EXHIBIT 10.4
[LETTERHEAD]
PERSONAL AND CONFIDENTIAL
May 28, 1996
Mid-Peninsula Bancorp
420 Cowper Street
Palo Alto, CA 94301
Attention: Mr. David L. Kalkbrenner
President & Chief Executive Officer
Dear David:
1. This letter is to confirm our understanding that Mid-Peninsula Bancorp
("Mid-Peninsula" or the "Company") or any successor corporation has
retained Alex. Brown & Sons Incorporated ("Alex. Brown") to act as
Mid-Peninsula's financial advisor and to assist Mid-Peninsula in
assessing the impact of, and the opportunities created by, the changing
environment among financial institutions. In this capacity, Alex. Brown
will provide financial advice to you as you deem necessary and analyze
alternative strategies, including acquisitions, mergers or other forms
of business combinations involving Mid-Peninsula. Specifically, Alex.
Brown will render the following general advisory services to the
Company:
- Evaluation and complete financial analysis of acquisition
opportunities including, but not limited to, acquisitions of commercial
banks, thrift institutions, individual branches and non-depository
institutions.
- Development of an acquisition strategy for Mid-Peninsula, including
assistance on such matters as the development of approach tactics to
each target institution, valuation, pro forma financial modeling and
analysis, negotiations, reviewing the financing alternatives for each
transaction and assistance in the handling of investor relations.
- A full review of Mid-Peninsula's takeover defense posture, including
an analysis of the Company's existing defensive measures and
recommendation of additional actions if required. A detailed review
of the overall merger and acquisition
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Mid-Peninsula Bancorp
May 28, 1996
Page 2
environment would also be presented with a particular emphasis
on (i) the strategies of the active acquirers within Mid-Peninsula's
trade area (ii) unsolicited offers for control; and (iii) the
actions undertaken unilaterally by shareholders to disrupt the
implementation of corporate strategy.
- Active takeover defense assistance and strategic advice to Mid-
Peninsula in the event of an unsolicited offer for control or
accumulation of stock by an individual shareholder or shareholders
acting as a group.
- A detailed review of Mid-Peninsula. This would cover the
following:
- Historical financial performance evaluated against a relevant
peer group of independent bank institutions;
- Analysis of Mid-Peninsula's projections and their impact on
shareholder value;
- Identification and analysis of the Company's shareholders; and
- Review and analysis of the historical trading patterns of the
common stock.
- Any additional financial analyses or advice as requested from time to
time by Mid-Peninsula.
- Presentations to the Board of Directors of the Company on any of the
topics listed above as requested by management.
2. For serving in the above capacity, Alex. Brown would receive a $25,000
retainer and be reimbursed for its out-of-pocket expenses applicable to
the undertaking, including reasonable legal fees if appropriate.
3. When requested by Mid-Peninsula, Alex. Brown would provide financial and
strategic analysis of and advice with respect to specific transactions
which, if consummated, would result in Mid-Peninsula acquiring, being
acquired by or otherwise combining with another entity. Specifically, with
respect to any particular transaction, Alex. Brown would as requested:
(a) Render financial and strategic advice as it bears upon the
valuation of any potential transaction;
(b) Advise you as to the most appropriate form, consistent with law,
accounting and business practice, for a proposed transaction;
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Mid-Peninsula Bancorp
May 28, 1996
Page 3
(c) Act as your agent and financial advisor in the negotiating process,
working with you and your legal counsel and accountants. As your
agent, Alex. Brown will engage in discussions on your behalf with
other entities or their representatives only when authorized by
you to do so; and
(d) Render our opinion as to the fairness, from a financial point of
view, of the terms of a transaction to Mid-Peninsula shareholders.
4. Our fee for assisting you in connection with specific transactions would
be agreed between us in the context of a particular transaction. Among
the factors to be considered would be:
(a) The scope and nature of our involvement;
(b) The complexity of the transaction;
(c) Whether we are requested to render a fairness opinion; and
(d) Customary investment banking fees for transactions of comparable
size.
In addition, we understand that we may be asked to provide our opinions
and advice on smaller transactions that Mid-Peninsula may from time to
time consider; such advice will be provided at no additional fee.
5. INDEMNIFICATION AND CONTRIBUTION. In consideration of our services as
the Company's financial advisor hereunder, the Company agrees to
indemnify and hold harmless Alex. Brown and each of its directors,
officers, agents, employees and controlling persons (within the meaning
of the Securities Act of 1933, as amended) to the extent and as provided
in Addendum A attached hereto and incorporated herein by reference. The
provisions of this paragraph and Addendum A incorporated herein by
reference shall be effective as of the date hereof, and shall continue
in full force and effect until the termination of this agreement and,
thereafter, shall survive the termination of Alex. Brown's engagement
under this agreement and shall be binding upon any successors or assigns
of the Company.
