SDNB FINANCIAL CORP
1420 Kettner Boulevard
San Diego, California 92101
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
March 17, 1995
10:00 A.M.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders
(the "Meeting") of SDNB Financial Corp, a California corporation
(the "Company") will be held at the San Diego National Bank
Building, 1420 Kettner Boulevard, San Diego, California, on
Friday, March 17, 1995 at 10:00 a.m., Pacific Time for the
following purposes.
(1) To elect eight directors of the Company for the
ensuing year;
(2) To consider and approve the proposal regarding stock
issuances and other capital transactions;
(3) To consider and approve the SDNB Financial Corp 1994
Stock Option Plan;
(4) To ratify the appointment of Coopers & Lybrand as
independent accountants for the ensuing year;
(5) To transact such other business as may properly
come before the Meeting and any adjournment or
adjournments thereof.
Please carefully read the following Proxy Statement, which
describes the matters to be voted upon at the Meeting, and then
sign and return your proxy card as soon as possible. Should you
receive more than one proxy because your shares are registered in
different names or addresses, each proxy should be signed and
returned to assure that all your shares will be voted. Any
shareholder present at the Meeting may withdraw his or her proxy
and vote personally on each matter brought before the Meeting.
By Order of the Board of Directors
Howard W. Brotman, Secretary
February 17, 1995
San Diego, California
SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN
PERSON. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE
SIGN, DATE AND MAIL THE ENCLOSED PROXY CARD PROMPTLY.
<PAGE>
SDNB FINANCIAL CORP
1420 Kettner Boulevard
San Diego, California 92101
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
March 17, 1995
INTRODUCTION
Information Concerning Proxies
This Proxy Statement and the enclosed proxy card are being mailed
in connection with the solicitation of proxies by the Board of
Directors of SDNB Financial Corp, a California corporation (the
"Company") for the Annual Meeting of Shareholders (the "Meeting")
to be held at 10:00 a.m., Pacific Time on March 17, 1995 at 1420
Kettner Boulevard, San Diego, California 92101, and any
adjournment of such Meeting. This Proxy Statement and the
enclosed form of proxy are being mailed on or about February 17,
1995 to shareholders of record as of January 31, 1995.
If a proxy in the accompanying form is duly executed and
returned, the shares represented thereby will be voted as
directed. If no direction is given, the shares represented by
the proxy will be voted for the election of all of the nominees
for directors named herein, and in the discretion of the proxy.
Any shareholder may revoke his or her proxy by written notice
delivered to the Secretary of the Company, by submitting a
subsequent proxy to the Secretary of the Company, or by attending
the Meeting and voting in person.
The cost of soliciting proxies will be paid by the Company and
may include reimbursement paid to brokerage firms and others
holding shares in their name for their expense in forwarding
solicitation material to their principals. Solicitation will be
made primarily through the use of the mail, but certain
directors, officers and regular employees of the Company may,
without additional remuneration, solicit proxies personally or by
telephone or telegram.
Voting Securities and Principal Holders Thereof
The record date for determining those shareholders who are
entitled to notice of, and to vote at, the Meeting has been fixed
as January 31, 1995. At the close of business on the record
date, the Company had 1,538,364 outstanding shares of Common
Stock, its only class of voting stock.
The following table sets forth those shareholders known to the
Company who on January 31, 1995 owned beneficially or of record
more than 5% of the Common Stock of the Company.
Name of Amount and Nature
Beneficial of Beneficial Percentage (1)
Owner Ownership(1) of Class (2)
Charles I. Feurzeig 332,164 (3) 18.9
1420 Kettner Blvd.
San Diego, CA 92101
Murray L. Galinson 172,400 (4) (6) 9.8
1420 Kettner Blvd.
San Diego, CA 92101
Deferred Savings Plan of 83,760 4.8 (7)
the San Diego National Bank
401(k) Plan
1420 Kettner Blvd.
San Diego, CA 92101
The following table sets forth information as to outstanding
shares of the Company's Common Stock beneficially owned as of
December 8, 1994 by each director of the Company, and by all
directors and executive officers of the Company and San Diego
National Bank ("Bank') as a group. Except as indicated, the
persons named have sole voting power and sole investment power
over the amount of shares shown.
Name of Amount and Nature
Beneficial of Beneficial Percentage (1)
Owner Ownership(1) of Class(2)
Margaret Costanza 200 *
Charles I. Feurzeig 332,164 (3) 18.9
Murray L. Galinson 172,400 (4) (6) 9.8
Karla J. Hertzog 200 *
Robert B. Horsman 18,436 (6) 1.1
Mark P. Mandell 200 *
Patricia L. Roscoe 16,051 1.0
Julius H. Zolezzi 56,448 3.2
All Executive Officers
and Directors as a group 634,809 (3) (4) (5) (6) 36.2
(15 persons)
(1) All percentages and share amounts in these sections were
calculated on the basis of outstanding securities, plus
shares issuable pursuant to vested stock options. Includes
shares owned beneficially and of record, directly or
indirectly, together with associates. Also includes shares
held by or on behalf of minor and/or adult children and a
family trust.
(2) Asterisk indicates percentage of less than 1%.
(3) Includes 70,640 shares held by Balboa Crest, a partnership
of which Mr. Feurzeig is a general partner.
(4) Includes 85,358 shares held as trustee/custodian.
(5) Includes 173,174 shares issuable to directors and executive
officers pursuant to vested stock options.
(6) Does not include shares owned by San Diego National Bank
Profit Sharing Plan and 401-K Savings Plan attributable to
executive officers' vested interests therein.
(7) The Deferred Savings Plan of the San Diego National Bank
401(k) Plan holds 5.4% of currently outstanding stock if
vested options are not included in the outstanding stock.
Voting of Securities
Each share is entitled to one vote on all matters brought before
the Meeting. Under California law, in voting for directors, if
any shareholder gives notice at the Meeting, prior to the voting,
of that shareholder's intention to cumulate his/her votes, each
shareholder will have the right to cumulate his/her votes and
give one nominee a number of votes equal to the number of
directors to be elected, multiplied by the number of shares
he/she holds, or to distribute his/her votes on the same
principle among the nominees to be elected in such manner as
he/she may see fit. The proxy holders named in the enclosed
proxy card may or may not elect to give such notice.
<PAGE>
MATTERS TO BE CONSIDERED AT ANNUAL MEETING
ITEM 1
ELECTION OF DIRECTORS
A Board of eight directors is to be elected at the Meeting to
hold office until the next annual meeting and until their
successors shall be elected and qualified. Unless individual
shareholders specify otherwise, each returned proxy will be voted
for the election of the eight nominees who are listed below, or
as many of such nominees of the Board of Directors as possible,
such votes to be distributed among such nominees in such manner
as the persons named in the enclosed proxy card see fit.
