (the "PLAN") is hereby established effective as of March 16, 1995 (the
"EFFECTIVE DATE").
1.2 PURPOSE. The purpose of the Plan is to advance the interests of
the Participating Company Group and its shareholders by providing an incentive
to attract, retain and reward persons performing services for the Participating
Company Group and by motivating such persons to contribute to the growth and
profitability of the Participating Company Group.
1.3 TERM OF PLAN. The Plan shall continue in effect until the
earlier of its termination by the Board or the date on which all of the shares
of Stock available for issuance under the Plan have been issued and all
restrictions on such shares under the terms of the Plan and the agreements
evidencing Options granted under the Plan have lapsed. However, all Options
shall be granted, if at all, within ten (10) years from the Effective Date.
Notwithstanding the foregoing, if the maximum number of shares of Stock issuable
pursuant to the Plan as provided in Section 4.1 has been amended at any time,
all Options shall be granted, if at all, no later than the last day preceding
the tenth (10th) anniversary of the earlier of (a) the latest date on which any
amendment of the maximum number of shares of Stock issuable under the Plan was
approved by the shareholders of the Company or (b) the date such amendment was
adopted by the Board.
2. DEFINITIONS AND CONSTRUCTION.
----------------------------
2.1 DEFINITIONS. Whenever used herein, the following terms shall
have their respective meanings set forth below:
(a) "BOARD" means the Board of Directors of the Company. If one
or more Committees have been appointed by the Board to administer the Plan,
"Board" also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of 1986, as amended,
and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means the Compensation Committee or other
committee of the Board duly appointed to administer the Plan and having such
powers as shall be specified by the Board. Unless the powers of the Committee
have been specifically limited, the Committee shall have all of the powers of
the Board granted herein, including, without limitation, the power to
1
amend or terminate the Plan at any time, subject to the terms of the Plan and
any applicable limitations imposed by law.
(d) "COMPANY" means Cupertino National Bancorp, a California
corporation, or any successor corporation thereto.
(e) "CONSULTANT" means any person, including an advisor, engaged
by a Participating Company to render services other than as an Employee or a
Director.
(f) "DIRECTOR" means a member of the Board or of the board of
directors of any other Participating Company.
(g) "EMPLOYEE" means any person treated as an employee
(including an officer or a Director who is also treated as an employee) in the
records of a Participating Company; provided, however, that neither service as a
Director nor payment of a director's fee shall be sufficient to constitute
employment for this purpose.
(h) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(i) "FAIR MARKET VALUE" means, as of any date, the value of a
share of stock or other property as determined by the Board, in its sole
discretion, or by the Company, in its sole discretion, if such determination is
expressly allocated to the Company herein.
(j) "INSIDER" means an officer or a Director of the Company or
any other person whose transactions in Stock are subject to Section 16 of the
Exchange Act.
(k) "OPTION" means a right to purchase Stock (subject to
adjustment as provided in Section 4.2) pursuant to the terms and conditions of
the Plan. An Option may be either (i) an Option intended to be (as set forth in
the Option Agreement), and which qualifies as, an "INCENTIVE STOCK OPTION"
within the meaning of Section 422(b) of the Code or (ii) a "NONSTATUTORY STOCK
OPTION" which is not intended to be (as set forth in the Option Agreement), or
which does not qualify as, an Incentive Stock Option.
(l) "OPTIONEE" means a person who has been granted one or more
Options.
(m) "OPTION AGREEMENT" means a written agreement between the
Company and an Optionee setting forth the terms, conditions and restrictions of
the Option granted to the Optionee.
2
(n) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(o) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation.
(p) "PARTICIPATING COMPANY GROUP" means, at any point in time,
all corporations collectively which are then Participating Companies.
(q) "RULE 16B-3" means Rule 16b-3 as promulgated under the
Exchange Act, as amended from time to time, or any successor rule or regulation.
(r) "SECTION 162(M)" means Section 162(m) of the Code, as
amended by the Revenue Reconciliation Act of 1993 (P.L. 103-66).