6. This agreement shall have an initial term extending until December
31, 1997, unless terminated prior thereto by the Company. Thereafter,
this agreement shall renew automatically from year-to-year upon the same
terms and conditions set forth herein until terminated in writing by
either Alex. Brown or Mid-Peninsula.
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Mid-Peninsula Bancorp
May 28, 1996
Page 4
If the foregoing letter correctly sets forth the terms of Alex. Brown's
engagement, please sign and return to us the enclosed duplicate hereof.
Very Truly Yours,
ALEX. BROWN & SONS INCORPORATED
By: /s/ Jean-Luc Servat
----------------------------------
Jean-Luc Servat
Managing Director
Accepted and Agreed:
MID-PENINSULA BANCORP
By: /s/ David L. Kalkbrenner
-----------------------------------
David L. Kalkbrenner
President & Chief Executive Officer
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ADDENDUM A
In connection with our engagement described in the foregoing letter
dated May 28, 1996, (the "Letter") to which this Addendum A is attached, the
Company (as defined in the Letter) agrees to indemnify and hold harmless
Alex. Brown & Sons Incorporated ("Alex. Brown") and each of its directors,
officers, agents, employees and controlling persons (within the meaning of
the Securities Act of 1933, as amended) from and against any losses, claims,
damages or liabilities (or actions or proceedings in respect thereof)
(collectively "Liabilities") related to or arising out of this engagement,
and will reimburse Alex. Brown and each other person indemnified hereunder
for all reasonable legal and other expenses as incurred in connection with
defending any such Liabilities, whether or not Alex. Brown or any of its
directors, officers, agents, employees and controlling persons is a named
party thereto; provided, however, that the Company will not be liable in any
such case (except cases arising out of the use of information provided by the
Company with knowledge of its falsity) for Liabilities that a court of
competent jurisdiction shall have found in a final judgment to have arisen
primarily from the gross negligence, willful misconduct or bad faith of Alex.
Brown or the party claiming a right to indemnification.
In case any proceeding shall be instituted involving any person in
respect of whom indemnity may be sought, such person (the "indemnified
party") shall promptly notify the Company and the Company, upon request of
the indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
Company may designate in such proceeding and shall pay, as they are incurred,
the fees and expenses of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel at its own expense, except that the Company shall pay as incurred the
reasonable fees and expenses of counsel retained by the indemnified party in
the event that (i) the Company and the indemnified party shall have mutually
agreed to the retention of such counsel or, (ii) the named parties to any
such proceeding (including any impleaded parties) include both the Company
and the indemnified party and representation of both parties by the same
counsel would be inappropriate, in the reasonable opinion of the indemnified
party, due to actual or potential differing interests between them.
The Company shall not be liable for any settlement of any action or
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the Company agrees
to indemnify the indemnified parties to the extent set forth in this Addendum
A. In addition, the Company will not, without the prior written consent of
Alex. Brown, which shall not be unreasonably withheld, settle or compromise
or consent to the entry of any judgment in any pending or threatened claim,
action, suit or proceeding in respect of which indemnification may be sought
hereunder (whether or not Alex. Brown or any indemnified party is an actual
or potential party to such claim, action, suit or proceeding) unless such
settlement, compromise or consent includes an unconditional release of Alex.
Brown and each other indemnified party hereunder from all liability arising
out of such claim, action, suit or proceeding.
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In the event that a party is not entitled to indemnification hereunder
because a court of competent jurisdiction has found the relevant Liability
has arisen primarily from the gross negligence, willful misconduct or bad
faith of Alex. Brown or such party, then Alex. Brown or such party shall
reimburse to the Company all sums previously advanced hereunder.
In the event a claim for indemnification under this Addendum A is
determined to be unenforceable by a final judgment of a court of competent
jurisdiction, then the Company shall contribute to the aggregate losses,
claims, damages or liabilities to which Alex. Brown or its officers,
directors, agents, employees or controlling persons may be subject in such
amount as is appropriate to reflect the relative benefits received by each of
the Company and the parties seeking contribution on the one hand, and the
relative faults of the Company and the party seeking contribution on the
other, as well as any other relevant equitable considerations.
This indemnification shall apply to the original engagement as set forth
in the Letter and any modification of the original engagement and the
indemnification provided herein shall survive termination of our engagement
and shall be binding upon any successors or assigns of the Company.
Acknowledged and Agreed:
MID-PENINSULA BANCORP
By: /s/ David L. Kalkbrenner
-------------------------------
Date: May 28, 1996
--------------------------------
JLS:cd
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[LETTERHEAD]
May 28, 1996
ADDENDUM B
This Addendum B reflects qualifications relating to Sections 3(d) and 4 of
the engagement agreement between Alex. Brown & Sons Incorporated ("Alex.