If, however, any of the Board's nominees is unable to serve, or
for good cause declines to serve at the time of the Meeting, the
persons named in the enclosed proxy will exercise discretionary
authority to vote for a substitute. The Board of Directors is not
aware of any circumstances that would render any nominee
unavailable for election. It is intended that the proxies
received by the proxy holders pursuant to the solicitation will
be voted in a manner designed to cause the election of the
maximum number of the Board of Directors' nominees.
The following schedule sets forth certain information concerning
the nominees for election as directors, each of whom currently is
a director of the Company and the Bank, and concerning the (non-
director) executive officers of the Company and the Bank. An
asterisk indicates the nominees for election as directors.
Positions Held With the Company
And Principal Occupation During
Name Age Past Five Years
Howard W. Brotman 65 Senior Vice President and Chief
Financial Officer of the Company and
the Bank, January, 1989 to present;
Secretary of the Company, February,
1993 to present.
Joyce I. Chewning 47 Senior Vice President of the
Company, January 1994 to present;
Senior Vice President, Operations of
the Bank, January, 1989 to present.
Margaret "Midge" Costanza*62 Director of the Company since
June, 1993; Partner, Martin &
Costanza, presentation skills
trainers, 1989 to present; Political
Consultant-Congresswoman Lynn Schenk
and State Treasurer Kathleen Brown,
1993 to November, 1994; Campaign
Coordinator, California Democratic
State Central Committee and Boxer for
Senate Committee, 1991 to 1992;
Executive Director, Search Alliance, a
health research organization, 1990 to
1991.
Charles I. Feurzeig* 83 Chairman of the Board of the
Company since 1982; Owner and operator
of commercial shopping centers;
President of Pacific View
Construction, Co., Inc., developer of
homes, from before 1989 to present.
Murray L. Galinson* 57 Director of the Company since
1982; Chief Executive Officer and
President of the Company and the Bank
from before 1989 to present.
<PAGE>
Positions Held With the Company
And Principal Occupation During
Name Age Past Five Years
E. M. "Bud" Hamilton 52 Senior Vice President of the
Bank, April, 1991 to present; Senior
Vice President of La Jolla Bank &
Trust Company from 1989 to 1990.
Karla J. Hertzog* 43 Director of the Company since
February, 1992; President of TOPS
Personnel Service, Inc., a temporary
personnel agency, from before 1989 to
present.
Robert B. Horsman* 47 Director of the Company since
1991; Executive Vice President of the
Company, January 1994 to present;
Executive Vice President of the Bank
from before 1989 to present.
Gail Jensen-Bigknife 44 Senior Vice President of the
Bank, December, 1989 to present; Vice
President of the Bank from before 1989
to December, 1989.
Mark P. Mandell* 44 Director of the Company since
January, 1992. Attorney-at-law from
before 1989 to present; Vice President
and Legal Counsel, Square One
Development Corporation, commercial
real estate developers, from before
1989 to present.
Richard Nance 50 Senior Vice President of the
Bank, from before 1989 to present.
Debra Perkins 40 Vice President/Compliance of the
Bank from before 1989 to present.
Connie M. Reckling 46 Vice President/Human Resources of
the Bank, 1990 to present; Vice-
President/Administrative Officer of
the Bank from before 1989 to 1990.
Patricia L. Roscoe* 51 Director of the Company since
1990; Chairman of Patti Roscoe &
Associates, Inc. and Roscoe/Cottrell
Inc., destination management
companies, March, 1989 to present;
President of both companies from
before 1989 to March, 1989.
Julius H. Zolezzi* 65 Director of the Company since
1982; President of Zolezzi
Enterprises, Inc., which owns fishing
vessels and of Embarcadero Marine,
Inc., a supplier of diesel fuel, from
before 1989 to present.
<PAGE>
Information Regarding The Board of Directors and Its Committees
The Company's Board of Directors met 12 times during 1993. Each
director nominated for election attended at least 75% of the
aggregate number of meetings of the Board and the committees on
which he/she served.
The Company's Audit Committee (as well as the Audit Committee of
the Bank) consisted of Margaret Costanza, Karla J. Hertzog and
Mark P. Mandell. The Company's Audit Committee assists in
selecting the independent accountants, in designating services
they are to perform and in maintaining effective communication
with the Company's accountants. The Audit Committee met four
times in 1993.
The Company's Executive Compensation Committee, which was
composed of Charles I. Feurzeig, Patricia L. Roscoe, Karla J.
Hertzog and Mark P. Mandell met twice during 1993. The Executive
Compensation Committee reviews and acts on matters relating to
compensation levels and benefit plans for executive officers and
other key employees of the Company and the Bank.
The Company does not have a standing nominating committee or any
other committee performing similar functions, and such matters
are considered at meetings of the full Board of Directors.
At the annual organizational meeting of the Bank, the Company, as
the sole shareholder of the Bank, intends to elect the eight
nominees for director of the Company as directors of the Bank
until the next annual meeting of the Bank and until their
successors are elected and have qualified.
<PAGE>
EXECUTIVE COMPENSATION
Name and Long-term
Principal Annual Compensation Bonus Compensation
Position Year Salary Option Awards
Murray L. Galinson 1993 $ 167,700 $ 0 $ 35,003
President/CEO 1992 167,700 0 0
1991 167,700 * 37,280 11,585
Robert B. Horsman 1993 109,200 0 27,548
Executive Vice 1992 107,600 0
President 1991 107,600 * 26,800 11,585
*Bonuses are shown above in the year paid, but are based on
the results of the previous year.
Executive Employment Agreements
On February 12, 1993 the Company entered into new employment
agreements, comparable to previous agreements, with Murray L.
Galinson and Robert B. Horsman, which continue through December
31, 1995. The agreements provide for base salaries of $167,700
and $109,200, respectively, with adjustments on January 1 of each
year during the term at the discretion of the Board of Directors,
but in no event will the adjusted salary be less than the
preceding year. For 1994, salaries have been set at $171,900 for
Mr. Galinson and $111,930 for Mr. Horsman. The agreements also
provide for normal employee perquisites, participation in the
other compensation plans and for extension of employment for
three years from the date of a "change of control" of the Company
or the Bank.
REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE
Overall Compensation Philosophy
The Company's executive compensation objective is to link
compensation with corporate and individual performance in a
manner which, recognizing the marketplace practices of other
banks, will retain and attract executives who can achieve the
short and long-term goals of the Company. The policy is to
provide for competitive base salaries which reflect individual
levels of responsibility and performance and annual bonuses based
upon achievement of annual corporate performance. The result is
a strengthening of the mutuality of interest in the Company's
long-term performance between its executive officers and the
Company's shareholders.