(s) "STOCK" means the common stock, without par value, of the
Company, as adjusted from time to time in accordance with Section 4.2.
(t) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
(u) "TEN PERCENT OWNER OPTIONEE" means an Optionee who, at the
time an Option is granted to the Optionee, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of a
Participating Company within the meaning of Section 422(b)(6) of the Code.
2.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural, and the plural shall include the singular.
Use of the term "or" is intended to include the conjunctive as well as the
disjunctive.
3. ADMINISTRATION.
--------------
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be administered by
the Board, including any duly appointed Committee of the Board. All questions of
interpretation of the Plan or of any Option shall be determined by the Board,
and such determinations shall be final and binding upon all persons having an
interest in the Plan or such Option. Any officer of a Participating Company
shall have the authority to act on behalf of the Company with respect to any
matter, right, obligation, determination or election which is the responsibility
of or which is allocated to the Company herein, provided the officer has
apparent authority with respect to such matter, right, obligation, determination
or election.
3
3.2 POWERS OF THE BOARD. In addition to any other powers set forth
in the Plan and subject to the provisions of the Plan, the Board shall have the
full and final power and authority, in its sole discretion:
(a) to determine the persons to whom, and the time or times at which,
Options shall be granted and the number of shares of Stock to be subject to each
Option;
(b) to designate Options as Incentive Stock Options or Nonstatutory
Stock Options;
(c) to determine the Fair Market Value of shares of stock or other
property;
(d) to determine the terms and conditions of each Option (which need
not be identical), including, without limitation, the exercise price of the
Option, the method of payment for shares purchased upon the exercise of the
Option, the method for satisfaction of any tax withholding obligation arising in
connection with the Option, including by the withholding or delivery of shares
of stock, the timing and terms of the exercisability or vesting of the Option,
the time of the expiration of the Option, the effect of the Optionee's
termination of employment or service with the Participating Company Group, the
effect of a Transfer of Control (as defined in Section 8.1) on the
exercisability or vesting of the Option, and all other terms and conditions of
the Option not inconsistent with the terms of the Plan;
(e) to approve one or more forms of Option Agreement;
(f) to amend, modify, extend, or renew, or grant a new Option in
substitution for, any Option or to waive any restrictions or conditions
applicable to any Option or any shares acquired upon the exercise thereof;
(g) to accelerate, continue, extend or defer the exercisability or
vesting of any Option or any shares acquired upon the exercise thereof,
including with respect to the period following an Optionee's termination of
employment or service with the Participating Company Group;
(h) to prescribe, amend or rescind rules, guidelines and policies
relating to the Plan, or to adopt supplements to, or alternative versions of,
the Plan, including, without limitation, as the Board deems necessary or
desirable to comply with the laws of, or to accommodate the tax policy or custom
of, foreign jurisdictions whose citizens may be granted Options; and
(i) to correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Option Agreement and to make all other
determinations and take such other actions with respect to the Plan or any
Option
4
as the Board may deem advisable to the extent consistent with the Plan and
applicable law.
3.3 DISINTERESTED ADMINISTRATION. With respect to participation by
Insiders in the Plan, at any time that any class of equity security of the
Company is registered pursuant to Section 12 of the Exchange Act, the Plan shall
be administered by the Board in compliance with the "disinterested
administration" requirements of Rule 16b-3.
3.4 COMMITTEE COMPLYING WITH SECTION 162(M). If a Participating
Company is a "publicly held corporation" within the meaning of Section 162(m),
the Board may establish a Committee of "outside directors" within the meaning of
Section 162(m) to approve the grant of any Option which might reasonably be
anticipated to result in the payment of employee remuneration that would
otherwise exceed the limit on employee remuneration deductible for income tax
purposes pursuant to Section 162(m).
