UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. ________)*
SDNB Financial Corp.
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(Name of Issuer)
Common Stock
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(Title of Class of Securities)
784082-10-9
------------------------------
(CUSIP Number)
James P. Heffernan, c/o Whitman Heffernan Rhein & Co., Inc.
767 Third Avenue, New York, New York 10017 (212) 888-5222
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
March 28, 1995
------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-I(b)(3) or (4), check the following box / /.
Check the following box if a fee is being paid with the statement /X/. (A fee is
not required only if the reporting person: (1) has a previous statement on file
reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7.)
Note: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE>
SCHEDULE 13D
CUSIP No. 784082-10-9
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
WHR Management Corporation, as General Partner of Whitman Heffernan & Rhein
Workout Fund II, L.P. and Whitman Heffernan & Rhein Workout Fund II-A, L.P.
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) /X/
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
00
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(d) or 2(e) / /
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6 CITIZENSHIP OR PLACE OR ORGANIZATION
New York corporation
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7 SOLE VOTING POWER
510,121
-------------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY N/A
OWNED BY -------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 510,121
WITH -------------------------------------------------------
10 SHARED DISPOSITIVE POWER
N/A
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
510,121
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* / /
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
24.9%
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14 TYPE OF REPORTING PERSON*
C
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SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE AND THE SIGNATURE ATTESTATION
Page 2 of 62 Pages
<PAGE>
SCHEDULE 13D
CUSIP No. 784082-10-9
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Whitman Heffernan & Rhein Workout Fund II, L.P.
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) (a) / /
(b) /X/
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
00
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(d) or 2(e) / /
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6 CITIZENSHIP OR PLACE OR ORGANIZATION
Delaware
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7 SOLE VOTING POWER
358,524
-------------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY N/A
OWNED BY -------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 358,524
WITH -------------------------------------------------------
10 SHARED DISPOSITIVE POWER
N/A
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
358,524
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* /X/
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
17.5%
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14 TYPE OF REPORTING PERSON*
PN
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SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE AND THE SIGNATURE ATTESTATION
Page 3 of 62 Pages
<PAGE>
SCHEDULE 13D
CUSIP No. 784082-10-9
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Whitman Heffernan & Rhein Workout Fund II-A, L.P.
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) /X/
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
00
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(d) or 2(e) / /
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6 CITIZENSHIP OR PLACE OR ORGANIZATION
Delaware
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7 SOLE VOTING POWER
151,597
-------------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY N/A
OWNED BY -------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 151,597
WITH -------------------------------------------------------
10 SHARED DISPOSITIVE POWER
N/A
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
151,597
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* /X/
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
7.4%
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14 TYPE OF REPORTING PERSON*
PN
- --------------------------------------------------------------------------------
SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE AND THE SIGNATURE ATTESTATION
Page 4 of 62 Pages
<PAGE>
ITEM 1: Security and Issuer
This Statement relates to the acquisition of common stock, no par value
(the "Common Stock"), of SDNB Financial Corp. (the "Issuer"). The address of the
principal executive offices of the Issuer is: 1420 Kettner Boulevard, San Diego,
California 92101.
ITEM 2: Identity and Background
This statement is filed on behalf of (i) Whitman Heffernan & Rhein Workout
Fund II, L.P. ("Fund II"), (ii) Whitman Heffernan & Rhein Fund II-A, L.P. ("Fund
II-A") and WHR Management Corporation ("Management Corp."), in its capacity as
the sole general partner of Fund II and Fund II-A. Fund II and Fund II-A
(together, the "Funds") are Delaware limited partnerships, and Management Corp.
is a New York corporation. Fund II, Fund II-A and Management Corp. are
collectively referred to herein as the "Filer."
The business of Filer is to invest in, own, sell or exchange debt and/or
equity securities.
The business address of the Funds and Management Corp. (and each of the
executive officers and directors of Management Corp.) is set forth on the cover
page hereof.
During the last five years, neither the Filer, nor any general partner,
executive officer, director or controlling person of the Filer, has been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) nor during the last five years, has Filer, or any general partner,
executive officer, director or controlling person of the Filer, been party to a
civil proceeding of a judicial or administrative body of competent jurisdiction
and as a result of such proceeding was or is subject to a judgment, decree or
final order enjoining future violations of, or prohibiting or mandating
activities subject to, federal or state securities laws or finding any violation
with respect to such laws.
ITEM 3: Source and Amount of Funds or Other Consideration
Pursuant to the terms of a Stock Purchase Agreement, dated as of January
31, 1995 (the "Stock Purchase Agreement"), among the Funds and the Issuer, on
March 28, 1995 Fund II acquired 358,524 shares of Common stock and Fund II-A
acquired 151,597 shares of Common Stock at a purchase price of $4.34 per share
(for an aggregate cost of $2,213,925.14). The source of funds used by Fund II
and Fund II-A for the purchase reported in this Statement was the available
committed capital of Fund II and Fund II-A.
ITEM 4: Purpose of Transaction
Filer has acquired the securities of the Issuer for investment. Filer has
no plans or proposals which relate to or would result in any of the following:
(a) The acquisition by any person or additional securities of the
Issuer, or the disposition of securities of the Issuer other than as
disclosed below in response to Item 5;
Page 5 of 62 Pages
<PAGE>
(b) An extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving the Issuer or any of its
subsidiaries;
(c) A sale or transfer of a material amount of assets of the Issuer or
of any of its subsidiaries;
(d) Any change in the present board of directors or management of the
Issuer, including any plans or proposals to change the number or term of
directors or to fill any existing vacancies on the board of directors of
the Issuer;
(e) Any material change in the present capitalization or dividend
policy of the Issuer;
(f) Any other material change in the Issuer's business or corporate
structure;
(g) Changes in the Issuer's charter, bylaws or instruments
corresponding thereto or other actions which may impede the acquisition of
control of the Issuer by any person;
(h) Causing a class of securities of the Issuer to be delisted from a
national securities exchange or to cease to be authorized to be quoted in
an inter-dealer quotation system of a registered national securities
association;
(i) A class of equity securities of the Issuer becoming eligible for
termination of registration pursuant to Section 12(g)(4) of the Securities
Exchange Act of 1934; or
(j) Any action similar to any of those enumerated above.
In connection with the filing of a Notice of Change in Control with the
Federal Reserve Board, Fund II and Fund II-A have made certain commitments which
limit their ability to exercise control over the Issuer. Those commitments are
set forth in response to Item 6 below.
ITEM 5: Interest in Securities of the Issuer
Fund II beneficially owns, and has the sole power to vote or dispose of,
358,524 shares of Common Stock. Fund II-A beneficially owns, and has the sole
power to vote or dispose of, 151,597 shares of Common Stock. The 510,121 shares
of Common Stock beneficially owned by the Filer represents, to the best of
Filer's knowledge, 24.9% of the outstanding Common Stock. As disclosed in the
response to Item 6 below, pursuant to the terms of the Stock Purchase Agreement,
Filer has agreed to purchase additional shares of Common Stock after completion
of a Rights Offering to be conducted by the Issuer. The number of additional
shares to be purchased by the Filer will be the number necessary to cause the
Filer to continue to hold 24.9% of the shares of the Common Stock after giving
effect to the issuance of shares in the Rights Offering.
Page 6 of 62 Pages
<PAGE>
ITEM 6: Contracts, Arrangements, Understandings or Relationships with Respect
to Securities of the Issuer
Pursuant to Section 2.8 of the Agreements of Limited Partnership of Fund II
and Fund II-A, certain actions taken by Fund II and Fund II-A (including voting
as securityholders and disposing of investments) must be taken by Fund II and
Fund II-A simultaneously.
By letter dated March 9, 1995 from the Federal Reserve Bank of San
Francisco, the Federal Reserve Board approved the acquisition referred to in
this Statement under the Change in Bank Control Act. In connection with such
approval, the Funds have committed that they will not directly or indirectly:
1. Seek or accept representation on the board of directors of the
Issuer or its subsidiary bank, San Diego National Bank ("Bank"), except
that the Funds may have a nonvoting observer attend the board of directors
meetings of the Issuer and Bank and may designate a director for the board
of directors of the Issuer under the conditions set forth below;
2. Take action causing the Issuer or Bank to become a subsidiary of
the Funds;
3. Acquire or retain shares that would cause the combined interests of
the Issuer and their officers, directors, trustees, and affiliates to
exceed 24.9 percent of the outstanding voting securities of the Issuer or
24.9 percent of the equity of the Issuer;
4. Exercise or attempt to exercise a controlling influence over the
management or policies of the Issuer or Bank;
5. Have or seek to have any representative serve as an officer, agent,
or employee of the Issuer or Bank;
6. Propose a director or slate of directors in opposition to a nominee
or slate of nominees proposed by the management or board of directors of
the Issuer or Bank;
7. Solicit or participate in soliciting proxies with respect to any
matter presented to the shareholders of the Issuer or Bank;
8. Attempt to influence the dividend policies or practices of the
Issuer or Bank;
9. Attempt to influence the loan and credit decisions or policies of
the Issuer or Bank, the pricing of services, any personnel decisions, the
location of any offices, branching, the hours of operation, or similar
activities of the Issuer or Bank, except that this commitment shall not
apply to the execution of board responsibilities by a director designated
under the conditions set forth below;
Page 7 of 62 Pages
<PAGE>
10. Enter into any other banking or nonbanking transaction with the
Issuer or Bank, except that (a) the Funds may establish and maintain
deposit accounts with Bank, provided that the aggregate balances of all
such accounts do not exceed $500,000 and that the accounts are maintained
on substantially the same terms as those prevailing for comparable accounts
of persons unaffiliated with the Issuer, (b) Bank and Danielson Trust
Company may continue their trust referral arrangement provided that the
referral income received by Bank from Danielson Trust Company shall not
exceed on an annual basis an amount equal to one percent (1%) of the
shareholders equity of Bank and such arrangement will be on arms-length
basis and on substantially the same terms and conditions that would be
offered to others in similar circumstances not affiliated with the Issuer,
and (c) the Funds, as the mortgagee on the building occupied by the Issuer
and Bank, will not use this mortgage lending relationship to exert or
attempt to exert control over the Issuer or Bank;
11. Dispose or threaten to dispose of shares of the Issuer in any
manner as a condition of specific action or nonaction by the Issuer;
In connection with the Funds' proposal to designate a member of the board
of the Issuer in the event that such designation becomes necessary for the Funds
to retain their qualification under ERISA as a "venture capital operating
company," the Funds commit:
12. To make such a designation only after providing notice to the
Federal Reserve Board staff and demonstrating to the Board's satisfaction
that the Funds' ERISA qualification is in jeopardy without the
representation;
13. That such designation would be solely for the purpose of complying
with ERISA and would not be for the purpose of exercising control over the
Issuer pursuant to the Bank Holding Company Act;
14. That the Funds will not seek to designate a director of the Issuer
without first designating, to the extent possible, a director at all other
investments made by the Funds;
15. To reduce their aggregate holding of the Issuer shares to less
than 15 percent of the total voting shares of the Issuer and to less than
15 percent of the total equity of the Issuer. The Funds will make this
reduction as soon as possible, but not later than six months following the
director's designation. The Funds may request, and the Board may grant, an
extension of this time period if the Funds are not likely to divest the
required shares within this period and demonstrate that they have exercised
reasonable efforts in good faith to divest the required shares;
16. To cease having a nonvoting observer attend meetings of the board
of directors of the Issuer at the time of designation;
Page 8 of 62 Pages
<PAGE>
17. That the Funds will submit the name of a proposed director to the
Board for its review prior to designating this individual, and to
accommodate any reasonable objection of the Board in selecting the
designated individual; and
18. That the Funds will not designate as a director of the Issuer any
officer, board member, management official, or partner of Management Corp.,
or any of its affiliates.
Pursuant to the terms of the Stock Purchase Agreement, the Issuer has
agreed to file with the Securities and Exchange Commission a Registration
Statement pursuant to which the Issuer shall offer to its existing stockholders
(other than the Funds) the right to purchase additional shares of Common Stock
at a price equal to the price at which the Funds acquired the shares referred to
in this Statement (the "Rights Offering"). In addition, the Funds have agreed to
purchase additional shares of Common Stock upon completion of the Rights
Offering in such numbers that the Funds will continue to own shares representing
24.9% of the issued and outstanding shares of Common Stock.
Pursuant to a Registration Rights Agreement, dated as of March 28, 1995,
among the Issuer and the Funds, the Issuer has agreed, among other things, to
file not later than six months after the conclusion of the Rights Offering, a
Registration Statement in compliance with the Securities Act of 1933, as
amended, covering the offer and sale of the shares of Common Stock acquired by
the Funds and to use its best efforts to cause such Registration Statement to be
declared effective.
ITEM 7: Material to Be Filed as Exhibits
Attached as Exhibits hereto are (1) the Stock Purchase Agreement (without
exhibits); (2) the Registration Rights Agreement; (3) Section 2.8 of the
Agreement of Limited Partnership of Fund II; (4) Section 2.8 of the Agreement of
Limited Partnership of Fund II-A; and (5) Federal Reserve Bank of San Francisco
letter dated March 9, 1995.
Page 9 of 62 Pages
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Date: April 6, 1995
WHR MANAGEMENT CORPORATION, as General Partner
of Whitman Heffernan & Rhein Workout Fund II,
L.P. and Whitman Heffernan & Rhein Workout
Fund II-A, L.P.