Base Salaries
A base salary has been established for each executive officer.
These base salaries are established in relation to the external
marketplace based on surveys by the California Bankers
Association and California State Banking Department and internal
factors including but not limited to the following: (1) the
compensation history of the individual officer; (2) the
individual's years of experience with the Company or the Bank and
in the industry; (3) the performance and contribution of the
officer relative to his/her job responsibility; and (4) the
current financial condition of the Company and the Bank.
Additionally, the Board also considers various qualitative
factors including but not limited to knowledge of the banking
industry, knowledge of the San Diego community, commitment and
dedication and entrepreneurial spirit. As a matter of policy,
the Board does not assign specific weights to the above factors
for any of its executive officers due to the belief that the
evaluation and awarding of compensation to the officers' group
cannot be simplified to a mathematical computation. As such, the
compensation policy used by the Committee and the Board to set
salaries is considered subjective.
Bonuses
Officers can earn bonuses on an annual basis. The bonus program
is designed to a pay-for-performance philosophy by placing a
significant portion of total compensation "at risk" while
rewarding outstanding performance. No bonuses were paid to the
executive officers in 1993.
CEO Compensation
The members of the Board have determined that Mr. Galinson is a
person with extreme dedication to the success of the Company.
Although the Company has not been profitable over the last three
years, the Board feels much of these losses were beyond the
control of Mr. Galinson and the executive officers due to
extrinsic factors. Accordingly, the committee recommended to the
Board an increase in his base salary in the amount of 5% above
his 1993 base salary commencing January 1, 1994, which would
place his salary in the third quartile of the surveys referred to
above. In view of the financial results of the Company, no bonus
was paid to Mr. Galinson for 1993.
Conclusion
The Board believes the executive officers' individual
compensation programs discussed in this report are designed in a
manner which is consistent with the Company's overall
compensation philosophy. As such, the compensation provided to
the Company's CEO, Murray L. Galinson, and to other executive
officers, is deemed appropriate.
Charles I Feurzeig
Patricia L. Roscoe
Karl J. Hertzog
Mark P. Mandell
<PAGE>
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
Potential Realizable
Value at Assumed
Annual Rates of Stock
Options % of Total Price Appreciation For
Granted Options Granted Option Term
<F1> To Employees In Exercise Expiration ------------------
Officer <F2> Fiscal Year Price Date @5% @10%
- - - - - ------- ------- ----------- ------ ------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Murray L. Galinson 27,003 $ 3.25 8/25/03
8,000 3.25 9/29/03
------
35,003 22.6% $71,500 $181,300
Robert B. Horsman 22,048 $ 3.25 08/25/03
5,500 3.25 09/29/03
------
27,548 17.8% $56,300 $142,400
<FN>
<F1>
Note 1: Includes 10,500 for each officer awarded in his role as a director of the Company.
<F2>
Note 2: Above options vest "at such time that the mid-point between the published bid and
asked price of the Company's common stock shall equal or exceed $6.125 per share."
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
Value of Unexercised
Number of Unexercised In-the-Money Options
Share Acquired Value Options at Fiscal Year End - at Fiscal Year End -
Officer on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- - - - - ------- -------------- -------- ---------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
Murray L. Galinson None None E 60,495 None
U 35,003 None
Robert B. Horsman None None E 34,682 None
U 27,548 None
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMPARISON OF FIVE YEAR-CUMULATIVE TOTAL RETURNS
PREPARED BY THE CENTER FOR RESEARCH IN SECURITY PRICES
PRODUCED ON 3/1/94 INCLUDING DATA TO 12/31/93
Index Description 12/30/88 12/29/89 12/31/90 12/31/91 12/31/92 12/31/93
- - - - - ----------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
SDNB FINANCIAL CORP 100.0 168.2 126.5 82.2 68.5 48.9
CRSP Index for Nasdaq Stock Market (US Companies) 100.0 121.2 103.0 165.2 192.2 219.4
CRSP Index for Nasdaq Bank Stocks 100.0 111.2 81.4 133.6 194.2 221.5
<FN>
Notes:
A. The figures represent index levels derived from compounded daily returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the previous trading day.
C. If year-end is not a trading day, the preceding trading day is used.
D. The index level for all series was set to 100.0 on 12/30/88.
</FN>
</TABLE>
<PAGE>
Director Compensation
During 1993, Mr. Feurzeig was paid $1,000 per board meeting and
$150 per committee meeting. All other non-employee directors
were paid $500 per board meeting and $75 per committee meeting.
Employee Benefit Plans
In April 1982, the Bank's Board of Directors adopted a Profit
Sharing Plan, which was approved by the Internal Revenue Service
in 1983. This Plan provides for contributions to be made by the
Bank from current or accumulated profits in amounts not to exceed
15% of the compensation paid to plan participants. All employees
are eligible to participate as of the January 1 next following
their date of employment and are allocated a portion of the
Bank's contributions as determined by the Plan. Participants
who terminate their employment with the Bank will receive their
vested percentage of their account balances in either a single
lump sum or payment in kind. In 1993 there was no accrual on
account of this Plan.
In July 1989, the Bank's Board of Directors approved the Deferred
Savings Plan for the benefit of all employees. In addition to
the Profit Sharing Plan already in effect, the Deferred Savings
Plan provides a 401(k) plan for which the Bank makes matching
contributions on a percentage basis. All employees are eligible
to participate on the January 1 following their hire date.
Participants who terminate their employment with the Bank will
receive their vested percentage of their account balance. In
1993 there was no accrual on account of this Plan.
Deferred Compensation Plan
On March 20, 1985, the Bank entered into unfunded deferred
compensation agreements with Murray L. Galinson, Robert B.
Horsman and Joyce I. Chewning. The agreements permit these
employees, prior to the time of rendering services, to have their
salary reduced and the reduction paid as deferred compensation
over a five year period following termination of employment,
death or retirement. The employees become general unsecured
creditors of the Bank with respect to such deferred accounts.
Nothing was deferred under this plan in 1993.
Company Stock Option Plans
The Company had a "1984 Stock Option Plan" which provided for the
granting of options to directors, executive officers and other
key employees. Such plan expired September 10, 1994. Options
were granted under the plan at a price not less than the fair
market value of the Company's common stock on the date of grant.
The options are exercisable in increments over a number of years
as determined by the Board of Directors but not to exceed 10
years and expire three months after termination of employment or
cessation of affiliation as a director. Options could, depending
on the circumstances of issuance, be either incentive stock
options, which are qualified under provisions of the Internal
Revenue Code for certain tax-advantaged treatment, or non-
qualified options.