4. SHARES SUBJECT TO PLAN.
----------------------
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as
provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be one hundred thousand (100,000) and shall
consist of authorized but unissued shares of Stock. In the event that any
outstanding Option for any reason expires or is terminated or canceled or shares
of Stock acquired, subject to repurchase, upon the exercise of an Option are
repurchased by the Company, the shares of Stock allocable to the unexercised
portion of such Option, or such repurchased shares of Stock, shall again be
available for issuance under the Plan.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of
any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of the
Company, appropriate adjustments shall be made in the number and class of shares
subject to the Plan and to any outstanding Options, in the Section 162(m) Grant
Limit set forth in Section 5.5, and in the exercise price of any outstanding
Options. If a majority of the shares which are of the same class as the shares
that are subject to outstanding Options are exchanged for, converted into, or
otherwise become (whether or not pursuant to a Transfer of Control (as defined
in Section 8.1) shares of another corporation (the "NEW SHARES"), the Board may
unilaterally amend the outstanding Options to provide that such Options are
exercisable for New Shares. In the event of any such amendment, the number of
shares subject to, and the exercise price of, the outstanding Options shall be
adjusted in a fair and equitable manner as determined by the Board, in its sole
discretion. Notwithstanding the foregoing, any fractional share resulting from
an adjustment pursuant to this Section 4.2 shall be rounded up or down to the
nearest whole number, as determined by the Board, and in no event may the
exercise price of any Option be
5
decreased to an amount less than the par value, if any, of the stock subject to
the Option.
5. ELIGIBILITY AND OPTION LIMITATIONS.
----------------------------------
5.1 PERSONS ELIGIBLE FOR OPTIONS. Options may be granted only to
Employees and Consultants. For purposes of the foregoing sentence, "Employees"
shall include prospective Employees to whom Options are granted in connection
with written offers of employment with the Participating Company Group, and
"Consultants" shall include prospective Consultants to whom Options are granted
in connection with written offers of engagement with the Participating Company
Group. Eligible persons may be granted more than one (1) Option.
5.2 OPTION GRANT RESTRICTIONS. Any person who is not an Employee on
the date an Option is granted to such person may be granted only a Nonstatutory
Stock Option. An Incentive Stock Option granted to a prospective Employee upon
the condition that such person become an Employee shall be deemed granted on the
date such person becomes an Employee, with an exercise price determined on such
date in accordance with Section 6.1.
5.3 FAIR MARKET VALUE LIMITATION. To the extent that the aggregate
Fair Market Value (determined at the time the Option is granted) of stock with
respect to which Incentive Stock Options are exercisable by an Optionee for the
first time during any calendar year (under all stock option plans of the
Participating Company Group, including the Plan) exceeds One Hundred Thousand
Dollars ($100,000), the portion of such options which exceeds such amount shall
be treated as Nonstatutory Stock Options. This Section 5.3 shall be applied by
taking Incentive Stock Options into account in the order in which they were
granted. If the Code is amended to provide for a different limitation from that
set forth in this Section 5.3, such different limitation shall be deemed
incorporated herein effective as of the date and with respect to such Options as
required by such amendment to the Code. If an Option is treated as an Incentive
Stock Option in part and as a Nonstatutory Stock Option in part by reason of the
limitation set forth in this Section 5.3, the Optionee may designate which
portion of such Option the Optionee is exercising and may request that separate
certificates representing each such portion be issued upon the exercise of the
Option. In the absence of such designation, the Optionee shall be deemed to have
exercised the Incentive Stock Option portion of the Option first.
5.4 SECTION 162(M) GRANT LIMIT. Subject to adjustment as provided in
Section 4.2, at any such time as a Participating Company is a "publicly held
corporation" within the meaning of Section 162(m), no Employee shall be granted
one or more Options within any fiscal year of the Company which in the aggregate
are for the purchase of more than twenty-five thousand (25,000) shares;
provided, however, that the Company may make an additional one-time grant to any
newly-hired Employee of an Option for the purchase of up to forty thousand
(40,000) shares (the "SECTION 162(M) GRANT LIMIT").