By: /s/ JAMES P. HEFFERNAN
-----------------------------------------------
Name: James P. Heffernan
Title: President
WHITMAN HEFFERNAN & RHEIN WORKOUT FUND II, L.P.
By: WHR Management Corporation, as General Partner
By: /s/ JAMES P. HEFFERNAN
-----------------------------------------------
Name: James P. Heffernan
Title: President
WHITMAN HEFFERNAN & RHEIN WORKOUT FUND II-A, L.P.
By: WHR Management Corporation, as General Partner
By: /s/ JAMES P. HEFFERNAN
-----------------------------------------------
Name: James P. Heffernan
Title: President
Page 10 of 62 Pages
<PAGE>
EXHIBIT INDEX
The following items are attached hereto as exhibits pursuant to Item 7 of
the Schedule 13D. These exhibits have been copied from the originals for the
purpose of this EDGAR filing. The original versions of all exhibits were duly
executed.
PAGE
12 (1) Stock Purchase Agreement, dated as of January 31, 1995, among Filer
and the Issuer;
40 (2) Registration Rights Agreement, dated as of January 31, 1995, among
Filer and the Issuer;
57 (3) Section 2.8 of the Agreement of Limited Partnership of Fund II;
58 (4) Section 2.8 of the Agreement of Limited Partnership of Fund II-A; and
59 (5) Federal Reserve Bank of San Francisco letter dated March 9, 1995.
Page 11 of 62 Pages
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 31st day
of January, 1995 by and between SDNB FINANCIAL CORP., a California corporation
(the "Company"), and WHITMAN HEFFERNAN & RHEIN WORKOUT FUND II, L.P., a New York
limited partnership, and WHITMAN HEFFERNAN & RHEIN WORKOUT FUND II-A, L.P., a
New York limited partnership (collectively "Investor").
THE PARTIES HEREBY AGREE AS FOLLOWS:
ARTICLE I
PURCHASE AND SALE OF STOCK
1.1 Sale and Issuance of Common Stock.
1.1.1 Subject to the terms and conditions of this Agreement, Investor
agrees to purchase and the Company agrees to sell and issue to Investor shares
of the Company's common stock, no par value (the "Common Stock") as follows:
(a) At the Initial Closing (as hereinafter defined), Five Hundred Ten
Thousand, One Hundred Twenty-One (510,121) shares of the Company's Common
Stock allocated between each of the parties comprising Investor as set
forth on Schedule I annexed hereto at a price (the "Purchase Price") of
Four Dollars Thirty-Four Cents ($4.34) per share (the "Initial
Investment"); and
(b) At the Second Closing (as hereinafter defined), that number of
additional shares determined pursuant to Section 1.3 below (the "Additional
Investment") allocated between each of the parties comprising Investor as
set forth on Schedule I annexed hereto at a price equal to the Purchase
Price.
1.2 Initial Investment. The number of shares to be purchased by Investor is
calculated to insure that, in compliance with applicable regulatory
requirements, the amount invested will not exceed 24.9% of the issued and
outstanding shares of Common Stock of the Company after purchase by Investor.
1.2.1 Regulatory Approval. The obligations of Investor hereunder are
subject to and conditional upon approval of the transaction contemplated hereof
of Bank Regulators (as hereinafter defined).
1.3 Rights Offering to Existing Shareholders; Additional Investment.
Immediately after the Initial Closing, the Company will prepare and file with
the Securities and Exchange Commission (the
Page 12 of 62 Pages
<PAGE>
"SEC") a registration statement on Form. S-3 whereby it offers its existing
shareholders, other than Investor, the right to purchase additional shares of
Common Stock of the Company at a price equal to the Purchase Price (the "Rights
Offering"). Upon completion of such Rights Offering, the Investor will purchase,
and the Company shall issue and sell, at the Purchase Price, such additional
Shares of Common Stock so that after the completion of the Rights Offering
Investor owns an aggregate of 24.9% of the issued and outstanding shares of
Common Stock of the Company.
1.4 "Most Favored Nation." If, at any time after the Initial Closing but
prior to the Initial Closing, the Company shall issue any shares of its Common
Stock or any debt or equity security convertible into its Common Stock, or shall
grant any option, warrant or similar right to purchase any Common Stock and the
purchase price, conversion price or exercise price, as the case may be, is less
than the Purchase Price, then the Purchase Price shall automatically be reduced
to such lower purchase price, conversion price or exercise price. None of the
foregoing is intended to apply to the issuance of any shares of Common Stock
pursuant to the exercise of any option outstanding prior to the date hereof (all
of which are listed on Exhibit A attached hereto), or the grant of any option or
warrant pursuant to the Company's existing Stock Option Plans.
1.4.1 If, at any time prior to the Second Closing, the Company shall issue
any shares of its Common Stock or any debt or equity security convertible into
its Common Stock, or shall grant any option, warrant or similar right to
purchase any Common Stock and the purchase price, conversion price or exercise
price, as the case may be, is less than the Purchase Price, then the Purchase
Price with respect to the Common Stock to be issued at the Second Closing shall
automatically be reduced to such lower purchase price, conversion price or
exercise price. In addition, the Investor shall be entitled to a credit against
the amount due on account of the Additional Investment equal to the excess of
the Purchase Price for the Initial Investment over the Purchase Price for the
Additional Investment as adjusted pursuant to the provisions of this paragraph,
multiplied by the number of shares of Common Stock acquired at the Initial
Closing. None of the foregoing is intended to apply to the issuance of any
shares of Common Stock pursuant to the exercise of any option outstanding prior
to the date hereof (all of which are listed on Exhibit A attached hereto), or
the grant of any option or warrant pursuant to the Company's existing Stock
Option Plans.
1.5 Closing.
1.5.1 The purchase and sale of the Initial Investment in the Company's
Common Stock shall take place at the offices of the Company, 1420 Kettner
Boulevard, Seventh Floor, San Diego, California 92112, at 10:00 a.m. local time,
on the tenth business
Page 13 of 62 Pages
<PAGE>
day after the satisfaction or waiver of the latest to occur of the conditions
precedent set forth in Article IV hereof, or at such other time and place as the
Company and Investor mutually agree upon (which time and place are designated as
the "Initial Closing" or "Initial Closing Date"). At the Initial Closing, the
Company shall deliver to Investor certificates representing the Common Stock
which Investor is purchasing against payment to the Company by Investor by
federal funds of the Purchase Price therefor.
1.5.2 The purchase and sale of the Additional Investment shall take place
at the offices of the Company, 1420 Kettner Boulevard, Seventh Floor, San Diego,
California 92112, at 10:00 a.m. local time, on the tenth business day after the
latest to occur of the following: (i) the completion of the Rights Offering,
(ii) the satisfaction or waiver of all conditions precedent set forth in Article
IV hereof, and (iii) the receipt by Investor of notice that the conditions of
clauses (i) and (ii) above have been satisfied is received by Investor, or at
such other time and place as the Company and Investor mutually agree upon (which
time and place are designated as (the "Second Closing or Second Closing Date").
At the Second Closing, the Company shall deliver to Investor certificates
representing the Common Stock which Investor' is purchasing against payment to
the Company by Investor by federal funds of the Purchase Price therefor.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Investor that, except as set
forth on the Disclosure Schedule furnished to Investor and annexed hereto and
specifically identifying the relevant subparagraph hereof, which exceptions
shall be deemed to be representations and warranties as if made hereunder:
2.1 Corporate Existence. The Company is a corporation duly organized,
validly existing, and in good standing under the laws of California. San Diego
National Bank, a wholly owned subsidiary of the Company ("SDNB") is a national
bank duly organized, validly existing and in good standing under the laws of the
United States. Both the Company and SDNB have all necessary corporate powers to
own their respective properties and to operate their respective business as now
owned and operated by each of them. Neither the ownership of their properties
nor the nature of their business requires the Company or SDNB to be qualified in
any jurisdiction other than the state of its incorporation.
2.2 Capital Structure. The authorized Common Stock of the Company consists
of 15,000,000 shares of Common Stock, without par value, of which 1,538,364
shares are presently issued and outstanding. All the shares of Common Stock are
validly issued,
Page 14 of 62 Pages
<PAGE>
fully paid, and nonassessable, and such shares have been so issued in full
compliance with all federal and state securities laws. Except for the Letter of
Intent elated November 17, 1994 between the parties hereto and as set forth on
Exhibit A and the Disclosure Schedule, there are no outstanding subscriptions,
options, rights, warrants, convertible securities, or other agreements or
commitments obligating the Company to issue additional shares of its Common
Stock.
2.3 Subsidiaries. The Company owns all of the outstanding Common Stock of
SDNB and all of such shares are fully paid, non-assessable and not subject to
any preemptive rights and are owned by the Company free and clear of any claims,
liens, encumbrances or restrictions and there are no agreements or
understandings with respect to the voting or disposition of such shares. The
Company does not own, directly or indirectly, any interest or investment
(whether equity or debt) in any other corporation, partnership, business trust,
or other entity other than as set forth in the Disclosure Schedule.
2.4 Financial Statements. The Company has delivered to Investor true and
complete copies of (a) the balance sheets of the Company at December 31, 1991,
1992, and 1993, and the related statements of income, cash flow and changes in
shareholders equity for the fiscal years then ended, audited by Coopers &
Lybrand, the Company's independent certified accountants; and (b) an unaudited
balance sheet of the Company at June 30, 1994 and September 30, 1994, and
related statements of income and cash flow and changes in shareholders equity
for the fiscal quarters then ended, all of which have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved (collectively clauses (a) and (b), the
"Financial Statement.-3"). Such balance sheets, including the related notes,
fairly present the financial position, assets and liabilities (whether accrued,
absolute, contingent or otherwise) of the Company at the dates indicated and
such statements of income, cash flow and changes in shareholders equity fairly
present the results of operations, cash flow and changes in shareholders equity,
of the Company for the periods indicated therein, subject in the case of the
statements of income and cash flow for the quarters ended June 30, 1994 and
September 30, 1994, to normal year-end audit adjustments.
2.5 Existing Conditions. Since December 31, 1993, there has not been any:
(1) Transaction by the Company or SDNB except in the ordinary course of
business as conducted on that date;
(2) Capital expenditure by the Company or SDNB exceeding $275,000;
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(3) Material adverse change in the financial condition, liabilities,
assets, business, or prospects of the Company or SDNB;
(4) Destruction, damage to, or loss of any asset of the Company or SDNB
(whether or not covered by insurance) that materially and adversely affects the
financial condition, business, or prospects of the Company or SDNB;
(5) Change in accounting methods or practices (including, without
limitation, any change in depreciation or amortization policies or rates) by the
Company or SDNB except for the adoption of FAS 115, effective January 1, 1994;
(6) Revaluation by the Company or SDNB of any of its assets except for the
adjustments required by FAS 115;
(7) Declaration, setting aside, or payment of a dividend or other
distribution in respect to the Common Stock of the Company or SDNB, or any
direct or indirect redemption, purchase, or other acquisition by the Company or
SDNB of any, of their shares of Common Stock;
(8) Except for normal periodic increases in the ordinary course of business
consistent with past practices, increases: in the salary or other compensation
payable or to become payable by the Company or SDNB to any of their respective
officers, directors, or employees, or the declaration, payment, or commitment or
obligation of any kind for the payment, by the Company or SDNB, of a bonus or
other additional salary or compensation to any such person;
(9) Sale or transfer of any asset of the Company or SDNB, except in the
ordinary course of business;
(10) Amendment or termination of any material contract, agreement, or
license to which the Company or SDNB is a party, except in the ordinary course
of business;
(11) Except in the ordinary course of business, any loan by the Company or
SDNB to any person or entity, or guaranty by the Company or SDNB of any loan;
(12) Mortgage, pledge, or other encumbrance of any asset of the Company or
SDNB;
(13) Waiver or release of any right or claim of the Company or SDNB, except
in the ordinary course of business;
(14) Agreement by the Company or SDNB to do any of the things described in
the preceding clauses (1) through (14);
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(15) Other event or condition of any character that has or might reasonably
have a material and adverse effect on the financial condition, business, assets,
liabilities, or prospects of the Company or SDNB.
2.6 Liabilities. Neither the Company nor SDNB has any liabilities or
obligations (absolute, accrued, contingent or otherwise) except (i) liabilities
which are reflected and reserved against in the Financial Statements, (ii)
liabilities incurred in the ordinary course of business and consistent with past
practice since the date of the Financial Statements, and (iii) liabilities
arising under contracts, letters of credit, purchase orders, licenses, permits,
purchase agreements and other agreements, business arrangements and commitments
described in the Disclosure Schedule or which are of the type described in
Section 2.15 but which because of the dollar amount or other qualifications are
not required to be listed in the Disclosure Schedule.
2.7 Tax and Other Returns and Audits. Within the times and in the manner
prescribed by law, the Company and SDNB have filed all federal, state, and local
tax returns required by law and has paid all taxes, assessments, and penalties
due and payable. The federal income tax and California tax returns of the
Company and SDNB have not been audited by the Internal Revenue Service and the
California Franchise Tax Board, respectively. The provisions for taxes reflected
in the Financial Statements as of December 31, 1993, are adequate for any and
all federal, state, county, and local taxes for the period ending on the date
and for all prior periods, whether or not disputed. There are no present
disputes as to taxes of any nature payable by the Company or SDNB.