As of January 31, 1995, there were non-qualified options
outstanding for 168,294 shares at exercise prices ranging from
$3.25 to $7.94 per share, and Incentive Stock Options outstanding
for 268,852 shares at exercise prices ranging from $3.25 to
$11.13 per share.
Other Transactions
The Bank had banking transactions in the ordinary course of its
business with the Company and its subsidiaries, directors,
executive officers, and their associates, on the same terms,
including interest rates and collateral on loans, as those
prevailing at the same time for comparable transactions with
other customers of the Bank, and which do not, in the opinion of
management, involve more than the normal risks of collectability
or present other unfavorable features. Under federal law,
additional restrictions are placed upon the aggregate amount of,
and other terms and conditions of, loans to executive officers,
directors and principal shareholders. The maximum aggregate
available amount of all such loans and credit extensions at
December 31, 1993 to all directors and officers of the Bank,
together with their associates, was approximately $440,000
(constituting approximately 3% of the Company's equity capital).
The actual aggregate balance outstanding on all such loans and
credit extensions at December 31, 1993 was $272,000. In October
1990, the Bank Board adopted a policy of eliminating further
lending to executive officers and directors (except for cash-
secured loans) beyond the maturity of then existing debt. An
exception to this policy was granted to one director where the
amounts of the loans outstanding are less than the amounts
outstanding when the policy was adopted.
ITEM 2
PROPOSAL REGARDING STOCK ISSUANCES AND OTHER CAPITAL TRANSACTIONS
Description of Proposed Transaction and Effect on Existing
Shareholders
Since 1990 there has been the acquisition by larger California
institutions of a significant number of independent banks in the
San Diego area. This trend culminated in the 1994 acquisition of
San Diego Trust and Savings Bank by First Interstate Bank and the
announcement by Grossmont Bank that it is for sale.
Additionally, In recent years some independent banks were closed
by governmental agencies.
Management and the Board of Directors believes that the reduction
in the number of independent banks represents a substantial
business development opportunity to attract customers who would
prefer to do business with a locally based bank rather than one
headquartered elsewhere. Management and the Board of Directors
reached the conclusion that a capital infusion into the Company
would enhance the Company's ability to more rapidly avail itself
of any such opportunities.
Discussions ensued with WHR Management Corp., the general partner
of two limited partnerships (collectively "WHR"), on the subject
of a capital infusion and additionally on the refinancing of the
building mortgage. It was determined by Management and the Board
of Directors that WHR's goals and confidence in the future of the
San Diego economy are similar to that of the Company so that the
Board of Directors has declared advisable and has recommended the
issuance of 510,121 shares of the Company's Common Stock (the
"Initial Issuance") to WHR. The Initial Issuance will take the
form of a private placement made pursuant to a Stock Purchase
Agreement executed as of January 31, 1995 (the "Stock Purchase
Agreement"), by and between the Company and WHR. The per share
price will be $4.34, for an aggregate purchase price of
$2,213,925. However, if the Company at any time prior to the
Initial Issuance or the Additional Issuance (defined below; the
Initial Issuance and the Additional Issuance are sometimes
referred to collectively as the "WHR Issuances"), issues any
shares of Common Stock or grants any option, warrant, or similar
right to purchase any Common Stock and the purchase price,
conversion price, or exercise price is less than $4.34, then
WHR's purchase price pursuant to the Stock Purchase Agreement
shall automatically be reduced to such lower price. The Company
has no plans to issue any shares or grant any options, warrants
or similar rights for less than $4.34 prior to the WHR Issuance,
except under the Company's stock option plan. The foregoing does
not apply to any options granted, or the exercise of any options,
under the Company's stock option plan.
WHR's obligation to consummate the WHR Issuances is subject to
the satisfaction of certain conditions, including the following:
(i) a determination of the Federal Reserve Board not to
disapprove the WHR Issuances and that WHR will not be a bank
holding company after the WHR Issuances; (ii) customary
representations and warranties of the Company shall be true and
correct at the closing of each of the Initial Issuance and the
Additional Issuance; (iii) the approval by the Company's
shareholders of the terms and conditions of the WHR Issuances;
and (iv) receipt by the Company of an opinion from an investment
banker that the WHR Issuances are fair to shareholders from a
financial point of view. Attached as Exhibit A, and incorporated
by reference herein, is an opinion dated December 14, 1994, from
Hoefer & Arnett Incorporated in satisfaction of condition (iv)
above. In view of the fact that the Company did not utilize the
services of any other parties in making the determination to
issue additional shares, Management and the Board believed it was
in the shareholders' interest to obtain such an opinion.
Pursuant to the Stock Purchase Agreement, the Company has granted
WHR registration rights to facilitate a resale of the shares to
be purchased by WHR. The Company is obligated to prepare and
file a registration statement under the Securities Act of 1933,
as amended (the "1933 Act"), and to use its best efforts to cause
such registration statement to become and remain effective for as
long as WHR, or its assignees or designees, owns shares of Common
Stock issued to it pursuant to the Stock Purchase Agreement.
The Company must file such registration statement within six
months after the conclusion of the Rights Offering, as defined
below. The Company is required to pay all expenses in connection
with the filing of such registration statement and maintaining
its effectiveness. The Company shall also indemnify WHR against
certain liabilities arising in connection with such registration
statement. In addition, if at any time the Company proposes to
register any of its securities under the 1933 Act in connection
with the public offering of such securities solely for cash on a
form that would also permit the registration of the Common Stock
purchased by WHR, WHR has the right (subject to certain
conditions) to require the Company to register the Company's
Common Stock owned by WHR in connection with such public
offering.
As part of the agreement with WHR, the Company has granted WHR
the option (the "Option") to purchase shares of the Company's
Common Stock if (i) the Company shall have sold, prior to
December 31, 1995, to any person or entity, or any group of
persons acting in concert, shares of its Common Stock
representing 5% or more of the Company's Common Stock (other than
to WHR or pursuant to the Rights Offering), and (ii) the Company
shall not have consummated the sale of Common Stock to WHR
pursuant to the Stock Purchase Agreement on or prior to December
31, 1995, for any reason other than the failure, inability, or
unwillingness of WHR to purchase the Common Stock pursuant to the
Stock Purchase Agreement. The Option may be exercised by WHR at
any time after the satisfaction of the conditions set forth above
and prior to June 30, 1999. The Option permits WHR to purchase
all or any part of the number of shares of the Company's Common
Stock which from time to time represent 4.9% of the Company's
Common Stock, for a purchase price of 50% of the Company's per
share book value as shown on the Company's financial statements
as of the final day of the fiscal quarter ended immediately prior
to the date of exercise of the Option (subject to anti-dilution
adjustments).