6
6. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by Option
-------------------------------
Agreements specifying the number of shares of Stock covered thereby, in such
form as the Board shall from time to time establish. Option Agreements may
incorporate all or any of the terms of the Plan by reference and shall comply
with and be subject to the following terms and conditions:
6.1 EXERCISE PRICE. The exercise price for each Option shall be
established in the sole discretion of the Board; provided, however, that (a) the
exercise price per share for an Option shall be not less than the Fair Market
Value of a share of Stock on the date the Option is granted and (b) no Incentive
Stock Option granted to a Ten Percent Owner Optionee shall have an exercise
price per share less than one hundred ten percent (110%) of the Fair Market
Value of a share of Stock on the date the Option is granted. Notwithstanding the
foregoing, an Option (whether an Incentive Stock Option or a Nonstatutory Stock
Option) may be granted with an exercise price lower than the minimum exercise
price set forth above if such Option is granted pursuant to an assumption or
substitution for another option in a manner qualifying under the provisions of
Section 424(a) of the Code.
6.2 EXERCISE PERIOD. Options shall be exercisable at such time or
times and subject to such terms, conditions, performance criteria, and
restrictions as shall be determined by the Board and set forth in the Option
Agreement evidencing such Option; provided, however, that (a) no Option shall be
exercisable after the expiration of ten (10) years after the date such Option is
granted, (b) no Incentive Stock Option granted to a Ten Percent Owner Optionee
shall be exercisable after the expiration of five (5) years after the date such
Option is granted, and (c) no Option granted to a prospective Employee or
prospective Consultant may become exercisable prior to the date on which such
person commences service with a Participating Company.
6.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF PAYMENT AUTHORIZED. Except as otherwise provided
below, payment of the exercise price for the number of shares of Stock being
purchased pursuant to any Option shall be made (i) in cash, by check, or cash
equivalent, (ii) by tender to the Company of shares of Stock owned by the
Optionee having a Fair Market Value (as determined by the Company without regard
to any restrictions on transferability applicable to such stock by reason of
federal or state securities laws or agreements with an underwriter for the
Company) not less than the exercise price, (iii) by the assignment of the
proceeds of a sale of some or all of the shares being acquired upon the exercise
of the Option (including, without limitation, through an exercise complying with
the provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System) (a "SAME-DAY SALE"), (iv) by the
Optionee's promissory note in a form approved by the Company, (v) by such other
consideration as may be approved by the Board from time to time to the extent
permitted by applicable law, or (vi) by any combination thereof. The Board may
at
7
any time or from time to time, by adoption of or by amendment to the standard
forms of Option Agreement described in Section 7, or by other means, grant
Options which do not permit all of the foregoing forms of consideration to be
used in payment of the exercise price or which otherwise restrict one or more
forms of consideration.
(b) TENDER OF STOCK. Notwithstanding the foregoing, an Option may not
be exercised by tender to the Company of shares of Stock to the extent such
tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock.
Unless otherwise provided by the Board, an Option may not be exercised by tender
to the Company of shares of Stock unless such shares either have been owned by
the Optionee for more than six (6) months or were not acquired, directly or
indirectly, from the Company.
(c) SAME-DAY SALE. The Company reserves, at any and all times, the
right, in the Company's sole and absolute discretion, to establish, decline to
approve or terminate any program or procedures for the exercise of Options by
means of a Same-Day Sale.
(d) PAYMENT BY PROMISSORY NOTE. No promissory note shall be permitted
if the exercise of an Option using a promissory note would be a violation of any
law. Any permitted promissory note shall be on such terms as the Board shall
determine at the time the Option is granted. The Board shall have the authority
to permit or require the Optionee to secure any promissory note used to exercise
an Option with the shares of Stock acquired upon the exercise of the Option or
with other collateral acceptable to the Company. Unless otherwise provided by
the Board, in the event the Company at any time is subject to the regulations
promulgated by the Board of Governors of the Federal Reserve System or any other
governmental entity affecting the extension of credit in connection with the
Company's securities, any promissory note shall comply with such applicable
regulations, and the Optionee shall pay the unpaid principal and accrued
interest, if any, to the extent necessary to comply with such applicable
regulations.