2.8 Leases. All leases to which the Company and SDNB are a party are valid
and in full force, and there does not exist any default or event that, with
notice or lapse of time, or both, would constitute a default under any of these
leases.
2.9 Proprietary Rights. The Company and SDNB have sufficient title and
ownership of all patents, trademarks, service marks, trade names, copyrights,
trade secrets, information, proprietary rights and processes necessary for their
respective business as now conducted and as proposed to be conducted without any
conflict with or infringement of the rights of others. There are no outstanding
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity.
Neither the Company nor SDNB has received any communications alleging that the
Company or SDNB have violated or, by conducting their respective businesses as
proposed, would violate any of the patents, trademarks, service marks, trade
names, copyrights or trade secrets, information or other proprietary rights of
any other person or entity.
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2.10 Disclosure. The Company has fully provided Investor with all the
material information which Investor has requested for deciding whether to
purchase the Company's Common Stock and all information reasonably necessary to
enable Investor to make such decision.
2.11 Information. Neither this Agreement nor any other statements or
certificates made or delivered in connection herewith contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements herein or therein not misleading.
2.12 Insurance. The Company and SDNB have in full force and effect fire and
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow each of them to replace any of
their respective properties that might be damaged or destroyed. The Company and
SDNB also maintain worker's compensation and other insurance required by law.
2.13 Minute Books. The minute books of the Company and SDNB made available
to counsel for Investor contain a complete summary of all meetings of directors,
committees and shareholders for the last three (3) years and reflect all
transactions referred to in such minutes accurately in all material respects.
2.14 Title to Assets; Condition of Tangible Assets. The Company and SDNB
have good and marketable title to their respective assets and interests in
assets, whether real, personal, mixed, tangible, or intangible, which constitute
all the assets and interests in assets that are used in the business of the
Company and SDNB. All these assets are free and clear of restrictions on or
conditions to transfer or assignment, and free and clear of mortgages, liens,
pledges, charges, encumbrances, equities, claims, easements, rights of way,
covenants, conditions, or restrictions, except for (1) those disclosed in the
Financial Statements; (2) the lien of current taxes not yet due and payable; and
(3) possible minor matters that, in the aggregate, are not substantial in amount
and do not materially detract from or interfere with the present or intended use
of any of these assets or materially impair business operations. All tangible
personal property of the Company and SDNB is in good operating condition and
repair, ordinary wear and tear excepted. The Company and SDNB are in possession
of all premises leased by them from others.
2.15 Contracts and Commitments. Neither the Company, nor SDNB is a party
to, nor is the property of the Company or SDNB bound by, any agreement,
indenture, mortgage, deed of trust:, or lease not entered into in the ordinary
course of business; there is no default or event that, with notice or lapse of
time or both, would constitute a default by any party to any agreements to which
the Company or SDNB is a party. Neither the Company nor SDNB has
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received written notice that any party to any agreements to which the Company or
SDNB is a party intends to cancel or terminate any such agreements or to
exercise or not exercise any options under any such agreements. Neither the
Company nor SDNB is a party to, nor is the property of the Company or SDNB bound
by, any agreement that was materially adverse to the business, properties, or
financial condition of the Company or SDNB when entered into.
2.16 Compliance with Laws. The Company and SDNB and the conduct of the
business of each of them is in compliance with all applicable laws, statutes,
ordinances and regulations, whether federal, state or local, except where the
failure to comply would not have a material adverse effect on the business or
financial condition of the Company or SDNB. Except as set forth in the
Disclosure Schedule, neither the Company nor SDNB has received any written
notice to the effect that, or otherwise been advised that, it is not in
compliance with any of such statutes, regulations, orders, ordinances or other
laws where the failure to comply would have a material adverse effect on the
business or financial condition of the Company, or SDNB, and neither the Company
nor SDNB has reason to anticipate that any presently existing circumstances are
likely to result in violations of any such regulations which would, in any one
case or in the aggregate, have a material adverse effect on. the business or
financial condition of the Company or SDNB.
2.17 Litigation. Except as set forth in the Disclosure Schedule, there is
not pending, or, to the best knowledge of the Company or SDNB, threatened, any
suit, action, arbitration, or legal, administrative, or other proceeding, or
governmental investigation against or affecting the Company or SDNB, or any of
their respective businesses, assets, or financial condition. Neither the Company
nor SDNB is in default with respect to any order, writ, injunction, or decree of
any federal, state, local, or foreign court, department, agency, or
instrumentality.
2.18 Validity of Contemplated Transactions. The execution and delivery of
this Agreement and the consummation of the transactions contemplated by this
Agreement will not result in or constitute any of the following: (1) a default
or an event that, with notice or lapse of time or both, would be a default,
breach, or violation of the Articles of Incorporation or ByLaws of the Company
or SDNB, or any lease, license, promissory note, conditional sales contract,
commitment, indenture, mortgage, deed of trust, or other agreement, instrument,
or arrangement to which the Company or SDNB is a party or by which either of
them or the property of either of them is bound; (2) an event that would permit
any party to terminate any agreement or to accelerate the maturity of any
indebtedness or other obligation of the Company or SDNB; or (3) the creation or
imposition of any lien, charge, or encumbrance on any of the properties; or
assets or interests in assets of the Company or SDNB.
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2.19 Corporate Power; Authorization. No consent, approval or authorization
of, or declaration, filing or registration with, any governmental or regulatory
authority, or any other person or entity, is required to be made or obtained by
the Company or SDNB in connection with the execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
except for: (A) the approval of the Board of Governors of the Federal Reserve
System Under the Bank Holding Act of 1956, as amended; (B) FDIC (?); (C) the
filing with the SEC of a proxy statement in definitive form relating to the
meeting of the Company's shareholders to be held in connection with this
Agreement and the transactions contemplated hereby; and (D) the approval of the
Company's shareholders as provided herein.
2.20 Employee Benefit Plans.
(1) A "Company Employee Plan" shall mean each "employee benefit plan," as
such term is defined in Section 3(3) of the Employment Retirement Income
Security Act of 1974, as amended, and all regulations promulgated thereunder, as
in effect from time to time ("ERISA"), established by the Company, any of its
subsidiaries (which has the meaning given to it in Rule 12b-2 promulgated under
the Exchange Act), or any ERISA Affiliates (as hereinafter defined) or under
which the Company, any of' its subsidiaries, or any ERISA Affiliate contributes
or under which any officer, employee, director of independent contractor or a
person or any of its subsidiaries, whether former or current (collectively,
"Employee") of the Company or any beneficiary thereof is covered, is eligible
for coverage or has benefit rights with respect to service to the Company, any
of its subsidiaries or any ERISA Affiliate or under which any obligation exists
to issue capital stock of the Company of any of its subsidiaries. A "Company
Benefit Arrangement" shall mean each other plan, program, policy, contract or
arrangement providing for bonuses, pensions, deferred pay, stock or
stock-related awards, severance pay, salary continuation or similar benefits,
hospitalization, medical, dental or disability benefits, life insurance or other
employee benefits, or compensation to or for any Company Employees or any
beneficiaries or dependents of any Company Employees (either than directors' and
officers' liability insurance policies), whether or not oral or written or
insured or funded, or constituting an employment or severance agreement or
arrangement with any officer or director of the Company or, any subsidiary.
(2) Each Company Employee Plan and Company Benefit Arrangement has been
established and maintained in all material respects in accordance with its terms
and in compliance with all applicable laws, including, but not limited to, ERISA
and the Internal Revenue Code of 1986, as amended, and all regulations
promulgated thereunder, as in effect from time to time (the "Code") where the
failure to comply would have a material adverse
Page 20 of 62 Pages
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effect on the business, assets, liabilities, results of operations, condition
(financial or otherwise) or prospects of the Company and its subsidiaries. To
the best of the Company's knowledge, neither the Company nor any of its
subsidiaries nor any of their respective Employees nor any other disqualified
person or party-in-interest with respect to any Company Employee Plan, have
engaged directly or indirectly in any "prohibited transaction," as such term is
defined in section 4975 of the Code or Section 406 of ERISA, with respect to
which the Company or its subsidiaries could have or has any material liability.
All contributions required to be made to the Company Employee Plans and Company
Benefit Arrangements have been made in a timely fashion or, to the extent such
contributions have not been made in a timely fashion the liability resulting
therefrom is not material. Each Company Employee Plan that is intended to be
qualified under Section 401(a) or the Code and whose related trust is intended
be exempt from taxation under Section 501(a) of the Code has received a
favorable determination letter with respect to its qualification and to the
Company's best knowledge, nothing has occurred which could cause a loss of such
qualification. Neither the Company, any trade or business, whether or not
incorporated, that is now or has at any time in the past been treated as a
single employer with the Company or any of its subsidiaries under Section 414(b)
or (c) of the Code and the Treasury Regulations thereunder ("ERISA Affiliate")
nor any subsidiary has incurred any liability to the Pension Benefit Guaranty
Corporation other than a liability for premiums not yet due.
(3) With respect to each Company Employee Plan that is subject to Title IV
of ERISA: (i) there has been no termination, no partial termination and no
"reportable event" (as defined in Section 4043 of ERISA) with respect to any
such Company Employee Plan as to which the 30-day notice requirement is not
waived pursuant to Section 4043 of ERISA and regulations of the Pension Benefit
Guaranty Corporation thereunder. No Company Employee Plan that is subject to
Section 412 of the Code has incurred any "accumulated funding deficiency" (as
defined in Section 412 of the Code), whether or not waived.
(4) No Company Employee Plan is a "multiemployer plan' as that term is
defined in Section 3(37) of ERISA or a "multiple employer plan" described in
Section 4063(a) of ERISA, nor has the Company, any ERISA Affiliate or any
subsidiary at any time since September 2, 1974, contributed to or been obligated
to contribute to such a multiemployer plan or multiple employer plan.
(5) Neither the Company nor any ERISA Affiliate has any liability under
Title IV or ERISA, nor do any circumstances exist that could result in any of
them having any liability under Title IV of ERISA. Neither the Company nor any
subsidiary has any liability for any failure to comply with the continuation
coverage requirements of Section 601 et seq. of ERISA and Section 4980B of
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the Code or to the extent the Company or any subsidiary has any such liability,
such liability is not material.
(6) There are no actions, suits, arbitrations, inquiries, investigations or
other proceedings (other than routine claims for benefits) pending or, to the
Company's knowledge, threatened, with respect to any Company Employee Plan or
Company Benefit Arrangement.
(7) No Employees and no beneficiaries or dependents of Employees are or may
become entitled under any Company Employee Plan or Company Benefit arrangement
to post-employment welfare benefits of any kind, including without limitation
death or medical benefits (other than coverage mandated by Section 4980B of the
Code.)
(8) There are no agreements with, or pending petitions for recognition of,
a labor union or association as the exclusive bargaining agent for any of the
Employees of the Company or any of its subsidiaries; no such petitions have!
been pending at any time within two years of the date of this Agreement, there
has not been any organizing effort by any union or other group seeking to
represent any Employees of the Company or any of its subsidiaries as their
exclusive bargaining agent at any time within two years of the date of this
Agreement. There are no labor strikes, work stoppages or other labor troubles,
other than routine grievance matters, now pending, or, to the Company's
knowledge, threatened, against the Company or any of its subsidiaries, nor have
there been any such labor strikes, work stoppages or other labor troubles, other
than routine grievance matters, with respect to, the Company or any of its
subsidiaries at any time within two ears of the date of this Agreement.
(9) Neither the Company, nor any subsidiary has scheduled or agreed upon
future increases of benefits levels (or creations of new benefits) with respect
to any Company Employee Plan or Company Benefit Arrangement, and no such
increases or creation of benefits have been proposed or made the subject of
representations to Employees under circumstances which make it reasonable to
expect that such increases would be granted. Except as disclosed in the
Disclosure Schedule, no loan is outstanding between the Company, any Subsidiary,
or any ERISA Affiliate and any Employee.
2.21 Agreements with Bank Regulators. Except as set forth in the Disclosure
Schedule, neither the Company nor SDNB is a party (or has been a party within
the last 5 years) to any written agreement or memorandum of understanding with,
or party to any commitment letter or similar undertaking to, or is subject to
any order or directive by, any Federal or state governmental entity charged with
the supervision or regulation of banks or bank holding companies or engaged in
insurance of savings bank or bank deposits ("Bank Regulators"), nor has the
Company or SDNB been advised by any Bank Regulator that it is contemplating
issuing or
Page 22 of 62 Pages
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requesting (or is considering the appropriateness of issuing or requesting) any
such order, directive, written agreement, memorandum of understanding,
commitment letter or similar undertakings.
2.22 Binding Effect. This Agreement is a valid and legally binding
obligation of the Company, enforceable in accordance with its terms, except as
such enforceability may be limited by (a) applicable solvency, bankruptcy,
reorganization, moratorium or other similar laws affecting creditors' rights
generally, and (b) applicable equitable principles (whether considered in a
proceeding at law or in equity).
2.23 Authorization. The Company has full power and authority to enter into
this Agreement.
2.24 Fairness. The Company has received an opinion of an investment banking
firm selected by it and acceptable to Investor that the transactions
contemplated by this Agreement are fair to shareholders from a financial point
of view.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor hereby represents and warrants to the Company that:
3.1 Binding Effect. This Agreement is a valid and legally binding
obligation of Investor, enforceable in accordance with its terms, except as such
enforceability may be limited by (a) applicable solvency, bankruptcy,
reorganization, moratorium or other similar laws affecting creditors rights
generally, and (b) applicable equitable principles (whether considered in a
proceeding at law or in equity).