The Company also proposes to issue to its shareholders, other
than WHR (the "Rights Offering") one transferable subscription
right (the "Rights") for each two shares of Common Stock held of
record as of a date to be determined by the Company's Board of
Directors. Holders of the Rights ("Rights Holders") will have the
right to purchase one share of Common Stock for each Right, at a
price of $4.34 per share. Rights Holders will be entitled to
subscribe for all, or any portion of, the shares of Common Stock
underlying their Rights. If all Rights are exercised, an
aggregate of 769,182 additional shares of Common Stock will be
issued at an aggregate price of $3,338,250 (based on the
1,538,364 outstanding shares as of September 30, 1994). Each
shareholder who subscribes for the full number of shares of
Common Stock underlying such shareholder's Rights will have the
right to subscribe for additional shares of Common Stock that are
not subscribed for by other Rights Holders, pro rata with other
shareholders who also exercise their Rights in full. No
fractional Rights will be issued by the Company. The number of
Rights issued to any shareholder will be rounded up to the
nearest whole number.
Pursuant to the Stock Purchase Agreement, WHR has agreed to
purchase an additional 255,060 shares of Common Stock (the
"Additional Issuance") at $4.34 per share for an aggregate
purchase price of $1,106,960, if the Rights Offering is fully
subscribed, or such lesser amount so that after such purchase WHR
holds an aggregate of 24.9% of the Company's outstanding Common
Stock.
There is a pre-existing relationship between the Bank and
Danielson Trust Company, ("Danielson") an affiliate of WHR, in
which the Bank refers potential trust customers to Danielson in
return for a referral fee. The Company has been informed that
Danielson has over $4 billion in trust assets under
administration. The referral arrangement is conducted on an arms
length basis and on market terms and conditions. It is not a
significant financial transaction for either the Bank or
Danielson. The Company is also advised that a corporation
controlled by Charles Feurzeig is a customer of Danielson, with
an account of approximately $800,000 under administration. There
are no other affiliations, other than those described in this
proxy, between WHR and the Company or any of its officers and
directors.
Shareholder Dilution
Upon the Initial Issuance, shareholders of the Company will
suffer a dilution in their voting rights and in their percentage
interest in any future net earnings in the Company. In addition,
shareholders who do not exercise their Rights in full will suffer
an additional dilution in their voting rights and in their
percentage interest in any future net earnings of the Company.
All shareholders will suffer a reduction in the per share book
value of the shares of Common Stock currently held by them as a
result of the sale of shares at less than book value to WHR and
in the Rights Offering.
The following table shows the detail of such dilution (assuming
the Rights Offering is fully subscribed):
Number of Proforma Proforma
Shares Shareholders per Share
Outstanding Equity Book Value
September 30, 1994 Amounts 1,538,364 $9,615,150(A) $6.25(A)
Initial issuance to WHR
at $4.34 per share 510,121 2,213,925
Less estimated costs (150,000)
Total after initial
issuance 2,048,485 $11,679,075 $5.70
Rights offering @ $4.34
per share 769,182 3,338,250
Additional issuance to WHR
@ $4.34 per share 255,060 1,106,960
Less estimated costs (350,000)
Totals 3,072,727 $15,774,285 $5.13
(A) Per unaudited financial statements.
The market price in the six month period prior to the public
announcement of the transaction with WHR ranged from $2.50 to
$3.25; after such announcement it has ranged from $2.50 to $4.75
per share.
Use of Proceeds
The Company intends to use the proceeds from the WHR Issuances
for general corporate purposes, and may use some or all of the
proceeds to finance possible future acquisitions of other banking
institutions or related businesses. At the present time, the
Company does not have any specific plans, agreements, or
understandings, written or oral, pertaining to the proposed
acquisition of any banking institution or related business.
In addition, the Company may utilize some of the proceeds from
the WHR Issuance's to make a partial payment on a note (the "PV
Note") owed to Pacific View Construction Co., Inc. ("PV"), which
is secured by a second trust deed (the "Second Trust Deed") on
the San Diego National Bank Building. PV is a corporation
controlled by Charles Feurzeig, Chairman of the Company's Board
of Directors. The PV Note and Second Trust Deed have been
assigned to River Forest Bank as collateral for other loans made
by that bank to PV and other entities controlled by Mr. Feurzeig.
Mr. Galinson and his wife own less than 2% of the outstanding
shares of the holding company of River Forest Bank. The family
of Mr. Galinson's wife owns a controlling interest in such
holding company. San Diego National Bank Building Joint Venture,
which is 62% owned by the Company and of which the Company is the
general partner, owes PV $1,900,000 on the PV Note, which matures
January 4, 1995. The present interest rate on the PV note is
"prime" (8.5% at January 31, 1995) plus one and one-half percent.
It is anticipated that the PV Note will be paid down by $250,000
and extended to April 1, 1997. The Second Trust Deed will be
subordinate to the existing first trust deed acquired by WHR and
will be modified to provide for interest at ten percent (10%) per
annum and otherwise be on the same terms and conditions as the
first trust deed including maturity and payment terms.
PV intends to obtain a reassignment of the PV Note and the Second
Trust Deed from River Forest Bank. In connection therewith, San
Diego National Bank may make a loan to PV at market rates and on
a fully collateralized basis. At such time as PV obtains a
reassignment of the PV Note and Second Trust Deed, the Company
will purchase notes from San Diego National Bank in the aggregate
amount of approximately $1,100,000, at par, which notes will be
assigned to PV, at par, without recourse or representation or
warranty, to reduce the outstanding principal amount of the PV
Note to approximately $550,000.
Related Transaction
In a separate but related transaction, WHR has purchased the
existing first trust deed on the San Diego National Bank Building
on which $10,173,407 was outstanding at the time of such
purchase. WHR has entered into a modification of the first trust
deed to reduce the debt service requirements to $800,000 per
annum, all allocable to interest. The annual debt service under
the trust deed had been $823,000, which was allocable first to
interest at a rate equal to 2.25% over the Eleventh District Cost
of Funds (which interest rate changes monthly) and is subject to
a ceiling of 14.759%; and the balance to principal. Pursuant to
the terms of the existing first trust deed, absent the
modification, due to the projected increase in the benchmark
interest rates, annual payments of debt service were projected to
increase on May 1, 1995 to approximately $917,000 per annum based
on a projected interest rate of 7.18% as of that date. The
modification of the first trust deed also permits prepayment of
the loan on April 1, 1995, for $7,708,133 (assuming all interest
payments shall have been made); on January 1, 1996, for
$8,691,137 and quarterly thereafter at amounts which increase by
approximately $373,000 each quarter. On April 1, 1997, the
remaining principal amount would be due and payable, if not
previously prepaid.