Brown") and Mid-Peninsula Bancorp ("Mid-Peninsula" or the "Company") dated
May 28, 1996.
This Addendum B is to confirm our understanding of the basis upon which Alex.
Brown is being engaged to provide investment banking advice and services to
Mid-Peninsula in connection with the proposed merger of equals (the
"Transaction") by and between the Company and Cupertino National Bancorp
("Cupertino").
1. Alex. Brown will be engaged, as your sole and exclusive financial
advisor, to perform the following functions:
(a) Analyze, with the Company's management and Board of Directors,
the terms of any definitive acquisition agreement (the "Agreement")
entered into by and between the Company and Cupertino.
(b) Render our opinion (the "Opinion") as to the fairness, from a
financial point of view to the Company's shareholders, of the
Conversion Ratio (as defined in the Agreement) on the date of the
execution of the Agreement, update such opinion as required at or near
the time of distribution of proxy materials by the Company and
bring-down such opinion as required at or near the time of closing of
the Transaction. The nature and scope of the investigation which we
would conduct in order to be able to render our opinion will be
such as we would consider appropriate, and such opinion will be
subject to customary assumptions and qualifications. Our opinion will
be in written form. Such opinion shall be solely for the use of the
Board of Directors in considering the Agreement and for inclusion in
the Company's proxy materials relating to the proposed Transaction. We
understand and expect that the Company will use such Opinion in
connection with the proxy statement to be mailed to the Company's
shareholders seeking approval for the Transaction. The Company may not
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Mid-Peninsula Bancorp
May 22, 1996
Page 2
otherwise publish or refer to such opinion (either in its
entirety or through excerpts or summaries) or disclose the existence
of our engagement hereunder or describe or characterize the advice
provided by us to the Company without the prior written approval of
Alex. Brown, which approval shall not be unreasonably withheld, or
except as aforesaid or as otherwise required by applicable law.
2. In consideration of our services as your financial advisor as described
in Section 1 of this Addendum B, the Company agrees to compensate Alex.
Brown as follows:
(a) Upon delivery the Opinion, Alex. Brown will be paid a non-refundable
fee of $200,000, against which will be credited the $25,000 retainer
fee previously paid in accordance with Section 2 of the Engagement
Agreement. Payment of this $175,000 shall be made in two installments:
$75,000 upon the rendering of the Opinion to the Board of Directors of
the Company and $100,000 upon inclusion of the Opinion in the Proxy
Statement to shareholders of the Company.
(b) In addition to the fee described above, the Company agrees to
reimburse Alex. Brown for all reasonable out-of-pocket expenses,
including fees and reimbursements of legal counsel, incurred by Alex.
Brown in carrying out its duties under this Addendum B. Fees and
reimbursements of legal counsel shall not exceed $2,000 without prior
approval of the Company.
3. In consideration of our services as the Company's financial advisor under
this Addendum B and under the Engagement Agreement, the Company agrees
to indemnify and hold harmless Alex. Brown and each of its directors,
officers, agents, employees and controlling persons (within the meaning
of the Securities Act of 1933, as amended) to the extent and as provided
in Addendum A attached to the Engagement Agreement and incorporated
herein by reference. In addition, neither Alex. Brown nor any
indemnified person shall have any liability to the Company related to or
arising from the engagement described in this Addendum B, except for
liability for losses, claims, damages or expenses incurred by the Company
which are determined by a court of competent jurisdiction in a final
judgment to have arisen primarily from Alex. Brown's gross negligence,
willful misconduct or bad faith. The provisions of this Section 3 and
Addendum A incorporated herein by reference shall survive the
termination of Alex. Brown's engagement under this Addendum B and shall
be binding upon any successors or assigns of the Company.
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Mid-Peninsula Bancorp
May 22, 1996
Page 3
4. In the event of consummation of the Transaction, Alex. Brown shall
have the right to disclose its participation in such Transaction,
including, without limitation, the placement of "tombstone"
advertisements in financial and other newspapers and journals, provided
that Alex. Brown will submit a copy of any such advertisements to the
Company for its approval, which approval shall not be unreasonably
withheld or delayed.
If the foregoing letter is in accordance with your understanding of the terms
of our engagement, please sign and return to us the enclosed duplicate hereof.
Very truly yours,
ALEX. BROWN & SONS INCORPORATED
By: /s/ Jean-Luc Servat
----------------------------------
Jean-Luc Servat
Managing Director
Accepted and Agreed:
MID-PENINSULA BANCORP
By: /s/ David L. Kalkbrenner
-----------------------------------
David L. Kalkbrenner
President & Chief Executive Officer
Date: May 28, 1996
----------------------------------
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