3.2 Purchase Entirely for Own Account; Authorization. The Common Stock of
the Company which is to be acquired hereunder in both the Initial Closing and
Second Closing i-/ill be acquired for investment for Investor's own account, and
not with a view to the resale or distribution of any part thereof, and that
Investor has no present intention of selling, granting any participation in, or
otherwise distributing the same without compliance with federal and state
securities laws. By executing this Agreement, Investor further represents that
Investor does not have any contract, undertaking, agreement: or arrangement with
any person to sell, transfer or grant participation to such person or to any
third person, with respect to any of the Common Stock. Investor represents that
it has full power and authority to enter into this Agreement.
3.3 Disclosure of Information. Investor has received all the
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information it considers necessary or appropriate for deciding whether to
purchase the Common Stock. Investor further represents that it has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the offering of the Common Stock. 'The foregoing,
however, does not limit or modify the representations and warranties of the
Company in Article II of this Agreement.
3.4 Investment Experience. Investor is an investor in securities and
acknowledges that it is able to fend for itself, can bear the economic risk and
complete loss of its investment and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Common Stock.
3.5 Restricted Securities. Investor understands that the Common Stock it is
purchasing are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Securities Act of 1933, as amended (the "Securities Act"), only in certain
limited circumstances. In this connection Investor represents that it is
familiar with SEC Rule 144, as presently in effect, and understands the resale
limitations imposed thereby and by the Securities Act.
3.6 Legends. It is understood that the certificates evidencing the Common
Stock may bear one or both of the following legends:
(a) "These securities have not been registered under the Securities Act of
1933, as amended. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with respect
to the securities under such Act or an opinion of counsel satisfactory to the
Company that such registration is not required or unless sold pursuant to Rule
144 of such Act."
(b) Any legend required by the laws of the State! of California.
3.7 Accredited Investor. Investor is an accredited investor as defined in
Rule 501 (a) of Regulation D of the SEC under the Securities Act and agrees not
to sell, hypothecate, pledge or otherwise dispose of any interest in the Common
SIX" in the United States, its territories, possessions or any area subject to
its jurisdiction, or to any person who is a national thereof or resident therein
(including any estate of such person), or any corporation, partnership or other
entity created or organized therein, unless such Common Stock has been either
registered under the Securities Act, or is exempt from the registration
requirements of the
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Securities Act, in the opinion of the Company's counsel, and the Investor has
compiled with any restrictions on transfer contained in this Agreement.
3.8 No Ownership of Company Common Stock. As of the date hereof, except as
set forth in the Letter of Intent dated November 17, 1994 between the parties,
neither Investor nor, any of its subsidiaries or affiliates beneficially own,
directly or indirectly, or are parties to any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of, any
of the outstanding shares of the Common Stock of the Company.
ARTICLE IV
CONDITIONS OF INVESTOR'S OBLIGATIONS AT
INITIAL CLOSING AND THE SECOND CLOSING
The obligations of Investor under Section 1.1.1 of this Agreement are
subject to the fulfillment on or before the Initial Closing and the Second
Closing of each of the following conditions by the Company, the waiver of which
shall not be effective against the Investor unless in writing:
4.1 Representations and Warranties True as of Initial Closing Date and
Second Closing Date. All representations and warranties by the Company in this
Agreement, or in any written statement that shall be delivered to Investor under
this Agreement, shall be true in all material respects on and as of the Initial
Closing Date and Second Closing Date as though ]made at that time.
4.2 Compliance with this Agreement. The Company shall have performed,
satisfied, and complied in all material respects with all covenants, agreements,
and conditions required by this Agreement to be performed or complied with by
it, on or before the Initial Closing Date and Second Closing Date.
4.3 Compliance Certificate. The President of the Company shall deliver to
Investor at the Initial Closing and Second Closing Date a certificate certifying
that the conditions specified in Sections 4.1 and 4.2 have been fulfilled and
stating that, except as set forth in the Disclosure Schedule hereto, there has
been no adverse change in the business, affairs, prospects, operations,
properties, assets, liabilities or condition of the Company since December 31,
1993.
4.4 Approval of Counsel for Investor. The form and substance of all
certificates, instruments, opinions, and either documents delivered to Investor
under this Agreement shall be satisfactory in all reasonable respects to
Investor and its counsel.
4.5 Opinion of Company Counsel. Investor shall have received
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from SHERMAN & EGGERS, P.C., counsel for the Company, an opinion, dated as of
the Initial Closing and Second Closing Date, respectively, in the form attached
herein as Exhibit B.
4.6 Other Approvals. All authorizations, consents, orders or approvals of,
or declarations or filings with, and all expirations of waiting periods imposed
by, any governmental entity (collectively, the "Consents") which are prescribed
by law as necessary for the consummation of the transactions contemplated hereby
other than Consents the failure to obtain which would have no material adverse
effect on the consummation of the transactions contemplated hereby, taken as a
whole, shall have been filed, occurred or been obtained (all such
authorizations, consents, orders, approvals, declarations or filings and the
lapse of all such waiting periods being referred to as the "Requisite Regulatory
Approvals"), as the case may be and all such Requisite Regulatory Approvals
shall be in full force and effect. None of the Requisite Regulatory Approvals
shall impose any condition or restriction upon the Company, SDNB or Investor
which would so materially adversely impact the business, financial condition or
results of operations of the Company, SDNB or Investor as to render inadvisable,
in the reasonable judgment of the Board[ of Directors of each of the Company,
SDNB or Investor, the consummation of the transactions contemplated hereby (a
"Burdensome Condition").
4.7 Company is "Well Capitalized," The Company's ratios for Total Risk
Based Capital, Tier 1 Risk Based Capital and Tier 1 Leverage Capital are within
the "well capitalized" level as determined in accordance with Federal Reserve
Bank regulations.
4.8 No Material Adverse Change. There shall have occurred no material
adverse change in, nor any condition, event or change which is reasonably likely
to have a material adverse effect on the Company or its business, financial
condition, or results of operations taken as a whole.
4.9 No Injunctions or Restraints; Illegality. No order, injunction or
decree issued by any court or agency of competent jurisdiction or other legal
restraint or prohibition (an "Injunction") preventing the consummation of the
transactions contemplated hereby shall be in effect, nor shall any proceeding by
any governmental entity seeking any such Injunction be pending. No statute,
rule, regulation, order, Injunction or decree shall have been enacted, entered,
promulgated or enforced by any governmental entity which prohibits, restricts or
makes illegal consummation of the transactions contemplated hereby.
4.10 Intentionally Omitted.
4.11 Shareholder Approval. The consummation of the transactions
contemplated by this Agreement shall have been approved
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by the affirmative vote of a majority of the votes cast by all of the holders of
the outstanding shares of the Company's Common Stock entitled to vote thereat at
a meeting of such holders at which a quorum is present.
4.12 Registration Rights Agreement. The Company shall have executed and
delivered the Registration Rights Agreement attached hereto as Exhibit C.
ARTICLE V
CONDITIONS OF THE COMPANY'S OBLIGATIONS AT
INITIAL CLOSING AND SECOND CLOSING
The obligations of the Company under this Agreement are subject to the
fulfillment on or before the Initial Closing and the Second Closing of each of
the following conditions by Investor, the waiver of which shall not be effective
against the Company unless in writing:
5.1 Representations and Warranties True as of Initial Closing Date and
Second Closing Date. All representations and warranties by Investor contained in
this Agreement or in any written statement delivered by Investor under this
Agreement, shall be true in all material respects on and as of the Initial
Closing Date and Second Closing Date as though made at that date.
5.2. Opinion of Counsel for Investor. Investor shall have furnished the
Company with an opinion, dated the Initial Closing Date and Second Closing Date,
respectively, of ANDERSON KILL OLICK & OSHINSKY, P.C., special counsel for
Investor, in the form attached hereto as Exhibit D.
5.3 Other Approvals. All Requisite Regulatory Approvals shall be in full
force and effect. None of the Requisite Regulatory Approvals shall impose a
Burdensome Condition upon the Company, SDNB or Investor.
5.4 Shareholder Approval. The consummation of the transactions contemplated
by this Agreement shall have been approved by the affirmative vote of a majority
of the votes cast by all of the holders of the outstanding shares of the
Company's Common Stock entitled to vote thereat at a meeting of such holders at
which a quorum is present.
5.5 Intentionally Omitted.
5.6 No Injunctions or Restraints; Illegality. No Injunction preventing the
consummation of the transactions contemplated hereby shall be in effect, nor
shall any proceeding by any governmental entity seeking any such Injunction be
pending. No
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statute, rule, regulation, order, Injunction or decree shall have been enacted,
entered, promulgated or enforced by any governmental entity which prohibits,
restricts or makes illegal consummation of the transactions contemplated hereby.
ARTICLE VI
COVENANTS
6.1 Conduct of Business. During the period from the date of this Agreement
and continuing until the Initial Closing and Second Closing Date, except as
expressly contemplated or permitted by this Agreement or with the prior written
consent of Investor, the Company shall carry on its business in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted, and use all reasonable efforts to preserve intact its present
business organization and relationships. Without limiting the generality of the
foregoing, and except as otherwise contemplated by this Agreement, the Company
shall not:
(a) amend its Articles of Incorporation, Bylaws or other applicable
governing document;
(b) authorize or permit any of its officers, directors, employees or agents
to directly or indirectly solicit, initiate or encourage any inquiries or the
making of any proposal which constitutes any "takeover proposal" (as defined
below) or, except to the extent legally required for the discharge of the
fiduciary duties of the Board of Directors of the Company after consultation
with such board's counsel, recommend or endorse any takeover proposal, or
participate in any discussions or negotiations, or provide third parties with
any nonpublic information, relating to any such inquiry or proposal or otherwise
facilitate any effort or attempt to make or implement a takeover proposal. The
Company will notify Investor immediately if any such inquiries or takeover
proposals are received by, and such information is required from, or any such
negotiations or discussions are sought to be initiated with, the Company. As
used in this Agreement, "takeover proposal" shall mean any tender or exchange
offer, proposal for a merger, consolidation or other business combination
involving the Company or any proposal or offer to acquire in any manner a
substantial equity interest in, or a substantial portion of' the assets of, the
Company or SDNB other than the transactions contemplated or permitted by this
Agreement;
(c) knowingly take any action that is intended or may reasonably be
expected to result in any of its representations and warranties set forth in
this Agreement being or becoming untrue in any material respect, or in any of
the conditions to the consummation of the transactions contemplated hereby set
forth in Article IV not being satisfied, or in violation of any provision
Page 28 of 62 Pages
<PAGE>
of this Agreement, except, in every case, as may be required by applicable law;
(d) except as required by applicable law, knowingly -take or cause to be
taken an action that could reasonably, be expected to jeopardize or delay the
receipt of any of the Requisite Regulatory Approvals or which would reasonable
be expected to result in any such Requisite Regulatory Approval containing a
Burdensome Condition;
(e) sell or otherwise dispose of or encumber any shares of Common Stock of
SDNB;
(f) fail to use its best efforts to keep in full force and effect its
insurance in such amounts as are reasonable to cover such risks customary in
relation to the character and location of its properties and the nature of its
business and in any event at least equal in scope and amount of coverage of
insurance carried as of the date hereof;
(g) fail to notify the Investor promptly of its receipt of any letter,
notice or other communication, whether written or oral, from any Bank Regulators
advising the Company that it is contemplating issuing, requiring, or requesting
any agreement, memorandum of understanding, or similar undertaking, order or
directive;
(h) fail to use its best efforts to remain in compliance with any capital
or other operating requirement of any regulatory agency to which it is subject;
(i) fail to maintain and keep its properties in as good repair and
condition as of the date hereof, except for depreciation due to ordinary wear
and tear;
(j) fail to perform in all material respects all obligations required to be
performed under all material contracts, leases, and documents relating to or
affecting its assets, properties, and business;
(k) enter any agreement to take any of the foregoing actions.
6.2 Investor to File Notice of Change in Control. Investor shall promptly
prepare and file a Notice of Change in Control pursuant to 12 U.S.C. SS 1817(j)
with respect to the transactions contemplated hereby. Investor shall use its
best efforts to obtain Requisite Regulatory Approval of such filing as soon as
possible. Investor shall be free to negotiate the type of commitments required
for such approval but agrees to accept,if necessary, the commitments previously
negotiated with the staff of the Federal Reserve by Investor.
Page 29 of 62 Pages
<PAGE>
6.3 Access to Information. Upon reasonable notice and subject to applicable
laws relating to the exchange of information, the Company shall (and shall cause
SDNB to) afford to the officers, employees, accountants, counsel and other
representatives of the Investor access, during normal business hours during the
period prior to the Initial Closing, to all its properties, books, contracts,
commitments and records and, during such period, the Company shall make
available to Investor (a) a copy of each report, schedule, registration
statement and other document filed or received by it during such period pursuant
to the requirements of Federal securities laws or Federal or state banking laws
(other than reports or documents which such party is not permitted to disclose
under applicable law) and (b) all other information concerning its business,
properties, mortgage and other loans, other :real estate owned and personnel as
the Investor may reasonably request. Neither the Company nor SDNB shall be
required to provide access to or to disclose information where such access or
disclosure would contravene any law, rule, regulation, order, judgment, decree,
fiduciary duty or binding agreement entered into prior to the date hereof. The
parties hereto will make appropriate substitute disclosure arrangements under
circumstances in which the restrictions of the preceding sentence apply.