Reasons for Requesting Shareholder Approval
The WHR Issuance's have been approved by the Company's Board of
Directors. Shareholder approval of the WHR Issuance's is being
requested for two reasons. First, because under the rules of the
NASDAQ National Market System, upon which the Common Stock is
listed, shareholder approval is required for the sale or issuance
of the Company's Common Stock equal to 20% or more of the
Company's outstanding Common Stock or 20% or more of the voting
power outstanding before the issuance if the consideration for
the sale is less than the greater of the book value or the market
value of the stock. The issuance of Common Stock to WHR (24.9%)
is greater than 20% of the Company's outstanding Common Stock and
is being offered to WHR for less than the book value of the
Common Stock, which book value is currently greater than the
market value of the Common Stock.
Second, the Board of Directors is aware that the shareholders of
the Company are well-informed about the Company and its business
and take a particularly active role in Company affairs.
Therefore, given that circumstance and the nature of the proposed
transaction, the Board of Directors preferred to obtain
shareholder approval, even if it were not required.
Action by Shareholders
The Board of Directors believes that the WHR Issuance's are in
the best interests of the Company and its shareholders because
the proceeds from such issuance's will provide additional capital
which the Company will be able to use for general corporate
purposes, which may include financing possible future
acquisitions and the partial repayment of certain debt
obligations of the Company relating to the San Diego National
Bank Building, as described above. Accordingly, with respect to
Proxy Item 2, the Board of Directors recommends unanimously,
except for the abstention of Charles Feurzeig, that the
shareholders vote FOR the proposal to issue Common Stock to WHR.
Mr. Feurzeig abstained from the vote to avoid an appearance of a
conflict of interest due to his interest in PV, the holder of the
Second Trust Deed on the San Diego National Bank Building.
Approval of this proposal requires a favorable vote of at least a
majority of the outstanding shares of the Company's Common Stock.
The Company has no knowledge of whether Directors and Executive
Officers intend to vote to approve the proposal. If they do so,
only an additional 14% of the outstanding shares would be needed
to approve the proposal.
ITEM 3
APPROVAL OF 1994 STOCK OPTION PLAN
At the 1985 annual meeting, the shareholders of the Company
approved the 1984 Stock Option Plan (the "1984 Plan") which
provided for the granting of incentive stock options or non-
qualified stock options to key employees (including officers and
directors who are also employees) of the Company or any
subsidiary and for the granting of non-qualified stock options to
non-employee directors in the aggregate amount of 150,000 shares
of the Company's Common Stock. Subsequent stock dividends and
amendments to the 1984 Plan with the approval of shareholders in
1988 and 1991 increased the number of shares available to
600,000. The 1984 Plan expired by its terms on September 10,
1994.
Subject to shareholder approval, the Board of Directors has
approved the 1994 Stock Option Plan (the "1994 Plan" or "Plan")
to replace the expired 1984 Plan, authorizing the issuance of not
more than 400,000 shares of the Company's Common Stock as set
forth below. Such shares are in addition to unexercised options
outstanding under the 1984 Plan which did not terminate with the
expiration of the 1984 Plan. As at December 8, 1994, there were
non-qualified options for 168,294 shares outstanding at exercise
prices ranging from $3.25 to $7.94 per share and Incentive Stock
Options for 268,952 shares outstanding at exercise prices ranging
from $3.25 to $11.13 per share.
Summary of the 1994 Plan
The following description is intended to summarize the material
terms of the Plan. Any stock holder who desires to review the
text of the 1994 Plan can obtain a copy by writing to the
Company.
The Plan is intended to advance the interests of the Company and
the Bank by attracting and retaining highly qualified personnel.
The purpose of the Plan is to provide an incentive to, and
encourage stock ownership by, officers and key employees of the
Company and the Bank so that they may acquire or increase their
proprietary interest in the success of the Company and the Bank.
Any full-time officer or other employee of the Company or its
controlled subsidiaries who performs services of special
importance to the Company or such subsidiaries relative to its
management, operation or development is eligible to be selected
by the committee administering the Plan to receive options
thereunder. The Plan is designed to qualify certain options
granted thereunder as "Incentive Stock Options" within the
meaning of the Internal Revenue Code of 1986 as amended (the
"Code"). This does not, however, preclude the grant of "non-
qualified" options. The federal income tax consequences of
incentive stock options and non-qualified options are fully
described below.
The shares subject to the Plan are the Company's no par value
voting Common Stock. Options under the Plan may be granted to
participants by the Company from time to time to purchase an
aggregate of 400,000 shares. This total is subject to adjustment
for stock dividends, stock splits, reverse stock splits and other
similar changes in the Company's capitalization. If any change
is made in the stock subject to the Plan, or subject to any
option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, stock split,
combination of shares, exchange of shares, change in corporate
structure, or otherwise) appropriate adjustments will be made by
a committee appointed by the Board of Directors of the Company as
to the maximum number of shares subject to the Plan and the
number of shares and price per share subject to outstanding
options. The Plan provides for the granting of options to
purchase such shares at an option price per share of not less
than 100% of the fair market value of the Common Stock at the
time the option is granted. Incentive stock options to "more
than 10% shareholders" can only be granted at an option price per
share of not less than 110% of the fair market value of the
Common Stock at the time the option is granted.
The Plan will be administered by a committee of the Company's
Board of Directors of not less than three disinterested directors
appointed from time to time (the "Committee"). No member of the
Committee is permitted to vote on any matter concerning his/her
own participation in the Plan.
The Plan provides for the grant of both incentive stock options
and non-qualified options. Incentive stock options are available
for full-time officers and employees, but not for directors who
are not full-time employees. Incentive stock options are subject
to the following, among other, limitations. First, options
granted under the Plan to an employee, who at the time of the
grant owned more than 10% of the combined voting power of all
classes of the Company's capital stock, shall not qualify as
incentive stock options unless (i) the purchase price of the
stock subject to the option is at least 110% of the fair market
value determined at the time of grant; and (ii) the option
provides for exercise within five years after the time of grant.
Any options granted or exchanged under the Plan which do not meet
any one of the above limitations (or those described below) will
be deemed "non-qualified." Furthermore, the Committee has the
authority to grant non-qualified options to any eligible
participant under the Plan. The exercise price for non-qualified
options granted to eligible persons who own more than 10% of the
Company's Common Stock and the exercise price for options granted
to all other persons must be at least the fair market value of
the stock on the date of grant. Under the Plan there is a limit
on the incentive stock options which can become exercisable by an
option holder in a calendar year. To the extent that the
aggregate fair market value (determined as of the date of the
grant of the option) of shares, with respect to which options are
exercisable for the first time by an option holder during a
calendar year, exceeds $100,000, such options will be deemed "non-
qualified."