6.4 TAX WITHHOLDING. The Company shall have the right, but not the
obligation, to deduct from the shares of Stock issuable upon the exercise of an
Option, or to accept from the Optionee the tender of, a number of shares of
Stock having a Fair Market Value, as determined by the Company, equal to all or
any part of the federal, state, local and foreign taxes, if any, required by law
to be withheld by the Participating Company Group with respect to such Option.
Alternatively, in its sole discretion, the Company shall have the right to
require the Optionee, through payroll withholding or otherwise, to make adequate
provision for any such tax withholding obligations of the Participating Company
Group arising in connection with the Option. The Company shall have no
obligation to deliver shares of Stock or to release shares of Stock from an
escrow established pursuant to the Option Agreement until the Participating
Company Group's tax withholding obligations have been satisfied.
8
7. STANDARD FORMS OF OPTION AGREEMENT.
----------------------------------
7.1 INCENTIVE STOCK OPTIONS. Unless otherwise provided for by the
Board at the time an Option is granted, an Option designated as an "Incentive
Stock Option" shall comply with and be subject to the terms and conditions set
forth in the appropriate form of Incentive Stock Option Agreement adopted by the
Board concurrently with its adoption of the Plan and as amended from time to
time.
7.2 NONSTATUTORY STOCK OPTIONS. Unless otherwise provided for by the
Board at the time an Option is granted, an Option designated as a "Nonstatutory
Stock Option" shall comply with and be subject to the terms and conditions set
forth in the appropriate form of Nonstatutory Stock Option Agreement adopted by
the Board concurrently with its adoption of the Plan and as amended from time to
time.
7.3 STANDARD TERM OF OPTIONS. Except as otherwise provided in
Section 6.2 or by the Board in the grant of an Option, any Option granted
hereunder shall be exercisable for a term of ten (10) years.
7.4 AUTHORITY TO VARY TERMS. The Board shall have the authority from
time to time to vary the terms of any of the standard forms of Option Agreement
described in this Section 7 either in connection with the grant or amendment of
an individual Option or in connection with the authorization of a new standard
form or forms; provided, however, that the terms and conditions of any such new,
revised or amended standard form or forms of Option Agreement shall be in
accordance with the terms of the Plan. Such authority shall include, but not by
way of limitation, the authority to grant Options which are immediately
exercisable subject to the Company's right to repurchase any unvested shares of
Stock acquired by an Optionee upon the exercise of an Option in the event such
Optionee's employment or service with the Participating Company Group is
terminated for any reason, with or without cause.
8. TRANSFER OF CONTROL.
-------------------
8.1 DEFINITION. A "TRANSFER OF CONTROL" shall be deemed to have
occurred in the event that any of the following occurs with respect to the
Company:
(a) the direct or indirect sale or exchange by the shareholders of the
Company of all or substantially all of the voting stock of the Company wherein
the shareholders of the Company immediately before such sale or exchange do not
retain in substantially the same proportions as their ownership of shares of the
Company's voting stock immediately before such event, directly or indirectly
(including, without limitation, through their ownership of shares of the voting
stock of a corporation which, as a result of such sale or exchange, owns the
Company either directly or through one or more subsidiaries), at least a
majority of
9
the beneficial interest in the voting stock of the Company immediately after
such sale or exchange;
(b) a merger or consolidation wherein the shareholders of the Company
immediately before such merger or consolidation do not retain in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before such event, directly or indirectly (including, without
limitation, through their ownership of shares of the voting stock of a
corporation which, as a result of such merger or consolidation, owns the Company
either directly or through one or more subsidiaries), at least a majority of the
beneficial interest in the voting stock of the Company immediately after such
merger or consolidation;
(c) the sale, exchange, or transfer of all or substantially all of the
assets of the Company (other than a sale, exchange, or transfer to one or more
corporations (the "TRANSFEREE CORPORATION(S)") wherein the shareholders of the
Company immediately before such sale, exchange, or transfer retain in
substantially the same proportions as their ownership of shares of the Company's
voting stock immediately before such event, directly or indirectly (including,
without limitation, through their ownership of shares of the voting stock of a
corporation which owns the Transferee Corporation(s) either directly or through
one or more subsidiaries), at least a majority of the beneficial interest in the
voting stock of the Transferee Corporation(s) immediately after such event); or
(d) a liquidation or dissolution of the Company.