Investor will hold all such information in confidence to the extent required by,
and in accordance with, the provisions of the confidentiality agreement, dated
September 17, 1993, between the Company and Investor (the "Confidentiality
Agreement"). No investigation by Investor shall affect the representations and
warranties set forth herein.
6.4 Meetings of Shareholders. The Company will take all action necessary in
accordance with applicable law and its Articles of Incorporation and Bylaws to
convene a meeting of its shareholders (the "Company Shareholders' Meeting") as
promptly as practicable to consider and vote upon the approval of the
transactions contemplated by this Agreement and the other transactions
contemplated hereby (the "Company's Shareholders' Approval"); and (ii) the
Board of Directors of the Company shall recommend (which recommendation shall
not be withdrawn) and declare advisable such approval and the Company shall take
all lawful action to solicit, and use all reasonable efforts to obtain, such
approval. Investor agrees to cooperate in all reasonable respects with the
Company in the Company's efforts to obtain the Company Shareholders' Approval.
ARTICLE VII
INDEMNIFICATION
7.1 Indemnification by the Company. The Company shall indemnify, defend,
and hold harmless Investor, its directors and officers and any person or entity
which controls Investor against and in respect of any and all claims, demands,
losses, costs, expenses, obligations, liabilities, damages, recoveries, and
Page 30 of 62 Pages
<PAGE>
deficiencies, including interest, penalties, and reasonable attorneys' fees,
that Investor shall incur or suffer, that arise, result from, or relate to any
breach of, or failure by the Company to perform, any of its representations,
warranties, covenants, or agreements in this Agreement or in any schedule,
certificate, exhibit, or other instrument furnished or to be furnished by the
Company under this Agreement.
7.2 Indemnification by Investor. Investor shall indemnify, defend, and hold
harmless the Company, its directors and officers and any person or entity which
controls the Company against and in respect of any and all claims, demands,
losses, costs, expenses, obligations, liabilities, damages, recoveries, and
deficiencies, including interest, penalties, and reasonable attorneys' fees,
that the Company shall incur or suffer, that arise, result from, or relate to
any breach of', or failure by Investor to perform, any of its representations,
warranties, covenants, or agreements in this Agreement or in any schedule,
certificate, exhibit, or other instrument furnished or to be furnished by
Investor under this Agreement.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination. This Agreement may be terminated at any time prior to the
Initial Closing, whether before or after approval of this Agreement and the
transactions contemplated hereby by the shareholders of the Company;
(a) by mutual consent of the Company and Investor in a written instrument,
if the Board of Directors of the Company and the Board of Directors of the
General Partners of the Investor each so determines by a vote of a majority of
the members of its entire Board;
(b) by either the Company or Investor upon written notice to the other
party if (i) any Requisite Regulatory Approval shall have been denied and the
time for an appeal or petition for reconsideration expires without such appeal
or reconsideration having been granted or (ii) any governmental entity of
competent jurisdiction shall have issued a final nonappealable order enjoining
or otherwise prohibiting the consummation of the transactions contemplated by
this Agreement;
(c) by the Company or the Investor, on written notice to the other, if the
transactions contemplated hereby shall not have been consummated on or before
May 31, 1995, provided, however, the Company shall not have the right to
terminate if failure of the Initial Closing to occur by such date shall be due
to the failure of the Company to perform or observe the covenants and agreements
Page 31 of 62 Pages
<PAGE>
of the Company set forth herein;
(d) by either the Company or Investor (i) if there has been a material
breach of any of the representations or warranties set forth in this Agreement
on the part of the other party, which breach by its nature cannot be cured prior
to the Initial Closing and which breach would have, individually or in the
aggregate, a material adverse effect on the breaching party or upon the
consummation of the transactions contemplated hereby, or (ii) if there is a
failure of any condition to the obligation of such party to close set forth in
this Agreement; provided, that such failure of condition is not caused by the
breach of the party seeking to terminate; or
(e) by either the Company or Investor if there shall have been a material
failure to perform any of the covenants or agreements set forth in this
Agreement on the part of the other party, which breach shall not have been cured
within twenty business days following receipt by the breaching part),' of
written notice of such breach from the other party hereto.
8.2 Effect of Termination. In the event of termination of this Agreement by
either the Company or Investor as provided in Section 8.1, this Agreement shall
forthwith become void and have no effect except (i) the penultimate sentence of
Section 6.4 (including the Confidentiality Agreement), and Sections 8.3 and 9.8,
shall survive any termination of this Agreement, and (ii) notwithstanding
anything to the contrary contained in -this Agreement, no party shall be
relieved or released from any liabilities or damages arising out of its willful
breach or gross negligence in performing of any provision of this Agreement.
8.3 Employees. Investor hereby warrants and agrees I-.hat if this Agreement
is terminated and abandoned prior to the Initial Closing, it will not, during
the one-year period following such termination and abandonment, directly or
indirectly, solicit to leave the employment of the Company, or SDNB, any
executive employee of the Company or SDNB as of the date of such termination or
abandonment.
8.4 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any time
before or after approval by the shareholders of the Company. This Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties hereto.
8.5 Extension: Waiver. At any time prior to the Initial Closing Date, the
parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or
Page 32 of 62 Pages
<PAGE>
other acts of the other parties thereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party.
ARTICLE IX
GENERAL PROVISIONS
9.1 Survival of Warranties. The warranties, representations and covenants
of the Company or Investor contained in or made pursuant to this Agreement shall
survive the execution and delivery of this Agreement and the Initial Closing for
a period of two (2) years and shall in no way, be affected by any investigation
of the subject matter thereof made by or on behalf of Investor or the Company.
9.2 Successors and Assigns; No Third Party Beneficiaries. Neither this
Agreement nor any of the rights, interests; or obligations hereunder shall be
assigned by either of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other party. Subject to the
preceding sentence, the terms and conditions of this Agreement shall inure to
the benefit of and be binding upon the respective permitted successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
9.3 Governing Law. This Agreement shall be governed[ by and construed under
the laws of the State of California.
9.4 Counterparts. This Agreement may be executed simultaneously in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.5 Titles and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
9.6 Notices. All notices, requests, demands, and other communications under
this Agreement shall be in writing and shall be deemed to have been duly given
on the date of service if served personally on the party to whom notice is to be
given, or on the second day after mailing if mailed to the party to whom notice
is
Page 33 of 62 Pages
<PAGE>
to be given, by first class mail, registered or certified, postage prepaid, and
properly addressed as follows:
To the Company: SDNB FINANCIAL CORP.
1420 Kettner Boulevard San Diego, CA 92112
Attention: Murray L. Galinson, President and Chief Executive
Officer
With a Copy to: Sherman & Eggers, P.C.
350 West Ash Street, Suite 1100 San Diego, CA 92101
Attention: Lawrence M. Sherman, Esq.
To the Investor: WHR Management Corp.
767 Third Avenue
New York, New York 10017
Attn: James Heffernan, President
With a Copy to: Anderson Kill Olick & Oshinsky, P.C.
1251 Avenue of the Americas New York, NY 10020
Attention: Michael W. Stamm, Esq.
9.7 Finder's Fee. Each party represents that it neither is nor will be
obligated for any finders' fee or commission in connection with this
transaction. Investor agrees to indemnify and hold harmless the Company from
any liability for any commission or compensation in the nature of a finders'
fee (and the costs and expenses of defending against such liability or asserted
liability) for which Investor or any of its officers, partners, employees or
representatives is responsible.
The Company agrees to indemnify and hold harmless Investor from any
liability for any commission or compensation in the nature of a finders' fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, partners, employees or
representatives is responsible.
9.8 Expenses. Irrespective of whether the Initial Closing is effected, the
Company shall pay all costs and expenses of Investor with respect to the
negotiation, execution, delivery and performance of this Agreement, except that
if this Agreement is terminated by Investor due to a Burdensome Condition, the
Company shall have no obligation to pay such costs and expenses if Requisite
Regulatory Approval could have been obtained on the basis of the commitments
negotiated with the staff of the Federal Reserve prior to the execution of this
Agreement.
Page 34 of 62 Pages
<PAGE>
9.9 Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, such provision shall be excluded from
this Agreement and[ the balance of this Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
9.10 Publicity. Except as otherwise required by law or the rules of the
National Association of Securities Dealers, neither the Company nor Investor
shall issue or cause the publication of any press release or other public
announcement with respect to, or otherwise make any public statement concerning,
the transactions contemplated by this Agreement without the consent of the other
party, which consent shall. not be unreasonably withheld.
IN WITNESS WHEREOF, the parties to this Agreement have duly executed it on
the day and year first above written.
Company:
SDNB FINANCIAL CORP., a
California Corporation
By:/s/ Murray L. Galinson
-----------------------------
Murray L. Galinson, President
Investor:
WHITMAN HEFFERNAN & RHEIN WORKOUT FUND II,
L.P.
By: WHR Management Corporation, its
general partner
By:/s/ James P. Heffernan
-----------------------------
James P. Heffernan, President
WHITMAN HEFFERNAN & RHEIN WORKOUT
FUND II-A, L.P.
By: WHR Management Corporation, its
general partner
By:/s/ James P. Heffernan
-----------------------------
James P. Heffernan, President
Page 35 of 62 Pages
<PAGE>
LIST OF EXHIBITS
Schedule I- Allocation of Shares
Disclosure Schedule
Exhibit A - Outstanding Options under the Company's Stock Option Plans
Exhibit B - Form of Opinion of Sherman & Eggers, P.C.
Exhibit C - Registration Rights Agreement
Exhibit D - Form of Opinion of Anderson Kill Olick & Oshinsky, P.C.
Page 36 of 62 Pages
<PAGE>
SCHEDULE I
Percentage
Investors Allocation
- --------- ----------
Whitman Heffernan & Rhein Workout Fund II, L.P. 70.28214%
Whitman Heffernan & Rhein Workout Fund II-A, L.P. 29.71786%
Page 37 of 63 Pages
<PAGE>
Disclosure Schedule
Stock Purchase Agreement
Para, no,
- ---------
2.3 Subsidiaries:
The Company is 50% owner and general partner of San Diego
National Bank Building Joint Venture and general partner and
24.4% owner of Kettner Building Associates, Ltd., the limited
partnership which owns the remaining 50% of San Diego National
Bank Building Joint Venture.
2.5 Creation of a reserve above the amount currently contemplated in
connection with the Pioneer Liquidating Corporation matter
described in Sec. 2.17(a) below.
2.5(3) Potential adverse change resulting from Mesa loan.
2.5(5) The Company has adopted FAS No. 115 effective January 1, 1994.
2.5(6) The investment portfolio is revalued, as necessary, in accordance
with the requirements of FAS No. 115.
2.6 Creation of a reserve above the amount currently contemplated in
connection with the Pioneer Liquidating Corporation matter
described in Sec. 2.17(a) below.
2.17 Litigation:
a) San Diego National Bank is a defendant in an action entitled
Pioneer Liquidating Corporation, et al, v. San Diego Trust and
Savings Bank, et al., United States District Court, Southern
District of California, Case No. 94-361-SPK (BTM)
b) San Diego National Bank is a defendant in an action entitled
Vakhshour v. Gardality et al., San Diego Superior Court Case No.
668862.
c) Richard Riel Elizabeth Riel v. Miles Grant, et al., San Diego
Superior Court Case No. 676462
Page 38 of 62 Pages
<PAGE>
2.21 Agreements with Bank Regulators:
The Company has signed a Memorandum of Understanding with the
Federal Reserve Bank of San Francisco dated November 20, 1992.
San Diego National Bank has signed a Memorandum of Understanding
with the Comptroller of the Currency dated June 1, 1994.
Virtually all regulatory examinations result in a commitment
letter which is superseded by a subsequent commitment letter or
memorandum of understanding. The memoranda cited above
represented the latest agreements with the respective regulatory
authorities.
Page 39 of 62 Pages
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into as of
this 28th day of March, 1995, among SDNB Financial Corp., a Delaware corporation
(the "Company"), Whitman Heffernan & Rhein Workout Fund II, L.P., a Delaware
limited partnership and Whitman Heffernan & Rhein Workout Fund II-A, L.P., a
Delaware limited partnership (collectively the "Purchaser").
WHEREAS, pursuant to the Stock Purchase Agreement, dated as of January 31,
1995 (the "Stock Purchase Agreement"), by and among the Company and Purchaser,
Purchaser has agreed to purchase 510,121 shares of the Company's Common Stock,
no par value (the "Common Stock") and additional shares of Common Stock pursuant
to Section 1.3 of the Stock Purchase Agreement (the "Additional Shares",
together with the Common Stock, the "Shares");
WHEREAS, to induce Purchaser to purchase the Shares, the Company has agreed
to provide the registration rights set forth in this Agreement;
WHEREAS, the execution and delivery of this Agreement is a condition to the
obligation of the Purchaser to purchase the Shares as set forth in Section 4.12
of the Stock Purchase Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
1. Definitions. As used herein, the following terms shall have the
following respective meanings:
"Affiliate" shall mean, with respect to any Person, any Person
controlling, controlled by or under common control with such Person and
shall include any Person 20% or more of whose outstanding voting power is
owned by the specified Person either directly or indirectly through
subsidiaries.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Holder" shall mean Purchaser and each Permitted Assignee.
"NASD" shall have the meaning set forth in Section 5(a)(xiv) hereof.