At the time of exercise, the purchase price of the option shares
must be paid in full in cash or, if specifically authorized in
the option agreement, by the delivery of Common Stock of the
Company having a fair market value equivalent to the portion of
the purchase price for the shares being acquired on the exercise
of the option. Options are exercisable and purchasable in such
installments as the Committee may determine. Options expire on
such date as the Committee may determine and specify at the time
of grant. Options may not, however, be granted for terms in
excess of ten years, or for five years in the case of "control
persons" (as defined in the Plan).
Options under the Plan are not assignable other than by will or
the laws of descent and distribution, and may be exercised only
by the optionee during the optionee's lifetime. In the event of
disability or death of the optionee, the option may be exercised
within one year after the date of disability or death, provided
that the option will not be exercisable after the scheduled
expiration date. If the optionee's affiliation with the Company
is terminated for a reason other than death, disability, or for
cause, the option shall expire three months from the occurrence
of said termination or upon the date it expires by its terms,
whichever is earlier. If an optionee's affiliation with the
Company is terminated for cause, the option shall expire
immediately, although the Committee may reinstate the option for
a period not to exceed three months. In the event of a merger or
consolidation in which the Company is not the survivor, or the
reorganization, dissolution or liquidation of the Company, the
options will become immediately exercisable as to all unexercised
shares (subject to any required action by shareholders), and will
terminate on the date such event is consummated, unless other
provisions are made in connection with the transaction.
The Company filed a Form S-8 Registration Statement with the
Securities and Exchange Commission with respect to the 1984 Plan,
pursuant to which shares of the Company's Common Stock issuable
upon exercise of options granted under the Plan are registered,
so that the same are freely transferable by the optionee, and
intends to file an amendment to Form S-8 to cover the 1994 Plan.
Certain securities law restrictions will continue to apply to
optionees who are directors and/or executive officers of the
Company.
The Board of Directors of the Company reserves the right to
suspend, amend or terminate the Plan and, with the consent of the
optionee, make such modification of the terms and conditions of
his/her option as the Board deems advisable, except that the
Board may not: (i) increase the maximum number of shares which
may be purchased pursuant to options granted under the Plan; (ii)
change the minimum option price; (iii) increase the maximum term
of options provided for in the Plan; or (iv) materially increase
the benefits accruing to participants, without the approval of
the holders of at least a majority of the outstanding shares of
the Company's Common Stock.
The Plan also grants the Committee the authority to make cash
bonus awards in connection with the grant and/or exercise of
options under the Plan or sale of shares received upon exercise
of an option under the Plan, to make grants of restricted stock
in accordance with the specific terms of the Plan, and to grant
stock appreciation rights to employees in connection with the
granting of options under the Plan. The terms and conditions
relating to those rights are fully set forth in the Plan.
Unless previously terminated by the Board of Directors, the Plan
shall terminate on September 10, 2004, and no options shall be
granted thereafter. Such termination shall not, however, affect
any option theretofore granted.
Stock Option Agreements.
The Plan provides that options granted thereunder shall be
evidenced by an agreement in such form as the Committee shall
determine from time to time.
Material Federal Tax Consequences.
Incentive stock options granted under the 1994 Plan are intended
to satisfy the requirements of Section 422 of the Internal
Revenue Code. Non-qualified options granted under the 1994 Plan
will not satisfy such requirements. The federal income tax
treatment for the two types of options differs as follows:
(i) Incentive Stock Options. No taxable income is
recognized by the option holder at the time of the option grant,
and no taxable income is generally recognized at the time the
option is exercised. However, the difference between the fair
market value of the shares at the time of exercise and the option
price paid for the shares is generally included in the option
holder's "alternative minimum taxable income" for purposes of
computing the alternative minimum tax. The option holder will,
however, recognize taxable income in the year in which the
purchased shares are sold or otherwise made the subject of
disposition.
For federal tax purposes, dispositions are divided into two
categories: (a) qualifying and (b) disqualifying. The option
holder will make a qualifying disposition of the purchased shares
if the sale or other disposition of such shares is made after the
option holder has held the shares for more than two years after
the grant date of the option and more than one year after the
exercise date. If the optionee fails to satisfy either of these
two holding periods prior to the sale or other disposition of the
purchased shares, then a disqualifying disposition will result.
Upon a qualifying disposition of the shares, the option holder
will recognize a long-term capital gain in an amount equal to the
excess of (a) the amount realized upon the sale or other
disposition over (b) the option price paid for the shares. If
there is a disqualifying disposition of the shares, then the
portion of the gain realized on the sale equal to the excess of
(a) the fair market value of those shares at the date of exercise
over (b) the option price paid therefor, will be taxable as
ordinary income. Any remaining gain recognized upon the
disposition will be a capital gain, and such gain will be long-
term if the shares have been held for more than one year
following exercise of the option. The Company will be entitled
to a business expense deduction equal to the amount of ordinary
income recognized by the option holder on a disqualifying
disposition.
(ii) Non-Qualified Options. No taxable income is recognized
by an option holder upon the grant of a non-qualified option.
The option holder will in general recognize ordinary income in
the year in which the option is exercised equal to the excess of
the fair market value of the purchased shares at the date of the
exercise over the exercise price, and the optionee will be
required to satisfy the tax withholding requirements applicable
to such income.
However, special provisions of the Internal Revenue Code apply to
the acquisition of Common Stock under a non-qualified option, if
the purchased shares are subject to repurchase by the Company at
the original option price or are otherwise subject to a
substantial risk of forfeiture and the shares are not
transferable free of such risk. These special provisions may be
summarized as follows:
(a) To the extent the shares acquired upon exercise of
the non-qualified option are subject to such repurchase right or
other substantial risk of forfeiture and the shares are not
transferable free of such risk, the option holder will not
recognize any taxable income at the time of exercise but will
have to report as ordinary income, as and when the risk of
forfeiture lapses or the shares become transferable free of such
risk, an amount equal to the difference between (1) the fair
market value of the shares on the date the risk of forfeiture
lapses or the shares become transferable free of such risk, and
(2) the consideration paid for such shares.
(b) The option holder may, however, elect under
Section 83(b) of the Internal Revenue Code to include as ordinary
income in the year of exercise of the non-qualified option an
amount equal to the difference between (1) the fair market value
of the purchased shares on the date of exercise (determined
without regard to any restriction which lapses) and (2) the
consideration paid for such shares. If the Section 83(b)
election is made, the option holder will not recognize any
additional income as and when either the substantial risk of
forfeiture lapses or the shares become transferable free of that
risk. When the option holder later sells the shares, the excess
of the amount realized on the sale over the fair market value of
the shares on the date of the exercise of the option will be
capital gain.