8.2 EFFECT OF TRANSFER OF CONTROL ON OPTIONS. In the event of a
Transfer of Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), shall either assume the Company's rights and obligations under
outstanding Options or substitute substantially equivalent options for the
Acquiring Corporation's stock for outstanding Options. The Board may, in its
sole discretion, provide in connection with the grant or amendment of any Option
for any one of the following:
(a) in the event the Acquiring Corporation elects not to assume or
substitute for outstanding Options in connection with a Transfer of Control, any
unexercised portion of the outstanding Option shall terminate and cease to be
outstanding effective as of the date of the Transfer of Control; or
(b) in the event the Acquiring Corporation elects not to assume or
substitute for outstanding Options in connection with a Transfer of Control, the
Board may, in its sole discretion, provide that any unexercisable or unvested
portion of the outstanding Option shall be immediately exercisable and vested in
full as of the date ten (10) days prior to the date of the Transfer of Control;
or
10
(c) in the event the Acquiring Corporation elects not to assume or
substitute for outstanding Options in connection with a Transfer of Control, any
unexercisable or unvested portion of the outstanding Option shall be immediately
exercisable and vested in full as of the date ten (10) days prior to the date of
the Transfer of Control; or
(d) in the event of a Transfer of Control, any unexercisable or
unvested portion of the outstanding Option shall be immediately exercisable and
vested in full as of the date ten (10) days prior to the date of the Transfer of
Control, and, in addition, the Board, in its sole discretion, may arrange with
the Acquiring Corporation for the Acquiring Corporation to either assume the
Company's rights and obligations under outstanding Options or substitute
substantially equivalent options for the Acquiring Corporation's stock for such
outstanding Options.
In any event, the Company shall provide each Optionee holding an outstanding
Option with at least ten (10) days advance written notice of the pending
Transfer of Control prior to the consummation thereof. The exercise or vesting
of any Option that was permissible solely by reason of this Section 8.2 and the
provisions of the Option Agreement evidencing such Option shall be conditioned
upon the consummation of the Transfer of Control. Any Options which are neither
assumed or substituted for by the Acquiring Corporation in connection with the
Transfer of Control nor exercised as of the date of the Transfer of Control
shall terminate and cease to be outstanding effective as of the date of the
Transfer of Control. Notwithstanding the foregoing, shares acquired upon
exercise of an Option prior to the Transfer of Control and any consideration
received pursuant to the Transfer of Control with respect to such shares shall
continue to be subject to all applicable provisions of the Option Agreement
evidencing such Option except as otherwise provided in such Option Agreement.
If the corporation the stock of which is subject to the outstanding Options
immediately prior to a Transfer of Control described in Section 8.1(a) is the
surviving or continuing corporation, the outstanding Options shall be deemed to
have been assumed by the Acquiring Corporation for purposes of this Section 8.2.
9. PROVISION OF INFORMATION. Each Optionee shall be given access to
------------------------
information concerning the Company equivalent to that information generally made
available to the Company's common shareholders.
10. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee,
-----------------------------
an Option shall be exercisable only by the Optionee or the Optionee's guardian
or legal representative. No Option shall be assignable or transferable by the
Optionee, except by will or by the laws of descent and distribution.