"Permitted Assignee" shall have the meaning set forth in Section 11
hereof.
Page 40 of 62 Pages
<PAGE>
"Person" shall mean any individual, corporation, association,
partnership, group (as defined in Section 13(d)(3) of the Exchange Act),
joint venture, business trust or unincorporated organization, or a
government or any agency or political subdivision thereof.
"Registrable Shares" shall mean any Common Stock which may be
(i) issued pursuant to the Stock Purchase Agreement, or (ii) issued or
distributed in respect of the Common Stock referred to in clause (i) above
by way of stock dividend or stock split or other distribution,
recapitalization or reclassification. As to any particular Registrable
Share, such Registrable Share shall cease to be a Registrable Share when
(x) it shall have been sold, transferred or otherwise disposed of or
exchanged pursuant to a registration statement under the Securities Act or
(y) it shall have been distributed to the public pursuant to Rule 144 (or
any successor provision) under the Securities Act.
"Registration Expenses" shall have the meaning set forth in Section
7(b) hereof.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
2. Required Registration.
(a) Requirement. The Company shall prepare and file with the SEC not later
than six months after the conclusion of the Rights Offering (as defined in the
Stock Purchase Agreement), a registration statement in compliance with the
Securities Act covering the offer and sale of the Registrable Shares and shall
use its best efforts to cause such registration statement to be declared
effective.
(b) Registration Statement Form. If the registration required pursuant to
this Section 2 is proposed by the Company to be effected by the filing of a
registration statement on Form S-3 (or any successor or similar short-form
registration statement) in connection with an underwritten public offering, and
if the managing underwriter or underwriters shall advise the Company in writing
that, in its opinion, the use of another form of registration statement is of
material importance to the success of such proposed offering, then such
registration shall be effected on such other form; provided, however, that if a
registration statement is filed on a form other than Form S-3 (or other than a
successor to Form S-3 or a similar short-form registration statement) in
connection with an underwritten offering, the Company shall be required to cause
such registration to remain effective only for such reasonable period as is
necessary to complete such underwritten offering.
Page 41 of 62 Pages
<PAGE>
(c) Effective Registration Statement. Except as otherwise provided in
subsection (b) above, the Company shall cause the registration required pursuant
to this Section 2 to remain effective as long as the Holders (or their permitted
assigns) own Registrable Shares or such shorter period as may be required
pursuant to applicable laws or regulations; provided, however, that the Company
shall be permitted to terminate the registration required pursuant to this
Section 2 if (and for so long as) the Holders (together with all permitted
assigns whether required to be aggregated or not under applicable law relating
to resales of "restricted" stock) shall be eligible, in the joint opinion of
counsel to the Holders and the Company, (i) at any time after the second
anniversary of the Second Closing Date, to sell all Registrable Shares owned by
them in a three-month period subject to the volume limitations of Rule 144 of
the General Rules and Regulations of the Securities Act (or any successor or
similar rule) or (ii) after the third anniversary of the Second Closing Date, to
sell immediately all Registrable Shares owned by them pursuant to Rule 144(k) of
the General Rules and Regulations under the Securities Act (or any similar or
successor rule). If at any time the Company, by unanimous vote of its Board of
Directors, determines that it is necessary to suspend sales by the Holders under
any registration required under this Section 2 in order to permit the Company to
consummate a transaction which the Board of Directors has determined is material
to the Company and in the Company's best interests, the Company may, by a
written request certifying to the foregoing, request that the Holders consent to
the suspension of sales pursuant to such registration for a period sufficient to
permit the consummation of the proposed transaction (but not to exceed 120
days), and the Holders shall not unreasonably withhold such consent. Without
limiting the reasonable grounds upon which Holders may withhold their consent to
such a suspension of sales, the Company acknowledges that the existence of an
order from any regulatory authority requiring the Holders to divest all or any
portion of their Registrable Shares shall constitute a reasonable basis for
withholding such consent and shall cause any suspension period in effect at the
time of the issuance of such an order to end promptly.
(d) Priority in Registration. If the required registration pursuant to this
Section 2 involves an underwritten offering and the managing underwriter or
underwriters in good faith advises the Company in writing that, in its opinion,
the number of securities requested to be included in such registration
(including securities of the Company which are not Registrable Shares) exceeds
the largest number of securities which can be sold in such offering without
having an adverse effect on such offering (including the price at which such
securities can be sold), then the Company will include in such registration (i)
first, 100% of the Registrable Shares required to be registered pursuant to
Section 2(a) hereof (provided that if the number of Registrable Shares required
to be registered pursuant to Section 2(a) hereof exceeds the number which the
Page 42 of 62 Pages
<PAGE>
Company has been advised can be sold in such offering without having the adverse
effect referred to above, the number of such Registrable Shares to be included
in such registration by the Holders shall be allocated pro rata among such
Holders on the basis of the relative number of Registrable Shares each such
Holder has required to be included in such registration); (ii) second, to the
extent that the number of Registrable Shares required to be registered pursuant
to Section 2(a) hereof is less than the number of securities which the Company
has been advised can be sold in such offering without having the adverse effect
referred to above, such number of shares of equity securities the Company
requests to be included in such registration for the Company's account; and
(iii) third, to the extent that the number of Registrable Shares required to be
included in such registration pursuant to Section 2(a) hereof and the securities
which the Company proposes to sell for its own account are, in the aggregate,
less than the number of equity securities which the Company has been advised can
be sold in such offering without having the adverse effect referred to above,
such number of other securities proposed to be sold by any other Person which,
in the opinion of such managing underwriter or underwriters, can be sold without
having the adverse effect referred to above (provided that if the number of such
securities of such other Persons requested to be registered exceeds the number
which the Company has been advised can be sold in such offering without having
the adverse effect referred to above, the number of such securities to be
included in such registration pursuant to this Section 2(d) shall be allocated
pro rata among all such other Persons on the basis of the relative number of
securities each such Person has requested to be include in such registration).
3. Holdback Agreements. If any registration of Registrable Shares shall be
in connection with an underwritten public offering, the Company agrees not to
effect any public sale or distribution (except in connection with such public
offering) of any of its equity securities or of any security convertible into or
exchangeable or exercisable for any of its equity securities (in each case other
than as part of such underwritten public offering) during the 90-day period (or
such lesser period as the managing underwriter or underwriters may permit)
beginning on the effective date of such registration, and the Company also
agrees to use its best efforts to cause any member of the Company's management
and any holder of five percent (5%) or more of the Company's Common Stock to so
agree.
4. Incidental Registrations Relating to Underwritten Offerings.
(a) Right to Include Registrable Shares. If at any time when the Holders
own Registrable Shares the Company shall determine to file a registration
statement under the Securities Act in connection with an underwritten public
offering of any equity securities either by it or by any holders of its
outstanding equity securities, the Company will give prompt
Page 43 of 62 Pages
<PAGE>
written notice of its determination to Holders and of such Holders' rights under
this Section 4, at least 10 days prior to the anticipated filing date of such
registration statement. Upon the written request of Holders made within 10 days
after the receipt of any such notice from the Company, (which request shall
specify the Registrable Shares intended to be disposed of by such Holders), the
Company will use its best efforts to effect the registration under the
Securities Act of all Registrable Shares which the Company has been so requested
to register by the Holders thereof. The Holders requesting to be included in the
Company's registration relating to an underwritten offering must sell their
Registrable Shares to the underwriters on the same terms and conditions as apply
to the Company or such other Persons whose shares are offered pursuant to such
registration statement, with such differences, including any with respect to
indemnification and liability insurance, as may be customary or appropriate in
combined primary and secondary offerings; provided however, that the Holders
requesting to be included in such registration may elect, in writing prior to
the effective date of the registration statement filed in connection with such
registration, not to register such securities in connection with such
registration. No registration effected under this Section 4 shall relieve the
Company of its obligations to effect the registration required under Section 2
hereof.
(b) Priority in Registrations. If the managing underwriter or underwriters
involved in a registration pursuant to this Section 4 in good faith advises the
Company in writing that, in its opinion, the number of securities which the
Company, the Holders and any other Persons intend to include in such
registration exceeds the largest number of securities which can be sold in such
offering without having an adverse effect on such offering (including the price
at which such securities can be sold), then the Company will include in such
registration (i) first, 100% of the securities which (a) the Company proposes to
sell for its own account and/or (b) any other Person or Persons who, by
exercising contractual demand Registration Rights, caused such registration
statement to be filed ("Demand Rights Sellers") propose to sell for their own
account; (ii) second, to the extent that the number of securities which the
Company and any Demand Rights Sellers propose to sell for their own account is,
in the aggregate, less than the number of securities which the Company has been
advised can be sold in such offering without having the adverse effect referred
to above, such number of other securities requested to be included in the
offering for the account of the Holders which, in the opinion of such managing
underwriter or underwriters, can be sold without having the adverse effect
referred to above; and (iii) third, to the extent that the number of securities
which the Company proposes to sell for its own account and the Holders and any
Demand Rights Sellers propose to sell for their own account is, in the
aggregate, less than the number of securities which the Company has been advised
can be sold in such offering without having the adverse effect referred to
above, such number of other securities requested to
Page 44 of 62 Pages
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be included in the offering for the account of other Persons which, in the
opinion of such managing underwriter or underwriters, can be sold without having
the adverse effect referred to above.
5. Registration Procedures.
(a) If and whenever the Company is required by the provisions to Sections 2
or 4 hereof to use its best efforts to effect or cause the registration of
Registrable Shares, the Company shall as expeditiously as possible:
(i) prepare and file with the SEC a registration statement with
respect to such Registrable Shares and use its best efforts to cause such
registration statement to become effective;
(ii) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for the
period provided for in Section 2 or such shorter period until the shares
covered thereunder are sold and to comply with the provisions of the
Securities Act, the Exchange Act and the rules and regulations promulgated
thereunder with respect to the disposition of all the securities covered by
such registration statement during such period in accordance with the
intended methods of disposition by the Holders hereof set forth in such
registration statement; provided, that (A) before filing a registration
statement (including an initial filing) or prospectus, or any amendments or
supplements thereto, the Company will furnish to the Holders of the
Registrable Shares covered by such registration statement copies of all
documents proposed to be filed, which documents will be subject to the
review and comment of the Holders, and (B) the Company will notify each
Holder of Registrable Shares covered by such registration statement of any
stop order issued or threatened by the SEC, any other order suspending the
use of any preliminary prospectus or of the suspension of the qualification
of the registration statement for offering or sale in any jurisdiction, and
take all reasonable actions required to prevent the entry of such stop
order, other order or suspension or to remove it if entered;
(iii) furnish to each Holder and each underwriter, if applicable, of
Registrable Shares covered by such registration statement such number of
copies of the registration statement and of each amendment and supplement
thereto (in each case including all exhibits), such number of copies of the
prospectus included in such registration statement (including each
preliminary prospectus and summary prospectus), in conformity with the
requirements of the Securities Act, and such other documents as each Holder
of
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Registrable Shares covered by such registration statement may reasonably
request in order to facilitate the disposition of the Registrable Shares
owned by such Holder;
(iv) use its best efforts to register or qualify such Registrable
Shares covered by such registration statement under the state securities or
blue sky laws of such jurisdictions as each Holder of Registrable Shares
covered by such registration statement and, if applicable, each
underwriter, may reasonably request, and do any and all other acts and
things which may be reasonably necessary to consummate the disposition in
such jurisdictions of the Registrable Shares owed by such Holder, except
that the Company shall not for any purpose (A) be required to qualify
generally to do business as a foreign corporation or a broker-dealer in any
jurisdiction where, but for the requirements of this clause (iv), it would
not be obligated to be so qualified (B) subject itself to taxation in any
such jurisdiction or (C) consent to service of process in any such
jurisdiction;
(v) use its best efforts to cause such Registrable Shares covered by
such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the
Holders thereof to consummate the disposition of such Registrable Shares;
(vi) if at any time when a prospectus relating to the Registrable
Shares is required to be delivered under the Securities Act any event shall
have occurred as the result of which any such prospectus as then in effect
would include an untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, promptly give written notice thereof to
each Holder and the managing underwriter or underwriters, if any, of such
Registrable Shares and prepare and furnish to each such Holder a reasonable
number of copies of an amended or supplemental prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such
Registrable Shares, such prospectus shall not include an untrue statement
of material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
(vii) enter into such customary agreements (including an underwriting
agreement in customary form) and take such other actions as each Holder of
Registrable Shares being sold or the underwriter or underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of
such Registrable Shares, including customary indemnification and opinions;
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(viii) in connection with any underwritten offering which includes
Registrable Shares, use its best efforts to obtain a "comfort" letter or
letters from the Company's independent public accountants in customary form
and covering matters of the type customarily covered by "comfort" letters
as the Holders or the underwriters retained by such Holders shall
reasonably request;
(ix) subject to reasonable and customary confidentiality undertakings,
make available for inspection by representatives of any Holder of
Registrable Shares covered by such registration statement, by any
underwriter participating in any disposition to be effected pursuant to
such registration statement and by any attorney, accountant or other agent
retained by such Holders or any such underwriter, upon the reasonable
request of any Holder all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries, and cause all
of the Company's and its subsidiaries' officers, directors and employees to
supply all information and respond to all inquiries reasonably requested by
such Holders or any such representative, underwriter, attorney, accountant
or agent in connection with such registration statement;
(x) promptly prior to the filing of any document which is to be
incorporated by reference into the registration statement or the prospectus
(after initial filing of the registration statement), provide copies of
such document to counsel to the Holders of Registrable Shares covered by
such registration statement and to the managing underwriter or
underwriters, if any, make the Company's representatives available for
discussion of such document and make such reasonable and appropriate
changes in such document prior to the filing thereof as counsel for such
Holders or underwriters may reasonably request;
(xi) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to its security
holders, as soon as reasonably practicable after the effective date of the
registration statement, an earnings statement which shall satisfy the
provisions of Section 11(a) of the Securities Act and the rules and
regulations promulgated thereunder;
(xii) use its best efforts to provide a CUSIP number for all
Registrable Shares not later than the effective date of the applicable
registration statement, and provide the applicable transfer agents with
printed certificates for the Registrable Shares which are in a form
eligible for deposit with the Depository Trust Company;
(xiii) notify counsel for the Holders of Registrable Shares included
in such registration statement
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and the managing underwriter or underwriters, if any, promptly, and confirm
the notice in writing, (A) when the registration statement, or any
post-effective amendment to the registration statement, shall have become
effective, or any supplement to the prospectus or any amendment prospectus
shall have been filed, (B) of the receipt of any comments from the SEC and
(C) of any request of the SEC to amend the registration statement or amend
or supplement the prospectus or for additional information; and
(xiv) cooperate with each seller of Registrable Shares and each
underwriter, if any, participating in the disposition of such Registrable
Shares and their respective counsel in connection with any filings required
to be made with the National Association of Securities Dealers, Inc. (the
"NASD").