The Company will be entitled to a business expense deduction
equal to the amount of ordinary income recognized by the option
holder in connection with the exercise of the non-qualified
option. The deduction will in general be allowed for the taxable
year of the Company in which such ordinary income is recognized
by the option holder.
Recommendation of the Board of Directors
The Board of Directors unanimously recommends a vote FOR approval
of the 1994 Plan.
ITEM 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected Coopers & Lybrand,
independent public accountants, to audit the financial statements
of the Company for the year ending December 31, 1994 and
recommends to shareholders that they vote for ratification of
that appointment. Coopers & Lybrand has audited the Company's
financial statements since the year ended December 31, 1985.
Representatives of Coopers & Lybrand are expected to be present
at the Meeting, will have the opportunity to make a statement if
they desire to do so, and are expected to be available to respond
to appropriate questions.
SHAREHOLDER PROPOSALS
In order to be considered for inclusion in the Company's proxy
materials for the 1995 annual meeting, shareholder proposals, if
any, must be received by the Company at its principal executive
office prior to April 15, 1995.
ANNUAL REPORT TO SEC ON FORM 10-K
The Company will furnish, without charge, upon written request of
any shareholder who represents in the request that he/she was the
beneficial owner of the Company's stock on January 31, 1995, a
copy of the Company's annual report to the Securities and
Exchange Commission on Form 10-K (including financial statements
and financial statement schedules, but without exhibits) for the
fiscal year ended December 31, 1993. Requests should be
addressed to: Howard W. Brotman, Secretary, SDNB Financial Corp,
P.O. Box 12605, San Diego, CA 92112-3605 (telephone 619/231-
4989).
ANNUAL DISCLOSURE STATEMENT
The Company will furnish, without charge for the first copy, the
annual disclosure statement of San Diego National Bank for the
fiscal year ended December 31, 1993 upon request. Requests
should be made to Howard W. Brotman, Secretary, SDNB Financial
Corp, P.O. Box 12605, San Diego, CA 92112-3605 (telephone 619/231-
4989).
OTHER BUSINESS
The Board of Directors is not aware of any matter to be presented
for action at the Meeting other than the matters set forth in
this Proxy Statement. Should any other matter requiring a vote
of the shareholders arise, the persons named as proxies on the
enclosed proxy card will vote the shares represented thereby in
accordance with their best judgment in the interest of the
Company. Discretionary authority with respect to such other
matters is granted by the execution of the enclosed proxy card.
By Order of the Board of Directors
February 17, 1995 Howard W. Brotman, Secretary
HOEFER & ARNETT
INCORPORATED
INVESTMENT BANKERS
353 SACRAMENTO STREET, TENTH FLOOR
SAN FRANCISCO, CALIFORNIA 94111
(415)362-7111
December 14, 1994
Board of Directors
SDNB Financial Corp.
1420 Kettner Blvd.
San Diego, CA 92101
Dear Members of the Board:
You have requested our opinion as to the fairness to the
shareholders of SDNB Financial Corp. ("SDNB" or the "Company")
from a financial point of view, of the terms and conditions of
the proposed private placement and rights offering (collectively,
the "Offering") of common stock by the Company as stated in the
Proxy Statement (the "Proxy Statement"), attached hereto as
Exhibit A and incorporated herein by this reference.
Qualifications of the Appraiser
Hoefer & Arnett, Incorporated ("H&A") conducts business in
investment banking and securities brokerage specific to
independent financial institutions. The analysis of securities
and of mergers, acquisitions, tender offers and other corporate
transactions for the purpose of (i) providing transactional
advice and assistance, (ii) investment research, (iii) capital
financing activities, and (iv) rendering opinions concerning
fairness, is a normal part of this business. H&A currently
conducts dealer markets in the shares of more than 100
independent California financial institutions, but not SDNB. In
addition, the principals of H&A have substantially broader
experience in investment and commercial banking, some of which
may be deemed applicable to this evaluation and opinion.
Procedure
In connection with our opinion, we have, among other things: (i)
reviewed the Proxy Statement (Exhibit A) including the terms and
conditions of the Offering; (ii) reviewed certain publicly
available financial and other data with respect to SDNB,
including the financial statements for recent years and interim
periods to date and certain other relevant financial and
operating data relating to the Company made available to us from
published sources and from internal records of the Company
including the 10-Q for the most recent quarter ended September
30, 1994 and asset quality migration analysis dated September 30,
1994; (iii) compared the Company from a financial point of view
with certain other companies in the financial services industry
which we deemed relevant; (iv) considered the financial terms and
conditions, to the extent publicly available, of selected common
stock offerings of financial institutions, which we deemed to be
comparable, in whole or in part, to the Offering and the Company;
(v) reviewed and discussed with representatives of the management
of the Company certain information of a business and financial
nature regarding the Company, furnished to us by them, including
the related assumptions of the Company; (vi) discussed the Proxy
Statement with the Company's counsel and (vii) performed such
other analyses and examinations as we have deemed appropriate.
Hoefner & Arnett also conducted its own assessment of general
economic, market and financial conditions.
In connection with our review, we have not independently verified
any of the foregoing information, have relied on all such
information and assumed that all such information is complete and
accurate in all material respects. We have also assumed that
there has been no material change in the Company's assets,
financial condition, results of operations, business or prospects
since the date of the last financial statements made available to
us. We have relied on advice of counsel to the Company as to all
legal matters with respect to the Company and the offering
document. In addition, we have not made an independent
evaluation, appraisal or physical inspection of the assets or
individual properties of the Company. Further, our opinion is
based on economic, monetary and market conditions existing as of
the date hereof.
Based upon the foregoing, and reliance thereon, it is our opinion
that, as of the date hereof, the consideration to be received
pursuant to the Offering and the terms and conditions that exist
as of the date hereof, taken as a whole, are fair from a
financial point of view to the shareholders of SDNB Financial
Corp. Our opinion should not be construed in any way as a
valuation of the Company nor as a recommendation to participate
in the Offering. Further any material changes in the terms and
conditions of the proposed Offering prior to closing would render
this opinion invalid.
We hereby consent to the inclusion of this opinion as an exhibit
to the Proxy Statement and to the reference to our firm under the
caption "PROPOSAL REGARDING STOCK ISSUANCES AND OTHER CAPITAL
TRANSACTIONS".
Very truly yours,
HOEFER & ARNETT, INCORPORATED