11. INDEMNIFICATION. In addition to such other rights of indemnification
---------------
as they may have as members of the Board or officers or employees of the
Participating Company Group, members of the Board and any officers or employees
of the Participating Company Group to whom authority to act for the Board is
11
delegated shall be indemnified by the Company against all reasonable expenses,
including attorneys' fees, actually and necessarily incurred in connection with
the defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan, or any right
granted hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding, except in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such person is liable for gross
negligence, bad faith or intentional misconduct in duties; provided, however,
that within sixty (60) days after the institution of such action, suit or
proceeding, such person shall offer to the Company, in writing, the opportunity
at its own expense to handle and defend the same.
12. TERMINATION OR AMENDMENT OF PLAN. The Board may terminate or amend
--------------------------------
the Plan at any time. However, subject to changes in the law or other legal
requirements that would permit otherwise, without the approval of the Company's
shareholders, there shall be (a) no increase in the total number of shares of
Stock that may be issued under the Plan (except by operation of the provisions
of Section 4.2), (b) no change in the class of persons eligible to receive
Incentive Stock Options, and (c) no expansion in the class of persons eligible
to receive Nonstatutory Stock Options. In any event, no termination or
amendment of the Plan may adversely affect any then outstanding Option or any
unexercised portion thereof, without the consent of the Optionee, unless such
termination or amendment is required to enable an Option designated as an
Incentive Stock Option to qualify as an Incentive Stock Option or is necessary
to comply with any applicable law or government regulation.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that
the foregoing Cupertino National Bancorp 1995 Stock Option Plan was duly adopted
by the Board on March 16, 1995.
------------------------------------
Secretary
12
PLAN HISTORY
------------
March 16, 1995 Board adopts Plan, with an initial reserve of 100,000 shares.
________, 1995 Shareholders approve Plan, with an initial reserve of 100,000
shares.
13
CUPERTINO NATIONAL BANCORP
20230 STEVENS CREEK BOULEVARD
CUPERTINO, CA 95014
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints C. Donald Allen and Steven C. Smith as
Proxies, each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote as designated below, all the shares of common
stock of Cupertino National Bancorp held of record by the undersigned on April
19, 1995, at the Annual Meeting of Shareholders to be held on May 25, 1995, at
the Saratoga Country Club, Prospect Road, Saratoga, California, at 7:00 p.m.
Pacific time, or any adjournment thereof.
1. ELECTION OF DIRECTORS
[_] FOR nominees listed below (except as marked to the contrary below)
C. Donald Allen, David K. Chui, Carl E. Cookson, Jerry R. Crowley, Janet
M. DeCarli, John M. Gatto, William H. Guengerich,
James E. Jackson, Rex D. Lindsay, Glen McLaughlin, Norman Meltzer, Dick
J. Randall, Dennis S. Whittaker
[_] WITHHOLD AUTHORITY to vote for nominees listed below
(INSTRUCTION: To withhold authority to vote for nominee, write nominee's
name in the space provided below)
___________________________________________________________________________
2. TO ADOPT THE CUPERTINO NATIONAL BANCORP 1995 STOCK OPTION PLAN.
[_] FOR[_] AGAINST[_] ABSTAIN
(Continued and to be signed on reverse side.)
3. TO AMEND THE CUPERTINO NATIONAL BANCORP EMPLOYEE STOCK PURCHASE PLAN.
[_] FOR[_] AGAINST[_] ABSTAIN
4. TO RATIFY THE APPOINTMENT OF COOPERS & LYBRAND L.L.P. AS THE INDEPENDENT
ACCOUNTANTS OF THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 1995.
[_] FOR[_] AGAINST[_] ABSTAIN
5. AT THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
[_] FOR[_] AGAINST[_] ABSTAIN
Please sign exactly as name
appears to the left. When
shares are held in joint
tenancy, all of such persons
should sign. When signing as
attorney, executor,
administrator, trustee or
guardian, please give full
title as such. If a
corporation, please sign in
full corporate name by
President or other authorized
officer. If a partnership,
please sign in partnership
name by authorized person.
Dated: __________________, 1995
_______________________________
Signature
_______________________________
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS TAKEN THIS PROXY WILL BE
VOTED FOR PROPOSALS 1, 2, 3 AND 4.