(b) Each Holder of Registrable Shares hereby agrees that, upon receipt of
any notice from the Company of the happening of any event of the type described
in Section 5(a)(vi) hereof, such Holder shall forthwith discontinue disposition
of such Registrable Shares covered by such registration statement or related
prospectus until Holder's receipt of the copies of the supplemental or amended
prospectus contemplated by Section 5(a)(vi) hereof, and, if so directed by the
Company, such Holder will deliver to the Company (at the Company's expense) all
copies in such Holder's possession, of the prospectus covering such Registrable
Shares at the time of receipt of such notice.
(c) Each Holder hereby agrees to provide the Company, upon receipt of its
request, with such information about such Holder to enable the Company to comply
with the requirements of the Securities Act and to execute such certificates as
the Company may reasonably request in connection with such information and
otherwise to cooperate to the extent necessary to satisfy any requirements of
law relating to the registration and qualification of Registrable Shares.
6. Underwritten Registrations. Subject to the provisions of Sections 2, 3
and 4 hereof, any of the Registrable Shares covered by a registration statement
may be sold in an underwritten offering at the discretion of the Holder thereof.
7. Expenses.
(a) The Registration Expenses of all registrations in accordance with
Sections 2 and Section 4 hereof shall be borne by the Company.
(b) The fees, costs and expenses of registration to be borne as provided in
Section 7(a) hereof shall include, without limitation, all expenses incident to
the Company's performance of or compliance with this Agreement, including
without limitation all SEC or NASD registration and filing fees
Page 48 of 62 Pages
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and expenses, reasonable fees and expenses of any "qualified independent
underwriter" and its counsel as may be required by the rules of the NASD, fees
and expenses of compliance with securities or blue sky laws (including without
limitation reasonable fees and disbursements of counsel for the underwriters, if
any, or for the selling Holders, in connection with blue sky qualifications of
the Registrable Shares), rating agency fees, printing expenses (including
expenses of printing certificates for Registrable Shares and prospectuses),
messenger, telephone and delivery expenses, the fees and expenses incurred in
connection with the listing of the securities to be registered on each
securities exchange or national market system on which similar securities issued
by the Company are then listed, fees and disbursements of counsel for the
Company and all independent certified public accountants (including the expenses
of any annual audit, special audit and "cold comfort" letters required by or
incident to such performance and compliance), securities laws liability
insurance (if the Company decides to obtain such insurance), the fees and
disbursements of underwriters customarily paid by issuers of securities
(including, without limitation, expenses relating to "road shows" and other
marketing activities), the reasonable fees of one counsel retained in connection
with each such registration by the Holders of a majority of the Registrable
Shares being registered, the reasonable fees and expenses of any special experts
retained by the Company in connection with such registration, and fees and
expenses of other persons retained by the Company (collectively, "Registration
Expenses"). The term "Registration Expenses" shall not include any underwriting
discounts or commissions or transfer taxes, if any, attributable to the sale of
Registrable Shares by such Holders.
8. Indemnification.
(a) Indemnification by the Company. In the event of any registration of any
securities of the Company under the Securities Act pursuant to Sections 2 or 4
hereof, the Company will, and it hereby does, indemnify and hold harmless, to
the extent permitted by law, each of the Holders of any Registrable Shares
covered by such registration statement, each Affiliate of such Holder and their
respective directors and officers or general and limited partners (and the
directors, officers, general and limited partners, Affiliates and controlling
Persons thereof), each other Person who participates as an underwriter in the
offering or sale of such securities and each other Person, if any, who controls
such Holder or any such underwriter within the meaning of the Securities Act
(collectively, the "Indemnified Parties"), against any and all losses, claims,
damages or liabilities, joint or several, and expenses (including any amounts
paid in any settlement effected with the Company's consent and including
reasonable attorneys' fees and disbursements) (collectively, "Damages") to which
any Indemnified Party may become subject under the Securities Act, state
securities or blue sky laws, common law or otherwise, insofar as
Page 49 of 62 Pages
<PAGE>
such Damages (or actions or proceedings in respect thereof, whether or not such
Indemnified Party is a party thereto) arise out of or are based upon (i) any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which such securities were registered under the
Securities Act, any preliminary, final or summary prospectus contained therein,
or any amendment or supplement thereto, (ii) any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading or (iii) any violation by the Company of
any federal, state or common law rule or regulation applicable to the Company
and relating to action required of or inaction by the Company in connection with
any such registration, and, subject to subsection (c) of this Section 8, the
Company will reimburse such Indemnified Party for any out-of-pocket legal or any
other expenses reasonably incurred by it in connection with investigating or
defending any such Damages, action or proceeding; provided, however, that the
Company shall not be liable to any Indemnified Party in any such case to the
extent that any such Damages (or action or proceeding in respect thereof) or
expense arises out of or is based upon either (a) any untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement or amendment or supplement thereto or in any such
preliminary, final or summary prospectus or a document incorporated by reference
into any of the foregoing in reliance upon and in conformity with written
information furnished to the Company by such Holder or underwriter specifically
for use in the preparation thereof or (b) any untrue statement or alleged untrue
statement or omission or alleged omission which was made in a preliminary
prospectus included in such registration statement but corrected in the final
prospectus included in such registration statement but only if and only to the
extent that any damages or expenses related thereto were caused solely by a
failure by the Holders to comply or to cause its agents to comply with the
prospectus delivery requirements under applicable law. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of such Holder or any Indemnified party and shall survive the transfer of
such securities by such Holder.
(b) Indemnification by the Holders and Underwriters. The Company may
require, as a condition to including any Registrable Shares in any registration
statement filed in accordance with Sections 2 or 4 hereof, that the Company
shall have received an undertaking reasonably satisfactory to it from the
Holders of such Registrable Shares and any underwriter or underwriters to
indemnify and hold harmless (in the same manner and to the same extent as set
forth in Section 8(a) hereof) the Company with respect to any statement or
alleged statement in or omission or alleged omission from such registration
statement, any preliminary, final or summary prospectus contained therein, or
any amendment or supplement, if such statement or alleged statement or omission
or alleged
Page 50 of 62 Pages
<PAGE>
omission was made in reliance upon and in conformity with written information
furnished to the Company by such Holders or such underwriter specifically for
use in the preparation of such registration statement, preliminary, final or
summary prospectus or amendment or supplement, or a document incorporated by
reference into any of the foregoing; provided, that no such Holder shall be
liable for any indemnity claims in excess of the amount of proceeds received by
such Holder from the sale of Registrable Shares. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Company or any of the Holders or underwriters, or any of their respective
affiliates, directors, officers or controlling Persons, and shall survive the
transfer of such securities by such Holders.
(c) Notices of Claims, Etc. Promptly after receipt by an indemnified party
hereunder of written notice of the commencement of any action or proceeding with
respect to which a claim for indemnification may be made pursuant to this
Section 8, such indemnified party will, if a claim in respect thereof is to be
made against an indemnifying party, give written notice to the latter of the
commencement of such action; provided, that the failure of the indemnified party
to give notice as provided herein shall not relieve the indemnifying party of
its obligations under this Section 8, except to the extent that the indemnifying
party is actually materially prejudiced by such failure to give notice. In case
any such action is brought against an indemnified party, the indemnifying party
will be entitled to participate in and to assume the defense thereof, with
counsel satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation; provided that the indemnified party shall have the right to
employ counsel to represent the indemnified party and its respective controlling
persons, directors, officers, general or limited partners, employees or agents
who may be subject to liability arising out of any claim in respect of which
indemnification may be sought by the indemnified party against such indemnifying
party under this Section 8 if (1) the employment of such counsel shall have been
authorized in writing by such indemnifying party in connection with the defense
of such action, (ii) the indemnifying party shall not have promptly employed
counsel reasonably satisfactory to the indemnified party to assume the defense
of such action or proceeding and then only until the indemnifying party shall
have employed such counsel, or (iii) any indemnified party shall have reasonably
concluded that there may be defenses available to such indemnified party or its
respective controlling persons, directors, officers, employees or agents which
are in conflict with or in addition to those available to the indemnifying
party, and in that event the reasonable fees and expenses of one firm of
Page 51 of 62 Pages
<PAGE>
separate counsel for the indemnified party shall be paid by the indemnifying
party. No indemnifying party will consent to entry of any judgment or enter into
any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect to such claim or litigation.
(d) Contribution. If the indemnification provided for in this Section 8
shall for any reason be unavailable to any indemnified party under Section 8(a)
or 8(b) hereof or is insufficient to hold it harmless in respect of any Damages,
or any action in respect thereof referred to therein, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of such Damages or action in respect thereof, (i) in such proportion
as shall be appropriate to reflect the relative benefits received by the
indemnified party and indemnifying party or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
but also the relative fault of the indemnified party and indemnifying party with
respect to the statements or omissions which resulted in such Damages, or action
in respect thereof, as well as any other relevant equitable considerations.
Notwithstanding any other provision of this Section 8(d), no Holder shall be
required to contribute an amount greater than the dollar amount of the proceeds
received by such Holder with respect to the sale of any such Registrable Shares.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
(e) Other Indemnification. Indemnification similar to that specified in the
preceding subdivisions of this Section 8 (with appropriate modifications) shall
be given by the Company and each Holder of Registrable Shares with respect to
any required registration or other qualification of securities under any federal
or state law or regulation or governmental authority other than the Securities
Act.
(f) Non-Exclusivity. The obligation of the parties under this Section 8
shall be in addition to any liability which any party may otherwise have to any
other party.
9. Rule 144. The Company covenants that it will file in a timely manner the
reports required to be filed by it under the Securities Act and the Exchange Act
and the rules and regulations promulgated thereunder (or, if the Company is not
required to file such reports, it will, upon the request of any Holder of
Registrable Shares, make publicly available such information), and it will take
such further action as any Holder of Registrable Shares may reasonably request,
all to the extent required from time to time to enable such Holder to sell
Registrable Shares without registration under the Securities Act
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<PAGE>
within the limitations of the exemptions provided by (a) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the SEC. Upon the request of any
Holder of Registrable Shares, the Company will deliver to such Holder a written
statement as to whether it has complied with such requirements.
10. Limited Liability. Notwithstanding any other provision of this
Agreement, neither the general partners, limited partners or managing directors,
or any directors or officers of any general or limited partners, nor any future
general partners, limited partners or managing directors, if any, of Holders
shall have any personal liability for performance of any obligation of the
Holders under this agreement.
11. Assignability. This Agreement shall inure to the benefit of and be
binding upon the successors and permitted assigns of the Purchaser. Purchaser
and any Permitted Assignee (as defined below) shall have the right to assign its
rights under this Agreement only to (i) any Person who received Registrable
Shares through a distribution made by Purchaser to its partners and (ii) any
Person who purchases or otherwise acquires not less than ten percent (10%) of
Purchaser's Registrable Shares (in either case, a "Permitted Assignee"). In
addition, and whether or not any express assignment shall have been made, the
provisions of this Agreement which are for the benefit of the parties hereto
other than the Company shall also be for the benefit of and enforceable by any
Permitted Assignee, subject to the provisions contained herein. The Company may
not assign any of its rights or delegate any of its duties under this Agreement
without the prior written consent of the Holders of a majority of the
Registrable Shares.
12. Notices. Any and all notices, designations, consents, offers,
acceptances or any other communications shall be given in writing by either (a)
personal delivery to and receipted for by the addressee or by (b) telecopy or
registered or certified mail which shall be addressed, in the case of the
Company, to: SDNB Financial Corp., 1420 Kettner Boulevard, San Diego, CA 92112,
Attn: Murray Galinson; in the case of Holders, the address or addresses thereof
appearing on the books of the Company or of the transfer agent and registrar for
its Common Stock.
All such notices and communications shall be deemed to have been duly given
and effective: (i) when delivered by hand, if personally delivered; (ii) two
business days after being deposited in the mail, postage prepaid, if mailed; or
(iii) when receipt acknowledged, if telecopied.
13. No Inconsistent Agreements. The Company will not hereafter enter into
any agreement with respect to its securities which is inconsistent with the
rights granted to the Holders in this Agreement.
Page 53 of 62 Pages
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14. Specific Performance. The Company acknowledges that the rights granted
to the Holders in this Agreement are of a special, unique and extraordinary
character, and that any breach of this Agreement by the Company could not be
compensated for by damages. Accordingly, if the Company breaches its obligations
under this Agreement, the Holders shall be entitled, in addition to any other
remedies that they may have, to enforcement of this Agreement by a decree of
specific performance requiring the Company to fulfill its obligations under this
Agreement. The Company consents to personal jurisdiction in any such action
brought in the United States District Court for the Southern District of New
York or any such other court and to service of process upon it in the manner set
forth in Section 12 hereof.
15. Severability. If any provision of this Agreement or any portion thereof
is finally determined to be unlawful or unenforceable, such provision or portion
thereof shall be deemed to be severed from this Agreement. Every other
provision, and any portion of such an invalidated provision that is not
invalidated by such a determination, shall remain in full force and effect.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which,
together, shall constitute one and the same instrument.
17. Defaults. A default by any party to this Agreement in such party's
compliance with any of the conditions or covenants hereof or performance of any
of the obligations of such party hereunder shall not constitute a default by any
other party.
18. Amendments, Waivers. This Agreement may not be amended, modified or
supplemented and no waivers of or consents to departures from the provisions
hereof may be given unless consented to in writing by the Company and the
Holders of a majority of the Registrable Shares; provided, however, that no such
amendment, supplement, modification or waiver shall deprive any Holder of any
rights under Sections 2 or 4 hereof without the consent of such Holder.
19. Captions. The captions contained in this Agreement are for reference
purposes only and are not part of this Agreement.
20. Attorneys' Fees. In any action or proceeding brought to enforce any
provision of this Agreement, or where any provision hereof is validly asserted
as a defense, the successful party shall be entitled to recover reasonable
attorneys' fees in addition to any other available remedy.
21. Entire Agreement. This Agreement, together with the Stock Purchase
Agreement, contains the entire agreement among
Page 54 of 62 Pages
<PAGE>
the parties hereto with respect to the transactions contemplated herein and
understandings among the parties relating to the subject matter hereof. Any and
all previous agreements and understandings between the parties hereto regarding
the subject matter hereof (other than the Stock Purchase Agreement and such
other agreements and instruments contemplated thereby) are, whether written or
oral, superseded by this Agreement.
22. Governing Law. This Agreement is made pursuant to and shall be
construed in accordance with the laws of the State of California. The parties
hereto submit to the non-exclusive jurisdiction of the courts of the State of
New York in any action or proceeding arising out of or relating to this
Agreement.
Page 55 of 62 Pages
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date aforesaid.
SDNB FINANCIAL CORP.
By: /s/ Murray L. Galinson
--------------------------
Name: Murray L. Galinson
Title: President/CEO
WHITMAN HEFFERNAN & RHEIN WORKOUT
FUND II, L.P.
By: WHR Management Corp.,
its General Partner
By: /s/ James P. Heffernan
--------------------------
Name: James P. Heffernan
Title: President
WHITMAN HEFFERNAN & RHEIN WORKOUT
FUND II-A, L.P.
By: WHR Management Corp.,
its General Partner
By: /s/ James P. Heffernan
--------------------------
Name: James P. Heffernan
Title: President
Page 56 of 62 Pages
EXHIBIT 3
SECTION 2.8 OF THE AGREEMENT OF LIMITED PARTNERSHIP OF FUND II
2.8 WHR Fund II. WHR Fund II is a sister partnership to the Partnership and
will, as more fully described below, make investments and dispose of investments
on a pro rata basis with, and on the same terms as, the Partnership. All actions
taken by the Partnership with respect to Acquired Securities, including but not
limited to acquisitions, sales, exchanges, conversions or other dispositions,
distributions, and the exercise of voting or other rights of securities holders,
but excluding actions taken pursuant to Sections 8.4(a), 8.4(b), 9.12(d),
11.1(b) or the second sentence of Section 9.9(b)(iii) hereof or the
corresponding provision of the Agreement of Limited Partnership of WHR Fund II,
shall be taken simultaneously with the same action being taken by WHR Fund II.
Except pursuant to the second sentence of Section 9.9(b)(iii) hereof or the
corresponding provisions of the Agreement of Limited Partnership of WHR Fund II,
all purchases of Acquired Securities shall be ratable on the basis of the
aggregate Commitments of the Partners in the Partnership and "Commitments" (as
defined in its Agreement of Limited Partnership) of the partners in WHR Fund II.
All other such simultaneous actions shall be ratable, and all costs and expenses
directly associated with such securities shall be borne ratably, on the basis of
the respective amounts of the particular class of Acquired Securities held or
being acquired by the Partnership and WHR Fund II. All reductions in management
fees required by Section 4.10(a)(iv) hereof, and (except as otherwise provided
in this Section 2.8) all reimbursements or uses of funds pursuant to Section
4.10(b) hereof and the corresponding provision of the Agreement of Limited
Partnership of WHR Fund II shall be made ratably on the basis of the respective
aggregate Commitments of the Partners in the Partnership and "Commitments" (as
defined in its Agreement of Limited Partnership) of the partners in WHR Fund II.
Page 57 of 62 Pages
EXHIBIT 4
SECTION 2.8 OF THE AGREEMENT OF LIMITED PARTNERSHIP OF FUND II-A
2.8 WHR Fund II-A. WHR Fund II-A is a sister partnership to the Partnership
and will, as more fully described below, make investments and dispose of
investments on a pro rata basis with, and on the same terms as, the Partnership.
All actions taken by the Partnership with respect to Acquired Securities,
including but not limited to acquisitions, sales, exchanges, conversions or
other dispositions, distributions, and the exercise of voting or other rights of
securities holders, but excluding actions taken pursuant to Sections 8.4(a),
8.4(b), 9.12(d), 11.1(b) or the second sentence of Section 9.9(b)(iii) hereof or
the corresponding provision of the Agreement of Limited Partnership of WHR Fund
II-A, shall be taken simultaneously with the same action being taken by WHR Fund
II-A. Except pursuant to the second sentence of Section 9.9(b)(iii) hereof or
the corresponding provisions of the Agreement of Limited Partnership of WHR Fund
II-A, all purchases of Acquired Securities shall be ratable on the basis of the
aggregate Commitments of the Partners in the Partnership and "Commitments" (as
defined in its Agreement of Limited Partnership) of the partners in WHR Fund
II-A. All other such simultaneous actions shall be ratable, and all costs and
expenses directly associated with such securities shall be borne ratably, on the
basis of the respective amounts of the particular class of Acquired Securities
held or being acquired by the Partnership and WHR Fund II-A. All reductions in
management fees required by Section 4.10(a)(iv) hereof, and (except as otherwise
provided in this Section 2.8) all reimbursements or uses of funds pursuant to
Section 4.10(b) hereof and the corresponding provision of the Agreement of
Limited Partnership of WHR Fund II-A shall be made ratably on the basis of the
respective aggregate Commitments of the Partners in the Partnership and
"Commitments" (as defined in its Agreement of Limited Partnership) of the
partners in WHR Fund II-A.
Page 58 of 62 Pages
FEDERAL RESERVE BANK OF SAN FRANCISCO
101 MARKET STREET, SAN FRANCISCO, CALIFORNIA 94105
March 9, 1995
John T. Collins, Esq.
Steptoe & Johnson
1330 Connecticut Avenue, N.W.
Washington, D.C. 20036
Dear Mr. Collins:
We have completed our analysis of the Notice of Change in Control involving
Whitman Heffernan & Rhein Management Corporation, Whitman Heffernan & Rhein
Workout Fund II, L.P., and Whitman Heffernan & Rhein Workout Fund II-A, L.P.,
all of Bronxville, New York (collectively "Notificants"), for the proposed
acquisition of 24.9 percent of the outstanding voting shares of SDNB Financial
Corporation, Inc., San Diego, California ("SDNB"), which owns 100 percent of San
Diego National Bank, San Diego, California ("Bank"), submitted pursuant to the
Change in Bank Control Act of 1978. The Federal Reserve System does not intend
to disapprove the proposed transaction and consummation may proceed immediately.
In consideration of this proposal, we have determined that all factors
required to be considered under the Change in Bank Control Act are consistent
with approval. This determination is specifically conditioned upon compliance by
Notificants with all the commitments and representations made in connection with
this notice, including the following. Notificants have committed that they will
not directly or indirectly:
1. Seek or accept representation on the board of directors of SDNB or its
subsidiary bank, Bank, except that Notificants may have a nonvoting
observer attend the board of directors meetings of SDNB and Bank and
may designate a director for the board of directors of SDNB under the
conditions set forth below;
2. Take action causing SDNB or Bank to become a subsidiary of
Notificants;
3. Acquire or retain shares that would cause the combined interests of
Notificants and their officers, directors, trustees, and affiliates to
exceed 24.9 percent of the
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<PAGE>
outstanding voting securities of SDNB or 24.9 percent of the equity of
SDNB;
4. Exercise or attempt to exercise a controlling influence over the
management or policies of SDNB or Bank;
5. Have or seek to have any representative serve as an officer, agent, or
employee of SDNB or Bank;
6. Propose a director or slate of directors in opposition to a nominee or
slate of nominees proposed by the management or board of directors of
SDNB or Bank;
7. Solicit or participate in soliciting proxies with respect to any
matter presented to the shareholders of SDNB or Bank;
8. Attempt to influence the dividend policies or practices of SDNB or
Bank;
9. Attempt to influence the loan and credit decisions or policies of SDNB
or Bank, the pricing of services, any personnel decisions, the
location of any offices, branching, the hours of operation, or similar
activities of SDNB or Bank, except that this commitment shall not
apply to the execution of board responsibilities by a director
designated under the conditions set forth below;
10. Enter into any other banking or nonbanking transaction with SDNB or
Bank, except that (a) Notificants may establish and maintain deposit
accounts with Bank, provided that the aggregate balances of all such
accounts do not exceed $500,000 and that the accounts are maintained
on substantially the same terms as those prevailing for comparable
accounts of persons unaffiliated with SDNB, (b) Bank and Danielson
Trust Company may continue their trust referral arrangement provided
that the referral income received by Bank from Danielson Trust Company
shall not exceed on an annual basis an amount equal to one percent
(1%) of the shareholders equity of Bank and such arrangement will be
on arms-length basis and on substantially the same terms and
conditions that would be offered to others in similar circumstances
not affiliated with SDNB and (c) Notificants, as the mortgagee on the
building occupied by SDNB and Bank, will not use this mortgage lending
relationship to exert or attempt to exert control over SDNB or Bank;
11. Dispose or threaten to dispose of shares of SDNB in any manner as a
condition of specific action or nonaction by SDNB;
In connection with Notificants' proposal to designate a member of the board
of SDNB in the event that such designation becomes necessary for
notificants to retain their qualification under ERISA as a "venture capital
operating company," Notificants
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<PAGE>
commit:
12. To make such a designation only after providing notice to Board staff
and demonstrating to the Board's satisfaction that Notificants' ERISA
qualification is in jeopardy without the representation;
13. That such designation would be solely for the purpose of complying
with ERISA and would not be for the purpose of exercising control over
SDNB pursuant to the Bank Holding Company Act;
14. That Notificants will not seek to designate a director at SDNB without
first designating, to the extent possible, a director at all other
investments made by Notificants;
15. To reduce their aggregate holdings of SDNB shares to less than 15
percent of the total voting shares of SDNB and to less than 15 percent
of the total equity of SDNB. Notificants will make this reduction as
soon as possible, but no later than six months following the
director's designation. Notificants may request, and the Board may
grant, an extension of this time period if Notificants are not likely
to divest the required shares within this period and demonstrate that
they have exercised reasonable efforts in good faith to divest the
required shares;
16. To cease having a nonvoting observer attend meetings of the board of
directors of SDNB at the time of designation;
17. That Notificants will submit the name of proposed director to the
Board for its review prior to designating this individual, and to
accommodate any reasonable objection of the Board in selecting the
designated individual; and
18. That Notificants will not designate as a director of SDNB any officer,
board member, management official, or partner of Whitman Heffernan &
Rhein Management Corporation, or any of its affiliates.
Based on the facts of record, including the commitments set forth above, it
appears that upon consummation of this proposal, Notificants would not acquire
control or the ability to exercise a controlling influence over SDNB or Bank for
purposes of the Bank Holding Company Act.
The commitments and conditions relied upon in reaching this decision are
deemed to be conditions imposed in writing by the Federal Reserve System in
connection with its findings and decision and, as such, may be enforced in
proceedings under applicable law.
Please advise us in writing when the transaction has been consummated. If
the transaction has not been consummated within one year from this date, or if
the terms, conditions
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<PAGE>
transaction has not been consummated within one year from this date, or if the
terms, conditions or parties to the transaction change, this Reserve Bank should
be consulted to determine whether any additional action or notification would be
required.
Very truly yours,
/s/ KENNETH R. BINNING
---------------------------
Kenneth R. Binning
Director
Banking Regulation
cc: Mr. Murray L. Galinson, SDNB Financial Corporation
Board of Governors
Comptroller of the Currency - Western District
Federal Deposit Insurance Corporation - Regional Office
California State Banking Department
Office of Thrift Supervision - Regional Office
Page 62 of 62 Pages
